Fonterra’s search for new chief to replace Theo Spierings moves a step closer

Earlier this year Fonterra said the announcement would be made “by the end of the year” but did not spell out whether it meant the end of the financial year on July 31 or the end of the calendar year.

“The board are working it through, we’ve got very good people internally, we’ve got a global search as well and that’s going as we expect it to.”

Speaking at this year’s Fieldays, Wilson was also tight lipped over his own future as chairman. By the end of next month he will have been on the board for four terms, and chairman for two.

Speculation over a new chief executive has centred on possibilities such as Air New Zealand head Christopher Luxon or President Donald Trump’s adviser, Kiwi expat Rob Liddel.

No New Zealand companies come near the size of Fonterra; within the dairy giant some of its separate divisions are bigger than many companies.

Wilson said Fonterra was not getting ahead of itself on its recent farmgate forecast for the 2018-19 season. Although it was always a challenge to be accurate 15 months out, it was nevertheless confident about its opening $7 per kilogram of milksolids price.

“We’re not over promising, always we put as much work as possible into forecasting the year ahead. Last year we were at $6.75, dropped down to $6.40 and ended back at $6.75.

“It’s based on our view that demand is strong, we’re unlikely to see significant growth in supply/growth patterns, and based on the New Zealand dollar at 69c, we’re very comfortable [with the price].”

Wilson said the price reflected global market trends, and was not influenced by competition from other New Zealand processors for milk supply.

While competition was welcome, he said he would prefer a level playing field because the dairy market had changed dramatically over the last six years.

The Government has announced a review of the Dairy Industry Restructuring Act which provides regulations for Fonterra and protects the long-term interests of farmers, consumers and the wider economy.

Wilson acknowledged the buoyant milk price had a significant impact on returns in Fonterra’s consumer, speciality ingredients and food service businesses.

“Earnings are down on where we had expected them to be because our margin is down. It’s great for farmers but it’s creating volatility in our shareholder and until holder market. We need to build confidence in our share and unit market and the volatility isn’t helping.”

Gross margins declined to 16 per cent from 18 per cent for the first nine months of the year, compared to the same period last year.

Referring to farmers’ concerns over the introduction of limits over the use of palm kernel expeller (PKE), Wilson said they had had a year to adjust.

“Some will have to make further adjustments to their systems, but Fonterra’s ability to efficiently process dairy fats into cream products is so important. For the first time ever dairy fats are worth more than dairy proteins and to ensure we can manufacture efficiently we need milk of a certain profile.”

A Taranaki farmer recently said although he did not use much PKE, he had been rated a “D” on the fat test, which could potentially cost him $700 a day in penalty payments.

Wilson said the interest-free loans scheme offered to farmers by Fonterra from October 2015 had been an “outstanding success”.

It lent $383 million to 76 per cent of its farmer/shareholders in order to smooth the impact of low global milk prices, which went from a high of $8.40kg/MS in 2013-14 to $3.90 in 2015-16.

“By this September it will be all paid back. Farmers pay it back when the milk price goes above $6, it comes off their milk cheque,” Wilson said.

By: GERARD HUTCHING

Source: STUFF

Link: https://www.stuff.co.nz/business/farming/104688889/fonterras-search-for-new-chief-to-replace-theo-spierings-moves-a-step-closer

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