Friday, February 23, 2024

Unders and overs drift away from Fonterra share standard

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First flexible metrics report shows more willing sellers than buyers.
Fonterra chief operating officer Fraser Whineray says the latest GIDI co-funding would help the co-op continue to make progress towards its target of reducing emissions by 30% across all manufacturing operations by 2030.
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More than 30% of Fonterra’s 8250 co-operative supply farms have moved away from their individual share standard, with more going for lower options than excess.

Fonterra’s inaugural Flexible Shareholding Metrics report at November 30 says 5632 farms hold between 80% and 120% of their share standard, which is one share for every kilogram of milksolids produced in the season.

Since March this year farmers have been allowed to hold as little as 33% of their own standard, or as much as four times.

The wide permissible variation embodies the principle of share flexibility, which Fonterra argues is now essential to retaining its 80% New Zealand milk market share.

The report on divergence under the new flexible shareholding structure shows 1341 farms have sunk below 80% of their standard and 1277 own 121% or more.

Over 400 farms currently have fewer than 33% of their own supply standard, within the special category of new shareholders who have up to six years to share up to their minimum holding.

That must be some measure of the success of the flexible shareholding structure to date.

Expressed as milk supply, some 1 billion kilograms sits within the 80% to 120% centre of the bell curve, while 250 million has migrated downwards and 153 million has gone upwards.

The centre is occupied by 72% of the total 1.436bn kg share-backed supply.

The 250m kg sitting below the central zone potentially represents more than $500 million of share capital that has been sold by farmers, perhaps for cashflow reasons.

Fonterra supply shares (FCG) trade on the NZ stock exchange, only between farmers, and are currently valued by the market at $2.26.

Notwithstanding some minor share buyback activity by the co-operative, and a small number owned by an authorised market maker, farmers who wish to sell down have to be matched by farmers who want to own surplus shares, for investment reasons.

The first flexible metrics report shows more willing sellers than buyers.

This restricted liquidity is one reason the share price has fallen by more than 50% since the flexible restructuring proposal was first announced in May 2021.

The prolonged 30-month fall in price also represents about $3.5 billion in lost share market capital spread across all current and ceased shareholders.

The latest report contains a breakdown of the shareholder distribution, headed by 85% of shares held by supplying or secondary shareholders (1.36 billion shares).

Associated shareholders, being a new category covering farm lessors, sharemilkers and contract milkers, have just under 1 million shares.

Ceased shareholders, who now have up to 15 years to sell out, make up 7.5% of shares (7.5 million).

The Fonterra Shareholders Fund for investors has 6.7% and those units are selling at around $3.

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