Business / Rural

Fonterra urged to dust off plan to split business in two

12:19 pm on 16 August 2018

Fonterra has been urged to reconsider a proposal to spin off its brands arm as part of a review by the dairy giant of its operations and direction.

Photo: RNZ / Rebekah Parsons-King

On Wednesday, Fonterra chairman John Monaghan halted the search for a new chief executive and appointed company insider, Mike Hurrell, as acting chief executive to replace Theo Spierings.

Fonterra's decision to take stock after disappointing earnings results prompted a small rally in its share price, which has fallen by a quarter this year.

It ended up 1 percent to $4.85 yesterday.

Harbour Asset Management senior research analyst Oyvinn Rimer said the review was timely.

"The capital structure is not fit for purpose," Mr Rimer said.

"There's been a vision of moving up the value chain and that just hasn't played out the way it was intended."

Mr Rimer said it was time for Fonterra to dust off a previously rejected proposal and separate the ingredients business from its brands arm, allowing greater investment in the more lucrative, fast-moving consumers goods.

"Every year there has been very large capital expenditure in the ingredient assets, the big (milk) dryers in New Zealand, and there has been very little to supercharge the brands business and chase global markets."

"The company has lost out to the likes of Nestle and Danon and the other big brands companies," Mr Rimer said.

A previous review of Fonterra's capital structure in 2009 saw farmers reject splitting its business in two.

But Mr Rimer felt times had changed.

"This could be a once in a decade opportunity to address it, and it just feels to me that there is both political will as well as increasing farmer will to have a positive look at it."

The government is already reviewing the Dairy Industry Restructuring Act.