Monster Fonterra writedown

Fonterra Aus writedown


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BIG LOSSES: Fonterra has released a statement writing down the value of its assets, including a NZ$70 million writedown of the Australian ingredients business.

BIG LOSSES: Fonterra has released a statement writing down the value of its assets, including a NZ$70 million writedown of the Australian ingredients business.

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Fonterra has written down the value of its Australian ingredients business by NZ$70 million and expects a massive loss.

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Fonterra will write down the value of its Australian ingredients business by NZ$70 million and its global business expects to make a NZ$590-675m loss this year.

In a statement, Fonterra chief executive Miles Hurrell said the Australian writedown was the result of supply losses.

"Our Australian Ingredients business is adapting to the new norm of continued drought, reduced domestic milk supply and aggressive competition in the Australian dairy industry," Mr Hurrell said.

"This includes closing our Dennington factory, which combined with writing off the goodwill in Australia Ingredients, results in a one-off impact of approximately $70 million (this includes the $50 million previously announced as part of the Dennington announcement)."

Federated Farmers of NZ national vice president Andrew Hoggard said Fonterra's strategy was evolving and the relevance of its Australian operations were unclear.

"Back in days of the milk pool idea, there was a relevance," Mr Hoggard said.

"To be bluntly honest, it will depend on their strategy going forward - that's going to be what determines whether or not Australia is relevant.

"The feeling I get is that the focus is going to be on selling New Zealand milk to the world and they've gone away from the idea of being the gobally relevant, dominant player and the whole milk pool strategy."

Mr Hurrell said a full review of the business and the preparation of its financial statements made it clear Fonterra needed to reduce the carrying value of several of its assets and take account of other one-off accounting adjustments, which total NZ$820-860 million.

Mr Hurrell said that the majority of the one-off accounting adjustments related to non-cash impairment charges on four specific assets and divestments made this year.

"DPA Brazil, the New Zealand consumer business, China Farms and Australian Ingredients' performance have been improving, but slower than expected and not at the level we had based our previous carrying values on," he said.

DPA Brazil will be impaired by approximately NZ$200 million, the Venezuelan businesses will have an "accounting adjustment" of approximately NZ$135 million.

China Farms will be impaired by approximately NZ$200 million "due to the slower than expected operating performance" while the New Zealand consumer business will be written down by another approximately NZ$200 million.

Asked about the goodwill portion of the writedown applying to the Australian business, a Fonterra Australia spokesperson could not provide details.

"We can't share much more about our business performance ahead of the release of our full year results on 12 September," she said.

Acknowledging Mr Hurrell's comments regarding the "new norm of continued drought", the spokesperson said climate change had significantly impacted Fonterra Australia.

"Like our farmers have with their businesses, we've made tough decisions with our business to ensure we're running as efficiently as we can be, including consolidating our manufacturing to ensure our factories are optimised and making sure we're putting our famers' milk into the highest-value dairy foods," she said.

"We're also focused on improving sustainability both on farm and at our factories, so that we're doing all we can to reduce our impact on the environment."

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