Fonterra considers job cuts as it braces for loss

Ratings agency S&P Global said the co-op had 'lost its way' in recent years but gives it a stable outlook

As it prepares to unveil losses of at least NZ$590m in its latest annual results, New Zealand dairy co-op Fonterra has warned there may be job losses.

Fonterra has been hit by adjustments for its South American businesses, drought in Australia and increased competition at home, and has been carrying out a full review of its operations.

Working with auditor PwC, it has set back the release of its results from 12 September to the end of the month to allow time for “significant accounting adjustments in FY19”.

Referring to possible job losses, the co-op said: “We have been open with employees that with a new strategy comes a new structure.

“Our new strategy is about being more focused, prioritising New Zealand milk, and being closer to our customers.

“That means we will be changing our organisational structure to support our new strategy.

“It is premature to speculate on where in the organisation these changes may occur or how many roles may be impacted.”

Meanwhile, in its latest report on Fonterra, ratings agency S&P Global said: “In our opinion, Fonterra somewhat lost its way over the past seven years.”

S&P has twice lowered its rating during that period – in August 2014 and October 2015 – leaving it at A-.

But in its latest report it said Fonterra is “implementing a credible deleveraging plan and has reasonable prospects of building a rating buffer over the next 12 to 18 months”, and it has given the co-op a stable outlook.

It said governance factors had contributed to a “widespread misallocation of capital”.

S&P credit analyst Graeme Ferguson added: “We expect the co-operative’s strategic review to result in more disciplined allocation of capital and more robust operational performance.

“Still, balance sheet repair and operating performance will remain immediate priorities.”

Mr Ferguson said Fonterra’s management and board face “intense scrutiny” and criticism from its farmer owners and unit holders over the results.

He added: “While each downgrade was precipitated by discrete events, the common undercurrent was the co-operative’s ambitious capital investment program that sought to grow Fonterra beyond its core function of collecting, processing, and selling New Zealand milk.”

He said steps to divest non-core and underperforming assets, such as its South American operations, and lower capital expenditure should help to steady the ship.

And he added: “We believe the co-operative has made good progress in restructuring its operating cost base and is committed to better transparency, forecasting, and performance monitoring.”

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