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Fonterra flags major full-year loss

New Zealand’s multinational dairy co-operative Fonterra is expecting a loss of between $NZ590 million to $NZ675 million for the full year to July 31, on one-off adjustments.

The milk producer said it made “significant adverse” one-off adjustments due to the drought in Australia, subdued sales in New Zealand and China, economic instability in Brazil and an exit from Venezuela.

Fonterra said it needs to reduce the carrying value of several assets and take account of other one-off accounting adjustments, which total up to NZ$860 million ($A819 million).

Chief executive Miles Hurrell said the co-operative is making “tough but necessary decisions”.

“Since September 2018 we’ve been re-evaluating all investments, major assets and partnerships to ensure they still meet the Co-operative’s needs,” Hurrell said on Monday.

“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.”

While the co-op’s FY19 underlying earnings range is within the current guidance of 10-15 cents per share, when the likely write-downs are taken into consideration, Fonterra is expected to make a 37 to 42 cent loss per share.

Hurrell said that the majority of one-off accounting adjustments relate to non-cash impairment charges on four specific assets and the divestments as part of the portfolio review.

“DPA Brazil, the New Zealand consumer business, China Farms and Australian Ingredients’ performance have been improving, but slower than expected and not at the level we had based our previous carrying values on.”

Hurrell said the writedowns will likely cause frustration for farmers and unit holders.

“I want to reassure them that they do not, in any way, impact our ability to continue to operate. Our cash flow remains strong, our debt has reduced and the underlying performance of the business for FY19 is in-line with our latest earnings guidance of 10-15 cents per share. We remain on track with our other targets relating to reducing capital expenditure and operating expenses.”

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