NZ’S Fonterra cuts forecast milk payout, eyes ice cream business sale
WELLINGTON: Dairy giant Fonterra Co-operative Group Limited downgraded its forecast milk payment to farmers and said it was looking to sell its ice cream business, as the New Zealand-based firm reels from its first ever financial loss.
The Auckland-headquartered company said in a statement that due to lower global dairy prices it had reduced its 2018-2019 forecast farmgate milk payment to farmers to between NZ$ 6.00 to NZ$ 6.30 per kilogramme of milk solids. That was down from a range of NZ$ 6.25 to NZ$ 6.50 set in October.
The revision underscored the dairy firm’s vulnerability to global commodity price gyrations, even as it made a concerted effort to move more of its production into value-added branded products.
Three months earlier the company announced its first ever annual financial loss, in part due to higher milk prices the previous year, which had shrunk its profit margins on its value-added products, such as branded cheese and yoghurt.
Analysts said that Fonterra was still under-estimating the likely dent to global dairy prices from increased supply in coming months.
“We note the risks to Fonterra’s forecast are clearly tilted to the downside,” said Nathan Penny, senior rural economist at ASB Bank, adding that its forecast range was around NZ$ 5.85 to NZ$ 6.15. ICE CREAM BUSINESS SALE? The 2018 financial year loss had prompted Fonterra to undertake a review of its assets, which the company said on Thursday could lead to the sale of New Zealand ice cream brand Tip Top.
Fonterra said it has appointed investment bank FNZC as an external adviser to consider ownership options for Tip Top, which it said has reached maturity and “will require a level of investment beyond what we are willing to make”.