Fonterra posts $605 million loss

Dairy giant Fonterra has posted an annual loss of $605 million for the 2019 financial year. 

The total cash payout for the 2018/2019 season will be $6.35 per kilogram of milk solids, and there will be a farmgate milk price $6.35 per kgMS.

It also announced a new strategy, operating model and changes to its management team. 

Fonterra CEO Miles Hurrell said 2019 had been incredibly tough for the co-op, but it 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.

Miles Hurrell said 2019 had been 'incredibly tough'.
Miles Hurrell said 2019 had been 'incredibly tough'. Photo credit: Supplied

"Many of these calls were painful, but they were needed to reset our business and achieve success in the future," said Hurrell.

The dairy giant has also revealed a new strategy which would focus on the growing nutrition and health market.

"Our strategy will see us focus on world-class dairy ingredients for our customers around the world, and innovative ingredients that meet nutrition needs right across people's life stages."

It would centre on the ingredient categories of paediatrics, medical and ageing, sports and active, and core dairy.

"It's a strategy which recognises we are a New Zealand co-op, doing amazing things with New Zealand milk to enhance people's lives and create value for customers and farmers."

New opportunities would also be sought in foodservice. 

"This will include building on our foodservice success in China and developing new markets, particularly in Asia Pacific."

The new operating model would see Fonterra move from two large, central businesses (Ingredients, and Consumer and Foodservice) to three in-market customer facing sales and marketing business units – Asia Pacific (APAC), Greater China (GC), and Africa, Middle East, Europe, North Asia, Americas (AMENA).

Changes to the management team have also been announced, including the departure of Fonterra chief operating officer for global operations, Robert Spurway.

A forecast earnings range for FY20 would start at 15-25 cents per share, while the five-year plan was to deliver a target of 50 cents per share.

Key points: 

 •Total Cash Payout for 2018/19 season: $6.35 

 •Farmgate Milk Price $6.35 per kgMS 

 •Dividend of 0 cents per share 

• New Zealand milk collections: 1,523 million kgMS, up 1% 

• Normalised sales revenue: $20.1 billion, down 2% 

• Net loss after tax: $605 million, compared to a loss of $196 million 

• Normalised EBIT: $819 million, down 9% 

• Normalised gross margin: 15%, down from 15.4% 

• Normalised operating expenses: $2,311 million, down 7% 

• Capital expenditure: $600 million, down 30% 

• Normalised Return on capital: 5.8%, down from 6.3% 

• Free cash flow: $1,095 million, up 83% 

• Normalised earnings per share: 17 cents 

• Gearing ratio: 48.2%, down 0.2% 

• FY20 forecast Farmgate Milk Price: $6.25-7.25 per kgMS 

• FY20 forecast earnings per share range: 15-25 cents