Fonterra sets new internal share price, 14pc above last season

11.45am

Fonterra Co-operative Group Ltd has set a "fair value" share price for the 2003/04 season of $4.38 -- an increase of 14 per cent on the previous season's price of $3.85.

Standard and Poor's valued the shares in a range of between $4.05 and $4.71 (compared with $3.65 to $4.25 a year ago -- when Fonterra did not choose the midpoint of the range).

Fonterra's directors said today that this season they had adopted the midpoint from within a valuation range provided by independent valuer Standard and Poor's, in accordance with Fonterra's constitution and the Dairy Industry Restructuring Act.

"Fair value" shares were introduced by Fonterra to reflect farmers' investment in the company -- farmers are required to hold one fair value share for every 1kg of milksolids they produce. They are also required to hold another capital instrument, peak notes, in addition to the co-operative shares.

Fonterra sets the value of shares before June 1, the start of the dairy season when most dairy farm and herd transactions occur.

Fonterra chairman Henry van der Heyden said directors were pleased to see that the independent valuer had concluded that the value of the company was increasing.

"Fonterra is making progress despite the difficult international trading conditions we've faced over the past year, and the higher New Zealand dollar," Mr van der Heyden said in a statement.

A significant contributing factor driving the increase in value had been the degree to which Standard and Poor's had recognised that the company had taken costs out of the business.

The increase in the "fair value" suggested Fonterra was likely to exceed its goal of achieving a sustainable annual "total shareholder return" of 13 to 15 per cent, he said.

Fonterra, an effective monopoly that controls more than 95 per cent of the milk supply, was created by an industry merger in October 2001 amid claims it would boost farmer wealth. Fonterra has promised its farmers 13 per cent to 15 per cent annual returns, based on farm productivity gains of 3 per cent to 4 per cent.

Three years ago, under then chief executive Warren Larsen, the Dairy Board had an industry target of 15 per cent growth in revenue. In 2000, it achieved a 19.5 per cent return on assets employed (17.4 per cent in 1999) -- significantly higher than the 11 per cent weighted average cost of capital.

Fonterra will announce its final payout figure for the 2002-2003 season when it releases its full year accounts in July, but Mr van der Heyden said there was no change to the latest forecast of $3.60.

- NZPA