Fonterra swings to annual loss on Beingmate, Danone

FIRST CUT: Fonterra swings to annual loss on Beingmate, Danone

By Rebecca Howard

Sept. 13 (BusinessDesk) - Fonterra Cooperative Group posted an annual loss after writing down the value of its Beingmate Baby & Child Food investment and settling with Danone but says it's taking steps to improve the business.

The dairy giant reported a loss attributable to shareholders of $221 million in the year to July 31 versus a profit of $734 million in the prior year. Normalised earnings before interest and tax dropped 22 percent to $902 million and Fonterra said its return on capital was 6.3 percent, down from 8.3 percent. The gearing ratio was 48.4 percent versus 44.3 percent in the prior year.

“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,” said the interim chief executive Miles Hurrell.

"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," he said.

According to Hurrell, in addition to the previously reported $232 million payment to Danone relating to the arbitration, and $439 million writedown on Fonterra’s Beingmate investment, there were four main reasons for the cooperative’s poor earnings performance: forecasting was too optimistic; butter prices didn’t come down as anticipated affecting sales volumes and margins; the increase in the forecast farmgate milk price late in the season added to the pressure; and operating expenses were up in some parts of the business.

Hurrell said Fonterra will re-evaluate all investments, major assets and partnerships to ensure they still meet the cooperative’s needs, and it will "get the basics right" and ensure more accurate forecasting.

Units of the Fonterra Shareholders' Fund last traded at $4.97 and have fallen 23 percent so far this year.

(BusinessDesk)

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