More cost cuts coming at Fonterra

Monaghan concedes a mood of great disappointment among Fonterra farmers. Most are grieving, he says, but the result announcements will help start the healing process for shareholders.

 With the full year results, Fonterra will provide “a bit of colour” on its asset sales.

Chief executive Miles Hurrell is expected to tell that the co-op could shed staff and reduce costs across the business. And it has dropped its target of processing 30 billion litres of milk by 2025.

On the decisions that got Fonterra to where it is today, Monaghan says the board will not be engaging in “legacy politics”.

“We will be putting all our energy into what we can do tomorrow, not what happened yesterday. We’ll put our heads down and remain focused,” Monaghan told Rural News.

 Fonterra has come under fire after an $860 million write-down of poorly performing assets. It has signalled a loss of $675m for 2019 and will not pay a dividend.

Questions have been asked about the leadership of three men: the late John Wilson (formerly chairman), ex chief executive Theo Spierings and departed chief financial officer Lukas Paravacini.

 Monaghan says Fonterra’s board has a busy agenda and will remain focussed on that. The board is “a different place from what it was one year ago,” he said.

Monaghan took over as chairman after Wilson was forced to step down on medical grounds in July last year. Within months Spierings and Paravacini departed.

Eight directors on Fonterra’s board have been there three years or less. 

“That’s a reasonable list of change,” Monaghan said, and the co-op now needs “some period of stability without distraction”.

“Given where our farmers find themselves right now, their expectation will be that the board leaves no stone unturned as we look to the future.”

Monaghan reiterated that Fonterra remains strong at its core, paying a globally competitive milk price to farmer shareholders. This year -- the third in a row -- the farmers will receive a strong payout, he says.

“Every day we get out of bed to pay a competitive payout. Some years ago the global milk price was 40% less than our large peers in the US and Europe. Now it’s on parity or better and that’s a big achievement. Fonterra must take some credit for that.”

Monaghan He admits the board has made investment mistakes.

“Clearly we haven’t got every decision right in the past. You don’t have to look further than Beingmate.

“But what often gets overlooked in conversations is that we have a $4 billion business in China; Fonterra accounts for 40% of dairy imports into mainland China.

“In less than five years we’ve built a $2 billion food service business in China. That business did not exist five years ago.”

Monaghan says Fonterra pumps $8 billion into New Zealand’s rural and provincial economies.