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

Good morning, everyone. Thanks for being here today. I'm just going to hand over to Mitch to say a few words.

Thanks, Peter. [Foreign Language] Greetings to you all. Look, before I hand over to Peter for an official welcome, I'll quickly touch on our health and safety emergency procedures before opening our AGM today with the Fonterra [Foreign Language]. In the unlikely event of an emergency, a siren will sound continuously. This curtain over here to my left, your right, will open. I'd ask that we all assemble out there as quickly as possible in the garden area. If the emergency is an earthquake, don't attempt to leave the building until the shaking has stopped, keep away from the glass and shelter under doorways and tables, although I don't see any tables in here. So maybe a run that way. If you are the closest person to a call point, I think that's all taken care of. But if you do find yourself near a small red box, and it isn't an emergency, please hit it as quickly as possible. And our toilets are located out on the corridor as you come through the reception area, including the accessible toilets as well. So on that note, look, I'll kick us off with the Fonterra [Foreign Language].

Thanks, Mitch. [Foreign Language] Good morning, everyone. My name is Peter McBride, Chair of the Board of Fonterra Co-operative Group Limited. I'm pleased to welcome you to the 2024 Annual Meeting of Shareholders of Fonterra. Thanks for your attendance here today in New Plymouth and online. I now declare the meeting open. The Notice of Meeting was sent to all shareholders listed on the share register as at 16 October 2024 and will be taken as read. Not less than 50 shareholders who between them hold not less than 2% of voting rights have cast postal votes either by mail or electronically or are present in-person or online. This means we have the requisite quorum. The agenda for the meeting was set out in the Notice of Meeting booklet. Shortly, I will present the Chairman's review. Our Chief Executive, Miles Hurrell, will then address shareholders. We'll then open the meeting for questions and answers on the year-end review and our presentations. We'll then move to the 6 ordinary resolutions and 2 special resolutions. The Co-operative Council review will be presented by Council Chair, John Stevenson, before putting the resolutions relating to the council bylaws and the council program and budget. We'll then collect the voting papers and open the meeting to general business. We expect to finish around 1:00 p.m., and I invite those in the room to stay and join us for lunch. I'd like to introduce my fellow directors and senior management from my far left: directors, Bruce Hassall; Andy Macfarlane; Holly Kramer; Brent Goldsack; and Leonie Guiney; and our Director of Governance, Risk and Audit, Anya Wicks. From my far right: this isn't left or right of the house, but directors, Alistair Field; Alison Watters; John Nicholls; Cathy Quinn; and Clinton Dines; and our CEO, Miles Hurrell. We also have other members of Miles' management team here today, Andrew Murray, our Chief Financial Officer; Mike Cronin, Managing Director of Co-operative Affairs. I'd like to acknowledge the Co-operative Council Chair, John Stevenson, and the members of the Co-operative Council who have joined us today. I'd also like to welcome Mary Jane Daly, the Chair of the Fonterra Shareholders' Fund, and representatives from our auditors. We have also invited members of the media who are in attendance today. In a moment, I will ask Miles to take a short -- us through a short summary of our financial performance. I know many of you will also be keen to hear his comments on our strategy refresh and the intended divestment of consumer. Before we hear from Miles, I thought it would be informative to talk you through a couple of key insights that the Board considers important in the development of strategy. These form the background of the conversations we have as a leadership team when we consider our options, including the decision to divest our wider consumer business. The first insight is our global operating context, which continues to change. And the second is risk, how we manage risk on your behalf and the way we treat your capital. We are always -- we are and always will be a New Zealand farmer-owned Co-op, but we are also a global export business. When considering our strategy, we need to challenge ourselves to look beyond the back fence and past the here and now. The world is changing. We are moving out of an era of trade liberalization and cooperation and into a world that is more expensive, competitive and volatile. Expectations are evolving and New Zealand milk is becoming scarce. Customers are increasingly calling on us to partner with them to improve their sustainability and innovation capabilities. And there's even more focus on sustainability from banks, regulators and from a market access perspective. The cost of capital has increased in many industries, including agriculture and our bankers face higher capital requirements. In this new global context, Fonterra also faces increasing competition for both milk and capital here at home. That all sounds inherently negative, and it's certainly not without risk. But the opportunity for us still absolutely exists. Demand for dairy continues to grow and in a rapidly changing world, we are uniquely positioned to capitalize on any shifts. We have high-quality New Zealand milk, which is becoming more scarce. And most critically, we have scale. That gives us great confidence in the future of our Co-op success will come by focusing on our comparative advantages, simplifying the business to meet that and then aligning our people to achieve that singular vision. The second insight we consider is risk. Fonterra is an extension of your farming businesses. It exists to provide certainty and manage risk on your behalf, while also maximizing returns via a competitive and sustainable milk price, and a respectable return on the capital you invest in the Co-op. We govern Fonterra through a set of financial settings and a risk appetite that is now more appropriately aligned to that of our farmer owners. As you've seen from our recent financial performance, this approach has served us well in recent years and has set a strong platform for this next phase in Fonterra's evolution. Fonterra adds value for all dairy farmers by creating stability for the industry and derisking the on-farm investment. You and your bank manager know that your milk will be collected and you'll be paid on time each month. Not every industry can say that. We add value through the milk price, delivering a return on the $50 billion invested in on-farm capital, and by generating a return on the $12 billion worth of capital you have invested in your Co-op. The last piece is central to the conversation on our strategy and the divestment of our consumer business. Right now, we estimate the weighted average cost of capital for a dairy farmer is somewhere around 10%. Consumer businesses are inherently more capital-intensive and riskier businesses to operate. You've seen that play out over time in our own operation. Overlay that with the potentially higher geographic risk in the markets where our consumer businesses operate and a respectable return on capital for the consumer business should be something north of 15%. Our consumer business had one of its better years in 2024. But despite that, its return on capital was just 6.8%, up from 3.9% in 2023 and 0.2% in 2022. We cannot justify investing your money into a business that generates returns lower than your opportunity cost of capital, whilst at the same time, exposing you to more risk. We are better off returning that capital to you, reinvesting it into the parts of our business where we have a comparative advantage or a mixture of both. That might seem like a cold message to the many people in the room that have an emotional connection to those brands. We understand that. Those brands and associated assets that go with them do hold a lot of value, but to the right owner. Fonterra as a farmer-owned co-operative and the associated cost of capital that comes with that model is not the natural owner of a consumer business. Having reached that conclusion, our focus from here is on running a process that maximizes value in a way that is in the best long-term interest of farmer shareholders. The evolved Fonterra that remains will be a simplified business focused on our comparative advantages. It will be lower risk, be less capital intensive and achieve an increased return on capital overall. I hope that's a useful insight into the way the Board looks at these strategic choices. Having options is a good thing, and you are right to want more information around these big decisions. Ultimately, this will be a decision for shareholders to make. We will keep you updated as much as possible along the way and then provide you with the details needed to make an informed decision. Miles will give you his perspective shortly, but before we go there, I do need to quickly cover off some other governance matters. Given the heightened uncertainty and volatility I mentioned earlier, the Co-op can be proud of the set of financial results that's put up this year. We did have some tailwinds in terms of favorable price relativities, but the team worked hard to take full advantage of those and our underlying performance has improved significantly through time. The period of relatively consistent performance we are enjoying now is the culmination of a huge amount of hard work put in by everyone across the Co-op over a number of years. To deliver consistently strong financial results within our global context is no easy feat. So it's important to acknowledge that effort led by Miles, his management team and indeed all of the people in Fonterra. In my opinion, the shift in the share price reflects performance and returning confidence farmers have in Fonterra. Over the last 12 months, the share price has increased from $2.18 to $4.93, both of which were post dividend and capital return. You should have seen an announcement last week that we are moving Fonterra Co-operative Group shares into the NZX main Board. I want to reiterate that from a farmer perspective, there are no changes to the way you trade shares or who can buy shares in the Co-op. This is a simple but important cost-saving exercise that we have initiated and is supported by the Co-operative Council. Lastly, I'd like to touch on the Board changes that will come into effect at the conclusion of today's meeting. Last year, just over 88% of farmers of voting farmers, that is, supported the recommendation for the Board size to reduce from 11 down to 9 directors. At the conclusion of the meeting, we will move to a Board comprising 6 farmer-elected directors and 3 appointed independent directors. One of those independent directors is Alistair Field, who we welcomed to the Board earlier this month. Alistair will address the meeting later as part of voting on the resolution confirming his appointment. Today, we also farewell 2 of our long-serving directors, Leonie Guiney and Clinton Dines, who are retiring from the Board having both served 9 years. Thank you, Leonie and Clinton, for your time and energy over so many years. Your contribution to Fonterra has been significant, but in particular, your focus on risk and balance sheet management has been invaluable as we have reset the business. If the measure of a success for a director is leaving the organization in a better shape than you found it, then you have both unquestionably achieved that. Our Co-op is in good health and the sentiment we are receiving from farmers right now is overwhelmingly positive. There will always be small but meaningful things to some farmers that we don't get quite right. But overall, there's a huge amount of positive momentum in the Co-op. Our teams are confident and energized, which is important as we look to lean into increasing competition overseas and back here at home. On that note, Miles, I'll pass over to you. Thanks.

