Helping you prepare for the retirement you deserve

Transcription

1 Annual Report for the year ended 30 June Helping you prepare for the retirement you deserve ANNUAL REPORT For the Year Ended 30 June 2013

2 2 Annual Report for the year ended 30 June 2013 Scheme membership what does it mean for you? Two members talk about what the Scheme means for them and their families. Peace of mind LIC looms large in the life of Angela and Aaron Wallace. They have both worked for LIC for 20 years and met at work. At the time, Aaron was a temporary member of the LIC team, and Angela was on contract. But as soon as they both achieved permanent roles, they joined the (as it was then) NZ Dairy Board superannuation scheme. We both joined the Scheme for the same reason, Angela says, to get the full entitlement to salary because at that time if you didn t belong to the super scheme, you didn t get the total value package. However, as time, maturity and responsibilities (a family and mortgage) set in, so did the realisation that contributing to the Scheme provided peace of mind. Aaron says they have different investment profiles. So once a year we see a financial adviser to get a financial warrant of fitness. He is able to keep us focused on the big picture, especially when times are tight like when Angela stopped work to have each of the children. He gives us a good reality check...and that reminds us that It s worth knuckling down now because we ll have financial freedom when we re older. Angela and Aaron have three young children Millie (9), Leo (7) and Bruno (20 months). The couple accept that there may not be a universal pension when they retire. Having super is our stability. If our kids need a leg up into the property market when they re older, we will have more behind us to help them, Angela says. When asked about retirement Angela and Aaron both agree that it means financial freedom being able to do what we want to do, being comfortable, being able to go on an annual holiday overseas, being able to retire early enough with good health and wellbeing so we can enjoy life. We love our home but in time we d like to get a beach property as a base for our children and their children. We can plan for this because of our superannuation. (Angela is LIC s Senior Finance Manager, and Aaron is LIC s International Product Manager). The Wallace family left to right Aaron with Bruno, Angela, Leo and Millie

3 Annual Report for the year ended 30 June Super brings pipe-dreams to life LIC Company Secretary, Gill Brennan, already had a pension scheme when she arrived in New Zealand with her Kiwi husband, Russ, 14 years ago. I worked for a UK organisation which had a compulsory pension scheme but you were also told that you should aim to be financially secure in your old age. So it was a no-brainer, when I joined LIC nine years ago, to join the Fonterra Superannuation Scheme. Russ and I have two children Madeleine, who is 20 and studying zoology at Otago University and Sam who, at 15, is still at high school but talking about going to university. I look at how much debt they could come out of university with and I think we could be helping them longer than our parents had to help us so that s another reason to have financial security when you are no longer working. Gill and Russ travelled a lot when the children were young. Living in the UK made it easy and I expect (and hope) that the kids will want to make the most of their European heritage and travel to the UK and beyond when they finish university. Having children living overseas can be a hardship if you re not able to visit them, but we hope that the financial planning we re doing now, will mean we can go and see them. Asked when retirement is likely to occur, Gill says it could be any time after 60, when her British pension kicks in, although she can t imagine herself not working. The Brennan family left to right Standing: Sam, Russ. Seated: Madeleine, Gill However, she does see herself travelling more. We often talk about following famous sporting events like the Tour de France in a camper van! That isn t a pipe-dream, thanks to our superannuation. Russ is self-employed and doesn t belong to a superannuation scheme so the Fonterra and UK schemes are the couple s compulsory saving schemes, complementing their Hamilton home and Coromandel bach. Gill isn t sure how you know whether you will have enough to do what you want in retirement but I check my balance in the Fonterra scheme each year and it s always a nice surprise.

4 4 Annual Report for the year ended 30 June 2013 Scheme survey report A survey of the Scheme s membership was carried out in late Its aim was to help us understand what you need to save for retirement and whether the Scheme is meeting those needs. As part of the exercise we also asked how satisfied you are with aspects of the Scheme such as contribution levels, investment choice and the benefits. We also wanted to find out how you prefer to receive information about the Scheme. Almost 16% of members responded to the survey, which is high by industry standards. What you said Results showed that overall understanding of the Scheme is sound and that respondents generally take a considered approach to investing. Most have given some thought to retirement but do not consider themselves well enough prepared. We also discovered that features such as a choice of contribution rates, investment options, the employer subsidy (for LIC members only) and the Scheme website are highly valued. What you would like more of You asked for assistance preparing for retirement, and more detailed information about the Scheme s investments along with the investment options and their performance. What we are doing In response to the survey findings, we undertake to: Look at ways of providing more detailed information about the Scheme s investments. More actively promote the quarterly investment update which is posted on fonterrasuper.superfacts.co.nz and includes a progress report on information provided in the annual report. For example, it shows the Scheme s performance against its objectives and a comparison with the median return for similar KiwiSaver schemes as well as the before-tax returns for each of the Scheme s asset classes. Provide articles focussing on planning for retirement in Super news and on fonterrasuper.superfacts.co.nz. Continue efforts to ensure that information about the Scheme is informative, concise and easy to understand.

