S&P Global Ratings has warned Fonterra that it could be in for a credit rating downgrade if does not make swift progress in reducing debt as the co-op heads towards its its biggest ever loss.

Fonterra said $820m to $860m in writedowns - mostly of offshore businesses - would take it to a bottom line loss of up to $675m for the year just finished.

It would be only the second time the co-op has turned in a loss since it was formed in 2001. Its first loss - last year - came to $196m.

The co-op said it would not pay a dividend for the year to July 31 so that it could pay off debt, but said its $6.30-$6.40 per kg milk price would for the 2018/19 season would remain in place, as would the current forecast for 2019/20 of $6.25 to $7.25 kg.


Chief executive Miles Hurrell said the co-op had made important accounting adjustments.

"Our cashflow remains strong, our debt has reduced, and the underlying business has reduced is in line with our earnings guidance of 10 to 15 cents per share."

S&P said any wavering of Fonterra's commitment to restore its financial health would put the co-op's A minus credit rating under immediate downward pressure.

The agency said Fonterra's move to write down assets and suspend its dividend was a "painful but necessary" part of the co-operative's turnaround plan.

The impairment charges were "noteworthy" but were non-cash and did not affect Fonterra's fundamental risk profile.

S&P noted the group's underlying earnings for the year ended July 31, 2019, to be materially below the prior year.

It said the dividend suspension indicated the group is willing to actively protect the interest of creditors.

"We believe Fonterra's portfolio and strategic reviews will result in a more disciplined approach to capital allocation and more versatile operational performance," S&P said.


"In our opinion, this should result in a more stable earnings profile. That said, we are mindful of execution risks and any wavering of the cooperative's commitment to restoring its financial health would put the rating under immediate downward pressure."

Chief financial officer Marc Rivers said it is going to take Fonterra a couple of seasons to get the balance sheet back to where it needs to be "but we are a good path in that regard".

Fonterra has, since September 2018, been been re-evaluating all investments, major assets and partnerships.

As a resiult, wrote down is investment in DPA Brazil by $200m, mainly due to the economic conditions there.

The previously announced sale of its Venezuelan business involved a $135m adjustment.

The carrying value for China Farms will be impaired $200m due to the slower-than-expected operating performance.

The New Zealand consumer business, the compounding effect of operational challenges, along with a slower than planned recovery in our market share has resulted in us reassessing its future earnings, meant a write down of $200m.

The Australian Ingredients business incurred a $70m write off of goodwill.

The price of Fonterra's NZX-listed units, which give outside investors access to Fonterra's dividend flow, have been under heavy downward pressure, cloosing at $3.57, down 19c or 5 per cent from Friday's close.

They have lost a quarter of their value over the 12 months.

Harbour Asset Management senior research analyst Oyvinn Rimer said the writedowns were " not entirely surprising" and that withdrawal of the dividend was another blow to those external investors who own the NZX-listed units.

"Strategically, they are doing the right thing, but is disappointing nonetheless," Rimer said.

"The question is: is this the end of it, or is there more to come?"