A strong performance in the second half of the financial year allowed Fonterra to pay farmers its forecast $5.20 a kg milk solids, reduce debt and strengthen its balance sheet.
Its annual accounts to July 31, released yesterday, show it weathered the global recession despite a $1.5 billion slump in revenue, tumbling product prices and demand, and a wildly fluctuating exchange rate.
The dairy co-operative has addressed perceived weakness in its balance sheet to improve its equity ratio from 57.4% at July 31, 2008, to 52.7% at balance date, helped by a gain of $260 million in shares and the stronger exchange rate reducing the burden of its foreign currency debt.
Fonterra's added value businesses - ingredients and brands - performed strongly in the year under review, earning a profit for suppliers of $603 million, or 49c a kg milk solids (kg/ms), compared with $364 million, or 31c kg/ms, for the 14 months a year earlier.
The milk price, determined by the performance of its commodity business, was $4.72 kg/ms ($7.59 in 2007-08), giving a payout for last season of $5.21 ($7.66) of which Fonterra will retain 1c kg/ms, or $12 million.
Chief executive Andrew Ferrier said a true measure of the company was the 20% increase in underlying Ebit - operating profit before net finance costs, equity accounted income, tax and excluding non-recurring items - from $743 million in the 14 months to July 31, 2008, to $890 million for the 12 months to July 31, 2009.
Its overall performance was helped by 7% more milk collected - a total of 1281 million kg/ms - on the previous year, as farms recovered from drought, while the $3.6 billion reduction in cost of goods sold, reflecting the lower milk price, was partly offset by the greater volume.
Net operating cash flow was $1.6 billion.
A decision to retain dairy products mid-season rather than selling on a falling market also paid dividends.
Inventory at January 31 was $5.1 billion but Mr Ferrier said product was sold as prices improved in the second half of the year which coincided with a more favourable exchange rate.
Earnings from commodities and ingredients before net finance costs and tax were $548 million, up 22% on the previous 12 months.
Lower commodity prices and less milk sourced from outside New Zealand were the main factors for a 24% decline in revenue to $10.5 billion.
Fonterra increased its market share in New Zealand and Australia and its brands led the cheese and yoghurt segments after the purchase of Nestle's yoghurt business.
Underlying earnings from this market increased 36% to $248 million, while revenue was $3.1 billion, up 8% over the same period.
Fonterra grew its business in Asia, Africa and Middle East, where underlying earnings were 19% higher at $120 million and revenue 22% higher at $1.6 billion, while its Latin America interests returned to a more normal performance after an exceptional performance the previous year.
Earnings were down 3% to $106 million, while revenue, primarily from its subsidiary Soprole, was $749 million, 10% higher.
Mr Ferrier said Asia, and to a lesser extent the Middle East, were the regions of the world expected to perform strongly in the coming year.
Fonterra annual results
For financial years of 2008 and 2009 ending July 31 ($ million)
Revenue
2008: $17,526
2009: $16,035
Operating expenses
2008: $1955
2009: $2000
Ebit
2008: $498
2009: $922
Total assets
2008: $14,439
2009: $14,117
Inventory
2008: $3288
2009: $2656
Net interest-bearing debt
2008: $5860
2009: $5166
