Our Path

to 2030
Te Huanui
ki 2030
Contents
MESSAGE FROM MILES 1

OUR STRATEGY AND PLANS 4

THE FINANCIAL VALUE WE’RE AIMING TO CREATE 6 This is just the

THE NUTRITIONAL VALUE WE CREATE FOR PEOPLE 10
beginning...
THE WORLD WE OPERATE IN 12

OUR PLANS IN MORE DETAIL 14

REIMAGINING MILK FOR FUTURE GROWTH: Kia ora We know farming is an intergenerational 1. Focus on New Zealand milk
26
NUTRITION SCIENCE SOLUTIONS business and it is now the right time for us
When I was asked by the Board to step into We believe New Zealand milk is the most
to shift our focus to the future – and we
the CEO role in 2018, it came with both an valuable milk in the world due to our grass-
FOLLOW OUR PROGRESS TOWARDS 2030 28 element of trepidation and a great sense of
are excited to share with you our Co-op’s
fed farming model, which means our milk
long-term strategy.
responsibility to do what’s right for our farmer has a carbon footprint one third the global
APPENDIX: ASSUMPTIONS TO SUPPORT shareholders. I knew the next couple of years We want to give you visibility of what our average for milk production. But we have
30
THE FINANCIAL VALUE WE’RE AIMING TO CREATE were going to be tough as we went about next decade looks like so you can see how the an opportunity to differentiate our Co-op’s
resetting the business. recommended capital structure changes enable milk further in the global market and earn a
our strategy and the value we are aiming to premium. This requires us to focus our capital
To pen this letter three years on, having
create for you. and our people on enhancing the natural
completed our reset phase and knowing what
it means for our Co-op to have shored up our As we look out to 2030, the fundamentals of goodness of New Zealand milk.
foundations, is hugely satisfying. I feel proud dairy – in particular, New Zealand dairy – look To help make this happen, we are continuing
of what our team has achieved, and want to strong. Put simply, the world wants what we’ve to refine our asset portfolio. We will invest in
thank you for giving me your support through got – sustainably produced, high-quality, some of our existing manufacturing sites and
this period. nutritious milk. This comes at a time when we businesses to ensure we have the capability
see total milk supply in New Zealand as likely to grow our Foodservice channel, continue
IMPORTANT CAUTIONS AND DISCLAIMER And this is just the beginning…
to decline, and flat at best. momentum in our Consumer channel and move
This document may contain forward-looking The Forward Statements also involve known document or the likelihood of fulfilment of On one hand, this requires the right capital towards higher value specialty products in our
statements, financial targets and ambitions and unknown risks, uncertainties and other any Forward Statement or any outcomes structure to help ensure we don’t lose the Ingredients channel. Recently, we reviewed
(“Forward Statements”), each of which is important factors that could cause the actual expressed or implied in any Forward Statement. benefits of what generations of farmers the ownership of our two other milk pools –
based on a range of assumptions, including the outcomes to be materially different from Accordingly, to the maximum extent permitted have built – a New Zealand dairy co-operative in Australia and Chile.
assumptions noted in the Appendix. None of the the events or results expressed or implied by law, none of the Relevant Persons accepts of scale. We have begun considering the most
Forward Statements is intended as a forecast, by such Forward Statements. The key risks any liability whether direct or indirect, express
But on the other hand, it gives us more options appropriate ownership structure for Fonterra
estimate or projection of the outcome that will, and uncertainties that have been taken into or implied, contractual, tortious, statutory or
to be selective about what we do with our Co- Australia, one option is an IPO, with the
or is likely to, eventuate. They should not be account in preparing these materials are set otherwise, in respect of any Forward Statements
op’s milk. In doing so, we can increase the value intention that our Co-op retains a significant
taken as forecasts or a guarantee of returns to out in the Appendix. Those risks, uncertainties, or for any loss, howsoever arising, from the use
we generate for farmers and New Zealand over stake. Fonterra Australia has transformed its
shareholders. The Forward Statements were assumptions and other important factors are not of this document.
the next decade. business over the last three years and now
prepared by Fonterra and have not been audited all within the control of Fonterra Co-operative Statements about past performance are not operates efficiently with the leading dairy
or independently reviewed. Group Limited (“Fonterra”) and its subsidiaries necessarily indicative of future performance. To make this happen we have made three brands in the Australian market. We believe
There can be no certainty of outcome in relation (the “Fonterra Group”) and cannot be predicted
Except to the extent (if any) as required strategic choices – continue to focus on now is the time to bring in external capital to
to the matters to which the Forward Statements by the Fonterra Group. The Forward Statements
by applicable law or any applicable Listing New Zealand milk, be a leader in sustainability take this business to the next level but given
relate. Our ability to achieve the outcomes in this document reflect views held only at the
Rules (including the Fonterra Shareholders’ and be a leader in dairy innovation and science. the strong linkages to New Zealand-sourced
described in the Forward Statements is subject date of this document.
Market Rules), the Relevant Persons disclaim We’ve heavily stress tested these choices and milk, maintaining a significant stake remains
to a number of assumptions (as described in the While all reasonable care has been taken in any obligation or undertaking to update any know they are the right choices to give us a a priority. As we continue this review and
Appendix), each of which could cause the actual the preparation of this document, none of information in this document. competitive edge, mitigate risks and position us our thinking becomes clearer, we will provide
outcomes to be materially different from the Fonterra, the Fonterra Group, or any of their to have a sustainable future well beyond 2030. regular updates.
This document does not constitute investment
events or results expressed or implied by such respective subsidiaries, affiliates and associated
advice or opinions, or an inducement,
Forward Statements. The key dependencies companies (or any of their respective officers,
recommendation or offer to buy or sell
affecting those assumptions are also described employees or agents) (together “Relevant
any securities in Fonterra or the Fonterra
in the Appendix. Persons”) makes any representation or gives
Shareholders’ Fund.
any assurance or guarantee as to the accuracy
or completeness of any information in this 1
 OUR PATH TO 2030

We have also started a process to divest 2. Be a leader in 3. Be a leader in dairy innovation The value we’re aiming to create We have an incredible raw material made on
our integrated Chilean investment (Soprole the pastures of New Zealand farms, a business
sustainability and science Our focus on New Zealand milk, sustainability,
and Prolesur). Soprole is a high performing supported by a talented and committed team
business with a strong market position, We’re all striving for a better future than the Our Co-op has a long and proud heritage of and innovation and science will see us shift who want to do right by you and an exciting
including being one of the most recognisable one we have today – and that’s particularly the dairy innovation, pioneering many world firsts every aspect of our business to create more opportunity to create value. It’s up to us as a
food and beverage brands in Chile, and Prolesur case when we look at the environment. and, increasingly, new solutions which aim to value. In doing so we aim to continue to Co-op to work together, make the necessary
is a subsidiary of Soprole focused on sourcing solve problems our customers face in their improve our financial performance and, as a changes and ensure we’re creating goodness
New Zealand has the unique position of being result, strengthen our ability to repeatedly
milk and manufacturing in Southern Chile. operations and help people live healthier and for generations – you, me, us together,
the most carbon-efficient dairy nation on the generate cash and create value for our
Chile is a complete stand-alone business that longer lives. tātou, tātou.
planet and when you combine this with our shareholders and New Zealand.
does not require any New Zealand-sourced
MESSAGE FROM MILES

