FONTERRA CONFIRMS PLANS FOR NEW CAPITAL STRUCTURE FROM MARCH 2023

Fonterra, the New Zealand-based dairy cooperative, has confirmed the schedule for its new capital structure which is set to be implemented towards the end of March 2023.

Fonterra’s new Flexible Shareholding capital structure is designed to make it easier for new farmers to join the Co-operative and for existing farmers to remain. It aims to do so by allowing greater flexibility in the level of investment required.

The project is laid out in a step-by-step tool for shareholders and is subject to the board being satisfied that the relevant preparations are completed before then.

Chairman Peter McBride said it will support Fonterra’s strategy by helping to maintain a sustainable milk supply, protecting farmer ownership and control, and supporting a stable balance sheet.

“Our co-operative is already making good progress towards our 2030 strategic goals,” he commented. “And we believe moving to our Flexible Shareholding structure will help ensure that we stay on track.”

This month, the brand and its partner Nestlé also announced plans to create net zero carbon emissions dairy farm. The partnership aims to achieve a “New Zealand first” in the form of a commercially viable net zero carbon emissions dairy farm.

Co-partner Dairy Trust Taranaki will run the five-year project and monitor all aspects of the 290-hectare farm’s operations to cut carbon. It aims to reduce emissions by 30% by mid-2027, with the hope of achieving net zero carbon emissions within ten years.

Fonterra’s proposal to move to Flexible Shareholding received a strong farmer mandate in December 2021, with more than 85% of the total number of farmer votes cast in support of the recommendation.

Since then, the co-operative has been working with the government to get related changes made to the Dairy Industry Restructuring Act – the legislation that enabled the formation of Fonterra back in 2001.

McBride said the passing of the relevant legislation in Parliament late yesterday evening provides farmer owners the clarity they have been wanting.

“This milestone gives us the confidence to put in place the transition to our Flexible Shareholding structure,” he continued.

“We would like to take this opportunity to thank Minister O’Connor and the government for passing the legislation through under urgency and giving the co-op’s shareholders this much needed certainty.”

The decision to implement Flexible Shareholding in late March was made based on a number of considerations.

“We believe late March is the best date for implementation because it avoids our share trading black-out period associated with the co-op’s Interim Results,” he added. “The black-out period would impact our ability to support liquidity in the market via the Transitional Buyback, which is part of the package of liquidity measures of up to $300 million that we have previously announced.”

The proposal also gives shareholders time to “fully digest the detailed information” the company will be sending through ahead of the launch date with time to seek advice from their financial advisors, Mr McBride explained.

“We are mindful that it’s a busy time on farm, and that advisors may not be available over the summer holidays,” he added.

Furthermore, Fonterra is aiming for new market making arrangements to become effective before Flexible Shareholding is implemented to help support liquidity. The co-operative intends to confirm the final implementation date at the same time as its interim results are announced – currently scheduled for March 16, 2023.

In other recent news, the co-operative announced the divestment of its Chilean Soprole business last month. This comprises several transactions that result in aggregate consideration of 591.07 billion Chilean Pesos, or around 672,052,264 USD

Fonterra CEO Miles Hurrell said that the divestment process for the Soprole business formally commenced in April 2022, following the launch of Fonterra’s strategy to 2030.

“A key pillar of our strategy is to focus on New Zealand milk,” Hurrell said. “Soprole is a very good business but does not rely on New Zealand milk or expertise. We are now at the end of the divestment process and have agreed to sell Soprole to Gloria Foods.”

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