Ann: FORECAST: FCG: Fonterra increases forecast earnings per share range

• Release Date: 16/11/15 08:30
• Summary: FORECAST: FCG: Fonterra increases forecast earnings per share range
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					FCG
16/11/2015 08:30
FORECAST
PRICE SENSITIVE
REL: 0830 HRS Fonterra Co-operative Group Limited

FORECAST: FCG: Fonterra increases forecast earnings per share range

16 NOVEMBER 2015

Fonterra increases forecast earnings per share range
Fonterra Co-operative Group Limited is increasing its forecast earnings per
share range for the current financial year to 45-55 cents. With a forecast
Farmgate Milk Price of $4.60 this lifts the total available for payout to
$5.05-5.15 per kgMS and would currently equate to a total forecast cash
payout of $4.95-5.00 per kgMS after retentions.

Fonterra is also increasing the rate at which farmers are paid the
Co-operative Support of 50 cents per kgMS, with the total amount paid up to
December going from 18 cents to 25 cents.

Chairman John Wilson said performance in the period 1 August - 31 October
2015 built on the strong second half of the 2015 financial year.

"While it is tough on farm due to low global milk prices, farmers will
welcome the ongoing improvement in Fonterra's performance delivering
increased returns.

"Performance is well ahead of last year and we are hitting our targets on
gross margins and operating and capital expenses.

"At the same time, the acceleration of business transformation initiatives is
generating significant cash savings.  We are on track, and therefore able to
lift our forecast earnings per share range."

At this stage of the season based on the dividend policy, management would
recommend at the end of the financial year an annual dividend of 35-40 cents
per share, which would then be subject to Board approval. This would equate
to a total forecast cash payout of $4.95 -5.00 per kgMS.

"The performance and business transformation savings mean we are also able to
increase the December Co-operative Support payment and payments will now be
completed by April which means that farmers have access to more of that
support earlier," said Mr Wilson.

Chief Executive Theo Spierings said: "Fonterra Co-operative Support -
equalling 50 cents per kgMS on share-backed production from June to December
through a loan that is interest-free until 31 May 2017 - is supporting our
farmers in a low milk price environment."

Milk volumes and inventory

The Co-operative is continuing to forecast a reduction in milk collections in
New Zealand for the current season of at least 5 per cent, which is
equivalent to around 150,000 MT of Whole Milk Powder.

Mr Spierings said since August Fonterra had reduced the amount of product it
expects to offer on the GlobalDairyTrade (GDT) platform over the year by
146,000 MT.

"In addition, an increased portion of product is being sold through bilateral
customer agreements for a premium on prices achieved on GDT.  Ingredients
inventory levels for the first quarter are in line with the same period last
year.

"We are benefiting from the investment in new plants in New Zealand, which is
improving our manufacturing options and reducing peak costs.  Our strategy is
moving greater volumes of milk into higher-returning products to take
advantage of improved prices relative to Whole Milk Powder," said Mr
Spierings.

Business performance

Mr Spierings said performance in the first quarter of 2016 built on the
strong finish to 2015 with margins increasing across the group from 14 per
cent to 23 per cent compared to the same period last year.

"Our first quarter ingredients performance reflects improved product stream
returns and margins are tracking well. With less milk this season, and
additional capacity, we have taken the opportunity to optimise our product
mix.

"We are delivering continuing growth in consumer and foodservice sales
volumes and value, particularly in Greater China, Asia and Latin America,"
said Mr Spierings.

Capital expenditure of $258 million is down 37 per cent, in line with the
target. Operating expenses are also down by 4 per cent to $628 million,
reflecting the continuing focus on cost control.

Mr Spierings said Fonterra has solid credit ratings which demonstrate the
Co-operative's fundamental financial strength.

"Following the completion of our accelerated investment cycle and with our
ongoing financial discipline, we are on track to reduce our leverage, with
the gearing ratio expected to return to the 40-45 per cent range at the end
of the current financial year," said Mr Spierings.

Business transformation

Fonterra's business transformation is aimed at achieving a significant and
lasting performance improvement through new ways of working across the
Co-operative's global network.

"The initiatives generating recurring benefits implemented in the first
quarter are expected to deliver a cash benefit of $170 million in the current
financial year.

"Further initiatives in the second quarter are expected to increase recurring
cash benefits to $340 million and contribute to both earnings before interest
and tax (EBIT), and the Farmgate Milk Price in the current financial year.

"In addition, first quarter initiatives are expected to generate a one-time
cash benefit of $110 million this financial year increasing to $440 million
based on initiatives being introduced in the second quarter, and will
contribute to working capital and our balance sheet," said Mr Spierings.

Fonterra will provide an update on the business transformation and on the
earnings range forecast at the completion of the first half of the financial
year.

-ENDS-

For further information contact:
Simon Till
Director Capital Markets
Phone: +64 21 777 807
End CA:00273441 For:FCG    Type:FORECAST   Time:2015-11-16 08:30:30