Saturday, March 30, 2024

FROM THE RIDGE: A cunning plan to pay Spierings

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It was in the wind that Fonterra was going to announce some bad news but the scale of what came out last week was shocking. Dairy farmers have every right to be disappointed and angry with their co-operative.
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Fonterra expects to make a loss for the year just finished of $590 million to $675m. The previous year, the first loss in the company’s history, was $196m.

That year shareholders got just a 10c dividend on their shares and this year just gone they get nothing. So much for value add.

They’ve seen their share value go from $6.60 at the beginning of 2018 to $3.55 now.

This is a massive loss in value – all up, somewhere between $1 billion and $2b.

And that loss in value reflects on shareholders’ and suppliers’ own balance sheets and makes conversations with the bankers even more difficult at a tricky time.

The loss was brought on by the writing down of up to $860m of mostly offshore businesses.

We’ve seen it time and again where New Zealand companies get to a certain size and run out of ideas. They then incentivise the senior executives to do something really clever so the next big step is to invest offshore and it invariably turns out to be a very bad idea.

Our farming co-operatives have not been covering themselves in glory of late.

I was a long-time member of the Ravensdown co-op and when it started talking about heading off to South Australia for an investment that was going to add value, I remonstrated. Of course, they didn’t listen to me, so I changed co-ops and inevitably the investment was exited after disappointing performances putting pressure on the company’s finances.

We saw Farmlands and CRT do a no-brainer merger but then fail to execute it properly and post a decent loss within a few years. They are only now just getting it together.

Of course, Westland made such a hash of running it own business farmers no longer even own it.

PGG Wrightson isn’t a co-operative but has just posted a big slide in its annual earnings. It has had to sell off the family silver, the seed division, to keep chugging along.

It blames lowering spending by farmers but last time I checked sheep and beef farmers are in the best and longest run of good prices in my farming career and dairy payouts have been pretty good. Imagine how good the commission cheque has been with current livestock values.

As an aside, while mentioning PGW, when Agria took a controlling interest in 2011 I had a look at that company and wrote a piece saying it looked dodgy.

I had a call from a lawyer to pull my head in, which I did because what would I know? Also, I’m very easy to intimidate when I might lose the farm.

Turns out Agria was later found guilty in the United States of fraudulent accounting and fined here for breaching the good character test. It then had to cede its controlling interest in PGW but still picked up $104m on the seeds division sale, which is what attracted it to the company in the first place.

If all these farming support businesses are having problems through the longest commodity boom in memory how are they going to fare when things go off the boil?

Back to Fonterra.

To rub salt into the wounds of long-suffering shareholders former chief executive Theo Spierings has his hand out for the final chunk of his so-called bonus payment.

Not content with the $40m in salary and bonuses over his seven-year reign he’s back for one more cheque.

He’s getting paid out for his bonus over his, at the time, much-lauded V3 strategy – driving more volume into higher value at velocity.

It sounds like a strategy dreamed up by a communications company and given the way it worked out it probably was.

We won’t know how much until the annual report is released in September but I’m guessing there won’t be much change out of a million.

It’s obscene and if the man has any integrity at all he will decline it.

But I bet he doesn’t.

Here’s my suggestion.

The amount might be set in stone in his contract but the method of payment probably isn’t.

I’d like to see the board tell Spierings the sum has been split into 10 parts and lodged with 10 different shareholders.

If he wants his money he will need to visit the farmers to collect his cheques.

I’m sure they will have a few things to tell him before handing over the dosh.

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