Fonterra announces FY23 Annual Results
Fonterra Co-operative Group Limited
Fonterra Co-operative Group Page 1
Results for Announcement to the Market
Results for announcement to the market
Name of issuer
Fonterra Co-operative Group Limited
Reporting Period 12 months to 31 July 2023
Previous Reporting Period 12 months to 31 July 2022
Currency NZD
Amount (000s) Percentage change
Revenue from continuing operations $24,580,000 12%
Total Revenue $26,046,000 11%
Net profit from continuing operations $1,241,000 100%
Total net profit $1,577,000 170%
Final Dividend
Amount per Quoted Equity Security $0.40
Imputed amount per Quoted Equity Security Not Applicable
Record Date 28 September 2023
Dividend Payment Date 13 October 2023
Current period Prior comparable period
Net tangible assets per Quoted Equity
Security
$3.82 $2.95
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
The prior comparable period net tangible assets per
Quoted Equity Security has been re-presented following an
accounting policy change. 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 21/09/2023
Audited financial statements accompany this announcement.
---
21 September 2023
Fonterra announces FY23 Annual Results
• Full year reported earnings of 95 cents per share, up from 36 cents per share
• Reported profit after tax of $1.6 billion, up 170%
• Return on Capital of 12.4%, up from 6.8%
• Final 2022/23 season Farmgate Milk Price of $8.22 per kgMS
• Full year dividend of 50 cents per share, including interim dividend of 10 cents per share
• Additional tax free 50 cents per share capital return following divestment of Soprole
• Full year milk collections of 1,480 million kgMS
• Forecast 2023/34 season Farmgate Milk Price range of $6.00 - $7.50 per kgMS, with a midpoint of
$6.75
• Forecast 2023/24 earnings guidance range of 45-60 cents per share
Fonterra today announced its results for the financial year ending 31 July 2023, with full year reported
earnings of 95 cents per share, reported profit after tax of $1.6 billion and a final 2022/23 season
Farmgate Milk Price of $8.22 per kgMS.
Fonterra CEO Miles Hurrell says the Co-op has delivered strong earnings and made progress against key
strategic initiatives in FY23, however this has been against the backdrop of a Farmgate Milk Price that
has dropped across the season.
“Our 2022/23 season Farmgate Milk Price was impacted by reduced demand for whole milk powder from
key importing regions. As the financial year progressed, we saw Global Dairy Trade prices drop, with the
average whole milk powder price down 16% compared to last season.
“We recognise the impact the reduced Farmgate Milk Price has on farmers’ businesses and have utilised
our strong balance sheet to introduce a new Advance Rate Schedule guideline to assist on-farm cash
flow.
“However, we’re pleased to be announcing a strong full year dividend of 50 cents per share - comprising
an interim dividend of 10 cents per share and a final dividend of 40 cents per share.
“In addition, the Co-op returned tax free 50 cents per share to shareholders and unit holders in August,
following the divestment of Soprole, giving a final cash pay-out to farmers of $9.22 per share backed
kgMS.
“Our FY23 performance demonstrates that we are focusing on the right strategic priorities. This said, we
are aware that there are challenging conditions on the ground for many of our farmers,” says Mr Hurrell.
Fonterra Co-operative Group
Page 2
Performance
Fonterra’s reported profit after tax of $1,577 million was up $994 million. Excluding the net gain from
divestments of $248 million, normalised profit after tax was $1,329 million, up $738 million compared to
the same time last year. This includes the impact of impairments and is equivalent to 80 cents per share.
The Co-op also reported a Return on Capital for the last 12 months of 12.4%, up from 6.8% in the
comparable period.
“There were a number of key drivers that helped us deliver this result, including favourable margins in our
Ingredients channel, in particular the cheese and protein portfolios.
“We also saw improved performance in our Foodservice channel due to increased product pricing and
higher demand as Greater China’s lockdown restrictions started to ease from the start of calendar year
2023.
“Further, across the second half, the operating performance of our Consumer channel strengthened due
to improved pricing. However, we adjusted the long-term outlook for our Asia Brands and Fonterra Brands
New Zealand business, resulting in full year impairments of $101 million and $121 million respectively.
"We also recognised a gain on sale from our Chilean Soprole business of $260 million during the year.
“Looking at our reportable segments, Core Operations reported profit after tax increased $532 million to
$572 million, due to higher Ingredient margins.
“Global Markets’ reported profit after tax was up $77 million to $385 million, mainly due to higher sales
volumes and improved pricing. This was partially offset by the impairments in its Consumer channel.
“Greater China’s reported profit increased $11 million to $284 million, with the Foodservice channel
showing improved margins and resilience to market disruption from COVID-19. However, this was offset
by the Consumer channel, which included a proportion of the Asia brand impairment.
“On the supply side, full year milk collections ended the season at 1,480 million kgMS. This is in spite of
significant challenges that many farmers faced across New Zealand including rising input costs and
adverse weather events in the North Island early in calendar year 2023.
“In addition, Fonterra’s balance sheet metrics are better than target levels, even after adjusting for the
impact of providing for the payment of the Capital Return, with a gearing ratio of 28.8% and debt to
EBITDA of 1.3x.
“Our Total Group reported operating expenses were $2,799 million up from $2,455 million due in large
part to the impact of impairments, as well as increased costs from inflation and a one-off favourable item
of $44 million in the previous year,” says Mr Hurrell.
Strategy
Fonterra released its long-term strategy in September 2021 and since then has made good progress
towards its 2030 goals.
“Across FY23, we completed the divestment of China Farms and Soprole as part of our strategic choice to
focus on New Zealand milk.
Fonterra Co-operative Group
Page 3
“As we work towards our ambition to be a leader in sustainability, we have stepped up our emissions
reduction goal for the operational side of our business, introducing a target of a 50% absolute reduction in
Scope 1&2 emissions by 2030, from a 2018 baseline, an increase on our previous target of a 30%
reduction by 2030. We have held discussions with our farmers on why we need to introduce a Scope 3, or
on-farm emissions target, and plan to announce our target before the end of calendar year 2023.
“We’re also progressing work in our innovation portfolio, including establishing our joint venture with Royal
DSM, Vivici, which is exploring commercial opportunities in fermentation derived ingredients, and
launching our corporate ventures arm Nutrition Science Solution (NSS), which made its first strategic
investment in the form of a minority stake in Pendulum Inc, a biotech company specialising in metabolic
health.
“To assist us to hit our short and long-term goals, we are implementing a range of projects that will
streamline how we operate. To track our progress, we have introduced two new metrics. These are:
• Cash operating expenses per kgMS – targeting a 4% cash operating cost improvement per year
to support long-term discipline in our global overheads.
• Gross profit from Core Operations per kgMS – targeting a 2% New Zealand operational cash
cost improvement every year to support efficient New Zealand operations while remaining laser
focused on delivering value.
“We are also updating our long-term strategy and plan to share this early next year,” says Mr Hurrell.
FY24 Outlook
Looking ahead, our forecast 2023/24 Farmgate Milk Price range of $6.00 - $7.50 per kgMS, with a
midpoint of $6.75, reflects reduced demand for whole milk powder from key importing regions.
“We are watching market dynamics closely and there are indications demand for New Zealand milk
powders will start to return from early 2024. Demand for other products, including Foodservice and our
value-added Ingredients, continues to be robust.
“Our FY24 forecast earnings range for continuing operations is 45-60 cents per share. While the
favourable price relativities we’ve experienced across FY23 have reduced from their peaks, we are
forecasting improved margins across our Consumer and Foodservice channels for FY24.
“We acknowledge that across the year, farmers will continue to feel the pressure from high input costs
and a reduced Farmgate Milk Price. We'll continue to do all that we can to support farmers through this
challenging period,” says Mr Hurrell.
ENDS
For further information contact:
Philippa Norman
Fonterra Communications
Phone: +64 21 507 072
---
September 2023
2
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
from $9.30
from $0.20
¹
from 6.8%
from $583m
from 36c
4.3%
3.7%
•2022/23 season Farmgate Milk Price of $8.22 per kgMS, impacted by reduced
demand for powders in China
•Profit after tax of $1,577 million up $994 million
oexcluding the net gain from divestments of $248 million, normalised profit after
tax is $1,329 million, equivalent to 80 cents per share
2
•Full year dividend of 50 cents per share
•Capital Return of 50 cents per share following divestment of Soprole
•Introduction of new Advance Rate Schedule guideline to assist on-farm cash flow
•Forecast 2023/24 season Farmgate Milk Price range of $6.00 -$7.50 per kgMS, with a
midpoint of $6.75, reflects ongoing volatility and reduced demand for powders
•FY24 earnings guidance range for continuing operations of 45 -60cents per share,
reflects lower Ingredients margins
3
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
4
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
11.2%
5.9%
13.2%
0.1%
4.5%
0.4%
0.7%0.8%
2,000
4,000
6,000
2017201820192020202120222023
Reference product shipment priceNon-reference product shipment price
5
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
FY22FY23
44
21/22 season
Farmgate
Milk Price
22/23 season
Farmgate
Milk Price
Volume
PricesForeign
exchange
Net costs
9.30
8.22
(0.01)
(1.92)
0.98
(0.13)
6
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
7
©FONTERRA
(1.25)
(1.00)
(0.75)
(0.50)
(0.25)
-
0.25
0.50
0.75
1.00
1.25
May 22Aug 22Nov 22Feb 23May 23
7
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
20122013201420152016201720182019202020212022
Spot rate
Realised rate
Unhedged
Hedged
-5c
USD/NZD
Spot Rate
+5c
USD/NZD
Spot Rate
2023
A primary allocation of capital is used to deliver asafe, sustainable, productive capacity
of our processing assets while maintaining a surplus margin for our plant capacity.
We allocate cash to our balance sheet, shareholders and businesses where we believe it
will earn the highest risk-adjusted returns.
Management is aligned to the delivery of value to our stakeholders through targets and
incentives.
We allocate milk to the products and channels where we believe it will earn the highest
risk-adjusted returns.
8
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
9
©FONTERRA
-
200
400
600
800
1,000
1,200
1,400
Whole milk
powder
Skim milk
powder
CreamCheeseOther proteins
20192020202120222023
-
200
400
600
800
1,000
1,200
1,400
IngredientsFoodserviceConsumer
20192020202120222023
9
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
96.4%96.4%96.4%
96.5%
96.3%
20192020202120222023
91.9%
94.0%
95.0%
94.5%
95.3%
20192020202120222023
$90m
$58m
$58m
$72m
$56m
2019202020212022202320192020202120222023
10
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
Risk appetite range
11
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
from 9.0%
from 5.5%from (0.4)%
From6.8%
12
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
13
©FONTERRA
6.0
5.2
4.3
5.3
3.2
20192020202120222023
83
85
92
98
91
20192020202120222023
S&P Global Ratings A-Stable outlook
Fitch RatingsAStable outlook
50%
44%
39%
42%
29%
4.3x
3.3x
2.7x
3.2x
1.3x
20192020202120222023
Gearing Ratio (%)Debt to EBITDA (x)
13
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
©FONTERRA
Inflation AdjustedLong-term Aspiration
7.00
7.50
8.00
8.50
9.00
9.50
10.00
2021202220232024202520262027202820292030
14
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
($/kgMS)($/kgMS)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
200420072010201320162019202220252028
©FONTERRA
•To assist long-term disciplineon our global overheads of
~$2 billion
•Directly monitors the actual cash cost base having regard to
changing milk volumes
•Calculated as Continuing Operations operating expenses
less depreciation, amortisation and impairments divided by
New Zealand milk solids collected
•Adjusted for inflation (using CPI) so underlying efficiency
gains/losses are transparent
•To assistlong-term discipline on efficientNew Zealand operations
•Directly monitors the cost base having regard to changing
milk volumes
•Calculated at the gross profit level to maximise the value which can
arise from higher costsas we move up the value chain
•Will be volatile year-on-year so the focus willbe on long-termtrend
with reporting to show underlying changes in costs, volume
and revenue
•Calculated as gross profit from Core Operations (excluding Farm
Source and cost of milk) divided by kgMS of Core Operations’ sales
•Adjusted for inflation (using subset of PPI) so underlying efficiency
gains/losses are transparent
15
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
©FONTERRA
4.0
0.6(0.5)
4.1
FY23InflationCost OutFY30 Target
2.1
0.4 (0.5)
2.0
FY23InflationCost OutFY30 Target
16
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
($ billion)($ billion)
2,154
2,750
3,195
4,150
2,063
3.76
3.82
2.85
2.73
3.20
20192020202120222023
Profit per hectare ($/Ha)Closing share price ($)
$0.00$0.05$0.20$0.20$1.00
17
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
Estimate
10
11
The range reflects:
•Demand for imported powders into
China are soft, but early in the season
•Indications demand for New Zealand
powders will start to return early 2024
per kgMS
2023/24
Season Forecast
2021/22 Season
$9.30
$8.22
Reference product shipment price
Average reference product shipment price for the season
Reference product contract shipment price
USD/MT
2022/23 Season
Feb-24
18
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
1,000
2,000
3,000
4,000
5,000
6,000
May-21May-22May-23
FY23 FY24
per share
The range reflects:
•Favourable Ingredients margins
continue but lower than FY23
•Lower milk costs assisting improved
margins in Foodservice and Consumer
channels
,
USD/MT
Feb-24
19
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
2,000
3,000
4,000
5,000
6,000
Jul-22Jan-23Jul-23
Non-Reference Product shipment price
Reference Product Shipment price
Non-Reference Product contract shipment price
Reference Product contract shipment price
©FONTERRA
211
239
202
243
52
82
133
141
15
26
78
85
104
119
121
152
37
79
53
47
106
63
30
79
525
608
617
747
950
1,050
1,125
1,200
1,150
1,050
950
20202021202220232024202520262027202820292030
Other capital invested
Growth capital expenditure
Sustaining Capital for Other Operations
Decarbonisation
Regulatory requirements including wastewater
Sustaining Capital for NZ Operations
20
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
21
©FONTERRA
21
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
Chairman still selected from
Farmer Elected Directors
Farmer Elected
Directors
Appointed
Directors
•Current Board operating well, but size can be rationalised.
Changes are future focused
•Smaller groups usually encourage:
-Dissenting views
-More meaningful sharing of perspectives
-Faster, robust decision making
•6:3 composition strikes a balance between a strong and
diverse level of perspectives, skills and experiences, and
manageable workloads.
•Strong farmer majority is maintained
•Changes to be voted on at the 2023 Annual Meeting and
would take effect after 2024 Annual Meeting
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
Animal
Efficiency
Reproduction
& Animal
Health
Feed quality
& type
Nitrogen &
Effluent
Management
Imported
CO2: Feed,
Fuel &
Fertiliser
Novel
Technologies
Carbon
removals -
vegetation
Land use
change
22
23
©F O N T E R R A A N N U A L R E S U L T S 2 0 2 3
1.Per share backed kgMS
2.Excludes amounts attributable to non-controlling interests
3.Sources
12 month production:
US (Jul 2022 to Jul 2023) USDA , NZ (Jul 2022 to Jul 2023) DCANZ, EU(Jul 2022 to Jul 2023) Eurostat, Australia (Jul 2022 to Jul 2023) Dairy Australia
12 month imports:
LATAM, Asia, Middle East & Africa, China (Jul 2022 to Jul 2023) S&P Global
4.Source: Fonterra Free Alongside Ship (FAS) prices of the New Zealand Ingredients portfolio
5.Asset Health measures the reliability of Fonterra’s manufacturing assets on a scale of 1 –5. Five indicates the asset is in thebest condition possible. Fonterra’s
risk appetite range is 3 –3.5
6.Refer to the appendix for assumptions regarding allocations of Corporate Costs, Interest and Tax
7.2023 includes the amount for the capital return payable of $804 million in the calculation of Net Debt
8.Inventory has been restated to reflect the inclusion of emissions trading units which were previously held as intangible assets
9.Based on dividend payments and capital return attributed to the financial year
10.Closing price as at 31 July. Figures on the chart are prior to the 50 cent per share capital return
11.2023 Farm Profitability assumptions: Farm size flat from 2022, farm expense forecasted using CPI farm expenses index, kgMS per hectare output forecasted
using 1% increase from previous year and $8.22 Milk Price
24
©FONTERRA
¹
ANNUAL RESULTS 202325
1.Total Group figures for the year ended 31 July. Includes continuing and discontinued operations
2.Collections are for the season ended 31 May
3.Total cash return for 2023 is $9.22 per share backed kgMS. Includes 50 cents for the capital return from the sale
of Soprole
2,774
3,160
3,137
3,340
4,599
20192020202120222023
4,152
4,069
4,102
3,924
3,973
20192020202120222023
19.9
21.0
21.1
23.4
26.0
20192020202120222023
2,905
2,475
2,344
2,455
2,799
20192020202120222023
1,523
1,517
1,539
1,478
1,480
20192020202120222023
$6.35$7.14$7.54$9.30$8.22
$0.00
$0.05
$0.20
$0.20
$0.50
20192020202120222023
Milk PriceDividend
$6.35
$7.19
$7.74
$9.50
$8.72
©FONTERRA
¹
ANNUAL RESULTS 202326
1.Total Group figures for the year ended 31 July. Includes continuing and discontinued operations
2.Refer to the Glossary for definition
(16)
1,147
959
976
2,218
20192020202120222023
812
879
952
991
1,881
20192020202120222023
(610)
659
599
583
1,577
20192020202120222023
275
398
588 591
1,329
20192020202120222023
600
419
545
587
668
124
106
63
30
79
724
525
608
617
747
20192020202120222023
CapexOther
50%
50%
44%
39%
42%
29%
4.6x
4.3x
3.3x
2.7x
3.2x
1.3
201820192020202120222023
Gearing RatioDebt to EBITDA
©FONTERRA
5.6%
6.6%6.6%
6.8%
12.4%
20192020202120222023
¹
ANNUAL RESULTS 202327
1.Total Group figures for the year ended 31 July. Includes continuing and discontinued operations
2.Refer to the Glossary for definition
3.Comparative information has been re-presented for consistency with the current period
4.Attributable to equity holders of the Co-operative. Excludes non-controlling interests
668
1,433
1,109
(621)
3,314
20192020202120222023
83
85
92
98
91
20192020202120222023
(35)
43
36 36
95
20192020202120222023
16
24
34
35
80
20192020202120222023
©FONTERRAANNUAL RESULTS 202328
-
10
20
30
40
50
60
70
80
90
JunJulAugSepOctNovDecJanFebMarAprMay
2020/21
2021/22
2022/23
2020/21
1,539m (up 1.5%)83m litres
2021/221,478m (down 4.0%)
80m litres
2022/231,480m (up 0.1%)
78m litres
•Fonterra’s New Zealand milk collections for
the 2022/23 season were 1,480 million
kgMS, up 0.1% on last season
•Milk collections were impacted by a
challenging start to the season in the North
Island and an overall reduction in the
number of cows
•Favourable weather conditions supported
strong milk supply at the end of the season
•Fonterra’s New Zealand market share of
milk solids collected is 79.0%
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July. Includes continuing and discontinued operations
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the table
due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity
accounted investees
3.Includes amounts attributable to non-controlling interests
4.Prioryear normalisationswere $42 million gain on sale from GDT and $(50) million impairment on DPA Brazil
•Gross profit improved $1,259 million mainly due to
favourablemargins in our Ingredients channel,
particularly cheese and proteins
•Operating expenses are up $344 million mainly due to
inflation and the impact of impairments
•Other has increased $327 million and includes the gain
on sale of Soprole
•Tax expense increased $218 million due to higher EBIT
and capital gains tax on sale of Soprole
•Normalisationsinclude $260 million gain on sale of
Soprole, and $(12) million in relation to exiting our Hangu
China farm
29
∆
1
Sales volume (‘000 MT)3,9243,973
1.3%
Revenue23,425 26,046
11.2%
Cost of goods sold(20,085)(21,447)
(6.8)%
Gross profit3,3404,599
37.7%
Gross margin (%)14.3%17.7%
Operating expenses(2,455)(2,799)
(14.0)%
Other
2
91418
359.3%
EBIT 9762,218
127.3%
Net finance costs(231)(261)
(13.0)%
Tax expense(162)(380)
(134.6)%
Profit after tax
3
5831,577
170.5%
Normalisations
4
8(248)
-
Normalised profit after tax
3
5911,329
124.9%
©FONTERRAANNUAL RESULTS 202330
5831,577
Profit attributable to non-controlling interests1(40)
Reported profit after tax attributable to equity holders of the Co-operative5841,537
3695
5911,329
Profit attributable to non-controlling interests(23)(40)
Normalised profit after tax attributable to equity holders of the Co-operative5681,289
3580
1,613,3531,610,507
©FONTERRAANNUAL RESULTS 202331
1.Refer to Note 1a and 2c of the FY23 Financial Statements. Comparative information has been restated and
re-presented for consistency with the current period
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity
accounted investees
3.Includes amounts attributable to non-controlling interests
4.Normalisations comprise of $260 million gain on sale of Soprole and $(12) million in relation to exiting our
HanguChina farm ($42 million gain on sale from GDT and $(50) million impairment on DPA Brazil from the
prior period)
¹¹¹¹
Sales volume (‘000 MT)
3,318 606 3,924
3,4974763,973
Revenue
21,901 1,524 23,425
24,5801,46626,046
Cost of goods sold
(18,992)(1,093)(20,085)
(20,399)(1,048)(21,447)
Gross profit
2,909 431 3,340
4,1814184,599
Gross margin (%)
13.3%28.3%14.3%
17.0%28.5%17.7%
Operating expenses
(2,065)(390)(2,455)
(2,496)(303)(2,799)
Other²
102 (11)91
70348418
EBIT
946 30 976
1,7554632,218
Net finance costs
(194)(37)(231)
(211)(50)(261)
Tax expense
(131)(31)(162)
(303)(77)(380)
Profit after tax
3
621 (38)583
1,2413361,577
Normalisations
4
(42)508-(248)(248)
Normalised profit after tax
3
579125911,241881,329
©FONTERRA
5831,259
(344)
307
20
(30)
(218)
1,577
(248)1,329
FY22
profit after tax
Gross profitOperating
expenses¹
Gain on
divestments
Other itemsFinance costsTaxFY23
profit after tax
NormalisationsFY23 normalised
profit after tax
ANNUAL RESULTS 202332
•Increased due to favourable
margins, particularly for
protein and cheese products
•Increased mainly due to impairments of our New
Zealand consumer business and Asia brands, of
$121 million and $101 million, respectively, as
well as the impact of inflationary pressures
•Increased due to higher EBIT
and capital gains tax on the
sale of Soprole
•Increased due to a $349 million (before tax)
gain on $42 million sale of Soprole. Prior
year included the gain on sale of GDT
•Includes $260 million
(after tax) gain on sale
of Soprole and $12
million loss on exit of
HanguChina farm
1.Includes $11 million net loss on sale related to HanguChina farm and sale of GDT
©FONTERRAANNUAL RESULTS 202333
Other operating income
43-43-349349
Other operating expenses
(1)(57)(58)(12)-(12)
Profit before net finance costs
and tax
42(57)(15)(12)349337
Net finance costs and tax
-77-(89)(89)
Profit after tax
42(50)(8)(12)260248
Profit attributable to non-controlling
interests
-2424---
Profit after tax attributable to equity
holders of the Co-operative
42(26)16(12)260248
©FONTERRAANNUAL RESULTS 202334
Employee benefits expense
860963
Storage & distribution
241263
Advertising & promotion
227219
Information technology
191205
Professional & management fees
149167
Depreciation & amortisation
173180
Impairments
44248
Other
180251
Operating expenses from continuing
operations
2,0652,496
Operating expenses from discontinued
operations
390303
Total Group operating expenses
2,4552,799
•Total Group operating expenses are $2,799 million, up $344 million
on the prior period
•Discontinued operations reduced $87 million due to the completion
of the Soprolesale on 31 March 2023
•Continuing operations increased $431 million, mainly due to:
–An increase in employee benefits expenses by $103 million
mainly due to inflationary pressures,
–An increasein professional and management fees by $18
million, mainly due to the implementation of the new Flexible
Shareholding capital structure and the capital return,
–impairments increasing $204 million, mainly due to impairments
of our New Zealand Consumer business and our Asia brands
for $121 million and $101 million, respectively, and,
–‘Other’ increasing $71 million, mainly due to higher travel and in
person engagement costs reflecting COVID-19 related
restrictions easing, and an increase in doubtful debts
Note: Comparative information has been re-presented for consistency with the current period
©FONTERRAANNUAL RESULTS 202335
Administrative expenses
790871
Selling and marketing
614653
Storage and distribution
1
476526
Other operating expenses
185446
Operating expenses from continuing
operations
2,0652,496
Operating expenses from discontinued
operations
390303
Total Group operating expenses
2,4552,799
1. Storage and distribution by function does not balance to storage and distribution by nature on the previous page due to employee benefits expense and professional management fees being allocated through the selling
and marketing and storage and distribution functions
©FONTERRAANNUAL RESULTS 202336
$1.16
$1.18
$1.26
$1.39$1.39
$1.36
$1.34
2020202120222023
ActualInflation Adjusted
•New efficiency metric to assist long-term
disciplineon our overheads of~$2 billion
•Directly monitors the actual cash cost base
having regard tochanging milk volumes
•Calculated as continuing operations operating
expensesexcluding depreciation,
amortisation and impairments divided byNew
Zealand milk solids collected
•Adjusted for inflation (using CPI) so
underlying efficiencygains/losses
are transparent
•Increase from $1.34 to $1.39 per kgMS
mainly reflects increased staff costs and
storage and distribution costs
Actual ($ million)
1,7631,8101,8582,064
Accumulative CPI¹
16.6%13.3%6.0%
Inflation adjusted ($ million)2,1142,0881,9762,064
New Zealand kgMS collected
1,5171,5391,4781,480
1.Consumer Price Index (CPI) source: Stats NZ
©FONTERRAANNUAL RESULTS 2023
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
37
Reported earnings¹
3695
Less: abnormal gains
(2)(16)
Net earnings for dividend payment²
3479
Dividend payment percentage (%)
59%63%
Total dividend
2050
Interim dividend
510
Final dividend
1540
•Total dividend of 50 cents per share:
–Interim dividend of 10 cents,
–Final dividend of 40 cents
•Abnormal gains included the $260 million from
selling Soprole
•The decision to pay slightly above dividend policy
payoutrange of 40-60% reflects the strengthened
balance sheet and our leverage metrics being well
within target levels
©FONTERRAANNUAL RESULTS 202338
•Return on capital increased from 6.8% to 12.4% due to an
$890 million increase in normalised EBIT
–On a pre-tax basis, normalisations consist of $349
million related to the gain on sale of Soproleand a
$12 million loss related to the disposal of Hangu
Farm in China
•Average capital employed is higher than the prior year
due to additional inventory carried forward from the prior
year
Total Group normalised EBIT
9911,881
Finance income on long-term advances
711
Notional tax charge
1
(161)(305)
Total Group normalised EBIT plus finance income
on long-term advances less notional tax charge
8371,587
Capital employed at year end
12,17911,121
Impact of seasonal capital employed
1771,653
Average capital employed
12,35612,774
Return on capital (%)
6.8%12.4%
1. Notional tax charge of 16.1%
©FONTERRAANNUAL RESULTS 2023
Cash generated from operations¹1,4942,311
Net change in working capital
(1,598)871
A. Net cash flows from operating activities
(104)3,182
Cash flows from investing activities
Divestments and asset sales26846
Capital expenditure and other(543)(714)
B. Net cash flows from investing activities
(517)132
Free cash flow (A+B)
(621)3,314
Dividends paid to equity holders of the
Co-operative
(323)(403)
Other financing cashflows(18)63
Capital return payable
-(804)
Other non-cash changes in net debt
(52)(38)
Decrease/(increase) in net debt²
(1,014)2,132
39
Note: Comparative information has been re-presented for consistency with the current period
1.Includes profit after tax and non-cash and non-operating adjustments made to profit after tax to determine cash generated from operations
2.Net debt includes amounts attributable to disposal groups held for sale
•Decrease in net debt of $2.1 billion reflecting strong
earnings, reduction in working capital and divestment
proceeds
•Free cash flow of $3.3 billion was $3.9 billion higher
than last year, which reflects:
–underlying cash flow from earnings increasing by
$0.8 billion,
–an improvement in working capital cash flows of
$2.5 billion,
–a $0.8 billion increase in net cash received from
divestments due to the sale of Soprole, partially
offset by,
–an increase in capital expenditure and other
investing cash flows of $0.2 billion
©FONTERRA
¹
1.As at 31 July 2023 and excludes amounts attributable to disposal groups held for sale
2.Includes undrawn facilities and commercialpaper. DCM is debt capital markets
3.Excludes commercial paper
4.Weighted average term to maturity (WATM)
ANNUAL RESULTS 202340
EUR/GBP
DCM 16%
AUD DCM
9%
CNY DCM
2%
NZD DCM
3%
USD DCM
16%
Bank
Facilities
54%
Undrawn
Facilities
$3.9bn
96%
Drawn Facilities
$0.2bn
4%
0.01.02.03.0
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
$ billion
WATM
4
: 3.4 years
Maturity Profile
0.01.02.03.0
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
$ billion
WATM
4
: 2.7 years
Maturity Profile
©FONTERRAANNUAL RESULTS 2023
The assumptions are:
•Corporate costs, including Co-operative Affairs and other Group Functions, are allocated to the Global Markets, Greater China and Core Operations segments
and within these segments by Ingredients, Foodservice and Consumer channels
•The allocation of corporate costs reflects an apportionment at an individual cost centrelevel. In consultation with each cost centreowner, costs are allocated
based on business activity and staffing resource required to support each channel and segment.
•Net finance costs allocated to the segments and channels consists of net finance costs directly attributable to each segment andchannel and net finance costs
incurred on behalf of the Group
•The net finance costs incurred on behalf of the Group are allocated to each segment and channel using the average capital employed by each segment and
channel. Australia is excluded from this allocation as this is based on actual recharges to Australia from Group
•The capital employed allocated to each segment reflects the underlying legal entities that operate in each segment and the working capital requirements
directly attributable
•Within each segment, capital employed is then allocated to either the Ingredients, Consumer or Foodservice channels based on thenature of the capital
employed (i.e., brands allocated to a channel based on the type of brand, or which legal entity a plant sits within) and workingcapital requirements
•Allocated to each channel and segment by applying an average onshore tax rate on New Zealand legal entities’ earnings and an average offshore tax rate on
offshore legal entities’ earnings with an aggregate average of approximately 20% across the Group
©FONTERRAANNUAL RESULTS 202342
1,681
578
2,651
1,164
Gross ProfitProfit after tax
20222023
495
70 749
241
Gross ProfitProfit after tax
$ million
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative information has been restatedfor consistency with the current period
733
(27)
781
(164)
Gross ProfitProfit after tax
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative
information has been restated and re-presented for consistency with the current period
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs of $138 million for 2023 ($94 million for the comparative period)
∆¹
Sales volume (‘000 MT)
2,150 2,319 8%
Revenue
15,535 17,416 12%
Cost of goods sold
(13,854)(14,765)(7)%
Gross profit
1,681 2,651 58%
Gross margin (%)
10.8%15.2%
Operating expenses
(1,002)(1,121)(12)%
Other²
134 47 (65)%
EBIT
3
813 1,577 94%
Net finance costs and tax expense
(235)(413)(76)%
Profit after tax
578 1,164 101%
63
195
125
195
183
380
340
261
Q1Q2Q3Q4
2022
2023
•Higher sales volumes reflect Global Markets securing new
contracts and tenders in both the Asia Pacific and Africa regions
supportingthe sell down of additional inventory held at 2022
financial year end
•Gross profit improved $970 million mainly due to increased
margins in Core Operations, particularly in our casein
and cheese portfolios
•Operating expenses are up $119 million, reflecting increased
supply chain costs due to additional inventory and inflationary
pressures
•‘Other’ decreased $87 million mainly due to foreign exchange
movements in our net receivables as a result of timing differences
between the processing and hedging of invoices
43
©FONTERRAANNUAL RESULTS 202344
Note: Table includes Ingredient’s products that are on-sold to the Foodservice and Consumer channels and excludes bulk liquid milk. Bulk liquid milk for 2023 was 73,000 MT of kgMS equivalent (for the comparative period it was
68,000 MT of kgMS equivalent). Milk solids used in the Reference Products sold were 1,004 million kgMS and 442 million kgMS in the Non-Reference Products (for the comparative period 919 million kgMS in Reference Products
and 424 million kgMS in Non-Reference Products)
•The average product price per metric tonne:
–decreased 2% for Reference Products mainly
due to lower WMP and AMF prices
–increased 16% for Non-Reference Products
mainly due to significant price increases across
most products with casein, MPC and cheese all
increasing over 21% compared to the prior year
•Cost of milk decreased for Reference and Non-
Reference Products by 8% and 12%, respectively
–the difference between the cost of milk for the
Reference and Non-Reference Product
portfolios is due to their different fat and protein
compositions
•The price increases in protein products coupled
with lower milk costs, has meant higher margins for
our Non-Reference portfolio
Reference Products1,6291,782
Non-Reference Products822883
Reference Products10.46,36111.16,257
Non-Reference Products5.76,9507.18,089
Reference Products8.35,0778.44,696
Non-Reference Products3.74,4933.53,974
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative
information has been restated and re-presented for consistency with the current period
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs of $58 million for 2023 ($33 million for the comparative period)
∆¹
Sales volume (‘000 MT)
528 546 3%
Revenue
3,302 3,865 17%
Cost of goods sold
(2,807)(3,116)(11)%
Gross profit
495 749 51%
Gross margin (%)
15.0%19.4%
Operating expenses
(393)(418)(6)%
Other²
15 3 (80)%
EBIT
3
117 334 185%
Net finance costs and tax expense
(47)(93)(98)%
Profit after tax
70 241 244%
13
3717322
68
77
74
Q1Q2Q3Q4
2022
2023
45
•Higher sales volumes as a result of demand increasing in the
second half of the year due to COVID-19 related restrictions lifting
•Gross profit increased $254 million, or 51% mainly due to:
–favourableprice relativities between Reference and
Non-Reference Product prices,
–product prices in Greater China and Global Markets adjusting
for higher milk costs in the first quarter, benefitting the
remaining three quarters as the cost of milk declined, and,
–innovation in foodservice application products such as our
Anchor
TM
Food Professionals Easy Topping Cream and Aerosol
Cream in Greater China, expanding total market share
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative
information has been restated and re-presented for consistency with the current period
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs of $64 million for 2023 ($30 million for the comparative period)
∆¹
Sales volume (‘000 MT)
640 632 (1)%
Revenue
3,064 3,299 8%
Cost of goods sold
(2,331)(2,518)(8)%
Gross profit
733 781 7%
Gross margin (%)
23.9%23.7%
Operating expenses
(670)(957)(43)%
Other²
(47)20 -
EBIT
3
16 (156)-
Net finance costs and tax expense
(43)(8)81%
Profit after tax
(27)(164)(507)%
19
25
(53)
(18)
7
(116)
32
(87)
Q1Q2Q3Q4
2022
2023
•Lower sales volumes mainly due to Sri Lanka’s economic
challenges impacting the ability to access US dollars in the first
half of the financial year
•Gross profit improved $48 million due to cost of milk easing over
the second half of the financial year, improving gross margins in
Core Operations and Global Markets
•Operating expenses increased $287 million mainly due to inflation
and recognisingimpairments of our New Zealand consumer
business and Asia brands of $121 million and $101 million,
respectively
•‘Other’ is favourable mainly due to the prior year including $80
million adverse revaluation of the Sri Lankan business payables
reflecting the devaluation of the rupee
46
©FONTERRAANNUAL RESULTS 202347
736 40
1,629
572
Gross ProfitProfit after tax
20222023
$ million
1,542
308
1,836
385
Gross ProfitProfit after tax
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative information has been restatedfor consistency with the current period
631
273
716
284
Gross ProfitProfit after tax
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative
information has been restated and re-presented for consistency with the current period.
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs of $148 million for 2023 ($72 million for the comparative period)
∆¹
Sales volume (‘000 MT)
2,554 2,784 9%
Revenue
16,987 19,142 13%
Cost of goods sold
(16,251)(17,513)(8)%
Gross profit
736 1,629 121%
Gross margin (%)
4.3%8.5%
Operating expenses
(691)(840)(22)%
Other²
110 17 (85)%
EBIT
3
155 806 420%
Net finance costs and tax expense
(115)(234)(103)%
Profit after tax
40 572 1,330%
(40)
49
(8)
39
29227183
133
Q1Q2Q3Q4
2022
2023
•Sales volumes up 9%, reflecting the sell down of additional
inventory held at 2022 financial year end
•Gross profit up $893 million reflecting favourableprice relativities
between Reference and Non-Reference Products, particularly in:
–the cheese portfolio, from growth in Foodservice mozzarella
–the proteins portfolio, from growth in rennet casein
•Operating expenses up $149 million reflecting inflationary
pressures, supply chain disruption, and additional storage costs due
to holding higher inventory at the start of the financial year
•‘Other’ is down $93 million, to $17 million, mainly reflecting
unfavourableforeign exchange movements in net receivables
48
©FONTERRAANNUAL RESULTS 202349
Note: Figures are for the year ended 31 July. Comparative information has been restated for consistency with the current period
724
143
1,485
602
Gross ProfitProfit after tax
20222023
(19)
(84)
86
(12)
Gross ProfitProfit after tax
31
(19)
58
(18)
Gross ProfitProfit after tax
$ million
©FONTERRA
•Asset Health measures the condition and
reliability of our manufacturing assets on a
scale of one to five. Five indicates the asset is
in the best condition possible
•Fonterra’s risk appetite range is 3 –3.5
•From 2016 –2020 we under-invested in
sustaining capital, leading to the downwards
trend of Asset Health
•Since 2021, capital has been allocated to
regaining asset condition and risk mitigation,
particularly in food safety and health & safety
•The 2023 Asset Health score does not yet
reflect the increase in spend as we catch up
from prior underspend
ANNUAL RESULTS 202350
3.22
3.19
3.17
3.13
3.11
20192020202120222023
Risk appetite range
©FONTERRA
$7.64
$7.52
$9.42
$9.21
$9.85
$8.60
$8.83
2020202120222023
ActualInflation Adjusted
ANNUAL RESULTS 202351
•New efficiency metric to assist our long-term
discipline on efficient New Zealand operations
•Directly monitors the cost base having regard
to changingmilk volumes
•Calculated at the gross profit level to
maximise the value which canarise from
higher costsas we move up the value chain
•Will be volatile year-on-year so the focus
willbe on long-termtrendwith reporting to
show underlying changes in costs, volume
and revenue
•Calculated as gross profit from Core
Operations (excluding FarmSource and cost
of milk) divided bykgMSof Core
Operations’ sales
•Adjusted for inflation (using subset of PPI) so
underlying efficiencygains/losses
are transparent
Actual ($ million)
11,16811,54813,26614,019
Accumulative PPI¹
22.4%12.6%(6.7)%
Inflation adjusted ($ million)14,39113,21312,43314,019
Core Operations’ sales (kgMS)
1,4611,5361,4081,523
1.Source: Stats NZ Producer Price Index (PPI),Industry Output Category –Dairy product manufacturing
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative
information has been restated and re-presented for consistency with the current period.
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs attributed of $72 million for 2023 ($67 million for the comparative period)
∆¹
Sales volume (‘000 MT)
2,344 2,575 10%
Revenue
15,374 18,401 20%
Cost of goods sold
(13,832)(16,565)(20)%
Gross profit
1,542 1,836 19%
Gross margin (%)
10.0%10.0%
Operating expenses
(1,081)(1,310)(21)%
Other²
(15) 53 -
EBIT
3
446 579 30%
Net finance costs and tax expense
(138)(194)(41)%
Profit after tax
308 385 25%
77
107
49
75
125
25
187
48
Q1Q2Q3Q4
2022
2023
•Sales volume increased due to new contracts and participating in
tenders in the Asia Pacific and Africa regions
•Gross profit up $294 million mainly due to higher sales volumes
and Foodservice in-market sales prices adjusting for higher cost
of goods
•Operating expenses increased $229 million mainly due to
recognising a $121 million and $55 million impairment of our New
Zealand consumer business and Asia brands, respectively
•‘Other’ is favourable mainly due to the prior year including $80
million adverse revaluation of the Sri Lankan business payables
reflecting the devaluation of the rupee
52
©FONTERRAANNUAL RESULTS 202353
Note: Figures are for the year ended 31 July. Comparative information has been restated and re-presented for consistency with the current period
751
315
932
429
Gross ProfitProfit after tax
20222023
194
(3)
263
50
Gross ProfitProfit after tax
597
(4)
641
(94)
Gross ProfitProfit after tax
$ million
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis.
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Consists of other operating income, net foreign exchange gains/(losses)
∆¹
Milk collections (kgMS)
106106-
Sales volume (‘000 MT)
3653794%
Revenue
2,0942,53121%
Cost of goods sold
(1,811)(2,237)(24)%
Gross profit
2832944%
Gross margin (%)
13.5%11.6%
Operating expenses
(178)(219)(23)%
Other²
1--
EBIT
10675(29)%
Net finance costs and tax expense
(41)(52)(27)%
Profit after tax
6523(65)%
•Flat milk collections despite a decline in the overall Australian
milk pool
•Gross profit increased $11 million mainly due improved pricing in
the Foodservice business
•Operating expenses increased $41 million due to:
–inflationary pressures, and
–impact of the class action settlement agreement with Fonterra
Australia milk suppliers relating to milk price in the
2015/16 season
•EBIT decreased $31 million due to the improved gross profit being
offset by the increase in operating expenses
•Profit after tax decreased $42 million due to:
–lower EBIT, and
–interest rate increases on borrowings
54
©FONTERRAANNUAL RESULTS 2023
Note: Figures are for the year ended 31 July and are on a continuing operations basis. Comparative information
has been restated for consistency with the current period
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of
equity accounted investees
3.Includes Corporate Costs attributed of $40 million for 2023 ($18 million for the comparative period)
∆¹
Sales volume (‘000 MT)
1,028 978 (5)%
Revenue
6,869 7,072 3%
Cost of goods sold
(6,238)(6,356)(2)%
Gross profit
631 716 13%
Gross margin (%)
9.2%10.1%
Operating expenses
(293)(346)(18)%
Other²
7 --
EBIT
3
345 370 7%
Net finance costs and tax expense
(72)(86)(19)%
Profit after tax
273 284 4%
58
101
48
66
58
80
79
67
Q1Q2Q3Q4
2022
2023
•Lower sales volumes, particularly WMP, due to softer demand
•Gross profit increased $85 million mainly due to improved
Foodservice gross margins reflecting higher in-market product
prices adjusting for increased input costs
•Operating expenses increased $53 million mainly due to an
impairment in the Consumer channel of our Asia brands
•EBIT increased $25 million due to increased gross profit, partially
offset by higher operating expenses
55
©FONTERRAANNUAL RESULTS 202356
Note: Figures are for the year ended 31 July. Comparative information has been restated and re-presented for consistency with the current period
206
120
234
133
Gross ProfitProfit after tax
20222023
320
157
400
203
Gross ProfitProfit after tax
105
(4)
82
(52)
Gross ProfitProfit after tax
$ million
©FONTERRAANNUAL RESULTS 202357
•The higher allocation to GDT and Core
Ingredients mainly reflects the sell down of
additional inventory held at 2022 year-end
•Active Living portfolio was impacted by lower
demand from the USA due to customer
manufacturing constraintsand high
in-market inventory
•Foodservice channel in line with last year with
demand increasing across major product
categories in the second half of the year due
to COVID-19 restrictions lifting relative to the
prior year
•Consumer channel down mainly due to lower
sales volume into Sri Lanka as the economic
crisis limited repatriation of USD currency
-
100
200
300
400
500
600
700
800
GDTCoreActive LivingFoodserviceConsumer
Millions
20222023
Ingredients
24.1%
24.4%
49.6%
50.9%
13.1%13.1%
5.5%
5.1%
7.7%
6.5%
Milk solids volume (kgMS millions)
% Milk solids sold
©FONTERRAANNUAL RESULTS 202358
1.Figures are for the year ended 31 July and are prepared on a continuing operations basis. Comparative information has been restated for consistency with the current period
2.Comprises of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees
Revenue19,5512,35021,901
21,791
2,789
24,580
Cost of goods sold(16,986)(2,006)(18,992)
(17,941)
(2,458)
(20,399)
Gross profit2,5653442,909
3,850
331
4,181
Gross margin (%)13.1%14.6%13.3%
17.7%
11.9%
17.0%
Operating expenses(1,808)(257)(2,065)
(2,252)
(244)
(2,496)
Other²957102
69
1
70
EBIT85294946
1,667881,755
Net finance costs--(194)
-
-(211)
Tax expense--(131)
-
-(303)
Profit after tax56160621
1,203
381,241
Discontinued operations
profit after tax
-(38)(38)
-
336336
©FONTERRAANNUAL RESULTS 202359
1.Comparative information has been re-presented for consistency with the current period
2.Consists of other operating income and net foreign exchange gains/(losses)
¹
Revenue
274451,05215599852
Cost of goods sold
(31)(317)(745)(27)(405)(616)
Gross profit
(4)128307(12)194236
Gross margin (%)
(14.8)%28.8%29.2%(80.0)%32.4%27.7%
Operating expenses
(9)(161)(220)(12)(137)(154)
Other²
(1)(1)(9)(1)-349
EBIT
(14)(34)78(25)57431
Profit after tax
(14)(64)40(25)16345
©FONTERRAANNUAL RESULTS 202360
(‘000 MT)
Note: Prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency withthe current period
©FONTERRAANNUAL RESULTS 202361
(‘000 MT)
105
289
208
211
289
561
501
226
21
54
32
10
42
97
110
85
31
43
(55)
(3)
22
(147)
51
(82)
Note: Prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency withthe current period
©FONTERRAANNUAL RESULTS 202362
Interest on lease liabilities
1313
Variable lease payments not included in the
measurement of lease liabilities
43
Expenses relating to short-term leases
1012
Expenses relating to low value leases
106
©FONTERRAANNUAL RESULTS 2023
63
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%
Share of NewZealand milk collected for the season to 31 May79.0%79.1%79.0%
EBIT from New Zealand value-add businesses ($ million)²616307388
Cost of quality (% of cost of golds sold)0.45%0.44%0.35%
Return on capital6.6%6.8%7.0% to 7.5%
Farmgate Milk Price ($)7.549.309.50
1.Relative to FY18 Baseline. Long-term will include Scope 3 but for now Scope 1&2 including farms under our operational control.
2.Reflects EBIT from Consumer and Foodservice, contribution from Active Living. Excludes Brazil, Australia and Chile.
