Fonterra boosts innovation spend in China's foodservice sector
Fonterra is opening a sixth application centre in China to boost its growing foodservice business.
The co-operative’s opening forecast range of $7.25-$8.75/kgMS, with a midpoint of $8/kgMS, is around 40c lower than what most banks are forecasting.
Fonterra chief executive Miles Hurrell says that while milk supply and demand dynamics remain finely balanced, China import volumes have also not yet recovered to historic levels.
“Given the early point in the season, the uncertainty in the outlook and ongoing risk of volatility in global markets, we are starting the season with a cautious approach,” says Hurrell.
For the season that has just ended, Fonterra narrowed the range to $7.70 to $7.90/kgMS, with a midpoint of $7.80/kgMS. And a strong performance from its food service and consumer channels allowed Fonterra to lift its earnings range to 60-70c/share, up from 50-65c/share.
The co-op also delivered its third quarter (Q3) results last week, recording profit after tax from continuing operations of over $1 billion, up $20m on the previous year.
Hurrell says the result is driven by continued strong earnings across all three of the co-op’s product channels.
He says foodservice and consumer channels in particular had a strong third quarter with a lift in earnings compared to the same time last year.
“Fonterra’s sales volumes were up slightly on last year by 38kMT, or 1%, due to higher sales volumes in our foodservice and consumer channels.
“We also saw price relativities ease over the quarter, and we anticipate them to narrow further in Q4 as they return to more historic levels.
“Gross margins remain strong across all three channels as our inmarket teams continue to drive pricing and volume. Foodservice and consumer volumes are up 4% and 7% respectively year on year, with margins consistent with Q2.”
Gross earnings of $1.44 billion reflected improved performance in foodservice and consumer, with ingredients down year-on-year following record highs in FY23.
“Our increased earnings range assumes softer earnings in Q4 due to the seasonality of our milk collections, the higher cost of inputs in the foodservice and consumer channels, and the impact of the investments in modernising our IT systems.
“Across Fonterra, operating expenses are up due to inflation, upfront costs of driving efficiency improvements and increased IT spend. Historically, some of this IT spend would have been treated as capex and capitalised on the balance sheet.
“We are heading into year-end with a strong balance sheet, with Fonterra’s underlying performance and lower debt position helping to further reduce our financing costs.”
