Fonterra Shifts Direction

by | May 16, 2024 | Global, News

Fonterra has announced a major change in its strategic direction, and will explore full or partial divestment options for some or all of its global Consumer business and brands, including the integrated Fonterra Oceania which is the recently merged Fonterra Brands New Zealand and Fonterra Australia consumer and ingredients business (but excluding the Anchor food service brands).

Other units on the block include consumer operations (including the portfolio of brands) in Southeast Asia, China, US and Middle East. Collectively, the businesses in scope for potential sale used approximately 15% of the Co-op’s total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half of FY24.

Fonterra will retain its core ingredients business as well as the higher-performing food service unit.

In FY23, the Consumer & associated businesses (ex-Greater China) had NZ$5.4bn in revenue and NZ$127m in EBIT (underlying EBIT margin of 2.3%). Australia contributed 51% of revenue and 51% of EBIT (with an underlying EBIT margin of 3.0%). The “for sale” businesses delivered a EBIT return on capital of just 3.7% compared to 20% for the retained business.

Fonterra CEO Miles Hurrell said it believes it 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.

He went further to add that 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.

It is expected that a divestment process will take at least 12 to 18 months, and will need shareholder support.