Fonterra announces FY22 Annual Results
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 2022
Previous Reporting Period 12 months to 31 July 2021
Currency NZD
Amount (000s) Percentage change
Revenue from continuing operations $22,953,000 12%
Total Revenue $23,425,000 11%
Net profit from continuing operations $661,000 24%
Total net profit $583,000 (3%)
Final Dividend
Amount per Quoted Equity Security $0.15
Imputed amount per Quoted Equity Security Not Applicable
Record Date 29 September 2022
Dividend Payment Date 14 October 2022
Current period Prior comparable period
Net tangible assets per Quoted Equity
Security
$2.86 $2.87
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
Please refer to the audited financial statements for further
explanation.
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 22/09/2022
Audited financial statements accompany this announcement.
---
22 September 2022
Fonterra announces FY22 Annual Results
• Total Group Revenue: NZ$23.4 billion, up 11%
• Reported Profit After Tax: NZ$583 million, down 3%
• Normalised Profit After Tax: NZ$591 million, up 1%
• Total Group normalised EBIT: NZ$991 million, up 4%
• Net Debt: NZ$5.3 billion, up NZ$1 billion
• Normalised earnings per share: 35 cents per share, up 1 cent
• Final 2021/22 Farmgate Milk Price: NZ$9.30 per kgMS
• FY22 Total Dividend: 20 cents per share (interim: 5 cents; final: 15 cents)
• Milk collections: 1,478 million kgMS, down 4%
• NZ$13.7 billion delivered to the New Zealand economy through the Farmgate Milk Price pay-out to
farmers
• FY23 Outlook: Forecast 2022/23 Farmgate Milk Price range of NZ$8.50–$10.00 per kgMS, with a
midpoint of NZ$9.25 per kgMS. Forecast 2022/23 normalised earnings guidance range of 45-60
cents per share.
Fonterra today announced a strong set of results for the financial year ending 31 July 2022, reflecting a
2021/22 Farmgate Milk Price of NZ$9.30 per kgMS and normalised profit after tax of NZ$591 million.
With a total dividend of 20 cents per share to our fully shared-up farmers – comprising of an interim
dividend of 5 cents per share and a final dividend of 15 cents per share – the final cash pay-out for
farmers is $9.50.
Total Group normalised Earnings Before Interest and Taxes (EBIT) was NZ$991 million, up NZ$39 million
or 4% on the prior year.
Chief Executive Miles Hurrell says despite the challenges including increased costs associated with
supply chain volatility, 2021/22 was a good year for the Co-op.
“These results demonstrate that our decisions relating to product mix, market diversification, quality
products and resilient supply chain, mean the Co-op is able to deliver both a strong milk price and robust
financial performance in a tough global operating environment.
“The Co-op is pleased to be able to pay a total dividend of 20 cents per share for our farmer owners and
unit holders. And this year’s higher Farmgate Milk Price is the strongest it has ever been, which is great
news for our farmers. New Zealand also benefits from this, with $13.7 billion returned into the economy in
milk price payments alone this year.
“Importantly, one year on, the Co-op is making tangible progress against our strategy – namely to focus
on New Zealand milk, be a leader in sustainability and a leader in dairy innovation and science.
Fonterra Co-operative Group
Page 2
“As part of the strategic review of the ownership of our milk pools outside New Zealand, we continue to
make progress, with the sales process for the Soprole business progressing. Meanwhile, we’ve looked at
a number of options for our Australian business and have decided that it’s in the Co-op’s best interests to
maintain full ownership.
“Australia plays an important role in our consumer strategy with a number of common and complementary
brands and products and as a destination for our New Zealand milk solids. The business is going well,
and it will play a key role in helping us get to our 2030 strategic targets.
“As part of our strategy to 2030, we set a goal of a return of about $1 billion to shareholders and
unitholders which anticipated divestments including Soprole and a stake in our Australian business. Even
though we have decided not to sell a stake in our Australian business, we are still committed to targeting a
significant capital return to our shareholders and unitholders. The amount of any capital return will
ultimately be determined on a number of factors including the successful completion of the divestment
programme as well as our ongoing debt and earnings levels.
“Our positive performance in 2021/22 would not have been possible without the continuing hard work of
employees and our farmer owners, and I want to thank every one of them for their commitment and
support.”
Performance
Mr Hurrell says despite tight supply there was robust demand from global customers for dairy, which has
helped Fonterra deliver a strong milk price and financial performance.
“Total Group Revenue increased $2.3 billion to $23.4 billion due to higher product prices, but sales
volumes decreased in FY22 due to short-term shifts in demand and ongoing shipping and supply
disruptions.
“Strong margins in the Ingredients channel, particularly in the final quarter, resulted in an increase in our
gross profit. However, total gross margin was down due to the higher cost of milk on our Foodservice and
Consumer channels during the year.
“Our Total Group normalised EBIT of NZ$991 million, up 4%, reflects improved margins in our Ingredients
channel but is partially offset by the higher milk price which placed pressure on margins in our Consumer
and Foodservice channels.
“A series of geopolitical and economic events also impacted our performance – including a NZ$80 million
adverse revaluation of the Co-op’s Sri Lankan business payables, due to the devaluation of the rupee.
“Total Group operating expenses were up in FY22, by 7% to NZ$2.4 billion, with underlying operating
expenses increasing due in part to inflationary pressures and supply costs.
“Our normalised profit after tax of NZ$591 million was up 1% on last year, due to higher earnings.
“We have higher inventory than usual at the end of the 2022 financial year due to stronger milk collections
towards the end of the season coinciding with factory constraints, short-term impacts on demand and
shipping disruptions. 88% of our year inventory is contracted, which means the sale price has been
agreed and the product contracted, however the inventory had not been shipped at the balance date. The
first six weeks of the new financial year have showed good progress with shipment of this inventory. We
have flexibility in relation to inventory levels due to the strength of our balance sheet.
“The increased inventory, coupled with the higher milk price, has also increased our working capital
throughout the year, and our net debt position at year end. Our net debt was NZ$5.3 billion, up NZ$1
billion, and as a result our Debt/EBITDA ratio increased to 3.2x from 2.7x and our gearing ratio increased
from 38.5% to 42.4%. We expect these measures to improve as our working capital returns to normal
levels. Even with the higher working capital, our return on capital has increased from 6.6% to 6.8%, as a
result of the improvement in our EBIT.
Fonterra Co-operative Group
Page 3
Mr Hurrell says FY22 saw a mixed performance across Fonterra’s three regional markets.
“Africa, Middle East, Europe, North Asia, Americas (AMENA) normalised EBIT was NZ$527 million, up
57%, due to the improved gross margin in its Ingredients channel. Asia Pacific (APAC) normalised EBIT
was NZ$237 million, down 22%, with the improved performance in APAC’s Ingredients channel more than
offset by the somewhat weaker Consumer and Foodservice channels. Greater China normalised EBIT
was NZ$432 million, up 7%, with an improved performance in its Ingredients channel partially offset by
lower margins in the Foodservice and Consumer channels, as a result of the higher cost of milk.
Strategy
Mr Hurrell says it’s been a year since the Co-op announced its long-term strategy.
“While it’s still early days and the shift from reset to growth continues, I am pleased with the progress we
are making driving greater customer value and meeting the increasing demand for sustainable dairy and
innovative nutrition and science solutions.
“Over the past 12 months we have been working through how we adapt our organisational structure to
accelerate progress against our strategy. To grow the value we derive from our New Zealand milk through
our sustainability credentials, innovation, and nutrition science, we have established two new Fonterra
Management Team (FMT) roles. These two roles and the subsequent structural realignment serve to
increase visibility and focus on innovation and strategic implementation – and drive performance in these
areas.
“We continue to believe that New Zealand milk is the highest quality and most sought-after milk in the
world. Our milk has a carbon footprint, one third the global average for milk production due to our grass-
fed farming model. Pleasingly, the Co-op has maintained its share of the New Zealand milk supply market
in a very competitive market.
“We’ve also made progress with our capital restructure and will continue to engage with Government. We
believe a globally competitive farmer owned Co-op is in the best interests of the dairy industry, rural
communities and New Zealand.
“Equally in the 12 months to 31 July 2022, Fonterra has continued to strive for a better future for the
environment upon which we depend and has made solid progress against some of our key sustainability
targets. Water use by manufacturing sites in water-constrained regions reduced, now 6.6% below FY18
baseline, and around 71% of shareholder farms now have a Farm Environment Plan – a substantial
undertaking by our Farmer Shareholders and the Farm Source team.
“To respond to the ongoing expectations of customers and communities for more sustainable products,
we have continued to reduce our greenhouse gas emissions, and transition away from the use of coal.
We continue to progress the decarbonisation of our light and heavy vehicle fleets, and we have
progressed the on-farm trial of Asparagopsis seaweed as supplemental feed for dairy cows. We are also
working in partnership with the New Zealand Government on an agricultural emissions partnership.
“The Co-op is absolutely committed to taking a leadership position in sustainability right across our value
chain, investing significantly to provide leadership against global competitors and to build long-term
resilience.
“In 2021/22 Fonterra continued its long and proud heritage of dairy innovation, to solve problems our
customers face in their operations and to help people around the world live healthier and longer lives.
“We have continued to lead the way in dairy science and innovation, both in the products we’re innovating
and the way in which we innovate. Two examples of this innovation are the MinION genome sequencing
device, which provides dairy DNA results at pace and at a quarter of the previous cost, and the launch of
an exciting new Whey Protein Concentrate (WPC) which can be used to create different textures in high
protein yoghurt.
Fonterra Co-operative Group
Page 4
“In summary, in 2021/22 we have made good progress in the implementation of our strategy to increase
the value of every drop of milk and deliver higher returns. We look forward to reporting further progress
updates in the future, and we remain committed to delivering our 10-year aspirations,” says Mr Hurrell.
FY23 Outlook
Fonterra has announced a forecast 2022/23 Farmgate Milk Price range of NZ$8.50–$10.00 per kgMS,
with a midpoint of NZ$9.25 per kgMS. The Co-op also forecasts 2023 normalised earnings guidance of
45-60 cents per share.
“The longer-term outlook for dairy remains positive. And in the medium-term, we expect to see an easing
in some of the geopolitical events, namely the COVID-19 lockdowns in China and the economic
challenges in Sri Lanka. This has been reflected in our earnings guidance and forecast Farmgate Milk
Price for the 2022/23 season.
“We continue to monitor a number of risks. The strength of our balance sheet means we remain in a
strong position to weather uncertainty and market volatility. Our ability to refocus our product mix through
our diverse and flexible operations footprint, means the Co-op’s milk will continue to be delivered to
wherever the most value can be obtained for our farmer owners.
“The future for our Co-op is exciting,” says Mr Hurrell.
ENDS
Non-GAAP financial information
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or
specified by 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. Non-GAAP measures are not subject
to audit unless they are included in Fonterra’s audited annual financial statements.
Please refer to the non-GAAP measures section in Fonterra’s 2022 Annual Review for reconciliation of NZ IFRS to non-GAAP
measures, and the Glossary for definitions of non-GAAP measures referred to by Fonterra.
For further information contact:
Fonterra Communications
24-hour media line
Phone: +64 21 507 072
About Fonterra
Fonterra is a co-operative owned and supplied by about 9,000 farming families in Aotearoa New Zealand. Through the
spirit of co-operation and a can-do attitude, Fonterra’s farmers and employees share the goodness of our milk through
innovative consumer, foodservice and ingredients brands. Sustainability is at the heart of everything we do, and we’re
committed to leaving things in a better way than we found them. We are passionate about supporting our communities
by Doing Good Together.
---
Confidential to Fonterra Co-operative Group
2
Farmgate Milk Price
Dividend
Reported profit after tax¹
Normalised profit after tax¹
²
Note: Figures are Total Group, which includes continuing and discontinued operations
1. Includes amounts attributable to non-controlling interests
2. Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax
attributable to non-controlling interests
3
Monthly Milk Price 2020/2021 Season
Monthly Milk Price 2021/2022 Season
Reference product shipment price² ³
Non-reference product shipment price² ⁴
1.Source: GlobalDairyTrade
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and Butter prices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
31 May31 Aug30 Nov28 Feb
(US$/MT)
31 Jul 2131 Jan 22
¹
31 Jul 22
H1 FY22H2 FY22
31 May
(NZ$)
4
Lower milk
volume to convert
into product
Increased costs
mainly due to
inflationary pressure
on cash costs
5
6
Asia PacificAMENAGreater China
20212022
% of milk solids% of milk solids
GDTCoreActive LivingFoodserviceConsumer
Note: The tables are prepared on a continuing operations basis.
7
¹
¹²
³
Note: Figures are for the year ended 31 July
1.Prepared on a normalised continuing operations basis. Normalised EBIT contributions sum to $1,196 million, and does not aligntoreported continuing operations due to excluding unallocated costs and eliminations. Comparative
information includes re-presentations for consistency with the current period
2.Inclusive of Group Operations’ EBIT attribution
3.Includes $(80) million adverse revaluation of payables in Sri Lanka
8
million2021¹%Δ²
Sales volume (‘000 MT)4,102(4)%
Revenue ($)21,124 11%
Cost of goods sold ($)(18,010)(12)%
Gross profit ($)3,114 7%
Gross margin (%)14.7%
Operating expenses ($)(2,242)(7)%
Other³ ($)80 (40)%
Normalised EBIT($)952 4%
Normalised profit after tax⁴($) 588 1%
Normalised EPS⁵ (cents)34 3%
Note: Total Group figures are for the year ended 31 July. This includes continuing and discontinued
operations and are on a normalised basis unless otherwise stated
1.2021 performance includes Ying and Yutian China Farming hubs and China Farms joint venture,
which were sold during FY21
2.Percentages as shown in the table may not align to the calculation of percentages based on numbers
in the table due to rounding of figures
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity
accounted investees
4.Includes amounts attributable to non-controlling interests
5.Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax attributable to
non-controlling interests
9
20182019202020212022
Net Debt ($ billion)
-1
0
1
2
3
4
5
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
20182019202020212022
Gearing Ratio² (%)Debt to EBITDA (x)
20182019202020212022
Working Capital Days
20182019202020212022
Return on Capital (%)
Note: Figures are for the year ended 31 July except where otherwise stated
1.As at 31 July. Refer to Glossary for definition
2.Comparative figures are shown on a consistent basis with current year
10
11
NEXT
5 YEARS
NEXT
10 YEARS
NEXT
15 YEARS
12
EBIT increase
from FY21
Return on capital
in sustainability moving more milk to
higher value products
Intended to be distributed to shareholders after asset sales
Increase dividends to
cents per share
per annum in
R&D
for mix of
investment in
further growth and
return to
shareholders
Aspiration to be
Note: These targets are based on assumptions and risks that are set out in the Appendix to the booklet Our Path to 2030,including the assumption of an average Farmgate Milk Price for the decade of $6.50 -$7.50 per kgMS.
We are aiming to achieve these targets and they should not be taken as forecasts or guarantees of returns. They are subject to successfully completing a number of business initiatives.
13
FY20
Actual
FY21
Actual
FY22
Forecast
FY24
Year 3Target
FY27
Year6Target
Improved performance
Milk Price per kgMS ($)$7.14$7.54
NormalisedEBIT ($m)$879m$952m$875-$975m$1,025-$1,125m$1,150-$1,250m
Earnings per share (CPS) 24c34c25-40c45-55c50-60c
Return on capital6.6%6.6%6.5-7.0%7.0-8.0%7.5-8.5%
Financial position
Capital investment ($m)$525m$608m$650m$980m$980m
Debt toEBITDAratio3.3x2.7x2.4x¹<2.5x<2.5x
Gearing ratio44%39%35%¹<35%<35%
Dividendto shareholders
Dividends (CPS)5c20c15-20c22-27c30-35c
1.Calculated using an EPS of 35 cents
Note:The figures in this table which relate to dates in the future are targets we are aiming to achieve only. Theyshould not be taken as forecasts or as a guarantee of returns to shareholders.The target years assume long-term
average levels of price relativity and lag pricing impacts, and individual years are likely to vary from this assumption.Please refer to the important cautions and disclaimer at the beginning of this document and the key assumptions and
risks in the Appendixof the booklet titled Our Path to 2030for further details.
14
15
16
Full and accurate Farm Dairy
Records kept and submitted
by 30 June 2022
Have and implement an Animal
Wellbeing Plan developed on
farm with your vet
Farm Environment Plan in
place with three out of five
key practices being achieved
Complete the DairyNZ
Workplace 360 Assessment
and achieve 100% on Part 1
17
18
2022/23 Forecast Farmgate Milk Price
per kgMS
Midpoint of per kgMS
Forecast Earnings
per share
2022 Annual Results
21
•Fonterra has delivered a higher Farmgate Milk Price and strong
earnings, total pay-out of $9.50 per kgMS
•Diversified and resilient earnings –top end of guidance
•Good progress on key drivers of our strategy, focusing on New
Zealand milk, sustainability, and dairy innovation and science
•Increased working capital has driven higher debt levels but will
improve as working capital returns to normal levels in FY23
•Continued strong dairy industry fundamentals
¹
¹
²
Note: Figures are Total Group, which includes continuing and discontinued operations
1.Includesamounts attributable to non-controlling interests
2.Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax
attributable to non-controlling interests
Reference product shipment price² ³
Non-reference product shipment price² ⁴
Monthly Milk Price 2020/2021 Season
Monthly Milk Price 2021/2022 Season
1.Source: GlobalDairyTrade
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butterprices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
•Consistently higher monthly milk price across
the 2021/22 season compared to prior season
•The average of the monthly milk prices are
equivalent to $7.54 and $9.30 for 2020/21 and the
2021/22 seasons, respectively
•Narrow price relativities in the first half; strong
increase in non-reference product prices improving
price relativities in second half
•More favourablethan expected price relativities
contributed to stronger fourth quarter earnings
6.00
10.00
(NZ$)
31 May31 Aug30 Nov28 Feb
8.00
Monthly Milk Prices
22
3,000
4,000
31 Jul 2131 Jan 22
Reference and non-reference
price relativities on GDT¹
(US$/MT)
31 Jul 22
,
,
H1 FY22H2 FY22
5,000
6,000
31 May
FY21
Farmgate
Milk Price
FY22
Farmgate
Milk Price
VolumeProduct
prices
Revenue
Foreign
exchange
Net
costs
1
•Lower milk volume to convert into product
•Product prices increased, with the average WMP
price in the 2022 season 20.9% higher at
US$4,019 per metric tonne compared to US$3,323
per metric tonne in the prior year
•Impact of foreign exchange increased as a result
of the higher hedged rate due to the NZ dollar
strengthening over the prior seasons
•Increased costs mainly due to
inflationary pressure on cash costs
1. Net costs include capital costs and cash costs
•Increased revenue from higher product prices, partially offset by
lower sales volumes reflecting lower milk collections in the first
nine months of the year and shipping disruptions
•Higher gross profit despite increased cost of milk, driven by
gross margin achieved in Ingredients, particularly in the
protein portfolio
•Operating expenses up due to inflationary pressures, supply
chain disruption and impairment of some of our Asia brands⁶
•‘Other’ includes $(80) million adverse revaluation of the
Sri Lankan business payables due to devaluation of the rupee
•Normalisedprofit after tax is up $3 million, due to higher
earnings and favourableinterest expense
million
¹
∆²
Sales volume (‘000 MT)
Revenue ($)
Cost of goods sold ($)
Gross profit ($)
Gross margin (%)
Operating expenses ($)
Other
³
($)
Normalised EBIT($)
Normalised profit after
tax
⁴
($)
Normalised EPS
⁵
(cents)
24
Note: Total Group figures are for the year ended 31 July. This includes continuing and discontinued
operations and are on a normalised basis unless otherwise stated
1.2021 performance includes Ying and YutianChina Farming hubs and China Farms joint venture,
which were sold during FY21
2.Percentages as shown in the table may not align to the calculation of percentages based on numbers
in the table due to rounding of figures
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity
accounted investees
4.Includesamounts attributable to non-controlling interests
5.Attributable to equity holders of the Co-operative, excludes $23 million of normalised profit after tax
attributable to non-controlling interests
6.The impairment includes a $22 million impairment of Anlene, an $11 million impairment of Anmumand a $1
million impairment of Chesdale, with the carrying amount of these brands now at $336 million as at 31 July
2022. Our Asia brands also include Anchor which was not impaired
GDTCoreActive LivingFoodserviceConsumer
20212022
25
Ingredients
•A key driver of our strategy and earnings growth is
shifting milk into higher margin products
•Active Living allocation increased as demand for
milk protein concentrate, casein and caseinate
products grew
•Foodservice allocation has continued to grow as
innovation enabled us to expand the uses of
UHT cream
•Percentage of milk solids in our Consumer channel
reduced due to limiting sales volumes in Sri Lanka
while the crisis unfolds
26
¹
¹²
³
Q1Q2Q3Q4Q1Q2Q3Q4
Note: Figures are for the year ended 31 July
1.Prepared on a normalised continuing operations basis. Normalised EBIT contributions sum to $1,196 million, and does not aligntoreported continuing operations due to excluding unallocated costs and eliminations. Comparative
information includes re-presentations for consistency with the current period
2.Inclusive of Group Operations’ EBIT attribution
3.Includes $(80) million adverse revaluation of payables in Sri Lanka
¹²
¹
²
Note: Figures are for the year ended 31 July and prepared on a normalised continuing operations basis. Comparative information includes re-presentations for consistency with the current period
1.Eliminations and unallocated costs
2.Includes $(80) million adverse revaluation of payables in Sri Lanka
27
91.4%
91.9%
94.0%
95.0%
94.5%
20182019202020212022
$95m
$90m
$58m
$58m
$72m
20182019202020212022
•As we shift our product mix towards
higher value products manufacturing
complexity increases. We expect to
return to our underlying upward trend
•Higher value of milk per tonne, two
specific bacterial issues in NZ and an
ingredient formulation issue
contributed to higher cost of quality.
The cost is equivalent to 0.4% of NZ
cost of goods sold
96.2%
96.4%96.4%96.4%
96.5%
20182019202020212022
28
Note: Metrics are for the year ended 31 July
•Increased utilisationof milk solids
while manufacturing a more complex
product mix as we shift volume to our
Active Living portfolio, including
manufacturing 8% less WMP
6.6
6.0
5.2
4.3
5.3
20182019202020212022
Net Debt ($ billion)
50%50%44%39%42%
4.64.3
3.3
2.7
3.2
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
20182019202020212022
Gearing Ratio² (%)
Debt to EBITDA (x)
29
•Our ‘A band’ credit rating and key metrics
demonstrate our strong balance sheet position
•These metrics have increased but will improve as
working capital returns to normal levels
throughout FY23
oFY23 sales and shipping profile supports
inventory levels returning to normal
•Improved return on capital due to higher earnings
offsetting the impact of additional working capital on
our capital employed
Note: Figures are for the year ended 31 July except where otherwise stated
1.As at 31 July. Refer to Glossary for definition
2.Comparative figures are shown on a consistent basis with current year
82.7
82.8
84.8
90.6
95.7
20182019202020212022
Working Capital Days
6.2%
5.6%
6.6%
6.6%
6.8%
20182019202020212022
Return on Capital (%)
1.Excluding working capital
2.Includes supplier payables and other movements
30
FY21
net debt
Increase in
working
capital
Operating
cashflows
1
Interest,
dividend &
other
Net capex &
investments
FY22
net debt
Increase in working capital
Receivables
Payables
& other
2
Inventory
•Strong balance sheet enabled us to hold higher
working capital through year end
•Increase of $1.6 billion in working capital resulted in
an increase in year end net debt of $1.0 billion
o88% of total inventory was priced and
contracted but not shipped at year end
•Net debt position willimprove as working capital
returns to normal levels throughout the year
oFY23 sales and shipping profile supports
inventory levels returning to normal
20182019202020212022
Other capital investedBusiness growth capital expenditure
Essential capital expenditure
•Total capital invested was $617 million, comprised of
capital expenditure of $587 million and other capital
invested of $30 million
•Of the $587 million capital expenditure:
o$534 million was allocated to essential projects
to maintain and improve existing assets
o$53 million was allocated to business growth
projects to drive future earnings growth
•The $30 million of other investments mainly
comprised of right-of-use assets and equity
investments, including investment in new
innovation opportunities
Note: Refer to Glossary for definition of capital invested and capital expenditure
31
32
•The majority of our capital invested is allocated to
Group Operations to ensure our processing sites
are fit for purpose
•Key projects for FY22 include:
owastewater upgrades at our Te Awamutu and
Tirausite
obiomass boiler installation to replace coal at
several sites
oimproving refrigerant technology at Whareroa
•Asia Pacific’s capital spend included acquiring a
secondary cheese processing site in Australia to
further expand our cheese manufacturing lines
•Reducing annual manufacturing emissions by
converting coal boilers to wood biomass:
ocompletion of Te Awamutu in FY21 reduced
our emissions from coal by more than 9%
3
.
The project cost $11 million
oStirling to be completed during FY23 will
reduce our emissions from coal by about 2%
3
.
The project is expected to cost $30 million
oone boiler at Waitoa to be completed in FY24.
Expected to reduce our emissions from coal
by more than 5%
3
. The project is expected to
cost $102 million
24,456
23,622
23,328
22,353
2,201
2,115
2,043
1,944
FY18 - baselineFY20FY21FY22
FarmingManufacturingDistribution and other
891
894
795
766
1,310
1,221
1,248
1,178
FY18 - baselineFY20FY21FY22
CoalOther
²
¹²
2,115
2,043
1,944
2,201
1.Farming and Manufacturing emissions do not add to Total GHG emissions. Distribution and other emissions are not displayed, theseare less than 1% of our total emissions
2.Measured in 000’s tC0
2
-e
3.Relative to FY18, the baseline year
26,867
25,931
25,572
33
24,480
•Return on capital improved from 6.6% to
6.8%, reflecting:
oincrease in normalised EBIT, partially
offset by;
oadditional working capital increasing
our average capital employed
•The impact on the average capital
employed from the higher working capital
in the second half was largely offset by
lower net debt in the first half
34
EBIT increase
from FY21
Return on capital
PERFORMANCE TARGETS
in sustainability
invested in moving more
milk to higher value
products
INVESTMENT
DISTRIBUTION
OF FUNDS
Intended to be distributed to shareholders
after asset sales
Increase dividends to
cents per share
per annum in
R&D
for mix of investment in
further growth and return
to shareholders
Aspiration to be
Note: These targets are based on assumptions and risks that are set out in the Appendix to the booklet Our Path to 2030,including the assumption of an average Farmgate Milk Price for the decade of $6.50 -$7.50 per kgMS.
We are aiming to achieve these targets and they should not be taken as forecasts or guarantees of returns. They are subject to successfully completing a number of business initiatives.
35
OUR STRATEGIC CHOICES
36
30 Nov 22
per kgMS
2021/2022
Season
2020/2021
Season
2022/2023
Season
Forecast
(US$/MT)
Source: GlobalDairyTrade. Data is up to GDT event 315 on 6 September 2022
1.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butter prices
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reportingpurposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3.The contracted shipment price is the weighted average shipment price of GDT contracts won 1 to 5 months prior on the GDT platform. These contracts are yet to be shipped or invoiced and the weighted average price will change closer to
the actual shipment date as new contracts are written
•Midpoint of $9.25 per kgMS reflects:
oconstrained supply as growth from key milk
producing regions expected to remain low
ocontinuing strong underlying demand
•The wide range reflects several risks, such as
COVID-19 and macroeconomic factors, including
global inflation, global economic growth and volatility
in foreign exchange markets
3,000
4,000
37
,
,
31 May 2031 May 2131 May 22
Reference product shipment price¹ ²
Reference contract product shipment price¹ ³
Average reference product shipment price for the season
per share
Source: GlobalDairyTrade. Data is up to GDT event 315 on 6 September 2022
1.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reportingpurposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
2.The contracted shipment price is the weighted average shipment price of GDT contracts won 1 to 5 months prior on the GlobalDairyTradeplatform. These contracts are yet to be shipped or invoiced and the weighted average price will
change closer to the actual shipment date as new contracts are written
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butter prices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
4,000
5,000
FY22
H1
FY23
H1
•The range reflects:
ocontinuingstrong underlying demand
osustained favourableprice relativities between
our reference and non-reference portfolios
oprotein portfolio contract rate well positioned for
this stage of the season
(US$/MT)
,
,
,
,
FY22
H2
38
31 Jul 2131 Jan 2231 Jul 2231 Jan 23
Reference product shipment price¹ ³
Non-reference product shipment price¹ ⁴
Reference product contract shipment price² ³
Non-reference product contract shipment price² ⁴
31 Jan 23
39
¹
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalisedbasis unless stated otherwise
1,505
1,523
1,517
1,539
1,478
20182019202020212022
NZ Milk Collection (million kgMS)
2,496
2,282
2,323
2,242
2,397
20182019202020212022
Opex ($ million)
3,152
3,008
3,208
3,114
3,340
20182019202020212022
Gross Profit ($ million)
20.4
19.9
21.0
21.1
23.4
20182019202020212022
Revenue ($ billion)
4,123
4,152
4,069
4,102
3,924
20182019202020212022
Sales Volume ('000 MT)
$6.69$6.35$7.14$7.54$9.30
$0.10
$0.00
$0.05
$0.20
$0.20
20182019202020212022
Milk Price ($)Dividend ($)
$6.79
$6.35
$7.19
$7.74
$9. 50
40
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalised basis unless stated otherwise
2.Includes amounts attributable to non-controlling interests
3.Refer to Glossary for definition
4.Comparative figures are shown on a consistent basis with current year
²
³
²
¹
50.1%49.5%44.2%38.5%42.4%
4.6
4.3
3.3
2.7
3.2
20182019202020212022
Gearing Ratio⁴ (%)
Debt to EBITDA (x)
861
600
419
545
587
161
124
106
63
30
20182019202020212022
CapexOther
(196)
(610)
659
599
583
20182019202020212022
Reported NPAT ($ million)
407
275
398
588
591
20182019202020212022
Normalised NPAT ($ million)
262
(17)
1,147
959
976
20182019202020212022
Reported EBIT ($ million)
902
812
879
952
991
20182019202020212022
EBIT ($ million)
1,022
724
525
608
617
41
²
²
1.Total Group figures for the year ended 31 July. This includes continuing and discontinued operations, and are on a normalised basis unless stated otherwise
2.Refer to Glossary for definition
¹
6.2%
5.6%
6.6%
6.6%
6.8%
20182019202020212022
Return on Capital (%)
24
16
24
34
35
20182019202020212022
Normalised EPS (cents)
83
83
85
91
96
20182019202020212022
Working Capital Days
600
1,095
1,828
1,417
(324)
20182019202020212022
Free Cash Flow ($ million)
42
0
10
20
30
40
50
60
70
80
90
JunJulAugSepOctNovDecJanFebMarAprMay
SeasonTotal Milk Solids
(kgMS)
Peak Day
Milk
2019/201,517m (down 0.4%)83m litres
2020/211,539m (up 1.5%)
83m litres
2021/221,478m (down 4.0%)
80m litres
Volume (m litres/day)
•Fonterra’s NZ milk collection for the 2021/22
season reached 1,478 million kgMS, a 4.0%
decrease on last season
•Cold and wet spring with limited sunshine
affected pasture growth and collections early
in the season
•Improved North Island collections later in the
season due to favourable growing
conditions, offset by hot and dry conditions
in lower South Island
•Rain at the very end of the season allowed
for pasture covers to recover, ahead of the
new season
•Maintained NZ milk market share at 79.1%
43
¹¹¹¹
²
1.RefertoNote1aand2boftheFY22AnnualFinancialStatements
2.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees accounted investees
44
45
¹
²
¹
²
1.Includesamountattributabletonon-controllinginterests
2.Attributable to equity holders of the Co-operative
46
¹
¹
²
³
•Total dividend of 20 cents per share
oInterim dividend of 5 cents
oFinal dividend of 15 cents
•Final dividend of 15 cents per share will be paid on
14 October, with interim dividend of 5 cents per
share having been paid on 14 April
•Total dividend represents 59% of
attributable earnings
1.Attributable to equity holders of the Co-operative, excludes non-controlling interest
2.Represents net earnings as specified in the Dividend Policy and is calculated as reported profit after tax less abnormal gains
3.FY21 includes the reversal of previous impairment of our China Farms
47
Increase in
working capital
Inventory
Receivables
Payables &
other¹
FY21 inventory
value
FY22 inventory
value
Cost Volume
599
(‘000 MT)
725
(‘000 MT)
48
1. Includes supplier payables and other movements
•Significantly higher working capital throughout the year
and year end, up $1.6 billion, reflecting:
ohigher milk price –impacts both receivables and
inventory
ohigher levels of inventory throughout second half and
year end
•Higher year end inventory reflects late season milk
production coinciding with shipping constraints
o88% of total inventory was priced and contracted but
not shipped at year end
oFY23 sales profile and shipping schedule supports
inventory levels returning to normal levels
¹
²
³
Note: Comparative figures are shown on a consistent basis with current year
1.Includes EBIT, non-cash and non-operating adjustments made to EBIT to determine cash generated from operations
2.Capital expenditure presented in this table is different to capital expenditure on the Capital Invested page primarily due totreatment of livestock and accruals
3.Net debt includes amounts attributable to disposal groups held for sale
•Increase in net debt of $1 billion mainly due to
higher working capital and lower proceeds from
asset sales
•Free cash flow of $(324) million was $1.7 billion
lower than last year, which reflects:
ocash generated from operations increased
$479 million due to strong underlying
performance, offset by;
oincrease in working capital $(1.6) billion due
to the higher milk price and inventory levels
onet cash flows from investing activities down
by $740 million, with prior year benefiting from
asset sales
49
²
1.Includes undrawn facilities and
commercialpaper. DCM is debt capital
markets
2.Excluding commercial paper
3. Undrawn facilities includes $0.4bn stepped
down during the year, reinstated from
1 Sept 2022
4. WATM is weighted average term to maturity
Note: As at 31 July 2022 and excludes
amounts attributable to disposal groups
held for sale
0.01.02.03.0
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
0.01.02.03.0
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
$ billion
WATM
4
: 3.5 years
$ billion
WATM
4
: 3.6 years
Undrawn
Facilities
3
$2.7bn
73%
Drawn Facilities
$1.0bn
27%
EUR/GBP
15%
AUD DCM
10%
CNY DCM
2%
NZD DCM
7%
USD DCM
16%
Bank
Facilities
50%
¹
50
50
1.Normalised basis. Does not align to FY22 Annual Financial Statements, predominately due to
additional categories
2.$59 million of ‘Other’ expenses have been reclassified to Administrationexpenses for consistency with the
current period
¹²
51
•Total Group operating expenses increased $155 million
reflecting:
oinflationary pressure and supply chain disruptions
increased distribution & storage, and administration
expenses by $81 million
oincreased ‘Other’ expenses of $56 million reflects Asia
brands impairment and costs associated with discontinuing
some products that are not aligned with our strategy
•Unallocated costs decreased $18 million due to releasing a
provision held at Group level
•Increased costs in discontinued operations due to higher
distribution and storage costs in DPA Brazil
¹
1.Refer to Glossary for definition
2.Normalised basis
²
1.Refer to Glossary for definition
2.Normalised basis
52
•Unallocated costs are favourable $18 million largely due
to ‘Other’
•‘Other’ is favourable due to release of a provision at Group level
following a final judicial interpretation on the application of the
Holidays Act 2003 in New Zealand to certain discretionary
incentive payments
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-presentations for
consistency with the current period
$ million20212022
Gross profitEBIT
Gross profitEBITGross profitEBIT
53
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
Comparative information includes re-presentations for consistency with the current period
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in
the table due to rounding of figures
2.Includessales to other channels
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss
on equity accounted investees
4.IncludesEBIT attribution from Group Operations
5.Includedin Ingredients’ EBIT. Refer to Glossary for explanation of Group Operations
54
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
(109)260-
•Strong performance in the Ingredients channel across multiple
markets and products at a time of constrained milk supply
•Gross profit and margins improved reflecting:
ohigher product prices, particularly in our protein portfolio
oimproved product mix, including increased allocation to
our higher value Active Living products, partially offset by;
oreduced sales volumes due to lower milk collections and
shipping disruptions
•‘Other’ up due to higher other operating income and favourable
foreign exchange movements
•Favourable allocation from Group Operations reflects improved
margins, particularly in casein
•The average reference product sales price per
metric tonne has increased 23%, driven by all products:
oin particular, AMF and butter, fat-based products
increased 31% and 29%, respectively
•The average non-reference product sales price per
metric tonne has increased 20%:
ostrong performance from individual products such
as casein and whey protein concentrate (WPC)
ootherproducts, such as cheese, have had more
modest prices increases
•Cost of milk increased 25% and 22% for reference
products and non-reference products, respectively, with
fat-based products getting higher allocation of milk cost
relative to protein products
¹
¹
55
1.Excludes bulk liquid milk. Bulk liquid milk for the year ended 31 July 2022 was 68,000 MT of kgMSequivalent (the year ended July 2021 was 72,000 MT of kgMSequivalent)
Note: Figures represent Fonterra-sourced New Zealand milk only. Reference products are products used in the calculation of the Farmgate Milk Price –WMP, SMP, BMP, Butter and AMF. Milk solids used in the products sold were 919 million
kgMSin reference products and 424 million kgMSnon-reference products (previous comparative period 1,019 million kgMSreference products and 442 million non-reference products)
56
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Includes sales to other channels
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss
on equity accounted investees
4.IncludesEBIT attribution from Group Operations
5.Includedin Foodservice’s EBIT. Refer to Glossary for explanation of Group Operations
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
4(71)-
•Sales volumes up due to COVID-19 restrictions relaxing in key
markets and growth of our Quick Service Restaurant portfolio
•Gross profit down, particularly in Greater China and South East
Asia, due to:
oin-market sales pricing unable to adjust at the same rate
as rising cost of milk
oweaker market conditions including COVID-19 restrictions
and weather events
•Unfavourable allocation from Group Operations reflects lower
margins on products such as mozzarella
57
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
Comparative information includes re-presentations for consistency with the current period
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Includessales to other channels
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss
on equity accounted investees
4.IncludesEBIT attribution from Group Operations
5.Includedin normalised Consumer’s EBIT. Refer to Glossary for explanation of Group Operations
6.The impairment includes a $22 million impairment of Anlene, an $11 million impairment of Anmumand a $1
million impairment of Chesdale, with the carrying amount of these brands now at $336 million as at 31 July
2022. Our Asia brands also include Anchor which was not impaired
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
(13)--
•Strong performance in our consumer business in Chile,
offset by;
oin-market sales pricing unable to adjust at the same rate
as rising cost of milk in other markets
oweaker market conditions, particularly in South East Asia
and Sri Lanka
•Operating expenses up due to impairment of some of our
Asia brands⁶
•‘Other’ includes $(80) million adverse revaluation of the Sri
Lankan business payables due to devaluation of the rupee
•Favourable change in Group Operations attribution due to
improved margins in our protein portfolio, such as skim
milk powder
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations.
$ million20212022
Gross profitEBIT
Gross profitEBITGross profitEBIT
58
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
(3)67-
Q1Q2Q3Q4
20212022
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in the table due to rounding
of figures
2.Includes sales to other segments
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees
4.IncludesEBIT attribution from Group Operations
5.Included in Asia Pacific’s normalised EBIT. Refer to Glossary for explanation of Group Operations
59
•Improved Ingredients gross margin more than offset by lower
Foodservice and Consumer gross margins:
oIngredients channel benefited from higher product prices
improving gross profit
olowergross margins in Foodservice and Consumer
channels due to higher cost of milk
•Other’ includes $(80) million adverse revaluation of the Sri
Lankan business payables due to devaluation of the rupee
•Increased EBIT attribution from Group Operations mainly driven
by improved margin in our protein portfolio and bulk liquids
$ million
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations. Comparative information includes re-presentations for
consistency with the current period
20212022
Gross profitEBIT
Gross profitEBIT
60
Gross profitEBIT
∆
¹
²
³
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
This table was prepared exclusive of Group Operations attribution
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in
the table due to rounding of figures
2.Includes sales to other segments
3.Consists of other operating income and net foreign exchange gains/(losses)
61
•Milkcollectionswerestable,withimprovedmarketshareoffset
bylabourshortages,andon-farminputcostsandavailability
•Improved gross profit due to:
oIngredients channel benefited from the broad
strengthening of product prices and a weaker Australian
dollar, partially offset by;
ohigher input costs impacted gross margins in Consumer
and Foodservice channels
•EBIT increased $32 million to $106 million, mainly due to an
increase in gross profit
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
(99)70
Q1Q2Q3Q4
20212022
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in the table due to
rounding of figures
2.Includes sales to other segments
3.Consists of other operating income, net foreign exchange gains/(losses) and share profit or loss on of equity accounted
investees
4.IncludesEBIT attribution from Group Operations
5.Included in AMENA’s normalised EBIT. Refer to Glossary for explanation of Group Operations
62
•Increased gross profit due to
oimproved pricing and product mix in the Ingredients
channel, particularly in our protein portfolio, partially
offset by;
otighter margins in Foodservice and Consumer channels
•Operating expenses up, impacted by increased storage and
distribution costs
•Increased EBIT attribution from Group Operations driven mainly
by strong casein, milk protein concentrate and whey protein
concentrate margins
$ million
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations
20212022
Gross profitEBITGross profitEBIT
Gross profitEBIT
63
∆
¹
²
³
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
This table was prepared exclusive of Group Operations attribution
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in
the table due to rounding of figures
2.Includes sales to other segments
3.Consists of other operating income and net foreign exchange gains/(losses)
64
•Sales volumes growth mainly driven by Chilean
government stimulus
•Improved gross profit driven by our consumer business in Chile,
due to:
osales volume growth of higher margin products –such as
yoghurt and desserts
oability to leverage our number one market share position
and lift in-market prices
•Operating expenses increased to support higher sales volumes
and higher supply chain costs
∆
¹
²
³
⁴
Includes EBIT attribution
from Group Operations⁵ ($)
(16)52-
Q1Q2Q3Q4
20212022
Note: Figures are for the year ended 31 July and are on a normalised continuing operations basis.
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers in the table due to
rounding of figures
2.Includes sales to other segments
3.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted
investees
4.Includes EBIT attribution from Group Operations
5.Included in Greater China’s normalised EBIT. Refer to Glossary for explanation of Group Operations
65
•Lower sales volumes impacted by lower milk collections over
the first nine months of FY22 and shipping disruptions
•Increased gross profit driven by:
ostrong Ingredients performance, due to improved pricing,
particularly in our protein portfolio, partially offset by;
ohigher input costs and lower sales volumes in
Foodservice and Consumer
•Increased EBIT attribution from Group Operations due to
strong protein portfoliomargins
$ million
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a normalised continuing operations basis and excludes unallocated costs and eliminations.
20212022
Gross profitEBITGross profitEBIT
Gross profitEBIT
66
1.Figuresarefortheyearended31Julyandarepreparedonanormalisedcontinuingoperationsbasis
2.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees
¹
²
67
•Higher allocation of milk solids to:
oFoodservice through innovation of our UHT cream portfolio
oActive Living through partnership with key medical nutrition customers
12.0%
5.3%
13.0%¹
5.9%¹
•Increased R&D expenditure
•Entered into a strategic partnership with VitaKey
$110m
$115m²
•Reduced water use at manufacturing sites in water constrained regions
•Made progress toward exiting coal
2.6%
6.6%³
68
1.As a percentage of our total New Zealand milk solids (kgMS)
2.Research and development costs
3.Reduction in water usage relative to FY18
69
FY20
Actual
FY21
Actual
FY22
Forecast
FY22
Actual
FY24
Year 3Target
FY27
Year6Target
FY30
Year9Target
Improved performance
Milk Price per kgMS$7.14$7.54$9.30
Normalised EBIT$879m$952m
$875-
$975m
$991m$1,025-$1,125m
$1,150-
$1,250m
$1,325-
$1,425m
Earnings per share 24c34c25-40c35c45-55c50-60c55-65c
Return on capital6.6%6.6%6.5-7.0%6.8%7.0-8.0%7.5-8.5%9.0-10.0%
Financial position
Capital investment$525m$608m$650m$617m$980m$980m$980m
Debt toEBITDAratio3.3x2.7x2.4x*3.2x<2.5x<2.5x<2.5x
Gearing ratio44%39%35%*42%<35%<35%<35%
Dividendto shareholders
Dividends per share5c20c15-20c20c22-27c30-35c40-45c
*Calculated using an EPS of 35 cents
Note: The figures in this table which relate to dates in the future are targets we are aiming to achieve only. Theyshould not be taken as forecasts or as a guarantee of returns to shareholders.The target years assume long-term
average levels of price relativity and lag pricing impacts, and individual years are likely to vary from this assumption.Please refer to the important cautions and disclaimer at the back of this document and the key assumptions and
risks in the Appendixof the booklet titled Our Path to 2030for further details.
FY21FY22 SOIFY22
Total recordable injury frequency rate (TRIFR) per million work hours¹5.75.66.7
Female representation in senior leadership²32.4%35.8%34.8%
Employee engagement4.09Top Quartile³–³
Farmer sentiment (Net Promoter Score for Fonterra in New Zealand)233025
Number of farms with Farm Environment Plans (New Zealand)53%67%71%
Reduction in water used at sites in water-constrained regions versus FY18(2.6)%(8.0)%(6.6)%
Reduction in greenhouse gas emissions from manufacturing versus FY18(6.5)%(6.6)%(11.2)%
Fonterra % kgMSof New Zealand milk collected for the season ended 31May79.0%79.3%79.1%⁴
New Zealand Farmgate Milk Price (per kgMS)$7.54$7.25-$8.75$9.30
Return on capital6.6%6.5% to 7.0%6.8%
Debt/EBITDA2.7x2.4x
3.2x⁵
Adjusted Net Debt Gearing Ratio38.5%34.5%
42.4%⁵
Normalised earnings per share34c25c to 40c35c
1.Part of zero harm philosophy which also includes target 0 serious harm/0 fatalities
2.Senior leadership defined as Band 14+
3.Due to management review of the provider and means of determining engagement, measurement of this metric was
not completed during the FY22 financial year.
4.F22 Season to 31 May 2022. Prior comparable season to 31 May 2021: 79.0%.
5.Colourreflects performance relative to target and prior year. Both metrics remain below the maximum ratio of 3.75x
and 45%.
In accordance with the Constitution of Fonterra, the Board Statement of Intentions sets out the
Board’s intentions for the performance and operations of Fonterra. The table below provides an
update of Fonterra’s performance against these targets for the year ended 31 July 2022.
Providing a safe, healthy and inclusive place to work.
Able to attract and retain the best talent in the world.
Continuously developing people’s skills for meaningful
careers within the ever-changing nature of work.
Leading the transition to net-zero GHG emissions for
dairy nutrition.
