Fonterra announces FY19 annual results and new strategy

Page 1



Reporting Period 12 months to 31 July 2019
Previous Reporting Period 12 months to 31 July 2018


Amount
(m’s)
Percentage
Change
Revenue from ordinary activities NZ$20,114 (2)%
Profit (loss) from ordinary activities after tax attributable to
security holder
1

NZ$(605) (209)%
Net profit (loss) attributable to security holders NZ$(557) (152)%

1
Net profit attributable to shareholders of the company is equivalent to profit from ordinary activities after tax attributable to
shareholders of the company (as required to be disclosed pursuant to Clause 1.2 of Appendix 1 of the Fonterra Shareholders’
Market Listing Rules, and Clause 1.2 of Appendix 1 of the NZX Debt Market Listing Rules).

Interim/Final Dividend
Amount per Security
Imputed Amount
per Security
No final dividend to be paid NZ$0.00 $0.00

Record Date -
Dividend Payment Date -

Comments -

To be followed by the balance of the information required in the report pursuant to Appendix 1 – Including
the Net Tangible Asset amount per security for the current and previous reporting period.

---

26 SEPTEMBER 2019

FONTERRA ANNOUNCES FY19 ANNUAL RESULTS AND NEW STRATEGY

• Total Cash Payout for 2018/19 season: $6.35
o Farmgate Milk Price $6.35 per kgMS
o Dividend of 0 cents per share
• New Zealand milk collections: 1,523 million kgMS, up 1%
• Normalised sales revenue: $20.1 billion, down 2%
• Net loss after tax: $605 million, compared to a loss of $196 million
• Normalised EBIT: $819 million, down 9%
• Normalised gross margin: 15%, down from 15.4%
• Normalised operating expenses: $2,311 million, down 7%
• Capital expenditure: $600 million, down 30%
• Normalised Return on capital: 5.8%, down from 6.3%
• Free cash flow: $1,095 million, up 83%
• Normalised earnings per share: 17 cents
• Gearing ratio: 48.2%, down 0.2%
• FY20 forecast Farmgate Milk Price: $6.25-7.25 per kgMS
• FY20 forecast earnings per share range: 15-25 cents
• New strategy, operating model and changes to management team announced

Today Fonterra announced its FY19 annual results, the final milk price for the 2018/19 season, its
refreshed strategy and changes to its operating model and management team.

The Co-operative reports a Net Loss After Tax of $605 million. Normalised earnings before interest and
tax (EBIT) was $819 million, down 9%, the Co-operative’s free cashflow was $1,095 million, up 83%, and
the return on capital was 5.8%, down from 6.3%.

Fonterra CEO Miles Hurrell says that 2019 was incredibly tough for the Co-op but it was also the year
Fonterra made decisions to set it up for future success.

“These included us reflecting changing realities in asset values and future earnings, lifting our financial
discipline, getting clear on why we exist and completing a strategy review.

“Many of these calls were painful, but they were needed to reset our business and achieve success in the
future.

“We made the decision to reduce the carrying value of several of our assets and take account of one-off
accounting adjustments. These totalled $826 million, which contributed to a Net Loss After Tax of $605
million for FY19.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 2

“As we do every year, we took a hard look at our asset valuations and future earnings potential. When it
came to DPA Brazil, Fonterra Brands New Zealand and China Farms, we saw there were either some
changes in their local economies, increased competition or business challenges impacting their forecast
earnings. This meant we needed to reduce their carrying value.

“Clearly, any write-down of an asset is not done lightly. But what I hope people can also see is that we’re
leading the Co-op with a clear line of sight on potential opportunities as well as the risks.”

Commenting on the underlying performance of Fonterra, Mr Hurrell said Fonterra’s normalised earnings
per share for the year was 17 cents, which was above the last forecast for the year of 10-15 cents.

“The gross margin from our largest business, New Zealand Ingredients, was $1,332 million, up 3% on last
year due to increased sales and price performance.

“Our Foodservice performance also improved on last year, with gross margin up 10%. This was despite
lower total sales volumes, following a slow start to butter sales in Greater China and Asia.

“But we can’t ignore that we had a number of challenges across the year – these included Australia
Ingredients, our businesses in Latin America and the consumer businesses in Sri Lanka, Hong Kong and
New Zealand.

In September 2018 Mr Hurrell set out a three-point plan – take stock of the business, get basics right and
ensure more accurate forecasts. Reflecting on that plan, he said that it definitely helped focus the Co-op.
“I’m pleased with the progress we’ve made with our financial discipline. You can see it in our improved
cashflow, reduced debt and significant cost savings.

“As part of taking stock of our business we reviewed our asset portfolio and made significant calls on
three assets we identified as no longer core to our strategy. We sold Tip Top for $380 million and our
share of DFE Pharma for $633 million. We also wound back our relationship with Beingmate and are now
looking at options to reduce our financial stake in this company.

“Taking stock of our business didn’t stop there. We also exited our Venezuela businesses, announced the
closure of our Dennington manufacturing site in Australia and kicked off a strategic review of DPA Brazil
and two of our farm-hubs in China.

“We have contributed to China’s dairy industry by developing high quality model farms. We made these
investments as they were seen as necessary to protect our significant exports to China. Growing demand
for fresh milk in China’s consumer market suggests prices are likely to rise in the future – however, the
timing is uncertain. As a result of this, and the fact that the development of these farms is now complete,
we are looking at how we can best unlock the value in the farms.

“This sort of discipline around reviewing our asset portfolio isn’t a one-off. We need to be continuously
reviewing our assets and making sure they are meeting the changing needs of our Co-op.

“As part of the three-point plan, we also set a goal in FY19 to reduce our debt by $800 million. Tip Top
made a significant contribution and, along with the sale of DFE Pharma, we expect to exceed this target in
FY20.

“We also set ourselves a target to reduce capital expenditure by $200 million in FY19 and we achieved
$261 million. We reduced our operating expenses by $185 million, year on year.

Final Farmgate Milk Price for the 2018/19 season

Fonterra announced a final Farmgate Milk Price for the 2018/19 season of $6.35 per kgMS.

Fonterra Chairman John Monaghan said this was the third year of sustainable prices and represented
$9.7 billion for milk payments to the Co-op’s farmer owners in the 2018/19 season.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 3

Global prices for whole milk powder, butter and anhydrous milk fat were weaker compared to last year.
This was driven by excess supply relative to demand, particularly for whole milk powder, for much of the
season. Skim milk powder prices, however, were stronger.

The refreshed strategy and FY20 earnings guidance

Mr Hurrell said the final big call for the year has been sharing the Co-op’s new strategy.

“It’s a strategy which recognises we are a New Zealand co-op, doing amazing things with New Zealand
milk to enhance people’s lives and create value for customers and farmers. It’s a strategy that’s rich in
innovation, sustainability and efficiency. It unlocks value and sees us focusing on three goals – healthy
people, healthy environment and healthy business.

“This is the right strategy for us, but it requires us to make some hard choices. We’ve looked at the big
opportunities and risks for a New Zealand dairy co-op today. We’ve also got clear on what our strengths
are and the hard realities we have to face up to. I’m pleased that we now have a strategy that is built from
the belief that our farmers’ milk here in New Zealand is the best and most precious in the world.

“Recognising this, while we will complement our farmer owners’ milk with milk components sourced
offshore when required, we will start rationalising our off-shore milk pools over time.

“Our strategy will see us focus on world-class dairy ingredients for our customers around the world, and
innovative ingredients that meet nutrition needs right across people’s life stages. We will focus on
ingredient categories: Paediatrics, Medical and Ageing, Sports and Active, and Core Dairy.

“We will also create new opportunities in new ways for foodservice. This will include building on our
foodservice success in China and developing new markets, particularly in Asia Pacific.

“This focus on dairy ingredients and foodservice will see us playing to our strengths and driving more
value from the parts of our business that consistently perform.

“We will still be in Consumer and will focus on markets throughout Asia Pacific. The majority of the
products we sell in these markets are made from New Zealand milk and are similar to those we sell in our
Ingredients business. This creates efficiencies and helps us play to our strengths. It also means we will
reduce our consumer product portfolio to those that create superior value.”

Mr Monaghan said the new strategy sounds simple but the best strategies often are.

“Simplicity shouldn’t be confused with a lack of ambition. Our forecast earnings range for FY20 starts at
15-25 cents per share, but the five-year plan is to deliver a target of 50 cents per share.

“Our starting earnings range reflects our change in culture. We will earn the right to make ambitious
decisions by first doing the basics right and returning our balance sheet to a position of strength. That will
give us options to go for the opportunities that we create in the future.”

As announced at half year, the Board reviewed the Dividend Policy guidelines within the context of the
new strategy. Mr Monaghan says the new guidelines better reflect the annual performance and financial
strength of the Co-operative.

“Under the new guidelines, we would expect the dividend payment to be 40-60% of reported Net Profit
After Tax, excluding any abnormal gains, from what was previously 65-75% of adjusted Net Profit After
Tax over a period of time. An interim dividend will not be more than 40% of the forecast total dividend and
no more than net earnings at half year.

“In addition to the new percentage of earnings, two additional key principles will guide our Board when
considering the payment of a dividend. A dividend should not require our Co-op to take on more debt, and
a dividend should not reduce our Co-op’s ability to service existing debt.

“The distribution of any abnormal gains, such as an asset sale, will be considered separately,” he says.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 4


New operating model and changes to the management team

One of the immediate priorities for the Co-operative is organising itself to best deliver the new strategy.
Mr Hurrell said he is introducing a new customer-led operating model.

“We need an organisational structure that allows us to live within our means, create better connections
with our customers, create value by focusing on what we are good at, and where we can differentiate
ourselves. The structure encourages us to work together as one team.

“Our new operating model will see us move from our two large, central businesses (Ingredients, and
Consumer and Foodservice) to three in-market customer facing sales and marketing business units –
Asia Pacific (APAC), Greater China (GC), and Africa, Middle East, Europe, North Asia, Americas
(AMENA).

“We are creating a new team (office of the Chief Operating Officer) which will be the enabler for our in-
market business units to create value through sustainability, innovation and operational scale and
efficiency.

“We are also looking at ways to prioritise activities and increase efficiency for our central support
functions, ensuring they add direct value to our Co-op.

“These changes also mean there are changes in my lead team and I’m delighted to make the following
appointments from my current team, which are effective immediately:
• APAC CEO – Judith Swales
• AMENA CEO – Kelvin Wickham

“Marc Rivers will remain our CFO, Deborah Capill our MD People and Culture and Mike Cronin our MD
Co-operative Affairs

“It is with regret that I announce Robert Spurway has decided it’s time for a change of direction in his
career and will leave Fonterra after eight outstanding years with our Co-operative. Prior to joining
Fonterra, Robert held several CEO positions and he now wants to fulfil his passion for directly running a
business again.

“He has been a huge contributor to the ongoing strength and performance of our NZMP Ingredients
business and has set the platform for continued success - through innovative technologies, a team of
highly capable people and significant progress on sustainability across our manufacturing operations - all
central to our strategy.

“Over the next few months Robert will help transition Global Operations to the new operating model as
well as working with the Greater China leadership team to implement the new Greater China regional go-
to-market model.

“I have recruitment processes underway for the China CEO and Chief Operating Officer.

“I look forward to working with this team and the wider Fonterra team to move forward and reset the Co-
op. Our priorities in our first year of our new strategy will be to build a winning team, support regional New
Zealand, reduce our environmental footprint and hit our financial targets.”


Non-GAAP financial information

Fonterra uses several non-GAAP measures when discussing financial performance. These measures
include normalised segment earnings, normalised EBIT, EBIT, normalised earnings per share,
normalisation adjustments and payout. These are non-GAAP financial measures and are not defined by
NZ IFRS. Management believes that these measures provide useful information as they provide valuable
insight on the underlying performance of the business. They are used internally to evaluate the
underlying performance of business units and to analyse trends. These measures are not uniformly

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 5

defined or utilised by all companies. Accordingly, these measures may not be comparable with similarly
titled measures used by other companies. Non-GAAP financial measures should not be viewed in
isolation nor considered as a substitute for measures reported in accordance with NZ IFRS. These non-
GAAP measures are not subject to audit unless they are included in Fonterra’s annual financial
statements.

Definitions of the non-GAAP measures used by Fonterra, and reconciliations of the NZ IFRS measures to
the non-GAAP measures can be found on pages 113 to 115 of Fonterra’s Annual Report that is available
on Fonterra’s website.


-ENDS-

For further information contact:

Fonterra Communications
24-hour media line
Phone: +64 21 507 072

---

Tā t o u ,
tātou
Yo u ,
me,
us
together
ANNUAL REPORT 2019

We know
when we
work together
we can create
goodness.

02
Letter from
our Chairman
Page 02
Letter from
our CEO
Page 06
Our new direction
Page 10
14
Our Co-operative
Difference
Page 14
Working with
our farmers
Page 16
Honour Roll for Milk
Quality Excellence
Page 20
22
Farmer spotlight
Page 22
Employee spotlight
Page 24
Our Board
Page 26
Our Management
Team
Page 28
30
Our year
in review
Page 30
Our sustainability
approach
Page 32
Nutrition
Page 34
Environment
Page 36
Community
Page 38
CONTENTS
Our New DirectionOur Co-operative DifferenceOur PeopleOur Year That’s Been
Fonterra uses several non-GAAP measures when discussing financial performance.

These measures include normalised segment earnings, normalised EBIT, EBIT, normalisation adjustments and payout. These are non-GAAP financial measures and are not defined by NZ IFRS. Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. They are used internally to evaluate the underlying performance of business units and to analyse trends. These measures are not uniformly defined or utilised by all companies. Accordingly, these
measures may not be comparable with similarly titled measures used by other companies. Non-GAAP financial measures should not be viewed in isolation nor considered as a substitute for measures reported in accordance with NZ IFRS. These non-GAAP measures are not subject to audit unless they are included in Fonterra’s annual financial statements.Please refer to page 113 for the reconciliation of the NZ IFRS measures to the non-GAAP measures and page 115 for definitions of the non-GAAP measures used by Fonterra.

