Fonterra Shareholders' Fund Prospectus and Investment Statement

YOUR 

OPPORTUNITY. 

Fonterra Shareholders’ Fund ProspecTUS 

and InveSTment Statement 

26 OCTOBER 2012

Important 

INFORmation 

(The information in this section is 

required under the Securities Act 1978.) 

InveSTment decisions are very 

imporTAnt. They often have 

long-term consequences. 

Read all documents carefully. 

Ask queSTIons. Seek advice 

before committing yourself. 

Choosing an investment 

When deciding whether to invest, consider 

carefully the answers to the following questions 

that can be found on the pages noted below: 

page 

What sort of investment is this 14 

Who is involved in providing it for me 15 

How much do I pay 15 

What are the charges 17 

What returns will I get 17 

What are my risks 18 

Can the investment be altered 19 

How do I cash in my investment 19 

Who do I contact with inquiries 

about my investment 20 

Is there anyone to whom I can complain 

if I have problems with the investment 20 

What other information can I obtain 

about this investment 20 

In addition to the information in this 

document, important information can be 

found in the current registered prospectus 

for the investment. You are entitled to a 

copy of that prospectus on request. 1 

The Financial Markets Authority 

regulates conduct in financial 

markets 

The Financial Markets Authority regulates 

conduct in New Zealand’s financial markets. 

The Financial Markets Authority’s main 

objective is to promote and facilitate the 

development of fair, efficient, and transparent 

financial markets. 

For more information about investing, 

go to http://www.fma.govt.nz. 

Financial advisers can help you 

make investment decisions 

Using a financial adviser cannot prevent you 

from losing money, but it should be able to 

help you make better investment decisions. 

Financial advisers are regulated by the 

Financial Markets Authority to varying levels, 

depending on the type of adviser and the 

nature of the services they provide. Some 

financial advisers are only allowed to provide 

advice on a limited range of products. 

When seeking or receiving financial advice, 

you should check – 

• the type of adviser you are dealing with: 

• the services the adviser can provide you 

with: 

• the products the adviser can advise you on. 

A financial adviser who provides you with 

personalised financial adviser services may be 

required to give you a disclosure statement 

covering these and other matters. You should 

ask your adviser about how he or she is paid 

and any conflicts of interest he or she may 

have. 

Financial advisers must have a complaints 

process in place and they, or the financial 

services provider they work for, must belong 

to a dispute resolution scheme if they provide 

services to retail clients. So if there is a 

dispute over an investment, you can ask 

someone independent to resolve it. 

Most financial advisers, or the financial 

services provider they work for, must also be 

registered on the financial service providers 

register. You can search for information 

about registered financial service providers 

at http://www.fspr.govt.nz. 

You can also complain to the Financial Markets 

Authority if you have concerns about the 

behaviour of a financial adviser. 

1 This is the wording required by Schedule 13 to the Securities Regulations 2009, which contemplates a separate prospectus and 

investment statement. This Offer Document comprises both a prospectus and an investment statement and, accordingly, the 

prospectus available on request is identical to this document.

Important 

Notice 

This Offer Document is a combined 

prospectus and investment statement for 

the purposes of the Securities Act and the 

Securities Regulations. It is prepared as at, 

and dated, 26 October 2012 (as amended 

by a memorandum of amendments dated 

2 November 2012). 

The information required to be contained in 

an investment statement is set out in the 

sections entitled Important Information and 

Answers to Important Questions. The purpose 

of those sections is to provide certain key 

information that is likely to assist a prudent 

but non-expert person to decide whether or 

not to subscribe for Units under the Offer. 

Investors should be aware that other 

important information about the Units and 

the Offer is set out in other sections of this 

Offer Document. 

This Offer Document is an important 

document and should be read carefully. 

Investors should consider the risks that are 

associated with an investment in the Units, 

particularly with regard to their personal 

circumstances (including financial and tax 

issues). A summary of the principal risks 

associated with an investment in the Units 

is set out under the heading “What are my 

risks” in the section entitled Answers to 

Important Questions. A more detailed 

description is set out in Section 7 – 

Investment Risks. 

Investors who are in any doubt as to any 

aspect of the Offer should consult a NZX 

Firm or their solicitor, accountant or other 

appropriately qualified professional adviser. 

No person is authorised to give any information 

or to make any representation in connection 

with the Offer which is not contained in this 

Offer Document. Any information or 

representation in connection with the Offer 

not contained in the Offer Document may 

not be relied upon as having been authorised 

by the Manager or Trustee of the Fund, 

Fonterra, the Joint Lead Managers or any of 

their respective directors, officers, employees, 

consultants, agents, partners or advisers. 

No guarantee 

No person guarantees the Units, or any 

returns on the Units, offered under this 


Registration 

A copy of this Offer Document duly signed by 

or on behalf of the directors of the Manager of 

the Fund and every Promoter for the purposes 

of the Securities Act, and having endorsed 

thereon or attached thereto copies of the 

documents and other materials required by 

section 41 of the Securities Act, has been 

delivered to the Registrar of Financial Service 

Providers for registration in accordance with 

section 42 of the Securities Act. 

The documents required by section 41 of the 

Securities Act to be endorsed on or attached 

to the copy of this Offer Document delivered 

to the Registrar of Financial Service Providers 

are: 

• the report of the Auditor in respect of the 

summary financial information included in 

this Offer Document, as set out in this 

Offer Document; 

• the signed consent of the Auditor to the 

audit report appearing in this Offer 

Document; 

• the report of the Investigating Accountant 

in respect of the Fonterra Prospective 

Financial Information included in this Offer 

Document, as set out in this Offer Document; 

• the signed consent of 

PricewaterhouseCoopers to the 

Investigating Accountant’s Report 

appearing in this Offer Document; 

• copies of the material contracts referred to 

under the heading “Material contracts” on 

page 156; and 

• letters of authority authorising this Offer 

Document to be signed by an agent of any 

director of the Manager and any Promoter 

(if and where required), and a power of 

attorney authorising this Offer Document 

to be signed by an attorney appointed by 

Fonterra (being a Promoter). 

Consideration period 

Pursuant to section 43C of the Securities Act, 

upon registration of the Offer Document 

with the Registrar of Financial Service 

Providers, the Financial Markets Authority 

will be notified of the registration for the 

purpose of allowing the Financial Markets 

Authority an opportunity to consider whether 

the Offer Document (a) complies with the 

Securities Act and the Securities Regulations; 

(b) contains any material misdescription or 

error, or any material matter that is not clearly 

legible; or (c) is false or misleading as to a 

material particular, or omits any material 

particular. Nothing in that section or in any 

other provision of the Securities Act limits 

the Financial Markets Authority’s power to 

consider or reconsider those matters at any 

time. The nature and extent of the 

consideration (if any) that the Financial 

Markets Authority gives to the Offer 

Document are at the Financial Markets 

Authority’s discretion. 

Section 43D of the Securities Act prohibits 

the Manager of the Fund from accepting 

Applications or making allotments in respect 

of the Offer during the period commencing 

with the date of this Offer Document and 

ending on the close of the day that is five 

working days after that date. The Financial 

Markets Authority may shorten that period, 

or extend it by no more than five additional 

working days. 

Overseas investors 

The Offer is being made only to members of 

the public in New Zealand and Australia and 

to Institutional Investors in New Zealand, 

Australia and certain other overseas 

jurisdictions (excluding the United States 

and any persons who are, or are acting for 

the account or benefit of, US Persons). 

No person may offer, sell (including resell) or 

deliver or invite any other person to so offer, 

sell (including resell) or deliver any Units or 

distribute any documents (including this 

Offer Document) in relation to the Units to 

any person outside New Zealand or Australia 

except in accordance with all of the legal 

requirements of the relevant jurisdiction. 

In particular, this Offer Document (including 

an electronic copy) may not be distributed 

or released, in whole or in part, to persons in 

the United States (other than to Pre-identified 

EUSFMs) or persons who are, or are acting 

for the account or benefit of, US Persons. 

Any failure to comply with such restrictions 

may constitute a violation of applicable 

securities laws. 

The Units have not been, and will not be, 

registered under the US Securities Act or 

the securities laws of any state or other 

jurisdiction of the United States and may not 

be offered or sold, directly or indirectly, in the 

United States, other than to a limited number 

of Pre-identified EUSFMs, or to, or for the 

account or benefit of, a US Person. 

FONTERRA SHAREHOLDERS’ FUND PROSPECTUS AND INVESTMENT STATEMENT 1

Important 

NOTIce continued 

Accordingly, the Units to be offered and sold 

in the Offer may only be offered and sold to (i) 

eligible investors outside the United States 

who are not US Persons and are not acting 

for the account or benefit of a US Person, 

or (ii) to a limited number of Pre-identified 

EUSFMs, in each case, in “offshore transactions” 

(as defined in Regulation S under the US 

Securities Act) in compliance with category 2 

of Regulation S under the US Securities Act. 

Unless otherwise agreed with the Manager of 

the Fund, any person or entity subscribing for 

Units in the Offer shall, by virtue of such 

subscription, be deemed to represent that he, 

she or it is not in a jurisdiction which does not 

permit the making to him, her or it of an offer 

or invitation of the kind described in this Offer 

Document, and is not acting for the account 

or benefit of a person within such jurisdiction. 

None of the Manager of the Fund, Fonterra, 

Fonterra’s subsidiaries, the Trustee, the Joint 

Lead Managers or any of their respective 

directors, officers, employees, consultants, 

agents, partners or advisers accepts any 

liability or responsibility to determine whether 

a person is able to participate in the Offer. 

Important information for 

Australian investors 

Australian investors should have regard 

to the Additional Australian Information 

accompanying this Offer Document before 

deciding whether or not to purchase Units. 

The Additional Australian Information 

contains disclosure relevant to Australian 

investors and important notices required 

for a recognised offer under Chapter 8 of 

the Corporations Act and the Australian 

Corporations Regulations 2001 (Cth). 

NZX listing 

Application has been made to NZX for 

permission to list the Fund and to quote 

the Units on the NZX Main Board and all 

requirements of NZX relating to that 

application that can be complied with on or 

before the date of this Offer Document have 

been duly complied with. However, NZX 

accepts no responsibility for any statement 

in this Offer Document. 

NZX has authorised NZX Firms to act on the 

Offer. The NZX Main Board is a registered 

market operated by NZX, a registered 

exchange regulated under the Securities 

Markets Act. 

Initial quotation of the Units on the NZX 

Main Board is expected to occur on 30 

November 2012 under the ticker code “FSF”. 

Announcements during the period of the 

Offer will be made through the NZX Market 

Announcement Platform and will be able to 

be viewed on the NZX website www.nzx.com. 

ASX listing 

The Manager of the Fund will apply to ASX 

for permission to list the Fund and to quote 

the Units on ASX. Listing is not guaranteed 

and is at the discretion of ASX. Similarly, there 

is no assurance that the ASX listing of the 

Fund will continue for the life of the Fund. 

ASX accepts no responsibility for the contents 

of this Offer Document or the Additional 

Australian Information or for the merits of 

the investment to which this Offer Document 

or the Additional Australian Information 

relate. Admission to the official list of ASX 

and quotation of the Units on ASX are not 

to be taken as an indication of the merits, 

or as an endorsement by ASX, of the Fund 

or the Units. 

Initial quotation of the Units on ASX is expected 

to occur on 30 November 2012 (on a deferred 

settlement basis) under the ticker code “FSF”. 

Risk and suitability of an 

investment in the Fund 

This Offer Document does not take into 

account the investment objectives, financial 

situation or particular needs of any investor. 

Before applying for Units, investors should 

read this Offer Document in its entirety. In 

particular, investors should consider the 

nature of the investment in Units and the 

risk factors that could affect the Fund’s 

performance (including those set out under 

the heading “What are my risks” in the 

section entitled Answers to Important 

Questions and in Section 7 – Investment Risks), 

particularly with regard to their personal 

circumstances. Investors who are in any 

doubt as to any aspect of the Offer should 

consult a NZX Firm or their solicitor, 

accountant or other appropriately qualified 

professional adviser. 

Definitions 

Capitalised terms used in this Offer Document 

have the specific meaning given to them in 

Section 12 – Glossary. Where helpful, certain 

other terms are also explained in the Glossary. 

Unless otherwise indicated, any reference to 

dollars, $, NZ$ or cents refers to New Zealand 

dollars and cents. 

All references to dates and time are to dates 

and time in New Zealand. 

Copies of all New Zealand statutes and 

regulations referred to in this Offer 

Document can be viewed online, free of 

charge, at www.legislation.govt.nz. 

Third party information 

This Offer Document includes Statistics 

New Zealand’s data which is licensed by 

Statistics New Zealand for re-use under 

the Creative Commons Attribution 3.0 

New Zealand licence. 

Nielsen information reflects estimates of 

market conditions based on samples, and is 

prepared primarily as a marketing research 

tool for consumer packaged goods 

manufacturers and others in the consumer 

goods industry. This information should not 

be viewed as a basis for investments and 

references to Nielsen should not be 

considered as Nielsen’s opinion as to the 

value of any security or the advisability of 

investing in the Fonterra Shareholders’ Fund. 

ANZ National Bank Limited is a Co-Manager 

in relation to the Offer, as set out in the 

section of this Offer Document entitled 

Directory. ANZ National Bank Limited 

anticipates changing its company name 

shortly after the date of this Offer Document. 

Up to date company information is available 

from the Companies Office of the Ministry of 

Business, Innovation and Employment on its 

website at www.business.govt.nz/companies. 

2

contents 

> 

 

Letter from Fund Chairman 6 

> 

> 

> 

> 

> 

> 

> 

Letter from Fonterra Chairman 7 

Introducing the Offer 8 

Overview of Trading Among Farmers 10 

Answers to Important Questions 14 

Offer Details and Dates 21 

Fonterra at a Glance 24 

Investment Highlights 27 

1.0 About Fonterra 35 

2.0 Governance Framework 57 

3.0 Setting the Farmgate Milk Price for New Zealand Milk 64 

4.0 Fonterra Financial Information 72 

5.0 Trading Among Farmers in Detail 113 

6.0 Dira Regulatory Environment 127 

7.0 Investment Risks 129 

8.0 Details of the Offer 136 

9.0 Taxation 143 

10 Statutory Information 145 

11 Summary Financial Statements 160 

12 Glossary 165 

> 

> 

Directory 170 

Application Forms 



Letter 

FROm 

Fund 

Chairman 

Dear Investor 

The Board of the Manager of the Fonterra 

Shareholders’ Fund is pleased to join with 

Fonterra to offer investors a unique 

opportunity to invest in the performance of 

Fonterra and to gain an exposure to the 

dynamics of the global dairy industry. 

Fonterra is a world-leading dairy co-operative 

based in New Zealand which has global 

businesses spanning dairy commodity and 

consumer markets. It has significant businesses 

in developed countries and stable but growing 

businesses in emerging markets in China, 

Asia, the Middle East and Latin America. 

The Fonterra Shareholders’ Fund is a unit 

trust that is established as an important part 

of Fonterra’s Trading Among Farmers scheme. 

The Fund will acquire Economic Rights of 

Shares in Fonterra and issue Units to investors. 

The number of Units on issue will correspond 

to the number of Fonterra Shares in which 

Economic Rights are held for the Fonterra 

Shareholders’ Fund. Dividends and other 

distributions from these Fonterra Shares will 

be passed through to Unit Holders, and it is 

anticipated that the price of a Unit will reflect 

and track movements in the value of a 

Fonterra Share. 

It is important to note that this is an 

opportunity to invest in Units in the Fonterra 

Shareholders’ Fund, and is not an opportunity 

to acquire Fonterra Shares. However, the 

return on a Unit is essentially dependent on 

the performance of Fonterra. As a result, 

most of the information in this document has 

been provided by, and relates to, Fonterra. 

On behalf of the Board of the Manager of 

the Fonterra Shareholders’ Fund, I invite you 

to consider the Offer set out in this Offer 

Document and take appropriate independent 

advice to determine whether an investment 

in Units in the Fonterra Shareholders’ Fund 

may be appropriate for you. 

John Shewan 

Chairman 

FSF Management Company Limited 

6

Letter 

FROm 

Fonterra 

Chairman 

Dear Investor 

For the first time in Fonterra’s history, 

new investors are being invited to consider 

participating in our performance. Until now, 

this opportunity has been limited to our 

Farmer Shareholders. 

With our Farmer Shareholders’ support, 

we now have a unique way of enabling the 

broader investment community to participate 

in the Co-operative’s performance. 

As New Zealand’s largest company and the 

world’s largest dairy processor and exporter, 

we are proud of what we have achieved. 

Fonterra was formed in 2001 when the 

farmer owners of New Zealand’s two leading 

dairy co-operatives, The New Zealand 

Co-operative Dairy Company Limited and 

Kiwi Co-operative Dairies Limited voted to 

merge their co-operatives and integrate them 

with the industry’s separate marketing arm, 

The New Zealand Dairy Board. 

This was a bold move, widely debated and 

very forward looking because it succeeded in 

laying the foundation for the Fonterra we are 

today. Our competitive strength owes much 

to our integrated “grass to glass” business, 

with a supply chain starting on our Farmer 

Shareholders’ farms and extending to more 

than 100 markets worldwide. Fonterra is now 

a single-minded customer-led business. 

It is this scale and position which enables us 

to be a significant participant in the growing 

global demand for dairy nutrition. As incomes 

rise in emerging economies, we see firsthand 

the increasing importance of these economies. 

Increasingly affluent populations are seeking 

everyday nutrition, and dairy is an obvious 

and natural source. Fonterra’s strength starts 

with the quality milk produced in New Zealand 

by our Farmer Shareholders before it flows 

through our factories and is delivered to more 

than 100 countries. We are well positioned 

to seize these opportunities to grow volumes 

and value. 

Fonterra is unique in a number of ways. Our 

Farmer Shareholders are resilient, innovative 

and efficient, competing in the world market 

without subsidies. Their pasture-based 

farming underpins our competitive cost base. 

As our industry has exported since the late 

1800s, generations of farmers have worked 

the land with their sights on selling their milk 

overseas. As a result, Fonterra exports around 

98% of the milk it processes in New Zealand, 

the only country in the world to export such a 

large majority of its dairy production. Over 

time, we have built up an international brand 

portfolio, known and respected in our key 

markets in Australasia, South East Asia, the 

Middle East, Latin America and, increasingly, 

China. 

Co-operatives exist to give their members 

collective strength and the ability to operate 

their own businesses to achieve their goals. 

Our Farmer Shareholders range from small 

family-run operations through to multiproperty 

operations, but they all rely on their 

milk, and our ability to process and sell it, to 

make a living. 

Central to this is the price we pay farmers for 

their milk, known as the Farmgate Milk Price. 

Fonterra is committed to paying the highest 

sustainable Farmgate Milk Price that is linked 

to actual global dairy commodity prices 

and allows for the recovery of product 

manufacturing costs by an efficient processor 

of Fonterra’s scale, including a return on 

capital invested in processing. The Farmgate 

Milk Price is based on transparent and robust 

rules which are independently monitored. 

Fairly rewarding farmer suppliers is crucial to 

the success of the Co-operative by retaining 

and growing valuable milk supply. It is also 

the foundation for building long-run value for 

Shareholders and Unit Holders from 

Fonterra’s investment in milk processing 

assets and downstream businesses. 

Fonterra is also focussed on maximising its 

earnings. The drive to achieve profits above 

the Farmgate Milk Price is not only important 

for our Farmer Shareholders, who have a 

substantial financial stake in the Co-operative, 

but also those considering participating in 

our performance through their investment 

in Units. 

Traditionally, our Co-operative has had capital 

linked to supply. Farmers have bought Shares 

to ensure their milk is collected, processed 

and sold. Exiting farmers have the value of 

these Shares returned in cash by the 

Co-operative. As a result, we have lacked a 

stable capital base. 

We have known for some time that we had to 

put the Co-operative’s capital structure on a 

firmer footing. 

Earlier this year, our Farmer Shareholders 

confirmed their decision in 2010 for the 

Fonterra Board to take steps to address its 

capital structure by implementing Trading 

Among Farmers. This will enable Farmer 

Shareholders to trade Shares among 

themselves and will result in permanent 

capital for Fonterra. 

The Fonterra Shareholders’ Fund has been 

created to support liquidity in the Fonterra 

Shareholders’ Market in which Farmer 

Shareholders will trade Fonterra Shares. 

The wider investment community will have 

the opportunity to invest in Units, with 

distributions made in respect of Units linked 

to dividends paid on Fonterra Shares. 

Farmer Shareholders and Unit Holders will 

invest through separate structures. What they 

both have in common is the ability to be part 

of the continuing performance of our 

Co-operative – a New Zealand success story. 

The Fonterra Board is pleased to be able 

to promote the offer of Units in the Fund. 

I commend this Offer to you. 

SIR HENRY VAN DER HEYDEN 

Chairman 

Fonterra Co-operative Group Limited 


Introducing 

the Offer 

8

The Offer is an offer to subscribe for Units in the 

Fonterra Shareholders’ Fund, a unit trust which has 

been established to invest in the Economic Rights 

of Shares in Fonterra. It provides investors with an 

opportunity to earn returns based on the financial 

performance of Fonterra. 

Because the performance of Units will be related to 

the performance of Fonterra, this Offer Document 

contains information about Fonterra’s business and 

its financial performance. 

No offer is being made in this Offer Document to 

subscribe for Shares in Fonterra. The Units being 

offered in this Offer Document will be issued by the 

Manager of the Fund, not by Fonterra, and do not 

confer any direct interest in Fonterra. 

At the same time as the Offer is being made, 

Fonterra is establishing the Fonterra Shareholders’ 

Market, which will enable Farmer Shareholders to 

trade Shares among themselves. Accordingly, this 

Offer Document also explains how the Fonterra 

Shareholders’ Market will facilitate Trading Among 

Farmers and its relationship to the Offer of Units. 


Overview 

of Trading 

Among Farmers 

This section contains a summary 

of Trading Among Farmers. 

Trading Among Farmers is the 

name which has been given 

to a series of inter-related 

arrangements of which the 

Fonterra Shareholders’ Fund 

forms a part. A more detailed 

description of these 

arrangements is set out in 

Section 5 – Trading Among 

Farmers in Detail. 

Fonterra is a 

co-operative company 

Fonterra is a co-operative company and its 

Farmer Shareholders are the suppliers of milk 

to Fonterra in New Zealand. 

Farmer Shareholders are required to hold a 

number of Shares in Fonterra linked to the 

amount of milk they supply to the Co-operative 

each year (over the course of a dairy Season). 

The number of Shares that a Farmer 

Shareholder is required to hold moves in line 

with changes in their milk production from 

one Season to the next. 

Fonterra currently issues Shares to Farmer 

Shareholders when milk production 

increases, and is obliged to take them back 

(or redeem them) if the Farmer Shareholder 

stops supplying milk to Fonterra, or their milk 

production reduces. 

Fonterra’s obligation to redeem Shares 

exposes it to the risk that it may have to pay 

large sums of money to Farmer Shareholders 

who stop or reduce their supply of milk to 

Fonterra, which is described as redemption 

risk. Trading Among Farmers is designed to 

remove this obligation for Fonterra, and 

provide Fonterra with a stable capital base. 

What is Trading Among Farmers 

Trading Among Farmers is the name which 

has been given to a series of inter-related 

arrangements. 

The essence of the arrangements is that: 

• Farmer Shareholders will trade Shares 

between themselves, instead of Fonterra 

being required to issue and redeem 

Shares; and 

• outside investors, who are not allowed to 

hold Shares in Fonterra, will be able to 

invest in a security (a Unit in the Fonterra 

Shareholders’ Fund) that gives them access 

to the Economic Rights that they would 

have received if they were allowed to own 

a Share. 

Why is Fonterra launching 

Trading Among Farmers 

A key objective of Trading Among Farmers 

is to remove Fonterra’s obligation to issue 

Shares to, and to redeem Shares from, Farmer 

Shareholders. This will provide Fonterra with 

a stable capital base. 

Fonterra considers that there will be long-term 

alignment between the interests of Farmer 

Shareholders and Unit Holders under Trading 

Among Farmers. 

Economic Rights 

The Economic Rights of a Share are the 

rights to receive dividends and other 

economic benefits derived from a Share, 

as well as other rights derived from 

owning a Share. 

However, these rights do not include 

the right to hold legal title to the 

Share (i.e. to become registered as 

the holder of the Share), or to exercise 

voting rights in Fonterra, except in very 

limited circumstances. 

The Fund becomes entitled to Economic 

Rights of a Share by Farmer Shareholders 

and the Fonterra Farmer Custodian (on 

behalf of a specially appointed market 

maker) transferring, or Fonterra issuing, 

Shares to the Fonterra Farmer Custodian. 

The Fonterra Farmer Custodian holds the 

Economic Rights of those Shares on trust 

for the Trustee, under a trust called the 

Fonterra Economic Rights Trust. 

This is what is meant in this Offer 

Document wherever there is a reference 

to “sell Economic Rights of Shares” to 

the Fund. 

A more detailed description of Economic 

Rights is set out in Section 5 – Trading 

Among Farmers in Detail. 

10

How Trading Among Farmers 

will work 

When Trading Among Farmers starts, 

there will be two key changes: 

• Farmer Shareholders will buy and sell 

Shares among themselves, not with 

Fonterra. They will do this on a private 

market called the Fonterra Shareholders’ 

Market. It will be a private market because 

only Farmer Shareholders, Fonterra, 

and a specially appointed market maker 

(which is described below) will be allowed 

to trade Shares; and 

• a fund known as the Fonterra Shareholders’ 

Fund will operate. The Fund is intended to: 

–– 

supplement liquidity in the Fonterra 

Shareholders’ Market through a liquid 

market for Units which can effectively 

be “exchanged” for Fonterra Shares (by 

Farmer Shareholders, Fonterra and the 

market maker) and vice versa; 

–– 

provide additional financial flexibility for 

Farmer Shareholders, who will have the 

opportunity to sell Economic Rights of 

Shares to the Fund; and 

–– 

permit a broader range of investors to 

buy a security (a Unit in the Fonterra 

Shareholders’ Fund) that essentially 

passes through the Economic Rights. 

This is described in Section 5 – Trading 



• The Fund is a unit trust formed under 

the Unit Trusts Act. It is managed by the 

Manager and the Trustee is appointed to 

act as trustee of the Fund for the benefit 

of Unit Holders. 

• Units will be listed on the NZX Main Board 

and on ASX and will be able to be freely 

bought and sold, in the same way as any 

other listed security. 

• The Manager of the Fund has a board of 

five directors. Three directors will be 

elected by Unit Holders. However, the 

first three directors have been selected by 

Fonterra so that the Fund can commence 

operations. The other two directors of the 

Manager are appointed by Fonterra. 

• Units will be able to be exchanged for Shares 

(and vice versa) by Farmer Shareholders, 

Fonterra and the market maker (discussed 

below) on a one-for-one basis. 

• Other investors will not be able to 

exchange Units for Shares (or vice versa). 

• As described on the previous page under 

the heading “Economic Rights”, the Economic 

Rights of Shares are held on trust for the 

Fund by the Fonterra Farmer Custodian 

(a special purpose company) under a trust 

called the Fonterra Economic Rights Trust. 

• The Fonterra Farmer Custodian is owned 

by the trustees of a specially created 

trust. This trust has three trustees. 

Farmer Shareholders, Fonterra and the 

Shareholders’ Council each appoint one 

trustee. A more detailed description of the 

role of the Fonterra Farmer Custodian, 

is set out in Section 5 – Trading Among 


• The Fund will elect to be a “foreign 

investment variable-rate PIE” for New 

Zealand income tax purposes. A New 

Zealand tax summary in relation to the 

Fund is set out in Section 9 – Taxation. 

Fonterra Shareholders’ Market 

• The Fonterra Shareholders’ Market will be 

operated by NZX. It will be a registered 

market on which only FSM Participants 

accredited by NZX may trade on behalf 

of Farmer Shareholders. The Fonterra 

Shareholders’ Market will be regulated and 

monitored by NZX (whose regulatory role 

will include monitoring compliance with 

and enforcing the FSM Rules and the 

NZX Participant Rules) and the Financial 

Markets Authority, in the same way as 

other markets operated by NZX. 

• There will be a market maker (known as 

the Registered Volume Provider or RVP) 

who will be continuously active in offering 

to buy and sell Shares on the Fonterra 

Shareholders’ Market during the periods 

of operation of the Fonterra Shareholders’ 

Market (other than in the case of a 

temporary halt in, or suspension of, trading 

in Shares). This is intended to assist the 

liquidity of trading on the Fonterra 

Shareholders’ Market to make it easier for 

Farmer Shareholders to buy or sell Shares 

on that market. Craigs Investment Partners 

Limited has been initially appointed as the 

Registered Volume Provider. 

overview of trading among farmers 

A high level representation of the relationship 

between the Fonterra Shareholders’ Market 

and the Fonterra Shareholders’ Fund is shown 

in the diagram. The diagram illustrates that 

the number of Units on issue will be a small 

proportion of the total number of Fonterra 

Shares on issue. The diagram is also intended 

to illustrate the connection between these 

two markets. 

FONTERRA 

SHAREHOLDERS’ MARKET 

SHARES 

CUSTODIAN 

FONTERRA 

SHAREHOLDERS’ FUND 

UNITS 

FONTERRA FARMERS 

FUND INVESTORS 


Overview 

of Trading 

Among Farmers continued 

Relationship between the 

two markets 

Although the markets are separate, they 

have been designed to work together. Farmer 

Shareholders, Fonterra and the RVP can buy 

or sell Shares in the Fonterra Shareholders’ 

Market, and buy or sell Units on the NZX 

Main Board or ASX. They can effectively 

exchange Shares for Units and vice versa and 

therefore can shift between the two markets. 

Other investors will not be able to transact in 

the Fonterra Shareholders’ Market and 

exchange Units for Shares. 

Launching and managing 


To allow each Unit to essentially pass the 

Economic Rights of one Share through to the 

Unit Holder, the number of Units in the Fund 

must correspond to the number of Economic 

Rights of Shares held for the Fund by the 

Fonterra Farmer Custodian. Accordingly, at 

the same time as this Offer, Fonterra on 

behalf of the Fund has made an offer to 

Farmer Shareholders to acquire Economic 

Rights of Shares from those Farmer 

Shareholders. The offer to Farmer Shareholders 

is referred to as the Supply Offer. When 

Farmer Shareholders accept the Supply Offer, 

they will transfer Shares to the Fonterra 

Farmer Custodian, who will hold the Economic 

Rights of those Shares on trust for the Fund. 

If the number of Shares for which the Supply 

Offer is accepted by Farmer Shareholders is 

less than the number of Units to be issued 

under this Offer (see the page headed “Key 

investment metrics” later in this Offer 

Document for details of the number of Units 

to be issued), Fonterra will provide the 

shortfall. Fonterra will do this by issuing 

Shares to the Fonterra Farmer Custodian who 

will hold the Economic Rights of those Shares 

on trust for the Fund. 

Following the launch of the Fund, the 

Fonterra Board will manage the size of the 

Fund within parameters which are outlined 

in the Fund Size Risk Management Policy. 

That policy anticipates that the number of 

Units on issue should fall within a target 

range of between 7% and 12% of the total 

number of Shares which are on issue at any 

given time (excluding Shares and Units which 

have been bought by Fonterra and are being 

held by it as Treasury Stock). 

In tandem with this, Farmer Shareholders will 

continue to be required to hold Shares related 

to their milk production. Fonterra’s objective 

will be to maintain a sufficient volume of 

Shares on issue to promote a liquid market 

on which Farmer Shareholders can adjust 

their Shareholding as their milk production 

increases. To achieve this goal, Fonterra has 

two key options. It can issue new Shares 

to raise new equity capital, if required. 

Alternatively, it can undertake a bonus issue 

where new equity capital is not required. In 

either case, the Manager will undertake an 

equivalent adjustment to the number of 

Units on issue. 

Within the context of Fonterra’s Fund Size 

Risk Management Policy (as described in 

Section 5 – Trading Among Farmers in Detail), 

Fonterra will also manage the number of 

Shares on issue if production over time falls 

resulting in Farmer Shareholders holding 

Shares in excess of the minimum requirements 

related to milk production. Unlike today, 

Fonterra will no longer have an obligation to 

redeem Shares where this occurs. Instead, it 

will have more flexibility in the manner and 

timing of meeting the requirements of the 

Fund Size Risk Management Policy (through, 

for example, a Share buy back programme). 

Price convergence between 

Shares and Units 

As previously noted, Farmer Shareholders, 

the RVP and Fonterra can effectively 

exchange a Share for a Unit and vice versa. 

This feature allows Farmer Shareholders and 

the RVP to move between the two markets 

(for Shares and Units) in order to sell or buy 

either security. No other person can do this. 

The intended result is that Shares and Units 

should trade at very similar prices. This is 

referred to as the convergence of prices for 

Shares and Units. While this has been a key 

design objective for Trading Among Farmers, 

there is no assurance that convergence of 

prices will actually be achieved. 

Key entitlements for Unit Holders 

Trading Among Farmers has been designed 

so that the number of Units in the Fund will 

correspond to the number of Shares in which 

Economic Rights are held for the Fund: 

• Unit Holders will be entitled to have 

passed through to them an amount equal 

to any dividend payable in relation to a 

Share in Fonterra (less any PIE tax, 

withholding tax or any other adjustments 

for tax in relation to that Unit Holder); 

• if Fonterra reconstructs or adjusts its 

Shares, an equivalent reconstruction or 

adjustment will be made in respect of Units; 

• if Fonterra makes bonus issues or rights 

issues of Shares to its Shareholders, 

corresponding issues of Units will be made 

to Unit Holders; and 

• if there is an offer to acquire Shares held by 

the Fonterra Farmer Custodian, the Fund 

will seek instructions from Unit Holders as 

to whether the offer should be accepted. 

If a Unit Holder directs the Fund to accept 

the offer, the Fund will redeem Units from 

such Unit Holder, and accept the offer for 

Shares in proportion to that direction. The 

amount received from the sale of the Shares 

will be paid by the Fund to the Unit Holder. 

Unit Holder voting rights 

Unit Holders are entitled to attend and vote 

at Unit Holder meetings, and to elect three 

directors of the Manager of the Fund. 

Unit Holders do not have any right to attend 

or vote, or request the Fonterra Farmer 

Custodian to attend or vote, at any meeting 

of Farmer Shareholders. The Fonterra Farmer 

Custodian will also not have any voting rights 

at meetings of Farmer Shareholders, except 

on certain interest group resolutions. 

Situations where interest group resolutions 

are required are expected to be rare. 

The trustees of the Fonterra Farmer 

Custodian Trust will hold one Unit known as 

the Fonterra Unit. Subject to the terms of the 

NZSX Listing Rules, the Trust Deed cannot 

be altered without the prior approval of the 

Fonterra Unit Holder (which can only be 

given after receipt of a direction to that effect 

from Farmer Shareholders) if that 

amendment would change: 

• the governance structure of the Board of 

the Manager, including the number of 

directors of the Manager elected by the 

Unit Holders, the manner of their election, 

or the number of directors of the Manager 

appointed by Fonterra and the manner of 

their appointment; 

• the scope and role of the Fund; 

• the obligation of the Fund to facilitate the 

exchange of a Share for a Unit or a Unit for 

a Share; 

• the limit of 15% on the number of Units 

that can be held by any person and their 

Associates (other than Fonterra) in the 

Fund; or 

• the terms of the Fonterra Unit itself. 

12

In other respects, the Fonterra Unit will have 

the same rights as all other Units issued by 

the Manager. A more detailed description of 

the Fonterra Unit is set out in Section 5 – 

Trading Among Farmers in Detail. 

Governance arrangements 

relating to the Fund 

All Shareholders in Fonterra have various 

rights under the law and in the key 

documents that give effect to Trading Among 

Farmers. The governance arrangements 

described below have been put in place to 

give effect to those rights. 

The Fonterra Farmer Custodian will be the 

legal holder of the Shares in respect of which 

Economic Rights are held for the Fund and 

will have rights under the Constitution, as 

well as at law. 

The Fonterra Board is required to act in the 

best interests of the Co-operative. The Courts 

have established that this requires the 

Fonterra Board to act in the best interests 

of its Shareholders (which will include the 

Fonterra Farmer Custodian). 

Fonterra is required to consult with the 

Chairman of the Board of the Manager 

(representing the three directors who are 

elected by Unit Holders) regarding the 

appointment of Appointed Directors to the 

Fonterra Board, who are the Co-operative’s 

Independent Directors for the purposes of 

the FSM Rules which govern the operation 

of the Fonterra Shareholders’ Market. If a 

majority of the three directors who are 

elected by Unit Holders do not support the 

proposed appointment, that fact must be 

publicly disclosed. 

The setting of the Farmgate Milk Price (which 

forms the basis of the price that Fonterra 

pays its Farmer Shareholders for milk 

supplied in New Zealand) is governed by a 

Farmgate Milk Price Manual which is 

published and has been the subject of various 

regulatory reviews. The Farmgate Milk Price 

Manual is governed by a Milk Price Panel 

which Fonterra has established for that 

purpose, and which comprises a majority of 

independent members. The setting of the 

Farmgate Milk Price is overseen by the 

competition law regulator in New Zealand, 

the Commerce Commission. 

The FSM Rules are enforceable by Shareholders. 

They require the following key decisions to be 

approved by a majority of not less than 75% 

of the Fonterra Board, with such majority 

including at least a majority of the 

Independent Directors: 

• a decision to pay an aggregate amount for 

milk in excess of the amount calculated 

under the Farmgate Milk Price Manual; 

• a decision to amend or replace the 

Farmgate Milk Price Manual; 

• a decision to promote, or support, 

an amendment to, or replacement of, 

the Constitution that would have a 

material adverse effect on the rights 

attached to Shares which are held by the 

Fonterra Farmer Custodian (in respect 

of which Economic Rights are held for 

the Fund); and 

• a decision to appoint an Independent 

Director where the appointment has 

not been supported by a majority of the 

directors of the Manager who are not 

also Fonterra Directors. 

Each of these decisions could normally be 

taken by a simple majority resolution of the 

Fonterra Board. The FSM Rules recognise that 

these decisions of the Fonterra Board are 

particularly important and, in the case of the 

first three decisions, could have an impact on 

the returns derived by all Shareholders, 

including the Shares held by the Fonterra 

Farmer Custodian (the Economic Rights of 

which are held for the Fund). The FSM Rules 

therefore require a higher than normal 

majority for these resolutions, and require the 

agreement of a majority of the Independent 

Directors on the Fonterra Board. 

Relationship between Fonterra 

and the Fund 

The relationship between Fonterra and the 

Fund is governed by several key documents, 

including the Trust Deed, the Authorised 

Fund Contract, the Shareholding Deed, the 

Custody Trust Deed and the Fonterra Farmer 

Custodian Trust Deed. 

Termination of the Authorised 

Fund Contract 

Trading Among Farmers is intended to be 

stable and serve the interests of Farmer 

Shareholders and Unit Holders over the long 

term. However, Fonterra has the right to give 

12 months’ notice to terminate the Authorised 

Fund Contract without cause within the first 

two years of the Launch Date. Fonterra could, 

for example, decide to do this if it becomes 

apparent that Trading Among Farmers is not 

meeting its intended objectives. 

If the Authorised Fund Contract terminates, 

Fonterra could revert to a regime of issuing 

Shares to, and redeeming Shares from, its 

Farmer Shareholders. Should this arise, the 

Fonterra Farmer Custodian could not seek to 

have the Shares it holds redeemed, because it 

is not a supplier of milk to Fonterra. However, 

Fonterra may be able to establish and 

implement a replacement fund as an 

“Authorised Fund”, in which case Trading 

Among Farmers could continue. In that case, 

Fonterra would not be required to revert to 

issuing and redeeming Shares. 

If the Authorised Fund Contract was 

terminated by Fonterra without cause within 

the first two years, Fonterra would be required 

to purchase the Economic Rights held for the 

Fund (or the Shares those Economic Rights 

relate to) or arrange an approved person to 

purchase them. The price payable would be 

the greater of: 

• a 15% premium to the volume weighted 

average price of Units and Shares over the 

period of six months prior to the notice of 

termination being given; or 

• the Final Price, increased at a compounding 

rate of 15% per year, less cash dividends 

paid in those years. 

The Authorised Fund Contract can also be 

terminated by Fonterra or the Manager in 

cases of material breach of the Authorised 

Fund Contract or under other limited 

circumstances. A detailed description of the 

circumstances in which the Authorised Fund 

Contract can be terminated is set out in 

Section 5 – Trading Among Farmers in Detail. 

The Fund will be wound up if all the Economic 

Rights held for the Fund or all the Shares the 

subject of the Fonterra Economic Rights Trust 

are acquired by Fonterra or a person 

nominated by Fonterra. 


Answers 

TO Important 

QueSTIONS 

What sort of 

inveSTment is this 

The Units 

This Offer Document relates to an initial 

public offering of units in a unit trust, known 

as the Fonterra Shareholders’ Fund. 

Each Unit will constitute an undivided 

interest in the trust fund comprising the 

Fund, which has been established to invest in 

the Economic Rights of Shares in Fonterra. 

The Fund has been designed so that each 

Unit issued by it will, essentially, pass through 

the economic benefits derived from holding a 

single Share in Fonterra. Full details of the 

structure and other features of the Fund are 

contained in Section 5 – Trading Among 


No offer is being made in this Offer 

Document to subscribe for Shares in 

Fonterra. The Units being offered in this 

Offer Document will be issued by the 

Manager of the Fund, not by Fonterra, and 

do not confer any direct interest in Fonterra. 

Each Unit gives the holder the right to: 

• receive an equal share in any distribution 

authorised by the Manager of the Fund 

and paid in respect of that Unit (as 

described further under the heading “What 

returns will I get” in this section); 

• be sent certain Fund information, including 

half and full-year reports for the Fund; and 

• attend and vote at meetings of Unit 

Holders. 

In addition, Fonterra will send certain 

Fonterra information, including half and 

full-year reports for Fonterra to Unit Holders. 

Offer size and pre-conditions 

Overview 

The Dairy Industry Restructuring Act 2001 

(DIRA) sets out pre-conditions that must be 

satisfied before Trading Among Farmers, and 

therefore the Fund, can commence. One of 

these conditions is that the Manager of the 

Fund has entered into binding obligations to 

issue Units, for an aggregate consideration of 

not less than $500 million. This means that, 

in order for the Offer to proceed, valid 

Applications for Units having an aggregate 

value of at least $500 million must be received. 

Number of Units 

To satisfy the pre-condition specified above, 

the number of Units issued at the Launch 

Date, multiplied by the Final Price, must be 

not less than $500 million. The number of 

Units required to be issued to meet this level 

cannot be determined until the Final Price 

has been set. 

From the Launch Date, the number of Units 

on issue must correspond with the number 

of Shares in which the Fonterra Farmer 

Custodian is holding Economic Rights on 

trust for the Fund. Following the launch of 

the Fund, the Fund will continuously acquire 

Economic Rights and issue Units. The converse 

also applies where the Fund will, at the 

initiation of Farmer Shareholders or the RVP, 

cancel Units they hold and transfer to them 

Shares (or, in the case of the RVP, hold those 

Shares for its benefit). This feature of the 

Fund is described in Section 10 – Statutory 

Information under the heading “Ongoing 

issue of Units”. The number of Units on issue 

will be limited by the following factors: 

• the SHC Deed Poll imposes a limit of 20% 

(reducing the 25% limit contained in the 

Constitution) on the number of Shares in 

respect of which Economic Rights may be 

held for the Fund; and 

• Fonterra is entitled to, and intends to, 

actively manage the number of Shares in 

which Economic Rights are held for the 

Fund to a level significantly below this 

threshold. Further details of this 

arrangement are described in Section 5 

– Trading Among Farmers in Detail. 

Issue of Shares by Fonterra 

The Fund has been established on the 

basis that the number of Units issued will 

correspond to the number of Shares in which 

Economic Rights are held by the Fonterra 

Farmer Custodian for the Fund. In order to 

generate the Economic Rights in respect of 

which the Fund will issue Units, Shares will 

need to be acquired by the Fonterra Farmer 

Custodian (who will then declare that it holds 

the Economic Rights of those Shares on trust 

for the Fund). 

Therefore, at the same time as the Offer, 

Farmer Shareholders are being given the 

opportunity to transfer Shares to the Fonterra 

Farmer Custodian under the Supply Offer 

and, if an insufficient number of Shares are 

offered for transfer in the Supply Offer by 

Farmer Shareholders, Fonterra has agreed to 

issue the shortfall of Shares to the Fonterra 

Farmer Custodian. The exact number of 

Shares that will be on issue after the Offer 

is unknown as it will depend upon: 

• the number of Shares agreed to be sold 

by Farmer Shareholders to the Fonterra 

Farmer Custodian; 

• the Final Price; and 

• the number of Units issued under the 

Friends of Fonterra Offer and the 

Australian Supplier Offer. 

Fonterra’s intention is that the amount it 

receives as a result of the issue of Shares in 

order to meet any shortfall under the Supply 

Offer will not be retained on a permanent basis 

by Fonterra. In this situation, Fonterra’s 

intention is to provide one or more further 

opportunities for Farmer Shareholders to sell 

Economic Rights of Shares to the Fund, and for 

Fonterra to acquire the number of Units issued 

as a result of any such sales (in a manner which 

does not disturb general trading in Units). 

Further information about the Supply Offer is 

contained in Section 8 – Details of the Offer. 

DIRA pre-conditions 

As noted above, DIRA sets out pre-conditions 

that must be satisfied before Trading Among 

Farmers can commence. These include that 

the Manager has entered into binding 

obligations to issue Units for an aggregate 

consideration of not less than $500 million 

and the Minister for Primary Industries has 

recommended that an Order in Council be 

made by the Governor-General. 

The Offer will not proceed and no Units will 

be allotted should the Order in Council not 

be made. Pending allotment of the Units, all 

Application Monies will be held on trust for 

the benefit of Applicants and Fonterra. If this 

DIRA pre-condition is not reached, that fact 

will be announced through NZX and 

Application Monies will be refunded in full, 

without interest. 

NZX Main Board / ASX listings 

Application has been made to NZX for 

permission to list the Fund and to quote the 

Units on the NZX Main Board, and all the 

requirements of NZX relating thereto that 

can be complied with on or before the date 

of this Offer Document have been duly 

complied with. However, the Units have not 

yet been approved for trading and NZX 

accepts no responsibility for any statement 

in this Offer Document. 

NZX has authorised NZX Firms to act on the 

Offer. NZX is a registered exchange and the 

NZX Main Board is a registered market under 

the Securities Markets Act. 

Application has also been made to ASX for 

the Fund to be admitted to the official list of 

ASX and for quotation of the Units on ASX. 

Listing is not guaranteed and is at the discretion 

of ASX. Similarly, there is no assurance that 

the ASX listing of the Fund will continue for 

the life of the Fund. 

14

ASX accepts no responsibility for the contents 

of this Offer Document and the Additional 

Australian Information or for the merits 

of the investment to which this Offer 

Document and the Additional Australian 

Information relate. Admission to the official 

list of ASX and quotation of the Units on 

ASX are not to be taken as an indication of 

the merits, or as an endorsement by ASX, 

of the Fund or the Units. 

Initial quotation of the Units on the NZX Main 

Board and ASX (on a deferred settlement 

basis) is expected to occur on 30 November 

2012 under the ticker code “FSF”. 

The Fund will bear a “Non Standard” 

designation on the NZX Main Board to reflect 

the Fund’s governance arrangements and 

Unit Holder restrictions. 

Who is involved in 

PROviding it for me 

Unit trust 

The name of the unit trust in which Units are 

being offered is the Fonterra Shareholders’ 

Fund. 

Manager 

The Manager of the Fund is FSF Management 

Company Limited. The Manager can be 

contacted at its registered office at 9 Princes 

Street, Auckland, New Zealand. 

The Manager is the issuer of the Units for the 

purposes of the Securities Act. 

Directors of the Manager 

The directors of the Manager as at the date of 

this Offer Document are as follows: 

John Bruce Shewan (Chairman) 

Philippa Jane Dunphy 

Kimmitt Rowland Ellis 

Sir Ralph James Norris 

Jim William van der Poel 

Both Sir Ralph Norris and Jim van der Poel are 

also directors of Fonterra. The three other 

directors are Independent Directors for the 

purposes of the NZSX Listing Rules. 

Detailed information about the Board of the 

Manager is contained in Section 2 – 

Governance Framework. 

Trustee 

The Trustee is The New Zealand Guardian 

Trust Company Limited. The Trustee can be 

contacted at its registered office at Level 7, 

Vero Centre, 48 Shortland Street, Auckland, 

New Zealand. 

Pursuant to section 16(1) of the Securities 

Trustees and Statutory Supervisors Act, the 

Financial Markets Authority granted the 

Trustee a licence to (among other things) act 

as a trustee in respect of unit trusts. That 

licence expires on 16 March 2018. 

Promoters 

Fonterra Co-operative Group Limited is a 

Promoter of the Offer. Fonterra can be 

contacted at its registered office at 9 Princes 


Each director of Fonterra is also a Promoter 

of the Offer (other than where a director 

of Fonterra is also a director of the Manager). 

As at the date of this Offer Document, 

the names of the directors of Fonterra who 

are not also directors of the Manager are 

as follows: 

Malcolm Guy Bailey 

Ian James Farrelly 

Sir Henry van der Heyden 

David Alexander Jackson 

David Nigel Macleod 

John Anthony Monaghan 

Nicola Mary Shadbolt 

John Anthony Waller 

Ralph Graham Waters 

John Speer Wilson 

Names and addresses 

The above stated names and addresses 

(where given) of the Manager, the Trustee 

and the Promoters are current as at the date 

of this Offer Document, but are subject to 

change. The current names and addresses 

may be obtained free of charge at any time 

by searching the public register maintained 

by the Companies Office of the Ministry of 

Business, Innovation and Employment on its 

website at www.business.govt.nz/companies. 

Activities of the Fund 

The Fund was established as a unit trust 

under the Unit Trusts Act, under a Trust Deed 

dated 23 October 2012. The Fund will elect to 

be a “foreign investment variable-rate PIE” for 

New Zealand income tax purposes. Other 

than in connection with preparing for the 

Offer, the Fund has not undertaken any 

activities since it was established. 

How much do I pay 

The Final Price 

The price per Unit payable by investors to 

subscribe for Units will be the Final Price. 

As at the date of this Offer Document, the 

Final Price is yet to be determined. 

The Final Price will be determined by 

Fonterra. A bookbuild process, managed by 

the Joint Lead Managers, will be used to 

assess investor demand for the Units and 

assist Fonterra to determine the Final Price. 

Under the bookbuild process, selected 

Institutional Investors and NZX Firms will be 

invited to submit bids for Units. Fonterra has 

set an Indicative Price Range of $4.60 to 

$5.50 per Unit. However, Fonterra reserves 

the right to set the Final Price within or 

higher than the Indicative Price Range. 

The Final Price is expected to be announced 

to NZX on 27 November 2012. All Applicants 

will be required to pay the Final Price, per 

Unit subscribed for. Full details of the Offer 

and the bookbuild process through which the 

Final Price will be set are set out in Section 8 

– Details of the Offer. 

Applications to subscribe for Units must be 

made on the relevant Application Form and 

completed in accordance with the 

accompanying instructions. 

Broker Firm Offer 

The Broker Firm Offer is open to persons with 

a registered address in New Zealand who 

have received an allocation from a NZX Firm. 

Applicants under the Broker Firm Offer 

should make payments in accordance with 

the directions of the NZX Firm from whom 

they received an allocation. Cheques should 

be crossed “Non Transferable” and made out 

to “Fonterra Shareholders’ Fund Offer”. 

Applicants under the Broker Firm Offer must 

send the completed blue Broker Firm Offer 

Application Form and Application Monies to 

the NZX Firm who provided the allocation so 

as to be received in time to enable them to 

be forwarded to and received by the Unit 

Registrar by 5.00pm on 21 November 2012 

(being the Broker Firm Offer Closing Date). 

Stakeholder Offer 

Friends of Fonterra Offer 

The Friends of Fonterra Offer is open to 

Farmer Shareholders with a valid “Farm / Party 

number” as at 26 October 2012, Fonterrasupplying 

sharemilkers with a valid “Farm / 

Party number” as at 26 October 2012, Fonterra 

New Zealand and Australian permanent 

employees and Ex-Farmer Shareholders. 


Answers 

TO Important 

QueSTIONS continued 

Applications under the Friends of Fonterra 

Offer must be made for a minimum amount 

of $2,000, and thereafter in whole multiples of 

$100, up to a maximum amount of $50,000 

(except in respect of Fonterra New Zealand 

and Australian employees, whose maximum 

application amount is $25,000). 

Application Monies under the Friends of 

Fonterra Offer should be paid in New Zealand 

dollars by cheque, bank draft or direct debit 

(New Zealand only) in each case drawn on a 

registered New Zealand bank. Cheques 

should be crossed “Non Transferable” and 

made out to “Fonterra Shareholders’ Fund 

Offer”. Applicants’ payment by direct debit 

must include their bank account details on 

their Application Form. Fonterra employees in 

Australia (and all other Applicants under the 

Friends of Fonterra Offer) will need to make 

arrangements to make payment of their 

Application Monies in New Zealand dollars. 

Applicants under the Friends of Fonterra Offer 

must send the completed green Friends of 

Fonterra Offer Application Form and Application 

Monies to the Unit Registrar in order to be 

received by 5.00pm (NZDT) on 21 November 

2012 (being the Stakeholder Offer Closing 

Date). Alternatively, Applications can be lodged 

with any NZX Firm, the Joint Lead Managers, 

or any other channel approved by NZX so as 

to be received in time to enable them to be 

forwarded to and received by the Unit Registrar 

by 5.00pm (NZDT) on 21 November 2012 

(being the Stakeholder Offer Closing Date). 

If the aggregate value of Applications 

received under the Friends of Fonterra Offer 

is greater than the value of Units allocated to 

that offer (as determined by Fonterra), 

Applications will be scaled in such manner as 

determined by Fonterra in consultation with 

the Joint Lead Managers. 

Australian Supplier Offer 

The Australian Supplier Offer is an offer 

of up to $25 million of Units to supplier 

shareholders of Bonlac Supply Company 

Limited (BonIac) and to suppliers of milk 

to Fonterra Milk Australia Pty Ltd (Fonterra 

Milk Australia). 

As described in Section 8 – Details of the 

Offer, as part of the Australian Supplier 

Offer, BonIac intends to invite its supplier 

shareholders to apply to have their Supplier 

Shares that they hold, bought back at a price 

of A$1.00 per share, up to the value of the 

Applicant’s holding less one share, on the 

condition that the proceeds must be applied 

to subscribe for Units at the Final Price (and 

subject to certain amendments to the 

constitution of Bonlac which are to be 

considered at a general meeting of Bonlac on 

31 October 2012 being approved, and the ‘Z’ 

class shareholder passing a resolution 

approving the buyback). 

Application under the Australian Supplier 

Offer must be for a minimum of A$1,800 

of Units and thereafter in whole multiples 

of A$100. 

The Final Price for all Applicants (including 

Applicants under the Australian Supplier 

Offer) is payable in New Zealand dollars. 

Once the Final Price and allocation of Units 

has been determined, the Australian dollar 

proceeds of the buy back of the Supplier 

Shares in Bonlac, as well as any cash 

Application Monies received in Australian 

dollars in respect of the Australian Supplier 

Offer, will be converted to New Zealand 

dollars on behalf of Applicants at 

the settlement rate struck between the 

determination of the Final Price and the 

Allotment Date and applied to the payment 

of the Final Price on subscription for Units. 

Where Applications under the Australian 

Supplier Offer have been scaled, the portion 

of the Application Monies in respect of each 

Application that has not been accepted due 

to scaling will not be converted into New 

Zealand dollars and will be refunded in 

Australian dollars. 

Further details of how to apply under the 

Australian Supplier Offer (including payment 

instructions) will be included in the 

personalised yellow Australian Supplier Offer 

Application Form which will be provided to 

supplier shareholders of Bonlac and to 

suppliers of milk to Fonterra Milk Australia 

together with this Offer Document on or 

around 9 November 2012. 


Offer should send their completed 

Application Form and Application Monies to: 

Computershare Investor Services Pty Limited 

GPO Box 7115 

Sydney NSW 2001 

Australia 

Applications under the Australian Supplier 

Offer must be received by 5.00pm (NZDT) 

on 21 November 2012 (being the Stakeholder 

Offer Closing Date). Applicants are 

encouraged to submit their Application Form 

and payment as early as possible in advance 

of the Stakeholder Offer Closing Date and to 

allow a sufficient period for mail processing. 


Offer may also apply using the online 

application facility at www.fonterraoffer.com. 

Applicants applying online are required to 

pay any Application Monies in Australian 

dollars using BPAY. All online Applications 

must be made by 5.00pm (NZDT) on 

21 November 2012 (being the Stakeholder 

Offer Closing Date). 

If the aggregate value of Applications received 

under the Australian Supplier Offer is greater 

than $25 million, Applications will be scaled 

in such manner as determined by Fonterra in 

consultation with the Joint Lead Managers. 

Refunds 

Residual amounts from any scaling of 

Applications will be refunded. Refunds will 

not be paid for any difference arising solely 

due to rounding or where the aggregate 

amount of the refund payable to an Applicant 

is less than $5.00. All refunds will be made 

without interest. Refunds will be issued 

within five business days following the 

Allotment Date. 

All refunds will be paid in New Zealand 

dollars except for refunds in respect of 


Offer, which will be paid in Australian dollars. 



of the Application Monies in respect of each 

Application that has not been accepted due 

to scaling will not be converted into New 

Zealand dollars and will be refunded in 

Australian dollars. 

Where any Application Monies have been 

converted into New Zealand dollars on behalf 

of any Applicant under the Australian Supplier 

Offer but are subsequently required to be 

refunded, those Application Monies will be 

converted back into Australian dollars at the 

exchange rate applying at that time. Accordingly, 

due to fluctuations in the foreign exchange 

rates for Australian dollars and New Zealand 

dollars, the Australian dollar amount of any 

such refunded amount could be more than 

or less than the relevant amount of those 

Application Monies provided at the time the 

Application was made. 

Institutional Offer 

Full details of how to participate in the 

Institutional Offer, including bidding 

instructions, will be provided to participants 

prior to the opening of the Institutional Offer. 

16

What are the charges 

Applicants for Units are not required to pay 

any charges to the Manager of the Fund or 

Fonterra (or any associated person of either 

of them) or to the Fund other than the Final 

Price for each Unit subscribed for which will 

be determined as set out under the heading 

“How much do I pay” above. 

Units subsequently purchased or sold on the 

NZX Main Board or ASX are likely to attract 

normal brokerage and charges that are 

payable for transactions conducted on those 

stock exchanges. 

Fonterra will pay all costs associated with the 

Offer. Details of the expenses of the Offer are 

set out under the heading “Issue expenses” in 

Section 10 – Statutory Information. 

Fonterra has agreed to meet the day-to-day 

operating costs of the Fund. This arrangement 

will not change without the agreement of all 

parties to the Authorised Fund Contract. In 

addition, the Fund will use corporate facilities, 

support functions, and services provided by 

Fonterra. These are generally provided at no 

cost to the Fund. There are some exceptions 

to this principle which are described in 


What returns will I get 

Returns generally 

Returns on Units may be derived by way of 

any distributions made by the Fund in respect 

of the Units, and by way of any capital 

appreciation realised on the sale or other 

disposition of Units (although the market 

price of the Units may also decline). 

As each Unit corresponds to the Economic 

Rights derived from the holding of a single 

Share in Fonterra, returns on Units will relate 

to the financial performance of Fonterra and, 

in particular, decisions made by the Fonterra 

Board in relation to dividends paid by Fonterra 

to Shareholders. Fonterra’s dividend policy 

will primarily determine the distributions, if any, 

made by the Manager in respect of Units. 

Distributions will be payable to the Unit Holders 

entered on the register of Unit Holders at the 

record date for the relevant distribution. 

The key factors that determine the returns 

that are likely to be derived from an 

investment in Units are: 

• the market price of Units; 

• the performance and financial position of 

Fonterra; 

• Fonterra’s reserves and retentions; 

• decisions of the Fonterra Board in relation 

to dividends paid by Fonterra to 

Shareholders; 

• general economic conditions; 

• movements in the local and global market 

for listed securities; 

• changes to government policy, legislation 

or regulation; 

• competition in the markets in which 

Fonterra operates; 

• general operational and business risks; 

• the factors discussed below under the 

heading “What are my risks” and in 

Section 7 – Investment Risks; and 

• applicable taxes (see Section 9 – Taxation 

for a summary of the material New Zealand 

tax consequences for Unit Holders). 

Distributions 

Cash distributions from the Fund 

The Trust Deed provides that where Fonterra 

pays a cash dividend or other cash benefit 

(other than supplementary dividends) on a 

per-Share basis, upon receipt by the Fonterra 

Farmer Custodian (being the holder of the 

Shares for which Economic Rights are held 

for the Fund), the Manager of the Fund will 

pass on that cash dividend or other cash 

benefit to Unit Holders on a per-Unit basis, 

less any adjustments for tax. Supplementary 

dividends will be passed on in the same way, 

but only to the Unit Holders that entitled 

Fonterra to receive a tax credit for the 

supplementary dividends. 

The Manager can give no assurance as to the 

amount or frequency of such cash dividend or 

other cash benefit received by the Fonterra 

Farmer Custodian from Fonterra. Therefore, 

the Manager cannot give any assurance as to 

the amount or frequency of cash distributions 

to be paid in respect of Units. 

The Trustee is the entity legally liable to pay 

any cash distributions declared or made on 

the Units. 

Fonterra’s dividend policy 

Fonterra’s dividend policy targets a payout 

ratio of 65% to 75% of adjusted net profit 

after tax (after taking into account nonrecurring 

items and other factors), with 40% 

to 50% of dividends paid at the half year. 

The policy also gives the Fonterra Board 

discretion to have regard to other commercial 

considerations it considers to be relevant as 

described in more detail in Section 4 – 

Fonterra Financial Information. 

The Fonterra Board reserves the right to 

amend its dividend policy from time to time. 

Other distributions 

Unit Holders may also be entitled to receive 

other distributions, for example, in certain 

circumstances where Fonterra undertakes 

to raise new equity. See under the heading 

“Issues and buy backs of Shares” in Section 5 

– Trading Among Farmers in Detail for 

further information. 

Sale of Units 

Unit Holders may benefit from any increase 

in the market price of their Units. Unit 

Holders will realise this benefit upon the 

sale of their Units. However, the market 

price of Units may also decline. The price 

of the Units could rise or fall depending 

on numerous factors, including (without 

limitation) those listed above under the 

heading “Returns generally”. 

There can be no guarantee that an active 

market for the Units will develop, or that 

the market price of the Units will increase. 

Information on the selling of Units is set out 

below under the heading “How do I cash in 

my investment” in this section. 

No guarantee 

Nothing contained in this Offer Document 

should be construed as a promise of any 

particular returns. None of Fonterra, the 

Manager, Fonterra’s subsidiaries, the Trustee, 

the Joint Lead Managers or any of their 

respective directors, officers, employees, 

consultants, agents, partners or advisers gives 

any guarantee or promise as to the return of 

capital or the amount of any returns (including 

distributions) in relation to the Units. 

The information set out in this section should 

be read in conjunction with the information 

set out under the heading “What are my 

risks” below and in Section 7 – Investment 

Risks. The factors described in that section 

could reduce or eliminate the distributions or 

other returns intended to be derived from the 

holding of Units. 


Answers 

TO Important 


What are my risks 

An investment in Units will expose investors 

to a range of risks which could materially 

adversely impact the value of, and returns 

on, investment. 

The principal risks for Unit Holders are: 

• the inability to recover some or all of their 

investment; and / or 

• the failure of the Manager to make any 

distributions because Fonterra does 

not make any dividend payments in 

respect of Shares or due to any other 

extraordinary circumstances. 

In no event will persons subscribing for Units 

under the Offer be required to pay more than 

the Final Price per Unit subscribed for. 

The principal risks set out above could 

materialise for a number of reasons. 

Firstly, there are risks which are common 

to all investments in securities and which 

are not specific to an investment in Units. 

Some of these risks include: 

• the returns which investors receive from 

their Units are less than the price they 

have paid; 

• Unit Holders are unable to sell their Units 

at all; 

• the Fund or Fonterra is placed in receivership 

or liquidation. If the Fund or Fonterra 

becomes insolvent for any reason, Unit 

Holders could receive no returns or lesser 

returns than those specified under the 

heading “What are my returns” above; and 

• the general volatility of security prices. 

This volatility could result from general 

economic conditions in New Zealand and 

overseas and other events that may affect 

Fonterra’s business. 

Secondly, there are risks which are specific to 

an investment in the Units. These risks are 

discussed in detail in Section 7 – Investment 

Risks. Some of these risks include: 

• the Fund and its relationship with the 

Fonterra Shareholders’ Market is novel. 

The structure has been carefully designed 

but is untested and therefore there is some 

uncertainty about how it will perform; 

• the Fund will not have, and no Unit Holder 

will have, any voting right at a meeting of 

Fonterra Shareholders. Generally, the 

Fonterra Farmer Custodian will not have 

the right to vote at a meeting of Farmer 

Shareholders, although there may be limited 

exceptions to this principle, where the 

Manager of the Fund can direct the Fonterra 

Farmer Custodian how to vote. Those 

circumstances are expected to be rare; 

• the Fund structure has been designed 

with the intention that Shares and Units 


referred to as the convergence of prices 

for Shares and Units. There is, however, 

no assurance that this will be achieved 

or, if achieved, how long it will take or 

whether it will be maintained; 

• the liquidity of trading in, and the prices of, 

Units could be affected by constraints on 

supply, or oversupply, of Shares for the 

purposes of the Fund; 

• certain of the protections available to the 

Fund and Unit Holders are contained in the 

FSM Rules. The FSM Rules are enforceable 

by Shareholders, including the Fonterra 

Farmer Custodian. Therefore, the Fonterra 

Farmer Custodian could seek to enforce 

these protections for the benefit of Unit 

Holders. However, no individual Unit Holder 

will be able to enforce the FSM Rules; and 

• the FSM Rules could be changed 

so as to remove these protections by 

agreement between Fonterra and NZX 

(as operator of the Fonterra Shareholders’ 

Market), although this would also require 

the approval of the Financial Markets 

Authority. NZX may also approve a waiver 

of rules within the FSM Rules. 

Thirdly, there are risks which are specific to 

Fonterra, its business operations, the markets 

in which it sells dairy products, and the 

regulatory environment in which it operates in 

New Zealand and elsewhere. These risks are 

discussed in detail in Section 7 – Investment 

Risks. They are relevant to Unit Holders because, 

as noted above, each Unit corresponds to the 

Economic Rights derived from the holding of 

a single Share in Fonterra. Consequently, an 

investment in the Fund exposes investors to 

the risks facing Fonterra’s business, whether 

specific to Fonterra’s business activities or of 

a general nature. 

Some of the risks associated with Fonterra 

include: 

• changes in the prices of all dairy 

commodities. In addition, changes in the 

relative prices of commodity dairy products 

used in the calculation of the Farmgate 

Milk Price (whole milk powder, skim milk 

powder and their by-products, together 

known as the Reference Commodity 

Products) and other dairy products 

manufactured by Fonterra (such as cheese 

and casein and their by-products); 

• the way the Farmgate Milk Price and any 

Approved Adjustments (e.g. premiums paid 

for specialty milk such as organic milk) are 

set has the potential to directly affect the 

dividends paid by Fonterra and therefore 

the returns that will be earned by Unit 

Holders. The Farmgate Milk Price is set by 

the Fonterra Board based on transparent 

calculations and rules set out in the 

Farmgate Milk Price Manual. The 

governance structures around the setting 

of the Farmgate Milk Price are described in 

Section 3 – Setting the Farmgate Milk Price 

for New Zealand Milk. The Fonterra Board 

has the ability to set the Farmgate Milk 

Price at a price higher than that determined 

in accordance with the Farmgate Milk Price 

Manual. In such circumstances, the Fonterra 

Board would need to make this fact publicly 

available and it would need to be approved 

by not less than 75% of the Fonterra Board 

with such majority including at least a 

majority of the Independent Directors; 

• the occurrence of biosecurity events (e.g. 

the outbreak of foot and mouth disease) 

affecting the security of supply or the 

reputation of Fonterra’s products; 

• the occurrence of a food safety incident 

which could result from products being 

contaminated or tampered with or 

otherwise being unfit for consumption; 

• fluctuations in the supply of raw milk to 

Fonterra, which could occur for a number 

of reasons, including weather and climatic 

effects, the rate of pasture growth, changes 

in the economics for dairy farmers 

generally, or farmers choosing to supply 

milk to other processors; and 

• changes in regulation in New Zealand and 

elsewhere affecting the production or sale of 

dairy products. These may include the actions 

of foreign governments which restrict or 

influence trade such as the imposition of 

tariffs, price controls, quotas, subsidies or 

food-related regulation. Fonterra could also 

be affected by regulations relating to 

greenhouse gas emissions, land use or other 

environmental matters. 

18

Each of the risks associated with 

Fonterra described above or in 

Section 7 – Investment Risks could have 

a potential effect on Fonterra’s brand or 

reputation, the supply of raw milk, or its 

ability to produce or supply products, 

or otherwise adversely affect Fonterra’s 

earnings, financial performance or 

financial position with a consequential 

effect on an investment in the Fund. 

The above factors are a brief summary 

of some of the risks applicable to the 

Units, to the Fund and to Fonterra. 

Consequences of insolvency 

Unit Holders will not be liable to pay any 

money to any person in the event of 

insolvency of the Fund. 

Depending on the value of the Fund’s assets 

(which are expected to principally comprise 

Economic Rights), the Fund may not, in the 

event of insolvency, after paying all of its 

creditors, have sufficient funds to pay Unit 

Holders in full or in part. In these circumstances, 

Unit Holders may receive less than their 

original investment in the Fund, or none of it. 

Generally, claims of creditors will rank 

ahead of claims of Unit Holders. After all 

creditors have been paid, any remaining 

assets will be available for distribution 

between all Unit Holders, who will rank 

equally among themselves. 

Forward looking statements 

Certain statements in this Offer Document 

constitute forward looking statements. Such 

forward looking statements involve known and 

unknown risks, uncertainties, assumptions 

and other important factors, many of which 

are beyond the control of the Manager and 

Fonterra, and which may cause actual results, 

performance or achievements of the Fund 

and Fonterra to differ materially from those 

expressed or implied by such statements. Such 

factors include, but are not limited to, those 

discussed in Section 7 – Investment Risks. 

Given these uncertainties, investors are 

cautioned not to place undue reliance on 

such forward looking statements. None of the 

Manager of the Fund, Fonterra, Fonterra’s 

subsidiaries, the Trustee, the Joint Lead 

Managers or any of their respective directors, 

officers, employees, consultants, agents, 

partners or advisers gives any assurance that 

actual outcomes will not differ materially 

from the forward looking statements contained 

in this Offer Document, and the inclusion of 

forward looking statements should not be 

regarded as a representation by any person 

that they will be achieved. 

Prospective investors should not place 

additional importance on these risks 

over and above the risks identified 

elsewhere in this Offer Document. 

Prospective investors should carefully 

consider the risk factors referred to in 

this section and in Section 7 – Investment 

Risks, in addition to the other 

information in this Offer Document, 

before subscribing for Units and should: 

• satisfy themselves that they have a 

sufficient understanding of these 

matters; and 

Other than as required by law or by the NZSX 

Listing Rules or ASX Listing Rules, none of the 





partners or advisers undertakes any 

obligation to update any statement in this 

Offer Document or publicly announce the 

result of any revisions to the forward looking 

statements contained in this Offer Document 

to reflect future developments or events. 

Can the inveSTment 

be altered 

Amending the terms of the Offer 

The full terms of the Offer are set out in 

Section 8 – Details of the Offer. Those terms, 

including the amounts payable on Application 

for Units, may be altered by the Manager and 

Fonterra by an amendment to this Offer 

Document, details of which must be filed with 

the Registrar of Financial Service Providers. 

Amending the terms of the Units 

The terms of the Trust Deed governing the 

Units (and thus the rights attaching to Units 

themselves) may be altered by agreement 

between the Trustee, Fonterra and the 

Manager, with the authority of an 

Extraordinary Resolution of Unit Holders. 

Those terms may also be altered in certain 

other circumstances set out in the Trust 

Deed without the authority of Unit Holders. 

In addition, the consent of the Fonterra Unit 

Holder is required where any amendment 

to the Trust Deed would change any of: 


the Manager; 


• the obligation of the Fund to facilitate 

the exchange of a Share for a Unit or a 

Unit for a Share; 

• the limit on individual Unit Holders and 

their Associates (other than Fonterra) 

• have regard to their own investment 

objectives, financial circumstances, 

and taxation position before 

investing in the Fund. 

If you do not understand any part of 

this Offer Document, or are in any 

doubt as to whether or not to invest in 

Units, it is recommended that you seek 

professional guidance from a NZX Firm, 

your solicitor, accountant or other 

qualified professional adviser before 

deciding whether or not to invest. 

holding 15% or more of total Units on 

issue; or 

• the terms of the Fonterra Unit. 

The Fonterra Unit will be held by the Fonterra 

Unit Holder (being the trustees of the Fonterra 

Farmer Custodian Trust). More information in 

relation to the Fonterra Unit Holder is set out 

under the heading “The Fonterra Unit” in 


How do I cash in 

my inveSTment 

Redemption 

Fonterra Shareholders, Fonterra and the RVP 

will be able to exchange Units for Shares, by 

requiring the Manager to redeem those Units 

in exchange for the transfer of one Share for 

each Unit redeemed. Unit Holders will not 

otherwise have the ability to redeem their 

Units or exchange them for Shares. 

Early termination 

The implementation of Trading Among 

Farmers (part of which includes the 

establishment of the Fund) is one of the 

biggest changes to Fonterra since its 

formation. Due to the risks of the structure 

and its novelty, Fonterra retains the unilateral 

right to terminate the Authorised Fund 

Contract without cause within two years after 

the Launch Date. In that event, Fonterra will 

be required to purchase the Economic Rights 

held for the Fund (or the Shares those 

Economic Rights relate to) or arrange an 

approved person to purchase them. The Fund 

will be wound up if all the Economic Rights 

held for the Fund (or all the Shares the 

subject of the Fonterra Economic Rights 

Trust) are acquired by Fonterra or a person 

nominated by Fonterra. Fonterra has the right 

to acquire, or procure the acquisition of, the 

Economic Rights or the Shares subject to the 

Economic Rights in certain circumstances, as 

described in further detail under the headings 

“Termination of the Authorised Fund 

Contract” and “Termination of the Fund” in 



Answers 

TO Important 


Sale of Units 

Unit Holders will be able to cash in their 

investment by selling their Units. The Units 

are transferable in accordance with the Trust 

Deed, the NZSX Listing Rules, the ASX Listing 

Rules, applicable laws and regulations 

(including the Overseas Investment Act 2005 

(New Zealand) and the Securities Act). 

As at the date of this Offer Document, there 

is no established trading market for the Units. 

However, in the opinion of the Manager of the 

Fund, a market for the Units is likely to develop. 

No charges are payable to the Manager in 

respect of any sale of Units. However, a sale 

of Units on the NZX Main Board or ASX is 

likely to attract normal brokerage and charges 

that are payable for transactions conducted 

on those stock exchanges. 

Applicants may seek to sell Units quoted on 

the NZX Main Board by contacting a NZX 

Firm and supplying their CSN (Common 

Shareholder Number) and FIN. Applicants 

should not attempt to sell their Units until 

they know whether, and how many, Units 

have been allocated to them. None of 

Fonterra, the Manager, Fonterra’s subsidiaries, 

the Trustee, the Joint Lead Managers or any 

of their respective directors, officers, 

employees, consultants, agents, partners or 

advisers accepts any liability or responsibility 

should any person attempt to sell or otherwise 

deal with Units before statements confirming 

allotments are received by Applicants. 

Who do I contact 

with inquiries about 

my inveSTment 

Inquiries in relation to the Units may be made 

to the Unit Registrar at: 

Computershare Investor Services Limited 

Level 2, 159 Hurstmere Road, Takapuna 

Auckland 0622 

Private Bag 92119, Auckland 1142, New Zealand 

Investor Enquiries: +64 9 488 8777 

Email: enquiry@computershare.co.nz 

Website: www.investorcentre.com/nz 

Is there anyone to 

whom I can complain 

if I have problems with 

the inveSTment 

Any complaints arising in connection with 

the Units can be made to the Unit Registrar 

by contacting Investor Enquiries at the 

address and phone number set out under the 

heading “Who do I contact with inquiries 

about my investment” above. 

The Manager of the Fund is a member 

of Dispute Resolution Services Limited, 

a provider of an independent dispute 

resolution scheme approved by the Ministry 

of Consumer Affairs. If your complaint is not 

resolved after contacting the Unit Registrar, 

you can refer it to Dispute Resolution 

Services Limited, Level 9, 109 Featherston 

Street, Wellington 6011, New Zealand or 

by calling 0508 337 337 (toll free in 

New Zealand) or +64 4 910 9952. Further 

information about referring a complaint 

to Dispute Resolution Services Limited can 

be found at www.drsl.co.nz. 

The Manager of the Fund is also a member of 

the Financial Ombudsman Service operated 

by Financial Ombudsman Service Limited 

(ABN 67 131 124 448) (FOS), which is an 

independent dispute resolution scheme 

approved by the Australian Securities and 

Investments Commission. If you are 

dissatisfied with the response from the 

Manager, you can lodge a complaint with the 

FOS, GPO Box 3, Melbourne, Victoria 3001, 

Australia. For more information or to access 

the FOS process, please call +61 1300 780 

808. Alternatively, you can write to FOS at 

GPO Box 3, Melbourne, Victoria 3001, 

Australia. Access to the FOS is free. 

Alternatively, the Trustee is a member of 

Financial Services Complaints Limited, a 

provider of an independent dispute 

resolution scheme approved by the Ministry 

of Consumer Affairs. If your complaint is not 

resolved after contacting the Unit Registrar, 

you can refer it to Financial Services 

Complaints Limited, Level 4, Sybase House, 

101 Lambton Quay, Wellington 6011, New 

Zealand or by calling 0800 347 257 (toll free 

in New Zealand) or +64 4 472 3725. Further 

information about referring a complaint to 

Financial Services Complaints Limited can be 

found at www.fscl.org.nz. 

What other information 

can I obtain about this 

inveSTment 

Offer Document and 

financial statements 

Further information about the Units and the 

Fund is contained elsewhere in this Offer 

Document. The Fund has been formed to 

undertake the Offer and, as at the date of 

this Offer Document, has not produced 

financial statements. 

A copy of this Offer Document and a copy 

of the most recent financial statements of 

Fonterra can be obtained free of charge from 

www.fonterraoffer.com. 

Those documents and other documents of, or 

relating to, the Fund (and Fonterra), including 

the most recent financial statements of those 

entities, are also (or will be once available) 

filed on a public register maintained by the 

Companies Office of the Ministry of Business, 

Innovation and Employment and are available 

for public inspection, including on the 

Companies Office website at 

www.business.govt.nz/companies. 

Annual information 

Unit Holders at the relevant record date will 

be entitled to receive certain information 

relating to the ongoing performance of the 

Fund in accordance with the Trust Deed, the 

Unit Trusts Act, the Financial Reporting Act 

1993 (New Zealand), the NZSX Listing Rules 

and the ASX Listing Rules. 

In addition, Unit Holders will also receive the 

same periodic disclosure as Fonterra provides 

to its Shareholders (e.g. annual and half-yearly 

reports). 

Unit Holders will either receive this information 

automatically or will receive notification of their 

right to request this information. 

The Fund is also required to make half-yearly 

and annual announcements to NZX and ASX, 

and such other announcements as are 

required by the NZSX Listing Rules and the 

ASX Listing Rules from time to time. 

On-request information 

Unit Holders are also entitled to request 

copies of the following documents: 

• the most recent financial statements of the 

Fund, together with a copy of the Auditor’s 

report on those statements, once available; 

• the most recent annual report of the Fund, 

once available; 

• the Trust Deed (together with any 

amendments made to the Trust Deed); 

• this Offer Document (together with any 

documents registered under the Securities 

Act for the purpose of extending the period 

during which allotments may be made 

under this Offer Document); 

• a comparison of actual results against the 

Fonterra Prospective Financial Information 

set out in Section 4 – Fonterra Financial 

Information, once available; and 

• any other information that may be 

requested under regulation 44 of the 

Securities Regulations. 

