Fonterra to axe more than 500 jobs

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UPDATED: Job cuts not a ‘knee-jerk’ reaction – Fonterra

Fonterra [NZX: FCG] today revealed 523 jobs are to be axed as part of a business review. The “disestablishment” of the roles come as a one-off cost of $12-15 million, the co-operative said.

The job losses come as world dairy prices continue to sink, with prices in the latest GlobalDairyTrade auction falling 10.7% to $US2082, the lowest level since July 2009.

But Federated Farmers argues top management should be leaving Fonterra as well if its results don't start improving in the next couple of years.

“Fonterra has had a history of knee-jerk reactions like that where it gets rid of a whole bunch of people and then two years later hires them back again, or rather having got rid of people with institutional knowledge, they hire new graduates who can’t do as good a job,”

Mr Hoggard says farmers have invested a lot of money in Fonterra in the past decade and expected within the next two years for the decisions made by top management on where that money was invested to start paying off.

In a statement today, Fonterra chief executive Theo Spierings says the co-operative’s leadership was developing initiatives to deliver value across the organisation.

“The key aims of the review are to ensure that the co-operative is best placed to successfully deliver its strategy, increase focus on generating cashflow, and implement specific, sustainable measures for enhancing efficiency."

The review includes measures to improve profitability at Fonterra’s Australian business as well as a series of additional measures to remove barriers across the organisation to enable it to unlock more value.

At that level the co-operative expected continued payroll savings of approximately $55-60 million a year.

Mr Spierings says reducing the number of roles in the business isn’t about individual competency, “it is about continually improving the way we deliver performance.”

The affected staff would begin to leave the co-operative in September.

Fonterra has more than 18,000 staff globally and 11,500 in New Zealand. The job losses will be across Fonterra's global operations, with the bulk of the cuts at its finance hubs in New Zealand, Singapore and Australia. The company declined to break down the staff reduction by unit.

Consultation will begin on August 5, with staff in the rest of the business including administration, sales, consumer, marketing, research and development, communications, health and safety, food safety and quality, group resilience and risk, property, procurement and change management.

Fonterra didn’t reveal how many further job cuts are expected.

Mr Spierings indicated in June that a major review of the business would lead to hundreds of its staff being laid off as it redirected funds into sales and marketing roles to drive up returns. He talked about the numbers to the media, while staff were only told about the magnitude of the cuts several hours later.

The review, undertaken by an internal management team and business management consultancy McKinsey & Co, was started in December when it became clear the global dairy market wasn’t recovering as quickly as hoped.

“A simple example already identified by our supply chain team is a logistics solution that increase the utilisation of export containers leaving our distribution centres, saving up to $5 million a year,” Mr Spierings said.

Units in the Fonterra Shareholders' Fund fell 0.% to $4.76, and have declined 21% this year.

A Federated Farmers Confidence Survey for July out yesterday showed most dairy farmers expect their profitability to worsen this season and are braced for a potential fall in Fonterra’s opening farmgate milk price of $5.25 per kilogram milk solids.

Weaker dairy prices have prompted analysts to pull back their expectations for Fonterra’s payout this season, with most now expecting this year's payout will be below last year's, which is likely to put pressure on farm incomes and see debt levels rise. Fonterra’s next opportunity to revise the forecast is at its Aug. 7 board meeting.

The market is also now expecting more aggressive interest rate cuts from the Reserve Bank which is scheduled to review interest rates next Thursday.

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