Fonterra ponders sale of Tip Top ice cream

ice creamNew Zealand dairy giant Fonterra is considering a range of options for its popular ice cream brand Tip Top including a possible sale, as the company reviews its portfolio.

“We are also looking at our ongoing ownership of Tip Top and have appointed FNZC as our external advisor to work with us as we consider a range of options. Fonterra Chairman John Monaghan said.

“While performing well, Tip Top is our only ice cream business and has reached maturity as an investment for us. To take it to its next phase successfully will require a level of investment beyond what we are willing to make.”

Monaghan said that the company wants to see Tip Top remain a New Zealand based business and this is being factored into the options.

The company is still some months off completing the full portfolio review of assets, investments and partnerships but is “moving quickly” to reduce debt levels by $800 million by the end of the financial year.

“This requires both improved performance from last year and the divestment of assets,” Monaghan said.

In an update on its first quarter business performance, Fonterra revised its 2018-2019 forecast farmgate milk price range from $NZ6.25-$NZ6.50 per kilogram milk solid to $NZ6.00-$NZ6.30.

The dairy co-operative in September forecast a farmgate milk price of $NZ6.75 per kilogram of milk solid and posted a $NZ196m loss.

However, that milk price was then later revised down to $NZ6.25-$NZ6.50 per kilogram of milk solid.

Monaghan says the revision is due to global milk supply remaining stronger relative to demand, which has driven a downward trend on the GlobalDairyTrade (GDT) index since May.

“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,” Monaghan said.

“Here in New Zealand, we are maintaining our forecast collections at 1,550 million kgMS. NIWA is saying its likely we will see an abnormal El Nino weather pattern over summer and this could impact our farmers’ milk production. Demand from China and Asia remains strong. However, we are seeing geopolitical disruption impacting demand from countries that traditionally buy a lot of fat products from us.”

“Today’s forecast range assumes dairy prices will firm across the balance of the season. This is consistent with the views of other market commentators.”

 

Fonterra’s first quarter gross margin of $646 million is down $14 million compared to the same period last year and up slightly on a percentage basis from 16.6 per cent to 17 per cent. Revenue of $3.8 billion, is down four per cent and sales volumes were down six per cent to 3.6 billion liquid milk equivalent.

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