31921 Fonterra ARep Front 2

Transcription

FONTERRA CO-OPERATIVE GROUP LIMITED
ANNUAL REPORT 2001
>
2002
annual report
2001 > 2002
www.fonterra.com
HAWERA
New Zealand
This is the most productive milk processing plant on the planet. The technology
deployed is designed to manufacture products that meet precise and
often complex customer specifications consistently. Every hour 20 tonnes
of milk powder are produced, a total of 120,000 tonnes for the past
season. Every day 3.6 million litres of milk are produced, the largest output in
the world. The plant is known as Powder 5 and is located in Whareoa, Hawera,
New Zealand; just one of 64 Fonterra processing plants around the world.
In milk, we have a unique raw material. We seek to lead the race to develop its nutritional potential, through products ranging
from quality food ingredients to fast-moving consumer goods, meeting the needs of an increasingly health-conscious world.
Commodity Prices
Revenue by Region
$ billion
2400
2200
2.6
US$ per tonne
2000
4.5
1800
1600
3.0
1400
1200
1000
3.8
800
Jan 00
Jul 00
Jan 01
Skim Milk Powder
2
Jul 01
Butter
Jan 02
Jul 02
Americas
Australia/New Zealand
Asia
Rest of World
achievements
+
Record payout of $5.33 per kilogram of milksolids
+
Record revenue of $13.9 billion
+
Record milk processed – 1.1 billion kilograms of milksolids, up 6 per cent on last year
+
$74 million of merger benefits, exceeding short-term target by $43 million
+
Profitable growth by NEW ZEALAND MILK, with EBIT* of $302 million
+
EBIT* of $301 million for NZMP
+
Fair Value Share set at $3.85
+
Completion of Nestlé joint venture and other strategic initiatives to extend international reach
Payout
Milk Collected
1.2
1.11
5.33
5.5
5.00
5.0
4.5
4.0
3.5
3.0
01
02
Billion kilograms of milksolids
Dollars per kilogram of milksolids
6.0
1.1
1.05
1.0
0.9
0.8
0.7
0.6
01
02
*‘EBIT’ is defined as earnings before deducting interest and tax attributable to operations and excluding the
impact of foreign exchange hedging, quota returns and corporate costs. In the case of NZMP, EBIT has been
calculated after deducting the cost of milk purchased from suppliers at the AMR value of $5.06 per kgms.
All figures in this Annual Report are expressed in New Zealand dollars unless otherwise stated.
3
Fonterra in the world
Craig Norgate, Chief Executive Officer
and John Roadley, Chairman
6
CHAIRMAN & CHIEF EXECUTIVE OFFICER’S LETTER
a commitment to performance
We are proud to present the first annual report of Fonterra Co-operative Group. Fonterra was formed
through the merger of New Zealand Dairy Group, Kiwi Co-operative Dairies and the New Zealand
Dairy Board in October 2001 with a strong mandate from our 13,000 dairy farming shareholders.
This was the most important merger in the history of the New Zealand dairy industry. The legacy
companies brought with them a strong tradition and substantial capabilities built up by generations
of New Zealand farmers.
The merger followed the passing of the Dairy Industry Restructuring Act by the New Zealand Parliament
in September 2001. This removed the New Zealand Dairy Board’s statutory exporting monopoly,
ushering in a new era of deregulation within the industry, yet enabled the scale in milk processing and
international export marketing built up by our predecessors to be preserved and enhanced.
The creation of Fonterra was driven by the need to create and maintain a business with the additional
scale to service an increasing number of customers who require global business partners, and by
the potential to unlock further efficiencies within the business to increase the returns paid to farmers.
The first year has been a building phase – bringing together the management team to integrate
and extend the capabilities of the new company, expanding our international reach and,
ultimately, delivering on the promised merger gains. This report signals that we are well on the
way to unlocking the performance of which
Fonterra is capable, and the Board and
350
management are committed to delivering
300
the results expected by our shareholders and
250
Apart from the excitement of the merger
and its associated challenges, from an
$ million
the wider community.
Annualised Merger Benefits
310
Target
190
200
150
120
88
100
50
Merger
0
be described as extraordinary. Very high
Oct 2001
Oct 2002
Oct 2003
Oct 2004
31 May
operational perspective the year can only
international commodity prices, an exporter
friendly exchange rate and strong milk flows combined to produce a record total return to our
supplying shareholders. However, the market deteriorated rapidly during the second half of the year
and commodity prices now stand at their lowest levels in recent memory. When these factors are
combined with a rising exchange rate, it is clear that returns for 2003 will be reduced significantly.
7
O P E R AT I O N A L R E V I E W
New Zealand milk production reached record levels, with a total of 1.1 billion kilograms of milksolids
(kgms) processed – an increase of almost 6 per cent over the previous year. Capacity expansions were
completed at three sites – Clandeboye, Lichfield and Stirling – as part of the ongoing investment in
manufacturing facilities required to process ever-increasing volumes of milk and to increase the
production of value added products.
The financial and operating results discussed in this report are for the full financial year ending on
31 May 2002. They include the operations of Fonterra following its formation on 16 October 2001
and those of Fonterra’s legacy companies prior to this date.
The Group achieved $13.9 billion in revenue due to a buoyant international market in the early part
of the season. Total payout for milk supplied was $5.9 billion ($5.33 per kgms, from which $0.03
per kgms was deducted to fund industry good activities). We recorded a deficit after tax of $50
million, or $0.05 per kgms, due to the directors’ decision to maintain the announced payout despite
the impact of sharply falling commodity prices on inventory valuations and a surge in milk production
in the last month of the year.
The payout of $5.33 per kgms comprises four parts: the Actual Milk Return of $5.06, Quota Returns
of $0.15, Value Added Returns of $0.07 and payment from reserves of $0.05. The Value Added
Returns were adversely affected by one-off adjustments associated with the merger and by exchange
rate losses – collectively costing $0.31 per kgms.
.............................................................................................................
E X T E N D I N G O U R I N T E R N AT I O N A L R E A C H
ALLIANCE WITH NESTLÉ IN THE AMERICAS Fonterra’s alliance with Nestlé SA to set up joint ventures in the
dairy business in North, Central and South America was formally established in March 2002. The 50:50
alliance – Dairy Partners Americas – will operate in all countries in the Americas and covers a range of
branded consumer products, ingredients and milk processing. Its immediate priorities are Argentina, Brazil,
Paraguay, Uruguay and Venezuela, and work is ongoing to finalise joint ventures in these markets. The
Americas represent an exciting opportunity and a challenge for Fonterra. In the 2002 year, their combined
dairy market was worth more than $200 billion, of which Fonterra’s share was less than two per cent.
8
KUALA LUMPUR
Malaysia
Heading home in Kuala Lumpur with one of Malaysia’s most trusted brands –
FERNLEAF. Malaysia is NEW ZEALAND MILK’s largest consumer milk powder
market in South East Asia with total sales of over $165 million. This year we
launched three new lines in the Growing Up Milks category under our Nutrition
for Life umbrella which offers milk products for consumers at every stage of
development through life. The new products, marketed under the FERNLEAF
brand, are aimed at children in different age groups and each is fortified
with vitamins and minerals that aid nutrition and boost resistance to disease.
The theoretical Commodity Milk Price for the season was $5.45 per kgms. This is the price a potential,
similarly sized, efficient competitor would be able to pay for milk. At $5.06 for the Actual Milk Return,
the gap in our performance was $0.39 per kgms. Key reasons for the gap are that Fonterra has a higher
level of capital employed and a less efficient product mix. Closing this gap is a continuing area of focus
and one of our key performance targets.
The analytical framework that accompanies the Fair Value Share and the Commodity Milk Price now
enables a more detailed assessment of performance than has been possible before in the dairy
industry. With the establishment of the Fair Value Share there are now two independently set
measurements with which to assess Fonterra’s performance. Payout remains the essential measure of
short-term performance, whilst the changes in value of the Fair Value Share provide a measure of
long-term value creation.
Your directors set the Fair Value of a Fonterra Share at $3.85 for 2003. This was within the range
determined by Standard & Poor’s, of $3.65 to $4.25.
Several one-off items arose in preparing the accounts – the most significant of which related to
accounting for the merger. There were a number of such write-ups and write-downs which resulted in
an increase in equity of $1.51 billion.
The Group has been assigned very strong credit ratings by both Standard & Poor’s and Fitch Ratings. It
has shareholders’ equity of $4.5 billion, a strong position with more than adequate capacity to fund
ongoing development. A refinancing programme undertaken during the second half of the year shifted
the weighting of the Group’s debt profile towards the longer term. This comprised a $200 million issue
.............................................................................................................
IMPROVED POSITIONING IN EUROPE Fonterra and Arla Foods AmbA, Europe’s largest dairy co-operative group,
established a joint venture in the United Kingdom and Europe in December 2001. This brought Fonterra’s ANCHOR
and Arla’s LURPAK brands together into one entity to improve their positioning in the highly competitive yellow fats market.
The joint venture involved establishing a business responsible for marketing and distributing the brands in the
British Isles, and developing new products for the yellow fats and spreads markets. It is 75 per cent owned by Arla
and 25 per cent by Fonterra. The new business is well placed to perform strongly in this competitive retail segment.
10
U N I T E D A R A B E M I R AT E S
Middle East
Contrasting starkly with the landscape, the image on the side of this
refrigerated truck in Dubai graphically links the ANCHOR brand with New
Zealand’s green and pristine environment. It’s an image with powerful
appeal right across the Middle East and one NEW ZEALAND MILK
uses to great advantage in its promotions. This year NEW ZEALAND
MILK’s sales in Africa, India and the Middle East were $233 million.
of Capital Notes and a $1.02 billion issue of Eurobonds – our first major debt raising in international
capital markets.
In April 2002, we completed an agreement for the sale of our 50 per cent shareholding in New
Zealand Dairy Foods Limited to Rank Group Limited for $123 million, meeting our obligations under
the merger legislation.
PEOPLE AND PERFORMANCE
The appointment of the senior management team is now complete. A rigorous and impartial process
was undertaken to identify the capabilities required and the best individuals to provide them. The
search and recruitment process was both internal and external to the Group, and resulted in
appointments from a diverse range of backgrounds. This team has the individual and collective
strengths required to lead the Group forward.
A key priority over the current year is to build on this by ensuring that we have processes and disciplines
that promote performance over time. We have established separate programmes focused on building
a performance culture, promoting the development of talented people across the organisation and
developing people with the leadership qualities and capabilities to perform in the most senior roles.
We are working to create the Fonterra way – a culture distinctive to our organisation that encompasses
values of open and honest communication, cultivates an ethic of mutual support and help, includes
a rewards system that encourages performance and drives growth, and combines to attract and
develop the best and brightest people.
.............................................................................................................
A POINT OF ENTRY INTO INDIA NEW ZEALAND MILK entered the fast-growing Indian dairy market in March
2002 by establishing a joint venture with Britannia Industries Ltd. Britannia is based in Bangalore and has
an annual turnover of $600 million. The joint venture will market processed cheese, butter, dairy whiteners,
ghee and liquid milks. Britannia identified NEW ZEALAND MILK as having the expertise and international
marketing and product development experience needed to expand its dairy business rapidly. The joint venture
will further expand its dairy product range, having identified strong growth potential in the milks and foodservice
categories. The alliance provided Fonterra with a strategic point of entry into a market of huge potential
within the world’s fourth largest economy. India’s total dairy market is worth approximately $50 billion.
12
NEW MEXICO
United States
Tangible evidence of Fonterra’s commitment to its United States customers, the
milk protein concentrate manufacturing plant being built for the Fonterra and
Dairy Farmers of America joint venture, DairiConcepts, takes shape at Portales,
New Mexico. The $73 million plant, to be commissioned in December, will have
a capacity of 4.5 tonnes per hour of high-value protein. The US market is Fonterra’s
largest, with revenue of more than $1 billion during the year. Fonterra’s ingredients
division, NZMP, has partnerships with many major food companies and is now
part of the fabric of the huge, complex and lucrative United States food industry.
The merger involved a significant reduction in the number of management roles across the Group.
Unavoidably, the selection process brought with it uncertainty and apprehension. It is a tribute to all of
our people that we maintained business-as-usual performance, with manufacturing, distribution and
marketing continuing to meet the exacting requirements of our customers throughout this period.
We have continued an aggressive programme of acquisitions and joint ventures with other leading
dairy and food businesses, building the strength of our international network. Major steps were completed
in Europe, the Americas and Asia during the year and in Australasia since the end of the year.
We now have a wide base of real international scale – with manufacturing at 29 sites in New Zealand
and 35 in other countries, with $12 billion in total assets, and with 20,000 people around the world.
DELIVERING THE MERGER BENEFITS
We are pleased to report that Fonterra is on track to deliver the benefits set out in the business case
for the merger, with $74 million of actual gains realised by the end of the year, which will deliver $88
million on an ongoing annualised basis. We have exceeded our target for this initial eight-month
period by $43 million.
BUILDING A STRATEGY FOR THE FUTURE
Following the merger, the review of the 1998 industry strategy that led to the establishment of Fonterra
has been one of our top priorities. Fonterra’s strategy is now being refreshed under a project looking
forward over the next five to ten years, analysing trends in the international market and our own
position and expertise to determine where we will best be able to create value.
.............................................................................................................
A BOOST TO SALES IN MEXICO Fonterra was established as the leading participant in Mexico’s cheese market,
and number three in spreads, when it purchased the La Mesa and Eugenia businesses in December 2001. These
businesses market a range of dairy products manufactured at three major sites across the country, both
from local milk and imported dairy ingredients. Their major brands are LA MESA (cheese) and EUGENIA and
DELICIA (spreads). The acquisition boosted New Zealand dairy sales in Mexico by more than $200 million annually.
Mexico, with a population of 99 million, is the second largest dairy market in Latin America after Brazil.
14
SANTIAGO
Chile
With nearly 50 per cent market share in liquid milk and yoghurts and close to
two-thirds of the dessert market, NEW ZEALAND MILK’s SOPROLE brand has
been a leader in the Chile dairy industry for more than 50 years. From humble
beginnings, which included door-to-door delivery to customers by farmer
shareholders, SOPROLE has grown to become one of the country’s best-known
brands. Chile, with a population of 15 million, has a relatively low per capita
milk consumption as milk is considered primarily a children’s drink. Seeing
an opportunity to widen milk’s appeal, SOPROLE has launched a number of
product innovations to boost consumption in teen and adult market segments.
G R O W I N G T H E C O M PA N Y T H R O U G H R E S E A R C H & D E V E L O P M E N T
Research & Development is a key plank in our growth platform. New Zealand scientists enjoy a very
strong reputation for research and innovation in the dairy industry, and consolidating their knowledge
and insights under the Fonterra banner has been an important focus in our first year. With an annual
budget of close to $100 million, Fonterra is New Zealand’s largest private sector investor in Research
& Development.
Among the key initiatives in Research & Development are:
> a joint venture between Fonterra and the University of Auckland to discover biologically active
components in milk for application into new food ingredients, nutraceuticals and pharmaceuticals
> a patent application for a process to improve the yield achieved in manufacturing certain cheese products
> a range of projects undertaken by NZMP to achieve other manufacturing efficiency gains and
> NEW ZEALAND MILK’s continuing focus on development and launch of new consumer products.
Our biotechnology subsidiary, ViaLactia Biosciences, has a number of research projects aimed at longterm enhancement of dairy production.
S O C I A L A N D E N V I R O N M E N TA L I S S U E S
Fonterra is mindful of the impact of its operations on society and the environment, and these issues
are covered in more detail later in this report.
We entered into an international agreement to ensure minimum labour standards for all employees,
consistent with International Labour Organisation conventions, and to require consultation with unions
.............................................................................................................
TWO STEPS FORWARD IN THE UNITED STATES Fonterra completed two significant initiatives in the United States –
establishing the first commercial production of milk protein concentrate in that country and becoming its largest
exporter of skim milk powder. The 50:50 DairiConcepts joint venture with Dairy Farmers of America was extended
in March 2002 to encompass the expansion of an existing plant in New Mexico to produce milk protein concentrate
– an essential step for Fonterra to meet the needs of customers in the NAFTA region. In August 2001, NZMP
signed an agreement with Dairy America, a marketing company representing major US co-operatives, to export
skim milk powder from the US on commission. NZMP has the world’s most extensive dairy marketing network.
16
GUANGZHOU
China
ANMUM is a product for pregnant and breastfeeding mothers. A leading
product in the South East Asian market, ANMUM is also the number one
brand in its category in China, where the government’s one child policy has
spurred interest in health issues affecting pregnancy and post natal care. Linking
Fonterra laboratories with the marketplace, Essential Fatty Acids (EFAs)
were recently introduced in ANMUM to support the development of babies.
when major changes in business activities likely to result in job losses are contemplated. The agreement
applies globally to Fonterra and its subsidiaries.
As an active member of the New Zealand Business Council for Sustainable Development (NZBCSD),
Fonterra participates in providing business leadership as a catalyst for sustainable development.
Included in this are activities to address high youth unemployment rates, waste reduction, climate
change and sustainable development reporting.
A number of environmental issues are being addressed, including the impact of dairy farming practices
on water quality. Fonterra, the Ministry of Agriculture and Forestry, the Ministry for the Environment
and Environment Waikato (representing regional councils) reached an agreement to work together to
achieve clean, healthy waterways.
R E G U L AT O RY I S S U E S
As an international organisation operating in the food business, Fonterra is affected by an intricate
network of national and international laws, regulations, agreements and treaties – particularly in the
areas of trade access, food and environmental safety, and quality. These often have huge potential
to become trade barriers. Fonterra works with government, allied industries and international
organisations in key forums to achieve trade-friendly measures. In the latest year, the company was
active in preparations for the World Trade Organisation Doha Round of trade negotiations; the Codex
Committee on Milk and Milk Products, where international standards for milk products are set; the
New Zealand United States Council; and in shaping New Zealand’s policy on the use of gene technology.
.............................................................................................................
STRONG GROWTH PLATFORM IN AUSTRALASIA After the end of the financial year, Fonterra agreed with Bonlac
Foods of Australia to merge both companies’ consumer food products operations in Australia and New Zealand. This
will create a strong and broadly based Australasian manufacturer and marketer, with a large portfolio of successful
brands and annual sales of more than $2.3 billion. The merger is a significant advance in Fonterra’s strategic
position in its home market, bringing together the Mainland and Tip Top businesses in New Zealand with the Bonland
Dairies and Peters and Brownes businesses in Australia to create a strong growth platform. The merged business
has a brand portfolio covering milk, ice cream, cheese, butter, yoghurt, processed meats and convenience foods.
18
MEXICO CITY
Mexico
Mexico, with a population of 99 million, is the second largest dairy
market in Latin America after Brazil. Valued at $10 billion, the Mexican
market is dominated by liquid milks, which represent more than half
of dairy products sold, followed by cheese. NEW ZEALAND MILK today
has the largest share of Mexico’s $1.3 billion cheese market with its
NOCHE BUENA, LA MESA and FANJA cheese brands. It also ranks number
three in spreads with EUGENIA and FERN butters and DELICIA margarine.
GOVERNANCE
With the formation of Fonterra a new Board of Directors was appointed to govern the business and
an additional body, the Shareholders’ Council, was established with the primary responsibilities of
monitoring business performance and ensuring the interests of shareholders, as both suppliers and
shareholders, are safeguarded. The roles of the Board and the Shareholders’ Council are covered in the
Corporate Governance section on page 38 of this report.
OUTLOOK
International commodity prices show no signs of recovery after their rapid fall in recent months, and the
weakening United States dollar further depresses the payout forecast for the current year. In the longer
term, reform of the barriers and subsidies that hinder international free trade in dairy products remains
the key to sustainable improvements in commodity prices. Recent protectionist moves by the United
States government have been most unwelcome, but a new round of World Trade Organisation
negotiations and progress on bi-lateral trade agreements bring the possibility of further liberalisation.
At the core of Fonterra’s success are two things – our shareholders’ ability to produce high quality milk
in the most efficient manner; and the Group’s performance in manufacturing products of the highest
quality at lowest cost and marketing them to customers who value the benefits they bring. It is satisfying
that, at the end of our first year, we have protected our heritage and made a strong start in the new era.
Our thanks to all of our directors, management and employees who brought about the formation of
Fonterra and have since worked hard to set the new company on its course.
JOHN ROADLEY, Chairman
20
CRAIG NORGATE, Chief Executive Officer
MELBOURNE
Australia
The MAINLAND brand first appeared in 1954 and the business has grown
to become one of New Zealand’s largest food operators, supplying close to 50
per cent of chilled foods in New Zealand supermarkets. In Australia, MAINLAND
is the number two cheese brand and is sold through Bonland Dairies, the domestic
market leader in retail cheese, dairy spreads and milk powders. The dynamic
Australian consumer dairy products market is valued at almost $7 billion.
operating review
NZMP
Revenue $million
7,766
EBIT $million
301
Performance Summary
Total Assets Employed $million
7,259
Excludes sales to NEW ZEALAND MILK
Total Permanent Employees
6,894
Total Volume Sales (000 tonnes)
Total New Zealand Milk Processed
1,532
1,080 million kgms
The largest business within the Fonterra Group, NZMP is itself the world’s biggest dairy ingredients organisation.