40
Group Financial
Metrics
Page 40
Group Overview
Page 42
Ingredients
Page 46
Consumer and
Foodservice
Page 48
China Farms
Page 52
Historical Financial
Summary
Page 54
62
Corporate
Governance
Page 62
76
Summary Financial
Statements
Page 76
116
Directory
Page 116
Our PerformanceOur Corporate GovernanceOur Financial SummaryOur Directory

LETTER FROM THE CHAIRMAN
A year of
fundamental
change
“
”
FY19 was a year of significant
challenges and change for
our Co-op as we continued to
fundamentally change the culture
and strategy of our organisation.
John Monaghan
CHAIRMAN
FONTERRA ANNUAL REPORT 2019
02

FY19 was a year of significant challenges and change for
our Co-op as we continued to fundamentally change the
culture and strategy of our organisation.
We started by looking at our Co-op’s purpose. We did a lot
of listening to people within the Co-op, to our customers,
partners and other stakeholders. They told us that we
need to show up differently, but also that this Co-op’s
intergenerational success was what motivated them.
Our new purpose is already guiding our decision making,
culture and behaviour as an organisation. It’s more than
words. You can see the progress reflected in the numbers.
We set ourselves a target to reduce our debt by $800 million.
With the addition of the proceeds from the sale of DFE
Pharma, which was completed outside the reporting period,
we intend to reduce debt by approximately $1 billion. Our
average capital expenditure for the previous six years has
been more than $1 billion. This year it was $600 million.
We have reduced headcount by more than 1,400 people,
frozen salaries for our people earning over $100,000 and
decided that we won’t be paying incentive bonuses for FY19.
We’ve made a good start, but we have more to do.
Underlying business performance
Our headline loss of $605 million doesn’t reflect the
commitment we made to you last year and frankly,
isn’t good enough.
Our write-down decisions and other one-offs took us
from what would have been a modest profit by our
standards of $269 million, to a loss-making position
for the year. We know we need to do more to live up
to our shared expectations of our Co-op.
Underneath that, the majority of our business is delivering.
Our normalised earnings for FY19 was 17 cents per share
and critically, the business units that are the foundation
of our new strategy – New Zealand Ingredients and
Foodservice – have delivered.
New Zealand Ingredients, our largest business, continued
to perform well. Gross margin was $1,332 million, up 3%
on last year due to favourable pricing.
Our Foodservice performance also improved on last year,
with gross margin up 10%.
At $6.35 per kgMS the Farmgate Milk Price was the third
year of sustainable prices. The Co-op generated $9.7 billion
for milk payments to our farmer owners in FY19.
Farmgate Milk Price for
2018/19 season
$
6.35
per
kgMS
Share price, down 26.4%
year/year
1
$
3.7 7
New Zealand milk collections
for 2018/19 season
1
,
523
million
kgMS
Dividend
0
No
dividend
2
1 For the period 31 July 2019
2 Fonterra Shareholders Fund (FSF) unit price as at 31 July 2019
Note: the Fonterra unit price as at 25th September 2019 was $3.22 NZD
FONTERRA ANNUAL REPORT 2019
03

Shareholder Value
Our decision to not pay a dividend and significantly
write-down a small number of assets came as a surprise
to many. I understand and share the frustration that farmers
and unit holders rightfully feel, and the impact that these
decisions have had on our share price and the balance sheets
of our owners in an already challenging environment.
We don’t make impairments lightly. Once made, most
cannot be fully reversed. While painful, they were the
right decisions.
Our Co-op reviews the value of our assets every year.
We make an overall assessment of their value and future
earnings potential. The process requires us to make a series
of judgement calls. Small changes to our assumptions can
cause meaningful changes in the valuation.
Our assessment is then reviewed by external auditors,
along with the rest of our financials, every year.
Our Co-op’s dividend policy has been to pay 65%-75%
of adjusted Net Profit After Tax over time. The Board’s
decision not to pay a dividend for FY19 was part of our
stated intention to reduce the Co-op’s debt, which is
in everybody’s long-term interests.
Our unit price finished the financial year down 26.4% at
$3.77. Its recovery will be a priority for us in FY20. We will
improve our performance in FY20 and we expect the
market to respond accordingly.
Leadership changes
In January, our Co-op mourned the passing of former
Chairman John Wilson. John retired from our Board in
November 2018 to focus on battling a serious illness.
John will be remembered for his contribution as a
farmer owner, inaugural Chairman of the Fonterra
Shareholders’ Council on merger, as a Farmer Elected
Director from 2003, and as Chairman from 2012.
Nicola Shadbolt (9 years) and Ashley Waugh (3 years)
also retired by rotation at the 2018 Annual Meeting. We
welcomed back Leonie Guiney to the Board and were joined
by two new Farmer Directors, Peter McBride and John Nicolls.
New Strategy
Developing our new strategy was a key priority for the
Board and senior Management in FY19.
We started development of the strategy by thinking about
what we have learned from past decisions and agreeing
what we want our Co-op to stand for today.
You need to embrace the best from the past and adapt
it for the future.
Eighteen months ago, we may have said we’re a global dairy
giant here to make a difference in the lives of two billion
people through a volume ambition of 30 billion litres of
milk by 2020.
Today, we stand for value. We’re a New Zealand dairy
farmers’ co-op, doing smart, innovative things with
New Zealand milk to create value for our owners,
customers, and communities in which we work and live.
This simple change in how we see ourselves leads us
to make fundamentally different decisions.
We have the best milk in the world here at home.
By championing it, we believe people will continue to
seek out and pay a premium for products backed by our
unique provenance story – our Co-op heritage, grass-fed
New Zealand milk, backed by ethical and sustainable
farming practices.
We will prioritise New Zealand milk, complemented by
milk components sourced offshore only when required.
As a result, we plan to start exiting our off-shore milk pools.
Scale ingredients have always been the engine room of our
Co-op. Our new strategy will build off that by increasing our
targeted research and development, energy and investment
into our speciality ingredients business – products in
medical nutrition and sports and active nutrition – which
is performing well and has strong growth potential.
We will focus on four ingredient categories that reflect
the way consumers enjoy dairy as part of their lifestyles:
Paediatrics, Medical and Ageing, Sports and Active, and
Core Dairy.
Alongside that, we want a leaner consumer business that
is focused on the products and places where we think we
can create sustainable and superior value. The consequence
of that is that we plan to be in less categories, and will likely
reduce our product portfolio dramatically. For example, we
currently have over 600 product variations of Anlene. In the
future, it will be closer to 50.
Our Foodservice business is already the leader in China,
we want to push out further to lead in Asia Pacific and form
new partnerships to help us expand into other markets
without the need for large amounts of capital.
The success of the strategy will be measured by the health
of our business, our environment, and our people. It comes
with performance targets, including Return on Capital,
greenhouse gas emissions, and the engagement levels
of our farmers and staff.
It sounds simple, the best strategies often are. But simplicity
shouldn’t be confused with a lack of ambition.
Our earnings range for FY20 starts at 15-25 cents
per share, but the five-year plan is to deliver a target
of 50 cents per share.
Our starting earnings range reflects our change in culture.
We will earn the right to make ambitious decisions by first
doing the basics right and returning our balance sheet to a
position of strength. That will give us options to go for the
opportunities that we create in the future.
To use a cricketing analogy, we want to build an innings by
hitting singles, before trying to hit the ball out of the park.
We won’t have it all our own way, but we’re confident that,
implemented well, the strategy will bring a new period of
success for our Co-op.
On behalf of the Board I’d like to thank you for your support
and loyalty this year.
John Monaghan
FONTERRA ANNUAL REPORT 0261
04

“ We have the best milk in
the world here at home.
By championing it, we
believe people will
continue to seek out
and pay a premium for
products backed by our
unique provenance story –
our Co
-
op heritage,
grass-fed New Zealand
milk, backed by ethical
and sustainable
farming practices.”
FONTERRA ANNUAL REPORT fi
05

LETTER FROM THE CEO
Resetting
the business
“
”
Miles Hurrell
CEO
In FY19 we made decisions to set
us up for future success. Many of
these were painful, but they were
needed to reset our business and
achieve success in the future.
FONTERRA ANNUAL REPORT 2019
06

I would like to start this letter by acknowledging that this
year has been incredibly tough. I also want to thank our
farmer owners, unit holders and employees for their loyalty.
I know our performance impacts you and your families and
that’s why your support means so much.
In FY19 we made decisions to set us up for future success.
Many were painful, but they were needed to reset our
business and achieve success in the future.
Reflecting changing realities in our asset
valuations and future earnings
We made the decision to reduce the carrying value of several
of our assets and take account of one-off accounting
adjustments. These totalled $826 million, which contributed
to a Net Loss After Tax of $605 million for FY19.
As we do every year, we took a hard look at our asset
valuations and future earnings potential. When it came to
DPA Brazil, Fonterra Brands New Zealand and China Farms,
we saw there were either some changes in their local
economies, increased competition or business challenges
impacting their forecast earnings. This meant we needed
to reduce their carrying value.
Clearly, any write-down of an asset is not done lightly. But
what I hope people can also see is that we’re leading the
Co-op with a clear line of sight on potential opportunities
as well as the risks.
Lifting the level of discipline
I’m pleased with the progress we’ve made with our financial
discipline. You can see it in our improved cashflow, reduced
debt and significant cost savings. We have done this through
a commitment to our three-point plan – to take stock, get
the basics right and ensure more realistic forecasts.
As part of taking stock of our business we reviewed
our asset portfolio and made significant calls on three
assets we identified as no longer core to our strategy.
We sold Tip Top for $380 million and have sold our share
of DFE Pharma for $633 million. We also wound back
our relationship with Beingmate and are now looking
at options to reduce our financial stake in this company.
Reduction in capital expenditure
Reduction in normalised operating expenses
Free cashflow, an improvement of 83%
Reduction in debt
Proceeds from all announced asset sales
available for debt reduction
1
$
261m
$
185m
$
1,095m
$
469m
$
1billion
Reduction in Net Profit After Tax attributable to
equity holders, as a result of the strategy review
Net Loss After Tax
$
605m
$
826m
1 Final amount dependent on exchange rates and final
settlement adjustments
FONTERRA ANNUAL REPORT 2019
07

• Prioritise New Zealand milk.
• Grow our sales of Sports and Active,
Medical and Aging and Paediatric ingredients.
• Develop new Foodservice markets.
• Only make consumer products where we
have a right to win.
• Lift our research and development spend.
• Use milk components and non-dairy
ingredients sourced from around the world.
• Collaborate more based on intellectual
property and skills.
• Divest non-core businesses.
• Reduce debt.
Our new strategy will:
FONTERRA ANNUAL REPORT 2019
08

Taking stock of our business didn’t stop there. We also
kicked off a strategic review of DPA Brazil and two of our
farm-hubs in China, exited Venezuela and announced the
closure our Dennington manufacturing site in Australia.
This sort of discipline around reviewing our asset portfolio
isn’t a one-off. We are continuously reviewing our assets
and making sure they are meeting the changing needs of
the Co-op.
As part of the three-point plan, we also set a goal in FY19 to
reduce our debt by $800 million. Tip Top made a significant
contribution and, along with the sale of DFE Pharma, we
expect to exceed this target in FY20.
We also set ourselves a target to reduce capital expenditure
by $200 million in FY19 and we achieved $261 million.
We reduced our operating expenses by $185 million, year
on year, which means we exceeded our target of bringing
them back to FY17 levels within two years.
This takes discipline right across the organisation – so, I’m
proud of the teamwork involved in achieving this.
Getting clear on why we exist – our purpose
In FY19 we got clear on our purpose and why we exist:
Our Co-operative, empowering people to create goodness
for generations. You, me, us together. Tātou, tātou.
It is important that we don’t just focus on our immediate
priorities but also lift our sights to the horizon and see the
opportunity we have to create goodness for generations
to come – and that’s what our purpose helps us do.
We want a purpose that inspires our Co-op, unites us
with others, drives action and guides our choices so we
can move forward together.
Completing our new strategy
The last call for the year has been finalising and sharing
our new strategy.
It’s a strategy which recognises we are a New Zealand
co-op, doing amazing things with New Zealand milk to
enhance people’s lives and create value for customers
and farmers. It’s a strategy that’s rich in innovation,
sustainability and efficiency. It unlocks value and sees
us focusing on three goals – healthy people, healthy
environment and healthy business.
This is the right strategy for us, but it requires us to make
some hard choices. We’ve looked at the big opportunities
and risks for a New Zealand dairy co-op today. We’ve also
got clear on what our strengths are and the hard realities
we have to face up to. I’m pleased that we now have a
strategy that is built from the belief that our farmers’
milk here in New Zealand is the best and most precious
in the world.
This strategy will see us focus on world-class dairy
ingredients for our customers around the world, and
innovative ingredients that meet nutrition needs right
across people’s life stages. It will also see us create new
opportunities in new ways for food service and take a more
targeted approach to opportunities in consumer brands,
focusing only where we can create sustainable value.
As I have said before this is a fundamental change for us
– we have dropped our volume ambition and now it’s all
about value. It’s about us being much more targeted and
focused around our unique strengths.
Priorities for FY20
FY20 will be the first year delivering our new strategy.
We have four key priorities that will help us take steps
towards our goals of healthy people, healthy environment
and healthy business. They are:
1

Build a winning team
• We will introduce and successfully shift to our
new customer-led operating model.
2

Support regional New Zealand
• We will inject $10 billion into rural communities
through competitive milk price payments.
3

Reduce our environmental footprint
• Through The Co-operative Difference, we will work
with our farmer owners so that a further 1,000 farms
have a Farm Environment Plan and we will prepare
emission profile reports for all our farmer owners.
• We will continue to improve energy efficiency
and water use at our manufacturing sites.
4

Hit our financial targets. We will:
• Improve our debt position so that our debt is no
more than 3.75 times our earnings, down from 4.3.
• Reduce our capital expenditure to no more than
$500 million (down $100 million on FY19).
• Achieve a gross margin in excess of $3 billion.
• Meet our earnings guidance of 15-25 cents per share.
I am excited about our Co-op’s future. I’m energised about
laying the foundations for a sustainable and successful
co-op. We need to deliver for our farmers, deliver for our
country, and take the best of New Zealand to the world.
Let’s make it happen.

Miles Hurrell
Chief Executive Officer
FONTERRA ANNUAL REPORT 19fiff
09

Our Purpose
Our Co-operative,
Empowering people
To create goodness for generations.
You, me, us together
Ta
-
tou, ta
-
tou
Co-operative
spirit
Do what’s
right
Make it
happen
Challenge
boundaries
Our Values
Our Goals
Healthy
people
Healthy
business
Healthy
environment
OUR NEW DIRECTION

Our Co-operative is made up of amazing
people, our farmer owners, employees,
and the people we connect with in our
communities.
Our Co-operative is stronger when we work
together, in the good times and in the tough
times. That’s the essence of our purpose and
the title of this report – You, me, us together
Ta
-
tou, ta
-
tou (all of us together).
Over the past 18 months we’ve taken a hard
look in the mirror. We have listened to each
other to understand what connects us, what
inspires us and how we work together
to create goodness now and for generations
to come.
This has provided us with the foundation
for a powerful purpose statement. This is
our starting point, the ‘why’ we exist, that
connects and resonates with our farmer
owners and employees.
It also reinforced the importance of our
Co-operative’s values, and the need to
change the way we behave, connecting
our strategy, our decisions and actions
to our purpose and values.
At our heart we are a New Zealand dairy
co-operative, doing amazing things with our
farmers’ milk to enhance people’s lives and
create value for farmers and customers.
We are clear what our goals are:
Healthy people
Healthy environment
Healthy business
This comes to life
through our new strategy
Our Co
-
operative
FONTERRA ANNUAL REPORT 2019
11

CORE DAIRYPAEDIATRICSSPORTS & ACTIVEMEDICAL & AGEINGFOODSERVICE
WE WILL CONCENTRATE ON THESE
CONSUMPTION CATEGORIES
Demand for dairy will
remain strong. Changing
global trends support this.
Sustainability
Naturalness
Authenticity & Provenance
Healthy Living
Out of Home
Creating sustainable
value from our farmers’
New Zealand milk
We will match our
unique strengths to
consumer needs
To enhance lives, and create
value for our farmers and
customers
Our
Strategy
Authenticity & Provenance
What Needs To Change
We have some realities we need to face. We’ve got work to
do to rebuild trust and rebuild the culture of a winning team.
In our home market, we’re facing growing competition from
food multi-nationals who don’t share our Co-operative ethos.
And as a farmer-owned co-operative with a long-term focus,
we need to adopt a lower risk profi le than some organisations
because we are committed to leaving a legacy for future generations.
This means reducing debt and exiting non-core investments to
get our Co-operative to a more sustainable risk and investment
profi le, to simplify our business and focus Management’s eff orts
more clearly on our primary task of adding value to our farmers’
New Zealand milk by meeting customer and consumer needs.
How We Measure Progress And Success
Our objective is to create a successful and sustainable
co-operative. This means measuring our success against
the triple bottom line – social, environmental and economic.
Healthy people Value nutrition, strong relationships,
supporting communities
Healthy environment Lower footprint, zero waste,
restoring nature
Healthy business Sustainable pay-out, return on
capital, reliable dividends
Our strategic review has reached into all areas of our business, considering everything
we do in our portfolio and across the local and global context we work in.
Our new strategy represents a fundamental change, moving us away from our previous ambition
to be a global dairy company making a diff erence in lives around to the world, to a new strategic
direction connected to our Co-operative heritage and strengths, our farmers and their families.
The world needs dairy, and demand for our New Zealand milk will continue to grow. Global trends
are towards more natural foods, and towards consumers wanting to know more about where their
food comes from, how it is made, and what impact it has on the environment and communities.
Our Co-op has unique strengths to meet these needs. Our milk provides nutrition around the
world, and our pasture-based farming systems produce it in a natural way. We have world-leading
innovation capability, dairy know-how, and deep customer relationships spanning many years in
every corner of the globe. We have serious scale and ability to execute globally, and this gives us
options to choose products and markets.
Our new strategy is driven by our clear identity as a New Zealand dairy co-operative that does
amazing things with our farmers’ milk, enhancing lives and creating value for farmers and customers.
Our New Strategy
Our strategy is to match our unique strengths to consumer
needs. Doing this will create sustainable value from our farmers’
New Zealand milk by connecting what our farmers do on
farm to what our customers value.
We will be more focused on playing in the areas we can win.
We want to continue being globally competitive in Core Dairy
(base and advanced ingredients), while growing in the categories
of Paediatrics, Sports and Active, Foodservice and Medical and
Ageing. Consumer brands will be a smaller part of our portfolio
targeted on where we can create superior value.
We will do this by linking our strategy to our purpose and
values, changing our behaviours and actions, and diff erentiating
oursleves through:
To create superior value for our
customers and our Co-operative.
To do what is right for the long term good
and to meet consumer and community needs.
To unlock and create greater
value from our scale and effi ciency.
Sustainability
Effi ciency
Innovation
FONTERRA ANNUAL REPORT 63%2
12

