Fonterra announces its Annual Results and dividend
Fonterra Co-operative Group Limited
Fonterra Co-operative Group Page 1
Results for Announcement to the Market
Results for announcement to the market
Name of issuer
Fonterra Co-operative Group Limited
Reporting Period 12 months to 31 July 2020
Previous Reporting Period 12 months to 31 July 2019
Currency NZD
Amount (m’s) Percentage change
Revenue from continuing operations $20,282 5%
Total Revenue $20,975 5%
Net profit/(loss) from continuing operations $803 N/A
Total net profit/(loss) $659 N/A
Interim/Final Dividend
Amount per Quoted Equity Security 5 cents per share
Imputed amount per Quoted Equity Security Not Applicable
Record Date 25 September 2020
Dividend Payment Date 15 October 2020
Current period Prior comparable period
Net tangible assets per Quoted Equity
Security
$2.77 $2.01
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
Please refer to the annual financial statements for further
explanation. Net profit/(loss) has moved from a loss in the
previous reporting period of $(122 million), therefore the
percentage change is not meaningful.
Authority for this announcement
Name of person authorised to make this
announcement
Anya Wicks
Contact person for this announcement Anya Wicks
Contact phone number (09) 374 9341
Contact email address anya.wicks@fonterra.com
Date of release through MAP 18/09/2020
Audited financial statements accompany this announcement.
---
18 September 2020
Fonterra announces its Annual Results and dividend
Annual Results Summary
• Final cash payout for 2019/20 season: $7.19 per kgMS
o Final 2019/20 Farmgate Milk Price: $7.14 per kgMS
o 2019/20 dividend: 5 cents per share
• Reported Profit After Tax: $659 million, up $1.3 billion
• Normalised Profit After Tax
1
: $382 million, up $118 million
• Total Group Earnings Before Interest and Tax (EBIT): $1.1 billion, up $1.2 billion
• Total Group normalised EBIT: $879 million, up $67 million
• Total Group normalised gross profit: $3.2 billion, up $200 million
• Total Group normalised operating expenses: $2.3 billion, down $14 million
• Free cash flow: $1.8 billion, up $733 million
• Net debt
2
: $4.7 billion, down $1.1 billion
• Debt to EBITDA ratio: 3.4x improved from 4.4x
• Full year normalised earnings per share: 24 cents
• 2020/21 forecast Farmgate Milk Price range: $5.90 - $6.90 per kgMS. Mid-point of $6.40 per kgMS
• 2020/21 forecast earnings: 20 – 35 cents per share
Fonterra Co-operative Group Limited today announced its annual results, final Farmgate Milk Price of
$7.14 per kgMS and a dividend of 5 cents per share for the 2019/20 season, bringing the final cash
payout for farmers to $7.19 per kgMS.
Fonterra CEO Miles Hurrell says 2019/20 was a good year for the Co-op, with profit up, debt down and a
strong milk price.
“We increased our profit after tax by more than $1 billion, reduced our debt by more than $1 billion and
this has put us in a position to start paying dividends again,” he says.
1
Attributable to Fonterra’s equity holders and includes Continuing and Discontinued Operations.
2
Debt means Economic net interest bearing debt. This measure of debt includes the capitalised amount of operating
leases following changes to accounting standards, and transitioning to this new accounting standard added $581
million to our measurement of debt. However, this was partially offset by the transfer from borrowings to liabilities of
disposal groups held for sale of $266 million of net debt for DPA Brazil and China Farms, as a result of being classified
as Discontinued Operations.
Fonterra Co-operative Group
Page 2
“I’m proud of how farmers and employees have come together to deliver these strong results in a
challenging environment. They have had to juggle the extra demands and stress of COVID-19 and have
gone above and beyond. I would like to thank them for their hard work and support.
“This time last year we were announcing our new strategy and customer-led operating model. We were
clear that to build a sustainable future we needed to focus on three interconnected goals – Healthy
People, a Healthy Environment and a Healthy Business.
“We went on to deliver a strong performance for the first half. However, what none of us could have ever
predicted was what then played out – a world facing COVID-19. The flow-on effects of the pandemic did
impact our performance in the second half, particularly in our Consumer and Foodservice businesses.
“2019/20 proved to be a year of two halves, but we delivered on all four of our priorities:
• We’ve supported regional New Zealand, contributing around $11 billion into New Zealand’s rural
economies through the milk price, and we’ve rethought our approach to community support, with
the aim of helping out more where it’s needed the most – such as, growing the KickStart Breakfast
programme alongside Sanitarium and the New Zealand Ministry of Social Development and
partnering with the New Zealand Food Network to help get dairy nutrition to those that need it the
most.
• We’ve built a great team through a focus on our culture, and we’ve seen that in action in how
we’ve responded to COVID-19.
• We’ve continued to reduce our environmental footprint, including hitting our 2020 target to
reduce energy intensity across our New Zealand manufacturing sites by 20%, from a 2003
baseline – cumulatively, that’s enough energy saved to power all the households in New Zealand
for 1.5 years.
• We’ve achieved our key financial targets with normalised earnings of 24 cents per share, a
Total Group normalised gross profit of $3.2 billion, a $181 million reduction in capital expenditure
and a $1.1 billion reduction in debt so the ratio of Debt to EBITDA has now improved to be 3.4
times our earnings, down from 4.4 times.
“The work we’ve done to strengthen our balance sheet has allowed us to focus on managing COVID-19.
So far, demand for dairy has proved resilient and our diverse customer base and ability to change our
product mix and move products between markets has meant we can continue to drive value.
“We’re at our best when we’re clear on what we need to do, why and how, and the whole Co-op is
focused on it. When I look back on last year, it’s great to see how this clarity has helped us respond to
challenges, adapt and deliver results.”
Business Performance
Total Group normalised EBIT was significantly up on last year from a loss of $17 million to earnings of
$1.1 billion. This includes gains from asset sales, and impairments and costs relating to the strategic
review.
Once these are taken out, the Total Group normalised EBIT, which the Co-operative uses to show its
underlying business performance, was also up from $812 million to $879 million, despite the financial
impact of COVID-19 in many of its markets.
Mr Hurrell says the main drivers of the underlying business performance was a strong normalised gross
profit in the Ingredients business and, although there was the disruption from COVID-19, the strong sales
and gross margins from the Greater China Foodservice business in the first half of the year.
Ingredients’ normalised EBIT improved from $790 million last year to $827 million this year, with
normalised gross profit up $165 million to $1.6 billion.
Fonterra Co-operative Group
Page 3
Mr Hurrell says that at the Co-op’s interim results, the normalised gross profit in Ingredients was relatively
steady.
“As we moved through the second half, we saw restaurants, cafes and bakeries close and intermittent
spikes in supermarket sales, creating uncertainty across the global dairy market. This uncertainty resulted
in softening milk prices, which helped improve the gross margin and gross profit in Ingredients.”
Greater China Foodservice’s normalised EBIT increased from $114 million last year to $169 million this
year.
Mr Hurrell says the business achieved strong year-on-year sales growth in the first half of the year but
was then hit hard by COVID-19 when many food outlets were closed. Normalised gross profit started to
quickly rebound in the third quarter – although he also points out it is still not at 100%.
“We have seen significant growth across the Anchor Food Professional product range in China. We have
entered 50 new cities across China, taking our total to 350, and our products are now not only being used
in Western style restaurants and bakeries but also those serving local cuisine.
“However, as per our guidance in our third quarter business update, our Foodservice businesses across
Asia, Oceania and Latin America were impacted by COVID-19 in the fourth quarter. All three markets
reported losses in the second half.
“Despite this, normalised EBIT for Foodservice overall was up 14% on last year to $209 million, which is a
result of the strong performance by the Greater China business in the first half.
The Consumer business’ normalised EBIT reduced to $149 million from $227 million, mainly as a result of
impairments of $57 million relating to the Chesdale™ brand and New Zealand Consumer business’
goodwill.
Normalised EBIT, excluding these impairments, of the Consumer businesses in Oceania and Asia
improved, despite COVID-19. However, due to civil unrest and market disruptions in Hong Kong and
Chile, the normalised EBIT, after excluding these impairments, of the Consumer business declined 10%.
Mr Hurrell says our Australian Consumer business performed strongly with sales continuing to increase
thanks to its popular beverage, spreads and cheese products.
“Our New Zealand Consumer business focused on improving customer service and keeping supermarket
shelves well stocked, particularly as New Zealanders were stock piling through COVID-19.
“Despite the better performance this year, due to the economic outlook post-COVID-19, our New Zealand
Consumer business’s future cashflow projections are lower than we estimated last year and, as a result,
we have decided to write down its goodwill by $21 million. It now has a total value in our accounts of $699
million.”
Mr Hurrell says, in addition to the improved earnings performance, Fonterra has followed through on its
commitment to financial discipline and this has increased the financial strength of the Co-op.
“Our cash flow has improved and our debt has reduced by 19% or $1.1 billion compared to last year.
Increased earnings, reduced capex, as well as the sale of DFE Pharma and foodspring® for cash
proceeds of $623 million in the first half of the year, have all contributed to this improvement.”
Dividend and Farmgate Milk Price for 2019/20
Fonterra announced a dividend for the 2020 Financial Year of 5 cents per share and final Farmgate Milk
Price for the 2019/20 season of $7.14 per kgMS.
Fonterra Co-operative Group
Page 4
Fonterra Chairman John Monaghan says for a 100% share backed farm, this gave them a final cash
payout of $7.19 per kgMS.
“This year marks a return to paying dividends, a position we expect to maintain in the future, assuming
normal operating conditions.
“At 5 cents per share, the dividend is at the lower end of the 5-7 cent range calculated under the Board’s
dividend policy guidelines.
“In the context of so much uncertainty, as COVID-19 continues to impact our key markets and customer
confidence, distributing a 5-cent dividend is a prudent decision and one that balances our aims of further
reducing debt and distributing earnings.”
Outlook
Fonterra has announced a 2020/21 earnings guidance range of 20-35 cents per share and has also
reaffirmed its 2020/21 forecast Farmgate Milk Price range of $5.90-$6.90 per kgMS.
Mr Monaghan says the impact of COVID-19 is still playing out globally.
“From a Milk Price perspective, the supply and demand picture remains finely balanced and for that
reason we are maintaining our previous forecast range for this season.
“In terms of our earnings, we are forecasting a full year normalised earnings per share range of 20-35
cents per share.
“There continues to be significant uncertainties – including how the global recession and new waves of
COVID-19 will impact demand globally, and what will happen to the price relativities between the products
that determine our Milk Price and the rest of our product range.
“As a result of these uncertainties and given that financial year has just begun, we are giving a forecast
earnings range wider than we usually would.
“We will be monitoring the situation throughout the season and as the year progresses, we would expect
the earnings range to narrow.
“The best way of coping with uncertainty is to stay on strategy and focus on what is within our control –
delivering for our farmers, unit holders and customers, and maintaining our financial discipline.
“We need to stay agile and draw on our strengths across the supply chain to manage and adapt to the
changing global situation.”
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. This reporting
period Fonterra has introduced Total group earnings before tax and Total group normalised earnings before interest and tax non-
GAAP performance measures that present the combined financial performance of the group’s continuing and discontinued
operations.
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
Fonterra Co-operative Group
Page 5
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 45 and 46 and pages 149 to 151 of Fonterra’s Annual Report 2020 that is available on
Fonterra’s website.
-ENDS-
For further information contact:
Fonterra Communications
24-hour media line
Phone: +64 21 507 072
---
ANNUAL
REPORT
2020
T
his year we’ve been given a
reminder of where our strength
lies. It’s in our people being Good
Together and delivering on our purpose,
values and strategy.
We’re a New Zealand co-operative
made up of everyday good people and we’re
at our best when we unite and go all in for
a common purpose.
By focusing on three interconnected goals
– Healthy People, a Healthy Environment
and a Healthy Business – we are able to create
goodness for generations for our farmer
owners, employees, unit holders, customers,
consumers and communities.
Two simple words
that bring together
our purpose, values
and strategy.
Healthy Business
We know the long-term sustainability of our business
is more than just numbers.
Our farmer owners care for the land and their animals.
And they are committed to farming in a way that regenerates
their farms and environment for future generations.
Healthy Environment
Healthy People
People are at the heart of
our co-operative.
What makes for Healthy People? Farmers getting the support
they need to look after their families, their animals and their
land. Employees having the opportunity to do fulfilling work
in a safe and healthy workplace. Customers and consumers
getting safe, nutritious and innovative products. And local
communities receiving support from us where we can,
especially in times of need.
It comes from successfully bringing our people together to do their best work, looking
after our customers and caring for the environment and local communities. It also comes
from challenging ourselves to innovate and do better – pushing ourselves to stay one step
ahead so we unlock greater value for farmer owners, unit holders and customers.
How our people are managing Covid-19 has proven once more that good things come
from being Good Together.
What else has driven our Healthy Business this year? Our relentless focus on doing what
we said we will – delivering on our four priorities for the 2020 financial year: to build
a great team, support regional New Zealand, hit our financial targets and improve our
environmental footprint.
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In New Zealand we have a highly-efficient, pasture-based farming system and because
of this we have one of the lowest on-farm carbon footprints in the world – approximately
one-third of the global average. But we are not stopping there.
In collaboration with others, we are working on innovative solutions to improve water
quality and reduce our carbon footprint even further – like the work we’re doing with the
Department of Conservation to find solutions to protect New Zealand’s waterways, the
actions the Co-op is taking to address climate change and reduce emissions on-site and
on-farm, as well as our efforts to reduce waste across the business.
32
OUR THREE GOALS 2
LETTER FROM THE CHAIR6
Q&A WITH OUR CHIEF EXECUTIVE OFFICER10
A STRONG TEAM RESPONDING TO COVID-1914
OUR YEAR IN REVIEW 16
HEALTHY ENVIRONMENT18
HEALTHY PEOPLE 24
THE CO-OPERATIVE DIFFERENCE32
HEALTHY BUSINESS 40
ANNUAL FINANCIAL RESULTS72
DIRECTORS’ STATEMENT75
FINANCIAL STATEMENTS76
BASIS OF PREPARATION82
NOTES TO THE FINANCIAL STATEMENTS83
INDEPENDENT AUDITOR’S REPORT144
NON-GAAP MEASURES149
GLOSSARY151
S TATUTORY INFOR M ATION152
CORPORATE GOVERNANCE164
BOARD OF DIRECTORS176
MANAGEMENT TEAM178
DIRECTORY181
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 149 for the reconciliation of the NZ IFRS
measures to the non-GAAP measures and page 151 for definitions of the non-
GAAP measures used by Fonterra.
54
Delivering on our
commitments
With that scale comes a greater exposure
to world events. This year, like most others,
our Co-op has had to manage geo-political
events, civil unrest and other non-Covid-19
disruptions in our key markets. Our consumer
businesses in Hong Kong and Chile, for
example, continue to be hit hard by long-
running civil unrest.
Within that context, I’m pleased to
report that the Board has delivered on its
four priorities for the year: delivering the Milk
Price, a return to respectable earnings, the
continued implementation of our strategy, and
governance succession and development.
A RETURN TO
RESPECTABLE EARNINGS
We are not immune to Covid-19, but this year’s
results show the diversity of our earnings,
which has helped us to manage the impact of
the global pandemic.
Consumers have continued to seek out
products backed by our New Zealand milk
and the Ingredients business underpinned
our performance again this year. When
foodservice demand dropped away as a result
of global lockdowns and social distancing
rules, our Consumer business was able to pick
up some of the slack.
Ingredients’ normalised EBIT improved to
$827 million, up 5% on last year. Normalised
gross margins for New Zealand Ingredients
was up to 9.3%. This result benefited from
favourable price relativities between the
products that determine our Milk Price, and
the rest of our product range.
Our Foodservice performance was strong
in Greater China where we had a good start to
the year and the full-year impact of Covid-19
was less than anticipated. Greater China
Foodservice’s normalised EBIT increased to
$169 million, up 49% on last year.
This growth was balanced out by our
Foodservice operations in the rest of Asia,
Latin America and Oceania, which bore the
brunt of Covid-19.
Results in our Consumer business were
also a mixed bag. Hong Kong continued to
suffer from ongoing civil unrest, but our
earnings performance in Oceania and Asia
improved despite the disruption of Covid-19,
after excluding FY20 impairments and
earnings from FY19 divested businesses.
DELIVERING A DIVIDEND
This year marks a return to paying dividends,
a position we expect to maintain in the future,
assuming normal operating conditions.
At 5 cents per share, the dividend is at
the lower end of the 5-7 cent range calculated
under the Board’s dividend policy guidelines.
Under those guidelines, we expect
the dividend payment to be 40-60% of
reported Net Profit After Tax and take into
consideration our current and future Debt
positions. Any abnormal gains, such as a gain
on sale of an asset, are considered separately.
In the context of so much uncertainty, as
Covid-19 continues to impact our key markets
and customer confidence, distributing a 5-cent
dividend is a prudent decision and one that
balances our aims of further reducing Debt
and distributing earnings.
O
ur 2019/20 result is headlined by
a return to sustainable earnings,
with the Co-op posting total
normalised earnings of $398 million,
up $123 million on last year.
With these improved earnings and a
stronger balance sheet comes a return to
paying a dividend, which was one of the four
Board priorities this year.
This year’s dividend payment of 5 cents
per share and final Farmgate Milk Price of
$7.14 per kgMS means the total payout for
a fully share-backed farmer was $7.19 per
kgMS, the fourth highest for the Co-op.
These results show that the core of
our strategy will deliver – even amid a
global pandemic.
Cultural change has been a focus for our
Co-op’s leadership over the past two years.
We can see that improvement reflected in
the numbers, particularly our overall Debt
1
which reduced by $1.1 billion in a single
year. In the past 2 years, we have reduced
overall Debt by $1.5 billion.
Across the Co-op, our people have been
calm and considered when responding to
the new challenges that Covid-19 creates on
a daily basis. We have stayed focused on our
core business and delivered what we said
we would, rather than let Covid-19 be an
excuse to veer away from strategy.
Our international scale is one of the
Co-op’s key strengths. Our people have
worked hard to leverage that scale, shifting
our New Zealand milk into the products
and places where we can earn the highest
possible value under the circumstances.
“
Our international scale is one of the
Co-op’s key strengths. Our people
have worked hard to leverage that
scale, shifting our New Zealand milk
into the products and places where
we can earn the highest possible
value under the circumstances.
JOHN MONAGHAN
CHAIR
1 Economic net interest-bearing debt.
Fonterra Annual Report 2020
76
Letter from the Chair
Share price up 1.6% year/year*
$
3.82
**
*For the period 31 July 2020
**Fonterra Co-operative Group
Limited (FCG) share price as at 31 July 2020
CONTINUING THE
IMPLEMENTATION OF
OUR STRATEGY
The Board continues to refresh the
Co-op’s risk appetite statement alongside
refinements to our strategy and with a view to
sustainable growth.
We have developed a more conservative
approach to risk across the business, be it
our balance sheet, investment decisions and
general business operations.
It is a critical piece of work that gives us a
much clearer view of the risk adjusted return,
particularly for offshore investments, before
we make our investment decisions.
We have also continued to review
our asset base in line with our strategy.
Within the financial year we completed
the earlier announced sales of DFE Pharma
and foodspring® with cash proceeds of
$623 million.
Despite its improved earnings
performance this year, we have looked at
the future cash flow projections for our
New Zealand Consumer business and made the
call to write down that business by $21 million.
Our Fonterra-owned China farms made
a modest EBIT of $11 million this year, but
we have also written down those assets,
along with our joint venture farm. Continued
geo-political tensions in Latin America have
impacted our DPA Brazil business and as a
result, that asset has been impaired.
The total impact of write downs in the
financial year was $289 million.
We measure the success of our strategy
in three buckets: healthy people, healthy
environment and a healthy business.
We have made good progress in all three
areas, including a 20% reduction in energy
intensity from our 2003 baseline at our
New Zealand manufacturing sites. There is
more work to be done in all three areas if we
are to meet our long-term commitments.
STABLE GOVERNANCE
SUCCESSION AND
DEVELOPMENT
In June, the Board selected Peter McBride as
our Chairman-elect as part of our commitment
to planned governance succession. The early
announcement was designed to provide Miles
and his leadership team with the stability and
confidence to push on with embedding our
strategy and cultural change. Since June, Peter
and I have worked together closely to ensure
there is no disruption to the Co-op when he
takes over the reins at the Annual Meeting
in November.
Holly Kramer joined our Board in April
as an independent director. Holly fills the
position left by Simon Israel who retired
in November 2019. Farmers will be asked
to ratify Holly’s appointment at the 2020
Annual Meeting.
DELIVERING FOR FUTURE
GENERATIONS – THE OUTLOOK
FOR THE 2021 FINANCIAL YEAR
AND BEYOND
Looking to the 2021 financial year, there is a
high level of uncertainty as to how the global
recession and new waves of Covid-19 will
impact demand globally. It is something the
Co-op will be monitoring closely throughout
the season.
The best way of coping with uncertainty is
to stay on strategy and focus on what is within
our control – our financial discipline and cost
of quality for example.
We need to stay agile and draw on our
strengths across the supply chain to manage
and adapt to the changing global situation.
From a Milk Price perspective, the supply
and demand picture remains finely balanced
and for that reason we are maintaining our
forecast Farmgate Milk Price range of $5.90 -
$6.90 for the 2020/21 season.
In terms of our earnings, we are
forecasting a full year normalised earnings
per share range of 20-35 cents per share. This
earnings range assumes a number of factors
working in our favour, including that there
is no heightened disruption from Covid-19
over what we currently face, and an improved
trading performance driven out of Asia and
Greater China.
Further out, the future of our Co-op
is exciting.
We were match fit when Covid-19
struck, with a new strategy, structure, and
culture. That has us well positioned to come
out the other side where there will be new
opportunities for us.
We’re in the business of food, and it’s an
exciting industry to be a part of. Food trends
are constantly changing, there’s a lot of energy
around new product development, and there’s
new and emerging markets in most parts of
the world.
The provenance and quality behind
New Zealand dairy will remain sought after
internationally. People will always pay for
quality, and we produce what I believe is the
best milk in the world.
Finally, on a personal note, I’d like to thank
the 10,000 farming families that jointly own
our Co-op for their loyalty and support. It
has been a privilege to be part of this Co-op’s
leadership, and its Chairman for the past
two years.
As a Fonterra governor I’m retiring out to
the back paddock, but I remain an active and
proud farmer-owner of this great Co-op.
7ÃWRXWÃWRX
<RX0H8VWRJHWKHU
JOHN MONAGHAN
CHAIR
Farmgate Milk Price
for the 2019/20 season
$
7. 14
per
kgMS
Dividend
5
cents
per share
New Zealand milk collections
for the 2019/20 season
1,517
million
kgMS
Fonterra Annual Report 2020
98
Letter from the Chair
How is the Co-op handling Covid-19?
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How have farmers and employees
come through a tough year?
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Has the Co-op hit its
performance targets?
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Q&A with our
Chief Executive
Officer
Miles Hurrell answers key questions on the Co-op’s performance,
the year ahead and the task of responding to Covid-19.
What are the main reasons for the
lift in the Co-op’s financial performance?
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“
It’s a tough environment for every
market, industry and business
right now. We’ve all felt the impact
of Covid-19. For the global dairy
market Covid-19 has brought
increased volatility and uncertainty.
But despite this, Fonterra has
performed well and delivered both a
strong milk price and good earnings.
MILES HURRELL
CHIEF EXECUTIVE OFFICER
1 Free Cash Flow is the cash flow that is available to pay interest, dividends and Debt. It is calculated as
net cash flows from operating activities plus net cashflows from investing activities.
Fonterra Annual Report 2020
1110
Q&A with our Chief Executive Officer
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Are you comfortable with the Co-op’s
Debt levels?
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How has the Co-op contributed
to New Zealand?
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Profit After Tax
$
659m
Up $1.3 billion
Debt down
$
1.1 billion
Total Group Normalised EBIT
$
879m
Up $67 million
Free Cash Flow
$
1.8 billion
Up $733 million
What has Fonterra done to reduce
its impact on the environment?
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What are your priorities for 2020/21?
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“
The Co-op is well aware
of the difference we can
make for New Zealand
when we get it right. One
of the biggest ways we
contribute to the economy
is through milk price
payments – that’s us
working hard every day to
get the best price for our
farmers’ milk. It makes me
feel good to be part of a
Co-op, that in the 2019/20
year, contributed around
$11 billion to New Zealand’s
rural economies.
2 Off a 2003 baseline.
Fonterra Annual Report 2020
1312
Q&A with our Chief Executive Officer
T
he impact of Covid-19 has been felt in
every region and market we operate
in, and as a result the global dairy
market has been volatile and the outlook
continues to be uncertain.
Despite the challenges, farmers and
employees have come together as one team to
keep our business running and supply chains
operating. Farmers have relied on us to pick
up and process their milk, and our customers
have counted on us to deliver.
The work done over the last year to
strengthen our balance sheet, and the Co-op’s
ability to respond quickly, has helped us focus
on the Covid-19 situation.
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In February, our Foodservice business in
China was hardest hit, as restaurants, cafes
and bakeries closed due to lockdown. Once
restrictions eased, and cities opened up again,
demand in the sector came back reasonably
quickly as our Foodservice customers looked
to make up for lost sales volumes, although it
is still not at 100%.
Having people on the ground in China was a
huge benefit for us as we were able to get early,
first-hand insights into what was happening.
Our teams were flexible and adaptable and
were prepared to try new ways of doing things.
For example, our teams weren’t able
to visit customers during lockdown so they
quickly set up virtual training sessions and
livestreams. Our Anchor Food Professionals
TM
chefs demonstrated to customers and
consumers how to cook recipes with our
butter and cheese. Almost three million
viewers tuned in – many of these were new
business leads. Normally these sorts of
sessions take a while to create, set up and
execute but our team turned them around in
a matter of days. And all while juggling the
stress and extra pressures of a lockdown.
When one of our medical nutrition
customers put in an urgent request for
more hydrolysate, a fast absorbing whey
protein used to provide nutrition for patients,
including those suffering from Covid-19
in the US, our teams quickly rallied to find
a way to extend production by one month
to fill the request.
But acting quickly to keep our business
going was not the only focus for our teams.
They also took the initiative to help local
communities as much as they could.
With hand sanitiser in short supply in
New Zealand, our Co-op redirected two
million litres of ethanol for use in sanitiser
production by working with our customer,
Gull, as well as increasing production.
We also recognised we could help
our small and medium sized vendors in
New Zealand with cash flow, and have
accelerated payments to eligible vendors so
A strong team
responding to
Covid-19
As an essential business, our
teams have drawn on all their
strengths to keep the Co-op
going. We’re incredibly proud of
how our people around the world
have pulled together to support
each other and ensure our
operations are continuing to run.
It showed us what being Good
Together is all about.
they’re paid within 10 days of invoice, instead
of the standard 20th of the month term.
In Thailand, with department stores closed
and sales of Anlene MovMax impacted, our
local team saw an opportunity to donate
Anlene MovMax UHT products to healthcare
professionals who needed support.
And in New Zealand, with schools closed
around the country, our teams moved quickly,
partnering with various charitable groups to
redirect nearly one million serves of Anchor
milk from our in-school programmes to
communities who needed it.
Covid-19 has
shown the
character of
our people and
resilience of
our business.
Meeleissssaa
Syed
BhaBhavisvisha ha & N& Netaeta
To nTo neeee
Maria &&& Shilpaa
GGreGg
15
A strong team responding to Covid-19
Fonterra Annual Report 2020
14
JAN 2020
• We announce our
Te Awamutu site
will be coal free
next season
• We complete
the sale of our
50% share of
DFE Pharma and
foodspring® with
cash proceeds of
$623 million
• We extend MyMilk
to the North
Island, making it
easier for farmers
to join and grow in
the Co-op
• Our business in
China impacted by
Covid-19 outbreak
FEB 2020
• New Zealand
faces significant
weather
disruption with
floods in the South
Island and drought
conditions in the
North – our Co-op
offers support
MAY 2020
• 2019/2020
forecast Farmgate
Milk Price
narrowed to $7.10 -
$7.30 per kgMS
• 2020/21 opening
season forecast
Farmgate Milk
Price announced
at $5.40 - $6.90
per kgMS
APR 2020
• Fraser Whineray
starts in role as
Chief Operating
Officer
e
0 -
JUN 2020
• We announce
a Co-operative
Difference Payment
of up to 10 cents
per kgMS for
farms that meet
sustainability and
value targets
• We accelerate
payments for
eligible small to
medium-sized
New Zealand
businesses so
they’re paid within
10 days from the
receipt of invoice
• Peter McBride
selected as
Chairman-elect
NOV 2019
• Our reformulated
Fresh ‘n Fruity
yoghurt, with 40%
less added sugar,
hits supermarket
shelves in
New Zealand
• Celebrate 10
years of KickStart
Breakfast
•
•
OCT 2019
• Celebrate five year
anniversary of
Farm Source
• 2019/20 forecast
Farmgate Milk
Price range
revised up to
$6.55 - $7.55
per kgMS
MAY 2019
• 2019/20 season
opens with a
forecast Farmgate
Milk Price of $6.25 -
$7.25 per kgMS
AUG 2019
• We announce
our intention to sell
a portion of our
stake in Beingmate,
which we view
as a financial
investment only
• We announce the
decision not to pay
a dividend due to
significant
write-downs
ent
n
JUL 2020
• We launch
Simply Milk
New Zealand’s
first carbonzero
milk in partnership
with Foodstuffs
North Island
• 2019/20 forecast
Farmgate Milk
Price revised down
to $7.10 - $7.20
per kgMS
• 2020/21 forecast
Farmgate Milk
Price revised up to
$5.90 - $6.90
per kgMS
Our year
in review
Looking back at some of the big moments across our business over the last year.
h
ht
p
•
MAR 2020
• After completing
strategic reviews
of China Farms
and DPA Brazil,
we announce that
sales processes for
both assets are well
under way
• New Zealand
goes into Covid-19
Alert Level 4
lockdown. Our
Co-op continues
to operate as an
essential business
• Chairman John
Monaghan confirms
he will retire at the
Annual Meeting
in November
• Carly Robinson
appointed as
Director, Office
of the CEO
•
•
•
•
%
DEC 2019
• Teh-han Chow
is appointed as
our interim CEO
Greater China
• We are awarded
the Rainbow Tick
for commitment
to diversity in the
workplace
• We purchase
minority interest
in Prolesur, taking
our ownership of
the Chilean milk
processor from
86.2% to 99.9%
• 2019/20 forecast
Farmgate Milk Price
revised up to $7.00 -
$7.60 per kgMS
•
•
e
5 -
ell
e,
y
SEP 2019
• WE OUTLINE
OUR NEW
STRATEGY AND
MOVE TO A
CUSTOMER-LED
OPERATING
MODEL
• We announce
the closure of our
Te Roto site to
consolidate our
specialty cheese
making facilities at
our Eltham Bridge
Street site
• We announce that
six New Zealand
manufacturing
sites in water
constrained
regions will reduce
their water use by
30% by 2030
Fonterra Annual Report 2020
1716
Our year in review
K
DRUDWHZKHQXDNDRUDWHWÃQJDWD
When the land is well, the people
will thriYH
It is the land that protects and sustains us. The
land gives us our unique dairy goodness that
we share with people around the world.
By looking after land, water and animals,
and using resources wisely, we are finding a
path to regenerate the environment. It’s all
part of our transition to a more sustainable
way of dairying.
We are working together to achieve a healthy
environment for farming and society.
* Compared to last year
Greenhouse Gas Emissions (GHG)*
1.9
%
Reduction in GHG emissions
from our global manufacturing sites.
Water Use*
6.4
%
Reduction in water use at our manufacturing
sites in water-constrained regions.
Solid Waste*
970 tonnes
Reduction in solid waste to landfill
from our global operations.
Fonterra Annual Report 2020
1918
Healthy Environment
“
The individual greenhouse
gas reports will provide
farmers with insight and
understanding about
what is happening on
farm. It will help farmers
identify any strengths and
weaknesses and allow
them to prioritise their
next improvement steps.
ANDREW KEMPSON
ENVIRONMENT
PROGRAMME LEAD
Switching to renewable energy
We are also moving to energy sources which
produce less GHG emissions and reducing our
reliance on fossil fuels such as coal. We are
taking a staged approach to renewable energy
and this year we took a significant step with
the conversion of our Te Awamutu site from
coal to wood pellets.
In New Zealand, wood biomass is a by-
product of forest harvesting and processing,
making it a good low-carbon alternative
to coal.
It’s estimated that once fully operational,
this change at our Te Awamutu site will reduce
our GHG emissions by around 84,000 tonnes
per year, equivalent to taking around 32,000
cars off New Zealand roads and taking a
big step towards our target of 30% reduction
by 2030.
Helping farmers reduce on-farm
emissions
New Zealand farmers are already some of
the most carbon-efficient in the world, so
making significant further improvements
isn’t easy. The agriculture sector will need
a comprehensive package of activities to
address the challenge, and some are not yet
technically or commercially viable.
For now, the main improvements our
farmers can deliver will continue to come from
adopting good management practices on-farm
such as being efficient with feed and fertiliser,
having the right number of cows for the
specific area of land, reducing cow replacement
rates and ensuring good animal health.
To support our farmers, we have been
collaborating on the development of farm-
specific greenhouse gas reporting. Following
a successful pilot, we are now finalising the
reports, which will be sent to farmers by
October 2020.
HOW WE ARE TRANSITIONING
TO LOW-CARBON
Improving energy efficiency
We’ve delivered on our target to improve
energy efficiency in our New Zealand
manufacturing sites from our 2003 baseline
by 20%. Improving energy efficiency in our
manufacturing operations remains a top
priority. Not only does it directly reduce our
greenhouse gas (GHG) emissions, it makes
commercial sense and it helps with our
transition to lower carbon fuels.
Hitting our 2020 energy efficiency target
is a significant milestone – cumulatively, since
2003, that’s enough energy saved to power all
the households in New Zealand for 1.5 years.
HOW FONTERRA IS MAKING THIS HAPPEN
,PSURYLQJWKHKHDOWKDQGELRGLYHUVLW\RIRXUODQGDQGZDWHUZD\Vby having a
regenerative mindset, reducing the impacts of farming and manufacturing, and working in
partnership with others.
/HDGLQJWKHWUDQVLWLRQWRDORZFDUERQIXWXUH by investing in innovation and infrastructure
to reduce greenhouse gas (GHG) emissions from our supply chain.
0HHWLQJJURZLQJQXWULWLRQDOQHHGVthrough improvements in productivity and minimising
waste from farm to consumer.
FY20 DELIVERY – KEY ITEMS:
34% of our farms in New Zealand now have Farm Environment Plans
Switching from coal to wood pellets at our Te Awamutu site
Finalising farm-specific greenhouse gas reports
KEY GLOBAL TARGETS:
Reduce greenhouse gas emissions by 30% by 2030
Reduce water use at sites in water constrained regions by 30% by 2030
Zero solid waste to landfill by 2025
Caring for the land today, so the land cares for us tomorrow
7LDNLQDWHZKHQXDLWÕQHLUÃKHLRUDQJDWDQJDWDPďQJÃUÃHKHNHPDLQHL
GOAL ACHIEVED
THE UN SUSTAINABLE DEVELOPMENT GOALS
WE ARE CONTRIBUTING TO
“
Achieving our energy efficiency goal has involved hundreds
of projects and a daily focus from hundreds of staff over
the years. Projects have ranged from changing how we run
equipment, retro-fitting heat recovery systems, through to
building new efficient factories.
LINDA THOMPSON
SUSTAINABLE ENERGY & UTILITY MANAGER
Fonterra Annual Report 2020
2120
Healthy Environment
REDUCING OUR
ENVIRONMENTAL FOOTPRINT
Prioritising on-farm improvements with
Farm Environment Plans
Helping farmers establish a Farm Environment
Plan (FEP) and build on their good farming
practices is how we can make the biggest
difference on-farm in areas such as water
quality, soil health and biodiversity. Each FEP
is unique and includes a detailed map of the
farm, identifying areas of existing strengths
and also improvement areas for action.
One of our Sustainable Dairying Advisors
visits the farm and works with the farmer, to
consider things such as the risk of nutrient
or soil loss into waterways, maintaining
soil structure, protecting biodiversity and,
where applicable, the efficient management
of irrigation systems. 34% of our farms in
New Zealand now have an FEP. Our aim
is for every New Zealand farm to have
an FEP by 2025.
Collaborating on catchments
Protecting and regenerating the
environment in our local communities is not
something we can do on our own. It takes a
collaborative effort.
Living Water is our 10-year partnership
with the New Zealand Department of
Conservation that brings together farmers,
scientists, councils, communities and Mana
Whenua to identify game-changing and
scalable solutions that will enable farming and
freshwater ecosystems to thrive side-by-side.
It is focused on five key catchments, which all
have ecological significance, as well as being in
important dairying regions.
An example of the work we’re doing is in
the Waituna catchment where we have been
investigating applying fertiliser in a targeted
way. Fine particle application is a method
of applying less fertiliser which potentially
reduces its impact on freshwater and saves
farmers money. This year we commissioned
AgResearch to complete a review of data from
250 field trials around New Zealand. Their
analysis found the results were promising and
worth pursuing further. We are now looking
at the next steps that would be required
to make this approach more widely available
to farmers.
Beyond the five Living Water catchments
we’ve been working with iwi and local
stakeholders across New Zealand. For
example, recognising the important role
wetlands can play in improving water quality,
we have worked with the Waikato and Hawke’s
Bay Regional Councils and Landcare Trust to
assess feasibility, and demonstrate and help
landowners to reinstate wetlands.
Improving water efficiency
Water is a precious resource and we’re
committed to using it wisely.
Aligned with best-practice thinking,
our water efficiency target prioritises
improvements where water is potentially
constrained. This year we reduced water use
at our sites in water-constrained regions by
6.4%, which is a 3.1% reduction against our
2018 baseline and a significant step towards
our target of a 30% reduction by 2030.
Our Stanhope site in Australia delivered
most of the improvement, installing
new treatment infrastructure which has
significantly reduced the water it uses.
Responsible use of water is important
for all our manufacturing sites, even where
there is water abundance and overall across all
sites our water use was down by 3.7% on the
last financial year. That’s almost two billion
litres of water saved, which is equivalent to
more than 750 Olympic-sized swimming pools.
Reducing waste to landfill
We aspire to play our part in achieving ‘zero
waste’ and last year we set a new target for our
direct operations of sending zero solid waste
to landfill by 2025. With a collective effort
around the world, this year we have achieved a
reduction of 970 tonnes.
At our Takanini site, working with
Adhesifs, we have eliminated 33 tonnes of
solid waste. The backings from the labels we
use on large volume products are now turned
into tissue paper.
In Indonesia, we worked with our waste
contractor to change processes and the team
now segregates all paper, plastic and food
waste on site, achieving a 98% reduction
(194 tonnes) for the year.
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of supplying farms in New Zealand
now have a Farm Environment Plan,
up 23% from the start of the year
34
%
Fonterra Annual Report 2020
2322
Healthy Environment
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That means looking after our team’s safety
and wellbeing, providing employees with
motivating work opportunities and playing a
role in supporting local communities.
It’s also about helping people live
healthier lives through the goodness of dairy.
The nutrients in dairy play an important
role in growing and maintaining healthy bones,
immunity, the functioning of your nervous
system and so much more.
There’s also power in some of
the individual components of milk in
helping manage and recover from injuries
and illnesses.
We often talk about the untapped
potential of milk because our scientists are
finding new benefits from dairy all the time –
we’ve only scratched the surface.
What is the most important thing in the world?
It is people, it is people, it is people.
+HDKDWHPHDQXLRWHDR"
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Healthy People
24
25
Fonterra Annual Report 2020
Lisa & Gordon, Darfield
WORKING WITH FARMERS
Farm Source
TM
, the Co-op’s farmer-facing
team, marked their fifth year of working to
help make farming easier by lowering on-
farm costs, providing on-farm support and
advice, and giving back to communities. Since
Farm Source
TM
began, we’ve returned more
than $160 million in Farm Source
TM
dollars,
discounts and deals to farmers.
When Southland faced the worst floods
in 30 years, teams across the Co-op came
together to help farmers and the local
community. Initially, teams worked alongside
emergency services, and then Fonterra’s
Farm Source
TM
team and the Edendale site’s
Emergency Response Team went out on
farm to help clear debris, repair fences and
get farms up and running again.
CARING FOR CONSUMERS
We’ve reduced the amount of added sugar by
40% in Fresh ‘n Fruity yoghurt and 30% in our
Anchor CalciYum. This is another step towards
our goal of having 100% of our everyday and
advanced products meet our independently-
endorsed nutritional guidelines by 2025.
HOW FONTERRA IS MAKING THIS HAPPEN
3URYLGHSRVLWLYHHPSOR\PHQWIRURXUSHRSOHby promoting a safe and healthy working
environment and developing a diverse, skilled and agile workforce.
$GGUHVVSXEOLFKHDOWKFKDOOHQJHVby improving the nutritional profile of our products and
promoting healthy diets.
,PSURYHWKHKHDOWKRIRXUFRPPXQLWLHVby doing business in the right way, sharing what
we do best and playing our part to build resilient, sustainable communities.
FY20 DELIVERY – KEY ITEMS
Create a culture that empowers our people
Shift to customer-led operating model
Support communities through nutritional programmes
KEY GLOBAL TARGETS
World-class injury prevention
World-class engagement
2022: 50% female representation in senior leadership
2025: 100% product portfolio meeting endorsed nutrition guidelines
GOAL ACHIEVED
“
We know when we embrace
different perspectives, we’re
more innovative, make
better decisions and improve
performance. There’s also
a growing body of research
indicating that diverse and
inclusive teams outperform
their peers.
HAYLEE PUTARANUI,
HEAD OF DIVERSITY
AND INCLUSION
Caring for people is at the core of our Co-operative.
CARING FOR OUR PEOPLE
We want all Fonterra people to go home from work safely every day. Unfortunately, this year our
injury frequency rate has risen to 5.8, up from 4.9 last year. The number of serious harm injuries
has significantly reduced, down 44% on last year. Overall, since 2010, our injury frequency rate
has reduced 68%. Any work-related injury is one too many for us. As a result, we continue to look
at ways to improve how we keep our people safe.
,QGLFDWRU7DUJHW3HUIRUPDQFH
FY18FY19FY20
Work-related fatalities
(attributable to Fonterra –
staff, contractors, on-site
public)
Zero harm010
Total recordable injury
frequency rate (TRIFR per
million work hours)
World class for
our industry
group (<5)
6.14.95.8
Number of serious harm
injuries
Zero harm141810
During Covid-19, the Co-op moved quickly to keep employees safe, cancelling all face-to-
face meetings and domestic and international travel prior to New Zealand going into Alert Level
4 lockdown. As countries went into lockdown, strict social distancing and Personal Protection
Equipment (PPE) guidelines were put in place globally to protect our essential workers and we had
a dedicated IT team working around the clock to keep our systems running as all other employees
worked from home. The Co-op has continued to keep health and safety measures in place and will
continue to do so until we are confident employees won’t be at risk.
Diversity in the work place is important to Fonterra, which is
why we’re proud to have been awarded the Rainbow Tick this year.
CARING FOR COMMUNITIES
We celebrated 10 years of providing valuable nutrition to Kiwi kids through KickStart Breakfast.
In partnership with the Ministry of Social Development and Santarium, over 1,000 schools are
involved and more than 30,000 children attend a KickStart Breakfast Club every school day.
When schools closed after New Zealand went into Covid-19 lockdown, we switched our
focus and redirected nearly one million serves of Anchor milk from our Fonterra Milk for Schools
programme to those in the community most in need.
less added sugar
30
%
40
%
KidKididds esenjonying g KKggickickStaStatatatataaartrtrtttrt rrBreBakfastt
THE UN SUSTAINABLE DEVELOPMENT GOALS
WE ARE CONTRIBUTING TO
Fonterra Annual Report 2020
2726
Healthy People
DELIVERING MORE THAN MILK
When New Zealand’s Northland community
was struggling with drought earlier this
year, our Northland team stepped in to
lend a hand.
Water deliveries were built into milk
collection schedules so our tanker drivers
could drop off water on their way up to
collect milk from farms in the Far North.
Our teams in Northland worked with the
local regional council to help deliver water
to the towns of Kaikohe, Kaitaia, Rawene
and Dargaville, delivering more than
200,000 litres of water.
But the work didn’t stop there. Our
Co-op’s Waitoa tanker team also got a call
up from Civil Defence when the township of
Waihi, in New Zealand’s Hauraki District, ran
dry after a burst water main – the team was
more than happy to lend a hand.
“
While our priority is and always will be collecting farmers’
milk, it’s really important that we step up and help
communities in their time of need wherever possible.
BARRY MCCOLL,
GM NATIONAL TRANSPORT AND LOGISTICS
SHIFTING TO A CUSTOMER-
LED OPERATING MODEL AND
BUILDING A GREAT TEAM
This financial year has been all about
delivering on our new strategy, and one of
the first things we did was shift to a new
customer-led operating model and focus on
building a great team.
We made this change because our future
is no longer about volume. Instead, it’s about
prioritising New Zealand’s unique milk and
growing its value, which means we need to
understand our customers in ways we haven’t
in the past.
We now have three customer-facing
businesses: Asia Pacific (APAC), Greater
China, and Africa, Middle East, Europe, North
Asia, Americas (AMENA). Having teams on
the ground gives us early insights into what’s
happening in market, and during Covid-19 this
was invaluable. Our teams were able to work
closely with customers to understand how
Covid-19 was impacting their businesses, and
in turn, what we could do to support them.
In addition to having the right
organisational structure to deliver on our
strategy, we recognised our teams needed
to be 100% clear on what was expected
of them. That’s why we introduced Good
Together – two simple words that remind us
that every day we have to be contributing to
our purpose, living our values and delivering
on our strategy. During Covid-19, the power
of Good Together really shone through
as our teams pulled together to keep the
business running, care for each other and help
local communities.
200,000
litres of water delivered to help with
Northland drought
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Fonterra Annual Report 2020
2928
Healthy People
New Zealand Dairy Industry Awards
Fonterra Responsible Dairying Award
New Zealand Dairy Industry Awards
23 of the 33 regional titles were won by
Fonterra farmers, with three national titles
going to Fonterra farmers.
Nick and Nicky Dawson
Hawke’s Bay farmers Nick and Nicky Dawson
won the 2020 Fonterra Responsible Dairying
Award, receiving the 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.
Officer of the New Zealand Order of Merit
Tony Wilding
South Waikato farming stalwart Tony Wilding was
recognised for his services to the dairy industry
and the community. Tony has made a significant
contribution to conservation and agricultural
education, and was a driving force behind fairer
sharemilking arrangements.
Member of the New Zealand Order of Merit
Dr Jeremy Hill
Chief Science and Technology Officer Dr Jeremy Hill
was recognised for his services to the dairy industry
and scientific research. Jeremy has worked for
Fonterra and its predecessors for over 30 years, and
is internationally recognised for his dairy research,
having published more than 100 works.
Fonterra Dairy Woman of the Year
Ash-Leigh Campbell
Ash-Leigh Campbell was named 2020 Fonterra Dairy
Woman of the Year. The 28-year-old Farm Manager
KDVEHHQZRUNLQJIRU1JÃL7DKXɆV6RXWK,VODQGIDUPLQJ
operation for more than three years. She is also Chair of
the New Zealand Young Farmers Board and a previous
$KXZKHQXD<RXQJ0ÃRUL)DUPHU$ZDUGILQDOLVW
Officer of the New Zealand Order of Merit
Dr Harvey Indyk
Senior Research Scientist Dr Harvey Indyk was
recognised for his services to analytical research and
the dairy industry, having developed techniques which
allow scientists to accurately measure the levels of
vitamins in milk.
New Zealand Champion of Cheese
Sam Pokaitara (right)
Lichfield’s Brine Salt Cheese Process Project Manager
took out this year’s supreme award after receiving the
highest aggregate score across the three cheeses he
entered for judging. Sam says the secret to making
the best cheese is top quality milk and experienced
operators who know what they’re doing.
'DLU\0DQDJHURIWKH<HDU –
Bay of Plenty’s Andre Meier,
Farm Manager on Ao Marama
Farms 250ha Te Puke property,
milking 800 cows.
6KDUH)DUPHUVRIWKH<HDU –
Waikato’s Sarah and Aidan
Stevenson, 50/50 sharemilking for
Sue Williams on her 100ha, 330-
cow Ngarua property since 2013.
'DLU\7UDLQHHRIWKH<HDU –
Waikato’s Grace Gibberd,
Farm Assistant on the DairyNZ
115ha property at Newstead,
milking 360 cows.
© – Stuff
This year, farmers and employees have done us proud, taking home several
national and regional titles, while three were recognised in the Queen’s
New Year and Birthday Honours list.
Farmer and
employee spotlight
Fonterra Annual Report 2020
3130
Healthy People
T
he Co-operative Difference is part
of our Co-op’s strategy to add
more value to New Zealand milk
and respond to increasing demand from
customers here and around the world for
sustainably produced dairy.
It supports farmers to produce high-
quality, sustainable milk by making it easier
for farmers to understand what is expected
today and what they need to prepare for in
the future. It also celebrates those who go
the extra mile to make our Co-operative
more sustainable.
)URP-XQHIDUPVPHHWLQJRQ
IDUPVXVWDLQDELOLW\DQGYDOXHWDUJHWV
ZLOOEHHOLJLEOHIRUDQHZ&RRSHUDWLYH
'LIIHUHQFH3D\PHQWRIXSWRFHQWV
SHUNJRIPLONVROLGV
HOW THE CO-OPERATIVE
DIFFERENCE HELPS
• Brings together existing on-farm
requirements and makes them
easier to understand.
• Ensures standards are clear, making it
easier for farmers to create the highest-
quality milk.
• Recognises farmers who go beyond these
standards to produce the highest quality
milk, care for their animals, protect the
environment, support their people and
community, and engage in our Co-op.
• Keeps farmers informed and up-to-date
about future changes so they can prepare
for them.
• Saves time by streamlining reporting
and auditing, minimising duplication and
helping our Co-op protect its market
position, strengthen its sustainability
claims and drive demand for products
that customers value most.
• Supports farms wanting to
improve by providing tailored,
industry-leading support.
Milk
5,029
FARMERS HELPED CREATE
goodness for generations by delivering
Grade Free milk with an average Fat
Evaluation Index of A or better and an average
somatic cell count of 150,000 or less for at
least 3 months of the season.
Co-operative &
Prosperity
4,144
*
FARMERS
recognised as actively engaged members of
the Co-operative contributing to the long-
term value of New Zealand.
Animals
4,571
*
ANIMAL HEALTH PLANS
helping farmers to care for
their cows. These are developed
alongside vets and are reviewed
at least every year.
People &
Community
6,332
*
HEALTH & SAFETY PLANS
keeping hardworking and passionate
people safe and well on farm.
Environment
6,551
**
FARM ENVIRONMENT PLANS
helping farmers care for the land and
waterways by reducing greenhouse gas
emissions, recycling waste and making the
most of the precious resources we use to
create nutritious milk.
Progress this year
The Co-operative Difference pulls together the best of what we do into five key focus areas.
843
Te Puku
“THE MID POINT”
SIX MONTHS
FARMERS
ACHIEVED LEVEL 2
949
Te Tihi
“THE SUMMIT OF THE MOUNTAIN”
FOR THE ENTIRE SEASON
ACHIEVED
LEVEL 3
893
Te Pūtake
“THE START OF THE JOURNEY”
THREE MONTHS
FAR MS
ACHIEVED LEVEL 1
Working together for a strong and sustainable Co-op.
ScoScoooScoScScoScotttt,tttttttttttt,t,tttKKeKeKKKKeKKerryrryrryyrrryrr& & &RRodRodRoRRoodnnnneyneyeeyneyneyyyyyyCC, CCCC, C,C, C, C, ,aaantnntaaerberbrbbbberbrburyuryuryuryuryuryuryyury
IN ORDER TO PRODUCE SAFE,
SUSTAINABLE DAIRY PRODUCTS
THERE ARE SOME THINGS THAT
WE CAN NEVER AFFORD TO
COMPROMISE ON.
That's why we'll always:
• Meet the requirements of our regulators
• Comply with all market access
requirements overseas
• Produce safe, high-quality milk
• Look after our people, animals and
the environment.
We call this "Our Core"
Once the Core foundations are met, our
farmers can grow further through three levels
of achievement. To make it simple, we use
the analogy of a journey up the mountain
to reach greater things. Each level brings
additional recognition.
* This data is self-reported by farmers and is then verified by Fonterra’s independent on-farm auditors. The auditing process is currently underway.
** Includes farms with FEPs in the pipeline.
Fonterra Annual Report 2020
3332
The Co-operative Difference
REWARDING SUSTAINABLE,
HIGH VALUE MILK
Farmers producing sustainable, high-quality
milk will be eligible for a new payment.
From June 2021, we’re introducing a
Co-operative Difference Payment of up to
10 cents per kilogram of milk solids (kgMS)
if the farm meets the Co-op’s on-farm
sustainability and value targets.
It’s part of our Co-op’s strategy to add
value to New Zealand milk and respond to
increasing demand from customers here
and around the world for sustainably-
produced dairy.
The more a farmer achieves in
The Co-operative Difference programme,
the higher the payment will be.
ONE-THIRD OF FARMS
NOW HAVE FARM
ENVIRONMENT PLANS
A key part of The Co-operative Difference
is our offering of tailored Farm Environment
Plans (FEPs) to our farmers.
These plans, delivered by our Sustainable
Dairying Advisors at no additional cost,
assess the environmental effects and
risks associated with farming activities
and provide tailored actions to help farms
meet their regional requirements and
sustainability goals.
