Fonterra holds payout, issues bonus shares

Higher prices in the second half of this dairy season has lead Fonterra to hold its forecast farmer payout. Photo / File photo

Fonterra, the world's biggest dairy exporter, has held its forecast farmgate payment on expectations of higher global prices in the second half of the season, and wants to grow its winter milk supply, meaning a tinkering with the capital structure.

Farmers are still expected to be paid $5.50 per kilogram of milk solids, with forecast earnings per share unchanged at between 40 cents and 50 cents, the Auckland-based cooperative said in a statement. That's based on the dollar holding at current levels for the rest of the season, and a stronger currency may impact the forecast, it said.

We had a strong start to the season and milk collection volumes were running 6 per cent ahead of last season on a year-to-date basis," chief executive Theo Spierings said. "However, the dry conditions mean we are currently forecasting total milk collection volumes to finish approximately 1 per cent ahead of the full season."

Separately, Fonterra said it plans to issue one share or unit in the Shareholders' Fund for every 40 held on April 12 at no cost to match any increase in production next season. The cooperative intends to introduce a dividend reinvestment plan in October, and plans to conduct another supply offer for farmer shareholders to sell their dividend rights into the fund last this year.

The dairy exporter has modified its growth contracts to give more time and options for growing farmers to buy shares which meet their production.

The issue will increase the share base by 2.5 per cent, and while diluting dividends per share or unit, won't impact on the total return to farmers and investors, Fonterra said.

"With a stable capital base, we now have certainty and can offer farmers more ways to grow milk supply and given them more time to share up," chairman John Wilson said.

The new measures were welcomed as "pragmatic initiatives" by the Fonterra Shareholders' Council, which represents the interests of Fonterra farmers.

"The bonus share issue will ease pressure on Farmers, some of whom may have struggled to stay with the co-op due to the requirements to meet the share standard, particularly given the tough conditions many suppliers are facing at the moment," said chairman Ian Brown.

"Also important is that the redistribution of profit, in the form of the bonus shares, reinforces the Board's claim that TAF was not a revenue gathering operation."

The new contract options would bring some relief for new and existing suppliers, Brown said.

"The proposals go a long way to ensuring enduring Farmer ownership and control of Fonterra.

"The revised contracts will enable farmers to come into the co-op without the issue of share price acting as a hindrance and ease the path to Farmers becoming fully share-backed suppliers."

Fonterra Shareholder Fund units are 31 per cent above their offer price at $7.27 and shares in the cooperative last traded at $7.20.

The company also announced it will spend more than $100 million on a new UHT processing plant at its Waitoa plant in the Waikato as it aims to double UHT production over the next few years.

- with nzherald.co.nz