Redemption risk lower, supply risk higher

July 16, 2013

One of the main factors behind Fonterra’s decision to introduce Trading Among Farmers (TAF) was to reduce redemption risk.

That’s the risk the company faced in having to buy back shares at a high price when people left the industry or production was much lower than their shareholding entitled to them to.

TAF allows farmers to trade shares among themselves.

But has the reduction of redemption risk been replaced with an increase in the risk of supply?

The share price is higher than most analysts think is warranted and it adds a considerable expense to signing up to Fonterra.

There are other options now and Federated Farmers believes the 7.5 percent shareholding in Synlait taken by FrieslandCampina Investments Holding BV1, a subsidiary of Dutch Dairy Cooperative giant FrieslandCampina, could shake-up the New Zealand dairy industry.

“While the monetary value is modest at around $24.15 million the message it sends is powerful,” says Willy Leferink, Federated Farmers Dairy chairperson.

“As a cooperative, FrieslandCampina’s revenues are similar to Fonterra’s. You could describe the investment in Synlait as a ‘toe-dipping’ exercise but clearly there is an underlying desire to get exposure to New Zealand liquid milk.

“FrieslandCampina easily has the financial means to acquire more of Synlait later if it so chooses. Its cornerstone shareholding is to us more like a beachhead.

“It is also significant that even after the public float, Holland’s FrieslandCampina will have a strong shareholding alongside Bright Dairy and Food Co of China and Mitsui & Co of Japan. The prize is clearly Asia.

“While other investors have not meant much to Kiwi dairy farmers, FrieslandCampina most certainly will.

“Having one of Europe’s largest cooperatives enter our market, albeit through a commercial shareholding, may just spark a discussion over how the domestic cooperatives will respond; Fonterra especially.

“While the focus of the last Dairy Industry Restructuring Act (DIRA) review was on Fonterra’s financial redemption risk, Federated Farmers was concerned at the potential for supplier loss.

“Fonterra’s current model is that all suppliers, save for some, either have three seasons to ‘share-up’ or go onto contract milk. Even with contract milk, you have to agree to share-up with Fonterra within six-years.

“Sharing-up in Fonterra is currently done by buying those bank unfriendly highly priced shares. To us there has to be a change here. A modified “Friends of Fonterra” is how I put it in an opinion editorial.

“What is for certain, things have become very interesting in the dairy industry,” Mr Leferink concluded.

The investment by FrieslandCampina isn’t large but it could give farmers more confidence in Synlait and make supplying the company more attractive.


Fonterra’s price will tempt suppliers to sell

May 19, 2013

Fonterra has announced a final price of $7.92 for shares suppliers sell into the shareholders fund.

The price was calculated by reference to an average of the daily traded price on the NZX for Fonterra Units for each trading day between 2 – 15 May inclusive.

 General Manager – Trading Among Farmers, Aaron Jenkins, said farmer shareholders have a further week to confirm if they wish to participate in the Supply Offer before it closes at 5pm on 23 May. . .
At that price farmers who have more shares than they need will be tempted to sell their excess.
Cashing up surplus shares will be especially tempting for those whose supply and income were hit by drought.

Rural round-up

November 16, 2012

Chinese interest in Fonterra fund ‘predictable’ Feds say:

Chinese interest in investing in Fonterra’s Cooperative Group’s shareholder fund was predictable once the scheme was approved and underlines the need for constitutional protections for the Trading Among Farmers scheme, says the main farm lobby group.

China’s sovereign wealth fund, the US$400 billion China Investment Corp, is in talks to buy units in the $525 million fund with an investment smaller than US$100 million, the Wall Street Journal reported yesterday, citing people with direct knowledge of the plans.

The Fonterra Shareholders’ Fund aims to raise as much as $525 million selling shares in an indicative price range of $4.60 to $5.50 apiece, giving outside investors exposure to up to 7 percent of the dairy cooperative’s equity. The final price will be set by a bookbuild among institutions and NZX firms on about Nov. 27. . .

Huge bio-fuels opportunity for NZ from forestry: Pure Advantage -  Pattrick Smellie:

New Zealand’s plantation forestry estate represents a major opportunity for New Zealand to become more self-sufficient in transport fuels, says the latest report from the Pure Advantage business lobby group seeking support for a “green growth” push in New Zealand.

However, a “crisis of faith” in the forestry industry could stymie the newly emerging potential of forestry – a sector that has long confounded attempts to add value beyond the export of raw logs, mainly to Asian markets.

Pure Advantage trust chairman Rob Morrison told BusinessDesk the fragile state of the forestry industry is a major issue for realising the largest economic opportunity identified by a study conducted by London economic consultancy Vivid Economics and the Business School at the University of Auckland. . .

Icebreaker launches online shopping:

Icebreaker, the iconic merino clothing brand, will launch an online store in New Zealand today, at icebreaker.comin time for Christmas shopping.

“It’s no secret that online shopping is the fastest growing channel in retail today, with clothing showing some of the highest growth,” says Jeremy Moon, Icebreaker CEO and founder.

