Fonterra mulls return to just milk

25 days ago
Fonterra

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Fonterra is considering divesting all or part of its global consumer businesses as it focuses on its core function of collecting, processing and selling milk.

Following a strategic review, it has embarked on what it describes as a “step change in strategic direction”, and is exploring the sale of its consumer brands and integrated businesses, Fonterra Oceania and Fonterra Sri Lanka.

This will allow it to focus on being a business-to-business dairy nutrition provider, dealing in high-performing protein for the ingredients and foodservice channels. 

Chief executive Miles Hurrell said collectively the businesses being considered for divestment took about 15% of the co-operative’s total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half of this financial year.

The consumer businesses have delivered strong underlying earnings. 

“A divestment of these assets would help create a simpler, higher performing co-op with our focus on our core ingredients and foodservice business and doing what we do best,” Hurrell said.

The global consumer business has grown since Fonterra was formed and he said it is performing well.

The portfolio includes brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star and Perfect Italiano.

Fonterra Oceania is a fully integrated business, recently created through the merger of Fonterra Brands New Zealand and Fonterra Australia.

It comprises consumer, foodservice and ingredients businesses.

Fonterra Sri Lanka consists of consumer and foodservice businesses. 

“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk,” Hurrell said.

“Due to our co-operative structure we believe prioritising our ingredients and foodservice channels and releasing capital in our consumer and associated businesses would generate more value.”

In the 2023 year, Fonterra’s ingredients business represented about 80% of the co-op’s NZ milk solids sold and returned $17.4 billion in revenue.

In the same year foodservice represented about 13% of its milk solids sold and returned $3.9bn and its consumer business took about 7% of milk solids sold and returned $3.3bn in revenue.

Chair Peter McBride said the board believes Fonterra is not the highest value owner of the consumer and associated businesses in the long term and a new owner with the right expertise and resources could unlock their full potential. Fonterra will appoint advisers to assist with assessing divestment options, a process that could take 12 to 18 months. 

“The choices we make when considering divestment options will be driven by a clear-eyed view of the best value-creating pathway for the co-op, both in terms of the potential proceeds from a sale and the ability for Fonterra to generate consistent economic returns over the long-term,” Hurrell said. 

Any divestment decisions will require shareholder support and decisions about the use of net proceeds from a sale will be guided by the co-op’s Resource Allocation Framework.

It allocates funds to debt repayment, investment to support its strategy and distributions to shareholders and unit holders.

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