The scope of its operations is huge, encompassing milk collection from 13,000 suppliers, the manufacture and
packaging of more than 1,000 product specifications and the operation of a global supply chain linking production
plants in New Zealand and offshore with customers in more than 100 markets around the world.
Amongst NZMP’s customers are some of the world’s most successful marketers of consumer milk products – such as
Nestlé, Dumex, Kraft and NEW ZEALAND MILK.
NZMP supplements its range with product sourced from third parties, thus improving its service while creating
additional value for its shareholders.
Revenue for the year was a record $7,766 million and EBIT was $301 million.
TRADING CONDITIONS
International dairy prices, which started the season very high, dropped away rapidly midway through the season and
have continued to fall since. Global dairy consumption, production and stock levels are the three factors that interact
to set world prices. A slowing of the world economy, coupled with high dairy prices, combined to reduce consumer
demand for dairy products. Simultaneously, record levels of production from New Zealand and increasing exports from
Australia, Argentina and a number of other nations meant an abundance of product for sale on the world market.
Decreased demand and increased availability resulted in a build-up of stock, particularly in the European Union and
United States, which responded by increasing subsidies to reduce their stock levels. This caused world prices to fall.
When prices fall, customers tend to postpone purchases in anticipation of further reductions. This increases pressure
for further rises in EU export subsidies, which drive prices lower again, initiating a downward spiral.
Price drops are eventually passed on to end consumers, who respond to them by increasing demand for dairy products.
This increased demand restores confidence to the international market, and prices stabilise and start to rise. At this point,
sensing that prices are about to increase, customers tend to stock up and the cycle is reversed.
Sale prices in the international dairy market are typically agreed three months ahead, resulting in a lag effect from
commodity price movements.
Consequently, the outlook for next season remains uncertain and will do so until the market shows some signs
of bottoming out.
22
O P E R AT I N G R E V I E W
NZMP Sales Volume
000 tonnes
NZMP Sales Revenue
336
$ million
1,831
464
2,741
530
153
579
2,664
Americas
Americas
Asia
Rest of World
Asia
Rest of World
Americas
The consolidation of our United States companies was completed during the year, delivering a leaner, flatter network
infrastructure that is already delivering substantial savings. Tangible evidence of NZMP’s strengthening relationship
with Dairy Farmers of America (DFA) was provided by the decision to move into milk protein concentrate manufacture
in a joint venture at DFA’s Portales, New Mexico site. Driven by strengthened key customer relationships, the existing
joint ventures with DFA – DairiConcepts and Greenwood Valley Cheese – delivered record performances. Despite lower
milk powder returns in Latin America, reflecting lower international prices, total sales revenues and volumes across the
region exceeded budget.
Europe
Significant organisational design steps undertaken during the year have positioned NZMP for future growth in a region
that includes the high-value markets of Europe and the rapidly expanding markets of Africa. Sales in Europe were
marginally ahead of budget.
Asia
Despite a number of economies in the region being in recession and high prices in the first half of the year negatively
affecting demand, there were some significant performance highlights. In Japan, where the market was negatively
affected by the flat economy, Nippon NZMP Ltd achieved record volumes. In China, NZMP maintained its leading
position in the milk powder sector, and following the Chinese Government’s entrance into the World Trade
Organisation our local business is well placed for further growth in a market of critical importance. Also in China,
technology developed in Europe by NZMP and further refined in Latin America is being used by a customer to
manufacture Petit Suisse desserts from New Zealand-supplied ingredients.
NZMP has moved since year-end to take 100 per cent ownership of its Korean joint venture NZMP (Korea), and the
company has already strengthened its position in the growing specialty ingredients market sector.
23
Middle East
Difficult market conditions characterised the sales year. Trade barriers of various types coupled with a relatively soft
market in Algeria kept regional sales just below budget. In the key Arab markets of Saudi Arabia, Jordan and Oman,
sales were well above budget.
Australasia
NZMP (NZ) was formed from the local market ingredients businesses of the Fonterra legacy companies New Zealand
Dairy Group and Kiwi Co-operative Dairies, achieving significant merger benefits. The new company has a strong
customer service ethic and is concentrating on further development of key customer relationships.
MERGER
Manufactured Product Mix: New Zealand
000 tonnes*
NZMP was the operating business most affected
342
by the formation of Fonterra. The milk collection,
manufacturing and New Zealand ingredient sales
816
157
operations of Kiwi Co-operative Group and the New
24
Zealand Dairy Group were combined with the New
Zealand Dairy Board’s distribution and ingredient sales
408
operation (also called NZMP). Removal of the artificial
interfaces between these groups and the ability to
plan production from milk collection through to final
Milk Powders
Lactose
Cream Products
Protein Products
Cheese
*Excludes local market milk
customer were targeted as key benefits of the merger.
Immediate priorities following the merger were to create the organisation structure that best suited the new business
and to implement a common set of information systems and planning tools across the entire business. NZMP has four
key operating units based on the flow of product from cow to customers:
>
Manufacturing & Milk Supply is responsible for milk collection and product manufacture
>
Global Supply Chain facilitates the planning processes and international distribution
>
Global Sales is responsible for sales to multinational customers
>
Global Network has offices or sales agents in most markets, dealing with customers at a local level.
Merger benefits of $30 million were targeted for NZMP for this season. This has been well exceeded, with $71 million
already captured. The major gains were from in-market profitability, improved manufacturing product mix and
improved purchasing terms.
M A N U FA C T U R I N G & M I L K S U P P LY
The fundamental requirement of Manufacturing & Milk Supply is that it collects milk from shareholders and processes
it into top quality products at the lowest possible cost. Over the season a total 1,080 million kgms were processed into
1.7 million tonnes of dairy products.
Growth in milk supply requires an ongoing programme of investment in manufacturing plants. During the season
new milk powder and lactose plants were built at Clandeboye (Canterbury), the cheese plant at Stirling (Otago) was
24
expanded and a whey plant was added to the cheese plant at Lichfield (Waikato). In addition, a new milk powder
plant in Edendale (Southland) and a butter plant at Clandeboye (Canterbury) are due to come into production in
September 2002.
Manufacturing and milk supply made a significant contribution to merger savings. Key areas of benefit included
closure of blending facilities at Inglewood and Pahiatua and rationalisation of butter patting between Whareroa
and Te Rapa, with each site specialising on key product lines. In milk collection, removal of historical collection
boundaries and the implementation of a new tanker scheduling system has led to significant savings in collection costs.
Product grading was slightly down on the previous year, with 17 plants achieving target quality performance compared
with 19 in the previous season.
An explosion at the energy centre of the Waitoa plant last September put pressure on both manufacturing and milk
transport. Teamwork throughout our factories ensured that milk was able to be moved to other plants to be processed.
With the rapid change in international market prices, increased quantities of milk were moved between manufacturing
sites in order to change the mix of products manufactured to better take advantage of market prices.
Further enhancements to milk collection were implemented at the end of the year. A centralised scheduling system
determines the best travel routes for each tanker by processing previous data on milk flow, the product mix planned
at manufacturing sites, fleet location and supplier locations. The technology utilises the GPS location of each supplier
and takes into account road contours when determining routes and travelling times.
G L O B A L S U P P LY C H A I N
The formation of Fonterra has allowed management of the supply chain to be extended from milk collection to
customer delivery. Management systems are now being developed to allow customers to be aligned directly with
production sites. Competitive tensions meant that such initiatives were not possible prior to the merger. Order
processing, which was centralised in Wellington, is being decentralised into the appropriate manufacturing sites.
Although it has begun only recently, the benefits of this programme are already being realised. The improved
communication and understanding that is developing between manufacturing and supply chain staff is allowing more
rapid response to customer requests and issues.
T H I R D PA RT Y S A L E S
NZMP uses product sourced from third parties to complement New Zealand dairy products and to enable them to
provide customers with a more complete service. Third party product is used to cover supply shortfalls and to meet
demand for product not manufactured in New Zealand.
Sales of third party products totalled 151,000 tonnes.
S T R AT E G I C S A L E S I N I T I AT I V E S
Sales initiatives within NZMP are focused on new product opportunities and opportunities to manufacture profitably
internationally, where this complements our existing business.
Whey Protein Isolate, a specialised powder containing 90 per cent whey protein, is manufactured at Hawera and sold
into nutritional markets. The product is manufactured using technology jointly developed by the Fonterra Research
Centre and Massey University. Advances in this technology over the past year have allowed production to be increased
by 67 per cent with no material capital investment, giving rise to efficiences. In addition, fractionation technology has
25
enabled a rapid response to customer requests for new and specialised products. Customised development of products
in this manner enables NZMP to lock in customer demand and enhance profitability.
In October 2001, NZMP received approval for the joint venture with Dairy Farmers of America to buy a manufacturing
plant in Portales, New Mexico (USA). The plant is to be modified to allow the manufacture of MPC70, a specialised
ingredient sold to multinational food manufacturers whose preference is to source this product locally within the
US. The purchase of the Portales plant allows NZMP to fulfil this requirement and continue to grow the business.
After an extensive study of the global opportunities for organic dairy produce, the decision was taken to enter the
market with an organic cheese product. This is a first step in establishing a portfolio of organic products. Market
demand for organic products is largely from markets where trading barriers restrict NZMP’s ability to sell; and
while there is a significant price premium at the retail level, the premium that organic ingredients receive is likely
to be smaller. Given the three-year period it takes farmers to be certified as organic, this opportunity is being
approached cautiously.
NEW ZEALAND MILK
Revenue $million
Performance Summary
EBIT $million
Total Assets Employed $million
Total Permanent Employees
5,583
302
3,607
12,583
NEW ZEALAND MILK is Fonterra’s fast-moving consumer goods business.
It leverages New Zealand’s positive environmental image and a reputation for quality carefully nurtured over the years
to create value for its farmer shareholders.
The business has a number of high-profile global brands in its portfolio, such as ANCHOR, ANLENE, FERNLEAF and
CHESDALE, and strong regional brands such as SOPROLE (Chile), MAINLAND, PETERS & BROWNES and BEGA
(Australia) and TARARUA, MAINLAND, MEADOWFRESH and TIP TOP in New Zealand.
NEW ZEALAND MILK’s primary business operations are in sales, marketing and distribution. Additionally, it owns and
operates plants in a number of countries – notably in Latin America and Asia – which pack bulk dairy and non-dairy
products into branded consumer presentations.
In the year under review total NEW ZEALAND MILK revenue was $5,583 million and EBIT was $302 million.
TRADING CONDITIONS
NEW ZEALAND MILK tends to be counter-cyclical to the rest of Fonterra’s business. It is more profitable when payout
is low and less profitable when payout is high. This occurs because NEW ZEALAND MILK buys its raw materials, bulk
dairy products, at prevailing international dairy prices but sells into retail markets which tend to react more slowly to
changes in international prices.
26
NEW ZEALAND MILK Regional Revenue
$ million
NEW ZEALAND MILK Regional EBIT
$ million
14
815
1,781
105
93
1,833
1,154
90
Americas
Americas
Asia
Rest of World
Asia
Rest of World
Excludes local market milk
Excludes local market milk
The high international prices that prevailed over most of the season constrained EBIT, but with prices having dropped
toward the end of the season EBIT for next season is forecast to be substantially higher.
Australasia
Amalgamation of the different businesses was a key theme throughout the year. Post merger integration of Bonland,
formed from the merger in the previous year of Mainland Australia and Bonlac Foods’ Australian consumer business,
achieved synergy benefits in excess of those expected.
Mainland Products (NZ), Peters and Brownes and Tip Top were successfully brought together during the year to form
Australasian Food Holdings Limited (AFHL).
As part of the post merger integration of AFHL, a “Performance Ethic” project was launched late in the year. This is a
pilot for other projects within the Fonterra group, aimed at building a stronger performance ethic into the
organisation’s culture by systematically identifying and prioritising opportunities to increase EBIT.
EBIT for the region exceeded budget despite revenue being slightly below target.
Americas
Revenue and EBIT targets were achieved despite currency devaluations in Venezuela and Chile. Over 20 per cent of
revenue was derived from products launched within the past five years, driven mainly by new product launches in
Chile and Venezuela.
Fonterra’s acquisition of the La Mesa and Eugenia cheese and spreads businesses resulted in significant growth in Mexico.
Asia
EBIT was well up on budget, despite sales being slightly down on budget due to recession within most Asian
economies. Sales growth was driven by several key markets: Malaysia, Indonesia, the Philippines and Taiwan.
The Growing Up Milk sector was an outstanding success, achieving high margins and significantly offsetting reduced
revenues from the declining sales in the traditional full-cream milk powder sector.
27
Europe
Revenue and EBIT were in line with budget performance despite the fundamental restructuring of the business. In
March 2002, the UK business was moved into the joint venture between Arla Foods and Fonterra.
Africa, India & the Middle East
Aggressive competitor activity and an unsettled political environment in the Middle East made for a challenging year
for the region, with sales and EBIT below budget.
ANCHOR 1 Plus was launched successfully in the Growing Up Milk powder category, and good progress was made
in the milk powder and processed cheese sectors in Saudi Arabia and the United Arab Emirates.
Fonterra’s acquisition of a 49 per cent holding in
Britannia New Zealand Foods India provides an entry
Sales Revenue by Market Segment
point into the large Indian dairy market.
per cent
14
29
NUTRITION FOR LIFE
15
The fundamental marketing strategy of NEW
ZEALAND MILK is ‘Nutrition for Life’ – a strategy
17
25
founded on the vision of providing consumers with
products that will provide them with nutrition for
their current life stage. The product offering includes
Powders
Milk & Beverages
Cheese
Cream, Butter & Spreads
Other
a range of milk powders specially developed to meet
the nutritional needs of expectant women, breastfeeding mothers and children. The range includes products such
as ANLENE with added calcium, helping to overcome bone health problems such as osteoporosis.
The range continues to expand. Additions this year included a new milk/juice product, flavoured teas and fresh white
cheeses in Venezuela; the teen energy drink NETTO and flavoured HUESITOS (little bones) in Chile; and in Asia,
expansion of the ANLENE range to include Clinically Proven ANLENE. Sales increases averaged 20 per cent in the four
countries into which Clinically Proven ANLENE was introduced.
MERGER RESTRUCTURING
The formation of Fonterra resulted in the establishment of NEW ZEALAND MILK as a stand-alone business unit. The
process of separating NEW ZEALAND MILK and NZMP was started by the New Zealand Dairy Board, and allows
performance of the individual business units to be measured with greater accuracy than was previously possible. A
requirement of the Dairy Industry Restructuring Act was the divestment of New Zealand Dairy Foods, the consumer
business of the New Zealand Co-operative Dairy Company, which was completed in June 2002.
ON YOUR MARKS
Process improvement and innovation remain central to NEW ZEALAND MILK’s performance. On Your Marks was
launched in the top 10 operating companies within NEW ZEALAND MILK to improve operating performance. On Your
28
Marks focuses on implementing a number of world-class processes in areas such as sales and marketing, new product
development and operational sales planning. It is on track to lift EBIT by almost $50 million over the next three years.
S T R AT E G I C D E V E L O P M E N T S
NEW ZEALAND MILK’s involvement in the formation of Fonterra and subsequent initiatives have had a significant
impact on its structure and strategic capability:
>
Following establishment of the alliance with Nestlé in the Americas, the immediate priorities are Argentina, Brazil,
Paraguay, Uraguay and Venezuela, and work is ongoing to finalise joint ventures in these markets.
>
The formation of AFHL and the subsequent merger post balance date between it and Bonland provide a significant
home market in New Zealand for a full range of dairy products, and diversification for NEW ZEALAND MILK in the
Australian market.
>
>
The joint venture with Britannia Industries in India provided entry to a growth market.
A joint venture was formed post balance date with Ostankino in the Commonwealth of Independent States (CIS)
to manufacture and distribute dairy blends.
>
Fonterra’s acquisition of the La Mesa and Eugenia businesses in Mexico increased the range of product offerings,
lifted market penetration and improved profitability.
>
The formation of a joint venture with Arla in Europe enabled the rationalisation of the business in a declining
yellow fats market.
>
Our 30 per cent share in Philippines Dairy Products Corporation was divested post balance date.
C O R P O R AT E A N D O T H E R
S H A R E H O L D E R S E RV I C E S
Shareholder Services, which maintains the primary interface with our supplying shareholders, is in the process of
moving to Auckland from the facilities previously operated by the legacy companies. Included in this team are Farm
Liaison Officers providing direct shareholder support and assisting with on-farm issues and concerns; a Call Centre
providing seven-day per week response to shareholder enquiries; and Fencepost.com, a rural information website that
provides access to web-based farm management tools.
The formation of Fonterra has seen the roll-out of ASPIRE, our milk payment system, across the entire organisation
and the implementation of a new tanker scheduling system that optimises tanker collection routes to minimise
transport costs. Relocation of the Shareholder Services Centre and implementation of these new systems has caused
some disruption to service levels experienced on-farm. Considerable effort is being applied to remedy this position
as soon as possible.
RD1
RD1 was formed at the end of the year from the merger of RD1.com and Town & Country Agri-centres, our two rural
supply companies. With revenue exceeding $440 million, RD1 is New Zealand’s largest retailer of agricultural supplies
to dairy farmers. It operates a network of 51 stores throughout New Zealand, with two new stores opened during
the year in Oamaru and Gore.
29
people
People are fundamental to the success of any business.
Having the right people, setting expectations around
behaviour and performance and creating a culture and
environment where they can thrive are the foundations
for success.
RECRUITING THE BEST
From the outset Fonterra has been committed to recruiting
the highest calibre team, starting with the appointment
of the Chief Executive Officer and top five executives,
which was completed shortly after Fonterra’s creation.
Recruitment was based on a rigorous process undertaken to identify key strengths and weaknesses of each
candidate. Candidates were independently assessed against a range of pre-defined criteria and subsequently
compared to a global database of executive performance information. This process was critical in making the
right appointments, and also provides a basis for the ongoing development of our people.
Fonterra needs to be able to attract the best people. Of the top 60 executives, around 20 per cent were recruited
from outside the industry – confirmation that people are excited by the opportunity and want to participate in
seeing the full potential of Fonterra developed.
B U I L D I N G A P E R F O R M A N C E C U LT U R E – P E R F O R M !
PERFORM! is a system developed to establish and monitor expectations around behaviour and performance
throughout Fonterra. It ensures that staff have clear goals and objectives, linked to the organisation and business
unit objectives, and that they understand what is expected of them and get the feedback and support needed
to deliver on these expectations. It provides a consistent and objective process for assessing individual
performance and linking it to rewards and development.
PERFORM! is based on establishing individual objectives and providing quarterly feedback on performance and
an annual performance assessment – all of which is linked into remuneration and development reviews.
HELPING PEOPLE THRIVE – GROW!
An environment that encourages excellence and targeted personal development
allows people to reach their full potential. GROW! is the process used to assist
this process. Its purpose is to identify talented people throughout the organisation
and track their ongoing development and deployment to enable them to achieve
their potential. It is based on individual self-assessment and assessment by managers.
30
PEOPLE
FONTERRA LEADERSHIP PROGRAMME
These processes alone will not deliver top-level performance without the support of a capable and committed
world-class leadership group. A comprehensive Fonterra leadership programme is being implemented. Focused
on the top 200 managers within Fonterra, it combines the latest thinking on leadership with a sound business
focus, to provide Fonterra’s leadership with a relevant, leading edge programme.
S U P P O RT E D B Y C O M M O N VA L U E S
Shared values define the culture of an organisation and underpin the behaviours, policies, decisions and actions
that take place. Core values are being developed which will be the basis of aligning behaviours, decisions and
actions across the organisation.
An Ethics Committee is being established to oversee policy and programme
development relating to ethics. The aim of the Committee will be to develop
policies and programmes to enhance the understanding amongst all Fonterra’s
people of ethical principles and the way they apply in our day-to-day activities.
INTERNATIONAL COMMITMENT TO EMPLOYMENT STANDARDS
In April 2002, Fonterra signed an agreement with representatives of the international union movement to
maintain minimum employment standards and to consult with unions over major changes in business activities
likely to result in job losses.
The agreement was signed by Fonterra, the International Union of Food, Agricultural, Hotel, Restaurant,
Catering, Tobacco, and Allied Workers’ Association and the New Zealand Dairy Workers’ Union Incorporated.
It was witnessed by the Director General of the International Labour Organisation (ILO) and the New Zealand
Minister of Labour. It applies globally to
Fonterra and its subsidiaries, and requires the
company to advise joint venture partners
of its obligations.