5 Annual Report for the year ended 30 June Chairman s report Strong overall results for the year The past Scheme year has certainly reinforced how difficult it is to predict investment returns over short periods and how taking a longer-term view may serve most investors best. Notwithstanding the numerous economic, political and social difficulties facing many parts of the world over the year, all of the Scheme s investment options achieved strong overall performances. Only the Cash fund return remained subdued as shorter-term interest rates remained low in New Zealand. Growth-type assets such as shares and property led the way in returns, so options with greater exposure to these riskier assets provided the strongest results. So it is pleasing to report a declared return for the last year for the Balanced fund of 12.8% after deducting tax and expenses. This is well above our normal expectations for this fund over the longer term, which was also the case for the Growth fund which returned 16.2%. However, these results do need to be seen in the context of a lacklustre 2012 year and some difficult investment periods in the early stages of the global financial crisis in While the path is not at all smooth and straight these periods of strong positive returns do provide some comfort that mediumto-longer expected outcomes look reasonably on track. But the outlook is still murky One thing that does seem clear is that volatility can be expected to remain with us for some time yet. Volatility is where there are frequent positive and negative shifts over time rather than steady growth. Looking around the world today it appears that the US economy is slowly recovering but Europe still faces major hurdles. China, after some concerns during the year which also impacted on Australia, appears to have picked up again, but the internal pressures associated with its huge pace of change are significant. Japan has embarked on a very radical and different approach to its economic policies that only time will judge. Interest rates continue to be at or close to their all-time lows and many governments are still wrestling with the difficult trade-off between balancing their books and keeping their economies moving. All in all, it is still as difficult to predict the immediate future as it has been for quite some time. The Scheme remains in a sound position Through all this the Scheme continues in sound heart with membership increasing marginally over the year to 1,267 and assets up $11.6 million to $101.1 million. It is pleasing that asset growth is coming from from member and employer contributions as well as investment returns. There has been increasing pressure on schemes such as ours from many angles, including the growth of KiwiSaver and numerous regulatory changes. However, the trustees are confident that the Scheme has the size and capacity to continue delivering solid benefits to its members. An essential factor in our success remains the on-going support from members. So thank you to everyone who completed the survey conducted in late Your responses made it clear that the financial security and peace of mind the Scheme provides is highly valued. With that in mind, our theme for this year s annual report is Taking care of your family. There is more on the survey findings on page 4 of this report. Improved communications and member contact remain a focus We continue to look for ways to improve our communications and contact with members. To further improve member access to the Scheme we now have a mobile site, which means you can use your smartphone to view your account balances, benefit estimates, investment information and personal details. Page 15 has more details on how to access this new service. The Scheme continues to be well served by its key providers The Scheme continues to be well served by its many key service providers, particularly Mercer as administration manager and the Scheme contact point for many members. There were no major changes to the providers in the past year and I thank all those support organisations for their continuing efforts. Regrettably, due to ill health, Selwyn Tisch resigned as a trustee early in the Scheme year. Selwyn had been a trustee since 2003 and we thank him for his very valuable contribution to the smoothrunning of the Scheme during that time. In Selwyn s place we welcome Linda Cooper, General Manager Corporate at LIC. There were no other changes during the year and I thank all my fellow trustees for their ongoing efforts on behalf of members. Tim McGuinness Chairman

6 6 Annual Report for the year ended 30 June 2013 CREDITED INTEREST RATES The table below shows the annual return for each of the last three years and the average annual rates over the last five years. The five year rates show how, despite the strong returns of 2011 and 2013, most portfolios have yet to get fully clear of the 2009 experience when the global financial crisis was at its height Annual average return over 5 years Cash fund 2.3% 2.2% 2.6% 2.4% Cash/Conservative 4.6% 2.6% 4.7% 4.2% Conservative fund 6.9% 3.1% 6.8% 6.2% Conservative/Balanced 9.8% 2.0% 8.6% 7.6% Balanced fund 12.8% 0.9% 10.5% 9.0% Balanced/Growth 14.5% 0.0% 11.6% 9.8% Growth 16.2% -0.9% 12.7% 10.5% WHAT ARE CREDITED INTEREST RATES? These are the interest rates allocated to your accounts at the end of each Scheme year. The rates vary, depending on the performance of your chosen investment option, less tax and expenses. Declared interest rates for the 12 months to 30 June % 15% 10% 5% US, Chinese and European governments intervene to boost economic growth. Improved economic data released in the US and China. US Federal Reserve indicates it may start to scale down asset-purchasing programme 16.2% 14.5% 12.8% 9.8% 6.9% 4.6% 2.3% Growth Balanced/Growth Balanced Conservative/Balanced Conservative Cash/Conservative Cash 0% Jul 12 Aug Sept Oct Nov Dec Jan 13 Feb Mar April May June Past performance is not a guide to future performance.