pasture-based model, animal welfare standards When we look to our markets, we know the
milk or expertise and therefore is not the right There are four key value targets we’re aiming to
and scale efficiency, we have something that world’s population is growing and getting older.
strategic fit for our Co-op as we look out to the achieve by FY30:
can’t be replicated. Asia’s middle class is rapidly increasing – they
long term.
want more protein and more convenience in 1. An average Farmgate Milk Price range for
But we can’t slow down now. Customers and
We see both these moves as critical to enabling their life. People are more aware than ever of the decade of $6.50-$7.50 per kgMS.
consumers want to know where their food
greater focus on our New Zealand milk and, the links between nutrition and health, and
comes from and the environmental impact it Miles Hurrell
importantly, allowing us to free up capital, they are taking more interest in their immunity, 2. A 40-50% increase in operating profit
leaves, which is why it’s important we continue Chief Executive Officer
much of which is intended to be returned cognition and mental health. from FY21 and, with the reduced interest
to support the hard work our farmer owners from having less debt, this should translate
to shareholders.
have been doing to reduce the environmental Over the past decade we have developed a into an approximately 75% increase in
impact of their business. A farmer’s livelihood world-class Foodservice channel in China. Any earnings, giving us the ability to steadily
depends on producing good quality milk dairy company globally can produce a product increase dividends to around 40-45 cents
and that relies on a stable climate and to sell into this category. But we believe no one per share by FY30.
healthy ecosystems. can replicate our completely unique offering
– the combination of pasture-based taste 3. A Group Return on Capital of 9-10%, up
It’s for all these reasons, we aspire to be Net from 6.6% in 2021.
profile that is heavily sought after, our chef-led
Zero carbon by 2050 and intend to invest
go-to-market model, our manufacturing scale,
around $1 billion in sustainability initiatives 4. Through planned divestments and
our innovation and our global reach. This sets
over the next decade. Much of this will be improved earnings, an intended return of
us apart from our competitors and gives us the
required to upgrade our core manufacturing about $1 billion to shareholders by FY24,
confidence to take this proven model to new
assets as we look to decarbonise our footprint and around $2 billion of additional capital
regions throughout Asia Pacific.
and improve water use and quality. We also available for a mix of investment in further
know that to maintain our relative carbon The next phase of the nutrition journey is growth and return to shareholders. This is
footprint advantage against the northern just being discovered. Food has evolved over in addition to the approximately $2 billion
hemisphere farming system, we must solve the many years from a simple energy source expected to be invested in sustainability
methane challenge and will be doubling our towards what consumers seek today – taste, and moving milk into higher value
innovation efforts to look for solutions. convenience and pleasure. We are now seeing products.
that some types of food, and in particular,
Doing so will allow us to invest in our brands Our strategy and ability to achieve these
dairy, could help with the answer to many of
to showcase our New Zealand sustainable targets depend on a sustainable supply
life’s current challenges – cognition, immunity
nutrition story. This will put us in a position to of New Zealand milk and in turn a capital
and even stress. This is why we will look
further grow our Foodservice and Consumer structure that enables this. This is why the
to understand more of this health and
channels across our markets in the Asia changes to our capital structure that are being
wellness trend and where we can build a
Pacific region and gain more value through recommended by your Board and Management
competitive advantage.
our Ingredients channel by helping customers team are so important to our future.
meet their own sustainability goals.

2 3
 OUR PATH TO 2030

Our strategy
and plans

Our Co-operative’s strategy WE AIM TO

is to enhance people’s lives Prioritise the Grow Strengthen Move towards

OUR STR ATEGY AND PL ANS

through convenience, health Farmgate Foodservice Consumer higher value

and wellbeing by unlocking Milk Price products in
the goodness of NZ milk. Ingredients

THE VALUE WE’RE AIMING TO CREATE BY 2030 OUR PLANS

Be a leader in dairy
Average Farmgate Milk Price range for the decade Operating Profit

$6.50-$7.50 40-50%
Group ROC Focus on Be a leader in Innovation
per kgMS increase from FY21 ~9-10% NZ Milk Sustainability & Science
Sharpen portfolio Make the most of our operational
Prioritise innovation, IP,
• Sell Chile business footprint and invest in
~$1b ~$2b • Explore ownership structure of sustainability
simplification and digitisation

~$1b Fonterra Australia, one option

~$1b invested in moving

intended to be
distributed to
available for a mix of
investment in further
is an IPO Support further on-farm change
to stay in front of customer
Extend further into health
and wellbeing
Continue our shift to expectations
invested in milk into higher value shareholders after growth and return to higher value
sustainability products asset sale shareholders
Embed culture to drive
Bring our NZ dairy story to life
high performance
Note: The figures in this section are targets
that we are aiming to achieve only. They should
Make progress towards 2050
aspiration to be ~$160m not be taken as forecasts or as a guarantee of
returns to shareholders. They are subject to
successfully completing a number of business
initiatives, and assumptions, each of which could
Develop our people capabilities for
a changing and technological world

Net Zero Carbon per annum invested in materially affect the actual outcomes. The target
years assume long-term average levels of price
R&D, up ~50% from FY21 relativity and lag pricing impacts, and individual Create competitive advantage
years are likely to vary from this assumption.
The key assumptions and risks relating to these through nutrition solutions
targets are set out in the Appendix to the
booklet Our Path to 2030. Please also refer to
the important cautions and disclaimer at the
4 beginning of the booklet Our Path to 2030. 5
 OUR PATH TO 2030

The financial value By 2030, we are aiming for our EBIT

to increase by about 40-50% and our 2030 targets we are
we’re aiming to create net earnings to grow by more than aiming to achieve
75% to around 60c per share.

Over the next decade we aim to continue to Over the next four years we are aiming to Given the constrained milk environment we
improve our financial performance, align our improve our margins in Consumer, using our expect to be operating in and the growth we Average Farmgate
asset portfolio to our strategy and look for New Zealand provenance and sustainability are targeting for our Consumer, Foodservice
more capital-light ways of doing business. credentials to differentiate our brands. This and Active Living channels, we expect to Milk Price range
THE FINANCIAL VALUE WE’RE AIMING TO CRE ATE

Our plans are based on a target average

will be supported by our ability to realise
e-commerce opportunities.
reduce the amount of milk solids we direct to
our core Ingredients channel from 74% of our
for the next decade:
Farmgate Milk Price range of $6.50-7.50
per kgMS. We believe our ongoing focus on product
portfolio in 2021 to about 64% in 2030.
$6.50-$7.50 per kgMS
innovation in the Active Living portfolio1, which We are targeting an EBIT improvement of
An improved performance will give us the
includes advanced sports, active, healthy ageing about 40-50% by 2030, taking into account the
ability to increase dividends. It will allow us to
fund necessary investments which are critical
and medical nutrition ingredients, will help
continue improving margins. In addition, we will
proposed sale of our investment in Soprole and
potential ownership changes to our Australian
40-50% increase in
to our aspiration to be Net Zero carbon by
2050 and give us the manufacturing capability
look to invest about $1 billion in new growth
business opportunities, including nutrition science
business over the next two years. In FY21,
Soprole contributed around 3 cents to our
operating profit from
to direct our Co-op’s milk into the highest
value products.
opportunities to accelerate our growth in Active earnings per share and Australia contributed FY21
Living and aim to deliver a total Group return on around 3 cents.
We are starting a divestment process for our investment of almost 10% over this period.
On an earnings per share basis, we expect to
integrated investments in Chile (Soprole and
Prolesur) and are reviewing ownership options
see the benefit of reducing interest expense Increase dividends to
through lower rates and debt levels.
for Fonterra Australia, one option is an IPO,
with the intention that the Co-op retains
EBIT 2

