Dairy co-op Fonterra has announced a net loss after tax of NZ$605m (£310m) in its annual results, and is reducing its overseas operations and selling assets.
Chief executive Miles Hurrell noted an “incredibly tough” year, but added that the co-op had made decisions to set it up for future success.
“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,” he said.
“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.
“When it came to DPA Brazil, Fonterra Brands New Zealand and China Farms, we saw there were either some changes in their local economies, increased competition or business challenges impacting their forecast earnings.
“This meant we needed to reduce their carrying value. Clearly, any write-down of an asset is not done lightly. But what I hope people can also see is that we’re leading the co-op with a clear line of sight on potential opportunities as well as the risks.”
Mr 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 $1,332m (£681m), up 3% on last year due to increased sales and price performance.
“Our Foodservice performance also improved on last year, with gross margin up 10%. 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.”
In September 2018, Mr Hurrell set out a three-point plan – take stock of the business, get basics right and ensure more accurate forecasts. He said: “I’m pleased with the progress we’ve made with our financial discipline. You can see it in our improved cashflow, reduced debt and significant cost savings.
“As part of taking stock of our business we reviewed our asset portfolio and made significant calls on three assets we identified as no longer core to our strategy. We sold Tip Top for $380m (£194m) and our share of DFE Pharma for $633m (£323m). We also wound back our relationship with Beingmate and are now looking at options to reduce our financial stake in this company.”
Fonterra also exited its Venezuela businesses, is closing its Dennington plant in Australia and is reviewing DPA Brazil and two of our farm-hubs in China.
“This sort of discipline around reviewing our asset portfolio isn’t a one-off. We need to be continuously reviewing our assets and making sure they are meeting the changing needs of our co-op,” said Mr Hurrell.
“We also set ourselves a target to reduce capital expenditure by $200m (£102m) in FY19 and we achieved $261m (£133m). We reduced our operating expenses by $185m, year on year.”
As the results were released, Fonterra announced the consolidation of its specialty cheese-making facilities, which will see its Te Roto factory in Paraparaumu, near Wellington, close and its operations move to Eltham, near New Plymouth.
Brett Henshaw, managing director at Fonterra Brands NZ, said: “The specialty cheese business has been losing money in having to run the two sites. This change will consolidate costs and make it sustainable to continue in the category.
“Our priority right now is looking after our people at Te Roto and working through what this announcement means for them.
“This includes looking at redeployment options to our Bridge Street site, as 34 new jobs will be created in Eltham as a result of the planned consolidation. In addition, we will be supporting staff to explore other opportunities at other Fonterra sites.”
There are currently 65 employees working at Fonterra’s Te Roto site. The phased transition of operations to Eltham Bridget Street is planned to be completed by the end of April 2020.