Fonterra pulls back from the plan to sell Australian arm

AUSTRALIA – Global dairy nutrition company, Fonterra, has withdrawn plans to sell its Australian arm, saying business in the country is “going well”.

On the release of its FY21 results, the New Zealand dairy cooperative announced it was looking to offload its Australian operations, Chilean operations Sorpole and Prolesur, a move termed “asset evaluation.”

Fonterra CEO, Miles Hurrell, said: “We’ve looked at several options for our Australian business and have decided that it’s in the co-op’s best interests to maintain full ownership. Australia plays an important role in our consumer strategy with several common and complementary brands and products and as a destination for our New Zealand milk solids.

The business is going well, and it will play a key role in helping us get to our 2030 strategic targets. Even though we have decided not to sell a stake in our Australian business, we are still committed to targeting a significant capital return to our shareholders and unitholders.

The amount of any capital return will ultimately be determined on some factors, including the successful completion of the divestment program as well as our ongoing debt and earnings levels.”

In Australia, Fonterra owns brands Western Star butter, Perfect Italiano, and Mainland cheese, as well as a license to produce some Bega branded products.

In addition, Hurrell, who took over the company’s leadership in 2018, confirmed the sale of the Soprole business was “progressing”, despite reports of protests at its Chilean plant earlier this month.

Fonterra also expects to sell its Hangu China Farm and its Brazil consumer and foodservice business in the coming year, after both sales were delayed.

The company had initially agreed to sell its Hangu farm to the minority 15% shareholder, but that fell through and it bought the minority stake in January and is actively marketing the farm for sale.

The dairy wrote down the value of its Brazil venture by US$57m in its annual accounts, noting the sales process was delayed due to market conditions related to Covid-19 but said it remains committed to the sale.

One year on, the co-op is making tangible progress against its strategy, namely, to focus on New Zealand milk, be a leader in sustainability, and be a leader in dairy innovation and science, as it targets by 2030 to have a return of around US$1 billion to shareholders and unitholders.

Meanwhile, Forsyth Barr analysts said, Fonterra, which is selling overseas assets to focus on New Zealand milk, could get US$840 million for its dairy business in Chile, which is seven times its estimated US$120m profit before interest, tax, depreciation, and amortization (EBITDA).

In a research note, Forsyth Barr analysts Matt Montgomerie and Andy Bowley said the performance of Fonterra’s Chile business continued to improve, with annual profit before interest and tax of US$92m – more than double the US$42m in 2020.

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