The agreement commits Fonterra to respect
the principles in several ILO conventions,
including the rights to freedom of association
and collective bargaining. It also commits
the company to provide safe and healthy
working conditions, and not to use child
labour or forced or compulsory labour, or
discriminate against any person in respect of
his or her employment.
31
research & development
In an increasingly competitive world, innovation is the key to long-term competitive advantage. Innovation
thrives in an environment where ideas and knowledge can be freely exchanged, where people from diverse
roles and backgrounds can use their combined experience to fulfil customer needs. The formation of Fonterra
allows this to happen in a way not previously possible in the New Zealand dairy industry, with manufacturing,
marketing and Research & Development now part of the same organisation.
Fonterra is New Zealand’s largest private sector investor in Research & Development, with an annual budget of
close to $100 million. In addition, Fonterra receives government funding of around $5 million via the Foundation
for Research Science and Technology (FRST).
Major research providers within the Fonterra group are the Fonterra Research Centre and ViaLactia Biosciences.
Fonterra Enterprises and FonterraTech also have related roles in fostering the creation of new businesses
using technologies developed within other parts of Fonterra or brought in from elsewhere. Through these
businesses, Fonterra also has close contact with New Zealand’s Crown Research Institutes, and with universities
both locally and internationally.
FONTERRA RESEARCH CENTRE
The primary Research & Development business within
Fonterra is Fonterra Research Centre, supporting
innovation in both dairy products and dairy product
manufacture. As the New Zealand Dairy Research Institute,
it had a 75-year history of service to the New Zealand
dairy industry and an international reputation for its work.
During the year, FRST approved funding of $5 million over
four years for work on protein research. The proposed
work seeks to further our understanding and expertise in
the area of milk proteins, and includes topics such as the impact of ultra high pressure on protein structures and
interactions, the use of NMR (Nuclear Magnetic Resonance) spectroscopy to measure viscosity, and interactions
between milk proteins and food ingredients derived from seeds (such as cereals or peas).
LactoPharma, a joint venture between The University of Auckland and Fonterra Research Centre, was
established at the end of the year – again, with funding assistance from FRST. The venture aims to discover
bioactive components in milk that yield specific health benefits, with an initial focus on the areas of enhanced
immunity and bone health. The programme should ultimately result in the discovery of new food ingredients and
nutraceuticals and provide leads for new drugs.
DR10™ is the brand name for a probiotic bacteria identified through a five-year research programme conducted
jointly by the New Zealand Milk & Health Research Centre and the New Zealand Dairy Research Institute. Probiotics
is the term used to describe bacteria that have beneficial health effects – in this case clinical studies showed that
consumption of products containing DR10™ enhances immunity against intestinal infections, promoting good
32
RESEARCH & DEVELOPMENT
health. DR10™ was first launched commercially by NEW ZEALAND MILK in a milk
powder product called FERNLEAF DEFENSE™. During the year, NZMP licensed
Danisco, one of the world’s largest producers of food ingredients, to sell the DR10™
bacterium in selected markets. DR10™ is sold in frozen and freeze dried form under
the brand name HOWARU™.
New product development is the outcome of many research projects, where
science and marketing meet to satisfy the needs of consumers. Milk powder fortification has been a recent focus,
adding vitamins, minerals or other supplements into milk powder to give health or nutritional benefits. While the
concept is simple, fortified milk powders must still satisfy key requirements such as taste, solubility and shelf life.
Examples of product development work include Growing Up Milk Powder (GUMP) and ANMUM. Following the
launch of GUMP by NEW ZEALAND MILK two years ago, a range of products were rolled out into a further 13
markets and new flavour variants (chocolate and honey) were also introduced.
ANMUM is a leading product in the South East Asian market, designed for pregnant and breastfeeding mothers.
The product benefits were further enhanced with the addition of Essential Fatty Acids – food compounds that
enhance baby development. For both GUMP and ANMUM, continuing research led to improvements and cost
reductions in the manufacturing process.
VIALACTIA BIOSCIENCES
Biology underpins the dairy industry, both in on-farm production and in dairy product manufacture.
Biotechnology is the tool that allows us to examine and modify biological systems, either using natural means
or more advanced tools, including the responsible use of genetic modification. ViaLactia Biosciences uses
biotechnology to develop and commercialise new tools and products for the dairy industry, through bovine,
forage and rumen research programmes.
The bovine research programme provides Fonterra with the ability to monitor and develop science that can
influence milk production, composition and animal health issues. This technology has been used to identify a
specific gene that affects the ratio and volume of milkfat and protein production. ViaLactia has filed a patent
protecting its right to use this gene and will use this to commercialise its first product – a genotyping test that
will allow individual animals to be tested for the presence of this gene.
ViaLactia fully sequenced the rye-grass genome last year as part of the forage research programme. New
Zealand’s position as a low cost milk producer is founded on pasture-based production. The knowledge gained
from the genome will enhance the process of natural selection to allow pastures to be developed using
conventional means, for traits such as drought or temperature resistance.
Rumen bacteria assists in the process of breaking grass down into nutrients that can be readily digested.
By-products of this digestion are the harmful greenhouse gases methane and nitrous oxide. ViaLactia’s rumen
research programme uses state-of-the-art molecular techniques and genomics to understand and improve the
digestive process, aiming to reduce production of greenhouse gases.
33
environment
Fonterra is committed to ensuring that it carries on its business in an environmentally responsible way, and works
actively with suppliers to ensure that this commitment is met. The environment is critical to the livelihood of our
supplier shareholders, and New Zealand’s clean, green image is widely recognised and valued by our customers.
M A N U FA C T U R I N G O P E R AT I O N S
Treatment of wastewater and greenhouse gas emissions are key areas of environmental impact that are the focus
of current work. Wastewater treatment facilities are standard at all Fonterra manufacturing plants and subject
to regular capital investment along with milk processing
facilities. Over the past season upgrades or improvements
were carried out at the Edendale, Hautapu and Te Rapa sites.
More importantly, investments in Whey and Lactose
processing facilities at Lichfield and Clandeboye mean the
elimination of entire waste streams – instead these are
processed into profitable products.
The key to reducing greenhouse gas emissions from
manufacturing is to build increasingly energy efficient plants.
Improvements are incorporated into the design of new
plants and include features such as more energy efficient
evaporation technology, reuse and regeneration of cleaning chemicals, and cogeneration plants that increase
energy efficiency by generating electricity from steam produced to operate our plants. In milk collection,
increasingly sophisticated scheduling tools being used to minimise the distance travelled by milk tankers reduce
the amount of diesel fuel consumed.
Fonterra Research Centre is an active participant in this work, collecting benchmark data on energy use and
researching new technologies that increase energy efficiency.
O N - FA R M
Fonterra is working with its supplier shareholders to educate and assist
with the adoption of environmentally sustainable farming practices. A
full-time On-Farm Environmental Manager assists with identification of
issues and solutions at a local farm level, helping individual farmers to
develop practical solutions and adopt practices of the highest standards.
The responsibility for on-farm work is shared with other stakeholders.
Fonterra works with government agencies, local authorities and other organisations on initiatives aimed at
reducing the impact of dairying on New Zealand’s environment.
34
ENVIRONMENT
The Market Focused Programme, an environmental quality system developed by
the Fonterra Research Centre, is being promoted to supplying shareholders to
assist them in meeting their environmental obligations. Environmental and
animal welfare guidelines have been established to ensure that New Zealand
on-farm practices do not endanger any of our export markets and to address
issues of national importance to the dairy industry and wider public.
Fonterra Research Centre has established Monitor Catchment Studies in the major dairying regions of New
Zealand. The project is monitoring soil and water quality in these areas and improving on-farm practices to
lift environmental performance. It is linked with a long-term study being undertaken by Lincoln University to
clarify the links between farm management practices and environmental impact.
Fonterra has taken a leading role in establishing a consortium with other New Zealand agricultural organisations
and research providers to undertake research into methods to reduce emissions of methane and nitrous oxide
from farm animals. This work is being assisted with funding from the New Zealand Government via the
Foundation for Research Science and Technology.
PA C I F I C B A S I N E C O N O M I C C O U N C I L E N V I R O N M E N TA L AWA R D S
Fonterra was one of six finalists chosen for this year’s environmental award. The Fonterra entry highlighted work
undertaken at manufacturing sites to reduce their environmental effect through reductions in product losses,
water and chemical use, and the volume and loading of organic wastewater.
N E W Z E A L A N D B U S I N E S S C O U N C I L F O R S U S TA I N A B L E D E V E L O P M E N T
Fonterra is an active member of this business council – a group of leading New Zealand companies that acts as
a catalyst for change toward sustainable development, promoting eco-efficiency, innovation and responsible
entrepreneurship. We are actively involved in the council’s key projects, targeted at issues such as climate
change, zero waste, school partnerships, sustainable development reporting and youth unemployment.
35
Richard Booth
Mark Townshend
Harry Bayliss
Gerard Lynch
John Hood
Henry van der Heyden
Graeme Hawkins
board of directors
John Roadley
Chairman
John Roadley is Chairman of Fonterra
Co-operative Group Ltd and was formerly
Chairman of the New Zealand Dairy Board.
He was previously Chairman of Alpine Dairy
Products and led that company’s successful
merger with Southland Dairy Co-operative
to form South Island Dairy Co. When
that company later merged with the
New Zealand Dairy Group, he became a
director and later Deputy Chairman of
the Dairy Group.
Mr Roadley grew up on a dairy farm near
Maungaturoto, north of Auckland, where
he began farming. In 1980, he purchased
a 149 hectare property near Ashburton.
Growth and acquisitions over the past
20 years have seen Roadley Farms moving
towards 1,000 hectares split into three
farms with 2,200 cows.
Greg Gent
Deputy Chairman
Greg Gent was Deputy Chairman of the
New Zealand Dairy Board and has been a
director of Northland Co-operative Dairy
Company since 1993. In 1994, he became
Deputy Chairman, and he assumed the
Chairmanship in 1995. He joined the Kiwi
Co-operative Dairies Board following the
Northland/Kiwi merger in 1999 and
became Chairman of Kiwi in 2000. He was
appointed to the board of the New Zealand
Dairy Board in 1999.
36
He began his career working for the Bank
of New Zealand in 1972. After five years
he made the move into dairying, with 380
cows on his farm at Ruawai, Northland.
Richard Booth
MBA (Massey)
Richard Booth was elected a director of
Northland Co-operative Dairy Company in
1992, after being a supplier representative.
In 1996, he became a director of the New
Zealand Dairy Board. He became a director
of Kiwi Co-operative Dairies last year.
His farming interests are located at Titoki,
near Whangarei in Northland, where he
runs 370 dairy cows, 50 head of bull beef
and areas of pine plantation.
Mr Booth completed a Diploma in
Agriculture in 1978 and an Executive MBA
in 1998, both at Massey University.
Mark Townshend
Mark Townshend was appointed to
the Board of Directors of New Zealand
Dairy Group in September 2000 and the
New Zealand Dairy Board in January
2001. He is the Chairman of six farming
companies and a director of Liberty
Genetics. He has been farming for the
past 30 years. Currently he owns two
dairy farms and has equity partnerships
in a further eight farms, covering a total
of 6,000 cows. In 1997 he became
the inaugural national winner of the
FMG Excellence in Farming award.
Harry Bayliss
B Ag Sc (Massey)
Harry Bayliss was elected to the board of
Kiwi Co-operative Dairies in 1988 and
became Deputy Chairman in 1994, a
position he held until 2000. He became a
director of the New Zealand Dairy Board
in 1995 and was Deputy Chairman of the
Board from 1999 to 2000. He also served
on the Dairy Meats Board from 1995 to
1999 and became a director of the
New Zealand Dairy Research Institute in
1997. He is currently Chairman. He is also
a director of ViaLactia Biosciences.
His farming interests have centred around
coastal Taranaki for more than 20 years,
which started with the purchase of a dairy
farm in Otakeho in 1981 after five years
sharemilking. Expansion of this holding has
continued ever since.
He has a Bachelor of Agricultural Science
degree from Massey University.
Gerard Lynch (retired)
B Agr Sc (Hons) Massey, MBA (dist) Cornell
Gerard Lynch was elected to the Kiwi
Co-operative Dairies Board in 1997.
He served on the Fonterra Board until his
retirement in May 2002.
The 1983 Skellerup Young Farmer of the Year,
he currently farms 225 hectares at Maxwell
near Wanganui and milks 550 cows. From
1984 until 1992 he was employed at
Massey University as Dairy Farms Supervisor
and Associate Member of Agricultural
and Horticultural Systems Management
Department.
He was awarded the 1992 New Zealand
Harkness Fellowship and completed a
Master of Business Administration with
Distinction from Cornell University in 1994,
specialising in co-operative governance
and management, and international
agribusiness marketing and finance.
John Hood
BE, PhD, MPhil (Oxf.)
John Hood has been Vice-Chancellor of The
University of Auckland since February 1999.
His other responsibilities include Chairman
of Tonkin and Taylor Ltd, director of ASB
Group Limited and ASB Bank Limited,
director of Universitas 21 Ltd, trustee of the
Asia 2000 Foundation, Secretary for the
Rhodes Trust, and member of the Prime
Minister’s Growth and Innovation Advisory
Group. He is a former director and Chairman
of many other companies and organisations.
From 1979 Dr Hood was employed by
Fletcher Challenge Limited, where he rose
to be Chief Executive of the Building
Industries Group before becoming Chief
Executive of Fletcher Challenge Paper. He
retired from Fletcher Challenge in 1997.
Dr Hood is a Rhodes Scholar.
BE (Hons) (Lincoln)
Henry van der Heyden was Chairman of
New Zealand Dairy Group, and a director of
the New Zealand Dairy Board since 1997.
Marise James
Greg Gent
He joined the New Zealand Dairy Group
in 1992 as a director of the company,
consolidating a strong interest and
background in the industry. He was
appointed Deputy Chairman in October
1998 and Chairman in October 1999.
He began his farming career sharemilking
in the Putaruru/Tokoroa area, where he
purchased a farm in 1985. He is still on
the property and has expanded the holding
from its original 90 hectares to 110
hectares. He milks approximately 320 cows.
He owns three other dairy farms in the
area and a dry stock holding.
Mr van der Heyden has a Bachelor
of Engineering (Agr) with Honours from
Lincoln University.
Graeme Hawkins
BSc, BCom, ACA
Graeme Hawkins is Chairman of Robinson
Industries Ltd and a director of a number
of other companies including Ballance
Agri-Nutrients Co-operative Ltd, Cavalier
Corporation Ltd and Tower Managed Funds
Ltd. He is a former director of Bay Milk
Products Ltd and Northland Co-operative
Dairy Company Ltd.
His business experience includes 13 years
with the Fletcher Group in a variety of
strategic planning and financial roles,
including an 18 month secondment to the
Prime Minister’s Advisory Group. He then
worked for Dominion Breweries for
eight years, becoming CEO in 1987.
John Roadley
Murray Flett
He has been a professional director for
the past 10 years.
Mr Hawkins has a Bachelor of Science and
Commerce degree and is an Associate
Chartered Accountant.
Marise James
BBS, CA
Marise James was elected to the Kiwi
Co-operative Dairies Board in June 2000
and appointed to the board of Dexcel at
the same time.
Mrs James has farming interests involving
230 cows on 75 hectares at Ratapiko in
central Taranaki, and 220 cows at Urenui in
North Taranaki, having owned this farm for
six years after six years sharemilking.
She is a practising Chartered Accountant,
specialising in farm planning. She was
selected as a Nuffield Scholar in 1998 and
studied co-operative structures in Europe,
Britain and the USA.
Murray Flett
B Com Ag (Lincoln)
Murray Flett was a director of New Zealand
Dairy Foods, New Zealand Dairy Group and
Southern Health Limited.
He is also part owner in Kerry Industries
Limited, an agricultural product importing
and marketing company. Mr Flett
purchased his own 100 hectare dairy farm
in 1988 and has expanded his farming
interests with two farms currently milking
950 and 500 cows respectively.
Earl Rattray
Jim van der Poel
He holds a Bachelor of Commerce and
Agriculture degree in economics and marketing.
Earl Rattray
B Agr Econ (Massey)
Earl Rattray was first elected a Director of
the New Zealand Dairy Group in 1995,
and has served as a director of the
New Zealand Dairy Board and the
New Zealand Dairy Research Institute.
He is currently a director of Dairy InSight
New Zealand, and is a trustee of the
Anchor Superannuation Fund.
Mr Rattray farms 150 hectares at Honikiwi
near Otorohanga. Prior to dairy farming,
he spent five years working as an
economist for the New Zealand Meat and
Wool Economic Service in Wellington.
He holds a Bachelor’s degree in Agricultural
Economics from Massey University and is a
member of the Institute of Directors and
Institute of Primary Industry Management.
Jim van der Poel (from June 2002)
Jim van der Poel was elected to the
Fonterra Board at the recent director
elections. He was also a director of
New Zealand Dairy Group from August
1999 serving on the Audit Committee,
Growth Milk Committee and Chairing the
Supplier Relations Committee.
He is a director of Dexcel and a number
of private companies in which he is a
shareholder.
David Hoare
He and his family live and farm at Ohaupo
in the Waikato but also have farming
interests in the South Island. From a start
in sharemilking in 1980 their farming interests
today have expanded to 8,600 cows through
private ownership and equity partnerships.
Mr van der Poel has won a number of
farming awards including Sharemilker of
the Year, The A.C. Cameron Award,
Dairy Exporter Primary Performer Award and
a 2002 Nuffield Scholarship.
David Hoare (from July 2002)
B.Ec, FCPA
David Hoare is a director of BT Financial
Group Limited and Chairman of its
Australian subsidiary, BT Funds
Management Ltd. Between 1971 and
1999 he was Managing Director and later
Chairman of Bankers Trust Australia Ltd.
He is also Chairman of ASX Supervisory
Review Ltd and a director of Hansen plc.
He is a member of the Investment
Banking Advisory Board of Credit Suisse
First Boston in Australia and a consultant
to Mallesons, Stephen Jacques, the
largest legal partnership in Australia.
He is a Government appointed Fellow of
the Senate in the University of Sydney
and Chairman of the Australian Graduate
School of Management.
Mr Hoare is a qualified accountant
and has completed studies in economics
at universities in Australia and the
United Kingdom.
37
corporate governance
Corporate governance is the operation of the relationship between shareholders, directors and
management of the company, as set out in the Constitution, formal policies of the company and
general law.
BOARD OF DIRECTORS
Responsibility for the governance of the business rests ultimately with the Board of Directors and includes:
> Establishing the strategic direction for the company, including a Statement of Intentions for each season
> Appointing the Chief Executive Officer, setting terms of the appointment and objectives
> Monitoring the company’s performance
> Ensuring regulatory and legal compliance and that the company adheres to high standards of ethics
and corporate behaviour
> Ensuring an appropriate level of interaction is maintained with shareholders
> Developing, in conjunction with the Shareholders’ Council, the company’s co-operative philosophy,
mission statement and values.
BOARD COMPOSITION
At the date of this report the Board comprises 13 directors – 10 of whom are Elected Directors and
three of whom are Board Appointed Directors. These are currently the maximum numbers for Elected
and Board Appointed Directors under the Constitution of the company.
Biographies of the directors are on pages 36 and 37 of this report. As part of the establishment of
Fonterra, the initial Elected Directors (Messrs Bayliss, Booth, Flett, Gent, Lynch, Rattray, Roadley,
Townshend and van der Heyden and Mrs James) were appointed by the New Zealand Dairy Group and
Kiwi Co-operative Dairies. Mr Hawkins, Mr Mike Smith and Dr Hood were appointed as Board
Appointed Directors. Mr Smith resigned during the year and Mr Hoare was appointed to fill the vacancy
post balance date.
Elected Directors retire by rotation after three years and may stand for re-election. Messrs Gent,
Rattray and Lynch retired by rotation and Messrs Gent, Rattray and van der Poel were elected to fill
the vacancies.
The Board welcomes Mr Hoare and Mr van der Poel. Thanks are extended to Mr Lynch for his longstanding service to the industry, including his service to Fonterra, and to Mr Smith for his service to
the company.
38
C O R P O R AT E G O V E R N A N C E
BOARD SUB COMMITTEES
The Board has created three sub-committees to assist it in fulfilling its responsibilities: the Audit,
Finance and Risk Committee; the Appointments, Remuneration and Development Committee; and the
Shareholder Management Committee.
A U D I T, F I N A N C E A N D R I S K C O M M I T T E E
Comprising a total of six directors, this committee assists the Board in its corporate governance
responsibilities relating to financial reporting, risk management, audit and treasury activities. As with
most large corporations, Fonterra has an internal audit department, which has direct lines of
communication to this committee, responsible for reviewing business processes and controls. The Audit
Finance and Risk Committee is chaired by Graeme Hawkins.
