CONTENTS. ZESPRI Group Limited Highlights 1. Chairman s Report 3. Shareholder Statistics 6. Chief Executive s Operational Review 9

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2 CONTENTS ZESPRI Group Limited Highlights 1 Chairman s Report 3 Shareholder Statistics 6 Chief Executive s Operational Review 9 Challenging Conditions in Asia 12 Strong Season in Europe 14 North America and Other Markets 16 Aragorn Key Ingredient in Growing Markets 17 Supply Chain 18 Innovation Key to the Future 20 Supporting the Community 22 Industry Performance 25 Corporate Governance 33 Board Profiles 34 ZESPRI Executive Team 36 Financial Report 39 pg The Annual General Meeting of shareholders of ZESPRI Group Limited will take place at 1.00 pm on Wednesday, July 19, 2006 at Baycourt Auditorium, Durham Street, Tauranga.

3 ZESPRI GROUP LIMITED HIGHLIGHTS COMPANY PERFORMANCE Net profit after tax in line with last year at $26.4 million. Equity lower at $72.8 million from $77.0 million after payment of $10.8 million special dividend from the share issue proceeds. Interim dividend of 50 cents per share paid in February Intention to declare final dividend of 60 cents per share to be paid in August MARKET PERFORMANCE Global kiwifruit sales down 3 percent in New Zealand dollar terms to $991.1 million. New Zealand volumes shipped up 4 percent to 84.7 million trays: GREEN up 6 percent to 64.1 million trays GOLD down 1 percent to 14.8 million trays ORGANIC no change at 2.7 million trays. Record sales volumes in Europe, up 6 percent to 47.6 million trays. Record sales volumes in Japan and Asia, up 4 percent to 27.9 million trays. INDUSTRY PERFORMANCE Total fruit and service payments down 7 percent to $569.1 million. Total fruit and service payments per tray down 10 percent to $6.72 per tray. Average orchard gate return (OGR) including loyalty premium per hectare: GREEN down 20 percent to $25,580 GOLD down 14 percent to $42,540 ORGANIC down 10 percent to $29,956. 1

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5 CHAIRMAN S REPORT It was again the integrated industry structure and ZESPRI brand, underpinned by the Single Point of Entry, which kept customers loyal and sales receipts healthy. CRAIG GREENLEES Chairman The year to March 31, 2006 was tough all round, both in the markets and at home for growers on the orchard. While the Board can report a good company result with net profit after tax in line with the previous year at $26.4 million, the strong New Zealand dollar, higher freight costs, another record crop and variable fruit and storage quality issues ate into sales, fruit and service payments and orchard gate returns. About 60 percent of ZESPRI s net market returns are earned in Euros, with 32 percent in Japanese Yen and 8 percent in other currencies. While we earned premiums in local market currencies, the New Zealand dollar defied the experts and reached nine year highs against both the Euro and the Yen. ZESPRI Group Limited Profitability ZGL NPAT NZD (m) ZGL NPAT as % Revenue NET PROFIT AFTER TAX NZD (m) 2.8 AS A % OF REVENUE While we realised hedging gains of $25.6 million from pro-active foreign exchange risk management, overall returns were eroded by $61.4 million FINANCIAL REVIEW The effect was marked. Despite record sales volumes and robust pricing in the key Japan and Europe markets, with solid performances in Korea and Taiwan and a stronger than anticipated season s close, net global kiwifruit sales finished the year down 3 percent to $991.1 million. This result was based on 84.7 million trays shipped from New Zealand, up 4 percent, and a later and longer selling season. It was again the integrated industry structure and ZESPRI Brand, underpinned by the Single Point of Entry (SPE), which kept customers loyal and sales receipts healthy. The structure provided the flexibility to shift fruit between markets late in the season to maximise returns and to control quality problems with taste, flesh colour and storage. ZESPRI s ingredients business Aragorn made a small surplus of $231,000 while ZESPRI Global Supply the new name for ZESPRI Fresh Produce sold significantly higher volumes, posting an operating deficit of $0.8 million after the one-off final payment to Kiwifruit International Limited. ZESPRI Group Limited Equity and Dividend ZGL Equity NZD (m) ZGL Dividend NZD 1.10* EQUITY DIVIDEND *Excludes special dividend of 45c from return of capital. 3

6 CHAIRMAN S REPORT The result brings into greater focus the need to accelerate the 12 month global supply and marketing strategy. We must have continual volumes available of premium ZESPRI Kiwifruit from growing partners in Italy, France, USA, Chile, Korea and Japan to market to quality conscious customers in target retail markets during New Zealand s counter season. We must be the preferred kiwifruit supplier throughout the year to hold retail shelf space and maximise returns year-round for growers and shareholders. Our confidence in ZESPRI Global Supply as a financially viable, core component of the business was behind the early conclusion of the ZESPRI International and Kiwifruit International Limited (KIL) management agreement in January KIL shareholders approved a final payment for underwrite fees of $3.6 million. We also made changes in North America. After thorough review, ZESPRI sold its 15 percent stake in North American distributor, David Oppenheimer. The investment in an offshore distributor was not part of our core business, nor was it essential to our distribution network. We realised $2.8 million from the sale and ZESPRI was also released from the guarantees to David Oppenheimer s bankers. We continue to use David Oppenheimer as our main distributor in North America. The result brings into greater focus the need to accelerate the 12 month global supply and marketing strategy. DELIVERING RETURNS We work for and on behalf of growers so our decisions and strategy must always be based on looking at what is best for the business and our growers. As a company owned and controlled by New Zealand growers, ZESPRI s performance will ultimately be measured on the basis of fruit returns. In growers had a difficult year and felt the brunt of the New Zealand dollar s strength in their returns. Total fruit and service payments fell 7 percent to $569.1 million. Per tray returns dropped 10 percent to $6.72 with lower returns for all pools. Orchard gate return per hectare (including the 10 cent per tray loyalty premium) decreased by 20 percent for GREEN, 10 percent for GREEN ORGANIC and 14 percent for GOLD. DIVIDENDS In recognition of grower cash flow pressure during the difficult trading year, the Board declared a fully imputed interim dividend of 50 cents per fully paid share, made up of 25 cents in normal dividend and 25 cents as an extra dividend, which was paid in February Having reviewed the company s strong financial position, cash flow and strategic and capital needs in the coming year, and in view of the effect of the lower fruit payments on grower shareholders, the Board has lifted the dividend as a one-off for this past year and will pay out all of ZGL s profit available after tax. The intention is to declare a final dividend of 60 cents per share payable in August 2006, bringing the total dividend for the year to $1.10* per share. We envisage returning to the percent of net profit after tax dividend payout in the future, which is in line with our previous stated policy. Global Kiwifruit Sales NZD (m) ZESPRI Global Supply New Zealand Sourced Kiwifruit Earlier in the year the Board declared a special dividend of 45 cents per share to shareholders on the share register as at December 9, The $10.8 million paid out represented the net proceeds from the February 2005 share issue and August 2005 share buyback, designed to achieve closer alignment between ownership and production to protect the integrated, grower-owned system and business into the future SEASON SEASON SEASON SEASON SEASON A total of 129 dry or over-shared shareholders, representing 530,445 shares, accepted the buyback offer made in August The buyback absorbed some of the cash received from the share issue and reduced the number of shares on issue. *Excludes special dividend of 45c from return of capital. 4

