‘Price battle’ hits Fonterra consumer sales in Australia, NZ

By Ben Bouckley

- Last updated on GMT

Related tags: Van der heyden, New zealand

Picture Copyright: Fonterra
Picture Copyright: Fonterra
A retail price war in Australia and New Zealand hit Fonterra’s consumer sales hard in the first half of 2012, while the firm said a strategy refresh will see it refocus its efforts on lucrative Chinese, Asian and Latin American markets.

The New Zealand (NZ) co-operative reported an 18% rise in year-on-year (y/y) net profits (NZ $346m) in the six months to January 31, due to higher volume sales and improved performance within its ingredients business, which turned over NZ $8bn.

Group turnover for H1 rose 7% to NZ $10bn due to commodity prices and higher volume sales (+5% y/y), driven by strong demand for branded consumer products and ingredients (the latter turned over NZ $8bn in H1, +10%).

Challenging retail environment

But within the firm’s consumer business in Australia and New Zealand, revenues fell 4% to $2bn year-on-year, while EBIT (earnings before interest and tax) fell 19% y/y, with Fonterra blaming a “challenging retail environment, and an ongoing pricing battle that has resulted in pressure on major suppliers margins”.

The performance of its wider consumer businesses was mixed, Fonterra said, since a strong New Zealand (NZ) dollar impacted its Asian/African, Middle Eastern and Latin American business.

Fonterra CEO Theo Spierings said Fonterra’s strategy refresh had set its course for the next decade, with strong consumer brand positions in selected markets a key focus.

“We have sharpened our focus and made choices around the geographies and product portfolios that will deliver the best growth opportunities,” ​Spierings said.

“Particularly those in the emerging markets of China, Asia and Latin America, where we can leverage our strengths from milk sourcing through to branded sales.” 

Spierings said that Fonterra’s standard and premium ingredients business had seen higher sales volumes, and a 10% increase in average US dollar sales prices, leading to a normalised EBIT 44% up on H1 2011. 

He said: “We are now seeing the benefits of our focus on managing volatility in the business, with more favourable contract agreements, a closer pricing alignment between our sales book and the spot market, and targeting sales of products that deliver greater value.”

Record export levels

Fonterra chairman Sir Henry van der Heyden said that good spring and early summer growing conditions in NZ has meant strong production growth and record milk volumes – up 10% on H1 2011 – as well as record production and export levels.

“International dairy prices softened after the highs of last year but remained relatively stable throughout the first half of the year,"​ van der Heyden said. 

"These prices were supported by strong demand for quality dairy ingredients in emerging markets across a number of Asian economies, as well as Brazil and China, offsetting economic uncertainty in Europe,”​ he added.

   

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