©FONTERRAANNUAL RESULTS 2023
64
1.No target set for FY24. Next survey in September 2023
2.Relative to FY18 Baseline. Long-term will include Scope 3 but for now Scope 1&2 including farms under our
operationalcontrol
3.Excludes the cost of milk
4.Latest announced FY24 Forecast Farmgate Milk Price range is $6.00-$7.50 per kgMS, with a mid-point of
$6.75 per kgMS (18 Aug 2023)
5.FY23 dividend includes 50 cent per share capital return following the sale of Soprole
6.DairyNZEconomic Survey 2021-2022 (Owner-Operator). FY23 is a modelled forecast
Serious harm85
Gender diversity (Band 12+)37.6%39.5%
Culture Measure–79
¹
GHG emissions (Scope 1,2)²(11.2)%(14.1)%
FEP adoption (New Zealand)71%85%
Water Improvement Plans in place–44.0%
Share of NewZealand milk collected for the season to 31 May79.1%79.0%
Delivered in full, on time (DIFOT, ex-NewZealand)51.6%53.2%
Cash operating expenses per kgMS(real)1.341.39
Gross profit from Core operations per kgMS (real)³8.839.21
Return on capital6.8%12.4%
Farmgate Milk Price ($)9.308.22
⁴
Total shareholder return
(share price plus dividend)
$2.73
$0.20
$3.20
$1.00⁵
On-farm profitability ($ per hectare)⁶4,1502,063
©FONTERRAANNUAL RESULTS 202365
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.
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.
is used to indicate that a measure or sub-total excludes amounts attributable
to non-controlling interests.
is a 13-month rolling average of capital employed.
means bulk raw milk that has not been processed and bulk
separated cream.
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.
is 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.
is capital expenditure plus right of use asset (i.e. leases) additions and
business acquisitions, including equity contributions, long-term advances,
and investments.
is continuing operations operating expenses, less non-cash costs
(depreciation, amortisation, right of use asset costs, impairments). Shown
by kilogram of New Zealand milk solids collected.
©FONTERRAANNUAL RESULTS 202366
is profit before net finance costs and tax.
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.
is EBIT divided by revenue from sale of goods.
represents eliminations of inter-business unit sales.
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.
is the channel of branded consumer products, such as powders, yoghurts,
milk, butter and cheese.
means operations of the Group that are not discontinued operations.
represents core operating functions including New Zealand milk collection
and processing operations and assets, supply chain, Group IT and
Sustainability; Fonterra Farm Source™retail stores; and the Strategy and
Optimisationfunction.
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, net
foreign exchange gains/losses and any normalised EBITDA relating to
entities divested during the year.
means 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-ordinatedplan 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.
©FONTERRAANNUAL RESULTS 202367
represents 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.
is the total of net cash flows from operating activities and net cash flows
from investing activities.
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 outside of
Greater China.
represents the Ingredients, Foodservice and Consumer channels in Greater
China.
is gross profit divided by revenue from sale of goods.
is Core Operations business unit gross profit excluding Farm Source and the
cost of New Zealand milk sold. Shown per kilogram of New Zealand milk
solids sold by Core Operations.
is investments to drive business expansion or improvement toward our
strategy and generate incremental revenue. This includes organic growth
(existing business projects) and inorganic growth (mergers and
acquisitions).
represents the channel comprising bulk and specialty dairy products such as
milk powders, dairy fats, cheese and proteins manufactured in New
Zealand, Australia and Europe, 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.
means adjusted net debt.
©FONTERRAANNUAL RESULTS 202368
is total trade and other receivables plus inventories, less trade and other
payables. It excludes amounts owing to suppliers and employee
entitlements.
means all NZ milk solids processed by Core Operations, except for
Reference Commodity Products.
means adjustments made for certain transactions that meet the
requirements of the Group’s NormalisationPolicy. These transactions are
typically unusual in size and nature. Normalisationadjustments are made to
assist users in forming a view of the underlying performance of the
business. Normalisationadjustments are set out in the Non-GAAP
Measures section. Normalisedis used to indicate that a measure or sub-
total has been adjusted for the impacts of normalisationadjustments. E.g.
‘NormalisedEBIT’.
refers to the difference in the weighted average price (in USD) between the
Co-op’s Reference Product portfolio and Non-reference Product portfolio.
The difference between these two weighted average prices is a key driver of
the Co-op’s gross margin.
Fonterra has three product channels, Ingredients, Foodservice
and Consumer.
is profit after tax attributable to equity holders of the Co-operative, divided by
revenue from sale of goods.
is commodity specifications of the five Reference Commodity Products
(RCPs) which are Whole Milk Powder (WMP) and Skim Milk Powder (SMP),
and their by-products Butter, Anhydrous Milk Fat (AMF) and Buttermilk
Powder (BMP). These commodity groups are included in the calculation of
the Farmgate Milk Price.
means for Fonterra it 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.
©FONTERRAANNUAL RESULTS 202369
represents 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.
is used to indicate that a measure or sub-total comprises continuing
operations, discontinued operations and non-controlling interests. E.g. ‘Total
Group EBIT’.
means the total cash payment per milk solid that is backed by a share,
being the sum of the Farmgate Milk Price per kgMSand the dividend per
share.
is the measure of share price movements and all economic distributions
(e.g. dividends, capital returns) over a specified period of time, divided by
the original investment amount. Expressed as an annualisedpercentage.
means weighted average cost of capital.
is 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.
©FONTERRAANNUAL RESULTS 202370
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.
©FONTERRAANNUAL RESULTS 202371
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 analysetrends. These measures are not uniformly defined or utilisedby 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 2023 Annual Review for reconciliation of NZ IFRS to non-GAAP measures, and the Glossary for
definitions of non-GAAP measures referred to by Fonterra.
---
AnnualResults
2023
September 2023
2
©FONTERRA ANNUAL RESULTS 2023
$8.22
CapitalReturn
$0.50
Farmgate
Milk Price
from $9.30
$0.50
Dividend
from $0.20
$9.22
Total
Cash
Return
from 6.8%
Key outcomes
Return on capital
12.4%
Profit after tax
$1.6b
from $583m
Earnings per share
95c
from 36c
Gross profit from Core
Operations per kgMS
$ 9.21
4.3%
Cash operating
expenses per kgMS
$1.39
3.7%
12-month change in key
production and import regions
3
Macro update
©FONTERRA ANNUAL RESULTS 2023
Production
Imports
Reduced demand
for reference
products from
key markets
China
11.2%
Asia
(excl China)
5.9%
Latin
America
13.2%
Middle East
& Africa
0.1%
Australia
4.5%
New
Zealand
0.4%
US
0.7%
EU
0.8%
2,000
4,000
6,000
2017201820192020202120222023
Reference product shipment priceNon-reference product shipment price
Higher price relativities continue
4
Macro update
©FONTERRA ANNUAL RESULTS 2023
FY22FY23
(US$/MT)
5
©FONTERRA
Continue to reduce allocation to whole milk powder
with modest increase in Foodservice channel sales
Fonterra New Zealand production (million kgMS)Sales by product channel (million kgMS)
-
200
400
600
800
1,000
1,200
1,400
Whole milk
powder
Skim milk
powder
CreamCheeseOther proteins
20192020202120222023
-
200
400
600
800
1,000
1,200
1,400
IngredientsFoodserviceConsumer
20192020202120222023
5
Competition for milk
©FONTERRA ANNUAL RESULTS 2023
Diversified across markets and products
Core
Operations
Global
Markets
Greater
China
Total
Ingredients
$
602m
$459m
$
429m
$114m
$
133m
$13m
$
1,164m
$586m
Foodservice
$
(12)m
$72m
$
50m
$53m
$
203m
$46m
$
241m
$171m
Consumer
$
(18)m
$1m
$
(94)m
$90m
$
(52)m
$48m
$
(164)m
$137m
Total
$
572m
$532m
$
385m
$77m
$
284m
$11m
$
1,241m
$620m
Profit after tax contribution from continuing operations
6
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
Ingredients return on capital reflects protein and
cheese performance
Ingredients
from 9.0%
16.4%
Foodservice
from 5.5%
15.7%
Consumer
from (0.4)%
(4.6)%
Total
From6.8%
12.4%
Return on capital
7
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
Lower prices key driver of change in 2023
Farmgate Milk Price
21/22 season
Farmgate
Milk Price
22/23 season
Farmgate
Milk Price
Volume
PricesForeign
exchange
Net costs
9.30
8.22
(0.01)
(1.92)
0.98
(0.13)
($/kgMS)
8
Macro update
©FONTERRA ANNUAL RESULTS 2023
9
©FONTERRA
(1.25)
(1.00)
(0.75)
(0.50)
(0.25)
-
0.25
0.50
0.75
1.00
1.25
May 22Aug 22Nov 22Feb 23May 23
Foreign Exchangehedging increases certainty in
forecast Milk Price throughout the season
9
Macro update
©FONTERRA ANNUAL RESULTS 2023
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
20122013201420152016201720182019202020212022
Spot rate
Realised rate
FX sensitivity on Milk Price forecast
NZD/USD
$/kgMS
Unhedged
Hedged
-5c
USD/NZD
Spot Rate
+5c
USD/NZD
Spot Rate
2023
Resource Allocation Framework introduced driving
disciplined allocation of resources for our stakeholders
Sustain safe, productive operations
Competition for cash
Outcomes for the Shareholder
Competition for milk
10
©FONTERRA ANNUAL RESULTS 2023
Sustaining CapitalCollect and Process Milk
Preliminary Cash Flow from Core Operations
IngredientsFoodserviceConsumer
Preliminary Cash Flow
DebtDividendsCapital Returns
Growth Capital
Innovation
Share Buybacks
Reported Cash Flow
Total Shareholder ReturnsFarm Profitability
Strong Balance Sheet
© FONTERRA
Two new efficiency metrics to assist
long-term aspirations
Cash operating expenses per kgMS– targeting a 4%
cash operating cost improvement everyyear
Fonterra aspires to safely and sustainablyremove~$1 billion from its cost base by 2030
Gross profit from Core Operations per kgMS – targeting a 2%
New Zealand operational cash cost improvement every year
Inflation AdjustedLong-term Aspiration
7.00
7.50
8.00
8.50
9.00
9.50
10.00
2021202220232024202520262027202820292030
11
Competition for cash
©FONTERRA ANNUAL RESULTS 2023
($/kgMS)($/kgMS)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
200420072010201320162019202220252028
Asset reliability remains a focus
Milk Utilisation Product Made Right First Time
Cost of Quality
96.4%96.4%96.4%
96.5%
96.3%
20192020202120222023
91.9%
94.0%
95.0%
94.5%
95.3%
20192020202120222023
$90m
$58m
$58m
$72m
$56m
20192020202120222023
Asset Health
20192020202120222023
12
Sustain safe productive operations
©FONTERRA ANNUAL RESULTS 2023
Risk appetite range
13
©FONTERRA
Balance sheet strengthened
Net debt($ billion)
6.0
5.2
4.3
5.3
3.2
20192020202120222023
Leverage
Working capital days
8
Credit rating
83
85
92
98
91
20192020202120222023
S&P Global Ratings A-Stable outlook
Fitch RatingsAStable outlook
50%
44%
39%
42%
29%
4.3x
3.3x
2.7x
3.2x
1.3x
20192020202120222023
Gearing Ratio (%)Debt to EBITDA (x)
13
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
Navigating challenges together
©FONTERRA ANNUAL RESULTS 2023
We have
introduced new
support roles
alongside the
tools and
services we
provide
We are
advocating for
better outcomes
for farmers and
the co-op
We are
collaborating
with others to
tackle industry
challenges
We are
leveraging our
scale to create
cost savings for
farmers through
Farm Source
retail
14
Supporting on-farm
We are
improving our
data and
verification
processes for
farmers
Maximisingsustainable milk
Working
alongside you
to get more
milk from
the same or
fewer inputs
It’s better for business
Your farm business and your Co-operative
It’s better for the environment
We can reduce our emissions footprint, improve
water quality and provide our animals with a good
quality of life
It’s better for our customers
And that helps us attract and retain customers
©FONTERRA ANNUAL RESULTS 2023
15
Supporting on-farm
2,154
2,750
3,195
4,150
2,063
3.76
3.82
2.85
2.73
3.20
20192020202120222023
Profit per hectare ($/Ha)Closing share price ($)
Farm profitability and share price
$0.00$0.05$0.20$0.20$1.00
16
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
Cash return
per share
Estimate
17
©FONTERRA
Review of our Co-op’s Board size and composition
17
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
Board size proposed to be
reduced from 11 to 9 Directors
Chairman still selected from
Farmer Elected Directors
Farmer Elected
Directors
6
Appointed
Directors
3
•Current Board operating well, but size can be rationalised.
Changes are future focused
•Smaller groups usually encourage:
-Dissenting views
-More meaningful sharing of perspectives
-Faster, robust decision making
•6:3 composition strikes a balance between a strong and
diverse level of perspectives, skills and experiences, and
manageable workloads.
•Strong farmer majority is maintained
•Changes to be voted on at the 2023 Annual Meeting and
would take effect after 2024 Annual Meeting
Forecast 2023/24 season Farmgate Milk Price
The range reflects:
•Demand for imported powders into
China are soft, but early in the season
•Indications demand for New Zealand
powders will start to return early 2024
$6.00-$7.50
per kgMS
2023/24
Season Forecast
2021/22 Season
$9.30
$8.22
Reference product shipment price
Average reference product shipment price for the season
Reference product contract shipment price
Forecast Farmgate Milk Price
USD/MT
Reference Product Prices
2022/23 Season
Feb-24
18
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
1,000
2,000
3,000
4,000
5,000
6,000
May-21May-22May-23
2024 earnings outlook
FY23 FY24
Continuing operations
forecast earnings
per share
45-60c
The range reflects:
•Favourable Ingredients margins
continue but lower than FY23
•Lower milk costs assisting improved
margins in Foodservice and Consumer
channels
,
USD/MT
Reference and Non-ReferenceProduct Prices
Feb-24
19
Outcomes for the shareholder
©FONTERRA ANNUAL RESULTS 2023
2,000
3,000
4,000
5,000
6,000
Jul-22Jan-23Jul-23
Non-Reference Product shipment price
Reference Product Shipment price
Non-Reference Product contract shipment price
Reference Product contract shipment price
Q&A Session
---
Fonterra Annual Review 2023Arotake-ā-tau Te Mātāpuna
Michael (& COVER), William, Chris,
Bethanne, Peter & Margaret,
Southland
Focus on New Zealand milk
We believe New Zealand milk is the most valuable milk
in the world. With demand for sustainable dairy nutrition
growing at a pace that will outstrip supply, we are creating
more value for our farmer owners and unit holders by further
differentiating our milk in the global market.
Be a leader in sustainability
Globally, people want to know where their food comes from
and the impact it leaves. New Zealand milk is amongst the most
carbon-efficient in the world, produced by a proven pasture-based
model and underpinned with strong animal wellbeing standards.
By leading in sustainability, we can respond to changing demands
from customers, capital providers and regulators.
Be a leader in dairy
innovation & science
Our Co-op has a long and proud heritage of dairy innovation.
We are building on this expertise by continuously developing
new dairy nutrition solutions and partnerships which help
people live healthier and longer lives.
Our three strategic choices
are guiding everything we do
Contents
About this report
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 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
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.
OVERVIEW03
About us 04
Letter from Chair of Board05
Letter from CEO08
Our purpose, values and goals10
How we create value 11
Creating value for stakeholders 12
Our year in review14
Doing Good Together15
BUSINESS PERFORMANCE 22
ON-FARM30
Honour roll36
OFF-FARM43
PRODUCTS & CUSTOMERS46
FONTERRA MANAGEMENT TEAM50
NON-GAAP MEASURES54
GLOSSARY56
DIRECTORY60
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
OUR 2023 SUITE
OF REPORTS
Annual Review 2023
(Referenced as AR)
Financial Statements 2023
(Referenced as FS)
Business Performance
Report 2023
(Referenced as BP)
Sustainability Report 2023
(Referenced as SR)
Governance & Statutory
Disclosures 2023
(Referenced as G&S)
Modern Slavery Statement
2023
(Referenced as MS)
Farmgate Milk Price
Statement 2023
(Referenced as MP)
We’re a dairy co-operative, owned
and supplied by farming families
across Aotearoa, New Zealand.
Through the spirit of co-operation
and a can-do attitude, Fonterra’s
farmers, along with almost 18,000
employees around the world,
share the goodness of our milk
through innovative consumer,
foodservice and ingredient brands.
We believe that food and nutrition are essential to
sustain us today and for future generations to thrive.
This is why we take great care with every drop
of milk, from the beginning, through every step
of the way. It’s our dedication and care that enables
us to produce safe and high-quality food, and our
dairy know-how and innovation capability mean
we can do amazing things with our milk to enhance
people’s lives.
Our farmers farm naturally and because of this,
we are proud to have one of the lowest on-farm
carbon footprints in the world.
We want to be the most emissions efficient and
environmentally sustainable dairy co-op. To do this
we are reducing our footprint, restoring nature,
and adopting a regenerative mindset.
Our portfolio of well-known brands includes
Anchor, Anmum, Anlene, Nutiani, NZMP and
Farm Source.
New Zealand
Australia
China
Rest of Asia Pacific
Rest of World
About us
Revenue
($ Million)
24,580
FY22
1
: 21,901
6,192
2,239
2,518
4,619
9,012
28
8
4
Raw milk collected
(million litres)
17,803
FY22: 18,455
1,366
16,333
2
Employees
(FTE)
17,993
FY22: 19,608
12,149
672
1,534
1,829
1,809
1
FY22 has been re-presented due to the Soprole business being moved to held for sale and classified as discontinued operations (and subsequently sold).
2
Amount collected during FY23 (which differs to the 16,317 million litres collected during the 2022/23 season ended 31 May 2023).
Manufacturing
sites
45
FY22: 48
5
04
The team can be proud of delivering a reported profit after tax
of $1.58 billion, equivalent to 95 cents per share and up 170%
on last year.
We faced real challenges on-farm in New Zealand this year,
as extreme weather events took a toll on our communities. In
February, Cyclone Gabrielle hit the North Island with Northland,
Coromandel, the Hawke’s Bay and Gisborne among the hardest hit.
In the Hawke’s Bay and Gisborne some communities were cut
off and isolated. The Co-op accessed these areas via helicopter
to assess the damage, understand farmers’ needs and provide
provisional supplies and veterinary support. Many suffered
losses to their property, had to manage animal welfare issues
and support the wellbeing of their families and neighbours.
As a Co-op, we look after each other when it comes to natural
disasters like this. The Co-op helps farmers to manage these
types of risk through what is known as a Force Majeure event.
In accordance with the Terms of Supply, where farmers where we
had to instruct a farmer to dispose of milk or dry off, appropriate
compensation for these farmers was made.
Volatile milk price environment
For share aligned farmers this strong earnings performance is
helpful in the context of a declining Farmgate Milk Price.
Our final milk price for the 2022/23 season was $8.22 per kgMS
down from the high forecast midpoint of $9.50 in June 2022. The
reduction is due to lower than anticipated demand for imported
products, particularly from China, which contributed to the
Global Dairy Trade prices dropping, with the average whole milk
powder price down 16% compared to last season.
The impact would have been greater, if not for the team’s efforts
to utilize the scale of the Co-op and shift milk into the products
and places that were delivering the most value at the time.
Letter from
Chair of
Board
Peter McBride
– Chair
Kia ora,
Miles and the team have
delivered a third consecutive
year of strong performance
overall, despite facing into
difficult market conditions
in a number of regions.
Final Farmgate Milk Price
$8.22
per kgMS
05
Strong performance underpinned
by non-reference products
While on the one hand our milk price was negatively impacted
by market forces, on the other our earnings did benefit from
favourable market conditions, including strong margins in our
Ingredients channel, in particular the cheese and protein portfolios.
There are two other key performance metrics the Board is
particularly pleased with this year:
–Return on Capital for the last 12 months is 12.4%, up from
6.8% in the comparable period.
–We have also exceeded our performance target for the Co-op’s
balance sheet strength, with the gearing ratio at 28.8% and
debt to EBITDA at 1.3x, even after adjusting for the impact of
the Capital Return.
Full year dividend at the maximum end
of our policy
In acknowledgement of the declining milk price environment and
the impact that has on farmers, the Board has made the decision
to pay a final dividend slightly above our dividend policy.
We are pleased to deliver a strong full year dividend of 50 cents
per share and unit – comprising of an interim dividend of 10
cents per share and a final dividend of 40 cents per share.
This is in addition to the 50 cents per share capital return
paid to shareholders and unit holders in August, following the
divestment of Soprole.
This brings the total cash return for a fully share-backed farmer to
$9.22 per kgMS for the 2022/23 season.
Flexible shareholding
Our Flexible Shareholding capital structure has been in place
since late March. It’s generally working as expected and we are
comfortable with the liquidity in the market.
Following the transition to the Flexible Shareholding structure
Fonterra implemented market maker arrangements to support
liquidity in the Farmer Shareholders’ Market. We also have
the ability to buy back shares as part of our ongoing capital
management programme, where we see it as value accretive
to the Co-op.
Our share price has come down. This was anticipated and well-
signalled before shareholders voted to support the changes to
our capital structure. There has also been a share price impact as
a result of the recent capital return. Over time we expect that the
price will reflect the Co-op’s financial performance, and the value
farmers see in that. Ultimately farmers will determine the value
of the shares.
Flexible Shareholding is the right capital structure for our Co-op.
By making it easier for farmers to join or stay with the Co-op, it
will help us to maintain a sustainable milk supply.
The Board believes it is the
right time to review its size
& composition.
Reviewing our Board size and composition:
Since the Co-op’s formation it has been envisaged that the Board
size would be rationalised over time. With the Capital Structure
review, asset divestment programme and long-term strategy
development largely behind us, the Board believes it is the right
time to review its size and composition.
We have shared our initial thinking from that review, which we
are discussing with farmers and shareholders in advance of this
year’s Annual Meeting – at which we plan to seek endorsement
for the changes via a vote.
Having now been part of the Co-op’s Board for five years, the
last three as Chair, I’m confident that reducing the size of our
Board will improve the dynamics within the group, encouraging
greater participation from directors, and maintaining access to
the necessary skills and experience to govern the Co-op into
the future.
Our current thinking is to reduce the number of directors on
the Board from 11 down to nine. The balance between Farmer
Elected and Appointed Directors would be maintained, with a
composition of six Farmer Elected Directors and three Appointed
Directors. As is the case today, the Chairman would be one of
the Farmer Elected Directors.
06
Full year dividend
50c
per share and unit
Total cash return
$9.22
per share backed kgMS
Delivering our strategy
We remain confident in delivering our long-term strategic targets
and plan to provide shareholders and unit holders with a strategic
update in early 2024.
Prior to that we will be confirming our Scope 3 target, which
Miles and I signalled at last year’s Annual Meeting.
Being a leader in sustainability is a fundamental part of our
strategy. Introducing a Scope 3 target is a critical step for us
when we consider our global competitive landscape, international
market access, funding sources, and continued partnerships
with customers.
We need to set a target that is meaningful and brings us into line
with our international competitors – many of which have already
set targets.
We know that the rate of change farmers are being asked to live
with is already challenging. Good progress towards the target can
already be made using the tools and information available to us
today. The Co-op will support farmers to meet this target through
the sharing of best practice and innovation. Our methodology
will continue to evolve alongside the science that supports these
changes. We will work with you, not against you.
Outlook for the year ahead and beyond
Looking out to the end of the current season and new
financial year it is clear that we will face a challenging operating
environment – for our individual farming businesses and for
our Co-op.
We know that the 2023/24 forecast Farmgate Milk Price range is
below breakeven for many of our farmers. The Co-op is entirely
focused on performance and, as you will be on farm, reducing its
costs to offset the impact of inflation over the coming years.
Dairy is a long-term game and as an exporter, we need to
accept that we are impacted by demand and supply dynamics,
commodity prices and geopolitical events. The Co-op does its
best to try and smooth the edges and optimise value, but there
will always be volatility.
Right now, the Co-op is well-positioned to recover from this
part of the cycle. Our strong balance sheet gives us options to
consider how we create more value. It also benefits all farmers,
as we know that the banks assess our individual farming business
risks together with Fonterra’s balance sheet and performance
when considering their overall exposure to the sector.
Ultimately, strong performance is the best way we can support
our farmers through this difficult period. That remains our focus
for the year ahead.
Peter McBride
Chair of Board
We need to set a target that
is meaningful and brings us
into line with our international
competitors – many of which
have already set a target.
07
Strong earnings performance
FY23 was a volatile year for global economies and commodity
markets as the world continued to recover from COVID-19.
There was strong demand for protein products, in particular cheese
and caseinates, at the same time as demand for milk powders
softened. This resulted in historic high price relativities across the year.
We captured the high protein prices in our Ingredients channel,
and these have been a strong driver of our earnings performance
for the year.
To optimise our Farmgate Milk Price, we moved milk into higher
performing reference product categories, such as skim milk powder
and cream, where possible.
However, we were required to reduce the forecast Farmgate Milk
Price across the season as demand for whole milk powder from key
importing regions, in particular China, continued to soften.
We recognised the impact the reduced forecast Farmgate Milk
Price has on farm profitability, particularly at a time when farmers
are facing higher input costs, and utilised our strong balance sheet
to favourably adjust the Advance Rate Schedule, which meant that
we were able to get cash to farmers sooner.
Progress on strategy
Despite economic headwinds, we’ve made good progress on
strategic initiatives this year that will help to set us up for the future.
A sustainable supply of New Zealand milk is fundamental to
the future prosperity of the Co-op, so that we can maintain
efficient operations and continue to meet customer demand for
New Zealand milk at scale.
Our new Flexible Shareholding capital structure, which was
implemented in March, supports a sustainable milk supply and
stable balance sheet by making it easier for farmers to join and
remain with the Co-op.
Kia ora,
I’m proud to have led
a dedicated team who have
delivered a strong result for
your Co-op.
Our reported profit after tax is $1.6 billion, up 170% on last year,
and our return on capital is 12.4%, up from 6.8%.
This has put us in the position to pay a full year dividend of 50 cents
per share, including the interim dividend of 10 cents per share.
Throughout FY23 we also made progress on several key strategic
initiatives. We implemented our new Flexible Shareholding capital
structure, completed divestment of our China Farms business
and Chilean business, Soprole, and launched our new corporate
ventures arm, provisionally named Nutrition Science Solutions.
As a result of the successful divestment of Soprole, we were able to
return tax-free 50 cents per share to shareholders and unit holders.
These milestones were several years in the making and I’m proud
the team has delivered upon the commitments we made to our
shareholders.
I also acknowledge that these achievements have been against
a backdrop of a falling Farmgate Milk Price across the season.
We work hard every day to maximise total shareholder returns.
We ended the 2022/23 season with a final Farmgate Milk Price
of $8.22 per kgMS. When combined with our strong dividend and
capital return, our total cash return to farmer shareholders was
$9.22 per share backed kgMS.
Letter
from CEO
Miles Hurrell
– Chief Executive Officer
08
One of the benefits of being part of the Co-op is having access to
the advice and services provided through Farm Source.
The team is working alongside farmers to provide tools that
support more efficient farming businesses and help to meet the
changing needs of both regulators and our customers.
An important focus for the team right now is introducing a
Scope 3, or on-farm emissions intensity target, which we will
announce before the end of calendar year 2023.
Achieving the target will be a collective effort, with incremental
efficiency gains enabled by the tools made available by the Co-op
and wider industry partners.
We’ve made a strategic choice to be a leader in dairy innovation
and science, with innovation expected to play an important role
in achieving the target by reducing methane production on-farm.
We are working with partners to invest in potential solutions.
Looking to the future, our innovation portfolio of activity is also
exploring potential new revenue streams for the Co-op that utilise
either our milk or our expertise.
This year, we’ve established Vivici, our joint venture with Royal
DSM, which is exploring commercial opportunities in fermentation
derived ingredients.
These ingredients could be used to extend our farmers’ milk into
products, categories, and markets which we do not currently sell
into, as well as earn the Co-op a return on the commercialisation
of our IP.
We’ve also launched our corporate ventures arm, Nutrition Science
Solution (NSS), which made its first strategic investment in the
form of a minority stake in Pendulum Inc, a biotech company
specialising in metabolic health.
NSS is a long-term play for the Co-op, that will seek to partner with
and invest in global start-ups in the nutrition science category.
Driving efficiencies across the Co-op
When pursuing these opportunities, we’re assessing them against
other investment opportunities for our farmers’ capital.
Our new resource allocation framework demonstrates how we
think about delivering value. It shows how we aim to allocate
farmers’ milk to the products and channels where we believe it
will earn the highest risk-adjusted returns.
The priority use of the Co-op’s capital is maintaining safe,
productive operations. With any capital remaining, we assess
the opportunities available to us and use it either to pay down
debt, for dividends, capital returns, share buybacks, or for growth
opportunities including innovation.
It is as part of this approach to capital management that we
have allocated up to $50 million to an on-market share buyback
programme, which commenced in August 2023.
We’re also taking a close look at our operating expenses to assist
us to stay on track for our short and long-term financial targets.
We have announced a goal of reducing costs across the Co-op by
about $1 billion over the 7 years to 2030. This goal will help offset
higher inflation expectations and we intend to achieve it through
a range of projects that will streamline how we operate.
To track our progress, we have introduced two new efficiency
metrics which we’ll report against every six months.
These are:
1. Opex per kgMS – targeting a 4% cash operating cost
improvement per year to support long-term discipline in our
global overheads.
2. Gross profit per kgMS – targeting a 2% New Zealand cash
manufacturing cost improvement every year to support
efficient New Zealand operations while remaining laser
focused on delivering value.
Outlook for FY24 and beyond
Looking at FY24, ongoing reduced demand for whole milk powder
from key importing regions continues to impact the outlook for
our Farmgate Milk Price, with our 2023/24 forecast range currently
$6.00 - $7.50 per kgMS, with a midpoint of $6.75.
We are watching market dynamics closely and there are indications
demand for New Zealand milk powders will start to return from
early 2024. Demand for other products, including Foodservice and
our value-added Ingredients, continues to be robust.
The favourable price relativities that we’ve experienced across
FY23 have reduced from their peaks. But we are forecasting
improvement in our Consumer and Foodservice channels as our
markets capture improved margins.
As such, our FY24 forecast earnings range for continuing
operations is 45-60 cents per share.
We acknowledge that across the year, farmers will continue to feel
the pressure from high input costs and a reduced Farmgate Milk
Price. We’ll continue to do all that we can to assist farmers through
this challenging period.
Over the medium to long-term, the outlook for New Zealand dairy
remains positive. Demand for sustainable nutrition is continuing
to grow and by implementing our strategic plans we are well
positioned to meet this demand.
We’re also accelerating plans to extract more value from our
farmers milk by refining our innovation portfolio and investing
in new areas for growth.
I intend to provide an update on our long-term strategy early in
calendar year 2024, which will further detail our market context
and plans to 2030 and beyond.
Miles Hurrell
Chief Executive Officer
09
Our Purpose
Our Co-operative,
Empowering people,
To create goodness,
for generations.
You, me, us together,
Tātou, tātou
O u r Value s
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
Operating Profit
40-50%
increase from FY21
Group ROC
~9-10%
Our purpose,
values & goals
50%
absolute reduction in
Scope 1&2 emissions by 2030,
from 2018 baseline
10
Applying innovation &
our ingenuity to make
& distribute nutrition
We connect farmers with
markets to maximise the
value from their milk
We source raw milk
from farmers
& to
consumers
for
foodservice
as
ingredients
Relationships
— With farmers, governments and regulators, unions,
employees, customers, iwi and communities
People & Culture
— Approximately 18,000 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 million milking cows grazing on 1.5 million hectares
of pastoral land
— Some fertiliser, irrigated water and supplementary animal nutrition
— Energy (27.5PJ) and freshwater (48.7 million cubic metres) for our
manufacturing sites
Assets & Infrastructure
— Our portfolio of property, plant and equipment including
right-of-use assets ($6,343 million total net book value)
— 500+ milk collection tankers
— 45 manufacturing sites
Intellectual Capital
— Our know-how, systems and intellectual property
— Our strong global brands
— 232 granted patents across 25 families of patents
The resources we rely on
Financial
— A strong financial base, capital from our farmer
shareholders, unit holders and debt ($12,774 million average
capital employed)
How we
create
value
11
Creating value for stakeholders
Farmers
We create value by
–Delivering a strong total payout (AR-22)
–Reliably collecting their perishable product and providing
efficient access to valuable international markets (AR-04)
–Adding value to their milk through innovation and a
flexible product portfolio (AR-46)
–Providing resilience to operating volatilities such as
price, energy, foreign exchange rates and ocean freight
(BP-34 & 29)
–Providing access to technology and services that help
meet regulatory requirements and continue to improve
farming practices (AR-32)
How we engage
–On an ongoing basis led by our locally based Farm
Source support teams across New Zealand
–At meetings and roadshows, and through our
formal governance processes
Customers & consumers
We create value by
–Delivering nutrition products that are high-quality,
low carbon and responsibly produced (SR-20)
–Providing access to nutrition products that include
healthier options and linked to sustainable credentials
(SR-22)
–Using responsible procurement to influence our
supply chain (SR-68)
–Responding quickly to changing needs and customer
demand for innovative new products and ingredients
(AR-48)
How we engage
–On an ongoing basis through our account
management teams
–By sharing information through programmes such as
EcoVadis, SEDEX and the CDP
–With our own direct consumers through our service
teams, email and social media, and consumer research
Employees
We create value by
–Providing a safe workplace (S R-17)
–Supporting health and wellbeing (S R-16)
–Providing good learning and development
opportunities (S R-1 2)
–Building an inclusive culture where everyone
contributes and feels supported (S R-1 1)
How we engage
–On an ongoing basis through our everyday
interactions, regular engagement surveys and
engagement with unions.
Kathryn,
Taranaki
Kiri & Te Kaihou,
Bay of Plenty
Lisa,
Canterbury
12
Society
We create value by
–Complying with regulatory requirements, including food
safety, marketing and environmental (SR-26)
–Reducing our environmental footprint including GHG
emissions, water consumption and waste (SR-27)
–Contributing to the development of policy and
responding to crises (A R-1 8)
–Collaborating with industry partners to achieve
international commitments Ref. (SR-59)
–Taking a responsible approach to tax (SR-66)
–Supporting international relations through our presence
in global markets (AR-47 & 48)
How we engage
–On an ongoing basis through our Government and
Stakeholders Affairs 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 dividends and
interest paid (AR-22)
–Reducing investment risk through transparency
and independent assessment (SR-67)
–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
Local communities
We create value by
–Providing direct rural and urban employment (SR-83)
–Reducing our environmental footprint (SR-27)
–Supporting communities through natural disasters and crises
such as floods (A R-1 8)
–Providing access to nutrition through in-school nutrition and
food bank donations (A R-17)
–Strengthening and enhancing our relationships with tangata
whenua (S R-1 5)
How we engage
–With interested groups, such as NGOs, through collaboration
and consultation on specific topics
–On an ongoing basis with iwi around Aotearoa New Zealand
–Through public events, the media and our own social media
channels
–Through our Community programmes, such as Hapori,
Kickstart Breakfast, Feeding NZ Communities and
supporting the Rural Support Trust
Fonterra Application Centre,
Shenzhen
Annabelle & Rajiv,
Auckland
KickStart Breakfast
13
Our year in review
September
Announced 2021/22 season
final Farmgate Milk Price of
$9.30 per kgMS.
Launch new wellbeing solution
brand, Nutiani, targeting
medical and everyday
wellbeing nutrition markets.
We announce a partnership
with Rural Support Trust
(RST) to support rural
New Zealanders by improving
access to wellbeing and
resilience services for farming
families who are doing it
tough.
November
Fonterra announces sale of its
Chilean Soprole business to
Gloria Foods JORB S.A.
Neil Beaumont
appointed as
new Chief
Financial Officer.
Fonterra & Nestlé announce a
new partnership designed to
help reduce New Zealand’s on-
farm emissions, including a
New Zealand first – a drive to
develop a commercially viable
net zero carbon emissions
dairy farm.
January
Many co-operative farmers
and their whānau, our
employees and customers
across the North Island of
NZ are impacted by flooding
during the wettest month on
record. Fonterra supports
those impacted throughout
the coming months.
March
We complete the sale of
Chilean Soprole business
to Gloria Foods - JORB S.A.
(Gloria Foods).
Announce a Profit After Tax of
$546 million, up 50% on same
period last year, in our FY23
Interim Results.
May
Announced an opening
2023/24 season forecast
Farmgate Milk Price of
$7.25 to $8.75 per kgMS,
with a midpoint of $8.00.
Taranaki dairy farmer
Donna Cram is announced
as the 2023 Fonterra Dairy
Woman of the Year and we
welcome three new First
Foundation Scholars to the
Co-operative.
July
Announced an increase in our
Scope 1&2 emissions target,
along with a $790 million
investment, which includes up
to $90 million funding from
Government.
August
Fonterra and Royal DSM
establish new start-up
company, Vivici, to
accelerate development
and commercialisation of
fermentation-derived proteins
with dairy-like properties.
We take another step on
our low carbon transition
with our Waitoa site in the
Waikato planning to install a
30 megawatt wood biomass
boiler to replace a coal boiler.
We also announce the closure
of our small and ageing
Brightwater site near Nelson.
October
The Co-operative releases
its Sustainable Finance
Framework. This Framework
aligns Fonterra’s funding
strategy with its sustainability
ambitions and reflects the
evolving preferences of lenders
and debt investors
in this area.
December
Fonterra and Nestlé agree
to sell their Dairy Partners
Americas (DPA) Brazil joint
venture to French dairy
company Lactalis.
February
Fonterra and MAN Energy
Solutions (MAN ES) enter
a strategic partnership to
reduce CO
2
emissions in dairy
production using climate-
friendly heat pump technology
for steam generation.
April
We revise our 2022/23 season
forecast Farmgate Milk Price
range from
$8.20-$8.80 per kgMS
to $8.00-$8.60 per kgMS.
Announce the conversion of
coal boilers at our Hautapu
site to wood pellets and
installation of a heat pump
at Palmerston North.
June
Acting Chief
Operational
Officer
Anna Palairet
announced.
Launch of new nutrition
science venture arm to
incubate, scale and invest
in ventures in the area
of nutrition science. First
investment announced
with Pendulum.
2022
2023
14
Doing Good
To g e t h e r
Durham Farm,
Northland
15
As a co-op we know just how much
good can come from working together,
which is why we’re working with partners
right across the country to make a
meaningful impact. Our Doing Good
Together programme delivers across
three impact pillars to care for people,
the environment and our Co-op for
generations.
Our impact pillars
Putting good quality
nutrition in the hands of
those who need it most
Keeping our
communities strong
Protecting & regenerating
the environment
1
2
3
Fred and Ken,
NZ Food Network
16
$100K
Farm Source
Charitable
Giving raised
over $100K
13
million
Dairy serves donated to
communities in New Zealand
5.6
million
KickStart breakfasts
served in 1,400 schools
22,000 trees
Partnered with Trees for
Survival to support 22 schools
to nurture 22,000 trees
$980K
Donated to community
projects in regional
New Zealand
2,900 people
More than 2,900 people
attended 16 events with Rural
Support Trust on mental
health & wellbeing
$650K
Over $650K donated
to community projects
globally
17
In response to the devastating floods and Cyclone Gabrielle
that hit the North Island earlier this year, Fonterra along
with our strategic partners supported community groups
on the front-line giving assistance to affected Kiwis.
CEO of The New Zealand Food Network (NZFN),
Gavin Findlay, said that with the many people displaced
by the flooding, the donation of quality dairy products
went a long way.
Helping communities
respond to natural disasters
“ Once again, our great
partners at Fonterra are
helping us get food to where
it’s needed most. Fonterra’s
quick response to this
emergency shows their
commitment to doing good
together for the sake of our
communities and reinforces
the value of having them on
the NZFN team.”
Gavin Findlay,
CEO New Zealand Food Network
Along with the support we provided communities post the
cyclone, the team also volunteered in the Wairoa region and
got stuck in helping to clean up Tākitimu Marae. This was
followed by cleaning silt beneath houses for whānau that had
no insurance and could not occupy their houses until the silt
had been removed.
The combined Fonterra support was significant and the
Fonterra staff were incredibly proud to show up and offer
support during this time.
Fonterra Emergency Response Team
supporting the clean up at Tākitimu Marae
alongside Waikato Tainui in Wairoa
following Cyclone Gabrielle.
18
$40,000
Over $40k donated
through Farm Source
Charitable Giving to the
Hawke’s Bay disaster
relief trust
$15,000
Donated to NZ
Landcare Trust and
Trees That Count to
support remediation
of restoration projects
after the floods
Some of the ways we supported
the community through the
recent natural disasters:
$60,000
Donated to Community
Foundation flood relief
funds in Hawke’s Bay
and Auckland
1.3 million
Dairy serves to
Auckland, Tairāwhiti,
Hawke’s Bay and
Northland as part
of flooding and
cyclone response
Penelope, Blair, Joe & Billie,
Hawke’s Bay
19
The Big Feed called to action thousands
of farmers across the country to donate
some of what they produce. In one day,
the event aimed to raise 1 million ‘meals’.
The Big Feed and our continued commitment
to getting food where it’s needed the most
“ I’ve seen the faces of our
rangatahi light up with
excitement when they see
they have milk in their kai
boxes. Milk is a product that
our rangatahi know how to
confidently prepare. This is
so helpful as some don’t have
cooked meals to come home
to and must source meals
themselves. We are super
appreciative for the milk
that Fonterra has donated”.
Reconnect – Family Services, Manukau
In FY23 Feed Out successfully raised 1 million meals with
Fonterra and their farmers providing just under 430,000 milk
meals towards the cause. The Big Feed event will now occur
annually with a goal of raising 3 million meals on December
14th 2023.
With our partners New Zealand Food Network (NZFN)
and Feed Out, our Feeding New Zealand Communities
programme donated 13 million serves of dairy nutrition
in FY23. We will continue to increase our contribution of
more nutritious dairy goodness more frequently. In FY23
we’ve also had a strong focus on identifying surplus product
across the Fonterra network to donate to the NZFN. This
is complimented by our voluntary agreement to the Kai
Commitment, under which we’re working on a number
of food waste reduction strategies.
Our Hapori programme continues to be present in 10
New Zealand regions, with each regional committee offering
funding and donations of dairy products to local community
groups, schools and marae.
20
Fonterra formed a strategic partnership
with Rural Support Trust in August 2022.
The shared vision for the partnership is to support rural
New Zealanders by improving access to wellbeing and resilience
services for farming families who are doing it tough.
Phase one of the partnership was to gain insight into the value
Rural Support Trust brings and what future opportunities exist
for the Co-op to strengthen and collaborate on. Early insights
indicate we have formed the right community partnership to
support farmers.
As we move into FY24, phase two of the partnership involves
Fonterra supporting Rural Support Trust to thrive and embed
the three opportunities identified to improve overall experience:
1. Grow their operational capability
2. Promote the value they bring to communities
3. Grow their reach in the primary sector
Together with the Rural Support
Trust we have:
• Completed our insights work and identified three
opportunities for FY24.
• Provided funding for the Time Out Tour which supports
rural communities to start the conversation about mental
health – 4,000 people have attended 27 events since
2022 with ambassador Matt Chisholm.
• Donated over $50K to the trusts through our Farm Source
Charitable Giving programme.
• Featured Rural Support Trust in the Fonterra tent at Field
Days to provide rural communities further access.
• Employee Assistance Programme (EAP) available to all
Fonterra farmers, indefinitely.
Community
connection — Farming
Tana & Rosy,
Waikato
21
Profit after tax
$
1,577m
from $583m
Earnings per share
95c
from 36c
12.4%
Return on Capital
from 6.8%
Gross profit from Core Operations per kgMS
Cash operating expenses per kgMS
1. Per share backed kgMS
$
9.22
$
0.50
$
0.50
$8.22
Total Cash Return
1
Capital
Return
Farmgate Milk Price
Dividend
from 20c
from $9.30
Business
performance
$9.85
$7.64
$7.52
$8.60
$8.83
$9.42
$9.21
2023202220212020
Actual
Inflation Adjusted
$1.39
$1.36
$1.34
$1.16
$1.18
$1.26
$1.39
2023202220212020
Actual
Inflation Adjusted
22
In addition, the Co-operative returned
50 cents per share to shareholders
and unit holders in August following
the divestment of Soprole. This
resulted in a total cash return of
$9.22 per share backed kgMS for our
farmer owners.
Commodity product prices that inform the Farmgate Milk
Price (Reference Commodity Products) were down on
average 14.2% compared to the prior season and the main
reason for the $1.08 per kgMS decline in the Farmgate
Milk Price from $9.30 per kgMS last season.
Our profit after tax increased $994 million to $1,577
million. Excluding non-controlling interests this is equivalent
to 95 cents per share, up from 36 cents per share in the
prior period.
Excluding the net gain on divestments, our normalised
profit after tax is up $738 million to $1,329 million,
excluding non-controlling interests this is equivalent to
80 cents per share.
The Co-operative’s operating environment continues
to improve following the pandemic, and with the global
supply chain network stabilising and slowly returning to
normal, our inventory levels at year end have improved.
Our net debt is $3.2 billion, $2.1 billion lower due to
the improved inventory levels, increased earnings and
the sale of Soprole for aggregate proceeds of $1.3 billion
– of which $804 million was returned to shareholders and
unit holders on 18 August 2023.
Our increased earnings combined with the strength of our
balance sheet has put us in a position to pay a full year dividend
of 50 cents per share, comprising of 10 cents per share paid
at interim and a final dividend of 40 cents per share.
Our New Zealand milk collections increased 2 million
kgMS compared with the 2021/22 season due to higher
collections in the latter half of the season as a result
of more favourable weather which was conducive to
stronger pasture growth.
1. Refer to the Glossary for definition.
Litres and milk solids collected
For the year ended 31 July 2023,
our Co-op performed well. We
returned $8.22 on average for
every kilogram of milk solids
our farmer owners supplied us.
Combined with a dividend of
50 cents per share, this means a
total payout of $8.72 per kgMS.
Total Payout
1
10
20232022202120202019
Farmgate Milk PriceDividend
$6.35
$7.14
$7.54
$0.05
$0.20
$6.35
$7.19
$7.74
$9.30
$0.20
$9.50
$8.22
$0.50
$8.72
kgMS collected
(million)
Litres collected
(million)
20232022202120202019
1,5231,5171,539
1,4801,478
17,123
16,876
17,121
16,31716,404
23
Business performance
Profit After Tax
1
1. Includes amounts attributable to non-controlling interests.
2. Operating expenses includes $11 million net loss on sale related to Hangu China farm and the sale of GDT.
Our profit after tax increased
$994 million to $1,577 million.
FY23TAXFINANCE
COSTS
OTHER
ITEMS
GAIN ON
DIVESTMENTS
OPERATING
EXPENSES
2
GROSS
PROFIT
FY22
583
1,259(344)
(30)
307
20
(218)
1,577
Increased due to
favourable margins,
particularly for
protein and cheese
products
Increased due to a
$349 million (before tax)
gain on sale of Soprole.