As of 31 July, 34% of our farms have an
FEP – up from 23% last year. We want every
farm to have an FEP before 2025.
“
It’s great to see these farmers
recognised and rewarded for
their efforts to produce and
deliver a product that Fonterra
can capture the highest value
from. Through The Co-
operative Difference, we
can get better, together.
TERENCE BROCX,
NORTHLAND DAIRY FARMER
FOCUS ON MILK QUALITY
The headline in one of the national
newspapers said it all, ‘Top cow care equals
top milk quality’.
They were talking about the Bell family
from Te Aroha, whose achievements of low
somatic cell count and grade-free milk is the
stuff of Fonterra legend. How do they do it?
They love their cows.
Glenys and Graham Bell and their family
have won national awards for their dedication
and determination – but it hasn’t come easy.
“It’s about observation. Everyone’s watching
out for a problem.”
And that means lots of testing, lots of
care, lots of attention... and making sure the
cows are well-loved. In fact, every cow on their
farm has a name, and they’re able to trace
entire family trees in the herd.
Now their daughter Tania is share
milking on another farm, so they’ve got some
competition for the top spot as she was
number two last year! Proof, if it was ever
needed, that our Co-op farmers really are
best of breed.
“
They can see that you
need to put everything
into looking after the cows
because that’s what gets
results – low somatic cell
counts, good cow health
and good calving rates.
GLENYS BELL, TE AROHA
DAIRY FARMER
Our
Focus
The
Co-operative
Difference
Glenys & Graham, Te Aroha
MILK
CO-OP & PROSPERITY
ANIMALS
ENVIRONMENT
PEOPLE & COMMUNITY
Fonterra Annual Report 2020
35
The Co-operative Difference
34
TE TIHI
Farming entities that
achieved The Co-operative
Difference Te Tihi (Level 3)
41 Degree South Limited
46 South Limited
5 M Trust
69 on Bedford Partnership
96 South Limited
99 South Limited
A & A Renes Limited
A & C Allado Dairies Limited
A & C Hodges Family Trust
A & H Ahlers Limited
A & K Storey Limited
A & L Ag Enterprises Limited
A & M Wainman
A & R Marshall
A B & K J Zwagerman
A C Schouten Farms Limited
A D Harrison
A D Harrison Family Trust
A G & T A Rigter
A G L & L M Smith
A G L & L M Smith Family Trust
A H & A C Webster
A H Baxter Limited
A I & J G Sanford
A J & K L Murdoch
A L & M B Jumawid Partnership
A M & H E Kusabs
A M Bond & Estate of R G Bond
A R Hawkins & T M Finch
A R Maxwell Limited
A R Wards
A T & J L Hughes Trust
A W & M White
A.F.B Group Limited
Aaron and Marcia Flay
Partnership
Abacus Dairy Limited
Abbey Farm Partnership
Abbott Trusts Partnership
ABH Trust
AC & KM Ruddenklau
Acacia Farms Limited
AD & HA Foote
ADDR Limmited
AFT Group
Aghern Holdings Limited
Agincourt Farms Limited
Agribaird Limited
AGVenture Farms Limited
Ahipene Farming Ltd
Airlie Lodge (Walton) Ltd
AK Dean Ltd
ALD Dairy Ltd
Alderbrook Farms Limited
Alesh & Sandhiya Devi
Alexandra Farms Ltd
Aljo Farm Ltd
Alley Farms Ltd
Allison Family Farms Ltd
Allout Investments Ltd
Alpine Farms Ltd
Alston Property Group Ltd
Altitude Farms Limited
Alton Pastures Limited
Altra Partnership
Altura Dairy
AM Farming
Amber Creek Limited
Amber Park Family Trust
Ambleside Dairy Farm Ltd
AMF Trust
Amlee Farming Partnership
Andrew Marshall Family Trust
Anglesea Consulting Ltd.
ANLM Limited
Annandale Farming Limited
Annaross Family Trust No 2
Antrim Farming Limited
Anvo Ag Limited
AP & TM Davis
T/A Bushvalley Farm
AP Cowley & D K Riley
AQA Agriculture
Aramaunga Farms Ltd
Ararata Holdings Ltd
Aratika Holdings Limited
Ardendale Farm Trust
Ardmore Dairies Ltd
Ardmore Farm Trust
Ardoyne Farm Dairies Ltd
Armour Dairying Ltd
Arnold Dairy Farming Limited
Ashdale Enterprises Ltd
Ashers Farm Ltd
Ashgrove Dairy Farms Limited
Askin Plains Dairy
Atlas Farms Ltd
Auchtercairn Farm Limited
AUI Farms
Avondale Dairies Ltd
Awaiti Trust
Awapuketea Farming
Company Limited
B & C Anderton Limited
B & D Dodunski
B & L Bailey Ltd
B & S Mathys Partnership
B A Virbickas & L M Presow
B C & H J McLellan
B D & B A Mora
B F & S J Gordon
B G & M C Litchfield
B H & L J Bourne
B H Redgate & S M Thomas
B J & D A Verryt Family Trust
B J & J Abernethy Partnership
B J & P Brisco
B J & R A Lawn
B J & T G Fernyhough
B J Laing
B K Came & K M Came
Family Trust
B L & D J Haylock
B L & Estate R J Mohring
B M & B C & JH Geddes
B M & J A Ahlers
B M & J L Chick Family Trust
B M Thompson
B N & P A Jones
B R & S C Lee
B S & B K Young
B S & S M Winter
B W & C A McNeil
BAA Family Trust
Baggott Farming Limited
Balcombe Investments
Baldrick Farms Ltd
Ball Patch Ltd
Ballindalloch Farm Ltd
Balrath Partnership
Bandara & Pavi
BAN-OIR Ltd
Barcia Dairies Ltd
Barker Farms Limited
Barmac Dairies Ltd
Barnsdale Farms 2014 Limited
Barridge Farms
BASE Pair Dairy
Bashford-Nicholls
Chartiable Trust
Baylins Trust
Beckett Family Trust
Bel Group Limited - Cloverlea
BEL Group Ltd - Kowhai Terrace
Belrari Farm Ltd
Ben Callum Dairies Limited
Benjamin Burmeister Trust
Berry Dairy Farming Limited
Berwick Holdings Ltd
Beyond The Gate Limited
Bibberne Farms Ltd
Bill Bella Ltd
Bill Hedley Limited
Birch-holme Holdings Ltd
BJ & DM Ahlers
BJ & TM Verryt Ltd
BJ Caird Ltd
BL & TL Davie Farming
Black & White Cow
Company Limited
Blom Family Farm Limited
BM & GI Watson Ltd
BM Farms Ltd
Bobcat Trust
Borst Holdings Ltd
Boswell Dairy Ltd
Bouton Farming Ltd
Bowman Farm Limited
Bradley Gore Trust
Braemer Dairies
Brats Farms Ltd
Brent Wallace Ltd
Brentworth Dairy Farm Limited
Broadford Dairies Limited
Broadview Farms (2018) Ltd
Brooksdale Dairy Ltd
Brookside Holdings Limited
Broughshane Farm Limited
Brown Kiwi Farms Limited
Brownsville Farms Ltd
Brunswick Downs
(2014) Limited
Buckley Farm Limited
Budnutkins Family Trust
Buhler Paton Partnership
Bullot Family Trust
Burgham Partnership
Burke Farming
Development Ltd
Burnside Farms Ltd
Burtlea Limited
Burton Farm Trust
Bushmills Trust
Butler Family Trust
BW Dairy Ltd
C & A Dairies Limited
C & D Padrutt Trust
C & J Rowe Ltd
C & M Tippett
C & S Guyton Farms Ltd
C & T Dovey
C A Mansell & Son Ltd
C A Rowe
C and J Piggott Ltd
C B & M F Dempsey
Trust Partnership
C D Jacobsen
C D Will & A E Hunter
C F & M T Muller
C G & R A MacFarlane
C G Bailey
C H Land Limited
C J & C J McKenzie Ltd
C J & L M Houghton Ltd
C L J & R M Vollebregt
C L N Limited
C N R Farming Ltd
C R & D E Cloke
C R & J J Dixon
C R & K L Ruiterman
C T & K M L Chase
C T & W L Harper
C W & J Redshaw
C W & L A Peckham
C W & M Y Matthews
Family Trust
C.A & A.C Dairies Ltd
Cairndale Dairy Limited
Cambridge Dairies Limited
Carpe Diem Dairies Limited
Caskey Farms
Catalina Farms
Causeway Trust
Ceylandia Dairies Limited
Chardan Farms Ltd
Chatton Lea Holdings Ltd
Cherrylane Jerseys Limited
Chikasa Trust
Christensen Farms Ltd
Ciel Trust
Circle K Farms Limited
Clapcott Farms Ltd
Claremont Trusts Partnership
Clarks Potteries Ltd
Clausen Contracting Ltd
Clausen Farms Ltd
Clearwell Limited
Cleaver Farms Limited
Cliff Donald
Climie Road Farms Ltd
Clover Sun Limited
Cloverdene Dairy Ltd
CM Farming Ltd
CMC 2000 Ltd
CME Farming Ltd
Cochar Dairies Limited
Cody Cowley Ltd
Collis Farms Ltd
Confederate Farm Ltd
Contract STEL
Cookson Trust Farms Ltd
Copeland Farming 2012 Ltd
Copeman Family Trust
Cornerstone East Limited
Cotlands Ltd
Cotter Farming Ltd
Coull Farms Ltd
Cowley Ltd
Craig Group Limited
Craigower Farms Ltd
Cravan Farms Limited
Crayfish Trust
Creekside Pastures Ltd
Cressey Dairies Ltd
Crockers Ranch Ltd
Crown Ridge Partnership
Crowsnest Farming Limited
CW Taunt & HM Baldock
D & D M Coupe Trust
D & E Beckett Limited
D & E J Pringle
D & K & M Kavanagh
D & K Miles Limited
D & M Earl Ltd
D & R Van Straalen Family Trust
D & S Farms
D A & S M Crawford
D B & T A Wyber
D B H Farming 2012 Limited
D Baeyertz 2013 Ltd
D C & V F Frew
D D & D M Galletly
D E & A M Jacobsen
D G Harker Family Trust &
W A Harker Family Trust
D H & A J Speirs Family Trust
D H J & J J Hughes
D J & F J Lynch Ltd
D J & G M Hooper
D J & S A McMillin
D J Noble & K M Jones
D L & P Wilson
D L & S M Cochrane Ltd
D Lindsay & D Manu
D P & C M Flood
D P & C M Flood Family Trust
D P & T G Schumacher
D P & T M Stephens
D R & E M Henman
D R & J E Gilchrist
D R & L A Marshall Ltd
D R & L M Locke Ltd
D R & N R Ellis
D R & S K McKay
D W & P A Wood
D White
D&D Bosch Ltd
Dacrow Ltd
DAGCO Limited
Dairy Farms Partnership
DairyPlus Limited
Dairytrac Trust
Dajo Trust
Daker Ridge Trusts No.1 & No.2
Danatava Holdings Ltd
Dandarrigan Trusts Partnership
Daniel Cullen Family Trust
Daniel Symons
Daradowns Holdings Ltd
Darnnco Agri Limited
David & Angela Kennedy
David & Corina Youle Trust
David Leng
Davis 5 Limited
Dawn Dairies Ltd
Daybreak Farms Limited
DB & MJ Kalma Ltd
DB & N Young
DC & KR Fraser Partnership
DDB Dairy Enterprises Limited
Dean Semmens Ltd
Dekker Farms Ltd
Delarbe Farm Ltd
Delca Faith Dairy Limited
Denis J Crookenden &
Bronwyn F Bax
Dennis & Donna Gill
Family Trust
Dennley Farms Ltd
Derrys Farm Limited
Derryvale Ltd
Des Landes Dairies Ltd
Dingle Trust Partnership
Dinnae Ken Ltd
DNA Contracting Partnership
DNR Farms
Donagh Farm Trust
Drakes Hill Farming Ltd
Drysdale Dairies Ltd
Dungarvan Farms Limited
Dunmilkin Ltd
Dunrobin Farm Partnership
DW & JM Harris Partnership
Dyfed Farming Ltd
E A & J A Rolfe
E B & J L Day
E F & J A Allcock
E G & N H Scott
E Hut & A Jongmans
E J & K J Field Trust
E J Ritchie
E L & D J Brook
E S & J M Rattray
E S Dairy 2008 Ltd
E.K. & M.J. Chisnall Ltd
Eastwick Farm Limited
Edale Farms Ltd
Eiffelton Contractors Ltd
Eiffelton Dairy Ltd
Ellis-Lea Farms (2000) Ltd
Emerald Dairy Farm Ltd
Est. M Q J Van Bysterveldt
Estate Charles Bailey
Estate D E G Swadling
Estate of K Sminia
Estate of N R Dilks
Esternwest Farms Limited
Eudunda Dairy Ltd
Evans & Co Ashburton Limited
Evans Partners Ltd
Eyre View Dairies Ltd
Eyrewell Dairy Ltd
F & P Dawson Limited
F A & D N Ahlers
F G White & Estate of
MM White
F J & E A O’Connor
F J Mullan & J A Mullan
Family Trust
F Stevens & S McCoy
Fairfax Stonehouse Farm Ltd
Fairhaven Farms Ltd
FAM Limited
Far South Farms Ltd
Fareway Holdings Ltd
Farmbuild Milk Company Ltd
Farmer Fred Ltd
Farming Tee Jay Ltd
Farnley Tyas (2018) Limited
Fast Track Dairies Ltd
Felgate Farm Limited
Ferguson Family Trust
Fernglade Farm Ltd
Fernhill Farms Koru Ltd
Firdale Farms Limited
Flag Farms Ltd
Flaxmill Dairy Ltd
Flaxwood South
Fleming Family Trust
Flett Pastures Limited
Fonic Farms Limited
Fonterra -Te Rapa Farm
Fonterra -Tui Farm
Foster Dairying Limited
Four Seasons Contracting
Four Seasons Farming Limited
Fowler Family Prosperity Trust
Freely Farms Ltd
Frisia Farm Trust
Fuller Dairy Limited
Funny Farm Waikato Limited
Fyvie Meadows Limited
G & A Parker
G & C Came Ltd
G & K Kingston Family Trust
G & P Russenberger
G & S Carran Family Trust
G A & J A Wright
G A & J M Hall Ltd
G A & K T Lynch
G A & V M Weir
G A W & M C Van Rossum
G B & D G Hodges Trust
G C & A M Williamson
G Cronin & G M Impey Limited
G D & P M Jackson
G E & V E Cooper
G E Sutherland Trust
G I Norgate
G K & D J Landon Family Trust
G K S Cows Ltd
G L & G D Love
G L & G F Bell
G M & A J Gower
G M & B M Gillard
G M & D L Yates
G R & B L Irwin
G R & D M Edge
G R & I Griffiths
G S & L J Rowe
G T Came Family Trust
G V & H P Wall Family Trust
Galloway Enterprises Ltd
GAPA Ltd
Garn Farms Ltd
Garstein Ltd
GC & JO Appleby Ltd
Gen Set Ltd
George Finch (Farmers) Ltd
George Scurr & Co Limited
GG Partnership
Gibson Pastoral Ltd
Giggs Farming Limited
Gill Farms Limited
Given Farming Limited
GJ & SP Carran Ltd
GJ Buhler Farms Trust
GJ Toner & Stacey Coward
GKS Farms Limited
GKW Farms Ltd
GL & SM Martin Ltd
Glasgarton Farm Ltd
Glen Eden Otago Ltd
Glen Rata Farm Partnership
Glendine Ltd
Glenmarie Dairies Ltd
Glenmore Farm
Glennevis Dairies Ltd
Glenrowan Trust
Glenspec Holdings Ltd
GM & AM Woolley
Golden Mile Farms Ltd
Gopperth Family Trust
Gordon Dale Farms (2006) Ltd
Goreland Partnership
Goud Milk Limited
Graceland Farm
Grant Allen Ltd
Grant Gargan Trust
Grantlea Dairy Ltd
Grassmere Dairy Farm Ltd
Grat Farms Ltd
Green Light Farming Limited
Green Pastures Dairy Ltd
Green Sky Dairies Limited
Greenbank Pastoral Ltd
Greenwell Farms Ltd
Greg Cowley Ltd
Greg Low Limited
Groundwater Holdings Ltd
H & C Underwood
H & K Farms Ltd
H & M by de Ley
H L & J E Wallace
H Q Partnership
H S Hancock
Hahn Trading Limited
Hall’s Enterprises Limited
Hamill Family Trust
Hamilton & Keene
Sharemilking Ltd
Hamkee Dairies Limited
Hammens Limited
Hammond Limited
Hancock Farms Ltd
Hanging Rock Dairies Ltd
Hanson & Barnes Partnership
Harakeke Dairy Ltd Partnership
Hard Road Dairies
Hardwick-Smith Partners
Harrick Limited
Hartland Pastoral Limited
Hastings Farms Ltd
Hastings Group Ltd
Haurere Farms Ltd
Hawkes Pastoral Ltd
HBG Agri Ltd
Heartland Holdings (2008) Ltd
Hejlea Dairies Ltd
Henmar Trust
HG & RE McFarlane
Hikuai Pastures
Hillbrook Dairies Limited
Hillcrest Culverden Farming
Limited
Hillpark Dairy
Hillview Trust
Hinemoa Dairying Ltd
HLM Partnership
HMW Farms Limited
Hoe-o-Tainui Farms Ltd
Hollands Farm Limited
Hoogeveen Farms Ltd
Hopcroft Farms Ltd
Horomanga Holdings Ltd
Horseclose Dairies Limited
Howell Farming Limited
HS & KM MacPhail
Huia Trust
Huirangi Valley Farms Limited
Huntersview Farm Ltd
Huntly Road Dairies Ltd
Hurunui Ltd Partnership
HWH Farming Ltd
Hwitan Tune Holdings Ltd
I & M Selak Ltd
I & T Megaw Partnership
I D & S D Read
I H & D J Bryant
I J Connor
I R & V E Wilcox
I T & M G Semmens
I W & K D Shearer Family Trust
Ian & Joyce Noble Limited
Ihenga Holdings
IM & RV Glenn Ltd
Incline Farm Ltd
Ingram Farming (2003) Limited
Instone Trust Partnership
Intensive Agriculture Ltd
Irving Family Trust
Ivy Plains Ltd
J & C Anderson
J & C Dairies Limited
J & C Paterson Trust
J & D Cullen Partnership
J & H Schuurmans
J & J Anderson Family
Trust Partnership
J & LM Van Burgsteden
J & P S Malcolm
J A & A A Patino
J A & N J Anderson Partnership
T/A Jonik Farming
J B & K A Lord
J B & L M Suisted Limited
J B Fleming Family Trust
J Buckley & D VanDenBeuken
T/A Jaydee Partnership
J C & C A Rossiter
J C & P A Low Ltd
J C & V G Wells
J Duncan Farming Ltd
J E & A E Watson
J E & D M Cooper
J E & S G Pike Family Trust
J H & R Cotman
J Haultain &
K McCartin Partnership
J L & L A G Adam
J L Hooper & A L Robertson
J L Murray & Sons Ltd
J L Vollebregt Limited
J M & K L Sneddon Partnership
J M & M R Foster
J M Mellow
J McKay & A Brown
J W & A M Steeghs
J W & M J Osborne
J W J & M K King
Jabulaan Limited
Jacob Abbott
James Brown
James Lyttle
Jamze Trust
Jascas Trust
Jaska Farm Trust
Jaunay Farms Ltd
JAVAN Cream Company Ltd
JB Mucca Farms Ltd
JBT Farming Limited
JCDAF Dairy Farms Ltd
JE & KL Gilbert
Jeremy Swain
Jetstream Farms Ltd
Jeyes Farming NZ Ltd
JL & NA Wolff Partnership
JM Cross & LA Hazelton
JM McLaughlin & JM
McLaughlin Family
Trust Par tner
Joel & Jessica Brown
John Armstrong Family Trust
John Finlayson Ltd
Johnston Family Trust
Jojax Ltd
JOLO Grace Ltd
LEGEND
Farming entities that
achieved Grade Free for at
least the last 10 seasons
Kemra Farm Ltd
B L & Estate R J Mohring
K J & H Chalmers Ltd
Clutha Lea Ltd
F A & R C M Smits Ltd
C M & K M O’Donoghue
B M & B C & JH Geddes
Ashgrove Dairy Farms Limited
Waicola Holdings Ltd
A Holten & N Brown
Owhango Farms Limited
Serendipity Trust
R S & R D Gordon
J E & D M Cooper
Marua Partnership
Sim Family Farms Ltd
Sim Brothers Ltd
D C & V F Frew
J L & M A Cooke
L J & L M Still
W J & J G Pile Family Trust
Schorn Trust
G E & V E Cooper
C & H Mabey
C J & K L Ladd
F B Bonenkamp &
J B Cunningham
Black & White Cow
Company Limited
Riverside Farms
(Taranaki) Limited
Shawlink Ltd
Miroc Limited
Caskey Farms
Fowler Family Prosperity Trust
R & P Woods Farms Ltd
Golden Mile Farms Ltd
Honour Roll for On-farm Excellence
Thank you to all our farmers who have worked hard in the 2019/20 season to provide safe, high-quality milk. In addition to the honour
role, we acknowledge the efforts of all our farmers for their commitment to on-farm excellence and producing the best possible milk.
Fonterra Annual Report 2020
3736
The Co-operative Difference
Jomar Farm Ltd
JP & AL Bourke Partnership
JR & L M Stevenson Ltd
Junior Turnbull Trust
Jusswodeva Limited
Just Holding Ltd
JW Pouls Limited
K & A Wilson Limited
K & LG Pickett Limited
K B Olesen & R J Stephens
K C & L M Berry
K D & T M Yates
K E & V J Bond
K G Reeve
K J & H Chalmers Ltd
K J & L F Christensen
K J Coe
K J Thompson & M Sataka
K R Vollebregt
K W & D M Blackstock
K W & D R Lowe Family Trust
K&M C Farms Limited
Kahika Farming Limited
Kaimai Dairy Ltd
Kaimara Trust No 3 & 4
Kaipara View Farming Limited
Kaiper Partnership
Kaitake Farms Trust
Kaiuma Reach Ltd
Kaiwhio Dairies
Limited Partnership
Kakariki Valley Trust
Kanuka Syndicate Ltd
Kanuka Terrace Limited
Kathdan Trust Limited
Kauri Karaka Ltd
Kauri Moor Farms Limited
KC Cows Ltd
Keelinn Farms Limited
Kellydale Partnership
Kemra Farm Ltd
Kendre Farms Ltd
Kereru Trust T/A Kereru Dairies
Keritapu Farm Ltd
Kerr Road Dairies Limited
Kerr Road Dairies Ltd
Keswick Farm Dairies Limited
Kevin & Rhonda Belling Trust
Kevin Fleming Ltd
Kiekie Farms Ltd
Kilkenny Farm Ltd
Kilvarock Farming Company Ltd
Kingsden Dairies Ltd
Kingsway Farms Limited
Kinkora Farm Ltd
Kintore Farm Ltd
Kiwi X Farmers Ltd
KiwiDutch Dairies Ltd
KJ&HL Uhlenberg(Waitui)
Fam Tr. P’Ship
KM & BM Muller
Knightlands Ltd
Knockinnon Farm Trust
Kohi Partnership
Kohique Farms Limited
Kokako Road Ltd
Kokoamo Farms Limited
Koning Limited
Konini Family Trust
Koroa Group Ltd
Kowalski Farms Ltd
Kowhai Bush Family Trust
Kowhai Farms Partnership
Kraakman Farms Ltd
Kreignook Trust
KTAC Farms Limited
Kuranui Farm Limited
Kywaybre Farms Ltd
L & A Verstappen
L & P Dairies Ltd
L & P Smets
L 2 B Lands Trust
L A Ruthe
L D & R M Barry
L J & S L Wallace
L J Bleakley
L J Hodges
L P & C L McClintock Limited
L S & K A Phipps
Lakeflats Limited
Lakeside Ayrshires Ltd
Landcorp Farming Ltd
Lanseair Limited
Lavender Dairies limited
Lavic Partnership
Law Family Farms Ltd
Le Emari Trust - Morven
Leningrad Farm Ltd
Lesdale Friesians Ltd
Letham Farms Ltd
Levett Farming Limited
Lillburn Valley Dairies Ltd
Lincoln University
Liquid Au Limited
Lismore Dairy Limited
Living Waters Dairy Ltd
Lizlyn Dairies Ltd
LJB Contracting Ltd
Lobblinn Farms Ltd
Lochlea Partnership
Lockerbie Farms 2001 Ltd
Lockinge Farms Ltd
Longacre Properties Limited
Lonmeck Dairy Limited
Looman Dairies Ltd
Loves Cows Limited
LP & CL McClintock Ltd
LR and SJ Hammond Limited
Lynbrook Farm Ltd
Lynburn Dairy Ltd
Lynwood Dairies Limited
M & A Hinricks
M & A Schrader Family Trust
M & C Brophy Family Trust
M & C Mogg Ltd
M & J Courage
M & J Cudmore Limited
M & L Wood Partnership
M & M Kidd Partnership
M & S Noord Contracting Ltd
M A & J F Doherty
M A & S M Zillwood
M A Watt Family Trust
M C & M Davey
M Carlson & Co Limited
M D & K L Deane
M D Hammond
M E G & D A Polyblank
Family Trust
M G & A K Earl Partnership
M G & S A Hughes
M G and B J Deane Limited
M Gloyn
M H & D E Nater
M H Pastoral Limited
M I & P M Stevenson Family
Trusts P/ship
M J & C Blagrove Ltd
M J & D R McFetridge
M J & M J Manley
M J & M Scarlett
M J & T M Davies
M J & T M Lord
M J & T R Schumacher
M K Gummer Farm Partnership
M M & L Baxter
M M Brophy Family Trust
M N & D Brown
M Nesbit & A Absalom
M P & V M J Joyce Trusts P/Ship
M R & F L Hines
M R & K J Luke Ltd
M R & W Rowe
M R Bennett
M S & H Hammond
M S & P M Davey
M T & A J O’Connor
M T & K J Taylor
Maandonks Farm Limited
Maandonks Pastoral
Mac Chap No.3 Limited
Macken Farm Ltd
Maco Dairying Ltd
Maerewhenua Investments
Limited
Mahoe Trust
MAK Dairies Ltd
Maka Ltd
Maken Milk Ltd
Makowhai Trust
Manchester Dairy Limited
Mangahuia Farms (Hawera)
Mangaone Farms
Mangatoki Partnership
Mangawhiri Farms Ltd
Manuka Downs Farm Limited
Manuka Ridge Limited
Marchant Farms Trust
Mark & Nerida Dodge Ltd
Marua Partnership
Marusden Limited
Massey University Farms
Matai Trust
Matakuri Ltd
Matham Family Farm Ltd
Mathieson@Rongomai Limited
Matoka Farms Ltd
Matricksen Ag Holdings Ltd
Mavora Farms Ltd
Maxlands Farms Limited
Maybrooke Limited
MB O’Hearn Limited
MC Holland Farming Ltd
McCarty Farms Ltd
McCheesey Farming Limited
McClelland Dairies Ltd
McDonald Farming Limited
McGee Partnership
McHardy Farms Ltd
McKay Creek Farms Limited
McLachlan Farms Ltd
McLean Farms Limited
McLeod Farms Ltd
McMillan Finnigan Partnership
McNab Farms Limited
Meadowbank Farm 2017 Ltd
Mejeri Farms Ltd
Melrose Dairy Ltd
MERJ Investments Ltd
Merrybent Ltd
Merryfield Dairy Ltd
MESK Farming Partnership
Michael Clark Ltd
Mid Island Farms Ltd
Midfield Farm Ltd
Milk Power Ltd
Milkoad Limited
Milkwell Ltd
Millar Farm Ltd
Milldale Farm No 2 Limited
Mills Farms Ltd
Millydale Pastures Ltd
Minus 1 Ltd
Minus 1 Trust
Miroc Limited
Mitchells Milky Way Limited
MJ & CD Beattie
MJ & KL Family Trust
Molehill Farm Ltd
Moneymore Dairies Ltd
Monte Vista Farms
Montland Limited
Moo2U Ltd
Mooi Dairies Ltd
Moolah (2014) Limited
Moorbyvale Farm Ltd
Morana Farms Ltd
Morelands Pastoral Ltd
Morris Ag Ltd
Morrison Farms Limited
Morrow Holdings 2018 Limited
Mosa Farming Ltd
Motu Lodge Stud Ltd
Mount View Trust
MR & TJ Frost Ltd
Mt Winchmore Farm Limited
Mu Kau Ltd
Muir Dairies Limited
Mulbuk Farm Limited
Mullerwhero Farming Ltd
Mullford Trust Partnership
Murdock Investments Ltd
Murphy Farms Limited
Murrayfield Dairy Limited
Mutu Trust
MW & KA Olsen
N A & J J Higgins
N C & J A Kelly
N C & N Ruygrok
N D & A J Rout
N G & B D Simmons
N J & C T Kane
N J & M Bleakley
N J & W A Vollebregt
N J N Ormsby & T J Connellan
N K & A M Fox
N P Tull & N A Shelley
N R & A H Berry
N R & L A Fox
Nadash Partners
Newton Farms Limited
Ngahape Valley Farm Ltd
Nicholls Family Trust
Nicholson O’Rourke Ltd
Nithesdale Ltd
Nomad Services Ltd
NP Van Straalen Family
Trusts Partnership
NR Ensor Limited
NS Farms Limited
NT Lee & A Spethmann
NYMIC Dairies Limited
NZSF Canterbury Farms
Limited - The Forks
Oak Valley Farm
Oaks Dairy Limited
Oasis Farm Ltd
Oberwil Farms Ltd
O’Connor Rural Limted
Ohoka Meadows Limited
Ohtawa Farms Ltd
Oliver K Limited
Onstream Dairies Ltd
Oporo Farms Ltd
Orchard East Limited
Orini Downs Station Limited
Orongo Meadows Ltd
Orton Downs Farm Partnership
Orwell Dairies Limited
Otaitai Dairys Trust
OTO Trust
Our Dairy Farm Limited
Owhango Farms Limited
Oxford Farming Limited
P & A Farming Ltd
P & C Farming Ltd
P & J Dickson
P & J Jamieson Family Trusts
P & S Bryan Limited
P A & J E Taylor
P A Hoogeveen
P B & E J Chick
P C & R A Grey
P D & S S Sharpe
P D & S Wykes Family Trust
P F & H S Sturt
P G & D M Dombroski
P G & M A Cashmere
P H & C K Partnership
P H J & M A Brown
P H S & P C Byford
P Hall & C M Duignan-Hall
P J & R E Roberts Family Trusts
P J & T L Walsh Family Trusts
P Jones Family Trust
P L & R E Berryman
P N & D L Waite Family Trust
P R & R F Mossman
P S & B K Rai
P S & H J Wilson
P T & R D Williams Family Trust
P T & V M Youngman
P V & P G Mullin Trust
P V & V L Risi
P W & N J Bavin
Pacey Farming Ltd
Paengaroa North B10A Trust
Pahau Dairy Ltd
Pahtuna Farms Ltd
Palmdale Farms Ltd
Papawai Dairies Ltd
Paramount Dairies Limited
Parkhill Farms Ltd
Pastoral Holdings Ltd
Paterson AG Services Ltd
Paton Trading Company Ltd
Patterson Farming Limited
Paul Clausen Limited
Peel View Ltd
Pekanga o te awa Farms Ltd
Penrith Trust
Peter Reeve
Peter Templeton
Petfield Farming Ltd
Pheasantridge Ltd
Phimister Farming Limited
Piako (Middle Farm) Limited
Pikowai Transport Ltd
Pinefields Ltd
Pineridge Partnership
Piriaka Farms Ltd - M & C Ferris
Pirie Farms Limited
Piriti Dairies Limited
PJ Hilhorst Ltd
PJ Mayall Limited
PKW Farms LP
Placement Services Limited
Platinum Dairies Ltd
Platinum Farming Ltd
PN & DA Botica Limited
Poc Ar Buille Limited
Pohuenui River Limited
Poldrissick Farms Ltd
Port Molyneux Dairies Limited
Praire Farm Ltd
Price Trusts Partnership
Prima Farms Ltd
Progressive Dairies Ltd
Puketi Farming Enterprises Ltd
Purdy Farm Ltd
Pynewood Farm Ltd
Quatre Farming Company Ltd
R & A Tait T/A Black
Cow Dairies
R & L Dunn Partnership
R & L J Simms
R & S Singh
R A & J L Hamilton
R B & S M Grant
Farming Limited
R B Duncan
R B Gooding Investments Ltd
R C & K M Ormsby
R F & C L Lansdaal Ltd
R F & D M Sowerby
R G King Ltd
R J & C A Stevenson
R J & J R Thomas
R J & V M Bourke Trusts
R J & Y L Le Fleming
R L & F M Hurley
R L & H J Colson Trust
R M & S A Grayling
R M O’Sullivan & P J Jones
R N & D P Bridgeman
R P & M G Frank
R P Hunter &
S G Wallace Partnership
R S & R D Gordon
R V & M M Martelli
R W & F W Muller Trust
R W & R D Kane
Rai Farm Limited
Rainbowcreek Farms Limited
Rakaia Dairy Ltd
T/A Railside Dairy
Rakaia Island Limited
Ranginui Station
Limited Partnership
Rangitata Island Dairy
Partnership Ltd
Raukapuka Farm Ltd
Ravelston Farm Limited
RD & MA Wilson Limited
RD & TS Buchanan Ltd
Reaymore Farming Limited
Red Cow Farms Ltd
Red Dragon Systems Limited
Redpark Farm Limited
Redwood Farm Trust
Reed & Arden Farms Limited
Reith Dairy Ltd
Reuver Limited
Rhodes Farming Partnership
Ribbonwood Dairy Ltd
Richview Limited
Ridgedale Limited
Risi Farms Limited
River Heights Limited
Riverhill Farming Limited
Riverside Dairy Farm Ltd
Riverview Oaks Limited
RJ & MMJ Gardner Family
Trusts Pnship
RJ & NA Meade
RJ Dairies 2018 Ltd
RK & A Hines Limited
RKBS Horne Ltd
RM &AD Singgo
RMH Dairy Limited
Roaring View Farms Limited
Robinson Farming Ltd
Rockburn Dairy Ltd
Rockford Holdings 2015 Ltd
Rockwood Kaikoura Ltd
Rocky Farms Joint Venture Ltd
Rocky Point Enterprises Ltd
Rodgers Farms Limited
Rodney G & S J Joblin
Rolfe Farms Limited
Rooney Farms Limited
Rose Farm Ltd
Rosebrae Farm Ltd
Rossco Farming Ltd
Rosser Holdings Ltd
Roswin Farm Limited
Roto Farms Ltd
Rotongata Dairies Ltd
Rout Dairies Limited
Ruakiwi Dairies Limited
Ruapeka Farms Ltd
Rukuhia Farm Ltd
Rukuhia Holdings Ltd
Ruthe Farms Ltd
RVS Farming Ltd
Ryelands Farm Company Ltd
RYEM Partnership
S & G Chick
S & G Muggeridge
S & K Garland Ltd
S & K Phillips
S & R Partnership Ltd
S & R Pastoral Ltd
S A & J M Roberts
S B & Y M Thompson
S England & P Walker
S G & B L Thirkell
S Huta & T Tawhiao Partnership
S J & L M Colson
S J & M R Dravitzki
S J Bruce Family Trust
S L & M P L Fergusson
S M & S A Field
S M Duynhoven &
Estate of JB Duynhoven
S M Muller & N K Buckthought
S M Shead
S Petterson Family Trust
S Richards & L Coetzee
S W & F M Settle
Sailing Away Family Trust
Sandbrook Farm Ltd
Sanford Farming
at Paradise Trust
Sangro Farm Limited
Sani Farms Limited
Sanson Farms
Sarwan Singh Farms Limited
SBR Livestock Limited
Scarlett-Brown Partnership
Schayes Enterprises Ltd
Schorn Trust
Schouten & Reneti Farms Ltd
Scott Evans
Sharemilking Limited
Sea Breeze Farms
Seagrove Farms Ltd
Seamist Dairies Ltd
Searle Dairy Farming Ltd
Seath Limited
Semmens Holdings Limited
Seven Mile Dairy Limited
Seven of Nine Ltd
Sfarmer Partnership Limited
SG & A Donovan Ltd
Shaan Gopperth Trust
Shawlink Ltd
Sherwood Farming Co Limited
Silverbank Enterprises Limited
Silverdene Farms (2000) Ltd
Sim Brothers Ltd
Sim Family Farms Ltd
Sisley Farms Ltd
Six O Farms
SJ Bond & DJ Phillips
SJ Pastures Limited
SK Holdings (2017) Limited
Smiling Dairies Limited
Smith Enterprises Limited
Snaplulu Ltd
Snow View Dairy Ltd
South Dairy Limited
South Two Chain Limited
Southern Meadows 2011 Ltd
Southern Pastures (Tatua Farm)
Ltd Partnership
Spark Brothers Ltd
Spring Peak Ltd
Springdale Farms Trust
St Andrews Dairy Ltd
Staple Homestead Limited
Steeghs Limited
Steward Dairy Ltd
Stichbury Farms Limited
Stitcho Ltd
Stone Country Dairies Ltd
Stoney River Farm Ltd
Stonyglen Dairies Ltd
Stornaway Farm Ltd
Stralough Ltd
Streamline Limited Partnership
Stromness Group Ltd
Summerglow Dairies Limited
Swim Farms Ltd
Sybton Farm Limited
Partnership
T and M Wrigley Ltd
T I & J K Bishop Family Trust
T M Mcdowall
T M Rawson & Est D B Palmer
T P & R D Trail
T P & R Sneddon
T P Payton
T S Curtis
T W & G Y Sneddon
Taikatu Plains Limited
Tainui Group Holdings Limited
Takapau Trust
Tanner Dairies Trust
Taradise Farm
Taralea Farms Ltd
Taramea South Ltd
Taranga Town Supply
Tauhara North Farming & Co LP
Tauhei Farms Ltd
Tawa Ridge Farms Ltd
Tayco Farm Limited
Te Awa Farms Limited
Te Pohutukawa Farm Limited
Te Repo Farms Ltd
Te Tua Farm Ltd
Te Whanake Enterprises Ltd
Te Whanake Joint Venture
Te Whenua O Matata Limited
Tennant Farms Ltd
Ternstone Ltd
Terrace Top Dairy Ltd
The 7C’s Limited
The Bush Trust
The D & A Roberts Family Trust
The Flavall Trust
The Grange Ltd
The Harkaway Trust
The Hendriks Family Trust
The Herewahine Trust
The Proprietors of
Rakaia Incorporation
The Vaughan Family Trust
Theland Tahi Farm
Group Limited
Thomas Family Farming Ltd
Thorp Dairying Ltd
Three Daughters (2018) Ltd
Three Springs Dairies Ltd
Tierracrece Ltd
Tihiroa Dairies Ltd Partnership
Tihiroa Farms Ltd
Tilbrook Farm Trust
Timata Farming Company Ltd
Tiptree Limited
Tiro Roa Ltd
Tiroroa Farms Limited
TK & MG Wright
TL & NL Bryant Holdings Ltd
TL & SL Taylor Ltd
TN & GL Gray Ltd
TNN Holdings Ltd
Tobruk Farms Ltd
Todd Agri Ltd
Todd Bavin
Tokerau A5 Incorporation
Tokoroa Pastoral Ltd
Top Grass Farm Limited
Torran Moor Ltd
Totara Park Farms Limited
Totoro Dairy Limited
TP & TL Siffleet
Trec Trust
Tremewan Agriculture Limited
Trevanion Farms Limited
True Blue Trusts
Tubs Agri Ltd
Tui Company Limited
Tui Glen Nikau Farm Limited
Tunaview Trust Partnership
Turnbull Family Trust
Turney Farms Limited
Turney Farms Ltd - 2
Tutukau East Z Trust
Twenty Forty Farms Ltd
Two Name Farming Limited
Underwood Enterprises Ltd
V & J Ralph Ltd
V A & J J Nicholls
V B Durham Farm Limited
V J & C E Stevenson
V T & S J Brophy
Vale Green Services Limited
Valley Road Farm Ltd
Valverde Enterprises Limited
Van Der Heyden Farms Ltd
Van Vugt Brothers Limited
Vat Farming Ltd
VBI Ltd
Ventsha Farms Ltd
Vos Farms Ltd
W & K Rolton
W & L Harwood (Golden Acres)
W E & T L Kowalski
W H Lynn
W J & A F Bridson
W J & J G Pile Family Trust
W J & V M Donald
W J A & L J West
W M & K B Bolt
W M & S M Riepen
W M & S R Fisher
W R & D J Little
W T J Waetford &
H M Wallace Ptnshp
W W Olsen
W&N Hamers Partnership
W.A & H.R Simpson
Farming Ltd
Waiari Dairies Ltd Partnership
Waihapa Trusts Partnership
Waikatland
Waikirikiri Farm Partners LP
Waimak Dairies Limited
Waimanu Dairy Ltd
Waimarama Farming Ltd
Waimarie Pastoral Ltd
Waimatuku Dairies Ltd
Wainui Dairies
Waionehu Farm Ltd
Waiotu Farms Ltd
Waiparu Farm Ltd
Waiparu Holdings Limited
Waipiata Trust
Wairakau Farm Trust
Waireka Dairy Farms Ltd
Waitanui Dairy Farm Ltd
Partnership
Waituna Investments Ltd
Waiwhakaata Trust
Waiwira Holdings Ltd
Wallace Johnstone Ltd
Walsh Enterprises Limited
Walter Gold Ltd
Walton Park Farm Limited
Wangapeka Holdings Limited
Wardville Dairies Limited
Warnock Park Ltd
Watershed Ventures Ltd
Waterstone Farm Limited
Wattle Downs Ltd
WBF Limited
WE & TS Greene Partnership
Wekanui Farming Ltd
Wekanui Farming Ltd (No. 2)
Welsh Family Farms Limited
Wendon Dairies Ltd
Westmorland Estate Ltd
Westridge Farm Ltd
Whakahora Farm Ltd
Whakatohea Maori Trust Board
Wheyland Farms Limited
White Gold Enterprise Limited
White Gold Ltd
White Stone Holdings Limited
Whitefield Partnership
Wide Farms Ltd
Wilgul Reds
Willcox Farms Ltd
Willmor Pastures Ltd
Willowbank Farms 2015 Ltd.
Willowfields Ltd
Wilriskit Limited
Windy Ridge Dairy
Farm Limited
Wiremu Trusts
Wolff Farms Ltd
Wonderland Pastures Ltd
Woodheys Farm Limited
Woody’s Charters Limited
WP & A Moore
Wyatt Farming (2017) Ltd
Wyllies Farm Partnership
Wyndarra Farm Ltd
Wynyard Family Trust
Y Wuri Trust
Y.O.T. Farms Ltd
Yaxleys Yard Ltd
Yellow View Trust
Yeroc Farm Trust
YTT Farms Ltd
Yuretich Ltd
Zarden Ltd
Zug Farms Limited
Ʉ
Honour Roll for On-farm Excellence
TE TIHI (Cont.)
Fonterra Annual Report 2020
3938
The Co-operative Difference
W
e are working together
to deliver a sustainable
business.
Through science and innovation we
can respond to people’s changing
needs, attitudes and lifestyles to
deliver a strong and stable payout
to our farmers and a good return on
capital for our investors. It’s all part of
ensuring our Co-operative is here for
generations to come.
1ÃWďURXURXQÃWDNXURXURXNDRUDDLWHLZL
With your contribution and my contribution,
we’ll all thrive together.
Healthy
Business
Debt reduction
2
$
1.1 bn
Normalised profit after tax
1
$
382m
24 cents per share
Up 44%
Reported profit after tax
$
659m
Up $1.3 billion
Return on Capital
6.7
%
Up from 5.8%
1 Attributable to equity holders of the Co-operative.
2 Economic net interest-bearing debt.
4041
+HDOWK\%XVLQHVV
FRQWHUUD$QQXDO5HSRUW
1 Does not add to total due to inter-group eliminations. Consumer and Foodservice and Ingredients exclude Discontinued Operations.
2 Includes non-controlling interests.
3 Capital expenditure comprises purchases of property, plant and equipment and intangible assets, net purchases of livestock, and includes Discontinued Operations.
4 FY19 has been restated. Refer to Note 28 in the FY20 Financial Statements.
5 Capital employed is calculated as the average for the period of: net assets excluding net interest-bearing debt and deferred tax balances, and including brands,
goodwill and equity accounted investments (EAI).
6 Normalised profit after tax attributable to equity holders of the Co-operative.
20162017201820192020
659
-610
-196
834
745
Reported Profit after tax ($ millions)
2,4
20162017201820192020
382
264
382
781
789
Normalised Profit after tax ($ millions)
4,6
20162017201820192020
419
600
861
851
944
CAPEX ($ millions)
3
201620172018
2019
2020
85
8383
75
77
Working Capital Days
201620172018
2019
2020
Gearing Ratio (%)
Debt to EBITDA
41.4
48.5
48.4
44.3
44.3
3.2x
3.8x
4.6x
4.4x
3.4x
Leverage
20162017201820192020
1,828
1,095
600
670
2,184
Free Cash Flow ($ millions)
201620172018
2019
2020
24
16
24
49
49
7.3%
6.7%
1.7%
0.0%
1.3%
Dividend Yield and Normalised EPS
4
201620172018
2019
2020
6.7%
5.8%
6.3%
8.3%
9.2%
Return on Capital
(including intangibles and EAI)
5
Group
Financial Metrics
7KHVHFKDUWVKDYHEHHQVHOHFWHGWRUHSUHVHQWWKH
7RWDO*URXSILQDQFLDOPHWULFVIRU)RQWHUUDWRSURYLGH
DKLVWRULFDOVXPPDU\RIRXUSHUIRUPDQFH
2XU3HUIRUPDQFH
20162017201820192020
1,517
1,523
1,505
1,526
1,566
New Zealand Milk Collection
kgMS (millions)
20162017201820192020
Consumer and Foodservice
Ingredients
4,069
4,152
4,123
4,180
4,313
1,564
1,602
1,765
1,773
1,800
3,0553,1492,9863,0193,074
Sales Volume MT (’000s millions)
1,4
20162017201820192020
20,975
19,920
20,431
19,214
17,199
N
ormalised Revenue ($ millions)
4
20162017201820192020
2,268
2,282
2,496
2,335
2,509
Normalised OPEX ($ millions)
4
20162017201820192020
879
812
902
1,155
1,358
Normalised EBIT ($ millions)
4
20162017201820192020
3,208
3,008
3,152
3,246
3,641
Normalised Gross Profit ($ millions)
4
Fonterra Annual Report 2020
43
+HDOWK\%XVLQHVV
Group Overview
W
e exceeded our financial targets
for the year. Our reported profit
after tax was $659 million,
up $1.3 billion over last year. We significantly
reduced our economic net interest-bearing
debt, down $1.1 billion, improved our cash
flow, and recommenced dividends.
To provide a complete view of our
performance for the 2020 financial year,
the Total Group figures presented in this
Group Overview section are inclusive
of both Continuing and Discontinued
Operations. During the 2020 financial year we
implemented a new customer-led operating
model. However, the following business
performance section has been prepared on
the same basis as previous communications
to allow for better comparability.
Our Total Group EBIT was $1,147 million
for the 2020 financial year, an increase of
$1,164 million compared to last year. This
included a net amount of $268 million from
items relating to the asset portfolio review
and from other normalisations. Taking out
the normalised items to provide a better
comparative view of earnings, our Total Group
normalised EBIT was $879 million, an increase
of $67 million compared to the prior year.
Improved performance from Ingredients and
Foodservice contributed to this increase.
Our Foodservice business had a
significantly improved first half of the
year, in particular in Greater China, but
this was partially offset by the disruption
of Covid-19 during the second half. Our
Ingredients’ earnings were down for the
first six months relative to the prior year.
However, the second half of the year
benefited from favourable product price
movements and our offshore Ingredients
businesses benefited from continued
implementation of cost efficiencies.
Our normalised Consumer EBIT
was down compared to the prior year.
This decrease was mainly due to business
disruptions in Hong Kong and Chile
plus $57 million of costs that relate to
impairments of our Chesdale™ brand
value and goodwill in our New Zealand
Consumer business.
We have reduced our economic net
interest-bearing debt by $1.1 billion and our
ratio of Debt to EBITDA from 4.4 times to
3.4 times. We have achieved this through
improved business performance, continued
financial discipline and the divestment
of non-core assets. In the first half of the
2020 financial year we completed the
sale of DFE Pharma and foodspring
®
and
received cash proceeds of $623 million.
The divestments have also resulted in a gain
on sale of $467 million. Our Free Cash Flow
has improved by $733 million to $1.8 billion.
We have maintained our focus on
strong financial discipline. In addition to
reducing Debt, our Total Group normalised
operating expenses were down from
$2,282 million to $2,268 million. Total
Group capital expenditure for the year was
$419 million, $181 million down on last year
and $81 million under our target of no more
than $500 million for the year.
We continue to make progress on
implementing our portfolio review. The sales
processes are continuing for the Fonterra-
owned China Farms and our interest in
DPA Brazil.
Based on the additional information and
further insights we have gained through the
sales process and strategic reviews for the
Fonterra-owned China Farms and DPA Brazil,
we have reduced the valuation of these two
assets and the China Farming joint venture
by a total of $232 million.
The proposed divestments of our
Fonterra-owned China Farms and DPA Brazil
have impacted how the financial statements
are presented. The sales processes for these
businesses are at the point that they meet the
accounting requirements to be classified as
‘held for sale’ on the Statement of Financial
Position, on the basis that a sale is considered
highly probable. Furthermore, because
both businesses are considered to be major
businesses in one of our segments and/or
geographical regions, their results are classified
as ‘Discontinued Operations’ within the Income
Statement. The segment note within our
financial statements excludes these businesses,
and therefore reflects the Group’s Continuing
Operations only. Therefore, the business
segments in the following pages reflect only the
Continuing Operations with further detail on
page 62 on the performance of our Fonterra-
owned China Farms.
The normalised EBIT of our businesses
classified as Discontinued Operations
improved from a loss to a profit of $32 million.
BREAKDOWN OF TOTAL GROUP PERFORMANCE
-8/< 31 JULY 2020
1='0,//,21
&217,18,1*
23(5$7,216
1
',6&217,18('
23(5$7,216
1
727$/
*5283
&217,18,1*
23(5$7,216
1
',6&217,18('
23(5$7,216
1
727$/
*5283
Volume (‘000 MT)3,9382144,1523,8422274,069
Revenue19,25566519,92020,28269320,975
Cost of goods sold(16,349)(563) (16,912)(17,236)(531)(17,767)
Gross profit2,9061023,0083,0461623,208
Operating expense(2,143)(139)(2,282)(2,139)(129)(2,268)
Other
2
701686(60)(1)(61)
Normalised EBIT833(21)81284732879
Normalisations
3
(483)(346)(829)435(167)268
EBIT350(367)(17)1,282(135)1,147
Gross margin15.1%15.3%15.1%15.0%23.4%15.3%
1 Refer to Note 1a and 2c of the FY20 Financial Statements.
2 Consists of other operating income and expenses, which include net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
3 Refer to the Non-GAAP Measures section in the FY20 Annual Statements.
Total Group capital expenditure
$
419m
Better than our target of
no more than $500 million
Normalised Total Group gross profit
$
3.2 bn
Better than our target of
in excess of $3 billion
Debt to EBITDA
3.4 x
Better than our target of
no more than 3.75x
Normalised EPS
24 cents
Top end of 15-25 cents per share
earnings guidance range
HOW FONTERRA IS MAKING THIS HAPPEN
We are working together to deliver a sustainable business.
TO DO THIS WE WILL
Support healthy, sustainable livelihoods for our farmers by returning the most value from
every drop of milk.
Build a strong co-operative by ensuring our business, including investments, delivers long-
term value.
Meet the changing needs of customers and consumers by leveraging our unique strengths
and innovating to create sustainable value for them and us.
EXCEEDED OUR 2020 FINANCIAL TARGETS
Reported profit after tax
$
659m
Up $1.3 billion
Total Group normalised gross profit
$
3,208m
Up $200 million
Fonterra Annual Report 2020
4544
+HDOWK\%XVLQHVV
Our reported profit after tax was $659 million, up $1,269 million compared to last year.
After adjusting for non-controlling interests, this represents a reported earnings per share of
43 cents. Our normalised profit after tax attributable to equity holders of the Co-operative
was $382 million, an increase of $118 million over the same period last year, which represents
normalised earnings per share of 24 cents.
Our financial performance has improved – earnings have increased, cash flow has improved
and leverage has reduced. As a result, the Board has confirmed a 5-cent dividend.
TOTAL GROUP PERFORMANCE
1
-8/<
31 JULY 2020&+$1*(
3
EBIT (17)1,147–
Net finance costs(418)(332)21%
Tax E xp ense(175)(156)11%
Reported profit/(loss) after tax(610)659–
Less: Loss attributable to non-controlling
interest
(48)(27)45%
Reported profit/(loss) attributable to equity
holders of the Co-operative
(562)686–
Reported earnings per share (cents)(35)43–
Normalisation adjustments
4
826(304)
Normalised profit after tax attributable to equity
holders of the Co-operative
26438244%
Normalised earnings per share (cents)162444%
Dividend per share (cents)–5
Return on Capital
5
5.8%6.7%–
Debt to EBITDA
6
4.4x3.4x–
Gearing ratio
7
48.5%41.4%–
Free Cash Flow (NZD Million)
8
1,0951,82867%
Capital expenditure (NZD Million)
9
(600)(419)30%
1 Includes Continuing and Discontinued Operations.
2 FY19 has been restated. Refer to Note 28 in the FY20 Financial Statements.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
4 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
5 Return on Capital is calculated as normalised EBIT less a notional tax charge, divided by capital employed including brands,
goodwill and equity-accounted investments.