Thank you, Peter, and thank you for those that have traveled to be here in the room in-person and also those that are online. Today, I'll cover the Co-op's performance for F '24 and then our plans for the year ahead as we implement our revised strategy. Looking first at our F '24 annual results. I'm proud to say that Co-op had a strong year and maintained the positive momentum we saw in F '23. We delivered earnings of $1.6 billion, which was driven by strong performance across all 3 of our sales channels. Our Foodservice margins improved, and we allocated more milk to this high-performing channel. Our Consumer business also had improved margins and lowered operating expenses also. While our Ingredients earnings were down when compared to last year's historic highs, this channel still delivered a substantial proportion of the Co-op's earnings for the year. As a result, our net earnings were at the top end of our guidance range at $0.70 per share. This allowed us to pay a $0.15 interim dividend during the year and a $0.25 final dividend. Our ongoing strong balance sheet strength also enabled us to return an extra $0.15 through a special dividend, making the total dividend payment for the F '24 season $0.55 per share. When combined with our final Farmgate Milk Price of $7.83, our total payout to fully shared at farmers was $8.38 per kilogram. Looking at the rest of the year ahead, I'm pleased to say we're forecasting a stronger Farmgate Milk Price. Earlier this week, we lifted our midpoint by $0.50 to $9.50, giving us a forecast range of between $9 and $10 a kilogram. This lift was largely driven by demand out of China, where we're starting to see domestic milk production slow. And we continue to monitor global factors, including the New Zealand milk supply. Looking at our earnings for F '25, we have a forecast range of $0.40 to $0.60 per share. This outlook signals another year of stable performance from the Co-operative. With Fonterra delivering consistent and reliable results over the last few years, we've seen a steady lift in farmer confidence and sentiment. And it's this foundation that allows us to think ahead and have conversations about our strategy. Recently, we concluded a strategic review, honing in on where we create value today and where we see long-term growth. This has resulted in us focusing even further on Foodservice and Ingredients. As Peter has mentioned, the Co-op exists to provide stability and manage risk on your behalf, while maintaining the returns -- maximizing returns to you through milk price and your capital. By streamlining the business to focus on these areas, we can grow greater value for you even if we divest the Consumer business. As an example of this strategy in action, I want to touch on a recent announcement relating to our Foodservice business. Last week, I was in China for the Annual China International Import Expo. It's an impressive event where we showcased our business to customers and stakeholders with lots of energy around dairy nutrition and innovative products. At this event, we launched a new UHT, anchor UHT cream product designed to grow our share of the growing Chinese Foodservice market. We already have a strong Foodservice business in China, primarily targeted at the premium end of the market. This new cream product will target the mid-tier market, the fastest-growing segment in the UHT cream category. Often to achieve the lower price point needed to access the mid-tier market, products are made using plant-based fats. Using our innovative experience and expertise, we've developed 100% dairy product with the right functionality at a competitive price point. This move will help us attract new Foodservice customers and consolidate our leadership position in the UHT market. Our investment in our new UHT plant at Edendale site will also support this ongoing growth as we look to allocate more milk into our Foodservice channel. It's examples such as these that give us the confidence in our revised strategy and our potential to create further value for shareholders. At all times, we're committed to maintaining the highest sustainable Farmgate Milk Price. We're also looking to grow returns to you from the capital you have invested, and our revised strategy has allowed us to lift our targeted average return on capital to 10% to 12%, up from the 9% to 10% previously. We're also committed to returning more of the Co-op's earnings to you with an enhanced dividend policy of 60% to 80% of earnings, up historically from our 40% to 60%. We're confident we can achieve these outcomes while continuing to invest in the Co-op and maintain a strong balance sheet we've worked so hard to rebuild over recent years. We're making choices about what we want to focus on so we can go further faster. This is why we believe the divestment of our global Consumer business is in the best interest of the Co-operative, and we're proceeding with the sales process. As announced earlier this week, we have assessed both a trade sale and IPO as attractive options, and we'll now pursue both. Your support remains critical and will be -- sorry, your report remains critical, and we will provide you information on that divestment options in due course. Before we do this, we need to thoroughly test the merits of both the trade sale and IPO so that we can hear clearly what you're wanting to approve. I recognize there's significant interest in this process, and we'll keep you updated as this progresses. This is a pivotal time for the Co-operative. We are confident in the strategic direction, and we don't take those decisions lightly. Every choice we make is grounded on what's in the best interest of our farmer shareholders. This is a Co-operative and your Co-operative. We're in a strong position today, and we have a strong and bright future. This is thanks to the people who make up the Co-operative, the 8,000 shareholder families and the thousand employees around the globe. We are the source of the world's most valued dairy. Thank you.

Thanks, Miles. We'll now take any questions you have on the presentations we have just given. If you have questions or comments on the resolutions being dealt with later in the meeting or other matters of general business, I'd ask that you -- ask you to wait on those until the appropriate time during the meeting. In the interest of fairness, please keep your comments as brief as possible and do not repeat questions or comments that have already been made. If you're 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 when you handed the microphone, please. If you've joined online, you can submit a question by clicking the Q&A button in the top menu bar. Co-operative Councilor, Mark Slee, will act as timekeeper. It might be your last act as a Co-operative Councilor, Mark. Big job. In the interest of fairness, I would request that you do not ask more than one question on each subject at the time for each -- as time for each question approaches 2 minutes, you will hear a bell. And there he goes. Technology and farmers. Please then return your microphone to the team so you can speak and then please hand your microphone back, and we'll ask you to do that. Do we have any questions in the room in relation to our presentations that we've just given, please? Any questions or comments or observations?

[ Charles Whiting from TR ]. With the Consumer divestment, why is the business even contemplating an IPO? It feels like a very strange process to be going through in an environment where you're trying to maximize proceeds. You've got a change of control provision with all your brands, which would assume if you went down the IPO path, you could only sell 49%, maybe 50%. And also, the business is tracking at 6.9% ROCE, right? Like how is the market going to actually assume that you're going to do better when you're going to have to overlay new governance structure, new Board on top of the cost base that's already sitting in that business today? And effectively, it just seems strange that Co-operative is keeping that on the menu of options when you're trying to maximize proceeds and you're going to have to take a discount to a market valuation, which is a discount to control valuation technically. So why is it even an option?

Miles?

Yes. I mean, we believe at this point in time, it's important to keep our options open. You're making some assumptions there around the valuations, which may play out to be true, but our job at this point is to keep our options open. And our advice at this point is to have a look at both the trade sale and IPO.

So, yes, we're following the advice of our investment bankers on that one, Charles. And there's a lot of technicalities around some of the issues that you're raising, which we're happy to discuss after the meeting. But we have to take -- we have to be prudent and take advice. So, at the end of the day, our interest is in the value for our farmer shareholders. So that's our interest. Any other comments or questions? Sorry, yes.

[ Andrew Myers from Cambridge ]. At the last AGM, I think you talked a lot about a desire to grow your innovation spend, R&D. Maybe could you outline some of the projects that you've been working on last year and the success of those?

So I referred earlier to that we called Easy Bakery UHT cream as an example. So, as I referred to in the slide, if you want a lower price point to reach a different category of consumers, in this case, Foodservice bakery sector, often you use vegetable fat as a cheaper option. The work you do at Palmerston North, in particular, to understand how you can use a fully 100% dairy product has a very similar functionality, but a lower price point. There's some special sauce that goes into that. And so that, for me, is an example of where we're putting our investment in. We also have new functional whey proteins that we've developed again through over many years that we're starting to roll out, both from our facilities here in New Zealand, but also our operation in the U.S. as well.

You don't just invest this year and get a result either. So R&D management and governance is all about taking a medium- to long-term view. And then it's about running a portfolio. So some projects will carry more risk than others with high potential reward and others will be low risk with more certainty. So you need to take a portfolio approach through time.

The other way to look at that is, of course, is innovation goes right across the value chain. So we often talk about products. But an example, the UHT cream, which is our hero product and returned some very good gross margins. We've doubled the output of our facility at [ Waipa ] over the last 5 years for no additional kit. So the innovation that goes into our -- in our processing is just as important as the products themselves.

[ Ross Dunlop from South Taranaki ]. Just congratulations to Chair and Board and staff on your performance. And I'd just like to acknowledge the $150 million that's going into Whareroa. That's a real bless to our local community. And so, just acknowledge that. Just also in South Taranaki, we have this little town called Eltham, and it's very much part of the dairy industry and the story going way, way back. And a lot of the stuff that's produced in Eltham is consumer goods. And I'd just like to -- and I'm not against the sale, I support what you're doing. But I would just ask you to perhaps take -- consider the history and the story of Eltham and the staff that work there that in some way, that legacy can continue whatever happens in the future. And I'd also just like to say the cheese bar there at the moment is absolutely going gangbusters. There's a line of people waiting to get in there. And I think that's something that recently maybe a change in management, but it's fantastic. So, we're just in South Taranaki like that to continue.

I mean, maybe just a quick comment. As part of the phase we just announced on the Consumer sale, we had a good look at -- relook at the perimeter that was going to be included or excluded from the original scope. We made 2 small changes to that. And one of them was a manufacturing facility we have in Saudi Arabia. But you look at things like the Eltham site and say, how important that is to the Consumer business, and it's very important that, that will be sold ultimately with that business. I'll also say, though, across the road, of course, we have 2 sites in Eltham. You talk about the Consumer, but -- we also have a very, very strong Foodservice part of that business as well, which makes slice on slice cheese for the quick service restaurant sector, and that certainly will remain part of the Co-operative.

