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13 Dec 2017 5:16
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  •   Home > News > Rural

    Fonterra cuts forecast on damages payout

    Fonterra has cut its earnings forecast for 2018 after being ordered to pay $183 million in damages to French food giant Danone over a botulism scare in 2013.


    Fonterra has cut its earnings forecast for 2018 after being ordered to pay 105 million euros ($183m) in damages to French food giant Danone over a botulism scare in 2013.

    The Kiwi dairy cooperative's shareholders have described it as "a tough day".

    The award for recall costs suffered by Danone comes after the French company launched proceedings in Singapore and New Zealand, estimating the cost of recalling the whey protein concentrate to be about 350m euros.

    Fonterra earlier said it expected any court action would show it wasn't liable under the contract and only recognised the recall as a $14m contingent liability in its accounts.

    In 2013, Fonterra quarantined several batches of whey protein concentrate amid fears it was contaminated with a potentially dangerous form of the clostridium bacteria.

    The product was ultimately cleared as a false alarm and Fonterra cut deals with seven of the eight customers affected.

    "We are disappointed that the arbitration tribunal did not fully recognise the terms of our supply agreement with Danone, including the agreed limitations of liability, which was the basis on which we had agreed to do business," Fonterra chief Theo Spierings said on Friday.

    The company was "reviewing the tribunal's findings closely, but recognised that there was likely to be limited options for challenging the decision of an international arbitration".

    The dairy giant has now revised its forecast earnings per share range for the 2017-18 financial year to 35 to 45 cents, down from 45 to 55 cents.

    The decision wouldn't impact the company's forecast farmgate milk price, currently at $6.75 per kilogram of milk solids, it said.

    "Fonterra is in a strong financial position and is able to meet the recall costs," Mr Spierings said.

    As at July 31, Fonterra had $3.8 billion in undrawn lines of credit and $393m of cash.

    Fonterra Shareholders' Council chair Duncan Coull said it was a "tough day for the co-op and its farmer owners who will ultimately bear the cost".

    "As tough as this outcome is, the lessons learned have enabled our co-op to emerge stronger and we now need to move forward together."

    Earlier, Danone said it welcomed the decision "as a guarantee that the lessons from the crisis will not be forgotten" and that it "underscores the merit of its legal actions against Fonterra".

    Fonterra had its shareholders' fund units and listed bonds halted from trading on Friday ahead of a media conference at 3pm in Auckland.

    "While there was never any risk to the public, we have learned from this experience and as a result have made improvements to our escalation, product traceability and recall processes, and incident management systems," Mr Spierings said.

    © 2017 NZN, NZCity

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