Thursday, 18 August 2022
Meet the JournalistsPremiumAucklandWellingtonCanterbury/South Island
CrimePoliticsHealthEducationEnvironment and ClimateNZ Herald FocusData journalismKāhu, Māori ContentPropertyWeather
Small BusinessOpinionPersonal FinanceEconomyBusiness TravelCapital Markets
Politics
Premium SportRugbyCommonwealth GamesCricketRacingNetballBoxingLeagueFootballSuper RugbyAthleticsBasketballMotorsportTennisCyclingGolfAmerican SportsHockeyUFC
NZH Local FocusThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay of Plenty TimesHawke's Bay TodayRotorua Daily PostWhanganui ChronicleStratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu Courier
Covid-19
Te Rito
Te Rito
OneRoof PropertyCommercial Property
Open JusticeVideoPodcastsTechnologyWorldOpinion
SpyTVMoviesBooksMusicCultureSideswipeCompetitions
Fashion & BeautyFood & DrinkRoyalsRelationshipsWellbeingPets & AnimalsVivaCanvasEat WellCompetitionsRestaurants & Menus
New Zealand TravelAustralia TravelInternational Travel
Our Green FutureRuralOneRoof Property
Career AdviceCorporate News
Driven MotoringPhotos
SudokuCodecrackerCrosswordsWordsearchDaily quizzes
Classifieds
KaitaiaWhangareiDargavilleAucklandThamesTaurangaHamiltonWhakataneRotoruaTokoroaTe KuitiTaumarunuiTaupoGisborneNew PlymouthNapierHastingsDannevirkeWhanganuiPalmerston NorthLevinParaparaumuMastertonWellingtonMotuekaNelsonBlenheimWestportReeftonKaikouraGreymouthHokitikaChristchurchAshburtonTimaruWanakaOamaruQueenstownDunedinGoreInvercargill
NZ HeraldThe Northern AdvocateThe Northland AgeThe AucklanderWaikato HeraldBay Of Plenty TimesRotorua Daily PostHawke's Bay TodayWhanganui ChronicleThe Stratford PressManawatu GuardianKapiti NewsHorowhenua ChronicleTe Awamutu CourierVivaEat WellOneRoofDriven MotoringThe CountryPhoto SalesNZ Herald InsightsWatchMeGrabOneiHeart RadioRestaurant Hub

Advertisement

Advertise with NZME.
Business

Beingmate seen weighing on Fonterra's first half result

18 Mar, 2018 04:00 PM4 minutes to read
Fonterra is set to report its first half result this week. Picture/NZ Herald.

Fonterra is set to report its first half result this week. Picture/NZ Herald.

Jamie Gray
By
Jamie Gray

Business Reporter

VIEW PROFILE

Fonterra's problematic 18.8 per cent holding in China's Beingmate Baby & Child Food, a big legal settlement with France's Danone, and generally higher milk prices are expected to weigh on the co-operative's first half result, due on Wednesday.

Beingmate, which develops and sells children's food and infant milk formula in China, in January downgraded its earnings for 2017 to a loss of NZ$171–NZ$214m.

The Hangzhou-based company's share price has slumped to 5.37 yuan from Fonterra's purchase price of 18 yuan a share, for a total of $756 million, in 2015.

Since January, the price of Fonterra's units - which give investors access to the co-operative's dividends - has slumped from $6.66 to $5.89, largely reflecting the uncertainty around Beingmate.

Advertisement

Advertise with NZME.

Analysts expect to see a substantial write-down of the Beingmate investment to reflect the share price slump at this week's result.

Adding to Fonterra's woes was last December's announcement that an arbitration tribunal had ruled it must pay $183m to Danone in the wake of 2013's whey protein product recall.

At the time, Fonterra revised its earnings per share range for the 2017/18 financial year to 35 to 45 cents from 45c to 55c to reflect the settlement.

The good news for farmers is that a significant change in the current 2017/18 milk price forecast of $6.40 per kg of milksolids looks unlikely, thanks to a recovery in whole milk powder prices since December.

