KEY POINTS:
Fonterra is ready for any acquisition opportunities in Australia, but there are too many rumours, says chief executive Andrew Ferrier.
Fonterra has been tipped by analysts to be among a pack of companies, including National Foods and Nestle, preparing for a takeover tilt at Dairy Farmers before the Australian company completes a market listing planned for next year.
"We're watching this and the rumours that exist there are just that, they're rumours," Ferrier said, at the Fonterra annual general meeting in Hamilton on Wednesday.
"We are still interested in growing in Australia but we don't control the timing of it.
"The major players are all privately owned so if there's an opportunity we'll be there."
Fonterra had been prepared to pay nearly $2 billion for National Foods in 2005 before eventually being out-gunned by San Miguel, while a capital structure review underway was designed to position the co-operative for growth opportunities in the global market.
"So the thrusts are in brands and ingredients as always," Ferrier said.
"At home it's just about making sure that we have a strong defensible position in Australia/New Zealand, in the rest of the world it's about huge growth opportunities, bigger growth opportunities than we'd ever see just here in Australia/New Zealand."
Operating revenue at Fonterra's brands business had increased by 5.4 per cent to $4 billion, with operating surplus up 12.5 per cent at $324 million, as a result of higher sales volumes and changes to product mix and pricing.
The company had rationalised its portfolio, exited from underperforming markets and increased the advertising support for power brands, which was driving improvements in market share and contributing to profitable growth, Ferrier said.
"However, margins were being compressed at the year-end and that is continuing into the new season, with commodity prices showing no signs of softening," he said.
"While we will be looking to offset rising costs through greater efficiencies, our brands business also has to implement price increases."
The manufacturing division had achieved efficiencies last year to offset inflation-driven cost rises, Ferrier added.
"This season saw the benefits of work done last year to ramp up efficiency and reduce costs in our processing sites, particularly in New Zealand."
Overseas investments involving Soprole in Chile and the AFF joint venture with Arla in the UK were performing well, Ferrier said.
"Not everything was rosy however," he said. "We did take a $25 million write-down on certain investments, those investments are now under review.
"But overall these offshore investments and joint ventures returned an average 14 per cent on net assets."
The total shareholder return was 12.5 per cent last season, up from 9.6 per cent the previous year, with an average annual compound rate of 12.6 per cent for the last three years. Total net interest bearing debt was down by $582 million at $5 billion, underpinned by an operating cashflow of $1.3 billion.
"Our global competitiveness depends on the lowest cost structures, the highest levels of efficiency and continued innovation," Ferrier said. "That knowledge is hard-wired into our business."
Dairy target
* Fonterra is on a short list of contenders tipped as likely buyers of Australian company Dairy Farmers.
* Other contenders may include Goodman Fielder, National Foods, Nestle and Coca-Cola Amatil.
* Fonterra says it is ready for any market opportunities but currently there are too many rumours.