Our
Strategy
Authenticity & Provenance
What Needs To Change
We have some realities we need to face. We’ve got work to
do to rebuild trust and rebuild the culture of a winning team.
In our home market, we’re facing growing competition from
food multi-nationals who don’t share our Co-operative ethos.
And as a farmer-owned co-operative with a long-term focus,
we need to adopt a lower risk profi le than some organisations
because we are committed to leaving a legacy for future generations.
This means reducing debt and exiting non-core investments to
get our Co-operative to a more sustainable risk and investment
profi le, to simplify our business and focus Management’s eff orts
more clearly on our primary task of adding value to our farmers’
New Zealand milk by meeting customer and consumer needs.
How We Measure Progress And Success
Our objective is to create a successful and sustainable
co-operative. This means measuring our success against
the triple bottom line – social, environmental and economic.
Healthy people Value nutrition, strong relationships,
supporting communities
Healthy environment Lower footprint, zero waste,
restoring nature
Healthy business Sustainable pay-out, return on
capital, reliable dividends
Our strategic review has reached into all areas of our business, considering everything
we do in our portfolio and across the local and global context we work in.
Our new strategy represents a fundamental change, moving us away from our previous ambition
to be a global dairy company making a diff erence in lives around to the world, to a new strategic
direction connected to our Co-operative heritage and strengths, our farmers and their families.
The world needs dairy, and demand for our New Zealand milk will continue to grow. Global trends
are towards more natural foods, and towards consumers wanting to know more about where their
food comes from, how it is made, and what impact it has on the environment and communities.
Our Co-op has unique strengths to meet these needs. Our milk provides nutrition around the
world, and our pasture-based farming systems produce it in a natural way. We have world-leading
innovation capability, dairy know-how, and deep customer relationships spanning many years in
every corner of the globe. We have serious scale and ability to execute globally, and this gives us
options to choose products and markets.
Our new strategy is driven by our clear identity as a New Zealand dairy co-operative that does
amazing things with our farmers’ milk, enhancing lives and creating value for farmers and customers.
Our New Strategy
Our strategy is to match our unique strengths to consumer
needs. Doing this will create sustainable value from our farmers’
New Zealand milk by connecting what our farmers do on
farm to what our customers value.
We will be more focused on playing in the areas we can win.
We want to continue being globally competitive in Core Dairy
(base and advanced ingredients), while growing in the categories
of Paediatrics, Sports and Active, Foodservice and Medical and
Ageing. Consumer brands will be a smaller part of our portfolio
targeted on where we can create superior value.
We will do this by linking our strategy to our purpose and
values, changing our behaviours and actions, and diff erentiating
oursleves through:
To create superior value for our
customers and our Co-operative.
To do what is right for the long term good
and to meet consumer and community needs.
To unlock and create greater
value from our scale and effi ciency.
Sustainability
Effi ciency
Innovation
FONTERRA ANNUAL REPORT fi
13

OUR CO-OPERATIVE DIFFERENCE
Our Co operative
Difference
-
We are working together for a strong
and sustainable Co-operative.
O
u
r

F
u
t
u
r
e

A
s
p
i
r
a
t
i
o
n
s
5
Our Core
Terms of Supply
On-Farm Support
1
2
E
n
v
i
r
o
n
m
e
n
t
C
o
-
o
p
e
r
a
t
i
v
e
A
n
i
m
a
l
s
4
P
e
o
p
l
e

a
n
d
C
o
m
m
u
n
i
t
y
M
i
l
k
R
e
c
o
g
n
i
t
i
o
n

f
o
r

a
c
h
i
e
v
e
m
e
n
t
s
3
FONTERRA ANNUAL REPORT 2019
14

This year we launched The Co-operative Difference.
It is a straight-forward way of bringing together what
our farmers need to know today, and what they need
to prepare for in the future. It also celebrates farmers
who go the extra mile to make our Co-operative
more sustainable.
Dairying is a big part of New Zealand and has been
for almost 150 years. Farming families have made
the most of being able to grow grass all year-round,
producing delicious, fresh milk. We need to protect,
enhance and regenerate our environment so families
can continue to farm for generations to come.
At the same time, our customers and communities
increasingly want sustainably produced products.
We all want to make choices that are good for the
future, where people and the planet are cared for.
We’ve stepped up and improved the way we look after
the environment. Farmers have fenced waterways,
upgraded effluent systems, improved nitrogen
management, and strengthened animal welfare
practices. But rising expectations mean we all need
to keep lifting our game.
Our Co-op wants to make it easier for farmers to know
what needs to be done and why it matters. Farming is
complicated enough these days and we believe there
are ways we can work better together. That’s why we
introduced The Co-operative Difference, and through
it we can support farmers and help them change and
adapt for the future.
The Co-operative Difference:
• Brings together existing on-farm requirements
and makes them easier to understand.
• Recognises farmers who go above these requirements.
• Gives farmers clear guidance on likely future
requirements and trends.
• Saves farmers time by removing duplication
and streamlining reporting requirements, helping
our Co-op protect its market position, strengthen
our sustainability claims, and drive demand for
our products.
• Supports farmers with on-farm practices by working
together and providing industry-leading assistance,
using our industry partnerships where possible.
• Clarifies what will happen when requirements aren’t
met, supports those who are struggling, and takes
a firm line with those who refuse to change.
5
4
3
1
2
Supporting our farmers underpins
everything we do. In person,
in digital, in partnership.
Well defined Terms of Supply to
protect the Co-operative here
and now.
Recognition for farmers who are
moving beyond the Terms of Supply.
All on-farm activities aligned
across five focus areas.
Clear guidance on future direction
based on emerging customer and
community trends.
FONTERRA ANNUAL REPORT ff132
15

Working with
our farmers
On-Farm Support
Our stores have farming needs covered, with local
knowledge, product advice and expertise. We provide
seasonal deals for everything from fencing to calf feed
and offer eligible farmers benefits such as 90 day interest
free purchases and the ability to earn Farm Source™ Reward
Dollars on every dollar spent in our stores. Beginning in June,
eligible farmers can also spread payments or defer them for
six months on all Farm Source store purchases over $500.
A new electricity deal
We maximise our collective scale to deliver the most
competitive prices. We are always on the hunt for lower
prices, better deals, and bigger discounts. In a New Zealand
first, Genesis Energy has launched a new electricity plan,
For Dairy. It’s offered exclusively by Farm Source™ and was
designed with dairy farmers by Genesis Energy. This new
plan can save farmers between 5 and 25% off their milking
shed electricity bill.
Farmer engagement in our
Co-operative is key, which
is why it is a step towards
achieving recognition in
The Co-operative Difference.
This year, farmers engaged
with our Co-operative in a
number of ways. They attended
local events, site visits, global tours, watched webinars,
participated in various learning opportunities, and used
our digital platforms and smartphone apps.
585
435
co-operative events.
farmers attended the
MyConnect Conference.
71%
of our milk was produced
by farming families running
a single farm.
Co-operative
90% of
farms use
our apps.
$
40.8 m
in Farm Source™ Reward Dollars,
discounts on everyday farming
supplies, and partnership deals.
OUR CO-OPERATIVE DIFFERENCE
in savings and rewards for the average-sized Co-op farm
if they purchase all their farm supplies from Farm Source.™
10
cents
per kgMS
Farmers can make the most of our Co-op’s regional
knowledge, expertise and services in managing their farms.
Our sustainable dairying, milk quality and animal welfare
specialists are in every region and our 0800 Service
Centre team is only ever a phone call away.
FONTERRA ANNUAL REPORT 2019
16

Fixed Milk Price
We’re always looking for new ways to help farmers
share up, make their farms more sustainable, and
manage their cash flow.
This year we introduced Fixed Milk Price. It’s our eighth
financial tool for farmers and offers ten opportunities
a season to fix a price for up to 50% of their estimated
milk supply.
This helps farmers reduce some of the risk from global
milk price volatility and gives them more confidence in
making business decisions as they know that some of
their fixed costs are covered. We can also provide
customers with longer contracts at a guaranteed price.
Customers value this certainty and it can bring additional
value back to our Co-op.
Sustainable Dairying Advisors
(SDAs) work alongside farmers
to identify opportunities to
improve environmental practices
on farm. This year, we have
grown our team of SDAs.
Last year, 12% of farms had a Farm Environment Plan (FEP).
This year that number has nearly doubled and we are
working with our farmers to ensure they all have an
FEP before 2025. These plans, delivered by our SDAs at
no additional cost, assess the environmental effects and
risks associated with farming activities and provide
tailored actions to help individual farms meet their regional
requirements and sustainability goals. By having an FEP,
farms are a step closer achieving recognition under
The Co-operative Difference.
This year, we have developed unique nitrogen reports
that our farmers can use to meet local regulatory
requirements in the Auckland, Marlborough,
Horizons and Canterbury regions.
In the first two months of the tool being available ( June and
July), 440 farms participated and locked in over 23 million
kgMS at a fixed price. About 60% of the farms that participated
supply less than 200,000 kgMS in a season.
27
23
%
Sustainable Dairy Advisors.
of our farms now have
a Farm Environment Plan.
average savings by each farm when they get a Farm
Environment Plan from our Co-op instead of elsewhere.
Environment
farms
440
$
4 ,700
FONTERRA ANNUAL REPORT 2019
17

Working with
our farmers
Beginning this year, our farmers are providing more
information about animal welfare practices in support
of our new ‘Cared for Cows’ claim. The claim will help our
customers know with confidence that our dairy products
are produced using the highest of animal welfare standards,
and will help drive more value and market share.
Our provenance programme for ingredients customers
and Trusted Goodness™ promise for consumers helps
tell the story of how our farmers keep cows happy and
healthy so they can produce high-quality milk. It’s backed
up by data farmers provide annually about how they farm,
and helps our products stand out from the rest.
Farming’s not easy but it can
be an incredibly rewarding
career. That’s why we want
to provide safe, healthy
working environments and
opportunities for people
to grow and learn.
We can attribute $97 million of this year’s sales revenue
to customers purchasing our ingredients and making
provenance claims using our Non-GMO, Grass-fed,
Made with NZ Dairy and Made with NZMP Dairy claims.
We know that cows are at the heart
of every dairy farm. Ensuring they
are valued and treated with respect
is of paramount importance to the
success of our Co-op. Farms that
have an Animal Health Plan,
developed alongside their vet,
implemented on-farm and
reviewed annually, are a step closer
to achieving recognition through
The Co-operative Difference.
Working together with local organisations, we are
supporting farmers in creating Health and Safety plans
that will help everyone on-farm get home safe at
the end of every day. This is a key step to achieving
recognition under The Co-operative Difference.
AnimalsPeople and Community
$
97 m
of this year’s sales revenue from
products with a provenance claim.
OUR CO-OPERATIVE DIFFERENCE
Our Emergency Response Team (ERT) is quick to the scene
to help our farmers and communities when natural
disasters strike. Our ERT went to the West Coast this year
to help other Kiwi farmers fix storm damage and get back
up and running after heavy rain and flooding.
The ERT is a group of 98 committed employees. Most of the
time they are working in our manufacturing sites but they
are also trained firefighters, mountain search, rescue and
recovery experts, and volunteer first responders, and will do
whatever it takes to takes to help our communities recover
from natural disasters.
FONTERRA ANNUAL REPORT 2019
18

Thank you to all our farmers
who have worked so hard to
provide safe, high-quality milk
throughout the 2018/19 season.
Our farmers go above and
beyond to achieve milk quality
excellence and this enables
our Co-op to create more
value and deliver to our
customers’ specifications.
This year, our farmers have done New Zealand proud.
Almost 1,800 farms achieved Grade Free status.
Of those, 437 achieved Grade Free for four years or
more, and 35 achieved Grade Free for 10 years or more.
These farmers are on the right track to achieve recognition
this season through The Co-operative Difference as they
already get the tick for Grade Free. Farmers are also
working hard to keep their Somatic Cell Count below
150,000 and their Fat Evaluation Index grade at A,
two additional elements required to achieve recognition
under The Co-operative Difference.
Another 1,409 farms received just one grade the entire
season and were recognised as Merit recipients and 4,086
received an Achievement certificate which recognises their
ability to keep their farm’s Somatic Cell Count low.
In addition to the honour roll on the following page,
we recognise the efforts of all farmers.
Milk
1 ,780
farms achieved Grade Free status,
including 437 that have achieved
Grade Free for four years or more.
FONTERRA ANNUAL REPORT 2019
19