6 Debt to EBITDA is calculated as total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance of
75% of cash and cash equivalents, divided by normalised earnings before interest, tax, depreciation and amortisation (normalised
EBITDA) excluding share of loss/profit of equity accounted investees and net foreign exchange losses/gains. Both Debt and
EBITDA are adjusted to include amounts relating to businesses classified as held for sale and Discontinued Operations. Prior years
restated to align with credit rating methodology.
7 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. It excludes the borrowings attributed to Discontinued Operations.
8 Free Cash Flow is the total of net cash flows from operating activities and net cash flows from investing activities and includes
proceeds from asset divestments.
9 Capital expenditure comprises purchases of property, plant and equipment and intangible assets, net purchases of livestock, and
includes Discontinued Operations.
Our Total Group sales volumes were down
2% to 4.07 million MT. This was mainly due to
a small decrease in volume in our Ingredients
business. Our Total Group sales revenue
increased by 5% or $1.1 billion to $21 billion,
mainly due to improved Ingredients pricing
and the product mix we sold. Our Greater
China Foodservice business also contributed
an additional $166 million in revenue despite
the disruption of Covid-19.
Our Total Group normalised gross margin
increased from 15.1% last year to 15.3%,
predominantly due to improved pricing in
our Ingredients business, an improvement
in our Greater China Foodservice business’
margins, and improved performance of the
discontinued businesses.
Total Group normalised gross profit
increased by 7%, or $200 million, to
$3,208 million driven by improved gross
margins in the Ingredients and Foodservice
businesses. Ingredients’ normalised gross
profit increased by $165 million due to the
improved pricing across all of our Ingredients
businesses – New Zealand, Australia
and Prolesur in Chile. Our Greater China
Foodservice normalised gross profit increased
by $62 million to $259 million, mainly due to
a recovery in butter sales and margins as well
as selling more products with higher gross
margins, such as Anchor Food Professionals™,
whipping cream and Anchor Food
Professionals™ cream cheese. Overall, our
total Foodservice normalised gross profit was
up $17 million, with Greater China’s improved
performance being partially offset by the
other regions’ performances being impacted
by Covid-19 in the fourth quarter.
Our normalised gross profit for our
Consumer business was down $77 million to
$1,001 million, predominantly due to the sale
of Tip Top and our Venezuelan business during
the 2019 financial year. When we adjust for
these divestments and take them out of our
2019 financial performance for comparative
purposes, our Consumer normalised gross
profit reduced to $28 million and this was
mainly due to the disruption of sales from
the civil unrest in Hong Kong and Chile during
the year.
The businesses classified as Discontinued
Operations and not included in our reported
segments, China Farms and DPA Brazil, had a
total normalised gross profit improvement of
$60 million to $162 million.
Overall, our Total Group normalised
operating expenses have decreased
$14 million, or 1%, to $2,268 million,
and this reflects our continued focus on
strong financial discipline, particularly as
the comparative numbers in the previous
financial year benefited from not paying
employee performance incentives. Our
Foodservice and Consumer businesses
reduced operating expenses by 3% and
9%, respectively. Australia Ingredients and
Prolesur also reduced operating expenses
from a continued focus on cost efficiencies.
These improvements were partially offset
by an increase in New Zealand Ingredients’
operating expenses, which increased our
total Ingredients’ operating expenses by 3%
relative to the prior year, mainly due to 2019
financial year benefiting from not paying
employee performance incentives.
Our improved gross profit in Ingredients,
Foodservice and our businesses classified as
Discontinued Operations, combined with a
small reduction in our operating expenses
resulted in our Total Group normalised
EBIT increasing $67 million to $879 million
compared to the prior year.
Strong financial discipline continues to
be a priority. In the financial year this resulted
in improved cash flows and lower leverage.
Our Free Cash Flow, being the cash flow
that is available to pay interest and dividends
and to reduce economic net interest-
bearing debt, increased by $733 million to
$1,828 million. We achieved this significant
increase through improved earnings, lower
capital expenditure, the sale proceeds from
divesting DFE Pharma and foodspring
®
and reducing our Beingmate shareholding.
Our Total Group Capital expenditure of
$419 million this year was $181 million
lower than last year.
As at 31 July 2020, our economic net
interest-bearing debt was $4.7 billion,
down $1.1 billon on the same period last
year, and we have improved our gearing ratio
to 41.4% from 48.5%. This measure of Debt
includes the capitalised amount of operating
leases following changes to the accounting
standard, and transitioning to this new
accounting standard added $581 million to
our measurement of Debt. This was partially
offset by the transfer from economic net
interest-bearing debt to disposal groups held
for sale of $266 million relating to DPA Brazil
and China Farms, as a result of being classified
as Discontinued Operations. We decreased
our Total Group net finance costs 21% from
the prior year due to lower average Debt and
lower interest rates.
Our working capital days increased
from 83 to 85 days. Our receivables days
decreased as a result of more sales to
customers on shorter payment terms as we
prudently manage receivables in the current
environment, but this improvement was offset
by reduced payables days reflecting the lower
payables associated with the reduction in
capital expenditure.
Our main measure of leverage is the
ratio Debt to EBITDA, where the measure
is adjusted to include amounts relating
to businesses classified as Discontinued
Operations. This leverage measure improved
from 4.4 times to 3.4 times and reflected the
combination of increased earnings and less
economic net interest-bearing debt.
During the year we shifted to a new
customer-led operating model. Our new
operating model reflects our new strategy and
has resulted in three regional customer-facing
businesses: APAC, Greater China and AMENA.
Our commentary in this section reflects
our previous operating model, which centered
around our Global Ingredients and Consumer
and Foodservice businesses. This approach is
consistent with how we have communicated
the performance of the business during the
2020 financial year and also allows for better
comparability with prior year commentary.
We intend to provide commentary based
on the new operating model for the 2021
financial year and onwards.
To provide greater transparency of
the performance of our Consumer and
Foodservice business, we have provided an
overview of the individual performance of
Consumer and Foodservice separately.
Debt reduction
$
1.1 bn
Free Cash Flow
$
1,828m
up $733 million
Debt to EBITDA
3.4x
from 4.4x
Improved
Fonterra Annual Report 2020
4746
+HDOWK\%XVLQHVV
INGREDIENTS PERFORMANCE
1,2
1250$/,6('%$6,6
3
1='0,//,21-8/< 31 JULY 2020&+$1*(
4
Volume (‘000 MT)3,1493,055(3)%
Sales revenue16,29117,3657%
Cost of goods sold(14,845)(15,754)(6)%
Gross profit1,4461,61111%
Operating expense(762)(782)(3)%
Other
5
106(2)–
Normalised EBIT7908275%
Gross margin8.9%9.3%
Discontinued Operations EBIT
6
(14)–
1 FY20 Ingredients performance represents Continuing Operations. It excludes any performance derived from the Fonterra-owned
China Farms. China Farms is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
2 Includes sales to other strategic platforms.
3 Refer to the Non-GAAP Measures section in the Annual Report.
4 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
5 Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
6 Represents losses from selling China Farms milk. China Farms is classified as a Discontinued Operations and is presented
separately in the Discontinued Operations section.
O
ur Ingredients’ normalised gross
profit increased $165 million to
$1,611 million, predominantly due to
New Zealand and Australia normalised gross
profit increasing $131 million and $21 million,
respectively. The improved gross profit was
partially offset by lower other operating
income and increased operating expenses,
resulting in normalised EBIT increasing
$37 million to $827 million.
Our Ingredients’ sales volumes declined
by 3% to 3.06 million MT. This was mainly due
to our Australia Ingredients’ milk collections
declining 12%, which impacted Australia
Ingredients sales volumes and New Zealand
Ingredients’ Global Sourcing sales volumes.
In addition, we decided to hold slightly
more year-end inventory to align with our
customers’ demand profiles over year-end and
into the first quarter of the next year.
2XU3HUIRUPDQFH
Total Ingredients’ gross margin increased from 8.9% to 9.3%, due to favourable product
mix and pricing in the second half of the financial year. This led to our Ingredients’ normalised
gross profit increasing $165 million to $1,611 million, with all three businesses, New Zealand
Ingredients, Australia Ingredients and Prolesur, contributing to this increase.
Australia Ingredients and Prolesur reduced their operating expenses through improved cost
efficiencies but Total Ingredients’ normalised operating expenses increased 3% to $782 million
due to an increase in New Zealand Ingredients’ operating expenses as the prior year benefited
from not incurring employee performance incentives.
Ingredients’ other income was down on the prior year, with last year’s performance including
earnings of $44 million from the divested business DFE Pharma.
INGREDIENTS GROSS PROFIT PERFORMANCE
1
1250$/,6('%$6,61='0,//,21-8/< 31 JULY 2020&+$1*(
New Zealand
Reference products626 648 4%
Non-reference products701 727 4%
Other 24107346%
New Zealand Ingredients1,3511,48210%
Australia Ingredients1031222%
Other859816%
Total Ingredients1,4461,61111%
1 Represents Continuing Operations.
Total Ingredients’ normalised EBIT
increased $37 million to $827 million due to
the improved gross profit. DFE Pharma has
been sold so its earnings are not included
in the current year. Removing DFE Pharma
from our 2019 financial performance for
comparative purposes. Total Ingredients’
normalised EBIT would have increased by
$81 million.
Australia Ingredients reduced its EBIT
loss by $27 million on last year, reporting a
full year normalised loss of $25 million. This
improvement came through continued focus
on managing product mix, price realisation
and cost leadership through an integrated
business model under the new customer-
led operating model. Prolesur improved its
normalised EBIT by $16 million to break even
through cost efficiencies and an improvement
in its price agreement with Soprole. New
Zealand Ingredients’ normalised EBIT was
stable at $842 million, compared to $843
million the prior year. Removing DFE Pharma
from New Zealand Ingredients’ 2019 financial
performance for comparative purposes, it
improved its EBIT performance by $43 million.
Our New Zealand milk collections for
the 2019/20 Season, 1 June 2019 to 31 May
2020, were 1,517 million kgMS, which was
0.4% down on last season. North Island
collections were down 2.1% due to pasture
growth rates impacted by dry weather. South
Island collections were up a similar percentage
due to favourable weather conditions across
Canterbury resulting in good pasture growth
and strong milk production.
Our New Zealand Ingredients business’
sales volumes were down 70,000 MT, or
2%, to 2.88 million MT. Our sales volumes
from our New Zealand Ingredients’ Global
Sourcing business were down mainly due to
lower milk collections in Australia. In addition,
we decided to hold slightly more year-end
inventory to align with our customers’ demand
profiles over year-end and into the first
quarter of the next year.
up $165 million
Ingredients’ normalised EBIT
$
827m
up $37 million
Ingredients’ normalised
gross profit
$
1,611m
Fonterra Annual Report 2020
48
+HDOWK\%XVLQHVV
NEW ZEALAND INGREDIENTS VOLUME
1,2
-8/< 31 JULY 2020&+$1*(
Production volume (‘000 MT)
Reference products1,8811,839(2)%
Non-reference products 7688075%
Sales volume (‘000 MT)
Reference products1,8641,820(2)%
Non-reference products 7747943%
1 Includes sales to other strategic platforms.
2 Table excludes bulk liquid milk. The bulk liquid milk volume for the year ended 31 July 2020 was 69,000 MT of kgMS equivalent
(year ended 31 July 2019 was 73,000 MT of kgMS equivalent).
Our New Zealand Ingredients’ normalised gross profit increased $131 million, or 10%, to
$1,482 million, made up of a $48 million increase from our New Zealand Ingredients’ products
and an $83 million increase from our non-New Zealand product and bulk liquid milk.
Our New Zealand Ingredients business manufactures five ingredient products that inform the
Farmgate Milk Price range. These are referred to as reference products, while all other products
are referred to as non-reference products. The strong growth in our Foodservice sales volumes
over the first half of the year impacted our product mix of our Ingredients’ products. New Zealand
Ingredients’ production volumes and sales volumes from New Zealand sourced milk for non-
reference products increased 5% and 3%, respectively. This was offset by lower production
and sales for New Zealand sourced milk for reference products. As the five reference products
drive the cost of milk used to make non-reference products, the relative price differences and
movements of the two sets of products is an important contributor to our EBIT performance.
NEW ZEALAND INGREDIENTS REVENUE AND PROFIT MARGIN
1,2
-8/< 31 JULY 2020
0,//,213(507$ MILLION$ PER MT
Revenue
Reference products8,8334,7399,5405,192
Non-reference products 4,2025,4274,7706,006
Cost of milk
Reference products(6,673)(3,580)(7,207)(3,959)
Non-reference products (2,398)(3,098)(2,829)(3,562)
Gross profit
Reference products626336 648356
Non-reference products701 905727 916
1 Includes sales to other strategic platforms.
2 Table excludes bulk liquid milk sales.
Compared to the prior year, non-reference
product revenue per metric tonne has
increased by $126 per MT more than reference
product revenue increased, reflecting the
strong demand and higher market pricing for
Casein, Milk Protein Concentrate (MPC) and
Whey Protein Concentrate (WPC).
Whilst non-reference gross profit per
metric tonne has improved on the prior year,
the milk cost of protein has increased by
proportionally more than the milk cost of
fat. This has impacted the gross profit of the
non-reference products’ portfolio, as this
portfolio is weighted to protein products such
as Casein, MPC and WPC. Likewise, the lower
relative milk cost of fat has had a favourable
impact on the gross profit for the reference
products’ portfolio.
In addition to the increased cost of milk,
we also had higher operational costs this year
at our manufacturing sites. In total, our gross
profit contribution from our New Zealand
Ingredients’ products increased $48 million,
$22 million and $26 million from our reference
and non-reference products, respectively.
The gross profit contribution from
non-New Zealand product increased by
$83 million due to favourable phasing of
logistic costs, higher margins within our
Global Sourcing business and our bulk liquid
margins improved as a result of declining milk
costs during the second half of the financial
year relative to the prior year.
Our New Zealand Ingredients’ business’
operating expenses were up on last year, due
to 2019 benefiting from not paying employee
performance incentives.
Our Fonterra-owned China Farms are
classified as a Discontinued Operation.
Therefore, our China Farming joint venture
performance is reported in our New Zealand
Ingredients’ results. The China Farming
joint venture has reduced its full year loss
from a $19 million loss last year to a loss of
$12 million for the current year. Reduced
animal husbandry costs have assisted this
improvement.
The favourable pricing impact to gross
profit received in the second half was offset
by the increase in operating expenses,
resulting in a stable New Zealand Ingredients’
normalised EBIT performance, at $842 million
compared to $843 million the prior year.
Adjusting 2019 EBIT for the earnings received
from the divested DFE Pharma business, our
New Zealand Ingredients’ normalised EBIT
improved $43 million year-on-year.
Australia Ingredients’ sales volumes
declined 18% to 269,000 MT predominantly
as a result of reduced milk supply. Milk
collections have been impacted by a
combination of drought, high on-farm input
costs and a highly competitive milk supply
market which has seen losses primarily to milk
brokers. Fonterra Australia has also made the
conscious decision to purchase less third-party
milk and to prioritise a value-add product mix
from its own milk collections. Overall, our
Australian milk collections from all sources
declined 12% to 107.8 million kgMS.
We increased our Australia Ingredients’
gross profit from $10 million to $31 million
through reduced costs as a result of closing
the Dennington site, better utilisation of
our Stanhope site, and allocating more milk
to higher-returning cheddar and mozzarella
products, rather than the lower-returning
liquid and whole milk powder products.
Relative to the prior year, the Australian dollar
has declined against the US dollar, which is
favourable for our US dollar denominated
export sales. Coupled with improved product
pricing, it has offset the increased milk price
in Australia.
Despite the ongoing challenges in
Australia, our Ingredients business has
reduced its full year loss by $27 million from
a loss of $52 million to a loss of $25 million,
through continued focus on managing product
mix, price realisation and cost reductions.
In December 2019, we purchased
Fundación Isabel Aninat’s 13.6%
shareholding in Prolesur, our Chilean
Ingredients business, and this took our
ownership to 99.9%. The acquisition of the
Fundación shareholding cost $29.3 million
and has enabled us to integrate our two
Chilean businesses (Prolesur and Soprole) to
generate operating efficiencies across the
supply chain from milk collection, processing
and administration. Prolesur has also achieved
additional cost efficiencies from increasing
its milk collections. Like Soprole, Prolesur’s
recent performance has been impacted by
challenging market conditions in Chile.
Fonterra Annual Report 2020
5150
+HDOWK\%XVLQHVV
Consumer
& Foodservice
CONSUMER AND FOODSERVICE PERFORMANCE
1,2
1250$/,6('%$6,6
3
1='0,//,21-8/< 31 JULY 2020&+$1*(
4
Volume (‘000 MT)1,602 1,564 (2)%
Sales revenue6,896 6,902 0%
Cost of goods sold(5,398)(5,465)(1)%
Gross profit1,498 1,437 (4)%
Operating expense(1,089)(1,009)7%
Other
5,6
2 (71)–
Normalised EBIT411 357 (13%)
Gross margin21.7%20.8%
Discontinued Operations EBIT(8)21–
1 FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2 FY20 Consumer and Foodservice performance represents Continuing Operations. It excludes any performance derived from
DPA Brazil. DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
3 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
4 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
5 Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
6 Includes impairments of $57 million. Refer to Note 17 of the FY20 Financial Statements.
T
he combined normalised earnings
performance of our Consumer and
Foodservice businesses were stable
despite the disruption of Covid-19, and after
excluding impairments of $57 million included
in our Consumer business.
The combined normalised EBIT of our
Consumer and Foodservice businesses for the
first six months of the year was $263 million,
up 105% on the prior year. After adjusting
for the impairments included in Consumer,
the combined normalised EBIT in the second
half was $151 million. The strong first half
was due to growth in our Greater China and
Asia Foodservice businesses and reduced
operating expenses in our Consumer business.
Our Foodservice business was significantly
2XU3HUIRUPDQFH
Consumer and Foodservice
normalised gross profit
$
1,437m
Consumer and Foodservice
normalised EBIT
$
357m
impacted by the emergence of Covid-19
during the second half. Our gross profit in
Greater China rebounded quickly during the
third quarter, but Asia, Oceania and Latin
America were impacted in the fourth quarter.
In addition, challenging trading environments
throughout the year in Chile and Hong Kong
have impacted our Latin America Consumer
and Foodservice and Greater China
Consumer businesses.
In the subsequent pages, 54-61, we have
presented the performance of the Consumer
and Foodservice businesses separately and by
region to provide greater transparency and
understanding of the key performance drivers
in each of the businesses.
Consumer and Foodservice
normalised gross margin
20.8
%
FRQWHUUD$QQXDO5HSRUW
53
+HDOWK\%XVLQHVV
Foodservice
O
ur Foodservice normalised EBIT
increased 14% to $209 million.
After a strong first half performance,
our Foodservice business was significantly
impacted by the emergence of Covid-19
during the second half. Greater China’s
normalised gross profit rebounded quickly
during the third quarter, but Asia, Oceania
and Latin America were impacted in the
fourth quarter.
Overall, our Foodservice sales volumes
decreased 5% to 444,000 MT due to the
impact of Covid-19 related lockdowns in Asia
and Oceania. Greater China was impacted by
Covid-19 early in the third quarter but its gross
profit rebounded quickly, and as a result this
only partially offset its improved performance
in the first half from the strong demand for
our products from bakery and beverage house
customers. The impact of Covid-19 in the
second half of the year in Asia, Oceania and
Latin America partially offset Greater China’s
overall improved performance, with all three
regions making EBIT losses in the second half
and finishing the year down on the prior year
as the tourism and hospitality industries were
significantly impacted by the restrictions put
in place to manage the pandemic.
2XU3HUIRUPDQFH
FOODSERVICE PERFORMANCE
1
1250$/,6('%$6,6
1='0,//,21-8/< 31 JULY 2020&+$1*(
Volume (‘000 MT)465444(5)%
Sales revenue2,6732,652(1)%
Cost of goods sold(2,253)(2,215)2%
Gross profit4204374%
Operating expense(233)(226)3%
Other
4
(3)(2)43%
Normalised EBIT18420914%
Gross margin15.7%16.5%
Discontinued Operations EBIT–––
1 FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
4 Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
Our Foodservice normalised gross margin improved from 15.7% to 16.5% and normalised
gross profit increased $17 million to $437 million. This was mainly due to Greater China’s
improved butter sales volumes and margins, combined with growth in the sales of higher
margin products.
Overall, Foodservice operating expenses were down $7 million, or 3%, and normalised EBIT
was up $25 million to $209 million.
FOODSERVICE REGIONAL PERFORMANCE
1
6$/(692/80( Ʌ07 1250$/,6('(%,7
1='0,//,21
-8/< 31 JULY 2020&+$1*(
3
-8/< 31 JULY 2020&+$1*(
3
Foodservice465444(5)%18420914%
Greater China
4
2372579%11416949%
Asia 9381(12)%3623(35)%
Oceania10476(27)%2816(43)%
Latin America3230(8)%60(91)%
1 Summing of individual numbers from the regional and divisional breakdown may not add up to the totals in each category
due to rounding.
2 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
4 FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
Greater China Foodservice normalised
gross margin
16.3
%
from 13.8%
Asia Foodservice normalised gross margin
14.9
%
from 15.8%
Fonterra Annual Report 2020
5554
+HDOWK\%XVLQHVV
GREATER CHINA
Our Greater China Foodservice normalised
EBIT increased 49% to $169 million,
comprising $101 million in a strong first half
performance and $68 million in the second
half. Sales volumes increased 9% on last year
to 257,000 MT. Despite the disruption of
Covid-19, China’s Foodservice business grew
as we continued to target dairy conversion
into traditional Chinese foods. Our continual
development of applying dairy in traditional
foods created approximately 270 new
food applications over the last 12 months,
expanding our product offerings into food
types such as cream for Daifuku and chilled
cream buns, cream cheese into cheese
moon cakes and beverage macchiatos, and
mozzarella into cheese shrimp balls.
We have entered into new Chinese dining
channels, such as hot pot restaurants and
continued our city expansion, now in 350
cities compared to 300 cities last year. This has
driven strong market demand for our Anchor
Food Professionals™ UHT whipping cream and
Anchor Food Professionals™ cream cheese in
Mainland China.
Covid-19 related restrictions in Mainland
China impacted our gross profit in the early
part of the third quarter. Our team reacted
quickly to these restrictions by introducing
live streaming of product demonstrations with
20 live sessions created on our own platforms
that attracted approximately 1.9 million
viewers and ensured a connection of our
Anchor Food Professionals™ team with
our customers.
Normalised gross margin increased
significantly from 13.8% to 16.3%, due to a
recovery in butter margins as well as selling
more products with higher gross margins,
such as Anchor Food Professionals™ whipping
cream and Anchor Food Professionals™ cream
cheese. The improved margins are reflected in
the $62 million, or 31%, increase in normalised
gross profit to $259 million. Our operating
expenses in Greater China were stable.
ASIA
Our Asia Foodservice business recorded
growth in several key markets during the
first three quarters of the financial year.
However, towards the end of the third
quarter as Covid-19 spread through Asia
and governments closed borders and put
restrictions in place to manage the outbreak,
the foodservice sector was significantly
impacted in the fourth quarter.
Our sales volumes in Asia Foodservice
decreased 12% to 81,000 MT on the prior
year after being 13% up in the first half, with
fourth quarter sales volume down 50% on
the same period last year. Gross profit in the
Middle East, Philippines and Thailand was
impacted the most, as the tourism trade is an
important part of these businesses and the
Covid-19 related border closures impacted
tourism significantly.
First half gross profit was 58% up
on the prior year predominantly due to
improvements from Indonesia and the
Philippines. Indonesia had grown its gross
profit with a focus on high margin products
and revenue growth management, and
the Philippines had improved gross profit
mainly through growing volumes as a result
of winning new customers in the bakery and
beverage channels. These strong first half
performances were impacted in the fourth
quarter due to Covid-19 lockdowns.
Our full year normalised gross profit for
our Asia Foodservice business was down $13
million, or 14%, to $80 million due to the
lower sales volumes and to a lesser extent
reduced pricing to move short shelf-life stock
that had aged during the period of complete
Covid-19 lockdown. The need to reduce
pricing impacted our normalised gross margin,
which had previously been ahead of the prior
year for the first three quarters, from 15.8%
in the prior year to 14.9%. Our normalised
gross profit for the fourth quarter was a loss of
$1 million.
Despite the impact of Covid-19, our
Indonesia Foodservice business was able
to grow its gross profit and earnings due
EBIT was up $5 million on the prior year, at $7 million. However, the impact of Covid-19 in the
last quarter was significant, with the loss for the quarter offsetting the earnings of the first
nine months.
Soprole is the largest contributor to our Latin America Foodservice business with dairy
desserts being the main category. In the first half the profitability of this business was impacted
by the civil unrest relating to the increased cost of living, privatisation and social inequality. The
civil unrest escalated to vandalism of city infrastructure, including supermarkets, and impacted
sales. The third quarter had seen growth, but this was offset by the loss recorded in the fourth
quarter as the Government took measures to manage the outbreak of Covid-19.
FOODSERVICE NORMALISED EBIT
1
:
KEY PERFORMANCE DRIVERS
1250$/,6('%$6,6
1='0,//,21-8/< 31 JULY 2020&+$1*(
3
EBIT prior year16818410%
Volume43(19)–
Price(81)102–
Cost of goods sold70(66)–
Operating expenses and other(16)8–
EBIT18420914%
1 FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
to focusing on higher margin foodservice
products such as Anchor Food Professionals™
butter sheets.
Operating expenses in Asia were relatively
stable with lower costs associated with the
lower sales volumes offset by increased
provisions for doubtful Debt due to Covid-19.
As a result of these sales volumes and
reduced gross margins, our Asia Foodservice
normalised EBIT decreased $13 million to
$23 million.
Our Asia markets remain challenging as
many borders remain closed due to Covid-19.
Our teams continue to optimise their product
portfolios to suit the current market and
work closely with customers to understand
demand and manage inventory. We expect the
recovery in our Asia markets will be slower
than what we experienced in our Greater
China Foodservice business.
OCEANIA
Our Oceania Foodservice sales volumes
decreased 27% to 76,000 MT year on year.
First half sales volumes were down 6%,
predominantly due to reduced sales volumes
of low margin bulk product following industry
consolidation in New Zealand. Second half
sales volumes were down 44% as New Zealand
and Australian borders were closed to
international tourism and varying levels of
country-wide restrictions were implemented
within each country to manage the Covid-19
outbreak, and these restrictions significantly
impacted the hospitality and tourism industry.
Oceania Foodservice normalised gross
profit was down 26% to $72 million, reflecting
the decline in sales volume and higher dairy
input costs in New Zealand. New Zealand was
able to partially offset the impact of lower
volumes and increased input costs through
reduced distribution costs and other operating
efficiencies, and Australia’s operating expenses
remained stable. Overall Oceania Foodservice
normalised EBIT declined $12 million, or
43%, to $16 million. Our Oceania Foodservice
businesses worked closely with their customers
during this challenging period, which was
reflected in the Australian business being
recognised by distributors for best in class
and industry leading customer engagement
in the Independent Advantage customer
satisfaction survey.
LATIN AMERICA
Our Latin American Foodservice business
normalised EBIT was less than $1 million for
the year, down $6 million on the prior year.
At the end of the third quarter normalised
Greater China Foodservice
normalised gross profit
$
259m
up 31%
Greater China Foodservice
normalised EBIT
$
169m
up 49%
Fonterra Annual Report 2020
5756
+HDOWK\%XVLQHVV
2XU3HUIRUPDQFH
O
ur Oceania and Asia Consumer
normalised EBIT improved despite
the disruption of Covid-19, after
excluding 2020 impairments and earnings
from 2019 divested businesses. Latin America
continues to be impacted by challenges in
Chile, and Greater China earnings were down
due to challenges in Hong Kong offsetting
earnings growth in Mainland China.
Overall, Consumer sales volumes were
down 1% on last year to 1.12 million MT.
This was mainly due to lower sales in Soprole
where the civil unrest and vandalism of
supermarkets in Chile impacted Soprole’s
dessert, yoghurt and mature cheese sales
volumes. The sales in the 2019 financial year
included Tip Top and our Venezuelan business
which we have since sold. Removing the Tip
Top and Venezuelan sales volume in 2019 for
comparative purposes, shows the year-on-year
total Consumer sales volume increased 1%.
Total Consumer normalised gross profit
was down 7% on last year to $1,001 million.
Consumer normalised gross margin decreased
by 2% year-on-year from 25.5% to 23.5%.
This was predominantly due to reduced sales
of our high margin products in Hong Kong,
and Soprole’s gross margin reducing in the
second half due to increased input costs after
a realignment of the price agreement it has
with Prolesur for ingredient products.
JesJess, s, AucAukland
Consumer normalised revenue
$
4,251m
Up $28 million
Consumer normalised gross profit
$
1,001m
Consumer normalised
operating expenses
$
783m
Down $77 million
Down $73 million
The normalised operating expenses were
down a total of $73 million to $783 million.
For comparative purposes, removing the
Tip Top and Venezuelan operating expenses
from the 2019 financial year sees Consumer’s
reduction in normalised operating expenses go
from $73 million to $28 million year-on-year.
Our Consumer normalised EBIT includes
$57 million of costs that relate to impairments
of intangible assets. Our New Zealand
Consumer business had a goodwill impairment
of $21 million, and our Asia and Greater China
Consumer businesses each incurred half of
a $36 million impairment to our Chesdale™
brand. This impairment was not normalised.
If these impairments were not included,
our Consumer normalised EBIT would have
shown a decrease of 10% year-on-year, with
the decrease mainly due to the challenges
in Hong Kong and Chile. Tip Top’s earnings
and the Venezuelan business’ losses offset
at a total Consumer EBIT level so adjusting
for the divestments undertaken in the 2019
financial year has minimal impact. Including
the impairments results in our Consumer
normalised EBIT decreasing 35% from
$227 million to $149 million.
The Consumer segment results do not
include the Discontinued Operations of DPA
Brazil, which improved its EBIT from a loss
of $8 million to a profit of $21 million. This is
presented on page 62.
CONSUMER PERFORMANCE
1
1250$/,6('%$6,6
1='0,//,21-8/< 31 JULY 2020&+$1*(
Volume (‘000 MT)1,1371,120(1)%
Sales revenue4,2234,2511%
Cost of goods sold(3,144)(3,250)(3)%
Gross profit1,0781,001(7)%
Operating expense(856)(783)9%
Other
4
5(69)–
Normalised EBIT227149(35)%
Gross margin25.5%23.5%
Discontinued Operations EBIT(8)21–
1 FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil.
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
2 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
4 Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
FRQWHUUD$QQXDO5HSRUW
58
+HDOWK\%XVLQHVV
ASIA
Asia Consumer sales volumes were down 3%
to 198,000 MT, predominantly due to the
timing of shipments to Sri Lanka. We improved
our gross profit in the Middle East through
improved gross margins on our consumer
powders, and in Thailand due to lower import
costs and improved revenue management
in the second half of the year. These gains
were offset by the other markets reporting
small declines on the prior year due to the
disruption caused by Covid-19 in the fourth
quarter. Overall, our normalised gross profit
was down $2 million, or 1%, to $357 million.
Most markets within our Asia Consumer
business reduced operating expenses.
However, the Asia Consumer businesses
incurred half of a $36 million impairment to
our Chesdale™ brand, as the latest forecast
earnings attributable to the brand are lower
than previously forecast. The other half was
incurred in our Greater China business.
Adjusting for the impairment, normalised
EBIT increased $3 million to $121 million.
Not adjusting for the impairment our Asia
Consumer normalised EBIT decreased
$15 million to $103 million.
OCEANIA
Our Oceania Consumer business performance
was largely unimpacted by the Covid-19
outbreak in the region and our teams in both
New Zealand and Australia worked closely
with their customers to help reduce the impact
on their businesses. This was recognised
by our New Zealand business being ranked
number one supplier to New Zealand grocery
outlets out of 28 suppliers in the Independent
Advantage customer satisfaction survey. This
is a significant improvement from previous
rankings, where in 2018 and 2019 we were
ranked 26 and 13, respectively.
Our Oceania Consumer sales volume
increased 3% to 527,000 MT after adjusting
the 2019 financial year for the sale of Tip
Top. Our Australia business improved sales
volumes predominantly due to demand
growth in private label beverages, spreads and
across all our cheese brands. Our New Zealand
Consumer business has chosen to operate a
leaner product mix focusing on higher margin
products. Not adjusting for the sale of Tip Top,
our sales volume increased 3,000 MT, or 1%.
Our Australian Consumer business
improved its gross margin due to a focused
revenue growth strategy in all categories,
particularly in chilled spreads, where Western
LATIN AMERICA
At half year we reported the sale process for
DPA Brazil, our Consumer business in Brazil,
was well underway, and had advanced to the
point that the business met the requirements
to be classified as ‘held for sale’ in our financial
statements. Furthermore, it met the definition
of a Discontinued Operation because it is a
separate major geographical area of operation.
The outbreak of Covid-19 in Brazil has slowed
the sale process but the business remains a
Discontinued Operation, and as a result, the
segment note within our financial statements
has been prepared excluding DPA Brazil.
Our Latin America Consumer
performance continues to be impacted by
the challenging trading conditions in Chile.
In the last quarter of the 2019 financial year,
Soprole, our Consumer business in Chile,
showed signs of recovery from a ‘buy local’
marketing campaign, which impacted the
sales and earnings of a number of foreign-
owned companies. However, civil unrest and
vandalism of supermarkets, mainly during
the first half of this financial year, has meant
a reduction in Soprole’s dessert, yoghurt and
mature cheese sales volumes.
Overall, Latin America sales volume
compared to the prior year decreased 11,000
MT to 322,000 MT. Our sales volumes last
year include those from our Venezuelan
business, which we have since sold. Removing
the Venezuelan volumes from our 2019
financial performance for comparative purposes,
the year-on-year decline is 4,000 MT.
Our Latin America Consumer normalised
gross profit decreased $19 million to $232
million because of lower Soprole sales volumes
in the first half and a decline in gross margin in
the second half. The decline in Soprole’s gross
margin in the second half is due to higher
input costs from a weakening of the Chilean
peso to the US dollar and a realignment of the
price agreement between our now integrated
Chilean businesses, Soprole and Prolesur. The
change in the price agreement is neutral at
a Group level because Prolesur’s increased
income offsets the increased expense
to Soprole.
In the 2019 financial year, Soprole
made a $15 million payment to Prolesur, our
Ingredients business in Chile. This related
to a prior year one-off milk cost. At a Group
level this one-off payment between the two
business units had minimal impact. This
payment was lower in this year, which was the
main reason for reduced operating expenses
in our Latin America Consumer business. Latin
GREATER CHINA
Our Greater China Consumer performance continues to be impacted by the challenging trading
conditions in Hong Kong, and performance has been impacted further by the travel restrictions
put in place to manage Covid-19, which impacted sales volume that are usually generated through
Chinese tourism. In addition, Greater China Consumer included half of the $36 million impairment
of the Chesdale™ brand. This impairment was not normalised.
Our Mainland China and Taiwan Consumer businesses focused on value growth strategies.
China Consumer had a quick turnaround from the initial disruption of Covid-19, leveraging strong
connections through our e-commerce platforms, whilst Taiwan delivered gross profit similar to
last year despite the Covid-19 disruption. Overall, Greater China sales volumes declined 4% to
73,000 MT, partly due to the challenges in Hong Kong but also due to lower sales in Mainland
China as we changed distribution models in some channels to align with our new strategy.
Our normalised gross profit decreased $31 million to $114 million. The majority of the decline
is due to reduced sales of our higher margin Anlene™ and Anmum™ products in Hong Kong, which
is reflected in our Greater China normalised gross margin decreasing from 40.1% to 32.8%.
Operating expenses were favourable to last year as we responded to challenging conditions in
Hong Kong and the Covid-19 pandemic.
Adjusting for the impairment of the Chesdale™ brand, our Greater China normalised EBIT
declined $22 million to a loss of $3 million. Not adjusting for the brand impairment, our Greater
China Consumer normalised EBIT decreased $40 million to a loss of $21 million.
CONSUMER NORMALISED EBIT
1
: KEY PERFORMANCE DRIVERS
1250$/,6('%$6,6
1='0,//,21-8/< 31 JULY 2020&+$1*(
3
EBIT prior year316227(28)%
Volume(15)(16)(6)%
Price(122)91–
Cost of goods sold53(152)–
Operating expenses and other(5)(1)60%
EBIT227149(35)%
1 FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil.
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
2 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
Star™ continues to lead the market in both
volume and value market share. Australia’s
improved performance was offset by our
New Zealand Consumer business as it adjusts
to a leaner business model focusing on our
core brands and working with our customers
to execute a more profitable range. After
adjusting for the sale of Tip Top, our Oceania
Consumer normalised gross profit increased
$23 million to $298 million due to Australia’s
increased volume and improved pricing
effectiveness. Not adjusting for the sale of Tip
Top, our normalised gross profit decreased
$26 million. Rationalising our operations
within our New Zealand business, as part of
managing a leaner product mix, resulted in
operating expenses in our Oceania Consumer
business decreasing. Operating expenses in
Australia were slightly higher due to the prior
year benefiting from not incurring employee
performance incentives. In addition, our
New Zealand business results included a
$21 million impairment of Fonterra Brands
New Zealand’s goodwill.
Adjusting for Tip Top and the goodwill
impairment, Oceania Consumer normalised
EBIT increased $14 million, or 31%, to $59
million. The improved performance reflects
the strong growth in Australia gross profit.
Not adjusting the 2019 financial year for the
sale of Tip Top or the New Zealand Brands’
goodwill impairment in the current year,
shows that our Oceania Consumer normalised
EBIT decreased $16 million to $38 million.
CONSUMER REGIONAL PERFORMANCE
1,2
6$/(692/80( Ʌ07 1250$/,6('(%,7
3
1='0,//,21
-8/< 31 JULY 2020&+$1*(
4
-8/< 31 JULY 2020&+$1*(ɔ
Consumer1,1371,120(1)%227149(35)%
Asia 204198(3)%118103(12)%
Oceania5245271%5438(28)%
Latin America²333322(3)%3628(22)%
Greater China7673(4)%19(21)–
1 Summing of individual numbers from the regional and divisional breakdown may not add up to the totals in each category
due to rounding.
2 FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil.
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
3 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
4 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to
rounding of reported figures.
Asia normalised EBIT
$
103m
down $15 million
America Consumer normalised EBIT decreased
$8 million to $28 million, due to the lower
Soprole sales volume and increased input costs.
Adjusting the 2019 financial performance for
the Venezuelan business increases the year-on-
year decrease to $18 million.
#1
FONTERRA BRANDS
NEW ZEALAND RANKED
IN INDEPENDENT ADVANTAGE
CUSTOMER SURVEY
Fonterra Annual Report 2020
6160
+HDOWK\%XVLQHVV
Discontinued
Operations
2XU3HUIRUPDQFH
T
he normalised EBIT from our two
businesses classified as Discontinued
Operations improved from a loss of
$21 million to a profit of $32 million.
The proposed divestments of our
Fonterra-owned China Farms and our interest
in DPA Brazil have impacted how the financial
statements are presented. The sales processes
for these businesses are at the point that
they meet the accounting requirements to be
classified as ‘held for sale’ on the Statement
on Financial Position, on the basis that a sale
is considered highly probable. Furthermore,
because both businesses are considered to
be major businesses in one of our segments
and/or geographical regions, their results are
classified as ‘Discontinued Operations’ within
the Income Statement. The segment note
within our financial statements excludes these
businesses, and therefore reflect the Group’s
Continuing Operations only.
As at 31 January 2020, when China Farms
and DPA Brazil were classified as ‘held for
sale’ the accounting standards required that
we cease deducting depreciation costs. This
meant that from 1 February 2020 to 31 July
2020 normalised EBIT for the China Farms
and DPA Brazil businesses was $6 million and
$5 million higher, respectively, than if they had
not been classified as ‘held for sale’.
The sales processes are continuing for
China Farms and our interest in DPA Brazil.
Based on the additional information and
further insights we have gained through the
sales process and strategic reviews for China
Farms and DPA Brazil, we have reduced the
valuation of these two assets by a total of
$167 million.
DPA BRAZIL
In the first half of this year, the DPA Brazil
business had increased sales volumes due to
the local economy improving and increasing
its market share in both value and volume. The
disruption of Covid-19 during the second half
of the year impacted sales, and sales volume
and revenue ended the year down on the prior
year. DPA Brazil has been able to maintain the
1% increase in market share value it gained
during the first half to 17.5%. DPA Brazil’s
gross profit benefited from lower input costs,
and combined with lower operating expenses,
normalised EBIT improved from a loss of
$8 million to a profit of $21 million.
Despite the improved performance, Brazil
continues to remain a challenging market to
operate in. In the 2019 financial year, we wrote
down the value of the business by $143 million
and the divestment process has resulted in
a further impairment of $104 million before
tax. This business in Brazil is a joint venture
and the loss is shared with our joint venture
partner. Therefore, at the level of profit after
tax attributable to equity holders of the Co-
operative, the impact of the impairment is
$45 million.
CHINA FARMS
As a result of our Fonterra-owned China Farms being classified as a Discontinued Operation,
the China Farms segment note in our financial statements is no longer presented. To provide a
complete view of our performance during the 2020 financial year, we have continued to report
China Farms’ performance in this section.
Our sales volumes increased 8% to 22,000 MT due to last year’s volumes being impacted
by continuous rainstorms and flooding in Yutian. Improved feed management and increased
productivity per cow has also helped increase sales volumes.
CHINA FARMS FINANCIAL PERFORMANCE
1250$/,6('%$6,6
1
1='0,//,21 2020&+$1*(
Volume
3
(‘000 MT)20228%
Revenue24728214%
Cost of goods sold(261)(249)5%
Gross profit(14)33–
Operating expenses(16)(23)(46)%
Other
4
161(91)%
China Farms normalised EBIT (14)11–
Gross margin (5.7)%11.9%
1 Refer to the Non-GAAP Measures section in the FY20 Annual Report.
2 Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding
of reported figures.
3 Includes sales to other strategic platforms.
4 Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on
equity accounted investees and impairment of intangible assets not included in the strategic review.
Our China Farms’ normalised gross profit
improved $47 million from a loss of $14 million
to a profit of $33 million. This was driven
by strong market demand and a focus on
customer portfolio optimisation, enabling us
to achieve higher external milk prices. During
the 2020 financial year, the average milk price
was RMB 3.91 per kg, up from RMB 3.67 the
prior year and the highest achieved annual
average price over the past five years.
The higher milk prices achieved were
also supported by a more focused breeding
program enabling a flatter milk supply curve
through the year.
Operating expenses increased $7 million
to $23 million due to rightsizing our herd.
Livestock removed from the herd were sold
below fair value. Last year our China Farms
livestock increased in value and this increased
value was reported in other income. It was
not repeated this year and Other, which
includes other income, was down $15 million
to $1 million.
China Farms’ EBIT increased $25
million from a loss of $14 million to a profit
of $11 million, driven by the improved
gross profit.
Discontinued Operations
normalised gross profit
1
$
162m
from $102 million
Discontinued Operations normalised EBIT
1
$
32m
from $(21) million
1 Accounting standards require that we cease deducting
depreciation costs when China Farms and DPA Brazil were
classified as ‘held for sale’ as at 31 January 2020. For the six
months to 31 July 2020, this was $6 million and $5 million,
respectively, for China Farms and DPA Brazil.
Fonterra Annual Report 2020
63
+HDOWK\%XVLQHVV
Market Statistics
-8/< -8/< -8/< -8/< JULY 2020
Fonterra Seasonal Statisitics
1
Total New Zealand milk collected (million litres)17,58517,05116,93217,12316,876
Highest daily volume collected (million litres)86.980.182.085.482.6
New Zealand shareholder supply milk solids collected (million kgMS)
2
1,4531,4171,4041,4301,429
New Zealand contract supply milk solids collected (million kgMS)
2
1131091019387
New Zealand milk solids collected (million kgMS)1,5661,5261,5051,5231,517
Total number of shareholders at 31 May10,57910,26710,1629,8879,461
Total number of sharemilkers at 31 May3,0982,7222,7122,6022,451
Total number of shares on issue at 31 May (million)1,6021,6071,6121,6121,612
Shareholder Supplier Returns
Farmgate Milk Price (per kgMS)
3
3.906.126.696.357. 1 4
Dividend (per share)0.400.400.10–0.05
Dividend yield (%)
4
7. 36 .71 .7–1.3
Cash payout (per share)
5
4.306.526.796.357. 1 9
Retentions (per share)
6
0.110.06––0.38
Weighted average share price ($ NZD)
7
5.485.965.844.633.79
Weighted Average Commodity Prices ($ USD per MT FOB)
Whole Milk Powder
8
2,1112,8553,0912,9073,110
Skim Milk Powder
8
1,8032,2161,9682,2162,755
Butter
8
2,8304,2215,5754,4484,140
Cheese
9
2,7663,7633,8533,7724,011
Fonterra’s average NZD/USD conversion rate
10
0.710.700.710.690.66
Staff Employed
Total staff employed (000s, permanent full-time equivalents)21.321.421.520.019.6
New Zealand11.411.711.911.411.5
Overseas9.99.79.68.68.1
Total Group Overview
11,12,13
-8/<-8/<-8/<-8/< JULY 2020
Income
Volume (000s MT)4,3134,1804,1234,1524,069
Normalised sales revenue ($ million)17,19919,21420,43119,92020,975
Normalised EBITDA ($ million)
14
1,9281,6811,4461,3731,506
Normalised EBIT ($ million)
15
1,3581,155902812879
Normalised profit after tax ($ million)
16
789781382264382
Reported earnings per share0.510.46(0.14)(0.35)0.43
Normalised earnings per share0.490.490.240.160.24
Revenue Margin Analysis
EBITDA
17
11.2%8.7%7.1%6.9%7. 2 %
EBIT
18
7.9%6.0%4.4%4.1%4.2%
Profit after tax
19
4.6%4.1%1.9%1.3%1.8%
Cash Flow ($ million)
Operating cash flow
20
3,2781,3761,5481,1231,492
Free Cash Flow
20
2,1846706001,0951,828
Net working capital
21
2,1593,0553,4323,1223,417
Capital Measures
Total equity excluding hedge reserves ($ million)6,8837,0566,6166,1026,602
Economic net interest-bearing Debt ($ million)
22
5,4735,6016,1995,7494,659
Gearing Ratio
23
44.3%44.3%48.4%48.5%41.4%
Debt to EBITDA
24
3.2x3.8x4.6x4.4x3.4x
Capital employed (including intangibles and EAI) ($ million)
25
13,18812,71713,05212,87211,961
Capital employed (excluding intangibles and EAI) ($ million)
26
9,3929,0939,5529,6179,806
Capital expenditure ($ million)
27
944851861600419
Return on capital (including intangibles and EAI)
28
9.2%8.3%6.3%5.8%6.7%
Return on capital (excluding intangibles and EAI)
29
12.4%11.1%8.0%7.6%7. 3 %
Historical
Financial
Summary
2XU3HUIRUPDQFH
Fonterra Annual Report 2020
6564
+HDOWK\%XVLQHVV
Ingredients
11,12, 30
-8/<-8/<-8/< JULY 2020
Ingredients
Volume (000s MT)
31
3,0192,9863,1493,055
Normalised sales revenue ($ million)15,26616,30616,29117,365
Normalised gross profit ($ million)1,4731,4721,4461,611
Normalised gross margin %
32
9.7%9.0%8.9%9.3%
Normalised earnings ($ million)943879790827
Normalised earnings margin %
33
6.2%5.4%4.8%4.8%
Divisional Breakdown – Ingredients
11,12,34
-8/<-8/<-8/< JULY 2020
New Zealand Ingredients
Sales Volume (000 MT)
35
Reference Products1,8411,7941,8641,820
Non-reference Products696620774794
Total Volume (000s MT)
31
2,8792,7782,9512,881
Revenue ($/MT)
35
Reference Products4,2624,8514,7395,192
Non-reference Products5,5675,6375,4276,006
Total Revenue ($ million)14,08714,56414,89615,858
Gross Profit ($/MT)
35
Reference Products232309336356
– Margin5.4%6.4%7.1%6.9%
Non-reference Products1,1651,275905916
– Margin20.9%22.6%16.7%15.2%
Normalised gross profit ($ million)1,3331,2971,3511,482
Normalised gross margin %
32
9.5%8.9%9.1%9.3%
Fonterra Ingredients Australia
Volume (000s MT)
31
305350328269
Revenue ($ million)1,5221,8771,7601,509
Normalised gross profit ($ million)78771031
Normalised gross margin %
32
5.1%4.1%0.6%2.1%
Other and Eliminations
Volume (000s MT)
31
(165)(142)(130)(95)
Revenue ($ million)(343)(135)(365)(2)
Normalised gross profit ($ million)62988598
Regional Breakdown – Consumer and Foodservice
11,12,13,34,36
-8/<-8/<-8/< JULY 2020
Oceania
Volume (000s MT)
31
636623627603
Revenue ($ million)1,9522,1592,1592,093
Normalised gross profit ($ million)438433422371
Normalised gross margin %
32
22.4%20.1%19.5%17.7%
Normalised earnings ($ million)87678154
Normalised earnings margin %
33
4.5%3.1%3.8%2.6%
Asia
Volume (000s MT)
31
300298297279
Revenue ($ million)1,8101,8651,8621,833
Normalised gross profit ($ million)501456451436
Normalised gross margin %
32
27.7%24.5%24.2%23.8%
Normalised earnings ($ million)194176153126
Normalised earnings margin %
33
10.7%9.4%8.2%6.9%
Greater China
Volume (000s MT)
31
237266313330
Revenue ($ million)1,2771,5641,7871,937
Normalised gross profit ($ million)359335342372
Normalised gross margin %
32
28.1%21.4%19.2%19.2%
Normalised earnings ($ million)204165133149
Normalised earnings margin %
33
16.0%10.5%7.4%7. 7 %
Latin America
37
Volume (000s MT)
31
600578365352
Revenue ($ million)1,4781,5341,0881,039
Normalised gross profit ($ million)446459283258
Normalised gross margin %
32
30.2%29.9%26.0%24.9%
Normalised earnings ($ million)911174428
Normalised earnings margin %
33
6.1%7.6%4.0%2.7%
Total Consumer and Foodservice
13,37
Volume (000s MT)
31
1,7731,7651,6021,564
Revenue ($ million)6,5177,1226,8966,902
Normalised gross profit ($ million)1,7441,6831,4981,437
Normalised gross margin %
32
26.8%23.6%21.7%20.8%
Normalised earnings ($ million)576525411357
Normalised earnings margin %
33
8.8%7.4%6.0%5.2%
Historical Group Summary CONTINUED
Fonterra Annual Report 2020
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+HDOWK\%XVLQHVV
Regional Breakdown – Foodservice
11,12,13,34,36
-8/<-8/<-8/< JULY 2020
Oceania
Volume (000s MT)
31
989810476
Revenue ($ million)444515518416
Normalised gross profit ($ million)83939872
Normalised gross margin %
32
18.8%18.1%18.9%17.3%
Asia
Volume (000s MT)
31
90989381
Revenue ($ million)526627586534
Normalised gross profit ($ million)99799380
Normalised gross margin %
32
18.8%12.6%15.8%14.9%
Greater China
Volume (000s MT)
31
179195237257
Revenue ($ million)1,0081,2211,4261,592
Normalised gross profit ($ million)239186197259
Normalised gross margin %
32
23.7%15.2%13.8%16.3%
Latin America
Volume (000s MT)
31
32283230
Revenue ($ million)115116143110
Normalised gross profit ($ million)32303227
Normalised gross margin %
32
27.8%25.9%22.7%24.1%
Total Foodservice
13
Volume (000s MT)
31
399419465444
Revenue ($ million)2,0932,4792,6732,652
Normalised gross profit ($ million)453388420437
Normalised gross margin %
32
21.7%15.7%15.7%16.5%
Regional Breakdown – Consumer
11,12,13,34,36
-8/<-8/<-8/< JULY 2020
Oceania
Volume (000s MT)
31
538525524527
Revenue ($ million)1,5081,6441,6411,676
Normalised gross profit ($ million)355340324298
Normalised gross margin %
32
23.5%20.7%19.7%17.8%
Asia
Volume (000s MT)
31
209201204198
Revenue ($ million)1,2841,2381,2761,299
Normalised gross profit ($ million)402377359357
Normalised gross margin %
32
31.3%30.5%28.1%27.5%
Greater China
Volume (000s MT)
31
58717673
Revenue ($ million)269343361346
Normalised gross profit ($ million)120149145114
Normalised gross margin %
32
44.6%43.5%40.1%32.8%
Latin America
37
Volume (000s MT)
31
569550333322
Revenue ($ million)1,3631,418945929
Normalised gross profit ($ million)414429251232
Normalised gross margin %
32
30.4%30.3%26.6%25.0%
Total Consumer
37
Volume (000s MT)
31
1,3731,3471,1371,120
Revenue ($ million)4,4244,6434,2234,251
Normalised gross profit ($ million)1,2911,2951,0781,001
Normalised gross margin %
32
29.2%27.9%25.5%23.5%
Historical Group Summary CONTINUED
Fonterra Annual Report 2020
68
+HDOWK\%XVLQHVV
Discontinued Operations
11,12,38
-8/<-8/<-8/< JULY 2020
China Farms
Volume (000s MT)
31
26222022
Revenue ($ million)268248247282
Normalised gross profit ($ million)21(23)(14)33
Normalised gross margin %
32
7.8%(9.5)%(5.7)%11.9%
Normalised earnings ($ million)4(33)(14)11
DPA Brazil
Volume (000s MT)
31
193191194205
Revenue ($ million)468435419411
Normalised gross profit ($ million)135132116128
Normalised gross margin %
32
28.8%30.3%27.7%31.2%
Normalised earnings ($ million)(13)1(8)21
1. All season statistics are based on the
12-month milk season of 1 June to 31 May.
