• Fonterra CEO Miles Hurrell
    Fonterra CEO Miles Hurrell

As New Zealand dairy giant Fonterra Cooperative Group released its FY21 results, CEO Miles Hurrell also alerted the market the company was turning its focus from a business reset to a portfolio asset evaluation, including the sale of its Australian business.

CEO Miles Hurrell said that as the coop works to differentiate New Zealand milk on the world stage, it is looking to sell Fonterra Australia, flagging a possible IPO, while retaining a significant stake in the business.

“Fonterra Australia is on strategy for the Co-op and remains an important export market for our New Zealand milk, especially for Foodservice products and advanced ingredients. We are considering the most appropriate ownership structure for this business, one option is an IPO, with the intention that we retain a significant stake,” Hurrell said.

The company is also looking to sell its business in Chile. It owns Sorpole and its subsidiary Prolesur, which source milk and manufacture dairy products in Southern Chile.

“The operations do not require any New Zealand-sourced milk or expertise, and in this context, we are starting the process to divest our integrated investment in Chile,” he said.

“We see both these moves as critical to enabling greater focus on our New Zealand milk and, importantly, allowing us to free up capital, much of which is intended to be returned to shareholders.”

Fonterra Australia’s FY21 normalised earnings before interest and tax was $71 million (NZ$74m), up 37 percent on FY20, with $1.8 billion in revenue.

It has eight manufacturing sites and employs around 1300 people. In FY21 it collected just over 1.6 million litres of raw milk from Australian dairy farmers. It also manufacturers dairy brands including Bega Cheese, Western Star and Perfect Italiano.

Fonterra Australia managing director René Dedoncker told The Australian Financial Review that a float was the preferred option, but a trade sale or private equity partnership would also be considered.

While Hurrell said Fonterra would retain a significant investment, Dedoncker couldn’t quantify the amount. He told the AFR the change would give Fonterra the “best of both worlds”.

“We’re at a point where they know we need to invest to stay relevant and really deliver on our potential. Now we will work on exactly which option we go with, but the likelihood is that we’re all focused on an IPO,” Dedoncker said. 

Fonterra Cooperative FY21 results

Snapshot (in NZ$)

  • Total pay-out for 2020/21 season: $7.74 per kgMS
    - Final 2020/21 Farmgate Milk Price: $7.54 per kgMS
    - 2020/21 dividend: 20 cents per share, comprised of 5 cent interim dividend and 15 cent final dividend
  • Reported Profit After Tax: $599 million, down $60 million*
  • Normalised Profit After Tax: $588 million, up $190 million#
  • Total Group normalised EBIT: $952 million, up $73 million#
  • Net debt[1]: $3.8 billion, down $872 million
  • Debt to EBITDA ratio: 2.7x improved from 3.3x
  • Full year normalised earnings per share: 34 cents

Fonterra reported a final farmgate milk price of $7.54, normalised earnings per share of 34 cents and a final dividend of 15 cents. Total group normalised EBIT was up eight per cent to NZ$952 million, with total group normalised operating expenditure down three per cent to NS$2.2 billion.

Hurrell said the last three years had been about resetting the business and maximising New Zealand milk. “We’ve moved to a customer-led operating model and strengthened our balance sheet. We’ve shored up foundations and done this despite the challenges of operating in a COVID-19 world.

Higher milk price and tightening margins put pressure on earnings, particularly in Q4, but NZ$11.6 billion was paid to farmers in the coop.

“We’ve continued to reshape our business and the sales of our joint venture farms and wholly-owned farming hubs in China. Our continued focus is to get our New Zealand milk to the world,” Hurrell said.

While profit after tax was down on FY20, that year had benefitted from the divestment of DFE Pharma and foodspring, Hurrell said.

Hurrell outlined the coop’s commitment to R&D and sustainability. It expects to increase its R&D investment to NS$160 million per year by 2030. It also has ambition to “play more boldly” in nutrition science solutions. 

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