Fonterra Shareholders’ Fund Interim Results 2020

Page 1


Results for announcement to the market
Name of issuer Fonterra Shareholders’ Fund
Reporting Period 6 months to 31 January 2020
Previous Reporting Period 6 months to 31 January 2019
Currency New Zealand Dollars
Amount (m’s) Percentage change
Revenue from continuing
operations
$28 170%
Total Revenue $28 170%
Net profit/(loss) from
continuing operations
$nil -%
Total net profit/(loss) $nil -%
Interim/Final Dividend
Amount per Quoted Equity
Security
No interim dividend is to be paid
Imputed amount per Quoted
Equity Security
Not Applicable
Record Date Not Applicable
Dividend Payment Date Not Applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$4.05 $4.74
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Fonterra Shareholders’ Fund financial statements are prepared in accordance
with New Zealand Equivalents to International Financial Reporting Standards.
Revenue from continuing operations comprises net fair value movements of
Economic Rights of Fonterra Shares, and dividend income. This is a gain for
the current reporting period.
Authority for this announcement
Name of person authorised
to make this announcement
Andrew Cordner

Contact person for this
announcement
Simon Till

Contact phone number +64 21 777 807

Contact email address Investor.relations@fonterra.com

Date of release through MAP
18/03/2020


Interim financial statements accompany this announcement.

---

Font e r r a
Shareholders’
Fund Interim
Repor t
2020

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202001
Dear Investors
It is pleasing to see Fonterra’s financial performance improve
in the first half of the 2020 financial year, with an increase
in underlying earnings, stronger cashflows and reduction
in leverage.
Fonterra CEO, Miles Hurrell, set four priorities for the Co-operative
in its first year of the new strategy. These priorities are to hit the
financial targets, build a great team, support regional New Zealand
and reduce their environmental footprint. These interim results
show good momentum towards achieving these priorities.
In this letter I will take the opportunity to recap Fonterra’s
new strategy, and comment on its financial performance in
the first half of the 2020 financial year and the outlook for
the remainder of the year.
New strategy
The new strategy is about prioritising New Zealand milk and
focusing on Fonterra’s strengths.
As a result, Fonterra is focusing on being globally competitive
in Core Dairy (base and advanced ingredients), growing its
sales of Sports and Active, Medical and Aging and Paediatric
ingredients, developing new Foodservice markets and taking
a more targeted approach to opportunities in consumer brands.
Fonterra is also aiming to differentiate itself through innovation,
sustainability and efficiency.
While it is still early days, the focus that the Fonterra Board
and Management team are giving to the new strategy, along
with the importance they continue to place on financial
discipline, is showing signs that it is resetting Fonterra.
Financial performance
With a relatively strong forecast Farmgate Milk Price range
of $7.00 to $7.60 per kgMS, Fonterra delivered reported Total
Group Earnings Before Interest and Tax (EBIT) of $806 million
in the first half of the 2020 financial year, up $494 million
compared to the same period last year. This includes a net
positive amount of $222 million from one-off items relating
to the asset portfolio review and from other normalisations.
Total Group normalised EBIT is $584 million, an increase
of $272 million compared to the same period last year
and excludes the one-off items in order to give a better
comparative view of underlying earnings.
This improvement in normalised earnings has been achieved through
stable underlying earnings from Ingredients, and a significant
improvement in the Foodservice and Consumer businesses.
Fonterra has continued to reduce its leverage and is targeting
a Debt to Earnings ratio of less than 3.75x and gearing at the
lower end of the 40% to 45% range by the end of the financial
year. It has completed the sale of DFE Pharma and foodspring
®