2. FY19 has been restated to correct supply
milk solids collected.
3. The Farmgate Milk Price has been
determined by the Board. In making
that determination, the Board takes into
account the Farmgate Milk Price calculated
in accordance with the Farmgate Milk Price
Manual.
4. Dividend yield is dividend (per share) over
volume weighted average share price for
the period 1 August to 31 July.
5. Average payout for a 100% share-backed
supplier.
6. Retentions (per share) are calculated
as profit after tax attributable to equity
holders of the Co-operative for the year
ended 31 July divided by the number of
shares at 31 May, less dividend per share.
Retentions are reported as nil where
Fonterra has reported a net loss after tax.
7. Weighted average share price represents
the average price Fonterra Co-operative
Group Limited shares traded at, weighted
against the trading volume at each price
over the period 1 August to 31 July.
8. Source: Fonterra Farmgate Milk Price
Statement representing the weighted-
average United States Dollar contract
prices of Reference Commodity Products.
9. Source: Oceania Export Series, Agricultural
Marketing Service, US Department of
Agriculture.
10. Fonterra’s average NZD/USD conversion
rate is the rate that Fonterra has converted
net United States Dollar receipts into
New Zealand Dollars including hedge
cover in place.
11. Percentages as shown in table may not
align to the calculation of percentages
based on numbers in the table due to
rounding of reported figures.
12. Includes normalisation adjustments.
13. FY19 has been restated. Refer to Note 28
in the FY20 Financial Statements.
14. Normalised EBITDA is calculated as profit
for the period before net finance costs, tax,
depreciation and amortisation, adjusted for
normalisations.
15. Normalised EBIT is calculated as profit for
the period before net finance costs and
tax, adjusted for normalisations.
16. Normalised profit after tax attributable to
equity holders of the Co-operative.
17. Normalised EBITDA divided by normalised
sales revenue.
18. Normalised EBIT divided by normalised
sales revenue.
19. Normalised profit after tax attributable to
equity holders of the Co-operative, divided
by normalised sales revenue.
20. Refer to Cash Flow Statement for detail
on Operating cash flow. Free Cash Flow is
the total of net cash flows from operating
activities and net cash flows from investing
activities.
21. Net working capital is calculated as
total trade and other receivables plus
inventories, less trade and other payables.
It excludes amounts owing to suppliers and
employee entitlements.
22. Economic net interest-bearing debt reflects
total borrowings plus bank overdraft less
cash and cash equivalents and non-current
interest-bearing advances, adjusted for
derivatives used to manage changes in
hedged risks on Debt instruments. It
excludes net borrowings attributed to
Discontinued Operations.
23. 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. It excludes net borrowings
attributed to Discontinued Operations.
24. Debt to EBITDA is calculated as total
borrowings, plus bank overdraft, plus
the effect of debt hedging, less a cash
allowance of 75% of cash and cash
equivalents, divided by normalised earnings
before interest, tax, depreciation and
amortisation (normalised EBITDA) excluding
share of loss/profit of equity accounted
investees and net foreign exchange losses/
gains. Both Debt and EBITDA are adjusted
to include amounts relating to businesses
classified as held for sale and Discontinued
Operations. Prior years restated to align
with credit rating methodology.
25. Capital employed is calculated as the
average for the period of: net assets
excluding net interest-bearing debt and
deferred tax balances, and including brands,
goodwill and equity accounted investments.
26. Capital employed is calculated as the
average for the period of: net assets
excluding net interest-bearing debt,
deferred tax balances, brands, goodwill
and equity accounted investments.
27. Capital expenditure comprises purchases
of property, plant and equipment and
intangible assets, net purchases of
livestock, and includes Discontinued
Operations.
28. Return on capital is calculated as
normalised EBIT less a notional tax charge,
divided by capital employed including
brands, goodwill and equity accounted
investments.
29. Return on capital is calculated as normalised
EBIT less a notional tax charge, divided by
capital employed excluding brands, goodwill
and equity accounted investments.
30. FY20 Ingredients performance represents
Continuing Operations. It excludes any
performance derived from the Fonterra-
owned China Farms. China Farms is
classified as a Discontinued Operation.
FY19 has been restated to provide a year-
on-year comparative.
31. Includes sales to other strategic platforms.
32. Normalised gross margin divided by
normalised sales revenue.
33. Normalised earnings divided by normalised
sales revenue.
34. Summing of individual numbers from the
regional and divisional breakdown may not
add up to the totals in each category due
to rounding.
35. Figures exclude bulk liquid milk. The bulk
liquid milk volume for the year ended
31 July 2020 was 69,000 MT of kgMS
equivalent (year ended 31 July 2019 was
73,000 MT of kgMS equivalent).
36. Regions include share of Consumer and
Foodservice overhead allocations, the total
impact of which is $104 million for FY20.
37. FY20 Latin America Consumer performance
represents Continuing Operations and
excludes DPA Brazil performance. DPA
Brazil is classified as a Discontinued
Operation. FY19 has been restated to
provide a year-on-year comparative.
38. The proposed divestments of our Fonterra-
owned China Farms and DPA Brazil have
impacted how the financial statements
are presented. The sales processes for
these businesses are at the point that
they meet the accounting requirements
to be classified as ‘held for sale’ on the
Statement on Financial Position, on the
basis that a sale over the next 12 months is
considered highly probable. Furthermore,
because both businesses are considered
to be major businesses in one of our
segments and/or geographical regions,
their results are classified as ‘Discontinued
Operations’ within the Income Statement.
The segment note within our financial
statements excludes these businesses, and
therefore reflects the Group’s Continuing
Operations only.
Historical Group Summary CONTINUED
Fonterra Annual Report 2020
7170
+HDOWK\%XVLQHVV
Annual Financial
Results
FOR THE YEAR
ENDED 31 JULY 2020
FONTERRA CO-OPERATIVE
GROUP LIMITED
Fonterra Annual Report 2020
7372
Annual Financial Results 2020
The Directors of Fonterra Co-operative Group Limited (Fonterra) present to Shareholders the Annual Report and financial statements for Fonterra and its
subsidiaries (together the Group) and the Group’s interests in its equity accounted investments for the year ended 31 July 2020.
The Directors present financial statements for each financial year which fairly present the financial position of the Group and its financial performance and
cash flows for the year.
The Directors consider that the financial statements of the Group 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 Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of
the Group and facilitate compliance of the financial statements with the Financial Markets Conduct Act 2013.
The Directors consider that they have taken adequate steps to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities.
Directors’ Statement
FOR THE YEAR ENDED 31 JULY 2020
Contents
DIRECTORS’ STATEMENT75
FINANCIAL STATEMENTS
INCOME STATEMENT76
STATEMENT OF COMPREHENSIVE INCOME77
STATEMENT OF FINANCIAL POSITION78
STATEMENT OF CHANGES IN EQUITY79
CASH FLOW STATEMENT80
BASIS OF PREPARATION82
NOTES TO THE FINANCIAL STATEMENTS83
INDEPENDENT AUDITOR’S REPORT144
OTHER INFORMATION
NON-GAAP MEASURES149
GLOSSARY151
S TATUTORY INFOR M ATION152
John MonaghanBruce Hassall
ChairmanDirector
17 September 202017 September 2020
The Directors hereby approve and authorise for issue the Annual Report for the year ended 31 July 2020. For and on behalf of the Board:
75
Fonterra Annual Report 2020
74
Directors’ Statement
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
1
RESTATED
Profit/(loss) after tax659(610)
Items that may be reclassified subsequently to the Income Statement:
Cash flow hedges and other costs of hedging, net of tax354(1)
Net investment hedges and translation of foreign operations, net of tax(67)(12)
Hyperinflation losses attributable to equity holders–(10)
Foreign currency translation reserve losses transferred to the Income Statement21193
Hyperinflation reserve gains transferred to the Income Statement–(12)
Share of equity accounted investees’ movement in reserves(6)–
Other reserve movements(35)–
Total items that may be reclassified subsequently to the Income Statement267158
Items that will not be reclassified subsequently to the Income Statement:
Net fair value gains/(losses) on investments in shares2(1)
Foreign currency translation gains attributable to non-controlling interests31
Non-controlling interest other reserve movements(13)–
Total items that will not be reclassified subsequently to the Income Statement(8)–
Total other comprehensive income recognised directly in equity259158
Total comprehensive income/(expense)918(452)
Total comprehensive income/(expense) is attributable to:
Equity holders of the Co-operative 955(420)
Non-controlling interests(37)(32)
Total comprehensive income/(expense)918(452)
Total comprehensive income/(expense) arises from:
Continuing operations1,05428
Discontinued operations(136)(480)
Total comprehensive income/(expense)918(452)
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 JULY 2020
Income Statement
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
NOTES31 JULY 2020
31 JULY 2019
1
RESTATED
Continuing Operations
Revenue from sale of goods320,28219,255
Cost of goods sold4(17,236)(16,349)
Impact of strategy review216(32)
Gross profit3,0622,874
Other operating income6274
Selling and marketing expenses(551)(543)
Distribution expenses(482)(514)
Administrative expenses(835)(748)
Other operating expenses(377)(338)
Impairment of intangible assets not included in strategic review17(55)(29)
Share of (loss)/profit of equity accounted investees18(6)25
Impact of strategy review:
– Gain on sale of investment in DFE Pharma2401–
– Gain on sale of investment in Goodminton266–
– Falcon China Farms joint venture impairment2(65)–
– New Zealand consumer and foodservice business impairment and Tip Top disposal–(237)
– Disposal of Venezuelan operations–(134)
– Other impact of strategic review262(80)
Profit before net finance costs and tax61,282350
Finance income101315
Finance costs10(317)(407)
Net finance costs(304)(392)
Profit/(loss) before tax978(42)
Tax exp ense20(175)(80)
Profit/(loss) after tax from continuing operations803(122)
Discontinued Operations
Loss after tax from discontinued operations2(144)(488)
Profit/(loss) after tax659(610)
Profit/(loss) after tax is attributable to:
Loss attributable to non-controlling interests(27)(48)
Profit/(loss) attributable to equity holders of the Co-operative686(562)
Profit/(loss) after tax659(610)
GROUP $
31 JULY 2020
31 JULY 2019
1
RESTATED
Earnings per share:
Basic and diluted earnings/(loss) per share from continuing operations50.48(0.09)
Basic and diluted loss per share from discontinued operations5(0.05)(0.26)
Basic and diluted earnings/(loss) per share50.43(0.35)
1 The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details. 1 The Statement of Comprehensive Income for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements
for further details.
Fonterra Annual Report 2020
7776
Financial Statements
ATTRIBUTABLE TO EQUITY HOLDERS OF THE CO-OPERATIVE
GROUP $ MILLION
SUBSCRIBED
EQUITY
RETAINED
EARNINGS
FOREIGN
CURRENCY
TRANSLATION
RESERVE
HEDGE
RESERVES
OTHER
RESERVESTOTAL
NON-
CONTROLLING
INTERESTS
TOTAL
EQUITY
As at 1 August 2019 5,887313(183)(268)85,757775,834
NZ IFRS 16 transition adjustment (Note 27)–(20)–––(20)–(20)
As at 1 August 2019 adjusted 5,887293(183)(268)85,737775,814
Profit/(loss) after tax–686–––686(27)659
Transferred between reserves–(15) – 15––––
Other comprehensive (expense)/income –(31)(46)354 (8)269 (10)259
Total comprehensive income/(expense) –640(46)369(8)955(37)918
Transactions with equity holders in their capacity as equity holders:
Dividend paid to non-controlling interests–– ––––(29)(29)
As at 31 July 20205,887933(229)101–6,692116,703
As at 1 August 20185,887934(364)(267)296,2191306,349
Prior period restatement
1
–(42)–––(42)–(42)
As at 1 August 2018 adjusted (restated)5,887892(364)(267)296,1771306,307
Loss after tax (restated)
1
–(562)–––(562)(48)(610)
Other comprehensive (expense)/income–(17)181(1)(21)14216158
Total comprehensive (expense)/income
(restated)–(579)181(1)(21)(420)(32)(452)
Transactions with equity holders in their capacity as equity holders:
Equity instruments issued––––––11
Dividend paid to non-controlling interests––––––(22)(22)
As at 31 July 2019 (restated)5,887313(183)(268)85,757775,834
Statement of Changes in Equity
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
NOTES31 JULY 2020
31 JULY 2019
1
RESTATED
ASSETS
Current assets
Cash and cash equivalents788550
Trade and other receivables 111,8321,871
Inventories123,2683,165
Tax receivable4445
Derivative financial instruments 45248
Investment in Beingmate2157–
Other current assets73116
Assets of disposal groups held for sale21,005229
Total current assets7, 6 1 96,024
Non-current assets
Property, plant and equipment156,0066,512
Right-of-use assets16569–
Equity accounted investments 1896202
Livestock6295
Intangible assets172,2402,597
Deferred tax assets20421610
Derivative financial instruments664440
Investment in Beingmate2–234
Long-term advances220142
Other non-current assets 75228
Total non-current assets10,29711,260
Total assets17,91617,284
LIABILITIES
Current liabilities
Bank overdraft3134
Borrowings97641,175
Trade and other payables 132,0042,107
Owing to suppliers141,5881,534
Tax payable8861
Derivative financial instruments113215
Provisions216863
Other current liabilities5471
Liabilities of disposal groups held for sale2603–
Total current liabilities
5,3135,260
Non-current liabilities
Borrowings95,2775,380
Derivative financial instruments 483537
Provisions2164117
Deferred tax liabilities202099
Other non-current liabilities5657
Total non-current liabilities 5,9006,190
Total liabilities11,21311,450
Net assets6,7035,834
EQUITY
Subscribed equity5,8875,887
Retained earnings933313
Foreign currency translation reserve19(229)(183)
Hedge reserves19101(268)
Other reserves–8
Total equity attributable to equity holders of the Co-operative6,6925,757
Non-controlling interests1177
Total equity6,7035,834
Statement of Financial Position
AS AT 31 JULY 2020
1 The Statement of Financial Position as at 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.1 For details on the impact of prior period restatements refer to Note 28 Re-presentations and prior period restatements.
Fonterra Annual Report 2020
7978
Financial Statements
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
1
RESTATED
Cash flows from financing activities
Cash was provided from:
– Proceeds from borrowings2,2864,286
– Interest received1114
Cash was applied to:
– Interest paid(395)(427)
– Repayment of borrowings(3,381)(4,689)
– Dividends paid to non-controlling interests(29)(22)
– Other cash outflows(31)(12)
Net cash flows from financing activities(1,539)(850)
Net increase in cash289245
Opening cash 516285
Effect of exchange rate changes(25)(14)
Closing cash 780516
Reconciliation of closing cash balances to the Statement of Financial Position:
Cash and cash equivalents788550
Bank overdraft(31)(34)
Cash balances included in held for sale23–
Closing cash780516
The Cash Flow Statement presents total Group cash flows including continuing and discontinued operations.
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
1
RESTATED
Cash flows from operating activities
Profit before net finance costs and tax from continuing operations1,282350
Loss before net finance costs and tax from discontinued operations(135)(367)
Profit/(loss) before net finance costs and tax1,147(17)
Adjustments for:
– Foreign exchange losses/(gains) 37(29)
– Depreciation and amortisation627561
– Gain on sale of investment in DFE Pharma(401)–
– Gain on sale of investment in Goodminton(66)–
– Falcon China Farms joint venture impairment65–
– China Farms impairment63203
– New Zealand consumer and foodservice business impairment and Tip Top disposal– 214
– Brazil consumer and foodservice business impairment104149
– Disposal of Venezuelan operations– 134
– Other 9542
5241,274
(Increase)/decrease in working capital:
Trade and other receivables(105)341
Inventories(180)126
Trade and other payables 100(211)
Owing to suppliers54(222)
Other movements 25(112)
Total(106)(78)
Cash generated from operations1,5651,179
Net taxes paid(73)(56)
Net cash flows from operating activities1,4921,123
Cash flows from investing activities
Cash was provided from:
– Proceeds from sale of businesses624396
– Proceeds from disposal of property, plant and equipment3632
– Proceeds from sale of livestock4028
– Proceeds from sale of investments1277
– Co-operative support loan repayments– 177
– Other cash inflows– 25
Cash was applied to:
– Acquisition of non-controlling interest(29)–
– Acquisition of property, plant and equipment (355)(541)
– Acquisition of livestock (including rearing costs)(36)(37)
– Acquisition of intangible assets(49)(82)
– Acquisition of investments(8)(10)
– Advances to and investments in equity accounted investees(13)(6)
– Other cash outflows(1)(17)
Net cash flows from investing activities336(28)
Cash Flow Statement
FOR THE YEAR ENDED 31 JULY 2020
1 The Cash Flow Statement for the year ended 31 July 2019 includes restatements. Please see Note 28 Re-presentations and prior period restatements for further details. The adjustments
had no impact on net cash flows.
Fonterra Annual Report 2020
8180
Financial Statements
Basis of Preparation
FOR THE YEAR ENDED 31 JULY 2020
previously reported in cost of goods sold or operating expenses are
now recorded as finance costs. Following adoption of NZ IFRS 16, the
presentation of lease payments in the Cash Flow Statement changed from
Operating activities to Financing activities, except for short term and low
value leases which are included within Operating activities.
On transition to NZ IFRS 16 at 1 August 2019, the Group recognised
right-of-use assets of $621 million and a lease liability of $652 million.
The lease liability is recognised within Borrowings in the Statement of
Financial Position.
Disclosures relating to leases are located in the following notes:
– Note 6 Profit before net finance costs and tax
– Note 9 Borrowings
– Note 10 Net finance costs
– Note 16 Right-of-use assets
– Note 27 Impact of transition to NZ IFRS 16 Leases
Impact of adopting NZ IFRIC 23 Uncertainty over Income Tax Treatments
NZ IFRIC 23 clarifies how to recognise and measure tax balances when
there is uncertainty over income tax treatments. The Group’s uncertain tax
positions predominantly relate to judgements regarding transfer pricing.
The Group adopted NZ IFRIC 23 from 1 August 2019 and has applied the
interpretation retrospectively. In applying the interpretation there was no
impact on the measurement of tax balances. However, the presentation
of the provision for taxes in the Statement of Financial Position changed
from Provisions to Tax payable. The impact of this change was to reclassify
the tax provision of $24 million from Provisions to Tax payable as at
31 July 2019.
Accounting standards issued but not yet effective
There are no new or amended standards that are issued but not yet
effective that are expected to have a material impact to the Group.
A) GENERAL INFORMATION
Fonterra Co-operative Group Limited (Fonterra, the Company or the
Co-operative) is a co-operative company incorporated and domiciled in
New Zealand. Fonterra is registered under the Companies Act 1993 and
the Co-operative Companies Act 1996, and is an FMC Reporting Entity
under the Financial Markets Conduct Act 2013. Fonterra is also required to
comply with the Dairy Industry Restructuring Act 2001.
These financial statements comprise Fonterra and its subsidiaries
(together referred to as the Group) and the Group’s interests in its equity
accounted investments.
The Group operates predominantly in the international dairy industry. The
Group is primarily involved in the collection, manufacture and sale of milk
and milk-derived products and in fast-moving consumer goods (FMCG) and
foodservice businesses.
B) BASIS OF PREPARATION
These financial statements comply with International Financial Reporting
Standards (IFRS). These financial statements also comply with New Zealand
Equivalents to International Financial Reporting Standards (NZ IFRS) and
have been prepared in accordance with Generally Accepted Accounting
Practice applicable to for-profit entities.
These financial statements are prepared on a historical cost basis except
for assets and liabilities of disposal group held for sale which are measured
at the lower of fair value less costs to sell and carrying value, and the
following items which are measured at fair value:
– Livestock
– Investment in shares
– Derivative financial instruments
– Hedged risks on certain debt instruments
These financial statements are presented in New Zealand dollars ($ or
NZD), which is the Group’s functional currency, and rounded to the nearest
million, except where otherwise stated.
Certain comparative period information has been re-presented and
restated. Refer to Note 28 Re-presentations and prior period restatements for
further details.
C) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies which are relevant to an understanding
of the financial statements are provided throughout the notes in
teal shading.
D) SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the process of applying the Group’s accounting policies and the
application of accounting standards, a number of judgements and
estimates have been made. Accordingly, actual outcomes may differ to
these estimates.
Information about judgements, estimates and assumptions which are
relevant to an understanding of the financial statements are disclosed in
the relevant notes as follows.
– Recoverable amount assessments (Note 2 Strategy review update and
Note 17 Intangible assets)
– Classification of disposal groups held for sale and discontinued
operations (Note 2 Strategy review update)
– Revenue recognition (Note 3 Revenue from sale of goods)
– Measurement of deferred tax assets and liabilities (Note 20 Taxation)
– Provisions and contingent liabilities (Note 21 Contingent liabilities,
provisions and commitments)
E) COVID-19 PANDEMIC
The Group’s global supply chain has remained resilient throughout the
Covid-19 pandemic. The Group’s diverse product range and customer base
have helped to minimise the impact on the business. Milk has continued to
be collected and processed in New Zealand, Australia and Chile.
To ensure ongoing impacts of Covid-19 have been appropriately reflected
in the financial statements, Fonterra has assessed the impact of Covid-19
on the Group’s assets and liabilities.
– The assumptions about the future impacts of the Covid-19 pandemic
have been considered when measuring investments classified as held for
sale.
– The forecasts used for impairment testing include Fonterra’s best
estimates of the potential future impacts from the Covid-19 pandemic.
Cash flow projections have been adjusted to reflect a range of possible
outcomes, weighted by their expected occurrence.
– As part of the New Zealand Government’s Covid-19 relief package tax
depreciation deductions have been reintroduced for certain qualifying
buildings owned by the Group. This has resulted in an increase to the
deferred tax assets of $30 million. It has also resulted in a reduction to
tax expense of $30 million.
– Debtor collectability continues to be closely monitored. A material
change in the provision for impairment of trade receivables as a result of
Covid-19 has not been identified.
– No onerous contracts or additional provisions have been recognised as a
direct impact of Covid-19.
– Fonterra has not applied for the wage subsidy scheme available from the
New Zealand Government.
The Group continues to monitor the risks and the ongoing impacts from
Covid-19 on the business.
F) BASIS OF CONSOLIDATION
In preparing these financial statements, subsidiaries are consolidated
from the date the Group gains control until the date on which control
ceases. The Group’s share of results of equity accounted investments
is included in the consolidated financial statements from the date that
significant influence or joint control commences, until the date that
significant influence or joint control ceases. All intercompany transactions
are eliminated.
Translation of the financial statements into NZD
The assets and liabilities of Group companies whose functional currency
is not NZD are translated into NZD at the year-end exchange rate. The
revenue and expenses of these companies are translated into NZD at rates
approximating those at the dates of the transactions. Exchange differences
arising on this translation are recognised in the foreign currency translation
reserve (FCTR). On disposal or partial disposal of an entity, the related
exchange differences that were recorded in equity are recognised in the
Income Statement as part of the gain or loss on sale.
G) NEW AND AMENDED INTERNATIONAL FINANCIAL
REPORTING STANDARDS
Impact of adopting NZ IFRS 16 Leases
The Group adopted NZ IFRS 16 on 1 August 2019. NZ IFRS 16 requires
a lease liability reflecting future lease payments, and a right-of-use asset,
to be recognised for most lease contracts where the Group is a lessee.
This includes many of the Group’s leases that were previously classified
as operating leases. No asset or liability was reflected in the Statement
of Financial Position under previous accounting requirements for
operating leases.
The adoption of NZ IFRS 16 does not have a significant impact on the
Group’s net profit after tax. However, there is an increase in profit before
net finance costs and tax, because a portion of the lease costs that were
NOTE
PAGE
Performance84
1Segment reporting84
2Strategy review update90
3Revenue from sale of goods96
4Cost of goods sold97
5Earnings per share97
6Profit before net finance costs and tax98
Debt and equity99
7Subscribed equity instruments99
8Dividends100
9Borrowings100
10 Net finance costs105
Working capital106
11 Trade and other receivables106
12 Inventories107
13 Trade and other payables107
14 Owing to suppliers107
Long-term assets108
15 Property, plant and equipment108
16 Right-of-use assets110
17 Intangible assets111
Investments115
18 Equity accounted investments115
Financial risk management116
19 Financial risk management116
Other129
20 Taxation129
21 Contingent liabilities, provisions and commitments132
22 Related party transactions134
23 Subsidiaries136
24 Fair value measurement138
25 Offsetting of financial assets and liabilities140
26 Net tangible assets per quoted equity security140
27 Impact of transition to NZ IFRS 16 Leases141
28 Re-presentations and prior period restatements142
Notes to the
Financial Statements
FOR THE YEAR ENDED 31 JULY 2020
Fonterra Annual Report 2020
8382
Basis of Preparation
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
PERFORMANCE
This section focuses on the Group’s financial performance and the returns provided to equity holders. This section includes the following notes:
Note 1: Segment reporting
Note 2: Strategy review update
Note 3: Revenue from sale of goods
Note 4: Cost of goods sold
Note 5: Earnings per share
Note 6: Profit before net finance costs and tax
1 SEGMENT REPORTING
Operating segments reflect the way financial information is regularly reviewed by the Fonterra Management Team (FMT). The FMT is considered to
be the Chief Operating Decision Maker (CODM). The FMT consists of the Group CEO, CFO and COO, the CEOs of the three customer-facing regional
business units (Asia Pacific, AMENA – Africa, Middle East, Europe, North Asia, Americas, and Greater China), the Director Office of the CEO and the MD
Co-operative Affairs. The measure of profit or loss used by the FMT to evaluate the underlying performance of operating segments is normalised segment
earnings before net finance costs and tax.
At 31 July 2019, the Group’s operating segments were based around the Global Ingredients and Consumer and foodservice businesses.
In September 2019, Fonterra announced a new strategy and operating model. The Group’s new operating model is based around the three regional
business units, supported by a shared infrastructure (the office of the COO – oCOO) that includes New Zealand milk collection and processing operations
and assets, a central portfolio management function, Group IT and Innovation functions.
At 31 July 2020, the new operating model formed the basis for the Group’s operating segments. Under the new operating model, the business is managed
as a matrix form of organisation, whereby regional business unit CEOs and the COO have overlapping responsibility for the performance of operating
segments. Information about the performance of oCOO is reported to the FMT both separately and attributed to each of the regional business units.
Fonterra has determined that its operating segments are Asia Pacific, AMENA, Greater China and oCOO. As a result of the Group’s matrix structure, the
Group’s reportable segments are Asia Pacific, AMENA and Greater China, inclusive of their respective attribution of oCOO. This presentation provides a full
end-to-end view of performance for each of the customer facing regional business units.
Unallocated costs represent corporate costs including Co-operative Affairs and Group functions.
Due to the significant operating model changes, and the resulting changes in systems and processes used to report financial information to the FMT,
comparative information in respect of the new operating model is not available. This note therefore includes information in respect of the current and
comparative financial years under the previous operating model.
This note presents information for:
a) The previous operating model
b) The new operating model
c) Geographical analysis of revenue
d) Geographical analysis of non-current assets
a) The previous operating model
Segment information presented under the previous operating model for the current year and comparative period has been provided in this section.
The Group’s reportable segments for the year ended 31 July 2020 are based on Fonterra’s new operating model (see Section b) The new operating model).
PREVIOUS REPORTABLE SEGMENTSDESCRIPTION
Ingredients Represents the collection, processing and distribution of the ingredients business in New Zealand, global sales and
marketing of New Zealand and non-New Zealand ingredients products, Fonterra Farm Source™ stores, the Falcon
China Farms joint venture and the Australian and South American ingredients businesses.
Consumer and foodservice
– OceaniaRepresents the fast moving consumer goods (FMCG) and foodservice businesses in New Zealand and Australia
(including export to the Pacific Islands).
– AsiaRepresents FMCG and foodservice businesses in Asia (excluding Greater China), Africa and the Middle East.
– Greater ChinaRepresents FMCG and foodservice businesses in Greater China.
– Latin AmericaRepresents FMCG and foodservice businesses in Chile and the Caribbean.
Transactions between reportable segments are based on estimated market prices.
The strategic reviews of the Group’s China Farms and Brazil consumer and foodservice businesses have advanced such that both businesses meet the
requirements to be classified as held for sale at 31 July 2020 and are considered to be discontinued operations. As a result, comparative information in the
segment note has been restated to exclude these businesses and reflect the Group’s continuing operations only.
The Group’s investment in the Falcon China Farms joint venture (Falcon China Farms JV) was previously included within a ‘China Farms’ segment. The
Falcon China Farms JV is considered separately from China Farms. The investment and the share of equity accounted losses it has generated have been
included in the Ingredients segment on the basis that its customers are most closely aligned with other Ingredients customers. Comparative information in
the segment note has been restated to reflect this change.
GROUP $ MILLION
31 JULY 2020
INGREDIENTSCONSUMER AND FOODSERVICE
UNALLOCATED
COSTS AND
ELIMINATIONSTOTAL
OCEANIAASIA
GREATER
CHINA
LATIN
AMERICATOTAL
Continuing Operations
Normalised segment Income Statement
External revenue13,5901,9171,8011,9371,0376,692–20,282
Inter-segment revenue3,77517632–2210(3,985)–
Revenue from sale of goods17,3652,0931,8331,9371,0396,902(3,985)20,282
Cost of goods sold(15,754)(1,722)(1,397)(1,565)(781)(5,465)3,983(17,236)
Segment gross profit/(loss)1,6113714363722581,437(2)3,046
Impairment of intangible assets not
included in strategic review(1)(21)(18)(18)–(57)3(55)
Operating expenses(782)(294)(282)(204)(229)(1,009)(348)(2,139)
Net other operating income51–2–35–56
Net foreign exchange (losses)/gains(43)(2)(10)(1)(7)(20)8(55)
Share of (loss)/profit of equity accounted
investees(9)–(2)–312(6)
Normalised segment earnings before net
finance costs and tax8275412614928357(337)847
Normalisation adjustments:
– Disposal of investment in DFE Pharma427––––– –427
– Disposal of investment in Goodminton60––––– 666
– Falcon China Farms JV impairment(65)––––– –(65)
– Beingmate–––50–50 –50
– Other(15)––(14)–(14)(14)(43)
Segment earnings before net finance costs
and tax1,2345412618528393(345)1,282
Finance income13
Finance costs(317)
Profit before tax from continuing
operations978
Other segment information:
Volume
1
(metric tonnes, thousand)3,0556032793303521,564(777)3,842
Depreciation and amortisation ($ million)(458)(37)(16)(7)(29)(89)(66)(613)
Capital expenditure
2
3282731195033411
Equity accounted investments77–––1111896
The total segment gross profit shown above is different to the reported gross profit as a result of certain normalisation adjustments recognised in gross profit.
Reconciliation of reported to segment gross profit for the year ended 31 July 2020:
GROUP $ MILLION
FOR THE YEAR ENDED
31 JULY 2020
Segment gross profit3,046
Normalisation adjustments
– DFE Pharma dividend received26
– Other impact of strategy review(10)
Reported gross profit3,062
a) The previous operating model
CONTINUED
1 Includes intra and inter-segment sales. Total column represents total external sales.
2 Capital expenditure comprises purchases of property, plant and equipment and intangible assets.
Fonterra Annual Report 2020
8584
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
31 JULY 2019
1
RESTATED
INGREDIENTSCONSUMER AND FOODSERVICE
UNALLOCATED
COSTS AND
ELIMINATIONSTOTAL
OCEANIAASIA
GREATER
CHINA
LATIN
AMERICATOTAL
Continuing Operations
Normalised segment Income Statement
External revenue12,5841,9891,8141,7851,0836,671–19,255
Inter-segment revenue3,7071704825225(3,932)–
Revenue from sale of goods16,2912,1591,8621,7871,0886,896(3,932)19,255
Cost of goods sold(14,845)(1,737)(1,411)(1,445)(805)(5,398)3,894(16,349)
Segment gross profit/(loss)1,4464224513422831,498(38)2,906
Impairment of intangible assets not
included in strategic review––––––(29)(29)
Operating expenses(762)(344)(289)(210)(246)(1,089)(292)(2,143)
Net other operating income67314412(5)74
Net foreign exchange gains/(losses)16–(8)(2)(1)(11)(5)–
Share of profit/(loss) of equity accounted
investees23–(2)(1)41125
Normalised segment earnings before net
finance costs and tax7908115313344411(368)833
Normalisation adjustments:
– New Zealand consumer and foodservice
business–(204)–––(204)–(204)
– Disposal of Tip Top–(25)–––(25)(15)(40)
– Disposal of Venezuelan operations(22)–––(112)(112)–(134)
– Australian strategic reset(68)––––––(68)
– Other strategic reset costs(6)(2)––(5)(7)(12)(25)
– Beingmate–––(12)–(12)–(12)
Segment earnings before net finance
costs and tax694(150)153121(73)51(395)350
Finance income15
Finance costs(407)
Loss before tax from continuing
operations(42)
Other segment information:
Volume
2
(metric tonnes, thousand)3,1496272973133651,602(813)3,938
Depreciation and amortisation ($ million)(408)(27)(12)(2)(23)(64)(54)(526)
Capital expenditure
3
44643101177149566
Equity accounted investments181–––12129202
a) The previous operating model
CONTINUED
1 Certain comparative information has been restated to ensure consistency with presentation in the current period.
2 Includes intra and inter-segment sales. Total column represents total external sales.
3 Capital expenditure comprises purchases of property, plant and equipment and intangible assets.
The total segment gross profit shown above is different to the reported gross profit as a result of certain normalisation adjustments recognised in gross profit.
Reconciliation of reported to segment gross profit for the year ended 31 July 2019:
GROUP $ MILLION
FOR THE YEAR ENDED
31 JULY 2019
RESTATED
Segment gross profit2,906
Normalisation adjustments
– Australian strategic reset(23)
– New Zealand consumer and foodservice business strategic review impact(7)
– Other strategic reset costs(2)
Reported gross profit2,874
a) The previous operating model
CONTINUED
Fonterra Annual Report 2020
8786
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
b) The new operating model
Fonterra’s reportable segments are Asia Pacific, AMENA and Greater China. Comparative segment information is not available under the new
operating model. Segment information has been presented for the current year and comparative period under the previous operating model in
Section a) The previous operating model.
REPORTABLE SEGMENTSDESCRIPTION
Asia PacificRepresents the ingredients, foodservice and FMCG businesses in New Zealand, South East Asia and Australia (including
export to the Pacific Islands) and Sri Lanka and Indian sub-continent, and Fonterra Farm Source™ stores.
AMENARepresents the ingredients, foodservice and FMCG businesses in Africa, Middle East, Europe, North Asia and Americas
(including Latin America).
Greater ChinaRepresents the ingredients, foodservice and FMCG businesses in Greater China, and the Falcon China Farms JV.
Transactions between reportable segments follow underlying business rules that determine how each segment records a transaction. These rules have been
designed to reflect the end-to-end contribution of each segment. Where there is common activity amongst segments and there is a distribution of those
revenues and costs across segments, the attribution is based on a number of principles, including:
– Activity based allocation where appropriate.
– Volumes of product sold/manufactured in the segment.
– The segments proportion of New Zealand sourced milk sales.
GROUP $ MILLION
31 JULY 2020
ASIA PACIFICAMENA GREATER CHINA
UNALLOCATED
COSTS AND
ELIMINATIONSTOTAL
Continuing Operations
Normalised Income Statement
Ingredients channel revenue 3,5056,6163,469–13,590
Foodservice channel revenue8931541,552–2,599
Consumer channel revenue2,6911,061341–4,093
Total external revenue7,0897,8315,362–20,282
Inter-segment revenue19012–(202)–
Revenue from sale of goods7,2797,8435,362(202)20,282
Cost of goods sold(6,043)(6,804)(4,593)204(17,236)
Gross profit1,2361,03976923,046
Operating expenses(941)(629)(386)(238)(2,194)
Net other operating income162621(7)56
Net foreign exchange (losses)/gains(20)(24)(17)6(55)
Share of profit/(loss) of equity accounted investees17(12)(2)(6)
Normalised earnings before net finance costs and tax292419375(239)847
Normalisation adjustments:
– Disposal of investment in DFE Pharma –427––427
– Disposal of investment in Goodminton–60 – 666
– Falcon China Farms JV impairment––(65)–(65)
– Beingmate––50–50
– Other5(13)(22)(13)(43)
Earnings before net finance costs and tax297893338(246)1,282
Finance income13
Finance costs(317)
Profit before tax from continuing operations978
Other segment information:
Volume
1
(metric tonnes, thousand)1,3811,4331,043(15)3,842
Depreciation and amortisation ($ million)(235)(222)(133)(23)(613)
1 Includes intra and inter-segment sales. Total column represents total external sales.
c) Geographical analysis of revenue
GROUP $ MILLION
NEW
ZEALANDAUSTRALIA
REST OF ASIA
PACIFIC
UNITED
STATES
LATIN
AMERICA
REST OF
AMENACHINATOTAL
Geographical external revenue:
Year ended 31 July 20201,6581,6705,8819491,6043,3225,19820,282
Year ended 31 July 2019 (restated)1,6761,7765,5909311,7153,2154,35219,255
Revenue is analysed by geography on the basis of the destination of the goods sold.
d) Geographical analysis of non-current assets
GROUP $ MILLION
NEW
ZEALANDAUSTRALIA
REST OF ASIA
PACIFICAMENACHINATOTAL
Geographical non-current assets:
As at 31 July 20206,5461,043842714679,212
As at 31 July 20196,2231,0078401,19694410,210
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Reconciliation of geographical non-current assets to total non-current assets:
Geographical non-current assets 9,21210,210
Deferred tax assets421610
Derivative financial instruments 664440
Total non-current assets10,29711,260
Fonterra Annual Report 2020
8988
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
2 STRATEGY REVIEW UPDATE
During the year ended 31 July 2019 Fonterra announced and began the implementation of a Group-wide strategy review. This note explains the accounting
impact of the strategy review on the financial statements for the year ended 31 July 2020.
Since 31 July 2019 progress of the strategy review includes completion of the sales processes relating to the Group’s investments in Goodminton AG
(Goodminton) and DMV Fonterra Excipients GmbH & Co. KG (DFE Pharma), and the sale of Dennington manufacturing site.
The Group’s holdings of Beingmate Baby & Child Food Co., Ltd. (Beingmate) shares continue to be held for trading with an active sales process in place.
During the year the Group reduced its holdings in Beingmate from 18.82 per cent down to 9.11 per cent at 31 July 2020. The Group expects to sell its
remaining investment within 12 months of balance date.
The strategic reviews of the China Farms and Brazil consumer and foodservice businesses have advanced such that the businesses meet the requirements
to be classified as held for sale at 31 July 2020. Both the China Farms and Brazil consumer and foodservice businesses are considered to be discontinued
operations.
Challenges with the operational performance of the Falcon China Farms JV led to the reassessment of the carrying value of the investment.
The most significant impacts of the 2019 strategy review on the Group’s net profit after tax as presented in the Group’s Income Statement for the year
ended 31 July 2020 are set out below:
GROUP $ MILLION
PRESENTED IN IMPACT OF STRATEGY REVIEW
PRESENTED IN DISCONTINUED
OPERATIONS
DFE
PHARMA
SALE
(NOTE 2A)
GOODMINTON
INVESTMENT
SALE (NOTE 2A)
DENNINGTON
SALE
(NOTE 2A)
BEINGMATE
(NOTE 2B)
FALCON
CHINA
FARMS JV
IMPAIRMENT
(NOTE 2D)
OTHER
STRATEGY
RESET
COSTSTOTAL
CHINA FARMS
IMPAIRMENT
(NOTE 2C)
BRAZIL
CONSUMER
AND
FOODSERVICE
IMPAIRMENT
(NOTE 2C) TOTAL
Revenue26 –––––26–––
Cost of goods sold–––––(10)(10)–––
Gross profit26 ––––(10)16–––
Gain on sale4016612–––479–––
Impairment––––(65)–(65)–––
Other–––50––50–––
Total net profit/(loss)
before tax 427661250(65)(10)480–––
Discontinued operations–––––––(63)(104)(167)
Tax impac t––(6)–––(6)–1616
Profit/(loss) after tax42766650(65)(10)474(63)(88)(151)
Non-controlling interests––––––––4343
Profit/(loss) attributable
to shareholders42766650(65)(10)474(63)(45)(108)
a) Disposals
Disposals
On disposal of an investment or a cash generating unit (CGU), or portion of a CGU, the related assets are derecognised. A gain or loss is recognised
as the difference between the carrying value of the assets at the date of disposal and the net disposal proceeds. Any related exchange differences
recorded in equity are recognised in the Income Statement as part of the gain or loss on sale.
Disposal of investment in Goodminton AG
On 3 September 2019 Fonterra completed the sale of its investment in Goodminton. As at 31 July 2019, this investment was classified as held for sale.
The transaction resulted in a gain on sale of $66 million. The gain on sale includes a credit balance of $6 million relating to Goodminton that was recycled
from the foreign currency translation reserve and recognised as part of the net gain on sale.
The gain on sale is shown below:
$ MILLION
Sales proceeds received in cash96
Impact of foreign currency hedge(2)
Total sale proceeds received in cash94
Investment disposed of(34)
FCTR recycled 6
Gain on sale66
Goodminton was included in the AMENA reportable segment.
Disposal of investment in DMV Fonterra Excipients GmbH
& Co.KG
On 23 January 2020 Fonterra completed the sale of its 50 per cent share of DFE Pharma. As at 31 July 2019, this investment was classified as held for sale.
The transaction resulted in a gain on sale of $401 million. The gain on sale includes a debit balance of $16 million relating to DFE Pharma that was recycled
from the foreign currency translation reserve and recognised as part of the net gain on sale.
Sale proceeds of $620 million were received which was made up of cash of $527 million and an interest-bearing loan of $93 million. The sale and purchase
agreement also contains earnout clauses in relation to earnings before interest, tax, depreciation and amortisation of DFE Pharma for the 2020 calendar
year, and specifies completion adjustments, which are not included in the sales price of $620 million.
The gain on sale is shown below:
$ MILLION
Sales proceeds received in cash527
Interest-bearing loan (included within Long-term advances)93
Total sale proceeds received620
Investment disposed of(193)
FCTR recycled (16)
Transac tion cost s(10)
Gain on sale401
DFE Pharma was included in the AMENA reportable segment.
In addition to the gain on sale of $401 million, Fonterra received $26 million of dividends from DFE Pharma during the year ended 31 July 2020 which have
been recognised as revenue.
Disposal of Dennington
On 29 May 2020 Fonterra completed the sale of the Dennington manufacturing site. The transaction resulted in a gain on sale of $12 million. Dennington
was included in the Asia Pacific reportable segment.
b) Beingmate Baby & Child Food Co., Ltd.
At 31 July 2020, the Group’s investment in Beingmate has been presented as a current asset as the Group expects to sell its remaining investment within
12 months of balance date. At 31 July 2019 the investment in Beingmate was presented as a non-current asset.
The Group’s investment in Beingmate is classified as “Held for Trading” in accordance with NZ IFRS 9 Financial Instruments and measured at fair value, with
changes in fair value recognised in the Income Statement.
Beingmate shares are listed on the Shenzhen Stock Exchange. Listing rules over Beingmate shares limit Fonterra to selling a maximum of one per cent of
total shares of Beingmate on-market and two per cent through block trading in each 90-day period. Future sales of Fonterra’s Beingmate shares will be
transacted at the selling price achieved at the disposal date.
During the year ended 31 July 2020 Fonterra has been actively selling the shares held in Beingmate. The details of those sales are summarised in
the table below:
% SHARESPRICE RMB$ MILLION
As at 31 July 201918.825.54234
Sales for the year9.714.45–8.22127
As at 31 July 20209.117.92157
The normalisation gain of $50 million (31 July 2019: loss of $12 million) relating to Beingmate in Note 1 Segment reporting includes realised and unrealised
fair value and foreign exchange movements.
a) Disposals
CONTINUED
Fonterra Annual Report 2020
9190
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
c) Discontinued operations
Disposal groups classified as held for sale
A disposal group is a group of assets and liabilities to be disposed of (by sale or otherwise) in a single transaction. A disposal group is classified as held
for sale if it is available for immediate sale in its present condition and its sale is highly probable. Judgement is required to determine if the sale of an
investment is highly probable.
Disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Immediately prior to
being classified as held for sale, the carrying amounts of assets and liabilities in the disposal group are measured in accordance with the applicable
accounting policy. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised in the
Income Statement.
Assets of disposal groups held for sale are presented in a single line item within Current assets, and Liabilities of disposal groups held for sale
are presented in a single line item within Current liabilities. Comparative period information in the Statement of Financial Position has not
been re-presented.
Discontinued operations
An investment that meets the criterion to be classified as held for sale (or has been sold) is a discontinued operation if it represents, or is part of a
single co-ordinated plan to dispose of, a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with
a view to resale.
Discontinued operations are presented in a single line item in the Income Statement for both the current and comparative year.
China Farms
During the year a sales process commenced for the China Farms business, which has advanced to the point that the business met the requirements to
be classified as held for sale at 31 January 2020, and continues to do so at 31 July 2020. The divestment of the business also meets the definition of a
discontinued operation because it is a separate line of business and a major geographical area of operation. The Group expects to complete the sale within
one year of the reporting date.
As a result of the classification of the business as held for sale, the net assets of the business are measured at the lower of carrying value or fair value less
costs to sell. The fair value of the China Farms business has been assessed based on information received through the sales process. On initial classification,
the fair value was lower than the carrying value of the net assets of the business, which has resulted in an impairment of $63 million.
The Group has reassessed the fair value less costs to sell of the business at 31 July 2020 and no further impairment has been identified.
The China Farms business was previously presented as a separate reportable segment.
At 31 July 2020 the foreign currency translation reserve balance attributable to the China Farms business was a credit balance of $31 million.
Brazil consumer and foodservice business
During the year a sales process commenced for the Brazil consumer and foodservice business which had advanced to the point that the business met the
requirements to be classified as held for sale at 31 January 2020. The divestment of the business also meets the definition of a discontinued operation
because it is a separate major geographical area of operation. As at 31 July 2020, despite the ongoing impact of the Covid-19 pandemic on the economic
environment in Brazil, the Group remains committed to the sale of the business and expects to complete the sale within one year of the reporting date.
As a result of the classification of the business as held for sale, the net assets of the business are measured at the lower of carrying value or fair value less
costs to sell. On initial classification, the fair value was lower than the carrying value of the net assets of the business, which has resulted in an impairment
of $61 million (after tax), of which $31 million is attributable to Fonterra’s equity holders.
The Group has reassessed the fair value less costs to sell of the business at 31 July 2020 and recognised a further write-down of $27 million, of which
$14 million is attributable to Fonterra’s equity holders.
The fair value of the Brazil consumer and foodservice business has been assessed based on information received through the sales process.
The Brazil consumer and foodservice business was previously included in the AMENA reportable segment.
At 31 July 2020 the foreign currency translation reserve balance attributable to the Brazil consumer and foodservice business was a debit balance of
$66 million.
Financial performance of the discontinued operations
The summarised financial performance of the China Farms and Brazil consumer and foodservice businesses are shown in the table below:
$ MILLION
DISCONTINUED OPERATIONS31 JULY 202031 JULY 2019
Revenue from sale of goods693665
Cost of goods sold(531)(563)
China Farms impairment(63)(203)
Gross profit/(loss)99(101)
Other operating income317
Total operating expenses and other(133)(140)
Brazil consumer and foodservice impairment(104)(143)
Loss before net finance costs and tax(135)(367)
Net finance costs(28)(26)
Loss before tax(163)(393)
Tax credit/(expense)19(95)
Loss after tax from discontinued operations(144)(488)
Non-controlling interests5268
Loss after tax attributable to equity holders(92)(420)
Movement in exchange differences on translation of discontinued operations258
Other reserve movements(17)–
Total comprehensive expense from discontinued operations(136)(480)
Net cash inflow/(outflow) from operating activities77(6)
Net cash outflow from investing activities(6)(34)
Net cash outflow from financing activities(1)(48)
Net increase/(decrease) in cash generated by the discontinued operations70(88)
Assets and liabilities held for sale
The major classes of assets and liabilities held for sale are shown in the table below:
$ MILLION
ASSETS AND LIABILITIES HELD FOR SALEAS AT 31 JULY 2020
Trade receivables73
Inventory47
Property, plant and equipment279
Livestock253
Intangible assets140
Other assets213
Total assets of disposal groups held for sale1,005
Borrowings 289
Trade and other payables 197
Provisions55
Other liabilities62
Total liabilities of disposal groups held for sale603
As at 31 July 2019, the assets held for sale amount of $229 million related to the Group’s investments in Goodminton and DFE Pharma. These investments
were sold during the year ended 31 July 2020.
c) Discontinued operations
CONTINUED
Fonterra Annual Report 2020
9392
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
China Farms Livestock
As at 31 July 2020, the China Farms livestock balance of $253 million is presented in Assets of disposal groups held for sale. The China Farms livestock
balance as at 31 July 2019 was $288 million and is presented in Livestock.
The China Farms livestock balance primarily comprises dairy cows. Livestock is measured at fair value less costs to sell, with any change in fair value
recognised in Loss after tax from discontinued operations in the Income Statement.
The China Farms dairy cow herd comprises both young and mature livestock. Young livestock comprises dairy cows that are intended to be reared to
maturity. These cows are held to produce milk or offspring but have not yet produced their first calf and begun milk production. Costs incurred in rearing
young livestock are capitalised. Mature livestock includes dairy cows that have produced their first calf and begun milk production. Costs incurred in
relation to mature livestock are recognised in Loss after tax from discontinued operations.
The quantity of China Farms livestock is presented below:
HEADCOUNT
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Young dairy cows25,49927,317
Mature dairy cows29,71034,507
Total livestock headcount55,20961,824
The value of China Farms livestock is presented below:
$ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Opening balance288280
Rearing costs of young livestock3838
Change in fair value recognised in the Income Statement
– Change in fair value – birth and growth810
– Change in fair value – price changes94
Subtotal change in fair value1714
Disposal of livestock(82)(49)
Effect of movements in exchange rates(8)5
Closing balance253288
Represented by:
Young dairy cows96107
Mature dairy cows157181
Total livestock 253288
The change in fair values of China Farms livestock of $17 million (31 July 2019: $14 million) is reflected in Loss from discontinued operations in the
Income Statement.
Valuation techniques and significant unobservable inputs
The fair value of young livestock is determined using a market approach, adjusted to reflect the age of the herd. The fair value of mature dairy cows is
determined using a discounted cash flow methodology.
The following table shows the relationship between the significant unobservable inputs and fair value measurement for mature dairy cows:
SIGNIFICANT UNOBSERVABLE INPUTSVALUE ATTRIBUTEDRELATIONSHIP BETWEEN KEY UNOBSERVABLE INPUTS AND FAIR VALUE MEASUREMENT
Raw milk daily yield25.5 kg per cow per day
(31 July 2019: 25.4 kg per cow per day)
A five per cent increase/(decrease) in the raw milk yield would result in an
increase/(decrease) in fair value of $8 million (31 July 2019: $11 million).
Milk priceRMB 3.93 per kg
(31 July 2019: RMB 3.78 per kg)
A RMB 0.10 increase/(decrease) in the selling price of milk would result in an
increase/(decrease) in fair value of $9 million (31 July 2019: $13 million).
Discount rate11.0 per cent
(31 July 2019: 11.34 per cent)
An increase/(decrease) in the discount rate of 50 basis points would result in a
decrease/(increase) in the fair value of $1.3 million (31 July 2019: $1.7 million).
c) Discontinued operations
CONTINUEDd) Falcon China Farms JV
Fonterra accounts for its interest in the Falcon China Farms JV using the equity method of accounting (refer to Note 18 Equity accounted investments for
further information about equity accounted investments).
At 31 January 2020, Fonterra’s share of losses of the Falcon Farms JV, animal management costs and challenging farm conditions provided indicators of
impairment, and an impairment test was performed. Using a value in use model the recoverable amount of the equity investment in the Falcon China
Farms JV, after considering the value of the loan receivable, was $5 million, resulting in an impairment of $65 million. The post-tax discount rate applied
was 10.1 per cent.
Fonterra’s share of the loss of the Falcon China Farms JV for the year to 31 July 2020 was a loss of $12 million (31 July 2019: $19 million).
The Group is committed to providing future funding to the Falcon China Farms JV of up to US$33 million (31 July 2019: US$40 million).
The Group recognises the following balances in relation to the Falcon China Farms JV:
$ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Equity accounted investment –69
Loan receivable (included within long-term advances) 5160
Fonterra Annual Report 2020
9594
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
3 REVENUE FROM SALE OF GOODS
The Group recognises revenue from the sale of products when control of the products transfers to the customer. The amount of revenue recognised
reflects the consideration that the Group expects to be entitled for providing the products to the customer.
The Group sells products either directly to customers or through distributors.
For transactions with distributors, judgement is required to assess whether:
– Control of the products passes and therefore revenue is recognised when the products are transferred to the distributor, in which case the distributor is
Fonterra’s customer; or
– Fonterra retains control of the products after transfer to the distributor, in which case control of the products does not pass until the products reach the
customer in the supply chain who does obtain control of the product. In this situation the customer, referred to as the ‘end customer’ may be a retailer,
reseller or food manufacturer. As control of the product does not pass to the distributor, revenue is not recognised until the products are transferred to
the end customer.
