Share value uncertainty stalls Dairy Foods' listing

New Zealand Dairy Foods says it is holding off listing on the Stock Exchange because of uncertainty over the values that would be placed on its shares.

Dairy Foods, half-owned by New Zealand Dairy Group, had planned to list by mid-October, despite resistance from some of its farmer shareholders.

The second biggest domestic dairy marketer is also half-owned by about 7000 of Dairy Group's North Island farmer suppliers, who last year were given 70 million shares, then valued at about $120 million.

Dairy Foods has wanted to list at least its present 140 million shares on the Stock Exchange, but some shareholders have argued that the company should continue to be owned exclusively by farmers.

The announcement to hold off listing, in the annual report, will now be discussed at the annual meeting on August 25, near Hamilton, chairman Brian Allison says.

Mr Allison said in his report to shareholders that difficulties with pricing milk supplies of the domestic market, including retrospective valuation of the milk, and cost-inflation through bundling of capital costs from the export sector, were hurting the company's existing share values.

In March 1999, the company's B shares, held by farmers, were valued at between $1.79 and $1.93 each, partly based on an estimated net profit after tax of $28.5 million.

But since then, a marked lift in export returns had pushed up the price of milk.

"This, in turn, drives our profit expectations down and has a corresponding effect on the company's value," he said.

But Mr Allison said a Stock Exchange listing, with full tradeability, would also enhance the value of shares.

Industry observers have said that if the listing cannot be completed by the end of October, it is unlikely to occur until next year, after the summer holidays.

The company is considering buying milk from farmers outside Dairy Group to reduce the uncertainty and risk it faces from the way its milk supplies are priced.

Mr Allison said the company had been hurt when buying its raw materials by having to match the high export prices available to the dairy industry.

In effect, the soaring export market was setting the benchmark for what Dairy Foods paid for product for its domestic market.

High export prices could not all be passed on to local consumers without triggering a loss of competitiveness.

The company's shareholders might appear to be gaining on the roundabouts of dairy exports more than they were losing on the swings of the domestic market.

Shareholders also receiving export returns were markedly better off than any shareholders who held only Dairy Foods shares.

"The directors of New Zealand Dairy Foods are obliged to act in the interests of the company," Mr Allison said. "This means we shall have to pursue strategies which minimise the effects of the current milk pricing arrangements."

The company would also review its milk, butter and cheese supply contracts with Dairy Group to see if they could be refined.

Under the systems developed for a cooperative industry, the bundling of capital costs into milk pricing inflated the prices paid for milk supplied to the domestic market.

Dairy Foods returned earnings before interest and tax of $390.43 million for the year to May 31, 2000 ($384.48 million in 1999). Its operating surplus was $36 million (down from $42.04 million).

- NZPA