Fon­terra fac­ing $ 183m pay­out to French firm

Bot­u­lism scare set­tle­ment set to hit earn­ings

Weekend Herald - - Business - Jamie Gray agri­cul­ture editor jamie. gray@ nzher­ald. co. nz

Fon­terra chair­man John Wil­son is “an­gry and dis­ap­pointed” that the co- op­er­a­tive is to pay Danone $ 183 mil­lion over the

2013 bot­u­lism scare. Fon­terra yes­ter­day said it would re­vise down its fore­cast earn­ings per share range for the 2017/ 18 fi­nan­cial year to 35c to 45c, down from 45c to

55c, as a re­sult of the suc­cess­ful claim against it by the French food group.

A tri­bunal de­cid­ing the ar­bi­tra­tion on claims aris­ing out of Fon­terra’s

2013 pre­cau­tion­ary whey pro­tein re­call yes­ter­day is­sued a $ 183m award in favour of Danone.

Danone said in a state­ment that it “wel­comes this ar­bi­tra­tion de­ci­sion as a guar­an­tee that the lessons from the cri­sis will not be for­got­ten”.

The French food gi­ant sued Fon­terra, seek­ing dam­ages of up to $ 1 bil­lion, over a whey pro­tein con­tam­i­na­tion and bot­u­lism scare, which turned out to be a false alarm. How­ever, a New Zealand judge put that case on hold, so the ar­bi­tra­tion could hap­pen first.

Wil­son said the co- op ac­cepted the judg­ment.

“As the chair­man and as a farmer, I am an­gry and dis­ap­pointed over the tri­bunal’s de­ci­sion in that it does not fully recog­nise the terms of the sup­ply agree­ment that we had with Danone. How­ever we do ac­cept their judg­ment and we will turn our at­ten­tion to de­liv­er­ing the best pos­i­tive re­turn to our farm­ers, de­spite this out­come, over the year ahead.”

Asked if he thought the tri­bunal’s de­ci­sion would be the end of the mat­ter, Wil­son said: “From our per­spec­tive, it is en­tirely up to Danone in that re­spect, but it is our view that the claims that have been talked about by Danone have been ef­fec­tively ad­dressed in the ar­bi­tra­tion.”

Danone’s New Zealand sub­sidiary Danone Nu­tri­cia ended its sup­ply con­tract with Fon­terra in the wake of the bot­u­lism scare. Since then, it has sourced prod­uct from Syn­lait Milk and other man­u­fac­tur­ers and bought t wo Kiwi dairy pro­cess­ing com­pa­nies, Sut­ton Group and Gar­dians, with the lat­ter pro­vid­ing ac­cess to milk sup­ply from 18 farms owned by Grant Pater­son of Dunedin.

Fon­terra chief ex­ec­u­tive Theo Spier­ings struck a con­cil­ia­tory note in his com­ments about Danone — one of the world’s largest food com­pa­nies and, at the time, one of Fon­terra’s big­gest cus­tomers.

“Be­fore this un­for­tu­nate in­ci­dent hap­pened, Danone was a highly re­spected cus­tomer of ours, and still is in my mind,” Spier­ings said.

“Danone is a global player and this is very un­for­tu­nate,” he said. “We are open for com­mer­cial dis­cus­sions [ with Danone] and value cre­ation rather than re­liv­ing and re- lit­i­gat­ing the past.”

Spier­ings said that, four years af­ter the in­ci­dent, Fon­terra was in a strong po­si­tion.

“It’s very un­likely that there are op­tions avail­able to chal­lenge this de­ci­sion.

“Fon­terra has learned from this ex­pe­ri­ence — it was four years ago,” he said. “We have moved on. We are a much stronger co- op­er­a­tive now.”

Spier­ings said Fon­terra was look­ing at whether its in­sur­ance could cover all or part of the ar­bi­tra­tion cost.

Rickey Ward, NZ eq­ui­ties man­ager at JBWere, said the mar­ket would be re­lieved that the claim was not higher.

“De­spite pro­vi­sion­ing for much less, there had been grow­ing spec­u­la­tion that a larger num­ber would oc­cur,” Ward said.

Mar­ket spec­u­la­tion var­ied from a pay­ment of $ 400m, with some an­a­lysts talk­ing of a pos­si­ble $ 1b pay­out.

“It pro­vides cer­tainty which will al­low in­vestors to fi­nally fo­cus on un­der­ly­ing fun­da­men­tals.”

ASB ru­ral economist Nathan Penny es­ti­mated the Danone award would take about 10c off Fon­terra’s to­tal pay­out for 2017/ 18.

“While it’s not go­ing to break them [ farm­ers] in any way, it is still a sig­nif­i­cant num­ber,” Penny said.

Fon­terra is also due to up­date its milk price this month. Econ­o­mists are ex­pect­ing the fore­cast to drop to about 6.25/ kg to $ 6.50/ kg of milk­solids from the cur­rent fore­cast of $ 6.75.

A 2013 bot­u­lism scare saw Nu­tri­cia prod­ucts taken off shelves.

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