This information will be provided, free of 

charge, upon a written request to the Manager 

of the Fund at its registered office at 9 Princes 


20

offer 

details 

and dates 

Important dates 

Offer document registered 

Broker Firm Offer AND 


expected to open 

STAKEHOLDER OFFER 

CLOSING DATE 

26 OCT 2012 

5 NOV 2012 

21 NOV 2012 

BROKER FIRM Offer 

ClOSINg Date 

INSTITUTIONAL OFFER 

AND BOOKBUILD 

PRICING AND 

ALLOCATIONS ANNOUNCED 

21 NOV 2012 

26 NOV 2012 TO 

27 NOV 2012 

27 NOV 2012 

Expected ALLOTMENT AND 

commencement of trading 

on the NZX Main Board and 

ASX (on a deferred seTTlemeNT 

basis for ASX) 

30 NOV 2012 

EXPECTED COmmeNCEMENT 

OF TRADING ON ASX (ON A 

NORMAL SETTLEMENT BASIS) 

5 DEC 2012 

EXPECTED INITIAL 

DISTRIBUTION PAID 

BY THE FUND 

APR 2013 

This timetable is indicative only. Applicants are encouraged to submit their Applications as early as possible. Fonterra, with the agreement of 

the Joint Lead Managers, reserves the right to amend these dates. Any such amendment will be announced through NZX. 


OFFER 

DETAILS 

and dates continued 

STRUcture of the Offer 

The Offer includes: 

• the Broker Firm Offer which is available 

only to New Zealand resident clients of 

NZX Firms who have received an allocation 

from that NZX Firm; 

• the Stakeholder Offer comprising: 

–– 

the Friends of Fonterra Offer to current 

Farmer Shareholders with a valid “Farm / 

Party number” as at 26 October 2012, 

Fonterra-supplying sharemilkers with a 

valid “Farm / Party number” as at 

26 October 2012, Fonterra New Zealand 

and Australian permanent employees 

and Ex-Farmer Shareholders; and 

offer information 

–– 

the Australian Supplier Offer of up to 

$25 million of Units to supplier 


Limited and to suppliers of milk to 

Fonterra Milk Australia Pty Ltd; and 

• the Institutional Offer, which consists of an 

invitation to bid for Units made to selected 

Institutional Investors in New Zealand, 

Australia and certain other jurisdictions. 

There is no general public offer. Therefore, 

investors are encouraged to contact a NZX 

Firm to determine whether they may be 

offered Units under the Broker Firm Offer. 

Total funds raised by the Offer are to be a 

minimum of $500 million, with the ability 

to accept oversubscriptions of up to an 

additional $25 million. The Offer will not 

proceed if valid Applications for Units having 

an aggregate value of $500 million are not 

received. 

Determination of the 

Final Price 

The price per Unit payable by investors to 

subscribe for Units will be the Final Price. 


Final Price is yet to be determined. However, 

Fonterra has set an Indicative Price Range of 

$4.60 to $5.50 per Unit. 

The Final Price will be determined by 

Fonterra. A bookbuild process, managed 

by the Joint Lead Managers, under which 

selected Institutional Investors and NZX 

Firms will be invited to submit bids for Units, 

will be used to assist Fonterra to determine 

the Final Price. Further information about 

the bookbuild process is contained under the 

heading “Institutional Offer” in Section 8 – 

Details of the Offer. 

Issuer 

FSF Management 

COMPany Limited 

(as manager of 

the Fonterra 

Shareholders’ 

Fund) 

Corporate 

PromOTer 

of the Offer 


Co-operative 

gROUP Limited 

Indicative 

Price Range 

$4.60 to $5.50 

per Unit 

TOTal proceeds 

FROm the Offer 

Minimum $500 

million WITH the 

ability to aCCEPT 

oversubscriptions 

OF up to an 

additional 

$25 million 

Markets 

on which 

applications 

have been made 

TO quote the 

Units 

NZX MAIN BOARD 

and ASX 

Selected financial information of Fonterra 1 

prospective 

historical 

($m) (Year end 31 July) fy2013 FY2012 FY2011 FY2010 

Revenue 18,627 19,769 19,871 16,726 

Normalised EBITDA 2 1,634 1,520 1,494 1,388 

Normalised EBIT 3 1,079 1,028 1,005 904 

Profit before tax 726 677 622 765 

Profit for the period 4 690 624 771 685 

Earnings per Share (EPS) (cents) 4, 5 43 42 55 51 

Dividends per Share (cents) 6 32 32 30 27 

1 The selected Fonterra historical financial information includes normalisation adjustments. Refer to Section 4 – Fonterra Financial Information for further information, including reconciliation to 

Fonterra’s statutory financial statements. The Fonterra Prospective Financial Information in Section 4 – Fonterra Financial Information should be read in conjunction with the assumptions and 

sensitivity analysis contained in that section and the risks described in Section 7 – Investment Risks. The selected Fonterra historical financial information has been audited. This Offer Document 

also includes the Investigating Accountant’s Report on the Fonterra Prospective Financial Information. 

2 Normalised earnings before interest, tax, depreciation and amortisation includes share of profit from equity accounted investees and excludes non-recurring items as described on pages 74 and 

96 in Section 4 – Fonterra Financial Information. 

3 Normalised earnings before interest and tax includes share of profit from equity accounted investees and excludes non-recurring items as described on page 74 in Section 4 – Fonterra Financial 

Information. 

4 Profit for the period and earnings per Share in FY2011 includes a non-cash tax credit of $202 million relating to deferred tax. 

5 Represents profit for the period attributable to Shareholders divided by the weighted average number of Shares outstanding in the period. 

6 As described in further detail under the heading “What returns will I get” in the section entitled Answers to Important Questions above, the Manager of the Fund will pass on to Unit Holders 

any cash dividend or other cash benefit (other than supplementary dividends) paid in respect of Fonterra Shares, less any adjustments for tax. Refer to Section 4 – Fonterra Financial Information 

under the heading “Equity and dividends” for further information about dividends paid in respect of Fonterra Shares. 

22

The Final Price is expected to be announced 

to NZX on 27 November 2012. All successful 

Applicants will pay the Final Price. Fonterra 

reserves the right to set the Final Price within 

or higher than the Indicative Price Range. 

Expected initial 

distribution 

As described in further detail under the 

heading “What returns will I get” in the 

section entitled Answers to Important 

Questions above, the Manager of the Fund 

will pass on to Unit Holders any cash 

dividend or other cash benefit (other than 

supplementary dividends) paid in respect of 

Fonterra Shares, less any adjustments for tax. 

The Fonterra Board intends to declare an 

interim dividend for the 2013 Season in 

March 2013, to be paid in April 2013. 

The Manager can give no assurance as to the 

amount or frequency of any cash dividend or 

other cash benefit that may be paid in respect 

of Fonterra Shares. Therefore, the Manager 

cannot give any assurance as to the amount 

or frequency of cash distributions to be paid 

in respect of Units. 

Discretion regarding 

the Offer 

Fonterra (as corporate promoter of the Offer) 

will be responsible for making all decisions in 

relation to the Offer. 

Fonterra reserves the right to withdraw the 

Offer at any time prior to the allotment of 

Units to Applicants. If the Offer or any part of 

it is withdrawn, then all Application Monies, 

or the relevant Application Monies, will be 

refunded (without interest). 

Fonterra also reserves the right to close the 

Offer or any part of it early, extend the Offer 

or any part of it, accept late Applications 

either generally or in particular cases, reject 

any Application, or allocate to any Applicant 

Units with a lesser aggregate value than that 

applied for. 

If Fonterra amends the Offer in any way, 

any such amendment will be announced 

through NZX. 

Where to find out more 

about the Offer 

Further information about the terms of the 

Offer and how those terms may be altered 

is set out in the section entitled Answers to 

Important Questions above and in Section 8 

– Details of the Offer. 

Key inveSTment metrics 1 

INDICATIVE PRICE RANGE $4.60 to $5.50 

FUND METRICS 

Units on issue following the Offer 2 109m 91m 

Implied Fund market capitalisation 2 $500m $500m 

FY2013 gross distribution yield 3 7.0% 5.8% 

FY2013 net cash distribution yield 4 5.0% 4.2% 

FONTERRA METRICS 

Shares on issue following the Offer 5 1,598m 1,586m 

Implied Fonterra market capitalisation 6 $7,352m $8,722m 

Pro forma net debt (as at 31 July 2012) 7 $3,788m $3,788m 

Implied Fonterra enterprise value 8 

$11,140m $12,510m 

Offer price / FY2013 EPS 10.6x 12.7x 

Implied Fonterra enterprise value / FY2013 6.8x 7.7x 

normalised EBITDA 9 

Implied Fonterra enterprise value / FY2013 10.3x 11.6x 

normalised EBIT 9 

FY2013 Fonterra dividend yield 

7.0% 5.8% 

(unimputed) 10 

1 The information in this table has been prepared on the basis of the estimates 

and assumptions referred to below and in the metrics stated. The yields and 

ratios provided have been calculated with reference to the Fonterra Prospective 

Financial Information included in Section 4 – Fonterra Financial Information, 

which should be read in conjunction with the assumptions and sensitivity 

analysis included in that section and the risks described in Section 7 – 

Investment Risks. The Fonterra Prospective Financial Information is also subject 

to the Investigating Accountant’s Report on Prospective Financial Information. 

2 Assumes minimum subscriptions are $500 million and excludes 

oversubscriptions. 

3 Represents the total dividend (unimputed) expected to be paid by Fonterra to 

the Fund in FY2013 excluding any investor-level tax, divided by the Implied 

Fund market capitalisation. 

4 Assumes distributions paid by the Fund to Unit Holders are net of a prescribed 

investor tax rate of 28%. Refer to Section 9 – Taxation for further information. 

5 The number of Shares on issue following the Offer has been estimated based 

on the aggregate of the total number of Shares on issue as at the date of this 

Offer Document (1,522 million Shares), the number of Shares required to be 

issued by Fonterra to meet the minimum Fund size (76.09 to 63.64 million 

Shares) assuming Fonterra issues Shares to the value of $350 million, and the 

issue of 110,000 Shares by Fonterra to the Fonterra Farmer Custodian to hold 

for the Registered Volume Provider. Refer to Section 8 – Details of the Offer 

under the heading “Formation of the Fund” for further information. 

6 Represents the number of Shares on issue following the Offer multiplied by 

the lowest and highest prices respectively in the Indicative Price Range. 

7 Represents net debt including the effect of debt hedging in place at balance 

date, less new equity raised between balance date and the date of this Offer 

Document being 20 million Shares at $4.52 per Share, less new equity raised 

from issuing 110,000 Shares to the Registered Volume Provider, less 

$350 million of assumed new equity issued by Fonterra in order to meet 

the minimum Fund size. 

8 Represents implied Fonterra market capitalisation plus pro forma net debt. 

9 Note that normalised EBITDA and normalised EBIT includes share of profit 

from equity accounted investees and excludes non-recurring items as 

described on page 96 in Section 4 – Fonterra Financial Information. 

10 Based on the lowest and highest prices respectively in the Indicative Price 

Range and prospective dividends per Share for FY2013. Refer to Section 4 

– Fonterra Financial Information for further information. 


fonterra 

at a glance 1 

10,500 A supply base of around 10,500 Farmer Shareholders throughout New Zealand 

17B 

A fleet of around 500 milk tankers collected approximately 17 billion litres of 

New Zealand milk (approximately 89% of national production) 

31 

31 New Zealand manufacturing sites produced around 2.5 million metric tonnes 

of dairy products 

98% 

2.3B 

Around 98% of Fonterra’s New Zealand production is exported in 165,000 

containers via 103 New Zealand warehouses and 11 ports 

In addition to New Zealand-sourced milk, Fonterra collected and processed 

around 2.3 billion litres of milk outside New Zealand, primarily in Australia 

and Chile 2 

2.6B 

A further 2.6 billion litres was collected and processed overseas through joint 

ventures 2 

21% 

$19.8B 

$15.1B 

$5B 

25% 

Fonterra dairy product exports of around 2.6 million metric tonnes represented 

an estimated 21% of all Global Dairy Exports, including 46% of Global Dairy 

Exports of whole milk powder 

Fonterra’s revenue was approximately $19.8 billion across its integrated and 

geographically diverse businesses that span everyday dairy nutrition, out-ofhome 

foodservices, branded consumer products and advanced dairy nutrition 

Fonterra has total assets of $15.1 billion, and generated normalised earnings 

before interest and tax (EBIT) of over $1 billion 3 

Fonterra has an established brand portfolio that includes Mainland, Tip Top, 

Western Star, Anchor, Anlene, Anmum and Soprole, many of which are 

market leaders. It earned around $5 billion from sales across a diverse range of 

geographies and product formats 

Fonterra accounted for around 25% of New Zealand’s merchandise export 

receipts for the 12 months ending 30 June 2012 

Source: Fonterra, Statistics NZ 

1 Unless otherwise stated, all references to the collection of milk and the production and export of dairy products are for the 2011 / 2012 dairy Season and all other statistics are for the financial 

year ended 31 July 2012. 

2 These figures exclude the milk collected and processed in the 2011 / 2012 Season that Fonterra does not expect to collect and process in subsequent Seasons. 

3 Normalised earnings before interest and tax includes share of profit from equity accounted investees and excludes non-recurring items as described on page 74 in Section 4 – Fonterra Financial 

Information. 

24


FONTERRA 

AT A GLANCE continued 

An investment in Units is an 

investment in the performance of 

Fonterra, New Zealand’s largest 

company and the world’s largest 

processor of dairy products. 

FY2012 REVENUE BY REGION 

29 % 

26% 

7 % USA 

10% 

10% 

12% 

OTHER ASIA 

Source: Fonterra 

REST OF THE WORLD 

NEW ZEALAND 

CHINA 

AUSTRALIA 

6% EUROPE 

With total revenue of $19.8 billion, 1 around 17,300 employees (including 6,000 outside 

New Zealand) and a sales network that reaches customers in more than 100 countries, 

Fonterra is a clear leader in the international dairy market. 

Fonterra is a co-operative, owned and supplied by around 10,500 Farmer Shareholders with dairy 

farms in New Zealand. The billions of litres of milk supplied by Farmer Shareholders every dairy 

Season contribute directly to Fonterra’s scale, which in turn supports its global position. Behind 

the Fonterra name are generations of expertise in milk production, processing and exporting. 

Unit Holders have the opportunity to participate in Fonterra’s earnings and value which are 

derived over and above the aggregate price that Fonterra pays farmers for milk in New Zealand. 

Fonterra is an integrated dairy business with a diverse range 

of manufacturing, distribution and marketing activities. It is 

organised around two complementary business segments: 

NZ Milk Products and regional businesses. 

NZ Milk ProducTS 

The driver of the New Zealand milk supply chain which collects milk from New Zealand 

farmers, manufactures it into dairy products and then exports it to customers around the 

world. Products range from everyday dairy nutrition powders (typically whole milk powder 

and skim milk powder) to innovative advanced dairy nutrition products. Customers include 

the world’s five largest infant formula manufacturers and many of the world’s largest food 

companies. 

NORMALISED EBIT BY SEGMENT 1 

1,200 

1,000 

800 

600 

400 

200 

0 904 1,005 1,028 1,079 

FY2010 FY2011 FY2012 FY2013F 

NZ MILK PRODUCTS 

REGIONAL BUSINESSES 


1 Figures expressed in millions of dollars. Normalised EBIT 

includes share of profit from equity accounted investees 

and excludes non-recurring items as described on pages 74 

and 96 in Section 4 – Fonterra Financial Information. 

Normalised EBIT includes inter-segment income of positive 

$17 million in FY2011, negative $14 million in FY2012 and 

negative $12 million in FY2013 (forecast). 

regional busineSSes 

Fonterra builds on its earnings from New Zealand and internationally-sourced milk through 

the operations of integrated regional businesses. 2 These regional businesses focus on 

branded consumer dairy products (such as powders, yoghurts, milk, butter and ice cream) 

and out-of-home foodservices (supplying customers such as bakeries, restaurants, caterers, 

hotels and quick service restaurants). 

Australia and New Zealand (ANZ) 

A leading consumer and out-of-home foodservices business that is also a major processor 

of Australian milk. Key brands include Anchor, Mainland, Tip Top and Western Star. 

ASEAN / MENA 

A consumer and out-of-home foodservices business spanning multiple countries in Asia 

and the Middle East that has strong consumer positions under the Anchor, Fernleaf, 

Anmum and Anlene brands. 

Greater China and India 

An opportunity for Fonterra to expand its everyday dairy nutrition business. A current 

strategic priority is establishing an integrated business in China, including a secure milk 

supply from local Fonterra owned farms. 

Latin America (Latam) 

Encompassing Soprole, the market-leading integrated dairy business in Chile, and Dairy 

Partners Americas, a joint venture alliance with Nestlé that operates in several markets such 

as Brazil, Venezuela, Ecuador, Colombia and Argentina. 

1 Unless otherwise stated, all references to the collection of milk and the production and export of dairy products are for the 

2011 / 2012 dairy Season. All other statistics are for the financial year ended 31 July 2012. 

2 On 1 August 2012, Fonterra’s organisational structure was re-aligned. One of the key changes included the separation of the 

Asia / AME business unit into the ASEAN / MENA and Greater China and India business units. For more discussion, please see 

Section 1 – About Fonterra. 

26

InveSTment 

highlights 

1 

The Fonterra 


FUNd is a UNIQUe 

INveSTment 

OPPORTUNITY. 

The Fund represents the only opportunity for the 

broader investment community to participate in 

the performance of Fonterra, a leading multinational 

processor and marketer of dairy products. 


InveSTment 

highlights continued 

2 

FONTerra 

is the world’s 

largeST 

PROceSSOR 

of dairy 

PROducTS. 

In the 2011 / 2012 Season, Fonterra 

collected 17 billion litres of milk 

in New Zealand, collected and 

processed another 2.3 billion litres 

overseas and collected and 

processed a further 2.6 billion litres 

through international joint 

ventures. 1 It manufactures this 

milk into a range of commodity 

and value-added dairy products. 

Fonterra represented 21% of Global 

Dairy Exports for 2011 / 2012 

Season (with Global Dairy Exports 

accounting for approximately 

8% of global dairy production). 

Its NZ Milk Products business 

exported around 98% of Fonterra’s 

New Zealand production to more 

than 100 countries in that Season. 

Through its longstanding focus 

on exports and its significant share 

of the globally-traded dairy market, 

Fonterra has built an established 

sales network and specialised 

expertise to market its dairy 

products globally. 

1 These figures exclude the milk collected and processed in the 2011 / 2012 Season that Fonterra does not expect to collect and process in subsequent Seasons. 

THE WORLD’S LARGEST MILK PROCESSOR 

Milk intake (million tons) 2 

FONTERRA’S SHARE OF 

GLOBAL DAIRY EXPORTS 3 

(% of Global Dairy Exports) 

25 

50 

20 

40 

15 

30 

10 

20 

5 

10 

0 

21.6 17.1 15.0 14.9 12.0 12.0 10.1 8.2 7.8 6.9 

FONTERRA 

DAIRY 

FARMERS OF 

AMERICA 

LACTALIS 

NESTLÉ 

DEAN 

FOODS 

ARLA 

FOODS 

FRIESLAND 

CAMPINA 

DANONE 

KRAFT 

FOODS 

DMK 

0 

21% 46% 28% 51% 

TOTAL 

MARKET 

SHARE 

WHOLE 

MILK 

POWDER 

SKIM 

MILK 

POWDER 

Source: Fonterra, Global Trade Information Services 

BUTTER 

Source: IFCN Dairy Network. Analysis is based on the IFCN Dairy Report 2012. Data represents in most cases the year 2011 (Nestlé data represents 

the year 2010). 

2 Milk intake figures above are measured in millions of tons (not billions of litres) and represent milk volume collected and 

commodity purchases (in milk equivalents) for the company and its subsidiaries. 50% of Dairy Partners America milk intake 

has been allocated to each of Fonterra and Nestlé. 

3 Figures are for the 2011 / 2012 Season. Global Dairy Exports 

means the market for the cross-border trade of dairy 

products but excludes trade among countries within the 

European Union. 

28

3 

Fonterra’s 

CO-operative 

STRUCTURE 

underpins its 

ACCESS to qUAlity 

milk supply. 

In the 2011 / 2012 Season, Fonterra 

collected approximately 89% of 

New Zealand’s milk from around 

10,500 Farmer Shareholders who 

are among the most cost-efficient 

dairy producers in the world. 

Farmers have a substantial financial 

stake in Fonterra through the link 

between milk supply and 

ownership. This promotes a strong 

connection to the Co-operative and 

a secure supply of quality milk. 

The milk price paid to Farmer 

Shareholders is linked to the prices 

of globally-traded dairy products in 

a transparent manner, and takes 

into account a return on investment 

in efficient processing assets. 

TOTAL MILK COLLECTED IN NEW ZEALAND FONTERRA MILK COLLECTION IN NEW ZEALAND BY SEASON 

Annual milk collection (billion litres) 

89 % FONTERRA 

20 

11% OTHERS 

18 

16 

11-year CAGR: 1 

2.6% 

17.0 

14 

12 

Source: Fonterra and DairyNZ 

10 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 


1 CAGR refers to compound annual growth rate. 


NZ MILK PRODUCTS’ 

SALES VOLUMES IN FY2012 

REST OF ASIA 

CHINA 

EUROPE 


1 Amounts shown in thousands of MT, rounded to the 

nearest thousand MT, and percentages rounded to the 

nearest 1%. 

CONSUMER 

BRANDS IN 

REGIONAL 

BUSINESSES 

464 

ASEAN/ 

MENA 3 

AFRICA AND 

MIDDLE EAST 

AUSTRALIA 

393 

16% 

GREATER 

CHINA AND 

INDIA 3 

30

4 

FONTERRA’s 

INTEGRATED 

and diversified 

business 

OPERATIONS drive 

SUSTAINAble 

EARNINGS growth. 

Fonterra derives significant value 

from leveraging its scale and scope 

across product groups, sales 

channels and geographies. 

The backbone of Fonterra is its 

NZ Milk Products business which 

generates returns from its efficient 

and diversified processing 

infrastructure in New Zealand. 

This is supplemented by milk 

collection and processing operations 

in Australia and Latin America, and 

supported by a global sales network. 

From this base, Fonterra has built 

regional business units from which 

it intends to increase returns by 

growing higher-margin consumer 

and out-of-home foodservices sales. 2 

2 Out-of-home foodservices customers include bakeries, restaurants, institutional caterers, hotels and quick service 

restaurants. 

NORTH AMERICA 

180 

NEW ZEALAND 

AUSTRALIA & 

NEW ZEALAND 

(ANZ) 3 

LATIN AMERICA 

LATIN 

AMERICA 

(Latam) 3 


3 Some brands are used by the Fonterra Group under licence (such as Bega ® and Nestlé Ski ® ). 


InveSTment 

highlights continued 

5 

Fonterra has 

a significant 

PRESENCE in 

EMERGING 

markets. 

Global demand for dairy is 

expected to rise, particularly in 

emerging markets where demand 

growth is likely to exceed local 

supply growth. 

Fonterra is well placed to meet the 

growing demand in key regions: 

72% of NZ Milk Products’ sales 

volumes made to emerging 

market regions in FY2012; and 

46% of regional business 

revenues from emerging market 

regions in FY2012, a proportion 

which has been growing. 

NZ MILK PRODUCTS’ SALES VOLUMES 

IN FY2012 – NEW ZEALAND AND 

GLOBALLY-SOURCED MILK 

CHINA 

14% 

30% 

11 % ANZ 

NORTH 

7% 

6% 

4 % JAPAN 

10 % LATAM 

REST OF ASIA 

(EXCL. JAPAN) 

AMERICA 

EUROPE 

AFRICA / MIDDLE EAST 

18% 

REGIONAL BUSINESS REVENUES 

IN FY2012 

54 % ANZ 

32 % ASIA/ 

AME 

14 % LATAM 

DEVELOPED MARKET REGIONS 

28% 

EMERGING MARKET REGIONS¹ 

72% 

DEVELOPED MARKET REGIONS 

54% 

EMERGING MARKET REGIONS¹ 

46% 



1 References to emerging market regions and emerging 

markets incorporate all of Fonterra’s operations in Asia 

(excluding Japan), China, Africa, the Middle East and 

Latin America. 

32

6 

FONTERRA’s 

diverse 

OPERATIONS 

UNDERPIN 

ITS EARNINGS. 

Fonterra balances cash 

generation from its established 

businesses with investment 

in key growth areas. 

New investment is focused on 

optimising the manufacturing 

footprint in New Zealand and 

higher-growth opportunities 

in Asia and Latin America. 

NORMALISED EBIT 1 

RETURN ON CAPITAL EMPLOYED 1 

1,200 

10% 

1,000 

800 

600 

400 

904 

119 

176 

303 

1,005 

119 

193 

256 

420 

1,028 

129 

194 

204 

515 

1,079 

125 

223 

226 

517 

9.6% 

9.2% 

8.8% 

8.7% 

9.4% 

9.3% 

9.6% 

200 

306 

8.4% 

0 

8% 

FY2010 

FY2011 

FY2012 

FY2013F 

FY2010 FY2011 FY2012 FY2013F 

NZ Milk 

Products 

ANZ 

Asia / 

AME 

Latam 

Inter-segment 

income 



1 Figures expressed in millions of dollars. Normalised EBIT 

includes share of profit from equity accounted investees 

and excludes non-recurring items as described on pages 74 

and 96 in Section 4 – Fonterra Financial Information. 

Normalised EBIT includes inter-segment income of positive 

$17 million in FY2011, negative $14 million in FY2012, and 

negative $12 million in FY2013 (forecast). 

1 Return on capital employed is calculated as normalised EBIT divided by capital 

employed. Normalised EBIT includes share of profit from equity accounted investees 

and excludes non-recurring items as described on pages 74 and 96 in Section 4 – 



section | 1.0 

SECTION 1 

About 


Fonterra OVERVIEw 

Fonterra is a leading integrated processor 

and marketer of dairy nutrition products to 

customers in over 100 countries. 

In the 2011 / 2012 Season, Fonterra: 

• collected approximately 17 billion litres of 

milk in New Zealand (approximately 89% 

of national production); 

• processed approximately 16.4 billion litres 

of milk in New Zealand; 

• collected and processed approximately 

2.3 billion litres of milk in overseas 

jurisdictions (primarily in Australia and 

Chile); 1 and 

• together with its joint venture partners, 

collected and processed approximately 

a further 2.6 billion litres of milk in 

overseas jurisdictions. 1 

Under DIRA, Fonterra is required to supply up 

to 600 million litres of milk to independent 

processors in New Zealand each Season. 

This accounts for approximately 3.5% of the 

amount Fonterra collects each Season and 

can be increased up to a maximum of 5% 

under DIRA. The difference between the 

amount of milk that Fonterra collects and 

processes in New Zealand is the amount 

Fonterra is required to supply to independent 

processors. 540 million litres of milk was 

supplied to independent processors in the 

2011 / 2012 Season. 

Fonterra’s position as a key provider of dairy 

nutrition products has allowed it to cultivate 

long-term relationships with a diverse range 

of global customers including some of the 

world’s largest food companies. 

Fonterra’s investments in New Zealand milk 

processing assets and global distribution 

networks support its branded consumer and 

out-of-home foodservices businesses in 

regional markets. 

Fonterra conducts its operations in two 

complementary business segments: 

• NZ Milk Products – an integrated supplier of 

dairy nutrition to global customers, which: 

–– 

collects and processes milk from New 

Zealand farmers; 

–– 

manufactures dairy nutrition products 

(including everyday nutrition powders 

such as whole milk power and skim milk 

powder and advanced dairy nutrition 

products); and 

–– 

markets these products to global 

customers under the NZMP brand; and 

• regional businesses – integrated and 

regionally focused dairy businesses that 

provide branded consumer dairy nutrition 

products and out-of-home foodservices to 

markets in New Zealand, Australia, Asia, the 

Middle East, North Africa and Latin America. 

Fonterra derives significant value from its 

globally integrated and diversified business 

operations, leveraging its economies of scale 

and scope across multiple product groups, 

sales channels and geographies. 

Fonterra continues to integrate local milk 

and product sourcing operations in selected 

overseas countries. Fonterra currently 

processes approximately 18% of Australia’s 

milk production and around 23% of Chile’s 

milk production, and is also developing secure 

sources of quality milk in China. Local milk 

supply also helps Fonterra to grow the market 

for its New Zealand milk in those regions. 

Fonterra is committed to delivering results 

while maintaining a balance between 

environmental, economic and social 

sustainability. Fonterra has environmental 

compliance systems for farmers and for its 

own production, as well as carbon emissions 

reduction programmes and milk quality 

standards. In addition, Fonterra operates many 

other social and environmental programmes. 

1 These figures exclude the milk collected and processed in the 2011 / 2012 Season that Fonterra does not expect to collect and 

process in subsequent Seasons. 


HOW WE GOT TO 

WHERE WE ARE... 

1846 

New Zealand’s first shipment of cheese 

is exported to Australia. 

1871 

The first co-operative cheese company 

is formed on the Otago Peninsula, 

allowing farmers to benefit from 

pooled resources and market strength. 

1882 

The vessel “Dunedin” 

carries the first 

refrigerated shipment of 

dairy products to London. 

1886 

The Anchor 

brand is launched. 

1910 

New Zealand dairy 

exports account 

for 14% of total 

New Zealand export 

revenue. 

The New Zealand Government 

establishes The New Zealand 

Dairy Board to control all dairy 

exports. The New Zealand Dairy 

Board provides farmers and 

co-operatives access to new 

export markets, allowing them 

to generate higher returns. 

1923 

193os - 196os 

With the improvement in technology 

and transport, co-operatives start 

joining forces to become more efficient. 

By the 1960s, more than 400 

co-operatives are reduced to 168. 

1973 

New Zealand loses its cornerstone 

market for dairy exports as a result of 

the United Kingdom joining the 

European Economic Community in 

1973. In response, The New Zealand 

Dairy Board expands exports into new 

markets beyond the United Kingdom. 

36

section | 1.0 

TODAY... 

Fonterra is a global company with sales of products to more than 100 countries. 

2001-2011 

Fonterra expands its global 

presence through investments, 

acquisitions and partnerships. 

These include Bonlac Foods, 

the formation of Dairy Partners 

Americas (with Nestlé) and 

DMV Fonterra Excipients. 

Fonterra also increases its 

ownership in Soprole. 

2001 

Fonterra is created with the 

merger of two leading dairy 

co-operatives, The New Zealand 

Co-operative Dairy Company 

Limited and Kiwi Co-operative 

Dairies Limited, with The New 

Zealand Dairy Board. 

2008 

2012 

Fonterra launches the 

world’s first successful 

online trading platform for 

internationally traded dairy 

commodities, GlobalDairyTrade. 

Farmer Shareholders confirm 

their support for Trading Among 

Farmers in a final vote. 


SECTION 1 

About 

Fonterra continued 

Fonterra’s strategy 

Early in 2012, Fonterra announced 

a “Strategy Refresh”. The new 

strategy focuses on balancing 

Fonterra’s investment in its NZ 

Milk Products business and its 

established positions in Australia, 

New Zealand, the Middle East and 

North Africa, with higher-growth 

opportunities in Asia, Latin 

America, its out-of-home 

foodservices business and in 

advanced nutrition products. 

It has seven distinct paths: 

optimise the performance of 

the NZ Milk Products business 

Through maintaining milk supply in New 

Zealand, investing in modern and efficient 

plants, improving price realisation, optimising 

product mix, managing risk and delivering 

even better service to customers. 

build and grow beyond 

Fonterra’s current 

consumer positions 

By building on leadership positions in 

consumer brands in Australia, New Zealand, 

ASEAN / MENA and Chile, and investing in 

high growth markets within Asia and Latin 

America. 

grow the out-of-home 

foodservices businesses 

By building on established out-of-home 

foodservices capabilities internationally, 

particularly in China, ASEAN / MENA and 

Latin America, to meet the specialised needs 

of local customers in each market, particularly 

in bakeries, hotels, quick service restaurants 

and cafés. 

grow Fonterra’s position 

in aiding mobility and 

bone health 

Through investment in its market-leading 

Anlene brand in Asia, supported by 

highly-focused product innovation and 

development that supports mobility in an 

aging population. 

develop selected positions 

in the paediatrics and 

maternal categories 

By building on Fonterra’s current presence 

in the market for paediatric dairy products 

through third party manufacturing with 

multinationals and regional Asian 

participants, and selectively growing sales 

of Anmum paediatric and maternal dairy 

products in selected markets. 

selectively invest in secure in 

market quality milk sources 

Through targeted international farming and 

milk sourcing, with China as the prime focus 

to develop the international farming model. 

aligning Fonterra’s business 

and organisation structure 

By ensuring Fonterra’s business structure 

is aligned to its strategy priorities, and 

utilising business service centres across 

the Fonterra Group. 

organisational structure 

On 1 August 2012, Fonterra’s organisational 

structure was re-aligned to deliver on the 

strategic priorities described above. A key 

change included the separation of Asia / AME 

into two new business units, ASEAN / MENA 

and Greater China and India, in order to focus 

on these growing markets. In addition, a new 

group-wide “Fonterra Nutrition” division was 

formed to build the dairy nutrition portfolio 

across the Fonterra Group. As a result of 

these changes, certain operations were placed 

under the control of new business units. 

These changes include: 

• transferring RD1 from NZ Milk Products 

(formerly known as Standard & Premium 

Ingredients) to ANZ; 

• transferring international farming ventures 

from NZ Milk Products to the relevant 

regional business unit (primarily Greater 

China and India); and 

• transferring certain joint ventures and 

partnerships from NZ Milk Products to 

Fonterra Nutrition, including DMV 

Fonterra Excipients (a joint venture with 

Royal Friesland Campina) and 

Dairiconcepts (a partnership with Dairy 

Farmers of America). 

As these changes have only recently 

occurred, financial information contained in 

this Offer Document (including the Fonterra 

Financial Information set out in Section 4 – 

Fonterra Financial Information) is presented in 

respect of Fonterra’s business units that existed 

prior to 1 August 2012 (except as otherwise 

noted). These are NZ Milk Products, ANZ, 

Asia / AME and Latam. Information in this 

section is presented in respect of Fonterra’s 

new business units, which are NZ Milk 

Products, ANZ, ASEAN / MENA, Greater 

China and India, and Latam. 

38

Revised organisational structure 

section | 1.0 

FONTERRA 

PREVIOUS 

BUSINESS UNIT 

/ REPORTABLE 

SEGMENT 

NZ MILK 

PRODUCTS 1 

ANZ ASIA / AME LATAM 

Revenue: $15,717 million Revenue: $3,848 million 

Revenue: $1,855 million 

EBIT: $515 million 2 



NEW BUSINESS UNIT 

BY GEOGRAPHY 3 NZ Milk Products ANZ ASEAN / MENA 

Greater China and India Latam 

Revenue: $805 million 


MILK SOURCING 

ARRANGEMENTS 

• Farmer Shareholders 

• In-market (Australia) 

• NZ Milk Products 

• Predominantly 

from NZ Milk 

Products 


• In-market milk 

sourcing being 

developed 

• In-market 


KEY 

OPERATIONS 

• Collection and 

processing of milk, 

marketing and 

distribution of NZ 

Milk Products 

• Branded consumer 

and foodservices 

business in NZ 

• Integrated consumer 

dairy and milk 

processing business 

in Australia 

• International 

distribution from 

Australia and 

New Zealand 

• RD1 



business 



business 

• Soprole – integrated 

consumer dairy and 

milk processing 

business 

• Dairy Partners 

Americas – 

integrated consumer 

dairy and milk 

processing business 

KEY BRANDS 4 

• NZMP TM 

• Anchor, Bega ® , 

Mainland, 

Fresh ‘n Fruity, 

Tip Top, Nestlé Ski ® , 

Kapiti and 

Western Star 

• Anlene, Anmum, 

Anchor and 

Fernleaf 

• Anlene, 

Anmum and 

Anchor 

• Soprole, Huesitos, 

California, Ninho 

Soleil, Dos Alamos, 

Next, Activ, 

Chamyto, and 

Chandelle 

GROUP-WIDE 

FUNCTIONS 


Nutrition 

People, 

Culture and 

Services 

Office of 

the CFO 

Group 

Strategy 

Mergers and 

Acquisitions 

Group 

Optimisation 

and Supply 

Chain 

Co-operative 

Affairs 

1 Formerly known as Standard & Premium Ingredients. 

2 FY2012 revenue and normalised EBIT. Normalised EBIT includes share of profit from equity accounted investees and excludes non-recurring items as described on page 74 in Section 4 – 


3 Business unit names are only a broad guide to regions in which Fonterra operates. For example, there are some countries that fall within the ASEAN / MENA business unit that are located 

outside the ASEAN / MENA region such as Sri Lanka and Mauritius. 

4 Some brands are used by the Fonterra Group under licence (such as Bega ® and Nestlé Ski ® ). 


SECTION 1 

About 


Fonterra in a 

global context 

Globally-traded dairy products account for 

approximately 8% or 54 billion litres of global 

dairy production. The remaining production is 

consumed in market (i.e. domestically within 

overseas markets). Commodity products such 

as milk powders, butter and cheese comprise 

almost all globally-traded dairy products. 

Whole milk powder and skim milk powder 

together account for more than half of all 

globally-traded dairy products. Fonterra’s 

market share of Global Dairy Exports for 

the 2011 / 2012 Season was 46% for whole 

milk powder, 51% for butter and 28% for 

skim milk powder. 

Between now and 2020, Fonterra expects the 

volume of global trade in dairy products to 

increase at an annual rate of approximately 

4 to 6%. This reflects an expectation that 

demand growth will exceed local supply 

growth in major emerging markets, such as 

China, India, South East Asia, the Middle East 

and North Africa. It is anticipated that this 

demand growth will be driven by a growing 

population, rising incomes, urbanisation and 

the westernisation of diets. 

Fonterra is well placed to respond to this 

demand growth with dairy nutrition products 

that have the broad characteristics outlined 

below. Fonterra is also developing secure 

sources of quality milk in overseas jurisdictions 

such as China. The establishment of a local 

milk supply will assist Fonterra to meet this 

demand growth and the needs of customers 

in the relevant overseas market. 

World prices for dairy products 

World prices for dairy products tend to be 

volatile, as illustrated on the following page. 

Prices reached record highs in late 2007, 

driven by a number of factors including 

strong Asian demand, reduced European 

Union subsidies, low global inventories and 

droughts in the milk producing regions of 

Europe, Australia and New Zealand. Following 

the onset of the global financial crisis in 

2008, global demand for dairy products fell, 

while global milk production increased 

strongly. This resulted in a sharp decline in 

prices through 2008 and the first half of 

2009. Since 2009, prices have generally 

remained above their pre-2007 levels. 

OUTLOOK TO 2020 1 

Demand Growth 

Supply Growth 

Demand Volume 

Supply Volume 

7% 

10% 

4% 

< 1% 1% 

Europe 

4% 

India 2 7% 

4% 

China 

2–3% 

< 1% 

1% 

North 

America 

2% 

ASEAN 

MENA 

1% 

2% 

2% 2% 

ANZ 

Latam 

Source: Fonterra estimate 

1 Current volumes are represented by the area of the circles displayed. Growth rates represent forecast compound annual growth rates. 

2 Although strong growth in demand is expected in India, the ability to supply this market is likely to remain limited. In the 12 months to May 2012, Fonterra exported 22,300 MT of product to 

India and total imports represented approximately 0.2% of consumption. 

40

section | 1.0 

FONTERRA’S DAIRY NUTRITION PRODUCTS 

ADVANCED NUTRITION 

Higher-value, lower-volume products. 

Products are generally incorporated into 

Fonterra’s own branded products or are 

supplied to pharmaceutical and premium 

food companies. 

OUT-OF-HOME NUTRITION 

Includes specialised products for chefs and 

bakers. Products command a premium due to 

their functionality in higher-value applications. 

EVERYDAY NUTRITION 

Lower-cost, high-volume products. Generally 

supplied to global food companies to be used as 

ingredients for higher-value-added products, or 

are manufactured into consumer formats for 

Fonterra’s regional consumer businesses. 

Distribution Channels 

– Specialised business 

customers 

– Consumer customers 

Key Brands: Anlene, 

Anmum, NZMP 

Distribution Channel 

– Foodservices customers 

Key Brands: Anchor 

Distribution Channels 

– Business customers 

– Consumer customers 

Key Brands: Anchor, 

Soprole, NZMP 

Nutrition Examples 

Infant nutrition, specialty 

caseinates, hydrolysates 

and whey proteins, and 

pharmaceutical lactose 


Specialised creams, butter, 

cheese, shredded cheese, 

cream cheese, desserts, 

dairy beverages and 

yoghurt 


Milk powders, wholesale 

butter and cheese 


OCEANIA EXPORT MARKET PRICES 1 

US$ PER MT 

6,000 

WMP 2 

SMP 2 Butter Cheese 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

JAN 00 JAN 01 JAN 02 JAN 03 JAN 04 JAN 05 JAN 06 JAN 07 JAN 08 JAN 09 JAN 10 JAN 11 JAN 12 

Source: United States Department of Agriculture 

Source: United States Department of Agriculture 

1 Prices are a monthly average and not adjusted for inflation. 

2 WMP means whole milk powder and SMP means skim milk powder. 

PROCESSED MILK PRODUCTS 


Fonterra estimates that 

approximately 40% of 

the world’s fresh milk is 

processed into other dairy 

products. As depicted in 

the diagram, fresh milk is 

processed into a range of 

intermediate liquids and 

finished products, many of 

which are globally-traded. 

WHOLE 

MILK 

CREAM 

WHOLE 

MILK 

BUTTER 

ANHYDROUS MILK FAT 

ICE CREAM 

CHEESE 

YOGHURT / 

LONG-LIFE MILK 

WHOLE MILK POWDER 

SKIM MILK POWDER 

BUTTERMILK 

WHEY 

BUTTERMILK 

POWDER 

WHEY PROTEIN 

CONCENTRATE 

SPECIALTY 

PROTEINS 

WHEY POWDER 

INTERMEDIATE 

LIQUIDS 

FINISHED 

PRODUCTS 

SKIM 

MILK 

CASEIN/CASEINATE 

MILK PROTEIN 

CONCENTRATES 

NUTRITIONAL POWDERS 

WHEY PERMEATE 

MILK PERMEATE 

ETHANOL 

LACTOSE 

Buttermilk powder, butter, and anhydrous milk fat are referred to as by-products of whole milk powder and skim milk powder in the Farmgate Milk Price Manual. Whole milk is separated into skim 

milk and cream. Skim milk can be used to produce skim milk powder. Cream can be used to produce either butter and buttermilk powder or anhydrous milk fat and buttermilk powder. Whole milk 

powder is produced from “standardised whole milk”. Standardised whole milk contains a mix of skim milk and cream and has a higher skim milk to cream ratio than that contained in whole milk. 


SECTION 1 

About 


Fonterra is a source of 

quality New Zealand milk 

A temperate climate and low-density 

population make New Zealand well suited to 

pasture-based dairy farming. 

The relatively low variable cost of production 

for farmers underpins New Zealand’s position 

as a globally competitive source of dairy 

nutrition. The result is that Fonterra can 

source a reliable supply of milk from an 

efficient and adaptable farming base. 

Fonterra’s pre-eminent position with farmers 

in New Zealand is supported by a robust and 

transparent basis for deriving a milk price 

paid to farmers. 

Currently, Fonterra collects approximately 

89% of milk produced in New Zealand. This is 

sourced from its committed co-operative 

supplier base of around 10,500 farmers in 

New Zealand. The geographical spread of 

supply across the North and South Islands 

reduces Fonterra’s exposure to climatic risks 

and other unforeseen factors. 

Fonterra’s milk collection volumes have grown 

by nearly 30% over the past decade. However, 

over the same period, Fonterra’s share of total 

milk collection in New Zealand has decreased 

from approximately 96% to 89%. This reflects 

overall growth across the industry and an 

increase of new entrants to the industry 

following a period of de-regulation. 

Pasture-based milk production is highly 

seasonal. Peak milk production in New Zealand 

is in October and November, as illustrated in 

the chart below. 

The seasonal nature of milk supply in 

New Zealand means that, as a general guide, 

on average Fonterra processing plants 

process a volume of milk that would keep 

the plant operating at full capacity for about 

200 days per year. However, the extent to 

which a particular processing plant is utilised 

in a year will generally differ from the 

Fonterra average for a range of reasons, 

including the plant’s location and size, and 

Fonterra’s desired product mix. 

NEW ZEALAND 

MILK COLLECTION BY SEASON 

Source: Fonterra and DairyNZ 


• 12 months to May 2012 

• Milk collection: 19.1 billion litres 

• 11-year growth: 40.6% 

• 11-year CAGR: 1 3.5% 


• 12 months to May 2012 

• Milk collection: 17.0 billion litres 

• 11-year growth: 29.1% 

• 11-year CAGR: 1 2.6% 

1 CAGR refers to compound annual growth rate. 

Annual milk collection (billion litres) 

20 

18 

16 

14 

12 

10 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

FONTERRA’S NEW ZEALAND 

SEASONAL MILK VOLUME 1 


90 

80 

2009 / 2010 Season 

2010 / 2011 Season 

2011 / 2012 Season 

1 Volumes represent a six-day moving 

average of daily production. 

Millions of litres per day 

70 

60 

50 

40 

30 

20 

10 

0 

JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN 

42

section | 1.0 


SECTION 1 

About 


NZ Milk ProducTS: 

an integrated supplier 

of dairy nutrition 

Fonterra’s NZ Milk Products business 

operates one of the world’s largest and 

most integrated milk processing networks 

producing a range of dairy nutritional 

products. As the largest global milk processor, 

Fonterra has a strong market presence and 

sales network in the higher-growth emerging 

markets, as well as in mature markets. 

New Zealand milk supply 

and manufacturing 

In the 2011 / 2012 Season, NZ Milk Products 

collected approximately 17 billion litres of 

New Zealand milk and processed approximately 

16.4 billion litres through 27 processing sites. 

540 million litres was supplied to independent 

processors as required by DIRA. Fonterra 

manufactured 97% of the milk it processed 

into a range of dairy nutrition products 

including dried powders, various food 

ingredients, butter and cheese. 

The remaining 3% accounted for fresh milk 

supplied to local grocery and other retail 

customers. In FY2012, approximately 13% of 

NZ Milk Products’ sales volumes that were 

manufactured from New Zealand milk was 

sold to Fonterra’s regional businesses. 

To help position Fonterra to meet the expected 

rise in worldwide demand for dairy products 

and growth in New Zealand milk supply, 

Fonterra has invested approximately $530 

million in processing facilities over the past 

five years, principally to expand milk powder 

production capacity in the South Island. 

In addition, Fonterra has recently acquired 

the milk processing assets from the receiver 

of New Zealand Dairies Limited. Its assets 

included the Studholme processing plant 

in South Canterbury. The Studholme plant 

processes around 180 million litres of milk per 

Season principally for export, and complements 

Fonterra’s new Darfield plant that began 

processing in August 2012. 

Fonterra’s Darfield 

processing plant 

Fonterra’s processing plant in Darfield is 

situated on a 650-hectare site in one of New 

Zealand’s fastest growing dairy regions, the 

central South Island. Fonterra has initially 

invested in a 15 tonne per hour dryer and 

facilities (D1) which began operating in 

August 2012. Currently, Darfield has the 

capacity to convert 2.2 million litres of milk 

per day into milk powder for export. 

Construction of a second dryer is currently 

underway (D2), together with extra 

warehouse space and a railway connection. 

With a 30 tonne per hour capacity, the D2 

dryer will be the largest in the world, 

surpassing Fonterra’s ED4 facility at 

Edendale. Once the D2 dryer is completed, 

Darfield will be able to process up to 6.6 

million litres of milk per day. 

The efficiency and capacity of Darfield will 

help drive further performance improvements 

for the NZ Milk Products business. 

FONTERRA’S KEY NEW ZEALAND MILK PROCESSING ASSETS 1 AND CATCHMENT AREAS 2 

Key NZ catchment areas 

Fonterra milk processing site 

Key site 

1 

4 

2 

3 

1. KAURI 

Capacity: 3 million litres per day 

Ouput: 123,000 tonnes per Season 

Products: WMP 3 , SMP 3 , butter, AMF 3 , nutritional powders 

2. TE RAPA 



Products: WMP 3 , SMP 3 , butter, AMF 3 , cream cheese, 

frozen cream 

5. DARFIELD 

Capacity: 2.2 million litres per day 

Ouput: Production began August 2012 

Products: WMP 3 

6. CLANDEBOYE 



Products: WMP 3 , SMP 3 , MPC 3 , cheese, butter, AMF 3 , 

WPC 3 , lactose 

3. LICHFIELD 



Products: cheese, WPC 3 , WPI 3 

7. EDENDALE 



Products: WMP 3 , SMP 3 , BMP 3 , MPC 3 , cheese, casein, 

AMF 3 

5 

6 

4. WHAREROA 



Products: WMP 3 , SMP 3 , BMP 3 , MPC 3 , casein, cheese, 

butter, AMF 3 , WPC 3 , WPI 3 

7 

NEW ZEALAND TOTAL FOOTPRINT 

Capacity: 82 to 84 million litres per day 

Output: 2.5 million tonnes per Season 

Sites: 31 sites (NZ Milk Products – 27, ANZ – 4) 

Key manufacturing sites include: Whareroa, Te Rapa, Kauri, Lichfield, Clandeboye, Darfield, Edendale 


1 Each dot represents a milk processing site. 27 sites form part of NZ Milk Products and 4 sites form part of ANZ. Only key manufacturing sites are described in detail. 

2 Fonterra milk production density for the 2011 / 2012 Season based on 10-kilometre grids. 

3 AMF means anhydrous milk fat, BMP means buttermilk powder, MPC means milk protein concentrate, SMP means skim milk powder, WMP means whole milk powder, WPC means whey protein 

concentrate and WPI means whey protein isolate. 

44

section | 1.0 

TAKING NEW ZEALAND MILK TO THE WORLD 1 

MILK 

COLLECTION 

TANKERS MANUFACTURING WAREHOUSING SALES SHIPPING BUSINESS 

CUSTOMERS 

• 17 billion litres of 

milk in the 2011 / 

2012 Season 

• Pasture-based 

milk production 

• ~500 milk tankers 

in 13 depots and 

1,400 tanker 

operators 

• 27 NZ Milk 

Products sites 

and 4 ANZ sites 

• 76 plants 

• Largest milk 

dryers in the 

world 

• 103 stores, 

45 temperature 

controlled 

• Supporting road 

and rail networks 

to container pack 

locations, 7 sited 

on port 

• Global sales 

network 

• ~30% of NZ Milk 

Products’ sales 

via GDT 

• ~74,000 delivery 

orders per year 

• 11 NZ ports 

• 1,800 voyages 

per year 

• 165,000 containers 

per year 

• 2.3 million metric 

tonnes of exports 

per year 

• Customers in 

more than 100 

countries 

• Customers 

include GDT, 


consumer 

division and 

external 

business 

customer sales 

INTEGRATED SUPPLY CHAIN AND BUSINESS 


1 Unless otherwise stated, references to “per year” are to the financial year ending 31 July 2012 and figures are based on the figures for financial year ending 31 July 2012. 


SECTION 1 

About 


GLOBALDAIRYTRADE 

In 2008, Fonterra established an auction 

platform for internationally-traded commodity 

dairy products called GlobalDairyTrade 

(GDT). GDT has become a leading global 

price reference indicator for the products 

traded. GDT prices are increasingly used as 

the basis for calculating the Farmgate Milk 

Price that Fonterra pays farmers for milk in 


GDT now includes other global dairy 

vendors, with DairyAmerica the first to 

join in October 2011. Murray Goulburn (an 

established Australian dairy co-operative) 

and Arla Foods joined in 2012. In FY2012, 

NZ Milk Products generated approximately 

30% of its sales through this platform, which 

represented over 95% of total GDT sales. 

Fonterra is able to achieve higher margins 

through the management of product mix 

and obtaining prices that are above those 

generated on GDT for the five Reference 

Commodity Products used in calculating the 

Farmgate Milk Price (for further information, 

see the text box entitled “Summary of Setting 

the Farmgate Milk Price for New Zealand 

milk”). Accordingly, to the extent possible, 

Fonterra seeks to achieve an optimal product 

mix to enhance returns across NZ Milk 

Products and its regional businesses. For 

further details, please refer to Section 3 – 

Setting the Farmgate Milk Price for New 

Zealand Milk. 

While New Zealand-sourced milk is the 

cornerstone of Fonterra’s milk production, 

growth in global demand for dairy presents 

an opportunity for Fonterra to develop secure 

sources of quality milk outside New Zealand. 

Fonterra intends to supplement its New 

Zealand production with high-quality in 

market milk production for its offshore 

customers. 

OVERVIEW OF GLOBALDAIRYTRADE (GDT) 

GDT TM currently provides a market place 

for eight different product groups: 

• Whole milk powder 

• Skim milk powder 

• Anhydrous milk fat 

• Buttermilk powder 

• Casein 

• Lactose 

• Milk protein concentrate 

• Cheddar 

GDT TM trading events are conducted as 

ascending-price clock auctions run over 

several bidding rounds. In each auction a 

specified maximum quantity of each 

product is offered for sale at a preannounced 

starting price. Bidders bid the 

quantity of each product that they wish to 

purchase at the announced price. If the price 

of a product increases between rounds, 

to ensure their desired quantity a bidder 

must bid their desired quantity at the new, 

higher price. Generally, as the price of a 

product increases, the quantity of bids 

received for that product decreases. The 

trading event runs over several rounds with 

the prices increasing round to round until 

the quantity of bids received for each 

product on offer matches the quantity on 

offer for the product (as illustrated in the 

diagram 1 ). Each trading event typically last 

approximately two hours. 

While GDT is owned by Fonterra it is 

operated at arm’s length, and is open to 

other suppliers. GDT is operated by 

Charles River Associates. To date 

DairyAmerica, Murray Goulburn and Arla 

Foods have also sold product on GDT. 

Updated contractual arrangements to 

reflect this evolution to a multi-seller 

platform are in the final stages of negotiation 

with Charles River Associates. 

Total bids received 

Source: GDT 

Demand decreases 

This is the 

price that 

all winning 

bidders 

pay 

Price increases 

R1 R2 R3 R4 R5 R6 R7 

PRICE ANNOUNCED EACH BIDDING ROUND 

1 The above diagram is an example for illustrative 

purposes only. 

Quantity 

offered 

46

section | 1.0 

Fonterra Nutrition – 

research, science and 

technology development 

Fonterra’s nutrition business specialises in 

developing advanced nutrition dairy products. 

This provides a platform for a range of 

focused, science-based solutions to support 

Fonterra’s key brands such as Anchor, 

Anmum and Anlene, and specialised 

business customers. The targeted consumer 

segments include paediatrics, maternal and 

medical foods. 

Fonterra is a global leader in dairy innovation. 

It invests in new dairy technology, research 

and product development. The Fonterra 

research centre in Palmerston North is one 

of the world’s largest dairy research and 

innovation centres and it has one of the 

largest registered dairy pilot plants. 

Joint ventures 

and partnerships 

Through Fonterra Nutrition, Fonterra has a 

number of joint ventures and partnerships 

with other global suppliers of food 

ingredients. These include DMV Fonterra 

Excipients (a joint venture with Royal 

Friesland Campina), which is the world’s 

leading supplier of lactose excipients, and 

Dairiconcepts (a partnership with Dairy 

Farmers of America), which specialises in the 

customisation of powders, concentrates, 

seasonings, flavour enhancers and cheeses. 

Summary of setting the Farmgate Milk Price for New Zealand milk 

The cost of purchasing New Zealand milk 

from its Farmer Shareholders represents 

Fonterra’s single largest cost (over $9 billion 

in FY2012). The aggregate Farmgate Milk 

Price is the base price paid by Fonterra for 

New Zealand milk. For more details, see 


for New Zealand Milk. 

Because Fonterra purchases a very large 

proportion of New Zealand’s total milk 

supply (approximately 89%), there is no 

market price for milk that is independent 

of the price paid by Fonterra. Therefore, 

Fonterra has needed to ascertain what a 

milk price would be in a competitive market 

environment. The Farmgate Milk Price is set 

by the Fonterra Board based on transparent 

calculations and rules set out in the 

Farmgate Milk Price Manual. This 

methodology has been used since 1 August 

2008 and has been an important driver of 

business performance within Fonterra. A 

detailed Milk Price Statement is published 

by Fonterra annually and aims to help 

Farmer Shareholders and other interested 

parties understand the determination of the 

Farmgate Milk Price. 

The Farmgate Milk Price is calculated in 

accordance with the Farmgate Milk Price 

Manual by: 

• determining the revenue that would be 

earned if all the New Zealand milk Fonterra 

collects was converted into whole milk 

powder, skim milk powder and their 

by-products, buttermilk powder, butter and 

anhydrous milkfat. These products are 

collectively known as the Reference 

Commodity Products. These products are 

chosen as Reference Commodity Products 

because together they comprise over 50% 

of globally-traded commodity dairy 

products and in addition almost all of the 

additional milk collected in New Zealand 

by Fonterra and its competitors over the 

last decade has been used to produce 

these products. The prices for the 

Reference Commodity Products used in 

determining this revenue primarily reflect 

the prices achieved for those products on 

the GlobalDairyTrade auction platform; 

• deducting cash costs associated with the 

efficient manufacture of the Reference 

Commodity Products; and 

• deducting capital costs representing an 

appropriate return on the capital invested 

in the manufacture of the Reference 

Commodity Products, depreciation and an 

allowance for tax. 

The result is the aggregate amount that an 

efficient processor of Fonterra’s scale would 

pay for the New Zealand milk collected by 

Fonterra. This is an aggregate amount but is 

usually referred to on the basis of a Farmgate 

Milk Price per kilogram of milksolids (kgMS). 

SETTING THE FARMGATE MILK PRICE 

MINUS 

MINUS 

EQUALS 


Net 

Revenue 

Cash 

Costs 

Capital 

Costs 

Farmgate 

Milk Price 


SECTION 1 

About 


Regional busineSSes 

ANZ 

Fonterra’s ANZ business is one of the largest 

dairy businesses in Australasia. In New 

Zealand, it includes Fonterra’s consumer 

operations (Fonterra Brands New Zealand 

and Tip Top). In Australia, Fonterra has an 

integrated business that includes local milk 

collection, dairy product manufacturing and 

exporting, and consumer and out-of-home 

foodservices businesses (Fonterra Ingredients 

Australia and Fonterra Brands Australia). 

In New Zealand, Fonterra is a market leader 

in all consumer dairy categories, with iconic 

brands such as Anchor, Mainland, Fresh’n 

Fruity, Tip Top and Kapiti. In Australia, 

Fonterra holds a leadership position in the 

cheese, yoghurt and dairy spreads consumer 

markets. Key brands owned or used under 

licence by Fonterra include Western Star, 

Bega ® , Mainland and Nestlé Ski ® . 

The Australian operation encompasses the 

full dairy supply chain and currently collects 

approximately 1.7 billion litres of milk per 

year from around 1,300 local suppliers. 

The manufacturing sites produce a range of 

whole, skim and other everyday nutritional 

milk powders, advanced dairy nutrition products 

and out-of-home dairy nutrition products 

(e.g. cheese, butter, yoghurts and cream) for 

out-of-home foodservices customers. 

The Australian and New Zealand consumer 

dairy markets are relatively mature, operating 

within a concentrated retail trade structure. 

A key aspect of Fonterra’s strategy has been 

to manage its product mix by continuously 

reviewing its portfolio. For example, Fonterra 

divested its white-milk business in Western 

Australia in 2011. It has a small remaining 

exposure to this category in eastern Australia. 

Over the same period, it has acquired leading 

brands in higher-growth categories. This is 

consistent with ongoing trends towards 

consolidation within the Australian consumer 

dairy market. 

Fonterra’s ANZ out-of-home foodservices 

business has a leading position in both 

countries, with a model based on providing 

services to meet the specialised demands of 

customers in bakeries, restaurants, caterers, 

hotels and quick service restaurants. Fonterra 

provides out-of-home foodservices operators 

with a range of innovative dairy products and 

recipe solutions, including ready-to-serve 

creams, beverages, butter, yoghurt, cultured 

dairy, milk, cheese, ice cream and desserts. 

Fonterra in Australia 1 

ANZ key brands 2 and 

product positions 3 

mAP OF AUSTRALIA 

NZ 

AUS 

Cheese #1 #1 

Yoghurt #1 #2 

CONSUMER 

PROCESSING 

Chilled Spreads #2 #3 

Ice Cream #1 N/A 

Dairy Beverages #1 N/A 


1 New Zealand’s processing and farming operations are described under the heading “New Zealand milk supply and 

manufacturing” above. 

2 Key brands for milk, yoghurt, cheese, butter and ice cream. Some ANZ brands are used by the Fonterra Group under 

licence (such as Bega ® and Nestlé Ski ® ). 

3 Fonterra’s market position for each product is determined on a volume basis for the 12 months ending 31 July 2012. 

Source: Aztec Information Services Australia market share data (July 2012) 

48

section | 1.0 

Everyday Nutrition – Anchor 

• The Anchor brand was established in 

New Zealand in 1886 and is now Fonterra’s flagship 

brand. Fernleaf is used as an alternative lead brand 

in some markets. 

• Anchor and Fernleaf branded everyday dairy nutrition 

products are sold in approximately 70 countries through 

Fonterra’s consumer and out-of-home foodservices channels. 

• Anchor and Fernleaf products include liquid milks, 

yoghurts, milk powders, cheese and spreads, 

being items that are included in the everyday 

diets of consumers. 

• Anchor and Fernleaf have a strong presence 

in New Zealand, Asia, the Middle East and the 

Pacific. In the full cream milk powder category 

Anchor TM and Fernleaf TM hold a market leading 

position in Sri Lanka and a number two position 

in the countries that comprise the Cooperation 

Council for the Arab States of the Gulf (being 

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia 

and United Arab Emirates). 

Out-of-home dairy nutrition 

– global foodservices 

• Fonterra provides a comprehensive range of products and 

solutions for the commercial kitchen, including creams, butter, 

yoghurt, cream cheese, milk, cheese, ice cream and desserts. 

• Urbanisation, growing incomes and westernisation of diets in 

emerging economies are driving the growth of out-of-home 

consumption in the foodservices channel. In developed 

economies, time-pressured consumers and the desire for 

convenience is accelerating demand. 

• Fonterra has identified out-of-home nutrition as a key area of 

growth through the rollout of the successful ASEAN / MENA 

out-of-home foodservices model into China and other 

emerging markets. 

• In China, Fonterra is currently supplying fast-growing bakeries and 

other out-of-home foodservices operators with recipe solutions. 

• In ANZ, Fonterra continues to build its presence in out-of-home 

foodservices by working with distribution partners to service 

an extensive range of customers with a complete portfolio of 

dairy products. 

• Fonterra has dedicated sales channels to meet the specialised 

demands of out-of-home foodservices customers, covering 

hotels, restaurants, bakeries and cafés, as well as quick 

service restaurants. 

• Through its Shanghai Innovation Centre, Fonterra advances the 

development of new products and ingredients and also carries 

out a number of product training courses for major customers, 

primarily focused on the Anchor dairy product line. 


SECTION 1 

About 


ASEAN / MENA 

In territories such as Malaysia, Singapore, 

Indonesia, Philippines, the Middle East and Sri 

Lanka, Fonterra has a longstanding presence in 

key consumer categories and in the out-ofhome 

foodservices channels that include hotels, 

bakeries and restaurants. Fonterra’s widely 

recognised brands such as Anchor and 

Fernleaf serve as a foundation of the ASEAN / 

MENA everyday dairy nutrition business and 

contribute to Fonterra’s strong market presence. 

Through the Anlene brand, Fonterra has 

built an entirely new category for advanced 

dairy nutrition products formulated for 

adults’ optimal bone health and mobility. 

This has been achieved through significant 

innovation and promotion through the 

widespread offering of bone scans. Anlene 

holds the largest share of this category and 

has become one of Fonterra’s flagship 

brands (alongside Anchor). 

Anmum Materna is well established as 

the leading milk for pregnant women across 

several markets in Asia. In some territories, 

Anmum has also become Fonterra’s primary 

brand within the ‘premium infant formula’, 

‘follow-on milks’ and ‘growing-up milk’ categories. 

Anchor and Fernleaf are represented 

in a number of Asian and Middle Eastern 

markets, covering full-cream and non-fat 

milk powders, butter, long-life products and 

cheese. They are also represented in the 

‘growing-up milk’ category. 

Through the supply of quality butter, functional 

creams, cheeses and milk powders, Fonterra 

has obtained leading positions in the ASEAN / 

MENA out-of-home foodservices channels. 

These market positions, together with strong 

expected population growth and increasing 

wealth across the region, provide a wellestablished 

platform for expansion. 

Greater China and India 

China provides a significant opportunity for 

Fonterra to expand its established everyday 

dairy nutrition business. There is also an 

opportunity for Fonterra to extend the 

successful ASEAN business model with the 

Anlene bone health brand and Anmum 

maternal milk brands. These brands already 

have strong market positions in Hong Kong, 

Guangzhou and Shanghai. 

Fonterra is currently developing an integrated 

milk business in China by establishing farms 

to provide a local milk supply. The significant 

issues experienced in 2008 in connection 

with the widespread adulteration of raw milk 

in the Chinese dairy industry, including by 

one of Fonterra’s investments, Sanlu, 

demonstrated the need for Chinese dairy 

processors to have control over raw milk 

supply. Once Fonterra’s milk supply in China 

reaches sufficient scale, it will provide a 

KEY BRANDS IN ASEAN/MENA 

ANLENE’S MARKET POSITION IN ASIA AND THE MIDDLE EAST 1 

(Adult, hi-calcium milk powder category) 

#1 BAHRAIN #1 QATAR 

#1 KUWAIT 

#1 SHANGHAI 

#1 

#1 GUANGZHOU 

#2 TAIWAN 

#1 HONG KONG 

#1 SAUDI ARABIA #1 UAE 

#1 THAILAND 

#1 VIETNAM 

#1 SINGAPORE 

#1 PHILIPPINES 

#1 SRI LANKA 

#1 MALAYSIA 

Source: Fonterra, AC Nielsen 

1 Anlene’s TM market positions are determined on a value basis for the 12 months ending 

31 August 2012. 

#1 INDONESIA 

50

section | 1.0 

foundation to grow a fully integrated dairy 

nutrition platform. 

Fonterra has developed two large dairy 

farms in China, each with over 3,000 cows. 

An additional farm is currently in the 

development stage. Investment in a local 

presence supports relationships with 

government and regional participants, 

complements imported product and provides 

a local fresh milk supply to expand product 

offerings. By establishing farms to provide a 

local milk supply, Fonterra can continue to 

capitalise on its reputation for product quality 

and build brand presence. 

Significant growth in out-of-home dining in 

China is being driven by rising incomes and 

urbanisation. This presents Fonterra with a 

significant out-of-home foodservices 

opportunity. Fonterra is currently supplying 

fast growing bakeries and other out-of-home 

outlets in 12 cities in China and plans to 

expand to 19 cities by August 2013. Fonterra 

is also a leading supplier of cheese to China’s 

growing quick service restaurant market. 

Fonterra in mainland China 

China growth strategy 

• In FY2012, Fonterra shipped to China 

approximately 16% of NZ Milk Products’ 

sales volumes of products manufactured 

from New Zealand-sourced milk. 

• Fonterra has identified China as a key 

focus point of its future growth strategy. 

This is based around three key priorities: 

–– 

extending consumer brands: extending 

the successful ASEAN model through 

the Anlene and Anmum brands. 

A sequential city-by-city approach will 

enable orderly expansion of the 

required organisational capabilities to 

support this growth; 

–– 

expanding out-of-home foodservices: 

expanding Fonterra’s out-of-home 

presence in China from 12 cities to 19 

cities by August 2013; and 

–– 

developing local milk supply: establishing 

an integrated milk business in China 

through developing local milk supply. 

Developing local milk supply in China 

• Fonterra has the opportunity to establish 

an integrated milk business in China 

through the control and development of 

local milk supply. 

• Investments and partnerships in local 

farms also support relationships with 

government and regional participants, 

complement imported product and 

provide a local fresh milk supply to 

expand product offerings. 

• Fonterra established its first farm 

(Tangshan Farm) in China in 2008 and 

opened its second farm (Yutian Farm 

One) in 2012. 

• Tangshan Farm is located on 35 hectares 

and produces approximately 30 million 

litres of milk per year. At full capacity, 

Yutian Farm One will produce 

approximately 32 million litres per year. 

• A third farm is currently under 

development. Fonterra also plans to 

develop an additional large scale dairy 

farm for 6,000 milking cows in the Hebei 

province. This will complete the first hub 

of farms in the Hebei province. 

• After completion of these farms, 

Fonterra’s total milk production in China 

will be approximately 150 million litres 

per year. 

Advanced nutrition 

– paediatrics and mobility 

CONSUMER 

FONTERRA OWNED FARMS 

OUT-OF-HOME OUTLETS 


India provides an exciting new growth 

prospect for Fonterra. India has a large and 

increasingly affluent population that is well 

accustomed to dairy nutrition, but has 

significant local supply challenges. Although 

strong growth in dairy consumption is 

projected in India, barriers to trade are 

currently high, meaning that opportunities 

for Fonterra may be some time away. 

• Fonterra draws on dairy science and 

technology to develop advanced dairy 

nutrition products that are intended to 

deliver health and nutrition benefits. 

• Fonterra plans to grow its position in 

advanced nutrition, focusing on aging 

populations. This will primarily be led by 

an expansion of the Anlene brand 

through Asia. 

• In Asia, Fonterra markets advanced 

nutrition for paediatrics and maternal 

nutrition under its Anmum brand. 

• Under the Anmum brand, Fonterra’s 

advanced dairy nutrition products 

include infant formula, follow-on 

formula, maternal milks and growing-up 

milk powder. 


SECTION 1 

About 


Latam 

Latam is another growth priority for Fonterra, 

as both future dairy demand and local milk 

supply are expected to be strong. Fonterra’s 

Latam business includes Soprole and Dairy 

Partners Americas. 

Soprole 

Soprole is Chile’s largest dairy company. It is 

a fully integrated dairy business that sources 

milk domestically (including from its own 

farms). Soprole produces a comprehensive 

range of branded dairy and non-dairy 

products primarily for the Chilean market, 

including liquid milk, cheese, spreads, 

yoghurts, desserts, juices and beverages. 

Soprole has a market share of approximately 

30% of the Chilean consumer dairy market. 

It has number one or two positions in all key 

dairy categories. In FY2012, Soprole collected 

approximately 500 million litres of milk, 

representing approximately 23% of Chile’s 

milk production. 

A key feature of Soprole’s business has 

been the focus on innovation. Over 35% of 

consumer sales are attributed to innovations 

introduced in the last three years. Soprole 

is a long established, widely recognised and 

highly regarded brand in Chile. Soprole’s 

brand profile, together with its integrated 

sourcing, manufacturing and distribution 

platform, gives it a strong market position 

across multiple categories. 

Dairy Partners Americas 

In 2003, Fonterra and Nestlé formed a joint 

venture alliance called Dairy Partners 

Americas (DPA). DPA operates two distinct 

businesses across the Latin America region, 

being a consumer business and a 

manufacturing business. It operates 15 

manufacturing sites in the region and has 

over 4,000 employees. 

DPA’s consumer business was set up to 

produce, commercialise and sell chilled and 

liquid dairy products including yoghurts, 

desserts, pasteurised and long-life milks, 

fermented milks, petit suisse, long-life drinks 

and juices. Both Fonterra and Nestlé have 

licensed their brands to the business and 

provide support in technology, product 

development, manufacturing and a number 

of other services. The consumer business is 

currently operating in Brazil, Venezuela and 

Ecuador and generates annual revenues in 

excess of $1 billion. 

DPA’s manufacturing business was set up to 

secure a sustainable and competitive supply 

of fresh milk for its own operations, as well as 

for the consumer business. The manufacturing 

business is currently operating in Brazil, 

Argentina and Colombia. For Nestlé, DPA 

manufactures basic milk powders in 

consumer formats. For Fonterra, DPA 

manufactures basic milk powders in bulk 

format. It sources around 2.5 billion litres of 

milk annually and generates annual revenue 

in excess of $1 billion. 

fonterra’s investment in latam 

latam KEY BRANDS 1 AND PRODUCts 

DPA CONSUMER 

DPA MANUFACTURING 

SOPROLE 


1 Key brands for milk, yoghurt, cheese, butter, juices and desserts. 

Some Latam brands are used by the Fonterra Group under licence. 

52

section | 1.0 


SECTION 1 

About 


Senior management 

The Fonterra management team roles 

were announced in May 2012 as part of 

the reshaping of the organisation to deliver 

on its “Strategy Refresh”. 

Theo Spierings, Chief executive officer 

Theo joined Fonterra in 2011, bringing with him extensive experience from across the dairy 

industry, particularly in Asia, Latin America, the Middle East and Europe. Theo has 25 years 

experience in the global dairy industry in a variety of roles including general management, 

operations and supply chain, and sales and marketing positions. Theo was previously the acting 

Chief Executive Officer of Royal Friesland Foods, a Dutch dairy co-operative and, in 2008, led 

the Dutch dairy co-operative through a merger with Campina. Before taking up his leadership 

role at Fonterra, Theo ran his own company in the Netherlands focusing on corporate strategy, 

and mergers and acquisitions, in “fast moving consumer goods”. Theo has a Bachelor of Arts in 

Food Technology / Biotechnology and a Master of Business Administration. 

Jonathan Mason, Chief financial officer 

Jonathan has been with Fonterra since 2009, before which he spent three years as Executive 

Vice-President and Chief Financial Officer at US-based Cabot Corporation. Jonathan worked in 

a number of financial management positions at International Paper Company and Exxon Mobil 

Corporation over the period of 1985 to 2000. From 2000 to 2005, Jonathan was Chief Financial 

Officer of Carter Holt Harvey Limited and was also a director of that company for a time. 

Jonathan is on the Advisory Board of the University of Auckland Business School and is a 

trustee of the University of Auckland Foundation. He has a conjoint BA in International 

Relations and Economics from Beloit College in Wisconsin, as well as an MA in International 

Relations and an MBA both from Yale University. 

John Doumani, Managing Director ANZ 

John is based in Australia and joined Fonterra in 2007, after 25 years in international business 

and consumer brands. In addition to his current role, John is also on the boards of Soprole and 

Dairy Partners Americas. Before joining Fonterra, John was President International of the 

Campbell Soup Company. Prior to that, he was Managing Director of Meadow Lea Foods 

Limited, before which he had 13 years with Johnson & Johnson in Australia, Europe and the 

United States. In 2008, John was appointed to the board of the Australian Food and Grocery 

Council, and was appointed Chairman in 2010. He was also appointed to the board of 

Foodbank Australia Limited in 2010. John has recently joined the board of Double Bay 

Partnership Incorporated, a not for profit organisation. He was also a member of the board of 

the Inspire Foundation in Australia, also a not for profit organisation, a position which he held 

for five years until his resignation in February 2012. John has a Marketing Degree from the 

University of New South Wales, Australia. 

Gary Romano, Managing Director NZ Milk PRODUCts 

Gary joined Fonterra in 2005, but has worked in the dairy industry since 1997, including with 

New Zealand Dairy Group Limited, a predecessor company to Fonterra. His previous roles 

include management positions at Alcoa of Australia Limited, The Boston Consulting Group and 

Dairy Partners Americas. In the dairy industry, he has had significant experience in both the 

manufacturing and supply chain areas and has led teams charged with the responsibility of 

achieving world class standards of productivity, quality, safety, cost effectiveness, service and 

environmental performance. Gary has a Bachelor of Chemical Engineering (Honours) from the 

University of Queensland, as well as an MBA from the University of Western Australia. 

54

section | 1.0 

Alex Turnbull, Managing Director Latam 

Alex has more than 20 years experience in the dairy industry, having joined one of the 

Co-operative’s predecessors in 1990. Alex has extensive experience in key senior sales and 

general management roles within Latin America, and leadership of Fonterra’s global paediatrics 

business since 2008. He is a fluent Portuguese speaker, having spent almost a decade in Brazil. 

His new role reflects the importance of developing markets as part of Fonterra’s strategy. Alex 

holds a Diploma of Dairy Science and Technology and a Chemical and Materials Engineering 

Degree. 

Kelvin Wickham, Managing Director Greater China and India 

Kelvin is a long-serving Fonterra executive, having joined one of the Co-operative’s predecessors 

in 1988, and has more than 23 years experience in the dairy industry. Prior to his current role, he 

was Group Director Supplier and External Relations, Managing Director of Fonterra Global Trade, 

and Director Group Sales and Operations Planning. Prior to these roles, he was based around 

the world at a number of Fonterra’s operations. Kelvin led the development of Fonterra’s 

innovative GlobalDairyTrade TM platform, and is a product of the New Zealand Dairy Industry 

Graduate Training Programme. He holds a Diploma of Dairy Science and Technology, a Masters 

of Management, and a Chemical and Materials Engineering Degree. 

Mark Wilson, Managing Director ASEAN / MENA 

Mark joined Fonterra in 2008, bringing with him more than 35 years experience in the 

consumer goods sector in Asia, the Pacific, South America and Europe. Prior to joining Fonterra, 

Mark managed Numico’s nutrition business across Asia and the Pacific, and from 1995 to 1998 

was the Chief Executive Officer of Dumex. From 1998 to 2007, he was President and Chief 

Executive Officer of the Danish-listed East Asiatic Company. Mark is also director of Chr. 

Hansen A/S, a Danish-listed biotech company. Mark holds a Bachelor of Science Degree in 

Food and Management Science from London University and is a Fellow of the Chartered 

Institute of Marketing. 

Chris Caldwell, Managing Director People, Culture and Services 

Chris joined Fonterra in 2008 as Commercial Director for the former Global Ingredients and 

Foodservices business. Chris was General Manager Finance for Fonterra before taking on his 

current role, in addition to which, he holds a number of board appointments across Fonterra. 

In his current role, Chris drives initiatives and programmes that enhance the culture of Fonterra, 

and leads the development of Fonterra’s people. He also ensures that the Fonterra Group’s 

internal services are run efficiently and effectively to best serve the needs of its businesses and 

teams. Before joining Fonterra, Chris spent 10 years with Diageo PLC in different commercial 

roles across the globe, and earlier in his career held a number of sales and marketing roles. 

Chris holds a Chemistry Degree and is a member of the Chartered Institute of Management 

Accountants. 

Paul Campbell, MANAGING DIRECtor Mergers and Acquisitions 

Paul has been with Fonterra (and before that The New Zealand Dairy Board) since 1984. 

He is a chemical engineer, and has held a number of general management, marketing, technical 

and financial roles with Fonterra in New Zealand, Japan, North Africa and the United Kingdom. 

Since the formation of Fonterra in 2001, Paul has been closely involved in the design of 

Fonterra’s strategy and has managed Fonterra’s Mergers and Acquisitions team. He is also a 

director of a number of Fonterra’s international joint ventures. He holds a Diploma in Dairy 

Science and Technology and a Chemical and Process Engineering Degree. 


SECTION 1 

About 


Sarah Kennedy, Managing Director Fonterra Nutrition 

Sarah joined Fonterra in 2011, bringing with her more than 20 years experience in agri-food 

businesses, including 10 years as Managing Director of Healtheries of New Zealand Limited. 

Prior to her current role, Sarah was Managing Director of RD1 Limited (Fonterra’s chain of rural 

retail stores). Fonterra Nutrition is responsible for the co-ordination and prioritisation of 

innovation across the Fonterra Group through the exchange of global consumer insights and 

the centralisation of core research and development resources. Sarah holds a Veterinarian 

Degree (distinction), and recently completed the Massachusetts Institute of Technology Sloan 

Fellows Program in Global Leadership and Innovation. Sarah is also a member of the Innovation 

Board for the Ministry of Science and Innovation, and the Global Women Advisory Board. 

Maury Leyland, MANAGING DIRECtor GROUP Strategy 

Maury has been with Fonterra since 2005 and has recently been driving the development and 

deployment of the “Strategy Refresh”. She has held a number of senior operational and strategic 

roles across Fonterra. Prior to joining Fonterra, she spent nine years with The Boston Consulting 

Group. Originally an engineer, Maury was a member of Team New Zealand during the 

successful 1995 America’s Cup campaign. Maury is also on the board of Telecom Corporation of 

New Zealand Limited. Maury holds a First Class Honours Degree in Engineering Science, is a 

Fellow of the Institution of Professional Engineers New Zealand and a member of the Institute 

of Directors in New Zealand. 

Todd Muller, Managing Director Co-operative Affairs 

Todd joined Fonterra’s External Relations team in 2011 where he managed Local Government 

and Regional Relations before being promoted to his current role. The Co-operative Affairs role 

involves the management of Fonterra’s relationship with its Farmer Shareholders, Fonterra’s 

Group Identity and its communications and co-operative social responsibility programmes. 

It also involves policy development and advocacy with central and local government. 

Todd also works with the Fonterra Group to develop and deliver Fonterra’s sustainability strategy. 

