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Fonterra farmers survey: New capital structure – yes, outside investors – no

16th March 2021 By Bridget O'Connell | | @foodtickernz

Fonterra shareholders have indicated their support for an overhaul of the diary giant’s capital structure but have put the kibosh on the introduction of outside investors.

The findings came in a January survey to gauge farmer sentiment around the co-operative’s capital structure, with high level results communicated in a letter to shareholders from chairman Peter McBride yesterday.

According to McBride, the survey found there was a strong appetite for change, with 62% of the 1,800 respondents either strongly or slightly supporting a change.

A common theme among the nearly 20% of respondents who were undecided was that they wanted like to learn more about what the potential options were, McBride said, adding that Fonterra would be “laying those options out clearly when we get to that stage”.

The results also showed that the top priority for shareholders was to ‘maintain farmer ownership and control of the co-op’, which was selected by 82% of respondents.

Conversely, only 4% selected ‘being able to raise capital from non-farmer investors’ as a priority.

Source: Fonterra

At the moment, only farmer shareholders could directly invest in Fonterra.

Outside investors were restricted to the purchase of Fonterra Shareholders Fund (FSF) units to access benefits and dividend returns – but they do not give owners any decision making power in the co-op. The FSF units also provided a way for farmer shareholders of the co-operative to sell their shares.

The current structure was introduced as part of Fonterra’s last capital structure review around 10 years ago, primarily to resolve redemption risk and provide a stable capital base.

However, after reporting a financial loss of over $600m on the back of a debt-funded global expansion plan, Fonterra announced in 2019 it was going to again review its capital structure.

McBride said the three core objectives behind the review were ensuring a financially sustainable co-op for generations to come, maintaining farmer ownership and control to maximise the sustainable milk price over time, and ensuring a sustainable milk supply to support an efficient co-op of scale.

Progress on the review was continuing and McBride said Fonterra’s board intended to consult in the next two months with a farmer vote around the time of the annual meeting in November.



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