Fonterra considers possible operations split

By Neil Merrett

- Last updated on GMT

Related tags: Dairy cooperative fonterra, Value added

The shareholders' council of dairy cooperative Fonterra yesterday
called for a clearer distinction in the financial reporting
on the performances of the company's commodities and
processing operations.

Council chairman Blue Read said that the current policy of combining profits from its commodity operations with processed value added goods was not giving a true reflection of the group's performance. "There needs to be a distinction between profit generated from commodity products and profit generated from specialty and consumer products,"​ he stated. The call comes as the one of the world's largest dairy groups prepares for a structural review of its operations, leading to speculation that it could also move to float the two divisions separately on the New Zealand stock exchange. The latest annual financial report suggested that the inclusion of commodity sales had disproportionately inflated the value added component of supplier payouts for the current season. Read said that amending the system would therefore be crucial in ensuring the company could meet its growth targets in the future. "The integrity of value add returns is critical,"​ he stated. "Value add returns are an important performance measure in their own right and they also impact on other key performance measures that Fonterra uses to set its direction and measure progress and success." ​ While the company refused to comment on its futures plans, Read said that the upcoming capital structural review would give the group's shareholders, which are also its suppliers, an important role in deciding the company's future. "In considering such significant change, support for the board's vision for Fonterra is essential and it must be demonstrated that the strategy is achievable,"​ he stated. The Fonterra Shareholders' Council monitors Fonterra's performance and operations and represents shareholders' interests in the co-operative Fonterra is one of the top six dairy companies in the world by turnover, and the world's leading exporter of dairy products, controlling about a third of international dairy trade. It represents the interests of 11,000 New Zealand dairy farmers, who also act as shareholders in the group.

Related topics: Markets, Fonterra

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