He was previously Chief Executive Officer of Apata Limited, a kiwifruit and avocado post-harvest 

company, and has held general management roles with kiwifruit marketer ZESPRI International 

Limited. He has also served in the Office of the Prime Minister of New Zealand. Todd is on the 

board of The New Zealand Institute for Plant and Food Research Limited, Central Plains Water 

Limited and The University of Waikato Council. Todd holds a Masters of Social Science from 

The University of Waikato. 

Ian Palliser, Managing Director Group Optimisation and Supply Chain 

Ian joined Fonterra in 2010 after more than 30 years experience with BP, working in a variety of 

large and complex business units across Australasia, the United States, Europe and the United 

Kingdom. Immediately before joining Fonterra, he led the BP Group procurement function. 

Prior to taking on his current role in Fonterra, Ian headed Fonterra’s Optimisation, Trading and 

Sourcing team. Ian holds an Honours Degree in Commerce and Administration from Victoria 

University and is a member of the New Zealand Institute of Chartered Accountants. 

Fonterra’s senior executive team (consisting of the Chief Executive Officer, his direct reports, 

and a limited number of others) have two variable components of their remuneration: 

• an annual component based on: 

–– 

key financial metrics related to earnings and cash flow, and health and safety; 

–– 

a risk-sharing element related to the Farmgate Milk Price, in recognition of the integral 

link between Fonterra as a co-operative and its Farmer Shareholders. This element has a 

weighting of 10% of the total annual component; and 

• a medium-term component, which is linked solely to net profit after tax and return on capital 

employed over a rolling three-year period. 

56

section | 2.0 

SECTION 2 

GOVERNANCE 

FRAMEWORK 

Overview 

The description below illustrates the key 

components for the governance of the 

Fonterra Shareholders’ Fund and of Fonterra: 


• Trustee 

–– 

Independent of the Manager 

• Manager of the Fund 

–– 

Independent of the Trustee 

–– 

Board of 5 directors appointed as 

follows: 

• 3 Unit Holder elected; and 

• 2 Fonterra appointed 


• Co-operative company 

• Approximately 10,500 Farmer Shareholders 

• Board of up to 13 directors: 

–– 

9 Shareholder elected; and 

–– 

4 (independent) board appointed 

• Shareholders’ Council 

–– 

Up to 35 councillors 

• Milk Price Panel 

Fonterra Farmer Custodian 

Fonterra Shareholders’ 


Role of Trustee and Manager of 

the Fund 

The Fund is a unit trust established under the 

Unit Trusts Act. It is required to have a 

Trustee and a Manager. 

The role of the Trustee is to hold any 

investments and other property that are 

assets of the Fund. As explained in Section 5 

– Trading Among Farmers in Detail, it will not 

hold Economic Rights of Shares directly. 

The role of the Manager is to issue or offer 

Units and to manage the property of the 

Fund. The Manager does not derive any fee 

for acting as Manager. 

The Trust Deed defines a narrow function of 

the Fund which is, in summary to: 

• issue Units when new Economic Rights are 

held for the benefit of the Fund; 

• redeem Units when required by a Farmer 

Shareholder, Fonterra or the RVP and direct 

that the Fonterra Farmer Custodian 

transfers Shares to the Farmer Shareholder, 

Fonterra or the Fonterra Farmer Custodian 

on behalf of the RVP seeking that 

redemption; and 

• not undertake other trading activities. 

The Fund is to be “passive”, i.e. it will not 

actively solicit Economic Rights or the 

redemption of Units except for 

undertaking the initial Supply Offer. 

The Manager and the Trustee are not 

permitted to be associated with each other. 

Accordingly: 

• the Manager is owned by Trustees 

Executors Limited; and 

• the Trustee is The New Zealand Guardian 

Trust Company Limited. 

Further details in relation to The New 

Zealand Guardian Trust Company Limited 

and Trustees Executors Limited are set out in 


The Manager and its directors 

The constitution of the Manager provides for 

five directors of the Manager and sets out 

how they are appointed. In accordance with 

the procedure set out in the Trust Deed, Unit 

Holders are entitled to elect three directors 

of the Manager (called Elected Directors), 

and may remove and replace any Elected 

Director. The first three Elected Directors 

have, however, been selected by Fonterra 

so that the Fund can commence operations. 

Of these first three Elected Directors, one is 

required to retire at each annual meeting 

of the Fund over the course of the first three 

annual meetings of the Fund. Each is eligible 

for re-election. 

The Chairman of the Board of the Manager 

must be one of these three Elected Directors. 

The three Elected Directors must be 

“Independent Directors” for the purposes of 

the NZSX Listing Rules. 

The remaining two directors of the Manager 

are appointed, and can be replaced, by 

Fonterra. There is no requirement as to who 

these directors must be. While they need not 

be directors of Fonterra, the first two people 

that Fonterra has appointed are both 

directors of Fonterra. 

Trustees Executors Limited, as the sole 

shareholder of the Manager, has entered into 

a Shareholding Deed with Fonterra. Under 

this deed, it has agreed not to amend the 

constitution of the Manager without the prior 

written approval of Fonterra. 

The initial directors of the Manager are 

listed overleaf. 


SECTION 2 

GOVERNANCE 

FRAMEWORK continued 

58 

John Shewan CNZM 

BCA (Hons), FCA 

Independent Director and Chairman deemed to have been appointed by Unit Holders 

Former PricewaterhouseCoopers Chairman, John Shewan, is currently an Adjunct Professor 

of Accounting at Victoria University. He also chairs the Wellington Regional Stadium Trust and 

the Victoria University Business School Advisory Board, and is a director of Munich Holdings 

of Australasia Pty Ltd. John was a partner at PricewaterhouseCoopers from 1984, and chaired 

the firm in New Zealand from 2003 to 2012. He has been a member of several Government 

advisory committees, and chaired the New Zealand Government’s Tax Education Office from 

1988 to 1998. He was appointed a Companion of the New Zealand Order of Merit in 2012. 

Pip Dunphy 

B.Hort.Sci, CFA 

Independent Director deemed to have been appointed by Unit Holders 

Pip Dunphy has worked in New Zealand financial markets for more than 20 years, assisting 

local and offshore companies in capital raising and risk management. She currently chairs 

the boards of Mint Asset Management Limited and New Zealand Clearing and Depository 

Corporation Limited and is Deputy Chair of Auckland Transport. Pip’s other directorships include 

Abano Healthcare Group Limited, New Zealand Post Limited, New Zealand Superannuation Fund 

and Motu, Economic and Public Policy Research. Previous roles have included directorships at the 

Accident Compensation Corporation and Earthquake Commission. Pip was a Monetary Policy 

Advisor to the Governor of the Reserve Bank of New Zealand from 2009 to 2011. 

Kim Ellis 

BCA (Hons), BE (Hons) 

Independent Director deemed to have been appointed by Unit Holders 

Kim Ellis was the Chief Executive Officer of listed company Waste Management N.Z. Limited 

for 13 years, until its sale in 2006. He currently chairs the boards of Enviro Waste Services 

Limited, New Zealand Social Infrastructure Fund Limited and Macaulay Metals Limited. Kim 

also holds several directorships including Freightways Limited, Ballance Agri-Nutrients Limited, 

The Tasman Tanning Company Limited, Jucy Group Limited and Moa Group Limited. He is also 

a member of the Trust Board of Wanganui Collegiate School. He has previously led companies 

and organisations in a number of market sectors including health, manufacturing, distribution, 

transport, property, agriculture and fashion. 

Sir Ralph Norris KNZM 

FNZIM, FNZCS 

Appointed to the Board of the Manager by Fonterra 

Sir Ralph Norris joined the Fonterra Board in 2012 as an Appointed Director. He sits on the 

Appointments, Remuneration and Development Committee. Sir Ralph also serves on the board 

of Origin Energy Limited and on the Council of The University of Auckland. He was Chief 

Executive of the Commonwealth Bank of Australia for six years until December 2011 and, prior 

to that, he served as Chief Executive and Managing Director of Air New Zealand Limited from 

February 2002 to August 2005. Sir Ralph had a 40-year career in banking and served as the 

Managing Director and Chief Executive Officer of ASB Bank Limited from March 1991 to 

September 2001, and the Head of International Financial Services for the Commonwealth Bank 

of Australia from August 1999 to September 2001. Sir Ralph was made a Knight Companion of 

the New Zealand Order of Merit in 2009 and a Distinguished Companion of the New Zealand 

Order of Merit for services to business in 2006. 

Jim van der Poel 

Appointed to the Board of the Manager by Fonterra 

Jim van der Poel was elected to the Fonterra Board in 2002. He serves on the Fair Value Share 

Review Committee, the Co-operative Relations Committee, the Capital Structure Committee 

and the Trading Among Farmers Due Diligence Committee, and is Chairman of Fonterra’s 

International Farming Ventures Group. Jim is also Chairman of the Spectrum Group of 

companies and a trustee of the Asia New Zealand Foundation. Jim has won a number of 

industry awards including the AC Cameron Memorial Award, 2002 New Zealand Nuffield 

Farming Scholarship, Sharemilker / Equity Farmer of the Year and the Dairy Exporter Primary 

Performer Award. Jim and his wife Sue live at Ngahinapouri in the Waikato and have farming 

interests in Waikato, Canterbury and the United States.

section | 2.0 

Removal of the Manager 

The Trust Deed sets out how the Manager 

may be removed, which in summary may 

occur in any of the following circumstances: 

• removal by the High Court on the 

application of the Trustee, any Unit Holder 

or the Financial Markets Authority; 

• the Trustee certifies that it is in the 

interests of Unit Holders that the Manager 

should cease to hold office; 

• Unit Holders resolve under section 18 of 

the Unit Trusts Act that the Manager 

should cease to hold office; 

• the Trustee removes the Manager on the 

grounds specified in the Trust Deed; or 

• the Manager ceases to meet the 

qualification requirements set out in the 

Trust Deed to be the Manager. 

If the Manager ceases to be the Manager, the 

Trustee may appoint a temporary Manager 

and is required to call a meeting of Unit 

Holders to appoint a new Manager. However, 

the temporary Manager and the new 

Manager must satisfy the following 

requirements prior to being appointed: 

• they must enter into a deed agreeing to be 

bound by the Authorised Fund Contract; 

• their shareholder(s) must agree to be 

bound by the Shareholding Deed; 

• they must be approved by Fonterra; and 

• their constitution must provide for a board 

of five directors, three elected by Unit 

Holders and two appointed by Fonterra in 

the manner set out above. 

If Fonterra and the Trustee are unable to 

agree on a temporary Manager or new 

Manager, the Trustee has the power under 

the Unit Trusts Act to apply to the High Court 

for an order to appoint a person as Manager. 

Roles and responsibilities of the 

directors of the Manager 

The Board of the Manager has statutory 

responsibilities for the affairs and activities of 

the Manager and the Fund. 

The corporate governance framework of the 

Board of the Manager takes into 

consideration contemporary standards in 

New Zealand and Australia, incorporating 

principles and guidelines issued by the 

Financial Markets Authority, the best practice 

code issued by NZX and the ASX Corporate 

Governance Principles and Recommendations 

(ASX Principles). These are generally designed 

to maximise corporate performance and 

accountability in the interests of investors 

and the broader community and encompass 

matters such as board composition, 

committees and compliance procedures. 

However, the corporate governance 

framework adopted by the Board of the 

Manager reflects its role as a manager of a 

fund with limited operational activity. In 

several ways, this will be different to the 

corporate governance structure appropriate 

for a traditional listed company carrying on 

an operating business. 

The Manager will disclose and explain any 

recommendations in the best practice code 

issued by NZX and the ASX Principles that it 

decides not to implement in its corporate 

governance statement, which will be included 

in future annual reports of the Fund. 

The roles and responsibilities of the Board of 

the Manager include: 

• monitoring the performance of the Fund 

and the implementation of its objectives; 

• monitoring compliance with regulatory 

requirements and ethical standards; and 

• monitoring compliance with the 

constituent documents for Trading Among 

Farmers as they relate to the Fund. 

Audit 

The Board of the Manager will act as the 

audit committee for the Fund. The 

chairperson of the audit committee will be 

the chairperson of the Board of the Manager. 

Due to the limited nature of the Fund’s 

operations, the Board of the Manager does 

not consider it necessary to have an 

independent chairperson for the audit 

committee. 

The Board of the Manager acting as audit 

committee will be responsible for: 

• providing oversight in relation to financial 

reporting and regulatory compliance; and 

• reviewing financial reporting processes, 

internal controls, the audit process 

and the process for monitoring legal 

and regulatory compliance. 

The Board of the Manager acting as 

audit committee will also act as a forum 

for communication between the Board 

of the Manager and external auditors 

where appropriate. 

Nominations 

The Board of the Manager will be appointed 

in accordance with the Trust Deed and the 

constitution of the Manager as noted above. 

There will not be a separate nominations 

committee. The Board of the Manager will be 

responsible for establishing the criteria for 

determining the suitability of potential 

Elected Directors of the Manager and 

recommending persons suitable for 

appointment to the Board of the Manager. 

Remuneration 

Under the Authorised Fund Contract, 

Fonterra will provide administrative services 

to the Manager and will meet the operating 

expenses of the Fund, including the fees of 

the directors of the Manager. As a result, it is 

not intended that the Manager will have any 

employees. Accordingly, the Manager does 

not consider it necessary or appropriate to 

establish a remuneration committee. 

Continuous disclosure 

The Board of the Manager aims to ensure 

that Unit Holders are informed of all major 

developments affecting the Fund. Information 

will be communicated to Unit Holders 

through NZX Main Board and ASX 

announcements, the Fund’s annual and 

half-yearly reports and half and full-year 

results announcements. 

Fonterra and the Manager have entered into 

an arrangement to co-operate with each 

other and take all steps reasonably required 

to ensure that information to be disclosed by 

either of them under the FSM Rules, the 

NZSX Listing Rules or the ASX Listing Rules 

(as the case may be) is disclosed simultaneously 

to the Fonterra Shareholders’ Market, the 

NZX Main Board and ASX in relation to the 

Fund. It is intended that where NZX, as 

market operator of the Fonterra Shareholders’ 

Market, receives information provided by 

Fonterra for release under the Fonterra 

Shareholders’ Market, NZX will simultaneously 

release the information under the code 

relating to the Fund. This process is intended 

to be automatic. Fonterra will also arrange 

for the information to be disclosed on ASX. 

Securities trading policy 

The Manager and Fonterra have adopted 

trading policies that detail the policy on, 

and rules for, trading in Units. The policies 

respectively apply to directors of the 

Manager and directors, officers, employees 

and contractors of Fonterra and are 

additional to legal prohibitions on insider 

trading in New Zealand and Australia. 


SECTION 2 

GOVERNANCE 


Interests of directors of the 

Manager 

Remuneration of directors of the Manager 

Fonterra has approved the following amounts 

of remuneration for the directors of the 

Manager: 

• $80,000 per year to the Chairman of the 

Board of the Manager; and 

• $53,000 per year to each other director of 

the Manager. 

However, currently the two directors of the 

Manager who have been appointed by 

Fonterra and who are also directors of 

Fonterra will not be paid any additional 

remuneration (in addition to their 

remuneration as directors of Fonterra), for 

their service on the Board of the Manager. 

The remuneration of the directors of the 

Manager may be reviewed and adjusted from 

time to time. 

Pursuant to the Authorised Fund Contract, 

Fonterra will be responsible for the payment 

of any reasonable fees and expenses payable 

by the Manager to its directors. 

Directors’ Unit Holdings 

The Independent Directors of Fonterra are 

prohibited from acquiring any Relevant 

Interest in Units. The other directors of the 

Manager and of Fonterra may acquire Units 

and to the extent any such Units are acquired, 

these acquisitions will be disclosed to the 

market as required by law. 


Overview 

Unit Holders have no right to vote on the 

election or appointment of the directors of 

Fonterra. However, the interests of Unit 

Holders are inextricably linked to that of 

Fonterra and hence to the Fonterra Board 

and its policies. 

Directors of Fonterra 

The Constitution provides for there to be up 

to 13 directors of Fonterra. 

Nine of the directors of Fonterra are elected 

by Shareholders. These persons must either 

be Shareholders or be a “representative” of a 

Shareholder (e.g. a shareholder or director of 

a corporate Shareholder of Fonterra, or a 

partner of a partnership who is a Shareholder 

of Fonterra). One third of these directors are 

required to retire by rotation each year, but 

are eligible for re-election. 

The remaining four directors of Fonterra 

(called the Appointed Directors) are 

appointed by the Fonterra Board, with their 

appointment ratified at the next annual 

meeting. Their appointment is ratified each 

three years thereafter, should they remain a 

director of Fonterra at that time. These four 

directors must be “Independent Directors” 

as defined in the FSM Rules that apply to 

the Fonterra Shareholders’ Market (among 

other things, this prevents the Appointed 

Directors from owning or having a Relevant 

Interest in Units). 

Fonterra has agreed that it will consult with 

the Chairman of the Board of the Manager on 

the persons to be appointed by the Fonterra 

Board as Appointed Directors. There is, 

however, no obligation to reach agreement in 

respect of those appointments. Fonterra will 

confirm by announcement to the Fonterra 

Shareholders’ Market and to Unit Holders 

through the NZX Main Board and ASX, if any 

such appointment was not supported by a 

majority of the directors of the Manager who 

were elected by Unit Holders. 

The directors of Fonterra are listed on the 

following three pages. 

60

section | 2.0 

Sir Henry van der Heyden DCNZM 

BE Ag (Hon), Honorary Doctor of Commerce, Honorary Fellowship from Wintech 

Sir Henry van der Heyden has been Chairman of the Fonterra Board since 2002. He steps 

down as Chairman in December 2012 but Sir Henry will remain on the Fonterra Board for the 

first part of 2013. He is also Chairman of the Appointments, Remuneration and Development 

Committee. Sir Henry is Chairman of Tainui Group Holdings Limited and a director of Auckland 

International Airport Limited, Pascaro Investments Limited, Manuka Ltda, Rabobank New Zealand 

Limited and Rabobank Australia Limited. He is a member of New Zealand Business Forums and a 

member of the Remuneration Committee of ZESPRI International Limited. Sir Henry was made 

a Distinguished Companion of the New Zealand Order of Merit for services to agriculture 

in 2007. 

John Wilson 

B. Agr. Sc 

John Wilson joined the Fonterra Board in 2003 and is up for re-election this year. In August, 

he was appointed by the Fonterra Board as Chairman elect, subject to being re-elected by 

Farmer Shareholders. He is Chairman of the Capital Structure Committee and serves on the 

Appointments, Remuneration and Development Committee, the Fair Value Share Review 

Committee and the Trading Among Farmers Due Diligence Committee, and is a member of 

Fonterra’s International Farming Ventures Group. John is also the Chairman of MilkTest NZ 

Limited, a director of Turners & Growers Limited and a member of the Institute of Directors in 

New Zealand. In 2000, he was awarded the New Zealand Nuffield Farming Scholarship. John 

lives on his dairy farm near Te Awamutu and jointly owns a dairy farming business based in 

Geraldine, South Canterbury. 

Malcolm Bailey 

B. Agr. Econ 

Malcolm Bailey was elected to the Fonterra Board in 2004. He sits on the Audit, Finance and 

Risk Committee and the Co-operative Relations Committee. Malcolm also represents Fonterra 

on the Dairy Companies Association of New Zealand, and is a member of the International 

Food and Agricultural Trade Policy Council. He is a director of Westpac New Zealand Limited, 

Embryo Technologies Limited, Hopkins Farming Group Limited, Pastoral Dairy Investments 

Limited, Gleneig Holdings Limited and Agrico Holdings Limited. Malcolm’s dairy farming 

interests are as a shareholder in Hopkins Farming Group Limited. 

Ian Farrelly 

B. Agr. 

Ian Farrelly was elected to the Fonterra Board in 2007 following a 20-year career in the banking 

industry. He is a member of the Audit, Finance and Risk Committee, the Appointments, 

Remuneration and Development Committee, the Co-operative Relations Committee and 

Fonterra’s International Farming Ventures Group. Ian is also a director of First Mortgage 

Managers Limited, Spectrum Dairies Limited, Fortuna Group Limited and F.D. Lands Limited. 

He runs a 400-hectare calf rearing farm in Te Awamutu, owns a 50% share in three Waikato 

dairy farms and has ownership interests in dairy farms in Canterbury. 

David Jackson 

M.Com (Hons), FCA 

David Jackson joined the Fonterra Board in September 2007 as an Appointed Director. David is 

Chairman of the Audit, Finance and Risk Committee and serves on the Fair Value Share Review 

Committee, the Capital Structure Committee, the Trading Among Farmers Due Diligence 

Committee, the Milk Price Panel and is a member of Fonterra’s International Farming Ventures 

Group. David also serves on the boards of several other companies including Pumpkin Patch 

Limited and Nuplex Industries Limited. He is Chairman of The New Zealand Refining Company 

Limited. David spent more than 30 years with accounting firm Ernst & Young in a variety of 

roles, and served as Chairman of the board of management for the firm in New Zealand from 

1999 to 2002. 


SECTION 2 

GOVERNANCE 


David MacLeod 

David MacLeod was elected to the Fonterra Board in 2011. He is a member of the Audit, 

Finance and Risk Committee, the Capital Structure Committee, the Fair Value Share Review 

Committee and the Milk Price Panel. David also serves on the boards of Port Taranaki Limited 

and A.J. Greaves Electrical Limited. He is Chairman of the Taranaki Regional Council. David lives 

near Hawera in South Taranaki and is a director of P.K.W. Farms Limited, one of Fonterra’s 

largest Shareholders. 

John Monaghan 

John Monaghan was elected to the Fonterra Board in 2008. John is Chairman of the 

Co-operative Relations Committee and is a member of the Appointments, Remuneration and 

Development Committee, the Fair Value Share Review Committee and the Capital Structure 

Committee. He is also a director of CentrePort Limited and CentrePort Properties Limited. 

He has farming interests in the Wairarapa and Canterbury regions. 

Sir Ralph Norris KNZM 

fnzim, fnzcs 

Sir Ralph Norris joined the Fonterra Board in 2012 as an Appointed Director. See Sir Ralph’s full 

biography under the heading “Directors of the Manager” above. 

Nicola Shadbolt 

BSc (Hons), MAgrSc (Hons), FNZIPIM (Reg) 

Nicola Shadbolt was elected to the Fonterra Board in 2009. She serves on the Capital Structure 

Committee, the Trading Among Farmers Due Diligence Committee, the Co-operative Relations 

Committee and Fonterra’s International Farming Ventures Group. Nicola is a Professor at 

Massey University, Director of the Centre of Excellence in Farm Business Management, a 

Director of the International Food and Agribusiness Management Association, trustee of the 

Agri-Women’s Development Trust and represents New Zealand in the International Farm 

Comparison Network in Dairying. Nicola is a shareholder and a director of five farming and 

forestry equity partnerships that include two dairy farms in the Manawatu. 

Jim van der Poel 

Jim van der Poel was elected to the Fonterra Board in 2002. See Jim’s full biography under the 

heading “Directors of the Manager” above. 

John Waller 

BCom, FCA 

John Waller joined the Fonterra Board in February 2009 as an Appointed Director. John is 

Chairman of the Fair Value Share Review Committee, the Milk Price Panel and the Trading 

Among Farmers Due Diligence Committee, and is also a member of the Audit, Finance and 

Risk Committee and the Capital Structure Committee. John is Chairman of the Bank of New 

Zealand and the Eden Park Trust. He is a director of National Australia Bank Limited, BNZ 

Investments Limited, Haydn & Rollett Limited, National Equities Limited, Alliance Group 

Limited, Sky Network Television Limited, Direct Property Fund Limited, Yealands Wine Group 

Limited and Donaghys Limited. John was a partner at PricewaterhouseCoopers for over 20 

years. He was also a member of their board and led their advisory practice for many years. 

62

section | 2.0 

Ralph Waters 

C.P.Eng. F.I.E. Aust, M Bus 

Ralph Waters joined the Fonterra Board in July 2006 as an Appointed Director. He serves on 

the Appointments, Remuneration and Development Committee. Ralph is Chairman of Fletcher 

Building Limited and is also a director of Asciano Limited and of Woolworths Limited, where 

he will assume the role of Chairman later this year. He is also Deputy Chairman of the Local 

Organising Committee for the ICC Cricket World Cup 2015, to be hosted in New Zealand and 

Australia. He was Chief Executive of Fletcher Building Limited from May 2001 until his retirement 

in August 2006. Before joining Fletcher Building Limited, Ralph was Managing Director of the 

Australian publicly-listed company Email Limited, and has also held a number of engineering 

and managerial positions in London and the Middle East. 

Director elections in December 2012 

John Wilson (the current Chairman elect of 

Fonterra) and Nicola Shadbolt are to retire by 

rotation at the annual meeting of Fonterra 

scheduled to be held on 17 December 2012. 

There is one casual vacancy on the Fonterra 

Board, due to a director having resigned 

during the year. There are, therefore, three 

vacancies to be filled through election at the 

annual meeting. Both John Wilson and Nicola 

Shadbolt have indicated that they propose to 

stand for re-election. As there are likely to be 

other candidates for election, there is no 

certainty that either of John Wilson or Nicola 

Shadbolt will be re-elected. 

Sir Ralph Norris (having been appointed 

during the year by the Fonterra Board) and 

Ralph Waters (having been re-appointed by 

the Fonterra Board) are required to have their 

appointments ratified at Fonterra’s annual 

meeting by Farmer Shareholders. In the event 

that Sir Ralph Norris’ appointment is not ratified, 

Fonterra proposes to replace him on the 

Board of the Manager with another director 

of Fonterra appointed by the Fonterra Board, 

who will be determined at that time. 

Shareholders’ Council 

The Shareholders’ Council is a national body 

of Farmer Shareholders. There are currently 

35 councillors, each elected by Farmer 

Shareholders within the ward of the Farmer 

Shareholders they represent. The Shareholders’ 

Council is not a separate legal entity, but its 

role is recognised in the Constitution. 

In summary, the Shareholders’ Council: 

• monitors the performance of the 

Fonterra Board; 

• represents Farmer Shareholders’ interests 

on current issues and decision-making 

by Fonterra; 

• provides learning and development 

opportunities for understanding Fonterra 

and its operations; 

• appoints the independent valuer to 

determine the fair value range of Shares 

which the Fonterra Board then uses 

to determine the fair value of Shares 

which is used in the issue or surrender 

of Shares (it is anticipated that this role 

will end upon the introduction of Trading 

Among Farmers); 

• appoints an independent “Milk 

Commissioner” to consider and facilitate 

resolution of supply-related complaints 

from Farmer Shareholders; 

• determines the election process for 

Fonterra Board elections, and the election 

of Farmer Shareholders who constitute the 

“Directors’ Remuneration Committee”; 

• appoints two members of the Milk Price 

Panel; and 

• has a consultation role in the Fund Size 

Risk Management Policy. 

In addition, the support of a majority of the 

members of the Shareholders’ Council is 

required for any changes proposed by the 

Fonterra Board to Part A of the Constitution. 

Milk Price Panel 

The Fonterra Board has established a panel 

called the Milk Price Panel. The Milk Price 

Panel is responsible for providing assurances 

to the Fonterra Board as to the governance 

of the Farmgate Milk Price and the proper 

application of the Farmgate Milk Price 

Manual. DIRA imposes requirements in 

relation to the Milk Price Panel’s role. Details 

about the Milk Price Panel, its composition 

and its responsibilities are explained in 

Section 3 – Setting the Farmgate Milk Price for 

New Zealand Milk. 

Fonterra Farmer 

cUSTOdian 

In summary, the Fonterra Farmer Custodian: 

• is a special purpose company owned by the 

trustees of a specially created trust known 

as the Fonterra Farmer Custodian Trust; 

• has a board of three directors (the three 

trustees of the Fonterra Farmer Custodian 

Trust, or such other persons as are 

unanimously nominated by those 

trustees); and 

• has been incorporated for the sole purpose 

of holding Shares in three capacities: 

–– 

as trustee of the Fonterra Economic 

Rights Trust under which the Fonterra 

Farmer Custodian will hold Economic 

Rights of Shares for the Trustee; 

–– 

on behalf of the RVP in accordance with 

a custody deed entered into with the 

RVP and Fonterra; and 

–– 

on behalf of FSM Participants in 

accordance with the terms of a deed poll 

granted in favour of those FSM 

Participants in circumstances where an 

FSM Participant is required to transfer 

Shares to the Fonterra Farmer Custodian 

by the NZX Participant Rules. 


SECTION 3 

Setting the Farmgate 

Milk Price for 

New Zealand Milk 

Introduction 

The Farmgate Milk Price is the 

base price that Fonterra pays for 

milk supplied to it in New Zealand. 

This section describes: 

• the methodology by which 

Fonterra sets the Farmgate 

Milk Price; 

• the governance framework for 

the setting of the Farmgate 

Milk Price (including 

constraints); and 

• the regulatory oversight of the 

Farmgate Milk Price and the 

Farmgate Milk Price Manual 

under the Dairy Industry 

Restructuring Act 2001 (DIRA) 

including the role of the 

Commerce Commission 

in reviewing the Farmgate 

Milk Price. 

The Farmgate Milk Price has 

been determined using the 

methodology contained in the 


since 1 August 2008. 

How the Farmgate Milk 

Price is set 

What is the Farmgate Milk Price 

As described in Section 1 – About Fonterra, 

the Farmgate Milk Price is intended to reflect 

the price that Fonterra would be required to 

pay for milk in a competitive market 

environment. The need to calculate the 

Farmgate Milk Price arises because Fonterra 

purchases a very large proportion of New 

Zealand’s total milk supply (approximately 

89%), and there is no market price for milk 

independent of the price paid by Fonterra. 

The Farmgate Milk Price is set by the Fonterra 

Board based on transparent calculations and 

rules set out in the Farmgate Milk Price 

Manual. The governance structures around 

the setting of the Farmgate Milk Price are 

described below. 

As illustrated in the following diagram, the 

Farmgate Milk Price is a cost to the NZ Milk 

Products business. Note that the terminology 

used in the diagram is explained under the 

following heading “How is the Farmgate Milk 

Price determined”. 

MINUS 

Farmgate Milk Price 1 

100% Reference 

Commodity Products 

Farmgate Milk Price 

Net Revenue 

How is the Farmgate 

Milk Price determined 

The model used in the Farmgate Milk Price 

Manual seeks to calculate the price that an 

efficient processor of Fonterra’s scale, and 

that only produces certain commodity dairy 

products (or Reference Commodity Products; 

refer below), could sustainably pay for the 

milk collected by Fonterra in New Zealand. 

The methodology is based on this group of 

commodity dairy products because it is 

intended to reflect a price that an efficient 

new entrant competitor could sustainably 

pay, and almost all of the additional milk 

collected in New Zealand by Fonterra and its 

competitors over the last decade has been 

used to produce these products. These 

products also account for over 50% of the 

global trade in commodity dairy products. 

The key items taken into account in 

calculating the Farmgate Milk Price are 

notional net revenue, cash costs and 

capital costs. 

Reference 

Commodity Products 

MINUS 

Revenue 

NZ Milk Products 1 

MINUS 

Other 

Dairy Products 

Revenue 


Cash Costs 

Operating and 

Overhead Costs 

Operating and 

Overhead Costs 

MINUS 

MINUS 

MINUS 


Capital Costs 

Farmgate 

Milk Price 

Farmgate 

Milk Price 

EQUALS 


1 The left hand side of the diagram depicts the components 

used to calculate the Farmgate Milk Price (these are 

explained under the heading “How is the Farmgate Milk 

Price determined” below), whereas the right hand side of 

the diagram represents how the EBITDA of the NZ Milk 

Products business is impacted by the Farmgate Milk Price. 


NZ Milk Products 

EBITDA 

64

section | 3.0 

Farmgate Milk Price Net Revenue 

The key net revenue assumptions are 

as follows: 

• the revenue calculation for the Farmgate 

Milk Price assumes that all the milk 

collected by Fonterra in New Zealand is 

manufactured into a group of products 

that are referred to as the Reference 

Commodity Products; 

• the Reference Commodity Products are 

based on the two main types of commodity 

products that Fonterra manufactures and 

sells on GDT (the auction platform 

referred to in Section 1 – About Fonterra). 

These are whole milk powder and skim milk 

powder. Related by-products that are also 

taken into account are butter, buttermilk 

powder and anhydrous milkfat. Any change 

to the composition of the Reference 

Commodity Products “basket” of products 

would be by way of the process that applies 

to amendments to the Farmgate Milk Price 

Manual, as discussed below; 

• the prices that are assumed to be received 

for these products are expressed in United 

States dollars. Those US$ prices are 

converted to New Zealand dollars at 

Fonterra’s actual average NZ$:US$ 

exchange rate in the month in which cash 

proceeds from sales are received; and 

• about 90% of the sales prices for 

Reference Commodity Products that are 

taken into account in calculating the 

Farmgate Milk Price are sourced from 

GDT. Butter is not currently sold on 

GDT and accounts for about 9% of 

Reference Commodity Product volume. 

The cost of additional lactose to that 

contained in the milk that Fonterra collects 

in New Zealand (a product which is 

required to be purchased to “standardise” 

the protein content of this product mix) is 

deducted from the gross revenue in order 

to derive net revenue. 

Farmgate Milk Price Cash Costs 

The key cash costs assumptions are as follows: 

• costs incurred in manufacturing and selling 

Reference Commodity Products reflect 

resources used (such as total labour hours 

and energy usage) and unit costs (such as 

energy costs per unit). Unit costs are affected 

by production yields, which measure how 

much product is produced per unit of 

milksolids during the manufacturing 

process that converts liquid milk into 

finished dairy products. Production yields 

may be updated periodically in accordance 

with the Farmgate Milk Price Manual; 

• resources taken into account in operating 

costs assume that modern and efficientlyoperated 

milk powder plants with 

“industry-standard” technology are used 

to manufacture Reference Commodity 

Products. These plants are assumed to have 

an average daily processing capacity equal 

to the average actual and planned daily 

capacity of Fonterra’s milk powder plants; 

• the calculation is based on an industrystandard 

plant because Fonterra currently 

operates around 30 powder plants with 

capacity ranging from more than 25 tonnes 

per hour to less than one tonne per hour. 

No two of these plants are necessarily the 

same. Some can make only one or a few 

products. Others are used to manufacture 

a range of products, including higher-value 

products with returns that reflect 

investment in specialised plants; 

• adjustments to the size of the plants 

assumed in the Farmgate Milk Price model 

are made at four-yearly intervals. This is to 

keep the average daily capacity of the 

assumed asset base broadly in line with 

Fonterra’s actual average daily powder 

plant capacity. These adjustments are 

prospective (i.e. they are forward looking); 

• costs per unit of labour, energy and other 

inputs are assumed to be broadly equal to 

those incurred by Fonterra; 

• milk collection and internal logistics costs 

reflect Fonterra’s actual costs; and 

• overhead costs reflect those of an 

efficiently-run business of Fonterra’s total 

scale that is focused on the manufacture of 

Reference Commodity Products and their 

sale through a channel like GDT, with an 

equivalent offshore supporting network. 

Farmgate Milk Price Capital Costs 

The key capital costs assumptions are 

as follows: 

• capital costs taken into account in 

calculating the Farmgate Milk Price are 

designed to recover the full economic cost 

of the manufacturing and other fixed 

assets required to manufacture the 

Reference Commodity Products over the 

economic lives of the assets; 

• capital costs include an allowance for a 

benchmark post-tax “weighted average 

cost of capital” (WACC) return on the total 

capital employed in the business (capital 

employed comprising the depreciated 

value of fixed assets plus net working 

capital as detailed in the Farmgate Milk 

Price Manual). Capital costs also include 

an allowance for depreciation and tax. 

Parameters which determine the cost of 

capital such as the asset beta, debt leverage, 

risk free rates and market risk premiums 

are updated from time to time in accordance 

with the Farmgate Milk Price Manual; 

• the “net working capital” calculation 

assumes that product sales occur in the 

same month as Fonterra’s actual sales of 

Reference Commodity Products 

manufactured from milk collected during 

the Season. Sales are invoiced in the month 

of shipment; 

• the net working capital calculation also 

assumes that Fonterra pays Farmer 

Shareholders progressively during the 

Season according to its actual “advance 

rate schedule”. If, due to the impact of 

commodity price volatility on the Farmgate 

Milk Price during the year, Fonterra pays 

relatively more to Farmer Shareholders 

earlier in the Season (as it did in the 2011 / 

2012 Season), then net working capital 

taken into account in the Farmgate Milk 

Price is higher than otherwise. This results 

in higher capital costs and a lower 

Farmgate Milk Price than otherwise, and 

vice versa; 

• capital costs are calculated in a manner 

that results in the aggregate charge moving 

each year approximately in line with milk 

supply and capital goods inflation. 

Assuming the average WACC remains 

constant, this means that changes in the 

average age of the asset base do not result 

in material year-on-year movements in 

capital costs; and 

• the Farmgate Milk Price assumes capacity 

is in place to process Fonterra’s anticipated 

milk collections. 


SECTION 3 



New Zealand Milk continued 

Net impact of Farmgate Milk Price 

components for the 2009 / 2010 to 

2011 / 2012 Seasons 

The chart to the right illustrates the relative 

contributions of net revenue, cash costs and 

capital costs to the Farmgate Milk Price from the 

2009 / 2010 Season to the 2011 / 2012 Season. 

By way of further explanation: 

• the main driver of changes in the Farmgate 

Milk Price across the last three Seasons has 

been changes in net revenue per kilogram 

of milksolids (kgMS). The factors that affect 

net revenue are noted above; and 

• cash costs and capital costs during this 

period have exhibited much less variability: 

–– 

cash costs grew from $1.08 to $1.10 per 

kgMS over the three Seasons. This 

reflected cost inflation offset by a fall in 

cash costs between the 2010 / 2011 

Season and the 2011 / 2012 Season due 

to reduced sales costs, and the impact on 

fixed cost recoveries of a 10% increase in 

milk supply in the 2011 / 2012 Season; and 

–– 

between the 2009 / 2010 Season and 

the 2010 / 2011 Season, aggregate 

capital costs rose by one cent to 78 cents 

per kgMS, but fell by 10 cents to 68 cents 

per kgMS in the 2011 / 2012 Season. 

Six cents of this reduction was due to a 

lower weighted average cost of capital 1 

and a reduced tax charge due to a lower 

company tax rate. The remaining four 

cents reflected improved asset 

utilisation due to higher milk supply 

in the 2011 / 2012 Season. 

NZ$/kgMS 

10 

8 

6 

4 

2 

0 

7.86 

(1.10) 

(0.68) 

6.08 

9.51 

(1.13) 

Farmgate Milk Price model differs 

from that for Fonterra’s NZ Milk 

Products business 

As highlighted above, the assumed processor 

used to calculate the Farmgate Milk Price 

differs from the actual NZ Milk Products 

business in relation to a number of factors, 

including the products it produces and sells, 

processing plant configuration, cash costs 

and capital costs. 

This means that it is not meaningful to directly 

compare net revenue, cash costs or capital 

costs taken into account in calculating the 

Farmgate Milk Price with the actual revenue, 

cash costs or core earnings of NZ Milk 

Products. For that reason, rather than 

attempting to compare the ‘gap’ between the 

EBITDA of NZ Milk Products and the total 

capital costs allowed for in the Farmgate Milk 

Price as a measure of performance, Fonterra 

focuses on margin improvement in its business 

to sustainably improve return on capital 

employed in the NZ Milk Products business. 

(0.78) 

2011/2012 Season 2010/2011 Season 2009/2010 Season 


Net Revenue 


Cash Costs 


Capital Costs 


Source: Fonterra, Milk Price Statement dated 31 May 2012 

7.60 

7.95 

(1.08) 

(0.77) 

6.10 

However, in order to assess Fonterra’s ability 

to improve return on capital employed, it is 

important to understand the key factors that 

influence the Farmgate Milk Price and their 

expected effects on NZ Milk Products’ 

EBITDA. These are summarised in the 

following table and are also discussed further 

in Section 4 – Fonterra Financial Information. 

Key points to note are: 

• across-the-board changes in the level of all 

dairy commodity prices largely flow through to 

a higher or lower Farmgate Milk Price, rather 

than to the EBITDA of NZ Milk Products; 

• likewise, changes in the average NZ$:US$ 

exchange rate largely flow through to a higher 

or lower Farmgate Milk Price rather than to 

the earnings of NZ Milk Products; and 

• changes in the relative prices obtained for 

Reference Commodity Products compared 

to those for other dairy products (like 

cheese and casein) can have a significant 

impact on the earnings of NZ Milk Products. 

1 Due to both lower market interest rates and a change to calculating interest rates based on rolling five-year averages rather than four-yearly updates. 

66

section | 3.0 

Key drivers of the performance of the 

100% dairy commodity producer 

assumed by Farmgate Milk Price model 

Key drivers of the performance of the 

actual NZ Milk Products business 

Relative effects of changes in these factors on the 

Farmgate Milk Price and on NZ Milk Products' 

EBITDA 

Net revenue 

Changes in Reference Commodity 

Product prices, in particular those 

achieved on GDT. About 90% of 

Reference Commodity Product sales 

taken into account are sold on GDT 

(the exceptions being sales of butter and 

a proportion of buttermilk powder). 

Also includes sales of Reference 

Commodity Products through 

non-GDT channels. 

Relative price differences achieved (net of additional 

costs) for Reference Commodity Products through 

non-GDT channels, compared to prices achieved 

on GDT TM , will flow through to NZ Milk Products' 

EBITDA. 

Assumes business only sells Reference 

Commodity Products. 

Also sells other products such as cheese 

and casein. 

Relative differences between prices for Reference 

Commodity Products and other products will flow 

through to NZ Milk Products’ EBITDA. 

Sales phasings / shipments and forward 

fixed-price assumptions (prices 

established five months or less prior to 

shipment) only relate to Reference 


Also includes (a) phasing of sales / 

shipments of products other than 

Reference Commodity Products, such as 

cheese and casein and (b) the terms of 

some long-dated fixed-price contracts in 

relation to Reference Commodity 

Products and other products. 

Relative differences between impacts of (a) sales 

phasing for Reference Commodity Products 

compared with that for other products and (b) 

longer-term fixed-price contracts for Reference 

Commodity Products and other products will flow 

through to NZ Milk Products’ EBITDA. 

Changes in the exchange rate affect net 

revenue. 

Changes in the exchange rate affect net 

revenue. 

Changes in the exchange rate largely flow directly to 

a higher or lower Farmgate Milk Price, rather than to 

NZ Milk Products’ EBITDA. 

Cash costs 

Costs per unit of labour, energy, other 

inputs and milk collection and logistics 

costs are assumed to be broadly equal to 

those incurred by Fonterra. 

Costs per unit of labour, energy, other 

inputs and milk collection and logistics 

costs are largely the same whether 

those inputs are applied to the 

production of Reference Commodity 

Products or other products. 

Changes in input costs per unit and changes in 

Fonterra’s actual milk collection and logistics costs, 

largely flow to a higher or lower Farmgate Milk Price. 

While changes in per unit costs flow through to the 

Farmgate Milk Price, benefits of improved operating 

efficiencies that reduce the volume of units required 

(e.g. hours of labour, total energy consumed) 

primarily flow through to NZ Milk Products’ EBITDA. 

Production yields are based on efficientlyrun 

standard powder plants (and ancillary 

plants to process by-products) using current 

industry technology. 

Production losses tend to be lower for 

the production of Reference Commodity 

Products than for other products. 1 

Improved production yields primarily flow through 

to higher NZ Milk Products’ EBITDA. 

Capital costs / 


EBITDA 

Based on post-tax weighted average cost 

of capital for 100% dairy commodity 

producer, an allowance for economic 

depreciation, and tax at the NZ company 

tax rate (after adjusting for differences 

between tax depreciation rates and those 

allowed for in the Farmgate Milk Price). 

Fonterra typically applies a higher 

internal required return on new 

investment than that used in the 

Farmgate Milk Price. While Fonterra pays 

no tax on earnings because dividends 

paid on production-backed Shares are 

deductible, tax is paid by Farmer 

Shareholders, resulting in a similar 

economic incidence of tax. 

For the reasons noted earlier, it is not meaningful 

to directly compare the EBITDA of the NZ Milk 

Products business and the capital costs allowed for 

in the Farmgate Milk Price. Instead, Fonterra treats 

the Farmgate Milk Price as exogenously determined, 

and endeavours to achieve higher returns over time 

from its invested capital. 

The Farmgate Milk Price assumes total 

capacity is in place to process Fonterra’s 

anticipated milk collections. 

Short-term variability in milk volumes between 

Seasons means higher or lower fixed operating and 

capital costs per kgMS largely flow through to the 

Farmgate Milk Price. However, if milk volumes 

decline over the longer term, capital costs would 

decline to reflect lower required total capacity in the 

Farmgate Milk Price. This would result in the costs 

of stranded assets and reduced fixed cost recoveries 

largely flowing through to lower Fonterra NZ Milk 

Products’ EBITDA. 

Other factors aside, a lower interest rate on sovereign 

debt should flow through to lower capital costs and a 

higher Farmgate Milk Price (which was the case 

between FY2011 and FY2012), and vice versa. 

The key drivers of NZ Milk Products’ core earnings historically are discussed in more detail in Section 4 – Fonterra Financial Information. 

1 “Losses” refer to components of milk that are not valued in finished products, either because of physical losses in the production process or because usage of that component (such as 

protein) exceeds minimum product specifications. 


SECTION 3 




Governance structure 

for calculating the 


Fonterra Board responsible for 

setting amount paid for milk 

The Fonterra Board is responsible for setting 

the total amount to be paid by Fonterra for all 

milk supplied to it in New Zealand in each 

Season. This amount is made up of the 

Farmgate Milk Price and any Approved 

Adjustments (e.g. premium payments for 

some winter milk and specialty milk such as 

organic milk). 

The Constitution requires Fonterra to 

maintain a Farmgate Milk Price Manual, 

which sets out Fonterra’s policies and 

methodology for determining the Farmgate 

Milk Price. The Farmgate Milk Price Manual 

must reflect the Milk Price Principles set out 

in Fonterra’s Constitution. The Farmgate Milk 

Price has been calculated in accordance with 

the Farmgate Milk Price Manual since 

1 August 2008. 

Governance structure 

The Fonterra Board has established a robust 

governance structure to oversee the setting 

of the Farmgate Milk Price, which comprises 

the elements illustrated in the diagram to 

the right: 

Internal 

7 Fonterra Senior 

Managers 

6 

Internal 

Audit 

1 

Milk Price Panel – discussed below. 

2 

Milk Price Group – discussed below. 

1 

Board makes decisions 

on the recommendations 

of the Milk Price Panel 

MILK PRICE PANEL 

2 x Shareholders’ Council 

Appointees 

2 x Appointed Fonterra 

Directors (one being Chair) 

1 x Farmer Director 

+ 


External 

2 

3 

4 

5 

Milk Price 

Group 

External 

Reviewers 

External 

Auditor 

Commerce 

Commission 

3 

External Reviewers: 

• Provide expert advice on various inputs, as well as assurance over accuracy of financial 

models. 

• Participate in reviews of key parameters of the Farmgate Milk Price at regular intervals 

(which can be up to four years). 

4 

External Auditor: 

• Audits the Farmgate Milk Price each year. 

• Provides assurance that the Farmgate Milk Price has been derived in accordance with 

the Milk Price Principles, methodologies and detailed rules of the Farmgate Milk Price 

Manual. 

5 

6 

7 

Fonterra’s external auditor is PricewaterhouseCoopers. 

Commerce Commission – discussed below. 

Internal Audit: provides assurance over forecasting process controls and data. 

Fonterra Senior Managers: provide internal oversight of the calculation of the actual and 

forecast Farmgate Milk Price in accordance with the Farmgate Milk Price Manual and 

detailed models and procedures. 


68

section | 3.0 

The key elements of the governance structure 

are as follows: 

Milk Price Panel 

The Fonterra Board has established a panel 

known as the Milk Price Panel. The Milk Price 

Panel is responsible for providing assurances 

to the Fonterra Board as to the governance of 

the Farmgate Milk Price and the proper 


Manual. DIRA imposes requirements in 

relation to the Milk Price Panel’s role which 

are discussed further below. 

The Panel consists of five members, as follows: 

• two directors of Fonterra. These are 

required to be from the group of 

Appointed Directors on the Fonterra 

Board. Under the FSM Rules, Appointed 

Directors must be independent (in terms 

of the test outlined below); 

• one of the Farmer Shareholder-elected 

directors of Fonterra (i.e. the directors who 

are elected by Farmer Shareholders); and 

• two appropriately qualified appointees 

nominated by the Shareholders’ Council, at 

least one of whom must be independent. 

The Milk Price Panel must at all times include 

a majority of members who are independent 

from Fonterra (including the Chair). In simple 

terms, to be “independent” a member must not: 

• hold or have a direct or indirect interest 

in Shares issued by Fonterra, or Units in 

the Fund; 

• be a relative of a person who holds or has 

a direct or indirect interest in Shares or 

Units; or 

• be an employee of Fonterra or a Farmer 

Shareholder. 

The Chair of the Milk Price Panel is appointed 

by the Fonterra Board and must be one of the 

Appointed Directors. 

The current members of the Milk Price 

Panel are: 

John Waller (Appointed Director; independent 

Chair of the Panel) 

David Jackson (Appointed Director; 

independent member of the Panel) 

David MacLeod (Farmer Shareholder-elected 

Director) 

Paddy Boyle (Shareholders’ Council appointee; 

independent member of the Panel) 

Richard Punter (Shareholders’ Council 

appointee; independent member of the Panel). 

John Waller and David Jackson are Appointed 

Directors of Fonterra and also meet the 

required standard of independence for 

members of the Milk Price Panel. 

The Milk Price Panel’s responsibilities include: 

• overseeing the governance of the Farmgate 

Milk Price and the Farmgate Milk Price 

Manual, including undertaking reviews of 

the Farmgate Milk Price and the Farmgate 

Milk Price Manual, and any changes to the 


• supervising the calculation of the Farmgate 

Milk Price and making a recommendation 

on it to the Fonterra Board; 

• making recommendations to the Fonterra 

Board in respect of the Farmgate Milk Price 

Manual, including any recommendation 

that it should be amended and any 

recommendation that a proposed 

amendment should not be made; and 

• providing to the Fonterra Board an 

assurance that there were no matters 

brought to the attention of the Milk Price 

Panel which indicate: 

–– 

that the Farmgate Milk Price has not 

been calculated in accordance with the 

processes provided in the Farmgate Milk 

Price Manual; or 

–– 

that a change to the Farmgate Milk Price 

Manual is required. 

Milk Price Group 

The Milk Price Group is a working group 

established by Fonterra. 

The Head of the Milk Price Group is 

independent of Fonterra’s management and 

reports directly to the Chair of the Milk Price 

Panel. The role of the Milk Price Group includes: 

• ensuring that the Farmgate Milk Price 

is calculated in accordance with the 

Farmgate Milk Price Manual and making 

recommendations in respect of both the 

actual and projected Farmgate Milk Prices; 

• considering any proposed amendments 

to the Manual, including those the 

Milk Price Group itself considers are 

appropriate, and ensuring they are in 

accordance with the Milk Price Principles 

in Fonterra’s Constitution; 

• providing assurance over inputs into 

determining and forecasting the Farmgate 

Milk Price to the Fonterra Board; 

• managing engagement with External 

Reviewers; and 

• engaging with the Commerce Commission, 

including to ensure full disclosure of all 

material aspects of the Farmgate Milk Price 

derivation each year. 

The functions of the Milk Price Group are 

contracted out to Ernst & Young and other 

technical experts who are not employees 

of Fonterra. 

Determination of the Farmgate 

Milk Price for a Season 

The Milk Price Panel uses the methodology 

set out in the Farmgate Milk Price Manual 

to recommend a Farmgate Milk Price to the 

Fonterra Board, and makes recommendations 

in relation to the aggregate amount to be 

paid by Fonterra for milk supplied to it in 

New Zealand. The Fonterra Board then 

determines these amounts. In doing so, the 

Fonterra Board is not obliged to follow the 

recommendation of the Milk Price Panel and 

may pay a price above the price recommended 

by the Panel and / or different from that 

derived under the Farmgate Milk Price Manual. 

Fonterra’s finalised Farmgate Milk Price 

for a Season is usually announced in late 

September, after the end of the relevant 

Season. Fonterra pays its Farmer Shareholders 

an “advance rate” for milk supplied in a 

month, representing a percentage of the 

forecast annual Farmgate Milk Price. This 

proportion gradually increases during the 

Season up to 100% when the final Farmgate 

Milk Price for the prior Season is set by the 

Fonterra Board. The Farmgate Milk Price 

Manual requires Fonterra to publish a Milk 

Price Statement setting out the Farmgate 

Milk Price for a Season, together with other 

supporting information. 

Constraints on Fonterra Board’s 

ability to pay more than the 

amount determined under the 


In addition to the general governance 

arrangements discussed above, two specific 

constraints apply in terms of the Fonterra 

Board’s ability to determine the aggregate 

amount to be paid for milk for each Season. 

Firstly, certain disclosures are required under 

DIRA (section 150N) if Fonterra sets a 

Farmgate Milk Price other than in accordance 

with a recommendation by the Milk Price 

Panel, or without having received a 

recommendation by the Milk Price Panel for 

the Farmgate Milk Price. In these circumstances, 

Fonterra must make publicly available: 


SECTION 3 




• the recommendation of the Milk Price 

Panel, if any; and 

• a statement setting out Fonterra’s reasons 

for setting the Farmgate Milk Price other 

than in accordance with a recommendation 

by the Milk Price Panel or without having 

received a recommendation by the Milk 

Price Panel for the Farmgate Milk Price. 

Secondly, under the FSM Rules, a decision to 

pay an aggregate amount for milk in excess 

of the amount calculated under the Farmgate 

Milk Price Manual must be approved by a 

majority of not less than 75% of the Fonterra 

Board, with such majority including at least 

a majority of the Independent Directors. 1 

Constraints on Fonterra Board’s 

ability to amend the Farmgate 

Milk Price Manual 

In addition to the disclosure requirements 

under DIRA discussed below, under the 

Fonterra Shareholders’ Market Rules, a 

decision to amend or replace the Farmgate 

Milk Price Manual must be approved by a 

majority of not less than 75% of the Fonterra 

Board, including at least a majority of the 

Independent Directors. The Fonterra Board 

will apply the same process for any change 

to the products that make up the Reference 


As noted earlier, some parameters used in 

calculating the Farmgate Milk Price may be 

changed year to year, or at regular review 

intervals (which can be up to four years), in 

accordance with the Farmgate Milk Price 

Manual. However, these changes are subject 

to the processes, criteria and disclosure 

requirements set out in the Farmgate Milk 

Price Manual. 

Regulatory oversight of 

the Farmgate Milk Price 

Recent amendments to DIRA introduced 

regulatory oversight (by the Commerce 

Commission) of Fonterra’s process for setting 

the Farmgate Milk Price (referred to as the 

“base milk price” in the relevant part of DIRA). 

The oversight role relates to the Farmgate 

Milk Price rather than the operation of 

Trading Among Farmers as a whole. 

Role of the Farmgate Milk Price 

Manual and the Milk Price Panel 

now enshrined in DIRA 

The key features of Fonterra’s governance 

structure for overseeing the calculation of 

the Farmgate Milk Price described earlier 

have now been enshrined in new Subpart 5A 

of DIRA. 

Under DIRA, Fonterra must: 

• maintain and make publicly available the 

Farmgate Milk Price Manual that sets out 

how the Farmgate Milk Price is calculated 

(section 150F); 

• maintain the Milk Price Panel (section 

150D) and ensure that the Chair and a 

majority of the members are independent 

(section 150E); and 

• set and make publicly available the Milk 

Price Panel’s terms of reference (section 

150D), which must include, for each Season: 

–– 

supervising the calculation of the 

Farmgate Milk Price; 

–– 

advising Fonterra as necessary on the 


Manual; and 

–– 

recommending the Farmgate Milk Price 

to the Fonterra Board. 

The Milk Price Panel may also recommend 

amendments to the Farmgate Milk Price 

Manual, or recommend that a proposed 

amendment should not be made (section 

150D(4)). While Fonterra is not required to 

comply with such recommendations, where it 

acts inconsistently with, contrary to or in the 

absence of a Milk Price Panel 

recommendation, it must publish its reasons 

for doing so, along with the relevant 

recommendation, if any (section 150G). 

Finally, as noted above, if Fonterra sets a 

Farmgate Milk Price other than in accordance 

with a recommendation of the Milk Price 

Panel or without having received a 

recommendation by the Milk Price Panel, it 

must make certain public disclosures. 

Commerce Commission oversight 

of the Farmgate Milk Price and 


DIRA also gives the Commerce Commission 

an oversight role. A purpose of DIRA is to 

promote the setting of a Farmgate Milk Price 

that provides an incentive to Fonterra to 

operate efficiently, while providing for 

contestability in the market for the purchase 

of milk from farmers (section 150A). Each year, 

the Commission is required to review and 

report on the extent to which the Farmgate 

Milk Price Manual and the Farmgate Milk Price 

are consistent with that purpose. 

The oversight regime also: 

• provides that if notional costs, revenues, 

or other assumptions taken into account 

in calculating the Farmgate Milk Price 

are practically feasible for an efficient 

processor, then the setting of the Farmgate 

Milk Price will provide for contestability 

in the market for the purchase of milk 

from farmers; 

• specifies various assumptions that may be 

used in calculating the Farmgate Milk Price 

that do not detract from the statutory 

purpose; and 

• sets out various principles in terms of how 

cost and revenue inputs are used to 

calculate the Farmgate Milk Price, which 

are required for consistency with the 

statutory purpose. 

Fonterra is required to provide the Commerce 

Commission with the information necessary 

to complete its review. The Commission must 

provide its draft reports to Fonterra for 

comment and must publish its final reports: 

• on the Farmgate Milk Price Manual by 

15 December during each Season; and 

• on the calculation of the Farmgate Milk 

Price for the just-completed Season by 

15 September immediately following the 

end of that Season. 

1 Amounts paid in the past three Seasons in addition to the Farmgate Milk Price have been less than 0.3% of the total of 

the aggregate amount paid for milk. These payments have related to premiums on certain specialty organic and stolle 

(hyper-immune) milk, and specific contracts with a subset of Farmer Shareholders that provide for targeted premiums 

for milk supplied in winter months to serve the domestic market. 

70

section | 3.0 

The reports on the Farmgate Milk Price 

Manual and the calculation of the Farmgate 

Milk Price will not disclose the Commission’s 

view of the final Farmgate Milk Price for the 

Season. The Commission will instead focus 

on the consistency with the purpose of the 

oversight regime of: 

• the Farmgate Milk Price Manual; and 

• the assumptions adopted and the inputs 

and process used in calculating the 

Farmgate Milk Price for the Season. 

These reports will contribute to the overall 

transparency of the setting of the Farmgate 

Milk Price. 

Fonterra is not bound by the Commerce 

Commission’s findings. However, where it 

considers appropriate, it may amend its 

calculation of the Farmgate Milk Price or the 

Farmgate Milk Price Manual in light of a 

Commerce Commission report. In terms of 

the reports on the calculation of the 

Farmgate Milk Price, the timing of their final 

publication date enables the views of the 

Commission to be known before Fonterra’s 

annual results relating to that Season are 

finalised and announced. 

Commerce Commission’s “dry run” 

review 

In anticipation of this new oversight regime, 

the Minister for Primary Industries requested 

that the Commerce Commission conduct a 

dry run review of Fonterra’s setting of the 

Farmgate Milk Price and the Farmgate Milk 

Price Manual in respect of the 2011 / 2012 

Season. The purpose of the dry run review 

was to provide increased investor certainty 

ahead of the launch of Trading Among 

Farmers. In particular, the dry run report was 

to provide an indication of how the 

Commerce Commission intends to 

implement the monitoring regime in practice. 

The Commerce Commission’s report on its 

dry run review was released on 27 August 

2012. In summary, the Commerce 

Commission concluded, based on its limited 

review of a number of key issues only, that: 

• the Farmgate Milk Price Manual sets a 

Farmgate Milk Price which is largely 

independent from Fonterra’s actual 

performance and this provides an incentive 

for Fonterra to operate more efficiently; 

• the Farmgate Milk Price provides for 

contestability in the market for the 

purchase of milk from farmers. Most, but 

not all, of the assumptions used by the 

Farmgate Milk Price Manual are reasonable 

and practically feasible; 

• the assumptions that the Commerce 

Commission raised concerns about relate 

to aspects of the cost of capital and asset 

base. Having regard to the direction 

(i.e. whether they increased or decreased 

the Farmgate Milk Price) and the aggregate 

size of the impact of these issues, the 

Commission concluded that its analysis 

suggests that the Farmgate Milk Price 

is practically feasible for an efficient 

processor; and 

• based on the evidence available, Fonterra’s 

setting of the Farmgate Milk Price appears 

to be consistent with the Commerce 

Commission’s interpretation of DIRA’s 

purpose and principles. 

As a result of the Commerce Commission’s 

dry run report, Fonterra made the following 

changes to the Farmgate Milk Price Manual, 

which will take effect from the start of the 

2012 / 2013 Season: 

• an amendment to enable explicit 

adjustments for debt issuance costs and 

any costs involved in swapping US$denominated 

debt premium to NZ$ in 

calculating the weighted average cost of 

capital; and 

• an amendment to make it unambiguous 

that the sales phasings assumptions 

cannot be adjusted retrospectively based 

on information which was not available at 

the time the phasings would have actually 

been established by Fonterra or another 

actual processor. 

The effect of the adjustment to the cost of 

debt will result in a reduction in the Farmgate 

Milk Price of one cent per kgMS in the 2012 / 

2013 Season. 

The results of the Commerce Commission’s 

future reviews under DIRA may differ from 

the dry run approach as various assumptions 

may be considered in more detail, and its 

interpretation of the relevant sections of 

DIRA may change. 

Commerce Commission’s draft 

report on the Farmgate Milk Price 

Manual for the 2012 / 2013 Season 

As part of the first statutory review of 

the Farmgate Milk Price Manual and the 

Farmgate Milk Price, on 19 October 2012 

the Commerce Commission released its 

draft report in respect of the Farmgate 

Milk Price Manual to be used for the 

2012 / 2013 Season. 

In summary, the Commerce Commission’s 

draft report concluded that: 

• the Farmgate Milk Price Manual is 

materially consistent with the purpose 

statement in section 150A of DIRA; 

• most of the elements of the Farmgate Milk 

Price Manual provide Fonterra with an 

incentive to operate efficiently; 

• while no areas had been identified where 

assumptions were not practically feasible 

for an efficient processor, further 

information has been requested in relation 

to some assumptions through a 

submissions process; and 

• the implementation of the Farmgate Milk 

Price Manual will be reviewed when the 

Commerce Commission reviews the 

Farmgate Milk Price for the 2012 / 2013 

Season at the end of that Season. 

Fonterra and other interested third parties 

have until 15 November 2012 to make 

submissions on the draft report. The 

Commerce Commission’s final report in 

respect of this review must be published 

by 15 December 2012. 

The statutory process for the Commerce 

Commission’s review of the assumptions 

adopted and the inputs and process used in 

calculating the actual Farmgate Milk Price for 

the 2012 / 2013 Season does not begin until 

July 2013. The Commission’s final report on 

that review is due by 15 September 2013. 


SECTION 4 

FONTERRA FINANCIAL 

INFormatION 

overview of fonterra 

financial information 

The Offer is an offer to subscribe 

for Units in the Fonterra 

Shareholders’ Fund, a unit trust 

which has been established to 

invest in Economic Rights of 

Shares in Fonterra. It provides 

investors with an opportunity 

to earn returns based on the 

financial performance of Fonterra. 

The performance of the Units will 

be related to the performance of 

Fonterra. Consequently, this 

section contains financial 

information and commentary 

relating to Fonterra. 

No offer is being made to 

subscribe for Shares in Fonterra in 

this Offer Document. The Units 

being offered in this Offer 

Document will be issued by the 

Manager of the Fund, not by 

Fonterra, and do not confer any 

direct interest in Fonterra. 


Fund has not allotted any Units or carried on 

any other activity on which to report. 

Accordingly, this Offer Document does not 

contain any financial information relating to 


In its own financial statements, the Fund 

expects to value its investment in Economic 

Rights of Shares at fair value and record a 

liability representing the obligation on the 

Fund to pass dividends received straight 

through to Unit Holders. 

This Offer Document is required by the 

Securities Regulations to contain five years of 

historical summary financial statements for 

Fonterra. These are shown in Section 11 

– Summary Financial Statements. This Offer 

Document also contains a more detailed 

review of Fonterra covering the last three 

financial years. Because of structural 

changes to the calculation of the cost of New 

Zealand-sourced milk and the way in which 

earnings were presented prior to FY2010, it 

is not meaningful to provide comparisons to 

periods prior to FY2010. The business review 

is contained on pages 74 to 87. 

In addition to the historical financial 

information, this Offer Document contains 

forecasts of Fonterra’s financial performance 

and position for the financial year ending 

31 July 2013. This information is in the format 

of a set of prospective financial statements, 

and is contained in pages 88 and 91 to 112. 

The Fonterra Financial Information (including 

the Fonterra Prospective Financial 

Information) has been prepared by the 

directors of Fonterra. The Manager and the 

Board of the Manager have not been involved 

in the preparation or finalisation of any of the 


Fonterra’s Auditor, PricewaterhouseCoopers, 

has examined the Fonterra Prospective 

Financial Information and the summary 

financial statements in Section 11 – 

Summary Financial Statements and 

PricewaterhouseCoopers’ reports are set out 

on pages 89 to 90 and 163 to 164 respectively. 

The Fonterra Financial Information should be 

read in conjunction with the risk factors set 

out in Section 7 – Investment Risks and the 

other information contained in this Offer 

Document. 

The Fonterra Financial Information is shown 

in millions of New Zealand dollars (unless 

stated otherwise), and is rounded, which may 

result in some discrepancies between the 

sum of components and totals within tables 

and also in certain percentage calculations. 

Fonterra Group 

performance 

Fonterra’s integrated and geographically 

diverse businesses span everyday dairy 

nutrition, out-of-home foodservices, branded 

consumer products and advanced dairy 

nutrition. 

Over the period from FY2010 to FY2012, sales 

volumes have increased by 4%, reflecting 

increased supply of New Zealand milk and 

growing global demand for dairy nutrition. 

Over the same period, Fonterra’s revenue has 

grown 18% from $16.7 billion to $19.8 billion 

primarily as a consequence of both sales 

volume growth and the impact of increased 

commodity prices. 

A significant proportion of the volatility in 

commodity prices and currency is passed 

through to the Farmgate Milk Price rather 

than Fonterra’s earnings. Normalised EBIT 1 

increased by 14% from $904 million to $1,028 

million between FY2010 to FY2012, and EBIT 

as a percentage of sales was in the range of 

5.1% to 5.4%. 

However, as a result of the way in which 

the Farmgate Milk Price is calculated, some 

volatility in commodity prices and currency 

is not passed through to the Farmgate Milk 

Price and Fonterra’s earnings remain exposed 

to volatility arising from movements in the 

price of certain commodity products. These 

movements may be significant. They are 

described below in the historical review of NZ 

Milk Products relating to product mix, and 

quantified in the sensitivity analysis relating to 

the Fonterra Prospective Financial Information. 

1 Normalised EBIT includes share of profit from equity accounted investees and excludes non-recurring items as described on 

page 74 in this section. 

72

section | 4.0 

($M) FY2012 FY2011 4 FY2010 4 

Sales volume (‘000 MT) 3,941 3,866 3,772 

NZ Milk Products 15,717 15,593 12,801 

Regional businesses 6,508 6,863 6,034 

Eliminations (inter-segment) (2,456) (2,585) (2,109) 

Revenue 19,769 19,871 16,726 

Growth (pcp) 1 (1)% 19% – 

Farmgate Milk Price 9,033 10,235 7,938 

Other cost of goods sold 7,688 6,626 6,037 

Gross profit 3,048 3,010 2,751 

Growth (pcp) 1 1% 9% – 

Margin 15.4% 15.1% 16.4% 

Normalised EBITDA 2 1,520 1,494 1,388 

Margin 7.7% 7.5% 8.3% 

NZ Milk Products 515 420 306 

Regional businesses 527 568 598 

Eliminations (14) 17 – 

Normalised EBIT 2 1,028 1,005 904 

Growth (pcp) 1 2% 11% – 

Margin 5.2% 5.1% 5.4% 

Reported EBIT 987 1,028 1,078 

Net finance costs (310) (406) (313) 

Profit before income tax 677 622 765 

Income tax (expense) / credit (53) 149 (80) 

Profit for the period 624 771 685 

Capital employed 3 11,096 10,651 10,360 

Return on capital employed 3 9.3% 9.4% 8.7% 

1 pcp means previous corresponding period and is calculated as the percentage change between two comparable periods. 

2 A reconciliation of historical profitability to statutory financial information is set out below. 

3 Capital employed is calculated as monthly average net assets (excluding derivatives, taxes and investments) other than equity accounted investments plus net debt. Return on capital employed 

is calculated as normalised EBIT divided by capital employed. 

4 FY2010 and FY2011 have been restated to reflect the movement of Quick Service Restaurants (QSR) into NZ Milk Products from ANZ and China foodservices out of NZ Milk Products into Asia / 

AME. These movements both occurred in FY2012. The comparative in the segment note in the FY2012 financial statements has been restated to reflect this. 

Key drivers of EBIT over the period from FY2010 to FY2012 were: 

• an increase in price premiums achieved for products sold by NZ Milk Products; 

• NZ Milk Products’ ability to optimise its product mix, within its capacity and contractual constraints, in response to movements in the prices of 

products that are not used to calculate the Farmgate Milk Price relative to those that are; 

• a fall in profitability of the Australia and New Zealand operations, which continued to be impacted by challenging trading conditions; and 

• strong growth in Asia and the Middle East driven by consumer demand for high-quality dairy products and investment in key brands, Anchor, 

Fernleaf, Anlene and Anmum. 


SECTION 4 


INFormatION continued 

The directors of Fonterra believe that the following normalisation adjustments assist potential investors to compare historical and prospective 

financial information set out in this section. These adjustments have previously been presented in the audited financial statements. 

($M) FY2012 FY2011 FY2010 

Normalised EBITDA 1,520 1,494 1,388 

Reported depreciation and amortisation (492) (489) (484) 

Normalised EBIT 1,028 1,005 904 

Impairment losses recorded in equity accounted investees (8) – – 

Restructuring costs associated with Fonterra's "Strategy Refresh" (30) – – 

Impact of Christchurch earthquakes and Japan earthquake / tsunami – (18) – 

Gain on disposal of Western Australia dairy business – 26 – 

Gain on acquisition of RD1 – 23 – 

Impact of Chilean earthquake – 5 (12) 

Receipt for amendments to equity accounted investee arrangements – – 41 

Gain on sale of 25% investment in AFF P/S (joint venture with Arla Foods) – – 127 

Other (3) (13) 18 

Total normalisation adjustments (41) 23 174 

Reported EBIT 987 1,028 1,078 

Net finance costs (310) (406) (313) 

Tax (expense) / credit (53) 149 (80) 

Profit for the period 624 771 685 

Business review 

The financial performance of the four components of Fonterra’s business is summarised below. Except as otherwise noted, the Fonterra Financial 

Information is presented in a format which aligns with Fonterra’s historic reportable segments as disclosed in its annual financial statements. 

These are defined by product type and geographic area to reflect how Fonterra’s operations have been managed historically and are as follows: 

Reportable segment 

NZ Milk Products 1 

ANZ 

Asia / AME 

Latam 

Description 

The NZ Milk Products segment encompasses the core New Zealand milk supply chain from collection, manufacturing 

and logistics through to end sale to business customers and the Fonterra regional businesses. It also includes 

international milk sourcing, dairy nutrition-related joint ventures, RD1 and the Co-operative’s corporate activities. 

Australia and New Zealand (ANZ) encompasses three separate consumer and out-of-home foodservices businesses, 

and a dairy processing and manufacturing business that collects approximately 18% of Australia’s milk supply. 

Asia / AME comprises Fonterra’s consumer and out-of-home foodservices businesses in Asia, Africa and the Middle 

East. Asia / AME’s brands cover a wide range of consumer and customer needs ranging from everyday dairy nutrition 

under Anchor, Fernleaf and Ratthi, to advanced nutrition offerings under Anlene and Anmum. 

Latam encompasses Soprole, the market-leading integrated dairy business in Chile, and an investment in Dairy 

Partners Americas, a 50 / 50 joint venture with Nestlé covering several markets in Latin America including Brazil, 

Venezuela, Ecuador, Colombia and Argentina. 

There have been two changes to the organisation of business units within reported segments during the year ended 31 July 2012, as disclosed in 

the FY2012 financial statements: 

• out-of-home foodservices sales to Quick Service Restaurants (QSR) has been moved from ANZ to NZ Milk Products; and 

• China foodservices sales have been moved from NZ Milk Products to Asia / AME. 

Comparatives have been restated to reflect these changes. 

Additional changes to the organisation of business units from 1 August 2012 (but not reflected in the Fonterra Financial Information) are 

discussed under the heading “Organisational structure” in Section 1 – About Fonterra. 

1 NZ Milk Products was formerly described as Standard & Premium Ingredients. 

74

section | 4.0 


Over the period from FY2010 to FY2012, sales volumes increased by 10%, reflecting increased supply of New Zealand milk and growing global 

demand for Fonterra’s dairy nutrition products from business customers and Fonterra’s regional businesses. Over the same period, revenue grew 

23% from $12.8 billion to $15.7 billion reflecting both sales volume growth and the impact of increased commodity prices. 

Normalised EBIT increased by 68% from $306 million to $515 million between FY2010 and FY2012, and EBIT margin from 2.4% to 3.3%. 

($M) FY2012 1 FY2011 FY2010 


New Zealand-sourced 12,256 11,796 9,678 

Other 1,764 1,997 1,591 

Inter-segment revenue 1,697 1,800 1,532 

Revenue 15,717 15,593 12,801 

Growth (pcp) 1% 22% – 

Farmgate Milk Price 2 (9,033) (10,235) (7,938) 

New Zealand manufacturing costs (2,689) (2,437) (2,233) 

Other cost of goods sold (2,589) (1,709) (1,653) 

Gross profit 1,406 1,212 977 

Growth (pcp) 16% 24% – 

Selling and marketing expenses (106) (92) (80) 

Distribution expenses (203) (161) (156) 

Other operating expenses (762) (623) (540) 

Other operating income 102 118 265 

Foreign exchange gains / (losses) 9 (75) (3) 

Share of profit of equity accounted investees 45 40 33 

Normalisation adjustments 24 1 (190) 

Normalised EBIT 515 420 306 

Growth (pcp) 23% 37% – 

EBIT margin 3.3% 2.7% 2.4% 

Normalised EBITDA 895 799 680 

Capital employed 6,783 6,241 5,845 

Return on capital employed 7.6% 6.7% 5.2% 

1 FY2010 and FY2011 have been restated to reflect the movement of Quick Service Restaurants into NZ Milk Products from ANZ and China foodservices out of NZ Milk Products into Asia / AME. 

These movements both occurred in FY2012. The comparative in the segment note in the FY2012 financial statements has been restated to reflect this. 

2 As explained in the Milk Price Statement, the Farmgate Milk Price is calculated for a Season to 31 May and Fonterra’s financial year runs to 31 July. Hence, there are small timing differences 

between the Farmgate Milk Price shown in the financial statements and the Milk Price Statement. 

Over the period from FY2010 to FY2012, sales volume increased by 10% and weighted average commodity prices rose by 27% in US$ terms, 

but only 10% in NZ$ terms as a result of the strengthening NZ$:US$ exchange rate. Overall, revenue increased by 23%, and cost of goods sold 

by 21% over this period. The cost of New Zealand-sourced milk consists of the Farmgate Milk Price together with movements in the value of 

opening and closing inventories year-on-year, which are shown in other cost of goods sold. Other cost of goods sold also includes the cost 

of globally-sourced products (which follow global dairy commodity price trends). 

As noted in Section 3 – Setting the Farmgate Milk Price for New Zealand Milk, changes to US$-denominated prices for dairy products and 

to the NZ$:US$ exchange rate should largely flow through into the cost of New Zealand-sourced milk through a higher or lower Farmgate 

Milk Price. This is evident to some extent by changes in the sales of NZ Milk Products being reflected in similar movements in the cost of 

New Zealand-sourced milk. 


SECTION 4 



A measure of the underlying operational performance of the businesses is contribution margin per MT of sales which is shown in the table 

below. This measure strips out the impact of both volume changes, and commodity price and exchange rate fluctuations which are in part 

reflected in the cost of New Zealand milk through the Farmgate Milk Price, and the cost of globally-sourced milk as shown below: 

($M) FY2012 FY2011 FY2010 


Gross profit 1,406 1,212 977 

Selling, marketing and distribution expenses (309) (253) (236) 

Contribution margin 1,097 959 741 

Contribution margin per MT of sales ($) 385 359 287 

Growth (pcp) 7% 25% – 

While changes in commodity prices, 

exchange rates and milk volumes flow 

through to the cost of New Zealand-sourced 

milk to an extent, it is apparent that they do 

not fully insulate the earnings of the NZ Milk 

Products business from volatility. This is 

primarily due to two factors: 

• the extent to which the business sells dairy 

ingredients at prices that differ to the 

GDT (or other benchmark) prices that are 

relevant in calculating the Farmgate Milk 

Price. Fonterra may achieve higher prices 

through offering value-adding customer 

services and enhanced product 

specifications. Moreover, between FY2010 

and FY2012, Fonterra’s forward sale 

fixed-price commitments were longerdated 

than contracts that referenced the 

Farmgate Milk Price, resulting in earnings 

exposure in a rising market and earnings 

contribution in a falling market; and 

• the extent to which the business has been 

able to respond to changes in the relative 

prices of dairy nutrition products, and the 

related earnings volatility, by altering its 

product mix. 

Each of these key earnings drivers is explained 

further below. A number of changes 

implemented by Fonterra have enabled NZ 

Milk Products to manage these factors, 

thereby improving earnings sustainably and 

reducing exposure to volatility. 

The way in which the Farmgate Milk Price is 

derived also means that there are other 

avenues for NZ Milk Products to build 

sustainable earnings. In particular, the capital 

cost implicit in the Farmgate Milk Price, 

together with scale and scope efficiencies 

that arise from new investment, means that 

additional processing capacity should be 

expected to at least recover the weighted 

average cost of capital used in the Farmgate 

Milk Price calculation. Fonterra has also 

obtained operational efficiencies unrelated to 

new investment since FY2010. These benefits 

generally flow through to improved earnings 

for a period of time. 

Price premiums above GDT 

A key driver of core NZ Milk Products EBIT 

growth is the ability to sell products at a 

premium to the Farmgate Milk Price benchmark, 

or effectively the prevailing GDT price. 

GDT has been the catalyst for a fundamental 

change in the NZ Milk Products sales 

approach, providing a benchmark that has 

contributed to enhanced disciplines around 

product pricing, as well as operational 

efficiency from a more standard range of 

products offered for sale on GDT. Superior 

pricing visibility has enabled customers and 

Fonterra to assess the value of additional 

selling services, product customisation and 

warehousing. GDT now represents the 

minimum pricing benchmark for the sale of 

Reference Commodity Products that are 

marketed through that auction platform. 

NZ Milk Products typically enters into 

contracts under which prices for dairy 

nutrition products are agreed before products 

are shipped (referred to below as the 

contract-price horizon). This includes the 

sales prices of Reference Commodity 

Products used to calculate the Farmgate Milk 

Price. The Farmgate Milk Price reflects 

Fonterra’s actual contract-price horizon 

provided this is five months or less (eight 

months for the 2011 / 2012 Season and prior). 

NZ Milk Products holds contracts with a 

longer contract-price horizon, but has 

reduced these significantly over the period 

from FY2010 to FY2012 (reflected in the 

shortened period now used in the Farmgate 

Milk Price calculation) and charges a 

risk-related premium for customers that 

require a longer contract-price horizon. 

The impact of NZ Milk Products having a 

longer contract-price horizon than that used 

in the Farmgate Milk Price calculation is that 

changes in commodity prices pass through to 

the cost of milk more quickly than they do to 

NZ Milk Products’ revenue. If commodity 

prices are rising, this is likely to have a 

negative impact on earnings. If commodity 

prices are falling, the opposite is likely to 

occur. 1 This has had an adverse effect on NZ 

Milk Products’ EBIT in FY2011, with 

commodity prices rising significantly during 

that period. The opposite occurred in FY2012. 

NZ Milk Products has actively reduced its 

exposure to long contract-price horizon sales 

arrangements. This is reflected in a reduction 

in sales volumes of whole milk powder 

related to contracts where prices were agreed 

more than five months prior to shipment, 

from 22% in FY2010 to 11% in FY2011 and 4% 

in FY2012. This should materially reduce the 

effect of the contract-price horizon on 

earnings in future periods. 

