Fonterra goes back to its roots and broadens its sales

Fonterra has had a record year, where almost everything played out well. Even the business units that the company has put on display and is now planning to sell to Lactalis performed excellently. Fonterra also looks forward to the future with confidence, believing that it now has the right strategy to minimize vulnerabilities and extract more value from the remaining, primarily New Zealand activities. To complete the new profile, the members still need to approve the sale of the Australian activities (plus those in Sri Lanka and the New Zealand consumer business) to Lactalis at the beginning of October. After that, Fonterra will be a fully B2B company, 'freed' from consumer activities. Super dividend Lactalis is offering the equivalent of €2.08 billion for the divested units (referred to as the Mainland Group). If the members approve, they will receive a sort of super dividend in return, equivalent to nearly €1.00 per share. This is on top of the already record-high milk price for the past fiscal year 2024/25. For the current year, Fonterra forecasts a similar milk price for the members as in the past year. It is expected that milk production will slightly increase. In the past year, a total of 16.3 billion liters was supplied, with an average of 9.26% milk solids. Just like in Europe, the fat portion in the milk solids performed above average. Although the expectations for the Chinese market are still a bit unclear, the picture remains that high-fat products are performing well above average in this market. In particular, UHT cream is scoring strongly. Protein-rich products are performing slightly less well, especially the powders. This is because China is increasingly producing more. However, cheese sales are still going well. Less China, more Asia The Chinese market remains very important for Fonterra, although the dependence on it is decreasing. About one-third of all products go there, although last year slightly more volume was sold to China again. China is and remains the largest individual customer. Markets in Southeast Asia, however, are gaining importance. Last year, they together accounted for 41% of the sales. Especially a country like Vietnam is rapidly increasing in importance. UK and EU Markets further away should also not be underestimated. Fonterra is particularly focused on the United Kingdom. It is the second-largest dairy importer in the world. Historically, there have been ties, and after Brexit, a free trade agreement was concluded between the UK and New Zealand. Fonterra has been doing good business there since then, with increasing sales of butter, cheese, and high-quality ingredients. A free trade agreement has also been concluded with the European Union, which is also proving beneficial for Fonterra. It is now the largest market for functional whey proteins for the company. Having its own factory in the Netherlands (Heerenveen) alongside a sales office also helps. According to the annual report, the EU is responsible for NZ $1 billion in revenue (€493 million). Apart from having its own raw material flow from the Netherlands, all other Fonterra products will now come from New Zealand (provided the deal with Lactalis goes ahead). The once numerous other dairy streams have been divested. Fonterra is now nearly 100% New Zealand and says that, partly due to the good milk price, it is gradually winning back more farmers in its home country.