Fonterra has faced intense investor scrutiny this year.
Cabinet Minister Shane Jones has urged Fonterra's new chief executive to "get out the hedge clippers and start pruning people" amid reaction to the dairy company's $196 million net loss for the 2018 financial year.
Jones, who sharply criticised Fonterra's former leadership this year before a change of chairman and chief executive, said while the result was not overly surprising given recent performance indicators, it was time to address what was really wrong with the big dairy cooperative, which was not its product, but people. He noted almost 6000 Fonterra staff earned more than $100,000 a year.
"Based on this performance, they don't deserve the minimum wage," he said.
Jones said new chief executive Miles Hurrell needed to be supported "to clean out the stables", and he should be "fearless". Hurrell was appointed interim chief executive last month, replacing Dutchman Theo Spierings. A global search for Spierings' replacement was suspended.
Jones urged Fonterra leaders to avoid more "flashiness" like its Auckland "space age building" which made him cringe, and get back to business basics and the dairying heartland.
Fonterra was created from an industry super-merger by special enabling legislation, the Dairy Industry Restructuring Act (DIRA), in 2001 to be New Zealand's national business champion. Today it still dominates the country's raw milk market, at last count collecting 80 per cent of all milk.
The annual results included an outline of a plan to lift Fonterra's business performance.
Mark Lister of Craigs Investment Partners said the annual result was disappointing but it was heartening to see "management has taken it on the chin".
"They appear to be owning the mistakes of the past. It's quite refreshing to see a high level of openness. We all want Fonterra to succeed...NZ Inc will be a lot more successful if Fonterra is on track."
Lister attributed the new transparency to the arrival of a new chairman, longstanding farmer-director John Monaghan, and the new chief executive, a long-serving Kiwi member of the company's management team.
Fonterra chairman John Monaghan and interim chief executive Miles Hurrell. Photo/NZ Herald.
"The first signs are very positive that a new leadership team wants to put the past in the past and turn over a new leaf."
Fonterra Shareholders' Council chairman Duncan Coull said the bottom line performance "is nowhere near acceptable for our farmer-shareholders, our investors or the wider New Zealand public".
"We can, and have to, do better."
But Coull said the "very strong" milk price of $6.69/kg milk solids had to be recognised.
"The New Zealand public needs to recognise that out of the $20 billion revenue, a good portion remains in the New Zealand economy because it comes through the milk price."
The milk price translated to about $12 billion in farmers' pockets and to the regions, Coull said.
"But going back to the bottom line, the effect is not only felt in earnings and dividends, but the real issue I have right now is that it's also felt in our balance sheet. Those losses are transferred back into confidence around the share price.
"$2 billion has shifted in the carrying value of our investment in Fonterra. That is a huge number in itself and something the business needs to focus on."
Federated Farmers said Fonterra's net loss after tax was "very disappointing".
"That's the first full-year loss in their [17-year] history. From a $745 million profit last financial to a [nearly] $200 million loss - that's a big drop and they simply must do better," said dairy chairman Chris Lewis.
Jones, noting that he wasn't involved in the current Government review of the DIRA legislation governing Fonterra and the dairy industry, said Hurrell should "focus on a plan that goes back to the ABC of business".
"Don't get deflected by bitching and moaning about legislators and politics because at the end of the day we have an extraordinarily great product. But the way in which they are managing the product, the way they are dealing with overseas markets...I think a whole lot of transparency will help him achieve his turnaround plans.
"Gone are the days you can rely upon spin and opaqueness. In my view that's what has caused people to lose confidence in Fonterra - not necessarily the mana of New Zealand's biggest company but the culture of the people.
"This result shows the capacity to perform has not been enhanced by flashy buildings in Auckland. The new CEO and directors need to step away from these flashy facades and get back to basics of running successful agribusinesses."
Jones said he supported calls for Fonterra headquarters to be in a dairying region.
"One unwise decision I was personally involved with was the relocation of Sealord's corporate headquarters out of Nelson into Auckland. I can assure you that move did not presage a new level of profits at Sealord and I guarantee that is part of the problem with Fonterra."