Improvement in actual price premiums relative 

to GDT between FY2010 and FY2012 is 

indicated by the relationship between actual 

whole milk powder prices and GDT whole 

milk powder prices. Chart 1 represents NZ 

Milk Products’ monthly volume weighted 

average commodity whole milk powder net 

revenue per tonne divided by net revenue per 

tonne of whole milk powder sold on GDT 

(whole milk powder price index). While the 

chart is indicative only of a broad trend, it 

nonetheless illustrates the effect of a reduced 

contract-price horizon for products sold 

through channels other than GDT noted 

above. The adverse effect of legacy non- 

GDT sales with a long contract-price 

horizon in a period of rising GDT prices is 

indicated in the last half of FY2010 and the 

first half of FY2011 (refer to the chart below). 

With a much shorter average contract-price 

horizon since then, the impact of changes in 

commodity prices should have a lesser effect 

on earnings volatility in future periods. 

1 Note the same effect also results from the use of formulaic contracts that are based on historical pricing. 

76

section | 4.0 

CHART 1 

WHOLE MILK POWDER PRICE INDEX 

1.50x 

FY2010 FY2011 FY2012 

CHART 2 

CHEESE AND CASEIN RELATIVE PRICE INDICES 1 

3.50x 

FY2010 FY2011 FY2012 

3.00x 

2.50x 

2.00x 

1.00x 

1.50x 

Indicates effect of legacy 

contracts with a longer 

contract-price horizon 

Indicates effect of shortening 

contract-price horizons and an 

enhanced focus on product pricing 

1.00x 

0.50x 

0.50x 

Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 

WMP 1 / GDT TM WMP 1 

Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 

Casein / GDT TM WMP 2 Cheese / GDT TM WMP 2 


1 WMP means whole milk powder. 

Relative price effect 

Fonterra’s NZ Milk Products business manufactures approximately 

20% to 25% of New Zealand-sourced milk into products that do not 

form part of the Farmgate Milk Price calculation, such as cheese and 

protein products derived from whey and casein. 

Relative prices of Reference Commodity Products that are taken into 

account in the calculation of the Farmgate Milk Price and prices 

obtained by Fonterra for other dairy nutrition products often vary 

over time. If the prices of Reference Commodity Product streams 

increase relative to those other dairy ingredients (like cheese and its 

by-products), the impact on NZ Milk Products’ EBIT is unfavourable, 

and vice versa. 

An example of the relationship between the relative prices of 

Reference Commodity Products and other dairy nutrition products is 

illustrated in Chart 2 which shows actual prices compared to GDT 

whole milk powder prices over the period from FY2010 to FY2012. Chart 

2 represents Fonterra’s monthly weighted average commodity cheese 

and casein net revenue per tonne divided by net GDT whole milk 

powder revenue per tonne. 


1 It is important to note that the effect described above is illustrated by comparing the index 

of the prices of whole milk powder and the main non-Reference Commodity Products over 

the time period (cheese being the largest non-Reference Commodity Product by value). The 

earnings impact of relative price changes of various products over time also depends on 

returns from by-products that result from using the full volume of milk, such as lactose and 

whey in the case of cheese. It is relative returns across streams that affect earnings and 

product mix decisions. Relative stream returns are not shown on this chart. Accordingly, 

relative headline price differences should be interpreted with caution. 

2 WMP means whole milk powder. 

A decline in average prices of cheese and related products relative to 

GDT whole milk powder prices in FY2011 compared to FY2010 is 

indicative of a negative impact on core NZ Milk Products’ EBIT in 

FY2011. Fonterra was able to partly offset this adverse relative price 

movement, within capacity constraints, through changes to its 

product mix. The opposite trend was observed between FY2011 and 

FY2012, indicative of a positive impact on NZ Milk Products’ EBIT. 


SECTION 4 



Variability in relative prices between Reference 

Commodity Products and other dairy nutrition 

products such as cheese (and its by-products) 

and casein can have a significant impact on 

the earnings of NZ Milk Products. For example, 

if the relative price of other dairy nutrition 

products compared to that for Reference 

Commodity Products changes by ±5%, then, 

other factors aside, the potential impact on 

FY2013 EBIT is estimated at ±$125 million 

(refer to the sensitivity analysis later in this 

section in connection with the Fonterra 

Prospective Financial Information). 

This variability in relative prices (referred to as 

stream returns) can arise because globallytraded 

prices of products such as cheese can 

be less responsive to changes in global supply 

and demand dynamics than milk powder 

products. Among other things, this reflects 

higher trade barriers for cheese, with a broader 

reach of quotas, licences or high tariffs in key 

markets like Japan, Korea, the United States 

and Europe. For example, around two thirds 

of New Zealand’s cheese is exported to 

markets with duties of 20% or more. This is 

the case for only about one fifth of whole 

milk powder exports. The less constrained 

trade environment for non-cheese products 

has contributed to new cheese capacity 

representing less than 5% of total capacity 

growth in New Zealand over the last decade. 

Fonterra can mitigate the short-term impact 

of relative changes in stream returns through 

product mix optimisation in its NZ Milk 

Products operation, subject to constraints on 

capacity during periods of peak production 

and existing long-term volume commitments 

to consumer brands customers (including the 

regional businesses). Fonterra is also 

increasingly reflecting the implications of 

long-term product commitments on its mix 

flexibility in its general pricing terms, as well 

as its expected margins from its own 

downstream consumer and out-of-home 

foodservices businesses. 

Implications of additional 

investment in capacity 

The Farmgate Milk Price incorporates a 

capital cost related to the asset base assumed 

in the Farmgate Milk Price calculation. This 

allowance for a return on invested capital as 

a cost in calculating the Farmgate Milk Price 

means that Fonterra should expect to meet 

or slightly exceed recovery of depreciation 

and weighted average cost of capital on 

incremental capital investment over time. 

This is particularly the case if, for example, 

new capacity offers other benefits such as 

overhead and operating cost efficiencies. 

In order to process the growing volume of 

milk supplied, Fonterra commissioned the 

ED4 milk powder plant at Edendale in FY2010 

and has spent approximately $245 million 

over the period from FY2010 to FY2012 on 

additional capacity at Darfield, also in the 

South Island. Further investment in new 

processing capacity at Darfield is planned 

for FY2013. A key impact of this investment 

profile is an increased focus on the production 

of whole milk powder (and its by-products). 

This is illustrated in Chart 3 below. 

The new capacity is of world scale. As a 

capital intensive business, NZ Milk Products 

benchmarks its performance using return on 

capital employed, which in FY2012 was 7.6%. 

CHART 3 

SALES VOLUME IN ‘000 MT BY PRODUCT 

3,000 

2,500 

2,000 

1,500 

1,000 

755 

502 

457 

Other operating expenses and 

income 

Other operating expenses increased from 

$540 million in FY2010 to $762 million in 

FY2012. The acquisition of RD1 and the 

operating costs of China farms have added 

$58 million to the cost base, and FY2012 

included $24 million primarily of restructuring 

costs associated with the Strategy Refresh, 

as well as other operational expenses of 

$61 million (such as impairments and 

increases in debtor provisioning) that relate 

to issues specific to FY2012. 

Other operating income in FY2010 included 

the benefit of the gain on sale of Fonterra’s 

25% investment in AFF P/S of $127 million, a 

butter joint venture with Arla Foods in Europe. 

Foreign exchange gains and losses include the 

cost of options used to hedge sales receipts 

which are mainly in US$. The benefits and 

premium cost of these hedges is taken into 

account in calculating the Farmgate Milk Price. 

Income from the nutrition joint ventures 

with Dairiconcepts and DMV Fonterra 

Excipients increased by 36% over the period 

from FY2010 to FY2012. This growth trend is 

expected to continue following the divestment 

by Dairiconcepts of a loss-making plant 

in FY2012. 

933 

513 

414 

1,049 

461 

482 

500 

321 

69 

479 

298 

58 

454 

323 

66 

466 

0 

FY2010 

FY2011 

FY2012 

Whole Milk Powder 

Skim Milk Powder 

Cream 

Cheese 

Caesin 

Other 


78

section | 4.0 

Australia and New Zealand (ANZ) 

Over the period from FY2010 to FY2012, ANZ revenue increased by 12% after adjusting for the Western Australia dairy business that was sold in 

FY2011. Although the consumer business has faced price and volume pressure, the out-of-home foodservices business has remained stable and 

revenue from the dairy nutrition business has grown by 26%, reflecting both volume growth and increased commodity prices. 

Normalised EBIT has declined by 33% to $204 million primarily due to the challenging trading environment and level of investment made to 

support market share in key consumer brands and categories. 

($M) FY2012 1 FY2011 FY2010 

Sales volume (‘000 MT) 959 1,096 1,054 

Revenue – consumer and out-of-home foodservices 2,414 2,582 2,381 

Revenue – dairy nutrition 1,812 1,925 1,435 

Eliminations (intra-segment) (378) (267) (134) 

Revenue 2 3,848 4,240 3,682 

Gross profit 780 898 933 

Gross profit 20.3% 21.2% 25.3% 

Normalised EBIT 2 204 256 303 

EBIT margin 5.3% 6.0% 8.2% 


Capital employed 2,873 3,022 2,991 


1 FY2010 and FY2011 have been restated to reflect the movement of Quick Service Restaurants into NZ Milk Products from ANZ. This movement occurred in FY2012. The comparative in the 

FY2012 segment note in the financial statements has been restated to reflect this. 

2 Revenue of $244 million in FY2010 and $159 million in FY2011, and EBIT of $17 million in FY2010 and $5 million in FY2011, relates to business activities in Western Australia that were divested 

in FY2011. 

The trading environment in Australia and New Zealand has been challenging over the last two years. This has been driven by weak consumer 

spending and the resulting increase in pressure on pricing to maintain volume and market share. Market conditions have been further affected 

by new entrants in cheese and yoghurt categories. In addition, the retail grocery channel in Australia is dominated by two major supermarket 

groups. Both groups have responded to the soft consumer environment with increased pressure on pricing. This has resulted in significantly 

increased pressure on brand owners to reduce price and increase promotional spend in order to protect distribution and defend market share. 


SECTION 4 



Over the period from FY2010 to FY2012, 

after adjusting for the divestment of 

Fonterra’s Western Australia consumer 

business, total consumer and out-of-home 

foodservices revenue increased 13%, 

primarily reflecting selective price increases 

in response to higher commodity prices. 

However, to maintain market share, Fonterra, 

like its competitors, significantly increased 

trade and promotional spend, which is 

reflected in a material reduction in gross profit 

percentage for the overall ANZ business. 

Fonterra experienced market share declines 

across all major dairy categories in Australia 

between FY2010 and FY2011. This was most 

notable in the yoghurt category where 

Fonterra experienced a significant increase 

in new competitive entrants and restricted 

supply due to commissioning of its new 

capacity at its Echuca factory. These share 

declines have generally stabilised in FY2012, 

as shown in Chart 4. 

CHART 4 

AUSTRALIAN VOLUME MARKET SHARE BY PRODUCT CATEGORY 

35 

30 

25 

20 

15 

10 

5 

0 

Cheese 

Spreads 

FY2010 FY2011 FY2012 

Yoghurt 

Dairy Dessert 

Earnings volatility through the price and retail 

pressure in the Australian market is expected to 

continue, and has been a catalyst for Fonterra 

to reposition its consumer business in Australia 

and New Zealand. This includes product and 

brand rationalisation, a reassessment of 

advertising and promotional priorities, and 

a restructure of overhead costs. While 

New Zealand has seen similar trends in price 

competition to Australia, the impact on 

earnings has been less significant. In contrast 

over this period, the out-of-home foodservices 

businesses remained stable and revenue 

growth from Fonterra’s significant dairy 

nutrition business in Australia was 26%. 

This reflected an increase in volumes of 10% 

and an increase in average selling prices of 

15%, which was broadly in line with changes 

in international commodity prices in FY2012. 

Earnings for the dairy nutrition business in 

FY2012 were consistent with those achieved 

in FY2010. 

Source: Fonterra analysis of published market data 

80

section | 4.0 

Asia / AME 

Continued investments in support and expansion of the core regional brands Anchor, Fernleaf, Anlene and Anmum strengthened Asia / 

AME’s share position in markets with a growing demand for quality dairy nutrition. 

Sales volume grew by 8% over the period from FY2010 to FY2012. Sales revenue grew 15%, ahead of volume due to price increases to recover 

rising commodity costs and a faster growth of the higher-value products in the brand portfolio. 

Collectively, Fonterra’s four core regional brands accounted for approximately two thirds of Asia / AME revenues. 

Normalised EBIT has increased by 10% from $176 million to $194 million between FY2010 and FY2012, and EBIT margin remained above 10%, 

despite significant levels of investment in advertising and promotional activities in emerging markets, primarily China. 

($M) FY2012 1 FY2011 FY2010 

Sales volume (‘000 MT) 264 256 245 

Revenue 2 1,855 1,793 1,614 

Gross profit 631 611 602 

Gross profit 34.0% 34.1% 37.3% 

Selling and marketing expenses as a % of revenue 15.4% 14.9% 17.5% 

Normalised EBIT 194 193 176 

EBIT margin 10.5% 10.8% 10.9% 


Capital employed 773 721 721 


1 FY2010 and FY2011 have been restated to reflect the movement of China foodservices out of NZ Milk Products into Asia / AME. This movement occurred in FY2012. The comparative in the 

segment note in the FY2012 financial statements has been restated to reflect this. 

2 FY2010 revenue is $35 million higher than that for FY2011 and FY2012 on a comparable basis due to reclassification of trade spend from operating expenditure to revenue. 

Fonterra’s strong growth in Asia / AME was 

underpinned by rising consumer demand for 

the high-quality dairy nutrition brands 

Anchor and Fernleaf, and a focused 

investment in the development of Fonterra’s 

advanced nutrition brands Anlene and 

Anmum. Each of these brands has a 

clearly-defined consumer proposition and, in 

the case of Anchor, supports the out-ofhome 

foodservices business as well. This is 

reflected in increases in the volume and 

market share of all these brands in their 

respective market segments. 

The most significant growth market for 

out-of-home foodservices has been China, 

where Asia / AME has established a business 

with a significant position in core bakery 

categories. The Asia / AME business has also 

invested in launching the Anlene and 

Anmum Materna brands commencing in 

Guangzhou in FY2010, with distribution 

having reached 12 cities by the end of FY2012. 

The brands business in China is in a growth 

phase supported by significant investments in 

advertising and promotion, and is forecasting 

to hit a key milestone of generating positive 

EBIT in Guangzhou in FY2013 (with positive 

EBIT in other cities thereafter). 

Growth across Asia / AME was achieved 

despite a number of challenges including a 

tightening regulatory environment, supply 

constraints in Indonesia and Thailand, dairy 

market challenges in the Philippines and the 

exceptional political turbulence in the Middle 

East, which had a significant impact. 

Gross profit increased to $631 million in 

FY2012. After adjusting for the changes in 

the presentation of trade spend from FY2010 

onwards, this represented growth of 11%. 

This rate is lower than that for revenue growth, 

primarily due to the significant investment in 

trade spend in key growth markets. 

Investment in operating expenses increased 

by $47 million or 12% between FY2010 and 

FY2012 on a comparable basis (adjusting for 

the presentation of trade spend), to deliver a 

strong product innovation pipeline in 

everyday dairy, bone health and paediatric 

nutrition, and to expand proven Anchor, 

Fernleaf, Anlene and Anmum marketing 

programmes in both established and 

developing markets. Also, significant 

investments were made in selling and 

marketing capability for both the consumer 

and the out-of-home foodservices businesses. 

A significant part of the investment went into 

incremental selling and marketing activity in 

China and Vietnam, to support the expansion 

of Anlene and Anmum. 


SECTION 4 



latam 

Soprole is Chile’s largest dairy company with a market share of approximately 30% by value and 31% by volume of the Chilean consumer dairy 

market. The Soprole brand is among the most recognised and valued by consumers across all industries in Chile. 

Dairy Partners Americas is an integrated consumer dairy and milk processing business. Dairy Partners Americas’ operating environment is 

challenging. Fonterra recognises its share of Dairy Partners Americas’ earnings, as well as other income (including royalties). 

($M) FY2012 FY2011 FY2010 

Sales volume (‘000 MT) 319 312 312 

Revenue – Soprole 1 805 830 738 

Gross profit – Soprole 1 245 272 239 

Gross profit 1 30.4% 32.8% 32.4% 

Selling and marketing expenses as a % of revenue 1 6.1% 10.2% 10.0% 

Normalised EBIT – Soprole 83 78 76 

EBIT margin 10.3% 9.4% 10.3% 

Normalised EBIT – Fonterra's share of earnings from Dairy Partners 

Americas (including royalties) 

46 41 43 

Normalised EBIT – Latam 129 119 119 

Normalised EBITDA – Latam 2 154 140 138 

Capital employed – Latam 671 685 804 


1 Selling and marketing expenses include promotional costs of $34 million in FY2010 and $38 million in FY2011. In FY2012, $40 million of promotional costs were reclassified as a deduction from 

external revenue. 

2 Normalised EBITDA – Latam is the sum of EBITDA for Soprole and earnings from Dairy Partners Americas. 

Soprole 

Soprole has a strong focus on continuous 

innovation, reflected by a target of 35% to 

40% of consumer sales being from products 

launched within the last three years. The 

success of this focus on innovation is reflected 

in the premium for the Soprole brand. 

Total volume increased by 2% over the period 

from FY2010 to FY2012. In contrast, revenue 

increased by 14% over the same period, after 

adjusting for the reclassification of 

promotional costs. This outcome reflects an 

improved product mix towards higher-valueadd 

products, despite some capacity 

constraints in yoghurts and dairy desserts. 

The improved product mix was underpinned 

by continued success with new product 

innovation, with an increase in volumes in 

the higher-margin dairy product categories 

like yoghurt, dairy desserts and butter, 

and reduced volumes in the lower-margin 

white fresh milk category. Soprole began 

implementation of a project to increase its 

yoghurt production capacity, which is 

expected to be completed in January 2013. 

Gross profit increased by 19% over the period 

from FY2010 to FY2012, reflecting the factors 

noted above and after adjusting for the 

reclassification of promotional costs. 

Higher gross profit was partially offset by 

increased investment in advertising and 

promotion to support the Soprole brand, and 

higher freight and third party warehousing 

costs pending completion of a new central 

distribution centre in August 2013. 

Normalised EBIT in FY2012 of $83 million was 

6% higher than that for FY2011 (and 14% 

higher on a constant currency basis). 

Dairy Partners Americas 

Earnings from Dairy Partners Americas in 

FY2012 were $46 million (after normalising 

for an impairment of $8 million in the value 

of the investment in Venezuela), $3 million 

higher than FY2010. Adjusting for a 

$19 million benefit arising from the review of 

manufacturing cost recovery arrangements 

with Dairy Partners Americas in FY2012 

(which is not expected to reoccur), earnings 

were $16 million lower than in those for 

FY2010 at $27 million (down 37%). In Brazil, 

price increases introduced in response to 

higher commodity prices have reduced 

market share, and in Venezuela, where there 

is political and economic instability, price 

controls exist across major categories and 

inflation rates are high. In Ecuador, flooding 

in large parts of the country disrupted 

distribution channels for two months 

during FY2012. 

82

section | 4.0 

Other consolidated financial information 

Tax 

Fonterra’s offshore companies are taxed in the jurisdiction in which they are resident at the relevant corporate tax rate. No credit for that tax is 

available in New Zealand, but dividends repatriated are exempt from tax in most cases. The tax paid overseas is consolidated into Fonterra’s 

overall tax expense in its financial statements. 

In New Zealand, Fonterra is taxed under the co-operative companies tax regime under the Income Tax Act. Under this regime, all payments to 

Farmer Shareholders for milk (including any dividend portion) are deductible to Fonterra. This has meant that Fonterra has been in a tax loss 

position since 2002. Dividends paid by Fonterra that are deductible for tax purposes by Fonterra are taxed in the hands of Farmer Shareholders. 

Hence, New Zealand tax is paid in respect of Fonterra’s activities. 

Excluding the impact of tax deductible dividends (that are available because of Fonterra’s co-operative ownership structure) and the impact of 

deferred tax, Fonterra’s effective tax rate is below the standard rate of tax in New Zealand and ranged from 22.6% to 27.2% over the period from 

FY2010 to FY2012. 

($M) FY2012 FY2011 FY2010 

Profit before tax 677 622 765 

Prima facie tax expense (28% / 30% / 30%) 190 187 230 

Effect of tax rates in foreign jurisdictions (11) (9) (16) 

Impact of non-assessable income and non-deductible expenses (17) (8) (17) 

Impact of prior year under / (over) provision 1 (1) (24) 

Tax expense before the impacts of distributions to Shareholders and 

163 169 173 

deferred tax recognition / de-recognition 

Effective tax rate excluding distributions and deferred tax 24.1% 27.2% 22.6% 

Tax effect of distributions to Shareholders (128) (116) (109) 

Tax expense before the impacts of deferred tax recognition / 

35 53 64 

de-recognition 

Impact of recognition / de-recognition of deferred tax 18 (202) 16 

Tax expense / (credit) 53 (149) 80 

In FY2011, the deferred tax credit includes the impact of the transfer of the Anchor and Fernleaf brands from New Zealand to Asia / AME, the 

impact of a restructure of the Soprole business in Chile and the sale of the Western Australia dairy business. 


SECTION 4 



Capital expenditure 

NZ Milk Products accounted for $1.5 billion or 74% of capital expenditure over the period from FY2010 to FY2012. This expenditure primarily 

related to investments in New Zealand milk processing and supply chain assets, as well as the development of international farming ventures 

and a major information technology implementation. The remainder was invested in the regional businesses, most notably ANZ. 

($M) FY2012 FY2011 FY2010 

NZ Milk Products 645 470 378 

ANZ 181 135 74 

Asia / AME 19 17 13 

Latam 43 22 27 

Total capital expenditure 888 644 492 

Other than essential replacement capital expenditure, Fonterra made significant investments over the period from FY2010 to FY2012 in new 

capacity to process growth in New Zealand milk volumes, primarily in the South Island. Darfield is Fonterra’s (and its predecessors’) first 

greenfield processing development site in approximately 16 years, at an approximate capital cost of $245 million. The first dryer has now been 

commissioned and the plant was opened in August 2012. A second, larger dryer is now under construction. As described in Section 3 – Setting 

the Farmgate Milk Price for New Zealand Milk, replacement and new capacity capital expenditure should generally be expected to earn a return 

at or somewhat above the Farmgate Milk Price cost of capital over the life of the investment. 

Fonterra has invested in developing offshore secure sources of quality milk as part of its strategy to access developing dairy markets with both 

local and New Zealand-sourced milk products. Between FY2010 and FY2012, approximately $100 million was invested in farms in China, and a 

pilot farm in Brazil. 

ANZ includes an asset base to process milk sourced in Australia into consumer and dairy nutrition products. As a result, this business has higher 

capital expenditure requirements than those for Asia / AME and Latam. Other than essential replacement capital expenditure that broadly 

matches depreciation, ANZ invested approximately $135 million in business transformation projects. This included an enterprise-wide system in 

the ANZ business to replace legacy systems across the business. It also included investment to increase capacity in ANZ’s Echuca factory to 

integrate the Nestlé Ski ® yoghurt volume previously sourced from a third party. 

Working capital 

Working capital accounts for a significant proportion of Fonterra’s total capital employed, and is driven by a number of specific factors, most notably: 

• seasonality of milk production – resulting in a build up to peak inventories and amounts owing to farmer suppliers during a Season. Decisions 

taken regarding the optimal timing of sales can also impact inventory levels; and 

• commodity prices and foreign exchange rates – directly impacting the value of accounts receivable and inventories, and via the Farmgate Milk 

Price directly impacting the value of amounts owing to farmer suppliers. This is independent of underlying working capital volumes. 

The table below summarises net working capital on a half and full-financial year basis (31 January and 31 July) over the period from FY2010 to FY2012: 

FY2012 FY2012 FY2011 FY2011 FY2010 FY2010 

($M) 2H 1H 2H 1H 2H 1H 

Trade and other receivables 2,302 2,693 2,279 2,358 2,088 2,318 

Inventories 2,981 5,204 3,277 5,207 2,870 4,236 

Owing to farmer suppliers (1,083) (2,641) (1,679) (2,966) (1,138) (2,014) 

Trade and other payables (1,386) (1,391) (1,350) (1,258) (1,251) (1,237) 

Other 38 5 83 63 60 48 

Working capital 2,852 3,870 2,610 3,404 2,629 3,351 

Average working capital days 1 68 62 58 59 64 63 

1 Average working capital days is calculated as the average working capital for the six-month period divided by external revenue for the six-month period multiplied by the number of days in the 

six-month period. 

A step up in inventories value between FY2010 and FY2011 primarily reflects an increase in commodity prices, with inventories volumes 

maintained at broadly similar levels. Inventories value in FY2012 reflects the opposite effect with lower commodity prices driving a lower value 

despite unusually high New Zealand milk supply resulting in higher year-end inventories volumes. 

Similarly, a step up in amounts owing to farmer suppliers in FY2011 primarily reflects the impact of higher commodity prices on the Farmgate 

Milk Price. Falling commodity prices and therefore a lower forecast Farmgate Milk Price over the course of the 2011 / 2012 Season resulted in 

high early “advance rate” payments for milk in FY2012, and a sharp decline in amounts owing to farmer suppliers at the end of FY2012. This was 

an important factor impacting net working capital days. 

84

section | 4.0 

Credit rating and borrowings 

Fonterra has a long-term senior unsecured issuer credit rating of A+ stable from Standard & Poor’s (Australia) Pty Limited and AA- stable from 

Fitch Australia Pty Limited. These credit ratings reflect among other things, the effective subordination of payments for New Zealand-sourced 

milk behind payments to other creditors, the market-based nature of the Farmgate Milk Price, and Fonterra’s globally competitive cost position. 

The Fund has not been assigned a credit rating. 1 

The Constitution provides that the total payment made to suppliers each Season for New Zealand-sourced milk is determined by the Fonterra 

Board, having regard to the income from all activities of Fonterra less its costs, which includes debt obligations. The directors’ duties under the 

Companies Act mean they may not set a final payment for such milk which jeopardises Fonterra’s ability to meet those debt obligations. 

The Constitution also authorises the Fonterra Board to determine interim milk payments, and these have traditionally been made each month. 

If the interim payments are made at a rate which is higher or lower than that which later market conditions justify, they can be adjusted in later 

months and Fonterra makes a further payment or receives a repayment from the supplier. This places Fonterra in the position of being a 

contingent creditor of suppliers to the extent of any such overpayment. This means that, for practical purposes, the milk payments are 

subordinated to other obligations of Fonterra (Effective Subordination). 

Once the total milk payment has been determined and announced by the Fonterra Board in respect of any Season, the final amount unpaid 

is an unsecured obligation of Fonterra ranking pari passu with all other unsecured obligations (as recorded in the financial statements). 

As at 31 July 2012, the Fonterra Group had outstanding economic net interest bearing debt of $4,229 million (net interest bearing debt together 

with debt-related derivatives). This represented an economic debt to debt plus equity ratio of 39.1%. The average maturity of the gross outstanding 

debt was four years. Fonterra is the borrower under most of these facilities. No facility, where Fonterra is the sole borrower (as distinct from 

where Fonterra is a joint borrower under a facility with a subsidiary, in which case the borrowers guarantee each other), is guaranteed by any 

subsidiary (or any other person). Some of the facilities contain a financial covenant that limits the maximum amount of secured (where Fonterra 

has granted that security) and subsidiary borrowings to no more than 20% of the Fonterra Group’s total assets. The Fonterra Group also had 

committed undrawn bank facilities of $3,565 million as at 31 July 2012. 

Gearing 

($M) FY2012 FY2011 FY2010 

Current borrowings 1 1,204 444 902 

Term borrowings 3,745 4,206 4,022 

Total borrowings 4,949 4,650 4,924 

Cash and cash equivalents 1 (991) (762) (534) 

Other non-current assets (advances) (125) (122) (122) 

Net interest bearing debt 3,833 3,766 4,268 

Economic net interest bearing debt 4,229 4,331 4,494 

Equity less cash flow hedge reserve 2 6,592 6,025 5,526 

Debt to debt plus equity ratio 36.8% 38.5% 43.6% 

Economic debt to debt plus equity ratio 39.1% 41.8% 44.9% 

1 Bank overdrafts of $42 million in FY2012, $23 million in FY2011 and $25 million in FY2010 are included within cash and cash equivalents in this table, but are included within current liabilities on 

the balance sheet. 

2 This represents, in FY2012, total equity of $6,655 million less $63 million of cash flow hedge reserve, in FY2011, total equity of $6,541 million less $516 million of cash flow hedge reserve, and in 

FY2010, total equity of $5,667 million less $141 million of cash flow hedge reserve. 

The Fonterra Group borrows a mixture of fixed and variable rate funds in a range of currencies and uses interest rate and currency derivatives to 

manage the volatility of finance costs. These derivatives are used to manage economic risks. International Financial Reporting Standards (IFRS) 

require derivative instruments to be held at fair value, and the valuation of cross currency interest rate swaps to take into account movements in 

basis risk. Basis risk is non-cash, and while its value changes over the life of the derivative, it reverts to zero by maturity. The increase in net 

finance costs in FY2011 primarily relates to movements in the value of the basis risk on the derivative instruments. 

1 A credit rating is not a recommendation to invest in any securities issued by Fonterra or the Fund and may be subject to revision, suspension or withdrawal at any time. Further information 

about the credit ratings referred to in this Offer Document is available at www.standardandpoors.com and at www.fitchratings.com/creditdesk/public/ratings_definitions/index.cfm. Neither 

Standard & Poor’s (Australia) Pty Limited nor Fitch Australia Pty Limited has been involved in the preparation of this Offer Document. Neither Standard & Poor’s (Australia) Pty Limited nor Fitch 

Australia Pty Limited makes any representation or warranty, express or implied, as to, nor assumes any responsibility or liability for the authenticity, origin, validity, accuracy or completeness of, 

or any errors or omissions in, any information, statement, opinion or forecast contained in this Offer Document or any previous accompanying or subsequent material or presentation. 


SECTION 4 



Historical financial position and cash flows 

Fonterra made a significant investment in new capacity to process growing New Zealand milk volumes over the period from FY2010 to FY2012. 

This was complemented by focused investment in international farms, most notably in China, as part of a strategy to establish offshore secure 

sources of quality milk and integrated downstream businesses. 

Although volatility in commodity prices and currency has a limited impact on Fonterra’s EBIT, it was a key factor driving the level of investment in 

working capital over the period from FY2010 to FY2012, primarily through the impact on valuation of inventories and accounts receivable. 

Financial position 

($M) FY2012 FY2011 FY2010 

Cash and cash equivalents 1,033 785 559 

Trade and other receivables 2,302 2,279 2,088 

Inventories 2,981 3,277 2,870 

Other current assets 376 1,219 570 

Total current assets 6,692 7,560 6,087 

Property, plant and equipment 4,569 4,326 4,356 

Equity accounted investments 439 429 458 

Intangible assets 1 2,882 2,748 2,756 

Other non-current assets 535 467 512 

Total non-current assets 8,425 7,970 8,082 

Total assets 15,117 15,530 14,169 

Bank overdraft and borrowings 1,246 467 927 

Trade and other payables 1,386 1,350 1,251 

Owing to farmer suppliers 1,083 1,679 1,138 

Other current liabilities 410 150 242 

Total current liabilities 4,125 3,646 3,558 

Borrowings 3,745 4,206 4,022 

Other non-current liabilities 592 1,137 922 

Total non-current liabilities 4,337 5,343 4,944 

Total liabilities 8,462 8,989 8,502 

Net assets 6,655 6,541 5,667 

Co-operative shares 5,690 5,261 5,016 

Retained earnings 1,078 943 547 

Foreign currency translation reserve (211) (217) (73) 

Cash flow hedge reserve 63 516 141 

Equity attributable to Shareholders of the Parent 6,620 6,503 5,631 

Non-controlling interests 35 38 36 

Total equity 6,655 6,541 5,667 

1 Intangible assets primarily represent a combination of brands and goodwill. Key components are the value recognised during the formation of Fonterra in 2001, goodwill related to acquisitions 

in the New Zealand consumer business during FY2006, and goodwill relating to the increase in Fonterra’s ownership interest in Soprole during FY2008. 

86

section | 4.0 

Cash floW 

($M) FY2012 FY2011 FY2010 

Normalised EBITDA 1,520 1,494 1,388 

Non-cash items: 

Unrealised foreign exchange losses / (gains) 221 (184) (77) 

Movement in provisions 68 (10) (37) 

Other non-cash items (7) (4) (8) 

Total non-cash items 282 (198) (122) 

Change in working capital 1 (346) (45) 185 

Net tax paid (66) (61) (19) 

Normalised net cash flows from operating activities 1,390 1,190 1,432 

Capital expenditure 2 (857) (623) (492) 

Normalised net cash flows from operating activities after capital 

533 567 940 

expenditure 

1 Excludes non-cash movements and items classified as financing / investing. 

2 Represents cash outflows actually incurred in the period in respect of the acquisition of property, plant and equipment and intangible assets. 

A reconciliation of historical cash flow to operating cash flow in the audited financial statements is set out below. This reflects the operating cash 

flow impact of the normalisation adjustments described above. 

($M) FY2012 FY2011 FY2010 

Normalised net cash flows from operating activities after capital 

533 567 940 

expenditure 

Capital expenditure 857 623 492 

Operating cash impact of adjustments to EBITDA – (6) 47 

Historical net cash flow from operating activities as reported 1,390 1,184 1,479 


SECTION 4 



Fonterra Prospective 

Financial Information 

The Offer is an offer to subscribe 

for Units in the Fund. Since the 

performance of the Units will be 

related to Fonterra’s performance, 

this section sets out the Fonterra 

Prospective Financial Information. 

The Fonterra Prospective 

Financial Information has been 

prepared on the basis of the 

Fonterra Board’s assessment of 

Fonterra’s business activities, and 

is based on the assumptions and 

accounting policies detailed on 

pages 95 and 107 to 112. The 

Fonterra Prospective Financial 

Information, including the 

assumptions underlying it and all 

other required disclosures, has 

been prepared by and is solely the 

responsibility of the Fonterra 

Board. The Fonterra Board 

approved the Fonterra 

Prospective Financial Information 

on 13 August 2012 (and 

reconfirmed on 25 October 2012) 

for use in this Offer Document. 

The Manager and the Board of the 

Manager have not been involved 

in the preparation of the Fonterra 


Neither the directors of Fonterra 

nor any other person can provide 

any assurance that the Fonterra 

prospective financial performance 

will be achieved. 

The Fonterra Prospective 

Financial Information has been 

prepared for the purpose of the 

Offer and may not be suitable for 

any other purpose. 

This section contains prospective financial 

information for Fonterra that has been 

prepared in accordance with Financial 

Reporting Standard No. 42: Prospective 

Financial Statements (FRS-42), including: 

• a prospective consolidated income 

statement for Fonterra for the year ending 

31 July 2013; 

• a prospective consolidated statement of 

comprehensive income for Fonterra for the 

year ending 31 July 2013; 


changes in equity for Fonterra for the year 

ending 31 July 2013; 


financial position for Fonterra as at 31 July 

2013; and 


cash flows for Fonterra for the year ending 

31 July 2013, 

(together the Fonterra Prospective 

Financial Information); 

• a description of the Fonterra Board’s best 

estimate assumptions that underpin the 

Fonterra Prospective Financial Information; 

• analysis of the sensitivity of the Fonterra 

Prospective Financial Information to 

changes in a number of key assumptions; 

and 

• significant accounting policies applied in 

the preparation of the Fonterra Prospective 

Financial Information. 

Prospective financial information by its 

nature is inherently uncertain and includes 

predictions of future events that cannot be 

assured and are beyond the control of 

Fonterra. The directors of Fonterra have used 

the best information available to them during 

the preparation of the Fonterra Prospective 

Financial Information. Although due care and 

attention has been taken in its preparation, 

neither the directors of Fonterra nor any 

other person can provide any assurance that 

the Fonterra prospective financial 

performance will be achieved. The Fonterra 

Prospective Financial Information is based on 

a series of assumptions that the directors of 

Fonterra reasonably expect to occur as a 

result of actions that the directors of Fonterra 

reasonably expect Fonterra to take. Actual 

results are likely to vary from the information 

presented as anticipated results may not 

occur as expected, and the variations may be 

material. Investors must consider the 

assumptions upon which the Fonterra 

Prospective Financial Information is based, 

together with the risks described in Section 7 

– Investment Risks. 

Prospective financial information is based on 

events and conditions existing at the date of 

this Offer Document and the assumptions 

and accounting policies stated on pages 95 

and 107 to 112. There is no intention to update 


Fonterra will provide to the Manager a report 

on Fonterra’s actual financial results 

compared to those in the Fonterra 

Prospective Financial Information for the 

prospective period in accordance with NZ 

GAAP and as contemplated by regulation 44 

of the Securities Regulations. 

The Fonterra Prospective Financial 

Information is based on the existing business 

of Fonterra and no significant changes in 

operations are proposed for the prospective 

period. The Fonterra Prospective Financial 

Information is presented in millions of New 

Zealand dollars (NZ$) unless otherwise 

stated. The Fonterra Prospective Financial 

Information is rounded, which may result in 

some discrepancies between the sum of 

components and totals within tables and 

also in certain percentage calculations. 

88

section | 4.0 

The The Directors 

Directors 


9 Princes Fonterra Street 

Co-operative Group Limited 


New 9 Zealand 

Princes Street 

Fonterra Auckland Co-operative 1010 Group Limited 

9 Princes Street 

Auckland New 1010 

Zealand 


The Directors 

The Directors 


9 Princes FSF Street 

Management Company Limited 


New 9 Zealand 

Princes Street 

FSF Management Auckland 1010 Company Limited 


Auckland New 1010 

Zealand 



2 November 2012 




Investigating Auckland 1010 Accountant’s Limited Assurance Report 


on New 

Prospective Zealand 

Financial Information 


Introduction 

We have prepared this investigating accountant’s limited assurance report (Report) on certain prospective financial 

information of Fonterra Co-operative Group Limited and its subsidiaries (together the Fonterra Group) for inclusion 

in a 25 prospectus October and 2012 investment statement dated 26 October 2012 (as amended by a memorandum of amendments dated 

2 November 2012) (Offer Document) relating to the offer of units in a unit trust called the Fonterra Shareholders’ Fund 

(the Offer). Expressions defined in the Offer Document have the same meaning in this Report. This Report is an 

independent assurance report the scope of which is set out below. 

Auditor's report 

Scope 

You have requested PricewaterhouseCoopers to prepare this Report which covers the prospective financial information 

of the Fonterra Group for the year ending 31 July 2013, including notes and assumptions thereto, on pages 91 to 112, 

referred as the “Prospective Financial Information”. 

As auditor of Fonterra Co-operative Group Limited and its subsidiaries (together the Fonterra 

This report is made solely to Fonterra Co-operative Group Limited, its directors (Fonterra Directors), FSF Management 

Company Group), Limited, we and have its directors prepared (together, this report the Addressees) pursuant for to inclusion the Securities in the Offer Regulations Document. To the 2009 fullest relating extent 

to the 

permitted by law and subject to section 61 of the Securities Act 1978 we do not accept or assume responsibility to anyone 

other summary than the Addressees financial of statements this report for and the conclusions the prospective that we have financial formed. 

statements of the Fonterra Group for 

Fonterra Directors’ responsibilities for the Prospective Financial Information 

The inclusion Fonterra Directors in a prospectus are responsible and for the investment preparation statement and presentation (Offer of the Document) Prospective Financial to be Information, 

dated 26 October 

including the assumptions based on best information, on which the Prospective Financial Information is based. 

2012. 

Our responsibility 

Our The responsibility Offer Document is to express includes: a conclusion as a result of our limited assurance engagement on the Prospective Financial 

Information in accordance with International Standard on Assurance Engagements (New Zealand) 3000, issued by the 

Council of the New Zealand Institute of Chartered Accountants, applicable to assurance engagements other than audits or 

reviews of historical financial information. 

Our (a) procedures a consisted summary primarily of of financial enquiry, discussion statements and comparison of the and Fonterra other such Group analytical which review procedures comprise we 

summary 

considered necessary so as to form an opinion as to whether anything has come to our attention which causes us to believe that: 

(a) the Fonterra statements 

Directors’ assumptions of financial 

based on position 

best information as at 

do 31 

not July 

provide 2008, 

a reasonable 2009, 

basis 2010, 

for the 2011 

Prospective 

and 2012, 

Financial Information; 

summary income statements, summary statement of comprehensive income, and the 

(b) the Prospective Financial Information was not properly prepared on the basis of the assumptions based on best 

information; 

summary statement of cash flows for the fourteen month period ended 31 July 2008 and 

(c) in all material respects, the Prospective Financial Information is not presented fairly in accordance with the recognition 

and measurement the years principles ended prescribed 31 July in New 2009, Zealand 2010, Accounting 2011 and Standards 2012; and other mandatory professional 

reporting requirements in New Zealand, and the accounting policies adopted by the Fonterra Group disclosed in the 

annual financial statements of the Fonterra Group as at and for the 12 months ended 31 July 2012 on pages 107 to 112 

of the Offer Document; or 

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand 

T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz 


SECTION 4 



(d) the Prospective Financial Information is unreasonable. 

The Prospective Financial Information has been prepared by the Fonterra Directors to provide investors with a guide to 

the Fonterra Group’s potential future financial performance based upon the achievement of certain economic, operating, 

development and trading assumptions about future events and actions that have not yet occurred and may not necessarily 

occur. There is a considerable degree of subjective judgement involved in the preparation of the Prospective Financial 

Information. Actual results may vary materially from the Prospective Financial Information and the variation may be 

materially positive or negative. Accordingly, investors should have regard to the risk factors set out in Section 7 – 

Investment Risks of the Offer Document. 

Conclusion on the Prospective Financial Information 

The work we performed to provide our limited assurance conclusion on the Prospective Financial Information was 

substantially less in scope than an audit examination conducted in accordance with International Standards on Auditing 

(New Zealand). Accordingly, we have not performed an audit and we do not express an audit opinion on the Prospective 

Financial Information included in the Offer Document. 

Based on the procedures described in this report, nothing has come to our attention which causes us to believe that, in 

any material respect: 

(a) the Fonterra Directors’ assumptions based on best information set out in the Prospective Financial Information 

section of the Offer Document do not provide a reasonable basis for the Prospective Financial Information; 

(b) the Prospective Financial Information was not properly prepared on the basis of the assumptions based on best 

information; 

(c) the Prospective Financial Information is not presented fairly in accordance with the recognition and measurement 

principles prescribed in accounting standards and other mandatory professional reporting requirements in New 

Zealand, and the accounting policies adopted by the Fonterra Group disclosed in the annual financial statements of 

the Fonterra Group as at and for the 12 months ended 31 July 2012 on pages 107 to 112 of the Offer Document; and 

(d) the Prospective Financial Information is unreasonable. 

The assumptions set out in the Prospective Financial Information section of the Offer Document which form the basis of 

the Prospective Financial Information are subject to significant uncertainties and contingencies, which are often outside 

the control of the Fonterra Group. If events do not occur as assumed, actual results and distributions achieved by the 

Fonterra Group may vary significantly from the Prospective Financial Information. Accordingly, we do not confirm or 

guarantee the achievement of the Prospective Financial Information, as future events, by their very nature, are not 

capable of independent substantiation. 

Independence or disclosure of interest 

PricewaterhouseCoopers does not have any interest in the outcome of the Offer other than the preparation of this Report 

and participation in due diligence in connection with the Trading Among Farmers structure and the Offer Document for 

which normal professional fees will be received. We have no relationship with or interests in any member of the Fonterra 

Group other than in our capacities as auditor, investigating accountant, tax advisors and providers of other assurance 

services. These services have not impaired our independence as auditor of the Fonterra Group. 

Restrictions of Use 

This Report has been prepared for inclusion in the Offer Document. We disclaim any assumption of responsibility for any 

reliance on this Report or on the Prospective Financial Information to which it relates for any purposes other than the 

purpose for which they were prepared. 

Yours faithfully 

PricewaterhouseCoopers 

Chartered Accountants, Auckland 

90

section | 4.0 

Prospective consolidated income statement for Fonterra 

($M) FY2013 FY2012 

PRospectiVE 

ACTUAL 

Total revenue 18,627 19,769 

Cost of goods sold (15,319) (16,721) 

Gross profit 3,308 3,048 

Selling and marketing expenses (693) (568) 

Distribution expenses (526) (501) 

Administrative expenses (788) (784) 

Other operating expenses (395) (385) 

Net other operating income 76 125 

Share of profit of equity accounted investees 72 52 

EBIT 1,054 987 

Depreciation and amortisation 555 492 

EBITDA 1,609 1,479 

Net finance (costs) (328) (310) 

Profit before tax 726 677 

Tax expense (36) (53) 

Profit for the year 1 690 624 

Profit for the year is attributable to: 

Equity holders of the Parent 673 609 

Non-controlling interests 17 15 

Profit for the year 690 624 

1 Included in the notes to the Fonterra Prospective Financial Information later in this section is a table of prospective profitability by segment that shows the impact of normalisation adjustments 

in FY2013. 


SECTION 4 



Prospective consolidated statement OF COMPREHENSIVE INCOME for Fonterra 

($M) FY2013 FY2012 

PRospectiVE 

ACTUAL 

Profit for the year 690 624 

Movement in cash flow hedge reserve (128) (453) 

Movement in net investment hedges – (24) 

Movement in foreign currency translation reserve (4) 31 

Share of equity accounted investees' movements in reserves – 1 

Other comprehensive expense recognised directly in equity (132) (445) 

Total comprehensive income for the year 558 179 

Attributable to: 

Equity holders of the Parent 541 163 



Prospective consolidated statement of changes in equity for Fonterra 

($M) FY2013 FY2012 

PRospectiVE 

ACTUAL 

Opening equity as at 1 August 6,655 6,541 

Total comprehensive income attributable to equity holders of the Parent 541 163 

Total comprehensive income attributable to non-controlling interests 17 16 


Transactions with equity holders in their capacity as equity holders: 

Dividends paid to equity holders of the Parent (506) (475) 

Dividends paid to non-controlling interests (15) (19) 

Equity instruments issued net of transaction costs 276 429 

Total equity 6,968 6,655 

Represented by: 

Subscribed equity 5,966 5,690 

Retained earnings 1,245 1,078 

Foreign currency translation reserve (215) (211) 

Cash flow hedge reserve (65) 63 

Total equity attributable to equity holders of the Parent 6,931 6,620 



92

section | 4.0 

Prospective consolidated statement of financial position for Fonterra 

($M) FY2013 FY2012 

PRospectiVE 

ACTUAL 

Cash and cash equivalents 1,271 1,033 

Trade and other receivables 2,143 2,302 

Inventories 2,660 2,981 

Other current assets 164 376 

Total current assets 6,238 6,692 

Property, plant and equipment 5,079 4,569 

Equity accounted investments 497 439 

Intangible assets 2,868 2,882 

Other non-current assets 626 535 

Total non-current assets 9,070 8,425 

Total assets 15,308 15,117 

Bank overdraft and borrowings 1,066 1,246 

Supplier, trade and other payables 2,244 2,469 

Other current liabilities 241 410 

Total current liabilities 3,551 4,125 

Borrowings 4,296 3,745 

Other non-current liabilities 493 592 

Total non-current liabilities 4,789 4,337 

Total liabilities 8,340 8,462 

Net assets 6,968 6,655 

Subscribed equity 5,966 5,690 

Retained earnings 1,245 1,078 

Foreign currency translation reserve (215) (211) 

Cash flow hedge reserve (65) 63 

Total equity attributable to equity holders of the Parent 6,931 6,620 




SECTION 4 



Prospective consolidated statement of cash flows for Fonterra 

($M) FY2013 FY2012 

PRospectiVE 

ACTUAL 

Receipts from customers 18,773 20,045 

Payments for milk purchased (9,154) (10,721) 

Payments to creditors and employees (7,785) (7,905) 

Dividends received 35 37 

Net tax paid (66) (66) 

Net cash flows from operating activities 1,803 1,390 

Acquisition of property, plant and equipment and intangible assets (1,144) (857) 

Other investing cash flows 6 31 

Net cash flows from investing activities (1,138) (826) 

Proceeds from borrowings 137 118 

Net interest paid (351) (375) 

Net proceeds from issue and surrender of equity instruments 332 394 

Dividends paid to equity holders of the Parent (506) (475) 

Other financing cash flows (28) (11) 

Net cash flows from financing activities (416) (349) 

Net increase in cash and cash equivalents 249 215 

Cash and cash equivalents at the beginning of the year 991 762 

Effect of exchange rate changes on cash balances 1 14 

Cash and cash equivalents at the end of the year 1,241 991 

Reconciliation of closing cash balances to the prospective consolidated statement of financial position: 

Cash and cash equivalents 1,271 1,033 

Bank overdraft (30) (42) 

Closing cash balances 1,241 991 

94

section | 4.0 

Notes to the Fonterra Prospective Financial Information 

The principal assumptions upon which the 

Fonterra Prospective Financial Information 

is based are summarised below and should 

be read in conjunction with the sensitivity 

analysis on page 106, the risk factors set out 

in Section 7 – Investment Risks, and Fonterra’s 

significant accounting policies on pages 

107 to 112. 

The Fonterra Prospective Financial Information 

is for the year ending 31 July 2013 and is based 

on events and conditions existing as at the 

date of this Offer Document. Actual results 

for August and September 2012 were 

consistent with the information included in 

the Fonterra prospective financial statements 

for those months. 


complies with FRS-42 Prospective Financial 

Statements, and assumes the following: 

General assumptions 

Reporting entity 

The Fonterra Prospective Financial 

Information is prepared in respect of the 

group comprising Fonterra Co-operative 

Group Limited, its controlled subsidiaries and 

its equity accounted investments (Fonterra). 

For accounting purposes, the Fund is treated 

as an in substance subsidiary of Fonterra 

under NZ GAAP and consolidated into 

Fonterra. The Manager itself is not 

consolidated into the Fund or Fonterra as it is 

owned by Trustees Executors Limited, and is 

not under the control of Fonterra. 


co-operative company incorporated and 

domiciled in New Zealand. Fonterra is 

registered under the Companies Act and the 

Co-operative Companies Act 1996 (New 

Zealand), and is an issuer for the purposes of 

the Financial Reporting Act 1993 (New 

Zealand). Fonterra is also required to comply 

with DIRA. 

Economic environment 

There will be no material change in the 

consensus outlook for the international 

dairy market. 

Legislative and regulatory environment 

There will be no change in the legislative 

and regulatory environment of New Zealand 

or any of the other countries in which 

Fonterra operates that will materially impact 

upon Fonterra. 

Competitive environment and industry 

conditions 

There will be no material changes to 

competitive activity, industry structure, 

general industry conditions or the employee 

environments of New Zealand or any of the 

other countries in which Fonterra operates, 

and no new entrant that will materially 

change the competitive environment. 

Natural environment 

There will be no significant disruption to 

Fonterra from earthquakes, flooding, 

biosecurity events, other unforeseen natural 

disasters or hazards that may disrupt 

Fonterra’s operations. There will be no 

material unforeseen weather events such as 

droughts or other weather patterns that 

impact the global milk supply. 

Management of Fonterra 

There will be no material change in Fonterra 

senior management and other key employees 

remain in their current roles. 

Key customers and suppliers 

There will be no material change to 

contractual, business and operational 

relationships with key customers, supplying 

farmers and other suppliers. 

Accounting policies 

The accounting policies applied to the 

preparation of the Fonterra Prospective 

Financial Information are consistent with 

those which are expected to be used in future 

reporting periods. They are also consistent 

with those used in the audited financial 

statements of Fonterra for FY2012, which are 

summarised under the heading “Fonterra 

Significant Accounting Policies” in this 

section, other than disclosure-related 

changes in connection with the consolidation 

of the Fonterra Shareholders’ Fund. 

Taxation 

There will be no change to the tax regime 

in New Zealand, including no change to 

the company tax rate of 28%. There will be 

no changes to corporate tax rates in the 

other jurisdictions in which Fonterra operates 

that will have a material impact. Included in 

the FY2013 prospective consolidated 

statement of financial position is a deferred 

tax asset relating to New Zealand tax losses, 

recognised in accordance with NZIAS 12 

– Income Taxes. The continued recognition of 

this deferred tax asset for financial reporting 

purposes is dependent on Fonterra being 

able to demonstrate that it will be utilised, 

either by offset against New Zealand deferred 

tax liabilities or by Fonterra generating future 

taxable income in New Zealand. 

Foreign exchange 

The Fonterra Group’s largest single foreign 

exchange exposure is against the US dollar. 

The forecasts assume there is no other 

significant-weight currency that will change 

substantially and impact the Fonterra 


The exchange rate risk is managed in 

accordance with the Fonterra Board 

approved Financial Risk Management 

Standard. The forecast foreign exchange 

position takes into account the fact that 

66% of forecast net US dollar cash receipts 

for FY2013 were hedged at 31 July 2012, 

and the assumed rate for the remaining net 

exposure to US dollar cash receipts as at 

31 July 2012 is US$0.8089:NZ$1.00. 

Fonterra uses a mixture of forwards and 

options to manage its foreign exchange risk 

on forecast sales. The changes in the fair 

value of those derivatives that are designated 

and qualify as cash flow hedges and satisfy 

the effectiveness test are recognised directly 

in other comprehensive income. Under IFRS, 

the change in the time value component of 

options is excluded from the cash flow hedge 

relationship and is recognised in the income 

statement. Time value is a non-cash 

movement and while its value changes over 

the life of the option due to movements in 

foreign exchange and other market rates, 

it reverts to zero by maturity. The forecasts 

assume that there is no significant income 

statement impact relating to time value 

during FY2013. However, this will be sensitive 

to changes in the option contracts held and 

to changes in market conditions throughout 

the year. 

Specific assumptions 

Set out overleaf are specific best estimate 

assumptions that have been adopted 

in preparing the Fonterra Prospective 

Financial Information. 


SECTION 4 



Overview of FY2013 prospective profitability by segment 

prospective 

($M) 

NZ Milk 

Products 

ANZ 

Asia / 

AME 

Latam 

Intersegment 

Sales volume (‘000 MT) 2,822 967 286 332 (433) 3,974 

Total 

External revenue 12,727 3,011 2,033 856 – 18,627 

Inter-segment revenue 1,276 629 – – (1,905) – 

Total revenue 14,003 3,640 2,033 856 (1,905) 18,627 

Cost of goods sold (12,519) (2,809) (1,293) (591) 1,893 (15,319) 

Gross profit 1,484 831 740 265 (12) 3,308 

Operating expenses (1,104) (630) (517) (175) 24 (2,402) 

Net other operating income 1 78 – – – (24) 54 

Earnings from equity accounted investees 2 59 – – 35 – 94 

EBIT 517 201 223 125 (12) 1,054 

Normalisation adjustment – 25 – – – 25 

Normalised EBIT 3 517 226 223 125 (12) 1,079 

Depreciation and amortisation 424 88 15 28 – 555 

Normalised EBITDA 3 941 314 238 153 (12) 1,634 

Capital employed 4 6,824 2,859 825 698 (7) 11,199 

Return on capital employed 4 7.6% 7.9% 27.0% 17.9% – 9.6% 

1 Net other operating income includes other operating income and net foreign exchange gains / losses but excludes royalty and other income relating to arrangements with equity accounted 

investees. 

2 Earnings from equity accounted investees includes share of profit, as well as royalty and other income. 

3 Normalised EBIT and EBITDA in FY2013 exclude the costs associated with the closure of a plant in Australia. 

4 Capital employed is calculated as monthly average net assets excluding net debt, derivatives, taxes and investments (other than equity accounted investments). Return on capital employed is 

calculated as normalised EBIT divided by capital employed. 

96

section | 4.0 


Prospective profitability 

($M) fy2013 fy2012 change 

PRospectiVE 

ACTUAL 

Sales volume (‘000 MT) 2,822 2,847 (1%) 

New Zealand-sourced 11,413 12,256 

Other 1,314 1,764 

Inter-segment revenue 1,276 1,697 

Revenue 14,003 15,717 (11%) 

Farmgate Milk Price (7,764) (9,033) 

New Zealand manufacturing costs (2,687) (2,689) 

Other cost of goods sold (2,068) (2,589) 

Cost of goods sold (12,519) (14,311) (13%) 

Gross profit 1,484 1,406 6% 

Gross profit 10.6% 8.9% 

EBIT excluding DFE 1 and Dairiconcepts 458 470 (3%) 

EBIT – Fonterra's share of earnings from DFE 1 and Dairiconcepts 59 45 31% 

EBIT 2 517 515 -% 

EBIT margin 3.7% 3.3% 

1 DMV Fonterra Excipients. 

2 EBIT in FY2012 represents normalised EBIT as stated in the FY2012 financial statements. 

Volumes and revenue 

Fonterra forecasts to process 1,470 million kgMS of New Zealand milk in the 2012 / 2013 Season, a decrease of 2% from the record volumes in 

the 2011 / 2012 Season. Total sales volumes in FY2013 of 2,822 thousand MT are forecast to be approximately the same as those in FY2012. Sales 

volumes of New Zealand-sourced milk products are forecast to increase by 1% to 2,493 thousand MT, and volumes of globally-sourced product 

are expected to reduce by 15% to 329 thousand MT. 

External sales of New Zealand-sourced milk products in FY2013 are forecast to be $843 million or 7% lower than those in FY2012. This is 

expected to primarily be driven by lower dairy commodity prices, with an 11% decrease in the weighted average US$-denominated selling price, 

as well as a continued shift in product mix towards whole milk powder. External sales of globally-sourced products are forecast to decrease by 

$450 million or 26%, reflecting both volume and price reductions. 

New Zealand-sourced milk volumes and prices 

SALES VOLUME (‘000 MT) 

CHANGE IN PRICE 

FY2013 FY2012 CHANGE NZ$ / MT US$ / MT 

PROSPECTIVE ACTUAL 

Whole milk powder 1,089 1,012 8% (12%) (9%) 

Skim milk powder 333 318 5% (9%) (6%) 

Cream 449 471 (5%) (17%) (15%) 

Cheese 266 279 (5%) (14%) (12%) 

Casein 54 61 (11%) (17%) (15%) 

Other 302 318 (6%) (11%) (8%) 

Total 2,493 2,459 1% (14%) (11%) 


SECTION 4 



Cost of goods sold 

The Farmgate Milk Price is forecast to be $1,269 million or 14% lower than that in FY2012. The Farmgate Milk Price for the 2012 / 2013 Season, 

calculated in accordance with the Farmgate Milk Price Manual, is forecast to be $5.25 / kgMS or 14% below the $6.08 / kgMS paid for the 

2011 / 2012 Season. 

New Zealand manufacturing costs are forecast to remain broadly consistent year-on-year, with a decrease of $2 million in FY2013, in line with 

only a small decrease in milk collection volumes for the 2012 / 2013 Season. 

Other cost of goods sold, which primarily relates to purchases of globally-sourced milk and freight, duties and landings, is forecast to decrease by 

$521 million or 20%. This is forecast to be primarily due to a reduction in purchases of globally-sourced milk of $431 million or 26%, in line with 

the reduction in sales. 

Profitability 

Gross profit is forecast to be $78 million or 6% higher than that in FY2012, and includes a broadly neutral product mix. Contribution margin per 

MT is forecast as follows: 


PRospectiVE 

ACTUAL 

Sales volume (‘000 MT) 2,822 2,847 

Gross profit 1,484 1,406 

Selling, marketing and distribution expenses (345) (309) 

Contribution margin 1,139 1,097 

Contribution margin per MT of sales ($) 404 385 5% 

The business review highlighted the risk to EBIT from movements in relative commodity prices. The sensitivity of FY2013 EBIT to this risk is 

highlighted in the sensitivity analysis below. 

Operating expenses are forecast to remain flat year-on-year, and net other operating income is forecast to decrease by $33 million. 

Although EBIT for NZ Milk Products excluding earnings from joint ventures is forecast to decline by 3% from $470 million to $458 million, 

a major factor is a significant increase in depreciation and amortisation as a consequence of the above-average levels of capital expenditure 

in FY2012 and FY2013. 

Depreciation and amortisation in FY2013 are forecast to increase by $44 million or 12% over FY2012, to $424 million. EBITDA for NZ Milk 

Products excluding earnings from equity accounted investments is forecast to increase from $850 million in FY2012 to $882 million in FY2013, 

a $32 million or 4% increase. 

Earnings from equity accounted investees is forecast to increase by $14 million or 31% compared to that for FY2012, primarily as a result of 

Dairiconcepts having disposed of a loss-making plant in FY2012. 

EBIT of $517 million in FY2013 is forecast to be $2 million higher than that in FY2012. Return on capital employed is forecast to be 7.6%, 

consistent with that for FY2012. 

Variability in relative prices between Reference Commodity Products and other dairy nutrition products such as cheese (and its by-products) and 

casein can have a significant and ongoing impact on the earnings of NZ Milk Products. For example, if the relative price of other dairy nutrition 

products compared to that for Reference Commodity Products changes by ±5%, then, other factors aside, the potential impact on FY2013 EBIT is 

estimated at ±$125 million (refer to the sensitivity analysis later in this section in connection with the Fonterra Prospective Financial Information). 

Fonterra can mitigate the short-term impact of relative changes in stream returns through product mix optimisation in its NZ Milk Products 

operation, subject to constraints on capacity during periods of peak production and existing long-term volume commitments to consumer 

brands customers (including the regional businesses). 

98

section | 4.0 

AUSTRALIA AND NEW ZEALAND (ANZ) 



PRospectiVE 

ACTUAL 

Sales volume (‘000 MT) 967 959 1% 

Revenue – consumer and out-of-home foodservices 2,389 2,414 

Revenue – dairy nutrition 1,639 1,812 

Eliminations (intra-segment) (388) (378) 

Revenue 3,640 3,848 (5%) 

Gross profit 831 780 7% 


Normalised EBIT 1 226 204 11% 

Normalised EBIT margin 6.2% 5.3% 

1 EBIT in FY2012 represents normalised EBIT as stated in the FY2012 financial statements. EBIT in FY2013 represents forecast EBIT excluding the costs associated with the closure of a plant in 

Australia as described below. 

The financial performance of the ANZ business is expected to stabilise in FY2013 in a difficult and challenging trading environment. 

While consumer and out-of-home foodservices volume is forecast to grow by 3% in FY2013, revenue is forecast to decline by 1%. 

The New Zealand consumer and out-of-home foodservices businesses are expected to achieve revenue growth of 9% as a result of capacity 

expansion to support export growth and new product development. In Australia, revenue is forecast to reduce by 7%, primarily reflecting 

reduced sales of private label products by the business. Gross profit is expected to improve 1%. 

A fall in milk collection volumes due to the commissioning of competing capacity in Tasmania, combined with lower commodity prices, 

is expected to drive a 10% reduction in dairy nutrition revenue. However, this is forecast to be offset by a lower cost of milk and operating efficiencies. 

Gross profit across the ANZ business is expected to improve by $51 million or 7%, reflecting the impact of lower commodity prices on cost of 

goods sold particularly in the Australian dairy nutrition businesses and the Australian and New Zealand out-of-home foodservices businesses. 

In addition to the factors noted above, a key driver of an 11% forecast increase in FY2013 normalised EBIT over that for FY2012 is the restructuring 

of Australia and New Zealand overhead costs, which is forecast to deliver cost savings of $16 million in FY2013 (or $20 million on an annualised 

basis). A provision for restructuring costs was incurred in FY2012. 

The FY2013 EBIT forecast reflects a recovery on that for FY2012. However, it should be noted (as outlined in the sensitivity analysis on page 106) 

that there is significant risk associated with this recovery in view of continuing competitive pressure and its impact on margins and ranging of 

product by major retail customers. 

Normalised EBIT excludes a pre-tax expense of $25 million relating to the closure of a plant in Australia, which will see production transferred to 

other Fonterra sites with existing capacity after the end of FY2013. 

Of the $25 million expense, $10 million is a non-cash asset write-down, and $15 million relates to redundancy and other closure costs that are 

expected to be incurred after the end of FY2013. The plan to absorb production into existing capacity is expected to deliver annualised efficiency 

benefits of $5 million once the plant closure plan is completed after the end of FY2013. 

As set out in Section 10 – Statutory Information under the heading “Pending Proceedings”, on 31 October 2012 Fonterra Brands (Australia) Pty Ltd 

received notice of a number of warranty claims which, on their face, total approximately A$103 million from the purchaser of its former Western 

Australian dairy business. No amounts have been included in the Fonterra Prospective Financial Information as Fonterra has not been able to 

fully analyse the substance, extent or materiality of the claims. The amounts may become the subject of litigation, which Fonterra will defend. 


SECTION 4 



ASIA / AME 



PRospectiVE 

ACTUAL 


Revenue 2,033 1,855 10% 

Gross profit 740 631 17% 


EBIT 1 223 194 15% 



Total volume is expected to grow by 8% in Asia / AME, with 10% growth in revenue as profit margins recover to levels consistent with those 

in FY2010 and FY2011. Revenue growth is expected to vary across the region, with growth significantly higher than the regional average in the 

investment markets of China and Vietnam, and significantly lower in Sri Lanka due to increased duties and prices. 

The increases in revenue are primarily driven by expectations of continued growth in the market for dairy nutrition products and solidifying 

share in growing categories for Anlene and Anmum. In addition, supply issues experienced in Thailand and Indonesia in FY2012 are not 

expected to be repeated. 

Gross profit margin is expected to increase from 34.0% to 36.4%, resulting in a 17% increase in gross profit to $740 million. This is driven by lower 

expected commodity input prices, and an increasing proportion of sales of advanced nutrition products compared to base milk powder products. 

EBIT margin is expected to improve from 10.5% to 11.0%, resulting in a $29 million (15%) increase in EBIT to $223 million. Operating expenses 

are expected to increase by 19%. Selling and marketing expenses are expected to grow 22% due to continued investment in China, and other 

operating expenses are expected to grow by 13%, slightly ahead of revenue growth. 

100

section | 4.0 

LATAM 



PRospectiVE 

ACTUAL 


Revenue – Soprole 856 805 6% 

Gross profit – Soprole 265 245 8% 


EBIT – Soprole 90 83 8% 

EBIT – Fonterra's share of earnings from Dairy Partners Americas 

(including royalties) 

35 46 (24%) 

EBIT 1 125 129 (3%) 



Soprole sales volumes are forecast to increase by 4% and revenue by 6%. This is primarily as a result of continued growth in Chilean dairy 

consumption coupled with increases in Soprole’s market share. This is driven by investments in yoghurt capacity expansion to be commissioned 

in January 2013, and from innovation and higher investment in advertising and promotional activity. Gross profit margin is expected to increase 

to 31.0% as a result of product mix benefits arising from innovation and improved product mix resulting from the yoghurt capacity expansion, 

equivalent to an 8% increase in gross profit in absolute terms. Soprole’s operating expenses are forecast to increase by 7%, broadly in line with 

revenue, resulting in EBIT increasing by $7 million (8%) to $90 million (EBIT margin of 10.5%). 

Normalised EBIT from Dairy Partners Americas in FY2012 was $46 million including the benefit of $19 million of other operating income arising 

from the review of manufacturing cost recovery arrangements in FY2012 that is not expected to reoccur in FY2013. Excluding this, earnings are 

forecast to increase by $8 million or 30%. Several strategic initiatives are being implemented in Brazil, Venezuela and Ecuador to improve 

operational performance in FY2013. 


SECTION 4 



operating expenses 

Total operating expenses are forecast to increase by 7% in FY2013. Excluding selling and marketing expenses, operating expenses are forecast to 

increase by $39 million, or $14 million (less than 1%) excluding the costs associated with the closure of a plant in Australia. Selling and marketing 

expenses are forecast to increase by $125 million or 22%, in particular due to continued investment to support growth in the consumer and 

out-of-home foodservices businesses in Asia. 


PRospectiVE 

ACTUAL 

Selling and marketing expenses (693) (568) 

Distribution expenses (526) (501) 

Administrative expenses (788) (784) 

Other operating expenses (395) (385) 

Total operating expenses (2,402) (2,238) 7% 

Fonterra has initiated a programme to reduce operating expenses by $90 million on an annualised basis through a number of initiatives. These 

initiatives are at an early stage and while the forecast for FY2013 does not include any benefit arising from this programme, Fonterra has set a 

target to achieve $60 million in FY2013. 

Depreciation and amortisation 

Depreciation and amortisation expense is forecast based on existing rates of depreciation and amortisation applied to relevant assets which are 

adjusted for planned capital expenditure. Depreciation and amortisation rates are based on estimated useful lives which are assumed to remain 

consistent with levels observed historically and Fonterra’s accounting policy. 

Tax 

The deductibility of dividends payable is forecast to remain a key feature of how Fonterra’s tax expense is calculated. Upon implementation of 

Trading Among Farmers, payment of the Farmgate Milk Price and dividends in relation to Wet Shares will continue to be deductible to Fonterra 

and taxable income in the hands of the Farmer Shareholder receiving them, assuming Fonterra makes an election (under the Income Tax Act) to 

that effect. The forecast number of Wet Shares on issue at 31 May 2013 is 1,494 million. Dividends paid to the Fund, or RVP or in respect of most 

other Dry Shares will no longer be deductible. 1 

($M) fy2013 fy2012 

PRospectiVE 

ACTUAL 

Profit before tax 726 677 

Prima facie tax expense (28%) 203 190 

Effect of tax rates in foreign jurisdictions 6 (11) 

Impact of non-assessable income and non-deductible expenses (12) (17) 

Impact of prior year under provision – 1 

Tax expense excluding the impacts of distributions to Shareholders and deferred tax 

197 163 

recognition / de-recognition 

Effective tax rate excluding distributions and deferred tax 27.1% 24.1% 

Tax effect of distributions to Shareholders (133) (128) 

Tax expense excluding the impacts of deferred tax recognition / de-recognition 64 35 

Impact of recognition / de-recognition of deferred tax (28) 18 

Tax expense 36 53 

1 Following the implementation of Trading Among Farmers, the election under the Income Tax Act to treat dividends as deductible to Fonterra (and as taxable income in the hands of the farmer) 

will only be able to be made in respect of Wet Shares held by the Farmer Shareholder at the time the dividend is paid or Shares that the farmer would have been required to hold if the farmer 

had made actual supplies equal to those projected for a Season. Dividends paid on Shares held by the Fonterra Farmer Custodian will not be deductible to Fonterra. 

102

section | 4.0 

Capital expenditure 

Capital expenditure between FY2010 to FY2012 averaged approximately $675 million per year. Capital expenditure forecast for FY2013 is 

significantly above that reflecting the following growth initiatives: 

• investment in additional New Zealand milk processing capacity at Darfield to accommodate near-term growth in New Zealand milk supply; 

• the acquisition of the trade and assets of New Zealand Dairies Limited (in receivership), including its Studholme processing plant; and 

• investment in international growth projects, including additional farm capacity in China and a whey processing facility in the Netherlands with 

strategic partner A-Ware. 

Investments in new capacity are relatively “lumpy”. Investments in new plants typically occur at two to three-year intervals based on a long-term 

milk growth of 2% to 3% per year. However, more rapid recent growth in the South Island required investment in the additional capacity at 

Darfield to be advanced to FY2013. 


PRospectiVE 

ACTUAL 

NZ Milk Products 906 645 

ANZ 127 181 

Asia / AME 70 19 

Latam 35 43 

Total 1,138 888 28% 

No material disposals or asset sales are expected in FY2013. 

In addition to the capital expenditure included in these forecasts, Fonterra has plans to expand the farming business in China including building a 

second hub of five farms, and is considering various options to fund this expansion. The funding options being considered include internal 

funding and funding from a wide range of potential external partners. Fonterra intends to develop these options in FY2013. However, this has no 

impact on the forecasts. 

No significant brand or other intangible asset acquisitions or disposals are forecast, and no significant acquisitions are forecast by Fonterra that 

will generate further acquired goodwill. It is also assumed that no impairment expense will be required as a result of the annual impairment 

testing of goodwill and indefinite life intangible assets as a result of the current high levels of headroom. 

Working capital 

The key drivers of working capital are assumed to remain consistent with those observed over the period from FY2010 to FY2012. 

Lower commodity prices and lower milk supply than in FY2012 are expected to result in lower working capital. The high levels of inventories on 

hand at 31 July 2012 are expected to be sold through in FY2013, and overall inventories are forecast to be 11% lower at 31 July 2013. In addition, 

Fonterra is not expecting to repeat the record level of sales in the month of July 2012 in the equivalent month in FY2013, and therefore trade 

receivables are forecast to reduce by 7%. 

Working capital days are forecast to reduce to 60 as a result of the assumptions above. The level forecast is similar to average working capital 

days achieved in FY2011. 


PRospectiVE 

ACTUAL 

Trade and other receivables 2,143 2,302 

Inventories 2,660 2,981 

Owing to farmer suppliers (928) (1,083) 

Trade and other payables (1,316) (1,386) 

Other 44 38 

Working capital 2,603 2,852 (9%) 

Average working capital days 60 65 


SECTION 4 



Net debt and finance costs 

As at 31 July 2012, the Fonterra Group had outstanding economic net interest bearing debt of $4,229 million. The average maturity of the gross 

outstanding debt was four years. Some of the facilities relating to this debt contained a specific covenant that limits the amount of secured 

(where Fonterra has granted that security) and subsidiary borrowings to no more than 20% of the Fonterra Group’s total assets. As at 31 July 

2012, the Fonterra Group had committed undrawn bank facilities of $3,565 million. 

It is assumed that all existing debt facilities will be retained to maturity or renewed on substantially similar terms. Fonterra has a $300 million 

New Zealand medium term note maturing in November 2012 and £250 million European medium term notes maturing in April 2013 that it 

intends to replace with new debt and / or an increase in bank facilities. Fonterra is currently undertaking its regular annual process of extending 

its banking facilities including the $1,350 million of bank facilities due to mature in FY2013. 

Gearing 


PRospectiVE 

ACTUAL 

Current borrowings 1,036 1,204 

Term borrowings 4,296 3,745 

Total borrowings 5,332 4,949 

Cash and cash equivalents (1,241) (991) 

Other non-current assets (advances) (120) (125) 

Net interest bearing debt 3,971 3,833 

Economic net interest bearing debt 4,116 4,229 (3%) 

Equity less cash flow hedge reserve 7,033 6,592 

Debt to debt plus equity ratio 36.1% 36.8% 

Economic debt to debt plus equity ratio 36.9% 39.1% 

The Fonterra Group borrows a mixture of fixed and variable rate funds in a range of currencies and uses derivatives to manage the volatility of 

finance costs. Net finance costs are forecast to remain broadly consistent with those for FY2012, and no significant movements are assumed in 

the value of basis risk relating to derivatives. A 100-basis point increase or decrease in interest rates (which is considered possible but unlikely) 

is forecast to result in a $13 million increase or decrease in cash flows in respect of net finance costs. 

104

section | 4.0 

Equity and dividends 

It is assumed that Fonterra will have a weighted average of 1,559 million Shares on issue at 31 July 2013, an increase of 123 million or 9% on the 

average number on issue in FY2012. This reflects additional Shares required to be purchased by suppliers as a result of their 2011 / 2012 Season 

production increase (net of Shares redeemed), plus new Shares expected to be issued in December 2012. For the purposes of the Fonterra 

Prospective Financial Information, the Shares are assumed to be issued at the current share price of $4.52 per Share. Note that the actual pricing 

will be determined by the Offer. 

Shares on issue and earnings per Share 

number of shares 

on issue 

PRospectiVE 

weighted 

average 

PRospectiVE 

At 1 August 2012 1,502 million 1,502 million 

Shares issued to suppliers (net of redemptions) 20 million 18 million 

Shares issued to make up the shortfall under the Supply Offer 44 million 1 39 million 

At 31 July 2013 1,566 million 1,559 million 

Earnings per Share 

Earnings per Share (no Shares issued to make up the shortfall under the Supply Offer) 

Earnings per Share ($500 million of Shares issued to make up the shortfall under the Supply Offer) 

43.2 cents 

43.6 cents 

42.5 cents 

1 This excludes approximately 33 million Shares which are assumed to be treated as Treasury Stock. 

The extent of Fonterra’s requirement to issue 

Shares to make up the shortfall under the 

Supply Offer is highly uncertain. The scenario 

assumed in the forecast is an initial issue of 

$350 million (77 million shares) reducing to 

$200 million (44 million shares excluding 

Treasury Stock) by 31 July 2013. 

In the event that no issue is required to make 

up the shortfall in the Supply Offer, net profit 

after tax attributable to Shareholders is 

forecast to reduce by $10 million to $663 

million, and earnings per Share (based on a 

weighted average of 1,520 million Shares on 

issue) is forecast to be 43.6 cents. 

In the event that Fonterra issues all the 

Shares (with no Farmer Shareholders 

participating in the Supply Offer), net profit 

after tax attributable to Shareholders is 

forecast to increase by $4 million to $677 

million, and earnings per Share (based on a 

weighted average of 1,594 million shares on 

issue) is forecast to be 42.5 cents. 

The Fonterra Board intends to declare an 

interim dividend for the 2012 / 2013 Season 

in March 2013, to be paid in April 2013, and a 

final dividend for the 2012 / 2013 Season in 

September 2013, to be paid in October 2013. 

The current dividend policy notes that 

Fonterra will target a payout ratio of 65% to 

75% of adjusted net profit after tax each year, 

and is forecast to remain unchanged. The 

actual dividend paid will have regard to all 

relevant factors, but in particular: 

• any items that are not expected to recur 

which affect profit after tax; 

• average dividends paid over the previous 

three years; 

• near-term earnings projections, investment 

priorities and gearing targets; and 

• any other factors the Fonterra Board 

considers relevant, including the level of 

milk payments to farmers and other 

existing or likely market conditions that 

may impact Fonterra or its Shareholders. 

The interim dividend is expected to be 40% 

to 50% of the expected full-year dividend. 

Dividends 

($m) 

cents / SHARE 

PRospectiVE 

PRospectiVE 

Interim 2012 / 2013 Season dividend 220 14 

Final 2012 / 2013 Season dividend 286 18 

Total dividends for the 2012 / 2013 Season 506 32 

Foreign exchange rates have been held constant over the forecast period and consequently there are no significant movements in the foreign 

currency translation reserve or cash flow hedge reserve (other than the unwinding of cash flow hedging derivatives held on balance sheet at 

31 July 2012). There are no significant movements in other reserves of equity accounted investments. 


SECTION 4 



Sensitivity analysis 


is inherently subject to business, economic and 

competitive uncertainty, and accordingly 

actual results are likely to vary from those in 

the Fonterra Prospective Financial Information 

and this variation could be material. 

A summary of the stand-alone indicative 

effect of variations in certain assumptions on 

the FY2013 Farmgate Milk Price and EBIT are 

detailed below. The sensitivities for each 

assumption are not intended to be predictive 

of the possible range of outcomes. 

• Change in all base commodity prices – 

reflecting an unexpected change across 

all commodity prices that impacts NZ 

Milk Products’ revenue and, through the 

Farmgate Milk Price, NZ Milk Products’ 

cost of goods sold. Assumes no material 

impact on gross profit for non-Reference 

Commodity Product streams, and that the 

regional businesses are able to pass through 

the change with no impact on profitability. 

• Change in non-Reference Commodity 

Product prices only – reflecting a change in 

the prices of non-Reference Commodity 

Products with no corresponding change in 

the prices of Reference Commodity 

Products, resulting in a change in NZ Milk 

Products’ revenues with no impact on cost 

of goods sold. Assumes that the regional 

businesses are able to pass through the 

change with no impact on profitability. 

• Change in average NZ$:US$ exchange rate 

– impacting the unhedged portion of NZ 

Milk Products’ sales priced in US dollars, 

the cost of New Zealand milk, and net 

offshore margins. 

• Change in kgMS of New Zealand-sourced 

milk – reflecting unplanned increases or 

decreases in New Zealand-sourced milk 

volumes for the current Season arising 

from unexpected climatic or other 

supply-related factors, taking into account 

current production capacity. This sensitivity 

analysis highlights the impact of volume on 

Fonterra’s ability to optimise product mix 

during the period of peak supply within the 

current Season, but may not be 

representative of the impact of longer-term 

supply volume growth for which Fonterra 

is constructing additional capacity. 

• Change in ANZ EBITDA margin percentage 

- reflecting the significant risk to earnings 

recovery in view of continuing competitive 

pressure and its impact on listings and 

margins. 

• Change in volume of consumer and 

out-of-home foodservices sales in Asia / 

AME – reflecting an unexpected change in 

market growth and / or market share. 