Are any other questions? Charles?

[ Charles Whiting ] again. Just a question about return on capital targets. I think, look, there has been a great performance today. I think 2020, you're about 6.5%. It's now tracking up. I just think we need to be a little bit more aspirational as a business. The targets are 10% to 12% until 2030. Holly, your business at Woolworths does 15-something percent. Alistair, yours at BlueScope does 15%. But why should we accept a lower number when other companies who do similar processing raw materials into products at a much higher level? And that's especially when farmer capital is at 10%, right, but we should be aspiring to a higher level. And if you do that, you get a material lift in obviously your earnings. So is the Board prepared to up their targets for return on capital?

I can't respond directly to that. Are the Board prepared to up them because we need to have the conversation having been provoked by you. I won't also comment on retailers' return on capital in relation to Woolworths because I won't. And hear what you're saying. I guess, we've got to weigh that up against the risk. The higher return, the higher risk normally. So we need to reflect on it. But thanks for that.

I think there's also a piece here over time, Charles. So we talk 10% to 12% over time, recognizing that things move around. I mean, we operate in a global context. And so, you would have seen in the last couple of years, we've been through the top end of that, which we're very proud of. But there will be times maybe you push the bottom end, but we're talking about through time. So yes.

Yes. I think that's an important point because through time, there will be times when we don't hit the target and there will be times when we overachieve. And we know in farming, take a medium- to long-term view. And as long as we're on the curve or heading in the right direction, I think it's something we need to be really careful and really mindful of.

Yes. Maybe the other point, I mean, the metrics that we talk about are for the Co-operative, but Peter referred to the $50 billion of capital that's invested behind the Farmgate, which is significantly more than what's invested in the Co-operative. And so, the most important thing we can do is, give you also a long-term sustainable milk price. And so, we talk about the earnings over and above that, but we also have a significant role to play to drive efficiency to give you a better milk price also.

Yes. [ Noelle Gaskey, Strafford ]. Congratulations to Co-operative to the Board and management on an outstanding result. It is a great time to be a Fonterra shareholder, I believe. And thanks for your opening address, both of yours on the sale of the Consumer business. I guess, I might put the category of those slightly emotionally at [ home ] with some of our brands, and I'm quite open about that. Can you talk to us a little bit, you've been at pains to point out that it's subject to a shareholder vote? Can you talk to us a little bit around what plan B is around the performance around the Consumer brands and what work has gone on behind the scenes to improve that performance should the -- and what will it entail to improve that performance should the shareholder vote fail?

Yes. So you've touched on an important point there. I mean, we're not a forced seller here. We believe that there is a different natural owner than the Co-operative, hence, the reason we're going down this path. But part of the process of getting the business ready for a sale is the separation process and untangling the businesses that exist in most of our markets, in fact. In the New Zealand context, it's relatively straightforward. Takanini in South Auckland is more or less assigned to Consumer, and you've got Eltham, as we've already heard about the Consumer business there. But when you get into the offshore markets, most of the offices are combined, they share resources and the like. So that untangling is taking place as we speak in preparation for a sale. But the plan B, as you say, if we're not a forced seller here, if the decision is ultimately made to retain either the decision that management come to or, of course, the vote that you don't -- you may not support in time, our job is to then understand exactly what our Consumer business looks like once we've decoupled it from the rest of the Co-operative and then how do we structure that business to ensure that it can deliver the results, the returns that we ultimately would seek. But the first part of that is decoupling and separating the businesses as we speak.

Over the last couple of decades, Consumer businesses around the world, their margins have decreased by around 8% on average. And it's not lost on us that at the same time, retailer margins have increased by 8%, which might flow into return on capital over there, Charles. So these businesses, so what we're seeing is, big consumer businesses are buying more brands to get market power to then face into that challenge. So plan B would look like us investing more capital, more M&A activity, increased investment in A&P and R&D through time. You can't run a Consumer business and be in and out of it and be transactional. You've got to be there for the long haul and you've got to double down when the going gets tough. That doesn't really fit in a Co-op in terms of the sources of capital in a Co-op, which is your money. So that's a lot of the thinking behind it. I hope that gives you a few more insights. Do we have any questions online?

Yes, we do, Peter. We have one, which I'll read out. What was the forecast gross margin percentage used to model the future ingredients income streams?

I couldn't tell you that off the top of my head because it ranges across all our products in different markets as well. So whoever that person is, we can make sure they get the information they need afterwards.

Any other questions? Okay. We'll now on to the business of the meeting. Voting on the Directors' Remuneration Committee and the 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 set 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 Ltd was appointed to receive and count these votes, which will be included in the poll. Each ordinary resolution must be agreed 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 with a voting entitlement has received a voting paper in their Notice of Meeting pack. The resolutions are all set out in the Notice of Meeting and will be taken as read. Each 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'll invite comments and questions on the resolutions. I'm aware of time, so I may have to limit comments and questions to 6 to 8 per resolution. Hopefully, some of them have none. Again, as the time for each question approaches 2 minutes, you will hear a bell. I would ask that you return your microphone to the team. When you're asked to vote, if you're 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've joined online, you may vote by clicking on the Voting button in the top menu bar. Please complete your voting on all resolutions before you click submit. The scrutineers from elections.com Limited (sic) [ electionz.com Ltd ] will treat noncompliant votes as invalid, so please take care to follow the instructions. For those of you here in the room, we'll collect the voting papers following the voting on all the resolutions. The results will be posted on the Farm Source section of your -- of our website, not your website, NZX and our My Co-op app as soon as possible later today. Let's move to the resolutions. Resolution 1. Resolution 1 relates to elected directors' remuneration. Our constitution requires that Directors' Remuneration Committee bring recommendations to shareholders on the remuneration of elected directors and Co-operative Councilors. I'll ask Conall Buchanan, Chair of the Directors' Remuneration Committee, to propose the motion on the elected directors' remuneration and speak to the Committee's recommendations. Once it has been seconded, I will open the motion for discussion.

Thank you, Peter. In July this year, the Committee reviewed remuneration practices in New Zealand and Australia. We considered whether current remuneration levels were appropriate to ensure highly skilled directors were attracted and retained on the Board, noting the substantial director workload. We agreed that small incremental annual increases in fees continue to be our preferred approach rather than having periods of no increase followed by large uplifts. We discussed the appropriate level of an increase in the current environment and considered that this was approximately 3%. We, therefore, recommend that shareholders approve an increase of $14,000 per annum being 2.89% to the remuneration of the Chair. This would take the Chair's remuneration to $498,000 per annum, an increase of $5,500 per annum being 2.8% to the remuneration of each elected director. This would take each elected director's remuneration to $202,000 per annum. An increase of $1,500 per annum being 2.91% to the additional amount paid to the Chair of the Audit, Finance and Risk Committee. This would take the additional amount paid to $53,000 per annum. An increase of 1,500 being -- sorry, per annum being 4.05% to the additional amount paid to the Chair of each other permanent Board committee. This would take the additional amount paid to $38,500 per annum, and an increase of $50,000 per annum being 33.33% to the discretionary pool, taking this to $200,000 per annum. Accordingly, I move Resolution 1.

Thanks, Conall. I understand that Ellen Bartlett will second the motion.

Yes, I second the motion and fully support.

Thanks, Ellen. I'll now open the resolution for discussion. Do we have any questions in the room on this matter? No. Do we have any questions online, Andrew?

No, Peter.

Okay. This is an ordinary resolution, requires 50% support. I'll now put Resolution 1, which has been moved and seconded. For those of you here in the room, please complete your voting paper by placing a tick in the appropriate box for Resolution 1. If you've joined online, please vote by clicking on the Voting button in the top menu bar. 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. Now we move to Resolution 2. I'll ask Conall to move Resolution 2 and address the meeting on the recommendations for Co-operative Councilors' remuneration. Thanks, Conall.

Thanks, Peter. The Committee also considered councilor remuneration in July this year. As with director remuneration, we agreed that small incremental annual increases in fees continue to be our preferred approach. We discussed the appropriate level of an increase in the current environment and considered that this was also approximately 3%. We recommend that shareholders approve an increase of $4,000 per annum being 3.23% to the remuneration of the Chair. This would take the Chair's remuneration to $128,000 per annum. An increase of $1,250 per annum being 3.14% to the remuneration of each councilor, this would take each councilor's remuneration to $41,000 per annum. We recommend that no changes are made to the discretionary pool of $100,000 per annum. Accordingly, I move resolution 2.

Thanks, Conall. I'll now call on Ellen to second the motion.

Yes, happy to second again.

Thanks. I now open the resolution for discussion. Do we have any questions in the room? Any questions online?

No, Peter.

Okay. This is an ordinary resolution, requires 50% support. I'll now put Resolution 2, which has been moved and seconded. Please place a tick in the appropriate box on your voting papers or complete your voting online. Again, if you have any difficulties, please raise your hand for assistance or click on the Help button online. Thanks, Conall. We now move to Resolution 3. I'd like to ask Leonie Guiney to move Resolution 3 and to briefly address the meeting on the recommendations for the remuneration of the Directors' Remuneration Committee.

