Fonterra launches new UHT range in China

Fonterra chief operating officer Jacqueline Chow says the co-operative wants to grow its portfolio of brands in China. Photo / Doug Sherring.

Fonterra has launched a new range of premium UHT products in China in response to the ongoing growth in demand there, executives told the co-operative's annual meeting at Darfield, Canterbury, today.

The new "Upline" range featured two new UHT (ultra heat treated) milk products; "LiveUp" - a high-protein milk with 50 per cent more protein than standard UHT and "NaturalUp" - made from certified fresh organic New Zealand milk.

Fonterra's president for Greater China, Christina Zhu, said the new products would build on the strength of the Anchor brand and would help meet changing consumer needs in China. Zhu said the Anchor brand was performing well since it was launched in China in late 2013.

Fonterra chief operating officer of global consumer and foodservice, Jacqueline Chow, said the move was part of Fonterra's strategy to grow its portfolio of consumer brands and to optimise the value of its New Zealand milk.

The existing range of Anchor UHT products in China has also had a facelift, with fresh packaging in place across the full range of products. "This aligns our branding in China more closely with what we are doing globally and leverages the strength of the 130-year-old Anchor brand," Chow said.

Fonterra last month upgraded its farmgate milk price by 75 cents to $6.00 a kg of milk solids but another strong GlobalDairyTrade auction this week has already put more upward pressure on that.

All farmgate milk price forecasts from the main companies are now well ahead of DairyNZ's estimate of breakeven at $5.05/kg.

ANZ Bank says current market indicators are now pointing toward a $6.40 to $6.50/kg milk price in 2016/17, assuming current prices can hold through the remainder of the season.

Westpac economists this week raised their farmgate forecast to $6.20 a kg from their previous forecast of $5.80.

Chairman John Wilson has told farmers to budget on a payout of $6.40 per kg of milksolids for 2016/7, after retentions.

Last year's payout came to $4.30 a kg - comprising a farmgate milk price of $3.90 and a 40 cent dividend.

In his presentation to the annual meeting, chief executive Theo Spierings reiterated the message given at last month's first quarter update, which put revenue for the quarter at $3.8 billion, up six per cent on the same quarter last year.

Sales volumes were up two per cent to 4.9 billion litres liquid milk equivalent (LME) in the quarter while the gross margin of 22 per cent remained largely unchanged.

Spierings said the first quarter revenue gains reflected broad-based volume and margin growth across the business, and an ongoing focus on cost controls.

Expenses have reduced by two per cent to $621 million. Capital expenditure over the quarter was $116 million, down 55 per cent on the same year ago quarter.

Gross margins from Fonterra's consumer and foodservice business came to 31 per cent in the quarter, up from 28 per cent a year earlier.

In ingredients, gross margin fell to 12 per cent from 15 per cent. Commenting on the performance of Fonterra's farms in China, Spierings said the gross margin had gone to minus 12 per cent in the quarter from minus 8 per cent in the same quarter last year.

Notes to the presentation said the latest quarter was affected by the sale of inventory at below-cost.