Record volumes of milk have helped diary giant Fonterra increase its half-year net profit by 18% to $346 million - raising the prospect of hitting $20 billion in revenue this year.
Chairman Sir Henry van der Heyden said the co-operative had performed well, particularly given the turmoil in global markets.
The increase was driven primarily by higher volumes and an improved performance by its Standard and Premium Ingredients business.
Federated Farmers dairy chairman Willy Leferink said Fonterra could be poised to become the first New Zealand company to smash the $20 billion revenue barrier, "That's not just big for New Zealand, that's pretty big globally," he said.
The big question for farmer-shareholders was whether the year's "back end" would remain as strong.
Signals from the globalDairyTrade auction platform were that soft commodities were undergoing a price correction.
That had been expressed in Fonterra's recent downwards revision of the in-season forecast and price corrections being seen for meat and fibre.
That was why Federated Farmers was increasingly concerned at the strength of the dollar. "The dollar ought to be tracking down in concert with what our exports are doing," he said.
Farmers should base their budgets on less than $6 a kg/ms.
Anything more was "extremely brave".
Sir Henry said good spring and early summer growing conditions across most of the country, with the exception of the lower South Island, led to strong growth in dairy production.
Record milk collections flowed into record production, with a new export volume record achieved in December last year.
International dairy prices softened after the highs of last year but remained relatively stable throughout the first half of the year.
Those prices were supported by strong demand for quality dairy ingredients in emerging markets across a number of Asian economies, as well as Brazil and China, offsetting economic uncertainty in Europe, Sir Henry said.
Fonterra's Standard and Premium Ingredients businesses had a strong first half, with a 10% lift in revenue to $8 billion, achieved from higher sales volumes, and a 10% increase in average USD sales prices, chief executive Theo Spierings said.
Standard and Premium Ingredients is Fonterra's largest operation, collecting, processing, selling and distributing a range of ingredients made from milk.
"We are now seeing the benefits of our focus on managing volatility in the business, with more favourable contract agreements, a closer pricing alignment between our sales book and the spot market, and targeting sales of products that deliver greater value," Mr Spierings said.
Performance in the consumer businesses was mixed, with a strong New Zealand dollar affecting the Asia/Africa and the Middle East, and Latin America businesses.
The Australia-New Zealand consumer business felt the impact of pricing pressure, which reduced earnings.
Revenue was down 4% to $2 billion, reflecting a challenging retail environment and an ongoing pricing battle that had resulted in pressure on major suppliers' margins, the co-operative said.
While the trends indicated stronger global production continuing in 2012, international milk powder demand appeared robust, which should help offset the impact of that milk supply growth.
However, dairy commodity prices were likely to remain under some pressure through to mid-2012, Sir Henry and Mr Spierings said.
Fonterra confirmed its current forecast payout range (before retentions) for the 2011-12 season of $6.75-$6.85 for a fully shared-up farmer.
The co-operative also outlined details of a "group strategy refresh" that aimed to grow volumes and value by focusing more tightly on emerging markets and products that met growing consumer demand for dairy nutrition.
It was built on an in-depth look at the co-operative's strengths, social and economic trends, and underlying projections for a marked increase in global demand for milk. That demand was forecast to grow by more than 100 billion litres by 2020, with New Zealand expected to contribute only five billion litres of additional supply by that date, Mr Spierings said.
The strategic refresh amounted to more than 100 projects, many already started, including.-
• A strong push on the fast-growing emerging markets of China, Southeast Asia and Latin America, where Fonterra already has a strong presence.
• Optimising the New Zealand milk business to drive cash and improve return on capital.
• Building integrated milk pools (secure, high-quality sources of milk integrated with Fonterra's business) offshore to bring higher returns back to New Zealand.
• Growing volumes of higher value consumer branded and out-of-home nutrition.
• A tighter focus on meeting the advanced nutrition needs of mothers and babies, as well as ageing populations.
Fonterra half-year results
• Total sales volume growth of 5%
• Revenue up 7% from the same period last year to $10 billion
• Net profit after tax up 18% to $346 million
• Normalised earnings before interest and tax up 8% to $552 million
• Earnings per share up 14%
• Interim dividend of 12c per share, up from 8c
• Record milk collections, up 10% for the season to date