So the Board met to consider and recommend to shareholders the form and amount of the remuneration to be paid to members of the Directors' Remuneration Committee. The Board noted that the DRC member's honoraria was last increased in 2021. So the Board recommends that shareholders approve an increase of $500 to the remuneration of the Chair. This would take the Chair's remuneration to $3,000 per annum, an increase of $300 to the remuneration of each member of the DRC. This would take each member's remuneration to $1,800 per annum. Accordingly, I move Resolution 2 (sic) [ Resolution 3 ].

Thanks, Leonie. I'll now call on Andy Macfarlane to second the motion.

Thanks, Peter. I am happy to second the motion and fully support it.

Thanks, Andy. I'll now open the resolution for discussion. Do we have any questions in the room? Any questions online?

No, Peter.

Okay. This is an ordinary resolution, requires 50% support again. 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. Let's move to Resolution 4. I'll ask Brent Goldsack to move Resolution 4, the resolution regarding the appointment of the auditor. Before this, I'll invite Bruce Hassall to speak to the motion. Bruce is an independent appointed director and does not have a shareholding entitling him to move or vote on the resolution. However, in his role as the Chair of the Audit and Finance and Risk Committee, it's appropriate that he shares a few comments in relation to the auditor. Thanks, Bruce.

Thanks, Peter. The Companies Act requires Fonterra to appoint an auditor and provides that fees and expenses of the auditor appointed at Annual General Meeting can be fixed in a manner determined at the meeting. KPMG has audited Fonterra's financial statements for the year-ended 31 July 2024. The Board recommends that KPMG be appointed as auditor for the coming year. The Board also recommends that shareholders authorize the Board to fix the auditor's remuneration. As I'm not a shareholder, Brent will move the resolution.

As a proud shareholder, I do move the resolution.

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

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

Thanks, Cathy. I now open Resolution 4 for discussion. Do we have any questions in the room? Is there any online?

No, Peter.

Okay. This is an ordinary resolution, requires 50% support. I'll now put Resolution 4 and ask you to complete your voting. Now we move to Resolution 5. Resolution 5 seeks ratification of Alistair Field's appointment as an Appointed Director. I'd like to call on Alison Watters to move Resolution 5, please.

Thank you, Peter. It is my absolute pleasure to speak to Alistair's appointment as an independent appointed director. Alistair has been appointed to the Fonterra Board since the 1st of November. Alistair is based in Australia and has 30 years of experience in the mining, metals, manufacturing and logistics sectors. Alistair is currently a Non-Executive Director of BlueScope Steel Limited and Alcoa Corporation and previously served on the Board of Alumina Limited, which is now a wholly owned subsidiary of Alcoa Corporation. Prior to commencing Alistair's governance career, Alistair held a position of Chief Executive Officer and Managing Director of the ASX-listed Sims Limited based in the United States and in Australia. Prior to joining Sims Limited, Alistair held a number of senior leadership positions, including a Director of Patrick Terminal and Logistics division at Asciano Limited and as Chief Operating Officer of Rio Tinto's Bauxite and Alumina division. Alistair brings a wealth of international mindset and extensive operational co-operative and industry experience to the Board. He has a deep international experience, including markets that are strategically important to Fonterra like China, Southeast Asia and the Middle East. Alistair also has significant exposure to initiatives that enhance sustainability and commercial productivity or commercial outcomes in our production type industries, all of which is very relevant to our Co-op's own pathway and to the commitments we've made in this area. Accordingly, I move Resolution 5.

Thanks, Alison. I'd now call on John Nicholls to second the motion.

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

Thanks, John. I'll now invite Alistair to make a few brief comments.

Thanks, Alison. Good morning, ladies and gentlemen. I'm seeking your support to serve as an Appointed Director of Fonterra Co-op. I'm based in Australia in the Northern Rivers just outside Byron Bay. As Alison mentioned, I've worked across numerous countries and lived and worked in Canada, Saudi Arabia and recently in the U.S.A. As an introduction to my work experience, I've spent the last 30-odd years, mainly in heavy industries in senior leadership roles, in particular, the aluminum business, running both bauxite mining operations and alumina facilities, logistics, Patrick container terminals in Australia. And then finally, my last part of the career was ferrous and nonferrous global operations and recycling in all the markets that Alison mentioned. So all of these roles covered quite a wide spectrum, issues from safety, sustainability, governance of running of a global company. And as mentioned, my last executive role as CEO of Sims was the largest listed recycling company in the world at the time. So I've moved on from there to and I currently sit on the Boards of BlueScope in Melbourne in Australia and Alcoa in U.S.A. I can assure you as shareholders that I have the capacity to carry out these duties, and I look forward to working with my colleagues on the Fonterra Board and management team. So I seek your support to continue on the Fonterra Board and working in your best interest. Thank you.

Thanks, Alistair. I now open the resolution for discussion. Do we have any questions in the room? Are there any online?

No, Peter.

Okay. Thanks. This an ordinary resolution, requires 50% support. I now put Resolution 5 and ask that you complete your voting, please. Resolution 6 seeks the approval of amendments to the constitution related to permitted transferees. I'd like to call on Cathy Quinn to move Resolution 6, please.

Thank you, Peter. Under flexible shareholding, ceasing farmers can transfer their shares to permitted transferees as a new type of shareholder. The constitution provides that these transfers can only be done within certain time frames. Have a feedback received since implementation is that the default 1 season from ceasing rule for permitted transferee applications to be completed is insufficient time for ceased farmers to make decisions on the longer-term structure of their affairs and for the parties to complete the necessary steps to enable share transfers to occur. The Board recommends the constitution that is amended to remove the timing requirements for permitted transferee applications in favor of these operational requirements being maintained within the rules for shareholding. The amended rules for shareholding will extend the timing window for permitted transferee applications, enabling these to be completed within 3 complete seasons from ceasing alongside a new ability for the Co-operative to apply discretion in extenuating circumstances. The rules for shareholding may be amended from time to time by the Board in consultation with the Co-operative Council, including to reduce the timing period for permitted transferee applications. As the proposed amendment will alter 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 this was received on the 7th of October. If Resolution 6 is passed, the constitution will be amended as set out in the Notice of Meeting. I now move Resolution 6.

Thanks, Cathy. I'll now call on Leonie Guiney to second the motion.

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

Thanks, Leonie. I now open Resolution 6 for discussion. Do we have any questions in the room? Any online?

No, Peter.

This is a special resolution. It requires 75% support. I now put Resolution 6 and ask you to complete your voting, please. John Stevenson will now present the Council Chair's report and then propose Resolution 7, which relates to the approval of the Co-operative Council bylaws and Resolution 8, which relates to the approval of the Co-operative Council program and budget. Welcome to the stage, John.