7 Orchardists Peter and Jenny Mayston. Alignment between shareholding and production, which confirms the principle of grower ownership and control of the business, has improved significantly with 95.5 percent of shares held by producers. A joint ZESPRI/NZKGI committee has been established to continually monitor share trading and alignment levels, and will consider any future action that may be required to maintain the balance. DIRECTORS FEES The Board voted at their March meeting not to recommend an increase in director fees, bearing in mind the difficult year that our grower shareholders have experienced. In New Zealand generally, directors fees have risen by around 15 percent between 2000 and ZESPRI directors have had no increase in base fees since 2000 and this matter will need to be reviewed at an appropriate time in the future. STRATEGY FOR GROWTH Self determination and grower ownership of the business, brand and system are our mainstay. Growers have reaffirmed their support for the integrated SPE structure in the recent industry survey, and in return for that continued commitment we, as a business, are obligated to maximise the value, cohesion and growth potential inherent in the system. For the past year the Board and Executive have been developing a strategic plan to guide ZESPRI s growth for the next five to 10 years. It is based on continual evolution to secure the unique competitive advantages from our interlinked, co-operative and co-ordinated commercial structure as the acknowledged leader in kiwifruit, maximising net returns for growers and shareholders. It is demanding, and to drive momentum the Board has set ambitious targets as the plan is implemented globally. Our current business model has delivered good returns but our success has been predominantly supply-based, underpinned by the SPE structure and our long-standing trade and supply relationships. The world is changing, and we must respond quickly to increasing competitive and regulatory pressures. ZESPRI must be continuously in the market and in front of our trade and retail customers. We will do the best job for New Zealand growers, delivering a full range of differentiated, premium quality kiwifruit along with marketing and service support year round. We aim to become a full-time marketer with an integrated, world-class production and delivery system that positions us far ahead of competitors, wherever they may originate, so that we are the preferred supplier and marketer of kiwifruit. To prosper and grow in this new environment we have to extend supply sources, broaden the marketing base, increase our consumer focus and become more commercial and competitive to add value to our returns. Being the biggest and historically the best is not enough. We have to drive down costs and increase productivity and efficiency. To create sustainable wealth, our business model has to be built on ZESPRI being the retail category leader in kiwifruit through unrivalled excellence in brand-based consumer offerings, customer relationships and innovation, all anchored by the cost-effective global sourcing of superior quality fruit. 5

8 CHAIRMAN S REPORT Long-term, our strategic objectives are to: Achieve a leading share of internationally traded kiwifruit volume by 2015, representing a growing percentage share by value. Increase long-term orchard gate return per hectare to New Zealand growers each year (adjusted for foreign exchange). Deliver returns to offshore growers that are consistently above their next best kiwifruit marketing alternatives. Increase ZESPRI net profit year on year. Position ZESPRI in the top five consumer brands within the fresh produce category in key markets by Sustain existing in-market price premiums. To get there we have to leverage our trade relationships so they strengthen and grow, plug distribution gaps and move closer to consumers to understand their varying purchase motivations and needs to encourage consumption. We have to accelerate product development, especially new cultivars, processing options and product convenience, and ensure that we fully exploit the value of ZESPRI GOLD Kiwifruit s exclusivity. We must also work as an industry team to preserve the advantages in the SPE structure to develop greater commercial integration from orchard through to point of sale, regardless of the regulatory environment. But in addition to turning the strategy into action to achieve the key objectives, there are four critical success factors that we have to consistently get right, no matter what. We must: Grow 12 month supply. Deliver fruit quality and taste that the market demands. Align total supply chain performance and efficiencies to market potential. Enhance business process and organisational requirements. These four competencies are the very foundation of a world leading, global fruit marketer. OUTLOOK We are making progress on these four fronts and our outlook for the financial year is cautiously optimistic. We have fruit away early and some respite from a weaker New Zealand dollar. We have a good team, and on behalf of the Board we acknowledge the contribution of the ZESPRI staff under CEO Tim Goodacre, and the whole industry from growers through to post harvest operators, who have shown a resilience, responsiveness and passion to innovate, adapt and change during a testing selling season. This willingness to take on new challenges to ensure ZESPRI Kiwifruit retains its worldleading reputation will carry us into a prosperous future. ZESPRI Group Limited Shareholder Statistics Number of shares (000) 24,674 24,674 21,195 Dividend (per share) fully imputed *$1.10 $0.50 $0.50 Share price at year end $5.00 $4.12 $3.00 Earnings per share $1.10 $1.07 $1.08 Net dividend yield 22.0% 12.1% 16.7% Gross dividend yield at 33 percent tax rate 32.8% 18.1% 24.9% Share Trading Number of shares sold 527, , ,181 Number of shares transferred with property sale 285, , ,198 Family Trust share transfers 259, , ,262 Shares issued fully paid - 1,667,098 - Shares issued partly paid to $1.37-1,811,682 - Partly paid shares fully paid during year 1,155, Shares repurchased and held as treasury stock 530, Equity ratio 48.0% 50.6% 52.4% Net tangible assets value per share $2.88 $2.96 $2.47 Dividend yields and other share ratios are based on total ordinary shares, excluding those shares held as treasury stock. * Interim plus intended final dividend but excludes special dividend of 45c from return of capital. 6