“We’re a multi-channel business, and our new eCommerce site in New Zealand will complement our presence in retailers throughout the country and in our Icebreaker TouchLab retail stores in Wellington and Auckland. Our customers are increasingly demanding choice – they want to be able to choose to shop either directly from a brand, or from a retailer with a wide variety of brands.” . . .

Prince Charles inspects the Glacial Wool rug bearing his coat of arms:

New Zealand Wool Services International is pleased to make available the attached photographs of the Prince of Wales inspecting a unique six square metre Glacial wool rug bearing his coat of arms during his visit to the New Zealand Shear Brilliance wool exhibition at The Could in Auckland on 12 November. The rug has been commissioned by New Zealand Wool Services International to honour the Prince and recognise his role as a champion and patron of the global Campaign for Wool.


Ownership up to shareholders not politicians

November 9, 2012

Labour MP Damien O’Connor’s Dairy Industry Restructuring Bill No 2 has been drawn from the ballot.

“My Bill – the Dairy Industry Restructuring Bill No 2 – has been drawn at a crucial time for Fonterra. A prospectus has just been launched seeking a minimum of $500 million from investors who will own the rights to dividend and capital appreciation in New Zealand’s largest company.

“The Bill limits the total quantity of investment units available to 20 per cent of the value of Fonterra.

“The current limit of 25 per cent is written into the constitution of the company. This Bill will place the lower limit into legislation and require the support of Parliament should the Board and shareholders decide at some point in the future to increase the percentage of the company open to investors.

The Dairy Industry Restructuring Act which enabled Trading Among Farmers was passed a few months ago only after a lot of work by the board, a lot of consultation and finally a majority of shareholders voting in favour of TAF.

This Bill is an MP acting without the support of a majority of shareholders.

I support the control of Fonterra staying in the hands of its farmer suppliers.

But this is not a matter in which politicians should meddle.

Decisions on the ownership of the company should be left up to voting shareholders – who are the suppliers – not MPs.


Rural round-up

October 28, 2012

Fonterra to sell up to $525m of units at indicative price of $4.60-$5.50, accounting for 7% of shares:

The Fonterra Shareholders’ Fund will raise as much as $525 million selling shares in an indicative price range of $4.60 to $5.50 apiece, giving outside investors exposure to up to 7 percent of the dairy cooperative’s equity, offer documents show.

The final price will be set by a bookbuild among institutions and NZX firms on about Nov. 27.

Fonterra unveiled the prospectus for the fund aimed at providing liquidity for the Trading Among Shareholders scheme, one of the biggest overhauls of the dairy giant’s capital structure since its inception in 2001. . .

Rural pulse a worry in National bank confidence survey:

The agriculture sector is the least confident in the October National Bank Business Outlook which shows overall business confidence flat-lining.

A net 17 percent of respondents expect business conditions to improve in the year ahead, unchanged from last month. A net 25 percent in the agriculture sector are pessimistic, the lowest reading in the survey.

“The agriculture sector is the nucleus of our income generating capacity. So when the rural pulse keeps getting weaker we take note,” chief economist Cameron Bagrie said in his report.

Sentiment in the agriculture sector has been sliding for months because of the high New Zealand dollar, a lower dairy payout, nervousness about environment regulation and the leveling out of a production boost from good weather, he said. . .

Turners and Growers pulls out kiwifruit vines near Kerikeri:

Turners & Growers is removing about 20 hectares of kiwifruit orchards in the Kerikeri area after the bacterial vine disease Psa-V was detected on a single male “baker graft” vine in one of its orchards in the area.

Kiwifruit Vine Health has established a controlled area, which includes 102 orchards in the region.

Kerikeri is the eleventh region to be infected since PSA was first discovered in New Zealand two years ago. . .


Rural round-up

October 17, 2012

Meanwhile back at the ranch – Fran O’Sullivan:

Is Fonterra’s Sir Henry van der Heyden staying on past his use-by date as the dairy co-operative’s chairman to protect chairman-elect John Wilson from a boardroom coup?

That question was doing the rounds even before Fonterra confirmed on September 27 that van der Heyden would not step down from the board as expected this December when he hands over the chairmanship to John Wilson at the co-op’s AGM.

Van der Heyden will instead stay on for an unspecified period – expected to be much less than the December 2013 period when his term as an elected board member runs out – to ostensibly “provide continuity around the board table” until after Trading among Farmers (Taf) is up and running. . .

Maintaining lifestyle balance – Sally Rae:

Keri Johnston was about halfway through her final year at St Kevin’s College, in Oamaru, when she decided to pursue an engineering degree.

Ms Johnston had always loved science and mathematics but laughingly recalled how she hated the sight of blood, which ruled out anything in the medical profession.

After hearing a talk from a lecturer from the University of Canterbury School of Engineering, she decided engineering was something she might like to do. . .

Rabobank Australia & NZ country banking head appointed CEO of US Rabo AgriFinance:

Rabobank Australia and New Zealand Group country banking division head Neil Dobbin has been appointed to run Rabobank’s United States agri banking business, Rabo Agri Finance (RAF).

