Friday, 25 November 2022 08:55

Fonterra Fund unit price slumps

Written by  Sudesh Kissun
Outgoing chair of FSF management company John Shewan. Outgoing chair of FSF management company John Shewan.

Fonterra's new capital structure has been partly responsible for the slump in price investor-held units, the Fonterra Shareholders Fund (FSF) annual meeting heard last week.

Outgoing chair of FSF management company John Shewan told the meeting that unit price decreased 8.4%, from $3.71 in August last year to $3.40 on September 22 when Fonterra released its annual results. Since then, the price has dropped a further 10.9% to $3.03.

"How the implementation of Fonterra's new capital structure might impact the unit price has played its part in subduing the price," Shewan says.

There was a sudden drop in the unit price towards the end of April and into May 2022.

This coincided with the release of the report by the financial and economic consulting firm Castalia.

Shewan says the report contained a number of assertions that Fonterra did not agree with.

"The Castalia report asserted that protections for a fair milk price will be eroded and that Fonterra's capital restructure will cause Fonterra's Milk Price to increase," he says.

"Castalia also estimated Fonterra's future share price on the basis of possible dividends up to 2030 but appeared to assume that Fonterra has zero value at the end of 2030.

"Fonterra, as does the board of the manger, considers this to be a misleading approach to valuing Fonterra shares and FSF units."

Shewan says Fonterra also strongly disagrees with the contention that the capital structure changes will increase its milk price paid to farmer suppliers.

Other factos also impacted the unit price.

Shewan says the unit price performance was also impacted by heightened volatility in equity markets and the lower valuation of equity markets both in New Zealand and overseas.

"This reflects uncertainty driven by inflationary pressure, higher interest rates, geo-political events and recessionary concerns," he says.

He pointed out that the relative NZX50 Index has declined 12.7% over the same period.

The independent directors of FSF still believe that the co-operative should have bought the Fund back, as part of its capital restructure process.

"I believe that the sequence of events and adverse impact on unit price since the May 2021 announcements shows very clearly why our concerns were entirely justified."

Instead of spending about $500m to buy the Fund, the co-op instead decided retaining the fund and capping its size.

But the implementation of Fonterra's new flexible shareholding capital structure has created uncertainty for unit holders and potential investors over what the impact might be on the unit price.

Shewan says this uncertainty may reduce as implementation of the new capital structure proceeds through 2023.

The Fund is currently capped at 107.4 million units and valued at $325m last week.

The drop in unit prices shaved off $93m from the fund's market capitalisation, from this time last year.

Shewan has been replaced as chair by Mary-Jane Daly.

More like this

Cynical politics

OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.

Why is butter so expensive in New Zealand? Fonterra explains

Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.

Featured

T&G Global returns to profitability

Fresh produce grower and exporter T&G Global has overturned last year’s dismal performance by reporting a half year net profit of $1.7 million.

Rural backlash over plan to cut police staffing

Federated Farmers North Canterbury president Bex Green says two public meetings held this week should have made it loud and clear that rural families and businesses are concerned about proposed staffing changes at NZ Police.

DairyNZ thanks farm staff

August 6 marks Farm Worker Appreciation Day, a moment to recognise the dedication and hard mahi of dairy farm workers across Aotearoa - and DairyNZ is taking the opportunity to celebrate the skilled teams working on its two research farms.

Editorial: Getting RMA settings right

OPINION: The Government has been seeking industry feedback on its proposed amendments to a range of Resource Management Act (RMA) national direction instruments.

National

Machinery & Products

» Latest Print Issues Online

The Hound

Trop de Paris!

OPINION: Your old mate's ear has been chewed off recently by farmers voicing their displeasure with the National Party, particularly…

NZ vs Aussie beef

OPINION: Your old mate hears that at a recent China Business Summit, PM Christopher Luxon delivered a none-too-subtle "could try…

» Connect with Rural News

» eNewsletter

Subscribe to our weekly newsletter