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11 CHIEF EXECUTIVE S OPERATIONAL REVIEW We must continue to strive to deliver fruit that meets customer and consumer taste expectations. This is critical to sustaining ZESPRI Kiwifruit s premium positioning, pricing and competitive lead. TIM GOODACRE Chief Executive The results achieved in-market were strong, in the face of the need to manage some specific quality issues and hotter competition from other fresh fruit. Total Volume Sold Tray equivalents (m) NZ Sourced We ended the longer New Zealand selling season having sold 82.3 million trays of GREEN, GOLD and ORGANIC Kiwifruit at good prices. However, the real strength of the market performance has been masked when the high prices achieved in local currencies have been converted back to New Zealand dollars. We are reporting sales of New Zealand sourced kiwifruit of $945.2 million, 5 percent lower than the previous year. This includes $11.3 million from 2.1 million trays sold through collaborative marketing programmes GREEN ORGANIC GOLD OTHER We used strategic promotions, tactical pricing and customer relationship management to keep volumes moving. We were also able to react swiftly to a slower and intensely competitive Japan market by moving fruit to other markets during the season. Japan still turned in a good result despite a particularly challenging season, with quality issues relating to taste and green-fleshed ZESPRI GOLD Kiwifruit, as well as having to compete against lower priced summer fruit. The rest of Asia again performed exceptionally strongly with a new high in volumes, while Europe pulled out the stops to achieve record volumes and maintain prices in line with the previous season. North America also drove net returns up, deliberately increasing prices early on and then selling good volumes. Total Fruit and Service Payments NZD (m) NZ Sourced GREEN ORGANIC GOLD OTHER LIFTING QUALITY In terms of quality, this has been a difficult year. The harvest was the largest ever, and was complicated by rain which added to the pressures on post harvest operations and affected fruit flavour. This meant the customer and consumer experience was in some cases not up to the high standard which has built and maintained the ZESPRI premium. The message from the markets is clear quality and taste can not be compromised and we must collectively learn from this experience to ensure it is not repeated

12 CHIEF EXECUTIVE S OPERATIONAL REVIEW New procedures and penalties have been put in place for to assure the integrity of our system, brand and reputation as a trustworthy supplier and marketer. Colour clearance criteria, maturity area sampling procedures, conditioning colour checks before removing fruit from storage and a ZESPRI wharf audit of fruit quality are all in place. ZESPRI TM GREEN Volumes Sold Tray equivalents (m) NZ Sourced EUROPE JAPAN ASIA NTH AMERICA OTHER While these systems are all about compliance, the emphasis must ultimately be on reward for performance. We have sharpened our reward systems to provide incentives to all growers to supply Taste ZESPRI standard fruit, and provide incentives to suppliers to meet delivery and segregation criteria We will continue to align payments and rewards more closely to recognise growers and suppliers who continue to meet market specifications. EFFICIENCIES AND TRANSPARENCY We want to further improve supply chain efficiencies and also drive out unnecessary costs wherever they fall. Continuation of various supply chain projects identified by the 2004 Supply Chain Review remains a priority. Work is also underway to identify further opportunities in the supply chain to achieve efficiencies and greater value. The Board has established a sub-committee to focus on this issue. ZESPRI TM GREEN ORGANIC Volumes Sold Tray equivalents (m) NZ Sourced EUROPE JAPAN ASIA NTH AMERICA OTHER We opened a Grower Contact Centre during the past year to provide better service to growers and ensure they can get the right answers to key questions quickly and efficiently. Importantly, the centre is in-house with service provided by dedicated ZESPRI people who have a ready understanding of grower issues and priorities. We have also upgraded and made more user friendly our grower website, now called The Canopy at com. The website hosts a full range of information, including individual orchard details for grower owners. We ll continue to improve the range of products and services available on line over time, with the focus on providing greater transparency and tools that add real value to an individual grower s productivity. Throughout 2006 we will progressively provide more information through the website and the Kiwiflier on ZESPRI and industry performance, payments, supply, inventory management and how this relates to individual performance against industry averages. 0.0 ZESPRI TM GOLD Volumes Sold Tray equivalents (m) NZ Sourced EUROPE JAPAN ASIA NTH AMERICA OTHER

13 GLOBAL SUPPLY FOR YEAR ROUND MARKETING We must deliver the requisite ZESPRI quality and standards, regardless of country of origin, so that there is no issue for customers or consumers. A big effort is going in to support production and manage the quality of Italian sourced GOLD Kiwifruit, as well as providing the technical and on-orchard support for our other growing partners. We must deliver the requisite ZESPRI quality and standards, regardless of country of origin, so that there is no issue for customers or consumers. Offshore GOLD crop volumes are on target to meet the current market growth plans. It is critical that we extend the seasonal availability of the ZESPRI exclusive premium product and own the shelf space before other yellow-fleshed or novel kiwifruit are offered in any regular programmes. YEAR-ROUND CAPABILITY Our 10 year strategy highlights a year-round global supply and marketing capability as a key growth driver. Now that we have a strong foundation in place there is real urgency in developing that capability and integrating it into the business if we are to continue to maximise returns for New Zealand fruit in the global market. The strategic work clearly identified and reaffirmed 12 month supply as key to being able to maximise New Zealand grower returns long-term. In we had our best global procurement and selling season to date. We were able to attract greater volumes of non-new Zealand kiwifruit that reached the ZESPRI Brand standards from offshore producers. These were at competitive prices to secure shelf space with strategic retail customers in key markets. Selected markets in Europe took the main volumes, but we also sold kiwifruit grown in Italy, USA, France and Japan to Asia for a limited period. Currently we have approximately 1,157 ha of licensed GOLD plantings outside New Zealand, including 568 ha in Italy, 44 ha in France, 210 ha in the USA, 115 ha in Chile, 120 ha in Japan, 100 ha in Korea and trial orchards in China and Australia. Offshore procured GREEN volumes are scheduled to more than double over the next four years. This growth is based on current market demand estimates, and if our selling strategies are more aggressive, this forecast could be significantly higher. We sold 1.9 million trays of offshore-grown GREEN Kiwifruit, up 39 percent and 1.9 million trays of GOLD Kiwifruit, more than double the previous year s volume. We are making good progress with the right resources and support available, and have confidence that the ZESPRI production and marketing system can be applied globally to ensure quality kiwifruit can be sourced from growing partners offshore. Two year old ZESPRI GOLD canopy development at Rancagua, Chile.

