Fonterra Australia to rebuild $141m cheese plant in Victoria

Fonterra Cooperative Group's [NZX: FCG] Australian unit will invest $141 million in building a new cheese plant at its Stanhope factory in Victoria after its former one was destroyed by fire a year ago.

The dairy cooperative said the cost of the new cheese plant would be partly met by its insurance payout from the fire for damage and loss of business, the $A74 million it got from the sale of its 9% stake in Australia's Bega Cheese in October, and other smaller recent divestments across the Tasman. It has also received an undisclosed amount of financial assistance from the Victorian government through its Regional Jobs and Infrastructure Fund. The state government's website said infrastructure grants under the fund are capped at $A500,000.

Fonterra Oceania managing director Judith Swales said the new plant would not increase the cooperative's debt levels.

The dairy exporter reduced capital expenditure this financial year to return debt levels to a debt to equity ratio of between 40-45% after spending $2.4 billion in the past three years on more stainless steel to cope with extra milk volumes and its Beingmate stake.

The loss of cheese production after the fire was one of the main contributors to the underperforming Fonterra Australia reporting a $106 million drop in revenue to $1.56 billion in the 2015 financial year though the cooperative expects to return to profit this financial year.

Ms Swales said investing in the new plant will help Fonterra deliver on its multi-hub strategy which involves Australia focusing on manufacturing nutritionals, whey and cheese. It will provide whey to its Darnum and Dennington plants which make infant formula.

"We are focusing on areas where we can win in a highly competitive market and that means optimising our product mix and investing in higher value-add products that will deliver the best returns for our farmer shareholders," she said.

The new plant will be able to produce 45,000 tonnes of cheeses each year including parmesan, gouda and mozzarella, up from 15,000 tonnes at the old plant. Swales said the new plant will require significant growth in the local milk pool by 2020.

State agricultural minister Jaala Pulford says Fonterra's investment demonstrated its confidence in the future of Australian dairy.

Construction of the new plant will begin next year, and is expected to be completed in 2017.

Fonterra Australia recently opened its $A31 million fresh milk plant at Cobden, which followed it securing a 10-year deal with Woolworths to supply up to 100 million litres of milk annually for its Select own-brand fresh milk.

(BusinessDesk)