Community
13 June, 2024
Fonterra looks to divest Australian interests
FONTERRA Co-operative Group Ltd has announced a step-change in its strategic direction, as it commits to deepening its position as a world-leading provider of high-value, innovative dairy ingredients.
As part of this, the Co-op has announced it is exploring full or partial divestment options for some or all of its global consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
The divestment decision could see the Fonterra Cobden site impacted.
Chairman Peter McBride described it as a “significant move” for the Co-op which will set it up to grow long-term value for farmer shareholders and unit holders.
“We have conducted a strategic review which has reinforced the role of our core business,” he said.
“This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders.”
Fonterra Co-Operative Group Ltd chief executive officer Miles Hurrell said the review has also given the Co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers.
“We believe we can grow further value for the Co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” he said.
“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation.
“In this context, we are exploring divestment options for our global Consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka.”
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.
Collectively, the businesses in scope for potential divestment utilised approximately 15 per cent of the Co-op’s total milk solids and represented approximately 19 per cent of Fonterra’s group operating earnings in the first half of FY24, with its consumer businesses delivering 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,” Mr Hurrell said.
“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.
“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.
“At the same time, we believe Fonterra is not the highest-value owner of the Consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential.”
As a next step, Fonterra will appoint advisors to assist with assessing divestment options.
Mr Hurrell said the company recognised a divestment of this scale would be significant for Fonterra.
“Throughout this process we will be considering how best to maximise overall returns to our farmer shareholders and unit holders,” he said.
“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.
“We expect a divestment process to take at least 12 to 18 months. If we were to proceed with a divestment of this size we would seek shareholder support.”
Mr Hurrell said Fonterra would continue to provide updates on its forecast Farmgate Milk Price and earnings guidance as part of the quarterly reporting process or as required.
“Through our work to date, Fonterra has strong foundations which puts us in the position to consider where we will next invest for long-term growth,” he said.
“We intend to provide a further update on our revised long-term strategy in due course.
“This will include further detail on our plans to grow the long-term value of Fonterra and the measures through which we will track our progress.”