FSF 2022 Annual Meeting materials

14 November 2022

Chair
FSF Management Company

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3

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4

John Shewan
John Shewan
Peter McBride
Chris Rowe
John Shewan
Carlie Eve, Alastair Hercus
John Shewan
John Shewan
5

John Shewan
Chair
Kim EllisMary-Jane DalyDonna SmitAndy Macfarlane
Peter McBrideMiles HurrellChris RoweSimon TillAndrew Cordner
6

•Fonterra delivered a strong financial result, driven by its
Ingredients portfolio
•Good progress on key drivers of Fonterra’s strategy,
focusing on New Zealand milk, sustainability, and dairy
innovation and science
•Increased working capital has driven higher debt levels
but will improve as working capital returns to normal
levels in FY23
¹
¹
²
Note: For the year ended 31 July 2022.
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.
7

$1.00
$2.00
$3.00
$4.00
$5.00
Aug 21Oct 21Dec 21Feb 22Apr 22Jun 22Aug 22Oct 22
FSFNZX50 Index
Annual
Results
•
Down 8.4%, from $3.71 to $3.40
(1 August 2021 –17 March 2022)
•
Down 8.4%, from $3.71 to $3.40
(1 August 2021 –22 September 2022)
Capital
structure vote
Interim
Results
8
Note: NZX50 is the NZX50 Capital Index and is exclusive of dividends. The line representing the NZX50 Index reflects the relative movements to FSF unit price from 1 August 2021.

6%
9%
14%
71%
5%
8%
15%
72%
Private
Wealth
Management
Farmer
Shareholder
Institution
Retail
2022
2021
2%
2%
8%
88%
2%
2%
8%
88%
Other
United States
Australia
New Zealand
2022
2021
•Small increase in retail and institution holdings
•Majority of register held in New Zealand, with offshore holdings stable
Note: Register data for 2021 and 2022 is as at 31 October.
9

Units on Issue¹:no change
Fund Market Capitalisation¹:$93m
Fonterra Market Capitalisation¹:$1.1b
Fund Size¹
,
²:no change
Unit Price 12-month High/Low³:
(11 Nov 21) /(10 May 22)
1.At 11 November 2022, relative to 11 November 2021.
2.Fonterra Shareholders’ Fund units on issue as a percentage of Fonterra Co-operative Group shares on issue.
3.12 month period, 11 November 2021 –11 November 2022.
10

Chair
Fonterra Co-operative Group

12
FY20
Actual
FY21
Actual
FY22
Forecast
Improved performance
Milk Price per kgMS ($)$7.14$7.54
NormalisedEBIT ($m)$879m$952m$875-$975m
Earnings per share (CPS) 24c34c25-40c
Return on capital6.6%6.6%6.5-7.0%
Financial position
Capital investment ($m)$525m$608m$650m
Debt toEBITDAratio3.3x2.7x2.4x
Gearing ratio44%39%35%
Dividendto shareholders
Dividends (CPS)5c20c15-20c

13

14
EBIT increase
from FY21
Return on capital
in sustainability moving more milk to
higher value products
Intended to be distributed to shareholders after asset sales
Increase dividends to
cents per share
per annum in
R&D
for mix of
investment in
further growth and
return to
shareholders
Aspiration to be

Acting Chief Financial Officer
Fonterra Co-operative Group

16
Reported profit after tax
Normalised profit after tax
Farmgate Milk Price
Dividend

17

18

19

20
EBIT increase
from FY21
Return on capital
in sustainability moving more milk to
higher value products
Intended to be distributed to shareholders after asset sales
Increase dividends to
cents per share
per annum in
R&D
for mix of
investment in
further growth and
return to
shareholders
Aspiration to be

21
Asia PacificAMENAGreater China
20212022
% of milk solids
GDTCoreActive LivingFoodserviceConsumer
20212022
% of milk solids

22
2022/23 Forecast Farmgate Milk PriceForecast Earnings
per kgMS
Midpoint of per kgMS
per share

