The annual awards celebrate exceptional individual and management team performances in New Zealand's largest companies. Video / Alyse Wright
Miles Hurrell has been named CEO of the Year at the Deloitte Top 200 awards.
Under Hurrell’s leadership, Fonterra has achieved record profits and improved milk payouts to farmers.
Fonterra is exploring divestment options for its global Consumer business, potentially returning up to $3 billion.
Miles Hurrell is the first to admit he’s been on a roller-coaster ride since becoming chief executive of Fonterra in 2018.
“I’ve got a few more grey hairs to show for it,” he told the Herald in an interview for the Deloitte Top 200 awards where hetook out CEO of the Year at last night’s event.
It was, as he puts it, a fast and furious process from the outset.
Hurrell had been working at Fonterra since November 2000 in various roles but suddenly found himself in the hot seat when former CEO Theo Spierings announced his resignation and then chairman John Wilson stepped down due to health reasons.
New chairman at the time John Monaghan asked Hurrell if he’d be interested in taking the CEO role for an interim period while the board undertook a permanent search. That was in the autumn of 2018 and Fonterra was in bad shape, heading towards its first annual financial loss after a failed global expansion left it saddled with huge debt and significant impairments.
“The co-operative had a few issues and we needed to lean into those quite quickly,” Hurrell said in his typical deadpan manner followed by a grin acknowledging the understatement.
“And so, I went in with my eyes wide open. Clearly, I knew what was coming and what was therefore expected of me.”
Later that year the co-operative revealed a net loss after tax of $196 million after taking a $405m impairment hit on its Beingmate investment in China, plus a $183m payment to Danone following a dispute over a 2013 whey protein recall.
It got worse.
The following year Fonterra posted asset write-downs and accounting adjustments of $826m and a net loss of $605m with net debt peaking at about $6.2 billion.
Fonterra, which spent $755m acquiring an 18% stake in Beingmate, would eventually lose billions of dollars on its ill-fated expansion plans. Shareholder watchdog, the Fonterra Shareholder’s Council, calculated around $4 billion was wiped off the balance sheets of the co-operative’s 10,000 farmer-owners in FY18 and FY19.
“There’s no two ways about it, these results don’t meet the standards we need to live up to,” Hurrell said in his first official financial results press statement.
“In 2018, we did not meet the promises we made to farmers and unit holders,” he said.
Hurrell, pictured in September 2018, faces the media after the dairy giant announced a net loss of $196 million. Photo / Dean Purcell
Acceptance and sacrifice
Leaning into that mess, Hurrell announced a wide-ranging strategic review with major asset sales such as the co-operative’s 50% stake in DFE Pharma and iconic ice cream maker Tip Top.
It would also sell its two farm hubs in China, a 51% stake in Dairy Partners Americas (DPA) Brazil and close its Dennington milk processing plant in Australia.
Hurrell would also embark on a brutal cost-cutting exercise and then lead the co-operative through a difficult capital structure reform process in 2022.
Asked how he went about that process and how he felt about it at the time, Hurrell said the first thing for him was finding out if he had the support of Fonterra’s 20,000 employees at the time and its 10,000-odd farmer shareholders.
“In my own mind, I needed to feel I had the support of them because we knew we had to do things significantly differently. We knew we were going to have to make some really tough choices.”
One of the first big calls was anyone earning more than $100,000 received no pay rise in that first year. Fonterra also held back all bonuses and incentive payments.
“Those are very big calls for people’s livelihoods when ultimately, most of these people had little to do with the investments in China.
“But our farmers had had significant equity taken from their own balance sheets. And I knew that we had to make some of these big calls in the short term to get ourselves in a position where we could hopefully be successful in the long run and, and, you know, six years on, touch wood, I think we’ve got through that.”
Fonterra’s financial turnaround was displayed in September last year when it posted a record net profit after tax of $1.6b, followed by a $1.1b net profit announced this September for the 2024 financial year.
The improvement allowed the dairy co-operative to afford its second-largest annual dividend in its history of 55 cents per share, including a 15 cents special dividend.
Farmer returns are now as high as they have ever been with Fonterra currently forecasting a mid-point of $9.50/kgMS and an upper end of its forecast range touching $10/kgMS.
The previous record farmgate milk price was $9.30 paid in 2021-22 season.
Forward-thinking
This performance was highlighted by the Deloitte Top 200 judges who said Hurrell has been instrumental in the turnaround.
