Purchase of Saudi Arabia Plant to Support Expansion in Middle East, says Fonterra

The deal will see Fonterra take full ownership of the factory, securing its current manufacturing capacity requirements for Middle East, Africa (MEA) and Commonwealth of Independent States (CIS) region and allowing for further expansion and investment.

16 Dec 2009 --- Fonterra announced it has reached a final agreement to purchase the remaining 51% stake in Saudi New Zealand Milk products, a joint-venture dairy manufacturing facility with SADAFCO in Saudi Arabia.

The acquisition, worth around NZD45 million, is subject to local regulatory approvals in Saudi Arabia.

Saudi New Zealand Milk Products (SNZMP) currently packs and processes over 30,000 metric tonnes of New Zealand milk a year for Fonterra and a small number of co-packing customers.

The deal will see Fonterra take full ownership of the factory, securing its current manufacturing capacity requirements for Middle East, Africa (MEA) and Commonwealth of Independent States (CIS) region and allowing for further expansion and investment.

Mark Wilson, Regional Managing Director for Fonterra Asia/Africa and Middle East said the acquisition is an important step in growing Fonterra’s business in a large and growing dairy market.

“We are building a sizeable business in 20 countries in this region which combined, account for 250 million people and a dairy market value of more than US$5 billion.

“It is critical that we have long-term access to manufacturing capacity near these markets, to support our growth.”

The manufacturing site was first established by Fonterra and SADAFCO in 1996, and has been managed by Fonterra since then. It currently packs Anchor and Anlene milk powders and produces processed cheese and recombined feta-style white cheese for Fonterra, supplying 20 countries in the region.

The Kingdom of Saudi Arabia is a signatory to the Arab Free Trade Agreement, so products manufactured or packed by SNZMP are exported to the six GCC and 22 free trade agreement member countries free of duties.

“This provides Fonterra with a significant advantage over consumer dairy products that are simply imported into the region,” said Mr Wilson.

Fonterra’s consumer brands business in the Middle East, Africa and CIS covers 20 markets and is based on strong partnerships with key distributors. Anchor full cream milk powder and cheese products are the most widely known products amongst consumers, while Anchor cream, butter and feta-style white cheese are sold to the foodservice industry.

“While we are increasing our geographic footprint and sales volumes, we are also focusing on growing a portfolio of added value products, such as speciality creams, jar cheese and feta-style cheese for consumers and the foodservice industry,” said Mr Wilson.

“These types of products meet a specific need or provide a nutritional benefit which consumers and customers are willing to pay a premium for and will further grow revenue for our farmer shareholders.”

The MEA and CIS region accounts for about 20% of Fonterra’s total consumer brands sales in the Asia/Africa and Middle East business unit. Earnings from the Asia/Africa Middle East (Asia/AME) region were up 19 per cent in the 2008/09 financial year (on a 12 vs 12 month basis), while revenues were up 22 per cent.