Friday, 18 September 2020 11:05

Fonterra shrugs off COVID-19 to boost returns

Written by  Sudesh Kissun
The main drivers of Fonterra’s performance was its ingredients business’s strong normalised gross profit and strong sales and gross margins from the Greater China foodservice business in the first half of the year. The main drivers of Fonterra’s performance was its ingredients business’s strong normalised gross profit and strong sales and gross margins from the Greater China foodservice business in the first half of the year.

Fonterra shrugged off the effects of COVID-19 in many markets to record a $67 million rise in normalised earnings before income tax (EBIT).

The co-op’s total normalised EBIT for 2019-20 jumped from $812 million to $879 million.

Chief executive Miles Hurrell says the main drivers of the underlying business performance was a strong normalised gross profit in the ingredients business and, although there was the disruption from COVID-19, the strong sales and gross margins from the Greater China foodservice business in the first half of the year. 

Ingredients’ normalised EBIT improved from $790 million last year to $827 million this year, with normalised gross profit up $165 million to $1.6 billion. 

Hurrell says that at the co-op’s interim results, the normalised gross profit in ingredients was relatively steady.

“As we moved through the second half, we saw restaurants, cafes and bakeries close and intermittent spikes in supermarket sales, creating uncertainty across the global dairy market. 

“This uncertainty resulted in softening milk prices, which helped improve the gross margin and gross profit in ingredients.” 

Greater China foodservice’s normalised EBIT increased from $114 million last year to $169 million this year. 

Hurrell says the business achieved strong year-on-year sales growth in the first half of the year but was then hit hard by COVID-19 when many food outlets were closed. Normalised gross profit started to quickly rebound in the third quarter – although he also points out it is still not at 100%. 

“We have seen significant growth across the Anchor Food Professional product range in China. 

“We have entered 50 new cities across China, taking our total to 350, and our products are now not only being used in Western-style restaurants and bakeries but also those serving local cuisine. 

However, foodservice businesses across Asia, Oceania and Latin America were impacted by COVID-19 in the fourth quarter. All three markets reported losses in the second half. 

Despite this, normalised EBIT for foodservice overall was up 14% on last year to $209 million, a result of the strong performance by the Greater China business in the first half. 

The consumer business’ normalised EBIT reduced to $149 million from $227 million, mainly as a result of impairments of $57 million relating to the Chesdale brand and New Zealand consumer business’ goodwill.

Hurrell says its Australian consumer business performed strongly with sales continuing to increase thanks to its popular beverage, spreads and cheese products. 

“Our New Zealand consumer business focused on improving customer service and keeping supermarket shelves well-stocked, particularly as New Zealanders were stockpiling through COVID-19.”

More like this

Wine tour woes

Bookings for premium wine tours “vanished” when New Zealand’s borders closed, say operators struggling under Covid-19.

Vintage update

Wine companies, large and small, are grappling with the potential shortage of a reliable labour force for vintage 2021, with borders closed to international workers.

Covid-19 a big hit to small wineries

Losing boutique wineries to Covid-19 would be a blow for New Zealand’s wine industry, say the authors of a new report into challenges for small operators.

Digital juice

Covid-19, e-commerce and the risk of digital debt.

Open doors

As wineries enter the spring season, many opening cellar doors after a period of Covid-19 closure, the mood appears one of cautious optimism.

Featured

Back the sector that backs NZ

OPINION: The biggest issue currently facing our industry is environmental policy, writes Beef+Lamb NZ chief executive Sam McIvor.

 

National

Machinery & Products

Let aura feed the mob

In a move that appears to have been repeated by many equipment manufacturers, Kuhn confirms it currently working on several…

Battery charger range recharged

Projecta's popular ‘Charge N’ Maintain’ automatic battery charger range has now been recharged – with the introduction of new features…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Eyes have it

OPINION: Painting eyes on the backsides of cows could save their lives, according to new research by Australian scientists.

Walkers versus cows

OPINION: A North Yorkshire teacher has become at least the second member of the public to be trampled to death…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter