Analysis Dairy
Fonterra doing well, but yet in desired shape
Fonterra has performed less well in the past financial year 2023/24 than in the previous year, but is still doing well with a return on invested capital of 11.3%. The gross profit of €1.6 billion New Zealand dollars is also impressive.
Fonterra is gradually getting closer to the desired profile that the company should have after the downsizing operation carried out by CEO Miles Hurrell in recent years. Many overseas activities have been divested. Some at a loss, others with a reasonable book profit.
However, there still seem to be a few steps to go. Earlier this year, Fonterra announced that it would also like to sell the Consumer Products division. However, there was quite a bit of resistance to this intention. Consumer Products, with an almost €1.9 billion turnover, is the company's second division and has a strong presence in the New Zealand market. The management promised to reconsider whether the plan was well thought out. A report on this will be published soon.
Australia
The sale of the Australian division is also still pending. Fonterra has several factories there and collects around 820 million kilograms of milk annually. The turnover of this division was nearly €1.4 billion last year. It was recently reported that a large investment fund, together with FrieslandCampina, might be interested. However, the annual report does not mention anything about this.
If Fonterra were to divest these parts, it would become even more of a New Zealand company, mainly active in the B2B sector and no longer dealing with consumer products. Meanwhile, it is also losing members in New Zealand because it does not always pay the highest milk price, and it must work hard to maintain its current milk volume, putting it in the same situation as many European dairy companies.
With the current level of earnings, it should be able to compete well for members with the other dairy companies in New Zealand. The result was lower than in the peak year 2022/23, but nonetheless well above the 5-years average. Should that not be reassuring enough - there were some bad years implicated - then there is the margin Fonterra made also in the past year. As a cooperative it could give more back to its members.
