Fonterra Co-operative Group Limited (FCG) Earnings Call Transcript & Summary

[Foreign Language] Hello, everybody. It's my privilege to contribute to the opening of our annual general meeting. [ Hyatt Yat ] was composed by Justin Tipon of [ Natham ], and it speaks to new beginnings. It talks of hope and optimism that come with the promise of a new day. [Foreign Language] I acknowledge our creator and those of our loved ones, who have departed over the past year, those whose memories and legacy live on amongst us all. [Foreign Language] I acknowledge the local Iwi, the [ Manukau ], the [ Te Wai-o-Hua ], the [indiscernible] and those who are here in attendance. Those of us here in Tamaki Makaurau, Auckland and the majority of our people joining in online from around [indiscernible], New Zealand and the world. [Foreign Language] Like the drawing of a new day, we look forward to the future with that same sense of hope and optimism in unity. [Foreign Language] Thank you, Mr. Chairman. Over to you.

Thanks, Tiaki. [Foreign Language] Welcome, everybody. We here just reflected on acknowledging local Iwi, acknowledging all of the caretakers of the land of New Zealand, which is all of us, and also welcoming the family of Fonterra to the meeting, so welcome. Ladies and gentlemen, my name is Peter McBride, Chairman of the Board of Fonterra Co-operative Group Limited. I have pleasure in welcoming you to the 2021 Annual Meeting of the Shareholders of Fonterra. Thank you for your attendance here today in Invercargill and also to those joining us online. I now declare the meeting open. The notice of meeting was sent to all shareholders listed on the share register, as at the 11th, November 2021. As all shareholders entitled to vote, have been sent a copy of the notice of meeting, the notice will be taken as read. We have the requisite quorum of 50 or more shareholders, and therefore, this meeting is properly constituted. The agenda for the meeting was set out, and you'll notice it in the meeting booklet. Shortly, I will present the Chairman's review. Our Chief Executive, Miles Hurrell, will then address shareholders. We will then move to the 6 ordinary resolutions and 3 special resolutions to approve the various amendments to the constitution. The Co-operative Council review will then be presented by the Council Chairman, James Barron, prior to us putting resolution 9. We will then collect the voting papers and open the meeting to general business and any questions that you may have. We expect to finish around 1 p.m., when the special meeting will then commence. I would like now to take this opportunity to introduce my fellow directors and senior management. Here in Invercargill and from my far left, we have directors, Andy Macfarlane and Donna Smit. From my far right, John Nicholls, Leonie Guiney and Brent Goldsack. Unfortunately, due to the COVID-19 travel restrictions, our Auckland-based directors and senior management team, and our Australian Board of Directors have been unable to join us in person. But I'm pleased that we have joining us today, virtually, from the Auckland office, Directors Bruce Hassall and Scott St. John; our Chief Executive, Miles Hurrell; and our Director of Governance, Risk and Audit, Anya Wicks. I'm also pleased we have Director Cathy Quinn; and our Chief Financial Officer, Marc Rivers joining us virtually from Auckland; and our Directors Holly Kramer and Clinton Dines, joining us virtually from Australia. We also have three other members of Miles' management team, joining us in Auckland: Mike Cronin, Managing Director of Co-operative Affairs; Kate Daly, Managing Director of People and Culture; and Fraser Whineray, Chief Operating Officer. I would like to acknowledge the Co-operative Council, Chairman, James Barron, and the members of the Co-operative counsel, who have joined us today. I would also like to welcome John Shehan, Chairman of the Fonterra Shareholders Fund, and representatives from our auditors, who have joined the meeting virtually. Before going into the formal business of the meeting, we will take a look back at the year that's been, and how 2022 is shaping up. In a few minutes, I'll ask Miles to come up and share his perspective, along with a short summary of the Co-op's financial performance over the past year. From my perspective, our Co-op is, in 2021, in a strong position on a range of fronts: our financial results; the implementation of our strategy; and just as importantly for me, our relationship with you, our owners. 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 our 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 key refarming families. We have benefited greatly from our ability to move your 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 year, especially given the difficult COVID-19 operating environment. For a lot of our team members, 2021 has been incredibly tough. Many of our international team are working away from home or in densely-populated cities we covered as rife. I'd like to take this opportunity to say thank you to all of our international team, on behalf of us farmers. The hard work, commitment of all our people was reflected in our key 2021 financial results. Our final Farmgate Milk Price is $7.54, which exceeded our operating forecast -- our opening forecast for the year, sorry. Net debt is down $872 million this year, to be $3.8 billion, bringing our gearing ratio to just around 36%. Our total group normalized EBIT, which reflects the underlying performance of the business, was up 8%, to $952 million. And normalized earnings per share was $0.34, leading to a total dividend payment of $0.20 for the year, with a strong performance under the circumstances, and we have 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 that we've made to the Co-op's culture, which started more than 3 years ago within the management team that has been led by Miles. He took on a CEO role in an incredibly difficult time for the Co-operative and has not shied away from making some tough decisions. I'd like to acknowledge his continued leadership. At the same time, the Board has been addressing its governance culture. We have sought to realign Fonterra's strategic objectives with its purpose and to better align our risk appetite to that of our shareholders. We have adjusted our dividend policy, debt targets and risk appetite statement to be more conservative and strengthen our balance sheet. That gives us options, as we consider the future and look to grow. As we complete our business reset, we have turned our attention to the next phase of our strategy, which is 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. Within it, we outlined the strategic choices we have made to grow value by making the most of our competitive advantages, reducing our exposure to risks outside of our control and ultimately making our business more sustainable for generations to come. The strategic direction we have articulated, is inherently based on successful changes to our capital structure, which are necessary to maintain the sustainable access to high-quality milk that our strategy and financial goals are predicated on. We've looked out to 2030 and can see an exciting future for New Zealand dairy. At a time when total New Zealand milk supply faces likely decline or to be flat at best, the world has come calling for a more sustainably-produced milk. The milk supply pressures we face in New Zealand, are not unique to Fonterra. So we're looking at a future, where you have a highly sought-after product and an increasingly scarce supply. That smells of value to me. And it's important that we achieve higher value for our milk as we all look to offset the rising input costs that we face on farm. 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 approve capital allocation with more rigor for a series of investments, rather than bidding the farm on 1 or 2 big [ players ]. We believe, innovation, research and development and collaborations with strategic partners are critical to our strategy. Allocating funding and resources for those initiatives, is a priority for the Board. Out to 2030, we aim to approve funding of $1 billion into moving milk into higher-value products within our core business of ingredients and food service. And we'll make $2 billion available for investment and to a mix of further growth, including opportunities for nutrition science and potential returns to shareholders. subject to the capital structure outcome. We will also see a significant opportunity to develop and monetize our intellectual property and dairy know-how that is hugely valuable to our customers. As I said earlier, the future for New Zealand dairy is exciting, but we're not being naive about the very real challenges we all have in front of us, right now. One of my mentors, a former dairy Board Director, often said to me, "Peter, things are never as good as they look, but they're never as bad as they see. Take a long-term view." I think, it's a pretty powerful message for all of us dairy farmers, right now. Despite the Co-ops improved performance, I know, many of our farmers feel under enormous pressure. The rate of change on farm, COVID, labor shortages and environmental reforms have pushed many farmers into protests and others out of the industry. Some of that change is being driven by regulation. More so, it is being driven by consumer, customer and community expectations. Last year, one of our customers stopped doing business with 47 of their suppliers because they did not meet their sustainability standards. And these suppliers couldn't help them achieve their future sustainability targets. We need to learn to live with constant change. The only constant in life is change. An industry that understands consumer insights and has a customer orientation, will ultimately be successful. Coordinated change at a national level, is also necessary, if we want to keep the commercial competitive advantage that comes with being the world's most carbon-efficient dairy farmers. I've heard Miles say before that if the world can develop a vaccine for COVID in a matter of months, shortly with the same level of attention and resources, we can develop solutions for the other challenges that we face. I share his confidence. At the heart of this is a question for us, as a country. Do we believe in our future as a food and fiber nation? If we decide yes, then we need to start investing in the future of our food and fiber sector at a level commensurate with the fact that the sector accounted for 79% of New Zealand's merchandise exports in 2021. Through a science-backed approaching nationally-coordinated investment, together, both industry and government, can solve our significant challenges of methane and water quality, while continuing to grow the sector's export earnings at a sustainable pace. Fonterra will do our bit. One of the responsibilities of being a national cooperative of scale, is having a meaningful voice and conversations with the government about realistic time frames for the changes that are needed. Our scale also affords us the mandate and the resources to be part of the search for solutions, on behalf of farmers. That's why, as part of our long-term strategy, we announced our intention to approve funding of $1 billion for sustainability initiatives to meet the Co-op's environmental commitments and develop more sustainable offerings for customers. We also announced an intention to increase spending on research and development, to approximately $160 million a year by 2030. That's a 50% increase on today. In closing, I'd like to thank all of our farmers and shareholders for their loyalty and commitment over the last year. We have needed to make some big decisions this year, and I acknowledge the uncertainty that has created and the impact some of those decisions have had on all shareholders. However, these decisions have us well placed to take advantage of favorable industry dynamics, focused on delivering on our full potential. I'd now like to pass over to Miles for a recap of the financial year and his perspective on the Co-op's progress, since those numbers were announced.

