New Zealand dairy co-operative Fonterra has seen strong growth in South East Asia but also a significant decline in China, resulting in a decrease in profits for the first quarter of its FY2025.
Fonterra recently announced its Q1FY2025 financial results, reporting a small 1.92% increase in revenue to NZ$5.2bn (US$2.99bn) but a close to 24% drop in profits after tax to NZ$263mn (US$151.2mn) from NZ$346mn (US$198.9mn) the previous year.
The firm attributed this to a variety of factors including lower sales volumes due to a ‘strong finish’ in FY2024, higher milk costs affecting margins, as well as digitalisation efforts.
“Profit after tax in this quarter is down on the prior year due to lower sales volumes that reflect our strong finish to FY2024 and therefore lower FY2025 opening inventory [to be sold in this quarter],” CEO Miles Hurrell told the floor during the firm’s most recent investors’ meeting.
“It was also affected by gross margins being impacted by the rate of increase in milk costs at the end of FY2024, relative to in-market price increases; as well as increased operating expenses driven by a planned NZ$31mn (US$17.8mn) increase in IT and digital transformation spend.
“While these factors have impacted our gross margins, this has been partially offset by improved product mix, with a greater allocation of milk to higher value products in our Foodservice and Consumer businesses.
That said, in addition to these factors, a deeper dive into the data presented revealed a potential impact from decreased exports and sales to China, formerly one of its largest importing regions.
“China has shown a 12.2% decrease year-on-year in terms of dairy and milk imports, [but we see] import demand improving as local supply growth moderates,” he said.
“The best growth performance has come from other markets in Asia which have shown a 10.3% increase in imports year-on-year, showing there is continued strong demand here and particularly in South East Asia.
“We have also seen strong volume growth in our Consumer products in this region driven by successful brand promotion here.
“Other key import regions have been Latin America with a 7.5% increase in imports; and the Middle East and Africa with a 2.4% increase in imports.”
Fonterra produces locally in New Zealand, Australia, the United States and Europe, but where its Oceania production has continued to improve, volumes are not doing quite so well in the other markets.
“New Zealand and Australia production has been [overall strong] due to favourable weather condition, but US production has been constrained and EU production has been adversely impacted by weather and animal health issues,” said the firm.
Consumer divestment update
Despite its Consumer category being one of its strongest performers in South East Asia – Fonterra’s current fastest-growing key imports market – the firm has forged on with plans to divest this business and focus on its Foodservice and Ingredients segments instead.
Major Fonterra consumer brands include Anchor, Anlene, Western Star, Mainland and more.
“Last month, we confirmed we are pursuing a divestment for these businesses. This work is now underway and we will share more information as it progresses.
“Our priority is maintaining momentum in our financial performance while the divestment process is underway.”
You can now read the most important #news on #eDairyNews #Whatsapp channels!!!
🇺🇸 eDairy News INGLÊS: https://whatsapp.com/channel/0029VaKsjzGDTkJyIN6hcP1K
