Around the time last month that Fonterra downgraded its earnings forecast and postponed dividends, the directors made his position permanent after six months as interim chief executive.
Chairman John Monaghan said Hurrell had demonstrated the wisdom, skills, experience and backbone needed to lead.
“Our current financial performance is not where it needs to be nor will it be fixed overnight.”
Hurrell will have no illusions about the intractable tension between farmgate milk prices and earnings from value-add products and activities.
Since the introduction of market share valuations, Trading Among Farmers and sale of fund units to outside investors Fonterra’s leaders have chased both high milk prices and high earnings, concurrently instead of separately.
Hurrell’s predecessors at the top claimed it could be done but never delivered.
He began his interim term in November with a public goal to restore earnings to give a return on capital of 7% or greater and the implied yield on shares that would satisfy farmers and unit holders.
Judging by the pre-interim results downgrades that goal will not be scored this financial year.
Nor will $800 million of savings deliver a debt ratio within the 40-45% range when share prices dropped into the low $4s following the downgrades, chopping company equity.
Competitors and commentators are nearly unanimous in saying Fonterra’s milk price model inflated milk prices at the cost of balance sheet damage, low earnings and inadequate dividends.
Last financial year’s 10c dividend, an average per farm of $15,000, now appears likely to repeat, as does a milk price in the mid $6s.
Farmers, as members of a pure co-operative with a nominal share price, would not have cause to complain but as investors in a corporate hybrid with an average share capital of $750,000 the grumblings grow louder.
The Ministry for Primary Industries review of the Dairy Industry Restructuring Act must address that conundrum.
Monaghan and Hurrell have also foreshadowed structural changes as well as portfolio divestments, to be floated on March 20 before consultations with farmer-shareholders.
They must address the impression that Fonterra has become too complex for its own good and a twin-company structure, initially rejected by farmer-owners in 2007, might be an answer.
Monaghan said Hurrell’s appointment will bring much-needed stability during a critical period of change.
“This is a fundamental reshaping, not tinkering, and discussions with shareholders will begin after March 20,” he told a media briefing on February 28.
The announcement of Hurrell’s appointment five days later said his leadership and commercial skills are impressive.
His annual salary will be $1.95m plus short and long-term incentives that will be disclosed in the annual financial statement in September.
Predecessor Theo Spierings had a $2.46m base salary plus superannuation payments and bonuses that took his total earnings over $8m in both his last two years in the job.
Monaghan said when Hurrell was appointed interim chief executive he would earn substantially less than Spierings.
“Despite the challenges with our current performance, the fundamentals of this business are strong,” Hurrell said.
“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 would never take the encouragement and support of farmers and unit holders for granted.
Fitch Ratings added to the expectations laid on Hurrell’s shoulders by saying asset sales will be critical in getting debt under control and maintaining its high credit rating.
Chief financial officer Marc Rivers acknowledged stronger earnings are needed to deliver a respectable return on capital in the co-op and a strong balance sheet.
Hurrell has been employed nearly 20 years by Fonterra with experience in Europe, the United States, the Middle East, Africa and Russia.
His immediate former position was chief operating officer of Farm Source.
His confirmation was widely applauded by farm leaders and the share price regained most of the 30c it lost when the downgrades were announced.
Hurrell has also confirmed the permanent appointment of Judith Swales as chief operating officer, global consumer and food service, an acting position she has held since the departure of Lukas Paravicini in January.
She has worked for Fonterra since 2013, initially as Australia and NZ chief executive, then as head of transformation and innovation.
