Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Fonterra Retains Forecast Payout

Media Release
14 December 2005

Fonterra Retains Forecast Payout And Announces 42 Cent Increase in Estimated Fair Value Share Price

Fonterra Co-operative Group has affirmed its forecast payout of $4 per kilogram of milksolids for 2005/06 and announced an increase of 42 cents in its estimated Fair Value Share price for 2006/07.

Forecast Payout

In May Fonterra announced a forecast payout for 2005/06 of $3.85 per kilogram of milksolids. This forecast was raised to $4 per kilogram of milksolids in September, and re-affirmed today.

“As we anticipated in September, nothing has changed in the past few months to cause us to alter forecast payout,” said Fonterra Chairman Henry van der Heyden.

“Underlying market conditions remain stable with commodity prices generally holding at the upper end of their range. Supply and demand remain balanced on world markets. Mixed weather since August has meant we're on track for an average production year in New Zealand. Meanwhile, the US dollar continues to be weak, lowering our returns in NZ dollar terms.

“The stable forecast should come as no surprise. When we raised the payout forecast in September from $3.85 to $4, we said then that we did not expect any significant upside in returns and that a considerable part of the 15 cent improvement would in fact be coming from cost reductions and efficiency gains in the business. That’s proved to be the case.

“Management is working hard to reduce costs and improve productivity throughout the business. We’re realising some of the benefits of the business reorganisation that’s been taking place over the past year, as well as bringing forward as many programmes as we can to capture their gains in the current year.”

Fair Value Share

The estimate of the Fair Value Share price for the 2006/07 season is $5.86 – an increase of 42 cents over the Fair Value Share price for the current season. This estimate relates to the share price that will apply to most transactions in the 2006/07 season.

This estimate was set by the Board after consideration of a range estimated by the independent valuer, Duff & Phelps, appointed by the Shareholders’ Council*.

Mr van der Heyden welcomed the increase, saying it represented further independent confirmation of Fonterra’s healthy long-term prospects.

“The Fair Value Share price represents the value that Fonterra is going to return to shareholders on a sustained basis over and above the value of their milk at the farm gate. While payout is a snapshot of performance for one season, the Fair Value Share price takes into account Fonterra’s long-term prospects.

“It is very pleasing that the independent valuer has continued to note progress in the business, reflected in the higher valuation range from which the Board has set the estimated Fair Value Share price.”

Changes to Capital Structure

As a result of the changes to Fonterra’s capital structure that were approved by shareholders in May 2005, amounts invested by shareholders in the form of Peak Notes will be converted into ordinary share capital. To achieve this, Fonterra’s share standard will change at the beginning of the 2006/07 season, requiring shareholders to hold more than one share for every kilogram of milksolids supplied. When all the changes to the new capital structure have been made, shares will then be consolidated back to the more traditional one share per kilogram of milksolids.

While there will be fewer shares following consolidation than there will be at the beginning of the 2006/07 season, the total value of a shareholder’s investment will remain the same as the value of each Fair Value Share will correspondingly increase after consolidation. The final consolidation calculation will depend on a number of variables, such as Fonterra’s peak supply factor, which won’t be known until later in the season. However, in accordance with the constitution and as a guide, the Board has estimated that the final Fair Value Share price following consolidation will be around $6.65 per share.

Based on this estimate of the Fair Value Share price the value of the average shareholder’s total investment in Fonterra following consolidation will have increased by about six percent on a like for like basis over the previous year.

*Change in Independent Valuer for the FVS

In September it was announced that Standard & Poor’s, which since Fonterra’s inception had provided independent valuations of the FVS through its valuation practice Corporate Value Consulting (CVC), had sold CVC to financial advisory firm Duff & Phelps.

All 58 partners of CVC have moved to the new firm and now operate under the Duff & Phelps name. The team from CVC which values the FVS range has developed a comprehensive knowledge of Fonterra over the past four seasons. The Shareholders’ Council, which is responsible for appointing the independent valuer for the FVS, considered it important that the stability and continuity of the valuation process be maintained and for that reason assigned the valuation contract for 2006/07 to Duff & Phelps. The analysis to derive the FVS range remains the same.

Information on Duff & Phelps can be found at

Background to the Fair Value Share Process

Before the creation of Fonterra, shares in dairy companies had fixed nominal values, which often had little relationship to the underlying value of the company. Fair Value Shares were introduced under Fonterra’s Constitution on its formation in 2001 to reflect more accurately the investment of farmers in their company. Farmers are required to hold one Fair Value Share for each kilogram of milksolids they supply to Fonterra, although this will change at the beginning of the 2006/07 season to allow for the transition to the new capital structure approved by Fonterra shareholders in May 2005.

Fonterra’s Board of Directors sets the price from within a valuation range provided by the independent valuer appointed by Fonterra’s Shareholders’ Council. The final share price must be set before June 1, the start of the dairy season when most dairy farm and herd transactions occur. For the 2006/07 season, two share prices will be set – one to apply prior to consolidation of shares and Peak Notes and the other to apply following consolidation.

To assist farmers in planning production levels and budgets for the season ahead, Fonterra is required to provide shareholders with an estimate of the share price by December 15 each year.


© Scoop Media

Business Headlines | Sci-Tech Headlines


TradeMe: Property Prices In Every Region Hit New High For The Very First Time

Property prices experienced their hottest month on record in December, with record highs in every region, according to the latest Trade Me Property Price Index.\ Trade Me Property spokesperson Logan Mudge said the property market ended the year with ... More>>

Motor Industry Association: 2020 New Vehicle Registrations Suffer From Covid-19

Chief Executive David Crawford says that like some other sectors of the New Zealand economy, the new vehicle sector suffered from a case of Covid-19. Confirmed figures for December 2020 show registrations of 8,383 were 25% ... More>>

CTU 2021 Work Life Survey: COVID And Bullying Hit Workplaces Hard, Huge Support For Increased Sick Leave

New data from the CTU’s annual work life survey shows a snapshot of working people’s experiences and outlook heading out of 2020 and into the new year. Concerningly 42% of respondents cite workplace bullying as an issue in their workplace - a number ... More>>

Smelter: Tiwai Deal Gives Time For Managed Transition

Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed to working on a managed transition with the local community,” Grant Robertson said. More>>


OECD: Area Employment Rate Rose By 1.9 Percentage Points In The Third Quarter Of 2020

OECD area employment rate rose by 1.9 percentage points in the third quarter of 2020, but remained 2.5 percentage points below its pre-pandemic level The OECD area [1] employment rate – the share of the working-age population with jobs – rose ... More>>

Economy: Strong Job Ad Performance In Quarter Four

SEEK Quarterly Employment Report data shows a positive q/q performance with a 19% national growth in jobs advertised during Q4 2020, which includes October, November and December. Comparing quarter 4, 2020, with the same quarter in 2019 shows that job ad volumes are 7% lower...More>>

NIWA: 2020 - NZ’s 7th-warmest Year On Record

The nationwide average temperature for 2020, calculated using stations in NIWA’s seven-station temperature series which began in 1909, was 13.24°C (0.63°C above the 1981–2010 annual average). New Zealand’s hottest year on record remains 2016, when... More>>

Quotable Value New Zealand: Property Market Set To Cool From Sizzling To Warm In 2021

Nostradamus himself could not have predicted the strange series of events that befell our world in 2020 – nor the wild trajectory of New Zealand’s property market, which has gone from “doom and gloom” to “boom and Zoom” in record time. Even ... More>>