The assessment of whether control of the products passes to the distributor is a significant judgement. In assessing control the following indicators
are considered:
– The ability to direct the use of the product. This includes consideration of who has the primary responsibility for providing the products to the end
customer and whether Fonterra can restrict who the distributor sells the product to.
– The transfer of inventory risk and demand risk. This includes consideration of the level of, or allowance for, product returns and who bears the residual
risk of product expiry.
– The level of support provided by Fonterra to assist the distributor to on-sell the product. This includes consideration of collaboration on marketing plans,
financial support provided by Fonterra through pricing discounts or funding of promotional activity.
Contractual terms vary across markets and sales channels. In most arrangements the contractual terms indicate that the distributor is responsible for
providing the products to the end customer and has assumed the inventory risk. Fonterra often retains price risk through the provision of price discounts,
funding promotional activity or influence over price setting. In general, these pricing mechanisms impact the amount of revenue recognised by Fonterra
rather than indicating control of the products is retained.
In order to conclude on the transfer of control of the products the contract must be assessed in its entirety, along with implied contractual terms based on
commercial customary practices.
The transfer of control of the products typically occurs at the following times:
– Ingredient products (export sales) – once the products are loaded onto the ship.
– Ingredient products (domestic sales) – on delivery of the products to the customer’s designated location.
– Consumer and foodservice products – on delivery of the products to the customer’s designated location.
Revenue is measured as the sales price specified in the contract adjusted for pricing adjustments, trade spend and rebates. Pricing adjustments, trade
spend and rebates are recognised as deductions from revenue at the time that the related sale is recognised. The estimated amount of the deduction from
revenue is based on historical experience and the specific terms of the contracts with customers so that it is highly probable that a significant reversal of
revenue recognised will not occur.
For export sales the Group sells a significant proportion of its products on terms that include freight and insurance to the destination port. For these sales
the Group has a separate performance obligation to arrange freight and insurance services for the customers after the date at which control of the products
passes to the customer. As Fonterra does not control the freight and insurance services before those services are transferred to the customer, Fonterra
is acting as an agent. Therefore, Fonterra recognises the net agency fee as revenue when freight and insurance services are made available to customers,
usually this is when the products are loaded onto the ship.
The Group offers credit terms which are short-term in nature. In addition, as part of its normal trade terms, the Group receives payments in advance from
certain customers. Contracts with customers do not contain significant financing components.
Revenue is disaggregated by ingredients, foodservice and consumer channels across Fonterra’s reportable segments in Note 1b) Segment reporting. Sales to
distributors where significant judgement is involved in determining the timing of revenue recognition are primarily in the foodservice channel.
4 COST OF GOODS SOLD
Cost of goods sold is primarily made up of New Zealand sourced cost of milk.
New Zealand sourced cost of milk includes the cost of milk supplied by farmer shareholders, supplier premiums paid, and the cost of milk purchased
from contract milk suppliers during the financial year.
New Zealand sourced cost of milk supplied by farmer shareholders comprises the volume of milk solids supplied at the Farmgate Milk Price as
determined by the Board for the relevant season. In making that determination the Board takes into account the Farmgate Milk Price calculated in
accordance with the Farmgate Milk Price Manual, which is independently assured. The Fonterra Farmgate Milk Price Statement sets out information
about the Farmgate Milk Price, and how it is calculated. It can be found in the ‘Investors/Farmgate Milk Prices’ section of Fonterra’s website.
Other costs include purchases of other products, raw materials and packing, direct labour costs, depreciation and other costs directly incurred to bring
inventory to its final point of sale location.
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
RESTATED
Opening inventory3,1652,917
Cost of milk:
– New Zealand sourced10,8889,748
– Non-New Zealand sourced1,007966
Other costs5,4445,883
Closing inventory(3,268)(3,165)
Total cost of goods sold17,23616,349
5 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Co-operative by the weighted average number
of Co-operative shares outstanding during the period.
Diluted earnings per share is determined by adjusting the profit or loss attributable to equity holders of the Co-operative and the weighted average
number of Co-operative shares outstanding for the effects of all Co-operative shares with dilutive potential. There were no Co-operative shares with
dilutive potential for either of the years presented.
GROUP
31 JULY 2020
31 JULY 2019
RESTATED
Basic and diluted earnings/(loss) per share from continuing operations ($)0.48(0.09)
Basic and diluted loss per share from discontinued operations ($)(0.05)(0.26)
Basic and diluted earnings/(loss) per share ($)0.43(0.35)
Earnings attributable to equity holders of the Co-operative ($ million)686(562)
Weighted average number of shares (thousands of shares)1,612,0761,611,980
Fonterra Annual Report 2020
9796
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
6 PROFIT BEFORE NET FINANCE COSTS AND TAX
a) Items included in Profit before net finance costs and tax
The following items have been included in Profit before net finance costs and tax:
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
RESTATED
Operating lease expense recognised in accordance with NZ IAS 17–106
Lease related income and expenses recognised in accordance with NZ IFRS 16:
– Short-term leases11–
– Low value leases4–
– Variable lease payments6–
Depreciation and amortisation expense613526
Research and development costs9896
Total employee benefits expense2,0741,962
Net foreign exchange losses64–
Contributions to defined contribution plans included in employee benefits expense7980
b) Fees paid to the auditor and network firms
The appointed auditor for the year ended 31 July 2020 is KPMG (31 July 2019: PricewaterhouseCoopers). The Board has overseen compliance with
Fonterra’s Group Audit Independence Policy. KPMG has not provided any services during the year other than audit and audit-related services.
The following table provides a breakdown of fees paid to the auditor and network firms which are included in Profit/(loss) after tax from continuing and
discontinuing operations:
GROUP $ MILLION
31 JULY 202031 JULY 2019
Audit and review of the financial statements
– New Zealand6.77. 1
– Network firms of the auditor2.12.0
Total fees for the audit and review of the financial statements8.89.1
Audit-related services
– Assurance services in respect of the Farmgate Milk Price Statement0.10.1
– Other assurance services0.10.1
Total fees for audit-related services0.20.2
Other services
– Due diligence support–0.6
– Strategic review support–0.3
– Other services–0.2
Total fees for other services–1.1
Total fees paid to auditor9.010.4
DEBT AND EQUITY
This section outlines the Group’s capital structure and the related financing costs. It also provides details on how the funds that finance current and future
activities are raised and on how the Group manages liquidity risk and interest rate risk.
This section includes the following notes:
Note 7: Subscribed equity instruments
Note 8: Dividends
Note 9: Borrowings
Note 10: Net finance costs
7 SUBSCRIBED EQUITY INSTRUMENTS
Subscribed equity instruments comprise Co-operative shares and units in the Fonterra Shareholders’ Fund (the Fund). Incremental costs directly
attributable to equity transactions are recognised as a deduction from subscribed equity.
a) Co-operative shares, including shares held within the Group
Co-operative shares may only be held by a shareholder supplying milk to Fonterra (farmer shareholder), by former farmer shareholders for up to three
seasons after cessation of milk supply, or by Fonterra Farmer Custodian Limited (the Custodian). Voting rights in Fonterra are dependent on milk supply
supported by Co-operative shares, these rights are also attached to vouchers when backed by milk supply (subject to limits).
At 31 July 2020 there were 1,612,097,067 Co-operative shares on issue (31 July 2019: 1,611,991,722 shares).
During the year ended 31 July 2020, Fonterra issued 105,345 shares under the Farm Source Rewards scheme (31 July 2019: 68,806 shares).
The rights attaching to Co-operative shares are set out in Fonterra’s Constitution, available in the ‘Our Co-operative/Governance and Management’ section
of Fonterra’s website.
b) Units in the Fonterra Shareholders’ Fund
The Custodian holds legal title of Co-operative shares of which the Economic Rights have been sold to the Fund on trust for the benefit of the Fund.
At 31 July 2020, 104,581,516 Co-operative shares (31 July 2019: 102,934,582) were legally owned by the Custodian, on trust for the benefit of the Fund.
During the year ended 31 July 2020, Fonterra issued 17,298,927 units (31 July 2019: 17,769,331 units) and surrendered 15,651,993 units
(31 July 2019: 26,258,352 units).
The rights attaching to units are set out in the Fonterra Shareholders’ Fund 2020 Annual Report, available in the ‘Investors/Fonterra Shareholder’s Fund’
section of Fonterra’s website.
c) Capital management and structure
The Board’s objective is to maximise equity holder returns over time by maintaining an optimal capital structure. Trading Among Farmers (TAF) allows
shares in Fonterra to be traded between shareholders, on the Fonterra Shareholders’ Market (a private market operated by the NZX Limited). The Fund
supports this by allowing investors, including farmers, to trade in units backed by Economic Rights in Fonterra. The Fund also allows farmer shareholders to
acquire units and exchange them for shares in Fonterra, and to exchange shares for units and dispose of those units on the New Zealand Exchange Limited
(NZX) or Australian Securities Exchange (ASX).
The Group provides returns to farmer shareholders through a milk price, and to equity holders through dividends and changes in Fonterra’s share price.
The Fund is subject to the issue and redemption of units at the discretion of Fonterra and Fonterra’s farmer shareholders. Fonterra has an interest in
ensuring the stability of the Fund and has established a Fund Size Risk Management Policy which requires that the number of units on issue remain within
specified limits and that, within these limits, the number of units is managed appropriately. Fonterra may use a range of measures to ensure the Fund size
remains within the specified limits, including introducing or cancelling a dividend reinvestment plan, operating a unit/or share repurchase programme
and issuing new shares. As at 31 July 2020, the Actual Fund Size relative to total Fonterra shares on issue was below the target range specified in the
Fund Size Risk Management Policy. The Group has taken no specific actions to address this as it expects the Fund size to increase over time as Fonterra’s
performance improves.
d) Market capitalisation
At 31 July 2020, Fonterra’s share and unit prices were below the book value of the Group’s consolidated net assets. Fonterra determined that this was not
an indicator of impairment and did not require further impairment testing for all, or for further components of Fonterra’s business. This determination
considered Fonterra’s view that the share and unit price does not fully reflect the fair value of Fonterra’s business as a whole. A key factor is that Fonterra
shares and units trade without a full control premium.
Fonterra Annual Report 2020
9998
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
8 DIVIDENDS
All Co-operative shares, including those held by the Custodian, are eligible to receive dividends if declared by the Board.
Dividends are recognised as a liability in the Group’s financial statements in the period in which they are declared by the Board.
No dividend was paid during the year ended 31 July 2020 (31 July 2019: nil).
Dividends declared after balance date
On 17 September 2020, the Board declared a final dividend of 5 cents per share, to be paid on 15 October 2020 to all Co-operative shares on issue at
25 September 2020.
Fonterra has a Dividend Reinvestment Plan, where eligible shareholders can choose to reinvest all or part of their future dividend in additional Co-operative
shares. The Dividend Reinvestment Plan applies to this dividend. Participation in the Dividend Reinvestment Plan requires shareholders to submit an
election notice for participation by 28 September 2020. Full details of the Dividend Reinvestment Plan are available in the ‘Investors/Dividends’ section of
Fonterra’s website.
9 BORROWINGS
The Group borrows in the form of bonds, bank facilities and other financial instruments. The Group also recognises lease liabilities within borrowings.
The interest expense incurred on the Group’s borrowings is shown in Note 10 Net finance costs.
Borrowings (excluding lease liabilities) are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost using the effective interest method, with the hedged risks on certain debt instruments measured at fair value. Details of the Group’s
hedge accounting policies are included in Note 19 Financial risk management.
Lease liabilities are recognised at the commencement date of the lease as the present value of the lease payments over the lease term. The lease
payments include the exercise price of a purchase option where the Group is reasonably certain to exercise the option.
The lease payments are discounted using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is
not readily determinable.
The lease term is the non-cancellable period, plus renewal options if they are reasonably certain to be exercised. Once a lease has commenced, the
Group will only reassess the lease term on the occurrence of a significant event or change in circumstance that is within its control and affects its
ability to exercise, or not exercise, an option not previously included in the lease term.
a) Economic net interest-bearing debt
Economic net interest-bearing debt reflects the carrying value of the Group’s net interest-bearing debt after incorporating the effect of debt hedging in
place at balance date.
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Net interest-bearing debt position
Total borrowings6,0416,555
Cash and cash equivalents(788)(550)
Interest-bearing advances(220)(142)
Bank overdraft3134
Net interest-bearing debt5,0645,897
Value of derivatives used to manage changes in hedged risks on debt instruments(405)(148)
Economic net interest-bearing debt4,6595,749
Total borrowings are represented by:
GROUP $ MILLION
BALANCE
AS AT 1
AUGUST 2019PROCEEDS
NEW LEASE
CONTRACTSREPAYMENTS
FOREIGN
EXCHANGE
MOVEMENT
CHANGES IN
FAIR VALUES
TRANSFERRED
TO LIABILITIES
OF DISPOSAL
GROUPS HELD
FOR SALEOTHER
BALANCE
AS AT
31 JULY 2020
Commercial paper259333–(594)–––2–
Bank loans6191,953–(2,186)(88)–(278)–20
Lease liabilities
1
652–123(161)––(11)1604
Capital notes
2
35––––– ––35
NZX-listed bonds600––––– ––600
Medium-term notes4,971––(440)87165–(1)4,782
Total borrowings
3
7, 1 3 62 , 2 8 61 2 3( 3 , 3 8 1 )( 1 )1 6 5( 2 8 9 )26 , 0 4 1
GROUP $ MILLION
BALANCE
AS AT
1 AUGUST
2018
RESTATEDPROCEEDSREPAYMENTS
FOREIGN
EXCHANGE
MOVEMENT
CHANGES IN
FAIR VALUESOTHER
BALANCE
AS AT
31 JULY 2019
RESTATED
Commercial paper3041,219(1,271)––7259
Bank loans1,1282,574(3,087)4––619
Finance leases recognised in accordance with NZ IAS 17
1
131–(60)–––71
Capital notes
2
35–––––35
NZX-listed bonds500100––––600
Medium-term notes4,659393(271)(27)21434,971
Total borrowings
3
6,7574,286(4,689)(23)214106,555
1 From 1 August 2019 this amount includes leases recognised following the adoption of NZ IFRS 16 Leases. For details on the impact of the change in the lease accounting refer to Note 27 Impact of
transition to NZ IFRS 16 Leases.
2 Capital notes are unsecured subordinated borrowings.
3 All borrowings other than lease liabilities and capital notes are unsecured and unsubordinated.
GROUP $ MILLION
AS AT 31 JULY 2020
AS AT 31 JULY 2019
RESTATED
Included in the Statement of Financial Position as follows:
Total current borrowings7641,175
Total non-current borrowings5,2775,380
Total borrowings
1
6,0416,555
1 The 31 July 2020 balance excludes $289 million of borrowings directly attributable to the China Farms and Brazil consumer and foodservice businesses. These borrowings are presented in Liabilities
of disposal groups held for sale (refer Note 2c). Borrowings directly attributable to China Farms and Brazil consumer and foodservice businesses at 31 July 2019 were $339 million and have not been
re-presented.
a) Economic net interest-bearing debt CONTINUED
Fonterra Annual Report 2020
101100
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
b) Leverage ratios
The Board closely monitors the Group’s leverage ratios. The primary ratios monitored by the Board are as follows.
Debt payback
The main debt payback ratio, Debt to EBITDA, is a key ratio considered by the credit rating agencies when determining Fonterra’s credit rating. Debt to
EBITDA is calculated as Total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance of 75% of Cash and cash equivalents,
divided by normalised earnings before interest, tax, depreciation and amortisation (normalised EBITDA) excluding Share of loss/profit of equity accounted
investees and net foreign exchange losses/gains. Both Debt and EBITDA are adjusted to include amounts relating to businesses classified as held for sale.
The debt payback ratio as at 31 July 2020 was 3.4x (31 July 2019: 4.4x). The Board approved Debt Policy determines a long-term target Debt to EBITDA
payback ratio range of 2.5x to 3.0x.
Gearing
The gearing ratio is calculated as economic net interest-bearing debt, divided by equity plus economic net interest-bearing debt. Equity is as presented in
the Statement of Financial Position, excluding hedge reserves. The gearing ratio as at 31 July 2020 was 41.4 per cent (31 July 2019: 48.5 per cent).
The Group is not subject to externally imposed capital requirements.
c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity risk is to
ensure that it will always have sufficient funds to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group’s reputation.
The Group has a policy in place to ensure that it has sufficient cash or facilities on demand to meet expected operational expenses for a period of at least
80 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted,
such as natural disasters. In such situations back-up funding lines are maintained and as set out in Fonterra’s constitution, Fonterra can defer payments to
farmer shareholders if necessary.
The Group manages its liquidity by retaining cash and marketable securities, the availability of funding from an adequate amount of committed credit
facilities and the ability to close out market positions. The Group’s funding facilities are reviewed at least annually, which is one of the key financial risk
management activities undertaken by the Group to ensure an appropriate maturity profile given the nature of the Group’s business. At balance date the
Group had undrawn lines of committed credit totalling $3,210 million (31 July 2019: $3,149 million).
Liquidity and refinancing risks are also managed by ensuring that the Group can maintain access to funding markets throughout the world. To that end, the
Group maintains debt issuance programmes in a number of key markets and manages relationships with international investors.
The concentration of NZX-listed bonds and medium-term notes by currency is shown below:
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
New Zealand Dollar1,0201,163
Australian Dollar1,3591,295
United States Dollar1,6991,631
British Pound502485
European Euro632602
Chinese Renminbi170395
Total 5,3825,571
Exposure to liquidity risk
The following tables show the timing of the gross contractual cash flows of the Group’s financial instruments.
GROUP $ MILLION
AS AT 31 JULY 2020
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
3 MONTHS
OR LESS
3–12
MONTHS
1–5
YEARS
MORE THAN
5 YEARS
Non-derivative financial liabilities
Borrowings
– Bank loans(20)(21)(4)(10)(7)–
– Lease liabilities(604)(611)(27)(79)(292)(213)
– Capital notes(35)(39)–(1)(3)(35)
– NZX-listed bonds(600)(665)(11)(15)(537)(102)
– Medium-term notes(4,782)(5,253)(27)(792)(2,386)(2,048)
Bank overdraft(31)(31)(31)–––
Owing to suppliers(1,588)(1,588)(1,588)–––
Trade and other payables (excluding employee entitlements)(1,683)(1,683)(1,683)–––
Other financial liabilities(80)(80)(8)(16)(55)(1)
Financial guarantees issued
1
–(1)(1)– – –
Total non-derivative financial liabilities(9,423)(9,972)(3,380)(913)(3,280)(2,399)
Derivative financial instruments
Gross settled derivatives
– Inflow20,9389,6677,3682,2901,613
– Outflow (20,334)(9,600)(7,106)(2,286)(1,342)
Total gross settled derivative financial instruments636604672624271
Net settled derivatives(116)(81)(23)(36)(47)25
Total financial liabilities and derivatives(8,903)(9,449)(3,336)(687)(3,323)(2,103)
1 Maximum cash flows under guarantees provided by the Group.
c) Liquidity risk CONTINUED
Fonterra Annual Report 2020
103102
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
AS AT 31 JULY 2019
RESTATED
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
3 MONTHS
OR LESS
3–12
MONTHS
1–5
YEARS
MORE THAN
5 YEARS
Non-derivative financial liabilities
Borrowings
– Commercial paper(259)(260)(260)–––
– Bank loans(619)(649)(92)(321)(236)–
– Finance leases recognised in accordance with NZ IAS 17(71)(78)(2)(67)(6)(3)
– Capital notes(35)(41)–(1)(5)(35)
– NZX-listed bonds(600)(691)(11)(15)(559)(106)
– Medium-term notes
1
(4,971)(5,979)(32)(606)(2,335)(3,006)
Bank overdraft(34)(34)(34)–––
Owing to suppliers(1,534)(1,534)(1,534)–––
Trade and other payables (excluding employee entitlements)(1,914)(1,914)(1,914)–––
Other financial liabilities(81)(82)(10)(15)(57)–
Financial guarantees issued
2
–(1)(1)– – –
Total non-derivative financial liabilities(10,118)(11,263)(3,890)(1,025)(3,198)(3,150)
Derivative financial instruments
Gross settled derivatives
– Inflow16,5856,1826,3222,0851,996
– Outflow (16,807)(6,244)(6,468)(2,379)(1,716)
Total gross settled derivative financial instruments(139)(222)(62)(146)(294)280
Net settled derivatives(125)(87)(35)(11)(61)20
Total financial liabilities and derivatives(10,382)(11,572)(3,987)(1,182)(3,553)(2,850)
1 Comparatives have been restated to ensure consistency with the current year presentation.
2 Maximum cash flows under guarantees provided by the Group.
d) Lease liabilities
Total lease liabilities included within borrowings in the Statement of Financial Position are shown below:
GROUP $ MILLION
AS AT
31 JULY 2020
Current lease liabilities104
Non-current lease liabilities500
Total lease liabilities604
During the year, total cash payments for leases were $201 million.
In addition to the lease liability recognised, the Group’s lease arrangements include renewal options, termination options and residual guarantees that have
been assessed as unlikely to result in cash payments.
As at 31 July 2020, the Group has entered into a number of lease arrangements that have not yet commenced. The total lease liability that will be
recognised on commencement of these leases in the next 12 months is $3 million.
There has been no change in the Group’s funding strategy that would result in a significantly different profile of short-term or low-value leases.
c) Liquidity risk
CONTINUED10 NET FINANCE COSTS
Interest income and expense is recognised on an accrual basis in the Income Statement, using the effective interest method.
Finance costs also include the changes in fair value relating to derivatives used to manage interest rate risk, and the associated changes in fair value
of the borrowings designated in a hedge relationship attributable to the hedged risk. Details of the Group’s hedge accounting policies are included in
Note 19 Financial risk management.
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
RESTATED
Finance income1315
Total interest expense
1,2
(354)(388)
Changes in fair value relating to:
– Borrowings designated in a hedge relationship(158)(201)
– Derivatives designated in a hedge relationship199194
– Derivatives where hedge accounting has not been applied(4)(12)
Total interest income/(expense) from fair value movements37(19)
Finance costs(317)(407)
Net finance costs(304)(392)
1 Includes interest expense of $4 million (31 July 2019: $9 million) relating to derivatives where hedge accounting has not been applied.
2 Includes interest expense relating to leases of $23 million recognised in accordance with NZ IFRS 16 Leases (31 July 2019: $8 million recognised in accordance with NZ IAS 17 Leases).
For details on the impact of the change in the lease accounting on recognition of lease liabilities refer to Note 27 Impact of transition to NZ IFRS 16 Leases.
Interest rate risk
Details of how the Group manages interest rate risk are included in Note 19 Financial risk management.
Fonterra Annual Report 2020
105104
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
WORKING CAPITAL
This section provides information about the primary elements of the Group’s working capital. Working capital represents the short-term operating assets
and liabilities generated by the Group. Movements in these items have a direct impact on the net cash flows generated from operating activities.
This section includes the following notes:
Note 11: Trade and other receivables
Note 12: Inventories
Note 13: Trade and other payables
Note 14: Owing to suppliers
11 TRADE AND OTHER RECEIVABLES
Trade receivables are amounts due from customers for products sold and services provided. Trade receivables are recognised initially at their
transaction price and subsequently measured at the amount expected to be collected.
Estimates are used in determining the level of receivables that may not be collected. The Group recognises a provision for impairment on trade
receivables based on the lifetime expected credit loss at each reporting date.
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Trade receivables1,6231,730
Less: provision for impairment of trade receivables(12)(24)
Trade receivables net of provision for impairment1,6111,706
Receivables from related parties2425
Other receivables14093
Total receivables1,7751,824
Prepayments5747
Total trade and other receivables1,8321,871
Amounts received in advance from customers of $32 million (31 July 2019: $28 million) have been recognised in trade and other payables.
The Group has a receivables management programme. At 31 July 2020 the Group’s exposure was $18 million, which reflects the first loss component of
amounts managed at balance date.
Refer to Note 22 Related party transactions for details of receivables from related parties.
Credit risk
Details of how the Group manages credit risk are included in Note 19 Financial risk management.
The ageing profile of the Group’s trade and other receivables (excluding prepayments) is as follows:
GROUP $ MILLIONCURRENT
LESS THAN
1 MONTH
PAST DUE
MORE THAN 1 MONTH
BUT LESS THAN
3 MONTHS PAST DUE
MORE THAN
3 MONTHS
PAST DUETOTAL
As at 31 July 20201,55710046721,775
As at 31 July 20191,55314585411,824
12 INVENTORIES
Inventories are stated at the lower of cost or net realisable value on a first-in-first-out basis.
In the case of manufactured inventories, cost includes all direct costs plus the portion of fixed and variable production overheads incurred in bringing
inventories to their present location and condition.
Net realisable value is the estimated selling price, less the costs of completion and selling expenses.
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Raw materials626678
Finished goods2,6932,522
Less: provision for impairment of inventories(51)(35)
Total inventories3,2683,165
13 TRADE AND OTHER PAYABLES
Trade and other payables are recognised at the amount invoiced by the supplier. Due to their short-term nature, they are not discounted. Amounts
owing to farmer shareholders and New Zealand contract milk suppliers are recognised in Owing to Suppliers (refer to Note 14 Owing to suppliers).
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Trade payables1,5261,753
Amounts due to related parties2931
Other payables128130
Total trade and other payables (excluding employee entitlements)1,6831,914
Employee entitlements321193
Total trade and other payables2,0042,107
Refer to Note 22 Related party transactions for details of payables to related parties.
14 OWING TO SUPPLIERS
Amounts owing to suppliers are amounts Fonterra owes to farmer shareholders and New Zealand contract milk suppliers for the collection of milk,
which includes end of season adjustments, offset by amounts owing from farmer shareholders for goods and services provided to them by Fonterra.
These amounts are recognised at the amount due to the supplier for the milk provided. Due to their short-term nature, they are not discounted.
The Board uses its discretion in establishing the rate at which Fonterra will pay suppliers for the milk supplied over the season. This is referred to as the
advance rate. The following table provides a breakdown of the advance payments made to suppliers:
GROUP
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Owing to suppliers ($ million)1,5881,534
Details relating to the season ended 31 May are shown below:
Farmgate Milk Price
1
(per kgMS)$7.14$6.35
– Total advance payments made during the year$6.15$5.40
– Total owing as at 31 July$0.99$0.95
Amount advanced during the year as a percentage of the milk price86%85%
1 Represents the average price for milk supplied on standard terms of supply. The Fonterra Farmgate Milk Price Statement sets out information about the Farmgate Milk Price as calculated in accordance
with the Farmgate Milk Price Manual. It can be found in the ‘Investors/Farmgate Milk Prices’ section of Fonterra’s website.
Fonterra Annual Report 2020
107106
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
LONG-TERM ASSETS
This section provides information about the investments the Group has made in long-term assets to operate the business and generate returns to equity
holders. These assets include physical assets such as land and buildings, and non-physical assets such as right-of-use assets, brands and goodwill. This
section also explains the estimates and judgements applied in the measurement of these assets.
This section includes the following notes:
Note 15: Property, plant and equipment
Note 16: Right-of-use assets
Note 17: Intangible assets
15 PROPERTY, PLANT AND EQUIPMENT
Items of property, plant and equipment are measured at cost less accumulated depreciation and any impairment losses. Cost includes the purchase
consideration and those costs directly attributable to bringing the asset to the location and condition necessary for its intended use. It also includes
financing costs directly attributable to the acquisition, production or construction of the asset. Subsequent costs are capitalised only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying
amount of any replaced part is derecognised. All other repairs and maintenance costs are charged to the Income Statement during the financial period
in which they are incurred.
The assets’ residual values and useful lives are reviewed and adjusted, where required, each financial year.
Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount, and are recognised in the
Income Statement.
Depreciation
Depreciation is calculated on a straight-line basis to allocate the cost of the asset, less any residual value, over its estimated useful life. The range of
estimated useful lives for each class of property, plant and equipment is as follows:
– Land Indefinite
– Buildings and leasehold improvements 2–55 years
– Plant, vehicles and equipment 2–50 years
GROUP $ MILLION
LAND
BUILDINGS AND
LEASEHOLD
IMPROVEMENTS
PLANT, VEHICLES
AND EQUIPMENT
CAPITAL WORK
IN PROGRESSTOTAL
As at 31 July 2020
Cost 3572,5768,14531611,394
Accumulated depreciation and impairment–(1,053)(4,335)–(5,388)
Net book value at 31 July 20203571,5233,8103166,006
As at 31 July 2019
Cost 3542,9658,55329512,167
Accumulated depreciation and impairment–(1,200)(4,455)–(5,655)
Net book value at 31 July 20193541,7654,0982956,512
GROUP $ MILLION
LAND
BUILDINGS AND
LEASEHOLD
IMPROVEMENTS
PLANT, VEHICLES
AND EQUIPMENT
CAPITAL WORK
IN PROGRESSTOTAL
Net book value
As at 1 August 20193541,7654,0982956,512
Finance leases transferred to Right-of-use assets
1
(5)(42)(9)–(56)
Adjusted balance as at 1 August 20193491,7234,0892956,456
Additions
2
––6364370
Transferred from Right-of-use assets538 4 –47
Transferred from capital work in progress755274(336)–
Depreciation charge –(92)(330) –(422)
Impairment
3
–(46)(50) –(96)
Disposals(3)(3)(28)(1)(35)
Transferred to Assets of disposal groups held for sale(1)(135)(138)(5)(279)
Foreign currency translation–(17)(17)(1)(35)
As at 31 July 20203571,5233,8103166,006
Net book value
As at 1 August 20183541,7453,9907216,810
Additions
2
52075483583
Transferred from capital work in progress30236603(869)–
Depreciation charge –(97)(361)–(458)
Impairment–(99)(134)–(233)
Disposals(31)(27)(59)(29)(146)
Foreign currency translation(4)(13)(16)(11)(44)
As at 31 July 20193541,7654,0982956,512
1 On the adoption of IFRS 16 Leases, finance leases included in property, plant and equipment were transferred to Right-of-use assets. For further details on the impact of the change in lease accounting
refer to Note 27 Impact of transition to NZ IFRS 16 Leases.
2 Additions include borrowing costs of $3 million (2019: $6 million) capitalised using a weighted average interest rate of 5.24 per cent (2019: 5.21 per cent).
3 Impairment of $89 million relates to building and leasehold improvements and plant, vehicles and equipment of the China Farms and Brazil consumer and foodservice businesses which have been
transferred to Assets of disposal groups held for sale.
New Zealand Ingredients manufacturing assets
Fonterra’s New Zealand Ingredients manufacturing sites are utilised as a single network for processing raw milk supply, including meeting peak milk
processing requirements. The Group considers there are no indicators of impairment for Fonterra’s New Zealand Ingredients manufacturing sites.
15 PROPERTY, PLANT AND EQUIPMENT
CONTINUED
Fonterra Annual Report 2020
109108
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
16 RIGHT-OF-USE ASSETS
Right-of-use assets are initially measured at cost, less any accumulated depreciation and any impairment losses. Cost is calculated as the initial amount
of the lease liability plus any initial direct costs incurred and an estimate of costs required to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located.
Right-of-use assets are depreciated on a straight-line basis over the lease term, unless the useful life of the asset is less than the lease term or if the
Group will own the asset at the end of the lease term, in which situations the right-of-use asset is depreciated over the useful life of the asset, which is
determined on the same basis as those of property, plant and equipment. Right-of-use assets are also adjusted for any impairment losses and certain
remeasurements of the lease liability.
The Group enters into lease arrangements for land and buildings with options for renewal that typically run for a period of three to ten years, however
some property leases can run up to a period of 50 years. Lease payment changes are renegotiated at periods specified in the lease contracts, and are
usually based on local price indices or market rental rates.
Leases for plant, vehicles and equipment typically run for a period of two to five years.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. These lease costs
are recognised as an expense as incurred.
Information about Right-of-use assets from leases for which the Group is a lessee is presented below:
GROUP $ MILLION
NET BOOK VALUE
AS AT 31 JULY 2020
DEPRECIATION CHARGE
FOR THE YEAR ENDED
31 JULY 2020
Land242
Buildings38362
Plant, vehicles and equipment16242
Total569106
Additions to Right-of-use assets during the year were $124 million.
17 INTANGIBLE ASSETS
The significant intangible assets recognised by the Group are goodwill, brands and software assets.
Goodwill
Goodwill represents the premium paid by the Group over the fair value of the Group’s share of the net identifiable assets of an acquired subsidiary
at the date of acquisition. Goodwill is initially recognised at cost and subsequently measured at cost less accumulated impairment losses. Goodwill is
not amortised.
Brands
Brands that are purchased by the Group are initially recognised at cost, or at their fair value if acquired as part of a business combination. A brand is
determined to have an indefinite life where there is an intention to maintain and support the brand for an indefinite period.
Indefinite life brands are not amortised. They are subsequently measured at cost less any impairment losses.
Software assets
Software assets, both purchased and internally developed, are capitalised provided there is an identifiable asset that will generate future economic
benefits through cost savings or supporting revenue generation. Subsequent costs are capitalised if they extend the useful life or enhance the
functionality of the asset.
Software assets are amortised on a straight-line basis over their estimated useful lives (three to 14 years).
Impairment testing
Goodwill and indefinite life brands are tested for impairment annually, or more frequently if there is an indicator of impairment.
Indefinite life brands that have been impaired are reviewed for possible reversal of impairment annually. A reversal of an impairment loss shall not
exceed the carrying amount that would have been recognised had no impairment loss occurred in prior years.
Software assets are tested for impairment when an indicator of impairment exists.
A cash-generating unit (CGU) is tested for impairment when there are indicators of impairment. An impairment test is also completed on an annual
basis when a CGU has goodwill or indefinite life intangibles allocated to it. To determine if an asset or CGU is impaired, the carrying amount of the
asset or CGU is compared to its recoverable amount, being the higher of its value in use and fair value less costs to dispose. If the carrying amount is
higher than recoverable amount the CGU is impaired to its recoverable amount.
Value in use is determined as the present value of the future cash flows expected to be derived from the CGU. The value in use calculation requires
the Group to estimate future cash flows, pre-tax discount rates and terminal growth rates. Fair value less costs to dispose reflects the price that would
be received to sell the CGU in an orderly transaction between market participants at the measurement date less the costs of disposal.
GROUP $ MILLION
GOODWILLBRANDSSOFTWARESOFTWARE WIPOTHER
TOTAL
INTANGIBLES
As at 31 July 2020
Cost8541,4241,52740783,923
Accumulated amortisation and impairment(317)(177)(1,173)–(16)(1,683)
Net book value at 31 July 20205371,24735440622,240
As at 31 July 2019
Cost8921,6411,49236704,131
Accumulated amortisation and impairment(331)(97)(1,090)–(16)(1,534)
Net book value at 31 July 20195611,54440236542,597
Fonterra Annual Report 2020
111110
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
GOODWILLBRANDSSOFTWARESOFTWARE WIPOTHER
TOTAL
INTANGIBLES
Net book value
As at 1 August 20195611,54440236542,597
Additions––1511365
Transferred from work in progress––44(44)––
Amortisation ––(97)–(2)(99)
Impairment(21)(85)–––(106)
Impairment reversal––3––3
Disposals––(1)(3)(3)(7)
Transferred to assets of disposal groups held
for sale
–(140)–––(140)
Foreign currency translation(3)(72)2––(73)
As at 31 July 20205371,24735440622,240
Net book value
As at 1 August 20181,0811,63839696163,227
Additions––27840120
Transferred from work in progress––138(138)––
Amortisation ––(101)–(2)(103)
Impairment(327)(4)(29)––(360)
Disposals(176)(107)(2)––(285)
Foreign currency translation(17)17(2)––(2)
As at 31 July 20195611,54440236542,597
Amortisation is recognised in Other operating expenses in the Income Statement.
Reconciliation of impairment of intangible assets in the above table to the amount reported in the Income Statement:
GROUP $ MILLION
FOR THE YEAR ENDED
31 JULY 2020
Net impairment of intangible assets 103
Brazil consumer and foodservice business brand impairment included in Loss after tax from discontinued operations(48)
Impairment of intangible assets not included in strategic review55
17 INTANGIBLE ASSETS
CONTINUED
Goodwill and indefinite life brands
As described in Note 1 Segment reporting the Group’s reportable segments for the year ended 31 July 2020 have changed from the prior year reportable
segments. The change in reportable segments has led to a reconsideration of the Group’s CGUs.
The allocation of goodwill and brands across the Group’s reportable segments as at 31 July 2020 are shown in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020
GOODWILLBRANDSTOTAL
Asia Pacific reportable segment
– New Zealand consumer and foodservice CGU229283512
– Australia CGU134148282
– Asia brands–674674
– NZMP brand–120120
AMENA reportable segment
– Chile CGU10122123
Other CGUs73–73
Total5371,2471,784
The allocation of goodwill and brands across the Group’s reportable segments as at 31 July 2019 are shown in the table below:
GROUP $ MILLION
AS AT 31 JULY 2019
GOODWILLBRANDSTOTAL
Ingredients CGUs67120187
Consumer and Foodservice CGUs
– Australia128148276
– New Zealand250283533
– Asia5718723
– Brazil–250250
– Chile11125136
Total5611,5442,105
Impairment testing of goodwill and indefinite life brands
Impairment testing is performed annually at the same time each year.
Where appropriate, based on the market dynamics and go-to-market strategies, impairment testing is performed at a CGU level for both goodwill and
indefinite life brands attributed to that CGU.
Cash flows are based on approved forecasts which are consistent with the Board approved strategy. Cash flows do not exceed five years. The forecasts
include assumptions made about the potential future impacts of the Covid-19 pandemic. Cash flow projections have been adjusted to reflect a range of
possible outcomes, weighted by their expected occurrence.
Discount rates are based on external data where possible.
All brands recognised in the table above have indefinite lives (this was the same as at 31 July 2019).
The impairment tests performed for the Australia CGU, the Chile CGU, NZMP brand and Other CGUs have not resulted in any impairment. A reasonable
possible change in key assumptions would not result in impairment.
The following impairment tests have resulted in an impairment or limited headroom between the carrying amount and recoverable amount.
17 INTANGIBLE ASSETS
CONTINUED
Fonterra Annual Report 2020
113112
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
a) New Zealand consumer and foodservice business
The recoverable amount of the New Zealand consumer and foodservice business was assessed to be $699 million. This was lower than the carrying value of
the business, resulting in an impairment of the goodwill attributed to the business of $21 million (31 July 2019: $185 million).
The New Zealand consumer and foodservice business earnings for the year ended 31 July 2020 were above the amounts forecast in the 2019 impairment
test. However, expectations of future growth are lower than they were 12 months ago, driven by uncertainty about future long-term growth in the
domestic and global economy.
Assumptions used in the impairment assessment
The recoverable amount of the business was determined on a value in use basis using a discounted cash flow methodology.
The model uses a five-year cash flow forecast based on the three-year business plan approved by the Board. Cash flows for years four and five have been
prepared based on growth expectations for the business.
The key drivers for the business to achieve its performance targets are to continue to deliver productivity gains and to effectively manage operational costs.
The long-term growth rate applied to the future cash flows after year five of the forecast was 1.5 per cent (31 July 2019: 2.7 per cent). This reflects the
expected long-term economic growth rate for New Zealand.
The post-tax discount rate was 7.4 per cent (31 July 2019: 8.1 per cent). The pre-tax discount rate was 9.77 per cent (31 July 2019: 10.2 per cent).
The impact of changes in these key assumptions on the recoverable amount are shown in the table below. The sensitivities shown assume the specific
assumption changes in isolation, while all other assumptions are held constant.
KEY ASSUMPTIONSVALUE ATTRIBUTED IMPACT ON THE RECOVERABLE AMOUNT
Annual productivity savings (manufacturing and
supply chain efficiencies) (by year five)
$17 millionAn increase/(decrease) in productivity savings of $3 million results in an
increase/(decrease) in the recoverable amount of $30 million.
Long-term growth rate 1.5 per centAn increase/(decrease) in the long-term growth rate of 0.5 of a per cent would
result in an increase/(decrease) in the recoverable amount of $49 million/
($42 million).
Discount rate (post-tax)7.4 per centAn increase/(decrease) in the discount rate of 0.5 of a per cent would result in
a (decrease)/increase in the recoverable amount of ($59 million)/$69 million.
The fair value less costs to dispose was also considered when determining the recoverable amount to ensure the higher of fair value less costs to dispose
and value in use was applied.
b) Asia brands
Asia brands represent the Group’s trademarks and other intellectual property in territories outside of New Zealand and Australia, relating to Anchor,
Anmum, Anlene and Chesdale.
The relief from royalty method has been used to calculate the recoverable amounts of the Asia brands. This reflects a change from the year ended 31 July
2019, where the recoverable amounts were determined using the present value of future cash flows expected to be derived from the brand. The relief
from royalty methodology is a value in use calculation which determines the recoverable amount by calculating the present value of what a licensee would
theoretically pay as a royalty to use the brands. The royalty rates applied in the calculation are determined based on comparable market data and range
from two to seven per cent. The key assumption used in the relief from royalty method is forecast sales growth. The value attributed to the assumption is
based on the business forecasts over the five-year period.
For the Asia brands other than Chesdale, the five-year compound annual growth rates used in the valuation model range from five to nine per cent and the
range of discount rates (post tax) that have been applied in the valuation model range from five to 22 per cent (31 July 2019: nine to 16 per cent), country
dependent. The recoverable amount of these brands is in excess of the carrying amount and reasonably possible changes in assumptions would not result in
elimination of the headroom.
Chesdale brand
The recoverable amount of the Chesdale brand was assessed to be $28 million. This was lower than the carrying value of the brand, resulting in an
impairment of $36 million.
The impairment is a result of a reduction in forecast attributable to the brand.
As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount rates applied was six to 13 per cent (31 July
2019: eight to 14 per cent). The range of pre-tax discount rates was seven to 18 per cent (31 July 2019: 10 to 18 per cent).
The key assumption used in the model is the ability of the business to meet forecast sales levels. The model uses a five-year compound annual growth rate
of two per cent, reflecting the business forecasts over the five-year period.
The fair value less costs to dispose of the Chesdale brand is not considered to be materially different than the relief from royalty calculation.
INVESTMENTS
This section provides information about the Group’s interest in equity accounted investments.
This section includes the following note:
Note 18: Equity accounted investments
18 EQUITY ACCOUNTED INVESTMENTS
Associates and joint ventures
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies.
Joint ventures are those arrangements in which the Group has contractually agreed to share control and where the Group has rights to the net assets
rather than rights to the assets and obligations for the liabilities.
For joint ventures and associates the Group applies the equity method of accounting. Under the equity method, the Group recognises its initial
investment at cost (including any goodwill identified on acquisition) and subsequently adjusts this for its share of the entities’ profits or losses after
adjustments to align to the accounting policies of the Group. The Group’s share of profits and losses are recognised in the Income Statement and
its share of movements in other comprehensive income is recognised in the Statement of Comprehensive Income. Dividends received from equity
accounted investees reduce the carrying amount of the investment.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest is reduced to nil and no
further losses are recognised except to the extent the Group has an obligation or has made payments on behalf of the investee.
The Group determines at each reporting date whether there is any objective evidence that its investments in equity accounted investees are impaired.
If this is the case, the Group performs an impairment test and recognises any impairment in the Income Statement.
Carrying amounts
The Group holds investments in a number of joint ventures and associates, none of which are individually material. The aggregate amount of the Group’s
share of these equity accounted investments is included in the table below:
GROUP $ MILLION
ASSOCIATESJOINT VENTURESTOTAL
AS AT
31 JULY 2020
AS AT
31 JULY 2019
AS AT
31 JULY 2020
AS AT
31 JULY 2019
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Carrying amount of investment119520196202
(Loss)/profit from continuing operations–(4)(6)29(6)25
Other comprehensive expense––(6)–(6)–
Total comprehensive (expense)/income–(4)(12)29(12)25
The Group has provided financial guarantees and is committed to providing further funding contributions to certain equity accounted investees, as set out
in Note 22 Related party transactions.
There are no contingent liabilities relating to the Group’s interests in joint ventures or equity accounted investees.
Further information about transactions between the Group and equity accounted investees and outstanding balances at year end is provided in Note 22
Related party transactions.
Falcon China Farms JV
Refer to Note 2d) Strategy review update for information about the impairment of the Group’s investment in Falcon China Farms JV.
Fonterra Annual Report 2020
115114
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
FINANCIAL RISK MANAGEMENT
This section outlines the key risk management activities undertaken to manage the Group’s exposure to financial risk.
This section includes the following note:
Note 19: Financial risk management
19 FINANCIAL RISK MANAGEMENT
Financial risks faced by the Group
The Group’s overall financial risk management programme focuses primarily on maintaining a prudent financial risk profile that provides flexibility to
implement the Group’s strategies, while ensuring optimisation of the return on assets. Financial risk management is centralised, which supports compliance
with the financial risk management policies and procedures set by the Board.
A summary of the financial risks that impact the Group and how these risks are managed is presented below:
FINANCIAL RISKDESCRIPTIONMANAGEMENT OF RISK
Market risks
Foreign exchange risk
(Section a)
Impact from changes in foreign exchange ratesForeign currency transactions
For foreign currency transactions, the Group uses foreign currency
forward contracts and foreign currency options to manage foreign
exchange risk.
Foreign operations
For investments in foreign operations, the Group uses foreign
currency denominated borrowings and foreign currency swaps to
manage foreign exchange risk.
Foreign currency denominated borrowings
For foreign currency denominated borrowings, the Group uses
cross-currency interest rate swaps to manage foreign exchange and
interest rate risk combined.
Interest rate risk
(Section b)
Impact from changes in interest ratesThe Group uses interest rate swaps to achieve a target ratio of fixed
and floating rate exposure on its borrowings.
Commodity price risk
(Section c)
Impact from changes in commodity pricesThe Group uses commodity derivatives to manage its exposure
to commodity price risk. The Group also uses its product mix and
sales contract terms to manage the impact of changes in dairy
commodity prices on its earnings.
Other risks
Credit risk
(Section d)
Risk of loss to the Group due to customer or
counterparty default
The Group sets minimum credit quality requirements, credit limits
and uses other credit mitigation tools to manage its credit risk.
Liquidity risk
(Note 9)
Risk that the Group will be unable to meet its
financial obligations as they fall due
The Group actively manages its minimum on-hand cash facilities,
access to committed funds and lines of credit and the maturity
profile of its financial obligations.
Capital management and
structure (Note 7 and Note 9)
The Group’s capital structureThe Group actively manages its capital structure and monitors
leverage and coverage ratios. The Fonterra Shareholders’ Fund
removes the redemption risk associated with Co-operative shares.
The following disclosures included in this note relate to the Group’s financial risk management:
DISCLOSURE ITEMDESCRIPTION
Impact to reserves in equity
(Section e)
Movements in the Group’s hedge reserves and foreign currency translation reserve.
Income Statement impact from
derivatives not designated in a
hedge relationship (Section f )
Movements recognised in the Income Statement from changes in the fair value of derivatives not designated in a
hedge relationship.
Derivative financial instruments and hedge accounting
Derivatives are measured at fair value. Refer to Note 24 Fair value measurement for details on how fair value is determined.
The resulting gain or loss on re-measurement is recognised in the Income Statement immediately, unless the derivative is designated into an effective
hedge relationship as a hedging instrument, in which case the timing of recognition in the Income Statement depends on the nature of the designated
hedge relationship.
The Group may designate derivatives as:
– Fair value hedges (where the derivative is used to manage the variability in the fair value of recognised assets and liabilities);
– Cash flow hedges (where the derivative is used to manage the variability in cash flows relating to recognised liabilities or forecast transactions); or
– Net investment hedges (where borrowings or derivatives are used to manage the risk of fluctuation in the translated value of its foreign operations).
Hedge accounting is discontinued when the hedging instrument expires, is terminated, is exercised, or no longer qualifies for hedge accounting.
Fair value hedges
For fair value hedges the following are recognised in the Income Statement:
– The change in fair value of the hedging instruments; and
– The change in the fair value of the underlying hedged item attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued. The fair value adjustment to the carrying amount
of the hedged item upon discontinuance is amortised and recognised in the Income Statement over the remaining term of the original hedge. If the
hedged item is sold or extinguished any unamortised fair value adjustment is immediately recognised in the Income Statement.
Cash flow hedges
The effective portion of changes in the fair value of the hedging instruments are recognised in other comprehensive income in the Statement of
Comprehensive Income and accumulated in a separate reserve in equity. Subsequently the cumulative amount is transferred to the Income Statement
when the underlying transactions are recognised in the Income Statement.
The ineffective portion of changes in the fair value of the hedging instruments are recognised immediately in the Income Statement.
If the hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued. The cumulative gain or loss previously recognised
in other comprehensive income remains there until the forecast transaction occurs, or is immediately recognised in the Income Statement if the
transaction is no longer expected to occur.
Net investment hedges
The effective portion of changes in the fair value of the hedging instruments are recognised in the Statement of Comprehensive Income and
transferred to the Income Statement when the foreign operation is disposed of or sold.
The ineffective portion of changes in the fair value of the hedging instruments are recognised immediately in the Income Statement.
Costs of hedging
The change in fair value of a hedging instrument relating to the time-value of foreign currency options, and the foreign currency basis component of
cross-currency interest rate swaps are recognised in other comprehensive income and accumulated in a separate reserve in equity. Subsequently, the
cumulative amount is transferred to the Income Statement at the same time as the hedged item impacts the Income Statement.
19 FINANCIAL RISK MANAGEMENT
CONTINUED
Fonterra Annual Report 2020
117116
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
a) Foreign exchange risk
Nature and exposure of foreign exchange risk
Net foreign exchange gains or losses
Foreign currency transactions are translated using the exchange rate at the date of each respective transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the exchange rate at balance date.
Any resulting foreign exchange gains and losses are recognised in the Income Statement, except when they relate to certain non-current advances to
companies within the Group or a cash flow hedge or net investment hedge relationship.
The Group is exposed to foreign exchange risk through transactions denominated in foreign currencies and the translation of foreign currency denominated
balances. The amounts shown below represent the Group’s exposure to foreign currency before applying the risk management strategies:
– The Group’s foreign currency transactions are predominantly denominated in United States Dollars.
– The Group has net investments in foreign operations of $5,240 million (31 July 2019: $5,011 million). This amount is before considering borrowings held
by the Group in the same currency as the investment.
– The Group has borrowings denominated in foreign currency of $4,615 million (31 July 2019: $4,925 million).
How foreign exchange risk is managed
Forecast foreign currency transactions
The Group enters into foreign currency forward contracts and foreign currency options for the following items:
– Forecast cash receipts from foreign currency sales for a period of up to 18 months within limits approved by the Board; and
– Up to 100 per cent of other forecast foreign currency transactions.
Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the designated hedging instruments.
The Group applies cash flow hedge accounting where derivatives are used to manage foreign exchange risk on forecast foreign currency transactions.
The amount and maturity of the derivative and the forecast transaction is aligned to ensure that the hedge relationship remains effective, with any
undesignated costs of hedging accounted for separately.
The effect of the Group’s application of hedge accounting in managing foreign exchange risk related to forecast foreign currency transactions is presented
in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020
1
YEAR ENDED 31 JULY 2020
2
CARRYING AMOUNT
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
INEFFECTIVENESS
HEDGING INSTRUMENT USED
NOMINAL
AMOUNT
3
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
ACCUMULATED
COST OF
HEDGING
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
RECOGNISED
IN OTHER
COMPREHENSIVE
INCOME
(GAIN)/LOSS
RECLASSIFIED
TO THE
INCOME
STATEMENT
(GAIN)/LOSS
4
RECOGNISED
IN INCOME
STATEMENT
GAIN/(LOSS)
Cash flow hedging
Foreign currency forwards and options
Maturity: 0-18 months
Weighted average NZD:USD
rate: 0.64278,000429(45)6359(16)460(61)
Maturity: 0-12 months
Weighted average USD:RMB
rate: 7.1157982(2)(1)–4(5)–
Total8 ,798431(47)5359(1 2)455(61)
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 Nominal amount represents forecast foreign currency transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.
4 Recognised in Revenue from sale of goods.
GROUP $ MILLION
AS AT 31 JULY 2019
1
YEAR ENDED 31 JULY 2019
2
CARRYING AMOUNT
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
INEFFECTIVENESS
HEDGING INSTRUMENT USED
NOMINAL
AMOUNT
3
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
ACCUMULATED
COST OF
HEDGING
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
RECOGNISED
IN OTHER
COMPREHENSIVE
INCOME
(GAIN)/LOSS
RECLASSIFIED
TO THE
INCOME
STATEMENT
(GAIN)/LOSS
4
RECOGNISED
IN INCOME
STATEMENT
GAIN/(LOSS)
Cash flow hedging
Foreign currency forwards and options
Maturity: 0-18 months
Weighted average NZD:USD
rate: 0.68529,26737(182)(14)(144)(238)309–
Maturity: 0-11 months
Weighted average USD:RMB
rate: 6.91174914(1)(1)2(2)(7)–
Maturity: 2-11 months
Weighted average NZD:EUR
rate: 0.589097–––– –––
Total9,85541(183)(15)(142)(240)302–
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 Nominal amount represents forecast foreign currency transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.
4 Recognised in Revenue from sale of goods.
Net investments in foreign operations
The Group’s net investments are designated in hedge relationships to the extent of:
– Borrowings denominated in the same foreign currency; and
– Foreign currency swaps directly attributed to the net investment.
Hedge ineffectiveness arises if the carrying amount of the net investment falls below the amount of the designated hedging instruments.