The prior year included a
$42 million gain on sale
of GDT
Increased due
to higher EBIT
and capital gains
tax on the sale
of Soprole
Increased mainly due to
impairments of our
New Zealand consumer
business and our Asia
brands, of $121 million
and $101 million,
respectively, as well as the
impact of inflationary
pressures
24
Breakdown of Total Group Performance
FOR THE YEAR ENDED 31 JULY 202231 JULY 2023
NZD MILLION
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
Sales volume ('000 MT) 3,318 606 3,924 3,497 476 3,973
Revenue21,901 1,524 23,425 24,580 1,466 26,046
Cost of goods sold(18,992)(1,093)(20,085)(20,399)(1,048)(21,447)
Gross profit2,909 431 3,340 4,181 418 4,599
Gross margin (%)13.3%28.3%14.3%17. 0 %28.5%1 7. 7 %
Operating expenses(2,065)(390)(2,455)(2,496)(303)(2,799)
Other
2
102 (11) 91 70 348 418
EBIT 946 30 976 1,755 463 2,218
Net finance costs (194)(37)(231)(211)(50)(261)
Tax exp ense(131)(31)(162)(303)(77)(380)
Profit after tax 621 (38)583 1,241 336 1,577
1. Refer to Note 1a and 2c of the FY23 Financial Statements. Comparative information has been re-presented for consistency with the current period.
2. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity accounted investees.
We have normalised $260 million related to the gain on sale
from Soprole, and a $12 million loss relating to the disposal of
Hangu farm in China.
Consistent with our strategy to focus on our New Zealand milk,
we’ve made progress divesting our operations in Chile, Brazil
and China.
In November 2022, we announced the agreement to sell Soprole
to Gloria Foods – JORB S.A – a consumer dairy market leader
in Peru. The divestment was completed on 31 March 2023. The
aggregate proceeds (including pre- settlement dividends) before
tax, hedging and transaction costs were $1.3 billion, of which
$804 million was returned to shareholders and unit holders on
18 August 2023.
In December 2022, Fonterra and Nestlé agreed the sale of DPA
Brazil to French dairy company Lactalis for BRL 700 million. The
proceeds at completion will be subject to closing transaction
adjustments. Fonterra’s 51% share of the DPA Brazil sale
proceeds will be used to repay our share of debt held directly by
DPA Brazil.
Our normalised profit after tax
increased 125%, or $738 million,
to $1,329 million.
The sale is subject to several conditions including receipt of
regulatory approvals from competition authorities. The Brazilian
competition regulator released its first report on the proposed
sale in late July 2023. The parties are engaging with authorities to
understand and address the matters raised in relation to limited
parts of the business and expect the sale to be completed within
one year of balance date.
We also finalised our exit of China Farms, following the sale of
our Hangu China farm.
25
Note: Figures are for the year ended 31 July 2023
Prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
Financing Costs are allocated based on the average capital employed by each segment and channel. The effective tax rates applied are based on which country the entity, within a segment or channel, generates the income in.
Reportable
Segments
Fonterra’s reportable
segments are
presented on a
continuing operations
basis and are Core
Operations and the
two customer-facing
regional business
units, Global Markets
and Greater China as
presented to the right.
Core OperationsGlobal MarketsGreater ChinaTo t a l
External sales volume
(‘000 MT)
2,517
10%
980
5%
3,497
5%
Profit after tax contribution from continuing operations
Ingredients
$602m
$459m
$429m
$114m
$133m
$13m
$1,164m
$586m
Foodservice
$(12)m
$72m
$50m
$53m
$203m
$46m
$241m
$171m
Consumer
$(18)m
$1m
$(94)m
$90m
$(52)m
$48m
$(164)m
$137m
To t a l
$572m
$532m
$385m
$77m
$284m
$11m
$1,241m
$620m
26
–Core Operations’ profit after tax was $572 million, an increase
of $532 million on the prior comparable period. A key driver of
Core Operations profit after tax is the relative price difference
between product prices that inform the Farmgate Milk Price,
referred to as Reference Products, and the product prices of
Non-Reference Products.
–Global Markets’ profit after tax increased $77 million to
$[385] million, mainly due to the Ingredients channel in-market
profit after tax increasing by $114 million as a result of improved
pricing and higher sales volumes. Performance also improved in
the Foodservice channel as our in-market sales teams were able
to adjust sales prices to compensate for higher input costs. This
was partially offset by impairments in Global Markets’ Consumer
channel of our New Zealand Consumer business and our Asia
brands (Anmum™, Anlene™ and Chesdale™).
–Greater China profit after tax increased $11 million to
$284 million due to the Foodservice channel earnings
increasing by $46 million, reflecting our in-market prices
adjusting to higher input costs. However, this was partially
offset by an impairment in Greater China’s Consumer channel
of our Asia brands.
Looking at our business by product channel:
–Our Ingredients channel profit after tax increased $586 million, or
101%, to $1,164 million, due to continued favourable margins in
our protein and cheese portfolio, as well as higher sales volumes
due to the sell down of additional inventory held at 2022 financial
year-end.
–Our Foodservice channel profit after tax increased $171 million,
or 244%, to $241 million, due to improved gross margins
combined with higher sales volumes.
–Our Consumer channel profit after tax decreased $137 million to
a loss of $164 million, mainly due to impairments of our domestic
New Zealand Consumer business and our Asia brands.
Cash operating expenses per kgMS
To assist our long-term discipline and focus
on reducing operating expenses from
continuing operations to around $2 billion,
we have introduced a new efficiency metric
of cash operating expenses per kgMS.
This metric monitors the actual cash cost base
having regard to changing milk volumes, and
adjusts for inflation so underlying efficiency
gains/losses are transparent.
After removing the impact of inflation and
non-cash costs, our operating expenses on a per
kgMS basis increased from $1.34 to $1.39 per
kgMS. The increase mainly reflects increased
staff costs and storage and distribution costs.
To assist our long-term discipline on efficient
New Zealand operations we have introduced a
new efficiency metric of gross profit from Core
Operations per kgMS.
This metric monitors the cash cost base having
regard to changing milk volumes, and adjusts for
inflation so underlying efficiency gains/losses are
transparent. The metric is calculated at a gross
profit level to take into account the net result
of maximising value generated from every milk
solid, which can increase the cost base.
After removing the impact of inflation and non-
cash costs, our gross profit from Core Operations
on a kgMS basis improved from $8.83 to $9.21
per kgMS. The increase reflects favourable
price relativities.
Gross profit from Core
Operations per kgMS
$1.39
$1.36
$1.34
$1.16
$1.18
$1.26
$1.39
2023202220212020
Actual
Inflation Adjusted
$9.85
$7.64
$7.52
$8.60
$8.83
$9.42
$9.21
2023202220212020
Actual
Inflation Adjusted
Financial Discipline
27
Movements in Free Cash Flow ($ million)
Free Cash Flow
1
($ million)
1. Refer to the Glossary for definition.
Note: Comparative information has been re-presented for consistency with the current period.
Cash Flows
2023DIVESTMENTSCAPEX & OTHERNET WORKING
CAPITAL
1
EARNINGS2022
(621)
817
2,469
815
(166)
3,314
20232022202120202019
668
1,433
3,314
(621)
1,109
Our Total Group free cash flow was $3.9 billion higher than last
year at $3.3 billion, and is before the $804 million capital return
payment to shareholders and unit holders. The increase reflects:
— strong earnings performance resulting in underlying cash
flow from earnings increasing by $0.8 billion,
— an improvement in working capital cash flows of $2.5 billion
over the year, and
— an increase in net cash received from divestments of $0.8 billion,
due to the sale of Soprole during the year, partially offset by an increase
in capital expenditure and other investing cash flows of $0.2 billion.
The strong free cash performance supports the payment of the capital
return of 50 cents per share and a 2023 full year dividend of 50 cents
per share.
1. Includes amounts owing to suppliers.
28
Net Debt
1
($ billion)
Leverage Metrics
1 Refer to the Glossary for definition.
1 Refer to the Glossary for definition.
Total Group Return on Capital
improved from 6.8% to 12.4%
Our improved return on capital was due to the increase
in our normalised EBIT. We have normalised $349 million
related to the gain on sale from Soprole, as well as
normalising a $12 million loss related to the divestment
of Hangu China farm. The impairments of $248 million,
mainly recognised in our Consumer channel, have not
been normalised.
The impact of the improved EBIT was partially offset by
higher average levels of capital employed compared to the
prior year. This was mainly driven by higher average working
capital levels due to additional inventory carried forward
from the prior year.
Return on Capital
1 Refer to the Glossary for definition.
Net debt has decreased by
$2.1 billion reflecting higher
earnings, a reduction in working
capital and the divestment
of Soprole. This enabled an
increase in cash dividends paid
during the year and the capital
return paid in August 2023.
The improvement in the Gearing
Ratio from 42.4% to 28.8%
reflects the lower level of debt
coupled with the higher equity
from our increased earnings.
Debt to EBITDA has improved
from 3.2x to 1.3x due to lower
net debt combined with higher
earnings for the year. Non-
GAAP measures are not subject
to audit unless they are included
in Fonterra’s audited annual
financial statements.
Balance SheetReturn on Capital
20232022202120202019
6.0
5.2
4.3
5.3
3.2
Debt to EBITDA
1
(x) Gearing Ratio
1
(%)
20232022202120202019
49.5%
44.2%
1.3
3.2
2.7
3.3
4.3
38.5%
42.4%
28.8%
Total Group
normalised EBIT
1
($ million)
Average
capital employed
1
($ million)
Return on
capital
1
(%)
20232022202120202019
5.6%
6.6%
6.6%
6.8%
13,419
12,313
12,281
12,356
812
879
952
991
12.4%
12,774
1,881
29
On-farm
William,
Southland
We seek to work with farmers to build the
collective strength of our Co-operative.
The aim is to deliver them maximum
sustainable returns while bringing
value to our customers, consumers
and communities.
We believe Aotearoa New Zealand has the world’s best
milk. Currently, our natural advantages, grass-fed
approach and efficient farming methods combine to make
our dairy farm emissions one third the global average.
The work we’re doing with farmers to reduce emissions
on an intensity basis is an important part of keeping our
Co-op resilient for the future, as we look to ensure there
is continued demand for our farmers’ milk.
This includes supporting them with insights, tools and the
most up-to-date advice, while also working to save them
costs across our network of Farm Source stores.
We want farming in Aotearoa New Zealand to continue
for generations to come, which is why we are committed
to farming in a way that regenerates the environment.
The value we create by processing our farmers’ premium,
sustainable milk into a range of products helps to sustain
regional New Zealand, with almost 50 cents of every dollar
earned by a farmer spent in their local community.
30
William,
Southland
The Co-operative Difference has three levels of achievement:
–Te Pūtake – achieving this first step is all about looking after
people, animals, the environment and our Co-op. Farmers who
meet the Te Pūtake requirements receive 7 cents per kgMS for
all milk supplied during the season.
–Te Puku – once Te Pūtake is achieved, the next step is Te Puku,
which is all about milk quality. To achieve Te Puku, a farm must
achieve milk quality excellence for at least 30 days during the
season. Once this has been achieved, farmers receive 3 cents
per kgMS for all milk supplied during the season that meets
the milk quality excellence standard.
–Te Tihi – once Te Puku is achieved, the next step is Te Tihi,
which continues to focus on milk quality. To achieve Te Tihi,
a farm must achieve milk quality excellence for at least 90%
of days supplied in the season. Te Tihi is all about recognition
of our leaders in the Co-operative and does not bring any
additional financial recognition.
Farms that sustainably produce higher quality milk help to
increase the value of all our milk. Getting the best returns
for our farmers’ milk is determined by our ability to access
opportunities, markets, and premium prices.
It is also important that the wider community values our role
and our approach to farming, animal wellbeing and guardianship
of the land, so that dairy farming is seen as an attractive and
respected career choice for future generations. This means
staying at the forefront of issues such as quality, safety and
sustainability. That’s what The Co-operative Difference is
all about.
The Co-operative Difference is our
framework for enabling our on-farm
practices to support the delivery
of our strategy to protect and grow
the value of our sustainable, nutritious,
New Zealand milk.
This is done by identifying and considering what we need to
do today, what we need to be thinking about for tomorrow and
what we need to consider in the longer term.
The Co-operative Difference is about getting ready for emerging
issues that are either opportunities to create new value and/or
risks to existing value. It provides farmers with the confidence to
invest on farm at a pace that works for them and their business.
The framework is broken down into five performance areas –
Environment, Animals, People & Community, Co-op & Prosperity
and Milk.
Up to 10 cents of a farmer’s milk payment is influenced through
fulfilling the key practices within each of these areas.
Te Puku -
The mid point
5,038
Te Tihi -
The summit of the mountain
Te Pūtake -
The start of the journey
718
up from
638
5,038
up from
4,522
1,383
up from
1,155
31
As the farmer-facing part of the Co-op,
Farm Source plays an important role in
getting alongside farmers to help them
continue to lead the way in sustainable,
efficient dairy farming.
The team is guided by what farmers have said they’re looking
for from their Co-op, grouped into four key areas:
–Co-operative leadership: including advocating on behalf of
farmers and helping to foster a sense of connection and
pride in the Co-op among farmers, our rural communities
and the wider public.
–My Co-operative and business: engaging with farmers in a
way that suits their individual business needs so that they
get the support they need, in a way that works for them.
–Support to get better: working alongside farmers to further
improve the efficiency and productivity of their farming
businesses, including to meet on-farm standards and
regulations of today and prepare for any that may be coming
in the future so that we’re continuing to build resilience in
the Co-op.
–Products and solutions: providing products and solutions
to help drive improvements, with a consistent and
welcoming experience when farmers interact with the Farm
Source team – whether in store or on farm – and offering
competitive prices.
One of the top priorities for our Farm Source retail business is
to reduce costs for farmers, including mitigating inflationary
impacts as much as we can.
The team looks to leverage the Co-op’s purchasing power and
partnerships to deliver products and services at competitive
prices. A practical example is the partnership we announced with
2degrees in November 2022, which offers farmers market leading
rates on plans built to suit their telecommunication needs.
Farm Source offers a number of other market-leading offers –
from up to 21 cents off a litre at Mobil for Fonterra suppliers,
exclusive Power deals through Genesis, through to trade prices
at Bunnings – and enables all Farm Source account holders to
earn and redeem Farm Source Reward Dollars, contributing to
further savings. We also play a critical role in helping to ensure
farmers have a reliable supply of key farm inputs, as recently
demonstrated when the country experienced supply shortages
during COVID-19.
On top of the network of more than 60 stores across the country,
Farm Source also brings market leading innovation like Allflex
animal collars or Effluex to farmers. This is supported by industry-
leading tools and services that are delivered in a personalised
way to farmers.
In July 2023 we confirmed changes to our Farm Source team
aimed at improving how the Co-op supports farmers today and
into the future. It followed a genuine consultation process, with
the original proposal changing based on feedback from our
people. We also took onboard views shared by farmers during
this time.
The focus is on three key areas – improving our local support,
improving our phone and digital tools to make things easier, and
endeavouring to see that we are all doing everything we can to
maintain, and grow, sustainable milk supply for the Co-op.
The new structure came into effect in August and we’ve been
working to ensure farmers know how Farm Source has evolved
and why.
Supporting farmers
through Farm Source
Karlson,
Bay of Plenty
32
Making it easier for farmers to join & stay
with the Co-op
In March, we implemented our new Flexible Shareholding capital
structure, which makes it easier for new farmers to join our Co-op
and for existing farmers to remain, by allowing greater flexibility in
the level of investment required.
We believe the changes help us make further progress on our
strategy by supporting a sustainable milk supply and stable
balance sheet, while also protecting farmer ownership and control.
Under the new structure, farmers can now hold up to 4x their milk
supply in shares or a minimum of 33% of their supply.
In addition, exit provisions were extended and more types of
farmers can be part of our Co-op. Sharemilkers, contract milkers
and farm lessors can apply to become what we’ve termed
Associated Shareholders and Secondary Shareholders. Meanwhile,
ceased farmers are able to transfer shares to their relatives and
related parties, who are known as Permitted Transferees.
Adjusting our Advance Rate
In May we announced that we would start the 2023/24 season
with a new Advance Rate guideline. The key driver for this
decision was to respond to the pressure farmers had been under,
particularly in terms of cashflow.
The opening Advance Rate is now set at 75%, up from 65%, and
steps up to 80% in March paid April, rather than May paid June.
This helps gets cash to farmers sooner, and it is a change we were
able to make due to our strong balance sheet.
Our intent is to use this new guideline for future seasons, starting
with 2023/24.
When setting the Advance Rate, we balance getting farmers
as much of their milk payment as early as possible, while also
maintaining a strong balance sheet and having the necessary
cashflow to operate day-to-day.
As a result of this approach, we will need to review our Farmgate
Milk Price more frequently. As another way to get cash to farmers
sooner, we announced in May 2023 that we were bringing forward
the payment to shareholders of the capital return of 50 cents per
share related to the sale of Soprole from October to August 2023.
Reducing on-farm emissions
Throughout the year, we’ve had conversations with our farmers
about the need for Fonterra to introduce a Scope 3, or on-farm,
emissions reduction target.
We held in person and online meetings across the country to
hear farmers’ views. We also released a comprehensive on-farm
emissions booklet in April which was designed to help with
those conversations as well as being a practical how-to guide.
We initially indicated that we would announce the target in
the middle of 2023. However, timing is important, and we
acknowledge that farmers have been under a lot of pressure
right now.
With this in mind, we decided to delay introducing a Scope 3
target by a few months. We now expect to announce our target
before the end of the calendar year.
There is no one solution to reducing on-farm emissions. It will
require a combination of best farming practices as well as new
technology and innovation to reduce methane, which is one
of the biggest challenges the dairy industry faces, while also
representing a significant opportunity for us. We’re investing in
our own research and development as well as partnering with
others to try and find breakthroughs that will further support
farmers. Two examples are included on the next page.
Under the new structure,
farmers can now hold up
to 4x their milk supply in
shares or a minimum of
33% of their supply.
33
Kowbucha
TM
One potential solution is our own
development, Kowbucha
TM
. Kowbucha
TM
is probiotics derived from Fonterra’s
large bacterial culture collection that
are designed to reduce the methane
produced by cows.
Kowbucha
TM
has produced promising results with some
trials showing up to a 20% reduction in methane without
compromising productivity, but further work is needed to
validate these effects.
As well as the potential to produce a methane reduction
solution for use on farm, the Kowbucha
TM
venture could generate
commercial returns for the Co-op. This is why we are creating a
more formal structure around its potential commercialisation –
starting with the appointment of a CEO in early July 2023.
Fonterra appointed Dr Ben Russell to lead the development
of our Kowbucha
TM
business venture. He will focus on
establishing the Kowbucha
TM
business through further
development, validation, and commercialisation of Fonterra’s
world-leading probiotic technology both within New Zealand
and internationally.
AgriZero
NZ
We are also investing in partnership
with other agricultural companies
and Government.
AgriZero
NZ
is an investment fund established between
Government and major agribusiness companies to make sure
New Zealand pasture-based farmers have equitable access to
affordable and effective tools and technology to reduce their
agricultural emissions, while maintaining efficiency, production
and profitability. Fonterra will contribute up to $50 million
over four years.
Since launching in February, AgriZero
NZ
has announced
investments of:
–$4 million in a methane measurement facility
that will be constructed at the Massey University
dairy research farm in Palmerston North and will
house 12 new cattle respiration chambers and
associated infrastructure.
–$1.8 million for a stake in Ruminant Biotech, a
New Zealand-based start-up that is developing a
slow-release, biodegradable methane-inhibiting
bolus for livestock.
–$2.5 million to support the continuation of research
underway in New Zealand toward developing a
methane vaccine and methane inhibitor for use
in livestock.
Exploring solutions
to reduce methane
34
Fonterra Dairy Woman
of The Year Donna Cram
Taranaki farmer Donna Cram won the 2023 Fonterra
Dairy Woman of the Year award.
Facilitated by Dairy Women’s Network, the award
recognises an outstanding woman who has
contributed to the dairy sector with passion, drive,
innovation and leadership and no other award in
New Zealand specifically celebrates the capability
and success of women in the dairy industry.
Donna is a fourth-generation dairy farmer and
influences locally and nationally through a large range
of positions. She is well known within our Co-op and
is an outstanding ambassador for the industry. Her
leadership qualities, community engagement and
commitment to sustainability represent some of the
best attributes of Kiwi dairy farmers.
Along with the award Donna received a scholarship
from Fonterra of up to $20,000 for an approved
and personally chosen development programme,
or professional/business coaching and/or learning
experience.
Young Farmer
of The Year Emma Poole
Waikato/Bay of Plenty Young Farmer and Co-op
supplier Emma Poole was “absolutely buzzing”
after being named the 2023 FMG Young Farmer
of the Year in early July.
Emma is the contest’s first-ever female champion
and secured the win following three days of gruelling
challenges against six other Grand Finalists.
Contestants’ farming skills and general knowledge
were put to the test with tasks that included repairing
farm machinery, creating a hydroponic system and
an intense race-style challenge with multiple tasks
that saw points awarded for both skill and speed.
As Emma accepted the award, Tim Dangen, her
brother, mentor and last year’s FMG Young Farmer
of the Year was there to congratulate her as she said
“we’ve finally knocked the grass ceiling off the roof”.
Our industry
leading farmers
Dairy Industry Awards
Co-op farmers continued their strong history in
the New Zealand Dairy Industry Awards, winning
all three 2023 national titles at a gala dinner in
Auckland in May.
Hayden and Bridget Goble from Taranaki won the
2023 New Zealand Share Farmer of the Year title,
Canterbury/North Otago’s Jack Symes became the
2023 New Zealand Dairy Manager of the Year and
Bill Hamilton from Northland was announced the
2023 New Zealand Dairy Trainee of the Year.
Hayden and Bridget are 20% VO equity partners
together with Bridget Mooney, Kevin Goble
and Diane Goble on their 200ha, 565-cow New
Plymouth property.
Jack is farm manager on Judy and Brian Symes’
160ha, 630-cow property at Southbridge and Bill
is farm assistant on Richard and Sharon Booth’s
395-cow, 174ha property at Titoki, employed by
Andrew and Vicky Booth.
35
Honour roll for
on-farm excellence
Legend
Farming entities that achieved
Grade Free for at least the last 10 seasons
Thank you to all our farmers who have worked hard in
the 2022/23 season to provide safe, high-quality milk.
In addition to the honour roll, we acknowledge the
efforts of all our farmers for their commitment to on-
farm excellence and producing the best possible milk.
Axtens Farm,
Bay of Plenty
Abacus Dairy Limited
Alton Pastures Limited
Ashgrove Dairy Farms Limited
Black & White
Cow Company Limited
C E & D L Rogers
C J & C J McKenzie Limited
Caskey Farms
Farmer Fred Ltd
Fowler Family Prosperity Trust
Glen Eden Otago Ltd
Golden Mile Farms Limited
Hillcrest at Fairfax Ltd
J & LM Van Burgsteden
Kainui Peatlands Ltd
Kemra Farm Ltd
Milkwell Limited
MR & TJ Frost Ltd
Owhango Farms Limited
P H & W F Iorns
Pharlee Trust
R & S Singh
R S & R D Gordon
Rainbowcreek Farms Limited
S & S Iorns
Schorn Trust
T D & J A Rhind
The D & A Roberts Family Trust
W J & J G Pile Family Trust
Waiotu Farms Ltd
Whenuakura Farm Limited
Willcox Farms Ltd
36
Axtens Farm,
Bay of Plenty
46 South Limited
4RJ Aguilar Dairy Limited
4Smiths Limited
99 South Limited
A & A Renes Limited
A & H Ahlers Limited
A & J Mitchell Partnership
A & M Lopes Limited
A & R Gibson Trusts
Partnership
A B Lime Limited
A H Baxter Limited
A J & Est L R Arnet
A J & P T Bryant
A J & V A D McLellan
A J Porteous No. 2 Trust
A L & S E Hunter Family Trust
A L & W A Mullan
A Mackinnon & A L Aitchison
A P Jones & J G Craw
A S & G L Noble
A T & J L Hughes Trust
AAEJHM Family Trust
AAR Farming
Aaron and Marcia Flay
Partnership
Aaron Brown
Aaron Gopperth Trust
AB Dairies Limited
Abbott Trusts Partnership
ABR Family Trust
ABR Farms Limited
ACG Enterprises Limited
ADDR Limited
Aerodrome Farm Limited
Aghern Holdings Limited
Agromilk Limited
AGVenture Farms Limited
Ahipaipa Farms Limited
Ahipene Farming Limited
Ahol Trust
Alderbrook Farms Limited
Alkington Limited
Alley Farms Limited
Allison Family Farms Limited
Altura Dairy
Amtink Limited
Andrew Marshall Family Trust
Andrew Phipps
Aotearoa Kaitiaki Limited T/A
Te Mania Farm
AP & TM Davis T/A
Bushvalley Farm
AQA Agriculture
Aramaunga Farms Limited
Ardendale Farm Trust
Ardmore Farm Trust
Armer Farms (N I) Limited
Arrow Dairy Limited
Ashton Farming Limited
Ashvale Jerseys Limited
Aston Green Limited
AT Mills Partnership
Avery Partnership (Te Hawera)
Avon Downs Limited
B C & H J McLellan
B C McIntyre
B D & K M Sterritt
B D & M R Gray Trust
Partnership
B D Hiestand Trust & V J
Hiestand Trust
B F & R E Sanford Limited
B F & S J Gordon
B H & L J Bourne
B J & D A Verryt Family Trust
B J & J R Goodwin
B J & S R Morell
B L & D J Haylock
B M & J M Durcan
B M & R M Sarten
B N & E L Simmons
B R & S P Churstain
B W & S J Phillips
B W E Binnie
BAA Family Trust
Bailetresna Limited
Bailey Partnership
Baldwin & Bourke Limited
Barcia Dairies Limited
Barnscroft Dairy Limited
Barnsdale Farms 2014 Limited
Barridge Farms
Baucke Family Trust
Beckett Family Trust
Beckett Farm Limited
Beechbank Dairies Limited
Beith Farm Limited
Belbrook Farming Limited
Belfield Dairies Limited
Bell Family Farms Limited
Belmac Enterprises Limited
Ben Callum Investments
Limited
Benmore Downs Limited
Berry Dairy Farming Limited
Beyond The Gate Limited
BH Growth Limited
Birds Meadow Limited
Biz-E Farming Limited
BJ & TJ Bennett Limited
BJ & TM Verryt Limited
BJ Caird Limited
Blandyco Trusts Partnership
Blimar Dairies Limited
BLL Farm Trust
Bluegum Farms Ltd
BM & GI Watson Limited
Bobcat Trust
Bolton Walker Limited
Bonezco Farms Limited
Bosbr y Trust
Braebid Limited
Brasen Trust
Brats Farms Limited
Braylor Farms Limited
Brenick Limited
Brentworth Dairying Limited
Brittany Trust Partnership
Brohen Farms Limited
Brok Farming Limited
Brookdale Dairy Farm Limited
Brooklyn Dairy Farm Limited
Broughshane Limited
Bruski Farms 2001 Limited
Bryant Silviculture Limited
Brymac Farms Limited
BS Farming Limited
Bula Dairy Farming Limited
Bullot Family Trust
Burnell Farms Limited
Burness Partnership
Burtlea Limited
Burton Farm Trust
Bushmills Trust
BW Dairy Limited
Byrne Tribe Limited
C & A Dairies Limited
C & R Ashcroft Partnership
C & R M Moir
C A & E A Brown
C A Rowe
C and J Piggott Limited
C D Farms
C G & J A Venn
C H Land Limited
C J & M D Blackwell Family
Trust
C J & S J Coll Family Trust
C J & V K Taylor
C J Neustroski & P T Bucknell
C J Smyth & O R H Malone
C M Tanner
C P Baldwin & M A Bourke
C Porter & O Mitchell-Bettles
C.J. & N.A. Williams Limited
Caiseal Partnership
Calcium Dairies Limited
Calsi Farms Limited
Camaro Trust
Cambourn Farm Limited
Te T i h i
Farming entities that achieved
The Co-operative Difference Te Tihi (Level 3)
A–C
37
Ealing Dairies Limited
East Chatton Farms Limited
Ebbett Agri Partnership
Edale Farms Ltd
Edge Holdings Limited
Elamar Trust
Est of M F Blake & M Blake
Estate E A Bonner
Estate John Harold & Muriel
Mary Watt
Estate M J Abbott
Estate of T D & N M Miller
Estee Holdings Limited
Evans Partners Ltd
Excel Farming Limited
Eyretonlea Partnership
F A & R C M Smits Ltd
Fairfax Stonehouse Farm Ltd
Falcon Farms Trust
Farm Partners Limited
Farmer Fred Ltd
Farnley Tyas (2018) Limited
Faull Contracting Limited
Faybo Limited
Feenstra & Bouwmeester Trust
Fern Flat Limited
Fernley Farm Limited
Firdale Farms Limited
Flaxwood Farm
Flaxwood South
Fleming Family Trust
Flo New Zealand Limited
Cameron McLellan
Cameron Richards Family Trust
Cantley Developments
Limited No 1
Cantley Developments Ltd T/A
Sunrise Properties
Caskey Farms
Cavafarm Trust
Ceamour Farms Limited
Ceylandia Dairies Limited
Chelu Limited
Childs Creek Limited
Chisnall Farms Limited
Churi Farms Partnership
Claremont Trusts Partnership
Clark & Everitt Partnership
Clarke Farms (2016) Ltd
Clarknic Farms
Clemcorp Ltd
Clover Bell Limited
Clutha Lea Ltd
CMP Dairies Limited
Colhaven Limited
Collingwood Dairy Limited
Fonterra -Te Rapa Farm
Friendly Cow Farms Limited
Full Moon Farming
G & L Farming Limited
G & M Moore Partnership
G & P Russenberger
G & R Ward Family Trust
G & T Sloper Limited
G A & J M Hall Limited
G A & K T Lynch
G A & W A Knight
G A W & M C Van Rossum
G B & D G Hodges Trust
G Bearman & W Reid
Partnership
G D & C J Alexander
G G Green Acres Limited
G G Ring
G I Norgate
G J & E L Pinny
G J Borst
G K S Cows Limited
G L & G F Bell
G L & R L Burr
G M & J M Zydenbos
G P & D J Wolvers Family Trust
G P S 2007 Ltd
G R & K L Lovelock
G R & L M Heywood
G S & L J Rowe
Galloway Enterprises Ltd
Gambles Farm Ltd
Collingwood Farm Trust
Collins & Murphy Farming
Limited
Contra Trusts
Copeland Farming 2012 Ltd
Cordyline Farms Limited
Cornik Farms Limited
Corona Farms Ltd
Cotlands Ltd
Countrywise Limited
Cowley Ltd
CPX Limited
CQ Farming Limited
Craigower Farms Ltd
CRB Farming Limited
Creekside Pastures Ltd
Cressey Dairies Ltd
Crossipol Ltd
Croydon Agri Ltd
Croydon Dairy Limited
Cummings Family Trust
Cupsville Limited
Cutting Edge Dairies Limited
D & A Cooper Limited
D & D Alexander Trust
D & D M Coupe Trust
D & E Beckett Limited
D & M Earl Limited
D & T Farming Limited
D B & N L Hinz Partnership
D B & T A Wyber
D D & D M Galletly
D J & J A Veen
D J & L J McDrury
D J & N J Williams
D J Brook
D J Conlan
D J Wohlers Family Trust
D L & P Wilson
D M & C E L Turnbull
D M & D L Bourke
D M & J C Brogden
D M J & A J U Smith
D M J S Trust
D P & T M Stephens
D R & E M Henman
D R & J E Gilchrist
D R & L M Locke Ltd
D S & R R Carey
D W & M E Kidd
D.C Clark Limited
DA & ER Reid
Daisy Dairying Ltd
Dalmm Dairy Limited
Daniel & Tracey Limited
Danz Farm Limited Partnership
David & Corina Youle Trust
David & Lynley Ecclestone
David Leng
DB & MJ Kalma Ltd
DDB Dairy Enterprises Limited
Debnar Farms Limited
Deebury Pastoral Partnership
Delarbe Farm Limited
Denis J Crookenden &
Bronwyn F Bax
Dennley Farms Ltd
Des Conlan Trust
DG Farming Limited
Diamond Family Trust
Dillon & Co 2020 Limited
DJ & AJ Williams Ltd
DJAS Partnership
DNR Farms
Dobbie Farms Ltd
Dogterom Farming Limited
Donald Pearson Farm Ltd
Doneve Agriculture Limited
Donnelly Trust
Double A Oaks Limited
DPN Farming
DR & PJ Hannah Ltd
Draw Farming Limited
Drought & Kalin Family Trusts
Partnership
Drumderg Farm Ltd
Drumoak Trust
Dryden Farming Limited
Drylands Trust
Drysdale Holdings Ltd
E A White Ltd
E C Briden & Sons Ltd
E J & A M Kiser
E L Mitchell
E O'Brien
E T De La Rue
Te T i h i
C–G
38
Gavin Lozell Farming Limited
GB Dairies Partnership
GD & CJ Alexander Ltd
Gema J Limited
Geordie Farms Limited
Gibbs G Trust
Gillett Farms Ltd
GKW Farms Ltd
Gladvale Farms Limited
Glanton Holdings Limited
Glenarne Limited
Glenkerry Farm Limited
Glennevis Dairies Ltd
GM & AM Woolley
Golden Mile Farms Limited
Gordon Dale Farms (2006) Ltd
GPN Holdings Ltd
Graejo Trust Partnership
Granite Farms Ltd
Grantley Trust
Green Pastures Dairy Ltd
Green Sky Dairies Limited
Greenan Farms Limited
Greenhart Limited
Greg Dawson
Greg Low Limited
Gregory Farms Ltd
GST Investments Limited
Guthrie Farms Limited
Guyon Farm Limited
Gwen-May Trust
H E Argyle and Estate of L A
Argyle
H J & A M Van Hout
H L & J E Wallace
H Q Partnership
H S Phillips
Hahn Trading Limited
Haket Trust
Hamilton & Keene
Sharemilking Ltd
Hammens Limited
Hann Bros
Harakeke Dairy Ltd Partnership
Haswell Farm Limited
Haumako Farm Limited
Haurere Farms Ltd
Heartland Holdings (2008) Ltd
Heavenly Moos Limited
Henderson Partnership Farm
Henmar Trust
Hey wood Trust
Highland Downs Limited
Hill Biddles Limited
Hillcrest at Fairfax Ltd
Hitchcox Farming Ltd
Hoe-o-Tainui Farms Ltd
Hogsback Limited
Hollands Farm Limited
Holmleigh Trust Partnership
Hororata Dairy Farm Limited
Huntly Road Dairies Ltd
Hwitan Tune Holdings Ltd
I G Haigh
I H & D J Bryant
I J & H E Mitchell
I J Sutherland Partnership
Ingram Farming (2003) Limited
Intensive Agriculture Ltd
Inveraray Dairy Limited
Ivy Plains Ltd
J & C Gray Family Trust
J & E Hansen
J & L Delgado
J & O Sergiychuk
J & P S Malcolm
J & R Ferguson Ltd
J & S Belton
J & S Nicholas Limited
J A & E Fraser
J A Rhind
J C Rossiter
J E & A E Watson
J E & D L Morell
J G & J M Wright
J G & L M Mills
J G Cochrane
J H & H R Smyth
J J & T A Hickman Family
Trust Partnership
J J Bailey
J L & K S Gwerder Family Trust
J M Mellow
J McKay & A Brown
J P & A M McEwan Ltd
J S Dairy Limited
J Turner Limited
J W & A M Steeghs
J W & T L McElligott
Jackson Partnership Ltd
Jacob Abbott
Jacob Olsson
Jaeger Dairies Limited
James Lyttle
Janssen & Sons Limited
Jareem Trust
Jareem Trust Partnership
Jascas Trust
Jaska Farm Trust
Jaydee Farm Limited
JBHILLS Limited
JBT Farming Limited
JC Beattie Trust
JCB Farms Limited
JCDAF Dairy Farms Limited
Jersey Girl Ltd
Jerzey Rock Farm Ltd
JF & LM Le Fleming Family
Trust
Jomar Farm Ltd
Joshua Lyon
JP & DJ Hurley Partnership
JS & KJ Lorimer trading as
Laurel Hill Farm
Juffermans Dairy Company Ltd
Jurassic Farms Ltd
K A & N J Riddington Ltd
K G Reeve
K J & H A Dravitzki
K J & H Chalmers Ltd
K J & L M Goodwin
K J & S R Crowley
K J Thompson & M Sataka
K R Vollebregt
K W & D J Hall
K W & S H Smart Trust
K W Laing
K&M C Farms Limited
Kahikatea Dairy Ltd
Kainui Farms Limited
Kaitiaki Whenua Farming
Limited
Kaiwhio Dairies Limited
Partnership
Kaja Limited
Kanuka Terrace Limited
Kapuka Investments Limited
Karl Robert Peace
Kavanagh Trust Partnership
Keelinn Farms Limited
Keitra Farms Limited
Kelbretar Trusts Partnership
Kelly Farming Limited
Kelvin Vickers Family Trust
Kemra Farm Ltd
Kerr Road Dairies Limited
Kes Farming Limited
Kevin Fleming Ltd
Keystone Dairies Limited
Kiekie Farms Ltd
Kilfinan Farm Ltd
Kilkenny Farm Ltd
Kilkerran Farm Ltd
Killinchy Dairies Limited
Kinkora Farm Ltd
Kirson Farms Ltd
KJ&HL Uhlenberg(Waitui)
Fam Tr. P'Ship
KM & BM Muller
Knapdale Farms Ltd
Kohi Partnership
Kohi Rose Ltd
Kohinoor Farms Ltd
Koning Dairies Limited
Koroa Group Limited
Korotawa Limited
Kuklinski Family Trusts
Partnership
Kuriger Farms
Kyle Farm (2005) Limited
Kywaybre Farms Ltd
L & M Wild River Limited
L B & S A Udy
L D & R M Barry
L E Hill
Te T i h i
G–L
39
L G & H R Miller
L H & K M Bonnar
L J Hodges
L M Farms
L P & C L McClintock Limited
L P & I Bylsma
L Ross & A Parry
L S & K A Phipps
L.J. Fleming & Co. Limited
LA Farms Limited
Lakeside Farm (2010) Ltd
Lamb Dairy Limited
Landcorp Farming Limited
Lavender Dairies limited
Lawson Farms
LB Dairies Limited
Le Emari Trust T/A
Willowbridge Dairies
Le Prou Family Trust
Legendairy Contracting Ltd
Legrayle Farm Limited
Lenek Farms Limited
Leningrad Farm Ltd
Lenssen Farming Partnership
Leona Green
Leondale Trust
Lepperton Farms 2021 Limited
Lethol Farms Ltd No.1
Lillburn Valley Dairies Ltd
Lisdale Dairies Limited
Little Mate 88 Farming
Company Limited
Livcon Farms Ltd
Lizlyn Dairies Limited
Lobblinn Farms Limited
Lochbuie Limited
Lochhead Holdings Limited
Lochiel Sharemilking Limited
Lochlea Partnership
Lockinge Farms Ltd
LR and SJ Hammond Limited
Ludell Limited
Ludimac Dairying Ltd
Luscombe Partnership
Lynbrook Farm Limited
Lynwood Dairies Limited
M & A Bulanhagui Limited
M & A Schrader Family Trust
M & D Padrutt Family Trust
M & G Askin Family Trust
M & M Kidd Partnership
M A Watt Family Trust
M C & J P Fisher
M D Hammond
M E Hunt & Son Ltd
M F & D C Robinson Trust
Partnership
M J & D R McFetridge
M J & M J Manley
M J Adams Trust
M J Robertson
M L & K I Clark Family Trust
M P & V M J Joyce Trusts P/Ship
M R & K J Luke Ltd
M S & P M Davey
M S Dobson
M T & J Torrie
Maandonks Farm Limited
Maandonks Pastoral Limited
Macarm Farms Ltd
Macedonian Properties Limited
Macken Farm Ltd
MacWilliams Dairies Limited
Mahunga Farm Limited
Majestech Farms Limited
Majuba Farms Ltd
Maken Milk Ltd
Malandra Downs Limited
Manaki Dairy Farms Limited
Mangakiri Ltd
Mangaroa Farms
Mangatoki Partnership
Mangawhiri Farms Ltd
Mangin Dairying Ltd
Manuka Downs Farm Limited
Mardell Graham Limited
Mark & Nerida Dodge Ltd
Marshlie Partnership
Martindale Trust
Marua Partnership
Mary Rose Trust
Mattajude Family Trust
Maude Peak Farm Trust
Mavora Farms Ltd
Maxlands Farms Limited
McBeth Dairy Ltd
McCheesey Farming Limited
McClan Ltd
McConnell Ag Ltd
McCoote Farms Limited
McCullough Family 2008 Ltd
McCullough Orakau Farm
Trusts Partnership
McDonnell Farming Company
(Ohau) Ltd
McDonnell Farming Limited
McKay Creek Farms Limited
McKinnon Dairy Limited
McSwag Limited
Mehroop Trading Limited
Melgan Ltd
Melrose Dairy Ltd
Merivale Partnership
Merrybent Limited
MG Farms Limited
Michael Clark Ltd
Michael Kiser
Mid Island Farms Limited
Miedema Farms Limited
Milestone Trust
Milk Drops Ltd
Milk Power Ltd
Milk Tap Limited
Milka Dairies Limited
Milkin It 2020 Limited
Milky Whey Enterprises
Limited
Milldale Farm No 2 Limited
Mills Road Estate Limited
Minus 1 Trust
Mish (2012) Ltd
MJ & CD Beattie
MJ Henderson Farming Limited
MJG Limited
MKJ Farms Limited
Mokka Limited
Molehill Farm Ltd
Monte Vista Farms
Moo Juice Limited
Moo2U Ltd
Mooi Dairies Ltd
Mooi Farms Ltd
MooJuice Dairies Limited
Moonlight Farms Trust Ltd
Moore Farming 2020 Limited
Morag Farm Limited
Morana Farms Limited
Morelands Pastoral Ltd
Moss Lane Limited
Mount View Trust
Mt Winchmore Farm Limited
Mullerwhero Farming Ltd
Murdoch Southern Farms Ltd
Murphy Farms Limited
N & J A Lodge
N & S Ganderton
N A & K M McColl
N G & B D Simmons
N K Burgoyne
Nadash Partners
Nellnate Partnership
Netherland Holdings Limited
Newera Dairies Limited
Newman & Clarke Limited
Newman & Clarke Limited No 2
Ngahape Valley Farm Ltd
Ngai Tahu Farming
Ngariki Trust
Ngatahi Trust
Ngatitu Whanau Trust
Nikorima Trust
Nilock & Camole Trusts
Nimbalkar Farms Limited
Nippyfarm Limited
NNL Dairying Limited - NO 2
Northland Agricultural
Research Farm Incorporated
Nottingham Farms Limited
NZSF Canterbury Farms
Limited - Lowry
NZSF Rural Holdings Ltd
O J & A J Williams
O'Connell Dairy Ltd
Old Kookaburra Farms Limited
One Arrow Ltd
Te T i h i
L–O
40
Opadadus Farming Ltd
Openside Farms Ltd
Oporo Farms Ltd
Oraka Farms Limited
O'Reilly Family Trust
Orini Downs Station Limited
Orongo Meadows Ltd
Orwell Dairies Limited
Oscar Farming Co Ltd
OSK Limited
Otira Farm Ltd
Owen & Robyn Ruddell
Partnership
Owhango Farms Limited
P & D M Miedema
P & G Mulholland
P & S De Lange
P B & E J Chick
P D & S F Smith
P G & M A Cashmere
P G O'Rorke Family Trust
P H & W F Iorns
P J & H M Butler
P J & K J Henderson
P J & M E Gamble Family Trust
P Jones Family Trust
P L & R E Berryman
P M & K F Westenra
P R & R F Mossman
P S & H J Wilson
P T & E A Kelly
Pahau Dairy Ltd
Pahau Flats Dairy Limited
Papakauri Farms Limited
Paton Farms Limited
Paton Trading Company Ltd
Paton Trading Company Ltd
Patterson Farming Limited
Patterson Rawson Trusts
Partnership
Paul Kay Family Trust
PB & CF Purdie Family Trust
Pebble River Farms Ltd
Pedestal Farms Limited
Perks Farm Limited
Peron Farming Limited
Peter Reeve
Pharlee Trust
Philmara Ltd
Pidgeon Pastures Ltd
Pindar Farms Limited
Pine Bush Grazing Limited
Pineridge Partnership
PKW Farms LP
Platinum Dairies Ltd
Poharu 2020 Limited
Pollock Dairies Limited
Pomona Farming Limited
Ponga & Pukeko Farms Ltd
Port Molyneux Dairies Limited
Pourakino Valley Trust
Premier Dairies Limited
Prima Farms Limited
PT & CA Shearer Family Trust
Pukerua Farm Ltd
Puketaria Limited
Pynewood Farm Limited
Q F & H J Sherriff
Quirke Family Trust
QZL Farms Limited
R & M King
R & P McIntosh Ltd
R A & K J Feaver
R B & G E Potter
R B & S M Grant Farming
Limited
R G & C K Chubb
R G King Ltd
R H & G H Smith
R J Beckett
R L & F M Hurley
R L & S F Thompson
R N & D A Schmidt
R N & R C E Duncan Family
Trust
R N Van Der Fits Family Trust
R P & C J Ballantine
Family Trust
R W & H A Trotter
R W & K M Powell Trust
RA & L Lash
RA Borst & MG Henderson
Radcliffe Rugby Road Limited
Raelene Williams
Rakaia Incorporation (Pahau)
Limited
Rangatira 8A17A5 Trust
Rangeview 2021 Limited
Rangitata Island Dairy Limited
Rangitata Island Dairy
Partnership Ltd
Rata Hill Farm
Red Fox Farms Limited
Redhawk Trust
Reesby Family Farms Limited
Regent Farms Limited
Retell Holdings Limited
Reuver Limited
Reynard Fields Limited
Rich Feet Limited
Richfield & Gee Ltd
Ridge View Dairies Limited
Ridgedale Limited
Ridgevale Dairy Limited
Riley Glen Collinge
Rimoo Farm Limited
Riverbend Farmlands Limited
Riverhill Farming Limited
Riverlands Ko-Torp Ltd
Riverlock Land and Property
Limited
Riverside Dairying Limited
Riverside Sharemilking Limited
RJ & KB Smyth
Robertson Allen Limited
Robren Farms Ltd
Rockhaven Farm Partnership
Roger L Brook T/A Rosebrook
Rogers Family Trusts
Partnership
Rolfe Farms Limited
Rollett Farms Ltd
Rollinson Farms Limited
Rombouts Farm Ltd
Rooney Farms Limited
Rooster Dairy Limited
Rose Fern Farms Ltd
Rosebrae Farm Limited
Rosevale Limited
Roslyn Plains Limited
Ross & Louise Fieten Family
Trust
Rostov Dairies (NZ) Ltd
Rout Dairies Limited
Rowlands 2022 Limited
Partnership
RP & KJ Willans Family Trust
Rua Fox Limited
Ruakiwi Dairies Limited
Rubu Partnership
Ruthe Farms Limited
Rydal Farm Trust
Ryelands Farm Company
Limited
Rylock Farms Limited
S & A Novo Limited
S & A Wheeler Farms Limited
S & G Chick
S & R Pastoral Ltd
S & S Iorns
S B & Y M Thompson
S E & S A Nicholas
Family Trusts
S G McKenzie
S J & D L Smith
S J & J L Fevre Trusts
Partnership
S J Bruce Family Trust
S M & S A Field
S R & C J Baucke
S.V. & M.L. Helms
Sailing Away Family Trust
Sam Hunter & Amy Crofts
Partnership
Sanddale Farm Ltd
Sandow Farming Limited
Sarnia Farms Limited
Sayer Severn Limited
Sayer Trust Partnership
SB & AM Gold Limited
Schorn Trust
Schouten Dairies Ltd
Schouten Dairies Ltd
Scott Evans Sharemilking
Limited
Scott Mark & Rachel May
Ireland
SD & CB Farming Limited
Te T i h i
O–S
41
Settler's Inn Trust
Sfarmer Partnership Limited
Shady Farming Limited
Shawlink Ltd
Sheenfield Farms Ltd
Shenandoah Trust
Siberia Farm Limited
Sidewayz Farming Limited
Simon Maxwell Limited
Sisley Farms Ltd
SJ Bond & DJ Phillips
Small Trading Ltd
Smit Dairies Limited
Smith Enterprises Limited
Snaplulu Ltd
Snip Snap Farming
Sole Farms Ltd
South Hilton Ltd
Southern View Limited
Springdale Farms Trust
St Helena Farms Limited
St Helena Trust
Steele & Sons Limited
Stevenson S R & J A Trust
Steward Dairy Ltd
Stewartwood Limited
Stichbury Farms Limited
Stoked Enterprises Limited
Stolzenberg Farms Ltd
Stonebrook Dairy Farm Limited
Stonedale Farming Limited
Stoneleigh Park Limited
Stonylea Dairies Limited
Stornaway Farm Ltd
Streamline Limited Partnership
Sutherland Dairy Co Limited
Swim Farms Ltd
T H Davies Farming Limited
T K & H K Guthrie
T M & H D Green
T M Mcdowall
T R Bongers Trust
T S Curtis
Tablelands Dairy Limited
Taikatu Plains Limited
Tamac Farms Limited
Tamatea Two Limited
Tamlaght Farm Partnership
Taranga Town Supply
Tata Dairy Ltd
Tayco Farm Limited
Taylor Family Enterprises Ltd
Te Awa Pararahi Limited
Te Kiri Beers Limited
Te Ngutu Land Holding Co Ltd
Te Puna Wai Dairy Farm
Limited
Te Whanake Enterprises Ltd
Te Whanake Joint Venture
Te Whenua O Matata Limited
Telesis Trust
Ternstone Limited
Terrace Farms 2016 Limited
Terrace Top Dairy Ltd
The D & A Roberts Family Trust
The Grange Ltd
The Herewahine Trust
The Isaac Conservation &
Wildlife Trust (ICWT)
The White Gold Farm 2022
Limited
Thornehayes Farm Ltd
Three Bells Ltd
Three Daughters (2018)
Limited
Tiaki Farm Limited Partnership
Tiger Hill Farm Ltd
Tiroroa Farms Limited
Titipua Limited Partnership
TJ Gray & BA Johnston
TK & MG Wright
TL & SL Taylor Ltd
Tobruk Farms Ltd
Toggenburg Trust
Tokoroa Pastoral Ltd
Tom Hargreaves Farms Ltd
Tomclan Holdings Ltd
Tomco Limited
Tor View Ltd
Torehape Sharemilking Co
Limited
Torran Moor Ltd
Trenberth Family Trust
Trinity Lands Limited
TRK Farm Limited
Tronnoco Farming Co Ltd
True Blue Trusts
TS Dairies Limited
Tuki Tuki Awa Ltd
Turpin Dairies Limited
Tussocky Road Dairy Farm
Limited
Twin Creeks Partnership
Tyndale Family Trust
Tyndale Trust
Tyrone Trust P/Ship
Upper Balmoral Limited
Uruwhenua Farms Ltd
V & B Kalin Limited
V & J Ralph Ltd
V E & D M Grant
Vale Green Services Limited
Valley Views Southland Ltd
Van De Pas Trust
VDP Limited
Ventsha Farms Limited
Ventura Dairies Limited
W & C Gibberd
W A & D P McKenzie
W R & D J Little
W S & K M Fleck
W.A & H.R Simpson Farming
Ltd
Wade Industries Ltd
Waikatland
Waimak Dairies Limited
Waimarama Farming Ltd
Waimate Fields Ltd
Wainui Dairies
Waiongona Flats Ltd
Waiotu Farms Ltd
Wairakau Farm Trust
Waitago Farms Ltd
Waitoru Farm Limited
Waituna Investments Ltd
Waiwira Holdings Ltd
Walker Holdings Taupiri Ltd
Walsh Enterprises Limited
Watford Trust
Wattle Downs Limited
Webber Farm Limited
Webster Farming Limited
Welsh Family Farms Limited
West Mains Farm Ltd
Westbrook Farming Company
Limited
Western Heights Partnership
Westmere Co (2007) Ltd
Westridge Farm Limited
Whakahora Farm Ltd
Whakatupu Farming Limited
Wharepapa Trust
Te T i h i
S–Z
Whitestone Dairies Limited
Wilcock Farming Limited
Willans Holdings Ltd
Willbound Farm Limited
Williamson Trust Partnership
Willowbrook Farms Ltd
Willowcreek Trust
Willowfields Limited
Willowhaugh Enterprises
Limited
Willowview Pastures Limited
Wilmat Farms Limited
Wilson Produce Limited
Windsor Park Dairies Limited
Windy Hills Farms Ltd
Winter Farms (2004) Ltd
Wiremu Trusts
Withco Holdings Ltd
Wolff Farms Limited
Woodlaw Farm Ltd
Woodside Dairying Ltd
Woody's Charters Limited
WP & KA Myers Family Trusts
Partnership
Wynyard Dairies Ltd
Youngish Farming Partnership
Zagri Dairies Limited
Zeeland Dairies Limited
Zeldon View Limited
Zoetermeer Agriculture Ltd
42
O f f-far m
43
Fonterra Annual Review 2023
43
High inflation and global
recessionary pressures have
made this a volatile year. While
our Co-op hasn’t been immune
to these impacts, our earnings
have benefited from our ability
to capture favourable margins
in our protein portfolio, while our
Farmgate Milk Price has been
impacted by reduced demand
for powders.