(NZD millions)
~40-45 cents cents
a significant stake. Subject to successfully 1500
per share
completing these processes and achieving our
ongoing business targets, we intend to return Note: The figures in this section which relate to dates in the future (including those in the table and graphs which follow) 1200
a significant portion of the net sale proceeds
Group Return on
are targets that we are aiming to achieve only. They should not be taken as forecasts or as a guarantee of returns to
shareholders. They are subject to successfully completing a number of business initiatives, and assumptions, each of
from these transactions to our shareholders which could materially affect the actual outcomes. The target years assume long-term average levels of price relativity 900
by FY24. The combination of these
divestments and our targeted earnings
and lag pricing impacts, and individual years are likely to vary from this assumption. The key assumptions and risks
relating to these targets are set out in the Appendix. Please also refer to the important cautions and disclaimer at the
600
Capital of ~9-10%
beginning of this document.
provides further capacity to return capital to
our shareholders and this is assumed to occur 300
from FY25 onwards.
Our aspirational financial profile for the next decade An intended return
Our focus on value creation also opens up
choices for investing in exciting new, high value FY24 FY27 FY30
0
FY21 FY24 target FY27 target FY30 target of about ~$1 billion to
growth opportunities in nutrition science.
However, if we are not confident that we can
FY20
Actual
FY21
Actual
FY22
Forecast
Year 3
Target
Year 6
Target
Year 9
Target
Foodservice Consumer Active Living Ingredients New Business
shareholders by FY24
achieve a double-digit risk adjusted return on Earnings per share
Improved performance (Cents per share)
capital, there would also be an option to return
further capital to shareholders. EBIT ($m) $879m $952m
$875-
$975m
$1,025-
$1,125m
$1,150-
$1,250m
$1,325-
$1,425m
80 ~$2 billion of
Moving milk into the highest-returning Earnings per share (CPS) 24c 34c 25-40c 45-55c 50-60c 55-65c 70
additional capital
products will be key to unlocking our earnings 9.0-
potential. We plan to increase milk solids in our
Return on capital 6.6% 6.6% 6.5-7.0% 7.0-8.0% 7.5-8.5%
10.0% 60
available for a mix of
Foodservice channel by around 50% by FY30.
We will seek to achieve this by growing our
Financial position
Capital investment ($m) $525m $608m $650m $980m $980m $980m
50
investment in further
global Foodservice presence across Greater
China, South East Asia and the USA. Debt to EBITDA ratio 3.3x 2.7x 2.4x** <2.5x <2.5x <2.5x
40
growth and return
Gearing ratio* 44% 39% 35%** <35% <35% <35% 30
to shareholders.
Dividend to shareholders 20
FY21 FY24 target FY27 target FY30 target
Assumed Payout Ratio – – – 50% 60% 70%
Dividends (CPS) 5c 20c 15-20c 22-27c 30-35c 40-45c
1 Active Living is substantially the same as Speciality Ingredients as reported in our Business Performance Report 2021.
* Updated measure of debt to align with credit rating agency methodology. 2 These channel EBIT amounts include the allocation of unallocated costs and the breakdown of Ingredients into core
Ingredients and Active Living. As a result, the EBIT splits will vary from those summarised in the Annual Review and Business
6 ** Calculated using an earnings per share of 35 cents. 7
Performance Report.
 OUR PATH TO 2030

We expect that investing in a sustainable

future for our Co-op will require an increase
in capital investment from about $600 By 2030 we are targeting a dividend of
million per annum to about $980 million per around 40-45 cents per share, up from
annum by 2030. 20 cents per share in 2021.

Our Co-op has invested significantly over the Capital investment In addition to dividends increasing in line with Dividend
last two decades and it is obviously important (NZD millions) improving earnings, we intend to return around (Cents per share)
we maintain our existing manufacturing sites 1000 $1 billion of capital to our shareholders by 50
and business infrastructure in good working FY24 dependent on the proposed divestment
THE FINANCIAL VALUE WE’RE AIMING TO CRE ATE

condition. Doing this and making necessary 800

of Soprole and ownership changes to our
40
ongoing efficiency improvements, requires Australian business. Assuming we continue to
about $550 million per year – this is what we achieve our financial targets and we maintain a
600
call essential capital. positive outlook for our Co-op, we would have 30
the capacity to make further capital returns to
Over the next decade we intend to significantly 400 our shareholders and this is assumed to occur 20
increase our investment in sustainability
from FY25.
related activities throughout our supply chain
200
to both mitigate environmental risks and We assume a payout ratio at the mid-point of 10
continue to differentiate our New Zealand milk. our dividend policy of 40-60% of Reported
By FY30 we intend to invest around $1 billion in 0 Net Profit After Tax, excluding abnormal gains, 0
FY21 FY22-24 Avg target FY25-27 Avg target FY28-30 Avg target FY21 FY24 target FY27 target FY30 target
reducing carbon emissions and improving water through to FY24. The payout ratio is assumed
efficiency and treatment at our manufacturing Essential Sustainability Existing Business Growth New Business to increase to the top end of the range in FY25
sites. In doing so, we will be taking significant through to FY27. In FY28, based on achieving
steps towards our aspiration to be Net Zero our targets, we intend to increase the dividend
carbon by 2050. payout ratio to about 70%.
Capital investment will also be needed
to support growth in our Consumer and
Foodservice channels and accelerate

We will continue to be financially

the growth of our Active Living channel,
particularly in areas underpinned by nutrition
science capability. We will support this by
increasing our R&D and innovation budget. disciplined, aiming to maintain a
We are aiming to increase our current total
annual R&D investment by over 50% to around conservative balance sheet.
$160 million per annum in 2030, with about
$60 million per annum specifically targeted at
growth in Active Living.
Our focus on financial discipline over the last Debt/EBITDA*
In a constrained milk environment, we couple of years has helped us strengthen our
4
expect to have enough capacity across our balance sheet and this focus will continue. We
manufacturing network to process all our intend to maintain a strong balance sheet and
farmer owners’ milk and therefore no new operate within our long-term leverage targets
3
investment in processing capacity should be – these are debt/EBITDA of between 2.5 and
required over the next decade. However, we 3.0x and a gearing ratio of 30-40%. This will
intend to invest in some of our manufacturing give us the ability to deal with the volatilities 2
sites so we can move more milk into higher inherent with our business and take advantage
value products. of opportunities as they arise. The expected
increasing level of debt after FY24 is enabled 1
by the growing earnings profile.

0
FY21 FY24 target FY27 target FY30 target
Gearing 39% 31% 31% 33%
Debt 4.3 3.4 3.7 4.3
(NZD billion)

* Updated measure of debt to align with credit rating agency methodology

8 9
 OUR PATH TO 2030

The nutritional
value we create
for people

Global demand for

dairy is expected to
THE NUTRITIONAL VALUE WE CRE ATE FOR PEOPLE

continue to increase
by about 2% per
annum out to 2030 –
that’s about 80% of
New Zealand’s entire
Dairy is packed with nutrients which are easily Given quality food is one of the best sources of dairy production
absorbed and help people lead a healthy life. nutrition, we know there’s more potential for
dairy to play an even greater role in nourishing every year
People around the world choose milk
the world’s population.
as a staple in their diet, with dairy a
recommended part of healthy, balanced diets
for optimal health.
The bioavailability of the nutrients in milk
makes dairy’s nutritional value even more As a natural
A glass of milk is a natural source of many of
powerful. Milk proteins are rich in specific
amino acids our bodies need but can’t
product, dairy is an
the valuable nutrients people need. It is one of
the richest sources of readily available dietary
produce. We should not be surprised that the
composition of amino acids that mammals
important part of
calcium and contributes many other essential
nutrients, including protein, phosphorus,
require are the very same types found in milk, the sustainable food
a food designed by nature for this specific
potassium, vitamin A, riboflavin (vitamin B2),
niacin (vitamin B3) and vitamin B12.
purpose. This nutrient density means milk systems of the future
is significantly superior for nutrition per
This unique combination of nutrients in kilograms of emissions used when compared
dairy plays an important role in growing and
maintaining healthy bones, immunity, the
with other proteins.
Given quality food
People need balanced diets which include a mix As a natural product, dairy is an important
functioning of your nervous system (including
your brain), helping to prevent tiredness,
of vegetables, fruit and proteins available in part of the sustainable food systems of the is one of the best
convenient formats and plant-based products future. Increasingly, consumers are aware of
maintaining healthy eyes, and so much more
play a role in meeting these needs. Despite the sustainability credentials of the products sources of nutrition,
through all life stages.
an ever-increasing array of alternatives, global
demand for dairy continues to increase by
they’re consuming.
we know there’s more
With our sustainable, nutritious milk and our
about 2% per annum out to 2030 – that’s the
same as about 80% of New Zealand’s entire
dairy innovation and science expertise, we potential for dairy
believe we can play a unique role in meeting
dairy production every year.
these demands for customers and consumers
who value our New Zealand provenance.

