26 Jan 2010 --- Fonterra’s farmer shareholders have invested $270.7 million buying shares in their Co-operative following last year’s changes to capital structure.

In a share application period that ended last week, farmer shareholders were given the opportunity to adjust their shareholding up or down, to anywhere between 100 and 120 per cent of their current or expected production, at a price of $4.52 per share.

Out of Fonterra’s 10,500 farmer shareholders, 3,461 subscribed for a total of 60 million shares worth $270.7 million both to cover anticipated increases in production for the current season and as additional or “dry” shares in excess of production, while 59 applied to surrender a total of 1.6 million shares worth $7.3 million.

Under the capital structure changes, which received almost 90 per cent support from farmers voting at November’s annual meeting, farmers now have greater flexibility in the number of shares they own in proportion to their milk production – rather than adjusting their shareholding up and down each season strictly in line with milk production.

As an incentive for farmers to hold a buffer of dry shares in excess of production, all shares held on dividend record dates are now eligible for any dividend payments based on Fonterra’s profitability.

Fonterra chairman Sir Henry van der Heyden said farmers had responded well to the share issue, despite the difficult circumstances many of them were currently facing.

“It’s very pleasing that a significant number of our farmer shareholders have shown their support for the Co-operative by taking up more shares. This is despite the fact that cash flows continue to be tight and drought conditions are starting to bite in some parts of the country – making it hard for many farmers to take up additional shares right now.

“In addition, there are farmers whose production is growing this season and who have purchased more shares to ensure they are entitled to the full financial benefits available for share-backed production this season.”

Sir Henry said that because individual farmers’ situations differed greatly, Fonterra had set no expectation on how much new share capital would be raised during the application period.

He said it was important to remember the capital structure changes were not just intended to raise additional capital from dry shares, but also sought to reduce the risk of capital leaving the Co-operative through share redemptions when milk production fell.

“As drought is lowering milk production in some regions, a significant number of our farmers may end the season with dry shares in excess of their production. They will now have an incentive to hold onto these shares as they will be eligible for dividends paid on all of the shares they hold.”

Sir Henry said all farmers would have a further opportunity to adjust their shareholdings during the traditional end-of-season trading window in mid 2010.