The dairy firm said a review of its business that was launched last year found a few assets that were over-valued, including a Brazilian joint venture with Nestle SA (NESN.S) and farms it owns in China, prompting it to reduce their value by between NZ$820 million and NZ$860 million.
The write-downs would widen its fiscal 2019 reported loss to between NZ$590 to NZ$675 million, marking the company’s second annual loss and the biggest in its history, following a loss of NZ$196 million in 2018.
“These are tough but necessary decisions we need to make to reflect today’s realities,” said Chief Executive Officer Miles Hurrell, who took over the top job at the embattled dairy firm earlier this year.
Fonterra also said it would not pay a dividend this year as it aims to reduce its debt. Fonterra’s net debt stood at NZ$7.4 billion at March 31. The company plans to reduce that figure by NZ$800 million by year-end.
The writedowns should help Fonterra turn its business around, said Jeremy Sullivan, investment adviser at Hamilton Hindin Greene.
“Once they have got their debt levels down to a more tenable level with the cash coming in from the companies they’re divesting, then we could be looking at a reinstatement of dividends in 12 to 18 months time,” he said.
Fonterra’s shares have traded near record lows this year as operations in Australia and New Zealand have been battered by harsh weather, leading to multiple earnings forecast downgrades and closure of a 100-year old facility in Australia.
The milk producer has also failed to find a buyer for its stake in Chinese infant formula maker Beingmate Baby & Child Food (002570.SZ), forcing it to settle on selling the shares on the stock market.
Shares of Fonterra (FCG.NZ) (FSF.NZ) were down 1.6% on the New Zealand bourse after the announcement.
Global dairy prices fell at a fortnightly auction last week, and analysts warn that the trade conflict between the United States and China was likely to weigh on the Chinese currency, posing a risk to dairy prices for the rest of the year.
Excluding the write-downs, Fonterra remains on track to deliver annual underlying earnings in range of 10 to 15 cents per share.
($1 = 1.5473 New Zealand dollars)
