New Zealand dairy co-op Fonterra is progressing with plans to divest its global consumer business and integrated businesses Fonterra Oceania and Sri Lanka.
Fonterra announced in November that it is exploring both a trade sale and initial public offering (IPO) as divestment options, and intends to test the terms and value of a trade sale and IPO before selecting an option to put to farmer shareholders.
In an update, the co-op said it will engage with potential buyers over the coming weeks, and has chosen key management team members and a corporate brand for the entity if it is to be publicly listed.
“Fonterra has chosen Mainland Group as the corporate brand for the group if we are to proceed with an IPO,” said CEO Miles Hurrell. “The Mainland brand has strong New Zealand dairy heritage and is also well known by consumers in New Zealand, Australia and across many of our global markets.”
Fonterra’s managing director of global markets consumer and foodservice, René Dedoncker, has been named as CEO-elect for Mainland Group, and Paul Victor has been appointed CFO-elect.
“René and Paul are very capable leaders with the experience to take these businesses forward into their next phase,” added Hurrell. “Both will lead roadshow meetings with potential investor groups, commencing in March.
Related: Fonterra dairy co-op reports NZ$1.16bn profit for 2024
“We recognise the ongoing interest in the divestment process and will provide further updates as we make progress.”
Last week Fonterra also announced new incentives for farmers to reduce emissions. Starting in June, the co-op will make additional payments of 1-5 cents per kilogram of milk solids (kgMS) to farms that achieve its emissions excellence criteria, additional to existing payments offered as part of its Co-operative Difference framework.
To meet the criteria, milk must be produced at an emissions level lower than the co-op’s 2017/2018 baseline. Fonterra estimates that around 5,000 farms will be eligible for this payment next season.
Further incentives have been confirmed via agreements with Mars and Nestlé, including access to on-farm tools or services designed to further improve emissions efficiency and an additional 10-25 cents per kgMS payment for farmers who achieve Fonterra’s Co-operative Difference and have one of the lowest emissions footprints in the co-op.
As part of its target to become net zero by 2050, Fonterra aims to reduce on-farm emissions by 30% by 2030 from a 2018 baseline.
“We’re growing relationships with customers who value the hard work farmers put into producing sustainable, high-quality milk, along with the co-op’s quality of on-farm data and ongoing commitment to improvement. This helps us make progress towards achieving our on-farm emissions target and deliver the highest returns for our farmer shareholders’ milk,” said Hurrell.
Meanwhile, in an update on its forecast for FY25, the co-op anticipates earnings will be in the upper half of the previously announced forecast earnings range of 40-60 cents per share.
“As we prepare our FY25 interim results for release on 20 March, we can see we’ve maintained the momentum from Q1. Further to this, good pasture growth across most of New Zealand to date has meant our forecast collections for the season are up,” said Hurrell.
“The co-op’s earnings momentum is driven by strong demand across our sales channels. Subject to audit, our first half accounts indicate our full year forecast earnings for FY25 will be in the upper half of the 40-60 cents per share range.
“Fonterra’s earnings and the forecast Farmgate Milk Price have both benefitted from solid demand for our high value Ingredients products, and our sales book is well contracted for the season.
“Considering these factors, we expect to be in a position to pay a strong interim dividend. Our revised dividend policy released in September 2024 is 60-80% of full year earnings, with up to 50% of full year dividend to be paid at interims.”