A glass of milk is a natural

source of many of the valuable
nutrients people need.
10 11
 OUR PATH TO 2030

The world
we operate in

The world’s population is growing – Demand for alternative Global market share of retail drinking milk products and alternatives
there will be more people needing nutrition.1 proteins is growing – we by retail value RSP (US$b)

NEXT 5 YEARS
need to be open to them 250

being part of our portfolio.2

400m When it comes to liquid ‘milk’ products,

200
10.7% 10.9%
11.1% 11.2%
11.4%
THE WORLD WE OPER ATE IN

10.4% 10.6%
dairy is expected to maintain significant 9.2% 9.9% 10.1% 10.3% 88.9% 88.8%
88.6%
9.2% 10% 89.3% 89.1%
market share and we believe it will be dairy 9.5% 9.6% 10.0%
89.9% 89.7%
89.6% 89.4%
150 90.8% 90.1%
NEXT 10 YEARS businesses that can lead in sustainability 90.8% 90.5% 90.4% 90.0% 90.0%

and innovation and science that take this

800m market share.

With continued population growth,
there will be a role for both dairy and
100

50
NEXT 15 YEARS alternatives in feeding the world’s
population – they can be complementary.

1100m 0

Milk
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Alternatives

1 Source: Oxford Economics (www.oxfordeconomics.com) – Global 2. Source: Euromonitor International (www.euromonitor.

Economics Databank, August 2021. com) – Euromonitor Passport, August 2021.

The earth’s climate is

changing – more and
more, customers and trade
partners expect their food
to be produced in ways that
care for the environment
and helps them achieve their
sustainability targets.
Last year one of our customers
stopped doing business with 47 of
their suppliers because they did not
meet their sustainability standards
and couldn’t help them achieve
their future sustainability targets.

12 13
 OUR PATH TO 2030

Our plans
in more detail

Prioritise the Milk price payments

Farmgate Milk Price represent the
vast majority of
an average dairy
farmer’s revenue
OUR PL ANS IN MORE DETAIL

A strong
As we put our choices into action, it’s Maintaining the highest sustainable Farmgate We are also able to harness the benefits of Co-operative
important our people have clarity on the path
to 2030. By aligning our people behind our
Milk Price is critical to ensuring our farmer
owners and our Co-operative remain
scale in our Co-operative to help minimise
manufacturing costs and, in turn, increase milk
is the best way
Co-op’s plans, we are best placed to perform
and meet our targets.
Our people and our culture financially viable. price. We have demonstrated improvements
in our manufacturing performance in recent
to maintain the
Our business strategy directs where
we will focus. Our story, through our
On average, milk price payments represent
the vast majority of a dairy farmer’s revenue
years, reducing our rework costs by $35 million highest sustainable
and quality related costs by $42 million in 2021
Our plans brands, distinguishes us. But it is our and a strong milk price increases our Co-op’s
contribution to the New Zealand economy. We
versus 2017. Meanwhile, we have maintained Farmgate Milk Price
culture – our people – who will deliver, utilisation of milk solids while increasing the
Prioritise the Farmgate Milk Price. to have us meet our purpose: our believe that having a strong Co-operative is the
best way to maintain a sustainable milk price
complexity of our product mix, helping to for the benefit of all
Co-operative, empowering people to drive an improvement of $18 million for 2021
Invest more in sustainability to do for the benefit of all, and that our strategy will
create goodness for generations – you, compared to 2017.
what’s right for customers, the planet support a sustainable milk price.
and our Co-op. me, us together – tātou, tātou.
Our Co-operative’s manufacturing capabilities
These savings have been achieved through Our scale helps
Top of mind for us as we look out to focused effort by our people and the
Grow our Foodservice channel.
where we want to be in 2030 is how we enable us to convert our farmer owners’ milk
application of innovative new technologies, minimise operational
Continue momentum in our into products that meet the needs of global
Consumer channel.
elevate and align our culture for high
performance. This means that in consumers and customers. At the same time,
such as using artificial intelligence to
automatically identify product quality issues at
costs and in turn
our skilled marketing and sales teams generate
Move our Ingredients channel addition to excelling in operational
excellence, we need to really understand demand for our dairy products, while our
our Darfield plant. In many cases, the changes
we are making to improve the sustainability
increase milk price
towards higher value products resilient supply chain enables us to take our
and solutions. our customers and what keeps them of our manufacturing sites also deliver cost
awake at night so we can help them milk to the world.
savings. For example, achieving our target
Refine our portfolio of assets with a
focus on New Zealand.
solve their problems through our Through our strategy, our Co-operative to reduce operational emissions by 30% by We will continue to
innovative solutions and products.  aims to further build the reputation of our 2030 could reduce our carbon costs in 2030 by
This will require a shift in our mindset sustainable New Zealand dairy and generate $71.4 million.1 We will continue to prioritise prioritise continuous
and culture.
Our choices shaping our ongoing demand that, in turn, delivers a higher
milk price.
continuous improvement across our Co-
operative to support a sustainable milk price. improvement across
path to 2030 Making this happen will transform
our Co-op for everyone. It will help our Co-operative
• Focus on New Zealand milk. us attract and retain people who are
• Be a leader in sustainability. motivated by our purpose and increase to support the
our people’s ability to bring their best to
• Be a leader in innovation and science.
enable our Co-op to deliver sustainable highest sustainable
high performance and help achieve
our targets. Farmgate Milk Price
1. Assumes Fonterra’s emissions are 30% lower in 2030 than in 2018 (i.e., a reduction of 510,000 tonnes) and carbon costs $140/
tonne in 2030 (as forecast by the Climate Change Commission in “Ināia tonu nei: a low emissions future for Aotearoa”).