Thank you, Peter, and good morning, everyone. [Foreign Language] As Peter mentioned, my name is John Stevenson, Co-operative Councillor from the Wairarapa and Chair of the Co-operative Council. I started today by acknowledging the local mana whenua. I'd also like to acknowledge the members of our Co-operative present, Peter and his Board and Miles and his management team. In particular, I'd like to acknowledge retiring directors, Leonie and Clinton and retiring councilors, Mark Slee, Andrew Hardy and Kevin Dixon. Our Co-operative is a better place for your contribution. It is a privilege to be able to report to that Fonterra Annual Meeting on behalf of the Co-operative Council. Today, I will speak to 4 matters as required by the constitution. First, Council's activities during the '24 financial year, then Council's view on the alignment of Fonterra's strategy and performance to members' expectations. I will present the Milk Commissioner's report for the '23-'24 season. And finally, I'll present Council's work program and budget for the '25 financial year for your approval. Regarding Council's activities, our role as your council is to represent you. Our vision is that, through effective representation, you feel heard, valued and connected to your Co-op and also have confidence in its enduring success. One of our key functions is to report Co-op member feedback and sentiment to the Board. Fonterra has performed well for us, farmers and owners over the last 12 months. We have seen the continuation of strong returns to shareholders alongside a reduction in debt. These returns have been appreciated by shareholders as in our own businesses, we have continued to face a variety of challenges. We have reported to the Board these challenges, and our feedback has also included areas where farmers seek more information or support. These include information on the strategy reset and potential divestments on tools to support farmer decision-making on matters relating to Scope 3 on-farm emissions impacts and indications of the value to Fonterra and its farmers from Fonterra being a leader in sustainability. Another function is to understand and represent to the Board the expectations of our Co-op members, which we primarily do through our letter of expectations that is delivered to the Board each year. In developing that letter, Council commissions an independent research firm to conduct an annual survey of Fonterra's members. This year, responses from just under 900 Fonterra owners and suppliers made up the survey, and that provided a representative and robust representation of your views. We consulted with all Co-op members on a draft of the letter before finalizing it and sending it through to the Board. Council also forms a view on the extent to which it considers that members' expectations are being met, and I'll speak to this shortly. During the year, Council sought to foster member engagement with our Co-operative. Council facilitated 1 understanding your Co-operative program. Council has held meetings and the awards and councilors jointly co-hosted 2 regionally-based beyond the Farmgate events alongside our Farm Source team. Council has a number of guardianship functions under the Fonterra constitution. And this year, a joint working group of directors and councilors completed a review of Fonterra's Co-operative philosophy. This comprises our purpose statement, Co-operative principles and values. All Co-op members were consulted as part of this process with feedback being incorporated into the refreshed Co-operative principles. Council also performed its usual roles in relation to the Fonterra Director and Directors' Remuneration Committee elections, as well as making 2 key appointments on behalf of members. These were the reappointment of our incumbent Milk Commissioner, Miriam Radich, as well as a new appointment to the Milk Price panel, Fonterra Farmer shareholder, Andrew Barlass. I would now like to speak to how Council holds the Board to account on behalf of all Co-operative members. This is done through Council seeking Board explanation of and responsibility for the company's strategy and performance. We report our areas of focus and questioning to the Board in our quarterly updates so that all Co-op members have transparency and Council also commissions independent analysis from Northington Partners on your behalf. This year, as well as reviewing the '24 financial year performance, we asked Northington's to comment on Fonterra's change in strategic direction and potential divestment of some or all of our Co-op's global consumer business together with Fonterra Oceania and Fonterra Sri Lanka. We also asked Northington's to analyze the changes in farmer shareholdings relative to milk supply as summarized in Fonterra's reporting of Flexible Shareholding metrics since 1 July 2023. I do encourage you to read Northington Partners analysis, which is available on Fonterra's website and to a large extent, reproduced in our Council annual report. Moving on now to Council's view on the alignment of company strategy and performance to members' expectations. Our letter of members' expectations to the Board categorizes members' expectations under 5 headings: culture, performance, capital allocation, pride in our Co-op and an enduring co-operative. In terms of culture, this year, Fonterra's lead audit partners commented to Council that they had seen a significant and positive change in Fonterra's culture since their audit appointment commenced in August 2019. This reflects Council's own observations. Council continues to see examples of good culture in Fonterra's interactions with members and Council's interactions with the Board as well. Our April 2024 survey results again showed that members consider transparency around decision-making and strategy as the most critical activity for strengthening and maintaining Fonterra's co-operative spirit. Members report that they have seen improvement in Fonterra's transparency, which is really pleasing. However, there's also a gap between members' expectations and members' appraisal of Fonterra's transparency and the genuineness of its consultations. Council encourages a drive for continued improvement in this area. We do have some big decisions to consider ahead of us regarding the potential divestments. Regarding Fonterra's financial performance, it is important to acknowledge the excellent FY '24 earnings results for our co-operative. It is Council's views that business performance for FY '24 meets the expectations of us as members. In relation to the price we have paid for our milk, the '23/'24 season milk price was within the Board's key performance measures. However, it was below the DairyNZ Econ Tracker breakeven milk price and also below the 10-year average Fonterra Milk price calculated on an inflation-adjusted basis. In terms of allocation of farmer capital, Fonterra has shared its resource allocation framework, maintained the enhanced level of reporting around capital investment and it has given additional visibility by reporting return on capital by channel. However, the degree of transparency that Council and some members seek in terms of investment outcomes and return on capital does not sit comfortably against commercial sensitivities and confidentiality constraints faced by Board and management. Council does understand the dilemma that Fonterra faces. However, we also believe there's always scope for further disclosure and transparency, and we make no apologies for continuing to seek this. Regarding pride in our co-operative, for the first time since our annual survey commenced in 2021, descriptions of what belonging to Fonterra Co-operative means to Co-op members trended positive. Council commends Fonterra on this positive turnaround. However, Council does have some concerns regarding the continuing decline in Fonterra's share of New Zealand milk collections and the decline in farmer enthusiasm for Fonterra's environmental focus as was evidenced in our 2024 survey. Council firmly believes that more work needs to be done to demonstrate and clearly communicate to members the value of on-farm regulatory and customer-driven requirements. Fonterra's revised strategy describes 6 strategic choices to create a pathway to greater value creation. Council believes members' expectations are largely reflected in these choices. Council also has not formed a view on the announced potential divestments. This is reflective of the stage in the process that Fonterra is currently at and that no proposals are sitting before shareholders to make a decision. Finally, our Board set 11 key performance measures for the 2024 financial year. These are set out in the Board's integrated scorecard. Council was really pleased to see that 7 of those measures were achieved. The measures not achieved were the target for Fonterra's share of milk collected, the delivered and full on-time target and Fonterra's efficiency metrics. Council believes that Fonterra has adequately explained why the DIFOT target was not achieved. However, Council is concerned to see further decline in Fonterra's share of New Zealand milk collected to 78.1%, below the 79% target set in the scorecard. Council sees retention of milk as a key measure of success of the introduction of the flexible shareholding capital structure and Fonterra's revised strategy. Council also had some disappointment that Fonterra did not meet both of its efficiency targets, and Council will continue to monitor Fonterra's efficiency with real interest. Moving now to the Milk Commissioner's report. Miriam Radich was first appointed as Milk Commissioner in 2018. The Milk Commissioner's annual report is published each year in Council's annual report. And this year, Miriam has commented on the Milk Commissioner dispute resolution process. She has made some observations that it can be hard going for farmers in terms of paperwork and stress. In light of Miriam's comments, Council intends to look into how the process can be improved, so it is less of a burden and stress on farmers and results in a more timely resolution of disputes. Further detail on the matters I've discussed this morning as well as everything else Council has done on your behalf is contained in our annual report. You should have received a copy of it via e-mail earlier this month, and we do have printed copies here for you today. It is your report written for you. I encourage you to read it. In summary, over the last year, our Co-operative has served the interest of our farmer owners and suppliers and their communities well. Council considers FY '24 to be a job well done by Fonterra. But we also note that the job is not finished. Looking forward, both Fonterra and its farmer owners and suppliers will continue to face change in challenges. As farmers, we will continue to look towards our co-operative to help manage risk on our behalf. To help us navigate future challenges, it is imperative that we maintain a culture within our co-operative that fosters and enables open and constructive dialogue as well as respect for differing views. It is this that will continue to make us stronger. Council looks forward to continuing to represent your interests. I'd now like to speak to Resolution 7, which is to approve the proposed amendments to the bylaws of the Co-operative Council. The Council recommends that the bylaws are amended to provide that if a casual vacancy occurs within 6 months of the annual council election cycle, then Council has the option to decide not to hold a special election or make an appointment but to fill the vacancy through the annual election cycle. This will avoid additional costs arising from holding a separate election or if no separate election is held, it means that shareholders will elect the award representative rather than an appointment being made by Council. Additional amendments to the bylaws are also proposed by Council as set out in the Notice of Meeting. These amendments are for clarification. They provide consistency and approach or reflect changes that have already been made elsewhere. Accordingly, I move Resolution 7.

Thanks, John. I'll now call on Andrew Hardy to second the motion.

Thank you, Peter. I second the motion.

Thanks, Andrew. I now open Resolution 7 for discussion. Do we have any questions in the room?

Yes. [ Mark Hooper from local here ]. Just wondering why the 6-month time constraint on that, why not make it more open-ended?

I think the 6-month time period is in recognition that the role is there to represent farmers. I think in any situation where a casual vacancy arises, Council will look at that and consider it. We certainly don't want shareholders to face the additional cost of going through an individual election cycle unless it has to be done. But I take your feedback, but 6 months is a decent period of time for award to be without representation.

Any more questions in the room? Any questions online?

No, Peter.

Thanks. This is a special resolution and it requires 75% support. I now put Resolution 7 and ask you to complete your voting, please. John?

I'd now like to speak to Resolution 8, which is to approve the Co-operative Council's program and budget for the financial year-ending 31 July 2025. This year, Council is seeking shareholder approval for a budget of $2.505 million for Council operating costs and $865,000 for other costs contributed to or met by Council, giving a combined total of $3.37 million. Based on last season's milk volumes, this equates to [ $0.02 ] per kilo of milk solids supplied. It's important to note that Council is very respectful of the funding provided by farmers. Our work program is designed to deliver our responsibilities and meet farmers' expectations. We are focused on managing our costs while being realistic about what's needed to deliver the work program prescribed by the Fonterra Constitution and the financial markets research analysis required by the Dairy Industry Restructuring Act 2001. The budget will enable Council to deliver the work program outlined in the Notice of Meeting, which includes allowance for further independent advice in connection with the potential divestments. Accordingly, I move Resolution 8.

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

Thank you, Peter. I second the motion.

Thanks, Andrew. I now open Resolution 8 for discussion. Do we have any questions in the room? Charles?

Charles Whiting from [ TRR ]. Just a question like related to your budget and doing these reports, right? So the Northington report came out with a desktop valuation of greater than $3 billion for consumer. Is it actually helpful for the Council to opine on the valuation of the business? And was this actually a really detailed valuation that was undertaken? And could you actually be incorrectly setting expectations for shareholders? Like the valuation of the business was rumored to be $2 billion in the Australian newspaper last week. So it feels like you're quite out with what's been printed in your reports. And so like continuing with the theme of the budget, why should we approve the budget when we're getting stuff like this as part of it?

