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Fonterra has posted a net loss of $605 million for the July year, slighly better than expected, after foreshadowing more than $820m in writedowns mainly on its offshore businesses.
This follows the previous year's loss of $196m and has sparked a billion dollars worth of asset sales and a significant change in direction for the dairy giant.
New Zealand's biggest company is cleaning house after a disastrous financial performance and is expected to cut a swathe of staff at its Auckland head office. The co-op was forced to delay the release of its annual accounts while auditor PwC worked through significant accounting adjustments related to the write-downs.
The Financial Markets Authority has also been in discussions with Fonterra after a formal complaint from a shareholder about its financial accounts from 2015-2018.
In its release this morning, Fonterra said its normalised earnings before interest and tax was $819 million, down 9 per cent. It confirmed no dividend would be paid for the year to July 31 as it pays down debt, and announced a final Farmgate Milk Price for the 2018/19 season of $6.35 per kgMS.
The co-op forecast a 6.25-7.25 per kgMS milk price range for the 2019/20 year and forecast earnings per share of 15-25 cents.
Fonterra chief executive Miles Hurrell said that 2019 was incredibly tough for the co-op but it was also the year Fonterra made decisions to set it up for the future.
"These included us reflecting changing realities in asset values and future earnings, lifting our financial discipline, getting clear on why we exist and completing a strategy review.
"Many of these calls were painful, but they were needed to reset our business and achieve success in the future.
"We made the decision to reduce the carrying value of several of our assets and take account of one-off accounting adjustments."
Commenting on the underlying performance, Hurrell said Fonterra's normalised earnings per share for the year was 17 cents, which was above the last forecast for the year of 10-15 cents.
"The gross margin from our largest business, New Zealand Ingredients, was $1,332 million, up 3 per cent on last year due to increased sales and price performance.
"Our Foodservice performance also improved on last year, with gross margin up 10 per cent. This was despite lower total sales volumes, following a slow start to butter sales in Greater China and Asia.
"But we can't ignore that we had a number of challenges across the year – these included Australia Ingredients, our businesses in Latin America and the consumer businesses in Sri Lanka, Hong Kong and New Zealand."
Commenting on Fonterra's new strategy, Hurrell said the aim was to unlock value focus on three goals – "healthy people, healthy environment and healthy business".
Fonterra has dropped ambitions to be a global dairy giant sourcing milk from around the world in a new business strategy which dictates "less is more".
"This is the right strategy for us, but it requires us to make some hard choices. We've looked at the big opportunities and risks for a New Zealand dairy co-op today. We've also got clear on what our strengths are and the hard realities we have to face up to. I'm pleased that we now have a strategy that is built from the belief that our farmers' milk here in New Zealand is the best and most precious in the world.
"Recognising this, while we will complement our farmer owners' milk with milk components sourced offshore when required, we will start rationalising our off-shore milk pools over time."
"This focus on dairy ingredients and foodservice will see us playing to our strengths and driving more value from the parts of our business that consistently perform.
"We will still be in Consumer and will focus on markets throughout Asia Pacific. The majority of the products we sell in these markets are made from New Zealand milk and are similar to those we sell in our Ingredients business. This creates efficiencies and helps us play to our strengths. It also means we will reduce our consumer product portfolio to those that create superior value."