with cash proceeds of $624 million, which helped increase
free cash flow in the first half of the 2020 financial year
by $1.2 billion and reduce net debt by $1.6 billion. These asset
sales have resulted in a total gain on sale of $469 million,
plus the receipt of $26 million in dividends from DFE Pharma
in the first half of this year.
Fonterra has said that it will continue to review its asset
portfolio to ensure its assets are aligned to its strategy.
Key developments in the portfolio review are that strategic
reviews of its China Farms and DPA Brazil joint venture have
been completed and sales processes for both businesses are
well under way.
Based on the additional information and further insights
gained through the sales processes, Fonterra has reduced
the valuation of these two assets and its China Farming
joint venture by a total of $199 million.
Fonterra’s reported Net Profit After Tax (NPAT) was
$501 million, up $429 million over the comparable period
last year. After adjusting for the one-off items, the normalised
NPAT is $293 million, an increase of $221 million over the
same period last year. This normalised NPAT, and after
minority interests, represents 18 cents per unit.
Outlook
Despite this significant improvement in its first half earnings,
Fonterra has highlighted the risks it faces in the second half.
In particular, these are the potential impact of COVID-19 on
global demand, geo-political risks in key markets such as
Hong Kong and Chile, and ongoing dry weather conditions
here in New Zealand which could impact collections and
potentially input costs. As a result, Fonterra has held its forecast
earnings range at 15-25 cents per share.
Fonterra has decided not to make an interim distribution, with
any distribution decisions to be made with a complete picture
of its full year earnings performance and financial position.
John Shewan
Chairman
FSF Management Company Limited
(Australian Registered Body Number 160 539 935, Incorporated In New Zealand)
Chairman's
Report

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202002
FSF Management Company Limited (the Manager)
presents to the unit holders the interim financial
statements for the Fonterra Shareholders’ Fund
(the Fund) for the six months ended 31 January 2020.
The Manager is responsible for presenting interim
financial statements for the six months which fairly
present the financial position of the Fund and its
financial performance and cash flows for that period.
The Manager considers the interim financial statements
of the Fund have been prepared using accounting
policies which have been consistently applied and
supported by reasonable judgements and estimates,
and that all relevant financial reporting and accounting
standards have been followed.
The Manager believes that proper accounting records
have been kept which enable, with reasonable accuracy,
the determination of the financial position of the Fund
and facilitate compliance of the interim financial statements
with the Financial Markets Conduct Act 2013 and the
Fonterra Shareholders’ Fund Trust Deed.
The Manager considers that it has taken adequate
steps to safeguard the assets of the Fund, and to
prevent and detect fraud and other irregularities.
The Manager approves and authorises for issue
the interim financial statements for the six months
ended 31 January 2020 presented on pages 3 to 7.
For and on behalf of the Board of the Manager:
Manager’s Statement
FOR THE SIX MONTHS ENDED 31 JANUARY 2020
Interim Financial
Statements
FOR THE SIX MONTHS ENDED 31 JANUARY 2020
John Shewan
Chairman
FSF Management Company Limited
17 March 2020
Kim Ellis
Director
FSF Management Company Limited
17 March 2020
Manager's Statement02
Statement of Comprehensive Income03
Statement of Changes In Amounts
Attributable to Unit Holders
03
Statement of Financial Position04
Cash Flow Statement04
Statement of Significant Accounting Policies05
Notes to the Financial Statements06
Independent Review Report08
Directory09

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202003
The accompanying notes form part of these interim financial statements.
Statement of Comprehensive Income
FOR THE SIX MONTHS ENDED 31 JANUARY 2020
$ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Net fair value gain/(loss) on revaluation of Economic Rights of Fonterra shares28(40)(144)
Dividend income–––
Investment income/(expense)28(40)(144)
Net change in fair value of liability to unit holders(28)40144
Distributions to unit holders–––
Finance (cost)/income(28)40144
Profit before tax–––
Tax expense–––
Profit for the period–––
There are no items of other comprehensive income.
Statement of Changes in Amounts
Attributable to Unit Holders
FOR THE SIX MONTHS ENDED 31 JANUARY 2020

$ MILLION
Amounts attributable to unit holders at 1 August 2019388
Movements:
Revaluation of liability to unit holders28
Issue of units17
Redemption of units(27)
Amounts attributable to unit holders at 31 January 2020 (unaudited)406
Amounts attributable to unit holders at 1 August 2018570
Movements:
Revaluation of liability to unit holders(40)
Issue of units71
Redemption of units(77)
Amounts attributable to unit holders at 31 January 2019 (unaudited)524
Amounts attributable to unit holders at 1 August 2018570
Movements:
Revaluation of liability to unit holders(144)
Issue of units82
Redemption of units(120)
Amounts attributable to unit holders at 31 July 2019 (audited)388

