Fonterra plans to sell its consumer arms

Terminates buyback program; withdraws long-term targets
calendar icon 16 May 2024
clock icon 2 minute read

New Zealand dairy giant Fonterra Co-operative is planning a full or partial sale of its global consumer unit, its Fonterra Oceania unit and Sri Lankan business, looking to focus on its milk solids supply business, the company said on Thursday, according to Reuters.

Fonterra said it wants to grow its ingredients and foodservice business-to-business arms, which made up around 93% of its sales of milk solids from New Zealand in fiscal 2023, after facing criticism over an ambitious overseas expansion.

"This is a significant move for the Co-op which will set it up to grow long-term value for farmer shareholders and unit holders," Chairman Peter McBride said on Thursday.

The consumer business going up for sale includes a portfolio of market leading dairy brands such as Anchor and Mainland.

Shares of the dairy co-operative were trading 2.9% higher at NZ$2.45 as of 2251 GMT.

Following its strategic review, Fonterra also withdrew its long-term target of, among others, achieving a 40-50% increase in operating profit by fiscal 2030 and group return on capital of 9-10% on fiscal 2021 levels.

Over the past few years, Fonterra has shifted its focus to its core business in New Zealand after its 10,000 farmer shareholders protested rising costs and mounting debt tied to the co-op's offshore expansion.

However, the road to recovery has not been smooth as tight restrictions during the pandemic and a slowing birth rate in China, Fonterra's largest market, among a slew of other factors, pressured Fonterra's profits and share price.

Fonterra Oceania and Sri Lanka divisions comprise consumer, foodservice and ingredients businesses.

The businesses being considered for sale contribute about 19% to group's operating earnings in the first-half of fiscal 2024, Fonterra said.

"A divestment of these assets would help create a simpler, higher performing Co-op," CEO Miles Hurrell said in an exchange filing.

Hurrell said the sale would be subject to the approval of shareholders.

Fonterra said its head of Global Markets business, Judith Swales, will leave the co-operative in July 2024 following its strategic decision.

The dairy co-operative also terminated its on-market share buyback programme scheduled to end in mid-August, adding it remained committed to shareholder returns through dividends or through the prices it pays to its farmers for milk solids.

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