Demonstrating that dairy can be a net-positive
contributor to nature.
(Farmers, customers, NewZealand, consumer,
governmentetc.)
Strong relationships with customers and consumers
through the provision of high-quality, innovative
products and services and sustainability credentials.
Processor of choice for farmers through competitive
returns on their investment and value-adding support
and services.
Trusted relationships with stakeholders, playing our
part for positive social, environmental and economic
outcomes that are recognised by NewZealanders.
(What we know)
Leveraging our IP to deliver extra value for the Co-op.
(How we do dairy)
Operational assets are resilient and can efficiently
deliver our most valuable portfolio of products and
services, with an ever-decreasing
environmentalfootprint.
(Our Performance)
Consistently attractive for farmers to be members of
the Co-op, both as suppliers and shareholders.
Key MetricsFY21FY22FY23 Scorecard
Serious harm985
Gender diversity
(Band 12+)
36.3%37.6%38.8%
GHG emissions
(Scope 1,2)¹
(6.6)%(11.2)%(10.6)%
FEP adoption
(New Zealand)
53%71%84%
Water Improvement Plans in place––37.5% (18 sites)
Share of NewZealand milkcollected79.0%79.1%79.0%
EBIT from NewZealand value-add
businesses ($ million)²
616307388
Cost of quality
(% of cost of goods sold)
0.45%0.44%0.35%
Return on capital6.6%6.8%7.0% to 7.5%
Farmgate Milk Price ($)7.549.30
$9.50³
1.Relative to FY18 Baseline. Long-term will include Scope 3 but for now Scope 1&2
including farms under our operational control
2.EBIT consists of Consumer, Foodservice, Active Living excluding Brazil, Australia
and Chile
3.The latest announced Forecast Farmgate Milk Price range is $8.50-$10.00 per kgMS,
with a mid-point of $9.25 per kgMS(26August 2022)
Represents ingredients & solutions sold to businesses who cater to
consumers’ health and wellness needs. It addresses three dimensions of wellbeing
(Physical, Mental, Inner), extending to meet the nutrition needs of medical patients
through to everyday people pursuing active lifestyles. This portfolio includes
proteins, specialty ingredients such as probiotics, lactoferrin & lipids, and
patented formulations
Represents the Ingredients, Foodservice and Consumer channels in New Zealand,
Australia, Pacific Islands, South East Asia and South Asia
Represents the Ingredients, Foodservice and Consumer channels in Africa, Middle
East, Europe, North Asia and Americas
Capital expenditure comprises purchases of property (less specific disposals where
there is an obligation to repurchase), plant and equipment and intangible assets
(excluding purchases of emissions units), net purchases of livestock, and includes
amounts relating to disposal groups held for sale
Comprises capital expenditure plus right-of-use asset additions and business
acquisitions, including equity contributions, long-term advances, and investments
Represents the channel of branded consumer products, such as powders, yoghurts,
milk, butter and cheese
Is adjusted net debt divided by Total Group normalised earnings before
interest, tax, depreciation and amortisation (Total Group normalised
EBITDA) excluding share of profit/loss of equity accounted investees and
net foreign exchange gains/losses
Is profit before net finance costs and tax
Means the average price paid by Fonterra for each kilogram of milk solids
(kgMS) supplied by Fonterra’s farmer shareholders under Fonterra’s standard
terms of supply. The season refers to the 12-month milk season of 1 June to
31 May. The Farmgate Milk Price is set by the Board, based on the
recommendation of the Milk Price Panel. In making that recommendation, the
Panel provides assurance to the Board that the Farmgate Milk Price has been
calculated in accordance with the Farmgate Milk Price Manual
Represents the channel selling to businesses that cater for out-of-home
consumption; restaurants, hotels, cafes, airports, catering companies etc. The
focus is on customers such as; bakeries, cafes, Italian restaurants, and global
quick-service restaurant chains. High performance dairy ingredients including
whipping creams, mozzarella, cream cheese and butter sheets, are sold in
alongside our business solutions under the Anchor Food Professionals brand
Is the total of net cash flows from operating activities and net cash flows from
investing activities
72
Is calculated as total borrowings, plus bank overdraft, less cash and cash
equivalents, plus a cash adjustment for 25% of cash and cash equivalents
held by the Group’s subsidiaries, adjusted for derivatives used to manage
changes in hedged risks on debt instruments. Amounts relating to disposal
groups held for sale are included in the calculation
Normalised earnings per share is calculated as normalised profit after tax
attributed to equity holders of the Co-operative divided by the weighted
average number of shares on issue for the period
Is Total Group normalised EBIT including finance income on long-term
advances less a notional tax charge, divided by average capital employed
New Zealand: A period of 12 months from 1 June to 31 May
Australia: A period of 12 months from 1 July to 30 June
Chile: A period of 12 months from 1 August to 31 July
Represents corporate costs including Co-operative Affairs and Group
Functions; and any other costs that are not directly associated to the
reporting segments; and eliminations of inter-segment transactions
Is adjusted net debt divided by total capital. Total capital is equity excluding hedge
reserves, plus adjusted net debt
Represents the Ingredients, Foodservice and Consumer channels in Greater
China, and the Falcon China Farms JV
Comprises functions under the Chief Operating Office (COO) including New
Zealand milk collection and processing operations and assets, supply chain,
Group IT, Sustainability and Innovation; Fonterra Farm Source™retail stores; and
the Central Portfolio Management function (CPM)
Represents the channel comprising bulk and specialty dairy products such as milk
powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia,
Europe and Latin America, or sourced through our global network, and sold to
food producers and distributors
Means kilograms of milk solids, the measure of the amount of fat and
protein in the milk supplied to Fonterra
73
This presentation may contain forward-looking statements, financial targets and ambitions (“Forward Statements”), each of which is based on a range of
assumptions, including (in the case of our 2030 strategy) the assumptions noted in the Appendix of the booklet titled Our Path to 2030 which is available on our
website.None of the Forward Statements is intended as a forecast, estimate or projection of the outcome that will, or is likely to, eventuate.They should not
be taken as forecasts or a guarantee of returns to shareholders.
There can be no certainty of outcome in relation to the matters to which the Forward Statements relate. Our ability to achieve the outcomes described in the
Forward Statements is subject to a number of assumptions, each of which could cause the actual outcomes to be materially different from the events or results
expressed or implied by such Forward Statements.
The Forward Statements also involve known and unknown risks, uncertainties and other important factors that could cause the actual outcomes to be
materially different from the events or results expressed or implied by such Forward Statements.Those risks, uncertainties, assumptions and other important
factors are not all within the control of Fonterra Co-operative Group Limited (“Fonterra”) and its subsidiaries (the “Fonterra Group”) and cannot be predicted by
the Fonterra Group. The Forward Statements in this presentation reflect views held only at the date of this presentation.
While all reasonable care has been taken in the preparation of this presentation, none of Fonterra, the Fonterra Group, or any of their respective subsidiaries,
affiliates and associated companies (or any of their respective officers, employees or agents) (together “Relevant Persons”) makes any representation or gives
any assurance or guarantee as to the accuracy or completeness of any information in this presentation or the likelihood of fulfilment of any Forward Statement
or any outcomes expressed or implied in any Forward Statement.Accordingly, to the maximum extent permitted by law, none of the Relevant Persons accepts
any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of any Forward Statements or for any loss,
howsoever arising, from the use of this presentation.
Statements about past performance are not necessarily indicative of future performance.
Except to the extent (if any) as required by applicable law or any applicable Listing Rules (including the Fonterra Shareholders’ Market Rules), the Relevant
Persons disclaim any obligation or undertaking to update any information in this presentation.
This presentation does not constitute investment advice or opinions, or an inducement, recommendation or offer to buy or sellany securities in Fonterra or the
Fonterra Shareholders’ Fund.
74
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or specified byNZ 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 notuniformly 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 accordancewith NZ IFRS. Non-GAAP
measures are not subject to audit unless they are included in Fonterra’s audited annual financial statements.
Please refer to the Non-GAAP Measures section in Fonterra’s 2022 Annual Review for further information about non-GAAP measures used by Fonterra,
including reconciliations back to NZ IFRS measures. Definitions of non-GAAP measures used by Fonterra can be found in the Glossary.
75
---
Annual Review
2022
Arotake-ā-tau
Te Mātāpuna
AJ, Reporoa
Our Co-operative,
Empowering people
To create goodness
for generations.
You, me, us together
Tātou, tātou.
OVERVIEW
03
About us04
Letter from the Chair05
Letter from our CEO07
Our purpose, values and goals09
Our approach10
How we created value in 2021/2211
Creating value for our stakeholders12
The world we operate in14
Our year in review15
Doing Good Together16
BUSINESS PERFORMANCE
18
Group overview18
ON FAR M
26
The Co-operative Difference 27
Addressing the methane challenge 28
Improving water quality 29
Supporting our farming families29
Lending a hand30
Sharing our know how30
Honour Roll for On-farm Excellence31
OFF FAR M
34
Rising to the challenge 35
Supporting our people35
Aligning for success36
Minimising our footprint36
Packaging 37
Reducing water usage at site 37
PRODUCTS & CUSTOMERS
38
Provenance 39
Reducing waste40
Driving innovation40
Taking the Co-op to our customers41
Tapping into trends41
Board of Directors42
Fonterra Management Team45
Non-GAAP measures48
Glossary50
Directory53
Contents
OUR 2022 SUITE
OF REPORTS
Annual Review 2022
(Referenced as AR)
Financial Statements 2022
(Referenced as FS)
Business Performance
Report 2022
(Referenced as BP)
Sustainability Report 2022
(Referenced as SR)
Corporate Governance
Statement & Statutory
Information 2022
(Referenced as C&S)
Modern Slavery
Statement 2022
(Referenced as MS)
Farmgate Milk Price
Statement 2022
(Referenced as MP)
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
Fonterra uses several non-GAAP measures when discussing
financial performance. Total Group measures present the
combined financial performance of the Group’s continuing and
discontinued operations. Non-GAAP financial measures are not
defined or specified 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. Non-GAAP measures are not subject to audit unless
they are included in Fonterra’s audited Financial Statements.
Please refer to the Non-GAAP Measures section for further
information about non-GAAP measures used by Fonterra,
including reconciliations back to NZ IFRS measures. Definitions
of non-GAAP measures used by Fonterra can be found in
the Glossary.
Welcome to our Annual
Review, which forms
part of our end-of-year
reporting suite.
We know there are a wide range of stakeholders who are
interested in our Co-op. This report gives an integrated
view of our performance across financial and non-financial
measures, and our targets for the future. It is supported by
a series of supplementary reports where stakeholders can
find more detailed information most relevant to them.
This Annual Review provides a summary of our
environmental, social and economic activities and
performance. It covers key achievements and performance
data, as well as the challenges and opportunities we have
faced across our Co-op over the last 12 months. It is a
chance to reflect on our work, quantify our impacts and
look to the future.
FONTERRA ANNUAL REVIEW 2022
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Section heading
Section Sub heading
CONTENTS
03
CONTENTS
We’re a co-operative formed and owned
by Aotearoa New Zealand dairy farmers.
Fonterra farmers sit at the very heart
of our Co-op, producing the high quality,
sustainable milk sought out by our
customers around the world.
We’re committed to producing dairy nutrition in a way that cares
for people, animals and the environment, and brings value to our
communities. New Zealand milk is the focus of our strategy, and
our global presence helps us generate revenue in over 130 countries.
Our range of dairy ingredients are sold under our NZMP™
brand and are found in prominent food and nutrition brands.
Under our Anchor™ Food Professionals brand, we create high-quality
products and innovative solutions for foodservice professionals.
We also manufacture, market and distribute our own consumer products.
These include branded dairy products sold direct to consumers, such
as milk, milk powders, yoghurt, butter and cheese. Our three global
consumer brands are Anchor™, Anlene™ and Anmum™.
Farm Source™ is the Co-op’s main farm-facing team, providing guidance
and support to farmers, including through a network of rural supply
stores in New Zealand.
New Zealand Australia China Rest of Asia Pacific Rest of World
About us
Manufacturing
sites
48
28
8
8
4
* China & Rest of Asia 0.1% each
1 This geographical breakdown of revenue is for continuing businesses only rather than Total Group revenue of $23,425 million.
2 Figures represent raw milk collected during the financial year rather than milking season.
Revenue
1
($ Million)
22,953
FY21: 20,565
2,140
1,726
4,827
6,244
8,016
Employees
(FTE)
19,608
FY21: 19,354
11,992
3,300
2,225
654
1,437
Raw milk collected
2
(million litres)
18,455
*
FY21: 19,295
1,356
16,402
661
FONTERRA ANNUAL REVIEW 2022
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Section heading
Section Sub heading
04
CONTENTS
OvERvIEw
Solid progress
towards our 2030
performance targets
Kia ora farmers and unitholders,
Our Co-op has continued to make good progress towards becoming
an innovative and customer-led organisation over the past
12 months, while delivering another year of strong performance
under challenging circumstances.
The Board is very pleased with the team’s overall progress on
implementing our strategy and this year’s strong financial performance
in the context of historically high milk prices, inflationary pressure, and
continued geo-political disruption in a number of key regions.
Our final Farmgate Milk Price of $9.30 per kgMS exceeds the previous
high mark of $8.40 per kgMS set in the 2013-14 season.
It’s the third consecutive year of +$7.00 milk prices and will be welcomed
by farmers, as we face significant cost pressures in our individual farming
operations and continue to pay down debt. Reserve Bank data shows
dairy sector debt has declined by around 12% ($5 billion) since its peak
level in 2018.
The Co-op’s normalised earnings per share were 35 cents, and in-line
with our policy, the Board has approved a final dividend of 15 cents per
share. Combined with the 5 cent interim dividend declared in March,
and the final Farmgate Milk Price, this brings the total payout for a fully
share-backed farmer to $9.50 per kgMS for the 2022 financial year.
We will always push hard for performance, but when you consider
the continued supply chain disruption resulting from COVID-19, the
geo-political and economic challenges in Sri Lanka and the conflict in
Ukraine, Miles and his team have done an excellent job to remain agile
and use the Co-op’s scale to deliver a Reported Profit After Tax of $583
million, down 3% on the prior year.
Within this year’s overall performance, there are three key strategy and
performance points of interest the Board would like to highlight.
1. Progress on Innovation and R&D
Innovation, research and development, and collaborations with strategic
partners are critical to achieving our strategy and are a focus area for
the Board.
We acknowledge the changes Miles has made to the Co-op’s
organisational structure to increase the visibility and focus on innovation
and strategic implementation – to drive performance in these areas.
The internal promotion of Komal Mistry-Mehta (Chief Innovation and Brand
Officer) and Emma Parsons (Managing Director Strategy and Optimisation)
onto the Co-op’s leadership team adds to our existing capabilities and
recognises the emerging home-grown talent within Miles’ wider team.
2. Co-op’s debt levels
Our net debt of $5.3 billion is up $1 billion, and as a result our gearing
ratio has increased from 38.5% to 42.4% reflecting higher working
capital during the second half of the financial year and at year end due
to higher dairy prices and a conscious decision to carry higher inventory
given our strong balance sheet. The Board remains vigilant about these
measures but we do expect them to improve as working capital returns
to normal levels during this calendar year.
Peter McBride – Chairman
“ The outlook for our Co-op remains strong
and we are committed to achieving our
long-term performance targets.”
FONTERRA ANNUAL REVIEW 2022
OvERvIEw
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Section heading
Section Sub heading
05
CONTENTS
3. Implementing our Flexible Shareholding Capital Structure
We are pleased to see the Co-op maintain its share of New Zealand milk
supply in a very competitive market. It’s the first year in more than a
decade that our local market share has not declined.
Fonterra’s strategy relies on our ability to maintain a reliable and
sustainable source of New Zealand milk in an environment where we see
total milk supply in New Zealand as likely to decline, and remain flat at
best, due to environmental pressures, new regulations and alternative
land uses.
Our new Flexible Shareholding model will help our Co-op maintain a
sustainable milk supply. It is intended to make it easier for new farmers to
join our Co-op and for existing farmers to remain in our Co-op.
The decision to change the Co-op’s capital structure was not something
we went into lightly and it was a confronting conversation with our
farmers at times. In the end, we received a very strong mandate. Of the
83% of eligible votes that were cast, 85% were in support of the Flexible
Shareholding structure.
We look forward to participating in the Government’s Select Committee
process and will continue to advocate for the necessary legislation being
in place before the end of the 2022 calendar year.
Finally, on behalf of the Board I would like to thank our farmers, our
dedicated team of people around the world and the Co-op’s many other
partners for their continued support and commitment. The outlook for
our Co-op remains strong and we are committed to achieving our long-
term performance targets. However, there are significant uncertainties
and a number of headwinds, both here at home and out in our global
markets, that may create earnings volatility year-to-year as we move
through to 2030.
Ngā mihi
Peter
Final Farmgate Milk Price
$9.30
per kgMS
Total dividend
20c
per share
Share of NZ milk
79.1%
The Board is pleased to present Fonterra’s 2022 Suite of Reports.
Fonterra’s Annual Report for the year ended 31 July 2022 comprises
this Annual Review, the Business Performance Report, the Financial
Statements, and the Corporate Governance Statement and
Statutory Information. The Annual Report was approved by the
Board on 21 September 2022 and is signed on its behalf by:
Peter McBride, Chairman Bruce Hassall, Director
FONTERRA ANNUAL REvIEw 2022
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Section heading
Section Sub heading
06
CONTENTS
Faced with global
challenges, our
teams stepped up
FY22 has been a year like no other, but once again our Co-op
has shown that these challenges make us stronger. In the face of
unprecedented macroeconomic events, we have continued to
deliver for our farmer owners and New Zealand, delivering $13.7bn
to the domestic economy in milk price payments alone. Combined
with a total dividend of 20 cents per share, we’ve delivered a total
payout of $9.50 to our farmer owners.
COvID -19
While we’ve seen the world opening up, COVID-19 continues to
challenge us. The lockdowns in China, shipping delays and supply chain
disruption were felt in many of our markets throughout the year and we
expect this to continue in the short to medium term.
Here in New Zealand, new variants presented new challenges to our
operations but I’m proud of how our people stepped up. We’ve learned
a lot over the last couple of years and through good management and
planning, we kept collecting our farmers’ milk, our manufacturing plants
continued to operate and we kept delivering for our customers. While
this came at an additional cost to the Co-op, collecting and processing
our farmers’ milk is our key role.
Geopolitical events
Sri Lanka has been a good market for us historically and we’ve built a
strong consumer business over the decades, with our Anchor and Ratthi
businesses Sri Lanka’s most popular dairy brands.
While it represents a small part of our overall business, the economic
fallout for our business has been significant. To minimise the impact,
we’ve temporarily reduced our sales volume into Sri Lanka so that we can
direct our milk into more profitable products and markets.
The team has done a remarkable job in really trying circumstances and
as a resilient nation, Sri Lanka will come through these challenging
times. In the meantime, we will continue to care for our people and their
families and keep the business running on a restricted basis, ensuring
that our nutritious dairy is available to our customers in the country.
The conflict in Ukraine has added to an already complex operating
environment, impacting global supply chains, oil prices and the global
supply of grain.
We suspended shipment of product to Russia while we assessed the
safety of our people and impact of economic sanctions and discussed
our long-term plans with our customers and joint venture partner.
Following careful consideration of the impact on our people and our
long-term plans for the Russian market, we made the decision to exit
both operations.
While supply chains remain impacted, our Kotahi partnership continues
to deliver with its scale and strategic partnership with Maersk reducing
the impacts of schedule slippage and container shortages.
Inflation is dominating headlines, both here in New Zealand and globally,
and we are all feeling the impact. While our operating expenses are up
7% in FY22 to NZ$2.4 billion, this included an impairment. Operating
expenses excluding impairments rose 5%, reflecting tight control on
expenses throughout the year.
Household incomes are being hit as the price of food staples like
fruit, vegetables, and milk rise. That’s why our community work is so
important, ensuring that we’re getting our nutritious dairy to those who
need it most.
Here in New Zealand, we reached the milestone of serving 50 million
KickStart breakfasts with Sanitarium and the Ministry of Social
Development, and this year we donated more than 12 million dairy
servings to the New Zealand Food Network. It’s a similar story globally,
with our teams stepping up to help their communities.
Our diversified portfolio, and the Co-op’s scale and ability to move
products between different markets and categories, has seen us weather
the long tail of COVID-19, various economic pressures and the knock-on
effects of the Russia-Ukraine conflict.
From the outside it may appear easy, but our ability to navigate these
unprecedented storms is thanks in large part to the constant and careful
planning by talented teams of people right across the Co-op.
we’re focused on what makes a difference
Despite these challenges, our people have continued to deliver for our
farmer owners with both a strong financial performance and milk price,
by focusing on the things that matter.
Collecting and processing milk
It all starts on farm. We collected 1,478 million kgMS, which was 4%
down on last financial year, but at $9.30 per kgMS, this year’s Farmgate
Milk Price is the strongest it has ever been. It is great news for our
farmers, and New Zealand also benefits, with $13.7 billion returned into
the economy in milk price payments alone this year.
Miles Hurrell – CEO
FONTERRA ANNUAL REVIEW 2022
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Section heading
Section Sub heading
07
CONTENTS
A record number of farms achieved The Co-operative Difference in 2022.
As our framework for ensuring that our on-farm practices support the
achievement of our strategy, these outstanding results enable us to give
important reassurances to customers about the quality and sustainability
credentials of Fonterra dairy.
Delivering excellence to customers
While it all starts on farm, it ends with our customers and consumers.
In an increasingly competitive environment, our diversity, and ability
to change product mix and move our products between markets, has
allowed us to keep delivering for our customers.
We are delivering nutrition solutions to help consumers live longer
and healthier lives and we’re using technology to improve customer
experience and adapt to changing buying and procurement needs. An
example of this is myNZMP, our industry-leading business-to-business
platform, offering personalised digital services to our customers.
Our end-to-end supply chain was recognised for delivering service
levels that are the benchmark in the industry, with Foodstuffs awarding
Fonterra Brands New Zealand the National Partnership Award.
Our Australian Consumer business was ranked the #2 overall supplier
in this year’s Grocery Advantage Survey, and Anchor Food Professionals
was ranked the #1 foodservice supplier.
One of our biggest Australian foodservice customers, NAFDA, which
distributes to around 40,000 out-of-home establishments in Australia,
awarded the team the prestigious Chairman’s Award which recognises
the business that is best aligned with NAFDA’s values of ethos, passion
and integrity.
We continue to innovate, despite challenges
Despite global challenges, we’ve remained steadfast in our approach
to innovation.
We continue to leverage our world-class dairy expertise to partner with
our customers and respond to the evolving needs of consumers. Through
these innovations, we are maximising value for both our customers and
farmer owners, while ensuring we utilise every single drop of milk.
Earlier this year we announced a transformative dairy science
collaboration with VitaKey Inc. to further unlock the benefits of our
probiotic strains, while FBNZ kicked off a trial for Anchor café milk taps
which means less waste and ultimately reduces the customer’s costs.
Our innovation isn’t limited to New Zealand. In Vietnam, the country’s
leading premium coffee brand, Trung Nguyen, is using Anchor butter
to roast its coffee beans, with Anchor’s provenance and grass-fed value
proposition offering a compelling advantage.
Looking to the year ahead
The 2023 financial year is already off to a strong start. We’ve revised
our 2023 forecast earnings guidance to 45 to 60 cents per share, up from
30 to 45 cents per share, with strong demand, particularly for cheese and
protein, driving this change.
We launched Nutiani, which sits alongside NZMP as a complementary
business-to-business brand targeted at both the multi-billion-dollar
medical and everyday wellbeing nutrition markets.
Hitting the market is BioKodeLab, a new nutritional supplement using
our famous phosphatidylserine and probiotic strains working with
the best of other ingredients such as lutein and zeaxanthin to create
something really different to support peak brain performance.
Our partnership with Royal DSM will establish a start-up company to
accelerate the development and commercialisation of fermentation-
derived proteins with dairy-like properties, ramping up opportunities
in complementary nutrition.
Delivering our 2030 targets
Our 2030 targets are still firmly in sight. We’ve made some great
progress since announcing our strategy last September and now is the
right time to really double down on our three strategic choices – to lead
in sustainability, to lead in dairy innovation and science and to focus on
our New Zealand milk.
We continue to strive for a better future for the environment and have
made solid progress against some of our key sustainability targets.
Water use at our manufacturing sites in water-constrained regions is
down by 6.6% and 71% of Co-op farms now have a Farm Environment
Plan – a substantial undertaking by our farmer shareholders and the
Farm Source team.
We’ve also made good progress on the decarbonisation of our fleet
and continue to work with the Government, our sector and commercial
partners to find a solution to the on-farm methane challenge.
The changes we’ve made to the FMT will enable us to accelerate our
progress towards our 2030 goals and increase the Co-op’s focus on
innovation and strategic implementation.
Komal Mistry-Mehta, as Chief Innovation and Brand Officer, brings
a new level of focus, capability and thinking to the FMT to help grow
the premium value of our products, while Emma Parsons, as Managing
Director Strategy and Optimisation, is focusing on demand choices
and portfolio and asset management, using analytics to inform
decision making.
With effect from October, Judith Swales will head up our Global Markets
team, following the consolidation of AMENA and APAC. Taking the best
parts of the Co-op and applying them to create great local outcomes,
we are leveraging the scale of the Co-op to deliver true customer and
market intimacy.
I’m confident that with this new aligned structure we’re in a good place
to achieve our strategic aspirations and maintain our focus on milk price
and earnings, so that we continue our strong performance and deliver
for our farmers and unit holders and take the best of New Zealand to
the world.
Miles Hurrell, Chief Executive Officer
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CONTENTS
OUR PURPOSE:
Our Co-operative,
Empowering people
To create goodness
for generations.
You, me, us together
Tātou, tātou
OUR vALUES:
Co-operative spirit
Do what’s right
Make it happen
Challenge
boundaries
OUR PRINCIPLES:
Our principles are
aligned with the
Māori world view.
Manaakitanga is the care
we show for others – it
strengthens our relationships
and communities.
Kaitiakitanga is how we
care for our environment
today, tomorrow, and for
future generations.
whanaungatanga is our
Co-operative spirit – it sits
at the heart of our values.
wE’ vE MADE KEY
STRATEGIC CHOICES:
Focus on Aotearoa
New Zealand Milk
Be a leader in
dairy Innovation
& Science
Be a leader in
Sustainability
KEY ASPIRATIONS FOR 2030:
Group ROC
~9-10%
Operating Profit
40-50%
increase from FY21
Strong progress towards
2050 aspiration to be
Net Zero
Carbon
Our purpose, values and goals
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Trusted relationships
through high-quality,
innovative products and
services and playing our
part for positive social,
environmental and
economic outcomes
PRIORITY ACTIVITIES
–Understanding the needs
of our customers and
being responsive to these
–Partnering with others
to help unlock the
full potential of dairy
and deliver improved
sustainability outcomes
–Being clear on what
we stand for and
demonstrating the
value we bring to
specific relationships
and more broadly
Relationships
Consistently attractive
performance for
providers of funding,
including our farmer
shareholders
PRIORITY ACTIVITIES
–Using science
and innovation to
improve efficiency
and grow value
–Sustainability credentials
are valued building
preference and premium
for our dairy
–Target to return
~$1 billion to
shareholders through
planned divestments
Financial
Demonstrating that dairy
can be a net-positive
contributor to nature
PRIORITY ACTIVITIES
–Leading the transition to
net-zero GHG emissions
for dairy nutrition
–Farmers are adopting
and investing in leading
on-farm practices
–Using science and
innovation skills to
solve environmental
challenges on and
off farm
Nature
Operational assets are
resilient and efficiently
delivering our most
valuable products
PRIORITY ACTIVITIES
–A mindset of continuous
improvement to protect
and enhance our scale/
cost advantage and
stay competitive on a
world stage
–Applying innovation to
our assets so they are
safe and able to respond
to future needs
Assets and
infrastructure
Able to retain,
develop and attract
the best talent
PRIORITY ACTIVITIES
–Providing a safe, healthy
and inclusive place
to work
–Continuously developing
people’s skills for
meaningful careers
within the everchanging
nature of work
People
& culture
Leveraging intellectual
property to deliver
additional value
PRIORITY ACTIVITIES
–Converting our
specialised dairy know-
how into value through
the products, solutions
and partnerships
we develop
Intellectual
Capital
Our approach
A sustainable future for our Co-operative is core to our strategy – it’s how we create long-term value for future generations.
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CONTENTS
We source
raw milk from
farmers
to make
and distribute
nutrition
We connect farmers
with markets to
maximise the value
from their milk
and to
consumers
for
foodservice
as
ingredients
Governance and Risk
We recognise the critical role governance plays in the success of our Co-operative
so we are committed to achieving the highest standards with a focus that promotes:
–the interests of our key stakeholders including farmer shareholders, unit holders, debt
investors, employees, customers, governments and the communities we operate within
–transparency and meaningful engagement with stakeholders
–effective risk management and compliance
Creating value for our stakeholders
How we created value in 2021/22
The resources we rely on (our inputs)
PEOPLE (AND CULTURE)
–19,000+ skilled and motivated employees led by a board
and management team with diverse skills and experience
–20,000+ dedicated farmers and farm workers
–Thousands more people in our supply chain
NATURE
–4.1 million milking cows grazing on 1.6 million hectares
of pastoral land
–Some fertiliser, irrigated water and supplementary
animal nutrition
–Energy (27.7PJ) and freshwater (48.6 million
cubic metres) for our manufacturing sites
RELATIONSHIPS
–With farmers, governments and regulators, unions,
employees, customers, iwi and communities
INTELLECTUAL CAPITAL
–Our know-how, systems and intellectual property
–Our strong global brands
–230 granted patents across 25 patent families
ASSETS AND INFRASTRUCTURE
–Our portfolio of property, plant and equipment including
right-of-use assets ($6,465 million total net book value)
–500+ milk collection tankers
–48 manufacturing sites
FINANCIAL
–A strong financial base, capital from our farmer shareholders,
unit holders and debt ($12,356 million average capital employed)
Our progress in 2021/22
PEOPLE (AND CULTURE)
–Serious harm injuries
8
–Female representation in leadership 34.8%
NATURE
–GHG emissions (Scope 1&2)
reduction since FY18
11.2%
–Farm Environment Plan adoption
(New Zealand)
71%
–Water use reduction in constrained
regions since FY18
6.6%
RELATIONSHIPS
–Share of New Zealand milk collected
79.1%
INTELLECTUAL CAPITAL
–EBIT from New Zealand
value-add businesses
$307m
ASSETS AND INFRASTRUCTURE
–Cost of quality (% cost of goods sold)
0.44%
FINANCIAL
–Return on capital
6.8%
–Farmgate Milk Price ($) $9.30 per kgMS
–Normalised earnings per share $0.35
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CONTENTS
we create value by
–Delivering nutrition products that are high-quality, low-carbon
and responsibly produced – See page SR-10
–Providing access to nutrition products that include healthier
options and linked to sustainable credentials – See page 39
–Using responsible procurement to influence our supply chain –
See page SR-49
–Responding quickly to changing needs and customer demand for
innovative new products and ingredients – See page 40
How we engage
–On an ongoing basis through our account management teams
–By sharing information through programmes such as SEDEX
and the Carbon Disclosure Project (CDP)
–With our own direct consumers through our service teams,
email, social media and consumer research
Customers
& consumers
Creating value for our stakeholders
we create value by
–Providing a safe workplace – See page SR-16
–Supporting health and wellbeing – See page 35
–Providing good learning and development opportunities
– See page SR-20
–Building an inclusive culture where everyone contributes
and feels supported – See page SR-21
How we engage
–On an ongoing basis through our everyday
interactions, regular engagement surveys and
engagement with unions
Employees
How we engage
–On an ongoing basis led by our Area Managers and
Sustainable Dairying Advisors or equivalent
–At meetings and roadshows, and through our formal
governance processes
we create value by
–Delivering a strong total payout – See page 20
–Reliably collecting their perishable product and
providing efficient access to valuable international markets –
See page 34
–Adding value to their milk through innovation and a
flexible product portfolio – See page 40
–Providing resilience to operating volatilities such as
price, energy, foreign exchange rates and ocean freight –
See page BP-31
–Providing access to technology and services that helps meet
regulatory requirements and continues to improve farming
practices – See page SR-47
Farmers
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CONTENTS
Local
communities
we create value by
–Providing direct and indirect, rural and urban employment –
See page SR-56
–Lowering our environmental footprint – See page SR-24
–Supporting communities through natural disasters and crises
such as floods – See page 16
–Providing access to nutrition through in school nutrition
programmes and food bank donations – See page 17
–Strengthening and enhancing our relationships with tangata
whenua – See page SR-21
How we engage
–With interested groups such as NGOs through collaboration
and consultation on specific topics
–On an ongoing basis with iwi around Aoteroa New Zealand
through our Matakahi – Māori business development team
–Through public events, the media and our own social
media channels
Society
we create value by
–Complying with regulatory requirements, including food
safety, marketing and environmental – See page SR-15
–Reducing our environmental footprint including GHG
emissions, water consumption and waste – See page SR-24
–Contributing to the development of policy and responding to
crises – See page 17
–Collaborating with industry partners to achieve international
commitments – See page SR-51
–Taking a responsible approach to tax – See page SR-55
–Supporting international relations through our presence in
global markets – See page 4
How we engage
–On an ongoing basis through our Global Sustainability,
Stakeholder Affairs and Trade team
–Through formal consultation on important issues such as
climate change
–Through partnerships on initiatives such as Living Water with
the New Zealand Department of Conservation
Investors
we create value by
–Providing sustainable returns via earnings per share, dividends,
and interest paid – See page SR-57
–Reducing investment risk through transparency and
independent assessment – See page SR-45
–Providing opportunities to invest in New Zealand dairy
nutrition through the Fonterra Shareholders’ Fund
How we engage
–On a regular basis through updates, formal reporting and
meetings coordinated by our Capital Markets team
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The world we operate in
The way food is produced and consumed
is at the centre of many challenges
facing society. With a growing
population, consumers are looking for
healthier and sustainable food options
that don’t threaten the planet’s ability to
support food production. We believe our
pasture-based dairy has an important
role to play.
The conflict in Ukraine,
the economic crisis in Sri
Lanka and COVID-19 are
pushing food and energy
prices up and adding fuel
to inflationary pressures.
NEXT
5 YEARS
400m
NEXT
10 YEARS
800m
NEXT
15 YEARS
1100m
The world’s population is growing,
and so is demand for nutrition
The planet faces interconnected crises
7. 5%
Global inflation is
forecast to rise to 7.5%
by the end of 2022.
Climate change will
increasingly put pressure on
food production, especially
in vulnerable regions, with
increases in frequency,
intensity and severity
of droughts, floods and
heatwaves.
3.6b
In 2018, 3.6 billion people had
inadequate access to water at
least one month per year. It is
estimated that by 2050, this
will grow to 5 billion people.
1/3rd
Globally, an estimated
one-third of people suffer
from at least one form of
micronutrient deficiency.
670m
Projections indicate that
nearly 670 million people will
still be facing hunger in 2030.
x3
Worldwide obesity has
nearly tripled since 1975.
Consumer trends
Geopolitical events
73%
of global consumers find
sustainability pledges
important when buying
dairy products.
58%
of people look for the
health-boosting claims
of the dairy products
they consume.
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CONTENTS
AUGUST 2021J U LY 2 0 2 1
MARCH 2022
APRIL 2022
J U LY 2 0 2 2
SEPTEMBER 2021NOVEMBER 2021OCTOBER 2021
We announce that CFO Marc Rivers
will be leaving the Co-op at the end
of 2022
With Russia’s invasion of Ukraine,
we suspend shipment of product to
Russia and announce the closure of
our Russia business
Together with Future Consumer
Limited, we announce that we’ve
agreed to wind down our 50:50 India
joint venture - Fonterra Future Dairy
M AY 2 02 2
We team up with Ministry of Health
to offer all New Zealand employees
COVID-19 vaccinations at our
manufacturing sites and offices
Kate Daly joins the FMT as Managing
Director, People & Culture
We lift our Organic Milk Price range
to NZD $8.10-$9.10 per kgMS
Farm Insight Reports are delivered
to Fonterra farmers for the first
time, giving them a comprehensive
picture of their overall farm from
an environmental performance and
animal health perspective
Anchor Food Professionals
becomes a $3 billion NZD annual
revenue business
We increase and narrow the 2021/22
forecast Farmgate Milk Price range
to NZD $7.90 - $8.90 per kgMS, from
NZD $7.25 - $8.75 per kgMS
We announce a partnership
with Vitakey to further unlock
the benefits of Fonterra’s
probiotic strains
We maintained the 2021/22 forecast
Farmgate Milk Price range to NZD
$9.10 - $9.50 per kgMS
We reduce our Organic Milk Price
range to NZD $9.85-$10.05 per kgMS
We announce an opening forecast
Farmgate Milk Price for the
2022/23 season of NZD $8.25 -
$9.75 per kgMS, with a midpoint of
$9.00 per kgMS
JUNE 2022
We make changes to our structure
with Komal Mistry-Mehta joining
the FMT as Chief Innovation and
Brand Officer.
We announce Kelvin Wickham’s
resignation as CEO AMENA
New Zealand’s Exchange (NZX)
and the European Energy Exchange
(EEX) each take ownership stakes in
Global Dairy Trade (GDT) alongside
the Co-op
We lift our 2022/23 forecast
Farmgate Milk Price range by 50 cents
to NZD $8.75-$10.25 per kgMS
We announce FY23 earnings
guidance range of 30-45 cents
per share
We announce that Director Donna
Smit will retire from the Board at the
Annual Meeting in November.
We announce Emma Parsons
as Managing Director Strategy
and Optimisation
We unveil Milk-E, New Zealand’s first
electric milk tanker
We expand on-farm trials of
methane-reducing Asparagopsis
seaweed, in partnership with
Australian company Sea Forest
Cultured milk drink Nurture hits
supermarket shelves in Singapore,
taking around seven months from
concept to launch
JANUARY 2022
FEBRUARY 2022
DECEMBER 2021
More than 85% of total farmer
votes support the Co-op’s capital
structure proposal
We lift and narrow the 2021/22
forecast Farmgate Milk Price range
to NZD $8.40 - $9.00 per kgMS and
revise our earnings guidance to 25-35
cents per share from 25-40 cents
per share
New Zealand’s longest-running
dairy manufacturing site, Fonterra
Edendale, celebrates 140 years of
service. We lift our 2021/22 forecast
Farmgate Milk Price range to NZD
$8.90 - $9.50 per kgMS
We expand our carbonzero Simply
Milk range with Foodstuffs North
Island, with the introduction of a
3-litre bottle
NZMP’s Organic Butter -
carbonzero™ certified wins the Most
Innovative Dairy Product Award at
the Gulfood Innovation Awards
We lift our 2021/22 forecast
Farmgate Milk Price range to
NZD $9.30 - $9.90 per kgMS
Our year in review
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The communities we are part of have
always been important to us. It’s through
community, kinship and coming together
for a common cause that we create
meaningful impact.
As a co-operative of 9,000 farming families, we know just how much
good can come from working together, which is why we’re working with
partners right across the country. Because a better Aotearoa comes from
Doing Good Together.
Guided by our Co-operative’s purpose of empowering people to create
goodness for generations, our community work is targeted where it is
needed the most and where we can make a greater impact. Our three
impact areas are:
–Putting good quality nutrition in the hands of those who need it
most: We believe everyone should benefit from the goodness of dairy
–Protecting and regenerating the environment: We need to preserve
our land, our whenua
–Keeping our communities strong: We want to create meaningful
impact that goes beyond our farming families
Partnerships play a critical role in helping us make a sustainable
difference. Working hand-in-hand with government, other organisations,
not-for-profits and community stakeholders, means we can make a
bigger impact.
50 million
KickStart breakfasts served
since the programme started
$899,362
donated to community
projects globally
$671,606
donated to community
projects in New Zealand
12 million
dairy serves donated to the
New Zealand Food Network
Doing Good
Together
Student at Waitara Central School
enjoying KickStart breakfast
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Putting good quality nutrition in the hands of those who
need it most
Here in New Zealand, we work with Sanitarium and the Ministry for
Social Development to give nearly 40,000 Kiwi kids the best possible
start to their day through our KickStart Breakfast programme. This year
we have been humbled to share our 50 millionth breakfast.
As a foundation donor partner of the New Zealand Food Network and
through our work with Feed Out, we’re helping to supply food banks
throughout the country with nutritious dairy products. Together we have
donated more than 15 million serves of dairy since July 2020 to help feed
New Zealand communities.
Protecting and regenerating the environment
We are working with farmers, iwi, councils and communities to restore
and enhance water catchments across New Zealand. We are taking the
lessons learnt from our Living Water Partnership with DOC and scaling
these across the country. The Co-op has more than 140 partnership
initiatives underway, and have contributed $1 million this year to partner
organisations across Aotearoa.
Keeping our communities strong
Hapori means community, kinship & coming together for a common
cause, and through our 11 regional teams across New Zealand we work
alongside our communities to create meaningful impact on the causes
that are important to them. Through Hapori we have donated $671,606
to community projects across the country.
As New Zealand’s largest employer of volunteer firefighters, we’re
proud to have our contribution to the communities we live and work in
recognised by Fire and Emergency New Zealand. Fonterra employees
volunteer in over 60 fire stations across the country and in some
communities they make up over 40% of the fire crews.
Global support
Globally, our focus has been to get our good quality nutrition into the
hands of those who need it the most. We have supported aid efforts in
Tonga following the volcanic eruption, donated dairy products to the
Yayasan Food Bank in Malaysia and whole milk powder to Sri Lankan
families impacted by the economic crisis.
Rebecca & Gracie, NZ Food Network
Callum, Southland
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CONTENTS
Business
performance
Our Co-op has delivered another
strong financial performance, with
a 2021/22 Farmgate Milk Price of
$9.30 per kgMS and normalised
profit after tax of $591 million.
With a total dividend of 20 cents per share for our fully
shared-up farmers – comprising of an interim dividend
of 5 cents per share and a final dividend of 15 cents
per share – the final cash pay-out for farmers is $9.50
per kgMS.
Like every sector, we’ve seen input costs rise sharply
right through our value chain, but we’ve also seen
a positive supply and demand picture. Throughout
the year, demand for our milk has been strong, in
the face of a shrinking supply picture for other dairy-
producing regions.
Emma & Daniel, Auckland
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ON FARM
Business Performance Dashboard
Asia Pacific
EBIT
5
AMENA
EBIT
5
Greater China
EBIT
5
$
237m
$
527m
$
432m
from $305m
from $336mfrom $403m
Reported profit
after tax
1
Reported profit
after tax
1
Reported earnings
per share
2
Milk Price
per kgMS
Dividend
per share
Gearing
ratio
4
To t a l
pay-out
4
Debt to
EBTIDA
4
To t a l G r o u p
normalised EBIT
3
$
58336c
$
9.3020c
42.4%
$
9.50
3.2x
+
=
$
991m
from $599mno change
from $7.54
Net debt
4
$
5.3b
from $4.3b
from $7.74
from 2.7x
no change
from 38.5%
from $952m
Return
on capital
4
6.8%
from 6.6%
Normalised
earnings per share
2
35c
from 34c
79.1%
Market share of
New Zealand milk
79.0%
Ingredients
EBIT
5
Foodservice
EBIT
5
Consumer
EBIT
5
$
916m
$
138m
$
142m
from $365mfrom $369mfrom $310m
1 Reported profit after tax
includes amounts attributable
to non-controlling interests.
2 Earnings per share excludes
amounts attributable to non-
controlling interests.
3 Total Group includes
continuing and discontinued
operations.
4 Refer to the Glossary for
definition.
5 Prepared on a normalised
continuing operations basis.
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CONTENTS
BUSINESS PERFORMANCE
Normalised earnings per share increased 3% from 34 cents to 35 cents
per share.
The higher milk price and earnings performance reflects strong demand
for dairy across multiple markets and products at a time of constrained
milk supply, global supply chain challenges and a significantly higher
cost of milk for our businesses. This operating environment significantly
increased our working capital requirements through the second half
of the financial year and at financial year end, and our net debt was
$1 billion higher at $5.3 billion.
Our strong balance sheet enabled us to absorb the increased working
capital requirements and our net debt position is forecast to improve
during the 2023 financial year as working capital returns to normal levels.
Total Pay-out
1
20222021202020192018
Farmgate Milk PriceDividend
$6.69
$6.35
$7.14
$7.54
$0.10
$0.05
$0.20
$6.79
$6.35
$7.19
$7.74
$9.30
$0.20
$9.50
1 Refer to the Glossary for definition.
We returned $9.30 on average for every
kilogram of milk solids our farmer owners
supplied us. Combined with a dividend
of 20 cents per share, this means a total
pay-out of $9.50 per kgMS – a record
pay-out for the Co-operative.
kgMS collected
(million)
Litres collected
(million)
1,5051,5231,5171,539
1,478
16,93217,12316,87617,121
16,404
20222021202020192018
Litres and Milk Solids Collected
Fonterra milk collections (kgMS) for the season were down in
New Zealand by 4.0%, reflecting a cold and wet spring contributing
to a lower peak in milk supplied
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE
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CONTENTS
Our reported profit after tax of $583 million is $16 million lower than
last year, with the prior year benefiting from larger gains from the sale
of non-core assets.
After removing the net impact of these gains, our underlying
performance has improved despite a significant increase in the cost
of milk and operating expenses, with normalised profit after tax up
$3 million to $591 million.
Total Group gross profit is up 7% to $3,340 million. The main driver
of this performance was a significant increase in gross profit from
our Ingredients channel due to stronger underlying market demand
resulting in a broad strengthening of product prices and higher margins,
particularly in our protein products such as casein.
Throughout the year we remained focused on allocating milk into
products that generate the best overall returns to Fonterra and our
farmer owners. This year we increased the allocation of New Zealand
milk solids to our Active Living products within our Ingredients channel,
as we look to shift volume away from Core Ingredients products to
higher value products.
The improved Ingredients performance was partially offset by the
impact of higher milk input costs in our Foodservice and Consumer
channels. Where possible, our in-market teams worked with customers
to adjust sales prices to reflect the increased costs in our Foodservice
and Consumer channels. However, we have not been able to fully adjust
pricing at the same rate as our cost increases.
Our performance was also impacted by the deterioration of economic
conditions in Sri Lanka. The US dollar appreciated around 80% against
the Sri Lankan rupee over the third quarter, resulting in a $80 million
adverse revaluation of our business payables, impacting our EBIT.
To reduce the impact of the Sri Lankan crisis we chose to limit sales
volume into Sri Lanka, resulting in lower sales volume and milk solids
being allocated to our Asia Pacific Consumer channel during the second
half of the financial year. Sri Lanka has historically been a strong business
for us, and our brands Ratthi and Anchor are the top two consumer dairy
brands in the country. We remain committed to the market and making
dairy products available to consumers by continuing to operate, but at
a restricted capacity to mitigate further impact to our business in the
current economic climate. In our Asia Pacific business we also recognised
an impairment of $34 million on our Asia Brands - Anmum, Anlene
and Chesdale.
