Fonterra considers divestment of consumer business

NEW ZEALAND – Fonterra Co-operative Group Ltd has unveiled an important strategic shift plan, aiming to strengthen its position as a global leader in high-value dairy ingredients.

As part of the plan, the cooperative is exploring options for full or partial divestment of its global Consumer business, as well as integrated businesses Fonterra Oceania and Fonterra Sri Lanka.

According to Chairman Peter McBride, the move is set to enhance long-term value for farmer shareholders and unit holders.

McBride highlighted the crucial role of the core business in collaborating with farmers to collect sustainable milk and manufacture sought-after products, generating robust returns for stakeholders.

“We have conducted a strategic review which has reinforced the role of our core business. 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,” he said.

In addition, CEO Miles Hurrell outlined the company’s confidence in its role within the dairy nutrition value chain, particularly in producing innovative ingredients for customers.

Hurrell explained the plan to focus on being a business-to-business (B2B) dairy nutrition provider, leveraging strong relationships with farmers and strategic partnerships with customers to drive growth.

“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. 

The divestment consideration involves businesses that collectively utilize approximately 15% of the cooperative’s total milk solids and contribute approximately 19% of Fonterra’s group operating earnings in the first half of FY24.

While these businesses have demonstrated strong performance, the cooperative believes that prioritizing its Ingredients and Foodservice channels would unlock greater value.

The CEO emphasized that while Fonterra values its Consumers and associated businesses, it believes that divestment could attract new owners with the expertise and resources to maximize their potential.

Additionally, Fonterra will appoint advisors to assess divestment options, with the process expected to take 12 to 18 months. Shareholder support will be sought if the cooperative proceeds with divestment of this scale.

Meanwhile, the cooperative has also announced the withdrawal of its long-term financial targets, including the termination of its on-market share buyback program.

However, it reaffirmed its commitment to maximizing returns through the Farmgate Milk Price and dividends, while maintaining a strong return on capital.

Despite these strategic changes, Fonterra assured its commitment to its sustainability targets and cost-efficiency initiatives. It intends to provide further updates on its revised long-term strategy, detailing plans for long-term value growth and progress tracking measures.

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