Election of Carlie Eve

To elect Carlie Eve, who stands for election,
as a director of the Manager of the Fund
26

Election of Alastair Hercus

To elect Alastair Hercus, who stands for
election, as a director of the Manager of
the Fund
28

As at 10am Saturday 12 November 2022
AGAINSTFORDISCRETIONARY
29
AGAINSTFORDISCRETIONARY

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’
30

•In respect of the resolutions, please tick the “for”, “against” or “abstain” box.
•Once you have completed your voting, please place your vote in a ballot box.
•Please raise your hand if you require a pen.
•Results will be announced to the NZX and ASX as soon as they areavailable.
31

14 November 2022

Retiring Director

Retiring Director

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FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
14 NOVEMBER 2022
FSF MANAGEMENT COMPANY CHAIRMAN’S ADDRESS

It was good to see Fonterra making progress on implementing its
strategy and delivering a strong financial performance in the context of
historically high milk prices, inflationary pressure, and continued
geopolitical and supply chain disruption in several key regions.
Peter and Chris 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 $583 million. Normalised earnings per
share came in at the top end of the forecast range, at 35 cents per
share.
Fonterra declared a total dividend of 20 cents per share which of
course flows through to unit holders as 20 cents per unit. This is made
up of an interim distribution of 5 cents per share and a final distribution
of 15 cents per share which was paid on the 14 October.
Before I move on to discuss the performance of the Fund, I want to
reiterate comments I have made at earlier annual meetings of the Fund
on the role of the Board of the Manager.
The Fonterra Shareholders’ Fund 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 of the Fund 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.
Let’s now take a close look at the performance of the Fund over the
past year.
The graph currently on the screen highlights, despite Fonterra’s strong
performance, the decline of the unit price over the course of the year.
The unit price decreased 8.4% from $3.71 at the beginning of August
2021, the start of Fonterra’s financial year, to $3.40 at the time Fonterra
released its annual results on 22 September. Since then, the price has
dropped a further 10.9% to $3.03.
How the implementation of Fonterra’s new capital structure might
impact the unit price has played its part in subduing the price.
In addition, the performance of the unit price this year has been
impacted by the heightened volatility in equity markets and the lower
valuation of equity markets both in New Zealand and overseas.
This reflects uncertainty driven by inflationary pressure, higher interest
rates, geo-political events and recessionary concerns.

As you can see on the graph, the relative NZX50 Index has declined
12.7% over the same period. The S&P500 index is also down 14.3%
over the same period.
The graph shows a sudden drop in the unit price towards the end of
April and into May 2022. Some of you might recall, this period of
weakness in the unit price was directly after the release of the report by
the financial and economic consulting firm Castalia, which contained a
number of assertions that Fonterra did not agree with.
The Castalia report asserted that protections for a fair milk price will be
eroded and that Fonterra’s capital restructure will cause Fonterra’s Milk
Price to increase. Castalia also estimated Fonterra’s future share price
on the basis of possible dividends up to 2030 but appeared to assume
that Fonterra has zero value at the end of 2030. Fonterra, as does the
Board of the manger, considers this to be a misleading approach to
valuing Fonterra shares and FSF units. And Fonterra strongly
disagrees with the contention that the capital structure changes will
increase its milk price.
The unit price reached a low of $2.75 during this period but has since
recovered somewhat. However, as mentioned the implementation of
Fonterra’s new flexible shareholding capital structure has created
uncertainty for unit holders and potential investors over what the impact
might be on the unit price.