A P P O I N T M E N T S , R E M U N E R AT I O N A N D D E V E L O P M E N T C O M M I T T E E
Ensuring that the company’s human resources policies and practices align with the objectives of the
company and its stakeholders, the committee considers appointments of key advisers, reviews
executive remuneration levels and programmes, and oversees succession and development plans. The
Appointments Remuneration and Development Committee comprises five directors and is chaired by
Henry van der Heyden.
SHAREHOLDER MANAGEMENT COMMITTEE
This committee manages the interaction between supplier shareholders and the company. Key
responsibilities include the relationship between Fonterra and the Shareholders’ Council and
shareholder communications. The Shareholder Management Committee has five directors and two
representatives from the Shareholders’ Council and is chaired by Greg Gent.
SHAREHOLDERS’ COUNCIL
A requirement of the Fonterra Constitution is a Shareholders’ Council, made up of a minimum of 45
shareholder representatives, each representing one of 25 wards. The Shareholders’ Council has a
variety of responsibilities concerned with ensuring that the co-operative nature of Fonterra is protected,
that effective monitoring of the business by shareholders is able to take place and that the needs of
shareholders as both shareholders and suppliers are properly considered by the Board. The council also
has specific responsibilities with regard to appointing the Valuer to establish the Fair Value of Fonterra’s
shares and appointing a Milk Commissioner to arbitrate in the event of any disputes between supplying
shareholders and Fonterra. Councillors are elected for a term of three years, with one-third retiring by
rotation each year.
39
John Wilson was the inaugural Chairman of the council and, upon deciding to not seek re-election,
has been replaced by Tony O’Boyle. Standard & Poor’s was appointed as Valuer and Judge Peter Trapski,
a retired New Zealand High Court Judge, has been appointed as Milk Commissioner.
Development of a good working relationship with the council has been a key focus for the Board.
Thanks are due to Mr Wilson for his commitment and professionalism. We look forward to working
with Mr Boyle in his term as Chairman of the council.
40
C O R P O R AT E G O V E R N A N C E
financial statements
2001 > 2002
The directors hereby approve the financial statements for the year
ended 31 May 2002. For and on behalf of the Board of Directors:
financial statements
18 JULY 2002
GRAEME HAWKINS, Director
The financial statements comprise:
Statement of financial performance
Statement of movements in equity
Statement of financial position
Statement of cash flows
Statement of significant accounting policies
Notes to the financial statements
42
43
44
45
46
47
50
18 JULY 2002
FOR THE YEAR ENDED 31 MAY 2002
Operating revenue
Operating expenses
Total payout to suppliers
Operating deficit before taxation
Taxation expense/(credit)
Net deficit
Net deficit comprises:
Parent interests
Minority interests
Net deficit
NOTES
2
3
4
CONSOLIDATED $M
PARENT $M
13,924
7,986
5,947
(9)
22
(31)
6,313
782
5,947
(416)
(109)
(307)
(50)
19
(31)
(307)
(307)
43
Statement of movements in equity
Net deficit comprising:
Parent interests
Minority interests
Foreign currency translation reserve movement:
Parent interests
Minority interests
Total recognised revenues and expenses
NOTES
PARENT $M
(50)
19
(307)
-
6
(257)
(49)
(337)
(307)
Co-operative shares issued after the formation of Fonterra
Peak notes issued after the formation of Fonterra
Supply redemption rights issued after the formation of Fonterra
Total contributions from owners
5
5
5
302
71
30
403
302
71
30
403
Co-operative shares surrendered
Peak notes surrendered
Supply redemption rights surrendered
Total distributions to owners
5
5
5
(127)
(9)
(53)
(189)
(127)
(9)
(53)
(189)
Contributions from and distributions to minority interests
Co-operative shares issued on the formation of Fonterra
Peak notes issued on the formation of Fonterra
Supply redemption rights issued on the formation of Fonterra
Minority interests
Equity on the formation of Fonterra
44
CONSOLIDATED $M
(6)
5
5
5
-
3,054
1,115
90
355
4,614
3,054
1,115
90
4,259
Equity at the end of the year
4,485
4,166
Equity at the end of the year comprises:
Parent interests
Minority interests
Equity at the end of the year
4,166
319
4,485
4,166
4,166
1
AS AT 31 MAY 2002
Cash balances
Receivables and prepayments
Inventories
Taxation receivable
Other current assets
Total current assets
Property, plant and equipment
Investments
Intangibles
Other non-current assets
Total non-current assets
Total assets
Bank overdrafts
Owing to suppliers
Payables and accruals
Provisions
Current borrowings
Taxation payable
Other current liabilities
Total current liabilities
Provisions
Term borrowings
Deferred taxation
Capital notes
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Co-operative shares
Peak notes
Supply redemption rights
Retained earnings
Foreign currency translation reserve
Minority interests
Equity
NOTES
CONSOLIDATED $M
PARENT $M
107
1,888
3,554
47
176
5,772
4,670
49
114
48
4,881
3,980
382
1,587
79
6,028
11,800
155
5,089
152
5,396
10,277
70
1,015
930
58
2,954
27
122
5,176
14
1,050
376
37
2,905
4,382
14
16
17
18
99
1,601
239
200
2,139
7,315
4,485
19
1,502
6
200
2
1,729
6,111
4,166
5
5
5
3,229
1,177
67
(50)
(257)
319
4,485
3,229
1,177
67
(307)
4,166
7
8
9
10
12
13
14
15
6
45
Cash flows from operating activities
Cash was provided from:
Receipts from customers
Interest received
Dividends received
Cash was applied to:
Payments to creditors and employees
Payments to suppliers
Taxation paid
Interest paid
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment
Proceeds from sale of subsidiaries
Acquisition of property, plant and equipment
Acquisition of intangibles
Loans to associates
Net loans to subsidiaries
Acquisition of subsidiaries
Purchase of Tatua / Westland’s shareholding in NZDB
Acquisition of associates / investments
Net cash flows from investing activities
Cash flows from financing activities
Increase in borrowings
Issue of capital notes
Issue of co-operative shares
Issue of peak notes
Issue of supply redemption rights
Repayment of borrowings
Surrender of co-operative shares
Surrender of peak notes
Surrender of supply redemption rights
Dividends paid to minority interests
Net cash flows from financing activities
46
NOTES
19
CONSOLIDATED $M
PARENT $M
14,427
35
18
5,528
135
165
(8,038)
(5,667)
(103)
(318)
354
(355)
(5,679)
(1)
(167)
(374)
136
-
20
(703)
(95)
(3)
(85)
(125)
(72)
(947)
59
605
(3)
(2,755)
(2,094)
4,061
200
187
24
49
4,061
200
187
24
49
(3,966)
(127)
(9)
(53)
(6)
360
(1,877)
(127)
(9)
(53)
2,455
Net decrease in cash held
Cash acquired on the formation of Fonterra
Effect of exchange rate changes on cash flows
Closing cash balances
(233)
326
(56)
37
(13)
(1)
(14)
Reconciliation of closing cash balances to the
statement of financial position:
Cash balances
Bank overdrafts
107
(70)
37
(14)
(14)
(a) Basis of preparation
On 16 October 2001, Fonterra Co-operative Group Limited, New Zealand Co-operative Dairy Company Limited (“New
Zealand Dairy”) and Kiwi Co-operative Dairies Limited (“Kiwi”) amalgamated to form a new company also called Fonterra
Co-operative Group Limited (“Fonterra”). Fonterra is a co-operative company domiciled in New Zealand, registered under
the Companies Act 1993, the Co-operatives Companies Act 1996, and the Dairy Industry Restructuring Act 2001. The
reporting currency used in the preparation of these financial statements is New Zealand dollars.
Financial statements for Fonterra (the “Company”) and consolidated financial statements are presented. The financial
statements comprise statements of the following: financial performance; movements in equity; financial position;
cash flows; significant accounting policies; as well as the notes to these statements contained on pages 50 to 69 of this
annual report.
The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand.
Where no financial reporting standard or statement of standard accounting practice exists in New Zealand in relation
to a particular issue, the accounting policies and disclosures adopted have been determined having regard to
authoritative support.
The financial statements are prepared on the basis of historical cost except that derivative financial instruments that are
not designated as hedges are stated at market value and investments in subsidiaries are stated at Fonterra’s share of net
assets. The cost of certain assets and liabilities is based on their fair value at the date of the formation of the Company,
as set out in accounting policy (b) Amalgamation.
As this is the first period of operations, no comparable financial information is available to be presented.
(b) Amalgamation
The amalgamation of the former Fonterra Co-operative Group Limited, New Zealand Dairy and Kiwi has been accounted
for as a purchase transaction effective 1 June 2001. This exercise involved considering:
>
The fair value of the shares issued in Fonterra;
>
The fair value of the underlying identifiable tangible and intangible assets and liabilities of Fonterra, New Zealand
Dairy, Kiwi and the New Zealand Dairy Board.
Net identifiable assets have been recognised at their fair value which will be carried forward as their base cost.
(c) Basis of consolidation
The consolidated financial statements comprise the Company, its subsidiaries (the “Group”) and the Group’s interest in
associates and partnerships. Intra-group transactions are eliminated in preparing the consolidated financial statements.
Subsidiaries
Subsidiaries are included in the consolidated financial statements using the purchase method of consolidation.
Associates
The consolidated financial statements include the Group’s share of the net surplus of associates on an equity accounted basis.
Acquisition or disposal during the year
Where an entity becomes or ceases to be a part of the Group during the year, the results of the entity are included in the
consolidated results from the effective date that the entity became a subsidiary or an associate or until the date it ceased
to be a subsidiary or associate.
Goodwill and discount arising on acquisition
Fair values are assigned to the identifiable assets and liabilities of subsidiaries and associates of the Group at the date they
are acquired. Where the fair value of the identifiable net assets acquired in the purchase of a subsidiary or an associate is
less than the purchase price paid, the difference is treated as goodwill and is written off on a straight-line basis, over the
period of expected benefit, up to 20 years following the date of acquisition.
Where the fair value of the identifiable net assets acquired in the purchase of a subsidiary or an associate exceeds the
purchase price paid, the difference is treated as discount on acquisition and is applied to reduce the fair value of acquired
non-monetary assets.
(d) Foreign currency
Exchange differences
Short term transactions covered by forward exchange contracts are translated at the exchange rates specified in those
contracts. Other foreign currency transactions are translated to New Zealand currency at the exchange rates ruling at the
dates of the transactions.
47
Monetary assets and liabilities in foreign currencies at balance date covered by forward exchange contracts are translated
at the exchange rates specified in those contracts. Monetary assets and liabilities in foreign currencies at balance date not
covered by forward exchange contracts are translated at the exchange rates ruling at that date. Exchange differences
arising on the translation of monetary assets and liabilities in foreign currencies are recognised in the statement of
financial performance except as detailed below.
If a foreign currency liability is designated as a hedge of a foreign non-monetary asset (or vice versa), both the asset and
the liability are translated at the exchange rate ruling at balance date. Exchange movements are taken to the foreign
currency translation reserve except where the exchange movements on the liability exceed that of the asset.
Translation of the financial statements of independent foreign operations
The assets and liabilities of overseas operations, being independent foreign operations, are translated at the exchange
rates ruling at balance date. The revenues and expenses of these operations are translated at rates approximating the
exchange rates ruling at the dates of the transactions. Exchange differences arising on the translation of the financial
statements of independent foreign operations are recognised directly in the foreign currency translation reserve.
Derivative financial instruments that are designated as hedges of the net investment in independent foreign operations
are translated at the exchange rates ruling at balance date. Exchange differences arising on the translation of such
derivative financial instruments are recognised directly in the foreign currency translation reserve to the extent that they
offset the exchange differences arising on the translation of the financial statements of the independent foreign
operations to which the designated hedge related.
(e) Derivative financial instruments
The Group uses derivative financial instruments within predetermined policies and limits in order to reduce its exposure
to fluctuations in foreign currency exchange rates and interest rates.
Derivative financial instruments that are designated as hedges of specific items or economic exposures are recognised on
the same basis as the underlying hedged items. Where a hedge of an anticipated purchase or sale transaction is
undertaken the exchange difference on the hedging transaction up to the date of the purchase or sale transaction, and
any costs associated with the hedge transaction to that date, are deferred and included in the measurement of the
purchase or sale transaction. Derivative financial instruments that do not constitute hedges are stated at market value and
any resultant gain or loss is recognised in the statement of financial performance.
Where a derivative financial instrument, which is a hedge of an anticipated transaction, is terminated early but the
anticipated transaction is still expected to occur, the deferred gain or loss that arose prior to termination continues to be
deferred and is recognised as part of the transaction when it occurs. If the transaction is no longer expected to occur, the
deferred gain or loss is recognised in the statement of financial performance immediately.
The Group does not engage in speculative transactions or hold derivative financial instruments for trading purposes.
(f)
Investments
Investments other than investments in associates and investments in subsidiaries are stated at cost. Investments in subsidiaries
are stated at Fonterra’s share of net assets. Changes in value are recognised in the statement of financial performance.
(g) Identifiable intangible assets
Brands and other identifiable intangible assets purchased
The fair value of brands and other identifiable intangible assets purchased by the Group is recognised where the intangible
asset is controlled through custody or legal rights and could be sold separately from the rest of the business. Where such
intangible assets are regarded as having limited useful lives their value is amortised over those estimated useful lives.
Where such intangible assets are regarded as having indefinite useful lives, they are not amortised. Impairment reviews
are carried out to ensure that such intangible assets are not carried at above their recoverable amounts. Any amortisation
or impairment write downs are recognised in the statement of financial performance.
Research and development expenditure
All research expenditure is recognised in the statement of financial performance as incurred. Significant development
expenditure is recognised as an asset when it can be demonstrated that the commercial production of the material or
product, or use of the process, will commence.
Development expenditure recognised as an asset is stated at cost and amortised in the statement of financial performance
over the period of expected benefits, not exceeding five years. Amortisation begins at the time that commercial
production or use of the process commences. All other development expenditure is recognised in the statement of
financial performance as incurred.
48
(h) Property, plant and equipment
Owned assets
Property, plant and equipment is stated at cost and depreciated in accordance with its estimated useful life as outlined
below. Cost includes the purchase consideration and those costs directly attributable to bringing the asset to the location
and condition necessary for its intended use. Costs cease to be capitalised when substantially all the activities necessary
to bring an asset to the location and condition for its intended use are complete.
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
Buildings
Plant, vehicles and equipment
Indefinite
25 – 50 years
3 – 30 years
(i)
Inventories
Inventories are stated at the lower of cost and net realisable value.
The cost of dairy produce manufactured from milk supplied in New Zealand is established by using a commodity milk price
as the cost of the raw milk. In the case of manufactured inventories and work in progress, cost includes all direct costs
plus that portion of the fixed and variable production overhead incurred in putting inventories into their present location
and condition.
(j)
Receivables
Receivables are stated at estimated net realisable value.
(k) Impairment
If the estimated recoverable amount of an asset is less than its carrying amount, the asset is written down to its estimated
recoverable amount and an impairment loss is recognised in the statement of financial performance.
(l)
Provisions
Provisions are recognised only in those circumstances where the Group has a present obligation as a result of a past event.
(m) Revenue recognition
Sales revenue includes revenue earned net of returns, discounts and allowances from the sale of inventory items. Sales
revenue is recognised when the significant risks and rewards of ownership of the inventory items have passed to the buyer.
(n) Taxation
Income tax expense is recognised on the operating deficit before taxation, adjusted for permanent differences between
taxable and accounting income. Deferred taxation is calculated using the comprehensive basis under the liability method.
This method involves recognising the tax effect of all timing differences between accounting and taxable income as a
deferred taxation asset or liability in the statement of financial position. The deferred taxation asset or liability is stated at
the income tax rates prevailing at balance date.
Deferred taxation assets are not recognised unless realisation of the asset is virtually certain.
Deferred taxation assets and liabilities are not offset if they arise in different tax jurisdictions.
(o) Cash and cash equivalents
For the purpose of the statement of cash flows, cash comprises cash balances (net of bank overdrafts) and demand
deposits. Cash excludes borrowings at call that are not used as part of the Group’s day-to-day cash management.
(p) Changes in accounting policy
Uniform accounting policies have been applied throughout the Group and on a consistent basis throughout the period.
(q) Early adoption of Financial Reporting Standards
The following financial reporting standards have been adopted as at 31 May 2002, prior to their formal application date:
>
FRS-36 Accounting for acquisitions resulting in combinations of entities or operations.
>
FRS-37 Consolidating investments in subsidiaries.
>
FRS-38 Accounting for investments in associates.
49
1
Formation of Fonterra
On 16 October 2001, Fonterra, New Zealand Dairy and Kiwi amalgamated to form a new company also called Fonterra.
The amalgamation was treated as a purchase transaction effective 1 June 2001. The following assets and liabilities were
recognised on the formation of Fonterra:
CONSOLIDATED $M
PARENT $M
Cash balances
Inventories
Taxation receivable
NOTES
385
1,988
3,692
46
6,111
2,247
2,247
Investments
Intangibles
Total assets
3,920
440
1,614
45
6,019
12,130
222
5,206
69
5,497
7,744
Bank overdrafts
Payables, accruals and provisions
Current borrowings
Owing to suppliers
Taxation payable
59
1,599
3,577
875
70
177
6,357
1
161
1,435
923
177
2,697
Term borrowings
Deferred taxation
Total liabilities
Net assets
Minority interest share in net assets
Equity issued as consideration
883
276
1,159
7,516
4,614
355
4,259
4,614
788
788
3,485
4,259
4,259
4,259
5
Impact of fair value adjustments
The fair value of the underlying identifiable tangible and intangible assets and liabilities of Fonterra, New Zealand Dairy,
Kiwi and the New Zealand Dairy Board recognised on the formation of Fonterra are set out above.
As required by financial reporting standards, fair value adjustments were made to the tangible and intangible assets and
liabilities recorded in the financial statements of New Zealand Dairy, Kiwi and the New Zealand Dairy Board at 31 May 2001.
The following significant fair value adjustments were made:
>
An increase in the value of identifiable intangible assets of $1,016 million (comprising $1,384 million increase in
brands less the write-off of goodwill and other intangibles relating to legacy companies of $368 million);
>
An increase in the value of property, plant and equipment of $414 million;
>
An increase in the value of inventory of $874 million in relation to the adoption of Fonterra’s basis of calculating the
cost of milk;
>
An increase in other current liabilities and non-current liabilities combined of $363 million in relation to derivative
financial instruments;
>
The inclusion of provisions of $152 million (comprising a provision for restructuring and rationalisation of $128
million and other provisions of $24 million);
>
A decrease in the value of investments and other assets of $41 million; and
>
An increase in the deferred taxation liability and other tax balances of $235 million as a result of the other fair
value adjustments.
50
These fair value adjustments have been recorded as part of the opening equity of Fonterra. Had these fair value adjustments
not been recorded the result before taxation for the year ended 31 May 2002 would have been decreased by:
>
$353 million in relation to the adjustment for derivative instruments;
>
$89 million in relation to the restructuring and rationalisation costs;
>
$16 million in relation to the decrease in the value of investments and other assets; and
>
$7 million in relation to the additional amortisation required offset by the lesser charge for depreciation.
In addition, the impact of adopting Fonterra’s basis of calculating the cost of milk for inventory valuation purposes was to:
>
increase the value of inventory on formation by $874 million;
>
increase the value of inventory at 31 May 2002 by $279 million; and therefore
>
decrease the result before taxation for the year ended 31 May 2002 by $595 million.
NOTES
2
3
Operating revenue
Operating revenue comprises:
Sales
Dividends received
Interest received
Gain on disposal of subsidiaries
Share of net surpluses and deficits of associates,
after taxation
Other operating revenue
Operating revenue
Operating expenses
Operating expenses include:
Amortisation of goodwill
Amortisation of brands
Amortisation of other intangible assets
Audit fees – KPMG
Other services – KPMG
Bad and doubtful debts:
Written off
Increase in provision for doubtful debts
Depreciation:
Buildings
Leasehold improvements
Directors’ remuneration:
Fees
Other
Grants to:
Industry related organisations
Other
Interest expense:
Finance leases
Borrowings
Operating lease expense
Development costs written off
Research costs
Subvention payment
Revaluation of investments in subsidiaries to net asset backing
CONSOLIDATED $M
PARENT $M
13,777
18
35
-
5,697
165
135
285
11
14
80
13,924
31
6,313
12
12
12
4
3
5
4
4
-
17
17
-
48
379
1
10
-
2
3
1
-
7
1
-
9
309
63
4
81
-
167
1
529
12
51
NOTES
4
Taxation
Operating deficit before taxation
Prima facie taxation expense at 33%
Add/(deduct) taxation effect of:
Non-deductible/(non-assessable) items:
Dividends received
Gain on disposal of subsidiaries
Amortisation of brands
Amortisation of other intangible assets
Share of net surplus and deficits of associates
after taxation
Other
Losses of overseas subsidiaries not recognised
Controlled Foreign Company and Foreign
Investment Fund regime adjustments
Taxation expense/(credit)
Taxation expense/(credit) comprises:
Current taxation
Deferred taxation
17
CONSOLIDATED $M
(9)
(3)
(416)
(137)
(6)
1
3
(55)
(94)
-
(5)
10
12
-
2
175
10
22
(109)
59
(37)
22
(115)
6
(109)
Imputation credits:
Arising on the formation of Fonterra
Attached to dividends received
Closing balance
The imputation credits are available to the
shareholders of the parent company:
Through the parent company
Through subsidiaries
Dividend withholding payment credits
The dividend withholding payment credits are
available to the shareholders of the parent company:
Through the parent company
Through subsidiaries
PARENT $M
(1)
3
2
2
54
56
1
1
Taxation losses with potential taxation benefits of $12 million (Parent $nil) have not been recognised because the ability
of the Group to realise these benefits is not virtually certain. The ability to utilise the taxation losses depends on the
generation of sufficient assessable income in the respective tax jurisdictions and meeting the continuity of shareholders
tests and other necessary statutory requirements.
