Shewan, who is stepping down following the meeting after a decade on the board, was reiterating comments he made at last year’s annual meeting that the fund had run its course.
Shewan, who is stepping down following the meeting after a decade on the board, was reiterating comments he made at last year’s annual meeting that the fund had run its course.
Fonterra is overhauling its capital structure to ensure it can compete for reduced milk supply in the future against rival processors who don’t require farmers to buy shares. The changes would bring in a more flexible shareholding structure for farmers, restrict their ability to trade farmer shares for units in the NZX-listed fund, and limit the size of the fund to ensure farmer control of the co-operative in the future.
“The implementation of Fonterra’s new flexible shareholding capital structure has created uncertainty for unit holders and potential investors over what the impact might be on the unit price,” Shewan said.
He noted the unit price had declined from $4.60 immediately prior to Fonterra’s capital structure review announcement on May 5 last year to a closing price of $3.03 on Friday, despite Fonterra’s strong performance.
“How the implementation of Fonterra’s new capital structure might impact the unit price has played its part in subduing the price,” Shewan said.
“In addition, the performance of the unit price this year has been impacted by the heightened volatility in equity markets and the lower valuation of equity markets both in New Zealand and overseas. This reflects uncertainty driven by inflationary pressure, higher interest rates, geopolitical events and recessionary concerns.”
He noted the benchmark NZX 50 index had declined 12.7% over the same period, while the S&P 500 index had slid 14.3%.
“Uncertainty may reduce as implementation of the new capital structure proceeds through 2023,” Shewan said.
“However, the independent directors of the manager of the fund remain of the view that Fonterra should have bought the fund back as part of the capital restructure process.
“I believe that the sequence of events and adverse impact on unit price since the May 2021 announcements shows very clearly why our concerns were entirely justified,” he said.
The number of units held by Fonterra farmer shareholders had slid from 9% to 8%, and was down from 12% in 2020, he said.
“This reduction is most likely related to the capping of the fund as farmers are no longer able to move their shares to units,” he said.
Units in the fund advanced 0.3% to $3.04 in midday trading on the NZX on Monday.
The primary production select committee last week released its report on the legislative changes required to implement Fonterra’s capital structure changes.
Fonterra chairperson Peter McBride said he was hopeful that the Government would reach a decision before the end of the year so the company could make the changes as fast as possible.
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