Normalised Profit After Tax
1
($ million)Total Group Normalised EBIT ($ million)
1 Includes amounts attributable to non-controlling interests.
20222021202020192018
407
275
398
588
$7.74
591
20222021202020192018
902
812
879
952
$6.79
$6.35
$7.19
$7.74
991
Total Group reported EBIT increased 2%, or $17 million, to $976 million.
Normalisation adjustments for the year were an adverse $15 million, a
decrease of $22 million on the prior year’s net favourable normalisations
of $7 million, which included gains on sale from the Ying and Yutian
China farming hubs and the China Farming joint venture, but partially
offset by realised losses on the sale of Beingmate shares and a further
impairment of the carrying value of DPA Brazil.
This year’s normalisations comprise of the $42 million gain on sale on the
partial sale of the Global Dairy Trade (GDT) with a further $57 million
pre-tax impairment made to the value of DPA Brazil.
After removing the impact of the gains from asset sales and impairment
of DPA Brazil, our underlying performance improved by $39 million, with
a normalised EBIT of $991 million.
FONTERRA ANNUAL REVIEW 2022
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CONTENTS
Total Group normalised EBIT, which
reflects underlying business performance,
was up 4% to $991 million. This comprised
$982 million from our continuing
operations and $9 million from our
discontinued operations – which are DPA
Brazil and our Hangu China Farm
Breakdown of Total Group Performance
FOR THE YEAR ENDED31 JULY 202131 JULY 2022
NORMALISED BASIS
NZD MILLION
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
Sales volume (‘000 MT) 3, 8742284,1023,7062183,924
Revenue20,56555921,12422,95347223,425
Cost of goods sold( 17, 5 81)(429)(18,010)(19,737)(348)(20,085)
Gross profit2,9841303,1143,2161243,340
Gross margin (%)14.5%23.3%14.7%14.0%26.3%14.3%
Operating expenses(2,153)(89)(2,242)(2,284)(113)(2,397)
Other
2
65158050(2)48
Normalised EBIT896569529829991
Normalisations
3
(9)16742(57)(15)
EBIT887729591,024(48)976
1 Refer to Note 1a and 2b of the FY22 Financial Statements.
2 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
3 Refer to the Non-GAAP Measures section of the report.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE
Folio 2
Section heading
Section Sub heading
22
CONTENTS
Looking at our continuing operations on a regional basis;
–Asia Pacific normalised EBIT decreased 22% to $237 million,
due to the Foodservice and Consumer channels being impacted by
the increased cost of milk and weaker market conditions including
the impact of COVID-19 restrictions, particularly in South East Asia.
The Consumer channel was also impacted by the economic crisis in
Sri Lanka. The reduced earnings in the Foodservice and Consumer
channels were partially offset by a significant improvement in the
Ingredients channel due to improved product prices.
–AMENA normalised EBIT increased 57% to $527 million, due to
higher gross margins in the Ingredients channel, reflecting a broad
strengthening of product prices, particularly in our protein products
such as casein. Our Consumer business in Chile performed well, but
overall, the Consumer channel EBIT was down on the prior year.
–Greater China normalised EBIT increased 7% to $432 million, due
to higher gross margins in the Ingredients channel, driven by improved
pricing of our protein portfolio and allocation of greater volume
to higher margin ingredients. This was partially offset by the lower
sales volumes and gross margins achieved in the Foodservice and
Consumer channels due to increased input costs and the impact of
strict COVID-19 restrictions.
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
Note: Figures are for the year ended 31 July 2022
1 Prepared on a normalised continuing operations basis. Normalised EBIT contributions sums to $1,196 million, and does not align to reported continuing
operations due to excluding unallocated costs and eliminations. Comparative information includes re-presentations for consistency with the current period.
2 Inclusive of Group Operations’ EBIT attribution.
3 Includes $(80) million adverse revaluation of payables in Sri Lanka.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE
Folio 2
Section heading
Section Sub heading
23
CONTENTS
Financial discipline
As at 31 July 2022, our working capital increased $1.6 billion reflecting:
–Higher inventory of $1.2 billion, due to higher milk price and higher
inventory on hand at year end due to increased late season milk
production and shipping constraints
• At year end we held an additional 126,000 MT of product.
88% of total inventory was contracted with an agreed price prior
to year end
–Higher receivables due to increased sales revenue in the month of
July 2022 compared to the prior year, partially offset by;
–Higher payables reflecting increased accruals for capital expenditure,
amounts owing to suppliers due to higher milk prices and the impact
of supply chain disruptions.
Closing Inventory as at 31 July ($ billion)
FY22
inventory
value
VolumeCostFY21
inventory
value
3.8
5.0
0.4
0.8
As a result of higher working capital requirements, our net debt
increased $1.0 billion.
We have steadily reduced our net debt over the period to 2021, through
the alignment of our asset portfolio and improved underlying operating
performance. However, this year our net debt has increased $1 billion
due to:
–cash generated from operations increasing $479 million on the prior
year to $1.9 billion. After tax of $137 million, this is $1.8 billion in
operating cashflows excluding changes in working capital
Offset by:
–net cash flow used for investing activities of $517 million, which
was predominantly capital expenditure
–funding of $0.4 billion of dividends and interest payments of
$0.3 billion, and
–increase in working capital of $1.6 billion
Net Debt
1
($ billion)
1 Comparative figures are shown on a consistent basis with current year. Refer to Glossary
for definition.
20222021202020192018
6.6
6.0
5.2
4.3
5.3
1 Refer to Glossary for definition.
2 Excluding working capital.
3 Includes supplier payables and other movements.
FY22
net debt
Increase in
working
capital
Interest,
dividend
& other
Net capex &
investments
Operating
cashflows
2
FY21
net debt
(1.8)
0.5
0.7
1.6
5.3
4.3
Change in Net Debt
1
($ billion)
InventoryReceivablesPayables
& other
3
1.2
0.8
(0.4)
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE
Folio 2
Section heading
Section Sub heading
24
CONTENTS
Both leverage metrics, gearing ratio and debt to EBTIDA ratio, have
increased due to the higher net debt.
Our strong balance sheet enabled us to absorb the increased working
capital, and we expect both our net debt position and leverage metrics
will improve during the 2023 financial year as working capital returns to
normal levels.
1 Refer to Glossary for definition.
2 Comparative figures are shown on a consistent basis with current year.
Debt to EBITDA
1
(x) Gearing Ratio
1,2
(%)
20222021202020192018
50.1%
49.5%
44.2%
3.2
2.7
3.3
4.3
4.6
38.5%
42.4%
Leverage Metrics
Return on Capital
1
Total Group
normalised EBIT
2
($ million)
Average
capital employed
2
($ million)
Return on
capital
2
(%)
20222021202020192018
6.2%
5.6%
6.6%
6.6%
13,46913,419
12,313
12,281
902812879952
6.8%
12,356
991
1 For a reconciliation of return on capital calculation see page BP-19.
2 Refer to the Glossary for definition.
Total Group return on capital improved from 6.6% to 6.8%
The improvement in our return on capital was primarily due to the
increase in our normalised EBIT. The impact of the improved EBIT was
partially offset by the additional working capital increasing our average
capital employed.
The impact on our average capital employed from year end net debt
increasing by $1 billion is limited due to our low net debt position at
the start of the year, and the significant increase in working capital
requirements only impacting towards the end of the second half.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE
Folio 2
Section heading
Section Sub heading
25
CONTENTS
On-farm
The 9,000 farming families across
our Co-op are committed to
producing the world’s most
sustainable, high-quality dairy.
Here in New Zealand, we have many natural advantages
– a temperate climate, lush grass and a pasture-based
system, but at the heart of it all is our farming families,
who care for their animals and care for their land.
Our farmer owners know that we will take care of their
precious milk, and that we’ll move it into the most
valuable products and markets. This gives the owners
of our Co-op control of their own destiny and the
certainty to invest in their businesses.
Being part of our Co-op means working together
to address some of our biggest on-farm challenges.
New Zealand dairy farmers are already among the
most carbon-efficient in the world, but together we
are working hard to ensure that dairy farming and the
environment can thrive for future generations.
Having a strong farmer-owned co-operative is
important to every New Zealand dairy farmer and
for the country as a whole. It enables efficiency
and supports innovation. Our milk price sets the
New Zealand benchmark.
Blair, Billie, Penelope & Joe, Tararua
FONTERRA ANNUAL REVIEW 2022
Folio 2
Section heading
Section Sub heading
26
CONTENTS
ON FARM
The Co-operative Difference
The Co-operative Difference is our way of encouraging the positive
practices on-farm that support our strategy of maximising the value of
our New Zealand milk.
Integrating our global view of current and future market trends and
insights, The Co-operative Difference framework provides farmers the
confidence to invest on-farm, for the future. Requirements are organised
within five key areas – the Environment, Co-op & Prosperity, Animals,
People & Community and Milk Quality.
Through supporting our farmers’ achievement, the Co-op stays at the
forefront of key issues such as safety, animal wellbeing and sustainability
while recognising those farmers who consistently provide the highest
quality milk. Ultimately, it means our milk is backed by the quality and
sustainability credentials our customers and communities expect.
The Co-operative Difference was launched in 2019 to give farmers the
opportunity to adapt and for the first time this year, up to 10 cents of
each farm’s milk payment has been determined by performance under
the framework.
There are three levels of achievement under The Co-operative
Difference:
–Te Pūtake: achieving this first step is all about looking after people,
animals, the environment and our Co-op. Reaching Te Pūtake receives
an additional 7 cents per kgMS for all milk supplied during the season.
–Te Puku: reaching Te Puku means achieving Milk Quality Excellence
on at least 30 days during the season. Once this is achieved, all milk
supplied during the season that meets the milk quality excellence
standard attracts an additional 3 cents per kgMS on top of the base
price and the Te Pūtake component of the Co-operative Difference
payment.
–Te Tihi: this recognises those in the Co-op who consistently deliver
the highest quality milk. Achieving Te Tihi means achieving Milk
Quality Excellence for 90% of the season. There is no additional
payment for Te Tihi - it is simply about recognising those at the top of
their game.
4,522
Te Puku
“The MID POINT”
3c kgMs on all qualifying milk
FARMERS
ACHIEVED LEVEL 2
638
Te Tihi
“THE SUMMIT OF THE MOUNTAIN”
ACHIEVED
LEVEL 3
1,155
Te Pūtake
“THE START OF THE JOURNEY”
7c kgMs on all milk supplied
FAR MS
ACHIEVED LEVEL 1
This year, up to 10 cents of each
farm’s milk payment has been
determined by its sustainability
credentials and milk quality.
Chris & Andrew, Canterbury
FONTERRA ANNUAL REVIEW 2022
ON-FARM
Folio 2
Section heading
Section Sub heading
27
CONTENTS
ON-FARM
Addressing the methane challenge
Fonterra farmers are world leaders when it comes to their care for their
animals and the environment. Our Co-op’s milk has a carbon footprint
one third the global average, but we know there’s more we can do.
We’re stronger together and that’s why we’re working with Government,
our sector and commercial partners to find a solution to the on-farm
methane challenge.
We’ve also made progress on some of the methane-busting projects
we’ve been working on, with on-farm studies now well underway.
In partnership with Australian company Sea Forest, we’ve expanded on-
farm trials of Asparagopsis seaweed in Tasmania to understand if using
it as supplemental feed can replicate lab trials that have seen emission
reductions of over 80%.
“ Asparagopsis seaweed looks like it
could be the first viable option we
have had to achieve major emission
reductions, and although it’s early days,
it could potentially be part of the future
sustainability of our industry.”
– Richard Gardner, Fonterra Farmer
Working with Royal DSM, a global science-based company, we’re testing
whether DSM’s feed additive product Bovaer®, which reduces methane
emissions from cows by over 30% in non-pasture-based farming systems,
can do the same in New Zealand’s pasture-based farming systems.
With MPI and DairyNZ, we’ve expanded a promising trial with Nestlé
to include plantain in a cow’s diet to reduce the amount of nitrogen
produced, reduce carbon emissions and improve freshwater quality.
We’re also tapping into our large collection of dairy cultures to create
new fermentations we are calling Kowbucha™, which could inhibit the
methanogens that create methane in cows.
Farmers put a lot of time and effort into recording data that provides
evidence they’re producing milk in a way our customers require.
Through individual Farm Insights Reports the Co-op is able to help
farmers get greater visibility of what’s happening on their own farms.
Each report gives farmers a comprehensive picture of their overall
farm performance from an environmental, milk quality and animal
health perspective. This year, for the first time, the reports will include
a fertiliser efficiency report. These insights are in addition to the
GHG emissions report, Nitrogen Risk scorecard and insights on things
like somatic cell count, heat stress, milking efficiency and lameness.
Our local Farm Source team can help farmers maximise the value of
the reports by working alongside them to understand information and
identify areas of opportunity.
“ For us, the information was empowering.
If I have our people engaged in what they’re
doing, then it makes it easier to implement
the plan. I always say it’s the people in the
gumboots that make the difference.”
– Dave Hislop, Fonterra farmer
Richard & Sam, Tasmania
FONTERRA ANNUAL REVIEW 2022
ON-FARM
Folio 2
Section heading
Section Sub heading
28
CONTENTS
Improving water quality
Through the 6,200 Farm Environment Plans we’ve delivered so far,
farmers have bespoke plans that help them work towards improving
water quality on farm.
For the last nine years, we’ve also been working with the Department
of Conservation (DOC) on our Living Water partnership. The partnership
brings together communities, farmers, scientists and iwi in five catchments
across New Zealand, to trial game-changing and scalable solutions
across different freshwater environments. These include on-farm tools,
catchment-based solutions and addressing implementation barriers
including funding, consenting, capability and waterway management.
One example being trialled on farm is a woodchip bioreactor that
could reduce nitrates in the Ararira River in Canterbury. If successful,
in-stream tools like this could be used in key areas around the country.
By partnering, we’re making it easier for farmers, iwi and communities
to accelerate freshwater improvement.
The partnership is also supporting a new project that helps farmers
make the best decisions for the environment based on better
landscape information. Living Water and Land & Water Science recently
launched a new web-based map LandscapeDNA tool, which integrates
landscape properties and cutting-edge science to understand why water
quality varies.
It brings next generation spatial landscape data into one platform,
putting landscape information in the hands of our Fonterra farmers,
helping them to manage their land, while minimising the risk of pollution
and maximising production.
Supporting our farming families
Being part of a co-operative means supporting our farming families.
Many know Farm Source as our network of 66 rural retail stores across
the country, but there’s much more to the team than that.
Alongside our store teams, Farm Source has regional services teams,
digital tools and advisors who work alongside our farmers, helping them
produce the highest quality milk in the most sustainable way. Our retail
stores maximise our collective scale to deliver competitive prices to
farmers, while our Sustainable Dairy Advisors support farmers on their
sustainability journeys.
“ In our simplest form, we are our Co-op’s
farmer-facing team across the country.
We are passionate, local people who
work hard every day to help lower on-
farm costs, provide on-farm support and
advice, and support rural communities.”
– Anne Douglas, Director Category,
Marketing & Digital Innovation
Andrew, Sarah, Hannah, Henry & Isabella, CanterburyAnnual Waituna Creek fish survey
FONTERRA ANNUAL REVIEW 2022
ON-FARM
Folio 2
Section heading
Section Sub heading
29
CONTENTS
Lending a hand
Dairy farming is the economic engine that powers New Zealand, this year
contributing $13.7 billion to the domestic economy in milk price payments
alone. But the impact of our Co-operative extends far beyond just our
financial contribution.
Through our Doing Good Together programme (page 16), our community
work is targeted where we can make the biggest impact. That includes
working alongside our communities to help make them more resilient.
Over the last year, we teamed up with the Rural Support Trust (RST) to
improve the health and wellbeing of our rural communities and support our
farming families. In the wake of the 2021 South Island floods, a Fonterra
Good Together rugby team, coached by Scott ‘Razor’ Robertson, beat the
Parliamentary First XV, raising $100,000 for the RST in the process.
This year, we supported RST’s Time Out Tour which took TV presenter turned
sheep and beef farmer, Matt Chisholm, to communities across New Zealand,
where he shared his experiences of mental wellness and resilience.
The RST was also one of the beneficiaries of an idea suggested by Micha
Johansen, one of our farmer shareholders in Eketahuna. Micha suggested
that farmers could donate their Farm Source Reward Dollars to charity
instead, with the RST, the New Zealand Food Network and Feed Out all
benefiting from her idea.
Feed Out NZ - a nationwide charity that supplies milk to city missions and
food banks – also joined our Doing Good Together programme this year.
Founded by farmer owner Wayne Langford, Feed Out NZ allows farmers
to donate milk which the Co-op turns into milk powder to be distributed by
the New Zealand Food Network to those most in need.
“ As farmers, we can tell a thousand
stories of the great things we are doing
on-farm, but nothing will speak louder
than giving a family a meal when they
are at their most vulnerable.”
– Wayne Langford, Feed Out founder and Fonterra farmer
Sharing our know how
As well as being among the most carbon-efficient milk in the world, our
dairy is also packed with nutrients, thanks to our pasture-based system.
As part of the New Zealand Embassy’s Hokkaido partnership in Japan,
we’ve been using our know-how to help farmers in the Hokkaido region
convert to grass-fed farming.
Japan is the world’s largest importer of grain feed for dairy cows so
as well as being more environmentally friendly, grass-fed farming also
makes good business sense. The region’s soil and climate are well-suited
to grass-fed farming, and conversion, where appropriate, helps transition
grass-fed from a niche farming system to a successful sustainable model
with widespread demand.
Our farmer owners have shared their experiences through regular
seminars and we have recently extended our commitment to the
programme.
Mark, Nathan, Rob, Michael,
& Cam, CanterburyCasey & Matua, CanterburyAndy, Angus, Jon, Scott, Leonie, Josh, George & Albie, Canterbury
Wayne, Wellington City Mission
FONTERRA ANNUAL REVIEW 2022
ON-FARM
Folio 2
Section heading
Section Sub heading
30
CONTENTS
Honour Roll for On-farm Excellence
Legend
Farming entities that achieved Grade Free for at least the last 10 seasons
A & N Harvey Family
Trust
A Holten & N Brown
Ashgrove Dairy Farms
Limited
Barmac Dairies Limited
Black & white Cow
Company Limited
C & H Mabey
C J & C J McKenzie
Limited
C M & K M O'Donoghue
Caskey Farms
Cotlands Ltd
D C & v F Frew
F A & R C M Smits Ltd
Farmer Fred Ltd
Fowler Family Prosperity
Trust
G J Farms Limited
Glen Eden Otago Ltd
Golden Mile Farms Ltd
J & LM van Burgsteden
Kemra Farm Ltd
Maken Milk Ltd
Owhango Farms Limited
R & P woods Farms Ltd
R & S Singh
R S & R D Gordon
Rainbowcreek Farms
Limited
S G & B L Thirkell
Schorn Trust
Shawlink Ltd
T D & J A Rhind
w J & J G Pile Family
Trust
waicola Holdings Ltd
waiotu Farms Ltd
waituna Investments
Ltd
whenuakura Farm
Limited
Te Tihi
Farming entities that achieved The Co-operative Difference Te Tihi (Level 3)
A & C Hodges Family
Trust
A B Lime Limited
A D Harwood Limited
A G & G F J Pijfers
A H & B M Kuttel
A H Baxter Limited
A J & B M Simmonds
A J & Est L R Arnet
A J & P T Bryant
A L & W A Mullan
A P Jones & J G Craw
A R & P A Hayward
A T & J L Hughes Trust
A8 Enterprises Limited
Abbey Farm Partnership
Abbott Trusts
Partnership
Aerodrome Farm Limited
Aghern Holdings Limited
Ahipaipa Farms Limited
Ahol Trust
Akarana Partnership
Alan & Lynette Smith
Family Trust
Albert & Karen Pouwels
Limited
Alderbrook Farms
Limited
Alkington Limited
Alley Farms Limited
Allison Family Farms
Limited
Alpine Rose Limited
Andesite Trust
Aniwhenua Farms
Limited
Arahiwi Farm Limited
Aramaunga Farms
Limited
Ararata Holdings Limited
Ardendale Farm Trust
Arnmore Dairy Limited
Ashmore Limited
Ashvale Jerseys Limited
Askin Plains Dairy
B & G Park Limited
B C & H J McLellan
B F & S J Gordon
B H & L J Bourne
B J & D A Verryt Family
Trust
B J & J N O'Brien
B J & J R Goodwin
B L & D J Haylock
B M & J A Ahlers
B M & R M Sarten
B W & C A McNeil
B W & S J Phillips
B W E Binnie
Barnsdale Farms 2014
Limited
Barridge Farms
Baucke Family Trust
Beckett Family Trust
Belbrook Farming
Limited
Bell Family Farms Limited
Belrari Farm Limited
Benmore Downs Limited
Berry Farm Limited
BJ & TM Verryt Limited
BJ Caird Limited
BLL Farm Trust
Blom Family Farm
Limited
BM & GI Watson Limited
Bonezco Farms Limited
Brensan Farm Limited
Brentwood Farm (2003)
Limited
Brittany Trust
Partnership
Brookside Farms
Brookside Farms No2
Broughshane Farm
Limited
Brunswick Downs (2014)
Limited
Bruski Farms 2001
Limited
Bucman Trust
Burnell Farms Limited
Burton Farm Trust
By the Beach Company
Limited
C & H Mabey
C G & A M Janson
C G & J A Venn
C J Biddle & R Godinagh
C J Dairies Limited
C M & K M O'Donoghue
C&F Farms Limited
Cairra Farms Limited
Cantley Developments
Limited No 1
Careyfarm Limited
Cashmore Investments
Limited
Caskey Farms
Casterbridge Farms
Limited
Clan Leslie Limited
Claremont Trusts
Partnership
Clarenshelf Forty-Three
Ltd
Clemcorp Ltd
Clyde Colin Bishop
Clyde Dairy Farm Ltd
Collingwood Farm Trust
Cornik Farms Limited
Corona Farms Ltd
Cotlands Ltd
Cows 4 Us Limited
CPX Limited
Craigower Farms Ltd
Cressey Dairies Ltd
Cview Trust
D & D M Coupe Trust
D & K & M Kavanagh
D & K Verryt Farms
Limited
D C & C N Davison
D C & V F Frew
D G & H A Bloor
D J & J A Veen
D M & J C Brogden
D M J S Trust
D P & T M Stephens
D R & J B Wallace
D R & J E Gilchrist
D W & M E Kidd
Dammar Farms Ltd
Daniel Symons
Daybreak Farms Limited
DB & MJ Kalma Ltd
DDB Dairy Enterprises
Limited
Deebury Pastoral
Partnership
Deltabrooke Farms
Limited
Dennis & Donna Gill
Family Trust
Dennley Farms Ltd
Department of
Corrections
Derrynane Family Trust
Dillon Farms Ltd
DJ & AJ Williams Ltd
Dodd Farms Limited
Dogterom Farming
Limited
Thank you to all our farmer owners who have
worked hard in the 2021/22 season to provide
safe, high-quality milk. In addition to the honour
roll, we acknowledge the efforts of all our
farmer owners for their commitment to on-farm
excellence and producing the best possible milk.
FONTERRA ANNUAL REVIEW 2022
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Dogterom Thomson
Limited
Dogterom Thomson Ltd
Donald Pearson Farm Ltd
Doneve Agriculture
Limited
Doric Trust
Drought & Kalin Family
Trusts Partnership
Drumderg Farm Ltd
Dryden Farming Limited
Drylands Trust
E A White Ltd
E B & J L Day
E C Briden & Sons Ltd
E J & A M Kiser
E T De La Rue
E.K. & M.J. Chisnall Ltd
Ealing Dairies Limited
Edge Holdings Limited
Est C W Schultz
Est of M F Blake & M
Blake
Estate M J Abbott
Estate of T J Hailes
Evans Partners Ltd
Evergreen Ventures Ltd
Eyretonlea Partnership
Eyrewell Dairy Ltd
F A & R C M Smits Ltd
Fairfax Stonehouse
Farm Ltd
Fairview Dairies Ltd
Falcon Farms Trust
Farm Partners Limited
Farmbuild Milk Company
Ltd
Farmer Fred Ltd
Farnley Tyas (2018)
Limited
Feenstra & Bouwmeester
Trust
Fernhill Farms Koru Ltd
Finch Contracting
Limited
Firdale Farms Limited
Flaxwood South
Fleming Family Trust
Flo New Zealand Limited
Florida Farms Ltd
Fonterra -Kapuni Farm 1
Freely Farms Ltd
G & C Came Ltd
G & N Wightman Farms
Ltd
G & P R Rennie Ltd
G A & K T Lynch
G A Knight
G B & J S Coulter
G B and S J Harrison Ltd
G G Ring
G I Norgate
G L & G F Bell
G M & D M Tomsett
G P & D J Wolvers Family
Trust
G P & M E J Voogt
G P S 2007 Ltd
Galloway Enterprises Ltd
Geordie Farms Limited
Gilray Partnership
Gladvale Farms Ltd
Glanton Holdings
Limited
Glenarne Limited
Glendine Ltd
Glengairn Trust
Glenmore Farm
Glenmore Farming
Company Limited
Glenrowan Trust
Glenwrae Farming Ltd
GM & AM Woolley
GN & LG Burgess
Golden Mile Farms Ltd
Gordon Dale Farms
(2006) Ltd
GP Wilson
Granity Dairy Limited
Green Sky Dairies
Limited
Greenhart Limited
Gregory Farms Ltd
Greywacke Farms
Limited
Guy Wong & Son Ltd
Gwen-May Trust
H & H Singh Sandhu
H J & A M Van Hout
H L & J E Wallace
Haket Trust
Hall Agri Ltd
Harakeke Dairy Ltd
Partnership
Hartland Pastoral
Limited
Haswell Farm Limited
Haurere Farms Ltd
Henderson Partnership
Farm
Highfield Farm Holdings
Ltd
Hildersea Limited
Partnership
Hogsback Limited
Hollands Farm Limited
Homelands Ltd
Hopcroft Farms Limited
Huntersview Farm Ltd
Huntly Road Dairies Ltd
Hwitan Tune Holdings
Ltd
I & M Selak Ltd
I G Haigh
I J Versalko and I J
Versalko Family Trusts
Ingram Farming (2003)
Limited
Inveraray Dairy Ltd
Ivesburn Limited
Ivy Plains Ltd
J & D Reynolds
J & J Van Polanen Family
Trust
J & P S Malcolm
J H & H R Smyth
J H & R Cotman
J L & K S Gwerder Family
Trust
J M & L M North
J M Mellow
J R & B R Murdoch
J R & J P Barrett
J W & A M Steeghs
Jackel Trust Partnership
Jareem Trust
Jaska Farm Trust
Jersey Collective
JF & LM Le Fleming
Family Trust
JM & RM Martin
Joblin Partners Limited
Johns Hill Trust
Jomar Farm Ltd
JS & KJ Lorimer trading as
Laurel Hill Farm
K & LG Pickett Limited
K A & N J Riddington Ltd
K C & D M Gooch
K C & L M Berry
K G Reeve
K J & H Chalmers Ltd
K J & P J Death Family
Trust
K J & S R Crowley
K R Vollebregt
K W Laing
Kahikatea Dairy Ltd
Kairoa Dairies 2016
Limited
Kanuka Terrace Limited
Kauri Karaka Ltd
Kauri Moor Farms
Limited
Kavanagh Trust
Partnership
Keelinn Farms Limited
Keitra Farms Limited
Kelvin Vickers Family
Trust
Kemra Farm Ltd
Ken Bullians Trust
Kilfinan Farm Ltd
Kilkenny Farm Ltd
Kilvarock Farming
Company Ltd
KJ&HL
Uhlenberg(Waitui)Fam
Tr. P ' Ship
Kohinoor Farms Ltd
Kowalski Farms Ltd
KRTH Limited
Kyle Farm (2005) Limited
L & A Verstappen
L & M Wild River Limited
L K Farms Partnership
L M Farms
L P & I Bylsma
L S & K A Phipps
Landcorp Farming Ltd
Langman Family Trust
Lawson Road Farm Ltd
Le Emari Trust - Morven
Le Emari Trust T/A
Willowbridge Dairies
Lenek Farms Limited
Lillburn Valley Dairies Ltd
Lobblinn Farms Ltd
Loch Ness Farm Ltd
Lochlea Partnership
Lowburn Dairy Farms Ltd
LR and SJ Hammond
Limited
Ludell Limited
Luscombe Partnership
Lynbrook Farm Ltd
Lynwood Dairies Limited
M & A Schrader Family
Trust
M & G Askin Family Trust
M & G Howden
M A Watt Family Trust
M B & K M Watkins
Family Trust
M C & M Davey
M E Hunt & Son Ltd
M F & D C Robinson Trust
Partnership
M J & D R McFetridge
M J & L M Van Tiel
M J Robertson
M L & K I Clark Family
Trust
M M & L Baxter
M P & V M J Joyce Trusts
P/Ship
M T & D H Simpson
Maandonks Farm Limited
Macedonian Properties
Limited
Macken Farm Ltd
Maerewhenua
Investments Limited
Mahdeen Partners
Mahunga Farm Limited
Manganui Partnership
Limited
Mangaroa Farms
Mangatoki Partnership
Mary Rose Trust
Mathieson@Rongomai
Limited
Matricksen Ag Holdings
Ltd
Maude Peak Farm Trust
Maxlands Farms Limited
McClean's Pampas Grass
Ltd
McClelland Dairies Ltd
McCullough Family
2008 Ltd
McCullough Orakau
Farm Trusts Partnership
McDonnell Farming
Company (Ohau) Ltd
McIntosh Dairies Limited
McKamp Farms Ltd
McLeod Farms Limited
McNab Farms Limited
McSwag Limited
Melrose Dairy Ltd
Michael Clark Ltd
Mid Island Farms Limited
Midway Holdings Limited
Milestone Trust
Milk Power Ltd
Minus 1 Trust
Molehill Farm Ltd
Moo2U Ltd
Moonlight Farms Trust
Ltd
Morag Farm Limited
Mullerwhero Farming Ltd
Murphy Farms Limited
N K & A M Fox
Netherland Holdings Ltd
Newlane Trusts
Ngahape Valley Farm Ltd
Ngai Tahu Farming
Ngatitu Whanau Trust
Nicholson O'Rourke Ltd
Nilock & Camole Trusts
NP & AE Bluett
NP Van Straalen Family
Trusts Partnership
O'Connell Dairy Ltd
Old Kookaburra Farms
Limited
Oporo Farms Ltd
Oreti Plains Agriculture
Limited
Orini Downs Station
Limited
Orongo Meadows Ltd
OTO Trust
Owen & Robyn Ruddell
Partnership
Owhango Farms Limited
P B & D P White
P B & E J Chick
P G & J G Wilson Family
Trust
P H S & P C Byford
P J & H J Horo
P J & K J Henderson
P J & M E Gamble Family
Trust
P J & T L Walsh Family
Trusts
P Jones Family Trust
P M & K F Westenra
P M & K J Clinton Family
Trust
P N & D L Waite Family
Trust
P R & R F Mossman
P S & H J Wilson
P T & E A Kelly
P W & S J Ryan
P.J. and H.J. Horo Family
Trust
Pahtuna Farms Ltd
Pakarau Heights Ltd
Parekarangi Trust
Pastoral Holdings Ltd
Paton Trading Company
Ltd
Paul Kay Family Trust
PB & CF Purdie Family
Trust
Peebles Siding Dairy
Limited
Pine Bush Grazing
Limited
Pinelane Trust
Pineridge Partnership
Pirie Farms Limited
PKW Farms LP
Polrama Nominees Ltd
Pomona Farming Limited
Ponga & Pukeko Farms
Ltd
Te Tihi Continued...
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Port Molyneux Dairies
Limited
Poyzer & Swanney
Partnership
Premier Dairies Limited
Prima Farms Ltd
PT & CA Shearer Family
Trust
Pukerua Farm Ltd
Puniho 606 Partnership
R & L Swafford
R & P McIntosh Ltd
R & S Singh
R A & F N Davidson
R A & J L Hamilton
R A & P E Adam
R C & K M Ormsby
R F & C L Lansdaal Ltd
R F Seebeck
R G King Ltd
R J & J F Van Marrewijk
R L & F M Hurley
R L & S F Thompson
R P MacInnes Trust
R W & R D Kane
Rakaia Incorporation
(Pahau) Limited
Rangitata Island Dairy
Ltd
Rangitata Island Dairy
Partnership Ltd
Redpark Farm Limited
Reuver Limited
Rhodes Hills Ltd
Rich Feet Limited
Ridgedale Limited
Rimoo Farm Limited
Riverside Dairy Farm Ltd
Riverside Park Limited
Riverview Trust
Roaring View Farms
Limited
Robren Farms Ltd
Rockburn Dairy Ltd
Rogers Farming Ltd
Rolling Farms Limited
Rollinson Farms Limited
Rolwood Farms Ltd
Rombouts Farm Ltd
Rooney Farms Limited
Rosebrae Farm Limited
Roslyn Plains Ltd
Ross & Louise Fieten
Family Trust
Roswin Farm Limited
Rotoma Farms Limited
Rozel Farm Limited
RP & KJ Willans Family
Trust
Ruakiwi Dairies Limited
Rubia Farm Limited
Rydal Farm Trust
S B & A H Steverson
S B & Y M Thompson
S C & A N Charmley Ltd
S E & S A Nicholas Family
Trusts
S G Holland Ltd
S J Bruce Family Trust
S Petterson Family Trust
S.V. & M.L. Helms
Sanddale Farm Ltd
Schayes Enterprises Ltd
Schnuriger Family Trust
Schorn Trust
Schouten Dairies Ltd
Seamist Dairies Ltd
Searle's Dairy Ltd
Shawlink Ltd
Sheenfield Farms Ltd
Shenandoah Trust
Silverdene Farms (2000)
Ltd
Sisley Farms Ltd
Skyhigh Farming Limited
Smith Family Trusts
Smithill Ltd
Somerset Trust
Southern Pastures
(Longmead Farm) Ltd
Partnership
Southern Pastures
(Mamaku Farm) Ltd
Partnership
Southern Pastures (Mauri
Farm) Ltd Partnership
Southern Pastures (Tatua
Farm) Ltd Partnership
Southern Star Farms Ltd
Spark Brothers Limited
St Helena Trust
Staple Homestead
Limited
Stichbury Farms Limited
Stonebrook Dairy Farm
Limited
Stoneleigh Park Limited
Stonylea Dairies Limited
Strathyre Farms Ltd
Streamline Limited
Partnership
Sursum Farms Ltd
Swim Farms Ltd
T & N Kuter Family Trust
T J & L E Luond
T M & H D Green
T M Mcdowall
Tablelands Dairy Limited
Tamatea Farms Limited
Taradise Farm
Taranga Town Supply
Tatiara Ltd
Tauhei Farms Ltd
Tayco Farm Limited
Te Mahanga (2018) Ltd
Te Whanake Enterprises
Ltd
Ternstone Limited
Terrace Top Dairy Ltd
The D & A Roberts Family
Trust
The Flavall Trust
The Grange Ltd
The Herewahine Trust
The Milky Way Limited
The Red Cow Company
Limited
Theland Purata Farm
Group Limited
Thistlehurst Dairy Ltd
Thomas Falconer
Thornehayes Farm Ltd
Three Leaf Farm Limited
Tiaki Farm Limited
Partnership
Toey Farms Ltd
Toggenburg Trust
Tokarata Farms Ltd
Tokoroa Pastoral Ltd
Torlesse Farm Ltd
Totoro Trust
Trinity Lands Limited
TRK Farm Limited
Tronnoco Farming Co Ltd
Tui Company Limited
Turnbull Family Trust
Turney Farms Limited
Twin River Dairies Ltd
Tyndale Family Trust
Tyrone Trust P/Ship
Uruwhenua Farms Ltd
V C & S H Dearlove
Vale Green Services
Limited
Van Rossum Ltd
Ventsha Farms Ltd
W & C Candy Trust
W A & D P McKenzie
W B Scott Family Trust
W M & S R Fisher
Wade Industries Ltd
Wai-iti Dairy Farm Ltd
Waioto Farm Ltd
Waiotu Farms Ltd
Waipa Meadow Ltd
Wairakau Farm Trust
Waitago Farms Ltd
Waituna Investments Ltd
Walker & McLean
Partnership
Wallace Johnstone Ltd
Walsh Enterprises
Limited
Walters Holdings (2008)
Ltd
Waterscape Dairies Ltd
Watershed Ventures Ltd
Watford Trust
Wattle Downs Limited
Weirburn Farms Limited
Wells Partnership
Welsh Family Farms
Limited
West Mains Farm Ltd
Westbrook Farming
Company Limited
Westmere Co (2007) Ltd
Whakahau Trust
Whakahora Farm Ltd
Wheyland Farms Limited
White Gold Dairy Farms
Ltd
Whitten Holdings Ltd
Willowbank Farms 2015
Limited
Willowbank Farms 2015
Ltd
Willowcreek Trust
Willowhaugh Enterprises
Limited
Willowview Pastures
Limited
Wilmat Farms Limited
Windsor Park Dairies
Limited
Windvale Farms Limited
Wiremu Trusts
Wolff Farms Ltd
Woodside Dairying Ltd
Wyke Partnership
Wynyard Limited
Ziang Farm Ltd
Zonneveld Farms Ltd
Te Tihi Continued...
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CONTENTS
Off-farm
COVID-19 disruptions and geo-
political events have dominated
news headlines again this year.
Our Co-op hasn’t been immune
to the impacts of these events.
However, our diversity, ability to
change product mix and move
our products between markets
has allowed us to minimise the
negative impact.
Once again, our people around the world have stepped
up. When Omicron hit New Zealand, our supply chain
team was ready. Anticipating the need to change
product mix at a moment’s notice, the team ensured we
had contingency packaging and ingredients, alongside
warehouse capacity.
In China, our Anchor consumer team tapped into
the ‘group buying’ phenomenon that took off during
the Shanghai lockdown, getting products delivered
direct to customers. It is this ingenuity, combined
with our scale and optionality, that has kept our milk
moving through the supply chain in spite of the many
challenges this year.
Tracy, Palmerston North
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ON FARM
Rising to the challenge
The conflict in Ukraine has placed more pressure on a global supply chain
that was already under pressure from COVID-19 disruptions. In the face
of this, our Kotahi partnership continues to deliver, reducing the impacts
of schedule slippage and container shortages.
“ It’s not just Fonterra that sees benefits
from this. Through the scale that Kotahi
brings with its strategic partnership with
Maersk, many other Kiwi companies are
able to get their product exported. It also
indirectly underpins many imports for all
New Zealanders.”
– Fraser Whineray, COO
We’ve also been able to lean into our global reach and our ability to
change product mix, enabling us to get value from every drop of milk.
This agility has been important throughout the COVID-19 outbreak,
ensuring that our sites could continue to operate. While COVID-19 is
something we’re learning to accommodate, right across our Co-op there
are great examples of people stepping up to deliver.
At our Kauri site in New Zealand, DAIRYCRAFT coach Ross Beddows
and technologist Coen Cramer helped out on the production line when
Omicron hit. Our communications team in Australia also put their hands
up to fill a shift if needed at our Tullamarine plant when Omicron led to
shortages across the site floor.
At our Selangor plant in Malaysia, the team juggled the impact of the
COVID-19 peak alongside flash floods which damaged many of our
people’s homes. Despite this, the production line kept moving.
The Takanini milk transport team – Louis Compaan, Gene Watene, Mike
Adams, Glynn Yern, Hamish McCrae and Quentin Sullivan – swapped
farm pick-ups for supermarket drop offs to keep the supermarket shelves
stocked during the Omicron peak. And our tanker operators mobilised to
drop off COVID-19 test kits to all of our supplying farms in New Zealand.
Supporting our people
At all of our workplaces, health and safety measures have kept our
people safe from COVID-19. But as well as the physical wellbeing of our
people, we’ve also been conscious of the psychological toll the last three
years has had.
This year, we expanded our Good Yarn workshops to include an online
option. These provide a safe forum, where people can talk about mental
health and know how and when to get more support for themselves or
others if needed.
These workshops are facilitated by our very own team of ‘GoodSorts’ –
colleagues who have volunteered to be trained to be people employees
can reach out to at work to talk about mental health and how to get
support. We have continued to expand the reach of this programme with
55 GoodSorts in New Zealand and 26 globally.
In 2019, we committed to doubling on-the-job training and reskilling
hours in New Zealand by 2025 (page SR-20). The Skills Pledge aligns with
our focus of developing our people to put us in the best possible position
to deliver on our long-term strategy.
One of the key drivers of our training hours is DAIRYCRAFT, an
18-month programme which equips participants with technical skills and
an independently recognised qualification. Since 2015, more than 1,000
qualifications have been achieved through this programme.
“ Since achieving my DAIRYCRAFT NZQA
Qualification and with the support
of my manager, I was appointed to a
secondment position in IWS Cell Team
as Process Lead. I put it down to the
additional capability building that
I have done.”
– Nazeefah Ali, Process Lead, CANPAC
Michelle, Auckland
Ross (left) and Mason, Kauri
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OFF-FARM
Aligning for success
Delivering on our long-term strategy also requires a step change
in our culture. Over the last year, thousands of our people have engaged
in culturing conversations, with parts of the Co-op most critical to
the delivery of innovation and our long-term aspirations focused
on how we improve our decision making, operational effectiveness
and value creation.
We’ve also adapted our organisational structure so that we can
accelerate progress towards our long-term aspirations. Our ambitions
are to grow the value we derive from our New Zealand milk through
our sustainability credentials, innovation and nutrition science.
Two new Fonterra Management Team (FMT) roles to increase the
Co-op’s focus on innovation and strategic implementation have seen
Komal Mistry-Mehta appointed as Chief Brand and Innovation Officer
and Emma Parsons as Managing Director, Strategy and Optimisation.
Minimising our footprint
Milk collections play a vital role in keeping our product moving through
the supply chain and this year, we welcomed New Zealand’s first electric
milk tanker to our fleet. Milk-E is part of our fleet decarbonisation work
and one of a number of programmes helping us towards our goal of
being net zero carbon by 2050.
Made possible in part by the Government’s Low Emissions Transport
Fund, Milk-E is also a significant milestone for the wider heavy transport
sector, with the potential for the pilot to be replicated across other
businesses.
The introduction of Milk-E has given the transport team an opportunity to
design and trial other innovations to improve milk collection efficiencies,
reduce safety concerns and reduce the amount of work required to
customise a Fonterra tanker. A battery swap system is being installed at
the Waitoa site, where Milk-E will be based, to trial how this could work
within a fleet to minimise downtime from battery charging.
We’re making other changes to our fleet to realise our sustainability
goals. For the last two years, we’ve been working with our supplier
Carters to reduce the number of tyres we use. By changing the way
we monitor tyre tread wear, we’ve saved 2,900 tyres over the course
of one year.
That hasn’t been the only achievement - of the 20,000 tyres purchased in
FY21, 13,000 were re-treads, meaning the Co-op only purchased 7,000
new tyres.
In terms of sustainability achievements, we’ve been able to reduce
247 tonnes of CO2 emissions, saving 75,000 litres of crude oil used to
manufacture tyres. The next focus for the project is on recycling, with
the aspiration that all tyre waste will be recycled to make new tyres,
aligned with a circular economy.
“ By working together with our vendor, the
depot teams have reduced the number
of tyres required without compromising
safety, which is great for people and the
environment. At the same time, we’ve
made a significant cost saving which is
great for our shareholders.”
– National Parts and Warranty Manager, Guy Cooper
Minister for Energy and Resources,
Hon. Dr Megan Woods and Chief Operating
Officer Fraser Whineray
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Packaging
Through a partnership with not-for-profit charitable trust Agrecovery, the
Co-op is making it easier for our farmer shareholders to recycle on-farm
packaging, with collection points now available at 65 of our 66 Farm
Source stores in New Zealand.
The Co-operative Difference programme is helping to drive change.
To be eligible for The Co-operative Difference payment, farms need to
manage plastics and unused agrichemicals through an approved scheme
like Agrecovery. In 2021, this resulted in a 521% increase in registrations
for the scheme. Last year Farm Source stores recycled over 400 tonnes
of plastic, including 71,000kg of containers from customer farms.
In-store, Farm Source is also making strides, by removing non-recyclable
packaging where it can. More than half of the Farm Source Country Mile
brand now has no plastic packaging at all, through either elimination or
replacement with a paper-based alternative.
“ Sustainability is at the heart of our Co-op.
At Farm Source we’re working to reduce
waste by eliminating non-recyclable
packaging, facilitating recycling and using
recycled materials.”
– Anne Douglas, Director Category,
Marketing & Digital Innovation
Reducing water usage at site
Minimising our impact on the environment safeguards it for future
generations. Recovering water from milk when we make powdered
products means that the majority of our sites discharge more
water than they consume. By improving processes and using new
technology, we are improving water quality treatment so that we can
be even more resource efficient.
Our Maungatūroto site was recognised at the 2022 Water New Zealand
Excellence Awards for reducing water usage by up to 25%. In a first of
its kind for Fonterra, evaporator condensate (water extracted from milk)
from the site is redirected through a natural wetland before being further
treated and re-used at the site. By recycling up to 700,000 litres of water
a day through the wetland, the site has been able to reduce its reliance
on Kaipara District Council supply, giving the community more security
of water supply.
“ We’ve taken an holistic, circular and
nature-based approach to look at how
we could work in partnership with nature.
By providing the right amount of nutrients
for the native plants and habitat to
thrive promotes greater biodiversity
within the wetland.”
– Stuart Glen, Maungatūroto Environmental Manager
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Products
& customers
At Fonterra we believe our
New Zealand pasture-based farming
produces the best milk in the
world, a testament to the care and
attention our farmer owners give to
their animals and the land.
This high level of focus means that our on-farm carbon
footprint is amongst the lowest in the world. As our
customers and consumers become more focused on the
provenance of their food, our sustainability credentials are
more important than ever before as we offer our trusted
goodness beyond New Zealand’s backyard.
We play an important part in the development of new dairy
innovations, helping customers as they look to nutrition
solutions to help them live longer and healthier lives.
This year, Fonterra’s Research and Development Centre
(FRDC) celebrated turning 95, and this centre of excellence
continues to be an important part of our strategy to
become a leader in innovation and science.
As the world changes, we change with it, adapting to
the evolving needs and desires of our customers and
consumers. Using our extensive dairy expertise, we
are creating new value-add products to cater to the
changing tastes of consumers around the world. Through
these innovations, we are maximising value for both our
customers and farmer owners, while ensuring we utilise
every single drop of milk.
