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Annual Review Of Fonterra

5 September 2005

Shareholders’ Council Releases Annual Review Of Fonterra

The Fonterra Shareholders’ Council says Fonterra posted a solid 2004/05 financial performance and is now well positioned to deliver the growth expected by shareholders.

The Council monitors Fonterra’s performance, operations and direction on behalf of Fonterra’s shareholders. Council’s review of Fonterra for 2004/05 is outlined in its Annual Report to Shareholders, released this month. The report also contains a summary of Council’s operations for the season.

Shareholders’ Council Chairman John Monaghan said: “Fonterra delivered another solid result for the season and shareholders are feeling heartened by the payout of $4.59 per kilogram of milksolids and the 16% increase in the Fair Value Share.

“The payout forecast moved 19% during the season and although favourable, the extent of this variation is of concern to the Council. Farmers use payout forecasts to make start of season investment decisions that help to determine their production levels. While external factors can alter forecasts, greater accuracy will give farmers more confidence and assist the co-operative to achieve its stated milk growth targets.

“The Council has also expressed concern about the forecast payout of $3.85 for the 2005/06 season. Some farmers may find it difficult to maintain an acceptable on farm return with payout at this level, particularly with inflationary pressure on input costs.

“Increasingly the Council is focusing on Fonterra’s long term performance and prospects. After four years in operation the co-operative now has an integrated structure and the business is in good shape.

“The bid to acquire Australian dairy company National Foods Ltd clearly demonstrated the size of Fonterra’s ambitions and the potential that exists for the co-operative in the global marketplace.

“While the Board’s decision to walk away from the National Foods’ bid showed commercial discipline, expanding the value add side of the business remains imperative to ensuring that Fonterra can continue to deliver superior investment returns to shareholders.

“There is a real appetite for expansion among farmers and they are keen to see Fonterra’s unique strategic position fully leveraged for shareholders’ advantage.”

Mr Monaghan said the 2004/05 season had been eventful for Council. Highlights for the season included introducing changes to the process for electing Fonterra Directors, conducting a nationwide survey of dairy farmers and having more than 2,000 farmers attend Council’s shareholder seminars.

“The Council worked alongside the Board and management during the Capital Structure Review. The thorough consultation process during this review gave farmers the opportunity to influence positive change in the co-operative’s capital structure.”

ENDS

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