The effect of the Group’s hedge accounting policy in managing foreign exchange risk related to the Group’s net investments in foreign operations is
presented in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020YEAR ENDED 31 JULY 2020
CARRYING AMOUNTNOMINAL AMOUNT
1
HEDGE EFFECTIVENESS
HEDGED NET INVESTMENTS AND HEDGING
INSTRUMENTS USED
AMOUNT OF NET
INVESTMENT
HEDGED
2
FOREIGN
CURRENCY
BORROWINGS
FOREIGN
CURRENCY
SWAPS
3
NET INVESTMENT
GAIN/(LOSS)
RECOGNISED IN OTHER
COMPREHENSIVE INCOME
BORROWINGS/SWAPS
GAIN/(LOSS)
RECOGNISED IN OTHER
COMPREHENSIVE INCOME
Net investment hedging
United States Dollar-denominated
Maturity of borrowings: 11 months75(75)–3(3)
Australian Dollar-denominated
Maturity of borrowings: 11-88 months516(516)–17(17)
Euro-denominated
Maturity of borrowings: 52 months171(171)–8(8)
Chinese Renminbi-denominated
Maturity of borrowings: 60 months
Maturity of swaps: 3 months229(170)(59)––
Total991(932)(59)28(28)
1 Nominal amount is the face value, converted into New Zealand Dollars using the exchange rate at balance date, of foreign currency swaps designated in net investment hedge relationships.
2 The carrying amount of the net investment designated into a net investment hedge relationship.
3 The carrying amount of foreign currency swaps at balance date was $1 million and is presented within derivative assets.
a) Foreign exchange risk CONTINUED
Fonterra Annual Report 2020
119118
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
AS AT 31 JULY 2019YEAR ENDED 31 JULY 2019
CARRYING AMOUNTNOMINAL AMOUNT
1
HEDGE EFFECTIVENESS
HEDGED NET INVESTMENTS AND HEDGING
INSTRUMENTS USED
AMOUNT OF NET
INVESTMENT
HEDGED
2
FOREIGN
CURRENCY
BORROWINGS
FOREIGN
CURRENCY
SWAPS
3
NET INVESTMENT
GAIN/(LOSS)
RECOGNISED IN OTHER
COMPREHENSIVE INCOME
BORROWINGS/SWAPS
GAIN/(LOSS)
RECOGNISED IN OTHER
COMPREHENSIVE INCOME
Net investment hedging
United States Dollar-denominated
Maturity of borrowings: 10–23 months140(140)–3(3)
Australian Dollar-denominated
Maturity of borrowings: 23–100 months499(499)–(22)22
Euro-denominated
Maturity of borrowings: 64 months163(163)–(3)3
Chinese Renminbi-denominated
Maturity of borrowings: 8–72 months
Maturity of swaps: 4–5 months588(527)(61)14(14)
Total1,390(1,329)(61)(8)8
1 Nominal amount is the face value, converted into New Zealand Dollars using the exchange rate at balance date, of foreign currency swaps designated in net investment hedge relationships.
2 The carrying amount of the net investment designated into a net investment hedge relationship.
3 The carrying amount of foreign currency swaps at balance date was $1 million and was presented within derivative assets.
Borrowings denominated in foreign currency
The Group’s policy is to maintain its net exposure to a foreign currency within predefined limits.
To the extent the Group has monetary assets in the same foreign currency as the borrowing, the Group has a reduced exposure to foreign exchange risk.
The foreign currency gains and losses relating to these balances is offset in net foreign exchange losses in the Income Statement.
To manage the net exposure to foreign currency borrowings, the Group enters into cross currency interest rate swaps (CCIRS). CCIRS are used to manage
the combined foreign exchange risk and interest rate risk as they swap fixed rate foreign currency borrowings and interest payments into equivalent
New Zealand Dollar-denominated amounts of principal with floating interest rates.
The Group applies hedge accounting to foreign currency denominated borrowings that are managed by CCIRS. The amount and maturity of the CCIRS and
the hedged debt is aligned to ensure that the hedge relationship remains effective, with any undesignated costs of hedging accounted for separately. The
hedge relationship may be designated into separate cash flow hedges and fair value hedges to manage the different components of foreign currency and
interest rate risk:
– Fair value hedge relationship where CCIRS are used to manage the interest rate and foreign currency risk in relation to foreign currency denominated
borrowings with fixed interest rates.
– Cash flow hedge relationship where CCIRS are used to manage the variability in cash flows arising from interest rate movements on floating interest rate
payments and foreign exchange movements on payments of principal and interest.
Hedge ineffectiveness arises in relation to CCIRS that have been designated in hedge relationships after their initial recognition, or from changes in
counterparty credit risk and cross currency basis spreads.
a) Foreign exchange risk
CONTINUED
The effect of the Group’s hedge accounting policies in managing both its foreign exchange risk and interest rate risk related to borrowings denominated in
foreign currency is presented in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020
1
YEAR ENDED 31 JULY 2020
2
CARRYING AMOUNT³
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
EFFECTIVENESS
HEDGE
INEFFECTIVENESS
HEDGING
INSTRUMENTS USED
NOMINAL
AMOUNT
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
ACCUMULATED
COST OF
HEDGING
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
CASH
FLOW
HEDGE
(OCI)
CASH FLOW
HEDGE
RECLASSIFIED
TO INCOME
STATEMENT
4
FAIR VALUE
HEDGE
(INCOME
STATEMENT)
GAIN/(LOSS)
4
RECOGNISED
IN INCOME
STATEMENT
GAIN/(LOSS)
4
Cash flow hedging and fair value hedging
Cross-currency interest rate swaps
USD1,184380–(3)398(4)5136(2)
Maturity: 74-121 months
Weighted average interest
rate: floating
Weighted average NZD:USD
rate: 0.7604
GBP62361(232)–(107)29(12)203
Maturity: 41 months
Weighted average interest
rate: floating
Weighted average NZD:GBP
rate: 0.3610
EUR38661–(9)7331(29)––
Maturity: 52 months
Weighted average interest
rate: floating
Weighted average NZD:EUR
rate: 0.6560
Fair value hedging
Cross-currency interest rate swaps
USD318––8NANA––
Maturity: 11 months
Weighted average interest
rate: floating
Weighted average NZD:USD
rate: 0.8160
Total510(232)(12)37256(36)1561
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 Nominal amount is the face value, converted using the weighted average foreign exchange rate, of foreign denominated borrowings in hedge relationships. For those borrowings in fair value hedges,
the carrying amount includes the life-to-date fair value hedge adjustment which increases borrowings by $322 million.
4 Recognised in Net finance costs and Other operating expenses.
a) Foreign exchange risk CONTINUED
Fonterra Annual Report 2020
121120
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
GROUP $ MILLION
AS AT 31 JULY 2019
1
RESTATED
YEAR ENDED 31 JULY 2019
2
RESTATED
CARRYING AMOUNT³
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
EFFECTIVENESS
HEDGE
INEFFECTIVENESS
HEDGING
INSTRUMENTS USED
NOMINAL
AMOUNT
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
ACCUMULATED
COST OF
HEDGING
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
CASH FLOW
HEDGE
(OCI)
CASH FLOW
HEDGE
RECLASSIFIED
TO INCOME
STATEMENT
4
FAIR VALUE
HEDGE
(INCOME
STATEMENT)
GAIN/(LOSS)
4
RECOGNISED
IN INCOME
STATEMENT
GAIN/(LOSS)
4
Cash flow hedging and fair value hedging
Cross-currency interest rate swaps
USD1,184252–(2)2633(6)150(2)
Maturity: 86-133 months
Weighted average interest
rate: floating
Weighted average NZD:USD
rate: 0.7604
GBP62363(278)–(145)(13)16(15)(1)
Maturity: 53 months
Weighted average interest
rate: floating
Weighted average NZD:GBP
rate: 0.3610
EUR38639–(7)50(15)1819–
Maturity: 64 months
Weighted average interest
rate: floating
Weighted average NZD:EUR
rate: 0.6560
Fair value hedging
Cross-currency interest rate swaps
USD318––8NANA 2–
Maturity: 23 months
Weighted average interest
rate: floating
Weighted average NZD:USD
rate: 0.8160
Total362(278)(9)176(25)28156(3)
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 Nominal amount is the face value, converted using the weighted average foreign exchange rate, of foreign denominated borrowings in hedge relationships. For those borrowings in fair value hedges,
the carrying amount includes the life-to-date fair value hedge adjustment which increases borrowings by $179 million.
4 Recognised in Net finance costs and Other operating expenses.
Receivables and payables denominated in foreign currency
The Group enters into foreign currency forward contracts and foreign currency options for 100 per cent of its net foreign currency receivables and payables.
Derivatives used to hedge the changes in the value of foreign currency receivables and payables are not hedge accounted. Changes in the fair value of
these derivatives provide an offset to the changes in the value of foreign currency receivables and payables recognised in the Income Statement. These are
recognised within Other operating expenses in the Income Statement.
a) Foreign exchange risk CONTINUED
Net foreign exchange losses in the Income Statement
The table below provides a breakdown of the net foreign exchange losses recognised in the Income Statement:
GROUP $ MILLION
31 JULY 202031 JULY 2019
Relationships where hedge accounting has been applied
Net foreign exchange (losses)/gains attributable to:
– Foreign currency-denominated borrowings(37)(17)
– Derivatives2918
Relationships where hedge accounting has not been applied
Net foreign exchange (losses)/gains attributable to:
– Foreign currency denominated receivables(64)119
– Foreign currency denominated payables and borrowings23(80)
– Derivatives(8)(40)
– Other net foreign exchange losses(7)–
Net foreign exchange losses(64)–
Sensitivity analysis of changes in foreign currency rates
The table below presents the effect on profit or loss for the year and equity at reporting date if foreign currency rates had been higher, or lower, with all
other variables held constant.
Assets and liabilities of disposal groups held for sale have been excluded from the sensitivity analysis below:
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
RESTATED
EQUITYPROFITEQUITYPROFIT
10% strengthening of the NZD189(5)230(6)
10% weakening of the NZD (189)16(266)8
b) Interest rate risk
Nature and exposure of interest rate risk to the Group
The Group is exposed to interest rate risk on its interest-bearing borrowings, included within economic net interest-bearing debt (refer Note 9 Borrowings).
Changes in market interest rates expose the Group to:
– changes in the fair value of borrowings subject to fixed interest rates (fair value risk); and
– changes in future interest payments on borrowings subject to floating interest rates (cash flow risk).
How the Group manages its exposure to interest rate risk
The Group’s policy is to maintain a target ratio of fixed and floating interest rate exposure. To achieve this the Group considers its forecast debt over a
specified time horizon and manages the interest rate exposure by:
– issuing fixed rate debt; and
– entering into interest rate swaps (IRS).
The Group applies hedge accounting to the borrowings and the associated IRS, for movements in benchmark market interest rates (i.e. excluding any
margin component).
Hedge ineffectiveness arises in relation to IRS that have been designated to hedge relationships after their initial recognition or from changes in
counterparty credit risk. The ineffectiveness of these hedges will continue until maturity.
a) Foreign exchange risk
CONTINUED
Fonterra Annual Report 2020
123122
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
In specific situations, where changes in the fair value of fixed-to-floating IRS provide an offset to the changes in the fair value of other associated floating-
to-fixed IRS, hedge accounting is not applied. The changes in fair values of these IRS offset each other and are recognised within Net finance costs in the
Income Statement.
The effect of the Group’s hedge accounting policies in managing interest rate risk is presented in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020
1
YEAR ENDED 31 JULY 2020
2
CARRYING AMOUNT
3
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
EFFECTIVENESS
HEDGE
INEFFECTIVENESS
HEDGING INSTRUMENTS USED
NOMINAL
AMOUNT
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
CASH
FLOW
HEDGE
(OCI)
CASH FLOW HEDGE
RECLASSIFIED
TO THE INCOME
STATEMENT
4
FAIR VALUE
HEDGE (INCOME
STATEMENT)
GAIN/(LOSS)
4
RECOGNISED
IN THE INCOME
STATEMENT
GAIN/(LOSS)
4
Cash flow hedging
Interest rate swaps on NZD borrowings
Maturity: 1-64 months
Weighted average interest rate: 3.51%3,296–(241)(93)(63)29NA34
Interest rate swaps on AUD borrowings
Maturity: 47-49 months
Weighted average interest rate: 3.34%172–(16)(3)(3)–NA–
Fair value hedging
Interest rate swaps on NZD borrowings
Maturity: 32-64 months
Weighted average interest rate: floating25023–18NANA72
Interest rate swaps on AUD borrowings
Maturity: 71-88 months
Weighted average interest rate: floating51665–69NANA22–
Total8 8(257)(9)(6 6)292936
GROUP $ MILLION
AS AT 31 JULY 2019
1
YEAR ENDED 31 JULY 2019
2
CARRYING AMOUNT
3
HEDGE EFFECTIVENESS
IN RESERVES
HEDGE
EFFECTIVENESS
HEDGE
INEFFECTIVENESS
HEDGING INSTRUMENTS USED
NOMINAL
AMOUNT
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
CHANGE IN
VALUE USED
TO CALCULATE
HEDGE
EFFECTIVENESS
CASH
FLOW
HEDGE
(OCI)
CASH FLOW HEDGE
RECLASSIFIED
TO THE INCOME
STATEMENT
4
FAIR VALUE
HEDGE (INCOME
STATEMENT)
GAIN/(LOSS)
4
RECOGNISED
IN THE INCOME
STATEMENT
GAIN/(LOSS)
4
Cash flow hedging
Interest rate swaps on NZD borrowings
Maturity: 8-62 months
Weighted average interest rate: 4.19%3,441–(240)(65)(101)20NA(7)
Fair value hedging
Interest rate swaps on NZD borrowings
Maturity: 10-76 months
Weighted average interest rate: floating32518–8NANA131
Interest rate swaps on AUD borrowings
Maturity: 83-100 months
Weighted average interest rate: floating49943–47NANA59–
Total61(240)(10)(101)2072(6)
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 The nominal amount represents the principal amount of outstanding or forecast borrowings designated in hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date. For
those borrowings in fair value hedges, the carrying amount includes the life to date fair value hedge adjustment which increases borrowings by $90 million (2019: increased borrowings by $61 million).
4 Recognised in Net finance costs.
b) Interest rate risk CONTINUED
Sensitivity analysis of changes in interest rates
The table below presents the effect on profit or loss for the year and equity at reporting date if interest rates had been higher, or lower, with all other
variables held constant.
Assets and liabilities of disposal groups held for sale have been excluded from the sensitivity analysis below:
GROUP $ MILLION
31 JULY 202031 JULY 2019
EQUITYPROFITEQUITYPROFIT
100 basis point increase50125422
100 basis point decrease(54)(11)(54)(19)
A change in interest rates would also impact floating rate interest payments and receipts on the Group’s borrowing and derivatives held at balance date.
The impact of a change in interest rates on one-year contracted cash flows is shown below:
GROUP $ MILLION
31 JULY 2020 31 JULY 2019
100 basis point increase in interest rates(4)(7)
100 basis point decrease in interest rates47
c) Commodity price risk
Nature and exposure of commodity price risk to the Group
The Group is exposed to dairy commodity price risk through changes in selling prices and the cost of milk purchased from dairy farmers. In addition, the
Group is a large purchaser of electricity, diesel and sugar and is exposed to changes in the cost of these commodities.
How the Group manages its exposure to commodity price risk
Dairy commodity price risk
The Group manages its exposure to dairy commodity price risk by:
– determining the most appropriate mix of products to manufacture based on the supply curve and global demand for dairy products;
– governing the length and terms of sales contracts so that sales revenue is reflective of current market prices and is, where possible, linked to Global
Dairy Trade (GDT) prices; and
– using dairy commodity derivative contracts to obtain an optimal price for future sales, or the cost of milk, to manage margin risk. The markets for dairy
commodity derivatives are relatively limited, which reduces the ability to manage earnings volatility. As markets for these derivatives grow, the use of
dairy commodity derivatives to manage dairy commodity price risk may increase.
Other commodity price risk
The Group manages its exposure to other commodity price risk through the use of derivative contracts, which are transacted at Board-approved levels, to
hedge the cost of electricity, diesel and sugar.
The Group has commenced cash flow hedge accounting where derivatives are used to manage commodity risk on certain forecast transactions. The
amount and maturity of the derivative and the forecast transaction is aligned to ensure that the hedge relationship remains effective.
Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the designated hedging instruments.
b) Interest rate risk
CONTINUED
Fonterra Annual Report 2020
125124
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
The effect of the Group’s application of hedge accounting in managing commodity price risk related to forecast transactions is presented in the table below:
GROUP $ MILLION
AS AT 31 JULY 2020
1
YEAR ENDED 31 JULY 2020
2
CARRYING AMOUNTHEDGE EFFECTIVENESS
HEDGING INSTRUMENTS USED
NOMINAL
AMOUNT³
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIES
CHANGE IN
VALUE USED TO
CALCULATE HEDGE
EFFECTIVENESS
CASH FLOW
HEDGE (OCI)
CASH FLOW HEDGE
RECLASSIFIED
TO THE INCOME
STATEMENT
Cash flow hedging
Fuel13–(1)(1)(5)4
Maturity: 1-18 months
Average Price: $54.73
Milk Price3182(1)11–
Maturity: 3-27 months
Average Price: $6.68
Electricity69–(6)(6)(14)6
Maturity: 1-27 months
Average Price: $91.61
Total4 0 02(8)(6)(18)10
1 Life-to-date amounts as at balance date.
2 Year-to-date amounts recognised during the year.
3 Nominal amount represents forecast transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.
Sensitivity analysis of changes in commodity prices
The table below presents the effect on profit or loss for the year and equity at reporting date if commodity prices had been higher, or lower, with all other
variables held constant. Commodity price sensitivity arises from the revaluation of derivative assets and liabilities in the Statement of Financial Position at
reporting date.
GROUP $ MILLION
31 JULY 202031 JULY 2019
EQUITYPROFITEQUITYPROFIT
10% increase in commodity prices3310430
10% decrease in commodity prices(33)(11)(4)(30)
d) Credit risk
Nature and exposure of credit risk to the Group
Credit risk is the risk of loss to the Group due to customer or counterparty default on the Group’s receivable balances. The Group’s maximum exposure to
credit risk is represented by the carrying amounts of Cash and cash equivalents, Trade and other receivables, Long-term advances, Derivative assets, and
other investments and receivables.
The Group has no undue concentrations of credit risk.
How the Group manages its exposure to credit risk
The Group’s policy is to actively manage its exposure to credit risk through the following actions:
Derivative contracts, cash and cash equivalents and other balances
– Use of financial counterparties that have a credit rating of at least ‘A-’ from Standard & Poor’s (or equivalent).
– Use of commodity counterparties that have a credit rating of at least ‘BBB-’ from Standard & Poor’s (or equivalent) for commodity derivative contracts.
– Posting or receiving margin in respect of derivative contracts transacted on exchanges. The Group has posted $69 million (31 July 2019: $41 million) of
margin as collateral for derivative financial instruments.
c) Commodity price risk
CONTINUED
Trade and other receivables
– Application of credit limits, and credit mitigation tools, such as letters of credit.
– Trade and other receivable balances are included in Note 11 Trade and other receivables.
Long-term advances
– Counterparty creditworthiness is assessed before the commencement of any Long-term advances. Depending on the nature and amount of the advance,
they are subject to Board approval. The collectability of Long-term advances is monitored on a regular basis.
e) Impact to reserves in equity
The impact of the Group’s hedge accounting policies on the reserves in equity is presented in the tables below:
Hedge reserves
GROUP $ MILLION
AS AT 31 JULY 2020AS AT 31 JULY 2019
Opening balance(268)(267)
Movements attributable to cash flow hedges
Change in value of effective derivative hedging instruments(43)(365)
Reclassifications to the Income Statement:
– As hedged transactions occurred 518362
Net change in the cost of hedging reserve171
Tax exp ense(138)1
Transferred between reserves15–
Total movement369(1)
Closing balance
1
101(268)
1 Included in the closing balance of the hedge reserves is $1 million (31 July 2019: $1 million) relating to hedge relationships for which hedge accounting is no longer applied.
Foreign currency translation reserve
GROUP $ MILLION
AS AT 31 JULY 2020AS AT 31 JULY 2019
Opening balance(183)(364)
Movements attributable to net investments in foreign operations and net investment hedges
Net translation (loss)/gain on:
– Borrowings and derivative hedging instruments(36)8
– Net investments in foreign operations(39)(25)
Reclassifications to the Income Statement:
– Upon disposal of the Venezuelan operations–146
– Upon the reclassification of the investment in Beingmate–30
– Other disposals of foreign operations2117
Tax exp ense85
Total movement(46)181
Closing balance
1
(229)(183)
1 Included in the closing balance of the foreign currency translation reserve is $15 million (31 July 2019: $4 million) relating to hedge relationships for which hedge accounting is no longer applied.
d) Credit risk
CONTINUED
Fonterra Annual Report 2020
127126
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
f ) Income Statement impact from derivatives not designated in a hedge relationship
In addition to derivatives that are designated and qualify for hedge accounting, the Group also holds certain derivatives as economic hedges of foreign
currency, commodity and interest rate exposure. The impact of non-designated derivatives are recognised in the Income Statement.
The impact of derivatives not designated in a hedging relationship are presented in the table below:
GROUP $ MILLION
DERIVATIVES NOT DESIGNATED IN A HEDGING
RELATIONSHIPLOCATION OF GAIN/(LOSS) IN INCOME STATEMENTAS AT 31 JULY 2020AS AT 31 JULY 2019
Foreign currency contractsRevenue from sale of goods
1
(53)–
Foreign currency contractsOther operating expenses(8)(40)
Commodity contractsCost of goods sold(21)30
Commodity contractsOther operating expenses(2)(3)
Interest rate contractsFinance costs(8)(21)
Total(92)(34)
1 $61 million of losses on foreign exchange contracts recognised within Revenue from sale of goods relate to cash flow hedges where the forecast sales transactions are no longer expected to occur
(31 July 2019: nil).
OTHER
This section contains additional notes and disclosures that aid in understanding the Group’s position and performance but do not form part of
the primary sections.
This section includes the following notes:
Note 20: Taxation
Note 21: Contingent liabilities, provisions and commitments
Note 22: Related party transactions
Note 23: Subsidiaries
Note 24: Fair value measurement
Note 25: Offsetting of financial assets and liabilities
Note 26: Net tangible assets per quoted equity security
Note 27: Impact of transition to NZ IFRS 16 Leases
Note 28: Re-presentations and prior period restatements
20 TAXATION
Tax expense comprises current and deferred tax. Tax expense, including the tax consequences of distributions to farmer shareholders, is recognised
in the Income Statement. The tax consequences of distributions to farmer shareholders are recognised in the year to which the distribution relates.
Other than distributions to farmer shareholders, tax consequences of items recognised directly in equity are also recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the
balance date, and any adjustment to tax payable or receivable in respect of previous years.
Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
those for taxation purposes. Deferred tax is measured at the tax rate that is expected to apply to the temporary differences when they reverse, based
on laws that have been enacted or substantively enacted at balance date.
Deferred tax is not recognised on the following temporary differences:
– the initial recognition of goodwill;
– the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
profit; and
– differences relating to investments in subsidiaries and equity accounted investees to the extent that the timing of the reversal is controlled by the
Group and it is probable that they will not reverse in the foreseeable future.
In determining the probability of reversal, consideration is taken of whether the related assets are held for sale, future expectations of exiting, and if
applicable, the impact any exit would have on the crystallisation of the deferred tax.
Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which the temporary differences
can be utilised.
a) Taxation – Income Statement
The total Tax expense in the Income Statement is summarised as follows:
GROUP $ MILLION
31 JULY 202031 JULY 2019
Current tax expense9080
Prior period adjustments to current tax87
Deferred tax movements:
– Origination and reversal of temporary differences77(7)
Tax expense17580
Fonterra Annual Report 2020
129128
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
The taxation charge that would arise at the standard rate of corporation tax in New Zealand is reconciled to the Tax expense as follows:
GROUP $ MILLION
31 JULY 202031 JULY 2019
Profit/(loss) before tax978(42)
Prima facie tax expense at 28%274(12)
Add/(deduct) tax effect of:
– Effect of tax rates in foreign jurisdictions (11)(21)
– Non-deductible expenses/additional assessable income104148
– Non-assessable income/additional deductible expenses(183)(18)
– Prior year under provision87
Tax expense before distributions and deferred tax192104
Effective tax rate before distributions and deferred tax
1
19.6%NA
Tax effect of distributions to farmer shareholders(19)–
Tax expense before deferred tax173104
Effective tax rate before deferred tax
1
17.7%NA
Add/(deduct) tax effect of:
– Origination and reversal of other temporary differences(1)(31)
– Losses of overseas Group entities not recognised37
Tax expense17580
Effective tax rate
1
17.9%NA
Imputation credits
Imputation credits available for use in subsequent reporting periods 2020
Tax losses
Gross tax losses available for which no deferred tax asset has been recognised4864
1 The effective tax rate is the Tax expense on the face of the Income Statement expressed as a percentage of the Profit before tax. The Group recorded a Loss before tax in the year ended 31 July 2019, so
the calculation of an effective tax rate is not applicable.
a) Taxation – Income Statement CONTINUEDb) Taxation – Statement of Financial Position
Deferred tax assets and deferred tax liabilities relate to the following:
GROUP $ MILLION
AS AT 31 JULY 2020
AS AT 31 JULY 2019
RESTATED
DEFERRED TAX
ASSET
DEFERRED TAX
LIABILITYNET
DEFERRED TAX
ASSET
DEFERRED TAX
LIABILITYNET
Deferred tax
Property, plant and equipment1,596(1,650)(54)1,661(1,724)(63)
Intangible assets–(388)(388)–(498)(498)
Right-of-use assets162(155)7–––
Derivative financial instruments–(30)(30)111–111
Employee entitlements80–8054–54
Inventories65–6549–49
Receivables, payables and provisions75–7555–55
New Zealand tax losses428–428522–522
Offshore tax losses241–241236–236
Other7(30)(23)45–45
Total before offsetting 2,654(2,253)4012,733(2,222)511
Offset adjustment(2,233)2,233–(2,123)2,123–
Total421(20)401610(99)511
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
RESTATED
Movements for the year
Opening balance511594
Recognised in the Income Statement(58)(88)
Recognised directly in other comprehensive income(133)6
Implementation of NZ IFRS 167–
Transferred to Liabilities of disposal groups held for sale47–
Foreign currency translation27(1)
Closing balance401511
New Zealand tax losses
The New Zealand tax consolidated group generated taxable income in the current year. The deferred tax asset relating to New Zealand tax losses of
$428 million (31 July 2019: $522 million) has been recognised on the basis that taxable income will be generated in the future against which the tax losses
can be utilised.
The key assumptions in the assessment of future taxable income are New Zealand earnings, and the tax-deductible dividend. The estimate of New Zealand
earnings is based on performance of the New Zealand tax consolidated group relative to the overall Group. This ratio has been applied to the profit before
tax forecast in the Group’s three-year business plan. The tax-deductible dividend assumption is based on the Group’s dividend policy and is set at the
midpoint of the current policy which is 40 per cent to 60 per cent of normalised net profit after tax. Fonterra determines its dividend policy and therefore
has the ability to influence utilisation of the losses.
Changes in the key assumptions used could impact the expected time horizon for utilisation of the tax losses, for example higher dividends could extend
the utilisation horizon but would not impact the carrying amount of deferred tax assets available to be utilised against future taxable profits. A reasonably
possible change in the key assumptions does not change the carrying value of the deferred tax asset recognised.
Offshore tax losses
Gross tax losses of $48 million reflecting a deferred tax asset of $14 million (31 July 2019: $64 million gross, deferred tax asset of $19 million) relating to
offshore entities have not been recognised as they may not be utilised.
Fonterra Annual Report 2020
131130
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
Deferred tax liabilities
Earnings made by foreign subsidiaries could be subject to withholding and other taxes on remittance. Deferred tax liabilities are not recognised in respect
of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. During the year, the Group reassessed the likelihood of earnings
being remitted to New Zealand and recognised a deferred tax liability of $30 million relating to unremitted earnings previously considered to be indefinitely
reinvested.
As at 31 July 2020, unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries amount to $131 million (31 July 2019: $1,085
million). The Group has made a judgement not to recognise deferred tax liabilities in respect of these amounts because it can control the timing and the
manner in which the associated temporary difference will reverse. This includes controlling the timing of dividends, and in the event of divestments made
because of the strategic review, the manner in which divestment proceeds are remitted (and therefore the associated tax consequences).
Uncertain Tax Position
In determining the amount of current and deferred tax, the Group takes into account the effect of uncertain tax positions and whether additional taxes,
penalties and interest may be due. The Group operates in several different tax jurisdictions. This leads to complex tax issues. The ultimate decision
regarding these complex tax issues is often outside the control of the Group and depends on the efficiency of the legal processes in the relevant tax
jurisdiction. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including
interpretations of tax law and prior experience. This assessment relies on estimates and assumptions about future events. New information may become
available that causes the Group to change its judgement regarding the adequacy of existing tax liabilities. Such changes to tax liabilities will affect tax
expense in the period that such determination is made.
21 CONTINGENT LIABILITIES, PROVISIONS AND COMMITMENTS
Provisions are recognised in the Statement of Financial Position only where the Group has a present legal or constructive obligation. This obligation
must be the result of a past event, when it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of
the amount can be made.
Legal counsel or other experts are consulted on matters that may give rise to a provision or a contingent liability. Estimates and assumptions are made
in determining the likelihood, amount and timing of cash outflows when the outcome is uncertain.
a) Contingent liabilities
In the normal course of business, Fonterra, its subsidiaries and equity accounted investees, are exposed to claims and legal proceedings that may in some
cases result in costs to the Group.
In June 2020 a class action was filed in the Supreme Court of Victoria against Fonterra Australia Pty. Ltd., Fonterra Milk Australia Pty. Ltd. and Fonterra
Brands (Australia) Pty. Ltd. (collectively, Fonterra Australia) by Geoffrey and Lynden Iddles on behalf of farmers who supplied milk to Fonterra Australia
during the 2015/2016 season. The class action relates to actions taken by Fonterra Australia in connection with its milk price in the 2015/2016 season
including the manner in which Fonterra Australia set its opening milk price and forecast closing milk price at the outset of that season, its communications
with suppliers about the milk price throughout the season; and its reduction of the milk price in May 2016. The plaintiffs are alleging that Fonterra Australia
breached its contracts with suppliers, engaged in misleading and deceptive conduct and engaged in unconscionable conduct in connection with these
matters. Fonterra expects to vigorously defend these claims. Given the early stage of the litigation, it is not currently possible to estimate the amount of any
potential exposure in connection with this class action.
In April 2020, Fonterra resolved all outstanding claims from Danone relating to Fonterra’s Whey Protein Concentrate 80 (WPC80) precautionary recall
in August 2013. Danone has withdrawn the New Zealand High Court proceedings against Fonterra which had been stayed pending separate Singapore
arbitration proceedings against Fonterra in connection with the WPC80 precautionary recall.
b) Taxation – Statement of Financial Position
CONTINUEDb) Provisions
GROUP $ MILLION
EMPLOYEE
RELATED
PROVISIONS
LEGAL CLAIMS
PROVISIONS
RESTRUCTURING
PROVISIONS
OTHER
PROVISIONS
TOTAL
PROVISIONS
As at 1 August 201980584224204
Reclassification of tax provision to tax payable
1
–(24)––(24)
Adjusted balance as at 1 August 201980344224180
Additional provisions49–163499
Unused amounts reversed–(3)(3)(10)(16)
Charged to Income Statement49(3)132483
Charged to equity19–––19
Utilised during the year(3)–(52)(17)(72)
Transferred to liabilities of disposal groups held for sale(35)(20)––(55)
Foreign currency translation(14)(9)––(23)
As at 31 July 2020962331132
Included in the Statement of Financial Position as follows:
Current liabilities68
Non-current liabilities64
Total provisions132
1 $24 million of legal claims provisions was reclassed from provisions to tax payable at 31 July 2019 as a result of the retrospective adoption of NZ IFRIC 23 Uncertainty over Income Tax Treatments. Refer
to Basis of preparation for new and amended International Financial Reporting Standards.
Employee related provisions include amounts payable to employees pending judicial interpretation of the requirements of legislation in New Zealand,
defined benefit scheme obligations, other obligations that fall due on termination of employment, and long-term employee benefits. The timing
and amount of settlement is uncertain as it primarily depends on the outcome of judicial proceedings or decisions relating to the employment of
relevant employees.
Legal claims provisions include obligations relating to customs and duties and legal matters arising in the normal course of business. The timing and amount
of settlement is uncertain as it depends on the outcome of a number of judicial proceedings.
Other provisions relate to product quality claims and other claims arising in the normal course of business. The timing and amount of settlement is
uncertain as it depends on the outcome of the commercial negotiations relating to each individual claim.
c) Commitments
Capital expenditure contracted for at balance date but not recognised in the financial statements are as follows:
GROUP $ MILLION
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Buildings345
Plant, vehicles and equipment7543
Software21
Total commitments11149
Fonterra Annual Report 2020
133132
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
22 RELATED PARTY TRANSACTIONS
The transactions with related parties that were entered into during the year, and the year end balances that arose from those transactions are shown below:
a) Key management personnel remuneration
Key management personnel comprise members of the Board and members of the Fonterra Management Team.
GROUP $ MILLION
31 JULY 202031 JULY 2019
Short-term employee benefits
1
2013
Long-term employee benefits33
Termination benefits12
Directors’ remuneration22
Total key management personnel remuneration2620
1 In addition, as at 31 July 2020 the Group recognised a provision of $2 million for former key management personnel in relation to pending judicial interpretation of the requirements of legislation in
New Zealand.
b) Transactions with related parties during the year
Transactions with related parties are under normal trade terms and none of the balances are secured.
GROUP $ MILLION
31 JULY 202031 JULY 2019
Equity accounted investees
Revenue from the sale of goods
1
104120
Sale of services
2
109
Royalty and other income22
Dividends received336
Interest income from financing arrangements12
Purchases of goods
3
(57)(56)
Purchases of services
4
(162)(169)
Purchase of Darnum manufacturing plant from Beingmate
5
–(126)
Key management personnel
Purchases of goods
6
(154)(118)
Sale of goods
7
44
1 Goods sold are primarily commodity products.
2 Services provided include management fees.
3 Goods purchased are primarily commodity products.
4 Services provided are primarily freight services.
5 Beingmate was considered a related party until the Group lost significant influence in the second half of FY19.
6 Purchases from key management personnel primarily relate to milk supplied by farmer shareholder Directors.
7 Sales to key management personnel primarily related to sales through Farm Source™ stores.
c) Outstanding balances with related parties
GROUP $ MILLION
AS AT 31 JULY 2020AS AT 31 JULY 2019
Equity accounted investees
Total receivables arising from the sale of goods or services
1
2425
Total receivables arising from financing arrangements
2
5565
Total payables arising from the purchase of goods or services(29)(31)
Total payables arising from financing arrangements(1)(2)
Key management personnel
Total payables arising from the sale or purchase of goods or services
3
(22)(18)
1 Includes $7 million provision for impairment of receivables from equity accounted investees (31 July 2019: nil).
2 Loans to related parties other than equity accounted investees are unsecured and repayable in cash on demand. Loans to equity accounted investees are unsecured and repayable over varying terms of
between four years and nine years.
3 Payables to key management personnel relate to amounts owing for milk supplied by farmer shareholder Directors and are recognised in owing to suppliers.
d) Financial guarantees
The Group provides financial guarantees for certain equity accounted investees. At 31 July 2020, the aggregate drawn down amount of equity accounted
investees’ liabilities for which the Group is jointly and severally liable was nil (31 July 2019: $1 million).
e) Transactions with related entities
As part of the administration of Trading Among Farmers, the Group entered into an Authorised Fund Contract to provide administrative services in relation
to the Fund and meet the operating expenses of the Fund. In addition, the Group has agreed to provide corporate facilities, support functions and other
services at no cost to the Fund.
f) Commitments
In addition to the transactions disclosed above, the Group has:
– Prospective commitments with related parties including contracts with associates and joint ventures for the supply of dairy products and energy, and the
provision of various management services.
– Other than the contractual commitment to provide future funding to the Falcon China Farms JV (refer to Note 2 Strategy review update) no other
contractual commitments have been provided to related parties.
22 RELATED PARTY TRANSACTIONS
CONTINUED
Fonterra Annual Report 2020
135134
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
23 SUBSIDIARIES
Subsidiaries are entities controlled by the Group. Subsidiaries are consolidated from the date the Group gains control until the date on which
control ceases.
Non-controlling interests are allocated their share of profit after tax in the Income Statement and are presented within equity in the Statement
of Financial Position separately from equity attributable to equity holders. The effect of all transactions with non-controlling interests that change
the Group’s ownership interest but do not result in a change in control are recorded in equity. Where control is lost, the remaining interest in the
investment is remeasured to fair value and any surplus or deficit arising from that remeasurement is recognised in the Income Statement.
The Group’s subsidiaries are involved in the marketing, distribution, processing, technology or financing of dairy products. All Group subsidiaries have a
balance date of 31 July unless otherwise indicated. Subsidiaries with different balance dates from that of the Group are due to legislative requirements in
the country the entities are domiciled.
The Group holds investments in certain countries that have some limited restrictions on the repatriation of funds back to New Zealand. This does not result
in any significant restriction on the flow of funds for the Group.
The significant subsidiaries of the Group are listed below:
OWNERSHIP INTERESTS (%)
SUBSIDIARY NAME
COUNTRY OF INCORPORATION
AND PRINCIPAL PLACE OF BUSINESS
AS AT
31 JULY 2020
AS AT
31 JULY 2019
New Zealand Milk (Australasia) Pty LimitedAustralia100100
Fonterra Australia Pty Limited
1
Australia100100
Fonterra Brands (Australia) Pty Limited
1
Australia100100
Dairy Partners Americas Brasil Limitada
2
Brazil5151
Soprole Inversiones S.A.
2
Chile99.999.9
Comercial Santa Elena S.A.
3
Chile99.999.9
Soprole S.A.
3
Chile99.999.9
Sociedad Procesadora de Leche del Sur S.A. (Prolesur S.A.)
3
Chile99.9486.26
Fonterra Commercial Trading (Shanghai) Company Limited
2
China100100
Fonterra (Yutian) Dairy Farm Co. Limited
2
China100100
Fonterra (Ying) Dairy Company Limited
2
China100100
Tangshan Fonterra Dairy Farm Limited
2
China8585
Fonterra Brands (Hong Kong) LimitedHong Kong100100
Fonterra Brands Indonesia, PTIndonesia100100
Fonterra Brands (Malaysia) Sdn BhdMalaysia100100
Fonterra (Europe) Coöperatie U.A.Netherlands100100
Fonterra Europe Manufacturing B.V.Netherlands100100
Fonterra (New Zealand) LimitedNew Zealand100100
Fonterra Brands (New Zealand) LimitedNew Zealand100100
Fonterra Dairy Solutions LimitedNew Zealand100100
Fonterra Ingredients LimitedNew Zealand100100
Fonterra LimitedNew Zealand100100
New Zealand Milk Brands LimitedNew Zealand100100
RD1 LimitedNew Zealand100100
Kotahi Logistics LPNew Zealand9091
Fonterra Brands (Singapore) Pte LimitedSingapore100100
Fonterra Brands Lanka (Private) LimitedSri Lanka100100
Fonterra (USA) Inc.United States100100
1 These entities are subsidiaries of New Zealand Milk (Australasia) Pty Limited.
2 Balance date 31 December.
3 Balance date 31 December and these entities are subsidiaries of Soprole Inversiones S.A.
23 SUBSIDIARIES CONTINUED
The Group’s ownership interest of the following entities is 50 per cent or less. However, they have been consolidated on the basis that the Group controls
them through its exposure or rights to variable returns and the power to affect those returns.
OWNERSHIP INTERESTS (%)
OVERSEAS SUBSIDIARIES 50% OR LESS OWNERSHIP
COUNTRY OF INCORPORATION
AND PRINCIPAL PLACE OF BUSINESS
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Fonterra ( Japan) LimitedJapan5050
Fonterra Brands (Middle East) L.L.C.UAE4949
In addition to the entities above, the Group controls the Fonterra Shareholders’ Fund and Fonterra Farmer Custodian Limited and consolidates these two
entities. The trustees of the Fonterra Farmer Custodian Trust own the legal title to all of the shares of the Custodian. The Fund is a managed investment
scheme with an independent trustee. In concluding that the Group controls the Fund and the Custodian, the Directors took into consideration that they
form an integral part of the structure and operation of Trading Among Farmers.
Fonterra Annual Report 2020
137136
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
24 FAIR VALUE MEASUREMENT
Valuation techniques for determining fair values
The fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at
the measurement date.
The fair values of financial assets and liabilities are calculated by reference to quoted market prices where that is possible. A market is regarded as
active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and
those prices represent actual and regularly occurring market transactions on an arm’s length basis.
If quoted market prices are not available, the methodology used to calculate the fair values of financial assets and liabilities is to identify the expected
cash flows under the terms of each specific contract and then discount these values back to the present value. These models use as their basis
independently sourced market data where it is available and rely as little as possible on entity-specific estimates.
The calculation of the fair value of financial instruments reflects the impact of credit risk where applicable.
Specific valuation techniques used to value financial instruments include:
– The fair value of foreign exchange contracts is determined using observable currency exchange rates, option volatilities and interest rate yield
curves;
– The fair value of interest rate contracts is calculated as the present value of the estimated future cash flows based on observable interest rate yield
curves;
– The fair value of commodity contracts that are not exchange traded is determined by calculating the present value of estimated future cash flows
based on observable quoted prices for similar instruments; and
– The fair value on the hedged risks of borrowings and long-term advances that are not exchange traded is calculated as the present value of the
estimated future cash flows based on observable currency exchange rates and interest rate yield curves.
Fair value hierarchy
The fair value hierarchy described below is used to provide an indication of the level of estimation or judgement required in determining fair value:
– Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
– Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change occurred.
The following table shows the fair value hierarchy for assets and liabilities measured at fair value:
GROUP $ MILLION
LEVEL 1LEVEL 2LEVEL 3
AS AT
31 JULY 2020
AS AT
31 JULY 2019
AS AT
31 JULY 2020
AS AT
31 JULY 2019
AS AT
31 JULY 2020
AS AT
31 JULY 2019
Measured at fair value on a recurring basis:
Derivative assets
– Commodity derivatives191421––
– Foreign exchange derivatives––49340––
– Interest rate derivatives
1
––602433––
Derivative liabilities
– Commodity derivatives(23)(9)(2)(4)––
– Foreign exchange derivatives––(72)(200)––
– Interest rate derivatives
1
––(499)(539)––
Investment in Beingmate157234––––
Investments in shares17823151116
Livestock––––6295
Measured at fair value on a non-recurring
basis:
Disposal groups held for sale––––402229
Fair value170247547(254)419540
1 Includes cross-currency interest rate swaps.
24 FAIR VALUE MEASUREMENT CONTINUED
The following table shows the fair value hierarchy for each class of financial asset and liability where the carrying value in the Statement of Financial
Position differs from the fair value:
GROUP $ MILLION
FAIR VALUE
CARRYING VALUELEVEL 1LEVEL 2
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
AS AT
31 JULY 2020
AS AT
31 JULY 2019
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Financial assets
Long-term advances220142––235150
Financial liabilities
Borrowings
– NZX-listed bonds(600)(600)(633)(627)––
– Capital notes(35)(35)(32)(35)––
– Bank loans(20)(619)––(20)(620)
– Medium-term notes(4,782)(4,971)––(4,996)(5,208)
– Finance leases
1
–(71)–––(75)
1 From 1 August 2019 finance leases are included in the lease liabilities balance. This presentation change is a result of the adoption of NZ IFRS 16 Leases. For details on the impact of the change in lease
accounting refer to Note 27 Impact of transition to NZ IFRS 16 Leases.
Fonterra Annual Report 2020
139138
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
25 OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position where there currently is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the
liability simultaneously.
The Group enters into various master netting arrangements or similar agreements that do not meet the criteria for offsetting in the Statement of Financial
Position but still allow for the related amounts to be offset in certain circumstances. These principally relate to derivative transactions under ISDA
(International Swap and Derivative Association) agreements where each party has the option to settle amounts on a net basis in the event of default
of the other party.
The table below sets out the financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and other agreements.
GROUP $ MILLION
AMOUNTS OFFSET IN THE STATEMENT OF FINANCIAL POSITION
GROSS FINANCIAL
ASSETS/(LIABILITIES)
GROSS FINANCIAL
ASSETS/(LIABILITIES)
SET OFF
NET FINANCIAL
ASSETS/(LIABILITIES)
PRESENTED
AMOUNTS NOT
OFFSETNET
Cash and cash equivalents788–788–788
Derivative financial assets1,203(87)1,116(447)669
Trade and other receivables (excluding prepayments)1,861(86)1,775(20)1,755
3,852(173)3,679(467)3,212
Derivative financial liabilities(683)87(596)467(129)
Owing to suppliers(1,674)86(1,588)–(1,588)
(2,357)173(2,184)467(1,717)
31 July 20201,495–1,495–1,495
Cash and cash equivalents550–550(8)542
Derivative financial assets526(38)488(283)205
Trade and other receivables (excluding prepayments)1,914(90)1,824–1,824
2,990(128)2,862(291)2,571
Derivative financial liabilities(790)38(752)291(461)
Owing to suppliers(1,624)90(1,534)–(1,534)
(2,414)128(2,286)291(1,995)
31 July 2019 (restated)576–576–576
26 NET TANGIBLE ASSETS PER QUOTED EQUITY SECURITY
GROUP
AS AT
31 JULY 2020
AS AT
31 JULY 2019
RESTATED
Net tangible assets per security
1
$ per equity instrument on issue2.772.01
Equity instruments on issue (million)1,6121,612
1 Net tangible assets represent Total assets less Total liabilities less Intangible assets.
27 IMPACT OF TRANSITION TO NZ IFRS 16 LEASES
The impact of adopting NZ IFRS 16 Leases is summarised below:
GROUP
$ MILLION
Closing lease commitment for the year ended 31 July 2019513
Operating lease payments not brought on to Statement of Financial Position:
– Exempt leases (short term leases and leases of low-value assets) (40)
– Arrangements that are not leases(50)
Additional lease payments brought on to Statement of Financial Position244
Effect of discounting lease payments(86)
Finance lease liabilities transferred71
Opening lease liability 1 August 2019652
On transition, the Group has elected to utilise the modified retrospective approach for existing leases. This method resulted in an adjustment to the
opening balance of retained earnings as at 1 August 2019 of $20 million. Prior year comparative information is not required to be restated.
The weighted-average incremental borrowing rate used to measure lease liabilities at transition was 3.56 per cent.
For leases previously classified as operating leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the
incremental borrowing rate as at 1 August 2019. Right-of-use assets are measured at either:
– Their carrying amount as if NZ IFRS 16 had been applied since the commencement date, discounted using the incremental borrowing rate
at 1 August 2019; or
– An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
The Group used the following practical expedients when applying NZ IFRS 16 to leases previously classified as operating leases:
– Applied the exemption not to recognise Right-of-use assets and liabilities for low value leases and leases with less than 12 months of lease term
remaining at 1 August 2019;
– Elected to apply a single discount rate to a portfolio of leases where they had similar characteristics;
– Excluded initial direct costs from the measurement of the Right-of-use asset at 1 August 2019; and
– Assessed the lease term using facts and circumstances known at transition date, rather than looking back and making retrospective assumptions of the
facts and circumstances at the start of the lease.
The related lease expense for exempt leases is recognised in Profit before net finance costs and tax.
A number of leases were previously classified as finance leases. The carrying value of lease assets and lease liabilities for these leases as at 31 July 2019 was
transferred to Right-of-use assets and lease liability under NZ IFRS 16.
Fonterra Annual Report 2020
141140
Notes to the Financial Statements
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
The following tables reconcile the impact on key line items in the Group’s Income Statement and Statement of Financial Position from re-presentations
and restatements
1
.
GROUP $ MILLION
STATEMENT OF FINANCIAL POSITION (EXTRACT)
AS AT 31 JULY
2018 AUDITED
CONTROL
TRANSFER
ADJUSTMENT
GBP BOND
ADJUSTMENT
AS AT 31 JULY
2018 RESTATED
Trade and other receivables2,355(75)–2,280
Inventories2,917360–3,277
Deferred tax asset667115683
Trade and other payables(2,116)(324)–(2,440)
Non-current borrowings(5,907)–(19)(5,926)
Net assets6,349(28)(14)6,307
Retained earnings934(28)(14)892
Total equity 6,349(28)(14)6,307
GROUP $ MILLION
INCOME STATEMENT (EXTRACT)
YEAR ENDED
31 JULY 2019
AUDITED
DISCONTINUED
OPERATIONS
YEAR ENDED
31 JULY 2019
CONTINUING
OPERATIONS
PROFIT INCREASE/
(DECREASE)
AGENT
ADJUSTMENT
INCREASE/
(DECREASE)
CONTROL
TRANSFER
ADJUSTMENT
YEAR ENDED
31 JULY 2019
RESTATED
Revenue20,114(665)19,449(498)30419,255
Cost of sales(17,334)766(16,568)498(311)(16,381)
Gross profit2,7801012,881–(7)2,874
Expenses and other items including finance costs(3,208)292(2,916)––(2,916)
Profit/(loss) before income tax(428)393(35)–(7)(42)
Income tax(177)95(82)–2(80)
Loss after tax from continuing operations(605)488(117)–(5)(122)
Loss from discontinued operations(488)––(488)
Loss after tax(605)–(5)(610)
GROUP $ MILLION
STATEMENT OF FINANCIAL POSITION (EXTRACT)
AS AT 31 JULY
2019 AUDITED
CONTROL
TRANSFER
ADJUSTMENT
GBP BOND
ADJUSTMENT
AS AT 31 JULY
2019 RESTATED
Trade and other receivables1,900(29)–1,871
Inventories2,944221–3,165
Deferred tax asset592135610
Trade and other payables(1,869)(238)–(2,107)
Non-current borrowings(5,361)–(19)(5,380)
Net assets5,881(33)(14)5,834
Retained earnings360(33)(14)313
Total equity 5,881(33)(14)5,834
1 Where applicable, the Cash Flow Statement has been restated to reflect the above changes. These restatements have not impacted net cash flows.
28 RE-PRESENTATIONS AND PRIOR PERIOD RESTATEMENTS
Re-presentations
Discontinued operations
As at 31 July 2020 the China Farms and Brazil consumer and foodservice businesses are classified as disposal groups held for sale and considered
to be discontinued operations (refer to Note 2 Strategy review update for further details). This has the following impact on the presentation of these
financial statements:
– Discontinued operations are presented in a single line item in the Income Statement in both the current and comparative reporting periods. Comparative
period information in the Income Statement has been re-presented to reflect the classification of China Farms and the Brazil consumer and foodservice
businesses as discontinued operations.
– Assets of disposal groups held for sale are presented in a single line item within Current assets, and Liabilities of disposal groups held for sale are
presented in a single line item within Current liabilities. Comparative period information in the Statement of Financial Position has not been re-presented.
– The Statement of Changes in Equity and Cash Flow Statement have not been adjusted to separately present discontinued operations.
Current period presentation
Long-term advances and the Investment in Beingmate have been presented as separate line items in the Statement of Financial Position. In the 2019
Financial Statements these items were included within Other non-current assets. Comparative period information in the Statement of Financial Position has
been re-presented to reflect the current year presentation.
Restatements
Agent adjustment
The Group adopted NZ IFRS 15 Revenue from Contracts with Customers from 1 August 2018. On adoption of NZ IFRS 15, the Group had determined that
it was the principal in relation to certain performance obligations for freight and insurance services provided on specific international sales. During the
current reporting period, this conclusion was reconsidered, and it was determined that the Group was an agent rather than the principal. This resulted in an
adjustment to Revenue from sale of goods to record the net agency fees for arranging certain freight and insurance services, rather than the gross revenue.
This change does not impact gross margin or earnings.
Control transfer adjustment
The Group has also reviewed its major revenue contracts. This review identified that for a specific contract in China, it had previously been determined
that the Group ceased to control the goods when the goods were transferred to the distributor. During the current reporting period this conclusion was
reconsidered, and it was determined that the distributor acts as an agent for the Group and control of the goods does not pass until the inventory reaches
an end customer. This results in the deferral of revenue until the point in time that the control is transferred to the end customer, rather than on transfer to
the distributor.
GBP bond adjustment
During the year ended 31 July 2009, the Group designated a GBP denominated medium term note and associated cross currency interest rate swaps used
to manage foreign exchange and interest rate risk into hedge accounting relationships. During the current reporting period the Group reassessed the
historic effectiveness of these relationships. This has resulted in a restatement of the Group’s Retained earnings and Borrowings.
Presentation of cash flows from financing activities
During the year ended 31 July 2020 the Group has reassessed the presentation of gross cash flows relating to bank loans in the Cash Flow Statement and
Note 9 Borrowings. This has resulted in a $540 million increase in Proceeds from borrowings and Repayments of Borrowings in the Cash Flow Statement
for the comparative year. This restatement was made to better reflect the Group’s financing activities and has had no impact on net cash flows, the Income
Statement or Statement of Financial Position.
28 RE-PRESENTATIONS AND PRIOR PERIOD RESTATEMENTS
CONTINUED
Fonterra Annual Report 2020
143142
Notes to the Financial Statements
Independent Auditor’s Report
To the shareholders of Fonterra Co-operative Group Limited
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
In our opinion, the accompanying consolidated financial statements of Fonterra Co-operative Group Limited (the ‘Company’) and its subsidiaries (the
‘Group’) on pages 76 to 143:
i. present fairly in all material respects the Group’s financial position as at 31 July 2020 and its financial performance and cash flows for the year ended on
that date; and
ii. comply with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards.
