NZ Herald
  • Home
  • Latest news
  • Herald NOW
  • Video
  • New Zealand
  • Sport
  • World
  • Business
  • Entertainment
  • Podcasts
  • Quizzes
  • Opinion
  • Lifestyle
  • Travel
  • Viva
  • Weather

Subscriptions

  • Herald Premium
  • Viva Premium
  • The Listener
  • BusinessDesk

Sections

  • Latest news
  • New Zealand
    • All New Zealand
    • Crime
    • Politics
    • Education
    • Open Justice
    • Scam Update
  • Herald NOW
  • On The Up
  • World
    • All World
    • Australia
    • Asia
    • UK
    • United States
    • Middle East
    • Europe
    • Pacific
  • Business
    • All Business
    • MarketsSharesCurrencyCommoditiesStock TakesCrypto
    • Markets with Madison
    • Media Insider
    • Business analysis
    • Personal financeKiwiSaverInterest ratesTaxInvestment
    • EconomyInflationGDPOfficial cash rateEmployment
    • Small business
    • Business reportsMood of the BoardroomProject AucklandSustainable business and financeCapital markets reportAgribusiness reportInfrastructure reportDynamic business
    • Deloitte Top 200 Awards
    • CompaniesAged CareAgribusinessAirlinesBanking and financeConstructionEnergyFreight and logisticsHealthcareManufacturingMedia and MarketingRetailTelecommunicationsTourism
  • Opinion
    • All Opinion
    • Analysis
    • Editorials
    • Business analysis
    • Premium opinion
    • Letters to the editor
  • Politics
  • Sport
    • All Sport
    • OlympicsParalympics
    • RugbySuper RugbyNPCAll BlacksBlack FernsRugby sevensSchool rugby
    • CricketBlack CapsWhite Ferns
    • Racing
    • NetballSilver Ferns
    • LeagueWarriorsNRL
    • FootballWellington PhoenixAuckland FCAll WhitesFootball FernsEnglish Premier League
    • GolfNZ Open
    • MotorsportFormula 1
    • Boxing
    • UFC
    • BasketballNBABreakersTall BlacksTall Ferns
    • Tennis
    • Cycling
    • Athletics
    • SailingAmerica's CupSailGP
    • Rowing
  • Lifestyle
    • All Lifestyle
    • Viva - Food, fashion & beauty
    • Society Insider
    • Royals
    • Sex & relationships
    • Food & drinkRecipesRecipe collectionsRestaurant reviewsRestaurant bookings
    • Health & wellbeing
    • Fashion & beauty
    • Pets & animals
    • The Selection - Shop the trendsShop fashionShop beautyShop entertainmentShop giftsShop home & living
    • Milford's Investing Place
  • Entertainment
    • All Entertainment
    • TV
    • MoviesMovie reviews
    • MusicMusic reviews
    • BooksBook reviews
    • Culture
    • ReviewsBook reviewsMovie reviewsMusic reviewsRestaurant reviews
  • Travel
    • All Travel
    • News
    • New ZealandNorthlandAucklandWellingtonCanterburyOtago / QueenstownNelson-TasmanBest NZ beaches
    • International travelAustraliaPacific IslandsEuropeUKUSAAfricaAsia
    • Rail holidays
    • Cruise holidays
    • Ski holidays
    • Luxury travel
    • Adventure travel
  • Kāhu Māori news
  • Environment
    • All Environment
    • Our Green Future
  • Talanoa Pacific news
  • Property
    • All Property
    • Property Insider
    • Interest rates tracker
    • Residential property listings
    • Commercial property listings
  • Health
  • Technology
    • All Technology
    • AI
    • Social media
  • Rural
    • All Rural
    • Dairy farming
    • Sheep & beef farming
    • Horticulture
    • Animal health
    • Rural business
    • Rural life
    • Rural technology
    • Opinion
    • Audio & podcasts
  • Weather forecasts
    • All Weather forecasts
    • Kaitaia
    • Whangārei
    • Dargaville
    • Auckland
    • Thames
    • Tauranga
    • Hamilton
    • Whakatāne
    • Rotorua
    • Tokoroa
    • Te Kuiti
    • Taumaranui
    • Taupō
    • Gisborne
    • New Plymouth
    • Napier
    • Hastings
    • Dannevirke
    • Whanganui
    • Palmerston North
    • Levin
    • Paraparaumu
    • Masterton
    • Wellington
    • Motueka
    • Nelson
    • Blenheim
    • Westport
    • Reefton
    • Kaikōura
    • Greymouth
    • Hokitika
    • Christchurch
    • Ashburton
    • Timaru
    • Wānaka
    • Oamaru
    • Queenstown
    • Dunedin
    • Gore
    • Invercargill
  • Meet the journalists
  • Promotions & competitions
  • OneRoof property listings
  • Driven car news

