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Fonterra Makes Changes To Support Growth And Focus

5 December 2003

FONTERRA MAKES CHANGES TO SUPPORT GROWTH AND CUSTOMER FOCUS

Fonterra Co-operative Group has announced organisational changes that will accelerate growth and place a greater focus on customers. These involve more resources being deployed in Fonterra's global consumer products businesses, changes to the Fonterra senior management team and the establishment of a shared support services model.

Announcing the changes, Fonterra's Chief Executive Officer, Andrew Ferrier, said that as the co-operative moved into its third year it was vital to create the best environment for growth, to further improve Fonterra's performance for its shareholders.

"We are one company with two distinct businesses in ingredients and in consumer dairy products. Our long-term performance depends on ensuring each of these businesses is focussed on growth and improving their value-added performance."

A shared support model will provide services to both the co-operative's businesses. As part of the re-organisation, it is proposed that New Zealand Milk, the consumer products business, will transfer to Fonterra's new Auckland head office in Princes St by about May 2004.

"Sharing support functions will give both businesses access to the best talents we have in areas like finance, HR, information systems and strategy, while retaining their ability to function independently in their very different business areas," said Mr Ferrier.

"This drives operational excellence through removing duplication, allowing greater efficiencies and lower costs. Our people are Fonterra's greatest asset, so by adopting this model we are ensuring both our business units have better access to the Fonterra leadership team and work in an environment that will enable skills, experience, and talent to be readily shared."

Mr Ferrier said the reorganisation recognised that New Zealand Milk and Fonterra Ingredients were separate businesses, operating independently and they would have specialist support available to them as necessary.

"The major focus here is on what can logically be shared to encourage greater efficiencies, while allowing each business to pursue its own aggressive growth strategy - particularly in value-added products."

Mr Ferrier said this was the logical progression of the recently announced consolidation of Fonterra's Auckland offices and initiatives underway in the supply chain and IT infrastructure.

"We are about to bring seven Auckland offices together under one roof to get us all working much closer together with a shared vision. It makes sense to bring New Zealand Milk closer to where it can share the same benefits and working opportunities."

Mr Ferrier emphasised New Zealand Milk's continued independence. "It is important for New Zealand Milk to continue to develop as our fast-moving dairy consumer products company and this new model will effectively increase the business unit's profile within Fonterra."

Another key initiative was the decision to transfer 10 New Zealand Milk Wellington-based product category management roles out into the global market.

"New Zealand Milk's growth strategy is built on managing our consumer products from a global perspective. This means when we have successes with products in one market, we can quickly transfer the research, development and marketing knowledge to create new revenue opportunities in other markets. Our category management teams will be at their most effective when they can see consumer trends first hand in the market," said Mr Ferrier.

New Zealand Milk's Managing Director, David Pilkington, has regrettably decided he does not want to leave Wellington for family reasons, but has agreed to remain with Fonterra as a consultant and will continue to serve on the Dairy Partners America's board, Fonterra's alliance with Nestle. David will continue in his current role until a global search identifies his successor and the reorganisation is finalised.

Mr Pilkington said he was supportive of the organisational changes, and was particularly optimistic about New Zealand Milk and Fonterra's future potential.

"We are getting the right structure to capitalise on the market opportunities and to gain the benefits from integration," said Mr Pilkington.

As part of the reorganisation and the move to a shared services model, Mr Ferrier has announced a number of senior management changes.
Mr Ferrier said the role of Chief Development Officer would cease to exist in its current form and Alexander Töldte had decided to leave the company.

"Alexander used the full depth of his large-scale merger experience during Fonterra's first years. We have drawn heavily on his technical knowledge as our global outsourcing project has been worked through. He played a leading role in the development of the Fonterra Strategy and in the performance improvement of the businesses reporting to him. The skills that have been so valuable to us as we have bedded the merger down and planned our future path are in great demand and we wish Alexander well in his next assignment."

The current Chief Financial Officer Graham Stuart would assume the new role of Group Director Strategy and Growth, helping to drive the implementation of the Fonterra strategy in conjunction with Mr Ferrier and the Fonterra Leadership Team. The creation of this new position reflected the stronger focus being placed on examining all opportunities for growth, particularly through the mergers and acquisitions that could springboard Fonterra into new market positions. This role would encompass Mergers and Acquisitions as well as Government and Trade Strategy, Legal, Information Services and Technology.

Mr Ferrier said Fonterra would be undertaking a global search for a new CFO.

Glen Petersen, as Director Human Resources, had also decided to pursue other career opportunities outside the dairy industry. A global search would be undertaken for his replacement.

Mr Ferrier said Mr Petersen had also made a valuable contribution during the formation and first three years of Fonterra, establishing the basis for the Co-operative's shared culture.

"Bringing three distinct and strong cultures together represented an enormous hurdle from the HR perspective and Glen rose to the challenge."

Mr Töldte and Mr Petersen would remain in their current roles until the end of the year. Mr Stuart would undertake the CFO's role in addition to his new role until a suitable candidate was found.

Mr Ferrier said he was confident the changes would have the full support of Fonterra's shareholders, a statement endorsed by Chairman, Henry van der Heyden.
"The Board unanimously endorses these moves. It avoids duplication and the costs associated with that, but most importantly, these changes see Fonterra making the best use of our financial and people resources. Our shareholders will always judge us by our performance and will recognise the business merit of these changes."

Mr Ferrier said a number of New Zealand Milk staff would be consulted about the proposal to transfer to Auckland by May 2004. This consultation process would begin immediately. While the proposal would involve some redundancies, it would also open up new roles in Auckland.

Mr Ferrier, who joined Fonterra last September, said the changes were consistent with his four priorities for the co-operative - operational excellence, recognising that Fonterra's success was based on the strength and commitment of its people, increasing value-added earnings and having a true focus on customers.

Mr Ferrier said the restructure and accompanying senior management changes were hard decisions but they had had to be made to get the business in the best shape to deliver on Fonterra's growth targets.

"I am confident these changes will sharpen our focus and ensure Fonterra delivers on its promise for its farmers and New Zealand."

ends

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