March 4, 2019 / 10:26 PM / 4 months ago

UPDATE 2-NZ dairy giant Fonterra backs Hurell for CEO as challenges loom

* Miles Hurell appointed permanent CEO with immediate effect

* Hurell has been interim CEO since August last year

* Fitch revises Fonterra outlook to negative from stable (Recasts with comments from CEO, Fitch outlook, background)

By Praveen Menon

WELLINGTON, March 5 (Reuters) - New Zealand dairy group Fonterra appointed acting chief executive Miles Hurell as its new CEO on Tuesday, confirming him in the top job at a time when the co-operative faces growing challenges to maintain profitability.

The world’s largest dairy exporter cut its annual earnings outlook last week as extreme dry weather in New Zealand hit milk supply, and said it would not pay an interim dividend, sending its shares lower.

Hurell has been the co-operative’s interim CEO since August last year, when he took over from Theo Spierings just weeks before the group announced its first annual loss.

“Miles has been performing well under difficult circumstances,” Fonterra Chairman, John Monaghan said in a statement.

“Our performance is not something that will be fixed overnight. It will require the courage to make difficult decisions...,” he added.

Fonterra’s traded fund ticked up 0.7 percent on the local bourse after the announcement, but is still down by around 8 percent so far this year.

Earlier on Tuesday, Fitch revised the rating outlook on Fonterra to negative from stable, due to the reduction of its forecast earnings.

The ratings agency said the co-operative has “structural issues” that needs to be addressed to retain its historically strong business profile.

In response to Fitch’s review, Fonterra acknowledged in a separate statement that its earnings performance was not satisfactory and noted it was taking steps to boost return on capital.


Losses in the 2018 financial year prompted Fonterra to begin a global review to assess how each of its assets and joint ventures support the company’s strategy and if they are hitting their targets for return on capital.

The review will look at reducing debt by NZ$800 million ($544 million) by the end of the 2018/19 financial year, through selling assets or reducing ownership in certain assets.

It will also study ways to reduce capital expenditure and operating expenses.

Hurell said on Tuesday that despite the challenges facing the business its fundamentals are strong.

“To realise our potential we need to get the basics right and that means a full review of our strategy and ultimately, a fundamental change in direction,” he said.

Fonterra said Hurrell will be paid a base salary of NZ$1.95 million, with additional short and long-term incentive payments based on meeting targets agreed with the board.

$1 = 1.4708 New Zealand dollars Reporting by Praveen Menon; additional reporting by Syed Saif Hussain Naqvi in Bengaluru; editing by Tom Brown and Richard Pullin

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