Fonterra has announced a $NZ196 million loss - the first in its seventeen-year history - thanks largely to its partnership with Chinese company Beingmate and a whey protein legal settlement.
Last year Fonterra posted an $NZ745 million profit, but in March announced a half year loss after writing down the Beingmate investment and paying off a legal settlement with French yoghurt maker Danone over the whey protein recall of four years ago.
Fonterra's interim CEO Miles Hurrell said Fonterra's business performance “must improve”.
“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.
“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.”
Hurrell said that aside from the $NZ232m Danone payment and the $439m Beingmate write down, there were four main reasons for the company's poor performance, which even allowing for these one-off items, was still down on last year.
“First, forecasting is never easy but ours proved to be too optimistic. Second, butter prices didn’t come down as we anticipated, which impacted our sales volumes and margins.
“Third, the increase in the forecast Farmgate Milk Price late in the season, while good for farmers, put pressure on our margins.
“And fourth, operating expenses were up in some parts of the business and, while this was planned, it was also based on delivering higher earnings than we achieved.”
The company has outlined a three-pronged action plan that involves re-evaluating all investments, major assets and partnerships; lifting its financial discipline to reduce debt and improve return on capital; and using more realistic forecasts.