China's economic rebound spells good news for Fonterra

Strong profit in the ingredients business and impressive sales in the foodservice businesses in China have boosted the performance of the New Zealand-based multinational dairy cooperative Fonterra Co-operative Group Ltd for the fiscal year 2019-20.

Fonterra CEO Miles Hurrell said that the 2019-2020 fiscal year was "a good year for the co-op, with profit up, debt down and a strong milk price".

Its ingredients normalized EBIT (earnings before interest and tax), improving from NZ$790 million ($536.7 million) last year to NZ$827 million this year, with gross profit up NZ$165 million to NZ$1.6 billion.

Hurrell said that 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. Gross profit started to quickly rebound in the third quarter.

"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," said Hurrell.

However, the growth in food services across Asia, Oceania and Latin America markets were affected by the pandemic in the fourth quarter. All three markets reported losses in the second half.

Strong performance by the food service in China has contributed to the overall 14 percent rise on last year to NZ$209 million. Foodservice business in China has increased from NZ$114 million last year to NZ$169 million this year.

Its ingredients business NZMP, which stands for New Zealand Milk Products, provides dairy products to more than 100 food manufacturers. Its foodservice business services 20,000 customers with more than 400,000 stores in 350 cities across China.

Teh-han Chow, CEO Fonterra Greater China, said earlier, "Our strategy is to build on the success of our foodservice, ingredients and consumer businesses in China and sell premium dairy to more people, online and in-store."

Zhu Danpeng, an analyst of food and beverage, said Fonterra's growth in food service and retailer will continue to accelerate next year. Its Chinese operation serves as a pillar for its global businesses and has gained more supports to sustain its strong momentum with substantial value, Zhu added. Around 11 percent of all dairy consumption in China comes from Fonterra, according to the company.

Fonterra has two farms in Hebei province and Shanxi province each, farming more than 60,000 cows and producing 350 million liters of milk annually. Its third farm landed in Shandong province, which is a collaboration with Abbott.