Mr Dobbin – a veteran of 25 years with Rabobank in Australia and New Zealand, the past decade as group executive Country Banking Australia & New Zealand – has taken on the role of chief executive officer for RAF.

Announcing the appointment, Rabobank Group executive board member Berry Marttin said during Mr Dobbin’s stewardship of its Country Banking operations in Australia and New Zealand, Rabobank had grown to become the leading food and agribusiness bank in the region. . .

New voice for local farmers -

The new president of Federated Farmers in Wairarapa is aiming to make sure local farmers have their voice heard.

Bideford’s Jamie Falloon was voted in on Tuesday night by the executive committee to replace outgoing president Paul McGill, who is taking up a position at Landcorp in Wellington.

Mr Falloon, 43, lives in Bideford with his wife Georgie and three children Joe, 9, John, 6 and Anabelle, 4. . .

Blue sky thinking from green fingered finalists:

Ideas that cut the cost of heating propagation beds to grow plants and turn frost fans into power generators are just two of the six projects being developed by the finalists for the Agmardt Market Innovation project in the 2012 Young Horticulturist of the Year Competition. Other innovation ideas include collapsible crates for freighting small plants, an instant rollout flower mat, and a design that takes weeding to a new level.

Six finalists from around New Zealand who have won their industry sector competitions are preparing for the intensive two day competition on November 14 and 15 in Auckland.

“The standard this year is amazing; I think the judges will have difficulty selecting the winner,” says Nicola Rochester, Chair of the RNZIH Education Trust, which manages the competition. . .


Fonterra seeking clear mandate on TAF

June 3, 2012

Voting packs on Trading Among Farmers (TAF) have gone out to Fonterra shareholders and the company has given an assurance it will require more than a simple majority in support of the move:

Fonterra’s Board will be looking for a clear mandate from the Co-operative’s 10,500 dairy farmers when they vote on Trading Among Farmers (TAF) on June 25, says Chairman Sir Henry van der Heyden.

While the TAF resolution at the special shareholder meeting is an ordinary resolution that requires a 50% plus majority to be passed, Sir Henry says the Board won’t be proceeding unless it has a much stronger mandate than that.

“I want a mandate that will unify the Co-operative around this proposed evolution in our capital structure,” he said. “This is the final vote in a long process. Shareholders have given us strong support in the earlier stages and that is what the Board is looking for this time.

“TAF offers a means of sustainably protecting 100% farmer control and ownership into the future and reducing risk to our Co-operative, so we’re looking for a mandate that enables the Board to continue to work towards protecting and strengthening Fonterra,” said Sir Henry.

“We have listened to our farmer shareholders and their key concerns rest on two fundamental points: Preserving 100% control and ownership and the integrity of the Farmgate Milk Price.

“Accordingly, we have proposed a range of resolutions for farmer shareholders to vote on that will tighten limits on the size of the Fonterra Shareholders’ Fund, which is fundamental to 100% farmer control and ownership, and preserve the integrity of the Farmgate Milk Price.

“These resolutions would require Constitutional change and would therefore involve a 75% vote.

“We propose to decrease the threshold on the size of the Fund from 25% to 20% of total shares, and decrease the number of Dry shares on issue from 25% to 15%,” said Sir Henry.

TAF is the company’s response to redemption risk – the very real threat of too many shareholders redeeming shares at high prices.

The other risk is suppliers choosing to leave the company, or being put off joining, as share prices rise when competitors don’t require the up-front expense of share purchases.

He said that robust modelling and much deliberation by the Board had informed the recommendation for a lower 20% threshold which struck the right balance between flexibility to manage seasonal milk fluctuations and controls to manage risk.

“While we intend to operate the Fund at a size of 7%-12% of total Fonterra shares on issue, we do need breathing room to take account of seasonal changes in milk volume,” he said.

“Milk production is driven by weather — for example this year we anticipated 3% milk growth but got 10%. Add 10% growth to our 7%-12% ideal Fund size and a 15% cap is too restrictive.”

He said that over time the Fund would be managed within the target size range, but the Constitutional limit needed to be higher to allow for seasonal shifts in milk production.

“It’s a combination of hard maths and good judgement that leads us to recommend 20%,” he said.

Sir Henry said another key resolution was to enshrine protections for setting the Farmgate Milk Price in the Co-operative’s Constitution so that future changes would require a 75%-plus majority.

“The proposal is that the Shareholders’ Council’s appointment to the Milk Price Panel be added to the constitution,” he said.

“This underpins the integrity of the Farmgate Milk Price going forward,” said Sir Henry. “Unlikely as it might be, were a future Board were to bow to pressure from investors in the Fund, this would become obvious and the Council’s constitutional ability to protect the process provides a further assurance for farmers.”

He said that Commerce Commission oversight of the Farmgate Milk Price formula — a process being worked through independently of TAF — provided a further safeguard in terms of transparency.

The farm gate price is the main reason farmers want to retain ownership of the company. If non-suppliers had control the pressure would be on to lower the price to provide higher dividends.

 


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