(Yicai Global) March 19 -- New Zealand dairy product giant Fonterra Cooperative Group has confirmed it is proceeding with the sale of its China ranches despite a marked improvement in its last half year financial performance and an upswing in the Chinese food service sector.

Sales processes for China Farms are well underway, Chief Executive Miles Hurrell said at the firm's latest earnings report meeting yesterday.

The company is keen to offload several unprofitable foreign assets to rebalance its books which have tipped into the red in recent years. Last year, it sold at a significant loss its 18.8 percent stake in Hangzhou-based Beingmate Baby and Child Food. It is also in the process of finding a buyer for its share in Sao Paulo, Brazil-based Dairy Partners Americas, a joint venture with Swiss food group Nestle.

The dairy products maker has two ranches in Yutian county, northern Hebei province and Ying county, northern Shanxi province, with over 60,000 cows. The company has invested NZD1 billion (USD566.6 million) in its China Farms division over the last decade but the venture has proved to be very capital intensive with little return.

The Auckland-based firm is prepared to take a hit of NZD199 million from the sale of the China Farms joint venture, ranches and DPA Brazil, Hurrell said.

Rebounding Profits

Fonterra's net profit in the six months ended Jan. 31 was NZD501 million (USD284 million), a seven-fold leap from the same period last year, according to the firm's earnings report.

Total group normalized earnings before interest and tax were NZD584 million in the same period, NZD272 million more than a year earlier. That was accomplished through stable underlying earnings from the firm's ingredients business, improving gross margins in food services and reducing operating expenses, Hurrell said.

Fonterra's food services business did particularly well. Its gross margin surged by over 50 percent to NZD260 million on growing sales to bakeries, coffee and tea houses across China and Asia.

Uncertain Future

"I am pleased with the progress and momentum Fonterra has achieved in the first six months of the financial year," Hurrell said. "However, Fonterra is now operating in a very different global context as a result of Covid-19."

The outbreak has brought many uncertainties for worldwide demand in the second half, he added.

Though the Chinese food services sector is gradually returning to normal with 90 percent of Starbucks and McDonalds outlets now reopened, there remain many uncontrollable risks in the wider global arena.

Editor: Kim Taylor