Fon­terra mulls block for Tip Top

The Press - - Business - John An­thony john.an­[email protected]

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 gi­ant 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

KELLY SCHICKER/STUFF

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.

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