“Under CEO Miles Hurrell’s leadership, Fonterra has achieved record profits, improved milk payouts to farmers, a stronger balance sheet, and higher employee engagement,” category judge Jonathan Mason said.
“Miles has focused on Fonterra’s core operations of processing and selling New Zealand milk efficiently while divesting less critical parts of the business and considering the sale of its consumer division.
“With a collaborative approach, Miles has built an aligned and forward-thinking team, making him a stand-out chief executive.”
Hurrell, who turned 50 this year, is not finished yet.
His new task is to embed a revised strategic direction, which prioritises Fonterra’s high-value dairy ingredients and foodservice businesses and a stronger focus on B2B operations.
Under Hurrell’s leadership, Fonterra has achieved record profits and improved milk payouts to farmers.
“We believe we can create more value by concentrating on our ingredients and foodservice channels,” he said.
As part of that process, Fonterra is exploring divestment options for its global Consumer business, as well as integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
This will be yet another major step with a full exit of those businesses potentially returning up to $3b, or $2 a share of capital, according to a report commissioned by the shareholders’ council.
The businesses for sale include well-known consumer brands in New Zealand and Australia, such as Anchor, Mainland, Kāpiti, Perfect Italiano and Fresh’n Fruity, plus the Australian manufacturing and ingredients businesses.
“There is never really time to take a breath because you’re always thinking about what’s next,” Hurrell said.
“But it’s such a nice position or a mindset change to move from having to get the business in shape, having to get your balance sheet in order for survival, to now looking at growth.
“At the same time, we need to make sure that we set the right disciplines, so we don’t get ourselves in a similar situation again in the next decade.”
Strong support
Hurrell said the key to setting a longer-term strategy was that once you had identified the core strengths of the business, you needed to explain what success looked like.
“It was important that we could paint a picture around what a successful ingredients and food service business looks like.
“That’s the piece of work that we ultimately launched back in September to paint that picture and give confidence that you’re on the right path.”
Hurrell said he’s had a lot of strong support from within the co-operative, some of that stemming from having worked in the engine room previously.
He first joined Fonterra in 2000 and worked in dairy across Europe, the US, the Middle East, Africa and Russia.
He worked in Bahrain in the early days and then Dubai before shifting to Germany and the US. He oversaw Fonterra’s Russian office at the time and the African operations, meaning he was on a plane more often than not during those years.
Eventually, he was asked to come back to New Zealand and head up Farm Source, Fonterra’s rural supplies and farmer support and advisory service.
“While I’m not off the farm, when you work 20 years for a co-operative you certainly get exposed to how things go on the farm,” he told BusinessDesk in 2021.
“I’ve got a few more grey hairs to show for it," says Miles Hurrell of his roller-coaster ride as Fonterra's CEO.
He said he’d learned a lot since becoming chief executive, telling the Herald that his leadership style had changed as a result.
“I think having the right team in place early on is important. It’s always easy in hindsight but having people around you with different views is something I’ve adjusted to.
“That’s probably one of the things in my leadership style that’s changed over time in that you might have historically employed people who were very similar to yourself in the way that they thought about things. But … that is actually one of the things that will hold you back.
“And so, one of the things that I’ve learned, certainly in the past five or 10 years, is that diversity of thought around the leadership table is critical to getting the right outcome.
“So, in hindsight maybe that might have been something that I brought into my thinking a little earlier.”
One thing that Hurrell has always felt is a weight of responsibility on his shoulders.
“If you lose sight of the role that you play both within the company, but also in the New Zealand context and in the dairy industry and in the global context, and the importance of that role, then I believe that is a slippery slope.
“Recognising that what you do has a hell of an impact and sometimes you might think they’re a very simple or a small decision, but the impact of those could be quite large if you don’t think them through.
“So I spend quite a bit of time thinking those things through and those are the sort of things that I would say, keep me up at night.”
The Deloitte Top 200 CEO of the Year Award is sponsored by Service Now.
CEO OF THE YEAR FINALISTS
Roger Gray, Port of Auckland
When Roger Gray joined Port of Auckland staff told him they used to avoid going to barbeques because they didn’t want to tell people they worked at the port. That’s how bad a shape the company was in with an appalling health and safety record, hopeless financial performance and an organisation that had lost the respect of the public, the media and the Mayor of Auckland.
So, it’s fair to say he had a lot of work to do when he became chief executive in March 2022
“I don’t think it came with a plan,” he told the Herald. “What I did come with was a focus on turning around the business and the most important thing at the start was to find out what the situation was.
