Ann: GENERAL: FSF: Fonterra announces findings of

• Release Date: 04/09/13 17:25
• Summary: GENERAL: FSF: Fonterra announces findings of its Operational Review
• Price Sensitive: No
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FSF
04/09/2013 15:25
GENERAL

REL: 1525 HRS Fonterra Shareholders' Fund (NS)

GENERAL: FSF: Fonterra announces findings of its Operational Review

Fonterra has today announced the findings of its operational review,
commissioned by Chief Executive Theo Spierings, immediately following the
Co-operative's recent precautionary recall.

Mr Spierings said that the precautionary recall was not the result of any one
single cause, but rather was the result of a number of separate and unrelated
events occurring in an unforeseen sequence.

"I commissioned the operational review, led by our Group Director of
Strategy, Maury Leyland, to find out what happened and why, and to understand
what actions we can take to prevent this from happening again.

"The Operational Review has enabled us to strengthen our systems, while
continuing to process this season's fast-growing milk flows.

"At Fonterra, we already have world-class manufacturing facilities, quality
systems, and robust testing regimes in place. This event has stress-tested
all of them. Overall our systems worked well, while some aspects showed room
for further improvement."

In summary, the findings are:

- The decision to reprocess the original WPC80 and not downgrade the product,
in combination with the use of an item of non-standard equipment, was the
cause of the contamination.
- A one-off lapse in information sharing across two parts of the business led
to delays in testing.
- This issue should have been escalated to CEO-level earlier.
- A major upgrade of the computer systems at some of our sites immediately
prior to the recall resulted in product tracing taking longer than it should
have.
- Although Fonterra has clearly established domestic and international
product recall systems, the size and complexity of the WPC80 recall was a
factor, particularly given the product had itself become an ingredient in the
products of multiple customers.

To help prevent an incident like this from happening again, Fonterra is
implementing a number of improvements which will:

- Ensure our world-class food production standards continue to be maintained
at all times, across all sites, in areas such as quality control, testing,
and product specifications.
- Further increase the business' focus on quality and safety across the
end-to-end supply chain.
- Increase transparency, internally and externally, to improve information
flows and the speed of escalation.
- Ensure Fonterra strengthens its product recall and supply management
systems which allow the tracing of all product that is in its control, and
collaborates with customers on how to link different supply chains and
quickly trace products.

"We are well underway in implementing these improvements.

"We have already created a new role of Group Director of Food Safety and
Quality reporting directly to the CEO, strengthened the remit and scope of
our Food Integrity Council, and launched an internal Food Safety and Quality
Hotline for staff and contractors to escalate any concerns about potential
food safety risks. We have also completed quality audits at our sensitive
nutritional plants, including Hautapu.

"Shortly prior to the recall, we had upgraded the computer system in some of
our sites, and had yet to complete comprehensive training, which affected the
speed at which we were able to trace product. We have now completed this
training and are confident that our people can use this system to efficiently
trace products across our entire supply chain.

"Having completed these actions, we are now focusing on a review of any
upcoming system changes and strengthening our crisis management capability.

"We also plan to carry out a wide-ranging review of our traceability systems
in our global businesses. We are introducing additional authorisation
requirements for non-standard processing and testing, and are conducting
specialised audits of our global manufacturing plants and product quality
standards.

"We have learnt a lot throughout this process, about things that worked well
and things that can be improved. For me, the thing that stands out as a key
strength is the collaboration and co-operation that exists between Fonterra
and our nutritional customers. Our close working relationships enabled us to
act quickly with the common goal of protecting public health.

"We are doing everything in our power to maintain absolute confidence in our
processes and products, and to strengthen New Zealand's already strong food
safety and quality system.

"Even though the whey protein concentrate test result proved to be a
false-positive, we are not going to miss this important opportunity to step
up across our entire business.

"In world-class companies, there is a constant focus on finding ways to
improve in every aspect of your operations. As a world-leading supplier of
dairy nutrition, this is what we are doing - and I am confident that the
action plan we have announced today will make us even stronger," Mr Spierings
said.

A summary of the findings will be made available early next week. Fonterra's
action plan resulting from the operational review will be supplemented by
recommendations made as a result of the Fonterra Board's independent inquiry
and the two government inquiries currently underway.
End CA:00240696 For:FSF    Type:GENERAL    Time:2013-09-04 15:25:38