By Bernard Hickey
New Zealand's largest company and its largest exporter, Fonterra, has released its annual result and finalised its payout for the just completed 2009/10 season.
Fonterra set the 2009/10 payout at NZ$6.70/kg, including a milk price of NZ$6.10/kg and a dividend of 27 cents, plus retained earnings of 33 cents per share. The payout of NZ$6.37/kg is 23% above the previous year's NZ$5.10/kg.
Fonterra also tightened up its forecast payout for the current 2010/11 season at NZ$7.00-NZ$7.10/kg, up slightly from its previous forecast on August 20 of NZ$6.90-NZ$7.10/kg.
Fonterra said it made an after-tax profit of NZ$685 million in the year to July 31, up 12% on the previous year, although the rise included NZ$174 million of non-recurring gains, mostly from sales of non-strategic assets. See the full results announcement here. See the full media presentation pack here.
The Distributable Profit of 60 cents per Co-operative share was higher than the 40-50 cents forecast for the year. The board retained the 'extra' 10 cents in the form of retentions of 33 cents per share.
Fonterra said its balance sheet was in its strongest shape in its history with a gearing ratio of 44.9%, down from 53.0% a year earlier.
(Updated with more detail on debt, profit and production. Also see attached results and media briefing documents.)
"This reflected an increase of NZ$862 million in equity, primarily as a result of farmer-shareholders investing NZ$459 million in additional shares, as well as a higher level of retentions," it said.
Fonterra said its economic net interest bearing debt was NZ$4.5 billion at 31 July, NZ$727 million lower than a year earlier.
Lower borrowing needs, combined with lower floating interest rates, reduced financing costs by $135NZ million.
Chairman Henry van der Heyden said Fonterra has come through the recession well.
“Despite drought conditions in the North Island, Fonterra collected a record 1,286 million kgMS and set a new export record of 2.1 million tonnes of New Zealand dairy products," he said.
Given a NZ$6.37 payout, this meant Fonterra will pay NZ$8.2 billion to farmers this season.
Higher retention
Van der Heyden said the 33 cent retention reflected the board’s decision to retain all earnings from non-recurring items, as well as its previously stated intention to increase the use of retentions to fund ongoing investment in New Zealand factories and offshore.
Chief Executive Andrew Ferrier said the 2009/10 profit reflected a year of mixed underlying earnings, with a very strong performance by Fonterra’s consumer businesses but a reduced contribution from the ingredients businesses, largely due to volatility in international dairy markets.
The combined earnings of the consumer businesses rose 19%.
“The consumer businesses in Australia-New Zealand, Asia/Africa, Middle East and Latin America each posted higher normalised earnings compared with the prior year," Ferrier said.
Earnings from Fonterra’s ingredients businesses were pressured because market volatility meant prices for some products, such as cheese and casein, lagged international powder prices that were the main drivers of the Milk Price.
“With the strong rise in powder prices, the pricing of some of Fonterra’s customer contracts lagged the rapid increase in spot market prices and the rise in Fonterra’s own Milk Price. This also placed pressure on profit margins in the ingredients businesses. Contract lags and the effect of different returns from the various streams of base commodities impact Fonterra’s profits," he said.
'Smoothing volatility'
Fonterra was moving to reduce the pain of this volatility, Ferrier said.
"We are trading more products on our globalDairyTrade platform and negotiating shorter duration contracts, while investment in new plant will give us greater flexibility to adjust our product mix and lower our production costs to capture the best margins," he said.
Ferrier said there were signs international dairy supply and demand were moving more in balance at prevailing prices, although there was still considerable volatility.
The tightened payout forecast for the 2010/11 season NZ$7.00-7.10 before retentions included an unchanged milk price forecast of NZ$6.60 per kg.
Fonterra was narrowing the forecast distributable profit range from 30-50 cents per share to 40-50 cents per share.
Fonterra was targeting a dividend range for 2010/11 of 25-35 cents per share, consistent with its stated policy of paying 65-75 per cent of adjusted Distributable Profit as an annual dividend.
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25 Comments
....... meebee a super profits tax on dairy farmers , to fill the black-hole of the unfunded pension liabilty , for the retiring baby-boomers . ......... Wild Bill can sell it as a " Carbon Tax " ............. and who would deny the need to improve our environment !