Billie, Tararua
“ Nurture is a great example of an
entrepreneurial mindset. If you can’t
get somebody to do it for you then do it
yourself and make it happen and that’s
exactly what the team did. Their ‘start-up
like’ model meant Fonterra was able to
get Nurture to market quickly and on a
shoestring budget.”
– Judith Swales, Fonterra CEO APAC
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ON FARM
Provenance
New Zealand’s reputation for our low-carbon pasture-based farming
system is expanding as consumers are increasingly interested in
understanding where their food comes from, how it is made and its
impact on the environment.
Across the globe, our New Zealand provenance is featured strongly
on-pack, particularly in South-East Asian markets, where New Zealand is
perceived as a marker for superior nutrition and purity.
While external animal wellbeing standards and certifications exist, not all
are relevant to New Zealand’s pasture-based farming system. In response
to this, we’ve developed our Cared for Cows Standard as a representation
of how we approach animal wellbeing alongside our farmers.
The Cared for Cows Standard formalises the process for assessing and
managing animal wellbeing on farms supplying Fonterra New Zealand
and sets out the requirements for Fonterra’s management of animal
wellbeing on our farms.
Our South Korea customer Daesang has started using the Cared for
Cows Standard on their packaging as a byword for quality.
New Zealand origin has become a trustworthy signal in the eye of
consumers. In Vietnam, one customer, Nutifood, recently released its
100% New Zealand Grass-Fed milk brand, the first of its kind in the
country. Vietnamese consumers are becoming more interested in natural,
high-quality foods and using our provenance story and sustainability
claims allows Nutifood to differentiate its products on supermarket
shelves.
With 72% of global consumers expressing an interest in brands that
actively communicate achievements around sustainability, we’re
leveraging our stainability solutions to create a range of carbonzero™
ingredients. Achieving carbonzero™ certification for products like
Simply Milk and NZMP™ Organic Butter is a great way for us to help our
customers and the environment.
Carbonzero™ ingredients help unlock real benefits for our customers,
allowing them to meet their sustainability targets, signal environmental
values and grow brand preference and market share.
To achieve our carbonzero™ certification, we partnered with independent
company Toitū Envirocare. They measure the impact of producing our
carbonzero™ products right the way through the supply chain, including
the disposal of packaging by customers. Understanding our footprint
means we can offset our impact with high-quality carbon credits from
projects, including native forest regeneration in New Zealand and Gold
Standard renewable energy projects.
In recognition of this work, this year NZMP Organic Butter carbonzero™
certified won the ‘Sustainability Innovation Award’ at Food Ingredients
Europe 2021 and the ‘Most Innovative Dairy Product Award’ at the
Gulfood Innovation Awards 2022, a first for Fonterra. We also continued
our work with another New Zealand co-operative, Foodstuffs North
Island, to expand the Simply Milk range, the first carbonzero™ milk in
the Southern Hemisphere. The range now includes a 3-litre bottle size,
offering more choice to consumers.
“ It’s becoming increasingly important
to customers to know where their food
comes from and that it’s being produced
sustainably. Simply Milk offers customers
the opportunity to purchase their
everyday milk and know their choice is
making a difference to something that’s
really important to them.”
– Chris Anderson. Merchandise Manager
for chilled beverages at Foodstuffs North Island
Chris Anderson, Foodstuffs North Island
FONTERRA ANNUAL REVIEW 2022
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CONTENTS
PRODUCTS
& CUSTOMERS
Reducing waste
Fancy your latte or flat white from a source that produces less waste
and is better for the environment? Our Fonterra Brands New Zealand
(FBNZ) team has been working with baristas around New Zealand to trial
Anchor café milk taps.
The Anchor café milk tap is connected to a recyclable 10 litre bladder,
filled with milk, which replaces five 2-litre standard milk bottles, reducing
plastic by 65%. The tap itself measures the precise amount of milk into
coffee cups, meaning less waste and ultimately a reduction in costs.
The Anchor café milk tap is yet another small step towards our goal of
becoming a leader in sustainability.
Driving innovation
At the forefront of dairy innovations, Fonterra is continuously looking at
ways to better leverage the nutritional value of New Zealand milk. With
an enviable research and development facility in Palmerston North, we
continue to develop new dairy innovations to help customers as they
look to nutrition solutions to help them live longer and healthier lives.
Although most nutritional innovation happens in one of our Fonterra
laboratories, during COVID-19, our team had to be a little more creative.
Creating and launching a brand of cultured milk drink for Singapore all
happened from the home kitchen of one of our Food Technologists in
New Zealand.
Without access to their usual labs, the team used their ingenuity to
develop the product at home and then conduct socially distanced testing
in parks and outdoor spaces to ensure that they got the taste and texture
just right. The resulting product, Nurture cultured milk, uses only a
little sugar, unlike regular cultured milks on the market, and has added
vitamins to support immunity. This is just one example of how we’re
leveraging agile lean innovation techniques.
In Greater China, our team has developed and launched Anchor Veg-
Fruit Probiotic Milk Powder. The Anchor Veg-Fruit Probiotic Milk Powder
contains four kinds of fruit: banana, pineapple, prune, and cranberry,
as well as three vegetable ingredients – pumpkin, corn and carrot. All
these natural elements help provide vitamin A, dietary fibre, zinc, iron,
magnesium and other nutrients needed by the human body.
Further cementing our position as a leading dairy nutrition producer,
Fonterra this year became a member of the Medical Nutrition
International Industry (MNI). Representing companies that provide
expert solutions to feed patients in hospital care or in otherwise
vulnerable stages of their health, this new membership strengthens
our efforts to provide quality nutritional interventions and services
to best serve the interests of patients and those working in healthcare.
By partnering with MNI, we can show dairy is more than just a daily
dose of nutrition for breakfast – it’s also a medical superfood that can
help save lives.
“ Because there is less waste and spillage
with every pour from the Anchor café
milk tap, it means less cost for us and
increased productivity and time savings
for the baristas making coffee. From our
perspective it also enhances the whole café
experience because it gives us more time to
connect with our customers.”
– Eric Heycoop, Owner Emporio Coffee
Elise, Food Technologist, Auckland
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Taking the Co-op to our customers
We’re also using technology to improve customer experience and adapt
to changing buying and procurement needs. E-commerce has come a long
way over the past ten years, thanks in particular to business-to-consumer
e-commerce, which has radically pushed boundaries and innovated in this
space. In response to our customers’ desire for more convenience and
flexibility, our ingredients business, NZMP, launched myNZMP.
Built and powered by Fonterra, myNZMP is an industry-leading business-to-
business platform, offering personalised digital services to our customers,
including an e-commerce store. myNZMP makes it easier and more
convenient for customers to plan, buy, track and manage their NZMP orders.
With the introduction of myNZMP, customers have a seamless online to
offline experience. They can buy quickly online when needed and access
order data and insights, as well continuing to access ingredients support
from NZMP’s experienced sales network when required.
Since the myNZMP Store’s pilot launch in September 2020 with a small
group of customers, myNZMP Store has evolved month-on-month with the
help of customer and employee feedback. To date, over USD $200 million
worth of product has been sold via myNZMP Store.
myNZMP Store is becoming a significant enabler of our Ingredients
business over the next decade and is helping us to deepen relationships
with our customers, a key to achieving our long-term ambitions.
Fonterra has a long history of hosting thousands of visitors annually, all
eager to understand the stories that sit behind our much-loved products,
ingredients and brands. When COVID-19 put a halt to our entire visitor
programme, we faced an interesting challenge – if we can’t bring our
customers to the Co-op, how do we take the Co-op to our customers?
Aiming to showcase both New Zealand and Fonterra virtually, the Co-
operative Experience team developed ‘Visit Fonterra’. The interactive digital
experience focuses on our people, sustainability, innovation, traceability
and food safety quality.
Since its launch in March this year, there have been over 12,000 visitors to
the platform from 107 countries globally, consuming over 90,000 pages of
Fonterra content. It’s a valuable tool to educate people from around the world
about our grass-fed farming methods and quality products.
Tapping into trends
Innovation means we need to constantly look at consumer trends, and
what’s happening in the world. At Fonterra, our teams are always looking
to drive demand for New Zealand milk by developing new ways of using
our products in local cuisine to find the next big food trend.
Chinese New Year festivities last for a few weeks each year. An important
feature of these celebrations is spending time with family and sharing
dumplings - a symbol of prosperity and wealth. In Greater China, using
the power of social media, the team promoted the idea of mozzarella on
dumplings. The dish gained huge attention and sparked a new trend in
the lead-up to the Lunar New Year.
In Vietnam, coffee beans are traditionally roasted with fat to remove
the acidity of the beans. Working with the country’s leading premium
coffee brand Trung Nguyen, we introduced Anchor butter to the roasting
process of their coffee. The butter gives the coffee beans a glossy finish,
an enhanced aroma and a distinctive taste profile. Our ability to assure
consistency of supply and Anchor’s provenance and grass-fed value
proposition offered a compelling advantage over other alternatives.
Coffee beans roasted in Anchor Butter in Vietnam
Our mozzarella gives dumplings a twist in China
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BOARD RESPONSIBILITIES Elected Director, Chairman,
Member of the People, Culture and Safety Committee,
the Disclosure Committee, and the Governance Development
Programme Committee
TERM OF OFFICE Elected 2018, last re-elected 2021
Peter McBride was elected to the Fonterra Board in 2018
and became Chairman in November 2020. He is the Chief
Executive Officer of Trinity Lands Limited, a dairy and kiwifruit
operation largely based in the Waikato, and is the Managing
Director of Ellett Beach Farms Joint Venture. Peter is a Director
of Sequal Holdings Limited and its subsidiaries, and is a
member of the New Zealand China Council and the Zespri
Global Supply Advisory Board.
Peter was previously the Chairman and a Director of Zespri
Group Limited and other related companies, and Managing
Director of South East Hort Limited and its subsidiaries.
Peter was also previously a Director of the New Zealand
International Business Forum and the Zespri China Advisory
Board. Peter has shareholding interests in the Waikato.
B. Horticulture, PG Dip Com Agribusiness
BOARD RESPONSIBILITIES Appointed Director, Member of
the Co-operative Relations Committee, the Divestment Review
Committee and the People, Culture and Safety Committee
TERM OF OFFICE Appointed 2015
Clinton was appointed to the Fonterra Board in 2015.
Clinton lived and worked in China for 36 years, 21 of which
as President of BHP Billiton’s China business. He has
extensive experience as an executive in China and Asia
businesses and has had an active career as a Non-Executive
Director, currently serving on the Boards of the Port of
Newcastle, Sky Renewables Pty Limited and Zanaga Iron
Ore Company Limited.
He was Executive Chairman of Caledonia Asia from 2010
to 2013, an investment group in Asia, and is a Partner in
Moreton Bay Partners, a strategic advisory firm based in
Brisbane. He is an Adjunct Professor at Griffith University’s
Asia Institute and is a Member of the Griffith University
Council. Clinton has extensive experience as a senior executive
in China and Asia businesses, including global manufacturing
and commodity businesses.
BA (Modern Asian Studies, Griffith), CIM, INSEAD
BOARD RESPONSIBILITIES Elected Director, Member of the
Audit, Finance and Risk Committee, the Co-operative Relations
Committee, the Divestment Review Committee and the Milk
Price Panel
TERM OF OFFICE Elected 2017, last re-elected 2020
Brent Goldsack was elected to the Fonterra Board in 2017.
Brent had a 25-year career in both New Zealand and abroad
in various corporate advisory roles, including being a
Partner at PwC for more than 12 years. Brent is a fellow of
the Chartered Accountants of Australia and New Zealand.
Brent currently Chairs the Board of Waitomo Group Limited
and its subsidiaries and Better Eggs Limited and is a Director
of Rabobank NZ Limited, The Hills Golf Club Limited and
Henergy Cage-Free Limited. Brent previously served on the
Board of Canterbury Grasslands Limited.
Brent is actively involved as a shareholder of three dairy
operations in the Waikato. In addition to his strong financial
skills and knowledge, Brent has particular expertise in
Fonterra’s Farmgate Milk Price and the drivers of the
Co-operative’s earnings.
BCA, FCA
PETER MCBRIDECLINTON DINESBRENT GOLDSACK
BOARD RESPONSIBILITIES Elected Director, Member of
the Co-operative Relations Committee and the People, Culture
and Safety Committee
TERM OF OFFICE Elected 2018, last re-elected 2021
Leonie Guiney was elected to the Fonterra Board in 2018.
Leonie previously served on the Board from 2014 to 2017.
Leonie has worked in the agriculture sector for more than
25 years in a number of positions including lecturer of Dairy
Production at Lincoln University, consultant on the BNZ
Growth Programme for farmers and has held roles with
Golden Vale Dairy Co-operative in Ireland, LIC and FarmRight
South Island.
Leonie lives and farms at Fairlie in South Canterbury and is
a director and shareholder of seven South Canterbury farms
and Bobby Square Limited.
BAgrSci
LEONIE GUINEY
Board of Directors
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BOARD OF DIRECTORS
Board of Directors (continued)
BOARD RESPONSIBILITIES Appointed Director, Chair
of the Audit, Finance and Risk Committee, Member of the
Disclosure Committee, the Divestment Review Committee,
the Milk Price Panel and is an observer on the People, Culture
and Safety Committee
TERM OF OFFICE Appointed 2017
Bruce Hassall was appointed to the Fonterra Board in 2017.
Bruce is a Chartered Accountant and has had a 35-year career at
PwC, including holding the position of Chief Executive Officer of
the New Zealand practice from 2009 to 2016. Bruce is Chairman
of The Farmers Trading Company Limited, Prolife Foods Limited
and Fletcher Building Limited and serves as a director on the
Board of Bank of New Zealand.
Bruce was previously a member of the University of Auckland
Business School Advisory Board and was a founding Board
Member of the New Zealand China Council. Bruce has extensive
experience in financial reporting, information system processes,
risk management, business acquisitions, capital raising and IPOs
across both listed and private companies.
BCom, FCA (CAANZ)
BOARD RESPONSIBILITIES Appointed Director, Chair of the
People, Culture and Safety Committee, and Member of the Audit,
Finance and Risk Committee
TERM OF OFFICE Appointed 2020
Holly Kramer was appointed to the Fonterra Board in 2020.
Holly has more than 25 years of extensive governance,
management and product/marketing experience.
She was Chief Executive Officer of major Australian retailer
Best & Less. She has also held senior executive roles at
Telstra Corporation, Ford Motor Company (in the US and
Australia) and Pacific Brands.
Holly is currently a Director on the Boards of Woolworths
(Chair, Sustainability Committee), Abacus Property Group,
Endeavour Group, the GO (Goodes-O’Loughlin) Foundation
and The Ethics Centre. She is also the Pro-Chancellor of
Western Sydney University and a Member of the Bain Advisory
Group. Holly’s previous governance roles include the Boards of
Australia Post, Nine Entertainment Corporation, AMP Limited,
Lendi and Telstra Clear (NZ).
Holly and her husband live on a small rural property in the
Southern Highlands, NSW, where they raise beef cattle. Holly
volunteers her time as a mentor for numerous programs
(including AICD Chair’s Mentoring, Women in STEM, Minerva
Sports Network,) and speaks publicly on the topics of
leadership, gender diversity and sustainability.
BA, MBA
BRUCE HASSALLHOLLY KRAMER
BOARD RESPONSIBILITIES Elected Director, Chair of
the Co-operative Relations Committee, Member of the People,
Culture and Safety Committee and the Governance Development
Programme Committee, and Fonterra appointed Director of FSF
Management Company Limited
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 and
is a past President of the New Zealand Institute of Primary
Industry Management (NZIPIM). He is a Director of ANZCO,
chairs the SFFF Plantain Project and Edgewater Hotel
Lake Wanaka and is a member of the International Farm
Management Association (IFMA). Andy is a previous Director
of Ngai Tahu Farming Limited and AgResearch, past chair of
Deer Industry New Zealand, and served on the council of
Lincoln University for 12 years.
Andy and his wife Tricia commenced farming in 1989 and live
near Ashburton. His shareholding interests are in Canterbury.
He has a strong interest in the governance of food processing
and manufacturing, research and development, and strategic
use of technology in the farming sector.
B . Agr. Sc
BOARD RESPONSIBILITIES Elected Director, Member
of the Co-operative Relations Committee and the Disclosure
Committee, and Fonterra appointed Director of Fonterra
Farmer Custodian Limited
TERM OF OFFICE Elected 2018, last re-elected 2021
John Nicholls was elected to the Fonterra Board in 2018.
An experienced company director, he is the current chair
of MHV Water, New Zealand’s largest intergenerational
irrigation co-operative.
As the owner of several mid-Canterbury dairy farms
forming part of the Rylib Group, John is highly focused on
investing in and mentoring the next generation of farmers
in New Zealand and on safeguarding the sustainability of
farming for the long term. He brings professionalism, cost
consciousness and a strategic mindset to governance, ensuring
that business operations align with core strategy and are
consistently adding value.
John served on the Fonterra Co-operative Council from 2009
to 2011. He has a degree in agriculture and a postgraduate
diploma in agricultural science, both from Massey University.
B.Agr, PG AgrSci
JOHN NICHOLLS
ANDY MACFARLANE
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BOARD RESPONSIBILITIES Elected Director, Chair of the
Disclosure Committee and the Divestment Review Committee,
Member of the Audit, Finance and Risk Committee, and an
observer on the Milk Price Panel
TERM OF OFFICE Elected 2020
Cathy Quinn was elected to the Fonterra Board in 2020. She
has a number of governance roles having previously enjoyed
a 30+ year career as a commercial and corporate lawyer with
MinterEllisonRuddWatts, and has significant expertise in
governance, equity capital markets, mergers and acquisitions
and private equity services. Amongst the numerous awards she
has won, Cathy was made an Officer of the New Zealand Order
of Merit for services to law and women in 2016.
Cathy is a director and indirect shareholder of Thistlehurst
Dairy Limited, based in the Waikato. Cathy advised the dairy
industry for many years including the Dairy Board, Fonterra,
the Fonterra Co-operative Council, and competitors of
Fonterra. Cathy serves on the Fletcher Building and Rangatira
Boards and chairs the Boards of Tourism Holdings and Fertility
Associates. In terms of public service roles Cathy is the Pro-
Chancellor of the Council of Auckland University. She was
previously on the advisory Board at New Zealand Treasury,
the New Zealand Securities Commission and New Zealand
China Council.
ONZM, LLB
CATHY QUINN
BOARD RESPONSIBILITIES Elected Director, Member of the
Audit, Finance and Risk Committee, and Fonterra appointed
Director of FSF Management Company Limited
TERM OF OFFICE Elected 2016, last re-elected 2019
Donna Smit was elected to the Fonterra Board in December
2016. Donna serves on the Board of the Manager of the
Fonterra Shareholders’ Fund (FSF Board). In July 2022, Donna
announced she will retire from the Fonterra Board and the
FSF Board following their respective Annual Meetings in
November 2022. Donna lives and farms at Edgecumbe, and has
built and owns five dairy farms in Eastern Bay of Plenty and
Oamaru. Donna is a Director of Kiwifruit Equities Limited and
a Trustee of the Dairy Women’s Network and was previously a
Director of EastPack Limited.
Donna is a Fellow Chartered Accountant and was a company
administrator of kiwifruit co-operative EastPack for 24 years.
Donna’s strong focus on financial and risk management has
been built through her extensive business and manufacturing
experience and financial background, and complements her
deep dairy farming experience.
FCA
BOARD RESPONSIBILITIES Appointed Director, Chair
of the Milk Price Panel and Member of the Audit, Finance
and Risk Committee, the Disclosure Committee and the
Divestment Review Committee
TERM OF OFFICE Appointed 2016
Scott St John was appointed to the Fonterra Board in 2016.
He was the CEO of First NZ Capital (FNZC) for 15 years,
stepping down from that role in early 2017. Scott is the Chair of
Fisher and Paykel Healthcare and serves on the Board of ANZ
Bank New Zealand, Mercury NZ Limited and NEXT Foundation.
Scott served on the Council of the University of Auckland from
2009 to 2021, including as Chancellor from 2017 to 2021. His
other previous roles have included Chairman of the Securities
Industries Association, and membership of both the Capital
Markets Development Taskforce and the Financial Markets
Authority Establishment Board.
BCom, Diploma of Business
DONNA SMIT
SCOTT ST JOHN
Board of Directors (continued)
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MILES HURRELL
CHIEF EXECUTIvE OFFICER
Miles was appointed Chief Executive in 2018. He is responsible
for leading the organisation, delivering strategy and financial
performance, and engaging with our farmer owners,
employees, customers and shareholders.
As Chief Executive, Miles has led the Co-operative through
strategic reviews into a new growth phase focused on
New Zealand’s pasture-based milk, dairy innovation and
science and sustainability.
Previously, Miles held the role of Chief Operating Officer,
Farm Source, with responsibility for farmer services and
engagement, milk sourcing and the operation of New Zealand’s
70 Farm Source™ retail stores.
Miles has also held a number of leadership roles across the
Co-op, including Group Co-operative Affairs Director and
General Manager Middle East, Africa, Russia and Eastern
Europe where he led a period of sustained growth across
the region. Earlier in his career, Miles worked as the General
Manager of Global Sourcing, building relationships with many
of our global partners of today.
Miles has completed management programmes at INSEAD
(International Executive Development), London Business
School (Finance), Kellogg’s NorthWestern University (Global
Sales) and IMD Switzerland (Global Marketing).
KATE DALY
MANAGING DIRECTOR, PEOPLE AND CULTURE
Kate was appointed as Managing Director People and Culture
in August 2021.
She has oversight of the teams responsible for facilitating
Fonterra’s people strategy including Culture and Wellbeing,
Employment Relations, Leadership Development, Talent and
Future Capabilities, Rewards and Global Mobility.
Kate first joined Fonterra in December 2020, making significant
contribution to the Co-operative as Director of HR for COO,
where she held responsibility for leading the HR function
for Fonterra across NZ Manufacturing, Technical Excellence,
Global Supply Chain, Global Sustainability, Global Quality
& Safety, Category Strategy & Innovation and Information
Technology.
Prior to joining Fonterra, Kate had extensive experience in
Human Resources and Communications leadership, having
held senior roles across these portfolios since 2001. Kate
previously led a transformation of the People and Culture
function at the BNZ. She also was appointed as the Chief
People and Communications Officer with Fletcher Building Ltd.
Kate was awarded the HRINZ HR person of the year in 2018 in
recognition for her contribution to Fletcher Building.
Kate has a Bachelor of Commerce in Economics and
International Finance and a Bachelor of Science in
Pharmacology, both from the University of Auckland.
MIKE CRONIN
MANAGING DIRECTOR CO-OPERATIvE AFFAIRS
Mike Cronin oversees Co-operative Affairs which
includes Governance, Risk and Audit, Farm Source, Global
Sustainability, Stakeholder Affairs and Trade, Legal, Inclusion
and Māori Strategy.
Mike joined Fonterra in 2002 and has been a member of
teams that have contributed to some of Fonterra’s key
initiatives, including Trading Among Farmers, the Governance
and Representation Review, the Fonterra Purpose, The Co-
operative Difference and Flexible Shareholding.
Prior to 2014 when he joined the Fonterra Management
Team, Mike was the General Manager of Strategy
Deployment and then Group Director Governance and Legal.
Mike has a Bachelor of Laws and Bachelor of Arts from the
University of Auckland.
Fonterra Management Team
TEH-HAN CHOw
CHIEF EXECUTIvE OFFICER, GREATER CHINA
Teh-han oversees the Co-op’s business in the Greater China
region, including Ingredients, Foodservices and Consumer
Brands. The region is one of the largest markets for Fonterra,
accounting for roughly a third of the Co-op’s total business.
Prior to his appointment as Chief Executive Officer of the
Greater China region in 2020, Teh-han was President of
Fonterra’s ingredients business, NZMP, in Greater China,
and South and East Asia.
Teh-han has over 20 years of experience in China across
a variety of industries and functions, including marketing,
public relations, advertising, sales, and management roles
in food, agriculture, commodities, FMCG, luxury goods,
and hospitality sectors.
Prior to joining Fonterra in 2015, Teh-han was Chief Executive
Officer of Louis Dreyfus Commodities China, where he
doubled the business, expanded the company’s business lines,
built and acquired production facilities, and was involved
in establishing multiple joint-ventures including COFCO
Agricultural Industry Investment Fund. Prior to Louis Dreyfus,
Teh-han was Managing Director for Greater China for J.R.
Simplot, a United States-based diversified agribusiness with
farming and food processing operations in China.
Teh-han has a Bachelor’s degree in Marketing from California
State University Northridge, and a Master’s degree, with
honours, in International Management from Thunderbird
Graduate School of International Management.
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FONTERRA MANAGEMENT TEAM
EMMA PARSONS
MANAGING DIRECTOR, STRATEGY AND OPTIMISATION
Emma leads Fonterra’s work on strategy and optimisation,
overseeing the central portfolio management function, and the
development and implementation of strategy.
Prior to August 2022 when Emma joined the Fonterra
Management Team, she was the General Manager of Capital
Strategy and CEO of Agrigate, a joint venture between
Fonterra and Livestock Improvement Corporation (LIC), GM
Responsible Dairying, and had roles in Brazil and Argentina
where she developed the Co-operative’s export relationships
and supply chain integration across Latin America.
Before joining Fonterra in 2001, Emma worked for the New
Zealand Dairy Board and Kiwi Dairies.
She has a Master of Business Administration, with First Class
Honours, from Massey University, and has Bachelor of Science
and Bachelor of Commerce degrees from Victoria University
of Wellington.
MARC RIvERS
CHIEF FINANCIAL OFFICER
Marc Rivers joined Fonterra in February 2018 as the Chief
Financial Officer, responsible for the Co-operative’s finances.
Marc’s responsibilities extend to the centralised management
of Fonterra’s physical and financial portfolios, as well as
mergers and acquisitions.
Marc is an experienced global finance executive. Prior to
joining Fonterra, Marc was the CFO at Roche Pharmaceuticals
Division in Switzerland. Marc has worked in both emerging
and established markets, including China, Japan, Southeast
Asia, Europe and the United States. During this time, he has
led teams through significant change and provided strategic
leadership. Marc is known for his commitment to leading and
developing his people while building diverse and inclusive
teams.
He has a Bachelor of Arts in International Studies and an
International Master of Business Administration, Finance
and German from the University of South Carolina, Columbia,
SC, USA.
KOMAL MISTRY-MEHTA
CHIEF INNOvATION AND BRAND OFFICER
Komal leads Fonterra’s innovation, research and development
functions along with the Co-operative’s brand and
communications activities. This includes shaping the future
of Fonterra by developing and commercialising innovation,
technologies and new business models.
In addition, Komal oversees the Active Living Business Unit,
and has responsibility for setting the global strategy for Core
Dairy, Foodservice and the Nutrition Science portfolio.
Prior to joining the Fonterra Management Team in August
2022, Komal led Fonterra’s high-value global ingredients
business Active Living, unlocking growth through developing
and commercialising science-backed health and wellness
solutions. In her prior role, Komal’s work establishing and
developing Fonterra Ventures earned her the title of New
Zealand’s Young Executive of the Year in the 2017 Deloitte Top
200 Awards. Prior to joining Fonterra in 2011, Komal worked
for Deloitte in Europe.
She is known for her leadership in developing people and her
strong advocacy for diversity and inclusion.
Komal has completed the Executive Program at Stanford
University School of Business and holds Bachelor of Laws
and Bachelor of Management degrees from the University of
Waikato. She is a Barrister and Solicitor of the High Court of
New Zealand as well as a member of the New Zealand Institute
of Chartered Accountants.
JUDITH SwALES
CHIEF EXECUTIvE OFFICER, ASIA PACIFIC (APAC)
Judith Swales leads Fonterra’s business in Asia Pacific where
she is responsible for all sales and marketing of Fonterra’s
Consumer, Foodservice and Ingredients products in the region.
Judith and her team also set the global strategy for the
Consumer, Foodservice and paediatric businesses.
Prior to this she was Fonterra’s COO Global Consumer
and Foodservice having earlier led the Innovation and
Transformation business unit, shaping the future of Fonterra
by harnessing innovation, emerging technologies and game
changing business models, while embedding a performance
driven culture.
Judith joined the Co-operative in 2013 as Managing Director
Australia and Fonterra Oceania, where she led the successful
turnaround of the Australian business and oversaw Fonterra
Brands New Zealand.
The daughter of a milkman, Judith grew up helping her father
on his daily milk run. She has extensive experience in senior
management and business turnarounds, and prior to joining
Fonterra was the Managing Director of Heinz Australia, and
CEO and Managing Director of Goodyear Dunlop, Australia
and New Zealand. Judith worked for a number of UK retailers
which culminated in her move to Australia in 2001 as the
Managing Director of Angus and Robertson.
She currently serves as a Non-Executive Director for Super
Retail Group and has served on the boards of Virgin Australia,
DuluxGroup and Fosters. Judith has a Bachelor of Science
(Honours) in Microbiology and Virology, and is a graduate
member of the Australian Institute of Company Directors.
Fonterra Management Team (continued)
FONTERRA ANNUAL REVIEW 2022
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Fonterra Management Team (continued)
KELvIN wICKHAM
CHIEF EXECUTIvE OFFICER, AMENA
With over 30 years at Fonterra and in the global dairy industry,
Kelvin Wickham is driven by his belief in dairy as a high-quality
source of nutrition for the world.
In his current role as the CEO of AMENA, he is responsible
for Fonterra’s activities across Consumer, Foodservice
and Ingredients in Africa, Middle East, Europe, North Asia and
the Americas.
Over his career, Kelvin has played a key role in building
Fonterra’s ingredient’s brand, NZMP, across the world,
developing Fonterra’s business in expanding markets, and
establishing key customer relationships and partnerships.
He has also led major projects during pivotal moments in the
history of Fonterra and the dairy industry. This includes when
he oversaw the launch of Global Dairy Trade, a first for the
industry, which in addition to making global online dairy sales
possible, offered transparent price discovery to support the
development of dairy price risk management tools.
Kelvin holds a Chemical and Materials Engineering Degree, a
Master of Management and a Diploma of Dairy Science and
Technology.
Fonterra Management Team Overview
Fonterra announced several changes to the Fonterra Management Team (FMT) in 2022:
– Fonterra’s Chief Financial Officer, Marc Rivers, is leaving Fonterra in November 2022. Chris Rowe
has been appointed as the Acting Chief Financial Officer from 1 October 2022, with Mr Rivers
moving into the role of Strategic Advisor to the Chief Executive Officer from 1 October 2022 until
his departure.
– Two new FMT roles were established with effect from 1 August 2022 to reflect Fonterra’s focus on
innovation and strategic implementation. Komal Mistry-Mehta has been appointed as the Chief
Innovation and Brand Officer and Emma Parsons has been appointed as the Managing Director
Strategy and Optimisation.
– The AMENA and APAC Business Units will be consolidated into one business unit from 1 October
2022, to be led by Judith Swales as the CEO Global Markets. Kelvin Wickham (AMENA CEO) will
be leaving Fonterra in December 2022.
FRASER wHINERAY
CHIEF OPERATING OFFICER
Fraser is responsible for our New Zealand manufacturing site
and global supply chain operations, sustainability, IT and safety,
quality and regulatory teams.
He joined the Co-operative from Mercury, a 100% renewable
electricity retailer and generator, where he was the Chief
Executive from 2014 and held executive roles since joining
the company in 2008.
Fraser is no stranger to the dairy industry. He started his career
as a graduate of the New Zealand Dairy Board’s technical
training programme and spent time at manufacturing sites
that are now part of the Co-op, and also in Fonterra’s export
markets. He has also worked in the investment banking and
forestry industries, both in New Zealand and internationally.
Fraser is a keen advocate for astute long-term decisions that
leverage New Zealand’s competitive advantages, including its
people, for sustainable growth.
He served as a Non-Executive Director of Opus International
Consultants from 2008 – 2016 and of Tilt Renewables and
Chaired the Prime Minister’s Business Advisory Council.
In 2019 he was named the Deloitte Top 200 Chief Executive
of the year.
Fraser holds an MBA from the University of Cambridge,
a Bachelor of Chemical Engineering from Canterbury
University and a Diploma in Dairy Science and Technology
from Massey University.
FONTERRA ANNUAL REVIEW 2022
FONTERRA MANAGEMENT TEAM
Folio 2
Section heading
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CONTENTS
FONTERRA MANAGEMENT TEAM
Non-GAAP Measures
Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures
are not defined or specified by 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.
Please refer to the following tables for reconciliations of NZ IFRS to non-GAAP measures, and the Glossary for
definitions of non-GAAP measures referred to by Fonterra.
Reconciliation from profit after tax to total Group normalised EBITDA
GROUP $ MILLION
31 JULY 202231 JULY 2021
Profit after tax583599
Net finance costs from continuing operations194252
Net finance costs from discontinued operations3710
Tax expense from continuing operations169103
Tax credit from discontinued operations(7)(5)
Depreciation and amortisation from continuing operations635642
Depreciation and amortisation from discontinued operations––
Total Group EBITDA 1,6111,601
Gain on sale of Global Dairy Trade(42)–
Gain on sale of Ying and Yutian China Farms–(32)
China Farms impairment reversal–(23)
Gain on sale of Falcon China Farms JV–(40)
Brazil Consumer and Foodservice business impairment5739
Income Statement impact of Beingmate investment–49
Total normalisation adjustments15(7)
Total Group normalised EBITDA1,6261,594
FONTERRA ANNUAL REVIEW 2022
NON-GAAP MEASURES
Folio 2
Section heading
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CONTENTS
NON-GAAP MEASURES
Reconciliation from profit after tax to total Group normalised EBIT
GROUP $ MILLION
31 JULY 202231 JULY 2021
Profit after tax583599
Net finance costs from continuing operations194252
Net finance costs from discontinued operations3710
Tax expense from continuing operations169103
Tax credit from discontinued operations(7)(5)
Total Group EBIT976959
Normalisation adjustments (as detailed on the previous page)15(7)
Total Group normalised EBIT991952
Reconciliation from profit after tax to normalised profit after tax and normalised earnings
per share
GROUP $ MILLION
31 JULY 202231 JULY 2021
Profit after tax 583599
Normalisation adjustments (as detailed on the previous page)15(7)
Tax on normalisation adjustments(7)(4)
Normalised profit after tax591588
Loss/(profit) attributable to non-controlling interests1(21)
Normalisation adjustments attributable to non-controlling interests(24)(17)
Normalised profit after tax attributable to equity holders of
the Co-operative568550
Weighted average number of Co-operative shares (thousands of shares)1,613,3531,613,105
Normalised earnings per share ($)0.350.34
Reconciliation from gross profit from continuing operations to total Group normalised
gross profit
GROUP $ MILLION
31 JULY 202231 JULY 2021
Gross profit from continuing operations3,2162,984
Gross profit from discontinued operations 124153
China Farms impairment reversal–(23)
Total Group normalised gross profit3,3403,114
Hannah & Henry, Canterbury
FONTERRA ANNUAL REVIEW 2022
NON-GAAP MEASURES
Folio 2
Section heading
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CONTENTS
TERMSDEFINITION
Active Livingrepresents ingredients & solutions sold to businesses who cater to consumers’
health and wellness needs. It addresses three dimensions of wellbeing (Physical,
Mental, Inner), extending to meet the nutrition needs of medical patients
through to everyday people pursuing active lifestyles. This portfolio includes
proteins, specialty ingredients such as probiotics, lactoferrin & lipids, and
patented formulations.
Adjusted net debtis calculated as total borrowings, plus bank overdraft, less cash and cash
equivalents, plus a cash adjustment for 25% of cash and cash equivalents held by
the Group’s subsidiaries, adjusted for derivatives used to manage changes in hedged
risks on debt instruments. Amounts relating to disposal groups held for sale are
included in the calculation.
Aggregate minimum
shareholding
requirement
means the total amount of shares required to be held by farmer shareholders to
meet the Share Standard.
AMENArepresents the Ingredients, Foodservice and Consumer channels in Africa, Middle
East, Europe, North Asia and Americas.
Asia Pacificrepresents the Ingredients, Foodservice and Consumer channels in New Zealand,
Australia, Pacific Islands, South East Asia and South Asia.
Attributable to equity
holders of the Co-
operative
is used to indicate that a measure or sub-total excludes amounts attributable to
non-controlling interests.
Average capital
employed
is a 13-month rolling average of capital employed.
Bulk liquidsmeans bulk raw milk that has not been processed and bulk separated cream.
Business growth capital
expenditure
covers investments to drive business expansion or improvement toward our
strategy, and generate incremental revenue.
TERMSDEFINITION
Capital employedis adjusted net debt less the cash adjustment (used in calculating adjusted net debt),
plus cash and cash equivalents held by subsidiaries for working capital purposes,
plus equity excluding hedge reserves and net deferred tax assets.
Capital expenditurecomprises purchases of property (less specific disposals where there is an obligation
to repurchase), plant and equipment and intangible assets (excluding purchases
of emissions units), net purchases of livestock, and includes amounts relating to
disposal groups held for sale.
Capital investedcomprises capital expenditure plus right-of-use asset additions and business
acquisitions, including equity contributions, long-term advances, and investments.
Consumerthe channel of branded consumer products, such as powders, yoghurts, milk,
butter and cheese.
Continuing operationsmeans operations of the Group that are not discontinued operations.
Custodianmeans the Fonterra Farmer Custodian, which is the legal holder of the shares in
respect of which economic rights are held for the Fund.
Debt to EBITDAis adjusted net debt divided by Total Group normalised earnings before interest, tax,
depreciation and amortisation (Total Group normalised EBITDA) excluding share of
profit/loss of equity accounted investees and net foreign exchange gains/losses.
DIRAmeans the Dairy Industry Restructuring Act 2001, which authorised Fonterra’s
formation and regulates its activities, subsequent amendments to the Act, and the
Dairy Industry Restructuring (Raw Milk) Regulations 2012.
Discontinued operationsmeans a component of the Group that is classified as held for sale (or has been
sold) and 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.
Dividend yieldis dividends (per share) divided by volume weighted average share price for the
period 1 August to 31 July.
Glossary
FONTERRA ANNUAL REVIEW 2022
GLOSSARY
Folio 2
Section heading
Section Sub heading
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CONTENTS
GLOSSARY
TERMSDEFINITION
Earnings before interest
and tax (EBIT)
is profit before net finance costs and tax.
Earnings before interest,
tax, depreciation and
amortisation (EBITDA)
is profit before net finance costs, tax, depreciation and amortisation.
Earnings per share (EPS)is profit after tax attributable to equity holders of the Co-operative divided by the
weighted average number of shares on issue for the period.
EBIT marginis EBIT divided by revenue from sale of goods.
EBITDA marginis EBITDA divided by revenue from sale of goods.
Economic rightsmeans the rights to receive dividends and other economic benefits derived from a
share, as well as other rights derived from owning a share.
Essential capital
expenditure
covers investments to maintain the capability of our existing assets from risk
management, legislation/regulation commitments, business continuity and capital
replacement, as well as projects that drive the Co-operative sustainability targets
Farmgate Milk Pricemeans the average price paid by Fonterra for each kilogram of milk solids (kgMS)
supplied by Fonterra’s farmer shareholders under Fonterra’s standard terms
of supply. The season refers to the 12-month milk season of 1 June to 31 May.
The Farmgate Milk Price is set by the Board, based on the recommendation of the
Milk Price Panel. In making that recommendation, the Panel provides assurance to
the Board that the Farmgate Milk Price has been calculated in accordance with the
Farmgate Milk Price Manual.
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.
Foodservicerepresents the channel selling to businesses that cater for out-of-home
consumption; restaurants, hotels, cafés, airports, catering companies etc. The focus
is on customers such as; bakeries, cafés, Italian restaurants, and global quick-service
restaurant chains. High performance dairy ingredients including whipping creams,
mozzarella, cream cheese and butter sheets, are sold in alongside our business
solutions under the Anchor Food Professionals brand.
TERMSDEFINITION
Free cash flowis the total of net cash flows from operating activities and net cash flows from
investing activities.
Gearing ratio (Adjusted
net debt)
is adjusted net debt divided by total capital. Total capital is equity excluding hedge
reserves, plus adjusted net debt.
Global accountsmeans large scale, multi-national/multi-region customers.
Global Dairy Trade (GDT)means the electronic auction platform that is used to sell commodity
dairy products.
Greater Chinarepresents the Ingredients, Foodservice and Consumer channels in Greater China,
and the Falcon China Farms JV.
Gross marginis gross profit divided by revenue from sale of goods.
Group Operationscomprises functions under the Chief Operating Office (COO) including New
Zealand milk collection and processing operations and assets, supply chain, Group
IT, Sustainability and Innovation; Fonterra Farm Source™ retail stores; and the
Central Portfolio Management function (CPM).
Held for salean asset or 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. A disposal group
is a group of assets and liabilities to be disposed of (by sale or otherwise) in a
single transaction.
Ingredientsrepresents the channel comprising bulk and specialty dairy products such as milk
powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia,
Europe and Latin America, or sourced through our global network, and sold to food
producers and distributors.
kgMSmeans kilograms of milk solids, the measure of the amount of fat and protein in the
milk supplied to Fonterra.
Net debtmeans adjusted net debt.
Net tangible assets per
security
is net tangible assets divided by the number of equity instruments on issue. Net
tangible assets is calculated as net assets less intangible assets.
Net working capitalis total trade and other receivables plus inventories, less trade and other payables.
It excludes amounts owing to suppliers and employee entitlements.
FONTERRA ANNUAL REVIEW 2022
GLOSSARY
Folio 2
Section heading
Section Sub heading
51
CONTENTS
TERMSDEFINITION
Non-reference productsmeans all dairy products, except for reference commodity products manufactured
in NZ.
Non-shareholding farmmeans a farm where the owning entity is not entitled to hold shares in the Co-
operative. As an example, farms supplying MyMilk.
Normalisation
adjustments
means adjustments made for certain transactions that meet the requirements of
the Group’s Normalisation Policy. These transactions are typically unusual in size
and nature. Normalisation adjustments are made to assist users in forming a view of
the underlying performance of the business. Normalisation adjustments are set out
in the Non-GAAP Measures section. Normalised is used to indicate that a measure
or sub-total has been adjusted for the impacts of normalisation adjustments. E.g.
‘Normalised EBIT’.
Product channelFonterra has three product channels, Ingredients, Foodservice and Consumer.
Profit after tax marginis profit after tax attributable to equity holders of the Co-operative, divided by
revenue from sale of goods.
Reference commodity
products (also referred to
as reference products)
means the commodity products used to calculate the Farmgate Milk Price,
comprising Whole Milk Powder, Skim Milk Powder, Butter Milk Powder, Anhydrous
Milk Fat and Butter.
Reportedis used to indicate a sub-total or total is reported in the Group’s Financial
Statements before normalisation adjustments. E.g. ‘Reported profit after tax’.
RetentionsMeans earnings per share, less dividend per share. Retentions are reported as nil
where Fonterra has reported a net loss after tax.
Return on capitalis Total Group normalised EBIT including finance income on long-term advances less
a notional tax charge, divided by average capital employed.
SeasonNew Zealand: A period of 12 months from 1 June to 31 May.
Australia: A period of 12 months from 1 July to 30 June.
Chile: A period of 12 months from 1 August to 31 July.
TERMSDEFINITION
Share Standardmeans the number of shares a farmer shareholder is required from time to time
to hold as determined in accordance with the Constitution, currently being one
share for each kilogram of milk solids obtainable from milk supplied (excluding milk
supplied on contract supply) to Fonterra. For these purposes, milk supplied is based
on a three season rolling average of a farm’s production.
Shareholding farmmeans a farm where the owning entity of the farm has a minimum required
shareholding of at least 1,000 shares in the Co-operative. This includes farms where
the owning entity is in the process of sharing up on a Share Up Over Time contract.
Total Groupis used to indicate that a measure or sub-total comprises continuing operations,
discontinued operations and noncontrolling interests. E.g. ‘Total Group EBIT’.
Total pay-outmeans the total cash payment per milk solid that is backed by a share, being the
sum of the Farmgate Milk Price per kgMS and the dividend per share.
Tradeable shares represents shares on issue that are in excess of Aggregate minimum shareholding
Unallocated costs and
eliminations
represents corporate costs including Co-operative Affairs and Group Functions;
and any other costs that are not directly associated to the reporting segments; and
eliminations of inter-segment transactions
Vouchermeans a voucher provided to a farmer shareholder who transferred the economic
rights of a supply backed share to the Fund, and which can be used to count
towards a farmer shareholder's Share Standard.
WACCmeans weighted average cost of capital.
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 reporting period.
Working capital daysis calculated as 13-month rolling average working capital divided by revenue from
the sale of goods (excluding impact of derivative financial instruments) multiplied
by the number of days in the period. The working capital days calculation excludes
other receivables, prepayments, other payables and includes working capital
classified as held for sale.
