Details of that plan will be released mid-year.
Wilson said that while the co-op won’t know for certain what the level of dry shares on issue is until the season finishes, estimates are that it will fall somewhere inside the 4-6% of total shares limit.
“We’re watching those levels closely but because they’re driven mainly by seasonal factors we have to also take a longer term view and look through one year’s numbers. That’s why we set thresholds and ranges,” he said.
The initial share issue is expected to dilute dividend returns per share by around 2.5% cutting it from a possible 32c/share or unit to 31.22c/share if retentions and distributable profit sit at a similar level to last year.
However because farmers and unit holders will have more shares they’ll receive a similar total to what they would have.
With the initial new share issue Fonterra predicts 95% of its farmers will be fully shared-up at the end of this season, given it now expects milk growth of around 1% over last year rather than the 5-6% it had been expecting.
That will take a significant burden off farmers who had expected to have to stump up with $7.25/share if the price remained at that level over the medium term.
Some analysts believed the share issue move was aimed at bringing to heel the high share price which leapt $2 when the unit fund was launched later last year.
TAF critic and Fairlie dairy farmer Leonie Guiney said trading among farmers (TAF) and the resulting unit price had put the co-op on the cusp of haemorrhaging milk as growing farmers or new farmers looked to other processors.
But both Wilson and Fonterra chief executive Theo Spierings were careful not to suggest it would create any such downward pressure on share price.
The market – both where units are traded and where farmers trade shares among themselves – would set the price, they said.
For those fully shared-up farmers a high price wasn’t of concern and the five point plan that includes new flexible supply and sharing-up options was developed to address the concerns of growing farmers.
Fonterra could now offer a suite of options to them, Wilson said.
Unlike the past, when supply offers such as contract milk were made, the new range of options was no quick “sticking plaster fix,” he said.
“Now we’ve secured permanent capital for the cooperative we’ve been able to work on getting this range of options developed for farmers so there’s a whole new level of flexibility for them in sharing-up.
“We want to have farmers fully shared-up in the cooperative but now there’s no short term, immediate time constraints on how that has to happen because we don’t have that risk of capital leaving,” he said.
The new contracts include a flexi-contract linked to Fonterra’s farmgate milk price that requires farmers to purchase half the shares up front for growth milk but allows them to buy the remainder only when the farmgate milk price is above a certain threshold that will be set from time to time.
It’s understood it will initially be $6/kg milksolids (MS) although the current forecast farmgate milk price is $5.50/kg MS.
Another option will be the modified growth contract that allows farmers to buy a minimum of 10% of shares up front for growth milk and delay buying the rest until the fourth season when they’d be given more time to share-up provided they make a specified minimum annual investment.
Fonterra’s Five Point Plan
1. A bonus issue of one additional share or unit for every 40 held on April 12.
2. Another opportunity for farmers to sell the economic rights of some of their shares into the Fonterra Shareholders’ Fund.
3. A dividend reinvestment plan.
4. New flexible growth contracts.
5. Winter milk supply contracts for a UHT plant at Waitoa.
UHT plant for Waitoa
Fonterra is looking for winter milk suppliers in the upper North Island to provide milk for a new $100m ultra heat treated (UHT) plant at Waitoa.
Fonterra chief executive Theo Speirings said Fonterra was looking to increase its winter milk supply from the region by 50% for the 2015 season.
He wouldn’t be drawn on what specifically would be produced at the plant but said there was increasing demand for UHT milk going into Fonterra’s food service products such as cooking creams and it wasn’t necessarily all going to go to drinking milk products.
As part of Fonterra’s strategy it would also be investigating investment in processing facilities offshore.
Fonterra forecast remains
Fonterra has confirmed its forecast payout for the 2012/13 season of $5.90-$6/kg milksolids (MS) before retentions for fully shared-up farmers.
The farmgate milk price is forecast to be $5.50/kg MS while the earnings/share range remains at 40-50c/share.
Fonterra’s dividend policy is to pay out 75-85% of its earnings and retain the remainder.
Fonterra chief executive Theo Spierings said an increase global dairy prices later in the year has already been factored into the forecast.
