Fonterra Estimated Fair Value Share Price Up 3%

For Immediate Release
10 December 2003

FONTERRA ESTIMATED FAIR VALUE SHARE PRICE UP 3%

Fonterra Co-operative Group's estimated Fair Value Share price for the 2004/05 season has been set at $4.50, an increase of 12 cents or 3 per cent on the current season's price.

The increase signals a continuation of the positive trend in the Fair Value Share price, said Fonterra Chairman Henry van der Heyden, and provides independent confirmation that the co-operative is making steady progress and creating greater wealth for shareholders.

The Fair Value Share price is always stated inclusive of unrealised gains or losses on the foreign exchange contracts the company has entered into to hedge the next season's milk price.

Removing this variable, the estimated underlying value of the business has risen by 20c, or 5 per cent, from $4.06 last May to $4.26. The unrealised foreign exchange gains account for the additional 24c, taking the Fair Value Share price to $4.50.

The current season's (2003/04) $4.38 share price comprised an underlying value of the business of $4.06 and unrealised foreign exchange gains of 32c.

Fonterra's Board of Directors today set the estimated value from a range calculated by independent valuers Standard & Poor's Corporate Value Consulting (CVC) in accordance with Fonterra's constitution.

Standard & Poor's CVC valued the shares at between $4.26 and $4.95 (compared with a range of $4.05 to $4.71 for the 2003/04 price).

Mr van der Heyden said Standard & Poor's takes a long-term view in its valuation of the company.

"The independent valuer looks at all the factors likely to affect the business over the next 10 years and values the shares accordingly. This reflects positively on the performance of the company to date and the strategies in place for the future. It's good news for our shareholders."

The major factor behind the increase was the decline in debt. The reduction in working capital, and in particular a reduction in inventories, was a significant contributor to this.

"Farmers now own more of the business than before and the banks own less. We have a strong balance sheet reflecting the good financial management of the business. As a result, the value of each share has risen," said Mr van der Heyden.

The Board chose a price that was lower than the midpoint of the range, acknowledging that the US dollar had continued to depreciate against many currencies, including the New Zealand dollar, since October when much of the information was provided to Standard & Poor's CVC to complete its valuation.

"While a wide range of factors, including our long-term prospects are taken into account in setting the estimated fair value range, currency is of course one of them. The Board took this into account in setting the price, " said Mr van der Heyden. This is an estimated price only. The final share price will be set before June 1, the start of the dairy season when most dairy farm and herd transactions occur.

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Background to the Fair Value Share Process

Before the creation of Fonterra, shares in dairy companies had fixed nominal values, which often had little relationship to the underlying value of the company. Fair Value Shares were introduced under the Dairy Industry Restructuring Act and Fonterra's Constitution to more accurately reflect farmers' investments in their company.

Farmers are required to hold one Fair Value Share for each kilogram of milksolids they supply Fonterra.

Fonterra's Board of Directors sets the price from within a valuation range provided by Standard & Poor's, the independent valuer chosen for the job by Fonterra's Shareholders' Council.

The final share price must be set before June 1, the start of the dairy season when most dairy farm and herd transactions occur.

However, to assist farmers in planning production levels and budgets for the season ahead, Fonterra is required to provide shareholders with an estimate of the share price by December 15.

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