Annual Meeting materials

Confidential to Fonterra Co-operative Group
Chairman’s Address
John Monaghan

FY19 a year of
significant
challenge

3
Our Purpose guides everything we do

Confidential to Fonterra Co-operative Group
Taking the best things from the past and adapting
them for the future
Strengths
Our realities
OUR PEOPLEINCREASING COMPETITION
INNOVATION,RESEARCH& DEVELOPMENTCONSTRAINED CAPITAL
SCALE& EFFICIENCYLARGE ASSET BASE
PASTUREBASEDFARMINGMODELHIGH DEBT LEVEL
LOW GREEN HOUSE GAS EMISSIONSLACK OF TRUST & CONFIDENCE
GLOBAL SUPPLY CHAINBIG PART OF NEW ZEALAND
PRODUCT & MARKET OPTIONALITYENVIRONMENTAL INVESTMENT COSTS
FOOD SAFETY & TRACEABILITYRECENT UNDER PERFORMANCE
AOTEAROA NEW ZEALAND
CUSTOMER RELATIONSHIPS

We have
made
progress on
our
commitments
$160 million decrease in
operating expense by FY20
Reduce capex by $200 millionReduce debt by $800 million
Gearing within 40-45% range
by year-end
$469m
$261m
$185m
48.2%
Down 0.2%
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Confidential to Fonterra Co-operative Group
July 2018
John becomes Chair
August
2018
Miles appointed
interim CEO
September
2018
Portfolio Review
3 point plan
October
2018
Drop our volume
ambition
March 2019
Sale of
Corporation Inlaca
(Venezuelan JV)
November
2018
Board announces
full review of
strategy
May 2019
Sale of Tip Top
Decision to close
Dennington site in
Australia
Strategic review of China
Farms investment
Review options of DPA
Brazil JV
September 2019
Announced sale of 50%
stake in DFE Pharma
Announced sale of first
parcel of Beingmate
shares
Announced new strategy
and operating model
18 months of fundamental change

Confidential to Fonterra Co-operative Group
7
InnovationSustainabilityEfficiency

Product
innovation
to meet
consumer
needs
High protein
medical beverages
An infant formula
inspired by breast milk
High Protein Instant Milk Powder
33% of an adult’s daily calcium needs
Reduced
sugar
in Kiwi
kids’ diets
Protein fortified
healthy drinks and snacks
Anchor™ Food Professionals
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Confidential to Fonterra Co-operative Group
Honour Roll for
Milk Quality Excellence
9

Confidential to Fonterra Co-operative Group
10
Honour Roll for
Milk Quality Excellence

Confidential to Fonterra Co-operative Group
The Co-operative Difference
11

Confidential to Fonterra Co-operative Group
Planting for good
12

Confidential to Fonterra Co-operative Group
13
Geographic imbalances are growing
Accelerating global
dairy trade
Production (LMEs bn) 2018
Consumption (LMEs bn) 2018
South
America
New
Zealand
Australia
India
Russia
China
Rest
of Asia
Middle East
and Africa
Europe
(ex. Russia)
US

14
Board
priorities
for 2020
Deliver on
Milk Price
Advance
Rate
improvements
Implement
our
strategy
Governance
succession &
development
Capital
Structure
Improved
earnings

---

1

FONTERRA ANNUAL MEETING
7 NOVEMBER 2019
CHAIRMAN’S ADDRESS

Before going into the formal business of the meeting, we’d like to take a look back at
the past year, and then look ahead to the outlook for 2020.
In a few minutes, I’ll ask Miles to come up and discuss the Co-op’s financial results for
2019 and update us on progress with the implementation of the new strategy.
FY19 was a year of significant challenge and change within our Co-op as we continued
to fundamentally change the culture and strategy of our organisation.
It was also another tough year of significant change for us as farmers with:
• The Government’s policy announcements on climate change and freshwater,
• The impact that the Reserve Bank’s proposal to tighten capital reserve rules had on
the banks’ willingness to lend,
• And the continued response to M-bovis, which is still having a real impact on our
industry.
Our decision not to pay a dividend and significantly impair a number of assets came as
a surprise to many of you.
I understand and share the frustration that you rightfully feel. We are well aware of the
impact that our decisions have had on our share price and the balance sheets of us as
owners – even if the share price has started to show some signs of recovery.
We don’t make impairments lightly. Once made, most cannot be fully reversed. But they
were the right decisions.
The Board’s decision not to pay a dividend for the last financial year was part of our
stated intention to reduce the Co-op’s debt, which is in all of our long-term interests.

