Fonterra and its tryst with hope!

👉 About Fonterra : It ranks among the world's most prominent dairy manufacturers and holds the distinction of being New Zealand's primary dairy product exporter. Furthermore, it holds the top spot as New Zealand's largest company based on revenue

👉 What's happening : Following an unsuccessful attempt to expand its global presence across countries such as Brazil, India, Chile, Australia, and China, Fonterra has opted to divest assets due to unmet profit expectations and the accumulation of substantial debt. They are maintaining ownership in Australia for reasons they call as strategic and performance they call as good. Arie Dekker has interesting take on this Australia ownership (New Zealand Herald publishing titled "Jarden challenges Fonterra on decision to stay in Australia")

👉 Now they say : "We are divesting to return $1b return to shareholders and to focus on NZ business" - at the same time they mention the global diary production NZ share is 2-3% (for reference India share is highest at 23%). They mention new found focus on sustainability i.e. cutting farm emissions in an already sorted farm (Lincoln University Adjunct Professor Jacqueline Rowarth says farmers will look to other companies if they can't cope) along with innovations in Nutrition Science Solution (this looks interesting)

Finally what makes me think they are pivoting too much on hope include two key recent developments :

👉 Firstly their hope that things will somehow work out in India as they say "While it [India] is currently the world’s largest producer of dairy, dairy consumption in India is expected to grow faster than supply, which means that at some point imports will likely be needed to meet demand."

👉 Again going back to Chinese market and calling confidence in the prospects of the Chinese market. Their entry can be understood from an innovation POV (as they set up Fonterra Application Center in Shenzhen) but then they specifically mention localized innovation for Chinese market

⁉ How will the two developments help NZ business (in medium to long run, lets not go to short term as they find themselves busy cutting emissions and finding permanent CFO) and would just giving back $1Bn to shareholders do justice ?

hashtag#Fonterra hashtag#DairyIndustry hashtag#BusinessStrategy hashtag#Innovation hashtag#China hashtag#India hashtag#Shareholders hashtag#businesstransformation hashtag#hopeisnotastrategy

Sources:

📒 New Zealand Herald publishing titled "Why India is an important market for Fonterra"

📒 FoodBev Media article titled "Fonterra and Nestlé complete sale of DPA Brazil"

📒 BusinessDesk NZ article titled "Fonterra plant closures might be on the cards"

📒Reuters publishing titled "NZ's Fonterra CFO Neil Beaumont to step down"

📒 Fonterra quarterly filings

📒 Xinhua article titled "New Zealand's dairy giant Fonterra to strengthen presence in China with innovation, says CEO

(Comments expressed are personal and basis above publicly available sources and analyst round table discussions)