52
PARENT AND CONSOLIDATED
NUMBER 000’S
5
VALUE $M
Capital
Co-operative shares:
Issued on the formation of Fonterra
Issued after the formation of Fonterra
Surrendered
Closing balance
1,052,375
100,668
(42,889)
1,110,154
3,054
302
(127)
3,229
Peak notes:
Surrendered
Closing balance (fully paid)
37,164
2,364
(305)
39,223
1,115
71
(9)
1,177
Supply redemption rights:
Surrendered
Closing balance (fully paid)
30,107
9,885
(17,509)
22,483
90
30
(53)
67
Co-operative shares
Each shareholder supplying milk to the Company in a season is required to hold one co-operative share for each kilogram
of milksolids obtainable from milk supplied to the Company by that shareholder in that season.
Co-operative shares are issued and surrendered at fair value. Fair value is determined on an annual basis for each season
by the Board with the advice of an independent valuer. Fair value for the 2002/03 season has been set by the Board, after
receiving Standard & Poor’s estimated fair value range, at $3.85 per share.
If a shareholder increases supply during a season, and they do not hold sufficient shares to cover that increased
production, they are required to purchase additional shares. Additional shares are paid for by:
>
the automatic surrender of supply redemption rights that are held;
>
cash;
>
redeeming any capital notes held;
>
redeeming any excess peak notes held; or
>
any combination of the above.
If a shareholder decreases supply and therefore holds more shares than they are required to hold they must surrender
those excess shares. The Company pays the surrender value:
>
at the option of the shareholder, by the issue of supply redemption rights;
>
by the issue of capital notes;
>
by the payment of cash; or
>
in special circumstances, by the issue of redeemable preference shares.
Share changes required by shareholder increases in supply for the 2001/02 season are reflected in the capital set
out above.
Rights attaching to the shares include:
>
voting rights on a poll or postal ballot of one vote per 1,000 kilograms of milksolids obtainable from milk supplied
to the Company by a shareholder or by that shareholder’s farm or farm dairy during the season preceding that in
which a poll or postal ballot is taken;
>
rights to a share in any dividends; and
>
rights to share in any surplus on liquidation of the Company.
Of the 1,110,153,888 co-operative shares on issue, 3,413,411 have not been fully paid.
53
$69 million is recognised as a deferred share receivable within other non-current assets in the statement of financial
position in relation to the total shares on issue.
Peak notes
Each shareholder supplying milk to the Company in a season is required to hold a number of peak notes for the season
as determined by the Board at the commencement of the season. Peak notes are issued based on each shareholder’s milk
supply profile during the season. Peak notes are issued at $30 each.
Peak notes are paid for by:
>
cash;
>
redeeming any capital notes held; or
>
a combination of the above.
If a shareholder holds more peak notes than they are required to hold, that shareholder may choose to either:
>
hold the excess peak notes to use in the future; or
>
surrender the peak notes by giving notice to the Company.
Where the peak notes are surrendered, the Company pays the surrender value:
>
by the issue of capital notes; or
>
by the payment of cash.
Peak notes have no voting rights, no dividend rights, and no rights to share in any surplus on liquidation of the Company.
Supply redemption rights
Where a shareholder holds more co-operative shares than required in a season (based on actual supply of milk by that
shareholder) the Company shall require that shareholder to surrender those excess co-operative shares. Supply
redemption rights are issued to shareholders who elect to be issued with them in exchange for shares that are being
surrendered. A supply redemption right gives its holder the right to either:
>
exchange each supply redemption right held for one fair value share at no cost when further shares are required due
to increased production (irrespective of the value of the supply redemption right); or
>
at any time surrender the supply redemption right.
Supply redemption rights have no voting rights, no dividend rights, and no rights to share in any surplus on liquidation
of the Company.
NOTES
6
7
8
54
Foreign currency translation reserve
Opening balance
Difference arising on translation of financial
statements of independent foreign operations
Closing balance
Trade receivables
Prepayments
Due from subsidiaries
Due from associates
Total receivables and prepayments
Inventories
Raw materials
Finished goods
Total inventories
CONSOLIDATED $M
PARENT $M
-
-
(257)
(257)
28
28
-
1,578
72
238
1,888
155
4,515
4,670
407
3,147
3,554
49
49
NOTES
9
CONSOLIDATED $M
PARENT $M
At cost
Land
Buildings
Capital work in progress
Total cost
164
1,194
2,697
2
351
4,408
1
49
111
4
165
Accumulated depreciation
Buildings
Total accumulated depreciation
48
379
1
428
10
10
164
1,146
2,318
1
351
3,980
1
49
101
4
155
215
167
382
5,084
5
5,089
155
212
-
Net book value
Land
Buildings
Capital work in progress
Total property, plant and equipment
10 Investments
Associates
Subsidiaries
Other investments
Total investments
Included within other investments are publicly traded
investments with the following values:
Carrying value
Market value
11, 29
29
CONSOLIDATED $M
11 Investment in associates
Shares at cost excluding goodwill
Goodwill
Accumulated amortisation
Post-acquisition share of reserves
Dividends received
Total investment in associates
Total investment in associates comprises:
AFF P/S (Arla joint venture)
Bonlac Foods Limited
Britannia New Zealand Foods Pvt Ltd
DairiConcepts Management LLC
Nippon NZMP Ltd
Maeil New Zealand Cheese Co. Ltd
Dairy Industries (Jamaica) Ltd
Greenwood Valley Cheese Company LLC
Other
Total investment in associates
184
26
(4)
14
(5)
215
61
42
21
17
16
14
11
10
23
215
55
NOTES
Movement in investment in associates:
Acquired on the formation of Fonterra
Acquired during the year
Share of total recognised revenues and expenses
Amortisation of goodwill
Dividends received
Closing balance
CONSOLIDATED $M
113
97
14
(4)
(5)
215
Share of total recognised revenues and expenses of associates:
Operating surplus before taxation
Taxation expense
Share of total recognised revenues and expenses
21
(7)
14
12 Intangibles
Goodwill on amalgamation and acquisition of subsidiaries
Cost
20
(4)
16
Brands
Cost
1,517
(3)
1,514
Other
Cost
62
(5)
57
1,587
Total intangibles
This is represented by:
Goodwill:
Arising on acquisition of subsidiaries
Amortisation
Closing balance
Brands:
Consideration for investment in AFF P/S (Arla joint venture)
Foreign currency translation difference
Amortisation
Closing balance
Other:
Costs capitalised
Amortisation
Development costs written off
Closing balance
Total intangibles
56
20
3
3
3
3
20
(4)
16
1,556
95
(71)
(63)
(3)
1,514
58
5
3
(5)
(4)
57
1,587
NOTES
CONSOLIDATED $M
PARENT $M
501
251
90
87
1
930
39
12
2
323
376
14 Provisions
Provision for restructuring and rationalisation:
Utilised during the year
Transferred to subsidiaries
Closing balance
128
(89)
39
128
(89)
(5)
34
Legislative provisions:
Raised during the year
Closing balance
71
2
(2)
71
24
(2)
22
Other provisions:
Raised during the year
Closing balance
22
41
(16)
47
-
157
56
58
99
157
37
19
56
13 Payables and accruals
Trade payables
Accruals
Employee entitlements
Due to subsidiaries
Due to associates
Other
Total payables and accruals
Total provisions
Included within the statement of financial
position as follows:
Current liabilities
Non-current liabilities
Total provisions
28
28
The nature of the above provisions is as follows:
>
The provision for restructuring and rationalisation includes obligations relating to restructuring and other
rationalisation costs arising on the formation of Fonterra. The amount provided has been determined after in-depth
analysis and the remaining liability is expected to be incurred over the next 12 months.
>
The legislative provision includes global obligations relating to tax and other legal matters. The timing and amount
of the future obligations are uncertain, as they are contingent on the outcome of a number of judicial proceedings.
>
Other provisions arise globally in a number of subsidiaries in the normal course of business and relate to provisions
for areas such as closure costs, onerous contracts and redundancies.
More specific information has not been given on some provisions as the Directors believe this disclosure would prejudice
the position of Fonterra.
57
15 Current borrowings
Commercial paper
Unsecured bank loans
Finance lease liabilities
Total current borrowings
NOTES
CONSOLIDATED $M
PARENT $M
21
2,898
42
14
2,954
2,895
10
2,905
21
1
123
112
1,365
1,601
50
107
1,345
1,502
148
141
1,312
1,601
108
103
1,291
1,502
119
(7)
112
113
(6)
107
Finance lease liabilities are secured over the related item of
property, plant and equipment.
16 Term borrowings
Secured bank loans
Unsecured bank loans
Finance lease liabilities
Medium term notes
Total non-current borrowings
Non-current borrowings are repayable on the
following terms:
One to two years
Two to five years
Greater than five years
Total non-current borrowings
Secured bank loans are secured by a floating charge over the
assets of the borrowing subsidiary. Finance lease liabilities
are secured over the related item of property, plant and equipment.
Non-current finance lease liabilities include the following amounts:
Minimum lease payments
Future interest cost
Total non-current finance lease liabilities
17 Deferred taxation liability
Deferred taxation included in taxation expense
Closing balance
The deferred taxation liability is represented by:
Employee entitlements
Inventories
Financial arrangements
Receivables, payables and provisions
Other
Total deferred taxation liability
4
276
(37)
239
6
6
207
(14)
76
9
(16)
(23)
239
8
(1)
(1)
6
18 Capital notes
The capital notes are unsecured subordinated interest bearing obligations. Interest is payable on a quarterly basis at a
rate of 7% per annum (reviewed on 10 July each year). This rate was increased to 7.48% on 10 July 2002.
The capital notes have no fixed maturity date and continue in existence until redeemed by the Company on an election
date, or otherwise purchased by the Company through the secondary market, or off market after allotment with
agreement from the holder, or are redeemed or purchased by the Company from its shareholders in accordance with the
Company’s constitution. The capital notes have an election date of 10 July in each year commencing on 10 July 2002.
The Company has the option to redeem all or part of the capital notes for cash on each election date.
58
NOTES
19 Operating cash flows
Net deficit
Non-cash items:
Amortisation of intangibles
Depreciation
Movement in deferred taxation
Share of net surpluses and deficits of associates
after taxation
Movement in working capital decrease / (increase):
Movement in inventories
Movement in receivables and prepayments
Movement in other current assets
Movement in current taxation balances
Movement in amounts due to and from associates
Movement in owing to suppliers
Movement in payables and accruals
Items classified as investing and financing activities
CONSOLIDATED $M
PARENT $M
(31)
(307)
3
3
12
428
(37)
10
6
2
(14)
389
529
545
138
339
(176)
(44)
(152)
140
(653)
(408)
(49)
(169)
(115)
128
(261)
(466)
404
354
(146)
(374)
20 Acquisitions of subsidiaries and business combinations
The only material business combination during the year was the acquisition of the operations of two Mexican companies
(3 December 2001).
Acquisitions of subsidiaries and business combinations had the following impact on the assets and liabilities of the Group:
NOTES
CONSOLIDATED $M
Inventories
63
22
12
97
Total assets
45
45
142
Payables and accruals
Current borrowings
36
5
28
69
Term borrowings
Total liabilities
Net assets
Cash consideration
Goodwill arising on acquisition
8
8
77
65
85
20
12
59
21 Financial instruments
The Group has commodity price, foreign exchange and interest rate exposures from its global business spread across more
than 100 countries.
A. Commodity price risk
Commodity price risk is the risk that the Group’s sales revenue will be impacted by fluctuations in world commodity prices.
The Group is exposed to this risk through world dairy commodity prices. The Group is currently unable to hedge its
exposure to commodity price risk due to the absence of any effective commodity price hedging markets.
B. Foreign exchange risk
Fonterra is a net buyer of New Zealand dollars. Accordingly the Group has exposure to foreign exchange risk as a result
of transactions denominated in foreign currencies, arising from capital purchases, debt raising, sales and trade purchases
together with certain subsidiary assets which are denominated in a currency other than New Zealand dollars. The foreign
currencies in which the Group primarily transacts are US dollars, Australian dollars and Euros. Group Treasury hedge
all significant trade debtors, debt obligations and obligations for capital purchases. The Group hedges its net exposures
using foreign currency options, currency swaps and forward exchange contracts. The Group is not involved in foreign
currency speculation.
The bulk of foreign exchange contracts and currency options are conducted by Group Treasury on behalf of the business
units: NZMP and NEW ZEALAND MILK.
The following amounts represent the New Zealand dollar equivalent of the notional principal amount of foreign exchange
hedging contracts outstanding at 31 May 2002.
Forward exchange contracts
Currency options
Currency swaps
CONSOLIDATED $M
PARENT $M
6,554
2,057
1,223
200
1,223
The material foreign currency monetary assets and liabilities included in the statement of financial position of the Parent
and Group as at 31 May 2002 are hedged. Material non-current monetary assets and liabilities are hedged to a date at
least twelve months after balance date.
C. Interest rate risk
The Group’s main exposure to interest rate risk comes from current and term borrowing (including capital notes). Other
financial assets and liabilities, including cash balances and bank overdrafts, trade debtors and payables, are either at
floating rates or not sensitive to interest rate movements. The following amounts represent the face value or notional
principal amount of interest rate derivative instruments outstanding at 31 May 2002.
Interest rate options
Interest rate swaps
60
CONSOLIDATED $M
PARENT $M
40
2,347
40
1,853
The table below shows the repricing profile of the Group’s debt and the impact of the interest rate hedging instruments the
Group has in place to manage interest rate risk. Effective interest rates are shown after the impact of interest rate hedging.
EFFECTIVE
6 MONTHS
6–12
1–2
2–5
>5
Consolidated $M
INTEREST
RATE
TOTAL
OR LESS
MONTHS
YEARS
YEARS
YEARS
Current borrowings
Term borrowings
Capital notes
Total borrowings
Derivative financial instruments
Net borrowing profile
6%
7%
7%
2,954
1,601
200
4,755
4,755
2,954
118
200
3,272
1,825
5,097
(210)
(210)
111
111
(103)
8
1,146
1,146
(1,286)
(140)
226
226
(226)
-
EFFECTIVE
6 MONTHS
6–12
1–2
2–5
>5
Parent $M
INTEREST
RATE
TOTAL
OR LESS
MONTHS
YEARS
YEARS
YEARS
Current borrowings
Term borrowings
Capital notes
Total borrowings
Derivative financial instruments
Net borrowing profile
6%
7%
7%
2,905
1,502
200
4,607
4,607
2,905
117
200
3,222
1,458
4,680
(210)
(210)
100
100
75
175
1,059
1,059
(1,097)
(38)
226
226
(226)
-
D. Credit risk
The Group is exposed to credit risk arising from its normal business activities. Contracts have been entered into with
counterparties whose credit ratings are in accordance with the Group’s limits schedules which are approved by the Board
of Directors. The Group does not require collateral or other security to support financial instruments with credit risk.
In accordance with counterparty limits approved by the Board of Directors, the Group has no significant concentrations
of credit risk.
The maximum exposure to credit risk on financial instruments is represented by the fair values shown in note 21(F).
E. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds at short notice to meet its financial
commitments as they fall due. The Group has internal limits in place in order to reduce the exposure to liquidity risk, as
well as having committed lines of credit.
61
F. Fair values
The following table sets out the carrying values and fair values of the financial assets and liabilities of the Parent and Group.
CONSOLIDATED
PARENT
CARRYING
Forward exchange contracts
Currency options
Currency swaps
Interest rate swaps
Total financial assets
Current borrowings
Term borrowings
Capital notes
Total financial liabilities
Net financial position
CARRYING
FAIR VALUE
VALUE
FAIR VALUE
VALUE
$M
$M
$M
$M
(50)
50
23
2
25
2
23
22
47
23
6
29
34
151
23
8
216
2,954
1,667
202
4,823
(4,607)
2,954
1,601
200
4,755
(4,730)
2,905
1,565
202
4,672
(4,625)
2,905
1,502
200
4,607
(4,578)
The fair values have been determined as follows:
Cash balances, short term deposits, bank overdrafts, accounts payable and owing to suppliers
The carrying value is the fair value for each of these classes of financial instruments and accordingly they are excluded
from the above table.
Term borrowings and capital notes
The fair value of the Group’s term borrowings is estimated based on current market rates available to the Group for items
of a similar nature and maturity.
Forward exchange contracts and currency options
The fair value of foreign exchange contracts is estimated based on current market rates available to replace the contracts.
The face value of the contracts cover periods up to two years in respect of contracts relating to sales and trade purchases.
Contracts entered for seven years relate to debt raising.
22 Off-balance sheet financing
Receivables securitisation
CONSOLIDATED $M
PARENT $M
59
-
The Group has a receivables securitisation facility with CB-CLA Limited, a member of Commonwealth Bank Group, which
enables its subsidiary, Mainland Products Limited, to sell trade receivables for cash consideration.
At balance date, proceeds from the facility of $59 million were used to retire current borrowings. Subsequent to balance
date, CB-CLA Limited has been given notice of the Group’s intention to cancel the facility.
62
23 Contingent liabilities
Contingent liabilities comprise:
Guarantees to customs and excise
Underwriting commitments, performance bonds and other
Total contingent liabilities
CONSOLIDATED $M
PARENT $M
11
1
12
-
Pending proceedings:
Tatua/Westland arbitration
On 16 January 2002, all shares in Fonterra's subsidiary, the New Zealand Dairy Board, held by Tatua Co-operative Dairy
Company Limited (Tatua) were surrendered and cancelled. On 23 January 2002 all the shares in the New Zealand Dairy
Board held by Westland Co-operative Dairy Company Limited (Westland) were surrendered and cancelled.
The financial statements include payment to Tatua and Westland for their shares based on the Macquarie New Zealand
Limited valuation.
On 17 January 2002 the New Zealand Dairy Board referred the valuation price to arbitration. Subsequently on 18 January
2002 a notice was received from Tatua and Westland respectively also referring the valuation to arbitration. The Directors
do not expect that the financial outcome of the arbitration will have a material effect on Fonterra's financial statements.
UK Customs litigation
Two of the New Zealand Dairy Board’s United Kingdom subsidiaries are the subject of claims by the United Kingdom
Customs and Excise for allegedly underpaid duties. The main matters to which the claims relate are the application of the
European Union (EU) quota regulations to:
>
the fat content of butter;
>
spreadable butter and butter manufactured by the Ammix process;
>
the weight of butter and cheese;
>
import licensing issues;
>
time of debonding issues; and
>
scheduling issues.
The issues raised by these investigations are complex. There are a number of civil proceedings claiming alleged arrears
of duties.
The subsidiaries are strongly defending all of the claims. Appropriate levels of resources are available to those defences.
In each case, appeals against the claims have been lodged with the United Kingdom VAT and Duties Tribunal. In addition,
applications for remission by the EU of the amount claimed in respect of several issues have been made. In the case of
the import licensing issues (which amounts to over one third of the total amount claimed) this application has been
successful. Appeals in respect of other matters have not yet been heard. Substantial costs have been awarded against
United Kingdom Customs and Excise in favour of the subsidiaries in respect of a number of Court proceedings. Not all of
these costs have been paid yet by United Kingdom Customs and Excise.
There is a range of possible outcomes to the various issues. Having received legal advice and made their own enquiries,
the Directors do not expect that the financial outcome will have a material adverse effect on the Group’s financial position.
Apart from the proceedings referred to in the previous paragraphs, there are no legal proceedings or arbitrations that are
pending at the date of these financial statements that may have a material adverse effect on the Group.
