25 May 2022

Dear Growers and Shareholders,

I write to update you on today’s meeting of the Zespri Board of Directors which included discussion on the following issues:

• 2021/22 Financial Results
• 2022/23 Supply Update
• Licence Release Review
• Producer Vote in August 2022: Proposed expansion of ZGS
• Horizon Programme Update

2021/22 Financial Results

The Zespri Board today approved the final result for the 2021/22 financial year. This summary covers:

• The 2021/22 total fruit and service payment and pool results
• Zespri’s corporate results and net profit after tax
• The final dividend for the 2021/22 financial year

We are pleased to announce the total fruit and service payment to growers (including the loyalty premium) is $2.47 billion, which is an increase of 10 percent on last year. Zespri’s net global kiwifruit sales increased 12 percent to $4.03 billion and global operating revenue (including sales and licence income) reached $4.47 billion.

The 2021/22 results reveal strong average orchard gate returns outlined in the table below. While down from last year’s record returns, final per tray returns are above the February forecast and per hectare returns are our second-highest on record, despite the significant and ongoing challenges presented by COVID-19, shifting weather patterns, a labour shortage, late season fruit quality issues and increasing costs.

Zespri’s press release on the 2021/22 financial results can be viewed at https://www.zespri.com/en-NZ/newsroom.

Non-New Zealand Supply results

Zespri’s Non-New Zealand Supply sales increased to $536.9 million, delivering strong returns to our partner growers in Italy, France, Greece, Japan and Korea. These production bases are a critical part of Zespri’s 12-month supply strategy, and ensure that Zespri can hold shelf space and maintain commercial partnerships to support the launch of our New Zealand sales season, ultimately helping deliver stronger returns to growers in New Zealand and around the world. As noted below, in recognition of the current supply gap, the Board has approved a Producer Vote to seek support for an expansion of our Non-New Zealand plantings in August.

Corporate result

Zespri’s net profit after tax is $361.5 million, a record result and up from 2020/21 restated net profit after tax of $277.1 million.

2021/22 final dividend

The Zespri Board approved the intention to declare a 2021/22 final dividend of $0.29 per share, expected to be paid in August 2022. This brings the expected total dividend to $1.78 per share, up from $1.33 in 2020/21. The final dividend expected to be paid in August 2022 will be unimputed, a change from previous years. This reflects recent changes to accounting standards and the expected tax treatment of software as a service. Overall for the 2021/22 financial year, imputation credits will have been attached to 84% of the total expected dividend.

Margin Reset

Zespri’s fruit return margin percentage under the enduring funding agreement will be reset downward by 0.25% to 6.75% for the 2022/23 financial year, as a result of the three-year average NZ Supply EBIT exceeding 1.2% of NZ Supply Sales, subject to final audit sign-off. The result of this is increased value to the total fruit and service payments to growers for the 2022 season, likely to be between $5.0m to $6.0m.

2022/23 Supply Update

Our latest crop estimate has been published today, indicating that we will have a lower crop volume than last year of an expected 172 million trays, including around 106 million trays of SunGold Kiwifruit and 66 million trays of Green. This updated crop volume implies that average orchard yields are likely lower than last season, which we expect is due to growers taking a more conservative approach with crop loading for the season, given the risks associated with labour shortages. This will place average OGR per hectare returns under pressure this season. Lower crop volumes will also likely impact Zespri’s corporate profitability for 2022/23, combined with less revenue from this season’s reduced hectare licence release and our scheduled investment in the Horizon Programme. Zespri will provide a further operational update next week and publish updated OGR, profit and dividend forecast ranges in June 2022. While we have seen a drop in yields for this year, we remain confident in our industry’s growth outlook, as outlined in Zespri’s most recent 5 Year Outlook publication.

Licence release review

Growers will be aware that Zespri is undertaking a review of the licence release programme including consulting with industry over the coming months.

Balancing supply and demand remains critical to growing the value we are able to bring back from the market for our fruit, and this will remain Zespri’s focus in reviewing current licence release arrangements. We want to develop a process that’s fit for purpose, helps us grow market demand ahead of supply, and that addresses feedback from growers around the challenges of accessing licence to ensure equal opportunity for all growers.