FONTERRA ANNUAL REVIEW 2022
GLOSSARY
Folio 2
Section heading
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CONTENTS
Directory
REGISTERED OFFICE
Fonterra Co-operative Group
Limited
Private Bag 92032
Auckland 1142
New Zealand
109 Fanshawe Street
Auckland Central 1010
New Zealand
Phone +64 9 374 9000
Fax +64 9 374 9001
AUDITOR
KPMG
18 Viaduct Harbour Avenue
Auckland 1010
New Zealand
FARMER SHAREHOLDER AND
SUPPLIER SERVICES
Freephone 0800 65 65 68
FONTERRA SHARES AND FSF
UNITS REGISTRY
Computershare Investor Services
Limited
Private Bag 92119
Auckland 1142
New Zealand
Level 2, 159 Hurstmere Road
Takapuna
Auckland 0622
New Zealand
CAPITAL NOTES REGISTRY
Link Market Services Limited
PO Box 91976
Auckland 1142
New Zealand
Level 30, PwC Tower
15 Customs Street West
Auckland 1010
New Zealand
INVESTOR RELATIONS
ENQUIRIES
Phone +64 9 374 9000
investor.relations@fonterra.com
www.fonterra.com
FONTERRA BOARD
OF DIRECTORS
Peter McBride
Clinton Dines
Brent Goldsack
Leonie Guiney
Bruce Hassall
Holly Kramer
Andrew Macfarlane
John Nicholls
Cathy Quinn
Donna Smit
Scott St John
FONTERRA
MANAGEMENT TEAM
Miles Hurrell
Teh-Han Chow
Mike Cronin
Kate Daly
Komal Mistry-Mehta
Emma Parsons
Marc Rivers
Judith Swales
Fraser Whineray
Kelvin Wickham
Ben & Bella-Rose, Auckland
insight
creative.co.nz
FONTERRA097_AR
FONTERRA ANNUAL REVIEW 2022
DIRECTORY
Folio 2
Section heading
Section Sub heading
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CONTENTS
DIRECTORY
fonterra.com
---
Financial Statements
For the year ended 31 July 2022
Fonterra Co-operative Group Limited
Pūrongo pūtea
Te Mātāpuna
Contents
INCOME STATEMENT03
STATEMENT OF COMPREHENSIVE INCOME04
STATEMENT OF FINANCIAL POSITION05
STATEMENT OF CHANGES IN EQUITY06
CASH FLOW STATEMENT07
BASIS OF PREPARATION08
NOTES TO THE FINANCIAL STATEMENTS10
INDEPENDENT AUDITOR’S REPORT69
IMAGE:
Henry & Andrew, Canterbury
OUR 2022 SUITE
OF REPORTS
Annual Review 2022
(Referenced as AR)
Financial Statements 2022
(Referenced as FS)
Business Performance
Report 2022
(Referenced as BP)
Sustainability Report 2022
(Referenced as SR)
Corporate Governance
Statement & Statutory
Information 2022
(Referenced as C&S)
Modern Slavery
Statement 2022
(Referenced as MS)
Farmgate Milk Price
Statement 2022
(Referenced as MP)
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
02
CONTENTS
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
Income Statement
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
1
Continuing operations
Revenue from sale of goods322,953 20,565
Cost of goods sold4(19,737)( 17, 5 81)
Gross profit3,216 2,984
Other operating income141 129
Selling and marketing expenses(581)(574)
Distribution expenses(516)(476)
Administrative expenses(831)(816)
Other operating expenses(415)(365)
Share of profit of equity accounted investees10 5
Profit before net finance costs and tax from continuing
operations
61,024 887
Finance income14 9
Finance costs(208)(261)
Net finance costs10(194)(252)
Profit before tax from continuing operations830635
Tax expense21(169)(103)
Profit after tax from continuing operations661532
Discontinued operations
(Loss)/profit after tax from discontinued operations2(78)67
Profit after tax583599
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
1
Profit after tax is attributable to:
Profit attributable to equity holders of the Co-operative584578
(Loss)/profit attributable to non-controlling interests(1)21
Profit after tax583599
Earnings per share:
Basic and diluted earnings per share from continuing operations50.38 0.31
Basic and diluted (loss)/earnings per share from discontinued
operations
5(0.02)0.05
Basic and diluted earnings per share50.36 0.36
1 Comparative information includes re-presentations for consistency with the current period. Re-presentations have had no impact on the totals or sub-totals presented in the Income Statement.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
03
CONTENTS
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
31 JULY 202231 JULY 2021
Profit after tax583 599
Items that may be reclassified subsequently to the Income Statement:
Cash flow hedges and other costs of hedging, net of tax(320)(127)
Net investment hedges and translation of foreign operations, net of tax103 (112)
Foreign currency translation reserve gains transferred to the Income Statement(1)(14)
Other movements in reserves4 (3)
Total items that may be reclassified subsequently to the Income Statement(214)(256)
Items that will not be reclassified subsequently to the Income Statement:
Net fair value gains on investments in shares16 5
Foreign currency translation losses attributable to non-controlling interests(8)–
Other movements in reserves16 (2)
Total items that will not be reclassified subsequently to the Income Statement24 3
Total other comprehensive expense(190)(253)
Total comprehensive income393 346
Total comprehensive income is attributable to:
Equity holders of the Co-operative 394 327
Non-controlling interests(1)19
Total comprehensive income393 346
Total comprehensive income arises from:
Continuing operations461 297
Discontinued operations(68)49
Total comprehensive income393 346
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
04
CONTENTS
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
1
ASSETS
Current assets
Cash and cash equivalents288985
Trade and other receivables 122,4821,802
Inventories135,0073,766
Intangible assets187847
Tax receivable6431
Derivative financial instruments 230249
Other current assets10795
Assets held for sale2473462
Total current assets8,7297, 437
Non-current assets
Property, plant and equipment166,0675,979
Right-of-use assets17398486
Equity accounted investments 11391
Intangible assets182,2162,195
Deferred tax assets21551460
Derivative financial instruments434437
Long-term advances154163
Other non-current assets 11993
Total non-current assets10,0529,904
Total assets18,78117, 3 41
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
1
LIABILITIES
Current liabilities
Bank overdraft3120
Borrowings9356818
Trade and other payables 142,4032,208
Owing to suppliers152,1191,825
Tax payable10787
Derivative financial instruments73384
Provisions227072
Other current liabilities7157
Liabilities held for sale2628542
Total current liabilities 6,5185,713
Non-current liabilities
Borrowings94,9004,254
Derivative financial instruments 313359
Provisions227982
Deferred tax liabilities215025
Other non-current liabilities1539
Total non-current liabilities 5,3574,759
Total liabilities11,87510,472
Net assets6,9066,869
EQUITY
Subscribed equity75,891 5,892
Retained earnings1,611 1,350
Foreign currency translation reserve20(253)(355)
Hedge reserves20(346)(26)
Other reserves30 2
Total equity attributable to equity holders of the Co-operative6,933 6,863
Non-controlling interests(27)6
Total equity6,906 6,869
Statement of Financial Position
AS AT 31 JULY 2022
1 Comparative information includes re-presentations for consistency with the current period.
The Board approved and authorised for issue these Financial Statements on 21 September 2022.
For and on behalf of the Board:
PETER MCBRIDE BRUCE HASSALL
Chairman Director
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
05
CONTENTS
Statement of Changes in Equity
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
ATTRIBUTABLE TO EQUITY HOLDERS OF THE CO-OPERATIVE
SUBSCRIBED EQUITYRETAINED EARNINGS
FOREIGN CURRENCY
TRANSLATION
RESERVEHEDGE RESERVESOTHER RESERVESTOTAL
NON-CONTROLLING
INTERESTS
TOTAL
EQUITY
As at 1 August 20215,892 1,350 (355)(26)2 6,863 6 6,869
Profit after tax–584 –––584 (1)583
Other comprehensive income/(expense)––102 (320)28 (190)–(190)
Total comprehensive income/(expense)–584 102 (320)28 394 (1)393
Transactions with equity holders in their capacity as equity holders:
Dividends paid to equity holders of the Co-operative (refer to Note 8)–(323)–––(323)–(323)
Share buyback (refer to Note 7)(1)––––(1)–(1)
Dividends paid to non-controlling interests––––––(32)(32)
As at 31 July 20225,891 1,611 (253)(346)30 6,933 (27)6,906
As at 1 August 20205,887933(229)101–6,692116,703
Profit after tax–578–––57821599
Other comprehensive (expense)/income ––(126)(127)2(251)(2)(253)
Total comprehensive income/(expense) –578(126)(127)232719346
Transactions with equity holders in their capacity as equity holders:
Dividends paid to equity holders of the Co-operative (refer to Note 8)–(161)–––(161)–(161)
Equity instruments issued (refer to Note 7)5––––5–5
Dividends paid to non-controlling interests––––––(24)(24)
As at 31 July 20215,8921,350(355)(26)26,86366,869
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
06
CONTENTS
The Cash Flow Statement presents total Group cash flows from continuing and discontinued operations.
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
Cash flows from operating activities
Profit before net finance costs and tax from continuing operations1,024 887
(Loss)/profit before net finance costs and tax from discontinued
operations(48)72
Total Group profit before net finance costs and tax976 959
Adjustments for:
–Depreciation and amortisation635 642
–Foreign exchange losses/(gains)309 (136)
–Gain on sale of Global Dairy Trade(42)–
–Gain on sale of Ying and Yutian China farms2–(32)
–Gain on sale of investment in Falcon China Farms JV–(40)
–Loss on sale of investment in Beingmate–49
–China Farms impairment reversal2–(23)
–Brazil consumer and foodservice business impairment257 39
–Other (7)(9)
Total adjustments952 490
(Increase)/decrease in working capital:
–Trade and other receivables(821)11
–Inventories(1,222)(556)
–Trade and other payables 201 199
–Owing to suppliers293 238
–Other movements (49)(63)
Total increase in working capital(1,598)(171)
Net cash flows from operations330 1,278
Net taxes paid(137)(84)
Net cash flows from operating activities193 1,194
Cash Flow Statement
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
NOTES31 JULY 202231 JULY 2021
Cash flows from investing activities
Cash was provided from:
–Proceeds from sale of businesses26 638
–Proceeds from disposal of property, plant and equipment17 9
–Proceeds from sale of livestock2 25
–Proceeds from sale of investments–110
Cash was applied to:
–Acquisition of property, plant and equipment (480)(441)
–Acquisition of livestock (including rearing costs)(4)(28)
–Acquisition of intangible assets(72)(80)
–Other cash outflows(6)(10)
Net cash flows from investing activities(517)223
Cash flows from financing activities
Cash was provided from:
–Proceeds from borrowings3,919 2,402
–Interest received15 10
–Other cash inflows–27
Cash was applied to:
–Interest paid(297)(308)
–Repayment of borrowings(3,634)(3,142)
–Dividends paid to equity holders of the Co-operative(323)(157)
–Dividends paid to non-controlling interests(32)(24)
–Share buyback(1)–
Net cash flows from financing activities(353)(1,192)
Net (decrease)/increase in cash(677)225
Opening cash982 780
Effect of exchange rate changes(24)(23)
Closing cash281 982
Reconciliation of closing cash to the Statement of Financial
Position
Cash and cash equivalents288 985
Bank overdraft(31)(20)
Cash balances included in assets and liabilities held for sale224 17
Closing cash281 982
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
07
CONTENTS
Basis of Preparation
FOR THE YEAR ENDED 31 JULY 2022
a) About Fonterra
Fonterra Co-operative Group Limited (Fonterra, the Company or the Co-operative) is a multinational dairy
co-operative. Fonterra is primarily involved in the collection, manufacture and sale of milk and milk-derived
products through its Ingredients, Consumer and Foodservice channels.
Fonterra is 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 (DIRA).
b) Basis of preparation
These Financial Statements comprise Fonterra and its subsidiaries (together referred to as the Group) and the
Group’s interests in its equity accounted investments.
These Financial Statements:
–comply with International Financial Reporting Standards (IFRS);
–comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS);
–have been prepared in accordance with Generally Accepted Accounting Practice applicable to for-profit entities;
–have been prepared on a historical cost basis except where otherwise stated. Assets and liabilities measured at
fair value are summarised in Note 25 Fair value measurement; and
–are presented in New Zealand dollars ($ or NZD), which is Fonterra’s functional currency, and rounded to the
nearest million, except where otherwise stated.
Re-presentations
Income Statement
Certain comparative period information has been re-presented for consistency with the current year presentation.
Re-presentations have had no impact on the totals or sub-totals presented in the Income Statement.
Balance Sheet
During the year the Group reassessed the current/non-current classification of emissions units held for
compliance purposes. Emissions units held for compliance purposes expected to be surrendered within twelve
months are classified as current intangible assets. Previously the Group presented all emissions units held for
compliance purposes as non-current intangible assets. Comparative year information has been re-presented for
consistency with the current year presentation.
c) 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 are included in
the 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
that are attributable to equity holders of the Co-operative 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 disposal.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
08
CONTENTS
d) Material accounting policies
Accounting policies which are considered material to an understanding of the Financial Statements are
provided throughout the notes in green shading.
New and amended International Financial Reporting Standards
No new or amended standards and interpretations that became effective for the year ended 31 July 2022 have
had a material impact to the Group.
Accounting standards issued but not yet effective
NZ IFRS 17 Insurance Contracts (effective 1 August 2023) replaces the current guidance NZ IFRS 4 Insurance
Contracts. The new standard provides a comprehensive accounting model, which applies to all types of insurance
contracts regardless of the type of entity that issues them. Management is continuing to assess the effect of
applying NZ IFRS 17.
There are no other new or amended standards that are issued but not yet effective that are expected to have a
material impact to the Group.
e) Significant judgements and estimates
In the preparation of these Financial Statements, 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 considered material to an
understanding of the Financial Statements are provided in the following notes in grey shading.
NOTEITEM INVOLVING SIGNIFICANT JUDGEMENT OR ESTIMATION
Note 2Divestments –Determining if a disposal group is held for sale
–Fair value measurement of assets and liabilities held for sale
Note 3Revenue from sale of goods –Revenue recognition for transactions involving distributors
Note 16Property, plant and equipment –Determining residual values and useful lives
Note 18Intangible assets –Assumptions used in the impairment tests
Note 21Taxation –Utilisation of tax losses
–Uncertain tax positions
Note 22Contingent liabilities, provisions
and commitments
–Measurement of provisions and contingent liabilities
Note 25Fair value measurement –Fair value measurement
f ) Global uncertainties
Current global uncertainties exist in relation to the ongoing impact of COVID-19, financial markets and foreign
exchange volatility, inflationary pressures and increasing interest rates, geopolitical events, as well as potential
impacts on demand. The Group has assessed the impact on its assets and liabilities. Debtor collectability and
inventory obsolescence continue to be closely monitored, and forecasts and budgets used for impairment testing
include the Group’s best estimate of the ongoing impact of such events.
Basis of Preparation (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
09
CONTENTS
Notes to the Financial Statements
FOR THE YEAR ENDED 31 JULY 2022
NOTEFS PAGE
Performance11
1 Segment reporting11
2 Divestments 14
3 Revenue from sale of goods17
4 Cost of goods sold18
5 Earnings per share19
6 Profit before net finance costs and tax20
Debt and Equity21
7 Subscribed equity instruments21
8 Dividends22
9 Borrowings23
10 Net finance costs25
11 Capital management26
Working capital28
12 Trade and other receivables28
13 Inventories29
14 Trade and other payables29
15 Owing to suppliers30
Long-term assets31
16 Property, plant and equipment31
17 Leases33
18 Intangible assets35
NOTEFS PAGE
Financial risk management40
19 Financial risk management40
20 Hedge accounting46
Other56
21 Taxation56
22 Contingent liabilities, provisions and commitments60
23 Related party transactions61
24 Subsidiaries62
25 Fair value measurement64
26 Offsetting of financial assets and liabilities67
27 Net tangible assets per quoted equity security68
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
10
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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: Divestments
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
Segment information provided in this note reflects the Group’s performance from continuing operations only.
The China Farms and Brazil consumer and foodservice businesses are considered discontinued operations and
have been excluded from the disclosures in this note. Please see Note 2 Divestments for further information
about the Group’s discontinued operations.
a) Reportable segments
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. During the year ended 31 July
2022, the FMT consisted of the Group Chief Executive Officer (CEO), Chief Financial Officer and Chief Operating
Officer, the CEOs of the three customer-facing regional business units (Asia Pacific, AMENA and Greater China),
the Managing Director People & Culture and the Managing Director Co-operative Affairs.
The measure of profit or loss used by the FMT to evaluate the underlying performance of operating segments
is normalised earnings before interest and tax (normalised EBIT).
The Group’s operating model is based around the three customer-facing regional business units, supported
by a shared infrastructure, referred to as Group Operations which comprises:
–the functions under the Chief Operating Office (COO) and includes New Zealand milk collection and
processing operations and assets, supply chain, Group IT, Sustainability and Innovation;
–Fonterra Farm Source™ retail stores; and
–the Central Portfolio Management function (CPM).
The operating model forms the basis for the Group’s operating segments. Under the operating model, the
business is managed as a matrix form organisation, whereby regional business unit CEOs and the FMT members
that have responsibility for COO and CPM have overlapping responsibility for performance. Information about
the performance of Group Operations is reported to the FMT both separately and attributed to each of the
regional business units.
The Group has determined that its reportable segments are Asia Pacific, AMENA and Greater China, inclusive of
their respective attribution of Group Operations. This presentation provides a full end-to-end view of performance
for each of the customer-facing regional business units.
REPORTABLE SEGMENTSDESCRIPTION
Asia PacificRepresents the Ingredients, Foodservice and Consumer channels in New Zealand,
Australia, Pacific Islands, South East Asia and South Asia.
AMENARepresents the Ingredients, Foodservice and Consumer channels in Africa, Middle East,
Europe, North Asia and Americas.
Greater ChinaRepresents the Ingredients, Foodservice and Consumer channels in Greater China.
The performance of large multi-national customers are reported within the reportable segment that they are
managed by. This can differ from the geographical region of the destination of goods sold.
The attribution of Group Operations to reportable segments and transactions between reportable segments
follow underlying business rules. These rules have been designed to reflect the end-to-end contribution of each
reportable segment.
Where there is common activity amongst segments and there is an attribution of those revenues and costs across
segments, the attribution is based on a number of principles. These principles include:
–activity-based allocation where appropriate; and
–share of product sold/manufactured in the segment.
The performance of Fonterra Farm Source™ retail stores are attributed to the Asia Pacific reportable segment.
The Group regularly reviews the application of these principles to ensure they continue to remain appropriate and
where possible to expand the portion attributed using activity-based principles. Where appropriate, comparative
information may be re-presented for consistency with the current period attribution.
For the year ended 31 July 2022, the Group has continued to refine its approach to attributing the change in the cost
of milk across the season.
Unallocated costs represent corporate costs including Co-operative Affairs and Group Functions.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
11
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
CONTINUING OPERATIONSASIA PACIFICAMENAGREATER CHINA
UNALLOCATED COSTS AND
ELIMINATIONSTOTAL
31 JULY 202231 JULY 202131 JULY 202231 JULY 202131 JULY 202231 JULY 202131 JULY 202231 JULY 202131 JULY 202231 JULY 2021
Sales volume (metric tonnes, thousands)1,370 1,3861,355 1,3521,029 1,176(48)(40)3,706 3, 874
Revenue from sale of goods7, 8 7 9 7, 1 108,612 7,3046,660 6,312(198)(161)22,953 20,565
Cost of goods sold(6,652)(5,915)( 7, 4 75 )(6,400)(5,794)(5,476)184 210(19,737)( 17, 5 81)
Normalised gross profit1,227 1,1951,137 904866 836(14)493,216 2,984
Operating expenses(941)(889)(674)(605)(464)(436)(205)(223)(2,284)(2,153)
Other
1
(49)(1)64 3730 35 2650 65
Normalised EBIT237 305527 336432 403(214)(148)982 896
Normalisation adjustments:
–Gain on sale of Falcon China Farms JV–––––40–––40
–Income Statement impact of Beingmate investment–––––(49)–––(49)
–Gain on sale of Global Dairy Trade––––––42 –42 –
Profit/(loss) before net finance costs and tax237 305527 336432 394(172)(148)1,024 887
Other segment information:
–Inter-segment revenue 161 15537 6––(198)(161)––
–Depreciation and amortisation (240)(242)(204)(196)(172)(182)(19)(22)(635)(642)
–Share of (loss)/profit of equity accounted investments–(3)8 6––2 210 5
1 Comprises other operating income, net foreign exchange gains/(losses) and share of profit/(loss) of equity accounted investments.
1. Segment reporting continued
a) Reportable segments continued
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
12
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
1. Segment reporting continued
b) Geographical analysis of revenue
Revenue is analysed by geography on the basis of the destination of the goods sold. Geographical groupings in the
following table are not aligned with the Group’s reportable segments.
GROUP $ MILLION
NEW
ZEALANDAUSTRALIACHINA
REST OF
ASIA AMERICAS
REST OF
WORLDTOTAL
Geographical external revenue
Year ended 31 July 20222,1401,7266,2448,0163,0501,77722,953
Year ended 31 July 20211,7261,6996,1197, 0 5 62,5971,36820,565
c) Geographical analysis of non-current assets
Geographical groupings in the following table are not aligned with the Group’s reportable segments.
GROUP $ MILLION
NEW
ZEALANDAUSTRALIACHINA
REST OF
ASIA AMERICAS
REST OF
WORLDTOTAL
Geographical non-current assets
As at 31 July 20226,6031,026207993782419,067
As at 31 July 2021
1
6,602970177773882539,007
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
1
Reconciliation of geographical non-current assets
to total non-current assets
Geographical non-current assets 9,0679,007
Deferred tax assets551460
Derivative financial instruments 434437
Total non-current assets10,0529,904
1 Comparative information includes re-presentations for consistency with the current period.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
13
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
2. Divestments
This note provides information about the Group’s disposal groups held for sale and discontinued operations for
the year ended 31 July 2022.
At 31 July 2022, the Hangu China farm and the Brazil consumer and foodservice business continued to meet the
definition of held for sale and are discontinued operations. The Group’s divestment of the Chilean business is
underway, however it does not meet the held for sale criteria at balance date and is not presented as held for sale
in these Financial Statements.
a) Disposal groups 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.
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.
Once classified as held for sale, assets are no longer depreciated or amortised and equity accounted
investments are no longer equity accounted.
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 for assets and liabilities held for sale is not re-presented in the
Statement of Financial Position.
Judgement is involved in determining whether a disposal group is held for sale at balance date.
Uncertainty is involved in estimating fair value less costs to sell. The fair value less costs to sell for assets and
liabilities held for sale has been estimated based on information received through the sales process.
The major classes of assets and liabilities held for sale are presented in the following table.
$ MILLION
ASSETS AND LIABILITIES HELD FOR SALE
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Cash and cash equivalents24 17
Trade receivables58 39
Inventory32 37
Property, plant and equipment79 79
Livestock21 25
Intangible assets111 122
Other assets148 143
Total assets held for sale473 462
Borrowings 333 282
Trade and other payables 209 150
Provisions42 54
Other liabilities44 56
Total liabilities held for sale628 542
Net liabilities held for sale(155)(80)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
14
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
2. Divestments continued
Hangu China farm
In January 2022 the Group purchased the 15 percent non-controlling interest in the Hangu China farm, and as at
31 July 2022 the Hangu China farm continued to meet the requirements to be classified as held for sale (31 July
2021: held for sale).
The sale process was initially delayed due to a lack of progress in agreeing the specific terms of sale following
the minority shareholder exercising their right of first refusal to purchase Fonterra’s interest. Subsequent delays
have been due to market conditions related to COVID-19, including the effect of lockdowns in China. However at
31 July 2022 the Group remains committed to the sale and the farm continues to be actively marketed. The Group
expects the sale to be completed within one year of balance date.
At 31 July 2022 the Group reassessed the fair value less costs to sell of the Hangu China farm and no further
adjustment has been recognised (31 July 2021: nil).
The foreign currency translation reserve balance as at 31 July 2022 attributable to the Hangu China farm was a
debit balance of $3 million (31 July 2021: debit balance of $1 million).
Brazil consumer and foodservice business
As at 31 July 2022 the Brazil consumer and foodservice business continued to meet the requirements to be
classified as held for sale (31 July 2021: held for sale).
The sale process has been delayed due to market conditions related to COVID-19, however at 31 July 2022 the
Group remains committed to the sale and continues to actively progress the sale. The Group expects the sale to
be completed within one year of balance date.
The Group has reassessed the fair value less costs to sell at 31 July 2022 and recognised a further write-down of
$57 million ($50 million after tax) (31 July 2021: $39 million ($35 million after tax)), of which $26 million after tax is
attributable to the Group’s equity holders (31 July 2021: $18 million).
At 31 July 2022 the foreign currency translation reserve balance attributable to the Brazil consumer and
foodservice business was a debit balance of $67 million (31 July 2021: debit balance of $63 million).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
15
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
$ MILLION
DISCONTINUED OPERATIONS31 JULY 202231 JULY 2021
Revenue from sale of goods472 559
Cost of goods sold(348)(429)
China Farms impairment reversal–23
Gross profit124 153
Other operating income–18
Other operating expenses (115)(92)
Gain on sale of Ying and Yutian China farms–32
Brazil consumer and foodservice impairment(57)(39)
(Loss)/profit before net finance costs and tax(48)72
Net finance costs(37)(10)
(Loss)/profit before tax(85)62
Tax credit7 5
(Loss)/profit after tax from discontinued operations(78)67
Share of loss attributable to non-controlling interests36 13
(Loss)/profit after tax attributable to equity holders of the
Co-operative(42)80
Movement in exchange differences on translation of
discontinued operations3 2
Foreign currency translation reserve gains transferred to the
Income Statement(1)(19)
Other reserve movements8 (1)
Total comprehensive (expense)/income from discontinued operations(68)49
Net cash inflow/(outflow) from operating activities9 (8)
Net cash (outflow)/inflow from investing activities(5)510
Net cash outflow from financing activities–(6)
Net increase in cash generated by the discontinued operations4 496
2. Divestments continued
b) Discontinued operations
A disposal group 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.
Profit/(loss) after tax from discontinued operations is presented in a single line item in the Income Statement
for both the current and comparative year.
The China Farms business and Brazil consumer and foodservice business both meet the definition of a
discontinued operation.
For the year ended 31 July 2022, the China Farms business represents solely the Hangu China farm.
For the year ended 31 July 2021, the China Farms business also included the Ying and Yutian farms, up to the date
of sale (1 April 2021). The financial performance of the Ying and Yutian farms has been recognised in profit/(loss)
after tax from discontinued operations.
The summarised financial performance of the China Farms business and Brazil consumer and foodservice
business, recognised in profit/(loss) after tax from discontinued operations in the Income Statement, is presented
in the following table.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
16
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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 transfer of control of 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.
The amount of revenue recognised reflects the consideration that the Group expects to be entitled to for
providing the products to the customer. 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 the Group does not control the freight and insurance services before those
services are transferred to the customer, the Group is acting as an agent. Therefore, the Group 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.
The Group sells products either directly to customers or through distributors. For transactions involving
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 the Group’s customer; or
–the Group 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. 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 can involve 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 the Group 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 the Group to assist the distributor to on-sell the product. This includes
consideration of collaboration on marketing plans, financial support provided by the Group through
pricing discounts or funding of promotional activity.
Sales to distributors where significant judgement is involved in determining the timing of revenue
recognition are primarily in the Foodservice channel.
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. The Group 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 the Group 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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
17
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
3. Revenue from sale of goods continued
Revenue is disaggregated by Ingredients, Foodservice and Consumer channels across the Group’s reportable
segments in the following table.
GROUP $ MILLION
ASIA PACIFICAMENAGREATER CHINATOTAL
31 JULY
2022
31 JULY
2021
31 JULY
2022
31 JULY
2021
31 JULY
2022
31 JULY
2021
31 JULY
2022
31 JULY
2021
Ingredients channel revenue4,1893,5216,8835,7834,4794,25915,55113,563
Foodservice channel revenue1,0759283933331,8241,6913,2922,952
Consumer channel revenue2,4542,5061,2991,1823573624,1104,050
Revenue from sale of goods7, 7 1 86,9558,5757, 2 9 86,6606,31222,95320,565
Revenue is disaggregated by geography on the basis of the destination of the goods sold in Note 1 Segment
reporting.
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/Milk Price Methodology’ 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 202231 JULY 2021
Opening inventory3,766 3,268
Cost of milk:
–New Zealand-sourced13,722 11,660
–Non-New Zealand-sourced1,113 994
Other costs6,143 5,425
Closing inventory(5,007)(3,766)
Total cost of goods sold19,737 17, 5 81
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
18
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
5. Earnings per share
Basic earnings per share is calculated as profit after tax attributable to equity holders of the Co-operative divided
by the weighted average number of shares on issue for the period.
Diluted earnings per share is determined by adjusting profit after tax attributable to equity holders of the
Co-operative and the weighted average number of shares on issue for the effects of all shares with dilutive
potential. There were no shares on issue with dilutive potential for either of the years presented.
GROUP
31 JULY 202231 JULY 2021
Basic and diluted earnings per share from continuing operations ($)0.38 0.31
Basic and diluted (loss)/earnings per share from discontinued operations ($)(0.02)0.05
Basic and diluted earnings per share ($)0.36 0.36
Profit attributable to equity holders of the Co-operative ($ million)584 578
Weighted average number of shares (thousands of shares)1,613,353 1,613,105
Normalised earnings per share
Normalised earnings per share is calculated as normalised profit after tax attributable to equity holders of the
Co-operative divided by the weighted average number of shares on issue for the period.
GROUP
31 JULY 202231 JULY 2021
Normalised basic and diluted earnings per share ($)0.350.34
Normalised profit after tax attributable to equity holders of the
Co-operative ($ million)568550
Weighted average number of shares (thousands of shares)1,613,3531,613,105
A reconciliation of profit after tax attributable to equity holders of the Co-operative to normalised profit after tax
attributable to equity holders of the Co-operative is presented in the following table.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Profit after tax attributable to equity holders of the Co-operative584 578
Less: Gain on sale of Global Dairy Trade(42)–
Less: Loss on sale of Ying and Yutian China farms–(32)
Less: China Farms impairment reversal–(23)
Less: Loss on sale of Falcon China Farms JV–(40)
Add: Income Statement impact of Beingmate investment–49
Add: Brazil consumer and foodservice business impairment57 39
Total normalisation adjustments15 (7)
Less: Tax on normalisation adjustments(7)(4)
Less: Normalisation adjustments attributable to non-controlling interests(24)(17)
Normalised profit after tax attributable to equity holders
of the Co-operative568 550
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
19
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
6. Profit before net finance costs and tax
a) Additional information about items included in profit before net finance costs and tax
The following items have been included in profit before net finance costs and tax in the Income Statement.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Total employee benefits expense2,1592,117
Depreciation and amortisation expense635642
Research and development costs115110
Contributions to defined contribution plans included in employee benefits
expense9183
Donations2–
Net foreign exchange losses5826
b) Fees paid to the auditor and network firms
KPMG has been appointed the Group’s external auditor for three consecutive years. The lead audit partner has
served for three consecutive years. The Board has overseen compliance with the Group’s Audit Independence
Policy. KPMG has not provided any services during the year other than audit and audit-related services.
A breakdown of fees paid to the auditor and network firms which are included in the Income Statement is
presented in the following table. Fees are inclusive of any disbursements.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Audit and review of the Financial Statements of the Group and its
subsidiaries:
–New Zealand6.06.2
–Network firms of the auditor1.72.4
Total fees for the audit and review of the Financial Statements7. 78.6
Audit-related services:
–Assurance services in respect of the Farmgate Milk Price Statement0.10.1
–Other audit-related services
1
0.10.1
Total fees for audit-related services0.20.2
Total fees paid to auditor7. 98.8
1 Other audit-related services include assurance and agreed upon procedure engagements.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
20
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
Debt and equity
This section outlines the Group’s capital structure and the related financing costs. It also provides information on
how the funds that finance current and future activities are raised and how the Group manages capital.
This section includes the following notes:
Note 7: Subscribed equity instruments
Note 8: Dividends
Note 9: Borrowings
Note 10: Net finance costs
Note 11: Capital management
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).
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.
On 8 June 2022, Fonterra announced that it would allocate up to $50 million to an on-market share buyback
programme commencing 30 June 2022.
At 31 July 2022, Fonterra had bought back 532,294 shares (31 July 2021: nil) at a total cost of $1 million. The
shares bought back were cancelled on acquisition.
At 31 July 2022 there were 1,612,825,585 Co-operative shares on issue (31 July 2021: 1,613,357,879 shares).
During the year ended 31 July 2022 no shares were issued under the Dividend Reinvestment Plan (31 July 2021:
1,138,230 shares) or the Farm Source Rewards scheme (31 July 2021: 122,582 shares).
Co-operative shares can be traded between farmer shareholders on the Fonterra Shareholders’ Market (a private
market operated by NZX Limited). At a Special Meeting held on 9 December 2021, Fonterra shareholders voted
in favour of capital structure related amendments to Fonterra’s Constitution that would give effect to the Flexible
Shareholding structure. Subsequently, on 27 April 2022 the Government announced that it intends to amend
the DIRA to support Fonterra’s new structure, signalling it expects the amendments to DIRA to pass through
Parliament in the 2022 calendar year. The Constitution amendments and new structure will come into effect once
the Fonterra Board is satisfied that any steps necessary for implementation have been (or will be) completed. The
Co-operative is aiming to implement the changes as soon as possible. Share compliance obligations will remain
on hold for all shareholders holding a minimum of 1,000 shares and exiting suppliers that are selling shares over
three seasons in accordance with Fonterra’s Constitution, until at least six months after the new structure comes
into effect. The current cap on the Fund remains, so Fonterra shares are not able to be exchanged into units in the
Fund on a day-to-day basis. A capped Fund is a feature of the Flexible Shareholding structure.
Information about the Group’s capital structure review is available in the ‘Investors/Capital Structure’ 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 2022 107,417,322 Co-operative shares (31 July 2021: 107,420,162)
were legally owned by the Custodian, on trust for the benefit of the Fund.
Units in the Fund are traded on the New Zealand Stock Exchange (NZX) and Australian Securities Exchange (ASX).
During the year ended 31 July 2022, the Fund issued no units (31 July 2021: 11,794,492 units) and redeemed
2,840 units (31 July 2021: 8,955,846 units).
Under the capital structure related amendments to Fonterra’s Constitution the overall limit on the Fund size
reduces from 20% to 10%. The current cap on the Fund remains, so Fonterra shares are not able to be exchanged
into units in the Fund on a day-to-day basis. The Fonterra share buyback programme has not had a material impact
on the Fund size as a percentage of the total number of Fonterra shares on issue.
The rights attaching to units are set out in the Fonterra Shareholders’ Fund 2022 Annual Report, available in the
‘Investors/Fonterra Shareholders’ Fund’ section of Fonterra’s website.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
21
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
7. Subscribed equity instruments continued
c) Market capitalisation
The Group’s market capitalisation has been below the carrying amount of net assets since Fonterra’s capital
review announcement in May 2021. Accounting standards consider this to be an indicator of impairment. The
Group does not believe the current share price provides an accurate reflection of the fair value of the net assets,
due to factors such as being traded in a restricted market and the reduced levels of liquidity following the
announcement of the capital review.
The Group has undertaken an impairment test and obtained an independent valuation to determine the
recoverable amount of its net assets. The independent valuation was used to determine the Group’s recoverable
amount on a fair value less costs of disposal basis. The valuation uses a sustainable EBIT based on normalised
earnings and an appropriate range of earnings multiples based on benchmarking against peers.
The estimate of the recoverable amount exceeded the carrying amount and as such, no impairment has been
identified.
8. Dividends
All Co-operative shares, including those held by the Custodian, are eligible to receive dividends if declared
by the Board. As set out in Fonterra’s Constitution, dividends on Co-operative shares held by farmer
shareholders in excess of the maximum number of Co-operative shares that the shareholder is permitted to
hold at compliance date, shall be forfeited by the shareholder and retained by the Group.
Dividends are recognised as a liability in the Group’s Financial Statements in the period in which they are
declared by the Board. The Group’s Dividend Policy can be found in the ‘Investors/Results & Reporting/
Dividends & Reinvestment Plan’ section of Fonterra’s website.
The Group 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 Group’s Dividend Reinvestment Plan can be
found in the ‘Investors/Results & Reporting/Dividends & Reinvestment Plan’ section of Fonterra’s website.
$ MILLION
DIVIDENDS 31 JULY 202231 JULY 2021
2022 Interim dividend – 5 cents per share
1
81–
2021 Final dividend – 15 cents per share
2
242–
2021 Interim dividend – 5 cents per share
3
–80
2020 Final dividend – 5 cents per share
4
–81
1 Declared on 16 March 2022 and paid on 14 April 2022 to all Co-operative shares on issue at 24 March 2022. The Dividend Reinvestment Plan did
not apply to this dividend.
2 Declared on 22 September 2021 and paid on 15 October 2021 to all Co-operative shares on issue at 30 September 2021. The Dividend
Reinvestment Plan did not apply to this dividend.
3 Declared on 16 March 2021 and paid on 15 April 2021 to all Co-operative shares on issue at 24 March 2021. The Dividend Reinvestment Plan did
not apply to this dividend.
4 Declared on 17 September 2020 and paid on 15 October 2020 to all Co-operative shares on issue at 25 September 2020. The Dividend
Reinvestment Plan applied to this dividend.
Dividend declared after balance date
On 21 September 2022, the Board declared a final dividend of 15 cents per share, to be paid on 14 October 2022
to all holders of Co-operative shares on issue at 29 September 2022.
The Dividend Reinvestment Plan does not apply to this dividend.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
22
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
9. Borrowings
The Group borrows in the form of bonds, bank facilities and other financial instruments. The Group also
recognises lease liabilities within borrowings. Refer to Note 17 Leases for further information about the
Group’s lease liabilities and related right-of-use assets.
The interest expense incurred on the Group’s borrowings is presented 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.
a) Total borrowings
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Total current borrowings356818
Total non-current borrowings4,9004,254
Total borrowings
1
5,2565,072
1 Borrowings of $333 million attributable to disposal groups held for sale are not included in the table above (31 July 2021: $282 million).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
23
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
9. Borrowings continued
a) Total borrowings continued
A breakdown of total borrowings is presented in the following tables.
GROUP $ MILLION
BALANCE
AS AT
1 AUGUST 2021PROCEEDS
NEW LEASE
LIABILITIESREPAYMENTS
FOREIGN
EXCHANGE
MOVEMENT
CHANGES
IN FAIR VALUESOTHER
BALANCE
AS AT 31 JULY 2022
Commercial paper–1,469 –(1,375)––4 98
Bank loans11 2,425 –(1,437)–––999
Lease liabilities
1
523 –41 (106)––(20)438
Capital notes
2
35 ––––––35
NZX-listed bonds600 ––(350)–––250
Medium-term notes3,903 ––(366)168 (270)1 3,436
Total borrowings
3
5,072 3,894 41 (3,634)168 (270)(15)5,256
GROUP $ MILLION
BALANCE
AS AT
1 AUGUST 2020PROCEEDS
NEW LEASE
LIABILITIESREPAYMENTS
FOREIGN
EXCHANGE
MOVEMENT
CHANGES
IN FAIR VALUESOTHER
BALANCE
AS AT 31 JULY 2021
Commercial paper–444–(444)––––
Bank loans201,882–(1,888)(3)––11
Lease liabilities
1
604–34(109)(6)––523
Capital notes
2
35––––––35
NZX-listed bonds600––––––600
Medium-term notes4,782––(633)(97)(151)23,903
Total borrowings
3
6,0412,32634(3, 074)(106)(151)25,072
1 Refer to Note 17 Leases for further information about lease liabilities.
2 Capital notes are unsecured subordinated borrowings.
3 All borrowings other than lease liabilities and capital notes are unsecured and unsubordinated.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
24
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
9. Borrowings continued
b) Adjusted net debt
The Group uses adjusted net debt, a non-GAAP debt measure in monitoring its net debt position and in
calculating the Group’s debt to EBITDA ratio, gearing ratio, and return on capital. Refer to Note 11 Capital
management for further information about this ratio.
Adjusted net debt is total borrowings, plus bank overdraft, less cash and cash equivalents, plus borrowings
attributable to disposal groups held for sale, less cash and cash equivalents attributable to disposal groups held
for sale, plus a cash adjustment for 25% of cash and cash equivalents held by the Group’s subsidiaries (including
cash and cash equivalents attributable to disposal groups held for sale), less derivatives used to manage changes
in hedged risks on debt instruments.
The Group believes that adjusted net debt provides useful information as it is aligned with how certain rating
agencies calculate the Group’s debt to EBITDA and gearing ratios.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Total borrowings5,2565,072
Plus: Bank overdraft3120
Less: Cash and cash equivalents(288)(985)
Plus: Borrowings attributable to disposal groups held for sale333282
Less: Cash and cash equivalents attributable to disposal groups
held for sale(24)(17)
Plus: Cash adjustment for cash held by subsidiaries77110
Less: Adjusted for the carrying value of derivatives used to manage
changes in hedged risks on debt instruments(46)(157)
Adjusted net debt5,3394,325
10. 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. Information about the Group’s hedge accounting policies are included in Note 20 Hedge
accounting.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Finance income149
Interest expense
1,2
(263)(299)
Changes in fair value relating to:
–Borrowings designated in a hedge relationship270151
–Derivatives designated in a hedge relationship(225)(107)
–Derivatives where hedge accounting has not been applied10(6)
Total interest income from fair value movements5538
Finance costs(208)(261)
Net finance costs(194)(252)
1 Includes interest expense of $3 million (31 July 2021: $2 million) relating to derivatives where hedge accounting has not been applied.
2 Includes interest expense of $13 million (31 July 2021: $17 million) relating to lease liabilities.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
25
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
11. Capital management
The Group is not subject to debt covenants or any other externally imposed capital requirements. The Board
closely monitors the following non-GAAP measures: debt to EBITDA ratio, gearing ratio and return on capital.
a) Debt to EBITDA ratio
Debt to EBITDA is calculated as adjusted net debt divided by total Group normalised earnings before interest, tax,
depreciation and amortisation (total Group normalised EBITDA) excluding share of profit/loss of equity accounted
investees and net foreign exchange gains/losses.
Total Group normalised EBITDA includes amounts relating to discontinued operations.
Debt to EBITDA is a key ratio considered by the credit rating agencies when determining Fonterra’s credit rating.
The Board approved Debt Policy establishes a maximum debt to EBITDA of 3.75x, with a long-term target range of
2.5 to 3.0x.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Adjusted net debt
1
5,3394,325
Profit after tax583599
Add: Net finance costs from continuing operations194252
Add: Net finance costs from discontinued operations3710
Add: Tax expense from continuing operations169103
Less: Tax credit from discontinued operations(7)(5)
Total Group EBIT976959
Add: Depreciation and amortisation from continuing operations635642
Total Group EBITDA 1,6111,601
Add/(less): Normalisation adjustments
2
15(7)
Total Group normalised EBITDA 1,6261,594
Less: Share of profit of equity accounted investments(10)(5)
Add: Net foreign exchange losses from continuing operations5826
Less: Net foreign exchange losses included in normalisation adjustments–(2)
Add/(less): Net foreign exchange losses/(gains) from discontinued
operations2(7)
Total Group normalised EBITDA excluding share of profit/loss of
equity accounted investees and net foreign exchange gains/losses1 ,6761,606
Debt to EBITDA ratio3.2x2.7x
1 Refer to Note 9 Borrowings for further information about adjusted net debt.
2 Refer to Note 5 Earnings per share for further information about normalisation adjustments.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
26
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
11. Capital management continued
b) Gearing ratio
Adjusted net debt gearing ratio
The adjusted net debt gearing ratio is calculated as adjusted net debt divided by total capital.
Total capital is equity excluding hedge reserves, plus adjusted net debt.
The Board approved Gearing Policy establishes a maximum adjusted net debt gearing ratio of 45%, with a
long-term target range of 30% to 40%.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Adjusted net debt
1
5,3394,325
Equity excluding hedge reserves 7, 2 5 26,895
Total capital12,59111,220
Adjusted net debt gearing ratio (%)42.4%38.5%
1 Refer to Note 9 Borrowings for further information about adjusted net debt.
c) Return on capital
Return on capital is calculated as total Group normalised earnings before interest and tax (total Group normalised
EBIT) plus finance income on long-term advances less a notional tax charge, divided by average capital employed.
Return on capital is reported regularly to key management personnel, and compared against budget and prior
years return on capital.
Total Group normalised EBIT includes both continuing operations and discontinued operations.
Capital employed is adjusted net debt, less the cash adjustment (used in calculating adjusted net debt), plus cash
and cash equivalents held by subsidiaries for working capital purposes, plus equity excluding hedge reserves and
net deferred tax assets. Average capital employed is calculated as a 13-month rolling average of capital employed.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Total Group EBIT976959
Add/(less): Normalisation adjustments
1
15(7)
Total Group normalised EBIT991952
Plus: Finance income on long-term advances78
Less: Notional tax charge(161)(155)
Total Group normalised EBIT including finance income on long-term
advances less notional tax charge 837805
Adjusted net debt
2
5,3394,325
Less: Cash adjustment
2
(77)(110)
Plus: Cash and cash equivalents held by subsidiaries for working
capital purposes 166188
Plus: Total equity6,9066,869
Plus: Hedge reserves34626
Less: Net deferred tax assets(501)(435)
Capital employed12,17910,863
Impact of seasonal variation in capital employed1771,418
Average capital employed12,35612,281
Return on capital6.8%6.6%
1 Refer to Note 5 Earnings per share for further information about normalisation adjustments.
2 Refer to Note 9 Borrowings for further information about adjusted net debt.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
27
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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 12: Trade and other receivables
Note 13: Inventories
Note 14: Trade and other payables
Note 15: Owing to suppliers
12. 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. Due to their short-term nature trade receivables are not discounted.
The Group recognises an allowance for expected credit losses on trade receivables based on the lifetime
expected credit loss at balance date.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Trade receivables2,3551,673
Less: Allowance for expected credit losses on trade receivables(12)(18)
Trade receivables net of allowance for expected credit losses2,3431,655
Receivables from related parties
1
1925
Other receivables5067
Total trade and other receivables (excluding prepayments)2,4121 ,747
Prepayments7055
Total trade and other receivables2,4821,802
1 Refer to Note 23 Related party transactions for further information about receivables from related parties.
Amounts received in advance from customers of $58 million (31 July 2021: $17 million) have been recognised in
trade and other payables.
The Group has a receivables management programme. At 31 July 2022 the Group’s exposure was $20 million,
which reflects the first loss component of amounts managed at balance date (31 July 2021: $17 million).
The ageing profile of the Group’s trade and other receivables (excluding prepayments) is presented in the
following table.
GROUP $ MILLION
CURRENT
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 20222,16416655272,412
As at 31 July 20211,57911432221 ,747
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
28
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
13. Inventories
Raw materials and finished goods
Raw materials and finished goods are measured 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.
Emissions units held for trading
The Group holds emissions units for trading and compliance purposes.
Emissions units held for trading purposes are accounted for as inventories and measured at fair value. Refer
to Note 18 Intangible assets for further information about emissions units held for compliance purposes.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Raw materials802678
Finished goods4,2613,133
Less: Provision for impairment of raw materials and finished goods(95)(69)
Total raw materials and finished goods4,9683,742
Emissions units held for trading3924
Total inventories5,0073,766
14. 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 15 Owing to suppliers).
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Trade payables1,8631,677
Amounts due to related parties
1
149
Other payables158190
Total trade and other payables (excluding employee entitlements)2,0351,876
Employee entitlements368332
Total trade and other payables2,4032,208
1 Refer to Note 23 Related party transactions for further information about payables to related parties.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
29
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
15. Owing to suppliers
Amounts owing to suppliers are amounts the Group 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 the Group.
These amounts are recognised at the net 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 the Group will pay suppliers for the milk supplied
over the season. This is referred to as the advance rate. A breakdown of the advance payments made to suppliers
is presented in the following table.
GROUP
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Owing to suppliers ($ million)2,1191,825
Details relating to the season ended 31 May:
Farmgate Milk Price¹ (per kgMS)$9.30$ 7. 5 4
–Total advance payments made during the year$ 7. 9 0$6.41
–Total owing as at 31 July$1.40$1.13
Amount advanced during the year as a percentage of the milk price 85%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/Milk Price Methodology’ section of Fonterra’s website.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
30
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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 includes the following notes:
Note 16: Property, plant and equipment
Note 17: Leases
Note 18: Intangible assets
16. 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.
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
Judgement is involved in determining the assets’ residual values and useful lives, which are reviewed and
adjusted, where required, each financial year.
