Fonterra resiles from $30 billion claim which persuaded farmers

Fonterra chief executive Craig Norgate has confirmed an announcement by the company's chief financial officer, Graeme Stuart, that the company has backed off its goal of $30 billion in revenue by 2010.

The $30 billion was no longer an objective, he told the New Zealand Herald newspaper.

"A lot of businesses double in size every five years. The reality is we did double in size through the first five years," Mr Norgate said. "Whether we double in size in the next five years or not is incidental to where our focus is."

Mr Stuart signalled the change last month when he said Fonterra would be focusing on "organic revenue growth" rather than "big bang acquisitions".

Mr Norgate said the focus would be on bottom-line growth -- 13 to 15 percent annual profit improvement -- and on consolidating the current business rather than going through another growth spurt. "We still see them (acquisitions). We are a large business and businesses of our size are constantly buying and selling things. "But it won't be the same level of activity as you've seen in the last 12 to 18 months."

Dairy Partners Americas, the joint venture with Nestle, would continue to produce self-funded acquisitions in South and North America.

Fonterra has sold its consumer and milkpowder businesses in Venezuela and Central America to Nestle, receiving $US131.5 million ($NZ246 million) net for its contribution to the establishment of the chilled, liquid and manufacturing joint ventures.

But the company has given no indication of how it will raise capital for any expansion of the joint venture in to the North American markets.

Fonterra, as a whole, has budgeted only $1 billion for new investments over the next five years, which will also have to fund businesses in Asia.

The ambitious boost to earnings over the first 10 years of the mega-merger was heavily touted by former Dairy Board chairman John Storey in 1999, when he promised industry restructuring would boost turnover from nearly $8 billion to $40 billion (CRRCT) by 2009.

Industry commentators pointed out that for Fonterra to achieve such a target from its then $7.7 billion turnover, it would need consistent annual growth of about 15 percent, and about $4 billion in extra capital.

Mr Storey suggested the arm of the company dealing in high-value, high-risk consumer products -- New Zealand Milk -- would be able to raise money by selling shares to non-farmers.

In the final format of the mega-merger, the concept of selling shares in the high-risk end of the business to non-farmers was dropped, and the industry watered down the 10-year target to $30 billion in revenues.

Industry executives who touted the $30 billion included the then chairman of New Zealand Dairy Group, Henry van der Heyden, who now chairs Fonterra.

The company's current business strategy, developed in its "Project Galileo", has not set a revenue target. Instead, it has aimed for an annual profit improvement of between 13 percent and 15 percent with boosts in revenues from food service, consumer nutritional products, and speciality milk components.

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