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Dairy co-operative Fonterra yesterday reported an improved profit for the year ended June but a reduced payout for farmers, with warnings already that next season's payout will be even lower.
Fonterra is the latest in a line to report "normalised earnings", a trend which has seen many companies in this current reporting season adjust their balance sheets.
Normalised earnings of $1.03 billion were reported by Fonterra for the period, up 2% on the previous corresponding year. Taking out the restructuring costs and impairment losses, earnings before interest and tax (ebit) were $987 million.
The group paid $310 million in interest and $53 million in tax to give a profit after tax of $624 million, down 19% largely due to tax credits of $202 million in the previous period not repeated in the current year.
Excluding the tax gain, Fonterra's net profit improved by 10%.
The payout for the season of $6.40 per kilogram of milksolids was 19% down on the previous corresponding period. In August, Fonterra announced the 2012-13 payout would further reduce to $5.25 kg/ms.
Fonterra is launching its Trading Among Farmers (Taf) later this year and did not update its earnings forecast because of a blackout period until the release of its prospectus.
Fonterra Shareholders Council chairman Ian Brown said that given the downturn in global markets, the board had delivered a reasonable return to farmers.
However he was disappointed the Australia-New Zealand business once again failed to deliver a healthy return.
"Unfortunately, Australia-New Zealand has not delivered to target. We are aware that market conditions are particularly tough at present and understand plans are in place to ensure the business improves," he said.
Fonterra figures showed the integrated Australia-New Zealand business had a 20% fall in earnings to $204 million in the year.
Announcing the result, chairman Sir Henry van der Heyden said the 2012 season had been "one out of the box" for dairy.
All around the world, there was record dairy production which was mirrored back in New Zealand.
Global dairy demand held up "reasonably well" but the ocean of milk affected global commodity prices with the GlobalDairyTrade (GDT) index reaching its lowest value in 34 months in May.
"This contributed to a lower farm gate milk price ... However, the impact of this decline on overall earnings for farmers had been eased a little by the much higher volumes of milk they produced."
Chief executive Theo Spierings said highlights of the year included record New Zealand milk flows, up 11% to 1.5 billion kg/ms in the current season.
There was an 11% increase in exports to 2.32 tonnes, sales increased 2% to 3.94 million tonnes, revenue remained flat at $19.8 billion and operating cash flows were up $206 million to $1.4 billion.
The balance sheet was strengthened with the gearing ratio improving from 41.8% to 39.1%.
The result showed Fonterra's success in increasing both volume and value, he said.
"The hard work of our farmers in producing record milk flows was matched by efforts of the business in processing, selling and shipping these higher volumes, while also managing inventory levels.
"We know volatility is here to stay and we showed our ability to manage this volatility by adding value to our products, generating prices above GDT," Mr Spierings said.
Looking ahead, Mr Spierings said although there had been a combined increase of 9% over the last two GDT auctions, the recovery had been expected and was partly offset by further appreciation of the New Zealand dollar against the US currency.