Thank you, Peter. [Foreign Language] I would like to reiterate Tiaki and Peter's words of welcome and acknowledge those, who have passed before us. I would also like to acknowledge [ Ngai Tahu ] as the host of Iwi in Invercargill. There are three important topics, I'd like to cover today. Firstly, 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. This included people, environment and financial. From a people perspective, our engagement with employees, farmers and customers, has all improved. From an environmental perspective, we reduced our carbon emissions from coal by 11%, as [ Tiamuto ] completed its first season, using renewable wood pellets. Also, appreciate that on farm, you've done a huge amount of work also. So thank you. From a financial perspective, Peter has already mentioned the key numbers. But to recap, we improved our earnings at the same time, delivering a $7.54 milk price. We showed that to a point, you can have solid earnings and a decent milk price. We've continued to reduce our debt and achieve our targeted debt-to-EBITDA ratio of 2.7x. That's a significant milestone for our Co-operative, and it shows that focus on the financial discipline is paying off. We get our balance sheet back into a more healthy position, and this allows us to look more towards the future. And as intergenerational business, that's incredibly important. We leaned on a number of the Co-operative strengths to get us to this position, and these strengths have been invaluable as we faced into the challenges and flow-on effects of COVID-19. The first strength I want to talk to you today about, 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 of each of their plants. This continuous improvement creates more value, which flows through to the farm getting milk price. And what you can see on the slide, are some of the ways we measure our efficiency. And I won't go into all the detail, but the key point is that for the last few years, these measures have all been trending in the right direction. Another huge asset for our Co-operative, is our diversification across channels and markets. Last year, volumes and EBIT were, more or less, evenly split across our 3 regions and channels. This diversification allows us to allocate milk into the products and markets that generate the best overall returns for the Co-operative. In 2021, the source allocated less milk to [ Romania ] and more milk to Greater China and parts of Asia Pacific. And we did this, is because this is where the demand was 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 at Kotahi, could partner with Maersk shipping line and the Port of Tauranga, and it's because of this partnership that our Co-operative could continue to get product to our customers last year. With all the disruption of 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 the Co-operative make the most of what our farm owners and employees have built over the years, and that's New Zealand Co-operative, which has scale and optionality and that can compete internationally. We can now look out to the future and give clarity, where we want it to be in 2030 and the kind of value growth we're going after. So let's now take a look at that. The first thing I'd say about the future, is the fundamentals of dairy. And in particular, in New Zealand, dairy looks 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, and they want more protein and more convenience in their lives. 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 nutrition and 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 generation of the farmers have built before us. But on the other, it gives us the options to be selective about what we do with your Co-operative'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 risk 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% less than the global average. We have an opportunity to differentiate New Zealand milk further by focusing our capital here. That's why we started a process to divest our partnerships -- our business, sorry, in Soprole and Prolesur in Chile and while we're looking at the various ownership options for Fonterra Australia. By successfully completing these processes and continue to hit our business targets, we intend to return a significant portion of the net sale proceeds from these transactions to our shareholders and unitholders by F '24. We'll direct some of our capital towards improving and sustainability. And as I mentioned earlier, we already have a unique position in our low carbon. When I was talking to other CEOs and industry leaders in Europe recently, it was very clear that sustainability is also top of their list. They all recognize that it's an increasingly important ticket to the game but also a 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 [ cap ] to be net zero carbon by 2050. It's also why in the next decade, we'll invest around $1 billion in reducing carbon emissions and improving efficiency and treatment of water at our manufacturing sites. We also know that to maintain our carbon footprint advantage against in all 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 food service and momentum in our consumer channels across our key markets. It will also allow us to gain more value through our ingredient channel by helping customers meet their own sustainability goals. Another area we will invest to differentiate the Co-operative milk, is in carving that leadership position in dairy innovation and science. Our Co-operative has a long and proud history of dairy innovation. We're building on this and developing new solutions, which aim to solve problems we face today in our operations and help people live healthy and longer lives. Being a leader in dairy innovation science, will require us to increase our investment in R&D and innovation, and Peter has already talked to that. We will be used to develop more products and reach new customers and make the most of our opportunities in active living. But we also believe the next phase of the nutrition journey has just been discovered. Food has evolved from over many years from a simple energy source towards customers are looking for today, taste, convenience and pleasure. We're now seeing that some types of food, in particular dairy, could help answer many of life's challenges such as immunity, cognition and even stress. And when you combine the benefits of technology and data, you've got something really powerful. It's an area we're calling Nutrition Science, and we believe we could unlock more value from our specialty ingredients. And to help us narrow down and prioritize where we can build a competitive advantage, we've set up a small dedicated team to explore this further. By taking this path and focusing on New Zealand milk sustainability and dairy innovation, we're going after a number of key value targets at the same time as delivering a sustainable milk price. We're aiming for a 40% to 50% increase in operating profit by F '21 -- from F '21. With the reduced interest from having less debt, that should give us the ability to steadily increase dividends to around $0.40 per share by F '30. And by 2030, we're also targeting a group return on capital, of between 9% and 10%. Peter has already talked to the capital investment that's sitting behind these targets, and you can see that on the slide. But I also want to highlight that through our planned divestments and improved earnings, we intend to return $1 billion or around $0.60 a share to shareholders and unitholders by F '24. Also intending to make available around $2 billion for a mix of investment and further growth and potential returns to shareholders. Because these targets do go to '22, we've had to make a number of assumptions. And as always the case in global markets, there's risk and uncertainty, which could mean our actual results may differ. But these are targets that we're all going for. Every year, we need to steadily put in place the building blocks to get us there. And with this in mind, I have 4 key priorities for this year. First, we need to make the shift from a reset to a growth mindset. We'll progress the work to divest our integrated businesses in Chile and prepare the process for deciding the most appropriate ownership structure for Fonterra Australia. We'll also need to narrow down and prioritize the areas within Nutrition Science Solutions, where we believe we can build a competitive advantage. And of course, we need to keep hitting our environmental people and business performance targets, and we're off to a pretty good start. For example, we formed a dairy science collaboration with [ Vidake ] to further unlock the benefits of our probiotic strains. [ Vidake ] specializes in delivering the right nutrients to the right part of the body, at the right time. We also made good progress in finding solutions for on-farm emissions. We've been working on [ Kombucha ], a probiotic, which could help switch off the bugs that create methane cows. Initial lab results have been promising with showing a [ 58% ] reduction in methane, and we're now taking these lab trials to on-farm. We're progressing with the divestment of Chilean business and review of our Australian business, and you would have seen we delivered $190 million of EBIT in quarter 1. We've also lifted a narrative Farmgate Milk Price range to $8.40 to $9 a kilogram, giving us a midpoint of $8.70 per kilogram of milk solids. The higher milk price has seen the Co-operative revise its earnings guidance to $0.25 to $0.35 per share, as margins do come under pressure. As we move through the year, we continue to be faced with the challenge of COVID, but the team and I will stay focused on our 4 priorities, keeping an eye on today but also looking out to the future. Please keep working together. Thank you very much. [Foreign Language] Thank you. I'll now hand you back to Peter.

