Danone’s Nutricia recalled $25.7m of infant formula in Fonterra food scare

French dairy giant Danone's Nutricia unit recalled $25.7 million of infant formula from the New Zealand market when it was caught up in Fonterra Cooperative Group's [NZX: FCG] false food alarm last year, according to financial statements for its local operation.

Nutricia's statements for the year to Dec 31, 2012, lodged with the Companies Office yesterday, say the company announced "a precautionary recall in the New Zealand domestic market of particular batches of products with the Karicare and Karicare gold brands". "Products manufactured for export to other group entities" were also caught up.

The total value of inventory affected by the recall was $25.7 million, the statements say in a note on events that occurred after balance date. Nutricia branded infant formula products were pulled off shelves in other markets, including Australia.

Earlier this month Danone severed its supply contract with Fonterra and filed proceedings in the High Court in Auckland seeking compensation over the recall and served arbitration papers to be heard in Singapore. The French company put the cost of last year's WPC 80 recall at 350 million euros when it announced its third-quarter results, while Auckland-based Fonterra recognised a contingent liability of just $14 million in its own accounts.

Last August, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria. The whey protein was ultimately cleared as a false alarm.

Of the eight customers affected by the recall, all but Danone agreed commercial settlements, including extending supply contracts for the next 10 years and agreeing to volume increases.

In December, Fonterra chief executive Theo Spierings said he expected any court action would show the New Zealand company has no liability in its contract, and the company has said it will "vigorously defend" Danone's claim.

The Nutricia accounts show the New Zealand unit boosted annual profit 69 percent to $61.1 million in calendar 2012, with a 59 percent jump in revenue to $373 million. It fattened its gross margin to 34 percent in the year from 31 percent in 2011.

As at Dec. 31, 2012, Nutricia's inventory grew to $60.6 million of stock from $27.3 million a year earlier, with a largely even split between finished goods and raw materials.

Nutricia paid a dividend of $34.1 million in 2012, more than four times the near $8 million return it made in 2011. Post-balance date, the unit paid a further dividend of $72.3 million in April last year.

(BusinessDesk)