30 Mar 2012

Fonterra blames consumer brand earnings drop on milk price war

6:53 am on 30 March 2012

Fonterra is blaming the retail milk price war for a drop in earnings from its consumer brands businesses in New Zealand and Australia.

The co-operative has reported an 18% increase in its half year net profit after tax, of $346 million.

That's been driven by record milk supply, production and export volumes.

Continuing high demand for dairy ingredients has also contributed, with sales growing by more than 40% on a year ago.

In contrast, Fonterra has seen a 16% drop in half-yearly earnings for consumer products in Australia and New Zealand, which chief executive Theo Spierings says is to do with retail competition.

He says a retail war is putting pressure on margins for all fast moving consumer goods.

Fonterra says half-yearly consumer brands earnings are also down in the fast growing Asia, Africa and Middle East markets, despite a 44% increase in sales volume.

It says the negative impact of the strong New Zealand dollar has contributed to that, along with higher promotional and advertising spending as it continues to build those markets.

But Fonterra chief financial officer Jonathan Mason says people shouldn't take the wrong message from those half-year results.

He says Fonterra's consumer brands have been very good performing businesses and for a five-year period ending in 2010 they improved by 19% a year.