Fonterra not chasing new acquisitions

24 Mar, 2017 10:40 AM
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Theo Spierings: We had nothing five years ago in Europe and now we have three strategic alliances in the UK, Netherlands and Lithuania.
It's more about partnership than about spending the big bucks.
Theo Spierings: We had nothing five years ago in Europe and now we have three strategic alliances in the UK, Netherlands and Lithuania.

The world's largest dairy exporter, Fonterra Co-operative, will seek strategic alliances rather than pursue growth via acquisition, confirming it is not interested in buying its customer, troubled infant formula maker Bellamy's Australia.

Fonterra chief executive, Theo Spierings, said the New Zealand-based dairy giant was interested in partnerships, likely in emerging markets such as Africa or south-east Asia.

"We had nothing five years ago in Europe and now we have three strategic alliances in the UK, Netherlands and Lithuania," he said.

"It's more about partnership than about spending the big bucks. [However,] if something comes by where we can get to the strategic No.1 or No.2 position, we will not shy away from it because our balance sheet is strong."

Mr Spierings also pointed to its style of joint venture with Nestle, where it has a 51 per cent controlling interest in its Dairy Partners Americas (DPA) Brazil, where they have a $45 million distribution centre.

Chief financial officer Lukas Paravicini also told The Australian Financial Review that, "we are not looking at any alliances in Australia or China at this stage," when specifically asked if Fonterra would like to buy Bellamy's.

Fonterra is a key supplier of milk powders to Bellamy's.

The pair in January renegotiated a key contract, in which Fonterra added a "poison pill" arrangement, meaning the agreement can be terminated if Bellamy's is taken over.

Bellamy's escaped a crippling supply take-or-pay financial payout after it over-estimated its demand for sales in China but Fonterra added a clause that gives it first rights over Bellamy's assets.

"I want to be clear ... Bellamy's is a strategic partner for us and we are keen to have them as a customer," said Mr Paravicini, who was recently appointed chief operating officer, consumer and food service.

"We were very open to renegotiating that contract because we understood the pain they were in.

“We want them to ultimately have a good business because that will produce the volumes for us."

His comments came after Fonterra revealed a modest 2 per cent rise in first-half net profit to $NZ418 million ($384 million), while revenue rose 5 per cent to $NZ9.2 billion.

The company held the price it pays for milk at $NZ6 per kg of milk solids for New Zealand farmers and $5.20 per kg/MS for Australian farmers.

Fonterra came under fire in 2016 for following rival Murray Goulburn in significantly cutting its farmgate milk price for the last two months of the season to as low $1.91 per kg/MS, leaving farmers in crisis, with some culling herds.

In October, Fonterra Australia increased its farmgate milk price from the opening price for the season of $4.75 per kg/MS to $5.20.

Mr Paravicini said he remained confident in the company's forecast for the farmgate milk price.

"This year we see this much more in alignment ... and we see it very stable $5.20," he said.

This article first appeared in The Australian Financial Review

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