14 CHIEF EXECUTIVE S OPERATIONAL REVIEW CHALLENGING CONDITIONS IN ASIA Japan encountered one of its most difficult selling seasons in recent years. Despite this, Japan produced its second best result ever, with volumes and premium prices pushed along by integrated promotions, including a new ZESPRI GOLD Kiwifruit television campaign, tasting and point of purchase displays. ZESPRI TM Volume Sold Japan Tray equivalents (m) NZ Sourced GREEN ORGANIC GOLD Effective customer relationships, wider availability of Ready to Eat kiwifruit and quality assurance management were all key contributors to the result with 14.9 million trays sold compared with 15.8 million trays in OTHER Prices were increased at the start of the selling season to offset some of the effects of the New Zealand dollar s rise. ZESPRI New Zealand Kiwifruit has always been a high priced fruit and is the only major imported fruit that consistently exceeds the price of domestic equivalents. The Japan team tried to match the previous year s record, when a number of typhoons created shortages of domestic fruits. Unfortunately, this year high volumes of low priced domestic and imported fruit meant we had to divert a million trays to other markets during the season. Fruit quality, particularly perceptions of taste, has been a real issue in this market over the past few years. Customers are scrutinising the ZESPRI Kiwifruit proposition and the value they get for their money. Their taste expectations for both ZESPRI GREEN and ZESPRI GOLD Kiwifruit were not met consistently again this year, and there were other quality issues to deal with relating to storage and flesh colour. The quality of our competitors kiwifruit, and the growing quality of other fruits means we must continue to improve The effort to improve the consistency and quality of all our kiwifruit has been critical to establish and maintain premium pricing in the market, and the focus in the new selling season is to rebuild the reputation and respect the brand enjoyed in earlier years. ZESPRI GREEN ORGANIC Kiwifruit sales picked up, with a change in Japan fumigation rules leading to a considerable drop in fumigation rates. As a consequence we are now in a stronger position to assure supply of GREEN ORGANIC product and build our customer base accordingly. ZESPRI TM Volume Sold Asia Tray equivalents (m) NZ Sourced Korea continued to grow, if more slowly, on the back of the previous season s growth surge and ultimately took a large proportion of the fruit diverted from Japan. ZESPRI sold 5.6 million trays, a 1.8 percent increase GREEN ORGANIC GOLD OTHER Chile took full advantage of the progressive lowering of import duties from a bilateral Free Trade Agreement, supplying treble their previous year s volume. Some retailers opted for this significantly cheaper product and often promoted it at half our price Our counter to Chilean competition was to continue to differentiate our product in consumers eyes and present it as a better value offer. As trade liberalisation increases, there are significant benefits for New Zealand growers and ZESPRI supports the Government s efforts to take advantage of this. 12

15 CHIEF EXECUTIVE S OPERATIONAL REVIEW The strength of our importer and distribution network, generally good eating product and marketing support drove high price premiums and secured our category leadership in this highly competitive and discerning market. Well received print and television advertising focused on both ZESPRI GREEN and GOLD Kiwifruit s range of healthgiving nutrients. This was backed up by sampling, attractive point of sale displays, a television documentary on kiwifruit s antioxidant and disease protection attributes and a bigger Ready to Eat retail programme. Taiwan, which consumes the highest number of fruit per capita in the world, produced a record result, selling 4.4 million trays to grow the market by 41.9 percent. Integrated marketing and promotions programmes, including high impact public relations focusing on health benefits and well-being messages that match this market s priorities, were important contributors to the result. Market conditions were assisted by early season domestic frosts and a series of typhoons that reduced the supply of local fruits and created more shelf space for the ZESPRI Kiwifruit range. The strength of our importer and distribution network, generally good eating product and marketing support drove high price premiums and secured our category leadership in this highly competitive and discerning market. China also achieved a record year with the effort focused on the fast developing Shanghai, Guangzhou and Shenzhen regions. For the year ended March 31, 2006, sales grew 67.6 percent to 1.7 million trays (excluding Hong Kong) and we are targeting compounding growth over the next three years. Television advertising to promote the taste of ZESPRI GOLD Kiwifruit was introduced for the first time and supported by widespread in-store sampling and attractive point-of-sale displays to encourage new buyers. Building supermarket distribution beyond these regions is a priority, as is providing additional marketing resource to push sales and demonstrate to consumers that the high priced ZESPRI range provides real value for money against local products and early season Chilean kiwifruit. Significant sales growth is being targeted in , with the focus on ZESPRI GOLD Kiwifruit as a desirable product to buy and eat because of its unique range of attributes and associations with promoting health and natural beauty, inside and out.