Achievement
Farming entities that
achieved Grade Free
for at least the last
four seasons.
5 M Trust
A Holten & N Brown
A J & K L Murdoch
Abacus Dairy Limited
Abbey Farm Partnership
Acacia Farms Ltd
Ahipaipa Farms Ltd
Amberhay Limited
Aramaunga Farms Ltd
Arataki Dairies Limited
Ashgrove Dairy Farms Limited
B & D Dodunski
B N & P A Jones
B P & P N Kennedy
B S & S K Dhaliwal
Barmac Dairies Ltd
Beechbank Dairies Ltd
Bibberne Farms Ltd
Browne Pastoral Enterprises Limited
Bullot Family Trust
C B Farms Ltd
C J & C J McKenzie Ltd
C J & V K Taylor
C W & J Redshaw
C W & M Y Matthews Family Trust
C.D. Farms Ltd
Clutha Lea Ltd
Collins Family Trust
Conlan Trust
Cranief Clifton Ltd
D & D Alexander Trust
D & E J Pringle
D & K Miles Limited
D C & V F Frew
D J & R E G Goodwin
D J & S A McMillin
D J Noble & K M Jones
D R & E M Henman
D S & L R Wilson Ltd
Daisy Dairying Ltd
DDB Dairy Enterprises Limited
Drysdale Holdings Ltd
Dugald McKenzie Family Trust
E F & J A Allcock
F A & R C M Smits Ltd
Fairview Trust
Far South Farms Ltd
Fardale Dairies Ltd
Farmer Fred Ltd
Farview Farms Ltd
G A & K T Lynch
G B & D G Hodges Trust
G K & D J Landon Family Trust
G R J & R J Saddleton
Golden Mile Farms Ltd
Hard Road Dairies
Hillcrest at Fairfax Ltd
Hudson Trust
Farming entities that
achieved Grade Free
for at least the last
10 seasons.
B L & Estate R J Mohring
B M & B C & JH Geddes
B S & P J Strang
C & H Mabey
C J & K L Ladd
C M & K M O’Donoghue
Caskey Farms
Est of M F Blake & M Blake
F A & R C M Smits Ltd
F B Bonenkamp & J B
Cunningham
G B & J S Coulter
Golden Mile Farms Ltd
Inishbulfin Farm Ltd
J A & Estate of KJ Jolly
J L & M A Cooke
K & S MacKenzie Farms Limited
K J & H Chalmers Ltd
Kemra Farm Ltd
Kim Steffert Family Trust
L J & L M Still
M J & L M Van Tiel
Miroc Limited
Owhango Farms Limited
R & P Woods Farms Ltd
R S & R D Gordon
Riverside Farms
(Taranaki) Limited
Romill Partners
Rye Downs Ltd
Schorn Trust
Serendipity Trust
Sim Brothers Ltd
Sim Family Farms Ltd
Steffert Farms Ltd
Stephen Zink
Takitimu Trust
I J Oliver
J A & Estate of KJ Jolly
J B & L M Suisted Limited
J E & C T Brien
J H & H R Smyth
J L & K S Gwerder Family Trust
J L & M A Cooke
J R & A T M Hale
J Van Der Kooy
J W & A M Steeghs
J W Prictor
James Lyttle
JJ & AB Roskam Ltd
K & S Richards Limited
K B Olesen & R J Stephens
K J & H Chalmers Ltd
Kainui Peatlands Ltd
L J Bleakley
Lockerbie Farms 2001 Ltd
M & A Schrader Family Trust
M & C O’Grady Ltd
M & J Barker Trust
M E Hunt & Son Ltd
M R & K J Luke Ltd
Malandra Downs Limited
Mary Allen Farm Ltd
McFetridge Farms Ltd
Michael O’Connor
Miroc Limited
Molehill Farm Ltd
N J & M Bleakley
Oceanview Farms Ltd
O’Reilly Family Trust
P V & P G Mullin Trust
Parkhill Farms Ltd
Paul Turner Farm Trust
Pikowai Transport Ltd
PJ Nelson Farming Ltd
Puketi Farming Enterprises Ltd
R & P Woods Farms Ltd
R J Mandeno No.2 Family Trust
R N Cornes
R P & M G Frank
R W & W J Cudby Family Trust
Rainbowcreek Farms Limited
Ritson Holdings Limited
River Heights Limited
Rodney G & S J Joblin
Roseneath Farm Limited
S & S Iorns
S G & B L Thirkell
S M Duynhoven & Estate
of JB Duynhoven
S M Shead
Sea Breeze Farms
Sean McErlean Trust
Steffert Farms Ltd
Stephen Zink
Stopford Road Limited
Te Ngutu Land Holding Co Ltd
Te Repo Farms Ltd
V E & D M Grant
Valley Road Farm Ltd
W B Scott Family Trust
W.A & H.R Simpson Farming Ltd
Waituna Investments Ltd
Watershed Ventures Ltd
Webber Farm Ltd
Whenuakura Farm Limited
Willowfields Ltd
A H & A C Webster
Abbott Brothers
AGC Farms Limited
Airlie Lodge (Walton) Ltd
Allison Family Farms Ltd
Alton Pastures Limited
Auroam Tahi Limited
B & E V Blake
B J & D A Verryt Family Trust
B M & B C & JH Geddes
B M & R M Sarten
B S & P J Strang
Barneyco Trust Partnership
Bent River Farms
BJ & DM Ahlers
Bonezco Farms Ltd
Burton Trust
C & M Tippett
C & M Young Ltd
C C J & F A Jones
Carnarvon Farms Ltd
Casey Coxhead Ltd
Cavan Downs Trust
Chetwynd
Colhaven Limited
Cotlands Ltd
Creekside Pastures Ltd
D P & T G Schumacher
Daybreak Farms Limited
Eichler Farms Limited
F B Bonenkamp & J B Cunningham
Farmbuild Milk Company Ltd
Forest Hill Downs Limited
Fowler Family Prosperity Trust
Frisia Farm Trust
G A & J M Fox
G A & V M Weir
G C & J M Knowles
G C Hall
G J Farms Ltd
G M & A J Gower
Gee ‘N’ Tee Ltd
Glen Eden Otago Ltd
Grat Farms Ltd
Gregory Farms Ltd
Hines Family Trust
I H & D J Bryant
I Hampton & A Golvin
I J Sutherland Partnership
Inishbulfin Farm Ltd
J & J Anderson Family Trust
Partnership
J E & D M Cooper
J H & R Cotman
J L Hooper & A L Robertson
J P & J S Adams
JDQ Ltd
JE & KL Gilbert
LegendGold
Honour Roll for
Milk Quality Excellence
Top 10 farming entities
with the lowest Somatic
Cell Count.
1 G L & G F Bell
2 J M Mellow
3 D A & M A Mullan
4 M C & J P Fisher
5 J C & F M Henchman
6 M & L Arnold
7 Ternstone Ltd
8 Est of M F Blake & M Blake
9 K J & H Chalmers Ltd
10 Le Emari Trust T/A
Willowbridge Dairies
OUR CO-OPERATIVE DIFFERENCE
FONTERRA ANNUAL REPORT 2019
20

K J & J B Argyle
K J & M T Dwyer Trusts P/S
K R Cresswell
K W & D M Blackstock
K W & D R Lowe Family Trust
Kevin Fleming Ltd
Knockinnon Farm Trust
L J & L M Still
L S & K A Phipps
Lynton Dairy Limited
M C & M Davey
M I & P M Stevenson
Family Trusts P/ship
M J & L M Van Tiel
M J & W P Van Veen
Mangatoki Partnership
MJA Farms Ltd
MW & KA Olsen
N A & K M McColl
NB & LJ Crosbie Ltd
Otu Creek Farm Limited
Owhango Farms Limited
P H S & P C Byford
R & A Tait T/A Black Cow Dairies
R S & R D Gordon
R T & E A Brown Ltd
R.L. Mathis Ltd
RK & A Hines Limited
Rogers Farming Ltd
Romill Partners
RV & LH Kokich Farms Ltd
Ryan Bennett
Ryelands Farm Company Ltd
S G McKenzie
Serendipity Trust
Sim Brothers Ltd
Sim Family Farms Ltd
Somerset Trust
T D Hall Trust
T M Mcdowall
Tawa Land Company Limited
Tawa Ridge Farms Ltd
Tayco Farm Limited
The Red Cow Company Limited
Trimor Ltd
Troy & Natalie Farming Partnership
True Blue Trusts
Vale Green Services Limited
Wainui Dairies
Waiparu Farm Ltd
Waiparu Holdings Limited
Wattle Downs Ltd
Webber & Maxwell Partnership
Westmeath Trust
Willcox Farms Ltd
A & N Harvey Family Trust
A A & L J Edward Trust
Abbott Trusts Partnership
Avon Downs Ltd
B C & K A Keller
B D Mead
B L & D J Haylock
B M & J A Ahlers
Bell Farm 2008 Limited
Bothwell Farms Ltd
Burnell Farms Ltd
C & B Jensen Family Trust
C & D Padrutt Trust
C E & D L Rogers
C M & K M O’Donoghue
Caskey Farms
Claremont Trusts Partnership
CM Farming Ltd
Cowley Dairies Ltd
D & S Farms
D A & M A Mullan
D B H Farms Limited
D J & E A Turner
D J & G M Hooper
D P & T M Stephens
D W & M E Kidd
DR & PJ Hannah Ltd
Drylands Trust
Estate E A Bonner
Fabish Bros Farms Ltd
Falcon Farms Trust
Farming Tee Jay Ltd
Florida Farms Ltd
Fonterra - O’Brien Farm
Four Roads Farms Limited
G B & J S Coulter
G E Sutherland Trust
G L & R L Burr
Glengarry (Dvke) Farming Co Ltd
GRC Farms Limited
Harrihi Farms
Hayley Buckman Family Trust
Hutton Farm Holdings Ltd
Inferno Farms Limited
J A & B E Turnwald
J D Farms
J L & H M Coatsworth
J M De Renzy
Jayland Partnership
Johnson Farm Co. Ltd
K & S MacKenzie Farms Limited
K E & V J Bond
Kaimai Dairy Ltd
Kemra Farm Ltd
Kieran McErlean Trust
Kim Steffert Family Trust
Knightlands Ltd
Kywaybre Farms Ltd
L J Hodges
L.G. & J.M. Morris Limited
Lesdale Friesians Ltd
Lizlyn Dairies Ltd
Longacre Properties Limited
Lutz Farming Company Ltd
M & C Mogg Ltd
McGee Partnership
McGowan-Weake Ltd
Meyer Family Trust
Mitchells Milky Way Limited
MR & TJ Frost Ltd
Mudspring Farms Limited
N R & L A Fox
NR Ensor Limited
P G & D M Dombroski
P L & R E Berryman
P R & V P Dawson
Placement Services Limited
Poc Ar Buille Limited
R J Troughton
R K J Allen
Rasing Farms Ltd
Rich Feet Limited
Rosebrae Farm Ltd
Southern Meadows 2011 Ltd
Springpark Farms 2008 Ltd
T D & J A Rhind
T N Langlands
Tainui Group Holdings Limited
Takitimu Trust
The D & A Roberts Family Trust
The Hyjinks Trust
TW Langford Family Trust
Two Name Farming Limited
Up At 5 Ltd
Van Rossum Ltd
Waicola Holdings Ltd
Waiotu Farms Ltd
Waiwira Holdings Ltd
Whakahora Farm Ltd
A M Bond & Estate of R G Bond
A R Mills
Aaron and Marcia Flay Partnership
ABH Trust
Aghern Holdings Ltd
Altura Dairy
Ararata Holdings Ltd
B & L Jones Ltd
B L & Estate R J Mohring
Barriball Farms Ltd
Berwick Holdings Ltd
Birchland Partnerhip
Bogaard Farms NZ Ltd
Boswell Dairy Ltd
Burnside Farms Ltd
C & H Mabey
C F & M T Muller
C J & K L Ladd
C T & K M A McLean
Chislehurst Farms Limited
Cressey Dairies Ltd
D & E Cole
D & I Edward Ltd
D B & K M Johnson Farms LTD
D Crofskey
D E & M E Hines
D L & S J Deeming
Derrys Farm Ltd
Est of M F Blake & M Blake
Estate Charles Bailey
Estate of Elizabeth Paretuarangi
Ormsby
F W G & J P Stanbridge
G & C Came Ltd
G A Knight
G E & V E Cooper
G H & M J Savill
G L & G F Bell
Given Family Trust
Interlaken Farms Ltd
J & LM Van Burgsteden
Jascas Trust
Jaska Farm Trust
Kerenui Ltd
Kohi Partnership
Kopane Dairies
L J & B C Torr
L J & M Prictor
Lawson Road Farm Ltd
M G & A M Hurley
M G & M Uram
M J & T M Davies
Maken Milk Ltd
Manuka Ridge Limited
Mark A Mullan Trust
Marua Partnership
Massey University Farms
Matai Farms Ltd
Mattajude Family Trust
Maude Peak Farm Trust
Maxlands Farms Limited
Mead Family Farm Ltd
Milestone Trust
Milkwell Ltd
MJ & KL Family Trust
N & M Paton
N J & W A Vollebregt
N R Dilks
Ngahape Valley Farm Ltd
Okapua Farming Company Ltd
P D & J M Bish
P D & S S Sharpe
P H & W F Iorns
P J & M L Cotter
Pharlee Trust
Port Molyneux Dairies Limited
R & S Singh
R A & J L Hamilton
R W & R R O’Brien
Riverside Farms (Taranaki) Limited
Ruakiwi Dairies Limited
RVS Farming Ltd
Rye Downs Ltd
S B & Y M Thompson
Sabin & Co Ltd
Schorn Trust
Seven of Nine Ltd
Shawlink Ltd
Shenandoah Trust
Sisley Farms Ltd
T & C Brown Limited
T G & R J Wells
T R D Reesby
The Adare Company Limited
The Herewahine Trust
VBI Ltd
W & C Candy Trust
W R & Z W Kite
W W Olsen
Whitten Holdings Ltd
WP & A Moore
Gold continued
To qualify, farms must have supplied 45 days or more in each season.
Thank you to all our farmers who have worked so hard to provide safe,
high-quality milk throughout the 2018/19 season. In addition to the
honour roll, we acknowledge the effort of all of our farmers who
work hard every day to produce the best possible milk.
FONTERRA ANNUAL REPORT 2019
21

Fonterra Dairy Woman
of the Year
Trish Rankin
Taranaki farmer, teacher and environmentalist
Trish Rankin was named 2019 Fonterra Dairy Woman
of the Year. The other finalists were also Co-op farmers –
Shareholders’ Councillors Julie Pirie and Emma Hammond
and former Shareholders’ Councillor Kylie Leonard.
Dairy Business
of the Year
Okaihau Pastoral Holdings Ltd
Northland’s Okaihau Pastoral Holdings won the 2019
Dairy Business of the Year title, an award judged on
financial performance, environmental performance
and people management. Runner up was River
Terrace Dairy Ltd from Ashburton.
Responsible Dairying Award
Damian and Jane Roper
Taranaki farmers Damian and Jane Roper won the 2019
Responsible Dairying Award receiving the newly created
John Wilson Memorial Trophy. The award recognises
dairy farmers who demonstrate leadership in their
approach to sustainability and who are respected by
their fellow farmers and their community for their
attitude and role in sustainable dairying.
This year, so many farmers have shown
great leadership in farming and have done
the industry proud, taking home several
national and regional titles.
Farmer
spotlight
OUR PEOPLE
FONTERRA ANNUAL REPORT 2019
22

New Zealand Share Farmer
of the Year
Colin and Isabella Beazley
Northland’s Colin and Isabella Beazley won the 2019
New Zealand Share Farmer of the Year title. Tokoroa
contract milkers Marc and Nia Jones were the runners-up
with Manawatu sharemilkers Thomas and Jemima
Bebbington third.
Ballance Farm
Environment Award
Adrian and Pauline Ball
Waikato farmers Adrian and Pauline Ball won the 2019
Ballance Farm Environment Awards, becoming the new
National Ambassadors for Sustainable Farming and
Growing and the recipients of the Gordon Stephenson
Trophy. Fellow Co-op farmers Nick and Nicky Dawson
from Hawke’s Bay and Fraser and Katherine McGougan
from the Bay of Plenty were national finalists after
winning their respective regions.
Young Farmer
of the Year Award
James ( Jimmy) Robertson
22-year-old Fonterra business graduate James ( Jimmy)
Robertson won the 2019 Young Farmer of the Year Award,
becoming the youngest ever winner of the iconic award
in its 51-year history. James, who grew up on a dairy farm
in Waikato, also took out the People's Choice Award.
Dairy Trainee of the Year
Nicola Blowey
Canterbury/North Otago’s Nicola Blowey, who is
originally from the UK, was named 2019 New Zealand
Dairy Trainee of the Year. Waikato’s Matt Dawson was
second with Central Plateau’s Harry Phipps third.
Our farmers have outdone themselves,
winning two of three national titles at
the NZ Dairy Industry Awards.
FONTERRA ANNUAL REPORT 2019
23

OUR PEOPLE
Employee
spotlight
Our Te Rapa tanker drivers
Act of kindness that means a lot
to a Co-op family
Our tanker drivers at Te Rapa depot have known Andrew
Oliver for 15 years and showed how special that relationship
is earlier this year. Andrew is the adult son of farmers
Ken and Deidre, and is one of only a handful of people
in the world with Fryns-Aftimos syndrome, a rare
chromosome condition.
For Andrew, many of his activities become habits. Seeing
the tankers collect the milk before bed-time is one of them.
If pick-ups were on the late-shift, that could mean he was
up until 2am, and that meant the same for Ken. The family
managed this for over a decade but when Diedre suffered a
minor stroke, Ken was struggling to keep the farm going
and surviving on three to four hours of sleep.
Desperate, Ken phoned Farm Source’s 0800 Service
Centre. When the depot heard of the challenges
Ken was having, the entire pick-up schedule for the
depot was changed.
Ken is now guaranteed a pick-up anywhere between
6.30pm and 8pm. Andrew draws a picture each night and
gives it to the tanker driver and they are put up on a wall
at the depot. Ken said the change in pick-up time has meant
a lot to the family.
“A big outfit like Fonterra doesn’t have to do that.
They simply could’ve ignored the request but no, they
came through and we’re very grateful.”
“ A big outfit like Fonterra
doesn’t have to do that.
They simply could’ve
ignored the request but
no, they came through
and we’re very grateful.”
Ken Oliver, farmer owner.
Image supplied by Tim Collins
and RNZ First Up.
FONTERRA ANNUAL REPORT 2019
24

