Fonterra expands with NZ$150 million cold storage facility amid strategic growth

Company News

by Glenn Dyer

Very different news has emerged from two of New Zealand’s dairy majors, Synlait (ASX:SM1) and Fonterra (ASX:FSF).

Fonterra, the largest dairy group in the world, has announced its third expansion project in the past month, bringing the total investment to nearly NZ$400 million.

Yesterday, Fonterra revealed plans to spend NZ$150 million on a massive new cold storage facility at one of its major processing plants across the Tasman. This announcement follows two major expansion projects in recent weeks: NZ$75 million at its Studholme plant to create a hub for high-value proteins, and a new NZ$150 million UHT plant at Edendale.

Fonterra CEO Miles Hurrell stated that these investments are aimed at creating value at every point of the value chain for the co-operative.

"Over the past few weeks, Fonterra has announced significant strategic investments to expand and upgrade its operations. Our strong balance sheet is enabling us to invest for future growth and support the ongoing delivery of our strategy," Hurrell said.

The Whareroa cold storage investment will increase storage capacity for cheese by around 5,000 tonnes. The overall plant employs 1,000 people, processes 12.5 million litres of milk a day, and accounts for 20% of Fonterra’s production in New Zealand.

"Our Whareroa site processes up to 12.5 million litres of milk per day and produces 30% of the co-op’s cheese, along with a number of other products, including butter, casein, and powders," Fonterra added.

Construction on the new cold storage facility will begin next month and will occur in two phases to ensure the existing building remains operational.

It’s likely time for Fonterra to announce whether it has managed to sell its Australian assets. The proposed sale was first revealed six months ago in mid-May.

Meanwhile, there is a very different story for embattled New Zealand dairy producer Synlait Milk, which has secured overwhelming support from shareholder proxies for its recapitalisation plan.

The plan involves raising more than NZ$666 million (around A$614 million) in new debt and capital.

The fact that this refinancing value is more than six times Synlait’s market value of A$93 million illustrates just how dire the company’s financial position is.

Synlait plans to raise NZ$217.8 million (A$199.4 million) by issuing new shares to its two largest shareholders: China’s Bright Dairy and A2 Milk. While A2 Milk will receive shares at 43 cents each, Bright Dairy will receive shares at 60 cents each.

Synlait shares last traded at 40 cents on the ASX and are down 53% so far this year.

In a presentation to shareholders, Synlait revealed that more than 90% of eligible proxies supported the placement.

The approval of the placement comes just days after Synlait secured a NZ$450 million (A$414 million) refinancing deal for its bank debt with a new group of financiers, as the company works to reduce leverage and turn around its business.

Earlier this month, Synlait settled a lengthy dispute with its top customer and 20% shareholder, A2 Milk, over supply rights for infant milk formula products sold in China, Australia, and New Zealand.

The company has also had to contend with a group of disgruntled shareholders.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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