News briefs: Fonterra, First Milk and Emmi

By Neil Merrett

- Last updated on GMT

Related tags: Van der heyden, Milk, Fonterra

This week, Fonterra commits to its troubled Chinese operations, and Europe-based groups First Milk and Emmi reveal their latest financial performances.

Fonterra counts Chinese costs

Fonterra says that it remains well placed to ensure a safe supply of dairy products to Chinese consumers after its joint venture partner in the country was involved in producing goods contaminated with the chemical melamine.

The contamination scandal in China has spiralled from milk powder for infants to other food categories that use the products as an ingredient. Some products of the San Lu company, in which Fonterra is a shareholder, were also found to contain dangerous levels of the chemical.

Cooperative chairman Henry van der Heyden said that the company was reaffirming its long-term commitment to the country’s dairy market, claiming its paramount concern to be consumer safety.

The comments come as the company revealed that San Lu’s link to the scandal, which has caused illness in thousands of children in the country, had already taken a substantial hit out of its operations.

Fonterra estimates that impairment charges amounting to NZ$139m have been deducted from its carrying investment in the company as a result of both product recalls and damage to the overall San Lu brand.

“We have recognised this charge as we are required to by accounting standards, but we are certainly not putting the financial consequences ahead of our primary priority of consumer safety,”​ stated van der Heyden. “We are focusing all our efforts on what Fonterra can best do to work with the Chinese authorities and help get safe dairy products to Chinese consumers.”

First Milk profits from ingredient push

The continued integration of cheese and ingredient acquisitions into First Milk’s business model has allowed the company to post a 24 per cent improvement in sales for the 2008 fiscal year.

The UK-based cooperative said that operating profit had also risen for the twelve-month period ending 31 March 2008 to £9.66m, up from £0.52m the previous year.

Peter Humphreys, chief executive for First Milk, claimed that the implementation of more efficient haulage for its products and the establishment of some of its cheese brands and ingredients products had capped a successful year for the group.

“Despite only being established in April 2007, our ingredients division performed well during the year in a turbulent market,”​ he stated. “We have positioned ourselves well within a small number of attractive sectors, and have ensured that we are flexible enough to maximise opportunities depending on customer demand.”

Humphreys said that the move to improving cost efficiency in its operations had required a major shake up of its manufacturing assets.

“We have streamlined our organisation structure over the last twelve months to facilitate direct communication and quicker decision-making, and ensure that we maintain a low cost base,”​ he stated. “As a result, we have closed our cheese-packing site at Mauchline in Ayrshire in October 2007 and our warehousing operations at Mauchline and at Castle Kennedy in South West Scotland in August 2008.”

The drives are also set to be followed up with reductions in the company’s office locations, the company said.

Emmi expects 2008 sales pickup

Switzerland-based Emmi has posted a 7.5 per cent boost in sales to CHF 1.3bn over the first fiscal half.

The company said that both domestic and international demand helped push the growth and that it now expects full year sales growth of between 6 and 8 per cent, well above previous prediction, according to Emmi.

The company said that operating profit for the half was up by 25 per cent over the same period last year to CHF 85.7m, on the back of a strategy of cost reductions over the period.

While the company said that a possible,​slowdown in international business is foreseeable, sales improvements were posted across its product ranges over the half year.

Related topics: Manufacturers, Fresh Milk, Fonterra

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