The unit price has declined from $4.60 immediately prior to Fonterra’s
capital structure review announcement on 5 May 2021 to last Friday’s
close price of $3.03.
This uncertainty may reduce as implementation of the new capital
structure proceeds through 2023. However, the independent directors
of the Manager of the Fund remain of the view that Fonterra should
have bought the Fund back as part of the capital restructure process. I
believe that the sequence of events and adverse impact on unit price
since the May 2021 announcements shows very clearly why our
concerns were entirely justified.
Looking now at the current make-up of the Fund’s unit register.
The various investor types have been relatively stable year-on-year.
Of note however is the movement in units held by Fonterra Farmer
Shareholders, which reduced from 9% to 8% of total units on issue.
Farmers held 12% of units in 2020.
This reduction is most likely related to the capping of the Fund as
farmers are no longer able to move their shares to units.
Retail holders continue to represent the majority of the unit register
although Institutional holdings have increased slightly year-on-year,
driven by a combination of New Zealand and Australian institutions.
Moving on to some of the key Fund statistics.
The Fund is currently capped at 107.4 million units – at a closing unit
price of $3.03 on 11 November, this puts the market capitalisation at
around $325 million.

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 remains largely
unchanged year-on-year at 6.7%.
As I mentioned a moment ago, the unit price continues to be impacted
by a combination of market conditions and the overhang of Fonterra’s
new flexible shareholding capital structure. This has driven a reduction
in the market capitalisation of the Fund by some 22%, a drop of $93
million, from this time last year.
However, the 2023 financial year is off to a strong start. Fonterra
revised its 2023 earnings guidance from 30 to 45 cents to 45 to 60
cents per share, primarily driven by strong demand for cheese and
protein products. The Fonterra Board has also reaffirmed its 2030
targets and the focus on its three strategic choices:
 To focus on New Zealand Milk
 To lead in sustainability
 To lead in Dairy innovation and science
We have the opportunity now to hear from the Fonterra team on the
strategies and operational plans that will deliver that value to
shareholders and unit holders alike.

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FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
14 NOVEMBER 2022
FONTERRA CHAIRMAN’S ADDRESS

Good morning, everyone.

Today I’d like to make a few comments about:

• The Co-op’s financial performance over the past financial year
• Our strategy
• And the work we are doing with our stakeholders to ensure we
retain a sustainable supply of New Zealand milk – which as
you know is the foundation off which we drive our earnings.


Overall, our Co-op has continued to make good progress towards
becoming a more innovative and customer-led organisation.

The Board is very pleased with the team’s progress implementing
our strategy and this year’s strong financial performance in the
context of historically high milk prices, inflationary pressure, and
continued geo-political disruption in a number of key regions.

We will always push hard for performance.

But when you consider the continued supply chain disruption
resulting from COVID-19, the geo-political and economic challenges
we face in multiple markets, Miles and his team have done an
excellent job.

We have made strong progress towards our 2030 strategic targets,
which we set in September last year and remain committed to.

However, volatility has always been a feature of global dairy.

Tracking progress towards our 2030 targets will never be a straight
line. You should expect some earnings volatility year-to-year as we
move through to 2030.

In the past few years, we have moved our Co-op’s strategy away
from a global volume play to a focus on deriving value from our
sustainable New Zealand milk.

That strategy is starting to deliver for us, as demonstrated by this
year’s milk price and earnings performance.

Our customers are at the heart of our strategy. We will achieve our
performance targets by continuing to deliver products to market in a
way that meets their changing expectations.

Chris will speak to this in more detail in his address, but our high-
value customers are asking us to support them in meeting the
expectations of their stakeholders – especially the end consumer.

Today, 73% of global consumers find sustainability pledges
important when buying dairy products.

It’s great news for a Co-op that’s strategy is focused on New
Zealand milk and being a leader in sustainability.

New Zealand dairy farmers already have the world’s lowest carbon
footprint. If we can maintain that advantage, we have an excellent
opportunity to build mutually beneficial relationships with our
premium customers.

Maintaining a sustainable supply of that New Zealand milk, in an
environment where we expect the country’s total milk volumes to
decline, has been a key priority for Board and management over
the past few years.

Last Thursday, the Primary Production Select Committee released
its report on the legislative changes to DIRA that are required to
implement our Flexible Shareholding capital structure.

