Fonterra says may cut 300 jobs as part of review of corporate support services in NZ to save up to NZ$65 mln

Fonterra's corporate headquarters, Auckland

Fonterra has announced a review of its corporate support services in New Zealand that could involve the loss of 300 jobs and save NZ$65 million a year.

“Fonterra has a clear strategy to drive growth,” said Fonterra CEO Theo Spierings.

“While we are investing in growth, we have to make sure our people are working on the right things and that we are spending our precious capital on the right priorities. The review has identified potential opportunities for us to deliver a range of corporate services centrally, reducing duplication and removing layers of management,” Spierings said. 

Spierings said the proposed changes would potentially lead to the loss of 300 positions and applied only to positions in Fonterra’s corporate offices in New Zealand.

It said around 50 roles potentially affected were already vacant because of a staff freeze imposed in February.

Fonterra employs 17,000 people globally.

"If implemented, the proposed changes would provide ongoing savings of NZ$65 million a year, before restructuring costs. Most of these savings would be reinvested to support Fonterra’s growth priorities. These savings would be additional to the NZ$60 million in cost savings Fonterra has already committed to deliver this year," Fonterra said.

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A list of all recent job losses reported is here »

We will get to see the actual growth or decline in employment for Q1 in the next Household Labour Force Survey which will be released on Thursday.

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20 Comments

Well $65m divided by 300 = $216,666. per role.
Would be interesting to understand restructuring costs and then portion of $65m saving not related to FTE expenses (if any).
 

In sales?

Share price just hit  $8.01. Some loves em.

Nzx notes gross div yield as 1.99%

Well that's the CEO bonus in the bag. - what about new farmers sourcing funding to gain entry into the industry? - are our banks going to fund position and to what extent?- I think Fonterra needs to update the NTA of each unit rather quickly, together with the dividend payout - just so bankers and their depositors might know where they stand risk wise in relation to recently debt purchased dairy properties.
 
It's certainly getting more expensive to bail out the failures for all concerned parties.

I am looking forward to analysing their annual report.

Q: What happens  next...
As an aside, NZX.com shows gross div yield as 1.99%, however, 32cents over $8.06 is 3.970%
Earniungs per share (45 to 50) cents per share at $8.06 is 5.893%
We won't be copy pasting from NZX.com in future
 

FSF $8.060 $0.250 / 3.20%

Gross Div Yield 1.999%

https://www.nzx.com/markets/NZSX/securities/FSF?icharts=true

 
Matt Goodson, portfolio manager at BT Funds Management, said the market had expected the company to make more cost savings, over and above what had already been announced, so the market's reaction to the news was "surprisingly strong".
"Clearly, anything to do with milk is red hot at the moment," he said.
"Fonterra's earnings multiples would appear to be stretched at the moment," he said.
http://www.odt.co.nz/news/national/255090/fonterra-shares-rally-after-jo...
 

Fonterra Co-operative Group Limited today lifted its current forecast cash Payout for the 2012/13 season to $6.12 for a fully shared-up farmer, based on a higher forecast Farmgate Milk Price of $5.80 per kgMS and a forecast dividend of 32 cents per share.

The Co-operative also narrowed its earnings per share guidance to 45-50 cents per share.
 
 

Q: What happens  next...
 
I think anybody who claims to know is kidding themselves. Fonterra's interim accounts were missing too much information to be able to make an informed guess.
 
Fonterra's overheads are bloated, and cutting some on them is likely overdue. But that is only tactical stuff.
 
The real problem remains that Fonterra was set up by politicians with the wrong structure, and TAF - while solving an immediate problem - has probably made that worse.
 
That problem is beyond the realm of what a CEO can address. And boards to date haven't had what it takes to understand the problem, let alone address it. 

I have no time for Fonterra . Given the domestic retail milk price is among  the highest on the planet (on  both an exchange rate basis and a Purchasing Power Parity basis ), will the milk price come down ?
I wont hold my breath.
Its a national disgrace that something regarded as a staple is so expensive in NZ , and Fonterra is 100% to blame for this monopoly - pricing rort .

Its a national disgrace that something regarded as a staple is so expensive in NZ , and Fonterra is 100% to blame for this monopoly - pricing rort .
 
Watch it Boatman - Chaston may have something to add in respect of your statement.
 
Nevertheless, I would consider the role of the two national supermarket chains when hurling abuse at the NZ outrage that is known as retail milk pricing.

Did you take into account the highest GST on fresh milk in the world or the most uncompetitve supermarket duopoly?

Some supporting information to either/both your points would be appreciated.
 
Thanks.

I was being a little tongue and cheek Colin to point out there are other factors which are important to the retail milk price. There is no GST on milk in Australia or the UK. Which is 15% the difference and there is a very different competitive landscape in Australia and the UK on the retail end. 

Thank you for that clarification.
 
Lets not forget that the Commerce Commision considered that the formation of Fonterra would cost retail consumers somewhere between $100-$200 million pa (as of 1999). Helen Clark was the politician responsible for overriding ComCom objections to the formation of Fonterra.
 
It is also worth noting that Fonterrra Brands NZ (and probably including Australia) have between them close to $1 billion of goodwill based on their ability to extract rent from retail sales.

I think you misunderstand goodwill and how it is created. Fonterra Brands NZ was purchased from NZs richest man Graham Hart and the amount of goodwill is the difference between what he got and the net book value of the assets.  The purchase price represents future earnings and was high due to the good turn around job/sell job he did. It was making good money before Fonterra acquired it. 

I suggest you read Fonterra's 2006 annual accounts and especially around the creation of a subsidiary called Fonterra Brands NZ.

Will do. But again I point out that was well after Fonterras formation

Agreed. The goodwill was unrealised until Fonterra had a bad year and needed the 'asset'.
 
And then took second bite in 2008.

Didn't Fonterra (or perhaps NZ Dairy Gp) practically give Dairy Brands (aka Dairy Foods) to Graham Hart, and then buy a couple of the brands back at an inflated price? I recall Tokoroa farmer George Moss trying to muster support amoungst Dairy Gp suppliers to buy Dairy Foods, but it was scuttled by leadership at time.

j