Thanks, Miles. We would ask that you hold any questions you have on the presentations that we've just given now until general business, please. Now, on to the business of this meeting, voting in the Directors' Remuneration Committee and Co-operative Council elections and on the Annual Meeting resolutions, is one of the fundamental rights we all have as shareholders. The resolutions to be considered, have been sent out in the notice of meeting. Each resolution will be by way of a poll. Postal and electronic voting was approved by the Board for these resolutions, and electionz.com Limited were appointed to receive and count these votes, which will be included in the poll. Each ordinary resolution must be agreed to by a majority of 50% of the votes of shareholders entitled to vote and actually voting on that resolution for it to be passed. Each special resolution must be agreed to by a majority of 75% of the votes of shareholders entitled to vote and actually voting on that resolution for it to be passed. Each shareholder has received a voting paper with the notice of meeting pack. The resolutions are all set out in the notice of meeting and will be taken as read. Each ordinary resolution will be moved and seconded by a director, a member of the Co-operative Council or a member of the Directors' Remuneration Committee, who may speak briefly to that resolution. I will invite comments and questions on the resolutions. In the interest of [indiscernible], I'd ask shareholders to keep the comments as brief as possible and not repeat questions or comments that have already been made. If you are here in the room, please wait for a microphone to be handed to you by one of the team, before you speak. And introduce yourself, please, when you are handed the microphone. Co-operative Council of Simon Hopcroft, will act as the timekeeper. It's a very important job. As the time for each question approaches 2 minutes, you will hear a bell. It would be appreciated, if you could then conclude your comment or your question. For those joining the meeting online, you are able to submit a question by clicking the 'Ask a Question' button on the top menu bar. For questions to be put to the meeting, your supply number must be included, please. I'm aware of time, so I may have to limit comments and questions to 6 to 8 per resolution, but let's see how we go. This year, we will not be showing the advanced voting result for each resolution. This is a change to our previous practice. As a Co-operative, I believe it is important that we have open shareholder discussions on each resolution without the influence of an advanced voting result. This is particularly important this year as we are holding the meeting as a hybrid meeting, and shareholders will have the ability to vote online during the meeting. When you're asked to vote and are here in the room, please place a tick in either the for or against box alongside the relevant resolution on your voting paper. If you're attending the meeting online and have not already voted, you may vote by clicking on the 'Click Here to Vote' bottom in the top menu bar, which will take you to Elections Voting page. Please complete your voting on all 9 resolutions before you click Submit. The scrutineers from electionz.com Limited will treat noncompliant votes as invalid, so please take care to follow the instructions. For those of you here in the room, we will collect the voting papers, following voting on all of the resolutions. The results will be posted on the Farm Source section of our website, the NZX and our [ Milo ] app as soon as possible today. Let's move on to the resolutions. Resolution 1 relates to directors' remuneration. The constitution requires that the Directors' Remuneration Committee bring recommendations to shareholders on the remuneration of shareholder-elected directors and Co-operative counselors. I'd like to call on Glenn Holmes, Chair of the Directors' Remuneration Committee, to propose the motion concerning remuneration of shareholder-elected directors and to speak to it. Once it has been seconded, I will then open the motion for discussion.

Thank you, Peter. [ Kiyora ], good morning, shareholders from Fonterra. As the Chair of this committee. I make the following comments. We'll get straight to it. In 2021, the Directors' Remuneration Committee reviewed remuneration practices in New Zealand and Australia. The committee noted that director remuneration had not been increased since 2017. That's the Fonterra director remuneration. The committee considered, whether current remuneration levels were appropriate, given the substantial director workload, to ensure highly-skilled directors were attracted to and retained on the Board. The committee noted that a number of companies paid different fee amounts to chairs of Board committees to remunerate for differing workload expectations. Furthermore, directors were remunerated for membership Board committees. It was noted and acknowledged that workloads varied between Fonterra Board committees, and this was increased by the level of stakeholder engagement. The current example is the Fonterra's capital structure consultation. The committee discussed the discretionary fund. It was determined that an increase in the discretionary fund was preferable to the implementation of committee membership fees. Consequently, the committee recommends that the discretionary fund be increased by $75,000, to $150,000. Given that the last increase to director remuneration, had been in 2017, and the committee's responsibility is to keep remuneration at a level that attracts high-quality governance, it was determined that a larger, one-off adjustment was appropriate at this time. The committee noted that smaller annual incremental increases would be the committee's approach, going forward, subject, of course, to any unique events, which occur from time to time and has been Fonterra's experience recently. Consequently, the committee recommends that the shareholders approve the remuneration of the Chairman at $455,000 per annum and each shareholder-elected director at $185,000 per annum. Accordingly, I move resolution 1.

