Fonterra cuts FY earnings forecast after Danone arbitration decision

Marco Green
December 1, 2017

This request has been made to give Fonterra time to consider the outcome of its arbitration with Danone regarding Fonterra's 2013 Whey Protein Concentrate precautionary recall.

In a statement to the NZX Fonterra says it expects to receive a decision from the Arbitration Tribunal today that is likely to be both long and complex. Fonterra was "reviewing the tribunal's findings closely, but recognised that there was likely to be limited options for challenging the decision of an worldwide arbitration". Danone's New Zealand subsidiary Danone Nutricia ceased doing business with Fonterra in the wake of the dispute.

A unit of Danone recalled some types of infant formulas sold under the Karicare brand in 2013, after its milk powder supplier Fonterra said there was a risk of bacteria in its products that could cause fatal botulism.

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

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

But it took more than three weeks to clarify the issue and in the meantime retailers had no choice but to pull potentially tainted formula from the shelves. It was treated as a national emergency in New Zealand, where the dairy industry drives the economy.

Fonterra was accused of mishandling the crisis by releasing information too slowly and then giving out incomplete data when it finally went public. Fonterra cut deals with seven of the eight customers affected.

Spierings said the cooperative believed its liability to Danone was capped at about NZ$11 million under their supply agreement.

Fonterra said it has assessed the potential financial implications of the decision and has consequently revised its forecast earnings per share range for the 2017/18 financial year to 35 to 45 New Zealand cents, down from 45 to 55 New Zealand cents.

Fonterra in September announced an annual net profit of NZ$745 million ($509 million), down 11 percent on the previous year.

Other reports by Click Lancashire

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