Fonterra

ANNUAL 
REPORT 
2020

Two simple words 
that bring together 
our purpose, values 
and strategy.

T his year we’ve been given a 

reminder of where our strength 
lies. It’s in our people being Good 
Together and delivering on our purpose, 
values and strategy. 

We’re a New Zealand co-operative 
made up of everyday good people and we’re 
at our best when we unite and go all in for 
a common purpose. 

By focusing on three interconnected goals 

– Healthy People, a Healthy Environment 
and a Healthy Business – we are able to create 
goodness for generations for our farmer 
owners, employees, unit holders, customers, 
consumers and communities.

 
Healthy Environment

Our farmer owners care for the land and their animals. 
And they are committed to farming in a way that regenerates 
their farms and environment for future generations. 

In New Zealand we have a highly-efficient, pasture-based farming system and because 
of this we have one of the lowest on-farm carbon footprints in the world – approximately 
one-third of the global average. But we are not stopping there. 

In collaboration with others, we are working on innovative solutions to improve water 
quality and reduce our carbon footprint even further – like the work we’re doing with the 
Department of Conservation to find solutions to protect New Zealand’s waterways, the 
actions the Co-op is taking to address climate change and reduce emissions on-site and 
on-farm, as well as our efforts to reduce waste across the business. 

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Healthy People

People are at the heart of 
our co-operative. 

What makes for Healthy People? Farmers getting the support 
they need to look after their families, their animals and their 
land. Employees having the opportunity to do fulfilling work 
in a safe and healthy workplace. Customers and consumers 
getting safe, nutritious and innovative products. And local 
communities receiving support from us where we can, 
especially in times of need. 

Healthy  Business

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We know the long-term sustainability of our business 
is more than just numbers.

It comes from successfully bringing our people together to do their best work, looking 
after our customers and caring for the environment and local communities. It also comes 
from challenging ourselves to innovate and do better – pushing ourselves to stay one step 
ahead so we unlock greater value for farmer owners, unit holders and customers. 

How our people are managing Covid-19 has proven once more that good things come 
from being Good Together. 

What else has driven our Healthy Business this year? Our relentless focus on doing what 
we said we will – delivering on our four priorities for the 2020 financial year: to build 
a great team, support regional New Zealand, hit our financial targets and reduce our 
environmental footprint. 

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16

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72

75

76

82

83

144

149

151

152

164

176

178

181

OUR THREE GOALS 

LETTER FROM THE CHAIR

Q&A WITH OUR CHIEF EXECUTIVE OFFICER

A STRONG TEAM RESPONDING TO COVID-19

OUR YEAR IN REVIEW 

HEALTHY ENVIRONMENT

HEALTHY PEOPLE 

THE CO-OPERATIVE DIFFERENCE

HEALTHY BUSINESS 

ANNUAL FINANCIAL RESULTS

DIRECTORS’ STATEMENT

FINANCIAL STATEMENTS

BASIS OF PREPARATION

NOTES TO THE FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT

NON-GAAP MEASURES

GLOSSARY

STATUTORY INFORMATION

CORPORATE GOVERNANCE

BOARD OF DIRECTORS

MANAGEMENT TEAM

DIRECTORY

Fonterra uses several non-GAAP measures when discussing financial 
performance. These measures include normalised segment earnings, 
normalised EBIT, EBIT, normalisation adjustments and payout. These are 
non-GAAP financial measures and are not defined by NZ IFRS. Management 
believes that these measures provide useful information as they provide 
valuable insight on the underlying performance of the business. They are 
used internally to evaluate the underlying performance of business units 
and to analyse trends. These measures are not uniformly defined or utilised 
by all companies. Accordingly, these measures may not be comparable with 
similarly titled measures used by other companies. Non-GAAP financial 
measures should not be viewed in isolation nor considered as a substitute 
for measures reported in accordance with NZ IFRS. These non-GAAP 
measures are not subject to audit unless they are included in Fonterra’s 
annual financial statements. Please refer to page 149 for the reconciliation 
of the NZ IFRS measures to the non-GAAP measures and page 151 for 
definitions of the non-GAAP measures used by Fonterra.

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5

Fonterra Annual Report 2020

Letter from the Chair

Delivering on our 
commitments

“Our international scale is one of the 

Co-op’s key strengths. Our people 
have worked hard to leverage that 
scale, shifting our New Zealand milk 
into the products and places where 
we can earn the highest possible 
value under the circumstances.

JOHN MONAGHAN
CHAIR

O ur 2019/20 result is headlined by 

a return to sustainable earnings, 
with the Co-op posting total 
normalised earnings of $398 million, 
up $123 million on last year.

With these improved earnings and a 
stronger balance sheet comes a return to 
paying a dividend, which was one of the four 
Board priorities this year.

This year’s dividend payment of 5 cents 

per share and final Farmgate Milk Price of 
$7.14 per kgMS means the total payout for 
a fully share-backed farmer was $7.19 per 
kgMS, the fourth highest for the Co-op. 
These results show that the core of 

our strategy will deliver – even amid a 
global pandemic. 

Cultural change has been a focus for our 

Co-op’s leadership over the past two years. 
We can see that improvement reflected in 
the numbers, particularly our overall Debt1 
which reduced by $1.1 billion in a single 
year. In the past 2 years, we have reduced 
overall Debt by $1.5 billion.

Across the Co-op, our people have been 

calm and considered when responding to 
the new challenges that Covid-19 creates on 
a daily basis. We have stayed focused on our 
core business and delivered what we said 
we would, rather than let Covid-19 be an 
excuse to veer away from strategy.

Our international scale is one of the 
Co-op’s key strengths. Our people have 
worked hard to leverage that scale, shifting 
our New Zealand milk into the products 
and places where we can earn the highest 
possible value under the circumstances.

1  Economic net interest-bearing debt.

With that scale comes a greater exposure 
to world events. This year, like most others, 
our Co-op has had to manage geo-political 
events, civil unrest and other non-Covid-19 
disruptions in our key markets. Our consumer 
businesses in Hong Kong and Chile, for 
example, continue to be hit hard by long-
running civil unrest. 

Within that context, I’m pleased to 
report that the Board has delivered on its 
four priorities for the year: delivering the Milk 
Price, a return to respectable earnings, the 
continued implementation of our strategy, and 
governance succession and development. 

A RETURN TO 
RESPECTABLE EARNINGS

We are not immune to Covid-19, but this year’s 
results show the diversity of our earnings, 
which has helped us to manage the impact of 
the global pandemic.

Consumers have continued to seek out 
products backed by our New Zealand milk 
and the Ingredients business underpinned 
our performance again this year. When 
foodservice demand dropped away as a result 
of global lockdowns and social distancing 
rules, our Consumer business was able to pick 
up some of the slack.

Ingredients’ normalised EBIT improved to 
$827 million, up 5% on last year. Normalised 
gross margins for New Zealand Ingredients 
was up to 9.3%. This result benefited from 
favourable price relativities between the 
products that determine our Milk Price, and 
the rest of our product range. 

Our Foodservice performance was strong in 
Greater China where we had a good start to 
the year and the full-year impact of Covid-19 
was less than anticipated. Greater China 
Foodservice’s normalised EBIT increased to 
$169 million, up 49% on last year.

This growth was balanced out by our 

Foodservice operations in the rest of Asia, 
Latin America and Oceania, which bore the 
brunt of Covid-19.

Results in our Consumer business were 

also a mixed bag. Hong Kong continued to 
suffer from ongoing civil unrest, but our 
earnings performance in Oceania and Asia 
improved despite the disruption of Covid-19, 
after excluding FY20 impairments and 
earnings from FY19 divested businesses.

DELIVERING A DIVIDEND

This year marks a return to paying dividends, 
a position we expect to maintain in the future, 
assuming normal operating conditions.

At 5 cents per share, the dividend is at 
the lower end of the 5-7 cent range calculated 
under the Board’s dividend policy guidelines.
Under those guidelines, we expect 
the dividend payment to be 40-60% of 
reported Net Profit After Tax and take into 
consideration our current and future Debt 
positions. Any abnormal gains, such as a gain 
on sale of an asset, are considered separately. 
In the context of so much uncertainty, as 
Covid-19 continues to impact our key markets 
and customer confidence, distributing a 5-cent 
dividend is a prudent decision and one that 
balances our aims of further reducing Debt 
and distributing earnings.

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Fonterra Annual Report 2020

Letter from the Chair

Farmgate Milk Price 
for the 2019/20 season

$7.14 per  

kgMS

New Zealand milk collections 
for the 2019/20 season

1,517 million 

kgMS

CONTINUING THE 
IMPLEMENTATION OF 
OUR STRATEGY

The Board continues to refresh the 
Co-op’s risk appetite statement alongside 
refinements to our strategy and with a view to 
sustainable growth.

We have developed a more conservative 

approach to risk across the business, be it 
our balance sheet, investment decisions and 
general business operations. 

It is a critical piece of work that gives us a 
much clearer view of the risk adjusted return, 
particularly for offshore investments, before 
we make our investment decisions. 

We have also continued to review 

our asset base in line with our strategy. 
Within the financial year we completed 
the earlier announced sales of DFE Pharma 
and foodspring® with cash proceeds of 
$623 million.

Despite its improved earnings 
performance this year, we have looked at 
the future cash flow projections for our 
New Zealand Consumer business and made the 
call to write down that business by $21 million.
Our Fonterra-owned China farms made 

a modest EBIT of $11 million this year, but 
we have also written down those assets, 
along with our joint venture farm. Continued 
geo-political tensions in Latin America have 
impacted our DPA Brazil business and as a 
result, that asset has been impaired.

The total impact of write downs in the 
financial year was $289 million.

We measure the success of our strategy 

in three buckets: healthy people, healthy 
environment and a healthy business.

We have made good progress in all three 

areas, including a 20% reduction in energy 
intensity from our 2003 baseline at our 
New Zealand manufacturing sites. There is 
more work to be done in all three areas if we 
are to meet our long-term commitments.

STABLE GOVERNANCE 
SUCCESSION AND 
DEVELOPMENT

In June, the Board selected Peter McBride as 
our Chairman-elect as part of our commitment 
to planned governance succession. The early 
announcement was designed to provide Miles 
and his leadership team with the stability and 
confidence to push on with embedding our 
strategy and cultural change. Since June, Peter 
and I have worked together closely to ensure 
there is no disruption to the Co-op when he 
takes over the reins at the Annual Meeting 
in November.

Holly Kramer joined our Board in April 

as an independent director. Holly fills the 
position left by Simon Israel who retired 
in November 2019. Farmers will be asked 
to ratify Holly’s appointment at the 2020 
Annual Meeting.

DELIVERING FOR FUTURE 
GENERATIONS – THE OUTLOOK 
FOR THE 2021 FINANCIAL YEAR 
AND BEYOND

Looking to the 2021 financial year, there is a 
high level of uncertainty as to how the global 
recession and new waves of Covid-19 will 
impact demand globally. It is something the 
Co-op will be monitoring closely throughout 
the season.

The best way of coping with uncertainty is 
to stay on strategy and focus on what is within 
our control – our financial discipline and cost 
of quality for example.

We need to stay agile and draw on our 
strengths across the supply chain to manage 
and adapt to the changing global situation.

From a Milk Price perspective, the supply 
and demand picture remains finely balanced 
and for that reason we are maintaining our 
forecast Farmgate Milk Price range of $5.90 - 
$6.90 for the 2020/21 season.

In terms of our earnings, we are 
forecasting a full year normalised earnings 
per share range of 20-35 cents per share. This 
earnings range assumes a number of factors 
working in our favour, including that there 
is no heightened disruption from Covid-19 
over what we currently face, and an improved 
trading performance driven out of Asia and 
Greater China.

Dividend

5 cents 

per share

Share price up 1.6% year/year*

$3.82**

*For the period 31 July 2020
**Fonterra Co-operative Group  
Limited (FCG) share price as at 31 July 2020 

Further out, the future of our Co-op is exciting.

We were match fit when Covid-19 
struck, with a new strategy, structure, and 
culture. That has us well positioned to come 
out the other side where there will be new 
opportunities for us.

We’re in the business of food, and it’s an 
exciting industry to be a part of. Food trends 
are constantly changing, there’s a lot of energy 
around new product development, and there’s 
new and emerging markets in most parts of 
the world.

The provenance and quality behind 
New Zealand dairy will remain sought after 
internationally. People will always pay for 
quality, and we produce what I believe is the 
best milk in the world. 

Finally, on a personal note, I’d like to thank 

the 10,000 farming families that jointly own 
our Co-op for their loyalty and support. It 
has been a privilege to be part of this Co-op’s 
leadership, and its Chairman for the past 
two years.

As a Fonterra governor I’m retiring out to 
the back paddock, but I remain an active and 
proud farmer-owner of this great Co-op.

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JOHN MONAGHAN
CHAIR

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Fonterra Annual Report 2020

Q&A with our Chief Executive Officer

Q&A with our 
Chief Executive 
Officer

Miles Hurrell answers key questions on the Co-op’s performance, 
the year ahead and the task of responding to Covid-19. 

How is the Co-op handling Covid-19?

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How have farmers and employees 
come through a tough year?

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(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)

Has the Co-op hit its 
performance targets?

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What are the main reasons for the 
lift in the Co-op’s financial performance?

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(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:75)(cid:68)(cid:79)(cid:73)(cid:17)(cid:3)

1  Free Cash Flow is the cash flow that is available to pay interest, dividends and Debt. It is calculated as 

net cash flows from operating activities plus net cashflows from investing activities.

10

“It’s a tough environment for every 

market, industry and business 
right now. We’ve all felt the impact 
of Covid-19. For the global dairy 
market, Covid-19 has brought 
increased volatility and uncertainty. 
But despite this, Fonterra has 
performed well and delivered both a 
strong milk price and good earnings. 
MILES HURRELL 
CHIEF EXECUTIVE OFFICER

11

Fonterra Annual Report 2020

Q&A with our Chief Executive Officer

Profit After Tax

Total Group Normalised EBIT

Debt down

$659m 

Up $1.3 billion

$879m 

Up $67 million 

$1.1 billion

Free Cash Flow

$1.8 billion

Up $733 million 

“The Co-op is well aware 

of the difference we can 
make for New Zealand 
when we get it right. One 
of the biggest ways we 
contribute to the economy 
is through milk price 
payments – that’s us 
working hard every day to 
get the best price for our 
farmers’ milk. It makes me 
feel good to be part of a 
Co-op, that in the 2019/20 
year, contributed around 
$11 billion to New Zealand’s 
rural economies.

What has Fonterra done to reduce 
its impact on the environment?

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(cid:68)(cid:81)(cid:3)(cid:41)(cid:40)(cid:51)(cid:17)

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(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:73)(cid:68)(cid:85)(cid:80)(cid:86)(cid:17)(cid:3)

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What are your priorities for 2020/21?

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(cid:74)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:74)(cid:82)(cid:82)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:76)(cid:86)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3)

Are you comfortable with the Co-op’s 
Debt levels?

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(cid:76)(cid:81)(cid:3)(cid:41)(cid:82)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:68)(cid:582)(cid:86)(cid:3)(cid:39)(cid:72)(cid:69)(cid:87)(cid:17)

How has the Co-op contributed 
to New Zealand?

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(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:17)

2  Off a 2003 baseline.

12

13

Fonterra Annual Report 2020

A strong team responding to Covid-19

A strong team 
responding to 
Covid-19

Covid-19 has 
shown the 
character of 
our people and 
resilience of 
our business.

they’re paid within 10 days of invoice, instead 
of the standard 20th of the month term.

In Thailand, with department stores closed 

and sales of Anlene MovMax impacted, our 
local team saw an opportunity to donate 
Anlene MovMax UHT products to healthcare 
professionals who needed support.

And in New Zealand, with schools closed 
around the country, our teams moved quickly, 
partnering with various charitable groups to 
redirect nearly one million serves of Anchor 
milk from our in-school programmes to 
communities who needed it. 

T he impact of Covid-19 has been felt in 

every region and market we operate 
in, and as a result the global dairy 
market has been volatile and the outlook 
continues to be uncertain. 

Despite the challenges, farmers and 
employees have come together as one team to 
keep our business running and supply chains 
operating. Farmers have relied on us to pick 
up and process their milk, and our customers 
have counted on us to deliver. 

The work done over the last year to 

strengthen our balance sheet, and the Co-op’s 
ability to respond quickly, has helped us focus 
on the Covid-19 situation. 

(cid:50)(cid:88)(cid:85)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:72)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
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In February, our Foodservice business in 

China was hardest hit, as restaurants, cafes 
and bakeries closed due to lockdown. Once 
restrictions eased, and cities opened up again, 
demand in the sector came back reasonably 
quickly as our Foodservice customers looked 
to make up for lost sales volumes, although it 
is still not at 100%.

Having people on the ground in China was a 
huge benefit for us as we were able to get early, 
first-hand insights into what was happening. 

Our teams were flexible and adaptable and 
were prepared to try new ways of doing things. 
For example, our teams weren’t able 
to visit customers during lockdown so they 
quickly set up virtual training sessions and 
livestreams. Our Anchor Food ProfessionalsTM 
chefs demonstrated to customers and 
consumers how to cook recipes with our 
butter and cheese. Almost three million 
viewers tuned in – many of these were new 
business leads. Normally these sorts of 
sessions take a while to create, set up and 
execute but our team turned them around in 
a matter of days. And all while juggling the 
stress and extra pressures of a lockdown.

When one of our medical nutrition 
customers put in an urgent request for 
more hydrolysate, a fast absorbing whey 
protein used to provide nutrition for patients, 
including those suffering from Covid-19 
in the US, our teams quickly rallied to find 
a way to extend production by one month 
to fill the request.

But acting quickly to keep our business 
going was not the only focus for our teams. 
They also took the initiative to help local 
communities as much as they could. 

With hand sanitiser in short supply in 

New Zealand, our Co-op redirected two 
million litres of ethanol for use in sanitiser 
production by working with our customer, 
Gull, as well as increasing production. 
We also recognised we could help 
our small and medium sized vendors in 
New Zealand with cash flow, and have 
accelerated payments to eligible vendors so 

14

GGreG g

As an essential business, our 
teams have drawn on all their 
strengths to keep the Co-op 
going. We’re incredibly proud of 
how our people around the world 
have pulled together to support 
each other and ensure our 
operations are continuing to run. 
It showed us what being Good 
Together is all about. 

Syed

BhaBhavisvisha ha & N& Netaeta

Maria &&& Shilpaa

Meele issssaa

TonToneeee

15

Fonterra Annual Report 2020

Our year in review

Our year 
in review

Looking back at some of the big moments across our business over the last year.

MAY 2019

SEP 2019

OCT 2019

NOV 2019

DEC 2019

 JAN 2020

FEB 2020

MAR 2020

APR 2020

MAY 2020

JUN 2020

JUL 2020

•  2019/20 season 
opens with a 
e 
forecast Farmgate 
5 - 
Milk Price of $6.25 - 
$7.25 per kgMS 

AUG 2019

•  We announce 

ell
our intention to sell 
a portion of our 
e, 
stake in Beingmate, 
which we view 
as a financial 
investment only 

•  We announce the 
y
decision not to pay 
a dividend due to 
significant 
write-downs

•  WE OUTLINE 
OUR NEW 
STRATEGY AND 
MOVE TO A 
CUSTOMER-LED 
OPERATING 
MODEL

•  We announce 

the closure of our 
Te Roto site to 
consolidate our 
specialty cheese 
making facilities at 
our Eltham Bridge 
Street site 

•  We announce that 
six New Zealand 
manufacturing 
sites in water 
constrained 
regions will reduce 
their water use by 
30% by 2030 

•
•  Celebrate five year 
anniversary of 
Farm Source™ 

•
•  2019/20 forecast 
Farmgate Milk 
Price range 
revised up to 
$6.55 - $7.55 
per kgMS 

•
•  Our reformulated 
Fresh ‘n Fruity 
% 
yoghurt, with 40% 
less added sugar, 
hits supermarket 
shelves in 
New Zealand 

•
•  Celebrate 10 

years of KickStart 
Breakfast 

•  Teh-han Chow 
is appointed as 
our interim CEO 
Greater China 

•  We are awarded 
the Rainbow Tick 
for commitment 
to diversity in the 
workplace 

•  We purchase a 

minority interest 
in Prolesur, taking 
our ownership of 
the Chilean milk 
processor from 
86.2% to 99.9% 

•  2019/20 forecast 

Farmgate Milk Price 
revised up to $7.00 - 
$7.60 per kgMS 

•
•  We announce our 
Te Awamutu site 
will be coal free 
next season 

•
•  We complete 
the sale of our 
50% share of 
DFE Pharma and 
foodspring® with 
cash proceeds of 
$623 million 

•
•  We extend MyMilk 

to the North 
Island, making it 
easier for farmers 
to join and grow in 
the Co-op 

•
•  Our business in 

China is impacted 
by Covid-19 
outbreak

•
•  Fraser Whineray 
starts in role as 
Chief Operating 
Officer 

•  2019/2020 

•  We announce 

•  We launch 

e 
forecast Farmgate 
Milk Price 
0 -
narrowed to $7.10 - 
$7.30 per kgMS

•  2020/21 opening 
season forecast 
Farmgate Milk 
Price announced 
at $5.40 - $6.90 
per kgMS 

Simply Milk 
New Zealand’s 
first carbonzero 
milk in partnership 
with Foodstuffs 
North Island 

•  2019/20 forecast 
Farmgate Milk 
Price revised down 
to $7.10 - $7.20 
per kgMS

•  2020/21 forecast 
Farmgate Milk 
Price revised up to 
$5.90 - $6.90 
per kgMS 

a Co-operative 
ent 
Difference Payment 
of up to 10 cents 
per kgMS for 
farms that meet 
sustainability and 
value targets 

•  We accelerate 
payments for 
eligible small to 
medium-sized 
New Zealand 
businesses so 
n
they’re paid within 
10 days from the 
receipt of invoice 

•  Peter McBride 
selected as 
Chairman-elect 

•  New Zealand 

faces significant 
weather 
disruption with 
floods in the South 
h 
ht 
Island and drought 
conditions in the 
p 
North – our Co-op 
offers support 

•  After completing 
strategic reviews 
of China Farms 
and DPA Brazil, 
we announce that 
sales processes for 
both assets are well 
under way 

•  New Zealand 

goes into Covid-19 
Alert Level 4 
lockdown. Our 
Co-op continues 
to operate as an 
essential business 

•  Chairman John 

Monaghan confirms 
he will retire at the 
Annual Meeting 
in November 

•  Carly Robinson 
appointed as 
Director, Office 
of the CEO

16

17

 
 
 
 
 
 
 
 
Fonterra Annual Report 2020

Healthy Environment

Greenhouse Gas Emissions (GHG)*

1.9% 

Reduction in GHG emissions 
from our global manufacturing sites.

Water Use*

6.4% 

Reduction in water use at our manufacturing 
sites in water-constrained regions. 

Solid Waste*

970 tonnes 

Reduction in solid waste to landfill 
from our global operations.

We are working together to achieve a healthy 
environment for farming and society.

K (cid:68)(cid:3)(cid:82)(cid:85)(cid:68)(cid:3)(cid:87)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:88)(cid:68)(cid:15)(cid:3)(cid:78)(cid:68)(cid:3)(cid:82)(cid:85)(cid:68)(cid:3)(cid:87)(cid:72)(cid:3)(cid:87)(cid:195)(cid:81)(cid:74)(cid:68)(cid:87)(cid:68)(cid:17)(cid:3)

When the land is well, the people 
will thri(cid:89)(cid:72)(cid:17)

It is the land that protects and sustains us. The 
land that gives us our unique dairy goodness 
that we share with people around the world. 
By looking after the land, water and 

animals, and using resources wisely, 
we are finding a path to regenerate the 
environment. It’s all part of our transition to 
a more sustainable way of dairying.

18

* Compared to last year

19

 
Fonterra Annual Report 2020

Healthy Environment

“The individual greenhouse 

gas reports will provide 
farmers with insight and 
understanding about 
what is happening on 
farm. It will help farmers 
identify any strengths and 
weaknesses and allow 
them to prioritise their 
next improvement steps.

ANDREW KEMPSON
ENVIRONMENT 
PROGRAMME LEAD

Caring for the land today, so the land cares for us tomorrow 
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HOW FONTERRA IS MAKING THIS HAPPEN 

(cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:76)(cid:82)(cid:71)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:68)(cid:87)(cid:72)(cid:85)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)by having a 
regenerative mindset, reducing the impacts of farming and manufacturing, and working in 
partnership with others.

(cid:47)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:90)(cid:16)(cid:70)(cid:68)(cid:85)(cid:69)(cid:82)(cid:81)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72) by investing in innovation and infrastructure 
to reduce greenhouse gas (GHG) emissions from our supply chain.

(cid:48)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:88)(cid:87)(cid:85)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)through improvements in productivity and minimising 
waste from farm to consumer.

FY20 DELIVERY – KEY ITEMS:

34% of our farms in New Zealand now have Farm Environment Plans 

  Switching from coal to wood pellets at our Te Awamutu site 

Finalising farm-specific greenhouse gas reports 

KEY GLOBAL TARGETS:

Reduce greenhouse gas emissions by 30% by 2030

Reduce water use at sites in water constrained regions by 30% by 2030

Zero solid waste to landfill by 2025

THE UN SUSTAINABLE DEVELOPMENT GOALS 
WE ARE CONTRIBUTING TO

GOAL ACHIEVED

TheThe RoRoberrts’ts’ FaFarm,

rm TaTaranranakiaki 

Helping farmers reduce on-farm 
emissions 

New Zealand farmers are already some of 
the most carbon-efficient in the world, so 
making significant further improvements 
isn’t easy. The agriculture sector will need 
a comprehensive package of activities to 
address the challenge, and some are not yet 
technically or commercially viable.

For now, the main improvements our 
farmers can deliver will continue to come from 
adopting good management practices on-farm 
such as being efficient with feed and fertiliser, 
having the right number of cows for the 
specific area of land, reducing cow replacement 
rates and ensuring good animal health.

To support our farmers, we have been 
collaborating on the development of farm-
specific greenhouse gas reporting. Following 
a successful pilot, we are now finalising the 
reports, which will be sent to farmers by 
October 2020.

HOW WE ARE TRANSITIONING 
TO A LOW-CARBON FUTURE

Improving energy efficiency

We’ve delivered on our target to improve 
energy efficiency in our New Zealand 
manufacturing sites from our 2003 baseline 
by 20%. Improving energy efficiency in our 
manufacturing operations remains a top 
priority. Not only does it directly reduce our 
greenhouse gas (GHG) emissions, it makes 
commercial sense and it helps with our 
transition to lower carbon fuels.

Hitting our 2020 energy efficiency target 
is a significant milestone – cumulatively, since 
2003, that’s enough energy saved to power all 
the households in New Zealand for 1.5 years.

Switching to renewable energy

We are also moving to energy sources which 
produce less GHG emissions and are reducing 
our reliance on fossil fuels such as coal. We 
are taking a staged approach to renewable 
energy and this year we took a significant step 
with the conversion of our Te Awamutu site 
from coal to wood pellets. 

In New Zealand, wood biomass is a by-
product of forest harvesting and processing, 
making it a good low-carbon alternative 
to coal.

It’s estimated that once fully operational, 
this change at our Te Awamutu site will reduce 
our GHG emissions by around 84,000 tonnes 
per year, equivalent to taking around 32,000 
cars off New Zealand roads and taking a 
big step towards our target of 30% reduction 
by 2030.

“Achieving our energy efficiency goal has involved hundreds 

of projects and a daily focus from hundreds of staff over 
the years. Projects have ranged from changing how we run 
equipment, retro-fitting heat recovery systems, through to 
building new efficient factories.

LINDA THOMPSON 
SUSTAINABLE ENERGY & UTILITY MANAGER 

20

21

Fonterra Annual Report 2020

Healthy Environment

REDUCING OUR 
ENVIRONMENTAL FOOTPRINT 

Prioritising on-farm improvements with 
Farm Environment Plans

Helping farmers establish a Farm Environment 
Plan (FEP) and build on their good farming 
practices is how we can make the biggest 
difference on-farm in areas such as water 
quality, soil health and biodiversity. Each FEP 
is unique and includes a detailed map of the 
farm, identifying areas of existing strengths 
and also improvement areas for action. 

One of our Sustainable Dairying Advisors 

visits the farm and works with the farmer to 
consider things such as the risk of nutrient 
or soil loss into waterways, maintaining 
soil structure, protecting biodiversity and, 
where applicable, the efficient management 
of irrigation systems. 34% of our farms in 
New Zealand now have an FEP. 

Our aim is for every supplying farm in 

New Zealand to have an FEP by 2025. 

Collaborating on catchments

Protecting and regenerating the 
environment in our local communities is not 
something we can do on our own. It takes a 
collaborative effort. 

Living Water is our 10-year partnership 

with the New Zealand Department of 
Conservation that brings together farmers, 
scientists, councils, communities and Mana 
Whenua to identify game-changing and 
scalable solutions that will enable farming and 
freshwater ecosystems to thrive side-by-side. 
It is focused on five key catchments, which all 
have ecological significance, as well as being in 
important dairying regions. 

An example of the work we’re doing is in 
the Waituna catchment where we have been 
investigating applying fertiliser in a targeted 
way. Fine particle application is a method 

22

of applying less fertiliser which potentially 
reduces its impact on freshwater and saves 
farmers money. This year we commissioned 
AgResearch to complete a review of data from 
250 field trials around New Zealand. Their 
analysis found the results were promising and 
worth pursuing further. We are now looking 
at the next steps that would be required 
to make this approach more widely available 
to farmers.

Beyond the five Living Water catchments 

we’ve been working with iwi and local 
stakeholders across New Zealand. For 
example, recognising the important role 
wetlands can play in improving water quality, 
we have worked with the Waikato and Hawke’s 
Bay Regional Councils and Landcare Trust to 
assess feasibility, and demonstrate and help 
landowners to reinstate wetlands.

Improving water efficiency

Water is a precious resource and we’re 
committed to using it wisely.

Aligned with best-practice thinking, 

our water efficiency target prioritises 
improvements where water is potentially 
constrained. This year we reduced water use 
at our sites in water-constrained regions by 
6.4%, which is a 3.1% reduction against our 
2018 baseline and a significant step towards 
our target of a 30% reduction by 2030.

Our Stanhope site in Australia delivered 

most of the improvement, installing 
new treatment infrastructure which has 
significantly reduced the water it uses.

Responsible use of water is important 
for all our manufacturing sites, even where 
there is water abundance and overall across all 
sites our water use was down by 3.7% on the 
last financial year. That’s almost two billion 

34%

of supplying farms in New Zealand 
now have a Farm Environment Plan, 
up from 23% at the start of the year

litres of water saved, which is equivalent to 
more than 750 Olympic-sized swimming pools. 

Reducing waste to landfill

We aspire to play our part in achieving ‘zero 
waste’ and last year we set a new target for our 
direct operations of sending zero solid waste 
to landfill by 2025. With a collective effort 
around the world, this year we have achieved a 
reduction of 970 tonnes. 

At our Takanini site, working with 
Adhesifs, we have eliminated 33 tonnes of 
solid waste. The backings from the labels we 
use on large volume products are now turned 
into tissue paper.

In Indonesia, we worked with our waste 
contractor to change processes and the team 
now segregates all paper, plastic and food 
waste on site, achieving a 98% reduction 
(194 tonnes) for the year.

MikMike, KawKawaa Stream, L, Limeim stostone ne DowDowns,ns, WaW ikatoo

23

Fonterra Annual Report 2020

Healthy People

What is the most important thing in the world? 
It is people, it is people, it is people.

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(cid:43)(cid:72)(cid:3)(cid:87)(cid:195)(cid:81)(cid:74)(cid:68)(cid:87)(cid:68)(cid:15)(cid:3)(cid:75)(cid:72)(cid:3)(cid:87)(cid:195)(cid:81)(cid:74)(cid:68)(cid:87)(cid:68)(cid:15)(cid:3)(cid:75)(cid:72)(cid:3)(cid:87)(cid:195)(cid:81)(cid:74)(cid:68)(cid:87)(cid:68)(cid:17)

W (cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:74)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)

(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:78)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:17) 
That means looking after our team’s safety 
and wellbeing, providing employees with 
motivating work opportunities and playing a 
role in supporting local communities. 
It’s also about helping people live 

healthier lives through the goodness of dairy. 
The nutrients in dairy play an important 
role in growing and maintaining healthy bones, 
immunity, the functioning of your nervous 
system and so much more.

There’s also power in some of 
the individual components of milk in 
helping manage and recover from injuries 
and illnesses.

We often talk about the untapped 
potential of milk because our scientists are 
finding new benefits from dairy all the time – 
we’ve only scratched the surface.

25

AntAntntthhonhhh y JJy ohnohn & Luauannna,na ReReReReRReppppororp oaoa

24

Fonterra Annual Report 2020

Healthy People

Lisa & Gordon, Darfield

CARING FOR OUR PEOPLE

We want all Fonterra people to go home from work safely every day. Unfortunately, this year our 
injury frequency rate has risen to 5.8, up from 4.9 last year. The number of serious harm injuries 
has significantly reduced, down 44% on last year. Overall, since 2010, our injury frequency rate 
has reduced 68%. Any work-related injury is one too many for us. As a result, we continue to look 
at ways to improve how we keep our people safe.

(cid:44)(cid:81)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:82)(cid:85)

(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)

(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)

Work-related fatalities 
(attributable to Fonterra – 
staff, contractors, on-site 
public)

Total recordable injury 
frequency rate (TRIFR per 
million work hours)

Number of serious harm 
injuries 

Zero harm

FY18

0

FY19

1

FY20

0

World class for 
our industry 
group (<5)

Zero harm

6.1

14

4.9

18

5.8

10

During Covid-19, the Co-op moved quickly to keep employees safe, cancelling all face-to-face 
meetings and domestic and international travel prior to New Zealand going into Alert Level 4 
lockdown. As countries went into lockdown, strict social distancing and Personal Protection 
Equipment (PPE) guidelines were put in place globally to protect our essential workers and we had 
a dedicated IT team working around the clock to keep our systems running as all other employees 
worked from home. The Co-op has continued to keep health and safety measures in place and will 
continue to do so until we are confident employees won’t be at risk. 

Diversity in the work place is important to Fonterra, which is 
why we’re proud to have been awarded the Rainbow Tick this year.

WORKING WITH FARMERS

CARING FOR COMMUNITIES

“We know when we embrace 

different perspectives, we’re 
more innovative, make 
better decisions and improve 
performance. There’s also 
a growing body of research 
indicating that diverse and 
inclusive teams outperform 
their peers. 

HAYLEE PUTARANUI, 
HEAD OF DIVERSITY 
AND INCLUSION

We celebrated 10 years of providing valuable nutrition to Kiwi kids through KickStart Breakfast. 
In partnership with the Ministry of Social Development and Sanitarium, over 1,000 schools are 
involved and more than 30,000 children attend a KickStart Breakfast Club every school day. 
When schools closed after New Zealand went into Covid-19 lockdown, we switched our 
focus and redirected nearly one million serves of Anchor milk from our Fonterra Milk for Schools 
programme to those in the community most in need. 

KidKididds es enjon ying g KKgg ickickStaStatatatataaartrtrtttrt rr BreB akfastt

Farm SourceTM, the Co-op’s farmer-facing 
team, marked their fifth year of working to 
help make farming easier by lowering on-
farm costs, providing on-farm support and 
advice, and giving back to communities. Since 
Farm SourceTM began, we’ve returned more 
than $160 million in Farm SourceTM dollars, 
discounts and deals to farmers.

When Southland faced the worst floods 

in 30 years, teams across the Co-op came 
together to help farmers and the local 
community. Initially, teams worked alongside 
emergency services, and then Fonterra’s 
Farm SourceTM team and the Edendale site’s 
Emergency Response Team went out on 
farm to help clear debris, repair fences and 
get farms up and running again.

CARING FOR CONSUMERS

We’ve reduced the amount of added sugar by 
40% in Fresh ‘n Fruity yoghurt and 30% in our 
Anchor CalciYum. This is another step towards 
our goal of having 100% of our everyday and 
advanced products meet our independently-
endorsed nutritional guidelines by 2025.

30%   40%

less added sugar

Caring for people is at the core of our Co-operative.

HOW FONTERRA IS MAKING THIS HAPPEN 

(cid:51)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)by promoting a safe and healthy working 
environment and developing a diverse, skilled and agile workforce.

(cid:36)(cid:71)(cid:71)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)by improving the nutritional profile of our products and 
promoting healthy diets.

(cid:44)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)by doing business in the right way, sharing what 
we do best and playing our part to build resilient, sustainable communities.

FY20 DELIVERY – KEY ITEMS 

Create a culture that empowers our people 

Shift to customer-led operating model

Support communities through nutritional programmes 

KEY GLOBAL TARGETS

World-class injury prevention

World-class engagement

2022: 50% female representation in senior leadership

2025: 100% product portfolio meeting endorsed nutrition guidelines

THE UN SUSTAINABLE DEVELOPMENT GOALS 
WE ARE CONTRIBUTING TO

GOAL ACHIEVED

26

27

 
 
 
 
Fonterra Annual Report 2020

Healthy People

“While our priority is and always will be collecting farmers’ 

milk, it’s really important that we step up and help 
communities in their time of need wherever possible. 

BARRY MCCOLL, 
GM NATIONAL TRANSPORT AND LOGISTICS 

200,000

litres of water delivered to help with 
Northland drought

DELIVERING MORE THAN MILK

When New Zealand’s Northland community 
was struggling with drought earlier this 
year, our Northland team stepped in to 
lend a hand. 

Water deliveries were built into milk 
collection schedules so our tanker drivers 
could drop off water on their way up to 
collect milk from farms in the Far North. 

Our teams in Northland worked with the 

local regional council to help deliver water 
to the towns of Kaikohe, Kaitaia, Rawene 
and Dargaville, delivering more than 
200,000 litres of water.

But the work didn’t stop there. Our 
Co-op’s Waitoa tanker team also got a call 
up from Civil Defence when the township of 
Waihi, in New Zealand’s Hauraki District, ran 
dry after a burst water main – the team was 
more than happy to lend a hand. 

SHIFTING TO A CUSTOMER-
LED OPERATING MODEL AND 
BUILDING A GREAT TEAM

This financial year has been all about 
delivering on our new strategy, and one of 
the first things we did was shift to a new 
customer-led operating model and focus on 
building a great team. 

We made this change because our future 
is no longer about volume. Instead, it’s about 
prioritising New Zealand’s unique milk and 
growing its value, which means we need to 
understand our customers in ways we haven’t 
in the past. 

We now have three customer-facing 
businesses: Asia Pacific (APAC), Greater 
China, and Africa, Middle East, Europe, North 
Asia, Americas (AMENA). Having teams on 
the ground gives us early insights into what’s 
happening in market, and during Covid-19 this 

was invaluable. Our teams were able to work 
closely with customers to understand how 
Covid-19 was impacting their businesses, and 
in turn, what we could do to support them. 

In addition to having the right 

organisational structure to deliver on our 
strategy, we recognised our teams needed 
to be 100% clear on what was expected 
of them. That’s why we introduced Good 
Together – two simple words that remind us 
that every day we have to be contributing to 
our purpose, living our values and delivering 
on our strategy. During Covid-19, the power 
of Good Together really shone through 
as our teams pulled together to keep the 
business running, care for each other and help 
local communities. 

28

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29

Fonterra Annual Report 2020

Healthy People

Farmer and 
employee spotlight 

This year, farmers and employees have done us proud, taking home several 
national and regional titles, while three were recognised in the Queen’s 
New Year and Birthday Honours list.

New Zealand Dairy Industry Awards

New Zealand Dairy Industry Awards

23 of the 33 regional titles were won by 
Fonterra farmers, with three national titles 
going to Fonterra farmers.

(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:41)(cid:68)(cid:85)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:60)(cid:72)(cid:68)(cid:85) – 
Waikato’s Sarah and Aidan 
Stevenson, 50/50 sharemilking for 
Sue Williams on her 100ha, 330-
cow Ngarua property since 2013.

(cid:39)(cid:68)(cid:76)(cid:85)(cid:92)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:60)(cid:72)(cid:68)(cid:85) – 
Bay of Plenty’s Andre Meier, 
Farm Manager on Ao Marama 
Farms 250ha Te Puke property, 
milking 800 cows.

(cid:39)(cid:68)(cid:76)(cid:85)(cid:92)(cid:3)(cid:55)(cid:85)(cid:68)(cid:76)(cid:81)(cid:72)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:60)(cid:72)(cid:68)(cid:85) – 
Waikato’s Grace Gibberd, 
Farm Assistant on the DairyNZ 
115ha property at Newstead, 
milking 360 cows.

Fonterra Dairy Woman of the Year

Ash-Leigh Campbell

Ash-Leigh Campbell was named 2020 Fonterra Dairy 
Woman of the Year. The 28-year-old Farm Manager 
(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:49)(cid:74)(cid:195)(cid:76)(cid:3)(cid:55)(cid:68)(cid:75)(cid:88)(cid:582)(cid:86)(cid:3)(cid:54)(cid:82)(cid:88)(cid:87)(cid:75)(cid:3)(cid:44)(cid:86)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:68)(cid:85)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)
operation for more than three years. She is also Chair of 
the New Zealand Young Farmers Board and a previous 
(cid:36)(cid:75)(cid:88)(cid:90)(cid:75)(cid:72)(cid:81)(cid:88)(cid:68)(cid:3)(cid:60)(cid:82)(cid:88)(cid:81)(cid:74)(cid:3)(cid:48)(cid:195)(cid:82)(cid:85)(cid:76)(cid:3)(cid:41)(cid:68)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:36)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:76)(cid:86)(cid:87)(cid:17)

Member of the New Zealand Order of Merit

Dr Jeremy Hill

Chief Science and Technology Officer Dr Jeremy Hill 
was recognised for his services to the dairy industry 
and scientific research. Jeremy has worked for 
Fonterra and its predecessors for over 30 years, and 
is internationally recognised for his dairy research, 
having published more than 100 works.

Officer of the New Zealand Order of Merit

Tony Wilding

South Waikato farming stalwart Tony Wilding was 
recognised for his services to the dairy industry 
and the community. Tony has made a significant 
contribution to conservation and agricultural 
education, and was a driving force behind fairer 
sharemilking arrangements. 

Officer of the New Zealand Order of Merit

Dr Harvey Indyk 

Senior Research Scientist Dr Harvey Indyk was 
recognised for his services to analytical research and 
the dairy industry, having developed techniques which 
allow scientists to accurately measure the levels of 
vitamins in milk. 

Fonterra Responsible Dairying Award

New Zealand Champion of Cheese

© – Stuff

Nick and Nicky Dawson

Hawke’s Bay farmers Nick and Nicky Dawson 
won the 2020 Fonterra Responsible Dairying 
Award, receiving the John Wilson Memorial 
Trophy. The award recognises dairy farmers 
who demonstrate leadership in their approach 
to sustainability and who are respected by 
their fellow farmers and their community for 
their attitude and role in sustainable dairying.

Sam Pokaitara (right)

Lichfield’s Brine Salt Cheese Process Project Manager 
took out this year’s supreme award after receiving the 
highest aggregate score across the three cheeses he 
entered for judging. Sam says the secret to making 
the best cheese is top quality milk and experienced 
operators who know what they’re doing. 

30

31

Fonterra Annual Report 2020

The Co-operative Difference

Progress this year

The Co-operative Difference pulls together the best of what we do into five key focus areas. 

Milk

5,029

Environment

6,551**

FARMERS HELPED CREATE 
goodness for generations by delivering  
Grade Free milk with an average Fat 
Evaluation Index of A or better and an average 
somatic cell count of 150,000 or less for at 
least 3 months of the season.

FARM ENVIRONMENT PLANS 
helping farmers care for the land and 
waterways by reducing greenhouse gas 
emissions, recycling waste and making the 
most of the precious resources we use to 
create nutritious milk.

Animals

4,571*

ANIMAL HEALTH PLANS 
helping farmers to care for 
their cows. These are developed 
alongside vets and are reviewed 
at least every year. 

Co-operative & 
Prosperity

4,144*

FARMERS 
recognised as actively engaged members of 
the Co-operative contributing to the long-
term value of New Zealand.

People & 
Community

6,332*

HEALTH & SAFETY PLANS 
 keeping hardworking and passionate 
people safe and well on farm. 

* This data is self-reported by farmers and is then verified by Fonterra’s independent on-farm auditors. The auditing process is currently underway.
** Includes farms with FEPs in the pipeline.

949 Te Tihi

ACHIEVED 
LEVEL 3

“THE SUMMIT OF THE MOUNTAIN” 
FOR THE ENTIRE SEASON

843 Te Puku

“THE MID POINT” 
SIX MONTHS

FARMERS 
ACHIEVED LEVEL 2

893 Te Pūtake

“THE START OF THE JOURNEY” 
THREE MONTHS

FARMS 
ACHIEVED LEVEL 1

Working together for a strong and sustainable Co-op.

T he Co-operative Difference is part 

of our Co-op’s strategy to add 
more value to New Zealand milk 
and respond to increasing demand from 
customers here and around the world for 
sustainably produced dairy. 

It supports farmers to produce high-
quality, sustainable milk by making it easier 
for farmers to understand what is expected 
today and what they need to prepare for in 
the future. It also celebrates those who go 
the extra mile to make our Co-operative 
more sustainable. 

(cid:41)(cid:85)(cid:82)(cid:80)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:21)(cid:19)(cid:21)(cid:20)(cid:15)(cid:3)(cid:73)(cid:68)(cid:85)(cid:80)(cid:86)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:16)
(cid:73)(cid:68)(cid:85)(cid:80)(cid:3)(cid:86)(cid:88)(cid:86)(cid:87)(cid:68)(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:87)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)(cid:86)(cid:3)
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:72)(cid:79)(cid:76)(cid:74)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:38)(cid:82)(cid:16)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
(cid:39)(cid:76)(cid:73)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:51)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:19)(cid:3)(cid:70)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:83)(cid:72)(cid:85)(cid:3)(cid:78)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:76)(cid:79)(cid:78)(cid:3)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:86)(cid:17)

HOW THE CO-OPERATIVE 
DIFFERENCE HELPS

•  Brings together existing on-farm 
requirements and makes them 
easier to understand.

•  Ensures standards are clear, making it 

easier for farmers to create the highest-
quality milk.

•  Recognises farmers who go beyond these 
standards to produce the highest quality 
milk, care for their animals, protect the 
environment, support their people and 
community, and engage in our Co-op.
•  Keeps farmers informed and up-to-date 

about future changes so they can prepare 
for them. 

•  Saves time by streamlining reporting 

and auditing, minimising duplication and 
helping our Co-op protect its market 
position, strengthen its sustainability 
claims and drive demand for products 
that customers value most.
•  Supports farms wanting to 

improve by providing tailored, 
industry-leading support.

ScoScott,tt, KKerryry & & RodRodneyney, Cantnterberburyry

IN ORDER TO PRODUCE SAFE, 
SUSTAINABLE DAIRY PRODUCTS 
THERE ARE SOME THINGS THAT 
WE CAN NEVER AFFORD TO 
COMPROMISE ON.

That's why we'll always:
•  Meet the requirements of our regulators
•  Comply with all market access 

requirements overseas

•  Produce safe, high-quality milk
•  Look after our people, animals and 

the environment.

We call this “Our Core”
Once the Core foundations are met, our 
farmers can grow further through three levels 
of achievement. To make it simple, we use 
the analogy of a journey up the mountain 
to reach greater things. Each level brings 
additional recognition.

32

33

Fonterra Annual Report 2020

The Co-operative Difference

REWARDING SUSTAINABLE, 
HIGH VALUE MILK

Farmers producing sustainable, high-quality 
milk will be eligible for a new payment.

From June 2021, we’re introducing a 

Co-operative Difference Payment of up to 
10 cents per kilogram of milk solids (kgMS) 
if the farm meets the Co-op’s on-farm 
sustainability and value targets. 

It’s part of our Co-op’s strategy to add 
value to New Zealand milk and respond to 
increasing demand from customers here 
and around the world for sustainably- 
produced dairy. 

The more a farmer achieves in 

The Co-operative Difference programme, 
the higher the payment will be.

ONE-THIRD OF FARMS 
NOW HAVE FARM 
ENVIRONMENT PLANS

A key part of The Co-operative Difference 
is our offering of tailored Farm Environment 
Plans (FEPs) to our farmers.

These plans, delivered by our Sustainable 

Dairying Advisors at no additional cost, 
assess the environmental effects and 
risks associated with farming activities 
and provide tailored actions to help farms 
meet their regional requirements and 
sustainability goals.

As of 31 July, 34% of our farms have an 
FEP – up from 23% last year. We want every 
farm to have an FEP before 2025.

“It’s great to see these farmers 

recognised and rewarded for 
their efforts to produce and 
deliver a product that Fonterra 
can capture the highest value 
from. Through The Co-
operative Difference, we 
can get better, together.
TERENCE BROCX, 
NORTHLAND DAIRY FARMER

Our
Focus

The 
Co-operative 
Difference

  MILK

  CO-OP & PROSPERITY

  ANIMALS

  ENVIRONMENT

  PEOPLE & COMMUNITY

Glenys & Graham, Te Aroha

FOCUS ON MILK QUALITY

The headline in one of the national 
newspapers said it all, ‘Top cow care equals 
top milk quality’. 

They were talking about the Bell family 
from Te Aroha, whose achievements of low 
somatic cell count and grade-free milk is the 
stuff of Fonterra legend. How do they do it? 
They love their cows. 

Glenys and Graham Bell and their family 
have won national awards for their dedication 
and determination – but it hasn’t come easy. 
“It’s about observation. Everyone’s watching 
out for a problem.” 

And that means lots of testing, lots of 
care, lots of attention… and making sure the 
cows are well-loved. In fact, every cow on their 
farm has a name, and they’re able to trace 
entire family trees in the herd. 

Now their daughter Tania is share 

milking on another farm, so they’ve got some 
competition for the top spot as she was 
number two last year! Proof, if it was ever 
needed, that our Co-op farmers really are 
best of breed.

35

“They can see that you 

need to put everything 
into looking after the cows 
because that’s what gets 
results – low somatic cell 
counts, good cow health 
and good calving rates.

GLENYS BELL, TE AROHA 
DAIRY FARMER

34

Fonterra Annual Report 2020

The Co-operative Difference

Honour Roll for On-farm Excellence

Thank you to all our farmers who have worked hard in the 2019/20 season to provide safe, high-quality milk. In addition to the honour 
role, we acknowledge the efforts of all our farmers for their commitment to on-farm excellence and producing the best possible milk. 