Your feedback is critical as we develop this and we encourage all growers to participate in the review, with more information available on Canopy.

Producer Vote – August 2022: Proposed ZGS Expansion

The Zespri Board has today confirmed that we will undertake a Producer Vote seeking support for the expansion of our current offshore kiwifruit plantings, with the vote concluding at this year’s Zespri Annual Meeting on Wednesday 24 August.

Zespri has appreciated the industry’s engagement on this issue and the chance to discuss how our offshore plantings and Zespri Global Supply (ZGS) is helping us move towards delivering our fruit to market for all 12 months of the year.

Sales of non-New Zealand-grown fruit from our longstanding growing partners in Italy, France, Greece, Japan and Korea help us deliver sustainable grower returns, build better relationships with our key customers, maintain shelf space in the period where New Zealand-grown fruit is unavailable and contribute to our ongoing growth.

With our current Non-New Zealand SunGold Kiwifruit supply footprint approaching the 5,000 ha cap, it is time we consider our next steps. Given the growth of the industry and increasing demand in market we know that the current level of plantings will provide less than 28 percent of the SunGold Kiwifruit required in 2031 to supply markets in the New Zealand off-season. The ZGS expansion strategy discussed with growers earlier this year indicates that a further 10,000ha of planting is required to address target demand and support New Zealand fruit sales.

The Board acknowledges the preference from growers not to have regular producer votes but to instead establish regular reviews to ensure that demand remains ahead of supply and that the proposed expansion strategy remains appropriate. We are therefore seeking grower support to plant up to a further 10,000 hectares of SunGold Kiwifruit by 31 March 2031 and up to 2,000 hectares of any new variety. From 2028, SunGold Kiwifruit planting will be subject to an annual review to ensure demand remains ahead of supply.

Producers will be asked to vote on two resolutions:

Resolution 1: Increase in planted hectares of Zespri SunGold Kiwifruit in overseas countries by up to 10,000 additional hectares

That producers agree to extending Zespri’s current 5,000 hectare approval for commercial planting of Zespri SunGold Kiwifruit in overseas countries (excluding Chile and China) to a maximum of 15,000 hectares, with the following conditions:

• up to 6,000 additional hectares (11,000 total hectares) may be planted by 31 March 2028, progress on which will be reported to industry on an annual basis from 31 March 2023;
• up to 4,000 additional hectares (15,000 total hectares) may be planted between 1 April 2028 and 31 March 2031, subject to the Zespri board (in consultation with NZKGI) being satisfied and reporting to industry on an annual basis from 31 March 2028 that demand for ZGS SunGold production exceeds anticipated supply by at least 10 million trays.

Resolution 2: Increase in planted hectares of any new kiwifruit variety in overseas countries by up to 1,000 additional hectares

That producers agree to extending Zespri’s current approval for commercial planting of any new kiwifruit variety not currently licensed for commercial production in overseas countries (excluding Chile and China) from 1,000 hectares to a maximum of 2,000 hectares.

Please visit the dedicated producer vote website - https://zespriproducervote.zespri.com - to find more information on ZGS and our expansion strategy. More information will be shared with all growers in the coming weeks and we encourage you to contact us if you would like to learn more about the proposal or arrange a face-to-face discussion.

Thank you again for your input into the process so far and we look forward to discussing the proposal with you.

Horizon Programme Update

Zespri is continuing to make progress toward completing the first tranche of our Horizon programme, which will upgrade our systems and processes across finance and our core supply chain. This is part of our largest-ever digital transformation, modernising legacy systems set up long ago for a much smaller industry.

At the Board meeting today, we approved a short deferral of the go-live date for our tranche 1 solutions, moving from 1 August to 1 November. While it’s always disappointing to see dates move out, the deferral creates the time needed to execute this final, crucial phase well. We will continue to keep you updated on progress on the first tranche and on subsequent phases that will modernise our wider systems and processes, including in the area of grower enablement.

Thank you all for your continued hard work in what is proving to be a challenging season, and all the best for the completion of this year’s harvest.

Best regards,

Bruce Cameron
Chairman