It’s another key milestone in the legislative process, and we remain
hopeful that the Government will reach a decision before the end of
the year. After which we will move to the Flexible Shareholding
structure as fast as possible.

Innovation, research and development, and collaborations with
strategic partners are also a focus for the Board.

You will remember that as part of our 2030 strategy, we were
targeting investment of:
• $1 billion into sustainability
• $1 billion into moving milk into higher value products
• The intention to increase current total annual R&D investment
by over 50% to around $160 million per annum in 2030.
• And $2 billion available for investment in a mix of future
growth – including opportunities for nutrition science – and
return to shareholders.

We are still committed to our investment targets for sustainability,
higher-value products and R&D.

The return to shareholders and unitholders had anticipated
divestments including Soprole and a stake in our Australian
business.

Even though we have since decided not to sell a stake in our
Australian business, we are still committed to targeting a significant
capital return to our shareholders and unitholders.

We need to be mindful that we retain the asset in Australia, and the
earnings associated with it.

The amount of any capital return will be determined by the
successful completion of the divestment programme as well as the
Co-op’s financial position at the time.

In terms of the outlook for the Co-op and New Zealand dairy, the
Board remains confident and excited by our future prospects.

As you will be aware, the extent and rate of change our farmers are
being asked to make on-farm is a real challenge.

Our focus is on supporting them through the changes by signalling
them early.

Seeking to provide the tools and resources needed to implement
change.

And delivering the highest possible, sustainable returns to counter-
balance their rising input costs.

Before I hand back to John, I do want to acknowledge that he is
retiring as Chair of the Fund at the conclusion of today’s meeting.

Long-serving director Kim Ellis also retires today. Both have been
on the Fonterra Shareholders’ Fund Board since 2012

I know their fellow directors will speak to their contribution later in
the meeting, but while I have the floor, I do want to thank John and
Kim for their contribution to the Fund over many years.

In particular, I want to thank John for staying on in the role longer
than he intended, as a result of the changes the Co-op wants to
make to our capital structure.

I’d also like to acknowledge the contribution of Donna Smit, who
retired from the Board of Fonterra last Thursday at its Annual
Meeting. Donna has served as a Fonterra appointed Director of the
Shareholders’ Fund since November 2018.

Thank you John, Kim and Donna.

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FONTERRA SHAREHOLDERS’ FUND ANNUAL MEETING
14 NOVEMBER 2022
FONTERRA CFO’S ADDRESS

Good morning everyone
I want to echo Peter’s words by acknowledging those Directors retiring
this year – Chair John Shewan and Directors Kim Ellis and Donna
Smit.
I want to spend a few minutes reflecting on the year just gone but also
look ahead to what’s on the horizon.
FY22 was a year like no other. COVID-19 continued to test us. We saw
new strains and regional lockdowns in New Zealand and ongoing
restrictions in a number of our global markets.
The war in Ukraine accelerated decisions about the future of our
Russian business, and we also felt the impact of the Sri Lanka
economic crisis.
And of course, we started to feel the effects of rising inflation, which
continues to be an issue for all of us.
As an exporter, we’re used to dealing with geopolitical and
macroeconomic events. But FY22 was exceptional in terms of the
number and their impact.
Despite this, we stuck to our strategy of maximising the value of our
precious milk and in the face of uncertainty, delivered an impressive set
of results.
We all know that a high milk price has the potential to squeeze
margins, so it was good to see progress in our key metrics.