16 CHIEF EXECUTIVE S OPERATIONAL REVIEW STRONG SEASON IN EUROPE The aim is to incrementally increase awareness of the brand and the values it embodies so we become a recognisable and desirable brand for consumers. Two of ZESPRI s largest customers, Ramon Rey and Jan Van den Heuvel, visit ZESPRI s New Zealand offices. Despite intense price competition from other fruit, ZESPRI Europe had the biggest season ever, selling record New Zealand sourced volumes of 47.6 million trays, up 5.5 percent, and maintaining Euro-denominated price premium levels with the previous year. The prices ZESPRI Kiwifruit attracted were significantly higher per kilogram than other fruit. A wide range of large scale consumer marketing activities were rolled out in Holland, Belgium, Spain and Germany to drive volumes throughout the New Zealand season, which was longer than previous years. High impact campaigns on national television in these key markets were supported by advertorials in a selection of women s and lifestyle magazines, along with nutritional public relations programmes to health professionals. Tailor-made promotional activities were implemented for specific retailers and in-store roadshows were run across Europe. The aim is to incrementally increase awareness of the brand and the values it embodies so we become a recognisable and desirable brand for consumers. Over the year, we sold 1.6 million trays of Italian grown GREEN Kiwifruit, small volumes of high quality French GREEN and 284,000 trays of early Chilean GREEN to bridge the crossover between northern and southern hemisphere production before New Zealand new season product was ready for market. We also sold a pleasing 1.6 million trays of well received Italian GOLD Kiwifruit and the first small quantities of Frenchgrown GOLD. It was our first strong winter programme, and we provided advertising, trade and retail promotions and consumer roadshows to support sales in core markets in Spain, Holland, Belgium and Germany. Looking ahead, we see year-round supply and marketing as a key contributor to growing the European business. This will increase New Zealand grower returns and our profitability, because it will strengthen our bid to always be the preferred supplier for customers and preferred brand for consumers. However quality issues, particularly with some GOLD product, and poor end of season GREEN out-turns stretched some customers loyalty. Urgent action is being taken to restore customer confidence. ZESPRI TM Volume Sold Europe Tray equivalents (m) NZ Sourced ZESPRI s close management of quality concerns and ability to meet the stringent requirements for EUREPGAP, and product traceability mean a great deal to our European customers. Middle East, Indian Ocean and South Africa reported healthy growth in, with sales of New Zealand sourced GREEN Kiwifruit up 36.1 percent to nearly 1 million trays GREEN ORGANIC GOLD OTHER Total Middle East sales grew 32.7 percent from a low base on the appointment of a regional manager and focused market development investment. There is potential for further sales growth. World-class quality assurance is a critical driver as we extend our presence through the 12 month procurement and marketing strategy

17 Scenes from ZESPRI Europe television advertising campaigns. In-store promotions had consumers enjoying a ZESPRI taste experience.

18 CHIEF EXECUTIVE S OPERATIONAL REVIEW NORTH AMERICA AND OTHER MARKETS Promotional material and Slice of Heaven marketing campaign in North America. The objective is to grow ZESPRI s position and influence and the category over the next five years. North America achieved record high pricing on both ZESPRI GREEN and GOLD Kiwifruit, and strong market demand saw volumes increase mid-way through the season to end the season with 3.5 million trays sold, including 0.3m trays of GOLD, slightly lower than the previous season. Competition from Chile was fierce, but continued communication and demonstration of the ZESPRI Kiwifruit difference were appreciated by both retailers and consumers, driving sales up. The power of mainstream retail campaigns, along with the expansion of ethnic marketing programmes, contributed to an improved return for ZESPRI GOLD Kiwifruit, which gives strong signals for a healthy future. As we strive to solidify our premium position in the market, becoming the preferred choice for both retailers and consumers, we must clearly differentiate ZESPRI Kiwifruit from the competition. Consistent, superior quality is crucial and something that requires continued emphasis from ZESPRI. In we are focusing on reviewing our position in North America to ascertain the potential of that market over the next five to 10 years. The challenge is to invigorate the North American kiwifruit category to boost consumption during the New Zealand selling season. Distribution channels are currently under review as well as the effectiveness of future promotional strategies to enhance kiwifruit consumption and control delivery costs. The objective is to grow ZESPRI s position and influence and the category over the next five years. We are continuing to explore new opportunities to increase sales in India and Argentina, and for collaborative marketing programmes to tap into several smaller markets that show promise, including the Philippines and Vietnam. 16

19 CHIEF EXECUTIVE S OPERATIONAL REVIEW ARAGORN KEY INGREDIENT IN GROWING MARKETS Aragorn is focused on maximising returns from kiwifruit that does not form part of ZESPRI s whole fresh fruit marketing programmes, to fully capture value. ZESPRI s ingredients business, Aragorn, has made steady progress in difficult international market conditions to deliver a modest profit of $231,000. Aragorn is focused on maximising returns from kiwifruit that does not form part of ZESPRI s whole fresh fruit marketing programmes. It is still very much a developing business, and it will take more time to ascertain what potential there will be from this business in terms of sustainable products and longterm marketing opportunities. In Aragorn bought 3,870 metric tonnes or 1.2 million trays of non-zespri standard GOLD fruit, up 9.3 percent on last year. The fruit was used as ingredients for a wide range of products from individually quick frozen fruit to purees and concentrates. Several new products incorporating GOLD Kiwifruit ingredients were launched in Japan over the past year, including fruit jellies, beverages and ice-cream and, in the growing market of South Korea, two new beverage products were launched. A new, exclusive commercial processing and marketing relationship was formed during the year with SVZ International B.V. to produce the first European GOLD Kiwifruit ingredients. Another 420 metric tonnes of Italian fruit was bought for European processing. Agency relationships were also established in Australia and the United States. In Aragorn will focus on developing its premium ingredients business model in the key markets of Asia, Europe, North America and Australasia to explore market potential, spread risk and create a robust customer base for the future as we explore the full potential of the fruit s unique properties. Aragorn continues to push for innovation in processed products and will manage several major research and development initiatives in to identify commercially viable new formats. It continues to be challenged by exchange rates in the narrow margin ingredients business. Breaking even for is a realistic target, taking into account market volatility and currency movements over the past three years. Kiwifruit, and within this ZESPRI GOLD, is well positioned as a nutritionally dense fruit and the opportunity exists to exploit these benefits in ingredient and alternative products backed by scientific research. 17

