Fonterra lifts payout as profit surges

Fonterra Cooperative Group, the world's biggest dairy exporter, expects to pay 30 cents more to farmers

The Auckland-based company will pay $5.80 per kilo of milk solids and expects to pay an annual dividend of 32 cents per share, meaning a fully-shared up farmer will get a cash payout of $6.12 this season, down from $6.40 last year.

Net profit climbed to $459 million in the six months ended January 31 from $346 million a year earlier.

Fonterra firmed up annual earnings guidance to between 45 and 50 cents per share, from a previous range of between 40 cents and 50 cents.

"The new forecast reflects a recovery in global dairy commodity prices over the past two months," chairman John Wilson said. "World dairy trade growth is being led by powders (combined whole milk and skim), reflecting strong demand at a time when global supply is constrained."

Prices on Fonterra's GlobalDairyTrade auction site have jumped 27 per cent since February when the dairy company's board last reviewed the payout, with New Zealand's supply limited by the worst drought in the North Island for almost seven decades.

Chief executive Theo Spierings said the strong first half is unlikely to be repeated in the second half of the year, with annual milk volumes expected to be in line with last season. Fonterra had previously estimated 1 per cent growth, having already trimmed expectations from 6 per cent growth due to the drought.

"The ongoing volatility in commodity markets could have a negative impact on product mix profitability," Mr Spierings said. "In many of our consumer markets we are expecting intensified competition in the second half - particularly in Australia - and in Asia we are seeing signs of demand slowing."

The profit gain was in spite of a 6.9 per cent fall in sales to $9.33 billion, as the strength of the kiwi dollar eroded increased export volumes.