Wednesday, 16 March 2016 11:55

That’s just business – Fonterra

Written by  Sudesh Kissun
Lukas Paravacini. Lukas Paravacini.

Fonterra says its decision to delay payments to some creditors by up to 90 days is nothing new and suppliers should "align" themselves to it.

Only 2000 of its 18,000 suppliers are affected, says chief financial officer Lukas Paravacini.

"We are aligning to a payment condition that always existed, and people should expect in [this time of low payout] to very quickly align.

"We are very conscious of the role we play in the community beyond our farmers. This [slow payment] touches roughly 2000 of the 18000 suppliers; we are not touching 16,000 of them because we understand the impact that will have."

Fonterra has extended by two months the time it takes to pay suppliers, from 30 to 90 days, saying this matches what it does in other countries.

It has also asked some suppliers to cut their charges by up to 20%.

A backlash by some businesses has prompted the Green Party to ask the Government to intervene; the party accuses Fonterra of using its size to bully its suppliers and contractors in rural areas.

Meanwhile, Fonterra will give an update of its debt level on March 23 when it presents half-year results.

Last year the co-op said its gearing ratio rose to 49.7% from 42.3% a year earlier, but was 46.4% when adjusted for a $900 million advance payment to farmers. The co-op formerly aimed for a gearing ratio of 40-45%.

Paravacini says the co-op spent heavily on its New Zealand operations last year. It has since decided not to increase its debt levels.

"We made it clear in our Q1 results that we expect gearing ratio to go to 40-45% by the year's end."

He says Fonterra remains a very sound business.

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