20 CHIEF EXECUTIVE S OPERATIONAL REVIEW SUPPLY CHAIN Achieving Supply Chain efficiencies is important to our continued competitiveness, and this will remain a focus for ZESPRI over the coming year. Our integrated supply and market delivery chain, the ZESPRI System, provides us with a real and unique competitive advantage that sets us apart from others. That leadership is built on the integrity and transparency of the system and its responsiveness to market signals so product can be delivered to specifications. Onshore supply is de-regulated, with post harvest operators competing for grower business on the basis of service, pricing and orchard gate return. While packing volumes are increasing, margins are being squeezed from rising energy and labour costs. For its part, ZESPRI is working in partnership with growers, suppliers and post harvest operators through a number of forums, including the newly established Supply Chain Committee, a Board sub-committee with industry representation. Its focus is on ensuring we explore every opportunity to identify cost reductions, gain efficiencies and eliminate complexity to better deliver to market requirements and increase profitability. We ve made progress in but see greater opportunities to make further improvements over the next year. SUPPLY CHAIN SAVINGS Cost savings and productivity gains across the supply chain have been at the forefront of the Supply Chain Review team project list. First we reviewed the current supply model. The Industry Advisory Council s Compensation and Equalisation Project endorsed the industry s co-operative supply model where growers share a global return based on a common set of rules. This provides equal opportunity for all, with outcomes driven by performance. The project recommended that Free On Board Stowed (FOBS) remain the default point of purchase, with suppliers still able to propose alternatives. It also endorsed continuation of the ZESPRI Pool, paying for fruit characteristics, calculation of fruit and incentive payments at grower level and greater transparency on payments for individual KPINS. This KPIN information will be posted on The Canopy. Other projects focused on the measurement of Supply Chain performance, planning effectiveness and the number and profitability of pack types, sizes and labels. Projects currently underway are expected to deliver savings of between 6 and 10 cents a tray. While this is a positive start, the bulk of Supply Chain costs lie in growing, packing, storing and shipping the fruit. Identifying and implementing savings in these areas requires a concerted effort by all industry participants over several seasons. Achieving Supply Chain efficiencies is important to our continued competitiveness, and this will remain a focus for ZESPRI over the coming year. 18

21 Track and trace all the way through to market. LOYALTY PREMIUMS Through 2005, ZESPRI worked closely with New Zealand Kiwifruit Growers Incorporated (NZKGI) and suppliers to review the existing Three Year Rolling Grower Contract and develop an enhanced version which would provide more value to growers. The Industry Advisory Council approved the introduction of the Enhanced Three Year Rolling Contract as a way to keep the industry integrated and give growers a better return from loyalty premiums. A new formula has provided an enhanced loyalty premium for the season above the previous 10 cents per Class 1 tray. This enhanced level of premium recognises that the integrated system and Single Point of Entry rely on continued grower support and rewards those growers accordingly who commit their support into the future. TASTE ZESPRI REVIEW The Taste ZESPRI programme was introduced five years ago as Taste Japan to ensure that we consistently deliver fruit that tastes better than competitors to discerning and high paying customers. Taste is a key differentiator and a key contributor to premium pricing and positioning. Japanese consumers are prepared to pay for quality but they will walk away if expectations are not satisfied. Without a significant and immediate lift in the delivery of consistently tasty fruit across the ZESPRI range, the Japan premium could be at risk. Following recommendations from the industry representative Taste ZESPRI Review Team, new inventory segregation and delivery procedures, along with commercial incentives have been put in place to lift the availability of Taste ZESPRI Kiwifruit. The changes included alterations to sampling methods, reassessment of the Maximum Taste Payment, the introduction of five Taste ZESPRI indicator bands and a minimum taste standard for all Class I kiwifruit. 19

22 CHIEF EXECUTIVE S OPERATIONAL REVIEW INNOVATION KEY TO THE FUTURE We define innovation as practical implementation of new knowledge and we make investment decisions strategically rather than reactively. Ongoing investment in commercially applicable innovation is one of the key strategic capabilities that will differentiate ZESPRI from competitors and create new opportunities to extend our market base and share. We define innovation as practical implementation of new knowledge and we make investment decisions strategically rather than reactively. Implementation, adoption and commercialisation are as important as the research itself. The Innovation focus is on: DEVELOPING PROFITABLE NEW PRODUCTS The natural diversity within the Actinidia genus allows for a huge range of colours, shapes, textures and flavours to be incorporated into new cultivars, without the need for genetic modification. We will continue to use only traditional, customer-accepted breeding techniques. Key achievements: New red-centred cultivars identified grower field trials in winter Rootstocks identified with potential to increase dry matter and/or reduce vine management costs. Improved male pollinators trialled by industry. ENHANCING THE MARKET VALUE OF HAYWARD AND HORT16A Research repeatedly shows that taste is one of if not the biggest influencer on consumer buying preferences. Competitors are closing the quality gap and ZESPRI must continually innovate to stay ahead. We re investing in research to better understand consumer taste preferences and to provide growers and the post harvest sector with the essential know-how and management tools to meet consumer taste expectations. Key achievements: A large ZESPRI GOLD Kiwifruit trial to demonstrate the financial impact from a matrix of existing management practices on grower taste payments. Understanding dry matter variation within orchards and within vines to improve on-orchard sampling and dry matter segregation. Understanding long-term sustainability of trunk girdling to improve fruit dry matter. IMPROVING GROWER AND SUPPLY CHAIN PRODUCTIVITY We have to lower costs and increase productivity and efficiency across the orchard to retail supply chain to better compete against lower cost producers like China, Italy and Chile. We are working closely with growers and suppliers to maximise Hayward and Hort16A market yields, conscious that it is quality, especially taste satisfaction, not volume that influences the premium. We also demonstrated that there was an opportunity to minimise the effects of spray drift, and evaluate alternatives to hydrogen cyanamide. Innovation is a partnership. Knowledge alone has little value and innovation only occurs when new knowledge is applied. Innovation is most effective when growers, suppliers and technical experts come together with research providers and ZESPRI from the outset and maintain working partnerships right through to implementation. 20

23 HortResearch s Ian Horner demonstrating Armillaria control to growers at a ZESPRI Field Day. Competitors are closing the quality gap and ZESPRI must continually innovate to stay ahead.