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Our unit price finished the financial year down 26% at $3.77. Its continued recovery will
be a priority for us in FY20.
There’s no question about it, it’s been a tough year.
We always knew it was going to be, and should be pleased with the progress we’ve
made.
That sounds strange for a year in which we made a record loss of more than $600
million.
But it’s real.
I’m confident that when we look back at 2019 a few years from now, it will be to mark
the beginning of another period of success for our Co-op.
The Co-op is almost 150 years old. The decisions and progress we’ve made this year
will help to ensure it’s here for another 150 years.
We started to fundamentally change our Co-op by looking at our purpose.
We did a lot of listening.
What we heard was that the Co-op’s intergenerational success was what motivated
people. They see the Co-op as a family that needs to contribute to three outcomes:
healthy people, a healthy environment, and a healthy business.
We took two things from our Purpose work.
First, that this Co-op is not broken.
We hear a lot about the Beingmates and China Farms, so it’s important to bring some
balance to those conversations.
We have a Milk Price that is consistently on-par with our peers in Europe and the US. It

3

was less than half that previously.
We should be incredibly proud of that Milk Price. It doesn’t just fall from the sky. We
work to deliver it every day and it benefits every New Zealand farmer, rural community
and our national economy.
We have a four billion dollar revenue business in China.
We now account for 40% of dairy imports into Mainland China.
We’ve built a two billion dollar Foodservice business from pretty much scratch in less
than 5 years.
The Co-op wasn’t broken. But it did need to change.
We needed to take the best things from the past and adapt them for the future.
The second lesson we took was that we needed to do more listening.
When we listened to our farmers, unit holders, customers, partners and other
stakeholders, they told us that they wanted to be part of our Co-op, but that we needed
to show up differently.
I hope you’ve seen that change in the way we communicate with you. Doing more
listening than talking, and taking what I call “the shine” off our language has improved
the standing of our Co-op in many people’s minds.
Our new purpose is already guiding our decision making, culture and behaviour as an
organisation.
It’s important to your Board that you judge us by our actions, more than our words.
When you look at our key milestones for the year, you see a Co-op doing what it said it
would.

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Last year I was humbled to stand up at the Annual Meeting for the first time as your
Chairman.
We signalled that day that there would be fundamental change in the Co-op, and you
wouldn’t die wondering.
We have delivered on that commitment.
We set ourselves a target to reduce our debt by $800 million. With the addition of the
proceeds from the sale of DFE Pharma, which was completed outside the reporting
period, we will put more than a billion dollars towards debt reduction.
Our average capital expenditure for the past six years has been more than $1 billion.
This year it was $600 million.
We said we would have more respect for your invested capital and live within our
means.
We have reduced our global headcount by more than 1,400 people, frozen salaries for
our people earning over $100,000 and decided not to pay performance bonuses for the
financial year.
We’ve made a good start, but we have more to do.
We also said we would take a clinical look at everything – every business, every asset
and partnership. There would be no sacred cows.
We used the word clinical for a reason.
Our portfolio review is not a fire sale. We know that, among other things, you will
measure us by how well we divest some of our assets.
Our portfolio review identified assets and partnerships that were either no longer core to
our strategy, or had run their course.

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One of the first decisions we made was to sell Tip Top.
We knew it wouldn’t be a popular decision with some of you, but it was the right call.
Was it an iconic business? Yes.
Was it on strategy and a key part of our future? Definitely not.
Once we took the emotion out of the process, making that call was easy.
We divested it as a mature asset for a great price.
Its new owner, Froneri is doing a good job of looking after the people who used to work
for us – they kept their jobs as part of the deal.
And we’ve used the proceeds to help reduce our debt levels and give us more options
for the future.
We also sold our interest in our Venezuelan consumer joint venture, Corporacion
Inlaca, and our 50% share of DFE Pharma – our joint venture with FrieslandCampina.
We are considering our options for our ownership of our China Farms, Dairy Partners
Americas which is our joint venture in Brazil, and have begun the process of selling-
down our 18.8% shareholding in Beingmate.
That’s a hell of a year by anyone’s standards, but it’s really only half of the story.
Developing our new strategy was a key priority for the Board and senior management in
FY19.
As I said earlier, we started by thinking about what we have learned from past decisions
and agreeing what we want our Co-op to stand for today.
18 months ago, we may have said we’re a global diary giant here to make a difference
in the lives of two billion people, through a volume ambition of 30 billion litres of milk by

