AB Fon­terra cuts milk pay­out

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WELLING­TON — Dairy gi­ant Fon­terra Co-Op­er­a­tive Group Lim­ited down­graded its fore­cast milk pay­ment to farm­ers and said it was look­ing to sell its ice cream busi­ness, as the New Zealand­based firm reels from its first ever fi­nan­cial loss.

The Auck­land-head­quar­tered com­pany said in a state­ment yes­ter­day that due to lower global dairy prices it had re­duced its 2018-19 fore­cast far­m­gate milk pay­ment to farm­ers to be­tween NZ$6 to NZ$6.3 per kilo­gram of milk solids. That was down from a range of NZ$6.25 to NZ$6.50 set in Oc­to­ber.

The re­vi­sion un­der­scored the dairy firm’s vul­ner­a­bil­ity to global com­mod­ity price gy­ra­tions, even as it made a con­certed ef­fort to move more of its pro­duc­tion into value-added branded prod­ucts.

Three months ear­lier the com­pany an­nounced its first ever an­nual fi­nan­cial loss, in part due to higher milk prices the pre­vi­ous year, which had shrunk its profit mar­gins on its value-added prod­ucts, such as branded cheese and yo­ghurt.

An­a­lysts said that Fon­terra was still un­der-es­ti­mat­ing the likely dent to global dairy prices from in­creased sup­ply in com­ing months.

“We note the risks to Fon­terra’s fore­cast are clearly tilted to the down­side,” said Nathan Penny, se­nior ru­ral econ­o­mist at ASB Bank, adding that its fore­cast range was around NZ$5.85 to NZ$6.15.

The 2018 fi­nan­cial year loss had prompted Fon­terra to un­der­take a re­view of its as­sets, which the com­pany said yes­ter­day could lead to the sale of New Zealand ice­cream brand Tip Top.

Fon­terra said it has ap­pointed in­vest­ment bank FNZC as an ex­ter­nal ad­viser to con­sider own­er­ship op­tions for Tip Top, which it said has reached ma­tu­rity and “will re­quire a level of in­vest­ment beyond what we are will­ing to make”.

De­spite Tip Top’s lo­cal pop­u­lar­ity, Fon­terra needed to free it­self up to fo­cus on selling branded prod­ucts in big­ger Asian mar­kets where it is try­ing to cap­ture de­mand for pro­tein from the fast­grow­ing mid­dle class, ac­cord­ing to an­a­lysts.

“They can’t take it any fur­ther. It is log­i­cal to some ex­tent...given the size of the com­pany, and given the size of our dairy in­dus­try, they have to re­ally fo­cus on global mar­kets,” said Brian Gaynor, head of Auck­land fund man­ager Mil­ford As­set Man­age­ment.

Fon­terra also said it would re­gain full own­er­ship of its Dar­num plant in Aus­tralia by De­cem­ber 31, hav­ing on Wed­nes­day agreed to shut down the Dar­num joint ven­ture with Chi­nese in­fant for­mula group Be­ing­mate Baby & Child Food Co Ltd .

In 2015, Fon­terra and Be­ing­mate en­tered a joint ven­ture to buy the Dar­num plant, giv­ing Fon­terra a 49 per cent stake.

Since that time, Be­ing­mate has strug­gled with wi­den­ing net losses due to ris­ing mar­ket­ing costs, forc­ing Fon­terra to this year an­nounce a NZ$405 mil­lion (US$278.60 mil­lion) write­down on its 18.8 per cent stake in the Chi­nese firm.

Fon­terra said it would en­ter into a multi-year agree­ment to sup­ply in­gre­di­ents to Be­ing­mate from the plant.

Shares in Fon­terra’s traded fund were largely flat yes­ter­day at around NZ$4.7. — REUTERS

The com­pany has 1.1 bil­lion eu­ros (US$1.25 bil­lion) in the su­per-se­nior loan, with Knight­head, VTB, Rus­sia’s sec­ond largest bank, and Italy’s UniCredit among its debtors, he said.

Po­le­tayev said that the su­per-se­nior debt would bear an an­nual rate of 10 per cent start­ing from Jan­uary.

“Re­plac­ing this loan with an­other one... is a task of the next cou­ple of months. We are ac­tively work­ing on this and have re­ceived a cou­ple of pro­pos­als,” he said.

Sber­bank and VTB, hav­ing lent a to­tal of 1.1 bil­lion eu­ros and 300 mil­lion eu­ros to Agrokor in the past, re­spec­tively, won’t be tak­ing part in any new loans for the com­pany, he said.

Over­all claims against Agrokor, from cred­i­tors in­clud­ing lo­cal banks, bond­hold­ers and sup­pli­ers, amounted to some 58 bil­lion kuna ($8.9 bil­lion) be­fore the re­struc­ture.

Bond­hold­ers will own 25 per cent of Agrokor after the debt to eq­uity swap.

Po­le­tayev said that Sber­bank is in talks with both western and eastern funds and banks, in­clud­ing from China and Arab coun­tries, who may take part in the re­fi­nanc­ing process. shop in 1976, ex­panded to a com­pany with rev­enues amount­ing to 15 per cent of Croa­tia’s eco­nomic out­put, be­com­ing a ma­jor part of on­go­ing ef­forts to in­te­grate re­gional economies scarred by the wars of the 1990s.

Davis Mor­ris, an ex-ex­ec­u­tive with Bri­tain’s big­gest food re­tailer Tesco, has joined Agrokor to over­see its re­tail busi­ness, Po­le­tayev said.

Agrokor is fac­ing an in­creas­ing com­pe­ti­tion in the re­gion from the Ger­man ri­vals Lidl and Kau­fland who have ex­panded dur­ing Agrokor’s re­cent trou­bles.

Fabris Perusko, a former McKin­sey & Com­pany con­sul­tant who was pro­moted to help with the re­struc­tur­ing from the board of Tisak, a chain of newsagents owned by Agrokor, is ex­pected to be Agrokor’s CEO, Po­le­tayev said.

Agrokor’s Mer­ca­tor brand – which in­cludes 985 stores spread across Slove­nia, Ser­bia, Bos­nia and Herze­gov­ina and Mon­tene­gro – needs to re­duce its debt, Po­le­tayev said, putting it at 738 mil­lion eu­ros in the Jan­uary-Septem­ber pe­riod.

Mer­ca­tor will di­vest a num­ber of non-core as­sets and sell real es­tate as­sets worth 116 mil­lion eu­ros – a deal al­ready ap­proved by its board of di­rec­tors, Po­le­tayev said.

Po­le­tayev also said that Agrokor’s chain in Bos­nia was not prof­itable enough and he be­lieved the best op­tion would be to re­di­rect in­vest­ments to Ser­bia, Croa­tia and Slove­nia. — REUTERS

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