Dairy Giant Fonterra Records Historic Loss

By Glenn Dyer | More Articles by Glenn Dyer

Fonterra is not only New Zealand’s biggest company, but also the major global dairy exporter, controlling an estimated 30% of the total world trade, and yet that size and dominance has not stopped it from reporting a loss for the 2017-18 financial year.

And that loss was historic – the first blotch of red ink in the 17 years Fonterra has been a company it was formed out of a series of mergers that gave it a dominant position in the Kiwi dairy industry and created that global giant.

Now thanks to a series of blunders, poor judgment, weak management and a lacklustre market for dairy products globally, it revealed yesterday that it lost $NZ196 million ($A179 million) in 2017-18.

Last year the cooperative – best known for its Mainland and Western Star brands – posted an $NZ734 million profit, and next year it is aiming to return to the black with a result north of $NZ800 million.

The bad news was first signaled in March this year when it reported its first half-year loss on the back of a major write-down on a Chinese investment and a compensation payment over a 2013 botulism scare.

That saw many analysts forecast a lower profit, but only a handful went out on a limb and tipped a full year loss and a piece of unwanted NZ corporate history.

The company this year wrote down $NZ439 million off a troubled $NZ750 million investment into Chinese food company Beingmate. It also paid out $NZ232 million to French food giant Danone after arbitration over the recall of products in a botulism scare in 2013.

The Beingmate investment is now being reviewed and it wouldn’t surprise to see it sold off.

Putting aside those two expensive decisions, the underlying performance at Fonterra was weak in 2017-18. The company said yesterday that with underlying earnings before income and tax fell 22% (to $NZ902million) on slightly increased revenue ($NZ20.4 billion).

“There’s no two ways about it, these results don’t meet the standards we need to live up to,” interim CEO Miles Hurrell said in a briefing that was live-blogged by media across NZ.

“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.”

It expects underlying earnings before income and tax of between $NZ850 million to $NZ950 million for the current year.

“Financial year 2019 is about lifting the performance of our co-operative,” Mr. Hurrell said.

Fonterra had been searching for a replacement for chief executive Theo Spierings, who announced in May he would be stepping down, but paused its official search in August and appointed Mr. Hurrell the interim head.

A 10 NZ cents a share dividend has already been paid in April. The company dropped its final payout a few weeks ago.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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