Fonterra to cut 523 jobs to save up to $60 million in first step of major review

Thursday 16th July 2015

Fonterra Cooperative Group, the world’s largest dairy exporter, has confirmed it will cut 523 jobs to save up to $60 a million a year on its salary bill in the first swathe of a major review of the business.

The Auckland based company said it had completed consultation with affected staff in its central procurement, finance, information services, human resources, strategy, and legal teams, and they will leave in September. The redundancies will incur a one-off cost of between $12 million and $15 million.

Fonterra chief executive Theo Spierings said the news had been unsettling but the cooperative had to change if it was to remain strongly competitive in today’s global dairy market.

“Reducing the number of roles in our business isn’t about individual competency; it’s about continually improving the way we deliver performance,” he said.

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 Aug. 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.

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.

The job losses come as world dairy prices continue to sink with prices in the latest GlobalDairyTrade auction falling 10.7 percent to US$2,082, the lowest level since July 2009.

Spierings said the key aim of the review was to ensure the cooperative was best placed to successfully deliver its strategy and increase focus on generating cashflow.

“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,” he said.

Spierings was travelling and unavailable to be interviewed.

Units in the Fonterra Shareholders' Fund fell 0.2 percent to $4.76, and have declined 21 percent 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.

BusinessDesk.co.nz

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