16 Breeding them tough Vol 17 No 12, March 26, 2018
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Profit axe falls Hugh Stringleman
T
hugh.stringleman@nzx.com
HE Beingmate blow fell and Fonterra’s chief executive Theo Spierings will depart from his role later this year, but that is not cause and effect. After the 2018 interim results presentation Fonterra’s chairman John Wilson said Spierings’ planned departure after seven years was succession by agreement and the worldwide search for his replacement began in November. The announcement was bought forward a month or two to avoid market speculation and was not connected to the huge $405 million Beingmate stake value writedown. Wilson, Spierings and new chief financial officer Marc Rivers presented some of the most eventful Fonterra results in years, containing good and bad components. The milk price forecast for this season went up by 15c to $6.55/kg milksolids, a collective farmgate gain for shareholder-suppliers of $222m. But an aggressive writedown of Fonterra’s stake in Beingmate Baby and Child Food, plus a share of its 2017 losses, came to $433m. Fonterra also booked $160m cost after tax of the compensation payment to Danone for the damage done to New Zealand subsidiary Nutricia by the 2013 whey protein concentrate recall.
Sales revenue went up 6% to $9.8 billion but the gross margin fell by 6%, normalised earnings were down 25%, normalised earnings per share were down 36% to 15c and the net profit after tax was a loss of $348m (minus 21c/ share). Fonterra directors forecasted a full year dividend of 25c to 35c/ share, from which an interim 10c will be paid in April. Therefore, it seemed they intended keeping faith with nonfarmer Fonterra Shareholder Fund investors rather than taking the Beingmate impairment in one hit to the dividend. ASB senior rural economist Nathan Penny said the negative earnings per share in the first half, no matter how good the secondhalf earnings, suggest directors will use the balance sheet to fund the intended dividend. Fonterra itself implied a 35c dividend would result from booking only the Danone payout, while a 25c dividend would add in some of the Beingmate writedown. “The Danone part is cash, the Beingmate part is not cash and that is why we are confident with the dividend,” Spierings said. ANZ rural economist Con Williams said the final treatment of the one-offs had yet to be determined by the board for dividend purposes. Historically, they had been added to the balance sheet but it came at a cost to potential investment opportunities or partnerships. The $6.80 to $6.90/share indicative payout for farmers,
NO SMILES: The faces of, from left, Fonterra chief financial officer Marc Rivers, chief executive Theo Spierings and chairman John Wilson portrayed the content of the interim results. Photo: Glenys Christian
We can’t continue to bleed capital or we will end up like Murray Goulburn. Mark Croucher Farmer composed of milk price and dividend forecasts, if delivered, will be the third highest in the past decade and the fourth highest in Fonterra’s history, Wilson said. Now with an eye on his legacy, Spierings said NZ milk prices are the best in the world, having woefully lagged Europe and the United States until about 10 years
ago and the advent of Chinese demand and the launch of Global Dairy Trade. In the first half Fonterra got close to another of its objectives – one dollar revenue for each litre of milk equivalent. From 1H 2015 to 1H 2018 Greater China’s “enterprise value” for Fonterra had risen from $3.7b to $4.7b, even after the Beingmate writedown. Shareholders Council chairman Duncan Coull said farmers will be happy with the 15c lift in payout and the dividend indication but unhappy with the Beingmate impairment, the Danone payout and nil growth in consumer and food service. His expectation was on management to turn the negatives
around during the second half. Coull urged all farmers to attend the directors’ roadshows where more Beingmate explanations would be given. Northland farmer Mark Croucher said Fonterra’s muzzling of former director Leonie Guiney would ensure high meeting attendance and some heated questions. His main worry was the repeated losses of capital and NZ milk market share. “We can’t continue to bleed capital or we will end up like Murray Goulburn.”
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