6

2025.
Today, we stand for value.
We’re a New Zealand dairy farmers’ Co-op, doing smart, innovative things with New
Zealand milk to create value for our owners, customers, and our communities.
It sounds simple, but when you see yourself in a totally different light, it leads you to
make fundamentally different choices.
One of the first and most significant decisions we made was to drop the volume
ambition. Its impact should not be underestimated.
The clearest example of this is when you look at what we used to call ‘global milk
pools.’
To meet our old volume-based ambition we needed to grow our milk volumes by around
35% over the next five years.
Realistically, very little of that would have come from milk growth in New Zealand.
Which leads you to invest in overseas milk pools and the people, infrastructure and
operating costs that come with them.
With that driver gone, we are prioritising your New Zealand milk and only looking to our
global milk sources when needed.
Scale ingredients have always been the engine room of the Co-op.
Our new strategy builds off that by increasing our targeted research and development,
energy and investment into our medical nutrition, sports, and active nutrition products
that are performing well and have strong growth potential.
Alongside that, we want a leaner consumer business that is focussed on the customer -

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the products, places and formats in which they want their dairy.
Our Foodservice business is already the leader in China, we want to push out further to
lead in Asia Pacific and form new partnerships to help us expand into other markets
without the need for large amounts of capital.
With our new strategy comes a new investment culture.
We want to first do the basics right and return our balance sheet to a position of
strength. That will give us options to go for the opportunities that we create in the future.
To use a cricketing analogy, we want to build an innings off singles, before trying to hit
the ball out of the park.
We won’t have it all our own way, but we’re confident that, implemented well, the
strategy will bring a new period of success for our Co-op.
As I said before, New Zealand milk is the lifeblood of our Co-op and core to our new
strategy.
We know that the unique Co-op heritage and provenance story that sits behind our milk,
is what helps our sales teams earn a premium.
When a young mother in Shanghai picks up a can of our Anmum infant formula, she
knows it is made with milk from grass-fed cows, farmed using sustainable methods, and
ethical animal welfare practices. That’s why she picks up our can, and why she’s willing
to pay a premium for it.
Earning that premium starts on the farm.
Last year, we started a new annual tradition of recognising our farmers who consistently
deliver the best milk in the world.
The slides behind me have the names of our farms that have achieved grade free

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status for at least the last 10 seasons, the last 4 seasons, or are in the Top 10 for
lowest somatic cell count in the Co-op.
Please join me in acknowledging them.
I’d now like to pass to Miles who will recap our financial results for the year and update
on progress in the business since they were announced.
Over to you Miles.
[at this point the Chairman hands over to Fonterra CEO, Miles Hurrell
for his presentation]
Chairman: Thanks Miles.
We will move to a Q&A session in just a minute, but first I’d like to make my own
comments about the outlook for 2020.
We have more big strategic decisions ahead of us this year, but I’m very confident in
the progress our Co-op is making, and very optimistic about our future.
We have a turned the corner and should lift our heads.
Here at home, we have a Government that is engaging with us and considering our
industry’s view.
The Government has joined our Co-op, DairyNZ and other industry leaders in a
partnership that will work with farmers to achieve practical outcomes on climate change
under He Waka Eke Noa - the Primary Sector Climate Change Commitment.
It is a big step forward in our shared effort to find new ways to support you in
responding to the challenges posed by climate change, instead of imposing a broad-
based tax.