To do this, Fonterra is forecasting an investment of
approximately $790 million, including a government
contribution of up to $90 million through the Government
Investment in Decarbonising Industry (GIDI) fund.
The decarbonisation plan will see Fonterra build on current and
completed work at five of its manufacturing sites and explore
multiple technologies to assist us selecting the most efficient
transition to renewable energy across our manufacturing sites,
while building resilience into our operations.
Accelerating these plans will help Fonterra continue to present
customers with the world’s lowest carbon dairy at scale
1
.
It will also contribute to New Zealand meeting its climate
targets while delivering benefits across regional New Zealand,
such as job opportunities in local communities, from our
decarbonisation projects.
NZ’s largest cool distribution centre
November marked the completion of over two years of
construction, installation and commissioning to create our
first and only retro fitted automated distribution centre in
New Zealand.
It is the largest automated Cool Distribution Centre (DC) in
New Zealand, located in Hamilton.
The upgraded DC will improve site efficiency, reduce energy
consumption, and reduce product and infrastructure damage
through the automation of 40,000 pallet spaces, resulting in
an expected savings of $4 million per year for the Co-op.
We’ve made good progress on key strategic initiatives, including
refining our asset portfolio, reducing our emissions, and growing
our innovation portfolio.
Fonterra returns capital to shareholders
When we released our long term strategy in 2021, we committed
to return capital to shareholders pending the outcome of the sale
of our Chilean Soprole business.
We are pleased to have completed divestment of the business
in FY23, putting us in the position to return $804m, or 50 cents
per share, to shareholders and unit holders.
On July 26, farmers voted in favour of the capital return with
payment subsequently made on 18 August 2023.
As well as completing the divestment of Soprole, we completed
the sale of our last remaining China Farm and agreed the sale of
DPA Brazil, our joint venture with Nestlé, to Lactalis.
Fonterra increases emissions
reduction ambitions
Fonterra’s Scope 1&2 emissions largely come from our
manufacturing operations and supply chain. Strengthening our
emissions reduction target supports our ambition to be net zero
by 2050.
Achieving our new emissions reduction target will require
Fonterra to continue to undertake energy efficiency
improvements and fuel switching to renewable energy source
activities across our milk collection fleet and manufacturing sites,
with a focus on the seven that use coal.
O f f-far m
1 DairyNZ, February 2021: Mapping the carbon footprint of milk for dairy cows
44
Stirling site running on renewable
thermal energy
The Stirling wood biomass boiler fired up for the first time
in April, marking the next step on the site’s transition to
be totally reliant on renewable energy for its process heat.
Changing to this boiler will reduce the annual carbon
emissions forecast by 18,500 tonnes – the equivalent of
taking approximately 7,700 cars off New Zealand’s roads.
Hautapu converting to wood biomass
The Co-operative will convert coal boilers at its Hautapu
site to wood pellets. Once complete in early 2024 the
Hautapu site will reduce our carbon emissions by a
forecast 15,785 tonnes per annum - the equivalent of
taking about 6,500 cars off New Zealand’s roads.
Waitoa installs new biomass boiler
The new Waitoa wood biomass boiler, due to be
operational in November 2023, will reduce the site’s
annual carbon emissions by approximately 48,000
tonnes, the equivalent of taking approximately 20,000
cars off New Zealand’s roads.
Fonterra launches nutrition science
venture arm
Fonterra has taken another step in implementing
its strategy to be a leader in dairy innovation and
science with the launch of a new nutrition sciences
venture arm.
The business – provisionally named Nutrition
Science Solutions (NSS) – will operate as a
standalone business within Fonterra with its
own board and CEO.
The NSS Board consists of two Independent
Directors, William Fu-wei Liao (Chair) and Rodolphe
Barrangou, and two Directors from the Fonterra
Management Team, Mike Cronin and Komal
Mistry-Mehta.
NSS will incubate and scale a portfolio of disruptive
ventures by developing solutions that combine
science, nutrition and technology to seek to make a
real impact on human health.
The first investment made through NSS was US$10
million for a minority shareholding in San Francisco
based Pendulum, a biotech company pioneering the
next frontier of metabolic health through its
microbiome-targeted products.
Fonterra
Te A w a m u t u
Decarbonising our
operations
Nutrition Science
Solutions
45
Products
& customers
We believe our New Zealand pasture-
based farming produces the best milk in
the world, a testament to the care and
attention our farmers 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 interested in the
provenance of their food, our sustainability credentials are
more important than ever.
Ruby, Southland
46
Innovating close to customers
In April, we launched Fonterra’s Shenzhen Application Center
(FAC) focused on beverage innovation.
Strategically located in the heart of the “New Capital of
Beverages,” Shenzhen, it is our fifth FAC in China following
Shanghai, Beijing, Chengdu, and Guangzhou.
China is a highly competitive beverage market, with consumers
constantly seeking the next best drink. Last year, 1,434 new kinds
of non-alcoholic beverages were launched in China by key tea
and beverage brands.
Businesses must adapt quickly to market trends and continuously
create novel products that typically combine traditional tea
ingredients, dairy and fruit products.
The Shenzhen application centre provides a new platform to
explore the diverse use of Fonterra products in beverages and
provide innovative application solutions to meet the local needs
of Chinese consumers.
A team of technical experts and experienced chefs are stationed
at the centre and help to create an interactive, experiential
space for customers, through product development seminars,
demonstrations, and virtual live teachings.
In July, Prime Minister of New Zealand, Chris Hipkins, visited our
application centre in Shanghai as part of his state visit to China.
The Shanghai centre is the Co-op’s first, established in 2014.
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.
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 seek to
maximise value for both our customers and farmer owners,
while looking to utilise every single drop of milk.
Ruby,
Southland
Fonterra Application Centre,
Shenzhen
Fonterra and DSM’s new venture: Vivici
With continued population growth, the world needs new
nutritional and functional food options.
Based on this vision, Vivici is a new startup company founded
by DSM Venturing and Fonterra.
It builds on a multi-year joint research development
agreement of DSM and Fonterra which led to promising
outcomes.
Vivici obtained IP rights and exclusive commercial rights from
Fonterra and DSM for developing and commercialisation of
precision fermentation-derived proteins.
The startup combines DSM’s world-leading expertise in
precision fermentation science and technology with Fonterra’s
world-leading dairy science and technology.
Since it was launched in August 2022, Vivici has cemented its
structure and defined its mission ‘to meet the world’s growing
need for sustainable, nutritious and great tasting proteins.’
These new sources of protein will meet demand that is
expected to double by 2050, driven by a growing and more
affluent global population, demand which the planet is not
expected to be able to meet through existing production.
It provides potential opportunity for Fonterra to extend our
farmers’ milk into products, categories and markets we’re
not currently participating in.
Vivici will target broad food and beverage markets and plans
to be open for customer collaboration later in 2023.
47
Collaborating with customers to align
on sustainability challenges
Fonterra and Mars benefit from shared values around innovation
and sustainability which underpins our deepening global strategic
partnership. Together, we ran a candy drop, where over 1,000
of our tanker drivers delivered Mars chocolates to our farmers
thanking them for the work they’re doing to improve on-farm
sustainability practices.
At the end of 2022 we signed a Global Supply Agreement
with Mars, where we will supply skim milk power, whole milk
powder and anhydrous milk fat with Fonterra’s share of wallet
scaling significantly through 2025. This deep partnering with
our customers around shared innovation and climate goals is
a powerful way forward for both of our businesses.
Australia responds to consumer trends
Our Australian business is responding to consumer preferences
for sustainable products.
The team launched a Mainland re-closeable snacking product,
which keeps biscuits and cheese fresh in the fridge.
This caters to the ever-growing in-home snacking market by
providing 16 slices of cheese along with two options for crackers.
This innovation means less waste and gives consumers more
choice for their snacking budget.
Premium Nutrition
Our innovation teams have launched numerous novel
applications as we seek to extract maximum value out of NZ
milk this year. Two examples are the Power Up high protein
coffee milk solution and high protein yoghurts.
In the first example, Fonterra offers an Intellectual Property
formulation, process know-how and ingredients package.
This accelerates and de-risks our customers’ ability to launch
a high protein coffee milk, in a UHT format, that is designed
to remain stable during shelf life. This is challenging as the
acidity from the coffee in a protein packed system can cause
sedimentation over the long shelf life expected of a UHT
product.
For high protein yoghurts, Fonterra has a range of ingredients
that allow unrivalled protein enrichment and enable a wide
range of textures, including drinking, spoonable and set;
without compromising flavour and mouthfeel. This is a
significant unlock and has proven difficult for competitors to
replicate and further demonstrates the quality ingredients,
application and processing knowledge held by the Co-op.
So far, these yoghurt innovations have seen success in USA,
Korea and Japan, to name a few.
Products & customers
48
Drysdale Farm,
Hawkes Bay
49
Fonterra Management Team
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).
Neil Beaumont
Chief Financial Officer
Neil Beaumont joined Fonterra in 2023 and is responsible for the
Co-operative’s finances, its financial portfolios, as well as mergers
and acquisitions. He is a highly accomplished Chief Financial
Officer with 25+ years of diverse and global finance leadership
experience, having lived and worked in Canada, Australia,
and Chile.
Most recently, Neil was Group CFRO of Canada’s largest
investment fund – the Canadian Pension Plan Investment Board
(CPPIB) – responsible for finance, risk, and strategic planning of
this C$500B+ organisation.
Prior to that, he had a six-year career with Australian
multinational resources company BHP, where he spent time
in both Group Finance and as CFO for the Minerals Americas
region.
Neil also spent over ten years as a Senior Partner with KPMG
operating as Business Unit Leader for Canada’s Western region,
with broad-reaching leadership across 13 offices and industry
client responsibility across agriculture, resources, technology,
and oil and gas.
He is a Chartered Professional Accountant and holds a Bachelor
of Commerce degree from the University of Saskatchewan.
Judith Swales
Chief Executive Officer, Global Markets
Judith Swales leads Fonterra’s Global Markets region. Responsible
for our Consumer, Foodservice and Ingredients channels across
the region, Judith and her team lead the global strategy to help
bring the goodness of dairy to generations of customers and
consumers.
Prior to this Judith was Fonterra’s CEO for Asia Pacific, and earlier
led the Global Consumer and Foodservice business, and the
Innovation and Transformation business unit. Judith joined the
Co-operative originally in 2013 as Managing Director Australia
and Fonterra Oceania.
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. Before joining
Fonterra, she was Managing Director of Heinz Australia, CEO
and Managing Director of Goodyear Dunlop, Australia and
New Zealand, and 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.
50
Te h-h a n C h o w
Chief Executive Officer, Greater China
Teh-han oversees the Co-op’s business in the Greater China region,
including Ingredients, Foodservice 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.
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.
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, 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.
51
Anna Palairet
Chief Operating Officer (Acting)
Anna is currently the Chief Operating Officer (Acting) for
Fonterra, responsible for our New Zealand manufacturing sites
and global supply chain operations, technical excellence, and
global safety, quality and regulatory teams.
She re-joined the dairy industry in October 2022 as the Director,
Global Supply Chain before moving into the Chief Operating
Officer (Acting) role in June 2023. She is also Chair of Kotahi
Logistics.
Anna is an experienced business leader with a career spanning
some of Australasia’s largest multinational companies across
multiple industries including Fonterra, Carter Holt Harvey,
Amcor, and Air New Zealand.
During her 16 years with Air New Zealand, Anna led commercial
portfolios in the company’s Engineering, Group Supply Chain,
Operations, Customer and Sales divisions. Positions included GM
Air New Zealand Cargo, GM Property and Infrastructure, Head of
Sustainability and Head of Procurement.
Anna is a past Board Director for the New Zealand Green
Building Council (NZGBC) and past Board Trustee of Gladstone
Primary School. She has a Bachelor of Science, Genetics and
Microbiology degree from Massey University.
Emma Parsons
Managing Director, Strategy and Optimisation
Emma leads Fonterra’s work on strategy and optimisation,
overseeing the product 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 Chief Executive Officer 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 Bachelor of Science and
Bachelor of Commerce degrees from Victoria University of
Wellington.
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.
Information about the
Board of Directors can be
found in the Governance
& Statutory Disclosures.
52
Information about the
Board of Directors can be
found in the Governance
& Statutory Disclosures.
Jack, Maheswary & Bronte,
Auckland
53
Reconciliation from profit after tax to total Group normalised EBITDA
GROUP $ MILLION
31 JULY 2023
31 JULY 2022
RE-PRESENTED
1
Profit after tax1,577583
Net finance costs from continuing operations211194
Net finance costs from discontinued operations5037
Tax expense from continuing operations303131
Tax expense from discontinued operations7731
Depreciation and amortisation from continuing operations654602
Depreciation and amortisation from discontinued operations833
Total Group EBITDA 2,8801,611
Gain on sale of Chilean Soprole business(349)–
Loss on sale of Hangu China farm12–
Gain on sale of Global Dairy Trade–(42)
Brazil consumer and foodservice business impairment–57
Total normalisation adjustments(337)15
Total Group normalised EBITDA2,5431,626
1 Comparative information has been re-presented for consistency with the current period. Refer to the Notes to the Financial Statements section –
Note 20 Re-presentations for further details.
Non-GAAP
measures
Fonterra uses several non-GAAP measures when
discussing financial performance. Non-GAAP
measures are not defined or specified by NZ IFRS.
They are not subject to audit unless they are included
in Fonterra’s audited annual financial statements.
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. Non-GAAP measures are not subject to audit unless
they are included in Fonterra’s audited annual financial statements.
54
Reconciliation from profit after tax to total Group normalised EBIT
GROUP $ MILLION
31 JULY 2023
31 JULY 2022
RE-PRESENTED
1
Profit after tax1,577583
Net finance costs from continuing operations211194
Net finance costs from discontinued operations5037
Tax expense from continuing operations303131
Tax expense from discontinued operations7731
Total Group EBIT2,218976
Normalisation adjustments (as detailed on previous page)(337)15
Total Group normalised EBIT1,881991
Reconciliation from profit after tax to normalised profit after tax and
normalised earnings per share
GROUP $ MILLION
31 JULY 202331 JULY 2022
Profit after tax 1,577583
Normalisation adjustments (as detailed on the previous page)(337)15
Tax on normalisation adjustments89(7)
Normalised profit after tax1,329591
(Profit)/loss attributable to non-controlling interests(40)1
Normalisation adjustments attributable to non-controlling interests–(24)
Normalised profit after tax attributable to equity holders of the
Co-operative
1,289568
Weighted average number of Co-operative shares (thousands of shares)1,610,5071,613,353
Normalised earnings per share ($)0.800.35
Reconciliation from gross profit from continuing operations to total
Group normalised gross profit
GROUP $ MILLION
31 JULY 2023
31 JULY 2022
RE-PRESENTED
1
Gross profit from continuing operations4,1812,909
Gross profit from discontinued operations 418431
Total Group normalised gross profit4,5993,340
1 Comparative information has been re-presented for consistency with the current period. Refer to the Notes to the Financial Statements section –
Note 20 Re-presentations for further details.
55
TermsDefinitions
Active Living
represents ingredients and 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 and lipids, and patented formulations.
Adjusted net debt
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.
Associated Shareholder
is a Shareholder that is a Farm Lessor, Sharemilker or Contract Milker.
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 liquids
means bulk raw milk that has not been processed and bulk separated cream.
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.
Capital expenditure
is 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 invested
is capital expenditure plus right of use asset (e.g. leases) additions and business
acquisitions, including equity contributions, long-term advances, and investments.
TermsDefinitions
Cash operating expenses
per kgMS
is continuing operations operating expenses, less non-cash costs (depreciation,
amortisation, right of use asset costs, impairments). Shown by kilogram of
New Zealand milk solids collected.
Ceased Shareholder
is a Shareholder that has given notice of ceasing supply, or is treated as having given
such a notice, and whose cease notice has become effective.
Consumer
is the channel of branded consumer products, such as powders, yoghurts, milk,
butter and cheese.
Continuing operations
means operations of the Group that are not discontinued operations.
Core Operations
represents core operating functions including New Zealand milk collection and
processing operations and assets, supply chain, Group IT and Sustainability; Fonterra
Farm Source™ retail stores; and the Strategy and Optimisation function.
Custodian
means the Fonterra Farmer Custodian, which is the legal holder of the shares in
respect of which economic rights are held for the Fund and any Market Makers.
Debt to EBITDA
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, net foreign exchange gains/losses and any
normalised EBITDA relating to entities divested during the year.
DIRA
means 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 operations
means 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 yield
is dividends (per share) divided by volume weighted average share price for the
period 1 August to 31 July.
Glossary
56
TermsDefinitions
Free cash flow
is the total of net cash flows from operating activities and net cash flows from
investing activities.
Fund
is the Fonterra Shareholders’ Fund.
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 accounts
means large scale, multi-national/multi-region customers.
Global Dairy Trade (GDT)
means the electronic auction platform that is used to sell commodity dairy products.
Global Markets
represents the Ingredients, Foodservice and Consumer channels outside of
Greater China.
Greater China
represents the Ingredients, Foodservice and Consumer channels in Greater China.
Gross margin
is gross profit divided by revenue from sale of goods.
Gross profit from Core
Operations per kgMS
is Core Operations business unit (excluding Farmsource) gross profit, less the cost of
New Zealand milk sold. Shown per kilogram of New Zealand milk solids sold by Core
Operations (continuing business).
Growth capital
expenditure
is investments to drive business expansion or improvement toward our strategy and
generate incremental revenue. This includes organic growth (existing business
projects) and inorganic growth (mergers and acquisitions).
Held for sale
is an 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.
Ingredients
represents the channel comprising bulk and specialty dairy products such as milk
powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia
and Europe, or sourced through our global network, and sold to food producers
and distributors.
TermsDefinitions
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 margin
is EBIT divided by revenue from sale of goods.
EBITDA margin
is EBITDA divided by revenue from sale of goods.
Economic rights
means the rights to receive dividends and other economic benefits derived from
a share, as well as other rights derived from owning a share.
Eliminations
represents eliminations of inter-business unit sales.
Farmgate Milk Price
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.
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.
Foodservice
represents 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.
57
TermsDefinitions
kgMS
means kilograms of milk solids, the measure of the amount of fat and protein in the
milk supplied to Fonterra.
Market Maker
is a third party appointed by the Co-op who is active in making bids and offers on a
minimum number of Fonterra Co-operative Group Shares.
Maximum Holding
is the maximum number of shares a Supplying Shareholder can hold, which is equal
to 4 times the Share Standard.
Minimum Holding
is the minimum number of shares a Supplying Shareholder is required to hold, which is
equal to 33% of the Share Standard. New entrants have up to six seasons to meet this.
Net debt
means adjusted net debt.
Net working capital
is total trade and other receivables plus inventories, less trade and other payables.
It excludes amounts owing to suppliers and employee entitlements.
Non-Reference Products
means all New Zealand milk solids processed by Core Operations, except for
Reference Commodity Products.
Non-shareholding farm
means a farm where the owning entity is not entitled to hold shares in the
Co-operative. As an example, farms supplying MyMilk.
Non-supplying
Shareholder
means all shareholdings that are not Supplying Shareholders.
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’.
Permitted Transferee
is a person who has been approved by the Co-op and who is (and remains) related to
or associated with a Ceased Shareholder.
TermsDefinitions
Price Relativities
refers to the difference in the weighted average price (in USD) between the
Co-op’s Reference Product portfolio and Non-reference Product portfolio.
The difference between these two weighted average prices is a key driver of the
Co-op’s gross margin.
Product channel
Fonterra has three product channels, Ingredients, Foodservice and Consumer.
Profit after tax margin
is 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)
is commodity specifications of the five Reference Commodity Products (RCPs) which
are Whole Milk Powder (WMP) and Skim Milk Powder (SMP), and their by-products
Butter, Anhydrous Milk Fat (AMF) and Buttermilk Powder (BMP). These commodity
groups are included in the calculation of the Farmgate Milk Price.
Reported
is 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’.
Retentions
means earnings per share, less dividend per share. Retentions are reported as nil
where Fonterra has reported a net loss after tax.
Return on Capital (ROC)
is calculated as Total Group normalised EBIT including finance income on long-term
advances less a notional tax charge, divided by average capital employed.
Rules for Shareholding
is the Rules for Shareholding adopted by the Fonterra Board from time to time.
Season
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.
Secondary Shareholder
is a sharemilker as defined in section 34 of the Co-operative Companies Act that
holds shares as if they were a Supplying Shareholder, pursuant to section 44 of the
Co-operative Companies Act and clause 30.5 of the Constitution.
Share Standard
means one share per one kgMS supplied, used to calculate a Supplying Shareholder's
Minimum Holding and Maximum Holding.
58
Iso,
Auckland
TermsDefinitions
Shareholding farm
means 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.
Supplying Shareholder
is a shareholder supplying milk to the Co-op.
Sustaining capital
expenditure
represents 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's sustainability targets.
To t a l G r o u p
is used to indicate that a measure or sub-total comprises continuing operations,
discontinued operations and non-controlling interests. E.g. ‘Total Group EBIT’.
Total payout
means 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.
Total Shareholder Return
(TSR)
is the measure of share price movements and all economic distributions (e.g.
dividends, capital returns) over a specified period of time, divided by the original
investment amount. Expressed as an annualised percentage.
Tradeable shares
represents shares on issue that are in excess of aggregate minimum shareholding.
WAC C
means 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 days
is 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.
59
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
Auditor
KPMG
18 Viaduct Harbour Avenue
Auckland 1010
New Zealand
Farmer shareholder
& supplier services
Freephone 0800 65 65 68
Fonterra Board
of Directors
Peter McBride
Clinton Dines
Brent Goldsack
Leonie Guiney
Bruce Hassall
Holly Kramer
Andrew Macfarlane
John Nicholls
Cathy Quinn
Scott St John
Alison Watters
Fonterra
Management Team
Miles Hurrell
Neil Beaumont
Judith Swales
Teh-han Chow
Kate Daly
Mike Cronin
Komal Mistry-Mehta
Emma Parsons
Anna Palairet
Fonterra Shares
& FSF Units Registry
Computershare Investor
Services Limited
Private Bag 92119
Auckland 1142
New Zealand
Level 2, 159 Hurstmere Road
Takapuna
Auckland 0622
New Zealand
Investor Relations
Enquiries
Phone +64 9 374 9000
https://www.fonterra.com/nz/en/
investors.html
Drysdale Farm,
Hawkes Bay
60
Drysdale Farm,
Hawkes Bay
insightcreative.co.nz FONTERRA116_AR
61
Fonterra Annual Review 2023
Arotake-ā-tau Te Mātāpuna
fonterra.com
---
Fonterra Financial Statements 2023 Fonterra Co-operative Group Limited — For the year ended 31 July 2023
Pūrongo pūtea Te Mātāpuna
Contents
INDEPENDENT AUDITOR’S REPORT04
STATEMENT OF FINANCIAL POSITION10
STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
11
STATEMENT OF CASH FLOWS12
STATEMENT OF CHANGES IN EQUITY13
BASIS OF PREPARATION14
NOTES TO THE FINANCIAL STATEMENTS17
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
OUR 2023 SUITE
OF REPORTS
Annual Review 2023
(Referenced as AR)
Financial Statements 2023
(Referenced as FS)
Business Performance
Report 2023
(Referenced as BP)
Sustainability Report 2023
(Referenced as SR)
Governance & Statutory
Disclosures 2023
(Referenced as G&S)
Modern Slavery Statement
2023
(Referenced as MS)
Farmgate Milk Price
Statement 2023
(Referenced as MP)
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 10 to 60 present fairly, in all material respects:
i. the Group’s financial position as at 31 July 2023 and its financial performance and cash flows for the year
ended on that date;
ii. in accordance with New Zealand Equivalents to International Financial Reporting Standards and
International Financial Reporting Standards issued by the New Zealand Accounting Standards Board.
We have audited the accompanying consolidated financial statements which comprise:
– the consolidated statement of financial position as at 31 July 2023;
– the consolidated statements of profit or loss and other comprehensive income, changes in equity
and cash flows for the year then ended; and
– notes, including a summary of significant accounting policies.
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.
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 $65 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 7 subsidiaries in New Zealand and Australia to be subject to audit due to their financial
significance and risk profile. We undertook audits of these subsidiaries ourselves. In addition, we performed
specific risk-focused audit procedures on certain transactions and balances in respect of a further 7 subsidiaries
in Japan, the Netherlands, the USA, New Zealand and Singapore, as well as 1 subsidiary accounted as held for sale
during the year in Brazil. We also identified 3 additional subsidiaries in Malaysia, New Zealand and Sri Lanka to
include in our scoping to provide additional coverage over the Group’s revenue and assets.
Taken together, the subsidiaries in scope for the Group audit accounted for 93% of the Group’s revenue and 89%
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 $10 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, Japan, the USA, Singapore, Malaysia, Sri Lanka,
China and Hong Kong. We held meetings with management responsible for the financial information of all
in scope subsidiaries.
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 of goodwill and
brands, useful lives of property, plant and equipment, accounting for divestments and assets held for sale and
financial instruments.
04
Independent Auditor’s Report CONTINUED
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in the current period. We summarise below those matters and our key audit
procedures to address those matters in order that the shareholders as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose
of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete opinions on separate elements of the consolidated financial statements.
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Revenue Recognition
Refer to Note 1 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 $24.6 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 92% 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.
05
Independent Auditor’s Report CONTINUED
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
Goodwill and Brands
Refer to Note 3 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 $1.5 billion to the financial statements as a whole and the level of judgement
involved in determining the methodology and assumptions used in the testing.
$0.7 billion of goodwill and brands is included within two cash generating units (‘CGUs’):
–Fonterra Brands New Zealand (‘FBNZ’) ($390 million of goodwill and brands) tested using the earnings multiple
method (a change from the discounted cash flow method used in previous years); and
–Fonterra Australia ($283 million of goodwill and brands) tested using the discounted cash flow method.
The Group’s consumer & foodservice brands are tested using the relief from royalty valuation method.
We focused our testing on two consumer brands with a heightened risk of impairment:
–Anmum ($68 million of brand value); and
–Anlene ($159 million of brand value).
We focused on the significant forward-looking assumptions the Group applied in their impairment testing, including:
–the estimate of FBNZ’s future maintainable earnings, and the earnings multiple;
–forecast cash flows, taking into account the Group’s growth plans for Fonterra Australia;
–local currency sales forecasts and market royalty rates appropriate to each brand; and
–terminal growth rates and discount rates, as the Group’s discounted cash flow 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 2023 was $8.0 billion whilst the
market capitalisation of Fonterra Co-operative Group Limited was $5.1 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 earnings multiple to observed trading multiples using KPMG valuation specialists;
–comparing 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 specialists; and
–considering the appropriateness of the disclosures in the financial statements.
The Group recognised an impairment of goodwill of $121 million in respect of FBNZ, of which $92 million was
recognised at half-year. No impairment of goodwill was recognised in respect of Fonterra Australia.
The Group recognised an impairment of $96m in respect of the Anmum and Anlene brands, of which $68 million
was recognised at half-year.
We found the impairment testing methodologies to be consistent with IAS 36. We found the earnings multiple,
discount rate and terminal growth rate assumptions were in an acceptable range, and that the other significant
assumptions were largely supported by comparison to the sources we considered.
For FBNZ, Anmum and Anlene, our scenario analysis indicated that the impairments recognised were appropriate.
As there is no headroom over the carrying value of these assets, any adverse movement in key assumptions would
result in further impairments.
For Fonterra Australia our scenario analysis indicated that the recoverable amount 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.
06
Independent Auditor’s Report CONTINUED
THE KEY AUDIT MATTERHOW THE MATTER WAS ADDRESSED IN OUR AUDIT
The cost of New Zealand sourced milk
Refer to Notes 4 and 11 to the financial statements.
The cost of New Zealand sourced milk supplied by farmer shareholders amounted to $12.3 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 $20.4 billion and the carrying value of the Group’s inventory
of $4.3 billion; and
–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
$8.22 per kgMS for New Zealand sourced milk for the season ended 31 May 2023; 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 $8.22 per kgMS (which equates
to $12.2 billion in total) and we confirmed with the Company Secretary that the Board of Directors approved a
payment of $8.22 per kgMS for New Zealand sourced milk for the season ended 31 May 2023 at their meeting
on 20 September 2023.
07
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 issued by the New Zealand Accounting
Standards Board;
–implementing necessary internal control to enable the preparation of a consolidated set of financial statements
that is 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.
Independent Auditor’s Report CONTINUED
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objective is:
–to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error; and
–to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located
at the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Matthew Diprose.
For and on behalf of
KPMG
Auckland
20 September 2023
08
Group Financial
Statements 2023
David, Southland
09
Independent
Auditor’s Report
Statement of Financial Position
AS AT 31 JULY
($ MILLION)
NOTES20232022
ASSETS
Current assets
Cash and cash equivalents1,822288
Trade and other receivables 21,18b2,4732,482
Inventories104,3465,148
Derivative financial instruments190230
Other assets14149171
Assets held for sale2b515473
Total current assets9,4958,792
Non-current assets
Property, plant and equipment126,3436,465
Intangible assets3,131,8242,153
Deferred tax assets17b182551
Derivative financial instruments379434
Other assets 14378386
Total non-current assets9,1069,989
Total assets18,60118,781
NOTES20232022
LIABILITIES
Current liabilities
Bank overdraft10231
Borrowings7785356
Trade and other payables 11,18b4,3704,522
Derivative financial instruments415733
Capital return payable5804–
Other liabilities15249248
Liabilities held for sale2b536628
Total current liabilities 7, 2 6 16,518
Non-current liabilities
Borrowings73,1564,900
Derivative financial instruments 106313
Other liabilities15110144
Total non-current liabilities 3,3725,357
Total liabilities10,63311,875
Net assets7, 9 6 86,906
EQUITY
Subscribed equity55,0735,891
Retained earnings2 , 7 741,611
Reserves22a59(569)
Non-controlling interests62(27)
Total equity7, 9 6 86,906
The Board approved and authorised for issue these Financial Statements on 20 September 2023.
For and on behalf of the Board:
Peter McBride Bruce Hassall
Chairman Director
10
Independent
Auditor’s Report
Statement of Profit or Loss and Other Comprehensive Income
FOR THE YEAR ENDED 31 JULY
($ MILLION)
NOTES20232022
Revenue from sale of goods124,58021,901
Cost of goods sold
New Zealand sourced cost of milk(12,306)(13,722)
Non-New Zealand sourced cost of milk(1,109)(843)
Other collection and manufacturing costs(6,182)(5,712)
(Decrease)/increase in inventories(802)1,285
Total cost of goods sold¹4a (20,399)(18,992)
Gross profit4,1812,909
Other operating income78151
Operating expenses4a (2,504)(2,114)
Net finance costs8 (211)(194)
Profit before tax from continuing operations1,544752
Tax exp ense17 (303)(131)
Profit after tax from continuing operations1,241621
Profit/(loss) after tax from discontinued operations2c336(38)
Profit after tax 1,577583
Cash flow hedges and other costs of hedging, net of tax22a389(320)
Net investment hedges and translation of foreign operations, net of tax22a66103
Foreign currency translation reserve losses/(gains) transferred to profit or loss22a194 (1)
Other movements in reserves54
Total items that may be reclassified subsequently to profit or loss654 (214)
Total items that will not be reclassified subsequently to profit or loss (4)24
Total other comprehensive income/(expense)650(190)
Total comprehensive income2,227393
Earnings per share attributed to equity holders of the Co-operative
Basic and diluted earnings per share from continuing operations ($) 0.75 0.36
Basic and diluted earnings per share from discontinued operations ($) 0.20 –
Total basic and diluted earnings per share ($) 0.95 0.36
Weighted average number of shares (thousands of shares)1,610,5071,613,353
1 This Statement is presented on a functional basis. The shaded information provides an additional breakdown of Cost of goods sold by nature of expense.
11
Statement of Cash Flows
FOR THE YEAR ENDED 31 JULY
($ MILLION)
NOTES20232022
Cash flows from operating activities
Profit after tax1,577583
Adjustments for:
Net finance costs261231
Tax exp ense380162
Depreciation and amortisation662635
Impairments3252109
Gain on sale of businesses2a (341)(42)
Foreign exchange (gains)/losses(137)309
Other 66(59)
Total adjustments1,1431,345
Decrease/(increase) in working capital and other
operating activities16871(1,598)
Interest paid (336)(297)
Net taxes paid (73)(137)
Net cash flows from operating activities3,182(104)
Cash flows from investing activities
Proceeds relating to divestments21,08426
Other cash inflows4419
Acquisition of property, plant and equipment (598)(480)
Hedging activities relating to the Chilean Soprole divestment2(148)–
Taxes paid relating to divestments2(118)–
Acquisition of intangible assets (72)(72)
Acquisition of investments (44)–
Other cash outflows (16)(10)
Net cash flows from investing activities132(517)
NOTES20232022
Cash flows from financing activities
Proceeds from borrowings2,6983,919
Other cash inflows10115
Repayment of borrowings (4,214)(3,634)
Dividends paid (430)(355)
Share buyback (11)(1)
Net cash flows from financing activities (1,856)(56)
Net increase/(decrease) in cash1,458(677)
Opening cash 281982
Effect of exchange rate changes11(24)
Closing cash 1,750281
Reconciliation of closing cash to the Statement
of Financial Position
Cash and cash equivalents1,822288
Bank overdraft (102)(31)
Cash balances included in assets and liabilities held for sale2b3024
Closing cash1,750281
12
Independent
Auditor’s Report
ATTRIBUTABLE TO EQUITY HOLDERS OF THE CO-OPERATIVE
NOTES
SUBSCRIBED
EQUITY
RETAINED
EARNINGSRESERVES
NON-CONTROLLING
INTERESTS
TOTAL
EQUITY
As at 1 August 20225,8911,611(569)(27)6,906
Profit after tax–1,537–401,577
Transfer between reserves–29(29)––
Other comprehensive income/(expense) ––657(7)650
Total comprehensive income–1,566628332,227
Transactions with equity holders:
Dividends paid6–(403)–(27)(430)
Dairy Partners Americas Brasil Limitada capital contributions received 2b–––8383
Capital return 5(804)–––(804)
Share buyback5(14)–––(14)
As at 31 July 20235,0732 , 7 7459627, 9 6 8
As at 1 August 20215,8921,350(379)66,869
Profit/(loss) after tax–584–(1)583
Other comprehensive expense––(190)–(190)
Total comprehensive income/(expense) –584(190)(1)393
Transactions with equity holders:
Dividends paid6–(323)–(32)(355)
Share buyback5(1)–––(1)
As at 31 July 20225,8911,611(569)(27)6,906
Statement of Changes in Equity
FOR THE YEAR ENDED 31 JULY
($ MILLION)
13
At a glance
The basis of preparation describes the significant accounting policies, judgements and estimates that
are relevant to the Group’s Financial Statements as a whole. Where a policy, judgement or estimate is
specific to a particular Note, it is included in the Note to which it relates.
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 (GAAP) 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 19 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
Simplification of Financial Statements
To improve disclosure effectiveness and focus on the most relevant and material information, the Group has
made a number of simplifications to the Financial Statements in the current year, and expanded disclosure for
areas of interest.
The previously separate Income Statement and Statement of Comprehensive Income have been combined into
the Statement of Profit or Loss and Other Comprehensive Income.
The Statement of Cash Flows has been re-presented to start with Net profit after tax instead of Profit before
net finance costs and tax, and to classify interest paid as an operating activity rather than a financing activity.
The re-presentations have changed the subtotals of Total adjustments, Net cash flows from operating activities
and Net cash flows from financing activities.
The simplification has also resulted in a number of aggregations and amendments where line items are not
material, and affected comparatives have been re-presented for consistency. These re-presentations have not
had an impact on the Profit after tax or Total comprehensive income in the Statement of Profit or Loss and Other
Comprehensive Income, Net assets in the Statement of Financial Position, or the Net increase/(decrease) in cash
presented in the Statement of Cash Flows.
Discontinued operations
During the period the Chilean Soprole business was classified as a disposal group held for sale and considered to
be a discontinued operation. The business was sold in March 2023.
–Discontinued operations are presented in a single line item in the Statement of Profit or Loss and Other
Comprehensive Income in the current and comparative reporting periods. Comparative period information
has been re-presented to reflect the classification of the Chilean Soprole business as a discontinued operation.
Refer to Note 2 Divestments and Note 20 Re-presentations for further information.
–As the Chilean Soprole business was classified as a disposal group held for sale and sold during the current
reporting period, associated amounts are not presented in the Assets held for sale and Liabilities held for sale
line items in the Statement of Financial Position, and no amounts have been re-presented.
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 transactions with subsidiaries 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.
On disposal or partial disposal of an entity, the related exchange differences that were recorded in equity are
recognised in the Statement of Profit or Loss and Other Comprehensive Income as part of the gain or loss
on disposal.
Basis of Preparation
FOR THE YEAR ENDED 31 JULY 2023
14
Independent
Auditor’s Report
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.
NOTE
ITEM INVOLVING SIGNIFICANT
JUDGEMENT OR ESTIMATION
Note 1
Segment reporting and revenueRevenue recognition for transactions
involving distributors
Note 2
DivestmentsDetermining if a disposal group is held for
sale, and fair value measurement of assets
and liabilities held for sale
Notes 3
and 13
Impairments and Intangible assetsAssumptions used in the impairment tests
Note 12
Property, plant and equipmentDetermining residual values and useful lives
Basis of Preparation CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
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.
Changes in accounting policies
The Group has changed its accounting policy in relation to emissions units held for compliance purposes in
the Statement of Financial Position, and now presents these as inventory (previously intangible assets) as this
better reflects the nature and use of these units. This has not resulted in a change to the measurement of these
assets. There has been no impact to the Statement of Profit or Loss and Other Comprehensive Income or the
Statement of Cash Flows. Comparative information has been re-presented for consistency with the current period
(31 July 2022: current intangible assets of $78 million and non-current intangible assets of $63 million have been
reclassified to inventory).
The Group has also changed its accounting policy in relation to the classification of interest paid in the Statement
of Cash Flows, and now presents interest paid as an operating activity rather than a financing activity. This change
has been made on the basis that Net cash flows from operating activities, inclusive of interest paid to support
operations, better reflects the underlying available operating cash flows of the business. This has not resulted
in a change to the amount presented. There has been no impact to the Statement of Financial Position or the
Statement of Profit or Loss and Other Comprehensive Income. Comparative information has been
re-presented for consistency with the current period (31 July 2022: $297 million presented as a cash flow
from financing activities).
New and amended New Zealand Equivalents to International Financial Reporting Standards
No new or amended standards and interpretations that became effective for the year ended 31 July 2023 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. The Group has assessed the effect
of applying NZ IFRS 17 and no material impact to the Group’s Financial Statements is expected.
There are no other new or amended standards that are issued but not yet effective that are expected to have
a material recognition or measurement impact on the Group.
15
Basis of Preparation CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
f) Climate risk
At a glance
This section provides information on climate-related risks, and how the impact has been considered in
these Financial Statements.
Climate change, Fonterra’s response, and how farmer shareholders, customers, regulators and others also respond
may have significant impacts on the recognised amounts of assets and liabilities.
The Group has committed to exiting coal by 2037, and in July 2023 the Group announced its target of reducing
global absolute Scope 1 and 2 greenhouse gas emissions by 50% by 2030 (from a 2018 base year).
While the effects of climate change are a continuing source of uncertainty, climate-related risks have been
assessed as not having a material impact on the Financial Statements for the year ended 31 July 2023.
Judgements and estimates
The Group has specifically considered the following areas of uncertainty:
Estimated useful lives of property, plant and equipment
The Group revisits the appropriateness of useful life estimates annually and as described in Note 12 Property, plant
and equipment.
The Group’s property, plant and equipment useful lives have recently been shortened to a maximum of 35 years
(which did not result in a material depreciation adjustment). In addition, the useful lives of vehicles are aligned
to the staged fleet electrification, and assets that will no longer be used following decarbonisation are expected
to be fully depreciated by 2037.
Recoverable amounts of assets - impairment assumptions
The Group performs impairment reviews as described in Note 3 Impairments, and although there have been
impairments recognised in the current year, these are not explicitly related to climate change and are attributed
to the estimates and assumptions for each cash generating unit as described in Note 3 Impairments.
16
Independent
Auditor’s Report
Basis of
Preparation
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
NOTEPAGE
Performance
1 Segment reporting and revenue18
2 Divestments22
3 Impairments25
4 Profit before tax from continuing operations28
Debt and Equity
5 Subscribed equity instruments30
6 Dividends31
7 Borrowings32
8 Net finance costs33
9 Capital management33
Assets and Liabilities
10 Inventories35
11 Trade and other payables35
12 Property, plant and equipment36
13 Intangible assets38
14 Other assets39
15 Other liabilities39
Other
16 Net movement in working capital and other operating activities40
17 Taxation40
18 Related party transactions42
19 Fair value measurement43
20 Re-presentations44
21 Financial risk management44
22 Hedge accounting50
23 Offsetting of financial assets and liabilities59
24 Subsidiaries60
Notes to the Financial Statements
FOR THE YEAR ENDED 31 JULY 2023
17
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Performance
This section focuses on the Group’s financial performance and the returns provided to equity holders.
1 Segment reporting and revenue
At a glance
This note provides information on the Group’s organisational structure and segment performance,
from continuing operations, together with information on the Group’s external revenue. The Group’s
reportable segments are Global Markets, Greater China, and Core Operations.
