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.
Gross margin of 16.7% is also down on last year, says chief executive Theo Spierings.
He says the first quarter financial results were generally as expected as the co-op started the year with record low inventory followed by the second year of low spring milk collections from NZ due to wet weather.
“This has challenged our ingredients business where we had lower volumes to sell. As a result, sales were down 19% to 3.6b LMEs compared to the same time last year.
“The gross margin in ingredients was in line with the second half of last year. However, when we compare it to the same period last year it was down from 12.1% to 8.1%, mainly due to the rise in commodity prices,” says Spierings.
“Our consumer and foodservice business continued with strong sales volumes in our key markets across Greater China and Asia with overall just a 3% decline to 1.3b LMEs in total volume compared to the record levels at the same time last year.
“Gross margin in consumer and foodservice was 24%. While this is down on the 31% in the first quarter of 2017 when input costs were lower, it is up on the gross margin percentage in the last quarter of 2017. This positive trend shows we can create more value in our consumer and foodservice business despite higher input costs and it reflects the strength of our strategy of moving more volume into higher value.”
Spierings says the co-op expected performance to be weighted to the second half of the year and remains confident in its full year forecasts following revisions after the recent Danone news.
“We are focused on continued tight operational and financial discipline and a keen eye on our customers’ needs to maximise sales opportunities.”
