Fonterra's shareholder watchdog says it's not expecting any more bad news from the big dairy company before next month's annual results.
This week's shock news that New Zealand's biggest company expects to report a loss of $590-$675 million this year and asset writedowns totalling $820-$860m has people wondering what other grim finds have yet to surface from its internal business review. The expected loss represents a 37-42c loss per share.
But Fonterra Shareholders' Council chairman Duncan Coull says he's not expecting "a whole lot more bad news next month in terms of last year's financial performance".
"The headlines dealing with this week are the headlines that will be presented in a month's time," he told the Herald.
The council, in its constitutional role as a monitor of Fonterra's performance on behalf of its farmer-owners, could be expected to be privy to more information about the company's books than the public.
Fonterra this week announced it will not pay a dividend for the 2019 financial year, and suggested it will not meet its debt reduction target of $800m or its hoped for gearing ratio improvement. But details on those missed targets are being withheld until audited annual results are out next month.
"Our cashflow remains strong, our debt has reduced and the underlying performance of the business for FY19 is in line with our latest earnings guidance of 10-15 cents per share," a Fonterra spokesperson said in response to Herald follow-up inquiries.
She refused to say if there had been redundancies as a result of the business review, or if Fonterra's staff roll of 22,358 had reduced since the last available count in 2018.
Meanwhile NZ Inc. is casting around for those to blame for what respected market commentator Brian Gaynor suspects is this country's biggest commercial disaster.
Departed Dutch chief executive Theo Spierings is a popular target. He was paid $38m in a seven year stint that ended a year ago, and the Herald's revelation this week that he qualified last year for yet another payment in spite of Fonterra's huge financial losses has sharpened the knives. (Fonterra has since disclosed that incentive payment was $4.6m and was paid out when he left in August. Fonterra was to disclose the payment in the upcoming annual report.)
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A property register search shows Spierings never bought a home in New Zealand, while new chairman John Monaghan, a long-time Fonterra director, may be regretting his declaration in the annual report late last year that "Theo leaves us as a friend of Fonterra".
Former chairman the late John Wilson and his predecessor Sir Henry van der Heyden are also strong suspects. Both were considered command-and-control executive chairmen and between them governed Fonterra for most of its 18 year existence, presiding over its overseas strategy and some of its most disastrous investments.
Van der Heyden when approached by the Herald responded in a text: "It's coming up seven year since I stood down as chairman of Fonterra. I'm out of touch, I've not commented on the dairy industry since I left. I plan to keep it that way."
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With more than a few shareholders now angrily questioning the accuracy of the last two or three annual financial reports, the spotlight also falls on PwC, which has audited Fonterra's books since its inception.
PwC responded in a statement that it "will not comment on client matters".
The shareholders' council, criticised in the past by farmers for being ineffective and more of a Fonterra board lapdog than a watchdog, is also facing the music.
Housed in Fonterra's Auckland headquarters, the council is funded by farmers. Its budget for 2018 was $3.2m and in the 2019 financial year, $3.6m.
Asked if his council had been asleep at the wheel, chairman Coull said it was a question often asked.
"And rightly so. We are accountable to our shareholders. The frustration from my perspective is a good number of farmers don't understand the functions of the council and how we operate in accordance with prescribed functions at the formation of Fonterra over the separation of governance and representation."
Translation: the council represents shareholders, it doesn't run the company.
"Could we have done a better job? We did a lot of good work last year around the performance of Fonterra since its inception. It would have been good for us to start that work a little earlier than we have," says Coull.
"That said, we don't make decisions for the company so whether the board or management would have acted on any aspects of that report, you'd have to ask them.
"That's the frustration farmers have (with the council). They expect us to have influence and make decisions on behalf of them but it's not our role."
Coull doesn't like the term "watchdog". He prefers to think of the council as a cornerstone shareholder.
That doesn't sit well with one former councillor.
"It's semantics and if they're mucking around the edges worrying about things like that it's concerning. Their role is to monitor and participate in the company's strategy. They've raised concerns about China and Australia (businesses) but in relatively muted ways," he says.
"The council has a role. But I think they need to define representation or monitoring - and I'd be hoping they do the monitoring more than representation. The board and management have choices as to whether they take any notice of representation.
"But monitoring and commenting, farmers are reliant on that."
Some in the industry say Fonterra's 10,000 farmer-owners can also shoulder some blame.
While there's no doubt their cooperative has failed them through poor strategy and poor governance, they have allowed the failings to go on, reacting only occasionally by voting some farmer-director off the board.
This week's financial bombshell and the reasons behind it should also silence once and for all the claim by its farmers and company leaders that the DIRA obligation for Fonterra to supply milk at a regulated price to New Zealand competitors hurts the balance sheet. (Fonterra has never provided evidence for the claim but it's been handy to trot out when the top table needs farmers distracted.)
Meanwhile, destruction of their wealth continues. The council says more than $1.5 billion was written off farmer-shareholder balance sheets in 2018, the effect of a 27 per cent fall in their share price and a constrained dividend.
The council is now tallying the toll for the 2019 financial year. At time of writing Fonterra's share price was $3.50. The shares listed in 2012 at $6.08.
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While an optimist might say the severe share price decline is an opportunity for young farmers to share up to supply milk and get ahead in the industry, others would note it has not only destroyed wealth but limited farmer options for getting out of Fonterra.
Fonterra's (much smaller) rivals in New Zealand have grown on the milk of defecting Fonterra farmer-shareholders who sold their shares, pocketed a big wad of cash and switched to processors which don't require shares to supply. Fonterra's limp share price makes that a much less attractive option now, however angry and disillusioned a farmer might be with the company.
Brian Gaynor, seasoned market commentator and a director of Milford Asset Management, isn't buying into the blame game.
He notes the dismal success record of New Zealand companies which try to go big overseas, with the exception of Fisher&Paykel Healthcare and a2 Milk.
And he says he's seen the fallout many times when senior management and directors haven't been given critical information "from the bowels of a company".
"When you get a company as complex as Fonterra with operations all over the world you have to accept the fact you are very dependent on good communications and good information systems.
"Many times in New Zealand, companies have said they were now in a position to report much better profits and reduce debt, and you learn a month or two later that is not what is going to happen at all.
"A lot of it is probably said in good faith but when someone starts digging down and asking serious questions you don't get the kind of answers that justified the statements made to the market.
"So I'm not a believer that they (Fonterra) had all this information but didn't disclose it properly. They've discovered things they didn't know about."
Gaynor says also there's "a lot of self-interest" in management payments and incentives and it may not be to a management's advantage to find negative news.
He's not letting Fonterra off the hook completely though, saying board "naivety" has been its downfall.
"This is probably our biggest disaster. They've built an extraordinarily complex company in areas where the culture, language and legal system is completely different and they have had a board and senior management team with no experience (in these areas).
"That's the risk they've taken with the business - investing in areas where they have no expertise. This isn't about the last few months, these were decisions made right at the beginning (of Fonterra)."
While Fonterra's board has hosted some very successful people in their own right, "they were the wrong people for the type of strategy the company adopted", Gaynor says.
Coull of the shareholders' council disputes this.
"This business has been investing in countries it knows very little about for 70 to 80 years (via the former Dairy Board).
"The dairy industry has a long history of investing capital offshore given we have to export 95 per cent of what we produce every day."