Job cuts follow Fonterra losses

Dairy giant Fonterra has announced 65 job cuts at its Paraparaumu specialty cheese factory following its $605 million loss for the most recent financial year.

Earlier chief executive Miles Hurrell put the job losses at 70. He said no other plant closures were planned in New Zealand. The Paraparaumu and Eltham plants would be combined in Taranaki, with 34 new staff being taken on.

‘‘We still see growth in speciality cheeses, we have two plants currently, the one at Eltham and at Paraparaumu. Combining those gives us efficiencies and more importantly allows for growth where we couldn’t see a growth opportunity in the plant at Paraparaumu given it is a small plant,’’ Hurrell said.

Fonterra needed to become a leaner organisation. ‘‘We haven’t landed on what that looks like yet but we will be going through that process soon. It is likely there will be job losses. There will be rationalisation of senior roles as we move to a new operating model,’’ Hurrell said.

High-profile executives such as chief global operating officer Robert Spurway have resigned and a new head of the China operations is being recruited. A Fonterra spokeswoman said the current China president, Christina Zhu, may apply for the position.

The latter was responsible for the due diligence on the failed $750m Beingmate investment.

During the past year 708 staff earning more than $100,000 left Fonterra, compared with 230 the year before.

Taranaki farmer Rob Thwaites said he had confidence in the board which was ‘‘absolutely making the right decisions’’.

‘‘The key thing being ignored by the most outspoken critics is the fact Fonterra is delivering a very competitive milk price on an international basis and that is not on the basis of good luck. A couple of years ago I met someone from the Canadian milk board, they were getting a $3.80 per kilogram of milksolids subsidy; we are the only unsubsidised dairy industry in the world,’’ Thwaites said.

Hurrell said the year was ‘‘incredibly tough’’ for the co-op but it had made decisions to set it up for future success.

This is the first year Fonterra will not pay a dividend. It aims to return 65-75 per cent of profit as dividends ‘‘in the normal course of events’’. Normalised earnings for the year were $819m, down 9 per cent. Free cash-flow was $1.095 billion, up 83 per cent and return on capital was 5.8 per cent, down from 6.3 per cent last year.

Fonterra had been expected to return a loss of between $590m and $675m, due to asset writedowns of up to $860m. Last year, New Zealand’s largest company made a $196m loss.

Its operations in Brazil, China, and New Zealand were each impaired by about $200m. In Australia, the closure of a plant in Dennington, Victoria, was announced. It also made an accounting adjustment of about $135m for its Venezuelan ingredients business, Corporacion Inlaca, which it sold to international food business Mirona.

Fonterra bought a 19 per cent share in Beingmate in 2014 for $750m but that investment was written down by $405m in 2018.

Fonterra is now looking for a buyer for its share in the Chinese dairy company.

Hurrell has also unveiled a new strategy. Instead of trying to stay relevant by maintaining a dominant share of the global dairy market, the co-operative would aim to be a ‘‘national champion’’ of ‘‘Aotearoa New Zealand’’. Its mission, to create sustainable value from New Zealand milk. All overseas operations were discretionary and had to deliver a satisfactory financial return.

It would also begin ‘‘triple bottom line’’ reporting, where each year it reported not only on its financial performance but also on its impact on human health, and on its impact on the environment.

Federated Farmers dairy chairman Chris Lewis said Fonterra could only improve from here.

‘‘With the latest strategy they have got all the fine words but they have to deliver. No-one got the former strategy. They are paying off debt but at the same time they are losing good assets.’’

It has been selling off assets, including DFE Pharma and Tip Top. ‘‘As we do every year, we took a hard look at our asset valuations and future earnings potential.

‘‘When it came to DPA Brazil, Fonterra Brands NZ and China Farms, we saw there were either some changes in their local economies, increased competition or business challenges impacting their forecast earnings. This meant we needed to reduce their carrying value,’’ Hurrell said.

‘‘Clearly, any writedown of an asset is not done lightly. But what I hope people can also see is that we are leading the co-op with a clear line of sight on potential opportunities as well as the risks.’’

Earlier this month, it was announced there would be no pay performance bonuses for the latest financial year and anyone paid more than $100,000 would not get a pay increase next year.

It was also confirmed that job losses were expected.

Hurrell said Fonterra’s normalised earnings per share for the year was 17 cents. ‘‘The gross margin from our largest business, NZ Ingredients, was $1332 million, up 3 per cent on last year due to increased sales and price performance. Our Foodservice performance also improved on last year, with gross margin up 10 per cent.

‘‘This was despite lower total sales volumes, following a slow start to butter sales in greater China and Asia.

‘‘But we can’t ignore that we had a number of challenges across the year.’’

The Financial Markets Authority has been investigating the writedowns, after a complaint from a shareholder.