Fonterra boss Dedoncker outlines pre-Christmas Australian strategy

Fonterra is shaking up the way it does business in Australia. See what options management are examining and look back at its 16-year Aussie history.

Fonterra’s 16-year Australian history.

A pre-Christmas deadline has been set for Fonterra’s Australian future with management eyeing an initial public offering as its main option.

Factory closures have been ruled out after Fonterra last week announced an ‘ownership review’, heralding the biggest change to its operations in Australia since it entered the market 16 years ago.

Fonterra Australia managing director Rene Dedoncker also said the review would not countenance severing its consumer business — which handles household brands like Western Star and Perfect Italiano, from its manufacturing and ingredients operations.

“We’re aiming for a pre-Christmas decision at this point on which option we go with,” he said. “Post-Christmas and into the next calendar year, we do the hard work and at some point next year we’ll be in the position to go live (with the announcement), so that’s the sequence.

“To get the best of both worlds, we have Fonterra (NZ) maintaining that significant stake but ultimately freeing up some capital, so they can invest in their choices,” he said.

“And I get the freedom to set up a business here (in Australia) that has independence, that can create capital when it’s needed and invest in things that make sense here.”

With an IPO the main option for Fonterra’s Australian transformation, Mr Dedoncker said Auckland management would still have ties to its namesake across the Tasman.

“The boundary condition here is that Fonterra believe in us and want to keep a significant stake,” Mr Dedoncker said.

“So that takes a couple of options off the table, frankly. But what’s left is an IPO, you could see potentially a strategic partner sitting alongside Fonterra, but they would need to be prepared to do that for the long haul, most likely with a minority interest.

“Alternatively, there could be a financial investor, with the possibility around private equity. “So we’re going to look at those options that meet the requirement that Fonterra (NZ) keep a significant stake. What looks most executable out of all those options is an IPO, but we’ll do the hard work pre-Christmas and make that determination.”

New Zealand’s largest dairy player entered the Australian market in 2005 with the purchase of the Nestle factory near Warrnambool in southwest Victoria.

Fonterra sold the Dennington site last year to ProviCo Australia.

The Auckland-based processor then turned its attention to Bonlac, gaining a foothold in Australia’s butter market by acquiring the Western Star brand.

Cohuna dairy farmer Ross Gordon said last week's announcement was welcome news and he awaited to see further detail.

“I was a 25-year Murray Goulburn supplier and while the MG model of going public had its flaws, there were other elements at play there,” he said.

“The general direction of more Australian say over Fonterra’s future here, particularly farmer say over the future, is always going to be welcome news.

“What we need to see over the coming six to 12 months is what type of form that takes.

“Bega has done pretty well in recent years with its model of investors and supplier-investors. “Easing that tension between return to investors and return to suppliers, not being competing forces, but having a good balance is something to aim for.”

Last week’s announcement coincided with the release of Fonterra’s 2020-21 results, which revealed the Auckland-based processor’s revenue was static at $NZ20.57bn (A$19.9bn) last financial year.

Fonterra chief executive Miles Hurrell was paid $4.2 million last financial year, more than double what he took home in 2019-20 when coronavirus turbulence ate into Auckland executive pay packets.

Tassie farmer Nigel Brock.

BLUE SKY THINKING HAS TASSIE FARMER INTRIGUED

Americans know their state of Montana by the nickname ‘Big Sky Country.’

Coincidentally, Nigel Brock, who runs a dairy farm in Tasmania’s Montana district, says his industry has long needed some blue sky thinking.

Last week, Fonterra’s New Zealand management announced it was looking at options for Australian farmers to become more involved in domestic operations.

Mr Brock has been calling for a move towards localised management for several years, noting that Australian farmers wanted a greater say over their future.

“We don’t know exactly what form these changes will take but any moves towards greater Australian ownership is a step in the right direction,” he said.

“The New Zealand co-operative side of things will do what’s best for New Zealand but I believe that with a move towards greater Australian input, we’ll get a good balance.

“I’ll be watching with interest about what role we’ll play as farmers but I’d be interested in playing a role.”

Mr Brock’s 950-cow Montana farm is located about 65 kilometres west of Launceston.

He took over the reins in 1990, when his farm supplied United Milk Tasmania.

The now defunct UMT was fused into the Bonlac group which was taken over by Fonterra 16 years ago.

“People can be scared of change, whether that’s inside or outside agriculture. But there’s been plenty of change in dairy that I’ve seen from UMT to Bonlac to Fonterra,” he said. “This is just another change but it’s a change that most farmers will be keen to see.”