FSF 2021 Annual Meeting materials

13 December 2021

Chair
FSF Management Company

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John Shewan
John Shewan
Peter McBride
Miles Hurrell
Mary-Jane Daly
John Shewan
John Shewan

John Shewan
Chair
Kim EllisMary-Jane DalyDonna SmitAndy MacFarlane
Peter McBrideMiles HurrellMarc Rivers

•Fonterra continued to demonstrate resilience
during COVID-19
•Fonterra delivered a strong financial result, driven by its
diversified portfolio across channels and regions
•Fonterra continued to significantly reduce its debt
•Increased distributions to the Fonterra
Shareholders’ Fund
¹
¹
²
Note: For the year ended 31 July 2021.
1.Includes Continuing and Discontinued Operations. Includes amounts attributable to non-controlling interests.
2.On a normalised basis and excludes amounts attributable to non-controlling interests.

$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Aug 20Nov 20Feb 21May 21Aug 21Nov 21
Capping
of Fund
FY21
Results
•
Up 33%, from $3.82 to $5.08
(1 August 2020 –17 March 2021)
•
Down 2%, from $3.82 to $3.74
(1 August 2020 –31 July 2021)
•
Up 5.5%, from $3.82 to $4.00
(1 August 2020 –23 September 2021)
Balance
Date
Interim
Results

5%
12%
13%
70%
6%
9%
14%
Private
Wealth
Management
Farmer
Shareholder
Institution
Retail
20212020
2%
3%
9%
86%
2%
2%
8%
88%
Other
United States
Australia
New Zealand
20212020
•Small increase in retail, institution and private wealth management holdings
•Majority of register held in New Zealand, with further reduction in offshore holdings
71%
Note: Register data for 2020 and 2021 is as at 30 November.

Units on Issue¹:1m
Fund Market Capitalisation¹:75m
Fonterra Market Capitalisation¹:2.1b
Fund Size¹
,
²:0.1%
Unit Price 12-month High/Low³:(5 Mar 21) /(29 Nov 21)
1.At 30 November 2021, relative to 30 November 2020.
2.Fonterra Shareholders’ Fund units on issue as a percentage of Fonterra Co-operative Group shares on issue.
3.12 month period, 30 November 2020 –30 November 2021.

Chair
Fonterra Co-operative Group

Chief Executive Officer
Fonterra Co-operative Group

12
¹
²
1.Attributable to equity holders of the Co-operative, excludes non-controlling interest
2.Economic net interest-bearing debt (ENIBD) gearing ratio, refer to Glossary for definition

13
20172018201920202021
20172018201920202021
20172018201920202021
Note: Metrics are for the year ended 31 July

14
Asia PacificAMENA
Greater
China
Total
Volume (‘000 MT)¹
EBIT contribution¹
,
²
Ingredients
Foodservice
Consumer
Total
Note: Figures are for the year ended 31 July 2021. Comparative information has been restated for consistency with the currentperiod
1.Prepared on a normalised Continuing Operations basis. Normalised EBIT contributions sum to $1,044 million, and does not aligntoreported Continuing Operations due to excluding
unallocated costs and eliminations
2.Inclusive of Group Operations’ EBIT attribution

15

16
2000201020202030
There will be more people
needingnutrition.
The world wants sustainably
produced, high-quality,
nutritious milk.
By retail value RSP (US$b)
0
50
100
150
200
250
2015201620172018201920202021202220232024202520262027202820292030
Milk
Global demand for dairy is
expected to continue to
increase by about 2% per
annum out to 2030
3
.
Alternatives
NEXT 5 YEARS
NEXT 10 YEARS
NEXT 15 YEARS
1.Oxford Economics (www.oxfordeconomics.com) –Global Economics Databank, August 2021. Estimate based on earning 2X median household income.
2.Euromonitor International (www.euromonitor.com) –Euromonitor Passport, August 2021.
3.IFCN Dairy Research Network (www.ifcndairy.org) –IFCN Annual Dairy Sector Data with Long Term Outlook, September 2021.

