Fonterra mulls sale of venerable Anchor consumer brand

Thursday, 16 May 2024

Fonterra‘s Anchor brand first appeared on dairy products in New Zealand in 1886. The Anchor butter advertisement pictured is from 1936.

Dairy giant Fonterra is considering selling its global consumer brands to focus on growing its global business selling dairy ingredients, such as UHT cream to food manufacturers, hotels and restaurants.

If the sale goes ahead, it would result in the full or partial sale of the Mainland and Anchor brands, which the co-op acknowledged were brands the Kiwi public had a strong connection to.

The Anchor brand dates back to 1886, and is one of the country’s oldest, started by Waikato farmer Henry Reynolds, supposedly inspired by an anchor tattoo on the arm of one of his dairy workers.

In an announcement to the NZX, the farmer-owned cooperative, which had been cutting costs to appease under-pressure farmers, said it was making a “step-change in its strategic direction” by focusing on “deepening its position as a world-leading provider of high-value, innovative dairy ingredients”.

It was considering whether to sell some or all of its global consumer business, as well as selling its integrated businesses in Sri Lanka and Oceania.

Fonterra chairperson Peter McBride said the move would position the company to grow long-term value for farmer shareholders and unit holders.

Miles Hurrell, chief executive of Fonterra.

“We have conducted a strategic review, which has reinforced the role of our core business. This is working alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by customers, to deliver strong returns to farmer shareholders and unit holders,” he said.

Fonterra chief executive Miles Hurrell said: “We believe we can grow further value for the co-op by focusing on being a B2B (business to business) dairy nutrition provider, working closely with customers through our high-performing Ingredients and foodservice channels.

“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain footprint, deeper partnerships with strategic ingredients customers, further investment in our foodservice channel, continued delivery on our sustainability commitments and investment in innovation,” he said.

Fonterra said its global consumer business had grown since Fonterra was formed in 2001, and was performing well.

Anchor butter is an iconic New Zealand brand, but it could soon be foreign-owned.

Brands included Anchor, Mainland, Kāpiti, Anlene, Anmum, Fernleaf, Western Star and Perfect Italiano.

The portions of its business Fonterra was considering selling used about 15% of the milk solids it processes from milk collected from farmers, and 19% its operating earnings.

“A divestment of these assets would help create a simpler, higher performing co-op with our focus on our core ingredients and foodservice business and doing what we do best,” Hurrell said.

Hurrell sought to justify the potential sale of business operations that he said were performing well.

Fonterra believes it can get a better result for dairy farmers from focusing on building its dairy ingredients business, selling ingredients to food manufacturers and the food service industry.

“While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing and selling milk,” he said.

“Due to our co-operative structure, we believe prioritising our Ingredients and foodservice channels and releasing capital in our consumer and associated businesses would generate more value.”

“We believe Fonterra is not the highest-value owner of the consumer and associated businesses in the longer term and a divestment could allow a new owner with the right expertise and resources to unlock their full potential,” he said.

He said Fonterra recognised how the New Zealand public identified with brands like Anchor, but claimed a new owner could help the brands flourish.

Fonterra had had approaches from businesses interested in buying the brands, he said.

“We have also received unsolicited interest in parts of these businesses, making now a good time to consider their ownership.”

Fonterra would appoint advisers to assist with assessing divestment options, he said.

“We recognise a divestment of this scale would be significant for Fonterra. Throughout this process we will be considering how best to maximise overall returns to our farmer shareholders and unit holders.”

Not all the money realised from a sale would be repaid to the co-op’s farmer-owners.

“Any decisions about use of net proceeds from a sale will be guided by our resource allocation framework, which allocates funds to debt repayment, investment to support our strategy and distributions to shareholders and unit holders,” he said.

Shareholder support would be sought before the sale, which would take at least 12 to 18 months.