WHY WE HAD TO IMPLEMENT A TEMPORARY CAP ON THE FUND At the same time as launching this consultation process, we announced that we’d be temporarily capping the size of the Fund by suspending shares in the FSM from being exchanged into units in the FSF while we consult with you. We’ve done this to ensure that all options remain open to us as we have this conversation. As we progressed the review and started looking into options that included buying back the Fund, we identified a risk that, if we started consulting on options for change without temporarily capping the Fund, the Fund size could have grown significantly and taken the option of buying back the Fund off the table before you even had a chance to consider it. Some of the options have the potential to see differences emerge between the price at which a share trades in the FSM compared to what a unit in the Fund trades at, with units trading at a higher price than shares. If the temporary cap was not in place, anyone holding dry shares would be able to exchange them into units in the Fund. This could more than double the size of the Fund and make options that include buying back the Fund unaffordable in the context of our current balance sheet targets. That’s why we had to temporarily cap the Fund at its current size before consulting on options. This was necessary to enable full discussion with you without ruling out options that potentially buy back the Fund. It’s important to note that pricing under the temporary cap may not reflect pricing of shares in a farmer-only market.
THE DETAILED FINDINGS OF THE REVIEW
asked you to select up to three areas most important to you, and you can see in the graphic below the percentage of respondents who put the following factors in their top three. Those areas in dark blue are the standouts, but we also heard that our capital structure should make it easy for new farmers to join the Co-op and for existing farmers to have more flexibility.
The survey results are similar to the feedback we’ve had from farmers who have left the Co-op in recent years. Essentially, the lack of flexibility in our current structure means that it’s challenging for new farmers to join and can be a key factor for existing farmers in deciding to leave the Co-op.
We heard what’s most important to you.
The online survey results confirmed that there is an appetite for change, with 62% of respondents either strongly or slightly supporting a change. The results also gave us an insight into what you consider are the main priorities when it comes to capital structure. We
82%
Maintaining farmer ownership and control of the Co-op Making sure Fonterra has a strong balance sheet that is resilient to changing milk supply & climate or economic shocks Providing a good return on investment
65%
53%
30%
Making it easy for new farmers to join the Co-op Giving farmers more flexibility about how much they invest in the Co-op Being simple to understand
18%
18%
14%
Providing growth in the capital invested in the Co-op over time Aligning incentives between shareholders, unitholders and management to maximise value Having a high share price
7%
6%
Being able to raise capital from non-farmer investors
4%
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