Fonterra forecasts losses of €390million
Fonterra has confirmed it forecasts losses of NZ$590-675 million (€342-390m) for the 2019 financial year (end 31 July 2019) ahead of full results being released in September.
CEO Miles Hurrell said Fonterra needs to reduce the carrying value of several of its assets and take account of other one-off accounting adjustments, which total approximately $820-860 million.
“Since September 2018 we’ve been re-evaluating all investments, major assets and partnerships to ensure they still meet the co-operative’s needs. We are leaving no stone unturned in the work to turn our performance around. We have taken a hard look at our end-to-end business, including selling and reviewing the future of a number of assets that are no longer core to our strategy. The review process has also identified a small number of assets that we believe are overvalued, based on the outlook for their expected future returns.
The co-operative’s FY19 underlying earnings range is within the current guidance of 10-15 cents per share, however the reported loss of $590-675 million this year, results in a 37 to 42 cent loss per share.
Mr Hurrell said that the majority of the one-off accounting adjustments related to non-cash impairment charges on four specific assets and the divestments that the co-op has made this year as part of the portfolio review.
“DPA Brazil, the New Zealand consumer business, China Farms and Australian Ingredients’ performance have been improving, but slower than expected and not at the level we had based our previous carrying values on.”
“We’re in no doubt that farmers and unit holders will be rightly frustrated by these write-downs,” said Hurrell. “I want to reassure them that they do not, in any way, impact our ability to continue to operate. Our cashflow remains strong, our debt has reduced and the underlying performance of the business for FY19 is in-line with our latest earnings guidance of 10-15 cents per share. We remain on track with our other targets relating to reducing capital expenditure and operating expenses.”
Fonterra chairman John Monaghan said that in-light of the significant write-downs that reflect important accounting adjustments Fonterra needed to make, the company has decided not to pay a dividend for FY19.
“Our owners’ livelihoods were front of mind when making this decision and we are well aware of the challenging environment farmers are operating in at the moment,” said Monaghan.
“Ultimately, we are charged with acting in the best long-term interests of the co-op. Not paying a dividend for the FY19 financial year is part of our stated intention to reduce the co-op’s debt, which is in everybody’s long-term interests.”