The proportions of types of unit holders disclose that farmers now hold 12% of the 102 million units on issue, up 50% from a year previously.
Shewan told the fund’s annual meeting two groups of farmers have made greater use of the fund, presumably attracted by market prices below $4 as a result of Fonterra’s consecutive, large, reported losses and asset writedowns.
The first group are farmers who have reached the upper limits of the non-supply backed shares and proactively bought units they can convert to shares in the future.
Unit ownership is being used as insurance against future share standard requirements, he said.
The second group are retiring or exiting dairy farmers required to sell their shares in three years.
“However, not wanting to exit the co-op at the current price they have opted to convert their shares to units.”
Shewan said a surge in unit buying last January was attributed to that cause.
“These are healthy and positive uses of the fund,” he said.
Going back to the principles and purposes of the fund he argues those objectives are still relevant for Fonterra.
Some in the sharemarket claim the fund is fundamentally broken and irreparable but that is not the case, Shewan said.
But as a mechanism for non-farmers to gain fruitful exposure to the dairy industry the results were extremely disappointing and totally unsatisfactory.
The future is tied up in the strategy reset and the three- and five-year goals set by the company which, if achieved, will put the fund back in business for investors.
After pointing out that institutions have fallen from 25% to 15% of total investors and private wealth managers are down from 14% to 7%, Sherwan suggested those classes will come back when the recovery is apparent.
“When yield on the units is restored you have to ask why wouldn’t the institutions want some share?
“While we have seen improved sentiment Fonterra now needs to meet and continue to meet key milestones to regain confidence as an investment proposition,” Shewan said.
Fonterra chairman John Monaghan acknowledged the board’s decision not to pay a dividend in 2019 and significantly impair some major assets would have come as a shock to unitholders.
They should judge the directors by their actions rather than words and key milestones for this year show the co-op doing what it said it would.
Monaghan said the capital structure review to follow the strategy reset will take some time and will not be rushed.
Shewan said the FSF board is not formally part of that review but will be consulted when there are some options to discuss.
NZ Shareholders’ Association chief executive Michael Midgely attended the meeting and observed afterwards the frustration of unitholders who have no direct say in the running of the co-op.
“FSF is a very clear example of why investors must understand what they are letting themselves in for and should favour those companies in which they can have a say.”
He will be very interested in the outcome of the capital structure review and whether the FSF structure is retained.
