FONTERRA has reduced the forecast farmgate price it will pay its New Zealand farmer suppliers for last season’s milk, after entering a trading halt on both sides of the Tasman.

A statement released to the New Zealand Stock Exchange said Fonterra Co-operative Group Limited had revised its forecast 2017-18 farmgate milk price, and updated its normalised earnings per share and dividend guidance.

The co-operative said it was is reducing last season’s forecast 2017-18 farmgate milk price to $NZ6.70 a kilogram of milk solids from $NZ6.75/kgMS. The previously announced NZ25c-NZ30c guidance range has been held, but Fonterra indicated that it would be at or slightly below this range and it was likely that the full-year dividend would be just the NZ10c already paid in April.

Chairman John Monaghan said the board had made these decisions in the best long-term interests of its farmer shareholders and unitholders.

Fonterra said it was important for it to have a strong balance sheet, adding as it had indicated in May, the higher milk price, which was good for its farmers, had put pressure on earnings, and therefore its balance sheet in a year which was already challenging due to a payment to Danone and the impairment of the co-operative’s Beingmate investment.

“You never want to have to reduce the milk price at the season’s end, but it is the right thing to do and $NZ6.70 remains a strong milk price.

“Maintaining a strong balance sheet has helped us to support farmers during tough seasons through our Co-operative Support Loan and being able to bring forward the Advance Rate Schedule and get money to farmers earlier in the season.

“We need to do everything within our control to keep these options on the table for when farmers need them. This means keeping our balance sheet strong.

Mr Monaghan said he wanted to be upfront with farmers and unitholders that to achieve this the board had taken the step to depart from the amount calculated under the Farmgate Milk Price Manual. This was permitted within Fonterra’s constitution.

“During the process of closing our books for the financial year end, the need for these actions has become clear. Our forecast performance is not where we expected it would be. While the numbers are not finalised, our margins were less than we forecasted right across our global Ingredients and Consumer and Foodservice businesses.”

The co-operative’s full year results will be announced on September 13.

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