Fonterra Farmers Embrace Flexibility in Shareholding Amid Positive Market Trends
Source: DairyNews.today
Fonterra’s flexible shareholding initiative has continued to gain traction, with more than 3,000 of its 8,000 shareholding farms now opting out of the traditional one-to-one share standard, where farmers hold one share for every kilogram of milksolids supplied in a season. This shift represents a significant change, as 400 more farms have embraced flexibility over the past 10 months alone.
Since the introduction of flexible shareholding just 18 months ago, Fonterra reports that 552 farms now hold 33% or less of their share standard. These farms are often new to Fonterra or farm ownership and are leveraging the flexibility that allows them six years to meet the minimum shareholding requirement of 33%.
Additionally, 1,034 farms hold between 33% and 79% of their entitlement, while 1,422 have more than 120% of their share standard. Under the revised rules, farmers can own up to four times their share standard, allowing them to increase their investment in the co-operative.
This growing confidence in Fonterra’s profitability has been reflected in the sharp rise of its supply share price, which has surged by 60% over the past 10 months, climbing fr om $2.20 to $3.50. A significant part of this increase occurred in May when Fonterra announced plans to divest its consumer businesses, raising the prospect of a potential cash distribution of up to $2 per share.
The average Fonterra farm holds around 150,000 shares, which, at the current price, are valued at approximately $525,000. Ahead of its FY24 results announcement, Fonterra has already signaled that it expects earnings of approximately 70 cents per share, fr om which it plans to distribute 40-60% as a full-year dividend, less the interim 15-cent dividend already paid.
The flexibility report highlights that more than 10% of Fonterra’s shares are owned by ceased shareholders or permitted transferees. These shareholders have up to 15 years to sell their shares, allowing them to remain investors for an extended period.
Currently, 5,129 farms own between 80% and 120% of their share standard, collectively holding 949 million shares, which account for approximately 59% of the total shares issued (1.609 billion). Before the introduction of flexibility, these farms would have represented a substantial majority of all supply farms.
Fonterra has advocated that flexible shareholding is essential to maintain its 80% share of New Zealand’s milk collection, especially in a competitive market wh ere other processors do not have shareholding requirements.
As of August 30, Fonterra remained within the upper limits for its flexible shareholding metrics, as stipulated in its constitution to ensure the co-operative remains farmer-owned and controlled. The total shareholding above or below the share standard was 13.25%, comfortably within the 15% threshold. Additionally, 10% of shares are held by ceased or permitted shareholders, well below the 25% threshold. The Fonterra Shareholders Fund (FSF) holds 6.67% of the shares, under the 10% lim it.
Looking ahead, farmers are expected to purchase around 24 million shares over the next six years to meet their minimum compliance requirements, while a total of 163 million shares must be sold by 2036-37. The long retirement period for share sales helps prevent a sudden influx of shares onto the market, which could disrupt share prices.
Fonterra’s adoption of flexibility has enabled it to adapt to a changing market landscape, maintain farmer engagement, and safeguard its competitive edge in New Zealand’s dairy sector.
Additionally, 1,034 farms hold between 33% and 79% of their entitlement, while 1,422 have more than 120% of their share standard. Under the revised rules, farmers can own up to four times their share standard, allowing them to increase their investment in the co-operative.
This growing confidence in Fonterra’s profitability has been reflected in the sharp rise of its supply share price, which has surged by 60% over the past 10 months, climbing fr om $2.20 to $3.50. A significant part of this increase occurred in May when Fonterra announced plans to divest its consumer businesses, raising the prospect of a potential cash distribution of up to $2 per share.
The average Fonterra farm holds around 150,000 shares, which, at the current price, are valued at approximately $525,000. Ahead of its FY24 results announcement, Fonterra has already signaled that it expects earnings of approximately 70 cents per share, fr om which it plans to distribute 40-60% as a full-year dividend, less the interim 15-cent dividend already paid.
The flexibility report highlights that more than 10% of Fonterra’s shares are owned by ceased shareholders or permitted transferees. These shareholders have up to 15 years to sell their shares, allowing them to remain investors for an extended period.
Currently, 5,129 farms own between 80% and 120% of their share standard, collectively holding 949 million shares, which account for approximately 59% of the total shares issued (1.609 billion). Before the introduction of flexibility, these farms would have represented a substantial majority of all supply farms.
Fonterra has advocated that flexible shareholding is essential to maintain its 80% share of New Zealand’s milk collection, especially in a competitive market wh ere other processors do not have shareholding requirements.
As of August 30, Fonterra remained within the upper limits for its flexible shareholding metrics, as stipulated in its constitution to ensure the co-operative remains farmer-owned and controlled. The total shareholding above or below the share standard was 13.25%, comfortably within the 15% threshold. Additionally, 10% of shares are held by ceased or permitted shareholders, well below the 25% threshold. The Fonterra Shareholders Fund (FSF) holds 6.67% of the shares, under the 10% lim it.
Looking ahead, farmers are expected to purchase around 24 million shares over the next six years to meet their minimum compliance requirements, while a total of 163 million shares must be sold by 2036-37. The long retirement period for share sales helps prevent a sudden influx of shares onto the market, which could disrupt share prices.
Fonterra’s adoption of flexibility has enabled it to adapt to a changing market landscape, maintain farmer engagement, and safeguard its competitive edge in New Zealand’s dairy sector.
23.09.2024
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