Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
This is the message from Fonterra Shareholders’ Council chairman, Duncan Coull.
Coull says the final payout of $4.30/kgMS for a fully shared-up farmer is reflective of the very tough season.
“However, it is encouraging to see that Fonterra, assisted by the low milk price environment, has further driven volume into value and captured efficiency gains which have cumulated into a strong dividend while also serving to strengthen our cooperative’s balance sheet.
“It was also pleasing to see Fonterra driving more income from value-add products and that most parts of the business operated at a high level over both halves of the year especially the Ingredients and the Consumer and Foodservice businesses, the solid returns from which helped drive the $1.358 billion EBIT and $834 million net profit.
“While some parts of the business such as international farming were not left unscathed by the on-going low global milk prices it was encouraging to see the beginnings of a turnaround in the Australian business especially given the assurances we received last year from our board and management that a strategy was in place to give effect to this.
“The council has also noted a desire from farmers to see financial information from their board regarding our cooperative’s investment in Beingmate relative to the wider China strategy. The Council is pleased to note that the board and management have recently discussed this with us and we look forward to reporting on this in detail in our annual report.”
Coull says farmers would take some comfort in yesterday’s announcement of a 50 cent increase in the forecast 2015/16 Milk Price to $5/kgMS (which on top of a forecast earnings per share range of 50-60 cents equates to a $5.75 -$5.85 total payout available for a fully shared-up Farmer).
“The lift in the milk price, particularly the increase in the advance rate to $3.60, will provide some relief to our Farmers and along with signs that our co-op’s strategy is delivering strong returns, will enable them to move forward with greater confidence.”
Coull says the council is currently reviewing the co-op’s 2015/16 annual results figures as part of its monitoring role and will provide detailed analysis and commentary in its annual report to farmers which will be available in early November.
