Ann: HALFYR: FSF: Fonterra 2013 Interim Result A

• Release Date: 27/03/13 10:30
• Summary: HALFYR: FSF: Fonterra 2013 Interim Result And Milk Price Update
• Price Sensitive: No
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FSF
27/03/2013 08:30
HALFYR

REL: 0830 HRS Fonterra Shareholders' Fund (NS)

HALFYR: FSF: Fonterra  2013 Interim Result And Milk Price Update

Reporting Period Six months ended 31 January 2013
Previous Reporting Period Six months ended 31 January 2012

 31 January 2013
(NZD million) 31 January 2012
(NZD million) Percentage
Change
Revenue from sale of goods 9,334 10,026 (6.9%)
Net profit attributable to Shareholders of the company1 449 339 32.4%
Non-controlling interests 10 7 42.9%
Net profit for the period 459 346 32.7%
1 Net profit attributable to shareholders of the company is equivalent to
profit from ordinary activities after tax attributable to shareholders of the
company (as required to be disclosed pursuant to Clause 1.2 of Appendix 1 of
the NZSX and NZDX Listing Rules).

Interim/Final Dividend Amount per Security
(NZ cents) Imputed Amount per Security
(NZ cents)
Interim 16.0 nil

Record Date Interim: 31 March 2013
Dividend Payment Date Interim: 19 April 2013

Comments On 26 March 2013, the Board of Directors declared an interim
dividend of 16.0 cents per share payable on 19 April 2013 to Shareholders on
the share register at 31 March 2013.

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FONTERRA  POSTS STRONG HALF YEAR RESULT: VOLUME AND PROFIT GROWTH
$459 MILLION HALF YEAR NET PROFIT AFTER TAX
2013 MILK PRICE FORECAST REVISED

Forecast

Fonterra Co-operative Group Limited today lifted its current forecast cash
Payout for the 2012/13 season to $6.12 for a fully shared-up farmer, based on
a higher forecast Farmgate Milk Price of $5.80 per kgMS and a forecast
dividend of 32 cents per share.

The Co-operative also narrowed its earnings per share guidance to 45-50 cents
per share.

The higher forecast was on the back of a strong first half performance by
Fonterra, which saw Net Profit After Tax increase by 33 per cent to $459
million, following a particularly robust performance by NZ Milk Products and
significant lifts in sales volumes in Fonterra's Asian and Latin American
brands.  These achievements were partly offset by continuing challenges
affecting the performance of the Australian business.

"The new forecast reflects a recovery in global dairy commodity prices over
the past two months," said Chairman John Wilson.

"Prices have increased in seven of the last fortnightly auctions on the
online trading platform GlobalDairyTrade (GDT). The GDT-Trade Weighted Index
is now 26.7 per cent above where it stood in February when the Board issued
its last forecast.

"World dairy trade growth is being led by powders (combined whole milk and
skim), reflecting strong demand at a time when global supply is constrained."

Interim Result

Commenting on the Co-operative's half year performance, Mr Wilson said: "We
had excellent spring and early summer growing conditions across most of the
country leading to strong growth in New Zealand dairy production and record
volumes in the first half.

"However, the dry conditions in the North Island since January have created
real challenges for our farmers, with many turning to supplementary feeds and
shifting to once a day milking to maintain the condition of their herds.

"The drought in the third quarter has been more severe and lasted longer than
anyone might have predicted, and means we are currently forecasting total
milk collection volumes for the full season to finish in line with last
season.

"Coping with the climate is part of farming.  But there is no denying the
stress that a drought causes and at times like these, farmer shareholders are
looking for support from their Co-operative.

"Backed by our strong balance sheet and operating cash flows, we were able to
increase the advance rate paid to farmers for their milk. The faster advance
rate together with the higher forecast Milk Price means on average farmer
shareholders will receive $100,000[1] earlier in the season.

"This is particularly important to our farmers.  It means we are getting cash
to them faster, as they begin to dry off their herds for the winter earlier
because of the drought and no longer have milk flowing," said Mr Wilson.

With the strong first half performance, the Board has lifted the interim
dividend from 12 to 16 cents, 33 per cent higher than the comparable period.
Sixteen cents represents 50 per cent of Fonterra's forecast dividend for the
current financial year, and the maximum available under the 40-50 per cent
range in its dividend policy.

The interim dividend will be paid on 19 April 2013.