We have audited the accompanying consolidated financial statements which comprise:
— the consolidated statement of financial position as at 31 July 2020;
— the consolidated income statement, statements of other comprehensive income, changes in equity and cash flows for the year then ended; and
— notes, including a summary of significant accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by
the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of
our report.
Our firm has also provided other services to the Group that are related to our role as the Group’s auditor, such as assurance and agreed upon procedures
services. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on normal terms within the ordinary course
of trading activities of the business of the Group. These matters have not impaired our independence as auditor of the Group. The firm has no other
relationship with, or interest in, the Group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for
the Group financial statements as a whole was set at $50 million, determined with reference to a benchmark of the cost of New Zealand sourced milk.
We chose the benchmark because, in our view, this is a key measure of the Group’s performance for the co-operative’s farmer shareholders. We also
benchmarked materiality against revenue, assets and earnings.
Scoping
The scope of our audit is designed to ensure that we perform adequate work to be able to give an opinion on the consolidated financial statements as a
whole, taking into account the structure of the Group, the financial reporting systems, processes and controls, and the industry in which it operates.
In establishing the overall approach to our audit, we considered the centralised nature of the Group’s operations, the risk profile of countries where the
Group operates, and changes taking place within the business. We also considered the financial significance of each business unit together with any local
statutory audit requirements.
The Group financial statements are a consolidation of over 100 individual subsidiaries and equity accounted investees. Due to their financial significance
and risk profile we scoped in 13 components in New Zealand, Australia, Chile, Japan and the USA to undertake audits performed under our instruction.
Audits of these components were performed using materiality levels assigned by the Group audit team, which were lower than the materiality level for
the Group as a whole, ranging from $5 million to $35 million, and determined with reference to their size and risk profile. Specified risk-focused audit
procedures were performed by Group and component auditors on certain balances and transactions in respect of a further 16 in scope components in
Australia, Brazil, Chile, China, Hong Kong, Malaysia, the Netherlands, New Zealand, Singapore and Sri Lanka.
The Group consolidation, financial statement disclosures and a number of complex items were audited by the Group audit team centrally in New Zealand.
These included general IT controls, revenue recognition, impairment, adoption of IFRS 16 Leases, financial instruments, taxation and accounting for
divestments and assets held for sale.
The Group audit team led the participation of component audit teams in the Group audit. We visited all component locations subject to audit during our
risk assessment phase. Detailed audit instructions were sent to all auditors of in-scope components. These instructions set out the significant audit areas
that we required component audit teams to consider, and the information required to be reported back to the Group audit team. We held meetings with
component teams subject to both audit and specified risk-focused audit procedures as part of the audit planning phase to explain our audit instructions and
discuss the component auditors’ audit plans. In addition to these visits and meetings, we held meetings with component auditors to discuss the findings
reported to the Group audit team in more detail, and any further work required by the Group audit team was then performed by the component auditor.
Taken together, the components in scope for the Group audit accounted for 91% of the Group’s revenue and 90% of the Group’s total assets. For the
remaining components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material
misstatement within these components.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in
the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may
better understand the process by which we arrived at our audit opinion.
Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a
whole and we do not express discrete opinions on separate elements of the consolidated financial statements.
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Revenue recognition
Refer to Notes 3 & 28 to the Financial Statements.
We considered the recognition of revenue from contracts with key
customers and distributors to be a key audit matter due to:
— the significance of the Group’s $20 billion of revenue to the Financial
Statements as a whole;
— the changes in accounting rules as a result of IFRS 15 Revenue from
contracts with customers (which was adopted by the Group in the year
ended 31 July 2019);
— the level of judgement involved in establishing when a sale has occurred
and the ultimate sales price under IFRS 15;
— the prior period adjustment recorded by the Group in their interim
financial statements; and
— the extent of audit effort required to examine the Group’s contracts
with customers in the context of the size and complexity of this area (as
noted above), and the requirement under auditing standards for us to
consider fraud risk associated with revenue recognition.
The procedures we performed to evaluate whether revenue had been
recognised appropriately included:
— identifying and testing relevant controls over revenue recognition, and
using data analytics routines to evaluate 100% of sales transactions
undertaken through the Group’s two core ERP systems (representing
89% of Group revenue);
— assessing the Group’s revenue recognition accounting policies, and
evaluating the application of these policies to actual contracts with
customers as noted below;
— evaluating contractual arrangements with key customers and distributors
through discussion with management and inspection of the underlying
documentation, as well as sample testing other sales arrangements; and
— performing other audit procedures specifically designed to address the
risk of management override of controls including journal entry testing,
applying particular focus to the timing of revenue transactions.
We found that for the majority of sales, revenue was recognised
appropriately. Further consideration was required in respect of the timing
and amount of revenue recognised for certain customers and distributors.
This specifically related to agent versus principal considerations.
The Group made certain changes to its revenue recognition accounting
policy, and restated revenue amounts recorded in previously issued
financial statements (see note 28). We assessed the disclosure of the
restatements against the requirements of IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
Fonterra Annual Report 2020
145144
Independent Auditor’s Report
Independent Auditor’s Report CONTINUED
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Impairment of goodwill and brands
Refer to Note 17 to the Financial Statements.
The Group’s balance sheet includes $1,784 million of goodwill and brands.
$917 million of goodwill and brands is included within three cash
generating units (‘CGU’) for impairment testing purposes. As disclosed
in the basis of preparation of the Financial Statements, management
undertakes an annual impairment assessment of these CGUs using a
discounted cash flow model based on forecast future performance.
Significant judgement is required in forecasting the future cash flows of
each CGU, together with the rate at which they are discounted.
This risk is elevated due to the impacts of Covid-19 on consumer behaviour,
which has resulted in greater than normal levels of forecasting uncertainty.
We consider impairment testing of these CGUs to be a key audit
matter due to the level of judgement described above, and for the
following reasons:
— Fonterra Brands New Zealand (‘FBNZ’) ($512 million of goodwill and
brands) – due to the significance of the CGU carrying value to the
overall financial position of the Group, and the absence of any headroom
between the recoverable amount and the carrying value following an
impairment in the previous year;
— Fonterra Australia (‘FAU’) ($282 million of goodwill and brands) – due
to the significance of the CGU to the overall financial position of the
Group; and
— Soprole ($123 million of goodwill and brands) – due to the significance
of the CGU to the overall financial position of the Group and due to the
potential long-term impacts of the civil unrest which commenced in
October 2019.
We also considered the impairment assessment of the Group’s portfolio
of consumer and foodservice brands to be a key audit matter due to the
significance of the $674 million of brand assets to the overall financial
position of the Group. These brands have been valued using the relief from
royalty method. Judgement is required in ascertaining the key inputs into
the relief from royalty calculation, namely the range of market royalty rates
for each brand, appropriate sales growth (including terminal growth) rates
for each brand, and appropriate discount rates to apply to the resulting
future royalties.
The procedures we performed to evaluate the impairment
assessments included:
— assessing whether the methodology adopted was consistent with
accepted valuation approaches of IAS 36 Impairment of Assets;
— evaluating the significant assumptions by comparing to historical trends,
approved budgets, business plans and external market data;
— comparing the discount rates applied to the estimated future cash flows
and the terminal growth rates to relevant benchmarks using KPMG
valuation specialists;
— challenging the above assumptions and judgements by performing
sensitivity analysis, considering a range of likely outcomes based on
various scenarios;
— in connection with the impairment charge of $21 million recognised by
FBNZ, using KPMG valuation specialists to calculate a market participant
fair value less cost of disposal valuation based on comparable company
analysis and analysis of trading multiples;
— comparing the Group’s total net assets as at 31 July 2020 of $6,703
million to its market capitalisation of $6,158 million at 31 July 2020,
understanding the possible reasons for the market capitalisation to be
below net assets, and assessing whether the carrying value of the net
assets of the Group as a whole are impaired; and
— considering the appropriateness of the disclosures in
the financial statements.
For each CGU we found the methodology to be consistent with IAS 36.
We found the discount and terminal growth rates were in an acceptable
range, and that future cash flow assumptions were largely supported by
comparison to the sources we considered.
For FBNZ where an impairment of $21 million was recognised, our scenario
analysis indicated that the resulting carrying value was materially consistent
with the high end of our valuation range.
For the Chesdale brand where an impairment of $36 million was
recognised, our scenario analysis indicated that the resulting carrying value
was consistent with our valuation range.
For FAU, Soprole, and other consumer and foodservice brands in the
Group’s portfolio, where no impairment was recognised, our scenario
analysis indicated that the recoverable amount of each of these assets
exceeds its carrying value and that no impairment is necessary.
The overall comparison of the Group’s net assets to market capitalisation
was a shortfall of $545 million (or 8%). Based on the impairment testing
undertaken across a large proportion of the Group’s non-current assets,
and general market conditions, we are satisfied that this does not in itself
represent an indicator of impairment for the Group as a whole.
We consider the impairment disclosures to be a fair reflection of the
underlying impairment tests.
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
First-time adoption of IFRS 16 Leases
Refer to Note 27 to the Financial Statements.
We considered the first-time adoption of IFRS 16 to be a key audit matter
due to the complexity of the new standard (in particular in connection with
accounting policy choices and judgements on implementation, and the
need to consider a wide range of arrangements such as supply agreements
and service contracts), the size of the incremental lease liability and
sensitivity of the Group’s funding arrangements to debt-based metrics.
The new leasing standard was implemented across the Group as of
1 August 2019 through the modified retrospective approach with
cumulative effects recognised as an adjustment to retained earnings at
adoption date (and with no restatement of the comparative information).
Following the implementation, the Group recorded right-of-use assets of
$621 million, and a $652 million lease liability. The implementation of the
standard requires judgement in establishing among other assumptions
the incremental borrowing rate, the lease term, and the amount of
lease payments in the future where escalation clauses exist in the
lease agreements.
In addition, significant audit effort was required to ensure that all
arrangements subject to the new standard had been considered by the
Group, not just those previously accounted for as operating leases.
The procedures we performed to evaluate the first-time adoption of
IFRS 16 included:
— assessing the appropriateness of the Group’s accounting policies,
judgements and related disclosures, involving KPMG IFRS specialists;
— obtaining a sample of lease agreements (including those with the largest
lease rentals or longest lease periods, as well as a random sample of
the Group’s other leases), reading the agreements to understand key
terms, and challenging management’s assumptions regarding renewals
and rental escalation clauses in the context of IFRS 16 requirements,
the lease agreements and our knowledge and understanding of the
underlying right-of-use assets;
— involving KPMG valuation specialists and audit teams from overseas
KPMG member firms to test the appropriateness of the incremental
borrowing rate assumptions used by the Group in calculating
the lease liability;
— performing a completeness check that all arrangements we identified
during our transition activities that could be subject to IFRS 16 had been
considered and accounted for appropriately by the Group;
— using data analytics routines to identify whether any recurring payments
made by the Group indicated the existence of additional arrangements
that could be subject to IFRS 16; and
— recalculating the lease liability and right-of-use asset for those
arrangements identified as needing to be accounted for under IFRS 16.
We found that the Group’s IFRS 16 adoption project had addressed
the Group’s existing operating lease portfolio, and that the Group had
implemented appropriate systems and processes to account for leases
under IFRS 16 on an ongoing basis.
The Group recognised an additional amount of right-of-use assets and
lease liabilities compared to that anticipated in the 31 July 2019 financial
statements, reflecting arrangements that were not previously accounted
for as operating leases as well as updated assumptions regarding lease
renewals for strategic assets.
The cost of New Zealand sourced milk
Refer to Notes 4, 12 and 14 to the Financial Statements.
The cost of New Zealand sourced milk supplied by farmer shareholders
amounted to $11 billion and comprises the volume of milk solids supplied
at the Farmgate Milk Price as determined by the Board of Directors for the
relevant season.
In making that determination, the Board takes into account the Farmgate
Milk Price calculated in accordance with the Farmgate Milk Price Manual.
We consider the cost of New Zealand sourced milk to be a key audit matter
due to its significance to the financial statements as a whole.
The cost of New Zealand sourced milk is a key component of the
Group’s cost of goods sold of $17 billion, the carrying value of the
Group’s inventory of $3,268 million, and amounts owing to suppliers of
$1,588 million. Significant audit effort was required to audit the cost of
New Zealand sourced milk.
KPMG has been engaged to provide a reasonable assurance report in
connection with the Farmgate Milk Price. This is contained in the Fonterra
Farmgate Milk Price Statement. The Fonterra Farmgate Milk Price
Statement sets out information about the Farmgate Milk Price, and how it
is calculated by Fonterra. It can be found in the ‘Investors/Farmgate Milk
Prices’ section of the Company’s website.
The procedures we performed to evaluate the impact of the Farmgate Milk
Price calculation on the cost of New Zealand sourced milk included:
— examining minutes of Milk Price Panel meetings and confirming with
the Company Secretary that the Board considered the recommended
Farmgate Milk Price from the Milk Price Panel and approved the
payment of $7.14 per kgMS for New Zealand sourced milk for the season
ended 31 May 2020; and
— examining the application of the Board approved milk price to cost of
goods sold, inventory and amounts owing to suppliers. This involved
understanding and evaluating relevant controls to ensure that the latest
milk price forecast series has been applied to cost of goods sold and
inventory. At season end we checked that the cost of New Zealand
sourced milk reflected the Board approved milk price for the season.
We completed these procedures and have no matters to report.
The Farmgate Milk Price calculation prepared by the Milk Price Group
amounted to $11 billion (which equates to $7.14 per kgMS), and we
confirmed with the Company Secretary that the Board of Directors
approved a payment of $7.14 per kgMS for New Zealand sourced milk for
the season ended 31 May 2020 at their meeting on 17 September 2020.
Fonterra Annual Report 2020
147146
Independent Auditor’s Report
Independent Auditor’s Report CONTINUED
Other information
The Directors, on behalf of the Company, are responsible for the other information included in the entity’s Annual Report.
Other information includes:
— the Letter from the Chair and the CEO’s Q&A;
— sections relating to Goals, Responding to Covid-19, the Year in Review and the Co-operative Difference;
— sections relating to Healthy Environment, Healthy People and Healthy Business;
— sections relating to Non-GAAP Measures and the associated Glossary;
— the Statutory information section;
— sections relating to Corporate Governance, the Board and the Management Team; and
— the Directory.
Our opinion on the consolidated financial statements does not cover any other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears
materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Other matter
The consolidated financial statements of the Group, for the year ended 31 July 2019, was audited by another auditor who expressed an unmodified opinion
on those statements on 25 September 2019.
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the
shareholders those matters we are required to state to them in the independent auditor’s 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 shareholders as a body for our audit work, this independent auditor’s report, or
any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial statements
The Directors, on behalf of the Company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally accepted accounting practice in New Zealand
(being New Zealand Equivalents to International Financial Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of a consolidated set of financial statements that is 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 audit of the consolidated financial statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to
fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB)
website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Matthew Diprose.
For and on behalf of
KPMG
Auckland
17 September 2020
Non-GAAP Measures
Fonterra uses several non-GAAP measures when discussing financial performance. For further details and definitions of non-GAAP measures used by
Fonterra, refer to the glossary. These are non-GAAP measures and are not prepared in accordance with NZ IFRS.
Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business.
They may be 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.
Reconciliations for the NZ IFRS measures to certain non-GAAP measures referred to by Fonterra are detailed below:
Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised EBITDA
GROUP $ MILLION
31 JULY 2020
31 JULY 2019
1
RESTATED
Profit/(loss) for the period 659(610)
Add: Depreciation 528458
Add: Amortisation99103
Add: Net finance costs332418
Add: Taxation expense156175
Total EBITDA 1,774544
Less: Disposal of investment in DFE Pharma(427)–
Less: Disposal of investment in Goodminton(66)–
Add: Falcon China Farms JV impairment65–
Add: New Zealand consumer and foodservice business impairment–204
Add: Disposal of Tip Top–40
Add: China Farms impairment63203
Add: Brazil consumer and foodservice business impairment104149
Add: Disposal of Venezuelan operations–134
Add: Australian strategic reset–68
(Less)/add: Income Statement impact of Beingmate investment(50)12
Add: Other4319
Total normalisation adjustments(268)829
Normalised EBITDA1,5061,373
Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised EBIT
GROUP $ MILLION
31 JULY 202031 JULY 2019
1
Profit/(loss) for the period 659(610)
Add: Net finance costs332418
Add: Taxation expense156175
Total EBIT1,147(17)
(Less)/add: Normalisation adjustments (as detailed above)(268)829
Total normalised EBIT879812
1 The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.
149
Non-GAAP Measures
Fonterra Annual Report 2020
148
Non-GAAP Measures CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised earnings per share
GROUP $ MILLION
31 JULY 202031 JULY 2019
1
Profit/(loss) for the period 659(610)
Add: Normalisation adjustments(268)829
Add: Tax on normalisation adjustments756
Total normalised earnings398275
Add: Share attributable to non-controlling interests2748
Less: Normalisation adjustments to non-controlling interests(43)(59)
Net normalised earnings attributable to equity holders of the Co-operative382264
Weighted average number of shares (thousands of shares)1,612,0761,611,980
Normalised earnings per share ($)0.240.16
Reconciliation from reported gross profit for the period to Fonterra’s normalised gross profit
GROUP $ MILLION
31 JULY 202031 JULY 2019
1
Gross profit for the period from continuing operations3,0622,874
Add/(less): Gross profit for the period from discontinued operations 99(101)
Add: China Farms impairment normalisation adjustment63203
(Less)/add: Other normalisation adjustments(16)32
Total normalised gross profit3,2083,008
Glossary
NON-GAAP MEASURES
Fonterra refers to non-GAAP financial measures throughout the Annual Report, and these measures are not prepared in accordance with NZ IFRS. The
definitions below explain how Fonterra calculates the non-GAAP measures referred to throughout the Annual Report.
Debt payback ratiois calculated as total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance
of 75% of Cash and cash equivalents, divided by normalised earnings before interest, tax, depreciation and
amortisation (normalised EBITDA) excluding Share of loss/profit of equity accounted investees and net foreign
exchange losses/gains. Both Debt and EBITDA are adjusted to include amounts relating to businesses classified
as held for sale.
EBITmeans earnings before interest and tax and is calculated as profit for the period before net finance costs and tax.
EBITDAmeans earnings before interest, tax, depreciation and amortisation and is calculated as profit for the period
before net finance costs, tax, depreciation and amortisation.
Economic net interest-bearing debtmeans net interest bearing debt including lease liabilities and the effect of debt hedging.
Farmgate Milk Pricemeans the base price that Fonterra pays for milk supplied to it in New Zealand for a season. The season refers to
the 12-month milk season of 1 June to 31 May.
Gearing ratiois calculated as economic net interest-bearing debt divided by total capital. Total capital is equity excluding the
hedge reserves, plus economic net interest-bearing debt.
Net Tangible Assets per Securityis calculated as net tangible assets divided by the number of equity instruments on issue. Net tangible assets are
total assets less total liabilities less intangible assets.
Normalisation adjustmentsmeans transactions that are unusual by nature and size. Excluding these transactions can assist users with
forming a view of the underlying performance of the business. Unusual transactions by nature are the result
of specific events or circumstances that are outside the control of the business, or relate to major acquisitions,
disposals or divestments, or are not expected to occur frequently. It also includes fair value movements if they
are non-cash and have no impact on profit over time. Unusual transactions by size are those that are unusually
large in a particular accounting period.
Normalised EBITmeans profit for the period before net finance costs and tax, and after normalisation adjustments.
Normalised earnings per share (EPS)means normalised profit after tax attributable to equity holders divided by the weighted average number of
shares for the period.
Normalised profit after taxmeans net profit after tax after normalisation adjustments, and the interest and tax impacts of those
normalisation adjustments.
Normalised segment earningsmeans segmental profit for the period before net finance costs and tax, and after normalisation adjustments.
Pay-outmeans the total cash payment to farmer shareholders. It is the sum of the Farmgate Milk Price (kg/MS) and the
dividend per share. Both of these components have established policies and procedures in place on how they
are determined.
Retentionsmeans net profit after tax attributable to farmer shareholders divided by the number of shares at 31 May, less
dividend per share.
Return on capitalis calculated as normalised EBIT, less a notional tax charge divided by capital employed including brands,
goodwill and equity accounted investments. Capital employed is calculated as the average for the period of: net
assets excluding net interest-bearing debt and deferred tax balances.
Segment earningsmeans segmental profit for the period before net finance costs and tax.
Working capitalis calculated as total trade and other receivables plus inventories, less current trade payables and accruals. It
excludes amounts owing to suppliers and employee entitlements.
Working capital daysis calculated as working capital divided by external revenue, multiplied by the number of days in the period.
1 The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.
Fonterra Annual Report 2020
151150
Glossary
Statutory Information
FOR THE YEAR ENDED 31 JULY 2020
CO-OPERATIVE STATUS
In accordance with section 10 of the Co-operative Companies Act 1996, the Directors of Fonterra unanimously resolved on 27 August 2020 that the
Company was, for the year ended 31 July 2020 a co-operative company. The opinion was based upon the fact that:
• Throughout that period the principal activities of the Company have been the activities stated in clause 1.3 of the Company’s constitution:
– the manufacture and sale of butter, cheese, dried milk, casein, or any other product derived from milk or milk solids supplied to the Company by
its shareholders;
– the sale to any person of milk or milk solids supplied to the Company by its shareholders;
– the collection, treatment, and distribution for human consumption of milk or cream supplied to the Company by its shareholders.
• Each of the Company’s principal activities are co-operative activities (as defined in section 3 of the Co-operative Companies Act 1996).
• Throughout that period not less than 60 per cent of the voting rights attaching to shares in the Company have been held by transacting shareholders (as
defined in section 4 of the Co-operative Companies Act 1996).
EMPLOYEE REMUNERATION FRAMEWORK
A well-designed remuneration framework helps the Group attract and retain talent, and both motivates and recognises the role our people play in the
success of the Group.
Fonterra’s remuneration framework for salaried staff is based on a ‘total remuneration’ approach, which is consistent with best practice globally. This
includes base salary, benefits (superannuation and insurance), and variable remuneration (incentives).
The amounts we pay to our employees are benchmarked against comparable companies in relevant markets, using information obtained from independent
remuneration consultants. Adjustments to packages may occur on a cyclical basis, such as an annual salary review, or on an as-needed basis to recognise
additional responsibilities.
The framework is designed to take into account budget targets and restraints, market conditions, internal equity, and governance factors such as local
legislation, as well as taking into account individual performance.
Fonterra’s incentive programmes are designed to drive the Group’s performance by:
• Focusing on the Group’s primary objective of maximising returns for its farmer shareholders;
• Promoting collaboration and a one team approach to achieve Fonterra’s goals;
• Establishing targets which are challenging yet achievable; and linked to team (such as business unit) and Group performance.
At the end of each financial year, performance is reviewed and incentive payments are approved by the Appointments and Remuneration Committee at its
discretion. The Appointments and Remuneration Committee retains absolute discretion in respect to payments for all incentive schemes.
Further detail on Fonterra’s remuneration framework can be found in the Corporate Governance section of the Annual Report.
EMPLOYEE REMUNERATION
The Group operates in a number of countries where remuneration market levels differ widely. During the year ended 31 July 2020, the number of
employees, not being Directors of Fonterra, who received remuneration, incentives, and other benefits (including superannuation and allowances etc)
exceeding $100,000 was as follows:
REMUNERATION RANGE ($)
NEW ZEALAND
HEAD OFFICE
1
REGIONAL
NEW ZEALAND
1
OFFSHORE
2
CESSATIONS
3
TOTAL
100,000110,000941,353190431,680
110,001120,00046737242381,063
120,001130,00060682274231,039
130,001140,0005731821118604
140,001150,0004814114917355
150,001160,0003011011117268
160,001170,00043757013201
170,001180,00027556313158
180,001190,00032335313131
190,001200,0002932417109
200,001210,000272138894
210,001220,000221232571
220,001230,00020932869
230,001240,00016522548
240,001250,00017918549
250,001260,0007515532
260,001270,0009512531
270,001280,00011820342
280,001290,0002416325
290,001300,0006213526
300,001310,0005310119
310,001320,0006417128
320,001330,0004–217
330,001340,0005–9216
340,001350,000325111
350,001360,000536216
360,001370,0001–6–7
370,001380,0001110–12
380,001390,0001–326
390,001400,0001–3–4
400,001410,000–1225
410,001420,00011428
420,001430,00032319
430,001440,000114–6
440,001450,0001–315
450,001460,000––5–5
460,001470,0002–3–5
470,001480,000––123
480,001490,000––3–3
490,001500,0001–113
500,001510,000–21–3
510,001520,000–14–5
520,001530,000––2–2
530,001540,000––1–1
540,001550,000––325
Fonterra Annual Report 2020
153152
Statutory Information
Statutory Information CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
REMUNERATION RANGE ($)
NEW ZEALAND
HEAD OFFICE
1
REGIONAL
NEW ZEALAND
1
OFFSHORE
2
CESSATIONS
3
TOTAL
550,001560,000––314
560,001570,00011––2
570,001580,000––1–1
580,001590,0003–––3
590,001600,0002–2–4
600,001610,000––2–2
620,001630,0001–1–2
630,001640,000–11–2
640,001650,000––1–1
650,001660,000––112
660,001670,0001–2–3
690,001700,000––1–1
700,001710,000––112
740,001750,0002–2–4
750,001760,000––1–1
760,001770,000––112
780,001790,000––314
790,001800,000––2–2
820,001830,0001––12
830,001840,000–––11
860,001870,000–––11
870,001880,000––3–3
910,001920,000––2–2
990,0011,000,0001–––1
1,000,0011,010,000–––11
1,080,0011,090,000––1–1
1,090,0011,100,000–––11
1,130,0011,140,000––1–1
1,190,0011,200,000––1–1
1,220,0011,230,0001–––1
1,300,0011,310,000––1–1
1,480,0011,490,000––1–1
1,690,0011,700,000–––11
1,870,0011,880,000––1–1
2,000,0012,010,0001–––1
2,010,0012,020,000–––11
2,430,0012,440,000–––11
Totals6583,6391 ,76928 86 , 354
1 Includes employees employed in New Zealand during the reporting period.
2 Includes employees employed in an offshore operation during the reporting period. Amounts paid in foreign currency have been converted at the average conversion rate for the period. As Fonterra
has a significant offshore population, the number of offshore employees exceeding the fixed figure of $100,000 increases if the New Zealand dollar currency weakens significantly. Should the
New Zealand dollar strengthen against those markets’ currencies, these same individuals may not be reported in future lists.
3 Cessations include employees that have been terminated or retired during the period. The amounts paid to former employees include salary and bonuses for the current period, prior period bonuses
that have been paid in the current period and termination entitlements including those arising from employment arrangements entered into by legacy companies prior to the formation of Fonterra.
Within New Zealand, employees, who received remuneration, incentives, and other benefits (including superannuation and allowances etc) exceeding
$100,000 were based throughout the country as follows:
TOTAL
Auckland984
Bay of Plenty129
Canterbury493
Manawatu – Wanganui280
Northland155
Southland189
Taranaki534
Waikato1,451
Rest of New Zealand82
New Zealand total 4,297
In addition to being a significant employer in New Zealand, we also have employees in markets around the world. Those who received remuneration,
incentives, and other benefits (including superannuation and allowances etc) exceeding $100,000 were based in markets around the world as follows:
TOTAL
Australia962
China196
Europe102
Latin America94
New Zealand4,297
Rest of Asia263
Rest of World72
United States81
Cessations287
Global total 6,354
REMUNERATION OF DIRECTORS
The Directors’ Remuneration Committee, comprising six shareholders elected in accordance with the Constitution, makes recommendations for
shareholder approval as to the level of Elected Directors’ fees. Elected Directors are those Directors elected by shareholders in accordance with clauses
12.2 and 33.4 of the Constitution.
At the Annual Meeting of shareholders held on 7 November 2019, shareholders approved, on the recommendation of the Directors’ Remuneration
Committee, the following amounts of remuneration to apply to Elected Directors from the date of that Annual Meeting of shareholders.
Chairman$430,000 per annum
Directors$175,000 per annum
Discretionary additional payments to the Chair of permanent Board Committees
(except when the Chair is the Chairman of the Board of Directors)$35,000 per annum
The Board has approved payment of the discretionary additional payment, at the prevailing approved rate, to the Chair of permanent Board Committees.
The Board has discretion to set the fees for Directors appointed under clause 12.4 of the Constitution (Appointed Directors). In the period to 31 July 2020
the Board applied the same remuneration levels as above to the Appointed Directors.
The Board has approved the payment to Mr Israel of a travel allowance of $10,000 per meeting for travel to and from New Zealand to attend Board
meetings, until his retirement on 7 November 2019.
The Appointments and Remuneration Committee and the Chairman of the Board of Directors has the discretion to allocate a discretionary pool of up to
$75,000 per annum for fees for Directors remuneration for additional duties, workload and responsibilities (in each case not to exceed $25,000 per annum
per Director).
Fees paid by subsidiary or associate companies in respect of Fonterra Directors or employees appointed by Fonterra as Directors of those companies are
payable directly to Fonterra.
Fonterra Annual Report 2020
155154
Statutory Information
Statutory Information CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
Directors Remuneration
The total remuneration and value of other benefits (not including superannuation contributions, if applicable) received by each Director in the 12-month
period from 1 August 2019 to 31 July 2020 are scheduled below:
BOARD FEES
COMMITTEE
CHAIR FEES
TRAVEL
ALLOWANCE
DISCRETIONARY
POOL
TOTAL
REMUNERATION
($)
Clinton Dines175,000–––175,000
Brent Goldsack (Chair of the Co-operative Relations Committee)175,00035,000––210,000
Leonie Guiney (Chair of the Safety and Risk Committee)175,00035,000––210,000
Bruce Hassall (Chair of the Audit and Finance Committee)175,00035,000–25,000²235,000
Simon Israel
1
47,1 1 5–40,000³–87,115
Holly Kramer
1
43,750–––43,750
Andrew Macfarlane175,000–––175,000
Peter McBride175,000–––175,000
John Monaghan (Chairman of the Board of Directors) 430,000–––430,000
John Nicholls175,000–––175,000
Donna Smit175,000–––175,000
Scott St John (Chair of the Milk Price Panel)175,00035,000––210,000
1 Indicates a part year.
2 The Appointments and Remuneration Committee and the Chairman of the Board of Directors has approved a payment of $25,000 to Mr Hassall from the discretionary pool for additional work
undertaken in FY20.
3 The Board has approved the payment to Mr Israel of a travel allowance of $10,000 per meeting to travel to and from New Zealand to attend Board meetings.
EQUITY SECURITIES HELD AT BALANCE DATE
In accordance with Rules of the Fonterra Shareholders’ Market (FSM) Rule 2.7.1(d), the following table identifies the Equity Securities in which each Director
has a Relevant Interest as at 31 July 2020:
UNITS ISSUED BY
THE FONTERRA
SHAREHOLDERS’
FUND
1
CO-OPERATIVE
SHARES
Brent Goldsack–400,407
Leonie Guiney–1,198,824
Andrew Macfarlane136,150
1
813,301
Peter McBride–6,923,748
John Monaghan–140,179
John Nicholls–2,190,864
Donna Smit 10,441
1
1,243,933
1 Units issued by the Fonterra Shareholders’ Fund may be converted to Co-operative shares.
A ‘Relevant Interest’ in Fonterra securities which is required to be disclosed is explicitly defined in the Financial Markets Conduct Act 2013.
To qualify as an Elected Director under the Fonterra Constitution a person must be a shareholder, a shareholder of a company that is a shareholder, a
member of a partnership that is a shareholder, or have a legal or beneficial interest in, or a right or entitlement to participate directly in the distributions of,
a body corporate that is a shareholder of Fonterra.
Given the variety of ways that farmer shareholders can organise their interests, it is possible for Fonterra Elected Directors to have an interest in Fonterra
shares without this being a ‘Relevant Interest’ as defined in the Financial Markets Conduct Act 2013.
All current Elected Directors have Relevant Interests in Fonterra shares. Some Elected Directors also have interests in Fonterra shares which are not within
the definition of ‘Relevant Interest’ in the Financial Markets Conduct Act 2013, and those interests are not disclosed above.
ENTRIES IN THE INTERESTS REGISTER
Directors’ interests in transactions
General disclosures of interest
The following general disclosures of interest were made in the period from 1 August 2019 to 31 July 2020:
Clinton DinesGriffith Asia InstituteAdjunct Professor
Brent GoldsackRabobank New Zealand LimitedDirector
Canterbury Grasslands Limited (ceased May 2020)Director and Shareholder
CoLab Dairy Partners General Partnership (ceased 2020)Indirect Shareholder
Holly KramerLendi Pty LimitedChair
Australian Post (ceased June 2020)Independent Non-executive Director and Deputy Chair
Woolworths Group LimitedIndependent Non-executive Director
Goodes O’Loughlin FoundationIndependent Non-executive Director
Abacus Property GroupIndependent Non-executive Director
Western Sydney UniversityPro-Chancellor
Chief Executive WomanMember
Andrew MacfarlaneGW and MA Macfarlane Family TrustTrustee
Macfarlane Rural Business Limited (ceased August 2019) Shareholder
Peter McBrideKennedy Farm Limited Shareholder
Pokai Farm LimitedShareholder
Ian Elliot Family TrustTrustee
MA Elliot Family TrustTrustee
Zespri Global Supply Advisory BoardMember
John NichollsQuigley Contracting Advisory Board (ceased August 2019)Chair
During the financial year there were no notices from Directors requesting to disclose or use information received in their capacity as Directors which would
not otherwise have been available to them.
Fonterra Annual Report 2020
157156
Statutory Information
Statutory Information CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
Securities dealings of Directors
The following entries were made in the Interests Register during the year.
During the year, Directors disclosed in respect of section 148(2) of the Companies Act 1993 and/or section 297 of the Financial Markets Conduct Act 2013
that they (or their associated persons) acquired or disposed of a relevant interest in financial products as follows:
Co-operative share transactions
DIRECTOR
NUMBER OF
SECURITIES ACQUIRED
NUMBER OF
SECURITIES DISPOSED
CONSIDERATION
$DATE
Peter McBride480,187–1,522,19331 August 2019
John Nicholls134,864
1
––9 September 2019
Peter McBride20,463–71,41630 September 2019
Donna Smit19,894
2
19,894
2
–7 October 2019
Donna Smit561
3
––7 October 2019
Peter McBride93,530–332,0929 October 2019
Donna Smit50,000–206,00010 October 2019
Donna Smit826
4
–3,00315 October 2019
Donna Smit2,182
4
–7,93215 October 2019
Brent Goldsack13,000–52,26017 October 2019
Brent Goldsack225,373
1
––October 2019
Brent Goldsack14,600–59,86025 October 2019
Donna Smit2,502
3
––4 December 2019
John Nicholls2,846
3
––27 February 2020
John Nicholls39,154–147,33025 March 2020
Leonie Guiney115,000–436,82826 March 2020
Leonie Guiney115,000–437,0001 April 2020
Leonie Guiney15,340–55,9914 May 2020
Leonie Guiney34,660–126,5096 May 2020
Leonie Guiney40,000–145,9767 May 2020
Peter McBride825,280
5
––25 May 2020
1 Share transactions occurred through the acquisition of a new relevant interest.
2 Transferred between related entities.
3 Conversion of Units to Shares.
4 Acquired as part of Farm Source Dollars for Shares programme.
5 Acquisition of relevant interest by virtue of appointment as independent trustee.
Unit transactions
DIRECTOR
NUMBER OF SECURITIES
ACQUIRED
NUMBER OF SECURITIES
DISPOSED
CONSIDERATION
$DATE
Andrew Macfarlane4,000
1
–23,60027 February 2018
Donna Smit–561
2
–7 October 2019
Donna Smit–2,502
2
–4 December 2019
Donna Smit1,124
3
––27 February 2020
John Nicholls2,846
3
––27 February 2020
John Nicholls–2,846
2
–27 February 2020
1 Acquired as Trustee of a Trust – Advice to Trustees was delayed.
2 Conversion of Units to Shares.
3 Acquired as part of the Contract Fees for Units programme.
Retail Bond transactions
There were no transactions by Directors (or their associated persons) in Retail Bonds reported during the period from 1 August 2019 to 31 July 2020. No
current holdings of Retail Bonds have been advised by Directors (or their associated persons).
Capital Note transactions
There were no transactions by Directors (or their associated persons) in Capital Notes reported during the period from 1 August 2019 to 31 July 2020. No
current holdings of Capital Notes have been advised by Directors (or their associated persons).
SUBSIDIARY COMPANY DIRECTORS
The following companies were subsidiaries of Fonterra as at 31 July 2020. Directors as of this date are listed below. Those who resigned during the year are
denoted with an R. Alternate Directors are denoted with an A.
Canpac International Limited:
G A Duncan (R), B D Mealings (R), B M Ryan, P
D Wynen
Dairy Industry Superannuation Scheme
Trustee Limited:
M A Apiata-Wade, B J Kerr, B M McCarthy, T P
McGuinness, D W C Scott, A K Williams, P D
Wynen, M F van Zon (R)
Fonterra (Delegated Compliance Trading
Services) Limited:
G A Duncan, S D T Till
Fonterra (International) Limited:
G A Duncan, C E Rowe
Fonterra (Kotahi) Limited:
R G Carlyle, R J Spurway (R), F S Whineray
Fonterra (Middle East) Limited:
G A Duncan, P D Washer
Fonterra (New Zealand) Limited:
G A Duncan, C E Rowe
Fonterra (North Asia) Limited:
G A Duncan, S D T Till
Fonterra Brands (New Zealand) Limited:
M R Cronin, B Henshaw
Fonterra Commodities Limited:
G A Duncan, B M Turner
Fonterra Dairy Solutions Limited:
G A Duncan, R McNickle
Fonterra Equities Limited:
G A Duncan, S D T Till
Fonterra Farming Ventures Limited:
G A Duncan, C E Rowe
Fonterra Finance Corporation Limited:
G A Duncan, S D T Till
Fonterra Ingredients Limited:
G A Duncan, B M Ryan
Fonterra LATAM Brands Limited:
A J Cordner, G A Duncan, F Spinelli (R), A D
Turnbull (R)
Fonterra Limited:
R J Spurway (R), A R van der Nagel, F S Whineray,
K A Wickham (R)
Fonterra PGGRC Limited:
G A Duncan, J P Hill, M Piper (R)
Fonterra TM Limited:
G A Duncan, S D T Till
Glencoal Energy Limited:
G A Duncan, P D Wynen
GlobalDairyTrade Holdings Limited:
G A Duncan, C E Rowe
Kotahi GP Limited:
D G Boulton, R G Carlyle, B Mealings (R), B M
Ryan, R J Spurway (R), F S Whineray
Lactanol Limited:
G A Duncan, B D Mealings (R), C E Rowe (R), B
M Ryan
MIH Limited:
R J Allen, G A Duncan
Milktest GP Limited:
R J Allen, R J van Boheemen, P G Brown, G B
McCullough, R G Townshend, T A Winter, P D S
Grave (R)
MyMilk Limited:
C W Fergusson, K F Shaw
New Zealand Dairy Board:
G A Duncan, C E Rowe
New Zealand Milk (International) Limited:
G A Duncan, R M Kennerley
New Zealand Milk Brands Limited:
G A Duncan, S D T Till
NZAgbiz Limited:
R J Allen, G A Duncan
RD1 Limited:
R J Allen, G A Duncan
SAITL Limited:
G B McCullough, T A Winter
Tangshan Dairy Farm (NZ) Limited:
M R Cronin, G A Duncan
Whareroa Co-Generation Limited:
G A Duncan, P D Wynen
Anchor Insurance Pte. Limited [Singapore]:
G A Duncan, S S Herbert, B Mealings (R), C E
Rowe, H N Toh (A)
Anmum (Malaysia) Sdn. Bhd. [Malaysia]:
R M Kennerley, J Oh, V Sivaraja
Australasian Food Holdings Pty Limited
[Australia]:
R Dedoncker, G A Duncan
Bonland Cheese Trading Pty Ltd [Australia]:
R Dedoncker, G A Duncan
Comercial Dos Alamos S.A. [Chile]:
E Becker, M Kunstmann (R), A L Raddatz Vargas,
R Waldspurger
Comercial Santa Elena S.A. [Chile]:
E Aldunate (R), J Barria, V E Flen Silva (R), C F
Osorio Bascur, S T Perez
Dairy Enterprises (Chile) Limitada [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia, R
Lavados, R Sepúlveda Seminario, F Spinelli (R), P
L Linhares (A)(R)
Dairy Partners Americas Brasil Limitada
[Brazil]:
R de Oliviera Carrelas, F Goncalves, R Gurrero
Leal, F Spinelli, M G Guerreiro Pinheiro
Dairy Partners Americas Nordeste-Productos
Alimenticios Ltda [Brazil]:
R de Oliviera Carrelas, F Goncalves,
M G Guerreiro Pinheiro, R Guerrero Leal,
F Spinelli
Dairymas (Malaysia) Sdn Bhd [Malaysia]:
R M Kennerley, J Oh, V Sivaraja
Darnum Park Pty Ltd [Australia]:
R Dedoncker, G A Duncan
Falcon Dairy Holdings Limited [Hong Kong]:
M P Campbell, G A Duncan, R O Frey,
J F Ginascol (R), J Murphy
Fazenda MIH Ltda [Brazil]:
E B da Costa Junior (R), P C C Freitas Guedes,
A R V Januario Oliveira (R)
Fonterra (Beijing) Farm Management
Consulting Company Limited [China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D
Washer, X Xu
Fonterra (Brasil) Ltda [Brazil]:
R F Aracil Filho, A R V Januario Oliveira (R), P
C C Freitas Guedes (R), B de Luca Zanatta, G
Nascimento (R)
Fonterra (Canada), Inc. [Canada]:
J P Coote, G A Duncan, B Kipping, B M Ryan
Fonterra (China) Limited [Hong Kong]:
M R Cronin, G A Duncan, C Zhu (R)
Fonterra (CIS) Limited Liability Company
[Russian Federation]:
E Grishina
Fonterra (Europe) Coöperatie U.A.
[Netherlands]:
G A Duncan, H Huistra
Fonterra (Europe) GmbH [Germany] (in
liquidation):
G R Sharma
Fonterra (France) SAS [France]:
H Huistra
Fonterra (Ing.) Limited [Mauritius]:
G Lee, B M Ryan
Fonterra ( Japan) Limited [ Japan]:
K Kumagai, K Kumagai, A Okuyama, H Ono (R), B
M Ryan, Y Saito, K A Wickham
Fonterra (Korea) Limited [Korea]:
G A Duncan, J Murney, Y Saito
Fonterra Annual Report 2020
159158
Statutory Information
Statutory Information CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
Fonterra (Logistics) Ltd [United Kingdom]:
M Boyd, G A Duncan, H Huistra (R), G R Sharma
Fonterra (Mexico) S.A. de C.V. [Mexico]:
L Barona Mariscal (A), F R Camacho (A), J P
Coote, G A Duncan, E P G R Gil (A), J A Del Rio
Fonterra (SEA) Pte. Ltd [Singapore]:
A Aggarwal, H Gowans
Fonterra (Thailand) Limited [Thailand]:
A Aggarwal, K Vunthanadit
Fonterra (USA) Inc. [United States]:
N R Christiansen, J P Coote, G A Duncan, B M
Ryan
Fonterra (Ying) Dairy Farm Company Limited
[China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D
Washer, X Xu
Fonterra (Yutian) Dairy Farm Company
Limited [China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D
Washer, X Xu
Fonterra Australia Pty Ltd [Australia]:
R Dedoncker, G A Duncan
Fonterra Brands (Asia Holdings) Pte. Ltd
[Singapore]:
S I Ahmed (R), M R Cronin (R), A Dasqupta (R), S
Goh, J Swales
Fonterra Brands (Australia) Pty Ltd
[Australia]:
R Dedoncker, G A Duncan
Fonterra Brands (Far East) Limited [Hong
Kong]:
G A Duncan, P D Washer
Fonterra Brands (Guangzhou) Ltd [China] (in
liquidation):
T T Lye, P A Turner, K A Wickham
Fonterra Brands (Hong Kong) Limited [Hong
Kong]:
W Y Chan, G A Duncan, J Ho (R), P D Washer
Fonterra Brands (Malaysia) Sdn Bhd
[Malaysia]:
R M Kennerley, J Oh, V Sivaraja
Fonterra Brands (New Young) Pte. Ltd
[Singapore]:
S Goh, Y Li, C Lin, Y Lin, J Ling, P D Washer
Fonterra Brands (Singapore) Pte. Ltd
[Singapore]:
M R Cronin (R), S Goh, C C Pheng, J Swales
Fonterra Brands (Thailand) Ltd [Thailand]:
R M Kennerley, S Pronanunt, P A Richards, F
Spinelli (R), S Totana
Fonterra Brands (Viet Nam) Company Limited
[Vietnam]:
R M Kennerley, P Richards
Fonterra Brands Indonesia, PT [Indonesia]:
D M Irfani, S S Rapaka, C A Salinas Robeson, G
Thiagarajan
Fonterra Brands Lanka (Private) Limited [Sri
Lanka]:
J H P Gallage (R), R M Kennerley, T Salpitikotala,
S Sethi (R), V Sivaraja
Fonterra Brands Manufacturing Indonesia, PT
[Indonesia]:
M Namjoshi, M A Nasution, S S Rapaka, C A
Salinas Robeson, T A Siswanto
Fonterra Brands Myanmar Co Ltd [Myanmar]:
G A Duncan, P Richards, C D Wickramanayake
Fonterra Brands Phils. Inc [Philippines]:
L Barin (R), M T Boness, R Cook, C Ferrer, R M
Kennerley, R A Mendoza, L De Velez
Fonterra Chile SpA [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia (A),
R Lavados (A), P L Linhares (A) (R), R Sepúlveda
Seminario, F Spinelli (R)
Fonterra Commercial Trading (Shanghai)
Company Limited [China]:
R J Allen (R), G A Duncan, J Ruan, P D Washer, C
Zhu (R)
Fonterra Commercial Trading (Tangshan)
Company Limited [China]:
G A Duncan, J Ruan, P D Washer
Fonterra Egypt Limited [Egypt]:
A Anwar, G A Duncan
Fonterra Europe Manufacturing B.V.
[Netherlands]:
D Krabbe, B Mealings (R), B M Ryan
Fonterra Europe Manufacturing Holding B.V.
[Netherlands]:
G A Duncan, H Huistra
Fonterra Foodservices (USA), Inc. [United
States]:
N R Christiansen, J P Coote, G A Duncan
Fonterra Global Business Services Asia Sdn
Bhd [Malaysia]:
J Oh, V Sivaraja
Fonterra India Private Limited [India]:
A Aggarwal, H D Gowans, K M Turner (R), S G
Mathews
Fonterra Ingredients Australia Pty Ltd
[Australia]:
R Dedoncker, G A Duncan
Fonterra Middle East FZE [United Arab
Emirates]:
G A Duncan, S Penfold
Fonterra MIH Holdings Brasil Ltda [Brazil]:
R F Aracil Filho, P C C Frieta Guedes (R), A R V
Januario Oliveira (R), B de Luca Zanatta
Fonterra Milk Australia Pty Ltd [Australia]:
R Dedoncker, G A Duncan
Fonterra Tangshan Dairy Farm (HK) Limited
[Hong Kong]:
H Berghorst (R), G A Duncan, X Xu
Fonterra Venezuela, S.A. [Venezuela]:
G A Duncan, F C Ortega Becea
Inversiones Dairy Enterprises S.A. [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia (A),
R Lavados (A), P L Linhares (A)(R), R Sepúlveda
Seminario
Key Ingredients, Inc. [United States]:
N R Christiansen, J P Coote, G A Duncan, B M
Ryan
Milk Products Holdings (North America) Inc.
[United States]:
N R Christiansen, J P Coote, B M Ryan
New Tai Milk Products Co Ltd [Taiwan]:
T Chow, C Lee, G Lee, K Lee, M R Robins, B M
Ryan (R), P D Washer, K A Wickham (R)
New Zealand Milk (Australasia) Pty Ltd
[Australia]:
R Dedoncker, G A Duncan
New Zealand Milk (Barbados) Ltd [Barbados]:
G A Duncan, F Spinelli
New Zealand Milk (LATAM) Ltd [Bermuda]:
G A Duncan, F Spinelli
New Zealand Milk Products (Ethiopia) SC
[Ethiopia]:
A B Abubeker, M B Abubeker, G Amade, F
Spinelli, M Woodward
Newdale Dairies (Private) Limited [Sri Lanka]:
J H P Gallage (R), R M Kennerley, T Salpitikorala,
S Sethi (R), V Sivaraja
NZMP (AEM) Ltd [United Kingdom] (in
liquidation):
M Boyd, G A Duncan, H Huistra (R), G R Sharma
NZMP Fonterra Nigeria Limited [Nigeria]:
G A Duncan, H Huistra
Pure Source Dairy Farm Company Limited
[China]:
H Berghorst (R), M P Campbell, L Deng, G A
Duncan, J F Ginascol (R), R M Kennerley (R), J
Murphy
Sociedad Agrícola y Lechera Praderas
Australes S.A. (“Pradesur”) [Chile]:
E Becker, M Kunstmann (R), A L Raddatz Vargas,
R Waldspurger
Sociedad Procesadora de Leche del Sur S.A.
(“Prolesur S.A.”) [Chile]:
C U Alcade (R), J Barria Pina (R), M P Campbell,
L M Patron Costas (A)(R), H Covarrubias
Lalanne, S Diez Arriagada (A), S Jimenez, R
Lavados McKenzie (R), P L Linhares (A)(R), J P
Matus Pickering (A), S Oddo Gómez (R), C Perez-
Cotapos Subercaseaux (A), G V Varela Alfonso,
A S Vega (A), T Walker Prieto (R), K A Wickham
Soprole Inversiones SA [Chile]:
M P Campbell, H Covarrubias Lalanne, S
Diez Arrigada (A), S Jimenez, P L Linhares (A)
(R), J P Matus Pickering (A), C Perez-Cotapos
Subercaseaux (A), R Sepúlveda Seminario (R), F
Spinelli (R), A D Turnbull (R), G V Varela Alfonso,
A S Vega (A), K A Wickham, J Swales (R)
Soprole S.A. [Chile]:
M P Campbell, H Covarrubias Lalanne, S Diez
Arrigada (A), S Jimenez, P C Lluch (A), J P Matus
Pickering (A), C Perez-Cotapos Subercaseaux (A),
R Sepúlveda Seminario (R), A D Turnbull (R), G
V Varela Alfonso, A S Vega (A), K A Wickham, J
Swales (R)
Tangshan Fonterra Dairy Farm Ltd. [China]:
H Berghorst (R), G A Duncan, Q Jiang, P D
Washer, X Xu
Unifood Holding B.V. [Netherlands]:
M P Campbell, H Huistra, M Ivanov, A Sirotinin
Unifood LLC [Russian Federation]:
M P Campbell, H Huistra, M Ivanov, A Sirotinin
United Milk Tasmania Pty. Limited [Australia]:
R Dedoncker, G A Duncan
DIRECTORS’ INDEMNITY AND INSURANCE
Fonterra has given indemnities to, and has effected insurance for, Directors and executives of the Company and its related companies, in accordance with
section 162 of the Companies Act 1993, and clause 35 of Fonterra’s Constitution, which, except for specific matters that are expressly excluded, indemnify
and insure Directors and executives against monetary losses as a result of actions undertaken by them in the course of their duties. Among the matters
specifically excluded are penalties and fines that may be imposed for breaches of law.
ANALYSIS OF SHAREHOLDING
Analysis of Fonterra’s shareholding as at 31 July 2020:
FCG Largest Recorded Share Holdings
1
NAMENUMBER OF SHARES% OF SHARES
Fonterra Farmer Custodian Limited104,581,5166.48
Singletree Dairies 2013 Limited1,012,7760.06
Ellis-Lea Farms (2000) Limited – Lamorna977,8900.06
Silverdale Farm Limited973,6790.06
Southern Pastures (Manako Farm) Limited Partnership944,5150.05
Coringa Park Dairies Limited944,4150.05
Stewart Partnership Limited922,5000.05
Arlanda Limited920,0750.05
Moffitt Dairy Limited910,7130.05
Baytown Investments Limited890,3480.05
R.E.M. Farming Limited883,8110.05
McBain Farms Limited867,7900.05
Cookstin Dairies Limited839,6000.05
Bel Group Limited – Ashton836,3530.05
Rangitata Dairies Limited Partnership836,0110.05
Auchenbrae Farm Limited829,1470.05
Ellis-Lea Farms (2000) Limited – Grandview811,1430.05
Nukiwai Pastoral Limited810,4870.05
E F Deadman Limited804,7070.04
Cashmore Investments Limited794,3150.04
1 The FSM Rules, which reflect the rules of the NZX Main Board, require that Fonterra’s annual report contain the names and holdings of persons having the 20 largest holdings of Fonterra shares
on the register of Fonterra as at a date not earlier than two months before the date of the publication of the annual report. The list above complies with the FSM Rules and sets out the list of the
20 largest shareholders on the register as at the appropriate date. There is a separate requirement in the FSM Rules to disclose in the annual report those persons who have a ‘Relevant Interest’ (as
defined in the Financial Markets Conduct Act 2013) in Fonterra shares in excess of five per cent, where this information has been provided to Fonterra. Accordingly, the list of the 20 largest holdings
of Fonterra shares is not required to show, and does not purport to show, the top 20 holdings of ‘Relevant Interests’ in Fonterra shares which may be owned or controlled by a person or entity and
their associated entities. Other people or entities may have ‘Relevant Interests’ in a greater number of Fonterra shares than those listed above. However, it is not possible for Fonterra to accurately
determine those interests, nor is it a requirement of the FSM Rules for those interests to be reported in the annual report, except where Fonterra has been advised that a person has a ‘Relevant
Interest’ in excess of the five per cent threshold.