9

We’re also in a constructive conversation with the Government on freshwater.
We understand the significant uncertainty and frustration you feel when it comes to
these issues, and will continue to back you.
Your Co-op is already putting more energy and resources into the development of on-
farm tools, research and solutions that will help you to continue running a healthy and
sustainable business.
That includes Farm Environment Plans for all farms at no additional cost by 2025, they
include tailored regional advice on effluent, riparian planting and nutrient regulations.
Already 23% of our farms have one.
Planting is an important part of the solution, but it’s estimated that nearly half of those
plants die either because they aren’t the right plant for the region, climate or soil.
So, I’m pleased to announce this morning a new initiative, ‘Plant for Good’
A new partnership between Farm Source and Wildlands that will reduce the cost of on-
farm native planting.
Plant for Good will deliver plants and services to all Farm Source customers nationwide
at a discounted rate. Quite literally, it will mean you only have to plant once.
Plant for Good guarantees a survival rate of at least 90% for the first 24 months,
achieved through expert plant selection, regionally sourced plants and ongoing
maintenance.
With everything happening here at home, it’s often hard to look past the farm gate.
But ultimately, this is an export business and what is happening with our key trading
partners has a big bearing on our ability to pay a milk price over $7.00.
What we are seeing is a global supply and demand picture that is largely in balance.

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Demand for whole milk powder has been firm, and for the full season we’re expecting it
to be above last year.
Global whole milk powder production is down year to date and expected to continue to
decrease for the remainder of the calendar year.
We are also continuing to sell our skim milk powder at higher prices than EU and US
dairy companies in Global Dairy Trade events.
It is still pretty early in the season and a lot can change.
As always, there are some risks that we are keeping a close eye on, including current
global trade tensions – particularly Brexit, the US/China relationship, and the political
instability in the Middle East.
I want to finish by outlining the Board’s priorities for the year ahead.
First and foremost is delivering our Milk Price. It’s the main driver of our wealth as
farmers and the main reason this Co-op was formed.
We want to return to respectable earnings, which will in-turn lead to a recovery in our
share price.
We also want to return to paying dividends as soon as possible.
Led by our Co-operative Relations Committee, the Board is looking at improvements to
the Milk Price – specifically the Advance Rate and how we might get more money to
you earlier in the season.
Any changes will be subject to the continued improvement of our balance sheet and the
protection of our credit rating.
We will continue with the implementation of our end-to-end strategy. Part of that is
continuing to look at our capital structure to ensure that it is still fit for purpose.

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Our future capital structure requirements have been a consideration as we’ve finalised
the strategy and there is a small team from the Board and Management looking at it.
These discussions are critical to the future of our Co-op and for that reason, we won’t
put a timeline on the process.
It will take as long as it takes.
Finally, governance succession and development is part of the Board’s agenda every
year. Completing the process for Independent Director Simon Israel’s replacement is an
immediate priority for us.
We will discuss Simon’s contribution to our Co-op and thank him later in the meeting.
On that note, I’d like to ask Miles to rejoin me at the front of the stage and we will take
any questions you have on the presentations we have just given.
ENDS

---

Confidential to Fonterra Co-operative Group
Chief Executive Officer

2

From 10 cpsFrom $6.69
per kgMS
FARMGATE
MILK PRICE
From 6.3%From $196m
Cents per
share
DIVIDEND
RETURN
ON CAPITAL
per cent
NET LOSS
AFTER TAX
million
3

DPA Brazil
China
Farms
Venezuela
Fonterra NZ
Australia
Ingredients
Beingmate
Other
FY18
Normalised
NPAT
FY18
5 cent Milk
Price Change
FY19
Lower Operating
Earnings After
Tax
FY19
Normalised
NPAT
FY19
Impairments
and One-off
Items
FY19
Net Loss
After Tax
4
Net Loss
Attributable to
Non-controlling
Interests
FY19
Reported Net
Loss After
Tax

From 10 cpsFrom $20.4 bn
billion
REVENUE
From $3,152m
million
GROSS
MARGIN
From $2,496m
million
OPERATING
EXPENSES
From $902m
million
EBIT
cps
DIVIDEND
5

FY18 Year-EndChange in FY19FY19 Year-EndAnnounced FY20
Divestments¹
Change in
FY20 (Forecast)
FY20 Year-End
(Forecast)
Key drivers
•Improved earnings
•Lower capex
•Other divestments
•DFE Pharma
•foodspring™
Key drivers
•Lower capex
•Divestment of Tip Top
•No dividend
Offset by
•Lower earnings
6

