The move by Fonterra, the world’s largest dairy exporter, has become all the more remarkable after the sudden announcement of a major spin-off, including consumer products businesses such as Anchor.
Today, the New Zealand dairy co-operative released its third quarter results for fiscal year 2024. According to the financial results, Fonterra’s after-tax profit from continuing operations for the first nine months of the 2024 financial year ended April 30 was NZ $1.013 billion, up 2 percent from the same period last year.
“This result was driven by continued strong earnings across all three product segments of the cooperative.” Fonterra global CEO Miles Hurrell pointed out in the earnings report that, among them, food services and consumer goods businesses on the divestiture list performed particularly strongly, with earnings improving over the same period last year.
Mr. Miles Hurrell also revealed today that Fonterra’s potential divestment has attracted “a lot of interest” from various parties. Interestingly, there are New Zealand media “nominated” Chinese dairy giant Yili, speculating that it may become a potential buyer.
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Miles Hurrell, Global CEO of Fonterra
“Minimal business”
Let’s start with the latest report card from the Chinese market.
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Today, China accounts for about a third of Fonterra’s global business. In the first nine months of the 2024 fiscal year ending April 30, Fonterra’s revenue in China fell slightly, while profit and volume rose.
According to the performance data, during the period, Fonterra’s revenue in Greater China was 4.573 billion New Zealand dollars (about 20.315 billion yuan), down 7% year-on-year. Sales were up 1% year on year.
In addition, the gross profit of Fonterra Greater China was 904 million New Zealand dollars (about 4.016 billion yuan), an increase of 5%. Ebit was NZ $489 million (about RMB2.172 billion), up 9% from the previous year; Profit after tax was NZ $349 million (about 1.55 billion yuan), up 18 percent from a year earlier.
Take a look at the three business segments one by one.
According to the financial report, the raw materials business still “accounts for the majority” of revenue. In the first nine months of the 2024 fiscal year, Fonterra’s Greater China raw materials business generated revenue of 2.504 billion New Zealand dollars (about 11.124 billion yuan), earnings before interest and tax of 180 million New Zealand dollars (about 800 million yuan), and after-tax profits of 123 million New Zealand dollars (about 546 million yuan). Snacks noted that these three indicators have declined year-on-year.
From the perspective of profit contribution, catering service is undoubtedly Fonterra’s “most profitable business” in Greater China.
During the period, the profit before interest and tax of the business was 440 million New Zealand dollars (about 1.955 billion yuan), and the after-tax profit was 230 million New Zealand dollars (about 1.022 billion yuan). In addition, revenue reached 1.77 billion New Zealand dollars (about 7.863 billion yuan). Snacks noted that these three indicators have increased year-on-year.
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Whether in terms of revenue or profit, the “bulk” of the consumer goods business is the smallest and the only unprofitable business.
According to the performance data, in the first nine months of the 2024 fiscal year, the revenue of Fonterra’s Greater China consumer goods business was 299 million New Zealand dollars (about 1.328 billion yuan), and the profit before interest and tax and after-tax profit were a loss of 4 million New Zealand dollars (about 17.796 million yuan), and the loss was narrowed.
According to Fonterra’s previous announcement, the consumer goods business in Greater China is also planned to divest, which involves a number of dairy brands with no small visibility in China, such as Ancha, Anon, and Anmum. Fonterra has no plans to sell its dairy partner, Anchor, which is the “most profitable business” in China, catering services.
“Anchor Food Professionals has a strong presence in Greater China with potential for further growth in markets such as Southeast Asia. We work with f&B customers to test and develop products for their kitchens, using our application center and professional chef resources.” Fonterra said.
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The phone is’ swamped ‘
Let’s look at Fonterra’s overall performance.
According to the financial report, in the first nine months of the fiscal year 2024, Fonterra’s raw material business revenue was 11.138 billion New Zealand dollars, down 15% year-on-year; Profit after tax was NZ $504m, down 44 per cent from a year earlier. Food services revenue was NZ $3.088 billion, up 6 per cent on the previous year, while profit after tax was NZ $335 million, a jump of 101 per cent.
In addition, the consumer goods business reported revenue of NZ $2.776 billion, up 13 percent from a year ago, and a profit after tax of NZ $174 million, compared with a loss of NZ $77 million in the same period last year.
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It is obvious that in this key node to attract potential buyers, Hengtianran consumer goods business has turned in a strong report card.