Thanks, Glenn. I understand that [ Stephen Silcock ] will second the motion.

Thank you, Mr. Chairman. I have pleasure in seconding the motion and fully supported and recommended to shareholders. Thank you.

Thanks, Stephen. I'll now open the resolution for discussion. We will first go to questions in the room and then take questions from online. Do we have any questions in the room. No? Charles, do we have any questions online?

No, Mr. Chairman.

Okay. This is an ordinary resolution, requires 50% support. I'll now put Resolution 1, which has been moved and seconded. For those here in the room, I ask you to complete your voting paper by placing a tick in the appropriate box for Resolution 1. Please place to tick in the for or against box alongside Resolution 1 to indicate your vote. For those online, please vote by clicking on the 'Click Here to Vote' button in the top menu bar, which will take you to the elections voting page. If you have any difficulties, please raise your hand and someone will assist you, or click on the Help button in the online meeting platform. [Voting]

Now we move to Resolution 2. I would like to ask Glenn Holmes to move Resolution 2 and to address the meeting on the recommendations for the Co-operative counselors' remuneration.

Thank you, Peter. The committee considers that the council has representative role to be an important one for the Co-operative and that the level of honoraria needs to be sufficient to attract and recognize shareholders of a high caliber, serving in that capacity. The committee noted the 2020 review of the Co-operative Council and in particular the recommendation regarding the remuneration of the Council Chair. Given that the last increase to Council remuneration had been in 2017, the committee determined that a larger, one-off adjustment was appropriate, particularly for the Chair. The committee's recommendation to shareholders, in relation to the remuneration of counselors, is $110,000 per annum for the Chair and $37,500 per annum for each counselor. The committee reviewed the allocations made from the discretionary pool in the prior year and was comfortable that the pool was utilized in a reasonable manner. No change has been recommended for the discretionary fund of $100,000 per annum. Accordingly, Mr. Chairman, I move the resolution 2.

Thanks, Glenn. I will now call on Stephen Silcock to second the resolution.

Resolution fully recommended. Thank you.

Thanks, Stephen. Thank you. I now open the resolution for discussion. We will first go to questions in the room and then take any questions online. Do we have any questions in the room or comments? No? Charles, do we have any online?

No, Peter.

Okay. Thank you. This is an ordinary resolution, requires 50% support. I will now put Resolution 2, which has been moved and seconded. Please place a tick in the appropriate box on your voting papers, will complete your voting online. Again, if you have any difficulties, please raise your hand for assistance or click on the Help button. [Voting]

We will now move to Resolution 3.

Thanks, Peter.

I would like to ask John Nicholls to move Resolution 3 and to briefly address the meeting on the recommendations for remuneration of the Directors' Remuneration Committee.

Thank you, Peter. The Board met to consider and recommend to shareholders the form and amount of the remuneration to be paid to the members of the Directors of the Remuneration Committee. The Board noted that the Directors' Remuneration Committee members' honorarium hasn't been increased since 2017. The Board recommends that the remuneration for the Chairman be increased to $2,500 per annum and the remuneration for the committee members be increased to $1,500 per annum. Accordingly, I move Resolution 3.

Thanks, John. I will now call on Andy Macfarlane to second the motion.

Thanks, Peter. I'll second the motion and fully support it.

Thanks, Andy. I'll now open the resolution for discussion. We'll first go to questions in the room and then take questions online. Do we have any questions or comments in the room? No? Charles, do we have anything online?

No, Peter.

Thank you. This is an ordinary resolution, requires 50% support. I now put Resolution 3 and ask you to complete your voting by placing a tick in the appropriate box on your voting papers or by voting online. [Voting]

We'll now move to Resolution 4. I'll ask Donna Smit to move Resolution 4, the resolution regarding the appointment of the auditor. Prior to this, however, it is appropriate to invite Bruce Hassall to speak to the motion. Bruce is an independent appointed director and does not have a shareholding entity -- and sorry, entitling him to move or vote on the resolution. But in his role as a Chair of the Audit and Finance Committee, it is appropriate that he comments on the auditor.

Thanks, Peter. The company's act required Fonterra to appoint an auditor. Section 207S provides fees and expenses of an auditor, appointed at an Annual General Meeting, can be fixed in a manner, determined at that meeting. KPMG has audited Fonterra's financial statements for the year ended 31 July 2021. The Board recommended that KPMG be appointed as auditor for the coming year. The Board also recommended that shareholders authorize the Board to fix the auditor's remuneration. As I'm not a shareholder, Donna Smit will move the resolution.

Thanks, Bruce. I'll now ask Donna to move Resolution 4.

Thank you, Peter, and Bruce. I now move Resolution 4.

Thanks, Donna. I'll now call on John Nicholls to second the motion.

Mr. Chairman, I second motion and fully support it.

Thanks, John. I'll now open Resolution 4 for discussion. We'll first go to questions in the room and then take questions from online. Do we have any questions or comments in the room? Tim here? Microphone 3, Kristen?

My question is, just whether you have a policy to change auditors, say, every 5 or 10 years, just as an additional risk mitigation. Thank you.

Bruce, can I hand back to you to make a comment, please?

Sure. So KPMG have been the appointed auditor, just finished the second year. So they've only been in the role 2 years. There's a requirement that they change their auditor, every 5 years. And on an ongoing basis, we will follow the requirements in that respect. So we're very comfortable with KPMG that they are very early in their days, in relation to being the auditor.

Thanks, Bruce. Any other questions in the room? Is there any online, Charles?

No, Peter.

Okay. This is an ordinary resolution, requires 50% support. I will now put Resolution 4 and ask you to complete your voting. [Voting]

Now we move on to Resolution 5. Resolution 5 seeks ratification of Clinton Dines' reappointment as a Board-appointed director. I would now like to call on Leonie Guiney to move Resolution 5.

Yes. And good afternoon, everyone. It's my pleasure to speak to Clinton's reappointment as an independent-appointed director. Clinton was first appointed to the Fonterra Board in 2015. He has extensive experience as a senior executive in China and Asia businesses, including global manufacturing and commodity businesses. Clinton lived and worked in China for 36 years, 21 of which were as President of BHP Billington, China business. He's also had an active career as a nonexecutive director. He's currently serving on the boards of the Port of Newcastle, Sky Renewables Limited and Zanaga Iron Ore Company Limited. Clinton is a partner in Moreton Bay Partners, an adjunct professor at Griffith Universities Asia Institute and a member of the Griffith University Council. So over the last 6 years, Clinton has made a valuable contribution to the Board, including as a member of the Appointments and Remunerations Committee, the Safety and Risk Committee and the Co-operative Relations Committee. His extensive experience and international perspective is an asset for our Co-op. Clinton's independent style of thinking is actually effective in our board because it's valued. So accordingly, I move Resolution 5.

