Time to go, ex-director tells Fonterra chair
Dairy co-operative is failing to add value, says one of its founders
A former Fonterra director has called on chairman John Wilson to “move on”, citing what he said was the cooperative’s ongoing underperformance.
Fonterra this week issued its ninemonth business update, which featured a strong farmgate milk price but also highlighted the downward pressure on the company’s earnings.
Taranaki-based Harry Bayliss, a founding director who served on the board from 2001 to 2006, sent an email to existing board members on March 31, calling for Wilson to step down. A Fonterra spokesman said it had no comment to make.
Bayliss told the Herald yesterday he had problems with Fonterra’s performance on a number of fronts.
“There has been opportunity for the board to really focus on valueadd, and I just don’t believe — for a number of reasons — that they have been able to achieve that,” he said.
“I honestly believe that the chair needs to be held accountable in that regard.
“He needs to be prepared to put his hand up and say ‘I will be held accountable for this’ and move on.”
Bayliss pointed to the WPC80 product recall and subsequent $183 million settlement with French food group Danone, and the ongoing underperformance of China’s Beingmate, in which Fonterra has an 18.8 per cent stake, saying it was “necessary for someone to speak up”.
“I want to emphasise that this is nothing personal against the chair, but his role meant that he had a huge impact on the strategic direction of the company, and I think that it is most apparent that it has not been performing well,” he said. “We need a change of culture at the head of the governance body.
“As much as anything, the board has been focusing on issues that have not been creating sufficient value.
“They have been diverted by various issues over a number of years, and this has led to the company not performing to a level that I believe that it’s capable of,” said Bayliss.
“It’s not necessarily the direction, it is the culture of the way it is performing,” he said.
The board has been focusing on issues that have not been creating sufficient value. Harry Bayliss
Bayliss said Fonterra needed to develop a culture that was “prepared to take on board constructive comment and criticism”.
“I don’t believe that we have got that at the moment and haven’t had for quite some time,” he said.
Bayliss said he remained a shareholder in Fonterra, but was “at the point of exiting”.
Wilson has served on the Fonterra board since 2003 and became chairman in 2012.
This week, ratings agency S&P Global said Fonterra’s credit ratings had not been affected by the cooperative’s earnings downgrade, even though it expected its debt threshold to be exceeded in the current financial year.
On Wednesday Fonterra increased its milk price for the current season to $6.75/kg from $6.55/kg, but said it expects to be outside its target end-ofyear gearing range of 40-45 per cent.
The group announced a further reduction in its full-year dividend range from 25-30 cents to 15-20 cents, as it grappled with the higher milk price, which affects its input costs, and compressed margins abroad.
Fonterra also revised its earnings for 2017/18 down to 25-30c per share. That compares with a result of 46c in 2016/17 and 51c in 2015/16.
“It’s a very poor result,” said Harbour Asset Management senior analyst Oyvinn Rimer.
“It illustrates once again that it is incredibly hard to forecast the equity performance of this business.
“The milk price is the key reason why the margins have been crushed,” he said.
“It begs the question as to whether they can recover in the second half and I think that might not [happen].”