LA Private

Fonterra plans to exit Australia

Fonterra (ASX:FSF), the large Kiwi dairy group, wants to exit Australia.

The company owns household brands such as Western Star butter, Perfect Italiano, and Mainland cheese, and has eight Australian manufacturing sites in Victoria and Tasmania.

It also has the rights to Bega Cheese and butter, and analysts wonder if the acquisitive Bega company will look to buy back its brands. Fonterra employs about 1600 people and collects about 1.4 billion liters of milk annually from hundreds of Australian farmers.

Fonterra has been reviewing its Australian business, along with its business in Sri Lanka. Consumer brands in NZ would go as well. Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia, according to Fonterra. It comprises Consumer, Foodservice, and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.

The dairy giant hasn’t worked out if it is looking to sell out completely or stay in a Joint Venture or minority holding. In the past couple of years, it has sold loss-making businesses in China, as well as quitting operations in Chile as it retreats to its NZ roots.

Fonterra’s chief executive, Miles Hurrell, said on Thursday that it has received “unsolicited” interest in parts of its global consumer business, and chairman Peter McBride says this is “a significant move” for the co-op which will set it up to grow long-term value for farmer shareholders and unit holders.

“We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” McBride said on Thursday. Hurrell said in the statement that a divestment of these assets would help create “a simpler, higher performing co-op with our focus on our core Ingredients and Foodservice business and doing what we do best”.

“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfill Fonterra’s core function of collecting, processing, and selling milk. Due to our cooperative structure, we believe prioritizing our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value. At the same time, we believe Fonterra is not the highest-value owner of the Consumer and associated businesses in the longer term, and a divestment could allow a new owner with the right expertise and resources to unlock their full potential.”

Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is performing well, according to the company.

It includes a portfolio of “market-leading” brands such as Anchor, Mainland, Kpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano, and others. According to Fonterra, the consumer and associated businesses that are being put on the block collectively accounted for around 15% of the co-op’s total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half of its 2024 year.