14 15
 OUR PATH TO 2030

Our goals

Invest more in Targeting a

sustainability to do what’s 30% reduction
in emissions
right for customers, the by 2030 at our
planet and our Co-op manufacturing sites
OUR PL ANS IN MORE DETAIL

Committing to stop
We’re all striving for a better future, Operations On-farm and R&D solutions to Support customers with
using coal by 2037
especially when looking to the environment.
We’re targeting a reduction in emissions of reduce methane emissions sustainability propositions
Customers and consumers are demanding
more information about the sustainability 30% by 2030 at our manufacturing sites. We
expect to do this through a combination of
The Co-operative Difference will continue Our investment in sustainability enables us Aiming to reduce
credentials of their food and the impact it has to bring our customers’ insights and what to become an integral part of our customers’
on the planet. energy efficiency initiatives and switching fuels
at our nine manufacturing sites that still use Our R&D projects to find a
we know about the world together to help future supply chains and intrinsically water use and
farmers understand what needs to be done on linked to the success of their public
By increasing our activity across our supply
chain, we can be on a pathway to Net Zero
coal and ultimately stop using coal by 2037. solution to reduce methane farm. That means asking farmers to focus on sustainability targets. improve water
and GHG emissions the environment, their animals, people and
carbon by 2050. We intend to invest about We are also going further and developing plans
to transition our manufacturing sites which use community, and milk quality.
It sets us up to push further with our treatment at our
$1 billion in sustainability initiatives over the 1. With Royal DSM, a global science- development of sustainability brand claims
next decade. natural gas to other more sustainable energy based company, we’re testing The biggest environmental gains will come from and positioning, so we can offer a greater manufacturing sites
sources such as biomass, biogas and electricity whether DSM’s feed additive product finding ways to reduce our methane emissions. selection of sustainability attributes to
from renewable sources. Bovaer®, which reduces methane We need to a find solutions to this challenge. our customers.
Reducing our water use and improving our emissions from cows by over 30% in
non-pasture-based farming systems,
We don’t believe there will be one silver bullet
and that is why we have a number of innovation
The Co-operative
water treatment will help improve water quality
around our sites. can do the same in New Zealand’s
pasture-based farming systems.
projects underway to find solutions.
Difference brings
We are assessing low emission energy options
for our milk collection fleet – including electric 2. With MPI and DairyNZ, we’ve expanded together our
and hydrogen powered tankers. a promising trial with Nestlé to include
plantain in a cow’s diet to reduce
customer insights
the amount of nitrogen produced,
reducing carbon emissions and
and what we know
improving freshwater quality. about the world.
3. With Australian organisation Sea
Forest, we’re trying to understand
Farmers can use
if we can reduce emissions by
incorporating seaweed in cows’ feed.
this to guide what
4. With AgResearch and the Pastoral needs to be done on
Greenhouse Gas Research
Consortium, we’re working to tap
farm to help ensure
into our large collection of dairy
cultures to create new fermentations
continued demand
we’re calling Kowbucha, which could for our products
inhibit the methanogens that create
methane in cows.

16 17
 OUR PATH TO 2030

The world’s middle class is growing, in As the world’s middle class grows, cities
particular in Asia – there will be more grow too and with urbanisation comes a
people able to afford dairy and want to mentality of anything, anytime, anywhere.
consume it. People want food that can be consumed
quickly and without hassle, driving demand

Grow our for eating out-of-home and for convenient

snacks that can be consumed on the go. Target to
Foodservice increase milk
solids in our
channel Global Middle Class (billion people)* Share of World Population in Urban Areas (%)*
Foodservice channel
Estimate based on earning 2X median household income
80

by ~50% by 2030
OUR PL ANS IN MORE DETAIL

70
5.3B
68.7
60 65.3
61.9
58.5

ScaledValue
50 55.5
3.7B 52.2
Global trends

Percent
40 44.1 49.1
2.8B

Foodservice globally is a US$2.3 trillion Foodservice is a high value channel for our premium foods and our product innovation
30
20
are supporting
industry and is everything we eat made out-of-
home – from restaurants, bakeries, quick-
product. As part of our plan to direct our
Co-op’s milk to the highest value product,
will play a big role over the next decade. 1.3B 10 the growth of
In Greater China, we are continuing to build
Foodservice
0
service food chains, home-delivery, coffee we are aiming to increase milk solids in our 2000 2010 2020 2030 1980 1990 2000 2010 2020 2030 2040 2050
on our successful Foodservice channel by
shops, and even hospitals. Foodservice channel by approximately 50%
expanding into new cities.
by 2030. * Source: Oxford Economics (www.oxfordeconomics.com) * Source: Oxford Economics (www.oxfordeconomics.com)
Many of our Foodservice customers are – Global Economics Databank, August 2021 – Global Economics Databank, August 2021
In South East Asia, we are applying what
running multiple food outlets or chains across
countries or the world. Each of these is serving
We aim to achieve this by growing our global
Foodservice presence across Greater China,
we’ve learned from our Greater China Innovation and new
our products to millions of people every day, South East Asia and the USA.
business. This includes building the
capability of chefs through our chef We want to collaborate more with like-minded
products will be key
without the cost to us of expensive marketing
and promotional campaigns.
This growth will be led by staying ahead of
global trends, and in particular, the increase
development programme. Across the region
dairy is seen as a premium food and it also has
partners, leveraging our intellectual property
and skills, rather than only making significant
to growth
in the world’s middle class and cities which a strong link to the growth in the consumption capital investments of our own.
lends itself to more people eating out. This of western foods. We are making the most
group enjoys experimenting with different of this growing demand in the region and in With 65% of our customers preferring Make the most of
particular we are doubling down on Indonesia digital over traditional, we will also Ambient creams opening
and Malaysia where the evolution of bakeries increasingly use technology to enhance up new territories across the growing demand
will see us expanding our reach into more customer experience. It will help strengthen
the way we connect with our customers.
Greater China for out-of-home
cities. We are also developing new products
As we grow our Foodservice channel,
that work well in recipes chefs can use in the
growing number of on-line bakery stores. we’ve launched a new ambient consumption across
We believe innovation and new
cream which can be stored at up to
40˚C outside of a chiller. Our R&D
South East Asia
products will be key to this growth, helping us
+ European Union
+ United States build relationships with up to 40,000 new
experts designed this cream so
shops without fridges could use our
– particularly, in
+ Japan
· China
customers over the next five years, and up to
70,000 new customers in the next 10 years.
product. In doing so, we’ve opened
up new territories in Greater China
Indonesia & Malaysia
+ India
· Vietnam In other markets like the USA, tariff barriers and are looking at new opportunities
· Malaysia in South East Asia.
· South East Asia
make it more difficult to maximise value
from our Foodservice channel. To open
Foodservice globally
· Australia more doors, we intend to partner with our
IP, like we have with one of America’s dairy
is a $US2.3 trillion
· New Zealand co-operatives, Land O’Lakes. industry

+ emerging markets · key markets

18 19
 OUR PATH TO 2030

Continue The world’s population is getting older* – there will be more

We believe Anlene is positioned perfectly to
compete in this space. In 2020, we debuted By 2030
momentum in
Anlene 5X, the most advanced clinically proven
people needing to maintain their mobility, strength and energy. 
Anlene formulation that provides five key sustainability will
be a key element
Consumer 2020 mobility related benefits targeting muscles,
joints, and bones. A recent study showed

0.5b of value for our

2 glasses of Anlene Gold 5X, with regular
exercises, provided 2X the improvement in
aged 70+
Consumer brands
OUR PL ANS IN MORE DETAIL