Total Group Revenue, Normalised Profit After Tax and Group
normalised EBIT were all up.
Given the lower milk collections, it’s good to see Total Group gross
profit up $226 million due to significantly higher product prices across
our Ingredients channel.
We delivered this result despite the significantly higher cost of milk,
with the Farmgate Milk Price increasing from $7.54 per kgMS last year
to $9.30 per kgMS this year.
I know it won’t have escaped your notice however, that net debt was
also up.
As you know, a key aim of the strategic reset kicked off in 2019 was to
shore up our foundations and strengthen our balance sheet.
That strong balance sheet means we were able to hold greater
inventory at the end of the financial year.
The bulk of this was contracted but shipping disruptions and stronger
milk collections towards the end of the season meant we held more
inventory than usual at year end.
The result was an increase in working capital and in our net debt
position. I’m pleased to say the team has made great progress in
getting that inventory out the door and we expect working capital and
debt to return to normal levels over the course of this year.
Despite the decision to hold more inventory, it’s good to see that our
improved performance has meant our return on capital has increased
from 6.6% to 6.8%.

The financial year saw continued strong demand for dairy across
multiple markets and products at a time of constrained milk supply.
We faced global supply chain challenges, and a significantly higher
cost of milk for our businesses.
The increase in prices over the season did place pressure on margins
in our Foodservice and Consumer channels, but this was more than
offset by strong earnings in our Ingredients channel.
I want to turn now to our strategy.
It’s just over a year since we announced our strategy to 2030.
The last year shows that there will be some bumps along the way, but
we remain committed to the goals we set ourselves 12 months ago.
Demand for our sustainable, nutritious dairy remains strong.
We made three strategic choices – to focus on our NZ milk, to lead in
innovation and science and to lead in sustainability.
These are guiding our business and every single decision we’re
making. We’re pleased with the progress to date.
Success for us means allocating our scarce resource – those milk
solids – where they will deliver the greatest value.
You’ll see from this slide how that played out last year, with the growth
you see in our Active Living business. The allocation of milk solids to
our Foodservice channel has also continued to grow, with innovation
expanding the uses of our UHT cream range within our Anchor Food
Professionals brand.
We continue to make progress on the sale of our Soprole business
which of course underpins the capital return we’ve discussed

previously. We’ve also completed the review of our Australian business
and decided that long-term, it’s in our best interest to maintain full
ownership.
Sustainability sits at the heart of our strategy, and we continue to make
good progress. The public private partnership between our sector and
the Government to address the methane challenge builds on some of
the sustainability work we’re already doing.
Of course, we have a natural advantage in the sustainability stakes,
with a carbon footprint less than one third of the global average. But we
can’t sit back. Customers and consumers expect more and doing
nothing simply isn’t an option. We need to maintain our advantage and
keep pace with their expectations which is why we signalled at last
week’s Annual Meeting that we’re considering setting a target for scope
3 emissions.
We know change is inevitable, but with change comes opportunity and
that’s why we’re excited about the future.
Looking ahead to the current season, it’s good to kick the year off with
strong earnings guidance of 45-60 cents per share, up from our initial
forecast of 30 to 45 cents per share.
As you would expect, we continue to monitor a number of global risks,
but we do expect to see an easing in some of the significant
geopolitical events which tested us last year and you can see that also
reflected in the strong earnings guidance and the forecast milk price.
Longer term, we have our 2030 targets firmly in our sights. The
changes we recently made to our organisational structure puts us in the

strongest possible shape to deliver, and it’s good that we were able to
do that by promoting some of our brightest internal talent.
Emma Parsons heads up our Strategy and Optimisation team, ensuring
that in the context of our shrinking New Zealand milk pool, our milk
solids are being allocated to the highest value product mix.
Her team also ensures our strategy remains fit for purpose in the
context of changing global trends and events.
We have a proud heritage of dairy innovation, and our future success
depends on our ability to double down to extract maximum value from
our milk.
Komal Mistry-Mehta leads our Innovation & Brand team, putting
innovation at the heart of our Co-op.
And Judith Swales heads up our expanded global markets team,
bringing the customer voice front and centre as we focus on our New
Zealand milk pool.
It’s good to see the progress being made on our flexible shareholding
and we look forward to those changes being implemented as soon as
we are able to so that our Co-op can continue to thrive. A strong, united
Co-op is in everyone’s best interests, delivering for you, our rural
communities, and New Zealand as a whole.
Thank you for your ongoing support.