7

8

9

10
Forecast
MilkCollection
Forecast
Farmgate
Milk Price
Forecast Earnings
per Share
cents
per kgMS
million kgMS

11

12

---

1

FONTERRA ANNUAL MEETING
7 NOVEMBER 2019
CEO’S ADDRESS

Thanks John — and thank you to everyone for joining us here today in Invercargill.
This morning I’ll take you through the key points of our FY19 financial performance. But
what I would like to spend most of my time talking about today is our new strategy,
operating model, and where our focus will be for the next 12 to 18 months as we
continue to reset our business. I’ll then hand back to John and we will be happy to take
any questions.
Like John, I would like to start by acknowledging the tough year we had. We didn’t
deliver the results we wanted to our farmer owners or unit holders. And we are aware of
the impact this is having on the balance sheets of our farmer owners in an already
challenging environment.
We needed to reset our business and therefore have made a lot of decisions. While
some were hard to make, all of them were necessary and were the right calls to set
ourselves up for future success.
I’m feeling positive about the changes we’ve made over the past year and am
comfortable that we are well-placed to meet our commitments.
Before I go through the high-level numbers, I want to acknowledge the commitment
we’ve seen from our people right across the Co-op.
Firstly, our farmers.
Despite the challenges we’ve faced, our farming families in all parts of the country
continue to provide us with the best milk in the world.
We never take that for granted.

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It can sometimes seem like all of the stories in the media are negative, but I know there
are many more positive stories of farmers supporting each other and their communities.
We know we have more to do, but we have faced challenges before and come out the
other side. I know we can do it again.
We have champions on farm – in innovation, animal welfare, and sustainability – and
we need more of them.
I’ve been heartened over the past year or so to hear that passion — especially from our
younger farmers.
I’ve also seen this commitment from our people who come to work every day at the Co-
op to make the most of your milk. Despite undergoing a significant business reset, I’ve
heard from our employees, from the factory floor to our markets around the globe, of
how proud they are to work for the Co-op.
They are determined to turn the Co-op around and ensure it is successful and
sustainable.
While we all have our own reasons why we come to work, we are beginning to see our
Co-op’s new purpose come through in our efforts each day — empowering people to
create goodness for generations.
It’s important to me that everything we do is grounded in our new purpose, from farm to
customer. It’s not a feel-good thing. It’s about building pride, it’s about creating value,
and creating a strong Co-operative. It’s all of us together with a common goal.

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Turning now to our headline numbers. I won’t spend too much time on these as I’m sure
by now you’re all familiar with them.
FY19 was our third year of sustainable Farmgate Milk prices. At $6.35kgMS, our Co-op
has paid nearly $10 billion in milk payments to our farmer owners.
We made the call to reduce the carrying value of several of our assets — in particular,
DPA Brazil, Fonterra Brands New Zealand and China Farms. We also had to take into
account one-off accounting adjustments.
These totalled $826 million and took us from what would have been a modest profit by
our standards of $269 million, to a Net Loss After Tax of $605 million.
Our New Zealand Ingredients and Foodservice businesses improved, but this was
offset by challenges in some markets, which I’ll touch on shortly.
We made good progress on our business reset.
We significantly lowered our operating and capital expenditure, reduced debt and
improved our cash flow.
Despite this, our earnings are not yet where they need to be, and this is shown in the
unacceptable return on capital of 5.8%.
Let’s go through the underlying performance and the impact of the adverse one-off
items. I’ll start on the left-hand side of this slide and work my way across.
We started from FY18 with $382 million in normalised NPAT. As I mentioned, our
underlying operating earnings were not where we need them to be, down $60 million on
an after-tax basis. This resulted in a FY19 Normalised NPAT of $269 million, which was
equivalent to 17 cents per share.