flexibility, 3X the improvement in balance and

40% more improvement in muscle mass.
2030
We kicked off the Anlene 5X product in

0.7b We believe Anlene is

Malaysia, as it is the largest market for Fonterra
in SEA. Over the last year sales have increased
Our Consumer channel represents $4 billion
aged 70+ by 20% over the previous year and as a result positioned perfectly
we are now moving to roll out Anlene 5X across
of revenue for our Co-op and achieves some of
our highest gross margins. 2040 the rest of SEA – including markets such as to target the healthy
Indonesia, Vietnam, Philippines, Thailand
aging market
To gain more value from this channel, we are
evolving our brands to make sustainability an
increasingly prominent proposition. By 2030
0.9b aged 70+
and Singapore.
The Westernisation of diets across Asia
means consumers right across the region are
sustainability will be a key element of value for increasingly using dairy in their cooking and The Westernisation
most of our brands. * Source: Oxford Economics (www.oxfordeconomics.com) – Global Economics
Databank, August 2021
their baking. We see this as a big opportunity
for our Dairy Foods portfolio, which includes of diets across Asia
Anchor will lead the way in taking our
New Zealand sustainability and provenance
Anchor, Mainland, Perfect Italiano and Chesdale
and our Consumer Powders such as Anchor and
means people right
credentials to the world, with the strong
nutritional profile and great taste of our quality
Demand for convenience is driving a trend towards Western diets
Fernleaf have a role to play in making the dairy
nutrition more accessible.
across the region are
dairy being a distinct advantage.
across Asia. While dairy consumption remains low across Asia,
there is potential for significant growth when comparing per capita With trends in Asia changing often, we are increasingly using
Across the globe our New Zealand provenance is
featured strongly in communication and on pack, consumption with countries like the EU. also developing a programme of pilot brands
that will extend our portfolio beyond our core
dairy in their cooking
particularly in markets such as South East Asia
(SEA) where New Zealand is often perceived as a Westernisation of Diets* Carbonzero milk giving brands. This is all about testing the market
and developing new solutions to open up
and baking
marker for superior nutrition and purity. Dairy Consumption per Capita (kg pa) people a practical way of opportunities with the potential to generate
We’re continuing to evolve this story, bringing 350 supporting the environment new revenue streams.
By 2030, we expect
Milk consumption (in kg ME milk per capita)

to life specific elements such as Grass Fed Cows, Simply Milk offers customers the
300 Our connection to consumers is enhanced
and in our home market of New Zealand we
have recently launched a plant-based bottle, and 250
opportunity to purchase their
everyday milk knowing their choice
through our increased presence in e-commerce ~30% of our total
to meet growing demand from digitally astute
transitioned some of our specialty milks to be
certified carbonzero in the North Island. 200
is making a difference to something
that’s really important to them. It has
consumers. With our sales in e-commerce sales revenue across
across South East Asia doubling in the last 12
We’re also leveraging our nutrition and science 150
been certified carbonzero through months, we expect that by 2030 this channel will Asia Pacific will come
expertise across our consumer brands, a position the purchase of carbon credits from represent approximately 30% of our total sales
typically utilised in our Ingredients channel. 100 Toitū Envirocare. The carbon credits revenue for the region. from e-commerce
go towards the regeneration of native
As economies develop, the average life 50 forest near Kaikōura in New Zealand, We are also deepening our customer
expectancy of adults is steadily rising across as well as renewable energy partnerships with key international retailers
0
Asia. The amount of money invested by 2010 2020 2030 2040 2050 programmes in overseas markets to export our premium consumer products,
consumers in looking after their health and Southeast Asia China Aggregate EU where we sell our products. including brands such as Mainland.
wellness is also increasing with more focus on
living longer, healthier lives. * Source: IFCN Dairy Research Network (www.ifcndairy.org) – IFCN Annual Dairy Sector Data
with Long Term Outlook, September 2021

20 21
 OUR PATH TO 2030

Move our Ingredients Direct less

channel towards milk into the
Ingredients channel
higher value products
and solutions But grow sales
OUR PL ANS IN MORE DETAIL

of higher-value
ingredients and
Through our NZMP brand we have one of Deepening our relationships with our solutions
the broadest ranges of ingredients and customers and offering new solutions and
solutions in the industry – from high quality service models will be key to achieving our
base ingredients to highly advanced and long-term ambitions. Targeting physical,
specialised ingredients.
As we move more milk into Foodservice and Driving value with Daesang Dairy lipids helping
As our product mix changes, so too will our
customer mix. We will continue to work with Protein expertise helping
patient, digestive and
Consumer, we will direct less milk through our
Ingredients channel. While we will continue to Our collaboration with South Korean improve people’s mood our current customer base, but also expect to
work with new customers as we increase our
people maintain muscle mass mental wellness plus
for better quality life
manufacture Reference Commodity Products food manufacturer Daesang is an
early example of the potential of
Our Milk Phospholipids have been
clinically proven to help manage
participation in the health and wellness market. immunity
which inform the Farmgate Milk Price, we Our protein enriched healthy ageing
customer collaboration. Daesang was the effects of stress while also We will focus on partnering with customers to
will focus our growth efforts on higher-value products are designed to combat
seeking to launch a range of protein improving mood and focus. co-design value-added products and solutions.
ingredients and solutions targeting the areas of
physical, patient, digestive and mental wellness products for the medical nutrition
Our Co-operative brings deep expertise in dairy
malnutrition and muscle loss as we
grow older. These include fortified Co-design with
category, and saw the potential to The versatile ingredient can be
plus immunity.
differentiate their products on the used in snack bars and ready-to- science and sustainability, including significant
intellectual property. Through partnership, we
protein beverages, powders and foods
providing easily digestible and high
customers value-
This may mean that we divert some product basis of a connection to grass-fed, mix beverages.
away from GDT, but we will always seek to natural dairy. We offered Daesang These complex lipids are typically
can help our customers bring new products to
market that in turn increase the value we create
protein solutions for the medical
nutrition and healthy ageing category.
added products and
ensure there is enough activity on GDT to set
a robust Farmgate Milk Price.
a license agreement covering
formulation and processing IP, grass-
used in the infant nutrition space from our farmer owners’ milk. solutions
as they play an important role in
fed and pasture-raised claims, and brain development. We’re now We are also developing a range of digital tools
As is the case for our Foodservice and
imagery and video assets telling our exploring their use in the e-gamer and services that will offer our customers
Consumer channels, we see opportunities to
further differentiate our Ingredients channel
unique New Zealand dairy story. category to improve cognitive new ways to engage with our Co-operative. myNZMP a simple,
For example, myNZMP gives our Ingredients
on provenance and sustainability. We will also
derive value from specific claims and from our
function and eye health.
customers a simple, always-on, self-service always-on, self-service
option, and we expect it will become a
overall sustainability position.
significant part of our Ingredients channel over option for customers
the next decade.
to buy products, is
expected to become a
significant part of our
Ingredients channel
over the next decade

22 23
 OUR PATH TO 2030

Refine our portfolio of We need to focus our

assets with a focus on people and capital on
our New Zealand milk
New Zealand
We are reviewing
OUR PL ANS IN MORE DETAIL

the ownership of our

other milk pools - in
We have an opportunity to differentiate our Fonterra Australia is on strategy for the Australia and Chile
New Zealand milk further on the world stage, Co-op and remains an important export
with the aim of getting more value from our market for our New Zealand milk, especially
Co-op’s milk. This requires us to focus our for Foodservice products and advanced For Australia, we are
capital and our people on enhancing our ingredients. We are considering the most
New Zealand milk. appropriate ownership structure for this exploring ownership
business, one option is an IPO, with the
For these reasons we are reviewing our
ownership of our two other milk pools – in
intention that we retain a significant stake. changes – one
Australia and Chile. By having access to ongoing external capital, option is an IPO,
the Australian business can be unlocked to
Soprole is a leading Chilean dairy brand, and
Prolesur is a subsidiary of Soprole focused
deliver on its strategy and capture its full with the intention
potential. At the same time, ownership changes
on milk sourcing and primary and secondary
manufacturing in Southern Chile. The
such as an IPO could give our Co-op the that we retain a
opportunity to take some capital out, while
operations do not require any New Zealand-
retaining ownership in this important market. significant stake
sourced milk or expertise and, in this context,
we are starting the process to divest our We see both these moves as critical to enabling
integrated investment in Chile. greater focus on our New Zealand milk and,
importantly, allowing us to free up capital, We are starting the
much of which is intended to be returned
to shareholders.
process to divest our
Chile investment

24 25
 OUR PATH TO 2030

Reimagining milk
for future growth:
Nutrition science solutions
REIM AGINING MILK FOR FUTURE GROW TH: NUTRITION SCIENCE SOLUTIONS

