Fonterra to retain Australia business, shares long-term strategies
New Zealand dairy giant Fonterra has decided to retain full ownership of its Australian business after a 12-month review, with chief executive Miles Hurrell saying the Australian consumer brands are important in the company’s strategy of moving higher up the value chain.
Fonterra’s Australian business includes consumer brands Western Star butter, Perfect Italiano, and Mainland cheese. It also operates the Bega cheese brand under a long-standing license arrangement even though Bega Cheese is a rival dairy and food company.
Mr Hurrell said in an investor briefing on Thursday that Fonterra did not get to the point of putting a value on its Australian business in the review after deciding that retaining full ownership was the best way of driving future growth and value creation.“We can do that on our own,” he said. “We looked at a raft of options.”
Fonterra, a co-operative which is owned by 10,000 farmer shareholders, began the review a year ago. Among the options was a potential public float of the business or a sale of a partial stake. Analysts suggested the IPO could have been worth between $1 billion and $1.2 billion.
It still intends to make a capital return to its shareholders by 2024, but it may not be as high as the previously foreshadowed return of about $NZ1 billion ($585 million).
Fonterra is selling its Chilean business Soprole after an ill-timed expansion and has redirected its focus to being a big exporter from NZ.
Mr Hurrell said the Australian operations were an important part of the group’s overall consumer brands strategy as it sought to move higher up the value chain. “The business is going well, and it will play a key role in helping us reach our 2030 strategic targets,” he said.
Fonterra on Thursday reported its full-year results for the 12 months ended July 31, with normalized net profit up 1 percent to $NZ591 million. Total revenues were up 11 percent to $NZ23.4 billion.
Mr Hurrell said inflationary pressures curbed profits. Fonterra paid out a record milk price to its farmers of $NZ9.30 per kilogram of milk solids. He said $NZ13.7 billion was injected into the NZ economy from milk price payments.
The company has made a farmgate milk price forecast for 2022-23 of $NZ8.50 to $NZ10, with a mid-point of $NZ9.25. Mr Hurrell said milk prices appeared to have stabilised for now. “We’ve seen a little bit of stability,” he said
In 2001, Fonterra Australia and Bega Cheese signed a 25-year exclusive trademark licensing agreement. Fonterra was able to use Bega’s name on natural and processed cheddar cheese, string cheese and butter products sold in Australia. In return, it paid Bega Cheese royalties based on retail sales of these products.
The licence’s initial term ends in May 2026, but Fonterra has the right to renew as long as it sticks by the contractual rights, which include elements such as managing the Bega Cheese brand responsibly.
Rich Lister and iron ore billionaire Andrew Forrest’s private family investment unit Tattarang in late July lifted its stake in Vegemite owner Bega Cheese to 11.5 per cent after buying an additional $15 million of shares.
