Fonterra Co-operative Group Limited · NZX:FCG
Fonterra Co-operative — Non-Deal Roadshow (May 2021)
34 slides from Fonterra Co-operative's roadshow presentation, May 2021
Slide 1: Fonterra Capital Structure Review
Slide 2: A strong farmer-owned Co-operative
A strong farmer-owned Co-operative is good for farmers and good for New Zealand. We have choices to make to protect our Co-op for generations to come.
Slide 3: Director Meetings, Review and Further Consultation
• • • • • Director Review and Further • Meetings address Consultation feedback Further Regional Refine options Proceed with Preferred Meetings Option (if change is recommended, then this would likely include a shareholder vote) 3
Slide 4: Fund size as share of total
6.5% 16.6% $525m* $1,330m* *Based on a $5 share price; Actual Fund Size and Potential Fund Size are as at 31 March 2021 4
Slide 5: What we'll cover today
What we'll cover today I. 2. Our Context Our Options and Co-op Fundamentals 3. Alternate Capital Structures and Considerations
Slide 6: Our Context and Co-op Fundamentals
I. Our Context and Co-op Fundamentals
Slide 7: To create superior value for our customers and our Co-operative
To create superior value Unlock greater value from for our customers and our scale efficiency and our Co-operative focus on execution To do what is right for the long term good and meet consumer and community needs
Slide 8: Volume to Value strategy shift
Volume Value Prioritise New Zealand Milk Global Milk Pools + complementary components Maximum volume into consumer Focus on key categories to deliver superior value Dairy only Supplement with non-dairy where makes sense Partner with cash investments Partner with IP and skills and lift R&D Debt funde
Slide 9: Three factors fundamental to long-term success
These three factors are fundamental to our long-term success Financial ¢\ Sustainability ]%. s Farmer Sustainable Ownership Milk Supply
Slide 10: NZ milk supply flattening
Significant and sustained expansion of dairy Flattening We need to be prepared for flat to declining NZ milk 2,000 New Zealand Milk Supply 1,800 NZ Milk Supply Scenario 1,600 Fonterra Milk Supply 1,400 Scenario 1 1,200 Scenario 2 1,000 800 600 400 200 0 Source: NZ Milk Supply: Dairy NZ – New Zealand
Slide 11: Farmer investment in shares, cows and land
$5,000,000 Shares $4,000,000 Cows $3,000,000 Land $2,000,000 $1,000,000 $- Supply Corporate Supply Fonterra Source: DairyNZ Economic Survey 2018/19 11 Based on a $5 share price
Slide 12: Fund thresholds protecting farmer ownership and control
• Under the current structure, dry shares can be exchanged into units in the Fund at any time • When TAF was set up we created thresholds to protect farmer ownership and control • We are approaching some of those thresholds today • Declining milk or more flexibility for farmers *Not to scale could c
Slide 13: Dry shares scenarios
250 200 Dry Shares (m) 150 100 50 - 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 Scenario 1 Scenario 2 13
Slide 14: Our Options
2. Our Options
Slide 15: Three possible paths to address this
We have three possible paths to address this a) — LL Buy-back shares * Uses balance sheet capacity or units * Doesn’t provide flexibility Milk declines (to stay within Fund size for farmers thresholds) | ——+ 2. Increase Fund size * Could put farmer ownership Fund exceeds thresholds and control at ri
Slide 16: Alternate Capital Structures and Considerations
3. Alternate Capital Structures and Considerations
Slide 17: Criteria for assessing capital structures
Does the Does the Does the Does the Does the Is the transition Does the Is the structure structure structure structure structure align structure to a potential structure simple to preserve farmer support our protect value incentives manage new structure preserve understand and ownership and ability
Slide 18: We have reviewed many capital structure options
We have reviewed many different capital structure options Farmer Ownership Sustainable Milk Supply Financial Sustainability 18
Slide 19: Reduced Share Standard best met our criteria