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202004
The accompanying notes form part of these interim financial statements.
Statement of Financial Position
AS AT 31 JANUARY 2020
$ MILLION
NOTES
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Assets
Economic Rights of Fonterra shares2406524388
Total assets406524388
Liabilities
Amounts attributable to unit holders3406524388
Total liabilities406524388
Cash Flow Statement
FOR THE SIX MONTHS ENDED 31 JANUARY 2020
$ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Cash flows from operating activities
Cash was provided from:
– Sale of Economic Rights of Fonterra shares2777120
– Dividends' received (net of dividends reinvested)–––
Cash was applied to:
– Purchase of Economic Rights of Fonterra shares(17)(71)(82)
Net cash flows from operating activities10638
Cash flows from financing activities
Cash was provided from:
– Proceeds from issue of units177182
Cash was applied to:
– Outflows on redemption of units(27)(77)(120)
– Distributions paid to unit holders (net of distributions reinvested)–––
Net cash flows from financing activities(10)(6)(38)
Net (decrease)/increase in cash and cash equivalents
–––
Cash and cash equivalents at the beginning of the year–––
Cash and cash equivalents at the end of the period–––

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202005
Statement of Significant Accounting Policies
FOR THE SIX MONTHS ENDED 31 JANUARY 2020
A) GENERAL INFORMATION
The Fonterra Shareholders’ Fund (FSF or the Fund) is a New Zealand
managed investment scheme established to be the ‘Authorised Fund’
under Fonterra’s Trading Among Farmers scheme. It is registered under
the Financial Markets Conduct Act 2013 and its governing document
is the Fonterra Shareholders’ Fund Trust Deed (the Trust Deed) dated
23 October 2012 (as amended) and has a life of 80 years. Under the
Trust Deed, the Fund may invest only in authorised investments, which
are Economic Rights of Fonterra shares (Economic Rights), and issue
units to investors. It may not invest directly in Fonterra shares (shares).
The Fund is listed on the NZX Main Board operated by NZX Limited
and as a Foreign Exempt Listing on the Australian Securities Exchange
operated by ASX Limited. The Manager is an FMC reporting entity
under the Financial Markets Conduct Act 2013.
These interim financial statements were authorised for issue by the
Manager on 17 March 2020.
Fonterra interim financial statements
Investors are encouraged to read the interim financial statements of
Fonterra Co-operative Group Limited (Fonterra), together with the
interim financial statements of the Fund, given that the performance of
the Fund is driven by the performance of Fonterra. The Fonterra interim
financial statements can be found at www.fonterra.com in the
‘Investors/Financial Results’ section.
Activities
The principal activity of the Fund is to acquire Economic Rights and
issue units to investors. It allows investors in the Fund an opportunity
to earn returns based on the financial performance of Fonterra.
B) BASIS OF PREPARATION
These interim financial statements have been prepared in accordance
with International Accounting Standard 34: Interim Financial Reporting
and New Zealand Equivalent to International Accounting Standard 34:
Interim Financial Reporting. They have also been prepared in
accordance with Generally Accepted Accounting Practice (GAAP)
applicable to for-profit entities. These interim financial statements are
as at and for the six months ended 31 January 2020, and are unaudited.
They should be read in conjunction with the financial statements for
the year ended 31 July 2019.
These interim financial statements are presented in New Zealand
dollars ($), which is the Fund’s functional and presentation currency,
and rounded to the nearest million, except where otherwise stated.
The same accounting policies are followed in these interim financial
statements as were applied in the financial statements for the year
ended 31 July 2019.
C) OPERATING SEGMENTS
The Fund’s investments only include Economic Rights assets and
the Fund’s performance is evaluated on an overall basis. Therefore,
the Fund is a single-segment entity.
All of the Fund’s income is from investments in the Economic Rights.
The internal reporting provided to the Board of the Manager, which
is the Fund’s chief operating decision maker, for the Fund’s assets,
liabilities and performance is prepared on a consistent basis with the
measurement and recognition principles of NZ IFRS. The Board of the
Manager reviews the Fund’s internal reporting in order to assess the
performance and position of the Fund.