GROUP $ MILLION
LAND
BUILDINGS AND
LEASEHOLD
IMPROVEMENTS
PLANT,
VEHICLES AND
EQUIPMENT
CAPITAL
WORK IN
PROGRESSTOTAL
As at 31 July 2022
Cost 3682,7068,35650811,938
Accumulated depreciation
and impairment–(1,189)(4,682)–(5,871)
Net book value at 31 July 20223681,5173, 6745086,067
As at 31 July 2021
Cost 3502,6708,17037111,561
Accumulated depreciation
and impairment–(1,118)(4,464)–(5,582)
Net book value at 31 July 20213501,5523,7063715,979
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
31
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
16. Property, plant and equipment continued
GROUP $ MILLION
LAND
BUILDINGS AND
LEASEHOLD
IMPROVEMENTS
PLANT,
VEHICLES AND
EQUIPMENT
CAPITAL
WORK IN
PROGRESSTOTAL
Net book value
As at 1 August 20213501,5523,7063715,979
Additions
1
22165490533
Transferred from capital work in progress–35309(344)–
Depreciation charge –(87)(352)–(439)
Impairment–––(8)(8)
Disposals(6)(1)(5)–(12)
Foreign currency translation2211(1)14
As at 31 July 20223681,5173, 6745086,067
Net book value
As at 1 August 20203571,5233,8103166,006
Additions
1
1462427449
Transferred from capital work in progress –109261(370)–
Transferred to buildings and leasehold
improvements (19)19–––
Acquisition from business combination ––16–16
Depreciation charge –(86)(350)–(436)
Impairment ––(5)–(5)
Disposals (1)(5)(9)(1)(16)
Foreign currency translation(1)(14)(19)(1)(35)
As at 31 July 20213501,5523,7063715,979
1 Additions include borrowing costs of $7 million (31 July 2021: $5 million) capitalised using a weighted average interest rate of 4.74% (31 July 2021: 4.94%).
There has been no significant impairment of assets during the year ended 31 July 2022.
New Zealand ingredients manufacturing assets
The Group’s New Zealand ingredients manufacturing sites are utilised as a single network for processing raw milk
supply. In estimating useful lives and residual values of its New Zealand ingredients manufacturing assets, the
Group has considered the impact of:
–possible flat or declining milk supply scenarios (together with individual plant peak milk
processing requirements);
–environmental matters (such as the New Zealand Government’s Emissions Reduction Plan); and
–the Group’s investment in sustainability, including its decarbonisation plan to exit coal by 2037.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
32
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
1 7. L e a s e s
The Group is a lessee of various types of assets, including buildings, plant, vehicles and equipment. Right-of-use
assets reflect the Group’s right to use leased assets. Corresponding lease liabilities reflect the present value of the
related future lease payments.
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 in the Income Statement as incurred.
a) Right-of-use assets
Right-of-use assets are 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 these
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.
Information about right-of-use assets from leases for which the Group is a lessee is presented in the
following table.
GROUP $ MILLION
NET BOOK VALUEDEPRECIATION CHARGE
AS AT
31 JULY 2022
AS AT
31 JULY 2021
1
YEAR ENDED
31 JULY 2022
YEAR ENDED
31 JULY 2021
Land222218
Buildings2753316458
Plant, vehicles and equipment1011333942
Total398486104108
1 Comparative information has been re-presented for consistency with the current period.
Additions to right-of-use assets during the year were $15 million (31 July 2021: $32 million).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
33
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
17. Leases continued
b) Lease liabilities
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.
Total lease liabilities included within borrowings in the Statement of Financial Position are presented in the
following table.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Current lease liabilities9499
Non-current lease liabilities344424
Total lease liabilities438523
During the year ended 31 July 2022 total cash payments for leases were $145 million (31 July 2021: $145 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 2022, 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 $1 million
(31 July 2021: $2 million).
c) Other lease-related expenses recognised in the Income Statement
GROUP $ MILLION
31 JULY 202231 JULY 2021
Interest on lease liabilities1317
Variable lease payments not included in the measurement of
lease liabilities45
Expenses relating to short-term leases108
Expenses relating to low value leases1010
Income from sub-leasing right-of-use assets1–
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
34
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
18. Intangible assets
The significant intangible assets recognised by the Group are goodwill, brands, software assets, and
emissions units.
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 business at the date of acquisition. Goodwill is initially recognised at cost
and subsequently measured at cost less accumulated impairment losses. Goodwill is tested for impairment
annually and 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, and subsequently measured at cost less any impairment losses. 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 tested for impairment annually and are not amortised.
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
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 (two to 13 years).
Software assets are tested for impairment when an indicator of impairment exists.
Emissions units held for compliance purposes
Emissions units held for compliance purposes are accounted for as intangible assets with an indefinite life
and measured at cost less any impairment losses. Emissions units are not amortised.
Refer to Note 13 Inventories for further information about emissions units held for trading.
The Group’s obligation to surrender emissions units is included in other current liabilities. Emissions units
held for compliance purposes expected to be surrendered within twelve months are classified as current
intangible assets, and are derecognised as they are surrendered to settle the Group’s emissions obligation.
Impairment testing
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 the recoverable amount, the CGU is impaired to its recoverable amount.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
35
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
18. Intangible assets continued
Uncertainty is involved in estimating value in use and fair value less costs to dispose.
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, discount rates and
terminal growth rates. Cash flows are based on approved forecasts which are consistent with the Board
approved strategy. Cash flows do not exceed five years. Discount rates are based on external data where
possible.
Where the Group has applied the relief from royalty method for valuing its brands, judgement is involved in
estimating royalty 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
AS AT
31 JULY 2022
AS AT
31 JULY 2021
1
Current intangible assets7847
Non-current intangible assets2,2162,195
Total intangible assets2,2942,242
1 Comparative information includes re-presentations for consistency with the current period.
A breakdown of total intangible assets is presented in the following table.
GROUP $ MILLION
GOODWILLBRANDSSOFTWARE
SOFTWARE
WIP
EMISSIONS
UNITSOTHER
TOTAL
INTANGIBLES
As at 31 July 2022
Cost8521,4851,49774141364,085
Accumulated
amortisation and
impairment(319)(237)(1,214)––(21)(1,791)
Net book value at
31 July 20225331,24828374141152,294
As at 31 July 2021
Cost8391,3991,4938097283,936
Accumulated
amortisation and
impairment(310)(175)(1,191)––(18)(1,694)
Net book value at 31
July 20215291,2243028097102,242
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
36
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
18. Intangible assets continued
GROUP $ MILLION
GOODWILLBRANDSSOFTWARE
SOFTWARE
WIP
EMISSIONS
UNITSOTHER
TOTAL
INTANGIBLES
Net book value
As at 1 August 20215291,2243028097102,242
Additions–––631138184
Transferred from work
in progress––69(69)–––
Impairment–(34)––––(34)
Amortisation ––(89)––(3)(92)
Disposals/surrender
of units––––(69)–(69)
Foreign currency
translation4581–––63
As at 31 July 20225331,24828374141152,294
Net book value
As at 1 August 20205371,2473544050122,240
Additions––48496–184
Transferred from work
in progress––44(44)–––
Amortisation ––(96)––(2)(98)
Disposals/surrender
of units–(2)(3)–(49)–(54)
Foreign currency
translation(8)(21)(1)–––(30)
As at 31 July 20215291,2243028097102,242
Amortisation is recognised in cost of goods sold and other operating expenses in the Income Statement.
Impairment is recognised within other operating expenses in the Income Statement.
Goodwill and indefinite life brands
The allocation of goodwill and brands across the Group’s reportable segments is presented in the following table.
All brands presented in the following table have indefinite lives.
GROUP $ MILLION
AS AT 31 JULY 2022AS AT 31 JULY 2021
GOODWILLBRANDSTOTALGOODWILLBRANDSTOTAL
Asia Pacific reportable segment
–New Zealand consumer and
foodservice CGU229282511229282511
–Australia CGU140148288131148279
–Asia brands–678678–653653
–NZMP brand–120120–120120
AMENA reportable segment
–Chile CGU90201109721118
Other CGUs74–7472–72
Total5331,2481,7815291,2241,753
Impairment testing of goodwill and indefinite life brands
The Group has performed impairment tests for CGUs with goodwill or intangible assets with indefinite
useful lives. Impairment has been recognised on the Group’s Asia brands. No further impairment was identified.
Further information about impairment tests performed for CGUs (or groups of CGUs) with significant goodwill or
indefinite life brands is provided below.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
37
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
18. Intangible assets continued
a) New Zealand consumer and foodservice CGU
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 volume growth, margin growth, increases
in intra-group revenues and operational cost management. These key assumptions are set as part of the three-year
business plan approved by the Board, and reflect past experience and Management’s future expectations for
the business.
The long-term growth rate applied to the future cash flows after year five of the forecast was 2.0% (31 July 2021:
2.0%). This reflects the expected long-term economic growth rate for New Zealand.
The post-tax discount rate was 8.4% (31 July 2021: 7.5%). The pre-tax discount rate was 11.0% (31 July 2021: 9.8%).
The recoverable amount of the business exceeds its carrying amount by $66 million. The Group has identified that
a reasonably possible change in five key assumptions could cause the carrying amount to exceed the recoverable
amount. The following table shows the amount by which these assumptions would need to change individually for
the carrying amount to exceed estimated recoverable amount.
KEY ASSUMPTIONSVALUE ATTRIBUTED
CHANGE REQUIRED FOR THE CARRYING AMOUNT
TO EXCEED THE RECOVERABLE AMOUNT
Volume growth2.3%A decrease in volume growth of 0.5%
Margin growth3.8%A decrease in margin growth of 0.5%
Increase in intra-group revenues$14 million per annum from FY23A decrease of $6 million per annum
Operational cost management$15 million by FY25Savings of $6 million by FY25 not achieved
Discount rate (post-tax)8.4%An increase in the discount rate of 0.6%
b) Australia CGU
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. A key driver
for the business to achieve its performance targets is delivery on identified consumer and foodservice growth
opportunities. This key assumption was based on business cases prepared by Management, leveraging from
past experience.
The long-term growth rate applied to the future cash flows after year five of the forecast was 2.5% (31 July 2021:
2.0%). This reflects the expected long-term economic growth rate for Australia.
The post-tax discount rate was 7.0% (31 July 2021: 6.5%). The pre-tax discount rate was 9.3% (31 July 2021: 8.7%).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
38
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
18. Intangible assets continued
c) Asia brands
Asia brands represent the Group’s trademarks and other intellectual property in territories outside of
New Zealand and Australia, relating to the Anchor, Anmum, Anlene and Chesdale brands.
The relief from royalty method has been used to calculate the recoverable amounts of the brands. 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 3% to 7% (31 July 2021: 3%
to 7%). The key assumption used in the relief from royalty method is forecast sales growth. The value attributed
to the assumption is based on five-year cash flow forecasts using the three-year business plans approved by the
Board. Cash flows for years four and five have been prepared based on growth expectations for the brand.
For these brands, the long-term growth rates applied to the future sales revenue used in the valuation model
range from 1.6% to 7.4% (31 July 2021: 2.0% to 6.5%) and the range of discount rates (post-tax) that have been
applied in the valuation model range from 8.8% to 31.5% (31 July 2021: 7.0% to 18.0%), country dependent.
The range of pre-tax discount rates was 11.1% to 41.4% (31 July 2021: 8.8% to 23.1%).
The carrying amount for the Anchor, Anlene and Anmum brands and cash flow forecasts for each region are in
local currency and converted to NZD.
Anlene brand
The recoverable amount of the Anlene brand was assessed to be $195 million. This was lower than the carrying
value of the brand, resulting in an impairment of $22 million. The impairment was a result of changes in discount
rates, long-term growth rates and foreign exchange rates. Impairment was recognised in the Group’s Asia Pacific
operating segment.
As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount
rates applied was 9.2% to 31.5% (31 July 2021: 7.0% to 18.0%). The range of pre-tax discount rates was 11.1% to
41.4% (31 July 2021: 8.8% to 23.1%).
Anmum brand
The recoverable amount of the Anmum brand was assessed to be $114 million. This was lower than the carrying
value of the brand, resulting in an impairment of $11 million. The impairment was a result of changes in discount
rates, long-term growth rates and foreign exchange rates. Impairment was recognised in the Group’s Asia Pacific
operating segment.
As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount
rates applied was 9.2% to 15.8% (31 July 2021: 7.0% to 11.5%). The range of pre-tax discount rates was 11.1%
to 19.8% (31 July 2021: 8.8% to 14.4%).
Chesdale brand
The recoverable amount of the Chesdale brand was assessed to be $27 million. This was lower than the carrying
value of the brand, resulting in an impairment of $1 million. The impairment was a result of changes in discount
rates, long-term growth rates and foreign exchange rates. Impairment was recognised in the Group’s Greater
China operating segment.
As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount
rates applied was 8.8% to 31.5% (31 July 2021: 7.0% to 16.5%). The range of pre-tax discount rates was 11.1%
to 41.4% (31 July 2021: 8.8% to 21.7%).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
39
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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 notes:
Note 19: Financial risk management
Note 20: Hedge accounting
19. Financial risk management
The Group has exposure to the following financial risks:
–market risk;
–liquidity risk; and
–credit risk.
The Group’s overall financial risk management programme focuses primarily on maintaining a financial risk
profile that provides flexibility to implement the Group’s strategies, while optimising return on assets. Financial
risk management is centralised, which supports compliance with the financial risk management policies and
procedures set by the Board.
The Group uses derivatives, such as forwards, futures, options and swaps to manage its exposure to certain risks
as described in this section. Derivatives are measured at fair value.
Measurement differences between derivatives and the associated item being hedged can present volatility in
the Income Statement. To reduce this volatility the Group applies hedge accounting. Refer to Note 20 Hedge
accounting for further information.
Market risk
a) Foreign exchange risk
Nature and exposure of risk
Foreign exchange risk is the risk that changes in foreign exchange rates will affect the Group’s future cash flows or
fair value of financial instruments.
The Group is exposed to movements in foreign exchange rates through transactions and balances denominated
in foreign currencies. The Group’s exposure to foreign currency before applying risk management strategies are
as follows:
–forecast foreign currency transactions, which predominately includes the Group’s forecast sales transactions
which are mainly denominated in United States Dollars.
–net investments in foreign operations of $4,067 million (31 July 2021: $3,729 million). This amount excludes net
investments in foreign operations held for sale and borrowings held by the Group in the same currency as the
investment.
–borrowings denominated in foreign currency of $3,506 million (31 July 2021: $3,780 million).
–foreign currency receivables of $2,089 million (31 July 2021: $1,459 million) and payables of $1,075 million
(31 July 2021: $991 million).
How foreign exchange risk is managed
Forecast foreign currency transactions
The Group enters into foreign currency forward contracts and foreign currency options to manage foreign
exchange risk on the following forecast foreign currency transactions:
–forecast cash receipts from foreign currency sales for a period of up to 18 months within decreasing limits
approved by the Board; and
–up to 100% of other forecast foreign currency transactions.
Foreign operations
The Group uses foreign currency denominated borrowings and foreign currency swaps to manage foreign
exchange risk on net investments in foreign operations.
Foreign currency denominated borrowings
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. Foreign currency gains and losses relating to these balances are offset
in the Income Statement.
The Group uses cross-currency interest rate swaps (CCIRS) to manage residual foreign exchange and interest rate
risk on foreign currency denominated borrowings. CCIRS exchange fixed rate foreign currency borrowings and
interest payments into equivalent New Zealand Dollar-denominated amounts of principal with floating interest
rates. The Group’s policy is to maintain its net exposure to a foreign currency within predefined limits.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
40
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
19. Financial risk management continued
a) Foreign exchange risk continued
Receivables and payables denominated in foreign currency
The Group typically enters into foreign currency forward contracts and foreign currency options for 100% of its
net foreign currency receivables and payables which generate foreign exchange risk within the Income Statement.
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.
Sensitivity analysis
The following table presents the Group’s sensitivity, after taking into consideration the impact of hedge
accounting, from a reasonably possible strengthening or weakening NZD against foreign currencies, with all other
variables held constant.
Assets and liabilities held for sale have been excluded from the sensitivity analysis in the following table.
GROUP $ MILLION
31 JULY 202231 JULY 2021
EQUITYPROFITEQUITYPROFIT
10% strengthening of the NZD5131035116
10% weakening of the NZD (617)(13)(366)(17)
b) Interest rate risk
Nature and exposure of risk
Interest rate risk is the risk that changes in interest rates will affect the Group’s future cash flows or fair value of
financial instruments.
Changes in 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).
The Group is exposed to movements in interest rates on its interest-bearing borrowings. The Group’s exposure
before applying risk management strategies is $4,845 million (31 July 2021: $3,944 million).
How interest rate risk is managed
The Group issues fixed and floating rate debt and uses interest rate swaps (IRS) to manage interest rate exposure
on its borrowings within a Board approved target ratio of fixed and floating rate exposure.
Sensitivity analysis
The following table presents the Group’s sensitivity, after taking into consideration the impact of hedge
accounting, from a reasonably possible increase or decrease in interest rates, with all other variables held
constant. Hedge ineffectiveness relating to interest rate swaps that have been designated into hedge relationships
after their initial recognition contributes to $3 million of the impact on profit from a 100 basis point movement
(31 July 2021: $20 million).
Assets and liabilities held for sale have been excluded from the sensitivity analysis in the following table.
GROUP $ MILLION
31 JULY 202231 JULY 2021
EQUITYPROFITEQUITYPROFIT
100 basis point increase4834821
100 basis point decrease(50)(3)(55)(17)
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 presented in the following table.
GROUP $ MILLION
31 JULY 202231 JULY 2021
100 basis point increase(7)(1)
100 basis point decrease71
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
41
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
19. Financial risk management continued
c) Commodity price risk
Nature and exposure of risk
Commodity price risk is the risk that changes in commodity prices will affect the Group’s future cash flows or fair
value of financial instruments.
The Group is exposed to dairy commodity price risk through changes in selling prices and the cost of milk. In
addition, the Group is a large purchaser of electricity and diesel and is exposed to changes in the cost of these
commodities.
How commodity price risk is managed
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 expected milk supply 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 prices; and
–using dairy commodity derivative contracts to obtain a certain 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 and diesel.
Sensitivity analysis
The following table presents the Group’s sensitivity on its commodity derivatives, after taking into consideration
the impact of hedge accounting, from a reasonably possible increase or decrease in commodity prices, 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 balance date.
GROUP $ MILLION
31 JULY 202231 JULY 2021
EQUITYPROFITEQUITYPROFIT
10% increase in commodity prices76354031
10% decrease in commodity prices(77)(35)(40)(31)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
42
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
19. Financial risk management continued
Liquidity risk
Nature and exposure of risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Timings of the gross contractual cash flows for the Group’s financial instruments are presented in the following tables.
GROUP $ MILLION
AS AT 31 JULY 2022
CARRYING AMOUNTCONTRACTUAL CASH FLOWS3 MONTHS OR LESS3-12 MONTHS1-5 YEARSMORE THAN 5 YEARS
Non-derivative financial liabilities
Borrowings
–Bank loans(999)(1,119)(17)(33)(1,069)–
–Commercial paper(98)(100)–(100)––
–Lease liabilities(438)(443)(26)(70)(210)(137)
–Capital notes(35)(41)–(1)(5)(35)
–NZX-listed bonds(250)(270)(3)(157)(110)–
–Medium-term notes(3,436)(4,031)(25)(117)(2,450)(1,439)
Bank overdraft(31)(31)(31)–––
Owing to suppliers(2,119)(2,119)(2,018)(101)––
Trade and other payables (excluding employee entitlements)(2,035)(2,035)(2,035)–––
Other financial liabilities(32)(32)(17)–(15)–
Financial guarantees issued
1
–(1)(1)–––
Total non-derivative financial liabilities(9,473)(10,222)(4,173)(579)(3,859)(1,611)
Derivative financial instruments
Gross settled derivatives
Inflow22,8407, 8 7 110,1533,5891,227
Outflow (23,476)(8,098)(10,605)(3,721)(1,052)
Total gross settled derivative financial instruments(639)(636)(227)(452)(132)175
Net settled derivatives2572741097097(2)
Total financial liabilities and derivatives(9,855)(10,584)(4,291)(961)(3,894)(1,438)
1 Maximum cash flows under guarantees provided by the Group.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
43
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
19. Financial risk management continued
GROUP $ MILLION
AS AT 31 JULY 2021
CARRYING AMOUNTCONTRACTUAL CASH FLOWS3 MONTHS OR LESS3-12 MONTHS1-5 YEARSMORE THAN 5 YEARS
Non-derivative financial liabilities
Borrowings
–Bank loans(11)(11)(6)(5)––
–Lease liabilities(523)(528)(27)( 74)(252)(175)
–Capital notes(35)(40)–(1)(4)(35)
–NZX-listed bonds(600)(639)(361)(7)(271)–
–Medium-term notes(3,903)(4,344)(126)(383)(2,116)(1,719)
Bank overdraft(20)(20)(20)–––
Owing to suppliers
1
(1,825)(1,825)(1,718)(107)––
Trade and other payables (excluding employee entitlements)(1,876)(1,876)(1,876)–––
Other financial liabilities(60)(60)(15)(6)(38)(1)
Financial guarantees issued
2
–(1)(1)–––
Total non-derivative financial liabilities(8,853)(9,344)(4,150)(583)(2,681)(1,930)
Derivative financial instruments
Gross settled derivatives
Inflow18,6626,8507, 57 72,7311,504
Outflow (18,524)(6,776)( 7, 5 62)(2,833)(1,353)
Total gross settled derivative financial instruments1421387415(102)151
Net settled derivatives1011202813709
Total financial liabilities and derivatives(8,610)(9,086)(4,048)(555)(2,713)(1,770)
1 Comparative information includes re-presentations for consistency with the current period.
2 Maximum cash flows under guarantees provided by the Group.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
44
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
19. Financial risk management continued
How liquidity risk is managed
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 Board approved 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, the Group 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 $2,345 million (31 July 2021: $2,905 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 presented in the following table.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
New Zealand Dollar345908
Australian Dollar708894
United States Dollar1,4371,432
British Pound447488
European Euro559603
Chinese Renminbi190178
Total 3,6864,503
Credit risk
Nature and exposure of risk
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 and derivative assets.
The Group has no significant concentrations of credit risk.
How credit risk is managed
The Group sets minimum credit quality requirements, credit limits and uses other credit mitigation tools to
manage its credit risk. The Group’s Board approved 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; and
–Posting or receiving margin in respect of derivative contracts transacted on exchanges. As at 31 July 2022 the
Group received $54 million (31 July 2021: received $14 million) of margin as collateral for derivative financial
instruments.
The Group further manages its credit risk through the following:
Trade and other receivables
–Application of credit limits, and credit mitigation tools, such as letters of credit.
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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
45
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting
Derivatives are measured at fair value. Refer to Note 25 Fair value measurement for information on how fair
value is determined.
The resulting gain or loss on re-measurement is recognised immediately in the Income Statement, 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 recognised in other comprehensive income remains in the hedge reserve until the
forecast transaction occurs, or it 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 within hedge reserves in the Statement of Financial Position.
Subsequently, the cumulative amount is transferred to the Income Statement at the same time as the
hedged item impacts the Income Statement.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
46
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
The Group’s risk management activities described in Note 19 Financial risk management result in volatility
to the Income Statement caused by timing and measurement differences between hedging instruments
and the associated item being hedged. Where a hedge relationship between a hedged item and the hedging
instrument (e.g. a derivative) qualifies for hedge accounting, and the Group applies hedge accounting, the volatility
in the Income Statement caused by the timing and measurement differences between hedging instruments and
the associated hedged item is reduced. The Group applies the following hedge accounting activities.
Foreign exchange risk
Forecast foreign currency transactions
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.
Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the designated
hedging instruments.
The Income Statement impact of hedge accounting effectiveness and ineffectiveness is recognised in revenue
from sale of goods.
Foreign operations
The Group’s net investments are designated in hedge relationships to the extent borrowings denominated in the
same foreign currency and foreign currency swaps are 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 Income Statement impact of hedge accounting effectiveness and ineffectiveness is recognised in other
operating expenses.
Foreign currency denominated borrowings
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.
The Income Statement impact of hedge accounting effectiveness and ineffectiveness is recognised in net finance
costs and other operating expenses.
Interest rate risk
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.
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 Income Statement impact of hedge accounting effectiveness and ineffectiveness is recognised in net
finance costs.
Commodity price risk
The Group applies cash flow hedge accounting where derivatives are used to manage commodity price 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.
The Income Statement impact of hedge accounting effectiveness and ineffectiveness is recognised in cost of
goods sold and other operating expenses.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
47
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
a) Hedging instruments designated in a hedge accounting relationship
Information about hedging instruments that the Group has designated in a hedge accounting relationship is presented in the following tables.
AS AT 31 JULY 2021
GROUP $ MILLION
CARRYING AMOUNT IN THE STATEMENT OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTSMATURITY (MONTHS)
WEIGHTED AVERAGE
RATE/PRICENOMINAL AMOUNT
1
DERIVATIVE ASSETSDERIVATIVE LIABILITIESBORROWINGS
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges
NZD:USD forwards and options (sales)1–180.66314,63642(610)–
USD:CNY forwards and options (sales)1–1 26.61570814(2)–
AUD:USD forwards (sales)1–1 20.7141651(4)–
USD:AUD forwards (purchases)1–300.7141254(2)–
AUD:AED forwards (sales)1–92.57346–––
Total15,68061(618)–
Foreign exchange risk – Foreign operations
Net investment hedges
AUD borrowings64–89––(89)
EUR borrowings28–157––(157)
NZD:CNY forwards54.34019–(1)–
Total265–(1)(246)
Foreign exchange risk and interest rate risk – Foreign currency denominated
borrowings
Cash flow and fair value hedges
NZD:USD CCIRS50–970.760/Floating1,184239––
NZD:GBP CCIRS170.361/Floating6239(206)–
NZD:EUR CCIRS280.656/Floating38610––
NZD:CNY CCIRS364.669/Floating17116––
Total2,364274(206)–
1 Nominal amount is the face value converted into New Zealand Dollars using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
48
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
AS AT 31 JULY 2021
GROUP $ MILLION
CARRYING AMOUNT IN THE STATEMENT OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTSMATURITY (MONTHS)
WEIGHTED AVERAGE
RATE/PRICENOMINAL AMOUNT
1
DERIVATIVE ASSETSDERIVATIVE LIABILITIESBORROWINGS
Interest rate risk – Borrowings
Cash flow hedges
NZD IRS1– 602.43%4,193106(12)–
AUD IRS23–253.34%178–––
Total4,371106(12)–
Fair value hedges
NZD IRS8–40Floating250–(4)–
AUD IRS47– 6 4Floating534–(19)–
Total784–(23)–
Commodity price risk – Forecast transactions
Cash flow hedges
2
Fuel futures1–18$109.55255––
Milk Price futures and options3–27$8.501,291130––
Electricity futures1–45$119.8113828––
Total1,454163––
1 Nominal amount is the face value converted into New Zealand Dollars using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
2 The weighted average prices for commodity hedges are presented as the price per barrel for fuel futures (shown in USD), kilogram of milk solid for milk price futures and options, and per megawatt hour for electricity futures.
20. Hedge accounting continued
a) Hedging instruments designated in a hedge accounting relationship continued
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
49
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
a) Hedging instruments designated in a hedge accounting relationship continued
AS AT 31 JULY 2021
GROUP $ MILLION
CARRYING AMOUNT IN THE STATEMENT OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTSMATURITY (MONTHS)
WEIGHTED AVERAGE
RATE/PRICENOMINAL AMOUNT
1
DERIVATIVE ASSETSDERIVATIVE LIABILITIESBORROWINGS
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges
NZD:USD forwards and options (sales)1–180.70711,205152(98)–
USD:CNY forwards and options (sales)1–126.6721,1173(18)–
AUD:USD forwards (sales)2–130.776721(4)–
Total12,394156(120)–
Foreign exchange risk – Foreign operations
Net investment hedges
AUD borrowings76–84––(84)
EUR borrowings40–164––(164)
NZD:CNY forwards114.60318–––
Total266––(248)
Foreign exchange risk and interest rate risk – Foreign currency denominated
borrowings
Cash flow and fair value hedges
NZD:USD CCIRS62–1090.760/Floating1,184227––
NZD:GBP CCIRS290.361/Floating62340(211)–
NZD:EUR CCIRS400.656/Floating38639––
NZD:CNY CCIRS484.669/Floating1715––
Total2,364311(211)–
1 Nominal amount is the face value converted into New Zealand Dollars using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
50
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
AS AT 31 JULY 2021
GROUP $ MILLION
CARRYING AMOUNT IN THE STATEMENT OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTSMATURITY (MONTHS)
WEIGHTED AVERAGE
RATE/PRICENOMINAL AMOUNT
1
DERIVATIVE ASSETSDERIVATIVE LIABILITIESBORROWINGS
Interest rate risk – Borrowings
Cash flow hedges
NZD IRS3–602.39%4,01822(103)–
AUD IRS35–373.34%169–(14)–
Total4,18722(117)–
Fair value hedges
NZD IRS20–52Floating25010––
AUD IRS10 –76Floating55946––
Total80956––
Commodity price risk – Forecast transactions
Cash flow hedges
2
Fuel futures1–18$65.38133––
Milk Price futures and options3–27$6.9570783––
Electricity futures1–30$100.1510921––
Total829107––
1 Nominal amount is the face value converted into New Zealand Dollars using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
2 The weighted average prices for commodity hedges are presented as the price per barrel for fuel futures (shown in USD), kilogram of milk solid for milk price futures and options, and per megawatt hour for electricity futures.
20. Hedge accounting continued
a) Hedging instruments designated in a hedge accounting relationship continued
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
51
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
b) Impact of hedge accounting
Information about the impact of hedge accounting on the Group’s Financial Statements is presented in the following tables.
GROUP $ MILLION
AS AT 31 JULY 2022YEAR ENDED 31 JULY 2022
RISK AND HEDGING INSTRUMENTS USED
ACCUMULATED COST OF
HEDGING
CHANGE IN
VALUE USED
TO CALCULATE HEDGE
EFFECTIVENESS
1
CHANGE IN
VALUE OF
HEDGING INSTRUMENT
RECOGNISED IN OCI
AMOUNT RECLASSIFIED
FROM HEDGING RESERVE
TO INCOME STATEMENT
FAIR VALUE HEDGE
ADJUSTMENTS
RECOGNISED IN THE
INCOME STATEMENT
GAIN/(LOSS)
2
HEDGE INEFFECTIVENESS
RECOGNISED IN THE
INCOME STATEMENT
GAIN/(LOSS)
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges(56)(545)(973)409––
Foreign exchange risk – Foreign operations
Net investment hedges–22–––
Foreign exchange risk and interest rate risk – Foreign currency
denominated borrowings
Cash flow and fair value hedges(8)145145(82)5
Interest rate risk – Borrowings
Cash flow hedges–16810642–42
Fair value hedges–(26)––(79)–
Commodity price risk – Forecast transactions
Cash flow hedges–158127(148)–3
Total(64)N/A(724)308(161)50
1 For those borrowings in a net investment hedge, the change in value to calculate hedge effectiveness is for the year ended 2022.
2 For those borrowings in fair value hedges, life-to-date fair value hedge adjustments decrease the carrying amount of borrowings by $9 million.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
52
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
GROUP $ MILLION
AS AT 31 JULY 2021YEAR ENDED 31 JULY 2021
RISK AND HEDGING INSTRUMENTS USED
ACCUMULATED COST OF
HEDGING
CHANGE IN
VALUE USED TO
CALCULATE
HEDGE EFFECTIVENESS
1
CHANGE IN
VALUE OF
HEDGING INSTRUMENT
RECOGNISED
IN OCI
AMOUNT RECLASSIFIED
FROM HEDGING RESERVE
TO INCOME STATEMENT
FAIR VALUE HEDGE
ADJUSTMENTS
RECOGNISED IN THE
INCOME STATEMENT
GAIN/(LOSS)
2
HEDGE INEFFECTIVENESS
RECOGNISED IN THE
INCOME STATEMENT
GAIN/(LOSS)
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges(24)19323(664)––
Foreign exchange risk – Foreign operations
Net investment hedges–1010–––
Foreign exchange risk and interest rate risk – Foreign currency
denominated borrowings
Cash flow and fair value hedges(14)189(42)57(152)(1)
Interest rate risk – Borrowings
Cash flow hedges–37051–45
Fair value hedges–54––(31)–
Commodity price risk – Forecast transactions
Cash flow hedges–107154(95)––
Total(38)N/A515(651)(183)44
1 For those borrowings in a net investment hedge, the change in value to calculate hedge effectiveness is for the year ended 2021.
2 For those borrowings in fair value hedges, life-to-date fair value hedge adjustments increase the carrying amount of borrowings by $260 million.
20. Hedge accounting continued
b) Impact of hedge accounting continued
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
53
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
c) Impact to reserves in equity
Hedge reserves
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Opening balance(26)101
Movements attributable to cash flow hedges
Change in value of effective derivative hedging instruments(726)505
Reclassifications to the Income Statement:
–As hedged transactions occurred 308(651)
Net change in the cost of hedging reserve(26)(30)
Tax credit12449
Total movement(320)(127)
Closing balance
1
(346)(26)
1 Included in the closing balance of the hedge reserves is a credit balance of $1 million (31 July 2021: credit balance of $1 million) relating to hedge
relationships for which hedge accounting is no longer applied.
Foreign currency translation reserve
GROUP $ MILLION
31 JULY 202231 JULY 2021
Opening balance(355)(229)
Movements attributable to net investments in foreign operations
and net investment hedges
Net translation loss on:
–Borrowings and derivative hedging instruments76(67)
–Net investments in foreign operations27(42)
Reclassifications to the Income Statement:
–Disposals of foreign operations(1)(14)
–Tax expense–(3)
Total movement102(126)
Closing balance
1
(253)(355)
1 Included in the closing balance of the foreign currency translation reserve is a debit balance of $26 million (31 July 2021: debit balance of
$22 million) relating to hedge relationships for which hedge accounting is no longer applied.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
54
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
20. Hedge accounting continued
d) 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 derivatives not designated in a hedging relationship is presented in the following table.
GROUP $ MILLION
DERIVATIVES NOT DESIGNATED IN A
HEDGING RELATIONSHIP
LOCATION OF GAIN/(LOSS) IN
INCOME STATEMENT31 JULY 202231 JULY 2021
Foreign currency contractsRevenue from sale of goods–4
Foreign currency contractsOther operating expenses
1
(182)25
Commodity contractsCost of goods sold(39)14
Commodity contractsOther operating expenses9(1)
Interest rate contractsFinance costs7(2)
Total(205)40
1 These predominantly relate to foreign currency contracts hedging net receivables. The revaluation of the net receivables also recognised in other
operating expenses is a gain of $207 million (31 July 2021: loss of $35 million).
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
55
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
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 21: Taxation
Note 22: Contingent liabilities, provisions and commitments
Note 23: Related party transactions
Note 24: Subsidiaries
Note 25: Fair value measurement
Note 26: Offsetting of financial assets and liabilities
Note 27: Net tangible assets per quoted equity security
21. 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 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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
56
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
21. Taxation continued
a) Taxation – Income Statement
The total tax expense in the Income Statement is summarised in the following table.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Current tax expense11883
Prior period adjustments to current tax(9)11
Deferred tax movements:
–Origination and reversal of temporary differences609
Tax expense169103
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 202231 JULY 2021
Profit before tax from continuing operations830635
Prima facie tax expense at 28%232178
(Deduct)/add tax effect of:
–Effect of tax rates in foreign jurisdictions (11)(9)
–Non-deductible expenses/additional assessable income9585
–Non-assessable income/additional deductible expenses(62)(85)
–Prior year (over)/under provision(9)11
Tax expense before distributions and deferred tax245180
Effective tax rate before distributions and deferred tax29.5%28.3%
Tax effect of distributions to farmer shareholders(79)(77)
Tax expense before deferred tax166103
Effective tax rate before deferred tax20.0%16.2%
(Deduct)/add tax effect of:
–Origination and reversal of other temporary differences2(2)
–Losses of overseas Group entities not recognised12
Tax expense from continuing operations169103
Effective tax rate20.4%16.2%
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 recognised
54
45
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
57
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
21. Taxation continued
b) Taxation – Statement of Financial Position
Deferred tax assets and deferred tax liabilities relate to the following:
GROUP $ MILLION
AS AT 31 JULY 2022AS AT 31 JULY 2021
DEFERRED
TAX ASSET
DEFERRED
TAX LIABILITYNET
DEFERRED
TAX ASSET
DEFERRED
TAX LIABILITYNET
Deferred tax
Property, plant and equipment1,613(1,658)(45)1,589(1,637)(48)
Intangible assets–(380)(380)–(380)(380)
Right-of-use assets117(109)8142(134)8
Derivative financial instruments131–13117–17
Employee entitlements93–9385–85
Inventories79–7945–45
Receivables, payables and provisions92–9282–82
New Zealand tax losses348–348434–434
Offshore tax losses187–187215–215
Other9(21)(12)7(30)(23)
Total before offsetting 2,669(2,168)5012,616(2,181)435
Offset adjustment(2,118)2,118–(2,156)2,156–
Total551(50)501460(25)435
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
58
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
21. Taxation continued
b) Taxation – Statement of Financial Position continued
GROUP $ MILLION
31 JULY 202231 JULY 2021
Movements for the year
Opening balance435401
Recognised in the Income Statement
1
(60)(9)
Recognised directly in other comprehensive income12446
Foreign currency translation2(3)
Closing balance501435
1 Comparative information has been re-presented for consistency with the current period.
Tax losses
Judgement is involved in assessing the availability of future taxable income against which tax losses carried
forward can be utilised.
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 $348 million (31 July 2021: $434 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. The Group determines its Dividend Policy and therefore has the ability to influence utilisation of the losses.
The time horizon for utilising these losses is estimated at seven years (31 July 2021: seven years). 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 and could 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 amount of the deferred tax asset recognised.
Offshore tax losses
Gross tax losses of $54 million reflecting a deferred tax asset of $15 million (31 July 2021: $45 million
gross, deferred tax asset of $14 million) relating to offshore entities have not been recognised as they may
not be utilised.
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 assessed the likelihood of earnings being remitted to New Zealand
and has recorded a deferred tax liability of $21 million (31 July 2021: $30 million).
As at 31 July 2022, unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries amount
to $185 million (31 July 2021: $128 million). The Group 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 Positions
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 estimation of 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 estimate of uncertain tax positions. Such changes to
tax liabilities will affect tax expense in the period that such determination is made.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
59
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
22. 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.
Estimates and assumptions are made in determining the likelihood, amount and timing of cash outflows
when the outcome is uncertain. Legal counsel or other experts are consulted on matters that may give rise
to a provision or a contingent liability.
In the normal course of business, the Group is exposed to claims and legal proceedings that may in some cases
result in costs.
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 is vigorously defending these claims, with compulsory mediation and
the trial scheduled for later in 2022.
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Current provisions7072
Non-current provisions7982
Total provisions149154
A breakdown of total provisions is presented in the following table.
GROUP $ MILLION
EMPLOYEE
RELATED
PROVISIONS
OTHER
PROVISIONS
TOTAL
PROVISIONS
As at 1 August 2021
1
10846154
Additional provisions20103123
Unused amounts reversed(44)(17)(61)
Charged to Income Statement(24)8662
Charged to equity(3)–(3)
Utilised during the year(7)(52)(59)
Foreign currency translation(5)–(5)
As at 31 July 20226980149
1 Categories have been re-presented for consistency with the current period.
Employee related provisions include defined benefit scheme obligations, other obligations that fall due on
termination of employment, and long-term employee benefits.
Other provisions include obligations relating to customs and duties, legal matters, 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 judicial proceedings or commercial negotiations relating to each individual claim.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
60
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
22. Contingent liabilities, provisions and commitments continued
At year end the Group was committed to future capital expenditure for:
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Buildings2019
Plant, vehicles and equipment19292
Software132
Total commitments225113
The above table does not include lease commitments. Refer to Note 17 Leases for information about the Group’s
lease commitments.
23. Related party transactions
Information about transactions with related parties and year end balances that arose from those transactions are
presented within this note.
a) Key management personnel remuneration
Key management personnel comprise members of the Board and members of the Fonterra Management Team.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Short-term employee benefits
1
2121
Long-term employee benefits51
Directors’ remuneration32
Total key management personnel remuneration2924
1 In addition to the amount disclosed in the table above, the Group has previously recognised a provision of $2 million relating to the pending
judicial interpretation of the requirements of the Holidays Act 2003 for former key management personnel. This interpretation was concluded
in the current year and the Group released the provision.
b) Transactions with related parties during the year
Transactions with related parties are on normal trade terms and no balances are secured.
GROUP $ MILLION
31 JULY 202231 JULY 2021
Equity accounted investees
Revenue from the sale of goods
1
8283
Sale of services
2
47
Royalty and other income–1
Dividends received68
Interest income from financing arrangements–1
Purchases of goods
3
(81)(61)
Purchases of services
4
(167)(171)
Key management personnel
Purchases of goods
5
(157)(135)
Sale of goods
6
88
Dividends paid32
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 Purchases from key management personnel primarily relate to milk supplied by farmer shareholder Directors.
6 Sales to key management personnel primarily related to sales through Farm Source™ retail stores.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
61
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
23. Related party transactions continued
c) Outstanding balances with related parties
GROUP $ MILLION
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Equity accounted investees
Total receivables arising from the sale of goods or services¹1925
Total payables arising from the purchase of goods or services(14)(9)
Key management personnel
Total payables and provisions arising from remuneration
2
(22)(16)
Total payables arising from the sale or purchase of goods or services
3
(24)(21)
1 As at 31 July 2022, there was no provision for impairment of receivables from equity accounted investees (31 July 2021: nil).
2 In addition to the amount disclosed in the table above, the Group has previously recognised a provision of $2 million relating to the pending
judicial interpretation of the requirements of the Holidays Act 2003 for former key management personnel. This interpretation was concluded
in the current year and the Group released the provision.
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 2022, the aggregate
drawn down amount of equity accounted investees’ liabilities for which the Group is jointly and severally liable
is $1 million (31 July 2021: $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
The Group has prospective commitments with related parties including contracts with equity accounted
investments for the sale, supply and purchase of dairy products, energy and the provision of various
management services.
24. 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 of the Co-operative. 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 and 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 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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
62
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
24. Subsidiaries continued
The significant subsidiaries of the Group are presented in the following table.
OWNERSHIP INTERESTS (%)
SUBSIDIARY NAME
COUNTRY OF INCORPORATION
AND PRINCIPAL PLACE OF BUSINESS
AS AT
31 JULY 2022
AS AT
31 JULY 2021
New Zealand Milk (Australasia) Pty LimitedAustralia100100
Fonterra Australia Pty Limited¹Australia100100
Fonterra Brands (Australia) Pty Limited¹Australia100100
Dairy Partners Americas Brasil Limitada²Brazil5151
Soprole Inversiones S.A.²Chile99.999.9
Comercial Santa Elena S.A.³Chile99.999.9
Soprole S.A.³Chile99.999.9
Prolesur S.A.³Chile99.999.9
Fonterra Commercial Trading (Shanghai)
Company Limited²China100100
Tangshan Fonterra Dairy Farm Limited
2,4
China10085
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
The Group’s ownership interest of the following entities is 50% 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 2022
AS AT
31 JULY 2021
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.
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.
4 The Group purchased the 15% non-controlling interest in January 2022. Refer to Note 2 Divestments for more information.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
63
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
25. Fair value measurement
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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
64
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
25. Fair value measurement continued
The fair value hierarchy for assets and liabilities measured at fair value are presented in the following table.
GROUP $ MILLION
LEVEL 1LEVEL 2LEVEL 3
AS AT
31 JULY 2022
AS AT
31 JULY 2021
AS AT
31 JULY 2022
AS AT
31 JULY 2021
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Measured at fair value on a recurring basis
Derivative assets
–Commodity derivatives21110774––
–Foreign exchange derivatives––64185––
–Interest rate derivatives¹––382390––
Derivative liabilities
–Commodity derivatives(40)(2)(3)–––
–Foreign exchange derivatives––(760)(102)––
–Interest rate derivatives¹––(243)(339)––
Emissions units held for trading3924––––
Investments in shares242018183622
Measured at fair value on a non-recurring basis
Net liabilities held for sale––––(155)(80)
Fair value234149(535)156(119)(58)
1 Includes cross-currency interest rate swaps.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
65
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
25. Fair value measurement continued
The fair value hierarchy for each class of financial asset and liability where the carrying amount differs from the fair value is presented in the following table.
GROUP $ MILLION
FAIR VALUE
CARRYING AMOUNTLEVEL 1LEVEL 2
AS AT
31 JULY 2022
AS AT
31 JULY 2021
AS AT
31 JULY 2022
AS AT
31 JULY 2021
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Financial assets
Long-term advances154163––153182
Financial liabilities
Borrowings
–NZX-listed bonds(250)(600)(246)(611)––
–Capital notes(35)(35)(34)(35)––
–Medium-term notes(3,436)(3,903)––(3,511)(4,056)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
66
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
26. 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.
Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and other agreements are presented in the following table.
GROUP $ MILLION
AMOUNTS OFFSET IN THE STATEMENT OF FINANCIAL POSITION
GROSS FINANCIAL ASSETS/
(LIABILITIES)
GROSS FINANCIAL ASSETS/
(LIABILITIES) SET OFF
NET FINANCIAL ASSETS/
(LIABILITIES) PRESENTEDAMOUNTS NOT OFFSETNET
Derivative financial assets944(280)664(444)220
Trade and other receivables (excluding prepayments)2,523(111)2,412–2,412
3,467(391)3,076(444)2,632
Derivative financial liabilities(1,326)280(1,046)363(683)
Total trade and other payables (excluding employee entitlements)(2,035)–(2,035)66(1,969)
Owing to suppliers(2,230)111(2,119)–(2,119)
Borrowings(5,256)–(5,256)15(5,241)
(10,847)391(10,456)444(10,012)
As at 31 July 2022( 7, 3 8 0 )–( 7, 3 8 0 )–( 7, 3 8 0 )
Derivative financial assets
851(165)686(337)349
Trade and other receivables (excluding prepayments)1,841(94)1 ,747–1 ,747
2,692(259)2,433(337)2,096
Derivative financial liabilities(608)165(443)292(151)
Total trade and other payables (excluding employee entitlements)(1,876)–(1,876)45(1,831)
Owing to suppliers(1,919)94(1,825)–(1,825)
(4,403)259(4,144)337(3,807)
As at 31 July 2021(1,711)–(1,711)–(1,711)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
67
CONTENTS
Notes to the Financial Statements (CONTINUED)
FOR THE YEAR ENDED 31 JULY 2022
27. Net tangible assets per quoted equity security
Net tangible assets is calculated as net assets less intangible assets.