Segment information provided in this note reflects the Group’s performance from continuing operations only.
The Chilean Soprole business, 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 (CODM). The FMT consists of the Group’s
Chief Executive Officer (CEO), Chief Financial Officer, Chief Operating Officer, the CEO Global Markets, the CEO
Greater China, the Chief Innovation and Brand Officer, the Managing Director Strategy and Optimisation, the
Managing Director People and Culture and the Managing Director Co-operative Affairs.
During the year the measure of profit or loss used by the FMT to evaluate the underlying performance of
operating segments was earnings before interest and tax (EBIT), excluding corporate costs. In July 2023 this
transitioned to Profit or loss after tax attributable to equity holders, inclusive of corporate costs, updating the way
information is now presented to the FMT.
In June 2022 Fonterra announced changes to its organisational structure to better align with the long-term
aspirations of the Co-operative, following its strategy refresh announced in September 2021. Two new FMT roles
were created effective 1 August 2022, the Chief Innovation and Brand Officer and the Managing Director Strategy
and Optimisation. In addition to this, effective from 1 October 2022 the Group’s Asia Pacific and Africa, Middle
East, Europe, North Asia and Americas (AMENA) business units were merged into a combined Global Markets
business unit.
The Group’s operating model and the way financial information is presented to the FMT has been updated to align
to this new organisational structure. This is now based around the two customer-facing regional business units,
Global Markets and Greater China, and Core Operations which comprises:
–Chief Operating Office (COO) which includes New Zealand milk collection and processing operations, supply
chain, Group IT, Safety and Food Safety;
–Strategy and Optimisation (S&O), which includes optimising the New Zealand milk pool, product pricing
support for the regions, managing Fonterra’s dairy and non-dairy price risk and providing price risk
management tools to both our customers and farmer shareholders; and
–Fonterra Farm Source™ retail stores.
During the year corporate costs were not included within the operating segment EBIT presented to the FMT.
From July 2023, corporate costs, including Co-operative Affairs and other Group Functions, are included within
Global Markets, Greater China and Core Operations, updating the way financial information is presented to the
FMT. Following the organisational structure change, Innovation and Brand was also reported to the FMT within
the operating segments.
The operating model forms the basis for the Group’s operating segments.
The Group has identified its reportable segments based on a number of factors, including how the CODM makes
decisions about resource allocations and assesses performance. The Group has determined that its reportable
segments are Global Markets, Greater China and Core Operations. Comparative information within this note
has been restated to reflect the change in the Group’s reportable segments.
REPORTABLE SEGMENTSDESCRIPTION
Global MarketsRepresents the global Ingredients, Foodservice and Consumer channels outside of
Greater China.
Greater ChinaRepresents the Ingredients, Foodservice and Consumer channels in Greater China.
Group OperationsRepresents COO, S&O and Fonterra Farm Source™ retail stores.
The performance of large multinational 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 performance of the Group’s reporting segments includes transactions between the regional business
units and Core Operations for the purchase and sale of goods, which are eliminated at the total Group level.
Transactions between Core Operations and the other reportable segments are based on transfer pricing that
is indexed where possible to observable market pricing (such as Global Dairy Trade prices). For products with
specifications that vary from those with observable market pricing, incremental manufacturing and services
costs are included in the transfer price.
18
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
1 Segment reporting and revenue continued
a) Reportable segments continued
GLOBAL MARKETSGREATER CHINACORE OPERATIONSELIMINATIONSTOTAL
2023202220232022202320222023202220232022
CONTINUING OPERATIONS
RESTATEDRESTATEDRESTATEDRESTATEDRESTATED
Revenue from sale of goods18,4011 5, 3747, 0 7 26,86919,14216,987(20,035) (17, 32 9)24,58021,901
Cost of goods sold(16,565)(13,832)(6,356) (6,238)( 1 7, 5 1 3) (16,251)20,03517, 32 9 (20,399) (18,992)
Gross profit1,8361,5427166311,629736––4,1812,909
Operating expenses (1,310) (1,081) (346) (293) (840) (691)–– (2,496) (2,065)
Other¹53 (15)–717110––70102
EBIT579446370345806155––1,755946
Profit after tax38530828427357240––1,241621
Profit after tax attributable to equity
holders of the Co-operative36929726225057139––1,202586
Other segment information:
–Inter-segment revenue29924643219,69317, 0 81(20,035)(17, 32 9)––
–External revenue
2
:
Ingredients channel revenue13,29110,9404,4404,648 (315) (53)––1 7, 4 1 615,535
Foodservice channel revenue1,7921,5152,2121,850 (139) (63)––3,8653,302
Consumer channel revenue3,0192,673377369 (97)22––3,2993,064
Total external revenue18,10215,1287, 0 2 96,867 (551) (94)––24,58021,901
–Depreciation and amortisation(156)(143)(13)(15)(485)(444)––(654)(602)
– Share of profit of equity
accounted investees78––102––1710
1 Comprises other operating income, net foreign exchange gains/(losses) and share of profit of equity accounted investees.
2 External revenue is determined in accordance with the accounting policy, estimates and judgements set out below. Core Operations includes external revenue together with adjustments to reflect that it acts as an agent for other segments, and the volatility associated with the Group’s sales
hedging activities.
19
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
1 Segment reporting and revenue continued
b) Revenue
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.
20
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
b) Revenue continued
In addition to the segment and channel revenue set out above, revenue is also presented 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.
GEOGRAPHICAL EXTERNAL REVENUE
ASIA
(EXCLUDING CHINA)CHINANEW ZEALANDAMERICASAUSTRALIAREST OF WORLDTOTAL
Year ended 31 July 20239,0126,1922,5182,4952,2392,12424,580
Year ended 31 July 20228,0166,2442,1401,9981,7261,77721,901
c) Geographical analysis of non-current assets
Geographical groupings in the following table are not aligned with the Group’s reportable segments.
GEOGRAPHICAL NON-CURRENT ASSETS
ASIA
(EXCLUDING CHINA)CHINANEW ZEALANDAMERICASAUSTRALIAREST OF WORLDTOTAL
As at 31 July 2023751236,519819622098,545
As at 31 July 2022799206,5423781,0262399,004
RECONCILIATION OF GEOGRAPHICAL NON-CURRENT ASSETS TO TOTAL NON-CURRENT ASSETS20232022
Geographical non-current assets 8,5459,004
Deferred tax assets182551
Derivative financial instruments 379434
Total non-current assets9,1069,989
1 Segment reporting and revenue continued
21
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
2 Divestments
At a glance
This note provides information on components of the Group that have been divested or are held for sale,
and discontinued operations.
At 31 July 2023, the Brazil consumer and foodservice business continued to meet the definition of held for sale
and a discontinued operation.
The Group completed the sale of the Chilean Soprole business and the Hangu China farm during the year ended
31 July 2023.
a) Divestments
An asset, investment or group of assets and liabilities (e.g. a business) are derecognised when the Group
loses control in a sale transaction. A gain or loss on sale is recognised as the difference between the total
sales proceeds and the carrying amount of the assets and liabilities at the date of sale, less transaction
and other disposal costs.
Foreign currency translation reserves (and cash flow hedge reserves) recorded in equity and reclassified
to the Statement of Profit or Loss and Other Comprehensive Income at sale also form part of the gain or
loss on sale.
Sale of the Chilean Soprole business
In November 2022, the Group announced the sale of its Chilean Soprole business. The Chilean Soprole business is
considered a discontinued operation and its performance has not been included in a reportable segment.
The divestment was completed in March 2023, and is comprised of two transactions. The Group sold its equity
interest in the Chilean Soprole business, and sales proceeds amounted to CLP197 billion ($392 million) after
adjustments for net debt and working capital. The purchaser assumed a debenture liability of $684 million as part
of the equity sale, and this was subsequently repaid.
In relation to the sale of Group’s equity interest, a gain of $260 million has been recognised in profit after tax
from discontinued operations in the Statement of Profit or Loss and Other Comprehensive Income, comprised
of the following:
2023
Sales proceeds received in cash392
Add: Net liabilities disposed of (including the debenture liability)274
Add: Non-controlling interests1
Less: Hedging losses and costs¹(152)
Less: Transaction costs(13)
Less: Reclassification of other foreign currency translation reserve(153)
Gain before tax349
Tax exp ense(89)
Gain after tax260
1 Includes economic hedging, together with the reclassification of foreign currency translation reserves in respect of net investment hedges
($33 million), and cash flow hedges ($22 million).
A breakdown of net liabilities disposed of is presented in the following table.
2023
Cash and cash equivalents10
Trade receivables174
Inventory245
Property, plant and equipment174
Intangible assets128
Other assets136
Borrowings (including the debenture liability)(714)
Trade and other payables (382)
Other liabilities(45)
Net liabilities disposed(274)
22
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
b) 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 Statement of Profit or Loss and Other Comprehensive Income.
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,
including agreed purchase price(s) where an agreement has been reached.
The major classes of assets and liabilities held for sale are presented in the following table.
ASSETS AND LIABILITIES HELD FOR SALE20232022
Cash and cash equivalents
3024
Trade receivables
7058
Inventory
3732
Property, plant and equipment
9079
Intangible assets
124111
Other assets
164169
Total assets held for sale
515473
Borrowings
199333
Trade and other payables
239209
Other liabilities
9886
Total liabilities held for sale
536628
Net liabilities held for sale
(21)(155)
Brazil consumer and foodservice business
As at 31 July 2023 the Brazil consumer and foodservice business continued to meet the requirements to be
classified as held for sale (31 July 2022: held for sale).
During the year the equity holders each contributed their proportionate share of $169 million to repay borrowings
of the business, which reduced the net liabilities held for sale.
The Group reassessed the fair value less costs to sell at 31 July 2023, and no adjustment has been recognised
(31 July 2022: a write-down of $57 million ($50 million after tax)).
On 13 December 2022 the Group announced the sale of the Brazil consumer and foodservice business, subject
to a number of conditions including receipt of regulatory approvals from competition authorities. The Brazilian
competition regulator released its first report on the proposed sale late July 2023. The parties are engaging with
authorities to understand and to address the competition concerns raised in relation to limited parts of the
business, and expects the sale to be completed within one year of balance date.
The foreign currency translation reserve at 31 July 2023 attributable to the Brazil consumer and foodservice
business was a debit balance of $68 million (31 July 2022: debit balance of $67 million).
2 Divestments continued
23
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
c) Discontinued operations
A disposal group that meets the criteria 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 Statement of
Profit or Loss and Other Comprehensive Income for both the current and comparative year.
The summarised financial performance of the Hangu China farm, Brazil consumer and foodservice business,
and Chilean Soprole business recognised in profit after tax from discontinued operations, total comprehensive
income/(expense) from discontinued operations, and net cash generated by the discontinued operations,
is presented in the following table.
DISCONTINUED OPERATIONS20232022
Revenue1,4661,524
Cost of goods sold (1,048)(1,093)
Gross profit418431
Other operating income349–
Operating expenses (304)(401)
Net finance costs (50)(37)
Profit/(loss) before tax from discontinued operations413(7)
Tax exp ense (77)(31)
Profit/(loss) after tax from discontinued operations336(38)
Share of (profit)/loss attributable to non-controlling interests (1)36
Profit/(loss) after tax attributable to equity holders of the Co-operative335(2)
Movement in exchange differences on translation of discontinued operations17(55)
Foreign currency translation reserve losses/(gains) transferred to the
Statement of Profit or Loss and Other Comprehensive Income188(1)
Other reserve movements(4)9
Total comprehensive income/(expense) from discontinued operations537(85)
DISCONTINUED OPERATIONS20232022
Net cash inflow/(outflow) from operating activities63(12)
Net cash inflow/(outflow) from investing activities769(24)
Net cash (outflow)/inflow from financing activities (82)24
Net increase/(decrease) in cash generated by the
discontinued operations750(12)
At 31 July 2023, the Brazil consumer and foodservice business continues to meet the definition of a
discontinued operation.
During the year ended 31 July 2023, the financial performance of the Hangu China farm business and Chilean
Soprole business was recognised in profit after tax from discontinued operations up until the date of their
respective sales.
Within Cash flows from investing activities presented in the Statement of Cash Flows, Proceeds relating to
divestments includes the following.
20232022
Chilean Soprole business
Sale of equity interest392–
Debenture repayment684–
Proceeds received1 ,076–
Less: Cash and cash equivalents disposed of(10)–
Total Chilean Soprole business proceeds relating to divestments¹1,066–
Other divestments1826
Total proceeds relating to divestments1,08426
1 When including dividends of $198 million received during the year (prior to settlement), aggregate proceeds were $1,264 million (before tax).
2 Divestments continued
24
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
3 Impairments
At a glance
This note provides information on the Group’s assessment of impairment for continuing operations.
An impairment is recognised when the carrying amount of an asset or cash-generating unit (CGU) is
greater than its recoverable value.
Impairment testing
A 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 of disposal. If the
carrying amount is higher than the recoverable amount, the CGU is impaired to its recoverable amount.
Uncertainty is involved in estimating value in use and fair value less costs of disposal.
Value in use is determined as the present value of the future cash flows expected to be derived from the
CGU. Judgement is involved in estimating 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, and 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 of disposal 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. Fair
value has been determined using a market approach, with judgement involved in the estimate of future
maintainable earnings and the earnings multiple applied.
Impairments from continuing operations recognised in the Statement of Profit or Loss and Other Comprehensive
Income are presented in the following table.
20232022
New Zealand consumer and foodservice business goodwill impairment121–
Asia brands impairment 10134
Other impairments2618
Total24852
The Group has performed impairment tests for CGUs with goodwill or intangible assets with indefinite useful
lives. Annual impairment tests are performed at 31 March, with CGUs and assets assessed for indicators of
impairment at 31 July. Apart from the Group’s market capitalisation (refer to Note 5 Subscribed equity instruments
for further information), no indicators of impairment were identified at the reporting date.
Impairment of $222 million for goodwill and brands has been recognised within operating expenses in the
Statement of Profit or Loss and Other Comprehensive Income (31 July 2022: $34 million). Goodwill and intangible
assets are set out in Note 13 Intangible assets.
The allocation of goodwill and brands is presented in the following table. All brands presented have
indefinite lives.
20232022
BRANDSGOODWILLTOTALBRANDSGOODWILLTOTAL
New Zealand consumer
and foodservice CGU282108390282229511
Australia CGU148135283148140288
Asia brands611–611678–678
NZMP brand120–120120–120
Chile CGU–– – 2090110
Other CGUs–7373–7474
Total1,1613161,4771,2485331,781
Raw materials and finished goods
25
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
a) Impaired CGUs and indefinite life brands
Further information for those CGUs with goodwill or indefinite life brands where an impairment has been
recognised is provided below.
New Zealand consumer and foodservice CGU
This CGU represents a business which sells dairy products in the consumer and foodservice channels in
New Zealand and selected export markets.
At 31 July 2022, the recoverable amount of the business was determined on a value in use basis using a discounted
cash flow methodology, with the recoverable amount exceeding its carrying amount by $66 million. As presented
in the Group’s Financial Statements for the year ended 31 July 2022, it was determined a reasonably possible
change in certain key assumptions (including volume and margin growth) used to determine the value in use
would result in an impairment.
The business has experienced challenging market conditions, including higher input costs and inflationary
pressures. The New Zealand domestic dairy market is highly competitive, and this has impacted the sales team’s
ability to fully recover the higher input costs through product price increases. During the year margin and volume
were lower than forecast and costs higher than forecast, which combined with an increase in the discount rate
resulted in the value in use being below the carrying value of the business.
The fair value less costs of disposal of the business was determined under a market approach. The valuation uses
a sustainable earnings before interest, tax, depreciation and amortisation (EBITDA) based on expected future
maintainable earnings, and an appropriate earnings multiple based on benchmarking against peers, performed
by an external expert. This valuation uses unobservable inputs, which would be categorised under Level 3 of the
fair value hierarchy.
The fair value less costs of disposal is higher than the value in use at 31 July 2023 and has been used to determine
the recoverable amount of the business.
The recoverable amount of the business was assessed to be $645 million. This was lower than the carrying value
of the business, resulting in an impairment of goodwill of $121 million (31 July 2022: nil) recognised in the Group’s
Global Markets reportable segment.
Following the impairment of goodwill the carrying value of the CGU has been reduced to its recoverable amount.
As such, if a change in market conditions adversely impacts the earnings multiple applied, a deterioration in
sustainable EBITDA occurs, or the value of the CGUs net assets significantly increases, a further impairment
may be possible.
Asia brands
The 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 is 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 key assumption used in the relief from royalty method is forecast sales growth. The value attributed to
the assumption is based on five-year revenue forecasts using the three-year business plans approved by the
Board. Revenues for years four and five have been prepared based on growth expectations for the brand.
A range of other possible scenarios were also considered, and a probability weighting applied to determine
the recoverable amount.
The royalty rates applied in the calculation are determined based on comparable market data, and range from
3% to 7% (31 July 2022: 3% to 7%).
The carrying amount for the Anchor™, Anlene™ and Anmum™ brands and revenue forecasts for each region are
in local currency and converted to NZD. The carrying amount for the Chesdale™ brand is in NZD and revenue
forecasts for each region are in local currency and converted to NZD.
The total impairment recognised across the Asia brands is $101 million (31 July 2022: $34 million). Of this
impairment, $55 million is attributed to the Global Markets reportable segment and $46 million to the Greater
China reportable segment (31 July 2022: $33 million Global Markets, $1 million Greater China). Refer below for
further information specific to each brand.
Anchor™ brand
No impairment has been recognised for the Anchor™ brand, and no reasonably possible change in key
assumptions would cause the carrying amount of the brand to exceed its recoverable amount.
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 32.3% (31 July 2022: 7.7% to 26.3%). The range of pre-tax discount rates was 10.7% to
45.7% (31 July 2022: 9.6% to 33.7%).
The long-term growth rates applied range from 1.5% to 5.1% (31 July 2022: 1.6% to 7.4%).
Anlene™ brand
The recoverable amount of the Anlene™ brand was assessed to be $158 million. This was lower than the carrying
value of the brand, resulting in an impairment of $45 million (31 July 2022: $22 million).
The impairment recognised is primarily due to a reduction in forecast sales growth, with the current inflationary
environment and challenging market conditions impacting the outlook for the brand. Increases in discount rates
and changes in foreign exchange rates have also contributed to the impairment recognised.
As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount
rates applied was 9.2% to 32.3% (31 July 2022: 9.2% to 31.5%). The range of pre-tax discount rates was 10.7% to
45.7% (31 July 2022: 11.1% to 41.4%).
The long-term growth rates applied range from 1.5% to 5.1% (31 July 2022: 1.6% to 7.4%).
Following this impairment, the carrying value of the brand has been reduced to the recoverable value. An adverse
change in a key assumption could result in a further reduction in the recoverable amount, in which case a further
impairment may be possible.
3 Impairments continued
26
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Anmum™ brand
The recoverable amount of the Anmum™ brand was assessed to be $67 million. This was lower than the carrying
value of the brand, resulting in an impairment of $51 million (31 July 2022: $11 million).
The impairment recognised is primarily due to a reduction in forecast sales growth, with the current inflationary
environment and challenging market conditions impacting the outlook for the brand. Increases in discount rates
and changes in foreign exchange rates have also contributed to the impairment recognised.
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 16.4% (31 July 2022: 9.2% to 15.8%). The range of pre-tax discount rates was 10.7% to
19.8% (31 July 2022: 11.1% to 19.8%).
The long-term growth rates applied range from 1.5% to 3.7% (31 July 2022: 1.6% to 3.8%).
Following this impairment, the carrying value of the brand has been reduced to the recoverable value. An adverse
change in a key assumption could result in a further reduction in the recoverable amount, in which case a further
impairment may be possible.
Chesdale™ brand
The recoverable amount of the Chesdale™ brand was assessed to be $22 million. This was lower than the carrying
value of the brand, resulting in an impairment of $5 million (31 July 2022: $1 million).
The impairment recognised is primarily due to a reduction in forecast sales growth for the brand, with increases in
discount rates and changes in foreign exchange rates also contributing to the impairment recognised.
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 32.3% (31 July 2022: 8.8% to 31.5%). The range of pre-tax discount rates was 10.7% to
45.7% (31 July 2022: 11.1% to 41.4%).
The long-term growth rates applied range from 1.5% to 3.8% (31 July 2022: 1.6% to 3.8%).
Following this impairment, the carrying value of the brand has been reduced to the recoverable value. An adverse
change in a key assumption could result in a further reduction in the recoverable amount, in which case a further
impairment may be possible.
b) CGUs with significant goodwill and indefinite life brands not impaired
Further information for those CGUs with significant goodwill or indefinite life brands that have not been impaired
during the year is provided below.
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 growth in forecast milk supply (inclusive of
solids sourced from New Zealand, if required), a key assumption included in the impairment model, which is
expected to support sales volume growth. In determining this key assumption, the Group has leveraged from
past experience, adjusted where appropriate for future expectations around forecast milk supply.
The long-term growth rate applied to the future cash flows after year five of the forecast was 2.5% (31 July 2022:
2.5%). This reflects the expected long-term economic growth rate for Australia.
The post-tax discount rate was 7.0% (31 July 2022: 7.0%). The pre-tax discount rate was 9.3% (31 July 2022: 9.3%).
The recoverable amount of the business exceeded its carrying amount by $197 million. The Group has identified
that a reasonably possible change in several key assumptions could cause the carrying amount to exceed the
recoverable amount. The following table shows the amount by which these assumptions would need to change
individually for the carrying amount to exceed estimated recoverable amount.
KEY ASSUMPTIONSVALUE ATTRIBUTED
CHANGE REQUIRED FOR THE CARRYING AMOUNT TO EXCEED
THE RECOVERABLE AMOUNT
Growth in milk supply
4.0% per annumA decrease in growth of 2.8%
Discount rate (post-tax)
7. 0 %An increase in the discount rate of 0.6%
Long-term growth rate
2.5%A decrease in the long-term growth rate of 0.7%
While not considered an indicator of impairment, the post-tax discount rate has increased to 7.2% (pre-tax
discount rate 9.5%) at 31 July 2023, which would reduce the recoverable amount.
3 Impairments continued
a) Impaired CGUs and indefinite life brands continued
27
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
4 Profit before tax from continuing operations
At a glance
This note provides information on expenses and cost of goods sold by function that have been
included in profit before tax from continuing operations, together with additional information on
expenses by nature.
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 collection and manufacturing costs include changes in inventory levels together with purchases
of other products, raw materials, packaging, direct labour costs, depreciation and other costs directly
incurred to bring inventory to its final point of sale location.
a) Expenses by function
20232022
Cost of goods sold20,39918,992
Administrative expenses928784
Selling and marketing expenses542532
Distribution expenses433404
Other operating expenses601394
Operating expenses2,5042,114
b) Expenses by nature
COST OF GOODS SOLD20232022
Cost of milk:
–New Zealand sourced12,30613,722
–Non-New Zealand sourced1,109843
Other ingredient purchases and manufacturing costs2,8132,760
Employee benefits expense1,2671 ,174
Energy costs632569
Packaging519459
Storage and distribution477321
Depreciation and amortisation474429
Total other collection and manufacturing costs6,1825,712
Decrease/(increase) in inventories802(1,285)
Total cost of goods sold20,39918,992
28
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
OPERATING EXPENSES20232022
Employee benefits expense963860
Storage and distribution263241
Advertising and promotion219227
Information technology205191
Professional and management fees167149
Depreciation and amortisation180173
Impairments24844
Other259229
Total operating expenses2,5042,114
The table below presents further information on expenses recognised in the Statement of Profit or Loss and Other
Comprehensive Income within both Cost of goods sold and Operating expenses from continuing operations.
20232022
Total employee benefits expense2,2302,034
Total depreciation and amortisation expense654602
Total research and development costs11696
c) Fees paid to the auditor and network firms
KPMG has been appointed the Group’s external auditor for four consecutive years. The lead audit partner has
served for four 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, review and audit-related services.
A breakdown of fees paid to the auditor and network firms which are included in the Statement of Profit or Loss
and Other Comprehensive Income is presented in the following table. Fees are inclusive of any disbursements.
$ THOUSANDS
20232022
Audit and review of the Financial Statements of the Group and
its subsidiaries:
–New Zealand6,6276,017
–Network firms of the auditor2,0001,700
Total fees for the audit and review of the Financial Statements8,6277, 7 17
Audit and review related services:
Assurance engagements
–Farmgate Milk Price statement8980
–Shareholder continuity report1313
Agreed upon procedures engagements
–AGM vote scrutineering44
–Compliance with banking arrangements1211
–Annual update of debt issuance prospectus6867
–Government grant compliance–16
–Distribution of Dairy Industry Support Funds–12
Total fees for audit and review related services186203
Total fees paid to auditor8,8137, 92 0
4 Profit before tax from continuing operations continued
b) Expenses by nature continued
29
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
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.
5 Subscribed equity instruments
At a glance
This note provides information on the Group’s capital structure, including shares of the Co-operative and
Units of the Fonterra Shareholders’ Fund.
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.
Fonterra transitioned to a new Flexible Shareholding capital structure (Flexible Shareholding) on 28 March
2023. Farmer share compliance obligations (which were on hold during the pre-implementation phase of Flexible
Shareholding) are no longer on hold and farmer shareholders are required to hold their “minimum holding” and
no more than their “maximum holding” of shares in accordance with Fonterra’s Constitution for the 2023/2024
season by the Compliance Date of 1 December 2023. The current cap on the Fund remains, so Co-operative
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
Flexible Shareholding.
Information about the Group’s capital structure is available in the ‘Investors/Capital Structure’ section of
Fonterra’s website.
On 26 July 2023, shareholders voted to pass the resolution to approve the scheme of arrangement for the
Co-operative’s return of approximately $800m of capital to shareholders (the Scheme). Final Court orders
sanctioning the Scheme were made on 9 August 2023 and the Scheme was implemented on 17 August 2023,
with payment to Shareholders being made on 18 August 2023. Shares held by Fonterra Farmer Custodian Limited
(as Custodian of the Fund) were also subject to the Scheme. The payment due to the Custodian was paid directly
to unit holders on the same date.
At 31 July 2023, the approved capital return was recognised as a reduction in subscribed equity and a liability,
$750 million relating to Co-operative shareholders and $54 million relating to unit holders. Under the Scheme
Fonterra repurchased and cancelled one in every six shares held by each shareholder and, at the same time,
one share held by each shareholder which was not repurchased was subdivided into such number of ordinary
shares as were repurchased from that shareholder, plus one. As a result, each shareholder continued to hold the
same total number of shares as they held before the capital return.
a) Co-operative shares, including shares held within the Group
Co-operative shares can be traded between eligible shareholders on the Fonterra Shareholders’ Market (a private
market operated by NZX Limited). Following the transition to Flexible Shareholding Co-operative shares may only
be held by:
–a shareholder supplying milk to Fonterra (farmer shareholder);
–former farmer shareholders and/or their “permitted transferee(s)” (being a relative of, or someone with
a sufficient ownership or control relationship with, a former farmer shareholder) who must dispose of their
shares within a specified period after cessation of supply. This “exit period” is determined by when the former
farmer shareholder became a farmer shareholder;
–sharemilkers, contract milkers and lessors who are associated with a farm that supplies milk to Fonterra; and
–Fonterra Farmer Custodian Limited (the Custodian).
Voting rights are dependent on milk supply supported by Co-operative shares. The rights attaching to
Co-operative shares are set out in Fonterra’s Constitution, available in the ‘Our Co-operative/Governance
and Management’ section of Fonterra’s website.
A reconciliation of movements in shares of the Co-operative is presented in the following table.
SHARES$ MILLION
2023202220232022
Co-operative shares on issue
at beginning of period1,612,825,5851,613,357,8795,8915,892
Shares acquired (and cancelled)
under buyback programmes (3,580,916)(532,294)(9)(1)
Capital return payable––(804)–
Co-operative shares on issue
at end of period1,609,244,6691,612,825,5855,0785,891
Treasury shares¹(2,000,000)–(5)–
Co-operative shares on issue,
excluding treasury shares1,607,244,6691,612,825,5855,0735,891
1 The treasury shares relate to shares acquired by the Market Makers with the legal title held by Fonterra Farmer Custodian Limited, but which are
treated as treasury shares for accounting purposes.
On 27 July 2023, Fonterra announced that it would allocate up to $50 million to an on-market share buyback
programme, as part of Fonterra’s ongoing capital management programme. This programme commenced on
18 August 2023 and is expected to continue until 13 August 2024.
30
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
5 Subscribed equity instruments continued
b) Units in the Fonterra Shareholders’ Fund (the 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. Units in the Fund are traded on the New Zealand Stock Exchange (NZX) and
Australian Securities Exchange (ASX).
The overall limit on the Fund size (as a percentage of total Co-operative shares) has reduced from 20% to 10%.
The current cap on the Fund remains, so Co-operative shares are not able to be exchanged into units in the Fund
on a day-to-day basis. The Fonterra share buyback programmes have not had a material impact on the Fund size
as a percentage of the total number of Co-operative shares on issue.
The rights attaching to units are set out in the Fonterra Shareholders’ Fund 2023 Annual Report, available in the
‘Investors/Fonterra Shareholders’ Fund’ section of Fonterra’s website.
A reconciliation of movements in units of the Fund is presented in the following table.
UNITS
20232022
Units on issue at beginning of period
1 0 7, 4 1 7, 3 2 2107,420,162
Units redeemed
(6,338)(2,840)
Units on issue at end of period
107,410,984107, 417, 32 2
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, and the gap has been increasing over time. At 31 July 2023, the Group’s market
capitalisation was $5.1 billion (31 July 2022: $4.4 billion) and the carrying amount of net assets was $8.0 billion
(31 July 2022: $6.9 billion).
The share price is not considered an accurate reflection of the fair value of the Group’s net assets for a number of
reasons, including the nature of the Co-operative and its unique capital structure. For example, shares traded in a
restricted market (i.e. Co-operative shares) are generally expected to trade at a discount compared to unrestricted
markets, there is reduced liquidity in the market, supply and demand dynamics are impacted, and there is limited
or no ability for investors to take a significant ownership interest or controlling interest.
However, accounting standards consider market capitalisation below the value of net assets to be an indicator
of impairment and an impairment test has been performed. An external valuation was obtained to support the
recoverable amount of the Group’s net assets, using a multiples based approach on a fair value less costs of disposal
basis. The valuation used key estimates including maintainable EBIT, earnings multiples of between 13.0x to 14.0x and
seasonally adjusted net debt (includes the capital return payable). This implied an equity valuation of between $10.3
billion and $11.5 billion which exceeds the net assets of the Group. As such, no impairment has been recognised.
6 Dividends
All Co-operative shares, including those held by the Custodian, are eligible to receive dividends if
declared by the Board.
Dividends are recognised as a liability in the Group’s Financial Statements in the period in which they are
declared by the Board. The Group’s Dividend Policy can be found in the ‘Investors/Results & Reporting/
Dividends & Reinvestment Plan’ section of Fonterra’s website.
20232022
2023 Interim dividend – 10 cents per share
161–
2022 Final dividend – 15 cents per share
242–
2022 Interim dividend – 5 cents per share
–81
2021 Final dividend – 15 cents per share
–242
Dividend declared after balance date
On 20 September 2023, the Board declared a final dividend of 40 cents per share, to be paid on 13 October 2023
to all holders of Co-operative shares on issue at 28 September 2023.
31
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
7 Borrowings
At a glance
This note provides information on the Group’s borrowings, including movements during the year.
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.
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.
20232022
Total current borrowings785356
Total non-current borrowings3,1564,900
Total borrowings
1
3,9415,256
Commercial paper–98
Bank loans50999
Lease liabilities392438
Capital notes
2
–35
NZX-listed bonds100250
Medium-term notes3,3993,436
Total borrowings
1,3
3,9415,256
1 Borrowings of $199 million attributable to disposal groups held for sale are not included in the table above (31 July 2022: $333 million).
2 Capital notes (redeemed on 10 July 2023) were unsecured subordinated borrowings.
3 All borrowings other than lease liabilities and capital notes are both unsecured and unsubordinated.
A breakdown of movements in total borrowings is presented in the following table.
20232022
Opening balance5,2565,072
Proceeds2,4933,894
New lease liabilities8141
Repayments (3,828)(3,634)
Foreign exchange movements98168
Changes in fair values (132)(270)
Other (27)(15)
Closing balance3,9415,256
During the year ended 31 July 2023 total cash payments for leases (including lease liability repayments above, and
also short-term and low value leases) were $130 million (31 July 2022: $145 million).
32
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
8 Net finance costs
Interest income and expense is recognised on an accrual basis in the Statement of Profit or Loss and
Other Comprehensive Income, 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 22 Hedge accounting.
20232022
Finance income2310
Interest expense
1
(256)(259)
Changes in fair value relating to:
–Borrowings designated in a hedge relationship132270
–Derivatives designated in a hedge relationship (110)(225)
–Derivatives where hedge accounting has not been applied–10
Total interest income from fair value movements2255
Finance costs(234)(204)
Net finance costs(211)(194)
1 Includes interest expense of $13 million (31 July 2022: $13 million) relating to lease liabilities.
9 Capital management
At a glance
This note provides information on measures the Board uses to monitor the Group’s capital.
The Group’s objectives when managing capital are to maintain an appropriate balance between debt and equity
to finance the Group’s activities, assets and growth. The Group is not subject to substantive debt covenants
or any other externally imposed capital requirements. The Board closely monitors the following non-GAAP
measures: debt to EBITDA ratio, gearing ratio and return on capital.
a) Adjusted net debt, gearing and debt to EBITDA
Adjusted net debt, the gearing ratio and the debt to EBITDA ratio are monitored by the Board and Management
and provide useful information aligned with how certain rating agencies calculate these ratios when considering
and determining the Group’s credit rating.
The Board approved Gearing Policy establishes a maximum adjusted net debt gearing ratio of 45%, with a long-
term target range of 30% to 40%, and the Board approved Debt Policy establishes a maximum debt to EBITDA
ratio of 3.75x, with a long-term target range of 2.5 to 3.0x.
The Adjusted net debt gearing ratio and Debt to EBITDA ratio are presented in the following tables.
20232022
Total borrowings 3,9415,256
Add: Bank overdraft10231
Less: Cash and cash equivalents (1,822)(288)
Add: Capital return payable804–
Add: Borrowings attributable to disposal groups held for sale199333
Less: Cash and cash equivalents attributable to disposal groups held for sale (30)(24)
Add: Cash adjustment of 25% for cash held by subsidiaries (including cash
and cash equivalents attributable to disposal groups held for sale)5077
Less: Derivatives used to manage changes in hedged risks on
debt instruments (37)(46)
Adjusted net debt3,2075,339
Equity excluding hedge reserves 7, 9 2 57, 2 52
Total capital11,13212,591
Adjusted net debt gearing ratio28.8%42.4%
33
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
9 Capital management continued
a) Adjusted net debt, gearing and debt to EBITDA continued
20232022
Adjusted net debt3,2075,339
Profit after tax1,577583
Add: Net finance costs from continuing operations211194
Add: Net finance costs from discontinued operations5037
Add: Tax expense from continuing operations303131
Add: Tax expense from discontinued operations7731
Total Group EBIT2,218976
Add: Depreciation and amortisation from continuing operations654602
Add: Depreciation and amortisation from discontinued operations833
Less: EBITDA relating to divestments(78)–
(Less)/add: Normalisation adjustments¹(337)15
Less: Share of profit of equity accounted investees (17)(10)
Add: Net foreign exchange losses from continuing operations849
Add: Net foreign exchange gains/losses from discontinued operations111
Total Group normalised EBITDA excluding share of profit of equity
accounted investees and net foreign exchange gains/losses2,4571,676
Debt to EBITDA ratio1.3x3.2x
1 Comprised of a gain on sale of the Chilean Soprole business of $349 million less Hangu China farm loss of $12 million (31 July 2022: Gain on sale
of Global Dairy Trade of $42 million less Brazil consumer and foodservice business impairment of $57 million).
b) Average capital employed and return on capital
Return on capital is calculated as total Group normalised earnings before interest and tax (total Group
normalised EBIT) including finance income on long-term advances less a notional tax charge, divided by
average capital employed.
The return on capital ratio is reported regularly to key management personnel, and compared against budget and
prior years return on capital.
20232022
Adjusted net debt3,2075,339
Less: Cash adjustment(50)(77)
Add: Cash and cash equivalents held by subsidiaries for operational
purposes 185166
Add: Equity excluding hedge reserves7, 9 2 57, 2 52
Less: Net deferred tax assets (146)(501)
Capital employed (at 31 July)11,12112,179
Impact of seasonal variation in capital employed1,653177
Average capital employed (13 month rolling average)1 2 , 7 7412,356
Total Group EBIT2,218976
(Less)/add: Normalisation adjustments¹ (337)15
Total Group normalised EBIT1,881991
Add: Finance income on long-term advances117
Less: Notional tax charge (305)(161)
Total Group normalised EBIT including finance income on long-term
advances less notional tax charge 1,587837
Return on capital 12.4%6.8%
1 Comprised of a gain on sale of the Chilean Soprole business of $349 million less Hangu China farm loss of $12 million (31 July 2022: Gain on sale
of Global Dairy Trade of $42 million less Brazil consumer and foodservice business impairment of $57 million).
34
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Assets and Liabilities
This section provides information about certain elements of the Group’s assets and liabilities. This includes:
–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.
–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.
10 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
Emissions units are held primarily for compliance purposes, which are measured at the lower of cost or
net realisable value on a weighted average cost basis. The Group’s obligation to surrender emissions units
is included in other current liabilities. Emissions units are derecognised as they are surrendered to settle
the Group’s emissions obligation.
20232022
Raw materials692802
Finished goods3,5964,261
Less: Provision for impairment of raw materials and finished goods (117)(95)
Emissions units175180
Total inventories4,3465,148
11 Trade and other payables
Trade and other payables are recognised at the amount invoiced by the vendor and employee
entitlements are recognised on an accrual basis. 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.
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.
20232022
Owing to suppliers1,9972,119
Trade payables1,9091,863
Employee entitlements344368
Other120172
Total trade and other payables4,3704,522
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. For the 2023 season, amounts advanced during the
financial year as a percentage of the Farmgate Milk Price (per kgMS) were 85% (31 July 2022: 85%). 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.
35
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
12 Property, plant and equipment
At a glance
This note provides information on owned and leased assets including movements during the year, and
capital commitments at the reporting date.
Property, plant and equipment are comprised of owned and leased assets.
20232022
Property, plant and equipment – owned5,9826,067
Right-of-use assets – leased361398
Total6,3436,465
a) Owned assets
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 Statement of Profit or Loss
and Other Comprehensive Income 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 Statement of Profit or Loss and Other Comprehensive Income.
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 to 35 years (31 July 2022: 2 to 55 years)
–Plant, vehicles and equipment 2 to 35 years (31 July 2022: 2 to 50 years)
Judgement is involved in determining the assets’ residual values and useful lives, which are reviewed
and adjusted each financial year, based on the Group’s ten year outlook.
The estimates of useful lives may be impacted by climate-related risks in future and changes in
expectations, for example the following events may shorten estimated useful lives of existing assets
and result in an acceleration of depreciation:
–Milk supply and demand: In the event milk supply and demand reduce faster than expected, a plant
closure may become necessary before the end of an existing asset’s useful life; and
–Capital expenditure: In the event regulatory change or other factors require larger or earlier future
investments, existing assets may need to be replaced before the end of their useful lives.
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);
–Regulatory or environmental matters (such as the New Zealand Government’s Emissions
Reduction Plan);
–The Group’s investment in sustainability, including its decarbonisation plan to exit coal by 2037
and electrification of the vehicle fleet;
–Technological advancements; and
–Changing consumer preferences and market competition.
36
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
12 Property, plant and equipment continued
a) Owned assets continued
A breakdown of total owned property, plant and equipment is presented in the following table.
LAND
BUILDINGS
AND LEASEHOLD
IMPROVEMENTS
PLANT,
VEHICLES AND
EQUIPMENT
CAPITAL WORK
IN PROGRESSTOTAL
Net book value
As at 1 August 20223681,5173, 6745086,067
Additions1413571589
Transferred from capital work in
progress–70469 (539)–
Depreciation charge – (106) (372)– (478)
Transferred to assets held for sale (4) (50) (110) (24) (188)
Other– – (13)5 (8)
As at 31 July 20233781,4323,6515215,982
Represented by:
Cost 3782,6418,29452111,834
Accumulated depreciation
and impairment – (1,209) (4,643) – (5,852)
Net book value
As at 1 August 20213501,5523,7063715,979
Additions22165490533
Transferred from capital work
in progress–35309(344)–
Depreciation charge –(87)(352)–(439)
Other(4)16(9)(6)
As at 31 July 20223681,5173, 6745086,067
Represented by:
Cost 3682,7068,35650811,938
Accumulated depreciation
and impairment–(1,189)(4,682)–(5,871)
Capital commitments
As at 31 July 2023 the Group was committed to spend $98 million (31 July 2022: $225 million), primarily related to
plant, vehicles and equipment.
b) Leased assets
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.
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 3 to 10 years, however some property leases can run up to a period of 35 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 2 to 5 years.
Information about right-of-use assets from leases for which the Group is a lessee is presented in the
following table.
NET BOOK VALUEDEPRECIATION CHARGE
2023202220232022
Land242221
Buildings2402755964
Plant, vehicles and equipment971012939
Total36139890104
Refer to Note 7 Borrowings for information about lease liabilities.
37
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
13 Intangible assets
At a glance
This note provides information on the Group’s intangible assets which include goodwill, brands and
software assets. Movements during the year are also summarised within this note.
The results of impairment testing of goodwill and indefinite life brands is set out in Note 3 Impairments.
The significant intangible assets recognised by the Group are goodwill, brands and software assets.
Goodwill
Goodwill represents the premium paid by the Group over the fair value of the Group’s share of the net
identifiable assets of an acquired 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 (31 July 2023: 3
to 10 years, 31 July 2022: 2 to 13 years). Software assets are tested for impairment when an indicator of
impairment exists.
A breakdown of total intangible assets is presented in the following table.
BRANDSGOODWILLSOFTWARE
SOFTWARE
WIPOTHER
TOTAL
INTANGIBLES
Net book value
As at 1 August 20221,24853328374152,153
Additions–– –79–79
Transferred from work in progress––71 (71)––
Amortisation –– (92)– (2) (94)
Impairment (refer to Note 3
Impairments) (101) (121)––– (222)
Transferred to assets held for sale (20) (95) (1)–– (116)
Other34 (1) (9)––24
As at 31 July 20231,16131625282131,824
Represented by:
Cost1,4376531,49882343,704
Accumulated amortisation and
impairment (276) (337) (1,246) – (21) (1,880)
Net book value
As at 1 August 20211,224529302801072,242
Reclassification to inventories––––(97)(97)
As at 1 August 20211,22452930280102,145
Additions–––63871
Transferred from work in progress––69(69)––
Amortisation ––(89)–(3)(92)
Impairment (refer to Note 3
Impairments)(34)––––(34)
Other5841––63
As at 31 July 20221,24853328374152,153
Represented by:
Cost1,4197491,49774363,775
Accumulated amortisation and
impairment (171) (216)(1,214)–(21) (1,622)
38
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
14 Other assets
At a glance
This note provides a summary of other asset balances aggregated in the Statement of Financial Position.
A breakdown of other assets is presented in the following table.
20232022
Current
Tax receivable4964
Other 100107
Total other current assets149171
Non-current
Equity accounted investments116113
Long-term advances155154
Other107119
Total other non-current assets378386
15 Other liabilities
At a glance
This note provides a summary of other liability balances aggregated in the Statement of Financial Position.
A breakdown of other liabilities is presented in the following table.
20232022
Current
Tax payable118107
Provisions5570
Other7671
Total other current liabilities249248
Non-current
Provisions6379
Deferred tax liabilities (refer to Note 17 Taxation)3650
Other1115
Total other non-current liabilities110144
a) Provisions and contingent liabilities
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.
Provisions relate to employee benefits (defined benefit scheme obligations, other obligations that fall due on
termination of employment, and long-term employee benefits), and other provisions (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. A breakdown of provisions is presented in the following table.
2023
As at 1 August 2022149
Additional provisions69
Unused amounts reversed (19)
Utilised during the year (58)
Other (23)
As at 31 July 2023118
39
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Other
This section contains notes and disclosures that aid in understanding the Group’s position and performance,
and outlines the key risk management activities undertaken to manage the Group’s exposure to financial risk.
16 Net movement in working capital and other operating activities
A breakdown of the decrease/(increase) in working capital and other operating activities from the Statement of
Cash Flows is presented in the following table.
20232022
Trade and other receivables(31)(821)
Inventories663(1,222)
Trade and other payables302494
Other movements(63)(49)
Total decrease/(increase) in working capital and other
operating activities871(1,598)
1 7 Ta x a t i o n
At a glance
This note provides information on income tax that has been recognised in the Statement of Profit or Loss
and Other Comprehensive Income and the effective tax rate, together with information on the deferred
tax asset and liability in the Statement of Financial Position and movements during the year.
Tax expense comprises current and deferred tax. Tax expense, including the tax consequences of
distributions to farmer shareholders, is recognised in the Statement of Profit or Loss and Other
Comprehensive Income. The tax consequences of distributions to farmer shareholders are recognised
in the year to which the distribution relates. Other than distributions to farmer shareholders, tax
consequences of items recognised directly in equity are also recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates enacted or substantively enacted at the balance date, and any adjustment to tax payable or
receivable in respect of previous years.
Deferred tax arises due to certain temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and those for taxation purposes. Deferred tax is measured
at the tax rate that is expected to apply to the temporary differences when they reverse, based on laws
that have been enacted or substantively enacted at balance date.
Deferred tax is not recognised on the following temporary differences:
–the initial recognition of goodwill;
–the initial recognition of assets and liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit; and
–differences relating to investments in subsidiaries and equity accounted investees to the extent that
the timing of the reversal is controlled by the Group and it is probable that they will not reverse in
the foreseeable future.
In determining the probability of reversal, consideration is taken of whether the related assets are
held for sale, future expectations of exiting, and if applicable, the impact any exit would have on the
crystallisation of the deferred tax.
Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available
against which the temporary differences can be utilised.
a) Taxation – Statement of Profit or Loss and Other Comprehensive Income
The total tax expense in the Statement of Profit or Loss and Other Comprehensive Income is summarised in the
following table.
20232022
Current tax expense
9880
Prior period adjustments to current tax
(3)(9)
Deferred tax movements: Origination and reversal of temporary
differences
20860
Tax expense
303131
40
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
17 Taxation continued
a) Taxation – Statement of Profit or Loss and Other Comprehensive Income continued
The taxation charge that would arise at the standard rate of corporation tax in New Zealand is reconciled to the
tax expense as follows:
20232022
Profit before tax from continuing operations
1,544752
Prima facie tax expense at 28%
432211
Tax effect of distributions to farmer shareholders
(189)(79)
Add/(less): Tax effect of other items
60(1)
Tax expense from continuing operations
303131
Effective tax rate
19.6%17. 4%
The Group does not have significant operations in foreign jurisdictions with tax rates below 15%, and does not
expect to be significantly impacted by Pillar II tax reforms and the move towards global minimum tax rates of 15%.
b) Taxation – Statement of Financial Position
The deferred tax assets and deferred tax liabilities in the Statement of Financial Position, along with the net
deferred tax, are presented in the following table.