Puzzles & Quizzes

  • Puzzles
    • All Puzzles
    • Sudoku
    • Code Cracker
    • Crosswords
    • Cryptic crossword
    • Wordsearch
  • Quizzes
    • All Quizzes
    • Morning quiz
    • Afternoon quiz
    • Sports quiz

Regions

  • Northland
    • All Northland
    • Far North
    • Kaitaia
    • Kerikeri
    • Kaikohe
    • Bay of Islands
    • Whangarei
    • Dargaville
    • Kaipara
    • Mangawhai
  • Auckland
  • Waikato
    • All Waikato
    • Hamilton
    • Coromandel & Hauraki
    • Matamata & Piako
    • Cambridge
    • Te Awamutu
    • Tokoroa & South Waikato
    • Taupō & Tūrangi
  • Bay of Plenty
    • All Bay of Plenty
    • Katikati
    • Tauranga
    • Mount Maunganui
    • Pāpāmoa
    • Te Puke
    • Whakatāne
  • Rotorua
  • Hawke's Bay
    • All Hawke's Bay
    • Napier
    • Hastings
    • Havelock North
    • Central Hawke's Bay
    • Wairoa
  • Taranaki
    • All Taranaki
    • Stratford
    • New Plymouth
    • Hāwera
  • Manawatū - Whanganui
    • All Manawatū - Whanganui
    • Whanganui
    • Palmerston North
    • Manawatū
    • Tararua
    • Horowhenua
  • Wellington
    • All Wellington
    • Kapiti
    • Wairarapa
    • Upper Hutt
    • Lower Hutt
  • Nelson & Tasman
    • All Nelson & Tasman
    • Motueka
    • Nelson
    • Tasman
  • Marlborough
  • West Coast
  • Canterbury
    • All Canterbury
    • Kaikōura
    • Christchurch
    • Ashburton
    • Timaru
  • Otago
    • All Otago
    • Oamaru
    • Dunedin
    • Balclutha
    • Alexandra
    • Queenstown
    • Wanaka
  • Southland
    • All Southland
    • Invercargill
    • Gore
    • Stewart Island
  • Gisborne

Media

  • Video
    • All Video
    • NZ news video
    • Herald NOW
    • Business news video
    • Politics news video
    • Sport video
    • World news video
    • Lifestyle video
    • Entertainment video
    • Travel video
    • Markets with Madison
    • Kea Kids news
  • Podcasts
    • All Podcasts
    • The Front Page
    • On the Tiles
    • Ask me Anything
    • The Little Things
  • Cartoons
  • Photo galleries
  • Today's Paper - E-editions
  • Photo sales
  • Classifieds

NZME Network

  • Advertise with NZME
  • OneRoof
  • Driven Car Guide
  • BusinessDesk
  • Newstalk ZB
  • Sunlive
  • ZM
  • The Hits
  • Coast
  • Radio Hauraki
  • The Alternative Commentary Collective
  • Gold
  • Flava
  • iHeart Radio
  • Hokonui
  • Radio Wanaka
  • iHeartCountry New Zealand
  • Restaurant Hub
  • NZME Events

SubscribeSign In
Advertisement
Advertise with NZME.
Home / Business

Fonterra must stick to asset sale plan: Fitch Ratings

By Andrea Fox
Herald business writer·NZ Herald·
28 May, 2019 06:19 AM5 mins to read

Subscribe to listen

Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber?  Sign in here

Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
‌
Save

    Share this article

    Reminder, this is a Premium article and requires a subscription to read.