GROUP
AS AT
31 JULY 2022
AS AT
31 JULY 2021
Net tangible assets per security
$ per equity instrument on issue2.862.87
Equity instruments on issue (million)1,6131,613
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
68
CONTENTS
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 consolidated financial statements of Fonterra Co-operative Group Limited (the ’Company’)
and its subsidiaries (the ‘Group’) on pages 3 to 68:
i. present fairly in all material respects the Group’s financial position as at 31 July 2022 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 2022;
— 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 International Code
of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by
the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ International Code of Ethics for Professional Accountants (including International Independence
Standards) (‘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. This includes an engagement to provide a separate reasonable
assurance report in connection with the Farmgate Milk Price. A copy of this assurance report is attached as an
appendix to Fonterra’s Farmgate Milk Price Statement. 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.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
69
CONTENTS
Taken together, the subsidiaries in scope for the Group audit accounted for 85% of the Group’s revenue and 87%
of the Group’s total assets. For the remaining subsidiaries, we performed analysis at an aggregated Group level to
confirm our assessment that there were no significant risks of material misstatement associated with them.
We assigned materiality levels to in scope subsidiaries for performance of audits and specified audit procedures.
These were lower than the materiality level for the Group as a whole, ranging from $5 million to $40 million, and
determined with reference to the size and risk profile of the subsidiary.
We visited subsidiary locations in New Zealand, Australia, Chile and the Netherlands. We held meetings with
management responsible for the financial information of all in scope subsidiaries.
We led the participation of overseas KPMG audit teams in the Group audit. We issued detailed audit instructions
to auditors of in scope subsidiaries. These instructions set out the significant audit areas that we required audit
teams to consider, and the information required to be reported back to the Group audit team. We held audit
planning meetings with overseas KPMG audit teams subject to both audit and specified audit procedures to
explain our audit instructions and discuss their audit plans. In addition, we held meetings to discuss the findings
they reported to us in more detail.
We audited the Group consolidation, financial statement disclosures and a number of complex items centrally
in New Zealand. These included general IT controls, controls operated through Fonterra’s shared service centre
environment, revenue recognition, the cost of New Zealand sourced milk, impairment, accounting for divestments
and assets held for sale, taxation and financial instruments.
Independent Auditor’s Report (CONTINUED)
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 consolidated financial statements
as a whole was set at $60 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.
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. We scoped in 12 subsidiaries in New Zealand, Australia, Chile, and the USA to be subject to audit due to
their financial significance and risk profile. We undertook audits of these subsidiaries ourselves, or by instructing
participating overseas KPMG audit teams. In addition, we performed specified risk-focused audit procedures
on certain transactions and balances in respect of a further 4 subsidiaries in Chile, Japan, the Netherlands and
Singapore, as well as 3 subsidiaries accounted for as held for sale during the year in Brazil, China and New Zealand.
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
70
CONTENTS
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Revenue recognition
Refer to Note 3 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 $23.0 billion of revenue to the financial statements as
a whole;
— the level of judgement involved in establishing the timing and amount of revenue
recognised for certain customers and distributors, in particular judgement related to
agent versus principal considerations; 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, 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 85% 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 completed these procedures and have no matters to report.
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.
Independent Auditor’s Report (CONTINUED)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
71
CONTENTS
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Goodwill and brands
Refer to Notes 7 and 18 to the financial statements.
We considered the Group’s annual impairment testing of goodwill and brands to
be a key audit matter due to the significance of the balance of $1.8 billion to the
financial statements as a whole and the level of judgement involved in determining the
methodology and assumptions used in the testing.
$0.8 billion of goodwill and brands is included within two cash generating units (‘CGUs’),
which are tested using discounted cash flow models:
— Fonterra Brands New Zealand (‘FBNZ’) ($511 million of goodwill and brands); and
— Fonterra Australia ($288 million of goodwill and brands).
The Group’s portfolio of consumer & foodservice brands within the Asia Pacific segment
of $0.7 billion are tested using the relief from royalty valuation method.
We focused on the significant forward-looking assumptions the Group applied in their
impairment testing, including:
— forecast cash flows, taking into account the Group’s profit improvement plans for
FBNZ and Fonterra Australia;
— branded consumer & foodservice sales forecasts and market royalty rates appropriate
to each brand; and
— terminal growth rates and discount rates, as the Group’s models are highly sensitive
to small changes in these assumptions.
In addition to the above, the carrying amount of the Group’s net assets at 31 July 2022
was $6.9 billion whilst the market capitalisation of Fonterra Co-operative Group Limited
was $4.4 billion. This is an indicator of impairment and required additional analysis and
interpretation.
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 and terminal growth rates applied to the estimated future cash flows 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;
— evaluating the estimate of the recoverable amount of the Group as a whole, including evaluating the work performed by the Group’s external
valuation specialist; and
— considering the appropriateness of the disclosures in the financial statements.
No impairment of goodwill was recognised. However, the Group recognised an impairment of brands amounting to $34 million.
We found the impairment testing methodologies to be consistent with IAS 36. We found the discount and terminal growth rates were in an
acceptable range, and that the significant assumptions were largely supported by comparison to the sources we considered.
For FBNZ, our scenario analysis indicated there is limited headroom in the recoverable amount over the carrying value, and there are reasonably
possible scenarios that would result in impairment (which are disclosed in Note 18).
For Anlene, Anmum and Chesdale, our scenario analysis indicated that the impairments recognised were appropriate. As there is no headroom
over the carrying value of these brands, any adverse movement in key assumptions would result in further impairments.
For Fonterra Australia and the Anchor consumer & foodservice brand, our scenario analysis indicated that the recoverable amount of each of these
assets exceeded its carrying value.
The estimate of the recoverable amount for the Group as a whole exceeded the carrying amount of the Group’s net assets. The evidence we
obtained in respect of valuation ranges for the Group as a whole did not indicate that further impairment of goodwill and brands was necessary.
We consider the impairment disclosures to be a fair reflection of the underlying impairment tests.
Independent Auditor’s Report (CONTINUED)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
72
CONTENTS
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
The cost of New Zealand sourced milk
Refer to Notes 4 and 13 to the financial statements.
The cost of New Zealand sourced milk supplied by farmer shareholders amounted to
$13.7 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 considered 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 $19.7 billion
and the carrying value of the Group’s inventory of $5.0 billion.
— the extent of audit effort required to examine the cost of New Zealand sourced milk
due to the complexity of applying the Board approved milk price to cost of goods sold
and inventory.
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 $9.30 per kgMS for New Zealand sourced milk for the season ended
31 May 2022; and
— examining the application of the Board approved Farmgate Milk Price to cost of goods sold and inventory. 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 Farmgate Milk Price for the season,
particularly where there has been a dynamic monthly milk price and how that should be correctly applied to the month of collection.
We completed these procedures and have no matters to report.
The Farmgate Milk Price calculation prepared by the Milk Price Group amounted to $9.30 per kgMS (which equates to $13.7 billion in total) and we
confirmed with the Company Secretary that the Board of Directors approved a payment of $9.30 per kgMS for New Zealand sourced milk for the
season ended 31 May 2022 at their meeting on 21 September 2022.
Independent Auditor’s Report (CONTINUED)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
73
CONTENTS
Other information
The Directors, on behalf of the Company, are responsible for the other
information included in the entity’s Annual Review and supporting
reports. Other information includes:
— the Annual Review;
— the Corporate Governance Statement and Statutory Information; and
— the Business Performance Report.
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.
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 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
21 September 2022
Independent Auditor’s Report (CONTINUED)
FONTERRA ANNUAL REVIEW 2022
FINANCIAL STATEMENTS
74
CONTENTS
insight
creative.co.nz
FONTERRA097_FS
fonterra.com
---
Business Performance
Report 2022
Pūrongo haumāuiui pakihi
Te Mātāpuna
BUSINESS PERFORMANCE DASHBOARD03
TOTAL GROUP PERFORMANCE04
ON-FARM21
GROUP OPERATIONS26
SUMMARY OF REGIONS AND PRODUCT CHANNELS33
ASIA PACIFIC35
AMENA38
GREATER CHINA40
NEW ZEALAND MILK42
INGREDIENTS43
FOODSERVICE48
CONSUMER51
DISCONTINUED OPERATIONS56
HISTORICAL SUMMARY57
GLOSSARY63
Contents
Harepaora & Lana, Rerewhakaaitu
Fonterra uses several non-GAAP measures when discussing financial
performance. Non-GAAP measures are not defined or specified by
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. Non-GAAP measures are not subject to audit unless they are
included in Fonterra’s audited annual financial statements.
Please refer to the Non-GAAP Measures section in Fonterra’s 2022
Annual Review for further information about non-GAAP measures
used by Fonterra, including reconciliations back to NZ IFRS measures.
Definitions of non-GAAP measures used by Fonterra can be found in
the Glossary.
OUR 2022 SUITE
OF REPORTS
Annual Review 2022
(Referenced as AR)
Financial Statements 2022
(Referenced as FS)
Business Performance
Report 2022
(Referenced as BP)
Sustainability Report 2022
(Referenced as SR)
Corporate Governance
Statement & Statutory
Information 2022
(Referenced as C&S)
Modern Slavery
Statement 2022
(Referenced as MS)
Farmgate Milk Price
Statement 2022
(Referenced as MP)
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
02
CONTENTS
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
Business Performance Dashboard
Asia Pacific
EBIT
5
AMENA
EBIT
5
Greater China
EBIT
5
$
237m
$
527m
$
432m
from $305mfrom $336mfrom $403m
Reported profit
after tax
1
Reported profit
after tax
1
Reported earnings
per share
2
Milk Price
per kgMS
Dividend
per share
Gearing
ratio
4
To t a l
pay-out
4
Debt to
EBTIDA
4
To t a l G r o u p
normalised EBIT
3
$
58336c
$
9.3020c
42.4%
$
9.50
3.2x
+
=
$
991m
from $599mno change
from $7.54
Net debt
4
$
5.3b
from $4.3b
from $7.74
from 2.7x
no change
from 38.5%
from $952m
Return
on capital
4
6.8%
from 6.6%
Normalised
earnings per share
2
35c
from 34c
79.1%
Market share of
New Zealand milk
79.0%
Ingredients
EBIT
5
Foodservice
EBIT
5
Consumer
EBIT
5
$
916m
$
138m
$
142m
from $365mfrom $369mfrom $310m
1 Reported profit after tax
includes amounts attributable
to non-controlling interests.
2 Earnings per share excludes
amounts attributable to non-
controlling interests.
3 Total Group includes
continuing and discontinued
operations.
4 Refer to the Glossary for
definition.
5 Prepared on a normalised
continuing operations basis.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
03
CONTENTS
20222021202020192018
Farmgate Milk PriceDividend
$6.69
$6.35
$7.14
$7.54
$0.10
$0.05
$0.20
$6.79
$6.35
$7.19
$7.74
$9.30
$0.20
$9.50
We returned $9.30 on average for every
kilogram of milk solids our farmer owners
supplied us. Combined with a dividend of
20 cents per share, this means a total
pay-out of $9.50 per kgMS – a record
pay-out for the Co-operative.
Total Group Performance
Total pay-out
1
1 Refer to the Glossary for definition.
Normalised earnings per share increased 3% from 34 cents to 35 cents
per share.
The higher milk price and earnings performance reflects strong demand
for dairy across multiple markets and products at a time of constrained
milk supply, global supply chain challenges, and a significantly higher cost
of milk for our businesses. This operating environment significantly
increased our working capital requirements through the second half of
the financial year and at financial year end, and our net debt was
$1 billion higher at $5.3 billion.
Our strong balance sheet enabled us to absorb the increased working
capital requirements and our net debt position is forecast to improve
during the 2023 financial year as working capital returns to normal levels.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
04
CONTENTS
TOTAL GROUP PERFORMANCE
FY22 reported
profit after tax
Net impact of
other normalisation
Asset salesFY22 normalised
profit after tax
591
42
(50)
583
FY21 reported
profit after tax
Net impact of
other normalisation
Asset salesFY21 normalised
profit after tax
588
95
(84)
599
Our reported profit after tax of $583 million is $16 million lower than
last year, with the prior year benefiting from a larger gain from the sale of
non-core assets.
FY22 Normalised to Reported Profit After Tax
1
FY21 Normalised to Reported Profit After Tax
1
–DPA Brazil impairment
–Sale of Beingmate shares
–DPA Brazil impairment
–Ying and Yutian China Farms sale
–China Farms impairment reversal
–Falcon China Farms JV sale
–GDT sale
1 Normalised and reported profit after tax includes amounts attributable to non-controlling interests.
Laura & Bella-Rose, Auckland
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
05
CONTENTS
Throughout the year we continued our focus on allocating milk into the products that generate the best overall
returns to Fonterra and our farmer owners. This can be seen in our results with the improvement in our underlying
earnings driven by our diversified portfolio across our three regions and channels, combined with lower interest
expense due to reduced funding costs.
On a continuing operations basis, our Ingredients channel normalised EBIT increased 151%, from $365 million to
$916 million. The significant increase in earnings from our Ingredients channel reflects strong demand across
multiple markets and products at a time of constrained milk supply. The stronger underlying market demand
resulted in a broad strengthening of product prices and higher margins were achieved across our Ingredients
channel, particularly in our protein products such as casein. The improved Ingredients performance was partially
offset by the impact of higher milk input costs in our Foodservice and Consumer channels, with normalised EBIT
down 63% and 54% to $138 million and $142 million, respectively.
Looking at our continuing operations on a regional basis;
–Asia Pacific normalised EBIT decreased 22% to $237 million, due to the Foodservice and Consumer
channels being impacted by the increased cost of milk and weaker market conditions including the impact
of COVID-19 restrictions, particularly in South East Asia. The Consumer channel was also impacted by the
economic crisis in Sri Lanka. The reduced earnings in the Foodservice and Consumer channels was partially
offset by a significant improvement in the Ingredients channel due to higher product prices.
–AMENA normalised EBIT increased 57% to $527 million, due to higher gross margins in the Ingredients
channel, reflecting a broad strengthening of product prices, particularly in our protein products such as casein.
Our consumer business in Chile performed well, but overall, the Consumer channel EBIT was down on the
prior year.
–Greater China normalised EBIT increased 7% to $432 million, due to higher gross margins in the Ingredients
channel, driven by improved pricing of our protein portfolio and allocation of greater volume to higher margin
ingredients. This was partially offset by the lower sales volumes and gross margins achieved in the Foodservice
and Consumer channels due to increased input costs and the impact of strict COVID-19 restrictions.
Normalised profit after tax of $591 million increased $3 million on last year – after adjusting for the impact
of asset sales and other normalisations, our underlying performance has improved slightly despite a significant
increase in the cost of milk and higher operating expenses.
1 Normalised profit after tax includes amounts attributable to non-controlling interests.
FY22
normalised
profit after tax
TaxFinance
costs
Other
items
Operating
expenses
Gross
profit
FY21
normalised
profit after tax
588
226
(155)31
(32)
(67)
591
Up due to higher product
prices and improved
product mix
Costs increased due to inflationary
pressure, supply chain challenges and
discontinued products; and several
impairments occurred that were not
normalised
Due to an increase in
provisioning for
withholding tax on
repatriating dividends
and adjustments to
derecognise a deferred
tax asset in the
Sri Lankan business
Includes an adverse
foreign exchange
revaluation of the
Sri Lankan business
payables
FY21 to FY22 Normalised Profit After Tax
1
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
06
CONTENTS
1 Fonterra New Zealand market share and collections are for the period 1 June – 31 May.
2 Fonterra Australia market share and collections are for the period 1 July – 30 June.
3 Fonterra Chile market share and collections are for the period 1 August – 31 July.
Fonterra Milk Collection Market Share in New Zealand
1
Fonterra milk collections for the season were down by 4% compared to
the 2020/21 season, with challenging weather conditions across much of
the season hampering production.
Our reduction in collections was slightly less than the reduction
in collections for the whole of the New Zealand dairy industry.
This, combined with a net win back of milk supply from competitors
contributed to the 0.1% increase in our market share to 79.1% for
the 2021/22 season.
Fonterra Milk Collection Market Share in Australia
2
Our Australian market share improved during the season through
a continued focus on strong farmer relationships and we were able
to secure the milk needs of the business.
However, total milk volumes were in line with the prior period as the
overall milk pool declined across Victoria and Tasmania due to a
combination of factors including labour shortages, and on-farm input
costs and availability.
Fonterra Milk Collection Market Share in Chile
3
We continue to gain market share in Chile, up 1.3% to 22.5%, which has
led to an increase in milk collections by 5% on the prior year. This was
achieved through ongoing farmer engagement and a competitive and
consistent milk price policy. The increased collections have supported
the strong demand in our Chile consumer business this year, discussed
in more detail in the AMENA section on page 38.
Overall, Fonterra milk collections are down on last year.
Our milk collections are dominated by our New Zealand sourced milk.
81.7%80.8%
80.0%
79.0%
79.1%
20222021202020192018
21.6%
18.3%
15.8%
15.4%
15.9%
20222021202020192018
20.6%
19.3%
20.2%
21.2%
22.5%
20222021202020192018
Milk collections for main regions (litres, million)
Fonterra New Zealand
1
16,404
down 4.2%
Fonterra Australia
2
1,362
stable
Fonterra Chile
3
508
up 5.2%
To t a l
18,274
down 3.6%
Kylie, Tararua
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
07
CONTENTS
Gross profit by Regions
1
Asia Pacific
$1,227m
up $32m
Greater China
$866m
up $30m
AMENA
$1,137m
up $233m
Breakdown of Total Group Performance
FOR THE YEAR ENDED 31 JULY 202131 JULY 2022
NORMALISED BASIS NZD MILLION
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
Sales volume (‘000 MT) 3, 8742284,1023,7062183,924
Revenue20,56555921,12422,95347223,425
Cost of goods sold( 17, 5 81)(429)(18,010)(19,737)(348)(20,085)
Gross profit2,9841303,1143,2161243,340
Gross margin (%)14.5%23.3%14.7%14.0%26.3%14.3%
Operating expenses(2,153)(89)(2,242)(2,284)(113)(2,397)
Other
2
65158050(2)48
Normalised EBIT896569529829991
Normalisations
3
(9)16742(57)(15)
EBIT887729591,024(48)976
1 Refer to Note 1a and 2b of the FY22 Financial Statements.
2 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
3 Refer to the Non-GAAP Measures section of the 2022 Annual Review.
Our Total Group sales volumes were down 4% on the prior year, mainly
due to lower shipped volumes out of New Zealand. The prior year shipped
volumes out of New Zealand were a record high at 2.59 million tonnes
compared to 2.35 million tonnes this year. This year’s lower New Zealand
volumes were due to lower New Zealand milk collections over the first
nine months of the financial year, and shipping disruptions in the final
quarter relating to continuing scheduling difficulties compounded by
challenging weather conditions through July.
Our Total Group gross profit increased $226 million relative to the prior
year, despite the lower sales volumes and gross margin, due to significantly
higher product prices across our regions’ Ingredients channels.
Our business is well diversified across both regions and product
channels. This allowed us to reduce the impact of the higher milk
cost by continuing to allocate milk into the products that generate
the best overall returns.
1 Does not add to Total Group as shown on a normalised continuing
operations basis and excludes unallocated costs and eliminations.
Our mozzarella gives
dumplings a twist in China.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
08
CONTENTS
Gross Profit – Product Channel
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS NZD MILLIONS20212022CHANGE
¹
Ingredients 1,104 1,68453%
Foodservice 677 479(29)%
Consumer 1,154 1,067(8)%
Unallocated costs and eliminations 49 (14)–
Continuing operations 2,984 3,2168%
Discontinued operations 130 124(5)%
Total Group gross profit 3,114 3,3407%
1 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
Gross margin by
Product Channel
Ingredients
1
10.7%
from 8.1%%
Foodservice
1
14.5%
from 22.9%
Consumer
1
25.8%
from 28.4%
Total Group
14.3%
from 14.7%
1 Prepared on a continuing operations basis.
The Ingredients channel gross margin increased mainly due to improved product pricing and product mix across all
three regions.
Gross margins in our Foodservice and Consumer channels decreased across all three regions as our in-market sales
pricing was unable to increase at the same rate as rising dairy prices.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
09
CONTENTS
New Zealand and Non-New Zealand Sourced Milk
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS NZD MILLIONTOTAL
NEW ZEALAND MILKNON-NEW ZEALAND MILK
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Sales volume ('000 MT)3, 8743,706(4)%3,0162,856(5)%858850(1)%
Revenue20,56522,95312%17, 33119,46612%3,2343,4878%
Cost of goods sold( 17, 5 81)(19,737)(12)%(14,844)(16,794)(13)%(2,737)(2,943)(8)%
Gross profit 2,9843,2168%2,4872,6727%4975449%
Operating expenses(2,153)(2,284)(6)%(1,752)(1,910)(9)%(401)(374)7%
Other
3
6550(23)%5643(23)%97(22)%
EBIT89698210%7918052%10517769%
Discontinued operations EBIT569(84)%–––569(84)%
Gross margin 14.5%14.0%14.4%13.7%15.4%15.6%
EBIT margin4.4%4.3%4.6%4.1%3.2%5.1%
1 New Zealand and Non-New Zealand sourced milk is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
Normalised EBIT generated from our New Zealand milk, the value we were able to deliver over and above the
Farmgate Milk Price, increased from $791 million to $805 million, mainly due to the strong increase in product
prices in our Ingredients channel. The performance of New Zealand milk in the Ingredients channel was largely
offset by the EBIT losses made on New Zealand milk allocated across all three regions’ Consumer channels, due
to reduced gross margins and increased operating expenses.
Further detail on the value of New Zealand milk is provided in the Region and Product Channel sections.
Non-New Zealand milk continues to perform well, driven by the strong performance of our Australian business
and our consumer business in Chile.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
10
CONTENTS
Operating Expenses
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS NZD MILLION20212022
Costs allocated to regions
Selling & marketing656667
Distribution & storage543588
Administration expenses
2
633669
Research & development8283
Other expenses
2
1672
Total allocated operating expenses1,9302,079
Unallocated costs223205
Operating expenses from continuing operations2,1532,284
Operating expenses from discontinued operations89113
Total Group operating expenses2,2422,397
1 Does not align to FY22 Financial Statements, predominantly due to additional categories.
2 $59 million of ‘Other’ expenses have been reclassified as administration expenses for consistency with the current period.
Total Group operating expenses are $155 million, or 7%, higher than last year.
Of this increase, $131 million relates to the Group’s continuing operations. Distribution and storage, and
administration costs were up collectively $81 million, mainly due to supply chain disruption and inflationary
pressure.
‘Other’ expenses increased $56 million, mainly due to recognising an impairment of $34 million on our Asia Brands
- Anmum, Anlene and Chesdale, with the carrying amount of these brands now at $336 million as at 31 July 2022.
Additionally, we incurred costs associated with discontinuing some products that are not aligned with our
long-term strategy.
Our unallocated costs were favourable by $18 million mainly due to releasing a provision held at Group following
a final judicial interpretation on the application of the Holidays Act 2003 in New Zealand to certain discretionary
incentive payments.
Operating expenses in our discontinued operations increased $24 million, mainly due to higher distribution and
storage costs in DPA Brazil.
Globally we invested $115 million in research and development this year, up from $110 million in the prior year.
$86 million is reported in our operating expenses, of which $83 million is within Research and Development and
$3 million is in Unallocated Costs.
The remaining $29 million of our research and development is within our Cost of goods sold.
Our Co-op has a long and proud heritage of dairy innovation, pioneering many world firsts from instant whole milk
powder to spreadable butter. This year our innovation hub, the Fonterra Research and development Centre, based
in Palmerston North, celebrated its 95th year. Today, the centre continues to focus on ground-breaking
technologies and dairy science, aligned to our long-term aspiration, committed to supporting our customers:
–We’ve entered a collaboration with VitaKey Inc. to further unlock the benefits of our probiotic strains and
to focus on precision nutrition, allowing our milk to go further while decreasing waste. See page SR-51.
–We’ve successfully expanded our cream cheese product range from one formulation to six. This has been a five-year
journey investing in the knowledge, capability, insights, and capital that has resulted in an expansion of our cream
cheese portfolio to meet the needs of our customers, their consumers and the evolving market requirements
–In Active Living, we’ve made progress in commercialising our functional whey technology through investment
in increasing capacity; transferring technology to our joint venture, Columbia River Technologies, which has
opened up novel product and business opportunities in cultured and advanced nutrition
–In Foodservice, we’ve launched our first blended dairy products with Red Cow cream in the Middle East and
butter blends in South East Asia. These products combine innovative dairy know-how with the best of plant
fats to expand the performance possibilities for our customers
–In Consumer, we created and launched Nurture, our first brand of cultured milk drink for Singapore, with low
sugar and added vitamins to support immunity. See page AR-40.
–In on-farm sustainability, Kowbucha™, Fonterra’s natural probiotic culture-based approach to methane
reduction, saw up to a 20% reduction of methane in lab trials, and have subsequently seen methane reductions
in animal trials. We are also partnering with Sea Forest Pty Ltd to investigate whether small quantities of
Asparagopsis seaweed could be used in dairy herds on a commercial scale to reduce biological emissions.
See page SR-33.
Research and Development costs
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS NZD MILLION20212022
Operating expenditure 8486
Cost of goods sold2629
Total Group research and development costs110115
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
11
CONTENTS
Total Group Performance
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION20212022CHANGE
2
EBIT 9599762%
Net finance costs (262)(231)12%
Tax expenses(98)(162)(65)%
Reported profit after tax599583(3)%
Normalisation adjustments
3
(7)15–
Add: Tax on normalisation adjustments(4)(7)75%
Normalised profit after tax5885911%
(Profit)/loss attributable to non-controlling interests(21)1–
Less: Normalisation adjustments attributable to non-
controlling interests
(17)(24)41%
Normalised profit after tax attributable to equity holders of
the Co-operative
5505683%
Normalised earnings per share (cents)34353%
Full year dividend per share (cents)2020–
1 Includes continuing and discontinued operations.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Refer to the Non-GAAP Measures section in the Annual Review 2022.
‘Other’, which includes other operating income, net foreign exchange movements, and share of profit or loss on
equity accounted investees, decreased $32 million mainly due to the impact of the economic crisis in Sri Lanka.
The significant deterioration of economic conditions in Sri Lanka has seen the rapid devaluation of the Sri Lankan
Rupee against the US dollar. This means it takes more Sri Lankan Rupee to pay for product purchased in US dollars
from New Zealand and resulted in an $80 million adverse revaluation of our Sri Lankan business payables owing
to New Zealand. This was partially offset by favourable foreign exchange movements in our net receivables due
to timing differences between the processing and hedging of invoices.
Total Group normalised EBIT increased 4%, or $39 million, to $991 million, due to the $226 million increase
in gross profit, offset by the increase in operating expenses and decrease in ‘Other’.
Total Group reported EBIT increased 2%, or $17 million, to $976 million. The impacts from normalisation
adjustments to reported EBIT were an adverse $15 million this year, compared to a favourable $7 million
normalisation adjustment in the prior year. Prior year normalisations included gains on sale from the Ying and
Yutian China farming hubs, the China Farming joint venture, partially offset by realised losses on the sale of
Beingmate shares and an impairment of the carrying value of DPA Brazil. This year’s normalisations comprise of:
–the partial sale of Global Dairy Trade (GDT), where we entered a partnership with New Zealand’s Exchange
(NZX) and the European Energy Exchange (EEX). The total impact to our EBIT was $42 million; and
–a further pre-tax impairment of $57 million was made to the full value of DPA Brazil based on an assessment
of the fair value of the business. The sale process of DPA Brazil continues to be delayed due to market
conditions related to COVID-19, however we remained committed to the sale and continue to actively progress
the sale. We expect the sale to be completed within one year.
Our Total Group net financing costs reduced $31 million, or 12%, due to refinancing maturing bonds with
shorter-term bank facilities as well as the impact of increased global rates on a portion of our interest rate hedges.
Our strong normalised profit result and the strength of our balance sheet puts us in a position to pay a total
dividend for the year of 20 cents, comprising of an interim dividend of 5 cents per share and a final dividend
of 15 cents per share.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
12
CONTENTS
Total Group cash generated from operations increased on the prior year
to $1.9 billion due to the strong underlying performance of the business.
However, our working capital requirements increased and we used
$1.6 billion more cash due to the higher cost of milk combined with an
increase in year-end inventory due to late season milk production and
supply chain disruptions. Therefore, our net cash flow from operating
activities, after deducting tax payments of $0.1 billion, was $0.2 billion.
Combined with net cash flow used for investing activities of $0.5 billion,
which was predominantly capital expenditure, our Total Group free cash
flow for the year was $(0.3) billion.
We have funded dividends of $0.4 billion (including 15 cents from
last year’s final dividend and this year’s interim dividend of 5 cents).
Combined with interest payments of $0.3 billion our net debt has
increased $1 billion but this is expected to improve in the 2023 financial
year as working capital returns to normal levels during the year. This,
combined with our strong balance sheet enables us to pay a final
dividend of 15 cents resulting in a total dividend of 20 cents per share
again this year.
Cash Flow and Change in Net Debt
1
1 Refer to Glossary for the definition.
$0.0bn
Cash from
divestments
and asset sales
$1.9bn
Cash generated
from operations
$0.2bn
Net cash
flow from
operating
activities
$(0.3)bn
Free cash flow
1
$(0.5)bn
Net cash flow
investing activities
$(0.7)bn
Interest, dividend
and other
$(1.0)bn
Change in
net debt
$(1.6)bn
Net movement
in working capital
$(0.1)bn
Tax payments
$(0.5)bn
Capital expenditure
and other
Our sources and uses of cash
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
13
CONTENTS
Cash Flow and Change in Net Debt
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION20212022
Cash generated from operations
1
1,4491,928
Net change in working capital(171)(1,598)
Net tax paid(84)(137)
A. Net cash flows from operating activities 1,194193
Cash flows from investing activities
Divestments and asset sales 78245
Capital expenditure and other
2
(559)(562)
B. Net cash flows from investing activities223(517)
Free cash flow (A+B)1,417(324)
Interest, dividend and other(452)(638)
Non-cash changes in net debt (52)(52)
Decrease/(increase) in net debt
3
913(1,014)
Note: Comparative figures are shown on a consistent basis with current year.
1 Includes EBIT and non-cash and non-operating adjustments made to EBIT to determine cash
generated from operations.
2 Capital expenditure presented in this table is different to capital expenditure reported
primarily due to treatment of livestock and accruals.
3 Net debt includes amounts attributable to disposal groups held for sale.
Total Group free cash flow for the year of $(324) million was $1.7 billion
lower than last year which reflects:
–Cash generated from operations increased $479 million on the prior
year to $1.9 billion due to the strong underlying performance of the
business, offset by;
–A $1.6 billion increase in our working capital funding requirements
because of the higher milk price and inventory volume.
–Cash from investing activities down $740 million, with the prior year
benefiting from $737 million more in asset sales. Cash spent on the
acquisition of property, plant and equipment was broadly in line
year-on-year. Significant projects are disclosed in the Capital Invested
section on page 17.
We continue to focus on our financial discipline, and expect working
capital to return to normal levels during the year.
20222021202020192018
600
1,095
1,828
(324)
1,417
Free Cash Flow
1
($ million)
1 Refer to the Glossary for definition.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
14
CONTENTS
As at 31 July 2022, our working capital increased $1.6 billion
reflecting:
–Higher inventory of $1.2 billion, due to higher milk price and higher
inventory on hand at year end due to increased late season milk
production and shipping constraints
–At year end we held an additional 126,000 MT of product. 88% of
total inventory was contracted with an agreed price prior to
year end
–Higher receivables due to increased sales revenue in the month of July
2022 compared to the prior year, partially offset by;
–Higher payables reflecting increased accruals for capital expenditure,
amounts owing to suppliers due to higher milk prices, and the impact
of supply chain disruptions.
Working capital throughout the year has increased 5.1 days compared
with the previous year.
The key drivers of this were:
–Higher average milk price – impacting both receivables and inventory
–Higher levels of inventory throughout the second half of the year,
mainly due to late season milk production coinciding with shipping
disruptions which saw shipments shift to the next financial year
1 Refer to the Glossary for definition.
Working Capital Days
1
Closing Inventory as at 31 July ($ billion)
20222021202020192018
75.1
82.7
82.8
84.8
90.6
95.7
FY22
inventory
value
VolumeCostFY21
inventory
value
3.8
5.0
0.4
0.8
Working Capital
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
15
CONTENTS
We have steadily reduced our net debt over the period to 2021, through
the alignment of our asset portfolio and improved underlying operating
performance. However, this year our net debt has increased $1.0 billion
due to;
–cash generated from operations increasing $479 million on the prior
year to $1.9 billion. After tax of $137 million, this is $1.8 billion in
operating cashflows excluding changes in working capital.
Offset by;
–net cash flow used for investing activities of $517 million, which was
predominantly capital expenditure
–funding of $0.4 billion of dividends and interest payments of
$0.3 billion, and
–increase in working capital of $1.6 billion
Both leverage metrics, gearing ratio and debt to EBTIDA ratio, have
increased as a result of the higher net debt.
Our strong balance sheet enabled us to absorb the increased working
capital, and both our net debt position and leverage metrics will improve
during the 2023 financial year as working capital returns to normal levels.
Net Debt
1
($ billion)
1 Refer to Glossary for definition. Comparative figures are shown on a consistent
basis with current year.
20222021202020192018
6.6
6.0
5.2
4.3
5.3
1 Refer to Glossary for definition.
2 Excluding working capital.
3 Includes supplier payables and other movements.
FY22
net debt
Increase in
working
capital
Interest,
dividend
& other
Net capex &
investments
Operating
cashflows
2
FY21
net debt
4.3
(1.8)
0.5
0.7
1.6
5.3
Change in Net Debt
1
($ billion)
InventoryReceivablesPayables
& other
3
1.2
0.8
(0.4)
As a result of higher working capital requirements, our net debt increased $1.0 billion.
Debt to EBITDA
1
(x) Gearing Ratio
1,2
(%)
20222021202020192018
50.1%
49.5%
44.2%
3.2
2.7
3.3
4.3
4.6
38.5%
42.4%
Leverage Metrics
1 Refer to Glossary for definition.
2 Comparative figures are shown on a consistent basis with current year.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
16
CONTENTS
Capital Invested
Total capital invested was $617 million, comprised of capital expenditure
of $587 million and other capital invested of $30 million.
The capital expenditure of $587 million comprised $534 million for
essential projects to maintain and improve existing assets and $53 million
for business growth projects to drive future growth. The $30 million of
other investments mainly comprised of right-of-use assets and equity
investments, including investment in new innovation opportunities.
Capital expenditure has increased $42 million, as planned, in response to
increasing regulatory requirements on wastewater treatment, reducing
emissions from thermal fuel sources and also maintaining integrity and
reliability across our network of processing assets.
Across New Zealand, we continue to progress our annual truck and trailer
replacement programme and on-farm milk vat replacement programme
to drive operating efficiencies.
We are continuously working through our capital expenditure programme
to keep our processing sites fit for purpose. Key projects included
wastewater upgrades at our Te Awamutu and Tirau site, biomass boiler
installation to replace coal at our Stirling and Waitoa sites, investing in
whey permeate concentrate related assets to manage process risk and
improving refrigeratant technology at our Whareroa site.
Offshore we have 20 manufacturing sites, this year we invested $103
million to maintain and optimise our offshore portfolio, as well as adding
to our asset base where appropriate. Key growth investments included
acquiring a secondary cheese processing site to further expand our
cheese manufacturing lines in Australia.
Essential
capital expenditure
1
Business growth
capital expenditure
1
Other
capital invested
1
20222021202020192018
400
461
161
1,022
340
260
124
724
382
106
525
37
466
534
79
53
30
63
608
617
Capital Invested
1
($ million)
1 Refer to the Glossary for definition.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
17
CONTENTS
Central North Island
• Tirau
– Invested in whey
permeate
concentration related
assets to remove
process risk of
ethanol
– Improved
wastewater
processing.
See page SR-26
• Te Awamutu
– Upgraded our
infrastructure to
better manage
wastewater.
See SR-26
• Waitoa
– Commenced work on
biomass boiler
to replace coal.
See SR-34
– Improved our UHT
cream processing
– Trialling an electric
tanker for fleet
decarbonisation
See page AR-36
• Te Rapa
– Trialing use of large
scale battery
technology.
See SR-37
• Crawford Street
– Invested in an
automated storage
and retrieval system
• Lichfield
– Invested in an
advanced ingredient
for world leading
critical care
nutrition brand
South Island
• Stirling
– Invested in biomass boiler
to replace coal See SR-34
• Clandeboye
– Scale up of pilot plant
using biological treatment
for wastewater See SR-26
– Invested in whey process
to improve efficiency of
functional WPC
production
• Edendale
– Improved integrity of
infrastructure
– Improved water
utilisation efficiency
Kauri
Edgecumbe
Waitoa
Tirau
Hautapu
Te Awamutu
Lichfield
Kapuni
Whareroa
Pahiatua
Palmerston North
Darfield
Crawford Street
Te Rapa
Clandeboye
Stirling
Edendale
Sites displayed are not a full
representation of all Fonterra factories
109
34
2
7
48
18
444
162
54
42
36
36
33
27
24
16
14
16
41
7
Health, Safety and Risk
Wastewater
Decarbonisation
Health, Safety and Risk
Decarbonisation
Information Technology
Strategy and Innovation
Other
Information Technology
Electrical Infrastructure
Asia Pacific
AMENA
Greater China
Group Operations
Group Functions
Buildings
Innovation
Food Safety and Quality
Milk Collections Assets
Other
Capital
invested
by business
units ($m)
Asia Pacific
capital
invested
($m)
Group
Operations
capital
invested ($m)
Lower North Island
• Whareroa
– Improved powder
dryer building
integrity to manage
product quality risk
– Increased processing
time by improving
cleaning-in-process
systems
– Improved refrigerant
technology risk
• Kapuni
– Increased processing
time by improving
cleaning-in-process
systems
• Palmerston North
– Increased
production
capacity of
probiotics
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
18
CONTENTS
Return on Capital
Total Group
normalised EBIT
1
($ million)
Average
capital employed
1
($ million)
Return on
capital
1
(%)
20222021202020192018
6.2%
5.6%
6.6%
6.6%
13,46913,419
12,313
12,281
902812879952
6.8%
12,356
991
1 Refer to the Glossary for definition.
Total Group return on capital improved from 6.6% to 6.8%
The increase in our return on capital was due to the increase in our
normalised EBIT. The impact of the improved EBIT was partially offset by
the additional working capital increasing our average capital employed.
The impact on our average capital employed from year-end net debt
increasing by $1 billion is limited due to our low net debt position
at the start of the year, and the significant increase in working capital
requirements only impacting towards the end of the second half.
Return on Capital
NZD MILLION20212022
Total Group normalised EBIT952991
Finance income on long-term advances87
Notional tax charge(155)(161)
Total Group normalised EBIT plus finance income on long-term advances less notional tax charge805837
Capital employed at year end10,86312,179
Impact of seasonal capital employed1,418177
Average capital employed12,28112,356
Return on capital (%)6.6%6.8%
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
19
CONTENTS
We are committed to our financial discipline and following the guidelines
of our Dividend Policy.
Fonterra’s dividend policy is a payout ratio of 40% to 60% of reported
profit after tax, excluding abnormal gains. Distributions of any abnormal
gains are considered separately. For the year ended 31 July 2022
abnormal gains included the normalised gains of $42 million on selling
two-thirds of our Global Dairy Trade business.
Another key principle of the Policy is the dividend payment should not
require the Co-operative to take on more debt, after taking into account
any material working capital changes considered highly likely to reverse in
future periods. This applies in the current year, where we had a significant
increase in working capital including higher levels of year-end inventory
and we expect this to return to normal levels in the 2023 financial year.
This combined with the ongoing strength of the Co-operative’s balance
sheet has put us in a position to return a dividend to shareholders and
unit holders.
The normal dividend of 20 cents per share is equivalent to a 59% pay-out
ratio of the net earnings for dividend payment.
Dividend Calculation
FOR THE YEAR ENDED 31 JULY
NZD CENTS PER SHARE20212022
Normalised earnings
1
3435
Add: normalisations21
Reported earnings
1
3636
Less: abnormal gains(6)(2)
Net earnings for dividend payment
2
3034
Dividend payment percentage (%)57%59%
Dividend based on attributable earnings1720
Dividend based on abnormal gains
3
3–
Total dividend2020
Interim dividend55
Final dividend1515
1 Attributable to equity holders of the Co-operative, excludes non-controlling interest.
2 Represents net earnings as specified in the Dividend Policy and is calculated as reported
profit after tax less abnormal gains.
3 FY21 includes the reversal of previous impairment of our China Farms.
Dividend
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
TOTAL GROUP PERFORMANCE
20
CONTENTS
We believe having a strong and resilient
dairy co-operative makes a real difference
to our farmer owners, and to New Zealand.
Our scale and diversification allow us to
move our farmer owners’ milk into the
most valuable products and markets and
achieve scale advantages in processing,
innovation and supply chain. This helps
mitigate some of the risk for farmers that
can occur when demand for certain
products or markets soften.
On-farm
Penelope, Jess & Blair, Tararua
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ON-FARM
21
CONTENTS
ON-FARM
Average production
per farm (kgMS)
Fonterra milk collection market share in New Zealand
Non-shareholding
farms
Shareholding
farms
20222021202020192018
126
9,358
133
9,095
155
8,856
246
222
8,5818,435
153,454
160,560
164,402
170,836
167,437
81.7%
80.8%
80.0%
79.0%
79.1%
As at 31 July 2022 the Co-operative collected milk from 8,435
shareholding farms and 222 non-shareholding supplying farms around
New Zealand.
The decline in supplying farms is primarily due to a higher proportion
of farm conversions to other land uses. Our loss of farms to alternative
processors at the end of the 2021/22 season has been more than offset
by farms coming back to supply the Co-operative, and as a result, on
a milk supplied basis our market share increased slightly.
Our supply from non-shareholding farms is largely made up of farms
supplying MyMilk. At the end of the 2021/22 season, 34 of the 36 farms
that had completed their permitted maximum number of seasons with
MyMilk switched to supplying the Co-operative as a supplying
shareholder. In addition, prior to the end of the 2021/22 season an
additional 43 farms shifted from MyMilk to join the Co-operative as
a supplying shareholder having completed less than their permitted
maximum number of seasons with MyMilk. This increase in non-
shareholding suppliers becoming supplying shareholders of the
Co-operative has meant for the first time in six years our non-
shareholding farm supplier base has decreased.
Average production per farm this season is down on the prior 2020/21
season, which had more favourable on-farm conditions. This year’s two
percent decline reflects the challenging weather conditions affecting a
number of key dairy regions. This was exacerbated by COVID-19 related
labour shortages and rising on-farm costs as well as a reduction in cow
numbers nationwide.
1 Comparative information includes re-presentations for consistency with the current period.
Our New Zealand supplier base and owners
Composition of our Supplier Base
1
Steven & Cooper, Morrinsville
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ON-FARM
22
CONTENTS
ON-FARM
Share Capital
FOR THE YEAR ENDED 31 JULY
(MILLION)20182019202020212022
Total shares on issue1,6121,6121,6121,6131,613
Aggregate minimum shareholding requirement1,3911,3911,3921,4031,396
Tradeable shares221221220210217
Vouchers counting to aggregate minimum shareholding requirement4543434138
Total tradeable shares266264263251255
Tradeable shares held by shareholding farms155161158144148
Tradeable shares held by Custodian (equal to units in Fund)111103105107107
Total tradeable shares = total shares on issue less aggregate minimum shareholding requirement plus Vouchers
1,613 million less 1,396 million plus 38 million = 255 million
As at 31 July 2022 the Co-operative had 1,613 million shares on issue.
Total shares on issue are 0.03% lower than this time last year as a result
of the Co-operative purchasing and cancelling 532,294 shares during July
2022 under the $50 million on-market buy-back programme announced
on 8 June 2022.
At 31 July 2022 supplying shareholders were required to hold 1,396
million shares in aggregate to meet their Share Standard compliance
obligations. Farmers used 38 million Vouchers to meet their shareholding
requirement.
meantime, the Fund remains capped, this means shares are not able to be
exchanged into units in the Fund on a day-to-day basis, as this is a feature
of the new structure. Share Standard compliance obligations for the
2022/23 season remain on hold until at least six months after the new
Flexible Shareholding capital structure is effective for all supplying
shareholders holding a minimum of 1,000 shares and for exiting
shareholders that are selling shares over three seasons in accordance
with Fonterra’s constitution.
The reduction in the aggregate minimum shareholding requirement from
1,403 million to 1,396 million is primarily due to a material decrease in
the three-season rolling average milk production, with the 2021/22 total
production of 1,478 million kgMS, being 45 million kgMS lower than the
season it is replacing in the three-season average – this being the
2018/19 total production of 1,523 million kgMS.
Vouchers have reduced over time due to not being transferable between
shareholders. As shareholding farmers cease supplying milk to Fonterra
any vouchers held by those farmers are cancelled. The reduction in
vouchers does not impact total shares on issue or directly impact the
Fund size.
On implementation of the new Flexible Shareholding capital structure,
all other things being equal, the aggregate minimum shareholding
requirement would reduce from 1,396 million shares to around 465
million shares. This significantly increases the number of tradeable shares.
The Co-operative has allocated up to $300 million to support the
transition to the new Flexible Shareholding capital structure, through
an on-market share buy-back and other tools such as the market
maker arrangements.
Therefore, there are 255 million shares that are considered tradeable of
which 107 million are currently held by the Custodian. For every share
the Custodian holds, there is a corresponding unit in the Fonterra
Shareholders’ Fund (the Fund).
On 9 December 2021, our shareholders approved changes to the
Constitution that would give effect to the new Flexible Shareholding
capital structure. These will become effective on a date to be determined
and notified by the Board once it is satisfied that all steps necessary to
implement the new structure have been, or will be, completed. In the
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ON-FARM
23
CONTENTS
Fonterra’s New Zealand Milk Production
For the 2021/22 season, production from Fonterra farmers in
New Zealand was 1,478 million kgMS, down 4.0% compared to the
prior season.
The 2021/22 season had a challenging start, driven by a cold and wet
spring with limited sunshine affecting pasture growth. This contributed
to a lower peak in milk supplied.
After the peak collection period, September through to November,
production was further impacted by very dry and warm conditions in
January that led to declining soil moisture and reduced feed in the
North Island.
Favourable pasture growing conditions during February to March in the
North Island led to a recovery in collections at the end of the season.
However, this was partially offset by the lower South Island experiencing
hot and dry conditions.