63
Put option
For a consideration paid for by Aorangi Laboratories Limited, Calpa Pty Ltd and Graham St John Spencer-Laitt (“the
parties”) to Fonterra, Fonterra granted the parties the right to require Fonterra to purchase all their shareholding in
Australasian Food Holdings Ltd in accordance with the terms set out in the put option deed. These terms are subject to
a confidentiality agreement and are therefore not disclosed. This put option expired on 30 June 2002 and was replaced
by a new option. Refer to note 27 on subsequent events.
24 Commitments
Capital commitments
Buildings
Share of associates’ capital commitments
Total capital commitments
Operating lease commitments
Non-cancellable operating lease commitments per annum:
Less than one year
One to two years
Two to five years
Greater than five years
Share of associates’ operating lease commitments
Total operating lease commitments
CONSOLIDATED $M
PARENT $M
13
115
25
153
-
20
15
22
24
51
132
1
2
3
Other commercial commitments
The formation of Fonterra was authorised by the Dairy Industry Restructuring Act 2001 (“DIRA”). The DIRA provides for
the regulation of the dairy industry. The regulatory framework imposed by the DIRA may mean that Fonterra could face
significant competition in acquiring milk from farmers as the regulatory framework makes new entry (both large and small
scale) into the New Zealand dairy markets more likely.
Removal of export monopoly
The DIRA removed the New Zealand Dairy Board’s exclusive rights to export dairy products on 16 October 2001. As a
result, large international dairy processors that wish to establish themselves in New Zealand will be able to freely export
dairy products, or new New Zealand dairy exporters may emerge.
The DIRA does, however, grant to the New Zealand Dairy Board exclusive export rights to a small number of designated
markets that are subject to foreign government controls for between six and ten years. Following this period, quota
market access rights will be reallocated pursuant to legislation. It is understood that the Government is likely to announce
details of this new mechanism before the end of 2002. Any change in the value that Fonterra gets from these markets
could impact on both the milk payout and share fair value.
The DIRA also provides Tatua and Westland with the right to sell specified volumes of dairy products to Fonterra on terms
specified in the DIRA, as a transitional measure.
Supply of milk to competitors
Subject to the DIRA and regulations made under that Act, Fonterra must supply raw milk to anyone in New Zealand who
seeks it, including competitors, up to a maximum of 400 million litres per year (around 3% of Fonterra’s total annual milk
production). The price of the milk must be the payout to shareholders less the annualised capital value of the shares and
peak notes, plus transport, reasonable additional speciality milk costs and any winter milk premium paid by Fonterra. This
requirement makes new entry into the New Zealand dairy markets easier as processors can commence or continue
business without establishing their own network of suppliers.
64
Suppliers able to supply competitors
Fonterra is required to allow its supplying shareholders to supply up to 20% of their milk to a third party, without Fonterra
being able to discriminate against them in any way, provided the milk does not have a unique patentable feature. Again,
this makes it easier for other processors as they will be able to take milk from suppliers without having to ask those
suppliers to cease supplying Fonterra entirely.
Open entry
Fonterra must accept all new suppliers who make an application during the application period, and whose transportation
costs are no more than any existing Fonterra supplier in the region, subject to minimum delivery requirements and any
capacity constraint on Fonterra.
Open exit
A supplying shareholder who wants to leave Fonterra may do so by giving notice by the end of February in any year for
exit on 31 May of that year, except where the supplier has a longer-term contract. When the supplier leaves, they will
receive cash, capital notes or redeemable preference shares that are equal to the value of their shareholding in Fonterra.
Open exit makes it easier for a new or existing processor to encourage suppliers to leave Fonterra as that processor need
only agree to pay the supplier a milk price that is competitive with Fonterra’s price. The suppliers will be paid out the
current value of their capital investment in Fonterra if they leave Fonterra. Accordingly under the new regime Fonterra
faces the dual risk of loss of revenue (milk supply diverted to a competitor) and loss of capital (departing and reducing
suppliers requesting a return of their capital).
Milk and share prices
Fonterra must offer to new suppliers the same terms and conditions of milk supply as it offers to current suppliers in the
same circumstances. Similarly, the terms and effect of securities (such as shares and peak notes) must be the same for
new suppliers as for current suppliers. This may reduce Fonterra’s flexibility in responding to competition as Fonterra
cannot discriminate between new and current suppliers in the same circumstances.
Limits on long-term supply contracts
Fonterra must offer suppliers, as a minimum, a one-year supply contract. It may offer longer-term contracts but it must
ensure that a third of all the milk produced in a 160 kilometre radius of any point in New Zealand is either supplied to
someone other than Fonterra or under a contract to Fonterra that expires at the end of the season, or which can be
terminated at the supplier’s option without penalty. This means that, at any time, some milk supply will always be available
for other processors to acquire, provided that they agree to pay the supplier a price that makes that supplier willing to
leave Fonterra.
25 Segmental analysis
Industrial and geographical segment analysis
The predominant activity of the Group is the manufacture and global marketing of dairy products and other dairy-related
support activities. The Group derives its operating revenue from the sale of milk, dairy-based products and branded
consumer products. This qualifies as an operation in one industrial and geographical segment in accordance with the
definitions of SSAP-23 Financial reporting for segments, accordingly no further segmental analysis is required.
Business unit analysis
The Group’s business is managed in two major business units: NZMP and NEW ZEALAND MILK. The following provides
information on the markets in which the Group operates. The operating revenue is classified by the region in which the
product is finally sold.
65
CONSOLIDATED
CONSOLIDATED
OPERATING REVENUE $M
TOTAL ASSETS $M
NZMP
Americas
Asia
Rest of world
Total NZMP
2,741
2,664
530
1,831
7,766
445
177
6,207
430
7,259
NEW ZEALAND MILK
Americas
Asia
Rest of world
Total NEW ZEALAND MILK
1,781
1,154
1,833
815
5,583
767
334
2,289
217
3,607
575
13,924
934
11,800
Other
Total Group
26 Prospective financial information
On 25 October 2001 the Company issued a prospectus as part of its offer to subscribe for capital notes. The prospectus
included forecast financial statements for the year ending 31 May 2002. The following is a comparison of the Group’s
forecast financial statements to the financial statements reported herein.
Operating revenue
Operating expenses
Total payout to suppliers
Operating (deficit)/surplus before taxation
Taxation expense
Net (deficit)/surplus
Net (deficit)/surplus comprises:
Parent interests
Minority interests
Net (deficit)/surplus
Current assets
Intangibles
Total assets
Current borrowings
Non-current borrowings
Other non-current liabilities
Capital notes
Total liabilities
Equity
66
AUDITED
UNAUDITED
CONSOLIDATED
CONSOLIDATED
ACTUAL $M
FORECAST $M
VARIANCE $M
13,924
7,986
5,947
(9)
22
(31)
14,125
8,027
5,948
150
82
68
(201)
41
1
(159)
60
(99)
(50)
19
(31)
13
55
68
(63)
(36)
(99)
5,772
1,587
4,441
11,800
5,552
1,838
4,579
11,969
220
(251)
(138)
(169)
2,954
2,222
1,601
338
200
7,315
4,485
1,172
2,420
2,736
271
200
6,799
5,170
(1,782)
198
1,135
(67)
(516)
(685)
Net cash flows from investing activities
Net cash flows from financing activities
Effect of exchange rate changes on cash flows
Net increase/(decrease) in cash held
Cash acquired on the formation of Fonterra
AUDITED
UNAUDITED
CONSOLIDATED
CONSOLIDATED
ACTUAL $M
FORECAST $M
354
(947)
360
(56)
(289)
326
37
879
(815)
(304)
(240)
320
80
VARIANCE $M
(525)
(132)
664
(56)
(49)
6
(43)
Explanation of major variations:
As a result of the dramatic weakening of world commodity prices in the latter half of the year, profits were below forecast
with a consequential effect on taxation expense and minority interests.
While total payments to suppliers were almost exactly in line with forecast, milksolids volumes were 34.9 million kgms
(3.2%) higher than forecast and payout per kgms was 20 cents (3.5%) lower than forecast.
Equity was below forecast due primarily to fair value adjustments of assets and liabilities being $471 million less
than forecast, a $249 million additional debit foreign currency translation reserve, partially offset by unforecast net
contributions from owners of $214 million.
The variance on the fair value adjustments arose mainly in relation to intangibles; property, plant and equipment; and
inventory. Intangibles were $345 million lower than forecast. Property, plant and equipment was $141 million higher than
forecast. These variances arose as a result of detailed independent valuations. The inventory adjustment was $185 million
lower than forecast.
The $249 million additional debit foreign currency translation reserve arose as a result of the year end US dollar/NZ dollar
translation rate for offshore assets denominated in US dollars being 47.5 cents compared to a forecast of 43.0 cents.
Total borrowings were $647 million higher than forecast principally due to higher levels of inventory (more milk supplied
and less sales volume than expected in the second half of the year), additional acquisitions of investments approved
during the year and reduced levels of current liabilities as a result of timing differences.
27 Subsequent events
These financial statements were authorised for issue by the Company’s Board of Directors on 18 July 2002.
On 30 June 2002, Australasian Food Holdings (Australia) Pty Limited, a subsidiary of Fonterra, acquired Australasian Food
Holdings Limited (which holds the businesses of Mainland Products Limited, Peters & Brownes Foods Limited and Tip Top
Ice Cream Company Limited), and the 50% of Bonland Dairies Pty Limited that it did not already own. Following the
transaction the shareholders of Australasian Food Holdings (Australia) Pty Limited were ultimately Fonterra (75%), Bonlac
Foods Limited (11%), Laitt interests (7%) and Aorangi Laboratories Limited (7%). Existing put option arrangements with
the Laitt interests and Aorangi Laboratories Limited were terminated.
On 30 June 2002, Fonterra entered into put option arrangements with Bonlac Foods Limited and new put/call option
arrangements with the Laitt interests and Aorangi Laboratories Limited whereby if the options are exercised Fonterra
would, depending on the terms, acquire part or all of their shareholding in Australasian Food Holdings (Australia) Pty Limited.
67
28 Related party transactions
Note 29 identifies all significant Group entities, including subsidiaries, associates and joint ventures. All of these entities,
together with the non-significant subsidiaries, associates and joint ventures, are related parties of the Company. There are
no additional related parties with whom material transactions have taken place.
The Company has entered into the following material related party transactions during the year ended 31 May 2002:
>
Loans and advances to/from related parties (refer to notes 7 and 13);
>
Interest income and expense on loans and advances (the majority of parent interest income disclosed in note 2 is
from related parties);
>
Sale of inventories (the majority of parent sales disclosed in note 2 is to related parties); and
>
Subvention payments and Group tax loss offsets (refer to notes 3 and 4).
The
>
>
>
>
Company bears the cost of the following on behalf of certain subsidiaries:
Audit fees;
Rental expense;
Employee remuneration; and
Guarantees of borrowings/debt instruments.
Directors and executives conduct business with the Parent and its subsidiaries in the normal course of their business
activities as supplying shareholders. All of these transactions are conducted on commercial terms and conditions. Less
than 1% of payments to suppliers are paid to Directors and executives.
29 Group entities
All subsidiaries, associates and joint ventures (equity accounted) are involved in either marketing, distribution, processing,
technology or financing dairy products. All Group entities have a balance date of 31 May unless otherwise indicated. The
significant subsidiaries, associates and joint ventures of the Group are listed below.
Overseas subsidiaries
New Zealand Milk (UK) Ltd
NZMP (Germany) GmbH
NZMP Handelsgesellschaft mbH
NZMP (Logistics) Ltd
Cadipro Milk Products CA
Corporacion Inlaca CA
Soprole S A*
New Zealand Milk Products (Centram) S A
NZMP (Mexico) S A*
NZMP (Venezuela) S A
NZMP (USA) Inc
New Zealand Milk Lanka (Pvt) Ltd
NZMP (Middle East) EC
New Tai Milk Products Company Ltd
PT New Zealand Milk Indonesia
New Zealand Milk (Malaysia) Sdn Bhd
New Zealand Milk (Philippines) Incorporated
NZMP (China) Ltd
NZMP (SEA) Pte Ltd
New Zealand Milk Products (S A) Pty Ltd
NZMP (Italia) Spa
New Zealand Milk Products (Peru) S A*
Peters & Brownes Foods Ltd
* Balance Date 31 December
68
COUNTRY OF
OWNERSHIP/VOTING
INCORPORATION
INTEREST (%)
United Kingdom
Germany
Germany
United Kingdom
Venezuela
Venezuela
Chile
Panama
Mexico
Venezuela
USA
Sri Lanka
Bahrain
Taiwan
Indonesia
Malaysia
Philippines
Hong Kong
Singapore
South Africa
Italy
Peru
Australia
100
100
100
100
100
50
51
100
100
100
100
100
100
51
100
100
100
100
100
100
64
100
82
COUNTRY OF
OWNERSHIP/VOTING
New Zealand subsidiaries
INCORPORATION
INTEREST (%)
Anchor Products Limited
Australasian Food Holdings Limited
Canpac International Limited
Fencepost.com Limited
Fonterra Research Centre Limited (formerly New Zealand
Dairy Research Institute Limited)
Fonterra Tech Limited (formerly Kiwi Tech Limited)
Kiwi Dairy Products Limited
Mainland Products Limited
Milk Products Holdings (New Zealand) Limited
New Zealand Dairy Board Corporation Limited
New Zealand Milk Limited
NZMP (New Zealand) Limited (formerly New Zealand
Dairy Ingredients Limited)
NZMP Limited (formerly Dairy New Zealand Limited)
RD1.com Limited
The Lactose Company of NZ Limited
Tip Top Ice Cream Company Limited
ViaLactia Biosciences (NZ) Limited
New
New
New
New
Zealand
Zealand
Zealand
Zealand
100
82
100
100
New
New
New
New
New
New
New
Zealand
Zealand
Zealand
Zealand
Zealand
Zealand
Zealand
99
100
100
82
100
100
100
New
New
New
New
New
New
Zealand
Zealand
Zealand
Zealand
Zealand
Zealand
100
100
100
100
82
100
The ownership interest of the following entities is 50% or less. However, they have been consolidated on the basis that
the Group controls them based on its capacity to determine the financing and operating policies that guide the activities
of these entities and has an entitlement to a significant level of ownership benefits.
NEW ZEALAND MILK (NZM) Mauritius Ltd
New Zealand Milk Products (UAE) LLC
Saudi New Zealand Milk Products Company Ltd
Bonland Dairies Pty Ltd
Mauritius
UAE
Saudi Arabia
Australia
49
49
49
50
Overseas associates
Bonlac Foods Ltd
DairiConcepts Management LLC
Greenwood Valley Cheese Company LLC
Maeil New Zealand Cheese Co. Ltd
Nippon NZMP Ltd
NZMP (Korea) Ltd
Dairy Industries (Jamaica) Ltd
Australia
USA
USA
South Korea
Japan
South Korea
Jamaica
25
50
50
50
50
50
50
All of the above Group entities have been accounted for from 1 June 2001. The following significant subsidiaries and
associates became part of the Group during the year ended 31 May 2002.
SUBSIDIARY AND ASSOCIATES ACQUIRED/INCORPORATED
Britannia New Zealand Foods Pvt Ltd
AFF P/S
COUNTRY OF
OWNERSHIP/VOTING
DATE OF ACQUISITION/
INCORPORATION
INTEREST (%)
INCORPORATION
India
UK
49
26 March 2002
25 14 December 2001
69
Audit Report
To the shareholders of Fonterra Co-operative Group Limited
We have audited the financial statements on pages 43 to 69. The financial statements provide information about the
past financial performance of the company and group and their financial position as at 31 May 2002. This information
is stated in accordance with the accounting policies set out on pages 47 to 49.
Directors’ responsibilities
The Directors are responsible for the preparation of financial statements that give a true and fair view of the financial
position of the company and group as at 31 May 2002 and the results of their operations and cash flows for the year
ended on that date.
Auditors’ responsibilities
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and
report our opinion to you.
Basis of opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial
statements. It also includes assessing:
>
the significant estimates and judgements made by the Directors in the preparation of the financial statements;
>
whether the accounting policies are appropriate to the company’s and group’s circumstances, consistently applied
and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards issued by the Institute of Chartered
Accountants of New Zealand. We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the
financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we
also evaluated the overall adequacy of the presentation of information in the financial statements.
Our firm has also provided other services to the company and group in relation to taxation, special investigation and
general accounting advice. A related firm, KPMG Legal, has provided legal services to the company and group. Partners
and employees of our firm may also deal with the company and group on normal terms within the ordinary course of
trading activities of the business of the company and group. These matters have not impaired our independence as
auditors of the company. The firm has no other relationship with, or interests in, the company and group.
Unqualified opinion
We have obtained all the information and explanations we have required.
In our opinion:
>
proper accounting records have been kept by the company as far as appears from or examination of those records;
>
the financial statements on pages 43 to 69:
–
comply with New Zealand generally accepted accounting practice;
–
give a true and fair view of the financial position of the company and group as at 31 May 2002 and the results
of their operations and cash flows for the year ended on that date.
Our audit was completed on 18 July 2002 and our unqualified opinion is expressed as at that date.
New Zealand
70
Statutory Information
Equity Securities held at balance date
In accordance with NZSE Listing Rule 10.5.3(c), the following table identifies the equity securities in which each director and
their Associated Persons have a relevant interest as at 31 May 2002. The figure alongside each director includes beneficially
held securities, holdings by associated persons, and joint holdings with associated persons.
EQUITY SECURITIES HELD AS AT 31 MAY 2002
Harry Bayliss
Richard Booth
Murray Flett
Greg Gent
Marise James
Gerard Lynch
Earl Rattray
John Roadley
Mark Townshend
SHARES
SRRS
217,552
422,816
448,164
229,117
217,887
114,895
144,286
689,918
1,667,636
343,668
3,811
49
31,254
449
919
17,656
164
28,478
11,002
38,017
Co-operative Status
In accordance with section 10 of the Co-operative Companies Act 1996, the directors of Fonterra Co-operative Group Limited
unanimously resolved, on 18 July 2002, that in their opinion that company was, for the period from the registration of the
company on 16 October 2001 to 31 May 2002, a co-operative dairy company. This opinion was based upon the fact that (a)
throughout that period the principal activities of Fonterra were the activities specified in section 35 of the Co-operative
Companies Act 1996, and (b) throughout that period not less than 60 per cent of the voting rights attaching to shares in
Fonterra were held by supplying shareholders as defined in section 34 of the Co-operative Companies Act 1996.
Remuneration of Directors
The fees paid to each director of Fonterra Co-operative Group Limited are scheduled below, as are fees paid to directors of the
amalgamating companies for the period from 1 June to 16 October 2001.
FEES ($)
Company (from 16/10/2001)
H G Bayliss
R C Booth
M J Flett
G W Gent
G S Hawkins
J A Hood
M L James
G A Lynch
E S Rattray
J C Roadley
P M Smith (resigned 31/01/2002)
M G Townshend
H W van der Heyden
55,417
55,417
55,417
67,083
61,250
55,417
55,417
55,417
55,417
110,833
23,750
55,417
55,417
71
FEES ($)
Legacy Companies
Kiwi Co-operative Dairies Limited
I D Armstrong
H G Bayliss
R C Booth
G W Gent
R M Gough
J D Hopkins
D B Irvine
M L James
P C Luscombe
G A Lynch
J McNeill
H W Oliver
A P Reilly
18,071
14,143
14,143
29,857
14,143
14,143
14,143
24,566
14,143
24,566
14,143
14,143
14,143
New Zealand Co-operative Dairy Company Limited
S B Bay
M J Flett
E S Rattray
J C Roadley
P M Smith
M G Townshend
H W van der Heyden
J W van der Poel
A G Wilding
24,141
24,141
24,141
24,141
24,141
24,141
47,975
24,141
36,058
Fees paid to directors of subsidiary companies are indicated in the schedule of subsidiary company directors. All remuneration
is by way of fees, and no other benefits are received.
72
Subsidiary Company Directors
The following companies were in the Fonterra Co-operative Group as at 31 May 2002. Directors as at that date are listed; those
who resigned during the year are denoted with an “(R)”. No fees were paid to directors except as indicated. Fees may have
been paid to the companies of which directors were employees.
