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Fonterra shuts century-old Victoria factory

Dairy co-operative Fonterra has announced the closure of its century-old Dennington factory in Victoria
with the loss of 98 jobs.

Fonterra chief executive Miles Hurrell called the closure of the factory, which has been in operation since 1911, a “tough call”.

Hurrell said the Australian Ingredients business continues to feel the impact of the drought and other significant changes mean there is excess manufacturing capacity in the dairy industry.

“This is not a one-off for this season, it’s the new norm for the Australian dairy industry and we need to adapt. We need to get the most value from every drop of our farmers’ milk and, with the reduced milk pool in Australia, we must put it into our highest returning products and most efficient assets. Dennington is over 100 years old and not viable in a low-milk pool environment.”F

He said the dairy giant is on-track with its new strategy in September and the latest move aims to reduce complexity and simplify the business.

Fonterra’s 2019 earnings and new farm gate price

The dairy giant also revised its earnings guidance range from 15 – 25 cents per share to 10 – 15 cents per share. Hurrell said the Australia Ingredients is facing challenges but the New Zealand Ingredients business is performing as well.

“Due to the challenges in Australia Ingredients and tightening relative price differences between reference products, or those products that inform the Farmgate Milk Price, and non-reference products – that’s all our other products, we are reducing the forecast full year normalised EBIT for the whole Ingredients business to $645 – $725 million, down from the $750 – $850 million range we shared at our Interim Results,” explained Hurell.

Australia’s spreads brands though are performing well including Western Star butter, which contributed significantly to its gross margin.

Fonterra chairman John Monaghan said the forecast 2019/20 Farmgate Milk Price range will be $6.25 – $7.25 per kgMS. Farmers are is set to start the new season on 1 June, 2019.

“This is a realistic opening forecast. We are having to look out more than a year into the future which is difficult, but what the information available is continuing to show us is that demand remains strong across key trading partners and this is reflected in GDT prices,” added Monaghan.

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