(Bloomberg) -- Fonterra Cooperative Group, the world’s biggest dairy exporter, said it will divest more offshore assets and focus on extracting greater value from its New Zealand milk amid strong global demand.
Fonterra will review ownership of its two overseas milk pools in Chile and Australia, the Auckland-based company said Thursday after it published full-year results. The Chile businesses will be sold while Fonterra is considering an IPO for its Australian operations “with the intention that we retain a significant stake,” it said.
Fonterra undertook a major restructure in 2018 after its global expansion turned sour, forcing it to sell assets, reduce debt and return to basics. The latest moves are part of a long-term strategy that involves differentiating New Zealand milk further on the world stage with the aim of getting more value from it as supply declines. This will require increased investment in sustainability and dairy innovation, Fonterra said.
“Put simply, the world wants what we’ve got -- sustainably produced, high-quality, nutritious milk,” Chief Executive Miles Hurrell said. “This comes at a time when we see total milk supply in New Zealand as likely to decline, and flat at best.”
The company, which is owned by its 10,000 New Zealand farmer shareholders, reported net income of NZ$599 million ($419 million) for the year ended July 31, down from NZ$659 million a year earlier. Group normalized earnings before interest and tax rose 8% to NZ$952 million. Fonterra said China remains a key market, contributing earnings of NZ$403 million, up 10%.
To strengthen the value proposition of its New Zealand milk, Fonterra will increase investment in sustainability and research and development.
“Customers want to know where their food comes from and the environmental impact it leaves, and a farmer’s livelihood relies on a stable climate and healthy ecosystems,” Hurrell said. While New Zealand is already “the lowest carbon producing dairy nation on the planet,” Fonterra aims to be net zero carbon by 2050, he said.
It will boost annual spending on R&D as it continues to “look for solutions for the methane challenge and develop new innovative products to support our value growth plans.”
Fonterra Proposes New Flexible Stake Structure
“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,” Hurrell said. “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 prioritize the areas where we can build a competitive advantage.”
Fonterra said the strategy will improve its financial performance. By 2030, it aims to achieve a 40-50% increase in operating profit from the 2021 financial year and a group return on capital of 9-10% compared with 6.6% in 2021.
Through divestments and improved earnings, it intends to return about NZ$1 billion to shareholders by 2024, and have around NZ$2 billion of additional capital available for a mix of investment and return to shareholders.
“This is in addition to the approximately NZ$2 billion expected to be invested in sustainability and moving milk into higher value products,” Fonterra said.
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