• Of the options that we reviewed, Reduced Share Standard with either No Fund or Capped Fund best met our three criteria • This is because it: • Provides capital flexibility for farmers • Secures farmer ownership by removing or capping the Fund • Maintains balance sheet strength 19
Slide 20: Limited versus increased flexibility
Limited flexibility Increased flexibility 1:1 minimum share standard 1:4 minimum share standard Maximum share ownership 2x supply Maximum share ownership 4x supply Share/Unit exchangeability Capped Fund or No Fund Share price set in public and farmer markets Share price set in farmer-only market 1 v
Slide 21: Public market versus farmer-only market
Capping or removing the Fund means the Fonterra =) Shareholders’ Market operates as a Farmer-only Market Public Market Farmer-only Market * Diverse range of participants Homogenous group of participants * Diversified portfolios allow risk Concentrated risk mitigation Higher yield required * Shares t
Slide 22: Capped Fund versus Fund removed
Fund size is permanently capped Fund is removed No offer is made to buy back the Fund An offer is made to buy back the Fund Requires approval of 75% of unit holders entitled to No unit holder vote required vote and voting No capital allocation required Capital is allocated to buy back the Fund FSF a
Slide 23: Recap
Recap Our fundamentals Financial £4 Sustainability JS, y nN ‘ / 1 - i 1 Farmer Ownership We want to provide flexibility for farmers, and we need to plan for flat to declining milk We have choices to make > 1. Buy-back shares (to stay within Fund size Milk declines ani ——~ 2. Increase the Fund [emit
Slide 24: Director Meetings, Review and Further Consultation
• • • • • Director Review and Further • Meetings address Consultation feedback Further Regional Refine options Proceed with Preferred Meetings Option (if change is recommended, then this would likely include a shareholder vote) 24
Slide 25: Discussion
Slide 26: Thank You
Thank You.
Slide 27: Appendix
Slide 28: Problems to Solve & Principles
Problems to Solve & Farmer Director Review and Further Principles survey Meetings address Consultation feedback Research into Co-operatives Detailed analysis Further Further Regional Refine options Proceed with around the world of options, trade- development Meetings Preferred Option offs, risk and
Slide 29: Unshared Supply
Unshared Supply * Strong option for flexibility UNSHARED SUPPLY + Fund * Less aligned to our Co-op Principles FARMERS . . @) INVESTORS * Creates incentives for farmers to redestle @) becomes unshared suppliers to free Unshared peeps Ua: up capital * Could lead to concentration of ownership over time
Slide 30: Traditional Co-op
Traditional Co-op TRADITIONAL Nominal supply share Strong for attracting milk Strong on farmer ownership and control Requires significant capital to be returned to farmers Challenging in New Zealand regulatory context Farmer Ownership Sustainable Milk Supply Financial Sustainability 2 8e 30
Slide 31: Split Co-op
Split Co-op a ) FARMERS, A . B Nominal . Tradeable investment EXTERNAL INVESTORS Separate value-add entity Splits Co-op into wholly owned processing entity and partially owned value-added entity Potential for misalignment between external investors and farmers Potential for pressure on ownership and
Slide 32: Dual Share
Dual Share EMALSELGs * Move to two classes of shares iO Fun * Nominal “A” supply share () FARMERS. ; * Optional “B” investment share A SB Nonnal |: (cateobler * Discretionary dividends paid on both share | shares A and B-shares. Dividend on supply (a shares capped at a level that reflects terse the
Slide 33: NZ milk supply, dairy hectares and methane targets
New Zealand and Fonterra Milk Supply 1 Change in Total NZ Dairy Hectares 2 NZ Biogenic Methane Emission Targets (2017 baseline) 3 2,000 200,000 100% TAF Methane Emission (2017 Eqvui) 150,000 1,500 75% kgMS (m) 100,000 Hectares 1,000 50% 50,000 500 25% 0 - -50,000 0% 2008/9 to 2012/13 to 2016/17 to 2
Slide 34: Fonterra Farmers Fund structure
Shares Units Custodian FONTERRA FARMERS FUND INVESTORS 34
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