Care should be taken in interpreting the 

information set out below. Each movement in 

an assumption is treated in isolation from 

possible movements in other assumptions, 

which is not likely to be the case. Movements 

in one assumption may have offsetting or 

compounding effects on other variables, the 

effects of which are not reflected (e.g. 

changes in commodity prices may affect the 

NZ$:US$ exchange rate). In addition, it is 

possible that more than one assumption may 

move at any point in time giving rise to 

cumulative effects, which are also not 

reflected. The sensitivity analysis does not 

take into account any potential mitigating 

actions that management may take. The +/- 

range in the parameters below is illustrative 

of the potential impacts of volatility averaged 

across a full-year. The assumptions may vary 

significantly more or less than the parameters 

within shorter periods. 

FY2013 

MILK PRICE IMPACT 

FY2013 

EBIT IMPACT 

ASSUMPTION INCREASE / (DECREASE) ($ / kgMS) ($M) 

Change in all base commodity prices +/- 10% 0.75 / (0.75) (25) / 25 

Change in non-Reference Commodity Products prices only +/- 5% -/- 125 / (125) 

Change in average NZ$:US$ exchange rate +/- 5% (0.16) / 0.20 (29) / 35 

Change in kgMS of New Zealand-sourced milk collected +/- 10% 0.10 / (0.12) (14) / 9 

Change in ANZ EBITDA margin percentage +/- 1% -/- 36 / (36) 

Change in Asia / AME sales volume +/- 10% -/- 30 / (30) 

While the table above is illustrative, it nonetheless highlights the external factors that have the most significant impact on Fonterra’s EBIT. 

As illustrated in the table above, a change in the prices of non-Reference Commodity Products relative to the prices of Reference Commodity 

Products which are used to calculate the Farmgate Milk Price has the most significant potential stand-alone impact on EBIT. 

In contrast, the impact of significant movements in the general level of commodity prices has a much lesser impact on EBIT. Most of the effect 

of across-the-board changes in commodity prices is passed through into a higher or lower Farmgate Milk Price. The same observation generally 

applies to changes in the NZ$:US$ exchange rate. 

106

section | 4.0 

Fonterra significant 

accounting policies 

These significant accounting policies reflect 

those used by Fonterra in the preparation of 

its financial statements for FY2012, as 

updated to describe the accounting and 

disclosure policies in respect of the 

consolidation of the Fund into the Fonterra 

Group for accounting purposes. 

(a) Basis of consolidation 

Subsidiaries 

Subsidiaries are entities controlled by the 

Fonterra Group. Control exists when the 

Fonterra Group has the power to govern the 

financial and operating policies of an entity 

so as to obtain benefits from its activities. The 

existence and effect of potential voting rights 

that are currently exercisable or convertible 

are considered when assessing whether the 

Fonterra Group controls another entity. 

Subsidiaries are fully consolidated from the 

date that control is transferred to the 

Fonterra Group. They are de-consolidated 

from the date control ceases. 

The cost of an acquisition is measured as the 

fair value of the assets given equity 

instruments issued and liabilities incurred or 

assumed at the date of exchange. Acquisitionrelated 

costs are expensed as incurred. On an 

acquisition-by-acquisition basis, the Fonterra 

Group recognises any non-controlling 

interest in the acquiree either at fair value or 

at the non-controlling interest’s proportionate 

share of the acquiree’s net assets. The excess 

of the consideration transferred, the amount 

of any non-controlling interest in the acquiree 

and the acquisition-date fair value of any 

previous equity interest in the acquiree, over 

the fair value of the Fonterra Group’s share of 

the identifiable net assets acquired, is 

recorded as goodwill. If the cost of acquisition 

is less than the fair value of the net assets 

acquired, the difference is recognised in the 

income statement. 

Non-controlling interests are allocated their 

share of profit for the year in the income 

statement and are presented within equity in 

the statement of financial position, separately 

from equity attributable to Shareholders. The 

effects of all transactions with non-controlling 

interests that change the Fonterra Group’s 

ownership interest but do not result in a change 

in control are recorded in equity. Where control 

is lost, the remaining interest in the investment 

is re-measured to fair value and any surplus or 

deficit arising from that re-measurement is 

recognised in the income statement. 

Equity accounted investees (associates and 

jointly controlled entities) 

Associates are those entities in which the 

Fonterra Group has significant influence, 

but not control, over the financial and 

operating policies. Jointly controlled entities 

are those entities over whose activities the 

Fonterra Group has joint control, established 

by contractual agreement and requiring 

unanimous consent for strategic, financial 

and operating decisions. Equity accounted 

investees are initially recognised at cost 

(including any goodwill identified on 

acquisition). Subsequent to initial recognition, 

they are accounted for using the equity method 

in the consolidated financial statements. 

The consolidated financial statements include 

the Fonterra Group’s share of the profit or 

loss after tax of equity accounted investees, 

after adjustments to align to the accounting 

policies of the Fonterra Group, from the date 

that significant influence or joint control 

commences until the date that significant 

influence or joint control ceases. When the 

Fonterra Group’s share of losses exceeds its 

interest in an equity accounted investee, the 

carrying amount of that interest is reduced to 

nil and no further losses are recognised 

except to the extent the Fonterra Group has 

an obligation or has made payments on 

behalf of the investee. Dividends receivable 

from equity accounted investees reduce the 

carrying amount of the investment. 

The Fonterra Group determines at each 

reporting date whether there is any objective 

evidence that its investments in equity 

accounted investees are impaired. If this is the 

case, the Fonterra Group calculates the 

amount of impairment as the difference 

between the recoverable amount of the 

investee and its carrying value, and recognises 

that amount in the income statement. 

Transactions eliminated on consolidation 

Intra-group transactions, balances, and any 

unrealised income and expenses arising 

from intra-group transactions, are eliminated 

in preparing the consolidated financial 

statements. Unrealised gains arising from 

transactions with equity accounted investees 

are eliminated against the investment to 

the extent of the Fonterra Group’s interest 

in the investee. Unrealised losses are 

eliminated in the same way as unrealised 

gains, but only to the extent that there is 

no evidence of impairment. 

(b) Foreign currency 

Foreign currency transactions 

Foreign currency transactions are translated 

into the respective functional currencies of 

Fonterra Group entities using the exchange 

rate at the dates of transactions. Foreign 

exchange gains and losses resulting from the 

settlement of such transactions and from the 

translation, using the exchange rates at the 

balance date, of monetary assets and 

liabilities denominated in foreign currencies 

are recognised in the income statement, 

except when deferred in other 

comprehensive income as qualifying cash 

flow or qualifying net investment hedges. 

Translation of the financial statements into 

the presentation currency 

Where the Fonterra Group’s presentation 

currency differs from the functional currency 

of an entity, the assets and liabilities of the 

operation are translated from the functional 

currency into the presentation currency 

at the exchange rates at the balance date. 

The income and expenses of these entities 

are translated at rates approximating 

the exchange rates at the dates of the 

transactions. Exchange differences arising 

on the translation of the financial statements 

of these entities and of borrowings and other 

currency instruments designated as hedges 

of such investments are recognised directly 

in the foreign currency translation reserve. 

When an entity is partially disposed of or 

sold, the exchange differences that were 

recorded in equity are recognised in the 

income statement as part of the gain or 

loss on sale. 


SECTION 4 



(c) Financial assets and liabilities 

A financial asset or liability is recognised if 

the Fonterra Group becomes a party to the 

contractual provisions of the asset or liability. 

A financial asset or liability is recognised 

initially at its fair value plus, in the case of a 

financial asset or liability not at fair value 

through profit or loss, transaction costs that 

are directly attributable to the acquisition 

or issue of the instrument. Financial assets 

and liabilities carried at fair value through 

profit or loss are initially recognised at fair 

value and transaction costs are expensed 

in the income statement. 

After initial recognition, financial assets 

are measured at their fair values except for 

loans and receivables and held-to-maturity 

investments, which are measured at amortised 

cost less any provision for impairment. After 

initial recognition, financial liabilities are 

measured at amortised cost method except 

for financial liabilities at fair value through 

profit or loss. 

In the separate financial statements of the 

Parent, investments in subsidiaries are stated 

at cost, less any impairment. 

Financial assets are de-recognised if the 

Fonterra Group’s contractual rights to the 

cash flows from the financial assets expire or 

if the Fonterra Group transfers the financial 

asset to another party without retaining 

control or substantially all of the risks and 

rewards of the asset. Financial liabilities are 

de-recognised if the Fonterra Group’s 

obligations specified in the contract expire 

or are discharged or cancelled. 

Financial assets and financial liabilities are 

offset and the net amount is reported in the 

statement of financial position when there 

is a legally enforceable right to offset the 

recognised amounts and there is an intention 

to settle on a net basis. 

Financial assets are classified on initial 

recognition into the following categories: 

at fair value through profit or loss, held-tomaturity 

investments, loans and receivables, 

and available-for-sale. Financial liabilities are 

classified as either fair value through profit 

or loss, or financial liabilities measured at 

amortised cost. The classification depends 

on the purpose for which the financial assets 

and liabilities were acquired. Management 

determines the classification of financial 

assets and liabilities at initial recognition. 

The Fonterra Group has not had any 

held-to-maturity investments or available-forsale 

financial assets in the periods covered 

by the FY2012 financial statements. 

Financial assets and financial liabilities at fair 

value through profit or loss 

Financial assets and liabilities in this category 

are either designated as fair value through 

profit or loss, or classified as held for trading. 

All derivatives are classified as held for 

trading except when they are in cash flow, fair 

value, or net investment hedge relationships 

(refer to accounting policy (h) below). Other 

financial assets and financial liabilities may be 

designated at fair value through profit or loss 

where this eliminates an accounting 

mismatch, or where they are managed on a 

fair value basis. 

Loans and receivables 

Loans and receivables are non-derivative 

financial assets with fixed or determinable 

payments that are not quoted in an active 

market. Trade and other receivables are 

classified as loans and receivables. 

Financial liabilities measured at amortised cost 

Financial liabilities measured at amortised 

cost are non-derivative financial liabilities 

with fixed or determinable payments that 

are not quoted in an active market. Trade 

and other payables, and debt instruments 

are classified as financial liabilities measured 

at amortised cost. 

Financial guarantee contracts 

Financial guarantee contracts are those 

contracts that require the issuer to make 

specific payments to reimburse the holder for 

a loss it incurs if a specified debtor fails to 

make payment when due in accordance with 

the original or modified terms of a debt 

instrument. Financial guarantee contracts are 

recognised initially as a liability at fair value, 

adjusted for transaction costs that are directly 

attributable to the issuance of the guarantee. 

Subsequently, the liability is measured at the 

higher of the best estimate of the 

expenditure required to settle the present 

obligation at the balance date, and the 

amount initially recognised less cumulative 

amortisation. 

(d) Cash balances 

Cash balances include cash and cash 

equivalents comprising cash on hand, 

deposits held at call with banks, other 

short-term highly liquid investments with 

original maturities of three months or less 

and bank overdrafts. 

(e) Trade receivables 

Trade receivables are recognised initially at 

fair value and subsequently measured at 

amortised cost using the effective interest 

method, less provision for impairment. 

(f) Borrowings 

Borrowings are recognised initially at fair value, 

net of transaction costs incurred. Borrowings 

are subsequently measured at amortised cost 

using the effective interest method, with the 

hedged risks on certain debt instruments 

measured at fair value. Changes in fair value of 

those hedged risks are recognised in the 

income statement, except where they relate to 

borrowings classified as net investment 

hedges and are recorded directly in other 

comprehensive income. 

Borrowings are classified as current 

liabilities unless the Fonterra Group has 

an unconditional right to defer settlement 

of the liability for at least 12 months after 

balance date. 

(g) Trade and other payables 

Trade and other payables are carried at 

amortised cost. 

108

section | 4.0 

(h) Derivative financial 

instruments and hedging 

activities 

The Fonterra 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. 

Derivatives are initially recognised at fair 

value on the date a derivative contract is 

entered into (the trade date) and transaction 

costs are expensed immediately. They are 

subsequently re-measured to their fair value. 

The method of recognising the resulting gain 

or loss depends on whether the derivative is 

designated as a hedging instrument, and if so, 

the nature of the item being hedged. The 

Fonterra Group designates certain derivatives 

as: 

• hedges of the fair value of recognised 

assets or liabilities, or a firm commitment 

(fair value hedges); 

• hedges of a particular risk associated with 

a recognised liability or a highly probable 

forecast transaction (cash flow hedges); or 

• hedges of a net investment in a foreign 

operation (net investment hedges). 

The Fonterra Group documents, at the 

inception of the transaction, the relationship 

between hedging instruments and hedged 

items, as well as its risk management 

objectives and strategy for undertaking 

various hedging transactions. The Fonterra 

Group also documents its assessment, both 

at hedge inception and on an ongoing basis, 

of whether the derivatives used in hedging 

transactions are highly effective in offsetting 

changes in fair values or cash flows of hedged 

items. 

The full fair value of a hedging derivative is 

classified as a non-current asset or liability 

when maturity of the hedged item exceeds 12 

months. It is classified as a current asset or 

liability when the maturity of the hedged item 

is less than 12 months. 

Fair value hedges 

Changes in the fair value of derivatives that 

are designated and qualify as fair value 

hedges are recognised in the income 

statement, together with any changes in the 

fair value of the hedged asset or liability 

attributable to the hedged risk. 

If the hedge no longer meets the criteria for 

hedge accounting, the adjustment to the 

carrying amount of a hedged item for which 

the effective interest method is used, is 

amortised and recognised in the income 

statement over the period to maturity. 

Cash flow hedges 

The effective portion of changes in the fair 

value of derivatives that are designated and 

qualify as cash flow hedges are recognised 

directly in other comprehensive income. The 

gain or loss relating to the ineffective portion 

is recognised immediately in the income 

statement. Amounts accumulated in equity 

are transferred to the income statement 

when the hedged item affects profit or loss. 

When a hedging instrument expires or is sold, 

or when a hedge no longer meets the criteria 

for hedge accounting, any cumulative gain or 

loss existing in equity at that time remains in 

equity and is recognised when the forecast 

transaction is ultimately recognised in the 

income statement. When a forecast 

transaction is no longer expected to occur, 

the cumulative gain or loss that was reported 

in equity is recognised immediately in the 


When the forecast transaction that is hedged 

results in the recognition of a non-financial 

asset (e.g. inventories or property, plant and 

equipment), the gains and losses previously 

deferred in equity are transferred from equity 

and included in the initial measurement of 

the cost of the asset. 

Net investment hedges 

Hedges of net investments in foreign 

operations are accounted for similarly to cash 

flow hedges. Any gain or loss on the hedging 

instrument relating to the effective portion 

of the hedge is recognised in other 

comprehensive income. The gain or loss 

relating to the ineffective portion is recognised 

immediately in the income statement. 

Gains and losses accumulated in equity are 

included in the income statement when all or 

part of a foreign operation is disposed of or sold. 

(i) Inventories 

Inventories are stated at the lower of cost and 

net realisable value on a first in first out basis. 

Net realisable value is the estimated selling 

price in the ordinary course of business, less 

the costs of completion and selling expenses. 

The cost of dairy product manufactured from 

milk supplied in New Zealand is established by 

using the monthly Farmgate Milk Price as the 

cost for raw milk supplied. 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 bringing inventories into 

their present location and condition. 

(j) Property, plant and equipment 

Owned assets 

Items of property, plant and equipment are 

measured at cost less accumulated 

depreciation and impairment losses. Cost 

includes the purchase consideration and 

those costs directly attributable to bringing 

the asset to the location and condition 

necessary for its intended use. 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. Subsequent costs are included 

in the asset’s carrying amount or recognised 

as a separate asset, as appropriate, only when 

it is probable that future economic benefits 

associated with the item will flow to the 

Fonterra Group and the cost of the item can 

be measured reliably. The carrying amount of 

any replaced part is de-recognised. All other 

repairs and maintenance are charged to the 

income statement during the financial period 

in which they are incurred. 

The assets’ residual values and useful lives are 

reviewed and adjusted, if appropriate, at each 

financial year end. 

Gains and losses on disposals are determined 

by comparing the proceeds with the carrying 

amount, and are recognised in the income 

statement. 


SECTION 4 



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 and leasehold 

improvements 

Plant, vehicles and 

equipment 

Indefinite 

15 to 50 years 

3 to 25 years 

Leased assets 

Leases of property, plant and equipment 

where the Fonterra Group assumes 

substantially all the risks and rewards of 

ownership are classified as finance leases. 

Assets under finance leases are recognised 

as property, plant and equipment in the 

statement of financial position. They are 

recognised initially at their fair value, or if 

lower, at the present value of the minimum 

lease payments. A corresponding liability 

is established and each lease payment 

allocated between the liability and interest 

expense using the effective interest method. 

The assets recognised are depreciated on 

the same basis as equivalent property, plant 

and equipment. 

Leases that are not finance leases are 

classified as operating leases and the assets 

are not recognised on the Fonterra Group’s 

statement of financial position. Operating 

lease payments are recognised as an 

expense on a straight line basis over the 

term of the lease. 

(k) Intangible assets 

Goodwill 

Goodwill represents the excess of the cost of 

an acquisition over the fair value of the 

Fonterra Group’s share of the net identifiable 

assets of the acquired subsidiary or equity 

accounted investee at the date of acquisition. 

Goodwill on acquisitions of subsidiaries is 

included in intangible assets. Goodwill on 

acquisitions of equity accounted investees is 

included in equity accounted investments 

and is tested for impairment as part of the 

overall balance. 

Goodwill is carried at cost less accumulated 

impairment losses. Impairment losses on 

goodwill are not reversed. Goodwill is tested 

annually for impairment or whenever events 

or changes in circumstances indicate that the 

carrying amount may not be recoverable. 

Gains and losses on the disposal of an entity 

include the carrying amount of goodwill 

relating to the entity sold. 

Goodwill is allocated to cash-generating units 

for the purpose of impairment testing. The 

allocation is made to those cash-generating 

units or groups of cash-generating units that 

are expected to benefit from the business 

combination in which the goodwill arose. 

Brands and other identifiable intangible assets 

Brands and other intangible assets purchased 

by the Fonterra Group are recognised if the 

asset is controlled through custody or legal 

rights and could be sold separately from the 

rest of the business. Brands and other 

intangible assets have a combination of both 

indefinite and finite useful lives. Items with 

indefinite useful lives are tested for 

impairment annually or whenever there is an 

indication that an asset may be impaired and 

carried at cost less accumulated impairment 

losses. Items with finite useful lives are 

carried at cost less accumulated amortisation 

and accumulated impairment losses, and are 

amortised on a straight line basis to allocate 

the cost over their licence period (18 to 25 

years). Assets that have been impaired are 

reviewed for possible reversal of impairment 

at each balance date. 

Computer software 

Acquired computer software licences are 

capitalised on the basis of the costs incurred 

to acquire and bring to use the specific 

software. 

Costs associated with developing or 

maintaining computer software programmes 

are recognised as an expense as incurred. 

Costs that are directly associated with the 

development of identifiable and unique 

software products controlled by the Fonterra 

Group, and that will generate economic 

benefits exceeding costs beyond one year, are 

recognised as intangible assets. Costs include 

the employee costs incurred as a result of 

developing software and an appropriate 

portion of relevant overheads. 

Computer software licences and 

development costs recognised as assets are 

amortised over their estimated useful lives, 

being three to ten years. 

Research and development expenditure 

All research expenditure is recognised in the 

income statement 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 over the 

period of expected benefits on a straight line 

basis, 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 

income statement as incurred. 

(l) Impairment of financial assets 

Assets carried at amortised cost 

The Fonterra Group assesses at the end of 

each reporting period whether there is 

objective evidence that a financial asset or 

group of financial assets is impaired. A 

financial asset or a group of financial assets is 

impaired and impairment losses are incurred 

only if there is objective evidence of 

impairment as a result of one or more events 

that occurred after the initial recognition of 

the asset (a loss event) and that loss event (or 

events) has an impact on the estimated future 

cash flows of the financial asset or group of 

financial assets that can be reliably estimated. 

The criteria that the Fonterra Group uses to 

determine that there is objective evidence of 

an impairment loss include: 

• significant financial difficulty of the 

customer; 

• a breach of contract, such as a default or 

delinquency in payments; 

• for economic or legal reasons relating to 

the customer’s financial difficulty, granting 

to the customer a concession that the 

Fonterra Group would not otherwise 

consider; and 

• it becomes probable that the customer will 

enter bankruptcy or other financial 

reorganisation. 

110

section | 4.0 

The amount of the loss is measured as the 

difference between the asset’s carrying 

amount and the present value of estimated 

future cash flows (excluding future credit 

losses that have not been incurred) 

discounted at the financial asset’s original 

effective interest rate and is recognised in the 


If, in a subsequent period, the amount of the 

impairment loss decreases and the decrease 

can be related objectively to an event 

occurring after the impairment was 

recognised (such as an improvement in the 

debtor’s credit rating), the reversal of the 

previously recognised impairment loss is 

recognised in the income statement. 

Impairment of non-financial assets 

Intangible assets that have an indefinite 

useful life are not subject to amortisation 

and are tested for impairment annually or 

whenever there is an indication that an asset 

may be impaired. Other assets are tested for 

impairment whenever events or changes in 

circumstances indicate that the carrying 

amount may not be recoverable. 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 income statement. The recoverable 

amount of an asset is the higher of its fair 

value less costs to sell, and value in use. For 

the purposes of assessing impairment, assets 

are grouped at the lowest level for which 

there are separately identifiable cash inflows 

(cash-generating units). 

Non-financial assets, other than goodwill, 

that have been impaired are reviewed for 

possible reversal of the impairment at each 

balance date. 

(m) Provisions 

Provisions are recognised only in those 

circumstances where the Fonterra Group has 

a present legal or constructive obligation as a 

result of a past event, when it is probable that 

an outflow of resources will be required to 

settle the obligation, and a reliable estimate 

of the amount can be made. 

Provisions are measured at the present value 

of the expenditures expected to be required 

to settle the obligation using a pre-tax 

discount rate that reflects current market 

assessments of the time value of money and 

the risks specific to the obligation. The 

increase in the provision due to the passage 

of time is recognised as a finance cost in the 


(n) Subscribed equity 

Equity instruments comprise Co-operative 

shares and Units and are classified as subscribed 

equity. Incremental costs directly attributable 

to equity transactions are recognised as a 

deduction from subscribed equity. 

(o) Revenue recognition 

Revenue from the sale of goods is recognised 

at the fair value of the consideration received 

or receivable, net of returns, discounts and 

allowances. Revenue is recognised when the 

amount of revenue can be reliably measured, 

significant risks and rewards of ownership of 

the inventory items have passed to the buyer, 

recovery of the consideration is probable, the 

associated costs and possible return of goods 

can be estimated reliably, and there is no 

continuing management involvement with 

the goods. 

Dividend income is recognised when the right 

to receive payment is established. 

(p) New Zealand-sourced cost 

of milk 

New Zealand-sourced cost of milk includes 

milk supplied by Shareholder suppliers, 

supplier premiums paid, and milk purchased 

from contract suppliers during the financial 

year. New Zealand-sourced cost of milk is 

recognised in cost of goods sold. 

New Zealand-sourced cost of milk supplied 

by Shareholder suppliers comprises the 

volume of milksolids supplied at the 

Farmgate Milk Price for the relevant Season. 

The Farmgate Milk Price for each Season is 

calculated in accordance with the principles 

set out in the Farmgate Milk Price Manual 

and is independently audited. The Farmgate 

Milk Price broadly represents the maximum 

sustainable amount a New Zealand-based 

manufacturer of milk powders could afford 

to pay for milk and still make an adequate 

return on capital. 

Supplier premiums are paid for specialty 

milks such as winter milk and colostrum. 

(q) Dividends 

All shares are eligible to receive dividends if 

declared by the Fonterra Board. Dividends are 

recognised as a liability in the Fonterra Group’s 

financial statements in the period in which 

they are declared by the Fonterra Board. 

(r) Employee benefits 

Employee benefits primarily include 

short-term employee benefits, long-term 

employee benefits and defined contribution 

pension plans. 

Short-term employee benefits include 

salaries, wages, annual leave and sick leave, 

and are expensed on an undiscounted basis 

as the relevant service is provided. 

Long-term employee benefits are measured 

at the present value of expected payments 

required using an appropriate pre-tax 

discount rate. 

Contributions to defined contribution 

pension plans are recognised as an expense 

in the period they are due. The Fonterra 

Group has no further payment obligations 

once the contributions have been paid. 

(s) Finance income and costs 

Finance income comprises interest income 

on funds on deposit. Interest income is 

recognised as it accrues using the effective 

interest method. 

Finance costs comprise interest expense on 

borrowings, unwinding of the discount on 

provisions, gains and losses on the 

revaluation of debt hedges and the hedged 

risks on certain debt instruments, and gains 

and losses relating to translation forward 

points on forward exchange contracts where 

revaluation gains and losses on those 

contracts are included within finance costs. 

Interest expense and the unwinding of the 

discount on provisions are recognised in the 

income statement using the effective interest 

method. Finance costs directly attributable to 

the acquisition, construction or production of 

a qualifying asset are capitalised as part of 

the cost of that asset. 


SECTION 4 



(t) Tax 

Tax expense comprises current and deferred 

tax. Tax expense, including the tax 

consequences of distributions to 

Shareholders, is recognised in the income 

statement. The tax consequences of 

distributions to Shareholders are recognised 

in the year to which the distribution relates. 

Other than distributions to Shareholders, tax 

consequences of items recognised directly in 

equity are also recognised in equity. 

Current tax is the expected tax payable or 

receivable on the taxable income or loss for 

the year, using tax rates enacted or 

substantively enacted at the balance date, 

and any adjustment to tax payable or 

receivable in respect of previous years. 

Deferred tax is recognised, using the balance 

sheet method, on temporary differences 

arising between the tax bases of assets and 

liabilities and their carrying amounts in the 

financial statements. Deferred tax is 

measured at the tax rate that is expected 

to apply to the temporary differences when 

they reverse, based on laws that have been 

enacted or substantively enacted by the 

balance date. 

Deferred tax is not recognised on the 

following temporary differences: 

• the initial recognition of goodwill; 

• the initial recognition of assets and 

liabilities in a transaction that is not a 

business combination and that affects 

neither accounting nor taxable profit; and 

• differences relating to investments in 

subsidiaries and equity accounted 

investees to the extent that the timing of 

the reversal is controlled by the Fonterra 

Group and it is probable that they will not 

reverse in the foreseeable future. 

Deferred tax assets are recognised to the 

extent it is probable that future taxable 

profits will be available against which the 

temporary differences can be utilised. 

(u) Earnings per Share 

Earnings per Share is calculated as net profit 

attributable to equity holders of Fonterra 

Co-Operative Group Limited, divided by the 

weighted average number of ordinary shares 

on issue during the year. 

112

section | 5.0 

SECTION 5 

TRADING 

AMONG FARMERS 

IN DETAIL 

Introduction 

A summary of Trading Among Farmers is set 

out in the section entitled Overview of Trading 

Among Farmers. This section: 

• explains important features of the Fonterra 

Shareholders’ Fund; and 

• explains important features of the Fonterra 

Shareholders’ Market, so that Unit Holders 

understand how that market will operate, 

and how it works alongside the Fund. 

Trading Among Farmers is the name which 

has been given to a series of inter-related 

arrangements. 

In essence, they involve the establishment 

of the: 

• Fonterra Shareholders’ Market – this 

market: 

–– 

permits Farmer Shareholders to trade 

Shares among themselves; and 

–– 

requires one or more market makers 

(called the Registered Volume Provider 

or RVP) to operate in it. 

• Fonterra Shareholders’ Fund – this has 

the following features: 

–– 

the Fund will have the Units it issues 

quoted on the NZX Main Board and ASX, 

which facilitates the trading of those 

Units by investors; 

–– 

it will allow Farmer Shareholders to 

continually exchange a Share for a Unit 

but they must sell that Unit on the NZX 

Main Board during the periods of 

operation of the Fonterra Shareholders’ 

Market; 

–– 

the Registered Volume Provider can 

exchange a Share for a Unit which it can 

retain or sell; and 

–– 

each of the Farmer Shareholders, 

Fonterra and the RVP can exchange a 

Unit for a Share. 

A high level overview of these two markets 

is shown below. Although the markets are 

separate, they have been designed to work 

together. Farmer Shareholders, Fonterra and 

the RVP can buy or sell Shares in the Fonterra 

Shareholders’ Market, and buy or sell Units 

on the NZX Main Board or ASX. They can 

effectively exchange Shares for Units and 

vice versa and therefore can shift between 

the two markets. 


Market 

Fonterra Shareholders are required, by a 

Share Standard, to hold a certain number of 

Shares in Fonterra in each dairy Season. 

Currently, Fonterra is required by DIRA and its 

existing Constitution to: 

• repurchase Shares that Farmer 

Shareholders are required to dispose of so 

as to comply with the Share Standard; and 

• issue new Shares if Farmer Shareholders 

wish to acquire further Shares. 

OVERVIEW OF STRUCTURE OF TRADING AMONG FARMERS 

Vouchers 


Manager 

Farmer-only 

Market 

Farmer 

Shareholders 

Trade 

Shares 



Market 

Farmer Shareholder 

sells Economic Rights 

and transfers Shares 


Custodian holds 

Shares 


Farmer 

Custodian 

Can issue and 

buy-back Shares 

Holds Economic 

Rights on trust 

for the Fund 




Public Market 

Issues 

Units and pays 

distributions 

Trade Units on 

the listed market 


Investors 

The RVP buys / sells Shares on 

Fonterra Shareholders’ Market as 

part of its market maker function 

RVP 

Fonterra Unit issued to 

Fonterra Farmer Custodian 

Like Farmer Shareholders or 

Fonterra, the RVP can sell or buy 

Units or exchange them for Shares 



SECTION 5 

TRADING 

AMONG FARMERS 

IN DETAIL continued 

The repurchases and issues are undertaken at 

the same value. Fonterra is therefore currently 

exposed to the risk that it may have to pay 

large sums of money to Farmer Shareholders 

who cease to supply, or reduce supply of, milk 

to Fonterra. 

Under Trading Among Farmers, Fonterra’s 

obligation to acquire Shares and to issue new 

Shares will cease. Instead, Farmer Shareholders 

will trade Shares among themselves on a new 

market – the Fonterra Shareholders’ Market. 

Farmer Shareholders will continue to be 

required to hold Shares in accordance with 

the Share Standard. Fonterra’s objective is 

that sufficient Fonterra Shares will be on 

issue to promote a liquid market for Shares, 

to enable Farmer Shareholders to be able to 

adjust their shareholding as their milk 

production increases. To achieve this goal, 

Fonterra has two key options. It can issue 

new Shares to raise new equity capital, if 

required. Alternatively, it can undertake a 

bonus issue where new equity capital is not 

required. In either case, the Manager will 

undertake an equivalent adjustment to the 

number of Units on issue. 

Within the context of Fonterra’s Fund Size 

Risk Management Policy (as described in 

Section 5 – Trading Among Farmers in Detail), 

Fonterra will also manage the number of 

Shares on issue if production over time falls 

resulting in Farmer Shareholders holding 

Shares in excess of the minimum 

requirements related to milk production. 

Unlike today, Fonterra will no longer have an 

obligation to redeem Shares where this 

occurs. Instead, it will have more flexibility in 

the manner and timing of meeting the 

requirements of the Fund Size Risk 

Management Policy (through, for example, a 

Share buy back programme). 

Farmer Shareholders will continue to be 

permitted to hold more or fewer Shares than 

is prescribed by the Share Standard in a 

number of situations, including: 

• the Share Standard can be met by using a 

combination of Shares, as well as Vouchers 

(Vouchers are discussed later in this section); 

• Shareholders can hold up to 200% (or a 

lesser percentage specified by the Fonterra 

Board) of the number of Shares required to 

meet the Share Standard; 

• if a Farmer Shareholder is a new entrant, 

they may be given time to achieve full 

compliance with the Share Standard; and 

• retiring Farmer Shareholders who have 

ceased to supply milk to Fonterra may be 

given additional time to dispose of their 

shareholding. 

FUND STRUCTURE 

Title of Shares 

transferred to Fonterra 

Farmer Custodian 


Custodian 

Limited 

(as trustee of the 

Fonterra Economic 

Rights Trust) 

Fund Trustee 

The New Zealand 

Guardian Trust 

Company 

Limited 

Owner of 

Manager 

Trustees Executors 

Limited 

Farmer 

Shareholders 

Holds 

Fonterra Unit 

100% owned 


Economic 

Rights Trust 

Holds 

Economic 

Rights on 

trust for 



Manager 

FSF Management 

Company Limited 


Appoints two 

directors of 

the Board of 

the Manager 

Units 


Investors 

Elect three directors 

of the Board of the 

Manager (one of 

whom is the chair) 


114

section | 5.0 

To assist in achieving a liquid market, Fonterra 

has engaged the services of a market maker 

(called the Registered Volume Provider or RVP). 

The Registered Volume Provider is required to 

be continuously active in offering to buy and 

sell Shares in the Fonterra Shareholders’ 

Market so that Farmer Shareholders will have 

a party willing to trade at least a minimum 

volume of Shares. This is also a requirement 

of DIRA. The initial RVP engaged by Fonterra 

is Craigs Investment Partners Limited. Under 

the terms of the RVP Agreement the RVP has 

agreed that, other than where trading in 

Shares on the Fonterra Shareholders’ Market 

has been halted or suspended, it will: 

• offer a minimum of four buy and four sell 

quotes for Shares on the Fonterra 

Shareholders’ Market per minute during 

each Trading Period. This is known as the 

Minimum Quote Frequency; 

• ensure that each quote it offers: 

is maintaining a maximum bid-ask spread 

of $0.03 between the best bid / ask quotes 

(known as the Maximum Bid-Ask Spread); 

provides 1,000 Shares at each price point 

for which buy / sell quotes are offered; 

and complies with a minimum tick size 

of $0.01; and 

• provide a stock lending facility (out of 

Shares held in accordance with the terms 

of the custody deed entered between 

Fonterra, the RVP and the Fonterra Farmer 

Custodian) to FSM Participants in order to 

resolve failed trades. 

In certain extreme market conditions, the 

Minimum Quote Frequency and Maximum 

Bid-Ask Spread may be relaxed. In such 

circumstances, the Maximum Bid-Ask Spread 

cannot be increased to greater than $0.10 

and the Minimum Quote Frequency cannot 

be reduced to less than two buy and two sell 

quotes per minute during the relevant period. 

However, the RVP is not permitted by 

Fonterra to own any Shares. The Shares that 

the RVP has an interest in will be held in trust 

for it by the Fonterra Farmer Custodian, 

Fonterra Farmer Custodian Limited. 

Fonterra Farmer Custodian Limited is a 

special purpose company owned by a 

specially created trust, known as the Fonterra 

Farmer Custodian Trust. 

Market structure 

The Fonterra Shareholders’ Market has been 

approved by the Financial Markets Authority 

as a registered market under the Securities 

Markets Act. The Fonterra Shareholders’ 

Market will be operated by NZX and 

regulated by the Financial Markets Authority. 

Fonterra and NZX have entered into a Market 

Operator Agreement which sets out the 

basis on which NZX will operate the market. 

The agreement requires Fonterra to comply 

with a set of rules (the FSM Rules). These 

rules are based on the NZSX Listing Rules 

(which apply to companies listed on the NZX 

Main Board) although there are differences. 

Both the FSM Rules and the NZSX Listing 

Rules are publicly available at www.nzx.com. 

The key elements of the Fonterra 

Shareholders’ Market and the Fund are set 

out in the diagram entitled “Fund Structure” 

on the previous page. 



The Fonterra Shareholders’ Fund is designed 

to enable an investor who is not a Farmer 

Shareholder to buy a security that passes 

through Economic Rights that would be 

received if the investor owned a Share directly. 

The Fund is a unit trust under the Unit Trusts 

Act. Its Units will be quoted on the NZX Main 

Board and ASX. The Fund was established 

under the Trust Deed, which was entered into 

by the Manager, Fonterra and the Trustee on 

23 October 2012. A summary of the principal 

terms of the Trust Deed is contained in 


Trustee 

The Trustee is The New Zealand Guardian 

Trust Company Limited, an independent 

trustee company which is licensed to act as 

trustee of the Fund under the Securities 

Trustees and Statutory Supervisors Act. 

Manager 

The Manager is FSF Management Company 

Limited. The Manager will manage the trust 

and other property of the Fund and will issue 

Units to the public. 

The Manager is owned by Trustees Executors 

Limited, an independent trustee company 

which is licensed under the Securities 

Trustees and Statutory Supervisors Act. 

The Manager will play a relatively contained 

role in relation to the Fund. While acting as 

the Manager, its sole object is to manage the 

Fund and its property as a passive investment 

vehicle under the Trust Deed subject to 

undertaking the initial Supply Offer. 

Trustees Executors Limited holds the single 

share in the Manager in accordance with a 

Shareholding Deed it entered into with the 

Manager and Fonterra, which sets out how 

it must exercise its rights as shareholder of 

the Manager. 

There are strict controls on the holding of 

the share in the Manager. It must be held by 

a trustee company which holds a licence 

under the Securities Trustees and Statutory 

Supervisors Act. In addition, the transfer of 

the share or the issue of further shares in the 

Manager is not permitted without the 

approval of Fonterra. 

Trustees Executors Limited can retire from 

holding the sole share in the Manager by 

giving 90 days’ notice to the Manager, Fonterra 

and the Trustee. A new shareholder who is 

acceptable to Fonterra and the Trustee must 

be found before the share in the Manager can 

be transferred. 

Authorised Fund 

The Fonterra Shareholders’ Fund is an 

“Authorised Fund” for the purposes of 

the Constitution. 

The Constitution states that: 

• the Fonterra Board can: 

–– 

authorise an Authorised Fund to 

acquire, hold or dispose of rights or 

interests in Shares; 

–– 

permit an Authorised Fund to enter into 

arrangements with Farmer Shareholders 

for the acquisition of those rights or 

interests; and 

–– 

require the underlying Shares, the 

subject of the rights or interests, to be 

held by a custodian; 

• the role of an Authorised Fund must be set 

out in an Authorised Fund contract; 

• the Fonterra Board can set limits on the 

extent to which individual Farmer 

Shareholders can dispose of rights or 

interests in Shares to an Authorised Fund. 

These limits can be changed from time to 

time by the Fonterra Board; 

• there is an overall threshold on the 

aggregate number of Shares in which 

rights or interests may be held for or in 

relation to any Authorised Fund. The 

Constitution sets this threshold at 25% 

of the total number of Shares on issue 

(excluding Treasury Stock), but the 

Fonterra Board has resolved to reduce this 

threshold to 20%. This is confirmed by the 

SHC Deed Poll. The Fonterra Board intends 

to recommend to Farmer Shareholders 

that they amend the Constitution at the 

2012 Fonterra annual meeting to include 

this lower threshold and other changes 

relating to Trading Among Farmers; and 


SECTION 5 

TRADING 

AMONG FARMERS 


• if the overall threshold is breached, the 

Fonterra Board is required to take steps 

(within a timeframe it considers 

appropriate) to cause the number of 

Shares which are subject to arrangements 

with the Authorised Fund to be reduced to 

a number below the threshold. In practice, 

the Fonterra Board intends to manage the 

number of Shares subject to the above 

arrangements, below the 20% threshold. 

It will do so under its Fund Size Risk 

Management Policy described later in 

this section. 

Authorised Fund CONTRACT 

Fonterra, the Manager, the Trustee and the 

Fonterra Farmer Custodian have entered into 

the Authorised Fund Contract, which authorises 

the Fund to operate as an Authorised Fund 

and regulates the relationship between 

Fonterra and the Fund. 

The Fund will acquire, hold and dispose of 

Economic Rights of Shares. The underlying 

Shares will be held by the Fonterra Farmer 

Custodian, who agrees to hold the Economic 

Rights of Shares on trust for the Trustee. 

Operation of the Fund 

The Fund will operate by acquiring Economic 

Rights of Shares and issuing one Unit for each 

Share in respect of which Economic Rights are 

held for the Fund. Each Unit will constitute an 

undivided interest in the trust fund comprising 

the Fund. The Fund is designed to have the 

effect that each Unit on issue will confer on 

its holder the Economic Rights derived from 

the holding of a single Share. 

An outline of the process by which the Fund 

will continuously acquire Economic Rights 

and issue Units following the launch of the 

Fund is set out in Section 10 – Statutory 

Information under the heading “Ongoing 

issue of Units”. 

Registered VOLUME Provider (RVP) 

The RVP will also be able to exchange Shares 

for Units (and vice versa) (with Shares held on 

behalf of the RVP by the Fonterra Farmer 

Custodian). This is intended to promote price 

convergence between the prices of Shares 

trading on the Fonterra Shareholders’ Market 

and the prices of Units trading on the NZX 

Main Board and ASX. There is, however, no 

assurance that convergence of prices will be 

achieved or, if achieved, maintained. 

The RVP will operate under a contract entered 

into with Fonterra. As described above, that 

contract requires the RVP to be continuously 

active in making offers to buy and sell Shares 

in the Fonterra Shareholders’ Market. It 

governs the maximum buy-sell spread the 

RVP can offer, the frequency of refreshment 

of offers and other standard features of a 

market-making agreement. The RVP is also 

expected to trade Units in the Unit market 

as the RVP is (through the Fonterra Farmer 

Custodian) able to exchange a Share for a 

Unit and vice versa. 

Economic Rights 

The Economic Rights of a Share are the rights to receive dividends and other economic benefits derived from a Share, as well as other 

rights derived from owning a Share. 

However, these rights do not include the right to hold legal title to the Share (i.e. to become registered as the holder of the Share), or to 

exercise voting rights, except in very limited circumstances. These circumstances are described in further detail later in this section. 

The Fund becomes entitled to Economic Rights of a Share in the following way: 

• Farmer Shareholders and the Fonterra Farmer Custodian on behalf of the RVP can transfer, and Fonterra can issue, Shares to the 

Fonterra Farmer Custodian. The Fonterra Farmer Custodian holds the Economic Rights of those Shares on trust for the Trustee, under a 

trust called the Fonterra Economic Rights Trust; 

• if the transferor of the Share is a Farmer Shareholder, they will receive one Unit for each Share transferred to the Fonterra Farmer 

Custodian, but that Unit must immediately be sold on the NZX Main Board. The result is that the Farmer Shareholder receives cash for 

the Shares transferred to the Fonterra Farmer Custodian; 

• if the transferor of the Share is the RVP (through the Fonterra Farmer Custodian), it may retain the Units issued to it for the Shares it 

transfers to the Fonterra Farmer Custodian; and 

• where Fonterra issues Shares to the Fonterra Farmer Custodian, it is not entitled to receive Units as consideration and would receive cash 

instead. 

This is what is meant in this Offer Document wherever there is a reference to “sell Economic Rights of Shares” to the Fund. 

It is important to note that: 

• when Economic Rights are held for the Trustee, the underlying Shares are sold to the Fonterra Farmer Custodian. Only the Fonterra 

Farmer Custodian can hold those Shares; 

• the Fund does not own the Shares. The only rights of the Fund in relation to the Shares are those provided to it by the Fonterra 

Economic Rights Trust; 

• no Unit Holder has any right to receive, or to hold, any Shares unless they are a Farmer Shareholder, the Fonterra Farmer Custodian on 

behalf of the RVP or Fonterra; and 

• any action taken to enforce the legal rights that arise from the holding of a Share can only be taken in the name of the Fonterra Farmer 

Custodian, as the registered Shareholder. 

116

section | 5.0 

FURTHER DETAIL ON ECONOMIC RIGHTS 

The Economic Rights of a Share will be 

passed through to Unit Holders in the 

following way: 

• any cash dividend or other cash benefit 

paid by Fonterra in respect of a Share will 

be distributed by the Fund to Unit Holders 

at the same time as it is paid by Fonterra to 

its Farmer Shareholders. The amount 

distributed will be the same as the amount 

paid by Fonterra per Share, less any PIE tax, 

withholding tax or any other adjustments 

for tax in relation to that Unit Holder; 

• where the Fonterra Farmer Custodian 

receives Shares issued by Fonterra as a 

bonus issue in relation to Shares for which 

the Fonterra Farmer Custodian holds the 

Economic Rights for the Trustee, the 

Manager will make a corresponding bonus 

issue of Units at the same time as the 

bonus issue is made by Fonterra; 

• if Fonterra gives holders of Shares, 

including Shares held by the Fonterra 

Farmer Custodian, the right to acquire 

further Shares, the Manager will, at the 

same time, give Unit Holders a 

corresponding right to acquire further 

Units in the Fund; 



Farmer Custodian, the right to acquire 

securities (other than Shares or securities 

convertible into Shares), the Manager will 

give Unit Holders the right to acquire 

those securities; 

• if there is an offer to acquire Shares held 

by the Fonterra Farmer Custodian, the 

Manager will make a corresponding offer 

to redeem Units. The Fonterra Farmer 

Custodian will accept the Share offer for a 

number of Shares equal to the number of 

Units which Unit Holders have elected to 

be redeemed. When Shares are transferred, 

the relevant Units will be redeemed and 

the Unit Holders who elected to redeem 

Units will receive the cash or other 

consideration for that sale, subject to 

adjustments for tax purposes; and 

• as not all Unit Holders are permitted to 

own Fonterra Shares, it is not feasible for 

Unit Holders to hold instruments that 

convert to Shares. If, in the future, Fonterra 

offers holders of Shares, including the 

Fonterra Farmer Custodian, the right to 

acquire a security convertible into Shares, 

the Manager will instruct the Fonterra 

Farmer Custodian to dispose of that right 

at the best price reasonably obtainable at 

the time. When the Manager receives the 

sale proceeds, they will be distributed to 

Unit Holders, subject to adjustments for 

tax purposes. 

Other key features of the 


The Fonterra Unit 


Custodian Trust will hold one Fonterra Unit 

issued by the Manager of the Fund. The 

Fonterra Unit will not be quoted on any stock 

exchange. Subject to the terms of the NZSX 

Listing Rules, the Trust Deed cannot be 

amended without the prior written approval 

of the Fonterra Unit Holder, if that 

amendment would change: 


the Manager, including the number of 

Elected Directors, the manner of their 

election, or the number of directors of the 

Manager appointed by Fonterra and the 

manner of their appointment; 


• the obligation of the Fund to facilitate the 

exchange of a Share for a Unit or a Unit for 

a Share; 

• the limit of 15% on the number of Units 


Associates (other than Fonterra) in the 

Fund; or 

• the terms of the Fonterra Unit itself. 

In other respects, the Fonterra Unit will have 

the same rights as any other Unit issued by 

the Manager. 

The way in which the trustees of the Fonterra 

Farmer Custodian Trust will exercise the 

rights attached to the Fonterra Unit is 

regulated under the Fonterra Farmer 

Custodian Trust Deed. The trustees will only 

give approval after receipt of a direction to 

that effect from Farmer Shareholders. 

If the Fonterra Unit is transferred to any other 

person without Fonterra’s approval, it will 

cease to have the rights set out above. It will 

then have the same rights and limitations as 

any other Unit in the Fund. 

The Fonterra Farmer Custodian is a 

Shareholder 


Custodian Trust will also hold the shares in 

the Fonterra Farmer Custodian. The Fonterra 

Farmer Custodian is a special purpose 

company incorporated to hold legal title to 

Shares in three separate capacities. 

The Fonterra Farmer Custodian Trust Deed 

requires the trustees of the Fonterra Farmer 

Custodian Trust to ensure that the constitution 

of the Fonterra Farmer Custodian provides 

as follows: 

• the Fonterra Farmer Custodian has been 

established for the sole purpose of acting 

as the trustee of three separate trusts; 

• the Fonterra Farmer Custodian must 

perform its obligations in accordance with 

the deeds establishing those three 

separate trusts; 

• the Fonterra Farmer Custodian is to 

undertake no other business, or acquire 

any other assets, and have no liabilities 

except as arise from its obligations under 

the deeds or as otherwise approved 

by Fonterra; 

• the shares in the Fonterra Farmer Custodian 

may only be held by the trustees of the 

Fonterra Farmer Custodian Trust, and 

those trustees may not mortgage or grant 

any security interest over those shares; and 

• the only persons entitled to be appointed 

as directors of the Fonterra Farmer 

Custodian are the trustees of the Fonterra 

Farmer Custodian Trust, or such other 

persons as are unanimously nominated by 

those trustees. 

The Fonterra Farmer Custodian will hold the 

legal title to Shares in respect of which 

Economic Rights are held for the Trustee. This 

means it is a Shareholder of Fonterra, which 

gives it rights under the Fonterra Constitution 

and other legal rights of a shareholder, for 

example, rights granted to it as a shareholder 

under the Companies Act which it may seek to 

exercise, if the Manager directs it to do so, if 

the Manager is concerned that actions of 

Fonterra are prejudicial to the interests of the 

Unit Holders. The rights referred to above are 

subject to restrictions set out in the Authorised 

Fund Contract and the Custody Trust Deed, 

which are also reflected in the Trust Deed. A 

detailed summary of these restrictions is set 

out under the heading “Description of unit 

trust and its development” in Section 10 – 

Statutory Information, in particular, under the 

subheadings “Investments” and “Rights, 

benefits and entitlements arising from Shares”. 


SECTION 5 

TRADING 

AMONG FARMERS 


In addition, if a proposal is put forward which 

affects the rights attached to Shares held by 

the Fonterra Farmer Custodian in a way 

which is different from the effect on the 

rights attached to other Shares, the Manager 

of the Fund can direct the Fonterra Farmer 

Custodian to exercise any interest group 

voting right which may arise under sections 

116 and 117 of the Companies Act. 

FSM Rules 

The FSM Rules, which are enforceable by 

Shareholders, require that the following key 

decisions must be approved by not less than 

a 75% majority of the Fonterra Board, with 

such majority including at least a majority of 

the “Appointed” or “Independent” directors 

of Fonterra: 

• a decision to pay an aggregate amount for 

milk in excess of the amount calculated 

under the Farmgate Milk Price Manual; 

• a decision to amend or replace the 


• a decision to promote or support an 

amendment (or replacement) of the 

Fonterra Constitution that would have a 

material adverse effect on the rights 

attached to Shares which are held by the 

Fonterra Farmer Custodian in respect of 

which Economic Rights are held for the 

Trustee; and 

• a decision to appoint an Appointed 

Director of Fonterra who has not been 

supported by a majority of the Elected 

Directors of the Manager. 

Each of these decisions could normally be 

taken by a simple majority resolution of the 

Fonterra Board. The FSM Rules recognise that 

these decisions of the Fonterra Board are 

particularly important and, in the case of the 

first three decisions, could have an impact on 

the returns derived by all Shareholders, 

including the Shares held by the Custodian 

(the Economic Rights of which are held for 

the Fund). The FSM Rules therefore require a 

higher than normal majority for these 

resolutions, and require the agreement of a 

majority of the Independent Directors on the 

Fonterra Board. 

The FSM Rules can be changed by agreement 

between Fonterra and NZX (as the operator 

of the Fonterra Shareholders’ Market). Any 

such change also requires the approval of the 

Financial Markets Authority. 

Actions against Fonterra 

Fonterra has agreed that if a Queen’s Counsel 

or Senior Counsel considers that the Fund 

has a cause of action against Fonterra and / 

or the Fonterra Farmer Custodian for breach 

of its obligations under the Authorised Fund 

Contract, the Trust Deed and / or the Custody 

Trust Deed, Fonterra will meet the reasonable 

costs of investigating and bringing that claim. 

However, if on two successive occasions the 

opinion of counsel is that the Fund does not 

have a cause of action, on the next occasion 

the Fund must bear counsel’s cost itself. In this 

situation, the Manager may seek a direction 

from Unit Holders as to whether the opinion is 

sought and may seek a resolution of Unit 

Holders to incur that cost. 

If Unit Holders or the Manager wish to 

pursue any other actions or claims against 

Fonterra, Fonterra will not cover the costs of 

bringing such a claim and the Unit Holders 

would need to agree how to fund any such 

claim and instruct the Manager accordingly. 

This could involve the Unit Holders agreeing 

(by way of Extraordinary Resolution) that the 

Manager may deduct an amount from the 

distributions received in respect of their Units 

to fund any investigation and / or bring any 

such claim. 

Role of the Fund in approving Independent 

Directors of Fonterra 

The Elected Directors of the Manager will be 

consulted in relation to the appointment of 

the Appointed Directors. The Chairman of the 

Fonterra Board will consult with the Chairman 

of the Board of the Manager in relation to the 

appointment of these Appointed Directors, 

and will seek the support of the Elected 

Directors of the Manager for the appointment 

of each of the Appointed Directors. 

Following consultation, the Chairman of the 

Fonterra Board will advise the Chairman of 

the Board of the Manager who the Fonterra 

Board has appointed, and will also advise 

whether this appointment is ratified by 

Shareholders at the next annual meeting of 

Shareholders. Shareholders must ratify the 

Fonterra Board’s appointment of an 

Appointed Director at the next annual 

meeting. Prior to doing so, Farmer 

Shareholders will be advised if the 

Appointed Director does not have the 

support of the Elected Directors of the 

Board of the Manager. 

When each Appointed Director is appointed, 

Fonterra will announce to the Fonterra 

Shareholders’ Market, NZX Main Board and 

ASX if the appointment was not supported 

by a majority of the Elected Directors. 

Voting rights in respect of Fonterra 

Voting entitlements at meetings of 

Shareholders are based on the supply of milk 

to Fonterra. 

This means that the Fonterra Farmer 

Custodian cannot exercise any voting rights 

attached to Shares, notwithstanding that it is 

a Shareholder, because the Fonterra Farmer 

Custodian does not supply any milk to 

Fonterra. None of the Trustee, Manager or 

any Unit Holder in its capacity as the holder 

of a Unit can exercise any voting rights 

attached to Shares as none is a Shareholder, 

or request or require the Fonterra Farmer 

Custodian to do so. 

Each of the Manager, Trustee and Unit 

Holders are not permitted to, and will 

not, require the Fonterra Farmer Custodian 

to call, attend or speak at any meeting of 

Shareholders (unless invited to do so by 

Fonterra), or represent to any third party that 

it is entitled to do any of the above, except 

that the Manager may instruct the Fonterra 

Farmer Custodian how to exercise any voting 

right that may arise under sections 116 and 117 

of the Companies Act and clause 24.2 of the 

Constitution, which relate to meetings of 

interest groups. 

Voting rights in respect of the Fund 

Each Unit confers the right to vote at 

meetings of Unit Holders, except where an 

amount is owing on a Unit, and subject to 

any voting restrictions imposed on a Unit 

Holder under the NZSX Listing Rules or the 

ASX Listing Rules. 

On a show of hands, every Unit Holder present 

in person or by proxy or representative has 

one vote. On a poll, every Unit Holder who is 

present in person or by proxy has one vote for 

each Unit they hold. 

These voting rights are set out in the Trust 

Deed and are subject to the rights of the 

Fonterra Unit described above. 

Fonterra is prohibited under DIRA from 

exercising the voting rights attached to any 

Units held by it. 

Maximum holding in the Fund 

No Unit Holder and its Associates (excluding 

Fonterra) can hold, or have a Relevant 

Interest in, more than 15% of the Units on 

issue or 15% of the voting rights in the Fund, 

whichever is lower. 

118

section | 5.0 

The Trust Deed contains enforcement 

provisions to ensure compliance by Unit 

Holders with this restriction. Where Fonterra 

determines that a Unit Holder is in breach of 

this restriction, Fonterra may determine that 

the Unit Holder is not entitled to vote some 

or all of the Units it holds in breach of the 

restriction and can require that the Unit 

Holder dispose of the Units held in breach of 

the restriction. If the Units are not disposed 

of, the Manager or Fonterra can arrange for 

their disposal. 

As Fonterra is unable to exercise the voting 

rights attached to the Units it holds, if it 

acquires Units the proportion of votes held by 

other Unit Holders will consequently 

increase. Therefore, a Unit Holder could 

inadvertently breach the 15% maximum 

holding because Fonterra acquires Units. 

Redemption of Units 

Farmer Shareholders, the RVP and Fonterra 

can each request the Manager to redeem 

some or all of the Units that they hold. They 

will then have transferred to them (from the 

Fonterra Farmer Custodian, although, in the 

case of the RVP, the Fonterra Farmer 

Custodian will then hold for the RVP) the 

equivalent number of Shares, and the 

Manager will arrange for the Units to be 

redeemed. Farmer Shareholders cannot retain 

these Units. They are required to be used to 

settle a sale contract on the NZX Main Board. 

A Unit Holder has no other right to redeem 

Units (except, as noted above, if there is an 

offer to acquire Shares held by the Fonterra 

Farmer Custodian). 

Costs of the Fund and the provision of services 

by Fonterra 

The Manager and the Trustee have agreed 

that Fonterra will meet the day-to-day 

operating costs of the Fund. In addition, the 

Fund will use corporate facilities, support 

functions, and services provided by Fonterra. 

All of these services will be provided at no 

cost to the Fund. 

There are some costs that will not be covered 

by Fonterra. These principally relate to 

circumstances where the Manager has 

breached certain obligations, or seeks to 

bring claims outside the ambit of those which 

Fonterra has undertaken to pay. In these 

circumstances, the Manager would have to 

seek funding from other sources. This could 

include seeking a resolution of Unit Holders 

that they agree to bear the relevant costs 

through a deduction from distributions that 

would otherwise be made by the Fund. 

Controlling the Fund size 

The number of Units on issue can vary, for 

example as Farmer Shareholders, Fonterra or 

the RVP sell Economic Rights of Shares to the 

Fund, or exchange Units for Shares. Fonterra 

has an interest in ensuring the stability of the 

Fund and the Fonterra Shareholders’ Market. 

To that end, the Fonterra Board has adopted a 

Fund Size Risk Management Policy. The key 

goals of this policy are that the number of 

Units on issue remains within a range and 

that within these limits, the number of Units 

on issue is managed appropriately. The 

current policy is intended to achieve a Fund 

size of between 7% to 12% of the total number 

of Fonterra Shares on issue (excluding 

Treasury Stock of both Shares and Units). 

To achieve these goals, the Fonterra Board 

has a range of tools. 

Firstly, it can constrain the extent to which 

Farmer Shareholders can sell Economic 

Rights of Shares they are required to hold to 

meet the Share Standard (referred to as Wet 

Shares). This is achieved through the setting 

of a Fund Transfer Limit, which is discussed 

further below. 

Secondly, the Fonterra Board can manage the 

aggregate number of Shares on issue, thereby 

influencing the total number of Shares that 

are in excess of those required under the 

Share Standard (referred to as Dry Shares). 

The proportion of total Shares that are Dry 

Shares is relevant because Farmer 

Shareholders can sell them freely on the 

Fonterra Shareholders’ Market, or sell 

Economic Rights of Shares to the Fund. The 

Dry Shares represent a readily available pool 

that can be exchanged for Units, thereby 

influencing the potential size of the Fund. 

Under the Fund Size Risk Management Policy, 

the Fonterra Board intends to manage the 

proportion of Shares that are Dry Shares to 

around 5% of the total number of Shares on 

issue in Fonterra, plus or minus a reasonable 

tolerance as determined by the Fonterra 

Board from time to time. 

At the end of September 2012, the total 

number of Shares on issue was 1,522 million. 

The minimum required Shares under the 

Share Standard was 1,494 million, with the 

result that there were then 28 million Dry 

Shares. Dry Shares represented 1.9% of all 

Shares on issue. 

However, the Share Standard is to move 

to be based on a rolling average of three 

Seasons’ historical milksolid production with 

effect from 1 June 2013. A transitional effect 

of this is that the production of Dry Shares 

held by Farmer Shareholders is expected to 

increase above the 5% target level. 

Thirdly, Fonterra can decide to pay a different 

price for milk that is ‘backed’ by Shares or 

Vouchers (described under the heading 

“Vouchers” below), and milk that is not. Even 

if a Farmer Shareholder is in compliance with 

the Share Standard (i.e. holds Shares or 

Shares and Vouchers to the level required by 

the Share Standard), if their milk production 

in a particular Season is in excess of the 

Shares and Vouchers which they hold, that 

excess will not be ‘backed’ by Shares or 

Vouchers. This difference is currently five 

cents per kgMS, but Fonterra reserves the 

right to change this difference at any time. 

If Fonterra increases the amount of this 

difference, Farmer Shareholders may be 

incentivised to acquire more Shares, in order 

to earn a higher Farmgate Milk Price. If 

Fonterra narrows or eliminates this difference, 

this may reduce the incentive on Farmer 

Shareholders to acquire the requisite number 

of Shares and Vouchers to ‘back’ their milk 

production. Fonterra may adjust the amount 

of this difference whenever it considers that 

to be appropriate. 

THE THREE-SEASON ROLLING 

AVERAGE SHARE STANDARD RULE 

PRODUCTION 

1 


2 

3 

SEASON 

Three-Season 

rolling average 

Share 

Standard 

4 


SECTION 5 

TRADING 

AMONG FARMERS 


Fund Transfer Limit 

The Fonterra Board can specify limits on the 

extent to which a Farmer Shareholder can sell 

Economic Rights of Wet Shares (being those 

Shares required to be held to comply with the 

Share Standard) to the Fund. This will be done 

through the Fund Transfer Limit. 

Dry Shares (being Shares held in excess of the 

number of Shares required to comply with the 

Share Standard) held by Farmer Shareholders 

can be sold freely on the Fonterra 

Shareholders’ Market or the Economic Rights 

of those Shares can, in the normal course, be 

sold without restriction to the Fund. 

Fonterra is entitled to completely halt the 

flow of Economic Rights to the Fund in both 

Wet Shares and Dry Shares under the current 

Fund Size Risk Management Policy. 

The Fonterra Board has resolved that the Fund 

Transfer Limit will not exceed 25% of Wet 

Shares of an individual Farmer Shareholder. 

The Fonterra Board can change the Fund 

Transfer Limit at any time and on any basis it 

considers appropriate (up to the 33% 

constitutional limit). It can either allow 

Farmer Shareholders to sell Economic Rights 

to more Wet Shares to the Fund, or reduce or 

halt completely the sale of further Economic 

Rights of Wet Shares to the Fund. 

Fonterra’s current intention is that the Fund 

Transfer Limit will apply as follows: 

• in the initial Supply Offer that will occur at 

the same time as this Offer, Fonterra will 

limit the number of Economic Rights of 

Wet Shares that a Farmer Shareholder can 

offer to sell to the Fund to 25% of that 

person’s Wet Shares. The actual number 

of Economic Rights to Wet Shares that a 

Farmer Shareholder can sell in this period 

(referred to as the Opening Limit) will 

depend on the total number of Economic 

Rights of Shares offered in the course of 

the Supply Offer. If the Supply Offer is 

oversubscribed, the Opening Limit may be 

less than 25% as a result of scaling; 

• Farmer Shareholders will receive Vouchers 

for the Economic Rights of Wet Shares they 

sell to the Fund. Vouchers enable a Farmer 

Shareholder to retain voting rights in 

respect of milksolids previously backed by 

those Shares, as well as to obtain a full 

Share-backed milk price on that 

production. The role of Vouchers is 

explained in more detail below; and 

• Farmer Shareholders might not elect to 

take full advantage of the financial 

flexibility that the Fund offers at the time 

of the initial Supply Offer. To the extent 

that is the case, the total value of 

Economic Rights offered by Farmer 

Shareholders to the Fund may be less than 

the total proceeds from the Offer. If that 

happens, Fonterra will issue Shares to the 

Fonterra Farmer Custodian and thereby 

cause Units to be issued. Fonterra’s 

intention is that the amount it receives as 

a result of the issue of Shares will not be 

retained on a permanent basis. In this 

situation, Fonterra proposes to provide 

one or more further opportunities for 

Farmer Shareholders to sell Economic 

Rights of Wet Shares in the first 12 months 

after the initial Supply Offer: 

–– 

it is envisaged that these opportunities 

will provide for Farmer Shareholders to 

sell further Economic Rights of Wet 

Shares to the Fund in exchange for Units 

and Vouchers. Fonterra would acquire 

for cash on-market the number of Units 

issued as a result of any such sales (in a 

manner that does not disturb general 

trading in Units); 

–– 

by this means, the proceeds of the 

earlier issue of Shares at the time the 

Fund is launched, would be, in effect, 

paid out to Farmer Shareholders that sell 

Economic Rights of Shares to the Fund; 

–– 

subject to market conditions, it is 

intended that the first of these further 

opportunities would be after Fonterra 

has announced its half-year results in 

2013; and 

–– 

any future opportunity during this first 

12-month period would likely be 

conducted in a similar manner. 

• No sooner than 12 months after the 

Launch Date, the Fonterra Board will also 

consider whether, and to what extent, it is 

appropriate to allow further opportunities 

for Farmer Shareholders to sell Economic 

Rights of Wet Shares to the Fund, including 

whether a general Fund Transfer Limit is 

set so as to allow Farmer Shareholders to 

sell Economic Rights of Wet Shares to the 

Fund on a day-to-day basis. For further 

discussion on such opportunities for 

Farmer Shareholders, refer to Section 8 

– Details of the Offer under the heading 

“Formation of the Fund”. 

• Prior to this date, Farmer Shareholders will 

have no ability to sell Economic Rights of 

Wet Shares to the Fund except as noted 

above. This would be achieved by setting 

the Fund Transfer Limit for existing Farmer 

Shareholders to zero until this time. 

• The Fund Transfer Limit will not restrict the 

sale of Economic Rights of Dry Shares to 

the Fund. Economic Rights of Dry Shares 

can be freely sold to the Fund unless the 

Fonterra Board invokes the Fund Size Risk 

Management Policy described above to 

halt such sales. 

• Limited exceptions may be allowed by the 

Fonterra Board in this period to enable 

new Farmer Shareholders who commence 

supply to Fonterra to have a “one off” 

opportunity to sell Economic Rights of 

Wet Shares up to the limits applicable to 

existing Farmer Shareholders. 

Common registry 

Both Fonterra and the Fund will utilise the 

same registry provider, Computershare 

Investor Services Limited. Fonterra and the 

Manager have each agreed to provide access 

to the other’s register. By subscribing to the 

Offer, a Unit Holder will be deemed to 

consent to this arrangement. 

Vouchers 

When a Farmer Shareholder sells Economic 

Rights of Wet Shares to the Fund, the Fund 

will issue to that Farmer Shareholder a Unit 

which that Farmer Shareholder must 

immediately sell on the NZX Main Board. 

In addition, the Fund will record the transfer 

of the Wet Share to the Fonterra Farmer 

Custodian by giving to the Farmer 

Shareholder a Voucher. Vouchers can be used 

by that Farmer Shareholder to comply with 

the Share Standard. The sale of the Wet Share 

will therefore not affect their voting rights or 

their right to receive the full payment for 

milksolids supplied to Fonterra. 

The Fonterra Board has discretion under the 

Constitution to limit the extent to which it 

will take Vouchers into account, in respect of 

one or more Farmer Shareholders. By doing 

so, Fonterra can require Farmer Shareholders 

to buy Shares to satisfy the Share Standard, 

rather than allowing the use of Vouchers for 

this purpose. 

120

section | 5.0 

Fonterra has agreed that for a period of four years from the Launch Date, it will not reduce the proportion of Vouchers that are ‘counted’ for the 

purposes of satisfying the Share Standard. This is provided that the number of Vouchers is below 25% of the number of Wet Shares the Farmer 

Shareholder is required by the Share Standard to hold, except where: 

• the Fund is wound up; or 

• the number of Shares held by the Fonterra Farmer Custodian for the Fund exceeds 15% of the total number of Shares on issue (excluding 

Treasury Stock). 

Issues and buy backs of Shares 

Once the Fund is launched, the previous practice of Fonterra issuing Shares to Farmer Shareholders who increase their milk production, 

will be replaced by Farmer Shareholders purchasing Shares directly on the Fonterra Shareholders’ Market (or purchasing Units and 

exchanging them for Shares). Accordingly, Share-backed milk production will cease to be an automatic means by which Fonterra raises 

additional equity capital, while the Share Standard will remain an integral ongoing element of Fonterra. Likewise, a fall in Share-backed 

milk production will no longer cause a reduction of equity capital. 

In the future, Fonterra will have the ability to manage its level of equity capital through a range of mechanisms including retained earnings, 

special dividends, dividend reinvestment plans, and other mechanisms used by companies with tradable shares. It will fund future capital 

investment using a mix of debt and equity to maintain an appropriate gearing ratio in accordance with its balance sheet strategy. 

Separately, Fonterra intends to respond to growing Share-backed milk production by increasing the number of Shares on issue in a 

transparent and predictable manner to the extent necessary to promote liquidity in the Fonterra Shareholders’ Market. To achieve this 

goal, Fonterra has two key options. It can issue new Shares to raise new equity capital, if required. Alternatively, it can undertake a bonus 

issue where new equity capital is not required. In either case, the Manager will undertake an equivalent adjustment to the number of 

Units on issue. 

Within the context of Fonterra’s Fund Size Risk Management Policy (as described in Section 5 – Trading Among Farmers in Detail), Fonterra 

will also manage the number of Shares on issue if production over time falls resulting in Farmer Shareholders holding Shares in excess of 

the minimum requirements related to milk production. Unlike today, Fonterra will no longer have an obligation to redeem Shares where 

this occurs. Instead, it will have more flexibility in the manner and timing of meeting the requirements of the Fund Size Risk Management 

Policy through, for example, buying back its Shares using mechanisms available to other companies with tradable shares. It can also buy 

Units (which it will not be allowed to vote) and subsequently sell them, or exchange them for Shares to be held as Treasury Stock or cancelled. 

Fonterra will use these tools to manage the total number of Shares on issue, and the size of the Fund, in accordance with its Fund Size Risk 

Management Policy. 

Fund Size Risk Management Policy 

The Fund Size Risk Management Policy is designed to address the following requirements: 

• the key goals of the Fund are to supplement liquidity in the Fonterra Shareholders’ Market, thereby promoting price convergence, and to 

provide flexibility for Farmer Shareholders; 

• the size of the Fund should remain within specified limits; and 

• the Fund size should be managed based on graduated responses. 

It is important to note that a change in the number of Units on issue does not, of itself, result in a dilution in per Unit measures of financial 

performance (such as distributions per Unit or earnings per Unit). That is because changes in the number of Units on issue need not (and 

typically will not) reflect any change in the total number of Shares on issue. 

Fund size and its relationship with other thresholds 

The following hypothetical example (described at the end of a future hypothetical Season) is intended to illustrate the relationship between Fund 

size and other thresholds: 

• Fonterra has 1,500 million Shares on issue, excluding Treasury Stock; 

• the Fonterra Farmer Custodian holds 120 million of those Shares, with 120 million Units on issue. This represents a Fund size that is 8% of 

Shares on issue; 

• the minimum required number of Shares that Farmer Shareholders are required to hold is 1,400 million. When this amount is deducted from 

the total number of Shares on issue, the number of Dry Shares is derived (being 100 million or 6.7% of Shares on issue); 


SECTION 5 

TRADING 

AMONG FARMERS 


• forecast milk production for the next Season is 1,430 million kgMS. There are therefore 70 million Shares on issue in excess of expected 

production, or 4.7% of the total. Since these Shares are not expected to be required to back production, they are the most easily traded by 

Farmer Shareholders without running the risk of being paid a lower milk price; 

• the actual Fund size would be measured at 8% of total Shares on issue under the Fund Size Risk Management Policy outlined below; and 

• the Potential Fund Size (as referred to in the Fund Size Risk Management Policy) is the maximum proportion of Shares that could be held by 

the Fonterra Farmer Custodian, including Dry Shares held by Farmer Shareholders in excess of the aggregate minimum required shareholding. 

As noted, Dry Shares are 6.7% in this example. When this is added to the actual Fund size of 8%, the Potential Fund Size is 14.7%. However, the 

implications of a Potential Fund Size of this amount need to be considered having regard to Shares on issue in excess of expected production 

(4.7% in this example), which is expected to typically be a smaller proportion of Shares, reflecting expected growth in milk production. It is 

Shares in excess of production that are the most easily exchanged into Units. 

Set out below is a summary of relevant provisions of the Fund Size Risk Management Policy. 

This description is current as at the date of this Offer Document. Like all Fonterra Board policies, the Fund Size Risk Management Policy 

may be changed from time to time for a variety of reasons, including due to meeting new circumstances, experiences gained from past 

events and reviews undertaken by the Fonterra Board. Any changes to this policy will be announced by Fonterra at the relevant time. 

The Fund Size Risk Management Policy 

Policy: Fund Size 

Parameters: 

The Actual Size of the Fund will be 

managed within a Target Range of 7% to 

12% of total Shares on issue (excluding 


The Potential Size of the Fund will be 

managed within a Target Range of 7% to 

15% of total Shares on issue (excluding 


Policy: Dry Share Proportion 

The number of Dry Shares on issue should 

fall within an acceptable tolerance of 5% 

(or such lesser percentage as the Fonterra 

Board determines) of total Shares on issue 

(excluding Treasury Stock). 

Response 

The Fonterra Board will use a range of measures to ensure the Actual Fund Size and 

Potential Fund Size remain within the relevant Target Ranges, including: 

a) introducing or cancelling a dividend reinvestment plan; 

b) operating a Unit and / or Share repurchase programme; 

c) increasing or reducing the Fund Transfer Limit; and 

d) issuing new Shares. 

Response 

The Fonterra Board will take steps to issue or buy back Shares to maintain the number of 

Dry Shares within the required range. 

For the purposes of this Fund Size Risk Management Policy, Treasury Stock means Shares or Units acquired and held by Fonterra. 

122

section | 5.0 

Consequences of exceeding Fund Size Risk Management Policy thresholds 

If the actual or potential Fund size falls outside the ranges noted above, certain actions will be taken, as noted below. The extent and nature of 

actions required will vary according to the extent to which the target range is exceeded. 

Consequences of exceeding a threshold 

Response 

If the Actual Fund Size breaches 12% 

or the Potential Fund Size breaches 

15% for a majority of days within any 

30 day period. 

If the Actual Fund Size breaches 15% or 

the Potential Fund Size breaches 18% for 

a majority of days in any 30 day period. 

If the Actual Fund Size breaches 18% or 

the Potential Fund Size breaches 20% for a 

majority of days in any 30 day period. 

The Fonterra Board will: 

a) as soon as it becomes aware of the breach, inform NZX and ASX; 

b) within 90 days develop a strategy to address the underlying causes of the expansion 

in the Actual or Potential Fund Size (depending on which has been breached) and 

consult with the Shareholders’ Council on that strategy; and 

c) for so long as the Actual or Potential Fund Size remains above the breach level, consult 

with the Shareholders’ Council at intervals of not more than three months, and 

disclose progress towards returning to within the policy range. 

The Fonterra Board will: 

a) immediately advise the Shareholders’ Council, NZX and ASX; 

b) within 90 days obtain advice from an independent expert on a strategy to return to 

the Target Range and its likelihood of being successful; 

c) during that 90 day period consult with the Shareholders’ Council on plans to return 

to the Target Range; and 

d) disclose non-commercially sensitive aspects of those plans. 

If the Actual or Potential Fund Size remains in breach of these thresholds for six consecutive 

months, then unless the Shareholders’ Council agrees otherwise, the Fonterra Board must 

take the steps required if the Actual Fund Size breaches 18%, except suspending the sale of 

further Economic Rights under paragraph (a) of that section. 

Within 90 days the Fonterra Board will: 

a) immediately advise the Shareholders’ Council, NZX and ASX; 

b) suspend the ability for further Economic Rights to be sold to the Fund, unless there 

is a compelling reason not to do so (with that reason to be disclosed to Fonterra 

Shareholders, NZX and ASX). This suspension will cease when the Fonterra Board is 

satisfied that the Actual or Potential Fund Size is sustainably below the thresholds that 

trigger suspension of the further disposition of Economic Rights, or in any event when 

the Actual Fund Size falls below 12% (and the Potential Fund Size is below 15%); 

c) give notice of a special meeting of Fonterra Shareholders to consider options, subject 

to the minimum required notice periods under the Constitution; 

d) consult with the Shareholders’ Council on the options to be presented to the special 

meeting; 

e) obtain expert independent advice on the likely outcome of each of those options, and 

review that advice with the Shareholders’ Council; 

f) recommend its preferred option at the special meeting, together with an independent 

advisor’s report on the likely outcome of that option; and 

g) enable the Shareholders’ Council to present the Council’s preferred option to the 

special meeting if it is different from the Fonterra Board’s preferred option. 


SECTION 5 

TRADING 

AMONG FARMERS 


Termination of the Authorised Fund Contract 

As described earlier in this section, there are circumstances in which the Authorised Fund Contract can be terminated, and the authorisation to 

be an Authorised Fund granted to the Fund withdrawn. 

These are summarised in the table below: 

Where the Manager breaches its obligations under the Authorised Fund Contract 

• If the Manager breaches a material term of the contract Fonterra can exercise a “step in right” to manage the Fund as the agent of 

the Manager. 

• In addition, if the Manager is instructed or required by the Unit Holders to take any action, or proposes any step, which has breached, 

or will breach, a Fundamental Term of the contract and this has not been remedied by the Manager within a reasonable period, Fonterra 

can give a notice to the Trustee seeking replacement of the Manager. 

• If this occurs, a process would be worked through which would give the Manager an opportunity to retire as the Manager of the Fund, 

or the Trustee to appoint a replacement Manager. 

• If the Manager retires and the Trustee appoints a replacement Manager which complies with all of the structural requirements that the 

Manager is required to comply with, Fonterra would not seek to terminate the contract as a result of the breaches which have occurred 

or are proposed, the contract will continue and the Fund will continue to operate. 

• If, however, the Manager fails or refuses to retire or the Trustee fails or refuses to take action to appoint a replacement Manager, 

Fonterra can terminate the contract by such notice period as it may specify. The Manager may be required to continue to operate the 

Fund during the notice period. 

• Where this occurs, Fonterra can require: 

–– 

the Manager to dispose of the Economic Rights which are held for the Fund to Fonterra or Fonterra’s nominated transferee 

(which may be a substitute Authorised Fund); or 

–– 

the Manager to procure the Fonterra Farmer Custodian to dispose of the Shares held by the Fonterra Farmer Custodian under the 

Fonterra Economic Rights Trust to Fonterra or its nominated transferee, at a ‘base price’ that is a fair reflection of the ‘undisturbed’ 

traded value of Shares and Units, based on an average of the daily VWAP of observed prices over a six-month period prior to the date 

on which Fonterra gave notice to the Manager of the breach (or potential breach), less a discount of 15%. 

• The valuation would be adjusted for any capital changes which have occurred in this period and the Trustee and Manager must 

co-operate with Fonterra to give effect to this mechanism. 

Where Fonterra breaches its obligations under the Authorised Fund Contract 

• If Fonterra breaches a “Fundamental Term” of the contract and this has not been remedied by Fonterra within a reasonable period, the 

Manager can give a notice to Fonterra requiring that Fonterra either acquires (or procure the acquisition of) the Economic Rights or the 

Shares the subject of the Fonterra Economic Rights Trust. 

• Fonterra will then determine who will acquire the Economic Rights or the Shares and how they will be acquired, and must ensure that 

this occurs within 12 months of receipt of notice from the Manager requiring it. 

• Where the Manager gives notice of termination under this provision, the contract will be terminated on the date of transfer of the 

Economic Rights / Shares (or such earlier date as Fonterra may specify). 

• The acquisition would be at a valuation determined on one of the following bases: 

–– 

if this termination right is exercised in the first 24 months after the Launch Date, the basis of valuation is to be the same as for 

“Unilateral termination by Fonterra without cause”, as outlined lower in this table; or 

– – if this termination right is exercised after that date, at a ‘base price’ that is a fair reflection of the ‘undisturbed’ traded value of Shares 

and Units, based on an average of the daily VWAP of observed prices over a six-month period prior to the date of notice given by the 

Manager notifying the breach, plus a premium of 15%. 

• The valuation would be adjusted for any capital changes which have occurred in this period and the Trustee and Manager must 

co-operate with Fonterra to give effect to this mechanism. 

124

section | 5.0 

Where Unit Holders elect to wind up the Fund by Extraordinary Resolution 

• The Unit Holders can pass a resolution to wind up the Fund at any time, so long as the procedures in the Trust Deed are followed. Any 

such resolution is binding on all Unit Holders. 

• Upon this resolution being passed, Fonterra must act efficiently and use reasonable efforts to facilitate another party nominated by it 

(which could include a replacement Authorised Fund) to acquire the Economic Rights held for the Fund, or the Shares held by the 

Fonterra Farmer Custodian under the Fonterra Economic Rights Trust. 

• Any purchaser of the Economic Rights or the Shares would need to be acceptable to Fonterra and in the case of a purchase of the 

Economic Rights would need to comply with the terms of the Custody Trust Deed for the Fonterra Economic Rights Trust and the 

Authorised Fund Contract, subject to such changes to those documents as Fonterra may specify. 

