I'd now like to hand the conference over to your first speaker today, Mr. Miles Hurrell, CEO of Fonterra. Thank you. Please go ahead. Thank you. Good afternoon. Welcome to our Q&A this afternoon. As said, I'm Miles Hurrell, our CEO, but I'm joined here today, Marc Rivers, our CFO, Chris Rowe, who will be Acting Chief Financial Officer from the first of October, and Simon Till, our Director of Capital Markets. As you would have seen, this morning, we released our market update for the F22 annual results. Hopefully you've had a chance to review those results and listen to the briefing video which we put on our website. But in summary, we've had a good year. Headline level starts with the milk price, NZD 9.30 per kilogram of milk solids, but also improved earnings, NZD 0.35. Top end of our guidance range we put out and announced the final dividend of NZD 0.15, bringing the total distribution for the year to NZD 0.20. We have also made good progress on the implementation of our strategy 12 months after that launch and driving greater customer value, meeting the increased demand for sustainable dairy and innovative nutrition and science solutions. We achieved this in an environment where COVID-19 continues to challenge us, and we've been impacted by supply chain issues and of course increased costs. The team approached these challenges with innovation, commitment, determination, and as you would have seen, our efforts are paying off. Now happy to open up for any questions to the team. Thank you. Thank you. As a reminder, if you'd like to ask question, please press star one one on your telephone. First questions from the line of Arie Dekker of Jarden. Please go ahead. Afternoon. Yeah. Firstly, just a quick one on Chile, an update on where you're at in the process. I mean, are you at the point where IMs have gone out to parties, and if so, when are indicative bids due? Early stages in that process, Arie. We're not gonna disclose it, you know, that we were at, as you would expect through a sales process. Early days and we'll continue to update the market as it progresses. Would you, while it's unlikely you'd settle this calendar year, is it feasible that you'll, you know, be able to make an announcement on where it's going in this calendar year or? Look, we'd probably look to give an announcement at the half year as the progress on our sales process. Outside of that, it's too early to confirm any further detail. Okay. No, that's helpful reference point. Just on Australia, I mean, I guess you pretty much have said that this isn't a timing decision. It's a decision to retain Australia for the long term. I mean, could you just give a bit more color on what the drivers were for a hold, you know, rather than a sale? I guess just, you know, where on the spectrum things sort of sat, you know, in terms of, you know, benefits of holding it, you know, versus, you know, industry structure there and those sorts of things, meaning that you sort of assessed that divestment would be difficult. I mean, so I'll come to your last point probably later on, but you know, we've taken our time this last 12 months to really just have a good look at that business. We talked this time last year that it is on strategy. Australia is part of our strategy. It takes a lot of milk solids into that market, both for consumption in Australia and some for export, but also some back in New Zealand. We always talked about it being on strategy, but to really unleash the full potential of that organization was a different ownership structure, something we wanted to consider. That was sort of our ongoing position. Through that 12 months, we've really seen the business deliver upon the strategy that they set themselves. We've made a small investment going back 18 months or so ago in Dairy Country, which supports our secondary processing. We're really starting to see that bear fruit and realize that I think we can do this ourselves. That's sort of the strategic lens by which we put upon it. We'll invest in that business for future growth, both in terms of the domestic market but also the export market. They've, as I say, shown what they can do in the last 12 months. We're confident around how that looks into the long term. Yeah. Okay. I mean, I guess, it's been, you know, if you look back a longer period of time, it's been a reasonably challenging market at times for Fonterra. That, I mean, obviously over time ceded a decent amount of share, although I guess it, you know, has stabilized. Just on your plans under retention, which you just touched on a little there. Can you? So your plans would have you growing market share of milk supply again over the next sort of three-five years? And if so, you know, what sort of level would you be targeting? And can you also just talk a little bit about how much you sort of envisage investing in Australia in the next three-five years? I won't share the latter point on investment, but it wouldn't be a significant investment from what you're used to across the rest of our portfolio. In terms of market share, we don't have a growth plan in terms of growing market share. I mean, the milk pool there is stable, probably almost stable at best. We've got our position, we've got our operations in a position where we're comfortable with the milk volumes we have. They're running optimally across, you know. We operate through Victoria and Tasmania. Both to support the domestic market but also to say the export market. We're comfortable where we're at and don't see ourselves going on a recruitment phase in terms of milk growth. That's not part of the strategy. It's growing the value from here as opposed to the volume. Yeah. I guess you've sort of answered it. I mean, you said you'd sort of come back to it and just in terms of that