Dairy giant Fonterra has lowered its forecast for annual earnings in its next financial year, blaming currency fluctuations and "difficult" trading conditions in Australia and New Zealand.
The New Zealand company said today (28 August) it now predicts net profit after tax will hit NZ$0.40-0.50 a share in the 2012/13 year, compared to a May forecast of NZ$0.45-0.55.
Chief executive Theo Spierings pointed to "unfavourable foreign exchange translation effects in many markets" and "a difficult retail environment" affecting Fonterra's business in Australia and New Zealand.
The reduction to Fonterra's profit forecast meant the company lowered the payout it expects its farmers to receive in its current financial year. It cut its payout forecast by NZ$0.30 to NZ$5.65-5.75.
Fonterra said the strength of the New Zealand dollar was hitting the price it expects to pay farmers for milk.
However, Spierings said Fonterra could see "early signs of strengthening dairy prices" amid the extreme weather in the US and Europe hitting local grain production.
Nevertheless, he warned farmers to be "cautious" as any gains could be affected by the strength of the New Zealand dollar.
Show the press release
28 August 2012
FONTERRA REVISES 2013 PAYOUT FORECAST
Fonterra has announced a revised payout forecast range for the 2012/13 season of $5.65 - $5.75 before retentions for a fully shared up farmer, 30 cents down on the previous forecast range.
The revised forecast comprises a lower Fonterra Farmgate Milk Price of $5.25 per kilogram of milksolids, down from $5.50 and a lower forecast net profit after tax range of 40-50 cents, down from 45-55 cents per share.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra Chairman Sir Henry van der Heyden said most of the downward pressure on the Farmgate Milk Price forecast was due to the continuing strength of the New Zealand dollar.
"We've actually seen improving prices in recent GlobalDairyTrade (GDT) trading events, but the strength of the Kiwi dollar is eroding any gains," said Sir Henry.
Overall, the GDT trade weighted index was up 4.1% over the past four events, underpinned by a 7.8% rise on August 15. However, prices are low compared to a year ago and the New Zealand dollar remains strong against the US dollar.
Chief Executive Theo Spierings said Fonterra's consumer businesses were under pressure due to unfavourable foreign exchange translation effects in many markets, and a difficult retail environment affecting the Australia-New Zealand business: "Accordingly, we have lowered our forecast net profit after tax range to 40-50 cents a share."
Mr Spierings said the Board had decided to maintain current advance rate payments to farmers. This would mean no change to farmers' cash flows.
Mr Spierings said there appeared to be some early signs of strengthening dairy prices, partially driven by global weather events.
"A serious drought in the United States is pushing up the price of grain, which seems to be affecting dairy production and tightening supply. Weather conditions in Europe, with extreme wetness in the northern regions of the continent and a heat wave in the south, are also impacting grain production. The Indian summer monsoon is also off to a slow start, with rainfall about 20 per cent below normal," Mr Spierings said.
These factors were contributing to some of the firming in global dairy prices, however, Mr Spierings said any gains would continue to be impacted by the strong New Zealand dollar.
"Our forecasting anticipates some recovery in global dairy prices but we don't know how strong this recovery will be or when it will kick in. For this reason, our farmer shareholders should continue to plan cautiously."
Original source: Fonterra
