NZ shares up, Fonterra gains on $183 million damages

Fonterra Shareholders Fund units gained 0.6 per cent to $6.40. Photo / 123RF

New Zealand shares gained, with activity quieter and market attention focussed on Fonterra Cooperative Group after the company lost an arbitration battle with Danone.

The S&P/NZX50 Index rose 0.025 per cent, or 2.01 points, to 8,188.83. Within the index, 22 stocks rose, 21 fell and seven were unchanged. Turnover was $163 million.

Tourism Holdings was the best performer, up 3.8 per cent to $5.24, while Port of Tauranga rose 3 percent to $4.74 and CBL Corp gained 1.6 percent to $3.15.

Fonterra Shareholders Fund units gained 0.6 per cent to $6.40. Fonterra Cooperative Group has cut its forecast for 2018 earnings per share after an arbitration tribunal in Singapore ruled it must pay 105 million euros ($183 million) to Danone in the wake of 2013's whey protein recall.

The award for recall costs suffered by Danone comes after the French company launched arbitration proceedings in Singapore and a legal suit in the New Zealand High Court, estimating the cost of recalling the whey protein concentrate to be about 350 million euros. At the time, Fonterra said it expected any court action would show it wasn't liable under the contract. The recall was recognised as a $14 million contingent liability in its accounts.

Fonterra had assessed the potential financial implications of the decision and made "a prudent decision to revise its forecast earnings per share range for the 2017/18 financial year to 35 to 45 cents, down from 45 to 55 cents," the company said. The decision wouldn't impact the company's forecast farmgate milk price, currently at $6.75 per kilogram of milk solids.

"In the share price you've seen an element of relief, albeit on low volume" said Rickey Ward, NZ equity manager at JBWere. "There's an issue that had been overhanging the company, which could be enormously material, which has been resolved, and it doesn't appear there's any desire to pursue recourse on this."

"It's full and final, it provides clarity and therefore investors can start to analyse or take a view of the company on fundamentals now, rather than this issue that's been lurking in the background," Ward said.

"It could have been quite stressful for them if it had been at the upper end of what some people were suggesting. The company would have been capable of addressing it, but they would have had to find a way of addressing it which might not have pleased the unitholders in the shareholders' fund."

Ward said the Fonterra news had dominated the market today, and the market was quieter today following yesterday's $1.48 billion in turnover on MSCI reweighting.

"You've got a bit of a remnant of that indexation that occurred yesterday, rightly or wrongly it feels like a follow on from that," Ward said.

"It was the biggest day I can ever recall. It was also the end of the month, not the middle of the month - people get into report writing so the attention is not on the market on the following day of the month, it tends to be head down, writing reports. You've got an element of that in the market at the moment."

Freightways was the worst performer, down 2.5 per cent to $7.80, while Precinct Properties fell 2.3 per cent to $1.30 and Z Energy dropped 2.1 per cent to $7.63.

Vital Healthcare Property Trust fell 0.7 per cent to $2.185. It has bought Acurity Health Group's Royston hospital for $54 million, having got Overseas Investment Office approval to acquire two other hospitals in the private operator's portfolio.

Outside the benchmark index, Hallenstein Glasson Holdings rose 4.4 per cent to $3.56. It said its clothing retail chains had traded strongly so far this summer, with increased sales and margins.

Sales for the first 17 weeks of the new financial year, from August 2 to November 30, were 15 per cent ahead of the same period last year, and gross margin had improved, the Auckland-based retailer said in a statement.