Fonterra still struggling as payout forecast narrows

Fonterra's operating earnings for the nine months to April were down 9 percent to $522m - Photo: RNZ / YouTube

Fonterra remains under market and financial pressure as it narrowed its payout forecast for the season just ending and signalled further asset sales.

It said it expected to pay between $6.30 and $6.40 a kilo of milk solids for the current season, lowered the forecast dividend payout from its high value consumer operations by 10 cents to between 10-to-15 cents, and set a wide forecast range for next season's payout of $6.25 to $7.25 a kilo.

In an update for the nine months to April, it said group revenue and sales were than last year, but its margins were under pressure and its operating earnings were down 9 percent to $522m.

"Farmers and unit holders can expect to see some fluctuation in our earnings over the next couple of years and there will be one-off transactions and adjustments - some positive, some negative - as we reset the business and deliver on our new strategy," chief executive Miles Hurrell said.

He said the New Zealand business was performing as expected but Australian conditions were tougher with a smaller milk pool because of drought and an overcapacity in processing facilities.

"This is not a one-off for this season, it's the new norm for the Australian dairy industry and we need to adapt."

He confirmed that Fonterra will shut the 100 year old Dennington plant in Victoria with the loss of 98 jobs.

Fonterra's interim chief executive Miles Hurrell discussing the annual results.

Fonterra chief executive Miles Hurrell. Photo: RNZ / Dan Cook

Mr Hurrell said the co-operative was also reviewing two other parts of its business as it looks to get back to concentrate on New Zealand and simplify its operations.

He said the two farming hubs it's developed in in China, and its Brazilian consumer goods joint venture are being reviewed, with the options including a possible sale.

"We have contributed to China's dairy industry by developing high quality model farms and showing there is a valuable opportunity for fresh milk in China's consumer market... this does not necessarily mean that we need to continue to have large amounts of capital tied up in farming hubs," Mr Hurrell said.

Fonterra has been reviewing its overall business as it grapples with competitive markets, underperforming operations, and a heavy debt burden, which saw it post a loss of $196m last year, the first in its history.

It set a target of cutting its debt $800m this year, and reviewing all its operations around the world.

In recent months it has sold ice cream maker Tip Top to international manufacturer Froneri for $380m, has started a sales process for its 50 per cent share of DFE Pharma, and sold its interest in a Venezuelan consumer business.

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