LEGEND 

TE TIHI 

Farming entities that 
achieved Grade Free for at 
least the last 10 seasons 

Farming entities that 
achieved The Co-operative 
Difference Te Tihi (Level 3)

Kemra Farm Ltd
B L & Estate R J Mohring
K J & H Chalmers Ltd
Clutha Lea Ltd
F A & R C M Smits Ltd
C M & K M O’Donoghue
B M & B C & JH Geddes
Ashgrove Dairy Farms Limited
Waicola Holdings Ltd
A Holten & N Brown
Owhango Farms Limited
Serendipity Trust
R S & R D Gordon
J E & D M Cooper
Marua Partnership
Sim Family Farms Ltd
Sim Brothers Ltd
D C & V F Frew
J L & M A Cooke
L J & L M Still
W J & J G Pile Family Trust
Schorn Trust
G E & V E Cooper
C & H Mabey
C J & K L Ladd
F B Bonenkamp & 
J B Cunningham
Black & White Cow 
Company Limited
Riverside Farms 
(Taranaki) Limited
Shawlink Ltd
Miroc Limited
Caskey Farms
Fowler Family Prosperity Trust
R & P Woods Farms Ltd
Golden Mile Farms Ltd

36

41 Degree South Limited
46 South Limited
5 M Trust
69 on Bedford Partnership
96 South Limited
99 South Limited
A & A Renes Limited
A & C Allado Dairies Limited
A & C Hodges Family Trust
A & H Ahlers Limited
A & K Storey Limited
A & L Ag Enterprises Limited
A & M Wainman
A & R Marshall
A B & K J Zwagerman
A C Schouten Farms Limited
A D Harrison
A D Harrison Family Trust
A G & T A Rigter
A G L & L M Smith
A G L & L M Smith Family Trust
A H & A C Webster
A H Baxter Limited
A I & J G Sanford
A J & K L Murdoch
A L & M B Jumawid Partnership
A M & H E Kusabs
A M Bond & Estate of R G Bond
A R Hawkins & T M Finch
A R Maxwell Limited
A R Wards
A T & J L Hughes Trust
A W & M White
A.F.B Group Limited
Aaron and Marcia Flay 
Partnership
Abacus Dairy Limited
Abbey Farm Partnership
Abbott Trusts Partnership
ABH Trust
AC & KM Ruddenklau
Acacia Farms Limited
AD & HA Foote
ADDR Limmited
AFT Group
Aghern Holdings Limited
Agincourt Farms Limited
Agribaird Limited
AGVenture Farms Limited
Ahipene Farming Ltd
Airlie Lodge (Walton) Ltd
AK Dean Ltd
ALD Dairy Ltd
Alderbrook Farms Limited
Alesh & Sandhiya Devi
Alexandra Farms Ltd
Aljo Farm Ltd
Alley Farms Ltd
Allison Family Farms Ltd
Allout Investments Ltd
Alpine Farms Ltd
Alston Property Group Ltd

Altitude Farms Limited
Alton Pastures Limited
Altra Partnership
Altura Dairy
AM Farming
Amber Creek Limited
Amber Park Family Trust
Ambleside Dairy Farm Ltd
AMF Trust
Amlee Farming Partnership
Andrew Marshall Family Trust
Anglesea Consulting Ltd.
ANLM Limited
Annandale Farming Limited
Annaross Family Trust No 2
Antrim Farming Limited
Anvo Ag Limited
AP & TM Davis 
T/A Bushvalley Farm
AP Cowley & D K Riley
AQA Agriculture
Aramaunga Farms Ltd
Ararata Holdings Ltd
Aratika Holdings Limited
Ardendale Farm Trust
Ardmore Dairies Ltd
Ardmore Farm Trust
Ardoyne Farm Dairies Ltd
Armour Dairying Ltd
Arnold Dairy Farming Limited
Ashdale Enterprises Ltd
Ashers Farm Ltd
Ashgrove Dairy Farms Limited
Askin Plains Dairy
Atlas Farms Ltd
Auchtercairn Farm Limited
AUI Farms
Avondale Dairies Ltd
Awaiti Trust
Awapuketea Farming 
Company Limited
B & C Anderton Limited
B & D Dodunski
B & L Bailey Ltd
B & S Mathys Partnership
B A Virbickas & L M Presow
B C & H J McLellan
B D & B A Mora
B F & S J Gordon
B G & M C Litchfield
B H & L J Bourne
B H Redgate & S M Thomas
B J & D A Verryt Family Trust
B J & J Abernethy Partnership
B J & P Brisco
B J & R A Lawn
B J & T G Fernyhough
B J Laing
B K Came & K M Came 
Family Trust
B L & D J Haylock
B L & Estate R J Mohring
B M & B C & JH Geddes
B M & J A Ahlers
B M & J L Chick Family Trust
B M Thompson

B N & P A Jones
B R & S C Lee
B S & B K Young
B S & S M Winter
B W & C A McNeil
BAA Family Trust
Baggott Farming Limited
Balcombe Investments
Baldrick Farms Ltd
Ball Patch Ltd
Ballindalloch Farm Ltd
Balrath Partnership
Bandara & Pavi
BAN-OIR Ltd
Barcia Dairies Ltd
Barker Farms Limited
Barmac Dairies Ltd
Barnsdale Farms 2014 Limited
Barridge Farms
BASE Pair Dairy
Bashford-Nicholls 
Chartiable Trust
Baylins Trust
Beckett Family Trust
Bel Group Limited - Cloverlea
BEL Group Ltd - Kowhai Terrace
Belrari Farm Ltd
Ben Callum Dairies Limited
Benjamin Burmeister Trust
Berry Dairy Farming Limited
Berwick Holdings Ltd
Beyond The Gate Limited
Bibberne Farms Ltd
Bill Bella Ltd
Bill Hedley Limited
Birch-holme Holdings Ltd
BJ & DM Ahlers
BJ & TM Verryt Ltd
BJ Caird Ltd
BL & TL Davie Farming
Black & White Cow 
Company Limited
Blom Family Farm Limited
BM & GI Watson Ltd
BM Farms Ltd
Bobcat Trust
Borst Holdings Ltd
Boswell Dairy Ltd
Bouton Farming Ltd
Bowman Farm Limited
Bradley Gore Trust
Braemer Dairies
Brats Farms Ltd
Brent Wallace Ltd
Brentworth Dairy Farm Limited
Broadford Dairies Limited
Broadview Farms (2018) Ltd
Brooksdale Dairy Ltd
Brookside Holdings Limited
Broughshane Farm Limited
Brown Kiwi Farms Limited
Brownsville Farms Ltd
Brunswick Downs 
(2014) Limited
Buckley Farm Limited
Budnutkins Family Trust

Buhler Paton Partnership
Bullot Family Trust
Burgham Partnership
Burke Farming 
Development Ltd
Burnside Farms Ltd
Burtlea Limited
Burton Farm Trust
Bushmills Trust
Butler Family Trust
BW Dairy Ltd
C & A Dairies Limited
C & D Padrutt Trust
C & J Rowe Ltd
C & M Tippett
C & S Guyton Farms Ltd
C & T Dovey
C A Mansell & Son Ltd
C A Rowe
C and J Piggott Ltd
C B & M F Dempsey 
Trust Partnership
C D Jacobsen
C D Will & A E Hunter
C F & M T Muller
C G & R A MacFarlane
C G Bailey
C H Land Limited
C J & C J McKenzie Ltd
C J & L M Houghton Ltd
C L J & R M Vollebregt
C L N Limited
C N R Farming Ltd
C R & D E Cloke
C R & J J Dixon
C R & K L Ruiterman
C T & K M L Chase
C T & W L Harper
C W & J Redshaw
C W & L A Peckham
C W & M Y Matthews 
Family Trust
C.A & A.C Dairies Ltd
Cairndale Dairy Limited
Cambridge Dairies Limited
Carpe Diem Dairies Limited
Caskey Farms
Catalina Farms
Causeway Trust
Ceylandia Dairies Limited
Chardan Farms Ltd
Chatton Lea Holdings Ltd
Cherrylane Jerseys Limited
Chikasa Trust
Christensen Farms Ltd
Ciel Trust
Circle K Farms Limited
Clapcott Farms Ltd
Claremont Trusts Partnership
Clarks Potteries Ltd
Clausen Contracting Ltd
Clausen Farms Ltd
Clearwell Limited
Cleaver Farms Limited
Cliff Donald
Climie Road Farms Ltd

Clover Sun Limited
Cloverdene Dairy Ltd
CM Farming Ltd
CMC 2000 Ltd
CME Farming Ltd
Cochar Dairies Limited
Cody Cowley Ltd
Collis Farms Ltd
Confederate Farm Ltd
Contract STEL
Cookson Trust Farms Ltd
Copeland Farming 2012 Ltd
Copeman Family Trust
Cornerstone East Limited
Cotlands Ltd
Cotter Farming Ltd
Coull Farms Ltd
Cowley Ltd
Craig Group Limited
Craigower Farms Ltd
Cravan Farms Limited
Crayfish Trust
Creekside Pastures Ltd
Cressey Dairies Ltd
Crockers Ranch Ltd
Crown Ridge Partnership
Crowsnest Farming Limited
CW Taunt & HM Baldock
D & D M Coupe Trust
D & E Beckett Limited
D & E J Pringle
D & K & M Kavanagh
D & K Miles Limited
D & M Earl Ltd
D & R Van Straalen Family Trust
D & S Farms
D A & S M Crawford
D B & T A Wyber
D B H Farming 2012 Limited
D Baeyertz 2013 Ltd
D C & V F Frew
D D & D M Galletly
D E & A M Jacobsen
D G Harker Family Trust & 
W A Harker Family Trust
D H & A J Speirs Family Trust
D H J & J J Hughes
D J & F J Lynch Ltd
D J & G M Hooper
D J & S A McMillin
D J Noble & K M Jones
D L & P Wilson
D L & S M Cochrane Ltd
D Lindsay & D Manu
D P & C M Flood
D P & C M Flood Family Trust
D P & T G Schumacher
D P & T M Stephens
D R & E M Henman
D R & J E Gilchrist
D R & L A Marshall Ltd
D R & L M Locke Ltd
D R & N R Ellis
D R & S K McKay
D W & P A Wood
D White
D&D Bosch Ltd
Dacrow Ltd
DAGCO Limited
Dairy Farms Partnership
DairyPlus Limited
Dairytrac Trust
Dajo Trust
Daker Ridge Trusts No.1 & No.2
Danatava Holdings Ltd
Dandarrigan Trusts Partnership
Daniel Cullen Family Trust
Daniel Symons
Daradowns Holdings Ltd

Darnnco Agri Limited
David & Angela Kennedy
David & Corina Youle Trust
David Leng
Davis 5 Limited
Dawn Dairies Ltd
Daybreak Farms Limited
DB & MJ Kalma Ltd
DB & N Young
DC & KR Fraser Partnership
DDB Dairy Enterprises Limited
Dean Semmens Ltd
Dekker Farms Ltd
Delarbe Farm Ltd
Delca Faith Dairy Limited
Denis J Crookenden & 
Bronwyn F Bax
Dennis & Donna Gill 
Family Trust
Dennley Farms Ltd
Derrys Farm Limited
Derryvale Ltd
Des Landes Dairies Ltd
Dingle Trust Partnership
Dinnae Ken Ltd
DNA Contracting Partnership
DNR Farms
Donagh Farm Trust
Drakes Hill Farming Ltd
Drysdale Dairies Ltd
Dungarvan Farms Limited
Dunmilkin Ltd
Dunrobin Farm Partnership
DW & JM Harris Partnership
Dyfed Farming Ltd
E A & J A Rolfe
E B & J L Day
E F & J A Allcock
E G & N H Scott
E Hut & A Jongmans
E J & K J Field Trust
E J Ritchie
E L & D J Brook
E S & J M Rattray
E S Dairy 2008 Ltd
E.K. & M.J. Chisnall Ltd
Eastwick Farm Limited
Edale Farms Ltd
Eiffelton Contractors Ltd
Eiffelton Dairy Ltd
Ellis-Lea Farms (2000) Ltd
Emerald Dairy Farm Ltd
Est. M Q J Van Bysterveldt
Estate Charles Bailey
Estate D E G Swadling
Estate of K Sminia
Estate of N R Dilks
Esternwest Farms Limited
Eudunda Dairy Ltd
Evans & Co Ashburton Limited
Evans Partners Ltd
Eyre View Dairies Ltd
Eyrewell Dairy Ltd
F & P Dawson Limited
F A & D N Ahlers
F G White & Estate of 
MM White
F J & E A O’Connor
F J Mullan & J A Mullan 
Family Trust
F Stevens & S McCoy
Fairfax Stonehouse Farm Ltd
Fairhaven Farms Ltd
FAM Limited
Far South Farms Ltd
Fareway Holdings Ltd
Farmbuild Milk Company Ltd
Farmer Fred Ltd
Farming Tee Jay Ltd
Farnley Tyas (2018) Limited

Fast Track Dairies Ltd
Felgate Farm Limited
Ferguson Family Trust
Fernglade Farm Ltd
Fernhill Farms Koru Ltd
Firdale Farms Limited
Flag Farms Ltd
Flaxmill Dairy Ltd
Flaxwood South
Fleming Family Trust
Flett Pastures Limited
Fonic Farms Limited
Fonterra -Te Rapa Farm
Fonterra -Tui Farm
Foster Dairying Limited
Four Seasons Contracting
Four Seasons Farming Limited
Fowler Family Prosperity Trust
Freely Farms Ltd
Frisia Farm Trust
Fuller Dairy Limited
Funny Farm Waikato Limited
Fyvie Meadows Limited
G & A Parker
G & C Came Ltd
G & K Kingston Family Trust
G & P Russenberger
G & S Carran Family Trust
G A & J A Wright
G A & J M Hall Ltd
G A & K T Lynch
G A & V M Weir
G A W & M C Van Rossum
G B & D G Hodges Trust
G C & A M Williamson
G Cronin & G M Impey Limited
G D & P M Jackson
G E & V E Cooper
G E Sutherland Trust
G I Norgate
G K & D J Landon Family Trust
G K S Cows Ltd
G L & G D Love
G L & G F Bell
G M & A J Gower
G M & B M Gillard
G M & D L Yates
G R & B L Irwin
G R & D M Edge
G R & I Griffiths
G S & L J Rowe
G T Came Family Trust
G V & H P Wall Family Trust
Galloway Enterprises Ltd
GAPA Ltd
Garn Farms Ltd
Garstein Ltd
GC & JO Appleby Ltd
Gen Set Ltd
George Finch (Farmers) Ltd
George Scurr & Co Limited
GG Partnership
Gibson Pastoral Ltd
Giggs Farming Limited
Gill Farms Limited
Given Farming Limited
GJ & SP Carran Ltd
GJ Buhler Farms Trust
GJ Toner & Stacey Coward
GKS Farms Limited
GKW Farms Ltd
GL & SM Martin Ltd
Glasgarton Farm Ltd
Glen Eden Otago Ltd
Glen Rata Farm Partnership
Glendine Ltd
Glenmarie Dairies Ltd
Glenmore Farm
Glennevis Dairies Ltd

Glenrowan Trust
Glenspec Holdings Ltd
GM & AM Woolley
Golden Mile Farms Ltd
Gopperth Family Trust
Gordon Dale Farms (2006) Ltd
Goreland Partnership
Goud Milk Limited
Graceland Farm
Grant Allen Ltd
Grant Gargan Trust
Grantlea Dairy Ltd
Grassmere Dairy Farm Ltd
Grat Farms Ltd
Green Light Farming Limited
Green Pastures Dairy Ltd
Green Sky Dairies Limited
Greenbank Pastoral Ltd
Greenwell Farms Ltd
Greg Cowley Ltd
Greg Low Limited
Groundwater Holdings Ltd
H & C Underwood
H & K Farms Ltd
H & M by de Ley
H L & J E Wallace
H Q Partnership
H S Hancock
Hahn Trading Limited
Hall’s Enterprises Limited
Hamill Family Trust
Hamilton & Keene 
Sharemilking Ltd
Hamkee Dairies Limited
Hammens Limited
Hammond Limited
Hancock Farms Ltd
Hanging Rock Dairies Ltd
Hanson & Barnes Partnership
Harakeke Dairy Ltd Partnership
Hard Road Dairies
Hardwick-Smith Partners
Harrick Limited
Hartland Pastoral Limited
Hastings Farms Ltd
Hastings Group Ltd
Haurere Farms Ltd
Hawkes Pastoral Ltd
HBG Agri Ltd
Heartland Holdings (2008) Ltd
Hejlea Dairies Ltd
Henmar Trust
HG & RE McFarlane
Hikuai Pastures
Hillbrook Dairies Limited
Hillcrest Culverden Farming 
Limited
Hillpark Dairy
Hillview Trust
Hinemoa Dairying Ltd
HLM Partnership
HMW Farms Limited
Hoe-o-Tainui Farms Ltd
Hollands Farm Limited
Hoogeveen Farms Ltd
Hopcroft Farms Ltd
Horomanga Holdings Ltd
Horseclose Dairies Limited
Howell Farming Limited
HS & KM MacPhail
Huia Trust
Huirangi Valley Farms Limited
Huntersview Farm Ltd
Huntly Road Dairies Ltd
Hurunui Ltd Partnership
HWH Farming Ltd
Hwitan Tune Holdings Ltd
I & M Selak Ltd
I & T Megaw Partnership

I D & S D Read
I H & D J Bryant
I J Connor
I R & V E Wilcox
I T & M G Semmens
I W & K D Shearer Family Trust
Ian & Joyce Noble Limited
Ihenga Holdings
IM & RV Glenn Ltd
Incline Farm Ltd
Ingram Farming (2003) Limited
Instone Trust Partnership
Intensive Agriculture Ltd
Irving Family Trust
Ivy Plains Ltd
J & C Anderson
J & C Dairies Limited
J & C Paterson Trust
J & D Cullen Partnership
J & H Schuurmans
J & J Anderson Family 
Trust Partnership
J & LM Van Burgsteden
J & P S Malcolm
J A & A A Patino
J A & N J Anderson Partnership 
T/A Jonik Farming
J B & K A Lord
J B & L M Suisted Limited
J B Fleming Family Trust
J Buckley & D VanDenBeuken 
T/A Jaydee Partnership
J C & C A Rossiter
J C & P A Low Ltd
J C & V G Wells
J Duncan Farming Ltd
J E & A E Watson
J E & D M Cooper
J E & S G Pike Family Trust
J H & R Cotman
J Haultain & 
K McCartin Partnership
J L & L A G Adam
J L Hooper & A L Robertson
J L Murray & Sons Ltd
J L Vollebregt Limited
J M & K L Sneddon Partnership
J M & M R Foster
J M Mellow
J McKay & A Brown
J W & A M Steeghs
J W & M J Osborne
J W J & M K King
Jabulaan Limited
Jacob Abbott
James Brown
James Lyttle
Jamze Trust
Jascas Trust
Jaska Farm Trust
Jaunay Farms Ltd
JAVAN Cream Company Ltd
JB Mucca Farms Ltd
JBT Farming Limited
JCDAF Dairy Farms Ltd
JE & KL Gilbert
Jeremy Swain
Jetstream Farms Ltd
Jeyes Farming NZ Ltd
JL & NA Wolff Partnership
JM Cross & LA Hazelton
JM McLaughlin & JM 
McLaughlin Family 
Trust Partner
Joel & Jessica Brown
John Armstrong Family Trust
John Finlayson Ltd
Johnston Family Trust
Jojax Ltd
JOLO Grace Ltd

37

Fonterra Annual Report 2020

The Co-operative Difference

Honour Roll for On-farm Excellence

TE TIHI (Cont.) 

Jomar Farm Ltd
JP & AL Bourke Partnership
JR & L M Stevenson Ltd
Junior Turnbull Trust
Jusswodeva Limited
Just Holding Ltd
JW Pouls Limited
K & A Wilson Limited
K & LG Pickett Limited
K B Olesen & R J Stephens
K C & L M Berry
K D & T M Yates
K E & V J Bond
K G Reeve
K J & H Chalmers Ltd
K J & L F Christensen
K J Coe
K J Thompson & M Sataka
K R Vollebregt
K W & D M Blackstock
K W & D R Lowe Family Trust
K&M C Farms Limited
Kahika Farming Limited
Kaimai Dairy Ltd
Kaimara Trust No 3 & 4
Kaipara View Farming Limited
Kaiper Partnership
Kaitake Farms Trust
Kaiuma Reach Ltd
Kaiwhio Dairies 
Limited Partnership
Kakariki Valley Trust
Kanuka Syndicate Ltd
Kanuka Terrace Limited
Kathdan Trust Limited
Kauri Karaka Ltd
Kauri Moor Farms Limited
KC Cows Ltd
Keelinn Farms Limited
Kellydale Partnership
Kemra Farm Ltd
Kendre Farms Ltd
Kereru Trust T/A Kereru Dairies
Keritapu Farm Ltd
Kerr Road Dairies Limited
Kerr Road Dairies Ltd
Keswick Farm Dairies Limited
Kevin & Rhonda Belling Trust
Kevin Fleming Ltd
Kiekie Farms Ltd
Kilkenny Farm Ltd
Kilvarock Farming Company Ltd
Kingsden Dairies Ltd
Kingsway Farms Limited
Kinkora Farm Ltd
Kintore Farm Ltd
Kiwi X Farmers Ltd
KiwiDutch Dairies Ltd
KJ&HL Uhlenberg(Waitui) 
Fam Tr. P’Ship
KM & BM Muller
Knightlands Ltd
Knockinnon Farm Trust
Kohi Partnership
Kohique Farms Limited
Kokako Road Ltd
Kokoamo Farms Limited
Koning Limited
Konini Family Trust
Koroa Group Ltd
Kowalski Farms Ltd
Kowhai Bush Family Trust

38

Kowhai Farms Partnership
Kraakman Farms Ltd
Kreignook Trust
KTAC Farms Limited
Kuranui Farm Limited
Kywaybre Farms Ltd
L & A Verstappen
L & P Dairies Ltd
L & P Smets
L 2 B Lands Trust
L A Ruthe
L D & R M Barry
L J & S L Wallace
L J Bleakley
L J Hodges
L P & C L McClintock Limited
L S & K A Phipps
Lakeflats Limited
Lakeside Ayrshires Ltd
Landcorp Farming Ltd
Lanseair Limited
Lavender Dairies limited
Lavic Partnership
Law Family Farms Ltd
Le Emari Trust - Morven
Leningrad Farm Ltd
Lesdale Friesians Ltd
Letham Farms Ltd
Levett Farming Limited
Lillburn Valley Dairies Ltd
Lincoln University
Liquid Au Limited
Lismore Dairy Limited
Living Waters Dairy Ltd
Lizlyn Dairies Ltd
LJB Contracting Ltd
Lobblinn Farms Ltd
Lochlea Partnership
Lockerbie Farms 2001 Ltd
Lockinge Farms Ltd
Longacre Properties Limited
Lonmeck Dairy Limited
Looman Dairies Ltd
Loves Cows Limited
LP & CL McClintock Ltd
LR and SJ Hammond Limited
Lynbrook Farm Ltd
Lynburn Dairy Ltd
Lynwood Dairies Limited
M & A Hinricks
M & A Schrader Family Trust
M & C Brophy Family Trust
M & C Mogg Ltd
M & J Courage
M & J Cudmore Limited
M & L Wood Partnership
M & M Kidd Partnership
M & S Noord Contracting Ltd
M A & J F Doherty
M A & S M Zillwood
M A Watt Family Trust
M C & M Davey
M Carlson & Co Limited
M D & K L Deane
M D Hammond
M E G & D A Polyblank 
Family Trust
M G & A K Earl Partnership
M G & S A Hughes
M G and B J Deane Limited
M Gloyn
M H & D E Nater
M H Pastoral Limited
M I & P M Stevenson Family 
Trusts P/ship

M J & C Blagrove Ltd
M J & D R McFetridge
M J & M J Manley
M J & M Scarlett
M J & T M Davies
M J & T M Lord
M J & T R Schumacher
M K Gummer Farm Partnership
M M & L Baxter
M M Brophy Family Trust
M N & D Brown
M Nesbit & A Absalom
M P & V M J Joyce Trusts P/Ship
M R & F L Hines
M R & K J Luke Ltd
M R & W Rowe
M R Bennett
M S & H Hammond
M S & P M Davey
M T & A J O’Connor
M T & K J Taylor
Maandonks Farm Limited
Maandonks Pastoral
Mac Chap No.3 Limited
Macken Farm Ltd
Maco Dairying Ltd
Maerewhenua Investments 
Limited
Mahoe Trust
MAK Dairies Ltd
Maka Ltd
Maken Milk Ltd
Makowhai Trust
Manchester Dairy Limited
Mangahuia Farms (Hawera)
Mangaone Farms
Mangatoki Partnership
Mangawhiri Farms Ltd
Manuka Downs Farm Limited
Manuka Ridge Limited
Marchant Farms Trust
Mark & Nerida Dodge Ltd
Marua Partnership
Marusden Limited
Massey University Farms
Matai Trust
Matakuri Ltd
Matham Family Farm Ltd
Mathieson@Rongomai Limited
Matoka Farms Ltd
Matricksen Ag Holdings Ltd
Mavora Farms Ltd
Maxlands Farms Limited
Maybrooke Limited
MB O’Hearn Limited
MC Holland Farming Ltd
McCarty Farms Ltd
McCheesey Farming Limited
McClelland Dairies Ltd
McDonald Farming Limited
McGee Partnership
McHardy Farms Ltd
McKay Creek Farms Limited
McLachlan Farms Ltd
McLean Farms Limited
McLeod Farms Ltd
McMillan Finnigan Partnership
McNab Farms Limited
Meadowbank Farm 2017 Ltd
Mejeri Farms Ltd
Melrose Dairy Ltd
MERJ Investments Ltd
Merrybent Ltd
Merryfield Dairy Ltd
MESK Farming Partnership

Michael Clark Ltd
Mid Island Farms Ltd
Midfield Farm Ltd
Milk Power Ltd
Milkoad Limited
Milkwell Ltd
Millar Farm Ltd
Milldale Farm No 2 Limited
Mills Farms Ltd
Millydale Pastures Ltd
Minus 1 Ltd
Minus 1 Trust
Miroc Limited
Mitchells Milky Way Limited
MJ & CD Beattie
MJ & KL Family Trust
Molehill Farm Ltd
Moneymore Dairies Ltd
Monte Vista Farms
Montland Limited
Moo2U Ltd
Mooi Dairies Ltd
Moolah (2014) Limited
Moorbyvale Farm Ltd
Morana Farms Ltd
Morelands Pastoral Ltd
Morris Ag Ltd
Morrison Farms Limited
Morrow Holdings 2018 Limited
Mosa Farming Ltd
Motu Lodge Stud Ltd
Mount View Trust
MR & TJ Frost Ltd
Mt Winchmore Farm Limited
Mu Kau Ltd
Muir Dairies Limited
Mulbuk Farm Limited
Mullerwhero Farming Ltd
Mullford Trust Partnership
Murdock Investments Ltd
Murphy Farms Limited
Murrayfield Dairy Limited
Mutu Trust
MW & KA Olsen
N A & J J Higgins
N C & J A Kelly
N C & N Ruygrok
N D & A J Rout
N G & B D Simmons
N J & C T Kane
N J & M Bleakley
N J & W A Vollebregt
N J N Ormsby & T J Connellan
N K & A M Fox
N P Tull & N A Shelley
N R & A H Berry
N R & L A Fox
Nadash Partners
Newton Farms Limited
Ngahape Valley Farm Ltd
Nicholls Family Trust
Nicholson O’Rourke Ltd
Nithesdale Ltd
Nomad Services Ltd
NP Van Straalen Family 
Trusts Partnership
NR Ensor Limited
NS Farms Limited
NT Lee & A Spethmann
NYMIC Dairies Limited
NZSF Canterbury Farms 
Limited - The Forks
Oak Valley Farm
Oaks Dairy Limited
Oasis Farm Ltd

Oberwil Farms Ltd
O’Connor Rural Limted
Ohoka Meadows Limited
Ohtawa Farms Ltd
Oliver K Limited
Onstream Dairies Ltd
Oporo Farms Ltd
Orchard East Limited
Orini Downs Station Limited
Orongo Meadows Ltd
Orton Downs Farm Partnership
Orwell Dairies Limited
Otaitai Dairys Trust
OTO Trust
Our Dairy Farm Limited
Owhango Farms Limited
Oxford Farming Limited
P & A Farming Ltd
P & C Farming Ltd
P & J Dickson
P & J Jamieson Family Trusts
P & S Bryan Limited
P A & J E Taylor
P A Hoogeveen
P B & E J Chick
P C & R A Grey
P D & S S Sharpe
P D & S Wykes Family Trust
P F & H S Sturt
P G & D M Dombroski
P G & M A Cashmere
P H & C K Partnership
P H J & M A Brown
P H S & P C Byford
P Hall & C M Duignan-Hall
P J & R E Roberts Family Trusts
P J & T L Walsh Family Trusts
P Jones Family Trust
P L & R E Berryman
P N & D L Waite Family Trust
P R & R F Mossman
P S & B K Rai
P S & H J Wilson
P T & R D Williams Family Trust
P T & V M Youngman
P V & P G Mullin Trust
P V & V L Risi
P W & N J Bavin
Pacey Farming Ltd
Paengaroa North B10A Trust
Pahau Dairy Ltd
Pahtuna Farms Ltd
Palmdale Farms Ltd
Papawai Dairies Ltd
Paramount Dairies Limited
Parkhill Farms Ltd
Pastoral Holdings Ltd
Paterson AG Services Ltd
Paton Trading Company Ltd
Patterson Farming Limited
Paul Clausen Limited
Peel View Ltd
Pekanga o te awa Farms Ltd
Penrith Trust
Peter Reeve
Peter Templeton
Petfield Farming Ltd
Pheasantridge Ltd
Phimister Farming Limited
Piako (Middle Farm) Limited
Pikowai Transport Ltd
Pinefields Ltd
Pineridge Partnership
Piriaka Farms Ltd - M & C Ferris

Pirie Farms Limited
Piriti Dairies Limited
PJ Hilhorst Ltd
PJ Mayall Limited
PKW Farms LP
Placement Services Limited
Platinum Dairies Ltd
Platinum Farming Ltd
PN & DA Botica Limited
Poc Ar Buille Limited
Pohuenui River Limited
Poldrissick Farms Ltd
Port Molyneux Dairies Limited
Praire Farm Ltd
Price Trusts Partnership
Prima Farms Ltd
Progressive Dairies Ltd
Puketi Farming Enterprises Ltd
Purdy Farm Ltd
Pynewood Farm Ltd
Quatre Farming Company Ltd
R & A Tait T/A Black 
Cow Dairies
R & L Dunn Partnership
R & L J Simms
R & S Singh
R A & J L Hamilton
R B & S M Grant 
Farming Limited
R B Duncan
R B Gooding Investments Ltd
R C & K M Ormsby
R F & C L Lansdaal Ltd
R F & D M Sowerby
R G King Ltd
R J & C A Stevenson
R J & J R Thomas
R J & V M Bourke Trusts
R J & Y L Le Fleming
R L & F M Hurley
R L & H J Colson Trust
R M & S A Grayling
R M O’Sullivan & P J Jones
R N & D P Bridgeman
R P & M G Frank
R P Hunter & 
S G Wallace Partnership
R S & R D Gordon
R V & M M Martelli
R W & F W Muller Trust
R W & R D Kane
Rai Farm Limited
Rainbowcreek Farms Limited
Rakaia Dairy Ltd 
T/A Railside Dairy
Rakaia Island Limited
Ranginui Station 
Limited Partnership
Rangitata Island Dairy 
Partnership Ltd
Raukapuka Farm Ltd
Ravelston Farm Limited
RD & MA Wilson Limited
RD & TS Buchanan Ltd
Reaymore Farming Limited
Red Cow Farms Ltd
Red Dragon Systems Limited
Redpark Farm Limited
Redwood Farm Trust
Reed & Arden Farms Limited
Reith Dairy Ltd
Reuver Limited
Rhodes Farming Partnership
Ribbonwood Dairy Ltd
Richview Limited
Ridgedale Limited
Risi Farms Limited
River Heights Limited
Riverhill Farming Limited
Riverside Dairy Farm Ltd

Riverview Oaks Limited
RJ & MMJ Gardner Family 
Trusts Pnship
RJ & NA Meade
RJ Dairies 2018 Ltd
RK & A Hines Limited
RKBS Horne Ltd
RM &AD Singgo
RMH Dairy Limited
Roaring View Farms Limited
Robinson Farming Ltd
Rockburn Dairy Ltd
Rockford Holdings 2015 Ltd
Rockwood Kaikoura Ltd
Rocky Farms Joint Venture Ltd
Rocky Point Enterprises Ltd
Rodgers Farms Limited
Rodney G & S J Joblin
Rolfe Farms Limited
Rooney Farms Limited
Rose Farm Ltd
Rosebrae Farm Ltd
Rossco Farming Ltd
Rosser Holdings Ltd
Roswin Farm Limited
Roto Farms Ltd
Rotongata Dairies Ltd
Rout Dairies Limited
Ruakiwi Dairies Limited
Ruapeka Farms Ltd
Rukuhia Farm Ltd
Rukuhia Holdings Ltd
Ruthe Farms Ltd
RVS Farming Ltd
Ryelands Farm Company Ltd
RYEM Partnership
S & G Chick
S & G Muggeridge
S & K Garland Ltd
S & K Phillips
S & R Partnership Ltd
S & R Pastoral Ltd
S A & J M Roberts
S B & Y M Thompson
S England & P Walker
S G & B L Thirkell
S Huta & T Tawhiao Partnership
S J & L M Colson
S J & M R Dravitzki
S J Bruce Family Trust
S L & M P L Fergusson
S M & S A Field
S M Duynhoven & 
Estate of JB Duynhoven
S M Muller & N K Buckthought
S M Shead
S Petterson Family Trust
S Richards & L Coetzee
S W & F M Settle
Sailing Away Family Trust
Sandbrook Farm Ltd
Sanford Farming 
at Paradise Trust
Sangro Farm Limited
Sani Farms Limited
Sanson Farms
Sarwan Singh Farms Limited
SBR Livestock Limited
Scarlett-Brown Partnership
Schayes Enterprises Ltd
Schorn Trust
Schouten & Reneti Farms Ltd
Scott Evans 
Sharemilking Limited
Sea Breeze Farms
Seagrove Farms Ltd
Seamist Dairies Ltd
Searle Dairy Farming Ltd
Seath Limited
Semmens Holdings Limited

Seven Mile Dairy Limited
Seven of Nine Ltd
Sfarmer Partnership Limited
SG & A Donovan Ltd
Shaan Gopperth Trust
Shawlink Ltd
Sherwood Farming Co Limited
Silverbank Enterprises Limited
Silverdene Farms (2000) Ltd
Sim Brothers Ltd
Sim Family Farms Ltd
Sisley Farms Ltd
Six O Farms
SJ Bond & DJ Phillips
SJ Pastures Limited
SK Holdings (2017) Limited
Smiling Dairies Limited
Smith Enterprises Limited
Snaplulu Ltd
Snow View Dairy Ltd
South Dairy Limited
South Two Chain Limited
Southern Meadows 2011 Ltd
Southern Pastures (Tatua Farm) 
Ltd Partnership
Spark Brothers Ltd
Spring Peak Ltd
Springdale Farms Trust
St Andrews Dairy Ltd
Staple Homestead Limited
Steeghs Limited
Steward Dairy Ltd
Stichbury Farms Limited
Stitcho Ltd
Stone Country Dairies Ltd
Stoney River Farm Ltd
Stonyglen Dairies Ltd
Stornaway Farm Ltd
Stralough Ltd
Streamline Limited Partnership
Stromness Group Ltd
Summerglow Dairies Limited
Swim Farms Ltd
Sybton Farm Limited 
Partnership
T and M Wrigley Ltd
T I & J K Bishop Family Trust
T M Mcdowall
T M Rawson & Est D B Palmer
T P & R D Trail
T P & R Sneddon
T P Payton
T S Curtis
T W & G Y Sneddon
Taikatu Plains Limited
Tainui Group Holdings Limited
Takapau Trust
Tanner Dairies Trust
Taradise Farm
Taralea Farms Ltd
Taramea South Ltd
Taranga Town Supply
Tauhara North Farming & Co LP
Tauhei Farms Ltd
Tawa Ridge Farms Ltd
Tayco Farm Limited
Te Awa Farms Limited
Te Pohutukawa Farm Limited
Te Repo Farms Ltd
Te Tua Farm Ltd
Te Whanake Enterprises Ltd
Te Whanake Joint Venture
Te Whenua O Matata Limited
Tennant Farms Ltd
Ternstone Ltd
Terrace Top Dairy Ltd
The 7C’s Limited
The Bush Trust
The D & A Roberts Family Trust

The Flavall Trust
The Grange Ltd
The Harkaway Trust
The Hendriks Family Trust
The Herewahine Trust
The Proprietors of 
Rakaia Incorporation
The Vaughan Family Trust
Theland Tahi Farm 
Group Limited
Thomas Family Farming Ltd
Thorp Dairying Ltd
Three Daughters (2018) Ltd
Three Springs Dairies Ltd
Tierracrece Ltd
Tihiroa Dairies Ltd Partnership
Tihiroa Farms Ltd
Tilbrook Farm Trust
Timata Farming Company Ltd
Tiptree Limited
Tiro Roa Ltd
Tiroroa Farms Limited
TK & MG Wright
TL & NL Bryant Holdings Ltd
TL & SL Taylor Ltd
TN & GL Gray Ltd
TNN Holdings Ltd
Tobruk Farms Ltd
Todd Agri Ltd
Todd Bavin
Tokerau A5 Incorporation
Tokoroa Pastoral Ltd
Top Grass Farm Limited
Torran Moor Ltd
Totara Park Farms Limited
Totoro Dairy Limited
TP & TL Siffleet
Trec Trust
Tremewan Agriculture Limited
Trevanion Farms Limited
True Blue Trusts
Tubs Agri Ltd
Tui Company Limited
Tui Glen Nikau Farm Limited
Tunaview Trust Partnership
Turnbull Family Trust
Turney Farms Limited
Turney Farms Ltd - 2
Tutukau East Z Trust
Twenty Forty Farms Ltd
Two Name Farming Limited
Underwood Enterprises Ltd
V & J Ralph Ltd
V A & J J Nicholls
V B Durham Farm Limited
V J & C E Stevenson
V T & S J Brophy
Vale Green Services Limited
Valley Road Farm Ltd
Valverde Enterprises Limited
Van Der Heyden Farms Ltd
Van Vugt Brothers Limited
Vat Farming Ltd
VBI Ltd
Ventsha Farms Ltd
Vos Farms Ltd
W & K Rolton
W & L Harwood (Golden Acres)
W E & T L Kowalski
W H Lynn
W J & A F Bridson
W J & J G Pile Family Trust
W J & V M Donald
W J A & L J West
W M & K B Bolt
W M & S M Riepen
W M & S R Fisher
W R & D J Little
W T J Waetford & 
H M Wallace Ptnshp

W W Olsen
W&N Hamers Partnership
W.A & H.R Simpson 
Farming Ltd
Waiari Dairies Ltd Partnership
Waihapa Trusts Partnership
Waikatland
Waikirikiri Farm Partners LP
Waimak Dairies Limited
Waimanu Dairy Ltd
Waimarama Farming Ltd
Waimarie Pastoral Ltd
Waimatuku Dairies Ltd
Wainui Dairies
Waionehu Farm Ltd
Waiotu Farms Ltd
Waiparu Farm Ltd
Waiparu Holdings Limited
Waipiata Trust
Wairakau Farm Trust
Waireka Dairy Farms Ltd
Waitanui Dairy Farm Ltd 
Partnership
Waituna Investments Ltd
Waiwhakaata Trust
Waiwira Holdings Ltd
Wallace Johnstone Ltd
Walsh Enterprises Limited
Walter Gold Ltd
Walton Park Farm Limited
Wangapeka Holdings Limited
Wardville Dairies Limited
Warnock Park Ltd
Watershed Ventures Ltd
Waterstone Farm Limited
Wattle Downs Ltd
WBF Limited
WE & TS Greene Partnership
Wekanui Farming Ltd
Wekanui Farming Ltd (No. 2)
Welsh Family Farms Limited
Wendon Dairies Ltd
Westmorland Estate Ltd
Westridge Farm Ltd
Whakahora Farm Ltd
Whakatohea Maori Trust Board
Wheyland Farms Limited
White Gold Enterprise Limited
White Gold Ltd
White Stone Holdings Limited
Whitefield Partnership
Wide Farms Ltd
Wilgul Reds
Willcox Farms Ltd
Willmor Pastures Ltd
Willowbank Farms 2015 Ltd.
Willowfields Ltd
Wilriskit Limited
Windy Ridge Dairy 
Farm Limited
Wiremu Trusts
Wolff Farms Ltd
Wonderland Pastures Ltd
Woodheys Farm Limited
Woody’s Charters Limited
WP & A Moore
Wyatt Farming (2017) Ltd
Wyllies Farm Partnership
Wyndarra Farm Ltd
Wynyard Family Trust
Y Wuri Trust
Y.O.T. Farms Ltd
Yaxleys Yard Ltd
Yellow View Trust
Yeroc Farm Trust
YTT Farms Ltd
Yuretich Ltd
Zarden Ltd
Zug Farms Limited
(cid:580)

39

F(cid:82)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:68)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Healthy 
Business

Reported profit after tax

Up $1.3 billion

Normalised profit after tax1

Up 44%

$659m 

$382m 

24 cents per share

Return on Capital

Up from 5.8%

Debt reduction2

6.7%    

$1.1 bn

1  Attributable to equity holders of the Co-operative.
2  Economic net interest-bearing debt.

(cid:49)(cid:195)(cid:3)(cid:87)(cid:271)(cid:3)(cid:85)(cid:82)(cid:88)(cid:85)(cid:82)(cid:88)(cid:15)(cid:3)(cid:81)(cid:195)(cid:3)(cid:87)(cid:68)(cid:78)(cid:88)(cid:3)(cid:85)(cid:82)(cid:88)(cid:85)(cid:82)(cid:88)(cid:3)(cid:78)(cid:68)(cid:3)(cid:82)(cid:85)(cid:68)(cid:3)(cid:68)(cid:76)(cid:3)(cid:87)(cid:72)(cid:3)(cid:76)(cid:90)(cid:76)(cid:17)

With your contribution and my contribution, 
we’ll all thrive together.

W e are working together 

to deliver a sustainable 
business.

Through science and innovation we 
can respond to people’s changing 
needs, attitudes and lifestyles to 
deliver a strong and stable payout 
to our farmers and a good return on 
capital for our investors. It’s all part of 
ensuring our Co-operative is here for 
generations to come.

40

41

Fonterra Annual Report 2020

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(cid:50)(cid:88)(cid:85)(cid:3)(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)

Group 
Financial Metrics

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(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:87)(cid:85)(cid:76)(cid:70)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:41)(cid:82)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:68)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)
(cid:68)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:17)

New Zealand Milk Collection 
kgMS (millions)

Normalised Gross Profit ($ millions)4

1,566

3,641

3,246

3,152

3,008

3,208

1,526

1,505

1,523

1,517

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

Sales Volume MT (’000s millions)1,4

Normalised OPEX ($ millions)4

Consumer and Foodservice

Ingredients

4,313

4,180

4,123

4,152

4,069

2,509

2,496

Reported Profit after Tax ($ millions)2,4

834

745

659

-196

2016

2017

2018

-610

2019

2020

Leverage

Gearing Ratio (%)

Debt to EBITDA

44.3

44.3

3.2x

3.8x

48.4

48.5

4.6x

4.4x

41.4

3.4x

2016

2017

2018

2019

2020

Normalised Profit after Tax ($ millions)4,6

Free Cash Flow ($ millions)

789

781

2,184

382

382

264

1,828

1,095

670

600

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

CAPEX ($ millions)3

944

851

861

Dividend Yield and Normalised EPS4

600

419

49

49

7.3%

6.7%

24

16

1.7%

0.0%

24

1.3%

1,800

1,773

1,765

1,602

1,564

2,335

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

2,282

2,268

3,074

2016

3,019

2017

2,986

2018

3,149

2019

3,055

2020

2016

2017

2018

2019

2020

Normalised Revenue ($ millions)4

Normalised EBIT ($ millions)4

Working Capital Days

83

83

85

77

75

Return on Capital 
(including intangibles and EAI)5

9.2%

8.3%

6.3%

5.8%

6.7%

19,214

17,199

20,431

19,920

20,975

1,358

1,155

902

812

879

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

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(cid:23)(cid:21)

2016

2017

2018

2019

2020

2016

2017

2018

2019

2020

Includes non-controlling interests.

1  Does not add to total due to inter-group eliminations. Consumer and Foodservice and Ingredients exclude Discontinued Operations.
2 
3  Capital expenditure comprises purchases of property, plant and equipment and intangible assets, net purchases of livestock, and includes Discontinued Operations.
4  FY19 has been restated. Refer to Note 28 in the FY20 Financial Statements.
5  Capital employed is calculated as the average for the period of: net assets excluding net interest-bearing debt and deferred tax balances, and including brands, 

goodwill and equity accounted investments (EAI).

6  Normalised profit after tax attributable to equity holders of the Co-operative.

43

Fonterra Annual Report 2020

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W e exceeded our financial targets 

for the year. Our reported profit 
after tax was $659 million, 

up $1.3 billion over last year. We significantly 
reduced our economic net interest-bearing 
debt, down $1.1 billion, improved our cash 
flow, and recommenced dividends. 

Group Overview

HOW FONTERRA IS MAKING THIS HAPPEN 

We are working together to deliver a sustainable business.

TO DO THIS WE WILL

Support healthy, sustainable livelihoods for our farmers by returning the most value from 
every drop of milk.

Build a strong co-operative by ensuring our business, including investments, delivers long-
term value.

Meet the changing needs of customers and consumers by leveraging our unique strengths 
and innovating to create sustainable value for them and us.

EXCEEDED OUR 2020 FINANCIAL TARGETS

Debt to EBITDA

3.4 x

Better than our target of 
no more than 3.75x

Total Group capital expenditure

$419m

Better than our target of 
no more than $500 million

Total Group normalised gross profit

Normalised EPS

$3.2 bn

Better than our target of 
in excess of $3 billion

24 cents

Top end of 15-25 cents per share 
earnings guidance range

To provide a complete view of our 
performance for the 2020 financial year, 
the Total Group figures presented in this 
Group Overview section are inclusive 
of both Continuing and Discontinued 
Operations. During the 2020 financial year we 
implemented a new customer-led operating 
model. However, the following business 
performance section has been prepared on 
the same basis as previous communications 
to allow for better comparability.

Our Total Group EBIT was $1,147 million 

for the 2020 financial year, an increase of 
$1,164 million compared to last year. This 
included a net amount of $268 million from 
items relating to the asset portfolio review 
and from other normalisations. Taking out 
the normalised items to provide a better 
comparative view of earnings, our Total Group 
normalised EBIT was $879 million, an increase 
of $67 million compared to the prior year. 
Improved performance from Ingredients and 
Foodservice contributed to this increase.
Our Foodservice business had a 

significantly improved first half of the 
year, in particular in Greater China, but 
this was partially offset by the disruption 
of Covid-19 during the second half. Our 
Ingredients’ earnings were down for the 
first six months relative to the prior year. 
However, the second half of the year 
benefited from favourable product price 
movements and our offshore Ingredients 
businesses benefited from continued 
implementation of cost efficiencies.
Our Consumer normalised EBIT 

was down compared to the prior year. 
This decrease was mainly due to business 
disruptions in Hong Kong and Chile 
plus $57 million of costs that relate to 
impairments of our Chesdale™ brand 
value and goodwill in our New Zealand 
Consumer business. 

We have reduced our economic net 
interest-bearing debt by $1.1 billion and our 
ratio of Debt to EBITDA from 4.4 times to 
3.4 times. We have achieved this through 
improved business performance, continued 
financial discipline and the divestment 
of non-core assets. In the first half of the 
2020 financial year we completed the 
sale of DFE Pharma and foodspring® and 
received cash proceeds of $623 million. 

The divestments have also resulted in a gain 
on sale of $467 million. Our Free Cash Flow 
has improved by $733 million to $1.8 billion.
We have maintained our focus on 
strong financial discipline. In addition to 
reducing Debt, our Total Group normalised 
operating expenses were down from 
$2,282 million to $2,268 million. Total 
Group capital expenditure for the year was 
$419 million, $181 million down on last year 
and $81 million under our target of no more 
than $500 million for the year.

We continue to make progress on 

implementing our portfolio review. The sales 
processes are continuing for the Fonterra-
owned China Farms and our interest in 
DPA Brazil. 

Based on the additional information and 
further insights we have gained through the 
sales process and strategic reviews for the 
Fonterra-owned China Farms and DPA Brazil, 
we have reduced the valuation of these two 
assets and the China Farming joint venture 
by a total of $232 million.

The proposed divestments of our 

Fonterra-owned China Farms and DPA Brazil 
have impacted how the financial statements 
are presented. The sales processes for these 

businesses are at the point that they meet the 
accounting requirements to be classified as 
‘held for sale’ on the Statement of Financial 
Position, on the basis that a sale is considered 
highly probable. Furthermore, because 
both businesses are considered to be major 
businesses in one of our segments and/or 
geographical regions, their results are classified 
as ‘Discontinued Operations’ within the Income 
Statement. The segment note within our 
financial statements excludes these businesses, 
and therefore reflects the Group’s Continuing 
Operations only. Therefore, the business 
segments in the following pages reflect only the 
Continuing Operations with further detail on 
page 62 on the performance of our Fonterra-
owned China Farms. 

The normalised EBIT of our businesses 

classified as Discontinued Operations 
improved from a loss to a profit of $32 million.

Reported profit after tax 

Up $1.3 billion

$659m 

Total Group normalised gross profit 

Up $200 million

$3,208m  

BREAKDOWN OF TOTAL GROUP PERFORMANCE

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(cid:38)(cid:50)(cid:49)(cid:55)(cid:44)(cid:49)(cid:56)(cid:44)(cid:49)(cid:42)(cid:3)
(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)1

(cid:39)(cid:44)(cid:54)(cid:38)(cid:50)(cid:49)(cid:55)(cid:44)(cid:49)(cid:56)(cid:40)(cid:39)(cid:3)
(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)1

(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)
(cid:42)(cid:53)(cid:50)(cid:56)(cid:51)

(cid:38)(cid:50)(cid:49)(cid:55)(cid:44)(cid:49)(cid:56)(cid:44)(cid:49)(cid:42)(cid:3)
(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)1

(cid:39)(cid:44)(cid:54)(cid:38)(cid:50)(cid:49)(cid:55)(cid:44)(cid:49)(cid:56)(cid:40)(cid:39)
(cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:50)(cid:49)(cid:54)1

(cid:55)(cid:50)(cid:55)(cid:36)(cid:47)(cid:3)
(cid:42)(cid:53)(cid:50)(cid:56)(cid:51)

Volume (‘000 MT)

Revenue

3,938

19,255

214

665

4,152

19,920

3,842

20,282

227

693

4,069

20,975

Cost of goods sold

(16,349)

(563)

(16,912)

(17,236)

(531)

(17,767)

Gross profit

Operating expense

Other2 

Normalised EBIT

Normalisations3

EBIT

2,906

(2,143)

70

833

(483)

350

102

3,008

(139)

(2,282)

16

(21)

(346)

(367)

86

812

(829)

(17)

Gross margin

15.1%

15.3%

15.1%

3,046

(2,139)

(60)

847

435

1,282

15.0%

162

3,208

(129)

(2,268)

(1)

32

(167)

(135)

(61)

879

268

1,147

23.4% 15.3%

1  Refer to Note 1a and 2c of the FY20 Financial Statements.
2  Consists of other operating income and expenses, which include net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.

3  Refer to the Non-GAAP Measures section in the FY20 Annual Statements.

44

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Fonterra Annual Report 2020

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Our reported profit after tax was $659 million, up $1,269 million compared to last year. 
After adjusting for non-controlling interests, this represents a reported earnings per share of 
43 cents. Our normalised profit after tax attributable to equity holders of the Co-operative 
was $382 million, an increase of $118 million over the same period last year, which represents 
normalised earnings per share of 24 cents.

Our financial performance has improved – earnings have increased, cash flow has improved 

and leverage has reduced. As a result, the Board has confirmed a 5-cent dividend.

TOTAL GROUP PERFORMANCE1

EBIT 

Net finance costs

Tax Expense

Reported profit/(loss) after tax

Less: Loss attributable to non-controlling 
interest

Reported profit/(loss) attributable to equity 
holders of the Co-operative

Reported earnings per share (cents)

Normalisation adjustments4

Normalised profit after tax attributable to equity 
holders of the Co-operative

Normalised earnings per share (cents)

Dividend per share (cents)

Return on Capital5

Debt to EBITDA6

Gearing ratio7

Free Cash Flow (NZD Million)8

Capital expenditure (NZD Million)9

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31 JULY 2020

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(17)

(418)

(175)

(610)

(48)

(562)

(35)

826

264

16

–

5.8%

4.4x

48.5%

1,095

(600)

1,147

(332)

(156)

659

(27)

686

43

(304)

382

24

5

6.7%

3.4x

41.4%

1,828

(419)

–

21%

11%

–

45%

–

–

–

44%

44%

–

–

–

67%

30%

Includes Continuing and Discontinued Operations.

1 
2  FY19 has been restated. Refer to Note 28 in the FY20 Financial Statements.
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

4  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
5  Return on Capital is calculated as normalised EBIT less a notional tax charge, divided by capital employed including brands, 

goodwill and equity-accounted investments.

6  Debt to EBITDA is calculated as total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance of 

75% of cash and cash equivalents, divided by normalised earnings before interest, tax, depreciation and amortisation (normalised 
EBITDA) excluding share of loss/profit of equity accounted investees and net foreign exchange losses/gains. Both Debt and 
EBITDA are adjusted to include amounts relating to businesses classified as held for sale and Discontinued Operations. Prior years 
restated to align with credit rating methodology.

7  Gearing ratio is economic net interest bearing debt divided by total capital. Total capital is equity excluding the hedge reserves, 

plus economic net interest bearing Debt. It excludes the borrowings attributed to Discontinued Operations.

8  Free Cash Flow is the total of net cash flows from operating activities and net cash flows from investing activities and includes 

proceeds from asset divestments.

9  Capital expenditure comprises purchases of property, plant and equipment and intangible assets, net purchases of livestock, and 

includes Discontinued Operations.

Our Total Group sales volumes were down 2% 
to 4.07 million MT. This was mainly due to a 
small decrease in volume in our Ingredients 
business. Our Total Group sales revenue 
increased by 5% or $1.1 billion to $21 billion, 
mainly due to improved Ingredients pricing 
and the product mix we sold. Our Greater 
China Foodservice business also contributed 
an additional $166 million in revenue despite 
the disruption of Covid-19. 

Our Total Group normalised gross margin 

increased from 15.1% last year to 15.3%, 
predominantly due to improved pricing in 
our Ingredients business, an improvement 
in our Greater China Foodservice business’ 
margins, and improved performance of the 
discontinued businesses.

Total Group normalised gross profit 

increased by 7%, or $200 million, to 
$3,208 million driven by improved gross 
margins in the Ingredients and Foodservice 
businesses. Ingredients’ normalised gross 
profit increased by $165 million due to the 
improved pricing across all of our Ingredients 
businesses – New Zealand, Australia 
and Prolesur in Chile. Our Greater China 
Foodservice normalised gross profit increased 
by $62 million to $259 million, mainly due to 
a recovery in butter sales and margins as well 
as selling more products with higher gross 
margins, such as Anchor Food Professionals™, 
whipping cream and Anchor Food 
Professionals™ cream cheese. Overall, our 
total Foodservice normalised gross profit was 
up $17 million, with Greater China’s improved 
performance being partially offset by the 
other regions’ performances being impacted 
by Covid-19 in the fourth quarter.

Our normalised gross profit for our 
Consumer business was down $77 million to 
$1,001 million, predominantly due to the sale 
of Tip Top and our Venezuelan business during 
the 2019 financial year. When we adjust for 
these divestments and take them out of our 
2019 financial performance for comparative 
purposes, our Consumer normalised gross 
profit reduced to $28 million and this was 
mainly due to the disruption of sales from 
the civil unrest in Hong Kong and Chile 
during the year. 

Debt reduction

Free Cash Flow

Up $733 million

Debt to EBITDA 

3.4x

Improved

from 4.4x

During the year we shifted to a new customer-
led operating model. Our new operating 
model reflects our new strategy and has 
resulted in three regional customer-facing 
businesses: APAC, Greater China and AMENA. 
Our commentary in this section reflects 

our previous operating model, which centered 
around our Global Ingredients and Consumer 
and Foodservice businesses. This approach is 
consistent with how we have communicated 
the performance of the business during the 
2020 financial year and also allows for better 
comparability with prior year commentary.

We intend to provide commentary based 

on the new operating model for the 2021 
financial year and onwards.

To provide greater transparency of 
the performance of our Consumer and 
Foodservice business, we have provided an 
overview of the individual performance of 
Consumer and Foodservice separately. 

$1.1 bn

$1,828m  

The businesses classified as Discontinued 
Operations and not included in our reported 
segments, China Farms and DPA Brazil, had a 
total normalised gross profit improvement of 
$60 million to $162 million.

Overall, our Total Group normalised 

operating expenses have decreased 
$14 million, or 1%, to $2,268 million, 
and this reflects our continued focus on 
strong financial discipline, particularly as 
the comparative numbers in the previous 
financial year benefited from not paying 
employee performance incentives. Our 
Foodservice and Consumer businesses 
reduced operating expenses by 3% and 
9%, respectively. Australia Ingredients and 
Prolesur also reduced operating expenses 
from a continued focus on cost efficiencies. 
These improvements were partially offset 
by an increase in New Zealand Ingredients’ 
operating expenses, which increased our 
total Ingredients’ operating expenses by 3% 
relative to the prior year, mainly due to 2019 
financial year benefiting from not paying 
employee performance incentives. 

Our improved gross profit in Ingredients, 

Foodservice and our businesses classified as 
Discontinued Operations, combined with a 
small reduction in our operating expenses 
resulted in our Total Group normalised 
EBIT increasing $67 million to $879 million 
compared to the prior year.

Strong financial discipline continues to 
be a priority. In the financial year this resulted 
in improved cash flows and lower leverage. 
Our Free Cash Flow, being the cash flow 
that is available to pay interest and dividends 
and to reduce economic net interest-
bearing debt, increased by $733 million to 
$1,828 million. We achieved this significant 
increase through improved earnings, lower 

capital expenditure, the sale proceeds from 
divesting DFE Pharma and foodspring® 
and reducing our Beingmate shareholding. 
Our Total Group Capital expenditure of 
$419 million this year was $181 million 
lower than last year.

As at 31 July 2020, our economic net 

interest-bearing debt was $4.7 billion, 
down $1.1 billion on the same period last 
year, and we have improved our gearing ratio 
to 41.4% from 48.5%. This measure of Debt 
includes the capitalised amount of operating 
leases following changes to the accounting 
standard, and transitioning to this new 
accounting standard added $581 million to 
our measurement of Debt. This was partially 
offset by the transfer from economic net 
interest-bearing debt to disposal groups held 
for sale of $266 million relating to DPA Brazil 
and China Farms, as a result of being classified 
as Discontinued Operations. We decreased 
our Total Group net finance costs 21% from 
the prior year due to lower average Debt and 
lower interest rates.

Our working capital days increased 

from 83 to 85 days. Our receivables days 
decreased as a result of more sales to 
customers on shorter payment terms as we 
prudently manage receivables in the current 
environment, but this improvement was offset 
by reduced payables days reflecting the lower 
payables associated with the reduction in 
capital expenditure.

Our main measure of leverage is the 
ratio Debt to EBITDA, where the measure 
is adjusted to include amounts relating 
to businesses classified as Discontinued 
Operations. This leverage measure improved 
from 4.4 times to 3.4 times and reflected the 
combination of increased earnings and less 
economic net interest-bearing debt.

46

47

 
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Fonterra Annual Report 2020

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INGREDIENTS PERFORMANCE1,2

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Volume (‘000 MT)

Sales revenue

Cost of goods sold

Gross profit

Operating expense

Other5 

Normalised EBIT

Gross margin

Discontinued Operations EBIT6

3,149

16,291

3,055

17,365

(14,845)

(15,754)

1,446

(762)

106

790

8.9%

(14)

1,611

(782)

(2)

827

9.3%

–

(3)%

7%

(6)%

11%

(3)%

–

5%

–

–

1  FY20 Ingredients performance represents Continuing Operations. It excludes any performance derived from the Fonterra-owned 
China Farms. China Farms is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.
Includes sales to other strategic platforms.

2 
3  Refer to the Non-GAAP Measures section in the Annual Report.
4  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

5  Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.

6  Represents losses from selling China Farms milk. China Farms is classified as a Discontinued Operations and is presented 

separately in the Discontinued Operations section.

Total Ingredients’ gross margin increased from 8.9% to 9.3%, due to favourable product mix and 
pricing in the second half of the financial year. This led to our Ingredients’ normalised gross profit 
increasing $165 million to $1,611 million, with all three businesses, New Zealand Ingredients, 
Australia Ingredients and Prolesur, contributing to this increase.

Australia Ingredients and Prolesur reduced their operating expenses through improved cost 
efficiencies but Total Ingredients’ normalised operating expenses increased 3% to $782 million 
due to an increase in New Zealand Ingredients’ operating expenses as the prior year benefited 
from not incurring employee performance incentives.

Ingredients’ other income was down on the prior year, with last year’s performance including 

earnings of $44 million from the divested business DFE Pharma.

INGREDIENTS GROSS PROFIT PERFORMANCE1

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31 JULY 2020

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New Zealand

Reference products

Non-reference products

Other 

New Zealand Ingredients

Australia Ingredients

Other

Total Ingredients

1  Represents Continuing Operations.

626 

701 

24

648 

727 

107

1,351

1,482

10

85

31

98

1,446

1,611

4%

4%

346%

10%

222%

16%

11%

Total Ingredients’ normalised EBIT increased 
$37 million to $827 million due to the 
improved gross profit. DFE Pharma has been 
sold so its earnings are not included in the 
current year. Removing DFE Pharma from our 
2019 financial performance for comparative 
purposes. Total Ingredients’ normalised EBIT 
would have increased by $81 million. 

Australia Ingredients reduced its EBIT 
loss by $27 million on last year, reporting a 
full year normalised loss of $25 million. This 
improvement came through continued focus 
on managing product mix, price realisation 
and cost leadership through an integrated 
business model under the new customer-led 
operating model. Prolesur improved its 
normalised EBIT by $16 million to break even 
through cost efficiencies and an improvement 
in its price agreement with Soprole. 
New Zealand Ingredients’ normalised EBIT 
was stable at $842 million, compared to 
$843 million the prior year. Removing DFE 
Pharma from New Zealand Ingredients’ 2019 
financial performance for comparative 
purposes, it improved its EBIT performance 
by $43 million. 

Our New Zealand milk collections for 
the 2019/20 Season, 1 June 2019 to 31 May 
2020, were 1,517 million kgMS, which was 
0.4% down on last season. North Island 
collections were down 2.1% due to pasture 
growth rates impacted by dry weather. South 
Island collections were up a similar percentage 
due to favourable weather conditions across 
Canterbury resulting in good pasture growth 
and strong milk production. 

Our New Zealand Ingredients business’ 

sales volumes were down 70,000 MT, or 
2%, to 2.88 million MT. Our sales volumes 
from our New Zealand Ingredients’ Global 
Sourcing business were down mainly due to 
lower milk collections in Australia. In addition, 
we decided to hold slightly more year-end 
inventory to align with our customers’ demand 
profiles over year-end and into the first 
quarter of the next year.

Ingredients’ normalised  
gross profit

Up $165 million

$1,611m  

Ingredients’ normalised EBIT 

Up $37 million

$827m   

O ur Ingredients’ normalised gross 

profit increased $165 million to 
$1,611 million, predominantly due to 
New Zealand and Australia normalised gross 
profit increasing $131 million and $21 million, 
respectively. The improved gross profit was 
partially offset by lower other operating 
income and increased operating expenses, 
resulting in normalised EBIT increasing 
$37 million to $827 million. 

Our Ingredients’ sales volumes declined 

by 3% to 3.06 million MT. This was mainly due 
to our Australia Ingredients’ milk collections 
declining 12%, which impacted Australia 
Ingredients sales volumes and New Zealand 
Ingredients’ Global Sourcing sales volumes. 
In addition, we decided to hold slightly 
more year-end inventory to align with our 
customers’ demand profiles over year-end and 
into the first quarter of the next year.

48

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Fonterra Annual Report 2020

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compared to $843 million the prior year. 
Adjusting 2019 EBIT for the earnings received 
from the divested DFE Pharma business, our 
New Zealand Ingredients’ normalised EBIT 
improved $43 million year-on-year.

Australia Ingredients’ sales volumes 
declined 18% to 269,000 MT predominantly 
as a result of reduced milk supply. Milk 
collections have been impacted by a 
combination of drought, high on-farm input 
costs and a highly competitive milk supply 
market which has seen losses primarily to milk 
brokers. Fonterra Australia has also made the 
conscious decision to purchase less third-party 
milk and to prioritise a value-add product mix 
from its own milk collections. Overall, our 
Australian milk collections from all sources 
declined 12% to 107.8 million kgMS.

We increased our Australia Ingredients’ 
gross profit from $10 million to $31 million 
through reduced costs as a result of closing 
the Dennington site, better utilisation of 
our Stanhope site, and allocating more milk 
to higher-returning cheddar and mozzarella 
products, rather than the lower-returning 
liquid and whole milk powder products. 
Relative to the prior year, the Australian dollar 

has declined against the US dollar, which is 
favourable for our US dollar denominated 
export sales. Coupled with improved product 
pricing, it has offset the increased milk price 
in Australia.

Despite the ongoing challenges in 
Australia, our Ingredients business has 
reduced its full year loss by $27 million from 
a loss of $52 million to a loss of $25 million, 
through continued focus on managing product 
mix, price realisation and cost reductions. 
In December 2019, we purchased 

Fundación Isabel Aninat’s 13.6% 
shareholding in Prolesur, our Chilean 
Ingredients business, and this took our 
ownership to 99.9%. The acquisition of the 
Fundación shareholding cost $29.3 million 
and has enabled us to integrate our two 
Chilean businesses (Prolesur and Soprole) to 
generate operating efficiencies across the 
supply chain from milk collection, processing 
and administration. Prolesur has also achieved 
additional cost efficiencies from increasing 
its milk collections. Like Soprole, Prolesur’s 
recent performance has been impacted by 
challenging market conditions in Chile.

