Massive changes across the Tasman at Fonterra, New Zealand’s largest company, which revealed a massive write down on a controversial Chinese investment, a net $348 million loss for the six months to January 31, and the looming departure of CEO, Theo Spierings.
On top of this interim dividend was halved to 10 NZ cents a share, taking it back to 2016 levels.
The only good news in the report was a higher farmgate price for their milk of 15 NZ cents a litre that could boost the average farmer shareholder’s income by more than $NZ23,000.
Total forecast cash payout to farmer/shareholders will be $NZ6.80 – $NZ6.90 a kilo of milksolids with the farrngate price rising to $NZ6.55 but with a revised earnings per share forecast of 25 to 35 NZ cents. That compares to $NZ6.16 a kilo for milk and a total return (including earnings) of $NZ6.52 a kilo.
Earnings before interest and tax of $NZ458 million were down 25% from the 2017 interim results
Of Fonterra’s businesses, its Ingredients division saw a 9% rise in earnings before tax to $558 million, the consumer and foodservice operations saw a 38% plunge in pre tax earnings to just $NZ193 million.
The result was on 6% rise in interim revenue of $NZ9.8 billion, despite the drought.
But the big news was the writing down its investment in Chinese company Beingmate by $NZ405 million – nearly three years after Fonterra spent $NZ750 million buying an 18.8% stake in that company
Chairman John Wilson described the performance of Beingmate as "unacceptable". In 2015 Fonterra took an 18.8 per cent stake in the company, costing $750m at exchange rates at that time.
Since 2015 Beingmate’s share price has plummeted, amid a crisis of management and difficulties over new infant formula regulations and lost sales.
“While we appreciate the substantial opportunity and privilege of our business in China, our shareholders and unitholders will be rightfully disappointed with this outcome.
"Beingmate’s continued under-performance is unacceptable. The turnaround of the investment is a key priority for our senior management team,” Wilson said in a statement to the ASX and NZX yesterday.
"The opportunity in the Chinese infant formula market remains, as does the potential for our Beingmate partnership – but an immediate business transformation is needed for Beingmate to benefit from the ongoing changes in the market."
He said Fonterra’s Greater China business continued to perform well overall but the Beingmate investment had been re-assessed so that it reflected a fair value.
Wilson said the board had now assessed the carrying value of Beingmate at $NZ244 million.
Besides the impairment charge and lower dividend, the other surprise was the news that Fonterra chief executive Theo Spierings will quit at a date yet to be named.
Chairman John Wilson said Fonterra had begun a search for a successor in November last year, and that Spierings would stand down "later this year". It was now shortlisting candidates.
The board was taking the decision to bring forward the announcement to avoid speculation. Normally it would have done so in April.
He said Mr Spierings had made an “extraordinary” contribution in his almost-seven year tenure in the job and Mr Spierings said he would look forward to focusing on a “better world but not a bigger job”.
“It is not yet clear exactly when any appointment for Theo’s replacement will be made, but it is absolutely clear that Theo will continue in the meantime to drive the Co-operative’s strategy and business, with special emphasis on China,” Wilson said yesterday.
Fonterra securities fell 0.3% to $A5.51 on the ASX.
