Fonterra Cuts 2026/27 Milk Price Forecast to $9.25
Fonterra has reduced its forecast 2026/27 Farmgate Milk Price.
The co-op’s normalised earnings before interest and tax (EBIT) was $819 million, down 9%: return on capital was 5.8%, down from 6.3%. The co-op says its free cashflow was $1,095 million, up 83% - mostly on the back of proceeds from sale of assets.
Fonterra chief executive Miles Hurrell says that 2019 was incredibly tough for the co-op but it was also the year Fonterra made decisions to set it up for future success.
“These included us reflecting changing realities in asset values and future earnings, lifting our financial discipline, getting clear on why we exist and completing a strategy review.
“Many of these calls were painful, but they were needed to reset our business and achieve success in the future.
“We made the decision to reduce the carrying value of several of our assets and take account of one-off accounting adjustments. These totalled $826 million, which contributed to a Net Loss After Tax of $605 million for FY19.
“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.”
Commenting on the underlying performance of Fonterra, Hurrell said Fonterra’s normalised earnings per share for the year was 17 cents, which was above the last forecast for the year of 10-15 cents.
“The gross margin from our largest business, New Zealand Ingredients, was $1,332 million, up 3% on last year due to increased sales and price performance.
“Our Foodservice performance also improved on last year, with gross margin up 10%. This was despite lower total sales volumes, following a slow start to butter sales in Greater China and Asia.
“But we can’t ignore that we had a number of challenges across the year – these included Australia Ingredients, our businesses in Latin America and the consumer businesses in Sri Lanka, Hong Kong and New Zealand.”