7 Annual Report for the year ended 30 June Investment market update The global economy faced many challenges in the 2012/2013 Scheme year including the ongoing European debt crisis, US spending cuts in areas such as defence and the ending of tax breaks, and a slowing in the Chinese economy. These were added to late in the year by worries that the US Federal Reserve would start reducing its huge asset-purchasing programme. However, despite such significant concerns, the Scheme s investments had a very good year. The year s best returns came from investments in trans-tasman shares. Both the New Zealand and Australian share markets performed very well, although the strongest returns came from New Zealand. New Zealand shares offer higher dividends than most other countries, so they tend to look attractive when interest rates are low, as they have been over the last few years. Australian shares also provided a good return, although some concerns about China (Australia s largest trading partner) did take the gloss off a little. International shares also had a very satisfactory year. Sharemarkets picked up from early July following the announcement of further measures in many countries to reduce interest rates and make borrowing easier. Concerns about events in Cyprus and Italy, government spending cuts and messy US politics weren t enough to derail a continuing positive mood among investors. However, the recovery came to a halt from mid-may 2013, reflecting worries that the US would start reducing its huge asset-purchasing programme, and bring to an end the stimulus that has driven share markets to record highs and interest rates to record lows. In contrast to last year, the current tax regime worked in the Scheme s favour. The way this tax works is that the income (or dividends) from international shares is assumed to be 5% and the remainder (17.9% this year) is a capital gain and therefore tax free. Global property benefited as the unpredictable investment environment attracted investors to assets such as property, which provide good dividends along with the possibility of capital gains. Although interest rates were at near record lows until late in the Scheme year, the Scheme s investments in international fixed interest still provided a solid return for the year. After a strong performance in the previous Scheme year, the return from New Zealand fixed interest investments was flat as interest rates began to rise again. Cash posted another modest return as the Reserve Bank kept its official cash rate at 2.5% throughout the year. WHAT IS A DIVIDEND? A distribution by a company to its shareholders of a portion of a company s earnings. The amount of a dividend is decided by the company s Board of Directors.

8 8 Annual Report for the year ended 30 June 2013 THE SCHEME S INVESTMENT FUNDS Your super to invest as you want About your choices The Scheme offers you a choice of seven investment options. You can choose one of the four main funds Growth, Balanced, Conservative and Cash, or a combination of two adjacent funds (Cash/Conservative, Conservative/ Balanced and Balanced/Growth). Each fund has a different mix of assets The mix of each investment fund varies, depending on its expected long-term return. As the following table shows, the Growth fund, which is expected to achieve the highest returns over time, has more shares and property (growth assets) and less fixed interest and cash (income assets). The trade-off for better longer-term returns is greater volatility and a higher level of investment risk. Funds expected to provide lower, more consistent returns with less volatility and investment risk hold more in income assets. Changes to the benchmark asset mixes As noted in last year s annual report, to provide additional diversification (and reduce investment risk), in July the Scheme s assets previously invested in trans-tasman property were What is volatility? Returns are described as volatile when they move up (and down) sharply. transferred to listed infrastructure and natural resources. The Scheme continues to invest in global listed property. ACTION POINT Before you change your investment option, read about the risks and returns for each option in the Scheme booklet and take advice from a qualified authorised financial adviser. WHAT IS INVESTMENT RISK? The likelihood of a fund earning a negative return, reducing the value of your savings in the Scheme. Benchmark (or target) asset mix Growth BALANCED CONSERVATIVE CASH Income 23% Income 42% Income 25% Growth 100% Income Growth 77% Growth 58% Growth 75% Income 17% 2% 6% 6% 7% 4% 17% 41% 8% 13% 27% 7% 5% 5% 5% 30% 35% 18% 6% 13% 2% 2% 2% 22% 100% GROWTH ASSETS Trans-Tasman Shares Natural Resources Listed Infrastructure International Shares Global Listed Property INCOME ASSETS NZ Fixed Interest International Fixed Interest NZ Cash VALUE OF MEMBER INVESTMENTS AT: $47m $54m 1 July June 2013 $m $22m $18m Growth Balanced $16m $17m Conservative $9m Cash $8m The asset allocations for the Growth/ Balanced, Balanced/Conservative and Conservative/Cash options are 50% from each of the main funds.