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202006
1. FAIR VALUE MEASUREMENT
The Fund measures fair values for recognition of both Economic Rights assets and unit holder liabilities.
The Fund uses the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
– Level 1: Quoted price (unadjusted) in an active market for an identical instrument.
– Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that
are considered less than active; or other valuation techniques for which all significant inputs are directly or indirectly observable from market data.
– Level 3: Valuation techniques using significant unobservable inputs. The Fund has no Level 3 instruments.
The Fund’s liability to unit holders is a Level 1 instrument as the unit price is quoted on the NZX Main Board, which is considered to be an active
market. The Manager considers market prices to be the most representative measure of fair value as they are used by market participants as a
practical expedient for fair value measurement. The market will be monitored on an on-going basis to confirm that it remains active for the
purposes of establishing fair value.
Economic Rights are Level 2 instruments as Economic Rights are not listed and there is no active market for Economic Rights assets. Economic
Rights are valued using the quoted price of units (which are considered to be a materially comparable instrument) in the Fund listed on the
NZX Main Board. The on-going validity of assumptions relating to the comparability between a unit and an Economic Right is regularly reviewed.
There have been no transfers between the categories in the fair value hierarchy during any of the periods presented.
2. ECONOMIC RIGHTS OF FONTERRA SHARES
The Economic Rights are held on trust for the Fund by the Custodian under the Fonterra Economic Rights Trust.
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Value of Economic Rights ($ million)406524388
Number of Economic Rights100,187,385110,573,858102,934,582
The Economic Rights are measured at fair value, calculated as the number of Economic Rights held multiplied by the established fair value for each
Economic Right.
$ MILLION
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Opening value of Economic Rights 388570570
Movements:
Purchase of Economic Rights
1
177182
Sale of Economic Rights(27)(77)(120)
Revaluation of Economic Rights28(40)(144)
Closing value of Economic Rights406524388
1 Purchase of Economic Rights includes $nil Economic Rights acquired in conjunction with Fonterra’s Dividend Reinvestment Plan (31 January 2019: $nil; 31 July 2019: $nil).
Notes to the Financial Statements
FOR THE SIX MONTHS ENDED 31 JANUARY 2020

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202007
3. LIABILITY TO UNIT HOLDERS
31 JAN 2020
UNAUDITED
31 JAN 2019
UNAUDITED
31 JUL 2019
AUDITED
Value of unit holder liability ($ million)
1
406524388
Opening number of units on issue
2
102,934,582111,423,603111,423,603
Number of units issued
3
4,410,77914,923,01017,769,331
Number of units redeemed (7,157,976)(15,772,755)(26,258,352)
Closing number of units on issue100,187,385110,573,858102,934,582
1 The liability to unit holders is measured at fair value, calculated as the number of units on issue multiplied by the unit market price at 31 January 2020 of $4.05
(31 January 2019: $4.74; 31 July 2019: $3.77).
2 Included in the total number of units is one Fonterra unit which was issued at launch.
3 There were no units issued under the Distribution Reinvestment Plan for the six months ended 31 January 2020 (31 January 2019: nil; 31 July 2019: nil).
4. NET TANGIBLE ASSETS PER SECURITY
As at 31 January 2020, the net tangible assets per unit on issue was $4.05 (31 January 2019: $4.74; 31 July 2019: $3.77).
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Fund has no material commitments or contingent liabilities as at 31 January 2020 (31 January 2019: nil; 31 July 2019: nil).
6. SUBSEQUENT EVENTS
Changes in unit price
Units are traded on the NZX and ASX and accordingly the unit price changes regularly, including during the period between balance date
and the date these interim financial statements were authorised for issue. Changes in the market price of the units result in a corresponding
change in the value of the Economic Rights asset held by the Fund. Daily unit prices are available on the NZX website.
Notes to the Financial Statements CONTINUED
FOR THE SIX MONTHS ENDED 31 JANUARY 2020

