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.
The Te Awamutu farmer is the only sitting director going for re-election.
Two sitting directors -- former chairman John Wilson and Nicola Shadbolt -- retire at the annual meeting at Lichfield next month.
Waugh, first elected to the board three years ago, says his message to Fonterra farmers hasn’t changed.
“When I ran for the board three years ago I wasn’t happy with the commercial performance of Fonterra,” he told Dairy News.
“I was not happy with the dividend stream; I was skeptical about the money being spent in China, having been in a commercial chief executive role where I almost fell in the same potholes myself.”
Waugh believes Fonterra must be in China -- the centre of growth in dairy. With all other big brands Fonterra must have a strong China footprint.
Waugh says after joining the board he started pushing for better commercial performance so farmers and investors could get a better return on their capital.
“If you go back 30-40 years dairy farming in New Zealand was all for capital gains: you could run your business backwards and still make money; but those days are gone.
“Now the average dairy farmer in NZ is running his business to make a commercial profit and get a decent return on investment in land, animals and shares.”
Waugh says he was vocal on the roadshow for board candidates three years ago.
“I have been true to my commitment to the people who voted for me last time; I’ve stayed focused on holding the management to account for commercial delivery.”
Waugh is a member of the board finance committee, putting him “close to the numbers”.
He says he has a good working relationship with management but is also one of the directors who challenges them “not in a destructive way but to make them think about they are doing”.
Waugh, who was chief executive of former Australian dairy processor National Foods before retiring to the farm in Te Awamutu, says he has “seen all behaviours”.
“I’ve been there; there are times when management needs your support; there are other times they need a bit of pushing.”
Waugh says Fonterra is not all bad; contrary to media reports and what some farmers say, Fonterra isn’t broken. “It’s a good company and has done some very successful things but they get overshadowed.”
He points to its whey ingredients business in Europe, which allows the co-op to make ingredients and sell within the EU and other countries.
“These businesses don’t get airtime because they are relatively lighter in capital.”
But Waugh agrees the Beingmate investment in China has been challenging during his tenure on the board.
“Anyone who thinks the board wasn’t addressing Beingmate are completely wrong; farmers have money invested there and the China farms and obviously they are key issues for the board.”
Waugh admits Fonterra’s last financial results were a shocker. But he points out that the co-op had two respectable years prior to the $196 million loss.
“Since I have been on the board Fonterra has had two respectable years when they have paid a 40c dividend each year. The company performed pretty well through the recovery of milk price going from $3.90 to $4.40 to $6.12 and lifting dividend streams through those two years; they were two very strong commercial years.”
He says wearing the costs of Beingmate and Danone related transactions impacted its bottom line.