24 CHIEF EXECUTIVE S OPERATIONAL REVIEW SUPPORTING THE COMMUNITY ZESPRI s corporate citizenship programmes are focused on activities and organisations that are in tune with the community s needs, with emphasis on education, health and the environment. As New Zealand s leading horticultural exporter, and a major contributor to the economic success of the Bay of Plenty region where over 80 percent of our growers are based, giving back to the community is an important part of ZESPRI s philosophy. ZESPRI s corporate citizenship programmes are focused on activities and organisations that are in tune with the community s needs, with emphasis on education, health and the environment. ZESPRI YOUTHBANK The ZESPRI YouthBank encourages good citizenship within our community. Now in its third year, the programme involves ZESPRI giving $2,000 to each of the eight secondary schools in the Western Bay of Plenty to then donate to community, youth-related organisations. In 2006, this programme will expand into secondary schools in the Eastern Bay of Plenty. ZESPRI HORTICULTURE SCHOLARSHIP PROGRAMME ZESPRI annually offers seven $3,000 scholarships to secondary school students choosing to study horticulture at a New Zealand tertiary institute. ALISTAIR BETTS MEMORIAL TRUST FOR AGRIBUSINESS EXCELLENCE ZESPRI is one of six leading New Zealand agri-businesses supporting an educational trust to promote world-class performance, knowledge and competitiveness in all aspects of New Zealand agribusiness. The Trust honours Alistair s contribution in forging an export path for New Zealand primary produce across the world. He was a long-term ZESPRI Director until his death in KELLOGG RURAL LEADERSHIP PROGRAMME Grower and horticultural consultant Phillipa Wright was selected to attend the 2006 Kellogg Rural Leadership Programme as part of a ZESPRI leadership scholarship. COMMUNITY RELATIONS SUPPORT ZESPRI supports organisations and community groups including: Te Puke s Community Care Centre Focus Te Puke Kiwifruit Festival NZ Kidney Foundation Cure Kids Child Health Research Foundation Trustpower Rescue Helicopter Taste Te Puke BOP Science and Technology Fair BOP Polytechnic Horticulture Award Year 1 Cadet Horticulture Departments of Katikati and Waihi Colleges, and other activities in schools and preschools. ZESPRI is a sponsor of Priority One, supporting economic growth in the Bay of Plenty; the Tauranga Chamber of Commerce and the New Zealand Exporter of the Year Bay of Plenty Awards. 22

25 ZESPRI YouthBank speaker Bernice Mene with students from Mount Maunganui College at the YouthBank presentation night. Grower Liaison Manager Neill Malcon congratulates inaugural ZESPRI Hort Scholarship winners Craig Morrison (centre) and Wiremu Cookson (right). The Trust honours Alistair s contribution in forging an export path for New Zealand primary produce across the world. Goldirocks and Hairy Berry with BOP Child Cancer Foundation s Amanda Winstanley. (photograph; BOP Times)

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27 NEW ZEALAND SOURCED KIWIFRUIT INDUSTRY PERFORMANCE To help New Zealand growers to benchmark ZESPRI and industry performance, ZESPRI includes this Industry Performance section in the Annual Report. Key highlights include regional production, cause of change in performance from last year and industry statistics. Orchard Gate Return per hectare NZD (000) NZ Sourced Net Sales to Orchard Gate Return NZ Sourced GREEN ORGANIC GOLD ZESPRI Controlled Costs ZESPRI Margin (net of Loyalty) Post Harvest Costs Orchard Gate Return Orchard Gate Return per tray submitted NZD NZ Sourced GREEN ORGANIC GOLD ZESPRI-controlled costs decreased to $274.9m from $277.4m. Some positive effects from foreign exchange on costs but negative effects in freight due to increased oil prices. ZGL margin of $101.4m is net of the loyalty premium of $8.2m and shows here at $93.2m. Post harvest costs increase to $248.4m from $239.0m. 25

28 INDUSTRY PERFORMANCE REGIONAL PRODUCTION ANALYSIS Producing Producing Producing Producing ZESPRI GREEN Hectares *TE/Ha Hectares *TE/Ha Hectares *TE/Ha Hectares *TE/Ha Northland 323 5, , , ,204 Auckland 460 5, , , ,420 Bay of Plenty Katikati 1,207 6,384 1,170 6,933 1,120 5,456 1,125 5,486 Opotiki 463 8, , , ,989 Tauranga 1,268 7,349 1,264 6,912 1,315 5,610 1,297 5,157 Te Puke 3,437 8,188 3,302 7,812 3,238 6,721 3,229 5,864 Waihi 170 5, , , ,709 Whakatane 396 5, , , ,592 Waikato 255 5, , , ,718 Poverty Bay 184 5, , , ,337 Hawkes Bay 120 5, , , ,197 Lower North Island 120 4, , , ,136 South Island 585 5, , , ,246 Total producing hectares 8,988 8,677 8,590 8,588 Average TE supplied per hectare 7,129 6,992 5,814 5,513 ZESPRI GREEN ORGANIC Producing Hectares *TE/Ha Producing Hectares *TE/Ha Producing Hectares *TE/Ha Producing Hectares *TE/Ha Northland 2 2, , ,134 Auckland 2 1, , ,245 Bay of Plenty Katikati 31 5, , , ,322 Opotiki 14 4, , , ,547 Tauranga 207 5, , , ,019 Te Puke 96 6, , , ,877 Waihi 3 4, ,365 Whakatane 9 4, , , ,548 Waikato 89 5, , , ,566 Poverty Bay 8 3, , Hawkes Bay 14 4, , ,953 Lower North Island 5 3, , , ,088 South Island 17 3, , , ,046 Total producing hectares Average TE supplied per hectare 5,532 5,292 4,217 4,182 ZESPRI GOLD Producing Hectares *TE/Ha Producing Hectares *TE/Ha Producing Hectares *TE/Ha Producing Hectares *TE/Ha Northland 181 8, , , ,088 Auckland 66 5, , , ,995 Bay of Plenty Katikati 153 6, , , ,257 Opotiki 177 8, , , ,774 Tauranga 263 7, , , ,306 Te Puke 891 7, , , ,032 Waihi 18 7, , , ,097 Whakatane 30 6, , , ,877 Waikato 67 6, , , ,862 Poverty Bay 73 6, , , ,823 Hawkes Bay 29 5, , , ,338 South Island 34 7, , , ,269 Total producing hectares 1,982 1,746 1,433 1,236 Average TE supplied per hectare 7,484 8,578 6,054 6,577 * TE/Ha = tray equivalents supplied per hectare. Producing hectares includes all hectares producing fruit in the relevant season. 26