Thanks, Leonie. I would now like to call on Donna Smit to second the motion.

Thank you, Peter. I second the motion and fully support it.

Thank you, Donna. I will now invite Clinton to make a brief comment.

Good morning, everybody. Thank you very much, Peter. I'm very appreciative of being renominated again to serve another term. I enjoyed my time with Ontario. It's been something of an adventure, in some respects. But it's been a pleasure and a privilege, both to work with what I find is to be a very robust Board and Board process. And through that process, we've been able to deal with a lot of challenges and also move ourselves to a point, where we're in a very, very strong position at the moment. I also commend the Management Group, led by Miles over the last few years, of moving the organization from where we were facing distinctive challenges to where we've got robustness, momentum and direction through the [ LTA ] and best characterized by the fact that we've dealt so well with the challenges of the last few years -- the last couple of years in COVID. But as I said, I'm appreciative of the Board's confidence in us, asking me to stay on, and I look forward to serving. Thank you.

Thanks, Clinton. I now open the resolution for discussion. We'll first go to questions in the room and then take questions online. Do we have any questions in the room? Charles, do we have any questions online?

No, Peter.

Thank you. This ordinary resolution requires 50% support. I'll now put Resolution 5 and ask you to complete your voting. [Voting]

Resolution 6 relates to the milk price panel-related amendments to the constitution. I'd now like to call on Cathy Quinn to move Resolution 6.

Thanks, Peter. The 2020 Act that amended DIRA, requires Fonterra to appoint one member of the milk price panel, who is nominated by the responsible minister under DIRA, currently the Minister of Agriculture. Fonterra's constitution and the Ontario shareholder market rules, sit at certain requirements, applying to the panel, including its size, member composition and the independence of its members. The Minister's nominee must be independent for the purposes of DIRA. Currently, the panel has 5 members, with 3 members appointed by the Fonterra Board. of which 2 are independent and 2 members appointed by the Co-operative Council, of which 1 is independent. The Board recommends that the constitution is increased to increase the size of the panel to 6 members, to accommodate the Minister of Agriculture's nominee as an additional member to the panel, so that the number of panel positions, held by Fonterra directors and council members, remain unchanged. As the proposed amendment were also Part A of the constitution, the approval of the amendment by a majority of 50% or more of members of the council, was required and was received on 7 October. If resolution 6 is passed, the constitution will be amended, as set out in the notice of meeting. Only upon the FSM rules being amended to be consistent with this change. Fonterra has requested this change to the FSM rules. If Resolution 6 is not passed, then the recommended changes will not take effect. As this requirement is a mandated under DIRA, voting against resolution 6 will not [ repent ] the Fonterra Board from having to appoint the Minister's nominee to the panel. If resolution 6 is not passed, the Minister's nominee will need to be appointed in place of one of the current independent members of the panel. Accordingly, I move Resolution 6.

Thanks, Cathy. I'll now call on Brent Goldsack to second the motion.

Thanks, Cathy. Thanks, Peter. I fully support and happy to move -- sorry, second.

Thanks, Brent. I'll now open Resolution 6 for discussion. We will first go to questions in the room and then take questions online. Do we have any questions in the room? No? Do we have any online, Charles?

No, Peter.

Thank you. This is a special resolution, requires 75% support. I will now put Resolution 6. Please complete your voting by placing a tick in the appropriate box for resolution 6 or voting online. [Voting]

Resolution 7 relates to the governance and representation review-related amendments to the constitution and the Co-operative Council bylaws. I would now like to call on Andy Macfarlane to move Resolution 7.

Thanks, Peter. In February 21, a joint committee of the Board and Council was established to undertake the 5-year review of the 2016 governance and representation changes. After considerable farmer feedback and consultation with the Board, the Council, the independent-selection panel and the Returning Officer, the committee put forward a number of recommendations. These included the ability for the Council to appoint up to 3 additional councilors with full voting rights, who do not have to be qualified, under the constitution, to be a councilor, if the breadth and diversity across the Co-op is not represented around the Council Table and removal of the current requirement for Council endorsement of restanding councilors. To take effect, these recommendations require changes to the constitution and the bylaws of the Council. Accordingly, I move Resolution 7.

Thanks, Andy. I'll now call on Michelle Pye, who chair the committee, to second the motion.

Thank you, Mr. Chairman. I second the motion and fully support it.

Thanks, Michelle. I now open Resolution 7 for discussion. We will first go to questions in the room and then take questions online. Do we have any questions in the room, comments? No. Do we have any online, Charles?

No, Peter.

Thank you. This is a special resolution, requires 75% support. I will now put Resolution 7. Please complete your voting by placing a tick in the appropriate box or by voting online. [Voting]

Resolution 8 relates to the approval of the 2020 review of council-related amendments to the constitution and the Co-operative Council bylaws. I would now like to call on Mike Montgomerie, a member of the Review Committee, to move Resolution 8.

Thank you, Mr. Chairman. The review of council, conducted in 2020, made 27 recommendations to improve the effectiveness of our council. Those recommendations amount to a significant reset of council. While many of those recommendations can and already have been implemented without the need for amendment to our company's constitution, the review concluded that Council should seek shareholder approval for amendments to Clause 16 of the constitution to embed the changes, contained in those recommendations. In summary, the proposed amendments to Clause 16, provide, for the first time, a role definition for Council. They update, clarify and sharpen the functions of Council, which are grouped around core themes of connection, accountability and guardianship. Finally, the amendments update the powers of Council. Council has unanimously supported the proposed amendments to Clause 16 of the constitution. The Board have reviewed the proposed changes and recommend that shareholders vote to support them. Accordingly, I move Resolution 8.

Thanks, Mike. I'll now call on Robert Ervine to second the motion.

Thank you, Mr. Chairman. I second the motion and fully support it.

Thanks, Robert. I'll now open Resolution 8 for discussion. We will first go to questions in the room and then take questions from online. Do we have any questions in the room? No? Do we have any online, Charles?

No, Peter.

This is a special resolution, requires 75% support. I will now put Resolution 8. Please complete your voting by placing a tick in the appropriate box or by voting online. [Voting]

Thanks, Mike. James Barron will now present the Council of Chairman's report and then propose Resolution 9, which relates to the approval of the Co-operative Council Program in budget. As James makes his way to the stage, I would like to acknowledge and thank the Co-operative councilors, who retired today, Luke Beehre, Dean Adams, Noel Caskey, Robert Ervine, Sue Brown, Michelle Pye and Simon Hopcroft. Thanks for your great contribution, guys, and it's really appreciated. Welcome, James.

