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New Zealand’s largest company, dairy giant Fonterra, has suffered a historic $196 million loss but former boss Theo Spierings has still pocketed an $8m salary.
Mid-Canterbury farmer Tom Mason said the dairy giant had started the softening-up process a month ago to prepare people for the worst performance and first ever loss in its 17-year history.
‘‘Everybody knew it was going to be bad, so that was no surprise. We just didn’t know how bad it would be.’’
New chief executive Miles Hurrell said Fonterra would immediately start with a strategic review of its investment in its Chinese partner Beingmate.
This year’s result had been partially impacted by the $439m write-down on its Beingmate investment and $232m payment to Danone following the 2013 false botulism scare.
However, ASB analyst Nathan Penny said Fonterra was showing a worrying trend because, even when the one-offs like Danone and Beingmate were stripped out, the underlying profit had fallen two years in a row for a combined $456m loss.
Mason said the narrative presented by Hurrell and chairman John Monaghan was ‘‘typically Fonterra’’.
‘‘It would be good to have a coop which is honest rather than spin the story. What’s annoying to farmers isn’t the milk price, but not performing on the valueadd side of things.’’
He said Fonterra had a reputation of over-promising and under-delivering, and this year would be no exception.
‘‘It will be a miracle if they pay $6.75 per kilogram of milksolids – they can’t defend that price. Their forecasting needs to be more conservative,’’ Mason said.
Spierings, who did not front for the results, was paid $8.02m for the year, but $4.2m of that was for bonuses from previous years.
Last year the Dutchman was paid $8.32m, made up of a $2.46m base salary, superannuation benefits of $170,036, and performance payments for 2016 and 2017 of $1.83m and $3.85m.
That works out to about $159,000 a week, or $22,000 a day.
Hurrell said the board and management had a plan for three immediate actions: taking stock of the business (it will re-evaluate all investments, major assets and partnerships; getting the basics right (the level of financial discipline will be lifted throughout so debt can be reduced and return on capital improved); and ensuring more accurate forecasting (the business will be run on more realistic forecasts).
‘‘It will also be clear on its assumptions, so farmers and unitholders know exactly where they stand and can make the decisions that are right for them.’’
Chairman John Monaghan said Fonterra was being clear on what it would take to achieve the forecast earnings guidance.
‘‘For the first time we are sharing some business-unitspecific forecasts. These see the ingredients and consumer and food service businesses achieving an EBIT [earnings before interest and tax] of between $850m and $950m, and between $540m and $590m, respectively,’’ he said.
‘‘You can expect to see strict discipline around cost control and respect for farmers’ and unitholders’ invested capital. That’s our priority.’’
Federated Farmers dairy chairman Chris Lewis said the big disappointment for him was the increase in debt. Fonterra’s gearing ratio has lifted to 48.4 per cent, up from 44.3 per cent.
‘‘Fonterra needs to be match fit to take on the competitors such as Open Country Dairy and Synlait [Milk]. It has had 17 years to become match fit but by taking on more debt it is failing to be that,’’ Lewis said.
‘‘Should heads roll? Let’s give the new CEO and chairman time to clean out the stables. It sure needs a new broom.’’
ASB analyst Nathan Penny said Fonterra was showing a worrying trend because, not taking account of the Beingmate and Danone issues, the underlying profit (EBIT) had fallen two years in a row for a combined $456m loss.
Grant Davies, an investment adviser at Hamilton Hindin Greene, described it as a ‘‘pretty disappointing result’’.
‘‘Everything is going in the wrong direction.’’
Davies said he was not a fan of Fonterra’s investment structure.
‘‘Non-farmer shareholders receive no voting rights – you’re just along for the ride. If you go back to 2012 and look at the prospectus the return was about 42c per share, and in 2013 [it was] 43c per share. So it’s weakened considerably – people have a right to be disappointed.’’
‘‘Should heads roll? Let’s give the new CEO and chairman time to clean out the stables. It sure needs a new broom.’’ Federated Farmers dairy chairman Chris Lewis