RURAL NEWS // DECEMBER 3, 2013
NEWS: FONTERRA AGM 7
TAF pays off – Wilson SUD ES H K I SSU N sudeshk@ruralnews.co.nz
FONTERRA WOULD have faced paying $130 million in share redemptions to drought-stricken suppliers last season without TAF, says chairman John Wilson Speaking at the co-op’s annual meeting in Edendale last week Wilson praised TAF, saying it is working well for the co-op. He says the drought last summer, the worst in 70 years, hit the co-op and its farmers hard, “but it would have been a lot tougher without our current capital structure”. “The co-op would have been facing the prospect of paying out around $130 million to redeem shares. Instead, our permanent stable capital structure meant we could support farmers with a lift in the advance rate.” However, the higher
advance rate to farmers forced the co-op to borrow more money. Fonterra finished 2012-13 with a debt to debt plus equity ratio of 39.6%. Wilson says this reflected the strong balance sheet. But he adds the co-op would have achieved lower debt ratio (36%) “if [it] had not made the right decision to support farmers through the drought’s immediate impact by raising the advance rate”. The strong balance sheet enabled spending
$925m on acquisitions, joint ventures and completing a new processing site at Darfield, Canterbury. Wilson also touched on the board’s dividend policy – maintaining a consistent dividend stream in the normal course of events. This is expected to be 65-75% of adjusted net profit after tax over time – important considering the volatility in global dairy markets. “Fonterra has the balance sheet and cashflow
Volume and value strategy TAF HAS also enabled Fonterra to execute transactions to support its volume and value strategy, says John Wilson. The Fonterra shareholders market brought greater flexibility, farmers being able to buy and sell shares throughout the year, he says. He notes that $24 million, equivalent to at least a third of all trading in November, was done in the farmers’ market.
John Wilson
strength to ‘look through’ the volatility in the short term, and ensure we are able to make judgements to protect the business in the longer term. At the same time, the board will always have the ultimate discretion as to the dividend when it sets it at the half and full year.” He alluded to the risk of looking at one point in time. Last year NZ Milk Products earnings were $422m for the first half and just $72m in the second half. This difference is over that one date – the half year at the end of February, he says.
100% commitment to fencing waterways FONTERRA FARMERS are committed to fencing 100% of waterways on farms, says chairman John Wilson. Fencing audit results (due December 1) will show “close to 90%” of waterways on Fonterra farms have been fenced. Wilson says farmers have fenced 20,400km of waterways – a remarkable effort. Work is underway to fence the remaining 4000km. The Sustainable Dairying: Water Accord (SDWA) released in February said dairy companies would ensure 90% of waterways were excluded by May 31, 2014. And the companies will work towards excluding cattle from 100% of waterways on farms by May 31, 2017. Wilson says Fonterra remains committed to meeting its targets under the accord and refers to the “close to 90%” fenced figure as “a remarkable effort by our farmers”. “And there is a massive focus to reach the 100% target,” he told Rural News at the co-op’s annual meeting in Edendale last week. Wilson says some farmers yet to achieve the 100% target have good reasons for not having done so. “Some of these farms are flood-prone and have difficult terrain that is hard to access, but we
all remain committed to having 100% of waterways with stock exclusion in place.” Fonterra Shareholders Council chairman Ian Brown says farmers need to continue to evolve and adapt to challenges on sustainability. Brown told the meeting most Fonterra farmers have been pro-active on environmental sustainability efforts. “This is evidenced by the substantial personal investment and progress made in effluent management, fencing, riparian planting and other environmentally focussed upgrades to our businesses. “We should also be aware there are a minority among us who still have a way to go and it is in all our interests that they continue to work to reach the level required. “Change will take time. If we are to retain our freedom to farm, grow our milk solids and maintain our competitive advantage it is necessary to continually work toward actions we can take onfarm to improve water quality.” Fonterra sustainability experts visit all 10,600 co-op farms where environmental practice is a key topic of discussion. – Sudesh Kissun
26/11/13 3:53 PM