Fonterra’s China revenue falls 61% in volatile market.

Fonterra's half-year result - which revealed a 16 per cent profit drop and a cut to the forecast dividend - was a disappointment for farmers and investors in the co-operative's listed shareholders' fund.

But an aspect of the interim financials that didn't get much attention last week was the precipitous decline in Chinese revenue the company experienced in the six months to January 31.

Sales in Fonterra's largest market slumped to $1.2 billion from $3.1 billion in the same period a year earlier.

That's a whopping 61 per cent decline, well ahead of the next biggest geographical revenue fall of 29 per cent in Europe.

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It underlines the extreme volatility Fonterra has been dealing with in China and the ongoing challenges it faces there.

Aggressive Chinese buying during the latter part of 2013, into early 2014, helped to inflate global dairy prices and resulted in a massive build-up of inventory in China.

To put it in perspective, the $3.1 billion Chinese revenue Fonterra posted for the six months to the end of January 2014 was a 138 per cent increase on the $1.3 billion it reported for the half-year up to January 2013.

But the spike in demand wasn't to last.

High inventory levels had put the brakes on Chinese buying by the middle of last year. That drop in demand has been a factor in the dairy price downturn New Zealand farmers are now facing.

Speaking to the Business Herald last week, Fonterra chief financial officer Lukas Paravicini attributed the half-year slump in Chinese revenue to a combination of lower dairy prices, which were a negative for the co-op's ingredients business, and weak demand.

It appears the latter factor was the biggest contributor to the decline.

Fonterra's half-year revenue across the rest of Asia fell only 5 per cent, to $2.6 billion, despite falling dairy prices.

Demand to remain weak

So when might Chinese demand return to normal?

Paravicini expressed some optimism, saying Fonterra's core ingredients business in China had experienced "a bit" of a recovery.

"We're still in a supply-rich and demand-weak environment and that includes China," he said.

However, it hasn't been all bad news for Fonterra in the world's second-biggest economy.

Sales in its China consumer and foodservice business, which benefits from lower dairy prices, lifted 32 per cent to $389 million in the six months to January 31.

Rabobank senior analyst Michael Harvey told Stock Takes that Chinese dairy buyers were still working through inventory.

"At least for the next few months it looks like it's going to be a challenging market."

Harvey said Fonterra's sales boom and subsequent slump highlighted how difficult the Chinese dairy market was to gauge.

"It's an extremely opaque market," he said. "We've got people on the ground there and we try to interpret what we see happening there but it's a very hard market to read." Units in the Fonterra Shareholders' Fund closed down 4c at $5.54 last night.

Craigs bullish on Gentrack

Craigs Investment Partners has initiated coverage of Gentrack, slapping a buy recommendation on the technology stock.

The Auckland-based company, which floated on the NZX and ASX last June, develops management software used by water and energy utilities, as well as airports.

It had a shaky start to life as a public firm, with a downgrade to its profit guidance issued just five weeks after the listing due to delays with major contracts.

The announcement prompted Gentrack shares to slump below their $2.40 offer price and they closed as low as $2.03 in October.

The stock has been resurgent since the start of February, however, rising about 16 per cent to close at $2.40 last night.

Craigs analyst Mohandeep Singh has placed a 12-month target price of $2.55 on Gentrack.

He said the company's results for the 2014 financial year had been disappointing, but an improved performance was expected in the current year.

In November, the company reported a full-year net profit of $3.4 million from revenue of $38.5 million, missing prospectus forecasts by 8 per cent and 5.2 per cent respectively.

Singh, who has forecast profit to rise to $9.7 million in 2015, said deregulation in New Zealand's utilities market had given Gentrack a boost. Similar changes in other markets could provide further opportunities, he said.

"Regulatory and compliance changes and greater retail competition will drive [Gentrack's] utilities business, while a focus on efficiencies and passenger experience will be some of the key drivers for its airports business." Singh said the contract difficulties the company faced last year highlighted the potential volatility in the project-based portion of the firm's revenue.

IPO marred by tragedy

An Australian skydiving company was celebrating its successful ASX listing last week when tragedy struck a company it is looking to acquire.

Shares in tandem jump operator Skydive the Beach closed at A39c - a 56 per cent premium to the A25c offer price - after the stock made its sharemarket debut on Friday.

But shortly after market close news broke of a fatal skydiving accident near Byron Bay.

Michael Vaughan and Alana Clarke plummeted to the ground after their parachutes became entangled during a complex aerial manoeuvre.

Clarke died at the scene, while Vaughan succumbed to his injuries at a Gold Coast hospital on Saturday night.

The skydiving firm's shares fell 14 per cent to close at A33.5c on Monday.

Clarke and Vaughan, both experienced solo jumpers, made their fatal jump with Australia Skydive, which Skydive the Beach is gearing up to acquire with some of the A$25 million it raised through its initial public offering.

In a statement on Monday, Skydive the Beach said the accident was unlikely to have a material impact on Australia Skydive and it was proceeding with the acquisition.

"The company expresses is sincere condolences to all those affected by this tragedy."

Skydive the Beach operates 20 aircraft and and offers jumps at 13 locations across Australia. Its shares were trading at A33c yesterday.