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Shareholders’ Council Report Offers Insight to Fonterra’s Performance

Fonterra’s Shareholders’ Council has delivered a mixed report on the dairy co-operative’s 2002-2003 performance.

Council Chair, Tony O’Boyle, said solid operational gains within Fonterra’s Ingredients division underpinned an otherwise variable performance.

Through its performance-monitoring role Council seeks to secure superior payouts now and in the future for all shareholders.

“It is pleasing to see that the benefits of the merger are now being realised and that Fonterra has been able to leverage some real gains from its operating economies of scale. This gives shareholders confidence that from a processing and manufacturing basis, bigger can mean better.”

However, the Council is not convinced that Fonterra is making the most of its opportunities in the important consumer area of its business, New Zealand Milk, and has signalled that it wants to see performance in this and other value add areas lifted.

“Council wants to make sure that the potential of Fonterra’s many great brands are being fully realised here and overseas,” Mr O’Boyle said.

“New Zealand Milk has undertaken considerable international expansion in the last year, much of it by way of acquisition, and we want to make sure this expansion delivers positive returns to Fonterra farmers and is not achieved at the expense of organic growth.”

Mr O’Boyle said that on the face of it the 16.7% Total Shareholder Return achieved by Fonterra was impressive, but it must be viewed in the context of a drop in payout of more than 30%.

The Council considers the release of The Fonterra Strategy during the season to be a major accomplishment creating a clear direction for the co-operative.

“Fonterra’s challenge now is to make it happen,” said Mr O’Boyle.

“Council is keen to see evidence of concrete medium term plans to support Fonterra’s goal to ‘Lead in Dairy’. Shareholders’ future economic prosperity depends on it, and we will be continuing to closely watch the performance of the Board in driving strategies that improve Fonterra farmers’ returns.”

“Payout is by far the single biggest factor impacting shareholders’ immediate economic prosperity. I am sure I speak for all farmers when I say that shareholders measure their investment in their co-operative by the payout they receive.”

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