This season, up to 10 cents of Fonterra suppliers' milk payments will be determined by the farm's sustainability credentials and milk quality.
The co-op has also announced that no dividend will be paid out this year; it has also written down $820m to $860m in asset value.
The co-op will announce its full-year results on September 12. However, it’s now clear that the co-op will deliver its second straight annual loss. Last year, the co-op declared its first ever loss of $196m.
Chief Executive Officer Miles Hurrell said that as a result of the full review of the business which has taken place across the year, as well as the work done so far to prepare its financial statements for FY19, it has become clear that Fonterra needs to reduce the carrying value of several of its assets and take account of other one-off accounting adjustments, which total approximately $820-860 million.
“Since September 2018 we’ve been re-evaluating all investments, major assets and partnerships to ensure they still meet the cooperative’s needs.
“We are leaving no stone unturned in the work to turn our performance around. We have taken a hard look at our end-to-end business, including selling and reviewing the future of a number of assets that are no longer core to our strategy. The review process has also identified a small number of assets that we believe are overvalued, based on the outlook for their expected future returns.
“While the co-op’s FY19 underlying earnings range is within the current guidance of 10-15 cents per share, when you take into consideration these likely write-downs, we expect to make a reported loss of $590-675 million this year, which is a 37 to 42 cent loss per share.”
The co-op made a commitment to provide information to update farmers and unit holders as it comes available.
“The numbers still need to be finalised and audited but we now have enough certainty overall to come out in advance of our annual results announcement in September,” he says.
Chairman John Monaghan said that in-light of the significant write-downs that reflect important accounting adjustments Fonterra needed to make, the board had brought forward its decision on the full year dividend for financial year 2019 (FY19).
“We have made the call not to pay a dividend for FY19. Our owners’ livelihoods were front of mind when making this decision and we are well aware of the challenging environment farmers are operating in at the moment.
“Ultimately, we are charged with acting in the best long-term interests of the co-op. The underlying performance of the business is in-line with the latest earnings guidance, but we cannot ignore the reported loss of $590 - $675 million once you look at the overall picture.
“Not paying a dividend for the FY19 financial year is part of our stated intention to reduce the co-op’s debt, which is in everybody’s long-term interests.”