Fonterra is looking at full or partial divestment options for some or all of its global consumer business, including well-known brands such as Anchor, and its integrated businesses Fonterra Oceania and Fonterra Sri Lanka. 

Chairman Peter McBride said it was a significant move for the co-op, which would set it up to grow long-term value for farmer shareholders and unit holders. 

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

“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. 

Chief executive Miles Hurrell said the review had also given the co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers. 

“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,” Hurrell said. 

Fonterra’s global Consumer business has grown over the years since Fonterra was formed and the co-op says it is performing well. It includes a portfolio of market-leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others. 

Hurrell said Fonterra had already received unsolicited interest in parts of these businesses. 

Collectively, the businesses in scope for potential divestment utilised about 15 per cent of the co-op’s total milk solids and about 19 per cent of Fonterra’s group operating earnings in the first half of 2024. 

Fonterra Oceania was recently formed after it merged Fonterra Brands NZ and Fonterra Australia. 

Together, the business used roughly 15 per cent of the co-op’s total milk solids and represented 19 per cent of the group’s operating earnings in the first half. 

Hurrell said divesting those assets would help create a simpler, higher-performing co-operative focusing on core ingredients. He said they expect the divestment process to take at least 12 to 18 months. 

Executive departure 

Fonterra also announced today the departure of Judith Swales as its global markets chief executive. 

Hurrell said the change in the co-op’s strategic direction presented a “natural juncture” at which Swales had considered her future. 

“Judith has been an important part of Fonterra since 2013, having started her time in our Australian business. She has held a variety of significant leadership roles across the co-op and has been a critical part of the Fonterra management team.” 

She will remain with the co-op until the end of July. 

Next steps 

“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,” Hurrell said. 

“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. 

Fonterra chief executive Miles Hurrell. Photo / NZME 

“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. 

“At the same time, 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,” Hurrell said. 

There was little market reaction to the news on the sharemarket. 

By mid-morning, the farmer-only shares in Fonterra were up 2c at $2.40, while Fonterra’s units added 8c to $3.50. 

Targets withdrawn 

Fonterra said it had withdrawn its targets outlined in its “Our Path to 2030″ strategy in 2021. 

One of the targets was to achieve earnings before interest and tax of $1.325b by the end of the decade. 

“These targets were based on a strategy which included the businesses that are now in scope for potential divestment and, in these circumstances, it is appropriate for Fonterra to withdraw these financial targets,” Hurrell said. 

Fonterra said it was also appropriate for Fonterra to terminate its on-market share buyback programme, which was expected to run until August 13, 2024. 

In background notes, Fonterra said its Ingredients business represented 80 per cent of the co-op’s New Zealand milk solids sold and returned $17.4b in revenue by selling a range of products in the full year of 2023. 

Fonterra’s Foodservice business represented 13 per cent of the co-op’s New Zealand milk solids sold and returned $3.9b in revenue by selling products such as UHT cream, cream cheese and mozzarella to customers including restaurants, bakeries and hospitality businesses. It has a strong position in Greater China. 

The co-op’s Consumer business represented 7 per cent of its milk solids sold and returned $3.3b in revenue. 

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.