Thank you, Peter. My speech says good afternoon, but we're making good time through the meeting. So good morning, and greetings to you all. It's great to be here with all of you that were able to travel, and I'd like to acknowledge all of those attending virtually via the online streaming. Today, I'll speak to 4 matters, as required by the constitution. First, Council's view on the Co-operative's performance and achievements for the 2021 financial year. Then I'll report on council's activities during that period. I will present the Milk Commissioner's report for FY '21. And finally, I will present Council's work program and budget for FY '22 for your approval. Starting then with performance. It's now been 3 years since the strategy reset of 2019. which saw a significant shift in direction for our Co-op. This year's financial results were largely in line with the 3-year targets, we were told to expect, back in 2019. These results show that our Co-op can deliver healthy earnings and a strong milk price, while meeting both short- and medium-term targets. They've also demonstrated Management's ability to use our Co-op's scale and diversification and to be agile by shifting milk into the markets and products that were the most profitable in a very challenging global environment. Debt was significantly reduced and is now about $2.4 billion lower than 3 years ago. That result shows that the Co-op is now more resilient than in the past and is clearly focused on supporting our farming businesses through both milk price and earnings. There is, however, more work to do on return on capital, and we look forward to tracking progress towards the forecast out to 2030, as set out in the long-term aspirations, released in September. I'd now like to acknowledge the efforts of Miles and your global team, here and around the world. It's been a trying year, especially for those offshore, who, in many cases, have had to endure long lockdowns with greater restrictions than we've had here in New Zealand. So thank you. Turning now to the Board's achievements for 2021. The performance targets set by the Board for FY '21, along with those for the current year, are set out in the statement of intentions, which you'll find in Council's annual report. That report was e-mailed to you last month, and copies of it are available here today. Please help yourself to one, if you haven't already. Nine of the Board's 14 targets were achieved. In terms of those targets not met, as was the case for the previous financial year, 3 of the 4 people targets were not met. Those targets related to injury rates, female representation and senior leadership and employee engagement. And whilst there were various initiatives during the year, which sought to improve performance in relation to employees, clearly, there is more work to do. One environmental target was not met, relating to the reduction of water usage at sites and water-constrained regions. To address this, we've been advised that during FY '21, a range of improvements have been made, which are expected to deliver good water-reduction savings during FY '22. Pleasingly, only 1 of the 6 business targets was not met. This was the share of New Zealand milk collections. Fonterra's supply share fell by 1%, from 80 to 79. Management and Board have told us that they're confident that some of the key factors influencing this, will be addressed by the flexible shareholding structure, which we'll be considering, shortly, at the special meeting. Relating to the targets that were met, a standout, from Council's perspective, has been the $872 million reduction in debt. This has allowed Fonterra to not only meet but overshoot the target set for both gearing ratio and debt to earnings. So well done. Turning now to Council's activities during the last financial year. These are summarized, in some detail, in Council's annual report. Today, I'd like to highlight a few of Council's key work streams. The first was our focus on implementing the 27 recommendations from the review of Council, which was completed in 2020. This has resulted in a significant reset for Council. We've developed a robust understanding of your views and expectations through survey and consultation. We have communicated these clearly to the Board in the first annual letter of members' expectations. And looking forward, this letter will be a resource that the Board can consider in its decision-making. We'll be reviewing and refreshing that letter next year, following further consultation with you. Secondly, we've shifted our focus from monitoring and analyzing performance to delivering accountability. This has been implemented through a new approach to publicly questioning the Board. And finally, in relation to the Council reset, we're engaging with all members of our Co-operative in a more structured way, in particular through our quarterly updates, which is sent to you all via e-mail and through twice-yearly meetings and your awards. I encourage you to connect with Council through these channels. Since May, the capital structure review has also been a key area of focus for Council. We've actively and regularly engaged with our fellow farmers, the Board and Management. All the information provided by the Board and Management, was carefully and thoroughly considered. We engaged independent advisers. We've discussed and debated. We communicated your feedback to the Board and Management and our own views to you. And ultimately, as required by the constitution, we voted, as your Council, on whether to support the proposed changes to the constitution. During the year, we also submitted to the Climate Change Commission. And alongside the Board, completed the 5-year review of the 2016 Governance and Representation Framework changes. In addition, there were our usual work streams: gathering and reporting your feedback to the Board, meeting with the Board to question the Co-op's performance, consulting with Management on relevant matters, considering changes made to Board charters and the milk price menu, running the understanding of your Co-operative program, managing the Director elections process and providing a farmer perspective at meetings of the Board's Co-operative Relations Committee. Moving now to the Milk Commissioner's report. [ Marian Redditch ] was reappointed as the Milk Commissioner in 2020. Her report is published in Council's annual report. No complaints were referred to her during the 2021 financial year. Before we move on to the Council's work program and budget for the 2022 financial year, I'd just like to make a few comments, relating to this year's election. It was really pleasing to see the very high level of participation and the elections for our Board of Directors, our Remuneration Committee -- the Directors of Remuneration Committee and the Co-operative Council. Thanks to all of you, who voted, and in doing so, exercising your rights and responsibilities as shareholders of this Co-operative. Congratulations to Peter, Leonie and John on your reelection to the Board. And council welcomes [ Peter Gisbers ], Greg Collins, [ Megan Kushnehan ], Mark Krissy and Kevin Dickson to council. Council acknowledges the reelection of incumbent counselors Mike Montgomerie, Don Hammond and Mark Slee, and thanks retiring counselors Luke Berry, Dean Adams, Noel Caskey, Robert Ervine, Sue Brown, Michelle Pye and Simon Hopcroft. I've enjoyed working with you all, and the Co-op has greatly benefited from your effort and commitment. On behalf of your fellow shareholders, please accept my sincere appreciation to both you and your families for your contributions over many years. I'd also like to acknowledge the retirement of David Gascoin from the Directors' Remuneration Committee. David has served on that committee since 2012, and I'd like to thank him for his contribution and leadership, in doing so. And we welcome [ Richard Stalker ] to the Directors' Remuneration Committee. I'll close by thanking you all for your continuing support of our Co-operative. And as it says in our purpose statement, "you, me, us, together", [Foreign Language]. Thank you. I'd now like to speak to Resolution 9, which is to approve the Co-operative Council's program and budget for the financial year ending 31 July 2022. In the notice of meeting, you can read the work program and budget in detail. This year, council is seeking shareholder approval for a budget of $2.422 million for Council operating costs and $792,000 for other costs, contributed to or met by Council, giving a combined total of $3.214 million. Based on 2021 milk volumes, this equates to $0.002 per kilogram of milk solids supplied, and council is very respectful of the funding provided by farmers. Our work program is designed to deliver our constitutional responsibilities and to meet farmers' expectations. We're focused on managing our costs while being realistic about what's needed to deliver the constitutionally-prescribed work program. This budget will enable Council to deliver the work program, outlined in the notice of meeting. Accordingly, I move Resolution 9.

Thanks, James. I'll now call on Noel Caskey to second the motion.

