Fonterra sets share price at $4.38

By LIAM DANN PRIMARY INDUSTRIES EDITOR

Fonterra says its share price increased 14 per cent last year, despite falling commodity prices and a lower payout to farmers.

Yesterday the dairy company set its "fair value" share price at $4.38 for the 2003-2004 season - up from $3.85 last season.

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 $4.05 and $4.71 per share.

The new share price gives Fonterra a capitalisation of about $6 billion. That includes the total of shares plus peak notes - another capital instrument held by farmers.

Based on that figure, Fonterra would not be the largest company on the stock market if it listed today.

Telecom has a market capitalisation of $9.7 billion. However Fonterra is a far bigger company by revenue, turning over more than $14 billion a year compared to Telecom's $5.5 billion.

The news that they are richer on paper will offer small comfort to dairy farmers who have seen their incomes drop dramatically in the past year.

Fonterra chairman Henry van der Heyden said the share price represented a long-term view of the company's performance. It was positive and showed value had been created despite the difficult year.

"We're not going take a pat on the back but it does show we're making progress in the business," he said.

The added value was driven by cost savings and efficiency gains across the supply chain, in manufacturing and in corporate expenditure, van der Heyden said.

It reinforced what the company had been saying about the value of the merger, he said.

Dairy industry analyst Tony Baldwin questioned the point of the valuation: "The whole process is completely artificial. The only way to get a real value is to allow farmers to trade a percentage of their shares among themselves."

He likened the process to getting a Government valuation on a house.

"It's subjective. The real value is likely to be higher or lower," he said.

The Standard & Poor's valuation considered trends in global commodity prices, product mix and forecast volumes, foreign exchange rates, global capital costs and trends in fixed and variable manufacturing costs.

Fonterra's worth

Fair value share price: $4.38

Total shares: 1.11 billion

Plus peak notes (value): $1.18 billion

Capitalisation: $6.04 billion

Telecom market capitalisation: $9.7 billion