Analysis milk
Fonterra is getting fat on its bones again
Dairy giant Fonterra performed well for the second year in a row. In the 2021/2022 financial year, mainly with a high milk price for the members, in the 2022/2023 financial year with a slightly lower milk price, but above all with generous operating results.
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Turnover increased last year €13,6 billion. Profits more than skyrocketed, thanks to normal business operations alone. In addition, a contribution came from the sale of Chilean subsidiary Soprole to a Peruvian dairy company. For members, this resulted in a doubling of the dividend (+NZ $0,50).
The company took advantage of the good business performance to reduce debt by almost 40%, from NZ $5,2 billion to NZ $3,2 billion. The cooperative also bought back about NZ$50 million worth of shares from mostly no longer active members.
With the sale of Soprole and also the last Chinese mega-farm, Fonterra is almost free of the old burden it wanted to shake off. Only the sale of DPA Brazil to Lactalis is not yet final. A positive contribution can also result from this.
After this, Fonterra is back to being a primarily New Zealand (and a bit of Australian) company. Milk supply expressed in liters decreased slightly last year. Fonterra also faces production limits, partly due to climate. The average levels of fat, protein and other ingredients in the milk have continued to increase.
In addition to milk, Fonterra also invests in dairy substitutes. This is done through a joint venture with DSM-Firmenich, called Vivici. For the time being, this is still mainly a research company, but it must mainly replace milk proteins. In addition, Fonterra has taken a stake in a company that makes probiotics, much like Yakult does.
Ingredients and Food Service
Dairy remains the core business in everything. Milk processed into consumer products yielded less for Fonterra last year, as was also seen at European dairy companies. Consumers save on their purchases. Fonterra experienced it both in its home markets and in China. Profits from these operations fell by NZ$164 million. The food service more than made up for this setback. Food-service products also go to consumers, but apparently less attention is paid to expenditure. As a result, Fonterra recorded NZ$241 million more profit, also thanks to China. However, the largest profit, NZ $1164 million, came from the ingredients business, which Fonterra conveniently also includes the cheese activities under.
It is very uncertain whether the dairy giant can achieve such a resounding result again next year. Yet CEO Miles Hurrell currently sees slightly fewer dark clouds in the sky than just a month ago.