Fonterra, a dairy company in New Zealand, decided not to sell its Australian business after reporting a year of higher sales and profits.
Highlights:
Last year, the Australian business made a gross profit of $NZ283 million, up 16% from the year before. Fonterra was reviewing the Australian business and considering its options.
Even though it paid a record high price for milk, it expects profits to keep going up.
In September of last year, the company, which made products like Western Star Butter and Perfect Italiano Cheese, said that it was “looking at different options” for the Australian business.
But when the company’s performance for the 2021-22 fiscal year was announced, CEO Miles Hurrell said that Fonterra had decided it was “in the co-best op’s interests to keep full ownership.”
The decision ends a year of rumours that one of Australia’s biggest milk processors might change hands.
“Over the past year, we worked with partners like investment banks and others to make sure we made the right choice,” Rene Dedoncker, the managing director of Fonterra Australia, said.
It also comes after Fonterra’s biggest competitor in Australia, the Canadian company Saputo, told the markets that it was reviewing the size of its operations in Australia and that some factories might close.
Lino Saputo Junior, the president of Saputo, said at a conference in Canada, “[Australian] milk production has been going down year after year, which means there is less milk for us to process and we need fewer plants in our system.”
Profits will keep going up
Even though the market is getting tighter, Fonterra has been able to keep getting milk from Australian farmers.
In the last two years, the company has collected about 106 million kilograms of milk solids each year, but their sales and profits have been going up.
For the 2022 financial year, the Australian business’s gross profit went up 16% to $NZ283 million, and its normalized earnings before interest and taxes went up 43% to $NZ106 million.
Even though the company paid record milk prices, the outlook for the coming year remained good.
Mr. Dedoncker said that Fonterra Australia would still make money even if they paid Australian dairy farmers 25% more.
“We have a lot of faith in the coming year,” he said.
“I can’t give you a specific number, but I can tell you that we will make money this year.”
