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Fonterra chief executive Miles Hurrell.
Fonterra has posted a $196 million loss for 2018, the first in the co-op’s 17-year history.
The 2018 annual results announced today make grim reading for farmer shareholders; normalised EBIT was $902 million, down 22%, gearing ratio was up from 44.3% last year to 48.4% and return on capital was 6.3%, down from 8.3%.
The co-op posted a profit of $745m last year.
Fonterra chief executive Miles Hurrell says the co-op’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,” says Hurrell.
“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 says that in addition to the previously reported $232 million payment to Danone relating to the arbitration, and $439 million write down on Fonterra’s Beingmate investment, there were four main reasons for the cooperative’s poor earnings performance.
“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.”
OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.
Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
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Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
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