Fonterra's result achieved a favourable response from the sharemarket but its proposal to cap the Fonterra Shareholders Fund - which gives investors access to the co-op's dividends - has attracted some pushback.
John Shewan, chair of the Fonterra Shareholders Fund, said retaining the fund, but removing features that support growth, liquidity, and relevance to investment markets, could put downward pressure on the units' prices
He said changes required to meet the objectives set out in the capital structure review provide a natural break point in the life of the fund.
"Given the significant changes in circumstances and the lack of a compelling purpose for the Fund, it is equitable and appropriate that unit holders be given the opportunity to consider an offer to buy out the Fund at fair value," he said in a detailed written response to the proposals.
Shewan said capping the size of the fund and removing the ability for Fonterra shareholders to exchange shares for units is expected to have a dampening effect on liquidity, which has already drifted steadily lower over the five years.
He said the reduced size of the fund has caused it to become less relevant within the S&P/NZX50 Index.
The fund currently sits at number 46, having dropped from 25 in the index when it was listed in 2012.
He said there was a risk that the Fund will drop out of the index in the near future, which could cause a flow of liquidity away from passive investors.
Craig's Investment Partners head of private wealth research, Mark Lister, said the result and capital proposals - including plans for a partial float of its Australian foodservice holding and the sale of Soprole in Chile - were well received by sharemarket.
He said the result was a little ahead Craigs' expectations and he said it looked like operationally, progress had been made.
As far as the fund was concerned, the fear earlier in the year had been that it would be bought back, but this now looked unlikely.
Opening up access to Fonterra shares to sharemilkers would be a welcome move, as would the disposal of some of its remaining offshore assets.
"Looking back at Fonterra's history, it has not always had the best success with its forays into the rest of the world," Lister said.
"A refocus on the core business in New Zealand, which they know and understand, and where they have a long and successful history, is probably a positive thing," he said.
"Some of the previous versions of management and boards have had a bit of a world domination strategy and that has not succeeded, so it is sensible."
Fonterra's units last traded at $3.88, up 8c, while the farmer only shares rallied by 15c to $3.25.
Jarden's head of research Arie Dekker noted that the units had been weak since capital structure changes were announced.
"Uncertainty on that may continue to overshadow what we think was a positively positioned, and ambitious, outline on Fonterra's direction, supported at this stage by a second year of more solid results," he said in a note.
In is result, Fonterra said its net profit dropped by $60 million in its latest financial year, driven by high milk prices.
The co-op said milk prices were likely to stay strong, which may crimp future earnings.
Fonterra's "reported" net profit came to $599m for the year, compared to $659m in 2020, while its "normalised" profit after tax came to $588m, up $190m.
The co-op announced a dividend of 15c a share, taking the total to 20c, compared with last year's total of just 5c.
On a normalised basis, Fonterra's earnings per share came to 34 cents, the top end of its guidance of 25 to 35 cents.
The co-op settled on a $7.54 per kg of milksolids milk price for the season just finished, taking the total payout for 2020/21 to $7.74/kg.