New Zealand dairy giant Fonterra has blamed economic conditions for its decision to remove NZ$92 million (US$56.8 million) from the valuation of its home consumer business.
And it has signaled similar pressure from its need to write down the value of its Asian brands Anlene, Chesdale and Anmum by NZ$70m.
In a commentary accompanying the release of its 2023 interim results today (March 16), CEO Miles Hurrell said: “Our domestic consumer business, Fonterra Brands New Zealand (FBNZ), has been under margin pressure for some time and is not improving as fast as planned. The performance of our Asian consumer brands has been affected by weakening currencies in the markets in which they operate, higher interest rates and a declining economic environment in some markets in Southeast Asia.
“For these reasons, we have revised down the valuation of FBNZ by $92 million and our Asian consumer brands Anlene, Chesdale and Anmum by $70 million.”
After review, FBNZ is valued at NZ$669 million and the three Asian brands at NZ$272 million.
The cooperative, the world’s largest exporter of dairy products, provided more details about the economic conditions that influenced its decision in its 2023 interim report for investors.
He said: “Our domestic consumer business has experienced challenging market conditions including higher input costs and inflationary pressures.
“The New Zealand dairy market is highly competitive and this has affected the ability of the sales team to fully recover those higher input costs through increases in product prices.
“In addition, rising interest rates have also put pressure on our consumer business in New Zealand. This has resulted in an impairment of the business’s goodwill of NZ$92 million.”
As for its Asian brands, it said the NZD70 million write-down split is NZD45 million for milk powder brand Anlene, NZD23 million for baby formula brand Anmum and NZD2 million for NZD for the Chesdale brand of processed cheese.
It said the downgrade was due in part “to a reduction in expected sales growth for Anlene and Anmum and changes in discount rates and exchange rates for all three brands.”
Fonterra generated a half-year profit after tax of NZ$546 million, NZ$182 million more than the previous year’s results. Revenue was NZD 13.24 billion for the six months to 31 January 2023 compared to NZD 10.79 billion for the corresponding period in 2022.
Hurrell said: “The scale and diversification of our cooperative across channels and markets has allowed us to navigate through disruption and take full advantage of favorable market conditions in several areas.
“While milk powder prices have softened recently, affecting our on-farm milk price range forecast, protein prices have been high and this is reflected in rising profits. that we report today”.
In December, Fonterra sold its Chilean unit Soprole for $641 million.
