Under the background of high raw milk prices and the impact of the epidemic and other factors on market demand, Fonterra, a New Zealand dairy giant, still delivered a relatively stable report card.
According to the third quarter financial report released by the company today, Fonterra group achieved a total revenue of NZ $16.982 billion in the first nine months of April 30 this year, a year-on-year increase of 10%; The adjusted total EBIT of the group was NZ $825million, a decrease of NZ $134million; The adjusted after tax profit was NZ $472million, down by NZ $115million.
“We are actively responding to various challenges caused by the COVID-19 and macroeconomic events. However, the growing market volatility and uncertainty, continuous supply chain disruption, and growing inflationary pressures have all made the problem more complicated.” Miles Hurrell, chief executive officer of Fonterra group, commented that in the face of difficult global conditions, the group has still achieved “sound financial performance”, and that in the long run, the market prospect of dairy products is still good.
In the second half of the year, the company will maintain the expectation of earnings per share of NZ $0.25-0.35, and announced that the expected price range of raw milk purchase in 2022/23 milk season is NZ $8.25-9.75 per kilogram of milk solids, and the median value of the range is NZ $9.00 per kilogram of milk solids.
Challenge of epidemic situation in China
Let’s take a look at Fonterra’s performance in Greater China.
According to the performance presentation materials read by the snack generation, Fonterra Greater China achieved a revenue of NZ $5.063 billion (about RMB 22billion) in the first nine months of fiscal year 2022, an increase of 8% year-on-year; Adjusted profit before interest and tax (EBIT) was NZ 317million (about RMB 1.378 billion), a year-on-year decrease of 17%.
In addition to the profit pressure brought about by the high price of raw milk, the company has been challenged by the static management caused by the epidemic in many places in China, as well as the profit contraction of catering service business. “The impact of static management measures will also affect our fourth quarter results.” Hurrel said.
In order to prevent and control the spread of COVID-19 in Omicron, all restaurants and food stores in Shanghai were closed in early April, and only a few supermarkets were still in operation. “Although the current static management measures have gradually begun to be relaxed, many restaurants are still closed. At the same time, some other cities in China are also under epidemic control.” According to the company’s financial report.
Zhou Dehan, CEO of Fonterra Greater China (information picture)
Zhou Dehan, CEO of Fonterra Greater China, said today: “the performance of the raw material business in Greater China in the third quarter of fy22 was still robust. The continuous sales of high value-added raw materials contributed to the double-digit year-on-year growth. Among them, the sales of cheese, milk protein, probiotics and other raw materials Rose happily.” However, he also admitted that the impact of the epidemic and the challenges of the supply chain have spread to the entire market, and the product sales of Fonterra ANGA professional catering service business in Greater China in the third quarter of this fiscal year decreased year-on-year.
Performance demonstration materials show that in the first three quarters of fiscal year 2022, the sales of Fonterra’s three business segments, namely, raw materials, catering services and consumer brands, declined in China. Among them, the revenue of raw materials business increased to NZ $3421 million (about RMB 14887 million), and the EBIT increased to NZ $187million (about RMB 857 million), while the EBIT of catering services and consumer brands both declined year-on-year.
Positive response
Despite the challenges brought by the epidemic, Fonterra has taken various measures to actively respond in China, and the major sectors such as catering services, consumer brands and raw materials business have presented their own “new methods of play”.
“During the closing of Shanghai in the third quarter of (fiscal year), Fonterra’s consumer brand business team served more than 1300 communities through group purchase, and continuously optimized the business structure to better increase consumers’ purchase intention and stickiness.” Zhou Dehan said that under the background of implementing static management in some cities, the business team also made full use of digital means to promote business.
For example, on the dealer side, Fonterra ANGA’s professional catering service business team improves the product resale ability by providing live broadcast practical operation guidance, online product training and other methods. At the same time, we actively help customers explore online business, develop Internet sales channels including Tiktok and Taobao live broadcast, and reach end consumers in an all-round way.
Fonterra’s consumer brand business fully grasped the market demand for health and nutrition products, focused on the differentiated innovation of complementary dairy products, middle-aged and elderly milk powder and other categories, turned to the community for sales, and continued to increase business profitability through diversified channels. The snack generation once introduced that Fonterra saw the market opportunity of home cooking under the normal situation of epidemic prevention and control, and recently launched two original cheese products in China, New Zealand high-end special cheese brands, kembetty and ANGA masurilla cheese.
Fonterra’s raw material business team, in conjunction with a number of cheese customers, helped the latter to launch a number of new products through technological innovation, including: processed cheese slices with an original cheese content of up to 80%, 6-Piece small triangle cheese, which is the selling point of New Zealand’s “grass grazing”, and inflatable cheese cups. In the field of traditional milk beverage and fermented milk, the team also created a new product “cheese pop ball yogurt” with customers.
In addition, under the dual pressure of repeated domestic epidemics and continuous tension in the international supply chain, Fonterra’s strategic customer department ensured the supply and circulation of strategic customers through cross regional and cross departmental cooperation, and reached a higher share of long-term strategic cooperation intention with customers.
Future outlook
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Today, Hurrell talked about his outlook for the future, saying that Fonterra group had signed up for more than 95% of raw milk in this quarter, and believed that it would be able to hold more inventory in the future “to cope with the short-term impact on the demand side and sales”. Although the favorable price factors in the fourth quarter are expected to have a positive impact on the company’s profits, it is expected that the company’s profit margin will continue to be under pressure due to the high raw milk price and the seasonal characteristics of the business.
He also said that as the price of raw milk rises, its inventory value also increases, which means that the company’s working capital and debt are higher than the normal level in the same period of previous years. He hopes that the new debt can be gradually offset within this year.
Despite the challenges faced in the third quarter, Fonterra is still committed to promoting the achievement of its long-term strategic goals. Hurrell said that after the government announced that it would make necessary legislative amendments to support Fonterra’s new flexible shareholding capital structure plan, the government’s consultation process was in progress, and it was expected that these amendments would pass the review this year.
Xiaoshidai noticed that Fonterra said in its financial report that the company was continuing to review the ownership of its Australian business, and the divestment process of its Chilean business soprole was also in progress. “We are ensuring that these two businesses will ultimately achieve the best results and are confident in our plan to return approximately NZ $1billion of capital to our shareholders and unitholders by fy2024.” Says Hurrell.
The company also disclosed its new product plan in the future, saying that it plans to launch some new products in the next few months to help consumers improve their cognition, vision and relieve pressure. Recently, it launched a fermented milk beverage named nurture in Singapore. This new product, which focuses on the intestinal health market, has added vitamins and probiotic products.
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