Fonterra writes off $1.5b in 2018 financial year
MORE than $1.5 billion was writtenoff Fonterra farmers’ balance sheets in the 2018 financial year.
In its annual report, the Fonterra Shareholders’ Council said this was the effect of a 27% fall in the company’s share price and a constrained dividend of 10c a share.
Fonterra’s share price started the year at $6.08, and finished it at $5.12.
The board’s decision to shift 5c/kg milksolids from farmers’ milk price to retentions to ease Fonterra’s ‘‘strained gearing position’’ was effectively a capital contribution to the balance sheet from farmers, the report said, which found Fonterra achieved only one of its key performance measures in 2018 — the farmgate milk price.
Chairman Duncan Coull, delivering his fourth annual message to shareholders, said it had been the most difficult to write.
Fundamental change in thinking and practice was required to reverse the performance of the business, he said.
The council’s role is to be the voice of Fonterra’s 10,000 farmerowners.
The report said Fonterra’s financial position deteriorated significantly in 2018, with a $598 million increase in net debt and a $440 million decrease in equity.
Normalised ebit declined 22% from $1.1 billion to $902 million. Normalisations included the $232 million recall compensation costs awarded to French food giant Danone for Fonter ra’s false botulism incident, the $405 million China Beingmate investment impairment and Fonterra’s share of Beingmate’s losses.
The cooperative posted a net loss of $196 million — the first loss since it was formed 17 years ago.
Normalised earnings per share fell to 24c from 47c last year.
Return on capital was 1.8% compared with 5.7% in 2017.
Gearing increased to 48.4% from 44.3%, and was now outside the target range of 40%45%. Excluding the Danone and Beingmate impacts, gearing would have been 45.2%, still outside the target, the council said.
On Fonterra’s disastrous investment in Beingmate, the council said it had challenged the board ‘‘as to whether it was as forthcoming and transparent as it could have been with the council’’.
‘‘The blame for Beingmate’s poor performance was repeatedly placed on market factors and regulatory changes when there were other significant issues known to management and the board.’’
The report also noted that ebit on the China farms investment would have been a loss of $39 million if Fonterra had not sold milk to its ingredients division at a higherthanmarket price, essentially a transfer of earnings.
Fonterra’s gross margin declined from 17% last year to 15.5%, an effect of the increase in milk price paid to farmers.
Working capital days, how long it took to convert milk into cash, increased by eight days to 83 days.
Each working capital day amounted to $56 million in capital invested, so the eightday increase represented $448 million of additional investment, the council said. — BusinessDesk