28 Mar 2013

Fonterra says second half likely to be tougher

8:07 am on 28 March 2013

Fonterra says it is unlikely to repeat the strong first half profit in the second half of the year, due to a sharp drop in milk production and volatile commodity markets.

The country's biggest company on Wednesday lifted its half year profit, and its forecast payout to farmers.

The co-operative made $459 million in the six months to the end of January, an increase of 33% compared with the same period a year earlier.

The recovery in global dairy prices also prompted Fonterra to lift the forecast farmer payout to $6.12 - comprising $5.80 per kilogram of milk solids and a dividend of 32 cents per share.

Milk collections were up 6% from the same time last year, but the severe drought is expected to result in flat volumes for the current season.

Chief executive Theo Spierings says if volumes go down as fast as anticipated there will be an impact on the second half.

Mr Spierings said non-global dairy trade products did very well in the first half and whole milk powder, which had been the lowest performing product, is now the highest.

Mr Spierings says if prices stay high it will affect branded businesses around the world.

Brands to be cut

A 65% jump in earnings from Fonterra's commodity business New Zealand Milk Products helped drive sales volumes up by 8%, with strong growth also from Asia and Latin America.

Earnings from New Zealand consumer brands rose slightly but the Australian consumer business is suffering from intense retail competition.

Mr Spierings says brands will be cut as the company reshapes the business which at present has more than 20 brands.

"Ninety per cent of our resources - advertising and promotion and innovation - should go to three or four brands."

Fonterra Shareholders Fund shares rose nearly 6% to $7.45 on Wednesday.