Yes. Thank you for the question on that. In terms of the work that Northington Partners do, we're really happy to stand behind the quality and the depth of their insight and analysis. We've heard very clearly from farmers right since the review of Council in 2020 that they expect a degree of independent performance analysis from Fonterra. I'll also note that following the introduction of flexible shareholding, one of the requirements from the government around that was that Fonterra commissions independent analysis on behalf of its members. They do that through the Co-operative Council. So that's why you see that in-depth report. In terms of the content around Northington's when you're talking about valuations, that figure that you mentioned is not out of line with other domestic business analysts when they've looked at the business. We certainly didn't give Northington's guidance to go and look and provide a figure. But with respect to them to provide a fulsome performance analysis and a review of what's sitting in front of us at the moment in terms of the information that farmers have, their view was that to do so, that's what they thought was really important. We'll also note that within those figures provided that there are some assumptions that the analysis calls out in terms of Fonterra's seasonal working capital requirements, Fonterra's proposed CapEx as well as the importance of Fonterra keeping key ratios like debt-to-EBITDA in line in view of the credit agencies. So I'm really comfortable to stand behind what's there. Farmers have asked us for that. We have to under DIRA, and we've also heard individually from farmers that they want to see an independent view on what's sitting in front of them. I think the key message that I hear from farmers is that it's one of the biggest decisions that we will face as farmer shareholders.

It sounds like you're talking it down, Charles. But I'll just make a comment. It does carry risk and every man and his dog is going to have an opinion on this. But at the end of the day, it will be a willing buyer, willing seller and the market will determine the value of the asset. So we can have all these sideshows in the media and other bits and pieces, but we just got to be mindful that the process will run its course. So -- I know. It does carry some risk. So, yes, for sure. Are there any other questions for John? Are there any online, Andrew?

No, Peter.

Okay. This is an ordinary resolution requires 50% support. I'll now put Resolution 8. Please complete your voting, and thanks.

Thanks, Peter. Thanks very much.

Voting is now closed. For those in the room, collection boxes will be passed around. While we are collecting the voting papers, we will play a short video that Miles and the team have pulled together as a nod to farmer pride in the co-operative. So we'll collect the papers, please. [Presentation]

At this point, we'd like to provide an opportunity for shareholders to question, discuss or comment on the management of the company or raise any items of general business. We'll first go to those questions and comments in the room and then take some questions from online. I'll invite Miles to join me. Thanks, Miles. I guess my opening comment would be, it's good to know that we'll never meet farmer expectations, John. I've been around a long time and good enough never is. But also, if I think we've got there and arrived at the destination, then it's time for me to go. So it's just a relentless focus on getting better. So, I also want to acknowledge Wayne Langford here today, President of Federated Farmers, who puts in a big effort on behalf of farmers. So welcome, Wayne, and thanks. Questions or comments or statements? There's one down the back. Thank you.

Yes. Mr. Chairman, I'm Rob Thwaites. We've got a dairy industry that's shrinking by approximately 2% each year year-on-year. I think it's absolutely vital that new land or previous land is allowed back into dairying. I don't think you would be asking the government for a favor. I think it's just in the interest of Fonterra, the dairy industry and New Zealand as a whole that we stopped this decline in the size of the dairy industry. And I'd just kind of finish by saying under the previous 9 years of a national government, we certainly weren't shown any favors at all. And I'll refer specifically to changes they made to the Dairy Industry Restructuring Act. Thank you.

Thank you. Do you want to comment, Miles?

Yes. I mean, firstly, your comments are very well noted. For us to have the ability to have a conversation with whoever it may be in Wellington or whoever about a growth opportunity, we've got to be seem to be doing the right thing as an industry. And I think we've proven that in the last few years as an industry, as all of us collectively, and it gives us the ability to have those conversations now. And so on behalf of management, what you farmers do behind farm gate has given us the ability to start those conversations. So they're very much there. And it aligns very clearly to the government's ambitions to double exports by, I think, 2035 was their ambition. So the conversation that we have is that you can do that by supporting alternate industries, but at the same time, you've got to back your winners. And there's no one better to back than the dairy industry.

Thanks.

Thank you, Peter. Gerard van Beek, Whakatane. I'm quite often referred to now as the lactose man. I've been to 23 or 22 of the AGMs in my lifetime. This year, I have a slightly different message. I'm going to give reserved congratulations to the Board for finally announcing that lactose is going to become a perimeter of the milk payment model. It's reserved because I have to wait another 18 months. But I'm really, really pleased at this time, the Board has taken an economics approach towards the valuation of lactose. The last 2 reviews that I've been participating in, this has been a genetics debacle that has been led by farmers and breeders and this is not where it should have come from. It should have come from the economics and the true value of lactose. Lactose makes up literally 45% of your income from reference commodity products. At 45%, it cannot be ignored. Anyway, management and Fonterra, let me talk to a few guys who I really like to thank, Richard Allen, Richard Whiteman and Nic Cameron. They had a very open and trusting discussion with me over the value of lactose. And they also separately and independently came to the same conclusion that lactose does make an economic difference to the value of our milk solids. People often say that lactose reduces the size of the milk pie. And what I'm fighting for is how that pie is divided. It will be very difficult to explain to everyone here that lactose actually does increase milk pie. A value -- kilogram of milk solids that was supplied to Fonterra in 2001 is actually economically more valuable than a kilogram of milk solids supplied to Fonterra today. And it's not because of the change in the composition of milk solids, it's the loss of lactose that has occurred over those last 20 years. I don't expect that to be reversed tomorrow, but I do think that it will curb the loss that we've been seeing over the last 20 years. And so I hope that now we won't have the response I had 20 years ago that the only thing that management knew about lactose is lactose intolerance and all the fart jokes that came with that. Lactose ignorance, I think, might have been a better word to use then. And I think lactose intelligence is the right word to use today. So thank you to the Board. Thank you to management.

Thanks, Gerard. It's an interesting topic and no doubt there'll be someone on the other end with a completely polarized view to yours. And I thought perhaps we should send you and him into the back paddock with a Jersey bull and a Friesian bull and let you sort it out together and come and give us the answer. So thanks. Thanks for your persistence, and hopefully, you feel respected through the process. Great. Shane?

Thank you, Peter. Welcome to Taranaki, Peter, Board, Miles, management team, John Stevenson, Shareholder Council and the team to the true heartland of dairy, of course, and the birthplace of it. I'm looking to you, Mr. Goldsack for some support on this. So, obviously, the home of the dairy industry. Peter, you've had a pretty tough couple of years and Miles and the team, thank you. You've come through it. I think there's more confidence in the industry now than probably what there's been in the last 5 years, but there's still a hell of a hole to fill. There's still a lot of young people that have got a big gap to a lot of backfilling to get back up on top again. And it's with that, that I have my question. I think we have managed things well with a focus on governance, which has been essential and absolutely would fail without it, but we haven't managed the politics quite as well. At the farm gate, Fonterra into reaction. And so you've got a group of younger farmers now who are the future of Fonterra if we're forward-looking with high debt aggressively going forward in the industry, the people you want, actually knock the old coots like myself in the room here now, the next generation of farmers who feel as though they are a bit disenfranchised. And so the way I sum that up, the analogy I use is the conversation that might take place in the coffee room at Fanshawe Street versus the conversation over the sausage sizzle at the Aurora Cafe, Aurora School Cafe. And there's a hell of a disconnect. And you can't go into the room and hear that conversation whilst because they won't talk when you're there in the way that they would when you're not. So someone needs to bridge that political divide. And the declining milk supply, which has been much talked about, is a real threat. So what are we going to do to attract that next group of young farmers and the economics, I think you've got, you've nailed it, but we haven't got the context right.

So in terms of capital structure, that was a big part of it. Yes. I'm going to actually ask Brent to make a few comments if he will, because he always look sideways when I ask him to comment, which...

It's probably because I'm the youngest on the Board.

We are. Usually, I don't have to ask him to comment, because I hate to ask him to stop talking. But I just think in terms of -- we do have a strategy around young farmer engagement. And I know John, in particular, Andy and farmer directors, Brent and the others, we make ourselves available to first farm owners, sharemilkers and contract milkers. We've opened the room to all of them to also attend any farmer meeting. So in the past, you had to sign up the gate and get on and yet to be a shareholder. We've changed all of that. And we've had some really good engagement around the country. Brent, you just want to share on part of that...

Yes, absolutely. And thanks, Shane. Look, it is a key priority for us as dairy farmers, not just Fonterra. This is an industry issue. I respect that we're the processor, but we have a real role to play in this. So there is a team, in fact, Lisa Payne that a number of you know is leading that in relation to the next generation. We struggled even with the name about future farmers and young farmers and all these sorts of things when actually, they are great farmers, but they are the next generation. And so how do we connect? How do we connect them with markets? Back in the day, we had market trips, all those different points. So what are we doing about this? And how do we really bring them in and give them a voice, make them feel like whakapapa, belonging, connection. And we have had a lot of meetings around the countryside just with farmers below 40, often pizzas and bears, often in a golf club or a rugby club and just talk about the things they want to understand, which is often around things like milk price, things like sustainability and government and all of these things that, look, we are interested in as well. So I think opening our ears to those and listening is really vital. I think how do we actually make the dairy industry an industry that's a vocation that people want to come into. It is different from when we all came through or a number of you came through. But we've got to create those pathways because without the future, then yes, milk is our scarce commodity. That's true, our scarce resource, but where is the people. So it's alive and well. We all need to put our shoulder to this wheel.

It's also a hazard for directors to do this, pizzas and beers. So...

Maybe that's another reason for me.

But yes, we take it seriously. Thank you.