9 Annual Report for the year ended 30 June Investment objectives a guide to likely long-term returns We set objectives for each of the investment funds to provide members with a guide to the likely long-term return above inflation that a typical fund with a similar mix of investments could be expected to achieve. Remember, however, that these are only a guide to what you might expect from each investment fund, not a set target. Change to investment objectives Following a review of the Scheme s investment objectives, the percentage by which each fund can be expected to outperform the increase in inflation as measured by the Consumers Price Index (CPI) has been reduced. From 1 April 2013 the objectives for the Growth and Balanced funds have been cut by 0.5% to 3.5% and 2.5% respectively, while the Conservative fund s objective has been lowered from 2.0% to 1.0%. Why the change? Over the long term, before-tax returns from fixed interest investments are generally expected to average 5% to 6% each year. Recently fixed interest investments have provided well-above average returns for the Scheme as governments kept interest rates at historically low levels to stimulate economic growth by making borrowing easier. However, as the global economy recovers and interest rates rise (and therefore the value of existing securities decreases) there is an increased risk that over the next three to five years returns from the Scheme s fixed interest investments will be lower than these long-term levels. Portfolios such as the Scheme s Conservative fund which are intended for a shorter timeframe and invest more heavily in fixed interest investments are likely to be most affected. Long-term returns The graph below shows the increase in inflation, each investment fund s objective and the returns achieved over different timeframes. The timeframes vary depending on a fund s investment objective. For example, the Growth fund s returns are measured over 15 years because its benchmark asset mix is designed for members looking for stronger long-term returns who are prepared to accept volatility in the short term. On the other hand, the Conservative fund s returns are measured over five years because it is designed to suit members who are prepared to accept lower longer-term returns in exchange for a reduced likelihood of negative returns in the shorter term. As the graph below shows, the funds are making good progress towards achieving or exceeding their objectives. The Conservative fund has outperformed while the Balanced fund is close to achieving its objective. With the highest percentage of its assets invested in shares, the Growth fund has been most affected by share market volatility. Nevertheless, it continues to make good progress towards meeting its objective. The Scheme s Cash fund is generally expected to achieve a return close to the 90-day Bank Bill rate before tax and all expenses. For the year to 30 June 2013, the Cash fund earned 2.3% after tax and all expenses, compared to a 90-day Bank Bill rate before tax of 2.7%. Increase in inflation, objective and actual average RETURN TO 30 June % 6.6% Average increase in cpi over period Objective Average annual return (after tax & expenses) over period 6% 5.2% 5.6% 5.0% 4% 4.1% 4.3% 2% 2.6% 2.6% 2.1% ACTION POINT 0% LONG-TERM INVESTMENT OBJECTIVE: GROWTH BALANCED CONSERVATIVE To exceed inflation by 4.0% pa after tax and expenses over rolling 15 year periods (As the Growth fund only started in 2003, data is only shown for 10 years.) To exceed inflation by 3.0% pa after tax and expenses over rolling 10 year periods. To exceed inflation by 2% pa after tax and expenses over rolling 5 year periods For a regular update on the Scheme s investment performance (including a comparison of the Scheme s returns with other similar schemes) sign into fonterrasuper.superfacts.co.nz and go to the Investments page.

10 10 Annual Report for the year ended 30 June 2013 All three of the Scheme s main investment funds have equalled or outperformed the median KiwiSaver return over all periods measured. Fund returns continue to compare well We monitor the performance of each of the Scheme s investment funds to ensure returns remain competitive with (or ahead of) other similar funds. The following graph compares each investment fund s performance with the median (middle) return of KiwiSaver schemes as surveyed by Mercer. The survey looks at investment returns before tax is deducted but after investment fees. As tax and administration expenses are not included, the returns shown will be different from the credited interest rates detailed earlier in this report. Returns compared to KiwiSaver median Before tax and after investment fees over 1, 3 and 5 years to 30 June 2013 KS median FSS 1 YEAR GROWTH BALANCED CONSERVATIVE 7.9% 8.0% 13.7% 14.5% 18% 18% 3 YEARS GROWTH BALANCED CONSERVATIVE 6.7% 7.5% 8.4% 9.6% 10.5% 12.0% 5 YEARS GROWTH BALANCED CONSERVATIVE 4.9% 5.6% 5.8% 6.1% 6.0% 6.3% 0% 5% 10% 15% 20% Source: Mercer KiwiSaver Survey The graph shows that all three of the Scheme s main investment funds have equalled or outperformed the median KiwiSaver return over all periods measured.

11 Annual Report for the year ended 30 June YOUR SCHEME S INVESTMENT MANAGERS The Scheme uses a range of managers to look after its investments. The trustees, assisted by their investment consultant, Mercer, look for experienced and competent managers for each asset type. They also ensure an appropriate level of diversification to control how much of the Scheme s investments is held by any one manager. The managers employed by the Scheme at 30 June 2013 are shown in the following table: $m Trans-Tasman shares Harbour Asset Management Limited ANZ New Zealand Investments Limited International shares AMP Capital Investors (NZ) Limited International listed property AMP Capital Investors (NZ) Limited Listed infrastructure 3 Mercer (N.Z.) Limited Natural resources 3 Mercer (N.Z.) Limited International fixed interest Russell Investments (using Implemented Investment Solutions) New Zealand fixed interest AMP Capital Investors (NZ) Limited ANZ New Zealand Investments Limited New Zealand cash AMP Capital Investors (NZ) Limited ANZ New Zealand Investments Limited WHAT IS AN INDEX? An index is used to measure how an asset class is doing. For example, returns from the Scheme s investments in trans-tasman shares are measured against the NZX 50 which is made up of the top 50 shares on the NZ share market. The indices used for the Scheme s other asset classes are shown in the latest Investment Update on fonterrasuper.superfacts.co.nz. 1 Effective 20 September 2013 OnePath (NZ) Limited changed its name to ANZ New Zealand Investments Limited. 2 These managers are managers of managers which means they utilise other investment managers with proven expertise in specialist areas. As a manager of managers, their role is to track the performance of the specialist managers. They have the power to dismiss ineffective managers and hire replacements on the Scheme s behalf. 3 In July 2012, the Scheme s assets in trans-tasman listed property managed by OnePath (NZ) Limited was replaced by investments in listed infrastructure and natural resource assets, managed by Mercer Investments (New Zealand) Limited. Note that the final portion of the Scheme s assets invested in alternative assets with BT Funds Management was paid into the Scheme s bank account on 30 April 2013.

