F o n t e r r a

The new leadership team has brought a new dynamicto Brands, and building talent and expertise continuesto be a priority.“Nurturing talent is the most important agenda acrossFonterra Brands. We have good people and the morewe develop their capabilities, the more our performancewill increase. A teams get A results while B teams getD results.”Power Brands and Foodservices, continue to clean uphistorical underperformers (both brands and markets),and reduce costs by simplifying the business.“We’ve had some great results this season and theyfuel our desire to continue to perform. We have someambitious goals for the next few years, but it’s all aboutconsistently pushing our Winning through Brands!strategy to meet our financial targets.”Priorities for the next financial year are to keep buildinga strong talent base, drive further growth in theLESS COMPLEXITY, MORE PRODUCTIVITYGUY COWAN26GUY COWAN - CFO>As a lean business, Fonterra is striving for less complexity,faster decision making and greater productivity. It isalso targeting costs, including more effective finance, ITand procurement, driven by CFO Guy Cowan.Fonterra achieved over $130 million in cost savings forthe season. Of that, $30 million came from reducingunnecessary costs, eliminating duplication in Financeand centralising procurement.“We have brought all the previously duplicated activitiesunder one governance structure and we’ve put expertsin to manage those functions. As a result, we have notonly hit our cost reduction targets for the season, buthave also identified savings to be delivered over thenext three years,” he says.In procurement, over $100 million in savings will beachieved over three seasons. A specialist team headedby an expert procurement negotiator and managercurrently covers New Zealand and Australia and will berolled out across Asia.Under their control are major contracts for packaging– Fonterra spends $400 million a year on that alone– energy, engineering services, consulting and more.For example savings of more than $25 million havebeen achieved by rationalising Fonterra’s tanker fleet toone specification and carrying out a competitive tendercovering long-term maintenance contracts.CONSOLIDATION CUTS COSTSBringing all of Fonterra’s Information Services underone management structure supporting Fonterra’s globaloperations provides the opportunity to standardisesoftware, infrastructure spend and applicationssupport, driving costs down without compromisingservice levels.An increasing number of financial transaction processesare now consolidated under Fonterra Business Services,where costs have been reduced year on year. The teammanages payments to suppliers, collects cash fromcustomers, controls the fixed asset register and preparestrial balances and general ledger reconciliations.“That move and the centralised management of GlobalTreasury means we control cash better, we have muchbetter transparency around our cost structures andaccess to all the necessary financial information toensure the business can make sound decisions quickly.It also means we can focus finance staff on valueadding activities supporting critical decision makingand performance tracking.”“The end game is to run integrated systems across nomore than one or two platforms, updating data bases inreal time so that management and financial informationis accessible with minimum manual interface.”“We are heading in the right direction there. Ultimatelywe will have one system and one financial databasewith reporting tools that deliver a higher level ofinformation that will make us better at anticipatingwhere we can maximise returns. For example, using oursystems we will be able to determine which customersand products give us the highest contribution and tailorour production to maximise that contribution.”FOREIGN EXCHANGE REVIEWAs well as implementing a shared services model, GuyCowan keeps Fonterra’s foreign exchange managementunder review as the New Zealand dollar reachedhistorical peaks against the US and looks likely totrend down.“We have benefited from having 15 month hedgingas the currency has appreciated and that’s given usadditional revenue over the past three years. But as thecurrency has begun to peak, we have had to look againat how we manage the situation so we can actively addvalue. For example when currency is weak it is clearlybest to lock in positions, but as it rises we want tomake sure we keep the door open to gain from anycurrency depreciation.