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Fonterra Hits Back At Accounting Critic

Fonterra Co-operative Group has rejected critical analysis of its half-year accounts by academic accountant Alan Robb as "inaccurate and misleading."

Mr Robb was widely reported this week as claiming Fonterra's half-year accounts show "a worrying trend in net cashflow from operations," suggesting this could lead to an even lower than forecast payout of $3.60 per kg milksolids.

Fonterra Chief Financial Officer Graham Stuart said Mr Robb's comments were misleading.

"Fonterra's cashflows are healthy. Mr Robb has taken the half-year result and made assumptions about the full year. But trading conditions between the two halves are very different - as we have made abundantly clear in the commentary attached to the half-year accounts and in other announcements in recent weeks, which Mr Robb has ignored."

Mr Robb, a senior lecturer at the University of Canterbury, said falling commodity prices and the strengthening New Zealand dollar had depressed Fonterra's net cashflow over the six months to November 30 to a surplus of only $236 million, compared with $855 million in the same period the year before. He warned that if this season's second half followed a similar pattern to last season's - when Fonterra had a negative net cashflow of more than $500 million - shareholders could face a further reduction in payout.

Mr Stuart said Mr Robb's comments suggested he did not understand Fonterra's business.

"We made it clear in our Half-Year Report, and subsequent briefings, that our revenues and cashflows would be significantly higher over the second half. This is in stark contrast to last season's pattern where prices fell dramatically in the second half.

"As explained in the Report, we contract sales several months in advance so we have confidence in saying this."

Other comments by Mr Robb also showed an absence of proper analysis, said Mr Stuart.

Mr Robb claimed it was misleading for Fonterra to have treated payout to suppliers as an operating cost and that this approach did not square with Fonterra's claim to have taken costs out of the business.

Mr Stuart said Fonterra had been completely open in its treatment of costs. They had been broken down in a special table in the Half-Year Report and detailed in the Report's text. Additional analysis of operating costs, separating milk payments and inventory movements from the total provided, clearly showed reductions of around 8 per cent in controllable costs - despite record volumes of milk being processed and sold.

"Rather than criticising us on the basis of faulty analysis, Mr Robb should be commending us for our transparent additional disclosures."

Mr Stuart said Mr Robb's suggestion that Fonterra had withheld information on milksolids production for the half year did not stand up.

"Working out the figure from the information we've provided is simple arithmetic. Just divide payout to suppliers ($1.436 million) by the amount available for payout ($2.63/kg) to get 546 million kg. To imply Fonterra has withheld this information is mischievous."

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