Our Energy team
A small team guiding big changes
The co-firing of our Brightwater plant with biomass
this year is a milestone for Fonterra’s Energy Team,
charged with guiding Global Operations to meet its
target to reduce carbon emissions by 30% by 2030
and to be net zero by 2050.
The six-person team has deep experience in utilities,
operating, managing and controlling boilers, water
treatment plants, chemical engineering and lots of
experience with electricity. Led by Linda Thompson,
they are responsible for researching new and existing
technologies and assessing which are best suited
operationally and cost effectively to help achieve
the targets.
Brightwater was a prototype. The boiler there
was designed to burn coal and there was a lot
of discussion about whether they could achieve
what was wanted without causing problems with
operational performance. In the end, Brightwater
has shown key assumptions were correct and that
the technology works. The conversion slashes the
amount of coal used and cuts carbon emissions at
the site by around 2,400 tonnes a year – roughly
the same as taking 530 cars off the road. The job
now is to see how it can be replicated at other sites.
Ian Goldschmidt, General Manager Sustainability
and Resources, said the team is fully aware of how
important their work is. “It’s a huge responsibility.
There are some really good people in the team
and we also have the steering committee, with
a number of senior leaders on it, to support and
guide us. There’s some horsepower behind the
decisions we make.”
A trial at the Te Awamutu site to run its existing
coal boiler exclusively on wood pellets was also
completed this year. While it highlighted some
practical issues such as the volume of pellets
required and how to keep them dry, early indications
are it could reduce carbon emissions by around
84,000 tonnes per year, the equivalent of taking
18,500 cars off the road.
Our NZMP Team
Protein packed pantries
and a perfect partnership
In a collaboration that started in late 2018, the
global Sports and Active Lifestyle (SAL) teams and
Fonterra Research and Development Centre (FRDC)
in Palmerston North, New Zealand, have worked on
a project that will see household pantries across the
United States and Europe filling up with protein
fortified food mixes made from NZMP ingredients.
Protein is a key driver in the $200 billion global SAL
category, with annual growth of around 8%. Keeping
consumers’ nutrition needs top of mind, our SAL team
members in the United States and Europe led the drive
for these trends to shape FRDC’s innovation roadmap.
Consumer-led, market insights from the people who talk
to customers every day are key to FRDC as they review
the growing number of different food formats in which
protein is being consumed. The result in this case is more
than 15 different applications with nearly half a dozen
other ingredients reformatted or adapted, providing
a strong base to push further into the SAL category.
A team of eight worked on the project at FRDC and
with input from the SAL and in-market sales teams
were able to understand the needs of the market
and adapt as changes came through.
The United States, followed closely by Europe,
are the market leaders in the SAL category. In those
regions it’s not unusual to see protein fortified foods
on supermarket shelves amongst other products, not
just in the health food section or health food shops.
Protein bars are most popular with consumers at the
moment. It’s a market worth USD1.2 billion globally and
is growing at 14% CAGR. But there is increasing demand
for different ways to consume protein and the project will
see ingredients developed for use in pancake, brownie
and muffin home baking mixes through to ice cream.
Key considerations in development include taste,
texture, cohesiveness and flavour. Extensive tasting
sessions and working with sensory scientists is all
part of the process. Work continues to develop
further options to meet evolving consumer demands.
FONTERRA ANNUAL REPORT 2019
25

1. John Monaghan
2. Clinton Dines
3. Brent Goldsack
4. Leonie Guiney
5. Bruce Hassall
6. Simon Israel
7. Andrew Macfarlane
8. Peter McBride
9. John Nicholls
10. Donna Smit
11. Scott St John
1
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3
5
11
9
10
8
7
4
OUR PEOPLE
Board of Directors
FONTERRA ANNUAL REPORT 2019
26

1. John Monaghan
Board Responsibilities Farmer-elected Director,
Chairman, Chair of the Appointments and
Remuneration Committee
Term of Office Elected 2008, last re-elected 2017
John Monaghan was elected to the Fonterra Board
in 2008 and became Chairman in 2018. Prior to
joining the Fonterra Board, John was Chairman
of the Fonterra Shareholders’ Council and the
Inaugural Chair of the Governance Development
Programme. He is also a Director of Centreport
Limited and Centreport Properties Limited, and
is a member of the Executive Board of the
New Zealand China Council. John is a Chartered
Member of the Institute of Directors. He holds a
number of farming directorships and is a trustee
of the Wairarapa Irrigation Trust. John has dairy
farming interests in the Wairarapa and Otago
regions. John has taken a lead role in representing
Fonterra’s interests on global trade issues and has
strong networks domestically and internationally
with key stakeholders.
2. Clinton Dines
Board Responsibilities Appointed Director, Member
of the Appointments and Remuneration Committee
and the Safety and Risk Committee
Term of Office Appointed 2015
Clinton Dines was appointed to the Fonterra Board
in 2015. Clinton lived and worked in China for
36 years, 21 of which as President of BHP Billiton’s
China business. He has extensive experience as
an executive in China and Asia businesses and
has had an active career as a Non-Executive
Director, currently serving on the Boards of Port
of Newcastle, Sky Renewables Pty Limited and
Zanaga Iron Ore. He was Executive Chairman of
Caledonia Asia from 2010 to 2013, an investment
group in Asia, and is a Partner in Moreton Bay
Partners, a strategic advisory firm based in Brisbane.
He is an Adjunct Professor at Griffith University’s
Asia Institute and is a Member of the Griffith
University Council. Clinton has extensive
experience as a senior executive in China and
Asia businesses, including global manufacturing
and commodity businesses.
BA (Modern Asian Studies, Griffith), CIM, INSEAD
3. Brent Goldsack
Board Responsibilities Farmer-elected Director,
Chair of the Co-operative Relations Committee,
Member of the Safety and Risk Committee and the
Milk Price Panel
Term of Office Elected 2017
Brent Goldsack was elected to the Fonterra Board
in 2017. Brent had a 25-year career in both
New Zealand and abroad in various corporate
advisory roles, including being a Partner at PwC
for more than 12 years. Brent is a Chartered
Accountant. Brent currently chairs the Board
of Waitomo Group Limited and its subsidiaries.
Brent serves on the Board of Canterbury Grasslands
Limited. Brent is actively involved as a shareholder
of three dairy operations in the Waikato and has
shareholding interests in other dairy farms with
operations in both New Zealand and the United
States. In addition to his strong financial skills
and knowledge, Brent has particular expertise
in Fonterra’s Farmgate Milk Price and the drivers
of the Co-operative’s earnings.
BCA, CA
4. Leonie Guiney
Board Responsibilities Farmer-elected Director,
Chair of the Safety and Risk Committee, Member
of the Audit and Finance Committee
Term of Office Elected 2018
Leonie Guiney was elected to the Fonterra Board
in 2018. Leonie previously served on the Board
from 2014 to 2017. Leonie has worked in the
agriculture sector for more than 25 years in a
number of positions including lecturer of Dairy
Production at Lincoln University, consultant on the
BNZ Growth Programme for farmers and has held
roles with Golden Vale Dairy Co-operative in Ireland,
LIC and FarmRight South Island. Leonie lives and
farms at Fairlie in South Canterbury and is a director
and shareholder of four Canterbury farms and
Bobby Square Limited.
BAgrSci
5. Bruce Hassall
Board Responsibilities Appointed Director, Chair
of the Audit and Finance Committee, Member of
the Safety and Risk Committee and the Milk Price
Panel and is an observer on the Appointments and
Remuneration Committee
Term of Office Appointed 2017
Bruce Hassall was appointed to the Fonterra Board
in 2017. Bruce is a Chartered Accountant and has
had a 35-year career at PwC, including holding
the position of Chief Executive Officer of the
New Zealand practice from 2009 to 2016. Bruce
is Chairman of The Farmers Trading Company
Limited, Prolife Foods Limited and Fletcher Building
Limited and serves as a director on the Board
of Bank of New Zealand. He was previously a
member of the University of Auckland Business
School Advisory Board and was a founding Board
Member of the New Zealand China Council. Bruce
has extensive experience in financial reporting
information system processes, risk management,
business acquisitions, capital raising and IPOs
across both listed and private companies.
BCom, FCA (CAANZ)
6. Simon Israel
Board Responsibilities Appointed Director, Member
of the Appointments and Remuneration Committee
Term of Office Appointed 2013
Simon Israel was appointed to the Fonterra
Board in 2013. Simon currently chairs the Boards
of Singapore Telecommunications Limited and
Singapore Post Limited and is a member of the
Westpac Asia Advisory Board. He was an Executive
Director of Temasek Holdings for six years and
President from 2010 to 2011. Simon was a director
of Fraser & Neave, Neptune Orient Lines, Asia
Pacific Breweries, Griffin Foods, CapitaLand and
Frucor Beverage Group. He had 10 years’ experience
in the dairy industry with Danone as a Senior Vice
President and member of the Group Executive
Committee. He was conferred Knight in the Legion
of Honour by the French Government in 2007.
DipBusStud
7. Andrew Macfarlane
Board Responsibilities Farmer-elected Director,
Member of the Co-operative Relations Committee
and the Appointments and Remuneration Committee
Term of Office Elected 2017
Andy Macfarlane was elected to the Fonterra Board
in 2017. Andy was a farm management consultant
for 38 years. He is a Councillor of Lincoln University
and a Director of ANZCO. Andy is an active
member of the International Farm Management
Association (IFMA), Global Dairy Farmers and
New Zealand Institute of Primary Industry
Management (NZIPIM). Andy was previously a
Director of Ngai Tahu Farming Limited. He is the
Past President of the NZIPIM and chaired Deer
Industry New Zealand for seven years. Andy began
farming in 1989 and lives near Ashburton. He has
shareholding interests in the South Island. Andy
has a strong understanding of the governance
of research and development and innovation,
and has a particular interest in the strategic
use of technology in the dairy industry.
B.Agr.ScC
8. Peter McBride
Board Responsibilities Farmer-elected Director,
Member of the Audit and Finance Committee,
Co-operative Relations Committee and the
Governance Development Programme Committee
Term of Office Elected 2018
Peter McBride was elected to the Fonterra Board
in 2018. He is a member of the Zespri China
Advisory Board. Peter was previously the Chairman
and a Director of Zespri Group Limited and other
related companies. Peter is a Managing Director of
South-East Hort Limited and subsidiaries and Ellett
Beach Farms Joint Venture. He was previously a
Director of the New Zealand International Business
Forum and a member of the Executive Board of the
New Zealand China Council. Peter has shareholding
interests in the Waikato.
B. Horticulture, PG Dip Com Agribusiness
9. John Nicholls
Board Responsibilities Farmer-elected Director,
Member of the Co-operative Relations Committee
Term of Office Elected 2018
John Nicholls was elected to the Fonterra Board
in 2018. John previously served on the Fonterra
Shareholders’ Council from 2009 to 2011 and is
an experienced company Director. John is Chairman
of MHV Water (formally Mayfield Hinds Irrigation
Limited), New Zealand’s largest intergenerational
irrigation co-operative, and he also serves on other
local Boards. John has a Degree in Agriculture and
a Postgraduate Diploma in Agricultural Science.
He has shareholding interests in the South Island,
owning six dairy farms in mid Canterbury.
B.Agr, PG AgrSci
10. Donna Smit
Board Responsibilities Farmer-elected Director,
Member of the Audit and Finance Committee and
the Co-operative Relations Committee
Term of Office Elected 2016
Donna Smit was elected to the Fonterra Board
in December 2016. Donna serves on the Board
of the Manager of the Fonterra Shareholders’ Fund.
Donna lives and farms at Edgecumbe, and has
built and owns five dairy farms in Eastern
Bay of Plenty and Oamaru. Donna is a Director
of EastPack Limited and Kiwifruit Equities Limited
and a Trustee of the Dairy Women’s Network.
Donna is a Chartered Accountant and was a
company administrator at kiwifruit co-operative
EastPack for 24 years. Donna’s strong focus on
financial and risk management has been built
through her extensive business experience and
financial background, and complements her deep
dairy farming experience.
FCA
11. Scott St John
Board Responsibilities Appointed Director,
Chair of the Milk Price Panel and Member of
the Audit and Finance Committee and the Safety
and Risk Committee
Term of Office Appointed 2016
Scott St John was appointed to the Fonterra
Board in 2016. He was the CEO of First NZ Capital
(FNZC) for 15 years, stepping down from that role
in early 2017. Scott has served on the Council of
the University of Auckland since 2009 and was
appointed Chancellor in 2017. He is a Director
of Fisher and Paykel Healthcare and chairs their
Audit and Risk Committee. Scott also serves on the
Board of Mercury NZ Limited and NEXT Foundation.
Previous roles have included Chairman of the
Securities Industries Association, serving on the
Board of First NZ Capital and membership of both
the Capital Markets Development Taskforce and the
Financial Markets Authority Establishment Board.
B.Com, Diploma of Business
FONTERRA ANNUAL REPORT 2019
27

1
6
5
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23
4
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OUR PEOPLE
Management Team
1. Miles Hurrell
2. Marc Rivers
3. Deborah Capill
4. Mike Cronin
5. Robert Spurway
6. Judith Swales
7. Kelvin Wickham
FONTERRA ANNUAL REPORT 10fiff
28

