Fonterra asked for clear plan on profits

Economic cornerstone Fonterra needs a formal profits distribution policy so farmers being asked to invest cash in the dairy giant know what payoff they are likely to reap, says the Fonterra Shareholders' Council. The call to Fonterra directors comes in the watchdog's annual report, and can be interpreted as a condition of the council's continuing agreement to a rejig of the capital-starved co-operative's financial structure reports The Herald. The first stage of the Fonterra board's three-step capital restructure proposal is to offer farmer-shareholders the opportunity to buy 20 per cent more shares. These shares will not, as is the norm, be linked to how much milk a farmer supplies New Zealand's biggest company. The proposal, if voted in by farmers at this month's annual meeting, has the potential to inject up to $900 million new capital. The watchdog's annual report said development of a formal retention policy, accompanied by clear economic signals to farmers, would bring major benefits to the business and the sector. The council had asked the board to consider the development of a retention policy in its capital planning, it said. Council chairman Blue Read told the Business Herald that retaining money from profits was "a normal way of doing business" "It would be very, very conducive to farmer investment capability if they knew in broad terms what [dividend] is possible or likely." A formal profit distribution policy was "essential" with Fonterra moving to a structure where farmers made an investment outside their milk production, he said.