Fonterra says it will be laying off hundreds of its 1500 head office and support function staff in a major reshape of the business following the global decline in dairy prices.
Fonterra CEO, Theo Spierings, gave details 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 in August, 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 marketing. 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 $NZ4.40 ($A4.08) per kilogram of milk solids for the 2014/2015 season and has an opening forecast of $NZ5.25/kgMS for next season. An estimated one third of farmers are likely to post losses this year.
Spierings says ongoing volatility in the market means there could be a $NZ1.50/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.
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 he said the company had to drive harder on the value-add side of the business, despite a 22 per cent increase in the volume of milk that it’s had to process in the past few years. It has spent $NZ1.6 billion on stainless steel to cope with that influx.
An outline of the 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 “bankable plan” presented to farmers by the start of August, he said.
BusinessDesk