1. Miles Hurrell
Chief Executive Officer
Miles Hurrell is the Chief Executive Officer of
Fonterra. His appointment as CEO in August 2018
follows a 19-year career with our Co-operative
which has spanned four continents. Miles is focused
on resetting the business and implementing our
Co-op’s new strategy to deliver sustainable value.
Prior to his appointment as CEO, Miles held the
role of Chief Operating Officer, Farm Source, with
responsibility for farmer services and engagement,
milk sourcing and the operation of New Zealand’s
70 Farm Source™ retail stores. Before this, Miles
held a number of leadership roles across our Co-op,
including Group Co-operative Affairs Director and
General Manager Middle East, Africa, Russia and
Eastern Europe where he led a period of sustained
growth across the region. Earlier in his career, Miles
worked as the General Manager of Global Sourcing
and oversaw the streamlining of our Co-operative’s
European operations. Miles has completed
management programmes at INSEAD (International
Executive Development), London Business School
(Finance), Kellogg’s North-Western University
(Global Sales) and the International Institute for
Management Development (Marketing).
2. Marc Rivers
Chief Financial Officer
Marc Rivers joined Fonterra in February 2018
as the Chief Financial Officer, responsible for
our Co-operative’s finances, procurement and
information systems. Marc is an experienced global
finance executive with strong strategic leadership
capability. Prior to joining Fonterra, Marc was
the CFO at Roche Pharmaceuticals Division in
Switzerland, with oversight of NZ$54 billion
in sales including 14 manufacturing sites around
the world. His division was responsible for product
distribution for 140 countries, focusing on the
innovation pipeline and customer and market
development. Marc has worked in both emerging
and established markets, including China, Japan,
Thailand, Europe and the US. Marc has a strong
track record and is known for his commitment to
leading and developing his people while building
diverse and inclusive teams. He has a Bachelor of
Arts in International Studies and an International
Masters of Business Administration, Finance and
German from the University of South Carolina,
Columbia, USA.
3. Deborah Capill
Managing Director, People and Culture
Deborah Capill joined Fonterra as Managing
Director People and Culture in February 2019.
She leads a team responsible for delivering
Fonterra’s people strategy, which includes
innovative solutions to attract, develop and
retain the best global talent and drive strong
engagement across our Co-operative’s 22,000
employees. With over 25 years’ global experience
in both strategic and operational Human Resources
roles, Deborah has previously worked for several
market-leading companies including Deutsche
Post DHL, Williams Lea Tag, NZI and Kodak NZ.
Her specialties include building organisation
capability and culture, extensive change management
experience, outsourcing, managing shared service
centres, organisation design, talent management,
executive management development and
compensation. Deborah has lived and worked
in Singapore, Belgium, Czech Republic, the
United Kingdom, Germany and New Zealand.
She is a New Zealander with a Bachelor of Science
Degree and Diplomas in Business Management
and Personnel Management.
4. Mike Cronin
Managing Director, Co-operative Affairs
Mike Cronin is the Managing Director Co-operative
Affairs, where he oversees Food Safety, Health
and Regulatory, Governance, Risk and Audit,
Farm Source, Sustainability, Global Stakeholder
Affairs, Maori Strategy, Communications, Legal,
and Purpose teams. Mike is also responsible
for co-ordinating the CEO’s office, the Fonterra
Management Team, and the Fonterra Board.
After joining Fonterra in 2002, Mike has worked
on many of Fonterra’s most significant projects,
including the buyback of the Anchor brand in
New Zealand, Trading Among Farmers, the
Governance and Representation Review, and
the refresh of the Fonterra Purpose. Prior to 2014
when he joined the Fonterra Management Team,
Mike was the General Manager of Strategy
Deployment and then Group Director Governance
and Legal. Mike has a Bachelor of Laws and Bachelor
of Arts from the University of Auckland.
5. Robert Spurway
Chief Operating Officer, Global Operations
Robert Spurway joined Fonterra in 2011. As Chief
Operating Officer, Global Operations, Robert
leads Fonterra’s global operations business and is
responsible for our Co-operative’s manufacturing
and supply chain operations in New Zealand
and around the world. In his previous role he
was responsible for overseeing milk collection,
manufacturing and logistics for our Co-operative’s
New Zealand milk supply. Prior to that, he was
Fonterra’s South Island Regional Operations
Manager. In this role, he oversaw the greenfield
development of our Co-operative’s Darfield site.
Robert has more than 25 years’ experience in the
food and dairy industries. After managing the
Northland Dairy Company’s Dargaville site, he
moved to Australia in 1999, where he held various
roles in Goodman Fielder Australia. From 2008
to 2011, Robert led two Australian food companies
before returning to New Zealand. Robert holds a
Bachelor of Engineering (Chemical and Materials).
6. Judith Swales
Chief Operating Officer, Global Consumer
and Food Service
Judith Swales leads Fonterra’s Global Consumer
and Foodservice business, responsible for delivering
innovative nutritional products and solutions to
consumers in over 80 countries. Prior to this she
led Fonterra’s innovation business unit, shaping
the future of Fonterra by harnessing innovation,
emerging technologies and game changing business
models, while embedding a performance driven
culture. Judith joined our Co-operative in 2013 as
Managing Director Australia and Fonterra Oceania,
where she led the successful turnaround of the
Australian business and oversaw Fonterra Brands
New Zealand. The daughter of a milkman, Judith
grew up helping her father on his daily milk run.
She has extensive experience in senior management
and business turnarounds, and prior to joining
Fonterra was the Managing Director of Heinz
Australia, and CEO and Managing Director of
Goodyear Dunlop, Australia and New Zealand.
Judith worked for a number of UK retailers which
culminated in her move to Australia in 2001 as
the Managing Director of Angus and Robertson.
She has served as a Non-Executive Director on the
DuluxGroup Board since April 2011 and is a Director
on the Global Dairy Platform Board. Judith has a
degree in Microbiology and Virology.
7. Kelvin Wickham
Chief Operating Officer, NZMP™
Kelvin Wickham leads the sales and marketing of
all Fonterra ingredients globally, delivering solutions
to our global customers, ensuring optimisation
of supply and demand, commodity price risk
management, and championing the NZMP™ brand.
Kelvin has more than 30 years’ experience in the
dairy industry and has played a key role in building
markets, customer relationships and partnerships.
His previous role of President Greater China and
India focused on directing the development of
Fonterra’s business in these expanding markets,
during which he oversaw a period of rapid growth.
Prior to that, Kelvin led Fonterra’s Supplier and
External Relations team, and was Managing Director
of Fonterra’s Global Trade overseeing the launch of
GlobalDairyTrade. From 2005 to 2007 he was the
Director of Sales and Operations Planning. Kelvin
holds a Chemical and Materials Engineering Degree,
a Master of Management and a Diploma of Dairy
Science and Technology.
FONTERRA ANNUAL REPORT 2019
29

Summer
Hot and dry summer in
New Zealand, drought in Australia
OUR YEAR THAT’S BEEN
Looking back at some of the big moments
across our business over the last year.
Our year
in review
May 2018
2018/19 season opens with a
forecast Farmgate Milk Price
of $7.00 per kgMS
July 2018
John Monaghan
becomes Chairman
September 2018
We outline three
immediate steps to
lift performance: Take
stock of the business,
get the basics right
and ensure more
accurate forecasting
October 2018
Introduced a forecast
Farmgate Milk Price range
and revised down the
forecast milk price to
$6.25-$6.50 per kgMS
We drop our volume
ambition, refocus the
business on value and set
clear cost saving targets
August 2018
Miles Hurrell steps into
the role of interim CEO
2018/19 forecast Farmgate
Milk Price revised down
to $6.75 per kgMS
November 2018
Our Brightwater site
begins co-firing its coal
boiler on wood biomass
December 2018
2018/19 forecast
Farmgate Milk Price
range revised down to
$6.00-$6.30 per kgMS
We announce the
Fixed Milk Price
scheme to help our
farmers gain better
certainty of what
they will be paid
for their milk
Spring
Good pasture growth leads
to strong start to season
FONTERRA ANNUAL REPORT 2019
30

July 2019
We put a stop to installing
any new coal boilers
or increasing capacity
to burn coal
We set new waste targets
of zero solid waste to
landfill by 2025 and 100%
recyclable, reusable or
compostable packaging
by 2025
SummerAutumn
Dry in some regions
May 2019
We sell Tip Top to global
ice cream company Froneri
We announce that we are
closing our Dennington
site in Australia
2018/19 forecast Farmgate
Milk Price range narrows
to $6.30 - $6.40 per kgMS
Forecast earnings per
share range revised down
to 10-15 cents
We announce a strategic
review of our farm-hubs
in China and that we are
reviewing ownership of
our DPA Brazil joint venture
March 2019
Miles Hurrell becomes
permanent CEO
We sell our interest in
Venezuelan consumer joint
venture Corporacion Inlaca
We start a sales process
for our 50% share of
DFE Pharma
January 2019
John Wilson passed
away (retired from
Board November 2018)
April 2019
The Co-operative
Difference launches,
helping our farmer owners
know what is expected
now and in the future
MPI sets three national
goals to eradicate
Mycoplasma bovis
Trialled wood pellets
in our Te Awamutu
site’s boiler
February 2019
We buy a stake in US based
food company, Motif
Ingredients, a company
developing and commercialising
bio-engineered animal and
food ingredients
2018/19 forecast Farmgate
Milk Price range increases
to $6.30-$6.60 per kgMS
FY19 forecast earnings per
share revised down to 15-25
cents and we announce a full
strategic review is underway
June 2019
We announce the
sale of our interest
in foodspring
FONTERRA ANNUAL REPORT 2019
31

OUR YEAR THAT'S BEEN
Our
Approach
Embedding sustainability at the heart of
everything we do is a strategic priority.
We’re a business built from farms passed down from one
generation to the next, and that means ensuring the land
and natural bounty of our country are preserved for
generations to come.
By improving how we dairy, we believe we can make a more
positive impact on the world. That means caring about
nutrition, our environment, and our communities.
Nutrition:
Improving health and wellbeing through the
products and services we deliver.
Environment:
Achieving a healthy environment for
farming and society.
Community:
Delivering prosperity for our farmers and
wider communities.
Fonterra supports the United Nations’ Sustainable
Development Goals and we have prioritised ten goals where
we believe we can make the most difference. We are joining
forces across sectors and society to contribute to a healthier
planet and the lifestyles of the people on it.
The Board of Directors has formed a Sustainability
Advisory Panel to challenge and guide us as we embed
sustainability into our business. The six external experts are:
Sir Rob Fenwick, Bridget Coates, Paul Gilding, Michelle Pye,
Hugh Logan and Aroha Mead.
Address public health challenges by improving the
nutritional profile of our products and promoting
healthy diets.
Improve access to adequate nutrition by developing
affordable products tailored to specific nutritional
needs of communities.
Improve the wellbeing of individuals by leading
innovation in advanced dairy nutritional products
to address specific health needs.
FY19 delivery

Launch a new affordable product.

Continue to reformulate products to
nutritional guidelines.
Continue to rollout electronic product traceability.
Targets

2019: 100% sites certified to leading Food
Safety and Quality (FSQ) levels.
1

2020: 75% of our product portfolio meets endorsed
nutrition guidelines.
2025: 100% of our product portfolio meets
endorsed nutrition guidelines.
Long-term contribution
On-track.
Behind plan.
Nutrition
1 94% of sites globally are already certified.
FONTERRA ANNUAL REPORT 2019
32

FY19 delivery

Halve the gender pay gap for New Zealand
employees from 2% to 1%.

Continue to deliver free portions of dairy
nutrition for New Zealand children.
Deliver earnings per share forecast.
Support healthy, sustainable livelihoods for our
farmers by returning the most value from every drop
of milk by moving more of our milk to higher value.
Provide positive livelihoods for our people by
developing a diverse, skilled and agile workforce and
promoting a healthy and safe working environment.
Invest in the future of our communities by sharing
what we do best and building farming capability in
key emerging dairy markets.
Long-term contribution
Targets

Continue to invest in community programmes
in key markets.

World-class injury prevention
(total recordable injury frequency rate).
World-class engagement.
Return on capital above our weighted average
cost of capital.
FY19 delivery

Deliver another 1,000 FEPs.

Commission biomass co-firing at Brightwater.
Establish global targets for waste reduction.
Improve the health and biodiversity of our land
and waters by reducing the impacts of farming and
manufacturing, and working in partnership with others.
Lead the transition to a low-carbon future by
investing in innovation and infrastructure to remove
greenhouse gas emissions from our supply chain.
Meet the growing nutritional demand through
improvements in productivity and minimising waste
from farm to consumer.
Long-term contribution
CommunityEnvironment
Targets

2025: All farms have an FEP.

2026: All sites treating wastewater to leading
industry standards.
2030: Climate neutral growth for farming.
2030: 30% reduction in GHG emissions for
manufacturing operations.
2050: Net zero emissions for manufacturing operations.
FONTERRA ANNUAL REPORT 2019
33

Providing nutrition
Anmit™, our affordable
nutrition pilot in Ethiopia,
is ready in just two
minutes. Mins.
2
We extended our
range of Mozzarella cheeses.
We expanded our range of
Soprole Protein
+
products.
Protein innovation
Soprole™ Protein+ Plain
yoghurt was voted by
consumers as the Product
of the Year for innovation.No.1
Anchor™ Greek yoghurt provides
a source of protein and calcium.
We launched two probiotics
into the sports and active lifestyle market.
FONTERRA ANNUAL REPORT 2019
34

OUR YEAR THAT'S BEEN
Nutrition
Our products can help improve the health and
wellbeing of people around the world.
Here’s a snapshot of how we helped this year.
Soprole™ Protein
+
In Chile, we have continued to expand our range of
Soprole™ Protein+ products this year with four new
varieties hitting supermarket shelves. These products offer
higher levels of quality dairy protein and help consumers
spread their consumption of protein throughout the day.
Protein
+
Plain yoghurt was voted by consumers as the
Product of the Year for innovation.
In New Zealand, we have also continued to expand our
range of Anchor™ Protein
+
products. Protein has a key
role in maintaining bones, muscles, cartilage and skin.
Anchor™ Greek Yoghurt
In New Zealand we launched a new range of Anchor™
Greek yoghurt. It is made with authentic Greek cultures
and provides a source of protein and calcium. The natural
unsweetened variety has no added sugars and all varieties
earn top scores of 4.5 or 5 stars in the Health Star
Rating scheme.
Anmit™ – Affordable nutrition
We started piloting an affordable nutrition product in
Ethiopia this year called Anmit,™ an abbreviation of
Anchor™ and Atmit. Atmit is an Ethiopean grain and dairy
mixture like a drinkable porridge that can take up to
a week to prepare, but our Anmit™ delivers the goodness
in just two minutes. Developed with local stakeholders,
including the Ethiopian Food and Nutrition Society, it is
fortified with nutrients tailored to local needs and
delivered at an affordable price.
NZMP™ NutriWhite Dairy-Based Powder
In Africa and South-East Asia it’s sometimes difficult for
low-income families to buy affordable, quality food. Their
diets are often lacking in essential micronutrients. That’s
why we developed NZMP NutriWhite – an affordable,
nutritionally-fortified dairy-based powder – which is
designed for adding to tea and coffee. It’s fortifed with
Iron, Zinc, Calcium and Vitamins A, C and D, and also
tastes good.
NZMP™ Mozzarella Range
We have extended our range of Mozzarella cheeses to meet
the needs of different customers. These include a premium
variety right through to a cost-effective option, and some
options that meet specific criteria – such as reduced salt.
Salt is a vital ingredient in cheese-making. It adds flavour,
helps with ripening and works as a natural preservative.
Reducing salt is not easy and requires specific know-how,
but by doing so means our customers can offer reduced
salt options in their product ranges.
NZMP™ SureStart™ MFGM Lipid 70
Our latest innovative paediatric ingredient was
launched at Health Ingredients Europe in November 2018.
The benefits of MFGM Lipid 70 are backed by science
which suggests there is a role supporting infant brain
development and cognition, when used in infant formula
products. Our ability to manufacture this ingredient at
multiple sites gives our customers confidence we can
supply the quantities they need.
NZMP™ Lifestyle Probiotics
We launched two NZMP probiotics into the sports and
active lifestyle market this year. LactoB 001 (HN001™)
and Bifido 019 (HN019™) were originally discovered
in New Zealand dairy cultures. After extensive clinical
research, we have commercialised these to help people
improve their digestive health and immunity. Our
specialised processing techniques mean we can offer
customers a longer shelf-life in some applications.
FONTERRA ANNUAL REPORT 2019
35

OUR YEAR THAT'S BEEN
Environment
Water and Biodiversity
Healthy freshwater and ecosystems are essential
to the long-term success of our business, and to the
communities where we live, work and farm.
Farming
On farm, we are helping farmers establish Farm
Environment Plans (FEPs) which include a range
of prioritised improvements unique to their farm
(see Working with our farmers section). To support this
we have developed a new nitrogen scorecard. Nitrogen
loss risk is calculated across six farm management
practices to help farmers further reduce the risk
of nitrogen loss.
Sustainable water catchments require collaboration
to help protect and regenerate waterways, and meet
the environmental aspirations of local communities.
Through our Living Water partnership with the Department
of Conservation we are identifying game-changing and
scalable solutions. In addition, we are supporting farmers,
local iwi and community groups to deliver initiativies
prioritised by the community. For example, in Canterbury
an electric barrier is protecting endangered Mudfish from
predators, in Northland work is underway to protect
Whitebait habitat, and in other regions there are multiple
wetland restoration projects.
Manufacturing
Our new target is to improve water efficiency at
manufacturing sites in water-stressed regions by 30%
by 2030 and continuously improve water efficiency
at all other sites.
To achieve this, there are a large number of initiatives
underway across our manufacturing sites. For example,
at Edendale, by capturing the steam generated by one
of the driers and treating it appropriately, we can reuse
it instead of using fresh water. This means we draw less
water from the aquifer and have less wastewater to treat.
We estimated this initiative saved between 700-750m
3

water per day in February when it went live, and can save
about 1,000m
3
water per day in optimal operating conditions.
Climate Change
Climate change is a global environmental, economic
and social challenge, and we support a transition to a
low-carbon economy.
Farming
Over the last 25 years, by improving the efficiency of their
farming operations, New Zealand farmers have reduced
on-farm emissions intensity by about 20%.
1
Owl Farm near Hamilton, a Fonterra farmer and DairyNZ
partnership farm, has reduced Green House Gas (GHG)
emissions by 8% and lifted operating profit by 14% through
improved management practices over the last two years.
Achieving this is challenging and relies on highly-skilled
farm management and high-quality data to support
decision-making. To support our farmers, we have been
working on a trial of farm-specific GHG reporting and
our goal is for all our New Zealand famers to have a
report by the end of 2020.
Manufacturing
For our global manufacturing operations, our targets are
to reduce our GHG emissions by 30% by 2030 and achieve
net zero emissions by 2050.
All sites are focused on energy efficiency. It makes good
economic sense, it helps reduce our emissions and will
help our transition to low carbon fuel sources. Looking
for alternative fuel sources, however, is the key to
emissions reduction.
At Brightwater, we converted the boiler so it can co-fire
wood biomass with coal. It went live in November 2018,
reducing GHG emissions by about 480 tonnes CO
2
-e
during FY19.
Building on the lessons learned at Brightwater, we
completed a successful trial at Te Awamutu where we
converted the coal boiler to burn wood pellets and
tested for three days. We are working to ensure security
and quality of the wood pellet supply, but at this stage
it is estimated that moving to this solution would reduce
annual emissions by 84,000 tonnes CO
2
-e.
1 Interim Climate Change Committee (2019). Action on Agricultural Emissions (p26).
FONTERRA ANNUAL REPORT 2019
36