Peter, just one brief comment perhaps to add to Brent is that we've had a philosophy historically that you had to buy land first and shares second or you bought cows first, land second, shares third. And now with the change of approach there, one of the ways into the industry is to be able to buy shares first. And that gets you involved, and that's quite important. But our key job is to make sure the shares were good value for money and gave a return on capital that was commensurate with the risk. So that's what we've tried to do.

Thanks, Andy. Any other questions? There's one down here.

Yes. [ Keegan ] from South Taranaki, the great place that we heard about. It's pretty hard to turn on the news at night and not see some comment going on about the environment and the climate and all this blah, blah stuff. And what we have is basically a progress with -- to do with all this carbon that seems to be coming back to us as a cost of farmers. Now it seems to be that even in Fonterra, there's a big emphasis on this. And basically, we're pouring millions of dollars into it, along with the likes of Silver Fern Farms and all the other businesses that are associated with us. And those millions are turning actually into sort of billions at the end of the day, and those are all dollars that are not coming back to us as farmers. Now I'm logical enough to realize that, yes, we have markets overseas that are very sort of tied into this idea. And I'm personally very skeptical about a lot of the science and a lot of the facts that are supposed to be brought out that are behind it. And it's a bit of a bug there when we sort of see this being brought out all the time as like justification for a new change of things in a factory is going to take 30,000 cars potentially sort of out of the system. And every day, I drive on the road and see more and more cars going on. But we see no justification for the dollars that are actually being poured into making all these changes. So I know it's a bit of a toss-up about the whole system. But to me, as a farmer, I sort of see a lot of money being poured into this and like I said, I'm very skeptical about the end result about what it's going to be. We see things that are going to change around the world, particularly in America, where there's going to be quite a different outlook, and that's going to be 1 of the 3 major economic countries that are actually taking no notice because they haven't even turned up along with China and India, haven't even turned up the COP29 conference. And even an interesting thing that came out from the country that's been held in is that the guy sort of says that basically fossil fuels are God's gift to the land. Now where are we going to go with all this stuff basically?

Do you want to make a few comments and I'll...

Yes. I mean we ultimately have a choice. And as the Chief Executive of your co-operative, we have to make choice. And my job is to -- I'm here for a relatively short time over the history of the co-operative and if we look forward another 150 years. And you do have choice. You can say we're not going to undertake this what customers and markets are demanding from us. But you don't get the results that we've seen here in the last couple of years without going and leaning into this because this is what customers and consumers are demanding. And the question I always have is, well, because I've had this conversation many times in the farmer meeting where the sausage rolls are served, where they do talk to me sometimes, Shane, is let's flag that customer. Let's not worry about that customer, and let's go to the next one. Well, what we don't understand is we're already in the next customer, and we're in the next customer, and we're in the next customer. If we don't want to play in this game, as you call it, then we go to customers in countries we can't understand. We can't pronounce the name of them. We're not going to get paid. That's a choice that we have, and I believe it's the wrong choice for the co-operative not to participate and lean into this because that's what our customers and consumers are demanding.

So I'll look at it from a different approach. So by legislation, we have to remove coal from our supply chain by 2037. But more heightened is energy security, and we're an energy heartland right here. So gas availability is becoming a real issue for us. So it's not just about reducing emissions, it's much bigger than that. It's legislative, but it's also about managing risk. The other big most important thing, I think, is that we think we play solitaire in New Zealand and the world owes us a living. It doesn't. Market access is critical, absolutely right at the heart of this. And this is a carbon race. And our competitors are heavily subsidized and they have access to technologies that we don't have. So we can sit here and go, we are the best in the world. And then our boat hits a market buoy and sinks. So I'm really hot on this. It's all about competition and market access. They will go past us, I believe, if we don't get on and start doing some stuff about this. Now this is real. Now we can have different perspectives around all of that, but regulators globally and sources of capital, including your bank, are driving this. So what we're trying to do is get alongside you and partner you and help you on this journey and give you a sustainable future in real terms in terms of monetary sustainability. That's my perspective on the topic. It's a challenging topic.

Yes, Trevor Hamilton. I too am concerned about Fonterra's milk supply. It wasn't so long ago, the shareholders' council come out a few years ago and said they didn't want milk to drop below 85% New Zealand milk, set a target of 79%, now 78%. My question is, is Fonterra being too rigid around the way it both sources new milk and retains milk? And on the retaining milk thing, I know a couple of very large shareholders that ex-directors have taken milk for Fonterra on various lines that Fonterra has put in the sand. We're going to have to pick up a lot of young farmers to replace this milk. I think there needs to be more urgency on retaining milk. And if you look for an example of that, you don't have to look far to what's happening at Synlait currently. And so I just think there's got to be greater emphasis on retaining milk because not to have milks like having a petrol service station without petrol. If you can't put that milk down the pipes, you are in critical danger. So I just think -- I just probably question really, Peter, is the rules for retaining milk and attracting milk just too rigid compared to the competition? The other factor is with the corporate difference, it's taken off the milk price. I always said that was a stupid move because you have to actually earn back your farm gate milk price. No other processor has that. I think that's detriment to New Zealand and to Fonterra milk supply. That's my view.

Okay. Thanks. Do you want to make a brief comment?

No. I mean I acknowledge your points clearly. We've got to do something about this. I mean it's -- to be fair, the legislation that enabled us to happen was set up to enable this to play out, unfortunately. We believe there is a conversation needs to happen in Wellington as well that has Dairy run its course. We'd argue it has. But at the same time, farmers will make their own choice. And I'd go as far as to say they had probably reason to leave previously. The comment made earlier around return on the capital you invested in the co-operative, you had reason. Hopefully, we've proven that we can turn that around and farmers have a reason to stay. And so -- but ultimately, farmers will make their own call. We believe that we have a huge part to play in removing and eliminating risk for farmers on your behalf. That's a risk I think farmers are prepared to take with a single processor in one of the islands across the country.

Harry Bayliss from -- farmer in South Taranaki, but living up here now. First of all, in terms of the sale of the consumer assets, I hope your investment bankers in their advice are highlighting the heightened risk of an IPO and particularly the ongoing heightened risks of an IPO as opposed to a trade sale. I'm not suggesting you shouldn't be looking at it. But in my experience and in my view, that is significantly more risky to go down an IPO route than an absolute sale. Absolute sale is clean and there's no ongoing risk. So I hope you take that into account. I just want to push back -- swapping now to the sustainability thing. I just want to push back on Fonterra's view on emissions. Can I ask, do you accept the claim that pastoral farming is responsible for almost 50% of New Zealand's greenhouse gas emissions?

I don't measure that. So I don't really have a choice on that.

Well, that's what your Fonterra executives are saying. And I believe it is a crock of something that smells. Every atom of carbon that is emitted by our cows as carbon dioxide and methane comes out of the atmosphere within 60 days of it being emitted. I think Fonterra and probably more particularly, I think DairyNZ has been absolutely asleep at the wheel for the last 10 years on this issue. I think Fonterra is asleep at the wheel as well. We believe as dairy farmers, you should be looking after our interests and pushing back on the rubbish that's coming out in this area because it's just like 30 years ago, people were saying milk fat kills people. Where is it today? And it will be exactly the same thing in 30 years' time. But in the meantime, you've actually been costing farmers not only a huge amount of money, but you're affecting them in their heads significantly. So I think you need to actually review how you're actually handling that issue, please.

Thanks for your comments. We don't set global standards for emissions, be it GWP-star or GWP100. Global dairy platform as a group, which is dairy companies all around the world, do invest in research to push back on the very things that you're raising, okay? But we are bound by regulation. We don't -- we can't just stand up there and say we're going to ignore this stuff. You know what? We would fail you if we did, in my opinion. We would fail you as dairy farmers if we just said, no, this is all a crock of shirt. We're not going to do anything about it. So I'm happy to have a chat later, Harry, but it's a challenging topic. It's challenging for all of us. And -- but it's something we have to actually lean into. And it's changed again. And for our generation, it's tough. We used to a pace number at wire and all the stuff is coming at us, and it's incredibly challenging. And it's a generational issue as well. So I accept your concern, but I don't have the answers for you right now in relation to how I can satisfy your concern.

Andrew Hardy, Hawke's Bay. One comment I'd like to make is we've really appreciated the extra $0.50 in milk price the other day. My question is how robust is that? It's going to be really difficult taking that money back if we have a really big blip. And I feel that the world economy is maybe getting a little bit frantic post Trump and maybe there is a bit of frantic buying before other things come to play. So it's really great having an advance to $8. And I'm not worried about getting the money early. I just don't want that taken off me. So the robustness of that decision going forward would be really good.

Yes. Thanks, Andrew. Our job is to give the best view of where we see the market into -- in the short to medium term. And hence, the reason we still have a range there, the $8 to $9. We have narrowed that range by $0.25 either side.

$9 to $10.

$9 to $10, sorry.

We just changed that last time.

I was just checking. Sorry, there are a few numbers in my head today. But that's the best view we have of the market. And to your point, is the people out there doing some panic buying ahead of a market global slowdown potentially. But we're through the peak of our sales book now. So we've sold the peak of our book. So if that happens, we may see that next year. But at this point in time, we feel comfortable with our $9 midpoint -- $9.50.

Okay. It's called inflation. Any other questions on general business? Are there any online?

