Attention for Fonterra's under-performing Aussie units 25 Mar 2015
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
- NZ home sales creep up in March, still subdued Property
- NZ economy expands at fastest pace in two years Business
- New Zealand food prices fall in February Business
Fonterra says under-performing Australian units will be 'given attention'
By Fiona Rotherham
March 25 (BusinessDesk) - Fixing under-performing businesses in Australia is a key part of Fonterra Cooperative Group’s renewed push to drive more value from transforming the business, particularly when low global milk prices depress its payout to farmers.
The cooperative disappointed its farmer shareholders today with its half-year result, which included an interim dividend of 10 cents a share and a trimmed full-year dividend forecast range of 20 cents to 30 cents per share for the 2014/2015 season, given the current low milk price.
The forecast farmgate milk price was maintained at $4.70 per kilogram of milk solids. Net profit after tax for the six months ending Jan.31 was down 16 per cent to $183 million, reflecting tough conditions in the dairy industry and variable production, demand, and pricing. Revenue was $9.7 billion, down 14 percent on the previous year.
Federated Farmers dairy chair Andrew Hoggard said the big disappointment today was the drop in dividend, which is meant to reflect the value in Fonterra’s value-added products. Farmers expected a low milk price to reduce the cost of producing value-added products and therefore result in a higher dividend to farmers.
“Obviously today’s result shows that this isn’t the case, but Fonterra will need to explain that well, and clearly, to their shareholder farmers,” he said.
Fonterra said the impact on the dividend was more complex than what farmers expected. The lower milk price from its New Zealand milk pool benefited its China and Asia operations but these only accounted for 15 percent of the business. In Australia, Chile and Brazil, the prices paid for milk are influenced more by in-market dynamics than global prices, which meant they faced higher input costs.
Westpac economist Michael Gordon said the bank was still maintaining a full-year forecast milk payout of $4.90 kg/MS but didn’t expect that to be announced until the end of the season.
“We weren’t expecting big things from today and we didn’t get it,” he said.
Fonterra chief executive Theo Spierings said despite the current market price volatility, the company remained committed to its three-year-old strategy to grow the cash payout through converting more milk into higher-returning products by 2025, especially through its consumer and foodservice operations. While the change had not been easy, it now needed to be sped up, he said.
That change included aligning Australia to its multi-hub strategy, which represented a A$50 million opportunity, he said.
The company said it had strategies underway to combat intense competition in the Australian market and to achieve greater use of its assets in what is one of the group’s largest international business units and one of four strategic markets, alongside China, Indonesia,and Brazil.
Fonterra’s also likely to benefit from Australia’s recent free trade agreement with China, which will see tariffs on Australian dairy products phased out over the next four to 11 years and the 15 percent duty on infant milk formula wiped over four years.
Fonterra operates 10 manufacturing sites across Australia, processing 1.7 billion litres of milk sourced locally each year.
Fonterra’s ingredients business reported $299 million in normalised Ebit for the half year, impacted by a negative $84 million gross margin from the Australian ingredients arm.
Moves already undertaken in Australia include reducing costs, which have dropped $35 million or 21 per cent in the past two years and rationalising its consumer brands. It’s also had success building strategic relationships with Fonterra now ranked as the number one supplier in Coles supermarkets, compared to number 33 last year and it has scored a new private label contract with Woolworths.
Chief financial officer Lukas Paravicini told BusinessDesk the multi-hub strategy involves aligning different demand needs with different supply pools. In Australia the higher milk price reflects that most of the dairy industry produces nutritional milk powders, whey and cheese products.
Fonterra needed to change its product mix in Australia to better match demand, he said. New Zealand would become more of a hub for commodity products such as whole milk and skim milk powders while Australia shifts away from low-priced skim milk powder and focuses on nutritional milk powders and speciality cheese such as mozzarella, Paravicini said.
The product mix change was complicated by a recent fire at Stanhope in Victoria, which produces speciality cheeses for the Australian market, and had not been able to produce cheese for a few months.
On the consumer and food service side of the business volumes and value were down in Australia for the first half. Brand and foodservice market share for chilled spreads and cheese was up 22 per cent for the first-half but yoghurt had fallen 17 per cent.
Paravicini said the yoghurt business in Australia had not performed well due to aggressive competitive pricing, dragging down the good progress made in other parts of the market.
“The yoghurt business needs attention and we will dedicate that attention to it,” Paravicini said.
He was confident the product mix changes and improvements in the yoghurt business would happen within a year.
Under its partnership with Chinese infant food manufacturer Beingmate, in which it has taken a near 20 per cent stake, Fonterra’s under-used Darnum plant in eastern Victoria is being bought by the 50:50 joint venture company and production and exports of infant formula will be ramped up.
The Darnum plant has the capacity to produce more than 300 tonnes of milk powder per day and Fonterra recently invested more than A$45 million into the site to boost production.
(BusinessDesk)
News
Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students
29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more
New Zealand reaffirms support for Flight MH17 judicial process
7 Mar 2020 News
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more
Business
NZ Government's Economic package to fight COVID-19
17 Mar 2020 Business News
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more
NZ Government announces aviation relief package
19 Mar 2020 Business News
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more
Living
Diversity was Key at New Zealand Trade Tasting in London
6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall.
It was the first... more
Kiwi author stuns Behind the Butterfly Gate
12 Jan 2022 Arts
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...
New Zealand writer Merryn Corcoran’s... more
Property
Fairer rules for tenants and landlords
17 Nov 2019 Property
17 NOVEMBER 2019
The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more
New Zealand Government will not implement a Capital Gains Tax
17 Apr 2019 Property
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more
Migration
Boosting border security with electronic travel authority – now over 500,000 issued
19 Nov 2019 Migration
19 NOVEMBER 2019
We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more
Christchurch reinstated as refugee settlement location
18 Aug 2018 Migration
18 AUGUST 2018
HON IAIN LEES-GALLOWAY
The announcement that Christchurch can once again be a settlement location for refugees... more
Travel
Gallipoli Anzac Day services cancelled
19 Mar 2020 Travel & Tourism
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more
New Zealanders advised not to travel overseas
19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas
more
Sport
The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners
27 Oct 2019 Cricket
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more
PREVIEW: All Blacks v England semi-final
26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more
Columns
Gordon Campbell on the Gareth Morgan crusade
11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade
First published on Werewolf
The ghastly likes of Marine Le Pen in France and Geert ... more
Gordon Campbell on the US election outcome
10 Nov 2016 Opinion
Column - Gordon Campbell
Gordon Campbell on the US election outcome
Well um.. on the bright side, there (probably)... more
Kiwi Success
Congratulations to Loder Cup winner
26 Sep 2018 People
25 SEPTEMBER 2018
The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more
Appointments to New Zealand National Commission for UNESCO
16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO
HON JENNY SALESA
Associate Education Minister Jenny Salesa is... more
Recruitment
Historic pay equity settlement for education support workers
14 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more
Historic pay equity settlement for education support workers
22 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more