Tuesday 13th March 2018
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Shares of Zespri Group will be halted for two days pending a vote on constitutional changes aimed at strengthening grower ownership and control of New Zealand's statutory kiwifruit exporter.
Shareholders will vote at a special meeting in Mt Maunganui tomorrow on a series of resolutions that will impose a cap on the number of shares they can hold relative to trays of kiwifruit produced, and phase out dividends for non-producing shareholders over seven years. Existing growers who stop producing after tomorrow's vote would cease getting dividends after three years.
The vote comes after shareholders in 2015 approved plans to strengthen grower control amid concerns about an increasing misalignment between producers and shareholders. The changes required an amendment to the Kiwifruit Export Regulations last year.
Of Zespri's 120.7 million shares on issue, some 18.1 million are held by people no longer connected with the kiwifruit industry and a further 29 percent are held by producers at a ratio of below one share per tray, which Zespri deems "under-shared". At the other end of the spectrum, 8 percent of the shares are held by producers at a ratio of more than four shares per tray, known as "over-shared".
Chair Peter McBride told shareholders last August that when Zespri was corporatised in 2000 all growers had a share in the business but over time that position had eroded. "Left unaddressed, the issue is a source of destabilisation to the future growth of the industry, because an increasing proportion of growers will not have a stake in Zespri as shareholders," he said.
Zespri wants to aim for a ratio of one share for one tray produced but the new cap would set the limit at four shares per tray. Voting entitlements would be set at the lesser of one voting share per tray or the total number of shares the producer holds. The changes also take into account the rights of owners and lessees of kiwifruit orchards.
A seventh resolution is aimed at helping address the misalignment of shares by giving Zespri the right to issue, buy back and distribute shares. The process, which won't be mandatory, will include one or more targeted share buybacks on terms to be determined by the board. It needs shareholder approval under the Companies Act because some of the actions are likely to constitute major transactions that fall outside its normal course of business.
Zespri shares last traded at $7.70 on the Unlisted platform giving the company a market capitalisation of about $930 million. The stock will be halted on Wednesday and Thursday to allow Zespri to update its record of shareholdings.They began trading on Unlisted in early 2016 and have soared 340 percent since then.
In October, Zespri raised its 2018 forecast for tray returns across all varieties, saying it expected its total fruit and service payment to be $1.39 billion in the year ending March 31, up from a previous forecast of $1.34 billion. That would match its payments for 2017 when it faced a steep increase in supply.
ANZ Bank New Zealand economists said last month that the kiwifruit industry needed to manage its ambitious growth plans to ensure there are enough workers and packing plants and to be aware of rising input prices.
Kiwifruit is New Zealand's fastest-growing horticultural export and the Ministry for Primary Industries is forecasting more growth in the next two years, with exports to reach $1.8 billion in 2019. Zespri is aiming for $4.5 billion of global sales by 2025. In the next five years, the monopoly export authority plans to release 3,750 hectares of licences for its more profitable, sweeter SunGold variety.
In research from Craigs Investment Partners in December, analyst Chris Byrne said his forecasts are "slightly more conservative" than Zespri's because of risks including increased production from Chile, potentially aided by investment from China, and more output in the Northern Hemisphere.
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