Yes, Peter. I have 2 questions. Expectations are being set that a sale of consumer business will result in a capital return to shareholders. Are there alternative opportunities for investment that are being investigated for the use of sale proceeds that may improve the Co-op's return on capital? Should more time be spent investigating this before capital distribution is indicated?

The simple answer is yes. We do have opportunities for use of those -- that capital. But at the same time, it also helps when you earn. And the last couple of years of strong earnings also help us to invest in future growth opportunities. And there was a comment made about the [indiscernible] store announcement, a UHT plant in Edendale, a protein facility in the Central South Island. These are things that we've been able to invest in on the back of our strong earnings. But absolutely, we have a resource allocation framework. And if the sale process was to go through, the decision ultimately the Board will make what goes into which category, some back to shareholders has been signaled, what gets reinvested.

Yes. It's also a function of balance sheet strength. So currently, year-end, our balance sheet was around 24% net debt. So that also comes into our thinking. And then in terms of our policy that we put up before in terms of our debt range and our risk appetite, clearly, any capital distribution, we would be thinking this may well be the last capital distribution. So we would be slightly more conservative and we wouldn't want to be turning up asking Co-op members for cash because we know we won't get any. So all those factors come into play. Also, tax efficiency is a thing that we need to consider as well. So there's a bunch of stuff in there, and it's pretty complex. Is there another question online?

Yes. Another question. What is your commitment to holding the government to regulations that protect me and my neighbors from GE ryegrass and milk supply chain contamination costs?

Our position on GE is that we're taking a cautious approach, and we're looking to understand the risks, the potential risks that have been raised online. At the same time, New Zealand's position on GE is inherently more conservative than where our major trading partners are. We also acknowledge that organic farmers operate in jurisdictions where GE is available. The other comment I'll make is that 87 products come into New Zealand now that go into our supply chain food, insulin for diabetes and a number of other things that are GE, gene edited, okay? And so we need to have an open and honest conversation about what's here in our supply chain now and think thoughtfully about the process. The other challenge that we have is in relation to the challenge around climate change and the challenge around predator control in our environmental estates. That tool can help us meet our obligations potentially. So it's not -- people talk about reducing emissions or stopping climate change. The big deal for me is adapting to climate change. So we'll be thoughtful and careful about how we approach it for sure. Okay. Are there any other questions? If there are no further matters for discussion, we'll now bring the meeting to a close. Thank you very much. Before I close the meeting, I'd like to acknowledge the recent Fonterra director election results. On Tuesday, it was announced that John Nicholls and I had been reelected to the Fonterra Board. There's nothing like losing a one horse race. So thanks for your support. On behalf of both of us, I'd like to thank you for your continued support, and we certainly felt that over the years. As I mentioned earlier, Clinton Dines and Leonie Guiney will be leaving today. The Board would like to take this opportunity to further acknowledge their contributions with a small token of our appreciation. You'll be pleased to hear that last night, we presented our Aussie mate Clinton with his very own All Blacks jersey. Now if Taranaki had won the NPC, he might have got one of those as well. But anyway, here we are. Please join me in thanking Clinton and Leonie. So I've got a nice bottle of red wine for Clinton. So you got a lot of Greenstone Mary in an All Blacks jersey last night. Really appreciate it. And Leonie, I'm going to actually give Leonie the last say today. Thanks for everything, Leonie, and we have valued your contribution deeply, and it's been great. So I just want to hand you these.

Thank you, Peter. Thank you, Brent. I'll miss the privilege of steering something that is -- well, contributing to steering something that's so important for outcomes for New Zealand farmers. That's the main thing and New Zealand. But I've only had that privilege because you, the farmers, and I speak to all any online as well from Northland to Southland and specifically in Taranaki, there's some of you in this room, you know who you are, who backed me and trusted my intent all the way. So thank you from the bottom of my heart. I will also miss every one of my colleagues, every one of my colleagues. And I'm just so happy for Fonterra that I can say that now because it speaks of a culture, Peter, that will keep delivering for all of our stakeholders. Fonterra is in a good position. I don't use superlatives. We're in a good position. Not an amazing position, we're in a good position. The growing confidence in Fonterra that I observe from farmers and the business community, I actually consider to be well placed. It's been a journey to get Fonterra to that place. And it's imperative that Fonterra has learned where we went wrong in the past. A focus on the appearance of value at the expense of actual value was at the root of a lot of our poor past outcomes. Add to that too a strategy that was misaligned from what is our core advantage and the absence of risk-adjusted thinking in a lot of our investment made for some extremely expensive errors. Most businesses will make simple decisions. Good governance owns its own errors in a timely manner, and that's what minimizes further damage to shareholders' equity. Fonterra did not do that in the past. And that was a governance failure that we cannot repeat. Now the core role of governance is to clarify what business you're in, understand your core comparative advantage, employ the right CEO to deliver on that and hold that CEO to account. The language I hear from you, Miles, now assures me that a mature understanding of Fonterra's why and of where value is actually to be extracted is finally in place. We have better aligned our balance sheet to the commodity exposure we will always have, we'll always be exposed to cycles, and our risk appetite and strategy are better aligned to our strengths, our Fonterra strengths in our location and the risk appetite also of our owners. That has improved one of the core advantages of a co-op that is the loyal supply that comes from trust. We have a focus too now on building our talent within, and I thank you for that, too, Miles. It's critical. The combination of listening while leading, financial discipline and strategic clarity has changed Fonterra. I'm under strict instructions not to compliment the Chair because he hates it. So I'll give credit where credit is due to the one who enables the Chair. Thank you, Linda McBride. And I want to thank my colleagues for the stimulating and respectful debate that I so enjoy and for your friendship. Clinton Dines is the only one who's been on the Board for as long as I have. And Clinton, you have made a truly independent and effective contribution to Fonterra and to our new respect for the balance sheet position. Fonterra is now sorry for the position that we're now in. I want to thank Miles and your team. Again, you have been open and candid with your analysis of our strengths and the true economic performance of our channels. And you've made really tough calls to recommend exit where you don't have a competitive -- where we don't have a competitive advantage or a core competency, and you've been open about that. I admire that, and I support the strategic direction. I will flag a risk, both Board and management -- sorry, I will flag a risk to both Board and management. Recent performance has been very good. Often success is the hardest thing to manage going forward. And the day any of us considers ourselves individually responsible for good outcomes, we're risk running a ground. The bible puts it better in Proverbs 15:33, humility, not pride, comes before honor. Domestic competition shouldn't distract us from a focus on our global exposures and our opportunities. The competition will eat our lunch if our overheads aren't further reined in, in Fonterra and if farmers don't retain their ability to ride the cycles with a competitive position on the global cost curve. We both have -- we all have responsibility. But enough good brains with business acumen and experience and the right reasons for being there, which I firmly believe is to serve, will help management get the most important decisions right for the co-op and for our owners. To that end, I encourage the next generation of farmers to step up and be there to lead in future. Fonterra's future is dependent on its business savvy suppliers with skin in the game being prepared to determine our own future. So I'm not worried about Fonterra's future, not in this wonderful temperate climate that enjoys outstanding comparative advantage in the production of the highest quality sustainable protein. It's complemented by our share milking system, which attracts the entrepreneurs to our industry and our scaled co-op with genuine advantage in ingredients innovation and food service and market access. And I'm personally so very happy to be a New Zealand dairy farmer. Finally, the most important thank you. In 2010, I arrived home after yet another late farmer meeting. I was chairing a meeting actually seeking a second vote in Canterbury, a chairing a meeting in Canterbury for a second vote on TAF in those days. I arrived home late at night to a note on the table. And it said, mom, we love you. It was written by my 4 children and my husband, but we are sick of TAF. And it was signed -- it was entitled petition. Sadly, my children under 10 knew what a petition was in those days. And it was signed by all 5 of them, including my rock of a husband, Kieran. If only you had known then what was to come after. 7 years later, he would still be backing me as we campaigned from Northland to Southland for my reelection. After being one of the only incumbent directors in Fonterra's history to ever be removed by any means other than a farmer vote, which is actually anti-constitutional. And to the last day, here he is in support despite our own daughter last weekend, this Saturday, being in Dublin, based in Dublin at the Ireland All Blacks match, my husband is from Court for anyone that doesn't know. She was drinking Guinness with Rahotu locals, Donald and Marie Anderson and Smiley Barrett. And my loyal husband is instead present here at the Fonterra AGM. So thanks, Kieran, for competing with my other love, which is the absolutely unmatched New Zealand dairy industry, and it's essential scaled co-operative of Fonterra. May God bless all of you, all of your families, all of our staff and all of your endeavors. Thank you so much.

Thanks, Leonie. I'd like to thank you all for attending today and to invite those in the room to join us for lunch, please. We'll share the results of the votes as soon as that's possible. That concludes the business of the annual meeting of Fonterra. I'd like to ask [ Mitch Crossfield ] to now close our meeting with a Karakia. Thanks, Mitchell.

Yes. Thanks, Peter, and I'll quickly remind you that Taranaki is the home of the Ranfurly Shield at the moment, Peter, in case you forgot after a deep clean from the Hawke's Bay, I might add.

Which half of it?

Not the Hawke's Bay half. On a serious note, [Foreign Language] all of you who are leaders of this great co-operative [Foreign Language] to acknowledge you all. [Foreign Language]

Thanks, Mitch. Thanks, everybody.