It is worth looking through the balance sheet numbers:
http://file.nzx.com/000/857/4159857.pdf
Fonterra has managed to lift net tangible assets to $2.15 per share, and reduce debt thanks to a big contribution from shareholders.
Fonterra has managed to lift net tangible assets to $2.15 per share, and reduce debt thanks to a big contribution from shareholders.
Well spotted Colin.
The thing the dairy naysayers and environazis - sitting in their cities polluting the oceans with their sewage outflows - that post to this site will never understand about dairy farmers, is that as a rule they back themselves, and back their industry: and we are all the better off for it. But carry on looking at the irrrelevant outliers to the rule that prove nothing, as most of you will ...
but tribeless if they are so wonderfully self sufficient why do they need to be subsidized in terms of the pollution and water useage?
i'd rather they footed the true cost of all that water and excrement and pass that on to me the consumer and then let me decide if i would rather drink milk or go and swim in a river that won't give me the sh*ts
I wasn't though implying that co-operative shareholders were being smart.
Collectively, Fonterra shareholders poured in capital from its formation and saw it disappear into smoke till net tangible assets per share was down to $0.77 in January 2009. That takes some explaining when many of those shares cost dairy farmers in excess of $5.00 each.
Since then shareholders have been recapitalising Fonterra - buying additional shares at $4.52 that have only now got asset backing a little over $2.00, and contributing retentions from payout. Fonterra suppliers have in effect been buying their co-operative processor for a second time. The really big move is the debt for equity swap still to come.
In return Fonterra has set industry strategy for its benefit, and provides enough spin and marketing to make most shareholders feel good about all the above.
Spot on Tribeless.
I was at a 'meet the candidates meeting' recently. The Regional Council hopefuls had just given their spiels and were taking questions. One current councillor was patting himself on the back about the farming prosecutions they had taken.
Imagine his surprise when a member of a small town community got up and said 'it's all very well going on about the farmer prosecutions, when are you going to start prosecuting the council? Every time we have heavy rain the sewerage comes up and runs down the streets here in to the storm water systems'.
Councillor1: Well, that's all right, it's only if it's going in to a water way that it's a problem.
Much snickering and derision form the audience - where does the storm water go if not in to a water way!
Councillor2: Well if you have a problem with that, then you should phone the Regional Council and tell them. If they don't do anything then contact me, as your councillor I am available to you'
More snickers from the audience.
Councillor1: We do issue abatement notices to Councils
Audience; Yes, but you never prosecute them
Councillor2: We only prosecute if the matter is serious enough
More snickers from the audience (Their sewerage coming up throught he streets has been an ongoing issue for years)
Councillor3: Well it's different for farmers - they make a lot of money.
On that idiotic comment the audience realised that they currently have 3 monkeys as Regional Councillors and the meeting was closed.
What I found interesting is that the people raising this issue were not farmers but urban dwellers who can see that council sewerage/effluent/stormwater issues also have a significant part to play in pollution of rivers, and yet they are let off scot free to continue their polluting ways.
Farmers being subsidsed VL, just how are we subsidised - people in glass houses shouldn't throw stones. Perhaps if rates were struck on the basis of per head or per house urban dwellers would realise just how much they are being subsidised by the rural dwellers. On a $ spent for a $ benefit rural people pay significantly more for significantly less benefit. Councils can get subsidies for work that they do, and often there is some cross subsidisation. Farmers get none and neither do they ask for it.
mr casual, don't get me confused with a fan of councils. they are some of the worst hypocrites and bullies around. what i'm saying is if you put cowsht or greywater into a waterway you should pay for it in one form or another, then we start to get true prices for things and can make our decisions accordingly.
this country's rivers are being steadily degraded , surely you can'y disagree with that. so why shouldn't the polluters pay? whether its from a cowshed or my roof?
Ms Casual actually VL ;-)
VL: be careful of broad generalisations and factoids. At the meeting I referred to above a keen environmentalist who is standing for Regional Council (BoP) and is a keen cyclist said: 'I cycle the roads around here and frequently near the waterways, and I am very pleased to see how over the years our waterways are improving.'
The Waituna Lagoon, a World Heritage Site in Southland, has the best ever water quality despite a surge of dairy conversions in the area over the last decade or more. I have family that every summer use the Waikato River as a water playground without any adverse effects to their health. Yet others say it is unfit to swim in - are they swimming near an urban or market gardening area? Then again a study in Australia showed that country raised children have 7 times the immunity to infections/diseases that their urban counterparts had. So perhaps it's just that we really are a lot tougher/healthier.:-)
The only river of concern down our way is the one being polluted by the mills here. At a hearing review of the mill consent last year the environment commissioners accepted that the river was being degraded however 'the economic and social benefits outweigh any environmental concerns relating to degradation'. The river is locally known as The Black Drain.
