Fonterra lifts 2010/11 forecast payout 10c

Fonterra has announced an increase in its profit forecast for the 2011 financial year of 10 cents a share, leading to a similar improvement in its forecast payout.

The updated forecast payout range before retentions is $8.00-$8.10, which would be a new record for the co-operative, exceeding the $7.90 (before retentions) and $7.66 (cash basis) achieved in 2007/08.

The final payout will be confirmed in late September, when Fonterra announces its annual financial results.

Fonterra chief executive Andrew Ferrier said distributable profit for the 2011 financial year was forecast to be $690-$830 million, compared with $800 million for 2010.

In February the co-operative said a squeeze on margins due to higher milk costs was affecting operating earnings, especially within its ingredients businesses.It also signalled that higher commodity prices were starting to have a negative impact across its consumer businesses.

“Since February, our ingredients businesses have recovered some lost ground in terms of operating earnings, as commodity prices have levelled off and our ability to make profits above raw milk costs for other dairy product streams has improved,” Mr Ferrier said.“On the downside, our consumer business in Australia and New Zealand has faced earnings pressure.

“This business is partially absorbing higher dairy ingredients costs due to intense market competition and because of initiatives, such as our decision to freeze the price of liquid milk sold to retailers in New Zealand.”Mr Ferrier said in spite of the very strong global commodity prices, operating earnings within its commodities and ingredients businesses, and its consumer brands businesses, were expected to be marginally ahead of 2010.

The updated profit forecast also recognised expected tax benefits associated with projected dividend payments, retentions and one-off items, he said.Fonterra also announced a lower opening forecast payout for the 2011/12 season, commencing on June 1, 2011. This reflected an outlook for a higher average exchange rate and potentially moderating commodity prices.

The opening forecast payout range before retentions was $7.15-$7.25, including an opening forecast milk price of $6.75 per kilogram of milksolids and a forecast distributable profit range of 40-50 cents per share.

The co-operative set its fair value share price for the 2011/12 season at $4.52, the same level as the current season.