Prospectus - Fonterra

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51Fonterra Co-operative Group LimitedNotes to the Financial StatementsFor the 14 months ended 31 July 2008Interest rate riskThe Company’s interest rate risk arises from its borrowings and funds on deposit. Borrowings issued and fundson deposit held at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixedrates expose the Company to fair value interest rate risk.The Company borrows a mixture of fixed and variable rate debt in a range of currencies. The Company activelyhedges its repricing profile using interest rate swaps in accordance with its Treasury Policy in order to minimisethe cost of debt and manage the volatility of finance costs. The Company’s benchmark is to ensure between 20%and 55% of interest payments are fixed depending upon the maturity of the debt.Exposure to interest rate riskSensitivities to interest rate risk have been assessed on the basis of a 100 basis point movement in interest rates.A 100 basis point movement is considered reasonably possible over the short term. Sensitivities are presentednet of tax based on a tax rate of 33%.Fair value sensitivity analysisA change in interest rates impacts the fair value of the Company’s fixed rate debt instruments and its interest ratederivatives. Fair value changes impact on profit or loss for all interest rate derivatives and where hedged risks oncertain debt instruments are recognised at fair value. All such fair value changes are recognised in the incomestatement. The fair value sensitivity to a 100 basis point movement in interest rates (based on financial assetsand liabilities held at the reporting date) is as follows:$ millionAs atAs at31 July 2008 31 May 2007Fair value gain/(loss) from 100 bp increase 41 38Fair value gain/(loss) from 100 bp decrease (44) (41)Cash flow sensitivity analysisA change in the interest rates would also impact on interest payments and receipts on the Company’s floating ratedebt instruments (including the floating leg of any interest rate derivatives) recognised in the income statement.The cash flow sensitivity to a 100 basis point movement in interest rates (based on financial assets and liabilitiesheld at the reporting date) is as follows:$ millionAs atAs at31 July 2008 31 May 2007One year cash flow impact of 100 bp increase 16 13One year cash flow impact of 100 bp decrease (16) (13)
52Fonterra Co-operative Group LimitedNotes to the Financial StatementsFor the 14 months ended 31 July 2008Credit riskCredit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument failsto meet its contractual obligations, and arises principally from the Company’s receivables from customers.The Company has no trade and other receivables that are past due (31 May 2007: nil).The Company limits its exposure to credit risk by investing in liquid securities and entering into derivativeinstruments with counterparties that have a credit rating of at least ‘A-’ from Standard and Poor’s or equivalent.Given this high credit rating threshold, management does not expect any counterparty to fail to meet itsobligations.The maximum credit risk on cash and cash equivalents, trade and other receivables, derivative financialinstruments and other investments is best represented by their carrying values.The maximum credit risk in relation to financial guarantees the Company and the Fonterra Group have providedto the Fonterra Group’s equity accounted investees is $62 million (31 May 2007: $66 million). The Company andFonterra Group have also provided a financial guarantee to an external party with a maximum credit risk of $23million (31 May 2007: $7 million). The Company has provided financial guarantees for subsidiaries for which themaximum credit risk is $279 million (31 May 2007: nil).Liquidity riskLiquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. TheCompany’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet itsliabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or riskingdamage to the Company’s reputation.Typically the Company ensures that it has sufficient cash or facilities on demand to meet expected operationalexpenses for a period of at least 80 days, including the servicing of financial obligations; this excludes thepotential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters,although back-up funding lines are maintained for such situations.Group Treasury manages the Company’s liquidity by retaining cash and marketable securities, the availability offunding from an adequate amount of committed credit facilities and the ability to close out market positions. Atbalance date the Company had undrawn lines of credit totalling $2,700 million (31 May 2007: $2,355 million).
Page 2 and 3: 1TABLE OF CONTENTSSUMMARY OF MAIN T
Page 4 and 5: 3SUMMARY OF MAIN TERMS OF THE OFFER
Page 6 and 7: 5PROFILE OF THE FONTERRA GROUPFor t
Page 8 and 9: 7Innovation and SustainabilityThe F
Page 11 and 12: 10STATUTORY INFORMATIONThe order of
Page 13 and 14: 12Africa, Latin America and Oceania
Page 15 and 16: 14• the creation of new mortgages
Page 17 and 18: 16• a failure to make any payment
Page 19 and 20: 18the right to cast not less than 7
Page 21 and 22: 20• in the event of a change in c
Page 23 and 24: 22maximum of 5%, of raw milk suppli
Page 25 and 26: 24Brands ownershipNumerous brands a
Page 27: 26General risksOther special factor
Page 30 and 31: 29FONTERRA FINANCIAL STATEMENTSFont
Page 32 and 33: 31Fonterra Co-operative Group Limit
Page 34 and 35: Fonterra Co-operative Group Limited
Page 66 and 67: 65FONTERRA GROUP SUMMARY FINANCIAL
Page 68 and 69: 67Registrar means Computershare Inv
Page 70 and 71: 69APPLICATION INSTRUCTIONS1. Comple
Page 72: 717. SIGNATURE(S) OF APPLICANT(S)I/

Prospectus - Fonterra

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