“For the consumer goods business, the performance over the past nine months has been outstanding, one of the best in quite some time.” Mr. Miles Hurrell said today it had nothing to do with the timing of the spin-off, but it did show the strength of Fonterra’s consumer goods brand, “which you could call fortuitous”.
On May 16, Fonterra announced one of the company’s most significant strategic decisions in recent years – a plan to fully or partially divest its consumer products business, as well as the integrated Fonterra Oceania and Fonterra Sri Lanka operations.
Globally, the company said in an investor presentation, its strengths lie in its ingredients business and food services, with two brands, NZMP and Anchor Specialty Dairy Specialty Partners. As a result of its commitment to consolidate its position as “the world’s leading supplier of high-value innovative dairy ingredients”, its strategic direction has changed significantly.
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Now it seems that the large business that the New Zealand dairy giant intends to sell has no shortage of interest, and even has become a lot of people’s eyes.
“Following our announcement of a significant change in strategic direction earlier this month, we have received a significant amount of interest from parties wanting to participate in our potential divestiture of our consumer products business and related businesses.” Wan Hao said today.
Interestingly, according to New Zealand media reports today, Hao Wan revealed at a China business summit in Auckland last week that his phone was “running hot.”
“Although Mr Hawan did not disclose the details of the phone conversation, it is likely that he repeated to the caller what he had told the dairy farmers’ shareholders and government officials – it was not much.” The report said.
A potential buyer?
Although Fonterra did not disclose further progress, the outside world has been heated.
For example, the Australian media NBR estimated that any interest in this business would cost about 2.5 billion Australian dollars (equivalent to about 12 billion yuan), based on similar transaction valuations. Global multinational Nestle has been mentioned as a potential buyer.
Snack agent noticed that recently, in New Zealand’s well-known radio program “The Country”, host Jamie Mackay also cue to Erie. He said that the global ranking before Fonterra dairy giants are Lantris, DFA, Nestle, Danone, Yili and so on.
“It’s just my personal thoughts and speculation, but China’s Yili Group bought [100 per cent stake] in [New Zealand's second largest dairy co-operative] Westland [in 2019] and maybe they would be interested in going further.” Mackay thinks.
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In this regard, snacks today also to the Yili side of the inquiry. “We have not received this information at the moment, it is not clear.” Yili relevant person in charge replied.
Today, there are dairy industry veterans today to snack generation analysis said that Yili has a lot of layout in New Zealand, the possibility of a large acquisition is not high, and Mengniu in the new management has just taken office on the node, it is unlikely to do large-scale transactions.
The person also speculated that among the domestic dairy giants, Feihe has the possibility and rationality of “selling”, “because Feihe is not only fully funded, but also has the need to expand its business and enhance its valuation.” However, Flying Crane did not reply to enquiries about the snack agent today.
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In the future, who will acquire the relevant business of Fonterra may affect the competitive pattern of dairy products in the Chinese market; But that’s not going to happen for a while. Mr. Miles Hurrell said today that the spin-off process was at an early stage – the company had expected it to take at least 12 to 18 months.
“We are committed to keeping dairy farmers shareholders, unitholders, our employees and the market informed of new developments.” “We are moving forward with this strategy update and hope to share more details in the coming months,” Hao said today.
Upward guidance
Mr. Miles Hurrell said today that as a result of the latest results, Fonterra has raised its earnings guidance range for fiscal 2024 from continuing operations from NZ $0.5-NZ $0.65 per share to NZ $0.6-NZ $0.7 per share.
“For the current milk season, we expect the median raw milk purchase price to remain unchanged at NZ $7.80 per kg of milk solids. As we get closer to the end of the quarter, we have narrowed the (price guidance) range to NZ $7.70 to NZ $7.90 per kg of milk solids.” ‘said Wan Hao.
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“Looking ahead to the 2024/25 milk season, milk supply and demand dynamics remain finely balanced, while China’s imports have yet to return to historical levels.” He said that given the uncertainty of the future and the risk of continued volatility in global markets, it is prudent to take a cautious attitude.
Fonterra expects the raw milk purchase price to be between NZ $7.25 and NZ $8.75 per kg of milk solids, with a midpoint of NZ $8.00 per kg of milk solids.
As a cooperative equipment supplier of Fonterra, Shiputec is committed to providing a full set of one-stop milk powder packaging services for the majority of dairy companies.
Post time: Jun-03-2024