Fonterra is advancing with plans to divest its consumer-oriented dairy business, exploring options that include either an initial public offering (IPO) or a sale to a trade buyer. This decision reflects the cooperative’s strategic shift towards enhancing its focus on dairy ingredients and the foodservice sector.
The New Zealand-based cooperative, known for producing popular brands like Anchor butter and Mammoth flavored milk beverages, initiated a <ahref=”https://www.just-food.com/news/fonterra-puts-consumer-business-on-chopping-block-to-focus-on-ingredients/?cf-view” target=”_blank”>strategic review of its consumer division in May of the previous year. This assessment aimed to better align with Fonterra’s core priorities.
CEO Miles Hurrell announced on November 11 that the company determined both trade sales and IPOs as viable paths for divestment. He stated, “Through the scoping phase, we have assessed both a trade sale and IPO as attractive divestment options and will now prepare for a sale process which will pursue both options.” The process will involve thorough market evaluations to ascertain the best terms and values before seeking farmer shareholders’ backing for the chosen divestment route through a vote.
Fonterra further indicated that advisors have been appointed to facilitate the divestment strategy, which also encompasses the sale of its Fonterra Oceania and Fonterra Sri Lanka operations. The cooperative noted that these assets have attracted substantial buyer interest.
The decision to review these consumer-focused assets was grounded in Fonterra’s belief that such divestitures would serve its “best interests” and maximize shareholder value. The consumer portfolio includes brands like De Winkel and Fresh ‘n’ Fruity yogurts as well as the Primo line of flavored milk beverages.
Shares for Fonterra finished today’s trading session at 4.50 New Zealand dollars, reflecting a robust 6.1% increase, which contributes to an impressive 80% surge year-to-date. This market momentum aligns with Hurrell’s assertion last year that the consumer division’s assets are “not required to fulfill Fonterra’s core function of collecting, processing and selling milk.”
He elaborated, “Due to our cooperative structure, we believe prioritizing our ingredients and foodservice channels, while releasing capital from our consumer and associated businesses, would generate more value.” Hurrell emphasized that Fonterra might not be the optimal owner of these consumer assets in the long run, suggesting that divestment could enable a new owner to harness the full potential of those businesses.
Historically, the consumer businesses utilized about 15% of the cooperative’s milk solids. In terms of profitability, ingredients remain Fonterra’s top profit driver, followed closely by the foodservice sector. However, recent reports indicated a decline in EBIT from ingredients, falling to NZ$898 million ($536.2 million) in fiscal 2024 from NZ$1.6 billion the previous year. Meanwhile, foodservice experienced a notable growth in EBIT to NZ$463 million, up 42%, while the consumer division posted a profit of NZ$199 million, a significant turnaround from the NZ$125 million loss recorded earlier.
At the group level, EBIT decreased by 11% to NZ$1.56 billion on a total revenue of NZ$22.8 billion, which also marked a 6.9% drop. Additionally, profit after tax fell 25% to NZ$1.2 billion, with earnings per share from continuing operations declining to 70 cents from 75 cents.
Moreover, Fonterra has offloaded other assets, including its minority stake in the Lithuanian dairy company Rokiškio Sūris. The cooperative also exited a dairy joint venture with Nestlé in Brazil by selling its 51% stake in Dairy Partners Americas. Fonterra further ceased operations in Chile through its Soprole business and dissolved another joint venture in India—Fonterra Future Dairy.
In summary, Fonterra’s strategic pivot to focus on core ingredients and foodservice aligns with ongoing trends in the food and beverage industry. This realignment positions the cooperative to enhance its profitability while exploring significant opportunities in the evolving food and drink business landscape.
