By LIAM DANN primary industries editor
Dairy giant Fonterra has shrugged off currency concerns to report a 7 per cent increase in underlying value.
The company says its share price has risen to $4.69 - up from $4.38 last year.
Chief executive Andrew Ferrier said the increase recognised an improved performance by the
business in terms of cost-cutting, debt reduction and growth outlook.
"Part of this increase is the improvement in the long-term prospects of Fonterra," he said.
Because Fonterra is a farmer-owned co-operative, rather than a listed company, its constitution requires it to set a theoretical price based on an independent valuation by Standard & Poor's.
The credit rating agency valued Fonterra at between $4.34 and $5.05 per share (compared with a range of $4.05 to $4.71 last year).
Fonterra has set its fair value share price at the mid-point of that range. In theory the new figure means Fonterra's 12,600 dairy farmers just got richer but the only way they can sell their shares is by exiting the dairy industry.
Critics of Fonterra, the world's second-largest dairy co-operative after Dairy Farmers of America, have called the fair value share price meaningless because it is not tested on the market.
Ferrier said Standard & Poor's had been rigorous in its valuation.
"The valuer looks at the current year's performance but more importantly at how the business is tracking to meet targets it has set in the past.
"It's a difficult test to pass. But they are [acknowledging] that we are growing the value of the business."
Dairy Farmers of New Zealand chairman Kevin Wooding said the result would be welcomed by co-op members.
Despite being a theoretical share value it did provide farmers with very real security: "I can borrow against them at the bank."
Chairman Henry van der Heyden yesterday indicated that because of the lower kiwi dollar and increased strength in commodity markets Fonterra would revisit payout forecasts for this season and next season. The board will meet within the next month to consider the forecasts, $4.15 per kg/ms for 2003/04 and $3.50 per kg/ms for 2004/05.