The Co-operative's strong growth contributed to a Normalised Earnings Before
Interest and Tax (EBIT) of $693 million, up 26 per cent.  Revenue, however,
was 7 per cent lower at $9.3 billion, reflecting lower dairy commodity prices
and the strength of the New Zealand dollar against the US, more than
offsetting the higher volumes sold.

Highlights compared to the same period last year include:

o Record milk volumes collected up 6 per cent;
o Total external sales volume growth of 8 per cent to 2.1 million metric
tonnes;
o Normalised EBIT of $693 million was up 26 per cent (Normalised EBIT has
been adjusted for the $24 million cost associated with the planned closure of
the Cororooke plant);
o Net Profit After Tax of $459 million, up 33 per cent;
o Economic Debt to equity of 40 per cent, an improvement from 47 per cent
last year;
o Earnings per share up 21 per cent;
o An interim dividend of 16 cents per share, up 4 cents per share.
CEO Theo Spierings said NZ Milk Products' strong first half reflected the
drive to achieve increased Volume and Value - two core elements of Fonterra's
business strategy.

"NZ Milk Products' performance was achieved through increased volumes,
effective management of our product mix and a focused effort by the sales
team to achieve higher price premiums compared to dairy commodity prices.

"Despite the drought taking effect in the North Island in January, it was a
different story for those in the South Island where the rainfall was higher
than last summer.  Fonterra's milk collections for the season to the end of
January were up 6 per cent on the same period in 2012 - which in turn flowed
into record production, and another new export volume record achieved in
December 2012.

 "The commissioning last year of the Co-operative's new Darfield site - where
the Darfield Drier 1 can process 2.2 million litres of milk at peak in one
day and produce 15 metric tonnes of milk powder per hour - was one of the
factors that enabled NZ Milk Products to process the higher peak milk flows
and deliver a strong performance.

"The business reacted swiftly to higher price signals for cheese, casein and
Milk Protein Concentrate compared with Whole Milk Powder and other powder
prices for most of the first half of the financial year. By moving our
discretionary manufacturing, we were able to take advantage of this pricing
differential.  This flexibility at an operational level was a significant
contributor to NZ Milk Products' 9 per cent rise in sales volumes to
1,474,000 MT.

"At the same time, the sales team kept its focus on adding value for
customers and attaining prices for products above GlobalDairyTrade (GDT).

"Despite the average USD commodity price being 16 per cent lower than the
same period last year, NZ Milk Products' focus on performance was reflected
in a 65 per cent increase in Normalised EBIT to $422 million.

"The Australia-New Zealand business' earnings declined, with Normalised EBIT
down 32 percent.  While our consumer business performance in New Zealand was
slightly better than last year,  Australia's consumer business had to contend
with a very competitive retail environment.  Meanwhile, the ingredients
business experienced a significant margin squeeze as the competition for milk
supply in Australia intensified.  This was compounded by an adverse product
mix due to lower demand in the export sales of value-added nutritional
powders, and more milk being channelled into lower value milk powder sales.

"A recovery plan is now in place, with the planned closure of our Cororooke
site, continuing rationalisation of the brands portfolio, and cost reductions
following a recent restructure of the business.

"In Asia/AME higher volume growth in the Foodservice and consumer brands
business across China, Indonesia, Malaysia, Middle East and Vietnam,
contributed to a 13 per cent increase in sales volume to 186,000 MT, which
helped underpin a strong first half performance with Normalised EBIT up 27
per cent.

"Latam did well with Normalised EBIT up 5 per cent driven by solid earnings
growth from Soprole, which was offset to some extent by a weaker result from
Dairy Partners Americas (DPA). In particular, product innovation in the
Chilean market with the successful launches of new dairy desserts and
yoghurts has supported earnings growth," said Mr Spierings.

Outlook

Looking ahead, Mr Spierings said Fonterra's strong first half earnings were
unlikely to be repeated in the second half.

"For the full year, we expect to see total milk volumes for the current
season to be in line with last season.

"The ongoing volatility in commodity markets could have a negative impact on
product mix profitability.

"In many of our consumer markets, we are expecting intensified competition in
the second half - particularly in Australia - and in Asia we are seeing signs
of demand slowing," said Mr Spierings.

(Further detail on Fonterra's half year financial highlights follows in
Appendix One.)

[1] As at June 2013, compared to the opening advance rate schedule
End CA:00234584 For:FSF    Type:HALFYR     Time:2013-03-27 08:30:38