After posting losses of NZ$196 million (US$133.8 million) for the financial year 2018, and undertaking a strategic review of assets, Fonterra announced it is selling its Farm Source™ livestock business to Carrfields Livestock for an undisclosed amount.
A Hard Hit
Fonterra’s fiscal year 2018 was a hard hit to the world’s largest dairy exporter. In response to crashing milk prices, the co-op made a strategic shift away from milk powders to higher margin, value-added dairy products such as cheese and yogurt. However, higher than expected prices for inputs only compounded issues.
For the 12 months ending in July 2018, Fonterra saw a net loss of NZ$196 million (US$133.8 million) after posting a profit of NZ$745 million (US$506 million) the previous year. It also saw earnings before interest and tax, excluding one-off charges, fall by 22 percent to NZ$902 million (US$616 million). On the back of such disappointing results, the company undertook a strategic review of its holdings that began with its Chinese joint venture Beingmate.
“It’s important that we give ourselves the time to take stock of where we are as a co-operative, breathe some fresh air into the business, then determine any changes that are needed,” Fonterra said in a statement at the time.
“This [review] will involve a thorough analysis of whether they directly support the strategy, are hitting their target return on capital and whether it can scale them up and grow more value over the next two-three years,” a company statement said.
“In the context of the review of the Co-op’s assets and investments, we have made the decision to sell the livestock division to Carrfields Livestock,” said Richard Allen, stores director for Farm Source™. “This will better serve the livestock team and the farms they service.”
Although the livestock business has proven to be a positive contributor to returns since its formation in 2005, Fonterra believes that the necessary capital investment to maintain and grow the business can be more efficiently used to bolster other core Farm Source™ units.
A Strategic Opportunity
Carrfields Livestock was founded more than four decades ago by Greg Carr. Today, his son Craig Carr is managing director of the company which includes 120 agents and additional administrative and support teams. Once the deal for the Fonterra livestock business is closed on March 1st of this year, Carrfields’ team will grow to 150 agents plus support staff of 30.
Craig Carr noted that the acquisition is an exciting strategic opportunity for the company, and one that will “cement our position as a forward thinking farming support business, which now gives us the ability to further attract great customers and people to our great company.”
“The acquisition will take the Carrfields Livestock team to over 150 plus livestock agents spread right across the country,” said Carrfields in a company statement announcing the acquisition. “This strategic partnership will offer Farm Source™ clients and Fonterra farmer owners access to a nationwide agent and sale yard network provided by a New Zealand family owned business.”
-Lynda Kiernan