Background Milk
Fonterra not quite ready with new profile yet
Fonterra underperformed in the 2023/24 financial year, but is still doing well with a return on invested capital of 11,3%. The gross profit of €1,6 billion New Zealand dollars is also good.
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Fonterra is also gradually acquiring the desired profile that the company should have after the downsizing operation that CEO Miles Hurrell has carried out in recent years. Many overseas activities have been divested. Some at a loss, others with a reasonable book profit.
There still seem to be a few steps to go. The cooperative dairy company announced earlier this year that it would also like to sell the Consumer Products division. However, this intention met with considerable resistance. With a turnover of almost €1,9 billion, Consumer Products is the company's second division and it has a great deal of recognition on its own New Zealand market. The management then promised to review whether the plan had been well thought out. A report on this will be published shortly.
Australia
The sale of the Australian division is also still in the air. Fonterra has several factories there and collects around 820 million kilos of milk annually. The turnover of this division amounted to almost €1,4 billion last year. Recently, it was in the news that a large investment fund together with FrieslandCampina would be interested. However, nothing is reported about this in the annual report.
If Fonterra were to divest the aforementioned divisions, it would become even more of a New Zealand company, primarily active in the B2B sector and no longer really involved in consumer products.
Meanwhile, Fonterra is also losing members in New Zealand because it does not always pay the highest milk price, and is struggling to maintain current milk volumes, putting it in the same position as many European dairy companies.
With the current level of earnings, however, it should be able to compete for members with other dairy companies in New Zealand. The result was lower than in peak year 2022/23, but still well above the average of the past five years. Anyone who does not find that a convincing argument - because things really did not go very well for a series of years - should look at the return the company still makes. A cooperative could pay more of that to the farmers.