Fonterra reported an annual loss of NZD 605 million ($380.1 million) for the year to July as a result of a series of write-downs across its business.
The announcement follows last year’s loss of NZD 196 million, which sparked a major asset review and asset sale.
The New Zealand dairy cooperative has now revealed plans for a new organisational structure and customer-led operating model.
CEO Miles Hurrell said that 2019 was incredibly tough for the co-op. “As we do every year, we took a hard look at our asset valuations and future earnings potential. When it came to DPA Brazil, Fonterra Brands New Zealand and China Farms, we saw there were either some changes in their local economies, increased competition or business challenges impacting their forecast earnings. This meant we needed to reduce their carrying value.
“Clearly, any write-down of an asset is not done lightly. But what I hope people can also see is that we’re leading the co-op with a clear line of sight on potential opportunities as well as the risks.”
After last year’s results, Fonterra set out a three-point plan: take stock of the business, get basics right and ensure more accurate forecasts.
As part of the taking stock strategy, the company has since sold its Tip Top ice cream business for NZD 380 million and yesterday agreed to offload its 50% stake in DFE Pharma for NZD 633 million. It has also wound back its relationship with Chinese infant formula maker Beingmate and is exploring options to reduce its financial stake in the company.
“Taking stock of our business didn’t stop there,” said Hurrell. “We also exited our Venezuela businesses, announced the closure of our Dennington manufacturing site in Australia and kicked off a strategic review of DPA Brazil and two of our farm-hubs in China.
“As part of the three-point plan, we also set a goal in FY19 to reduce our debt by NZD 800 million. Tip Top made a significant contribution and, along with the sale of DFE Pharma, we expect to exceed this target in FY20.”
Fonterra’s new operating model will see it move from two central businesses – ingredients, and consumer and foodservice – to three customer facing-sales and marketing business units: Asia Pacific (APAC); Greater China (GC); and Africa, Middle East, Europe, North Asia, Americas (AMENA).
“Our strategy will see us focus on world-class dairy ingredients for our customers around the world, and innovative ingredients that meet nutrition needs right across people’s life stages,” added Hurrell. “We will focus on ingredient categories: paediatrics, medical and ageing, sports and active, and core dairy.
“We will also create new opportunities in new ways for foodservice. This will include building on our foodservice success in China and developing new markets, particularly in Asia Pacific.
“This focus on dairy ingredients and foodservice will see us playing to our strengths and driving more value from the parts of our business that consistently perform.”
© FoodBev Media Ltd 2020