Fonterra’s business performance must improve, chief executive Miles Hurrell says.
The diary giant, which plays a big role in the transport industry, has reported a net loss of $196 million in its latest annual results. Its previous year’s net profit was $745 million.
The co-op points to lower operating earnings, higher funding costs and one-offs as a result of the performance which didn’t meet the company’s earning guidance. It “proved to be too optimistic”, Hurrell says.
This includes earnings before interest and taxes down $337 million on last year, funding costs and tax up $136 million year-on-year, and one-offs of Beingmate impairment and Danone arbitration costs reducing net earnings by $599 million.
“There’s no two ways about it, these results don’t meet the standards we need to live up to. In FY18, we did not meet the promises we made to farmers and unitholders,” Hurrell says.
“At our interim results, we expected our performance to be weighted to the second half of the year. 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.”
Butter prices staying higher than anticipated and an increase in the forecast Farmgate Milk Price late in the season were other factors which impacted Fonterra’s sales volumes and margins.
Hurrell says when looking at the underlying performance of the business, with normalised EBIT of $902 million, progress has been made in moving more milk into higher value products.
“Our consumer and foodservice business grew in all regions, except Oceania, with our strongest growth in greater China. Of particular note, our consumer business in China broke even this year, two years ahead of schedule.
“A big contributor to this success is the popularity of Anchor, which is now the number one brand of imported UHT milk in both online and offline sales in China.
“Despite this progress, performance across the co-operative was below our expectations. Based on this, the board has decided to limit our dividend to just the 10 cents paid in April and has confirmed the final Farmgate Milk Price for the 2017/18 season at $6.69 per kgMS,” Hurrell says.
Fonterra’s board and management have now outlined a plan with three “immediate actions” and “getting the basics right”.
It includes re-evaluation of all investments, major assets and partnerships and “ensuring more accurate forecasting”.
