Powdergate links point back to Kiwi

By PHILIPPA STEVENSON agricultural editor

A web of companies spanning the Tasman directly entangles Kiwi Co-operative Dairies in the multimillion-dollar "Powdergate" scandal.

The entwined and long-term nature of the firms - several dating back to 1997 - raises possibilities that finds of illegally exported, high-value milk protein concentrates were neither one-off incidents nor unknown to all Kiwi leaders.

And although Kiwi chairman Greg Gent continues to question whether his company knowingly allowed product to be exported without a permit, he told shareholders this week that a staff member had been sacked over the matter.

The scandal has dairy farmers worried about the standard of management and governance transferring into their new, $12 billion mega co-op, Fonterra, which officially came into being yesterday after being approved by the boards of Kiwi, New Zealand Dairy Group and Fonterra.

Mr Gent, Fonterra deputy chairman, said that Kiwi sold nearly 3000 tonnes of product last year and more than 6000 tonnes this year to New Zealand-registered company South Pacific Distributors, which then exported it to Australia without a Dairy Board licence.

Mr Gent said Kiwi, which was permitted to sell on the local market, had not directly exported the product in question and it was "yet to be established whether Kiwi [knowingly or not] broke the law in these transactions".

However, inquiries by the Business Herald have revealed a web of companies and directorships, all of which have links with Kiwi.

Kiwi sold to South Pacific Distributors, or SPD, an exporting company with a registered office at a Tauranga accounting firm but apparently without premises. It is wholly owned by Australian resident Terence David Walter, a director of Kiwi's 75 per cent owned Australian subsidiary, Cottee Dairy Products.

SPD's annual report last year states that its only customer is another company wholly owned by Mr Walter, J V Imports, formerly known as Cottee Hydraulics, which shares the same New South Wales address as Cottee Dairy Products.

SPD's report showed the company had sales of $7.6 million last year, up from $4.6 million in 1999. In both years, the company made losses - of more than $290,000 in 1999 and $64,000 last year - after expenses including management fees of $228,802 in 1999 and $151,565 last year.

SPD's records also link it to another Tauranga export/import company, Timika NZ, which has premises in a Mt Maunganui industrial area. Timika has direct associations with Cottee and Kiwi.

Timika's directors include Mt Maunganui man Geoffrey William Winchester and two Australia-based directors, Howard James Winchester - who the Business Herald understands is Geoffrey's brother and a former director of Cottee - and Paula Jane Cottee. Howard Winchester and Paula Cottee give the same NSW address on company documents.

Geoffrey Winchester was in Australia yesterday and could not be contacted, nor could Mr Walter.

But company records also show that William Geoffrey Winchester, whose Mt Maunganui residential address on company records is given as one premises away from Geoffrey William Winchester, wholly owns two companies, Xenex Resources and York Concepts.

Between them the two companies hold 20,400 shares in Kiwi subsidiary Promak Technology, the dairy company's vehicle that owns Cottee Dairy Products.

The other shareholder in Promak is Kiwi's Food Solutions Group, whose executives Paul Marra, Malcolm McCowan and Bernie Radford are also Cottee directors.

Mr Gent has confirmed that Cottee bought the illegally exported product and he told shareholders Cottee had also bought product exported without a licence that originated from Dairy Group.

Yesterday, Dairy Group chairman Henry Van Der Heyden said the company had done no investigation.

He and Mr Gent said Fonterra would look into who might be responsible for any wrongdoing.

The Business Herald understands that milk protein from this year's shipment, worth between $10,000 and $20,000 a tonne on the world market, was sold in Italy, and also Mexico, where it was discovered by Kiwi and Fonterra director Marise James during a market familiarisation tour.

Mr Gent said last week that the gross value of the 5,000 tonnes in question - comprising about 20 milk products - was around $39 million and the profit, or margin between what the company earned against returns from legal Dairy Board sale, would be modest. The possible gain has been a key issue for farmers worried that Kiwi used ill-gotten gains to bolster its payout and bottom line during due diligence with merger partner Dairy Group in the formation of Fonterra.

Mr Gent told Kiwi shareholders on Monday that the profit equalled a little over one cent in payout. Based on Kiwi's milksolids production last year, that would equal about $400,000.

Kiwi's turnover last year was $2.5 billion and the figure "therefore was not material in terms of the merger valuation undertaken between Kiwi and New Zealand Dairy Group".