Fonterra releases new strategy for growing its B2B business

Fonterra Co-operative Group has released a revised strategy, which will see the co-op deepen the focus on its high-performing ingredients and foodservice businesses, to grow value for farmer shareholders and unit holders, the company says. This follows a strategic review that confirmed the co-op’s strengths as a B2B dairy nutrition provider, resulting in Fonterra’s decision to explore divestment options for its global consumer businesses.

Chairman Peter McBride says the revised strategy creates a pathway to greater value creation. “The co-op exists to provide stability and manage risk on farmers’ behalf, while maximising the returns to farmers from their milk and the capital they have invested in Fonterra. 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.

“We have increased our target average return on capital to 10-12%, up from 9-10%, and announced a new dividend policy of 60-80% of earnings, up from 40-60%. At all times, we remain committed to maintaining the maximum sustainable Farmgate Milk Price,” says Mr McBride.

CEO Miles Hurrell says Fonterra is in a strong position, delivering results well above its five-year average, which puts it in a position to think about the next evolution of its strategic delivery. “Following our recent strategic review, we are clear on the parts of the business that create the most value today and where there is further headroom for growth. These are our innovative ingredients and foodservice businesses, supported by efficient and flexible operations.

Looking out to the next decade and beyond, Fonterra has made six strategic choices.

The first is to deliver the strongest farmer offering, working alongside farmers to enable on-farm profitability and productivity and support the strongest payout. Next is to deepen Fonterra’s position as a provider of dairy ingredients and build trading capability to grow both the farmgate milk price and earnings. The plan also includes expanding Foodservice business in China and other key markets to grow earnings, along with investing in the manufacturing and supply chain network. Fonterra will also build on its sustainability position, and further improve the co-op’s sustainability credentials and strengthen partnerships with customers who value this position. Lastly, the co-operative plans to use science and technology to solve challenges and build on competitive advantages.