first part of my question, but I guess what you're sort of saying is that this was a decision driven more by your confidence in retaining over divestment being difficult. Is that. Yes. Okay, thanks. Just on capital return, you know, and obviously you need to have, sort of the provisos in there, but, you know, similarly, you know, you've made a pretty strong commitment on capital return, and it doesn't look like you're sort of, stepping back from that. Could you just sort of confirm that what we should now expect is that, you know, assuming Chile, you know, sells and a capital return to the extent from Australia, a capital return would, you know, follow shortly after a divestment of Chile, and that your intention, you know, as it sort of sits at the moment, would be that, you know, that capital return wouldn't be substantively different to sort of the NZD 1 billion you earmarked previously. Yeah. Arie, it's Marc. Yes. As you say, I mean, I think key is the Soprole process which is underway. We did indicate, you know, that we'd set a goal of returning NZD 1 billion to shareholders. Of course, at that time, we anticipated divestments, including Soprole and a stake in Australian business. Now, even though we're not selling, retaining Australia, we are still committed to targeting a significant capital return to shareholders. You know, it's obviously what the final amount is. It has to depend on the proceeds of those processes, especially the Soprole process, but also just a broader picture, which is always the case, you know, of what is the debt and earnings position of the company at the time. Sure. Just the last question. Just on CapEx this year. I mean, I guess we're moving into the sort of the FY24 sort of target level. Just FY23 transition, you know, should we sort of expect that it's circa NZD 800 million this year, or will it step up by more than that? Yeah. Arie, I think that's a pretty good range. I mean, this year we've ended at NZD 617 of capital invested. I guess we do expect that to lift next year, but that's probably a pretty good estimate for the level what we're anticipating. That's all from me. Yeah, well done on a very solid result. Thanks. Thanks, Arie. Thanks, Arie. Thank you for the questions. Next question comes from the line Matt Montgomerie from Forsyth Barr. Please go ahead. Hi, guys. Just checking you can hear me okay. Yes. Perfect. Yeah, maybe just on the ingredients business, clearly a very strong year. Just winding back six months ago, you sort of were a bit more circumspect around the structural element of margins and, you know, uplift through stream returns in that business. I guess on the back of a strong second half and, you know, again, strong guidance for F23, you know, just wondering if you can provide any comments on the ingredients business and whether you see a structural uplift in the margin there, or if it's just more or less a reflection of the broader mix shift within the business, as products change, et c. Yeah. Hey, that's Marc. Yeah, no, very interesting time we're in right now with the stream returns being as favorable as they are. You know, clearly we've seen that sort of really emerge towards the end of this last year and continuing into the new year, which is behind why we lifted the guidance as strongly as we did for the coming year. It's always difficult to say how much of that is going to be structural and whatnot when you look out. You know, the drivers of it are gonna be, you know, fundamentally what's going on in, you know, say, the protein portfolio sort of caseins and cheese and those prices which are quite high at the moment and may be driven by a number of factors. Then on the other side, what is the cost of milk basically of the reference product baskets, you know, whole milk powder, et c. What we're seeing right now is, you know, quite. I mean, historically, we've really not seen this kind of position before, certainly not at these high milk prices. What we normally imagine is that that doesn't hold forever. The question is how that plays out. Will it play out with casein prices, cheese prices coming back? Or does it play out with the reference commodity products coming up in value, closing up some of that arbitrage? Really difficult to project out with all the moving parts with that. What I can say structurally that I think over time we're getting better and better at is the portfolio allocation process, you know, and our ability to kind of manage. We're taking advantage more of the physical and financial markets, you know, to lock in those margins as we see them. Those are programs like our Fixed Milk Price programme, the derivatives instruments. As those markets become deeper, that gives us the ability to kind of take advantage of those movements as the markets, you know, will move. I think it's one of the reasons why, Miles, you decided, you know, within the structure going forward is to bring the portfolio management group actually to the top table. It's just the importance of that group and taking advantage of those kind of volatilities and having a diverse portfolio that we have, right, to capture these kind of pockets of value as they appear. Great. Thank you. I guess sort of along the same sort of lines, you've provided a bit more detail in here just around the allocation of NZ milk solids through the different divisions. Just wondering if you could, you know, provide a bit of a high-level roadmap for that, you know, over the next, you know, three to five years as you know, continue to move on the value add strategy and, you know, where you see those allocations sitting in a few years' time. Strategically, it's Miles here. We have a view as to where, both in terms of channel but also the markets we will see new products. Asia Pacific, food