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“Disappointing year” as Fonterra posts first ever loss

Fonterra5New Zealand dairy co-operative Fonterra has recorded a loss of $NZ196 million, ($A179 million) after what chairman John Shewan described as “a disappointing year”.

This is the first annual loss in the company’s 17-year history.

In a statement to shareholders, Chairman John Shewan said that it was an “unacceptable” result.

“The unit price is down, the earnings guidance given at Fonterra’s interim results has not been met and the distribution limited to just the 10 cents already paid in April. This is unacceptable for both the fund’s unit holders and Fonterra’s farmer shareholders,” Shewan said.

Underlying earnings before income and tax were down 22 per cent to $NZ902m. While there was a slight increase in revenue ($NZ20.4b), margins were lower.

Shewan admitted that the half year guidance given by Fonterra was “too optimistic”.

The company, which enjoyed a $NZ734m profit last year, pinpointed a number of key factors that influenced the disappointing results.

The year was already “challenging” due to the payment to Danone of $NZ232m over product recall in a botulism scare in 2013 coupled with the payment of $NZ439m off a troubled $NZ750m investment into Chinese food company Beingmate. However even without these payouts, the company said that it would still have struggled in a number of other areas.

Shewan said that the increase in the forecast Farmgate Milk Price late in the season, while good for farmers, put pressure on margins.

“Butter prices did not come down as anticipated which impacted Fonterra’s sales volumes and margins,” Shewan added. High operating costs and additional costs in the expansion of the business were also factors.

The company’s plans to lift its performance include re-evaluating all investments and major assets, fixing the business that are not working to reduce debt and ensuring realistic forecasting in the future.

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