Tuesday, 12 March 2019 11:39

Fonterra rating outlook revised to negative

Written by 

Fitch has revised its rating outlook for Fonterra to negative from stable but reaffirmed the long term default rating as ‘A’.

The revision follows Fonterra’s reduction of its forecast earnings for the year ending July 2019.

“In our view this indicates that the cooperative has structural issues it needs to address to retain the defensive traits that have underscored its historically strong business profile,” Fitch says.

The cooperative’s current review will be crucial in this, it says.

Fitch says it “is positive for bondholders” that Fonterra has said it will not pay an interim dividend, that any decisions on full-year dividend will be made at the end of the financial year and that its dividend policy is under review.

This “continues to reinforce Fitch’s expectation that Fonterra will prioritise the strength of its balance sheet overpayment to farmer shareholders”.

Regarding structural issues, Fitch says “the effect that volatility in the dairy market and other industry issues in specific geographic regions continue to have on Fonterra’s profits indicates there are structural issues within the cooperative, which limit its ability to absorb these effects”.

Fitch says the cooperative is committed to reducing leverage and reviewing its portfolio.

“We believe asset sales are critical for Fonterra to return its metrics to a level in line with its current rating, given the impact the structural issues continue to have on Fonterra’s ability to organically deleverage.”

Any delay in the expected $800 million asset sales will put pressure on Fonterra’s rating.

Fitch notes Fonterra is a world leader in dairy exports representing about 15% in the global market including a 42% share in whole milk powder. 

And it is New Zealand’s largest dairy producer collecting 82% of the country’s milk supply in the 2017-18 season. – Pam Tipa

 

More like this

Fonterra lifts global ranking

At least some not-bad news for Fonterra: the co-op has climbed to fourth-largest in the world’s dairy company rankings.

Payout unchanged, dividend axed

Farmgate milk price forecasts remain unchanged despite Fonterra’s decision to not pay a dividend for the 2018-19 season, says chief executive Miles Hurrell.

 
 

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Milk on tap

The days of cafes getting milk in plastic bottles may be numbered if two young Dunedin entrepreneurs have their way.

Behind the eight ball

Global animal health company DSM says it has a product that can help reduce emissions from cows by up to…

» Connect with Dairy News