Fonterra reports net profit jump of 65pc to $834 million

• Net profit up 65 per cent to $834 million
• Debt decreased by $1.6 billion
• Sales volume increased by 4 per cent

Fonterra said its net profit shot 65 per cent higher to $834 million for the 2015/6 year, up from $506 million in the previous year.

The co-operative said the result reflected a stronger business despite ongoing challenges in global dairy markets.

Fonterra is paying a cash payout of $4.30 for the 2016 season, comprising a farmgate milk price of $3.90 per kg and a dividend of 40 cents per share, on a total available for payout of $4.41.

Chairman John Wilson said that the 2015/16 season had been incredibly difficult for farmers, their families and rural communities, with global dairy prices at unsustainablly low levels.

Fonterra yesterday raised its farm gate milk price by 50c to $5.25 a kg of milk solids - its highest point in two years and its second upgrade in less than a month.

The result was at the high end of market expectations.

Fonterra said its sales volume increased by 4 per cent to 23.7 billion liquid milk equivalents (LME).

Revenue came to $17.2 billion, down 9 per cent.

The company's gearing ratio, which shot higher after spending $2.1 billion on more "stainless steel" for its New Zealand plants, and through the purchase of an 18 per cent stake in China's Beingmate, dropped back to 44.3 per cent from 49.9 per cent. Fonterra's total debt fell by $1.6 billion to $5.5 billion.

Wilson said the co-op's strategy was working well. "We continued with the significant and necessary changes we began in the business over three years ago to support our strategy and its priorities, and worked hard to return every possible cent of value back to our farmers," he said in a statement.

Farmers' decisions to reduce stocking rates and supplementary feeding to help lower costs resulted in milk collection across New Zealand for the 2015/16 season declining to 1,566 million kg of milksolids, down three per cent on the previous season.

There had been real strength of the company's ingredients business during the year.

"The money our farmers have invested in stainless steel is giving us more choice, and we have matched production to the highest value customer demand," he said.

In Fonterra's consumer and foodservice business, the company converted an additional 380 million litres of liquid milk equivalents (LME) into higher returning products.

Fonterra's measure of its return on capital has increased from 8.9 per cent to 12.4 per cent.

With a forecast farmgate milk price of $5.25 per kg milksolids, the forecast total payout available to farmers in the 2016/17 season is $5.75 to $5.85 before retentions.

This includes a forecast earnings per share range of 50 to 60 cents, Fonterra said.

Read Fonterra's full result here: