The planned reduction of debt by $800 million this financial year will not be achieved by improved performance alone.
“At this stage nothing is off the table and if we choose to divest our ownership of an asset it could be in full or in part.
“We have identified three assets.
“I have already mentioned Beingmate and the other two are part of our value-add portfolio.
“This is not a fire sale.
“There are no sacred cows and there is no room for being sentimental.”
Monaghan said the portfolio review has three phases, of which $800m debt reduction is the first and will be completed this financial year.
Goldman Sachs has been appointed to review Fonterra’s options for its 18% Beingmate stake and changes to the Darnum joint venture, where infant formula is made, in Australia.
The second phase of the review is a strategic look at investments, major assets and partnerships against Fonterra’s strategy and the targeted return on capital.
“It may be that too many of our investments are targeting a return over the longer term and we need to focus on those that can deliver for us today.”
Monaghan told about 400 farmers at the big Lichfield plant in south Waikato the third phase is to act on the findings.
“That may mean exiting certain investments that are no longer core to our strategy, reallocating capital to new or existing ventures or simply reducing debt.”
Fonterra directors will be transparent and keep farmers up to date where commercially sensible.
Chief executive Miles Hurrell repeated his ambition of making the return on capital greater than 6% annually.
That will be achieved by improving earnings and reducing borrowing to achieve a satisfactory return.
The Fonterra Shareholders’ Council value review done by Northington Partners disclosed a 6.3% a year shareholder return, in both dividends and share price, since the inception of Fonterra in 2001.
“We need to generate a respectable return and I can assure that it does not start with a six,” Hurrell said.
“We are living within our means and we have made commitments regarding debt and expenditure.
“Over the next couple of years we will reduce our operational expenses back to 2017 levels.
“Our capital expenditure is set at $650m this year, down $211m.
“We are reviewing all discretionary initiatives in the pipeline and challenging all spending to help us achieve this.”
Hurrell said these are only the first steps to improve Fonterra’s performance alongside the board-led portfolio review and the development of a new purpose for the co-operative.
The 25-35c a share earnings target and the debt reduction are for this financial year but other measures might take more time.
