Fonterra: Council Releases Annual Review

MEDIA RELEASE

10 September 2007

Shareholders’council Releases Annual Review Of Fonterra

The Fonterra Shareholders’ Council says a clearer distinction between profits from commodities and value add activities is needed to give a true reflection of how Fonterra’s value add businesses are performing.

In its Annual Report to Shareholders released this week, Chairman Blue Read says the inclusion of commodity margins in the value add component of payout masks the performance of the value add businesses.

“The business improvements and efficiencies that contributed to the record Value Add Returns achieved in the 2006/2007 season are welcome. However the inclusion of commodity margins in Value Add Returns runs counter to what many of us understand Value Add Returns to be. There needs to be a distinction between profit generated from commodity products and profit generated from specialty and consumer products.

“The integrity of Value Add Returns is critical. Value Add Returns are an important performance measure in their own right and they also impact on other key performance measures that Fonterra uses to set its direction and measure progress and success.”

Mr Read says the unprecedented rise in commodity prices contributed to a final payout of $4.46 per kilogram of milksolids in 2006/2007 and to the record payout forecast for the current season.

“The forecast payout of $6.40 per kilogram of milksolids for 2007/2008 is welcome but must not reduce the focus on continual business improvement.”

Representing shareholders’ views throughout the capital structure review is a continuing focus for the Council, Mr Read says.

“The year ahead will be defining for the co-operative with the capital structure review being a distinct opportunity to openly consider the future direction of Fonterra.

“Delivery of the strategy is one of the reasons for this review. In considering such significant change, support for the Board’s vision for Fonterra is essential and it must be demonstrated that the strategy is achievable.

“Any change to the capital structure must build on the co-operative ethos of Fonterra.”

The Fonterra Shareholders’ Council monitors Fonterra’s performance and operations and represents shareholders’ interests in the co-operative. The Council’s Annual Report includes a review of Fonterra’s performance for 2006/2007 and a summary of Council’s operations for the season.

“For Council, 2006/2007 has been a season where we implemented a new structure and focused on our core priorities of performance monitoring, farmer representation and co-operative succession and development,” Mr Read says.

ENDS

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