17

18
Average Farmgate
Milk Price range for the decade
Increase in operating
profitfrom FY21
Group Return on Capital,
up from6.6% in FY21
Note: Thefigures on this slide are targets that we are aiming to achieve only. Theyshould not be taken as forecasts or as a guarantee of returns to shareholders.
Theyare subject tosuccessfully completing a number of business initiatives,andassumptions, each of which could materially affectthe actual outcomes.The key
assumptions and risks relating to these targets are set out in the Appendix of the booklet titledOur Path to 2030.Please also refer to the important cautionsand
disclaimer at the beginning of this presentation.
Intended to be distributed
to shareholders by
FY24after asset sales
Available for
investment in a mix of
further growth and
return to shareholders
Invested in moving milk
to higher value products
Invested in
sustainability

19
Make the shift from
a reset to value
growth.
Progress the work
to divest our
integrated Chilean
business and
prepare the process
of deciding the
most appropriate
ownership model
for Fonterra
Australia.
Narrow down and
prioritise the areas
within Nutrition
Science Solutions
where we can build
a competitive
advantage.
Keep hitting our
environment,
people and
business
performance
targets.

20
Vitakeycollaboration
to unlock the benefits of
probiotics
Making good progress
with the divestment of
Chilean business and
ownership review of the
Australian business
Forecast Farmgate
Milk Price range
per kgMS
Kowbucha
TM
moves to on farm trials
after showing a
methane reduction of
up to 50% in the lab
EBIT of $190 million
delivered in Q1,
despite a significantly
higher milk price
Full year earnings
guidance of
25-35 cents per share

Shareholder & Proxyholder Q&A Participation
Written Questions:
•Questions may be submitted ahead of the meeting
•If you have a question to submit during the live
meeting, please select the Q&A tab on the right half
of your screen at anytime
•Type your question into the field and press submit
•Your question will be immediately submitted
Help:
•The Q&A tab can also be used for immediate help
•If you need assistance, please submit your query in
the same manner as typing a question and a
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you directly

Re-election of John Shewan

To re-elect John Shewan, who retires by
rotation and stands for re-election, as a
director of the Manager of the Fund

Director Nominee
FSF Management Company

To re-elect John Shewan, who retires by
rotation and stands for re-election, as a
director of the Manager of the Fund

As at 10am Saturday 11 December 2021
AGAINSTDISCRETIONARYFOR

Shareholder & Proxyholder Voting
•Once the voting has been opened, the resolutions
and voting options will allow voting
•To vote, simply click on the Vote tab, and select
your voting direction from the options shown on
the screen
•You can vote for all resolutions at once or by each
resolution
•Your vote has been cast when the tick appears
•To change your vote, select ‘Change Your Vote’

13 December 2021

---

FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
13 DECEMBER 2021
FSF MANAGEMENT COMPANY CHAIRMAN’S ADDRESS

Against the backdrop of COVID-19, market uncertainty and global
supply chain disruption, Fonterra has built on last year’s performance
with a strong financial result. Peter and Miles will speak to this, but
it’s appropriate that I highlight a few aspects of particular relevance
to the Fund.
The reported profit after tax was $599 million. Normalised earnings
per share came in at the top end of the forecast range, at 34 cents
per share.
Fonterra declared a final dividend of 15 cents per share. As a result,
unit holders received a final distribution of 15 cents per unit, which
was paid on the 15th of October.
This brought total distributions for the 2021 financial year to 20 cents
per unit, a welcome improvement on the 5 cents per unit distribution
in 2020 and the zero distribution in 2019.
Fonterra’s underlying performance improved $190 million on last
year, with normalised profit after tax of $588 million.
Strong operating earnings, combined with the $748 million in
proceeds from asset sales, enabled Fonterra to reduce net debt by
$872 million during the year. Fonterra’s gearing ratio is now down to
36%.
When it released its annual results in September Fonterra provided
quite detailed guidance on where it wants to be by 2030. We
welcome this increased visibility on the Co-operative’s future plans.