NEW ZEALAND INGREDIENTS VOLUME1,2

Production volume (‘000 MT)

Reference products

Non-reference products 

Sales volume (‘000 MT)

Reference products

Non-reference products 

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31 JULY 2020

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1,881

768

1,864

774

1,839

807

1,820

794

(2)%

5%

(2)%

3%

Includes sales to other strategic platforms.

1 
2  Table excludes bulk liquid milk. The bulk liquid milk volume for the year ended 31 July 2020 was 69,000 MT of kgMS equivalent 

(year ended 31 July 2019 was 73,000 MT of kgMS equivalent).

Our New Zealand Ingredients’ normalised gross profit increased $131 million, or 10%, to 
$1,482 million, made up of a $48 million increase from our New Zealand Ingredients’ products 
and an $83 million increase from our non-New Zealand product and bulk liquid milk.

Our New Zealand Ingredients business manufactures five ingredient products that inform the 

Farmgate Milk Price range. These are referred to as reference products, while all other products 
are referred to as non-reference products. The strong growth in our Foodservice sales volumes 
over the first half of the year impacted our product mix of our Ingredients’ products. New Zealand 
Ingredients’ production volumes and sales volumes from New Zealand sourced milk for non-
reference products increased 5% and 3%, respectively. This was offset by lower production 
and sales for New Zealand sourced milk for reference products. As the five reference products 
drive the cost of milk used to make non-reference products, the relative price differences and 
movements of the two sets of products is an important contributor to our EBIT performance.

NEW ZEALAND INGREDIENTS REVENUE AND PROFIT MARGIN1,2 

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$ MILLION

$ PER MT

8,833

4,202

(6,673)

(2,398)

626

701 

4,739

5,427

(3,580)

(3,098)

336 

905

9,540

4,770

(7,207)

(2,829)

648

727 

5,192

6,006

(3,959)

(3,562)

356

916

Revenue

Reference products

Non-reference products 

Cost of milk

Reference products

Non-reference products 

Gross profit 

Reference products

Non-reference products

Includes sales to other strategic platforms.

1 
2  Table excludes bulk liquid milk sales. 

Compared to the prior year, non-reference 
product revenue per metric tonne has 
increased by $126 per MT more than reference 
product revenue increased, reflecting the 
strong demand and higher market pricing for 
Casein, Milk Protein Concentrate (MPC) and 
Whey Protein Concentrate (WPC).

Whilst non-reference gross profit per 
metric tonne has improved on the prior year, 
the milk cost of protein has increased by 
proportionally more than the milk cost of 
fat. This has impacted the gross profit of the 
non-reference products’ portfolio, as this 
portfolio is weighted to protein products such 
as Casein, MPC and WPC. Likewise, the lower 
relative milk cost of fat has had a favourable 
impact on the gross profit for the reference 
products’ portfolio.

In addition to the increased cost of milk, 
we also had higher operational costs this year 
at our manufacturing sites. In total, our gross 
profit contribution from our New Zealand 
Ingredients’ products increased $48 million, 
$22 million and $26 million from our reference 
and non-reference products, respectively.
The gross profit contribution from 
non-New Zealand product increased by 
$83 million due to favourable phasing of 
logistic costs, higher margins within our 
Global Sourcing business and our bulk liquid 
margins improved as a result of declining milk 
costs during the second half of the financial 
year relative to the prior year.

Our New Zealand Ingredients’ business’ 
operating expenses were up on last year, due 
to 2019 benefiting from not paying employee 
performance incentives.

Our Fonterra-owned China Farms are 

classified as a Discontinued Operation. 
Therefore, our China Farming joint venture 
performance is reported in our New Zealand 
Ingredients’ results. The China Farming 
joint venture has reduced its full year loss 
from a $19 million loss last year to a loss of 
$12 million for the current year. Reduced 
animal husbandry costs have assisted 
this improvement.

The favourable pricing impact to gross 

profit received in the second half was offset 
by the increase in operating expenses, 
resulting in a stable New Zealand Ingredients’ 
normalised EBIT performance, at $842 million 

50

51

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Consumer 
& Foodservice

T he combined normalised earnings 

performance of our Consumer and 
Foodservice businesses were stable 

despite the disruption of Covid-19, and after 
excluding impairments of $57 million included 
in our Consumer business. 

The combined normalised EBIT of our 
Consumer and Foodservice businesses for the 
first six months of the year was $263 million, 
up 105% on the prior year. After adjusting 
for the impairments included in Consumer, 
the combined normalised EBIT in the second 
half was $151 million. The strong first half 
was due to growth in our Greater China and 
Asia Foodservice businesses and reduced 
operating expenses in our Consumer business. 
Our Foodservice business was significantly 

impacted by the emergence of Covid-19 
during the second half. Our gross profit in 
Greater China rebounded quickly during the 
third quarter, but Asia, Oceania and Latin 
America were impacted in the fourth quarter. 
In addition, challenging trading environments 
throughout the year in Chile and Hong Kong 
have impacted our Latin America Consumer 
and Foodservice and Greater China 
Consumer businesses.

In the subsequent pages, 54-61, we have 
presented the performance of the Consumer 
and Foodservice businesses separately and by 
region to provide greater transparency and 
understanding of the key performance drivers 
in each of the businesses. 

CONSUMER AND FOODSERVICE PERFORMANCE1,2

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Volume (‘000 MT)

Sales revenue

Cost of goods sold

Gross profit

Operating expense

Other5,6

Normalised EBIT

Gross margin

Discontinued Operations EBIT

1,602 

6,896 

(5,398)

1,498 

(1,089)

2 

411 

21.7%

(8)

1,564 

6,902 

(5,465)

1,437 

(1,009)

(71)

357 

20.8%

21

(2)%

0%

(1)%

(4)%

7%

–

(13%)

–

–

1  FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2  FY20 Consumer and Foodservice performance represents Continuing Operations. It excludes any performance derived from 

DPA Brazil. DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.

3  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
4  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

5  Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.
Includes impairments of $57 million. Refer to Note 17 of the FY20 Financial Statements.

6 

Consumer and Foodservice 
normalised gross margin

20.8%  

Consumer and Foodservice 
normalised gross profit 

$1,437m

Consumer and Foodservice  
normalised EBIT 

$357m

(cid:24)(cid:21)

53

Fonterra Annual Report 2020

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Foodservice

O ur Foodservice normalised EBIT 

increased 14% to $209 million. 
After a strong first half performance, 

our Foodservice business was significantly 
impacted by the emergence of Covid-19 
during the second half. Greater China’s 
normalised gross profit rebounded quickly 
during the third quarter, but Asia, Oceania 
and Latin America were impacted in the 
fourth quarter.

Overall, our Foodservice sales volumes 

decreased 5% to 444,000 MT due to the 
impact of Covid-19 related lockdowns in Asia 
and Oceania. Greater China was impacted by 
Covid-19 early in the third quarter but its gross 
profit rebounded quickly, and as a result this 
only partially offset its improved performance 
in the first half from the strong demand for 
our products from bakery and beverage house 
customers. The impact of Covid-19 in the 
second half of the year in Asia, Oceania and 
Latin America partially offset Greater China’s 
overall improved performance, with all three 
regions making EBIT losses in the second half 
and finishing the year down on the prior year 
as the tourism and hospitality industries were 
significantly impacted by the restrictions put 
in place to manage the pandemic.

FOODSERVICE PERFORMANCE1

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31 JULY 2020

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Volume (‘000 MT)

Sales revenue

Cost of goods sold

Gross profit

Operating expense

Other4

Normalised EBIT

Gross margin

Discontinued Operations EBIT

465

2,673

(2,253)

420

(233)

(3)

184

15.7%

–

444

2,652

(2,215)

437

(226)

(2)

209

16.5%

–

(5)%

(1)%

2%

4%

3%

43%

14%

–

–

1  FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2  Refer to the Non-GAAP Measures section in the FY20 Annual Report. 
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

4  Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.

Our Foodservice normalised gross margin improved from 15.7% to 16.5% and normalised gross 
profit increased $17 million to $437 million. This was mainly due to Greater China’s improved 
butter sales volumes and margins, combined with growth in the sales of higher margin products. 
 Overall, Foodservice operating expenses were down $7 million, or 3%, and normalised EBIT 

was up $25 million to $209 million.

FOODSERVICE REGIONAL PERFORMANCE1

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Foodservice

Greater China4

Asia 

Oceania

Latin America

465

237

93

104

32

444

257

81

76

30

(5)%

9%

(12)%

(27)%

(8)%

184

114

36

28

6

209

169

23

16

0

14%

49%

(35)%

(43)%

(91)%

1  Summing of individual numbers from the regional and divisional breakdown may not add up to the totals in each category 

due to rounding.

2  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

4  FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.

Asia Foodservice normalised gross margin 

14.9%

from 15.8%   

Greater China Foodservice normalised 
gross margin 

16.3%

from 13.8%  

54

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Fonterra Annual Report 2020

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GREATER CHINA

ASIA 

Our Greater China Foodservice normalised 
EBIT increased 49% to $169 million, 
comprising $101 million in a strong first half 
performance and $68 million in the second 
half. Sales volumes increased 9% on last year 
to 257,000 MT. Despite the disruption of 
Covid-19, China’s Foodservice business grew 
as we continued to target dairy conversion 
into traditional Chinese foods. Our continual 
development of applying dairy in traditional 
foods created approximately 270 new 
food applications over the last 12 months, 
expanding our product offerings into food 
types such as cream for Daifuku and chilled 
cream buns, cream cheese into cheese 
moon cakes and beverage macchiatos, and 
mozzarella into cheese shrimp balls. 

We have entered into new Chinese dining 

channels, such as hot pot restaurants and 
continued our city expansion, now in 350 
cities compared to 300 cities last year. This has 
driven strong market demand for our Anchor 
Food Professionals™ UHT whipping cream and 
Anchor Food Professionals™ cream cheese in 
Mainland China. 

Covid-19 related restrictions in Mainland 

China impacted our gross profit in the early 
part of the third quarter. Our team reacted 
quickly to these restrictions by introducing 
live streaming of product demonstrations with 
20 live sessions created on our own platforms 
that attracted approximately 1.9 million 
viewers and ensured a connection of our 
Anchor Food Professionals™ team with 
our customers.

Normalised gross margin increased 
significantly from 13.8% to 16.3%, due to a 
recovery in butter margins as well as selling 
more products with higher gross margins, 
such as Anchor Food Professionals™ whipping 
cream and Anchor Food Professionals™ cream 
cheese. The improved margins are reflected in 
the $62 million, or 31%, increase in normalised 
gross profit to $259 million. Our operating 
expenses in Greater China were stable.

Our Asia Foodservice business recorded 
growth in several key markets during the 
first three quarters of the financial year. 
However, towards the end of the third 
quarter as Covid-19 spread through Asia 
and governments closed borders and put 
restrictions in place to manage the outbreak, 
the foodservice sector was significantly 
impacted in the fourth quarter.

Our sales volumes in Asia Foodservice 
decreased 12% to 81,000 MT on the prior 
year after being 13% up in the first half, with 
fourth quarter sales volume down 50% on 
the same period last year. Gross profit in the 
Middle East, Philippines and Thailand was 
impacted the most, as the tourism trade is an 
important part of these businesses and the 
Covid-19 related border closures impacted 
tourism significantly.

First half gross profit was 58% up 
on the prior year predominantly due to 
improvements from Indonesia and the 
Philippines. Indonesia had grown its gross 
profit with a focus on high margin products 
and revenue growth management, and 
the Philippines had improved gross profit 
mainly through growing volumes as a result 
of winning new customers in the bakery and 
beverage channels. These strong first half 
performances were impacted in the fourth 
quarter due to Covid-19 lockdowns.

Our full year normalised gross profit 
for our Asia Foodservice business was down 
$13 million, or 14%, to $80 million due to the 
lower sales volumes and to a lesser extent 
reduced pricing to move short shelf-life stock 
that had aged during the period of complete 
Covid-19 lockdown. The need to reduce 
pricing impacted our normalised gross margin, 
which had previously been ahead of the prior 
year for the first three quarters, from 15.8% 
in the prior year to 14.9%. Our normalised 
gross profit for the fourth quarter was a loss 
of $1 million.

Despite the impact of Covid-19, our 
Indonesia Foodservice business was able 
to grow its gross profit and earnings due 

to focusing on higher margin foodservice 
products such as Anchor Food Professionals™ 
butter sheets.

Operating expenses in Asia were relatively 

stable with lower costs associated with the 
lower sales volumes offset by increased 
provisions for doubtful debts due to Covid-19. 
As a result of these sales volumes and 
reduced gross margins, our Asia Foodservice 
normalised EBIT decreased $13 million to 
$23 million.

Our Asia markets remain challenging as 

many borders remain closed due to Covid-19. 
Our teams continue to optimise their product 
portfolios to suit the current market and 
work closely with customers to understand 
demand and manage inventory. We expect the 
recovery in our Asia markets will be slower 
than what we experienced in our Greater 
China Foodservice business.

OCEANIA 

Our Oceania Foodservice sales volumes 
decreased 27% to 76,000 MT year on year. 
First half sales volumes were down 6%, 
predominantly due to reduced sales volumes 
of low margin bulk product following industry 
consolidation in New Zealand. Second half 
sales volumes were down 44% as New Zealand 

Greater China Foodservice  
normalised gross profit 

Up 31%

$259m   

Greater China Foodservice  
normalised EBIT 

Up 49%

$169m    

and Australian borders were closed to 
international tourism and varying levels of 
country-wide restrictions were implemented 
within each country to manage the Covid-19 
outbreak, and these restrictions significantly 
impacted the hospitality and tourism industry. 
Oceania Foodservice normalised gross 
profit was down 26% to $72 million, reflecting 
the decline in sales volume and higher dairy 
input costs in New Zealand. New Zealand was 
able to partially offset the impact of lower 
volumes and increased input costs through 
reduced distribution costs and other operating 
efficiencies, and Australia’s operating expenses 
remained stable. Overall Oceania Foodservice 
normalised EBIT declined $12 million, or 
43%, to $16 million. Our Oceania Foodservice 
businesses worked closely with their customers 
during this challenging period, which was 
reflected in the Australian business being 
recognised by distributors for best in class 
and industry leading customer engagement 
in the Independent Advantage customer 
satisfaction survey.

LATIN AMERICA 

Our Latin American Foodservice business 
normalised EBIT was less than $1 million for 
the year, down $6 million on the prior year. 
At the end of the third quarter normalised 

EBIT was up $5 million on the prior year, at $7 million. However, the impact of Covid-19 in the 
last quarter was significant, with the loss for the quarter offsetting the earnings of the first 
nine months.

Soprole is the largest contributor to our Latin America Foodservice business with dairy 
desserts being the main category. In the first half the profitability of this business was impacted 
by the civil unrest relating to the increased cost of living, privatisation and social inequality. The 
civil unrest escalated to vandalism of city infrastructure, including supermarkets, and impacted 
sales. The third quarter had seen growth, but this was offset by the loss recorded in the fourth 
quarter as the Government took measures to manage the outbreak of Covid-19. 

FOODSERVICE NORMALISED EBIT1: 
KEY PERFORMANCE DRIVERS

(cid:49)(cid:50)(cid:53)(cid:48)(cid:36)(cid:47)(cid:44)(cid:54)(cid:40)(cid:39)(cid:3)(cid:37)(cid:36)(cid:54)(cid:44)(cid:54)(cid:21)(cid:3)(cid:49)(cid:61)(cid:39)(cid:3)(cid:48)(cid:44)(cid:47)(cid:47)(cid:44)(cid:50)(cid:49)

(cid:22)(cid:20)(cid:3)(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

31 JULY 2020

(cid:38)(cid:43)(cid:36)(cid:49)(cid:42)(cid:40)3

EBIT prior year

Volume

Price

Cost of goods sold

Operating expenses and other

EBIT

168

43

(81)

70

(16)

184

184

(19)

102

(66)

8

209

10%

–

–

–

–

14%

1  FY19 has been restated. Refer to Note 28 of the FY20 Financial Statements.
2  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

56

57

(cid:50)(cid:88)(cid:85)(cid:3)(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)

F(cid:82)(cid:81)(cid:87)(cid:72)(cid:85)(cid:85)(cid:68)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Consumer normalised revenue 

Up $28 million

$4,251m  

Consumer normalised gross profit 

Down $77 million

$1,001m   

Consumer normalised  
operating expenses

Down $73 million

$783m   

JesJess, s, AucAu kland 

58

O ur Oceania and Asia Consumer 

normalised EBIT improved despite 
the disruption of Covid-19, after 

excluding 2020 impairments and earnings 
from 2019 divested businesses. Latin America 
continues to be impacted by challenges in 
Chile, and Greater China earnings were down 
due to challenges in Hong Kong offsetting 
earnings growth in Mainland China.

Overall, Consumer sales volumes were 

down 1% on last year to 1.12 million MT. 
This was mainly due to lower sales in Soprole 
where the civil unrest and vandalism of 
supermarkets in Chile impacted Soprole’s 
dessert, yoghurt and mature cheese sales 
volumes. The sales in the 2019 financial year 
included Tip Top and our Venezuelan business 
which we have since sold. Removing the Tip 
Top and Venezuelan sales volume in 2019 for 
comparative purposes, shows the year-on-year 
total Consumer sales volume increased 1%.
Total Consumer normalised gross profit 
was down 7% on last year to $1,001 million. 
Consumer normalised gross margin decreased 
by 2% year-on-year from 25.5% to 23.5%. 
This was predominantly due to reduced sales 
of our high margin products in Hong Kong, 
and Soprole’s gross margin reducing in the 
second half due to increased input costs after 
a realignment of the price agreement it has 
with Prolesur for ingredient products.

CONSUMER PERFORMANCE1

The normalised operating expenses were 
down a total of $73 million to $783 million. 
For comparative purposes, removing the 
Tip Top and Venezuelan operating expenses 
from the 2019 financial year sees Consumer’s 
reduction in normalised operating expenses go 
from $73 million to $28 million year-on-year.

Our Consumer normalised EBIT includes 

$57 million of costs that relate to impairments 
of intangible assets. Our New Zealand 
Consumer business had a goodwill impairment 
of $21 million, and our Asia and Greater China 
Consumer businesses each incurred half of 
a $36 million impairment to our Chesdale™ 
brand. This impairment was not normalised.
If these impairments were not included, 

our Consumer normalised EBIT would have 
shown a decrease of 10% year-on-year, with 
the decrease mainly due to the challenges 
in Hong Kong and Chile. Tip Top’s earnings 
and the Venezuelan business’ losses offset 
at a total Consumer EBIT level so adjusting 
for the divestments undertaken in the 2019 
financial year has minimal impact. Including 
the impairments results in our Consumer 
normalised EBIT decreasing 35% from 
$227 million to $149 million. 

The Consumer segment results do not 
include the Discontinued Operations of DPA 
Brazil, which improved its EBIT from a loss 
of $8 million to a profit of $21 million. This is 
presented on page 62.

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31 JULY 2020

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Volume (‘000 MT)

Sales revenue

Cost of goods sold

Gross profit

Operating expense

Other4

Normalised EBIT

Gross margin

Discontinued Operations EBIT

1,137

4,223

(3,144)

1,078

(856)

5

227

25.5%

(8)

1,120

4,251

(3,250)

1,001

(783)

(69)

149

23.5%

21

(1)%

1%

(3)%

(7)%

9%

–

(35)%

–

–

1  FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil. 
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.

2  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

4  Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.

(cid:24)(cid:28)

Fonterra Annual Report 2020

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Asia normalised EBIT

Down $15 million

$103m   

ASIA 

Asia Consumer sales volumes were down 3% 
to 198,000 MT, predominantly due to the 
timing of shipments to Sri Lanka. We improved 
our gross profit in the Middle East through 
improved gross margins on our consumer 
powders, and in Thailand due to lower import 
costs and improved revenue management 
in the second half of the year. These gains 
were offset by the other markets reporting 
small declines on the prior year due to the 
disruption caused by Covid-19 in the fourth 
quarter. Overall, our normalised gross profit 
was down $2 million, or 1%, to $357 million.

Most markets within our Asia Consumer 

business reduced operating expenses. 
However, the Asia Consumer businesses 
incurred half of a $36 million impairment to 
our Chesdale™ brand, as the latest forecast 
earnings attributable to the brand are lower 
than previously forecast. The other half was 
incurred in our Greater China business.

Adjusting for the impairment, normalised 

EBIT increased $3 million to $121 million. 
Not adjusting for the impairment our Asia 
Consumer normalised EBIT decreased 
$15 million to $103 million. 

OCEANIA 

Our Oceania Consumer business performance 
was largely unimpacted by the Covid-19 
outbreak in the region and our teams in both 
New Zealand and Australia worked closely 
with their customers to help reduce the impact 
on their businesses. This was recognised 
by our New Zealand business being ranked 
number one supplier to New Zealand grocery 
outlets out of 28 suppliers in the Independent 
Advantage customer satisfaction survey. This 
is a significant improvement from previous 
rankings, where in 2018 and 2019 we were 
ranked 26 and 13, respectively.

Our Oceania Consumer sales volume 
increased 3% to 527,000 MT after adjusting 
the 2019 financial year for the sale of Tip 
Top. Our Australia business improved sales 
volumes predominantly due to demand 
growth in private label beverages, spreads and 
across all our cheese brands. Our New Zealand 
Consumer business has chosen to operate a 
leaner product mix focusing on higher margin 
products. Not adjusting for the sale of Tip Top, 
our sales volume increased 3,000 MT, or 1%. 
Our Australian Consumer business 
improved its gross margin due to a focused 
revenue growth strategy in all categories, 
particularly in chilled spreads, where Western 

60

Star™ continues to lead the market in both 
volume and value market share. Australia’s 
improved performance was offset by our 
New Zealand Consumer business as it adjusts 
to a leaner business model focusing on our 
core brands and working with our customers 
to execute a more profitable range. After 
adjusting for the sale of Tip Top, our Oceania 
Consumer normalised gross profit increased 
$23 million to $298 million due to Australia’s 
increased volume and improved pricing 
effectiveness. Not adjusting for the sale of Tip 
Top, our normalised gross profit decreased 
$26 million. Rationalising our operations 
within our New Zealand business, as part of 
managing a leaner product mix, resulted in 
operating expenses in our Oceania Consumer 
business decreasing. Operating expenses in 
Australia were slightly higher due to the prior 
year benefiting from not incurring employee 
performance incentives. In addition, our 
New Zealand business results included a 
$21 million impairment of Fonterra Brands 
New Zealand’s goodwill.

Adjusting for Tip Top and the goodwill 

impairment, Oceania Consumer normalised 
EBIT increased $14 million, or 31%, to $59 
million. The improved performance reflects 
the strong growth in Australia gross profit. 
Not adjusting the 2019 financial year for the 
sale of Tip Top or the New Zealand Brands’ 
goodwill impairment in the current year, 
shows that our Oceania Consumer normalised 
EBIT decreased $16 million to $38 million. 

CONSUMER REGIONAL PERFORMANCE1,2

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(cid:49)(cid:50)(cid:53)(cid:48)(cid:36)(cid:47)(cid:44)(cid:54)(cid:40)(cid:39)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)3(cid:3)(cid:11)(cid:49)(cid:61)(cid:39)(cid:3)(cid:48)(cid:44)(cid:47)(cid:47)(cid:44)(cid:50)(cid:49)(cid:12)

(cid:22)(cid:20)(cid:3)(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

31 JULY 2020

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(cid:22)(cid:20)(cid:3)(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

31 JULY 2020

(cid:38)(cid:43)(cid:36)(cid:49)(cid:42)(cid:40)(cid:596)

Consumer

1,137

1,120

Asia 

Oceania

Latin America²

Greater China

204

524

333

76

198

527

322

73

(1)%

(3)%

1%

(3)%

(4)%

227

118

54

36

19

149

103

38

28

(21)

(35)%

(12)%

(28)%

(22)%

–

1  Summing of individual numbers from the regional and divisional breakdown may not add up to the totals in each category 

due to rounding.

2  FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil. 
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.

3  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
4  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to 

rounding of reported figures.

LATIN AMERICA 

At half year we reported the sale process for 
DPA Brazil, our Consumer business in Brazil, 
was well underway, and had advanced to the 
point that the business met the requirements 
to be classified as ‘held for sale’ in our financial 
statements. Furthermore, it met the definition 
of a Discontinued Operation because it is a 
separate major geographical area of operation. 
The outbreak of Covid-19 in Brazil has slowed 
the sale process but the business remains a 
Discontinued Operation, and as a result, the 
segment note within our financial statements 
has been prepared excluding DPA Brazil. 

Our Latin America Consumer 

performance continues to be impacted by 
the challenging trading conditions in Chile. 
In the last quarter of the 2019 financial year, 
Soprole, our Consumer business in Chile, 
showed signs of recovery from a ‘buy local’ 
marketing campaign, which impacted the 
sales and earnings of a number of foreign-
owned companies. However, civil unrest and 
vandalism of supermarkets, mainly during 
the first half of this financial year, has meant 
a reduction in Soprole’s dessert, yoghurt and 
mature cheese sales volumes. 

Overall, Latin America sales volume 
compared to the prior year decreased 11,000 
MT to 322,000 MT. Our sales volumes last 
year include those from our Venezuelan 
business, which we have since sold. Removing 
the Venezuelan volumes from our 2019 
financial performance for comparative purposes, 
the year-on-year decline is 4,000 MT. 

Our Latin America Consumer normalised 

gross profit decreased $19 million to 
$232 million because of lower Soprole sales 
volumes in the first half and a decline in gross 
margin in the second half. The decline in 
Soprole’s gross margin in the second half is 
due to higher input costs from a weakening 
of the Chilean peso to the US dollar and a 
realignment of the price agreement between 
our now integrated Chilean businesses, 
Soprole and Prolesur. The change in the price 
agreement is neutral at a Group level because 
Prolesur’s increased income offsets the 
increased expense to Soprole. 

In the 2019 financial year, Soprole 
made a $15 million payment to Prolesur, our 
Ingredients business in Chile. This related 
to a prior year one-off milk cost. At a Group 
level this one-off payment between the two 
business units had minimal impact. This 
payment was lower in this year, which was the 
main reason for reduced operating expenses 
in our Latin America Consumer business. Latin 

America Consumer normalised EBIT decreased 
$8 million to $28 million, due to the lower 
Soprole sales volume and increased input costs. 
Adjusting the 2019 financial performance for 
the Venezuelan business increases the year-on-
year decrease to $18 million. 

FONTERRA BRANDS 
NEW ZEALAND RANKED

#1

IN INDEPENDENT ADVANTAGE 
CUSTOMER SURVEY

GREATER CHINA

Our Greater China Consumer performance continues to be impacted by the challenging trading 
conditions in Hong Kong, and performance has been impacted further by the travel restrictions 
put in place to manage Covid-19, which impacted sales volume that are usually generated through 
Chinese tourism. In addition, Greater China Consumer included half of the $36 million impairment 
of the Chesdale™ brand. This impairment was not normalised.

Our Mainland China and Taiwan Consumer businesses focused on value growth strategies. 
China Consumer had a quick turnaround from the initial disruption of Covid-19, leveraging strong 
connections through our e-commerce platforms, whilst Taiwan delivered gross profit similar to 
last year despite the Covid-19 disruption. Overall, Greater China sales volumes declined 4% to 
73,000 MT, partly due to the challenges in Hong Kong but also due to lower sales in Mainland 
China as we changed distribution models in some channels to align with our new strategy. 

Our normalised gross profit decreased $31 million to $114 million. The majority of the decline 
is due to reduced sales of our higher margin Anlene™ and Anmum™ products in Hong Kong, which 
is reflected in our Greater China normalised gross margin decreasing from 40.1% to 32.8%.

Operating expenses were favourable to last year as we responded to challenging conditions in 

Hong Kong and the Covid-19 pandemic. 

Adjusting for the impairment of the Chesdale™ brand, our Greater China normalised EBIT 

declined $22 million to a loss of $3 million. Not adjusting for the brand impairment, our Greater 
China Consumer normalised EBIT decreased $40 million to a loss of $21 million.

CONSUMER NORMALISED EBIT1: KEY PERFORMANCE DRIVERS

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(cid:22)(cid:20)(cid:3)(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

31 JULY 2020

(cid:38)(cid:43)(cid:36)(cid:49)(cid:42)(cid:40)3

EBIT prior year

Volume

Price

Cost of goods sold

Operating expenses and other

EBIT

316

(15)

(122)

53

(5)

227

227

(16)

91

(152)

(1)

149

(28)%

(6)%

–

–

60%

(35)%

1  FY20 Consumer performance represents Continuing Operations. It excludes any performance derived from DPA Brazil. 
DPA Brazil is classified as a Discontinued Operation. FY19 has been restated to provide a year-on-year comparative.

2  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
3  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.

61

Fonterra Annual Report 2020

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Discontinued 
Operations

Discontinued Operations 
normalised gross profit1

$162m
from $102 million  

Discontinued Operations  
normalised EBIT1 

$32m
from $(21) million   

1  Accounting standards require that we cease deducting 

depreciation costs when China Farms and DPA Brazil were 
classified as ‘held for sale’ as at 31 January 2020. For the six 
months to 31 July 2020, this was $6 million and $5 million, 
respectively, for China Farms and DPA Brazil.

T he normalised EBIT from our two 

businesses classified as Discontinued 
Operations improved from a loss of 

$21 million to a profit of $32 million.
The proposed divestments of our 

Fonterra-owned China Farms and our interest 
in DPA Brazil have impacted how the financial 
statements are presented. The sales processes 
for these businesses are at the point that 
they meet the accounting requirements to be 
classified as ‘held for sale’ on the Statement 
on Financial Position, on the basis that a sale 
is considered highly probable. Furthermore, 
because both businesses are considered to 
be major businesses in one of our segments 
and/or geographical regions, their results are 
classified as ‘Discontinued Operations’ within 
the Income Statement. The segment note 
within our financial statements excludes these 
businesses, and therefore reflect the Group’s 
Continuing Operations only.

As at 31 January 2020, when China Farms 

and DPA Brazil were classified as ‘held for 
sale’ the accounting standards required that 
we cease deducting depreciation costs. This 
meant that from 1 February 2020 to 31 July 
2020 normalised EBIT for the China Farms 
and DPA Brazil businesses was $6 million and 
$5 million higher, respectively, than if they had 
not been classified as ‘held for sale’.

The sales processes are continuing for 
China Farms and our interest in DPA Brazil. 
Based on the additional information and 
further insights we have gained through the 

sales process and strategic reviews for China 
Farms and DPA Brazil, we have reduced the 
valuation of these two assets by a total of 
$167 million.

DPA BRAZIL

In the first half of this year, the DPA Brazil 
business had increased sales volumes due to 
the local economy improving and increasing 
its market share in both value and volume. The 
disruption of Covid-19 during the second half 
of the year impacted sales, and sales volume 
and revenue ended the year down on the prior 
year. DPA Brazil has been able to maintain the 
1% increase in market share value it gained 
during the first half to 17.5%. DPA Brazil’s 
gross profit benefited from lower input costs, 
and combined with lower operating expenses, 
normalised EBIT improved from a loss of 
$8 million to a profit of $21 million.

Despite the improved performance, Brazil 

continues to remain a challenging market to 
operate in. In the 2019 financial year, we wrote 
down the value of the business by $143 million 
and the divestment process has resulted in 
a further impairment of $104 million before 
tax. This business in Brazil is a joint venture 
and the loss is shared with our joint venture 
partner. Therefore, at the level of profit after 
tax attributable to equity holders of the Co-
operative, the impact of the impairment is 
$45 million.

CHINA FARMS

As a result of our Fonterra-owned China Farms being classified as a Discontinued Operation, 
the China Farms segment note in our financial statements is no longer presented. To provide a 
complete view of our performance during the 2020 financial year, we have continued to report 
China Farms’ performance in this section. 

Our sales volumes increased 8% to 22,000 MT due to last year’s volumes being impacted 

by continuous rainstorms and flooding in Yutian. Improved feed management and increased 
productivity per cow has also helped increase sales volumes.

CHINA FARMS FINANCIAL PERFORMANCE

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Volume3 (‘000 MT)

Revenue

Cost of goods sold

Gross profit

Operating expenses

Other4 

China Farms normalised EBIT 

Gross margin 

(cid:21)(cid:19)(cid:20)(cid:28)

20

247

(261)

(14)

(16)

16

(14)

2020

22

282

(249)

33

(23)

1

11

(5.7)%

11.9%

(cid:38)(cid:43)(cid:36)(cid:49)(cid:42)(cid:40)(cid:21)

8%

14%

5%

–

(46)%

(91)%

–

–

1  Refer to the Non-GAAP Measures section in the FY20 Annual Report.
2  Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding 

of reported figures.
Includes sales to other strategic platforms.

3 
4  Consists of other operating income and expenses, which includes net foreign exchange gains and losses, share of profit or loss on 

equity accounted investees and impairment of intangible assets not included in the strategic review.

Our China Farms’ normalised gross profit 
improved $47 million from a loss of $14 million 
to a profit of $33 million. This was driven 
by strong market demand and a focus on 
customer portfolio optimisation, enabling us 
to achieve higher external milk prices. During 
the 2020 financial year, the average milk price 
was RMB 3.91 per kg, up from RMB 3.67 the 
prior year and the highest achieved annual 
average price over the past five years.

The higher milk prices achieved were 
also supported by a more focused breeding 
program enabling a flatter milk supply curve 
through the year.

Operating expenses increased $7 million 

to $23 million due to rightsizing our herd. 
Livestock removed from the herd were sold 
below fair value. Last year our China Farms 
livestock increased in value and this increased 
value was reported in other income. It was 
not repeated this year and Other, which 
includes other income, was down $15 million 
to $1 million.

China Farms’ EBIT increased $25 million 

from a loss of $14 million to a profit 
of $11 million, driven by the improved 
gross profit.

(cid:25)(cid:21)

63

Fonterra Annual Report 2020

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

(cid:50)(cid:88)(cid:85)(cid:3)(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)

Historical 
Financial  
Summary

Market Statistics

Total Group Overview11,12,13

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

Fonterra Seasonal Statisitics1

Total New Zealand milk collected (million litres)

Highest daily volume collected (million litres)

New Zealand shareholder supply milk solids collected (million kgMS)2

New Zealand contract supply milk solids collected (million kgMS)2

New Zealand milk solids collected (million kgMS)

Total number of shareholders at 31 May

Total number of sharemilkers at 31 May

Total number of shares on issue at 31 May (million)

Shareholder Supplier Returns

Farmgate Milk Price (per kgMS)3

Dividend (per share)

Dividend yield (%)4

Cash payout (per share)5

Retentions (per share)6

Weighted average share price ($ NZD)7

Weighted Average Commodity Prices ($ USD per MT FOB)

Whole Milk Powder8

Skim Milk Powder8

Butter8

Cheese9 

Fonterra’s average NZD/USD conversion rate10

Staff Employed

Total staff employed (000s, permanent full-time equivalents)

New Zealand

Overseas

64

17,585

17,051

16,932

17,123

16,876

86.9

1,453

113

1,566

80.1

1,417

109

1,526

82.0

1,404

101

1,505

10,579

10,267

10,162

3,098

1,602

2,722

1,607

2,712

1,612

3.90

0.40

7.3

4.30

0.11

5.48

2,111

1,803

2,830

2,766

0.71

21.3

11.4

9.9

6.12

0.40

6.7

6.52

0.06

5.96

2,855

2,216

4,221

3,763

0.70

21.4

11.7

9.7

6.69

0.10

1.7

6.79

–

5.84

3,091

1,968

5,575

3,853

0.71

21.5

11.9

9.6

85.4

1,430

93

1,523

9,887

2,602

1,612

6.35

–

–

6.35

–

4.63

2,907

2,216

4,448

3,772

0.69

20.0

11.4

8.6

82.6

1,429

87

1,517

9,461

2,451

1,612

7.14

0.05

1.3

7.19

0.38

3.79

3,110

2,755

4,140

4,011

0.66

19.6

11.5

8.1

Income

Volume (000s MT)

Normalised sales revenue ($ million)

Normalised EBITDA ($ million)14

Normalised EBIT ($ million)15

Normalised profit after tax ($ million)16

Reported earnings per share

Normalised earnings per share

Revenue Margin Analysis

EBITDA17

EBIT18

Profit after tax19

Cash Flow ($ million)

Operating cash flow20

Free Cash Flow20

Net working capital21

Capital Measures

Total equity excluding hedge reserves ($ million)

Economic net interest-bearing Debt ($ million)22

Gearing Ratio23

Debt to EBITDA24 

Capital employed (including intangibles and EAI) ($ million)25

Capital employed (excluding intangibles and EAI) ($ million)26

Capital expenditure ($ million)27

Return on capital (including intangibles and EAI)28

Return on capital (excluding intangibles and EAI)29

4,313

17,199

1,928

1,358

789

0.51

0.49

11.2%

7.9%

4.6%

3,278

2,184

2,159

6,883

5,473

44.3%

3.2x

13,188

9,392

944

9.2%

12.4%

4,180

19,214

1,681

1,155

781

0.46

0.49

8.7%

6.0%

4.1%

1,376

670

3,055

7,056

5,601

44.3%

3.8x

12,717

9,093

851

8.3%

11.1%

4,123

20,431

1,446

902

382

(0.14)

0.24

7.1%

4.4%

1.9%

1,548

600

3,432

6,616

6,199

48.4%

4.6x

13,052

9,552

861

6.3%

8.0%

4,152

19,920

1,373

812

264

(0.35)

0.16

6.9%

4.1%

1.3%

1,123

1,095

3,122

6,102

5,749

48.5%

4.4x

12,872

9,617

600

5.8%

7.6%

4,069

20,975

1,506

879

382

0.43

0.24

7.2%

4.2%

1.8%

1,492

1,828

3,417

6,602

4,659

41.4%

3.4x

11,961

9,806

419

6.7%

7.3%

65

Historical Group Summary CONTINUED

Fonterra Annual Report 2020

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Ingredients11,12, 30

Ingredients

Volume (000s MT)31

Normalised sales revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

Divisional Breakdown – Ingredients11,12,34 

New Zealand Ingredients

Sales Volume (000 MT)35

Reference Products

Non-reference Products

Total Volume (000s MT)31 

Revenue ($/MT)35

Reference Products

Non-reference Products

Total Revenue ($ million)

Gross Profit ($/MT)35

Reference Products

–  Margin

Non-reference Products

–  Margin

Normalised gross profit ($ million)

Normalised gross margin %32

Fonterra Ingredients Australia

Volume (000s MT)31

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Other and Eliminations

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

66

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

Regional Breakdown – Consumer and Foodservice11,12,13,34,36

3,019

15,266

1,473

9.7%

943

6.2%

2,986

16,306

1,472

9.0%

879

5.4%

3,149

16,291

1,446

8.9%

790

4.8%

3,055

17,365

1,611

9.3%

827

4.8%

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

1,841

696

2,879

4,262

5,567

14,087

232

5.4%

1,165

20.9%

1,333

9.5%

305

1,522

78

5.1%

(165)

(343)

62

1,794

620

2,778

4,851

5,637

14,564

309

6.4%

1,275

22.6%

1,297

8.9%

350

1,877

77

4.1%

(142)

(135)

98

1,864

774

2,951

4,739

5,427

14,896

336

7.1%

905

16.7%

1,351

9.1%

328

1,760

10

0.6%

(130)

(365)

85

1,820

794

2,881

5,192

6,006

15,858

356

6.9%

916

15.2%

1,482

9.3%

269

1,509

31

2.1%

(95)

(2)

98

Oceania

Volume (000s MT)31

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

Asia

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

Greater China

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

Latin America37

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

Total Consumer and Foodservice13,37 

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

Normalised earnings margin %33

636

1,952

438

22.4%

87

4.5%

300

1,810

501

27.7%

194

10.7%

237

1,277

359

28.1%

204

16.0%

600

1,478

446

30.2%

91

6.1%

1,773

6,517

1,744

26.8%

576

8.8%

623

2,159

433

20.1%

67

3.1%

298

1,865

456

24.5%

176

9.4%

266

1,564

335

21.4%

165

10.5%

578

1,534

459

29.9%

117

7.6%

1,765

7,122

1,683

23.6%

525

7.4%

627

2,159

422

19.5%

81

3.8%

297

1,862

451

24.2%

153

8.2%

313

1,787

342

19.2%

133

7.4%

365

1,088

283

26.0%

44

4.0%

1,602

6,896

1,498

21.7%

411

6.0%

603

2,093

371

17.7%

54

2.6%

279

1,833

436

23.8%

126

6.9%

330

1,937

372

19.2%

149

7.7%

352

1,039

258

24.9%

28

2.7%

1,564

6,902

1,437

20.8%

357

5.2%

67

Historical Group Summary CONTINUED

Fonterra Annual Report 2020

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Regional Breakdown – Foodservice11,12,13,34,36

Regional Breakdown – Consumer11,12,13,34,36 

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

Oceania

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Asia

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Greater China

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Latin America

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Total Foodservice13

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

68

98

444

83

18.8%

90

526

99

18.8%

179

1,008

239

23.7%

32

115

32

27.8%

399

2,093

453

21.7%

98

515

93

18.1%

98

627

79

12.6%

195

1,221

186

15.2%

28

116

30

25.9%

419

2,479

388

15.7%

104

518

98

18.9%

93

586

93

15.8%

237

1,426

197

13.8%

32

143

32

22.7%

465

2,673

420

15.7%

76

416

72

17.3%

81

534

80

14.9%

257

1,592

259

16.3%

30

110

27

24.1%

444

2,652

437

16.5%

Oceania

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Asia

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Greater China

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Latin America37

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Total Consumer37

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

538

1,508

355

23.5%

209

1,284

402

31.3%

58

269

120

44.6%

569

1,363

414

30.4%

1,373

4,424

1,291

29.2%

525

1,644

340

20.7%

201

1,238

377

30.5%

71

343

149

43.5%

550

1,418

429

30.3%

1,347

4,643

1,295

27.9%

524

1,641

324

19.7%

204

1,276

359

28.1%

76

361

145

40.1%

333

945

251

26.6%

1,137

4,223

1,078

25.5%

527

1,676

298

17.8%

198

1,299

357

27.5%

73

346

114

32.8%

322

929

232

25.0%

1,120

4,251

1,001

23.5%

(cid:25)(cid:28)

 
 
 
 
 
 
 
 
 
 
 
 
Historical Group Summary CONTINUED

Fonterra Annual Report 2020

(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Discontinued Operations11,12,38

China Farms

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

DPA Brazil

Volume (000s MT)31 

Revenue ($ million)

Normalised gross profit ($ million)

Normalised gross margin %32

Normalised earnings ($ million)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)

(cid:45)(cid:56)(cid:47)(cid:60)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)

JULY 2020

26

268

21

7.8%

4

193

468

135

28.8%

(13)

22

248

(23)

(9.5)%

(33)

191

435

132

30.3%

1

20

247

(14)

(5.7)%

(14)

194

419

116

27.7%

(8)

22

282

33

11.9%

11

205

411

128

31.2%

21

70

18.  Normalised EBIT divided by normalised 

28.  Return on capital is calculated as 

1. 

2. 

3. 

All season statistics are based on the 
12-month milk season of 1 June to 31 May.

FY19 has been restated to correct supply 
milk solids collected. 

The Farmgate Milk Price has been 
determined by the Board. In making 
that determination, the Board takes 
into account the Farmgate Milk Price 
calculated in accordance with the 
Farmgate Milk Price Manual.

sales revenue.

19.  Normalised profit after tax attributable to 

equity holders of the Co-operative, divided 
by normalised sales revenue.

20.  Refer to Cash Flow Statement for detail 
on Operating cash flow. Free Cash 
Flow is the total of net cash flows from 
operating activities and net cash flows 
from investing activities.

4.  Dividend yield is dividend (per share) over 

21.  Net working capital is calculated as 

5. 

6. 

volume weighted average share price for 
the period 1 August to 31 July.

Average payout for a 100% 
share-backed supplier.

Retentions (per share) are calculated 
as profit after tax attributable to equity 
holders of the Co-operative for the year 
ended 31 July divided by the number of 
shares at 31 May, less dividend per share. 
Retentions are reported as nil where 
Fonterra has reported a net loss after tax.

7.  Weighted average share price represents 
the average price Fonterra Co-operative 
Group Limited shares traded at, weighted 
against the trading volume at each price 
over the period 1 August to 31 July.

8. 

9. 

Source: Fonterra Farmgate Milk Price 
Statement representing the weighted-
average United States Dollar contract 
prices of Reference Commodity Products.

Source: Oceania Export Series, Agricultural 
Marketing Service, US Department of 
Agriculture.

10.  Fonterra’s average NZD/USD conversion 

rate is the rate that Fonterra has converted 
net United States Dollar receipts into 
New Zealand Dollars including hedge 
cover in place.

11.  Percentages as shown in table may not 
align to the calculation of percentages 
based on numbers in the table due to 
rounding of reported figures.

12. 

Includes normalisation adjustments.

13.  FY19 has been restated. Refer to Note 28 

in the FY20 Financial Statements.

14.  Normalised EBITDA is calculated as profit 

for the period before net finance costs, tax, 
depreciation and amortisation, adjusted for 
normalisations.

15.  Normalised EBIT is calculated as profit for 

the period before net finance costs and 
tax, adjusted for normalisations.

16.  Normalised profit after tax attributable to 
equity holders of the Co-operative.

17.  Normalised EBITDA divided by normalised 

sales revenue.

total trade and other receivables plus 
inventories, less trade and other payables. 
It excludes amounts owing to suppliers and 
employee entitlements.

22.  Economic net interest-bearing debt reflects 

total borrowings plus bank overdraft less 
cash and cash equivalents and non-current 
interest-bearing advances, adjusted for 
derivatives used to manage changes in 
hedged risks on Debt instruments. It 
excludes net borrowings attributed to 
Discontinued Operations.

23.  Gearing ratio is economic net interest 
bearing Debt divided by total capital. 
Total capital is equity excluding the hedge 
reserves, plus economic net interest 
bearing debt. It excludes net borrowings 
attributed to Discontinued Operations.

24.  Debt to EBITDA is calculated as total 
borrowings, plus bank overdraft, plus 
the effect of debt hedging, less a cash 
allowance of 75% of cash and cash 
equivalents, divided by normalised earnings 
before interest, tax, depreciation and 
amortisation (normalised EBITDA) excluding 
share of loss/profit of equity accounted 
investees and net foreign exchange losses/
gains. Both Debt and EBITDA are adjusted 
to include amounts relating to businesses 
classified as held for sale and Discontinued 
Operations. Prior years restated to align 
with credit rating methodology.

25.  Capital employed is calculated as the 
average for the period of: net assets 
excluding net interest-bearing debt and 
deferred tax balances, and including brands, 
goodwill and equity accounted investments.

26.  Capital employed is calculated as the 
average for the period of: net assets 
excluding net interest-bearing debt, 
deferred tax balances, brands, goodwill 
and equity accounted investments.

27.  Capital expenditure comprises 

purchases of property, plant and 
equipment and intangible assets, 
net purchases of livestock, and 
includes Discontinued Operations.

normalised EBIT less a notional tax charge, 
divided by capital employed including 
brands, goodwill and equity accounted 
investments.

29.  Return on capital is calculated as normalised 

EBIT less a notional tax charge, divided by 
capital employed excluding brands, goodwill 
and equity accounted investments.

30.  FY20 Ingredients performance represents 

Continuing Operations. It excludes any 
performance derived from the Fonterra-
owned China Farms. China Farms is 
classified as a Discontinued Operation. 
FY19 has been restated to provide a year-
on-year comparative.

31. 

Includes sales to other strategic platforms.

32.  Normalised gross margin divided by 

normalised sales revenue.

33.  Normalised earnings divided by normalised 

sales revenue.

34.  Summing of individual numbers from the 

regional and divisional breakdown may not 
add up to the totals in each category due 
to rounding.

35.  Figures exclude bulk liquid milk. The bulk 
liquid milk volume for the year ended 
31 July 2020 was 69,000 MT of kgMS 
equivalent (year ended 31 July 2019 was 
73,000 MT of kgMS equivalent).

36.  Regions include share of Consumer and 

Foodservice overhead allocations, the total 
impact of which is $104 million for FY20.

37.  FY20 Latin America Consumer performance 
represents Continuing Operations and 
excludes DPA Brazil performance. DPA 
Brazil is classified as a Discontinued 
Operation. FY19 has been restated to 
provide a year-on-year comparative.

38.  The proposed divestments of our Fonterra-

owned China Farms and DPA Brazil have 
impacted how the financial statements 
are presented. The sales processes for 
these businesses are at the point that 
they meet the accounting requirements 
to be classified as ‘held for sale’ on the 
Statement on Financial Position, on the 
basis that a sale over the next 12 months is 
considered highly probable. Furthermore, 
because both businesses are considered 
to be major businesses in one of our 
segments and/or geographical regions, 
their results are classified as ‘Discontinued 
Operations’ within the Income Statement. 
The segment note within our financial 
statements excludes these businesses, and 
therefore reflects the Group’s Continuing 
Operations only.

71

Fonterra Annual Report 2020

Annual Financial Results 2020

Annual Financial 
Results FOR THE YEAR 

ENDED 31 JULY 2020
FONTERRA CO-OPERATIVE 
GROUP LIMITED

72

73

Contents

DIRECTORS’ STATEMENT

FINANCIAL STATEMENTS

INCOME STATEMENT

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

CASH FLOW STATEMENT

BASIS OF PREPARATION

NOTES TO THE FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT

OTHER INFORMATION

NON-GAAP MEASURES

GLOSSARY

STATUTORY INFORMATION

75

76

77

78

79

80

82

83

144

149

151

152

Fonterra Annual Report 2020

Directors’ Statement

Directors’ Statement

FOR THE YEAR ENDED 31 JULY 2020

The Directors of Fonterra Co-operative Group Limited (Fonterra) present to Shareholders the Annual Report and financial statements for Fonterra and its 
subsidiaries (together the Group) and the Group’s interests in its equity accounted investments for the year ended 31 July 2020.

The Directors present financial statements for each financial year which fairly present the financial position of the Group and its financial performance and 
cash flows for the year.

The Directors consider that the financial statements of the Group have been prepared using accounting policies which have been consistently applied and 
supported by reasonable judgements and estimates, and that all relevant financial reporting and accounting standards have been followed.

The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of 
the Group and facilitate compliance of the financial statements with the Financial Markets Conduct Act 2013.

The Directors consider that they have taken adequate steps to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities.

The Directors hereby approve and authorise for issue the Annual Report for the year ended 31 July 2020. For and on behalf of the Board:

John Monaghan
Chairman

17 September 2020

Bruce Hassall
Director

17 September 2020

74

75

Income Statement

FOR THE YEAR ENDED 31 JULY 2020

Statement of Comprehensive Income

FOR THE YEAR ENDED 31 JULY 2020

Fonterra Annual Report 2020

Financial Statements

Profit/(loss) after tax

Items that may be reclassified subsequently to the Income Statement:

Cash flow hedges and other costs of hedging, net of tax

Net investment hedges and translation of foreign operations, net of tax

Hyperinflation losses attributable to equity holders

Foreign currency translation reserve losses transferred to the Income Statement

Hyperinflation reserve gains transferred to the Income Statement

Share of equity accounted investees’ movement in reserves

Other reserve movements

Total items that may be reclassified subsequently to the Income Statement

Items that will not be reclassified subsequently to the Income Statement:

Net fair value gains/(losses) on investments in shares

Foreign currency translation gains attributable to non-controlling interests

Non-controlling interest other reserve movements

Total items that will not be reclassified subsequently to the Income Statement

Total other comprehensive income recognised directly in equity

Total comprehensive income/(expense)

Total comprehensive income/(expense) is attributable to:

Equity holders of the Co-operative 

Non-controlling interests

Total comprehensive income/(expense)

Total comprehensive income/(expense) arises from:

Continuing operations

Discontinued operations

Total comprehensive income/(expense)

GROUP $ MILLION

31 JULY 2020

659

354

(67)

–

21

–

(6)

(35)

267

2

3

(13)

(8)

259

918

955

(37)

918

1,054

(136)

918

Continuing Operations

Revenue from sale of goods

Cost of goods sold

Impact of strategy review

Gross profit

Other operating income

Selling and marketing expenses

Distribution expenses

Administrative expenses

Other operating expenses

Impairment of intangible assets not included in strategic review

Share of (loss)/profit of equity accounted investees

Impact of strategy review:

–  Gain on sale of investment in DFE Pharma

–  Gain on sale of investment in Goodminton

–  Falcon China Farms joint venture impairment

–  New Zealand consumer and foodservice business impairment and Tip Top disposal

–  Disposal of Venezuelan operations

–  Other impact of strategic review

Profit before net finance costs and tax

Finance income

Finance costs

Net finance costs

Profit/(loss) before tax

Tax expense

Profit/(loss) after tax from continuing operations

Discontinued Operations

Loss after tax from discontinued operations

Profit/(loss) after tax

Profit/(loss) after tax is attributable to:

Loss attributable to non-controlling interests

Profit/(loss) attributable to equity holders of the Co-operative

Profit/(loss) after tax

Earnings per share:

Basic and diluted earnings/(loss) per share from continuing operations

Basic and diluted loss per share from discontinued operations

Basic and diluted earnings/(loss) per share

GROUP $ MILLION

NOTES

31 JULY 2020

31 JULY 20191 
RESTATED

3

4

2

17

18

2

2

2

2

6

10

10

20

2

5

5

5

20,282

(17,236)

16

3,062

62

(551)

(482)

(835)

(377)

(55)

(6)

401

66

(65)

–

–

62

1,282

13

(317)

(304)

978

(175)

803

(144)

659

(27)

686

659

19,255

(16,349)

(32)

2,874

74

(543)

(514)

(748)

(338)

(29)

25

–

–

–

(237)

(134)

(80)

350

15

(407)

(392)

(42)

(80)

(122)

(488)

(610)

(48)

(562)

(610)

GROUP $

31 JULY 2020

31 JULY 20191
RESTATED

0.48

(0.05)

0.43

(0.09)

(0.26)

(0.35)

1  The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details. 

1  The Statement of Comprehensive Income for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements 

for further details.

76

31 JULY 20191 
RESTATED

(610)

(1)

(12)

(10)

193

(12)

–

–

158

(1)

1

–

–

158

(452)

(420)

(32)

(452)

28

(480)

(452)

77

 
 
 
Statement of Financial Position

AS AT 31 JULY 2020

Statement of Changes in Equity

FOR THE YEAR ENDED 31 JULY 2020

Fonterra Annual Report 2020

Financial Statements

ATTRIBUTABLE TO EQUITY HOLDERS OF THE CO-OPERATIVE

SUBSCRIBED 
EQUITY

RETAINED 
EARNINGS

FOREIGN 
CURRENCY 
TRANSLATION 
RESERVE

HEDGE 
RESERVES

OTHER 
RESERVES

GROUP $ MILLION

As at 1 August 2019 

NZ IFRS 16 transition adjustment (Note 27)

As at 1 August 2019 adjusted 

Profit/(loss) after tax

Transferred between reserves

Other comprehensive (expense)/income 

Total comprehensive income/(expense) 

5,887

–

5,887

–

–

–

–

313

(20)

293

686

(15)

(31)

640

Transactions with equity holders in their capacity as equity holders:

Dividend paid to non-controlling interests

As at 31 July 2020

As at 1 August 2018

Prior period restatement1 

–

5,887

5,887

–

As at 1 August 2018 adjusted (restated)

5,887

Loss after tax (restated)1

Other comprehensive (expense)/income

Total comprehensive (expense)/income 
(restated)

–

–

–

–

933

934

(42)

892

(562)

(17)

(579)

Transactions with equity holders in their capacity as equity holders:

Equity instruments issued

Dividend paid to non-controlling interests

As at 31 July 2019 (restated)

–

–

5,887

–

–

313

(183)

(268)

–

–

(183)

(268)

–

–

(46)

(46)

–

(229)

(364)

–

(364)

–

181

181

–

–

–

15

354

369

–

101

(267)

–

(267)

–

(1)

(1)

–

–

(183)

(268)

8

–

8

–

–

(8)

(8)

–

–

29

–

29

–

(21)

(21)

–

–

8

NON-
CONTROLLING 
INTERESTS

77

–

77

(27)

–

(10)

(37)

(29)

11

130

–

130

(48)

16

(32)

1

(22)

77

TOTAL

5,757

(20)

5,737

686

–

269

955

–

6,692

6,219

(42)

6,177

(562)

142

(420)

–

–

5,757

TOTAL  
EQUITY

5,834

(20)

5,814

659

–

259

918

(29)

6,703

6,349

(42)

6,307

(610)

158

(452)

1

(22)

5,834

ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables 
Inventories
Tax receivable
Derivative financial instruments 
Investment in Beingmate
Other current assets
Assets of disposal groups held for sale
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Equity accounted investments 
Livestock
Intangible assets
Deferred tax assets
Derivative financial instruments
Investment in Beingmate
Long-term advances
Other non-current assets 
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Bank overdraft
Borrowings
Trade and other payables 
Owing to suppliers
Tax payable
Derivative financial instruments
Provisions
Other current liabilities
Liabilities of disposal groups held for sale
Total current liabilities 
Non-current liabilities
Borrowings
Derivative financial instruments 
Provisions
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities 
Total liabilities
Net assets
EQUITY
Subscribed equity
Retained earnings
Foreign currency translation reserve
Hedge reserves
Other reserves
Total equity attributable to equity holders of the Co-operative
Non-controlling interests
Total equity

GROUP $ MILLION

NOTES

31 JULY 2020

31 JULY 20191 
RESTATED

11
12

2

2

15
16
18

17
20

2

9
13
14

21

2

9

21
20

19
19

788
1,832
3,268
44
452
157
73
1,005
7,619

6,006
569
96
6
2,240
421
664
–
220
75
10,297
17,916

31
764
2,004
1,588
88
113
68
54
603
5,313

5,277
483
64
20
56
5,900
11,213
6,703

5,887
933
(229)
101
–
6,692
11
6,703

550
1,871
3,165
45
48
–
116
229
6,024

6,512
–
202
295
2,597
610
440
234
142
228 
11,260
17,284

34
1,175
2,107
1,534
61
215
63
71
–
5,260

5,380
537
117
99
57
6,190
11,450
5,834

5,887
313
(183)
(268)
8
5,757
77
5,834

1  The Statement of Financial Position as at 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.

1  For details on the impact of prior period restatements refer to Note 28 Re-presentations and prior period restatements.

78

79

 
Fonterra Annual Report 2020

Financial Statements

Cash Flow Statement

FOR THE YEAR ENDED 31 JULY 2020

The Cash Flow Statement presents total Group cash flows including continuing and discontinued operations.

