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Jamie Gray

Jamie Gray is a business reporter for the New Zealand Herald and NZME. news service.

Fonterra shares soar as job cuts revealed

Fonterra chief executive Theo Spierings. File photo / Chris Gorman
Fonterra chief executive Theo Spierings. File photo / Chris Gorman

Shares in the Fonterra Shareholders Fund rallied by 2.5 per cent to their highest ever point today after the co-operative announced its biggest shakeup under the management of chief executive Theo Spierings, who was appointed 18 months ago.

The dairy giant announced plans to cut 300 jobs to save up to $65 million a year.

By the close the shares were at $8.06, up 25 cents from Tuesday's close, and up 46.5 per cent compared with last November's issue price of $5.50.

The shares first traded on the NZX on November 30 at $6.66.

Fonterra, which imposed a hiring freeze in February, said the $65m in cost savings would add to the $60m of cost cutting already targeted for 2013.

Matt Goodson, portfolio manager at BT Funds Management, said the market had expected the company to make more cost savings, over and above what had already been announced, so the market's reaction to the news was ``surprisingly strong''.

"Clearly, anything to do with milk is red hot at the moment,'' he said.

"Fonterra's earnings multiples would appear to be stretched at the moment,'' he said.

The review of support services affects workers at Fonterra's corporate offices in New Zealand. It didn't quantify the potential restructuring costs.

The May Day announcement marks the biggest layoff at the dairy giant since it cut workers in 2006 with the closure of manufacturing plants.

"While we are investing in growth, we have to make sure our people are working on the right things and that we are spending our precious capital on the right priorities,'' Spierings said in a statement.

Jobs would be eliminated by centralising services, reducing duplication and stripping out layers of management, he said.

Spierings said 50 of the targeted jobs were already vacant following the hiring freeze in February.

The company's total workforce is about 17,000.

Last week Fonterra announced a shakeup of its Asia Pacific/Middle East/Africa unit with the departure of managing director Mark Wilson.

In March, Fonterra posted a 32 percent gain in first-half profit to $449m and lifted its forecast payout to farmers to $5.80 per kilogram of milk solids from an earlier forecast of $5.50.

At the same time, it flagged plans to slash the number of consumer brands in Australia in the face of intense competition for milk supply and retail sales.

- Additional reporting by BusinessDesk

- APNZ

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