Tuesday, 08 October 2019 07:55

Farmers shocked by Fonterra borrowing

Written by  Sudesh Kissun
Federated Farmers Waikato president Andrew McGiven. Federated Farmers Waikato president Andrew McGiven.

Farmers are flabbergasted to learn that Fonterra borrowed money to pay dividends over the last few years.

A Fonterra supplier meeting at Matamata heard that the board has now changed this policy: future dividends shouldn’t require the co-op taking on more debt.

Federated Farmers Waikato president Andrew McGiven says it’s hard to fathom why this was done.

“Maybe it was pressure to hit numbers for performance incentives,” he told Rural News.

McGiven says for many farmers the worst business practice is to pay a perceived profit from debt. 

“It was interesting and alarming, to say the least, how over the last few years that dividend was paid: it was essentially borrowed money to pay these.

“The directors present [at the meeting] put up their hands to say this has now stopped and the company now needs to focus on making cash profits while decreasing debt.”

The Matamata meeting was attended by directors Leonie Guiney and Andy Macfarlane.

In 2015, Fonterra paid 25c dividend, in 2016 40c, in 2017 40c, and in 2018 10c. 

This year the co-op did not pay a dividend after posting a $605 million loss, mostly via writedowns of assets to the tune of $826m.

A Fonterra spokeswoman told Rural News that in past years its dividend “was funded through debt at times”. 

This approach has now changed, she says.

“Previously, the dividend policy included the consideration of near term earnings projections, investment priorities, gearing targets and existing or likely market conditions that may impact Fonterra or our shareholders.

“Our new dividend policy guidelines state that the payment of a dividend should not require our co-op to take on more debt or reduce our co-op’s ability to service existing debt.”

Last month, Fonterra also announced a change in strategy, moving away from supplementary global milk pools to a NZ-based milk pool.

Fonterra chairman John Monaghan says the new strategy sounds simple and the best strategies often are. 

“Simplicity shouldn’t be confused with a lack of ambition,” he said.

Fonterra’s earnings range forecast for 2019-20 starts at 15-25 cents/share. The five year plan is to achieve a target of 50c/share.

More like this

Court case dilemma

The recent court case involving sharemilker Tony Kuriger, the son of a National MP, has created “a concerning precedent”.

Featured

 

Being a good boss during calving

Despite it being a busy time, being a good boss during calving is absolutely achievable, says DairyNZ’s People Team leader Jane Muir.

SFOTY in hot water over social media posts

Organisers of the NZ Dairy Industry Awards are investigating unsavoury social media comments allegedly made by the newly crowned 2020 Share Farmer of the Year, Nick Bertram.

» The RNG Weather Report

» Latest Print Issues Online

The Hound

Fat chance

OPINION: This old mutt has always believed that any hopes of a possible free trade deal – that is any…

Health & safety?

OPINION: WorkSafe and workplace safety legislation dominate the daily operations of the private sector, including farms.

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter

Popular Reads

Honda to quit ATVs in Aus

Honda Australia has signalled it will stop selling quads/ATVs in that country as the discussion about the effectiveness of Crush…