Communication to Fonterra farmers

26 January 2021


Communication to Fonterra farmers

The attached communication was provided to Fonterra Co-operative Group Limited farmers by the
Chairman, Peter McBride, on 26 January 2021. A copy of the online survey referred to in the Chairman’s
email is attached.


-ENDS-.

For further information contact:

Fonterra Communications
24-hour media line
Phone: +64 21 507 072

---

CHAIRMAN’S EMAIL
26 JANUARY 2021

Subject: Board priorities and Capital Structure
Email:
Dear [name]
I want to provide you with a short update on the work the Board has been undertaking over
the past few months, and our key priorities for the year ahead.
As you know, the Board has been leading a review of our Capital Structure to ensure it best
supports our strategy and long-term vision for our Co-op.
We have spent the past few months reviewing potential options, including staying with our
current structure.
Every option has its own merits, but also involves some form of trade-off.
To support that work, we are seeking your feedback on the structural principles that are most
important to you, via this online survey. That feedback will be considered as part of the
Board’s decision-making process as we move toward a preferred option.
To give you an idea of the process for the rest of the project from here, broadly the key
milestones are:
Farmer survey > Further development of options > Stakeholder consultation > Refinement of
preferred option(s) > Stakeholder consultation on the preferred option(s) > Proceed with
preferred option (if change is recommended, then this will likely include a shareholder vote).
In addition to the review of our Capital structure, the Board’s other priorities for 2021 include
continuing to navigate the challenges presented by COVID-19 and delivering a strong Milk
Price and our forecast earnings. We are also focused on implementing our strategy, while
clearly defining our longer-term strategic aspirations, and completing our portfolio review
work through the asset divestment processes we have previously announced.
We look forward to discussing these topics with you in-person during our farmer roadshow in
March.
Peter

SURVEY INTRODUCTION

Share your views with us.
As you know, your Board is reviewing Fonterra’s capital structure to make sure that it supports our strategy
into the future. We want to hear your views on our capital structure, changes you might like to see, and the
principles that the Board should consider throughout this review.

What do we mean when we talk about Capital Structure?
Capital structure means different things to different people. It can be defined as the way a company manages
the balance between its debt and equity to finance its activities, assets and growth.

As a farmer-owned Co-op, when we talk about capital structure we think about other things as well, like:

• How should the price for our shares be set?
• How can we make sure that the capital requirements do not make it too hard for new and young
farmers to join the Co-op?
• How can we make sure that existing shareholders have flexibility with their capital as they progress
through their farming lives?
• How much capital do we need to support our strategy?
• How does our capital structure support a strong balance sheet?
• To what extent should non-farmers be able to invest in the Co-op?
• How do we make sure that our share structure can be resilient to economic shocks?

MAIN QUESTIONNAIRE

First, a few questions about your views on Fonterra’s Capital Structure Review.

Q1. Which of the following statements best describes how you feel about a potential change to
Fonterra’s capital structure?

Strongly support a change
Slightly support a change
Slightly oppose a change
Strongly oppose a change
Don’t know

Q2. We are aware that different things are important to farmers with regards to Fonterra’s Capital
Structure Review.

Please select up to 3 of these that you feel are most important to you.

Providing growth in the capital invested in the Co-op over time
Having a high share price
Being simple to understand

Providing a good return on investment

Giving farmers more flexibility about how much they invest in the Co-op
Aligning incentives between shareholders, unitholders and management
to maximise value

Making it easy for new farmers to join the Co-op
Maintaining farmer ownership and control of the Co-op

Making sure that Fonterra has a strong balance sheet that is resilient to
changing milk supply and climate or economic shocks

Being able to raise capital from non-farmer investors

Something else (please specify)
None of these

Q3. And which one of these is the most important to you? [Show only those selected at Q2]

Providing growth in the capital invested in the Co-op over time

Having a high share price
Being simple to understand

Providing a good return on investment

Giving farmers more flexibility about how much they invest in the Co-op
Aligning incentives between shareholders, unitholders and management
to maximise value

Making it easy for new farmers to join the Co-op
Maintaining farmer ownership and control of the Co-op

Making sure that Fonterra has a strong balance sheet that is resilient to
changing milk supply and climate or economic shocks

Being able to raise capital from non-farmer investors

Something else (please specify)
None of these


Q4a What does (INSERT ONE OF TOP 3 FROM Q2) mean to you?
Please type in your response


Q4b. What does (INSERT ONE OF TOP 3 FROM Q2) mean to you?
Please type in your response


Q4c. What does (INSERT ONE OF TOP 3 FROM Q2) mean to you?
Please type in your response


Q5. We are aware that farmers choose to supply Fonterra for a range of different reasons.
Which of these are key reasons why you supply milk to the Co-op?
Please select all that apply

To get better deals / purchasing power

Better able to market / sell our products
The relationships and support I receive from the Co-op

Being less likely to get a better return on my capital elsewhere

Being a part-owner of the company

Being satisfied with the Co-op’s performance

Having guaranteed milk collection
Farmers supporting each other

Supplying a NZ-owned company
All profits being returned to the Co-op members

Working together with other farmers towards a common goal
Better milk price offered by Fonterra
Getting a say in how the company is run
Having no alternative processor available
Something else (please specify)

Q6. In thinking about Fonterra’s Capital Structure Review, what early views do you want to share?
Please type in your response


We now have a few questions about your broader thoughts on Fonterra and the Co-op.

Q7. Firstly, thinking about the Fonterra Co-operative, how important is it for you to be part of this Co-
operative?
Please select one response only

Not
important at
all

Very
important
Don’t
know
0 1 2 3 4 5 6 7 8 9 10 99

Q8. And what value do you see in being part of the Co-operative with Fonterra?
Please type in your response


Q9. Using a scale from 0 to 10 where 0 is ‘not at all likely’ and 10 is ‘very likely’, how likely
would you be to leave Fonterra next season or switch to a competitor?
Please select one response only

Not at all
likely

Very likely
Don’t
know
0 1 2 3 4 5 6 7 8 9 10 99

Lastly, we just have a few quick questions about you and your farm.

D1. What is your role in relation to your farm?
Please select one only

Owner
Sharemilker
Contract Milker
Other (please specify)

D2. Which of the following best describes the status of your shareholding with Fonterra?
Please select one response only

Fully shared up
Currently sharing up
Working towards becoming a shareholder
Other (please specify)

D3. Do you also hold dry shares in Fonterra, above your minimum shareholding requirement?
Please select one response only

Yes
No

(IF YES AT D3)
D4. What is your main reason for holding dry shares?
Please select all that apply

As an investment
To provide milk production flexibility
I’m in the process of ceasing and selling
down shares

I don’t know how to sell shares or it is
hard to sell shares

Waiting for a higher share price to sell
Some other reason (please specify)

D5. Can you please tell us your age?
Please select one only

Under 25 years old
25-29 years old
30-34 years old
35-39 years old
40-44 years old
45-49 years old
50-54 years old
55-59 years old
60-64 years old
65 years old and over
Would rather not say

D6. How long have you been a shareholder with Fonterra?
Please select one only

Less than 5 years
Between 5 and 10 years
Between 11 and 20 years
More than 20 years
Would rather not say

D7. Finally, do you have any other feedback you would like to give to Fonterra on these topics or in
general?
Please type in your response


CLOSE - That’s the end of today’s survey, thank you very much for your time and opinions.