Fonterra Plans Divestment Of Consumer Businesses

• Fonterra's revised strategy focuses on Ingredients and Foodservice to drive growth.
• The Co-op plans to divest its Consumer businesses and improve financial returns.
• New targets include a 10-12% return on capital and increased dividend policy.

Fonterra Co-operative Group Ltd has unveiled its updated strategy, which shifts focus towards its high-performing Ingredients and Foodservice businesses. This move is aimed at enhancing value for both farmer shareholders and unit holders, while divesting its global Consumer businesses.

The decision follows a strategic review that identified Fonterra’s strengths as a B2B dairy nutrition provider. Chairman Peter McBride stated that this strategy would allow Fonterra to pursue greater value creation, along with improved financial targets and policy settings.

“The Co-op exists to provide stability and manage risk on behalf of farmers while maximising returns from their milk and invested capital in Fonterra,” said Mr McBride. He highlighted the Co-op’s revised financial targets, including an increased return on capital to 10-12% and a new dividend policy of 60-80% of earnings, up from the previous 40-60%.

CEO Miles Hurrell noted that Fonterra is currently in a strong position, delivering results well above its five-year average. “Our core strategy remains unchanged, focusing on New Zealand milk, sustainability, and dairy innovation. However, we have refined our approach to capitalise on our strengths,” Mr Hurrell said. He emphasised the need to streamline the business by concentrating on high-value segments like Ingredients and Foodservice.

As part of its forward-looking strategy, Fonterra has outlined six strategic goals:

1. Strengthen Farmer Offering: Collaborate with farmers to enhance on-farm profitability and productivity.
2. Expand Ingredients Business: Deepen Fonterra’s role as a global leader in dairy ingredients.
3. Maintain Foodservice Momentum: Grow its Foodservice business in key markets like China.
4. Invest in Future Operations: Create a flexible supply chain that allocates milk to high-return products.
5. Build on Sustainability: Enhance Fonterra’s sustainability credentials and partnerships.
6. Leverage Innovation: Use science and technology to solve challenges and drive competitive advantage.

Mr Hurrell confirmed that Fonterra is exploring options to divest its global Consumer businesses, a move aimed at freeing up capital and focusing on the Co-op’s strengths. The company intends to seek shareholder approval before any divestment is finalised.

Additionally, Fonterra has announced new performance targets and policy settings for FY24-30, including a target return on capital of 10-12%, a 30-40% gearing ratio, and emissions reductions by 2030.

“This is the right strategy for the Co-op. It provides a clear view of where we can best generate returns for our stakeholders while unlocking value at every point in our supply chain,” said Mr Hurrell.