6 Dec 2018

Tip Top may go on the block as Fonterra mulls sale

10:43 am on 6 December 2018

Fonterra is considering selling ice cream brand Tip Top, saying it requires an investment beyond what the co-operative is willing to make.

Tip Top Ice cream factory in Auckland, New Zealand.

Tip Top Ice cream factory in Auckland, New Zealand. Photo: 123rf

Fonterra Chairman John Monaghan said although Tip Top was performing well, the business had "reached maturity" as an investment for the co-operative.

"We want to see Tip Top remain a New Zealand business and this is being factored into our options," Mr Monaghan said.

Previously he has said everything was on the table in the review, and analysts expected overseas assets to be sold.

It confirmed it's unwinding a joint venture in Australia with Chinese infant formula company Beingmate, which will see Fonterra takeover the plant by the end of the year, and for Beingmate to purchase ingredients from Fonterra.

However, there was no further detail on its 18 percent investment in Beingmate, the value of which has been slashed in the past year.

The forecast has been lowered three times since its initial $7.00 estimate in May.

Mr Monaghan said the growth in milk supply around the world outpaces growth in demand, resulting in lower prices.

"Since our October milk price update, production from Europe has flattened off the back of dry weather and rising feed costs. US milk volumes are still forecast to be up one per cent for the year."

He said the new forecast assumes prices picking up in the later part of the dairy season but there was still uncertainty.

"There are still a number of unknowns in the global demand and supply picture and we recommend farmers budget with ongoing caution."

The co-operative also gave some more detail on its review of operations and assets, which it is hoping will allow it to cut its debts by $800m.

Meanwhile, first quarter trading has been softer with revenue down 4 percent to $3.8 billion and sales volumes down 6 percent.

Fonterra chief executive Miles Hurrell said because the co-op made a smaller proportion of its total annual sales in the first quarter, the numbers were not a great insight into the company's likely full-year performance.

But he said the results did indicate where Fonterra needed to do some work.

"In particular, we are seeing challenges in our Australian Ingredients, Greater China Foodservice and Asia Foodservice businesses. I want to be clear with our farmers and unit holders about how we are tackling these issues."

However, it maintained the forecast for earnings of 25-30 cents a share.

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