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.
“Our volume to value strategy continues to drive our performance in the ingredients and consumer and foodservice businesses,” chief executive officer Theo Spierings says.
“Margins in most of our businesses are similar to last year, and we have moved an additional 350 million liquid milk equivalent (LME) into higher value products in the year to date. Consumer and foodservice volumes in Greater China in particular have grown by 40% in the period.
“We are on track to exceed our target of moving an additional 400 million LME into higher value products by year-end,” he says.
“Better than expected autumn weather has resulted in more milk at the end of the season which, combined with higher milk prices, is good news for the cooperative.”
Previously signalled challenges, including product stream returns and pressure on margins, have had a greater impact than expected in the third quarter.
“The closing of the relative price gap between reference milk price products and non-reference products has reduced overall profitability in our ingredients business,” Spierings says.
“We have continued to manage our costs tightly, with operating expenses for the nine months down 4%.
“Efficiencies and improvements in working capital are ongoing, and capital expenditure is in line with expectations and expected to reduce in the 2017-18 year. Our gearing is forecast to be in the target range of 40-45% at year’s end.
All these factors contribute to the continuing strength of the cooperative’s balance sheet,” Spierings says.
Chairman John Wilson says the cooperative is well placed to deliver through the rest of the year for its farmers.
“While there is work to be done in the final quarter, the outlook for earnings remains achievable, and we are committed to delivering the best outcome for our farmer shareholders and unitholders.”
