Fonterra accounts all OK - give or take $34m

By PHILIPPA STEVENSON agriculture editor

Fonterra's accounting accuracy is in doubt after a $34 million discrepancy emerged between figures reported a month ago and those in this week's annual report.

Canterbury University senior accountancy lecturer Alan Robb said the discrepancy was significant and he wondered whether Fonterra could be showing other "soft" figures.

"It looks to me like something is not right within the organisation's accounting system."

When the big dairy co-op reported its audited end-of-year result to the Stock Exchange on July 19, it also gave more detail in a media briefing, and for its shareholders on its website.

Chief financial officer Graham Stuart showed in the presentation that Fonterra subsidiary NZ Milk had "good profitable growth" with earnings 27.7 per cent higher than the previous year.

Its earnings before interest and tax were $336.2 million on sales revenue of $5.604 billion.

But in Fonterra's annual report posted to farmers this week NZ Milk's earnings before tax and interest were $34.2 million lower at $302 million - growth of 14.7 per cent - and sales revenue was down slightly at $5.583 billion.

These figures remained on the Fonterra website for 26 days until yesterday when, after Business Herald inquiries, they were corrected.

Stuart told the Business Herald the difference between the July 19 figures and those recorded in the annual report arose after discussions with auditor KPMG on the NZ Milk accounts, the audit of which was completed later than Fonterra's.

The changes were mainly in the cost of restructuring Fonterra's UK operation for the joint venture with Arla Foods, which had been treated as a cost to Fonterra but should have been attributed to NZ Milk.

Other adjustments were made to inventory valuations between Fonterra and NZ Milk.

The changes lowered the subsidiary's result but did not change Fonterra's position, Stuart said.

Robb criticised the company for using incorrect, unaudited figures in the presentation after audited figures had been filed.

It made a mockery of having media briefings and filing to the exchange if the figures were not the same, he said.

"The fact there is a material difference there is of concern.

Stuart said the company had been "a bit quick off the mark" with the July 19 report.

There was a fine line between quick, timely and open disclosure and getting judgments right.

"To some extent we could comfortably have stood behind the [July 19] numbers.

"They are accounting judgments on what's attributable to the business unit and what to the group.

"The fact that they are not affecting the group overall is the key point."

Fonterra Shareholders Council chairman Tony O'Boyle would not comment before the council's full review of Fonterra's performance, due in a report this month.

But Dairy Farmers of NZ chairman Kevin Wooding said he felt Fonterra was "making up the rules as they go and they are not quite sure what they are doing".

He was anxious about the company, and other farmers were concerned at the stream of bad news, including Fonterra's $50 million loss, Powdergate, the way the company sold its share in local marketer Dairy Foods, and the recent milk collection fiasco.

"All that and then they don't even come and pick up your milk."

Fonterra