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202008
REPORT ON THE INTERIM FINANCIAL STATEMENTS
CONCLUSION
We have completed a review of the accompanying interim financial statements which comprise:
–the statement of financial position as at 31 January 2020;
–the statements of comprehensive income, changes in amounts attributable to unit holders and the cash flow statement for the
6 month period then ended; and
–notes, including a summary of significant accounting policies and other explanatory information.
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements on pages 3 to 7 do
not present fairly in all material respects, the Fund’s financial position as at 31 January 2020 and its financial performance and cash flows
for the 6 month period ended on that date in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting.
BASIS FOR CONCLUSION
A review of interim financial statements in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent
Auditor of the Entity (“NZ SRE 2410”) is a limited assurance engagement. The auditor performs procedures, consisting of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
As the auditor of Fonterra Shareholders' Fund, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit
of the annual financial statements.
OTHER MATTER
The financial statements of the Fund for the year ended 31 July 2019 were audited by another auditor who expressed an unmodified opinion
on those statements on 25 September 2019.
USE OF THIS INDEPENDENT REVIEW REPORT
This report is made solely to the members as a body. Our review work has been undertaken so that we might state to the members those matters
we are required to state to them in the Independent Review Report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the members as a body for our review work, this report, or any of the opinions we have formed.
RESPONSIBILITIES OF THE MANAGER FOR THE INTERIM FINANCIAL STATEMENTS
The Manager, on behalf of the Fund, are responsible for:
–the preparation and fair presentation of the interim financial statements in accordance with NZ IAS 34 Interim Financial Reporting
and IAS 34 Interim Financial Reporting;
–implementing necessary internal control to enable the preparation of interim financial statements that are fairly presented and free
from material misstatement, whether due to fraud or error; and
–assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless they either intend to liquidate or to cease operations or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE REVIEW OF THE INTERIM FINANCIAL STATEMENTS
Our responsibility is to express a conclusion on the interim financial statements based on our review. We conducted our review in accordance with
NZ SRE 2410. NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in accordance with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International
Standards on Auditing (New Zealand). Accordingly, we do not express an audit opinion on these interim financial statements.
This description forms part of our Independent Review Report.
KPMG
Auckland
17 March 2020
Independent Review Report
TO THE MEMBERS OF FONTERRA SHAREHOLDERS' FUND

FONTERRA SHAREHOLDERS’ FUND INTERIM REPORT 202009
Directory
REGISTERED OFFICE OF THE MANAGER OF THE FUND – NEW ZEALAND
109 Fanshawe Street
Auckland Central, Auckland 1010
Telephone: +64 9 374 9000
REGISTERED OFFICE OF THE MANAGER OF THE FUND – AUSTRALIA
C/o Fonterra Australia Pty. Ltd.
Level 2, 40 River Boulevard
Richmond, Victoria 3121
Telephone: +61 3 8541 1588
DIRECTORS OF THE MANAGER OF THE FUND
Philippa Jane Dunphy
Kimmitt Rowland Ellis
Andrew Webster Macfarlane
John Bruce Shewan
Donna Maree Smit
COMPANY SECRETARY
Andrew Cordner
SUPERVISOR
The New Zealand Guardian Trust Company Limited
Level 14, 191 Queen Street
Auckland Central, Auckland 1010
New Zealand
AUDITOR OF THE FUND AND THE MANAGER OF THE FUND
KPMG
18 Viaduct Harbour Ave
Auckland 1010
New Zealand
LEGAL ADVISERS TO THE MANAGER OF THE FUND
Chapman Tripp
Level 35, ANZ Centre
23 Albert Street, Auckland 1010
New Zealand
SHARE REGISTRAR – NEW ZEALAND
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna, Auckland 0622
Private Bag 92119, Auckland 1142
Telephone: +64 9 488 8777
SHARE REGISTRAR – AUSTRALIA
Computershare Investor Services Pty. Limited
Yarra Falls, 452 Johnston Street
Abbotsford, Victoria 3067
GPO Box 3329
Melbourne, Victoria 3001
Telephone: 1800 501 366 (within Australia)
Telephone: +61 3 9415 4083 (outside Australia)