20232022
DEFERRED
TAX ASSETS
DEFERRED
TAX
LIABILITIES
NET
DEFERRED
TAX
DEFERRED
TAX ASSETS
DEFERRED
TAX
LIABILITIES
NET
DEFERRED
TAX
Property, plant and
equipment1,678 (1 , 74 4) (66)1,730(1,767)(37)
Intangible assets– (358) (358)–(380)(380)
Derivative financial
instruments– (18) (18)131–131
Inventories175–17579–79
New Zealand tax losses33–33348–348
Offshore tax losses192–192187–187
Other188–188194(21)173
Total before offsetting 2,266 (2,120)1462,669(2,168)501
Offset adjustment (2,084)2,084–(2,118)2,118–
Total182 (36)146551(50)501
20232022
Movements for the year
Opening balance501435
Recognised in profit after tax (208)(60)
Recognised in other comprehensive income (147)124
Foreign currency translation–2
Closing balance146501
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.
As at 31 July 2023, unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries amount
to $171 million (31 July 2022: $185 million). The Group has made a judgement not to recognise deferred tax
liabilities in respect of these amounts because it can control the timing and the manner in which the associated
temporary difference will reverse. This includes controlling the timing of dividends, and in the event of
divestments made because of the strategic review, the manner in which divestment proceeds are remitted, and
therefore the associated tax consequences.
41
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
18 Related party transactions
At a glance
This note provides details on transactions, balances and commitments with persons or entities that are
related to the Group, including key management personnel and equity accounted investees.
a) Key management personnel
Key management personnel comprise members of the Board and members of the FMT.
A number of Board Directors are also farmer shareholders.
Transactions with key management personnel are on normal trade terms and no balances are secured.
20232022
Transactions with key management personnel
Short-term employee benefits2321
Long-term employee benefits15
Share-based payments1–
Directors’ remuneration33
Total key management personnel remuneration2829
Purchases of goods, primarily milk supplied by farmer shareholder
Directors138157
Sale of goods, primarily sales through Farm Source™ retail stores88
Dividends paid to farmer shareholder Directors43
Balances with key management personnel
Total payables and provisions arising from remuneration1922
Total capital return payable to farmer shareholder Directors8–
Total payables arising from the purchase of goods or services2024
During the year Fonterra issued Alignment Rights to FMT under a new long-term incentive plan. The value on
issuance of these Alignment Rights is split equally between:
–“Co-op Units”, where the participant receives distributions during the period of the arrangement and a cash
payment equal to the number of rights times the 12-month volume weighted average price of a Co-operative
Share. This is a cash-settled share-based payment as the payment is linked to share prices, and is presented as
a share-based payment above; and
–“Farm Units”, where the participant receives a cash payment equal to the number of rights times the 3-year
average owner operator Dairy Operating Profit per hectare, sourced from the Dairy NZ Economic Survey.
This is presented as a long-term employee benefit above.
The cost is spread over the 3-year service period, and paid between 4 to 6 years from the date of issue.
b) Equity accounted investees
Transactions with equity accounted investees are on normal trade terms and no balances are secured.
20232022
Transactions with equity accounted investees
Revenue from the sale of goods and services, primarily for commodity
products sold 4186
Other income, primarily dividends and royalties216
Purchases of goods, primarily commodity products8781
Purchases of services, primarily freight services218167
Contributions paid21–
Balances with equity accounted investees
Total receivables arising from the sale of goods or services319
Total payables arising from the purchase of goods or services1414
The Group has prospective commitments with related parties including contracts with equity accounted investees
for the sale, supply and purchase of dairy products, energy and the provision of various management services.
The Group has committed to provide funding of up to $50 million to the AgriZero
NZ
joint venture, of which
$12 million has been contributed during the year ended 31 July 2023.
42
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
19 Fair value measurement
At a glance
This note provides a summary of assets and liabilities measured at fair value and categorises these into a
hierarchy that indicates the extent to which fair value is based on observable information. This note also
includes information about the fair value of financial assets and financial liabilities not measured at fair value.
The fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date.
The fair values of financial assets and liabilities are calculated by reference to quoted market prices where that
is possible. A market is regarded as active if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
If quoted market prices are not available, the methodology used to calculate the fair values of financial assets and
liabilities is to identify the expected cash flows under the terms of each specific contract and then discount these
values back to the present value. These models use as their basis independently sourced market data where it is
available and rely as little as possible on entity-specific estimates.
The calculation of the fair value of financial instruments reflects the impact of credit risk where applicable.
Specific valuation techniques used to value financial instruments include:
–the fair value of foreign exchange contracts is determined using observable currency exchange rates, option
volatilities and interest rate yield curves;
–the fair value of interest rate contracts is calculated as the present value of the estimated future cash flows
based on observable interest rate yield curves;
–the fair value of commodity contracts that are not exchange traded is determined by calculating the present
value of estimated future cash flows based on observable quoted prices for similar instruments; and
–the fair value on the hedged risks of borrowings and long-term advances that are not exchange traded
is calculated as the present value of the estimated future cash flows based on observable currency
exchange rates and interest rate yield curves.
Fair value hierarchy
The fair value hierarchy described below is used to provide an indication of the level of estimation or judgement
required in determining fair value:
–Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
–Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability
either directly (i.e. as prices) or indirectly (i.e. derived from prices).
–Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change occurred.
The fair value hierarchy for assets and liabilities measured at fair value are presented in the following table.
LEVEL 1LEVEL 2LEVEL 3
202320222023202220232022
Measured at fair value on
a recurring basis
Derivative assets34211535453––
Derivative liabilities (190)(40) (331)(1,006)––
Other556313183836
Measured at fair value on
a non-recurring basis
Net liabilities held for sale –––– (21)(155)
Fair value (101)234217(535)17(119)
The fair value of financial assets and liabilities not measured at fair value approximates carrying value,
except in respect of medium-term notes. The medium-term notes have a carrying value of $3,399 million
(31 July 2022: $3,436 million), and their fair value is $3,470 million (31 July 2022: $3,511 million) at level 2
of the fair value hierarchy.
43
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
20 Re-presentations
At a glance
This note provides a summary of the effect of excluding the Chilean Soprole business from continuing
operations and presenting it as a discontinued operation in the comparative period Statement of Profit
or Loss and Other Comprehensive Income, for consistency with the current year treatment.
The following table shows the financial effect on the Group’s Statement of Profit or Loss and Other
Comprehensive Income from the re-presentation of the Chilean Soprole business from continuing operations into
discontinued operations.
Discontinued operations presented below incorporates both the performance of the Chilean Soprole business
(excluding intercompany interest) and revaluation of derivatives relating to the sale transaction.
2022
CONTINUING
OPERATIONS
TRANSFERRED TO
DISCONTINUED
OPERATIONS
2022
CONTINUING
OPERATIONS
RE-PRESENTED
Revenue from sale of goods
22,9531,05221,901
Cost of goods sold(19,737)( 745)(18,992)
Gross profit3,2163072,909
Expenses and other items including finance costs(2,386)(229)(2,157)
Profit before tax83078752
Tax exp ense(169)(38)(131)
Profit after tax66140621
Total comprehensive income from
continuing operations461(17)478
21 Financial risk management
At a glance
This note provides information on the Group’s financial risks. The Group has exposure to market risk
(which includes volatility in foreign exchange, interest rates, and commodity prices), liquidity risk, and
credit risk. These risks are managed in accordance with established Group policies and procedures.
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
Statement of Profit or Loss and Other Comprehensive Income. To reduce this volatility the Group applies hedge
accounting. Refer to Note 22 Hedge accounting for further information.
44
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
21 Financial risk management CONTINUED
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 predominantly includes the Group’s forecast sales transactions
which are mainly denominated in United States Dollars.
–Net investments in foreign operations of $3,678 million (31 July 2022: $4,067 million). This amount includes
foreign currency receivables and payables, and 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 $3,464 million (31 July 2022: $3,506 million).
–Foreign currency receivables of $1,788 million (31 July 2022: $2,089 million) and payables of $918 million
(31 July 2022: $1,075 million).
The concentration of borrowings by currency is presented in the following table.
20232022
United States Dollar
1 , 3741,441
Australian Dollar
709745
European Euro
640592
New Zealand Dollar
4771,750
British Pound
468447
Chinese Renminbi
193197
Other
8084
Total borrowings
3,9415,256
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 also has discretion to use 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 Statement of Profit or Loss and Other Comprehensive Income.
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 Board approved
predefined limits.
Receivables and payables denominated in foreign currency
In accordance with Board approved policy, the Group 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 Statement of Profit or Loss and Other Comprehensive Income.
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 Statement of Profit or Loss and Other Comprehensive
Income. These are recognised within operating expenses in the Statement of Profit or Loss and Other
Comprehensive Income.
Sensitivity analysis
The following table presents the Group’s post-tax sensitivity of financial instruments and net assets held in foreign
operations at reporting date, after taking into consideration the impact of hedge accounting, to a reasonably
possible strengthening or weakening NZD against foreign currencies. Hedged forecast transactions would offset
the equity impacts shown below when incurred.
45
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
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, diesel and emissions units 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 to hedge
the cost of electricity and diesel and the pre-purchase of emissions units to hedge the cost of emissions units.
These are transacted at Board approved levels.
Sensitivity analysis
The following table presents the Group’s post-tax 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. Hedged forecast transactions would
offset the equity impacts shown below when incurred.
20232022
EQUITYPROFITEQUITYPROFIT
10% increase in commodity prices
38167635
10% decrease in commodity prices
(39)(18)(77)(35)
Assets and liabilities held for sale have been excluded from the sensitivity analysis in the following table.
20232022
EQUITYPROFITEQUITYPROFIT
10% strengthening of the NZD
352(9)51310
10% weakening of the NZD
(389)9(617)(13)
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 $2,066 million (31 July 2022: $4,845 million).
How interest rate risk is managed
The Group issues fixed and floating rate debt and uses interest rate swaps (IRS) to manage interest rate exposure
on its borrowings within a Board approved target ratio of fixed and floating rate exposure.
Sensitivity analysis
The following table presents the Group’s post-tax sensitivity of floating rate financial instruments and of the fair
value of fixed rate financial assets and liabilities held at reporting date to a reasonably possible change in interest
rates. This analysis assumes that the amount and mix of fixed and floating rate debt remains unchanged from that
in place at reporting date, and that the change in interest rates is effective from the beginning of the year.
Assets and liabilities held for sale have been excluded from the sensitivity analysis in the following table.
20232022
EQUITYPROFITEQUITYPROFIT
100 basis point increase
442483
100 basis point decrease
(46)(2)(50)(3)
21 Financial risk management continued
a) Foreign exchange risk continued
46
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
21 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.
The following table sets out the contractual, undiscounted cash flows for the Group’s financial instruments.
2023
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
3 MONTHS
OR LESS
3–12
MONTHS
1–5
YEARS
MORE THAN
5 YEARS
Non-derivative financial liabilities
Borrowings
–Bank loans (50) (50) (16) (34) ––
–Lease liabilities (392) (445) (23) (65) (209) (148)
–NZX-listed bonds (100) (110) – (4) (106) –
–Medium-term notes (3,399) (3,993) (25) (780) (2,384) (804)
Bank overdraft (102) (102) (102)–––
Trade and other payables (excluding employee entitlements) (4,026) (4,026) (3,943)(83)––
Capital return payable (804) (804) (804)–––
Other (65) (65) (15) (6) (44) –
Total non-derivative financial liabilities (8,938) (9,595) (4,928) (972) (2 , 743) (952)
Derivative financial instruments
Gross settled derivatives
Inflow25,12812,2418,6283,455804
Outflow (25,014) (12,229) (8,834) (3,292) (659)
Total gross settled derivative financial instruments10511412 (206)163145
Net settled derivatives (57) (18) (105)95 (8)–
Total financial liabilities and derivatives (8,890)(9,499) (5,021)(1,083) (2,588) (807)
47
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
2022
CARRYING
AMOUNT
CONTRACTUAL
CASH FLOWS
3 MONTHS
OR LESS
3–12
MONTHS
1–5
YEARS
MORE THAN
5 YEARS
Non-derivative financial liabilities
Borrowings
–Bank loans(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)–––
Trade and other payables (excluding employee entitlements)(4,154)(4,154)(4,053)(101)––
Other(32)(33)(18)–(15)–
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)
21 Financial risk management continued
48
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Derivative contracts, cash and cash equivalents and other balances
–Use of financial counterparties that have a credit rating of at least ‘A-’ from S&P Global Ratings (or equivalent);
–Use of commodity counterparties that have a credit rating of at least ‘BBB-’ from S&P Global Ratings (or
equivalent) for commodity derivative contracts; and
–Posting or receiving margin in respect of derivative contracts transacted on exchanges.
As at 31 July 2023 the Group posted $257 million (31 July 2022: received $54 million) of margin as collateral for
derivative financial instruments. This collateral is included in other receivables within Trade and other receivables
in the Statement of Financial Position (31 July 2022: $65 million was included in Trade and other payables and
$11 million was included in Trade and other receivables).
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.
Expected credit losses on trade receivables
The Group recognises an allowance for expected credit losses based on the lifetime expected credit
losses at balance date for trade receivables, and for other receivables if the credit risk has increased
significantly since initial recognition. The allowance for expected credit losses for other amounts
receivable is based on expected credit losses during the next 12-months.
The Group’s Trade and other receivables (excluding prepayments) of $2,371 million (31 July 2022: $2,412 million)
are largely current or less than one month past due (31 July 2023: $2,268 million, 31 July 2022: $2,330 million).
Expected credit losses of $23 million have been recognised (31 July 2022: $12 million) on a trade receivables
balance of $2,094 million (31 July 2022: $2,355 million).
Trade and other receivables includes other receivables of $297 million (31 July 2022: $50 million) and prepayments
of $102 million (31 July 2022: $70 million).
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, and the availability of funding from
an adequate amount of committed credit facilities. The Group would also be able to close out market positions
if necessary. The Group’s funding facilities are reviewed at least annually, which is one of the key financial risk
management activities undertaken 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 $2,830 million
(31 July 2022: $2,345 million).
Liquidity and refinancing risks are also managed by ensuring that the Group can maintain access to funding
markets throughout the world. To that end, the Group maintains debt issuance programmes in a number of
key markets and manages relationships with international investors.
Credit Risk
Nature and exposure of risk
Credit risk is the risk of loss to the Group due to customer or counterparty default on the Group’s receivable
balances. The Group’s maximum exposure to credit risk is represented by the carrying amounts of cash and
cash equivalents, trade and other receivables, long-term advances and derivative assets.
The Group has no significant concentrations of credit risk.
How credit risk is managed
The Group sets minimum credit quality requirements, credit limits and uses other credit mitigation tools to
manage its credit risk. The Group’s Board approved policy is to actively manage its exposure to credit risk
through the following actions.
21 Financial risk management continued
49
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting
At a glance
This note provides information on the Group’s risk and hedging instruments, where hedge accounting
has been applied. The Group utilises fair value hedges, cash flow hedges, and net investment hedges to
manage foreign exchange, interest rate, and commodity price risk. The hedge accounting impacts are
presented within this note.
Derivatives are measured at fair value. Refer to Note 19 Fair value measurement for information on how
fair value is determined.
The resulting gain or loss on re-measurement is recognised immediately in the profit or loss, unless the
derivative is designated into an effective hedge relationship as a hedging instrument, in which case the
timing of recognition in the profit or loss 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 profit or loss:
–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 profit or loss 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 profit or loss.
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 Profit or Loss and Other Comprehensive Income and
accumulated in a separate reserve in equity. Subsequently the cumulative amount is transferred to the
profit or loss when the underlying transactions are recognised in the profit or loss.
The ineffective portion of changes in the fair value of the hedging instruments are recognised
immediately in the profit or loss.
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 profit or loss 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 other
comprehensive income and transferred to the profit or loss 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 profit or loss.
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 profit or loss at the same time as the hedged
item impacts the profit or loss.
50
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
–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 Statement of Profit or Loss and Other Comprehensive Income impact of hedge accounting effectiveness and
ineffectiveness is recognised in net finance costs and 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 Statement of Profit or Loss and
Other Comprehensive Income.
The Statement of Profit or Loss and Other Comprehensive Income 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 Statement of Profit or Loss and Other Comprehensive Income impact of hedge accounting effectiveness and
ineffectiveness is recognised in cost of goods sold and operating expenses.
22 Hedge accounting continued
The Group’s risk management activities described in 21 Financial risk management result in volatility to the
Statement of Profit or Loss and Other Comprehensive Income 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 Statement of Profit or Loss and Other Comprehensive Income 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 Statement of Profit or Loss and Other Comprehensive Income 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 Statement of Profit or Loss and Other Comprehensive Income impact of hedge accounting effectiveness and
ineffectiveness is recognised in 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.
51
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
a) Impact to reserves in equity
A breakdown of reserves is presented in the following table.
20232022
Hedge reserves43 (346)
Foreign currency translation reserve7 (253)
Other930
Total59 (569)
HEDGE RESERVES20232022
Opening balance(346)(26)
Movements attributable to cash flow hedges
Change in value of effective derivative hedging instruments(56)(726)
Reclassifications to the Statement of Profit or Loss and Other
Comprehensive Income:
–As hedged transactions occurred 563308
Net change in the cost of hedging reserve33(26)
Tax (expense)/credit(151)124
Total movement389(320)
Closing balance43(346)
FOREIGN CURRENCY TRANSLATION RESERVE20232022
Opening balance
(253)(355)
Movements attributable to net investments in foreign operations and
net investment hedges
Net translation loss on:
–Borrowings and derivative hedging instruments
1576
–Net investments in foreign operations
4727
Reclassifications to the Statement of Profit or Loss and
Other Comprehensive Income:
–Disposals of foreign operations
194(1)
–Tax credit
4–
Total movement
260102
Closing balance
7(253)
52
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
b) 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.
2023
CARRYING AMOUNT IN THE STATEMENT
OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTS
MATURITY
(MONTHS)
WEIGHTED
AVERAGE
RATE/PRICE
NOMINAL
AMOUNT
1
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIESBORROWINGS
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges
NZD:USD forwards and options (sales)1-1 80.62311,603117(114)–
USD:CNY forwards and options (sales)1-1 26.8987 7421 (2)–
AUD:USD forwards (sales)1-70.6661141 (1)–
USD:AUD forwards (purchases)1-1 80.704433 (2)–
Total12,534142(119)–
Foreign exchange risk – Foreign operations
Net investment hedges
AUD borrowings52–87–– (87)
EUR borrowings16–173–– (173)
Total260–– (260)
Foreign exchange risk and interest rate risk – Foreign currency denominated borrowings
Cash flow and fair value hedges
NZD:USD CCIRS38-850.760/Floating1,184179––
NZD:GBP CCIRS50.361/Floating623 – (161)–
NZD:EUR CCIRS160.656/Floating38643––
NZD:CNY CCIRS244.669/Floating17111––
Total2,364233(161)–
1 Nominal amount is the face value converted into NZD using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
53
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
b) Hedging instruments designated in a hedge accounting relationship continued
2023
CARRYING AMOUNT IN THE STATEMENT
OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTS
MATURITY
(MONTHS)
WEIGHTED
AVERAGE
RATE/PRICE
NOMINAL
AMOUNT
1
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIESBORROWINGS
Interest rate risk – Borrowings
Cash flow hedges
NZD IRS1- 602.57%3,418144––
AUD IRS11-1 33.34%1732––
Total3,591146––
Fair value hedges
NZD IRS28Floating100– (4)–
AUD IRS35-52Floating519– (30)–
Total619–(34)–
Commodity price risk – Forecast transactions
Cash flow hedges
2
Fuel futures1-16$98.72151––
Milk Price futures and options 3-27$10.5783616 (174)–
Electricity futures 1- 42$140.422623 (26)–
Total1,11320 (200)–
1 Nominal amount is the face value converted into NZD using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
2 The weighted average prices for commodity hedges are presented as the price per barrel for fuel futures (shown in USD), kilogram of milk solid for milk price futures and options, and per megawatt hour for electricity futures.
54
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
b) Hedging instruments designated in a hedge accounting relationship continued
2022
CARRYING AMOUNT IN THE STATEMENT
OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTS
MATURITY
(MONTHS)
WEIGHTED
AVERAGE
RATE/PRICE
NOMINAL
AMOUNT
1
DERIVATIVE
ASSETS
DERIVATIVE
LIABILITIESBORROWINGS
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges
NZD:USD forwards and options (sales)1-1 80.66314,63642(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 NZD using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
55
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
b) Hedging instruments designated in a hedge accounting relationship continued
2022
CARRYING AMOUNT IN THE STATEMENT
OF FINANCIAL POSITION
RISK AND HEDGING INSTRUMENTS
MATURITY
(MONTHS)
WEIGHTED
AVERAGE
RATE/PRICE
NOMINAL
AMOUNT
1
DERIVATIVE
ASSETS
DERIVATIVE
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 futures1-1 8$109.55255––
Milk Price futures and options 3-27$8.501,291130––
Electricity futures 1-45$119.8113828––
Total1,454163––
1 Nominal amount is the face value converted into NZD using the exchange rate at year-end, except for CCIRS which are converted using the weighted average contracted foreign exchange rate.
2 The weighted average prices for commodity hedges are presented as the price per barrel for fuel futures (shown in USD), kilogram of milk solid for milk price futures and options, and per megawatt hour for electricity futures.
56
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
c) Impact of hedge accounting
Information about the impact of hedge accounting on the Group’s Financial Statements is presented in the following tables.
2023
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 OTHER
COMPREHENSIVE
INCOME
AMOUNTS
RECLASSIFIED FROM
HEDGING RESERVE TO
PROFIT OR LOSS
FAIR VALUE HEDGE
ADJUSTMENTS
RECOGNISED IN
PROFIT OR LOSS
Foreign exchange risk – Forecast foreign currency transactions
Cash flow hedges(24)1080475–
Foreign exchange risk – Foreign operations
Net investment hedges– (14)(14)– –
Foreign exchange risk and interest rate risk – Foreign currency denominated borrowings
Cash flow and fair value hedges(7)13526(7)(61)
Interest rate risk – Borrowings
Cash flow hedges–20785(48)–
Fair value hedges–(33)––(12)
Commodity price risk – Forecast transactions
Cash flow hedges– (177)(247)143–
Total(31)N/A(70) 563 (73)
1 For those borrowings in a net investment hedge, the change in value to calculate hedge effectiveness is for the year ended 2023.
57
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
22 Hedge accounting continued
c) Impact of hedge accounting continued
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 OTHER
COMPREHENSIVE
INCOME
AMOUNTS
RECLASSIFIED FROM
HEDGING RESERVE TO
PROFIT OR LOSS
FAIR VALUE HEDGE
ADJUSTMENTS
RECOGNISED IN
PROFIT OR 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)
Interest rate risk – Borrowings
Cash flow hedges–16810642–
Fair value hedges–(26)––(79)
Commodity price risk – Forecast transactions
Cash flow hedges–158127(148)–
Total(64)N/A(724)308(161)
1 For those borrowings in a net investment hedge, the change in value to calculate hedge effectiveness is for the year ended 2022.
58
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
Financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and other
agreements are presented in the following table.
AMOUNTS OFFSET IN THE
STATEMENT OF FINANCIAL POSITION
GROSS
FINANCIAL
ASSETS/
(LIABILITIES)
GROSS
FINANCIAL
ASSETS/
(LIABILITIES)
SET OFF
NET FINANCIAL
ASSETS/
(LIABILITIES)
PRESENTED
AMOUNTS
NOT OFFSETNET
As at 31 July 2023
Derivative financial assets741 (172)569 (197)372
Trade and other receivables
(excluding prepayments)2,479 (108)2,371 (160)2,211
3,220 (280)2,940 (357)2,583
Derivative financial liabilities (693)172 (521)357 (164)
Total trade and other
payables (excluding employee
entitlements)(4,134)108(4,026) –(4,026)
Borrowings (3,941)– (3,941) – (3,941)
(8,768)280 (8,488)357 (8,131)
As at 31 July 2022
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)(4,265) 111(4,154)66(4,088)
Borrowings(5,256)–(5,256)15(5,241)
(10,847)391(10,456)444(10,012)
22 Hedge accounting continued
d) Statement of Profit or Loss and Other Comprehensive Income 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 hedge relationship on the Statement of Profit or Loss and Other
Comprehensive Income was a gain of $27 million (31 July 2022: a loss of $205 million), predominantly related
to $21 million favourable movements on foreign currency contracts hedging net receivables (31 July 2022:
$182 million loss). Hedges of net receivables are offset within operating expenses by the revaluation of net
receivables balances.
Additional impacts of derivatives not designated in a hedge relationship in relation to divestment activities
are set out in Note 2 Divestments.
23 Offsetting of financial assets and liabilities
At a glance
This note provides a summary of financial assets and financial liabilities which have been presented net
in Statement of Financial Position (and additional financial assets and financial liabilities with offset rights
that are conditional, and have not been presented net).
Financial assets and liabilities are offset, and the net amount reported in the Statement of Financial
Position where there currently is a legally enforceable right to set off the recognised amounts and there
is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Balances offset within the Statement of Financial Position include derivative transactions with certain
counterparties and amounts owed by farmer shareholders which are offset against amounts owed to them
by the Group.
The Group enters into various master netting arrangements or similar agreements that do not meet the criteria
for offsetting in the Statement of Financial Position but still allow for the related amounts to be offset in certain
circumstances. These principally relate to derivative transactions under ISDA (International Swaps and Derivatives
Association) agreements where each party has the option to settle amounts on a net basis in the event of default
of the other party.
59
Notes to the Financial Statements CONTINUED
FOR THE YEAR ENDED 31 JULY 2023
($ MILLION)
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 Statement of Profit or Loss
and Other Comprehensive Income 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
Statement of Profit or Loss and Other Comprehensive Income.
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.
In addition to the entities presented, 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.
The significant subsidiaries of the Group are presented in the following table.
SUBSIDIARY NAME
COUNTRY OF
INCORPORATION
AND PRINCIPAL
PLACE OF BUSINESS
OWNERSHIP INTERESTS (%)
20232022
New Zealand Milk (Australasia) Pty LimitedAustralia100100
Fonterra Australia Pty LimitedAustralia100100
Fonterra Brands (Australia) Pty LimitedAustralia100100
Fonterra Investments Pty LtdAustralia100100
Dairy Partners Americas Brasil Limitada¹Brazil5151
Soprole Inversiones S.A.²Chile–99.9
Comercial Santa Elena S.A.²Chile–99.9
Soprole S.A.²Chile–99.9
Prolesur S.A.²Chile–99.9
Fonterra Commercial Trading (Shanghai)
Company Limited¹China100100
Tangshan Fonterra Dairy Farm Limited³China–100
Fonterra ( Japan) Limited
4
Japan5050
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 Zealand9190
Fonterra Brands (Singapore) Pte LimitedSingapore100100
Fonterra Brands Lanka (Private) LimitedSri Lanka100100
Fonterra Brands (Middle East) L.L.C.
4
UAE4949
Fonterra (USA) Inc.United States100100
1 Balance date 31 December.
2 Balance date 31 December. These subsidiaries were disposed as part of the sale of the Chilean Soprole business. Refer to Note 2 Divestments for
further information.
3 Balance date 31 December. This subsidiary was disposed as part of the sale of the Hangu China farm business. Refer to Note 2 Divestments for
further information.
4 Consolidated on the basis that the Group controls through its exposure or rights to variable returns and the power to affect those returns.
60
insightcreative.co.nz FONTERRA118_FS
fonterra.com
Fonterra Financial Statements 2023
Fonterra Co-operative Group Limited — For the year ended 31 July 2023
Pūrongo pūtea Te Mātāpuna
---
Fonterra Business Performance Report 2023Pūrongo haumāuiui pakihi Te Mātāpuna
Tupaea & Neil,
Waikato
COVER
Jamie-Lee,
Waikato
TOTAL GROUP
Total Group Performance05
Dividend15
Return on Capital16
Cash Flow and Working Capital17
Balance Sheet20
Capital Invested21
ON-FARM23
Our New Zealand Supplier Base and Owners24
Share Capital25
Fonterra’s New Zealand Milk Production28
Fonterra’s New Zealand Farmgate Milk Price
(per kgMS) 29
REPORTABLE SEGMENTS 30
Core Operations34
Milk Collection 35
Milk Solids Available to Process and
Where We Allocated Them36
Milk Processing Performance41
Core Operations Operating Performance 42
Global Markets44
Australia46
Greater China47
PRODUCT CHANNELS49
Ingredients50
Foodservice54
Consumer 57
DISCONTINUED OPERATIONS 61
HISTORICAL SUMMARY 63
GLOSSARY69
OUR REPORTS ARE AVAILABLE
FROM FONTERRA.COM/NZ/
EN/INVESTORS.HTML
OUR 2023 SUITE
OF REPORTS
Annual Review 2023
(Referenced as AR)
Financial Statements 2023
(Referenced as FS)
Business Performance
Report 2023
(Referenced as BP)
Sustainability Report 2023
(Referenced as SR)
Governance & Statutory
Disclosures 2023
(Referenced as G&S)
Modern Slavery Statement
2023
(Referenced as MS)
Farmgate Milk Price
Statement 2023
(Referenced as MP)
Contents
Profit after tax
$
1,577m
from $583m
Earnings per share
95c
from 36c
Business
Performance
Dashboard
$
9.22
$
0.50
$
0.50
$8.22
12.4%
Return on Capital
from 6.8%
$9.85
$7.64
$7.52
$8.60
$8.83
$9.42
$9.21
2023202220212020
Actual
Inflation Adjusted
Gross profit from Core Operations per kgMS
Cash operating expenses per kgMS
$1.39
$1.36
$1.34
$1.16
$1.18
$1.26
$1.39
2023202220212020
Actual
Inflation Adjusted
1. Per share backed kgMS
Total Cash Return
1
Capital
Return
Farmgate Milk Price
Dividend
from 20c
from $9.30
04
Total Payout
1
10
20232022202120202019
Farmgate Milk PriceDividend
$6.35
$7.14
$7.54
$0.05
$0.20
$6.35
$7.19
$7.74
$9.30
$0.20
$9.50
$8.22
$0.50
$8.72
1. Refer to the Glossary for definition.
Commodity product prices that inform the Farmgate Milk
Price (Reference Commodity Products) were down on average
14.2% compared to the prior season and the main reason for
the $1.08 per kgMS decline in the Farmgate Milk Price from
$9.30 per kgMS last season.
Our profit after tax increased $994 million to $1,577 million.
Excluding non-controlling interests this is equivalent to 95 cents
per share, up from 36 cents in the prior period.
Our profit after tax performance reflects a $1.3 billion increase
in gross profit to $4.6 billion. The increase in gross profit was
mainly due to favourable product margins in our Ingredients
channel, in particular protein and cheese products, across
multiple markets at a time of constrained supply.
Our Foodservice channel earnings have also improved as our
in-market product prices adjust to reflect the higher cost of milk
over recent years. However, our Consumer channel continues to
experience challenging market conditions and earnings are
down due to recognising impairments of our New Zealand
consumer business and our Asia brands – Anlene™, Anmum™
and Chesdale™.
Total Group operating expenses increased $344 million
to $2.8 billion, mainly due to inflationary pressure and
impairments of $252 million.
Excluding the net gain on divestments, our normalised profit
after tax is up $738 million to $1,329 million. Excluding
non-controlling interests this is equivalent to 80 cents per share.
The Co-operative’s operating environment continues to improve
following the pandemic, and with the global supply chain
network stabilising and slowly returning to normal, our
inventory levels at year end have improved.
Our net debt is $3.2 billion, $2.1 billion lower due to the
improved inventory levels, increased earnings and the sale
of Soprole for aggregate proceeds of $1.3 billion – of which
$804 million was returned to shareholders and unit holders
on 18 August 2023.
Our increased earnings combined with the strength of
our balance sheet has put us in a position to pay a full year
dividend of 50 cents per share, comprising of 10 cents per share
paid at interim and a final dividend of 40 cents per share.
Total Group Performance
We returned $8.22 on average for every kilogram of milk solids our
farmer owners supplied us. Combined with a dividend of 50 cents
per share, this means a total payout of $8.72 per kgMS.
In addition, the Co-operative returned 50 cents per share to shareholders
and unit holders in August following the divestment of Soprole. This resulted
in a total cash return of $9.22 per share backed kgMS for our farmer owners.
05
Profit After Tax
1
FY23TAXFINANCE
COSTS
OTHER
ITEMS
GAIN ON
DIVESTMENTS
OPERATING
EXPENSES
2
GROSS
PROFIT
FY22
583
1,259(344)
(30)
307
20
(218)
1,577
1. Includes amounts attributable to non-controlling interests.
2. Operating expenses includes $11 million net loss on sale related to Hangu China farm and the sale of GDT.
Increased due to
favourable margins,
particularly for
protein and cheese
products
Increased due to a
$349 million (before tax)
gain on sale of Soprole.
The prior year included a
$42 million gain on sale
of GDT
Increased due
to higher EBIT
and capital gains
tax on the sale
of Soprole
Our profit after tax increased
170%, or $994 million, to
$1,577 million, driven by an
increase in gross profit
Increased mainly due to
impairments of our
New Zealand consumer
business and our Asia
brands, of $121 million
and $101 million,
respectively, as well as the
impact of inflationary
pressures
06
Normalised Profit After Tax
1
FY23TAXFINANCE
COSTS
OTHER
ITEMS
OPERATING
EXPENSES
GROSS
PROFIT
FY22
591
1,259
(390)
(30)
21
(122)
1,329
1. Includes amounts attributable to non-controlling interests.
Increased due to
favourable margins,
particularly for
protein and cheese
products
Our normalised profit after tax
increased 125%, or $738 million,
to $1,329 million.
We have normalised $260 million
(after tax) related to the gain on sale
from Soprole, and a $12 million loss
relating to the disposal of Hangu farm
in China.
Increased mainly due to
impairments of our
New Zealand consumer
business and our Asia brands,
of $121 million and
$101 million, respectively,
as well as the impact of
inflationary pressures
Increased due to
higher EBIT
07
New Zealand Milk Collections
Litres
16,317 million
down 0.5%
Milk solids (kgMS)
1,480 million
up 0.1%
Australian Milk Collections
Litres
1,362 million
flat
Milk solids (kgMS)
106 million
flat
New Zealand Market Share (kgMS)
80.8%
80.0%
79.0%
79.1%
79.0%
20232022202120202019
Market share and collections are for the period 1 June – 31 May.
Australia Market Share (kgMS)
18.3%
15.8%
15.4%
15.9%
16.7%
20232022202120202019
Market share and collections are for the period 1 July - 30 June.
Overall, Fonterra milk collections
on a milk solids basis are up on last
year but down on a litre basis.
Our milk collections are dominated
by our New Zealand-sourced milk.
Our New Zealand milk collections increased 2 million kgMS
compared with the 2021/22 season due to higher collections
in the latter half of the season as a result of more favourable
weather which was conducive to stronger pasture growth.
There is a long-term trend of increasing milk solids per litre in
New Zealand due to improvements in the national herd and
on-farm practices. The 2022/23 season saw this improvement
continue with Fonterra’s average season milk composition lifting
to 9.07% from 9.01% in the 2021/22 season. The increase in milk
solids per litre explains why milk solids collected can be slightly
up while litres are slightly down year-on-year.
Our market share of New Zealand milk decreased 0.1% to 79.0%,
due to a small net loss of milk supply to competitors.
Over the past two years, Fonterra Australia’s milk collection market
share has continued to climb.
Fonterra Australia’s Farm Source support model and competitive
milk price saw increased levels of milk recruitment and strong
farmer supplier retention. Fonterra’s milk collections in Australia
remained stable while the industry milk pool declined in 2023
because of spring flooding in Northern Victoria and reduced
availability of quality fodder.
The rate of decline in industry milk production slowed in the
second half of the year as cost of production eased, access to
on-farm labour improved and competing land uses, such as
beef, became less attractive.
08
Consistent with our strategy to focus on our New Zealand milk,
we completed the divestment of our operations in Chile and
China, and made progress divesting our operations in Brazil.
In November 2022, we announced the agreement to sell Soprole
to Gloria Foods – JORB S.A – a consumer dairy market leader in
Peru. The divestment was completed on 31 March 2023. The
aggregate proceeds (including pre- settlement dividends) before
tax, hedging and transaction costs were $1.3 billion, of which
$804 million was returned to shareholders and unit holders on
18 August 2023.
In December 2022, Fonterra and Nestlé agreed the sale of DPA
Brazil to French dairy company Lactalis for BRL 700 million. The
proceeds at completion will be subject to closing transaction
adjustments. Fonterra’s 51% share of the DPA Brazil sale proceeds
will be used to repay our share of debt held directly by DPA Brazil.
The sale is subject to several conditions including receipt of
regulatory approvals from competition authorities. The Brazilian
competition regulator released its first report on the proposed
sale in late July 2023. The parties are engaging with authorities to
understand and to address the matters raised in relation to limited
parts of the business and expect the sale to be completed within
one year of balance date.
We also finalised our exit of China Farms, following the sale of
our Hangu China farm.
Our discontinued operations in 2023 comprised of Soprole,
DPA Brazil and our Hangu China farm. Profit after tax from
discontinued operations increased $374 million to $336 million,
mainly due to the gain on sale of Soprole. The prior year’s
$38 million loss was due to an impairment of $50 million to the
value of DPA Brazil. In the prior period, our discontinued
operations comprised DPA Brazil and our Hangu China farm.
To be consistent the comparative figures have been re-presented
to include Soprole as a discontinued operation.
Breakdown of Total Group Performance
FOR THE YEAR ENDED 31 JULY 202231 JULY 2023
NZD MILLION
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
CONTINUING
OPERATIONS
1
DISCONTINUED
OPERATIONS
1
TOTAL GROUP
Sales volume ('000 MT) 3,318 606 3,924 3,497 476 3,973
Revenue21,901 1,524 23,425 24,580 1,466 26,046
Cost of goods sold(18,992)(1,093)(20,085)(20,399)(1,048)(21,447)
Gross profit2,909 431 3,340 4,181 418 4,599
Gross margin (%)13.3%28.3%14.3%17. 0 %28.5%1 7. 7 %
Operating expenses(2,065)(390)(2,455)(2,496)(303)(2,799)
Other
2
102 (11) 91 70 348 418
EBIT 946 30 976 1,755 463 2,218
Net finance costs (194)(37)(231)(211)(50)(261)
Tax exp ense(131)(31)(162)(303)(77)(380)
Profit after tax 621 (38)583 1,241 336 1,577
1. Refer to Note 1a and 2c of the FY23 Financial Statements. Comparative information has been re-presented for consistency with the current period.
2. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
Our Total Group sales volumes were up 1% on the prior year,
with milk collections only up 0.1%. The increased sales volume
was due to the sell down of additional inventory we held at 2022
year end, partially offset by lower sales volume out of Chile as a
result of the Soprole sale concluding in March 2023.
Our Total Group gross profit increased $1.3 billion relative to the
prior year, due to favourable margins in our Ingredients channel,
particularly cheese and proteins. Gross margin improved from
14.3% to 17.7%, driven by improved pricing in both the
Ingredients and Foodservice channels.
09
Our business is diversified across both regions and product
channels, enabling us to capture the significantly favourable price
relativities between Reference and Non-Reference Products by
continuing to allocate milk into the products, such as cheese and
proteins, that generated the best overall returns.
Profit after tax generated from our New Zealand milk, the value
we were able to deliver over and above the Farmgate Milk Price,
increased $642 million to $1,203 million, mainly due to the
favourable margins in our Ingredients channel. The performance
of New Zealand milk in the Ingredients channel was partially
offset by the losses made in the Consumer channel due to
recognising impairments of our New Zealand consumer business
and our Asia brands – Anlene™, Anmum™ and Chesdale™.
Further detail on the value of New Zealand milk is provided in
the Reportable Segment and Product Channel sections.
Non-New Zealand milk for our continuing operations is
predominantly made up of our Australian business and products
from our Heerenveen site. EBIT was down $6 million, or 6%,
mainly due to the impact of the increased cost of milk in
Australia. Profit after tax generated by Non-New Zealand milk
was $38 million, down $22 million on the prior year, due to higher
interest rates impacting net financing costs.
New Zealand and Non-New Zealand Sourced Milk
1
FOR THE YEAR ENDED 31 JULY
NZD MILLIONTOTALNEW ZEALAND MILKNON-NEW ZEALAND MILK
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume ('000 MT)3,3183,4975%2,9033,0716%4154263%
Revenue21,90124,58012%19,55121,79111%2,3502,78919%
Cost of goods sold(18,992)(20,399)(7)%(16,986)( 1 7, 9 4 1 )(6)%(2,006)(2,458)(23)%
Gross profit 2,9094,18144%2,5653,85050%344331(4)%
Operating expenses(2,065)(2,496)(21)%(1,808)(2,252)(25)%(257)(244)5%
Other
3
10270(31)%9569(27)%71(86)%
EBIT9461,75586%8521,66796%9488(6)%
Net finance costs (194)(211)(9)%––––––
Tax exp ense(131)(303)(131)%––––––
Profit after tax from continuing operations6211,241100%5611,203114%6038(37)%
Profit after tax from discontinued operations(38)336––––(38)336–
Gross margin
4
13.3%1 7. 0 % 13.1%1 7. 7 % 14.6%11.9%
EBIT margin
4
4.3%7. 1% 4.4%7. 6 % 4.0%3.2%
1. New Zealand and Non-New Zealand sourced milk is prepared on a continuing operations basis. Comparative information has been re-presented for consistency with the 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. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
4. Calculated on a continuing operations basis.
10
Operating expenses
1
(by nature)
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023
Employee benefits expense860963
Storage and distribution241263
Advertising and promotion227219
Information technology191205
Professional and management fees149167
Depreciation and amortisation173180
Impairment44248
Other180251
Operating expenses from continuing operations
2
2,0652,496
Operating expenses from discontinued operations390303
Total Group operating expenses2,4552,799
1. Comparative information has been re-presented for consistency with the current period.
2. Operating expenses for continuing operations are reported on the same basis as in Note 1a of the FY23 Financial Statements.
Cash Operating Expenses per kgMS
$1.39
$1.36
$1.34
$1.16
$1.18
$1.26
$1.39
2023202220212020
Actual
Inflation Adjusted
Of this increase, continuing operations increased $431 million
but was offset by discontinued operations’ operating expenses
reducing $87 million due to the completion of the Soprole sale
on 31 March 2023.
The $431 million increase in continuing operations’ operating
expenses was due to:
–A $204 million increase in impairments, mainly due to
impairments of our New Zealand consumer business and of our
Asia brands (Anmum
TM
, Anlene
TM
and Chesdale
TM
), of $121 million
and $101 million, respectively.
–A $103 million increase in employee benefits expenses, due
to inflationary pressures, and the prior year benefiting from
the release of 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.
–Other increased $71 million, in part due to higher travel and
entertainment costs reflecting COVID-19 related restrictions
easing, and an increase in doubtful debts.
–Professional and management fees increased $18 million, in part
due to the successful implementation of the new Flexible
Shareholding capital structure, and capital return to shareholders
and unit holders.
Total Group operating expenses
are $2,799 million, up $344 million
on the prior period.
To support our long-term discipline and focus on reducing
our operating expenses from continuing operations to
around $2 billion we have introduced a new efficiency
metric of cash operating expenses per kgMS.
The metric monitors the actual cash cost base having
regard to changing milk volumes, and adjusts for inflation
so underlying efficiency gains/losses are transparent.
After removing the impact of inflation and non-cash
costs, our operating expenses on a per kgMS basis increased
from $1.34 to $1.39 per kgMS. The increase mainly reflects
increased staff costs and storage and distribution costs.
11
Continuing operations
full time employees
Continuing operations employee benefits
expense per global milk solids collected
9,549
9,713
9,810
9,877
10,027
5,355
4,926
5,008
5,011
4,975
883
845
848
905
933
601
688
741
760
657
2000
4000
6000
8000
10000
12000
20232022202120202019
Greater China
Group Functions
Global Markets
Core Operations
$1.12
$1.21
$1.21
$1.28
$1.41
20232022202120202019
In addition to the $963 million of employee benefits
expenses included in our operating expenses, $1,267 million
of employee benefits expenses is included in our cost of
goods sold. Our total continuing operations employee
benefits are $2,230 million, $196 million or 10% up on the
prior year.
Continuing operations employee benefits expense is made
up of all people related costs including the use of
contractors. During 2023, on average we had 692 Fixed
term workers globally and 257 in our New Zealand Core
Operations manufacturing business.
The graph below shows an increase in employee benefits
expenses per milk solid since emerging from COVID.
From 2020 through to 2022 we had record low employee
turnover due to COVID restrictions and as a result less
remuneration pressure, fewer in-person conferences and
training, no travel, and few redundancies. In 2023, with
COVID restrictions removed, there was a significant
increase in employee turnover, translating in higher salary
expectations to secure and retain talent and to return to
normal business activities. In addition, inflation impacted
salary and wage remuneration globally.
The 2022 figure of $1.28 per kgMS benefited from the
release of a provision held at Group following a final judicial
interpretation on the application of the Holidays Act 2003
in New Zealand.
Our workforce fluctuates during the year as we hire seasonal workers
to support production through the milk peak period, cover short-term
projects and long-term leave cover. During and after COVID-19 it
became a challenge to source the quality and quantity of temporary
workers required to efficiently operate our New Zealand and Australia
manufacturing sites.
Therefore, over the past couple of years we increased the permanent
manufacturing and supply chain full-time equivalent employees (FTE),
across several sites in New Zealand and Australia. This can be seen in
the increase in Core Operations FTE numbers. We will use natural
turnover to smooth required workforce numbers during the off season.
The Co-operative’s remuneration framework is designed to attract and
retain talent, and both motivates and recognises the role our people
play in the success of Fonterra.
Fonterra’s remuneration framework for salaried staff is based on a ‘total
remuneration’ approach, which is consistent with best practice globally.
This includes base salary, benefits (KiwiSaver, superannuation and
insurance where applicable), and variable remuneration (incentives).
Fonterra’s remuneration packages are benchmarked against
comparable companies in relevant markets, using information
obtained from independent remuneration consultants. For more
information on the Co-operative’s remuneration framework please
refer to the Remuneration Report within the Governance & Statutory
Disclosures.
Continuing operations employee benefits expense
FOR THE YEAR ENDED 31 JULY
NZD MILLION20192020202120222023
Employee benefits expense in cost of goods sold1,0291,0621,1171 ,1741,267
Employee benefits expense in operating expenses814901880860963
Total1,8431,9631,9972,0342,230
Global milk solids collected (million kgMS)1,6441,6241,6451,5841,586
1. Comparative information has been re-presented for consistency with the current period.
12
Research and Development Costs
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023
Operating expenditure
86108
Cost of goods sold
1011
Total Group research and development costs96119
1. Comparative information has been re-presented for consistency with the current period.
Other
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023
CONTINUING
OPERATIONS
2
DISCONTINUED
OPERATIONS
2
TOTAL
CONTINUING
OPERATIONS
2
DISCONTINUED
OPERATIONS
2
TOTAL
Other102(11)9170348418
1. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees
2. Refer to Note 1a and 2c of the FY23 Financial Statements. Comparative information has been re-presented for consistency with current period
Globally we incurred costs of $119 million in research and
development this year, up from $96 million in the prior
year. $108 million is reported in our operating expenses,
with the remaining $11 million in our cost of goods sold.
