Fonterra result-debt up income down but still $5.10

The melamine in the milk scandal has had a silver lining for Fonterra in the form of a big jump in revenue from Asia. In its half-year result, revenue from Asia, Africa and the Middle East was up 53% to $1.2 billion. CE Andrew Ferrier said increased ingredients sales to China was a major factor. After the crisis , Chinese dairy companies started buying milk from overseas rather than sourcing it locally, he said.That was the largest of three drivers of the increase in Asian revenues. The melamine crisis was also partly responsible for a switch to more expensive foreign dairy products by consumers in Asia, which enabled Fonterra to drive higher revenues. Gains from the falling kiwi dollar was the third factor. Fonterra reported revenue of $8b for the six months to January 31, up 9.6% on the first half of last year. But a change of balance date last year's first half ran from June to November meant the two periods were not directly comparable. Adjusting for timing factors and including exchange hedging, Fonterra said revenue would have been down by 7.6% as a result of lower global dairy prices. Debt to equity ratio increased to 61.5% at January 31 from 57.4% at July 31, 2008. The rising debt level was caused by the cost of carrying higher inventories, the falling kiwi dollar and $700 million extra in advance rates paid to farmers, Mr Ferrier said. Chairman Henry van der Heyden said that at year end July 31 the debt ratio would be quite a bit below 57.4 per cent, subject to everything Fonterra was forecasting. Fonterra was carrying $5.1b of unsold inventory at January 31 compared with $3.3b at July 31, 2008, and $4b at November 30, 2007. This was largely down to timing as the co-op traditionally had large inventories in December, January and February, Mr Ferrier said. Independent financial commentator Alan Robb said: "It's worrying that the operating cashflow was only $111m compared to $818m at November 30, 2007 at a time when revenue has gone up. It's a fundamental problem with the buildup of inventory." While Fonterra had given a like-for-like comparison with its headline revenue figure, it was a concern that it had not done so for the more detailed financial statements, Mr Robb said. "It raises doubts about what the true figures are." There was no change to Fonterra's $5.10 a kilogram of milk solids forecast payout for the 2008-09 season.