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Institutional investors continue to shun Fonterra

Monday 11th November 2019

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Fonterra Shareholder’s Fund chair John Shewan says he’s confident institutional and private wealth investors will return to the fund after shunning it in recent years. 

At the end of September, institutional investors owned 15 percent of the units in the fund, which gives non-farmer investors exposure to Fonterra Cooperative Group's earnings. That's down from 25 percent the year prior, and 38 percent the year before that. Holdings by private wealth managers halved from 14 percent to 7 percent in the past year.

Fonterra paid a dividend of just 10 cents per unit in 2018 and this year scrapped a dividend altogether in anticipation of its second, and biggest, loss.

“We are in a holding pattern and I’m confident that we’ll see a resurgence in time from institutional investors and private wealth funds,” Shewan told BusinessDesk after today’s annual meeting in Auckland. 

“As you have seen from the presentations, there was a steely determination from management and they have met their targets so far, so this is all positive.”

“Fonterra is an aircraft carrier, not a speedboat. There is widespread recognition this is happening but it is not happening in the short term,” he added. 

The fund's unit price sank as low as $3.15 in August and again in September from $4.64 at the start of the year. They recently traded at $4.17. There are now about 102 million units on issue, down by 600,000. The fund’s market capitalisation fell to $424 million over the period, down by $70 million. 

Shewan said retail investors had increased their holdings, from 52 percent to 66 percent, while farmer-shareholder holdings rose to 12 percent from 8 percent. The chair explained that the increase related to farmers either buying units to transfer to shares later, or transferring shares to units to avoid exiting the cooperative at the current price. Shares of the cooperative have lost almost 10 percent this year. 

Shewan fronted questions from unitholders today, along with Fonterra chair John Monaghan and chief executive Miles Hurrell. 

When one queried whether five directors were needed for the fund’s board, Shewan said despite the narrower scope of the fund’s role, a range of people was needed to have a spread of skills and to provide continuity from a succession point of view. 

As managers of the fund, the directors don’t have direct involvement in the cooperative, although the performance of the fund is inextricably linked to Fonterra’s results.  

Hurrell reiterated that management had made some hard choices and it had been a tough year. 

“I know we need to deliver, not only for you but for all of New Zealand,” Hurrell said.

(BusinessDesk)

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