With the interim results that spin started with a letter to shareholders from Fonterra chairman John Wilson.
Wilson starts off talking about returns to farmers, which is fine except NZX Agri and Fonterra have some quite different figures.
Going down the page you can read “Fonterra’s Greater China business continues to perform well overall but the co-operative has reassessed the value of its Beingmate investment so that it reflects a fair value at this point in time”.
He then goes on to tell shareholders Beingmate’s “continued under-performance is unacceptable”.
He’d be right there but late last year both Wilson and Spierings were telling everyone that Beingmate was just fine despite many reports to the contrary.
Further, it is no use being disappointed in Beingmate.
Fonterra did the due diligence and invested the money.
It was going to be a great investment – it wasn’t and isn’t and should never have happened.
That it did is an indictment on the Fonterra board – end of story.
The reality for dairy farmers is that directors didn’t take adequate steps to protect the assets of the co-operative.
I would further suggest that the board was making decisions beyond its capability.
That it was done with borrowed money is a further blow for shareholders.
My additional issue is that I strongly disagree with the statement Fonterra’s Greater Chinese business is continuing perform well.
As I’ve written, China Farms isn’t and neither did the game changer that was Beingmate, so where’s the light in the darkness?
I certainly can’t see it and Fonterra shareholders have spent a massive $1.5 billion in China for nothing other than substantial losses.
As I’ve previously written that is more than $100,000 loss to each shareholder.
Yes, they are increasing sales in China in ingredients, consumer and food service but those businesses don’t require a lot of capital, which begs the question, why waste $1.5b in dud investments?
Fonterra is good with its high quality ingredients and food service business.
That is where it should be investing and not in pie-in-the-sky Chinese companies that no-one else would have a bar of.
It is actually worse than that as you have the ingredients business subsidising consumer brands in China, which I find bizarre.
Fonterra does have some solid strengths but what I find surprising is there appears to be an absolute lack of recognition of those strengths and with it the subsequent development of a strong strategic direction.
There also seems a further inability from Fonterra to prioritise its use of capital to those areas of strength.
Farmers I spoke to certainly don’t know or understand any strategic direction Fonterra is meant to be taking.
Comments I received included:
“The due diligence of Fonterra wasn’t robust.”
‘The sizzle, (of Beingmate) far exceeded the sausage.”
‘What we were promised would happen with Beingmate didn’t.”
‘For the good of the co-op the old guard needs to go – we need a fresh start.”
And so it went.
My view is that neither the Fonterra board nor senior management had the knowledge, wit and expertise to profitably invest in China.
At the end of the day the responsibility for the Chinese investment and Beingmate sits squarely with the board of Fonterra – no-one else.
Then we had the Spierings resignation the Fonterra Shareholders Council chairman described as a transition, not a resignation.
Amazingly, we then had Wilson saying the resignation was not a reaction to Fonterra’s performance.
That begs the question who is taking responsibility for Fonterra’s dismal performance. If the chief executive resigning is a mere transition then I want a resignation, someone taking responsibility for the shambles.
The rubber stamp of the Fonterra board, the limp Shareholders Council obviously won’t call anyone to account.
Amazingly. the chairman of the Fonterra Shareholders Fund won’t call anyone to account either and is actually supporting the sitting chairman.
Let’s look at the facts of that fund trading at $5.83 at the time of writing. It was launched on 13-11-2012 at $6.64. According to the Reserve Bank inflation calculator it should be $7.01 just to have kept up with inflation.
Like Beingmate it is a dog with the dividend being steadily reduced.
Correspondingly in 2012 A2 Milk was launched at $2. That is now trading at $13.68. Synlait was launched in 2013 at $2.60. It is trading at $8.51. Those two companies have generated considerable wealth for their investors while Fonterra has cost its shareholders.
My information is that suppliers are voting with their feet. A month ago Open Country Dairy had spare capacity – now it doesn’t.
So my simple view is that if Fonterra shareholders want their co-operative to survive and prosper, if they want accountability, transparency and profitability then they need to change the board and now.