2
From a financial perspective, highlights include a 40% to 50%
increase in operating profit by 2030 relative to 2021, which would
give Fonterra the ability to steadily increase dividends to around 40-
45 cents per share by FY30, and increase its return on capital from
the current level of about 6.6% to 9 to 10%.
Through planned divestments and improved earnings, Fonterra
intends to return to shareholders and unit holders around $1 billion
by FY24. At Thursday’s AGM Fonterra indicated this would be about
60c per share and unit. This will be in addition to normal dividends
and distributions. They also plan to generate around $2 billion of
additional capital that can be available for a mix of investment in
further growth and returns to shareholders and unit holders.
Before I move on to discuss the performance of the Fund, I want to
briefly explain the role of the Board of the Manager.
The Board has statutory responsibilities for the activities of the
Management Company and the Fund. These include monitoring
compliance with regulatory requirements and ensuring that unit
holders’ interests are managed and protected in accordance with the
constituent documents that relate to the Fund.
Directors have no role in the governance or operation of Fonterra.
Although we have no decision-making role in these areas, we do
consider it important to actively represent the interests and views of
unit holders to Fonterra, and we do that.
This representation role has been an important function of the Board
during the consultation process that Fonterra has undertaken on its
capital structure.

3
The Board formed a subcommittee, comprising its three independent
directors, to consider the implications of the Capital Structure Review
for the Fund and its unit holders.
The subcommittee has met 13 times since the capital structure
consultation period kicked off in May and has had a number of
meetings with senior management and Fonterra board members.
The subcommittee has also engaged with expert external advisors
where required.
Let’s now take a close look at the performance of the Fund over the
past year.
The graph currently on the screen shows that over the course of the
first half of the 2021 financial year there was good growth in the unit
price – it rose 33% from the start of the year on 1 August to $5.08 at
the time Fonterra released its interim results in March.
There was some selling at this price level, and the unit price levelled
out at around $4.60 over late April and early May.
On 5 May, Fonterra and the Fund went into a trading halt, and on 6
May Fonterra announced it was starting a review and consultation
process on capital structure options.
As part of the review process, farmers were no longer able to convert
shares in Fonterra into units. This had the effect of capping the size
of the Fund. At this early stage of the consultation process Fonterra
said that the Fund could be retained, or an offer could be made to
unit holders to buy it back. It explained that, at that time, it had
reached a preliminary view that the preferred option was to buy the
Fund back.

4
There was an immediate downward impact on the price of both the
Fonterra shares and units in the Fund. The unit price declined 13%
over the subsequent 3 days.
Fonterra’s capital structure consultation has created significant
uncertainty for unit holders and potential investors over both the
future of the Fund and its value. This is shown very clearly by the
drop in the unit price from its 12-month high of $5.14 in early March
and the recent low of $3.55, The unit price closed last Friday at
$3.85 following the strong farmer vote in favour of the proposed new
capital structure – 85% voted in favour – on Thursday. This is about
30 cents up on the price in the days leading up to the vote.
I will comment further on the capital structure review and the impact
on the Fund shortly.
Looking now at the current make-up of the Fund’s unit register.
The various investor types have been relatively stable year-on-year.
The most significant movement has been in units held by Farmers,
which reduced from 12% to 9% of total units on issue.
This reduction is most likely related to the capping of the Fund. Since
May 6 no farmers have been able to move their shares to units due
to the capping. However, farmers do have the ability to transfer units
back to shares – which some have chosen to do.
The continued increase in units being held by investors based in
New Zealand is predominantly driven by increasing retail holdings.
However, this year we have also seen a small increase in holdings
by New Zealand institutions.
Moving on to some of the key Fund statistics.

5
The Fund is currently capped at 107.4 million units – at a closing unit
price of $3.65 on 30 November, this puts the market capitalisation at
around $392 million at that date.
The number of units on issue was quite flat year on year, and with no
additional Fonterra shares issued over the period the Fund size as a
percentage of the total Fonterra shares also remained largely
unchanged year-on-year at 6.7%.
As I mentioned a moment ago, Fonterra’s capital structure review
project has had a significant adverse impact on the unit price. The
market capitalisation of the Fund fell by some 16%, a drop of $75
million, between 30 November last year and 30 November this year.
The unit price immediately prior to the May trading halt was $4.60.
Since that time the price has dropped by about 21% based on the
price of $3.65 on 30 November. The Fonterra share price fell by
32% over the same period.
Throughout this period, the subcommittee of independent Directors
of FSF has kept unit holders informed through releasing a series of
market updates. The most comprehensive of these was issued on 23
September, immediately following Fonterra’s annual results
announcement, when it also released details of the updated capital
structure proposals.
I will not repeat the detail contained in these updates, but I do want
to highlight a few points.
The subcommittee of independent directors understands and
respects Fonterra’s right to introduce the changes that it is making to
its capital structure.

6
We recognise the strongly held view of the Fonterra Board,
supported by the farmer vote last Thursday, that the new ‘Flexible
Shareholding’ structure is critical to the future success of the Co-
operative. Fonterra has concluded that the Co-operative’s future
success, and execution of their strategy, relies on their ability to
maintain a sustainable milk supply in an increasingly competitive
environment, and in a market where New Zealand milk supply is
likely to decline, or remain flat.
We are however very concerned at the impact these proposed
changes have had on the Fund’s unit price during the consultation
period, and we remain of the view that Fonterra should have
proceeded with its initial preference to make an offer to unit holders
to buy the Fund back at fair price. For reasons I will detail in a
moment, we think that was the fair, right and proper course of action
to take. We regret that this action was not taken.
Following initial consultation with its stakeholders, Fonterra revised
its proposal in September. Instead of buying the Fund out it
proposed the alternative of the Fund being retained, but with its size
capped.
Under this option, Fonterra farmers would no longer be able to
exchange the economic rights relating to Fonterra shares into units
in the Fund. Farmers holding units in the Fund would continue to be
able to exchange them for shares in Fonterra. This would mean that
the Fund may reduce further in size over time.
As we said in our 23 September update, the independent Directors
were disappointed by Fonterra's revised proposal to the extent of the
features relevant to the Fund.

7
In short, we felt that the reasoning Fonterra set out in support of its
new capital structure showed clearly that the key rationale for the
Fund being set up in the first place back in 2012, being the provision
of a stable capital base through the removal of redemption risk, is no
longer relevant because of course farmers can no longer redeem
their shares. In short, the Fund has run its course. The Capital
Structure Review provides a natural break point in the life of the
Fund.
There is another key consideration that puts the Fund in a difficult
position. The information booklet issued by Fonterra in May, the
subsequent updates, and the explanations at last Thursday’s annual
meeting, all attach significant weight to the critical importance to
farmers of protection of farmer ownership and control.
Even the small – currently about 6.7% – and non-voting interest held
by unit holders through the Fonterra Shareholders’ Fund is a cause
of significant concern.
This really goes to the heart of the issue of whether Fonterra is a
corporate or a co-operative, which Peter McBride addressed directly
at last week’s AGM. He said that the current model where Fonterra is
trying to have a foot in both camps is not sustainable. I agree, and
that is why I believe the Fund should be bought out.
The challenge with this lingering issue is that it perpetuates the
perception in the minds of investors of potential conflicts between the
interests of farmers and the interests of unit holders. Buying the
Fund back is a logical and timely solution.
In our 23 September update we also expressed concern that the
capping of the size of the Fund at its current level would potentially

8
limit its relevance to investors over time. We said that retaining the
Fund, but removing features that support growth, liquidity, and
relevance to investment markets, could put downward pressure on
the unit price.
As I mentioned earlier, the subcommittee of independent directors
has held numerous meetings with Fonterra and has conveyed these
concerns. Our discussions have been respectful and constructive.
Fonterra has outlined its counter arguments but, on the central issue
of whether an offer should be made to buy the Fund back, we agree
to disagree.
In the final capital structure proposal that was voted on last week,
one of the changes made that we welcome is a modification of the
proposal on capping the size of the Fund.
The overall size of the Fund will now be capped at 10% of the total
Fonterra shares on issue rather than at the current size, which is
around 6.7%.
This change goes part way to addressing the size-related concerns
outlined in our September update to unit holders. Subject to approval
by the Fonterra Board, the amended proposal provides the scope for
the Fund to be increased in size at a suitable time in the future to
address the liquidity and other size related considerations outlined in
our September update.
The capital structure review has been a lengthy, and often
challenging, process. Throughout this we have endeavoured to
promote the best interests of unit holders. Although our argument
that the Fund be bought back has not, at least at this time, been
accepted, and that is disappointing, I do want to draw your attention

9
to the positive aspects of the strategic plan and operating outlook
plans outlined by Fonterra over the past few months.
As I said earlier, Fonterra is changing its capital structure in the best
interests of the Co-operative. In short, the Fonterra Board is
confident that the dairy company will be much more successful with
them than without them. If that proves to be correct then all Fonterra
shareholders, and all unit holders, will benefit. To that extent, there is
an alignment of interests.
Further, as a result of the reduced capital requirement on farmers,
there will now be a much greater number of farmer and retiring
farmer shareholders in Fonterra who, like unit holders, will be
focusing solely on dividends and share value. This is because
whereas in the past they were required to hold one share for every
kg of milk solid, now they will only require around one share for every
3kg of milk solid. So, over the period that farmers continue to hold
these shares a number of them, for some farmers as many as three
out of four, will be held for investment purposes. The financial return
on these shares will be dividends and movements in the share price,
which puts them in the same boat as unit holders.
I am also positive about the road map and associated earnings
outlook that Fonterra is aiming to achieve over the balance of this
decade. If these targets are achieved, then the substantially sub-par
financial returns that unit holders have experienced should improve
markedly.

---

FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
13 DECEMBER 2021
FONTERRA CHAIRMAN’S ADDRESS

Good morning everyone.
I look forward to taking your questions shortly, but first I want to
make a few comments about the Co-op’s financial performance, the
rationale for our capital structure changes, and what you as unit
holders can expect from us in the future.
From my perspective, our Co-op ends 2021 in a strong financial
position and with a clear strategy out to 2030.
Despite all of the disruption here at home and out in our global
markets, our Co-op has performed well over the past year,
demonstrating the value of a New Zealand owned Co-operative of
scale.
Fonterra’s scale gives us a level of optionality that is unique in New
Zealand dairy.
It enables us to manage risk and uncertainty on behalf of our
shareholders.
We have benefited greatly from our ability to move our milk
between the markets, categories and products that deliver the most
value.
Miles and his team did a great job of leveraging this strength to
deliver a strong financial performance this financial year, given the
difficult COVID-19 operating environment.

We’ve carried that momentum into the first quarter of the new
financial year, which Miles will talk to in a moment.
To a large extent, we are now seeing the benefits of changes we
made to the Co-op’s culture, which started more than 3 years ago.
As we complete our business reset, we have turned our attention to
the next phase of our strategy to focus on growing value.
In September we released our long-term strategy. If you haven’t
read the strategy booklet yet, I’d encourage you to do so.
The strategic direction we have articulated is inherently based on
sustainable access to New Zealand milk – which was the key driver
of the change in our capital structure.
At a time when total New Zealand milk supply faces a likely decline,
or being flat at best, the world has come calling for more of our
sustainably produced milk.
So, we are looking at a future where we have a highly sought-after
product and an increasingly scarce supply. That smells like value to
me.
In-line with the strategy, our future growth initiatives will look
different to how the Co-op has operated in the past.
Exercising a more conservative approach to risk, we will allocate
capital with more rigour, for a series of investments, rather than
betting the farm on one or two big plays.

We believe innovation, research and development, and
collaborations with strategic partners are critical to implementing
our strategy.
Allocating funding and resources for those initiatives is a priority for
the Board.
Out to 2030, we aim to
1
:
- Invest $1 billion into moving milk into higher value products
within our core business of Ingredients and Foodservice.
- Distribute $1 billion to shareholders and unit holders after
asset sales and dependent on improved earnings – this is
in addition to normal dividends and equates to around 60
cents for each unit
- Make $2 billion available for investment into a mix of further
growth – including opportunities for nutrition science – and
potential returns to shareholders and unit holders.
We also see a significant opportunity to develop and monetize our
intellectual property and dairy knowhow that is hugely valuable to
our customers.
As I said before, the strategic ambitions for 2030, which we set out
in September, were predicated on successfully changing our capital
structure.

1
These targets are subject to successfully completing a number of business initiatives, and various assumptions and risks, each of which
could materially affect the actual outcomes. Full details are in the strategy booklet that was released in September.

You will have seen a strong mandate from the farmer owners last
week, with 85.16% of votes cast in favour of the recommendation.
With a clear farmer mandate for change, we will continue working
with the Government on how this can be given effect under the
Dairy Industry Restructuring Act – the legislation that enabled the
formation of Fonterra back in 2001.
I believe we are philosophically aligned with the Government
and remain confident that we can find a regulatory framework that
supports the Flexible Shareholding structure.
The Flexible Shareholding structure will come into effect once the
Board is satisfied that any steps necessary for implementation have
been (or will be) completed.
We are aiming to implement the changes as soon as possible from
the beginning of next season.
Share compliance obligations will remain on hold until at least six
months after the new structure is effective.
The cap on the Fonterra Shareholders’ Fund will remain in place as
this cap is a feature of the Flexible Shareholding structure.
So as unit holders, what can you expect from the Co-op under the
new Flexible Shareholding structure?
When you accept anyone’s capital it should be treated with respect,
which includes paying a respectable return on capital over time. It’s
fair to say Fonterra’s track record on that hasn’t met expectations,
regardless of whether you’re a farmer or a unit holder.

We all expect a competitive return on our invested capital. In that
regard, all of the Co-operative’s owners are united.
Under Flexible Shareholding all farmers would have greater choice
about their level of investment in Fonterra. Like unit holders, the
decision will likely be based on Fonterra’s financial performance.
This will increase the constructive tension for the Co-operative to
deliver a competitive return on invested capital, as well as strong
milk prices.
The changes we are making to our capital structure will help us to
retain our scale efficiencies that lead to better utilised factories,
lower processing costs, and increase our ability to pay a
competitive milk price and to generate earnings.
Having made the decision to retain the Fund, Fonterra’s Board is
committed to ensuring its strong performance.
The Fund and unit holders will remain a meaningful part of our Co-
operative.  As the Fund is listed on the NZX and ASX, it will
continue to provide a means by which non-dairy farmers can invest
in the future of the Co-operative.
I’d like to finish by thanking you all for your continued support.
Since the Fund was established in 2012, unit holders have been an
important and integrated part of our Co-operative. We look forward
to continuing that relationship into the future.
Thank you.

---

FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
13 DECEMBER 2021
FONTERRA CEO’S ADDRESS

Kia ora
There’s three important topics I would like to cover today – a summary
of our performance in 2021, our long-term strategy and how 2022 is
shaping up.
So, let’s get into it.
We saw strong performance across all our key metrics last year, and
this included people, environment and financial.
From a people perspective, our engagement with employees, farmers
and customers improved.
From an environmental perspective, we reduced our carbon emissions
from coal by more than 11%, as Te Awamutu completed its first season
using renewable wood pellets. Our farmers have also done a lot on
farm.
From a financial perspective, we improved our earnings at the same
time as delivering a $7.54 milk price.
We showed that, to a point, we can have solid earnings and a decent
milk price.
We also continued to reduce our debt and achieved our target debt to
EBITDA ratio of 2.7x.
That’s a significant milestone for our Co-op – it shows that the focus on
financial discipline is paying off.