Nicki Atkinson setting a net at Waituna Lagoon
as part of our Living Water partnership.
New packaging target
New waste target
On-Farm emissions
100% recyclable,
reusable or
compostable
packaging by 2025.
Zero solid waste to
landfill from our
sites by 2025.
In the last 25 years,
New Zealand farmers
have reduced on-farm
emissions by 20%.
100%
Zero
20%
The Fonterra Australia packaging team with
a bench made from recycled soft plastics.
FONTERRA ANNUAL REPORT +
37

Open Gates
Milk for Schools
KickStart Breakfast
More than 8,000
people visited Fonterra
farms throughout
New Zealand.
Fonterra farmers
provided 18 million
portions of milk this year
to 140,000 children.
In the last 10 years more
than 30 million breakfasts
have been served.
Fonterra Milk for Schools
competition winners at Mossburn
School got a special visitor.
8,000
18m
30m
A tanker up close
at Open Gates.
Open Gates visitors get a chance
for some photos on farm.
Enjoying Kickstart Breakfast Club
at Putaruru Primary School.
FONTERRA ANNUAL REPORT 2019
38

OUR YEAR THAT'S BEEN
Community
Caring for people is at the core
of our Co-operative.
At Fonterra, we contribute to three
interconnected communities:
• The people who own and work on the farms that
supply us with milk, and others who work in the
end-to-end supply chain providing us with goods
and services.
• The people who are employed by Fonterra,
all around the world.
• The people in the communities where we live and work.
Caring for our people
We want all our people to be healthy, live a balanced life
and to go home from work safely every day. This year
we reduced our injury rate to 4.9 per million work hours,
a level which is considered world class for our industry.
Tragically however, a member of staff lost their life on
one of our China farms and serious harm injuries
increased from 14 to 18. For all fatalities and serious
injuries we conduct investigations to identify root
causes and take the necessary corrective actions.
We also recognise the importance of a diverse and inclusive
workforce. Our LGBTTI+ (lesbian, gay, bisexual, transgender,
takatāpui, intersex) friends and allies network has helped
us make good progress towards achieving Rainbow Tick
accreditation in New Zealand and we launched new
e-learning modules on diversity and unconscious bias.
Connecting our communities – Open Gates
We expanded our Open Gates programme. It gives
the public a chance to see what goes on behind farm
and factory gates. It’s about openness, engagement
and education.
More than 8,000 people visited 16 shareholders’ farms
throughout New Zealand to learn how our farmers care
for their animals and the environment. It’s an opportunity
for Kiwis to experience a working dairy farm, chat with
farmers, see cows being milked and check out the
technology on a Fonterra milk tanker.
Our Te Rapa, Darfield and Edendale sites also opened
their gates, welcoming almost 3,000 visitors to see
how we turn raw milk into high-quality nutritious food.
In-school Programmes
Fonterra Milk for Schools
Active in almost 1,400 schools, with around 140,000
children taking part every day, Fonterra farmers provided
18 million portions of milk this year. To celebrate back
to school in 2019, schools were invited to nominate their
local community hero. The winners were Rangikura School
in Porirua, Mossburn School in Southland and Auckland’s
Willowbank School, who all received a visit from Fonterra
Ambassador and former All Black captain, Richie McCaw.
KickStart Breakfast
This year, KickStart Breakfast grew to over 1,000 clubs
with more than 30,000 Kiwi kids participating. In the last
10 years, more than 30 million breakfasts have been served
through the programme, a partnership with Sanitarium
and the Ministry of Social Development. The clubs not
only provide kids with a healthy breakfast to kick-start
their school day, they also help students develop social
skills and take on extra responsibilities.
Caring for communities through
social procurement
We joined other leading organisations and signed
up as founding members of New Zealand’s first social
procurement buyer group. Established by the Ākina
Foundation, the Fwd: platform connects procurement
teams with social enterprises that have a positive impact
on society as they deliver various goods and services.
It gives us another way to do good through our
business activities.




TRIFR (per million work hours)
FY
.
FY
.
FY
.
FY
.
FY
.
FY
.
FY
.
FY
.

FYFY

.
.
Total recordable injury frequency rate
FONTERRA ANNUAL REPORT 2019
39

OUR PERFORMANCE
Group
Financial
Metrics
,
,
,
,
kgMS (millions)
Milk Collection
 
,
.
.
.
.6.
 Farmgate Milk Price Dividend






...
Total Cash Payout
.
.
.
.
.
.
IngredientsConsumer and Foodservice
Sales Volume (LME bn)

.
.
.
.
.

.

.

.

.
.
.

.
.
. .

   

  

,,,,,

Consumer and Foodservice (LME m)
Advanced Ingredients (LME m)

As  of Total LMEs
 
Volume to Higher Value

,




,,,
These charts have been
selected to represent
the financial metrics for
Fonterra, to provide an
historical summary of
our performance.
1 Does not add to total due to inter-group eliminations.
2 Advanced Ingredients split only from 2016.
3 Advanced Ingredients and Consumer and Foodservice
products as a percentage of total LMEs.
FONTERRA ANNUAL REPORT 2019
40


EPS (cents)Dividend Yield
Dividend Yield and Normalised EPS

.



.

.


.

6.


Return on Capital
(including intangibles and EAI

)
.
.
.
.
.


,






 (millions)
CAPEX

,

,
.

,
.

,
.

,
..
 GM (millions) GMLME
Normalised Gross Margin
 EBIT (millions)
 EBITLME
  


.
 
,
.
 
,
.
 

.

.
Normalised EBIT
Gearing DebtEBITDA
Leverage
.
.x
.
.
.
.x
.x
.x
.
.x

   










Working Capital Days

(,)

,




,
 Free Cash Flow (millions)
Free Cash Flow
4 The way in which Ingredients presents certain inter-segment
sales between Ingredients and Foodservice was revised in FY19.
This increased FY19 Advanced Ingredients sales volumes for the
12 months ended 31 July 2019 by 946 million LMEs.
5 Equity accounted investments.
6 Capital expenditure comprises purchases of property (less specific
disposals where there is an obligation to repurchase), plant and
equipment and intangible assets, and net purchases of livestock.
FONTERRA ANNUAL REPORT 2019
41

The performance of the largest part of our business,
New Zealand Ingredients, improved on last year with
increased sales and lower operating expenses contributing
to higher normalised earnings before interest and tax (EBIT).
Our global Foodservice business also improved on last year
with normalised gross margin up 10%. This was despite
lower sales volumes, following a slow start to butter sales
in Greater China and Asia. Key areas of challenge in the
business included Australia Ingredients, the ingredients
and consumer businesses in Latin America and the
consumer businesses in Sri Lanka, Hong Kong and
New Zealand. These challenges were the main reasons
our normalised gross margin was down $137 million,
or 4%, on the previous year, but were largely offset by
normalised operating expenses decreasing by $185 million.
‘Other income’ declined due to lower one-off gains than the
previous year, and as a result our normalised EBIT declined
9% to $819 million, from $902 million the previous year.
1 Percentages as shown in tables may not align to the calculation based on
numbers in the tables due to rounding.
2 Refer to note 2 of the Notes to the Financial Statements.
3 Includes other operating income, net foreign exchange gain/(loss) and share
of equity accounted investees.
4 Debt payback ratio is economic net interest bearing debt divided by earnings
before interest, tax, depreciation and amortisation (known as Debt/EBITDA).
Both Debt and EBITDA are adjusted, from reported amounts, for the impact
of operating leases, certain normalisations and non-cash amounts.
5 Gearing ratio is economic net interest bearing debt divided by total capital.
Total capital is equity excluding the hedge reserves, plus economic net
interest bearing debt.
6 Return on capital is calculated as normalised EBIT, less a notional tax charge
divided by capital employed including brands, goodwill and equity-accounted
investments. Return on capital, excluding brands, goodwill and equity-
accounted investments was 7.6% (31 July 2018: 8.0%).
7 Includes asset divestments.
OUR PERFORMANCE
Group
Overview
New Zealand Ingredients and our Foodservice business
improved on last year but were offset by challenges
in some markets, and significant impairments and
one-off items, resulting in a net loss. Cash flow
improved significantly and solid progress was made
on reducing expenditure and decreasing debt.
FOR THE YEAR ENDED
NZD MILLION31 JULY 201931 JULY 2018CHANGE
1
Volume (LME, billion)21.922.2(2)%
Volume (’000 MT)4,1394,1230%
Sales revenue20,11420,438(2)%
Normalised gross margin
2
3,0153,152(4)%
Normalised gross margin
percentage15.0%15.4%–
Other income and other
3
115246(53)%
Reported operating
expenses(2,905)(3,097)(6)%
Normalised operating
expenses
2
(2,311)(2,496)(7)%
Reported EBIT(10)262(104)%
Normalised EBIT
2
819902(9)%
Net finance costs(418)(416) (1)%
Reported tax expense(177)(42)(321)%
Net loss after tax(605)(196)(210)%
Reported earnings
per share (cents)(0.35)(0.14)(153)%
Normalised earnings
per share
2
(cents)0.170.24(29)%
Dividend per share (cents)–10–
Adjusted debt to
EBITDA
4
(ratio)4.3x4.5x
Gearing ratio
5
48.2%48.4%
Return on capital
6
5.8%6.3%
Free cash flow
7
1,09560083%
Capital expenditure600861(30)%
FONTERRA ANNUAL REPORT 2019
42

Net Loss After Tax
Normalised EBIT
$
605 m
$
819 m
Return on Capital
Normalised Earnings Per Share
5.8
%
0.17 c
from
6.3%
29%
9%
There were also some significant one-off items. These
totalled $829 million before tax, and increasing to
$885 million after tax. Of this amount, $59 million was
attributable to non-controlling interests and the net
amount attributable to equity holders is $826 million.
This included impairing the carrying values of some assets
and other one-off accounting adjustments, the most
significant being DPA Brazil, our Venezuelan consumer
business, China Farms and our New Zealand consumer
business. While they do not impact the day to day
operations of the business, they are reported in the Income
Statement and as a result we have reported a Net Loss
After Tax of $605 million. After adjusting for non-controlling
interests, this represented 35 cents per share.
Our continued focus on financial discipline has resulted in a
reduction in normalised operating expenses of $185 million,
or 7%, and capital expenditure reducing by $261 million
to $600 million. Combined with improved trade working
capital and divestments, our free cash flow improved
significantly and debt reduced by $469 million. Following
the recently announced sale of our holding in foodspring™,
and DFE Pharma for cash proceeds of $0.6 billion, our debt
is forecast to be reduced further in the next financial year.
While good progress has been made on improving cash flow
and reducing debt, given the disappointing earnings and
significant one-off items we decided not to pay a dividend
this year.
FONTERRA ANNUAL REPORT 2019
43

OUR PERFORMANCE
Group Overview CONTINUED
New Zealand milk collection for the 2018/19 season was
1,523 million kgMS, up 1.2% compared to the previous
season. This was a result of the first half of the season
benefiting from favourable weather conditions compared
with last season. Our sales volume of Liquid Milk
Equivalents (LME) was down 2% from 22.2 billion LME
last year to 21.9 billion LME, mainly due to lower butter
sales volume in Foodservice. On a metric tonne basis, sales
volume increased 15,000MT on last year.
Fonterra’s total sales revenue declined by 2% to $20.1 billion,
mainly due to product mix.
Our group normalised gross margin percentage reduced
from 15.4% last year to 15.0%, predominantly due to reduced
margin from the challenges in Australia Ingredients, Latin
America and some of our Consumer markets.
In our Ingredients business, New Zealand Ingredients’ gross
margin performance improved from last year but was offset
by Australia Ingredients, which was significantly down
on last year due to drought, reduced domestic milk
supply and intense competition. As a result, Ingredients
normalised gross margin was down 3% to $1,427 million.
Ingredients’ normalised operating expenses were down
but not sufficient to offset Australia’s significantly reduced
gross margin, resulting in normalised EBIT down 8% from
$879 million to $811 million.
Foodservice normalised gross margin increased 10%,
mainly due to improved prices and product mix.
Overall, Consumer normalised gross margin was down
8% due to the challenges predominantly in Latin America,
Sri Lanka and Hong Kong. As a result, total Consumer
and Foodservice normalised EBIT was down 14% on last
year from $525 million to $450 million. Consumer and
Foodservice improved its performance in the second
half relative to the first half, as both Greater China and
Latin America recovered from a slow start, with 70%
of earnings generated in the second half. Greater China
performance reflected strong demand for Anchor Food
Professionals™ UHT milk and Anchor Food Professionals™
culinary cream. However, high in-market butter inventories
impacted our sales volume and margins during the first
half of the year.
Our Oceania Consumer and Foodservice business
improved over last year, particularly across all core
categories in our Australia Consumer business. This was
offset by our performance in Latin America, with Soprole
being impacted by a ‘buy local’ marketing campaign,
which impacted the sales of a number of foreign owned
companies. Latin America has recovered to more normal
performance levels in the final quarter of 2019, with nearly
three quarters of Latin America’s 2019 earnings generated
in the fourth quarter.
The performance of our two Fonterra-owned farming hubs in
China improved, however, the joint venture farms increased
their losses as they go through the start-up phase. We are
continuing to see improvement in the average price our
Ingredients business has been achieving for milk from our
China Farms, with 39% of our revenue from milk sold for
more than 4RMB versus 19% in 2018. But it is still less than
what Ingredients buys it for. Our end-to-end China Farms
operation recorded a total loss of $30 million, compared to
a loss of $38 million last year.
With our continued focus on financial discipline, we
have made good progress on reducing our expenditure.
Our normalised operating costs were $2,311 million
this year, $185 million below the previous year, and we
intend to continue reducing these further. We also made
significant progress reducing our capital expenditure.
We set ourselves a target to reduce our capital expenditure
by $200 million this year. We achieved a $261 million
reduction, with capital expenditure decreasing from
$861 million last year to $600 million.
Our net finance costs were in line with the previous
year but our tax expense increased by $135 million, from
$42 million last year to $177 million. This was mainly due
to the derecognition of the deferred tax asset from our
joint venture in Brazil.
While our earnings performance has been disappointing,
our cash flows and liquidity are strong and contribute to
the strength of our balance sheet. This year, our free cash flow,
being the cash flow that is available to pay interest and
dividends and to reduce debt, increased by $495 million
to $1,095 million. The main reasons for this were lower
capital expenditure, and proceeds from divestments,
combined with our continued strong controls on working
capital, with working capital days unchanged at 83 days.
FONTERRA ANNUAL REPORT 2019
44

FONTERRA ANNUAL REPORT 2018
With the improved free cash flow, we reduced our economic
net interest bearing debt by $469 million. This was less
than our target of $800 million by 31 July 2019, but with
continued financial discipline and the proceeds from
the divestment of our interests in foodspring™, and in
DFE Pharma, and our plan to sell some of our shares in
Beingmate, we are confident that we will reduce our debt
and leverage to within our target ranges.
As a result of the full business review, it became clear that
Fonterra needed to reduce the carrying value of several
of its assets and take account of other one-off accounting
adjustments. These totalled $829 million before tax, and
increasing to $885 million after tax. Of this amount, $59
million was attributable to non-controlling interests and the
net amount attributable to equity holders is $826 million.
Our carrying value of DPA Brazil has been impaired by
$149 million before tax and $259 million after tax, of which
$200 million is attributable to equity holders. This change is
mainly due to the economic conditions in Brazil and business
performance recovering slower than previously forecast.
As a result of the sale of our Venezuelan consumer
business, and the closing of our small Venezuelan
Ingredients business, we made an accounting adjustment
of $134 million relating primarily to the release of the
adverse accumulated foreign currency translation reserve.
Our carrying value for China Farms was impaired
by $203 million due to the slower than expected
improvement in operating performance.
In our New Zealand Consumer business, the impact of
the strategy review is a $244 million loss before tax and
a $210 million loss after tax. This is due to the accounting
loss on disposal from selling Tip Top, and impairment of
the consumer business assets reflecting the compounding
effect of operational challenges, along with a slower than
planned recovery in our market share.
Our Australian Ingredients business is adapting to lower
milk collections. As a result we announced the closure
of our Dennington factory, which combined with other
restructuring costs, saw a one-off adverse impact of
$68 million before tax and $50 million after tax.
Normalised Operating Expenses
Free Cash Flow
2,311 m
1,095 m
$
$
600m
$
Capital Expenditure
Our continued focus
on financial discipline
has contributed to
the strength of our
balance sheet.
7%
83%
30%
FONTERRA ANNUAL REPORT 2019
45

