At the announcement of the co-operative’s interim results in Auckland there was strong questioning about why the dividend was going in the same direction as the milk price, along with the suggestion the dividend was “stuck” at the 2011 level.
Chief financial officer Lukas Paravicini agreed the dividend should go in the opposite direction to milk price trends. This happened in Asia where Fonterra’s consumer and foodservice businesses were performing well. They sourced all their milk from New Zealand and benefited from the lower value of milk, particularly in the second quarter of the year, he said.
But in Australia and Latin America, which sourced their milk in those markets, there were different product mixes with more focus on nutritionals, which meant a greater impact from higher milk prices seen there. This squeezed margins because prices were determined by dynamics in those markets rather than global prices. So there was less relationship to the NZ milk price, meaning higher input costs, he said.
But as the largest amount of NZ milk production went into Fonterra’s ingredients business, that had most impact on the milk price not the dividend.
Chief executive Theo Spierings said in his 30 years experience in dairy processing and marketing the higher the milk price went, the better result for the business overall.
“A strong milk price means strong demand and that’s good for profit and loss,” he said.
Asked if the upper level of the divided range would stay at 30c both he and chairman John Wilson said this would be dealt with on a year-by-year basis. The co-op had a policy of paying 65-75% of net profit after tax as its dividend, and would pay an interim dividend of 10c on April 20.