4

Once we included the impairments and the total of these adverse one-off items, we had
a loss of $826 million. When we took into account the net loss attributable to minority
interests, our total reported net loss after tax was $605 million.
Looking at our underlying operating earnings. We sold slightly more on a metric tonne
basis, but our sales revenue was down 2% to $20.1 billion due to lower prices and our
product mix.
We had improved margins in our New Zealand Ingredients and Foodservice
businesses, but this was offset by challenges in Australia Ingredients, Latin America
and some of our Consumer markets.
We made great progress and reduced our operating expenses by $185 million.
Likewise, we improved our cash flow and reduced debt. However, given the
disappointing earnings and significant one-off items, the Board made the decision not to
pay a dividend this year.
I want to go through some of our challenges.
Australia Ingredients gross margin was down from $77 million to $10 million. As I’m
sure you’re aware, Australia was impacted by higher milk prices in response to a
competitive milk market, and the ongoing drought conditions.
Prolesur, our ingredients business in Chile, experienced strong competition for milk and
collections were down 16%. Our consumer business in Chile, Soprole, had a tough start
but finished the year positively. That said, we are watching the market instability closely.
From a China Farms perspective, we made progress on the prior year, but we are far
from where we need to be, hence our earlier announcement to undertake a strategic
review. This review is now well advanced.

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We measure our farms, and those of our Joint Venture on an end-to-end basis and
have made progress - reducing our loss from $38 million to $30 million.
In FY19, we made a commitment to reduce our financial leverage and strengthen our
balance sheet.
With the announced divestments of foodspring and DFE Pharma we continue to make
progress towards reducing our debt as these two will contribute just over $600 million in
sale proceeds in the current year.
In addition to these announced divestments, we have a target to further reduce debt by
an additional $500 – 700 million. This will primarily be achieved by improving our
earnings, lowering our CAPEX, and making some other divestments.
This results in our debt to earnings ratio being back under 4x, and on the way to our long-
term target ratio of 2.5x to 3.5x.
The credit rating agencies have supported our plan to deleverage, and it gives us options
for the future.
So, that covers off our financial statements.
Now I’d like to look ahead at our new strategy and focus for FY20.
Our new strategy recognises that at our heart we’re a co-operative, doing amazing things
with New Zealand milk to enhance people’s lives and create value for our customers and
our farmer owners.
It matches our strengths to customer needs by focusing on the areas in which we have a
unique competitive advantage. And it will see us focus on three measures of success —
healthy people, healthy environment, healthy business.
This is the right strategy for us, but it requires us to make some hard choices.

6


We will concentrate on five key product categories: core dairy; Paediatrics; Sports &
Active Lifestyles; Medical & Healthy Ageing, and Foodservice.
We will still be in Consumer and will focus on markets throughout Asia Pacific. This is
because the products we sell in these markets are made with New Zealand milk and are
similar to those we sell in our Ingredients business, so we can benefit from our scale
efficiencies and play to our strengths.
It does mean we will reduce our consumer product portfolio to those that create superior
value.
In short, we will:
• Prioritise New Zealand milk
• Use milk components and non-dairy ingredients sourced from around
the world
• Grow our sales of Sports and Active, Medical and Healthy
Ageing, and Paediatric Ingredients
• Develop new Foodservice markets
• Only make consumer products where they create superior value
• Lift our research and development focus and spend
• Collaborate more based on intellectual property and skills

To do this we are going to prioritise three things:
• Innovation – where it creates value for our Co-op and our customers.
• Sustainability – to do what’s right and do what’s expected of us for the
long-term.
• Efficiency – to create value from our unique scale and position in New
Zealand.
I know the key question everyone wants answered is what’s going to be different?
A lot of what is different about this strategy boils down to two changes in the way we
think.
The first is a focus on value.
We dropped our volume-based ambition early on.

