Fonterra Co-operative Group Ltd announced a significant shift in its strategic direction, aiming to deepen its position as a provider of high-value dairy ingredients.
As part of this initiative, the Co-op is exploring divestment options for some or all of its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka, Fonterra said in an ASX announcement.
Chairman Peter McBride emphasised the importance of this move in setting up long-term value for farmer shareholders and unit holders.
McBride stated, “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.”
CEO Miles Hurrell highlighted Fonterra’s confidence in its role in the dairy nutrition value chain, particularly in producing innovative ingredients for customers.
“We believe we can grow further value for the Co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels,” said Hurrell.
The potential divestment targets include Fonterra’s global Consumer business, Fonterra Oceania, and Fonterra Sri Lanka, collectively utilising approximately 15 per cent of the Co-op’s total milk solids and representing around 19 per cent of Fonterra’s group operating earnings in the first half of FY24.
Hurrell underscored that while these businesses have shown recent performance improvements, divesting them could simplify and strengthen Fonterra’s focus on its core Ingredients and Foodservice channels.
He also noted that Fonterra may not be the highest-value owner of these businesses in the long term, presenting an opportunity for new owners to unlock their full potential.
Fonterra said it plans to appoint advisors to assess divestment options, expecting the process to take at least 12 to 18 months.
Hurrell stressed that any decisions made will prioritise maximizing returns to farmer shareholders and unit holders.
This strategic shift necessitates withdrawing financial targets outlined in Fonterra’s Path to 2030 strategy released in 2021. Additionally, Fonterra will terminate its on-market share buyback program.
Looking ahead, Fonterra said it remains committed to maximising returns through the Farmgate Milk Price and dividends, as well as achieving a strong return on capital.
