Fonterra has announced its financial results for the six months to January 31, 2010, reporting higher sales volumes which helped to maintain revenues during a period of recovering dairy ingredient prices globally.
CEO Andrew Ferrier said the company faced continued volatility in both international prices and exchange rates during the half year, with revenue down 3.7% to US$7.7 billion. However, lower average selling prices were largely offset by growth in product volumes sold and positive net foreign exchange impacts (including hedging gains).
Ferrier said demand from customers increased through the half year as consumer confidence continued to improve in key markets around the world.
He said the lower inventory value, combined with equity inflows from capital structure initiatives, contributed to a significant improvement in Fonterra's interim balance sheet position, with debt gearing at 53.3% compared with 61.5% at January 31, 2009.
Fonterra chairman Sir Henry van der Heyden said the strong recovery in global dairy prices underpinned the improved milk price performance in the six months to January 31, 2010. The recovery prompted the Board in November last year to increase the 2009-10 forecast milk price to US$5.70 per kgMS (kilogramme of milksolids) - from the season's opening forecast of US$4.10 per kgMS.
Ferrier said that while there was still some volatility in global dairy markets, there were recent signs of stability returning. Over the past five months to March 2010, for instance, average selling prices for whole milk powder on the globalDairyTradeâ„¢ platform have stayed within a fairly narrow band of around US$3,250 to US$3,600.
Revenue was down 3.7% from $8.0 billion to $7.7 billion. Lower average selling prices cut more than $1.6 billion from Fonterra's revenue but this was partly offset by $1.0 billion of additional revenue as a result of higher sales volumes, and positive net foreign exchange impacts of $0.3 billion (including hedging gains).
Meanwhile, Fonterra's portfolio of overseas assets was refined through further investments in the company's pharmaceutical lactose joint venture and Middle East consumer business. Fonterra also divested non-strategic assets, such as its stake in the Arla joint venture in the UK.
Ferrier said the strengthening of Fonterra's balance sheet through the half year was helped by lower inventory volumes. The value of inventories at January 31, 2010 was US$4.2 billion compared with US$5.1 billion a year earlier.
The balance sheet also benefited from a net equity inflow of US$263 million during January's transition share issue, which followed changes to the company's capital structure approved by shareholders in November 2009.
Ferrier added that further reductions in Fonterra's debt gearing were expected in the second half of the year due to seasonal reduction of inventories and as peak production volumes were sold. ''We remain focused on a gearing ratio target for the end of the 2009-10 year of less than or equal to 50%,'' he said.
He noted that there were some welcome signs of stability returning to global dairy markets, as reflected in the current forecast milk price for the full year. However, the rapid rise in prices was starting to put pressure on profits across Fonterra's core dairy ingredients businesses.
