Fonterra seeks feedback on capital structure

Photo / Christine Cornege

Fonterra is seeking views from its farmers on the co-operative's capital structure review.

It contacted farmers on Tuesday with a survey to complete, saying it wanted to hear their views on the capital structure, changes they might like to see and the principles the board should consider throughout the review.

In an email, chairman Peter McBride said the past few months had been spent reviewing potential options, including staying with the current structure.

Every option had its own merits but also involved "some form of trade-off".

The feedback from farmers would be considered as part of the board's decision-making process as it moved towards a preferred option. If change was recommended, it was likely to include a shareholder vote.

As well as the review, the board's other priorities for 2021 included continuing to navigate the challenges presented by Covid-19 and delivering a strong milk price and its forecast earnings, McBride said.

It was also focused on implementing its strategy while clearly defining its longer-term strategic aspirations, and completing its portfolio review work through previously announced asset divestment processes.

That included the sale of Fonterra's two wholly-owned farming hubs in China - announced in October - to Inner Mongolia Natural Dairy Co Ltd.

The transaction received anti-trust clearance last month and, subject to obtaining the remaining regulatory approvals in China, Fonterra expected to complete the sale within this financial year.

The transaction value initially indicated of 2.31 billion RMB ($NZ496 million) remained subject to usual purchase price adjustments and Fonterra intended to use the cash proceeds from the transaction in its overall debt reduction programme.

Meanwhile, Synlait Milk has bumped up its forecast base milk price from $6.40kg ms to $7.20 for the 2020-21 season.

In a statement, the Mid Canterbury-based processor said the decision was driven by the strong increase in dairy commodity prices over recent months and the company's view that commodity prices would remain around current levels for the remainder of the milk season.

Fonterra's current range was $6.70 to $7.30.

In a recent note, ASB economist Nathaniel Keall said all the indicators continued to suggest demand for dairy products was likely to hold up well, through to the end of the season.

Solid purchases from China had anchored price gains at recent auctions and, with the latest Chinese figures showing a decent lift in GDP, there was little reason to think the story would change. A slightly tighter supply outlook was another price support.