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Fonterra expects hundreds of layoffs of support staff as part of major review

Wednesday 10th June 2015

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Fonterra Cooperative Group, the world’s largest dairy exporter, said it will be laying off hundreds of its 1,500 head office and support function staff in a major reshape of the business following the global decline in dairy prices.

Chief executive Theo Spierings has fronted up to media today about the restructure following widespread criticism over the dairy cooperative’s management performance at a time when global dairy prices and farmer payouts have plummeted.

Spierings wouldn’t confirm the number of layoffs until a final review is completed and approved by the board, due Aug. 1, but says it wants to redirect more staff into sales roles and into markets to help drive up returns.

“Do we have too many support functions and not enough people in market? We’re having a fresh set of eyes on the business and what we need to do to trim the sails,” he said.

The point of the review was to produce as much cash as possible in order to help out farmers as much as it can and “everything was in scope”, Spierings said.

Fonterra started a review of its business last December when it became clear the global dairy market wasn't going to recover as quickly as hoped. The company has slashed its farmgate milk price to $4.40 per kilogram of milk solids for the 2014/2015 season and has an opening forecast of $5.25/kgMS for next season. An estimated one third of farmers are likely to post losses this year.

Spierings says on-going volatility in the market means there could be a $1.50/kgMS swing either way to the 2015/2016 forecast, but he’s confident demand will come back in the market at some point, given milk inventories are relatively low.

There has been anecdotal talk of some of Fonterra's 10,500 suppliers voting with their feet to join other dairy processors offering payouts above Fonterra’s rate or not requiring suppliers to pay for shares based on production levels that they will struggle to afford.

Spierings said while some have indicated they will leave the cooperative in the following season, most of those are in regions where other processors have built plants. He says the MyMilk brand, where farmers can join as suppliers without having to buy shares immediately, has won at least 20 suppliers back for the next season and overall supplier numbers have stayed stable.

The review includes external input from McKinsey & Co providing global benchmarking on how Fonterra was performing against its peers although earlier this week the company refused to confirm the business management consultancy was even involved in the review.  

Spierings rejected criticism that Fonterra had a bloated management structure and its underlying performance had been less than satisfactory but said the company had to drive harder on the value-add side of the business, despite a 22 percent increase in the volume of milk that it's had to process in the past few years. It has spent $1.6 billion on stainless steel to cope with that influx.

The long term question would be how it would fund investment in that value-add strategy but the first priority was “grabbing more cash”, he said.

An outline of the top-line plan, produced by a team of 15 from around the globe and the senior management team, will be discussed with the board next week and then a bottom-line “bankable plan” presented to farmers by the start of August, he said. 

 

 

 

 

BusinessDesk.co.nz



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