It had sales revenue of $20.1 billion, down 2% with operating expenses of $2.3b, down 7% and capital spending of $600m, down 30%.
Th co-op is reshuffling its management team with its global operations chief operating officer Robert Spurway the only casualty. Fonterra said he chose to leave to return to directly running a company.
Chief executive Miles Hurrell said 2019 was incredibly tough for the co-op but 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. “
Clearly, any write-down of an asset is not done lightly,” he said. Assset write-downs totalled $826m.
“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.”
“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 food service 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 include Australian ingredients, Latin America and the consumer businesses in Sri Lanka, Hong Kong and NZ. Chinese investments were seen as necessary to protect Fonterra’s significant exports to China.
“Growing demand for fresh milk in China’s consumer market suggests prices are likely to rise in the future, however, the timing is uncertain. As a result of this and the fact that the development of these farms is now complete we are looking at how we can best unlock the value in the farms.”
Chairman John Monaghan said $9.7b is being paid to farmers for milk for the 2018-19 season though global prices for whole milk powder, butter and anhydrous milk fat were weaker compared to the previous year.
Supply exceeded demand, particularly for whole milk powder, for much of the season. But skim milk powder prices were stronger.
Of the new plan Hurrell said “It’s a strategy which recognises we are a NZ co-op, doing amazing things with NZ milk to enhance people’s lives and create value for customers and farmers.
“It’s a strategy that’s rich in innovation, sustainability and efficiency.
“It unlocks value and sees us focusing on three goals – healthy people, healthy environment and healthy business.
“This is the right strategy for us but it requires us to make some hard choices.
“We’ve looked at the big opportunities and risks for a NZ dairy co-op today. We’ve also got clear on what our strengths are and the hard realities we have to face up to.
“I’m pleased that we now have a strategy that is built from the belief that our farmers’ milk here in NZ is the best and most precious in the world.
“Recognising this, while we will complement our farmer owners’ milk with milk components sourced offshore when required, we will start rationalising our offshore milk pools over time.
“Our strategy will see us focus on world-class dairy ingredients for our customers around the world and innovative ingredients that meet nutrition needs right across people’s life stages.
“We will focus on ingredient categories paediatrics, medical and aging, sports and active and core dairy.
“We will also create new opportunities in new ways for food service. This will include building on our food service success in China and developing new markets, particularly in Asia Pacific.
“This focus on dairy ingredients and food service will see us playing to our strengths and driving more value from the parts of our business that consistently perform.
“We will still be in consumer and will focus on markets throughout Asia Pacific.
“The majority of the products we sell in these markets are made from NZ milk and are similar to those we sell in our ingredients business.
“This creates efficiencies and helps us play to our strengths. “It also means we will reduce our consumer product portfolio to those that create superior value,” Hurrell said.
Monaghan said the new strategy sounds simple but the best strategies often are.
“Simplicity shouldn’t be confused with a lack of ambition. “Our forecast earnings range for FY20 starts at 15-25 cents per share but the five-year plan is to deliver a target of 50 cents per share.
“Our starting earnings range reflects our change in culture.
“We will earn the right to make ambitious decisions by first doing the basics right and returning our balance sheet to a position of strength. That will give us options to go for the opportunities that we create in the future.”
However, the board has set new dividend guidelines, cutting the payout from 65-75% of profit to 40-60% of profit. Hurrell is introducing a new customer-led operating model.
“We need an organisational structure that allows us to live within our means, create better connections with our customers, create value by focusing on what we are good at and where we can differentiate ourselves.
“The structure encourages us to work together as one team.
“Our new operating model will see us move from our two large, central businesses (ingredients and consumer and food service) to three in-market customer facing sales and marketing business units – Asia Pacific, Greater China and Africa, Middle East, Europe, North Asia, Americas. Judith Swales becomes Asia, Pacific and China chief executive while Kelvin Wickham takes on Africa, Middle East, Europe, North Asia and the Americas. Marc Rivers remains chief financial officer, Deborah Capill the people and culture managing director and Mike Cronin the managing director of co-operative affairs.
