Loss ‘not good enough’ says NZ dairy giant

Global - dairy TD Farm
ABOVE: Fonterra CEO Miles Hurrell. (Photo: Fonterra)

NEW Zealand’s giant da-

iry co-op Fonterra re-ports a net loss after tax of NZ$196 million (£98.2 million) for its 2018 financial year and a chastened chief executive Miles Hurrell admits it’s not good enough – the business performance must improve.

“There’s no two ways about it, these results don’t meet the standards we need to live up to,” Hurrell says in a statement. “We did not meet the promises we made to farmers and unit holders.”

Normalised earnings before interest and taxes was down 22 per cent to NZ$902 million (£452.1 million).

“We needed to deliver an outstanding third and fourth quarter, after an extremely strong second quarter for sales and earnings – but that didn’t happen,” Hurrell says

He says there were four main reasons for the poor performance.

“First, forecasting is never easy but ours proved to be too optimistic,” he says. “Second, butter prices didn’t come down as we anticipated, which impacted our sales volumes and margins. Third, the increase in the forecast farmgate milk price late in the season, while good for farmers, put pressure on our margins. Fourth, operating expenses were up in some parts of the business … based on delivering higher earnings than we achieved.”

Fonterra limited its dividend for the year to the 10 cents (5p) paid in April and maintained the final farmgate milk price at NZ$6.69 (£3.35) per kg of milk solids.

“We are putting in place a clear plan for how we are going to lift Fonterra’s performance,” Hurrell says.

Fonterra will re-evaluate all investments, major assets and partnerships to ensure they still meet the co-op’s needs. There’ll be a thorough analysis of whether they directly support the strategy, are hitting their target return on capital and whether it can scale them up and grow more value.

The co-op has already begun fixing the businesses that are not performing. Financial discipline will be lifted to reduce debt and improve return on capital.

The forecast farmgate milk price for the 2018/19 season is held at NZ$6.75 (£3.38) per kgMS announced in August.

Chairman John Monaghan says the co-op is being clear with farmers and unitholders.

“We are taking a close look at the co-op’s portfolio and direction to see where change is needed to do things faster, reduce costs and deliver higher returns on our capital investments,” he says.

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