Fonterra’s fabulous financials feed divestment dilemma
Fonterra’s interim results, to be released on March 20, will have a big influence on the planned divestment of its consumer businesses, now named Mainland Group.
Prosperity confirmed may encourage prospective purchasers of Mainland, but the divisional breakdown may alternatively leave suitors discouraged. Farmer-shareholders, many of whom are already strongly for or against divestment, need the detailed information in the divestment roadshow presentation. They will also have, in all likelihood, the best set of interim earnings Fonterra has ever achieved.
The argument for retention of Mainland must be strengthened by the biggest-ever farmgate milk price forecast AND a mid-point dividend prospect of around 50c. Why sell an arm when the body is doing so well? But the counter argument hinges on that over-used phrase “added value,” and Fonterra’s ability to consistently deliver both a top milk price and record earnings.
Farmers will see the gaps between $10/kg milksolids at the farmgate, $13/kg wholesale for butter and $10/500g retail and ask “Why shouldn’t we continue to own chunks of that?” When Fonterra was first proposed in the late 1990s, the growth in dairy consumer products was forecast to drive up revenue to $30 billion annually. Only this financial year will Fonterra’s revenue come close to that mystical $30bn.
Mainland has reportedly attracted much interest from Australian dairy companies and private funds in advance of Dedoncker’s roadshow for potential investor groups. Fonterra has decided to retain a manufacturing facility in Saudi Arabia and its Greater China consumer business, refinements that have dropped Mainland’s net revenue in FY24 to just under $5bn. Added value earnings are around $200 million, about one-eighth of the company’s total.
