Fonterra Shareholders Fund Limited, Annual Meeting 2025

5 December 2025

Fonterra Shareholders Fund (FSF)

The company will hold its Annual Shareholders Meeting at 10.00am Monday 15 December 2025.

The location is Fonterra’s Auckland Offices 109 Fanshawe Street, Auckland.

You can also join the meeting online at this link.

Company Overview

The Fund was established in 2012 to allow non-dairy farmers to trade the economic rights in Fonterra shares. The Fund is externally managed by FSF Management Company Ltd. It derives its income from   the dividend paid by the Co-Operative on the shares held by the Fund.

In essence an investor in the Fund is a minority investor in a larger organisation that has some commercial incentive to work against the interests of minority investors. NZSA remains concerned about the ability of the Fund to influence Fonterra for the benefit of Fonterra shareholders as compared with suppliers, a factor well traversed by a previous FSF Chair in the FY22 Annual Report.

Andy Macfarlane will retire from the Board at the ASM.

Current Strategy

To provide a platform to allow non-dairy farmers to trade the economic rights in Fonterra shares.

Previous Year Shareholder Meeting

NZSA recorded the following key items at last year’s annual shareholder meeting:

1. Total Shareholder Return (TSR) for the Fund over the last 12 months was 95%.
2. Earnings per share 70c, down from 75c, but cash distribution up to 55c, from 50c in the prior year.
3. Fonterra was in a strong financial position from a payout and return point of view.

The meeting report is available at this link.

Disclaimer

To the maximum extent permitted by law, New Zealand Shareholders Association Inc. (NZSA) will not be liable, whether in tort (including negligence) or otherwise, to you or any other person in relation to this document, including any error in it.

Forward looking statements are inherently fallible.

Information on www.nzshareholders.co.nz and in this document may contain forward-looking statements and projections. For any number of reasons, the future could be different – potentially materially different. For example, assumptions may be wrong, risks may crystallise, unexpected things may happen. We give no warranty or representation as to any future financial performance or any other future matter. We may not update our website and related materials for changes.

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Information included on www.nzshareholders.co.nz and in this document is for information purposes only. It is not an offer of financial products, or a proposal or invitation to make any such offer. It is not financial advice and does not take into account any person’s individual circumstances or objectives. Prior to making any investment decision, NZSA recommends that you seek professional advice from a licensed financial advice provider.

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Key

The following sections calculate an objective rating against criteria contained within NZSA policies.

Governance

NZSA assessment against its key policy criteria are summarised below.

Directors Fees:  We note these are paid by Fonterra (the Manager). They comprise $90,000 for the Chair and $60,000 for each independent Director.

Director Share Ownership:  There is no disclosure as to whether Directors are required to own units, however only two Directors hold units indicating there is no compulsion. While NZSA encourages unit ownership by independent Directors, it does not support compulsion as this reduces the pool of available Directors, may compromise independence, and removes the ‘market signal’ associated with unit purchases.

CEO Remuneration:  The Fund is externally managed.

Director Independence:  Three of the five Directors, including Chair Mary-Jane Daly, are independent, with the remaining two appointed by the Manager Fonterra.

Board Composition:  The Annual Report does not include a skills matrix that attributes skill sets to individual Directors to demonstrate how they contribute and add value to the governance of the Fund. We note the Board Chair is also by default Chair of the Audit and Risk Committee (ARC) as the Board is also the ARC.

We note only changes to Directors other roles are disclosed. NZSA prefers a full disclosure of roles in the Annual Report in the interests of transparency.

Director Tenure:  NZSA looks for evidence of ongoing succession or ‘staggered’ appointment dates that reduce the risks associated with effective knowledge transfer in the event of succession. We also prefer a term maximum of 9-12 years, unless there are exceptional circumstances that may apply.

Appointment dates range from 2019 to 2022.

ASM Format: Fonterra Shareholders Fund is holding a ‘hybrid’ meeting, (i.e., physical, and virtual), a format preferred by NZSA as a way of promoting shareholder engagement while maximising participation.

Independent Advice for the Board & Risk Management:  NZSA looks for evidence, through disclosures, that a Board has access to appropriate internal and external expertise to support board assurance activities. We also look for evidence that Boards are across their risk management responsibilities. 

The Board Charter allows Directors to seek external independent advice but are expected to consult the Chair before seeking advice. The Company Secretary for the Manager is currently Fonterra’s Director of Legal and has a direct line of communication with the Chair of the Board (and by default, the Audit and Risk Committee. The Fund does not have an internal audit function.

There is good disclosure of business and operational risks associated with the Fund, together with risk management and governance processes.

Audit

NZSA assessment against its key policy criteria are summarised below.

Audit Independence:  Good disclosure.

Audit Rotation:  The Fund ensures the Lead Audit Partner is rotated at 5 years as required by the NZX Listing Rules. There is no disclosure around the rotation of the Audit Firm, however we note the statement in the Annual Report;

“Under the Trust Deed that governs the Fund, Fonterra’s external auditor is also appointed as auditor of the Fund unless Fonterra requires a different auditor. KPMG has been appointed the external auditor for six consecutive years. The lead audit partner has served for one consecutive year.”

Environmental Sustainability

NZSA has prepared this assessment on the basis of the underlying Fonterra Co-operative Group’s sustainability reporting.

Overall approach: Fonterra Co-operative Group has issued climate-related disclosures aligned with the Aotearoa New Zealand Climate Standards and has elected to use Adoption Provision 2 to defer disclosure of anticipated financial impacts. Climate issues are integrated throughout its annual and climate statements, including scenario analysis, governance, risk, and emissions data.