service, Asia Pacific consumer continue to be areas of focus for us. That said, being nimble and having the diverse set of markets and channels gives us the ability to chase the value where that happens, and you're seeing that play out this year. MENA if you recall, MENA had a pretty tough year last year. We're seeing great margins across China, food service in particular. Because of the ingredients play this year, based on extreme return question you just said, you know, happy to pull back on some of these areas and focus on those gross margins from an ingredients perspective. That said, you don't completely turn off those areas where you've built solid businesses, that you're gonna have to go reinvest it to create the longer term value. So making sure we support our key categories, key customers and key markets, importantly continue to support that, but ultimately they need to return the gross margins that we set out at the start of the year or so. It's a bit of a hybrid one to your question on making sure we follow the margins and that's the diverse nature of our business, but also recognizing we you know underpinned by our long-term customer commitments and arrangements we have. Great. That's perfect. That's all from me. Thank you for the question. As a reminder, if you'd like to ask question, please press star one one on your telephone. Our next question comes from the line of Nick Mar of Macquarie. Please go ahead. Hi, guys. Just in terms of the FY 22 number, are you able to put a rough estimate on what the absolute stream return number was for the period? Nick, it's Chris Rowe here. Our estimate, or the approximate number for the year-on-year shift is around NZD 250 million dollar improvement, year-on-year. Yeah. I guess just trying to understand sort of within the context of the sort of long-term aspirations. You know, there's obviously a lot of moving parts at the moment around stream returns and then also the input costs for the branded businesses, sort of how you sit relative to that aspiration outside of some of those. Have you done any analysis on that and how you sort of achieve those targets? Our long-term aspiration targets presumed a neutral level of stream returns across time, where the nature of the business we're in, with the degree of price volatility means some years we will get excess returns above that line. Other years, it'll be a little bit more pressured as it was in F21. Okay. Just your perspective on sort of farmer breakevens and where those have been hitting with sort of cost inflation. Yeah, I mean, certainly they have increased. I don't have any numbers to support it at this point until we get some more data out of DairyNZ. You know, the sort of inflationary pressures that we're seeing here, you know, I'd go as far as say they're greater on farm at this point in time, you know, feed, fertilizer, energy in particular, and then probably hampered more by labor shortages also and therefore costs of labor have increased probably greater than what you're seeing in the city. Don't have the data on that, but DairyNZ will produce that relatively soon. Okay. Sort of another kind of bigger picture one. When you look at the food service business, and it's always hard to sort of stitch together 'cause it's been reported in different ways, you know, over the years. Through cycles, sort of how does the EBIT margin look, you know, relative to the risks and the cost of, I guess, establishing those businesses versus doing ingredients? Obviously this year, you know, it's pretty skinny margin and has been for a little while. You know, does that through cycle significantly outperform ingredients on a sort of risk-adjusted basis? Yeah, Nick, Simon here. You're right. This year, obviously, the margins have been a lot tighter, but we did provide some data there in the presentation. Even this year, with the much higher input costs, food service margins were still slightly better than ingredients. You know, hence Miles' comment about still making sure we keep the product going through that channel. In a normalized period, then you'd expect those margins are obviously much higher than ingredients on average, and hence why we're looking to put you know, more KGMS in there. Even in a tough year, as I say, that we've had in terms of those tighter margins, still just better than average ingredients. Okay. Thanks, guys. Further questions, please stand by while we take the next questions. Next question comes from the line of Marcus Curley of UBS. Please go ahead. Good afternoon. I was just wondering if we could start with food service. Could you talk a little bit about the challenges you faced in Asia and Latin America and how you see the pathway to recovery there over the next 12 or 24 months? Yeah, Marcus, Miles here. I mean, I'll start by saying, I mean, you know, the impacts of COVID throughout Asia, and we're still seeing it to an extent in China, of course. You know, through Southeast Asia, we're severely impacted by lockdowns through F22 through that food service channel. That's the main issue there. As those markets start to emerge, we still have strong positions in there, strong branded position in our food service category, and we'll see those businesses come back on the back of you know, higher milk price we need to acknowledge also. The impact we saw with being down. COVID was a key influencer from last year. Okay. Like I said, first, when I look at your disclosures, it didn't necessarily look like there was, you know, that bigger issue on volumes. It looked very much like a, yeah, clearly a margin problem. Yeah, of course. It is a relatively long supply chain in some of these areas also. You know, moving stock which might move also through into what appears a food service channel that ends