12 12 Annual Report for the year ended 30 June 2013 Growth assets post strong returns To measure the performance of the Scheme s managers, we compare the performance (before investment fees, Scheme expenses and income tax) of each of the Scheme s asset classes against the appropriate index for that asset class. The graph below shows that the two new asset classes, listed infrastructure and natural resources underperformed their indices over the past year. The underperformance of listed infrastructure is because the managers of this asset type have significant investments in defensive utilities such as gas, water and electricity which have not performed as well as some higher-risk infrastructure investments during the year. The index for a large part of the Scheme s investments in natural resources is cash + 5%. Some underperformance is expected over shorter periods but it is predicted to outperform over the longer term. One year is generally too short a period to judge a manager s skill so the trustees focus more on longer-term results. Trans-Tasman shares underperformed its index over three years. As noted in last year s annual report, this is largely because one of the managers of this asset type holds significant investments in Australian shares, while the index used is the New Zealand share market s NZX50. Over the past three years the NZX50 returned an average of 15.9% p.a. while the Australian market s S&P ASX20 has been less spectacular, returning an average of 8.6% p.a. Actual returns vs index for each asset type over one year and three years (pa) to 30 JUNE 2013 (before tax and expenses) 12 months actual 12 months index 3 years (p.a.) actual 3 years (p.a.) index % 32.3% % 15.9% 23.4% 21.1% 13.0% 12.2% 16.0% 14.4% 19.3% 18.6% 19.4% 23.3% % 2.0% 2.0% 6.9% 5.8% 7.3% 4.0% 8.2% 6.2% 3.5% 2.7% 3.7% 2.8% 0 Trans-Tasman Shares International Shares International property Listed infrastructure Natural resources NZ fixed interest International fixed interest Cash Note: Three-year returns are not shown for listed infrastructure and natural resources as investment only commenced in July 2012.

13 Annual Report for the year ended 30 June Looking for the latest information about the Scheme s investment performance? With the current volatility in world investment markets, it s important to have the latest information about how the Scheme s investments are performing. You can access up-to-date information through fonterrasuper.superfacts.co.nz; go to the Your investments page and then open Investment update. Scheme pays $5.6m in benefits The graph below shows a breakdown of the different benefits paid from the Scheme over each of the last two years. Benefits paid to members this year totalled $5.6m (2012: $4.4m). Benefits paid during the year 10 Withdrawals by individual members & over 65s Retirement & death Leaving service* $m $5.6m $0.7 $1.0 $4.4m $0.7 $0.3 2 $3.9 $ / / 2012 * Includes redundancies and transfers out.

14 14 Annual Report for the year ended 30 June 2013 KEEPING AN EYE ON COSTS AND EXPENSES We regularly monitor the Scheme s costs and expenses to ensure that they are reasonable and competitive compared to most other savings options. Scheme fees and expenses fall into two main areas: Fees and costs related to investing the Scheme s assets Expenses of operating and administering the Scheme. total costs increase. The key measure is the cost for each dollar invested. On this basis, total investment costs in the past year represented 0.39% of average assets over the year compared with 0.27% the year before. The fee for each investment fund varies, depending on the asset mix. Managers who invest in growth-type assets such INVESTMENT FUND as shares, typically charge higher fees than those looking after income-type assets (fixed interest and cash). This means if you invest in the Growth fund, for example, the investment fee will be higher than if you invest in the Conservative fund. The current investment cost allowances for the various investment funds are: INVESTMENT COST ALLOWANCE (%pa) Investment fees and expenses Total investment fees and expenses paid by the Scheme this year (including those paid to its consultant) amounted to $524,250 compared to $327,957 the year before. Investment fees are charged on the amount of money being managed, so if the Scheme is growing in size, Cash 0.2% Conservative 0.4% Balanced 0.6% Growth 0.8% We believe these levels of investment costs stand up well when compared with other similar funds. Expenses of operating and administering the Scheme Operating expenses for the Scheme span a wide range of services including: administration of member and general Scheme records; maintaining securities law requirements such as prospectuses; member reporting and communications, audit; legal, tax and actuarial advice, and trustees fees and costs. Some of these costs are linked to the number of Scheme members while others are fixed. A summary of these expenses this past year compared to the year before is shown in the following table: 2012/2013 EXPENSE TYPE ($000s) 2011/2012 ($000s) Administration and secretarial services Member communications Legal, tax and actuarial consulting Audit Trustees fees and related costs 7 8 Financial Markets Authority (FMA) levy 20 - Other expenses 4 3 Total operating costs (before tax) excluding investment costs Total operating costs as % of funds managed 0.32% (0.23% after tax) 0.31% (0.22% after tax) Total operating cost per member $242 ($174 after tax) $217 ($157 after tax) Expense increases in the year mainly arose from: i) a new annual levy from the Financial Markets Authority that all schemes have to pay ($20,000 in our case); and ii) higher legal costs due to extra work required on our prospectus and investment statements. We continue to maintain a close watch on these expenses. However, we believe them to be very reasonable overall for a scheme the size of yours with some 1,267 members and $101.1 million in assets.