Thank you, Mr. Chairman. I second the motion and totally support it. Thank you.

Thanks, Noel. I now open Resolution 9 for discussion. We will first go to questions in the room and then take questions online. Do we have any questions or comments on the room? No? Charles, do we have any online?

No, Peter.

Thank you. Thanks, James. This ordinary resolution requires 50% support. I will now put Resolution 9. Please complete your voting by placing a tick in the appropriate box by voting online. Thanks again, James. [Voting]

Voting has now closed. For those here in the room, voting papers will now be collected. Thanks, . Hope that box is big enough. If anyone's going to need any papers or need any help, just raise your hand. Thank you.

All right. Thank you. At this point, we would like to provide an opportunity for shareholders to ask questions or discuss or comment on any of our earlier presentations, the management of the company or raise any items of general business. A reminder to please also hold any capital structure questions you have for the special meeting later today. I now open the meeting for items of general business. We will first go to those questions and comments in the room, and then we will take those from online. I'll invite Miles to join me on the podium in Auckland. Thanks, Miles. So any questions of any nature in the room? Microphone 2, take that one. Richard, thank you.

[ Richard Stalker ]. Thank you for processing our mill, picking it up, packaging it, keeping the factories going during COVID and achieving a really good price for it. And that is the why we're here, and we thank the Board and Management for enabling us to do that. There's a few things I'd like to discuss as a couple of points. And again, I always like to see continuous improvement. And it is the nature of what we do, it's the nature of what we do on farm, and it's great to see that continuous improvement within Fonterra. One thing and just speaking to one of the slides that was put out before, is we've made great progress in the amount of milk that is made, right, first time. And we've also made great progress on the milk that has been effectively dumped, I presume. But I see, we've gone from $100 million, back in 2017, of cost of quality, and then we have reduced that greatly, to $58 million. But is that still $58 million that is on the table, that we can continue to improve? And if it is $58 million of losses there, what is the benchmark? Is it 98% that we're looking for? So great work on the progress, and I suppose what I'm looking for here, as the first part of my question, is what are the targets, please?

Thanks, Richard. They are internationally benchmarked. And Miles, I'll ask Miles to comment on that.

Yes. Thanks, Peter. Thanks for the question, Richard. To this, yes, they are internationally benchmarked to ensure we're meeting global standards or, in fact, exceeding global standards. And the numbers you have seen or that you saw in front of you, are exactly that. Probably a point of clarification, you talked about milk that's dumped. The $100 million in 2017, down to $58 million now. That is assuming that the milk does get downgraded but not necessarily dumped. At the worst case, it would. But most of the time, it's out of our original specification that we tried to make. So we may make a high-grade infant formula specification, and it's out on 1 or 2 attributes. It doesn't mean it gets dumped. It gets put into an application that is no longer for that purpose. So we class that as not meeting right, first time, but it certainly doesn't mean it is dumped. As I say, in the worst case, it would. But that is very, very rare and an opportunity, where we have global markets, different channels, different categories in which we sell into, that again highlights the benefit of the Co-operative. I guess, the last point of your question is room for improvement. Always room for improvement. This is an area, though, however, we get to a point of diminishing returns. And it needs a step change, and I think technology may be the opportunity for us to go even further into the future, starting to use advanced analytics and machine learning to really understand the next level of improvement that we'll see, but that's part of our longer-term plan.

Thanks, Miles. Do you have another comment, Richard?

Thank you, Miles, that was well answered. Thank you. I do like the fact that there is room for improvement, and it may require capital investment and that's, I am sure, that's in hand with the Board. Can I ask another question or leave it to someone else?

I might let you sit down and allow someone else to ask question. But if we've got time, I'll come back to you, Richard. Number 3 down here, Gerard.

Thank you, Peter. It's Gerard from the Bay of Plenty. This will be, probably, the 19th AGM that I've attended to go and raise this matter with the Board and with Management. I will say that this year, I think, I've seen a very small gem of opportunity and change in attitude. Just to highlight to the rest of the community, I have always referred to this issue as lactose. And this year, I'd like to go and make it far more simpler. It's going to be solids, not fat, not protein. And this is a very important definition because this model has been around since 1980. It's been relatively unchanged. In 1999, the [ Codex Alimentarius ], that says how we make milk powder, put in a definition as to how we make milk powder. And it basically says that milk powder is comprised of fat and solids, not fat. And solids, not fat, shall be 34% protein, on an anhydrous basis. And what that simply means is that if we produce milk powder, be it skimmed powder. Solids, not fat, will always have 34% protein in it. And we loosely used the term protein to refer to solids, not fat. And it is very frustrating that when we go to our community, there are some people that are producing more solids, not fat, not protein, than others. Yet, the way that we set up our cost models and the way we set up our payment structures, it's considered that it is the same. If we go to the milk price statement, we can see that since 2007 to 2021, we've seen the requirement for lactose, in the model, go from 202 kilograms per tonne of milk solids to 240 kilograms, and there is no mechanism in our payment model that's going to stop that trend from continuing. And I do feel that there is an opportunity here for Fonterra to recognize that there is a difference in the value of the protein that's being presented by certain members and other members. So I'm looking forward to some constructive dialogue, this year, and I really want to make clear that when we use the term protein, we mean solids, not fat. And once we understand that it's not protein, as in the stuff that's got nitrogen in it, I think we'll have a clearer understanding as to how we should better value our milk.

Thanks, Gerard. On milk matters, I'd normally refer Brent Goldsack, but we might be here all day. So instead of doing that, I'll ask the Chairman of the Co-op Relations Committee, Andy Macfarlane, to make a comment.

Thanks, Gerard. Gerard, point noted. The [ CRC ] has a program of work, which is looking at all milk components, and that will come up next year, and we're also looking to bring in some independent advice on that or some independent thinking. So it's part of the work stream for next year components, as a whole, including that. Thanks.

Thanks, Gerard. Is there any other questions in the room? Yes, down here. Can we come down here, please? Microphone 3. Thank you.

Yes. Thanks, Peter. First of all, my compliments for the performance of last year. That's a given, so thanks. Just a very short comment, really. My legacy to the Co-op is probably best described in two words, being "broken dreams", and I've still got one dream left. And that's -- I wasn't here at the beginning, so I don't know what happened exactly. But over the last meetings that I've attended, often, the words maximizing value, were used for describing the purpose of the Co-op. And I've often argued that the purpose of the Co-op is minimizing risks. So I don't know whether you've used the words "minimizing risks" this morning. But if not, I would very much like you to do that next time. Thank you.

Thanks, [ Jan ]. There's another question over here. Thank you. Bill.