However, with milk prices being Fonterra's biggest input cost, elevated prices will make their presence felt on the co-operative's earnings.

Devon Funds Management's managing director Slade Robertson said that given Beingmate's soft share price, the potential write down for Fonterra could be as much as $380m.

Related articles

Business

Fonterra close to deal with debt-stricken business in Argentina

14 Mar 08:23 PM

"This together with $183m of Danone damages .... means that Fonterra could report charges of up to $563m in this result," Robertson said.

"Combined with tough stream returns, a European market seemingly awash with skim milk powder, and weak collection volumes, leaves little room for optimism," Robertson said.

Advertisement

Advertise with NZME.

Harbour Asset Management senior research analyst Oyvinn Rimer said the result was likely to contain more "negatives than positives".

In the big picture, Rimer said Fonterra faced the challenge of achieving a reasonable rate of return from its considerable assets.

"There are challenges with this business in terms of its fixed asset base, which they need to earn a good return on," he said.

"That's always been hard and I don't see that changing in the short term," he said.

Aside from its issues with Beingmate, Rimer said Fonterra had made incremental improvements in its business, and there had been a substantial turnaround in its Australian operation.

Fonterra has a lot riding on China, the country last year accounting for $3.4 billion of its sales revenue.

Advertisement

Advertise with NZME.

Forsyth Barr analyst James Bascand expects Beingmate and the Danone settlement to weighing heavily on the outcome.

He expected growth on Fonterra's value -added volume to be offset by the higher cost of milk it pays its farmers.

"The combination of damages payments due to Danone and a likely Beingmate write-down will weigh on the actual profitability and balance sheet," he said.

"In summary, we expect a soft result to justify recent share price weakness," Bascand said in a research note.

"Fonterra has historically ignored market valuations when determining the value of its holdings in Beingmate," he said.

"The combination of a disconnect between directors and management as well as sustained operating losses suggests Fonterra needs to write down its holdings to a more realistic level - potentially by $370m," he said.

Advertisement

Advertise with NZME.

Bascand estimates Fonterra's the first half's underyling earnings before interest and tax will come to $619m, broadly flat on the previous comparable period.

This excludes $183m in damages to Danone, and any impact from a write down of Beingmate.

Meanwhile, Fonterra's high court injunction is in force to a weekly rural publication publishing or using any "confidential" information it received from former director Leonie Guiney.

The injunction also prevents other unnamed media, including the New Zealand Herald, from disseminating any information it may have received from Guiney.

Advertisement

Advertise with NZME.

Latest from Business

Premium
BusinessUpdated

Student makes $175m trading meme stock favourite Bed Bath & Beyond

17 Aug 10:57 PM
Premium
BusinessUpdated

Simon Bridges praises Ardern but warns of dire NZ skills shortage

17 Aug 10:40 PM
Business

International travel rebound: Auckland Airport trims losses

17 Aug 09:16 PM
Business

Skellerup notches up another record profit, lifts dividend

17 Aug 09:03 PM
Business

Kiwibank profit 'best result in 20 years'

17 Aug 09:02 PM

Most Popular

Wet, warm and windy: Auckland and Northland battered by heavy rain overnight
New Zealand

Wet, warm and windy: Auckland and Northland battered by heavy rain overnight

17 Aug 09:25 PM
Nelson to New York: TV's David Lomas and an emotional reunion of long-lost father and son
Entertainment

Nelson to New York: TV's David Lomas and an emotional reunion of long-lost father and son

17 Aug 08:59 PM
Live: 'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line
New Zealand

Live: 'Frightening, out of control' - Nelson residents flee as river bursts; Auckland also in firing line

17 Aug 08:33 PM

Advertisement

Advertise with NZME.
About NZMEHelp & SupportContact UsSubscribe to NZ HeraldHouse Rules
Manage Your Print SubscriptionNZ Herald E-EditionAdvertise with NZMEBook Your AdPrivacy Policy
Terms of UseCompetition Terms & ConditionsSubscriptions Terms & Conditions
© Copyright 2022 NZME Publishing Limited
TOP