15 Annual Report for the year ended 30 June Scheme news New developments Stay connected with the Scheme whenever and wherever it suits you The Scheme now has a mobile site allowing you to use your smartphone to view information such as your account balances, estimates of your benefits, transaction history, personal details, investments and contributions. To access the site, simply enter fonterrasuper.superfacts.co.nz into your smartphone browser. Alternatively you can scan the QR code below using your smartphone s QR code reader and it will take you directly to the website. How to use a QR code To use a QR code you will need to download a QR reader app on your smartphone (free of charge from your app store) if you don t already have one installed. Once the app has downloaded you simply hold the QR reader over the QR code shown here and it will take you directly to the Scheme website. It s as easy as that so check it out! Legislative changes New anti-money laundering legislation takes effect The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 came into force on 1 July (Money laundering is how criminals disguise the illegal origins of their money. Financers of terrorism use similar techniques to avoid detection by authorities and to protect the identity of those providing and receiving funds). At this stage it s unclear exactly how the Scheme will be affected. However, it is unlikely that we will be able to accept any lump sum voluntary contributions in future, with all contributions needing to be deducted from salary or paid directly by your employer, based on a percentage of salary. Investment statement and prospectus updated Last year the Financial Markets Authority, the organisation that regulates New Zealand s financial markets, issued guidelines on effective disclosure. The guidelines didn t change the legal requirements for the Scheme s investment statement and prospectus. However, to comply with the guidance note we have expanded some sections of these two documents, particularly the descriptions of the risks involved in investing in the Scheme. Updated copies of both documents are available from Documents & forms on fonterrasuper.superfacts.co.nz. Minimum contribution rates increase From 1 April 2013, the minimum member and employer contributions to KiwiSaver schemes and locked in accounts in complying superannuation funds such as the Scheme increased from 2% to 3% of salary.

16 16 Annual Report for the year ended 30 June 2013 STATUTORY INFORMATION The Scheme is governed by four trustees who are currently: 1 Tim McGuinness (Chairman) I have been a trustee since 2007 and combine my role as Chairman with the trusteeship/directorship of a number of other significant superannuation schemes (including the Dairy Industry Superannuation Scheme and the Police and Fire Service superannuation schemes) and related consultancy assignments. I bring to the trustee group a broad knowledge and understanding of investments, financial and superannuation matters as well as general governance experience as a director of several other entities over the last 13 years or so. Outdoor and sporting pursuits including golf and tramping are features of my non-work time. 3 Debra Marshall I have been a trustee since August My contribution to the trustee group stems from my role as Rewards Manager New Zealand in Fonterra Group Human Resources. Based in Auckland, I have an extensive knowledge of employee benefits and superannuation in particular. Away from work I enjoy spending time with my young family. 2 Linda Cooper I am General Manager Corporate at Livestock Improvement Corp in Hamilton, where I am involved with finance, legal, project and risk management matters. I have over 15 years experience in CFO roles including 12 years in the US. A qualified chartered accountant, I bring to the trustee group strong financial, operational and risk management skills as well as knowledge gained as trustee for three years of a USA 401k pension plan. An ardent animal lover, I am concerned about animal welfare and act as Vice Chair on the local SPCA branch. My other interests include travel and photography. 4 Patrice Wynen I am the Director of Fonterra s Finance Delivery Centre in Hamilton. A qualified chartered accountant, I have 20 years experience in finance and management roles within the dairy industry and bring strong financial management skills to the trustee group. I am married with two children and the Chair of my children s school board of trustees. Trustee changes During the Scheme year Selwyn Tisch resigned as a trustee and was replaced by Linda Cooper.

17 Annual Report for the year ended 30 June TIM McGUINNESS (CHAIRMAN) 3 DEBRA MARSHALL 4 PATRICE WYNEN Photo to come 2 Linda Cooper TRUSTEEs STATEMENT The trustees certify, in accordance with the Superannuation Schemes Act 1989, that: All contributions required to be made to the Scheme in accordance with the terms of the Trust Deed have been made. All benefits required to be paid from the Scheme in accordance with the terms of the Trust Deed have been paid. The market value of the assets of the Scheme at 30 June 2013 equalled the total value of benefits that would have been payable had all members of the Scheme ceased to be members at that date and had provision been made for the continued payment of all benefits being paid to members and other beneficiaries at that date. Additional complying superannuation fund disclosures As at 30 June 2013: The market value of the Scheme s assets subject to complying fund rules is $3,843,067 relating to 165 members. The value of withdrawals subject to complying fund rules totals $493,179. Membership At 1 July ,260 New members 118 Transfers in 2 Transfer out (6) Resignations (94) Retirements (6) T. McGuinness For the trustees Redundancies (7) At 30 June ,267

