New Zealand dairy co-operative Fonterra has released a new “revised” business strategy which it says will involve a greater focus on high-performing ingredients and foodservice businesses.
The business said that this will “grow value” for its farmers shareholders and unit holders.
The strategy comes on the back of a strategic review that, according to Fonterra, confirmed the co-op’s strengths as a business-to-business dairy nutrition provider.
The business said that this led to a decision to explore divestment options for its global consumer businesses “to free-up capital and allow the co-op to focus on what it does best”.
Fonterra said it has made several “strategic choices”. The first of these is to “deliver the strongest farmer offering”.
The co-op said it will work alongside farmers to “enable on-farm profitability and productivity and support the strongest payout”.
Fonterra said it will also deepen its position as a provider of “sophisticated” dairy ingredients and will build trading capability.
The new strategy will also see the business expanding its foodservice business in China and other markets.
Other focus points in the strategy include investing in manufacturing and the supply chain network; building the business’ sustainability credentials; and increasing the use of science and technology.
The progress on the strategy will be measured against certain targets, including a higher return on capital 10% to 12%, compared to its most recent five-year average of 8.6%; and increasing its dividend to 60% to 80%, compared to the most recent average of 50%.
It will also target annual capital investment of NZ$1 billion, compared to its current average annual investment of around NZ$650 million.
Commenting on the new strategy, Fonterra chairperson Peter McBride said: “Through implementation of our strategy, we can grow returns to our owners while continuing to invest in the co-op, maintaining the financial discipline and strong balance sheet we’ve worked hard to build over recent years.”
The co-op said it will provide farmers an annual rolling three-year forward looking view of the financial assumptions underpinning its performance targets.
Miles Hurrell, Fonterra CEO, said: “This is the right strategy for the co-op. It has a clear-eyed view of where we best generate returns for farmer shareholders and unit holders and will see us unlock value at every point in our supply chain by focusing on our strengths.”
