Fonterra's big September: strategy nitty gritty, FY21 results and capital structure rethink

Fonterra's Auckland headquarters. Photo / File

Fonterra is on track to soon reveal the shape of its future, detailing its longer term business strategy and the result of a second look at its proposed capital restructure - including the fate of the Fonterra Shareholders' Fund.

While Covid measures look set to derail further face-to-face consultation with its dairy farmer-owners, New Zealand's biggest business still intends to publish in September the next stage of its reset business strategy for the next five to 10 years, laying out earnings and investment forecasts and targets.

Also coming next month, though likely to be after the strategy detail and closer to Fonterra's 2021 year financial results on September 23, will be the result of directors' review of the capital restructure proposal announced in May.

While they will be separate announcements, the two go hand in hand as far as many of Fonterra's 10,000 shareholders are concerned.

Before they are called on to vote for a capital restructure, likely in December at their annual meeting, shareholders during recent intensive consultations with Fonterra leaders said they wanted more detail on the company's business strategy.

It was reset in 2019 under a largely new board and management after disastrous financial results and $4 billion of shareholder wealth destruction under the old strategy of overseas investments - particularly in China - and building offshore milk pools.

The cooperative's balance sheet looks to be recovering, but stakeholders wanted to know what the new strategy, which focuses on the quality of New Zealand milk and financial gains from IP and research and development, looked like longer term.

Meanwhile, following those consultations, Fonterra's leaders in July said they would consider a number of changes to the preferred capital restructure package - including adjusting the proposed minimum shareholding requirement for farmers and enabling sharemilkers and contract milkers to own shares.

The result of that review - which will be subject to further consultation with farmers - would include a recommendation on the future of the Fonterra Shareholders' Fund, the company told the Herald.

Part of the May restructure proposal was to wind up or cap this listed fund, which enables Fonterra farmers to convert their non-milk-supply shares into dividend-carrying, non-voting units, and the public to buy units in Fonterra shares.

Fonterra would therefore move to a farmer-only share trading market.

The other part is to relax Fonterra's share standard - the amount of share money a farmer must stump up each year in order to buy shares to supply milk and join the cooperative.

Faced with Fonterra's need to capture a sustainable milk supply in a flatlining and likely shrinking national milk production landscape, the proposal was to change the share standard from one share purchase for every one kilogram of milk solids supplied, to one share for every four kg.

Overarching everything in the capital restructure debate is the ambition to retain farmer ownership and control of Fonterra.

After feedback from nearly three months of farmer consultations, the Fonterra board said it would consider changes to the proposal including: setting the minimum shareholding requirement at 33 per cent of milk supply or one share per 3 kg milk solids, rather than 25 per cent or one share per 4 kg; and enabling sharemilkers and contract milkers to hold shares if the co-op moved permanently to a farmer-only share trading market.