Fonterra chief gets $300,000 rise as jobs go

Andrew Ferrier

Fonterra chief executive Andrew Ferrier won a $300,000 pay rise in a year when the company axed 1200 staff and was attacked by its shareholders for poor returns, the annual report released today reveals.

The dairy company's shareholder council yesterday made a stinging attack on the performance of Fonterra Brands and suggested that if it did not improve, the long-term viability of the company was at stake.

Ferrier appears to have had a 13 per cent rise in remuneration to around $2.9 million, according to the co-op's annual report.

In the 2004-05 report, one New Zealand-based employee - assumed to be Ferrier - has a salary in the range of between $2.58 and $2.59 million.

The latest report shows one employee - again assumed to be Ferrier - earning between $2.92 and $2.93 million. That corresponds to a rise of well over $300,000 or 13 per cent.

The number of New Zealand-based staff earning $100,000 or more has grown from 630 to 705.

The drop in head count came as part of a major efficiency drive but Fonterra has declined to put a number on the final reduction it is seeking. The company now has about 17,400 staff, compared with 20,000 in 2001.

Of the 1200 jobs shed last year, some 600 were in New Zealand, the report reveals.

In the report Fonterra mounts a staunch defence of its Brands business, despite the criticism from its shareholders council.

The company argues that once a stronger dollar and other factors are taken into account the underlying performance of value-added division Fonterra Brands is strong.

The shareholders council said yesterday that it was concerned the value-added portion of farmer payout - a measure of the contribution from activities such as consumer products - was comparatively flat last season at 48c/kg of milk solids.

Farmers could stop supplying Fonterra if it did not lift its payout, the council warned, although it welcomed higher value-added targets this season.

The report also reveals total shareholder returns - value-added returns plus share price growth - were only at 9.6 per cent last season, well down on the average of just under 15 per cent in the previous three seasons.

But figures and commentary in the report suggest the underlying value-added growth performance was solid.

Chairman Henry van der Heyden said the co-op's average conversion rate to the US dollar had weakened in each of the last four years.

"As the significant majority of our value-add earnings are denominated in US dollars, that has reduced our earnings in New Zealand dollars."

The report also said returns from quota market "rents" - counted as part of value-added activity - had been depressed by the stronger currency and higher market prices.

Stronger commodity prices were another factor squeezing value-added margins. "In periods of increasing prices, value-add margins tend to be compressed as it takes time to push through the increasing commodity prices to the value-add selling price."

The report calculated that when Fonterra's historical value-added earnings were converted at the 2005-06 exchange rate, and quota rent earnings "normalised" at last season's level, the 48c/kg value-added earnings last season were up 71 per cent on 2002-03's theoretical 28c/kg.

Fonterra's operating surplus from its Fonterra Brands consumer goods division was up more than 8 per cent or $23 million last season.

Ferrier said in the report that the Fonterra's Winning Through Brands strategy had started delivering and that sales and profits from the business had exceeded targets.