“And what I realised very quickly was that we had lost all of the stakeholder groups’ respect. We were seen as being secretive, poorly performing. We weren’t delivering our core job. We disregarded the customers. We were at war with our unions and we didn’t listen to the community … we’d lost everybody.
“What we did as an executive is we sat down and said, we’ve got to regain that respect and that’s what we focused on for the first two and a half years until June 30 this year.
“We went back to basics and said, we’re going to be a port and just focus on getting the place back to exchanging cargo safely. And we had to stop killing people.”
Port of Auckland CEO Roger Gray. Photo / Dean Purcell
Gray had all the credentials for the role, having experienced complex logistical challenges and working with tough unions (Gray’s father was a union organiser).
Before joining Port of Auckland he was chief executive of Lyttleton Port Company for two years. Prior to that he worked at Air New Zealand for six and a half years, including his last role as group general manager airports, in which he managed ground handling and lounge operations at 55 locations.
He’s also held several senior leadership roles with Goodman Fielder, including managing director of Quality Bakers.
He had previously served for 20 years in the Australian Army, retiring as a lieutenant colonel. One of the first things Gray did when he started at Port of Auckland was to form a better relationship with the union and ask members to help design solutions so they became partners not opponents.
“It is naive to think you can break the unions on the waterfront and that you won’t have unions because they’ve been here since the 1850s and they’ll continue to be here until the 2050s and beyond.
“We sat down with them and said, okay, we need to improve the operational performance and profitability and most importantly worker safety … we had a sad history of fatalities at the port. “We’ve had some amazing improvements here on the recommendation of the union.
“And so, we have worked in partnership with the unions to really redesign how we work, how the staff feel empowered to say no and the team … they feel safer.”
The results speak for themselves. Port of Auckland will pay its council owner $40 million this year, up by $10m after reporting an underlying after-tax profit of $55.2m in the 12 months to June 30, also up $10m on last year. And no one died.
Neal Barclay, Meridian Energy
Taking a long-term view is a key part of any chief executive’s role but especially so when you’re heading up a major electricity generator and retailer.
Neal Barclay has led Meridian since 2018 and in that time has remained steadfastly focused on the future, despite plenty of immediate issues both operationally and in the market.
This winter was especially problematic with a shortage of gas combined with low rainfall and inflows into the country’s hydro lakes causing an energy supply crisis and sending wholesale electricity prices soaring.
While the market has settled since lake levels returned to normal, the issue isn’t going away and solutions are needed, in tandem with New Zealand’s emissions reduction plan and zero carbon commitment.
Meridian Energy chief executive Neal Barclay. Photo / Doug Sherring
Gentailers like Meridian are charged with increasing their investment in renewable energy while their profits are in the spotlight.
Meanwhile, the Commerce Commission is resetting the regulated price for distribution and transmission, meaning electricity prices will climb significantly, including at household level.
Barclay told the Herald those price increases over the next five years would be substantial. “As a generator and a retailer, we need to manage the impact of that on our customers. Ultimately though, as we move to a more renewable grid, we see the cost of energy coming down to New Zealand consumers”.
Meridian has and continues to invest heavily, he says, countering some of the criticism flowing from some quarters. The company recently completed the 176MW Harapaki wind farm project and is now commissioning a solar power station at Ruakākā in Northland that will produce more than three times the energy of the biggest solar farm currently operating in New Zealand. “Then we’ve got about $3 billion of new developments, earmarked for before the end of the decade.
“Further afield we’re expecting to invest up to about $10 billion by 2050 which will be the sort of notional target we’re all aiming at to have in a zero carbon economy.”
Barclay is diplomatic when it comes to facing up to some of the claims being made about the industry.
“That criticism is going to be there at times like this and we just need to make sure that we stick to the long-term plan, deliver the new renewable development that is necessary and a unique opportunity for our country, I believe.
“There has been significant investment in the past 10 years - despite assertions that there hasn’t been - but there’s going to be a lot more coming up as well.”
Meridian has been a strong performer for its shareholders, including the Crown with its 51% shareholding.
Its net profit went from $95 million to $429m in the year to June 30 - with much of the increase influenced significantly by net gains on hedge instruments of $249m.
The industry’s preferred measure of performance - earnings before interest, tax, depreciation, amortisation and financial instruments (Ebitdaf) were up 16% at $905m.
