Fonterra mulls block for Tip Top
Dairy giant Fonterra is considering the sale of its icecream brand Tip Top.
Chairman John Monaghan said Fonterra was looking at its ongoing ownership of Tip Top and had appointed FNZC as an external adviser to consider a range of options.
‘‘We want to see Tip Top remain a New Zealand-based business and this is being factored into our options,’’ Monaghan said.
‘‘While performing well, Tip Top is our only icecream 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.’’
A ‘‘save Tip Top icecream’’ petition has already been launched in light of the announcement.
Fonterra chief executive Miles Hurrell said the key thing was to find a New Zealand buyer. ‘‘We understand the importance of this brand in a New Zealand context,’’ he said.
The Tip Top brand and a manufacturing plant in Mt Wellington, Auckland, would be included in the sale review.
Hurrell could not say how many staff worked at the plant but, if put up for sale, Tip Top would be sold as a going concern, he said.
‘‘It has a strong brand, a strong presence in New Zealand, so we see no impact on those manufacturing staff.’’
Very few Tip Top products were exported, he said.
If a sale went ahead Fonterra would want to keep supplying Tip Top with dairy ingredients, he said.
Fonterra chief financial officer Marc Rivers said the sale review was part of an overall portfolio review, designed to reduce its debt by $800 million.
‘‘It’s a great business and one that we’re very proud [of]. It’s done well.’’
Tip Top was first established in 1936 in Wellington and has been under Fonterra ownership since 2001.
It has had various owners over the years, including Western Australian company Peters and Brownes, which bought it in 1997.
It was then brought back into New Zealand ownership when Fonterra was formed in 2001.
Fonterra retaining part or full ownership were both options, Rivers said.
If a sale did go ahead it would be by the end of the fiscal year, which ends on July 31 for Fonterra.
The Tip Top announcement came as Fonterra posted a first-quarter gross margin that was down $14m on the same period last year.
The dairy co-operative posted a $646m gross margin on revenue of $3.8 billion, which was down 4 per cent.
Fonterra reports its profit results at half-year and full-year financial announcements only.
Rivers said gross margin ‘‘contributes to profit but it doesn’t go all the way down, so it’s sales minus cost of goods’’.
But it did not include some other items that featured in a half- or fullyear profit and loss statement, such as other expenses, he said.
The co-operative also downgraded its 2018-19 forecast farmgate milk price range from $6.25 to $6.50 per kilogram of milksolids to $6.00 to $6.30 per kg.
A 25-cent milksolid price cut would cost the country about $459m.
For the average New Zealand farmer milking 431 cows averaging 368kg milksolids per cow it represents a $39,652 blow.
It is the first financial performance update since the dairy co-operative posted its first ever full-year loss of $196m in September.
The September loss was largely due to a $405m write-down of its Chinese investment Beingmate and a damages payment of $183m to Danone following a court case in relation to the 2013 botulism scare.
Hurrell said the co-op generally makes a smaller proportion of its total annual sales in the first quarter due to the seasonal nature of milk supply. This meant the results ‘‘do not give much insight into the co-op’s expected earnings performance for the full year’’, he said.
‘‘It does, however, put the spotlight on where we have challenges that we need to address,’’ Hurrell said.
At the company’s annual meeting in November Fonterra said it would be reviewing its assets and some would be divested.
That process appears to be under way, with Fonterra announcing on Wednesday that it had reached a provisional agreement on key terms to unwind its joint venture with Beingmate in Darnum, Australia.
The Darnum plant was opened by Bonlac Foods in July 1997, before Fonterra acquired the site in 2006. The plant produces nutritional powders for the domestic and global markets.
Fonterra would regain full ownership of the Darnum plant by December 31 and enter into a multi-year agreement for Beingmate to purchase ingredients from it.
Units in Fonterra are trading at about $4.71, a 26 per cent discount from where they were a year ago.
‘‘We want to see Tip Top remain a New Zealandbased business and this is being factored into our options.’’ Chairman John Monaghan
Inside Tip Top’s Auckland factory on its 70th anniversary. The Tip Top icecream brand and its Mt Wellington manufacturing plant will be included in the sale review, Fonterra says.