Beingmate takes toll on Fonterra result
"Beingmate's continued underperformance is unacceptable." Fonterra chairman John Wilson
Fonterra, New Zealand’s largest company, has posted a net $348 million loss for the six months ended January 31, after writing down its investment in Chinese company Beingmate by $405m.
The result was on revenue of $9.8 billion, but the loss is 183 per cent below last year’s after-tax return.
At the same time the dairy giant has lifted its farmgate forecast price to $6.55 per kilogram of milksolids from $6.40, but with a revised forecast earnings per share range of 25 cents to 35c.
By contrast, rival minnow Synlait Milk posted a record half-year after-tax profit of $40.7m, compared with $10.6m for the same period last year.
Fonterra chairman John Wilson described the performance of Beingmate as ‘‘unacceptable’’. In 2015 Fonterra took an 18.8 per cent stake in the company, costing $750m. Since then Beingmate’s share price has plummeted, amid a crisis of management and difficulties over new infant formula regulations.
‘‘While we appreciate the substantial opportunity and privilege of our business in China, our shareholders and unitholders will be rightfully disappointed with this outcome,’’ Wilson said.
‘‘Beingmate’s continued underperformance is unacceptable. The turnaround of the investment is a key priority for our senior management team.
‘‘The opportunity in the Chinese infant formula market remains, as does the potential for our Beingmate partnership – but an immediate business transformation is needed for Beingmate to benefit from the ongoing changes in the market.’’
He said Fonterra’s Greater China business continued to perform well overall but the Beingmate investment had been reassessed to reflect a fair value.
Wilson said the board had now assessed the carrying value of Beingmate at $244m, an impairment of $405m.
According to Dairynz statistics for the 2015-16 season, the 15c lift in milk price forecast means an extra $279.28m to the economy nationally.
For the average dairy farmer milking a 419-cow herd producing 373 kilograms of milksolids per cow, it will provide an extra $23,443 a year.
Analyst Mark Lister of Craigs Investment Partners said the result was largely as expected.
While there were some negatives such as Beingmate and the Danone court payout of $183m, operational results had picked up during the second quarter.
He said debt levels had risen to 52 per cent, when Fonterra would prefer them to be between 40 per cent and 45 per cent.
Federated Farmers dairy chairman Chris Lewis called the result a mixed bag. The 15c lift in the milk price was a positive, reflecting global dairy prices over the past six to 12 months.
However, Beingmate was ‘‘a negative’’ and shareholders would be demanding greater accountability over the failing investment, he said.
He urged shareholders to attend the shareholder meetings and ask some hard questions of their directors.
Waikato Federated Farmers president Andrew Mcgiven said he was concerned as a supplier-shareholder about the low dividend and he assumed that included retentions.
‘‘As a co-operative, that’s Fonterra’s point of difference from the corporates in the milk price. And with increased competition in the area, that’s going to be an issue for them if they are only just getting over the line with the milk price.
‘‘I’m getting a lot of anecdotal evidence from Fonterra suppliers around the traps that they are not happy with Fonterra’s performance and the way it’s going. If they are talking that way they are probably looking at other options.’’