up in the consumer channel as well might be an opportunity that we've taken advantage of in some cases. In China, one that we have that was publicized quite clearly is, you know, product that was sold at the large apartment blocks around China. You would've seen taking food service product being delivered across, you know, apartment buildings. As an example, we saw some of that play out last year. Which in reality is, you know, the way we'd describe that'll be a consumer play in a normal course of events. However, food service products were delivered into apartment buildings and distributed accordingly. Okay. Like, it seems like you had much better success, yeah, passing on higher pricing in China food service than you did in the other regions. Yeah, that's fair. Again, you know, China was relatively untouched until quite late in the piece with COVID, whereas Southeast Asia was the early part of the year. We felt the impact of food service in Southeast Asia a lot earlier and longer, and then China sort of more latter part of the year. Based off that, you would expect this to sort of be a, like a two-year recovery, you know, with, you know, Asia and Latin improving this year and maybe China getting a little harder and then everybody okay the following year? Well, we're seeing some signs of life already through parts of Southeast Asia. China is still a little bit sluggish. I couldn't give you a comment on Latin. I'm sorry. Okay. Can we switch, you know, over to just the ingredients business for a second? Like I, and maybe this is just me, but, you know, with the, you know, with the disclosure on, I think it's page 54, there's this thing called group operations attribution, which I hadn't seen before, which obviously accounted for a very significant part of the EBIT performance. Could you talk a little bit to what that is? Sure. It's Chris Rowe here. Essentially, we operate the business with three selling regions or soon to be two selling regions, AMENA, APAC, and Greater China. They essentially purchase their raw materials from the center. That Group operations allocation is the amount of the center being our manufacturing operations and our CPM function that attributes to each of those three regions. Essentially, the very core margin around manufacturing, price relativity and the like, that sits in Group operations and it gets attributed. For Marcus, maybe the other way to look at it is, as we've talked about, we look to sell to the regions, particularly a transfer price that reflects underlying market values. Where that the relative profit might end up between what we call group operations and the regions, you know, would generally tend to give you an idea as, you know, where the margin is. Given it's been very strong for ingredients, you tend to get most of that captured within the group operations versus what's in the region part of the profit level. It's just a, I guess, a reflection of what those transfer or market prices are. The reason we do the attribution is so that you can see the full end-to-end value of the products going into those markets. Okay. So this is the impact of products sold, you know, or ingredients sold into food service and consumer? Sold into a region under those different channels. For each region, let's say just take China, we'll show that breakdown of for each channel, for food service, ingredients, consumer. You can see effectively the end-to-end value sort of profit margin or value part of the business. Marc, as I'll throw some numbers out which are not accurate, but just to give you a bit of a flavor. If the milk price component of cheese equates to about $4,000 a ton, but the market price in the international market is trading around $5,000 a ton, we'll transfer that to our market at $5,000 a ton, and their job is to get a margin above that, which will sit in the APAC or the MENA or the Greater China now. The $1,000 a ton, where we've transferred it to that region, would sit in that group operations. Only at the end would we attribute that out, because ultimately it is a margin and that's effectively stream returns. It's another way of describing stream returns. Rather than giving it all to the regions in day one, we sit in there and manage those stream returns internally to make sure we do the right optimization decisions around ingredients and at the end, then we make that attribution accordingly. Yeah, 'cause I suppose the movement between the two years is NZD 370 million, which is quite a lot more than just the previously guided increase in the stream returns. Yeah. Some of it will just be also, where the relative margin across the whole value chain is as well. Sorry to draw on this, but the next slide, you know, you've got the New Zealand business or New Zealand sourced business, and you know, while there's no gross margins given out anymore, if you just take, you know, the revenue less the cost of milk, you know, for this year and next year, is the full stream returns, you know, captured now within that slide? Or is there some of it, you know, is sitting within this group function now? No, that's in terms of you're talking about the split between New Zealand and non-New Zealand milk, where we show down to EBIT margin, that slide there? No, I'm talking about the next slide, which says New Zealand sourced ingredients, product maximum. You know, and all I'm doing here is taking, you know, the revenue less the milk cost as an illustration of gross profit. My question is, you know, does this slide here include the full stream returns or is it some of it sitting elsewhere? No, that will be, just to be clear. These are the full revenue numbers, cost of milk. That's the slide you're talking about? Yes. That will capture. That shows the effectively the relativity between