I do not condone deliberate and wilful pollution by farmers. At present prosecutions etc are stacked towards farmers whereas urban dwellers/authorities and industry are also responsible for environmental degradation. I will stop speaking out for farmers the day we have a level playing field regarding environmental pollution.(and balanced debate from folks like you instead of slagging farmers at every opportunity instead )
Exactly how should we pay for our pollution and what makes you think we don't already? What do you pay for your pollution?
Base dairy prices in NZ are based on what we dairy farmers get as an export price. There is not a separate price for the domestic market.
"Base dairy prices in NZ are based on what we dairy farmers get as an export price. There is not a separate price for the domestic market. "
Let them eat cake.
What subsidies ("seperate" favourable treatment/s "prices") do you get?
Cheers, Les.
Ahh Marie, and now we know why some of you have earned the nickname Cocky. Maybe more could afford your product if less of their pay-packet was going to make up for the tax that some of you do not pay. Enjoy your subsidies:
Enjoy the 'economic apartheid' and the privilege associated with " permanent plutocracy" too:
http://blog.labour.org.nz/index.php/2010/09/22/systemic-market-failure/
For how long, who knows? I guess the landed white farmers and asset holders in South Africa never envisaged paying a fair proportion of tax and capital gains tax, but look what happened there.
Cheers, Les.
Ah, Les it is a long time to St Patrick's day and already you are turning green! I pay land tax Les, though the PC brigade try to pass it off as rates.
The $ we pay has nothing to do with the services we receive. We have 3 different titles and the roading rate varies according to it's designation. Dairy is set at 0.00072655, Farming (it seems that it is different to dairy) is 0.00042575 and Lifestyle is 0.00037326. Given that two of these designations are located side by side in our case why the differential? There is no reason as to why there should be a differential but the perception is, to quote a regional councillor seeking re-election when speaking on why they prosecute farmers 'because farmers make a lot of money'. By my reckoning I have paid about $45k since owning the farm in pure land tax - i.e. payments over and above what services would cost to provide.
I pay my share of income tax - don't have a LAQC, don't get WFF or any other form of government benefit. At this point in time I don't expect to be selling our farm in my lifetime as it is a retirement provider for us. So capital gains will not affect me one wit. I have seen what capital gains tax and stamp duty can do to young people in the UK trying to move to a different house, where the selling price and the buying price is the same, can do. Quite frankly I can't see anything positive for them in it.
I suggest you go spend some time working at Budget Advisory, it might be an eye opener for you. People can afford dairy if they want to buy it. It's all about priorities and spending.
Actually I am a subsidy payer - thanks to the DIRA. :-)
Ahh Marie, you don't have to justify yourself,.... do you? Anyway if this was about envy you'd see more from me supporting progressive taxation and expanding things like 'Working for Other People's Families' - but you don't, quite the opposite. I'd like to see broader taxation, effectively including assets, land and capital gain, so that income, corp and trust tax could be lowered and uniform. Essentially to promote broader investment and allow a more diverse and valuable export mix to emerge, as many advocated in the TWG and is being realised more widely, see the requirement, here:
Read the report 'A Goal Is Not a Strategy'
http://www.nzinstitute.org/Images/uploads/A_goal_is_not_a_strategy_-_Full_report.pdf
Plus, there are some in your industry that also get it:
'Capital gains tax to aid young farmers' http://www.ruralnews.co.nz/Default.asp?task=article&subtask=show&item=14936&pageno=1However, the other "special price" you seem to get is around monetary policy:
'You cannot implement a problem – only a solution'
http://www.infonews.co.nz/news.cfm?l=1&t=0&id=53064
"We have worked with the Reserve Bank to ensure that the speed of implementation has been slowed down on their new “prudential measures” and capital asset ratio requirements of banks. While there has definitely been a tightening on availability of capital, the implementation of these new policies will now be at a far slower pace than originally planned, thus reducing even more stress among the farming community. We argued that speed on implementation was not the solution New Zealand needed."
Perhaps Conor English was referring primarily to this:
Cheers, Les.