Fitch has given its estimation of Fonterra's business. Photo/Getty Images.

Fitch has given its estimation of Fonterra's business. Photo/Getty Images.

Credit rating agency Fitch says Fonterra is a strong, profitable business which will experience "a few bumps in the road" in the next couple of years but is showing positive signs of reprioritising its balance sheet.

Fitch did not further cut Fonterra's credit rating after last week's profit downgrade in the third quarter financial results - the second downgrade this year - but said asset sales to reduce its leverage had become more important.

Fitch downgraded the credit rating of New Zealand's biggest company to "A negative" in early March after a profit downgrade announced in the half-year results.

The rating cut was the second in recent years. In 2015 it downgraded Fonterra to "A with stable outlook" from "AA minus stable".

Fitch director, South East Asian Industrials, Kelly Amato said Fitch didn't take any action on Fonterra's profit downgrade last week but "we see asset sales as really important in helping them get their balance sheet back to a level which is commensurate with their rating".

Advertisement
Advertise with NZME.

The $380 million sale of icecream subsidiary Tip Top put Fonterra "almost 50 per cent of the way" to its announced target of $800m debt reduction this financial year, she said.

"This provides us with a little bit of comfort that asset sales are progressing well and they are actually serious to make sure the balance sheet and overall strategy comes back to being a premier New Zealand dairy producer."

Fitch would monitor Fonterra over the next 18 months to "make sure they are moving in line with what they said they were going to do and that they are delivering".

Advertisement
Advertise with NZME.

While Fonterra had again revised down its forecast earnings, its messaging last week about its strategic business review was important, Amato said.

Fitch didn't further downgrade Fonterra's credit rating, but it did issue a statement underlining that asset sales had assumed greater significance.

Overall, Fitch liked the announcement the company was reviewing ownership of its seven wholly-owned, loss-making China dairy farms, and its joint venture in Brazil with Dairy Partners Americas. Also positive was that it was selling its Dennington processing site in Australia.

"We can see they really are going through reviews and are very serious about identifying parts of the business that aren't commensurate with where they see Fonterra in the future."

"For us that's great - it's the overall messaging (that's important)."

Fonterra chief executive Miles Hurrell. Photo/Jason Oxenham.
Fonterra chief executive Miles Hurrell. Photo/Jason Oxenham.

While there was no guarantee of a sale of the China farms, the fact the business was being reviewed indicated it had been identified as not strategic to where Fonterra was headed, she said.

Fonterra had communicated to Fitch that the target $800m debt reduction would come from asset sales.

In rating Fonterra, Fitch looked not just at debt but its profitability in terms of its ability to service debt, Amato said.

Advertisement
Advertise with NZME.

So how is Fonterra doing on that score?

"Really well. An "A" rating for a corporate is a very high rating.

"Yes Fonterra has been having a couple of issues over the past couple of years but there are a lot of inherent defensive traits within their profitability which on the whole usually tend to stand up.....we see them as a strong profitable company.

"We do understand that as they do the strategic review there will be a few bumps in the road - a few one-off expenses, a few things that will impact their profitability in the next year or two.

"But underlying everything, there is a really good business there."

Fonterra last year posted a first-ever annual loss - of $196m - and debt of $6.2 billion.

Also last year it appointed a new chief executive and a new chairman.

Fitch Ratings analyst Kelly Amato.
Fitch Ratings analyst Kelly Amato.

Amato said Fonterra's strengths were its ability to collect 80 per cent of New Zealand milk, that it was well-regarded throughout the world as having a good product, and that there was an embedded margin in the company's ability to set the farmgate milk price under law (Dairy Industry Restructuring Act).

