New Zealand’s global dairy giant Fonterra continues to go on a diet. It has sold much of its direct operations in China and several industry sectors, now it is looking at exiting Australia via a spin-off in a way similar to the way Wesfarmers got rid of Coles and Woolies quit its Endeavour liquor and hotels business.
Fonterra’s Australian shares jumped 6% on the news on Thursday to $3.87 after the company revealed its 2020-21 figures and the results of a long, long strategic review.
Part of that review is the decision to focus more on its core businesses in New Zealand
As a result Fonterra says it is considering spinning out its Australian operations, potentially as part of an IPO.
If it does that, Fonterra’s Australian business will join Bega as a major dairy company – in 2013 Fonterra eyed off Bega and took a stake in an attempt to grab a seat in the industry rationalisation that started in that year and continued off and on for the next seven years.
Now Bega is one of the biggest dairy companies in the country, along with Canadian group Saputo. Bega is completing the takeover of the Lion (Kirin) dairy milk and cheese businesses, a deal which made it the largest Australian owned food company.
Now Fonterra wants to leave Australia and Chile in a policy change that will see Fonterra focus more and more on NZ milk and the value of that brand and image.
The dairy co-op said its intention was to retain a significant stake in the Australian business but was conducting an ownership review with options on the table including an ASX float.
In the results release, Fonterra revealed that the Australian operations reported revenue of $NZ1.953 billion, down 4% and had earnings before interest and tax of $NZ72 million, up 37% which was “due to a strong performance in the consumer channel.”
“By having access to ongoing external capital, we believe the Australian business will be best placed to deliver on its strategy and capture its full potential, at the same time as unlocking capital for the Co-op,” CEO Miles Hurrell said on Thursday.
Fonterra said it now believes it has an opportunity to differentiate New Zealand milk further on the world stage, with the aim of getting more value from the Co-op’s milk.
This will require Fonterra to focus its capital and people on enhancing New Zealand milk and for these reasons the Co-op has reviewed the ownership of its two other milk pools – in Australia and Chile.
“Soprole is a leading Chilean dairy brand, and Prolesur is a subsidiary of Soprole focused on sourcing milk and manufacturing products in Southern Chile. The operations do not require any New Zealand-sourced milk or expertise, and in this context, we are starting the process to divest our integrated investment in Chile.
“Fonterra Australia is on strategy for the Co-op and remains an important export market for our New Zealand milk, especially for Foodservice products and advanced ingredients. We are considering the most appropriate ownership structure for this business, one option is an IPO, with the intention that we retain a significant stake.
Mr Hurrell says to strengthen the value proposition of its New Zealand milk, the Co-op will increase investment in sustainability and R&D.
“New Zealand has the unique position of being the lowest carbon producing dairy nation on the planet and when you combine this with our pasture-based model, animal welfare standards and scale efficiency, we have something that can’t be replicated
“We see both these moves as critical to enabling greater focus on our New Zealand milk
For the year the dairy giant will pay shareholders a final dividend of 15 cents, compared to 5c last year after posting a full year profit after tax of $NZ599 million.
CEO Hurrell said the business had made good progress on its reset and been able to strengthen its balance sheet over the past five years.
The statutory profit figure is a $NZ60 million drop on 2020, but those numbers were impacted by the divestments of the DFE Pharma and Foodspring businesses.
The company’s underlying profits of $NZ588 million were a $NZ190 million improvement on 2020.
Fonterra was able to lower its net debt by $NZ872 compared with last year.
Shareholders’ full year payout is $NZ0.20 per share on top of the five cent NZ interim.
