New Zealand dairy giant Fonterra mulls selling Sri Lankan business

New Zealand dairy giant Fonterra is considering selling its Sri Lankan business.

In a statement today, Fonterra Co-operative Group Ltd announced it is exploring "full or partial divestment options" for some or all of its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.

“We have conducted a strategic review which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” said Fonterra Chairman Peter McBride.  

CEO Miles Hurrell said in the same statement that the review has also given the Co-op confidence in the role it plays in the dairy nutrition value chain, with one of its greatest strengths being the production of world-class, innovative ingredients for customers to take to consumers.

“We believe we can grow further value for the Co-op by focusing on being a B2B dairy nutrition provider, working closely with customers through our high-performing Ingredients and Foodservice channels. 

“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice channel, continued delivery on our sustainability commitments and investment in innovation. 

“In this context, we are exploring divestment options for our global Consumer business as well as our integrated businesses Fonterra Oceania and Fonterra Sri Lanka,” said Mr Hurrell.

Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is performing well. It includes a portfolio of market leading brands such as Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star, Perfect Italiano and others. 

Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses. Fonterra Sri Lanka comprises Consumer and Foodservice businesses.

Collectively, the businesses in scope for potential divestment utilised approximately 15% of the Co-op’s total milk solids and represented approximately 19% of Fonterra’s Group's operating earnings in the first half of FY24, with Consumer businesses delivering strong underlying earnings. 

“A divestment of these assets would help create a simpler, higher performing Co-op with our focus on our core Ingredients and Foodservice business and doing what we do best,” said Mr Hurrell. 

“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk. Due to our co-operative structure, we believe prioritising our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value.  

“At the same time, we believe Fonterra is not the highest-value owner of the Consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential. 

“This presents a great opportunity for these brands and businesses. While I recognise there’s a strong connection to brands such as Anchor, a new owner could help these businesses to flourish. 

“We have also received unsolicited interest in parts of these businesses, making now a good time to consider their ownership,” said Mr Hurrell.

As a next step, Fonterra will appoint advisors to assist with assessing divestment options.