Fonterra facing $ 183m payout to French firm
Botulism scare settlement set to hit earnings
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.