Cas.O - from page 43 of the NZI report I referred you to:
"As a thought experiment, imagine a country that is remote, has become wealthy by harvesting the fruits of the land (and water) and shipping them off in bulk, has idyllic landscapes, and whose citizens enjoy an enviable climate and lifestyle. The people in such a country might be regarded by others as friendly but a little provincial and complacent.
The inhabitants of such a country, when faced with gradual relative economic deterioration might be slow to recognise the emerging issue and less than vigorous in developing responses. They might also find it difficult to compete in a world where intense competition has raised performance standards.
Add to the mix self-reliance plus a desire for independence, and layer on top strong reinforcement of the values of individualism and self-interest, and those people might find it difficult to recognise that they need to work together, giving up some short term individual benefits, to achieve better long term outcomes for all. They might also be less willing than people in some other countries to support changing from activities they have been traditionally good at, i.e.production of commodity exports where low cost and market access are sufficient, to new differentiated exports where different skills in management and marketing are needed. The country, of course, is" .......
Well you tell me?
Then moving on to page 48:
"The floating exchange rate is a mixed blessing. If New Zealand was only going to be a dairy product exporter the floating exchange rate would be beneficial because it provides a natural hedge, smoothing out the effects of dairy price changes. When commodity exports are strong the exchange rate appreciates and the outcome is as it should be – the high value of the New Zealand dollar is earned by the fundamentals of our export position. When commodity exports are weak the dollar depreciates so the country earns more New Zealand dollars for each unit of volume exported. Earnings in New Zealand dollars are smoothed.
The outcome for exporters of differentiated products and services is not sogood. Exports are usually priced in the currency of the destination market so the consequence of the exchange rate rising and falling for non-commodity exporters is that earnings fluctuate. A government inquiry into the future monetary policy framework in New Zealand found the exchange rate had been “volatile and subject to prolonged periods of under and overvaluation, potentially constraining growth in both the value and the volume of New Zealand’s exports” (Finance and Expenditure Committee, 2008, p.14). Volatility of earnings is very harmful for small growing firms and causes financial distress that makes it even more difficult for them to succeed. Uncertainty creates risk that discourages investment, so policies to reduce exchange rate volatility or its impacts are needed to grow differentiated exports successfully."
But sadly our independent central bank does not seem so independent from ...
Well you tell me?
Cheers, Les.
St Pat I don't agree with page 48 regards the dairy industry and the dollar. We don't want a high dollar we want a medium priced dollar. 65-68cUS would suit me fine. A higher $ seems to have gone hand in hand with higher input prices. - Just like payout. Why is only dairy mentioned as being the winners why not beef, lamb, kiwifruit?
The problem with what you are promoting is that in a perfect world, yes, it might work in theory, but you and I both know that politicians will never allow us to have the perfect world. You could bring in all these different taxes, but I still believe that the very people you are intending to help, the younger generation, will be the ones hardest hit by it as they move up in life. Unless of course your dream is to have us at the lowest common denominator. All those countries mentioned having your dearly loved taxes, also have higher subsidies paid to the farming sector - so you give on one hand and take on the other and it probably pretty much averages itself out over a person's lifetime. In none of those countries with land, capital gain etc taxes is land any more affordable for the young than it is here. And they have spawned an industry in avoiding or reducing liability for it.
On a BBC Hardtalk interview a short while ago, Stephen King, Senior Analyst for HSBC UK was interviewed on the economic situation. He said that he didn't believe that the sub-prime debacle is what really underpinned the USA recession, but rather it was the exporting of production from the USA to Asia. He also believed that once that is lost they/you never get it back again. Could that not also apply to NZ?
When the MOTH had a contract with a large industrial corporate we never had so much cash flowing in to the bank and staying there. Sure on a gross basis we have more from farming now, but on a net basis the corporate employment blows out of the water the farming net take home pay. But farming for bona fide farmers is never JUST about the money.
I look forward to the day when someone else can take the yoke off farmers that makes us responsible for the well being of NZ Inc. It's a heavy burden to be carrying - too be sure. With the continuation of the DIRA that may happen sooner than everyone thinks. I hope you have got a strategy for NZ Inc with a critcally and even a fatally injured dairy industry. Organise your troops St Pat you will be needed to step up to the mark.
"Bill English could have avoided widening the transTasman GST gap by levying a land tax, as some working group members urged, instead of lifting GST."