New Zealand Dairy Board1: S B Allen (R) ($40,667), J C Roadley (R)
R M Baker (R), B T Houghton, G R Stuart;
($65,417), G W Gent (R) ($35,000), H G Bayliss ($25,417), E S
Fonterra Holdings Limited (formerly NZDG Holdings Limited):
Rattray (R) ($25,417), R C Booth ($25,417), H W van der Heyden (R)
J L Spencer (R), B J O’Donnell (R), H W van der Heyden (R),
($25,417), G S Hawkins (R) ($19,402), M C Norgate (R),
B T Houghton, G R Stuart;
M G Townshend (R) ($25,417), M J Flett (R) ($25,417), J E Nichol (R)
Fonterra Investments Limited (formerly NZDG Investments
($29,583), I L Robb (R) ($40,667), S H Suckling (R) ($25,417),
Limited): J L Spencer (R), B J O’Donnell (R), H W van der Heyden (R),
J C Kennedy-Good;
Anchor Ethanol Limited: J L Spencer (R), H W van der Heyden (R),
Fonterra Receivables Limited (formerly Kiwi Receivables Limited):
C J Murphy (R), B J O’Donnell (R), B T Houghton, G R Stuart;
P D S Grave (R), R M Baker (R), B T Houghton, G R Stuart;
Anchor Products Limited: S B Bay (R), M J Flett (R), E S Rattray (R),
Fonterra Research Centre Limited (formerly NZ Dairy Research
J C Roadley (R), P M Smith (R), M G Townshend (R), H W van der
Institute Limited): H G Bayliss (R) ($15,000), C P Mallett (R),
Heyden (R), J W van der Poel (R), A G Wilding (R), B T Houghton,
K R Marshall (R), M F Parkin (R), E S Rattray (R) ($300), G L Romano
G R Stuart;
(R), B T Houghton, G R Stuart;
Anchor Superannuation Investments Limited: B T Houghton (R),
Fonterra Tech Limited (formerly Kiwi Tech Limited): A E McConnon
G R Stuart (R), G P Jones, E S Rattray, D W C Scott, E Stump,
(R), M F Parkin (R), P D S Grave (R), P H Marra (R),
A G Wilding, C L Gandell;
AnchorMart Limited: J R Allen (R), R G Calvert (R), P S Hall (R),
Food Solutions Group 2000 Limited: M C Norgate (R), R M Baker
P M Smith (R), J L Spencer (R), H W van der Heyden (R),
(R), J B McConnon (R), A M Andrew (R), G Roper (R), D Walker (R),
M F Parkin (R), B T Houghton, G R Stuart;
Australasian Food Holdings Limited: R M Baker, G StJ Spencer-
Fridge Tranz Limited: S A Keay, P Simpson;
Laitt, J B McConnon, A W Baylis ($70,000), M C Norgate, J S Parker
GDC (No 1) Limited: J C Roadley (R), G W Gent (R), H G Bayliss (R),
($17,500), D A Pilkington, G R Stuart (R), I D Armstrong (R),
M L James (R), E S Rattray (R), R C Booth (R), H W van der Heyden
S A Eglinton;
(R), G S Hawkins (R), M G Townshend (R), J A Hood (R), M J Flett (R),
Buttermark (NZ) Limited: S R Armstrong (R), W R Leach (R),
G A Lynch (R), B T Houghton, G R Stuart;
GDC Limited: J C Roadley (R), G W Gent (R), M L James (R),
Canpac International Limited: S R Armstrong (R), A W Gall (R),
J A Hood (R), R C Booth (R), E S Rattray (R), G S Hawkins (R),
J P Shaskey (R), B T Houghton, G R Stuart;
M G Townshend (R), M J Flett (R), H W van der Heyden (R),
Dairy Board Finance Corp Limited: M R Grant, P M Schuyt,
G D Taylor;
General Foods Corporation (NZ) Limited: J B McConnon,
Fencepost Live.ex Limited: A M Andrew (R), R M Baker (R),
R G O’Connor, G StJ Spencer-Laitt, P W Cory-Wright (R), J K McLay (R);
D A C Coleman, B T Houghton, G R Stuart;
Glencoal Energy Limited: J L Spencer (R), H W van der Heyden (R),
Fencepost Ventures Limited: R M Baker (R), M C Norgate (R),
B J O’Donnell (R), B T Houghton, G R Stuart;
B T Houghton, G R Stuart, M F Parkin (R);
Grated Cheese Co Limited: C L Gandell, P G Hobman,
Fencepost.com Limited: P D S Grave (R), A M Andrew (R),
G L Romano, G E Langford, M M Smith (R), W A Walker (R);
R M Baker (R), David Walker (R), B T Houghton, G R Stuart;
Huttons Kiwi Limited: A W Baylis, J B McConnon;
Ferndale Dairies Limited: L A J Kavanagh, P M Schuyt;
Key Ingredients New Zealand Limited: S R Armstrong (R),
Fonterra Corporate Research and Development Limited:
A L Burton (R), B T Houghton, G R Stuart;
Kiwi Co-Generation Limited: S K W Morrison (R), M F Parkin (R),
Fonterra Enterprises International Limited: B T Houghton,
S J Gajzago (R), B T Houghton, G R Stuart;
G R Stuart;
Kiwi Dairy Products Limited: P H Marra (R), M C Norgate (R),
Fonterra Enterprises Limited: B T Houghton, G R Stuart;
R M Baker (R), A M Andrew (R), D Walker (R), B T Houghton, G R Stuart;
Fonterra Equities Limited (formerly Anchor Investments Limited)
Kiwi Freight Limited: P K Hikuroa (R), M F Parkin (R), R M Baker
J L Spencer (R), H W van der Heyden (R), B J O’Donnell (R),
Kiwi Milk Products Limited: P H Marra (R), B A Radford (R),
Fonterra E-Ventures Limited (formerly Kiwi E-Ventures Limited):
1 The New Zealand Dairy Board is a statutory entity, and in terms of the Dairy Industry Restructuring Act 2001 will be converted into a company
under the Companies Act 1993 on 26 September 2002.
73
Kiwi Number One Limited: M C Norgate (R), G W Gent;
(International) Limited): C J D Moller (R), D A Pilkington (R),
Kiwi Number Two Limited: M C Norgate (R), G W Gent;
P M Schuyt (R), B T Houghton, G R Stuart;
Kiwi Power (1995) Limited: S J Gajzago (R), S K W Morrison (R),
NZMP (Iran) Limited (formerly New Zealand Milk Products (Iran)
M F Parkin (R), B T Houghton, G R Stuart;
Limited): G J Walker (R), T R Yeganeh (R), M J Newell (R),
Knoll Holdings Limited: J B McConnon, G StJ Spencer-Laitt,
P W Cory-Wright (R);
NZMP Brands Limited: B T Houghton, G R Stuart;
Mainland Beverages Limited: A W Baylis, J B McConnon;
NZMP Limited (formerly Dairy New Zealand Limited): B J O’Donnell
Mainland Products Limited: I D Armstrong (R), R M Baker,
A W Baylis ($38,750), J B McConnon, J S Parker ($12,500),
NZMP New Zealand Limited (formerly New Zealand Dairy
M C Norgate (R), L S Hurst (R) ($7,500);
Ingredients Limited): J L Spencer (R), B J O’Donnell (R),
Meadow Fresh Foods (South Island) Limited: J B McConnon;
Milk Product Holdings (Mexico) Limited: D M Dickson (R),
Otago Coolstores Limited: S J Gajzago (R), M F Parkin (R),
K J Murray (R), D A Pilkington (R), B T Houghton, G R Stuart;
Milk Product Holdings (NZ) Limited: S R Armstrong (R), W A Larsen
Pastoral Genomics Limited: R M Gough, K R Marshall;
(R), K M Oliver (R), J P Shaskey (R), B T Houghton, G R Stuart;
Pasturepak Limited: J L Spencer (R), B J O’Donnell (R),
Milk Products Finance Limited: S R Armstrong (R), J C Kennedy-
Good (R), P M Schuyt (R), B T Houghton, G R Stuart, K M Oliver (R);
Peters Ice Cream Company (N.Z.) Limited: J B McConnon,
Milk Products International Limited: L A J Kavanagh (R),
R G O’Connor, G StJ Spencer-Laitt, P W Cory-Wright (R), J K MacLay (R);
J C Kennedy-Good (R), B T Houghton, G R Stuart;
PIC New Zealand Limited: A W Baylis, J B McConnon;
NDS Fuel Limited: B T Houghton, G R Stuart;
Pinnacle Holdings NZ Ltd: J B McConnon, G StJ Spencer-Laitt,
New Zealand Colostrum Limited: P H Marra (R), B T Houghton,
P W Cory-Wright (R);
G R Stuart;
Promak No. 2 Limited: P H Marra (R), M A McCowan (R),
New Zealand Dairy Board Finance (N.Z.) Limited: W A Larsen
B A Radford (R), Y Fukuoka (R), Y Kudoh (R), R A Dahlberg (R),
(R), M R Grant, P M Schuyt, G D Taylor;
New Zealand Dairy Corporation Limited: B J O’Donnell (R),
Promak Technology (NZ) Limited: P H Marra (R), M A McCowan
S R Armstrong (R), K M Oliver (R), B T Houghton, G R Stuart;
(R), B A Radford (R), B T Houghton, G R Stuart;
New Zealand Dairy Group Limited: B J O’Donnell (R), J L Spencer
RD1.com Limited: J R Allen (R), R G Calvert (R), P S Hall (R),
(R), B T Houghton;
P M Smith (R), J L Spencer (R), H W van der Heyden (R),
NEW ZEALAND MILK (CIS Holdings) Limited: B T Houghton,
G R Stuart;
Southern Farms Limited: A E McConnon, J B McConnon;
NEW ZEALAND MILK (Denmark) Ltd: M R Linley (R),
Sovenz Limited: J C Kennedy-Good, D J Steele;
D A Pilkington (R), B T Houghton, G R Stuart;
Sports Solutions Limited: A W Baylis, J B McConnon;
NEW ZEALAND MILK (International) Limited (formerly New
Synergi Executive Travel New Zealand Limited (formerly Focus
Zealand Dairy Products International Limited): J C Kennedy-Good
Executive Travel Limited): P E Hodgson, R A Irving, K M Oliver (R),
(R), L A J Kavanagh (R), B T Houghton, G R Stuart;
J P Shaskey (R), J C M Lea, C E Osborne;
NEW ZEALAND MILK (Pacific) Limited: R Manikkam (R),
Taranaki Coolstore Limited: A J Fair (R), K M Oliver (R),
D A Pilkington (R), M T Smith (R), A J Waugh (R), B T Houghton,
G R Stuart;
The Lactose Company of NZ Limited: S R Armstrong (R),
New Zealand Milk Brands Limited: C J D Moller (R), K J Murray
A W Gall (R), J P Shaskey (R), G R Stuart, B T Houghton;
(R), D A Pilkington (R), B T Houghton, G R Stuart;
The Wholesale Cheese Company Limited: C L Gandell, P G Hobman,
NEW ZEALAND MILK Limited: B T Houghton, G R Stuart;
G L Romano, G E Langford, M M Smith (R), W A Walker (R);
Northland Dairy Products Limited: A W Baylis, J B McConnon;
Tip Top Ice Cream Company Limited: J B McConnon, R G
Northland Service Stations Limited: B T Houghton, G R Stuart;
O’Connor, G StJ Spencer-Laitt, J K McLay (R), P W Cory-Wright (R);
NZ Cheese Limited: J C Kennedy-Good, L A J Kavanagh;
Tip Top Investments Limited: J B McConnon, R G O’Connor,
NZ Cheese Promotions Limited: S R Armstrong (R), W R Leach (R),
G StJ Spencer-Laitt, J K McLay (R), P W Cory-Wright (R);
Top Hat Convenience Foods Limited: A W Baylis, J B McConnon;
NZ Dairy Exporter Limited: L W McEldowney, K M Oliver,
Town & Country Agri Centres Limited: B T Houghton, G R Stuart;
A G Wilding, O T Symmans (R);
ViaLactia Biosciences (NZ) Limited: S B Bay ($12,500),
NZ Milk Products Limited: J C Kennedy-Good, L A J Kavanagh;
H G Bayliss ($12,500), R M Gough ($5,000), J Levin,
NZ Wool & Dairy Board Services Limited: J C Kennedy-Good,
G R Milne ($12,500), K R Marshall;
L A J Kavanagh;
ViaLactia Bovine Limited: R M Gough, K R Marshall;
NZM (Dairy Holdings) Limited (formerly New Zealand Dairy
Whareroa Farm Limited: P K Hikuroa (R), R A Hodgson (R),
Products Limited): L A J Kavanagh (R), J C Kennedy-Good (R),
P C Luscombe (R), E J Young (R), M E Corbert (R), B T Houghton,
G R Stuart;
NZMP (International) Limited (formerly Milk Product Holdings
74
In addition to the New Zealand companies listed above, the following companies registered overseas were subsidiary
companies of Fonterra Co-operative Group Limited.
Agritex Ltd (Australia): A W Baylis, G StJ Spencer-Laitt, M R Tarling,
Inversora Macoita, C.A (Venezuela): S Eglinton;
N A Thomas;
Key Ingredients Inc (USA): A Burton, J Hepburn (R), M Foster;
Anchia Milk Products (Guangzhou) Ltd (China): A Zhi, L Pakiam,
La Pradera Milk Products C.A (Venezuela): S Eglinton,
M Wynne, W Lim;
S Armstrong;
Anchor Foods Ltd (United Kingdom): T Gibson;
Lacteos Finos de Centro America, S.A. de C.V (El Salvador):
Anchor Foods Malaysia Sdn Bhd (Malaysia): W Lee;
J Pestana, S Eglinton;
Andeba Ltd (United Kingdom): G Sharma;
Lacteos Finos Mexicanos, S.A. de CV (Mexico): C Ramiro,
Arctic Foods Pty Ltd (Australia): A W Baylis, G StJ Spencer-Laitt,
M R Tarling, N A Thomas;
Lacteos Pirque S.A (Chile): A Rey, A Van Wersch, F Gana,
Auckland Ltd (Cayman Islands): J Maldonado, J Pestana,
I Huidrobo;
M Maldonado, R Degwitz, S Eglinton;
Lacven Corp (Cayman Is.): J Maldonado, J Pestana,
Australasian Dairy Ingredients Pty Ltd P H Marra (R), V S Cottee
M Maldonaco, R Degwitz, S Eglinton;
(R), G R Stuart, B T Houghton, D L Calligaro;
Leader Pacific Ltd (Hong Kong): A Johnstone, S Kelly;
Australian Dairy Ingredients Pty Ltd (Australia): M C Norgate (R),
Mainland Dairies Pty Ltd (Australia): A Coleman, D Mallinson,
T D Walter (R), G StJ Spencer-Laitt, G W Gent;
G El Zoghbi;
Bonland Cheese Trading Pty Ltd (Australia) (formally Bega Cheese
Mainland Foodservice Pty Ltd (Australia): A Coleman,
Trading Pty Ltd): A Coleman, G el Zoghbi, G Mallinson, W Leach;
D Mallinson, G El Zoghbi;
Bonland Dairies Pty Ltd (Australia): B McConnon, C Moller,
Maverik Dairy Inc (USA): M Dickson, M Foster;
D Pilkington, H Bayliss, W Larsen;
Maverik Flavours & Ingredients (USA): M Foster, M Dickson,
Broomco (1984) Ltd (United Kingdom): G Sharma;
Dr N Ghandi, B Buccholz;
Brownes Foods Pty Ltd (Australia): A W Baylis, G StJ Spencer-Laitt,
Milk Products Holdings (Latin America) Ltd (Bermuda): J Hepburn
(R), M Foster, S Eglinton, S Armstrong;
Cadipro Holdings Ltd (Bermuda): J Pestana, S Eglinton;
Milk Products Holdings (Middle East) EC (Bahrain): A Johnstone,
Cadipro Milk Products CA (Venezuela): S Eglinton;
G Walker, M Newell, S Kelly, S Gray;
Comercial Dos Alamos S.A (Chile): A Van Wersch, F Wenzel,
Milk Products Holdings (North America) Inc (USA): J Hepburn
F Gana, H Vega, I Huidrobo;
(R), M Foster;
Comerical Santa Elena SA (Chile): A Rey, F Leniz;
Milk Products Holdings (SEA) Pte Ltd (Singapore): K Wickham,
Corporacion Delta II CA (Venezuela): J Pestana, L Paul,
L Pakiam, M Wynne, M Kennerley;
M Maldonado, R Andres, S Eglinton;
Milk Products Holdings Investments Ltd (United Kingdom):
Corporacion Inlaca, C.A (Venezuela): J Pestana, L Paul,
P McGilvary, D Atkinson;
Milk Products Japan Limited (formerly NZMP (Japan) Ltd):
Corporacion Inpralaca II CA (Venezuela): J Pestana, L Paul,
P Landon-Lane, B Taylor, M Kennerley;
N.Z. Milk Products (Thailand) Company Ltd (Thailand): J Thanma,
Cottee Dairy Products Pty Ltd (Australia): T D Walter (R),
L Pakiam, M Wynne;
W R Cottee (R), B A Radford (R), M A McCowan (R), P H Marra (R),
New Tai Milk Products Co Ltd (Taiwan): B Taylor, P Kwok,
V S Cottee (R), G R Stuart, B T Houghton, D L Calligaro;
P Landon-Lane, R Kennerley;
Cottee Nutriceuticals Pty Ltd (Australia): P H Marra (R), V S Cottee
New Zealand Dairy Services (LA) Inc (USA): J Hepburn (R),
M Foster, S Eglinton;
Cottee Nutritionals Pty Ltd (Australia): P H Marra (R), V S Cottee
NEW ZEALAND MILK (AUSAPAC) Pty Ltd (Australia): A Coleman,
A Waugh, D Pilkington, M Smith;
CSC NZMP (CIS) (Russia): P McGilvary, T Monk;
NEW ZEALAND MILK (Barbados) Ltd (Barbados): J Pestana,
Dairy Enterprises International Ltd (Cayman Islands): A Rey,
S Eglinton;
S Eglinton;
NEW ZEALAND MILK (Caribbean), Inc (USA): J Pestana, S Eglinton;
Dairy Fresh Pty Ltd (Australia): A Coleman, A Waugh,
NEW ZEALAND MILK (Egypt) SAE (Egypt): D Learmonth,
D Pilkington, M Smith;
M El-Tabei, M Zaki, P Henderson, S Kelly;
Dairy Holdings (Hong Kong) Ltd (Hong Kong): L Pakiam, M Wynne;
NEW ZEALAND MILK (Hong Kong) Ltd (Hong Kong): L Pakiam,
Dairy Investment (Bermuda) Limited (Bermuda): J C R Collis,
M Wynne, W Lim;
M R Grant, R S L Pearman, P M Schuyt, G D Taylor, N G Trollope;
NEW ZEALAND MILK (Malaysia) Sdn Bhd (Malaysia): L Pakiam,
Dairyland (Malaysia) Sdn Bhd (Malaysia): L Pakiam, M Wynne;
M Wynne, T Chan, W Lee;
Food Solutions Group US Inc (USA): J Waldvogel, P M Schuyt;
NEW ZEALAND MILK (Peru) S.A (Peru): J Pestana, R Castro,
Inversoines Dairy Enterprises S.A (Chile): A Rey, S Eglinton;
S Eglinton;
75
NEW ZEALAND MILK (Singapore) Pte Ltd (Singapore): E Mulligan,
NZMP (Ing.) Ltd (Mauritius): R Kennerley;
L Pakiam, M Wynne;
NZMP (Italia) Spa (Italy): P McGilvary, G Cairoli;
NEW ZEALAND MILK (UK) Ltd (United Kingdom): D Pilkington,
NZMP (Logistics) Ltd (United Kingdom): P McGilvary;
G Sharma, M Linley, S Tuckey, T Gibson;
NZMP (Mexico) S.A. de C.V (Mexico): B Willis, J Hepburn (R),
NEW ZEALAND MILK Holdings (Mauritius) Ltd (Mauritius):
M Foster;
A Johnstone, S Kelly;
NZMP (Middle East) EC (Bahrain): G Walker, M Newell;
NEW ZEALAND MILK Lanka (Pvt) Ltd (Sri Lanka): A Johnstone,
NZMP (Peru) S.A (Peru): B Willis, J Hepburn (R), M Foster;
A Coleman, S Kelly, V Wikramanayake;
NZMP (SEA) Pte Ltd (Singapore): J Shaskey, K Wickham,
NEW ZEALAND MILK Philippines Inc (Philippines): A Fitzsimmons,
R Kennerley;
L Pakiam, M Wynne;
NZMP (UK) Ltd (United Kingdom): P McGilvary, P Hodgson;
New Zealand Milk Products (Bangladesh) Ltd (Bangladesh):
NZMP (USA) Inc (USA): A Burton, J Hepburn (R), M Foster;
A Johnstone, S Kelly;
NZMP Guatemala, S.A (Guatemala): J Pestana, S Eglinton;
New Zealand Milk Products (Centram), S.A (Panama): J Pestana,
NZMP Handelsges. mbH (Germany): P McGilvary (R), G Waterhouse
S Eglinton;
(R), K Wickham;
New Zealand Milk Products (Dominicana) S.A (Dominican
NZMP Holdings (SEA) Ltd (Singapore): K Wickham, R Kennerley;
Republic): J Pestana, S Eglinton;
NZMP Venezuela S.A (Venezuela): B Willis, C Wilson, J Hepburn
New Zealand Milk Products (El Salvador) SA de CV (El Salvador):
(R), M Foster, R Chaw;
NZX Ltd (United Kingdom): D Atkinson;
New Zealand Milk Products (Far East) Ltd (Hong Kong): L Pakiam,
PB Foods Ltd (Australia): G StJ Spencer-Laitt, M R Tarling,
M Wynne, M Deignan;
N A Thomas, R O’Connor;
New Zealand Milk Products (SA) Pty Ltd (South Africa):
Peters & Brownes Foods Ltd (Australia): A W Baylis
A Johnstone, G Walker, M Tweed, M Newell, S Kelly;
($AUD21,250), P H Marra (R), M C Norgate (R), G StJ Spencer-Laitt,
New Zealand Milk Products (UK) Ltd (United Kingdom): P McGilvary,
M R Tarling, N A Thomas, D G Kilpatrick (R), G Raveh (R),
P Hodgson;
G R Stuart, R M Baker;
NEW ZEALAND MILK Treasury (SINGAPORE) Pte Ltd (Singapore):
Peters Foods (WA) Ltd (Australia): A W Baylis, G StJ Spencer-Laitt,
G Taylor, L Pakiam, M Wynne, P M Schuyt;
Newdale Dairies Pvt Ltd (Sri Lanka): A Johnstone, A Coleman,
Prolesur S.A (Chile): A Rey, S Eglinton;
S Kelly, V Wikramanayake;
PT NEW ZEALAND MILK Indonesia (Indonesia): A Corrigan,
NZ Productos Lacteos Ltda (Portugal): F Pinto, G Sharma;
L Pakiam, M Wynne, R Widjaja;
NZMP (AEM) Ltd (formerly Milk Products Holdings (Europe) Ltd)
Recombined Dairy Systems A/S (Denmark): E Iversen, P McGilvary,
(United Kingdom): P McGilvary, T Gibson;
P Hodgson;
NZMP (Brasil) Ltda (Brazil): C Bell, J Hepburn (R), M Foster;
Sogras S.A (Chile): A Van Wersch, A Contreras, F Gana, G Gomez,
NZMP (Central America) S.A (Guatemala): B Willis, J Hepburn (R),
J Infante;
M Foster;
Soprole S.A (Chile): A Perez, A Rey, F Leniz, S Eglinton;
NZMP (Centro America) S.A (Panama): B Willis, J Hepburn (R), M Foster;
Susumas Sdn Bhd (Malaysia): L Pakiam, M Wynne, T Tan, W Lee;
NZMP (China) Ltd (Hong Kong): B Taylor, P Kwok, R Kennerley;
TransContinental Distributors Ltd (Canada): J Hepburn (R),
NZMP (Germany) GmbH (Germany): P McGilvary (R), G Waterhouse
S Chisholm, T Chisholm;
(R), K Wickham;
76
Employee remuneration
Grouped below, in accordance with section 211 (1) (g) of the Companies Act 1993, are the numbers of employees or former
employees world-wide of the company and its subsidiaries, not being Directors of the company, who received remuneration
and other benefits including termination payments in their capacity as employees, the value of which was or exceeded
NZ$100,000 during the year. Approximately three-quarters (716) of these employees are based outside New Zealand.
