Fonterra posts $348 million half-year profit loss, CEO steps down

Fonterra's Theo Spierings will step down from his role as CEO later this year.

Spierings will stay with the company, however, overseeing Fonterra Co-operative's strategy and business, with a particular focus on China.

A replacement has not yet been named, but the Board and Spierings "are committed to a high-quality transition to a new CEO," says company Chairman John Wilson.

Wilson is not sure when an appointment will be made, adding "we envisage that even after the announcement of our new CEO, Theo will be involved in an advisory role so that we make best use of his knowledge and expertise during the transition.

Spierings led the New Zealand dairy giant for seven years and says it is now time for a new CEO who can lead the Co-operative through this next phase.

"The time is right for the Co-operative and that is important to me and to the Board," Spierings comments.

"It is also the right time for me personally. I look forward to new challenges, but right now my focus is on Fonterra. That will be the case until I finish with the Co-operative."

At the same time, Fonterra released its 2018 interim results, which showed the company posted a net profit after tax (NPAT) loss of NZ$348 million.

Spierings explains, "While our reported net profit after tax (NPAT) shows a loss of $348 million, it includes the payment to Danone and the Beingmate impairment.

Spierings calls these incidents "one-off events", saying the company's normalised Net Profit After Tax is $248 million and is a better reflection of Fonterra's underlying operating performance for the half year.

The company blamed Chinese baby food company Beingmate, in which it holds a 49% stake.

Meanwhile, Wilson says the Board has assessed the carrying value of Beingmate at $244 million and therefore taken an impairment of $405 million.

"While we appreciate the substantial opportunity and privilege of our business in China, our shareholders and unitholders will be rightfully disappointed with this outcome," continues Wilson.

"Beingmate's continued under-performance is unacceptable. The turnaround of the investment is a key priority for our senior management team.

Wilson says Fonterra's opportunity in the Chinese infant formula market remains as does the Beingmate partnership, however "an immediate business transformation is needed for Beingmate.

This comes off the back of a huge payout from Fonterra to Danone late last year. Fonterra paid the French conglomerate $183 million to cover recall costs following a 2013 incident when Fonterra recalled baby formula due to fears of contamination. At the time, Fonterra reported that it was "later confirmed that there had been no food safety risk to the public."

Wilson says the Board will decide how the Beingmate impairment and the Danone payment will be treated for final dividend purposes after the end of the financial year when it will have the full picture of Fonterra's operating performance.