18 18 Annual Report for the year ended 30 June 2013 FONTERRA SUPERANNUATION SCHEME Summary financial statements for the year ended 30 June $ $ Statement of Changes in Net Assets for the year ended 30 June Investment Activities 2,306,844 Net Investment Gain 12,329,492 2,306,844 Net Investment Income 12,329,492 Less Other Expenses 212,096 Administration and Consulting Fees 214,678 24,923 Auditor s Remuneration Audit Fees 23,320 17,867 Auditors Remuneration - Other Fees 30,172 26,700 Legal Expenses 38,959 45,716 Other Expenses 67, ,302 Total Other Expenses 374,398 1,979,542 Change in Net Assets before Taxation 11,955,094 and Membership Activities 1,192,789 Income Tax Expense 1,676, ,753 Change in Net Assets after Taxation and before Membership Activities 10,278,134 Summarises the Scheme s income and expenses during the year Investment earnings less the investment managers fees Costs of running the Scheme Investment income less expenses Investment income less tax and expenses Membership Activities 144,407 Transfers In from Other Schemes 9,975 3,177,579 Member Contributions 3,455, ,272 Member Tax Credits 63,746 3,487,020 Employer Contributions 3,374,679 4,415,882 Less Benefits Paid 5,618,243 2,511,396 Net Membership Activities 1,286,054 3,298,149 Net Increase in Net Assets during the Year 11,564,188 Contributions paid into the Scheme less benefits paid Investment income less tax and expenses plus net membership activities

19 Annual Report for the year ended 30 June $ $ Statement of Net Assets as at 30 June Assets 502,225 Cash at Bank 424,595 89,272,730 Financial Assets 100,903, Member Contributions Receivable Employer Contributions Receivable - 3,561 Prepayments 3,561 6,620 Income Tax Receivable - 89,786,276 Total Assets 101,331,552 Less Liabilities 74,880 Sundry Creditors 70, ,304 Benefits Payable 62,381 - Income Tax Payable 42,529 21,370 Deferred Tax Liability 22, ,554 Total Liabilities 198,642 89,568,722 Net Assets Available to Pay Benefits 101,132,910 89,568,685 Vested Benefits* 101,132,870 Statement of Cash Flows for the year ended 30 June 2,360,146 Net Cash Flows used in Operating Activities 833,974 (2,023,339) Net Cash Flows from Investing Activities (911,604) 336,807 Net (Decrease)/Increase in Cash Held (77,630) 165,418 Cash and Cash Equivalents at Beginning of Year 502, ,225 Cash and Cash Equivalents at End of Year 424,595 Summarises what the Scheme owns and what it owes The Scheme s assets held with the investment managers Liabilities are amounts owed to others Total assets less current liabilities Benefits payable had all members left the Scheme at balance date Summarises cash flows through the Scheme during the year Contributions less benefit payments and operating expenses Total cash flow Plus cash held at beginning of year *Vested benefits are benefits payable to members and beneficiaries under the conditions of the Trust Deed, on the basis of all members ceasing to be members of the Scheme at balance date. notes to the summary financial statements A summary of the Scheme s audited financial statements for the year ended 30 June 2013 which were authorised for issue by the trustees on 4 October 2013 is shown on page 18 and above. The summary financial statements have been extracted from the full audited financial statements dated 30 June 2013 which were authorised for issue on 4 October The summary financial statements have been prepared in accordance with FRS-43 Summary Financial Statements. The full financial statements have been prepared in accordance with generally accepted accounting practice and they comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The Scheme has made an explicit and unreserved statement of compliance with NZ IFRS in Note 2 of its full financial statements. The financial statements are presented in New Zealand dollars because that is the currency of the primary economic environment in which the Scheme operates. The summary financial statements cannot be expected to provide as complete an understanding as provided by the full financial statements of changes in net assets, net assets and cash flows of the Scheme. A copy of the full financial statements can be obtained, free of charge, from the Scheme s administration manager. The Scheme is a profit oriented entity. The auditor has examined the summary financial statements for consistency with the audited financial statements and has issued an unmodified opinion on both the summary financial statements and the full financial statements.

20 20 Annual Report for the year ended 30 June 2013 Independent auditor s report ON THE SUMMARY FINANCIAL STATEMENTS To the members of Fonterra Superannuation Scheme The accompanying summary financial statements on pages 18 and 19, which comprise the summary statement of net assets as at 30 June 2013 and the summary statements of changes in net assets and changes in cash flows for the year then ended and notes on page 19, are derived from the audited financial statements of Fonterra Superannuation Scheme ( the superannuation scheme ) for the year ended 30 June We expressed an unmodified audit opinion on those financial statements in our report dated 4 October Those financial statements, and the summary financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those financial statements. The summary financial statements do not contain all the disclosures required for full financial statements under generally accepted accounting practice in New Zealand. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of Fonterra Superannuation Scheme. Trustees responsibility for the financial statements The trustees are responsible for the preparation of a summary of the audited financial statements, in accordance with FRS-43 Summary Financial Statements. Auditor s responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standards on Auditing (New Zealand) (ISA (NZ)) 810 Engagements to Report on Summary Financial Statements. Our firm has also provided other services to the superannuation scheme in relation to taxation. This matter has not impaired our independence as auditor of the superannuation scheme. The firm has no other relationship with, or interest in, the superannuation scheme. Opinion In our opinion, the summary financial statements have been correctly extracted from the audited financial statements of Fonterra Superannuation Scheme for the year ended 30 June 2013, and the information reported in the summary financial statements is consistent, in all material respects, with the audited financial statements, in accordance with FRS-43 Summary Financial Statements. 4 October 2013 Wellington

