What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
The co-operative says the Australian business is strong with solid fundamentals despite a drop in earnings.
For six months ending January 31, Fonterra Australia reported a gross profit of $138 million, a 19% drop compared to the same period last year. Earnings before interest and taxes (EBIT) slumped 43% to $42m. Profit after tax nosedived, from $69m last year to $21m this year.
Fonterra collected 66m kgMS in the first half of this year, a 2% increase over last year.
Fonterra Australia managing director Rene Dedoncker says its Australian business remains profitable with good domestic demand.
“We continue to see value growth in Consumer and Foodservice.
“Our Consumer brands remain No.1 in the butter & spreads and cheese categories. This has been achieved despite a shift in consumer demand to private label and lower-price competitor products – which is only possible due to the strength of our brands.
“For Foodservice, out-of-home demand is subdued due to macro-economic conditions impacting household and business budgets. We remain focused on delivering an unrivalled customer experience, which has helped us to maintain our No.1 ranking in the Foodservice Advantage Survey for the fifth consecutive year.
“The financial performance of our Ingredients business is impacted when the milk price is high relative to commodity pricing. However, we are pleased to be growing our value-add proposition and have increased sales for our proteins, functional nutrition and probiotics.”
Dedoncker says the Australian market has been challenging for many dairy processors over the last 12 months.
“For Fonterra, our focus is on reducing our costs and improving return on capital. Work is well underway to identify and implement a range of initiatives which will deliver cost savings for our business,” Dedoncker says.