• If, after a wind-up resolution has been passed, a purchaser acceptable to both Fonterra and the Manager has not been found within 

a period of 120 business days, Fonterra will have the right (but not the obligation) to require the sale of the Economic Rights to it or 

to require the Fonterra Farmer Custodian to transfer the associated Shares to it. Upon such acquisition, the Authorised Fund Contract 

will be terminated. 

• The valuation mechanism / purchase price in this circumstance is to be a fair reflection of the ‘undisturbed’ traded value of Shares and 

Units, based on an average of the daily VWAP of observed prices over a six-month period prior to the date on which any announcement 

is made to the market advising of the expectation or intent of a vote in respect of the wind-up of the Fund on this basis. 

• The valuation would be adjusted for any capital changes (as above) which have occurred in this period and the Trustee and Manager 

must co-operate with Fonterra to give effect to this mechanism. 

Unilateral termination by Fonterra without cause 

• At any time within 24 months after the Launch Date, Fonterra may (by a board resolution supported by a majority of the Independent 

Directors) terminate the contract. 

• This right would not require the agreement of Unit Holders (by resolution or otherwise). 

• The Fund would be liquidated within 12 months of the notice of termination. During this notice period, the Fund would continue 

to operate. 

• At any time during this period, Fonterra can elect whether: 

–– 

the Manager will dispose of the Economic Rights to Fonterra’s nominated transferee (which may be a substitute Authorised Fund); or 

–– 

the Manager will procure the Fonterra Farmer Custodian to dispose of the Shares held by the Fonterra Farmer Custodian under the 

Fonterra Economic Rights Trust to Fonterra or its nominated transferee, 

at a valuation undertaken on the basis specified below. 

• This valuation mechanism will determine a value which is the greater of: 

–– 

the Final Price of the Units escalated at a fixed cumulative rate of 15%, less cash dividends paid; and 

–– 

a ‘base price’ that is a fair reflection of the ‘undisturbed’ traded value of Shares and Units, based on an average of the daily VWAP of 

observed prices over a six-month period prior to announcement of the termination, plus a premium of 15%. 

• Both the above prices would be adjusted for any capital changes and the Trustee and Manager must co-operate with Fonterra to give 

effect to this mechanism. 

• Fonterra must then acquire (or nominate some other person to acquire) the Economic Rights or the Shares at the valuation determined 

under this mechanism. 

The unilateral right of termination by Fonterra outlined in the table above can also be exercised by Fonterra within 24 months 


SECTION 5 

TRADING 

AMONG FARMERS 


after the Launch Date if it considers that the 

intention or purpose, or operation, of the 

arrangements described in the Authorised 

Fund Contract has been rendered impossible 

or illegal or the commercial intent of those 

arrangements has been frustrated 

or materially compromised, as a result of the 

passage into law of the Financial Markets 

Conduct Bill which is currently before the 

New Zealand Parliament. 

There are no other rights for Fonterra, the 

Manager, the Trustee or the Fonterra Farmer 

Custodian to terminate the Authorised Fund 

Contract. Any other termination rights that 

a party to the contract would have at law 

are excluded. 

It is important to note that other than where 

termination arises due to Fonterra breaching 

the Authorised Fund Contract or Fonterra 

exercising its unilateral right of termination 

without cause, Fonterra has no obligation to 

purchase or arrange the purchase of the 

Shares held by the Fonterra Farmer Custodian 

in which Economic Rights are held for the 

Trustee, or to acquire those Economic Rights. 

There are unlikely to be buyers for those 

assets other than Fonterra or another 

Authorised Fund approved by Fonterra. This 

may result in the Fund not being able to 

dispose of these assets which would prevent 

it from winding up. 

Termination of the Fund 

The Fund will be wound up if all the 

Economic Rights held for the Fund or all the 

Shares the subject of the Fonterra Economic 

Rights Trust are acquired by Fonterra or a 

person nominated by Fonterra as discussed 

under the heading “Termination of the 

Authorised Fund Contract” above. 

If Fonterra proposes a change in its capital 

structure or any other change (other than the 

exercise of a termination right as outlined in 

this section) which involves the winding-up 

of the Fund, Unit Holders would be asked 

to approve the change by Extraordinary 

Resolution. Unit Holders could not, however, 

be compelled to agree, and if Unit Holders 

did not agree the change would not proceed. 

If the Unit Holders approve the change by 

Extraordinary Resolution, that approval will 

be binding on all Unit Holders. 

Perpetuity period 

As the Fund is a trust, the current law 

requires that the Fund cease within 80 years 

of its establishment. This is also the case in 

respect of the Fonterra Economic Rights 

Trust. The law against perpetuities may be 

amended before the scheduled expiry of the 

Fund and the Fonterra Economic Rights Trust, 

and the Trust Deed and Custody Trust Deed 

have been drafted so that the revised law will 

then apply to both the Fund and the Fonterra 

Economic Rights Trust. 

The Fonterra Economic Rights Trust has a 

vesting day one day prior to the expiry of the 

date of termination of the Fund. Upon the 

expiry of the Fonterra Economic Rights Trust, 

all its trust property, which includes the 

Shares in respect of which Economic Rights 

have been held in trust for the Fund, will be 

vested in Fonterra. Accordingly, the Economic 

Rights will cease to be held for the Fund at 

that time. No consideration will be payable to 


126

section | 6.0 

SECTION 6 

DIRA REGulatory 

ENVIRONMENT 

Background 

Fonterra was formed in 2001 

by a merger of The New Zealand 

Dairy Board and the two major 

New Zealand dairy processors 

at the time: The New Zealand 

Co-operative Dairy Company 

Limited and Kiwi Co-operative 

Dairies Limited. 

The merger was authorised by the Dairy 

Industry Restructuring Act 2001 (New 

Zealand) (DIRA). Because the merger would 

result in Fonterra occupying a significant 

position in New Zealand dairy markets, DIRA 

also established a regulatory framework 

designed to ensure that New Zealand dairy 

markets remained contestable and efficient. 

DIRA has been amended from time to time 

since 2001, most recently by the Dairy 

Industry Restructuring Amendment Act 2012 

(New Zealand). 

The provisions of DIRA relating to the 

Commerce Commission’s oversight of the 

Farmgate Milk Price Manual and setting of 

the Farmgate Milk Price are discussed in 


for New Zealand Milk. 

As explained further in Section 7 – Investment 

Risks, Fonterra’s operations are also subject to 

numerous other New Zealand laws and 

regulations which impact on Fonterra’s 

operations in New Zealand. 

Open entry and exit 

DIRA contains provisions that facilitate “open 

entry and exit” by farmers to and from 

Fonterra. These provisions sought to deal 

with the concern that Fonterra could use its 

market power to create barriers to farmers 

switching to competing processors, and 

thereby undermine contestability in the 

market for the supply of raw milk. 

Subject to specific exceptions, Fonterra: 

• must accept all applications to become a 

Farmer Shareholder made during the 

specified application period; 1 

• may also be required to accept applications 

from existing Farmer Shareholders to 

increase the volume of milk supply; 

• must ensure that new entrants (i.e. new 

suppliers entering the Co-operative) are 

offered the same terms of supply as apply 

to an existing Farmer Shareholder in the 

same circumstances, or differ only to the 

extent of different circumstances; 

• must provide that a Farmer Shareholder 

who wishes to cease the supply of milk to 

Fonterra may do so by giving a notice of 

withdrawal during the application period; 

• must permit Farmer Shareholders to 

supply up to 20% of their weekly 

production throughout the Season to 

independent processors; and 

• must offer new Farmer Shareholders a 

supply contract for a minimum of one 

Season. While Fonterra may offer 

longer-term contracts, it must ensure that 

at least one third of all milk produced 

within a 160-kilometre radius of any point 

in New Zealand is supplied to: 

–– 

independent processors; or 

–– 

Fonterra, under a contract that expires, 

or that can be terminated at the Farmer 

Shareholder’s option without penalty, at 

the end of the Season. 

Fonterra Share price 

Until Trading Among Farmers is launched, 

Fonterra is required to issue and redeem 

Shares under DIRA at a value determined in 

accordance with DIRA and the current 

Constitution. 

This requirement will cease to apply once 

Trading Among Farmers is implemented. 

Under the Constitution applying from the 

Launch Date, Shareholders will instead be 

able to trade their shares on the Fonterra 

Shareholders’ Market, and to transfer a 

proportion of their Shares to the Fonterra 

Farmer Custodian to hold on behalf of the 

Fund. These features are described in detail in 


Should Trading Among Farmers end, the 

requirement in DIRA for Fonterra to issue and 

redeem Shares will once again apply. 

In addition, a new methodology to determine 

the price at which Fonterra must issue and 

redeem Shares would come into force. 

In simple terms, this methodology would 

require Fonterra to calculate the share price 

at fair value by dividing the sum of Fonterra’s 

assets minus its debts by the total number 

of Shares on issue. Any Shares held by the 

Fonterra Farmer Custodian (including those 

held for the Fund) will not, however, be able 

to be redeemed. 

DIRA sets out certain circumstances in which 

Trading Among Farmers would end. In 

particular, if the Fund is being (or has been) 

wound up, or Shares or Units can no longer 

be traded as envisaged under DIRA, then a 

process is triggered to make an Order in 

Council to repeal the provisions of DIRA that 

provide for Trading Among Farmers (repeal 

order). The repeal will take effect the later of 

(a) nine months after the date the repeal 

order is made; and (b) the beginning of the 

next application period to become a Farmer 

Shareholder. 

1 DIRA specifies that, in respect of a Season, the minimum application period must span the dates from 15 December to 

28 February before that Season commences. 


SECTION 6 

DIRA REGulatory 

ENVIRONMENT continued 

However, DIRA also provides for a process to 

allow the repeal order itself to be revoked if 

certain pre-conditions (including, where 

necessary, the establishment of a 

replacement fund) have been met before the 

repeal date. 

Open entry and exit 

requirements under 


The general open exit and entry requirements 

noted under the heading “Open entry and 

exit” earlier in this section will continue to 

apply once Fonterra’s Shares become 

tradable. To ensure that the introduction of 

Trading Among Farmers does not adversely 

affect these requirements, DIRA includes an 

explicit prohibition on Fonterra from 

engaging in conduct that: 

• restricts, prevents, or deters liquidity and 

fungibility of the Share and Fund markets; 


• has the purpose of restricting, preventing, 

or deterring open entry and exit. 

Regulated supply 

of raw milk 

DIRA enables the Government to make 

regulations to: 

• require Fonterra to supply or auction to 

independent processors certain dairy 

goods and services (including raw milk, 

components of milk, products derived 

from milk, and associated transportation, 

processing, and packaging services); and 

• specify the terms on which such goods and 

services must be supplied or auctioned. 

Currently, the only regulations made 

under this power are the Dairy Industry 

Restructuring (Raw Milk) Regulations 2001 

(Raw Milk Regulations) which require 

Fonterra to supply up to 600 million litres of 

milk each Season to independent processors. 

This accounts for around 3.5% of Fonterra’s 

total seasonal raw milk supply. DIRA permits 

this aggregate to be increased to a maximum 

of 5%. There is a risk, therefore, that the 

aggregate amount that Fonterra is required 

to supply to independent processors under 

the Raw Milk Regulations could increase in 

the future (or that further regulations could 

be made requiring Fonterra to supply other 

dairy goods or services). As explained below, 

in January 2012 the Government consulted 

on proposals to, among other things, increase 

the aggregate under the Raw Milk 

Regulations to the maximum of 5%. 

An “independent processor” in this context 

includes any person who intends to process 

the raw milk by means of a contractual 

arrangement with another processor (known 

as toll processing). 

Unless Fonterra and the independent 

processor agree otherwise, the price for the 

supply of raw milk must be calculated in 

accordance with the formula set out in the 

Raw Milk Regulations. This formula sets that 

price (excluding the price for organic or 

winter milk) based on: 

• the “farm gate milk price” as defined in the 

Raw Milk Regulations; 1 

• reasonable costs of transport to the 

independent processor; and 

• a margin of $0.10 per kgMS. 

Fonterra is required to supply Goodman 

Fielder with up to 250 million litres of raw 

milk each Season and, for all other 

independent processors, up to 50 million 

litres each Season. 

In January 2012, the Government consulted 

on proposed changes to the Raw Milk 

Regulations. The proposed changes include: 

• increasing the total amount of raw milk 

available to independent processors in a 

Season to the statutory maximum of 5% of 

Fonterra’s total raw milk supply; 

• removing the $0.10 per kgMS margin in the 

default price; 

• introducing specified maximum monthly 

limits on supply to independent processors 

(except for Goodman Fielder), which are 

intended to reflect the seasonal dairy 

supply curve; and 

• restricting eligibility for supply from 

Fonterra where the independent 

processor’s own supply of raw milk in each 

of the three consecutive Seasons 

immediately preceding that Season was at 

least 30 million litres. 

To date, no announcement has been made as 

to the final proposed changes to the Raw 

Milk Regulations. 

Changes to and expiry 

of the regulatory 

framework 

A “sunset” regime is provided for in DIRA. 

In particular, the regulatory framework 

described in this section and the Commerce 

Commission’s oversight role described in 

Section 5 – Trading Among Farmers in Detail 

may come to an end when the Minister for 

Primary Industries is satisfied that 

independent processors are, directly or 

indirectly, collecting 20% or more of 

milksolids on or from dairy farms in the North 

Island and / or South Island. This threshold 

triggers a review process in relation to what, 

if any, regulation should remain for the 

relevant Island. The Minister is also required 

to initiate that review process if the threshold 

triggers are not met by 1 June 2015. 

It is therefore possible that the regulatory 

framework affecting Fonterra could change 

substantially, or even end, if its proportion 

of raw milk collected in either Island 

declined substantially. If that occurred, 

Fonterra would, however, remain subject 

to general competition law rules under the 

Commerce Act 1986 (New Zealand) and 

other applicable legislation. 

1 Under Regulation 3 of the Raw Milk Regulations, “farm gate milk price” means the price per kgMS paid for milk supplied to 

Fonterra by Farmer Shareholders minus the total premiums paid for that milk (including the portion of the winter milk 

premium that is included in the Farmgate Milk Price set by the Fonterra Board). 

128

section | 7.0 

SECTION 7 

INVESTMENT 

RISKS 

An investment in the Fund should 

be considered in light of the 

general and specific risks 

associated with the Units and 

Fonterra. Before deciding whether 

to make an investment in the 

Fund, prospective investors 

should read the whole of this 

Offer Document and should 

specifically consider the factors 

contained within this section in 

order to fully appreciate the risks. 

Risks associated with 

the Fund structure 

This section outlines some key features of the 

Fund structure that prospective Unit 

investors should be aware of and carefully 

consider. The unique features of an 

investment in a Unit in the Fund are 

described further in Section 5 – Trading 


Novel structure 

The structure has been designed to meet the 

needs of Fonterra and its Farmer 

Shareholders, and to enhance the operation 

of the Fonterra Shareholders’ Market, while 

simultaneously giving other investors an 

exposure to the financial performance 

of Fonterra. 

The Fund and its relationship with the 

Fonterra Shareholders’ Market are novel. The 

structure has been carefully designed but is 

untested and there is therefore some 

uncertainty about how it will perform. 

VOTING and GOVERNANCE LIMITATIONS 

Prospective investors in Units need to be 

aware that: 

• the Fund will not hold any Fonterra Shares. 

Shares will instead be held by the Fonterra 

Farmer Custodian, who will declare a trust 

in respect of the Economic Rights in the 

Shares. Units will confer the right to vote at 

meetings of Unit Holders; 

• the Fund will not have, and no Unit Holder 

will have, any voting right at a meeting of 

Fonterra Shareholders. Generally, the 

Fonterra Farmer Custodian will not have 

the right to vote at a meeting of Farmer 

Shareholders, although there may be 

limited exceptions to this principle, where 

the Manager of the Fund can direct the 

Fonterra Farmer Custodian how to vote. 

Those circumstances are expected to be 

rare. No individual Unit Holder will be 

entitled to exercise any of these rights; and 

• neither the Manager nor Unit Holders will 

have any right to attend or speak at a 

Shareholders’ meeting, to seek proxies, or 

to otherwise direct or influence the way in 

which Fonterra Shares are voted. 

Independent Directors of Fonterra 

The Fund will have no right to elect directors 

of Fonterra, or to otherwise participate in the 

corporate governance of Fonterra. Fonterra 

will consult with the Chairman of the Board 

of the Manager (representing the three 

directors who are elected by Unit Holders) 

about the appointment of Independent 

Directors to the Fonterra Board, but the 

final choice as to who is appointed remains 

with Fonterra. 

Price convergence between 

Shares and Units may not be 

ACHIEVED or maintained 

The structure incorporates a feature that 

allows a Share and a Unit to effectively be 

exchanged, but only by Farmer Shareholders, 

the RVP and Fonterra. No other Unit Holder 

is able to do this. 

However, this feature will allow Farmer 

Shareholders to either sell Economic Rights 

of Shares to the Fund, or to sell Shares on the 

Fonterra Shareholders’ Market. Conversely, 

Farmer Shareholders can either buy Units and 

exchange them for Shares, or buy Shares on 

the Fonterra Shareholders’ Market. 

The RVP can effectively move between the 

two markets (for Shares and Units) in order to 

sell or buy either security, and to effectively 

exchange one for the other. 

The intended result is that Shares and Units 


referred to as the convergence of prices for 

Shares and Units. However, there is no 

assurance that convergence of prices will be 

achieved or, if achieved, how long it will take 

or whether it will be maintained. 

Liquidity 

Size of the Fund 

There are limits on the number of Shares in 

respect of which Economic Rights may be 

held for the Fund at any one time. The 

consequences of exceeding those limits are 

described in Section 5 – Trading Among 


In addition, Fonterra is entitled to, and 

intends to, manage the number of Shares in 

which Economic Rights are held for the Fund 

to a level significantly below that threshold. In 

some circumstances, Fonterra can halt the 

flow of Shares from Farmer Shareholders to 

the Fonterra Farmer Custodian (to be held for 

the Fund). 


SECTION 7 

INVESTMENT 

RISKS continued 

These factors mean that the supply of Shares 

in which Economic Rights are held for the 

Fund can (and will) be constrained by 

Fonterra. This could affect the liquidity of 

trading in Units, or the prices that buyers 

of Units are prepared to pay for them. 

Sale of Units 

There is no guarantee that an active market 

in the Units will develop. As the number of 

Units on issue will correspond with the 

number of Shares held by the Fonterra 

Farmer Custodian for the Fund, the market 

for Units will be affected by changes in the 

volume of Shares that Farmer Shareholders 

sell to the Fonterra Farmer Custodian (for 

the Fund). 

This could affect both the demand for, and 

the prices of, Units. 

Early termination of the 

Authorised Fund CONTRACT 

Fonterra has a unilateral right to give notice 

to terminate the Authorised Fund Contract 

without cause within 24 months after the 

Launch Date. 

If Fonterra exercises this right, Fonterra is 

required to acquire the Economic Rights or 

the underlying Shares (or find someone else 

to do so) at a price determined under a 

formula referred to under the heading 

“Termination of the Authorised Fund 

Contract” in Section 5 – Trading Among 


If Fonterra breaches a Fundamental Term of 

the Authorised Fund Contract, the Manager 

of the Fund can require Fonterra (or someone 

nominated by it) to acquire the Economic 

Rights or underlying Shares at a price 

determined in accordance with a formula 

referred to under the heading “Termination 

of the Authorised Fund Contract” in Section 5 

– Trading Among Farmers in Detail. The 

Authorised Fund Contract will terminate on 

the date of the transfer of the Economic Rights 

or underlying Shares, or at such earlier date 

as Fonterra may specify. 

Where the Manager breaches a Fundamental 

Term of the Authorised Fund Contract, 

Fonterra can terminate the Authorised Fund 

Contract by such notice as Fonterra may 

specify. In addition, Fonterra has the right to 

acquire the Economic Rights held for the 

benefit of the Fund or the underlying Shares 

(or find someone else to do so). 

If Unit Holders elect to wind up the Fund by 

way of an Extraordinary Resolution, a purchaser 

of the Economic Rights held for the benefit of 

the Fund or the underlying Shares accceptable 

to both Fonterra and the Manager is to be 

sought. If no such purchaser is found, 

Fonterra will have the right to acquire the 

Economic Rights held for the benefit of the 

Fund or the underlying Shares (or find 

someone else to do so). 

The Trust Deed of the Fund provides that 

upon all the Economic Rights held for the 

benefit of the Fund or all the underlying 

Shares being sold, the Fund is to terminate. 

The price paid for the Economic Rights or the 

Shares may be less or more than the price 

that a Unit Holder has paid for his or her 

Units. It may take some time to work out a 

buy-out arrangement that is acceptable to 

the Fund and to Fonterra. As a result, there is 

no certainty that any cash distribution would 

be made to Unit Holders where Fonterra has 

no obligation to purchase (or procure the 

purchase) of the Economic Rights or underlying 

Shares, nor the timeframe for that to occur. 

Units might still be quoted and traded on 

the NZX Main Board and ASX in these 

circumstances even if trading on the Fonterra 

Shareholders’ Market has ceased, but the 

traded price of Units in these circumstances 

could be adversely affected by these (or 

other) uncertainties. 

Change in FSM RULES 

Certain of the protections available to the 

Fund and Unit Holders are contained in the 

FSM Rules. However, the FSM Rules may be 

changed so as to remove any of those 

protections, or NZX may waive provisions 

of the FSM Rules, by agreement between 

Fonterra and NZX. The consent of the 

Trustee, the Manager of the Fund or Unit 

Holders is not required for an amendment 

to or waiver of the FSM Rules. However, the 

agreement of NZX is required for a waiver 

of a provision of the FSM Rules, and the 

agreement of NZX and the approval of the 

Financial Markets Authority is required for an 

amendment of a provision of the FSM Rules. 

Legal action by the Fund 

The Fonterra Farmer Custodian, as the holder 

of Shares, has rights against Fonterra under 

the FSM Rules, the Companies Act and the 

Constitution. Fonterra has agreed to fund the 

costs of action by the Manager of the Fund 

resulting from a breach by Fonterra or the 

Fonterra Farmer Custodian of its obligations 

under the Authorised Fund Contract, the 

Trust Deed or the Custody Trust Deed. In 

other circumstances, the Manager of the 

Fund may not have access to funding to bring 

legal action against Fonterra or any other 

person. That funding would need to be 

provided by other sources, such as by Unit 

Holders by way of deduction from distributions 

payable to Unit Holders, approved by an 

Extraordinary Resolution. 

Potential for payMENTS to Farmer 

Shareholders other than by way 

of milk price 

The structure of Trading Among Farmers 

includes provisions which govern the 

calculation of the Farmgate Milk Price. 

However, the structure contains no provision 

specifically preventing Fonterra from making 

other categories of payments to Farmer 

Shareholders, or the Fonterra Board from 

authorising such payments. Accordingly, it is 

possible that Fonterra could make payments, 

or provide other benefits, to Farmer 

Shareholders which do not form part of the 

Farmgate Milk Price. These could have the 

effect of reducing profits of Fonterra, and 

thus reducing dividends payable to holders of 

Shares, and the returns to the Fund. However, 

any decision by the Fonterra Board to approve 

any such payments would be subject to legal 

and regulatory constraints, including directors’ 

duties applicable under the Companies Act. 

Changes in taxATION 

Any change in taxation legislation could 

impact on Unit Holders’ returns. 

There is also a risk that returns for Unit 

Holders may be reduced if the Fund ceases 

to be a PIE. Although the Manager of the 

Fund has mechanisms available to manage 

compliance with the PIE eligibility 

requirements, there is a risk that the Fund 

could lose its PIE status if there is a breach of 

those requirements and the Manager of the 

Fund does not become aware of the breach 

in time to correct it. 

Potential changes in size 

of the Fund 

The Fund is exposed to the risk of changes in 

the numbers of Economic Rights which are 

from time to time held for the Fund. The 

number of Units on issue is also intended to 

be relatively small in proportion to the total 

Fonterra Shares on issue. 

Additional Units on issue could be caused by 

a variety of factors. For example, Economic 

Rights of Dry Shares can be sold by Farmer 

Shareholders to the Fund at any time. This 

could lead to an increase in the size of the 

Fund. However, following the launch of the 

Fund, the Fonterra Board will manage the size 

of the Fund within the parameters which are 

outlined in the Fund Size Risk Management 

Policy. In addition, the Constitution imposes 

an overall threshold on the aggregate number 

130

section | 7.0 

of Shares in which rights or interests may be 

held for or in relation to any Authorised Fund 

at 25% of the total number of Shares on issue 

(excluding Treasury Stock), but the Fonterra 

Board has resolved to reduce this to 20%. 

If there was a significant decrease in supply of 

milk to Fonterra (e.g. due to any combination 

of competition in New Zealand, changes in 

land use or adverse economic conditions), 

this could create a larger number of Dry 

Shares which could in turn be sold to the 

Fund. With the movement to a Share 

Standard based on a rolling average of three 

Seasons’ historical milk production to take 

effect from 1 June 2013, the proportion of Dry 

Shares is expected to increase to above the 

5% target level as using the rolling average 

will smooth the effect of seasonal 

fluctuations in total milk production, which 

correspondingly smoothes the number of 

Shares that a Farmer Shareholder is required 

to hold. 

These changes could affect the price of Units, 

as well as the size of the Fund. The resulting 

expansion in the size of the Fund could also 

affect Fonterra’s capital management 

strategy. It might result in Fonterra invoking 

its Fund Size Risk Management Policy. 

Growth in Share-backed production may 

cause Farmer Shareholders to purchase Units 

and exchange them for Shares. This could 

lead to a reduction in the size of the Fund and 

could affect the pricing and liquidity of Units 

and might also result in Fonterra invoking its 

Fund Size Risk Management Policy. 

Risks associated with 


The Offer relates to Units in the Fonterra 

Shareholders’ Fund and not to Shares in 

Fonterra. No offer is being made to 

subscribe for Shares in Fonterra. 

An investment in the Fund exposes investors 

to the risks facing Fonterra’s business, 

whether specific to Fonterra’s business 

activities or of a general nature. 

These risks might affect the future operating 

performance of Fonterra and thereby the 

value of an investment in the Fund. Some of 

these factors can be mitigated by appropriate 

commercial action, including use of 

appropriate safeguards and systems, but 

many are outside the control of Fonterra and 

cannot be mitigated. Investors should note 

that this section does not purport to list every 

risk that may affect Fonterra or the Fund, now 

or in the future. 

The following paragraphs summarise the key 

risks that Fonterra faces in its business, and 

how they may impact on the returns derived 

from holding a Unit. 

Each of the factors described below could 

have a potential effect on Fonterra’s brand or 

reputation, the supply of raw milk, its ability 

to produce or supply products, or otherwise 

adversely affect Fonterra’s earnings, 

financial performance or financial position. 

Financial risks 

Global dairy commodity prices 

Dairy commodity prices can be volatile, with 

substantial increases and decreases occurring 

over a relatively short period. A rapid rise in 

the prices of dairy commodities could reduce 

earnings, particularly if the increase reduces 

the margin which Fonterra makes on 

consumer branded and out-of-home 

foodservices products. 

The Farmgate Milk Price is calculated by 

assuming that all the New Zealand milk 

Fonterra collects is converted into whole 

milk powder, skim milk powder and their 

by-products (those products are known as 

the Reference Commodity Products). 

Fluctuations are commonly observed in the 

relative price of the Reference Commodity 

Products and other dairy nutrition products 

manufactured by Fonterra such as cheese 

and casein and their by-products. 

Fluctuations in the relative prices of 

Reference Commodity Products and other 

dairy nutrition products can therefore have a 

significant impact on Fonterra’s earnings. 

Further information about the effect of 

fluctuations in dairy commodity prices on 

certain assumptions relating to the FY2013 

Farmgate Milk Price and Fonterra’s EBIT is set 

out under the heading “Sensitivity analysis” in 

Section 4 – Fonterra Financial Information. 

Credit rating 

The obligations of Fonterra to Farmer 

Shareholders are Effectively Subordinated to 

all other indebtedness of Fonterra, including 

its obligations to pay all secured creditors, 

all creditors preferred by law and all 

unsubordinated unsecured creditors. This is 

an important component in Fonterra’s strong 

credit rating. The Effective Subordination of 

milk payments to farmers, including the 

factors underpinning it, is discussed under 

the heading “Credit rating and borrowings” in 

Section 4 – Fonterra Financial Information. 

There is a risk that the relative expansion of 

Fonterra’s sourcing of milk offshore may 

affect Fonterra’s credit rating. Payments due 

to farmers who supply the Fonterra Group in 

overseas jurisdictions are not subject to the 

same Effective Subordination as payments 

to Farmer Shareholders in New Zealand. 

This could lead to a potential downgrade in 

Fonterra’s current credit rating of A+ stable 

from Standard & Poor’s (Australia) Pty Limited 

and AA- stable from Fitch Australia Pty 

Limited. 1 A downgrade in Fonterra’s current 

credit ratings may result in increased interest 

costs payable by Fonterra or limit Fonterra’s 

ability to access international capital markets. 

Fonterra’s credit rating is subject to the 

judgement of the rating agencies, which 

could change at any time. 

Foreign exchange rates 

Fonterra is exposed to foreign exchange risk 

in the revenue it receives on sales of products 

overseas, its investment and returns in 

relation to its overseas business and foreign 

currency-denominated borrowings and other 

liabilities. Fonterra’s main foreign currency 

exposure is to the US$. Exchange rates can be 

volatile and fluctuations in exchange rates 

may have a direct impact on the Farmgate 

Milk Price and Fonterra’s earnings. 

Hedging contracts 

Through its borrowings, Fonterra is also 

exposed to fluctuations in interest rates. 

Fonterra hedges a portion of its foreign 

currency and interest rate risk through swaps 

and other derivatives. However, Fonterra still 

faces material exposure to significant 

movements in interest rates and foreign 

currency rates. 

In addition, as previously mentioned, Fonterra 

is exposed to movements in dairy commodity 

prices. Accordingly, Fonterra enters into 

hedging contracts under a Commodity Risk 

Management Policy in order to better 

manage this volatility. Nonetheless, 

movements in dairy commodity prices can 

affect realised hedging gains and losses on 

1 A credit rating is not a recommendation to invest in any securities issued by Fonterra or the Fund and may be subject to revision, suspension or withdrawal at any time. Further information 

about the credit ratings referred to in this Offer Document is available at www.standardandpoors.com and at www.fitchratings.com/creditdesk/public/ratings_definitions/index.cfm. Neither 

Standard & Poor’s (Australia) Pty Limited nor Fitch Australia Pty Limited has been involved in the preparation of this Offer Document. Neither Standard & Poor’s (Australia) Pty Limited nor Fitch 

Australia Pty Limited makes any representation or warranty, express or implied, as to, nor assumes any responsibility or liability for the authenticity, origin, validity, accuracy or completeness of, 

or any errors or omissions in, any information, statement, opinion or forecast contained in this Offer Document or any previous accompanying or subsequent material or presentation. 


SECTION 7 

INVESTMENT 


these contracts, thereby affecting 

Fonterra’s earnings. There is also a risk that 

counterparties to these contracts do not fulfil 

their contractual obligations resulting in 

losses being incurred by Fonterra. 

Farmgate Milk Price and its effect on 

dividends and returns 

As explained in Section 3 – Setting the 

Farmgate Milk Price for New Zealand Milk, the 

Fonterra Board sets the Farmgate Milk Price 

according to the Farmgate Milk Price Manual, 

as well as statutory and constitutional 

governance procedures. 

The way the Farmgate Milk Price and any 

Approved Adjustments (e.g. premiums paid 

for specialty milk such as organic milk) are 

set has the potential to directly affect the 

dividends paid by Fonterra and therefore the 

returns that will be earned by Unit Holders. 

The Fonterra Board has the ability to set the 

Farmgate Milk Price at a price higher than 

that determined in accordance with the 

Farmgate Milk Price Manual. In such 

circumstances, the Fonterra Board would 

need to make this fact publicly available and 

it would need to be approved by not less than 

75% of the Fonterra Board with such majority 

including at least a majority of the 

Independent Directors. 

There is no guarantee that any dividends 

or other distributions will be paid on Shares, 

and the level of dividend payments (and 

consequently distributions on Units) could 

fluctuate over time. 

It is possible that changes to the Farmgate 

Milk Price Manual (or changes to the 

Reference Commodity Products used to 

calculate this price) may have a short or 

longer-term impact on Fonterra’s earnings. 

The Farmgate Milk Price may need to 

change in order to respond to market 

conditions. Failure of the Farmgate Milk Price 

to appropriately reflect market conditions 

could result in the Farmgate Milk Price 

being perceived as uncompetitive by Farmer 

Shareholders. This may influence Farmer 

Shareholders as to whether they choose to 

produce milk or supply it to Fonterra or 

other processors and lead to a consequential 

loss of milk supply potentially impacting 

Fonterra’s earnings. 

A minor risk-sharing element of the 

remuneration of Fonterra senior management 

relates to the Farmgate Milk Price. This could 

result in the incentives for senior management 

not fully aligning with those of Unit Holders. 

Asset utilisation in New Zealand 

Fonterra has a substantial investment in plant 

and other manufacturing assets in New 

Zealand that have few alternative uses other 

than to process milk. A significant proportion 

of Fonterra’s earnings are derived from milk 

processing through these plants. Fonterra’s 

earnings would be vulnerable to a significant 

long-term loss of milk collections due to 

factors such as competition for milk in New 

Zealand or changes in land use. This would 

lead to excess capacity and Fonterra being 

left with stranded assets, with a consequent 

adverse impact on earnings, as well as any 

earnings and balance sheet impact of measures 

Fonterra may need to take in compliance 

with the Fund Size Risk Management Policy. 

Operational risks 

Biosecurity 

The supply of dairy products is principally an 

agricultural activity, which exposes Fonterra 

to biosecurity risks, including the risk of 

animal disease outbreak (e.g. foot and mouth 

disease among cows). This may occur in New 

Zealand or any of the offshore markets in 

which Fonterra sources milk, either directly or 

through its joint ventures. 

Biosecurity risks may arise from inadvertent 

actions, such as the use of contaminated 

stock feed, or from deliberate acts such as 

bioterrorism. 

A biosecurity event could significantly disrupt 

the supply of raw milk to Fonterra and 

Fonterra’s output of manufactured products. 

Fonterra could also be indirectly affected if 

the biosecurity event relates to a country or 

region where Fonterra has significant 

operations even though the event is not 

directly related to Fonterra’s products. For 

example, biosecurity events occurring in New 

Zealand could affect its “clean and green” 

image. Adverse perceptions resulting from a 

biosecurity event could affect the reputation 

of products supplied by Fonterra or curtail 

demand for Fonterra’s products. 

Food safety 

As with any food business, there are risks 

relating to the safety of Fonterra’s products. 

There is a risk that Fonterra’s products might 

be contaminated, tampered with or 

adulterated in the supply or production 

process or otherwise become unfit for sale or 

consumption. This could also occur where 

affected products are procured by Fonterra 

or its joint venture operations or if product 

becomes affected when mixed with products 

supplied by a third party. These risks apply in 

New Zealand but are more pronounced 

outside of New Zealand (particularly in 

emerging markets) and in joint venture 

arrangements where Fonterra may not 

necessarily have full control over the milk 

supply chain. 

Food safety issues can result in the dumping 

of product, claims by customers and 

significant product recall costs being incurred. 

Any related adverse publicity (even if from 

false or malicious or unfounded allegations) 

may potentially result in Fonterra incurring 

significant costs and experiencing 

reputational harm. 

Anything adversely impacting the reputation 

of Fonterra or its brands (including the 

perception of the quality of New Zealand 

dairy products) could affect Fonterra’s ability 

to make future sales of products or the price 

at which products can be sold. 

Milk supply 

Fonterra is reliant on milk supply in the 

production of its dairy products and collects 

and processes milk in a number of countries. 

Fonterra collects approximately 89% of New 

Zealand’s total milk supply. 

The volume and pattern of milk supply may 

change over time due to the influence of 

long-term economic trends. Changes in the 

economy that have implications for the input 

costs and relative returns for dairy farming 

may affect farmers’ decisions to produce and 

supply raw milk. More generally, these may 

affect the competitiveness of milk production 

in New Zealand or other countries where 

Fonterra collects milk. Competition for raw 

milk in countries where Fonterra collects 

milk, particularly Australia and South America, 

can lead to an increase in the price paid to 

suppliers of milk in such countries and, as a 

result, may impact on Fonterra’s earnings. 

Under DIRA, Fonterra is required to allow its 

Farmer Shareholders to supply up to 20% of 

their weekly milk production throughout a 

Season to Fonterra’s competitors if the 

Farmer Shareholders meet certain conditions. 

Accordingly, other processors can gain access 

to milk supply as they will be able to take milk 

from Fonterra suppliers without having to ask 

those suppliers to cease supplying Fonterra 

entirely. This could result in Farmer Shareholders 

choosing to supply milk to other processors. 

At present, the amount of milk supplied to 

other processors by Farmer Shareholders is 

132

section | 7.0 

not material. Fonterra is also required by 

DIRA to supply milk to its competitors (up to 

certain maximum volumes). These factors can 

reduce the amount of milk supply available to 

Fonterra in New Zealand. 

Fonterra is required to collect up to 100% of 

the milk produced by Farmer Shareholders. 

This means that Fonterra is required to 

process or dispose of milk collected even 

when market demand is low and / or prices 

are unfavourable. This could also constrain 

Fonterra’s ability to trade at the level forecast 

and its ability to optimise production 

(particularly when milk supply is high). 

Fonterra is also required to collect additional 

milk from outlying areas where there is 

existing supply. It may incur relatively high 

collection costs in doing so with these costs 

increasing if milk production in these areas 

significantly grows. 

Due to the seasonality of milk supply in New 

Zealand, Fonterra is reliant on its forecasts of 

market demand and product mix requirements 

in relation to manufacture of products over 

the peak Season for subsequent sale during 

the periods in the Season when milk supply 

volumes are low. Differences between actual 

market demand and product mix 

requirements from those forecast by Fonterra 

can affect Fonterra’s earnings. 

Milk supply to Fonterra in New Zealand and 

overseas can also be adversely affected by 

changes in climate or weather-related events. 

Prevailing weather and climate conditions 

affect pasture growth, thereby affecting 

Fonterra’s milk collection volumes. Weather 

and climatic events such as droughts or other 

unforeseen weather patterns that impact 

supply could cause significant fluctuations in 

the amount of product that Fonterra 

produces. Such events would adversely 

impact on Fonterra’s reputation in relation to 

the reliability of the supply of its products. 

As noted above, most of the factors that can 

influence milk supply may affect production 

in overseas countries, as well as New Zealand. 

Fonterra has significant investments in milk 

processing assets in Australia and Chile in 

particular, as well as through its Dairy 

Partners Americas joint venture with Nestlé 

in South America. Factors that adversely 

affect milk supply in these regions could 

affect earnings from these investments. 

Management of contractual and 

joint venture relationships 

Fonterra conducts a significant portion of its 

business through joint venture arrangements. 

Any joint venture arrangement involves risks 

that differing commercial interests or a 

dispute between the parties to the joint 

venture, or the level of financial or 

commercial support they provide, could 

affect the business, staff, operations or 

financial stability of the joint venture. 

Water access for Farmer Shareholders 

constraining supply 

The National Policy Statement for Freshwater 

Management which came into effect in July 

2011 established the framework for a regulatory 

regime for the management of freshwater in 

New Zealand. Under the regime, local 

authorities will be able to establish water 

quality limits for waterways in New Zealand. 

Once set, farms will need to be managed 

within those particular limits. This could 

materially limit growth in the volume of milk 

Fonterra collects from Farmer Shareholders. 

Procurement 

Fonterra relies on certain key suppliers of 

products and services used in the manufacture 

and supply of dairy products (e.g. suppliers 

of lactose, third party manufacturers and 

outsourced service providers). Increases in 

the costs of inputs or a failure of one or more 

of those key suppliers to provide those 

products or services to Fonterra could 

constrain or disrupt supply or give rise to a 

risk of Fonterra’s products being defective. 

This may have adverse effects on Fonterra’s 

reputation in relation to the quality of its 

products and the reliability of its supply. 

Catastrophe 

A major catastrophe, violent act or local 

disaster of significant magnitude (e.g. an 

earthquake, fire, terrorism, war, storm, flood, 

sabotage or volcanic eruption) could damage 

or destroy manufacturing facilities or general 

business infrastructure, which could constrain 

or disrupt Fonterra’s ability to supply products. 

Building Code requirements in New Zealand 

Councils have a statutory power to require 

building owners to undertake remedial work 

to buildings to ensure that such buildings 

meet at least 34% of the current earthquake 

standard set out in the Building Code. 

Following the Christchurch earthquakes of 

2010 and 2011, there has been a renewed 

focus from Councils on the earthquake 

compliance of buildings and owners may be 

required to demolish buildings or to 

undertake remedial work in order to ensure 

compliance with the required standards. 

Fonterra is in the process of reviewing its 

entire property portfolio. To the extent that 

Fonterra has any buildings which do not meet 

at least 34% of the current Building Code, it 

will have to incur capital expenditure to 

demolish (and if relevant replace) or upgrade 

the buildings to ensure that the buildings 

comply with the Building Code. 

Environmental concerns 

There are risks for Fonterra associated with 

environmental concerns including water 

access and usage, agricultural emissions, 

discharges to land and water, genetic 

modification, animal welfare and the 

potential environmental impacts of the 

use of certain feed supplements and of 

transporting products over long distances, 

linked with the global supply of dairy 

products. These may impact on the supply 

of raw milk, manufacture, marketing of, and 

returns for, dairy products in New Zealand 

or internationally. These environmental 

concerns could also affect Fonterra’s 

reputation, result in greater regulation, 

consent and licensing requirements or 

restrictions on Fonterra’s or its 

suppliers’ operations. 

Environmental violations or incidents 

Fonterra’s operations are subject to 

environmental consents and regulation. In 

the event of discharges into the environment 

or other events of non-compliance, Fonterra 

or its Farmer Shareholders may be subject to 

clean-up costs and / or financial penalties. 

Production may also be disrupted in the 

event of material non-compliance with 

environmental or other approvals authorising 

production and associated processes, or from 

those approvals not being renewed (or being 

renewed on more onerous terms). 

The storage, use, production and transport of 

Fonterra’s products or products used in the 

production process (including hazardous 

substances) also involves the risk of accidents, 

spills or contamination. Each of these 

occurrences could result in harm to the 

environment. These may lead to disruption in 

operations, and / or regulatory sanctions and 

involve significant cost to remedy. A material 

environmental violation or other incident could 

harm the reputation of Fonterra and its brands. 


SECTION 7 

INVESTMENT 


Reliance on utilities, infrastructure and logistics 

The process of converting liquid milk into milk 

powder is energy intensive and also requires 

a large available water supply. Fonterra’s 

operations may be adversely affected by 

increases in the price of electricity, gas and 

water or the reduction or loss of those 

utilities. In New Zealand, electricity is 

predominantly generated by hydro-electric 

dams. Electricity price increases or shortages 

may occur in years when water levels for 

hydro-electric dams are low. 

Fonterra depends on infrastructure and third 

party logistics suppliers (such as rail, roading, 

warehousing and shipping) to process and 

transport its products to the market. Material 

failures to Fonterra’s processing facilities or 

supply chain difficulties (including industrial 

or other action affecting rail, roading, 

warehousing or shipping) could lead to delays 

in production or supply or the loss of product. 

Health and safety 

Fonterra must comply with various health 

and safety laws and regulations in various 

jurisdictions. Penalties and other liabilities 

for the violation of such standards could 

be imposed on Fonterra following actual 

or potential harm to individuals or for 

non-compliance with the applicable 

laws and regulations. A major health and 

safety incident involving serious injury or 

death could also impact on Fonterra’s 

reputation as an employer, its compliance 

costs, staff morale and productivity, and 

may attract media exposure and additional 

regulatory scrutiny. 

Industrial action 

There is a risk of industrial action arising from 

claims for higher wages and / or better 

conditions in the industries in which Fonterra 

and its joint ventures operate (such as 

operators of ports and transport logistics), 

which could disrupt the production or supply 

of products by Fonterra. This risk exists in 

New Zealand and in other countries where 

Fonterra and its joint ventures operate. 

Information technology 

Fonterra manages its global supply chain 

through its information technology system. 

The failure of information technology 

systems, business continuity plans and 

data protection systems, could result in 

information loss and lead to production 

delays and other supply chain difficulties. 

The infiltration of information technology 

systems could lead to a failure of systems 

or loss of confidential sensitive commercial 

information. Fonterra from time to time 

undertakes projects relating to the upgrade 

and / or replacement of its information 

technology systems. Any delays to, or failure 

in, the implementation of such projects could 

have an adverse impact on Fonterra’s 

financial performance. 

Departure of key personnel 

There is the possibility of key personnel 

(including the senior management team) 

leaving Fonterra and the potential for 

short-term disruption caused by seeking 

appropriate replacements. 

Disruptive or emerging technology 

Future changes in the methods and 

technology used for the collection, 

manufacture and transport of milk and other 

dairy products cannot be predicted. Advances 

may result in Fonterra’s existing production 

facilities becoming obsolete or placing 

competitors at an advantage and could 

ultimately affect Fonterra’s sale of product 

into the globally-traded dairy market. 

Availability of licences and approvals 

There is a risk that licences, approvals or 

consents that are material to Fonterra in 

operating its business will not be renewed or 

will be renewed on more restrictive or onerous 

terms, or in certain circumstances, revoked. 

Litigation and disputes 

In the ordinary course of its business, 

Fonterra has had, and may have, disputes 

with third parties, including disputes resulting 

in litigation or threatened litigation. A dispute 

(whether or not it results in litigation) could 

have material adverse impacts on Fonterra’s 

financial position. 

Market risks 

General economic and market conditions 

The international market for dairy products is 

affected by general economic conditions and 

other significant events. Changes in general 

macroeconomic factors in major world 

economies could significantly affect world 

commodity prices, the purchasing patterns of 

some of Fonterra’s customers and the general 

level of consumption of dairy products, 

having an adverse effect on Fonterra. 

Outbreaks of pandemic disease and other 

disruptive events could affect demand for 

Fonterra’s products or its ability to deliver 

products into affected countries, or lead to 

temporary closure of facilities for Fonterra 

and / or its customers. 

Changes in general economic and market 

conditions could also affect Fonterra’s ability 

to access the capital markets as a source 

of funding. 

The scope and extent of these factors and 

events cannot be predicted and, as a result, 

it is not possible to assess with any certainty 

any additional impact that they may have on 

the funding, operations and activities of Fonterra. 

Political risk in offshore markets 

A significant amount of Fonterra’s revenue 

is earned from sales to non-OECD and 

developing markets that are economically 

and politically less stable than developed 

economies. A foreign country may become 

politically unstable resulting in the loss of 

an investment, or default in payment by a 

significant debtor. Sales of dairy products 

and earnings may also be affected by war, 

nationalisation of assets, economic instability 

or downturn, deflation or inflation / 

hyperinflation, currency volatility, price 

control, or political interference or 

uncertainty. Certain political, commercial or 

economic events in one country may also 

disrupt delivery of Fonterra’s products into 

other intended markets. 

Customer and geographic concentration / 

bargaining power 

Fonterra sells a significant percentage of its 

dairy ingredients products to a number of 

key customers. A large proportion of dairy 

ingredients sales are also concentrated in 

China. This exposes Fonterra to the credit 

risk and demand requirements of those key 

customers and market dynamics in China. 

There is also a growing global concentration 

and sophistication of retail customers in the 

supermarket sector including in Australia and 

New Zealand. There is an increased drive by 

these customers to grow their “private label” 

product offerings. These factors, together 

with increased levels of branded competition, 

could further reduce Fonterra’s margins and 

restrict its access to retail channels. 

134

section | 7.0 

Consumer preferences and product substitution 

Throughout international markets, there are 

continual changes in consumer preferences 

and trends, including as a result of emerging 

health trends and scientific studies. This may 

result in Fonterra’s customers substituting 

the products they purchase with non-dairy 

products or dairy products produced by 

competitors. 

Regulatory risks 

Dairy regulation in New Zealand 

The dairy industry and Fonterra are subject 

to a number of laws and regulations in New 

Zealand. A change in or the introduction of 

new policies, legislation or regulation or the 

way in which existing policies, legislation or 

regulation is enforced could adversely 

affect Fonterra. 

DIRA established the regulatory framework 

for the New Zealand dairy industry. Like any 

legislation, disputes may arise in relation to 

the proper interpretation of the regulatory 

framework. There is also a risk that the 

regulatory framework may be amended from 

time to time, including in a way that could 

adversely affect Fonterra. For example, 

possible changes to the applicable regulations 

are summarised in Section 6 – DIRA 

Regulatory Environment. However, the 

ultimate nature of any such changes and their 

impact on Fonterra is still to be determined. 

The regulatory framework is discussed in 

more detail in Section 3 – Setting the 

Farmgate Milk Price for New Zealand Milk and 

Section 6 – DIRA Regulatory Environment. 

Other regulation in New Zealand 

Fonterra’s operations are also subject to 

numerous other New Zealand laws and 

regulations which impact on most aspects 

of Fonterra’s operations in New Zealand. 

A change to existing district, regional or 

national environmental standards or planning 

policies or the imposition of new 

requirements or standards (e.g. restrictions on 

the use of water or other natural resources) 

may have implications for the supply of raw 

milk or otherwise have a material adverse 

effect on Fonterra. Failure to comply with 

resource consent conditions (for example) 

could result in restrictions being imposed on 

Fonterra’s operations. 

Greenhouse gas emissions 

Agricultural activity produces significant 

greenhouse gas emissions. Internationally 

(under the Kyoto Protocol) and domestically 

(under the Climate Change Response Act 

2002 (New Zealand)) charges, taxes or other 

imposts are being introduced in relation to 

greenhouse gas emissions. 

Fonterra is a participant under the New 

Zealand Emissions Trading Scheme (NZETS) 

and is required to monitor and report on all 

emissions annually. It is expected that the 

agriculture sector will enter fully into the 

NZETS framework by 2015 (however, the New 

Zealand Government has recently introduced 

a Bill which would delay entry into the NZETS 

framework indefinitely). Other political 

parties have signalled their intention to bring 

the agriculture sector fully into the NZETS 

framework as soon as possible. The New 

Zealand Government has also signalled that 

it intends to move the responsibility for 

emissions to the farm level as soon as 

practicable. Accordingly, the likely impact on 

Fonterra from the regulation of greenhouse 

gas emissions is uncertain over the next 

few years. 

Australia introduced its Carbon Pricing 

Mechanism on 1 July 2012, and this is set to 

move to a flexible trading system in July 2015, 

at which time it is likely to merge with the 

NZETS. 

Internationally, a number of emissions trading 

schemes are planned or have been 

implemented in various countries in response 

to obligations under the Kyoto Protocol and 

may increasingly be extended to apply to the 

agriculture sector. Due to Fonterra’s 

international business operations, it is 

possible that Fonterra will face increased 

costs as a result of these developments. 

Trade and market access 

Fonterra predominantly derives its revenue 

from the sale of products in markets outside 

New Zealand. In addition to the risks 

associated with commodity prices described 

under the heading “Financial risks” in this 

section, the actions of foreign governments 

may also affect Fonterra. 

Foreign governments can take actions which 

influence or restrict the international trade in 

dairy products, including through tariffs, 

quotas, price controls, other non-tariff 

barriers (such as technical or sanitary 

requirements), the imposition of antidumping 

measures, subsidies and foodrelated 

regulation. A breach of these may 

potentially result in extended legal action, 

financial penalties, prosecution, temporary 

trade embargoes and even permanent loss of 

market access. 

Fonterra operates in certain jurisdictions that 

have capital controls in place, such as 

taxation on the repatriation of funds earned 

in that jurisdiction. This affects Fonterra’s 

ability to remit funds from those jurisdictions. 

The extent of these regulations, subsidies and 

controls may also be influenced by lobbying 

activities of non-governmental organisations 

or other commercial or customer groups. 

The interaction of these factors is complex 

and can result in substantial shifts in 

Fonterra’s competitiveness and the levels 

of returns from overseas markets. 

Regulation in offshore markets 

Fonterra’s operations in overseas jurisdictions 

are also exposed to the risk of regulatory 

changes in those jurisdictions. Changes in 

laws or regulations in overseas jurisdictions 

could expose Fonterra to increased 

compliance costs and / or require Fonterra 

to dramatically change the structure of its 

operations in that jurisdiction. Any failure 

to comply with the applicable laws and 

regulations could also result in fines, 

injunctions, suspensions, penalties or 

other sanctions being imposed. 

Changing food regulations 

In relation to regulation of the sale of 

products, there is a risk that laws or 

regulations will be introduced in offshore 

markets and in New Zealand that seek to 

reduce the advertising and consumption of 

certain food categories, require mandatory 

dietary content disclosure or impose taxation 

measures that reference food content. There 

is also increasing regulatory and industry 

scrutiny of product label health claims which 

could result in further restrictions on the 

making of these health claims in the future. 

Such measures could have a material adverse 

effect on Fonterra’s ability to market products 

and on its costs and / or earnings. 


SECTION 8 

detaILS OF 

THE OFFER 

The Offer 

No offer is being made to 

subscribe for Shares in Fonterra 

in this Offer Document. The 

Units being offered in this Offer 

Document will be issued by the 

Manager of the Fund, not by 

Fonterra, and do not confer any 

direct interest in Fonterra. 

The Offer comprises the offer of $500 

million of Units (with the ability to accept 

oversubscriptions of up to a further 

$25 million), which will represent 100% of 

the Units on issue immediately following 

the listing of the Fund. The Final Price will be 

set on or about 27 November 2012 following 

completion of the bookbuild, in which 

Institutional Investors and NZX Firms will 

be invited to participate. The Indicative Price 

Range is $4.60 to $5.50 per Unit. However, 

Fonterra reserves the right to set the Final 

Price within or higher than the Indicative 

Price Range. All Units issued under the Offer 

will be issued at the Final Price. 

The Offer is made on the terms, and is 

subject to the conditions, set out in this 


Structure of the Offer 

The Offer comprises: 

• the Broker Firm Offer, which is available 

only to New Zealand resident clients of 

NZX Firms who have received an allocation 

from that NZX Firm; 

• the Stakeholder Offer comprising: 

–– 

the Friends of Fonterra Offer; and 

–– 

the Australian Supplier Offer; and 

• the Institutional Offer, which consists 

of an invitation to bid for Units made to 

Institutional Investors in New Zealand, 

Australia and certain other overseas 

jurisdictions. 

No general public offer will be made, 

however, investors are encouraged to contact 

a NZX Firm to determine whether they may 

be offered Units under the Broker Firm Offer. 

The allocation of Units between the Broker 

Firm Offer, the Friends of Fonterra Offer, the 

Australian Supplier Offer and the Institutional 

Offer will be determined by Fonterra in 

consultation with the Joint Lead Managers, 

having regard to the allocation policy 

outlined under the heading “Allocation policy 

under the bookbuild” in this section. 

On 26 to 27 November 2012, the Joint Lead 

Managers will undertake a bookbuild by 

inviting selected Institutional Investors in 

New Zealand, Australia and certain other 

jurisdictions, and NZX Firms to indicate the 

number of Units they wish to apply for at a 

range of prices. This bookbuild process will 

be used to determine the Final Price. Following 

completion of the bookbuild, allocations of 

Units will be finalised. 

Purpose of the Offer 

and use of proceeds 

As described in the section entitled Overview 

of Trading Among Farmers, Fonterra is 

currently implementing Trading Among 

Farmers under which its Farmer Shareholders 

will trade Shares among themselves on the 

Fonterra Shareholders’ Market, with liquidity 

being supported by Units in the Fonterra 

Shareholders’ Fund. The funds raised by the 

issue of new Units under the Offer will be 

used to acquire Economic Rights of Shares. 

All of the costs of the Offer will be borne 

by Fonterra. 

Formation of the Fund 

The Fund is a unit trust established under the 

Unit Trusts Act. It has not yet issued any 

Units. The Fund is to issue one Unit in respect 

of the Economic Rights of each Share held for 

the benefit of the Fund by the Fonterra 

Farmer Custodian. This is achieved as follows: 

(a) Fonterra, on behalf of the Fund will, 

during the period of the Offer, make an 

offer to Farmer Shareholders for those 

Farmer Shareholders to sell Economic 

Rights of Shares. This is called the Supply 

Offer. Those Farmer Shareholders who 

accept the Supply Offer will be agreeing 

to transfer Shares to the Fonterra Farmer 

Custodian, who would hold the Economic 

Rights of those Shares in trust for the 

Fund. As consideration, the Fund agrees 

to pay to that Farmer Shareholder the 

Final Price for each Share transferred to 

the Fonterra Farmer Custodian; and 

(b) Fonterra has agreed that to the extent 

that the number of Shares which Farmer 

Shareholders agree to transfer to the 

Fonterra Farmer Custodian (for the 

Fonterra Farmer Custodian to hold the 

Economic Rights for the Fund), when 

multiplied by the Final Price (the Farmer 

Sum), is less than the total proceeds from 

the Offer, it will issue the shortfall to the 

Fund. This shortfall will be the number of 

Shares, which when multiplied by the 

Final Price, is equal to the difference 

between the total proceeds from the 

Offer and the Farmer Sum. 

Pursuant to this Offer Document, the Fund is 

issuing one Unit for each Share either sold to 

the Fonterra Farmer Custodian by Farmer 

Shareholders (as referred to in paragraph (a) 

above), or issued to the Fonterra Farmer 

Custodian by Fonterra (as referred to in 

paragraph (b) above). 

136

section | 8.0 

Process for launch of the fund 

Public 

Issue 

Units 

Pay Final Price 

for each Unit 

Pay Final Price for each 

Share transferred 


Pay Final Price for each 

Share issued 

Farmers 

Transfer 

Shares 


Farmer 

Custodian 

Hold Economic 

Rights for 


Issue Shares 

(if needed) 



Units will only be allotted if there is sufficient 

demand from prospective investors under the 

Offer such that the number of Units issued at 

the Launch Date, multiplied by the Final Price, 

equals or exceeds $500 million. If this minimum 

threshold is not reached, Application Monies 

will be refunded in full, without interest. 

If the Offer is successful, upon the issue of 

Units pursuant to the Offer, the Final Price 

will be paid to the Farmer Shareholders 

by the Fund for each Share transferred to 

the Fonterra Farmer Custodian and to 

Fonterra for each Share issued to the 

Fonterra Farmer Custodian. 

Fonterra’s intention is that the amount it 

receives as a result of the issue of Shares in 

order to meet any shortfall under the Supply 

Offer will not be retained on a permanent 

basis by Fonterra. In this situation, Fonterra’s 

intention is to provide one or more 

opportunities for Farmer Shareholders to sell 

Economic Rights of Shares to the Fund, and 

for Fonterra to acquire on-market the number 

of Units issued as a result of any such sales 

(in a manner which does not disturb general 

trading in Units). The Units acquired may be 

redeemed by Fonterra, with the Shares then 

held as Treasury Stock or cancelled. The Units 

may also be held as if they were Treasury 

Stock and therefore not taken into consideration 

when determining the size of the Fund for the 

purposes of the Fund Size Risk Management 

Policy, which is discussed in Section 5 – 


Further details relating to the formation of 

the Fund and details of the Fund structure are 

set out in Section 5 – Trading Among Farmers 

in Detail. 

Broker Firm Offer 

Who may apply 

The Broker Firm Offer is open to persons with 

a registered address in New Zealand who 

have received an allocation from a NZX Firm. 

An Applicant, who has been offered an 

allocation by a NZX Firm, will be treated as 

applying under the Broker Firm Offer in 

respect of their Application. The Broker Firm 

Offer is not open to investors that are in the 

United States or that are US Persons or acting 

for the account or benefit of US Persons. 

Investors should contact their NZX Firm to 

determine whether they may be offered Units 

under the Broker Firm Offer. 

How to apply 

Complete the blue Broker Firm Offer 

Application Form accompanying this Offer 

Document. In making an Application, 

investors must declare that they were given a 

copy of this Offer Document, together with 

an Application Form. Investors wishing to 

apply under the Broker Firm Offer should 

contact their NZX Firm if they require further 

instructions. 

Any Broker Firm Application Form must be 

stamped by the relevant NZX Firm so that the 

correct allocation of Units is received. 

Application amounts 

Application amounts will be determined by the 

Applicant’s NZX Firm. Note that Applicants 

are asked to apply for a dollar amount of 

Units rather than a number of Units. 

Payment methods 

Applications must be accompanied by 

payment in accordance with the directions 

of the NZX Firm from whom an allocation 

is received. 

Cheques should be crossed “Non 

Transferable” and made out to “Fonterra 

Shareholders’ Fund Offer”. 

Broker Firm Offer Closing DATE 

and delivery 

Applicants under the Broker Firm Offer must 

send the completed blue Broker Firm Offer 

Application Form and Application Monies to 

the NZX Firm who provided the allocation so 

as to be received in time to enable them to be 

forwarded to and received by the Unit Registrar 

by 5.00pm on 21 November 2012 (being the 

Broker Firm Offer Closing Date). Applications 

and payment must be in accordance with the 

directions of the NZX Firm. 


SECTION 8 

detaILS OF 

THE OFFER continued 

Investors applying for Units under the Broker 

Firm Offer are encouraged to submit their 

Broker Firm Application Form and Application 

Monies as early as possible in advance of the 

Broker Firm Offer Closing Date and to allow a 

sufficient period for mail processing time. 

Subject to the NZSX Listing Rules and the 

ASX Listing Rules, Fonterra and the Joint Lead 

Managers reserve the right to extend the 

Broker Firm Offer Closing Date, in which case 

the dates referred to may change accordingly. 

Allocation under the Broker Firm 

Offer 

Units which have been allocated to NZX Firms 

for allocation to their New Zealand resident 

retail clients under the Broker Firm Offer will 

be issued to the Applicants nominated by 

those NZX Firms. It will be a matter for the 

NZX Firms how they make allocations among 

their retail clients, and they (and not the 

Manager, Fonterra or the Joint Lead Managers) 

will be responsible for ensuring that retail 

clients who have received an allocation from 

them receive the relevant Units. 


Further details of each category of the 

Friends of Fonterra Offer and the Australian 

Supplier Offer are set out below. Details on 

how to apply can be found in the sections 

entitled Application Forms. The Stakeholder 

Offer is not open to investors that are in the 

United States or that are US Persons or acting 

for the account or benefit of US Persons. 

Friends of Fonterra Offer 

The Friends of Fonterra Offer is an offer to 

eligible “friends of Fonterra”, who are: 

• Farmer Shareholders with a valid “Farm / 

Party number” as at 26 October 2012; 

• Fonterra-supplying sharemilkers with a 

valid “Farm / Party number” as at 

26 October 2012; 

• Fonterra New Zealand and Australian 

permanent employees; and 

• Ex-Farmer Shareholders (as defined in 

Section 12 – Glossary). 

Applications for the Friends of Fonterra Offer 

may be subject to scaling at the absolute 

discretion of Fonterra in consultation with 



To apply under the Friends of Fonterra Offer, 

eligible investors should complete the green 

Friends of Fonterra Offer Application Form 

accompanying this Offer Document. 

On the Friends of Fonterra Offer Application 

Form, Applicants must tick the appropriate 

box to indicate which group the Application 

relates to, and include their unique identifier 

as set out below: 

• Farmer Shareholders with a valid “Farm / 

Party number” as at 26 October 2012: their 

“Farm / Party number”; 

• Fonterra-supplying sharemilkers with a 

valid “Farm / Party number” as at 26 October 

2012: their “Farm / Party number”; 

• Fonterra New Zealand and Australian 

permanent employees: their “Fonterra 

Employee Number”; and 

• Ex-Farmer Shareholders: their “Old Farm 

number” and a description of their 

relationship with Fonterra. 

In making an Application, investors must 

declare that they were given a copy of this 

Offer Document, together with the 

Application Form. 

To complete the Application Form, follow 

the detailed instructions on the “Application 

Instructions” provided with that Application 

Form. 

To request another Application Form, call the 

Offer Information Line on 0800 888 709 (in 

New Zealand) or 1800 093 495 (in Australia) 

or +64 9 488 8709 (outside New Zealand or 

Australia) from 9.00am until 7.00pm (NZDT) 

Monday to Friday. 

Minimum Application size 

The minimum application amount under the 

Friends of Fonterra Offer will be $2,000 and 

in whole multiples of $100 thereafter, up to a 

maximum amount of $50,000 (except in 

respect of Fonterra New Zealand and 

Australian employees, whose maximum 

application amount is $25,000). Note that 

Applicants are asked to apply for a dollar 

amount of Units rather than a number of Units. 


Payment under the Friends of Fonterra 

Offer may be made via cheque, bank draft 

or direct debit (New Zealand only). Fonterra 

employees in Australia (and all other 

Applicants under the Friends of Fonterra 

Offer) will need to make arrangements to 

make payment of their Application Monies 

in New Zealand dollars. 

Direct debit (New Zealand residents with a 

New Zealand bank account only) 

To make payment via direct debit, tick the box 

on the Friends of Fonterra Offer Application 

Form authorising the Unit Registrar to direct 

debit your nominated bank account for the 

amount applied for on that Application Form. 

The bank account must be with a registered 

New Zealand bank. You cannot specify a 

direct debit date and you must ensure that: 

• the bank account details supplied are 

correct; 

• the Application Monies in the bank account 

for direct debit are available from the day 

the Unit Registrar receives the Friends of 

Fonterra Offer Application Form; 

• the person(s) giving the direct debit 

instruction has / have the authority to 

operate the account solely / jointly; and 

• the nominated bank account is a 

transactional account eligible for direct 

debit transactions. If you are uncertain, you 

should contact your bank. 

Should your direct debit fail, your Application 

may be rejected. If requested, a direct debit 

authority form may be provided to you by the 

Unit Registrar. 

Bank draft or cheque 

Payment by cheque or bank draft must be in 

New Zealand dollars. All cheques or bank 

drafts must be made out to “Fonterra 

Shareholders’ Fund Offer” and crossed “Non 

Transferable”. Cheques must be drawn on a 

registered New Zealand bank and must not 

be post-dated. Cheques will be banked upon 

receipt for immediate value. 

Friends of Fonterra Offer closing date 

and delivery 

Applicants under the Friends of Fonterra 

Offer should send their completed Application 

Form and Application Monies to the Unit 

Registrar in order to be received by 5.00pm 







Alternatively, Applications made in New 

Zealand can be lodged with any NZX Firm, 

the Joint Lead Managers, or any other channel 

approved by NZX so as to be received in time 

to enable them to be forwarded to and 

received by the Unit Registrar by 5.00pm on 

the Stakeholder Offer Closing Date. 

Fonterra and the Joint Lead Managers reserve 

the right to extend the Stakeholder Offer 

Closing Date. 

138

section | 8.0 

Scaling 


received under the Friends of Fonterra Offer 

is greater than the value of Units allocated 

to that offer (as determined by Fonterra), 

Applications will be scaled in such manner as 

determined by Fonterra in consultation with 


AUSTRALIAN Supplier Offer 

The Australian Supplier Offer is an offer 

of up to $25 million of Units to supplier 


Limited (BonIac) and to suppliers of milk to 

Fonterra Milk Australia Pty Ltd (Fonterra Milk 

Australia). Supplier shareholders in Bonlac 

currently hold approximately A$35.8 million 

of Supplier Shares in BonIac. Bonlac also 

holds unsecured capital notes in Fonterra 

Australia Pty Ltd with a corresponding value. 

BonIac intends to invite its supplier 

shareholders to apply to have their 

Supplier Shares bought back at a price of 

A$1.00 per share, up to the value of the 

Applicant’s holding less one share, on the 

condition that the proceeds must be applied 

to subscribe for Units at the Final Price. 

The buyback of those shares will trigger the 

redemption of a corresponding number of 

the unsecured capital notes that Bonlac holds 

in Fonterra Australia Pty Ltd. Bonlac intends 

to direct Fonterra Australia Pty Ltd to pay the 

proceeds of redemption of those unsecured 

capital notes in satisfaction of the Bonlac 

supplier shareholder Applicants’ subscription 

for Units under the Australian Supplier Offer. 

The shareholders of Bonlac must approve the 

buyback of Supplier Shares occurring in 

connection with the Australian Supplier Offer 

in accordance with the Corporations Act. 

Assuming that the necessary amendments to 

Bonlac’s constitution to be considered at a 

general meeting of Bonlac on 31 October 2012 

are approved, it is intended that the ‘Z’ class 

shareholder pass a resolution approving the 

buyback. If the buyback is not approved, the 

buyback of the Supplier Shares will not 

proceed and Applications under the Australian 

Supplier Offer will only be able to be made 

by way of payment of Application Monies. 

Bonlac supplier shareholders’ entitlement to 

participate in the Australian Supplier Offer 

through the buy back of their Supplier Shares 

will be notified to Bonlac supplier shareholders 

when they are sent their personalised 

Australian Supplier Offer Application Forms. 

Bonlac supplier shareholders and suppliers 

to Fonterra Milk Australia may also opt to 

subscribe for Units at the Final Price by 

submitting Application Monies in addition to 

any buy back proceeds applied by Bonlac and 

Fonterra Australia Pty Ltd in the manner 

described above. 

Minimum Application size 


Offer must be for a minimum of A$1,800 of 

Units and thereafter in whole multiples of 

A$100. Any Bonlac supplier shareholders who 

do not hold enough Bonlac shares to provide 

for this minimum subscription amount may 

also apply for Units in cash with payment in 

Australian dollars. Note that Applicants are 

asked to apply for a dollar amount of Units 

rather than a number of Units. 



Offer should refer to the application 

instructions included with their Australian 

Supplier Offer Application Form to determine 

the payment methods applicable to them. 


To apply under the Australian Supplier Offer, 

Bonlac supplier shareholders and suppliers to 

Fonterra Milk Australia should complete their 

personalised yellow Australian Supplier Offer 

Application Form which will be provided 

together with this Offer Document on or around 

9 November 2012. The Australian Supplier Offer 

Application Form will also contain details of the 

Supplier Shares buy back process. In making an 

Application, investors must declare that they 

were given a copy of this Offer Document, 

together with the Application Form. 


Offer should send their completed 

Application Form and Application Monies to: 

Computershare Investor Services Pty Limited 

GPO Box 7115 

Sydney NSW 2001 

Australia 


Offer must be received by 5.00pm (NZDT) 







Online Applications 


Offer may also apply using the online 

application facility at www.fonterraoffer.com. 

Applicants applying online will be required to 

pay any Application Monies in Australian 

dollars using BPAY. All online Applications 

must be made by 5.00pm (NZDT) on 

21 November 2012 (being the Stakeholder 

Offer Closing Date). 

Fonterra and the Joint Lead Managers reserve 

the right to extend the Stakeholder Offer 

Closing Date. 

Scaling 


received under the Australian Supplier Offer 

is greater than $25 million, Applications will 

be scaled in such manner as determined by 

Fonterra in consultation with the Joint Lead 

Managers, without regard to the source of 

the Application Monies provided with the 

relevant Application (i.e. whether through 

the buyback of Supplier Shares or cash). 

Applications and refunds 

ACCEpTANCE of Applications 

An Application is an offer by the Applicant 

to subscribe for the Units having the value 

specified in the Application Form at the 

Final Price on the terms and conditions set 

out in this Offer Document, including any 

supplementary or replacement Offer 

Document and the Application Form 

(including the conditions regarding quotation 

on the NZX Main Board and ASX). To the 

extent permitted by law, an Application by 

an Applicant under the Offer is irrevocable. 

By submitting an Application Form, the 

Applicant agrees to be bound by these terms 

and conditions and the Trust Deed. 

An Application may be accepted in respect 

of the full dollar amount specified in the 

Application Form or a lesser amount, 

without further notice to the Applicant. 

Acceptance of an Application will give rise 

to a binding contract. 

Fonterra reserves the right to decline any 

Application and all Applications in whole or 

in part, without giving any reason. Money 

received in respect of Applications which are 

declined in whole or in part will be refunded 

in whole or in part (as the case may be). 

Interest will not be paid on any Application 

Monies refunded. 

Application MONIES and refunds 

Until the issue of Units, Application Monies 

received will be held in a separate account for 

the benefit of Applicants according to their 

respective entitlements and for Fonterra. 

Any interest on Application Monies will be 

paid to Fonterra to offset against its issue 

costs. Applicants should ensure that sufficient 

funds are held in their account(s) to cover the 

amount of the cheque(s) or bank draft(s) or 

direct debit payment(s). 


SECTION 8 

detaILS OF 


The banking of Application Monies does not 

constitute confirmation of allotment of any 

Units or the acceptance of an Application. 

If a cheque does not clear, the relevant 

Application may be rejected or any allocation 

made may be cancelled. 

If the amount of an Applicant’s cheque(s) or 

bank draft(s) or direct debit payment(s) for 

Application Monies (or the amount for which 

those cheque(s) or bank draft(s) clear in time 

for allocation) is less than the amount 

specified on the Application Form, the 

Applicant may be taken to have applied for 

such lower dollar amount of Units as for 

which their cleared Application Monies will 

pay (and to have specified that amount on 

their Application Form) or their Application 

may be rejected in the discretion of Fonterra 

in consultation with the Joint Lead Managers. 

If an Application is rejected, all of the relevant 

Application Monies will be refunded to the 

relevant Applicant without interest. If 

Applications are scaled, the Applicant will 

receive the number of Units in respect of 

which the Application is accepted at the Final 

Price and a refund of the balance of the relevant 

Application Monies (without interest). 

Refunds will not be paid for any difference 

arising solely due to rounding, foreign 

exchange rate conversion, or where the 

aggregate amount of the refund payable to 

an Applicant is less than $5.00. All refunds 

will be made without interest. 

Cheques will be made payable to the relevant 

Applicant in their name(s), and will be posted 

to the address set out in the Application 

Form. Refunds will be issued within five 

business days following the Allotment Date. 







of the Application Monies in respect of 

each Application that has not been accepted 

due to scaling will not be converted into 

New Zealand dollars and will be refunded 

in Australian dollars. 



of any Applicant under the Australian 

Supplier Offer but are subsequently required 

to be refunded, those Application Monies will 

be converted back into Australian dollars at 

the exchange rate applying at that time. 

Accordingly, due to fluctuations in the foreign 

exchange rates for Australian dollars and New 

Zealand dollars, the Australian dollar amount 

of any such refunded amount could be more 

than or less than the relevant amount of 

those Application Monies provided at the 

time the Application was made. 

Institutional Offer 

Invitations to bid 

Certain Institutional Investors along with 

NZX Firms will be invited to bid for Units in 

the Institutional Offer. 

The Institutional Offer comprises an 

invitation to Institutional Investors in New 

Zealand, Australia and certain other overseas 

jurisdictions to bid for Units in accordance 

with arrangements made with the Joint 

Lead Managers. 

The Institutional Offer is not open to investors 

in the United States (other than to a limited 

number of Pre-identified EUSFMs) or that are 

US Persons or acting for the account or 

benefit of US Persons. 

The bookbuild and Indicative 

Price Range 

The Institutional Offer will be conducted 

under a bookbuild managed by the Joint Lead 

Managers to be undertaken on 26 to 27 

November 2012. Full details of how to 

participate, including bidding instructions, 

will be provided by the Joint Lead Managers 

to invited participants in due course. 

Participants can only bid into the book for Units 

through the Joint Lead Managers. They may 

bid for Units at a specific price(s). Participants 

may bid above or within the Indicative Price 

Range of $4.60 to $5.50 per Unit. 

All successful bidders will pay the Final Price 

for each Unit allocated to them. 

Allocation policy under the 

bookbuild 

Fonterra, in consultation with the Joint Lead 

Managers, will determine the allocation of 

Units among Institutional Investors and NZX 

Firms that have bid for Units in the bookbuild. 

There is no assurance that any participant in 

the bookbuild will be allocated any Units or 

the number of Units for which it has bid. The 

allocation policy will be influenced, but not 

constrained, by factors such as: 

• the number of Units bid for by particular 

bidders; 

• the timeliness of the bid by particular 

bidders; 

• Fonterra’s desire for an informed and active 

trading market following listing on the NZX 

Main Board and ASX; 

• Fonterra’s desire to establish a wide spread 

of institutional Unit Holders; 

• the overall level of demand under the 

Broker Firm Offer, the Friends of Fonterra 

Offer, the Australian Supplier Offer and the 

Institutional Offer; 

• the size and type of funds under 

management of particular bidders; 

• the likelihood that particular bidders will be 

long-term Unit Holders; and 

• any other factors that Fonterra and the 

Joint Lead Managers consider appropriate. 

Determination of the Final Price 

The Final Price will be determined by Fonterra 

on or before the date on which Units are 

allocated under the Offer. The bookbuild will 

be used to assist Fonterra to determine the 

Final Price. 

It is expected that the Final Price will be 

announced on 27 November 2012. 

In determining the Final Price, consideration 

may be given to the following factors (among 

others): 

• the level of demand for Units in the Broker 

Firm Offer, the Stakeholder Offer and the 

Institutional Offer; 

• the level of demand for Units in the 

bookbuild at various prices; 

• the minimum Fund size required under 

DIRA; 

• the desire for an orderly secondary market 

in the Units; and 

• any other factors Fonterra considers 

relevant in meeting its objectives. 

All successful Applicants will pay the Final 

Price for each Unit allocated to them under 

the Broker Firm Offer, the Friends of Fonterra 

Offer, the Australian Supplier Offer and the 

Institutional Offer. The Final Price will not 

necessarily be the highest price at which 

Units could be sold under the Offer and may 

be set within or higher than the Indicative 

Price Range. Accordingly, successful Applicants 

may pay a Final Price which is within or 

higher than the Indicative Price Range. 

140

section | 8.0 

Brokerage, coMMISSIon 

and stamp duty 

No brokerage, commission or stamp duty is 

payable by Applicants on subscribing for 

Units under the Offer. See the information 

under the heading “Issue expenses” in Section 

10 – Statutory Information for details of the 

brokerage payable to NZX Firms in connection 

with the Offer. 

Allocations and 

allotments 

New Zealand residents with a Common 

Shareholder Number (CSN) and Faster 

Identification Number (FIN) will have their 

Units allotted under their CSN, if the CSN 

was provided on the Application Form. 

Units allocated under the Offer are expected 

to be issued on 30 November 2012. 

It is expected that allotment notices will be 

sent to successful Applicants within five 

business days of the Allotment Date. Unit 

Holders on the New Zealand register of Unit 

Holders will be sent a statement confirming 

their allotment and, if a new investor, advised 

of their CSN and FIN. 

Unit Holders on the Australian register of 

Unit Holders will be sent an initial statement 

of holding that provides details of a Unit 

Holder’s Holder Identification Number (HIN) 

for CHESS holders or Securityholder Reference 

Number for issuer sponsored holders. 

Unit Holders on the Australian register of 

Unit Holders will subsequently receive 

statements showing any changes to their 

unitholding in the Fund. Additional statements 

may be requested at any other time either 

directly through the Unit Holder’s sponsoring 

broker, in the case of a holding on the CHESS 

subregister, or through the Unit Registrar in 

the case of a holding on the issuer sponsored 

subregister. The Fund or Unit Registrar may 

charge a fee for these additional issuer 

sponsored statements. 

Applicants may call the Unit Registrar, their 

NZX Firm or their broker after 9.00am on the 

Allotment Date to ascertain their allocation 

before trading in the Units. 

It is expected that trading of the Units on 

the NZX Main Board and ASX (on a deferred 

settlement basis for ASX) will commence 

on or about 30 November 2012. Units are 

expected to commence trading on ASX 

on a normal settlement basis on or about 

5 December 2012. 

In the event that admission to list on either 

the NZX Main Board or ASX is denied, or for 

any other reason the issue of Units under the 

Offer does not proceed, all Application Monies 

will be refunded in full without interest. 







of the Application Monies in respect of 

each Application that has not been accepted 

due to scaling will not be converted into 

New Zealand dollars and will be refunded 

in Australian dollars. 



of any Applicant under the Australian 

Supplier Offer but are subsequently required 

to be refunded, those Application Monies will 

be converted back into Australian dollars at 

the exchange rate applying at that time. 

Accordingly, due to fluctuations in the foreign 

exchange rates for Australian dollars and New 

Zealand dollars, the Australian dollar amount 

of any such refunded amount could be more 

than or less than the relevant amount of 

those Applications Monies provided at the 

time the Application was made. 

None of the Manager, Fonterra, Fonterra’s 




partners or advisers accepts any liability or 

responsibility should any person attempt to 

sell or otherwise deal with Units before the 

statements confirming allotments are 

received by the Applicants. 

CHESS 

The Fund will apply to participate in ASX’s 

Clearing House Electronic Subregister System 

(CHESS), in accordance with the ASX 

Settlement Operating Rules. CHESS is an 

automated transfer and settlement system 

for transactions in securities quoted on ASX 

under which transfers are effected in a 

paperless form. 

