Fonterra Australia sells Dennington site to ProviCo

Fonterra Australia has agreed to sell its Dennington factory. Photo / 123RF

Fonterra Australia has agreed to sell its shuttered Dennington factory to ProviCo Australia for an undisclosed sum.

"Since we announced the factory's closure in May, we've been working with potential buyers to find a commercially viable and sustainable future for the site," Fonterra Australia managing director Rene Dedoncker said. "We're pleased to be selling the factory to ProviCo with all of its operational capabilities and assets intact."

The deal is expected to be completed by April 22.

ProviCo manufactures a range of animal nutrition products including calf milk replacers and vitamin fortified products.

The protracted drought across the Tasman has put pressure on the wider Australian dairy sector at a time when the weaknesses of supply arrangements were highlighted by the collapse of the Murray Goulburn Cooperative.

Last May, Fonterra announced it was closing the site in south-west Victoria due to excess manufacturing capacity in the Australian dairy industry. It wrote down the Dennington assets by $50 million in the July 2019 financial year.

The closure was part of a wider strategic review to strengthen the cooperative's balance sheet after it reported its first net loss attributable to shareholders of $221m in the July 2018 year.

In January, Fonterra said it had completed the sale of its 50 per cent share of DFE Pharma to CVC Strategic Opportunities II. Other asset sales have included Tip Top Ice Cream, and the company may make an announcement about the future of the China Farms operation at its half-year result on March 18.

The more than 100-year old Dennington factory was acquired by Fonterra in 2005. At the time of closure it employed 98 people.

ProviCo Australia managing director Andrew Paterson said the purchase would create new jobs for the Dennington community and provide environmental benefits for the agriculture industry.

"Active in the circular economy, our business is focused on salvaging raw materials and turning them into animal nutrition products. This helps the food industry minimise their waste costs and ProviCo's products improve farm performance and health of animals and soils," he said in a statement.