Substantial Product Holders
According to notices given to the Company under the Financial Markets Conduct Act 2013, as at 31 July 2020, the substantial product holders in the
Company and their relevant interests are noted below. The total number of Co-operative shares on issue as at 31 July 2020 was 1,612,097,067.
SUBSTANTIAL PRODUCT HOLDERS
NUMBER OF VOTING
SECURITIES
DATE OF MOST RECENT
NOTICE
Fonterra Farmer Custodian Limited111,816,18330 July 2018
FSF Management Company Limited111,735,18330 July 2018
More than one ‘Relevant Interest’ can exist in the same voting financial products. Fonterra Farmer Custodian Limited holds Fonterra shares for the Fonterra
Shareholders’ Fund, of which FSF Management Company Limited is the Manager. These two notices therefore refer to substantially the same Fonterra
shares. The Custodian also holds some Fonterra shares for the Registered Volume Provider in respect of the Fonterra Shareholders’ Fund.
Fonterra Annual Report 2020
161160
Statutory Information
Statutory Information CONTINUED
FOR THE YEAR ENDED 31 JULY 2020
FCG Fonterra Co-operative Shares
Analysis of Fonterra Co-operative Shares as at 31 July 2020:
FROM-TOHOLDER COUNT%HOLDING QUANTITY%
1–50,0001,07111.3630,512,1531.89
50,001–100,0002,46726.17189,727,31811.77
100,001–200,0003,34235.44473,218,68029.35
200,001–400,0002,06421.89564,636,33435.03
400,001 and over4855.14354,002,58221.96
ANALYSIS OF CAPITAL NOTE AND RETAIL BOND HOLDING
Analysis of Fonterra’s Capital Note Holding as at 5 August 2020:
FCGHA Capital Notes
FROM–TOHOLDER COUNT%HOLDING QUANTITY%
1–1,00091.383,9740.00
1,001–5,000253.8369,6340.07
5,001–10,00022033.691,570,0151.53
10,001–100,00037357.1210,893,88210.63
100,001 and over263.9889,981,74987.77
100,001 and over includes Fonterra Co-operative Group Limited’s holding of 67,435,575.
Analysis of Fonterra’s Retail Bond Holding as at 5 August 2020:
FCG030 $350 million Retail Bond issue
FROM–TOHOLDER COUNT%HOLDING QUANTITY%
5,000–9,999336.11200,0000.06
10,000–49,99926448.895,932,0001.69
50,000–99,9997012.964,342,0001.24
100,000–999,99913825.5646,113,00013.18
1,000,000 and over356.48293,413,00083.83
FCG040 $150 million Retail Bond issue
FROM–TOHOLDER COUNT%HOLDING QUANTITY%
5,000–9,999589.71337,0000.22
10,000–49,99937362.487,794,0005.20
50,000–99,9997312.234,458,0002.97
100,000–999,9997011.7314,776,0009.85
1,000,000 and over233.85122,635,00081.76
FCG050 $100 million Retail Bond issue
FROM–TOHOLDER COUNT%HOLDING QUANTITY%
5,000–9,999135.5697,0000.10
10,000–49,99915465.813,542,0003.54
50,000–99,9992611.111,584,0001.58
100,000–999,999239.837,264,0007.27
1,000,000 and over187.6987,513,00087.51
CURRENT CREDIT RATING STATUS
Standard & Poor’s long-term rating for Fonterra is A- with a rating outlook of stable. Fitch’s long-term and short-term default rating is A with a rating
outlook of negative. Retail Bonds have been rated the same as the Company’s long-term rating by both Standard & Poor’s and Fitch. Capital Notes which
are subordinate to other Fonterra debt issued are rated BBB+ by Standard & Poor’s and A- by Fitch.
EXCHANGE RULINGS AND WAIVERS
NZX Limited (NZX) has ruled that Capital Notes (FCGHA) are debt securities as defined in the NZX Main Board/Debt Market Listing Rules (Listing Rules).
This means that where Capital Notes are quoted on NZX’s Debt Market, Fonterra Co-operative Group Limited is not required to comply with certain Listing
Rules which apply to an issuer of quoted equity securities.
NZX TRADING HALTS
No trading halts were placed on Fonterra securities by NZX in the financial year ended 31 July 2020.
STOCK EXCHANGE LISTINGS
Fonterra’s Co-operative shares are listed and quoted on the Fonterra Shareholders’ Market (operated by NZX Limited for Fonterra) under the code ‘FCG’.
Fonterra has three issues of retail bonds listed and quoted on the NZDX under the codes ‘FCG030’, ‘FCG040’, and ‘FCG050’. Fonterra also has an issue of
capital notes listed and quoted on NZDX under the code ‘FCGHA’ and a Euro Medium Term Note Programme listed on the Singapore Stock Exchange.
As at 31 July 2020 there were 1,612,097,067 Fonterra Co-operative shares on issue.
Fonterra Annual Report 2020
163162
Statutory Information
Corporate Governance
Fonterra’s Board, Shareholders’ Council and Management recognise
that strong governance plays a critical role in the success of our Co-
operative and are committed to achieving the highest standard of
corporate governance, representation and leadership.
To support this the Board has developed governance systems that
reflect Fonterra’s unique characteristics and requirements as a
globally competitive New Zealand based dairy co-operative. These are
continuously reviewed to ensure best practice is followed.
This Corporate Governance Statement is current as at 17 September
2020 and has been approved by the Fonterra Co-operative Group
Limited Board.
COMPLIANCE WITH BEST PRACTICE GOVERNANCE
STANDARDS
The Board’s governance framework takes into consideration
contemporary standards in New Zealand and Australia, including the
principles in the NZX Corporate Governance Code which came into
effect for reporting periods from 1 January 2020 (NZX Code).
Fonterra focuses on governance in a way that promotes:
• the interests of our farmer shareholders, unit holders and other
key stakeholders
• our Co-operative’s purpose, values and strategy
• transparency, giving our farmer shareholders, unit holders and other
stakeholders the information they need to assess our performance
• effective risk management and compliance to assist us in meeting our
business objectives and all legal and reporting requirements
• an appropriate balance between the roles and responsibilities of the
Board and Management
• communication with important stakeholder groups, including our
farmer shareholders, employees, customers, unit holders, debt
investors, governments and the communities we operate in.
PRINCIPLE 2: BOARD COMPOSITION AND PERFORMANCE
Board Charter
The Board Charter includes details about the Board’s role, responsibilities
and obligations, Board composition and procedures including the Chair’s
election and role, the Board’s relationship with Management, incident
management engagement, training provided to Directors, and the process
for assessing the Board’s performance.
The Board Charter is reviewed each year and is available on fonterra.com.
Board Appointments
Fonterra’s Constitution provides for a maximum of 11 Directors and sets
out how they are appointed. Up to seven Directors are elected by farmer
shareholders (Farmer Directors) and up to four Directors are appointed by
the Board (Appointed Directors).
The Board is committed to building capabilities and maintaining the highest
standards of governance in accordance with best practice. The Board
considers it important that there is a good balance of experience on the
Board.
A list of attributes that all Directors must be able to demonstrate has
been developed by the Board and is reviewed annually. The Board has also
developed a list of skills that the Board believes are required to effectively
govern a complex, globally competitive New Zealand dairy co-operative
with diverse stakeholders. The skills list is reviewed annually and updated as
required. The Board then develops a skills matrix by assessing the required
weighting of each skill against the aggregate skills of the current Board.
The skills matrix is used to identify the skills to be targeted each year as
part of the Farmer Director election process and when selecting Appointed
Directors. The attributes, skills list, skills matrix and the year’s targeted skills
are published annually as part of the Farmer Director election process, to
assist potential candidates in assessing their suitability and to assist farmer
shareholders when assessing the candidates put forward for election.
The Farmer Director selection process involves a three-member
Independent Selection Panel (ISP) that recommends appropriate
candidates to be put to farmer shareholders for election. The members
of the ISP are all independent of Fonterra. One member is appointed by
the Board, one by the Shareholders’ Council and a third appointed by the
other two members of the ISP. In addition to candidates assessed and
recommended by the ISP, there is a non-assessed candidate process where
candidates can propose themselves for election as Farmer Directors with
the support of 35 shareholders. The Farmer Directors are elected by postal
ballot and online voting by farmer shareholders. The voting packs circulated
to all farmer shareholders include biographical information on each
candidate including relevant skills and experience. The Farmer Director
elections are overseen by the Shareholders’ Council.
Appointed Directors are selected to enable the Board to access a full
complement of skills and competencies needed to lead an enterprise of
Fonterra’s size, global reach and complexity. They are independent and
bring to the Board perspectives, experience and skills to complement and
enhance the attributes and skills provided by the Farmer Directors.
The Appointments and Remuneration Committee oversees the process
for identifying and recommending potential Appointed Directors. Prior
to appointment by the Board, the Fonterra Shareholders’ Fund Board is
consulted. The Appointed Directors are ratified by farmer shareholders at
the next Annual Meeting held following their appointment.
All Directors enter into written agreements establishing the terms of their
appointment.
Changes to the Fonterra Board
There were a number of changes to the Fonterra Board during the financial
year ended 31 July 2020:
• In November 2019, Farmer Directors Ms Donna Smit and Mr Andy
Macfarlane were re-elected to the Board and Appointed Director Mr
Simon Israel retired from the Board.
• In March 2020, Chairman Mr John Monaghan announced he will retire
from the Board following the Annual Meeting in November 2020.
• In April 2020, Ms Holly Kramer was appointed to the Board as an
Appointed Director.
• In June 2020, Farmer Director Mr Peter McBride was named as
Chairman-elect.
Disclosure
Information about the experience, length of service, independence and
attendance at Board meetings of each Director is disclosed at pages 167,
168, 176 and 177. The ownership interests of each Director are disclosed in
the statutory information section.
Diversity and Inclusion Policy
Diversity means respect for and appreciation of differences in people,
including differences in ethnicity, cultural background, gender, age, national
origin, disability, sexual orientation, education, religion, personality or
thinking style.
Inclusion is a sense of belonging, where people feel valued, respected and
are encouraged to fully contribute in a safe and supportive environment.
Our diversity and inclusion principles of whanaungatanga (belonging),
manaakitanga (care), kaitiakitanga (guardianship) and whakaohooho
(inspiration) guide and enable us to attract, keep and grow our people to
deliver on our purpose, values and our strategy. You, me, us, together –
7ÃWRXWÃWRX
Fonterra publishes its Diversity and Inclusion Policy on fonterra.com.
Fonterra’s Diversity and Inclusion Policy has three key areas of focus:
Our People: attracting, selecting, developing, promoting and retaining
diverse talent, while avoiding practices that are discriminatory or exclusive.
Our Strategy: ensuring our organisation reflects the diversity of our
markets, customers, stakeholders and the communities in which we
operate.
Our Identity: respecting, leveraging and embracing the unique skills and
diverse perspectives of our people, reflecting a core Fonterra value of ‘Do
What’s Right’.
Diversity and Inclusion Targets and Objectives
Fonterra has made a formal commitment to increase the representation of
women and ethnic minorities within senior leadership levels. The Board’s
aspirational targets and objectives are to increase women in leadership to
50%
1
by 2022 and further target a mix of 20% ethnic diversity within global
leadership levels.
2
To achieve our gender and ethnicity targets, we have placed emphasis on
gender balanced long and short-lists for leadership recruitment as well as
establishing strong foundations of flexible work practices, pay equity, and
attractive parental leave policies to attract, engage and retain women and
minorities in our workplace. We are actively working to mitigate the effects
of unconscious bias in recruitment, performance and talent management.
Approved targets are underpinned by comprehensive metrics that enable
regular reporting on progress globally.
1 Our gender targets include a variance of +/- 10% to account for when we have low population sizes i.e.: n<20.
2 Ethnic diversity is defined as increased representation from minority groups globally.
PRINCIPLE 1: CODE OF ETHICAL BEHAVIOUR
Code of Ethics
A culture of honesty, integrity and transparency is integral to our purpose
and securing our reputation.
We expect our Directors, officers and employees to maintain high ethical
standards and to operate ethically and legally in the countries where we do
business, and reflect our guiding philosophy, Good Together, through all
their behaviours, choices and decisions.
Fonterra’s Code of Ethics comprises the following core documents:
FONTERRA – CODE OF ETHICS
BOARD CODE OF CONDUCT
The Way We Work
(Code of Business Conduct)
Board Charter
Global Ethical
Behaviour Policy
These documents are available on fonterra.com and are supported by our
other policy documents and our employment agreements. They lay out
clear expectations for our Directors, officers and employees regarding
ethical behaviour, including:
• the requirement for the highest standard of integrity, honesty
and transparency;
• how to deal with conflicts of interest;
• the use of corporate information, assets and property;
• procedures for giving and receiving gifts;
• procedures for whistle blowing; and
• how to manage breaches of the Code of Ethics.
We have a Code of Business Conduct, The Way We Work, which guides
us in how we apply our values, every day. This year we updated The Way
We Work to ensure that it reflects Good Together and aligns with our core
goals of Healthy People, Healthy Environment and Healthy Business. The
Board has also developed a Board Code of Conduct for Directors.
Fonterra’s Global Ethical Behaviour Policy and The Way We Work
are available, in multiple languages, to all employees on the Fonterra
intranet. Training on our Code of Ethics and other core global policies
is an important part of our global induction programme. Our annual
check-in and certification process supports our people’s awareness and
understanding of Fonterra’s global policies and was completed by 100%
of its global audience, being our people leaders, managers and other key
roles. Annual refresher learning programmes on our ethical behaviour
commitments, expectations, systems and processes are also required to be
completed throughout our business.
Fonterra’s independently administered whistleblowing hotline provides
individuals with a confidential channel (by phone, email, mail, or online) to
report concerns about serious wrongdoing, or behaviour that is unethical
or does not meet the standards described in The Way We Work. The
hotline allows individuals across our Co-operative to anonymously make
complaints or raise issues.
In the year ended 31 July 2020, 29 reports were made to the hotline.
Disclosures are investigated by a Fonterra team not involved in the
substance of the concern (Internal Audit, other specialist teams or, where
appropriate, an external investigator) before appropriate action is taken.
Timely updates are made available to the whistleblower through the
hotline.
All Fonterra employees are expected to record actual or potential conflicts
using our Conflict of Interest register. Fonterra also operates a Gift &
Entertainment register where employees must record all gifts given or
received, including hospitality and entertainment with third parties, above
a nominal level.
Securities Trading Policy
Fonterra has adopted a Securities Trading Policy that details the rules
for trading in shares, capital notes, retail bonds, units, derivatives, milk
price futures and options traded on the NZX and other listed securities of
Fonterra or the Fonterra Shareholders’ Fund from time to time. This applies
to Directors, officers, employees and contractors of the Fonterra Group
around the world and members of the Shareholders’ Council and Milk Price
Panel and is in addition to legislative requirements for trading securities in
New Zealand and Australia.
The Securities Trading Policy and Standard and other key Global Policies
are available on fonterra.com. All our Directors comply with the legislative
requirements for disclosing interests in listed voting securities of Fonterra
and its related companies.
165
Corporate Governance
Fonterra Annual Report 2020
164
Executive Leadership Gender Composition
FONTERRA MANAGEMENT TEAMGENDER
AS AT 31 JULY 2019MALEFEMALEGENDER DIVERSEUNDECLARED
7 FTE
3
52––
%71%29%0%0%
FONTERRA MANAGEMENT TEAMGENDER
AS AT 31 JULY 2020MALEFEMALEGENDER DIVERSEUNDECLARED
8 FTE
4,5
62––
%75%25%0%0%
Board Gender Composition
As the majority of Directors are elected by farmer shareholders through an independent process, the Board has not adopted gender targets for the Board
in 2020. The Board remains committed to addressing the gender composition of the Board, through the appointment of Appointed Directors, building a
pipeline of Directors through the Fonterra Governance Development programme and through the Farmer Director election process.
BOARDGENDER
AS AT 31 JULY 2019MALEFEMALEGENDER DIVERSEUNDECLARED
1192––
%82%18%0%0%
The gender composition of Fonterra Board changed between 2019 and 2020.
BOARDGENDER
AS AT 31 JULY 2020MALEFEMALEGENDER DIVERSEUNDECLARED
1183––
%73%27%0%0%
Ongoing Training
Following appointment to the Board, Directors undertake an induction
programme to familiarise themselves with Fonterra and its global business.
Areas covered include:
• business strategy and planning
• an overview of key financial metrics to monitor business performance
• an overview of material areas of the Fonterra business, including through
meetings with key executives and visits to key offshore markets, where
possible
• Fonterra’s Constitution and other governance systems
Directors are expected to keep themselves abreast of changes and trends
in the business, Fonterra’s environment and markets, and the economic,
political, social and legal climate generally. The Board holds training
and workshops on relevant subjects each year, is provided with regular
strategic readings and Directors are also expected to keep up to date
with governance issues. Board visits to Fonterra’s global businesses occur
regularly, where possible.
Assess Performance
Directors formally assess the performance of the Board each year, and
the Board reviews each Committee’s performance against its Charter.
A regular programme of peer review of individual Directors occurs as
part of an ongoing Director development programme. Directors are also
encouraged to attend external development and training programmes.
The Shareholders’ Council reviews the Board’s Statement of Intentions
against the performance and operation of the Group and reports on this to
farmers annually. The Board is responsible for reviewing the Chief Executive
Officer’s performance.
Director Independence
The rules of the Fonterra Shareholders’ Market (FSM Rules) require
Fonterra to have at least two Independent Directors. In order to be an
Independent Director under the FSM Rules, a Director must not be an
‘employee’ of Fonterra or have a ‘disqualifying relationship’.
A Director has a disqualifying relationship where they have a direct or
indirect interest, position, association or relationship that could reasonably
influence, or could be reasonably perceived to influence, in a material way,
the Director’s capacity to bring an independent view to decisions relating
to Fonterra, to act in Fonterra’s best interests and to represent the interests
of Fonterra’s financial product owners generally. The FSM Rules contain
specific examples of what may give rise to a disqualifying relationship.
Appointed Directors cannot be shareholders and are expected to maintain
independence for the length of their term.
Farmer Directors must be qualified as farmer shareholders under section
12.3 of the Constitution and are therefore not considered independent.
Fonterra currently has four Appointed Directors. As at 31 July 2020, Clinton
Dines, Bruce Hassall, Holly Kramer and Scott St John each did not have
(and continue not to have) any disqualifying relationship in relation to
Fonterra and were therefore Independent Directors.
Division of Roles
John Monaghan, who is a Farmer Director, is the Board-elected Chairman.
The Chairman and Chief Executive Officer roles at Fonterra are not
exercised by the same individual.
PRINCIPLE 3: BOARD COMMITTEES
Fonterra has a number of permanent Board Committees, as detailed below.
Additional Board Committees are formed when it is efficient or necessary
to facilitate decision-making by providing for a sub-group of Directors to
focus on particular areas or issues and to develop recommendations to the
Board.
Board Committees have standard ‘Terms of Reference’ and each permanent
Committee has a charter, which defines the scope and responsibilities
of that Committee and is approved by the Board each year. The charters
of the permanent Board Committees are available on fonterra.com. The
minutes for each of the Board Committees’ meetings are provided to the
Board for review.
There are two non-permanent Committees, the Divestment Review
Committee and the Capital Structure Committee, which were established
in 2019:
• The Divestment Review Committee’s purpose is to oversee material
divestments and similar transactions. Mr Scott St John is the Chair of the
Committee and Mr Brent Goldsack, Ms Leonie Guiney, Mr Bruce Hassall,
Ms Holly Kramer and Ms Donna Smit are members of the Committee.
• The Capital Structure Committee’s purpose is to provide guidance over
Management’s review of Fonterra’s capital structure. Mr Bruce Hassall is
the Chair of the Committee and Mr Brent Goldsack, Ms Leonie Guiney,
Mr Peter McBride and Mr John Nicholls are members of the Committee.
The non-permanent Board Committees operate under separate Terms of
Reference which define their respective purposes and responsibilities.
COMMITTEE OR GROUPMEMBERSHIP AS AT 31 JULY 2020PURPOSE
Appointments and Remuneration CommitteeJohn Monaghan (Chair)
Clinton Dines
6
Holly Kramer
Andrew Macfarlane
Peter McBride
Bruce Hassall
6
(observer)
To assist the Board in fulfilling its corporate governance
responsibilities in relation to the recruitment, retention,
remuneration and development of Directors, executives and other
employees.
Audit and Finance CommitteeBruce Hassall
6
(Chair)
Leonie Guiney
Andrew Macfarlane
Peter McBride
Scott St John
6
To assist the Board in fulfilling its corporate governance
responsibilities in relation to Fonterra’s financial reporting, audit
activities, treasury matters, financial risk management and internal
control frameworks.
Co-operative Relations CommitteeBrent Goldsack (Chair)
Andrew Macfarlane
Peter McBride
John Nicholls
Donna Smit
To assist the Board in fulfilling its corporate governance
responsibilities in relation to the supply of milk from Fonterra
suppliers, and to seek to resolve supplier complaints before
reference to the Milk Commissioner.
Milk Price PanelScott St John
6,7
(Chair)
Bruce Hassall
6,7
Brent Goldsack
Andrew Wallace
7, 8
Bill Donaldson
8
To provide assurances to the Board as to the governance of the Milk
Price and the Milk Price Manual, and the proper application of the
Milk Price Principles. The Milk Price Panel does not determine the
Farmgate Milk Price, as this is a decision for the Board.
Safety and Risk CommitteeLeonie Guiney (Chair)
Clinton Dines
6
Brent Goldsack
John Nicholls
Scott St John
6
To assist the Board in fulfilling its corporate governance
responsibilities in relation to Fonterra’s management of health and
safety and key enterprise wide risks.
This includes promoting a safe and healthy working environment
and overseeing Fonterra’s risk management framework to ensure
the behaviours required, guidelines, policies and processes for
monitoring and mitigating enterprise-wide risks are in place.
3 Full time equivalent.
4 Full time equivalent.
5 As of 31 July 2020, the position of Managing Director People & Culture is vacant and therefore not included in this calculation.
6 Independent Director
7 Independent member
8 Appointed by the Shareholders’ Council
Fonterra Annual Report 2020
167166
Corporate Governance
Board and Committee Attendance
BOARD
AUDIT AND
FINANCE COMMITTEE
APPOINTMENTS AND
REMUNERATION
COMMITTEE
CO-OPERATIVE
RELATIONS
COMMITTEEMILK PRICE PANEL
SAFETY AND RISK
COMMITTEE
Eligible to
AttendAttendance
Eligible to
AttendAttendance
Eligible to
AttendAttendance
Eligible to
AttendAttendance
Eligible to
AttendAttendance
Eligible to
AttendAttendance
Clinton Dines 1514––87––––2 2
Brent Goldsack1413––––667744
Leonie Guiney151477––––––44
Bruce Hassall15147788––7721
Simon Israel53––21––––––
Holly Kramer 43––33––––––
Andrew
Macfarlane
1515438866––––
Peter McBride1515766665––––
John Monaghan15153388––––––
John Nicholls 1514––––66––22
Donna Smit151533––66––––
Scott St John 151577––––7744
Audit and Finance Committee
The Audit and Finance Committee comprises two Appointed Directors and
three Farmer Directors. The Committee is chaired by Bruce Hassall, who
is an independent Appointed Director and a Fellow of the New Zealand
Institute of Chartered Accountants.
Majority Independent Directors – Audit and Finance
Committee and Appointments and Remuneration Committee
The Audit and Finance Committee and Appointments and Remuneration
Committee do not comprise a majority of independent Appointed
Directors.
There is currently no headroom for Fonterra, based on having 11 Directors,
to have more than four independent Appointed Directors, as the Farmer
Directors fill each of the seven positions open to them (and as noted above,
the Farmer Directors are not considered independent). Given this, it is
difficult for Fonterra to appoint a majority of Appointed Directors to these
Committees without excluding Farmer Directors or significantly increasing
the workload of the Appointed Directors.
Fonterra does not consider that this is a significant issue, as the Audit
and Finance Committee is chaired by an independent Appointed Director
and the Appointments and Remuneration Committee is chaired by a
Farmer Director. In addition, under the FSM Rules, the Audit and Finance
Committee is not required to comprise of a majority of Appointed
Directors.
Employees attend Audit and Finance Committee and Appointments and
Remuneration Committee meetings only at the invitation of the respective
Committee.
Milk Price Panel
The Dairy Industry Restructuring Act 2001 (New Zealand) requires that
the Chair and a majority of the members of the Milk Price Panel are
independent. The Panel consists of two Appointed Directors, one Farmer
Director and two appropriately qualified persons nominated by the
Shareholders’ Council, at least one of whom must be independent. The
Chair must be one of the Appointed Director independent members. As at
31 July 2020, Scott St John, Bruce Hassall and Andrew Wallace were (and
continue to be) independent members of the Milk Price Panel.
Pursuant to the Dairy Industry Restructuring Amendment Act 2020, with
effect from 1 June 2021, Fonterra must appoint one member of the Milk
Price Panel who is nominated by the Minister.
Nominations Committee
The Appointments and Remuneration Committee fulfils the role of a
nominations committee in respect of the appointment of Appointed
Directors. The election and selection process for Farmer Directors and
Appointed Directors is explained above under Board Appointments at
page 165.
Takeover Offer
The Board does not believe that it is necessary to establish protocols for a
takeover offer, given Fonterra’s co-operative structure and the thresholds
on share ownership in its Constitution.
PRINCIPLE 4: REPORTING AND DISCLOSURE
Disclosure Policy
Fonterra is committed to promoting well-informed and efficient markets
in its shares, units issued by the Fonterra Shareholders’ Fund and debt
securities. The Board has approved a Global Disclosure Policy to ensure
compliance with the NZX and FSM Listing Rules regarding continuous
disclosure. The Global Disclosure Policy governs Fonterra’s communications
with investors and market participants, and the disclosure of information
relevant to Fonterra. The Global Disclosure Policy and the underlying
Global Disclosure Standard are available on fonterra.com.
Fonterra and the Manager of the Fonterra Shareholders’ Fund have entered
into an arrangement to co-operate with each other and take all steps
reasonably required to ensure that information to be disclosed by either of
them under the FSM Rules and the listing rules of the NZX or the ASX (as
the case may be) is disclosed simultaneously to the Fonterra Shareholders’
Market, the NZX Main Board and the ASX. Fonterra simultaneously
discloses relevant information on ASX on behalf of the Fonterra
Shareholders’ Fund.
Website Disclosure
Fonterra has the following documents available on fonterra.com:
• Board Charter
• Board Code of Conduct
• Appointments and Remuneration Committee Charter
• Audit and Finance Committee Charter
• Co-operative Relations Committee Charter
• Safety and Risk Committee Charter
• The Way We Work (Code of Business Conduct)
• Global Disclosure Policy and Standard
• Global Diversity and Inclusion Policy
• Global Health, Safety and Wellbeing Policy
• Global Environmental Policy
• Global Ethical Behaviour Policy
• Global Privacy Policy
• Global Securities Trading Policy and Standard
• Sustainability Code of Practice
Fonterra does not have a Director Remuneration Policy for the reasons
noted below under ‘Director Remuneration’.
Non-Financial Reporting
Fonterra is guided by international best practice and, reflecting the core
role of sustainability within our strategy, we are on a journey towards more
integrated reporting.
In this Annual Report we provide coverage of both financial and non-
financial matters. Non-financial reporting includes coverage of our social
and environmental performance in the Healthy People and Healthy
Environment sections, and our approach to governance in this Corporate
Governance section. Our financial performance is reported on in our
Healthy Business section.
In November 2019 Fonterra issued its third Sustainability Report, which is
prepared in accordance with the Global Reporting Initiative (GRI) Standards
and is independently assured. This further expands the coverage of our
non-financial reporting, including consideration of material environmental,
social and governance (ESG) factors and performances against targets.
We have adopted this internationally recognised reporting framework
to help users of our Sustainability Report more easily compare our
disclosed information and performance with others. We plan to release the
Sustainability Report annually, with the next report due to be issued later
this year.
PRINCIPLE 5: REMUNERATION
Fonterra’s remuneration framework is designed to attract, retain and
motivate high-quality Directors and senior management.
Director Remuneration
Fonterra’s Constitution modifies the Board’s discretion to set remuneration
of Farmer Directors. Farmer shareholders elect an independent committee
of six farmer shareholders (the Directors’ Remuneration Committee)
to consider and make recommendations at the Annual Meeting on the
remuneration for Farmer Directors, which is required to be approved by
farmer shareholders.
The members of the Directors’ Remuneration Committee as at 31 July 2020
were David Gasquoine (Chair), Ellen Bartlett, John Gregan, Glenn Holmes,
Scott Montgomerie and Stephen Silcock. Directors and employees only
attend Directors’ Remuneration Committee meetings at the invitation of
the Committee.
The Board has full discretion over the remuneration of Appointed Directors,
with such remuneration not being approved at the Annual Meeting. The
Board has historically remunerated Appointed Directors at the same level
as Farmer Directors, in line with Directors’ Remuneration Committee
recommendations.
Given the arrangements outlined above, Fonterra does not have a specific
policy for remuneration of Directors.
Further details of the Directors’ remuneration are contained on pages 155
and 156.
Remuneration of our People
The remuneration of our Chief Executive Officer (CEO) and Management
is governed by the Appointments and Remuneration Committee (ARC),
who assists the Board in fulfilling its corporate governance responsibilities
relating to remuneration, recruitment and retention. Fonterra has a
Remuneration and Rewards Global Standard which outlines our overall
remuneration framework.
The ARC oversees and provides counsel on Fonterra’s People Strategy,
including key priorities and milestones, as well as noting progress on
culture, talent and leadership activities and diversity and inclusion.
During the year ended 31 July 2020 (FY20), the ARC engaged the services
of an independent external consultant to provide guidance on the design
and development of the new CEO and Fonterra Management Team (FMT)
Executive Incentive, to replace the existing FY19-21 Long-Term Incentive.
The engagement of an independent consultant ensured that the ARC did
not receive advice solely from Management or advisors commissioned by
Management.
Remuneration Strategy
Fonterra’s remuneration strategy has been designed to align with and
support our philosophy of Good Together through:
• Our purpose
• Our values
• Our business strategies and goals
These are the foundation of our Co-operative and the lens through which
all our behaviors, decisions and choices are made.
Executive Remuneration Framework
Fonterra’s executive remuneration framework follows
three simple principles:
ATTRACT AND RETAIN
KEY TALENT
ENSURE A STRONG LINK
BETWEEN BUSINESS
PERFORMANCE
AND REWARD
REWARD OUR PEOPLE
EQUITABLY
The remuneration framework for our CEO and FMT is based on a total
remuneration approach which is delivered through fixed remuneration and
variable (at risk) components as outlined below.
In FY20, the ARC and Board approved a new variable Executive Incentive
Plan (EIP) for the CEO and FMT, which replaced the Short-Term Incentive
(STI) and Long-Term Incentive (LTI) programmes for FY20. The purpose
of the new design is to have a fit for purpose long-term incentive that
focuses the CEO and FMT on the execution of our new strategy, asset
rationalisation, and business repositioning of the strategy transformation.
The new design is a modified STI which focuses the FMT on annual strategy
execution and defers a portion of the incentive over three years. The final
vesting of the deferred value is modified using a long-term performance
hurdle of Return on Capital (ROC) over the Milk Price Weighted Average
Cost of Capital (WACC).
Fonterra Annual Report 2020
169168
Corporate Governance
Both the fixed and variable remuneration components of the CEO and FMT are outlined below:
FIXED ELEMENTVARIABLE ELEMENT
FIXED REMUNERATIONEXECUTIVE INCENTIVE PLAN (EIP)
How it’s deliveredCashCash (with a deferred cash component)
How it works- consists of base salary, KiwiSaver or
Superannuation, and insurance
- benchmarked against the external market
using comparable companies in the country
or region where the individual is located
- benchmarked to the median of the relative
peer group
- reviewed annually based on performance
and behaviours
- CEO Target is 120% of Base Remuneration
- eligible FMT members Target is 110% of Base Remuneration
- the incentive is capped at 150% payment of on-target earnings
- calculated based on achievement against a Fonterra Group
scorecard which aligns to our triple bottom line (Healthy People,
Healthy Environment and Healthy Business)
- our measures within the scorecard include Health and Safety,
Food Safety Quality, Lowering our Environmental Footprint,
Group Return on Capital and Total Farmer Payout
- achievement is determined over a one-year performance period
(1 August – 31 July, aligned to Fonterra’s financial year)
- paid as cash, with 70% cash paid in the year earned and 30%
deferred cash which vests three years after grant, subject to
continued employment and a performance hurdle of Group ROC
over the Milk Price WACC
What it doesAttracts and retains key talent in the markets
in which we operate
Aligns the CEO and eligible FMT members on delivering exceptional
results over both the short and long term for our farmer owners
The FY20 EIP for the CEO and eligible FMT members replaces all previous LTI programmes for those individuals, including the FY18-20 and FY19-21 LTI
schemes.
The CEO and eligible FMT members participate in the EIP. FMT members who do not participate in the EIP are entitled to fixed remuneration and
participate in the Group STI scheme.
The pay-mix of on-target total remuneration for the CEO is shown below.
Base Remuneration
17% 38% 45%
EIP
deferral
EIP paid as STI
Executive Remuneration Benchmarking
Pay benchmarking for the CEO, eligible FMT members and certain senior roles is conducted using independent third-party remuneration advisors appointed
by the Board.
Given that our Co-operative’s size and global scale is unique to New Zealand, the peer group for these roles is comprised of 24 Australian listed companies
that are more closely matched to the size, complexity and operational scope of Fonterra, allowing a more appropriate benchmarking of senior executive
remuneration. The benchmark also reflects that senior positions within Fonterra require global expertise, and are typically recruited from competitive global
talent markets, particularly Australia and Asia. Fonterra aims to pay at the median of the benchmark of the given peer group for our senior executives.
CEO Remuneration
Total Remuneration Paid for FY20
Total Remuneration Paid reflects remuneration in the period it is received, rather than the performance period to which the payment relates.
Miles Hurrell has held the role of Chief Executive Officer for the year ended 31 July 2020 (FY20). His annual fixed remuneration as at 31 July 2020 is
$1,950,000. The variable pay component paid in FY20 was for FY19 and is $0. The total remuneration received by Mr Hurrell in FY20 was $2,008,500,
as shown in the table below.
FIXED REMUNERATIONPAY FOR PERFORMANCETOTAL REMUNERATION PAID
SALARYBENEFITS
1
STILTI
$1,950,000$58,500$0
2
$0
3
$2,008,500
1 Employer superannuation contribution.
2 In FY19 the Board exercised its discretion to not award any STI payment for the FY19 performance year.
3 No LTI was payable to the CEO in FY20 for the FY19 performance year.
PRINCIPLE 6: RISK MANAGEMENT
Risk Management Framework
The Board, supported by the Safety and Risk Committee, has overall
responsibility for ensuring:
• the effective implementation of risk management systems in line with
our Global Risk Management Policy
• that Fonterra operates within its risk appetite settings
Fonterra’s Risk Management Policy is aligned to the ISO31000 Risk
Management – Principles & Guidelines 2018. The policy outlines our risk
principles and accountabilities, setting out the requirements for managing
and reporting risk across our global business. It is designed to embed a
co-operative-wide risk management capability, establishing a consistent
approach to identifying, assessing, controlling, monitoring and reporting on
our key risks. These include risks that may affect our Co-operative’s ability
to achieve its objectives and protect our people, shareholders, customers
and reputation.
Our risk management framework is based on the three lines of defence
model. Fonterra’s first line of defence is our people. Managers and
individual business units hold clear risk management responsibilities for
business risk management, including requirements to ensure compliance
with external requirements as well as Fonterra’s Global Policy standards.
Our risk management and assurance processes support this via our group
functions, ensuring a consistent best-practice approach to risk management
across the business, aligned with our risk appetite settings. These processes
are overseen by the Fonterra Management Team alongside a dedicated
internal audit function, taking a risk-based approach to oversight of key
business activities and reporting to the Board via the Safety and Risk
Committee and the Audit and Finance Committee.
3
RD
LINE OF DEFENCE
2
ND
LINE OF DEFENCE
1
ST
LINE OF DEFENCE
INTERNAL ASSURANCE
COO
Co-operative
Affairs
oCFO
APAC
Greater
China
AMENA
FONTERRA BOARD
Safety & Risk
Committee
Fonterra
Management Team
Audit & Finance
Committee
Total Remuneration Earned for FY20
Total Remuneration Earned illustrates the remuneration outcomes for the FY20 performance period, providing what we believe is a more transparent
indication of pay for performance. Variable pay outcomes are listed against the relevant performance period, regardless of when the payment is made.
We believe this reporting approach provides the right balance of transparency and disclosure while accurately reflecting the outcomes for a given fiscal year.
FIXED REMUNERATIONPAY FOR PERFORMANCE
2
TOTAL REMUNERATION EARNED
5
SALARYBENEFITS
1
FY20 EIP EARNED
3
(70%)
FY20 EIP DEFERRED TO FY23
4
(30%)
$1,950,000$153,410$2,214,576$949,104$5,267,090
1 Employer superannuation contribution includes portion paid on base remuneration and incentive earned.
2 Based on FY20 Group Scorecard results.
3 Subject to meeting the required short-term performance hurdles, this is due to be paid in October 2020.
4 Subject to meeting the required long-term performance hurdles, this is due to be paid in October 2023.
5 Not inclusive of the amount relating to the provision recognised by Fonterra in relation to the pending judicial interpretation of the Holidays Act 2003 in New Zealand.
People & CultureFood Safety
GROUP RISK
IT
Legal
Health & Safety
Milk Supply
Finance
Supply Chain
Environment
Fonterra Annual Report 2020
171170
Corporate Governance
As part of its risk management responsibility, the Safety and Risk
Committee receives regular reports of the emerging and existing key risks
and the measures in place to mitigate the impact of key risks on our Co-
operative.
The Safety and Risk Committee also receives regular reports on the health
and safety of our people as part of Fonterra’s risk management framework.
For further information about Fonterra’s Health & Safety performance in
FY20, please refer to the Health & Safety section on page 174.
Risk Management Focus in FY20
Throughout FY20, we have evaluated our risk appetite settings, revised our
risk management policy and framework, and strengthened the processes
for the identification and reporting of risks.
As part of our strategy refresh, our Group Risk Appetite settings were
assessed to provide clarity of the acceptable level of risk to be taken in
pursuit of our strategic objectives. This involved the Fonterra Management
Team and Board participating in risk identification, definition and appetite
workshops, further strengthening our ability to identify, define and
establish tolerance levels for the risks associated with implementing our
refreshed business strategy.
Strengthening the connectivity between our Co-operative’s first line
(bottom-up) and third line (top-down) of defence is crucial to ensure risk
management information, including the effectiveness of risk controls,
is captured and provided to both Management and the Board. This has
been reinforced in FY20 through the refresh of our Risk Management
Policy, Framework, and Standard, ensuring a consistent approach to risk
management is ingrained in our day-to-day operations at a business unit
level. This is monitored and measured via our integrated business planning
process, with oversight of the effectiveness of controls provided by our
annual audit plan.
Covid-19
Fonterra’s response to the global Covid-19 outbreak was first initiated in
January 2020. As with many businesses, the pandemic has had varying
levels of impact across our supply chain and within the global markets in
which we operate. Fonterra has utilised its Group Crisis Response plan
and Incident Management Team to enable an expedited and appropriate
response at each stage of the situation globally. Key impact areas include:
• Supply chain disruptions
• Health risks to our people
• Market volatility
• Social distancing and increased safety measures at our manufacturing
and distribution sites
• Fluctuations in customer demand and changes to global consumption
habits
Fonterra’s response to the pandemic is ongoing. To ensure the continuity
of Fonterra’s operations during FY21, a number of control measures have
been put in place to mitigate risks to our operations. While Fonterra’s
Incident Management framework has allowed our operations and core
business activities to continue, ongoing challenges will be presented to the
organisation by Covid-19. These challenges, which include the economic
impacts of the virus on the global markets in which we operate, will require
continued monitoring, analysis and management for a sustained period.
Key Risks
Fonterra’s Risk Management Framework focuses on the key risks Fonterra
faces globally in implementing our business strategy. Regular monitoring of
the risk environment occurs via our integrated business planning process,
specific technical risk councils and audit outcomes.
KEY RISKRISK DESCRIPTIONRISK MITIGATION MEASURES
Strategic DeploymentSub-optimal execution of healthy environment,
healthy people and healthy business strategic
initiatives.
• Integrated business planning enables regular
proactive monitoring of strategic deployment
milestones including forecast and interim
returns.
• Best practice programme management.
• Strong focus on capital expenditure and balance
sheet management.
Market Price and CurrencyThe risk that price movement within the global
dairy markets in which Fonterra operates is
not appropriately managed or responded to,
adversely impacting operations and profitability.
• Established financial assurance framework
including oversight from the Finance Risk
Committee.
• Regular review of policy settings, credit terms
and payment standards.
• Regular portfolio analysis and ongoing market
exposure assessments.
Environmental SustainabilityFailure to enact measures to mitigate the impact
or perceived impact of Fonterra’s activities on
the environment.
• Resourcing plans to make progress against
environmental targets. Please refer to pages 18
to 23 of this report for Fonterra’s sustainability
goals and performance.
• Proactive engagement with industry,
government and regulators.
Milk SupplyFonterra’s inability to retain milk supply due
to reduction of milk production driven by
disruption (weather/biosecurity event), reduced
returns and/or adverse regulatory settings.
• Strong financial performance.
• Our purpose–Good Together.
• On farm support services and frameworks.
• Supplier policy settings.
Market Access and GeopoliticalThe risk that changes within global markets,
including economic volatility, geopolitical
instability, market access and market
concentration adversely impact business
operations and sales.
• Trade strategy and advocacy.
• Active central portfolio management including
consideration of concentration risk.
Supply Chain Disruption to production through the inability to
maintain and/or effectively operate Fonterra’s
milk collection, manufacturing and supply chain
assets.
• Efficient collection, treatment and distribution
of milk.
• Strong focus on global supply chain
management, and proactive identification of
emerging risks.
• Established, robust business continuity plans to
address identified supply chain continuity risks.
Health, Safety & WellbeingFailure to manage the health, safety and
wellbeing of our people in the workplace.
• Zero tolerance for unsafe work practices.
• Mature reporting of events, near misses and
hazards in the enterprise wide First Priority
event management tool.
People & CultureThe risk that leadership, organisational culture,
and people management practices adversely
impact engagement and performance.
• Ensuring our Co-operative’s culture invites
communication of accepted behaviours,
values, leadership development and succession
planning.
• Global diversity and inclusion objectives in our
Healthy People strategy. Please refer to pages
24 to 31 of this report for Fonterra’s diversity
and inclusion goals and performance.
• The People & Culture function partners across
the business, providing advice, tools, processes
and policies to engage individuals, teams and
support performance.
Social Licence to OperateThe risk that Fonterra’s engagement with and
treatment of the communities, stakeholders and
environments where Fonterra operates globally,
fails to consider potential societal impacts, and
stakeholder interests.
• Our Purpose–Good Together.
• A dedicated Community engagement
programme.
Food Safety & Quality (FSQ)The risk that Fonterra manufactures and supplies
unsafe food or food that is perceived to be
unsafe, and/or product that does not meet local
and international standards and regulations.
• The FSQ framework is designed to ensure the
purchase, supply and production of food is
aligned with global regulatory standards as a
minimum.
• Third party providers undergo specific food
safety and quality audits by specialists from
Fonterra.
• External specialists provide independent audits
on manufacturing and product quality control
processes within Fonterra.
Legal & Regulatory Failure to manage or respond to changes in our
legal, regulatory and compliance obligations
within the markets, and geographies in which
Fonterra operates globally.
• Proactive engagement on regulatory and
contractual changes globally.
• Global Policy Framework.
Information Technology Failure to establish, maintain and safeguard an
appropriate information technology and data
management framework, including systems,
that ensure the confidentiality, integrity and
availability of our data, systems and supply chain.
• Reliable and trustworthy IT environment with
effective management of risk including cyber
security, data protection and data availability.
• Established IT disaster recovery plans.
Fonterra Annual Report 2020
173172
Corporate Governance
Health and Safety
It is fundamental to Fonterra that our people are healthy, live with balance
and go home safe from work every day, everywhere. This is a commitment
not just to employees, but also to the large number of contractors that
support our business every day.
Fonterra’s health and safety performance is measured using a number of
reactive and preventive, leading and lagging indicators. These include total
recordable injury frequency rate (TRIFR), number of serious harm injuries,
status of controls implemented as an outcome of self-assurance and
internal audits and serious event investigations.
Our TRIFR for FY20 is 5.8. On a like for like basis this is slightly higher than
last year, and higher than our industry best practice goal of 5.0. We have
had 10 serious harm injuries, compared to 18 in FY19 and 14 in FY18. We
are pleased to report that there have been no fatalities during FY20 across
our global footprint.
Keeping a continual focus on health, safety and wellbeing is essential, and
we have a number of targeted programmes of work underway to support
us to achieve this ambition – particularly around establishment of lead
indicators, mental health, critical risk, process safety and ensuring our
safety management system is robust and user friendly. Underpinning this is
a focus on maintaining a strong safety culture and employee engagement
in the process of managing risk.
PRINCIPLE 7: AUDITORS
Auditor Framework
The Audit and Finance Committee is responsible for making
recommendations to the Board regarding the appointment of the external
auditor. The external auditor is appointed by farmer shareholders at the
Annual Meeting. KPMG was appointed as Fonterra’s external auditor for
the financial year ended 31 July 2020.
Fonterra has a Group Audit Independence Policy. This policy ensures
that the ability of the auditor to carry out its statutory audit role is not
impaired, or could be perceived to be impaired. The policy sets out the
types of services that the auditor may undertake, those the auditor may
only undertake with the approval of the Audit and Finance Committee, and
those that are not permitted. The policy stipulates the rotation of the lead
external audit partner at least every five years.
As per the policy, all non-audit services to be undertaken by the auditor
require approval by the Chief Financial Officer or Director Group Finance.
Regardless of the nature of the services proposed, any engagements
exceeding a total of NZD200,000 must be approved by the Audit and
Finance Committee.
The Audit and Finance Committee reviews the independence of the
auditor, external audit fees, terms of engagement and the annual audit plan.
The Chairman of the Audit and Finance Committee communicates regularly
with the external auditor and the Audit and Finance Committee meets with
the external auditor without Management at least twice a year.
The fees paid to Fonterra’s auditor, KPMG, are detailed in Note 6 (page 98)
to the Financial Statements for the year ended 31 July 2020.
Annual Meeting
The external auditor is required to attend Fonterra’s Annual Meeting and
be available to answer questions from farmer shareholders in relation to
the audit.
Internal Audit
Fonterra has an internal audit function that provides independent and
objective assurance to both the Audit and Finance Committee and
Management on the adequacy of risk management, control and governance
processes.
Fonterra’s internal audit approach is based on the principle of line
management responsibility for risk and controls. Management is
responsible for implementing, operating and monitoring the system of
internal controls to provide reasonable assurance of achieving business
objectives. Internal Audit is responsible for:
• delivering a reasonable degree of assurance, as determined by the Audit
and Finance Committee, over business risk
• assisting the business with special reviews or investigations
• complying with the Internal Audit methodology
The appointment and removal of the Chief Internal Auditor (CIA) is subject
to the approval of the Audit and Finance Committee.
The CIA develops the annual internal audit plan, which is endorsed by the
Audit and Finance Committee, and is accountable for its implementation.
The Audit and Finance Committee monitors progress of the internal audit
plan implementation.
PRINCIPLE 8: SHAREHOLDER RIGHTS AND RELATIONS
Website
Fonterra‘s website (fonterra.com) provides investors and interested
stakeholders access to financial and operational information and key
corporate governance information about Fonterra as an issuer.
Shareholders’ Council
One of the Board’s most important relationships is with the Shareholders’
Council. The Council, Fonterra’s representative body, which is established
under the Constitution, is independent of the Board and as at 31 July 2020
comprised 25 farmer shareholders elected as Councillors, representing 25
wards across New Zealand. The Council was created to be the guardian
of the Co-operative Principles which apply to the cornerstone activities
of our Co-operative. The functions of the Council are set out in the
Constitution. The Council reviews the Board’s Statement of Intentions for
the performance and operations of the Group and publishes an annual
report, commenting on these matters.
The Council, Board and Management have a working interface document
which sets out the principles to facilitate the working partnership between
the Board, the Council and Management and the way operational issues
will be dealt with by the Board and the Council.
The working interface document is available on the Farm Source™ website.
The Council and the Board meet regularly, as do the Chairs of the Board
and the Council and the Chairs of their respective Committees.
Farmer Communications
Fonterra is committed to maintaining and improving communication
with its farmers. An extensive farmer and supplier relations programme
is managed by the Farm Source™ team. Channels for electronic
communication are provided through the Fonterra and Farm Source™
websites and the My Co-op mobile application. In addition, Fonterra
provides farmers with the ability to receive communications (such as the
Annual Report) from Fonterra electronically. Webcasts are used where
appropriate.
Fonterra’s communications with farmers include regular face-to-face
meetings, a regular Global Dairy Update, Farm Source™ magazine, My Co-
op application posts and regular emails from the Chairman, Chief Executive
Officer and Regional Heads. As described above, Fonterra releases all
material information to the NZX and ASX (where applicable), and complies
with the FSM Rules with respect to shareholder communications.
Farmer Meetings
A schedule of regular meetings with farmer shareholders, sharemilkers and
farm workers are usually held across the country at least twice each year.
Often these are run in conjunction with the Shareholders’ Council and
Farm Source™ regional teams. However, due to Covid-19 restrictions, this
year Fonterra has been unable to hold a number of these regular face-to-
face meetings and offered stakeholders the opportunity to attend a range
of online meetings instead.
Farmer Directors also regularly attend other farmer meetings during the
year on specific topics.
In addition, the Board consults with farmers on specific issues as they arise.
Fonterra.com and Farm Source™ Digital Tools
An overview of our Co-operative’s operations, financial presentations
and public announcements are all available on the fonterra.com website.
Fonterra also uses emails, including regular updates from the Chairman,
Chief Executive Officer and regular farmer updates to share information
with its stakeholders.
The Farm Source™ website enables farmer shareholders, their employees
and business partners to transact online with Fonterra and access
information and tools on milk production and quality, online statements
and up-to-the-minute news and weather. This site is also used to provide
information on the business to farmer shareholders.
The My Co-op application provides updated news and information
from across our Co-operative and the industry including milk price
announcements, updates from the Chairman and Chief Executive Officer.
The On Farm application provides daily milk production and quality
information, comparisons against last season volumes, tanker movements,
and summary reports of key milk performance information for the last
30 days.
Annual or Special Meeting
The Board views the Annual Meeting of farmer shareholders, which is held
at a different venue around New Zealand each year, as an opportunity to
communicate directly with farmer shareholders and the Board ensures
that adequate time is provided at these meetings for farmer shareholders
to raise issues or ask questions from the floor. The Chief Executive Officer
attends the Annual Meeting.
The Constitution describes the process whereby a farmer shareholder can
raise a proposal for discussion or resolution at the next meeting of farmer
shareholders at which the farmer shareholder is entitled to vote.
Notices of Annual or Special Meetings are sent to farmer shareholders
at least 10 working days before the meeting in line with Fonterra’s
Constitution and are published on fonterra.com.
Annual Report
The Group’s Annual Report, together with the half-year report and other
material announcements, are designed to present a balanced and clear view
of Fonterra’s activities and prospects and are available on fonterra.com.
Other Disclosures
Information on the Group’s performance, annual and half-year financial
results, Director changes, and other significant matters, is advised to the
market through the NZX and ASX in accordance with the Group Disclosure
Policy. Farmer shareholders and other stakeholders receive regular updates
on these and other issues relevant to them and all media and market
releases are available on fonterra.com.
Voting
Shareholders have the right to vote on major transactions (as defined
in the Companies Act 1993) as well as other major decisions that may
change the nature of Fonterra as prescribed by the FSM Rules. In particular,
FSM Rule 4.1.1 restricts Fonterra from entering into any transaction (or
series of linked or related transactions) which would significantly change,
indirectly or directly, the nature of Fonterra’s business or involves a gross
value above 50% of the average market capitalisation of Fonterra, unless
the transaction(s) is approved by (or is conditional on the approval of )
Fonterra’s shareholders.
In accordance with the co-operative nature of Fonterra, voting is based on
the quantity of milk solids supplied to Fonterra, backed by shares and is not
on the principle of one vote per share.
Fonterra Annual Report 2020
175174
Corporate Governance
Board of Directors
ANDY MACFARLANE
BOARD RESPONSIBILITIES Farmer-elected Director,
Member of the Appointments and Remuneration Committee,
the Audit and Finance Committee and the Co-operative
Relations Committee
TERM OF OFFICE Elected 2017, last re-elected 2019
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.
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PETER MCBRIDE
BOARD RESPONSIBILITIES Farmer-elected Director,
Chairman-elect, Member of the Appointments and
Remuneration Committee, the Audit and Finance Committee,
the Co-operative Relations Committee and the Governance
Development Committee
TERM OF OFFICE Elected 2018
Peter McBride was elected to the Fonterra Board in 2018
and was announced as Chairman-elect in June 2020. 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 Chief Executive Officer of Trinity Lands Limited
and 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.
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JOHN NICHOLLS
BOARD RESPONSIBILITIES Farmer-elected Director,
Member of the Co-operative Relations Committee and the
Safety and Risk 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 Post Graduate
[TRUNCATED]
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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