Tuesday, 18 September 2018 10:55

Fonterra’s billion-dollar dive

Written by  Sudesh Kissun
Fonterra’s new chair John Monaghan and chief executive Miles Hurrell have some work to do to turn around the co-op’s fortunes. Fonterra’s new chair John Monaghan and chief executive Miles Hurrell have some work to do to turn around the co-op’s fortunes.

A billion-dollar drop in Fonterra’s fortunes leaves the co-op vulnerable to increasing competition, says Federated Farmers Dairy president Chris Lewis.

Lewis says the $196 million net loss announced last week, compared to $745m profit in 2017, means Fonterra must retain more earnings in the coming years to shore up its balance sheet. 

“Fonterra has had a lot of time to become match-fit like the All Blacks, but that hasn’t happened,” he told Rural News.

“There’s a lot of competition around for milk now; more competitors are setting up and they all have strong balance sheets. If Fonterra wants to remain the number-one choice for NZ farmers they need to pull their socks.”

Lewis notes that apart from the net loss – the first in the co-op’s 17-year history – debt has increased, with gearing ratio now at 48.4%.

He says farmer shareholders will be unhappy with the poor results.

“Shareholders don’t tolerate losses, especially when it relates to bad investments and being sued and losing court cases.” Lewis believes Fonterra must look at its investment strategy and execution, and with a new chairman and chief executive it can change strategy and execution, government relations and handling of competition.

Chief executive Miles Hurrell says that in addition to the previously reported $232m payment to Danone, and the $439m write-down of the co-op’s Beingmate investment, there were four main reasons for the poor earnings performance.

“First, forecasting is never easy but ours proved to be too optimistic. 

“Second, butter prices didn’t come down as we anticipated, which impacted our sales volumes and margins. 

“Third, the increase in the forecast farmgate milk price late in the season, while good for farmers, put pressure on our margins. 

“And fourth, operating expenses were up in some parts of the business.”

More like this

Another win

OPINION: Feds Southland 'pres' Jason Herrick and colleagues who continue the good fight against bureaucratic madness on behalf of farmers, have had another win - for now, at least - getting a court decision granting a 'stay' on rules in the Southland Water and Land Plan until changes can be made to section 70 of the RMA by central goverment, somtheing they clearly signaled after the election.

Featured

Pāmu farm opens gate to urban visitors

For many urban New Zealanders, stepping into Pāmu’s Pinta dairy farm near Taupo last month was the first time they had had the chance to experience farm life up close.

National

Machinery & Products

Alpego eyes electric power harrow

Distributed by OriginAg in New Zealand, Italian manufacturer Alpego recently showed its three metre Alysium electric power harrow at the…

» Latest Print Issues Online

The Hound

Dodgy!

OPINION: If you believe Maori Party president John Tamihere’s claim that “nothing dodgy” occurred at Manurewa Marae during the last…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter