Aust sustainable despite drought: Fonterra

Fonterra insists it remains committed to Australia even as the NZ dairy giant suggested cutting the amount of milk it sources from overseas following its record $NZ557 million ($A514 million) loss.

The dual-listed milk processor on Wednesday said it would start "rationalising" its off-shore milk pools and prioritise NZ farmers in a company-wide shake up after $NZ826 million of writedowns dragged it to its biggest ever full-year loss.

Fonterra's investments in China, Brazil and Venezuela were written down by a combined $NZ537 million and, while it would not detail specific plans for future milk collection in Australia, it confirmed it was reviewing its drought-blighted operations there.

Chief executive Miles Hurrell said a hike in Aussie milk prices and input costs had hit margins at what is Fonterra's largest pool outside NZ, with $NZ50 million in writedowns made against the Australian Ingredients business.

"We now have a strategy that is built from the belief that our farmers' milk here in New Zealand is the best and most precious in the world," Mr Hurrell said.

"Recognising this, while we will complement our farmer owners' milk with milk components sourced offshore when required, we will start rationalising our off-shore milk pools over time."

Fonterra did not elaborate when asked on what form the "rationalising" would take, saying its Australian operations were sustainable and that it had no plans at present to reduce volumes.

Milk volumes collected from Australian farmers in the 2018/19 season totalled 120 million kilograms of milk solids, 22 per cent down on the prior year.

"(While we will) focus on New Zealand, that doesn't mean it will be the extent of our business," Mr Hurrell said.

"The drought has played havoc for Australian dairy farmers and the Australian farmer community ... and we've made tough decisions."

One of those decisions was the previously announced closure of the 108-year-old Dennington plant in south west Victoria, with redundancies and equipment impairments contributing to a difficult year for the Australian Ingredients division.

Fonterra, which delayed its full-year results announcement so auditors could calculate the size of the one-off hits, made the largest single adjustment of $NZ210 million against its New Zealand operations, which includes the cost of disposing Tip Top ice cream in May.

The company fell short of its $NZ800 million debt reduction target for the financial year, though this week's $NZ633 million sale of its stake in drug supplier DFE Pharma will help it hit the target in FY20.

Mr Hurrell said Fonterra had been forced to reassess the value of its assets by changing conditions everywhere.

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

Fonterra scrapped its final dividend and said it will shift from two central businesses - ingredients and consumer/food service - to three geographically split operations: Asia Pacific, Greater China, and the balance of its worldwide interests.

Fonterra is looking for a new global chief operating officer after Robert Spurway chose to leave and for a chief executive to lead its China operations, where the future of two farm hubs is already under review.

"Growing demand for fresh milk in China's consumer market suggests prices are likely to rise in the future - however, the timing is uncertain," Mr Hurrell said.

"As a result of this, and the fact that the development of these farms is now complete, we are looking at how we can best unlock the value in the farms".

Fonterra's ASX-listed shares lifted by 3.96 per cent to $A3.15 by 1502 AEST on Thursday.

FONTERRA POSTS HUGE FY19 LOSS

* Revenue down 1.6pct to $NZ20.1b

* Net loss $NZ557m v $221m in pcp

* No final dividend

Austrlaian Associated PressBack to Breaking News

  • Print this page
  • Copy Link