Fonterra delays results announcement

Fonterra delays results announcement as share price and production continue to plummet


Australian Dairyfarmer News
FALLING: Fonterra's milk collection in Australia continues to fall.

FALLING: Fonterra's milk collection in Australia continues to fall.

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Fonterra has delayed the announcement of its 2018-19 results as it grapples with sorting the $NZ820 million-$NZ860 million asset write down it announced last month.

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UPDATED: Fonterra has delayed the announcement of its 2018-19 results as it grapples with sorting the $NZ820 million-$NZ860 million asset write down it announced last month.

The results announcement was expected this Thursday but will now be made no later than September 30.

The company's share price in New Zealand has plummeted in the past year - down 36.06 per cent to $NZ3.18 on Monday on the back of a series of disappointing announcements.

Last year NZ's largest company made a $NZ196 million loss, and in August it forecast a loss of between $NZ590 million and $NZ675 million.

The company has also reportedly scrapped bonuses and frozen the pay of about 7000 employees.

Reuters reported on Thursday that Fonterra employees earning more than $NZ100,000 a year would not receive a pay rise this year.

A Fonterra Australia spokesperson said the company had no further comment to make on this.

In Australia, the company continues to bleed production.

Its milk collections in July were down 28.9pc, continuing the trend from 2018-19, when it lost 20.3pc.

Fonterra's loss of milk production is even more concerning in light of this month's revision of Australian production figures by Dairy Australia.

The new figures put Australia's total loss for 2018-19 at 5.7pc.

Even in Fonterra's stronghold of Victoria, overall production was down by significantly less than Fonterra's at just 6.8pc - ranging from 2.5pc in western Victoria to 12.3pc in northern Victoria.

The Fonterra Australia spokesperson said Fonterra's share of the Australian milk pool was still about 18pc - consistent with its total share for four of the five past seasons.

It had collected record volumes in season 2017-18.

"It's no secret we're operating in a highly competitive environment for a smaller volume of milk," the spokesperson said.

"We've had to get really clear on what products we make in Australia and ensure they will deliver the best return on our investment, and from there we've developed specialty milk offerings to ensure we can secure the milk we need to produce these more profitable products."

The spokesperson said more extreme weather events, including drought, were occurring with greater frequency.

"Like our farmers have with their businesses, we've made tough decisions with our business to ensure we're running as efficiently as we can, including consolidating our manufacturing to ensure our factories are optimised and making sure we're putting our farmers' milk into the highest-value dairy foods."

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The company, in its Global Dairy Update, said its Australian milk collection was being impacted by the intense competition for milk supply and the continued impact of the poor conditions on-farm.

"The drought in 2019 has led to an increase in cow cull rates, a significant number of farm retirements and a continuation of historically high input costs resulting in a material reduction to the Australian milk pool in FY19 versus FY18," it said.

Fonterra said the delay in its results announcement was due to the significant accounting adjustments as a result of its August announcement, meaning more time was required to complete the audited financial statements.

It said the change was unrelated to any discussions with the NZ watchdog, the Financial Markets Authority, which announced earlier this month it was seeking information after a complaint about Fonterra's announcement of write downs.

In August, Fonterra chief executive officer Miles Hurrell announced said a full review of the business had exposed the need to write down assets and make other one-off accounting adjustments.

"Since September 2018 we've been re-evaluating all investments, major assets and partnerships to ensure they still meet the co-operative's needs," he said.

"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 write-down covered four specific assets, including the Australian Ingredients business.

"Our Australian Ingredients business is adapting to the new norm of continued drought, reduced domestic milk supply and aggressive competition in the Australian dairy industry," he said.

"This includes closing our Dennington factory, which combined with writing off the goodwill in Australia Ingredients, results in a one-off impact of approximately $70 million (this includes the $50 million previously announced as part of the Dennington announcement)."

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