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Fonterra raises milk price forecast and confirms plans to exit consumer-facing business
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Global Banking & Finance Review®
Company
By Rajasik Mukherjee
(Reuters) -New Zealand dairy giant Fonterra Co-operative raised its milk price forecast on Monday and said it would go ahead with a potential divestment of its global consumer business and integrated operations in Oceania and Sri Lanka, propelling its shares to a one-week high.
Shares of the co-operative group rose as much as 2.6% to NZ$4.35, hitting its highest level since Nov. 1.
The firm also logged its highest intraday percentage gain since Oct. 24.
CEO Miles Hurrell said in a statement that the group was considering both a trade sale and an IPO for its businesses. The group said it would seek votes from farmer shareholders for their preferred divestment option before making a decision.
“It’s difficult to gauge whether market confidence is higher enough to justify an IPO,” said Tom McBride, financial adviser at Hamilton Hindin Greene.
Tom added that the market reacted positively to the news as it was a “back-to-basics strategy” by the company which removed any kind of “uncertainty relating to these transactions”.
The operations being considered for possible sale or divestment accounted for about 19% of group operating earnings in the first half of fiscal 2024, it said in May.
Earlier in May, Fonterra said it wanted to sell or partially exit its consumer unit and focus on growing its ingredients and foodservice business-to-business arms.
Fonterra’s global consumer business includes a portfolio of brands such as Anchor, Mainland, Kāpiti, Anlene and Anmum.
Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New Zealand and Fonterra Australia. It comprises consumer, foodservice and ingredients businesses. Fonterra Sri Lanka comprises consumer and foodservice businesses.
Fonterra increased the midpoint of its milk price forecast – the price it pays to farmers for milk – for the 2024/25 season to NZ$9.50 per kilogram of milk solids (kgMS), from NZ$9.00.
The increase reflects rising global dairy prices and robust demand for the company’s benchmark commodity products, particularly in key markets such as China and various African countries.
(Reporting by Rajasik Mukherjee; Editing by Susan Fenton and Lisa Shumaker)
Divestment refers to the process of selling off a subsidiary or business segment, often to focus on core operations or improve financial performance.
A trade sale is the sale of a business or its assets to another company, typically within the same industry.
An IPO, or Initial Public Offering, is the process by which a private company offers shares to the public for the first time to raise capital.
Operating earnings refer to the profit a company makes from its core business operations, excluding any income from non-operational activities.
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