What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
Guiney is standing for the co-op’s director elections.
She says shareholders seemed prepared to give the new chief executive Mile Hurrell a chance and she was encouraged by his presentation at a shareholder meeting in Ashburton last week.
“I would expect action on loss-making assets in the near term if he is to be able to strengthen our position to invest where we have advantages,” Guiney told Dairy News.
Fonterra directors and management met farmer shareholders around the country last week for an annual results update; the co-op last year suffered a shock $196 million loss, the first in its 17-year history.
The Ashburton meeting was also attended by Fonterra chairman John Monaghan and chief financial officer Marc Rivers.
Guiney says farmers asked lots of “good probing questions” on the co-op’s balance sheet. They also questioned the co-op’s China strategy, some asking what changes will be made to it.
The tone of the leadership’s intentions encouraged her, she says.
“They talked about a complete stocktake of where our capital is allocated, how it is delivering and whether it can continue to.
“The test of that sentiment is whether they are prepared to depart from existing strategy and exit loss-making investments even if they are part of ‘integrated strategy’. I got the impression from Miles there was a preparedness to do that.”
Guiney believes the poor financial results have arisen from years of poor investment decisions.
“I remain concerned as to whether there is acceptance that this result is not just a consequence of management and dividend decisions from one year; that this is chickens coming home to roost after years of allocation of capital outside our capability, and prolonged defence of the same with the consequence of eroding equity.”
Guiney disagrees with Fonterra leadership’s view that the balance sheet is strong and the co-op is in good heart.
“Current debt levels are high risk in an environment where we are losing milk and have much to do to regain the trust of shareholders and the NZ Government; but it can be done.”
She notes “the jewel in our crown is our strong ingredients business and that management’s commendable progress in higher value ingredients is being overshadowed by the overall business performance”.
“But the jewel is subsidising the rest of the business and I would have liked to have seen a stronger commitment to ending this erosion of value and protecting our balance sheet and hence our future as a farmer-owned co-op.”
Guiney says she heard no indication that shareholders favour splitting up the co-op as some commentators have suggested. “That is not the solution; I heard a desire for change in the way we operate, not to abandon the co-op model.”
