Fonterra to exit milk pools out of New Zealand, announces big loss.

Fonterra will start exiting milk pools outside of New Zealand, in the wake of big losses in the past two years.

On Thursday, the company reported a $NZ605 million loss for 2018-19 - following on from a $NZ196 million loss last year.

It has announced a new strategy putting its New Zealand farmers firmly at its core.

This included prioritising New Zealand milk, complemented by milk components sourced offshore only when required.

"As a result, we plan to start exiting our off-shore milk pools," chairman John Monaghan said in announcing the new direction.
In the company's annual report, Mr Monaghan said that 18 months ago the company saw itself as a global dairy giant.

"Today we stand for value," he said.

"We're a New Zealand dairy farmers co-op, doing smart, innovative things with New Zealand milk to create value for our owners, customers and communities in which we work and live.
"This simple change in how we see ourselves leads us to make fundamentally different decisions.

"We have the best milk in the world here at home. By championing it, we believe people will continue to seek out and pay a premium for products backed by our unique provenance story - our co-op heritage, grass-fed New Zealand milk, backed by ethical and sustainable farming practices."

Results delayed

Fonterra had delayed the announcement of its 2018-19 results as it grappled with sorting the $NZ820 million-$NZ860 million asset write down it announced in August.

Last year NZ's largest company made a $NZ196 million loss, and in August it forecast a loss of between $NZ590 million and $NZ675 million.

Australian production

In Australia, the company continues to bleed production.

Its milk collections in July were down 28.9pc, continuing the trend from 2018-19, when it lost 20.3pc.

Fonterra's loss of milk production is even more concerning in light of this month's revision of Australian production figures by Dairy Australia.

The new figures put Australia's total loss for 2018-19 at 5.7pc.

Even in Fonterra's stronghold of Victoria, overall production was down by significantly less than Fonterra's at just 6.8pc - ranging from 2.5pc in western Victoria to 12.3pc in northern Victoria.

Debt reduction

On Wednesday, Fonterra announced the sale of its 50 per cent stake in drug company DFE Pharma for $NZ633 million.
This on top of its other asset sales in the past year had enabled it to generate $NZ1 billion for debt reduction.

Fonterra CEO Miles Hurrell said Fonterra was pleased with the progress it was making in achieving its "tough initial target" for debt reduction.

"A year ago, we started a full portfolio review to re-evaluate every investment, major asset and partnership, to make sure they were still right for the co-op," Mr Hurrell said.

Fonterra sold its stake in the pharma company to CVC Strategic Opportunities II, a fund managed by CVC Capital Partners, a private equity firm.

In March, Fonterra announced it was reviewing the share in the company, a 50pc joint venture with Royal Friesland Campina, due to the substantial capital required for future growth.

"This milestone, along with the significant inroads made in our capital and operational expenditure during FY19, makes for a good initial chapter in our business turn-around," Mr Hurrell said.

"It puts us on the right footing to deliver our new strategy and a sustainable lift in our performance."

Source: Carlene Dowie Australian Dairyfarmer News 26 Sep 2019