Fitch also kept an eye on Fonterra's annual milk market share of milk collection and emerging competition, she said.

"They have enough milk which is commensurate with their processing capacity which is also fundamental to profitability."

Amato said Fitch talked to Fonterra's financial managers every month or two.

"We have a very good dialogue with them."

In the past couple of years the company had made an effort to improve transparency about product stream returns and how different factors affected them, she said.

Amato has been covering Fonterra since 2015.

"When I first started looking at them they doing an expansion programme. They wanted to source milk globally, trying for economies of scale. But (now) they're really becoming more New Zealand-focused and making sure everything in their business encapsulates and reflects themselves as the premiere New Zealand dairy producer."

Amato said for her, the biggest risk about Fonterra right now was ensuring it implemented the strategic review.

"I'm looking for risk around implementing (that) and making sure it continues to do that effectively and is able to implement everything they say they will do and see it out over the long haul and get the business back to where they said.

"That's the biggest risk for me but as long as management stay dedicated to it and people can see the benefits then we do expect them to see it out fully and get that profitability back to where we've seen."

Save

    Share this article

    Reminder, this is a Premium article and requires a subscription to read.

Latest from Business

Business|personal finance

Broadcaster Melissa Chan-Green on how she bounced back from redundancy

13 Jul 05:00 PM
Premium
Business|economy

Emails reveal Willis wanted Budget lock-up to be more restricted

13 Jul 05:00 PM
Premium
Small Business

On The Up: Speak eyes $4t market with personalised shopping tech

13 Jul 05:00 PM

Audi offers a sporty spin on city driving with the A3 Sportback and S3 Sportback

sponsored
Advertisement
Advertise with NZME.

Latest from Business

Broadcaster Melissa Chan-Green on how she bounced back from redundancy

Broadcaster Melissa Chan-Green on how she bounced back from redundancy

13 Jul 05:00 PM

"I was really wrapped up with what I was doing was who I was."

Premium
Emails reveal Willis wanted Budget lock-up to be more restricted

Emails reveal Willis wanted Budget lock-up to be more restricted

13 Jul 05:00 PM
Premium
On The Up: Speak eyes $4t market with personalised shopping tech

On The Up: Speak eyes $4t market with personalised shopping tech

13 Jul 05:00 PM
Premium
Opinion: Why Mary Meeker's latest AI insights can't be ignored

Opinion: Why Mary Meeker's latest AI insights can't be ignored

13 Jul 05:00 PM
Gold demand soars amid global turmoil
sponsored

Gold demand soars amid global turmoil

NZ Herald
  • About NZ Herald
  • Meet the journalists
  • Newsletters
  • Classifieds
  • Help & support
  • Contact us
  • House rules
  • Privacy Policy
  • Terms of use
  • Competition terms & conditions
  • Our use of AI
Subscriber Services
  • NZ Herald e-editions
  • Daily puzzles & quizzes
  • Manage your digital subscription
  • Manage your print subscription
  • Subscribe to the NZ Herald newspaper
  • Subscribe to Herald Premium
  • Gift a subscription
  • Subscriber FAQs
  • Subscription terms & conditions
  • Promotions and subscriber benefits
NZME Network
  • The New Zealand Herald
  • The Northland Age
  • The Northern Advocate
  • Waikato Herald
  • Bay of Plenty Times
  • Rotorua Daily Post
  • Hawke's Bay Today
  • Whanganui Chronicle
  • Viva
  • NZ Listener
  • Newstalk ZB
  • BusinessDesk
  • OneRoof
  • Driven Car Guide
  • iHeart Radio
  • Restaurant Hub
NZME
  • About NZME
  • NZME careers
  • Advertise with NZME
  • Digital self-service advertising
  • Book your classified ad
  • Photo sales
  • NZME Events
  • © Copyright 2025 NZME Publishing Limited
TOP