Fonterra (NZX:FCG) to sell its Brazil JV for NZ$210 million

December 13, 2022 01:52 PM AEDT | By Manika

Fonterra (NZX:FCG) to sell its Brazil JV for NZ$210 million — Image source: © Alterphoto | Megapixl.com

Highlights

Fonterra to sell its Brazil business to French company Lactalis

The sale is part of Fonterra’s divestment strategy

In an email to farmers, Fonterra CEO Miles Hurrell said that the company planned to focus on New Zealand’s milk pool

Fonterra (NZX:FCG) announced on 13 December 2022 that it had decided to sell its Dairy Partners Americas (DPA) joint venture in Brazil to a French dairy company, Lactalis. In a letter to farmers, Fonterra said it would sell DPA for NZ$210 million.

FCG said that it was selling its overseas assets to focus on getting more value from New Zealand milk after global investment failed to deliver the desired results. In August 2022, the company said that it was looking to get more profits from NZ milk as the overseas expansion had added to the company’s debt.

Last month, Fonterra announced the sale of its Chile business to Peru’s Gloria Foods for a sum of NZ$1 billion.

Even DPA Brazil has been up for sale since 2020, as per Fonterra’s statements, but due to COVID-19 disruptions, the sale process was delayed and is now expected to be completed by the middle of 2023.

DPA is held jointly by Fonterra and Nestle to manufacture and commercialise dairy products in Latin America. Fonterra is the majority shareholder with a 51% stake, and Nestle owns 49%.

Communication to farmers

In his address to farmers through an email, Fonterra’s chief executive Miles Hurrell said the sale was aligned with the company’s strategy of giving priority to New Zealand’s milk pool.

He told the farmers that a 51% share of these sale proceeds would be used to repay debt related to that asset, and does not see any impact on Fonterra’s earnings since the asset has been up for sale since 2022.

The sale was subject to regulatory approvals from competition authorities, he said.

Further, he said that an update on the final and overall impact of the divestment plan will be included in the FY23 financial reporting.

Fonterra’s Q1FY23 performance

In its first quarter results announced on 8 December 2022, Fonterra said that profit was up 84% on the back of strong margins in its proteins and cheese business.

Its normalised after-tax profit was NZ$214 million in the quarter to October 31 , up from NZ$116 million last year. The sales in the first quarter also rose by 32% to NZ$5.79 billion.

As per the release, the long-term outlook for dairy remained strong, and the dairy company raised its forecast for full-year earnings to 50-70 cents per share from 45-60cps. The continuation of strong margins may have an additional positive impact on the forecast earnings, the company said.

Stock update

On 13 December 2022, the stock was trading up by 0.62% at NZ$3.260, at the time of writing.

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