Jun
kgMS (millions/day)
JulAugSepOctNovDecJanFebMarAprMay
Season Milk Solids Produced
2021/22 1,478m kgMS
2020/21 1,539m kgMS
2019/20 1,517m kgMS
1
2
3
4
5
6
7
8
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ON-FARM
24
CONTENTS
FY22
Farmgate
Milk Price
Cash
costs
Foreign
exchange
Product
prices
VolumeFY21
Farmgate
Milk Price
$(0.11)
Revenue
$(0.48)
$(0.17)
$9.30
$7.54
$2.52
New Zealand Farmgate Milk Price (per kgMS)
For more information please see Farmgate Milk Price Statement 2022 - see MP
Higher product prices
65% of the Farmgate Milk price
revenue is derived from WMP
sales volume. The average
WMP price in the 2022 season
was 20.9% higher at US$4,019
per metric tonne compared to
US$3,323 per metric tonne in
the prior season
Inflationary pressures
Increased costs mainly due to
inflationary pressure on cash costs
Lower milk collections
Lower volume of milk to
convert into product
Foreign Exchange Hedging
The foreign exchange (FX) season-on-season impact is because the hedge
rate increased as a result of the New Zealand dollar strengthening over the
prior seasons. The average hedge rate increased from NZD/USD 0.6677 last
season to NZD/USD 0.6884.
Fonterra hedges the FX risk progressively over an 18-month period,
therefore the FX conversion rate for the Farmgate Milk Price for a
specific season is largely based on the weighted average spot rate over
the previous season.
The hedging approach means changes in the New Zealand dollar will still
impact the Farmgate Milk Price, but it will impact at a later date and we can
estimate with greater certainty what the impact of that change will be. As a
result, hedging provides increased certainty on what the FX conversion rate
for the season will be and means a narrower range on the forecast Farmgate
Milk Price compared to not hedging.
0.60
0.65
0.70
0.75
Aug-23Aug-22Aug-21Aug-20Aug-19Aug-18
NZD/USD Spot Rate
Fonterra's quarterly smooth conversion rate
Illustrative future 18 month hedge profile¹
1 The future conversion rate is only an estimate because forecast USD receivables
are only partially hedged over the forecast 18 month period and the hedges include
options so the final conversion rate can vary.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ON-FARM
25
CONTENTS
Group Operations
Group Operations is comprised of the
functions that the Chief Operating Officer
(COO) has responsibility for (including
New Zealand milk collection and
processing operations and assets, global
supply chain, digital and information
technology, sustainability and innovation);
Fonterra Farm Source™ retail stores; and
the Central Portfolio Management (CPM)
function. CPM’s goal is to optimise our
business by connecting customers with our
assets, farmers and markets to allocate our
milk to the most valuable products and
regions. It includes optimising New Zealand
milk collections, in-market product pricing
support for the regions, managing
Fonterra’s dairy and non-dairy product
price risk, as well as providing customer
and farmer price risk management tools.
Milk powder plant, Whareroa
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
26
CONTENTS
In response to these pressures, the Co-operative uses data analytics to
provide a view of fuel efficiency by tanker and driver, to enable targeted
vehicle tuning and training to drivers to improve fuel efficiency. As a
result, the litres used per 100km continues to decrease and has helped to
reduce the impact of the rising cost of fuel.
The recently installed on-farm milk vat monitoring technology continues
to deliver efficiencies. It has enabled us to improve the way we plan and
manage milk collection efficiently, enabling us to further reduce our
tanker fleet and improve asset utilisation.
“Collected in full on time” (CIFOT) is the measure of how well we have
performed in collecting our farmer owners’ milk within our planned
collection windows. This is important for farmer engagement and milk
processing. Despite the challenges of COVID-19 this year our collections
team has worked hard to maintain the integrity of our timeliness of
collecting milk.
The Co-operative experienced increases in a number of input costs,
including the cost of diesel increasing 48%. These impacted milk
collection costs per litre.
The performance of our Group Operations team during the 2022
financial year demonstrated the resilience of the team alongside
in-market sales teams. The team successfully collected over 16 billion
litres of milk from our supplying shareholders, and then processed,
packed, cleared and shipped 2.35 million metric tonnes to our customers
around the world, while anticipating, adapting and working with the many
challenges caused by the COVID-19 pandemic. This resilience, and the
ability to continue operating effectively over the year, is due to our
people, our partnerships, and ability to be agile.
This year we collected 16,404 million litres of milk from the
Co-operative’s farmers, which equated to 1,478 million kgMS.
Around 11 litres of milk produces 1kg of milk solids, or about 9% of milk
collected is solids, and the rest is other components of milk and water.
20222021202020192018
Collection costs (cents/litre)
2.3
2.4
2.4
2.4
2.6
20222021202020192018
Fuel burn (litre/100km)
49.4
50.0
49.0
48.9
48.3
20222021202020192018
Collected in full on time
97.1%97.1%
97.8%
98.6%
98.5%
kgMS collected
(million)
Litres collected
(million)
1,5051,5231,5171,539
1,478
16,932
17,123
16,876
17,121
16,404
20222021202020192018
Litres and Milk Solids Collected
Cost of Collecting Milk
Fuel Efficiency when Collecting Milk
Timeliness of Collecting Milk
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
27
CONTENTS
GROUP OPERATIONS
We process around 98% of the milk we collect in New Zealand.
In some instances, we choose to enter into commercial agreements to
provide bulk liquids to other processors in New Zealand and under the
Dairy Industry Restructuring Act (DIRA) raw milk regulations we are
required to provide up to 600 million litres of milk each season to eligible
independent third-party processors (including Goodman Fielder) at the
regulated price. Goodman Fielder is entitled to buy up to 350 million
litres of the overall eligible independent processor entitlement.
The regulated price for eligible processors (other than Goodman Fielder)
is Fonterra’s Farmgate Milk Price plus the reasonable costs of
transporting the milk to the processor. The regulated price for Goodman
Fielder is Fonterra’s Farmgate Milk Price plus reasonable costs of
transporting the milk to Goodman Fielder and, an additional charge
of 10 cents per kgMS. The additional charge enables Fonterra to recover
a contribution to the overall costs of milk sourcing and the costs of
providing Goodman Fielder with a “flat supply curve” of milk across
the season.
With the remaining milk solids we process, we continue to focus on
allocating milk into the products that generate the best overall returns to
Fonterra and our farmer owners.
We do this through our Central Portfolio Management (CPM) function.
CPM’s goal is to optimise our business by connecting customers with our
assets, farmers and markets.
Milk Solids Processed and Bulk Liquid Sales
(million kgMS)
Milk solids available to process and where we allocated them
DIRA Bulk LiquidOther Bulk LiquidFonterra
20222021202020192018
1,4721,4871,4821,503
30
32
30
31
3
4
5
5
1,444
30
4
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
28
CONTENTS
A key driver to our strategy and earnings growth is shifting our
New Zealand milk into higher margin products, particularly in our Active
Living portfolio and Foodservice channel.
The growth of our Active Living portfolio this year was driven by increased
demand for our milk protein concentrate, casein and caseinate products.
The allocation of milk solids to our Foodservice channel has continued to
grow, as innovation enables us to expand the uses of our UHT cream
range within our Anchor Food Professionals brand.
Milk solids allocated to our Core Ingredients portfolio have reduced as we
grow our Active Living portfolio and Foodservice channel.
The percentage of solids our Consumer channel received this year was
impacted by our choice to limit sales volumes in Sri Lanka while the
economic crisis unfolds.
AMENA’s increased allocation of milk solids was driven by the growth
in the Active Living channel and the strong demand for our protein
products.
AMENA and Asia Pacific allocation percentages naturally lifted due to our
overall lower milk collections which impacted the allocations to Greater
China more, where COVID-19 lockdowns impacted demand for powders,
particularly WMP, during the second half of the financial year.
New Zealand Milk Solids Allocation by Product Channel
(% of milk solids)
FY21FY22
ConsumerFoodserviceActive LivingCore Ingredients
74.1%
73.2%
5.3%
5.9%
12.0%
13.0%
8.6%
7.9%
Ingredients
New Zealand Milk Solids Allocation by Region
(% of milk solids)
FY21FY22
Greater ChinaAMENAAsia Pacific
28%
29%
36%
37%
36%
34%
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
29
CONTENTS
Portion of Milk Solids Made into ProductProduct Made Right First Time
Milk Processing Performance
96.2%
96.4%96.4%96.4%
96.5%
20222021202020192018
Milk utilistion
20222021202020192018
Product made right first timeCost of quality ($ million)
9590585872
91.4%
91.9%
94.0%
95.0%
94.5%
Within our New Zealand Manufacturing operations, milk utilisation (the
proportion of milk solids made into products) improved slightly on last
year. This was mainly due to improvements in our cheese processing and
better planning and scheduling of by-product streams, such as whey,
which is produced during the manufacturing of cheese and casein.
This improvement was achieved despite our product mix shifting out of
core ingredients, including manufacturing eight per cent less WMP, and
into manufacturing more complex products. The more complex products
can incur greater processing losses of milk solids but provide greater
earnings to the Co-operative and represent the greatest overall return for
our milk solids.
Product made ‘right first time’ tracks the product that passes grading
tests once the product is manufactured. Over the past five years it has
trended favourably with our focus on quality and reliability. However,
product made ‘right first time’ decreased by 0.5% this year due to
challenges achieving bulk density and vitamin specifications on some
of our more complex products.
Cost of quality, one of our key indicators of the effectiveness of our
manufacturing activity, has been trending favourably over the past five
years through using a risk-based quality management programme, better
process control and plant stability supported by capital investment.
However, cost of quality increased $14 million this year, mainly due to the
higher value of milk per tonne, two specific bacterial issues that were
identified by our food safety and quality controls and stopped the product
being released from the factory, and an ingredient formulation issue. The
cost of quality this year is equivalent to 0.4% of our New Zealand cost of
goods sold.
We expect both our product made ‘right first time’ and cost of quality
to return to favourable trends.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
30
CONTENTS
Supply Chain and Logistics
In the 2022 financial year, we shipped 2.35 million tonnes of product to
customers across the world with the support of Kotahi (Fonterra’s ocean
freight partnership with Silver Fern Farms) and Coda (our New Zealand
domestic land freight partnership with Port of Tauranga) despite
significant global supply chain disruptions.
Global supply chains continued to experience substantial disruption
during the financial year, primarily due to COVID-19, including a
two-month closure of Shanghai Port. Shipping schedule integrity
remained at levels below 40% for the second consecutive year, compared
to a long-term average of 80%, with high volumes of sales and shipping
orders requiring rescheduling and manual intervention. Similarly, to our
milk collections, the rest of our supply chain has also experienced
significant increases in diesel prices. Our focus remains on ongoing cost
reduction, driven by network optimisation and asset efficiency.
Overall, Fonterra’s shipped volumes were lower than the prior year due
to reduced milk volumes, supply chain disruptions, temporary impacts
to demand, and physical supply chain issues related to vessel arrivals
and weather impacts on the landside supply chain in the final weeks
of the financial year.
In response to the challenging global supply chain environment, we
continued to leverage our strategic partnerships and through the
commitment, agility, and operational understanding of our people, and
we have been able to secure additional shipping capacity, optimise our
network and increase productivity.
Port of Tauranga
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
31
CONTENTS
Group Operation Attribution to Regional Segments
Overall, the Group Operations’ EBIT has increased $307 million to
$189 million relative to the prior year.
The significant improvement to our Group Operations’ EBIT is mainly due
to higher gross margins achieved in our protein portfolio, particularly in
casein and WPC. This has been achieved by higher product pricing
reflecting strong demand across multiple markets and products at a time
of constrained milk supply.
In the 2021 financial year, the Group Operations’ result was adversely
impacted by gross margins on bulk liquids and the lagged impact of
longer-term pricing arrangements in sales contracts as the cost of milk
increased. These factors did not impact the 2022 financial year to the
same extent.
In addition, our commodity hedging programme has enabled us to
stabilise product margins as the cost of milk increased throughout the
year by matching customers’ need for price certainty with financial
market instruments and fixed milk price contracts.
Group Operations’ Attribution
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
EBIT NZD MILLION
TOTALCHANGEASIA PACIFICCHANGEAMENACHANGEGREATER CHINACHANGE
20212022202120222021202220212022
Group Operations’ attribution to regional segments(118)189307(3)6770(99)70169(16)5268
In broad terms, Group Operations collects and processes New Zealand milk into the most valuable products that are then sold to our customers by the
regional business units. The segment reporting within the Financial Statements is prepared based on the regional business units, with the income
statement of Group Operations attributed between the three regional business units. This attribution enables the results of both the regional business
and product channels to be presented on an end-to-end basis.
When products are transferred between Group Operations and the regions, the internal prices are determined by market-based commodity reference
prices (e.g., GDT and other external benchmarks) and include charges, where appropriate, to reflect the additional costs of producing non-
commoditised products. The internal pricing is reviewed weekly for Ingredients products and either monthly or quarterly for Consumer and
Foodservice products.
The Group Operations performance (that is attributed to the three regions) includes movements in the capital charge on the notional Milk Price asset
base pursuant to the Milk Price Manual, the impact of longer-term pricing commitments, product mix and price relativities between reference and
non-reference ingredient products.
When attributing the results of Group Operations to the regions, the principle is for the end-to-end contribution to reflect the underlying transaction
between Fonterra and the customer, where possible. If costs are not directly linked to transactions, such as overheads, attributions are activity based
where appropriate e.g. Information Technology and Research and Development. If none of these principles applies, the attribution uses the share of
product sold/manufactured in the region as the base of allocation.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GROUP OPERATIONS
32
CONTENTS
Summary by Region and Product Channels
The Group’s reportable segments are the
three regional business units; Asia Pacific,
AMENA and Greater China, and are
inclusive of their respective attribution of
Group Operations. This provides a full
end-to-end view of the performance for
each customer-facing regional business
unit. Additionally, insights are provided by
showing a breakdown of the three main
product channels – Ingredients,
Foodservice and Consumer.
Our region and product channel performance and commentary in this
section and the subsequent sections on individual regions and product
channels are prepared on a normalised continuing operations basis unless
stated otherwise.
This year all three regions’ Ingredients channels benefited from the broad
strengthening of product prices and higher margins, particularly in our
protein products such as casein. More detail on the drivers of the
Ingredients channel have been provided in the Ingredients channel
performance section on page 43.
The regions’ Foodservice and Consumer channels have worked with
customers to adjust in-market sales prices to reflect increased costs,
particularly the significant increase in the cost of milk. However, we have
not been able to adjust pricing at the same rate as our cost increases and
this has been a driver for our Foodservice and Consumer channel
performances being down, as well as several region-specific challenges
in the Consumer channel.
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
AMENATotals
EBIT contribution
1,2
Total
3,754
4%
1,370
1%
1,355
no change
1,029
13%
Ingredients
$
916m
$551m
$
192m
$168m
$
442m
$231m
$
282m
$152m
Foodservice
$
138m
$231m
$
(13)m
$92m
$
(4)m
$19m
$
155m
$120m
Consumer
$
142m
$168m
$
58m
3
$144m
$
89m
$21m
$
(5)m
$3m
$
237m
$68m
$
527m
$191m
$
432m
$29m
Volume (’000 MT)
1
Asia PacificGreater China
Note: Figures are for the year ended 31 July 2022
1 Prepared on a normalised continuing operations basis. Normalised EBIT contributions sums to $1,196 million, and does not align to reported continuing
operations due to excluding unallocated costs and eliminations. Comparative information includes re-presentations for consistency with the current period.
2 Inclusive of Group Operations’ EBIT attribution.
3 Includes $(80) million adverse revaluation of payables in Sri Lanka.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
SUMMARY OF REGIONS AND PRODUCT CHANNELS
33
CONTENTS
SUMMARY OF REGIONS AND PRODUCT CHANNELS
Regions
EBITGross Profit
1,195
1,227
305
237
EBITGross Profit
904
1,137
336
527
EBITGross Profit
836
866
403
432
20212022
Note: Figures are for the year ended 31 July. Does not add to Total Group
as shown on a normalised continuing operations basis and excludes
unallocated costs and eliminations.
Asia Pacific
AMENA
Greater China
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
REGIONS
34
CONTENTS
Asia Pacific Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALINGREDIENTSFOODSERVICECONSUMER
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Sales volume ('000 MT)
3
1,3861,370(1)%610605(1)%1631779%613588(4)%
Revenue7,1107,87911%3,6544,32518%9301,07916%2,5262,475(2)%
Cost of goods sold(5,915)(6,652)(12)%(3,382)(3,866)(14)%(712)(948)(33)%(1,821)(1,838)(1)%
Gross profit 1,1951,2273%27245969%218131(40)%705637(10)%
Operating expenses(889)(941)(6)%(254)(290)(14)%(139)(142)(2)%(496)(509)(3)%
Other
4
(1)(49)–623283%–(2)– (7)(70)900%
EBIT
5
305237(22)%24192700%79(13)20258(71)%
Includes EBIT attribution
from Group Operations
6
(3)67–
Gross margin16.8%15.6%7.4%10.6%23.4%12.1%27.9%25.7%
EBIT margin4.3%3.0%0.7%4.4%8.5%(1.2)%8.0%2.3%
1 Asia Pacific performance is prepared on a continuing operations basis. Comparative information includes representations for consistency with current period.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Includes sales to other segments.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
5 This includes EBIT attribution from Group Operations.
6 This is included in Asia Pacific’s EBIT. Refer to Glossary for explanation of Group Operations.
Asia Pacific’s EBIT was $237 million,
a decrease of $68 million, or 22%, on the
prior year.
Asia Pacific’s Ingredients channel EBIT increased significantly from
$24 million to $192 million due to higher gross margins. In particular,
the New Zealand Ingredients channel benefited from improved margins
in bulk liquids and its protein portfolio, including products like casein.
The strong improvement in the Ingredients channel was more than offset
by the collective $236 million decrease in EBIT from the Foodservice and
Consumer channels, with both channels impacted by the increased cost
of milk and weaker market conditions, particularly in South East Asia.
The Foodservice channel EBIT was a loss of $13 million. The Consumer
channel EBIT was down 71% to $58 million, and in addition to lower
gross margins was also impacted by the economic crisis in Sri Lanka,
which led to lower sales volumes and an adverse revaluation of $80
million of Sri Lanka business payables. In addition, we recognised an
impairment of $34 million on our Asia Brands - Anmum, Anlene and
Chesdale, with the carrying amount of these brands now at $336 million
as at 31 July 2022.
Asia Pacific
Our Asia Pacific business covers
New Zealand, Australia,
Pacific Islands, South East Asia,
and South Asia.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ASIA PACIFIC
35
CONTENTS
Asia Pacific EBIT: Key Performance Drivers
1
FOR THE YEAR ENDED 31 JULY 2022
NORMALISED BASIS
NZD MILLIONTOTALINGREDIENTSFOODSERVICECONSUMER
EBIT 20213052479202
Volume(13)(1)16(28)
Margin (price, cost and product mix)(33)89(77)(45)
Operating expenses and other
2
(92)6(11)(87)
Group Operations attribution7074(20)16
EBIT 2022237192(13)58
FY22 EBITGroup
Operations’
attribution
Operating
expenses
and other
2
MarginVolumeFY21 EBIT
305
(13)
70
237
(33)
(92)
Within the region
Asia Pacific EBIT: Key Performance Drivers
1
Normalised EBIT ($ million)
1 Asia Pacific performance is prepared on a continuing operations basis. Comparative information includes representations for consistency with current period.
2 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
Includes an $80 million
adverse foreign exchange
revaluation of the Sri Lankan
business payables and an
impairment of $34 million
on our Asia Brands
Ingredients benefited from broad
strengthening of product prices, with
improved margins in bulk liquids and its
protein portfolio
Reduced Foodservice and Consumer
margins due to increased cost of milk
and weaker market conditions
1 Asia Pacific performance is prepared on a continuing operations basis.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ASIA PACIFIC
36
CONTENTS
Australia Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Milk collection (million kgMS)106106–
Sales volume ('000 MT)
3
373 365 (2)%
Revenue1,953 2,094 7%
Cost of goods sold(1,710) (1,811)(6)%
Gross profit 243 283 16%
Operating expenses(167) (178)(7)%
Other
4
(2) 1 –
EBIT 74 106 43%
Gross margin12.4%13.5%
EBIT margin3.8%5.1%
1 Australia’s performance is prepared on a continuing operations basis and is prior to Group Operations attribution.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Includes sales to other segments.
4 Consists of other operating income and net foreign exchange gains/(losses).
Australia
Our Australian business continued its positive momentum, with EBIT significantly improved on the prior year as a
result of robust demand conditions across all three channels. The growth trajectory of our strong Consumer brands
has continued, as illustrated in the graph to the right. The Ingredients channel benefited from a broad
strengthening of dairy prices in the domestic and global market, including benefiting from a weaker Australian
dollar. The improved Ingredients channel performance was partially offset by rising input costs in the Foodservice
and Consumer channels.
Western Star
TM
Bega
TM
22.8%
11.9%
5.6%
24.1%
26.1%
27.3%
27.5%
12.1%
6.8%
11.8%
12.0%
11.5%
5.6%
6.6%
6.8%
Perfect Italiano
TM
20222021202020192018
Fonterra Australia Value Market Share by Brand
1
MAT Aug-18 to MAT Aug 22, percentage share of category
Source: Nielsen RMS, Total AU grocery scan
1 Comparative figures are shown on a consistent basis with current year.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
ASIA PACIFIC
37
CONTENTS
AMENA Performance
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NORMALISED BASIS
NZD MILLION20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Sales volume ('000 MT)
3
1,3521,355–912895(2)%617320%3793872%
Revenue 7,3048,61218%5,7846,89919%33841122%1,1821,30210%
Cost of goods sold(6,400)(7,475)(17)%(5,250)(6,113)(16)%(296)(381)(29)%(854)(981)(15)%
Gross profit 9041,13726%53478647%4230(29)%328321(2)%
Operating expenses(605)(674)(11)%(354)(401)(13)%(28)(35)(25)%(223)(238)(7)%
Other
4
376473%315784%110%5620%
EBIT
5
33652757%211442109%15(4) (127)%11089(19)%
Includes EBIT attribution
from Group Operations
6
(99)70–
Gross margin12.4%13.2% 9.2%11.4% 12.4%7.3% 27.7%24.7%
EBIT margin4.6%6.1%3.6%6.4%4.4%(1.0)%9.3%6.8%
1 AMENA performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Includes sales to other segments.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
6 Included in AMENA’s EBIT. Refer to Glossary for explanation of Group Operations.
AMENA’s EBIT was $527 million, an
increase of $191 million, or 57%, on the
prior year.
The improved EBIT was mainly due to an increase of $231 million to
$442 million in the Ingredients channel, due to higher gross margins
particularly in our protein products such as casein. Product mix in the
Ingredients channel also improved as we continue to develop demand
for our speciality ingredients in our Active Living portfolio. Our consumer
business in Chile performed well and was the primary driver of our
sub-region Latin America increasing its EBIT by 23% to $92 million.
Chile’s performance was due to sales volume growth stimulated by the
Chilean Government’s programmes to support citizens through
COVID-19. Overall, the Consumer channel EBIT was down 19%, from
$110 million to $89 million, mainly due to a temporary reduction in
business for our Middle East third-party manufacturing business as it
transitioned between customers during the year.
AMENA
Our AMENA business covers Africa,
Middle East, Europe, North Asia and
the Americas.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
AMENA
38
CONTENTS
AMENA
AMENA EBIT: Key Performance Drivers
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALINGREDIENTSFOODSERVICECONSUMER
EBIT 202133621115110
Volume6(9)87
Margin (price, cost and product mix)4064(16)(8)
Operating expenses and other
2
(24)(2)(8)(14)
Group Operations attribution169178(3)(6)
EBIT 2022527442(4)89
FY22 EBITGroup
Operations'
attribution
Operating
expenses
and other
2
MarginVolumeFY21 EBIT
336
6
169
527
40
(24)
Within the region
AMENA EBIT: Key Performance Drivers
1
Normalised EBIT ($ million)
1 AMENA performance is prepared on a continuing operations basis.
2 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
Ingredients benefited from broad
strengthening of product prices,
particularly in our protein portfolio
Improved product mix in
Ingredients as we develop demand
for our specialty ingredients
Latin America Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Sales volume (‘000 MT)
3
379 388 2%
Revenue1,045 1,131 8%
Cost of goods sold(760) (822)(8)%
Gross profit 285 309 8%
Operating expenses(211) (217)(3)%
Other
4
1–(100)%
EBIT 75 92 23%
Gross margin27.3%27.3%
EBIT margin 7.2%8.1%
1 Latin America performance is prepared on a continuing operations basis and is prior to
Group Operations attribution. Latin America includes Chile and Brazil but excludes DPA
Brazil, which is classified as a discontinued operation.
2 Percentages as shown in the table may not align to calculations of percentages based on
numbers in the table due to rounding of figures.
3 Includes sales to other segments.
4 Consists of other operating income and net foreign exchange gains/(losses).
Latin America
The performance of our Latin America business was driven by our
consumer business in Chile. The performance of our Chilean business is
discussed in more detail in the Consumer channel section on page 51.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
AMENA
39
CONTENTS
Greater China’s EBIT was $432 million,
an increase of $29 million, or 7%, on the
prior year.
The improved EBIT was due to an $152 million increase in the Ingredients
EBIT, from $130 million to $282 million. This was partially offset by the
lower sales volumes and gross margins achieved in the Foodservice and
Consumer channel due to increased input costs and the impact of strict
COVID-19 restrictions. The Foodservice channel was impacted the most,
down $120 million, from $275 million to $155 million.
Greater China Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALINGREDIENTSFOODSERVICECONSUMER
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Sales volume ('000 MT)
3
1,1761,029(13)%824697(15)%274259(5)%7873(6)%
Revenue6,3126,6606%4,2594,4795%1,6911,8248%362357(1)%
Cost of goods sold(5,476)(5,794)(6)%(3,961)(4,040)(2)%(1,274)(1,506)(18)%(241)(248)(3)%
Gross profit 8368664%29843947%417318(24)%121109(10)%
Operating expenses(436)(464)(6)%(164)(180)(10)%(148)(169)(14)%(124)(115)7%
Other
4
330900%(4)23–660%110%
EBIT
5
4034327%130282117%275155(44)%(2)(5) (150)%
Includes EBIT attribution
from Group Operations
6
(16)52–
Gross margin13.2%13.0%7.0%9.8%24.7%17.4%33.4%30.5%
EBIT margin6.4%6.5%3.1%6.3%16.3%8.5%(0.6)%(1.4)%
1 Greater China performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Includes sales to other segments.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
6 Included in Greater China’s EBIT. Refer to Glossary for explanation of Group Operations.
Greater China
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GREATER CHINA
40
CONTENTS
GREATER CHINA
Greater China EBIT: Key Performance Drivers
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALINGREDIENTSFOODSERVICECONSUMER
EBIT 2021403130275(2)
Volume(55)(27)(20)(8)
Margin (price, cost and product mix)2054(27)(7)
Operating expenses and other
2
(4)8(21)9
Group Operations attribution68117(52)3
EBIT 2022432282155(5)
FY22 EBITGroup
Operations’
attribution
Operating
expenses
and other
2
MarginVolumeFY21 EBIT
403
(55)
68
432
20
(4)
Within the region
Greater China EBIT: Key Performance Drivers
1
Normalised EBIT ($ million)
1 Greater China performance is prepared on a continuing operations basis.
2 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
Higher gross margin in the Ingredients
channel due to improved pricing of our
protein portfolio and greater allocation
of volume into higher margin products
Lower sales volumes due to lower milk
collections in the first 9 months of the
year and shipping constraints
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
GREATER CHINA
41
CONTENTS
Product Channels
EBITGross Profit
1,104
1,684
365
916
EBITGross Profit
667
479
369
138
EBITGross Profit
1,154
1,067
310
142
20212022
Ingredients
Foodservice
Consumer
Note: Figures are for the year ended 31 July. Does not add to Total Group as shown on a
normalised continuing operations basis and excludes unallocated costs and eliminations.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
PRODUCT CHANNELS
42
CONTENTS
PRODUCT CHANNELS
Ingredients’ Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Sales volume ('000 MT)
3
2,3462,197(6)%
Revenue13,69715,70315%
Cost of goods sold(12,593)(14,019)(11)%
Gross profit 1,1041,68453%
Operating expenses(772)(871)(13)%
Other
4
33103212%
EBIT
5
365916151%
Includes EBIT attribution from Group
Operations
6
(109)260–
Gross margin8.1%10.7%
EBIT margin2.7%5.8%
1 Ingredients’ performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on
numbers in the table due to rounding of figures.
3 Includes sales to other channels.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit
or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
6 Included in Ingredients’ EBIT. Refer to Glossary for explanation of Group Operations.
Ingredients
Allocation of New Zealand
Milk Solids
Core Ingredients
73.2%
from 74.1%
Shifting milk solids
allocation away from Core
Ingredients products to
higher value products
Active Living
5.9%
from 5.3%
The significant increase in earnings from
our Ingredients channel reflects strong
demand across multiple markets and
products at a time of constrained milk
supply. The stronger underlying market
demand resulted in a broad strengthening
of product prices and higher margins were
achieved across our Ingredients portfolio,
particularly in our protein products such
as casein.
Our Ingredients channels EBIT increased $551 million, or 151%, to $916
million, mainly due to improved product pricing and product mix, partially
offset by lower sales volumes. Our sales volumes were impacted by lower
milk collections over the first nine months of the financial year, and
shipping disruptions in the final quarter relating to continuing scheduling
difficulties compounded by challenging weather conditions through July.
Part of our improved product mix within our Ingredients channel has
been the increased allocation of New Zealand milk solids to our Active
Living products as we look to shift volume away from Core Ingredients
products to higher value products.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
INGREDIENTS
43
CONTENTS
INGREDIENTS
Ingredients – Performance by Quarter
EBIT ($ million)Gross margin (%)
Q4Q3Q2Q1
91
11.2%
10.3%
6.8%
5.3%
195
85
(6)
Q4Q3Q2Q1
129
10.9%
11.3%
9.7%
11.1%
284
239
264
FY21FY22
Price Relativities
Source: GlobalDairyTrade
1 The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior
to the agreed shipment month. Shipment month is the month in which the sale would be
deemed for financial reporting purposes to have been completed, and will normally be the
month in which the sale is invoiced and the product is shipped.
2 Reference product shipment price is represented by a weighted average of the WMP, SMP,
AMF and butter prices achieved on GDT.
3 Non-reference product shipment price is represented by the cheddar prices achieved
on GDT.
–
2,000
4,000
6,000
8,000
Jul-22Jan-22Jul-21Jan-21Jul-20
Reference product shipment price
1,2
Non-reference product shipment price
1,3
FY21(US$/MT)FY22
As depicted in the price relativities graph, the revenue price difference
between reference products and non-reference products widened over
the course of the year and have become particularly favourable in the
last quarter.
The strong rise in both reference and non-reference product prices
enabled the Co-operative to deliver both a higher Farmgate Milk Price
and earnings.
The impact from the price relativities on our performance compared to
the prior year can be seen in our Ingredients quarterly gross margin and
EBIT. The Ingredients – Performance by Quarter graph illustrates the
significant improvement in price relativities year on year, particularly in
the second half where EBIT was $424 million, or 537%, higher than the
last six months of the prior year. The quarterly EBIT figures also highlight
that the second quarter, November to January, is our largest shipment
period, reflective of the seasonal peak in milk collections during October.
A key driver of our EBIT in our Ingredients channel is the relative price
movements between product prices that inform the Farmgate Milk Price,
referred to as reference products, and products prices that inform EBIT,
referred to as non-reference products.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
INGREDIENTS
44
CONTENTS
New Zealand Sourced Ingredients’ Product Mix
1
FOR THE YEAR ENDED 31 JULY
20212022
Sales Volume (‘000 MT)
Reference products1,8171,629
Non-reference products 884882
$ billion$ per MT$ billion$ per MT
Revenue
Reference products9.45,16210.46,361
Non-reference products 5.15,7805.76,951
Cost of Milk
Reference products( 7. 4)(4,069)(8.3)(5,077)
Non-reference products (3.3)(3,678)(3.7)(4,494)
1 Table includes Ingredient’s products that are on-sold to the Foodservice and Consumer channel. Table excludes bulk liquid milk. Bulk liquids for
the year ended 31 July 2022 was 68,000 MT of kgMS equivalent (the year ended 31 July 2021 was 72,000 MT of kgMS equivalent).
Note: Figures represent Fonterra-sourced New Zealand milk only. Reference products are products used in the calculation of the Farmgate Milk Price
– WMP, SMP, BMP, Butter and AMF. Milk solids used in the products sold were 919 million kgMS in reference and 424 million kgMS non-reference
(previous comparable period 1,019 million kgMS reference and 442 million non-reference).
With lower milk collections this year, we chose to allocate less milk solids to reference products, mainly whole milk
powder (WMP). Our sales volume of WMP is also down due to this being the main product that was impacted by
shipping disruptions in the final quarter relating to continuing scheduling difficulties compounded by challenging
weather conditions through July. Overall, reference product sales volumes were down 10%, whereas non-reference
product volume, despite the lower milk collections, were relatively stable – reflecting our focus on allocating more
milk solids into higher margin products.
The average reference product sale price per metric tonne has increased 23% compared to last year, largely
following the pricing we have seen on GDT over the period. Anhydrous milk fat (AMF) and butter, fat based dairy
products, recorded the strongest increases within the reference products increasing 31% and 29%, respectively.
WMP and skim milk powder (SMP) both increased 20%.
The average non-reference sale price per metric tonne has increased 20% compared to last year. While lower than
the reference portfolio increase, this is still a strong performance with individual products such as casein and whey
protein concentrate (WPC) having increased 30% and 32% respectively, contributing to a significantly higher total
margin than last year. Other products, such as cheese, have had more modest prices increases at 11% and have
lower year on year margins reflecting both the slower rate of price increases this year and the favourable price
relativities experienced in the first half of last year.
The cost of milk allocated to our products is a function of the fat and protein value of the Farmgate Milk Price
which is determined from the prices achieved from the sale of our reference products.
The stronger price increase in AMF and butter (fat based products), relative to the other reference products has
resulted in the fat based dairy components getting a higher allocation of milk cost, relative to protein dairy
components. Therefore, while the cost of milk has gone up for all products, the rate of the increase was less in our
protein portfolio.
The significant price increases in protein products such as casein and WPC, coupled with the lower increase in milk
costs relative to reference products, has meant higher margins for our non-reference products. This is the main
driver behind the increased EBIT derived from our New Zealand milk.
In addition, our price risk management service offerings to our customers and farmers which provides them with
increased certainty, has provided margin stability as milk costs increased over the year from an opening forecast
midpoint of $8.00 per kgMS to the final milk price of $9.30 per kgMS.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
INGREDIENTS
45
CONTENTS
New Zealand Milk – Ingredients Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALASIA PACIFICAMENAGREATER CHINA
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Allocation of milk solids (% of kgMS)
3
79%79%
Sales volume ('000 MT)2,1031,948(7)%502494(2)%801777(3)%800677(15)%
NZD million
Revenue12,54214,31514%3,1113,68018%5,2696,25419%4,1624,3815%
Cost of goods sold(11,465)(12,730)(11)%(2,826)(3,295)(17)%(4,769)(5,493)(15)%(3,870)(3,942)(2)%
Gross profit 1,0771,58547%28538535%50076152%29243950%
Operating expenses(696)(818)(21)%(205)(249)(21)%(327)(389)(19)%(164)(180)(10)%
Other
4
34102200%723229%315681%(4)23–
EBIT
5
415869100%8715983%204428110%124282127%
Gross margin8.6%11.1%9.2%10.5%9.5%12.2%7.0%10.0%
EBIT margin3.3%6.1%2.8%4.3%3.9%6.8%3.0%6.4%
1 Ingredients’ performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Includes Core Ingredients allocation of 74% and 73% for 2021 and 2022, respectively. As well as Active Living of 5% and 6% for 2021 and 2022, respectively.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
INGREDIENTS
46
CONTENTS
Active Living
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Sales volume ('000 MT) 123 129 5%
Allocation of milk solids (% of kgMS)5%6%
Revenue 1,175 1,681 43%
1 Active Living performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on
numbers in the table due to rounding of figures.
In addition to benefiting from the stronger underlying market demand for
Ingredients’ products, we remain focused on the growth of our Active
Living portfolio to maximise the value of our protein products and create
higher non-reference margins. In our Active Living portfolio, we are
focused on developing demand for our protein products in sports and
active, healthy ageing and medical nutrition ingredients categories.
This year, within our Active Living portfolio, there was very strong
demand for our casein, WPC and Milk Protein Concentrates from North
Asia, the Americas and Greater China due to a general tightening of
protein product availability.
In North Asia our in-market teams continue to grow partnerships with
key medical nutrition customers, such as Daesang, and this has resulted
in increased sales of higher value caseinate and WPC products. An
example of this is the increased sales of our SureProtein™ WPC 550
which delivers a high whey protein, low viscosity beverage in a compact,
ready-to-drink (RTD) format without compromising on taste and texture,
giving the elderly and patients more of what they need to meet their
nutritional requirements.
In Europe and the USA, the largest active living market for protein
products has strengthened considerably. In part, this is driven by the
increased demand for immunity and medical nutrition, but it is also due
to the recovery of the market supporting active lifestyles. Over the year
consumers have headed back into the office and the gym as COVID-19
restrictions ease and demand for our protein products used in snack bars
and high protein beverages are increasing, such as our SureProtein™
Calcium Caseinate 380 which offers high protein levels (>90%) and slow
release of essential amino acids.
Our Core Ingredients sales teams have also worked hard to capture the
improved pricing of caseinate and its precursor casein, in conjunction
with our Consumer Powders team, by delivering strong sales volume
growth for caseinate into beverages and non-dairy creamer applications
(i.e., substitutes for milk or cream) where caseinate is a preferred choice
as an emulsifier. Greater China, and to a lesser extent South East Asia, has
seen strong growth in the non-dairy creamer sector for use in products
such as milk tea and coconut juice. This is being driven by consumption
growth as these western style consumption occasions penetrate further
into the market.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
INGREDIENTS
47
CONTENTS
Foodservice Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Sales volume ('000 MT)
3
498 509 2%
Revenue2,959 3,314 12%
Cost of goods sold(2,282) (2,835)(24)%
Gross profit 677 479 (29)%
Operating expenses(315) (346)(10)%
Other
4
7 5 (29)%
EBIT
5
369 138 (63)%
Includes EBIT attribution from
Group Operations
6
4 (71)–
Gross margin22.9%14.5%
EBIT margin12.5%4.2%
Foodservice
Allocation of New Zealand
Milk Solids
13.0%
from 12.0%
We continue to focus on driving
performance through our innovative
Foodservice products, launching several
cooking cream applications last year and
earlier this year, successfully growing the
channel and shifting milk solids into higher
value products. However, our margins in
our Foodservice channel have reduced as
input costs have climbed at a significant
rate over the past six months, and we have
not been able to increase our in-market
sales prices at the same rate.
1 Foodservice performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on
numbers in the table due to rounding of figures.
3 Includes sales to other channels.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit
or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
6 Included in Foodservice EBIT. Refer to Glossary for explanation of Group Operations.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
FOODSERVICE
48
CONTENTS
FOODSERVICE
Foodservice – Performance by Quarter
EBIT ($ million)Gross margin (%)
Q4Q3Q2Q1
94
23.8%
26.3%
24.9%
15.9%
160
97
18
Q4Q3Q2Q1
27
13.2%
16.5%
15.6%
12.5%
58
39
14
FY21FY22
Where possible our in-market teams have worked with customers to
adjust sales prices to reflect the increased costs. However, we have not
been able to adjust pricing at the same rate as our cost increases. Market
conditions have also been challenging, particularly in South East Asia and
Greater China. Our Greater China region was impacted by COVID-19
restrictions, while our South East Asia market was impacted by COVID-19
restrictions as well as Typhoon Rai in the Philippines and flooding in
Malaysia.
Our Foodservice EBIT this year has been impacted by the rising cost of
milk, with EBIT down $231 million to $138 million.
Our sales volume increased due to COVID-19 restrictions relaxing across
key markets, growth in our Quick Service Restaurant portfolio, and
demand for our cooking cream products.
The graph of monthly milk prices illustrates the significant rise in the cost
of milk over the course of the year as well as the consistently higher cost
relative to the prior year.
The impact of the strong rise in milk costs can be seen in the second half
of this financial year, in particular the collection and manufacturing
months of February to April which averaged $10.40 per kgMS and
impacted sales in the final quarter.
Despite the current lower overall margin in our Foodservice channel,
it is a high value channel for a number of our products, and we remain
committed to increasing the milk solids we allocate to our Foodservice
channel. We aim to achieve this by continuing to develop innovative
products and growing our global Foodservice presence across Greater
China, South East Asia and the USA.
Our Greater China region is the most significant contributor to our
Foodservice channel, and we continue to grow our presence. We now
deliver our products to 431 cities, compared to 387 cities this time last
year. We have had good organic sales volume growth within our UHT
cream portfolio, mainly due to our Anchor™ Food Professionals
Cheese-Pro Cream and Easy Topping Cream products, both launched the
prior year. We continue to focus on driving sales by innovating and
developing new applications for our products.
In South East Asia, we are applying what we’ve learned from our Greater
China business. This includes building our chef development programme,
and in particular focusing on Indonesia and Malaysia where the evolution
of bakeries will see us expanding our reach into more cities. In Malaysia,
sales through our bakery ingredients stores now account for nearly a
quarter of our sales. We are also developing new products that work well
in recipes chefs can use in the growing number of on-line bakery stores.
4.00
6.00
8.00
10.00
31 May28 Feb30 Nov31 Aug31 May
Monthly Milk Price 2020/21 Season
Monthly Milk Price 2021/22 Season
(NZ$)
Monthly Milk Prices
1
1 The weighted average of the monthly milk prices are equivalent to $7.54 and $9.30 for
2020/21 and 2021/22 season, respectively.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
FOODSERVICE
49
CONTENTS
New Zealand Milk – Foodservice Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLIONTOTALASIA PACIFICAMENAGREATER CHINA
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
20212022CHANGE
2
Allocation of milk solids (% of kgMS)12%13%
Sales volume ('000 MT)
3
4164211%1361467%2726(4)%253249(2)%
NZD million
Revenue2,5482,86212%71482716%18625034%1,6481,7858%
Cost of goods sold(1,920)(2,390)24%(530)(721)(36)%(154)(209)(36)%(1,236)(1,460)(18)%
Gross profit 628472(25)%184106(42)%324128%412325(21)%
Operating expenses(266)(298)(12)%(116)(113)3%(9)(26)(189)%(141)(159)13%
Other
4
75(29)%-(3)-11-6717%
EBIT
5
369179(51)%68(10)-2416(33)%277173(38)%
Gross margin24.6%16.5%25.8%12.8%17.2%16.4%25.0%18.2%
EBIT margin14.5%6.3%9.5%(1.2)%12.9%6.4%16.8%9.7%
1 Foodservice performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3 Comparative period sales volumes have been re-presented for consistency with current period.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
Most of our New Zealand milk in the Foodservice channel is made into
product bound for Greater China, where this year it generated an EBIT
margin of 9.7% compared to the prior year of 16.8%.
This year New Zealand milk into the Asia Pacific Foodservice channel
made a loss due to a significant reduction in gross margin. The increased
cost of milk impacted Asia Pacific margins more than Greater China due
to Asia Pacific’s product mix, which is weighted more to mozzarella as
opposed to the cream products that Greater China sells. The differences
between this table and the total Foodservice channel result is the positive
value we generate from our Australian milk sourced products offset by
Asia Pacific’s cost allocation of the A-ware sourcing agreement.
Only a small portion of New Zealand milk is manufactured into product
for our AMENA Foodservice channel. Instead we are developing our
portfolio through our sourcing relationship with A-ware in the
Netherlands, with an ex-Europe product offering to complement our
wider Anchor™ Food Professional product range into key Foodservice
markets. This year we chose to focus on our UHT cream portfolio
and discontinued the supply agreement for mozzarella. Excluding
costs relating to discontinuing the mozzarella supply agreement our
losses in A-ware have decreased from $36 million to $31 million.
Despite creating more demand for our European UHT cream, the
historically high cost of European cream has impacted the profitability
of our portfolio. The loss is allocated across AMENA, Asia Pacific and
Greater China as all three regions collectively work to grow demand
for ex-Europe UHT cream products.
The table below displays the value we create for our New Zealand milk from the Foodservice channel. The differences between this table and the total
Foodservice channel result is our Australian and European milk sourced Foodservice products.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
FOODSERVICE
50
CONTENTS
Consumer Performance
1
FOR THE YEAR ENDED 31 JULY
NORMALISED BASIS
NZD MILLION 20212022CHANGE
2
Sales volume ('000 MT)
3
1,0701,048(2)%
Revenue4,0704,1342%
Cost of goods sold(2,916)(3,067)(5)%
Gross profit 1,1541,067(8)%
Operating expenses(843)(862)(2)%
Other
4
(1)(63)–
EBIT
5
310142(54)%
Includes EBIT attribution from Group
Operations
6
(13)––
Gross margin28.4%25.8%
EBIT margin7.6%3.4%
1 Consumer performance is prepared on a continuing operations basis.
2 Percentages as shown in the table may not align to calculations of percentages based on
numbers in the table due to rounding of figures.
3 Includes sales to other channels.
4 Consists of other operating income, net foreign exchange gains/(losses) and share of profit
or loss on equity accounted investees.
5 Includes EBIT attribution from Group Operations.
6 Included in Consumer’s EBIT. Refer to Glossary for explanation of Group Operations.
Consumer
Allocation of New Zealand
Milk Solids
7.9%
from 8.6%
Our consumer business in Chile had a
strong year due to sales volume growth
and an improved product mix as we
allocated more milk into higher margin
products which offset rising input costs.
However, the cost of New Zealand milk has
climbed at a significant rate and weaker
market conditions, including COVID-19
restrictions and the economic crisis in
Sri Lanka, reduced earnings in our
Consumer channel.
FONTERRA ANNUAL REVIEW 2022
BUSINESS PERFORMANCE REPORT
CONSUMER
51
CONTENTS
CONSUMER
Consumer – Performance by Quarter
EBIT ($ million)Gross margin (%)
Q4Q3Q2Q1
76
26.0%
31.0%
29.6%
27.0%
114
92
28
Q4Q3Q2Q1
67
26.1%
25.7%
25.3%
26.1%
79
(22)
18
FY21FY22
Our Consumer channel EBIT has been impacted by weaker market
conditions and higher input costs, particularly in our Asia Pacific region,
with EBIT down $168 million to $142 million
Our in-market sales team were able to increase sales prices through
leveraging the strength of our brands, which helped us partially offset
the significant rise in the cost of milk over the year.
The graph of monthly milk prices (by month of manufacture) illustrates
the significant rise in the cost of milk, and the stable consumer gross
margin is highlighted in the perfo
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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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