Tuesday, 27 March 2018 08:55

Mixed bag results for Fonterra shareholders

Written by 
Andrew McGiven, Federated Farmers. Andrew McGiven, Federated Farmers.

Fonterra farmers says the co-op’s half year results is a mixed bag; they welcome the lift in forecast milk price but are unhappy with the drop in dividend.

Waikato Federated Farmers president Andrew McGiven is pleasantly surprised with the 15c/kgMS lift in the forecast milk price.

“This is a great bonus to farmers who have struggled with the adverse weather events this season,” he told Dairy News.

But he is critical of the co-op reducing the dividend range from 45-55c to 25-35c, on the back of a $405 million impairment on the Beingmate investment.

“My concern as a supplier is that this is Fonterra’s point of difference from the other corporate processors and if it is not providing a reasonable rate of return for capital invested then suppliers will possibly look at other supply options,” he says.

“We know the competitive environment in the Waikato; it is starting to heat up with new factories either being built or in the pipeline.

“Suppliers and shareholders would like some more transparency around these issues, and I hope that some of this is provided in the upcoming results meetings.”

McGiven questioned why the Beingmate asset write-down was not adjusted on the balance sheet instead of a dividend reduction. 

“It isn’t income related to the suppliers, unless they were budgeting on a substantial dividend from Beingmate itself which obviously hasn’t eventuated.”

Fonterra Shareholders Council chairman Duncan Coull says the interim results “as a whole painted a disappointing picture for the first half of the financial year”.

“The total forecast payout of $6.80 - $6.90/kgMS is encouraging for our farmers given the tough conditions over the preceding period. 

“However when looking a little deeper into the results, past the Beingmate impairment and the Danone pay-out, the declines in normalised EBIT and gross margin together with headwinds in the Consumer and Foodservice segments point to a tough six months for the business.”

On Beingmate, Coull noted that while the council viewed the latest impairment as reflective of the reality of the situation he understood farmers’ frustrations with what the council has described as an unacceptable situation.

“Council had asked farmers to be patient until the interim results had been announced. 

“And now that we understand what we’re dealing with in regards to the impairment I encourage Fonterra farmers to attend this week’s roadshow meetings with an expectation that their board will provide full, frank and transparent conversation on its learnings to date and most importantly what actions will be undertaken to rectify matters.”

Coull also urged farmers to read the half-year figures in “the context for which they are intended”. 

“Ultimately the numbers that matter the most are those that are announced at full year and as such there is an opportunity and expectation that management will turn these figures around within that timeframe.”

Stay in China

Waikato Federated Farmers president Andrew McGiven believes Fonterra should remain in China.

However, he wants the co-op to revisit the strategy of its Beingmate investment.

“Personally I think Fonterra needs to stay in China and I hope that the lost value in Beingmate can be restored, but they will need to revisit the strategy around the Chinese investment to realise this,” he says.

Fonterra invested $750 million in Beingmate in 2014 for an 18.8% stake and launch its Anmum infant formula products in China.

The co-op has written off $405m of that investment.

 

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