Fonterra’s report also includes select broader environmental information. The Group outlines its approach to water use, nutrient efficiency, and biodiversity initiatives in New Zealand, such as catchment partnerships and on-farm riparian planting. It also discloses progress on waste reduction and operational energy use. While these are not yet required under the climate standards, their inclusion demonstrates some commitment to broader environmental accountability.

Sustainability Governance: Fonterra demonstrates a strong governance structure for climate oversight. The board confirms it uses an internal skills matrix that includes sustainability, though the matrix itself is not published, which falls short of NZSA’s transparency expectations. A board Sustainability & Innovation Committee exists, met five times in FY25, and is responsible for overseeing the strategy and progress of sustainability and climate initiatives. Senior leadership has defined accountability, with multiple layers of reporting to the board and dedicated staff responsible for implementation.

Strategy and Impact: Fonterra’s climate strategy is embedded in its broader strategic framework, aiming to decarbonise operations and build supply chain resilience. Adaptation themes such as on-farm resilience and water access are discussed, though a full adaptation roadmap with milestones has not yet been published. Capital investments are underway, including low-emission electrode boilers and wood pellet boiler conversions at major manufacturing sites.

Risk and Opportunity: Fonterra discloses physical and transition risks. These are presented in structured tables that detail risk type, expected impacts, and current mitigation actions. Opportunities are also disclosed, including demand-side benefits from sustainable dairy and customer-funded incentive schemes for low-emissions farms. Both risks and opportunities are linked to the company’s broader operational and financial context.

Metrics and Targets: Fonterra is targeting a 50.4% cut in Scope 1 and 2 emissions by FY30 (from an FY18 baseline), along with a 30% intensity reduction in combined Scope 1 and 3 Forestry, Land-use, and Agriculture (FLAG) emissions. The report includes detailed quantitative disclosures of current performance and historical comparatives. GHG emissions (Scopes 1–3), energy intensity, and farm performance metrics are disclosed across relevant business units.

Assurance: Fonterra’s GHG emissions disclosures, including Scope 3 on-farm emissions, were subject to limited assurance by KPMG. The assurance report highlights estimation uncertainty and scope limitations, but provides meaningful confidence in core GHG figures. While assurance did not extend to broader narrative disclosures, expanding the scope over time would strengthen transparency and align with evolving best practices.

Ethical and Social

NZSA assessment against its key policy criteria are summarised below.

Whistleblowing:  The Fund is externally managed.

Political Donations:  The Annual Report states no donations were made. NZSA expects an explicit disclosure as to whether political donations are made.

Financial & Performance

Fonterra shareholders fund’s share price rose from $5.36 to $7.82 (as of 4^th December 2025) over the last 12 months – a 46% rise. This compares favourably with the NZX 50 which rose 3% in the same period. The capitalisation of FSF is $12.6b placing it 4^th out of 115 companies on the NZX by size and makes it a large company.

¹ per share figures based off actual shares at balance date (not weighted average)

² Dividends relate to FSF

Fonterra Shareholders Fund (FSF) is basically a holding company that owns shares in Fonterra Co-operative Group Limited (FCG). How much influence, if any, the directors of FSF have on FCG is debateable. This structure was established to allow non-supplying investors to invest in Fonterra. There are 107.4 million units of FSF and there are a total of 1,609 million FCG shares.

This raises an interesting dilemma and a conflict of interests between suppliers and shareholders. Suppliers would rather receive a higher price for their commodity, but a higher price means a higher cost of sales and subsequently a lower profit, and thus earnings, for shareholders.

The above metrics in the table relate to the Co-operative or FCG as this is where FSF derive their income and there is a direct correlation between the performance of FSF and FCG.

Revenues for FCG rose 5% to $24,111m and NPAT attributable to shareholders of the company was down 14% at $1,004m. The gross profit margin dropped to 14%, back at 2022 levels and EPS delivered to shareholders of the company was $0.67, placing FSF on a still very low PE of 8. (Assuming earnings flow through directly)

The company is in sound financial position with a current ratio above 1 and there are assets held for sale of $3,815m. The debt-equity ratio rose slightly to 1.10. and although this reverses the falling trend, borrowings are now manageable. Total debt stands at $3,138m.

Inventory levels fell slightly and operating cashflows were down 15% to $1,960m.

Page 20 of an investor presentation provides some forward looking projections for FY26 with  “Forecast earnings of 45-65 cents per share, and are forecasting a farmgate milk price of between $9.00 and $11.00.

The company paid $0.57 cents in dividends in 2025, a 4% increase on last year’s payment. Dividends are not imputed but FSF is a Foreign Investment Variable Rate PIE. The whole distribution is excluded income for NZ resident investors.

On the 4^th December the company provided a FY26 Q1 business update to market.

ACC are the largest individual unitholder with a 4.12% stake in the Fund.

Resolutions

Carlie Eve was appointed to the Board in November 2022. She has over 25 years’ experience in financial markets and the corporate sector, bringing a broad and deep understanding of capital markets, corporate strategy, and governance. Prior to her governance career she held senior executive positions spanning equity research, investment banking, investor relations, corporate strategy, and funds management. Carlie is currently a Director of Kiwi Property Group Limited and Chair of the Diocesan School Heritage Foundation. She was previously a Director of Hobsonville Land Company Limited.

We will vote undirected proxies IN FAVOUR of this resolution.

Proxies

You can vote online or appoint a proxy at https://www.investorvote.com.au/

Instructions are on the Proxy/voting paper sent to you.

Voting and proxy appointments close 10.00am Saturday 13 December 2025.

Please note you can appoint the Association as your proxy. We will have a representative attending the meeting.

The Team at NZSA