Fonterra looks to its farmers to fund growth
September 14th, 2009
Fonterra’s biggest sales job may be in convincing its farmers to accept the implications of shutting the cooperative to outside equity interests – growth will have to be funded from profits, eating into the milk suppliers’ bottom line. Profit at Fonterra has typically been an after-thought, given the focus on the milk-fat payment to farmers and the value-add component. NZ’s biggest enterprise has under-performed the predictions for growth which made up part of the business case when it was formed in 2001.
Fonterra has been in discussions with the Govt and officials to build support for its restructuring, which requires amendments to its enabling legislation. John Key has singled out Fonterra as an important component of lifting NZ Inc.’s economic growth. The decision to abandon a public listing is a blow to the NZX, which would have won an addition to its bourse dwarfing current heavyweight Telecom. It is a dance of the seven veils, with the NZX rolling out milk powder futures this year and Fonterra ambitious to open its online auction to other producers. Speculation is swirling around the type of equity structure Fonterra could contemplate, including the creation of a new class of non-voting investment shares. Precedents exist within the industry, with dairy genetics firm Livestock Improvement operating under a closed system of ‘wet’ and ‘dry’ shares. The details will emerge on Friday and Fonterra updates the market with its full-year results on Sept 23, which is expected to show a second-half pick-up and a reduction in gearing.
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