When the Units become CHESS Approved 

Securities, holdings will be registered in one 

of two subregisters, an electronic CHESS 

subregister or an issuer sponsored 

subregister. The Units of a Unit Holder who is 

a participant in CHESS or a person sponsored 

by a participant in CHESS will be registered on 

the CHESS subregister. All other Units will be 

registered on the issuer sponsored subregister. 

Following the issue of Units, any Unit Holder 

who has elected to have their Units 

registered in CHESS will be sent an initial 

statement of holding that sets out the 

number of Units that have been allocated. 

This statement will also provide details of a 

Unit Holder’s Holder Identification Number 

(HIN) or, where applicable, the Securityholder 

Reference Number for issuer sponsored 

holders. Unit Holders will subsequently 

receive statements showing any changes 

to their holding of Units in the Fund. 

Offer Management 

aGreement 

The Offer is not underwritten. Fonterra, the 

Manager of the Fund and the Joint Lead 

Managers have entered into the Offer 

Management Agreement which sets out the 

obligations of the Joint Lead Managers in 

relation to the conduct of the bookbuild. 

Under the Offer Management Agreement, 

the Joint Lead Managers commit to conduct 

the bookbuild in the manner described in this 

Offer Document. Once the Final Price has 

been determined, the Joint Lead Managers 

will be obliged to provide settlement support 

in respect of Applications under the 

Institutional Offer and in respect of uncleared 

payments of Application Monies under the 

Stakeholder Offer and the Broker Firm Offer. 

The Offer Management Agreement sets out 

certain circumstances in which the Joint Lead 

Managers may terminate the Offer 

Management Agreement and their settlement 

support obligations. The Offer Management 

Agreement also sets out a number of warranties 

and undertakings given by Fonterra and the 

Manager to the Joint Lead Managers. The 

Offer Management Agreement is described 

in more detail under the heading “Material 

contracts” in Section 10 – Statutory Information. 


SECTION 8 

detaILS OF 


Selling restrictions 

The Offer is only being made to members 

of the public resident in New Zealand and 

Australia and to Institutional Investors in New 

Zealand, Australia and certain other jurisdictions. 




distribute any documents (including this 

Offer Document) in relation to the Units to 

any person outside New Zealand or Australia, 



Unless otherwise agreed with Fonterra, any 

person or entity subscribing for Units in the 

Offer shall, by virtue of such subscription, be 

deemed to represent that he, she or it is not 

in a jurisdiction which does not permit the 

making to him, her or it of an offer or 

invitation of the kind described in this Offer 

Document, and is not acting for the account 

or benefit of a person within such jurisdiction. 

None of Fonterra, the Manager, Fonterra’s 




partners or advisers accepts any liability or 

responsibility to determine whether a person 

is able to participate in the Offer. 




distribute any documents (including this Offer 

Document) in relation to the Units to any 

person outside New Zealand or Australia, 



In particular, this Offer Document (including 

an electronic copy) may not be distributed or 

released, in whole or in part, to persons in 

the United States (other than Pre-identified 

EUSFMs) or persons who are, or are acting 

for the account or benefit of, US Persons. 

Any failure to comply with such restrictions 

may constitute a violation of applicable 

securities laws. 

The Units have not been, and will not be, 

registered under the US Securities Act or 

the securities laws of any state or other 

jurisdiction of the United States and 

accordingly may not be offered or sold, 

directly or indirectly, in the United States 

(other than to a limited number of Preidentified 

EUSFMs) or to, or for the account 

or benefit of, a US Person. Accordingly, the 

Units to be offered and sold in the Offer 

may only be offered and sold to (i) eligible 

investors outside the United States who are 

not US Persons, and are not acting for the 

account or benefit of a US Person, or (ii) to 

a limited number of Pre-identified EUSFMs, 

in each case, in “offshore transactions” (as 

defined in Regulation S under the US 

Securities Act) in compliance with category 2 

of Regulation S under the US Securities Act. 

Each Applicant in the Broker Firm Offer, the 

Friends of Fonterra Offer, and the Australian 

Supplier Offer will be taken to have represented, 

warranted and agreed as follows: 

• it understands that the Units have not 

been, and will not be, registered under the 

US Securities Act or the securities laws of 

any state or other jurisdiction of the United 

States and may not be offered or sold, 

directly or indirectly, in the United States 

(other than to a limited number of 

Pre-identified EUSFMs) or to, or for the 

account or benefit of, a US Person; 

• it is not in the United States and is not a 

US Person, and is not acting for the account 

or benefit of a US Person (or it is a 

Pre-identified EUSFM); 

• it has not and will not send the Offer 

Document or any other material relating to 

the Offer to any person in the United 

States (other than Pre-identified EUSFMs) 

or to any person that is, or is acting for the 

account or benefit of, a US Person; 

• if in the future it decides to sell or otherwise 

transfer the Units, it will only do so in 

regular way transactions on the NZX Main 

Board or ASX, where neither it nor any 

person acting on its behalf knows, or has 

reason to know, that the sale has been 

pre-arranged with, or that the purchaser is, 

a person in the United States or a US 

Person or a person acting on behalf of a US 

Person; and 

• if it is acting as a nominee or custodian, 

each beneficial holder on whose behalf it is 

participating is resident in New Zealand or 

Australia and is not in the United States or 

a US Person, and it has not sent the Offer 

Document or any other material relating to 

the Offer to any such person. 

Each Applicant under the Institutional Offer 

will be required to make certain representations, 

warranties and covenants set out in the 

confirmation of allocation letter provided to it. 

Discretion regarding 

the Offer 

Following completion of the bookbuild, the 

determination of the Final Price and once 

Fonterra determines that the Manager has 

received Valid Applications for a total number 

of Units which multiplied by the Final Price 

equals or exceeds a minimum amount of 

$500 million, the Manager will be bound to 

issue Units to successful Applicants in 

accordance with the finalised allocation of 

Units. Fonterra expects to be in a position to 

make such a determination in respect of the 

number of Valid Applications received by the 

Manager on 28 November 2012. This binding 

obligation to issue Units will be subject to 

compliance by Fonterra and the Manager 

with all applicable laws. 

Subject to the foregoing, Fonterra reserves 

the right to withdraw the Offer at any time 

prior to the allotment of Units to Applicants. 

If the Offer or any part of it is withdrawn, 

then all Application Monies, or the relevant 

Application Monies, will be refunded (without 

interest). 

Fonterra also reserves the right to close the 

Offer or any part of it early, extend the Offer 

or any part of it, accept late Applications 

either generally or in particular cases, reject 

any Application, or allocate to any Applicant 

Units with a lesser aggregate value than that 

applied for. 

If Fonterra amends the date of the 

Institutional Offer and bookbuild, the Broker 

Firm Offer Closing Date or the Stakeholder 

Offer Closing Date, any such amendment will 

be announced through NZX. 

Enquiries 

All enquiries in relation to this Offer 

Document should be directed to the Offer 

Information Line on 0800 888 709 (in New 

Zealand) or 1800 093 495 (in Australia) or 

+64 9 488 8709 (outside New Zealand or 

Australia) from 9.00am until 7.00pm (NZDT) 

Monday to Friday. 

Investors who are unclear in relation to any 

matter, or are uncertain as to whether an 

investment in the Fund is a suitable 

investment, should consult a NZX Firm, their 

solicitor, accountant or other appropriately 

qualified professional adviser before deciding 

whether to invest. 

142

section | 9.0 

SECTION 9 

taxatION 

New Zealand tax suMMary 

OVERVIEW 

The following contains a summary of the 

material New Zealand tax consequences for 

Unit Holders investing in the Fund based on 

New Zealand tax law applying as at the date 

of this Offer Document. 

The tax consequences for each Unit Holder 

may vary depending on each Unit Holder’s 

individual circumstances. Unit Holders 

should obtain independent tax advice in 

relation to the tax consequences of acquiring, 

holding, disposing of and redeeming Units 

in the Fund. 

Inland Revenue binding rulings 

The Fund has obtained binding private and 

product rulings from Inland Revenue 

concerning the operation of the Fund, which 

are consistent with the tax implications set 

out below. 

Please refer to the Inland Revenue’s website 

www.ird.govt.nz/technical-tax/productrulings/2012/ 

to view a copy of the binding 

product ruling. 

Fund to be “FOREIGN investment 

VARIAble-RATE PIE” 

The Fund will elect to be a “foreign investment 

variable-rate PIE” for New Zealand income tax 

purposes. If the Fund loses or surrenders this 

status, the tax treatment set out in this 

summary will not apply to the Fund or its 

Unit Holders. 

Fund will make tax payMENTS on 

RECEIpt of Fonterra dividends 

The Fund will attribute PIE income (being 

Fonterra dividends) to Unit Holders and pay 

tax on that income at each relevant Unit 

Holder’s prescribed investor rate (PIR), being 

their applicable tax rate, subject to the option 

to apply the non-resident withholding tax 

rules in respect of Notified Foreign Investors. 

When the Fund receives Fonterra dividends 

the Fund will retain an amount from 

dividends distributed to a Unit Holder to 

satisfy the PIE (or withholding) tax liability in 

relation to that Unit Holder. 

CALCULATION of the Fund’s taxable 

INCOME and loss 

The Manager of the Fund will calculate the 

taxable income of the Fund to be attributed 

to Unit Holders. The taxable income 

attributed to Unit Holders will generally 

comprise Fonterra dividends. 

The Fund may derive amounts of taxable 

income other than income derived from 

Fonterra Shares, such as interest income. 

These amounts will be used to meet the 

Fund’s costs and will not be attributed to Unit 

Holders in accordance with the Trust Deed 

and the Income Tax Act, unless the Manager 

of the Fund directs otherwise. 

The Fund will incur deductible expenses in 

relation to its operations which will be met by 

Fonterra. Those expenses may be attributed 

to the Unit Holders. The corresponding 

amounts received from Fonterra to meet 

those expenses will be taxable to the Fund. 

To the extent that the Fund has any net 

income resulting from this which is taxable, 

it will receive funding from Fonterra to meet 

that tax liability. 

It is not anticipated that the Fund will have a 

PIE tax loss or excess tax credits which will be 

attributed to Unit Holders. 

Prescribed investor rates (PIRs) 

At the time of acquiring Units, Unit Holders 

must notify the Manager of the Fund of their 

IRD number, and their applicable tax rate 

(being their PIR). Unit Holders must notify 

the Manager if any of these details change. 

Unit Holders who do not provide the 

Manager with a notification will have a 

default PIR of 28% applied. 

Tax-paying Unit Holders 

Unit Holders with a PIR of greater than 0% 

are referred to as tax-paying Unit Holders. 

The PIRs applicable to investors that are 

individuals are 10.5%, 17.5% or 28%, based on 

the level of their taxable and PIE income in 

one of the two previous tax years. The PIRs 

applicable to investors that are trustees are 

0%, 10.5%, 17.5% or 28%. (For New Zealand 

resident joint Unit Holders, the highest PIR 

of the joint Unit Holders must be elected.) 

Non-resident investors that are not Notified 

Foreign Investors have a PIR of 28%. 

Tax-paying Unit Holders that notify their 

correct PIR (other than trustees that have 

notified a PIR of 10.5% or 17.5%) will not be 

liable for any further tax or be required to file 

a tax return in respect of an investment in the 

Fund. This is because the PIE tax paid by the 

Fund on such Unit Holders’ attributed PIE 

income will be a final tax. This will therefore 

be of benefit to Unit Holders who have a 

marginal tax rate that is higher than 28%. 

Trustees that notify a PIR of 10.5% or 17.5% 

will need to return their attributed PIE income 

in the trust’s tax return and will be liable for 

tax at the trustee rate, or at beneficiaries’ 

marginal tax rates where the PIE income is 

distributed to beneficiaries. 

Unit Holders that notify, or are subject to, a 

higher PIR than they are eligible for (including 

the default rate) will not be able to receive a 

credit or refund for any excess PIE tax paid by 

the Manager. 

Unit Holders that notify or are otherwise 

subject to PIE tax at a lower PIR than that 

applicable, may be liable to Inland Revenue 

for any consequential tax shortfall (together 

with any interest and penalties) and may have 

to file a tax return. 

Zero-RATED Unit Holders 

New Zealand resident Unit Holders with a 

PIR of 0% are referred to as zero-rated Unit 

Holders. Zero-rated Unit Holders include 

companies, unit trusts, charities, other PIE 

investors, and trustees (including 

superannuation funds) that have not 

elected a PIR of 10.5%, 17.5% or 28%. 

Zero-rated Unit Holders must account for tax 

on attributed PIE income / loss in their own 

tax return, as the Fund does not pay PIE tax in 

respect of zero-rated Unit Holders. 

Notified Foreign Investors 

Unimputed Fonterra dividends attributed to 

Notified Foreign Investors who can benefit 

from one of New Zealand’s double tax 

treaties are subject to PIE tax at the 15% rate. 

Otherwise, the applicable rate in relation to 

such dividends is 30%. 


SECTION 9 

taxatION continued 

Instead of paying PIE tax, the Manager of 

the Fund may elect to pay non-resident 

withholding tax in respect of an amount of 

dividend income paid to the Notified Foreign 

Investor. The non-resident withholding tax 

rate on unimputed Fonterra dividends paid 

to a Notified Foreign Investor is 30% for 

non-treaty residents or otherwise at the 

applicable treaty rate. The benefit in opting 

to apply non-resident withholding tax rather 

than PIE tax is that Notified Foreign Investors 

may be in a better position to obtain a credit 

in their home jurisdiction for New Zealand 

tax paid. It is anticipated that the Manager 

will make such an election in relation to 

Notified Foreign Investors. 

Transfers 

A Unit Holder should not be subject to tax on 

any gain made from the transfer (e.g. sale) of 

Units provided that: 

• the Unit Holder does not carry on a 

business of dealing in Units or in respect 

of which the sale of Units is an ordinary 

incident; 

• the Units were not acquired for the 

purpose of resale; and 

• the gains on the sale of the Units have 

not been derived from an undertaking or 

scheme entered into or devised for the 

purpose of making a profit. 

Redemptions 

Redemptions of Units will generally only 

be made to Unit Holders who are Farmer 

Shareholders, RVPs or Fonterra. On 

redemption of a Unit, a Farmer Shareholder 

will receive a Fonterra Share for each Unit 

which is redeemed, and will be treated as 

acquiring the Fonterra Share for its market 

value. If the distribution of a Fonterra Share 

received on redemption of a Unit constituted 

income, the income is treated as excluded 

income, and is not subject to tax. 

144

section | 10.0 

SECTION 10 

Statutory 

INFORMATION 

The following information is set 

out as required by Schedule 4 of 

the Securities Regulations. 

Description of unit trust 

Unit trust 

The name of the unit trust on behalf of which 

the Manager of the Fund is offering Units in 

this Offer Document is the Fonterra 

Shareholders’ Fund. 

The Fund was established in Auckland, 

New Zealand by the Trust Deed dated 

23 October 2012. 

The Fund will continue until the earlier of: 

• 80 years from the date of execution of the 

Trust Deed (being the period specified by 

section 6 of the Perpetuities Act 1964, or 

such later date as may be permitted by any 

amendment to the Perpetuities Act 1964, 

provided that if section 6 of the 

Perpetuities Act 1964 is repealed and not 

substituted with another perpetuity period, 

this provision will cease to apply); or 

• the date on which all Economic Rights (or the 

underlying Shares) held by the Fonterra 

Farmer Custodian for the benefit of the 

Trustee in its capacity as Trustee are disposed 

of in accordance with the Trust Deed. 

Units 

The Units offered in this Offer Document are 

units in the Fonterra Shareholders’ Fund. The 

Fund is governed by the Trust Deed dated 23 

October 2012 between Fonterra, the Trustee 

and the Manager of the Fund. 

The Fund will acquire Economic Rights 

derived from holding of Shares by the 

Fonterra Farmer Custodian in Fonterra. The 

Fund will not hold any Shares in Fonterra. 


Farmer Custodian in its capacity as the 

trustee of the Fonterra Economic Rights 

Trust. Pursuant to that trust, the Trustee is 

declared the beneficiary in respect of the 

Economic Rights in the Shares which have 

been transferred to the Fonterra Farmer 

Custodian for that purpose. 



Fund. The trust fund will consist of the 

Economic Rights being held for the Trustee by 

the Fonterra Farmer Custodian. The Fund is 

designed to have the effect that each Unit on 

issue in the Fund will represent the Economic 

Rights derived from a single Share. 

There is no maximum number of Units which 

may be issued, provided that the number of 

Units on issue must correspond with the 

number of Shares in which the Fonterra 

Farmer Custodian is holding Economic Rights 

on trust for the Trustee. 

However: 

• the Constitution imposes a limit of 25% on 

the number of Shares in respect of which 

Economic Rights may be held for the 

Trustee. As required by the SHC Deed Poll, 

the Fonterra Board has resolved to further 

reduce this threshold to 20%. The Fonterra 

Board intends to recommend to Farmer 

Shareholders that they amend the 

Constitution at the 2012 Fonterra annual 

meeting to include this lower threshold 

and other changes relating to Trading 

Among Farmers; 

• if the overall threshold is breached, the 

Fonterra Board is required by the SHC 

Deed Poll to take steps (within a timeframe 

it considers appropriate) to cause the 

number of Shares which are subject to 

arrangements with the Authorised Fund 

to be reduced to a number below the 

threshold; and 

• in practice, the Fonterra Board intends to 

manage the number of Shares subject to 

the above arrangements below the 20% 

threshold. It will do so under its Fund Size 

Risk Management Policy. 

As of the date of this Offer Document, the 

Final Price is yet to be determined. The price 

is to be determined through a bookbuild, 

whereby selected Institutional Investors and 

NZX Firms are invited to submit bids for Units 

at various prices within a set range. This 

process allows the investor demand for the 

Units to be gauged and assists Fonterra to set 

an appropriate price. Further details are set 

out in Section 8 – Details of the Offer. 

No charges are payable to the Manager of the 

Fund in respect of any sale of Units. Any sale 

of Units on the NZX Main Board or ASX is 

likely to attract brokerage. 

No Units have yet been allotted and, as 

such, as at the date of this Offer Document, 

the Fund does not have any substantial 

security holders. 

The opening date of the Offer is 5 November 

2012. Both the Stakeholder Offer and the 

Broker Firm Offer close on 21 November 2012. 

The bookbuild under the Institutional 

Offer which will be used to determine the 

Final Price will be conducted on 26 and 

27 November 2012. Fonterra, with the 

agreement of the Joint Lead Managers, 

reserves the right to amend these dates. 

Any such amendment will be announced 

through NZX. 


SECTION 10 

Statutory 

INFORMATION continued 

Ongoing issue of Units 

Following the Launch Date, the Fund will 

continuously acquire Economic Rights and 

issue Units to Farmer Shareholders as follows: 

• Farmer Shareholders will place an order on 

the NZX Main Board to sell Units; 

• when that order is matched on the market 

by an order from an investor to acquire 

Units, the Farmer Shareholder will transfer 

Shares to the Fonterra Farmer Custodian; 

• the Fonterra Farmer Custodian will accept 

the transfer of the Shares and will be 

registered as the holder of those Shares in 

the share register of Fonterra; 

• the Fonterra Farmer Custodian will hold 

the Economic Rights in those Shares on 

trust for the Trustee in accordance with the 

terms of the Custody Trust Deed; 

• contemporaneously, the Manager of the 

Fund will issue an equal number of Units to 

the Farmer Shareholder’s broker as the 

number of Shares that the Farmer 

Shareholder transferred to the Fonterra 

Farmer Custodian; and 

• the Farmer Shareholder will then use those 

Units to settle the sell order placed on the 

NZX Main Board and will receive cash from 

the investor in respect of the sale of the 

Units. The Farmer Shareholder is not able 

to retain the Units issued to their broker. 

If the Farmer Shareholder wishes to retain 

Units, they must purchase Units on the 

NZX Main Board or ASX in the same 

manner as any other investor. 

The Fund will similarly issue Units to the RVP 

although the RVP is not required to dispose 

of those Units on the NZX Main Board. The 

Fund may also issue Units for cash if Fonterra 

issues Shares for the Fonterra Farmer 

Custodian to hold for the Trustee in terms 

of the Fonterra Economic Rights Trust. 

The Fund may also issue Units from time to 

time as set out in the Trust Deed (e.g. by way 

of bonus issue or rights issue where Fonterra 

is undertaking a corresponding bonus issue 

or a rights issue). 

Managers and promoters 

Manager 

The Manager of the Fund is FSF Management 

Company Limited. Its registered office is at 9 

Princes Street, Auckland 1010, New Zealand. 

At the date of this Offer Document, the 

directors of the Manager of the Fund and 

their principal residences are: 




John Bruce Shewan 


Auckland 



Wellington 

Ohaupo 

The directors of the Manager may be 

contacted at the Manager’s registered office, 

as set out above. 

The Manager of the Fund is owned by 

Trustees Executors Limited. The ultimate 

holding company of Trustees Executors 

Limited (and therefore the Manager) is 

Sterling Grace (NZ) Limited. 

There are no other unit trusts managed by 

the Manager. The Manager was incorporated 

on 15 August 2012. Other than in connection 

with preparing for the Offer, the Manager has 

not carried on any activities. While the 

Manager acts as manager of the Fund, its sole 

activity will be the performance of that role. 

Promoters 


promoter of the Fund. The registered office 

of Fonterra is at 9 Princes Street, Auckland 

1010, New Zealand. 

Each director of Fonterra is also a promoter 

of the Fund (other than where a director of 

Fonterra is also a director of the Manager of 

the Fund). The names of the relevant 

directors are as follows: 











No administration manager or investment 

manager has been appointed for the Fund. 

None of the Manager of the Fund, the 

directors of the Manager or the Promoters 

has been adjudged bankrupt or insolvent, 

convicted of a crime involving dishonesty, 

prohibited from acting as a director of a 

company, or placed in statutory management, 

voluntary administration, liquidation, or 

receivership during the five years preceding 

the date of this Offer Document. 

Registrar, custodian, 

auditors, advisers and 

experts 

AUDITOR 

The Auditor of the Fund is 

PricewaterhouseCoopers. The contact 

address of the Auditor is set out in the 

Directory. PricewaterhouseCoopers and the 

partners of PricewaterhouseCoopers have 

obtained a transitional licence under the 

Auditor Regulation Act 2011 (New Zealand). 

The transitional licences are effective from 

1 May 2012 until the earlier of 1 May 2014 or 

when a full licence is issued. 

Unit Registrar 

The Unit Registrar is Computershare Investor 

Services Limited. The contact address of the 

Unit Registrar is set out in the Directory. 

Advisers 

The names and addresses of Fonterra’s and 

the Fund’s financial advisers, solicitors and 

other professional advisers who have been 

involved in the preparation of this Offer 

Document (being Russell McVeagh, King & 

Wood Mallesons, Chapman Tripp, Harmos 

Horton Lusk Limited, 

PricewaterhouseCoopers, Craigs Investment 

Partners Limited, Deutsche Bank AG, New 

Zealand branch, Goldman Sachs New 

Zealand Limited, UBS New Zealand Limited 

and KPMG) are set out in the Directory. 

Experts 

PricewaterhouseCoopers has given their 

consent and has not withdrawn their consent 

before delivery of this Offer Document for 

registration under section 41 of the Securities 

Act to the distribution of this Offer Document 

with the inclusion of the Investigating 

Accountant’s Report and Auditor’s report in 

this Offer Document in the form and context 

in which they are included. 

The address of PricewaterhouseCoopers is 

set out in the Directory. 

Neither PricewaterhouseCoopers nor 

any director, officer or employee of 

PricewaterhouseCoopers is or is intended 

146


to be a director, officer or employee of the 

Manager of the Fund or Fonterra. 

PricewaterhouseCoopers has provided and, 

may in the future provide, professional 

advisory services to the Manager and / or 

Fonterra and its related entities. 

PricewaterhouseCoopers is the auditor of 

Fonterra and has been appointed the auditor 

of the Fund and of the Manager. 

PricewaterhouseCoopers carries out other 

assurance services and other assignments for 

the Fonterra Group and the Manager. These 

matters have not impaired the independence 

of PricewaterhouseCoopers as the auditor of 

Fonterra, the Fund and the Manager. 

Independence of 

unit trustee and 

any custodians 

The Trustee is independent of the Manager of 

the Fund and the Promoters. 

Unit trustee 

The name of the Trustee is The New Zealand 

Guardian Trust Company Limited. Its 

registered office is at Level 7, Vero Centre, 

48 Shortland Street, Auckland 1010, 


As at the date of this Offer Document, 

the directors of The New Zealand Guardian 

Trust Company Limited and their places of 

residence are: 

John Atkin of Sydney, NSW, Australia 

John Richard Avery of Auckland 

Christopher Robert Darlow of Auckland 

Michael Privett Reed of Auckland 

Timothy James Shaw of Auckland 

David Roko Grbin of Glebe, NSW, Australia 

(as an alternate director for John Atkin) 

The directors of the Trustee may be contacted 

at The New Zealand Guardian Trust Company 

Limited’s registered office address, as set 

out above. 

The Trustee was incorporated in New Zealand 

under the Companies Act 1955 (New Zealand) 

on 7 September 1982 and was reregistered in 

New Zealand under the Companies Act 1993 

(New Zealand) on 23 April 1997. 

Pursuant to section 16(1) of the Securities 

Trustees and Statutory Supervisors Act, the 

Financial Markets Authority granted the 

Trustee a licence to (among other things) 

act as a trustee in respect of unit trusts. 

The current licence expires on 16 March 2018. 


ultimate holding company of the Trustee is 

The Trust Company Limited, a company 

incorporated in Australia. 

Pursuant to a deed of indemnity entered into 

between Fonterra and the Trustee, the 

Trustee is indemnified by Fonterra (and not 

out of the Fund) for all expenses, liabilities, 

losses and costs that the Trustee may suffer 

or incur in its capacity as trustee of the Fund, 

except for liabilities arising from its wilful 

default or wilful breach of trust, or a breach of 

trust where the requisite degree of care and 

diligence has not been shown. The Trustee 

is not indemnified out of the Fund. 

The Trustee does not guarantee or promise any 

return of capital or any other returns (including 


Description of unit trust 

and its development 

Trust Deed 

The Trust Deed for the Fund is dated 

23 October 2012. 

SUMMARy of the Trust Deed 

Trust Deed 

The Units are constituted by and issued 

under the Trust Deed dated 23 October 2012 

between FSF Management Company Limited 

(as Manager), The New Zealand Guardian 

Trust Company Limited (as Trustee) and 

Fonterra. 

The following is a summary only of the 

principal terms of the Trust Deed governing 

the Fund which have not been detailed 

elsewhere in this Offer Document. Unless the 

context otherwise requires, capitalised terms 

used in this summary that are not otherwise 

defined in this Offer Document have the 

meaning given to them in the Trust Deed. 

As this is a summary only, reference should 

always be made to the Trust Deed, especially 

in the case of doubt. 

Restrictions 

In giving effect to the powers and obligations 

under the Trust Deed, the Manager, Trustee 

and Fonterra are bound to comply with their 

respective obligations under, and are subject 

to certain limitations and restrictions 

imposed by, the Authorised Fund Contract 

and the Custody Trust Deed and accordingly, 

the powers and obligations of the Manager, 

Fonterra and the Trustee under the Trust 

Deed and with respect to the Fund generally 

must be given effect to and construed subject 

to and are limited by such obligations, 

limitations and restrictions. 

Compliance with, and incorporation of, 

the NZSX Listing Rules and ASX Listing Rules 

While Units are Listed, the Manager and the 

Trustee must comply with the NZSX Listing 

Rules and the ASX Listing Rules. A provision 

of the Trust Deed shall be of no effect to the 

extent it is inconsistent with any applicable 

NZSX Listing Rule, and in those 

circumstances the applicable NZSX Listing 

Rule shall prevail. 

Subject to clause 4.5 of the Trust Deed, if 

NZX has given a Ruling in relation to the 

Fund authorising any act or omission which, 

in the absence of that Ruling, would be in 

contravention of the NZSX Listing Rules or 

the Trust Deed, that act or omission is 

deemed to be authorised by the NZSX Listing 

Rules and by the Trust Deed. 

Without limiting clause 2.6 of the Trust Deed, 

but subject to clause 4.5 of the Trust Deed, if 

ASX has given a ruling in relation to the Fund 

authorising any act or omission which, in 

the absence of that ruling, would be in 

contravention of the ASX Listing Rules or the 

Trust Deed, that act or omission is deemed to 

be authorised by the ASX Listing Rules and by 

the Trust Deed. 

While the Fund is admitted to the Official 

List of the ASX, clause 2.5 of the Trust 

Deed provides: 

• notwithstanding anything contained in the 

Trust Deed (other than clause 2.6), if the 

ASX Listing Rules prohibit an act being 

done, the act must not be done; 

• nothing in the Trust Deed prevents an act 

being done that the ASX Listing Rules 

require to be done; 

• if the ASX Listing Rules require an act to be 

done or not to be done, authority is given 

for that act to be done or not to be done 

(as the case may be); 

• if the ASX Listing Rules require the Trust 

Deed to contain a provision and it does not 

contain such a provision, the Trust Deed is 

deemed to contain that provision; 

• if the ASX Listing Rules require the Trust 

Deed not to contain a provision and it 

contains such a provision, the Trust Deed is 

deemed not to contain that provision; and 

• if any provision of the Trust Deed is or 

becomes inconsistent with the ASX Listing 

Rules, the Trust Deed is deemed not to 

contain that provision to the extent of 

the inconsistency. 


SECTION 10 

Statutory 


However, the above is subject to clause 2.6 of 

the Trust Deed which provides that for so 

long as any Units are listed on the NZX Main 

Board and while the Fund is admitted to the 

Official List of ASX: 

• the Trust Deed is not required to be 

consistent with the ASX Listing Rules to 

the extent that the ASX Listing Rules are 

inconsistent with the NZSX Listing Rules; 


• to the extent that the NZSX Listing Rules 

are inconsistent with the ASX Listing Rules 

in a way that affects or is relevant to the 

operation of a provision of the Trust Deed, 

the NZSX Listing Rules prevail to the extent 

of the inconsistency, 

and in each case, to the extent required to 

give effect to anything in clause 2.6 of the 

Trust Deed, the requirements of clause 2.5 of 

the Trust Deed (which are set out above) do 

not apply. 

Units 

The beneficial interest in the Trust Fund shall 

be divided into Units. 

Subject to the rights of Unit Holders created 

by the Trust Deed or by law, no Unit Holder 

may interfere with or question the exercise or 

non-exercise by the Manager, Fonterra or the 

Trustee of any of the trusts, powers, 

authorities or discretions conferred upon 

them by the Trust Deed or in respect of the 

Trust Fund or, by virtue of holding Units, 

attend meetings or vote or take part in or 

consent to any action concerning any 

property or corporation in which the Fund 

holds an interest. 

The Fonterra Unit 

The following rights and limitations shall 

attach to the Fonterra Unit: 

• the Fonterra Unit may be held only by the 

Fonterra Unit Holder. Upon any transfer of 

the Fonterra Unit (other than from a 

retiring trustee of the Fonterra Farmer 

Custodian Trust to a new trustee, or with 

the prior written consent of Fonterra), the 

Fonterra Unit shall convert to a Unit; 

• no provision of the Trust Deed may be 

amended, removed, or altered in effect, 

without the prior written consent of the 

Fonterra Unit Holder, if such amendment, 

removal, or alteration would change: 

– – the governance structure of the Board of 

the Manager; 

–– 

the scope and role of the Trust Fund; 

–– 

the obligation of the Trust Fund to 

facilitate the exchange of a Share for a 

Unit or a Unit for a Share; 

–– 

the limit of 15% on the number of Units 


Associates (other than Fonterra); or 

–– 

the terms of the Fonterra Unit. 

No Unit or any other security may be issued 

by the Fund or subsequently altered so that 

it has the same rights as those attached to 

the Fonterra Unit, or that ranks equally with 

the Fonterra Unit for the purposes of any 

provision of the Trust Deed which requires 

that the consent of the Fonterra Unit Holder 

be obtained. 

Acquisition of Economic Rights 

Upon the Fonterra Custodian advising the 

Manager that it holds new Economic Rights, 

the Manager shall either issue Units in respect 

of such new Economic Rights, or pay such 

Cash sum in respect of such new Economic 

Rights received by the Manager for the issue 

of Units for Cash, to the relevant Transferor. 

Cash may only be paid to the Transferor if the 

Transferor has agreed to accept Cash prior to 

the transfer of the relevant Shares to the 

Fonterra Custodian. 

Upon a Shareholder transferring a Share to the 

Fonterra Custodian in respect of which the 

Fonterra Custodian advises the Manager that 

it holds the Economic Rights and, subject to 

the issue of the Voucher being in accordance 

with the policy set by Fonterra and advised to 

the Manager from time to time, the Manager 

or Fonterra will send a Voucher to that 

Shareholder. Vouchers may not be transferred, 

except in accordance with any policy set by 

Fonterra. The Trustee has no obligations in 

relation to Vouchers. 

To facilitate the establishment of the Trust 

Fund, the Manager is authorised to undertake 

the Supply Offer at the time of the first issue 

of Units after the establishment of the Fund. 

Maximum holding 

No person (together with their Associates), 

other than Fonterra, may hold or have an 

Interest in more than 15% of the lesser of the 

total number of Units on issue for the time 

being, or, the total Voting Rights for the 

time being. 

Fonterra may determine that Affected Units 

cannot vote, or must be disposed of. In 

deciding which Units are to be treated as 

Affected Units for the purposes of clauses 6.5 

and 6.6 of the Trust Deed, Fonterra shall have 

regard to such criteria as it may, in its discretion, 

consider appropriate and equitable. 

Issue of Units 

The Manager may make offers, invite 

subscriptions or applications for Units, may 

issue rights or options to subscribe for Units, 

and may issue Units of any Class, upon and 

subject to the terms and conditions contained 

in the Trust Deed and otherwise in such manner 

and upon such terms and conditions as the 

Manager shall from time to time determine. 

The Trustee or the Manager may, at any time, 

cancel or redeem Units for no consideration, 

or such consideration that the Trustee or the 

Manager determines in its absolute 

discretion, to comply with section HM 48 of 

the Income Tax Act or otherwise satisfy any 

Tax Liability of the Fund relating to the 

relevant Unit Holder. Should the Trustee or 

the Manager cancel or redeem any Units, the 

Manager shall direct the Fonterra Custodian 

to contemporaneously sell a corresponding 

number of Economic Rights. 

Subject to clauses 5.1 and 13.3 of the Trust 

Deed, the Manager may in its absolute 

discretion accept or refuse an application for 

Units in whole or in part without reason, and 

may limit the size of the Fund in its discretion. 

There is no maximum number of Units which 

may be issued provided that, at no time shall 

the number of Units on issue exceed or be 

less than the number of Economic Rights 

which comprise Investments. 

Issue price 

The price at which Units may be issued shall 

be determined by the Manager in accordance 

with the Authorised Fund Contract provided 

that in respect of: 

• the first issue after the establishment of 

the Fund, the issue price shall be 

determined in the manner set out in the 

Authorised Fund Contract and this Offer 

Document; and 

• issues made to Permitted Persons, the 

issue price may be satisfied by the transfer 

or issue to the Fonterra Custodian of one 

fully paid Share where the Fonterra 

Custodian holds the Economic Rights 

arising from the Share transferred or issued 

to it for the Trustee pursuant to the 

Custody Trust Deed. 

148


Where a Unit is issued to or on behalf of a 

Shareholder, including through a settlement 

system, with the issue price satisfied by the 

transfer by or on behalf of that Shareholder 

to the Fonterra Custodian of Shares, then 

such Units must not be retained by or on 

behalf of that Shareholder but must be used 

to settle a sale contract previously entered 

into on the NZX Main Board or the ASX in 

relation to the sale of Units. The Trustee has 

no obligations in relation to monitoring or 

enforcing this. 

Redemption of Units 

Subject to clause 9.2 of the Trust Deed, if any 

Unit Holder wishes some or all of their Units 

to be redeemed, that Unit Holder must give 

notice (Withdrawal Notice) to the Manager or 

such other nominated person. A Withdrawal 

Notice may not be revoked except by 

Fonterra or the RVP. 

The following restrictions apply to the 

redemption of Units: 

• no Withdrawal Notice may be given unless 

the Unit Holder is a Fonterra Shareholder, a 

Registered Volume Provider, or Fonterra; 

• the Manager may refuse to redeem Units 

where to do so would cause, or threaten to 

cause, the Fund to become ineligible to be 

a PIE; and 

• the Manager may refuse to redeem Units 

where to do so would result in any limit or 

threshold from time to time applicable 

under Fonterra’s Constitution, the Trust 

Deed (except for clause 6.1 of the Trust 

Deed) or any relevant legislation being 

exceeded or otherwise not complied with. 

Subject to clauses 9.1 and 9.2 of the Trust 

Deed, the Manager shall procure that within 

one Working Day of receipt of a Withdrawal 

Notice, or within such other period as the 

Manager determines, the relevant number of 

Units are redeemed by the Trustee and shall 

direct that the Fonterra Custodian transfers 

to the holder of those Units one Share for 

each Unit so redeemed. 

Investments 

The Trust Fund shall be invested only in 

Authorised Investments. Authorised 

Investments are Economic Rights, 

Distributions, Benefits, Cash, and any 

investment, asset, right, interest, estate or 

property of any nature whatsoever arising 

directly or indirectly from any Economic 

Rights, Distributions, Benefits and Cash but 

does not include Shares. 

The Manager and the Trustee must not take 

or omit to take any action which would 

prevent the ability of the Fund to continually 

acquire Economic Rights and the Manager 

must enter into arrangements with the 

Fonterra Custodian for the Fonterra 

Custodian to continuously offer to purchase 

Shares during the periods the Fonterra 

Shareholders’ Market is open for trading with 

the Fonterra Custodian holding Economic 

Rights in respect of each such Share acquired 

on trust for the Trustee in accordance with 

the terms of the Custody Trust Deed. 

The Fund is to be a passive investment 

vehicle which must not actively trade in 

Shares or Economic Rights, nor undertake 

any other trading activity but may undertake 

the Supply Offer. 

Neither the Manager nor the Trustee will at 

any time call for, demand or seek, the transfer 

of any part of the trust property held pursuant 

to the Custody Trust Deed to itself, do 

anything or take any step which has the 

purpose or effect of transferring, or otherwise 

vesting, legal title, or any rights or interests, in 

any Shares forming part of the trust property 

held pursuant to the Custody Trust Deed, to 

the Trustee or any other person who is not a 

Permitted Person, or do anything which 

affects the holding of the trust property held 

pursuant to the Custody Trust Deed (except 

as required under clauses 9.3 and 15.1 of the 

Trust Deed). 

Neither the Manager nor the Trustee will: 

• except in the case that any of the 

exceptions in the Custody Trust Deed 

apply, obtain a judgment for the payment 

of money or damages by the Fonterra 

Farmer Custodian in its personal capacity; 

• issue any demand under section 289 of the 

Companies Act (or any analogous provision 

under any law) against the Fonterra Farmer 

Custodian; 

• apply for the liquidation or dissolution of 

the Fonterra Farmer Custodian; 

• levy or enforce any distress or other 

execution to, or on, or against any asset of, 

or held by, the Fonterra Farmer Custodian; 

• apply for the appointment by a Court of a 

receiver or manager to any of the assets of, 

or held by, the Fonterra Farmer Custodian 

from time to time; 

• exercise or seek to exercise any set off or 

counterclaim against the Fonterra Farmer 

Custodian in the performance of its duties 

under the Custody Trust Deed; 

• appoint, or agree to the appointment of, 

any administrator to, or in respect of, the 

Fonterra Farmer Custodian; 

• take any step which would lead to a 

recommendation being made supporting 

the appointment of a statutory manager in 

respect of the Fonterra Farmer Custodian; 

or 

• propose or approve any proposal for 

a compromise under Part XV of the 

Companies Act (or any analogous provision 

under any other legislation having 

substantially similar effect) in respect of 

the Fonterra Farmer Custodian, or take any 

proceedings for any of the above. 

The Trustee shall not act on the direction of 

the Manager to acquire or dispose of any 

Investment in the Fund if, in its opinion, the 

proposed acquisition or disposition is 

manifestly not in the interests of Unit Holders. 

Rights, benefits and entitlements arising 

from Shares 

In respect of Economic Rights and Distributions 

and other Benefits which arise from Economic 

Rights held as Assets: 

• upon receipt of a Cash dividend or other 

Cash Benefits (other than a Supplementary 

Dividend) paid by Fonterra, this will be 

distributed to Unit Holders who were 

recorded in the Register at the same time 

and on the same record date as applied by 

Fonterra to determine the entitlement to 

the cash dividend or other cash Benefits. 

The amount to be paid or transferred to 

each such Unit Holder in respect of each 

Unit held by that Unit Holder as at that 

time, will be equal to the amount Fonterra 

paid or transferred per Share adjusted to 

take into account any Tax Liability of the 

Fund relating to the Unit Holder or any 

adjustments in accordance with section 

HM 48 of the Income Tax Act, and less any 

non-resident withholding tax deducted in 

respect of the Unit Holder and less any 

sum authorised in accordance with an 

Extraordinary Resolution pursuant to 

paragraph 11.1(b)(viii) of Schedule 1 of 

the Trust Deed; 


SECTION 10 

Statutory 


• upon receipt of any Supplementary 

Dividend paid by Fonterra, this will be 

distributed to the Unit Holders that 

entitled Fonterra to apply section LP 2 of 

the Income Tax Act and receive a tax credit 

for the Supplementary Dividend; 

• upon receipt of any imputation credits 

attached to a dividend paid by Fonterra, 

the amount of imputation credits 

attributable to each Unit Holder will be 

determined in accordance with section 

HM 50 of the Income Tax Act; 

• upon the Fonterra Custodian receiving any 

Shares issued by Fonterra as a bonus issue 

in respect of Shares the subject of 

Economic Rights (which will then in turn 

be the subject of Economic Rights), the 

Manager will issue bonus Units to Unit 

Holders who were recorded in the Register 

at the same time and on the same record 

date as was applied by Fonterra to 

determine the entitlement to the bonus 

issue of the Shares. The number of Units 

to be issued to each such Unit Holder in 

respect of each Unit held by that Unit 

Holder as at that time, will be the same 

number as Fonterra issued per Share as its 

bonus issue; 



Custodian the subject of Economic Rights, 

the Right to acquire further Shares, then 

the Manager will give to Unit Holders who 

were recorded in the Register at the same 

time and on the same record date as 

applied by Fonterra to determine the 

entitlement to the Right, the Right to 

acquire further Units so that all directions 

(and appropriate subscription proceeds) 

are received in sufficient time for the 

Manager to instruct the Fonterra 

Custodian how to deal with the Rights 

received from Fonterra in respect of the 

Shares the subject of Economic Rights and 

to meet any payment obligations in respect 

of the Fonterra Rights. Upon the issue of 

Shares to the Fonterra Custodian pursuant 

to the exercise of the Economic Rights by 

the Fonterra Custodian and such Shares 

being the subject of Economic Rights, the 

corresponding number of Units will be 

issued to persons who exercised the Rights 

issued by the Fund; 




the Right to acquire securities other than 

Shares (and other than a security 

Convertible to a Share) then the Manager 

will give to Unit Holders who were 

recorded on the Register at the same time 

and on the same record date as applied by 

Fonterra to determine the entitlement to 

that Right, the Right to acquire those 

securities to be issued by Fonterra; 




the Right to acquire a security Convertible 

to a Share, then the Manager will direct 

the Fonterra Custodian to dispose of 

such Right at the best price reasonably 

obtainable at the relevant time, based on 

advice obtained by the Manager for that 

purpose, and, upon receipt of the sale 

proceeds from the Fonterra Custodian, this 

will be distributed to Unit Holders who 

were recorded on the Register at the same 

time and on the same day as was applied 

by Fonterra to determine the entitlement 

to the Right; and 

• if Fonterra or a third party makes an offer 

to acquire Shares held by the Fonterra 

Custodian which are the subject of 

Economic Rights, the Manager will seek a 

direction from each Unit Holder whether 

or not to accept such offer (being for the 

Manager to direct the Fonterra Custodian 

to accept the offer and for the Manager to 

redeem one Unit for each Share the 

subject of Economic Rights transferred 

pursuant to that offer). Should any such 

offer be accepted by Unit Holders, the 

amount to be paid to the relevant Unit 

Holders who duly elected to accept the 

offer (in proportion to the number of 

Units each such Unit Holder elected be 

redeemed) will be the consideration 

received adjusted to take into account any 

Tax Liability of the Fund relating to the Unit 

Holder, any non-resident withholding tax 

deducted in accordance with section HM 

44B of the Income Tax Act or any 

adjustments in accordance with section 

HM 48 of the Income Tax Act and, 

contemporaneously with the transfer of 

the Shares pursuant to the offer, Units held 

by those Unit Holders who duly accepted 

the offer will be redeemed for that 

consideration. None of the Manager, the 

Trustee or Fonterra has any liability to a 

Unit Holder if the Manager is unable to 

seek a direction from each Unit Holder 

whether or not to accept the offer. If no 

direction is received from a Unit Holder, 

then the Manager will not accept the offer 

for the number of Shares equal to the 

number of Units held by the Unit Holder 

who does not give the direction. 

The Manager, Trustee and each Unit Holder 

is not entitled to, and will not, request or 

require the Fonterra Custodian to: 

• subject to clause 15.3 of the Trust Deed 

(which relates to the Manager being 

entitled to instruct the Fonterra Custodian 

how to vote at a meeting of an interest 

group where the Fonterra Custodian is 

entitled to vote), cast any votes attached 

to or arising from the Shares the subject 

of the Economic Rights and held by the 

Fonterra Custodian appointing or 

procuring the Fonterra Custodian to 

appoint any proxy or representative to 

cast any vote attached to such Shares; or 

• requisition or join in requisitioning any 

meeting of shareholders of Fonterra; or 

• propose or join with any other party in 

proposing any matter for discussion or 

resolution at any meeting of shareholders 

of Fonterra; or 

• attend or speak at any meeting of 

shareholders of Fonterra, 

and Unit Holders are deemed to acknowledge 

that neither the Manager nor the Trustee is 

entitled to exercise such powers. 

Registers 

The Manager must keep an up to date 

Register of Unit Holders. The Manager may 

appoint a Registrar acceptable to the Trustee 

to keep and maintain the Register on the 

Manager’s behalf. 

Transfer and transmission of Units 

Subject to any restrictions in the Trust Deed, 

any Unit Holder may transfer all or any of the 

Units held by that Unit Holder. 

The Manager may decline to register any 

transfer if (without limiting clause 20.3 of the 

Trust Deed): 

• the Manager or the Trustee has a lien on 

any or all of the Units the subject of the 

transfer; or 

150


• the instrument of transfer is not 

accompanied by such evidence as the 

Manager or the Trustee may reasonably 

require to show the right of the transferor 

to make the transfer; or 

• registration of the transfer would result in 

the Fund becoming ineligible as a PIE, or 

would operate to threaten any such 

eligibility; or 

• the registration of the transfer would 

result in a breach of clause 6.1(a) of the 

Trust Deed. 

The Manager or Fonterra may require that 

any Unit Holder holding less than the 

Minimum Number of Units dispose of those 

Units, or acquire further Units to bring the 

relevant holding to the Minimum Number. 

Restrictions on acquisitions, 

enforcement of acquisition restrictions 

and compulsory acquisitions 

No Restricted Transfer (as that term is 

defined in the NZSX Listing Rules) of Units 

may take place if any Transferee under the 

Transfer in question is an Insider (as that term 

is defined in the NZSX Listing Rules) unless: 

• a notice has been given to the Manager 

and to NZX in a manner complying with 

NZSX Listing Rule 10.2.3 for release to the 

market, not later than the time specified in 

the Trust Deed, containing the particulars 

specified in NZSX Listing Rule 4.5.2; 

• a notice of any change in, or addition to, the 

particulars notified in accordance with the 

previous paragraph is given not later than 

the time specified in the Trust Deed; and 

• any Restricted Transfer status report, if 

required under the Trust Deed, has been 

given in accordance with the Trust Deed. 

In the event of a breach of the restrictions on 

acquisitions contained in the Trust Deed, the 

Manager has the power to order the sale of 

the defaulting Unit Holder’s Units. 

If a person acquired a Relevant Interest in 

breach of clause 20 of the Trust Deed (not 

being a breach committed only by the Manager 

or by Fonterra exercising any power of 

disposal under clause 6 of the Trust Deed) no 

Vote may be cast in respect of the Defaulter’s 

Units on a poll while the Default is un-remedied. 

A person or a group of Associated Persons 

that acquires beneficial ownership of 90% or 

more of a Class of Quoted Units (the Majority 

Holder) must give notice of that fact to all 

other holders (the Remaining Holders) of 

Units of that Class, the Manager and NZX. 

Upon becoming the Majority Holder, the 

Majority Holder may acquire all Affected 

Securities held by the Remaining Holders, or, 

any Remaining Holder may require that the 

Majority Holder acquire the Affected 

Securities held by that Remaining Holder. 

Remuneration of Trustee 

The Trustee shall be paid by Fonterra, by way 

of remuneration for its services as Trustee, 

fees agreed from time to time between 

Fonterra and the Trustee. 

Removal and retirement of Trustee 

Subject to Part 2 of the Securities Trustees 

and Statutory Supervisors Act, the Trustee 

may be removed from office as trustee by the 

Manager, with the approval of the High Court. 

The Trustee may retire at any time without 

assigning any reason provided that it has given 

not less than 90 days’ notice in writing to the 

Manager of its intention to do so and either 

all functions and duties of the position have 

been performed, the Manager has appointed 

a new Trustee, or the High Court consents. 

The power of appointing a new Trustee is 

vested in the Manager. No person can be 

appointed as a new Trustee unless they are 

qualified to act as such pursuant to the 

Securities Trustees and Statutory Supervisors 

Act, have been approved by Fonterra and all 

of the Assets of the Trust Fund have been 

transferred from the Trustee to the new 

Trustee. If the Manager fails or refuses to 

appoint a new Trustee, Fonterra will have 

this right. 

Remuneration, removal and retirement of 

Manager 

The Manager shall not be entitled, in respect 

of its services, to any fees. 

No person may be appointed as the Manager 

unless that person has entered into and, 

remains a party to, a deed agreeing to be 

bound by the terms of the Authorised Fund 

Contract, its shareholder (or shareholders) 

has entered into, and remains a party to, a 

deed agreeing to be bound by the terms of 

the Shareholding Deed, that person’s 

appointment has been approved by Fonterra, 

and the constitution of that person provides 

for the appointment of five directors, three of 

whom to be appointed by Unit Holders and 

two of whom to be appointed by Fonterra. 

The Manager will cease to hold office as 

Manager of the Fund if: 

• the Manager is removed from that office by 

the High Court; or 

• the Trustee certifies that it is in the 

interests of Unit Holders that the Manager 

should cease to hold office; or 

• the Unit Holders direct that the Manager 

should cease to hold office; or 

• the Manager is removed from office by 

the Trustee on the grounds of breach of 

the Trust Deed or the Authorised Fund 

Contract, failure to carry out duties to the 

satisfaction of the Trustee, a breach by 

the shareholder of the Manager of the 

Shareholding Deed, or insolvency or the 

like, specified in clause 27.3 of the Trust 

Deed; or 

• the Manager ceases to be qualified to be 

appointed as the Manager. 

The Manager may retire as manager of the 

Fund at any time without assigning any reason, 

upon giving six Months’ notice in writing to 

the Trustee of its intention to do so (or such 

lesser period as the Trustee may agree to). 

No such retirement shall take effect until a new 

Manager has been appointed and has complied 

with the requirements of the Trust Deed. 

The Trustee must, upon a vacancy in the 

office of the Manager occurring, summon a 

meeting of Unit Holders and must take such 

steps as that meeting or any subsequent 

meeting of Unit Holders may require to 

secure the appointment of a new Manager. 

Any new Manager must execute a deed in 

such form as the Trustee may require whereby 

the new Manager undertakes to the Trustee, 

Fonterra and Unit Holders to be bound by all 

covenants on the part of the Manager from 

the date of such appointment, execute a deed 

agreeing to be bound by the Authorised Fund 

Contract in place of the previous Manager, and 

procure that its shareholder enters into an 

agreement (in a manner acceptable to the 

Trustee) for the purposes of clause 27.1(b) of 

the Trust Deed. 

Borrowing and security 

The Trustee has no power to borrow in 

respect of the Fund and the Manager may not 

direct the Trustee to borrow in respect of the 

Fund. Neither the Trustee nor the Manager shall 

have any power to grant any security to any 

person over any part or parts of the Trust Fund. 


SECTION 10 

Statutory 


Auditor 

The auditor of the Fund shall be the same 

auditor as is the auditor of Fonterra unless 

that auditor declines to be the auditor of the 

Fund or Fonterra agrees or requires that the 

Fund have an auditor different from the 

auditor of Fonterra. 

Should the auditor of Fonterra decline to be 

the auditor of the Fund or Fonterra agrees 

or requires that the Fund have an auditor 

different from the auditor of Fonterra, then 

the Manager and Fonterra shall, after 

consultation with the Trustee, appoint the 

auditor of the Fund. 

The Trustee can remove the auditor. 

Meetings of Unit Holders 

The Manager may convene a meeting of Unit 

Holders at any time, but in any event must: 

• convene an annual meeting of Unit 

Holders to be held not less than six 

Months after the end of each Financial 

Year and not later than 15 Months after 

the previous annual meeting; and 

• summon a meeting of the Unit Holders 

upon the request in writing of the Trustee, 

or of one-tenth in number of the Unit 

Holders, or of a Unit Holder or Unit Holders 

holding not less than one-tenth in value of 

the Units at the date of such request. 

Unit Holders of all Classes are entitled to 

attend meetings of Unit Holders and to 

receive copies of all notices, reports and 

financial statements issued generally to Unit 

Holders entitled to vote at meetings of Unit 

Holders, but are not entitled to vote at any 

such meeting unless the terms of the relevant 

Units so provide. 

The Unit Holders will have the ability to 

appoint three directors to the board of the 

Manager in accordance with the following: 

• at the time of the annual meeting of the 

Fund in each year one of the Elected 

Directors shall retire from office; 

• a retiring Elected Director is eligible for 

reappointment; 

• Unit Holders and the Manager shall each 

have the right to nominate persons for 

appointment as Elected Directors at the 

annual meetings of the Fund; 

• the Manager will give notice of the period 

for nominations in accordance with the 

NZSX Listing Rules; 

• the nominee must be an “Independent 

Director” for the purposes of the NZSX 

Listing Rules; 

• Unit Holders shall vote on the nominees 

and any retiring Elected Director seeking 

reappointment and the candidate receiving 

the most votes of Unit Holders at the 

annual meeting of the Fund will be elected 

as one of the Elected Directors of the 

Manager or, if there is more than one 

vacancy, the candidates with the most 

votes will be so elected. If there is only 

one candidate for election, including if 

that candidate is a retiring Elected Director 

seeking re-appointment, the candidate will 

be elected or re-elected (as the case may 

be) if they receive more votes in favour of 

their appointment than opposed to their 

appointment; 

• Unit Holders may remove any Elected 

Directors appointed by Unit Holders by 

an Ordinary Resolution. 

The Unit Holders, by means of a Section 18 

Resolution passed at a meeting of Unit 

Holders, have the power to give such 

directions to the Trustee as they think proper 

concerning the Fund, being directions that 

are consistent with the provisions of the 

Trust Deed and the Unit Trusts Act and 

any direction given by the Financial 

Markets Authority. 

No business may be transacted at any 

meeting unless the requisite quorum is 

present at the commencement of business. 

The quorum for meetings is not less than five 

Unit Holders present in person, by proxy, by 

attorney or by authorised representative. 

Subject to paragraphs 6.6 to 6.8 (both 

inclusive) of Schedule 1 of the Trust Deed and 

any rights or restrictions for the time being 

attached to any Unit, where voting is by show 

of hands or by voice (or any other method 

permitted by the Chairman where 

participation is by means of audio, audio and 

visual, or electronic communication), every 

Unit Holder present (whether present, in 

person or by proxy, attorney or authorised 

representative) has one vote. On a poll every 

Unit Holder present in person or by proxy, 

attorney or authorised representative has, in 

respect of each Unit held by that Unit Holder, 

one vote. A resolution put to the vote of a 

meeting will be decided on a show of hands 

unless a poll is demanded by the Chairman, 

the Trustee, or a Unit Holder or Unit Holders 

representing not less than 10% of the total 

Voting Rights of all Unit Holders having the 

right to vote at the meeting. 

Subject to clause 4.5 of the Trust Deed 

and paragraph 12.1 of Schedule 1 of the 

Trust Deed, a meeting of Unit Holders has 

the following powers exercisable by 

Extraordinary Resolution: 

• to sanction the exchange of Units for, or 

the conversion of Units into, shares, stock, 

debentures, debenture stock or other 

obligations or securities of any company, 

trust, fund or scheme, or other person, 

formed or to be formed; 

• to sanction any alteration, release, 

modification, waiver, variation or compromise 

or any arrangement in respect of the rights 

of the Unit Holders howsoever such rights 

shall arise; 

• to assent to any alteration, modification 

of, variation, or addition to the provisions 

contained in the Trust Deed or other 

agreement or deed, or the conditions 

attaching to the Units and to authorise 

the Manager and Trustee to concur in 

and execute any supplemental trust 

deed or other document embodying any 

such alteration, modification, variation, 

or addition; 

• to give any sanction, assent, release or 

waiver of any breach or default by the 

Manager, Fonterra or the Trustee under 

any of the provisions of the Trust Deed; 

• subject to the Unit Trusts Act, to 

discharge, release or exonerate the 

Manager, Fonterra or the Trustee from all 

liability in respect of any act or omission 

for which the Manager, Fonterra or the 

Trustee has or may become responsible 

under the Trust Deed; 

• to give directions to the Trustee as to the 

appointment of a new Manager; 

• to terminate the Fund; and 

• to sanction any proposal by the Manager 

to investigate whether the Manager or the 

Trustee or the Fonterra Custodian has the 

right to exercise or enforce rights or any 

claim, and / or to exercise or enforce any 

such rights or claim, and fund the 

investigation and enforcement of any 

of those rights or claims, including by 

deducting the costs from any distributions 

payable to Unit Holders. 

152


An Extraordinary Resolution passed at a 

meeting duly convened and held in 

accordance with the Trust Deed is binding 

upon all Unit Holders, provided that a 

resolution which affects the rights or powers 

granted to Fonterra pursuant to the Trust 

Deed will not be of effect unless Fonterra so 

agrees, and no variation may be made to 

clause 4.5, 4.6, 4.7 or 4.8 of the Trust Deed 

unless the Fonterra Unit Holder so agrees. 

Amendments to Trust Deed 

Subject to obtaining any consent required 

from the Fonterra Unit Holder, the Trustee, 

Fonterra and the Manager may at any time 

make any alteration, modification, variation 

or addition to the Trust Deed (by means of a 

deed executed by the Trustee, Fonterra and 

the Manager) if: 

• in the opinion of the Trustee, it is made to 

correct a manifest error or is of a minor, 

formal, administrative or technical nature; 

• in the opinion of the Trustee, it is necessary 

or desirable for the more convenient, 

economical or advantageous working, 

management or administration of the 

Fund, or for safeguarding or enhancing the 

interests of the Fund or Unit Holders or 

any Class thereof; 

• in the opinion of the Trustee it is not, or is 

not likely to become, prejudicial to the 

interests of the Unit Holders generally; 

• it is authorised by an Extraordinary 

Resolution of Unit Holders; 


or desirable to obtain or maintain listing of 

the Units on any stock exchange; 


for the Fund to comply with any obligation 

or requirement in the Income Tax Act, the 

TAA or any other statute or regulation (or 

any administrative requirement of the 

Inland Revenue or any other revenue 

authority) relating to a PIE; 


to enable the Fund to take all or any actions 

and make all or any determinations, decisions 

or elections relevant to the taxation 

treatment or taxation status of the Fund; or 


or desirable to comply with any statute or 

regulation or the requirement of any 

statutory authority, or it is to give effect to 

any modifications, alterations or variations 

arising from the operation of clause 1.4 of 

the Authorised Fund Contract. 

Trustee’s and Manager’s liabilities and 

indemnities 

The Trustee and the Manager, in incurring 

liability in connection with the affairs of the 

Fund or the Trust Fund, are deemed to be 

acting on behalf of the Fund and not in their 

own respective capacities. Neither the 

Trustee nor the Manager are under any 

personal liability for the satisfaction of any 

obligation or claim arising out of any 

obligation of the Fund. 

The Trustee, Fonterra and the Manager will 

each be liable to the Trust Fund for any loss 

arising out of wilful default or wilful breach of 

trust but subject thereto none of the Trustee, 

Fonterra nor the Manager will be liable to the 

Fund or to any Unit Holder for any act or 

omission as a result of acting as Trustee or 

Manager or, in the case of Fonterra, 

undertaking, or not undertaking, any matter 

under the Trust Deed. 

No provision of clauses 34.1 to 34.3 of the 

Trust Deed shall have the effect of exempting 

the Trustee or Manager or any of their 

directors or officers from, or indemnifying any 

such person against, any liability for breach of 

trust where the requisite degree of care and 

diligence has not been shown, having regard 

to the provisions of the Trust Deed. 

Trustee’s powers and covenants 

Subject to the matters set out under the 

heading “Restrictions” above, the Trustee has 

the power to settle and complete all 

transactions in respect of the Fund. Subject to 

the provisions in the Trust Deed and the Unit 

Trusts Act, the Trustee shall have all powers 

which it could exercise if it were the absolute 

and beneficial owner of the Trust Fund. 

The Introduction to the Trust Deed sets out 

the transactions intended to be entered into 

on behalf of the Fund. The wider powers of 

investment under section 13A of the Trustee 

Act 1956 (New Zealand) and any provisions of 

law which impose obligations on the Trustee 

in respect of the diversification of 

investments do not apply to the Trust Deed 

or the Fund. The Trustee is not required to 

exercise any care, diligence and skill that a 

prudent person might otherwise exercise in 

monitoring the performance of the 

Authorised Investments. 

Taxation 

The Trustee or Manager may deduct or 

require to be deducted from any amount 

otherwise payable to, or to be applied in 

respect of, a Unit Holder an amount equal to 

the PIE tax payable by the Fund in respect of 

amounts attributed to the Unit Holder or any 

withholding tax withheld or deducted in 

respect of that Unit Holder. Such amounts 

are to be applied in: 

• payment of the relevant taxation amount 

to the person or authority entitled thereto; 

or 

• reimbursement of the Trustee or the 

Manager for any corresponding amount 

paid from their own funds; and 

• any balance shall be refunded to the 

Unit Holder. 

Each Unit Holder shall indemnify the Trustee 

and the Manager in respect of any taxation 

amount paid or payable by the Manager or 

the Trustee in respect of the Unit Holder. 

The Manager and Fonterra have (among 

other powers) the power and discretion to 

take all steps as the Manager considers 

necessary or desirable to ensure the Fund is 

eligible or continues to be eligible as a PIE, or 

otherwise to comply with the requirements 

of the Income Tax Act relating to PIEs. 

Termination 

See Section 5 – Trading Among Farmers in 

Detail for a description of these matters 

under the heading entitled “Termination of 

the Fund”. 

Restrictions on investment 

The Manager may only invest the Fund in: 

• Economic Rights derived from the holding 

of Shares in Fonterra; 

• Distributions; 

• any benefits, entitlements and rights which 

arise from the Economic Rights and from 

Distributions; 

• cash; and 

• any investment, asset, right, interest, estate 

or property of any nature whatsoever 

arising directly or indirectly from any of the 

items set out above. 


SECTION 10 

Statutory 


ACTIVITIES 

The Fund was established by Trust Deed 

dated 23 October 2012, and has made no 

investment or undertaken other material 

activities during the five years preceding 

the date of this Offer Document on which 

to report. 

Investment policy 

The Fund will acquire Economic Rights derived 

from the holding of Shares in Fonterra. The 

Fund will not hold any Shares in Fonterra. 


Farmer Custodian, who will declare a trust in 

respect of the Economic Rights of Shares in 

favour of the Trustee. 



Fund, and the Fund is designed to have the 

effect that each Unit on issue in the Fund will 

represent the Economic Rights derived from 

the holding of a single Share. 

The Trust Deed defines a narrow function of 

the Fund which is, in summary, to: 

• issue Units when new Economic Rights are 

held for the benefit of the Fund; 

• redeem Units when required by a Farmer 

Shareholder, Fonterra or the RVP and 

procure that the Fonterra Farmer 

Custodian transfers a Share to the Farmer 

Shareholder, Fonterra or the Fonterra 

Farmer Custodian on behalf of the RVP 

seeking that redemption; and 

• not undertake other trading activities. The 

Fund is to be “passive” i.e. it will not actively 

solicit Economic Rights or the redemption 

of Units except for undertaking the initial 

Supply Offer. 

The scope and role of the Fund may only be 

altered by the Manager and the Trustee with 

the prior written consent of the Fonterra 

Unit Holder. 

Historical performance 

The Fund was established by Trust Deed dated 

23 October 2012, and other than in 

connection with preparing for the Offer has 

not undertaken any activities since it was 

established. As such, the Fund has no 

historical investment performance during the 

five years preceding the date of this Offer 

Document on which to report. 

Distributions 

The Trust Deed provides that where the 

Fonterra Board pays a dividend or makes any 

other distribution on a per-Share basis, the 

Fund will pass on that dividend or distribution 

to Unit Holders on a per-Unit basis (less any 

PIE tax, withholding tax or any other 

adjustments for tax in relation to that Unit 

Holder). Similarly, where Fonterra issues 

Shares (e.g. a bonus issue), the Shares to 

which the Fonterra Farmer Custodian is 

entitled (by virtue of the Shares already held 

by it for the purpose of the Fund) will be 

issued to the Fonterra Farmer Custodian and 

the Manager will make a corresponding issue 

of Units to Unit Holders. For further 

information, refer to the heading “Further 

detail on Economic Rights” in Section 5 – 


Fonterra’s distribution policy will ultimately 

determine the distributions, if any, made by 

the Manager on Units. Details of Fonterra’s 

distribution policy are set out under the 

heading “What returns will I get” in the section 

entitled Answers to Important Questions. 

No undertaking or guarantee 

None of the Manager, Fonterra, Fonterra’s 



officers, employees, agents, consultants, 

partners or advisers gives any guarantee, 

undertaking or promise as to the return of 

capital or the amount of any returns (including 


Unit Holder liability 

There are no liabilities (including contingent 

liabilities) which may be incurred by Unit 

Holders in relation to the Fund other than 

in respect of payment of the Final Price. 

The Trust Deed provides that no Unit Holder 

will be, or will become, personally liable in 

respect of any debt or liability of the Fund and 

no Unit Holder will be liable to indemnify the 

Trustee or the Manager in respect of any debt 

or liability, except on account of that Unit 

Holder’s own tax liability incurred in respect 

of the Fund or that Unit Holder’s Units. 

SuMMary financial 

statements 


dated 23 October 2012. Accordingly, no 

financial statements of the Fund have 

been prepared. 

Minimum subscription 

In order for Fonterra to cease to be required 

to issue and redeem Shares, DIRA requires 

that the minimum size of the Fund at the 

Launch Date be $500 million. As a result, 

Units will only be allotted if there is sufficient 

demand from prospective Unit Holders such 

that the number of Units issued at the 

Launch Date, multiplied by the Final Price, 

equals or exceeds $500 million. Pending 

allotment of the Units, all Application Monies 

will be held on trust for the benefit of 

Applicants and Fonterra. If this minimum 

threshold is not reached, Application Monies 

will be refunded in full, without interest. Any 

interest on Application Monies will be paid to 

Fonterra to offset against its issue costs. 

Given one Unit will be issued for each Share 

held by the Fonterra Farmer Custodian in 

respect of which the Economic Rights are 

held for the Trustee, it is necessary that one 

Share be transferred to the Fonterra Farmer 

Custodian in respect of each Unit to be 

issued. Contemporaneously with the Offer, 

Fonterra on behalf of the Fund is making the 

Supply Offer for Farmer Shareholders to sell 

Economic Rights of Shares to the Fund. The 

purchase price for Economic Rights of Shares 

under the Supply Offer will be equal to the 

subscription price for Units under the Offer 

(i.e. the Final Price). In the event that more 

Economic Rights of Shares are tendered by 

Farmer Shareholders under the Supply Offer 

than the number of Units to be issued under 

the Offer, the Supply Offer will be scaled. If 

the number of Economic Rights of Shares 

tendered in the Supply Offer is insufficient, 

Fonterra has agreed to issue Shares to the 

Fonterra Farmer Custodian to meet the 

shortfall. 

154


Acquisition of busineSS 

or equity securities 

Acquisition of ECONOMIC Rights 

The Fund has been established to acquire 

Economic Rights derived from the holding of 

Shares in Fonterra. The Fund will not hold any 

Shares in Fonterra. Shares will instead be held 

by the Fonterra Farmer Custodian, who will 

declare a trust in respect of the Economic 

Rights of Shares and hold those Economic 

Rights in trust for the Trustee. 

The amount payable for the acquisition of 

Economic Rights on the initial creation of the 

Fund in connection with the Offer will equal 

the Final Price at which Units are allotted 

pursuant to the Offer. After this initial public 

offering of Units, the Fund will acquire 

additional Economic Rights and issue further 

Units as described above. 

SUMMARy of Fonterra’s activities 

Fonterra Co-operative Group Limited was 

created in October 2001, as a result of several 

decades of consolidation in the New Zealand 

dairy industry. Details in relation to the 

business carried on by Fonterra are included 

in Section 1 – About Fonterra. 

SUMMARy financial statements 

As required by clause 11(3)(c) of Schedule 4 to 

the Securities Regulations, summary financial 

statements for Fonterra in respect of the five 

accounting periods preceding the date of this 

Offer Document that comply with clause 8(2) 

to (4) of Schedule 4 (with any necessary 

modifications) are included in Section 11 – 

Summary Financial Statements. 

The most recent financial statements for 

Fonterra dated 25 September 2012 that 

comply with, and have been registered under, 

the Financial Reporting Act 1993 (New 

Zealand) for the accounting period ended 

31 July 2012 were registered with the Registrar 

of Companies on 19 October 2012 and may 

be viewed on the Companies Office website 

at www.business.govt.nz/companies. 

Options and units paid up 

otherwise than in cash 

No options to subscribe for Units in the Fund 

have been, or are at the date of this Offer 

Document proposed to be, issued. 

No Units in the Fund have been issued for a 

consideration other than cash. After the initial 

issue pursuant to this Offer Document, Units 

will be issued to Farmer Shareholders and the 

RVP in exchange for the transfer of Shares to 

the Fonterra Farmer Custodian, which in turn 

will hold the Economic Rights to those Shares 

in trust for the Trustee. All Units which are 

issued in consideration for the acquisition of 

Economic Rights in the manner described 

above will be issued as fully paid up. There is 

no maximum number of Units that may be 

issued by the Fund. 

Interested persons 

Promoters 

Fonterra will meet its own costs as a 

promoter of the Offer. Fonterra will also pay 

the fees and expenses of its directors. 

Trustee 

Under the Trust Deed, Fonterra will pay the 

Trustee’s fees (as agreed from time to time 

with the Trustee) as remuneration for its role 

as Trustee of the Fund. Under the Authorised 

Fund Contract, Fonterra has agreed to pay 

the costs and expenses of the Trustee. 

Manager 

Under the Unit Trust Deed, the Manager 

is not entitled, in respect of its services, 

to any fees. 

Under the Authorised Fund Contract, 

Fonterra will pay or reimburse the operating 

costs of the Manager. For any unbudgeted 

costs or expenses, Fonterra will co-operate 

with the Manager to agree an additional 

allowance for such costs or expenses. There 

are some limitations on the costs that 

Fonterra will pay, as described in Section 5 

– Trading Among Farmers in Detail. 

Fonterra also agrees under the Authorised 

Fund Contract to pay the costs and expenses 

payable by the shareholder of the Manager. 

The role of the shareholder is described 

further in Section 5 – Trading Among Farmers 

in Detail under the heading “The Manager”. 

Joint Lead Managers 

Fonterra has appointed the Joint Lead 

Managers to manage the Offer. That 

appointment was on terms that are 

customary in relation to the appointment 

of persons providing investment banking 

services, including the payment of fees. 

Certain fees and expenses of the Joint Lead 

Managers will be paid by Fonterra. 


SECTION 10 

Statutory 


Material contracts 

1. Trust Deed 

Date: 23 October 2012 

Parties: 

General nature: 


The New Zealand Guardian Trust Company Limited, as Trustee of the Fund 

FSF Management Company Limited, as Manager of the Fund 

A deed establishing the Fonterra Shareholders’ Fund, a unit trust established under the Unit Trusts Act. For a detailed summary 

of the terms of the Trust Deed, see under the heading “Description of unit trust and its development” earlier in this section 

2. Fonterra Farmer Custodian Trust Deed 


Parties: 


Fonterra, as settlor 

Malcolm Guy Bailey, Brian Paul Todd and Kevin John Turnball, as trustees 

Fonterra Farmer Custodian Limited, as the Fonterra Farmer Custodian 

A deed establishing the Fonterra Farmer Custodian Trust whereby the trustees hold all the shares in Fonterra Farmer Custodian 

Limited and the Fonterra Unit 

3. Custody Trust Deed for the Fonterra Economic Rights Trust 


Parties: 


Fonterra, as settlor 




A deed pursuant to which the Fonterra Farmer Custodian holds legal title to Shares which are transferred to it and declares a trust 

in respect of Economic Rights in those Shares for the Trustee of the Fund, with the final beneficiary of this trust being Fonterra 

4. Authorised Fund Contract 


Parties: 






An agreement to provide for the establishment of the Fund, to authorise the Fund to be, and operate as, an “Authorised Fund” 

for the purposes of Fonterra’s Constitution, and to regulate the relationship between Fonterra and the Fund once the Fund has 

been established 

5. Shareholding Deed 


Parties: 


6. Offer Management Agreement 


Parties: 

Trustees Executors Limited, as shareholder of the Manager of the Fund 



A deed to record the terms on which Trustees Executors Limited will be the sole shareholder of FSF Management Company Limited 



Craigs Investment Partners Limited, together with Deutsche Bank AG, New Zealand branch, Goldman Sachs New Zealand 

Limited and UBS New Zealand Limited, as Joint Lead Managers 

156



An agreement to provide for the obligations of the Joint Lead Managers in relation to the operation of the bookbuild and also 

provide arrangements whereby the Joint Lead Managers are obliged to provide settlement support in respect of Applications under 

the Institutional Offer and in respect of uncleared payments of Application Monies under the Stakeholder Offer and the Broker 

Firm Offer. The Joint Lead Managers may terminate the Offer Management Agreement in certain circumstances, including, where 

on or before 5.00pm on 28 November 2012: 

• any material adverse change or event occurs which is likely to materially adversely affect Fonterra or the Fund; 

• an insolvency event occurs in relation to Fonterra or the Manager; 

• the Offer Document, any invitations to apply for Units under the Offer Document or any part of the Offer is withdrawn by 

Fonterra or the Manager; 

• the Manager is unable to issue the Units under applicable law; or 

• any of the following occurs, and, in the reasonable opinion of the Joint Lead Managers is likely to have a material adverse 

effect on the Offer, or, is likely to give rise to a contravention of applicable law: 

– particular disruptions in certain major financial markets following the successful completion of the bookbuild in relation to 

the Offer; 

– any information or statement contained in the Offer Document is untrue, inaccurate, misleading or deceptive (including 

by omission); 

– a representation or warranty contained in the Offer Management Agreement on the part of Fonterra or the Manager is 

not true or correct; or 

– a breach of the Offer Management Agreement on the part of Fonterra or the Manager; or 

– a contract material to the Offer is terminated, amended , entitled to be terminated, or breached by Fonterra or the Manager. 

The Joint Lead Managers have a more limited termination right from 5.00pm on 28 November 2012 to 11.00pm on 29 

November 2012. Pursuant to the terms of the Offer Management Agreement, the sole recourse of each Joint Lead Manager in 

the event of any breach of any obligation of the Manager of the Fund under that agreement (other than in the event of fraud or 

wilful default) will be against Fonterra. 

Pending proceedings 

There are no legal proceedings or arbitrations 

that are pending at the date of this Offer 

Document that are expected to have a material 

adverse effect on the Fund. On 31 October 

2012, Fonterra Brands (Australia) Pty Ltd 

received notice of a number of warranty claims 

which, on their face, total approximately 

A$103 million from the purchaser of its former 

Western Australian dairy business. Fonterra has 

not been able to fully analyse the substance, 

extent or materiality of the claims in the context 

of Fonterra’s overall business. If the claims 

are not resolved through the agreed dispute 

resolution process they may become the 

subject of litigation, which Fonterra will defend. 

Issue expenses 

Issue expenses (including brokerage and 

commission, expenses in relation to the Unit 

registry, legal fees, accounting fees, advertising 

costs, printing costs, postage and courier costs) 

relating to the Offer are estimated to amount to an 

aggregate of $17.2 million of which $12.6 million 

is brokerage and commission as detailed below. 

Fonterra will pay all costs and expenses 

associated with the Offer (other than certain 

fees and expenses inccured by the Joint 

Lead Managers). 

Fonterra will pay the Joint Lead Managers: 

• a commission of 1.95% of the gross 

proceeds of the Offer, payable to the Joint 

Lead Managers in equal proportions (Base 

Fee); and 

• at Fonterra’s absolute discretion, a 

discretionary fee of up to 0.45% of the 

gross proceeds of the Offer. 

The Joint Lead Managers will pay Co-Lead 

Managers, Co-Managers and NZX Firms 

certain fees as agreed between them 

including a commission of 1.50% of the gross 

proceeds in respect of Units allotted pursuant 

to valid Applications bearing their stamp 

submitted under the Broker Firm Offer. 

Other than as set out above, none of the 





partners or advisers will be liable for any 

fees payable to the Co-Lead Managers, 

Co-Managers, NZX Firms, or any participants 

in the bookbuild process. 

Other terms of Offer 

and Units 

All terms of the Offer are set out in this Offer 

Document except for those implied by law and 

those contained in the Trust Deed or otherwise set 

out in a document that has been registered with 

a public official, is available for public inspection 

and is referred to in this Offer Document. 

Financial statements 

and auditor’s report 


dated 23 October 2012. Accordingly, no 

financial statements for the Fund or Auditor’s 

report have been prepared. 

Places of inspection 

of documents 

Copies of the Trust Deed (and any amendments 

to the Trust Deed), material contracts disclosed 

in this Offer Document, the latest financial 

statements of the Fund (if any) and the latest 

annual report for the Fund may be inspected 

during normal business hours without payment 

of any fee at the office of the Manager of the 

Fund, at 9 Princes Street, Auckland 1010, 

New Zealand, or at the office of the Trustee, 

Level 7, Vero Centre, 48 Shortland Street, 

Auckland 1010, New Zealand. 

Copies of the Trust Deed (and any 

amendments to the Trust Deed), the latest 

financial statements of the Fund (if any) 

and any material contracts disclosed in 

this Offer Document can also be inspected 

online on the Companies Office website 

under the Manager’s file reference at 

www.business.govt.nz/companies. Copies 

of these documents may also be obtained 

(on payment of a fee, if applicable) by 

telephoning the Ministry of Business, 

Innovation and Employment Business Service 

Centre on 0508 266 726 or by emailing 

info@companies.govt.nz. 

Other material matters 

As at the date of this Offer Document, there 

are no other material matters relating to the 

Fund, other than those set out elsewhere in 

this Offer Document, or in contracts entered 

into in the ordinary course of business of 


Manager’s statement 

The directors of the Manager, after due 

enquiry by them, are of the opinion that 

between the date of the Trust Deed 

constituting the Fund and the date of this 

Offer Document, there has not been any 

material adverse change: 

• in the value of the Fund’s assets relative to 

its liabilities (including contingent 

liabilities); or 

• the ability of the Fund to pay its debts as 

they come due in the normal course of 

business during the period between. 