21 Annual Report for the year ended 30 June SCHEME DOCUMENTATION Trust deed The trust deed was amended with effect from 1 April The amendment was made to reflect the increase from 2% to 3% of salary in the minimum contribution rate to locked in accounts in complying superannuation funds such as the Scheme. The change also applies to KiwiSaver schemes. The amendment also made a number of minor changes to reflect legislative changes since the trust deed was last amended. Prospectus The Scheme s most recent prospectus was registered on 14 December SCHEME PERSONNEL HERE TO HELP Derek Vincent continues as Secretary to the Scheme. Contact Derek if you would like to correspond with the trustees, have any questions about this report, or for a copy of the Scheme s audited financial statements. Copies of the Scheme s Statement of Investment Policy and Objectives are also available free of charge from Derek. Derek Vincent Contact me at: Freephone: Telephone: (04) Facsimile: (04) P O Box 2897, Wellington 6140 Peter Alsop continues to take care of the day-to-day running of the Scheme. Please call Peter or the Member Helpline ( ) if there is any aspect of the Scheme or this report you do not understand. Peter Alsop Contact me at: Freephone: Telephone: (04) Facsimile: (04) P O Box 1849, Wellington 6140

22 22 Annual Report for the year ended 30 June 2013 DIRECTORY As the trustees, we appoint various professional companies to help manage the Scheme. For example, we do not manage members accounts, but have appointed a professional scheme administration manager to do that. Similarly, we do not make daily decisions about the investment of your funds we appoint investment managers to do that. We may change professional managers from time to time. Current providers are: Administrator All correspondence should be addressed to: The Scheme Secretary Fonterra Superannuation Scheme C/- Mercer (N.Z.) Limited P O Box 2897 Wellington 6140 Freephone: Telephone: (04) Facsimile: (04) Administers the Scheme on behalf of the trustees. Investment Managers AMP Capital Investors (NZ) Limited ANZ New Zealand Investments Limited 1, 2 Harbour Asset Management Limited Mercer (N.Z.) Limited 2 Russell Investments 1 Effective 20 September 2013 OnePath Limited changed its name to ANZ New Zealand Investments Limited. 2 In July 2012 the Scheme s assets in trans-tasman property managed by OnePath (NZ) Limited (now ANZ New Zealand Investments Limited) were replaced by investments in listed infrastructure and natural resource assets, managed by Mercer Investments (New Zealand) Limited. Note: BT Funds Management ceased to manage assets on the Scheme s behalf from 30 April Responsible for investing the Scheme s assets in accordance with the investment policy adopted by the trustees. Investment Consultant Mercer Investment Consulting Assists the trustees in setting investment policy and monitoring the investment managers. Auditor KPMG Audits the Scheme s financial statements. Solicitors Kensington Swan Advises the trustees on legal issues affecting the Scheme. Privacy Act Your personal information may be held for the purposes of the Scheme and when necessary passed between your employer, the trustees and the Scheme s professional advisers. If you wish to check or amend your personal information, please contact the Scheme Secretary. To make a complaint We want to make your membership of the Scheme as trouble-free as possible. However, if you have a complaint you need to: 1. Call the helpline to discuss your concerns. 2. Depending on the nature of your complaint, the helpline will direct it either to the administration team or to the Scheme Secretary. The trustees have 40 working days to respond to your complaint. If you are not satisfied by the response, you may refer the matter to Financial Services Complaints Limited (FSCL) by ing info@fscl.org.nz or calling FSCL on Alternatively you may write to FSCL at: Financial Services Complaints Limited 101 Lambton Quay P O Box 5967, Lambton Quay Wellington 6145 Full details of how to access the FSCL scheme can be obtained on their website fscl.org.nz. Looking for more information? Internet access: fonterrasuper.superfacts.co.nz Member Helpline: (9.00am to 7.00pm on business days) Copies of all forms and the latest member information booklet and investment statement are available from the Documents and forms page accessible from the homepage of fonterrasuper.superfacts.co.nz, from HR/payroll or by calling

23 Annual Report for the year ended 30 June

24 24 Annual Report for the year ended 30 June /2013 The Scheme year in numbers MEMBER AND EMPLOYER CONTRIBUTIONS $6.8M NET ASSETS AVAILABLE TO PAY BENEFITS $101.1M TOTAL MEMBERSHIP 1,267 WEBSITE VISITS 7,247 YEARS SINCE ESTABLISHMENT 22 CALLS TO THE HELPLINE 769 BENEFITS PAID $5.6M INCREASE IN SCHEME S NET ASSETS $11.6M