Two of Australasia’s major dairy companies could be on the market and sold by early 2019 after Japanese food and brewing group, Kirin revealed it was launching a review of its Australian and New Zealand businesses with a view to selling them.
The news came hard on the heels of news that analysts believe that Fonterra, the world’s biggest dairy exporter and New Zealand’s biggest company, Fonterra is expected to report a sharp fall in annual earnings tomorrow, and even its first ever loss, according to NZ analysts.
The Kirin announcement that it could see its Australian and New Zealand dairy businesses also comes after a number of Australian dairy assets have changed hands in recent years with Canada’s Saputo being the major acquirer, picking up Warnambool Cheese and Butter Factor and Murray Goulburn and Bega Cheese selling a milk plant in 2017 to US group Mead Johnson and then buying a western Victorian plant from Saputo last month.
Fonterra itself has added volume and farmers in Australia in the fallout of Murray Goulburn’s cheap milk debacle which exposed it to takeover by the Canadian group eventually.
Kirin said on Tuesday it is launching a strategic review into its Australian and New Zealand dairy business Lion-Dairy and Drinks (LDD) and was considering their sale.
The Japanese beer group said it “will give consideration to all potential options for LDD, including retaining and investing in the business and a sale of LDD” following a 2014 turnaround program and medium-term business plan in 2016.
LDD owns brands including Dairy Farmers and Pura and has been part of Kirin’s Australian subsidiary Lion, which was formed when the Japanese group bought brewer Lion Nathan in 2009. Dairy Farmers is one of the major dairy operations in Australia, especially in NSW.
Fonterra won’t be interested – its NZ arm is too big and in too much trouble financially, while it is a major player in Australia as well and would have competition problems here as well.
Tomorrow will see Fonterra release its full-year figures and analysts are forecasting a loss at worst, or a very small profit at best.
The company has never reported a loss in its 17 years of existence. Last year Fonterra recorded an $NZ745 million profit, but in March reported an $NZ348 million loss for the first half of the year.
The negative interim result followed a write-down of $NZ405 million in its Beingmate investment and the payout of $NZ183 million to global infant formula maker Danone for the 2012 botulism scare.
“It’s likely to be a pretty weak result given they’ve had to strengthen their balance sheet by reducing the milk price and the dividend. That adds up to either a low profit or none,” ASB analyst Nathan Penny told Fairfax Media in NZ.
A month ago Fonterra reduced last season’s farmgate milk price to $NZ6.70 per kilogram of milksolids from $NZ6.75/kg, and cut its full-year dividend to just the 10 cents already paid in April.
Forsyth Barr head of research Andy Bowley said his analyst team was forecasting an earnings downgrade.
“We’re expecting Fonterra to report net earnings of around half of what was generated last year, given significant margin pressure across the business,” he told Fairfax Media.