GROUP $ MILLION

31 JULY 2020

31 JULY 20191 
RESTATED

Cash flows from operating activities

Profit before net finance costs and tax from continuing operations

Loss before net finance costs and tax from discontinued operations

Profit/(loss) before net finance costs and tax

Adjustments for:

–  Foreign exchange losses/(gains) 

–  Depreciation and amortisation

–  Gain on sale of investment in DFE Pharma

–  Gain on sale of investment in Goodminton

–  Falcon China Farms joint venture impairment

–  China Farms impairment

–  New Zealand consumer and foodservice business impairment and Tip Top disposal

–  Brazil consumer and foodservice business impairment

–  Disposal of Venezuelan operations

–  Other 

(Increase)/decrease in working capital:

Trade and other receivables

Inventories

Trade and other payables 

Owing to suppliers

Other movements 

Total

Cash generated from operations

Net taxes paid

Net cash flows from operating activities

Cash flows from investing activities

Cash was provided from:

–  Proceeds from sale of businesses

–  Proceeds from disposal of property, plant and equipment

–  Proceeds from sale of livestock

–  Proceeds from sale of investments

–  Co-operative support loan repayments

–  Other cash inflows

Cash was applied to:

–  Acquisition of non-controlling interest

–  Acquisition of property, plant and equipment 

–  Acquisition of livestock (including rearing costs)

–  Acquisition of intangible assets

–  Acquisition of investments

–  Advances to and investments in equity accounted investees

–  Other cash outflows

Net cash flows from investing activities

1,282

(135)

1,147

37

627

(401)

(66)

65

63

– 

104

– 

95

524

(105)

(180)

100

54

25

(106)

1,565

(73)

1,492

624

36

40

127

– 

– 

(29)

(355)

(36)

(49)

(8)

(13)

(1)

336

350

(367)

(17)

(29)

561

–

–

–

203

214

149

134

42

1,274

341

126

(211)

(222)

(112)

(78)

1,179

(56)

1,123

396

32

28

7

177

25

–

(541)

(37)

(82)

(10)

(6)

(17)

(28)

1  The Cash Flow Statement for the year ended 31 July 2019 includes restatements. Please see Note 28 Re-presentations and prior period restatements for further details. The adjustments 

had no impact on net cash flows.

80

GROUP $ MILLION

31 JULY 2020

31 JULY 20191 
RESTATED

Cash flows from financing activities

Cash was provided from:

–  Proceeds from borrowings

–  Interest received

Cash was applied to:

–  Interest paid

–  Repayment of borrowings

–  Dividends paid to non-controlling interests

–  Other cash outflows

Net cash flows from financing activities

Net increase in cash

Opening cash 

Effect of exchange rate changes

Closing cash 

Reconciliation of closing cash balances to the Statement of Financial Position:

Cash and cash equivalents

Bank overdraft

Cash balances included in held for sale

Closing cash

2,286

11

(395)

(3,381)

(29)

(31)

(1,539)

289

516

(25)

780

788

(31)

23

780

4,286

14

(427)

(4,689)

(22)

(12)

(850)

245

285

(14)

516

550

(34)

–

516

81

Fonterra Annual Report 2020

Basis of Preparation

Basis of Preparation

FOR THE YEAR ENDED 31 JULY 2020

A) GENERAL INFORMATION

E)  COVID-19 PANDEMIC

Fonterra Co-operative Group Limited (Fonterra, the Company or the 
Co-operative) is a co-operative company incorporated and domiciled in 
New Zealand. Fonterra is registered under the Companies Act 1993 and 
the Co-operative Companies Act 1996, and is an FMC Reporting Entity 
under the Financial Markets Conduct Act 2013. Fonterra is also required to 
comply with the Dairy Industry Restructuring Act 2001. 

These financial statements comprise Fonterra and its subsidiaries 
(together referred to as the Group) and the Group’s interests in its equity 
accounted investments. 

The Group operates predominantly in the international dairy industry. The 
Group is primarily involved in the collection, manufacture and sale of milk 
and milk-derived products and in fast-moving consumer goods (FMCG) and 
foodservice businesses.

B)  BASIS OF PREPARATION

These financial statements comply with International Financial Reporting 
Standards (IFRS). These financial statements also comply with New Zealand 
Equivalents to International Financial Reporting Standards (NZ IFRS) and 
have been prepared in accordance with Generally Accepted Accounting 
Practice applicable to for-profit entities. 

These financial statements are prepared on a historical cost basis except 
for assets and liabilities of disposal group held for sale which are measured 
at the lower of fair value less costs to sell and carrying value, and the 
following items which are measured at fair value: 

–  Livestock

–  Investment in shares

–  Derivative financial instruments 

–  Hedged risks on certain debt instruments

These financial statements are presented in New Zealand dollars ($ or 
NZD), which is the Group’s functional currency, and rounded to the nearest 
million, except where otherwise stated. 

Certain comparative period information has been re-presented and 
restated. Refer to Note 28 Re-presentations and prior period restatements for 
further details.

C) SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies which are relevant to an understanding 
of the financial statements are provided throughout the notes in 
teal shading.

D) SIGNIFICANT JUDGEMENTS AND ESTIMATES

In the process of applying the Group’s accounting policies and the 
application of accounting standards, a number of judgements and 
estimates have been made. Accordingly, actual outcomes may differ to 
these estimates. 

Information about judgements, estimates and assumptions which are 
relevant to an understanding of the financial statements are disclosed in 
the relevant notes as follows. 

–  Recoverable amount assessments (Note 2 Strategy review update and 

Note 17 Intangible assets)

–  Classification of disposal groups held for sale and discontinued 

operations (Note 2 Strategy review update)

–  Revenue recognition (Note 3 Revenue from sale of goods)

–  Measurement of deferred tax assets and liabilities (Note 20 Taxation)

–  Provisions and contingent liabilities (Note 21 Contingent liabilities, 

provisions and commitments)

82

The Group’s global supply chain has remained resilient throughout the 
Covid-19 pandemic. The Group’s diverse product range and customer base 
have helped to minimise the impact on the business. Milk has continued to 
be collected and processed in New Zealand, Australia and Chile. 

To ensure ongoing impacts of Covid-19 have been appropriately reflected 
in the financial statements, Fonterra has assessed the impact of Covid-19 
on the Group’s assets and liabilities. 

–  The assumptions about the future impacts of the Covid-19 pandemic 
have been considered when measuring investments classified as held 
for sale.

–  The forecasts used for impairment testing include Fonterra’s best 

estimates of the potential future impacts from the Covid-19 pandemic. 
Cash flow projections have been adjusted to reflect a range of possible 
outcomes, weighted by their expected occurrence.

–  As part of the New Zealand Government’s Covid-19 relief package tax 
depreciation deductions have been reintroduced for certain qualifying 
buildings owned by the Group. This has resulted in an increase to the 
deferred tax assets of $30 million. It has also resulted in a reduction to 
tax expense of $30 million.

–  Debtor collectability continues to be closely monitored. A material 

change in the provision for impairment of trade receivables as a result 
of Covid-19 has not been identified.

–  No onerous contracts or additional provisions have been recognised as a 

direct impact of Covid-19.

–  Fonterra has not applied for the wage subsidy scheme available from the 

New Zealand Government.

The Group continues to monitor the risks and the ongoing impacts from 
Covid-19 on the business.

F)  BASIS OF CONSOLIDATION

In preparing these financial statements, subsidiaries are consolidated 
from the date the Group gains control until the date on which control 
ceases. The Group’s share of results of equity accounted investments 
is included in the consolidated financial statements from the date that 
significant influence or joint control commences, until the date that 
significant influence or joint control ceases. All intercompany transactions 
are eliminated.

Translation of the financial statements into NZD

The assets and liabilities of Group companies whose functional currency 
is not NZD are translated into NZD at the year-end exchange rate. The 
revenue and expenses of these companies are translated into NZD at rates 
approximating those at the dates of the transactions. Exchange differences 
arising on this translation are recognised in the foreign currency translation 
reserve (FCTR). On disposal or partial disposal of an entity, the related 
exchange differences that were recorded in equity are recognised in the 
Income Statement as part of the gain or loss on sale. 

G) NEW AND AMENDED INTERNATIONAL FINANCIAL 
REPORTING STANDARDS

Impact of adopting NZ IFRS 16 Leases

The Group adopted NZ IFRS 16 on 1 August 2019. NZ IFRS 16 requires 
a lease liability reflecting future lease payments, and a right-of-use asset, 
to be recognised for most lease contracts where the Group is a lessee. 
This includes many of the Group’s leases that were previously classified 
as operating leases. No asset or liability was reflected in the Statement 
of Financial Position under previous accounting requirements for 
operating leases. 

The adoption of NZ IFRS 16 does not have a significant impact on the 
Group’s net profit after tax. However, there is an increase in profit before 
net finance costs and tax, because a portion of the lease costs that were 

previously reported in cost of goods sold or operating expenses are 
now recorded as finance costs. Following adoption of NZ IFRS 16, the 
presentation of lease payments in the Cash Flow Statement changed from 
Operating activities to Financing activities, except for short term and low 
value leases which are included within Operating activities. 

On transition to NZ IFRS 16 at 1 August 2019, the Group recognised 
right-of-use assets of $621 million and a lease liability of $652 million. 
The lease liability is recognised within Borrowings in the Statement of 
Financial Position.

Disclosures relating to leases are located in the following notes:

–  Note 6 Profit before net finance costs and tax

–  Note 9 Borrowings

–  Note 10 Net finance costs

–  Note 16 Right-of-use assets

–  Note 27 Impact of transition to NZ IFRS 16 Leases

Impact of adopting NZ IFRIC 23 Uncertainty over Income Tax Treatments

NZ IFRIC 23 clarifies how to recognise and measure tax balances when 
there is uncertainty over income tax treatments. The Group’s uncertain tax 
positions predominantly relate to judgements regarding transfer pricing.

The Group adopted NZ IFRIC 23 from 1 August 2019 and has applied the 
interpretation retrospectively. In applying the interpretation there was no 
impact on the measurement of tax balances. However, the presentation 
of the provision for taxes in the Statement of Financial Position changed 
from Provisions to Tax payable. The impact of this change was to reclassify 
the tax provision of $24 million from Provisions to Tax payable as at 
31 July 2019. 

Accounting standards issued but not yet effective

There are no new or amended standards that are issued but not yet 
effective that are expected to have a material impact to the Group.

Notes to the  
Financial Statements 

FOR THE YEAR ENDED 31 JULY 2020

NOTE

Performance

1

2

3

4

5

6

Segment reporting

Strategy review update

Revenue from sale of goods

Cost of goods sold

Earnings per share

Profit before net finance costs and tax

Debt and equity

7

Subscribed equity instruments

8 Dividends

9

Borrowings

10 Net finance costs

Working capital

11 Trade and other receivables

12 Inventories

13 Trade and other payables

14 Owing to suppliers

Long-term assets

15 Property, plant and equipment

16 Right-of-use assets

17 Intangible assets

Investments

18 Equity accounted investments

Financial risk management

19 Financial risk management

Other

20 Taxation

21 Contingent liabilities, provisions and commitments

22 Related party transactions

23 Subsidiaries

24 Fair value measurement

25 Offsetting of financial assets and liabilities

26 Net tangible assets per quoted equity security

27 Impact of transition to NZ IFRS 16 Leases

28 Re-presentations and prior period restatements

PAGE

84

84

90

96

97

97

98

99

99

100

100

105

106

106

107

107

107

108

108

110

111

115

115

116

116

129

129

132

134

136

138

140

140

141

142

83

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

PERFORMANCE

This section focuses on the Group’s financial performance and the returns provided to equity holders. This section includes the following notes:

Note 1:  

Segment reporting

Note 2: 

Strategy review update 

Note 3: 

Revenue from sale of goods

Note 4: 

Cost of goods sold

Note 5: 

Earnings per share

Note 6: 

Profit before net finance costs and tax

1  SEGMENT REPORTING 

Operating segments reflect the way financial information is regularly reviewed by the Fonterra Management Team (FMT). The FMT is considered to 
be the Chief Operating Decision Maker (CODM). The FMT consists of the Group CEO, CFO and COO, the CEOs of the three customer-facing regional 
business units (Asia Pacific, AMENA – Africa, Middle East, Europe, North Asia, Americas, and Greater China), the Director Office of the CEO and the MD 
Co-operative Affairs. The measure of profit or loss used by the FMT to evaluate the underlying performance of operating segments is normalised segment 
earnings before net finance costs and tax.

a)  The previous operating model CONTINUED

Continuing Operations

Normalised segment Income Statement

External revenue

Inter-segment revenue

Revenue from sale of goods

Cost of goods sold

GROUP $ MILLION

31 JULY 2020

INGREDIENTS

CONSUMER AND FOODSERVICE

OCEANIA

ASIA

GREATER 
CHINA

LATIN 
AMERICA

TOTAL

UNALLOCATED 
COSTS AND 
ELIMINATIONS

TOTAL

13,590

3,775

17,365

1,917

176

2,093

1,801

1,937

1,037

32

–

2

1,833

1,937

1,039

(15,754)

(1,722)

(1,397)

(1,565)

6,692

210

6,902

(5,465)

1,437

–

20,282

(3,985)

–

(3,985)

20,282

3,983

(17,236)

(2)

3,046

(781)

258

At 31 July 2019, the Group’s operating segments were based around the Global Ingredients and Consumer and foodservice businesses.

Segment gross profit/(loss)

1,611

371

436

372

In September 2019, Fonterra announced a new strategy and operating model. The Group’s new operating model is based around the three regional 
business units, supported by a shared infrastructure (the office of the COO – oCOO) that includes New Zealand milk collection and processing operations 
and assets, a central portfolio management function, Group IT and Innovation functions.

At 31 July 2020, the new operating model formed the basis for the Group’s operating segments. Under the new operating model, the business is managed 
as a matrix form of organisation, whereby regional business unit CEOs and the COO have overlapping responsibility for the performance of operating 
segments. Information about the performance of oCOO is reported to the FMT both separately and attributed to each of the regional business units. 

Fonterra has determined that its operating segments are Asia Pacific, AMENA, Greater China and oCOO. As a result of the Group’s matrix structure, the 
Group’s reportable segments are Asia Pacific, AMENA and Greater China, inclusive of their respective attribution of oCOO. This presentation provides a full 
end-to-end view of performance for each of the customer facing regional business units.

Unallocated costs represent corporate costs including Co-operative Affairs and Group functions.

Due to the significant operating model changes, and the resulting changes in systems and processes used to report financial information to the FMT, 
comparative information in respect of the new operating model is not available. This note therefore includes information in respect of the current and 
comparative financial years under the previous operating model.

This note presents information for:

a)  The previous operating model

b) The new operating model

c)  Geographical analysis of revenue

d) Geographical analysis of non-current assets

a)  The previous operating model

Segment information presented under the previous operating model for the current year and comparative period has been provided in this section.

The Group’s reportable segments for the year ended 31 July 2020 are based on Fonterra’s new operating model (see Section b) The new operating model). 

PREVIOUS REPORTABLE SEGMENTS

DESCRIPTION

Ingredients 

Consumer and foodservice

–  Oceania

–  Asia

–  Greater China

–  Latin America

Represents the collection, processing and distribution of the ingredients business in New Zealand, global sales and 
marketing of New Zealand and non-New Zealand ingredients products, Fonterra Farm Source™ stores, the Falcon 
China Farms joint venture and the Australian and South American ingredients businesses.

Represents the fast moving consumer goods (FMCG) and foodservice businesses in New Zealand and Australia 
(including export to the Pacific Islands).

Represents FMCG and foodservice businesses in Asia (excluding Greater China), Africa and the Middle East.

Represents FMCG and foodservice businesses in Greater China.

Represents FMCG and foodservice businesses in Chile and the Caribbean.

Transactions between reportable segments are based on estimated market prices.

The strategic reviews of the Group’s China Farms and Brazil consumer and foodservice businesses have advanced such that both businesses meet the 
requirements to be classified as held for sale at 31 July 2020 and are considered to be discontinued operations. As a result, comparative information in the 
segment note has been restated to exclude these businesses and reflect the Group’s continuing operations only.

The Group’s investment in the Falcon China Farms joint venture (Falcon China Farms JV) was previously included within a ‘China Farms’ segment. The 
Falcon China Farms JV is considered separately from China Farms. The investment and the share of equity accounted losses it has generated have been 
included in the Ingredients segment on the basis that its customers are most closely aligned with other Ingredients customers. Comparative information in 
the segment note has been restated to reflect this change.

84

Impairment of intangible assets not 
included in strategic review

Operating expenses

Net other operating income

Net foreign exchange (losses)/gains

Share of (loss)/profit of equity accounted 
investees

Normalised segment earnings before net 
finance costs and tax

Normalisation adjustments:

–  Disposal of investment in DFE Pharma

–  Disposal of investment in Goodminton

–  Falcon China Farms JV impairment

–  Beingmate

–  Other

Segment earnings before net finance costs 
and tax

Finance income

Finance costs

Profit before tax from continuing 
operations

Other segment information:

Volume1 (metric tonnes, thousand)

Depreciation and amortisation ($ million)

Capital expenditure2

Equity accounted investments

(1)

(782)

51

(43)

(9)

827

427

60

(65)

–

(15)

(21)

(294)

–

(2)

–

54

–

–

–

–

–

(18)

(282)

2

(10)

(2)

(18)

(204)

–

(1)

–

126

149

–

–

–

–

–

–

–

–

50

(14)

–

(57)

3

(55)

(229)

(1,009)

(348)

(2,139)

3

(7)

3

28

–

–

–

–

–

5

(20)

1

–

8

2

56

(55)

(6)

357

(337)

847

–

–

–

50

(14)

–

6

–

–

(14)

427

66

(65)

50

(43)

1,234

54

126

185

28

393

(345)

1,282

3,055

(458)

328

77

603

(37)

27

–

279

(16)

3

–

330

(7)

1

–

352

(29)

19

11

1,564

(89)

50

11

(777)

(66)

33

8

13

(317)

978

3,842

(613)

411

96

The total segment gross profit shown above is different to the reported gross profit as a result of certain normalisation adjustments recognised in gross profit.

Reconciliation of reported to segment gross profit for the year ended 31 July 2020: 

GROUP $ MILLION

Segment gross profit

Normalisation adjustments

–  DFE Pharma dividend received

–  Other impact of strategy review

Reported gross profit

Includes intra and inter-segment sales. Total column represents total external sales.

1 
2  Capital expenditure comprises purchases of property, plant and equipment and intangible assets.

FOR THE YEAR ENDED
31 JULY 2020

3,046

26

(10)

3,062

85

Fonterra Annual Report 2020

Notes to the Financial Statements

a)  The previous operating model CONTINUED

The total segment gross profit shown above is different to the reported gross profit as a result of certain normalisation adjustments recognised in gross profit.

Reconciliation of reported to segment gross profit for the year ended 31 July 2019: 

GROUP $ MILLION

Segment gross profit

Normalisation adjustments

–  Australian strategic reset

–  New Zealand consumer and foodservice business strategic review impact

–  Other strategic reset costs

Reported gross profit

FOR THE YEAR ENDED 
31 JULY 2019 
RESTATED

2,906

(23)

(7)

(2)

2,874

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  The previous operating model CONTINUED

GROUP $ MILLION

31 JULY 20191 RESTATED

INGREDIENTS

CONSUMER AND FOODSERVICE

OCEANIA

ASIA

GREATER 
CHINA

LATIN 
AMERICA

TOTAL

UNALLOCATED 
COSTS AND 
ELIMINATIONS

TOTAL

Segment gross profit/(loss)

1,446

422

451

342

12,584

3,707

16,291

1,989

170

2,159

1,814

48

1,862

1,785

1,083

2

5

1,787

1,088

(14,845)

(1,737)

(1,411)

(1,445)

6,671

225

6,896

(5,398)

1,498

–

19,255

(3,932)

(3,932)

–

19,255

3,894

(16,349)

(38)

2,906

–

–

(246)

(1,089)

(29)

(292)

(29)

(2,143)

Continuing Operations

Normalised segment Income Statement

External revenue

Inter-segment revenue

Revenue from sale of goods

Cost of goods sold

Impairment of intangible assets not  
included in strategic review

Operating expenses

Net other operating income

Net foreign exchange gains/(losses)

Share of profit/(loss) of equity accounted 
investees

Normalised segment earnings before net 
finance costs and tax

Normalisation adjustments:

–  New Zealand consumer and foodservice 

business

–  Disposal of Tip Top

–  Disposal of Venezuelan operations

–  Australian strategic reset

–  Other strategic reset costs

–  Beingmate

Segment earnings before net finance  
costs and tax

Finance income

Finance costs

Loss before tax from continuing 
operations

Other segment information:

Volume2 (metric tonnes, thousand)

Depreciation and amortisation ($ million)

Capital expenditure3

Equity accounted investments

–

(762)

67

16

23

–

(344)

3

–

–

–

(289)

1

(8)

(2)

–

(210)

4

(2)

(1)

790

81

153

133

–

–

(22)

(68)

(6)

–

(204)

(25)

–

–

(2)

–

–

–

–

–

–

–

–

–

–

–

–

(12)

694

(150)

153

121

(73)

(805)

283

4

(1)

4

44

–

–

(112)

–

(5)

–

12

(11)

1

411

(204)

(25)

(112)

–

(7)

(12)

51

3,149

(408)

446

181

627

(27)

43

–

297

(12)

10

–

313

(2)

1

–

365

(23)

17

12

1,602

(64)

71

12

(5)

(5)

1

74

–

25

(368)

833

–

(15)

–

–

(12)

–

(395)

(813)

(54)

49

9

(204)

(40)

(134)

(68)

(25)

(12)

350

15

(407)

(42)

3,938

(526)

566

202

1  Certain comparative information has been restated to ensure consistency with presentation in the current period.
2 
3  Capital expenditure comprises purchases of property, plant and equipment and intangible assets.

Includes intra and inter-segment sales. Total column represents total external sales.

86

87

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

b)  The new operating model 

Fonterra’s reportable segments are Asia Pacific, AMENA and Greater China. Comparative segment information is not available under the new 
operating model. Segment information has been presented for the current year and comparative period under the previous operating model in 
Section a) The previous operating model.

REPORTABLE SEGMENTS

DESCRIPTION

Asia Pacific

AMENA

Represents the ingredients, foodservice and FMCG businesses in New Zealand, South East Asia and Australia (including 
export to the Pacific Islands) and Sri Lanka and Indian sub-continent, and Fonterra Farm Source™ stores.

Represents the ingredients, foodservice and FMCG businesses in Africa, Middle East, Europe, North Asia and Americas 
(including Latin America).

Greater China

Represents the ingredients, foodservice and FMCG businesses in Greater China, and the Falcon China Farms JV.

Transactions between reportable segments follow underlying business rules that determine how each segment records a transaction. These rules have been 
designed to reflect the end-to-end contribution of each segment. Where there is common activity amongst segments and there is a distribution of those 
revenues and costs across segments, the attribution is based on a number of principles, including:

–  Activity based allocation where appropriate.

–  Volumes of product sold/manufactured in the segment.

–  The segments proportion of New Zealand sourced milk sales.

GROUP $ MILLION

31 JULY 2020

ASIA PACIFIC

AMENA  GREATER CHINA 

UNALLOCATED 
COSTS AND 
ELIMINATIONS

3,505

893

2,691

7,089

190

7,279

(6,043)

1,236

(941)

16

(20)

1

292

–

–

–

–

5

297

6,616

154

1,061

7,831

12

7,843

(6,804)

1,039

(629)

26

(24)

7

419

427

60

–

–

(13)

893

3,469

1,552

341

5,362

–

5,362

(4,593)

769

(386)

21

(17)

(12)

375

–

–

(65)

50

(22)

338

–

–

–

–

(202)

(202)

204

2

(238)

(7)

6

(2)

(239)

–

6

–

–

(13)

(246)

1,381

(235)

1,433

(222)

1,043

(133)

(15)

(23)

TOTAL

13,590

2,599

4,093

20,282

–

20,282

(17,236)

3,046

(2,194)

56

(55)

(6)

847

427

66

(65)

50

(43)

1,282

13

(317)

978

3,842

(613)

Continuing Operations

Normalised Income Statement

Ingredients channel revenue 

Foodservice channel revenue

Consumer channel revenue

Total external revenue

Inter-segment revenue

Revenue from sale of goods

Cost of goods sold

Gross profit

Operating expenses

Net other operating income

Net foreign exchange (losses)/gains

Share of profit/(loss) of equity accounted investees

Normalised earnings before net finance costs and tax

Normalisation adjustments:

–  Disposal of investment in DFE Pharma 

–  Disposal of investment in Goodminton

–  Falcon China Farms JV impairment

–  Beingmate

–  Other

Earnings before net finance costs and tax

Finance income

Finance costs

Profit before tax from continuing operations

Other segment information:

Volume1 (metric tonnes, thousand)

Depreciation and amortisation ($ million)

 1   Includes intra and inter-segment sales. Total column represents total external sales.

88

c)  Geographical analysis of revenue

NEW 
ZEALAND

AUSTRALIA

REST OF ASIA 
PACIFIC

UNITED 
STATES

LATIN 
AMERICA

REST OF 
AMENA

CHINA

TOTAL

GROUP $ MILLION

Geographical external revenue:

Year ended 31 July 2020

Year ended 31 July 2019 (restated)

1,658

1,676

1,670

1,776

5,881

5,590

949

931

1,604

1,715

3,322

3,215

5,198

4,352

20,282

19,255

Revenue is analysed by geography on the basis of the destination of the goods sold.

d)  Geographical analysis of non-current assets

Geographical non-current assets:

As at 31 July 2020

As at 31 July 2019

GROUP $ MILLION

NEW 
ZEALAND

AUSTRALIA

REST OF ASIA 
PACIFIC

AMENA

CHINA

TOTAL 

6,546

6,223

1,043

1,007

842

840

714

1,196

67

944

9,212

10,210

Reconciliation of geographical non-current assets to total non-current assets:

Geographical non-current assets 

Deferred tax assets

Derivative financial instruments 

Total non-current assets

GROUP $ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019 
RESTATED

9,212

10,210

421

664

610

440

10,297

11,260

89

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

2  STRATEGY REVIEW UPDATE

During the year ended 31 July 2019 Fonterra announced and began the implementation of a Group-wide strategy review. This note explains the accounting 
impact of the strategy review on the financial statements for the year ended 31 July 2020.

Since 31 July 2019 progress of the strategy review includes completion of the sales processes relating to the Group’s investments in Goodminton AG 
(Goodminton) and DMV Fonterra Excipients GmbH & Co. KG (DFE Pharma), and the sale of Dennington manufacturing site.

The Group’s holdings of Beingmate Baby & Child Food Co., Ltd. (Beingmate) shares continue to be held for trading with an active sales process in place. 
During the year the Group reduced its holdings in Beingmate from 18.82 per cent down to 9.11 per cent at 31 July 2020. The Group expects to sell its 
remaining investment within 12 months of balance date.

The strategic reviews of the China Farms and Brazil consumer and foodservice businesses have advanced such that the businesses meet the requirements 
to be classified as held for sale at 31 July 2020. Both the China Farms and Brazil consumer and foodservice businesses are considered to be discontinued 
operations.

Challenges with the operational performance of the Falcon China Farms JV led to the reassessment of the carrying value of the investment. 

The most significant impacts of the 2019 strategy review on the Group’s net profit after tax as presented in the Group’s Income Statement for the year 
ended 31 July 2020 are set out below: 

a)  Disposals CONTINUED

The gain on sale is shown below:

Sales proceeds received in cash

Impact of foreign currency hedge

Total sale proceeds received in cash

Investment disposed of

FCTR recycled 

Gain on sale

Goodminton was included in the AMENA reportable segment.

Disposal of investment in DMV Fonterra Excipients GmbH & Co.KG

$ MILLION

96

(2)

94

(34)

6

66

GROUP $ MILLION

On 23 January 2020 Fonterra completed the sale of its 50 per cent share of DFE Pharma. As at 31 July 2019, this investment was classified as held for sale. 

PRESENTED IN IMPACT OF STRATEGY REVIEW

PRESENTED IN DISCONTINUED 
OPERATIONS

DFE 
PHARMA 
SALE  
(NOTE 2A)

GOODMINTON 
INVESTMENT 
SALE (NOTE 2A)

DENNINGTON 
SALE
(NOTE 2A)

BEINGMATE
(NOTE 2B)

FALCON 
CHINA 
FARMS JV 
IMPAIRMENT 
(NOTE 2D)

OTHER 
STRATEGY 
RESET 
COSTS TOTAL

CHINA FARMS 
IMPAIRMENT 
(NOTE 2C)

BRAZIL 
CONSUMER 
AND 
FOODSERVICE 
IMPAIRMENT 

(NOTE 2C)  TOTAL

The transaction resulted in a gain on sale of $401 million. The gain on sale includes a debit balance of $16 million relating to DFE Pharma that was recycled 
from the foreign currency translation reserve and recognised as part of the net gain on sale. 

Sale proceeds of $620 million were received which was made up of cash of $527 million and an interest-bearing loan of $93 million. The sale and purchase 
agreement also contains earnout clauses in relation to earnings before interest, tax, depreciation and amortisation of DFE Pharma for the 2020 calendar 
year, and specifies completion adjustments, which are not included in the sales price of $620 million.

The gain on sale is shown below: 

–

–

–

66

–

–

66

–

–

66

–

66

–

–

–

12

–

–

12

–

(6)

6

–

6

–

–

–

–

–

50

50

–

–

50

–

50

–

–

–

–

(65)

–

–

(10)

(10)

–

–

–

26

(10)

16

479

(65)

50

(65)

(10)

480

–

–

(65)

–

–

–

–

(6)

(10)

474

–

–

(65)

(10)

474

–

–

–

–

–

–

–

(63)

–

(63)

–

(63)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

(104)

(167)

16

16

(88)

(151)

43

43

(45)

(108)

26

–

26

401

–

–

427

–

–

427

–

427

Revenue

Cost of goods sold

Gross profit

Gain on sale

Impairment

Other

Total net profit/(loss) 
before tax 

Discontinued operations

Tax impact

Profit/(loss) after tax

Non-controlling interests

Profit/(loss) attributable 
to shareholders

a)  Disposals

Disposals 

On disposal of an investment or a cash generating unit (CGU), or portion of a CGU, the related assets are derecognised. A gain or loss is recognised 
as the difference between the carrying value of the assets at the date of disposal and the net disposal proceeds. Any related exchange differences 
recorded in equity are recognised in the Income Statement as part of the gain or loss on sale. 

Disposal of investment in Goodminton AG

On 3 September 2019 Fonterra completed the sale of its investment in Goodminton. As at 31 July 2019, this investment was classified as held for sale.

The transaction resulted in a gain on sale of $66 million. The gain on sale includes a credit balance of $6 million relating to Goodminton that was recycled 
from the foreign currency translation reserve and recognised as part of the net gain on sale. 

90

Sales proceeds received in cash

Interest-bearing loan (included within Long-term advances)

Total sale proceeds received

Investment disposed of

FCTR recycled 

Transaction costs

Gain on sale

$ MILLION

527

93

620

(193)

(16)

(10)

401

DFE Pharma was included in the AMENA reportable segment.

In addition to the gain on sale of $401 million, Fonterra received $26 million of dividends from DFE Pharma during the year ended 31 July 2020 which have 
been recognised as revenue.

Disposal of Dennington 

On 29 May 2020 Fonterra completed the sale of the Dennington manufacturing site. The transaction resulted in a gain on sale of $12 million. Dennington 
was included in the Asia Pacific reportable segment.

b)  Beingmate Baby & Child Food Co., Ltd.

At 31 July 2020, the Group’s investment in Beingmate has been presented as a current asset as the Group expects to sell its remaining investment within 
12 months of balance date. At 31 July 2019 the investment in Beingmate was presented as a non-current asset. 

The Group’s investment in Beingmate is classified as “Held for Trading” in accordance with NZ IFRS 9 Financial Instruments and measured at fair value, with 
changes in fair value recognised in the Income Statement.

Beingmate shares are listed on the Shenzhen Stock Exchange. Listing rules over Beingmate shares limit Fonterra to selling a maximum of one per cent of 
total shares of Beingmate on-market and two per cent through block trading in each 90-day period. Future sales of Fonterra’s Beingmate shares will be 
transacted at the selling price achieved at the disposal date.

During the year ended 31 July 2020 Fonterra has been actively selling the shares held in Beingmate. The details of those sales are summarised in 
the table below:

As at 31 July 2019

Sales for the year

As at 31 July 2020

% SHARES

18.82

9.71

9.11

PRICE RMB

5.54

4.45–8.22

7.92

$ MILLION

234

127

157

The normalisation gain of $50 million (31 July 2019: loss of $12 million) relating to Beingmate in Note 1 Segment reporting includes realised and unrealised 
fair value and foreign exchange movements.

91

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

c)  Discontinued operations

Disposal groups classified as held for sale

A disposal group is a group of assets and liabilities to be disposed of (by sale or otherwise) in a single transaction. A disposal group is classified as held 
for sale if it is available for immediate sale in its present condition and its sale is highly probable. Judgement is required to determine if the sale of an 
investment is highly probable. 

Disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Immediately prior to 
being classified as held for sale, the carrying amounts of assets and liabilities in the disposal group are measured in accordance with the applicable 
accounting policy. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised in the 
Income Statement.

Assets of disposal groups held for sale are presented in a single line item within Current assets, and Liabilities of disposal groups held for sale 
are presented in a single line item within Current liabilities. Comparative period information in the Statement of Financial Position has not 
been re-presented. 

Discontinued operations

An investment that meets the criterion to be classified as held for sale (or has been sold) is a discontinued operation if it represents, or is part of a 
single co-ordinated plan to dispose of, a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with 
a view to resale.

Discontinued operations are presented in a single line item in the Income Statement for both the current and comparative year.

China Farms

During the year a sales process commenced for the China Farms business, which has advanced to the point that the business met the requirements to 
be classified as held for sale at 31 January 2020, and continues to do so at 31 July 2020. The divestment of the business also meets the definition of a 
discontinued operation because it is a separate line of business and a major geographical area of operation. The Group expects to complete the sale within 
one year of the reporting date.

As a result of the classification of the business as held for sale, the net assets of the business are measured at the lower of carrying value or fair value less 
costs to sell. The fair value of the China Farms business has been assessed based on information received through the sales process. On initial classification, 
the fair value was lower than the carrying value of the net assets of the business, which has resulted in an impairment of $63 million.

The Group has reassessed the fair value less costs to sell of the business at 31 July 2020 and no further impairment has been identified.

The China Farms business was previously presented as a separate reportable segment.

At 31 July 2020 the foreign currency translation reserve balance attributable to the China Farms business was a credit balance of $31 million.

Brazil consumer and foodservice business 

During the year a sales process commenced for the Brazil consumer and foodservice business which had advanced to the point that the business met the 
requirements to be classified as held for sale at 31 January 2020. The divestment of the business also meets the definition of a discontinued operation 
because it is a separate major geographical area of operation. As at 31 July 2020, despite the ongoing impact of the Covid-19 pandemic on the economic 
environment in Brazil, the Group remains committed to the sale of the business and expects to complete the sale within one year of the reporting date.

As a result of the classification of the business as held for sale, the net assets of the business are measured at the lower of carrying value or fair value less 
costs to sell. On initial classification, the fair value was lower than the carrying value of the net assets of the business, which has resulted in an impairment 
of $61 million (after tax), of which $31 million is attributable to Fonterra’s equity holders.

The Group has reassessed the fair value less costs to sell of the business at 31 July 2020 and recognised a further write-down of $27 million, of which 
$14 million is attributable to Fonterra’s equity holders.

The fair value of the Brazil consumer and foodservice business has been assessed based on information received through the sales process.

The Brazil consumer and foodservice business was previously included in the AMENA reportable segment. 

At 31 July 2020 the foreign currency translation reserve balance attributable to the Brazil consumer and foodservice business was a debit balance of 
$66 million.

c)  Discontinued operations CONTINUED

Financial performance of the discontinued operations

The summarised financial performance of the China Farms and Brazil consumer and foodservice businesses are shown in the table below:

DISCONTINUED OPERATIONS

Revenue from sale of goods

Cost of goods sold

China Farms impairment

Gross profit/(loss)

Other operating income

Total operating expenses and other

Brazil consumer and foodservice impairment

Loss before net finance costs and tax

Net finance costs

Loss before tax

Tax credit/(expense)

Loss after tax from discontinued operations

Non-controlling interests

Loss after tax attributable to equity holders

Movement in exchange differences on translation of discontinued operations

Other reserve movements

Total comprehensive expense from discontinued operations

Net cash inflow/(outflow) from operating activities

Net cash outflow from investing activities

Net cash outflow from financing activities

Net increase/(decrease) in cash generated by the discontinued operations

Assets and liabilities held for sale

The major classes of assets and liabilities held for sale are shown in the table below:

ASSETS AND LIABILITIES HELD FOR SALE

Trade receivables

Inventory

Property, plant and equipment

Livestock

Intangible assets

Other assets

Total assets of disposal groups held for sale

Borrowings 

Trade and other payables 

Provisions

Other liabilities

Total liabilities of disposal groups held for sale

$ MILLION

31 JULY 2020

31 JULY 2019

693

(531)

(63)

99

3

(133)

(104)

(135)

(28)

(163)

19

(144)

52

(92)

25

(17)

(136)

77

(6)

(1)

70

665

(563)

(203)

(101)

17

(140)

(143)

(367)

(26)

(393)

(95)

(488)

68

(420)

8

–

(480)

(6)

(34)

(48)

(88)

$ MILLION

AS AT 31 JULY 2020

73

47

279

253

140

213

1,005

289

197

55

62

603

As at 31 July 2019, the assets held for sale amount of $229 million related to the Group’s investments in Goodminton and DFE Pharma. These investments 
were sold during the year ended 31 July 2020.

92

93

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

c)  Discontinued operations CONTINUED

China Farms Livestock

As at 31 July 2020, the China Farms livestock balance of $253 million is presented in Assets of disposal groups held for sale. The China Farms livestock 
balance as at 31 July 2019 was $288 million and is presented in Livestock.

The China Farms livestock balance primarily comprises dairy cows. Livestock is measured at fair value less costs to sell, with any change in fair value 
recognised in Loss after tax from discontinued operations in the Income Statement. 

The China Farms dairy cow herd comprises both young and mature livestock. Young livestock comprises dairy cows that are intended to be reared to 
maturity. These cows are held to produce milk or offspring but have not yet produced their first calf and begun milk production. Costs incurred in rearing 
young livestock are capitalised. Mature livestock includes dairy cows that have produced their first calf and begun milk production. Costs incurred in 
relation to mature livestock are recognised in Loss after tax from discontinued operations.

The quantity of China Farms livestock is presented below:

Young dairy cows

Mature dairy cows

Total livestock headcount

The value of China Farms livestock is presented below:

Opening balance

Rearing costs of young livestock

Change in fair value recognised in the Income Statement

–  Change in fair value – birth and growth

–  Change in fair value – price changes

Subtotal change in fair value

Disposal of livestock

Effect of movements in exchange rates

Closing balance

Represented by:

Young dairy cows

Mature dairy cows

Total livestock 

HEADCOUNT

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

25,499

29,710

55,209

27,317

34,507

61,824

$ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

288

38

8

9

17

(82)

(8)

253

96

157

253

280

38

10

4

14

(49)

5

288

107

181

288

The change in fair values of China Farms livestock of $17 million (31 July 2019: $14 million) is reflected in Loss from discontinued operations in the 
Income Statement.

Valuation techniques and significant unobservable inputs

The fair value of young livestock is determined using a market approach, adjusted to reflect the age of the herd. The fair value of mature dairy cows is 
determined using a discounted cash flow methodology. 

The following table shows the relationship between the significant unobservable inputs and fair value measurement for mature dairy cows:

SIGNIFICANT UNOBSERVABLE INPUTS VALUE ATTRIBUTED

RELATIONSHIP BETWEEN KEY UNOBSERVABLE INPUTS AND FAIR VALUE MEASUREMENT

Raw milk daily yield

25.5 kg per cow per day  
(31 July 2019: 25.4 kg per cow per day)

A five per cent increase/(decrease) in the raw milk yield would result in an 
increase/(decrease) in fair value of $8 million (31 July 2019: $11 million).

RMB 3.93 per kg  
(31 July 2019: RMB 3.78 per kg)

A RMB 0.10 increase/(decrease) in the selling price of milk would result in an 
increase/(decrease) in fair value of $9 million (31 July 2019: $13 million).

11.0 per cent  
(31 July 2019: 11.34 per cent)

An increase/(decrease) in the discount rate of 50 basis points would result in a 
decrease/(increase) in the fair value of $1.3 million (31 July 2019: $1.7 million).

Milk price

Discount rate

94

d)  Falcon China Farms JV

Fonterra accounts for its interest in the Falcon China Farms JV using the equity method of accounting (refer to Note 18 Equity accounted investments for 
further information about equity accounted investments). 

At 31 January 2020, Fonterra’s share of losses of the Falcon Farms JV, animal management costs and challenging farm conditions provided indicators of 
impairment, and an impairment test was performed. Using a value in use model the recoverable amount of the equity investment in the Falcon China 
Farms JV, after considering the value of the loan receivable, was $5 million, resulting in an impairment of $65 million. The post-tax discount rate applied 
was 10.1 per cent. 

Fonterra’s share of the loss of the Falcon China Farms JV for the year to 31 July 2020 was a loss of $12 million (31 July 2019: $19 million).

The Group is committed to providing future funding to the Falcon China Farms JV of up to US$33 million (31 July 2019: US$40 million).

The Group recognises the following balances in relation to the Falcon China Farms JV:

Equity accounted investment 

Loan receivable (included within long-term advances) 

$ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019 

–

51

69

60

95

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

3  REVENUE FROM SALE OF GOODS

The Group recognises revenue from the sale of products when control of the products transfers to the customer. The amount of revenue recognised 
reflects the consideration that the Group expects to be entitled for providing the products to the customer.

The Group sells products either directly to customers or through distributors. 

For transactions with distributors, judgement is required to assess whether:

–  Control of the products passes and therefore revenue is recognised when the products are transferred to the distributor, in which case the distributor is 

Fonterra’s customer; or 

–  Fonterra retains control of the products after transfer to the distributor, in which case control of the products does not pass until the products reach the 
customer in the supply chain who does obtain control of the product. In this situation the customer, referred to as the ‘end customer’ may be a retailer, 
reseller or food manufacturer. As control of the product does not pass to the distributor, revenue is not recognised until the products are transferred to 
the end customer.

The assessment of whether control of the products passes to the distributor is a significant judgement. In assessing control the following indicators 
are considered:

–  The ability to direct the use of the product. This includes consideration of who has the primary responsibility for providing the products to the end 

customer and whether Fonterra can restrict who the distributor sells the product to.

–  The transfer of inventory risk and demand risk. This includes consideration of the level of, or allowance for, product returns and who bears the residual 

risk of product expiry.

–  The level of support provided by Fonterra to assist the distributor to on-sell the product. This includes consideration of collaboration on marketing plans, 

financial support provided by Fonterra through pricing discounts or funding of promotional activity.

Contractual terms vary across markets and sales channels. In most arrangements the contractual terms indicate that the distributor is responsible for 
providing the products to the end customer and has assumed the inventory risk. Fonterra often retains price risk through the provision of price discounts, 
funding promotional activity or influence over price setting. In general, these pricing mechanisms impact the amount of revenue recognised by Fonterra 
rather than indicating control of the products is retained. 

In order to conclude on the transfer of control of the products the contract must be assessed in its entirety, along with implied contractual terms based on 
commercial customary practices.

The transfer of control of the products typically occurs at the following times:

–  Ingredient products (export sales) – once the products are loaded onto the ship.

–  Ingredient products (domestic sales) – on delivery of the products to the customer’s designated location.

–  Consumer and foodservice products – on delivery of the products to the customer’s designated location.

Revenue is measured as the sales price specified in the contract adjusted for pricing adjustments, trade spend and rebates. Pricing adjustments, trade 
spend and rebates are recognised as deductions from revenue at the time that the related sale is recognised. The estimated amount of the deduction from 
revenue is based on historical experience and the specific terms of the contracts with customers so that it is highly probable that a significant reversal of 
revenue recognised will not occur. 

For export sales the Group sells a significant proportion of its products on terms that include freight and insurance to the destination port. For these sales 
the Group has a separate performance obligation to arrange freight and insurance services for the customers after the date at which control of the products 
passes to the customer. As Fonterra does not control the freight and insurance services before those services are transferred to the customer, Fonterra 
is acting as an agent. Therefore, Fonterra recognises the net agency fee as revenue when freight and insurance services are made available to customers, 
usually this is when the products are loaded onto the ship.

The Group offers credit terms which are short-term in nature. In addition, as part of its normal trade terms, the Group receives payments in advance from 
certain customers. Contracts with customers do not contain significant financing components.

Revenue is disaggregated by ingredients, foodservice and consumer channels across Fonterra’s reportable segments in Note 1b) Segment reporting. Sales to 
distributors where significant judgement is involved in determining the timing of revenue recognition are primarily in the foodservice channel.

4  COST OF GOODS SOLD 

Cost of goods sold is primarily made up of New Zealand sourced cost of milk.

New Zealand sourced cost of milk includes the cost of milk supplied by farmer shareholders, supplier premiums paid, and the cost of milk purchased 
from contract milk suppliers during the financial year. 

New Zealand sourced cost of milk supplied by farmer shareholders comprises the volume of milk solids supplied at the Farmgate Milk Price as 
determined by the Board for the relevant season. In making that determination the Board takes into account the Farmgate Milk Price calculated in 
accordance with the Farmgate Milk Price Manual, which is independently assured. The Fonterra Farmgate Milk Price Statement sets out information 
about the Farmgate Milk Price, and how it is calculated. It can be found in the ‘Investors/Farmgate Milk Prices’ section of Fonterra’s website.

Other costs include purchases of other products, raw materials and packing, direct labour costs, depreciation and other costs directly incurred to bring 
inventory to its final point of sale location.

Opening inventory

Cost of milk:

–  New Zealand sourced

–  Non-New Zealand sourced

Other costs

Closing inventory

Total cost of goods sold

5  EARNINGS PER SHARE 

GROUP $ MILLION

31 JULY 2020

3,165

10,888

1,007

5,444

(3,268)

17,236

31 JULY 2019 
RESTATED

2,917

9,748

966

5,883

(3,165)

16,349

Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Co-operative by the weighted average number 
of Co-operative shares outstanding during the period. 

Diluted earnings per share is determined by adjusting the profit or loss attributable to equity holders of the Co-operative and the weighted average 
number of Co-operative shares outstanding for the effects of all Co-operative shares with dilutive potential. There were no Co-operative shares with 
dilutive potential for either of the years presented.

Basic and diluted earnings/(loss) per share from continuing operations ($)

Basic and diluted loss per share from discontinued operations ($)

Basic and diluted earnings/(loss) per share ($)

Earnings attributable to equity holders of the Co-operative ($ million)

Weighted average number of shares (thousands of shares)

GROUP

31 JULY 2020

31 JULY 2019  
RESTATED

0.48

(0.05)

0.43

(0.09)

(0.26)

(0.35)

686

1,612,076

(562)

1,611,980

96

97

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

6  PROFIT BEFORE NET FINANCE COSTS AND TAX

DEBT AND EQUITY

Fonterra Annual Report 2020

Notes to the Financial Statements

a)  Items included in Profit before net finance costs and tax

The following items have been included in Profit before net finance costs and tax:

Operating lease expense recognised in accordance with NZ IAS 17

Lease related income and expenses recognised in accordance with NZ IFRS 16:

–  Short-term leases

–  Low value leases

–  Variable lease payments

Depreciation and amortisation expense

Research and development costs

Total employee benefits expense

Net foreign exchange losses

Contributions to defined contribution plans included in employee benefits expense

GROUP $ MILLION

31 JULY 2020

–

11

4

6

613

98

2,074

64

79

31 JULY 2019 
RESTATED

106

–

–

–

526

96

1,962

–

80

b)  Fees paid to the auditor and network firms

The appointed auditor for the year ended 31 July 2020 is KPMG (31 July 2019: PricewaterhouseCoopers). The Board has overseen compliance with 
Fonterra’s Group Audit Independence Policy. KPMG has not provided any services during the year other than audit and audit-related services.

The following table provides a breakdown of fees paid to the auditor and network firms which are included in Profit/(loss) after tax from continuing and 
discontinuing operations: 

Audit and review of the financial statements

–   New Zealand

–   Network firms of the auditor

Total fees for the audit and review of the financial statements

Audit-related services

–   Assurance services in respect of the Farmgate Milk Price Statement

–   Other assurance services

Total fees for audit-related services

Other services

–   Due diligence support

–   Strategic review support

–   Other services

Total fees for other services

Total fees paid to auditor

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

6.7

2.1

8.8

0.1

0.1

0.2

–

–

–

–

9.0

7.1

2.0

9.1

0.1

0.1

0.2

0.6

0.3

0.2

1.1

10.4

This section outlines the Group’s capital structure and the related financing costs. It also provides details on how the funds that finance current and future 
activities are raised and on how the Group manages liquidity risk and interest rate risk.

This section includes the following notes:

Note 7:  

Subscribed equity instruments

Note 8:   Dividends

Note 9:   Borrowings

Note 10:   Net finance costs

7  SUBSCRIBED EQUITY INSTRUMENTS 

Subscribed equity instruments comprise Co-operative shares and units in the Fonterra Shareholders’ Fund (the Fund). Incremental costs directly 
attributable to equity transactions are recognised as a deduction from subscribed equity.

a)  Co-operative shares, including shares held within the Group

Co-operative shares may only be held by a shareholder supplying milk to Fonterra (farmer shareholder), by former farmer shareholders for up to three 
seasons after cessation of milk supply, or by Fonterra Farmer Custodian Limited (the Custodian). Voting rights in Fonterra are dependent on milk supply 
supported by Co-operative shares, these rights are also attached to vouchers when backed by milk supply (subject to limits).

At 31 July 2020 there were 1,612,097,067 Co-operative shares on issue (31 July 2019: 1,611,991,722 shares).

During the year ended 31 July 2020, Fonterra issued 105,345 shares under the Farm Source Rewards scheme (31 July 2019: 68,806 shares).

The rights attaching to Co-operative shares are set out in Fonterra’s Constitution, available in the ‘Our Co-operative/Governance and Management’ section 
of Fonterra’s website.

b)  Units in the Fonterra Shareholders’ Fund 

The Custodian holds legal title of Co-operative shares of which the Economic Rights have been sold to the Fund on trust for the benefit of the Fund. 
At 31 July 2020, 104,581,516 Co-operative shares (31 July 2019: 102,934,582) were legally owned by the Custodian, on trust for the benefit of the Fund.

During the year ended 31 July 2020, Fonterra issued 17,298,927 units (31 July 2019: 17,769,331 units) and surrendered 15,651,993 units 
(31 July 2019: 26,258,352 units).

The rights attaching to units are set out in the Fonterra Shareholders’ Fund 2020 Annual Report, available in the ‘Investors/Fonterra Shareholder’s Fund’ 
section of Fonterra’s website.

c)  Capital management and structure

The Board’s objective is to maximise equity holder returns over time by maintaining an optimal capital structure. Trading Among Farmers (TAF) allows 
shares in Fonterra to be traded between shareholders, on the Fonterra Shareholders’ Market (a private market operated by the NZX Limited). The Fund 
supports this by allowing investors, including farmers, to trade in units backed by Economic Rights in Fonterra. The Fund also allows farmer shareholders to 
acquire units and exchange them for shares in Fonterra, and to exchange shares for units and dispose of those units on the New Zealand Exchange Limited 
(NZX) or Australian Securities Exchange (ASX).

The Group provides returns to farmer shareholders through a milk price, and to equity holders through dividends and changes in Fonterra’s share price. 

The Fund is subject to the issue and redemption of units at the discretion of Fonterra and Fonterra’s farmer shareholders. Fonterra has an interest in 
ensuring the stability of the Fund and has established a Fund Size Risk Management Policy which requires that the number of units on issue remain within 
specified limits and that, within these limits, the number of units is managed appropriately. Fonterra may use a range of measures to ensure the Fund size 
remains within the specified limits, including introducing or cancelling a dividend reinvestment plan, operating a unit/or share repurchase programme 
and issuing new shares. As at 31 July 2020, the Actual Fund Size relative to total Fonterra shares on issue was below the target range specified in the 
Fund Size Risk Management Policy. The Group has taken no specific actions to address this as it expects the Fund size to increase over time as Fonterra’s 
performance improves.

d)  Market capitalisation 

At 31 July 2020, Fonterra’s share and unit prices were below the book value of the Group’s consolidated net assets. Fonterra determined that this was not 
an indicator of impairment and did not require further impairment testing for all, or for further components of Fonterra’s business. This determination 
considered Fonterra’s view that the share and unit price does not fully reflect the fair value of Fonterra’s business as a whole. A key factor is that Fonterra 
shares and units trade without a full control premium.

98

99

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

8  DIVIDENDS

All Co-operative shares, including those held by the Custodian, are eligible to receive dividends if declared by the Board.

Dividends are recognised as a liability in the Group’s financial statements in the period in which they are declared by the Board.

No dividend was paid during the year ended 31 July 2020 (31 July 2019: nil). 

Dividends declared after balance date

On 17 September 2020, the Board declared a final dividend of 5 cents per share, to be paid on 15 October 2020 to all Co-operative shares on issue at 
25 September 2020.

Fonterra has a Dividend Reinvestment Plan, where eligible shareholders can choose to reinvest all or part of their future dividend in additional Co-operative 
shares. The Dividend Reinvestment Plan applies to this dividend. Participation in the Dividend Reinvestment Plan requires shareholders to submit an 
election notice for participation by 28 September 2020. Full details of the Dividend Reinvestment Plan are available in the ‘Investors/Dividends’ section of 
Fonterra’s website.

9  BORROWINGS 

The Group borrows in the form of bonds, bank facilities and other financial instruments. The Group also recognises lease liabilities within borrowings. 
The interest expense incurred on the Group’s borrowings is shown in Note 10 Net finance costs.

Borrowings (excluding lease liabilities) are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at 
amortised cost using the effective interest method, with the hedged risks on certain debt instruments measured at fair value. Details of the Group’s 
hedge accounting policies are included in Note 19 Financial risk management.

Lease liabilities are recognised at the commencement date of the lease as the present value of the lease payments over the lease term. The lease 
payments include the exercise price of a purchase option where the Group is reasonably certain to exercise the option. 

The lease payments are discounted using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is 
not readily determinable. 

The lease term is the non-cancellable period, plus renewal options if they are reasonably certain to be exercised. Once a lease has commenced, the 
Group will only reassess the lease term on the occurrence of a significant event or change in circumstance that is within its control and affects its 
ability to exercise, or not exercise, an option not previously included in the lease term.

a)  Economic net interest-bearing debt

Economic net interest-bearing debt reflects the carrying value of the Group’s net interest-bearing debt after incorporating the effect of debt hedging in 
place at balance date.

Net interest-bearing debt position

Total borrowings

Cash and cash equivalents

Interest-bearing advances

Bank overdraft

Net interest-bearing debt

Value of derivatives used to manage changes in hedged risks on debt instruments

Economic net interest-bearing debt

GROUP $ MILLION

AS AT  
31 JULY 2020

AS AT  
31 JULY 2019 
RESTATED

6,041

(788)

(220)

31

5,064

(405)

4,659

6,555

(550)

(142)

34

5,897

(148)

5,749

a)  Economic net interest-bearing debt CONTINUED

Total borrowings are represented by:

GROUP $ MILLION

BALANCE 
AS AT 1 
AUGUST 2019

PROCEEDS

NEW LEASE 
CONTRACTS

REPAYMENTS

FOREIGN 
EXCHANGE 
MOVEMENT

CHANGES IN 
FAIR VALUES

TRANSFERRED 
TO LIABILITIES 
OF DISPOSAL 
GROUPS HELD 
FOR SALE

BALANCE 
AS AT 
31 JULY 2020

OTHER

Commercial paper

Bank loans

Lease liabilities1

Capital notes2

NZX-listed bonds

Medium-term notes

Total borrowings3

259

619

652

35

600

4,971

7,136

333

1,953

–

–

–

–

–

–

123

–

–

–

(594)

(2,186)

(161)

–

–

(440)

2,286

123

(3,381)

–

(88)

–

–

–

87

(1)

–

–

–

–

–

165

165

–

(278)

(11)

–

–

–

(289)

2

–

1

–

–

(1)

2

–

20

604

35

600

4,782

6,041

Commercial paper

Bank loans

Finance leases recognised in accordance with NZ IAS 171

Capital notes2

NZX-listed bonds

Medium-term notes

Total borrowings3

GROUP $ MILLION

BALANCE 
AS AT  
1 AUGUST 
2018 
RESTATED

304

1,128

131

35

500

4,659

6,757

PROCEEDS

REPAYMENTS

FOREIGN 
EXCHANGE 
MOVEMENT

CHANGES IN 
FAIR VALUES

BALANCE  
AS AT  
31 JULY 2019 
RESTATED

OTHER

1,219

2,574

–

–

100

393

4,286

(1,271)

(3,087)

(60)

–

–

(271)

(4,689)

–

4

–

–

–

(27)

(23)

–

–

–

–

–

214

214

7

–

–

–

–

3

10

259

619

71

35

600

4,971

6,555

1  From 1 August 2019 this amount includes leases recognised following the adoption of NZ IFRS 16 Leases. For details on the impact of the change in the lease accounting refer to Note 27 Impact of 

transition to NZ IFRS 16 Leases.

2  Capital notes are unsecured subordinated borrowings. 
3  All borrowings other than lease liabilities and capital notes are unsecured and unsubordinated.

Included in the Statement of Financial Position as follows:

Total current borrowings

Total non-current borrowings

Total borrowings1

GROUP $ MILLION

AS AT 31 JULY 2020

AS AT 31 JULY 2019 
RESTATED

764

5,277

6,041

1,175

5,380

6,555

1   The 31 July 2020 balance excludes $289 million of borrowings directly attributable to the China Farms and Brazil consumer and foodservice businesses. These borrowings are presented in Liabilities 
of disposal groups held for sale (refer Note 2c). Borrowings directly attributable to China Farms and Brazil consumer and foodservice businesses at 31 July 2019 were $339 million and have not been 
re-presented.

100

101

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

b)  Leverage ratios

The Board closely monitors the Group’s leverage ratios. The primary ratios monitored by the Board are as follows.

