Fonterra ‘needed to change’

Fonterra’s bosses have turned their backs on the failed ‘‘global domination’’ policy pursued by former chief executive Theo Spierings.

Speaking at the dairy giant’s annual meeting in Invercargill on Thursday, current head Miles Hurrell said ‘‘we dropped our volume-based ambition early on’’.

Chairman John Monaghan identified the time of the change to 18 months ago – about when Spierings said he was quitting the co-op, having presided over its first-ever loss of $196 million. This was followed by an even heavier loss of $605m this year.

‘‘Eighteen months ago, we may have said we are a global dairy giant here to make a difference in the lives of 2 billion people, through a volume ambition of 30 billion litres of milk by 2025. Today, we stand for value,’’ Monaghan said.

Fonterra had shed more than 1400 people, frozen salaries for people earning more than $100,000 and was not paying performance bonuses for the financial year. Staff numbers now are 20,000, down from a high of 22,000 in 2015.

Monaghan said the only way it could have boosted milk volumes by the projected 35 per cent over five years would have been to invest in overseas milk pools, which would have demanded high operating costs. ‘‘With that driver

gone, we are prioritising your New Zealand milk and only looking to our global milk sources when needed.

‘‘The co-op wasn’t broken but it did need to change. We needed to take the best things from the past and adapt them for the future,’’ Monaghan said.

Hurrell said that in the recent past, Fonterra had a ‘‘wall of milk’’ coming towards it but not now, and it no longer needed assets on the ground to succeed.

Hurrell said the financial goals over the next year were to:

Lower debt from $5.7b to no more than 3.75 times earnings ($4.4b-$4.6b).

Reduce capital expenditure to no more than $500m, down $100m on last year.

Achieve a gross margin in excess of $3b.

Meet an earnings guidance of 15c-25c per share.

Hurrell said the shift from volume to value had helped cut costs. ‘‘We will focus on markets throughout Asia Pacific.’’

The way of the future was exemplified by the launch of the foodservice business in India with partner Future Group, he said.

Demand for dairy in India was expected to skyrocket over the next decade, at a greater rate than that of China.