We’ve got our balance sheet back into a more healthy position and this
allows us to look more towards the future.
And, as an intergenerational business, that’s incredibly important.
We leaned on a number of the Co-op’s strengths to get us to this
position.
And these strengths have been invaluable as we’ve faced into the
challenges and flow-on effects of COVID-19.
The first strength which I would like to talk about today is our New
Zealand manufacturing network and the team that operates them.
The network gives us a huge amount of optionality in terms of the
products we can make.
And our people are focused on driving efficiency and improving
performance at each of our plants.
This continuous improvement creates more value which flows through
into the Farmgate Milk Price.
What you see on this slide is some of the ways we measure our
efficiency at our sites.
I won’t dive into the detail, but the key point is, for the last few years,
these measures have been trending in the right direction.
Another huge asset in our Co-operative is our diversification across
channels and markets.
Last year our volumes and EBIT were more or less evenly split across
our three regions and channels.
This diversification allows us to allocate milk into the products and
markets that generate the best overall returns for the Co-op.

In 2021 this saw us allocate less milk to AMENA and more milk to
Greater China and parts of Asia Pacific and we did this because that’s
where demand was the strongest.
Our third strength, or asset, is our global supply chain – including
Kotahi, which is our joint venture with Silver Fern Farms.
It’s because of our scale that Kotahi could partner with Maersk shipping
line and the Port of Tauranga.
And it’s because of this partnership that our Co-op could continue to
get product to our customers last year.
With all the disruptions to the global supply chain this was something
our customers didn’t take for granted and we saw this reflected in both
milk price and earnings.
2021 also saw our Co-op make the most of what we have built over the
years – that’s a New Zealand co-op which has scale and optionality
and can compete internationally.
We can now look out to the future and give clarity about where we want
to be in 2030 and the kind of value growth we’re going after.
So, let’s take a look at that...
The first thing I would say about the future is the fundamentals of dairy
– in particular, New Zealand dairy – look strong.
And you’re seeing that play out this year.
We know the world’s population is growing and living longer.
Asia’s middle class is rapidly increasing – they want more protein and
more convenience in their life.

People are more aware than ever of the links between nutrition and
health.
Put simply, the world wants what we’ve got – sustainably produced,
high-quality, nutritious milk.
This comes at a time when we see milk supply in New Zealand likely to
decline or be flat at best.
On one hand, this requires the right capital structure to help ensure we
don’t lose the benefits of what generations of farmers have built before
us.
But on the other hand, it gives us more options to be selective about
what we do with the Co-op’s milk.
In doing so, we are confident we can increase the value we generate
over the next decade.
To make this happen we have made three strategic choices – continue
to focus on New Zealand milk, be a leader in sustainability and be a
leader in dairy innovation and science.
We’ve heavily stress tested these choices and know they can give us a
competitive edge, mitigate risks and position us to have a sustainable
future well beyond 2030.
We believe New Zealand milk is the most valuable milk in the world
due to our grass-fed farming model, which means our milk has a
carbon footprint around 70% lower than the global average.
We have an opportunity to differentiate New Zealand milk further by
focusing our capital here.

That’s why we’ve started a divestment process for our Soprole and
Prolosur businesses in Chile and also why we’re looking at various
ownership options for Fonterra Australia.
By successfully completing these processes – and also continuing to
hit our business targets – we intend to return a significant portion of the
net sale proceeds from these transactions to our shareholders and unit
holders by FY24.
We will direct some of our capital towards improving our sustainability.
As I mentioned earlier, we already have a unique low-carbon position.
When I was talking with CEOs and other industry leaders in Europe
recently, it was very clear that sustainability is also the top of their lists.
They all recognise that it’s increasingly a ticket to the game and an
important competitive advantage.
Customers want to know where their food comes from and the
environmental impact it leaves.
This is why we have an aspiration for our Co-op to be net zero carbon
by 2050.
It’s also why over the next decade we will invest around a billion dollars
in reducing carbon emissions and improving water efficiency and
treatment at our manufacturing sites.
We also know that to maintain our carbon footprint advantage against
the northern hemisphere we must also look to solve the methane
puzzle.
Our investment in sustainability will allow us to tell a compelling New
Zealand sustainable nutrition story through our brands.

