Fonterra chief executive Miles Hurrell. Photo / NZ Herald
Fonterra chief executive Miles Hurrell. Photo / NZ Herald
Fonterra is looking to sell Anchor, an iconic Kiwi dairy brand that has been around since 1886, as part of a far-reaching step change in its strategy aimed at honing New Zealand’s biggest enterprise down to its core business.
The dairy giant is looking at full or partial divestment optionsfor some or all of its global Consumer business, including Anchor, and its integrated businesses Fonterra Oceania and Fonterra Sri Lanka - all businesses that have in the past been problematic.
Fonterra Oceania was recently formed after it merged Fonterra Brands NZ and Fonterra Australia.
“While I recognise that there are strong connections to brands such as Anchor, a new owner could help these businesses flourish further,” chief executive Miles Hurrell said in a conference call.
The process will mean 17 manufacturing sites around the world will be put up for sale - most of them in Australia but some in Southeast Asia, one in the Middle East and three in New Zealand.
Chairman Peter McBride said the divestment process was significant move for the co-op, which would set it up to grow long-term value for farmer shareholders and unit holders.
Core business
The sharemarket gave its approval to the move, with the farmer-only Fonterra shares rallying 12c to $2.50 while the unrestricted Fonterra units gained 26c to $3.68 late in the trading day.
Fonterra said its global Consumer business had grown over the years since Fonterra was formed and it was 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 used 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.
Hurrell said divesting the assets would help create a simpler, higher-performing co-operative focusing on core ingredients.
He expected the sale process to take at least 12 to 18 months.
Hurrell said on the call a review of the business had reinforced the strength of Fonterra’s core business, which is to collect milk, efficiently make products, and return profits to shareholders and unit holders.
“We believe we can grow future value for the group by focusing on being a business-to-business nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” he said.
Mainland Cheese ads featuring a boy and his grandfather. Photo / Supplied
Ingredients is easily the biggest, offering milk powders on the Global Dairy Trade platform and many other channels.
Then there is Foodservice, which sells products such as cream cheese, UHT creams, and mozzarella to restaurants and other foodservice industries.
The third is Consumer, which offers a product range including everyday staples such as fresh milk, cheese and yoghurt.
Ingredients and Foodservice take the bulk of Fonterra’s milk solids and are responsible for most of its revenue.
“We believe that there is greater value to be had by focusing our resources on Ingredients and Foodservice,” he said.
The two had complementary products, manufacturing processes and market approaches, he said.
On the other hand, Consumer used different formats and requires specialised expertise in marketing approaches, he said.
Ingredients go under Fonterra’s NZMP brand, and Foodservice is branded as Anchor Food Professionals.
“We believe prioritising our Ingredients and Foodservice channels, and releasing capital from our Consumer and associated businesses, will generate more value,” he said.
“At the same time, Fonterra is not the highest-value owner for Consumer and associated business in the long term.
“The divestment could allow new owners, with the right expertise and resources to unlock their full potential.”
Following any sale, Hurrell said he expected Fonterra would continue to supply the Consumer business in much the same way as it did with icecream maker Tip Top, which it sold in 2019 to icecream giant Froneri for $380 million.
Problem child
A successful sale process will mean Fonterra will be free of assets that have been problematic in the past.
Forsyth Barr analyst Matt Montgomerie said the step change in Fonterra’s strategy was a welcome move.
A successful sale process would mean Fonterra will be free of the “problem child” Consumer business, plus Sri Lanka, which has in the past run into political strife.
Montgomerie said the move made sense.
“I am completely supportive of the rationale that Fonterra is articulating - the focus on core operations.
“Potentially, it is quite an important day for New Zealand Inc.
“It’s a big business with well-recognised brands.
‘It’s potentially transformational and a large transaction for New Zealand, particularly given how well-known some of the brands are,” he said.
Fonterra’s balance sheet has been in better shape up in recent years after the co-op sold Soprole in Chile, and other assets in Brazil and China.
Montgomerie said all options are on the table - including an initial public offer.
He estimated the businesses Fonterra has up for sale will report Ebitda of $300-350m in the current financial year, up from $227m last year.
Similar transactions overseas have been at eight or nine times earnings, he said.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
