Tough conditions in the Australian market have cast a shadow over otherwise strong half year results from NZ dairy products company Fonterra.
The company reported a 33 per cent jump in profits on the back of a strong performance by its New Zealand milk products business and significant lifts in sales volumes in its Asian and Latin American brands.
However, the company, which booked a net profit after tax of NZ$459 million (AUD$366.4 million) in the first half of 2013, said these achievements were partly offset by continuing challenges affecting the performance of the Australian business.
Fonterra CEO Theo Spierings said the company's consumer business performance in New Zealand was slightly better than last year, but its Australian consumer business “had to contend with a very competitive retail environment”.
He also said the ingredients business experienced a significant margin squeeze as the competition for milk supply in Australia intensified.
“This was compounded by an adverse product mix due to lower demand in the export sales of value-added nutritional powders, and more milk being channelled into lower value milk powder sales.
“A recovery plan is now in place, with the planned closure of our Cororooke site, continuing rationalisation of the brands portfolio, and cost reductions following a recent restructure of the business,” he said.
Spierings also said Fonterra’s strong first half earnings were unlikely to be repeated in the second half.
“For the full year, we expect to see total milk volumes for the current season to be in line with last season.
“The ongoing volatility in commodity markets could have a negative impact on product mix profitability.
“In many of our consumer markets, we are expecting intensified competition in the second half – particularly in Australia – and in Asia we are seeing signs of demand slowing,” said Spierings.
