BUSINESS UPDATE VIDEO
GLOBAL DAIRY UPDATE
FONTERRA INVESTOR DAY
This platform includes the global sales from our ingredients businesses in New Zealand, Australia and Latin America. It also includes the Fonterra Farm Source rural supplies retail chain in New Zealand
Ingredients continued its earnings momentum and had another very strong year, with normalised EBIT growth of 24 per cent. Our increased earnings reflect better optimisation of our production to match customer demand enabled by increased optionality and improved efficiency in our plants. Ingredient’s return on capital increased to 13.4 per cent, up from 9.3 per cent the previous year. Despite lower milk collections and the tough global market environment, sales volume grew by four per cent to 22.4 billion LME. Our investments in plant capacity in New Zealand in recent years have improved our ability to respond to price volatility and channel milk to the highest-returning products over periods of peak milk collection and throughout the season. Alongside the improvements in the supply chain, operating performance was lifted by further gains in operational and capital efficiency at our sites.
CONSUMER & FOODSERVICE
This platform comprises the consumer brands and fooservice business in Asia, Greater China, Latin America and Oceania.
Our consumer and foodservice business performed well and delivered normalised EBIT of $580 million, up 42 per cent. In line with our strategy to move more volume into higher-value consumer and foodservice products, we achieved volume growth of eight per cent to 4.9 billion LME. We added another 0.2 billion LME in both consumer and foodservice sales, representing growth of five per cent and 15 per cent respectively. Greater China was the main growth driver by region. Our consumer and foodservice businesses delivered a strong improvement in return on capital, up to 41.7 per cent from 25.5 per cent the year before. This was a combination of increasing normalised EBIT, a reduced capital base through divestments and lower working capital.
This platform comprises the farming operations in China, producing high-quality fresh milk as part of our integrated China strategy.
Our farming operations in China comprise two completed hubs producing high-quality fresh milk. Yutian is our most established hub and is fully housed with livestock. It consists of three single farms and one double farm with 16,200 milking cows in total. Our second hub, Ying became fully operational during the year, with development now complete. We are reducing our costs through operational efficiencies driven by a combination of higher milk volume and increased on-farm efficiencies. Cost reductions were achieved this year through reduced feed and on-farm costs, and production efficiencies. Despite the operational efficiencies and milk volume growth, the low Chinese milk price did not allow us to deliver to full earnings potential. Although this was partly offset by our efficiency improvements, the low absolute level of prices still resulted in a normalised EBIT loss of $59 million.