Fonterra lifts forecast; 835 staff gone

An improved financial performance has led Fonterra to lift its forecast earnings-per-share range by 5c to 45c-55c, as it continues to cut costs.

Yesterday, the world's largest dairy exporter confirmed it had laid off 835 staff through major restructuring this year, up from 750 announced in August.

The co-operative's performance in the quarter ended October had built on the strong second half of the 2015 financial year, chairman John Wilson said.

''Performance is well ahead of last year and we are hitting our targets on gross margins and operating and capital expenses. At the same time, the acceleration of business transformation initiatives is generating significant cash savings,'' he said in a statement.

Chief executive Theo Spierings confirmed the total number of staff laid off in two waves of restructuring had risen to 835, but said ''there will be no wave three''.

Fonterra has maintained its forecast farm-gate milk price at $4.60, which means the total available for payout is $5.05-$5.15. With an expected annual dividend of 35c-40c per share, that equated to a total forecast cash payout of $4.95-$5.

All Fonterra share-backed farmers had an opportunity to apply for Fonterra co-operative support to help deal with challenging conditions this year.

The co-operative was now increasing the rate at which farmers were paid the co-operative support of 50c per kilogram of milk solids. The total amount paid up to December increased from 18c to 25c.

Performance in the first quarter of 2016 built on the strong finish to 2015 and margins increased across the group from 14% to 23%, compared with the same period last year, Mr Spierings said.

Capital expenditure of $258 million was down 37%, in line with the target to reduce capex to $900 million for the 2016 financial year, while operating expenses were also down by 4% to $628 million, reflecting the continuing focus on cost control, he said.

Fonterra's business transformation aimed at achieving ''significant and lasting performance improvement'' through new ways of working across its global network. The initiatives generating recurring benefits implemented in the first quarter were expected to deliver a cash benefit of $170 million in the current financial year, he said.

Further initiatives in the second quarter were expected to increase recurring cash benefits to $340 million and contribute to both earnings before interest and tax, and the farm-gate milk price in the current financial year.

In addition, first-quarter initiatives were expected to generate a one-time cash benefit of $110 million this financial year increasing to $440 million based on initiatives being introduced in the second quarter, and would contribute to working capital and the company's balance sheet, he said.

Fonterra continued to forecast a reduction in milk collections in New Zealand for the current season of at least 5%, equivalent to about 150,000 tonnes of whole milk powder.

Since August, it has reduced the amount of product it expects to offer on the GlobalDairyTrade platform over the year by 146,000 tonnes. Prices were expected to drop on the GDT platform this week as supply continued to exceed demand.

- Additional reporting BusinessDesk

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