Who was he cow-towing to, I wonder?
Plus, if you like the idea of a lower NZD, as you say, less debt going into stuff that doesn't produce (property and some land it seems), the lower our interest rates could be and with it NZD. (However, that wasn't the point of the paragraphs in the NZI report I referred you to.)
What did you think of the stuff on page 43, I've copied above?
What do you think of being another Denmark, in terms of economic development strategy?
Re. your point about "exporting production", see #3 on last Friday's 10at10:
"Will free trade rob America of its empire as it did for Britain? - Economist Ian Fletcher writes at HuffPo that America's embrace of free trade will kill its empire, just as it killed off Britain's from the mid 1800s on. Here's the thinking. Worth a read for those willing to have preconceptions challenged. HT John via email."
Indeed. It doesn't have to be that way, with sensible policy that has cricketers playing with same, and with others, something else. Just like in the real world that everyone else seem to occupy - except us Vanilla flavoured free-trading Angleheads.
Cheers, Les.
'They might also find it difficult to compete in a world where intense competition has raised performance standards.' I would argue that agriculture has been responding to this since subsidies were removed in the 80s.
They might also be less willing than people in some other countries to support changing from activities they have been traditionally good at, i.e.production of commodity exports where low cost and market access are sufficient, to new differentiated exports where different skills in management and marketing are needed.
Check out the new products being developed by the agricultural sector. We are no longer just producing commodities.
We will have to agree to disagree re a land tax Les. Capital gains I could live with - if it is applied to everything, including the family home, otherwise you are only hitting the productive sector. In fact it is there. If you buy and sell a farm within 10years you have to argue why you shouldn't pay it. Being there done that.
I understand Services is the largest industry in NZ (though happy to be corrected). The welfare state encourages an attitude of dependency. We need to get NZ WORKING productively. In the Netherlands once a child goes to school the mother has to work. No work no income. God forbid if we brought that in here. They also have a tax rate of 50% for incomes over 50,000 euros. Here we reduce it for the highest paid. If you can't get work then you should become the responsibility of your family, not the state.
Agriculture was forced to change in the 80s. We stepped up to the plate and for that now carry the yoke of being responsible for NZ Inc. There is considerable moral bankruptcy in NZ. Sort that out and NZ Inc will be a much better place to live - financially and socially.
don't get your udders in a twist ms casual, i'm slagging polluters rather than farmers . its a pity i can't insert the appropriate venn diagram here.
i want all polluters to pay for the damage they do to the environment. weather its runoff from a milking shed, or a boat yard, an e-waste recycler , or me washing my car.
you know as well as i do that there are farmers and manufacturers and citizens who take their responsibilities very seriously, and those who don't. planting up a riparian zone along a waterway through farm is not that hard, but how many farmers do it? if a farmer doesn't though, and pollutes a public asset (a river) to save money, then that is a subsidy.
i'll leave it at that though CO, i think we probably have more in common than you think. nice sparring.
Ahh.... if only the udders were large enough to get in a twist, but they're not. :-)
A more reasoned (and balanced) response VL. Nice to see someone acknowledge that not all farmers are bad.
"An Accord waterway is defined as being deeper than a red band gumboot, wider than a stride and permanently flowing.
Dairy cattle are excluded from 80 percent of those farms with Accord-type waterways, with all regions now having achieved the 2007 target. Three regions (Northland, Otago and Southland) have also achieved the 2012 target of 90 percent of waterways protected.
Sixty four percent of Fonterra suppliers (excluding those in Taranaki) have waterways that meet the Accord’s definition.
In Taranaki, information relating to waterways (cattle exclusion and crossings) is provided directly by the Taranaki Regional Council through its farm planning programme. This programme differs to the Accord as it imposes riparian fencing and planting requirements on those farmers with riparian plans and covers a wider range of waterways.
To date 93 percent of dairy farms in the Taranaki region have riparian management plans."
http://www.maf.govt.nz/mafnet/press/2010/dairy-clean-streams-background…
I agree we probably have more in common than has been shown in this sparring.
Southland keep the Shield - time to celebrate!
congrats on holding the shield Mz Udderly Casual. A deserved win.
i appreciate yer stats on the improvements in waterways. it's better late than never for sure.
i've seen an organic dairy operation in sth taranaki that outperforms a non-hippy neighbour propped up by palm kernel and fertilizer. now that was encouraging.
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