September 12, 2018 / 9:05 PM / 8 months ago

UPDATE 2-NZ's Fonterra posts first annual loss as higher milk costs bite

* NZ’s Fonterra posts NZ$196 million loss in FY 2018

* Higher-than-forecast milk prices added to company’s costs

* Announces asset review, starting with stake in China’s Beingmate (Recasts, adds CEO and analyst comment, market reaction)

By Charlotte Greenfield

WELLINGTON, Sept 13 (Reuters) - New Zealand dairy giant Fonterra posted its first annual loss on Thursday as higher milk prices put pressure on earnings, adding to hefty one-off charges from its Chinese joint venture.

The gloomy result, which had been flagged to the market, was largely due to the firm’s forecasts undershooting global commodity prices, particularly for butter which is used as a base for other products.

“These results don’t meet the standards we need to live up to ... we did not meet the promises we made to farmers and unitholders,” interim chief executive Miles Hurrell, who took the helm in August, said in a statement.

The world’s largest dairy exporter reported a net loss of NZ$196 million ($128.5 million) for the year to end-July, down from a profit of NZ$745 million the previous year. Normalised earnings before interest and tax, which excludes one-off charges, fell 22 percent to NZ$902 million.

Fonterra has been shifting from its staple milk powder shipments business to selling value-added consumer products like yoghurt and cheese to ride out volatile global dairy prices.

But that strategy backfired when higher-than-projected input prices added additional costs to the firm’s consumer and ingredients businesses.

Hurrell vowed to improve the company’s forecasting, which analysts said had been an ongoing issue.

“A worrying pattern has developed. That is, Fonterra starts the year bullishly with its forecasts, but then fails to deliver financial results that match its plans,” said Nathan Penny, senior rural economist at ASB Bank.

Hurrell also announced that the firm was launching a global review to assess how each of its assets and joint ventures support the company’s strategy and if they are hitting their targets for return on capital.

The review would start with troubled Chinese infant formula producer Beingmate. Asked on a media call whether the review could result in Fonterra selling its 18.8 percent stake, chief financial officer Marc Rivers said “all options are on the table”.

Fonterra took a NZ$405 million hit on Beingmate in the first half of the financial year, in addition to paying NZ$170 million to French dairy giant Danone over a contamination scare in 2013.

Shares in Fonterra’s traded fund fell 0.6 percent in the wake of Thursday’s announcement.

Fonterra’s full-year revenue rose 6 percent to NZ$20.4 billion and the company said it expects earnings per share for fiscal 2019 financial year to be in the range of 25 cents to 30 cents per share. ($1 = 1.5249 New Zealand dollars) (Reporting by Charlotte Greenfield in WELLINGTON; additonal reporting by Chandini Monnappa in BENGALURU; editing by Mark Heinrich and Richard Pullin)

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