Our Co-operative has a long and proud heritage of dairy
innovation, pioneering many world firsts from instant
whole milk powder to spreadable butter.
Our innovation hub, the Fonterra Research and
Development Centre (FRDC) based in Palmerston North,
focuses on ground-breaking technologies and dairy
science, aligned to our strategic choices; focus on
New Zealand milk, be a leader in sustainability and be a
leader in dairy innovation and science.
Key research and development projects this year include:
–in Foodservice, we are developing a new cost-effective,
high-moisture mozzarella, to better serve our value
focused customers and attract new customers.
–in Sustainability, we partnered with MIT to trial process
heat alternatives to help assist us to continue to drive
energy efficiency in our manufacturing.
–we continue our research programme on Kowbucha
TM
,
a probiotics derived from Fonterra’s large bacterial
culture collection that are designed to reduce the
methane produced by cows. Kowbucha
TM
has produced
promising results with some trials showing up to a 20%
reduction in methane without compromising productivity,
but further work is needed to validate these effects.
The ‘Other’ line item, which includes other operating income, net
foreign exchange movements, and share of profit or loss of equity
accounted investees, increased $327 million, mainly due to the sale
of Soprole, with a gain on sale (before tax) of $349 million recognised
in other operating income.
13
Total Group EBIT to Normalised Profit After Tax Reconciliation
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023CHANGE
2
EBIT9762,218 127%
Net finance costs(231)(261)(13)%
Tax expenses(162)(380)(135)%
Reported profit after tax5831,577 170%
Normalisation adjustments
3
15(337)–
Add: Tax on normalisation adjustments(7)89–
Normalised profit after tax5911,329125%
(Profit)/loss attributable to non-controlling interests1(40)–
Less: Normalisation adjustments attributable to non-controlling interests(24)––
Normalised profit after tax attributable to equity holders of the Co-operative5681,289127%
Normalised earnings per share (cents)3580129%
Full year dividend per share (cents)2050150%
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 2023.
Our Total Group net finance costs increased $30 million,
or 13%, reflecting increases in global rates on interest
accrued and paid, but partially offset by the Group having
lower average borrowings during the year. In addition, the
2023 financial year had a lower net favourable impact
from fair value changes of derivatives used to manage
interest rate risk and the associated borrowings.
Our Total Group tax expense increased $218 million, due
to the higher taxable earnings generated in the 2023
financial year relative to 2022 and capital gains tax on the
sale of Soprole.
14
Stronger balance sheet supports
increased dividend payment
Fonterra’s dividend policy is a payout ratio of 40% to
60% of reported profit after tax attributable to equity
holders of the Co-operative, excluding abnormal gains.
Distributions of any abnormal gains are considered
separately. Dividend payments should
not require Fonterra to take on more debt and should
not reduce our ability to service existing debt.
For the year ended 31 July 2023 abnormal gains
included the $260 million from selling Soprole.
The total dividend of 50 cents per share is equivalent
to a payout ratio of 63% of reported profit after tax
attributable to equity holders of the Co-operative,
excluding abnormal gains. The decision to payout
slightly above the upper end of the guidance range was
mainly due to the strengthened balance sheet and our
leverage metrics being well within target levels.
Dividend
Dividend Calculation
FOR THE YEAR ENDED 31 JULY
NZD CENTS PER SHARE20222023
Reported earnings
1
3695
Less: Abnormal gains(2)(16)
Net earnings for dividend payment
2
3479
Dividend payment percentage (%)59%63%
Total dividend2050
Interim dividend510
Final dividend1540
1. Attributable to equity holders of the Co-operative, excludes non-controlling interests.
2. Represents net earnings as specified in the Dividend Policy and is calculated as reported profit after tax less abnormal gains.
Dividend per share (cents)
10
20
30
40
50
20232022202120202019
InterimFinal
15
5
5
5
5
20
15
20
10
40
50
Barlass Farm,
Canterbury
15
Return on Capital
by Product Channel
Ingredients
16.4%
from 9.0%
Foodservice
15.7%
from 5.5%
Consumer
(4.6)%
from (0.4)%
Return on Capital
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023
Total Group normalised EBIT9911,881
Finance income on long-term advances711
Notional tax charge(161)(305)
Total Group normalised EBIT plus finance income on long term advances less notional tax charge8371,587
Capital employed at year end12,17911,121
Impact of seasonal capital employed1771,653
Average capital employed12,3561 2 , 7 74
Return on Capital (%)6.8%12.4%
Total Group Return on Capital
improved from 6.8% to 12.4%
Our improved return on capital was due to the increase
in our normalised EBIT. We have normalised $349 million
related to the gain on sale from Soprole, as well as
normalising a $12 million loss related to the disposal of
Hangu China farm. The impairments of $248 million,
mainly recognised in our Consumer channel, have not
been normalised.
The impact of the improved EBIT was partially offset by
higher average levels of capital employed compared to the
prior year. This was mainly driven by higher average working
capital levels, including the impact of the additional
inventory carried forward from the prior year.
Return on Capital
1
Total Group
normalised EBIT
1
($ million)
Average
capital employed
1
($ million)
Return on
capital
1
(%)
20232022202120202019
5.6%
6.6%
6.6%
6.8%
13,419
12,313
12,281
12,356
812
879
952
991
12.4%
12,774
1,881
1. Refer to the Glossary.
Return on Capital
16
Net cash flows from operating activities
increased $3.3 billion to $3.2 billion due
to the higher operating earnings and a
reduction in working capital during the
year, and after deducting interest and
tax payments of $0.4 billion.
Our working capital requirements decreased by $0.9 billion
reflecting both a reduction in inventory volume on hand during
the year and a lower value of inventory on hand per metric tonne.
Our net cash flows from investing activities of $0.1 billion
include divestments, which largely reflects the sale of Soprole
for aggregate proceeds of $1.3 billion less costs and the
pre-settlement dividend, partly offset by other investing
cash flows, predominantly capital expenditure, of $0.7 billion.
Combined with net cash flows from operating activities, this
delivered a free cash flow of $3.3 billion for the year.
We have funded dividends of $0.4 billion (including 15 cents
from last year’s final dividend and this year’s interim dividend
of 10 cents).
Our net debt has decreased $2.1 billion reflecting the strong
earnings, reduction in working capital and divestment proceeds.
This, combined with our strong balance sheet enables us to pay
a final dividend of 40 cents resulting in a total dividend of 50
cents per share.
Cash Flow and
Working Capital
Cash Flow and Change in Net debt
FOR THE YEAR ENDED 31 JULY
NZD MILLION20222023
Cash generated from operations
1
1,4942,311
Net change in working capital and other operating activities(1,598)871
A. Net cash flows from operating activities(104)3,182
Cash flows from investing activities
Divestments and asset sales26846
Capital expenditure and other(543)(714)
B. Net cash flows from investing activities(517)132
Free cash flow (A+B)(621)3,314
Dividends paid to equity holders of the Co-operative(323)(403)
Other financing cashflows(18)63
Capital return payable–(804)
Other non-cash changes in net debt(52)(38)
Decrease/(increase) in net debt
2
(1,014)2,132
Note: Comparative information has been re-presented for consistency with the current period.
1. Includes profit after tax and non-cash and non-operating adjustments to profit after tax to determine cash generated from operations.
2. Net debt includes amounts attributable to disposal groups held for sale.
17
Movements in Free Cash Flow ($ million)
2023DIVESTMENTSCAPEX & OTHERNET WORKING
CAPITAL
1
EARNINGS2022
(621)
817
2,469
815
(166)
3,314
Note: Comparative information has been re-presented for consistency with the current period.
1. Includes amounts owing to suppliers.
Our Total Group free cash flow was $3.9 billion higher than last year at
$3.3 billion, and is before the $804 million capital return payment to shareholders
and unit holders. The increase reflects:
–strong earnings performance resulting in underlying cash flow from earnings
increasing by $0.8 billion,
–an improvement in working capital cash flows of $2.5 billion over the year, and
–an increase in net cash received from divestments of $0.8 billion, due to the
sale of Soprole during the year, partially offset by
–an increase in capital expenditure and other investing cash flows of $0.2 billion.
The strong free cash performance supports the payment of the capital return of
50 cents per share and a 2023 full year dividend of 50 cents per share.
Free Cash Flow
1
($ million)
20232022202120202019
668
1,433
3,314
(621)
1,109
Note: Comparative information has been re-presented for consistency with the current period.
1. Refer to the Glossary for definition.
18
Trade Working Capital ($ billion)
Working Capital Days
1
20232022202120202019
75.1
83
85
92
98
91
1 Refer to the Glossary for definition. Comparative information has been re-presented for
consistency with the current period.
As at 31 July 2023, our trade working
capital decreased $1.1 billion from the
prior year end, reflecting:
–a $0.2 billion reduction due to the
divestment of Soprole;
–lower inventory volume on hand of
61,000 metric tonnes; and
–a lower milk price resulting in a lower
carrying value per metric tonne of
inventory on hand.
These figures are before taking into
account amounts owing to farmer
suppliers, which were $2.0 billion as at
31 July 2023, resulting in net working
capital of $2.4 billion.
Note: Includes amounts attributable to disposal groups held for sale. Comparative information
has been re-presented for consistency with the current period.
2023PAYABLESINVENTORYRECEIVABLES2022
5.5
(0.3)
(0.8)
(0.0)
4.4
Working capital days have
decreased by seven days
relative to the prior year,
mainly reflecting the higher
value of sales, which were
driven by Non-Reference
Products.
Maheswary, Nishaa & Isha,
Auckland
19
Stephanie, Teagan & Keeley,
Waiuku
Balance
Sheet
Net debt has decreased by $2.1 billion
reflecting higher earnings, a reduction
in working capital and the divestment
of Soprole. This enabled an increase in
cash dividends paid during the year and
the capital return paid in August 2023.
The improvement in the Gearing Ratio
from 42.4% to 28.8% reflects the lower
level of debt together with higher equity
from higher earnings.
Debt to EBITDA has improved from
3.2x to 1.3x as a result of lower net
debt combined with higher earnings
for the year.
Net Debt
1
($ billion)
Leverage Metrics
1 Refer to the Glossary for definition.
20232022202120202019
6.0
5.2
4.3
5.3
3.2
Debt to EBITDA
1
(x) Gearing Ratio
1
(%)
20232022202120202019
49.5%
44.2%
1.3
3.2
2.7
3.3
4.3
38.5%
42.4%
28.8%
1 Refer to the Glossary for definition.
20
Capital Invested
1
($ million)
Breakdown of Sustaining Capital Expenditure
($ million)
Sustaining capital
expenditure
Growth capital
expenditure
Other capital
invested
20232022202120202019
340
260
124
724
382
106
525
37
466
534
79
53
30
63
608
617
621
47
79
747
Sustaining Capital
for NZ Operations
Regulatory requirements
including wastewater
Decarbonisation
2023202220212020
211
52
15
382
104
239
202
82
133
78
534
26
466
119
121
243
141
85
621
152
Sustaining Capital
for Other Operations
1 Refer to the Glossary for definition.
Capital Invested
Total capital invested was $747 million
for the 2023 financial year, the sum of
capital expenditure of $668 million and
other capital invested of $79 million.
The capital expenditure of $668 million comprised $621 million for
capital projects to maintain and improve existing assets, referred
to as sustaining capital expenditure, and $47 million for projects to
drive future growth. The $79 million of other investments were
mainly for right-of-use assets and equity investments.
Our total capital expenditure has increased $81 million, with
increased investment in capital projects such as decarbonisation,
to meet our public commitments and to more sustainably collect
and process milk across our network of assets.
We are continuously working through our capital expenditure
programme to keep our processing sites fit for purpose. Key
projects included installation of a biomass boiler to remove the
use of coal at our Waitoa site, improved refrigerant technology at
our Whareroa site and Te Rapa site utilities upgrades.
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.
Growth capital expenditure included an upgrade to our
probiotic’s capacity in Palmerston North and an expansion
to string cheese processing capacity in Malaysia for
Global Foodservice customers.
21
Key Capital Expenditure Projects Across New Zealand
Central North Island
Waitoa
– Invested in biomass
boiler to replace coal
– Improving power
quality to increase
plant stability
– Increasing capacity of
organic UHT milks for
our Greater China
Consumer channel
Tirau
– Upgraded
infrastructure to
better manage
wastewater
Te Rapa
– Acquisition of assets
to continue to supply
steam to process milk
Hautapu
– Changed from R22
based refrigeration to
a sustainable
alternative
Te Awamutu
– Upgraded
infrastructure to
better manage
wastewater
– Change from R22
based refrigeration to
a sustainable
alternative
Lichfield
– Invested in brine
storage and filtration
capability to mitigate
food safety and
quality risk when
processing cheese
Edgecumbe
Waitoa
Tirau
Hautapu
Te Awamutu
Lichfield
Whareroa
Darfield
Crawford Street
Te Rapa
Clandeboye
Stirling
Edendale
Sites displayed are not a full
representation of all Fonterra factories
Lower North Island
Whareroa
– Changed
refrigeration to heat
pump technology
– Improved powder
dryer building
integrity to manage
product quality risk
Palmerston North
– Invested in ability to
supply probiotics
strains for a growing
segment aligned to
our Active Living
category
South Island
Stirling
– Invested in biomass boiler
to replace coal
Clandeboye
– Treat wastewater using
biological treatment plant
– Investment to improve reliability
of generation and distribution
of hygienic compressed air
– Installed a heat recovery system
for the Lactose plant to reduce
energy requirements
Pahiatua
Palmerston North
Kapuni
22
On-farm
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.
Blair, Hawkes Bay
23
Composition of our Supplier Base
As at 31 July 2023 the Co-operative
collected milk from 8,282 shareholding
farms and 159 non-shareholding
supplying farms around New Zealand.
The decline in supplying farms is
primarily due to farm conversions
to other land uses and increased
competitor activity.
Our supply from non-shareholding farms is largely made up
of farms supplying MyMilk. At the end of the 2022/23 season,
23 of the 25 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 2022/23 season an additional 26 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.
Under the Flexible Shareholding capital structure, the
Co-operative no longer accepts new applications for supply under
MyMilk. Therefore, over the next four years the non-shareholding
farms will steadily decline as MyMilk suppliers reach the permitted
maximum five seasons.
Average production per farm this season is up on the prior
2021/22 season, primarily due to more favourable on-farm
conditions with the prior year impacted by weather that was less
conducive to pasture growth. In addition, while the trend in
declining cow numbers over recent years has continued,
productivity per cow continues to improve as farmers continue
to focus on cow quality over quantity.
Non-shareholding
farms
Average production
per farm (kgMS)
Fonterra milk collection market share in New Zealand
Shareholding
farms
133
155
246
222
159
20232022202120202019
9,0958,8568,5818,4358,282
160,560
164,402
170,836
167,437
171,249
80.8%
80.0%
79.0%
79.0%
79.1%
Non-shareholding
farms
Average production
per farm (kgMS)
Fonterra milk collection market share in New Zealand
Shareholding
farms
133
155
246
222
159
20232022202120202019
9,0958,8568,5818,4358,282
160,560
164,402
170,836
167,437
171,249
80.8%
80.0%
79.0%
79.0%
79.1%
Our New Zealand
Supplier Base and Owners
Blair, Hawkes Bay
24
Flexible Shareholding came
into effect on 28 March 2023,
and more information on
the Co-operative’s capital
structure can be found here.
Flexible Shareholding Metrics
METRIC
AS AT
31 JULY 2023THRESHOLD
Total shares on issue above/(below)
the aggregate Share Standard12.22%+/-15.00%
Shares held by Ceased Shareholders
and Permitted Transferees9.23%≤ 25.00%
Shares held for the Fonterra
Shareholders’ Fund (“Overall Limit”)6.67%≤ 10.00%
As of 31 July 2023, the Co-operative was within
the specified thresholds for all three Flexible
Shareholding metrics:
— Total shares on issue above the aggregate Share
Standard – measures the percentage of Co-operative
Shares on issue above/(below) the aggregate Share
Standard for all Shareholders.
— Shares held by Ceased Shareholders or Permitted
Transferees – measures the proportion of shares held
by shareholders who have ceased supplying milk to the
Co-operative, and/or transferred their shares to a non-
supplying person or entity in accordance with the permitted
transferee rules.
— Shares held for the Fonterra Shareholders’ Fund –
under the Flexible Shareholding capital structure, the size
of the Fonterra Shareholders’ Fund has been capped at
10% of shares on issue to protect farmer ownership and
control of the Co-operative.
Under Fonterra’s Flexible Shareholding capital structure,
Fonterra is required to report information on the alignment
between milk supply and ownership of the Co-operative, and
the distribution of ownership of the Co-operative.
When considering these Flexible Shareholding metrics, it’s
important to note share compliance was put on hold during
the two-year capital structure consultation period and this
is reflected in the metrics. Furthermore, the level of shares
held by Ceased Shareholders is not necessarily a reflection
of lost supply to the Co-operative.
–The number of shares linked to Ceased Shareholders
reflects the number of shares linked to farm sales within a
year. Typically, the majority of farms that are sold continue
to supply the Co-operative under the new owner.
Therefore, the milk solids linked to Ceased Shareholders
are not necessarily lost to the Co-operative, but the shares
become uncoupled from the original supplying farm.
–Historically around 60 – 90 million shares shift from being
linked to a Supplying Shareholder to a Ceased Shareholder
at the end of each season. Therefore, the current 149
million shares held by Ceased Shareholders and Permitted
Transferees as of 1 September 2023 is in line with annual
historical levels given it captures the 2020/21 and
2021/22 seasons where share compliance was put on hold
as well as the recently ended 2022/23 season.
–Under the Flexible Shareholding capital structure, new
shareholders have up to six seasons to reach their
minimum holding of shares, while shareholders at the
time of the capital structure vote have up to 15 seasons to
share down after they cease to supply the Co-operative.
Given the change in the minimum shareholding
requirement, it is possible to see a proportion of shares
held by non-supplying shareholders for a longer period.
Share Capital
25
Additional information
To provide further transparency on the distribution of
Co-operative ownership, Fonterra is providing information
on the proportion of shares held by different shareholder
types and the number of shares to be bought and sold
by the compliance date.
Share Compliance Requirements
SEASON
# OF SHARES:2023/242024/252025/262026/272027/282028/292029/30
Bought by11,332,112 4,100,5214,276,688 4,081,149 3,149,308 2,257,560 –
Sold by9,234,420 ––22,818 –––
SEASON (continued)
# OF SHARES2030/312031/322032/332033/342034/352035/362036/37TOTAL
Bought by–––––––29,197,338
Sold by––––––140,050,972 149,308,210
Shareholdings Relative to Share Standard
<33%33% – 79%80% – 120% >120%TOTAL
# of shareholding farms 245 694 5,6711,276 7, 8 8 6
Milk Supply
1
(kgMS) 40,437,7128 0 , 8 27, 9 5 31,035,205,269228,994,216 1,385,465,150
Note: Shareholding farms presented exclude farms where the owning entity is in the process of sharing up on a Share Up Over Time
contract or six-year transition. It also excludes Ceased Shareholders, Permitted Transferees, Associated Shareholders and
shareholding farms over 4 times the Share Standard.
1. Production is derived from the shareholding farm’s Share Standard.
Shareholder Distribution
SHAREHOLDER
# OF SHARES HELD
AS AT 31/07/2023
% OF TOTAL
SHARES
Supplying Shareholders 1,347,783,820 83.75%
Secondary Shareholders3,154,635 0.20%
Associated Shareholders 595,530 0.04%
Ceased Shareholders138,675,995 8.62%
Permitted Transferees9,840,123 0.61%
Custodian, on behalf of the Fund107,410,9846.67%
Custodian, on behalf of the Market Makers1,783,582 0.11%
Total shares on issue1,609,244,669100%
26
Shareholdings by Shareholding Farms Relative to 1:1 Share StandardShareholding by Milk Supply Relative to 1:1 Share Standard
400%350%300%250%200%150%100%66%33%0%
–
10
20
30
40
50
60
–
50
100
150
200
250
300
400%350%300%250%200%150%100%66%33%0%
Note: Shareholding farms presented exclude farms where the owning entity is in the process of sharing up on a Share Up
Over Time contract or six-year transition. It also excludes Ceased Shareholders, Permitted Transferees, Associated
Shareholders and shareholding farms over 4x the Share Standard.
PERCENTAGE OF SHARES HELD RELATIVE TO SHARE STANDARD
NUMBER OF SHAREHOLDING FARMS
Shareholding farms holding
4x of the Share Standard
(Maximum Holding)
Shareholding farms
holding 33% of the
Share Standard
(Minimum Holding)
Shareholding farms holding
100% of the Share Standard
Note: Shareholding farms presented exclude farms where the owning entity is in the process of sharing up on a Share Up
Over Time contract or six-year transition. It also excludes Ceased Shareholders, Permitted Transferees, Associated
Shareholders and shareholding farms over 4 times the Share Standard.
1. Milk Supply is derived from the shareholding farm’s Share Standard.
PERCENTAGE OF SHARES HELD RELATIVE TO SHARE STANDARD
Aggregate production
(kgMS) of shareholding
farms at 4x of the Share
Standard (Maximum
Holding)
Aggregate production
(kgMS) of shareholding
farms at 33% of Share
Standard (Minimum
Holding)
Aggregate production (kgMS)
of shareholding farms at 100%
of Share Standard
MILK SUPPLY
1
(MILLION kgMS)
27
Fonterra’s New Zealand
Milk Production
For the 2022/23 season, production
from Fonterra farmers in New Zealand
was 1,480 million kgMS, up 0.1%
compared to the prior season.
The 2022/23 season had a challenging start, with wet
weather conditions throughout the North Island, dry
conditions in the South Island, and a reduction in the
number of cows impacting peak production.
After the peak collection period the weather was more
conducive to strong pasture growth, with intermittent
rain and warmer temperatures resulting in strong milk
supply towards the end of the season.
Fonterra’s New Zealand
Milk Production
JUN
kgMS (MILLIONS/DAY)
JULAUGSEPOCTNOVDECJANFEBMARAPRM AY
2020/21 1,539m kgMS
8
7
6
5
4
3
2
1
0
2021/22 1,478m kgMS2022/23 1,480m kgMS
Milk Solids Produced
28
For more information, please see
Farmgate Milk Price Statement 2023 – see MP
The favourable foreign exchange (FX) season-on-season
impact is because the hedge rate decreased as a result of
the New Zealand dollar weakening over the two seasons.
The average hedge rate decreased from NZD/USD 0.6884
last season to NZD/USD 0.6357 this season.
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 and current seasons.
The hedging approach means changes in the New Zealand dollar
spot rate 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 on the Farmgate Milk
Price. As a result, hedging provides increased visibility and
certainty on what the FX conversion rate for the season will be
and means a narrower range on the Farmgate Milk Price relative
to not hedging.
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.
FY23
FARMGATE
MILK PRICE
CASH
COSTS
FOREIGN
EXCHANGE
PRODUCT
PRICES
VOLUMEFY22
FARMGATE
MILK PRICE
$(0.01)
REVENUE
$0.98
$(0.13)
$8.22
$9.30
$(1.92)
Lower product prices
57% of the Farmgate Milk Price
revenue was derived from WMP
sales volume. The average WMP
price in the 2023 season was 16%
lower at US$3,392 per metric
tonne compared to US$4,019 per
metric tonne in the prior season.
More milk
solids paid for
than collected
Due to Cyclone
Gabrielle, more
milk solids were
paid for than
collected.
Inflationary
pressures
Increased costs
mainly due to
inflationary
pressure on
cash costs
0.50
0.60
0.70
0.80
AUG-24AUG-23AUG-22AUG-21AUG-20AUG-19
NZD/USD spot rate
Fonterra's average conversion rate
Illustrative future 18 month hedge profile¹
(NZD/USD)
New Zealand Farmgate Milk Price
(per kgMS)
29
Note: Figures are for the year ended 31 July 2023
Prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
Financing Costs are allocated based on the average capital employed by each segment and channel. The notional tax rates applied are based on which country the entity, within a segment or channel, generates the income in.
Fonterra’s reportable
segments are Core
Operations and the
two customer-facing
regional business
units, Global Markets
and Greater China
as presented to
the right.
Core OperationsGlobal MarketsGreater ChinaTo t a l
External sales
volume
(‘000 MT)
2,517
10%
980
5%
3,497
5%
Profit after tax contribution from continuing operations
Ingredients
$602m
$459m
$429m
$114m
$133m
$13m
$1,164m
$586m
Foodservice
$(12)m
$72m
$50m
$53m
$203m
$46m
$241m
$171m
Consumer
$(18)m
$1m
$(94)m
$90m
$(52)m
$48m
$(164)m
$137m
To t a l
$572m
$532m
$385m
$77m
$284m
$11m
$1,241m
$620m
Reportable Segments
30
Core Operations represents the business activities that
collect and process New Zealand milk through to selling
products to our customer-facing regional business units,
Global Markets and Greater China. When products are sold
from Core Operations to the regional business units, the
internal transfer prices used are largely 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-commodity products.
The performance of Core Operations reflects the efficiency of our
milk collection, manufacturing and supply chain operations, our
ability to optimise our product mix, the impact of our price risk
management tools as well as a significant portion of our business’s
volatility, including the impact of price relativities between
Reference Products that inform the Farmgate Milk Price and
Non-Reference Products.
Our Greater China business unit includes the Ingredients,
Foodservice and Consumer channels in Greater China, and our
Global Markets business unit includes our Ingredients, Foodservice
and Consumer channels outside of Greater China.
The performance of the regional business units in the table on the
next page reflects the in-market value added after purchasing the
products from Core Operations at the transfer price.
During the year corporate costs were not included within the
segments. From July 2023, corporate costs, including Co-operative
Affairs and other Group Functions, are included within Global
Markets, Greater China and Core Operations.
In addition, Segments and Product Channels are reported to profit
after tax. Financing Costs are allocated based on the average
capital employed by each segment and channel. The notional tax
rates applied are based on which country the entity, within a
segment or channel, generates the income in.
31
Reportable Segments
1
FOR THE YEAR ENDED 31 JULY
CORE OPERATIONSGLOBAL MARKETSGREATER CHINAELIMINATIONSTOTAL
NZD MILLION20222023 2022 2023 2022 2023 2022202320222023
Sales volume
(‘000 MT)
2
2,554 2,784 2,344 2,575 1,028 978 (2,608)(2,840)3,318 3,497
Revenue16,987 19,142 1 5, 374 18,401 6,869 7, 07 2 (17, 32 9)(20,035)21,901 24,580
Cost of goods sold(16,251)(17, 51 3)(13,832)(16,565)(6,238)(6,356)17, 32 9 20,035 (18,992)(20,399)
Gross profit 736 1,629 1,542 1,836 631 716 – – 2,909 4,181
Operating
expenses(691)(840)(1,081)(1,310)(293)(346)– –(2,065)(2,496)
Other
3
110 17 (15)53 7 – –– 102 70
EBIT155 806 446 579 345 370 – – 946 1,755
Net finance costs–––––––– (194)(211)
Tax expenses–––––––– (131)(303)
Profit after tax40 572 308 385 273 284 – – 621 1,241
Gross margin
4
4.3%8.5%10.0%10.0%9.2%10.1%––13.3%1 7. 0 %
EBIT margin
4
0.9%4.2%2.9%3.1%5.0%5.2%––4.3%7. 1%
1. Performance is prepared on a continuing operations basis. Comparative information has been re-stated and re-presented for consistency with the current period.
2. Includes sales to other segments.
3. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
4. Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
Change in profit after tax contribution by segment
between 2022 and 2023
1
Profit after tax ($ million)
Within the Regions
FY23
PROFIT
AFTER TAX
GREATER
CHINA
GLOBAL
MARKETS
CORE
OPERATIONS
FY22
PROFIT
AFTER TAX
621
532
77
11
1,241
1. Prepared on a continuing operations basis. Comparative information has
been re-stated and re-presented for consistency with the current period.
32
End-to-End Regional Business Unit Performance
1
FOR THE YEAR ENDED 31 JULY
GLOBAL MARKETSGREATER CHINATOTAL
NZD MILLION202220232022202320222023
Sales volume (‘000 MT)2,284 2,517 1,034 980 3,318 3,497
Revenue15,201 17,926 6,700 6,654 21,901 24,580
Cost of goods sold(13,154)(14,911)(5,838)(5,488)(18,992)(20,399)
Gross profit 2,0473,015 862 1,166 2,909 4,181
Operating expenses(1,541)(1,882)(524)(614)(2,065)(2,496)
Other
2
56 63 46 7 102 70
EBIT
3
562 1,196 384 559 946 1,755
Net finance costs –––––(194)(211)
Tax exp ense–––––(131)(303)
Profit after tax342 830 279 411 621 1,241
Includes Core Operations attribution
4
34 445 6 127 40 572
Gross margin
5
13.5%16.8%12.9%17. 5%13.3%17. 0 %
EBIT margin
5
3.7%6.7%5.7%8.4%4.3%7. 1%
1. Performance is prepared on a continuing operations basis. Comparative information has been re-stated and re-presented for consistency with the current period.
2. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
3. Includes Core Operations attribution.
4. Core Operations attribution is an after tax amount that is included in the Global Markets and Greater China’s profit after tax line.
5. Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
Our previous reportable segments
were Asia Pacific; Africa, Middle East,
Europe, North Asia and Americas
(AMENA); and Greater China. The income
statement of Group Operations (now Core
Operations) was attributed between the
three regional business units.
In June 2022, we announced changes to our organisational
structure to better support our strategy, following the strategy
refresh announced in September 2021. Effective from 1 October
2022, our Asia Pacific and AMENA business units were merged into
a combined Global Markets business unit. The reportable segments
have been updated to reflect the changes and include Core
Operations as a reportable segment.
Additionally, from 31 October 2022, Soprole met the conditions
to be classified as held for sale and the definition of a discontinued
operation and is excluded from the reportable segment figures.
The comparative information for previous years has been restated
and re-presented to reflect the change in the Group’s reportable
segments.
The table to the right reflects the performance of our regional
business units, Global Markets and Greater China, with Core
Operations allocated to them to determine an end-to-end
segmental result of the two customer-facing regional business units,
consistent with how the segments were reported in the last two
financial years.
The principle of the end-to-end attribution is 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.
33
Core Operations
Core Operations represents the business activities
from collecting and processing New Zealand milk,
through to selling products to our customer-
facing regional business units, Global Markets
and Greater China.
It is comprised of three functions
Chief Operating Office (COO), which
includes New Zealand milk collection
and processing operations, supply
chain, Group IT, safety and food safety.
Strategy and Optimisation (S&O). This
includes optimising the New Zealand
milk pool, product pricing guidance,
strategy & transformation, managing
Fonterra’s dairy and non-dairy price
risk and providing price risk
management tools to both our
customers and farmer shareholders.
Fonterra Farm Source™
retail stores.
1
2
3
Smith Farm,
Southland
34
The performance of our Core Operations
during the 2023 financial year demonstrated
resilience as 2023 was impacted by high
inflationary pressures and, at times,
significant weather events.
This year we collected 16,317 million litres of
milk from the Co-operative’s farmers which
equated to 1,480 million kgMS.
Around 11 litres of milk produce 1kg of milk
solids, or about 9% of milk collected is solids,
and the rest is other components of milk
and w a t er.
Cost of collecting milk
1
Litres and milk solids collected
Milk Collection
kgMS collected
(million)
Litres collected
(million)
20232022202120202019
1,5231,5171,539
1,4801,478
17,123
16,876
17,121
16,31716,404
To improve fuel efficiency, we use data
analytics to provide a view of efficiency
by tanker and driver, and through our
annual truck and trailer replacement
programme we manage the condition
and age of our fleet. Fuel efficiency
was relatively stable year-on-year.
“ 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. Our performance this
year was impacted by several weather
events across the country.
2.42.4
2.4
3.1
2.8
20232022202120202019
Collection costs (cents/litre)
The Co-operative experienced significant
increases in several input costs, including
the cost of diesel increasing 30% which
has impacted the cost of collecting milk.
This has been partially offset by the
government reducing Road User Charges
for most of the year.
50.0
49.0
48.9
48.5
48.3
20232022202120202019
Fuel burn (litre/100km)
Fuel efficiency when collecting milk
97.1%
97.8%
98.6%
97.7%
98.5%
20232022202120202019
Collected in full on time
Timeliness of collecting milk
1. Cost of collecting milk excludes milk and liquid product transfers between sites.
Comparative information has been re-presented for consistency with the current period.
35
New Zealand milk solids processed and Bulk Liquid sales
(million kgMS)
FonterraDIRA Bulk Liquid
20232022202120202019
Other Bulk Liquid
1,4871,4821,503
1,4441,444
32
30
31
4
5
5
30
4
33
3
Milk solids available
to process and where
we allocated them
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 independent
processors in New Zealand. Under the Dairy Industry
Restructuring (Raw Milk) Regulations 2012 Fonterra is
required to provide up to 600 million litres of milk each
season to eligible independent third-party processors
(including Goodman Fielder) at a regulated price. Under
these regulations, Goodman Fielder is entitled to buy up to
350 million litres of the overall eligible independent processor
entitlement. Under the regulations, the default regulated price
for eligible processors (other than Goodman Fielder) is
Fonterra’s farm gate milk price plus the reasonable costs of
transporting the milk to the processor. Certain independent
processors may also qualify for fixed quarterly pricing. Under
the regulations, the default regulated price for Goodman
Fielder is Fonterra’s farm gate 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.
Nesta,
Hawkes Bay
36
Favourable long-term trend
of shifting milk solids into
higher value products
New Zealand milk solids allocated to Reference
& Non-Reference Products
The Co-operative is focused on shifting our New Zealand
milk into higher value products. This is a key driver of our
strategy to deliver both a strong Farmgate Milk Price and
earnings growth.
The graph to the right shows the favourable trend in
allocating more milk solids to Non-Reference Products,
which are typically higher value products relative to
Reference Products.
Milk solids allocated to Reference Products have reduced
from 72.7% in 2019 to 68.6% in 2023. Reference
Products informing the Farmgate Milk Price include
commodity specifications of whole milk powder (WMP)
and skim milk powder (SMP), and their by-products
which are butter milk powder (BMP), butter, and
anhydrous milkfat (AMF).
The allocation of milk solids to Non-Reference Products,
such as specialised protein products in our Ingredients
channel and all products sold into our Foodservice and
Consumer channels, have increased from 27.3% in 2019
to 31.4% in 2023. The allocation of milk solids to higher
value products can fluctuate year-on-year as our
optimisation team responds to supply and demand
signals and makes decisions to help generate the best
overall returns to Fonterra and our farmer owners
within a season.
Our strategy to direct more milk solids, within a
constrained milk environment, into Non-Reference
Products focuses on:
–Ingredients channel – growing our higher-value
ingredients and solutions targeting the areas of
physical, patient, digestive and mental wellness
plus immunity
–Foodservice channel – growing our global
Foodservice presence across Greater China,
Southeast Asia, and the USA
–Consumer channel – use our New Zealand
provenance and sustainability credentials to
differentiate our brands
In addition to increasing volume sold into the Non-
Reference portfolio, another driver of the allocation
change between Reference and Non-Reference Products
is as total milk solids collected and processed have
trended down over the past five years, the reduced
collections have been removed from the allocation
to Reference Products.
72.7%
71.7%
69.7%
68.6%
70.0%
20232022202120202019
REFERENCE PRODUCTS
0
200
400
600
800
1,000
1,200
27.3%
28.3%
30.3%
31.4%
30.0%
NON-REFERENCE PRODUCTS
0
200
400
600
800
1,000
1,200
FY23FY22FY21FY20FY19
% milk solids manufactured
27.3%
28.3%
30.3%
31.4%
30.0%
NON-REFERENCE PRODUCTS
0
200
400
600
800
1,000
1,200
FY23FY22FY21FY20FY19
% milk solids manufactured
New Zealand milk solids manufactured (kgMS millions)
37
0
OTHEROTHER PROTEINSCASEINCREAM CHEESEBUTTER MILK POWDERCREAM (Butter/AMF)SKIM MILK POWDERWHOLE MILK POWDER
NON-REFERENCE PRODUCTSREFERENCE PRODUCTS
100
200
300
400
500
600
37.2%
38.4%
39.5%
38.0%
33.7%
25.8%
24.7%
23.0%
24.0%
25.6%
8.7%
7.7%
6.5%
7.2%
8.5%
1.0%
0.9%
0.8%0.8%0.8%
10.4%
10.9%
11.4%
11.2%
12.3%
4.0%
4.1%
5.1%
5.2%
5.2%
5.0%
4.6%
5.1%
5.3%
5.2%
6.3%
6.8%
6.6%
6.5%
6.7%
1.6%
1.9%
2.0%
1.8%
2.0%
Breakdown of milk
solids allocated
to manufacture
of Reference &
Non-Reference
Products
Milk solids manufactured (kgMS millions)
FY23FY22FY21FY20FY19
% milk solids manufactured
Overall, the portion of milk solids allocated
to Reference Products is a favourable trend
downwards. However, as seen in the graph
left the allocation between WMP and SMP
year-on-year is more responsive to market
signals and demand for the two products
and their by-products, as our Optimisation
team focuses on delivering the greatest
value for the Farmgate Milk Price within
a season.
— Value derived from WMP for the past
two years has remained relatively
low compared to other products,
in particular SMP and its by-products,
due to the reduced demand for imported
WMP from China.
— Value created from SMP and its cream
by-products (AMF and butter) have
improved year-on-year which supported
the shift in allocation of solids from WMP
to SMP to deliver the highest possible
Farmgate Milk Price to the Co-operative’s
suppliers.
— The increased volume in cream Reference
Products can be attributed mainly to
butter, which has provided a better
return relative to AMF over the
past couple of years.
38
0
OTHEROTHER PROTEINSCASEINCREAM CHEESEBUTTER MILK POWDERCREAM (Butter/AMF)SKIM MILK POWDERWHOLE MILK POWDER
NON-REFERENCE PRODUCTSREFERENCE PRODUCTS
100
200
300
400
500
600
37.2%
38.4%
39.5%
38.0%
33.7%
25.8%
24.7%
23.0%
24.0%
25.6%
8.7%
7.7%
6.5%
7.2%
8.5%
1.0%
0.9%
0.8%0.8%0.8%
10.4%
10.9%
11.4%
11.2%
12.3%
4.0%
4.1%
5.1%
5.2%
5.2%
5.0%
4.6%
5.1%
5.3%
5.2%
6.3%
6.8%
6.6%
6.5%
6.7%
1.6%
1.9%
2.0%
1.8%
2.0%
Breakdown of milk solids allocated to manufacture
of Reference & Non-Reference Products
Milk solids manufactured (kgMS millions)
FY23FY22FY21FY20FY19
% milk solids manufactured
0
100
200
300
400
500
600
Relative to Reference Products, Non-Reference Products
do not adjust year-on-year as much, as we balance
maximising the value of milk within a year as well as our
long-term strategy to generate sustainable volume
growth of our higher margin products.
Our cheese portfolio has had good growth over the past
five years mainly due to the growth in our Foodservice
channel for mozzarella.
Our cream (Non-Reference) portfolio has had increased
allocation of milk solids due to solid growth in our
Foodservice channel particularly for UHT cream in our
Greater China Foodservice business.
Our casein and caseinate portfolio allocation of milk
solids has remained stable over the past five years due
to constrained manufacturing capacity. However, as
demand has grown over the past year gross margins
have increased significantly, in particular for rennet
casein – an ingredient used in processed cheese.
Due to COVID-19 related regulations, the cost and
complexity to import cheese into China increased, and
customers in China shifted from imported processed
cheese to locally manufactured processed cheese,
driving up the demand for rennet casein.
Our other proteins portfolio (excluding casein and
caseinates) is mainly made up of milk protein
concentrates (MPC). The two most prominent MPCs are
MPC70 and MPC85. MPC70 is a commodity
specification product and over the past five years the
trend has been for less milk solids allocated to it. Instead
we have increased our allocation to MPC85 which is a
specialised protein product sold within our sub-channel
Active Living. Overall, the other proteins portfolio has
remained stable.
39
Allocation of New Zealand milk solids sold by Product Channel
1
INGREDIENTS
–
CONSUMER FOODSERVICEACTIVE LIVING CORE INGREDIENTS
Milk solids sold (kgMS millions)
FY23FY22FY21FY20FY19
% milk solids sold
200
400
600
800
1,000
1,200
77.4%
75.7%
74.1%
73.7%
75.3%
4.5%
5.2%
5.4%
5.5%
5.1%
9.6%
10.7%
12.1%
13.1%
13.1%
8.5%
8.4%
8.4%
7.7%
6.5%
The kgMS of milk products that we produce each year differs to
the kgMS of products that we sell within the financial year.
This year, due to the sell down of the additional 2022 financial
year Core Ingredients inventory and in-market challenges, we
are selling a higher proportion of our milk solids through our Core
Ingredients channel and a lower proportion through our Active
Living and Consumer channels.
Milk solids allocated to our Foodservice channel are in line with
last year, with demand lifting across our major product categories
in the second half of the year as a result of COVID-19 related
restrictions lifting, relative to the prior year.
Our Active Living portfolio was impacted due to high in-market
inventory in some markets, and lower demand from the USA as
a result of some customers’ current manufacturing constraints.
Our Consumer channel experienced lower sales volume, mainly
due to economic challenges in Sri Lanka impacting the ability to
access US dollars in the first half of the financial year.
1. Comparative information has been re-presented for consistency with the current period.
40
Product made right first time
Product made right first time Cost of quality ($ million)
20232022202120202019
90
58
95.3%
94.5%
95.0%
94.0%
91.9%
58
72
56
Portion of milk solids
made into product
96.4%
96.4%
96.4%
96.3%
96.5%
20232022202120202019
Milk Utilisation
Product made ‘right first time’ tracks the product that passes
grading tests once the product is manufactured. Manufacturing
more complex products increases the risk on quality and
reliability, but despite this, we have achieved a record result in
product made ‘right first time’ at 95.3%.
Cost of quality is one of our key measures of the effectiveness of
our manufacturing activity and it improved this year, reducing to
$56 million. This is more in-line with historical levels seen during
2020 and 2021, rather than 2022, which was impacted by several
one-off events.
Within our New Zealand manufacturing operations, we have
optimised our product mix by allocating a higher proportion of
this season’s milk solids to proteins (including skim milk powder)
and cheese products, and less to whole milk powder.
Milk utilisation (the proportion of milk solids made into products)
reduced from 96.5% to 96.3% due to the shift to a more complex
product mix, which incur larger processing losses, but on a net
basis provide greater earnings to the Co-operative and represent
the greatest overall return for our milk solids. We are focused on
improving manufacturing of more complex products. For example,
at our Hautapu and Maungaturoto sites, we have worked on
ensuring consistency of final product and improving product yield
of rennet casein.
Asset health
3.11
2023
3.22
3.19
3.17
3.11
3.13
20232022202120202019
Risk Appetite
Asset health measures the condition and reliability of
our manufacturing assets on a scale of one to five, with
five indicating the asset is in the best condition possible.
Fonterra’s risk appetite range is from 3 to 3.5.
From 2016 to 2020, we under-invested in sustaining
capital, leading to the downwards trend of asset health.
Since 2021, capital has been allocated to regaining asset
condition and risk mitigation particularly in food safety
and health & safety. The Asset health score does not yet
reflect the increase in spend as we catch up from prior
underspend.
Milk Processing Performance
41
Core
Operations
operating
performance
Core Operations revenue
is derived from selling
products to our two in-
market selling regions,
Global Markets and
Greater China.
Core Operations Performance by Channel
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume (‘000 MT)
3
2,554 2,784 9%2,011 2,191 9%286 334 17%257 259 1%
Revenue
16,987 19,142 13%14,055 15,692 12%1,569 1,994 27%1,363 1,456 7%
Cost of goods sold
(16,251)(17, 51 3)(8)%(13,331)(14,207)(7)%(1,588)(1,908)(20)%(1,332)(1,398)(5)%
Gross profit
736 1,629 121%724 1,485 105%(19)86 –31 58 87%
Operating expenses
(691)(840)(22)%(561)(678)(21)%(77)(89)(16)%(53)(73)(38)%
Other
4
110 17 (85)%85 16 (81)%14 – –11 1 (91)%
EBIT
155 806 420%248 823 232%(82)(3)96%(11)(14)(27)%
Net finance costs and tax expense
(115)(234)(103)%(105)(221)(110)%(2)(9)(350)%(8)(4)50%
Profit after tax
40 572 1,330%143 602 321%(84)(12)86%(19)(18)5%
Gross margin
4.3%8.5%5.2%9.5%(1.2)%4.3%2.3%4.0%
EBIT margin
0.9%4.2%1.8%5.2%(5.2)%(0.2)%(0.8)%(1.0)%
1. Core Operations performance is prepared on a continuing operations basis. Comparative information has been restated for consistency with the 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 of equity accounted investees.
42
When products are sold from Core Operations to our in-market
regions, the internal transfer prices are largely determined by
market-based reference prices (e.g. GDT and other external
benchmarks) and include charges, where appropriate, to reflect
the additional specification costs to make the product. The
internal pricing is reviewed weekly for Ingredients products
and either monthly or quarterly for Consumer and
Foodservice products.
Core Operations profit after tax was $572 million, an increase
of $532 million, on the prior comparable period.
A key driver of Core Operations profit after tax is the relative
price difference between Reference Product prices and
Non-Reference Product prices.
The graph to the right illustrates these prices relativities.
Price relativities in the 2023 financial year were significantly
more favourable than prior years, and these price relativities,
particularly in our protein and cheese portfolios, have driven
the improved gross margin from 4.3% to 8.5%.
The increase in gross profit has been partially offset by higher
operating expenditure. Our supply chain costs have increased
due to inflationary pressures, staff costs, and incurring additional
storage costs due to the impact of holding higher inventory
at the start of the 2023 financial year.
To support our long-term discipline on efficient New Zealand
operations we have introduced a new efficiency metric of gross
profit from Core Operations per kgMS.
The metric monitors the cash cost base having regard to changing
milk volumes, and adjusts for inflation so underlying efficiency
gains/losses are transparent. The metric is calculated at a gross
profit level to take into account the net result of maximising value
generated from every milk solid, which can increase the cost base.
Reference and Non-Reference Price Relativities
US$/MT
Reference product shipment priceNon-Reference product shipment price
2023202220212020201920182017
2,000
4,000
6,000
Gross profit from Core Operations per kgMS
$9.85
$7.64
$7.52
$8.60
$8.83
$9.42
$9.21
2023202220212020
Actual
Inflation Adjusted
After removing the impact of inflation and non-cash costs, our
gross profit from Core Operations on a kgMS basis increased
from $8.83 to $9.21 per kgMS. The increase reflects higher
revenue in New Zealand dollars.
‘Other’ is down $93 million, to $17 million, reflecting foreign
exchange movements in our net receivables due to timing
differences between the processing and hedging of invoices.
Last year’s ‘Other’ also included a portion of the gain on sale
of Global Dairy Trade.
