Fonterra Announces Estimated Value Share Price

Media Release
12 December 2008

Fonterra Announces Estimated Fair Value Share Price

Fonterra today announced that the Board has set the estimated Fair Value Share price for the 2009/2010 season at $4.47, a decrease of $1.10 or 19.7 per cent on this season’s price of $5.57.

The independent Valuer, Duff & Phelps, provided the Board with a valuation range of $4.14 to $4.80 and the estimated price is the mid-point of that range.

Fonterra Chairman, Henry van der Heyden, said the fall in the Fair Value Share price, following a $1.22 decline the previous season, was primarily a reflection of the unprecedented turmoil in world equity and financial markets and the difficult global economic outlook.

Mr van der Heyden said key factors that influenced the Valuer to set a lower price range were the sharp decline in share values around the world and the related global credit crunch, which has restricted access to and increased the cost of capital. These factors were partly offset by the lower New Zealand dollar. The Valuer has also assumed a full write-off of Fonterra’s investment in San Lu following the China milk contamination crisis; the Board indicated recently this was a likely prospect in the next financial statements.

“Although as a co-operative our share price does not reflect daily market fluctuations, we are not immune to the same pressures that have affected listed companies. The Valuer noted that the share prices of selected listed companies most comparable to Fonterra have declined by roughly 25 to 35 per cent since the previous valuation process,” Mr van der Heyden commented.

“As I said recently when we forecasted a lower payout for the current 2008/2009 season, the global economic and business landscape is extremely volatile and uncertain. The estimated Fair Value Share price is the mid-point of the independent Valuer’s best view right now in what is a very uncertain environment. The Board is mindful of its obligations to seek a review of the valuation should circumstances change substantially.”

Under its constitution, the Fonterra Board is required to set an estimated share price for next season by no later than 15 December. As Fonterra requires farmers to own shares equivalent to their milk production, this process helps farmers with their business planning. New and existing farmer shareholders are required to notify Fonterra of any new shareholding requirement or changes to their existing shareholding for next season by 28 February 2009. The final Fair Value Share price for the 2009/10 season must be set by the Board by 1 June 2009, with farmers needing to settle their shareholding obligations in July 2009.

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