Fonterra units lead slide in listed dairy companies; A2, Synlait fall

Monday 5th August 2013

Units of Fonterra Shareholders' Fund tumbled to the lowest level this year, leading a decline in dairy-related companies on the NZX, amid investor concern earnings will suffer from the discovery of a bacteria contamination in batches of whey protein.

Units of the fund, which give investors access to the dividends from Fonterra's shares, fell 8.6 percent to $6.51, erasing more than $60 million from its market value. The units were sold in an initial public offering in November at $5.50 apiece.

Shares of A2 Corp, which markets milk with a protein variant said to have health benefits, fell 4.5 percent to 64 cents and Synlait Milk, the Rakaia-based dairy company, declined 4.1 percent to $2.60.

The kiwi dollar fell as low as 76.99 US cents, from 78.31 cents at the New York close last week, and recently traded at 77.68 cents.

Fonterra, the world's biggest dairy exporter, said at the weekend that it had advised eight customers it has found a strain of chlostridium, linked to the deadly disease botulism, in three batches whey protein concentrate used in products including infant formula. The concentrate was produced at a single New Zealand manufacturing site in May 2012 and test results on July 31 this year prompted the notification to customers.

"You would expect this to increase this uncertainty in the near term," said Andrew Bascand, managing director at Harbour Asset Management.

The contamination scare comes five years after the scandal in China over Sanlu Group, which was 43 percent owned by Fonterra and whose milk was found to be tainted with melamine. Fonterra revealed in September last year that traces of a fertiliser additive known as DCD was found in some milk samples.

Media coverage has included conflicting reports of the response of importing countries. Fonterra said today it had received no official notification from China that its products had been banned after a report in China's official publication, the People's Daily, reported some importers had recalled product. Russia suspended imports of Fonterra products, its ITAR-TASS news agency has reported.

Units in the Fonterra fund extended their decline from last week when the dairy exporter raised its forecast payout to farmers on dwindling global milk supply, while saying higher margins could put its dividend at risk.

BusinessDesk.co.nz

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