New Zealand dairy co-op giant Fonterra has announced “a step-change in its strategic direction”, and is looking at divesting from its global consumer businesses to focus on its core ingredients and food-service channels.
The co-op is also looking at selling off its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
“We have conducted a strategic review which has reinforced the role of our core business,” said chair Peter McBride. “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.”
CEO Miles Hurrell added that the review has given the co-op confidence in the role it plays in the dairy nutrition value chain, producing “world-class, innovative ingredients for customers to take to consumers”.
He said: “We believe we can grow further value for the co-op by focusing on being a business-to-business dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels.
“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.
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“In this context, we are exploring divestment options for our global consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka.”
Fonterra says its global consumer business has grown over the years and is performing well, with a portfolio of market leading brands including Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, and Perfect Italiano.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises consumer, foodservice and ingredients businesses. Fonterra Sri Lanka comprises consumer and foodservice businesses.
Collectively, the businesses in scope for potential divestment 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 2024, with consumer businesses delivering strong underlying earnings.
“A divestment of these assets would help create a simpler, higher performing co-op with our focus on our core Ingredients and Foodservice business and doing what we do best,” said Hurrell.
“While these are great businesses with recent strengthening in performance and potential for more, 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.”
He added: “We believe Fonterra 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.
“This presents a great opportunity for these brands and businesses. While I recognise there’s a strong connection to brands such as Anchor, a new owner could help these businesses to flourish.
“We have also received unsolicited interest in parts of these businesses, making now a good time to consider their ownership,” said Hurrell.
As a next step, Fonterra will appoint advisors to assist with assessing divestment options.
“We recognise a divestment of this scale would be significant for Fonterra,” added Hurrell. “Throughout this process we will be considering how best to maximise overall returns to our farmer shareholders and unit holders.
“The choices we make when considering divestment options will be driven by a clear-eyed view of the best value creating pathway for the co-op – both in terms of the potential proceeds from a sale and the ability for Fonterra to generate consistent economic returns over the long-term.”
Any divestment process would take at least 12 to 18 months.
