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September 23, 2021

Fonterra sets out New Zealand-focused strategy with Australia, Chile assets on blocks

So-called “nutrition science solutions” will be a new area of focus for Fonterra.

Dairy cooperative Fonterra has set out a new strategy to focus on value-added opportunities in New Zealand milk and potentially divest assets in Australia and Chile.

CEO Mike Hurrell said the 2030 plan will see the world’s largest dairy co-op “continue to focus on New Zealand milk, be a leader in sustainability and be a leader in dairy innovation and science”, a three-point strategic initiative the company is pursuing as it “completes its reset and focuses on value growth”.

Fonterra said it has reviewed its ownership in milk operations in Chile and its Soprole dairy brand and is also considering an IPO for the co-op’s Australian milk pool, although it plans to retain an interest there.

It has already exited joint-venture farms in China and sold assets in the Asian country, while in 2019 the company disposed of its share in an ingredients JV with Netherlands-based dairy major FrieslandCampina – DFE Pharma. Fonterra had also previously sold its interest in Foodspring, a sports nutrition and health-and-wellness business in Germany.

Hurrell explained today (23 September) as Fonterra simultaneously issued its annual results: “Soprole is a leading Chilean dairy brand, and Prolesur is a subsidiary of Soprole focused on sourcing milk and manufacturing 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.”

With respect to Australia, the CEO added: “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.

“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.”

Another key aspect of the new strategy is to invest in what Hurrell called “nutrition science solutions”, and area he deems as “high-value growth opportunities”.

“We have an ambition to play more boldly in nutrition science solutions, which underpins a $500 billion slice of the global health and wellness category. We have set up a dedicated team to explore what the future of Nutrition Science Solutions looks likes for our Co-op, and over the next year we’ll narrow down and prioritise the areas where we can build a competitive advantage.”

Hurrell also set out ambitions to be a net-zero emissions cooperative by 2050, with increased investment in sustainability and R&D. He also suggested Fonterra will focus more on the out-of-home channel and consumer-centric products.

Fonterra plans to invest NZD1bn (US$702.1m) over the next decade to reduce carbon emissions and improve water efficiency at its production sites.

It has earmarked NZD160m to be spent on R&D a year, a more than 50% increase on current levels, with NZD60m to go toward what Hurrell termed “active living” in an effort to “look for solutions for the methane challenge and develop new innovative products to support our value-growth plans”.

He added: “Our investment in sustainability initiatives across our supply chain will support our investment in our brands to showcase our New Zealand sustainable nutrition story. This will put us in a position to further grow our foodservice and consumer channels across our markets in the Asia-Pacific region and gain more value through our ingredients channel by helping customers meet their own sustainability goals.

“As we move more milk into foodservice and consumer, we will direct less through our ingredients channel and aim to shift more towards higher-value ingredients such as in our Active Living business. This will see us focus more of our ingredients business on solutions for physical, patient, digestive and mental wellness, plus immunity where we can make the most of our expertise in dairy innovation.”

Fonterra today reported an 8% increase in normalised EBIT to NZD952m for the fiscal year, although profit after tax fell NZD60m to NZD599m. Normalised profit after tax was up NZD190m at NZD588m.

 

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