Fonterra increases farm gate milk price forecast to 655c/kgMS

Fonterra-10Fonterra has increased its forecast Farmgate Milk Price for the 2017/18 season to $6.55 per kgMS.

The processor has announced a full year forecast dividend range of 25 – 35 cents per share with an interim dividend of 10 cents per share.

Chairman John Wilson said the ongoing strong global demand for dairy and stable global supply are continuing to support global prices, particularly for the important Whole Milk Powder category.

“Farmers will welcome a forecast cash payout of $6.80 – $6.90, which would be the third highest in the last decade. This is also good news for New Zealand as it represents around $10 billion flowing into the country’s economy. However, we are very aware of the challenges many of our farmers are facing this season with difficult weather conditions impacting production.

“While the global supply and demand picture remains positive and we expect prices to stay around current levels, we will be watching for any impact on market sentiment as spring production volumes build in Europe,” he said.

Fonterra’s Greater China business continues to perform well overall but the Co-operative has re-assessed the value of its Beingmate investment so that it reflects a fair value at this point in time.

Commenting on this decision, Mr Wilson says the Board has assessed the carrying value of Beingmate at $244 million and therefore taken an impairment of $405 million.

“While we appreciate the substantial opportunity and privilege of our business in China, our shareholders and unitholders will be rightfully disappointed with this outcome. Beingmate’s continued under-performance is unacceptable. The turnaround of the investment is a key priority for our senior management team.”

“The opportunity in the Chinese infant formula market remains, as does the potential for our Beingmate partnership – but an immediate business transformation is needed for Beingmate to benefit from the ongoing changes in the market.”

In December, Fonterra paid $183 million to Danone following the conclusion of an arbitration that arose from the WPC80 precautionary recall in 2013.

Mr Wilson says the Board will decide how the Beingmate impairment and the Danone payment will be treated for final dividend purposes after the end of the financial year when it will have the full picture of Fonterra’s operating performance. Given the possible impact of these decisions, the Board is providing a forecast dividend range for the full-year of 25 – 35 cents per share, rather than just the earnings per share guidance normally given.

“Based on our dividend policy, this forecast dividend range would allow for the Board to add back the Beingmate impairment at the lower end through to an adjustment for both Beingmate and Danone as one-off events at the higher end.

“In the circumstances, we have taken a prudent approach in determining the 10 cent interim dividend.”