23 Mar 2016

Fonterra to delay pay despite profit lift

6:56 pm on 23 March 2016

Fonterra's strong result shows it can pay its suppliers on time, Prime Minister John Key says - but the company is standing by its payment delays.

Fonterra sign on a farm. Rural Rapid Number.

Fonterra has reported a profit of $409 million in the six months to January. Photo: RNZ / Diego Opatowski

The country's largest company made $409 million in the six months to the end of January, compared with $183m in the same period a year ago - an increase of more than 120 percent.

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Late last year, it extended from 30 days to 90 the time it took to pay firms and asked them to cut their charges by 10 percent.

Some suppliers said the move was crippling and warned of a backlash.

John Key during bridge run on the GCSB/ SIS report.
Last photo of JK for RNZ 2016!

Prime Minister John Key Photo: RNZ / Alexander Robertson

Mr Key said Fonterra was using its strong balance sheet to support farmers through dividends but it should also deliver to its suppliers.

"Of course it has been a very, very tough time for dairy farmers, it's a very strong result for Fonterra," Mr Key said.

"On one level that's good because you want the organisation to be strong. I think what Fonterra are doing though is trying to relieve some of that pressure and use their own balance sheet to support those farmers through dividends and the likes.

"You can't really deliver a result like that and not follow through and make sure that people are paid on time."

Fonterra said today it had made up to $70m by extending the time it took to pay its suppliers.

The cooperative's chairperson, John Wilson, admitted it had handled the situation badly but said it would not back down.

"We never intended to put any of our small businesses in a difficult situation," he said.

"Yes, we could have rolled it out better, we could have had better discussions with our vendors, and our people that were having those discussions should have been supported."

Fonterra chief executive Theo Spierings told Checkpoint with John Campbell the policy to extend the timeframe in which it paid shareholders helped put Fonterra on a "level playing field" with its competition.

"If we don't put ourselves on a level playing field we lose competitiveness and if we lose competitiveness we can't bring the dollars home to New Zealand."

The policy affected 15 percent of suppliers, while 85 percent were untouched, he said.

Fonterra would soon offer a financing programme to suppliers, he said.

"We will come out next week with significant support and discounts for farmers, so every stone we seed, we turn, and that money goes back to farmers."

Watch today's interim results presentation:

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