Nutricia NZ profit slides 97% in 2013 year disrupted by Fonterra recall

Thursday 12th June 2014

Nutricia, the New Zealand infant formula unit of French food maker Danone, posted a 97 percent drop in profit in 2013, a year that saw sales disrupted by Fonterra Cooperative Group's false alarm botulism scare last August.

Profit fell to $1.99 million in the year ended Dec. 31, from $61.1 million a year earlier, according to the company's financial statements lodged with the Companies Office. Sales fell 15 percent to $318.2 million while cost of sales rose 8.1 percent to $265 million. Globally, Danone's early life nutrition unit reported annual revenue growth of 0.1 percent to 4.26 million euro, as a 13 percent drop in second-half sales offset a 14 percent gain in the first half.

Infant formula sales for Danone's Nutricia unit plunged last August as it recalled infant formula from New Zealand, China, Singapore, Malaysia, Hong Kong, Vietnam, Cambodia and Thailand after Fonterra quarantined several batches of whey protein concentrate on fear it was contaminated with a potentially dangerous strain of clostridium bacteria, capable of causing botulism. The strain was ultimately shown to be harmless.

"The botulism scare caused serious damage to Danone Nutricia's business," which was reflected in global sales, a spokeswoman for Danone said in an email to BusinessDesk, declining to make any specific comment on the New Zealand unit.

In January, Danone terminated its supply contract with Fonterra and started legal action against New Zealand's largest exporter, seeking compensation over the recall, and served arbitration papers to be heard in Singapore.

"The early life nutrition division continues to be significantly affected by fall-out from the false safety alert triggered by Fonterra in August 2013," Danone said at the time of its full-year results in February. "Recovery plans to get sales back on track are being deployed in the countries affected and are having some impact, with the pace of recovery varying from market to market. In China and in Australia-New Zealand in particular, the trend is very gradual, as anticipated when third-quarter sales were announced."

Nutricia's financial statements for the year ended Dec. 31, 2012, lodged with the Companies Office, say in a note on events post balance date that the company's total value of inventory affected by the recall was $25.7 million.

Despite the profit drop, the local unit still paid a dividend of $72.3 million in 2013, up from $34.1 million a year earlier.

Of the eight customers affected by the recall the dairy exporter has agreed to a commercial outcome with all of them except Danone. In Januaru, Fonterra said it would "vigorously defend" itself against the Danone claim.

BusinessDesk.co.nz

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