OUR PERFORMANCE
New Zealand milk collection for the 2018/19 season was
1,523 million kgMS, up 1.2% compared to the previous
season. This was mainly because of favourable weather
conditions in the first half, resulting in higher peak day
collections. However, less favourable on-farm conditions
in the second half meant collections were down in the
second half compared to last season; the net result being
collections were up 18 million kgMS on last season.
As noted in the 2019 Interim Report, volume and
sales revenue for Ingredients in FY19 now includes all
inter-segment sales, whereas previously some sales to
Foodservice were only shown in Foodservice. This was
due to the way in which Ingredients presents certain
inter-segment sales between Ingredients and Foodservice
being revised in 2019. The change increased Ingredients’
sales volumes for the 12 months ended 31 July 2019 by
1.1 billion LME and 188,000MT, and increased sales revenue
by $901 million. This change had no impact to the reported
gross margin for the Ingredients or Foodservice businesses.
Therefore on a like for like basis, total sales volumes and
revenue were down from last year due mainly to lower sales
in Australia Ingredients and product mix changes.
Overall, our Ingredients’ normalised gross margin was down
from 9.0% to 8.4% and in dollar terms it declined 3% to
$1,427 million, largely due to challenges in our Australian
Ingredients business. Lower operating expenses, down $73
million to $735 million, were not enough to offset Australia’s
performance and lower ‘other operating income’, resulting
in Ingredients’ normalised EBIT declining 8% to $811 million.
Normalised New Zealand Ingredients’ gross margin
increased 3% to $1,332 million. We have seen favourable
pricing within both the reference and non-reference
portfolios, with higher price premiums achieved from global
accounts and government tenders and favourable price
relativities achieved in the non-reference portfolio.
New Zealand Ingredients’ performance improved on
last year. However, our normalised EBIT declined 8% to
$811 million due to ongoing challenges in our offshore
businesses – Australia Ingredients and Prolesur in Chile.
Summary Financials
Ingredients
1 Percentages as shown in tables may not align to the calculation based on
numbers in the tables due to rounding.
2 China raw milk gross margin represents the net benefit/(loss) from the external
sale of milk produced by China Farms and sold to the Ingredients business
in China at an internal raw milk price.
FOR THE YEAR ENDED
NZD MILLION31 JULY 201931 JULY 2018CHANGE
1
Volume (LME, billion)21.420.54%
Volume (’000 MT)3,1712,9866%
Sales revenue17,03516,3064%
Normalised total
gross margin1,4271,472(3)%
Normalised New Zealand
Ingredients 1,3321,2973%
– New Zealand
Reference products62655513%
– New Zealand
Non-reference products701791(11)%
– China raw milk
2
(19)(30)37%
– Other gross margin24(19)225%
Normalised Australia
Ingredients1077(87)%
Other gross margin8598(13)%
Normalised EBIT811879(8)%
Gross margin ($ per MT) – New Zealand Ingredients
Reference products
($ per MT)3363099%
Non-reference products
($ per MT)9051,275(29)%
FONTERRA ANNUAL REPORT 2019
46

This was because the average price for non-reference
products decreased less than the fall in reference product
pricing. New Zealand Ingredients’ favourable pricing was
partially offset by higher conversion costs associated
with bringing new plants online and additional costs
of processing larger volumes of milk at peak. The gross
margin on our reference products was $626 million, up
13% on last year reflecting the lower cost of fat following a
decline during the year in fat prices. The gross margin for
non-reference products was $701 million, down 11% on
the year before due to the increased cost of protein.
Our New Zealand Ingredients business also benefited from
improved ‘other gross margin’, predominantly in its global
sourcing business due to favourable commodity prices.
The New Zealand Ingredients’ gross margin was also
impacted by a $19 million loss representing the difference
between the domestic milk price and the internal raw
milk price paid to China Farms. Last year this loss was $30
million. We include the China Farms’ volumes and earnings
in Ingredients as we use our sales expertise to maximise
sales revenue of the raw milk.
In Australia, milk collection for the 2018/19 season was
120 million kgMS, 33 million kgMS or 22% lower than the
2017/18 season. Reduced Australian collections were due
to poor seasonal conditions and high input costs, primarily
feed and water, leading to herd size reductions, farm
exits from key regions (particularly northern Victoria)
and declining share in a highly competitive market.
Higher milk prices and a smaller milk pool meant Australia
Ingredients had a challenging year. We increased our milk
price in response to the competitive market, but lower
collections meant that some factories were underutilised.
These factors increased our cost of goods and adversely
impacted our normalised gross margin, which declined
from $77 million to $10 million. We rationalised resources
at Stanhope and continue to work with a range of partners
to fill Darnum, which returned to 100% Fonterra ownership
this year after we unwound the joint venture with Beingmate.
We also announced the closure of our Dennington site in
Victoria. The closure had a one-off impact on earnings of
$54 million, which was normalised.
We undertook a business simplification process which
resulted in a significant reduction in operating expenses, and
addressing this overcapacity is expected to result in future
cost savings. We expect high milk prices to continue to be a
factor next season, and product mix will be important as we
utilise a smaller milk pool.
In Latin America, Prolesur’s milk collections were down 16%
due to strong competition for farmers’ milk. The increased
cost of milk and reduced collections resulted in Prolesur not
making a profit. Prolesur was the main reason Ingredients’
‘other gross margin’ was down 13% to $85 million.
New Zealand Ingredients’
Normalised Gross Margin
Normalised Total
Gross Margin
1,332 m
1,427 m
$
$
3%
3%
FOR THE YEAR ENDED
NZD MILLION31 JULY 201931 JULY 2018CHANGE
PRODUCTION VOLUME (’000 MT)
Reference
products1,8811,8492%
Non-reference
products7687621%
SALES VOLUME (’000 MT)
2

Reference
products1,8641,7944%
Non-reference
products77462025%
REVENUE PER MT (NZD)
2
Reference
products
4,7394,851(2)%
Non-reference
products5,4275,637(4)%
1 Table excludes bulk liquid milk. Bulk liquid milk for the 12 months
to 31 July 2019 was 73,000 MT (12 months ended 31 July 2018:
68,000 MT).
2 The way in which Ingredients presents certain inter-segment
sales between Ingredients and Foodservice was revised in FY19.
This increased sales volumes for the 12 months ended 31 July 2019
by 21,000 MT and 167,000 MT on reference and non-reference
products respectively, and increased sales revenue by $153
million and $748 million on reference and non-reference products
respectively. This change had no impact to the reported gross
margin for the Ingredients business.
New Zealand Ingredients’
Revenue and Volume
1

FONTERRA ANNUAL REPORT 2019
47

OUR PERFORMANCE
Consumer
and Foodservice
Our Foodservice business improved on last year
despite a slow start in butter sales. However, our
Consumer business was down on last year due
to challenges in some markets. Normalised EBIT
for our combined Consumer and Foodservice
business was down 14% to $450 million.
Overall, sales volumes in LME were down 4% on last year
mainly due to the lower sales of butter in Greater China
and Asia in the first half. Foodservice’s normalised gross
margin percentage improved from 15.7% to 18.0%, but
was offset by a reduction in Consumer’s normalised gross
margin percentage from 27.9% to 25.7%, largely due to
pricing pressure in Latin America and Asia.
Normalised operating expenses reduced by $40 million,
but this was not sufficient to cover the reduced normalised
gross margin resulting in normalised EBIT decreasing 14%
on last year to $450 million. The slow start to the year
was also reflected in earnings, with 70% of normalised
EBIT earned in the second half of the year. Our Oceania
Consumer and Foodservice business performed well, with
normalised EBIT of $92 million, up 38% from last year.
FOR THE YEAR ENDED
NZD MILLION31 JULY 201931 JULY 2018CHANGE
1
Volume (LME, billion)
2
5.15.4(4)%
– Consumer2.92.91%
– Foodservice2.22.4(10)%
Volume ( ’000 MT) 1,7821,7651%
Sales revenue7,0117,122(2)%
Normalised gross margin1,6211,683(4)%
Normalised gross margin (%)23.1%23.6%–
– Consumer25.7%27.9%–
– Foodservice18.0%15.7%–
Normalised EBIT450525(14)%
FOR THE YEAR ENDED
NZD MILLION31 JULY 201931 JULY 2018
Normalised EBIT prior year525576
Volume16(18)
Price(180)671
Cost of goods sold102(714)
Operating expenses and other
3
(13)10
Normalised EBIT450525
Normalised EBIT: key performance driversSummary Financials
1 Percentages as shown in tables may not align to the calculation based
on numbers in the tables due to rounding.
2 Summing of individual numbers from the regional and divisional breakdown
may not add up to the totals in each category due to rounding.
3 Includes net other operating income, net foreign exchange gains/losses
and share of profit/loss of equity accounted investees.
FONTERRA ANNUAL REPORT 2019
48

Greater China
In Greater China our volumes declined 15% on last year
to 1,208 million LME, driven by a similar decrease in
Foodservice volumes as a result of higher in-market butter
inventories at the start of the year. This situation was
resolved in the second half with improved volumes and
earnings. Growth in Mainland China’s Consumer business
was offset by subdued retail sales in Hong Kong, resulting
in Greater China Consumer volumes decreasing 10% on
last year.
Foodservice gross margins increased to 18.1% compared
to 15.2% last year. The main reason was good growth in
both Anchor Food Professionals™ UHT milk and Anchor
Food Professionals™ UHT culinary cream in the Beverage
House channel. Our Anchor™ UHT cream volumes, had
strong growth and we are continuing to innovate in this
area, including the launch of a beer macchiato in July.
Consumer normalised gross margin was down 3% to
$145 million. Bringing Anmum™ distribution in-house
has returned a profit of $6 million with growth expected
to continue next year. However, subdued retail sales in
Hong Kong impacted Anmum™ and Anlene™ performance.
This has weakened our overall Consumer sales volumes
and normalised gross margin for Greater China. Normalised
EBIT was $160 million in Greater China Consumer and
Foodservice, down 3% on last year’s $165 million.
Latin America
Our sales volumes in Latin America were up 4% to 779
million LME but normalised gross margin was down 13%
to $399 million. Our earnings declined 66%, with normalised
EBIT down from $117 million last year to $40 million.
The main reason for the decline in earnings was a result of
a ‘buy local’ marketing campaign in Chile, which impacted
the sales and earnings of a number of foreign-owned
companies, including our own, Soprole. However, Soprole’s
performance has shown signs of returning to more normal
earnings levels in the last quarter of FY19, with nearly three
quarters of Latin America’s FY19 earnings generated in the
fourth quarter. Soprole’s brand strength means it holds a
number one position in most consumer product categories.
In Brazil, economic challenges led to higher input costs
for milk, which impacted our gross margins for the first
three quarters of 2019. However, the last quarter saw
an improvement in normalised gross margins and
market shares.
We had lower volumes in Venezuela, driven by the country’s
severe socio-economic situation which restricted consumers’
ability to access goods and services, and made accessing the
raw ingredients and materials to run our factories challenging.
For these reasons, we exited the market in March and as a
result had one-off items impacting our earnings.
Greater China
Foodservice margins
were up despite
a slow start to
butter sales.
Greater China Normalised Gross Margin
Latin America Normalised Gross Margin
$
349 m
$
399 m
$
451m
$
422 m
Asia Normalised Gross Margin
Oceania Normalised Gross Margin
1%
3%
13%
4%
FONTERRA ANNUAL REPORT 2019
49

OUR PERFORMANCE
Asia
Our sales volumes in Asia were down 6% to 1.4 billion LME,
predominantly due to lower butter sales in the Middle East
and Indonesia. The Middle East was impacted by challenging
economic conditions and in Indonesia we have focused on
value, moving away from lower margin butter sales, which
has resulted in improved gross margin. In Sri Lanka, political
uncertainty and price constraints contributed to lower
margins and a decrease in Asia’s overall normalised gross
margin from 24.5% last year to 24.2%.
Our Asia Consumer business volume declined 2% to
890 million LME. In Malaysia, our Fernleaf™ powder sales
volume has grown 51% year-on-year supported by the
increase in market share from 24% to 31% in the Family
Milk Powder segment. The increase was mainly driven by
customer trend switching from value-add powders to full
cream milk powder. However, this was more than offset
by the lower butter sales in the Middle East and trading
challenges in Sri Lanka. The pricing constraints in Sri
Lanka were the main reason for normalised gross margin
decreasing in Asia Consumer, down 5% to $359 million.
In Foodservice, volumes were down 13% to 559 million
LME also due to the lower butter sales in the Middle East
and Indonesia. Sales volume in Thailand increased on last
year due to Anlene™ and Anmum™ continuing to perform
well, with total market share increasing from 40% to 43%.
The change in Indonesia’s operating model was the main
contributor to the normalised gross margin increasing in
Asia Foodservice, up 17% to $93 million.
Our normalised EBIT for Consumer and Foodservice in
Asia was $158 million down 10%, predominantly due to
‘other income’ declining as a result of fewer one-off
gains than the previous year.
Oceania
Our performance in Oceania Consumer and Foodservice
improved from last year. Sales volumes were up 2% to
1.7 billion LME, largely due to good growth across all core
categories in our Australia Consumer business. Gross
margin was down 3% to $422 million due to lower gross
margin in New Zealand Consumer from pricing competition
in key categories. The lower Oceania gross margin was
more than offset by the result of New Zealand Consumer’s
commitment to cost control and improved manufacturing
performance. This resulted in an improved Oceania
Consumer and Foodservice normalised EBIT of $92 million,
up 38% from last year.
In our Consumer business, sales volumes were up 3% to
1.3 billion LME. Australia’s Consumer volumes grew across
our core categories, where we continue to be the largest
branded player in spreads and cheese with 34% and 22%
value share respectively. This is our highest share in spreads
in five years and reflects our strong focus on partnering with
retailers to drive category growth. New Zealand’s Consumer
volumes were down due to our market share declining in
key categories, particularly yoghurt and cheese. However,
reduced operating expenditure meant it contributed
positively to Oceania earnings growth. Our New Zealand
Consumer business continues to focus on improving its
service levels and has seen strong improvement this year in
customer surveys, lifting from the bottom of the survey to
within the top half.
Oceania’s Foodservice business performed well against last
year due to Australia. Our Australian Foodservice business
continues to be recognised by industry partners with
numerous supplier awards, which has contributed to this
result. Oceania’s Foodservice sales volumes were up 1% to
433 million LME and gross margin was up 5% to $98 million.
LME (BILLION)NORMALISED EBIT ($M)
YEAR ENDED
31 JULY 2019
YEAR ENDED
31 JULY 2018CHANGE
1
YEAR ENDED
31 JULY 2019
YEAR ENDED
31 JULY 2018CHANGE
1
Consumer and Foodservice
2
5.15.4(4)%450525(14)%
Oceania1.71.72%926738%
Asia1.41.5(6)%158176(10)%
Greater China1.21.4(14)%160165(3)%
Latin America0.80.74%40117(66)%
Consumer and Foodservice Performance
1 Percentages as shown in tables may not align to the calculation based
on numbers in the tables due to rounding.
2 Summing of individual numbers from the regional and divisional breakdown
may not add up to the totals in each category due to rounding.
Consumer and Foodservice CONTINUED
FONTERRA ANNUAL REPORT 2019
50