Debt payback 

The main debt payback ratio, Debt to EBITDA, is a key ratio considered by the credit rating agencies when determining Fonterra’s credit rating. Debt to 
EBITDA is calculated as Total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance of 75% of Cash and cash equivalents, 
divided by normalised earnings before interest, tax, depreciation and amortisation (normalised EBITDA) excluding Share of loss/profit of equity accounted 
investees and net foreign exchange losses/gains. Both Debt and EBITDA are adjusted to include amounts relating to businesses classified as held for sale. 
The debt payback ratio as at 31 July 2020 was 3.4x (31 July 2019: 4.4x). The Board approved Debt Policy determines a long-term target Debt to EBITDA 
payback ratio range of 2.5x to 3.0x.

Gearing 

The gearing ratio is calculated as economic net interest-bearing debt, divided by equity plus economic net interest-bearing debt. Equity is as presented in 
the Statement of Financial Position, excluding hedge reserves. The gearing ratio as at 31 July 2020 was 41.4 per cent (31 July 2019: 48.5 per cent).

The Group is not subject to externally imposed capital requirements. 

c)  Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity risk is to 
ensure that it will always have sufficient funds to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable 
losses or risking damage to the Group’s reputation.

The Group has a policy in place to ensure that it has sufficient cash or facilities on demand to meet expected operational expenses for a period of at least 
80 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, 
such as natural disasters. In such situations back-up funding lines are maintained and as set out in Fonterra’s constitution, Fonterra can defer payments to 
farmer shareholders if necessary.

The Group manages its liquidity by retaining cash and marketable securities, the availability of funding from an adequate amount of committed credit 
facilities and the ability to close out market positions. The Group’s funding facilities are reviewed at least annually, which is one of the key financial risk 
management activities undertaken by the Group to ensure an appropriate maturity profile given the nature of the Group’s business. At balance date the 
Group had undrawn lines of committed credit totalling $3,210 million (31 July 2019: $3,149 million).

Liquidity and refinancing risks are also managed by ensuring that the Group can maintain access to funding markets throughout the world. To that end, the 
Group maintains debt issuance programmes in a number of key markets and manages relationships with international investors. 

The concentration of NZX-listed bonds and medium-term notes by currency is shown below:

New Zealand Dollar

Australian Dollar

United States Dollar

British Pound

European Euro

Chinese Renminbi

Total 

GROUP $ MILLION

AS AT 
 31 JULY 2020

AS AT 
31 JULY 2019

1,020

1,359

1,699

502

632

170

5,382

1,163

1,295

1,631

485

602

395

5,571

c)  Liquidity risk CONTINUED

Exposure to liquidity risk

The following tables show the timing of the gross contractual cash flows of the Group’s financial instruments.

GROUP $ MILLION

AS AT 31 JULY 2020

CARRYING 
AMOUNT

CONTRACTUAL 
CASH FLOWS

3 MONTHS  
OR LESS

3–12  
MONTHS

1–5  
YEARS

MORE THAN  
5 YEARS

Non-derivative financial liabilities

Borrowings 

–  Bank loans

–  Lease liabilities

–  Capital notes

–  NZX-listed bonds

–  Medium-term notes

Bank overdraft

Owing to suppliers

Trade and other payables (excluding employee entitlements)

Other financial liabilities

Financial guarantees issued1

(20)

(604)

(35)

(600)

(21)

(611)

(39)

(665)

(4,782)

(5,253)

(31)

(1,588)

(1,683)

(80)

–

(31)

(1,588)

(1,683)

(80)

(1)

(4)

(27)

–

(11)

(27)

(31)

(1,588)

(1,683)

(8)

(1)

Total non-derivative financial liabilities

(9,423)

(9,972)

(3,380)

Derivative financial instruments

Gross settled derivatives

–  Inflow

–  Outflow 

Total gross settled derivative financial instruments

Net settled derivatives

20,938

(20,334)

604

(81)

9,667

(9,600)

67

(23)

636

(116)

Total financial liabilities and derivatives

(8,903)

(9,449)

(3,336)

1  Maximum cash flows under guarantees provided by the Group.

(10)

(79)

(1)

(15)

(7)

(292)

(3)

(537)

–

(213)

(35)

(102)

(792)

(2,386)

(2,048)

–

–

–

(16)

–

(913)

7,368

(7,106)

262

(36)

(687)

–

–

–

(55)

–

–

–

–

(1)

–

(3,280)

(2,399)

2,290

(2,286)

4

(47)

1,613

(1,342)

271

25

(3,323)

(2,103)

102

103

Fonterra Annual Report 2020

Notes to the Financial Statements

10  NET FINANCE COSTS

Interest income and expense is recognised on an accrual basis in the Income Statement, using the effective interest method.

Finance costs also include the changes in fair value relating to derivatives used to manage interest rate risk, and the associated changes in fair value 
of the borrowings designated in a hedge relationship attributable to the hedged risk. Details of the Group’s hedge accounting policies are included in 
Note 19 Financial risk management.

Finance income

Total interest expense1,2

Changes in fair value relating to:

–  Borrowings designated in a hedge relationship

–  Derivatives designated in a hedge relationship

–  Derivatives where hedge accounting has not been applied

Total interest income/(expense) from fair value movements

Finance costs

Net finance costs

GROUP $ MILLION

31 JULY 2020

31 JULY 2019 
RESTATED

13

(354)

(158)

199

(4)

37

(317)

(304)

15

(388)

(201)

194

(12)

(19)

(407)

(392)

1 
2 

Includes interest expense of $4 million (31 July 2019: $9 million) relating to derivatives where hedge accounting has not been applied.
Includes interest expense relating to leases of $23 million recognised in accordance with NZ IFRS 16 Leases (31 July 2019: $8 million recognised in accordance with NZ IAS 17 Leases). 
For details on the impact of the change in the lease accounting on recognition of lease liabilities refer to Note 27 Impact of transition to NZ IFRS 16 Leases.

Interest rate risk 

Details of how the Group manages interest rate risk are included in Note 19 Financial risk management.

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

c)  Liquidity risk CONTINUED

Non-derivative financial liabilities

Borrowings 

–  Commercial paper

–  Bank loans

–  Finance leases recognised in accordance with NZ IAS 17

–  Capital notes

–  NZX-listed bonds

–  Medium-term notes1

Bank overdraft

Owing to suppliers

Trade and other payables (excluding employee entitlements)

Other financial liabilities

Financial guarantees issued2

GROUP $ MILLION

AS AT 31 JULY 2019  
RESTATED

CARRYING 
AMOUNT

CONTRACTUAL 
CASH FLOWS

3 MONTHS  
OR LESS

3–12  
MONTHS

1–5  
YEARS

MORE THAN  
5 YEARS

(259)

(619)

(71)

(35)

(600)

(4,971)

(34)

(1,534)

(1,914)

(81)

–

(260)

(649)

(78)

(41)

(691)

(5,979)

(34)

(1,534)

(1,914)

(82)

(1)

(260)

(92)

(2)

–

(11)

(32)

(34)

(1,534)

(1,914)

(10)

(1)

–

(321)

(67)

(1)

(15)

(606)

–

–

–

(15)

–

–

(236)

(6)

(5)

(559)

(2,335)

–

–

–

(57)

–

–

–

(3)

(35)

(106)

(3,006)

–

–

–

–

–

Total non-derivative financial liabilities

(10,118)

(11,263)

(3,890)

(1,025)

(3,198)

(3,150)

Derivative financial instruments

Gross settled derivatives

–  Inflow

–  Outflow 

Total gross settled derivative financial instruments

Net settled derivatives

16,585

(16,807)

(222)

(87)

6,182

(6,244)

(62)

(35)

6,322

(6,468)

(146)

(11)

2,085

(2,379)

(294)

(61)

1,996

(1,716)

280

20

(139)

(125)

Total financial liabilities and derivatives

(10,382)

(11,572)

(3,987)

(1,182)

(3,553)

(2,850)

1  Comparatives have been restated to ensure consistency with the current year presentation.
2  Maximum cash flows under guarantees provided by the Group.

d)  Lease liabilities

Total lease liabilities included within borrowings in the Statement of Financial Position are shown below:

Current lease liabilities

Non-current lease liabilities

Total lease liabilities

GROUP $ MILLION

AS AT 
31 JULY 2020

104

500

604

During the year, total cash payments for leases were $201 million.

In addition to the lease liability recognised, the Group’s lease arrangements include renewal options, termination options and residual guarantees that have 
been assessed as unlikely to result in cash payments. 

As at 31 July 2020, the Group has entered into a number of lease arrangements that have not yet commenced. The total lease liability that will be 
recognised on commencement of these leases in the next 12 months is $3 million.

There has been no change in the Group’s funding strategy that would result in a significantly different profile of short-term or low-value leases.

104

105

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

WORKING CAPITAL

This section provides information about the primary elements of the Group’s working capital. Working capital represents the short-term operating assets 
and liabilities generated by the Group. Movements in these items have a direct impact on the net cash flows generated from operating activities.

This section includes the following notes:

Note 11:  Trade and other receivables

Note 12:  

Inventories

Note 13:  Trade and other payables

Note 14:  Owing to suppliers

11  TRADE AND OTHER RECEIVABLES 

Trade receivables are amounts due from customers for products sold and services provided. Trade receivables are recognised initially at their 
transaction price and subsequently measured at the amount expected to be collected.

Estimates are used in determining the level of receivables that may not be collected. The Group recognises a provision for impairment on trade 
receivables based on the lifetime expected credit loss at each reporting date.

Trade receivables

Less: provision for impairment of trade receivables

Trade receivables net of provision for impairment

Receivables from related parties

Other receivables

Total receivables

Prepayments

Total trade and other receivables

GROUP $ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019  
RESTATED

1,623

(12)

1,611

24

140

1,775

57

1,832

1,730

(24)

1,706

25

93

1,824

47

1,871

Amounts received in advance from customers of $32 million (31 July 2019: $28 million) have been recognised in trade and other payables.

The Group has a receivables management programme. At 31 July 2020 the Group’s exposure was $18 million, which reflects the first loss component of 
amounts managed at balance date.

Refer to Note 22 Related party transactions for details of receivables from related parties.

Credit risk 

Details of how the Group manages credit risk are included in Note 19 Financial risk management.

The ageing profile of the Group’s trade and other receivables (excluding prepayments) is as follows:

GROUP $ MILLION

As at 31 July 2020

As at 31 July 2019

CURRENT

1,557

1,553

LESS THAN  
1 MONTH  
PAST DUE

MORE THAN 1 MONTH 
BUT LESS THAN 
3 MONTHS PAST DUE

100

145

46

85

MORE THAN 
3 MONTHS  
PAST DUE

72

41

TOTAL

1,775

1,824

12  INVENTORIES 

Inventories are stated at the lower of cost or net realisable value on a first-in-first-out basis.

In the case of manufactured inventories, cost includes all direct costs plus the portion of fixed and variable production overheads incurred in bringing 
inventories to their present location and condition. 

Net realisable value is the estimated selling price, less the costs of completion and selling expenses.

Raw materials

Finished goods

Less: provision for impairment of inventories

Total inventories

13  TRADE AND OTHER PAYABLES 

GROUP $ MILLION

AS AT 
31 JULY 2020

626

2,693

(51)

3,268

AS AT 
31 JULY 2019  
RESTATED

678

2,522

(35)

3,165

Trade and other payables are recognised at the amount invoiced by the supplier. Due to their short-term nature, they are not discounted. Amounts 
owing to farmer shareholders and New Zealand contract milk suppliers are recognised in Owing to Suppliers (refer to Note 14 Owing to suppliers).

Trade payables

Amounts due to related parties

Other payables

Total trade and other payables (excluding employee entitlements)

Employee entitlements

Total trade and other payables

Refer to Note 22 Related party transactions for details of payables to related parties.

14  OWING TO SUPPLIERS

GROUP $ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019 
RESTATED

1,526

29

128

1,683

321

2,004

1,753

31

130

1,914

193

2,107

Amounts owing to suppliers are amounts Fonterra owes to farmer shareholders and New Zealand contract milk suppliers for the collection of milk, 
which includes end of season adjustments, offset by amounts owing from farmer shareholders for goods and services provided to them by Fonterra.

These amounts are recognised at the amount due to the supplier for the milk provided. Due to their short-term nature, they are not discounted.

The Board uses its discretion in establishing the rate at which Fonterra will pay suppliers for the milk supplied over the season. This is referred to as the 
advance rate. The following table provides a breakdown of the advance payments made to suppliers:

Owing to suppliers ($ million)

Details relating to the season ended 31 May are shown below:

Farmgate Milk Price1 (per kgMS)

–  Total advance payments made during the year

–  Total owing as at 31 July

Amount advanced during the year as a percentage of the milk price

GROUP

AS AT 
31 JULY 2020

1,588

$7.14

$6.15

$0.99

86%

AS AT 
31 JULY 2019

1,534

$6.35

$5.40

$0.95

85%

1  Represents the average price for milk supplied on standard terms of supply. The Fonterra Farmgate Milk Price Statement sets out information about the Farmgate Milk Price as calculated in accordance 

with the Farmgate Milk Price Manual. It can be found in the ‘Investors/Farmgate Milk Prices’ section of Fonterra’s website.

106

107

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

LONG-TERM ASSETS

This section provides information about the investments the Group has made in long-term assets to operate the business and generate returns to equity 
holders. These assets include physical assets such as land and buildings, and non-physical assets such as right-of-use assets, brands and goodwill. This 
section also explains the estimates and judgements applied in the measurement of these assets.

This section includes the following notes:

Note 15:   Property, plant and equipment

Note 16:  Right-of-use assets

Note 17:  

Intangible assets

15  PROPERTY, PLANT AND EQUIPMENT

Items of property, plant and equipment are measured at cost less accumulated depreciation and any impairment losses. Cost includes the purchase 
consideration and those costs directly attributable to bringing the asset to the location and condition necessary for its intended use. It also includes 
financing costs directly attributable to the acquisition, production or construction of the asset. Subsequent costs are capitalised only when it is 
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying 
amount of any replaced part is derecognised. All other repairs and maintenance costs are charged to the Income Statement during the financial period 
in which they are incurred.

The assets’ residual values and useful lives are reviewed and adjusted, where required, each financial year.

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount, and are recognised in the 
Income Statement.

Depreciation

Depreciation is calculated on a straight-line basis to allocate the cost of the asset, less any residual value, over its estimated useful life. The range of 
estimated useful lives for each class of property, plant and equipment is as follows:

–  Land 

Indefinite

–   Buildings and leasehold improvements 

2–55 years

–   Plant, vehicles and equipment 

2–50 years

As at 31 July 2020

Cost 

Accumulated depreciation and impairment

Net book value at 31 July 2020

As at 31 July 2019

Cost 

Accumulated depreciation and impairment

Net book value at 31 July 2019

GROUP $ MILLION

BUILDINGS AND 
LEASEHOLD 
IMPROVEMENTS

PLANT, VEHICLES 
AND EQUIPMENT

CAPITAL WORK  
IN PROGRESS

2,576

(1,053)

1,523

2,965

(1,200)

1,765

8,145

(4,335)

3,810

8,553

(4,455)

4,098

316

–

316

295

–

295

LAND

357

–

357

354

–

354

TOTAL

11,394

(5,388)

6,006

12,167

(5,655)

6,512

15  PROPERTY, PLANT AND EQUIPMENT CONTINUED

Net book value

As at 1 August 2019

Finance leases transferred to Right-of-use assets1

Adjusted balance as at 1 August 2019

Additions2

Transferred from Right-of-use assets

Transferred from capital work in progress

Depreciation charge 

Impairment3

Disposals

Transferred to Assets of disposal groups held for sale

Foreign currency translation

As at 31 July 2020

Net book value

As at 1 August 2018

Additions2

Transferred from capital work in progress

Depreciation charge 

Impairment

Disposals

Foreign currency translation

As at 31 July 2019

GROUP $ MILLION

BUILDINGS AND 
LEASEHOLD 
IMPROVEMENTS

LAND

PLANT, VEHICLES 
AND EQUIPMENT

CAPITAL WORK  
IN PROGRESS

4,098

(9)

4,089

6

4

274

(330)

(50)

(28)

(138)

(17)

295

–

295

364

–

(336)

–

–

(1)

(5)

(1)

TOTAL

6,512

(56)

6,456

370

47

–

(422)

(96)

(35)

(279)

(35)

3,810

316

6,006

3,990

75

603

(361)

(134)

(59)

(16)

721

483

(869)

–

–

(29)

(11)

295

6,810

583

–

(458)

(233)

(146)

(44)

6,512

1,765

4,098

354

(5)

349

–

5

7

–

–

(3)

(1)

–

357

354

5

30

–

–

(31)

(4)

354

1,765

(42)

1,723

–

38

55

(92)

(46)

(3)

(135)

(17)

1,523

1,745

20

236

(97)

(99)

(27)

(13)

1  On the adoption of IFRS 16 Leases, finance leases included in property, plant and equipment were transferred to Right-of-use assets. For further details on the impact of the change in lease accounting 

refer to Note 27 Impact of transition to NZ IFRS 16 Leases.

2   Additions include borrowing costs of $3 million (2019: $6 million) capitalised using a weighted average interest rate of 5.24 per cent (2019: 5.21 per cent).
3   Impairment of $89 million relates to building and leasehold improvements and plant, vehicles and equipment of the China Farms and Brazil consumer and foodservice businesses which have been 

transferred to Assets of disposal groups held for sale.

New Zealand Ingredients manufacturing assets

Fonterra’s New Zealand Ingredients manufacturing sites are utilised as a single network for processing raw milk supply, including meeting peak milk 
processing requirements. The Group considers there are no indicators of impairment for Fonterra’s New Zealand Ingredients manufacturing sites.

108

109

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

16  RIGHT-OF-USE ASSETS 

Right-of-use assets are initially measured at cost, less any accumulated depreciation and any impairment losses. Cost is calculated as the initial amount 
of the lease liability plus any initial direct costs incurred and an estimate of costs required to dismantle and remove the underlying asset or to restore 
the underlying asset or the site on which it is located.

Right-of-use assets are depreciated on a straight-line basis over the lease term, unless the useful life of the asset is less than the lease term or if the 
Group will own the asset at the end of the lease term, in which situations the right-of-use asset is depreciated over the useful life of the asset, which is 
determined on the same basis as those of property, plant and equipment. Right-of-use assets are also adjusted for any impairment losses and certain 
remeasurements of the lease liability.

The Group enters into lease arrangements for land and buildings with options for renewal that typically run for a period of three to ten years, however 
some property leases can run up to a period of 50 years. Lease payment changes are renegotiated at periods specified in the lease contracts, and are 
usually based on local price indices or market rental rates. 

Leases for plant, vehicles and equipment typically run for a period of two to five years.

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. These lease costs 
are recognised as an expense as incurred.

Information about Right-of-use assets from leases for which the Group is a lessee is presented below:

Land

Buildings

Plant, vehicles and equipment

Total

Additions to Right-of-use assets during the year were $124 million.

GROUP $ MILLION

NET BOOK VALUE  
AS AT 31 JULY 2020

DEPRECIATION CHARGE 
FOR THE YEAR ENDED  
31 JULY 2020

24

383

162

569

2

62

42

106

17  INTANGIBLE ASSETS 

The significant intangible assets recognised by the Group are goodwill, brands and software assets.

Goodwill

Goodwill represents the premium paid by the Group over the fair value of the Group’s share of the net identifiable assets of an acquired subsidiary 
at the date of acquisition. Goodwill is initially recognised at cost and subsequently measured at cost less accumulated impairment losses. Goodwill is 
not amortised. 

Brands

Brands that are purchased by the Group are initially recognised at cost, or at their fair value if acquired as part of a business combination. A brand is 
determined to have an indefinite life where there is an intention to maintain and support the brand for an indefinite period. 

Indefinite life brands are not amortised. They are subsequently measured at cost less any impairment losses. 

Software assets

Software assets, both purchased and internally developed, are capitalised provided there is an identifiable asset that will generate future economic 
benefits through cost savings or supporting revenue generation. Subsequent costs are capitalised if they extend the useful life or enhance the 
functionality of the asset.

Software assets are amortised on a straight-line basis over their estimated useful lives (three to 14 years). 

Impairment testing

Goodwill and indefinite life brands are tested for impairment annually, or more frequently if there is an indicator of impairment.

Indefinite life brands that have been impaired are reviewed for possible reversal of impairment annually. A reversal of an impairment loss shall not 
exceed the carrying amount that would have been recognised had no impairment loss occurred in prior years. 

Software assets are tested for impairment when an indicator of impairment exists.

A cash-generating unit (CGU) is tested for impairment when there are indicators of impairment. An impairment test is also completed on an annual 
basis when a CGU has goodwill or indefinite life intangibles allocated to it. To determine if an asset or CGU is impaired, the carrying amount of the 
asset or CGU is compared to its recoverable amount, being the higher of its value in use and fair value less costs to dispose. If the carrying amount is 
higher than recoverable amount the CGU is impaired to its recoverable amount. 

Value in use is determined as the present value of the future cash flows expected to be derived from the CGU. The value in use calculation requires 
the Group to estimate future cash flows, pre-tax discount rates and terminal growth rates. Fair value less costs to dispose reflects the price that would 
be received to sell the CGU in an orderly transaction between market participants at the measurement date less the costs of disposal.

As at 31 July 2020

Cost

Accumulated amortisation and impairment

Net book value at 31 July 2020

As at 31 July 2019

Cost

Accumulated amortisation and impairment

Net book value at 31 July 2019

GROUP $ MILLION

GOODWILL

BRANDS

SOFTWARE

SOFTWARE WIP

OTHER

854

(317)

537

892

(331)

561

1,424

(177)

1,247

1,641

(97)

1,544

1,527

(1,173)

354

1,492

(1,090)

402

40

–

40

36

–

36

78

(16)

62

70

(16)

54

TOTAL 
INTANGIBLES

3,923

(1,683)

2,240

4,131

(1,534)

2,597

110

111

Notes to the Financial Statements CONTINUED

Fonterra Annual Report 2020

Notes to the Financial Statements

GOODWILL

BRANDS

SOFTWARE

SOFTWARE WIP

OTHER

TOTAL 
INTANGIBLES

GROUP $ MILLION

As described in Note 1 Segment reporting the Group’s reportable segments for the year ended 31 July 2020 have changed from the prior year reportable 
segments. The change in reportable segments has led to a reconsideration of the Group’s CGUs.

The allocation of goodwill and brands across the Group’s reportable segments as at 31 July 2020 are shown in the table below:

17  INTANGIBLE ASSETS CONTINUED

Goodwill and indefinite life brands

FOR THE YEAR ENDED 31 JULY 2020

17  INTANGIBLE ASSETS CONTINUED

Net book value 

As at 1 August 2019

Additions

Transferred from work in progress

Amortisation 

Impairment

Impairment reversal

Disposals

Transferred to assets of disposal groups held 
for sale

Foreign currency translation

As at 31 July 2020

Net book value 

As at 1 August 2018

Additions

Transferred from work in progress

Amortisation 

Impairment

Disposals

Foreign currency translation

As at 31 July 2019

561

1,544

–

–

–

(21)

–

–

–

(3)

537

–

–

–

(85)

–

–

(140)

(72)

1,247

1,081

1,638

–

–

–

(327)

(176)

(17)

561

–

–

–

(4)

(107)

17

1,544

402

1

44

(97)

–

3

(1)

–

2

354

396

2

138

(101)

(29)

(2)

(2)

402

36

51

(44)

–

–

–

(3)

–

–

40

96

78

(138)

–

–

–

–

36

54

13

–

(2)

–

–

(3)

–

–

62

16

40

–

(2)

–

–

–

54

2,597

65

–

(99)

(106)

3

(7)

(140)

(73)

2,240

3,227

120

–

(103)

(360)

(285)

(2)

2,597

Amortisation is recognised in Other operating expenses in the Income Statement. 

Reconciliation of impairment of intangible assets in the above table to the amount reported in the Income Statement:

GROUP $ MILLION

Net impairment of intangible assets 

Brazil consumer and foodservice business brand impairment included in Loss after tax from discontinued operations

Impairment of intangible assets not included in strategic review

FOR THE YEAR ENDED  
31 JULY 2020

103

(48)

55

GROUP $ MILLION

AS AT 31 JULY 2020

GOODWILL

BRANDS

TOTAL

Asia Pacific reportable segment

–  New Zealand consumer and foodservice CGU

–  Australia CGU

–  Asia brands

–  NZMP brand

AMENA reportable segment

–  Chile CGU

Other CGUs

Total

229

134

–

–

101

73

537

283

148

674

120

22

–

1,247

The allocation of goodwill and brands across the Group’s reportable segments as at 31 July 2019 are shown in the table below:

Ingredients CGUs

Consumer and Foodservice CGUs

–  Australia

–  New Zealand

–  Asia

–  Brazil

–  Chile

Total

GROUP $ MILLION

AS AT 31 JULY 2019

GOODWILL

BRANDS

67

128

250

5

–

111

561

120

148

283

718

250

25

1,544

512

282

674

120

123

73

1,784

TOTAL

187

276

533

723

250

136

2,105

Impairment testing of goodwill and indefinite life brands

Impairment testing is performed annually at the same time each year. 

Where appropriate, based on the market dynamics and go-to-market strategies, impairment testing is performed at a CGU level for both goodwill and 
indefinite life brands attributed to that CGU.

Cash flows are based on approved forecasts which are consistent with the Board approved strategy. Cash flows do not exceed five years. The forecasts 
include assumptions made about the potential future impacts of the Covid-19 pandemic. Cash flow projections have been adjusted to reflect a range of 
possible outcomes, weighted by their expected occurrence.

Discount rates are based on external data where possible.

All brands recognised in the table above have indefinite lives (this was the same as at 31 July 2019). 

The impairment tests performed for the Australia CGU, the Chile CGU, NZMP brand and Other CGUs have not resulted in any impairment. A reasonable 
possible change in key assumptions would not result in impairment.

The following impairment tests have resulted in an impairment or limited headroom between the carrying amount and recoverable amount.

112

113

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  New Zealand consumer and foodservice business 

INVESTMENTS

Fonterra Annual Report 2020

Notes to the Financial Statements

The recoverable amount of the New Zealand consumer and foodservice business was assessed to be $699 million. This was lower than the carrying value of 
the business, resulting in an impairment of the goodwill attributed to the business of $21 million (31 July 2019: $185 million). 

The New Zealand consumer and foodservice business earnings for the year ended 31 July 2020 were above the amounts forecast in the 2019 impairment 
test. However, expectations of future growth are lower than they were 12 months ago, driven by uncertainty about future long-term growth in the 
domestic and global economy.

Assumptions used in the impairment assessment

The recoverable amount of the business was determined on a value in use basis using a discounted cash flow methodology. 

The model uses a five-year cash flow forecast based on the three-year business plan approved by the Board. Cash flows for years four and five have been 
prepared based on growth expectations for the business.

The key drivers for the business to achieve its performance targets are to continue to deliver productivity gains and to effectively manage operational costs. 

The long-term growth rate applied to the future cash flows after year five of the forecast was 1.5 per cent (31 July 2019: 2.7 per cent). This reflects the 
expected long-term economic growth rate for New Zealand.

The post-tax discount rate was 7.4 per cent (31 July 2019: 8.1 per cent). The pre-tax discount rate was 9.77 per cent (31 July 2019: 10.2 per cent). 

The impact of changes in these key assumptions on the recoverable amount are shown in the table below. The sensitivities shown assume the specific 
assumption changes in isolation, while all other assumptions are held constant.

KEY ASSUMPTIONS

VALUE ATTRIBUTED

 IMPACT ON THE RECOVERABLE AMOUNT

Annual productivity savings (manufacturing and 
supply chain efficiencies) (by year five)

$17 million

An increase/(decrease) in productivity savings of $3 million results in an 
increase/(decrease) in the recoverable amount of $30 million.

Long-term growth rate 

1.5 per cent

Discount rate (post-tax)

7.4 per cent

An increase/(decrease) in the long-term growth rate of 0.5 of a per cent would 
result in an increase/(decrease) in the recoverable amount of $49 million/
($42 million).

An increase/(decrease) in the discount rate of 0.5 of a per cent would result in 
a (decrease)/increase in the recoverable amount of ($59 million)/$69 million.

The fair value less costs to dispose was also considered when determining the recoverable amount to ensure the higher of fair value less costs to dispose 
and value in use was applied.

b)  Asia brands

Asia brands represent the Group’s trademarks and other intellectual property in territories outside of New Zealand and Australia, relating to Anchor, 
Anmum, Anlene and Chesdale.

The relief from royalty method has been used to calculate the recoverable amounts of the Asia brands. This reflects a change from the year ended 31 July 
2019, where the recoverable amounts were determined using the present value of future cash flows expected to be derived from the brand. The relief 
from royalty methodology is a value in use calculation which determines the recoverable amount by calculating the present value of what a licensee would 
theoretically pay as a royalty to use the brands. The royalty rates applied in the calculation are determined based on comparable market data and range 
from two to seven per cent. The key assumption used in the relief from royalty method is forecast sales growth. The value attributed to the assumption is 
based on the business forecasts over the five-year period.

For the Asia brands other than Chesdale, the five-year compound annual growth rates used in the valuation model range from five to nine per cent and the 
range of discount rates (post tax) that have been applied in the valuation model range from five to 22 per cent (31 July 2019: nine to 16 per cent), country 
dependent. The recoverable amount of these brands is in excess of the carrying amount and reasonably possible changes in assumptions would not result in 
elimination of the headroom.

Chesdale brand 

The recoverable amount of the Chesdale brand was assessed to be $28 million. This was lower than the carrying value of the brand, resulting in an 
impairment of $36 million.

The impairment is a result of a reduction in forecast attributable to the brand.

As the brand is sold across a number of markets, all with different characteristics, the range of post-tax discount rates applied was six to 13 per cent (31 July 
2019: eight to 14 per cent). The range of pre-tax discount rates was seven to 18 per cent (31 July 2019: 10 to 18 per cent).

The key assumption used in the model is the ability of the business to meet forecast sales levels. The model uses a five-year compound annual growth rate 
of two per cent, reflecting the business forecasts over the five-year period. 

The fair value less costs to dispose of the Chesdale brand is not considered to be materially different than the relief from royalty calculation.

This section provides information about the Group’s interest in equity accounted investments. 

This section includes the following note:

Note 18:  Equity accounted investments

18  EQUITY ACCOUNTED INVESTMENTS 

Associates and joint ventures

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. 
Joint ventures are those arrangements in which the Group has contractually agreed to share control and where the Group has rights to the net assets 
rather than rights to the assets and obligations for the liabilities.

For joint ventures and associates the Group applies the equity method of accounting. Under the equity method, the Group recognises its initial 
investment at cost (including any goodwill identified on acquisition) and subsequently adjusts this for its share of the entities’ profits or losses after 
adjustments to align to the accounting policies of the Group. The Group’s share of profits and losses are recognised in the Income Statement and 
its share of movements in other comprehensive income is recognised in the Statement of Comprehensive Income. Dividends received from equity 
accounted investees reduce the carrying amount of the investment.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest is reduced to nil and no 
further losses are recognised except to the extent the Group has an obligation or has made payments on behalf of the investee. 

The Group determines at each reporting date whether there is any objective evidence that its investments in equity accounted investees are impaired. 
If this is the case, the Group performs an impairment test and recognises any impairment in the Income Statement.

Carrying amounts

The Group holds investments in a number of joint ventures and associates, none of which are individually material. The aggregate amount of the Group’s 
share of these equity accounted investments is included in the table below:

GROUP $ MILLION

ASSOCIATES

JOINT VENTURES

TOTAL

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

Carrying amount of investment

(Loss)/profit from continuing operations

Other comprehensive expense

Total comprehensive (expense)/income

1

–

–

–

1

(4)

–

(4)

95

(6)

(6)

(12)

201

29

–

29

96

(6)

(6)

(12)

202

25

–

25

The Group has provided financial guarantees and is committed to providing further funding contributions to certain equity accounted investees, as set out 
in Note 22 Related party transactions.

There are no contingent liabilities relating to the Group’s interests in joint ventures or equity accounted investees.

Further information about transactions between the Group and equity accounted investees and outstanding balances at year end is provided in Note 22 
Related party transactions.

Falcon China Farms JV

Refer to Note 2d) Strategy review update for information about the impairment of the Group’s investment in Falcon China Farms JV.

114

115

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

FINANCIAL RISK MANAGEMENT

This section outlines the key risk management activities undertaken to manage the Group’s exposure to financial risk.

This section includes the following note:

Note 19:  Financial risk management

19  FINANCIAL RISK MANAGEMENT

Financial risks faced by the Group

The Group’s overall financial risk management programme focuses primarily on maintaining a prudent financial risk profile that provides flexibility to 
implement the Group’s strategies, while ensuring optimisation of the return on assets. Financial risk management is centralised, which supports compliance 
with the financial risk management policies and procedures set by the Board.

A summary of the financial risks that impact the Group and how these risks are managed is presented below:

FINANCIAL RISK

Market risks

Foreign exchange risk 
(Section a)

Interest rate risk 
(Section b)

Commodity price risk 
(Section c)

Other risks

Credit risk 
(Section d)

Liquidity risk 
(Note 9)

DESCRIPTION

MANAGEMENT OF RISK

Impact from changes in foreign exchange rates

Foreign currency transactions

For foreign currency transactions, the Group uses foreign currency 
forward contracts and foreign currency options to manage foreign 
exchange risk.

Foreign operations

For investments in foreign operations, the Group uses foreign 
currency denominated borrowings and foreign currency swaps to 
manage foreign exchange risk.

Foreign currency denominated borrowings

For foreign currency denominated borrowings, the Group uses 
cross-currency interest rate swaps to manage foreign exchange and 
interest rate risk combined.

The Group uses interest rate swaps to achieve a target ratio of fixed 
and floating rate exposure on its borrowings.

The Group uses commodity derivatives to manage its exposure 
to commodity price risk. The Group also uses its product mix and 
sales contract terms to manage the impact of changes in dairy 
commodity prices on its earnings.

Impact from changes in interest rates

Impact from changes in commodity prices

Risk of loss to the Group due to customer or 
counterparty default

The Group sets minimum credit quality requirements, credit limits 
and uses other credit mitigation tools to manage its credit risk.

Risk that the Group will be unable to meet its 
financial obligations as they fall due

The Group actively manages its minimum on-hand cash facilities, 
access to committed funds and lines of credit and the maturity 
profile of its financial obligations.

The Group actively manages its capital structure and monitors 
leverage and coverage ratios. The Fonterra Shareholders’ Fund 
removes the redemption risk associated with Co-operative shares.

Capital management and  
structure (Note 7 and Note 9)

The Group’s capital structure

19  FINANCIAL RISK MANAGEMENT CONTINUED

Derivative financial instruments and hedge accounting

Derivatives are measured at fair value. Refer to Note 24 Fair value measurement for details on how fair value is determined.

The resulting gain or loss on re-measurement is recognised in the Income Statement immediately, unless the derivative is designated into an effective 
hedge relationship as a hedging instrument, in which case the timing of recognition in the Income Statement depends on the nature of the designated 
hedge relationship.

The Group may designate derivatives as:

–  Fair value hedges (where the derivative is used to manage the variability in the fair value of recognised assets and liabilities);

–  Cash flow hedges (where the derivative is used to manage the variability in cash flows relating to recognised liabilities or forecast transactions); or

–  Net investment hedges (where borrowings or derivatives are used to manage the risk of fluctuation in the translated value of its foreign operations).

Hedge accounting is discontinued when the hedging instrument expires, is terminated, is exercised, or no longer qualifies for hedge accounting.

Fair value hedges

For fair value hedges the following are recognised in the Income Statement:

–  The change in fair value of the hedging instruments; and

–  The change in the fair value of the underlying hedged item attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued. The fair value adjustment to the carrying amount 
of the hedged item upon discontinuance is amortised and recognised in the Income Statement over the remaining term of the original hedge. If the 
hedged item is sold or extinguished any unamortised fair value adjustment is immediately recognised in the Income Statement.

Cash flow hedges

The effective portion of changes in the fair value of the hedging instruments are recognised in other comprehensive income in the Statement of 
Comprehensive Income and accumulated in a separate reserve in equity. Subsequently the cumulative amount is transferred to the Income Statement 
when the underlying transactions are recognised in the Income Statement.

The ineffective portion of changes in the fair value of the hedging instruments are recognised immediately in the Income Statement.

If the hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued. The cumulative gain or loss previously recognised 
in other comprehensive income remains there until the forecast transaction occurs, or is immediately recognised in the Income Statement if the 
transaction is no longer expected to occur.

Net investment hedges

The effective portion of changes in the fair value of the hedging instruments are recognised in the Statement of Comprehensive Income and 
transferred to the Income Statement when the foreign operation is disposed of or sold.

The ineffective portion of changes in the fair value of the hedging instruments are recognised immediately in the Income Statement.

Costs of hedging

The change in fair value of a hedging instrument relating to the time-value of foreign currency options, and the foreign currency basis component of 
cross-currency interest rate swaps are recognised in other comprehensive income and accumulated in a separate reserve in equity. Subsequently, the 
cumulative amount is transferred to the Income Statement at the same time as the hedged item impacts the Income Statement.

The following disclosures included in this note relate to the Group’s financial risk management:

DISCLOSURE ITEM

DESCRIPTION

Impact to reserves in equity 
(Section e) 

Income Statement impact from 
derivatives not designated in a 
hedge relationship (Section f)

Movements in the Group’s hedge reserves and foreign currency translation reserve.

Movements recognised in the Income Statement from changes in the fair value of derivatives not designated in a 
hedge relationship.

116

117

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  Foreign exchange risk

Nature and exposure of foreign exchange risk

Net foreign exchange gains or losses

Foreign currency transactions are translated using the exchange rate at the date of each respective transaction. Monetary assets and liabilities 
denominated in foreign currencies are translated using the exchange rate at balance date.

Any resulting foreign exchange gains and losses are recognised in the Income Statement, except when they relate to certain non-current advances to 
companies within the Group or a cash flow hedge or net investment hedge relationship.

a)  Foreign exchange risk CONTINUED

The Group is exposed to foreign exchange risk through transactions denominated in foreign currencies and the translation of foreign currency denominated 
balances. The amounts shown below represent the Group’s exposure to foreign currency before applying the risk management strategies:

HEDGING INSTRUMENT USED

Cash flow hedging

GROUP $ MILLION

AS AT 31 JULY 20191

YEAR ENDED 31 JULY 20192

CARRYING AMOUNT

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
INEFFECTIVENESS

NOMINAL 
AMOUNT3

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

ACCUMULATED 
COST OF 
HEDGING

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

RECOGNISED 
IN OTHER 
COMPREHENSIVE 
INCOME  
(GAIN)/LOSS

RECLASSIFIED 
TO THE 
INCOME 
STATEMENT 
(GAIN)/LOSS4

RECOGNISED 
IN INCOME 
STATEMENT  
GAIN/(LOSS)

–  The Group’s foreign currency transactions are predominantly denominated in United States Dollars.

–  The Group has net investments in foreign operations of $5,240 million (31 July 2019: $5,011 million). This amount is before considering borrowings held 

by the Group in the same currency as the investment.

–  The Group has borrowings denominated in foreign currency of $4,615 million (31 July 2019: $4,925 million).

How foreign exchange risk is managed

Forecast foreign currency transactions

The Group enters into foreign currency forward contracts and foreign currency options for the following items:

–  Forecast cash receipts from foreign currency sales for a period of up to 18 months within limits approved by the Board; and

–  Up to 100 per cent of other forecast foreign currency transactions.

Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the designated hedging instruments.

The Group applies cash flow hedge accounting where derivatives are used to manage foreign exchange risk on forecast foreign currency transactions. 
The amount and maturity of the derivative and the forecast transaction is aligned to ensure that the hedge relationship remains effective, with any 
undesignated costs of hedging accounted for separately.

The effect of the Group’s application of hedge accounting in managing foreign exchange risk related to forecast foreign currency transactions is presented 
in the table below:

GROUP $ MILLION

AS AT 31 JULY 20201

YEAR ENDED 31 JULY 20202

CARRYING AMOUNT

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
INEFFECTIVENESS

NOMINAL 
AMOUNT3

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

ACCUMULATED 
COST OF 
HEDGING

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

RECOGNISED 
IN OTHER 
COMPREHENSIVE 
INCOME  
(GAIN)/LOSS

RECLASSIFIED 
TO THE 
INCOME 
STATEMENT 
(GAIN)/LOSS4

RECOGNISED 
IN INCOME 
STATEMENT  
GAIN/(LOSS)

HEDGING INSTRUMENT USED

Cash flow hedging

Foreign currency forwards and options

Maturity: 0-18 months  
Weighted average NZD:USD 
rate: 0.6427

Maturity: 0-12 months  
Weighted average USD:RMB  
rate: 7.115

Total

8,000

429

(45)

798

8,798

2

431

(2)

(47)

6

(1)

5

359

–

359

(16)

460

4

(12)

(5)

455

(61)

–

(61)

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3  Nominal amount represents forecast foreign currency transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.
4  Recognised in Revenue from sale of goods.

118

Foreign currency forwards and options

Maturity: 0-18 months  
Weighted average NZD:USD  
rate: 0.6852

Maturity: 0-11 months  
Weighted average USD:RMB  
rate: 6.9117

Maturity: 2-11 months  
Weighted average NZD:EUR  
rate: 0.5890

Total

9,267

37

(182)

(14)

(144)

(238)

309

491

97

9,855

4

–

41

(1)

(1)

–

(183)

–

(15)

2

–

(142)

(2)

(7)

–

(240)

–

302

–

–

–

–

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3  Nominal amount represents forecast foreign currency transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.
4  Recognised in Revenue from sale of goods.

Net investments in foreign operations

The Group’s net investments are designated in hedge relationships to the extent of:
–  Borrowings denominated in the same foreign currency; and 
–  Foreign currency swaps directly attributed to the net investment.

Hedge ineffectiveness arises if the carrying amount of the net investment falls below the amount of the designated hedging instruments.

The effect of the Group’s hedge accounting policy in managing foreign exchange risk related to the Group’s net investments in foreign operations is 
presented in the table below:

GROUP $ MILLION

AS AT 31 JULY 2020

YEAR ENDED 31 JULY 2020

CARRYING AMOUNT

NOMINAL AMOUNT1

HEDGE EFFECTIVENESS

AMOUNT OF NET 
INVESTMENT 
HEDGED2

FOREIGN  
CURRENCY 
BORROWINGS

FOREIGN  
CURRENCY  
SWAPS3

NET INVESTMENT
GAIN/(LOSS)
RECOGNISED IN OTHER
COMPREHENSIVE INCOME

BORROWINGS/SWAPS  
GAIN/(LOSS) 
RECOGNISED IN OTHER 
COMPREHENSIVE INCOME

HEDGED NET INVESTMENTS AND HEDGING 
INSTRUMENTS USED

Net investment hedging

United States Dollar-denominated  
Maturity of borrowings: 11 months

Australian Dollar-denominated 
Maturity of borrowings: 11-88 months

Euro-denominated 
Maturity of borrowings: 52 months

Chinese Renminbi-denominated 
Maturity of borrowings: 60 months  
Maturity of swaps: 3 months

Total

75

516

171

229

991

(75)

(516)

(171)

(170)

(932)

–

–

–

(59)

(59)

3

17

8

–

28

1  Nominal amount is the face value, converted into New Zealand Dollars using the exchange rate at balance date, of foreign currency swaps designated in net investment hedge relationships.
2  The carrying amount of the net investment designated into a net investment hedge relationship.
3  The carrying amount of foreign currency swaps at balance date was $1 million and is presented within derivative assets.

(3)

(17)

(8)

–

(28)

119

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  Foreign exchange risk CONTINUED

GROUP $ MILLION

AS AT 31 JULY 2019

YEAR ENDED 31 JULY 2019

CARRYING AMOUNT

NOMINAL AMOUNT1

HEDGE EFFECTIVENESS

AMOUNT OF NET 
INVESTMENT 
HEDGED2

FOREIGN  
CURRENCY 
BORROWINGS

FOREIGN  
CURRENCY  
SWAPS3

NET INVESTMENT  
GAIN/(LOSS) 
RECOGNISED IN OTHER 
COMPREHENSIVE INCOME

BORROWINGS/SWAPS  
GAIN/(LOSS) 
RECOGNISED IN OTHER 
COMPREHENSIVE INCOME

140

499

163

(140)

(499)

(163)

588

1,390

(527)

(1,329)

–

–

–

(61)

(61)

3

(22)

(3)

14

(8)

(3)

22

3

(14)

8

HEDGED NET INVESTMENTS AND HEDGING 
INSTRUMENTS USED

Net investment hedging

United States Dollar-denominated 
Maturity of borrowings: 10–23 months

Australian Dollar-denominated 
Maturity of borrowings: 23–100 months

Euro-denominated 
Maturity of borrowings: 64 months

Chinese Renminbi-denominated  
Maturity of borrowings: 8–72 months 
Maturity of swaps: 4–5 months

Total

1  Nominal amount is the face value, converted into New Zealand Dollars using the exchange rate at balance date, of foreign currency swaps designated in net investment hedge relationships.
2  The carrying amount of the net investment designated into a net investment hedge relationship.
3  The carrying amount of foreign currency swaps at balance date was $1 million and was presented within derivative assets.

Borrowings denominated in foreign currency

The Group’s policy is to maintain its net exposure to a foreign currency within predefined limits. 

To the extent the Group has monetary assets in the same foreign currency as the borrowing, the Group has a reduced exposure to foreign exchange risk. 
The foreign currency gains and losses relating to these balances is offset in net foreign exchange losses in the Income Statement.

To manage the net exposure to foreign currency borrowings, the Group enters into cross currency interest rate swaps (CCIRS). CCIRS are used to manage 
the combined foreign exchange risk and interest rate risk as they swap fixed rate foreign currency borrowings and interest payments into equivalent 
New Zealand Dollar-denominated amounts of principal with floating interest rates.

The Group applies hedge accounting to foreign currency denominated borrowings that are managed by CCIRS. The amount and maturity of the CCIRS and 
the hedged debt is aligned to ensure that the hedge relationship remains effective, with any undesignated costs of hedging accounted for separately. The 
hedge relationship may be designated into separate cash flow hedges and fair value hedges to manage the different components of foreign currency and 
interest rate risk:

–  Fair value hedge relationship where CCIRS are used to manage the interest rate and foreign currency risk in relation to foreign currency denominated 

borrowings with fixed interest rates.

–  Cash flow hedge relationship where CCIRS are used to manage the variability in cash flows arising from interest rate movements on floating interest rate 

payments and foreign exchange movements on payments of principal and interest.

Hedge ineffectiveness arises in relation to CCIRS that have been designated in hedge relationships after their initial recognition, or from changes in 
counterparty credit risk and cross currency basis spreads. 

a)  Foreign exchange risk CONTINUED

The effect of the Group’s hedge accounting policies in managing both its foreign exchange risk and interest rate risk related to borrowings denominated in 
foreign currency is presented in the table below:

AS AT 31 JULY 20201

YEAR ENDED 31 JULY 20202

GROUP $ MILLION

CARRYING AMOUNT³

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
EFFECTIVENESS

HEDGE 
INEFFECTIVENESS

HEDGING  
INSTRUMENTS USED

NOMINAL 
AMOUNT

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

Cash flow hedging and fair value hedging

Cross-currency interest rate swaps

ACCUMULATED 
COST OF 
HEDGING

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

CASH 
FLOW 
HEDGE 
(OCI)

CASH FLOW 
HEDGE 
RECLASSIFIED 
TO INCOME 
STATEMENT4 

FAIR VALUE 
HEDGE 
(INCOME 
STATEMENT) 
GAIN/(LOSS)4

RECOGNISED 
IN INCOME 
STATEMENT  
GAIN/(LOSS)4

USD

1,184

380

–

(3)

398

(4)

5

136

(2)

Maturity: 74-121 months 
Weighted average interest 
rate: floating 
Weighted average NZD:USD 
rate: 0.7604

GBP

623

61

(232)

–

(107)

29

(12)

20

Maturity: 41 months  
Weighted average interest 
rate: floating  
Weighted average NZD:GBP 
rate: 0.3610

EUR

386

61

–

(9)

73

31

(29)

–

Maturity: 52 months  
Weighted average interest 
rate: floating  
Weighted average NZD:EUR 
rate: 0.6560

Fair value hedging

Cross-currency interest rate swaps

USD

31

8

–

–

8

NA

NA

–

Maturity: 11 months  
Weighted average interest 
rate: floating  
Weighted average NZD:USD 
rate: 0.8160

Total

510

(232)

(12)

372

56

(36)

156

3

–

–

1

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3   Nominal amount is the face value, converted using the weighted average foreign exchange rate, of foreign denominated borrowings in hedge relationships. For those borrowings in fair value hedges, 

the carrying amount includes the life-to-date fair value hedge adjustment which increases borrowings by $322 million.

4  Recognised in Net finance costs and Other operating expenses.

120

121

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  Foreign exchange risk CONTINUED

a)  Foreign exchange risk CONTINUED

Net foreign exchange losses in the Income Statement

GROUP $ MILLION

The table below provides a breakdown of the net foreign exchange losses recognised in the Income Statement:

AS AT 31 JULY 20191 
RESTATED

YEAR ENDED 31 JULY 20192 
RESTATED

CARRYING AMOUNT³

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
EFFECTIVENESS

HEDGE 
INEFFECTIVENESS

HEDGING  
INSTRUMENTS USED

NOMINAL 
AMOUNT

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

Cash flow hedging and fair value hedging

Cross-currency interest rate swaps

ACCUMULATED 
COST OF 
HEDGING

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

CASH FLOW 
HEDGE 
(OCI)

CASH FLOW 
HEDGE 
RECLASSIFIED 
TO INCOME 
STATEMENT4 

FAIR VALUE 
HEDGE 
(INCOME 
STATEMENT) 
GAIN/(LOSS)4

RECOGNISED 
IN INCOME 
STATEMENT  
GAIN/(LOSS)4

USD

1,184

252

–

(2)

263

3

(6)

150

(2)

Maturity: 86-133 months 
Weighted average interest 
rate: floating  
Weighted average NZD:USD 
rate: 0.7604

GBP

623

63

(278)

–

(145)

(13)

16

(15)

(1)

Maturity: 53 months  
Weighted average interest 
rate: floating  
Weighted average NZD:GBP 
rate: 0.3610

EUR

386

39

–

(7)

50

(15)

18

19

Maturity: 64 months 
Weighted average interest 
rate: floating  
Weighted average NZD:EUR 
rate: 0.6560 

Fair value hedging

Cross-currency interest rate swaps

USD

31

8

–

–

8

NA

NA

2

Maturity: 23 months  
Weighted average interest 
rate: floating  
Weighted average NZD:USD 
rate: 0.8160

Total

362

(278)

(9)

176

(25)

28

156

(3)

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3   Nominal amount is the face value, converted using the weighted average foreign exchange rate, of foreign denominated borrowings in hedge relationships. For those borrowings in fair value hedges, 

the carrying amount includes the life-to-date fair value hedge adjustment which increases borrowings by $179 million.

4  Recognised in Net finance costs and Other operating expenses.

Receivables and payables denominated in foreign currency

The Group enters into foreign currency forward contracts and foreign currency options for 100 per cent of its net foreign currency receivables and payables.

Derivatives used to hedge the changes in the value of foreign currency receivables and payables are not hedge accounted. Changes in the fair value of 
these derivatives provide an offset to the changes in the value of foreign currency receivables and payables recognised in the Income Statement. These are 
recognised within Other operating expenses in the Income Statement.

Relationships where hedge accounting has been applied

Net foreign exchange (losses)/gains attributable to:

–  Foreign currency-denominated borrowings

–  Derivatives

Relationships where hedge accounting has not been applied

Net foreign exchange (losses)/gains attributable to:

–  Foreign currency denominated receivables

–  Foreign currency denominated payables and borrowings

–  Derivatives

–  Other net foreign exchange losses

Net foreign exchange losses

Sensitivity analysis of changes in foreign currency rates

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

(37)

29

(64)

23

(8)

(7)

(64)

(17)

18

119

(80)

(40)

–

–

The table below presents the effect on profit or loss for the year and equity at reporting date if foreign currency rates had been higher, or lower, with all 
other variables held constant. 

Assets and liabilities of disposal groups held for sale have been excluded from the sensitivity analysis below:

–

–

10% strengthening of the NZD

10% weakening of the NZD 

b)  Interest rate risk

GROUP $ MILLION

31 JULY 2020

EQUITY

189

(189)

PROFIT

(5)

16

31 JULY 2019 
RESTATED

EQUITY

230

(266)

PROFIT

(6)

8

Nature and exposure of interest rate risk to the Group

The Group is exposed to interest rate risk on its interest-bearing borrowings, included within economic net interest-bearing debt (refer Note 9 Borrowings). 

Changes in market interest rates expose the Group to:

–  changes in the fair value of borrowings subject to fixed interest rates (fair value risk); and

–  changes in future interest payments on borrowings subject to floating interest rates (cash flow risk).

How the Group manages its exposure to interest rate risk 

The Group’s policy is to maintain a target ratio of fixed and floating interest rate exposure. To achieve this the Group considers its forecast debt over a 
specified time horizon and manages the interest rate exposure by:

–  issuing fixed rate debt; and 

–  entering into interest rate swaps (IRS). 

The Group applies hedge accounting to the borrowings and the associated IRS, for movements in benchmark market interest rates (i.e. excluding any 
margin component).

Hedge ineffectiveness arises in relation to IRS that have been designated to hedge relationships after their initial recognition or from changes in 
counterparty credit risk. The ineffectiveness of these hedges will continue until maturity.

122

123

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

b)  Interest rate risk CONTINUED

In specific situations, where changes in the fair value of fixed-to-floating IRS provide an offset to the changes in the fair value of other associated floating-
to-fixed IRS, hedge accounting is not applied. The changes in fair values of these IRS offset each other and are recognised within Net finance costs in the 
Income Statement.

The effect of the Group’s hedge accounting policies in managing interest rate risk is presented in the table below:

GROUP $ MILLION

AS AT 31 JULY 20201

YEAR ENDED 31 JULY 20202

CARRYING AMOUNT3

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
EFFECTIVENESS

HEDGE 
INEFFECTIVENESS

NOMINAL 
AMOUNT

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

CASH 
FLOW 
HEDGE 
(OCI)

CASH FLOW HEDGE 
RECLASSIFIED 
TO THE INCOME 
STATEMENT4

FAIR VALUE 
HEDGE (INCOME 
STATEMENT) 
GAIN/(LOSS)4

RECOGNISED 
IN THE INCOME 
STATEMENT 
GAIN/(LOSS)4

HEDGING INSTRUMENTS USED

Cash flow hedging 

Interest rate swaps on NZD borrowings

Maturity: 1-64 months  
Weighted average interest rate: 3.51%

Interest rate swaps on AUD borrowings

Maturity: 47-49 months  
Weighted average interest rate: 3.34%

Fair value hedging

Interest rate swaps on NZD borrowings

Maturity: 32-64 months  
Weighted average interest rate: floating

Interest rate swaps on AUD borrowings

Maturity: 71-88 months 
Weighted average interest rate: floating

516

Total

65

88

3,296

172

–

–

250

23

(241)

(93)

(63)

(16)

(3)

(3)

–

–

(257)

18

NA

69

(9)

NA

(66)

29

–

NA

NA

29

NA

NA

7

22

29

34

–

2

–

36

GROUP $ MILLION

AS AT 31 JULY 20191

YEAR ENDED 31 JULY 20192

CARRYING AMOUNT3

HEDGE EFFECTIVENESS  
IN RESERVES

HEDGE 
EFFECTIVENESS

HEDGE 
INEFFECTIVENESS

NOMINAL 
AMOUNT

DERIVATIVE 
ASSETS

DERIVATIVE 
LIABILITIES

CHANGE IN 
VALUE USED 
TO CALCULATE 
HEDGE 
EFFECTIVENESS

CASH  
FLOW  
HEDGE 
(OCI)

CASH FLOW HEDGE 
RECLASSIFIED 
TO THE INCOME 
STATEMENT4

FAIR VALUE 
HEDGE (INCOME 
STATEMENT) 
GAIN/(LOSS)4

RECOGNISED 
IN THE INCOME 
STATEMENT 
GAIN/(LOSS)4

3,441

–

(240)

(65)

(101)

20

NA

(7)

325

499

18

43

61

–

–

(240)

8

NA

47

NA

(10)

(101)

NA

NA

20

13

59

72

1

–

(6)

HEDGING INSTRUMENTS USED

Cash flow hedging 

Interest rate swaps on NZD borrowings

Maturity: 8-62 months 
Weighted average interest rate: 4.19%

Fair value hedging

Interest rate swaps on NZD borrowings

Maturity: 10-76 months 
Weighted average interest rate: floating

Interest rate swaps on AUD borrowings

Maturity: 83-100 months  
Weighted average interest rate: floating

Total

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3  The nominal amount represents the principal amount of outstanding or forecast borrowings designated in hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date. For 
those borrowings in fair value hedges, the carrying amount includes the life to date fair value hedge adjustment which increases borrowings by $90 million (2019: increased borrowings by $61 million).

4  Recognised in Net finance costs.

124

b)  Interest rate risk CONTINUED

Sensitivity analysis of changes in interest rates

The table below presents the effect on profit or loss for the year and equity at reporting date if interest rates had been higher, or lower, with all other 
variables held constant.

Assets and liabilities of disposal groups held for sale have been excluded from the sensitivity analysis below:

100 basis point increase

100 basis point decrease

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

EQUITY

PROFIT

EQUITY

50

(54)

12

(11)

54

(54)

PROFIT

22

(19)

A change in interest rates would also impact floating rate interest payments and receipts on the Group’s borrowing and derivatives held at balance date. 
The impact of a change in interest rates on one-year contracted cash flows is shown below:

100 basis point increase in interest rates

100 basis point decrease in interest rates

c)  Commodity price risk

Nature and exposure of commodity price risk to the Group

GROUP $ MILLION

31 JULY 2020 

31 JULY 2019 

(4)

4

(7)

7

The Group is exposed to dairy commodity price risk through changes in selling prices and the cost of milk purchased from dairy farmers. In addition, the 
Group is a large purchaser of electricity, diesel and sugar and is exposed to changes in the cost of these commodities.

How the Group manages its exposure to commodity price risk

Dairy commodity price risk

The Group manages its exposure to dairy commodity price risk by:

–  determining the most appropriate mix of products to manufacture based on the supply curve and global demand for dairy products;

–  governing the length and terms of sales contracts so that sales revenue is reflective of current market prices and is, where possible, linked to Global 

Dairy Trade (GDT) prices; and

–  using dairy commodity derivative contracts to obtain an optimal price for future sales, or the cost of milk, to manage margin risk. The markets for dairy 
commodity derivatives are relatively limited, which reduces the ability to manage earnings volatility. As markets for these derivatives grow, the use of 
dairy commodity derivatives to manage dairy commodity price risk may increase.

