Fonterra CEO Theo Spierings to step down after co-op takes $405m Beingmate impairment

LASTEST: Spierings to leave as questions remain over Fonterra's investment strategy

Fonterra chief executive Theo Spierings will step down later this year after his resignation was announced at a press conference on the company's half-year results.

Speaking at the end of a presentation on its first-half results today, chairman John Wilson said the board had started a global search for a new chief executive late last year and the board had decided to bring forward the announcement of Mr Spierings' departure after some seven years in the role.

He says Mr Spierings will remain in an advisory role to the farmer-owned cooperative.

"It's normal succession planning. It's maybe a bit earlier and a bit awkward for myself as well," Mr Spierings said. The announcement comes after growing speculation that he or Mr Wilson would face pressure to resign because of the poor performance of the co-operative's 18.8% investment in Chinese infant milk formula company Beingmate.

Mr Spierings said five to seven years was a normal period of tenure. Of the future, he said: "I would like to focus on a better world than a bigger job."

Mr Wilson said the decision was not a reaction to the cooperative's performance, saying "Theo has delivered extraordinary value."

Federated Farmers dairy chairman Chris Lewis says running the giant dairy co-operative is a tough job where "you work 24/7, it's a draining role."  He says it's a chance for the board to find someone new who can guide Fonterra into the future and deal with some of the tough issues while building on some of the successes it has had.

Mr Spierings has been in the role for nearly seven years, having replaced Andrew Ferrier in the top role in September 2011. The 53-year-old Dutchman had previously led Dutch dairy co-operative Royal Friesland Foods in its 2008 merger with Campina before setting up a corporate advisory firm.

Cutting the dividend
His resignation comes in the wake of Fonterra slashing its dividend forecast for shareholders after taking a $405 million impairment on its troubled Beingmate investment and accounting for its $183 million settlement with Danone.

The co-operative released its first-half results this morning showing a $348 million loss reflecting a reduced carrying value of its shareholding in Beingmate Baby & Child. Its profit before extraordinary items was $248 million.

While Fonterra was able to lift its forecast farmgate milk price for the 2017/18 season to $6.55 per kg of milk solids, it has revised its forecast dividend range to 25-35 cents a share, down from an earnings per share range of 35-45c in December following the Danone outcome and 45-55c before that.

It will pay an interim dividend of 10c a share and the board will decide how the Beingmate impairment and Danone payment will be treated for the final dividend after the end of the full financial year.

“Clearly the outcome of re-assessing the value of our investment in Beingmate downward is unacceptable to our shareholders and unitholders,” Mr Spierings said in a statement ahead of the media conference.

“The recovery of the value of this investment is the No 1 immediate priority for me and the senior management team,” he says.

“To be blunt, the investment in Beingmate has not gone the way we expected and there are things we would do differently, knowing what we know now. We are very focused on doing all we can to get things where they need to be."

In 2014 Fonterra paid $NZ756 million for an 18.8% stake in Beingmate. At its current share price that stake has a market value of less than $NZ250 million.

Fonterra has reduced the carrying value of this investment to $244 million.

Read more about Beingmate’s troubles here and here.

“As an 18.8% shareholder we do not have direct control over the company but we are influencing its direction and continue to call for an urgent business transformation by working co-operatively with Beingmate’s founder and majority shareholder. We see there are a number of opportunities to reverse the current performance, unlock the distribution network and meet customers’ preferences for e-commerce,” Mr Spierings said.

Chairman John Wilson said continued strong global demand for dairy and stable global supply helped support prices, particularly for the whole milk powder category.

“While the global supply and demand picture remains positive and we expect prices to stay around current levels, we will be watching for any impact on market sentiment as spring production volumes build in Europe.”

Fonterra posted total revenue of $9.8 billion for the six months ended January 1, up 6% on the same period a year ago.

Normalised earnings before interest and tax (before impairments) was $458 million, down 25% on the 2017 half year. The normalised net profit was $248 million, down 36%.

Mr Spierings said the operating result was generally as expected.

 “We knew going into this year we would have to carefully manage low starting inventory levels. This was followed by reduced New Zealand milk collections due to difficult weather conditions, further impacting our volumes available for sale.

“On top of this, we also had to navigate higher input costs which squeezed our margins.

KEY POINTS: 

•        Forecast Farmgate Milk Price $6.55 per kgMS

•        Interim dividend of 10 cents a share – to be paid in April

•        Full year forecast dividend range 25-35 cents per share

•        Total forecast cash payout $6.80-6.90

•        Revenue $9.8 billion, up 6% from the 2017 interim results

•        Normalised ebit $458 million, down 25% from the 2017 interim results

•        Beingmate investment impairment $405 million

•        Normalised Net profit after tax (NPAT) $248 million, down 36% from the 2017 interim results

•        NPAT $348 million loss, down 183% from the 2017 interim results

•        Normalised interim earnings per share 15 cents

•        Ingredients normalised ebit $558 million, up 9% from the 2017 interim results

•        Consumer and Foodservice normalised ebit $193 million, down 38% from the 2017 interim results

(Additional reporting BusinessDesk)