Dairy giant Fonterra is forecasting another big loss as it writes down the value of underperforming overseas assets.
Fonterra said it expected to write down the value of four significant overseas ventures in South America, China and Australia by more than $600m.
The writedowns come as it reviews its business from top to bottom and looks to cut its debt by $800m this year.
Fonterra has decided not to pay a dividend for the financial year based on the losses, in an effort to pay down more of the co-operative's debt.
Chief executive, Miles Hurrell, said as a result of the review it has been doing of the entire group, it became obvious certain assets were overvalued relative to what they would earn in the future.
"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."
"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," he said.
The major asset writedowns were:
- The DPA-Brazil joint venture with Nestle, written down about $200m because of economic conditions in Latin America. The business is under review and possibly up for sale as Nestle has indicated it wants to quit
- A $135m adjustment following the closure of its Venezuelan operations
- Approx $200m writedown in the value of its China Farms fresh milk operation because of underperformance
- About $200m in the revamp of its New Zealand consumer business. It has already sold the Tip Top ice cream business as part of the restructuring
- About $70m for the restructuring of its Australian business including the closure of its Dennington factory
Fonterra has been reviewing its business over the past year as it looked to cut its debt by $800m this year.
"These are tough but necessary decisions we need to make to reflect today's realities," Mr Hurrell said.
"They do not, in any way, impact our ability to continue to operate. Our cashflow remains strong, our debt has reduced and the underlying performance of the business for FY19 (fiscal year) is in-line with our latest earnings guidance of 10-15 cents per share."
Last week, Fonterra said it is going to sell gradually its 18.8 percent stake in the money-losing Chinese infant formula maker Beingmate as it has struggled to find a buyer. It bought its stake in 2015 for about $754 million, but since then has written off nearly two-thirds of its investment.
The co-operative posted its first loss last year in its 17 year history of $196m, which its leadership called disappointing and which prompted the group review.
This article was first published on Radio NZ.