Other commodity price risk

The Group manages its exposure to other commodity price risk through the use of derivative contracts, which are transacted at Board-approved levels, to 
hedge the cost of electricity, diesel and sugar.

The Group has commenced cash flow hedge accounting where derivatives are used to manage commodity risk on certain forecast transactions. The 
amount and maturity of the derivative and the forecast transaction is aligned to ensure that the hedge relationship remains effective.

Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the designated hedging instruments.

125

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

c)   Commodity price risk CONTINUED

d)  Credit risk CONTINUED

The effect of the Group’s application of hedge accounting in managing commodity price risk related to forecast transactions is presented in the table below:

Trade and other receivables

GROUP $ MILLION

AS AT 31 JULY 20201

CARRYING AMOUNT

YEAR ENDED 31 JULY 20202

HEDGE EFFECTIVENESS

NOMINAL  
AMOUNT³

DERIVATIVE  
ASSETS

DERIVATIVE 
LIABILITIES

CHANGE IN 
VALUE USED TO 
CALCULATE HEDGE 
EFFECTIVENESS

CASH FLOW HEDGE 
RECLASSIFIED 
TO THE INCOME 
STATEMENT

CASH FLOW 
HEDGE (OCI)

13

318

69

400

–

2

–

2

(1)

(1)

(6)

(8)

(1)

1

(6)

(6)

(5)

1

(14)

(18)

4

–

6

10

HEDGING INSTRUMENTS USED

Cash flow hedging 

Fuel

Maturity: 1-18 months 
Average Price: $54.73

Milk Price

Maturity: 3-27 months 
Average Price: $6.68

Electricity

Maturity: 1-27 months 
Average Price: $91.61

Total

1  Life-to-date amounts as at balance date.
2  Year-to-date amounts recognised during the year.
3  Nominal amount represents forecast transactions in cash flow hedge relationships, translated into New Zealand Dollars using the exchange rate at balance date.

Sensitivity analysis of changes in commodity prices

The table below presents the effect on profit or loss for the year and equity at reporting date if commodity prices had been higher, or lower, with all other 
variables held constant. Commodity price sensitivity arises from the revaluation of derivative assets and liabilities in the Statement of Financial Position at 
reporting date.

10% increase in commodity prices

10% decrease in commodity prices

d)  Credit risk

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

EQUITY

PROFIT

EQUITY

33

(33)

10

(11)

4

(4)

PROFIT

30

(30)

Nature and exposure of credit risk to the Group

Credit risk is the risk of loss to the Group due to customer or counterparty default on the Group’s receivable balances. The Group’s maximum exposure to 
credit risk is represented by the carrying amounts of Cash and cash equivalents, Trade and other receivables, Long-term advances, Derivative assets, and 
other investments and receivables.

The Group has no undue concentrations of credit risk.

How the Group manages its exposure to credit risk 

The Group’s policy is to actively manage its exposure to credit risk through the following actions:

Derivative contracts, cash and cash equivalents and other balances

–  Use of financial counterparties that have a credit rating of at least ‘A-’ from Standard & Poor’s (or equivalent).
–  Use of commodity counterparties that have a credit rating of at least ‘BBB-’ from Standard & Poor’s (or equivalent) for commodity derivative contracts.
–  Posting or receiving margin in respect of derivative contracts transacted on exchanges. The Group has posted $69 million (31 July 2019: $41 million) of 

margin as collateral for derivative financial instruments. 

126

–  Application of credit limits, and credit mitigation tools, such as letters of credit. 
–  Trade and other receivable balances are included in Note 11 Trade and other receivables. 

Long-term advances

–  Counterparty creditworthiness is assessed before the commencement of any Long-term advances. Depending on the nature and amount of the advance, 

they are subject to Board approval. The collectability of Long-term advances is monitored on a regular basis. 

e)  Impact to reserves in equity

The impact of the Group’s hedge accounting policies on the reserves in equity is presented in the tables below:

Hedge reserves

Opening balance

Movements attributable to cash flow hedges

Change in value of effective derivative hedging instruments

Reclassifications to the Income Statement:

–  As hedged transactions occurred 

Net change in the cost of hedging reserve

Tax expense

Transferred between reserves

Total movement

Closing balance1

GROUP $ MILLION

AS AT 31 JULY 2020

AS AT 31 JULY 2019

(268)

(43)

518

17

(138)

15

369

101

(267)

(365)

362

1

1

–

(1)

(268)

1 

Included in the closing balance of the hedge reserves is $1 million (31 July 2019: $1 million) relating to hedge relationships for which hedge accounting is no longer applied.

Foreign currency translation reserve

Opening balance

Movements attributable to net investments in foreign operations and net investment hedges 

GROUP $ MILLION

AS AT 31 JULY 2020

AS AT 31 JULY 2019

(183)

(364)

Net translation (loss)/gain on: 

–  Borrowings and derivative hedging instruments

–  Net investments in foreign operations

Reclassifications to the Income Statement:

–  Upon disposal of the Venezuelan operations

–  Upon the reclassification of the investment in Beingmate

–  Other disposals of foreign operations

Tax expense

Total movement

Closing balance1

(36)

(39)

–

–

21

8

(46)

(229)

1 

Included in the closing balance of the foreign currency translation reserve is $15 million (31 July 2019: $4 million) relating to hedge relationships for which hedge accounting is no longer applied.

8

(25)

146

30

17

5

181

(183)

127

 
Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

f)  Income Statement impact from derivatives not designated in a hedge relationship

OTHER

Fonterra Annual Report 2020

Notes to the Financial Statements

In addition to derivatives that are designated and qualify for hedge accounting, the Group also holds certain derivatives as economic hedges of foreign 
currency, commodity and interest rate exposure. The impact of non-designated derivatives are recognised in the Income Statement.

The impact of derivatives not designated in a hedging relationship are presented in the table below:

DERIVATIVES NOT DESIGNATED IN A HEDGING 
RELATIONSHIP

LOCATION OF GAIN/(LOSS) IN INCOME STATEMENT

AS AT 31 JULY 2020

AS AT 31 JULY 2019

GROUP $ MILLION

Foreign currency contracts

Foreign currency contracts

Commodity contracts

Commodity contracts

Interest rate contracts

Total

Revenue from sale of goods1

Other operating expenses

Cost of goods sold

Other operating expenses

Finance costs

(53)

(8)

(21)

(2)

(8)

(92)

–

(40)

30

(3)

(21)

(34)

This section contains additional notes and disclosures that aid in understanding the Group’s position and performance but do not form part of 
the primary sections.

This section includes the following notes:

Note 20:   Taxation

Note 21:   Contingent liabilities, provisions and commitments

Note 22:   Related party transactions 

Note 23:  Subsidiaries

Note 24:  Fair value measurement

Note 25:  Offsetting of financial assets and liabilities

Note 26:  Net tangible assets per quoted equity security

Note 27: 

Impact of transition to NZ IFRS 16 Leases

Note 28:  Re-presentations and prior period restatements

1   $61 million of losses on foreign exchange contracts recognised within Revenue from sale of goods relate to cash flow hedges where the forecast sales transactions are no longer expected to occur 

(31 July 2019: nil). 

20  TAXATION

Tax expense comprises current and deferred tax. Tax expense, including the tax consequences of distributions to farmer shareholders, is recognised 
in the Income Statement. The tax consequences of distributions to farmer shareholders are recognised in the year to which the distribution relates. 
Other than distributions to farmer shareholders, tax consequences of items recognised directly in equity are also recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the 
balance date, and any adjustment to tax payable or receivable in respect of previous years.

Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and 
those for taxation purposes. Deferred tax is measured at the tax rate that is expected to apply to the temporary differences when they reverse, based 
on laws that have been enacted or substantively enacted at balance date.

Deferred tax is not recognised on the following temporary differences:

–  the initial recognition of goodwill;
–  the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable 

profit; and

–  differences relating to investments in subsidiaries and equity accounted investees to the extent that the timing of the reversal is controlled by the 

Group and it is probable that they will not reverse in the foreseeable future.

In determining the probability of reversal, consideration is taken of whether the related assets are held for sale, future expectations of exiting, and if 
applicable, the impact any exit would have on the crystallisation of the deferred tax.

Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which the temporary differences 
can be utilised.

a)  Taxation – Income Statement

The total Tax expense in the Income Statement is summarised as follows:

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

Current tax expense

Prior period adjustments to current tax

Deferred tax movements:

–  Origination and reversal of temporary differences

Tax expense

90

8

77

175

80

7

(7)

80

129

128

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

a)  Taxation – Income Statement 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:

Profit/(loss) before tax

Prima facie tax expense at 28%

Add/(deduct) tax effect of:

–  Effect of tax rates in foreign jurisdictions 

–  Non-deductible expenses/additional assessable income

–  Non-assessable income/additional deductible expenses

–  Prior year under provision

Tax expense before distributions and deferred tax

Effective tax rate before distributions and deferred tax1

Tax effect of distributions to farmer shareholders

Tax expense before deferred tax

Effective tax rate before deferred tax1

Add/(deduct) tax effect of:

–  Origination and reversal of other temporary differences

–  Losses of overseas Group entities not recognised

Tax expense

Effective tax rate1

Imputation credits

Imputation credits available for use in subsequent reporting periods 

Tax losses

Gross tax losses available for which no deferred tax asset has been recognised

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

978

274

(11)

104

(183)

8

192

19.6%

(19)

173

17.7%

(1)

3

175

17.9%

20

48

(42)

(12)

(21)

148

(18)

7

104

NA

–

104

NA

(31)

7

80

NA

20

64

1  The effective tax rate is the Tax expense on the face of the Income Statement expressed as a percentage of the Profit before tax. The Group recorded a Loss before tax in the year ended 31 July 2019, so 

the calculation of an effective tax rate is not applicable.

b)  Taxation – Statement of Financial Position

Deferred tax assets and deferred tax liabilities relate to the following:

GROUP $ MILLION

AS AT 31 JULY 2020

AS AT 31 JULY 2019 
RESTATED

DEFERRED TAX 
ASSET

DEFERRED TAX 
LIABILITY

NET

DEFERRED TAX 
ASSET

DEFERRED TAX 
LIABILITY

1,596

–

162

–

80

65

75

428

241

7

2,654

(2,233)

421

(1,650)

(388)

(155)

(30)

–

–

–

–

–

(30)

(2,253)

2,233

(20)

(54)

(388)

7

(30)

80

65

75

428

241

(23)

401

–

401

1,661

–

–

111

54

49

55

522

236

45

2,733

(2,123)

610

(1,724)

(498)

–

–

–

–

–

–

–

–

(2,222)

2,123

(99)

NET

(63)

(498)

–

111

54

49

55

522

236

45

511

–

511

Deferred tax 

Property, plant and equipment

Intangible assets

Right-of-use assets

Derivative financial instruments

Employee entitlements

Inventories

Receivables, payables and provisions

New Zealand tax losses

Offshore tax losses

Other

Total before offsetting 

Offset adjustment

Total

Movements for the year

Opening balance

Recognised in the Income Statement

Recognised directly in other comprehensive income

Implementation of NZ IFRS 16

Transferred to Liabilities of disposal groups held for sale

Foreign currency translation

Closing balance

New Zealand tax losses

GROUP $ MILLION

31 JULY 2020

31 JULY 2019 
RESTATED

511

(58)

(133)

7

47

27

401

594

(88)

6

–

–

(1)

511

The New Zealand tax consolidated group generated taxable income in the current year. The deferred tax asset relating to New Zealand tax losses of 
$428 million (31 July 2019: $522 million) has been recognised on the basis that taxable income will be generated in the future against which the tax losses 
can be utilised.

The key assumptions in the assessment of future taxable income are New Zealand earnings, and the tax-deductible dividend. The estimate of New Zealand 
earnings is based on performance of the New Zealand tax consolidated group relative to the overall Group. This ratio has been applied to the profit before 
tax forecast in the Group’s three-year business plan. The tax-deductible dividend assumption is based on the Group’s dividend policy and is set at the 
midpoint of the current policy which is 40 per cent to 60 per cent of normalised net profit after tax. Fonterra determines its dividend policy and therefore 
has the ability to influence utilisation of the losses.

Changes in the key assumptions used could impact the expected time horizon for utilisation of the tax losses, for example higher dividends could extend 
the utilisation horizon but would not impact the carrying amount of deferred tax assets available to be utilised against future taxable profits. A reasonably 
possible change in the key assumptions does not change the carrying value of the deferred tax asset recognised. 

Offshore tax losses

Gross tax losses of $48 million reflecting a deferred tax asset of $14 million (31 July 2019: $64 million gross, deferred tax asset of $19 million) relating to 
offshore entities have not been recognised as they may not be utilised.

130

131

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

b)  Taxation – Statement of Financial Position CONTINUED

Deferred tax liabilities

Earnings made by foreign subsidiaries could be subject to withholding and other taxes on remittance. Deferred tax liabilities are not recognised in 
respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries. During the year, the Group reassessed the likelihood 
of earnings being remitted to New Zealand and recognised a deferred tax liability of $30 million relating to unremitted earnings previously considered 
to be indefinitely reinvested.

As at 31 July 2020, unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries amount to $131 million (31 July 2019: $1,085 
million). The Group has made a judgement not to recognise deferred tax liabilities in respect of these amounts because it can control the timing and the 
manner in which the associated temporary difference will reverse. This includes controlling the timing of dividends, and in the event of divestments made 
because of the strategic review, the manner in which divestment proceeds are remitted (and therefore the associated tax consequences).

Uncertain Tax Position

In determining the amount of current and deferred tax, the Group takes into account the effect of uncertain tax positions and whether additional taxes, 
penalties and interest may be due. The Group operates in several different tax jurisdictions. This leads to complex tax issues. The ultimate decision regarding 
these complex tax issues is often outside the control of the Group and depends on the efficiency of the legal processes in the relevant tax jurisdiction. The 
Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax 
law and prior experience. This assessment relies on estimates and assumptions about future events. New information may become available that causes the 
Group to change its judgement regarding the adequacy of existing tax liabilities. Such changes to tax liabilities will affect tax expense in the period that such 
determination is made.

21  CONTINGENT LIABILITIES, PROVISIONS AND COMMITMENTS

Provisions are recognised in the Statement of Financial Position only where the Group has a present legal or constructive obligation. This obligation 
must be the result of a past event, when it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of 
the amount can be made. 

Legal counsel or other experts are consulted on matters that may give rise to a provision or a contingent liability. Estimates and assumptions are made 
in determining the likelihood, amount and timing of cash outflows when the outcome is uncertain.

a) 

 Contingent liabilities 

In the normal course of business, Fonterra, its subsidiaries and equity accounted investees, are exposed to claims and legal proceedings that may in some 
cases result in costs to the Group. 

In June 2020 a class action was filed in the Supreme Court of Victoria against Fonterra Australia Pty. Ltd., Fonterra Milk Australia Pty. Ltd. and Fonterra 
Brands (Australia) Pty. Ltd. (collectively, Fonterra Australia) by Geoffrey and Lynden Iddles on behalf of farmers who supplied milk to Fonterra Australia 
during the 2015/2016 season. The class action relates to actions taken by Fonterra Australia in connection with its milk price in the 2015/2016 season 
including the manner in which Fonterra Australia set its opening milk price and forecast closing milk price at the outset of that season, its communications 
with suppliers about the milk price throughout the season; and its reduction of the milk price in May 2016. The plaintiffs are alleging that Fonterra Australia 
breached its contracts with suppliers, engaged in misleading and deceptive conduct and engaged in unconscionable conduct in connection with these 
matters. Fonterra expects to vigorously defend these claims. Given the early stage of the litigation, it is not currently possible to estimate the amount of any 
potential exposure in connection with this class action.

In April 2020, Fonterra resolved all outstanding claims from Danone relating to Fonterra’s Whey Protein Concentrate 80 (WPC80) precautionary recall 
in August 2013. Danone has withdrawn the New Zealand High Court proceedings against Fonterra which had been stayed pending separate Singapore 
arbitration proceedings against Fonterra in connection with the WPC80 precautionary recall.

132

b)  Provisions

As at 1 August 2019

Reclassification of tax provision to tax payable1

Adjusted balance as at 1 August 2019

Additional provisions

Unused amounts reversed

Charged to Income Statement

Charged to equity

Utilised during the year

Transferred to liabilities of disposal groups held for sale

Foreign currency translation

As at 31 July 2020

Included in the Statement of Financial Position as follows:

Current liabilities

Non-current liabilities

Total provisions

GROUP $ MILLION

EMPLOYEE 
RELATED 
PROVISIONS

LEGAL CLAIMS 
PROVISIONS

RESTRUCTURING 
PROVISIONS

OTHER 
PROVISIONS

TOTAL 
PROVISIONS

80

–

80

49

–

49

19

(3)

(35)

(14)

96

58

(24)

34

–

(3)

(3)

–

–

(20)

(9)

2

42

–

42

16

(3)

13

–

(52)

–

–

3

24

–

24

34

(10)

24

–

(17)

–

–

31

204

(24)

180

99

(16)

83

19

(72)

(55)

(23)

132

68

64

132

1  $24 million of legal claims provisions was reclassed from provisions to tax payable at 31 July 2019 as a result of the retrospective adoption of NZ IFRIC 23 Uncertainty over Income Tax Treatments. Refer 

to Basis of preparation for new and amended International Financial Reporting Standards.

Employee related provisions include amounts payable to employees pending judicial interpretation of the requirements of legislation in New Zealand, 
defined benefit scheme obligations, other obligations that fall due on termination of employment, and long-term employee benefits. The timing 
and amount of settlement is uncertain as it primarily depends on the outcome of judicial proceedings or decisions relating to the employment of 
relevant employees.

Legal claims provisions include obligations relating to customs and duties and legal matters arising in the normal course of business. The timing and amount 
of settlement is uncertain as it depends on the outcome of a number of judicial proceedings.

Other provisions relate to product quality claims and other claims arising in the normal course of business. The timing and amount of settlement is 
uncertain as it depends on the outcome of the commercial negotiations relating to each individual claim.

c)  Commitments 

Capital expenditure contracted for at balance date but not recognised in the financial statements are as follows:

GROUP $ MILLION

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

Buildings

Plant, vehicles and equipment

Software

Total commitments

34

75

2

111

5

43

1

49

133

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

22  RELATED PARTY TRANSACTIONS 

The transactions with related parties that were entered into during the year, and the year end balances that arose from those transactions are shown below:

a)  Key management personnel remuneration

Key management personnel comprise members of the Board and members of the Fonterra Management Team.

Short-term employee benefits1

Long-term employee benefits

Termination benefits

Directors’ remuneration

Total key management personnel remuneration

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

20

3

1

2

26

13

3

2

2

20

22  RELATED PARTY TRANSACTIONS CONTINUED

c)  Outstanding balances with related parties

Equity accounted investees

Total receivables arising from the sale of goods or services1

Total receivables arising from financing arrangements2

Total payables arising from the purchase of goods or services

Total payables arising from financing arrangements

Key management personnel

Total payables arising from the sale or purchase of goods or services3

GROUP $ MILLION

AS AT 31 JULY 2020

AS AT 31 JULY 2019

24

55

(29)

(1)

(22)

25

65

(31)

(2)

(18)

1 

In addition, as at 31 July 2020 the Group recognised a provision of $2 million for former key management personnel in relation to pending judicial interpretation of the requirements of legislation in 
New Zealand.

Includes $7 million provision for impairment of receivables from equity accounted investees (31 July 2019: nil).

1 
2  Loans to related parties other than equity accounted investees are unsecured and repayable in cash on demand. Loans to equity accounted investees are unsecured and repayable over varying terms of 

between four years and nine years.

3  Payables to key management personnel relate to amounts owing for milk supplied by farmer shareholder Directors and are recognised in owing to suppliers.

b)  Transactions with related parties during the year

Transactions with related parties are under normal trade terms and none of the balances are secured.

Equity accounted investees

Revenue from the sale of goods1

Sale of services2

Royalty and other income

Dividends received

Interest income from financing arrangements

Purchases of goods3

Purchases of services4

Purchase of Darnum manufacturing plant from Beingmate5

Key management personnel

Purchases of goods6

Sale of goods7

1  Goods sold are primarily commodity products.
2  Services provided include management fees.
3  Goods purchased are primarily commodity products.
4   Services provided are primarily freight services.
5  Beingmate was considered a related party until the Group lost significant influence in the second half of FY19.
6  Purchases from key management personnel primarily relate to milk supplied by farmer shareholder Directors.
7  Sales to key management personnel primarily related to sales through Farm Source™ stores.

GROUP $ MILLION

31 JULY 2020

31 JULY 2019

104

10

2

33

1

(57)

(162)

–

(154)

4

120

9

2

6

2

(56)

(169)

(126)

(118)

4

d)  Financial guarantees

The Group provides financial guarantees for certain equity accounted investees. At 31 July 2020, the aggregate drawn down amount of equity accounted 
investees’ liabilities for which the Group is jointly and severally liable was nil (31 July 2019: $1 million).

e)  Transactions with related entities

As part of the administration of Trading Among Farmers, the Group entered into an Authorised Fund Contract to provide administrative services in relation 
to the Fund and meet the operating expenses of the Fund. In addition, the Group has agreed to provide corporate facilities, support functions and other 
services at no cost to the Fund.

f)  Commitments

In addition to the transactions disclosed above, the Group has:

–  Prospective commitments with related parties including contracts with associates and joint ventures for the supply of dairy products and energy, and the 

provision of various management services.

–  Other than the contractual commitment to provide future funding to the Falcon China Farms JV (refer to Note 2 Strategy review update) no other 

contractual commitments have been provided to related parties. 

134

135

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

23  SUBSIDIARIES

Subsidiaries are entities controlled by the Group. Subsidiaries are consolidated from the date the Group gains control until the date on which 
control ceases. 

Non-controlling interests are allocated their share of profit after tax in the Income Statement and are presented within equity in the Statement 
of Financial Position separately from equity attributable to equity holders. The effect of all transactions with non-controlling interests that change 
the Group’s ownership interest but do not result in a change in control are recorded in equity. Where control is lost, the remaining interest in the 
investment is remeasured to fair value and any surplus or deficit arising from that remeasurement is recognised in the Income Statement.

The Group’s subsidiaries are involved in the marketing, distribution, processing, technology or financing of dairy products. All Group subsidiaries have a 
balance date of 31 July unless otherwise indicated. Subsidiaries with different balance dates from that of the Group are due to legislative requirements in 
the country the entities are domiciled. 

The Group holds investments in certain countries that have some limited restrictions on the repatriation of funds back to New Zealand. This does not result 
in any significant restriction on the flow of funds for the Group.

The significant subsidiaries of the Group are listed below:

23  SUBSIDIARIES CONTINUED

The Group’s ownership interest of the following entities is 50 per cent or less. However, they have been consolidated on the basis that the Group controls 
them through its exposure or rights to variable returns and the power to affect those returns.

OVERSEAS SUBSIDIARIES 50% OR LESS OWNERSHIP

Fonterra (Japan) Limited

Fonterra Brands (Middle East) L.L.C.

COUNTRY OF INCORPORATION  
AND PRINCIPAL PLACE OF BUSINESS

AS AT 
 31 JULY 2020

AS AT 
 31 JULY 2019

OWNERSHIP INTERESTS (%)

Japan

UAE

50

49

50

49

In addition to the entities above, the Group controls the Fonterra Shareholders’ Fund and Fonterra Farmer Custodian Limited and consolidates these two 
entities. The trustees of the Fonterra Farmer Custodian Trust own the legal title to all of the shares of the Custodian. The Fund is a managed investment 
scheme with an independent trustee. In concluding that the Group controls the Fund and the Custodian, the Directors took into consideration that they 
form an integral part of the structure and operation of Trading Among Farmers.

SUBSIDIARY NAME

New Zealand Milk (Australasia) Pty Limited

Fonterra Australia Pty Limited1

Fonterra Brands (Australia) Pty Limited1

Dairy Partners Americas Brasil Limitada2

Soprole Inversiones S.A.2

Comercial Santa Elena S.A.3

Soprole S.A.3

Sociedad Procesadora de Leche del Sur S.A. (Prolesur S.A.)3

Fonterra Commercial Trading (Shanghai) Company Limited2

Fonterra (Yutian) Dairy Farm Co. Limited2

Fonterra (Ying) Dairy Company Limited2

Tangshan Fonterra Dairy Farm Limited2

Fonterra Brands (Hong Kong) Limited

Fonterra Brands Indonesia, PT

Fonterra Brands (Malaysia) Sdn Bhd

Fonterra (Europe) Coöperatie U.A.

Fonterra Europe Manufacturing B.V.

Fonterra (New Zealand) Limited

Fonterra Brands (New Zealand) Limited

Fonterra Dairy Solutions Limited

Fonterra Ingredients Limited

Fonterra Limited

New Zealand Milk Brands Limited

RD1 Limited

Kotahi Logistics LP

Fonterra Brands (Singapore) Pte Limited

Fonterra Brands Lanka (Private) Limited

Fonterra (USA) Inc.

COUNTRY OF INCORPORATION  
AND PRINCIPAL PLACE OF BUSINESS

OWNERSHIP INTERESTS (%)

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

Australia

Australia

Australia

Brazil

Chile

Chile

Chile

Chile

China

China

China

China

Hong Kong

Indonesia

Malaysia

Netherlands

Netherlands

New Zealand

New Zealand

New Zealand

New Zealand

New Zealand

New Zealand

New Zealand

New Zealand

Singapore

Sri Lanka

United States

100

100

100

51

99.9

99.9

99.9

100

100

100

51

99.9

99.9

99.9

99.94

86.26

100

100

100

85

100

100

100

100

100

100

100

100

100

100

100

100

90

100

100

100

100

100

100

85

100

100

100

100

100

100

100

100

100

100

100

100

91

100

100

100

1  These entities are subsidiaries of New Zealand Milk (Australasia) Pty Limited.
2  Balance date 31 December.
3  Balance date 31 December and these entities are subsidiaries of Soprole Inversiones S.A.

136

137

Fonterra Annual Report 2020

Notes to the Financial Statements

24  FAIR VALUE MEASUREMENT CONTINUED

The following table shows the fair value hierarchy for each class of financial asset and liability where the carrying value in the Statement of Financial 
Position differs from the fair value:

GROUP $ MILLION

FAIR VALUE

CARRYING VALUE

LEVEL 1

LEVEL 2

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019 
RESTATED 

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019 
RESTATED 

220

142

–

–

235

150

(600)

(35)

(20)

(4,782)

–

(600)

(35)

(619)

(4,971)

(71)

(633)

(32)

–

–

–

(627)

(35)

–

–

–

–

–

(20)

(4,996)

–

–

–

(620)

(5,208)

(75)

Financial assets

Long-term advances

Financial liabilities

Borrowings

–  NZX-listed bonds

–  Capital notes

–  Bank loans

–  Medium-term notes

–  Finance leases1

1  From 1 August 2019 finance leases are included in the lease liabilities balance. This presentation change is a result of the adoption of NZ IFRS 16 Leases. For details on the impact of the change in lease 

accounting refer to Note 27 Impact of transition to NZ IFRS 16 Leases.

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

24  FAIR VALUE MEASUREMENT

Valuation techniques for determining fair values

The fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at 
the measurement date.

The fair values of financial assets and liabilities are calculated by reference to quoted market prices where that is possible. A market is regarded as 
active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and 
those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If quoted market prices are not available, the methodology used to calculate the fair values of financial assets and liabilities is to identify the expected 
cash flows under the terms of each specific contract and then discount these values back to the present value. These models use as their basis 
independently sourced market data where it is available and rely as little as possible on entity-specific estimates.

The calculation of the fair value of financial instruments reflects the impact of credit risk where applicable.

Specific valuation techniques used to value financial instruments include:

–  The fair value of foreign exchange contracts is determined using observable currency exchange rates, option volatilities and interest rate yield 

curves; 

–  The fair value of interest rate contracts is calculated as the present value of the estimated future cash flows based on observable interest rate 

yield curves; 

–  The fair value of commodity contracts that are not exchange traded is determined by calculating the present value of estimated future cash flows 

based on observable quoted prices for similar instruments; and

–  The fair value on the hedged risks of borrowings and long-term advances that are not exchange traded is calculated as the present value of the 

estimated future cash flows based on observable currency exchange rates and interest rate yield curves.

Fair value hierarchy

The fair value hierarchy described below is used to provide an indication of the level of estimation or judgement required in determining fair value:

–  Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
–  Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly 

(i.e. derived from prices).

–  Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change occurred.

The following table shows the fair value hierarchy for assets and liabilities measured at fair value:

GROUP $ MILLION

LEVEL 1

LEVEL 2

LEVEL 3

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

AS AT 
31 JULY 2020

AS AT 
31 JULY 2019

19

–

–

(23)

–

–

157

17

–

–

170

14

–

–

(9)

–

–

234

8

–

–

247

2

493

602

(2)

(72)

(499)

–

23

–

–

547

1

40

433

(4)

(200)

(539)

–

15

–

–

(254)

–

–

–

–

–

–

–

11

6

402

419

–

–

–

–

–

–

–

16

295

229

540

Measured at fair value on a recurring basis:

Derivative assets

–  Commodity derivatives

–  Foreign exchange derivatives

–  Interest rate derivatives1

Derivative liabilities

–  Commodity derivatives

–  Foreign exchange derivatives

–  Interest rate derivatives1

Investment in Beingmate

Investments in shares

Livestock

Measured at fair value on a non-recurring 
basis:

Disposal groups held for sale

Fair value

1 

Includes cross-currency interest rate swaps.

138

139

Fonterra Annual Report 2020

Notes to the Financial Statements

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

25  OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position where there currently is a 
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the 
liability simultaneously.

The Group enters into various master netting arrangements or similar agreements that do not meet the criteria for offsetting in the Statement of Financial 
Position but still allow for the related amounts to be offset in certain circumstances. These principally relate to derivative transactions under ISDA 
(International Swap and Derivative Association) agreements where each party has the option to settle amounts on a net basis in the event of default 
of the other party.

27  IMPACT OF TRANSITION TO NZ IFRS 16 LEASES

The impact of adopting NZ IFRS 16 Leases is summarised below:

Closing lease commitment for the year ended 31 July 2019

Operating lease payments not brought on to Statement of Financial Position:

–  Exempt leases (short term leases and leases of low-value assets) 

–  Arrangements that are not leases

The table below sets out the financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and other agreements.

Additional lease payments brought on to Statement of Financial Position

AMOUNTS OFFSET IN THE STATEMENT OF FINANCIAL POSITION

GROUP $ MILLION

GROSS FINANCIAL 
ASSETS/(LIABILITIES)

GROSS FINANCIAL 
ASSETS/(LIABILITIES) 
SET OFF

NET FINANCIAL 
ASSETS/(LIABILITIES) 
PRESENTED

AMOUNTS NOT 
OFFSET

Effect of discounting lease payments

Finance lease liabilities transferred

Opening lease liability 1 August 2019

GROUP  
$ MILLION

513

(40)

(50)

244

(86)

71

652

–

(87)

(86)

(173)

87

86

173

–

–

(38)

(90)

(128)

38

90

128

–

788

1,116

1,775

3,679

(596)

(1,588)

(2,184)

1,495

550

488

1,824

2,862

(752)

(1,534)

(2,286)

576

–

(447)

(20)

(467)

467

–

467

–

(8)

(283)

–

(291)

291

–

291

–

NET

788

669

1,755

3,212

(129)

(1,588)

(1,717)

1,495

542

205

1,824

2,571

(461)

(1,534)

(1,995)

576

On transition, the Group has elected to utilise the modified retrospective approach for existing leases. This method resulted in an adjustment to the 
opening balance of retained earnings as at 1 August 2019 of $20 million. Prior year comparative information is not required to be restated. 

The weighted-average incremental borrowing rate used to measure lease liabilities at transition was 3.56 per cent.

For leases previously classified as operating leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the 
incremental borrowing rate as at 1 August 2019. Right-of-use assets are measured at either:

–  Their carrying amount as if NZ IFRS 16 had been applied since the commencement date, discounted using the incremental borrowing rate 

at 1 August 2019; or

–  An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

The Group used the following practical expedients when applying NZ IFRS 16 to leases previously classified as operating leases:

–  Applied the exemption not to recognise Right-of-use assets and liabilities for low value leases and leases with less than 12 months of lease term 

remaining at 1 August 2019;

–  Elected to apply a single discount rate to a portfolio of leases where they had similar characteristics;

–  Excluded initial direct costs from the measurement of the Right-of-use asset at 1 August 2019; and

–  Assessed the lease term using facts and circumstances known at transition date, rather than looking back and making retrospective assumptions of the 

facts and circumstances at the start of the lease.

The related lease expense for exempt leases is recognised in Profit before net finance costs and tax.

A number of leases were previously classified as finance leases. The carrying value of lease assets and lease liabilities for these leases as at 31 July 2019 was 
transferred to Right-of-use assets and lease liability under NZ IFRS 16.

Cash and cash equivalents

Derivative financial assets

Trade and other receivables (excluding prepayments)

Derivative financial liabilities

Owing to suppliers

31 July 2020

Cash and cash equivalents

Derivative financial assets

Trade and other receivables (excluding prepayments)

Derivative financial liabilities

Owing to suppliers

31 July 2019 (restated)

788

1,203

1,861

3,852

(683)

(1,674)

(2,357)

1,495

550

526

1,914

2,990

(790)

(1,624)

(2,414)

576

26  NET TANGIBLE ASSETS PER QUOTED EQUITY SECURITY

Net tangible assets per security1

$ per equity instrument on issue

Equity instruments on issue (million)

1  Net tangible assets represent Total assets less Total liabilities less Intangible assets.

GROUP

AS AT  
31 JULY 2020

2.77

1,612

AS AT  
31 JULY 2019 
RESTATED

2.01

1,612

140

141

Notes to the Financial Statements CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

28  RE-PRESENTATIONS AND PRIOR PERIOD RESTATEMENTS

28  RE-PRESENTATIONS AND PRIOR PERIOD RESTATEMENTS CONTINUED

Fonterra Annual Report 2020

Notes to the Financial Statements

Re-presentations

Discontinued operations

As at 31 July 2020 the China Farms and Brazil consumer and foodservice businesses are classified as disposal groups held for sale and considered 
to be discontinued operations (refer to Note 2 Strategy review update for further details). This has the following impact on the presentation of these 
financial statements:

–  Discontinued operations are presented in a single line item in the Income Statement in both the current and comparative reporting periods. Comparative 
period information in the Income Statement has been re-presented to reflect the classification of China Farms and the Brazil consumer and foodservice 
businesses as discontinued operations.

–  Assets of disposal groups held for sale are presented in a single line item within Current assets, and Liabilities of disposal groups held for sale are 

presented in a single line item within Current liabilities. Comparative period information in the Statement of Financial Position has not been re-presented. 

–  The Statement of Changes in Equity and Cash Flow Statement have not been adjusted to separately present discontinued operations.

Current period presentation 

Long-term advances and the Investment in Beingmate have been presented as separate line items in the Statement of Financial Position. In the 2019 
Financial Statements these items were included within Other non-current assets. Comparative period information in the Statement of Financial Position has 
been re-presented to reflect the current year presentation.

Restatements

Agent adjustment 

The Group adopted NZ IFRS 15 Revenue from Contracts with Customers from 1 August 2018. On adoption of NZ IFRS 15, the Group had determined that 
it was the principal in relation to certain performance obligations for freight and insurance services provided on specific international sales. During the 
current reporting period, this conclusion was reconsidered, and it was determined that the Group was an agent rather than the principal. This resulted in an 
adjustment to Revenue from sale of goods to record the net agency fees for arranging certain freight and insurance services, rather than the gross revenue. 
This change does not impact gross margin or earnings.

Control transfer adjustment

The Group has also reviewed its major revenue contracts. This review identified that for a specific contract in China, it had previously been determined 
that the Group ceased to control the goods when the goods were transferred to the distributor. During the current reporting period this conclusion was 
reconsidered, and it was determined that the distributor acts as an agent for the Group and control of the goods does not pass until the inventory reaches 
an end customer. This results in the deferral of revenue until the point in time that the control is transferred to the end customer, rather than on transfer to 
the distributor. 

GBP bond adjustment

During the year ended 31 July 2009, the Group designated a GBP denominated medium term note and associated cross currency interest rate swaps used 
to manage foreign exchange and interest rate risk into hedge accounting relationships. During the current reporting period the Group reassessed the 
historic effectiveness of these relationships. This has resulted in a restatement of the Group’s Retained earnings and Borrowings.

Presentation of cash flows from financing activities

During the year ended 31 July 2020 the Group has reassessed the presentation of gross cash flows relating to bank loans in the Cash Flow Statement and 
Note 9 Borrowings. This has resulted in a $540 million increase in Proceeds from borrowings and Repayments of Borrowings in the Cash Flow Statement 
for the comparative year. This restatement was made to better reflect the Group’s financing activities and has had no impact on net cash flows, the Income 
Statement or Statement of Financial Position.

The following tables reconcile the impact on key line items in the Group’s Income Statement and Statement of Financial Position from re-presentations 
and restatements1.

STATEMENT OF FINANCIAL POSITION (EXTRACT)

Trade and other receivables

Inventories

Deferred tax asset

Trade and other payables

Non-current borrowings

Net assets

Retained earnings

Total equity 

GROUP $ MILLION

AS AT 31 JULY 
2018 AUDITED

CONTROL 
TRANSFER 
ADJUSTMENT

GBP BOND 
ADJUSTMENT

AS AT 31 JULY 
2018 RESTATED

2,355

2,917

667

(2,116)

(5,907)

6,349

934

6,349

(75)

360

11

(324)

–

(28)

(28)

(28)

GROUP $ MILLION

–

–

5

–

(19)

(14)

(14)

(14)

2,280

3,277

683

(2,440)

(5,926)

6,307

892

6,307

INCOME STATEMENT (EXTRACT)

Revenue

Cost of sales

Gross profit

Expenses and other items including finance costs

Profit/(loss) before income tax

Income tax

Loss after tax from continuing operations

Loss from discontinued operations

Loss after tax

YEAR ENDED 
31 JULY 2019 
AUDITED

DISCONTINUED 
OPERATIONS

YEAR ENDED
31 JULY 2019 
CONTINUING 
OPERATIONS

PROFIT INCREASE/ 
(DECREASE) 
AGENT 
ADJUSTMENT

INCREASE/ 
(DECREASE) 
CONTROL 
TRANSFER 
ADJUSTMENT

YEAR ENDED 
31 JULY 2019 
RESTATED

20,114

(17,334)

2,780

(3,208)

(428)

(177)

(605)

(665)

766

101

292

393

95

488

19,449

(16,568)

2,881

(2,916)

(35)

(82)

(117)

(488)

(605)

(498)

498

–

–

–

–

–

–

–

304

(311)

(7)

–

(7)

2

(5)

–

(5)

19,255

(16,381)

2,874

(2,916)

(42)

(80)

(122)

(488)

(610)

STATEMENT OF FINANCIAL POSITION (EXTRACT)

Trade and other receivables

Inventories

Deferred tax asset

Trade and other payables

Non-current borrowings

Net assets

Retained earnings

Total equity 

GROUP $ MILLION

AS AT 31 JULY 
2019 AUDITED

CONTROL 
TRANSFER 
ADJUSTMENT

GBP BOND 
ADJUSTMENT

AS AT 31 JULY
2019 RESTATED

1,900

2,944

592

(1,869)

(5,361)

5,881

360

5,881

(29)

221

13

(238)

–

(33)

(33)

(33)

–

–

5

–

(19)

(14)

(14)

(14)

1,871

3,165

610

(2,107)

(5,380)

5,834

313

5,834

143

1  Where applicable, the Cash Flow Statement has been restated to reflect the above changes. These restatements have not impacted net cash flows.

142

Independent Auditor’s Report

Fonterra Annual Report 2020

Independent Auditor’s Report

To the shareholders of Fonterra Co-operative Group Limited 

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

In our opinion, the accompanying consolidated financial statements of Fonterra Co-operative Group Limited (the ‘Company’) and its subsidiaries (the 
‘Group’) on pages 76 to 143:

i.  present fairly in all material respects the Group’s financial position as at 31 July 2020 and its financial performance and cash flows for the year ended on 

that date; and

ii.  comply with New Zealand Equivalents to International Financial Reporting Standards and International Financial Reporting Standards. 

We have audited the accompanying consolidated financial statements which comprise:

— the consolidated statement of financial position as at 31 July 2020;

— the consolidated income statement, statements of other comprehensive income, changes in equity and cash flows for the year then ended; and

— notes, including a summary of significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have 
obtained is sufficient and appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by 
the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional 
Accountants (‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. 

Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of 
our report.

Our firm has also provided other services to the Group that are related to our role as the Group’s auditor, such as assurance and agreed upon procedures 
services. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on normal terms within the ordinary course 
of trading activities of the business of the Group. These matters have not impaired our independence as auditor of the Group. The firm has no other 
relationship with, or interest in, the Group.

Materiality

The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the nature, timing and extent of our audit 
procedures and to evaluate the effect of misstatements, both individually and on the consolidated financial statements as a whole. The materiality for 
the Group financial statements as a whole was set at $50 million, determined with reference to a benchmark of the cost of New Zealand sourced milk. 
We chose the benchmark because, in our view, this is a key measure of the Group’s performance for the co-operative’s farmer shareholders. We also 
benchmarked materiality against revenue, assets and earnings.

Scoping

The scope of our audit is designed to ensure that we perform adequate work to be able to give an opinion on the consolidated financial statements as a 
whole, taking into account the structure of the Group, the financial reporting systems, processes and controls, and the industry in which it operates.

In establishing the overall approach to our audit, we considered the centralised nature of the Group’s operations, the risk profile of countries where the 
Group operates, and changes taking place within the business. We also considered the financial significance of each business unit together with any local 
statutory audit requirements.

The Group financial statements are a consolidation of over 100 individual subsidiaries and equity accounted investees. Due to their financial significance 
and risk profile we scoped in 13 components in New Zealand, Australia, Chile, Japan and the USA to undertake audits performed under our instruction. 
Audits of these components were performed using materiality levels assigned by the Group audit team, which were lower than the materiality level for 
the Group as a whole, ranging from $5 million to $35 million, and determined with reference to their size and risk profile. Specified risk-focused audit 
procedures were performed by Group and component auditors on certain balances and transactions in respect of a further 16 in scope components in 
Australia, Brazil, Chile, China, Hong Kong, Malaysia, the Netherlands, New Zealand, Singapore and Sri Lanka.

The Group consolidation, financial statement disclosures and a number of complex items were audited by the Group audit team centrally in New Zealand. 
These included general IT controls, revenue recognition, impairment, adoption of IFRS 16 Leases, financial instruments, taxation and accounting for 
divestments and assets held for sale.

The Group audit team led the participation of component audit teams in the Group audit. We visited all component locations subject to audit during our 
risk assessment phase. Detailed audit instructions were sent to all auditors of in-scope components. These instructions set out the significant audit areas 
that we required component audit teams to consider, and the information required to be reported back to the Group audit team. We held meetings with 
component teams subject to both audit and specified risk-focused audit procedures as part of the audit planning phase to explain our audit instructions and 
discuss the component auditors’ audit plans. In addition to these visits and meetings, we held meetings with component auditors to discuss the findings 
reported to the Group audit team in more detail, and any further work required by the Group audit team was then performed by the component auditor.

Taken together, the components in scope for the Group audit accounted for 91% of the Group’s revenue and 90% of the Group’s total assets. For the 
remaining components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material 
misstatement within these components.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in 
the current period. We summarise below those matters and our key audit procedures to address those matters in order that the shareholders as a body may 
better understand the process by which we arrived at our audit opinion. 

Our procedures were undertaken in the context of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a 
whole and we do not express discrete opinions on separate elements of the consolidated financial statements.

THE KEY AUDIT MATTER

Revenue recognition

Refer to Notes 3 & 28 to the Financial Statements.

We considered the recognition of revenue from contracts with key 
customers and distributors to be a key audit matter due to:

— the significance of the Group’s $20 billion of revenue to the Financial 

Statements as a whole;

— the changes in accounting rules as a result of IFRS 15 Revenue from 

contracts with customers (which was adopted by the Group in the year 
ended 31 July 2019);

— the level of judgement involved in establishing when a sale has occurred 

and the ultimate sales price under IFRS 15; 

— the prior period adjustment recorded by the Group in their interim 

financial statements; and

— the extent of audit effort required to examine the Group’s contracts 

with customers in the context of the size and complexity of this area (as 
noted above), and the requirement under auditing standards for us to 
consider fraud risk associated with revenue recognition. 

HOW THE MATTER WAS ADDRESSED IN OUR AUDIT

The procedures we performed to evaluate whether revenue had been 
recognised appropriately included:

— identifying and testing relevant controls over revenue recognition, and 
using data analytics routines to evaluate 100% of sales transactions 
undertaken through the Group’s two core ERP systems (representing 
89% of Group revenue);

— assessing the Group’s revenue recognition accounting policies, and 
evaluating the application of these policies to actual contracts with 
customers as noted below;

— evaluating contractual arrangements with key customers and distributors 
through discussion with management and inspection of the underlying 
documentation, as well as sample testing other sales arrangements; and

— performing other audit procedures specifically designed to address the 
risk of management override of controls including journal entry testing, 
applying particular focus to the timing of revenue transactions.

We found that for the majority of sales, revenue was recognised 
appropriately. Further consideration was required in respect of the timing 
and amount of revenue recognised for certain customers and distributors. 
This specifically related to agent versus principal considerations.

The Group made certain changes to its revenue recognition accounting 
policy, and restated revenue amounts recorded in previously issued 
financial statements (see note 28). We assessed the disclosure of the 
restatements against the requirements of IAS 8 Accounting Policies, 
Changes in Accounting Estimates and Errors.

144

145

Independent Auditor’s Report CONTINUED

Fonterra Annual Report 2020

Independent Auditor’s Report

THE KEY AUDIT MATTER

HOW THE MATTER WAS ADDRESSED IN OUR AUDIT

THE KEY AUDIT MATTER

HOW THE MATTER WAS ADDRESSED IN OUR AUDIT

Impairment of goodwill and brands

Refer to Note 17 to the Financial Statements.

The Group’s balance sheet includes $1,784 million of goodwill and brands.

$917 million of goodwill and brands is included within three cash 
generating units (‘CGU’) for impairment testing purposes. As disclosed 
in the basis of preparation of the Financial Statements, management 
undertakes an annual impairment assessment of these CGUs using a 
discounted cash flow model based on forecast future performance. 
Significant judgement is required in forecasting the future cash flows of 
each CGU, together with the rate at which they are discounted.

This risk is elevated due to the impacts of Covid-19 on consumer behaviour, 
which has resulted in greater than normal levels of forecasting uncertainty. 

We consider impairment testing of these CGUs to be a key audit 
matter due to the level of judgement described above, and for the 
following reasons:

— Fonterra Brands New Zealand (‘FBNZ’) ($512 million of goodwill and 
brands) – due to the significance of the CGU carrying value to the 
overall financial position of the Group, and the absence of any headroom 
between the recoverable amount and the carrying value following an 
impairment in the previous year;

— Fonterra Australia (‘FAU’) ($282 million of goodwill and brands) – due 
to the significance of the CGU to the overall financial position of the 
Group; and

— Soprole ($123 million of goodwill and brands) – due to the significance 
of the CGU to the overall financial position of the Group and due to the 
potential long-term impacts of the civil unrest which commenced in 
October 2019.

We also considered the impairment assessment of the Group’s portfolio 
of consumer and foodservice brands to be a key audit matter due to the 
significance of the $674 million of brand assets to the overall financial 
position of the Group. These brands have been valued using the relief from 
royalty method. Judgement is required in ascertaining the key inputs into 
the relief from royalty calculation, namely the range of market royalty rates 
for each brand, appropriate sales growth (including terminal growth) rates 
for each brand, and appropriate discount rates to apply to the resulting 
future royalties. 

The procedures we performed to evaluate the impairment 
assessments included:

— assessing whether the methodology adopted was consistent with 
accepted valuation approaches of IAS 36 Impairment of Assets;

— evaluating the significant assumptions by comparing to historical trends, 

approved budgets, business plans and external market data;

— comparing the discount rates applied to the estimated future cash flows 
and the terminal growth rates to relevant benchmarks using KPMG 
valuation specialists;

— challenging the above assumptions and judgements by performing 
sensitivity analysis, considering a range of likely outcomes based on 
various scenarios;

— in connection with the impairment charge of $21 million recognised by 

FBNZ, using KPMG valuation specialists to calculate a market participant 
fair value less cost of disposal valuation based on comparable company 
analysis and analysis of trading multiples;

— comparing the Group’s total net assets as at 31 July 2020 of $6,703 
million to its market capitalisation of $6,158 million at 31 July 2020, 
understanding the possible reasons for the market capitalisation to be 
below net assets, and assessing whether the carrying value of the net 
assets of the Group as a whole are impaired; and

— considering the appropriateness of the disclosures in 

the financial statements.

For each CGU we found the methodology to be consistent with IAS 36. 
We found the discount and terminal growth rates were in an acceptable 
range, and that future cash flow assumptions were largely supported by 
comparison to the sources we considered. 

For FBNZ where an impairment of $21 million was recognised, our scenario 
analysis indicated that the resulting carrying value was materially consistent 
with the high end of our valuation range.

For the Chesdale brand where an impairment of $36 million was 
recognised, our scenario analysis indicated that the resulting carrying value 
was consistent with our valuation range.

For FAU, Soprole, and other consumer and foodservice brands in the 
Group’s portfolio, where no impairment was recognised, our scenario 
analysis indicated that the recoverable amount of each of these assets 
exceeds its carrying value and that no impairment is necessary.

The overall comparison of the Group’s net assets to market capitalisation 
was a shortfall of $545 million (or 8%). Based on the impairment testing 
undertaken across a large proportion of the Group’s non-current assets, 
and general market conditions, we are satisfied that this does not in itself 
represent an indicator of impairment for the Group as a whole.

We consider the impairment disclosures to be a fair reflection of the 
underlying impairment tests.

First-time adoption of IFRS 16 Leases

Refer to Note 27 to the Financial Statements.

We considered the first-time adoption of IFRS 16 to be a key audit matter 
due to the complexity of the new standard (in particular in connection with 
accounting policy choices and judgements on implementation, and the 
need to consider a wide range of arrangements such as supply agreements 
and service contracts), the size of the incremental lease liability and 
sensitivity of the Group’s funding arrangements to debt-based metrics.

The new leasing standard was implemented across the Group as of 
1 August 2019 through the modified retrospective approach with 
cumulative effects recognised as an adjustment to retained earnings at 
adoption date (and with no restatement of the comparative information).

Following the implementation, the Group recorded right-of-use assets of 
$621 million, and a $652 million lease liability. The implementation of the 
standard requires judgement in establishing among other assumptions 
the incremental borrowing rate, the lease term, and the amount of 
lease payments in the future where escalation clauses exist in the 
lease agreements.

In addition, significant audit effort was required to ensure that all 
arrangements subject to the new standard had been considered by the 
Group, not just those previously accounted for as operating leases.

The cost of New Zealand sourced milk

Refer to Notes 4, 12 and 14 to the Financial Statements.

The cost of New Zealand sourced milk supplied by farmer shareholders 
amounted to $11 billion and comprises the volume of milk solids supplied 
at the Farmgate Milk Price as determined by the Board of Directors for the 
relevant season.

In making that determination, the Board takes into account the Farmgate 
Milk Price calculated in accordance with the Farmgate Milk Price Manual.

We consider the cost of New Zealand sourced milk to be a key audit matter 
due to its significance to the financial statements as a whole. 

The cost of New Zealand sourced milk is a key component of the 
Group’s cost of goods sold of $17 billion, the carrying value of the 
Group’s inventory of $3,268 million, and amounts owing to suppliers of 
$1,588 million. Significant audit effort was required to audit the cost of 
New Zealand sourced milk.

KPMG has been engaged to provide a reasonable assurance report in 
connection with the Farmgate Milk Price. This is contained in the Fonterra 
Farmgate Milk Price Statement. The Fonterra Farmgate Milk Price 
Statement sets out information about the Farmgate Milk Price, and how it 
is calculated by Fonterra. It can be found in the ‘Investors/Farmgate Milk 
Prices’ section of the Company’s website. 

The procedures we performed to evaluate the first-time adoption of 
IFRS 16 included:

— assessing the appropriateness of the Group’s accounting policies, 

judgements and related disclosures, involving KPMG IFRS specialists;

— obtaining a sample of lease agreements (including those with the largest 
lease rentals or longest lease periods, as well as a random sample of 
the Group’s other leases), reading the agreements to understand key 
terms, and challenging management’s assumptions regarding renewals 
and rental escalation clauses in the context of IFRS 16 requirements, 
the lease agreements and our knowledge and understanding of the 
underlying right-of-use assets;

— involving KPMG valuation specialists and audit teams from overseas 
KPMG member firms to test the appropriateness of the incremental 
borrowing rate assumptions used by the Group in calculating 
the lease liability;

— performing a completeness check that all arrangements we identified 

during our transition activities that could be subject to IFRS 16 had been 
considered and accounted for appropriately by the Group;

— using data analytics routines to identify whether any recurring payments 
made by the Group indicated the existence of additional arrangements 
that could be subject to IFRS 16; and

— recalculating the lease liability and right-of-use asset for those 

arrangements identified as needing to be accounted for under IFRS 16.

We found that the Group’s IFRS 16 adoption project had addressed 
the Group’s existing operating lease portfolio, and that the Group had 
implemented appropriate systems and processes to account for leases 
under IFRS 16 on an ongoing basis.

The Group recognised an additional amount of right-of-use assets and 
lease liabilities compared to that anticipated in the 31 July 2019 financial 
statements, reflecting arrangements that were not previously accounted 
for as operating leases as well as updated assumptions regarding lease 
renewals for strategic assets.

The procedures we performed to evaluate the impact of the Farmgate Milk 
Price calculation on the cost of New Zealand sourced milk included:

—  examining minutes of Milk Price Panel meetings and confirming with 
the Company Secretary that the Board considered the recommended 
Farmgate Milk Price from the Milk Price Panel and approved the 
payment of $7.14 per kgMS for New Zealand sourced milk for the season 
ended 31 May 2020; and

— examining the application of the Board approved milk price to cost of 
goods sold, inventory and amounts owing to suppliers. This involved 
understanding and evaluating relevant controls to ensure that the latest 
milk price forecast series has been applied to cost of goods sold and 
inventory. At season end we checked that the cost of New Zealand 
sourced milk reflected the Board approved milk price for the season.

We completed these procedures and have no matters to report.

The Farmgate Milk Price calculation prepared by the Milk Price Group 
amounted to $11 billion (which equates to $7.14 per kgMS), and we 
confirmed with the Company Secretary that the Board of Directors 
approved a payment of $7.14 per kgMS for New Zealand sourced milk for 
the season ended 31 May 2020 at their meeting on 17 September 2020.

146

147

Independent Auditor’s Report CONTINUED

Non-GAAP Measures

Fonterra Annual Report 2020

Non-GAAP Measures

Other information

The Directors, on behalf of the Company, are responsible for the other information included in the entity’s Annual Report.

Other information includes:

— the Letter from the Chair and the CEO’s Q&A;

— sections relating to Goals, Responding to Covid-19, the Year in Review and the Co-operative Difference;

— sections relating to Healthy Environment, Healthy People and Healthy Business;

— sections relating to Non-GAAP Measures and the associated Glossary;

— the Statutory information section;

— sections relating to Corporate Governance, the Board and the Management Team; and

— the Directory.

Our opinion on the consolidated financial statements does not cover any other information and we do not express any form of assurance conclusion thereon. 

In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider whether 
the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears 
materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required 
to report that fact. We have nothing to report in this regard. 

Other matter

The consolidated financial statements of the Group, for the year ended 31 July 2019, was audited by another auditor who expressed an unmodified opinion 
on those statements on 25 September 2019.

Use of this independent auditor’s report

This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been undertaken so that we might state to the 
shareholders those matters we are required to state to them in the independent auditor’s report and for no other purpose. To the fullest extent permitted 
by law, we do not accept or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent auditor’s report, or 
any of the opinions we have formed. 

Responsibilities of the Directors for the consolidated financial statements

The Directors, on behalf of the Company, are responsible for:

— the preparation and fair presentation of the consolidated financial statements in accordance with generally accepted accounting practice in New Zealand 

(being New Zealand Equivalents to International Financial Reporting Standards) and International Financial Reporting Standards;

— implementing necessary internal control to enable the preparation of a consolidated set of financial statements that is fairly presented and free from 

material misstatement, whether due to fraud or error; and

— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern 

basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objective is:

— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to 

fraud or error; and

— to issue an independent auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs NZ will always detect a material 
misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence 
the economic decisions of users taken on the basis of these consolidated financial statements.

A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB) 
website at:

http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/

This description forms part of our independent auditor’s report.

The engagement partner on the audit resulting in this independent auditor’s report is Matthew Diprose. 

For and on behalf of

KPMG 
Auckland

17 September 2020 

148

Fonterra uses several non-GAAP measures when discussing financial performance. For further details and definitions of non-GAAP measures used by 
Fonterra, refer to the glossary. These are non-GAAP measures and are not prepared in accordance with NZ IFRS. 

Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the business. 
They may be used internally to evaluate the underlying performance of business units and to analyse trends. These measures are not uniformly defined or 
utilised by all companies. Accordingly, these measures may not be comparable with similarly titled measures used by other companies. Non-GAAP financial 
measures should not be viewed in isolation nor considered as a substitute for measures reported in accordance with NZ IFRS.

