In a bid to become a global B2B dairy nutrition provider, dairy co-op Fonterra says it’s looking to divest some or all its global consumer business, including Fonterra Oceania.
In February the co-op merged Fonterra Brands New Zealand and Fonterra Australia to create the Oceania business unit to strengthen its trans-Tasman offering in an “increasingly competitive marketplace”.
CEO Miles Hurrell said a strategic review had given the co-op confidence in the role it plays in the dairy nutrition value chain to make the “step-change”. One of its greatest strengths was 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 B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” Hurrell said.
Fonterra’s global Consumer business includes brands Mainland, Western Star, Perfect Italiano, Anchor, Kāpiti, Anlene, Anmum, and Fernleaf.
Fonterra Oceania has Consumer, Foodservice and Ingredients businesses while Fonterra Sri Lanka had Consumer and Foodservice operations.
The businesses in the divestment scope accounted for around 19 per cent of group operating earnings in the first half of FY24 and use roughly 15 per cent of the co-op’s total milk solids.
Hurrell said the co-op recognised a divestment of this scale would have a significant impact, with the process taking at least 12-18 months, and needing shareholder support.
“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.
In FY23, Fonterra’s:
- Ingredients business represented ~80 per cent of the co-op’s New Zealand milk solids sold and returned NZ$17.4 billion in revenue;
- Foodservice business represented ~13 per cent of the co-op’s New Zealand milk solids sold and returned NZ$3.9 billion in revenue; and
- Consumer business represented ~7 per cent of the co-op’s New Zealand milk solids sold and returned $3.3 billion in revenue.
“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,” Hurrell said.
Global Markets CEO to leave Fonterra
The strategic step-change will see Global Markets CEO Judith Swales leave the co-op. Hurrell said the change was a “natural juncture at which Judith has considered her future”.
Swales had been at Fonterra for 11 years, starting in the Australian business and holding a range of leadership roles across the company. Hurrell said she had been a “critical part” of the management team.
“Judith is a high-performing executive with achievements including the standing up of our Global Markets region, which is currently performing very well; the successful turnaround in the performance of our Consumer business, putting it on a pathway for a stronger future with some of the world’s most trusted and loved dairy brands; and leading our Velocity transformation programme.
“Judith has always been a strong advocate for the voice of the customer and her dedication has set our Consumer business up for future success.
“I would like to acknowledge and thank Judith for her significant contribution to Fonterra, and wish her well with her next endeavours,” Hurrell said.
Swales will remain with the co-op until 31 July.