SECTION 10 

Statutory 


Waivers / rulings 

obtained from NZX in 

respect of the Fund 

NZX has granted the following rulings or 

waivers to the Fund: 

(a) a waiver from NZSX Listing Rule 3.1.1(a) to 

the extent that NZSX Listing Rule 3.1.1(a) 

would require the Trust Deed to incorporate 

provisions consistent with, or having the 

same effect as, NZSX Listing Rules 3.3.10 

and 3.4.3 (for which separate waivers 

have been granted as described below); 

(b) a ruling from NZX that clause 4.5(c) of 

the Trust Deed represents a “contrary 

intention” appearing in the constitution, 

for the purposes of NZSX Listing Rule 

3.1.1(d), such that no act or omission 

which seeks to circumvent the rights of 

the holder of the Fonterra Unit could be 

authorised by a ruling granted by NZX; 

(c) waivers from the following NZSX Listing 

Rules, due to the procedure for the 

appointment of the directors of the 

Manager being inconsistent with: 

(i) NZSX Listing Rule 3.3.5 to the extent 

necessary to allow Fonterra to 

appoint two directors to the Board of 

the Manager, even though Fonterra is 

not a Unit Holder and to allow a 

precondition to be imposed in 

respect of persons who may be 

nominated by Unit Holders to fill 

three director positions, that those 

candidates be Independent for the 

purposes of the NZSX Listing Rules; 

(ii) NZSX Listing Rule 3.3.10 so that only 

Fonterra may remove its Appointed 

Directors from the Board of the 

Manager in accordance with the 

constitution of the Manager; and 

(iii) NZSX Listing Rule 3.3.11 to the extent 

that the Fonterra Appointed 

Directors are not subject to the 

requirement to retire by rotation but 

are subject to removal by a direction 

from Fonterra, with the effect that 

the reference to “Directors” in NZSX 

Listing Rule 3.3.11 refers solely to the 

directors of the Manager appointed 

by the Unit Holders; 

The waivers described in this paragraph 

(c) are conditional upon the Fund bearing 

a “Non-Standard” designation to alert the 

market of the Fund’s unique governance 

arrangements, and upon Fonterra only 

appointing and removing appointed 

directors in accordance with the 

provisions of the constitution of the 

158 

Manager and the Trust Deed. (Details of 

the governance arrangements for the 

Manager are set out under the heading 

“The Manager and its Directors” in 

Section 2 – Governance Framework); 

(d) a ruling that no director of the Manager 

is “interested” in any matter, within the 

meaning assigned to that term in section 

139 of the Companies Act, solely because 

that person is a director of the Manager; 

(e) a waiver from NZSX Listing Rules 3.5.1 

and 3.5.2 to permit the directors of the 

Manager to be paid by the Manager 

without the approval by an ordinary 

resolution of Unit Holders. The waiver 

from NZSX Listing Rules 3.5.1 and 3.5.2 

is conditional upon the Fund bearing a 

“Non-Standard” designation to alert the 

market to the Fund’s unique governance 

arrangements. (Details of the 

remuneration and how it may be varied is 

set out under the heading “Remuneration 

of directors of the Manager” in Section 2 

– Governance Framework); 

(f) a ruling that a transfer of Units to 

Fonterra will not be a “restricted transfer” 

for the purposes of that definition in 

NZSX Listing Rule 4.1.1, because DIRA 

prohibits Fonterra from exercising voting 

rights in respect of any Units that it holds; 

(g) a waiver from NZSX Listing Rule 5.1.10 to 

permit the Trust Deed to omit the 

information required under paragraphs 

(a) (that the Trustee is entitled to appoint 

an independent valuer to value the assets 

of the Fund) and (c) (that if the office of 

the Trustee is vacated and a new Trustee 

not appointed within two months, the 

Fund be wound up) of Appendix 10 to 

the NZSX Listing Rules. (Details of the 

termination provisions relating to the 

Fund are set out under the heading 

“Termination of the Fund” in Section 5 

– Trading Among Farmers in Detail); 

(h) a waiver from NZSX Listing Rule 7.3 to 

allow the Manager to issue Units as set 

out in the Trust Deed, without requiring 

the approval of the Unit Holders; 

(i) a waiver from NZSX Listing Rule 7.4 to 

permit the Fund to pass on any Benefit or 

Distribution (as those terms are defined 

in the Trust Deed) to Unit Holders that 

Fonterra passes on to Shareholders, 

without requiring Unit Holders’ approval. 

(The manner in which such Benefits and 

Distributions may be distributed is set 

out under the heading “Further details on 

Economic Rights” in Section 5 – Trading 

Among Farmers in Detail); 

(j) a ruling that a holding of an interest in 

units that is less than 15 per cent of the 

total number of Units on issue, or the 

total voting rights, shall not amount to 

“effective control” for the purposes of 

NZSX Listing Rule 7.5; 

(k) a waiver from NZSX Listing Rules 7.6.1 and 

7.6.2 to the extent necessary to allow 

Unit Holders to redeem Units as required 

by the Trust Deed, without requiring prior 

Shareholder approval or any other 

restrictions. (The persons who may 

require a Unit to be redeemed and the 

circumstances when Units may be 

redeemed is set out under the heading 

“Redemption of Units” in Section 5 – 

Trading Among Farmers in Detail); 

(l) a waiver from NZSX Listing Rules 8.1.3 

and 8.1.4 in respect of the pricing of Units 

issued in accordance with the Trust Deed 

to reflect Shares transferred or issued to 

the Fonterra Farmer Custodian. (An 

outline of the process by which the Fund 

will continuously issue Units following 

the launch of the Fund is set out under 

the heading “Ongoing issues of Units” in 

Section 10 – Statutory Information); 

(m) a ruling from NZX that the acquisition or 

disposal of Economic Rights of Shares in 

accordance with the Trust Deed and the 

issue or redemption of Units in accordance 

with the Trust Deed are not a “series of 

linked or related transactions” for the 

purposes of NZSX Listing Rule 9.1.1 and 

not a “related series of transactions” for 

the purposes of NZSX Listing Rule 9.2.2; 

(n) a ruling that the entry into, and the 

performance of obligations under, the 

Authorised Fund Contract, is not a major 

transaction or series of linked or related 

transactions for the purposes of NZSX 

Listing Rule 9.1.1, nor a material 

transaction with a related party for the 

purposes of NZSX Listing Rule 9.2; 

(o) a waiver from the requirements in NZSX 

Listing Rule 9.1.1 and in NZSX Listing Rule 

9.2 to seek Unit Holder approval to allow 

the Fund to dispose of its assets as 

permitted by the termination provisions 

of the Trust Deed. (Details of the 

termination provisions relating to the 

Fund are set out under the heading 

“Termination of the Fund” in Section 5 

– Trading Among Farmers in Detail.) 

NZX has also granted approval, in accordance 

with NZSX Listing Rule 11.1.5, to the restriction 

contained in the Trust Deed allowing the 

Manager to refuse to register a holding that 

would cause a Unit Holder and its Associates


(other than Fonterra) to have a Relevant 

Interest in more than 15% of Units on issue 

or voting rights, and may require a sell down 

if this level is exceeded, or would cause the 

Fund to become ineligible as a PIE or threaten 

any such eligibility. 

Waivers / confirmations 

obtained from ASX in 

respect of the Fund 

ASX has made an in-principle decision to 

grant waivers from, and confirmations in 

relation to, the ASX Listing Rules. Due to 

the novel structure of the Fund and the NZX 

Main Board being the primary exchange, the 

ASX waivers and confirmations will, among 

other things: 

• enable the operation of the Trust Deed 

generally; 

• permit the ongoing issue / redemption of 

Units feature of the Fund without Unit 

Holder approval; and 

• give primacy to the NZSX Listing Rules 

and New Zealand laws, to the extent of any 

inconsistency with the ASX Listing Rules. 

The key waivers and confirmations to be 

granted include: 

• confirmation that ASX has no objection 

to the Trust Deed on the condition that 

it includes the modified provisions of 

Appendix 15A of the ASX Listing Rules as 

set out in, and confirmation that ASX 

Listing Rule 15.11.1 will be satisfied through 

the inclusion of, clauses 2.5 and 2.6 of the 

Trust Deed – with the effect that the Trust 

Deed is not required to comply with the 

ASX Listing Rules to the extent of any 

inconsistency with the NZSX Listing Rules 

(subject to any waivers and rulings 

obtained from time to time); 

• ASX Listing Rule 1.1 Condition 5: a waiver to 

permit the Manager to allow the redemption 

of Units by Permitted Persons in accordance 

with the Trust Deed; 

• ASX Listing Rules 8.10, 8.11, 6.8, 6.9, 6.10.5, 

6.12.3 and 15.14: waivers and confirmations 

to permit the Trust Deed to contain 

provisions allowing the Manager to enforce 

a 15% ownership restriction on the holding 

of Units or voting rights in connection 

with Units; 

• ASX Listing Rule 6.8 and 6.9: waivers to 

reflect the terms, and the underlying 

statutory context, of the Fonterra Unit; and 

• ASX Listing Rule 7.1, 10.1 and 10.11: waivers 

to allow the issue by the Fund of one Unit 

for each Share sold to the Custodian 

without Unit Holder approval as part of the 

ongoing sale of Shares and issue of Units 

feature of Trading Among Farmers. 

Securities Act exemptions 

The Financial Markets Authority has granted 

exemptions from the Securities Act in relation 

to the implementation and operation of 

Trading Among Farmers. For the purpose of 

these exemptions, described below, a 

reference to “shareholders” means either of 

the following: 

• a person whose name is entered in the 

Share register maintained by Fonterra as 

the holder of a Share; or 

• a person whose application to become a 

holder of a Share has been accepted in 

writing by Fonterra. 

The following exemptions from the Securities 

Act have been granted by the Financial 

Markets Authority: 

(a) an exemption for Fonterra, the Manager, 

and every person acting on behalf of 

either or both of them from sections 

33(1), 37 and 37A of the Securities Act 

and the Securities Regulations (except 

regulation 23) in respect of Shares that 

have been previously allotted by Fonterra 

to the Fonterra Farmer Custodian on the 

Allotment Date and are subsequently 

offered to shareholders by the Manager; 

(b) an exemption for Fonterra, any Registered 

Volume Provider, and every person acting 

on behalf of either or both of them from 

sections 33(1), 37 and 37A of the Securities 

Act and the Securities Regulations 

(except regulation 23) in respect of 

Shares that have been previously allotted 

by Fonterra to the Fonterra Farmer 

Custodian on the Allotment Date and are 

subsequently offered to shareholders by 

the Registered Volume Provider; 

(c) an exemption for the Manager and every 

person acting on its behalf from sections 

33(1), 37 and 37A of the Securities Act and 

the Securities Regulations (except 

regulation 23) in relation to Units offered 

and allotted to a Shareholder as 

consideration for the transfer of Shares 

by that shareholder if those Units are 

used to settle a sale contract previously 

entered into on the NZX Main Board or 

ASX in relation to the sale of Units. 

The exemptions referred to in paragraphs 

(a) and (b) above are subject to the 

following conditions: 

(d) at the time of the allotment of Shares to 

the Fonterra Farmer Custodian, there is a 

registered prospectus for the Units; 

(e) it is an implied term of every offer of 

the Shares to shareholders to which 

paragraphs (a) and (b) above relate that, 

except to the extent disclosed for the 

purposes of the offer of the Shares, the 

offeror has no information in relation to 

Fonterra that is not publicly available and 

that would, or would be likely to, affect 

materially the price of the Shares if it 

were so disclosed; and 

(f) for the purposes of paragraph (e) above, 

an offeror is not to be taken to have 

information in relation to Fonterra if: 

(i) arrangements existed to ensure that 

no individual who took part in the 

decision to offer the Shares to the 

public received, or had access to, that 

information or was influenced, in 

relation to that decision, by an 

individual who had that information; 


(ii) no individual who took part in the 

decision to offer the Shares to the 

public received, or had access to, that 

information or was influenced, in 

relation to that decision, by an 

individual who had that information. 

ASIC relief 

ASIC has granted the following relief from 

various provisions of the Corporations Act in 

respect of the ongoing activities of the Fund: 

• A declaration that the Fund be registered 

as a managed investment scheme under 

the Corporations Act, but only for the 

purposes of the continuous disclosure 

provisions of the Corporations Act and 

the provisions of the Corporations Act 

relating to on-market and off-market 

transfers of Units. 

• A declaration that the disclosure 

requirements of the Corporations Act do 

not apply in respect of the on-sale of Units 

on ASX, as a result of the Manager issuing 

one Unit per Share transferred to the 

Fonterra Farmer Custodian from time 

to time. 


SECTION 11 

SUMMARY FINANCIAL 

StateMENTS 

Summary financial statements 

for the Fonterra Group, as required 

by clause 11(3) of Schedule 4 of 

the Securities Regulations, are 

set out in this section. 

The summary financial 

statements are presented for 

the years ended 31 July 2012, 2011, 

2010 and 2009, and the 14-month 

period ended 31 July 2008. The 

summary financial statements 

are presented in New Zealand 

dollars and are rounded to the 

nearest million dollars. 

The summary financial statements comply 

with FRS-43 Summary Financial Statements. 

FRS-43 requires the amounts in the summary 

financial statements to be drawn from and be 

consistent with information presented in the 

full financial statements for the relevant 

periods (unless that information has 

subsequently been restated or reclassified in 

which case it is required to be drawn from 

and be consistent with the restated or 

reclassified information). The historical 

financial information has been extracted from 

the relevant full financial statements subject 

to the following restatements: 

• the financial statements for the year ended 

31 July 2010 reflect a change in accounting 

policy arising from changes in Fonterra’s 

capital structure during that year. The 

change in accounting policy was applied 

retrospectively and as a result, the tax 

credit relating to distributions to 

Shareholders of $177 million recognised in 

equity in the financial statements for the 

year ended 31 July 2009 was presented in 

the income statement. There was no 

impact on the comparative balance sheet 

in the 31 July 2010 financial statements as 

a result of this change; and 

• because the financial statements for the 

year ended 31 July 2010 only include 

the 2009 financial year as a comparative, 

no retrospective restatement has been 

made to reflect this change in accounting 

policy on the full financial statements for 

the periods ended 31 July 2008 and prior. 

However, this restatement is reflected 

in the historical financial information; 

the tax credit relating to distributions 

to Shareholders of $28 million recognised 

in equity in the full financial statements 

for the period ended 31 July 2008 has 

been presented in the summary 

income statement for that period in the 

following tables. 

The summary financial statements of 

Fonterra have been authorised for issue by 

a resolution of directors dated 25 October 

2012. The Fonterra Board authorised the issue 

of the relevant full financial statements from 

which the summaries have been drawn and 

are consistent with, on the following dates: 

• year ended 31 July 2012 

– 25 September 2012; 






– 22 September 2009; and 

• 14-month period ended 31 July 2008 

– 23 September 2008. 

The full financial statements for each period 

have been audited. The audit opinions received 

for each period presented in the summary 

were unqualified and none of the audit reports 

contained an explanatory paragraph. 

The full financial statements for each period 

have been prepared in accordance with NZ 

GAAP as applicable to profit oriented entities, 

and each includes an unreserved statement 

of compliance with International Financial 

Reporting Standards. 

Summary financial statements do not 

include all the disclosures provided in the full 

financial statements and cannot be expected 

to provide as complete an understanding as 

provided by the full financial statements. The 

full financial statements may be obtained 

from Fonterra at 9 Princes Street, Auckland 

1010, New Zealand. 

160


suMMary incomE statements for the periods ended 31 july 

($M) FY2012 fy2011 FY2010 fy2009 fy2008 

Revenue from sale of goods 19,769 19,871 16,726 16,035 19,512 

Cost of goods sold 1 (16,721) (16,861) (13,975) (13,217) (16,820) 

Gross profit 3,048 3,010 2,751 2,818 2,692 

Other operating income 132 165 277 119 108 

Other operating expenses (2,238) (2,119) (1,999) (2,036) (2,211) 

Net foreign exchange (losses) / gains (7) (91) (7) 21 9 

Operating profit 935 965 1,022 922 598 

Net finance costs (310) (406) (313) (448) (367) 

Share of profit of equity accounted investees 52 63 56 68 16 

Profit before tax 677 622 765 542 247 

Tax (expense) / credit (53) 149 (80) 68 75 

Profit for the period 2 624 771 685 610 322 


Shareholders of the Parent 609 754 669 599 272 

Non-controlling interests 15 17 16 11 50 


1 For the years from FY2009 to FY2012, cost of goods sold includes the cost of milk based on the volume of milksolids supplied by Shareholders at the Farmgate Milk Price for the Season. 

The Farmgate Milk Price for the Season is calculated in accordance with the principles set out in the Farmgate Milk Price Manual and is independently audited. In FY2008, the cost of milk was 

based on an estimated milk price modelled using a combination of actual and forecast sales. At the time of moving to the independent Farmgate Milk Price, the financial impact was not able to 

be quantified and the FY2008 cost of milk was not required to be, and therefore was not, restated. 

2 The following non-recurring items had a significant impact on the profit for the period: 

(a) impairment of Fonterra’s 43% investment in Shijiazhuang San Lu Group Company Limited of $201 million ($139 million in FY2008 and $62 million in FY2009); 

(b) a pre-tax gain of $127 million in FY2010 on the disposal of Fonterra’s 25% interest in AFF P/S, a joint venture with Arla Foods; and 

(c) non-cash tax credits of $202 million in FY2011 relating to deferred tax. 

SuMMary statements of comprehensive income for the periods ended 31 July 

($M) FY2012 fy2011 FY2010 fy2009 fy2008 


Movement in cash flow hedge reserves (453) 375 (29) 258 (237) 

Movement in net investment hedges (24) 35 46 1 (124) 

Foreign currency translation reserve attributable to Shareholders 37 (164) (150) 12 162 

Foreign currency translation reserve transferred to income statement (7) (15) 19 – (1) 

Foreign currency translation attributable to non-controlling interests 1 (4) (2) 5 12 

Share of equity accounted investees' movements in reserves 1 7 – – (1) 

Other comprehensive (expense) / income recognised directly 

(445) 234 (116) 276 (189) 

in equity 

Total comprehensive income for the period 179 1,005 569 886 133 




Total comprehensive income for the period 179 1,005 569 886 133 


SECTION 11 

SUMMARY FINANCIAL 

StateMENTS continued 

SuMMary statements of changes in equity for the periods ended 31 July 

($M) FY2012 fy2011 FY2010 fy2009 fy2008 

At the start of the period 6,541 5,667 4,805 4,269 4,978 

Total comprehensive income for the period attributable to: 



179 1,005 569 886 133 

Transactions with Shareholders in their capacity as Shareholders: 

Dividends paid to Shareholders (475) (365) (107) (591) (87) 

Co-operative shares issued 584 404 617 766 754 

Co-operative shares surrendered (155) (159) (158) (506) (1,354) 

Purchase of non-controlling interests – – (47) – (147) 

Dividends paid to non-controlling interests (19) (11) (12) (19) (11) 

Contribution from non-controlling interests – – – – 3 

As at 31 July 6,655 6,541 5,667 4,805 4,269 

Components of equity: 

Co-operative shares 5,690 5,261 5,016 4,557 4,297 

Retained earnings 1,078 943 547 26 18 

Foreign currency translation reserve (211) (217) (73) 12 (1) 

Cash flow hedge reserve 63 516 141 170 (88) 

Equity attributable to Shareholders of the Parent 6,620 6,503 5,631 4,765 4,226 


Total equity 6,655 6,541 5,667 4,805 4,269 

SuMMary statements of financial position as at 31 July 

($M) FY2012 fy2011 FY2010 fy2009 fy2008 

Current assets 6,692 7,560 6,087 5,988 6,457 

Non-current assets 8,425 7,970 8,082 8,129 7,982 

Total assets 15,117 15,530 14,169 14,117 14,439 

Current liabilities 4,125 3,646 3,558 4,414 5,071 

Non-current liabilities 4,337 5,343 4,944 4,898 5,099 

Total liabilities 8,462 8,989 8,502 9,312 10,170 

Equity attributable to Shareholders of the Parent 6,620 6,503 5,631 4,765 4,226 


Total equity 6,655 6,541 5,667 4,805 4,269 

SuMMary CASH FLOW statements FOR THE PERIODS ENDED 31 July 

($M) FY2012 fy2011 FY2010 fy2009 fy2008 

Net cash flows from operating activities 1,390 1,184 1,479 1,594 1,310 

Net cash flows from investing activities (826) (488) (354) (756) (795) 

Net cash flows from financing activities (349) (433) (1,154) (929) (25) 

Net cash flow for the period 215 263 (29) (91) 490 

162


The The Directors Directors 


9 Princes Fonterra Street Co-operative Group Limited 


New 9 Zealand Princes Street 

Fonterra Auckland Co-operative 1010 Group Limited 


Auckland New 1010 Zealand 


The Directors The Directors 


9 Princes FSF Street Management Company Limited 


New 9 Zealand Princes Street 

FSF Management Auckland 1010 Company Limited 


Auckland New 1010 Zealand 


2 November Fonterra 2012 Co-operative Group Limited 






Auditor’s report 



As auditor of Fonterra Co-operative Group Limited and its subsidiaries (together the Fonterra Group), we have prepared 

this report pursuant to the Securities Regulations 2009 relating to the summary financial statements and the prospective 

financial statements of the Fonterra Group for inclusion in a prospectus and investment statement dated 26 October 2012 

(as amended by a memorandum of amendments dated 2 November 2012) (Offer Document). 

25 October 2012 

The Offer Document includes: 

(a) a summary of financial statements of the Fonterra Group which comprise summary statements of financial position 

as at 31 July 2008, 2009, 2010, 2011 and 2012, summary income statements, summary statement of comprehensive 

income, Auditor's and the report summary statement of cash flows for the fourteen month period ended 31 July 2008 and the years 

ended 31 July 2009, 2010, 2011 and 2012; and 

(b) the prospective financial statements, comprising a prospective statement of financial position, a prospective income 

statement, a prospective statement of comprehensive income, a prospective statement of changes in equity and a 

prospective As auditor statement of Fonterra of cash flows, Co-operative of the Fonterra Group Group Limited for the period and ending its subsidiaries 31 July 2013, including (together the assumptions the Fonterra 

on which they are based. 

Group), we have prepared this report pursuant to the Securities Regulations 2009 relating to the 

The summary financial statements do not contain all the disclosures required for full financial statements under generally 

accepted summary accounting financial practice statements in New Zealand. and Reading the prospective the summary financial statements statements therefore of is the not Fonterra Group for 

a substitute for reading the full financial statements of the Fonterra Group. 

This inclusion report is made in a solely prospectus to Fonterra and Co-operative investment Group Limited, statement its directors (Offer(Fonterra Document) Directors), FSF be dated Management 26 October 

Company Limited, and its directors (together, the Addressees) in accordance with the Securities Regulations 2009. Our work 

has 2012. been undertaken so that we might state to the Addressees those matters we are required to state to them in a report 

from the auditor and for no other purpose. To the fullest extent permitted by law and subject to section 61 of the Securities 

Act The 1978, Offer we do not Document accept or assume includes: any responsibility to anyone other than the Addressees for this report, or for the 

opinions we have formed. In addition, we take no responsibility for, nor do we report on, any part of the Offer Document not 

specifically mentioned in this report. 

Directors’ responsibilities 

(a) a summary of financial statements of the Fonterra Group which comprise summary 

The Fonterra Directors are responsible for the preparation and presentation of: 

(a) the summary statements of financial statements of financial of the Fonterra position Group as for at the 31 fourteen July month 2008, period 2009, ended 2010, 31 July 2011 2008 and the 2012, 

years ended 31 July 2009, 2010, 2011 and 2012; and 

(b) the prospective summary financial statements income statements, of the Fonterra summary Group for the statement year ending 31 of July comprehensive 2013, including the income, assumptions and the 

on which they are based. 

summary statement of cash flows for the fourteen month period ended 31 July 2008 and 

the years ended 31 July 2009, 2010, 2011 and 2012; and 

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand 

T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz 


Auditor’s responsibilities 

We are responsible for reporting, in accordance with the Securities Regulations 2009, on the following matters which have 

been prepared and presented by the Fonterra Directors: 

(a) the amounts included in the summary of financial statements of the Fonterra Group for the fourteen month period 

ended 31 July 2008 and the years ended 31 July 2009, 2010, 2011 and 2012; and 

(b) the prospective financial statements of the Fonterra Group for the year ending 31 July 2013. 

In respect of the summary financial statements, we have undertaken procedures to provide reasonable assurance that the 

amounts set out in the summary of financial statements of the Fonterra Group on pages 161 to 162 of the Offer Document 

have been correctly taken from the audited financial statements of the Fonterra Group for the fourteen month period ended 

31 July 2008 and the years ended 31 July 2009, 2010, 2011 and 2012. 

In respect of the prospective financial statements, we have examined the prospective financial statements for the year 

ending 31 July 2013 to confirm that, so far as the accounting policies and calculations are concerned, the prospective 

financial statements have been properly compiled on the footing of the assumptions made or adopted by the Fonterra 

Directors as set out on pages 95 to 106 of this Offer Document and are presented on a basis consistent with the accounting 

policies normally adopted by the Fonterra Group. 

We have no relationship with or interests in any member of the Fonterra Group other than in our capacities as 

auditor, investigating accountants, tax advisors and providers of other assurance services (including in connection with the 

Trading Among Farmers structure). These services have not impaired our independence as auditor of the Fonterra Group. 

opinion on the summary of financial statements 

In our opinion, the amounts set out in the summary of financial statements, on pages 161 to 162 of the Offer Document and 

taken from the audited financial statements of the Fonterra Group for the fourteen month period ended 31 July 2008 and the 

years ended 31 July 2009, 2010, 2011 and 2012: 

(a) are consistent, in all material respects, with those audited financial statements; and 

(b) have been correctly taken from the audited financial statements of the Fonterra Group for those years from which they 

were extracted. 

opinion on the prospective financial statements 

In our opinion, the prospective financial statements for the year ending 31 July 2013 so far as the accounting policies and 

calculations are concerned, have been properly compiled on the footing of the assumptions made or adopted by the Fonterra 

Directors as set out on pages 95 to 106 of the Offer Document and are presented on a basis consistent with the accounting 

policies normally adopted by the Fonterra Group. 

Actual results are likely to be different from those in the prospective financial statements since anticipated events frequently 

do not occur as expected and the variation could be material. Accordingly, we express no opinion as to whether the results in 

the prospective financial statements will be achieved. 

RESTRICTION ON USE 

This report has been prepared for inclusion in the Offer Document for the purpose of meeting the requirements of the 

Securities Regulations 2009. We disclaim any responsibility for reliance on this report or the amounts included in the 

summary financial statements or the prospective financial statements, for any other purpose other than that for which they 

were prepared. 

Yours faithfully 


Chartered Accountants 


164


SECTION 12 

GloSSary 

“Additional Australian Information” means 

additional information containing disclosure 

relevant to Australian investors and to 

comply with requirements for a recognised 

offer under Chapter 8 of the Corporations Act 

and the Australian Corporations Regulations 

2001 (Cth), which accompanies or is attached 

to this Offer Document for the purposes of 

the Offer made in Australia. 

“Allotment Date” means the date on which 

allotment of Units occurs, currently scheduled 

to be 30 November 2012. 

“ANZ” means Fonterra’s reportable segment 

and business unit that operates in Australia 

and New Zealand. 

“Applicant” means any person named as an 

applicant on an Application Form and, as the 

case may be, an Institutional Investor. 

“Application” means an application for 

Units made on the Application Form and 

accompanied by the Application Monies 

(or otherwise in the case of Institutional 

Investors in accordance with the instructions 

of the Joint Lead Managers). 

“Application Form” means the Australian 

Supplier Offer Application Form, the Broker 

Firm Application Form or the Friends of 

Fonterra Offer Application Form attached 

to or accompanying this Offer Document 

(as applicable). 

“Application Monies” means the monies 

required to pay for the Units applied for and 

that accompany an investor’s Application Form. 

“Appointed Directors” means the four 

directors of Fonterra who are appointed by 

the Fonterra Board and who are required to 

be “Independent Directors” as defined in the 

FSM Rules. 

“Approved Adjustments” means an amount 

approved by the Fonterra Board to be paid for 

milk in addition to, or to be subtracted from, 

the amount calculated under the Farmgate 

Milk Price Manual. 

“ASEAN / MENA” means Fonterra’s 

business unit that operates in South East 

Asia, the Middle East and North Africa. There 

are some countries that fall within the ASEAN 

/ MENA business unit that are located 

outside these geographical regions such as 

Sri Lanka and Mauritius. 

“Asia / AME” means Fonterra’s current 

reportable segment and former business 

unit that operates in Asia, Africa and the 

Middle East. 

“Associate” in relation to a Unit Holder, 

means a person who is acting jointly or in 

concert with, or who is, directly or indirectly, 

under the same control as, that Unit Holder. 

“ASX” means ASX Limited (ABN 98 008 624 

691), or the financial market operated by ASX 

Limited, as the context requires. 

“ASX Corporate Governance Principles and 

Recommendations” or “ASX Principles” 

means the Corporate Governance Principles 

and Recommendations with 2010 Amendments 

(2nd Edition) published by the ASX Corporate 

Governance Council and available on the ASX 

website at www.asx.com.au. 

“ASX Listing Rules” means the listing rules of 

ASX as in force from time to time. 

“ASX Settlement Operating Rules” means 

the rules of ASX Settlement Pty Ltd. 

“Auditor” means PricewaterhouseCoopers, 

the auditor of Fonterra and the Fund. 

“Australian Supplier Offer” means the offer 

of Units under this Offer Document to 

shareholders of Bonlac and to suppliers of 

Fonterra Milk Australia in Australia as more 

fully described under the heading “The 

Australian Supplier Offer” in Section 8 – 

Details of the Offer. 

“Australian Supplier Offer Application 

Form” means the yellow application form 

which is to be used to apply for Units under 

the Australian Supplier Offer. 

“Authorised Fund” means any person or 

persons authorised by the Fonterra Board 

under the Constitution to perform the role 

and functions of an “Authorised Fund” 

outlined in the Constitution. 

“Authorised Fund Contract” means the 

agreement entered into between Fonterra, 

the Manager, the Trustee, and the Fonterra 

Farmer Custodian dated 25 October 2012 as 

more fully described under the heading 

“Material contracts” in Section 10 – Statutory 

Information. 

“Board of the Manager” means the board of 

directors of the Manager. 

“Bonlac” means Bonlac Supply Company 

Limited. 

“Broker Firm Offer” means the offer to 

New Zealand resident investors (other than 

Institutional Investors) to apply for an allocation 

of Units from a NZX Firm that has obtained a 

Firm Allocation. 

“Broker Firm Offer Application Form” 

means the blue application form which is to 

be used to apply for Units under the Broker 

Firm Offer. 

“Broker Firm Offer Closing Date” means 

5.00pm on 21 November 2012. 

“CAGR” means compound annual growth rate. 

“CHESS” means ASX’s Clearing House 

Electronic Subregister System. 

“Co-Lead Managers” means First NZ Capital 

Securities Limited, Forsyth Barr Limited and 

Macquarie Capital (New Zealand) Limited. 

“Co-Managers” means ASB Bank Limited 

and ANZ National Bank Limited. 

“Co-operative” means Fonterra. 

“Companies Act” means the Companies Act 

1993 (New Zealand). 

“Constitution” means the constitution of 

Fonterra in effect from time to time, and with 

effect from the Launch Date, the form of 

constitution set out as Annexure 2 to the 

constitution of Fonterra (as amended or 

replaced from time to time). 

“Corporations Act” means the Corporations 

Act 2001 (Cth) of Australia. 

“Custody Trust Deed” means the custody 

trust deed between the Fonterra Farmer 

Custodian, the Trustee, the Manager, and 

Fonterra dated 25 October 2012 as more fully 

described under the heading “Material 

contracts” in Section 10 – Statutory Information. 

“DIRA” means the Dairy Industry 

Restructuring Act 2001 (New Zealand). 

“Dry Shares” means any Shares held by a 

Farmer Shareholder in excess of the number 

of Shares required to be held by that Farmer 

Shareholder in accordance with the Share 

Standard for a Season. 

“EBIT” means earnings before interest 

and tax (including earnings from equity 

accounted investments). 

“EBITDA” means earnings before interest, 

tax, depreciation and amortisation (including 

earnings from equity accounted investments). 

“Economic Rights” means the interest in 

Shares held by the Fonterra Farmer Custodian 

for the benefit of the Trustee in its capacity as 

the trustee of the Fund as set out in the 

Custody Trust Deed. 

“Effective Subordination” has the meaning 

given on page 85 under the heading “Credit 

rating and borrowings” and “Effectively 

Subordinated” has a corresponding meaning. 


SECTION 12 

GloSSary continued 

“Elected Director” means a director of the 

Manager elected by Unit Holders. 

“Eligible U.S. Fund Manager” means a 

dealer or professional fiduciary organised, 

incorporated or (if an individual) resident 

in the United States acting for an account 

(other than an estate or trust) held for the 

benefit or account of persons that are not 

US Persons for which it has and is exercising 

investment discretion, within the meaning 

Rule 902(k)(2)(i) of Regulation S under the 

US Securities Act. 

“Ex-Farmer Shareholder” means a person 

who although not currently a Farmer 

Shareholder: 

• has been a Farmer Shareholder; 

• has retired from the dairy industry during 

the period of five years preceding the 

date of this Offer Document (i.e. after 

26 October 2007); and 

• has not supplied a competitor of Fonterra 

with milk since last supplying Fonterra. 

“Extraordinary Resolution” means a 

resolution passed at a meeting of Unit Holders 

by a majority of not less than three quarters 

of the persons voting at such meeting upon a 

show of hands, or if a poll is demanded, by a 

majority consisting of not less than three 

quarters of votes given on such a poll. 

“Farmer Shareholder” means a Shareholder 

who is supplying milk to Fonterra. 

“Farmgate Milk Price” means the base price 

that Fonterra pays for milk supplied to it in 

New Zealand for a Season. 

“Farmgate Milk Price Manual” means the 

manual which sets out the policies and 

methodology for the determination of the 

Farmgate Milk Price as provided for under 

the Constitution and DIRA. 

“Final Price” means the price per Unit at 

which Units will be issued under the Offer, to 

be determined on or about 27 November 2012. 

“Firm Allocation” means Units reserved for 

subscription by clients of the Joint Lead 

Managers, NZX Firms, Institutional Investors 

and other participants in the bookbuild. 

“Fonterra” means Fonterra Co-operative 

Group Limited and, where relevant, includes 

the other members of the Fonterra Group. 

“Fonterra Board” means the board of 

directors of Fonterra. 

“Fonterra Economic Rights Trust” means 

the trust created by deed between the 

Fonterra Farmer Custodian, the Trustee, the 

Manager, and Fonterra, and constituted by 

the Custody Trust Deed. 

“Fonterra Farmer Custodian” means 

Fonterra Farmer Custodian Limited. 

“Fonterra Farmer Custodian Trust” means 

the trust created by deed between Fonterra, 

Malcolm Guy Bailey, Brian Paul Todd and 

Kevin John Turnball as trustees, and the 

Fonterra Farmer Custodian, and constituted 

by the Fonterra Farmer Custodian Trust Deed. 

“Fonterra Farmer Custodian Trust Deed” 

means the trust deed between Fonterra, 

Malcolm Guy Bailey, Brian Paul Todd and 

Kevin John Turnball as trustees, and the 

Fonterra Farmer Custodian dated 25 October 

2012 as described under the heading 

“Material contracts” in Section 10 – Statutory 

Information. 

“Fonterra Financial Information” means 

the financial information relating to Fonterra 

as set out in Section 4 – Fonterra Financial 

Information. 

“Fonterra Group” means Fonterra and 

its subsidiaries. 

“Fonterra Milk Australia” means Fonterra 

Milk Australia Pty Ltd. 

“Fonterra Prospective Financial Information” 

means the prospective financial information 

relating to Fonterra for the year ending 31 July 

2013 as set out under the heading “Fonterra 

Prospective Financial Information” in Section 

5 – Fonterra Financial Information. 

“Fonterra Shareholders’ Market” means the 

exchange or trading facility selected by 

Fonterra which provides a facility for the 

trading of Shares among Permitted Persons. 

“Fonterra Unit” means the Unit to be 

issued by the Manager to the trustees of 

the Fonterra Farmer Custodian Trust in 

accordance with the Trust Deed. 

“Fonterra Unit Holder” means the person 

recorded in the Unit register as the holder of 

the Fonterra Unit, being initially the trustees 

of the Fonterra Farmer Custodian Trust. 

“foodservices” means the business of 

preparing meals for consumption outside 

of homes. 

“Friends of Fonterra Offer” means the 

offer of Units under this Offer Document to 

Farmer Shareholders with a valid “Farm / 

Party number” as at 26 October 2012, 

Fonterra-supplying sharemilkers with a valid 

“Farm / Party number” as at 26 October 2012, 

Fonterra New Zealand and Australian 

permanent employees and Ex-Farmer 

Shareholders as more fully described under 

the heading “Friends of Fonterra Offer” in 

Section 8 – Details of the Offer. 

“Friends of Fonterra Offer Application 

Form” means the green application form 

which is to be used to apply for Units under 

the Friends of Fonterra Offer. 

“FSM Participant” means an NZX Trading 

and Advising Firm who has been accredited 

for participation in the Fonterra Shareholders’ 

Market under section 22 of the NZX 

Participant Rules. 

“FSM Rules” means the listing rules of the 

Fonterra Shareholders’ Market. 

“Fund” or “Fonterra Shareholders’ Fund” 

means the unit trust constituted under the 

Trust Deed, which is authorised under the 

Constitution to acquire, hold or dispose of 

rights or interests in Shares. 

“Fund Size Risk Management Policy” means 

the policy adopted by the Fonterra Board 

from time to time which prescribes the 

actions that the Fonterra Board will take 

to manage the size of the Fund. 

“Fund Transfer Limit” means the limit set 

by the Fonterra Board from time to time in 

relation to the maximum number of Wet 

Shares in respect of which Shareholders may 

sell Economic Rights to the Fund. 

References to a breach of a “Fundamental 

Term” mean, in essence: 

• in relation to the Manager, a breach of the 

obligations not to exercise or seek control 

over any voting rights in Fonterra, not to 

attend or speak at Shareholder meetings 

(unless invited to do so), not to requisition 

a meeting of Shareholders, and not to call 

for or seek the transfer of any part of the 

trust property of the Fonterra Economic 

Rights Trust; and 

• in relation to Fonterra, a breach of the 

obligations to provide services at no cost 

to the Fund and to pay the operating costs 

and expenses of the Fund (except for 

certain excluded costs) as described in 

Section 6 – DIRA Regulatory Environment. 

166


“FY” means financial year. 

“GDT” means GlobalDairyTrade, the 

auction platform for internationally-traded 

commodity dairy products. 

“Global Dairy Exports” means the market 

for the international trade of dairy products 

but excludes trade among countries within 

the European Union. 

“Greater China and India” means Fonterra’s 

business unit that operates in China 

(including Hong Kong), Taiwan and India. 

“IFRS” means International Financial 

Reporting Standards. 

“Income Tax Act” means the Income Tax Act 


“Independent Director” means in relation 

to a director of Fonterra, an “Independent 

Director” as defined in the FSM Rules, and 

in relation to a director of the Manager, an 

“Independent Director” as defined in the 

NZSX Listing Rules. 

“Indicative Price Range” means $4.60 to 

$5.50 per Unit. 

“Institutional Investor” means an investor 

outside the United States (other than 

Pre-identified EUSFMs) and that is not, and 

is not acting for the account or benefit of, a 

US Person, to whom offers or invitations in 

respect of securities can be made without the 

need for a registered prospectus (or other 

formality), including in New Zealand persons 

to whom offers or invitations can be made 

without the need for a registered prospectus 

under the Securities Act. 

“Institutional Offer” means the offer of 

Units under this Offer Document to 

Institutional Investors as described more fully 

under the heading “Institutional Offer” in 

Section 8 – Details of the Offer. 

“interest group” has the meaning set out in 

section 116 of the Companies Act. 

“Investigating Accountant” means 

PricewaterhouseCoopers. 

“Investigating Accountant’s Report” means 

the investigating accountant’s report prepared 

by the Investigating Accountant in respect of 


“IRD” or “Inland Revenue” means the Inland 

Revenue Department in New Zealand. 

“Joint Lead Managers” means Craigs 

Investment Partners Limited, together with 

Deutsche Bank AG, New Zealand branch, 

Goldman Sachs New Zealand Limited and 

UBS New Zealand Limited. 

“Joint Organising Participants” means 

Craigs Investment Partners Limited, Goldman 

Sachs New Zealand Limited and UBS New 

Zealand Limited. 

“kgMS” means a kilogram of milksolids. 

“KT” means a kilo tonne (being 1,000 MT). 

“Latam” means Fonterra’s reportable 

segment and business unit that operates in 

Latin America. 

“Launch Date” means the date on which the 

Order in Council to be made by the 

Governor-General under DIRA becomes 

effective (see the heading “DIRA preconditions” 

in the section entitled Answers 

to Important Questions), expected to be 

30 November 2012. 

“Manager” means the person appointed as 

the manager of the Fund in accordance with 

the Trust Deed from time to time, being 

initially FSF Management Company Limited. 

“Market Operator Agreement” means the 

agreement entered into between Fonterra 

and NZX for the provision of operational and 

administrative services in relation to the 

Fonterra Shareholders’ Market dated 

30 August 2012, and which is deemed to be 

a listing agreement for the purposes of the 

Securities Markets Act. 

“milk” means whole milk, cream and any other 

component of the mammary secretion of a cow, 

as may be specified by the Fonterra Board. 

“Milk Price Group” means the group 

responsible for ensuring that the Farmgate 

Milk Price is calculated in accordance with 

the Farmgate Milk Price Manual and the 

day-to-day administration of the Farmgate 

Milk Price Manual, as described in the 

Farmgate Milk Price Manual. 

“Milk Price Panel” means the Milk Price 

Panel established and maintained by Fonterra 

in accordance with section 150D of DIRA. 

“Milk Price Principles” means the milk 

price principles set out in an annexure to 


“Milk Price Statement” means the milk price 

statement with respect to the Farmgate Milk 

Price for a Season, which Fonterra discloses 

pursuant to the Farmgate Milk Price Manual 

on or around the date that Fonterra releases 

its financial results for a financial year. 

“milksolids” means the valued components 

of milk which are determined by the Fonterra 

Board from time to time. 

“MT” means a metric tonne. 

“Notified Foreign Investor” means a Unit 

Holder who meets the requirements of 

sections HM 55D(3) and (4) of the Income Tax 

Act and notifies the Fund under section HM 

55D(2) of the Income Tax Act that such a Unit 

Holder wishes to be treated as a notified 

foreign investor. 

“NZ GAAP” means generally accepted 

accounting practice in New Zealand. 

“NZ Milk Products” means Fonterra’s 

reportable segment and business unit which 

collects and processes milk from New 

Zealand farmers, manufactures and markets 

dairy nutrition products (including specialty 

dairy ingredients and base nutrition powders 

such as whole milk powder and skim milk 

powder) under the NZMP brand. 

“NZSX Listing Rules” means the listing rules 

of NZX and “NZSX Listing Rule” means a 

rule contained in the NZSX Listing Rules. 

“NZX” means NZX Limited. 

“NZX Firm” means an entity designated as a 

NZX Firm under the NZX Participant Rules. 

“NZX Main Board” means the main equities 

board of NZX. 

“NZX Participant Rules” means participant 

rules made by NZX, and applying to the NZX 

Main Board and Fonterra Shareholders’ Market. 

“Offer” means the offer of Units pursuant to 

this Offer Document. 

“Offer Document” means this combined 

prospectus and investment statement. 

“Offer Management Agreement” means the 

agreement dated 25 October 2012 between 

Fonterra, the Manager of the Fund and the 

Joint Lead Managers, as summarised under 

the heading “Material contracts” in Section 10 

– Statutory Information. 

“Parent” means Fonterra Co-operative 

Group Limited. 

“Permitted Person” means: 

• a Shareholder; 

• a person whose application to become a 

Shareholder has been accepted in writing by 

Fonterra in accordance with the Constitution; 

• the Registered Volume Provider (who acts 

through the Fonterra Farmer Custodian); or 

• Fonterra. 

“PIE” means a portfolio investment entity 

and / or foreign investment PIE (as the 

context requires) as defined in section YA 1 of 

the Income Tax Act. 


SECTION 12 

GloSSary continued 

“PIR” means the prescribed investor rate for 

a Unit Holder set out in schedule 6, table 1 or 

table 1B of the Income Tax Act. 

“Pre-identified EUSFMs” means those Eligible 

U.S. Fund Managers agreed between Fonterra 

and the Joint Lead Managers. 

“Promoter” means Fonterra and every 

director of Fonterra (other than those directors 

who are also directors of the Manager). 

“RD1” or “RD1 Limited” mean Fonterra’s 

rural supplies retail business that operates in 


“Reference Commodity Products” means 

the commodity dairy products used in the 

calculation of the Farmgate Milk Price, which 

are currently whole milk powder, skim milk 

powder, and their by-products, buttermilk 

powder, butter and anhydrous milkfat. 

“Registered Volume Provider” or “RVP” 

means a person appointed, engaged or 

authorised under clause 6.1 of the 

Constitution that will apply with effect from 

the Launch Date, to provide services intended 

to enhance the operation and liquidity of the 

Fonterra Shareholders’ Market. 

“Relevant Interest” has the meaning given 

to that term in the Constitution that will 

apply with effect from the Launch Date, when 

referring to a Share; or has the meaning given 

to the term “Interest” in the Trust Deed when 

referring to a Unit. 

“RVP Agreement” means the agreement 

between Fonterra and Craigs Investment 

Partners Limited setting out the terms and 

conditions of Craigs Investment Partners 

Limited’s appointment as an RVP. 

“Season” means a period of 12 months to 

31 May (or such other date as the Fonterra 

Board may specify from time to time) in 

each year. 

“Securities Act” means the Securities Act 


“Securities Markets Act” means the 

Securities Markets Act 1988 (New Zealand). 

“Securities Regulations” means the 

Securities Regulations 2009 (New Zealand). 

“Securities Trustees and Statutory 

Supervisors Act” means the Securities 

Trustees and Statutory Supervisors Act 2011 

(New Zealand). 

“sell Economic Rights of Shares” has the 

meaning given to that term in the text box 

entitled “Economic Rights” on page 116, and 

references to “sell Economic Rights of Wet 

Shares” and “sell Economic Rights of Dry 

Shares” have a corresponding meaning in 

relation to the relevant Shares. 

“Share” or “Fonterra Share” means a fully 

paid co-operative share in Fonterra. 

“Share Standard” means the number of 

Shares a Farmer Shareholder is required from 

time to time to hold as determined in 

accordance with the Constitution, being at 

the date of this Offer Document, one Share 

for each kilogram of milksolids obtainable 

from milk supplied to Fonterra by a Farmer 

Shareholder in the relevant Season (excluding 

milk supplied on contract supply). The 

Fonterra Board may permit the Share 

Standard to be satisfied through the holding 

of both Shares and Vouchers. 

“Shareholder” means a holder of Shares. 

“Shareholders’ Council” means the 

councillors whose number is not less than the 

required quorum set out in the Constitution, 

acting together as the Shareholders’ Council. 

“Shareholding Deed” means the deed 

entered into between Trustees Executors 

Limited, the Manager of the Fund and 

Fonterra dated 23 October 2012 as more 

fully described under the heading “Material 

contracts” in Section 10 – Statutory 

Information. 

“SHC Deed Poll” means the deed poll letter 

dated 6 August 2012 given by Fonterra for 

the benefit of the Shareholders’ Council 

which provides comfort to the Shareholders’ 

Council as to the application of limits to 


“Stakeholder Offer” means the offer of Units 

under this Offer Document comprising the 

Friends of Fonterra Offer and the Australian 

Supplier Offer. 

“Stakeholder Offer Closing Date” means 

5.00pm (NZDT) on 21 November 2012. 

“Supplier Shares” means the class of 

redeemable preference shares in Bonlac 

referred to as “Supplier Shares”. 

“Supply Offer” means the offer made to 

Farmer Shareholders to sell Economic Rights 

of Shares as described under the heading 

“Formation of the Fund” in Section 8 – Details 

of the Offer. 

“Trading Among Farmers” means the Share 

trading system known as Trading Among 

Farmers. 

“Treasury Stock” means Shares or Units 

acquired and held by Fonterra. 

“Trust Deed” means the trust deed dated 

23 October 2012 constituting the Fonterra 

Shareholders’ Fund between Fonterra, the 

Trustee and the Manager as summarised 

under the heading “Summary of the Trust 

Deed” in Section 10 – Statutory Information. 

“Trustee” means the trustee for the time 

being of the Fund, being initially The New 

Zealand Guardian Trust Company Limited. 

“Unit” means a unit issued by the Manager 

of the Fund. 

“Unit Holder” means a person for the time 

being entered into the register of Unit 

Holders as the holder of a Unit. 

“Unit Registrar” means the person 

appointed by the Manager to maintain the 

register of Unit Holders, being initially 

Computershare Investor Services Limited. 

“Unit Trusts Act” means the Unit Trusts Act 


“United States” means the United States 

of America. 

“US Person” means “U.S. person” as defined 

in Rule 902(k) under the US Securities Act. 

“US Securities Act” means the U.S. 

Securities Act of 1933, as amended. 

“US$” means United States dollars. 

“Valid Application” means an application for 

Units made on the relevant Application Form 

and accompanied by the Application Monies 

(or otherwise, as the case may be, for 

Institutional Investors, made in accordance 

with the instructions of the Joint Lead 

Managers), which is received by the relevant 

closing date and is capable of acceptance. 

“Voucher” means a certificate referred to in 

clause 3.4 of the Constitution that will apply 

with effect from the Launch Date and 

provided to a Farmer Shareholder upon the 

transfer of the Economic Rights of a Wet 

Share to the Fund in accordance with the 

Trust Deed. 

“VWAP” means volume weighted average 

price. 

“Wet Shares” means any Shares held by a 

Farmer Shareholder which are required to be 

held in accordance with the Share Standard 

for a Season. 

168

signatures 

Signed by each director of FSF Management COMPANY Limited: 

(or by their agent authorised in writing) 

JOHN BRUCE SHEWAN 

Director 

sir ralph james norris 

Director 

KIMMITT ROWLAND ELLIS 

Director 

JIM WILLIAM VAN DER POEL 

Director 

PHILIPPA JANE DUNPHY 

Director 

Signed by Fonterra Co-OPERATIVE Group Limited by its attorneys (as promoter): 

Attorney 

Attorney 

Signed by the directors of Fonterra Co-OPERATIVE Group Limited who are not also directors of the Manager 

(as promoters): 

(or by their agent authorised in writing) 

SIR HENRY VAN DER HEYDEN 

Director 

DAVID NIGEL MACLEOD 

Director 

JOHN SPEER WILSON 

Director 

JOHN ANTHONY MONAGHAN 

Director 

MALCOLM GUY BAILEY 

Director 

NICOLA MARY SHADBOLT 

Director 

IAN JAMES FARRELLY 

Director 

JOHN ANTHONY WALLER 

Director 

DAVID ALEXANDER JACKSON 

Director 

RALPH GRAHAM WATERS 

Director 


DIRECTORY 

Registered office of 

the Manager of the Fund 


Auckland 1010, New Zealand 

Directors of the 

Manager of the Fund 




John Bruce Shewan 


Trustee 

The New Zealand Guardian Trust 

Company Limited 

Level 7, Vero Centre 

48 Shortland Street 


Promoters 

Fonterra Co-operative Group 

Limited 













Joint Lead Managers 

Deutsche Bank AG, New Zealand 

branch, together with Craigs 

Investment Partners Limited 




Goldman Sachs 

New Zealand Limited 




UBS New Zealand Limited 

Level 17, PricewaterhouseCoopers 

Tower, 188 Quay Street 


Retail Affiliates of 

the Joint Lead Managers 

Craigs Investment 

Partners Limited 




JBWere (NZ) Pty Ltd 




Joint Organising 

pARTICIpANTS 

Craigs Investment 

Partners Limited 




Goldman Sachs 

New Zealand Limited 




UBS New Zealand Limited 

Level 17, PricewaterhouseCoopers 

Tower, 188 Quay Street 


Co-Lead Managers 

First NZ Capital Securities 

Limited 

Level 39, ANZ Centre 

23–29 Albert Street 


Forsyth Barr Limited 

Level 9, Forsyth Barr House 

The Octagon 

Dunedin 9054, New Zealand 

Macquarie Capital 

(New Zealand) Limited 

Level 17, Lumley Centre 



Co-Managers 

ASB Bank Limited 

135 Albert Street 


ANZ National Bank Limited 

Level 7, 1 Victoria Street 

Wellington 6140, New Zealand 

AUDITOR of the Fund, 

the Manager and 



Level 22, 

PricewaterhouseCoopers Tower 

188 Quay Street 


Investigating 

ACCOUNTANT 


Level 22, 

PricewaterhouseCoopers Tower 

188 Quay Street 


Legal advisers 

TO Fonterra 

Russell McVeagh 




King & Wood Mallesons 

Level 61, Governor Phillip Tower 

1 Farrer Place, Sydney 

NSW 2000, Australia 

Legal adviser to the 

DIRECTORS of Fonterra 

Harmos Horton Lusk Limited 





Manager of the Fund 

and its directors 

Chapman Tripp 

Level 35, ANZ Centre 

23–29 Albert Street 



TRUSTEE of the fund 

Bell Gully 




Tax advisers 

Russell McVeagh 




KPMG 

KPMG Centre, 18 Viaduct 

Harbour 


FINANCIAL ADVISER 

TO FONTERRA 

Rothschild Australia Limited 

Level 41, 50 Bridge Street 

Sydney NSW, Australia 

Cameron Partners Limited 




Unit Registrar 

Computershare Investor 

Services Limited 

Level 2, 159 Hurstmere Road 

Takapuna, Auckland 0622 

Private Bag 92119 


170

THIS APPLICATION FORM IS ISSUED WITH THE PROSPECTUS AND INVESTMENT STATEMENT DATED AND 

PREPARED AS AT 26 OCTOBER 2012 (THE “OFFER DOCUMENT”) FOR THE OFFER OF UNITS IN THE FONTERRA 

SHAREHOLDERS’ FUND. BEFORE COMPLETING THIS APPLICATION FORM, APPLICANTS SHOULD READ THE OFFER 

DOCUMENT. 

BROKER 

STAMP 

Broker Firm Offer Application Form 

Step 1: Application details 

First name(s): 

Family name: 

1. 

2. 

3. 

Corporate name or account designation: 

Postal address: 

Unit Street Number Street Name or PO Box /Other Information 

City / Suburb / Town 

Postcode 

Telephone - (Home) 

Telephone - (Work) 

( ) ( ) 

Email address: To enable the Fonterra Shareholders’ Fund and Fonterra to provide you with your investor correspondence in relation to your holding in Units electronically where possible, 

please complete your email address in the box below. If you do not provide an email address, investor correspondence will be mailed to you at the address provided on this application 

form. 

@ 

Step 2: Application amount 

NZ dollar amount of Units applied for: 

NZ$ 

You may choose only ONE of the payment options below. Please tick the box next to your selected option (). 

OPTION 1: Please direct debit my bank account stated below for the amount of Units applied for above. By ticking this box and signing this application form, I/we agree that the Manager of the 

Fonterra Shareholders’ Fund or its agent is authorised to direct debit my/our account for the full amount of Units applied for at any time after receipt of this application form. All future amounts 

paid by the Fonterra Shareholders’ Fund (at the direction of the Manager) will also be credited to this account unless the Unit Registrar is advised otherwise in writing. 

OPTION 2: Please find attached my/our payment by cheque. I/We have supplied my/our bank account details below for the purpose direct crediting of any future distributions paid at the direction 

of the Manager of the Fonterra Shareholders’ Fund in respect of Units. 

New Zealand dollar bank account details for direct debit purposes and/or direct credit of future distribution payments: 

Bank Name: 

Account Name: 

Bank/Branch: 

Account Number: 

Suffix: 

Step 3: Common Shareholder Number (CSN) 

If you currently have a CSN, please enter it here: 

Step 4: IRD number and Personalised Investor Rate (PIR) 

Please enter your IRD number here: 

Please elect your PIR: 

0% 10.5% 17.5% 28% 

Step 5: Signature(s) of Applicant(s) 

I/We hereby acknowledge that I/we have received and read the Offer Document and apply for the number of Units having the value shown above and agree to accept such Units (or such lesser number 

as may be allotted to me/us) (in each case at the Final Price) on and subject to the terms and conditions set out in the Offer Document. All Applicants must sign below. 

Applicant 1: 

Joint Applicant 2: 


Signature 

Date 

/ / / / 

Step 6: Closing date and delivery 

Signature 

Date 

Signature 

/ / 

Applicants receiving an allocation under the Broker Firm Offer from a NZX Firm must return a completed application form (with payment) to the office of that NZX Firm in time to enable forwarding to and 

receipt by the Unit Registrar by 5.00pm NZDT on the Broker Firm Offer Closing Date, Wednesday 21 November 2012. 

Date

Terms and Conditions 

By signing or submitting this application form: 

(a) I/We agree to subscribe for Units upon and subject to the terms and conditions in the Offer Document and this application form and I/we agree to be bound by the provisions thereof and I/we make 

the representations, warranties and agreements as set forth in Section 8 of the Offer Document. 

(b) I/We confirm that I/we have received, read and understood the Offer Document. 

(c) I/We agree to be bound by the Trust Deed governing the Fonterra Shareholders’ Fund (as amended from time to time). 

(d) I/We declare that all details and statements made by me/us in this application form are complete and accurate. 

(e) I/We certify that, where information is provided by me/us in this application form about another person, I/we are authorised by such person to disclose the information to you and to give this 

authorisation. 

(f) I/We acknowledge that an Application cannot be withdrawn or revoked by the Applicant once it has been submitted. 

(g) I/We acknowledge that the Broker Firm Offer is only made in New Zealand, and by applying for Units, I/we agree to indemnify Fonterra, the Manager of the Fonterra Shareholders’ Fund and their 

directors, officers, employees and agents in respect of any liability incurred by any of those persons as a result of my/our breaching the selling restrictions described in the Offer Document. 

(h) I/We represent, warrant and agree that I am not in the United States, and I/we are not and are not, acting for the account or benefit of, a “U.S. person” (as defined in Regulation S) (U.S. Person). I/ 

We understand that units have not been and will not be registered under the US Securities Act of 1933, as amended (US Securities Act) and may not be offered or sold, directly or indirectly, in the 

United States or to, or for the account or benefit of, a U.S. Person. 

(i) I/We agree not to send the application form or any other material relating to the Offer to any person in the United States or to any person that is, or is acting for the account or benefit of, a U.S. 

Person. 

The information in this application form is provided to enable the Manager of the Fonterra Shareholders’ Fund, Fonterra and the Unit Registrar to process your Application, and to administer your investment. 

By signing this application form, you authorise the Manager of the Fonterra Shareholders’ Fund, Fonterra and the Unit Registrar to disclose information in situations where the Manager of the Fonterra 

Shareholders’ Fund, Fonterra or the Unit Registrar are required or permitted to do so by any applicable law or by a governmental, judicial or regulatory entity or authority in any jurisdiction. If you are an 

individual, under the Privacy Act 1993, you have the right to access and correct any of your personal information. 

Power of Attorney 

Certificate of non-revocation of Power of Attorney (only complete this section if you are signing this application form as attorney of the Applicant) 

Full name: 

Address: 

I, of hereby certify that: 

Day 

Month/Year: 

1. By Power of Attorney dated the day of 

Name of person for whom attorney is signing 

appointed me his/her/its attorney on the terms and conditions set out in that Power of Attorney. 

2. I have executed this application form as attorney under that Power of Attorney and pursuant to the powers thereby conferred upon me. 

3. At the date of this certificate, I have not received any notice or information of any event revoking the Power of Attorney. 

Location: Day: Month: 

Signed at: this day of 2012 

Signature of attorney: 

Agent 

Certificate of agent (only complete this section if you are signing this application form as agent of the Applicant) 

Full name: 

Address: 


Name of person for whom agent is signing 

appointed me his/her/its agent for the purpose of signing this application form. 

1. I have executed this application form as agent under that authority and pursuant to the powers thereby conferred upon me. 

2. At the date of this certificate, I have not received any notice or information of the revocation of that appointment. 



Signature of agent: 

157516_01CT6H

Application Instructions 

Your application form must be received by 5:00pm NZDT Wednesday 21 November 2012 

You should read the Offer Document carefully before completing this application form. An Application will constitute an irrevocable offer by the Applicant to subscribe for and acquire the aggregate value of 

Units specified on the application form (or such lesser amount which Fonterra or the NZX Firm from whom the Applicant received an allocation of Units may determine) on the terms and conditions set out 

in the Offer Document and this application form. 

An Application cannot be withdrawn or revoked by the Applicant once it has been submitted. 


Enter your FULL NAME(S). Applications must be in the name(s) of natural persons, companies or other legal entities, up to a maximum of three names per Application. The table below shows the correct 

form of name to use. Applications using the wrong form of name may be rejected. 

Enter your POSTAL ADDRESS. All communications to you from Fonterra will be mailed to the person(s) at the address as shown (unless you provide an email address on the application form). For joint 

Applicants, only one address is to be entered. 

Provide your TELEPHONE NUMBER(S) so that the Unit Registrar, the Manager of the Fonterra Shareholders’ Fund or Fonterra can contact you in relation to your Application if required. 

By supplying your email address, Fonterra and the Manager of the Fonterra Shareholders’ Fund will be able to deliver your investor correspondence to you electronically where possible. This is a much 

more environmentally friendly, cost effective and timely option than paper-based investor mail-outs. 

Type of Investor Correct Way to Write Name Incorrect Way to Write Name 

X 

Individual person JOHN ALFRED SMITH J A SMITH 

More than one person 

JOHN ALFRED SMITH 

MICHELLE JANE SMITH 

Company ABC LIMITED ABC 

Trust 

Partnership 

Club or Unincorporated Association 

Superannuation fund 


 


MICHAEL FREDERICK SMITH 

 

JANE ANNABEL SMITH 

 

JOHN SMITH LIMITED 

 

J A & M J SMITH 

JOHN SMITH FAMILY TRUST 

JOHN SMITH & SONS 

SMITH INVESTMENT CLUB 

JOHN SMITH SUPERANNUATION FUND 


Enter the total New Zealand dollar amount you wish to apply for. Tick the relevant box for your chosen payment method. Application amounts will be determined by the NZX Firm from whom the Applicant 

receives an allocation of Units. 

Option 1 

If you choose the direct debit option, you must tick the box authorising the Unit Registrar to direct debit the bank account nominated on the application form on any day after the application form is received 

by the Unit Registrar for the amount applied for on the application form. You cannot specify a direct debit date and you must ensure that: 

• the bank account details supplied are correct; 

• sufficient funds in the bank account for direct debit are available from the day the Unit Registrar receives the application form; 

• the person(s) giving the direct debit instruction has/have the authority to operate the account solely/jointly; and 

• the bank account you nominated is a transactional account eligible for direct debit transactions. 

If you are uncertain, you should contact your bank or financial institution. Should your direct debit fail, your Application may be rejected. The Unit Registrar will not be able to process your direct debit if you 

do not sign and date the application form. 

If requested, the Unit Registrar will provide you with a direct debit authority form. 

Option 2 

Cheques must be drawn on a New Zealand registered bank from a New Zealand dollar bank account and must be made in New Zealand dollars. Cheques must be made payable to “Fonterra 

Shareholders’ Fund Offer” and crossed “Non Transferable”. Cheques must not be post-dated as they will be banked on receipt. The banking of Application amounts does not constitute confirmation of 

allotment of any Units or acceptance of an offer to subscribe for Units. If your cheque is dishonoured, your Application may be rejected and Fonterra may cancel your allotment of Units and pursue any 

other remedies available to it at law. 

Future distribution payments 

All future distribution payments will be made to the account specified on this application form. If you do not select the direct debit option (OPTION 1), you must provide your bank account details so that the 

Manager of the Fonterra Shareholders’ Fund can direct that distribution payments are credited directly into your bank account. 

Step 3: Common Shareholder Number 

If you have a Common Shareholder Number (CSN), you must enter it in the box provided. The name and address details on your application form must correspond with the registration details under that 

CSN. If you do not provide a CSN, it will be deemed that you do not have a current CSN and a base registry number and FIN (authorisation code) will be allocated to you at the time of allotment of Units. 

Step 4: IRD number and Prescribed Investor Rate (PIR) 

Enter your IRD number. For joint Applicants, please fill in the IRD number of the first named Applicant or the beneficiary of the trust (for an Application by a trustee or trustees). 

Please refer to Section 9 of the Offer Document in relation to electing your PIR. The income bands for determining your PIR can be found on the Inland Revenue website www.ird.govt.nz/toii/pir/workout/ 

Step 5: Signature of Applicants 

Read the declaration and the terms and conditions on the back of the application form carefully and SIGN and DATE the application form. An application form must be signed by the Applicant(s) 

personally, or by two directors of a company (or one director if there is only one director, whose signature must be witnessed), or in either case by a duly authorised attorney or agent. 

If the application form is signed by an attorney, the Power of Attorney document is not required to be lodged, but the attorney must complete the certificate of non-revocation of Power of Attorney section 

on the back of the application form. If the application form is signed by an agent, the agent must complete the certificate of non-revocation of agent section on the back of the application form. 

Joint Applicants must each sign the application form. 


Applicants receiving an allocation under the Broker Firm Offer from a NZX Firm must return a completed application form (with payment) to the office of that NZX Firm in time to enable forwarding to and 

receipt by the Unit Registrar before 5.00pm NZDT on the Broker Firm Offer Closing Date, Wednesday 21 November 2012. 

Please lodge your application form AS SOON AS POSSIBLE. Applicants should remember that the Broker Firm Offer Closing Date may be changed by Fonterra in consultation with the Joint Lead 

Managers. 

Fonterra reserves the right to accept Applications which are received by the Unit Registrar after the relevant Broker Firm Offer Closing Date, but has no obligation to do so.

THIS APPLICATION FORM IS ISSUED WITH THE PROSPECTUS AND INVESTMENT STATEMENT DATED AND PREPARED AS AT 26 OCTOBER 2012 AND, FOR FONTERRA EMPLOYEES IN 

AUSTRALIA, THE ADDITIONAL AUSTRALIAN INFORMATION ACCOMPANYING THE PROSPECTUS AND INVESTMENT STATEMENT (THE “OFFER DOCUMENT”) FOR THE OFFER OF UNITS IN THE 

FONTERRA SHAREHOLDERS’ FUND. BEFORE COMPLETING THIS APPLICATION FORM, APPLICANTS SHOULD READ THE OFFER DOCUMENT. 

Friends of Fonterra Offer Application Form 


First name(s): 

Family name: 

1. 

2. 

3. 

Corporate name or account designation: 


Unit Street Number Street Name or PO Box/Other Information 

City / Suburb / Town 

Country 

Postcode 

Telephone - (Home) 

Telephone - (Work) 

( ) ( ) 

Email address: To enable the Fonterra Shareholders’ Fund and Fonterra to provide you with your investor correspondence in relation to your holding in Units electronically where possible, 

please complete your email address in the box below. If you do not provide an email address, investor correspondence will be mailed to you at the address provided on this application 

form. 

@ 

Eligibility details (tick one) 

Name of eligible Applicant 

First name: 

Family name: 

A 

Farmer Shareholder Farm/Party number: / 

B 

Fonterra - supplying sharemilker 

Farm/Party number: 

C 

D 

Ex-Farmer Shareholder 

Please refer to Terms & Conditions (j) 

(Maximum Application amount NZ$50,000) 

Fonterra New Zealand and Australian employee(s) 

(Maximum Application amount NZ$25,000) 

Old Farm number: 

Description of relationship: 

Fonterra Employee Number: 

157516_01CT7H

Step 2: Application amount (minimum Application amount NZ$2,000 and increments of NZ$100 thereafter) 

NZ dollar amount of Units applied for: 

NZ$ 

Note that Fonterra employees in Australia (and all Applicants under the Friends of Fonterra Offer) will need to make arrangements to make payment of their Application Monies in 

New Zealand dollars. 

You may choose only ONE of the payment options below. Please tick the box next to your selected option (). 

OPTION 1: Please direct debit my bank account stated below for the amount of Units applied for above. By ticking this box and signing this application form, I/we agree that the Manager of the 

Fonterra Shareholders’ Fund or its agent is authorised to direct debit my/our account for the full amount of Units applied for at any time after receipt of this application form. All future amounts 

paid by the Fonterra Shareholders’ Fund (at the direction of the Manager) will also be credited to this account unless the Unit Registrar is advised otherwise in writing. 

OPTION 2: Please find attached my/our payment by cheque. I have supplied my/our bank account details below for the purpose of direct crediting any future distributions paid at the direction of 

the Manager of the Fonterra Shareholders’ Fund in respect of Units. 

New Zealand dollar bank account details for direct debit purposes and/or direct credit of future distribution payments (not required for Australian employees): 

Bank Name: 

Account Name: 

Bank/Branch: 

Account Number: 

Suffix: 

Step 3: Common Shareholder Number (CSN) 

If you currently have a CSN, please enter it here: 

Step 4: IRD number and Prescribed Investor Rate (PIR) (not required for Australian employees) 

Please enter your IRD number here: 

Please elect your PIR: 

0% 10.5% 17.5% 28% 

Step 5: Signature(s) of Applicant(s) 

I/We hereby acknowledge that I/we have received and read the Offer Document and apply for the number of Units having the value shown above and agree to accept such Units (or such lesser number 

as may be allotted to me/us) (in each case at the Final Price) on and subject to the terms and conditions set out in the Offer Document. All Applicants must sign below. 

Applicant 1: 



Signature 

Signature 

Signature 

/ / / / 

/ / 

Date 

Date 

Date 


Applicants under the Friends of Fonterra Offer must return a completed application form (with payment) to the Unit Registrar, Computershare Investor Services Limited, Private Bag 92119, Auckland 1142, 

New Zealand in order to be received by 5pm (NZDT) on the Stakeholder Offer Closing Date, Wednesday 21 November 2012. Alternatively, Applications can be lodged with any NZX Firm, the Joint 

Lead Managers, or any other channel approved by NZX so as to be received in time to enable them to be forwarded to and received by the Unit Registrar by 5.00pm (NZDT) on the Stakeholder Offer 

Closing Date. 

Terms and Conditions 

By signing or submitting this application form: 

(a) I/We agree to subscribe for Units upon and subject to the terms and conditions in the Offer Document and this application form and I/we agree to be bound by the provisions thereof and I/we make 

the representations, warranties and agreements as set forth in Section 8 of the Offer Document. 

(b) I/We confirm that I/we have received, read and understood the Offer Document. 

(c) I/We agree to be bound by the Trust Deed governing the Fonterra Shareholders’ Fund (as amended from time to time). 

(d) I/We declare that all details and statements made by me/us in this application form are complete and accurate. 

(e) I/We certify that, where information is provided by me/us in this application form about another person, I/we are authorised by such person to disclose the information to you and to give this 

authorisation. 

(f) I/We acknowledge that an Application cannot be withdrawn or revoked by the Applicant once it has been submitted. 

(g) I/We acknowledge that the Offer is only made in New Zealand and Australia, and by applying for Units, I/we agree to indemnify the Manager of the Fonterra Shareholders’ Fund, Fonterra and their 

directors, officers, employees and agents in respect of any liability incurred by any of those persons as a result of my/our breaching the selling restrictions described in the Offer Document. 

(h) I/We represent, warrant and agree that I am not in the United States, and I/we are not and are not, acting for the account or benefit of, a “U.S. person” (as defined in Regulation S) (U.S. Person). 

I/We understand that units have not been and will not be registered under the US Securities Act of 1933, as amended (US Securities Act) and may not be offered or sold, directly or indirectly, in the 

United States or to, or for the account or benefit of, a U.S. Person. 

(i) I/We agree not to send the application form or any other material relating to the Offer to any person in the United States or to any person that is, or is acting for the account or benefit of, a U.S. 

Person. 

Ex Farmer Shareholders Only 

(j) I/We confirm that I/we have retired from the industry in the last 5 years, and have not supplied a competitor of Fonterra’s since then. 

The information in this application form is provided to enable the Manager of the Fonterra Shareholders’ Fund and the Unit Registrar to process your Application, and to administer your investment. 

By signing this application form, you authorise the Manager of the Fonterra Shareholders’ Fund, Fonterra and the Unit Registrar to disclose information in situations where the Manager of the Fonterra 

Shareholders’ Fund, Fonterra or the Unit Registrar are required or permitted to do so by any applicable law or by a governmental, judicial or regulatory entity or authority in any jurisdiction. If you are an 

individual under the Privacy Act 1993, you have the right to access and correct any of your personal information. 

157516_01CT7H

Power of Attorney 

Certificate of non-revocation of Power of Attorney (only complete this section if you are signing this application form as attorney of the Applicant) 

Full name: 

Address: 


Day 

Month/Year: 

1. By Power of Attorney dated the day of 

Name of person for whom attorney is signing 

appointed me his/her/its attorney on the terms and conditions set out in that Power of Attorney. 

2. I have executed this application form as attorney under that Power of Attorney and pursuant to the powers thereby conferred upon me. 

3. At the date of this certificate, I have not received any notice or information of any event revoking Power of Attorney. 



Signature of attorney: 

Agent 

Certificate of agent (only complete this section if you are signing this application form as agent of the Applicant) 

Full name: 

Address: 


Name of person for whom agent is signing 

appointed me his/her/its agent for the purpose of signing this application form. 

1. I have executed this application form as agent under that authority and pursuant to the powers thereby conferred upon me. 

2. At the date of this certificate, I have not received any notice or information of the revocation of that appointment. 



Signature of agent: 

Application Instructions 

Your application form must be received by 5:00pm NZDT Wednesday 21 November 2012 

You should read this Offer Document carefully before completing this application form. An Application will constitute an irrevocable offer by the Applicant to subscribe for and acquire the aggregate value of 

Units specified on the application form (or such lesser amount which Fonterra may determine) on the terms and conditions set out in the Offer Document and this application form. 

An Application cannot be withdrawn or revoked by the Applicant once it has been submitted. 


Enter your FULL NAME(S). Applications must be in the name(s) of natural persons, companies or other legal entities, up to a maximum of three names per Application. The table below shows the correct 

form of name to use. Applications using the wrong form of name may be rejected. 

Enter your POSTAL ADDRESS. All communications to you from Fonterra will be mailed to the person(s) at the address as shown (unless you provide an email address on the application form). For joint 

Applicants, only one address is to be entered. 

Provide your TELEPHONE NUMBER(S) so that the Unit Registrar, the Manager of the Fonterra Shareholders’ Fund or Fonterra can contact you in relation to your Application if required. 

X 

By supplying your email address, Fonterra and the Manager of the Fonterra Shareholders’ Fund will be able to deliver your investor correspondence to you electronically where possible. This is a much more 

environmentally friendly, cost effective and timely option than paper-based investor mail-outs. 

Type of Investor Correct Way to Write Name Incorrect Way to Write Name 

Individual person JOHN ALFRED SMITH J A SMITH 

More than one person 


MICHELLE JANE SMITH 

Company ABC LIMITED ABC 

Trust 

Partnership 

Club or Unincorporated Association 

Superannuation fund 


 


MICHAEL FREDERICK SMITH 

 

JANE ANNABEL SMITH 

 

JOHN SMITH LIMITED 

 

J A & M J SMITH 

JOHN SMITH FAMILY TRUST 

JOHN SMITH & SONS 

SMITH INVESTMENT CLUB 

JOHN SMITH SUPERANNUATION FUND 

157516_01CT7H


Enter the total New Zealand dollar amount you wish to apply for. Tick the relevant box for your chosen payment method. The minimum Application amount is NZ$2,000 with increments of NZ$100 therefore 

up to a maximum amount of NZ$50,000 (except in respect of Fonterra New Zealand and Australian employees whose maximum amount is NZ$25,000). 

Note that Fonterra employees in Australia (and all other Applicants under the Friends of Fonterra Offer) will need to make arrangements to make payment of their Application Monies in 

New Zealand dollars. 

Option 1 

If you choose the direct debit option, you must tick the box authorising the Unit Registrar to direct debit the bank account nominated on the application form on any day after the application form is received 

by the Unit Registrar for the amount applied for on the application form. You cannot specify a direct debit date and you must ensure that: 

• the bank account details supplied are correct; 

• sufficient funds in the bank account for direct debit are available from the day the Unit Registrar receives the application form; 

• the person(s) giving the direct debit instruction has/have the authority to operate the account solely/jointly; and 

• the bank account you nominated is a transactional account eligible for direct debit transactions. 

If you are uncertain, you should contact your bank or financial institution. Should your direct debit fail, your Application may be rejected. The Unit Registrar will not be able to process your direct debit if you 

do not sign and date the application form. 

If requested, the Unit Registrar will provide you with a direct debit authority form. 

Option 2 

Cheques must be drawn on a New Zealand registered bank from a New Zealand dollar bank account and must be made in New Zealand dollars. Cheques must be made payable to “Fonterra 

Shareholders’ Fund Offer” and crossed “Non Transferable”. Cheques must not be post-dated as they will be banked on receipt. The banking of Application amounts does not constitute confirmation of 

allotment of any Units or acceptance of an offer to subscribe for Units. If your cheque is dishonoured, your application may be rejected and Fonterra may cancel your allotment of Units and pursue any 

other remedies available to it at law. 

Future distribution payments 

All future distribution payments will be made to the account specified on this application form. If you do not select the direct debit option (OPTION 1), you must provide your bank account details so that the 

Manager of the Fonterra Shareholders’ Fund can direct that distribution payments are credited directly into your bank account. 

Step 3: Common Shareholder Number 

If you have a Common Shareholder Number (CSN), you must enter it in the box provided. The name and address details on your application form must correspond with the registration details under that 

CSN. If you do not provide a CSN, it will be deemed that you do not have a current CSN and a base registry number and FIN (authorisation code) will be allocated to you at the time of allotment of Units. 

Step 4: IRD number and Prescribed Investor Rate (PIR) 

Enter your IRD number. For joint Applicants, please fill in the IRD number of the first named Applicant or the beneficiary of the trust (for an Application by a trustee or trustees). This information is not 

required for Australian participants. 

Please refer to Section 9 of the Offer Document in relation to electing your PIR. The income bands for determining your PIR can be found on the Inland Revenue website www.ird.govt.nz/toii/pir/workout/. 

Step 5: Signature of Applicants 

Read the declaration and the terms and conditions on the back of the application form carefully and SIGN and DATE the application form. An application form must be signed by the Applicant(s) 

personally, or by two directors of a company (or one director if there is only one director, whose signature must be witnessed), or in either case by a duly authorised attorney or agent. 

If the application form is signed by an attorney, the Power of Attorney document is not required to be lodged, but the attorney must complete the certificate of non-revocation of Power of Attorney section 

on the back of the application form. If the application form is signed by an agent, the agent must complete the certificate of non-revocation of agent section on the back of the application form. 

Joint Applicants must each sign the application form. 


Applicants applying under the Friends of Fonterra Offer must return a completed application form (with payment) to the Unit Registrar by 5.00pm NZDT on the Stakeholder Offer Closing Date, Wednesday 

21 November 2012. 

The address details of the Unit Registrar are: 

Computershare Investor Services Limited 


Private Bag 92119 


Physical address: 

Level 2 

159 Hurstmere Road 

Takapuna 


Alternatively, Applications can be lodged with any NZX Firm, the Joint Lead Managers, or any other channel approved by NZX so as to be received in time to enable them to be forwarded to and received 

by the Unit Registrar by 5.00pm (NZDT) on the Stakeholder Offer Closing Date, Wednesday 21 November 2012. 

Please lodge your application form AS SOON AS POSSIBLE. Applicants should remember that the Stakeholder Offer Closing Date may be changed by Fonterra. 

Fonterra reserves the right to accept Applications which are received by the Unit Registrar after the Stakeholder Offer Closing Date, but has no obligation to do so. 

157516_01CT7H

THIS DOCUMENT THIS DOCUMENT IS PRINTED IS ON PRINTED AN THIS ENVIRONMENTALLY 

DOCUMENT AN ENVIRONMENTALLY 

IS PRINTED AN ENVIRONMENTALLY 

RESPONSIBLE RESPONSIBLE PAPER PRODUCED PAPER PRODUCED RESPONSIBLE USING ELEMENTAL USING PAPER ELEMENTAL CHLORINE 

PRODUCED CHLORINE USING ELEMENTAL CHLORINE 

FREE (ECF)FSC FREE ® CERTIFIED (ECF)FSC ® MIXED CERTIFIED FREE SOURCE MIXED (ECF)FSC PULP, SOURCE ® SOURCED CERTIFIED PULP, FROM MIXED SOURCED SOURCE FROM PULP, SOURCED FROM 

WELL MANAGED WELL MANAGED AND LEGALLY AND HARVESTED WELL LEGALLY MANAGED HARVESTED FORESTS, AND AND FORESTS, LEGALLY HARVESTED AND FORESTS, AND 

MANUFACTURED MANUFACTURED UNDER THE UNDER STRICT MANUFACTURED THE ISO14001 STRICT ENVIRONMENTAL 

ISO14001 UNDER ENVIRONMENTAL 

THE STRICT ISO14001 ENVIRONMENTAL 

MANAGEMENT MANAGEMENT SYSTEM. SYSTEM. MANAGEMENT SYSTEM.

Fonterra Shareholders' Fund Prospectus and Investment Statement

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