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.
The drop in milk yield will be equivalent to around 150,000 metric tonnes of whole milk powder.
Fonterra chief executive Theo Spierings says since August Fonterra had reduced the amount of product it expects to offer on the GlobalDairyTrade (GDT) platform over the year by 146,000 MT.
"In addition, an increased portion of product is being sold through bilateral customer agreements for a premium on prices achieved on GDT. Ingredients inventory levels for the first quarter are in line with the same period last year.
"We are benefiting from the investment in new plants in New Zealand, which is improving our manufacturing options and reducing peak costs. Our strategy is moving greater volumes of milk into higher-returning products to take advantage of improved prices relative to Whole Milk Powder," says Spierings.
He was speaking today at the announcement of the first quarter results of the 2015-16 year. Performance in the first quarter of 2016 built on the strong finish to 2015 with margins increasing across the group from 14% to 23% compared to the same period last year.
"Our first quarter ingredients performance reflects improved product stream returns and margins are tracking well. With less milk this season, and additional capacity, we have taken the opportunity to optimise our product mix.
"We are delivering continuing growth in consumer and foodservice sales volumes and value, particularly in Greater China, Asia and Latin America," says Spierings.
Capital expenditure of $258 million is down 37%, in line with the target. Operating expenses are also down by 4% to $628 million, reflecting the continuing focus on cost control.
Spierings says Fonterra has solid credit ratings which demonstrate the cooperative's fundamental financial strength.
"Following the completion of our accelerated investment cycle and with our ongoing financial discipline, we are on track to reduce our leverage, with the gearing ratio expected to return to the 40-45% range at the end of the current financial year," says Spierings.
