Fonterra picks higher profit but keeps cash

Fonterra says it has lifted its "distributable profit" forecast by 5c for the current 2009-2010 season to between 40c to 50c a share - but doesn't plan to pass on the extra earnings to its 10,500 farmers. Distributable profit is the total surplus from Fonterra's business available for distribution to farmer shareholders by way of dividend, and was previously estimated last December at 35c to 45c a share. The company said today it was making no change to the "target dividend range" of 20c to 30c a share. "This would indicate 10c to 30c a share...will be retained," it said. The forecast milk price of $5.70/kg milksolids for the season is also unchanged . Instead of combining the value of the milk with returns from investments, Fonterra is now setting a price for the milk, then paying an additional dividend. Fonterra chief executive Andrew Ferrier said the 5c increase in the distributable profit was driven primarily by gains arising from divestments, improved joint venture returns and lower funding costs through improved working capital. "Value return" was previously used to describe the amount of distributable profit paid out to farmer shareholders, but the company said today this phrasing was no longer relevant as profit was now being distributed via dividend payments. Similarly, payout was no longer a relevant term because farmer shareholders could now hold both supply-backed and dry shares.