Fonterra - the world's fourth-largest dairy producer - will be reporting a loss of as much as $675 million next month on the back of adjustments for its South American businesses, drought in Australia and heightened competition in New Zealand.
The overall impact of various one-off adjustments, including reducing the carrying value of several emerging market assets, would be of the order of $820 million-$860 million, with attendant losses in a range of $590 million-$675 million.
According to Fonterra, this translates to a 37c-42c loss per share.
In tandem, the Fonterra board has announced that no dividend would be paid for the financial year, which chairman John Monaghan said was "part of our stated intention to reduce the co-op's debt, which is in everybody's long-term interests''.
In response, farmer-owned Fonterra shares were down 5 per cent at $3.57 yesterday, having dropped 26 per cent over the past 12 months.
South Otago dairy farmer and Federated Farmers dairy chairman Mat Korteweg said the announcement would be "at least one'' kick in the guts for dairy farmers.
"Last year we were told to expect a turnaround. For an average farmer with 200,000 shares, no expectation of a dividend is significant, as would have been money that was reinvested either into operations or reducing debt.''
Fonterra chief executive Miles Hurrell said farmers had "every right'' to be disappointed, but that after a full review of the business during the past year, it became clear the co-operative needed to reduce the carrying value of a number of its assets.
"We have taken a hard look at our end-to-end business, including selling and reviewing the future of a number of assets that are no longer core to our strategy,'' he said in a statement yesterday.
The majority of the one-off accounting adjustments related to non-cash impairment charges on four specific assets and the divestments that the co-operative made this year as part of the portfolio review, he said.
"DPA Brazil, the New Zealand consumer business, China Farms and Australian Ingredients' performance have been improving, but slower than expected and not at the level we had based our previous carrying values on,'' he said.
Fonterra's accounting valuation for DPA Brazil will be impaired by about $200 million, mainly because of economic conditions in Brazil.
Closure of its Venezuelan consumer business would mean an accounting adjustment of about $135million, while the carrying value for China Farms will be impaired by about $200million, because of the slower-than-expected operating performance.
Mr Hurrell said the New Zealand consumer business had been affected by competition across the board, including liquid milk and high-spec cheese.
"There were also operational challenges, including delays to the establishment of a centralised warehousing facility and IT system updates.''
Mr Hurrell said capex had been at about the $650million level for the year, compared with $1 billion in previous years.
"We are now rebuilding this business and, as part of this, have sold Tip Top, which allows the team to focus on its core business. The combined impact is a write-down of about $200million.''
He said it was too early to tell whether there would be implications at the staff level as a result of the performance review.
Chief financial officer Marc Rivers said a key focus had been on debt reduction.
"We've made good progress through the year, but the key point of closing books every year is in making judgement on the value of the assets you are carrying. In that regard it's about trajectory, meaning that we've written down those assets that we feel aren't able to sustain their carrying values.''
Rabobank dairy analyst Emma Higgins said the announcement would not have come as a surprise to dairy farmers.
"There have been clear signals of the need for strength on the balance sheet. It's good that they've front-footed the information to farmers and the market early in the piece, but all eyes and ears will be on details of their turnaround strategy going forward given the volatility Fonterra has exhibited over the past 12 months.''