Reconciliations for the NZ IFRS measures to certain non-GAAP measures referred to by Fonterra are detailed below:

Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised EBITDA

Profit/(loss) for the period 

Add: Depreciation 

Add: Amortisation

Add: Net finance costs

Add: Taxation expense

Total EBITDA 

Less: Disposal of investment in DFE Pharma

Less: Disposal of investment in Goodminton

Add: Falcon China Farms JV impairment

Add: New Zealand consumer and foodservice business impairment

Add: Disposal of Tip Top

Add: China Farms impairment

Add: Brazil consumer and foodservice business impairment

Add: Disposal of Venezuelan operations

Add: Australian strategic reset

(Less)/add: Income Statement impact of Beingmate investment

Add: Other

Total normalisation adjustments

Normalised EBITDA

Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised EBIT

GROUP $ MILLION

31 JULY 2020

31 JULY 20191 
RESTATED

659

528

99

332

156

1,774

(427)

(66)

65

–

–

63

104

–

–

(50)

43

(268)

1,506

(610)

458

103

418

175

544

–

–

–

204

40

203

149

134

68

12

19

829

1,373

GROUP $ MILLION

31 JULY 2020

31 JULY 20191

Profit/(loss) for the period 

Add: Net finance costs

Add: Taxation expense

Total EBIT

(Less)/add: Normalisation adjustments (as detailed above)

Total normalised EBIT

659

332

156

1,147

(268)

879

1  The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.

(610)

418

175

(17)

829

812

149

Non-GAAP Measures  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

Fonterra Annual Report 2020

Glossary

Glossary

Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised earnings per share

NON-GAAP MEASURES 

Profit/(loss) for the period 

Add: Normalisation adjustments

Add: Tax on normalisation adjustments

Total normalised earnings

Add: Share attributable to non-controlling interests

Less: Normalisation adjustments to non-controlling interests

Net normalised earnings attributable to equity holders of the Co-operative

Weighted average number of shares (thousands of shares)

Normalised earnings per share ($)

Reconciliation from reported gross profit for the period to Fonterra’s normalised gross profit

Gross profit for the period from continuing operations

Add/(less): Gross profit for the period from discontinued operations 

Add: China Farms impairment normalisation adjustment

(Less)/add: Other normalisation adjustments

Total normalised gross profit

GROUP $ MILLION

31 JULY 2020

31 JULY 20191

659

(268)

7

398

27

(43)

382

(610)

829

56

275

48

(59)

264

1,612,076

0.24

1,611,980

0.16

GROUP $ MILLION

31 JULY 2020

31 JULY 20191

3,062

99

63

(16)

3,208

2,874

(101)

203

32

3,008

Fonterra refers to non-GAAP financial measures throughout the Annual Report, and these measures are not prepared in accordance with NZ IFRS. The 
definitions below explain how Fonterra calculates the non-GAAP measures referred to throughout the Annual Report.

Debt payback ratio

EBIT

EBITDA

is calculated as total borrowings, plus bank overdraft, plus the effect of debt hedging, less a cash allowance 
of 75% of Cash and cash equivalents, divided by normalised earnings before interest, tax, depreciation and 
amortisation (normalised EBITDA) excluding Share of loss/profit of equity accounted investees and net foreign 
exchange losses/gains. Both Debt and EBITDA are adjusted to include amounts relating to businesses classified 
as held for sale.

means earnings before interest and tax and is calculated as profit for the period before net finance costs and tax.

means earnings before interest, tax, depreciation and amortisation and is calculated as profit for the period 
before net finance costs, tax, depreciation and amortisation.

Economic net interest-bearing debt

means net interest bearing debt including lease liabilities and the effect of debt hedging.

Farmgate Milk Price

Gearing ratio

means the base price that Fonterra pays for milk supplied to it in New Zealand for a season. The season refers to 
the 12-month milk season of 1 June to 31 May.

is calculated as economic net interest-bearing debt divided by total capital. Total capital is equity excluding the 
hedge reserves, plus economic net interest-bearing debt.

Net Tangible Assets per Security

is calculated as net tangible assets divided by the number of equity instruments on issue. Net tangible assets are 
total assets less total liabilities less intangible assets.

Normalisation adjustments

means transactions that are unusual by nature and size. Excluding these transactions can assist users with 
forming a view of the underlying performance of the business. Unusual transactions by nature are the result 
of specific events or circumstances that are outside the control of the business, or relate to major acquisitions, 
disposals or divestments, or are not expected to occur frequently. It also includes fair value movements if they 
are non-cash and have no impact on profit over time. Unusual transactions by size are those that are unusually 
large in a particular accounting period.

Normalised EBIT

means profit for the period before net finance costs and tax, and after normalisation adjustments.

Normalised earnings per share (EPS) means normalised profit after tax attributable to equity holders divided by the weighted average number of 

shares for the period.

Normalised profit after tax

means net profit after tax after normalisation adjustments, and the interest and tax impacts of those 
normalisation adjustments.

Normalised segment earnings

means segmental profit for the period before net finance costs and tax, and after normalisation adjustments.

Pay-out

Retentions

Return on capital

means the total cash payment to farmer shareholders. It is the sum of the Farmgate Milk Price (kg/MS) and the 
dividend per share. Both of these components have established policies and procedures in place on how they 
are determined.

means net profit after tax attributable to farmer shareholders divided by the number of shares at 31 May, less 
dividend per share.

is calculated as normalised EBIT, less a notional tax charge divided by capital employed including brands, 
goodwill and equity accounted investments. Capital employed is calculated as the average for the period of: net 
assets excluding net interest-bearing debt and deferred tax balances.

Segment earnings

means segmental profit for the period before net finance costs and tax.

Working capital

is calculated as total trade and other receivables plus inventories, less current trade payables and accruals. It 
excludes amounts owing to suppliers and employee entitlements.

Working capital days

is calculated as working capital divided by external revenue, multiplied by the number of days in the period.

1  The Income Statement for the year ended 31 July 2019 includes re-presentations and restatements. Please see Note 28 Re-presentations and prior period restatements for further details.

150

151

 
Statutory Information

FOR THE YEAR ENDED 31 JULY 2020

CO-OPERATIVE STATUS

EMPLOYEE REMUNERATION

Fonterra Annual Report 2020

Statutory Information

In accordance with section 10 of the Co-operative Companies Act 1996, the Directors of Fonterra unanimously resolved on 27 August 2020 that the 
Company was, for the year ended 31 July 2020 a co-operative company. The opinion was based upon the fact that:

•  Throughout that period the principal activities of the Company have been the activities stated in clause 1.3 of the Company’s constitution:

–  the manufacture and sale of butter, cheese, dried milk, casein, or any other product derived from milk or milk solids supplied to the Company by 

its shareholders;

–  the sale to any person of milk or milk solids supplied to the Company by its shareholders; 

–  the collection, treatment, and distribution for human consumption of milk or cream supplied to the Company by its shareholders.

•  Each of the Company’s principal activities are co-operative activities (as defined in section 3 of the Co-operative Companies Act 1996).

•  Throughout that period not less than 60 per cent of the voting rights attaching to shares in the Company have been held by transacting shareholders (as 

defined in section 4 of the Co-operative Companies Act 1996).

EMPLOYEE REMUNERATION FRAMEWORK

A well-designed remuneration framework helps the Group attract and retain talent, and both motivates and recognises the role our people play in the 
success of the Group.

Fonterra’s remuneration framework for salaried staff is based on a ‘total remuneration’ approach, which is consistent with best practice globally. This 
includes base salary, benefits (superannuation and insurance), and variable remuneration (incentives).

The amounts we pay to our employees are benchmarked against comparable companies in relevant markets, using information obtained from independent 
remuneration consultants. Adjustments to packages may occur on a cyclical basis, such as an annual salary review, or on an as-needed basis to recognise 
additional responsibilities.

The framework is designed to take into account budget targets and restraints, market conditions, internal equity, and governance factors such as local 
legislation, as well as taking into account individual performance.

Fonterra’s incentive programmes are designed to drive the Group’s performance by:

•  Focusing on the Group’s primary objective of maximising returns for its farmer shareholders;

•  Promoting collaboration and a one team approach to achieve Fonterra’s goals;

•  Establishing targets which are challenging yet achievable; and linked to team (such as business unit) and Group performance.

At the end of each financial year, performance is reviewed and incentive payments are approved by the Appointments and Remuneration Committee at its 
discretion. The Appointments and Remuneration Committee retains absolute discretion in respect to payments for all incentive schemes.

Further detail on Fonterra’s remuneration framework can be found in the Corporate Governance section of the Annual Report.

152

The Group operates in a number of countries where remuneration market levels differ widely. During the year ended 31 July 2020, the number of 
employees, not being Directors of Fonterra, who received remuneration, incentives, and other benefits (including superannuation and allowances etc) 
exceeding $100,000 was as follows:

REMUNERATION RANGE ($)

NEW ZEALAND  
HEAD OFFICE1

REGIONAL 
NEW ZEALAND1

OFFSHORE2

CESSATIONS3

100,000

110,001

120,001

130,001

140,001

150,001

160,001

170,001

180,001

190,001

200,001

210,001

220,001

230,001

240,001

250,001

260,001

270,001

280,001

290,001

300,001

310,001

320,001

330,001

340,001

350,001

360,001

370,001

380,001

390,001

400,001

410,001

420,001

430,001

440,001

450,001

460,001

470,001

480,001

490,001

500,001

510,001

520,001

530,001

540,001

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000

210,000

220,000

230,000

240,000

250,000

260,000

270,000

280,000

290,000

300,000

310,000

320,000

330,000

340,000

350,000

360,000

370,000

380,000

390,000

400,000

410,000

420,000

430,000

440,000

450,000

460,000

470,000

480,000

490,000

500,000

510,000

520,000

530,000

540,000

550,000

94

46

60

57

48

30

43

27

32

29

27

22

20

16

17

7

9

11

2

6

5

6

4

5

3

5

1

1

1

1

–

1

3

1

1

–

2

–

–

1

–

–

–

–

–

1,353

737

682

318

141

110

75

55

33

32

21

12

9

5

9

5

5

8

4

2

3

4

–

–

2

3

–

1

–

–

1

1

2

1

–

–

–

–

–

–

2

1

–

–

–

190

242

274

211

149

111

70

63

53

41

38

32

32

22

18

15

12

20

16

13

10

17

2

9

5

6

6

10

3

3

2

4

3

4

3

5

3

1

3

1

1

4

2

1

3

43

38

23

18

17

17

13

13

13

7

8

5

8

5

5

5

5

3

3

5

1

1

1

2

1

2

–

–

2

–

2

2

1

–

1

–

–

2

–

1

–

–

–

–

2

TOTAL

1,680

1,063

1,039

604

355

268

201

158

131

109

94

71

69

48

49

32

31

42

25

26

19

28

7

16

11

16

7

12

6

4

5

8

9

6

5

5

5

3

3

3

3

5

2

1

5

153

Statutory Information  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

Fonterra Annual Report 2020

Statutory Information

REMUNERATION RANGE ($)

NEW ZEALAND  
HEAD OFFICE1

REGIONAL 
NEW ZEALAND1

OFFSHORE2

CESSATIONS3

TOTAL

Within New Zealand, employees, who received remuneration, incentives, and other benefits (including superannuation and allowances etc) exceeding 
$100,000 were based throughout the country as follows:

550,001

560,001

570,001

580,001

590,001

600,001

620,001

630,001

640,001

650,001

660,001

690,001

700,001

740,001

750,001

760,001

780,001

790,001

820,001

830,001

860,001

870,001

910,001

990,001

560,000

570,000

580,000

590,000

600,000

610,000

630,000

640,000

650,000

660,000

670,000

700,000

710,000

750,000

760,000

770,000

790,000

800,000

830,000

840,000

870,000

880,000

920,000

1,000,000

1,000,001

1,010,000

1,080,001

1,090,000

1,090,001

1,100,000

1,130,001

1,140,000

1,190,001

1,200,000

1,220,001

1,230,000

1,300,001

1,310,000

1,480,001

1,490,000

1,690,001

1,700,000

1,870,001

1,880,000

2,000,001

2,010,000

2,010,001

2,020,000

2,430,001

2,440,000

Totals

–

1

–

3

2

–

1

–

–

–

1

–

–

2

–

–

–

–

1

–

–

–

–

1

–

–

–

–

–

1

–

–

–

–

1

–

–

–

1

–

–

–

–

–

1

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

3

–

1

–

2

2

1

1

1

1

2

1

1

2

1

1

3

2

–

–

–

3

2

–

–

1

–

1

1

–

1

1

–

1

–

–

–

1

–

–

–

–

–

–

–

–

1

–

–

1

–

–

1

1

–

1

1

1

–

–

–

1

–

1

–

–

–

–

–

1

–

–

1

1

4

2

1

3

4

2

2

2

1

2

3

1

2

4

1

2

4

2

2

1

1

3

2

1

1

1

1

1

1

1

1

1

1

1

1

1

1

Auckland

Bay of Plenty

Canterbury

Manawatu – Wanganui

Northland

Southland

Taranaki

Waikato

Rest of New Zealand

New Zealand total 

TOTAL

984

129

493

280

155

189

534

1,451

82

4,297

In addition to being a significant employer in New Zealand, we also have employees in markets around the world. Those who received remuneration, 
incentives, and other benefits (including superannuation and allowances etc) exceeding $100,000 were based in markets around the world as follows:

Australia

China

Europe

Latin America

New Zealand

Rest of Asia

Rest of World

United States

Cessations

Global total 

TOTAL

962

196

102

94

4,297

263

72

81

287

6,354

REMUNERATION OF DIRECTORS

The Directors’ Remuneration Committee, comprising six shareholders elected in accordance with the Constitution, makes recommendations for 
shareholder approval as to the level of Elected Directors’ fees. Elected Directors are those Directors elected by shareholders in accordance with clauses 
12.2 and 33.4 of the Constitution.

At the Annual Meeting of shareholders held on 7 November 2019, shareholders approved, on the recommendation of the Directors’ Remuneration 
Committee, the following amounts of remuneration to apply to Elected Directors from the date of that Annual Meeting of shareholders.

Chairman

Directors

Discretionary additional payments to the Chair of permanent Board Committees  
(except when the Chair is the Chairman of the Board of Directors)

$430,000 per annum

$175,000 per annum

$35,000 per annum

658

3,639

1,769

288

6,354

The Board has approved payment of the discretionary additional payment, at the prevailing approved rate, to the Chair of permanent Board Committees.

1 
2 

Includes employees employed in New Zealand during the reporting period.
Includes employees employed in an offshore operation during the reporting period. Amounts paid in foreign currency have been converted at the average conversion rate for the period. As Fonterra 
has a significant offshore population, the number of offshore employees exceeding the fixed figure of $100,000 increases if the New Zealand dollar currency weakens significantly. Should the 
New Zealand dollar strengthen against those markets’ currencies, these same individuals may not be reported in future lists.

3  Cessations include employees that have been terminated or retired during the period. The amounts paid to former employees include salary and bonuses for the current period, prior period bonuses 
that have been paid in the current period and termination entitlements including those arising from employment arrangements entered into by legacy companies prior to the formation of Fonterra.

The Board has discretion to set the fees for Directors appointed under clause 12.4 of the Constitution (Appointed Directors). In the period to 31 July 2020 
the Board applied the same remuneration levels as above to the Appointed Directors.

The Board has approved the payment to Mr Israel of a travel allowance of $10,000 per meeting for travel to and from New Zealand to attend Board 
meetings, until his retirement on 7 November 2019. 

The Appointments and Remuneration Committee and the Chairman of the Board of Directors has the discretion to allocate a discretionary pool of up to 
$75,000 per annum for fees for Directors remuneration for additional duties, workload and responsibilities (in each case not to exceed $25,000 per annum 
per Director).

Fees paid by subsidiary or associate companies in respect of Fonterra Directors or employees appointed by Fonterra as Directors of those companies are 
payable directly to Fonterra.

154

155

Fonterra Annual Report 2020

Statutory Information

Statutory Information  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

Directors Remuneration

The total remuneration and value of other benefits (not including superannuation contributions, if applicable) received by each Director in the 12-month 
period from 1 August 2019 to 31 July 2020 are scheduled below:

Clinton Dines

Brent Goldsack (Chair of the Co-operative Relations Committee)

Leonie Guiney (Chair of the Safety and Risk Committee)

Bruce Hassall (Chair of the Audit and Finance Committee)

Simon Israel1 

Holly Kramer1

Andrew Macfarlane

Peter McBride

John Monaghan (Chairman of the Board of Directors) 

John Nicholls

Donna Smit

Scott St John (Chair of the Milk Price Panel)

BOARD FEES

COMMITTEE 
CHAIR FEES

TRAVEL 
ALLOWANCE

DISCRETIONARY 
POOL

TOTAL 
REMUNERATION 
($)

175,000

175,000

175,000

175,000

47,1 1 5

43,750

175,000

175,000

430,000

175,000

175,000

175,000

–

35,000

35,000

35,000

–

–

–

–

–

–

–

35,000

–

–

–

–

40,000³

–

–

–

–

–

–

–

–

–

–

25,000²

–

–

–

–

–

–

–

–

175,000

210,000

210,000

235,000

87,115

43,750

175,000

175,000

430,000

175,000

175,000

210,000

Indicates a part year.

1 
2  The Appointments and Remuneration Committee and the Chairman of the Board of Directors has approved a payment of $25,000 to Mr Hassall from the discretionary pool for additional work 

undertaken in FY20.

3  The Board has approved the payment to Mr Israel of a travel allowance of $10,000 per meeting to travel to and from New Zealand to attend Board meetings.

EQUITY SECURITIES HELD AT BALANCE DATE

ENTRIES IN THE INTERESTS REGISTER

Directors’ interests in transactions

General disclosures of interest

The following general disclosures of interest were made in the period from 1 August 2019 to 31 July 2020:

Clinton Dines

Griffith Asia Institute

Brent Goldsack

Rabobank New Zealand Limited

Adjunct Professor

Director

Canterbury Grasslands Limited (ceased May 2020)

Director and Shareholder

CoLab Dairy Partners General Partnership (ceased 2020)

Indirect Shareholder

Holly Kramer

Lendi Pty Limited

Chair

Australian Post (ceased June 2020)

Woolworths Group Limited

Goodes O’Loughlin Foundation

Abacus Property Group

Western Sydney University

Chief Executive Woman

Andrew Macfarlane

GW and MA Macfarlane Family Trust

Macfarlane Rural Business Limited (ceased August 2019) 

Peter McBride

Kennedy Farm Limited 

Pokai Farm Limited

Ian Elliot Family Trust

MA Elliot Family Trust

Zespri Global Supply Advisory Board

Independent Non-executive Director and Deputy Chair

Independent Non-executive Director

Independent Non-executive Director

Independent Non-executive Director

Pro-Chancellor

Member

Trustee

Shareholder

Shareholder

Shareholder

Trustee

Trustee

Member

Chair

In accordance with Rules of the Fonterra Shareholders’ Market (FSM) Rule 2.7.1(d), the following table identifies the Equity Securities in which each Director 
has a Relevant Interest as at 31 July 2020:

John Nicholls

Quigley Contracting Advisory Board (ceased August 2019)

During the financial year there were no notices from Directors requesting to disclose or use information received in their capacity as Directors which would 
not otherwise have been available to them.

Brent Goldsack

Leonie Guiney

Andrew Macfarlane

Peter McBride

John Monaghan

John Nicholls

Donna Smit 

UNITS ISSUED BY 
THE FONTERRA 
SHAREHOLDERS’ 
FUND1

CO-OPERATIVE 
SHARES

–

–

136,1501

–

–

–

10,4411

400,407

1,198,824

813,301

6,923,748

140,179

2,190,864

1,243,933

1  Units issued by the Fonterra Shareholders’ Fund may be converted to Co-operative shares.

A ‘Relevant Interest’ in Fonterra securities which is required to be disclosed is explicitly defined in the Financial Markets Conduct Act 2013.

To qualify as an Elected Director under the Fonterra Constitution a person must be a shareholder, a shareholder of a company that is a shareholder, a 
member of a partnership that is a shareholder, or have a legal or beneficial interest in, or a right or entitlement to participate directly in the distributions of, 
a body corporate that is a shareholder of Fonterra. 

Given the variety of ways that farmer shareholders can organise their interests, it is possible for Fonterra Elected Directors to have an interest in Fonterra 
shares without this being a ‘Relevant Interest’ as defined in the Financial Markets Conduct Act 2013.

All current Elected Directors have Relevant Interests in Fonterra shares. Some Elected Directors also have interests in Fonterra shares which are not within 
the definition of ‘Relevant Interest’ in the Financial Markets Conduct Act 2013, and those interests are not disclosed above.

156

157

Fonterra Annual Report 2020

Statutory Information

Statutory Information  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

Securities dealings of Directors

The following entries were made in the Interests Register during the year.

During the year, Directors disclosed in respect of section 148(2) of the Companies Act 1993 and/or section 297 of the Financial Markets Conduct Act 2013 
that they (or their associated persons) acquired or disposed of a relevant interest in financial products as follows:

Co-operative share transactions

Retail Bond transactions

There were no transactions by Directors (or their associated persons) in Retail Bonds reported during the period from 1 August 2019 to 31 July 2020. No 
current holdings of Retail Bonds have been advised by Directors (or their associated persons).

Capital Note transactions

There were no transactions by Directors (or their associated persons) in Capital Notes reported during the period from 1 August 2019 to 31 July 2020. No 
current holdings of Capital Notes have been advised by Directors (or their associated persons).

NUMBER OF  
SECURITIES ACQUIRED

NUMBER OF  
SECURITIES DISPOSED

CONSIDERATION 
$

DATE

SUBSIDIARY COMPANY DIRECTORS

DIRECTOR

Peter McBride

John Nicholls

Peter McBride

Donna Smit

Donna Smit

Peter McBride

Donna Smit

Donna Smit

Donna Smit

Brent Goldsack

Brent Goldsack

Brent Goldsack

Donna Smit

John Nicholls

John Nicholls

Leonie Guiney

Leonie Guiney

Leonie Guiney

Leonie Guiney

Leonie Guiney

Peter McBride

480,187

134,8641

20,463

19,8942

5613

93,530

50,000

8264

2,1824

13,000

225,3731

14,600

2,5023

2,8463

39,154

115,000

115,000

15,340

34,660

40,000

825,2805

–

–

–

19,8942

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

1,522,193

31 August 2019

–

9 September 2019

71,416

30 September 2019

–

–

332,092

206,000

3,003

7,932

7 October 2019

7 October 2019

9 October 2019

10 October 2019

15 October 2019

15 October 2019

52,260

17 October 2019

–

October 2019

59,860

25 October 2019

–

–

4 December 2019

27 February 2020

147,330

436,828

437,000

55,991

126,509

145,976

25 March 2020

26 March 2020

1 April 2020

4 May 2020

6 May 2020

7 May 2020

–

25 May 2020

1   Share transactions occurred through the acquisition of a new relevant interest.
2  Transferred between related entities.
3  Conversion of Units to Shares.
4   Acquired as part of Farm Source Dollars for Shares programme.
5   Acquisition of relevant interest by virtue of appointment as independent trustee.

NUMBER OF SECURITIES 
ACQUIRED

NUMBER OF SECURITIES 
DISPOSED

CONSIDERATION 
$

DATE

4,0001

–

–

1,1243

2,8463

–

–

5612

2,5022

–

–

2,8462

23,600

27 February 2018

–

–

–

–

–

7 October 2019

4 December 2019

27 February 2020

27 February 2020

27 February 2020

Unit transactions

DIRECTOR

Andrew Macfarlane

Donna Smit

Donna Smit

Donna Smit

John Nicholls

John Nicholls

1  Acquired as Trustee of a Trust – Advice to Trustees was delayed.
2  Conversion of Units to Shares.
3  Acquired as part of the Contract Fees for Units programme.

158

The following companies were subsidiaries of Fonterra as at 31 July 2020. Directors as of this date are listed below. Those who resigned during the year are 
denoted with an R. Alternate Directors are denoted with an A.

Canpac International Limited:
G A Duncan (R), B D Mealings (R), B M Ryan, P 
D Wynen 

Kotahi GP Limited:
D G Boulton, R G Carlyle, B Mealings (R), B M 
Ryan, R J Spurway (R), F S Whineray

Dairy Industry Superannuation Scheme 
Trustee Limited:
M A Apiata-Wade, B J Kerr, B M McCarthy, T P 
McGuinness, D W C Scott, A K Williams, P D 
Wynen, M F van Zon (R)

Fonterra (Delegated Compliance Trading 
Services) Limited:
G A Duncan, S D T Till

Fonterra (International) Limited:
G A Duncan, C E Rowe

Fonterra (Kotahi) Limited:
R G Carlyle, R J Spurway (R), F S Whineray

Fonterra (Middle East) Limited:
G A Duncan, P D Washer

Fonterra (New Zealand) Limited:
G A Duncan, C E Rowe

Fonterra (North Asia) Limited:
G A Duncan, S D T Till

Fonterra Brands (New Zealand) Limited:
M R Cronin, B Henshaw

Fonterra Commodities Limited:
G A Duncan, B M Turner

Fonterra Dairy Solutions Limited:
G A Duncan, R McNickle

Fonterra Equities Limited:
G A Duncan, S D T Till

Fonterra Farming Ventures Limited:
G A Duncan, C E Rowe

Fonterra Finance Corporation Limited:
G A Duncan, S D T Till

Fonterra Ingredients Limited:
G A Duncan, B M Ryan

Fonterra LATAM Brands Limited:
A J Cordner, G A Duncan, F Spinelli (R), A D 
Turnbull (R)

Fonterra Limited:
R J Spurway (R), A R van der Nagel, F S Whineray, 
K A Wickham (R)

Fonterra PGGRC Limited:
G A Duncan, J P Hill, M Piper (R)

Fonterra TM Limited:
G A Duncan, S D T Till

Glencoal Energy Limited:
G A Duncan, P D Wynen

GlobalDairyTrade Holdings Limited:
G A Duncan, C E Rowe

Lactanol Limited:
G A Duncan, B D Mealings (R), C E Rowe (R), B 
M Ryan

MIH Limited:
R J Allen, G A Duncan

Milktest GP Limited:
R J Allen, R J van Boheemen, P G Brown, G B 
McCullough, R G Townshend, T A Winter, P D S 
Grave (R)

MyMilk Limited:
C W Fergusson, K F Shaw 

New Zealand Dairy Board:
G A Duncan, C E Rowe

New Zealand Milk (International) Limited:
G A Duncan, R M Kennerley

New Zealand Milk Brands Limited:
G A Duncan, S D T Till

NZAgbiz Limited:
R J Allen, G A Duncan 

RD1 Limited:
R J Allen, G A Duncan

SAITL Limited:
G B McCullough, T A Winter 

Tangshan Dairy Farm (NZ) Limited:
M R Cronin, G A Duncan 

Whareroa Co-Generation Limited:
G A Duncan, P D Wynen

Anchor Insurance Pte. Limited [Singapore]:
G A Duncan, S S Herbert, B Mealings (R), C E 
Rowe, H N Toh (A)

Anmum (Malaysia) Sdn. Bhd. [Malaysia]:
R M Kennerley, J Oh, V Sivaraja

Australasian Food Holdings Pty Limited 
[Australia]:
R Dedoncker, G A Duncan

Bonland Cheese Trading Pty Ltd [Australia]:
R Dedoncker, G A Duncan

Comercial Dos Alamos S.A. [Chile]:
E Becker, M Kunstmann (R), A L Raddatz Vargas, 
R Waldspurger

Comercial Santa Elena S.A. [Chile]:
E Aldunate (R), J Barria, V E Flen Silva (R), C F 
Osorio Bascur, S T Perez

Dairy Enterprises (Chile) Limitada [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia, R 
Lavados, R Sepúlveda Seminario, F Spinelli (R), P 
L Linhares (A)(R) 

Dairy Partners Americas Brasil Limitada 
[Brazil]:
R de Oliviera Carrelas, F Goncalves, R Gurrero 
Leal, F Spinelli, M G Guerreiro Pinheiro

Dairy Partners Americas Nordeste-Productos 
Alimenticios Ltda [Brazil]:
R de Oliviera Carrelas, F Goncalves, 
M G Guerreiro Pinheiro, R Guerrero Leal, 
F Spinelli

Dairymas (Malaysia) Sdn Bhd [Malaysia]:
R M Kennerley, J Oh, V Sivaraja

Darnum Park Pty Ltd [Australia]:
R Dedoncker, G A Duncan

Falcon Dairy Holdings Limited [Hong Kong]:
M P Campbell, G A Duncan, R O Frey, 
J F Ginascol (R), J Murphy

Fazenda MIH Ltda [Brazil]:
E B da Costa Junior (R), P C C Freitas Guedes, 
A R V Januario Oliveira (R)

Fonterra (Beijing) Farm Management 
Consulting Company Limited [China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D 
Washer, X Xu

Fonterra (Brasil) Ltda [Brazil]:
R F Aracil Filho, A R V Januario Oliveira (R), P 
C C Freitas Guedes (R), B de Luca Zanatta, G 
Nascimento (R)

Fonterra (Canada), Inc. [Canada]:
J P Coote, G A Duncan, B Kipping, B M Ryan

Fonterra (China) Limited [Hong Kong]:
M R Cronin, G A Duncan, C Zhu (R)

Fonterra (CIS) Limited Liability Company 
[Russian Federation]:
E Grishina

Fonterra (Europe) Coöperatie U.A. 
[Netherlands]:
G A Duncan, H Huistra

Fonterra (Europe) GmbH [Germany] (in 
liquidation):
G R Sharma

Fonterra (France) SAS [France]:
H Huistra

Fonterra (Ing.) Limited [Mauritius]:
G Lee, B M Ryan

Fonterra (Japan) Limited [Japan]:
K Kumagai, K Kumagai, A Okuyama, H Ono (R), B 
M Ryan, Y Saito, K A Wickham

Fonterra (Korea) Limited [Korea]:
G A Duncan, J Murney, Y Saito

159

Fonterra Annual Report 2020

Statutory Information

Statutory Information  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

Fonterra (Logistics) Ltd [United Kingdom]:
M Boyd, G A Duncan, H Huistra (R), G R Sharma

Fonterra (Mexico) S.A. de C.V. [Mexico]:
L Barona Mariscal (A), F R Camacho (A), J P 
Coote, G A Duncan, E P G R Gil (A), J A Del Rio

Fonterra (SEA) Pte. Ltd [Singapore]:
A Aggarwal, H Gowans

Fonterra (Thailand) Limited [Thailand]:
A Aggarwal, K Vunthanadit

Fonterra (USA) Inc. [United States]:
N R Christiansen, J P Coote, G A Duncan, B M 
Ryan

Fonterra (Ying) Dairy Farm Company Limited 
[China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D 
Washer, X Xu

Fonterra (Yutian) Dairy Farm Company 
Limited [China]:
S I Ahmed (R), H Berghorst (R), G A Duncan, P D 
Washer, X Xu

Fonterra Australia Pty Ltd [Australia]:
R Dedoncker, G A Duncan

Fonterra Brands (Asia Holdings) Pte. Ltd 
[Singapore]:
S I Ahmed (R), M R Cronin (R), A Dasqupta (R), S 
Goh, J Swales

Fonterra Brands (Australia) Pty Ltd 
[Australia]:
R Dedoncker, G A Duncan 

Fonterra Brands (Far East) Limited [Hong 
Kong]:
G A Duncan, P D Washer

Fonterra Brands (Guangzhou) Ltd [China] (in 
liquidation):
T T Lye, P A Turner, K A Wickham

Fonterra Brands (Hong Kong) Limited [Hong 
Kong]:
W Y Chan, G A Duncan, J Ho (R), P D Washer

Fonterra Brands (Malaysia) Sdn Bhd 
[Malaysia]:
R M Kennerley, J Oh, V Sivaraja

Fonterra Brands (New Young) Pte. Ltd 
[Singapore]:
S Goh, Y Li, C Lin, Y Lin, J Ling, P D Washer

Fonterra Brands (Singapore) Pte. Ltd 
[Singapore]:
M R Cronin (R), S Goh, C C Pheng, J Swales

Fonterra Brands (Thailand) Ltd [Thailand]:
R M Kennerley, S Pronanunt, P A Richards, F 
Spinelli (R), S Totana

Fonterra Brands (Viet Nam) Company Limited 
[Vietnam]:
R M Kennerley, P Richards

Fonterra Brands Indonesia, PT [Indonesia]:
D M Irfani, S S Rapaka, C A Salinas Robeson, G 
Thiagarajan 

Fonterra Brands Lanka (Private) Limited [Sri 
Lanka]:
J H P Gallage (R), R M Kennerley, T Salpitikotala, 
S Sethi (R), V Sivaraja

160

Fonterra Brands Manufacturing Indonesia, PT 
[Indonesia]:
M Namjoshi, M A Nasution, S S Rapaka, C A 
Salinas Robeson, T A Siswanto 

Fonterra Brands Myanmar Co Ltd [Myanmar]:
G A Duncan, P Richards, C D Wickramanayake

Fonterra Brands Phils. Inc [Philippines]:
L Barin (R), M T Boness, R Cook, C Ferrer, R M 
Kennerley, R A Mendoza, L De Velez

Fonterra Chile SpA [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia (A), 
R Lavados (A), P L Linhares (A) (R), R Sepúlveda 
Seminario, F Spinelli (R)

Fonterra Commercial Trading (Shanghai) 
Company Limited [China]:
R J Allen (R), G A Duncan, J Ruan, P D Washer, C 
Zhu (R)

Fonterra Commercial Trading (Tangshan) 
Company Limited [China]:
G A Duncan, J Ruan, P D Washer

Fonterra Egypt Limited [Egypt]:
A Anwar, G A Duncan

Fonterra Europe Manufacturing B.V. 
[Netherlands]:
D Krabbe, B Mealings (R), B M Ryan

Fonterra Europe Manufacturing Holding B.V. 
[Netherlands]:
G A Duncan, H Huistra

Fonterra Foodservices (USA), Inc. [United 
States]:
N R Christiansen, J P Coote, G A Duncan 

Fonterra Global Business Services Asia Sdn 
Bhd [Malaysia]:
J Oh, V Sivaraja 

Fonterra India Private Limited [India]:
A Aggarwal, H D Gowans, K M Turner (R), S G 
Mathews 

Fonterra Ingredients Australia Pty Ltd 
[Australia]:
R Dedoncker, G A Duncan

Fonterra Middle East FZE [United Arab 
Emirates]:
G A Duncan, S Penfold

Fonterra MIH Holdings Brasil Ltda [Brazil]:
R F Aracil Filho, P C C Frieta Guedes (R), A R V 
Januario Oliveira (R), B de Luca Zanatta

Fonterra Milk Australia Pty Ltd [Australia]:
R Dedoncker, G A Duncan

Fonterra Tangshan Dairy Farm (HK) Limited 
[Hong Kong]:
H Berghorst (R), G A Duncan, X Xu

Fonterra Venezuela, S.A. [Venezuela]:
G A Duncan, F C Ortega Becea

Inversiones Dairy Enterprises S.A. [Chile]:
A J Cordner, G A Duncan, J P Egaña Bertoglia (A), 
R Lavados (A), P L Linhares (A)(R), R Sepúlveda 
Seminario

Key Ingredients, Inc. [United States]:
N R Christiansen, J P Coote, G A Duncan, B M 
Ryan

Milk Products Holdings (North America) Inc. 
[United States]:
N R Christiansen, J P Coote, B M Ryan

New Tai Milk Products Co Ltd [Taiwan]:
T Chow, C Lee, G Lee, K Lee, M R Robins, B M 
Ryan (R), P D Washer, K A Wickham (R) 

New Zealand Milk (Australasia) Pty Ltd 
[Australia]:
R Dedoncker, G A Duncan 

New Zealand Milk (Barbados) Ltd [Barbados]:
G A Duncan, F Spinelli

New Zealand Milk (LATAM) Ltd [Bermuda]:
G A Duncan, F Spinelli

New Zealand Milk Products (Ethiopia) SC 
[Ethiopia]:
A B Abubeker, M B Abubeker, G Amade, F 
Spinelli, M Woodward

Newdale Dairies (Private) Limited [Sri Lanka]:
J H P Gallage (R), R M Kennerley, T Salpitikorala, 
S Sethi (R), V Sivaraja

NZMP (AEM) Ltd [United Kingdom] (in
liquidation):
M Boyd, G A Duncan, H Huistra (R), G R Sharma

NZMP Fonterra Nigeria Limited [Nigeria]:
G A Duncan, H Huistra

Pure Source Dairy Farm Company Limited 
[China]:
H Berghorst (R), M P Campbell, L Deng, G A 
Duncan, J F Ginascol (R), R M Kennerley (R), J 
Murphy

Sociedad Agrícola y Lechera Praderas 
Australes S.A. (“Pradesur”) [Chile]:
E Becker, M Kunstmann (R), A L Raddatz Vargas, 
R Waldspurger

Sociedad Procesadora de Leche del Sur S.A.
(“Prolesur S.A.”) [Chile]:
C U Alcade (R), J Barria Pina (R), M P Campbell, 
L M Patron Costas (A)(R), H Covarrubias 
Lalanne, S Diez Arriagada (A), S Jimenez, R 
Lavados McKenzie (R), P L Linhares (A)(R), J P 
Matus Pickering (A), S Oddo Gómez (R), C Perez-
Cotapos Subercaseaux (A), G V Varela Alfonso, 
A S Vega (A), T Walker Prieto (R), K A Wickham

Soprole Inversiones SA [Chile]:
M P Campbell, H Covarrubias Lalanne, S 
Diez Arrigada (A), S Jimenez, P L Linhares (A)
(R), J P Matus Pickering (A), C Perez-Cotapos 
Subercaseaux (A), R Sepúlveda Seminario (R), F 
Spinelli (R), A D Turnbull (R), G V Varela Alfonso, 
A S Vega (A), K A Wickham, J Swales (R)

Soprole S.A. [Chile]:
M P Campbell, H Covarrubias Lalanne, S Diez 
Arrigada (A), S Jimenez, P C Lluch (A), J P Matus 
Pickering (A), C Perez-Cotapos Subercaseaux (A), 
R Sepúlveda Seminario (R), A D Turnbull (R), G 
V Varela Alfonso, A S Vega (A), K A Wickham, J 
Swales (R)

Tangshan Fonterra Dairy Farm Ltd. [China]:
H Berghorst (R), G A Duncan, Q Jiang, P D 
Washer, X Xu

Unifood Holding B.V. [Netherlands]:
M P Campbell, H Huistra, M Ivanov, A Sirotinin

Unifood LLC [Russian Federation]:
M P Campbell, H Huistra, M Ivanov, A Sirotinin

United Milk Tasmania Pty. Limited [Australia]:
R Dedoncker, G A Duncan

DIRECTORS’ INDEMNITY AND INSURANCE

Fonterra has given indemnities to, and has effected insurance for, Directors and executives of the Company and its related companies, in accordance with 
section 162 of the Companies Act 1993, and clause 35 of Fonterra’s Constitution, which, except for specific matters that are expressly excluded, indemnify 
and insure Directors and executives against monetary losses as a result of actions undertaken by them in the course of their duties. Among the matters 
specifically excluded are penalties and fines that may be imposed for breaches of law.

ANALYSIS OF SHAREHOLDING

Analysis of Fonterra’s shareholding as at 31 July 2020:

FCG Largest Recorded Share Holdings1

NAME

Fonterra Farmer Custodian Limited

Singletree Dairies 2013 Limited

Ellis-Lea Farms (2000) Limited – Lamorna

Silverdale Farm Limited

Southern Pastures (Manako Farm) Limited Partnership

Coringa Park Dairies Limited

Stewart Partnership Limited

Arlanda Limited

Moffitt Dairy Limited

Baytown Investments Limited

R.E.M. Farming Limited

McBain Farms Limited

Cookstin Dairies Limited

Bel Group Limited – Ashton

Rangitata Dairies Limited Partnership

Auchenbrae Farm Limited

Ellis-Lea Farms (2000) Limited – Grandview

Nukiwai Pastoral Limited

E F Deadman Limited

Cashmore Investments Limited

NUMBER OF SHARES

% OF SHARES

104,581,516

1,012,776

977,890

973,679

944,515

944,415

922,500

920,075

910,713

890,348

883,811

867,790

839,600

836,353

836,011

829,147

811,143

810,487

804,707

794,315

6.48

0.06

0.06

0.06

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.05

0.04

0.04

1  The FSM Rules, which reflect the rules of the NZX Main Board, require that Fonterra’s annual report contain the names and holdings of persons having the 20 largest holdings of Fonterra shares 
on the register of Fonterra as at a date not earlier than two months before the date of the publication of the annual report. The list above complies with the FSM Rules and sets out the list of the 
20 largest shareholders on the register as at the appropriate date. There is a separate requirement in the FSM Rules to disclose in the annual report those persons who have a ‘Relevant Interest’ (as 
defined in the Financial Markets Conduct Act 2013) in Fonterra shares in excess of five per cent, where this information has been provided to Fonterra. Accordingly, the list of the 20 largest holdings 
of Fonterra shares is not required to show, and does not purport to show, the top 20 holdings of ‘Relevant Interests’ in Fonterra shares which may be owned or controlled by a person or entity and 
their associated entities. Other people or entities may have ‘Relevant Interests’ in a greater number of Fonterra shares than those listed above. However, it is not possible for Fonterra to accurately 
determine those interests, nor is it a requirement of the FSM Rules for those interests to be reported in the annual report, except where Fonterra has been advised that a person has a ‘Relevant 
Interest’ in excess of the five per cent threshold.

Substantial Product Holders

According to notices given to the Company under the Financial Markets Conduct Act 2013, as at 31 July 2020, the substantial product holders in the 
Company and their relevant interests are noted below. The total number of Co-operative shares on issue as at 31 July 2020 was 1,612,097,067.

SUBSTANTIAL PRODUCT HOLDERS

Fonterra Farmer Custodian Limited

FSF Management Company Limited

NUMBER OF VOTING 
SECURITIES

DATE OF MOST RECENT 
NOTICE

111,816,183

111,735,183

30 July 2018

30 July 2018

More than one ‘Relevant Interest’ can exist in the same voting financial products. Fonterra Farmer Custodian Limited holds Fonterra shares for the Fonterra 
Shareholders’ Fund, of which FSF Management Company Limited is the Manager. These two notices therefore refer to substantially the same Fonterra 
shares. The Custodian also holds some Fonterra shares for the Registered Volume Provider in respect of the Fonterra Shareholders’ Fund.

161

Fonterra Annual Report 2020

Statutory Information

Statutory Information  CONTINUED

FOR THE YEAR ENDED 31 JULY 2020

FCG Fonterra Co-operative Shares

Analysis of Fonterra Co-operative Shares as at 31 July 2020:

FROM-TO

1–50,000

50,001–100,000

100,001–200,000

200,001–400,000

400,001 and over

HOLDER COUNT

%

HOLDING QUANTITY

1,071

2,467

3,342

2,064

485

11.36

26.17

35.44

21.89

5.14

30,512,153

189,727,318

473,218,680

564,636,334

354,002,582

ANALYSIS OF CAPITAL NOTE AND RETAIL BOND HOLDING

Analysis of Fonterra’s Capital Note Holding as at 5 August 2020:

FCGHA Capital Notes

FROM–TO

1–1,000

1,001–5,000

5,001–10,000

10,001–100,000

100,001 and over

HOLDER COUNT

%

HOLDING QUANTITY

9

25

220

373

26

1.38

3.83

33.69

57.12

3.98

3,974

69,634

1,570,015

10,893,882

89,981,749

100,001 and over includes Fonterra Co-operative Group Limited’s holding of 67,435,575.

Analysis of Fonterra’s Retail Bond Holding as at 5 August 2020:

FCG030 $350 million Retail Bond issue

FROM–TO

5,000–9,999

10,000–49,999

50,000–99,999

100,000–999,999

1,000,000 and over

FCG040 $150 million Retail Bond issue

FROM–TO

5,000–9,999

10,000–49,999

50,000–99,999

100,000–999,999

1,000,000 and over

FCG050 $100 million Retail Bond issue

FROM–TO

5,000–9,999

10,000–49,999

50,000–99,999

100,000–999,999

1,000,000 and over

162

HOLDER COUNT

%

HOLDING QUANTITY

33

264

70

138

35

6.11

48.89

12.96

25.56

6.48

200,000

5,932,000

4,342,000

46,113,000

293,413,000

HOLDER COUNT

%

HOLDING QUANTITY

58

373

73

70

23

9.71

62.48

12.23

11.73

3.85

337,000

7,794,000

4,458,000

14,776,000

122,635,000

HOLDER COUNT

%

HOLDING QUANTITY

13

154

26

23

18

5.56

65.81

11.11

9.83

7.69

97,000

3,542,000

1,584,000

7,264,000

87,513,000

%

1.89

11.77

29.35

35.03

21.96

%

0.00

0.07

1.53

10.63

87.77

%

0.06

1.69

1.24

13.18

83.83

%

0.22

5.20

2.97

9.85

81.76

%

0.10

3.54

1.58

7.27

87.51

CURRENT CREDIT RATING STATUS

Standard & Poor’s long-term rating for Fonterra is A- with a rating outlook of stable. Fitch’s long-term and short-term default rating is A with a rating 
outlook of negative. Retail Bonds have been rated the same as the Company’s long-term rating by both Standard & Poor’s and Fitch. Capital Notes which 
are subordinate to other Fonterra debt issued are rated BBB+ by Standard & Poor’s and A- by Fitch.

EXCHANGE RULINGS AND WAIVERS

NZX Limited (NZX) has ruled that Capital Notes (FCGHA) are debt securities as defined in the NZX Main Board/Debt Market Listing Rules (Listing Rules). 
This means that where Capital Notes are quoted on NZX’s Debt Market, Fonterra Co-operative Group Limited is not required to comply with certain Listing 
Rules which apply to an issuer of quoted equity securities.

NZX TRADING HALTS

No trading halts were placed on Fonterra securities by NZX in the financial year ended 31 July 2020.

STOCK EXCHANGE LISTINGS

Fonterra’s Co-operative shares are listed and quoted on the Fonterra Shareholders’ Market (operated by NZX Limited for Fonterra) under the code ‘FCG’. 
Fonterra has three issues of retail bonds listed and quoted on the NZDX under the codes ‘FCG030’, ‘FCG040’, and ‘FCG050’. Fonterra also has an issue of 
capital notes listed and quoted on NZDX under the code ‘FCGHA’ and a Euro Medium Term Note Programme listed on the Singapore Stock Exchange.

As at 31 July 2020 there were 1,612,097,067 Fonterra Co-operative shares on issue.

163

Fonterra Annual Report 2020

Corporate Governance

Corporate Governance

Fonterra’s Board, Shareholders’ Council and Management recognise 
that strong governance plays a critical role in the success of our Co-
operative and are committed to achieving the highest standard of 
corporate governance, representation and leadership.

To support this the Board has developed governance systems that 
reflect Fonterra’s unique characteristics and requirements as a 
globally competitive New Zealand based dairy co-operative. These are 
continuously reviewed to ensure best practice is followed.

This Corporate Governance Statement is current as at 17 September 
2020 and has been approved by the Fonterra Co-operative Group 
Limited Board.

COMPLIANCE WITH BEST PRACTICE GOVERNANCE 
STANDARDS

The Board’s governance framework takes into consideration 
contemporary standards in New Zealand and Australia, including the 
principles in the NZX Corporate Governance Code which came into 
effect for reporting periods from 1 January 2020 (NZX Code).

Fonterra focuses on governance in a way that promotes:

•  the interests of our farmer shareholders, unit holders and other 

key stakeholders

•  our Co-operative’s purpose, values and strategy

•  transparency, giving our farmer shareholders, unit holders and other 
stakeholders the information they need to assess our performance

•  effective risk management and compliance to assist us in meeting our 

business objectives and all legal and reporting requirements

•  an appropriate balance between the roles and responsibilities of the 

Board and Management

•  communication with important stakeholder groups, including our 
farmer shareholders, employees, customers, unit holders, debt 
investors, governments and the communities we operate in.

Fonterra’s Global Ethical Behaviour Policy and The Way We Work 
are available, in multiple languages, to all employees on the Fonterra 
intranet. Training on our Code of Ethics and other core global policies 
is an important part of our global induction programme. Our annual 
check-in and certification process supports our people’s awareness and 
understanding of Fonterra’s global policies and was completed by 100% 
of its global audience, being our people leaders, managers and other key 
roles. Annual refresher learning programmes on our ethical behaviour 
commitments, expectations, systems and processes are also required to be 
completed throughout our business.

Fonterra’s independently administered whistleblowing hotline provides 
individuals with a confidential channel (by phone, email, mail, or online) to 
report concerns about serious wrongdoing, or behaviour that is unethical 
or does not meet the standards described in The Way We Work. The 
hotline allows individuals across our Co-operative to anonymously make 
complaints or raise issues.

In the year ended 31 July 2020, 29 reports were made to the hotline. 
Disclosures are investigated by a Fonterra team not involved in the 
substance of the concern (Internal Audit, other specialist teams or, 
where appropriate, an external investigator) before appropriate action 
is taken. Timely updates are made available to the whistleblower through 
the hotline. 

All Fonterra employees are expected to record actual or potential conflicts 
using our Conflict of Interest register. Fonterra also operates a Gift & 
Entertainment register where employees must record all gifts given or 
received, including hospitality and entertainment with third parties, above 
a nominal level.

Securities Trading Policy 

Fonterra has adopted a Securities Trading Policy that details the rules 
for trading in shares, capital notes, retail bonds, units, derivatives, milk 
price futures and options traded on the NZX and other listed securities of 
Fonterra or the Fonterra Shareholders’ Fund from time to time. This applies 
to Directors, officers, employees and contractors of the Fonterra Group 
around the world and members of the Shareholders’ Council and Milk Price 
Panel and is in addition to legislative requirements for trading securities in 
New Zealand and Australia.

The Securities Trading Policy and Standard and other key Global Policies 
are available on fonterra.com. All our Directors comply with the legislative 
requirements for disclosing interests in listed voting securities of Fonterra 
and its related companies.

PRINCIPLE 1: CODE OF ETHICAL BEHAVIOUR

Code of Ethics

A culture of honesty, integrity and transparency is integral to our purpose 
and securing our reputation.

We expect our Directors, officers and employees to maintain high ethical 
standards and to operate ethically and legally in the countries where we do 
business, and reflect our guiding philosophy, Good Together, through all 
their behaviours, choices and decisions.

Fonterra’s Code of Ethics comprises the following core documents:

FONTERRA – CODE OF ETHICS

The Way We Work
(Code of Business Conduct)

Board Charter

Global Ethical 
Behaviour Policy

BOARD CODE OF CONDUCT

These documents are available on fonterra.com and are supported by our 
other policy documents and our employment agreements. They lay out 
clear expectations for our Directors, officers and employees regarding 
ethical behaviour, including:

•  the requirement for the highest standard of integrity, honesty 

and transparency;

•  how to deal with conflicts of interest;

•  the use of corporate information, assets and property;

•  procedures for giving and receiving gifts;

•  procedures for whistle blowing; and 

•  how to manage breaches of the Code of Ethics. 

We have a Code of Business Conduct, The Way We Work, which guides 
us in how we apply our values, every day. This year we updated The Way 
We Work to ensure that it reflects Good Together and aligns with our core 
goals of Healthy People, Healthy Environment and Healthy Business. The 
Board has also developed a Board Code of Conduct for Directors. 

PRINCIPLE 2: BOARD COMPOSITION AND PERFORMANCE

Changes to the Fonterra Board

Board Charter

The Board Charter includes details about the Board’s role, responsibilities 
and obligations, Board composition and procedures including the Chair’s 
election and role, the Board’s relationship with Management, incident 
management engagement, training provided to Directors, and the process 
for assessing the Board’s performance.

The Board Charter is reviewed each year and is available on fonterra.com.

Board Appointments

Fonterra’s Constitution provides for a maximum of 11 Directors and sets 
out how they are appointed. Up to seven Directors are elected by farmer 
shareholders (Farmer Directors) and up to four Directors are appointed by 
the Board (Appointed Directors).

There were a number of changes to the Fonterra Board during the financial 
year ended 31 July 2020:

•  In November 2019, Farmer Directors Ms Donna Smit and Mr Andy 

Macfarlane were re-elected to the Board and Appointed Director Mr 
Simon Israel retired from the Board.

•  In March 2020, Chairman Mr John Monaghan announced he will retire 
from the Board following the Annual Meeting in November 2020. 

•  In April 2020, Ms Holly Kramer was appointed to the Board as an 

Appointed Director.

•  In June 2020, Farmer Director Mr Peter McBride was named as 

Chairman-elect.

Disclosure

The Board is committed to building capabilities and maintaining the 
highest standards of governance in accordance with best practice. The 
Board considers it important that there is a good balance of experience 
on the Board. 

Information about the experience, length of service, independence and 
attendance at Board meetings of each Director is disclosed at pages 167, 
168, 176 and 177. The ownership interests of each Director are disclosed in 
the Statutory Information section.

A list of attributes that all Directors must be able to demonstrate has 
been developed by the Board and is reviewed annually. The Board has also 
developed a list of skills that the Board believes are required to effectively 
govern a complex, globally competitive New Zealand dairy co-operative 
with diverse stakeholders. The skills list is reviewed annually and updated as 
required. The Board then develops a skills matrix by assessing the required 
weighting of each skill against the aggregate skills of the current Board. 
The skills matrix is used to identify the skills to be targeted each year as 
part of the Farmer Director election process and when selecting Appointed 
Directors. The attributes, skills list, skills matrix and the year’s targeted skills 
are published annually as part of the Farmer Director election process, to 
assist potential candidates in assessing their suitability and to assist farmer 
shareholders when assessing the candidates put forward for election.

The Farmer Director selection process involves a three-member 
Independent Selection Panel (ISP) that recommends appropriate 
candidates to be put to farmer shareholders for election. The members 
of the ISP are all independent of Fonterra. One member is appointed by 
the Board, one by the Shareholders’ Council and a third appointed by the 
other two members of the ISP. In addition to candidates assessed and 
recommended by the ISP, there is a non-assessed candidate process where 
candidates can propose themselves for election as Farmer Directors with 
the support of 35 shareholders. The Farmer Directors are elected by postal 
ballot and online voting by farmer shareholders. The voting packs circulated 
to all farmer shareholders include biographical information on each 
candidate including relevant skills and experience. The Farmer Director 
elections are overseen by the Shareholders’ Council.

Appointed Directors are selected to enable the Board to access a full 
complement of skills and competencies needed to lead an enterprise of 
Fonterra’s size, global reach and complexity. They are independent and 
bring to the Board perspectives, experience and skills to complement and 
enhance the attributes and skills provided by the Farmer Directors.

The Appointments and Remuneration Committee oversees the process 
for identifying and recommending potential Appointed Directors. Prior 
to appointment by the Board, the Fonterra Shareholders’ Fund Board is 
consulted. The Appointed Directors are ratified by farmer shareholders at 
the next Annual Meeting held following their appointment.

All Directors enter into written agreements establishing the terms of 
their appointment.

Diversity and Inclusion Policy

Diversity means respect for and appreciation of differences in people, 
including differences in ethnicity, cultural background, gender, age, national 
origin, disability, sexual orientation, education, religion, personality or 
thinking style. 

Inclusion is a sense of belonging, where people feel valued, respected and 
are encouraged to fully contribute in a safe and supportive environment. 

Our diversity and inclusion principles of whanaungatanga (belonging), 
manaakitanga (care), kaitiakitanga (guardianship) and whakaohooho 
(inspiration) guide and enable us to attract, keep and grow our people to 
deliver on our purpose, values and our strategy. You, me, us, together – 
(cid:55)(cid:195)(cid:87)(cid:82)(cid:88)(cid:15)(cid:3)(cid:87)(cid:195)(cid:87)(cid:82)(cid:88)(cid:17) 

Fonterra publishes its Diversity and Inclusion Policy on fonterra.com. 
Fonterra’s Diversity and Inclusion Policy has three key areas of focus:

Our People: attracting, selecting, developing, promoting and retaining 
diverse talent, while avoiding practices that are discriminatory or exclusive.

Our Strategy: ensuring our organisation reflects the diversity of 
our markets, customers, stakeholders and the communities in which 
we operate.

Our Identity: respecting, leveraging and embracing the unique skills and 
diverse perspectives of our people, reflecting a core Fonterra value of ‘Do 
What’s Right’.

Diversity and Inclusion Targets and Objectives

Fonterra has made a formal commitment to increase the representation of 
women and ethnic minorities within senior leadership levels. The Board’s 
aspirational targets and objectives are to increase women in leadership to 
50%1 by 2022 and further target a mix of 20% ethnic diversity within global 
leadership levels.2

To achieve our gender and ethnicity targets, we have placed emphasis on 
gender balanced long and short-lists for leadership recruitment as well as 
establishing strong foundations of flexible work practices, pay equity, and 
attractive parental leave policies to attract, engage and retain women and 
minorities in our workplace. We are actively working to mitigate the effects 
of unconscious bias in recruitment, performance and talent management.

Approved targets are underpinned by comprehensive metrics that enable 
regular reporting on progress globally.

164

165

1  Our gender targets include a variance of +/- 10% to account for when we have low population sizes i.e.: n<20.
2  Ethnic diversity is defined as increased representation from minority groups globally.

Fonterra Annual Report 2020

Corporate Governance

Executive Leadership Gender Composition

Director Independence

PRINCIPLE 3: BOARD COMMITTEES

FONTERRA MANAGEMENT TEAM

AS AT 31 JULY 2019

7 FTE3

%

FONTERRA MANAGEMENT TEAM

AS AT 31 JULY 2020

8 FTE4,5

%

Board Gender Composition

MALE

5

71%

MALE

6

75%

GENDER

FEMALE

GENDER DIVERSE

UNDECLARED

–

0%

–

0%

2

29%

GENDER

FEMALE

GENDER DIVERSE

UNDECLARED

2

25%

–

0%

–

0%

As the majority of Directors are elected by farmer shareholders through an independent process, the Board has not adopted gender targets for the Board 
in 2020. The Board remains committed to addressing the gender composition of the Board, through the appointment of Appointed Directors, building a 
pipeline of Directors through the Fonterra Governance Development programme and through the Farmer Director election process.

BOARD

AS AT 31 JULY 2019

11

%

GENDER

MALE

9

82%

FEMALE

GENDER DIVERSE

UNDECLARED

2

18%

–

0%

–

0%

The rules of the Fonterra Shareholders’ Market (FSM Rules) require 
Fonterra to have at least two Independent Directors. In order to be an 
Independent Director under the FSM Rules, a Director must not be an 
‘employee’ of Fonterra or have a ‘disqualifying relationship’.

A Director has a disqualifying relationship where they have a direct or 
indirect interest, position, association or relationship that could reasonably 
influence, or could be reasonably perceived to influence, in a material way, 
the Director’s capacity to bring an independent view to decisions relating 
to Fonterra, to act in Fonterra’s best interests and to represent the interests 
of Fonterra’s financial product owners generally. The FSM Rules contain 
specific examples of what may give rise to a disqualifying relationship. 
Appointed Directors cannot be shareholders and are expected to maintain 
independence for the length of their term.

Farmer Directors must be qualified as farmer shareholders under section 
12.3 of the Constitution and are therefore not considered independent.

Fonterra currently has four Appointed Directors. As at 31 July 2020, Clinton 
Dines, Bruce Hassall, Holly Kramer and Scott St John each did not have 
(and continue not to have) any disqualifying relationship in relation to 
Fonterra and were therefore Independent Directors.

Division of Roles

John Monaghan, who is a Farmer Director, is the Board-elected Chairman. 
The Chairman and Chief Executive Officer roles at Fonterra are not 
exercised by the same individual.

Fonterra has a number of permanent Board Committees, as detailed below. 
Additional Board Committees are formed when it is efficient or necessary 
to facilitate decision-making by providing for a sub-group of Directors to 
focus on particular areas or issues and to develop recommendations to 
the Board.