Remuneration has been calculated to include the cost to the company of benefits, in addition to cash and any related taxation
payments required in the country where the employee is based. In some cases, these non–salary costs are a significant
proportion of the total figures reported below.
Remuneration has also been calculated to include redundancy payments made during the year to employees whose
remuneration would not otherwise have been included in the total figures reported.
Total remuneration and benefits
NUMBER OF
NZ$
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
420,001
430,001
440,001
450,001
460,001
470,001
EMPLOYEES
-
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
430,000
440,000
450,000
460,000
470,000
480,000
185
104
83
51
77
48
34
37
25
52
22
16
17
16
23
13
15
8
8
7
9
8
10
12
7
3
5
2
2
2
3
5
4
1
2
2
1
NUMBER OF
NZ$
480,001 - 490,000
490,001 - 500,000
510,001 - 520,000
520,001 - 530,000
530,001 - 540,000
540,001 - 550,000
550,001 - 560,000
560,001 - 570,000
570,001 - 580,000
580,001 - 590,000
590,001 - 600,000
600,001 - 610,000
610,001 - 620,000
620,001 - 630,000
630,001 - 640,000
640,001 - 650,000
650,001 - 660,000
680,001 - 690,000
700,001 - 710,000
730,001 - 740,000
770,001 - 780,000
780,001 - 790,000
810,001 - 820,000
820,001 - 830,000
850,001 - 860,000
930,001 - 940,000
960,001 - 970,000
1,040,001 - 1,050,000
1,090,001 - 1,100,000
1,100,001 - 1,110,000
1,400,001 - 1,410,000
1,420,001 - 1,430,000
1,510,001 - 1,520,000
1,620,001 - 1,630,000
2,150,001 - 2,160,000
2,230,001 - 2,240,000
EMPLOYEES
3
1
1
2
1
2
1
1
2
5
1
1
1
2
1
1
3
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
974
77
Current credit rating status
Standard & Poor’s and Fitch have rated the Company AA- with a rating outlook of stable. Capital Notes which are subordinate
to other Fonterra debt issued is rated A+ by Standard & Poor’s.
Exchange rulings and waivers
The New Zealand Stock Exchange has ruled that the Capital Notes do not constitute “equity securities” under its Listing Rules.
This means that where Capital Notes are quoted on the Exchange, the Company is not required to comply with the Rules which
apply to an issuer of quoted equity securities.
The Exchange has also determined that a “Minimum Holding” for Fonterra Capital Notes is Capital Notes having a face value
of $5,000 (rather than the $1,000 as currently provided for in Appendix 2 of the Listing Rules).
There has been no excercise of the Exchange’s powers set out in Rule 5.4.2
Entries in the Interests Register
(A) Directors’ Interests in Transactions
(1) General Disclosures of Interest
The following general disclosures of interest were made:
Company
H G Bayliss Chairman: New Zealand Dairy Research Institute Limited (renamed Fonterra Research Centre Limited);
Director: Bonlac Foods Limited, New Zealand Dairy Board (Deputy Chairman since 2 April 2002), ViaLactia Biosciences
(NZ) Limited, Bonland Dairies Pty Limited (resigned 23 October 2001, Alternate Director since 18 February 2002);
R C Booth Director: New Zealand Dairy Board (Chairman since 2 April 2002), Balfour Dairies Limited, Dairy Industry
Superannuation Scheme Trustee Ltd; Director & Shareholder: BDL Investments Limited;
M J Flett Director: New Zealand Dairy Board (resigned 31 October 2001); Director & Shareholder: Kerry Industries
Limited, Kinesis Nutricuticals Limited (UK), TCO Limited, Milkpride Limited; Shareholder: Tasman Farms Limited;
G W Gent Deputy Chairman: New Zealand Dairy Board (resigned 2 April 2002); Director: Kiwi Number Two Limited,
Satman Holdings Limited, Gold Valley Holdings Limited;
G S Hawkins Chairman: Robinson Industries Limited; Director: Tower Managed Funds Limited, Ballance AgriNutrients Co-operative Limited, Cavalier Corporation Limited, Blues Franchise Limited (resigned 17 December 2001),
Biomed Limited (resigned 31 December 2001), New Zealand Dairy Board (resigned 31 October 2001); Director &
Shareholder: Hawkins Consulting Services Limited, Stableburn Farms Limited; Trustee: Hawkins Family Trust,
McDowell Family Trust;
J A Hood Chairman: Tonkin and Taylor Limited; Director: ASB Group Limited, ASB Bank Limited, Auckland
Uniservices Limited; Vice Chancellor & Council Member: University of Auckland;
M L James Director: Dexcel Limited, Dexcel Holdings Limited; Director & Shareholder: Bryndmar Farms Limited;
Trustee: KJ & LM Coulton Family Trust, Pikojam Partnership, Waitui Trusts Partnership, A & SE Crowley Family Trust
(resigned), Kara Trust;
G A Lynch (resigned 31 May 2002) Director: SAITL (resigned March 2002), Marist Farm (Highden) Limited, SAITL
Technologies Limited (resigned March 2002);
E S Rattray Director: New Zealand Dairy Research Institute Ltd, New Zealand Dairy Board (resigned 31 October
2001), Anchor Superannuation Investments; Director & Shareholder: Honikiwi Pastoral Limited; Shareholder: New
Zealand Dairy Foods Limited; Trustee: Dairy Insight New Zealand, Anchor Super Scheme;
J C Roadley Chairman: New Zealand Dairy Board (resigned 2 April 2002); Director & Shareholder: Wigram Park
Limited, Warnock Park Limited, Roadley Farms Limited;
P M Smith (resigned 31 January 2002) Chairman: RD1.com Limited (resigned 19 November 2001), The Lion
Foundation; Deputy Chairman: Fisher & Paykel Healthcare Corporation Limited; Director: Auckland International
Airport, Taylors Group Limited, Tru-Test Limited, United Networks Limited, Wrightson Limited Director & Shareholder:
Grantchester Farms Limited Shareholder: New Zealand Dairy Foods Limited (via Grantchester Farms), RD1.com Limited;
78
M G Townshend Director: New Zealand Dairy Board (resigned 31 October 2001), Director & Shareholder: Southwest
Properties Limited, Kade Farms Limited, Plains View Farms Limited, M & D Properties Limited, MG & DE Townshend
Limited, Crescent Jerseys Limited, Longwood Properties Limited, Liberty Genetics Limited, BTR Holdings Limited,
Awamata Holdings Limited, Foveaux Investments Limited; Shareholder: New Zealand Dairy Foods Limited;
H W van der Heyden Director: RD1.com Limited, Wrightson Limited, New Zealand Dairy Board (resigned 2 April
2002); Shareholder: New Zealand Dairy Foods Limited;
(2)
Specific Disclosures
E S Rattray: Advised an interest in Dairy Industry Good Incorporated
P M Smith: Advised an interest in the buy-out of the RD1.com Limited minorities and absented himself from the
discussion. Mr Smith’s interest as a minority shareholder was valued at $1,357,072.
J C Roadley: Advised an interest in the Board’s allocation of shares in respect of conversion farms. Mr Roadley’s
interest had a value of $507,000 as detailed in section (B)(2) below.
M G Townshend: Advised an interest in the Board’s allocation of shares in respect of conversion farms.
Mr Townshend’s interest had a value of $780,000 as detailed in section (B)(2) below.
E S Rattray, P M Smith, M G Townshend, H W van der Heyden: All advised an interest as “B” shareholders in
New Zealand Dairy Foods Limited, in respect of Fonterra’s requirement to divest its shareholding in that company.
(B) Securities Dealings of Directors
The following entries were made in the Interests Register.
(1) Initial Allocation of Securities
Directors disclosed the following allocations of securities made on 16 October 2001:
CO-OPERATIVE SHARES
Harry Bayliss
Richard Booth
Murray Flett
Greg Gent
Marise James
Gerard Lynch
Earl Rattray
John Roadley
Mike Smith
Mark Townshend
HELD BY
JOINTLY HELD WITH
ASSOCIATED PERSONS
ASSOCIATED PERSONS
102,336
448,164
110,560
83,392
520,918
135,074
1,407,636
253,146
115,216
120,549
74,495
114,895
144,286
90,522
In each case, the allocations were made in accordance with the provisions of the Merger Proposal. The value upon
allocation of these securities was $3.00 per co-operative share.
79
(2)
Subsequent Trading Activities
M L James: On 8 February 2002, Kara Trust, of which Mrs James is a Trustee, entered into an unconditional
agreement to purchase, on 31 May 2002, 60,000 Co-operative Shares at $3.85 each.
On 10 May 2002, Mrs James entered into an agreement to transfer the 74,495 shares jointly held by her and an
Associated Person, into Bryndmar Farms Limited, of which she is a shareholder and director, with the transfer
effective on 31 May 2002.
J C Roadley: On 19 February 2002, Warnock Park Limited, of which Mr Roadley is a shareholder and director, was
allotted 169,000 Co-operative Shares at $3.00 each in respect of a conversion farm as at 16 October 2001.
M G Townshend: On 19 February 2002, Longwood Properties Limited, of which Mr Townshend is a shareholder
and director, was allotted 260,000 Co-operative Shares at $3.00 each in respect of a conversion farm as at 16
October 2001.
On 19 March 2002, Crescent Jerseys Limited, of which Mr Townshend is a shareholder and director, entered into an
unconditional agreement to sell, on 4 June 2002, 70,087 Co-operative Shares at $3.85 each.
(C) Loans to Directors
There have been no loans made to Directors.
(D) Directors’ Remuneration
The Directors’ Remuneration Committee, comprising six shareholders appointed under the constitution, makes recommendations
for shareholder approval as to the level of Directors Fees.
Prior to the amalgamation of Kiwi Co-operative Dairies, New Zealand Dairy Group and Fonterra on 16 October 2001, the
amalgamating companies approved, on the recommendation of the Directors’ Remuneration Committee, the following
amounts of remuneration effective until the first Annual Meeting.
Chairman
Deputy Chairman
Directors
Additional payment to the Chairman of the Audit Finance
& Risk Committee (except if the Chairman is the Fonterra
Chairman or Deputy Chairman)
$190,000 p.a.
$115,000 p.a.
$95,000 p.a.
$10,000 p.a.
(E) 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 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.
80
Security Holder Information
NUMBER OF
AS AT 18 JULY 2002
Size of Security Holding
1 - 5000
5,001 - 10,000
10,001 - 50,000
50,001 - 100,000
100,001 - 1,000,000
1,000,001 and over
Registered addresses of Note Holders
New Zealand
Rest of World
NUMBER OF
NOTE HOLDERS
PER CENT
CAPITAL NOTES
PER CENT
1,037
1,884
3,594
423
373
10
7,321
14.2
25.7
49.1
5.8
5.1
0.1
100.0
4,462,069
17,900,730
94,500,971
33,991,396
82,719,309
37,975,029
271,549,504
1.6
6.6
34.8
12.5
30.5
14.0
100.0
7,301
20
7,321
99.7
0.3
100.0
270,702,641
846,863
271,549,504
99.7
0.3
100.0
As at 18 July 2002, there were no Substantial Security Holders.
81
Fonterra Leadership Team
82
Craig Norgate
Chris Moller
Glen Petersen
David Pilkington
Graham Stuart
Alexander Töldte
Chief Executive Officer
BBS (Massey), CA.
Deputy Chief Executive Officer,
Managing Director NZMP
B Com and Admin, Dip Acctg.
Group Director
Human Resources
BBS
Managing Director
NEW ZEALAND MILK
BSC, BE (Chem),
Dip Dairy Sci & Tech
Chief Financial Officer
MSC, B Comm (Hons), CA.
Chief Development Officer,
Managing Director,
Fonterra Enterprises
MBA, BA (Economics)
Craig Norgate has
more than ten years’
experience as a leader in
the New Zealand dairy
industry. He is a director
of Australasian Food
Holdings Ltd and a
former director of the
New Zealand Dairy
Board, Mainland
Products Ltd and Peters
& Brownes Foods Ltd.
He is also a director of
the New Zealand Rugby
Football Union. He was
previously Chief
Executive Officer of Kiwi
Co-operative Dairies.
Since 1987 Chris Moller
has held a number of
senior positions within
the New Zealand Dairy
Board. Prior to joining
the dairy industry he
held several senior
marketing and financial
roles with various
organisations.
Glen Petersen has more
than 20 years’ business
and Human Resources
experience in the food,
beverages, hospitality
and telecommunications
sectors in New Zealand,
Australia, Canada and
the United States.
Mr Petersen was formerly
General Manager
Human Resources at
Telecom New Zealand.
Prior to that he held a
similar role at Telstra
Corporation in Sydney,
before which he was
Vice President Human
Resources for Arnott’s
Ltd. He formerly held
senior Human Resources
positions at Lion Nathan
and his early business
experience was with
Pizza Hut internationally.
David Pilkington has
more than 25 years’
experience in the dairy
industry. In the past
15 years he has held a
number of senior
positions at the New
Zealand Dairy Board
including Chief Executive
Officer of the Board’s
North American regional
holding company, and
President of NZMP
Japan.
Graham Stuart has
extensive experience in
the New Zealand dairy
industry in a number of
finance and general
management roles.
Mr Stuart previously
spent five years with
Lion Nathan in the roles
of General Manager
(Asia), Managing
Director, International
and Corporate Strategy
Director. Before that he
was Chief Executive
Officer of Mainland
Products Ltd.
Alexander Töldte has
wide experience in
international business in
Europe, North America
and globally. Prior to his
appointment he was
of Fletcher Building
before which he was
of Fletcher Paper and
Chairman of Fletcher
Challenge Canada Ltd.
Mr Töldte previously
spent more than ten
years with McKinsey &
Company in Stockholm,
Brussels, Montreal and
Toronto. He is a director
of Dexcel and Dairy
InSight.
Fonterra Company Structure
Craig Norgate
Chris Moller
David Pilkington
Alexander Töldte
Graham Stuart
Glen Petersen
NZMP
NEW ZEALAND MILK
Corporate Development and
Finance
Human Resources
Jackie Lloyd
Director
Global Human Resources
Scott Eglinton
Director
Marketing & Strategy
Mike Holm
Director
Trade Strategy
Alison Andrew
Director
Performance
Rolf Siggaard
Director
Organisation & Change
Bob Major
Director
Global Marketing & Strategy
Dale Farrar
Director
Human Resources
Robert LeBrun
Director
Corporate Strategy
Alex Duncan
Director
Corporate Finance
Max Parkin
Director
Manufacturing &
Milk Supply
Angus McKay
Chief Financial Officer
Chris Mallett
Director Corporate
Research & Development
Jason Dale
Chief Internal Auditor
Peter Schuyt
Director
Global Finance &
Administration
Ron Peake
Chief Information Officer
Jody Stewart
Director
Corporate Communications
Bryce Houghton
Group Controller
John Shaskey
Director
Global Supply Chain
Roger Ryan
Director Global Operations
Brian Bilas
RD1
David Matthews
General Counsel
Company Secretary
Jay Waldvogel
Director
Global Network
Baird McConnon
Regional Managing Director
Australasia
John Lea
Commercial Director
Ray Parker
General Manager
Shareholder Services
Juan Carlos Pestana
Americas
Kevin Marshall
ViaLactia Biosciences
Neil Pickering
AIME
Kris Nygren
Fencepost.com
Mark Wynne
Asia
83
Corporate Centre
Private Bag 92032
Auckland
NEW ZEALAND
64 9 256 5400 (phone)
64 9 256 5419 (fax)
NZMP
PO Box 417
Wellington
NEW ZEALAND
64 4 471 8999 (phone)
64 4 471 8600 (fax)
NEW ZEALAND MILK
PO Box 417
Wellington
NEW ZEALAND
64 4 471 8300 (phone)
64 4 471 8600 (fax)
Private Bag 92032
Auckland
NEW ZEALAND
64 9 256 5400 (phone)
64 9 256 5419 (fax)
Shareholder Services
Private Bag 92191
Auckland
NEW ZEALAND
64 9 524 3400 (phone)
64 9 524 3401 (fax)
Fonterra Research Centre
Private Bag 11-029
Palmerston North 5320
NEW ZEALAND
64 6 350 4649 (phone)
64 6 356 1476 (fax)
Fencepost
PO Box 37735
Parnell
NEW ZEALAND
64 9 336 0250 (phone)
64 9 336 0274 (fax)
RD1
PO Box 9045
Hamilton
NEW ZEALAND
64 7 858 0600 (phone)
64 7 858 0601 (fax)
ViaLactia Biosciences
PO Box 109-185
Newmarket
NEW ZEALAND
64 9 306 0140 (phone)
64 9 306 0141 (fax)
FonterraTech
PO Box 5327
Auckland
NEW ZEALAND
64 9 307 8770 (phone)
64 9 307 8771 (fax)
This Annual Report is dated 1 August 2002 and is signed on
Annual Meeting of Shareholders
behalf of the Board by:
The Annual Shareholders’ Meeting of Fonterra Co-operative Group
Limited will be held at 10.30am on Thursday, 12 September 2002
GRAEME HAWKINS, Director
Design: Origin Design Photography: John Crawford, John Daley
in Hamilton, New Zealand.
84
HAWERA
New Zealand
This is the most productive milk processing plant on the planet. The technology
deployed is designed to manufacture products that meet precise and
often complex customer specifications consistently. Every hour 20 tonnes
of milk powder are produced, a total of 120,000 tonnes for the past
season. Every day 3.6 million litres of milk are produced, the largest output in
the world. The plant is known as Powder 5 and is located in Whareoa, Hawera,
New Zealand; just one of 64 Fonterra processing plants around the world.
ANNUAL REPORT 2001
>
2002
annual report
2001 > 2002
www.fonterra.com

31921 Fonterra ARep Front 2

Transcription

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