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Fonterra writes down Aust unit by $NZ70m

Alex Druce
Fonterra expects to record a big full-year loss on impairments of up to $860 million

Dairy co-operative Fonterra has flagged a full-year loss on impairments of up to $NZ860 million ($A819 million), including a drought-driven $NZ70 million write-down against its Australian business.

The milk producer expects a loss of between $NZ590 million to $NZ675 million for the 12 months to July 31 due to "significant adverse" one-off adjustments and will withhold a final payout to shareholders for a second year.

Fonterra, headquartered in New Zealand but also listed on the ASX, told the market on Monday it was making "tough but necessary decisions" on account of the ongoing drought in Australia, subdued sales in New Zealand and China, economic instability in Brazil and an exit from Venezuela.

The company's ASX-listed shares dropped by more than 5.0 per cent to a new historic low of $3.40 by 1240 AEST on Monday, having now lost a quarter of their value so far in 2019.

Chief executive officer Miles Hurrell said the move followed a strategic review that made it clear the business needed to make changes to ensure a sustainable future.

"We're in no doubt that farmers and unit holders will be rightly frustrated by these write-downs," Mr Hurrell said.

"I want to reassure them that they do not, in any way, impact our ability to continue to operate."

Mr Hurrell said Fonterra's cash flow remained strong, it had reduced its debt, and the underlying performance of the business for FY19 was in line with the latest earnings guidance.

The company said its Australian business had suffered from continued dry conditions, with domestic milk supply shrinking and competition increasingly aggressive.

It said this was reflected in the closing of its Dennington factory, which, combined with writing off the goodwill in Australia Ingredients, resulted in a one-off impact of about $NZ70 million.

Fonterra's DPA Brazil unit will be impaired by about $NZ200 million, mainly due to economic conditions in the country, while the previously announced sale of the company's Venezuelan business will incur a charge of $NZ135 million.

The carrying value for China Farms will be impaired by $NZ200 million due to the slower than expected operating performance, and the New Zealand consumer business will cop a $NZ200 million write-down on restructuring costs and a slower than expected recovery of market share.