Former director Colin Armer, who with his wife Dale has 10 million supply shares, says over-valued assets mean farmers sharing-up in the past four years paid too much.
He has made a formal complaint to the Financial Markets Authority over inconsistent valuations and executive performance payments.
Fonterra’s auditors, PwC, were allegedly captured by the company and the fees they earned and the senior management and directors had manipulated or deferred accounting for losses over several years, he alleged
In particular, the Beingmate and China Farms assets had been grossly over-valued for some time and were not delivering earnings.
“Only now has the company decided that they are over-valued and it needs to write them down.
“Why didn’t the auditors require those write-downs in previous years?”
Armer believes Fonterra is no longer on the slippery slope it had been on in the past, with some of the details of its real position hidden, which was the purpose of his complaint to the FMA.
“Had the company faced up to its real situation and made the write-downs earlier it would not have come to this big calamity.”
Former chief executive Theo Spierings went on a capital spending spree but could not deliver the earnings that should have resulted.
The directors did not hold him to account and the capital value of the company along with the share price took a huge hit with ripple effects back to every share-owning farmer.
“As owners, we cannot allow managers to risk our businesses again.”
Armer believes the strategy reset will be a period of consolidation and focus on New Zealand milk.
“We have no other options and the balance sheet will be able to handle that.”
It is too early to review the capital structure because that would be a distraction from the recovery and consolidation now under way.
Armer also called the leadership of the Fonterra Shareholders’ Council inept, saying the council should have been doing what he is now doing – demanding accountability.
There is room in the Fonterra structure for the council but it needs to be reformed.
With respect to the FMA complaint, Fonterra’s chief financial officer Marc Rivers said Fonterra operates in a framework regulated by the FMA and had kept it advised of the write-downs before Armer’s complaint.
“We discussed our methodology and rationale for our impairment decisions with them and will continue to do so through the reporting process.”
Chairman John Monaghan also expanded on the process of making impairments, which were not done lightly and in most cases could not be fully reversed.
Valuation of assets is a regular requirement, includes future earnings potential and is not an exact science.
The recent substantial write-downs were mostly the result of shifting market dynamics, including political and economic instability in Venezuela and Brazil and drought-reduced milk production in Australia.
“In developing our new strategy we’ve also taken a hard look at our businesses and the markets where we operate and assessed how much value they might return in the future.”
Mongahan said the write-down of Fonterra Brands NZ was due to the compounding effect of poor operational performance over 18 months and a slower recovery in margins.
Without Tip Top that team is now refocused on the core business.
Meanwhile, chief executive Miles Hurrell said performance bonuses will not be paid for the 2019 financial year.
There will be no pay increases for all salaried employees earning more than $100,000 a year, which affects nearly 6000 of the 22,000 employees.
A number of dairy farmers commented on social media that hard-working employees should not be penalised and disincentivised when the very highly paid senior managers like Spierings had regularly taken bonuses without producing obvious results.
