Fonterra Co-operative Group Ltd has released its revised strategy, which will see the Co-op deepen its focus on its high-performing Ingredients and Foodservice businesses to grow value for farmer shareholders and unit holders.
This follows a strategic review that confirmed the Co-op’s strengths as a B2B dairy nutrition provider, resulting in Fonterra’s decision to explore divestment options for its global Consumer businesses.
Chairman Peter McBride says the revised strategy creates a pathway to greater value creation, allowing the Co-op to announce enhanced financial targets and policy settings.
“Through implementation of our strategy, we can grow returns to our owners while continuing to invest in the Co-op, maintaining the financial discipline and strong balance sheet we’ve worked hard to build over recent years,” said McBride.
“We have increased our target average return on capital to 10-12%, up from 9-10%, and announced a new dividend policy of 60-80% of earnings, up from 40-60%. At all times, we remain committed to maintaining the maximum sustainable Farmgate Milk Price.”
Looking out to the next decade and beyond, Fonterra has made six strategic choices.
The first is to deliver the strongest farmer offering by working alongside farmers to enable on-farm profitability and productivity and support the strongest payout.
Fonterra are also aiming to deepen Fonterra’s position as a world-leading provider of sophisticated dairy ingredients and build trading capability to grow both the Farmgate Milk Price and earnings.
The company wishes to keen up its momentum in Foodservice by expanding its successful Foodservice business in China and other key markets to grow earnings.
Investing in operations for the future is also massive for Fonterra. The co-op will invest in an efficient manufacturing and supply chain network that allows flexibility to allocate milk to the highest returning product and sales channel.
Fonterra is also prioritising sustainability by further improving the Co-op’s sustainability credentials and strengthen partnerships with customers who value this position.
The co-op will also prioritise using science and technology to solve the Co-op’s challenges and build on competitive advantages.
CEO Miles Hurrell said Fonterra is in a strong position, delivering results well above its five-year average, which puts it in a position to think about the next evolution of its strategic delivery.
“The foundations of our strategy – our focus on New Zealand milk, sustainability, and dairy innovation and science – remain unchanged. What’s changed is how we play to these strengths,” said Hurrell.
“Following our recent strategic review, we are clear on the parts of the business that create the most value today and where there is further headroom for growth. These are our innovative Ingredients and Foodservice businesses, supported by efficient and flexible operations.
“By streamlining the Co-op to focus on these areas, we can grow greater value for farmer shareholders and unit holders, even if we divest our Consumer businesses.”
Fonterra will provide farmers and the market a rolling three-year forward-looking view of the financial assumptions underpinning its performance targets annually and will measure progress through its annual business updates.
“This is the right strategy for the Co-op. It has a clear-eyed view of where we best generate returns for farmer shareholders and unit holders and will see us unlock value at every point in our supply chain by focusing on our strengths,” said Hurrell.
“Together, Fonterra’s Board and Management are looking forward to working alongside our Co-op’s farmers and employees to deliver on our vision to be the source of the world’s most valued dairy.”
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