The way people manage their health and But we have an ambition to play more boldly in
wellness looks set to be revolutionised. As this category, unlocking the growth potential
scientists harness the power of big data, of our advanced specialty ingredients and
biotechnology and genomics, they are building going further.
a stronger understanding of human health
Imagine if there was technology that could
and wellbeing, connecting the dots between
assess the health of your muscles every day in
cause and effect. This hints at a future in which
just a few minutes and then tailor your exercise
some diseases might be prevented or managed
and nutrition, in particular, how much protein
through better nutrition and lifestyles.
you should consume, to achieve the optimum
Already, scientists understand how people’s muscle health.
diets impact their body and behaviour and this
Similarly, imagine if there was a way of quickly
has given rise to a range of consumer solutions
understanding your gut health and being
targeting specific health and wellness needs.
able to select the probiotic strains that your
These solutions are backed by nutrition science
gut needs.
and they underpin a $500 billion slice of the
global health and wellness category. Or even having snacks, which use specialty
dairy ingredients, delivered to your workplace
Some of our ingredients already play to these
and tailored to your lifestyle, genetics and age,
kinds of solutions – including our own complex
helping you keep your energy levels high and
lipids which help with cognition, proteins
manage stress.
which help with mobility and probiotics which
support immunity and digestion. While these examples are not necessarily what
we will do, they paint an aspirational picture of
the potential for nutrition science solutions.
We know, based on global trends shaping the
world we operate in, that the opportunity
lies in adult nutrition. If we want to play more
boldly, it will also take focused resource,
These solutions including increasing our R&D, and some new
expertise to complement what we already have.

are backed There is no doubt that partnerships will be key.

by nutrition
One of the big game changes for leaders in
the health and wellness category, is having
the ability or the ecosystem to build close
science and relationships with consumers. In many cases,
they’ve been built through technology and

they underpin data which empowers the consumer to take

control of a specific element of their health and

a $500 billion wellness and make choices about their nutrition

and lifestyle.

slice of the We have set up a dedicated team to explore

what the future of Nutrition Science Solutions

global health looks likes for our Co-op. Over the next year,
we’ll narrow down and prioritise the areas

and wellness where we can build a competitive advantage,

and understand what it would take to win.

category.
26 27
 OUR PATH TO 2030

Follow our OUR PURPOSE

Our Co-operative,
progress Empowering people
towards To create goodness for generations.
You, me, us together.
2030 Tātou, tātou.

The scale of Fonterra in New Zealand – nearly

9,000 farming families, our network of
FOLLOW OUR PROGRESS TOWARDS 2030

manufacturing sites, global supply chain and

our presence in over 130 countries around the
world – makes it hard to remember that we’re
just tiny on the world stage.
At just 2% of the total global milk supply – it’s
a real case of kiwi farming families taking on
the world.
Over the next decade we will share regular
progress and stories on how we are going.
You will be able to track our performance
via our quarterly, interim and annual results
announcements.
And we also invite you to keep up to date with
stories from around the Co-op.
You can do this via:
• www.fonterra.com/ourstories
• My Co-op app, if you are a farmer
• MilkyWay, if you are an employee

28 29
 OUR PATH TO 2030

Appendix
Key assumptions and risks for
our aspirational financial profile
and targets
This Appendix is intended to support analysis Basis of Preparation of our Key Assumptions for our General Assumptions Assumptions relating to Capital Assumptions relating to Capital
and understanding of the aspirational financial
aspirational Financial Profile Financial Profile • Global dairy consumption grows at 5-year Investment Management
profile and targets in this booklet, and the key CAGR of 2.7% with a long term growth rate • Essential capital expenditure: Approximately • To support liquidity in the Fonterra
risks associated with them. We have prepared an aspirational financial Assumptions relating to New Zealand Milk of 1.7%. $550 million per year, with no additional Shareholders’ Market (FSM) as farmers
profile which sets targets for our future peak milk processing capacity given the transition to the proposed new capital
The cautions and disclaimer set out on the • Our New Zealand milk collections have been • No inflation.
performance on the basis of our strategy and constant milk supply assumption. structure, up to $300 million is allowed for
contents page of this booklet apply equally to assumed at 1,525 million kgMS and held
business plan being successfully implemented on market share buy-backs or other tools. It
this Appendix. constant through to FY30. • Base interest rate (BKBM) increases from
(“Financial Profile”). • Sustainability investment: Capital
0.4% in FY22 to 3% by FY30. is assumed to be used in equal amounts in
• There is a constant base Milk Price of $7.00 expenditure is incurred to meet published
Our Financial Profile is provided to 2030 and is FY22 and FY23 and to reduce shares on issue
per kgMS, which reflects the average Milk • Exchange rates stay at current levels. greenhouse gas emissions and water targets,
prepared using the assumptions set out below by approximately 85 million in total.
Price over FY19-21, except FY22 which with spend levels averaging $130 million per
and on the following basis: • Tax reflects current tax rates. year until FY30. • There is a capital return to shareholders
assumes $8.00 per kgMS.
of $1 billion in FY24 dependent on the
APPENDIX

• FY22-24: Uses our detailed three-year • The tax expense reduces from 16% to 11% • Channel growth and new business
budget and business plan. as the dividend percentage increases, due successful divestment of our Chilean
Assumptions relating to Business Portfolio investment:
to the deductibility of dividend payments business and reduction in ownership of
• FY25-30: The business portfolio comprises our – To support channel growth and our our Australian business, with additional
on supply backed shares. The proportion of
operations at the end of FY21 and assumes: complementary dairy portfolio, capacity proceeds being used to reduce debt. There
– Earnings performance is modelled (i.e. supply backed shares stays the same as it
extrapolated) based on potential market • those operations continue on the same currently is to FY30. in some key categories is expanded with are inherent uncertainties and risks in the
volume growth rates from FY25. footing as at the end of FY21, without an approximate investment of $150 execution of such processes.
material market, regulatory or other million per year.
– The capital investment plan is supported Assumptions relating to Volatility • Subject to not exceeding our long-term
changes; and – A further $1 billion is invested in a target leverage metrics:
by our detailed long-term asset roadmap Price relativities and the impact of lag pricing
• the sale of our remaining China Farms are modelled at long run historical average portfolio of new business opportunities in
– EBIT Margins, including Gross Margins – Dividends have a pay-out dividend
business and DPA Brazil in FY22, the levels for the period FY22-30. Individual equal amounts (around $150 million per
and Operating Expenditure levels as a to earnings ratio of 50% until FY24,
divestment of 100% of our Chilean years are likely to differ materially upwards or year), with a return on capital of 5% in the
percentage of Revenue are extrapolated increasing to 60% in FY25 and 70%
business and a reduction of 49% in downwards from this assumption. The Group year following the investment and then
from FY24 levels. by FY30.
ownership of our Australian business in Operations EBIT that includes this volatility 11% per year in subsequent years.
• Ranges have been provided to reflect the FY24. For modelling purposes, we have has been modelled assuming $80 million EBIT, – Under an ongoing capital management
inherent uncertainty when setting future assumed these transactions occur at the which is attributed to the regional segments. programme, further capital is returned
targets. The ranges are not intended to beginning of FY24, and that Australia The equivalent EBIT result in FY20 was $170 to shareholders either as a pro rata
incorporate all the potential volatility within remains consolidated. million and in FY21 was ($118 million). distribution or by way of share buy-backs.
the business, in particular (but without This has been modelled as $150 million
limitation) ingredients price relativities. No per year, distributed as a pro rata capital
attempt has been made to incorporate in return from FY25 onwards.
these ranges any impacts from potential
sensitivities, including declining or increasing
milk collection volumes, ingredients price
relativities, geo-political risks, currency
movements etc.
• The Financial Profile has been prepared by
Fonterra. It has not been subject to audit or
independent review. It sets out aspirational
targets only and should not be construed
as setting forecasts or giving a guarantee of
returns to shareholders.

