Fonterra's Soprole paid higher prices for its milk in 2019. Photo / File
Fonterra's Soprole paid higher prices for its milk in 2019. Photo / File
Falling sales and declining milk supply drove Fonterra-controlled Soprole's net profit down by 24 per cent in 2019 - marking the third consecutive year of earnings shrinkage for the Chilean dairy food group.
Soprole's annual report shows its net profit came to 19.25 billion Chilean pesos (CLP) or NZ$37.5 million,in 2019 down from CLP25.41 billion in 2018 and CLP30.3b in 2017.
Over the years, the local farmer-owned dairy co-operative Colun has grown at the expense of Soprole, in which Fonterra's predecessor, the Dairy Board, bought a controlling stake in 1986.
In 2008, Fonterra took its holding in Soprole, a highly recognised Chilean brand, to a fraction under 100 per cent.
Last year was a difficult one for Chile. Violent protests over income inequality were met with a military crackdown by Government of President Sebastián Piñera.
In the annual report, Soprole's chairman Hugo Covarrubias Lalanne noted that the Chilean economy grew by just 1.1 per cent in 2019, compared with 4 per cent growth in the previous year.
In the dairy sector, the collection of milk at a national level fell by 1.4 per cent while the consolidated milk collection by Soprole and its key processor Prolesur, fell by 6.3 per cent.
Sales fell by 3 per cent while milk prices paid to producers rose by 12.7 per cent over the previous year.
In Chile, milk prices are tied to the import parity, which is linked to international prices.
Lalanne said Soprole had maintained its leadership in the Chilean dairy market, with strong positions in the yogurt, dessert and butter categories.
The company had also maintained its position as a significant player in the liquid milk and mature cheese categories.
He said a new management team at Prolesur had been given the objective of recovering the milk volumes necessary to ensure an efficient operational scale for its plants in Los Lagos and Osorno, in southern Chile.
Lalanne said it was an ambitious objective "considering we live in a country with a milk deficit of more than 250 million litres".
While Soprole's earnings declined in 2019, the company fared better than Fonterra's other South American assets.
Fonterra's half share in the Brazilian joint venture it has with Nestle - Dairy Partners Americas (DPA) - is for sale.
Early last year, Fonterra took a $126m hit over the sale of its stake in Venezuelan consumer joint venture, Corporacion Inlaca. Later, Fonterra revised down valuation of China Farms and DPA by $134m.
Fonterra chief executive Miles Hurrell said in March that while Fonterra had some South American assets under review, Soprole was not one of them.
However, he conceded Soprole was the odd one out, in that it takes very little product from Fonterra itself.
"Yes, it uses very little New Zealand milk ... but it is still a very good earner for our business," Hurrell told the Herald at the time.
Late last year Fonterra paid $29.3m to lift its stake in the Soprole supplier Prolesur to just under 100 per cent from 86.2 per cent.
Fonterra's representative on the Soprole board, Kelvin Wickham. Photo / Dean Purcell
Fonterra's chief executive for Africa, Middle East, Europe, North Asia and the Americas, Kelvin Wickham, said at the time the move would allow Fonterra to simplify the interface between Prolesur and Soprole and take steps to better integrate the two businesses.
"Prolesur and Soprole are both strong businesses but their recent performance has been impacted by challenging market conditions," said Wickham, is also Soprole's deputy chairman.
Both Soprole S.A. and Prolesur now come under the umbrella of Soprole Inversiones.
Soon after the Prolesur deal was announced in December, Soprole's chief executive Valeria Flen Silva resigned.
She has been replaced by Sebastian Tagle Perez, a former Soprole staffer who returned after a stint with Coca-Cola in Chile.
While Soprole is almost 100 per cent owned by Fonterra, it does have individual minority shareholders.
In Chile, companies with more than 500 shareholders need to furnish an annual report.