Thanks, Peter. Supply #34919. The bell's ringing. I was going to [indiscernible] to put that bell. just wanted to jump over to my seat there, a while ago, when James Barron was talking because I have two problems, and I have two dogs. Brent, you know what I'm talking about. It's the Shareholders' Council and farm source. But James, you made the comment about -- and your praise and the Board on the debt, dropping the debt about $880 million. But the problem that I say, is that we've sold a lot of stuff to get that $880 million. So I'd like somebody to make a comment there, please. And I just wonder, are we just getting too carried away and being smart here, about the debt? We've done a lot of work, and we've sold a lot of stuff, but I don't think we need to get too carried away. The Shareholders' Council, it doesn't cost us a lot of money. It's only $3.1 million to run, but I just wonder, how effective is the Shareholders' Council? James, I think you need to talk to us and talk also about the relationship that you've got with the Board. Because in the past, you didn't have a great relationship, but now I think things have punned. And I'd like you to make a comment, please. I'm only allowed one question, so the bell must be nearly ready to go.

Thanks, Bill. Miles, I'll come back to you and just ask you to reflect on the comments, in relation to debt and where we're heading.

Sorry, Yes, sorry, you said you'd come back. So the question you've raised or the comment, Bill, is around reduction of debt and has it been by selling off assets. That certainly has contributed, but it goes back to, firstly, the reset in 2017, where we've decided where we're going to play and how we're going to play. And that was very clear to exit some of those businesses that either we had held on for, probably, a bit too long or all those that were not going to be on strategy, going forward, and probably the most important one in that, in the last 12 months for us, was to exit those China farms. So the sale of those -- of the 7 wholly-owned farms, which was concluded. Clearly, they were off the strategy, where we're heading. We've talked about the impact on the P&L that we had over the last few years. But I wouldn't see the sales -- sorry, the reduction in debt, solely on the back of that. I mean, we did have a good financial performance. We've also been financially disciplined around our capital expenditure. All of those things contribute to a reduction in debt. And so having a strong balance sheet allows us to lift our horizons, look further ahead, which is why we feel confident in putting out our 2030 strategy around we will play, going forward.

Thanks, Miles. James, I'll ask you to respond briefly, but I just want to make a comment first. I think, the Council do play a really important role in the life of the Co-op. And I went through a council review, where I found, at times, there are some unjustified criticism placed at the Council, which was really the responsibility of the Board and the performance of the company. So we just got to bear that on mind. So I'll ask James to comment.

Yes. Thanks, Peter. And thanks for the opportunity to comment on it, it's a really important topic. And I guess, I've got three points. And I value your comments, Peter, because I think if you're asking for a clear perspective on the value of Council, there's two groups you should ask. One is the farmer base and the second is the Board, being the main people or the main groups that we interact with. The first point I'll make, is around role clarity. And through the review of Council, we've managed to get much greater role clarity amongst -- or between, sorry, Management and the Board and Council, okay? So in 2001, when Fonterra and the Council was formed, Council was seen as the appropriate conduit for information out from the Board, okay? So council was actually tasked in the working-interface document, with building farmers' understanding of the strategy and of board decisions. Now, I think, over time, what we've observed is that, that's created some confusion in the farmer base, win hearing communications from the Council, and it's been very difficult for some farmers to differentiate, when we're trying to help build your understanding about what the Board is deciding or when we're trying to understand your views to communicate that back to the Board. So one of the outcomes of the review, was that we will [ stop ] communicating for the Board, and the Board will build your understanding of the strategy and their decisions, directly. So moving forward, that should bring much greater clarity. And as a council, we're strongly focused on understanding your views, your concerns and also your expectations and outlining those to the Board. So that's a strong focus for the council. Your question, particularly related to Board-Council relationship, and so there's been two key work streams over the year, over this past year, where Council and Board have worked alongside each other. One has been the review -- the 5-year review of the 2016 Governance and Representation Framework. And that work was done constructively together, through a joint committee, but it was also done very thoroughly, with plenty of debate around the table. The second, really, key work stream, where we've worked together, has been the capital structure, okay? And so when that -- when the consultation began in May and when the proposal was first announced, Council spend a lot of time, not only understanding the proposal but challenging the Board on whether it was actually required, the case for change. And so those were very deep discussions and, at times, pretty challenging, and we've worked through that. And from September to now, we've been working really closely on the detail and the proposed changes to the constitution. And I think the Board will acknowledge that Council has provided real challenge there and real rigor across such an important decision for our Co-operative. So hopefully, that's given you some feedback on your question.

Thanks, James. Let's make a few comments. I've heard you said around the Co-op that the relationship between Council and Board should be confrontational. I don't buy into the other thing. That's c***, to be blunt. I think the relationship should be based on mutual respect and constructive challenge. I think we've seen that change, James, in the last few years. So I think, one of the dangers, when you roll mine, in particular as a Board, is that you seek to control council, and I think that's wrong. So nothing has been progress made. I think, we've still got more work to do. James commented on the capital structure, I want to commend Council because they raised their issues. There may have been overlooked issues of detail, things that go right to the heart of the Co-operative. So I just want to say, thanks and commend you guys. All right. Do we have any more questions in the room? Number 2, Richard.

Thanks, Peter, for the second question. The -- I'd like to commend the Council for what they've done with their report, and I thought that was an excellent report. And the question that I've got, is just to reinforce what James said about return on capital. And to me, that is one metric we want to need to focus on, that set. And why? Basically, because if we don't, it makes it easier for competitors come in and regardless of capital structure. So great for having the capital structure debate. And well done. Fantastic. But at least, our return on capital equals those of our competitors. They will continue to set up, and they can then afford to pay more for their milk, if they -- for our milk, if they ever had to. So I really don't know, you're big on this. I know, it's in the strategy at 2030. I know, it's high on the list. But 2030 is a long way away to get to 10% return on capital. And my -- from an -- from not knowing the inside works of the business, I'd say harder and faster, quicker because -- otherwise, we continue to open the door to competitors.

Yes.

That's all.

Thanks for your comments, Richard. You make a good point, and I think the key point is, you can't structure your way out of nonperformance or restructure yourself around nonperformance. So it's a given. Performance is critical, no matter what, so we're not shying away from that. I think, to putting out a 10-year road map and a clear plan, gives you guys the ability to measure our performance against those targets. But also, from a management perspective, it requires you to put the building blocks in place to actually achieve those objectives, so it's quite compelling. I think it's quite powerful, particularly in a co-operative. Okay. Any other questions? Are there any online, Charles?

Not at this stage.

I was hoping, there would be one for you.

Same here.

Are there any more questions in the room? Thanks, . If there are no further matters for discussion, we will now bring to a close, the general business part of the meeting. Before I close the meeting, I would like to acknowledge the recent Fonterra Director election results. On Tuesday, it was announced that Leonie, John and myself had been reelected to the Fonterra Board. On behalf of all three of us, I'd like to thank you for your continued support. I would like to thank you all for attending the annual meeting and invite you to join us for the special meeting, which we'll be commencing at 1 p.m. I invite those people in the room to join us for lunch in the hosting area behind the meeting place. The good thing about a short meeting is, you get to have a long lunch. We will share the results of the votes as soon as possible. That concludes the business of the annual meeting of Fonterra. Thank you very much.