7

It’s helped us cut costs dramatically and make better decisions day-to-day.
Overall, we’ll be a leaner, more focused business, clear about who we are, where we are
going, and where we can win.
When we talk about value, we mean the value back to the Co-op.
For example, while consumer products may have a higher gross margin this does not
necessary translate to value given the higher spend needed on advertising and
promotion. Therefore, decisions will be made based on true bottom line value to the Co-
op.
The second decision was that we don’t have to be all things to all people.
We are a New Zealand dairy farmers’ Co-op and we will be prioritising New Zealand milk.
We will be putting our research and development effort, energy and investment into the
products and places where we know we can win.
I want to be clear about what you can expect from us. We’ll be open and honest about
the challenges we’ll inevitably face along the way.
One example of how we are doing things differently can be seen in the recent launch of
our foodservice business in India with our partner Future Group.
This is a capital light partnership which combines our dairy knowledge and know-how,
with Future’s Group’s access to market, established customer base, and strong
marketing and distribution networks. Combine these two skill sets together and you get
more than the sum of its parts.
Through this partnership we will be exporting our Anchor Food Professionals products
from New Zealand to India, where demand for dairy is expected to grow at 7x the rate of
China over the next decade.
And the reason I raise this as an example is because I believe it highlights the change in
our thinking.

8

In the past, we thought we needed to have physical assets on the ground in order to
succeed.
We also had a wall of milk coming at us – which is not the case today.
Now, under our new strategy, we are looking to leverage our dairy know-how through
partnerships, which will allow us to exploit our intellectual property and enter markets that
we might not otherwise have had access to, and to do so in a capital light way. This is
something we are looking to do more of under our new strategy.
Turning now to what we’re expecting FY20 to look like. We are resetting the business
and transitioning to the new strategy.
The FY20 milk collection forecast is similar to last year. But after our recent milk price
revision, there is a higher forecast Farmgate Milk Price.
We are forecasting this to be our fourth year of milk prices over $6.00, which will be
welcome news for our farmers. The mid-point of the $6.55 - $7.55 range means our teams
will need to continue to push hard to achieve our margins, but so far we’re comfortable
with how this season is shaping up in terms of underlying business performance.
Our earnings forecast of 15-25 cents per share for FY20 is built on a forecast EBIT range
of $700-800 million.
While this is down on last year, our forecast EPS is up reflecting lower interest and tax.
To get here, we can’t repeat last year’s disappointing performance.
The fundamentals of dairy remain strong.
The world wants more dairy, and there is a growing middle class with high disposable
incomes looking for premium products.
We believe we can create value from innovation, sustainability and efficiency.
And our new strategy positions us well to leverage this.

9

At the same time, the global economy is showing signs of slowing and we are seeing
increased trade tensions. Given our reliance on the international market, these are factors
we continue to watch closely.
Before I finish, I’d like to touch on our priorities for the year ahead.
We have four key priorities that will help us take steps towards our goals of healthy
people, healthy environment and healthy business.
They are: Build a winning team by introducing and shifting to a new customer-led
operating model to support our new strategy.
Under our new operating model we will have three regional CEOs who will be better
connected to our customers and consumers. They will be supported by a leaner core
group, led by the newly created position of Chief Operating Officer. Last month I was
pleased to announce that Fraser Whineray will take up this role, and we look forward to
welcoming him to the Co-op early next year.
Support regional New Zealand. We will do this by injecting a further $10 billion into rural
communities through competitive milk price payments. So far this is tracking well, with
our recent revision of the forecast Farmgate Milk Price, injecting another $450 million into
regional New Zealand.
Reduce our environmental footprint. Through the Co-operative Difference, we will
work with our farmers so that a further 1,000 farms have a Farm Environment Plan,
and we will prepare emission profile reports for all. We will continue to improve energy
efficiency at our manufacturing sites.
Finally, we will hit our financial targets. To do this we will:
• Improve our debt position so that our debt is no more than 3.75x our
earnings, down from 4.3.
• Reduce our capital expenditure to no more than $500 million, which is
down $100 million on last year.
• Achieve a gross margin in excess of $3 billion.
• And meet our earnings guidance of 15-25 cents per share.

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We will be able to share our progress when we report on our first quarter next month, but
I’m pleased to note that we have seen a good start to FY20.
That covers off our FY19 annual results, our new strategy, operating model and our
priorities for the year ahead. I’ll now hand back to John, but just before I do that, I’d like
to say that I’m feeling energised and excited about the year ahead and about the future
of our Co-op.
It’s been a tough year, but we are building the right team and laying the foundations for
a successful future.
We know we need to deliver for you - our farmer owners, our unit holders, and for all New
Zealand. And I know I have 10,000 farming families and 20,000 employees behind me
who are determined to make that happen.
You, me, us together. Tātou, tātou
Thank you.