This will support growth in Foodservice and momentum in our
Consumer channel across our key markets.
It will also allow us to gain more value through our Ingredients channel
by helping customers meet their own sustainability goals.
Another area where we will invest to differentiate our Co-op’s New
Zealand milk is in carving out a leadership position in dairy innovation
and science.
Our Co-op has a long and proud heritage of dairy innovation.
We are building on this and developing new solutions which aim to
solve problems our customers face in their operations and help people
live healthier and longer lives.
Being a leader in dairy innovation and science will require us to
increase our investment in R&D.
This will be used to develop more products to reach new customers
and make the most of opportunities in Active Living.
But we also believe that the next phase of the nutrition journey is just
being discovered.
Food has evolved over many years from a simple energy source
towards what consumers of today are looking for – taste, convenience
and pleasure.
We are now seeing that some types of food, like dairy, could help
answer many of life’s challenges – such as immunity, cognition and
even stress.
And when you combine these benefits with technology and data, we’ve
got something really powerful.

It’s an area called Nutrition Science.
We believe it could unlock more value from our specialty ingredients.
And to help us narrow down and prioritise where we can build a
competitive advantage, we have set up a small dedicated team.
By taking this path and focusing on New Zealand milk, sustainability
and dairy innovation, we are going after a number of key value targets
at the same time as a sustainable milk price.
We’re aiming for a 40-50% increase in operating profit from FY21.
With the reduced interest from having less debt, this should give us the
ability to steadily increase dividends to around 40 cents per share by
FY30.
And by 2030, we’re also targeting a Group Return on Capital of 9-10%.
We’re clear about the capital investment that’s sitting behind these
targets – about $1b invested in sustainability and about $1b invested in
moving milk to higher value products.
I also want to highlight that through our planned divestments and
improved earnings, we also intend to return about $1 billion or 60 cents
per share to shareholders and unit holders by FY24.
We’re also intending to make available around $2 billion for a mix of
investment in further growth and potential returns to you.
Because these targets go out to 2030, we've had to make a number of
assumptions and, as is always the case in the global markets, there is
risk and uncertainty which could mean our actual results may differ –
but these targets are what we are all aiming for.

Every year we need to steadily put in place the building blocks to get us
there.
With this in mind, we’ve got four priorities this year:
Firstly, we need to make the shift from a reset to growth.
We will progress the work to divest our integrated Chilean business
and prepare the process of deciding the most appropriate ownership
structure for Fonterra Australia.
We also need to narrow down and prioritise the areas within Nutrition
Science Solutions where we believe we can build a competitive
advantage.
And, of course, we need to keep hitting our environment, people and
business performance targets.
And we’re off to a good start.
For example, we’ve formed a dairy science collaboration with Vitakey
to further unlock the benefits of our probiotic strains.
Vitakey specialises in delivering the right nutrients to the right part of
the body at the right time.
We’ve also made good progress in finding a solution to the challenge of
on-farm emissions.
We have been working on Kowbucha™, a probiotic which could help
switch off the bugs that create methane in cows. Initial lab results have
been promising, showing a 50% reduction in methane, and we’re now
taking these to farm trial.
We’re progressing with the divestment of our Chilean business and the
ownership review of Australia.

And you would have seen we delivered $190 million of EBIT in Q1.
We’ve also lifted and narrowed the forecast Farmgate Milk Price range
to $8.40 - $9.00 per kgMS.
This increases the midpoint of the range to $8.70 per kgMS.
The higher milk price has seen the Co-op revise its earnings guidance
to 25-35 cents per share as margins come under pressure.
As we move through the year, we will continue to be faced with the
challenge of COVID but the team and I will stay focused on our four
priorities, keeping an eye on today but also looking out to the future.
Thank you.