Despite favourable price relativities improving gross profit in both
the Foodservice and Consumer channels relative to the prior year,
at an EBIT level these channels have continued to incur losses in
Core Operations reflecting both higher operating costs and other
gains not repeated in the 2023 financial year.
43
Global Markets
Our Global Markets business covers our sales regions outside of the
Greater China region, which includes Africa, Middle East, Europe, North
Asia, Americas, New Zealand, Australia, Pacific Islands, Southeast Asia,
and South Asia.
Global Markets’ profit after tax increased $77 million to $385 million,
mainly due to the Ingredients channel in-market profit after tax increasing
by $114 million due to improved pricing and higher sales volumes.
Performance also improved in the Foodservice channel as in-market sales
Global Markets Performance by Channel
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume (‘000 MT)
3
2,344 2,575 10%1,498 1,732 16%274 280 2%572 563 (2)%
Revenue1 5, 374 18,401 20%11,127 13,51621%1,543 1,845 20%2,704 3,040 12%
Cost of goods sold(13,832)(16,565)(20)%(10,376)(12,584) (21)%(1,349)(1,582) (17)%(2,107)(2,399)(14)%
Gross profit 1,542 1,836 19%751 932 24%194 263 36%597 641 7%
Operating expenses(1,081)(1,310)(21)%(386)(381) 1%(187)(192) (3)%(508)(737)(45)%
Other
4
(15) 53 –45 31 (31)%(2) 3 –(58) 19 –
EBIT446 579 30%410 582 42%5 74 1,380%31 (77)–
Net finance costs and tax expense(138)(194)(41)%(95)(153) (61)%(8)(24) (200)%(35)(17)51%
Profit after tax308 385 25%315 429 36%(3)50 –(4)(94)(2,250)%
Gross margin10.0%10.0%6.7%6.9%12.6%14.3%22.1%21.1%
EBIT margin2.9%3.1%3.7%4.3%0.3%4.0%1.1%(2.5)%
1. Global Markets performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the 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 of equity accounted investees.
Regional
performance
The performance of the
regional business units
reflects the in-market
value added after
purchasing the products
from Core Operations at
the transfer price.
teams were able to adjust sales prices for higher cost of goods. This was
partially offset by impairments in Global Markets’ Consumer channel of our
New Zealand Consumer business and our Asia brands (Anmum™, Anlene™
and Chesdale™). See page 59.
On an end-to-end basis (including Core Operations’ attribution), Global
Markets’ profit after tax increased 143%, or $488 million to $830 million,
driven by Core Operations attribution, reflecting favourable price relativities
in the Ingredients channel, particularly in our protein and cheese portfolios.
44
Global Markets End-to-End Performance by Channel
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume ('000 MT)2,284 2,517 10%1,453 1,686 16%264 272 3%567 559 (1)%
Revenue15,201 17,926 18%11,038 13,218 20%1,458 1,758 21%2,705 2,950 9%
Cost of goods sold(13,154)(14,911)(13)%(9,797)(11,176)(14)%(1,277)(1,486)(16)%(2,080)(2,249)(8)%
Gross profit 2,047 3,015 47%1,241 2,042 65%181 272 50%625 701 12%
Operating expenses(1,541)(1,882)(22)%(786)(882)(12)%(204)(212)(4)%(551)(788)(43)%
Other
3
56 63 13%103 40 (61)%1 3 200%(48)20 –
EBIT562 1,196 113%558 1,200 115%(22)63 –26 (67)–
Net finance costs and tax expense(220)(366)(66)%(169)(316)(87)%(8)(25)(213)%(43)(25)42%
Profit after tax
4
342 830 143%389 884 127%(30)38 –(17)(92)441%
Profit after tax attribution from Core Operations
5
34 445 1,209% 74 455 515% (27)(12)56% (13)2 –
Gross margin13.5%16.8%11.2%15.4%12.4%15.5%23.1%23.8%
EBIT margin3.7%6.7% 5.1%9.1% (1.5)%3.6%1.0%(2.3)%
1. Global Markets performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the 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. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
4. Includes Core Operations attribution.
5. This is included in Global Markets profit after tax.
45
Fonterra Australia Value Market share by brand
MAT Aug-19 to MAT Aug-23, percentage share of category
Source: Nielsen RMS, Total AU grocery scan
Western Star
TM
Bega
TM
24.1%
26.1%
27.3%
27.5%
12.1%
6.8%
27.7%
13.7%
6.8%
11.8%
12.0%
11.5%
5.6%
6.6%
6.8%
Perfect Italiano
TM
20232022202120202019
The Australian business continued to demonstrate milk share growth, as well as sales volume and
revenue growth, despite a decline in the overall Australian milk pool. Effective portfolio management
in the Ingredients business, leveraging high global commodity prices combined with effective price
management in Consumer and Foodservice, has helped offset significant inflationary pressures across
the business.
Global Markets
Australia — Our Australia business is part of the Global Markets region.
Our Consumer brands continued to grow in market share as shown in the graph above.
Operating expenses were impacted by one off costs of $27 million (before tax) relating to the class
action settlement agreement with Fonterra Australia milk suppliers in relation to milk price during the
2015/2016 season. In the prior year a provision was held at a Group level, while the settlement
outcome was pending.
The higher net finance costs and tax expense was drive by rate increases on borrowings.
This reduced profit after tax in the current financial year by 65%, or $42 million, to $23 million.
Australia Performance
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION 2022 2023 CHANGE
2
Milk collections (million kgMS)106106–
Sales volume (‘000 MT)
3
3653794%
Revenue2,0942,53121%
Cost of goods sold(1,811)(2,237)(24)%
Gross profit 2832944%
Operating expenses(178)(219)(23)%
Other
3
1––
EBIT 10675(29)%
Net finance costs and tax expense(41)(52)(27)%
Profit after tax6523(65)%
Gross margin13.5%11.6%
EBIT margin5.1%3.0%
1. Australia’s 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. Consists of other operating income and net foreign exchange gains/(losses).
46
Greater China
The Greater China business covers our Greater China sales region.
Greater China profit after tax increased $11 million to $284 million, due to the Foodservice channel
earnings having increasing by $46 million and reflects higher prices that adjusted for the higher input
costs. However, this was partially offset by an impairment in Greater China’s Consumer channel of our
Asia brands. See page 60.
Greater China Performance by Channel
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume ('000 MT)1,028 978 (5)%697 632 (9)%259 274 6%72 72 –
Revenue6,869 7, 07 2 3%4,646 4,460 (4)%1,855 2,236 21%368 376 2%
Cost of goods sold(6,238)(6,356)(2)%(4,440)(4,226)5%(1,535)(1,836)(20)%(263)(294)(12)%
Gross profit 631 716 13%206 234 14%320 400 25%105 82 (22)%
Operating expenses(293)(346)(18)%(55)(62)(13)%(129)(137)(6)%(109)(147)(35)%
Other
3
7 – –4 – –3 – –– – –
EBIT345 370 7%155 172 11%194 263 36%(4)(65)(1,525)%
Net finance costs and tax expense(72)(86)(19)%(35)(39)(11)%(37)(60)(62)%–13–
Profit after tax273 284 4%120 133 11%157 203 29%(4)(52)(1,200)%
Gross margin9.2%10.1%4.4%5.2%17. 3%17. 9 %28.5%21.8%
EBIT margin5.0%5.2%3.3%3.9%10.5%11.8%(1.1)%(17. 3) %
1. Greater China performance is prepared on a continuing operations basis. Comparative information has been re-stated for consistency with the 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. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
47
Greater China End-to-End Performance by Channel
1
FOR THE YEAR ENDED 31 JULY
TOTALINGREDIENTSFOODSERVICECONSUMER
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume ('000 MT)1,034 980 (5)%697 633 (9)%264 274 4%73 73 –
Revenue6,700 6,654 (1)%4,497 4,198 (7)%1,844 2,107 14%359 349 (3)%
Cost of goods sold(5,838)(5,488)6%(4,057)(3,589)12%(1,530)(1,630)(7)%(251)(269)(7)%
Gross profit 862 1,166 35%440 609 38%314 477 52%108 80 (26)%
Operating expenses(524)(614)(17)%(216)(239)(11)%(189)(206)(9)%(119)(169)(42)%
Other
3
46 7 (85)%31 7 (77)%14 – –1 – –
EBIT
4
384 559 46%255 377 48%139 271 95%(10)(89)(790)%
Net finance costs and tax expense(105)(148)(41)%(66)(97)(47)%(39)(68)( 74)%–17–
Profit after tax
4
279 411 47%189 280 48%100 203 103%(10)(72)(620)%
Profit after tax attribution
from Core Operations
5
6 127 2,017% 69 147 113% (57)– – (6)(20)(233)%
Gross margin12.9%17. 5%9.8%14.5%17. 0 %22.6%30.1%22.9%
EBIT margin5.7%8.4% 5.7%9.0% 7. 5%12.9%(2.8)%(25.5)%
1. Global Markets performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the 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. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
4. Includes Core Operations attribution.
5. This is included in Greater China profit after tax.
On an end-to-end
basis (including Core
Operations attribution),
Greater China’s profit
after tax increased
47%, or $132 million to
$411 million, driven by
Core Operations’
attribution and
reflecting favourable
price relativities in both
the Ingredients and
Foodservice channel.
However, this was
partially offset by an
impairment in Greater
China’s Consumer
channel of our Asia
brands. See page 60.
Greater China
48
Product
Channels
49
Ingredients
Our Ingredients channel’s profit after tax increased $586 million, or 101%, to $1,164 million,
due to continued favourable margins in our protein and cheese products, as well as higher
sales volumes due to the sell down of additional inventory held at 2022 financial year-end.
Ingredients Performance
1
FOR THE YEAR ENDED 31 JULY
TOTALCORE OPERATIONSGLOBAL MARKETSGREATER CHINAELIMINATIONS
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023
Sales volume (‘000 MT)
3
2,150 2,319 8%2,011 2,191 9%1,498 1,732 16%697 632 (9)%(2,056)(2,236)
Revenue15,535 17, 416 12%14,055 15,692 12%11,127 13,516 21%4,646 4,460 (4)%(14,293)(16,252)
Cost of goods sold(13,854)(14,765)(7)%(13,331)(14,207)(7)%(10,376)(12,584)(21)%(4,440)(4,226)5%14,29316,252
Gross profit 1,681 2,651 58%724 1,485 105%751 932 24%206 234 14%––
Operating expenses(1,002)(1,121)(12)%(561)(678)(21)%(386)(381)1%(55)(62)(13)%––
Other
4
134 47 (65)%85 16 (81)%45 31 (31)%4 – –––
EBIT813 1,577 94%248 823 232%410 582 42%155 172 11%––
Net finance costs and
tax expense(235)(413)(76)%(105)(221)(110)%(95)(153)(61)%(35)(39)(11)%––
Profit after tax578 1,164 101%143 602 321%315 429 36%120 133 11%––
Gross margin10.8%15.2%5.2%9.5%6.7%6.9%4.4%5.2%
EBIT margin5.2%9.1% 1.8%5.2% 3.7%4.3% 3.3%3.9%
1. Ingredients performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
2. Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3. Includes sales to other segments.
4. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
50
Ingredients: Key Performance Drivers
1
Profit after tax ($ million)
FY23
PROFIT
AFTER TAX
NET FINANCE
COSTS AND TAX
OPERATING
EXPENSES
AND OTHER
MARGINVOLUMECORE
OPERATIONS
FY22
PROFIT
AFTER TAX
Within the regions
578
459
98
(20)
111
(62)
1,164
1. Ingredients performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
The Global Markets sales teams secured new contracts and
tenders in both the Asia Pacific and Africa regions to support
the sell down of additional inventory held at 2022 financial
year-end and offset the softer demand for imported WMP in
the Greater China region. Additionally, sales volumes in our
cream portfolio to European customers increased as the price
of New Zealand cream products traded below European cream
products. Global Markets’ Ingredients sales volumes increased
16% compared to the prior year.
Increased margins
in Core Operations
due to higher
product prices,
particularly for
protein and cheese
products
Higher sales
volumes reflect
additional
inventory held at
FY22 year-end
Increased margins
due to higher
in-market sales prices
Increased
tax due to
higher
taxable
earnings
Ingredients profit after tax by quarter
Profit after tax ($m)Gross margin (%)
Q4Q3Q2Q1Q4Q3Q2Q1
63
10.7%
11.3%
9.7%
11.6%
195
125
195
183
13.9%
16.4%
17.6%
12.5%
380
340
261
FY22FY23
Overall, consumption of dairy continues to increase in China
following the lift of COVID-19 related restrictions. However,
our sales volume in Greater China was impacted by local milk
processors converting excess liquid milk into WMP, which
reduced the demand for imported WMP.
Gross profit has increased in Core Operations and in both
regions mainly due to favourable margins in our protein and
cheese portfolios.
Our Ingredients channel gross margin decreased in the fourth
quarter due to the seasonal profile of the milk curve relative to
our fixed costs. In the prior year, price relativities significantly
improved in the fourth quarter which offset the adverse impact
of the seasonal profile.
51
A key driver of the favourable margins in our protein and
cheese portfolio is the relative price difference between
product prices that inform the Farmgate Milk Price,
referred to as Reference Products, and product prices
that inform EBIT, referred to as Non-Reference Products.
Sales volumes of Ingredients are higher this year, despite similar
collections, reflecting the sell down of the 2022 financial year
closing inventory position and optimisation decisions made to
produce the highest returning product mix.
A key driver of the favourable gross margins this year is the
increase in the relative price difference between product prices
for Reference Products, and Non-Reference Products. The
relative price differences over the past 12 months have been
historically high.
–The average Reference Product sale price per metric tonne
has decreased 2% compared to the prior year, mainly due to
lower WMP and AMF prices. In USD terms average pricing has
fallen further, but a decrease in the average foreign exchange
conversion rate in the 2023 financial year has mitigated some
of the impact.
–The average Non-Reference Product sale price per metric
tonne increased 16%, with significant price increases across
most products compared to the prior year. Prices for casein,
milk protein concentrate (MPC) and cheese all increased over
21%. The strong prices in the second half of the 2022 financial
year carried through into the current year before softening in
the latter half of the 2023 financial year.
The milk cost allocated to our products is derived from the fat
and protein values within the Farmgate Milk Price. Within the
Farmgate Milk Price, relative weakness in the value attributed
to protein, compared to the value attributed to fat, has resulted
in the protein-based dairy components getting a proportionally
lower allocation of milk cost this year, relative to fat-based
dairy components.
New Zealand-sourced Ingredients’ product mix
1
FOR THE YEAR ENDED 31 JULY
20222023CHANGE
2
Sales Volume (‘000 MT)
Reference Products1,6291,7829%
Non-Reference Products 8228837%
Revenue
Reference Products ($ billion) 10.411.17%
Non-Reference Products ($ billion) 5.77. 125%
Reference Products ($ per MT) 6,3616,257(2)%
Non-Reference Products ($ per MT) 6,9518,08916%
Cost of Milk
Reference Products ($ billion) (8.3)(8.4)(1)%
Non-Reference Products ($ billion) (3.7)(3.5)5%
Reference Products ($ per MT) (5,077)(4,696)8%
Non-Reference Products ($ per MT) (4,494)(3,974)12%
1. Table includes Ingredients products that are on-sold to the Foodservice and Consumer channel and excludes bulk liquid milk. Bulk liquids for the year ended 31 July 2023 was 73,000 MT
of kgMS equivalent (the year ended 31 July 2022 was 68,000 MT of kgMS equivalent). 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 1,004 million kgMS in Reference Products and 442 million
kgMS Non-Reference Products (previous comparative period 919 million kgMS Reference Products and 424 million kgMS Non-Reference Products).
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.
52
Our casein portfolio gross margin growth has been supported
by improved pricing in rennet casein – an ingredient used in processed
cheese. Due to COVID-19 related regulations, the cost and complexity
of importing cheese into China increased, and customers in China
shifted from imported processed cheese to locally manufactured
processed cheese, driving up the demand for rennet casein.
Our sales teams have also captured the improved margins of caseinate
and its precursor acid casein by continuing to deliver 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 Southeast Asia have seen strong
growth in the non-dairy creamer and beverage sector for use of
caseinate in products such as milk tea and coconut juice.
Our cheese portfolio has also contributed to the improved earnings in
our Ingredients channel. The price of cheese increased in the second
half of the 2022 financial year in response to constrained European
milk supply. As customers looked to secure volume due to the
uncertainty of European supply, our sales teams were able to use long
contracts to secure good pricing across additional volume. In the
second half of 2023 financial year, supply and demand for cheese
rebalanced and prices returned to more normal levels relative to
Reference Product prices.
Our Active Living portfolio is part of our Ingredients channel and
represents the ingredients and solutions sold to businesses that
cater to consumers’ health and wellness needs. It addresses three
dimensions of wellbeing (Physical, Mental and Inner), to meet the
nutritional needs of medical patients through to everyday people
pursuing active lifestyles.
This portfolio includes proteins such as milk protein concentrates
(MPC) and whey protein concentrates (WPC), specialty ingredients
such as probiotics, lactoferrin and lipids, and patented formulations.
Overall, Active Living sales volumes are down due to high in-market
inventory in some markets, and lower demand from the USA as some
customers’ experience manufacturing constraints.
However, several markets including Europe and China experienced
increased demand and sales volume growth. In particularly in China
with continued strong growth post COVID-19 of our emerging
probiotic portfolio, which contributed to the 20% increase in our
Active Living portfolio’s gross profit.
Active Living
1
FOR THE YEAR ENDED 31 JULY
NZD MILLION2022 2023 CHANGE
2
Sales volume
(‘000 MT)113110(2)%
Revenue1,7601,8767%
Gross profit23628420%
Gross margin 13.4%15.1%
1. Active Living performance is prepared on a continuing operations basis
and reflects the in-market value added after purchasing the products from
Core Operations at the transfer price. Comparative information has been
re-presented for consistency with the 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.
53
Foodservice
Our Foodservice channel’s profit after tax increased $171 million, or 244%, to
$241 million, due to improved gross margins combined with higher sales volumes.
Foodservice Performance
1
FOR THE YEAR ENDED 31 JULY
TOTALCORE OPERATIONSGLOBAL MARKETSGREATER CHINAELIMINATIONS
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023
Sales volume ('000 MT)
3
528546 3%286 334 17%274 280 2%259 274 6%(291)(342)
Revenue3,302 3,865 17%1,569 1,994 27%1,543 1,845 20%1,855 2,236 21%(1,665)(2,210)
Cost of goods sold(2,807)(3,116)(11)%(1,588)(1,908)(20)%(1,349)(1,582)(17)%(1,535)(1,836)(20)%1,6652,210
Gross profit
495 749 51%(19)86 –194 263 36%320 400 25%––
Operating expenses(393)(418)(6)%(77)(89)(16)%(187)(192)(3)%(129)(137)(6)%––
Other
4
15 3 (80)%14 – –(2) 3 –3 – –––
EBIT117 334 185%(82)(3)96%5 74 1,380%194 263 36%––
Net finance costs and tax expense(47)(93)(98)%(2)(9)(350)%(8)(24)(200)%(37)(60)(62)%––
Profit after tax70 241 244%(84)(12)86%(3)50 –157 203 29%––
Gross margin15.0%19.4% (1.2)%4.3%12.6%14.3%17. 3%17. 9 %
EBIT margin3.5%8.6% (5.0)%(0.2)% 0.3%4.0% 10.5%11.8%
1. Foodservice performance is prepared on a continuing operations basis. Comparative information has been re-stated and re-presented for consistency with the 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 of equity accounted investees.
54
Foodservice channel gross profit improved $254 million, or 51%,
driven by both Core Operations and the regions.
Sales volume increased 3% relative to last year. This was driven
by improved sales volume in Greater China as a result of
increased demand across our major product categories in the
second half of the year as COVID-19 restrictions eased. Our UHT
cream portfolio has experienced strong organic growth this year,
with products such as our newly innovated ambient UHT cream,
driving incremental sales.
Core Operations gross profit improved due to the increase in
Non-Reference Product prices relative to Reference Products that
inform the cost of milk.
Gross profit in our Greater China and Global Markets regions
improved relative to the prior year, particularly in the second half
of the year. Our in-market product prices adjusted in the first
quarter of the year for the higher cost of milk, benefiting our
margins in the remaining three quarters of the year. The graph of
monthly milk prices illustrates the decrease in the cost of milk
over the course of the year, in contrast to the prior year which
significantly increased over the course of the year.
Our Greater China region is the most significant contributor to
our Foodservice channel, and we continue to grow our presence
in the region. We now deliver our products to 490 cities,
compared to 431 cities this time last year. We continue to lead in
the bakery and beverage channels and have gained further
penetration into low tier cities.
We successfully gained market share through new products and
applications innovation, such as our Anchor™ Food Professionals
Easy Topping Cream and Aerosol Cream, as well as improving
margins through the execution of a new ‘Route-to-Market’
strategy, which focuses on digital visibility, in low tier cities.
The Greater China region has also benefitted from the
New Zealand-China Free Trade Agreement. Since 1 January 2022,
products such as liquid milk and cream, butter, anhydrous milkfat,
and cheeses have been entitled to duty free access to China
without volume restrictions. From 1 January 2024, this will also
be extended to WMP and SMP, at which point all dairy exports
from New Zealand to China will be entitled to duty free access.
Foodservice: Key Performance Drivers
1
Profit after tax ($ million)
FY23
PROFIT
AFTER TAX
NET FINANCE
COSTS AND TAX
OPERATING
EXPENSES
AND OTHER
MARGINVOLUMECORE
OPERATIONS
FY22
PROFIT
AFTER TAX
Within the regions
70
72
22
(11)
127
(39)
241
1. Foodservice performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
Increased due
to the benefit
of price
relativities
between
Reference and
Non-Reference
Product prices
Increased as a result
of demand lifting
across our major
product categories
in the second half of
the year due to
COVID-19 related
restrictions lifting
Increased reflecting in-market
prices adjusting for higher cost of
milk at the beginning of the year
Increased
tax due to
higher
taxable
earnings
In our Global Markets region, the increase in gross profit has
been mainly driven by improved pricing and sales volume growth
and in our Australian business, which has benefited from an
increase in out-of-home dining due to the lift of lockdown
restrictions relative to last year. The Southeast Asia business has
also benefited from the economic recovery post COVID-19
related restriction lifting.
55
Monthly Milk Prices
1
4.00
6.00
8.00
10.00
31-MAY28-FEB30-NOV31-AUG31-MAY
Monthly Milk Price for 2022/2023 Season
Farmgate Milk of $8.22 per kgMS
Monthly Milk Price 2021/2022 Season
Farmgate Milk Price of $9.30 per kgMS
(NZ$)
1 The weighted average of the monthly milk prices are equivalent to $9.30 and
$8.22 for 2021/22 and 2022/23 season, respectively.
Foodservice Profit After Tax by Quarter
Profit after tax ($m)Gross margin (%)
Q4Q3Q2Q1
13
14.3%
16.8%
15.4%
13.4%
37
17
3
Q4Q3Q2Q1
22
14.4%
19.3%
21.7%
22.0%
68
77
74
FY22FY23
Our Foodservice channel gross margin increased throughout
the year as in-market product prices adjusted for the higher
cost of milk at the beginning of the year, and as the year
progressed the cost of milk declined.
56
Consumer
Our Consumer channel profit after tax decreased $137 million to a loss of $164 million, mainly
due to impairments of our domestic New Zealand Consumer business and our Asia brands.
Consumer Performance
1
FOR THE YEAR ENDED 31 JULY
TOTALCORE OPERATIONSGLOBAL MARKETSGREATER CHINAELIMINATIONS
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023
Sales volume ('000 MT)
3
640 632 (1)%257 259 1%572 563 (2)%72 72 –(261)(262)
Revenue3,064 3,299 8%1,363 1,456 7%2,704 3,040 12%368 376 2%(1,371)(1,573)
Cost of goods sold(2,331)(2,518)(8)%(1,332)(1,398)(5)%(2,107)(2,399)(14)%(263)(294)(12)%1,3711,573
Gross profit 733 781 7%31 58 87%597 641 7%105 82 (22)%––
Operating expenses(670)(957)(43)%(53)(73)(38)%(508)(737)(45)%(109)(147)(35)%––
Other
4
(47)20 –11 1 (91)%(58) 19 –– – – ––
EBIT16 (156)–(11)(14)(27)%31 (77)–(4)(65)(1,525)%––
Net finance costs and tax expense(43)(8)81%(8)(4)50%(35)(17)51%–13–––
Profit after tax(27)(164)(507)%(19)(18)5%(4)(94)(2,250)%(4)(52)(1,200)%––
Gross margin23.9%23.7% 2.3%4.0% 22.1%21.1% 28.5%21.8%
EBIT margin0.5%(4.7)% (0.8)%(1.0)% 1.1%(2.5)% (1.1)%(17. 3) %
1. Consumer performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
2. Percentages as shown in the table may not align to calculations of percentages based on numbers in the table due to rounding of figures.
3. Includes sales to other segments.
4. Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss of equity accounted investees.
57
Consumer: Key Performance Drivers
1
Profit after tax ($ million)
Within the regions
FY23
PROFIT
AFTER TAX
NET FINANCE
COSTS AND TAX
OPERATING
EXPENSES
AND OTHER
MARGINVOLUMECORE
OPERATIONS
FY22
PROFIT
AFTER TAX
(27)
1
(9)
(190)
30
31
(164)
1. Consumer performance is prepared on a continuing operations basis. Comparative information has been restated and re-presented for consistency with the current period.
Lower sales
volume, mainly
in Sri Lanka
Increased due to improved
prices and lower cost of
milk in the second half of
the year
Unfavourable due to the
impairments of our
New Zealand Consumer
business and our Asia brands,
of $121 million and
$101 million, respectively
58
Barnes Farm,
Curio Bay
NEED CAPTION
Consumer Profit After Tax by Quarter
Profit after tax ($m)Gross margin (%)
19
25
(53)
(18)
Q4Q3Q2Q1
7
(116)
32
(87)
FY22FY23
Q4Q3Q2Q1
24.4%
23.2%
24.9%
23.4%
23.8%
21.2%
25.8%
24.0%
(53)
During the first half of the year our Consumer channel
gross profit was impacted by higher input costs that
increased through the second half of the prior year, and
our in-market sales prices not increasing at the same
rate to offset them.
As can be seen in the graph of monthly milk price to
the left, the cost of milk has eased over the second half
of the 2023 financial year, which has meant improved
gross margins in Core Operations and our Global
Markets segments.
The $48 million, or 7%, improvement in gross profit
was more than offset by a 43% increase in operating
expenses, from $670 million to $957 million.
Operating expenses have increased due to inflation
and the recognition of impairments to both our
domestic New Zealand Consumer business and our
Asia brands. The $222 million of impairments were
booked at the end of the second quarter ($162 million)
and final quarter ($60 million), as seen in the Consumer
profit after tax by quarter graph to the left.
Our New Zealand Consumer business has experienced
challenging market conditions, including higher input
costs and inflationary pressures. The New Zealand
domestic dairy market is highly competitive, and this
has impacted the sales team’s ability to fully recover
the higher input costs through product price increases.
Additionally, rising interest rates have also put pressure
on our New Zealand Consumer business. This has
resulted in a $121 million goodwill impairment of the
business for the year ended 31 July 2023.
Monthly Milk Prices
1
4.00
6.00
8.00
10.00
31-MAY28-FEB30-NOV31-AUG31-MAY
Monthly Milk Price for 2022/2023 Season
Farmgate Milk of $8.22 per kgMS
Monthly Milk Price 2021/2022 Season
Farmgate Milk Price of $9.30 per kgMS
(NZ$)
1 The weighted average of the monthly milk prices are equivalent to $9.30 and
$8.22 for 2021/22 and 2022/23 season, respectively.
59
We also recognised an impairment of $101 million on our Asia
brands – Anmum™ ($51 million), Anlene™ ($45 million) and
Chesdale™ ($5 million), due to a reduction in forecast sales
growth for Anmum™ and Anlene™, and changes in discount
rates and foreign exchange rates to all three brands.
The impairments were recognised as operating expenses in both
Global Markets ($55 million) and Greater China ($46 million).
Performance of our Middle East and Africa business improved
on the prior period with additional volume in our manufacturing
business for third-parties as the team recruited new customers.
The team was also able to increase margins through proactively
managing product pricing.
Our sales volume into Sri Lanka was down on last year due to
the country’s economic challenges impacting the ability to
access US dollars in the first half of the financial year. Despite
the challenging conditions, performance has improved year-on-
year as a result of value growth and innovations.
Malaysia is one of our strongest consumer markets globally and
our flagship brand in that market, Fernleaf™, is well known
among local consumers for its New Zealand provenance.
Despite a challenging year for both our Consumer channel and
Southeast Asia region, our Fernleaf
TM
brand continues to grow
in Malaysia.
Fernleaf™ Family Milk Powder Volume
and Value Share
1
Volume shareValue share
2023202220212020
50.5%
47.5%
51.0%
46.8%
54.7%
49.6%
54.6%
50.7%
1 Nielsen, MAT as at 31 July.
Fernleaf
TM
has over 50% market share in the growing-up milk
(GUM) powder segment, offering quality and affordable
nutrition to support children’s growth.
Recently, Fernleaf
TM
expanded its health product offerings
launching Protein+ and Probiotic+.
Fernleaf
TM
has since shown strong growth and has further
cemented its position with its first win in Kantar’s Brand
Footprint Award 2023 as the Fastest Growing Dairy
Brand in Malaysia.
60
Discontinued
Operations
Discontinued operations represent
the financial effect of business
units that are classified as held for
sale and are a separate major line
of business or geographical area
of operations. They are presented
separately to the Group’s
continuing operations in the
Statement of Profit or Loss and
Other Comprehensive Income and
excluded from segment reporting
within the Financial Statements.
Discontinued Operations Performance
1
FOR THE YEAR ENDED 31 JULY
TOTALHANGU CHINA FARMDPA BRAZILSOPROLE
NZD MILLION20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
20222023CHANGE
2
Sales volume ('000 MT) 606 476 (21)%21(50)%2162244%388251(35)%
Revenue 1,524 1,466 (4)%2715(44)%44559935%1,052852(19)%
Cost of goods sold(1,093) (1,048) 4%(31)(27)13%(317)(405)(28)%( 745)(616)17%
Gross profit 431 418 (3)%(4)(12)(200)%12819452%307236(23)%
Operating expenses(390) (303) 22%(9)(12)(33)%(161)(137)15%(220)(154)30%
Other
3
(11) 348 – (1)(1)–(1)––(9)349–
EBIT
4
30 463 1,443%(14)(25)(79)%(34)57–78431453%
Net finance costs (37) (50) (35)%–––––––––
Tax exp ense(31) (77) (148)%–––––––––
Profit after tax(38) 336 –(14)(25)(79)%(64) 16 –40 345 763%
Gross margin28.3%28.5%(14.8)%(80.0)%28.8%32.4%29.2%27.7 %
EBIT margin2.0%31.6%(51.9)%(166.7)%(7.6)%9.5%7. 4%50.6%
1. Comparative information has been re-presented for consistency with the 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. Consists of other operating income and net foreign exchange gains/(losses).
4. Depreciation is not recognised in discontinued operations from the date at which the operations become held for sale.
61
We completed the divestment of Soprole in March 2023, finalised the
exit of China Farms following the sale of Hangu China farm in April
2023, and continue to progress the sale process of DPA Brazil.
The divestment of Soprole to Gloria Foods – JORB S.A., a consumer
dairy market leader in Peru, was completed on 31 March 2023 and
was comprised of two transactions with aggregate considerations of
591 billion Chilean Pesos (CLP). The aggregate proceeds (including
pre-settlement dividends) before tax, hedging and transaction costs
were $1.3 billion, of which $804 million was returned to shareholders
and unit holders on 18 August 2023.
DPA Brazil
For the 2023 financial year, DPA Brazil’s profit after tax increased
$80 million to a profit of $16 million. The prior year losses included an
impairment of $50 million. Additionally, performance improved due to
higher product prices and increased sales volume.
In December 2022, Fonterra and Nestlé agreed the sale of DPA Brazil
to French dairy company Lactalis for BRL 700 million. The sale is subject
to several conditions including receipt of regulatory approvals from
competition authorities. The Brazilian competition regulator released
its first report on the proposed sale in late July 2023. The parties are
engaging with authorities to understand and to address the matters
raised in relation to limited parts of the business and expect the sale
to be completed within one year of balance date. The proceeds at
completion will be subject to closing transaction adjustments.
Fonterra’s 51% share of the DPA Brazil sale proceeds will be used
to repay debt held directly by DPA Brazil.
62
Historical
Summary
Market Statistics
MAY 2019MAY 2020MAY 2021MAY 2022MAY 2023
Fonterra Seasonal Statistics
1
Total New Zealand milk collected
(million litres)17, 1 2 316,87617, 1 2 116,40416,317
Highest daily volume collected
(million litres) 85.482.682.879.97 7. 9
New Zealand shareholding farms milk solids
collected (million kgMS)1,4951,4861,5051,4321,440
New Zealand non-shareholding farms milk
solids collected (million kgMS)2831344640
New Zealand milk solids collected
(million kgMS)1,5231,5171,5391,4781,480
JULY 2019JULY 2020JULY 2021JULY 2022JULY 2023
Fonterra Supply Base
Total number of shareholding farms
2
9,0958,8568,5818,4358,282
Total number of non-shareholding farms
2
133155246222159
Total number of shares on issue (million)1,6121,6121,6131,6131,609
Shareholder Supplier Returns
Farmgate Milk Price (per kgMS)
2
6.357. 147. 5 49.308.22
Dividend (per share)–0.050.200.200.50
Dividend yield (%)
2
–1.3%4.6%6.9%17. 8 %
Total pay-out
2
6.357. 1 97.749.508.72
Retentions (per share)
2
–0.380.160.160.45
Weighted average share price ($ NZD)4.633.794.322.882.81
Weighted Average Commodity Prices
($ USD per MT FOB)
Whole milk powder
3
2,9073,1103,3234,0193,392
Skim milk powder
3
2,2162,7553,0123,7503,242
Butter
3
4,4484,1404,1175,6015,072
Cheese
4
3,7724,0114,0605,2614,825
Fonterra’s average NZD/USD
conversion rate
2
0.690.660.670.690.64
Staff Employed
Total staff employed (000’s permanent
full-time equivalents)20.019.618.719.017. 5
New Zealand11.411.511.611.711.9
Overseas8.68.17. 17. 35.6
63
Historical Summary
Core Operations
5 ,6 ,7, 8
JULY 2021JULY 2022JULY 2023
Ingredients
Sales volume (‘000 MT)2,2002,011 2,191
Revenue ($ million)12,38114,055 15,692
Gross profit ($ million)334724 1,485
Gross margin (%)
2
2.7%5.2%9.5%
EBIT ($ million)(160)248 823
EBIT margin (%)
2
(1.3)%1.8%5.2%
Profit after tax ($ million)(220)143602
Profit after tax margin (%)(1.8)%1.0%3.8%
Foodservice
Sales volume (‘000 MT)361286 334
Revenue ($ million)1,4591,569 1,994
Gross profit ($ million)83(19) 86
Gross margin (%)
2
5.7%(1.2)%4.3%
EBIT ($ million)9(82) (3)
EBIT margin (%)
2
0.6%(5.0)%(0.2)%
Profit after tax ($ million)(6)(84)(12)
Profit after tax margin (%)(0.4)%(5.2)%(0.6)%
Consumer
Sales volume (‘000 MT)272257 259
Revenue ($ million)1,3311,363 1,456
Gross profit ($ million)5031 58
Gross margin (%)
2
3.8%2.3%4.0%
EBIT ($ million)(23)(11) (14)
EBIT margin (%)
2
(1.7)%(0.8)%(1.0)%
Profit after tax ($ million)(35)(19)(18)
Profit after tax margin (%)(2.6)%(1.5)%(1.2)%
Total Group Overview (continuing & discontinued operations)
JULY 2019JULY 2020JULY 2021JULY 2022JULY 2023
Income Statement Measures
Sales volumes ('000 MT)4,1524,0694,102 3,9243,973
Revenue ($ million)19,92020,97521,12423,42526,046
EBITDA ($ million)
2
5441 ,7741,6011,6112,880
EBIT ($ million)(17)1,1479599762,218
Profit after tax ($ million)(610)6595995831,577
Normalised EBIT ($ million)8128799529911,881
Normalised profit after tax attributable to
equity holders of the Co-operative ($ million)2643825505681,329
Earnings per share(0.35)0.430.360.360.95
Normalised earnings per share0.160.240.340.350.80
Revenue Margin Analysis
EBITDA margin (%)
2
2.7%8.5%7. 6%6.9%11.1%
EBIT margin (%)
2
(0.1)%5.5%4.5%4.2%8.5%
Profit after tax margin (%)
2
(3.1)%3.1%2.8%2.5%6.1%
Cash Flow ($ million)
Operating cash flow6961,097886(104)3,182
Free cash flow
2
6681,4331,109(621)3,314
Net working capital
2
3,1593,4693,7895,5954,790
Capital Measures
Equity excluding hedge reserve ($ million)6,1026,6026,8957, 2 527, 92 5
Net debt ($ million)
2
6,0015,2384,3255,3393,207
Gearing ratio (%)
2
49.5%44.2%38.5%42.4%28.8%
Debt to EBITDA ratio
2
4.3x3.3x2.7x3.2x1.3x
Average capital employed ($ million)
2
13,41912,31312,28112,35612,774
Capital expenditure ($ million)
2
600419545587668
Capital invested ($ million)
2
724525608617747
Return on capital (%)
2
5.6%6.6%6.6%6.8%12.4%
64
Historical Summary
Core Operations (continued)Global Markets (continued)
JULY 2021JULY 2022JULY 2023
Total
Sales volume (‘000 MT)2,8332,554 2,784
Revenue ($ million)15,17116,987 19,142
Gross profit ($ million)467736 1,629
Gross margin (%)
2
3.1%4.3%8.5%
EBIT ($ million)(174)155 806
EBIT margin (%)
2
(1.1)%0.9% 4.2%
Profit after tax ($ million)(261)40572
Profit after tax margin (%)(1.7)%0.2%3.0%
Global Markets
5 ,6 ,7, 8
JULY 2021JULY 2022JULY 2023
Ingredients
Sales volume (‘000 MT)1,5191,4981,732
Revenue ($ million)8,84311,127 13,516
Gross profit ($ million)630751 932
Gross margin (%)
2
7. 1%6.7%6.9%
EBIT ($ million)348410 582
EBIT margin (%)
2
3.9%3.7% 4.3%
Profit after tax ($ million)253315429
Profit after tax margin (%)2.9%2.8%3.2%
JULY 2021JULY 2022JULY 2023
Foodservice
Sales volume (‘000 MT)262274 280
Revenue ($ million)1,3301,543 1,845
Gross profit ($ million)256194 263
Gross margin (%)
2
19.2%12.6%14.3%
EBIT ($ million)895 74
EBIT margin (%)
2
6.7%0.3%4.0%
Profit after tax ($ million)69(3)50
Profit after tax margin (%)5.2%(0.2)%2.7%
Consumer
Sales volume (‘000 MT)589572 563
Revenue ($ million)2,6632,704 3,040
Gross profit ($ million)679597 641
Gross margin (%)
2
25.5%22.1%21.1%
EBIT ($ million)17731 (77)
EBIT margin (%)
2
6.6%1.1%(2.5)%
Profit after tax ($ million)110(4)(94)
Profit after tax margin (%)4.1%(0.1)%(3.1)%
Total
Sales volume (‘000 MT)2,3702,344 2,575
Revenue ($ million)12,8361 5, 374 18,401
Gross profit ($ million)1,5651,542 1,836
Gross margin (%)
2
12.2%10.0%10.0%
EBIT ($ million)614446 579
EBIT margin (%)
2
4.8%2.9% 3.2%
Profit after tax ($ million)432308385
Profit after tax margin (%)3.4%2.0%2.1%
65
Historical Summary
Global Market - Australia
5,6
JULY 2021JULY 2022JULY 2023
Total
Milk collection (millions kgMS)106106106
Sales volume (‘000 MT)373365379
Revenue ($ million)1,9532,0942,531
Gross profit ($ million)243283294
Gross margin (%)
2
12.4%13.5%11.6%
EBIT ($ million)7410675
EBIT margin (%)
2
3.8%5.1%3.0%
Profit after tax ($ million)456523
Profit after tax margin (%)2.3%3.1%0.9%
Greater China
5,6,7
Greater China (continued)
JULY 2021JULY 2022JULY 2023
Ingredients
Sales volume (‘000 MT)825697 632
Revenue ($ million)4,1504,646 4,460
Gross profit ($ million)180206 234
Gross margin (%)
2
4.3%4.4%5.2%
EBIT ($ million)166155 172
EBIT margin (%)
2
4.0%3.3% 3.9%
Profit after tax ($ million)123120133
Profit after tax margin (%)3.0%2.6%3.0%
JULY 2021JULY 2022JULY 2023
Foodservice
Sales volume (‘000 MT)274259 274
Revenue ($ million)1,6681,855 2,236
Gross profit ($ million)368320 400
Gross margin (%)
2
22.1%17. 3%17. 9 %
EBIT ($ million)255194 263
EBIT margin (%)
2
15.3%10.5%11.8%
Profit after tax ($ million)201157203
Profit after tax margin (%)12.1%8.5%9.1%
Consumer
Sales volume (‘000 MT)7872 72
Revenue ($ million)360368 376
Gross profit ($ million)121105 82
Gross margin (%)
2
33.6%28.5%21.8%
EBIT ($ million)(45)(4) (65)
EBIT margin (%)
2
(12.5)%(1.1)%(17. 3) %
Profit after tax ($ million)(37)(4)(52)
Profit after tax margin (%)(10.3)%(1.1)%(13.8)%
Total
Sales volume (‘000 MT)1,1771,028 978
Revenue ($ million)6,1786,869 7, 07 2
Gross profit ($ million)669631 716
Gross margin (%)
2
10.8%9.2%10.1%
EBIT ($ million)376345 370
EBIT margin (%)
2
6.1%5.0%5.2%
Profit after tax ($ million)287273284
Profit after tax margin (%)4.6%4.0%4.0%
66
Historical Summary
New Zealand and Non-New Zealand Milk
5,6
Product Channels
2,6
JULY 2021JULY 2022JULY 2023
Ingredients
Sales volume (‘000 MT)2,2962,150 2,319
Revenue ($ million)13,58015,535 17, 416
Gross profit ($ million)1,1451,681 2,651
Gross margin (%)
2
8.4%10.8%15.2%
EBIT ($ million)3478131,577
EBIT margin (%)
2
2.6%5.2%9.1%
Profit after tax ($ million)1525781,164
Profit after tax margin (%)1.1%3.7%6.7%
Foodservice
Sales volume (‘000 MT)500528 546
Revenue ($ million)2,9063,302 3,865
Gross profit ($ million)670495 749
Gross margin (%)
2
23.1%15.0%19.4%
EBIT ($ million)338117334
EBIT margin (%)
2
11.6%3.5%8.6%
Profit after tax ($ million)24870241
Profit after tax margin (%)8.5%2.1%6.2%
Consumer
Sales volume (‘000 MT)699640 632
Revenue ($ million)3,1413,064 3,299
Gross profit ($ million)886733 781
Gross margin (%)
2
28.2%23.9%23.7%
EBIT ($ million)13116(156)
EBIT margin (%)
2
4.2%0.5%(4.7)%
Profit after tax ($ million)58(27)(164)
Profit after tax margin (%)1.8%(0.9)%(5.0)%
JULY 2021JULY 2022JULY 2023
New Zealand Milk
Sales volume (‘000 MT)3,0162,9033,071
Revenue ($ million)17, 33119,55121,791
Gross profit ($ million)2,4872,5653,850
Gross margin (%)
2
14.4%13.1%17.7 %
EBIT ($ million)7828521,667
EBIT margin (%)
2
4.5%4.4%7. 6%
Profit after tax ($ million)4475611,203
Profit after tax margin (%)2.6%2.9%5.5%
Non-New Zealand Milk
Sales volume (‘000 MT)479415426
Revenue ($ million)2,2962,3502,789
Gross profit ($ million)214344331
Gross margin (%)
2
9.3%14.6%11.9%
EBIT ($ million)349488
EBIT margin (%)
2
1.5%4.0%3.2%
Profit after tax ($ million)116038
Profit after tax margin (%)0.5%2.6%1.4%
Total
Sales volume (‘000 MT)3,4953,3183,497
Revenue ($ million)19,62721,90124,580
Gross profit ($ million)2,7012,9094,181
Gross margin (%)
2
13.8%13.3%17. 0 %
EBIT ($ million)8169461,755
EBIT margin (%)
2
4.2%4.3%7. 1%
Profit after tax ($ million)4586211,241
Profit after tax margin (%)2.3%2.8%5.0%
67
Historical Summary
Discontinued Operations
2,9
JULY 2021JULY 2022JULY 2023
China Farms
Sales volume (‘000 MT)15 2 1
Revenue ($ million)195 27 15
Gross profit ($ million)53 (4) (12)
Gross margin (%)
2
27. 2 %(14.8)%(80.0)%
EBIT ($ million)89 (14) (25)
EBIT margin (%)
2
45.6%(51.9)%(166.7)%
Profit after tax ($ million)89 (14) (25)
Profit after tax margin (%)45.6%(51.9)%(166.7)%
DPA Brazil
Sales volume (‘000 MT)213 216 224
Revenue ($ million)364 445 599
Gross profit ($ million)100 128 194
Gross margin (%)
2
27.5%28.8%32.4%
EBIT ($ million)(17) (34) 57
EBIT margin (%)
2
(4.7)%(7.6)%9.5%
Profit after tax ($ million)(22) (64) 16
Profit after tax margin (%)(6.0)%(14.4)%2.7%
Soprole
Sales volume (‘000 MT)379 388 251
Revenue ($ million)938 1,052 852
Gross profit ($ million)283 307 236
Gross margin (%)
2
30.2%29.2%27.7 %
EBIT ($ million)71 78 431
EBIT margin (%)
2
7. 6%7. 4%50.6%
Profit after tax ($ million)74 40 345
Profit after tax margin (%)7. 9 %3.8%40.5%
Notes to the Historical Summary
1. Fonterra Seasonal Statistics are based on the 12-month
New Zealand milk season of 1 June – 31 May.
2. Refer to the Glossary for definition.
3. Source: Fonterra Farmgate Milk Price Statement representing
the weighted-average United States Dollar contract prices of
Reference Commodity Products.
4. Source: Oceania Export Series, Agricultural Marketing
Service, US Department of Agriculture.
5. Percentages as shown in the table may not align to
calculations of percentages based on numbers in the table
due to rounding of figures.
6. Prepared on a continuing operations basis.
7. Comparative information has been restated and re-presented
for consistency with the current period.
8. Includes inter-segment transactions.
9. The China Farms business, DPA Brazil consumer and
foodservice businesses and Soprole meet the definition of a
discontinued operation. The Group’s China Farms business
comprises the Hangu China farm and the two farming hubs in
Ying and Yutian. Performance of discontinued operations are
recognised up to the date of sale.
68
Glossary
Barnes Farm,
Southland
69
TermsDefinitions
Active Living
represents
[TRUNCATED]
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