30 31
 OUR PATH TO 2030

Appendix

Assumptions relating to Earnings Drivers Risks and uncertainties the other dairy products manufactured increased costs associated with emissions
• Below is a summary of the key earnings drivers. and sold by Fonterra (such as cheese) could unit prices, a declining perception of
• These assume: Our aspirational financial profile and targets therefore have a significant impact on Fonterra and the premium character of
– An increase in milk solids in the Foodservice channel by 50% to extend to 2024, 2026 and 2030. There is Fonterra’s earnings. Fonterra’s products, the dairy industry and/
17
FY30. The key driver is China Foodservice with FY21-24 volume always going to be considerable uncertainty or adverse policy settings, including water
62 over such long time horizons. These targets • Fonterra’s earnings may also be impacted by
growth rates of 10% (compared to 12.5% over FY19-21), with access, usage and quality, agricultural and
2
and the assumptions underlying these targets changes made to the Farmgate Milk Price
7 (6) EBIT margins at three-year average rates of 16%. The remaining operational emissions, discharges to land
51
are subject to risk and uncertainties. The more Manual (including changes to the Reference
3 1 Foodservice growth is focused across South East Asia. water and air and animal welfare.
4 material risks and uncertainties which may Commodity Products used to calculate
(6)
6 – From F21 to F24, margins in Consumer improve using our impact Fonterra’s performance relative to the the Farmgate Milk Price), which Fonterra’s • Changes in or the introduction of new
34 New Zealand provenance and sustainability credentials and our targets include: Board considers appropriate based on the policies, legislation, taxation or regulation
ability to realise e-commerce opportunities. APAC consumer EBIT milk price principles set out in Fonterra’s or the way in which existing policies,
margins lifts by 2% (to 10%) by FY24. These EBIT margin levels are • The risk that the sub-optimal execution of constitution and obligations under the Dairy legislation, taxation or regulation is enforced
APPENDIX

maintained through to 2030. strategic initiatives, innovation practices, Industry Restructuring Act 2001. could adversely affect Fonterra.
ineffective business partnering, or
– Active Living margins grow $52 million from FY21 to FY24, with deficient decision-making results in failure • The risk of food safety incidents (including • Changing conditions in global debt markets,
volume growth of 7% per year (including New Business) through to to realise opportunity, leverage competitive products being contaminated or tampered movements in financial instruments
FY30 as we continue to invest and support this area. advantage, respond to shifts in consumption with, in New Zealand or overseas), resulting including hedging, changes in the positions
trends and achieve strategic targets, leading in Fonterra supplying unsafe food (or food adopted by credit ratings agencies
FY21

Consumer

Foodservice

Active Living

Ingredients

and Other

Share buy back

Divestments

FY24

Value-add
Growth

and Other

FY30
Interest

Interest

Financial Profile to value destruction. that is perceived to be unsafe) to customers (including the treatment of effective
Actuals Assumption and consumers which may result in harm to subordination of the Milk Price to Fonterra’s
• A material loss in milk supply as a result consumers and/or significant reputational debt and other obligations), or the terms on
EBIT Margin1 FY19 FY21 FY24 FY30 of factors affecting Fonterra, its supplying and commercial impacts and the risk that which debt is provided to Fonterra.
farmers, or the markets in which we operate, Fonterra manufactures product that is of
Consumer 4% 7% 8% 8% • Litigation and disputes with third parties in
such as a biosecurity (including animal sub-standard quality resulting in financial
Foodservice 8% 11% 10% 10% health) event, climatic or weather impacts, relation to Fonterra’s operations.
loss and reputational damage.
Active Living 15% 12% 13% 13% regulatory change, change in land use, • The risk that Fonterra’s ability to maintain
Core Ingredients 2% 1% 1% 2% failure of the capital structure changes to • Geo-political and trade and market access
and/or operate the assets within Fonterra’s
achieve the desired effects, changes in dairy factors such as war, economic instability
Total 4% 5% 5% 6% end-to-end supply chain is disrupted,
farming input costs, or competitor activity or downturn, deflation or inflation, price
delayed, or reduced resulting in increased
– Innovation spend increases by 50% from $100 million in FY20 to could result in sub-optimal asset utilisation controls, political interference, and
production costs and other adverse
$160 million by FY30. and excess capacity, and could generally foreign government action (including
financial impacts.
have a significant impact on Fonterra’s trade embargoes and sanctions, tariffs,
– Flat milk volumes with growth in the Consumer, Foodservice and
ability to deliver on strategy and financial subsidies, quotas, price controls, and other • The risk that failure to maintain an
Active Living channels, and the amount of milk solids utilised by
performance. non-tariff barriers) could impact the sale of appropriate information technology
Core Ingredients reducing from 74% in 2021 to 64% in FY30.
Fonterra products internationally, resulting framework and to proactively safeguard
• Dairy commodity prices are highly volatile in adverse changes in international dairy and manage Fonterra’s key IT systems and
Financial Profile with substantial increases and decreases market dynamics and affect prices for
Actuals
Assumption the confidentiality, integrity, and availability
occurring over a relatively short period. dairy products. of Fonterra’s data against threats including
Utilisation of The risk that dairy price volatility and cyber-attacks, technology failures and other
New Zealand FY19 FY20 FY21 FY24 FY30 changes within global markets, including • The risk that leadership, organisational
threats, results in lost opportunities, major
Solids economic volatility, geo-political instability, culture, behaviour, and people
business interruption, financial loss and/or
foreign exchange and interest rates, are not management practices, including
Consumer 7% 7% 7% 8% 9% reputational damage.
appropriately responded to or managed recruitment for and development
Foodservice 8% 8% 9% 12% 14%
could adversely impact business operations, of capability and accountability, are • The COVID-19 pandemic could
insightcreative.co.nz  FONTERRA088

Active Living 10% 10% 10% 11% 12% inadequate or insufficiently agile to adapt affect Fonterra’s ability to operate its
profitability, dividends, and milk price.
Core Ingredients 76% 75% 74% 70% 64% to future working environments and to manufacturing facilities or distribution
Total 100% 100% 100% 100% 100% • Fonterra’s farmgate milk price in execute strategy. centres and could also disrupt Fonterra’s
New Zealand is calculated by assuming that supply chain and could impact the demand
– Interest expense reduces (as debt levels and Fonterra interest rates all the milk Fonterra collects is converted • The risk that failure to enact measures to
1 These channel EBIT margins include the allocation of unallocated costs and the breakdown of for Fonterra’s product.
Ingredients into Core Ingredients and Active Living. As a result, the EBIT splits will vary from
fall) by $100 million (pre-tax) from FY21 to FY24. into “Reference Commodity Products” mitigate the impact (or perceived impact)
those summarised in the Annual Review and Business Performance Report. (whole milk powder, skim milk powder, of Fonterra’s activities on the environment • The success and timing of an IPO or sale
– Interest expense increases (as assumed interest rates rise and debt
anhydrous milk fat, butter, and buttermilk and/or mitigate the effects of climate process for investments could be impacted
levels increase from $3.4 billion to $4.3 billion within our long-term
powder). Fluctuations in the relative prices change on Fonterra may result in impacts by market, economic or other factors.
target metrics) by $100 million (pre-tax) from FY24 to FY30.
32 of Reference Commodity Products and on milk production, operations and sales, 33
fonterra.com