Board Committees have standard ‘Terms of Reference’ and each permanent 
Committee has a charter, which defines the scope and responsibilities 
of that Committee and is approved by the Board each year. The charters 
of the permanent Board Committees are available on fonterra.com. The 
minutes for each of the Board Committees’ meetings are provided to the 
Board for review. 

There are two non-permanent Committees, the Divestment Review 
Committee and the Capital Structure Committee, which were established 
in 2019:

•  The Divestment Review Committee’s purpose is to oversee material 

divestments and similar transactions. Mr Scott St John is the Chair of the 
Committee and Mr Brent Goldsack, Ms Leonie Guiney, Mr Bruce Hassall, 
Ms Holly Kramer and Ms Donna Smit are members of the Committee. 

•  The Capital Structure Committee’s purpose is to provide guidance over 

Management’s review of Fonterra’s capital structure. Mr Bruce Hassall is 
the Chair of the Committee and Mr Brent Goldsack, Ms Leonie Guiney, 
Mr Peter McBride and Mr John Nicholls are members of the Committee. 

The non-permanent Board Committees operate under separate Terms of 
Reference which define their respective purposes and responsibilities.

The gender composition of Fonterra Board changed between 2019 and 2020.

COMMITTEE OR GROUP

MEMBERSHIP AS AT 31 JULY 2020

PURPOSE

GENDER

MALE

8

73%

FEMALE

GENDER DIVERSE

UNDECLARED

3

27%

–

0%

–

0%

Assess Performance

Directors formally assess the performance of the Board each year, and 
the Board reviews each Committee’s performance against its Charter. 
A regular programme of peer review of individual Directors occurs as 
part of an ongoing Director development programme. Directors are also 
encouraged to attend external development and training programmes. 
The Shareholders’ Council reviews the Board’s Statement of Intentions 
against the performance and operation of the Group and reports on this to 
farmers annually. The Board is responsible for reviewing the Chief Executive 
Officer’s performance.

BOARD

AS AT 31 JULY 2020

11

%

Ongoing Training

Following appointment to the Board, Directors undertake an induction 
programme to familiarise themselves with Fonterra and its global business. 
Areas covered include:

•  business strategy and planning

•  an overview of key financial metrics to monitor business performance

•  an overview of material areas of the Fonterra business, including 

through meetings with key executives and visits to key offshore markets, 
where possible

•  Fonterra’s Constitution and other governance systems

Directors are expected to keep themselves abreast of changes and trends 
in the business, Fonterra’s environment and markets, and the economic, 
political, social and legal climate generally. The Board holds training 
and workshops on relevant subjects each year, is provided with regular 
strategic readings and Directors are also expected to keep up to date 
with governance issues. Board visits to Fonterra’s global businesses occur 
regularly, where possible.

3  Full time equivalent.
4  Full time equivalent.
5  As of 31 July 2020, the position of Managing Director People & Culture is vacant and therefore not included in this calculation. 

166

Appointments and Remuneration Committee

John Monaghan (Chair) 

Audit and Finance Committee

Clinton Dines6

Holly Kramer 

Andrew Macfarlane

Peter McBride

Bruce Hassall6 (observer) 

Bruce Hassall6 (Chair)

Leonie Guiney

Andrew Macfarlane

Peter McBride

Scott St John6

Co-operative Relations Committee

Brent Goldsack (Chair) 

Milk Price Panel

Andrew Macfarlane

Peter McBride 

John Nicholls

Donna Smit 

Scott St John6,7 (Chair)

Bruce Hassall6,7 

Brent Goldsack

Andrew Wallace7,8

Bill Donaldson8

Safety and Risk Committee

Leonie Guiney (Chair)

Clinton Dines6

Brent Goldsack

John Nicholls

Scott St John6

Independent Director
Independent member

6 
7 
8  Appointed by the Shareholders’ Council 

To assist the Board in fulfilling its corporate governance 
responsibilities in relation to the recruitment, retention, 
remuneration and development of Directors, executives and other 
employees.

To assist the Board in fulfilling its corporate governance 
responsibilities in relation to Fonterra’s financial reporting, audit 
activities, treasury matters, financial risk management and internal 
control frameworks.

To assist the Board in fulfilling its corporate governance 
responsibilities in relation to the supply of milk from Fonterra 
suppliers, and to seek to resolve supplier complaints before 
reference to the Milk Commissioner.

To provide assurances to the Board as to the governance of the Milk 
Price and the Milk Price Manual, and the proper application of the 
Milk Price Principles. The Milk Price Panel does not determine the 
Farmgate Milk Price, as this is a decision for the Board.

To assist the Board in fulfilling its corporate governance 
responsibilities in relation to Fonterra’s management of health and 
safety and key enterprise wide risks.

This includes promoting a safe and healthy working environment 
and overseeing Fonterra’s risk management framework to ensure 
the behaviours required, guidelines, policies and processes for 
monitoring and mitigating enterprise-wide risks are in place.

167

Fonterra Annual Report 2020

Corporate Governance

Board and Committee Attendance

BOARD

AUDIT AND  
FINANCE COMMITTEE

APPOINTMENTS AND 
REMUNERATION 
COMMITTEE

CO-OPERATIVE 
RELATIONS  
COMMITTEE

MILK PRICE PANEL

SAFETY AND RISK 
COMMITTEE

Eligible to 

Eligible to 

Eligible to 

Eligible to 

Eligible to 

Eligible to 

Attend Attendance

Attend Attendance

Attend Attendance

Attend Attendance

Attend Attendance

Attend Attendance

Clinton Dines

Brent Goldsack

Leonie Guiney

Bruce Hassall

Simon Israel

Holly Kramer

Andrew 
Macfarlane

Peter McBride

John Monaghan

John Nicholls

Donna Smit

Scott St John

15

14

15

15

5

4

15

15

15

15

15

15

14

13

14

14

3

3

15

15

15

14

15

15

–

–

7

7

–

–

4

7

3

–

3

7

–

–

7

7

–

–

3

6

3

–

3

7

8

–

–

8

2

3

8

6

8

–

–

–

7

–

–

8

1

3

8

6

8

–

–

–

–

6

–

–

–

–

6

6

–

6

6

–

–

6

–

–

–

–

6

5

–

6

6

–

–

7

–

7

–

–

–

–

–

–

–

7

–

7

–

7

–

–

–

–

–

–

–

7

2

4

4

2

–

–

–

–

–

2

–

4

 2

4

4

1

–

–

–

–

–

2

–

4

Audit and Finance Committee

Nominations Committee

The Audit and Finance Committee comprises two Appointed Directors and 
three Farmer Directors. The Committee is chaired by Bruce Hassall, who 
is an independent Appointed Director and a Fellow of the New Zealand 
Institute of Chartered Accountants.

The Appointments and Remuneration Committee fulfils the role of a 
nominations committee in respect of the appointment of Appointed 
Directors. The election and selection process for Farmer Directors and 
Appointed Directors is explained above under Board Appointments at 
page 165.

Majority Independent Directors – Audit and Finance 
Committee and Appointments and Remuneration Committee

Takeover Offer

The Audit and Finance Committee and Appointments and 
Remuneration Committee do not comprise a majority of independent 
Appointed Directors.

The Board does not believe that it is necessary to establish protocols for a 
takeover offer, given Fonterra’s co-operative structure and the thresholds 
on share ownership in its Constitution.

PRINCIPLE 4: REPORTING AND DISCLOSURE

Disclosure Policy

Fonterra is committed to promoting well-informed and efficient markets 
in its shares, units issued by the Fonterra Shareholders’ Fund and debt 
securities. The Board has approved a Global Disclosure Policy to ensure 
compliance with the NZX and FSM Listing Rules regarding continuous 
disclosure. The Global Disclosure Policy governs Fonterra’s communications 
with investors and market participants, and the disclosure of information 
relevant to Fonterra. The Global Disclosure Policy and the underlying 
Global Disclosure Standard are available on fonterra.com.

Fonterra and the Manager of the Fonterra Shareholders’ Fund have entered 
into an arrangement to co-operate with each other and take all steps 
reasonably required to ensure that information to be disclosed by either of 
them under the FSM Rules and the listing rules of the NZX or the ASX (as 
the case may be) is disclosed simultaneously to the Fonterra Shareholders’ 
Market, the NZX Main Board and the ASX. Fonterra simultaneously 
discloses relevant information on ASX on behalf of the Fonterra 
Shareholders’ Fund.

There is currently no headroom for Fonterra, based on having 11 Directors, 
to have more than four independent Appointed Directors, as the Farmer 
Directors fill each of the seven positions open to them (and as noted above, 
the Farmer Directors are not considered independent). Given this, it is 
difficult for Fonterra to appoint a majority of Appointed Directors to these 
Committees without excluding Farmer Directors or significantly increasing 
the workload of the Appointed Directors.

Fonterra does not consider that this is a significant issue, as the Audit 
and Finance Committee is chaired by an independent Appointed 
Director and the Appointments and Remuneration Committee is chaired 
by a Farmer Director. In addition, under the FSM Rules, the Audit 
and Finance Committee is not required to comprise of a majority of 
Appointed Directors.

Employees attend Audit and Finance Committee and Appointments 
and Remuneration Committee meetings only at the invitation of the 
respective Committee.

Milk Price Panel

The Dairy Industry Restructuring Act 2001 (New Zealand) requires that 
the Chair and a majority of the members of the Milk Price Panel are 
independent. The Panel consists of two Appointed Directors, one Farmer 
Director and two appropriately qualified persons nominated by the 
Shareholders’ Council, at least one of whom must be independent. The 
Chair must be one of the Appointed Director independent members. As at 
31 July 2020, Scott St John, Bruce Hassall and Andrew Wallace were (and 
continue to be) independent members of the Milk Price Panel. 

Pursuant to the Dairy Industry Restructuring Amendment Act 2020, with 
effect from 1 June 2021, Fonterra must appoint one member of the Milk 
Price Panel who is nominated by the Minister.

168

Website Disclosure

Fonterra has the following documents available on fonterra.com:

•  Board Charter

•  Board Code of Conduct

•  Appointments and Remuneration Committee Charter

•  Audit and Finance Committee Charter

•  Co-operative Relations Committee Charter

•  Safety and Risk Committee Charter

•  The Way We Work (Code of Business Conduct)

•  Global Disclosure Policy and Standard

•  Global Diversity and Inclusion Policy

•  Global Health, Safety and Wellbeing Policy

•  Global Environmental Policy

•  Global Ethical Behaviour Policy

•  Global Privacy Policy

•  Global Securities Trading Policy and Standard

•  Sustainability Code of Practice

Fonterra does not have a Director Remuneration Policy for the reasons 
noted below under ‘Director Remuneration’.

Non-Financial Reporting

Fonterra is guided by international best practice and, reflecting the core 
role of sustainability within our strategy, we are on a journey towards more 
integrated reporting.

In this Annual Report we provide coverage of both financial and non-
financial matters. Non-financial reporting includes coverage of our social 
and environmental performance in the Healthy People and Healthy 
Environment sections, and our approach to governance in this Corporate 
Governance section. Our financial performance is reported on in our 
Healthy Business section.

In November 2019 Fonterra issued its third Sustainability Report, which is 
prepared in accordance with the Global Reporting Initiative (GRI) Standards 
and is independently assured. This further expands the coverage of our 
non-financial reporting, including consideration of material environmental, 
social and governance (ESG) factors and performances against targets. 
We have adopted this internationally recognised reporting framework 
to help users of our Sustainability Report more easily compare our 
disclosed information and performance with others. We plan to release the 
Sustainability Report annually, with the next report due to be issued later 
this year. 

PRINCIPLE 5: REMUNERATION

Fonterra’s remuneration framework is designed to attract, retain and 
motivate high-quality Directors and senior management.

Director Remuneration

Fonterra’s Constitution modifies the Board’s discretion to set remuneration 
of Farmer Directors. Farmer shareholders elect an independent committee 
of six farmer shareholders (the Directors’ Remuneration Committee) 
to consider and make recommendations at the Annual Meeting on the 
remuneration for Farmer Directors, which is required to be approved by 
farmer shareholders.

The members of the Directors’ Remuneration Committee as at 31 July 2020 
were David Gasquoine (Chair), Ellen Bartlett, John Gregan, Glenn Holmes, 
Scott Montgomerie and Stephen Silcock. Directors and employees only 
attend Directors’ Remuneration Committee meetings at the invitation of 
the Committee.

The Board has full discretion over the remuneration of Appointed Directors, 
with such remuneration not being approved at the Annual Meeting. The 
Board has historically remunerated Appointed Directors at the same level 
as Farmer Directors, in line with Directors’ Remuneration Committee 
recommendations.

Given the arrangements outlined above, Fonterra does not have a specific 
policy for remuneration of Directors.

Further details of the Directors’ remuneration are contained on pages 155 
and 156.

Remuneration of our People

The remuneration of our Chief Executive Officer (CEO) and Management 
is governed by the Appointments and Remuneration Committee (ARC), 
who assists the Board in fulfilling its corporate governance responsibilities 
relating to remuneration, recruitment and retention. Fonterra has a 
Remuneration and Rewards Global Standard which outlines our overall 
remuneration framework. 

The ARC oversees and provides counsel on Fonterra’s People Strategy, 
including key priorities and milestones, as well as noting progress on 
culture, talent and leadership activities and diversity and inclusion. 

During the year ended 31 July 2020 (FY20), the ARC engaged the services 
of an independent external consultant to provide guidance on the design 
and development of the new CEO and Fonterra Management Team (FMT) 
Executive Incentive, to replace the existing FY19-21 Long-Term Incentive. 
The engagement of an independent consultant ensured that the ARC did 
not receive advice solely from Management or advisors commissioned 
by Management.

Remuneration Strategy

Fonterra’s remuneration strategy has been designed to align with and 
support our philosophy of Good Together through:

•  Our purpose

•  Our values 

•  Our business strategies and goals

These are the foundation of our Co-operative and the lens through which 
all our behaviours, decisions and choices are made.

Executive Remuneration Framework

Fonterra’s executive remuneration framework follows 
three simple principles:

ATTRACT AND RETAIN 
KEY TALENT

ENSURE A STRONG LINK 
BETWEEN BUSINESS 
PERFORMANCE 
AND REWARD

REWARD OUR PEOPLE 
EQUITABLY

The remuneration framework for our CEO and FMT is based on a total 
remuneration approach which is delivered through fixed remuneration and 
variable (at risk) components as outlined below. 

In FY20, the ARC and Board approved a new variable Executive Incentive 
Plan (EIP) for the CEO and FMT, which replaced the Short-Term Incentive 
(STI) and Long-Term Incentive (LTI) programmes for FY20. The purpose 
of the new design is to have a fit for purpose long-term incentive that 
focuses the CEO and FMT on the execution of our new strategy, asset 
rationalisation, and business repositioning of the strategy transformation. 

The new design is a modified STI which focuses the FMT on annual strategy 
execution and defers a portion of the incentive over three years. The final 
vesting of the deferred value is modified using a long-term performance 
hurdle of Return on Capital (ROC) over the Milk Price Weighted Average 
Cost of Capital (WACC). 

169

Fonterra Annual Report 2020

Corporate Governance

Both the fixed and variable remuneration components of the CEO and FMT are outlined below:

Total Remuneration Earned for FY20

FIXED ELEMENT

VARIABLE ELEMENT

FIXED REMUNERATION

EXECUTIVE INCENTIVE PLAN (EIP)

How it’s delivered

How it works

Cash

Cash (with a deferred cash component)

-  consists of base salary, KiwiSaver or 

-  CEO Target is 120% of Base Remuneration

Superannuation, and insurance

-  benchmarked against the external market 

using comparable companies in the country 
or region where the individual is located

-  benchmarked to the median of the relative 

peer group

-  reviewed annually based on performance 

and behaviours

-  eligible FMT members Target is 110% of Base Remuneration

-  the incentive is capped at 150% payment of on-target earnings

-  calculated based on achievement against a Fonterra Group 

scorecard which aligns to our triple bottom line (Healthy People, 
Healthy Environment and Healthy Business)

-  our measures within the scorecard include Health and Safety, 
Food Safety Quality, Lowering our Environmental Footprint, 
Group Return on Capital and Total Farmer Payout 

-  achievement is determined over a one-year performance period 

(1 August – 31 July, aligned to Fonterra’s financial year)

-  paid as cash, with 70% cash paid in the year earned and 30% 
deferred cash which vests three years after grant, subject to 
continued employment and a performance hurdle of Group ROC 
over the Milk Price WACC

What it does

Attracts and retains key talent in the markets 
in which we operate

Aligns the CEO and eligible FMT members on delivering exceptional 
results over both the short and long term for our farmer owners

The FY20 EIP for the CEO and eligible FMT members replaces all previous LTI programmes for those individuals, including the FY18-20 and FY19-21 
LTI schemes.

The CEO and eligible FMT members participate in the EIP. FMT members who do not participate in the EIP are entitled to fixed remuneration and 
participate in the Group STI scheme.

The pay-mix of on-target total remuneration for the CEO is shown below.

Base Remuneration

45% 

EIP paid as STI 

38% 

EIP 
deferral

17% 

Executive Remuneration Benchmarking

Pay benchmarking for the CEO, eligible FMT members and certain senior roles is conducted using independent third-party remuneration advisors appointed 
by the Board.

Given that our Co-operative’s size and global scale is unique to New Zealand, the peer group for these roles is comprised of 24 Australian listed companies 
that are more closely matched to the size, complexity and operational scope of Fonterra, allowing a more appropriate benchmarking of senior executive 
remuneration. The benchmark also reflects that senior positions within Fonterra require global expertise, and are typically recruited from competitive global 
talent markets, particularly Australia and Asia. Fonterra aims to pay at the median of the benchmark of the given peer group for our senior executives.

CEO Remuneration

Total Remuneration Paid for FY20

Total Remuneration Paid reflects remuneration in the period it is received, rather than the performance period to which the payment relates.

Miles Hurrell has held the role of Chief Executive Officer for the year ended 31 July 2020 (FY20). His annual fixed remuneration as at 31 July 2020 is 
$1,950,000. The variable pay component paid in FY20 was for FY19 and is $0. The total remuneration received by Mr Hurrell in FY20 was $2,008,500, 
as shown in the table below.

FIXED REMUNERATION

PAY FOR PERFORMANCE

TOTAL REMUNERATION PAID

SALARY

$1,950,000

BENEFITS1

$58,500

STI2

$0

LTI3

$0

$2,008,500

1  Employer superannuation contribution.
2 
3  No LTI was payable to the CEO in FY20 for the FY19 performance year.

In FY19 the Board exercised its discretion to not award any STI payment for the FY19 performance year.

Total Remuneration Earned illustrates the remuneration outcomes for the FY20 performance period, providing what we believe is a more transparent 
indication of pay for performance. Variable pay outcomes are listed against the relevant performance period, regardless of when the payment is made. 
We believe this reporting approach provides the right balance of transparency and disclosure while accurately reflecting the outcomes for a given fiscal year.

FIXED REMUNERATION

PAY FOR PERFORMANCE2

TOTAL REMUNERATION EARNED5

SALARY

$1,950,000

BENEFITS1

$153,410

FY20 EIP EARNED3
(70%)

$2,214,576

FY20 EIP DEFERRED TO FY234
(30%)

$949,104

$5,267,090

1  Employer superannuation contribution includes portion paid on base remuneration and incentive earned.
2  Based on FY20 Group Scorecard results. 
3  Subject to meeting the required short-term performance hurdles, this is due to be paid in October 2020.
4  Subject to meeting the required long-term performance hurdles, this is due to be paid in October 2023.
5  Not inclusive of the amount relating to the provision recognised by Fonterra in relation to the pending judicial interpretation of the Holidays Act 2003 in New Zealand.

PRINCIPLE 6: RISK MANAGEMENT

Risk Management Framework

The Board, supported by the Safety and Risk Committee, has overall 
responsibility for ensuring:

•  the effective implementation of risk management systems in line with 

our Global Risk Management Policy

•  that Fonterra operates within its risk appetite settings

Fonterra’s Risk Management Policy is aligned to the ISO31000 Risk 
Management – Principles & Guidelines 2018. The policy outlines our risk 
principles and accountabilities, setting out the requirements for managing 
and reporting risk across our global business. It is designed to embed a 
co-operative-wide risk management capability, establishing a consistent 
approach to identifying, assessing, controlling, monitoring and reporting on 

our key risks. These include risks that may affect our Co-operative’s ability 
to achieve its objectives and protect our people, shareholders, customers 
and reputation.

Our risk management framework is based on the three lines of defence 
model. Fonterra’s first line of defence is our people. Managers and 
individual business units hold clear risk management responsibilities for 
business risk management, including requirements to ensure compliance 
with external requirements as well as Fonterra’s Global Policy standards. 
Our risk management and assurance processes support this via our group 
functions, ensuring a consistent best-practice approach to risk management 
across the business, aligned with our risk appetite settings. These processes 
are overseen by the Fonterra Management Team alongside a dedicated 
internal audit function, taking a risk-based approach to oversight of key 
business activities and reporting to the Board via the Safety and Risk 
Committee and the Audit and Finance Committee.

E
C
N
E
F
E
D
F
O
E
N
I
L
D
R
3

E
C
N
E
F
E
D
F
O
E
N
I
L
D
N
2

E
C
N
E
F
E
D
F
O
E
N
I
L
T
S
1

FONTERRA BOARD

INTERNAL ASSURANCE

Audit & Finance 
Committee

Safety & Risk 
Committee

Fonterra 
Management Team

IT

GROUP RISK

Finance

Supply Chain

Environment

People & Culture

Food Safety

Legal

Health & Safety

Milk Supply

APAC

COO

Greater 
China

AMENA

Co-operative 
Affairs

oCFO

170

171

 
 
 
 
 
 
 
 
 
Fonterra Annual Report 2020

Corporate Governance

As part of its risk management responsibility, the Safety and Risk 
Committee receives regular reports of the emerging and existing key 
risks and the measures in place to mitigate the impact of key risks on 
our Co-operative.

The Safety and Risk Committee also receives regular reports on the health 
and safety of our people as part of Fonterra’s risk management framework. 
For further information about Fonterra’s Health & Safety performance in 
FY20, please refer to the Health & Safety section on page 174.

Risk Management Focus in FY20

Throughout FY20, we have evaluated our risk appetite settings, revised our 
risk management policy and framework, and strengthened the processes 
for the identification and reporting of risks. 

As part of our strategy refresh, our Group Risk Appetite settings were 
assessed to provide clarity of the acceptable level of risk to be taken in 
pursuit of our strategic objectives. This involved the Fonterra Management 
Team and Board participating in risk identification, definition and appetite 
workshops, further strengthening our ability to identify, define and 
establish tolerance levels for the risks associated with implementing our 
refreshed business strategy. 

Strengthening the connectivity between our Co-operative’s first line 
(bottom-up) and third line (top-down) of defence is crucial to ensure risk 
management information, including the effectiveness of risk controls, 
is captured and provided to both Management and the Board. This has 
been reinforced in FY20 through the refresh of our Risk Management 
Policy, Framework, and Standard, ensuring a consistent approach to risk 
management is ingrained in our day-to-day operations at a business unit 
level. This is monitored and measured via our integrated business planning 
process, with oversight of the effectiveness of controls provided by our 
annual audit plan. 

Covid-19

Fonterra’s response to the global Covid-19 outbreak was first initiated in 
January 2020. As with many businesses, the pandemic has had varying 
levels of impact across our supply chain and within the global markets in 
which we operate. Fonterra has utilised its Group Crisis Response plan 
and Incident Management Team to enable an expedited and appropriate 
response at each stage of the situation globally. Key impact areas include:

•  Supply chain disruptions

•  Health risks to our people

•  Market volatility

•  Social distancing and increased safety measures at our manufacturing 

and distribution sites

•  Fluctuations in customer demand and changes to global 

consumption habits

Fonterra’s response to the pandemic is ongoing. To ensure the continuity 
of Fonterra’s operations during FY21, a number of control measures have 
been put in place to mitigate risks to our operations. While Fonterra’s 
Incident Management framework has allowed our operations and core 
business activities to continue, ongoing challenges will be presented to the 
organisation by Covid-19. These challenges, which include the economic 
impacts of the virus on the global markets in which we operate, will require 
continued monitoring, analysis and management for a sustained period.

Key Risks

Fonterra’s Risk Management Framework focuses on the key risks Fonterra 
faces globally in implementing our business strategy. Regular monitoring of 
the risk environment occurs via our integrated business planning process, 
specific technical risk councils and audit outcomes.

KEY RISK

Strategic Deployment

RISK DESCRIPTION

RISK MITIGATION MEASURES

Sub-optimal execution of healthy environment, 
healthy people and healthy business strategic 
initiatives.

Market Price and Currency

The risk that price movement within the global 
dairy markets in which Fonterra operates is 
not appropriately managed or responded to, 
adversely impacting operations and profitability.

Environmental Sustainability

Failure to enact measures to mitigate the impact 
or perceived impact of Fonterra’s activities on 
the environment.

•  Integrated business planning enables regular 
proactive monitoring of strategic deployment 
milestones including forecast and interim 
returns.

•  Best practice programme management.

•  Strong focus on capital expenditure and balance 

sheet management.

•  Established financial assurance framework 
including oversight from the Finance Risk 
Committee.

•  Regular review of policy settings, credit terms 

and payment standards.

•  Regular portfolio analysis and ongoing market 

exposure assessments.

•  Resourcing plans to make progress against 

environmental targets. Please refer to pages 18 
to 23 of this report for Fonterra’s sustainability 
goals and performance. 

•  Proactive engagement with industry, 

government and regulators.

Milk Supply

Market Access and Geopolitical

Supply Chain 

Fonterra’s inability to retain milk supply due 
to reduction of milk production driven by 
disruption (weather/biosecurity event), reduced 
returns and/or adverse regulatory settings.

•  Strong financial performance.

•  Our Purpose – Good Together.

• 

 On farm support services and frameworks.

The risk that changes within global markets, 
including economic volatility, geopolitical 
instability, market access and market 
concentration adversely impact business 
operations and sales.

Disruption to production through the inability to 
maintain and/or effectively operate Fonterra’s 
milk collection, manufacturing and supply 
chain assets.

Health, Safety & Wellbeing

Failure to manage the health, safety and 
wellbeing of our people in the workplace.

People & Culture

The risk that leadership, organisational culture, 
and people management practices adversely 
impact engagement and performance.

•  Supplier policy settings.

•  Trade strategy and advocacy.

•  Active central portfolio management including 

consideration of concentration risk.

•  Efficient collection, treatment and distribution 

of milk.

•  Strong focus on global supply chain 

management, and proactive identification of 
emerging risks.

•  Established, robust business continuity plans to 
address identified supply chain continuity risks.

•  Zero tolerance for unsafe work practices.

•  Mature reporting of events, near misses and 
hazards in the enterprise wide First Priority 
event management tool.

•  Ensuring our Co-operative’s culture invites 
communication of accepted behaviours, 
values, leadership development and succession 
planning.

•  Global diversity and inclusion objectives in our 
Healthy People strategy. Please refer to pages 
24 to 31 of this report for Fonterra’s diversity 
and inclusion goals and performance.

•  The People & Culture function partners across 
the business, providing advice, tools, processes 
and policies to engage individuals, teams and 
support performance.

•  Our Purpose – Good Together.

• 

   A dedicated Community engagement 
programme.

Social Licence to Operate

Food Safety & Quality (FSQ)

Legal & Regulatory 

Information Technology 

The risk that Fonterra’s engagement with and 
treatment of the communities, stakeholders and 
environments where Fonterra operates globally, 
fails to consider potential societal impacts, and 
stakeholder interests.

The risk that Fonterra manufactures and supplies 
unsafe food or food that is perceived to be 
unsafe, and/or product that does not meet local 
and international standards and regulations.

•  The FSQ framework is designed to ensure 

the purchase, supply and production of food 
is aligned with global regulatory standards as 
a minimum.

•  Third party providers undergo specific food 
safety and quality audits by specialists from 
Fonterra.

•  External specialists provide independent audits 
on manufacturing and product quality control 
processes within Fonterra.

•  Proactive engagement on regulatory and 

contractual changes globally.

•  Global Policy Framework.

•   Reliable and trustworthy IT environment with 
effective management of risk including cyber 
security, data protection and data availability.

•  Established IT disaster recovery plans.

Failure to manage or respond to changes in our 
legal, regulatory and compliance obligations 
within the markets, and geographies in which 
Fonterra operates globally.

Failure to establish, maintain and safeguard an 
appropriate information technology and data 
management framework, including systems, 
that ensure the confidentiality, integrity and 
availability of our data, systems and supply chain. 

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Fonterra Annual Report 2020

Corporate Governance

Farmer Meetings

A schedule of regular meetings with farmer shareholders, sharemilkers and 
farm workers are usually held across the country at least twice each year. 
Often these are run in conjunction with the Shareholders’ Council and 
Farm Source™ regional teams. However, due to Covid-19 restrictions, this 
year Fonterra has been unable to hold a number of these regular face-to-
face meetings and offered stakeholders the opportunity to attend a range 
of online meetings instead. 

Farmer Directors also regularly attend other farmer meetings during the 
year on specific topics.

In addition, the Board consults with farmers on specific issues as they arise.

The Constitution describes the process whereby a farmer shareholder can 
raise a proposal for discussion or resolution at the next meeting of farmer 
shareholders at which the farmer shareholder is entitled to vote.

Notices of Annual or Special Meetings are sent to farmer shareholders 
at least 10 working days before the meeting in line with Fonterra’s 
Constitution and are published on fonterra.com.

Annual Report

The Group’s Annual Report, together with the half-year report and other 
material announcements, are designed to present a balanced and clear view 
of Fonterra’s activities and prospects and are available on fonterra.com.

Fonterra.com and Farm Source™ Digital Tools

Other Disclosures

An overview of our Co-operative’s operations, financial presentations 
and public announcements are all available on the fonterra.com website. 
Fonterra also uses emails, including regular updates from the Chairman, 
Chief Executive Officer and regular farmer updates to share information 
with its stakeholders.

The Farm Source™ website enables farmer shareholders, their employees 
and business partners to transact online with Fonterra and access 
information and tools on milk production and quality, online statements 
and up-to-the-minute news and weather. This site is also used to provide 
information on the business to farmer shareholders.

The My Co-op application provides updated news and information 
from across our Co-operative and the industry including milk price 
announcements, updates from the Chairman and Chief Executive Officer. 
The On Farm application provides daily milk production and quality 
information, comparisons against last season volumes, tanker movements, 
and summary reports of key milk performance information for the last 
30 days.

Annual or Special Meeting

The Board views the Annual Meeting of farmer shareholders, which is held 
at a different venue around New Zealand each year, as an opportunity to 
communicate directly with farmer shareholders and the Board ensures 
that adequate time is provided at these meetings for farmer shareholders 
to raise issues or ask questions from the floor. The Chief Executive Officer 
attends the Annual Meeting.

Information on the Group’s performance, annual and half-year financial 
results, Director changes, and other significant matters, is advised to the 
market through the NZX and ASX in accordance with the Group Disclosure 
Policy. Farmer shareholders and other stakeholders receive regular updates 
on these and other issues relevant to them and all media and market 
releases are available on fonterra.com.

Voting

Shareholders have the right to vote on major transactions (as defined 
in the Companies Act 1993) as well as other major decisions that may 
change the nature of Fonterra as prescribed by the FSM Rules. In particular, 
FSM Rule 4.1.1 restricts Fonterra from entering into any transaction (or 
series of linked or related transactions) which would significantly change, 
indirectly or directly, the nature of Fonterra’s business or involves a gross 
value above 50% of the average market capitalisation of Fonterra, unless 
the transaction(s) is approved by (or is conditional on the approval of) 
Fonterra’s shareholders. 

In accordance with the co-operative nature of Fonterra, voting is based on 
the quantity of milk solids supplied to Fonterra, backed by shares and is not 
on the principle of one vote per share.

Health and Safety

It is fundamental to Fonterra that our people are healthy, live with balance 
and go home safe from work every day, everywhere. This is a commitment 
not just to employees, but also to the large number of contractors that 
support our business every day. 

Fonterra’s health and safety performance is measured using a number of 
reactive and preventive, leading and lagging indicators. These include total 
recordable injury frequency rate (TRIFR), number of serious harm injuries, 
status of controls implemented as an outcome of self-assurance and 
internal audits and serious event investigations.

Our TRIFR for FY20 is 5.8. On a like for like basis this is slightly higher than 
last year, and higher than our industry best practice goal of 5.0. We have 
had 10 serious harm injuries, compared to 18 in FY19 and 14 in FY18. We 
are pleased to report that there have been no fatalities during FY20 across 
our global footprint. 

Keeping a continual focus on health, safety and wellbeing is essential, and 
we have a number of targeted programmes of work underway to support 
us to achieve this ambition – particularly around establishment of lead 
indicators, mental health, critical risk, process safety and ensuring our 
safety management system is robust and user friendly. Underpinning this is 
a focus on maintaining a strong safety culture and employee engagement 
in the process of managing risk. 

PRINCIPLE 7: AUDITORS

Auditor Framework

The Audit and Finance Committee is responsible for making 
recommendations to the Board regarding the appointment of the external 
auditor. The external auditor is appointed by farmer shareholders at the 
Annual Meeting. KPMG was appointed as Fonterra’s external auditor for 
the financial year ended 31 July 2020.

Fonterra has a Group Audit Independence Policy. This policy ensures 
that the ability of the auditor to carry out its statutory audit role is not 
impaired, or could be perceived to be impaired. The policy sets out the 
types of services that the auditor may undertake, those the auditor may 
only undertake with the approval of the Audit and Finance Committee, and 
those that are not permitted. The policy stipulates the rotation of the lead 
external audit partner at least every five years. 

As per the policy, all non-audit services to be undertaken by the auditor 
require approval by the Chief Financial Officer or Director Group Finance. 
Regardless of the nature of the services proposed, any engagements 
exceeding a total of NZD200,000 must be approved by the Audit and 
Finance Committee.

The Audit and Finance Committee reviews the independence of the 
auditor, external audit fees, terms of engagement and the annual audit plan.

The Chairman of the Audit and Finance Committee communicates regularly 
with the external auditor and the Audit and Finance Committee meets with 
the external auditor without Management at least twice a year.

The fees paid to Fonterra’s auditor, KPMG, are detailed in Note 6 (page 98) 
to the Financial Statements for the year ended 31 July 2020.

Annual Meeting

The external auditor is required to attend Fonterra’s Annual Meeting and 
be available to answer questions from farmer shareholders in relation to 
the audit.

Internal Audit

Fonterra has an internal audit function that provides independent 
and objective assurance to both the Audit and Finance Committee 
and Management on the adequacy of risk management, control and 
governance processes. 

Fonterra’s internal audit approach is based on the principle of line 
management responsibility for risk and controls. Management is 
responsible for implementing, operating and monitoring the system of 
internal controls to provide reasonable assurance of achieving business 
objectives. Internal Audit is responsible for:

•  delivering a reasonable degree of assurance, as determined by the Audit 

and Finance Committee, over business risk

•  assisting the business with special reviews or investigations

•  complying with the Internal Audit methodology

The appointment and removal of the Chief Internal Auditor (CIA) is subject 
to the approval of the Audit and Finance Committee. 

The CIA develops the annual internal audit plan, which is endorsed by the 
Audit and Finance Committee, and is accountable for its implementation. 
The Audit and Finance Committee monitors progress of the internal audit 
plan implementation. 

PRINCIPLE 8: SHAREHOLDER RIGHTS AND RELATIONS

Website

Fonterra‘s website (fonterra.com) provides investors and interested 
stakeholders access to financial and operational information and key 
corporate governance information about Fonterra as an issuer.

Shareholders’ Council

One of the Board’s most important relationships is with the Shareholders’ 
Council. The Council, Fonterra’s representative body, which is established 
under the Constitution, is independent of the Board and as at 31 July 2020 
comprised 25 farmer shareholders elected as Councillors, representing 25 
wards across New Zealand. The Council was created to be the guardian 
of the Co-operative Principles which apply to the cornerstone activities 
of our Co-operative. The functions of the Council are set out in the 
Constitution. The Council reviews the Board’s Statement of Intentions for 
the performance and operations of the Group and publishes an annual 
report, commenting on these matters.

The Council, Board and Management have a working interface document 
which sets out the principles to facilitate the working partnership between 
the Board, the Council and Management and the way operational issues 
will be dealt with by the Board and the Council.

The working interface document is available on the Farm Source™ website.

The Council and the Board meet regularly, as do the Chairs of the Board 
and the Council and the Chairs of their respective Committees.

Farmer Communications

Fonterra is committed to maintaining and improving communication 
with its farmers. An extensive farmer and supplier relations programme 
is managed by the Farm Source™ team. Channels for electronic 
communication are provided through the Fonterra and Farm Source™ 
websites and the My Co-op mobile application. In addition, Fonterra 
provides farmers with the ability to receive communications (such as 
the Annual Report) from Fonterra electronically. Webcasts are used 
where appropriate.

Fonterra’s communications with farmers include regular face-to-face 
meetings, a regular Global Dairy Update, Farm Source™ magazine, My Co-
op application posts and regular emails from the Chairman, Chief Executive 
Officer and Regional Heads. As described above, Fonterra releases all 
material information to the NZX and ASX (where applicable), and complies 
with the FSM Rules with respect to shareholder communications.

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Corporate Governance

Board of Directors

  JOHN MONAGHAN

  CLINTON DINES

  BRENT GOLDSACK

  LEONIE GUINEY

  BRUCE HASSALL

  HOLLY KRAMER

BOARD RESPONSIBILITIES Farmer-elected 
Director, Chairman, Chair of the Appointments and 
Remuneration Committee and Member of the Governance 
Development Committee
TERM OF OFFICE Elected 2008, last re-elected 2017

John Monaghan was elected to the Fonterra Board in 
2008 and became Chairman in 2018. In March 2020, 
John announced he will retire from the Board following 
the Annual Meeting in November 2020. Prior to joining 
the Fonterra Board, John was Chairman of the Fonterra 
Shareholders’ Council and the Inaugural Chair of the 
Governance Development Programme. He is also a 
Director of Centreport Limited and Centreport Properties 
Limited, and is a member of the Executive Board of the 
New Zealand China Council.
John is a Chartered Member of the Institute of Directors. 
He holds a number of farming directorships and is a trustee 
of the Wairarapa Irrigation Trust. John has dairy farming 
interests in the Wairarapa and Otago regions. John has 
taken a lead role in representing Fonterra’s interests on 
global trade issues and has strong networks domestically 
and internationally with key stakeholders.

BOARD RESPONSIBILITIES Appointed Director, Member 
of the Appointments and Remuneration Committee and the 
Safety and Risk Committee
TERM OF OFFICE Appointed 2015

BOARD RESPONSIBILITIES Farmer-elected Director, Chair 
of the Co-operative Relations Committee, Member of the 
Safety and Risk Committee and the Milk Price Panel
TERM OF OFFICE Elected 2017

Clinton was appointed to the Fonterra Board in 2015. 
Clinton lived and worked in China for 36 years, 21 of which 
as President of BHP Billiton’s China business. He has 
extensive experience as an executive in China and Asia 
businesses and has had an active career as a Non-Executive 
Director, currently serving on the Boards of the Port of 
Newcastle, Sky Renewables Pty Limited and Zanaga Iron 
Ore Company Limited. 
He was Executive Chairman of Caledonia Asia from 2010 
to 2013, an investment group in Asia, and is a Partner in 
Moreton Bay Partners, a strategic advisory firm based in 
Brisbane. He is an Adjunct Professor at Griffith University’s 
Asia Institute and is a Member of the Griffith University 
Council. Clinton has extensive experience as a senior 
executive in China and Asia businesses, including global 
manufacturing and commodity businesses.
BA (Modern Asian Studies, Griffith), CIM, INSEAD

Brent Goldsack was elected to the Fonterra Board in 
2017. Brent had a 25-year career in both New Zealand 
and abroad in various corporate advisory roles, including 
being a Partner at PwC for more than 12 years. Brent is a 
Chartered Accountant. Brent currently Chairs the Board 
of Waitomo Group Limited and its subsidiaries and is a 
Director of Rabobank NZ Limited. Brent previously served 
on the Board of Canterbury Grasslands Limited. 
Brent is actively involved as a shareholder of three dairy 
operations in the Waikato. In addition to his strong 
financial skills and knowledge, Brent has particular 
expertise in Fonterra’s Farmgate Milk Price and the drivers 
of the Co-operative’s earnings.
BCA, CA

BOARD RESPONSIBILITIES Farmer-elected Director, Chair 
of the Safety and Risk Committee and Member of the Audit 
and Finance Committee
TERM OF OFFICE Elected 2018

Leonie Guiney was elected to the Fonterra Board in 2018. 
Leonie previously served on the Board from 2014 to 2017. 
Leonie has worked in the agriculture sector for more than 
25 years in a number of positions including lecturer of 
Dairy Production at Lincoln University, consultant on the 
BNZ Growth Programme for farmers and has held roles 
with Golden Vale Dairy Co-operative in Ireland, LIC and 
FarmRight South Island. 
Leonie lives and farms at Fairlie in South Canterbury and 
is a director and shareholder of seven South Canterbury 
farms and Bobby Square Limited.
BAgrSci

BOARD RESPONSIBILITIES Appointed Director, Chair 
of the Audit and Finance Committee, Member of the Milk 
Price Panel and is an observer on the Appointments and 
Remuneration Committee
TERM OF OFFICE Appointed 2017

Bruce Hassall was appointed to the Fonterra Board in 
2017. Bruce is a Chartered Accountant and has had a 
35-year career at PwC, including holding the position of 
Chief Executive Officer of the New Zealand practice from 
2009 to 2016. Bruce is Chairman of The Farmers Trading 
Company Limited, Prolife Foods Limited and Fletcher 
Building Limited and serves as a director on the Board of 
Bank of New Zealand. 
He was previously a member of the University of Auckland 
Business School Advisory Board and was a founding Board 
Member of the New Zealand China Council. Bruce has 
extensive experience in financial reporting, information 
system processes, risk management, business acquisitions, 
capital raising and IPOs across both listed and private 
companies.
BCom, FCA (CAANZ)

BOARD RESPONSIBILITIES Appointed Director, Member 
of the Appointments and Remuneration Committee
TERM OF OFFICE Appointed 2020

Holly Kramer was appointed to the Fonterra Board in 2020. 
Holly has more than 25 years of extensive governance, 
management and product/marketing experience. She 
was Chief Executive Officer of major Australian retailer 
Best & Less. She has also held senior executive roles at 
Telstra Corporation, Ford Motor Company (in the US and 
Australia) and Pacific Brands.
Holly is currently a Director on the Boards of Woolworths, 
Abacus Property Group and the GO (Goodes-O’Loughlin) 
Foundation. She is Chair of the unlisted mortgage broking 
fintech, Lendi. She is also the Pro-Chancellor of Western 
Sydney University. Holly’s previous governance roles 
include the Boards of Australia Post, Nine Entertainment 
Corporation, AMP Limited, and Telstra Clear (NZ).
BA, MBA

  ANDY MACFARLANE

  PETER MCBRIDE

  JOHN NICHOLLS

  DONNA SMIT

  SCOTT ST JOHN 

BOARD RESPONSIBILITIES Farmer-elected Director, 
Member of the Appointments and Remuneration Committee, 
the Audit and Finance Committee and the Co-operative 
Relations Committee
TERM OF OFFICE Elected 2017, last re-elected 2019

Andy Macfarlane was elected to the Fonterra Board in 2017. 
Andy was a farm management consultant for 38 years. He is 
a Councillor of Lincoln University and a Director of ANZCO. 
Andy is an active member of the International Farm 
Management Association (IFMA), Global Dairy Farmers and 
New Zealand Institute of Primary Industry Management 
(NZIPIM). Andy was previously a Director of Ngai Tahu 
Farming Limited. He is the Past President of the NZIPIM 
and chaired Deer Industry New Zealand for seven years.
Andy began farming in 1989 and lives near Ashburton. He 
has shareholding interests in the South Island. Andy has a 
strong understanding of the governance of research and 
development and innovation, and has a particular interest 
in the strategic use of technology in the dairy industry.
(cid:37)(cid:17)(cid:36)(cid:74)(cid:85)(cid:17)(cid:54)(cid:70)

BOARD RESPONSIBILITIES Farmer-elected Director, 
Chairman-elect, Member of the Appointments and 
Remuneration Committee, the Audit and Finance Committee, 
the Co-operative Relations Committee and the Governance 
Development Committee
TERM OF OFFICE Elected 2018

Peter McBride was elected to the Fonterra Board in 2018 
and was announced as Chairman-elect in June 2020. He is 
a member of the Zespri China Advisory Board. Peter was 
previously the Chairman and a Director of Zespri Group 
Limited and other related companies. 
Peter is a Chief Executive Officer of Trinity Lands Limited 
and Managing Director of South-East Hort Limited and 
subsidiaries and Ellett Beach Farms Joint Venture. He was 
previously a Director of the New Zealand International 
Business Forum and a member of the Executive Board of 
the New Zealand China Council. Peter has shareholding 
interests in the Waikato.
(cid:37)(cid:17)(cid:3)(cid:43)(cid:82)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3)(cid:51)(cid:42)(cid:3)(cid:39)(cid:76)(cid:83)(cid:3)(cid:38)(cid:82)(cid:80)(cid:3)(cid:36)(cid:74)(cid:85)(cid:76)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

BOARD RESPONSIBILITIES Farmer-elected Director, 
Member of the Co-operative Relations Committee and the 
Safety and Risk Committee
TERM OF OFFICE Elected 2018

John Nicholls was elected to the Fonterra Board in 2018. 
John previously served on the Fonterra Shareholders’ 
Council from 2009 to 2011 and is an experienced company 
Director. John is Chairman of MHV Water (formally 
Mayfield Hinds Irrigation Limited), New Zealand’s largest 
intergenerational irrigation co-operative and he also serves 
on other local Boards. 
John has a Degree in Agriculture and a Post Graduate 
Diploma in Agricultural Science. He has shareholding 
interests in the South Island, owning dairy farms in 
mid Canterbury. 
(cid:37)(cid:17)(cid:36)(cid:74)(cid:85)(cid:15)(cid:3)(cid:51)(cid:42)(cid:3)(cid:36)(cid:74)(cid:85)(cid:54)(cid:70)(cid:76)

BOARD RESPONSIBILITIES Farmer-elected Director, 
Member of the Co-operative Relations Committee
TERM OF OFFICE Elected 2016, last re-elected 2019

Donna Smit was elected to the Fonterra Board in 
December 2016. Donna serves on the Board of the 
Manager of the Fonterra Shareholders’ Fund. Donna lives 
and farms at Edgecumbe, and has built and owns five 
dairy farms in Eastern Bay of Plenty and Oamaru. Donna 
is a Director of EastPack Limited and Kiwifruit Equities 
Limited and a Trustee of the Dairy Women’s Network. 
Donna is a Fellow Chartered Accountant and was a 
company administrator at kiwifruit co-operative EastPack 
for 24 years. Donna’s strong focus on financial and risk 
management has been built through her extensive business 
and manufacturing experience and financial background, 
and complements her deep dairy farming experience.
FCA

BOARD RESPONSIBILITIES Appointed Director, Chair of 
the Milk Price Panel and Member of the Audit and Finance 
Committee and the Safety and Risk Committee 
TERM OF OFFICE Appointed 2016

Scott St John was appointed to the Fonterra Board in 2016. 
He was the CEO of First NZ Capital (FNZC) for 15 years, 
stepping down from that role in early 2017. Scott has 
served on the Council of the University of Auckland since 
2009 and was appointed Chancellor in 2017. He is the 
Chair of Fisher and Paykel Healthcare.
Scott also serves on the Board of Mercury NZ Limited and 
NEXT Foundation. Previous roles have included Chairman 
of the Securities Industries Association, and membership 
of both the Capital Markets Development Taskforce and 
the Financial Markets Authority Establishment Board. 
BCom, Diploma of Business

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Fonterra Annual Report 2020

Corporate Governance

Management
Team

  MILES HURRELL

  MARC RIVERS

  JUDITH SWALES

  MIKE CRONIN

  FRASER WHINERAY

  KELVIN WICKHAM

  TEH-HAN CHOW

  CARLY ROBINSON

CHIEF EXECUTIVE OFFICER

CHIEF FINANCIAL OFFICER

Marc Rivers joined Fonterra in February 
2018 as the Chief Financial Officer, 
responsible for our Co-operative’s finances 
and central portfolio management.

Marc is an experienced global finance 
executive with strong strategic leadership 
capability. Prior to joining Fonterra, Marc 
was the CFO of the Roche Pharmaceuticals 
Division in Switzerland, with oversight 
of NZ$54 billion in sales including 14 
manufacturing sites around the world. 
His division was responsible for product 
distribution for 140 countries, focusing on 
the innovation pipeline and customer and 
market development.

Marc has worked in both emerging and 
established markets, including China, 
Japan, Thailand, Europe and the US. 
Marc has a strong track record and is 
known for his commitment to leading 
and developing his people while building 
diverse and inclusive teams. He has a 
Bachelor of Arts in International Studies 
and an International Masters of Business 
Administration, Finance and German 
from the University of South Carolina, 
Columbia, USA.

After a 19-year career with our Co-
operative, Miles Hurrell was appointed as 
Chief Executive Officer in August 2018. 
Miles’ focus is on resetting the business, 
refreshing our Co-operative’s strategy 
and introducing a customer-led operating 
model. He is also focused on leading 
the implementation of the value-based 
strategy and differentiating New Zealand 
milk through innovation, sustainability 
and efficiency.

Prior to his appointment as Chief 
Executive Officer, Miles held the role of 
Chief Operating Officer, Farm Source, 
with responsibility for farmer services 
and engagement, milk sourcing and the 
operation of New Zealand’s 70 Farm 
Source™ retail stores. Before this, Miles 
held a number of leadership roles across 
our Co-op, including Group Co-operative 
Affairs Director and General Manager 
Middle East, Africa, Russia and Eastern 
Europe where he led a period of sustained 
growth across the region. Earlier in his 
career, Miles worked as the General 
Manager of Global Sourcing and oversaw 
the streamlining of our Co-operative’s 
European operations.

Miles has completed management 
programmes at INSEAD (International 
Executive Development), London Business 
School (Finance), Kellogg’s North-
Western University (Global Sales) and the 
International Institute for Management 
Development (Marketing).

CHIEF EXECUTIVE OFFICER, 
ASIA PACIFIC (APAC)

Judith Swales leads Fonterra’s business 
in Asia Pacific where she is responsible 
for all sales and marketing of Fonterra’s 
Consumer, Foodservice and Ingredients 
products in the region. Judith and her 
team also set the global strategy for the 
Consumer and Foodservice businesses.

Prior to this she was Fonterra’s COO Global 
Consumer and Foodservice having earlier 
led the Innovation and Transformation 
business unit, shaping the future of 
Fonterra by harnessing innovation, 
emerging technologies and game changing 
business models, while embedding a 
performance driven culture. Judith joined 
our Co-operative in 2013 as Managing 
Director Australia and Fonterra Oceania, 
where she led the successful turnaround 
of the Australian business and oversaw 
Fonterra Brands New Zealand.

The daughter of a milkman, Judith grew 
up helping her father on his daily milk run. 
She has extensive experience in senior 
management and business turnarounds, 
and prior to joining Fonterra was the 
Managing Director of Heinz Australia, and 
CEO and Managing Director of Goodyear 
Dunlop, Australia and New Zealand. Judith 
worked for a number of UK retailers which 
culminated in her move to Australia in 
2001 as the Managing Director of Angus 
and Robertson.

She served as a Non-Executive Director on 
the DuluxGroup Board from April 2011 to 
August 2019 and a Non-Executive Director 
on the Virgin Australia Board from May 
2019 to August 2020. 

Judith has a degree in Microbiology 
and Virology. 

MANAGING DIRECTOR, 
CO-OPERATIVE AFFAIRS
MANAGING DIRECTOR, 
PEOPLE & CULTURE (ACTING)

Mike Cronin oversees our Governance, 
Risk and Audit, Farm Source, Global 
Stakeholder Affairs, Maori Strategy, 
Communications, Legal, and 
Purpose teams.

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 and The Co-operative Difference.

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 is also acting Managing Director, 
People & Culture where he has oversight 
of the team responsible for facilitating 
Fonterra’s people strategy and 
employee experience.

Mike has a Bachelor of Laws and Bachelor 
of Arts from the University of Auckland.

CHIEF OPERATING OFFICER

Fraser Whineray joined Fonterra in March 
2020 as the Chief Operating Officer. 
He is responsible for our New Zealand 
manufacturing site and global supply 
chain operations, sustainability, innovation 
and R&D, IT and safety, quality and 
regulatory teams.

Fraser joined our Co-op from Mercury, 
a 100% renewable electricity retailer 
and generator, where he was the Chief 
Executive from 2014 and held executive 
roles since joining the company in 2008.

Fraser is no stranger to the dairy industry. 
He started his career as a graduate 
of the New Zealand Dairy Board’s 
technical training programme and 
spent time at manufacturing sites that 
are now part of our Co-op, and also in 
Fonterra’s export markets. He has also 
worked in the investment banking and 
forestry industries, both in New Zealand 
and internationally.

Fraser is a keen advocate for astute long-
term decisions that leverage New Zealand’s 
competitive advantages, including its 
people, for sustainable growth.

He served as a Non-Executive Director 
of Opus International Consultants from 
2008 – 2016 and of Tilt Renewables and 
Chaired the Prime Minister’s Business 
Advisory Council. In 2019 he was named 
the Deloitte Top 200 Chief Executive of 
the year.

Fraser holds an MBA from the University 
of Cambridge, a Bachelor of Chemical 
Engineering from Canterbury University 
and a Diploma in Dairy Science and 
Technology from Massey University. 

CHIEF EXECUTIVE OFFICER, AFRICA, 
MIDDLE EAST, EUROPE, NORTH ASIA 
AND THE AMERICAS (AMENA)

Kelvin Wickham is responsible for the 
business activities of Fonterra across 
Consumer, Foodservice and Ingredients 
products in Africa, Middle East, Europe, 
North Asia and the Americas.

In addition, Kelvin oversees the Sports & 
Active Lifestyles and Medical and Healthy 
Ageing Nutrition units, and with his team is 
responsible for development of Fonterra’s 
NZMP™ brand and sales capability.

In his previous role as COO NZMP Kelvin 
led the delivery of solutions to our global 
customers, ensuring optimisation of 
supply and demand, commodity price 
risk management, and championing the 
NZMP™ brand. Kelvin has more than 30 
years’ experience in the dairy industry and 
has played a key role in building markets, 
customer relationships and partnerships. 
In his earlier role as President Greater 
China and India he focused on directing 
the development of Fonterra’s business in 
these expanding markets, during which he 
oversaw a period of rapid growth.

Prior to that, Kelvin led Fonterra’s 
Supplier and External Relations team, 
and was Managing Director of Fonterra’s 
Global Trade overseeing the launch of 
GlobalDairyTrade. Kelvin holds a Chemical 
and Materials Engineering Degree, a 
Master of Management and a Diploma of 
Dairy Science and Technology.

CHIEF EXECUTIVE OFFICER, 
GREATER CHINA

DIRECTOR, OFFICE OF THE CHIEF 
EXECUTIVE OFFICER

Teh-han Chow was appointed as the 
Chief Executive Officer, Fonterra Greater 
China in August 2020, after acting in 
the interim role from December 2019. 
In this role he is responsible for overseeing 
our Co-op’s overall business in Greater 
China region, including Ingredients, 
Foodservice, Consumer Brands and 
China Farms business.

Teh-han has extensive experience leading 
large organisations in the food sector, as 
well as proven ability in business growth 
through innovation and putting customers 
front and centre.

Previously, he headed up Fonterra’s 
NZMP Ingredients business for Greater 
China, South & East Asia, where he 
embedded sustained improvements in 
business performance, strong customer 
relationships and empowering leadership.

Before joining Fonterra in 2015, Teh-han 
was the CEO of Louis Dreyfus in China, 
a leading merchant and processor of 
agricultural goods. He was also Managing 
Director Greater China for Simplot, a food 
and agribusiness company.

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.

Carly Robinson was appointed as the 
Director, Office of the Chief Executive 
Officer in March 2020, focusing on our 
executive management systems and 
oversight of key strategic projects to 
support the delivery of Fonterra’s top 
priorities and targets. Carly plays a key role 
in guiding the wider leadership community, 
helping create the best environment for 
enterprise-wide success.

Carly has spent over 20 years within 
the dairy industry, after joining the 
New Zealand Dairy Board’s Marketing 
Graduate Programme in 1998. Her career 
has spanned a wide range of business 
functions, models and markets over this 
time, including leadership roles in sales 
and marketing, farmer services, strategy, 
sustainability, social responsibility and 
transformation. 

Carly has spent considerable time living 
and working within South East Asia and 
Europe, and brings a real passion for 
customers, communities and people in her 
ways of working.

Carly has a Bachelor of Arts (Spanish) and 
Bachelor of Commerce (Economics) from 
the University of Auckland. 

178

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Fonterra Annual Report 2020

Directory

Directory

FONTERRA BOARD OF DIRECTORS

AUDITOR

John Monaghan
Clinton Dines
Brent Goldsack
Leonie Guiney
Bruce Hassall
Holly Kramer
Andrew Macfarlane
Peter McBride
John Nicholls
Donna Smit
Scott St John

FONTERRA MANAGEMENT TEAM

Miles Hurrell
Marc Rivers
Judith Swales
Mike Cronin
Fraser Whineray 
Kelvin Wickham
Teh-han Chow
Carly Robinson

REGISTERED OFFICE

Fonterra Co-operative Group Limited
Private Bag 92032
Auckland 1142
New Zealand
109 Fanshawe Street
Auckland Central 1010
New Zealand
Phone +64 9 374 9000
Fax +64 9 374 9001

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KPMG
18 Viaduct Harbour Avenue
Auckland 1010
New Zealand

FARMER SHAREHOLDER AND SUPPLIER SERVICES

Freephone 0800 65 65 68

FONTERRA SHARES AND FSF UNITS REGISTRY

Computershare Investor Services Limited
Private Bag 92119
Auckland 1142 New Zealand
Level 2, 159 Hurstmere Road
Takapuna
Auckland 0622
New Zealand

CAPITAL NOTES REGISTRY

Link Market Services Limited
PO Box 91976
Auckland 1142
New Zealand
Level 11, Deloitte Centre
80 Queen Street
Auckland Central 1010
New Zealand

INVESTOR RELATIONS ENQUIRIES

Phone +64 9 374 9000
investor.relations@fonterra.com
www.fonterra.com

Dad & Lisa, Bay of Plenty

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fonterra.com