Fonterra’s slump in China drives profit decline despite ASEAN growth

NEW ZEALAND – New Zealand’s dairy giant Fonterra has reported a mixed performance in its first quarter of FY2025, with a notable drop in profits despite revenue growth. 

The co-operative announced a modest revenue increase of 1.92%, reaching NZ$5.2 billion (US$2.99 billion), according to its latest financial results. 

However, profits after tax fell sharply by nearly 24%, dropping to NZ$263 million (US$151.2 million) from NZ$346 million (US$198.9 million) the previous year. 

The decline has been linked to weaker sales in China, higher milk costs, and increased spending on digital transformation.

Fonterra’s CEO, Miles Hurrell, addressed investors recently, explaining the challenges faced this quarter. 

“Profit after tax in this quarter is down on the prior year due to lower sales volumes that reflect our strong finish to FY2024 and therefore lower FY2025 opening inventory,” he said. 

The company pointed to a robust end to the last fiscal year, which left fewer products to sell in the current period. 

Additionally, rising milk costs late in FY2024 squeezed gross margins, as in-market price increases failed to keep pace. 

A planned NZ$31 million (US$17.8 million) investment in IT and digital upgrades also added to operating expenses.

While China, once a key market, saw a 12.2% year-on-year drop in dairy imports, other regions showed promise. 

South East Asia emerged as a bright spot, with a 10.3% rise in imports, driven by strong consumer product demand and effective brand promotion. 

Hurrell highlighted this shift, stating, “China has shown a 12.2% decrease year-on-year in terms of dairy and milk imports, [but we see] import demand improving as local supply growth moderates.”

Fonterra also reported growth in Latin America, up 7.5%, and the Middle East and Africa, up 2.4%.

Despite the profit dip, the company emphasized a strategic shift toward higher-value products in its Foodservice and Consumer businesses, which partially offset margin pressures. 

Production in New Zealand and Australia has benefited from favorable weather, a report by the firm noted, though output in the US and Europe lagged due to constraints and adverse conditions like poor weather and animal health issues.

Fonterra’s Consumer category performed strongly in South East Asia, yet the co-operative is moving forward with plans to divest this segment. 

Major brands like Anchor, Anlene, and Mainland are part of this business, which the firm aims to sell to focus on Foodservice and Ingredients. 

A company statement last month confirmed the divestment process is underway, with updates promised as it progresses.

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