Dairy giant Fonterra has reported an annual loss of NZ $196m (£98m) – compared last year’s profit of NZ $745m (£373m).
The co-op, New Zealand’s largest company, blamed the poor results on high butter prices, which impacted its sales volumes and margins, the increase in the forecast Farmgate Milk Price late in the season, and a rise in operating costs due to higher costs in its ingredients business.
Other contributing factors were higher costs in Australia as Fonterra expanded its business, and higher IT and R&D expenditure to support future development.
Its performance was also affected by a write-down of NZ $405m (£203m) in Fonterra’s Beingmate investment in China and the pay out of NZ $183m (£91m) to global infant formula maker Danone for the 2012 botulism scare.
In August, Fonterra reduced last season’s farmgate milk price to NZ $6.70 (£3.36) per kg of milk solids from NZ $6.75 (£3.39).
“Our farmers rely on accurate forecasting when planning within their own businesses. Our decision to update our earnings guidance and reduce our 2017/18 forecast Farmgate Milk Price late in the year was frustrating but necessary to protect the balance sheet,” wrote chair John Monaghan in the annual report.
He added that better accuracy in Fonterra’s earnings forecasts was an “obvious priority” for the business in 2019.
Interim chief executive Miles Hurrell, who took over the business after former boss Theo Spierings resigned in March, said: “We entered the second half of this year expecting our performance to be weighted to the second half.
“The reality is, for this to have happened we needed to deliver an outstanding third and fourth quarter after what had been an extremely strong second quarter for sales and earnings. Unfortunately, this didn’t eventuate. Forecasting is never easy, but ours wasn’t on the mark and proved to be optimistic.”
The Kiwi co-op plans to re-evaluate investments, major assets and partnerships, including its Beingmate investment in China, to ensure they still meet the co-operative’s needs.
“This will involve a thorough analysis of whether they directly support the strategy, are hitting their target return on capital and whether we can scale them up and grow more value over the next two to three years,” said Mr Hurrell in the annual report.
Fonterra is owned by 10,500 farmers, and makes up 25% of the country’s exports.
Cooperative Business New Zealand chief executive, Craig Presland, said the performance had not been impacted by its co-operative status.
He added: “In fact, this is a key strength and founding pillar of the organisation with financial benefits for milk supplied provided to its shareholders (members) only, profits retained locally and, most importantly, 100% local shareholder ownership and control of the organisation. Fonterra remains solely within the control and hands of its dairy farmers and long may that continue.”
