Otago Daily Times

Fonterra writes off $1.5b in 2018 financial year

- ANDREA FOX

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

 ?? PHOTO: GETTY IMAGES ?? A Fonterra plant.
PHOTO: GETTY IMAGES A Fonterra plant.

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