the reference and non-reference, which is effectively that price relativity that you're talking to, right? That's, yes. There will be obviously costs below that to get to the EBIT line. These are effectively the price relativities that we're talking about. Okay. These numbers will fully reflect, you know, all of the stream returns? They are indicative. The prices are just that, revenue rates per metric ton. If you think about each metric ton of product, the cost of milk is the amount or the value of the milk that matches up with that price. It ignores all other costs. It's quite a high level depiction of the difference between reference and non-reference at a super high level. At the gross margin, yeah. You know, it ignores conversion costs, anything. It's just milk. Marcus, I'd be happy to work through the numbers in more detail if you'd like to, but to Chris Rowe's point, these effectively match up with the, I guess, the charts we show the direction of the streams in the earlier pages. Okay. Then just can you talk a little bit about the working capital increase of NZD 1 billion and what you think that, you know, sort of. It's obviously really hard to understand what the genuine debt levels are within the business. But maybe it's easier if you could maybe give some guidance on where you think end of the year, end of FY23 debt levels end up. 'Cause, there's obviously a caveat with the capital return around, you know, the debt levels in the business. It's sort of when you look at where they are at the moment, it clearly would suggest that they're massively higher than what anyone would have hoped. Maybe just to speak to the debt level. Just this past year, net debt is about NZD 1 billion higher. The driver of that is clearly working capital, right? NZD 1.6 billion of worsening of working capital. Within that, the drivers of that are inventory and receivables. Inventory is NZD 1.2 billion of that uplift in working capital, and receivables is NZD 0.8 billion. Within the inventory, 400 million of that is price driven, and the rest is quantity. We see this as temporary. It's a matter of just normalizing that, and actually we're progressing pretty well on that. It's just a matter of getting that inventory. It's well contracted, first of all, 88% contracted at year-end. Just a matter of getting that really executed onto ships and out, and then we'll see that return to normal. If you kind of look at that net debt position and say that, you know, that working capital was the main driver of that. If that had not happened, then clearly we would have seen, you know, a net improvement in the net debt position. That's the underlying, you know, trend that we're on. You project that forward into the new year with the uplift in earnings guidance. You know, that certainly is helpful for the balance sheet, to help with the balance sheet by year-end. You know, again, all things being equal, I would expect a substantial improvement on our balance sheet metrics by the end of this next fiscal year based on that earnings guidance. Marc, why was there a delay in selling the product? Yeah. Well, it wasn't that there was late season milk through autumn. It was generally across the country. The Waikato experience was not great milk, but generally across the country, there's some pretty good milk through autumn, which was not anticipated. There was just general supply chain issues that continue to happen. You know, tactical decision, do you try and quit that stock now at an economic cost to the business? Or do we sit and use our balance sheet and send it out over the course of quarter one? Six weeks into the new year, we're making really good progress on that. Ultimately the right decision to use the balance sheet to move that stock on as opposed to quitting it at pace, potentially at a discount. Sorry, finally, could you talk a little bit to the dividend policy? You know, does the payout that, you know, you've done this year, is that sort of a good benchmark for what we should assume going forward? Yeah. The policy hasn't changed from what we explained last year. You know, sort of that 40%-60% of what's been earned. Again, ultimately at the discretion of the board. Yeah, I think, you know, this year is a good example of that. You know, we looked at the situation and recommended, and the board approved, you know, sort of at the upper end of that dividend range. Clearly in the long-term aspirations in our targets, as we get out to those 2030 sort of level of earnings and as our balance sheet improves, then that gives us even more flexibility potentially to you know to start to hold even lower retentions or look at the dividend policy. The idea is really to be disciplined on dividends to pay it out when it's earned on the one hand, but on the other hand, you know that this is the return that investors should be getting. Okay. And sorry, I did say that was the end of me. Just one other point, question. Yeah, the NZD 300 million buyback that you've got flagged for part of the liquidity support with the capital structure change is that included in the NZD 1 billion capital return? No, that's not. Okay. Thank you. Thank you for the questions. I would now like to hand the conference back to the management for closing remarks. Okay, thanks. Thank you, everyone, for your questions. Of course, Simon and his team are available for any of those detailed questions. I know that it's always a comprehensive deck we put out, and we're not the easiest business to understand at times. I get that. The team are fully available. Thanks for your support this year, and look forward to meeting a number of you over the course of the next month or so. Thank you. Thank you. This concludes this conference call. Thank you for participating. You may now disconnect.