29 INDUSTRY PERFORMANCE ZESPRI Group Limited and Subsidiaries SEASON TOTAL FRUIT and SERVICES PAYMENTS including Loyalty Premium Return NZD (m) $ per TE $ per TE $ per TE $ per TE ZESPRI GREEN Kiwifruit TE (m) Fruit payment Fruit incentives Service payments Loyalty premium Total fruit and service payments incl. premium ZESPRI GREEN ORGANIC Kiwifruit TE (m) Fruit payment Fruit incentives Service payments Loyalty premium Total fruit and service payments incl. premium ZESPRI GOLD Kiwifruit TE (m) Fruit payment Fruit incentives Service payments Loyalty premium Total fruit and service payments incl. premium K1W1 GREEN Kiwifruit TE (m) Fruit payment Service payments Total fruit and service payments K1W1 GREEN ORGANIC Kiwifruit TE (m) Fruit payment Service payments Total fruit and service payments K1W1 GOLD Kiwifruit TE (m) Fruit payment Service payments Total fruit and service payments Non-standard Supply TE (m) Fruit payment Fruit Incentives Service payments Total fruit and service payments TOTAL ALL POOLS Total tray equivalents millions Total fruit payment Total fruit incentives Total service payments Loyalty premium Total fruit and service payments incl. premium Total fruit and service payments Total fruit and service payments Total fruit and service payments

30 INDUSTRY PERFORMANCE ZESPRI Group Limited ALTERNATIVE REVENUE STATEMENT NZD 000 NZD 000 NZD 000 Gross sales of New Zealand sourced kiwifruit 991,346 1,034, ,397 Promotional rebates, claims and discounts (57,471) (51,155) (35,300) Net sales of New Zealand kiwifruit 933, , ,097 Sales through collaborative marketers 11,324 13,451 14,813 Other pool income 199 2,732 Revenue attributable to New Zealand pools* 945, , ,642 Less Pool Costs: Freight 95,724 83,758 67,595 Insurance (onshore and offshore) 3,699 2,859 6,474 Duty and customs 42,934 44,629 41,284 Other direct pool costs Offshore 47,628 57,081 45,689 Other direct pool costs Onshore 19,734 24,394 16,163 Promotion 61,868 62,997 42,611 Interest charge (income) 2, (768) KNZ/NZKGI costs** 960 1, Total pool costs*** 274, , ,878 Return from fruit sales 670, , ,764 Distributed as fruit and service payments 569, , ,019 ZESPRI Margin**** 101, , ,745 Other non pool revenue 5,833 2,977 2,368 Interest income 6,644 4,733 2, , , ,710 Onshore Costs Innovation 6,356 6,203 5,150 Onshore overheads 22,105 25,144 25,812 Non recurring costs/other - - (1,506) 28,461 31,347 29,456 Offshore costs 31,701 34,465 37,937 ZESPRI surplus before other business units and tax 53,759 50,772 38,317 Add Operating Surplus/(deficit) from other business units Aragorn Net Sales 3,566 4, Associated costs including fruit purchases 3,335 3,902 1,873 Aragorn operating surplus/(deficit) before taxation (910) ZESPRI Global Supply Sales 45,928 24,855 8,205 Associated costs including fruit purchases 46,712 23,597 8,628 ZESPRI Global Supply operating surplus/ (deficit) before taxation (784) 1,258 (423) KIL recovery GOLD commercialisation costs (2,055) (2,559) (2,753) 51,151 49,763 34,654 Less loyalty premium 8,164 7,824 ZESPRI Group Limited profit before taxation 42,987 41,939 34,654 Less: Taxation 16,541 15,460 11,737 ZESPRI Group Limited profit after taxation 26,446 26,479 22,917 Total Fruit and Service Payments 569, , ,019 Loyalty Premium 8,164 7,824 Total fruit and service payments (Including loyalty premium) 577, , ,019 Please refer to page 29 for Pool Costs as a percentage of Pool Revenue table and footnotes. 28

31 INDUSTRY PERFORMANCE ZESPRI Group Limited CAUSE OF CHANGE The cause of change chart outlines the decrease in the return to the industry this season of $603.7m from $645.3m in. Increases in sales prices and market and product mix are more than eroded by negative foreign exchange impacts and increased oil prices. It should be noted that the movements are calculated across all pools and the ZGL corporate, hence the line market and product mix which includes both changes in the mix between GREEN and GOLD for example, and changes in market destinations. Cause of Change vs NZD (000) (22.8) PRICE VOLUME, MARKET AND PRODUCT MIX FOREIGN EXCHANGE ALL OTHER COSTS TAXATION TOTAL (1.1) CAUSE OF CHANGE NZD 000 Total fruit and service payments 618,856 Add ZESPRI net profit after tax 26,479 Return to Industry 645,335 Movements due to changes in Sales Price 16,145 Volume, market and product mix 27,497 Foreign exchange (61,421) Other income/costs (22,794) Taxation (1,080) 603,682 (61.4) (41.7) Total fruit and service payments 569,072 Add ZESPRI loyalty premium 8,164 Total including loyalty premium 577,236 Add ZESPRI net profit after tax 26,446 Return to Industry 603,682 POOL COSTS AS A PERCENTAGE OF POOL REVENUE NZD 000 NZD 000 NZD 000 ZESPRI margin (net of loyalty premium) 9.9% 10.1% 11.1% Freight 10.1% 8.4% 7.5% Insurance 0.4% 0.3% 0.7% Duty and customs 4.5% 4.5% 4.6% Other offshore direct costs 5.0% 5.7% 5.0% Other onshore direct costs 2.1% 2.4% 1.8% Promotion 6.5% 6.3% 4.7% Other 0.2% 0.1% 0.0% NZKGI/KNZ 0.1% 0.1% 0.1% Total fruit and service payments (including loyalty premium) 61.2% 62.1% 64.5% 100.0% 100.0% 100.0% Revenue attributable to New Zealand pools* 945, , ,642 * Net revenue attributable to the pools includes sales of New Zealand-sourced kiwifruit, income from collaborative marketing programmes and other pool income as noted in the Alternative Revenue Statement. ** Comprises KNZ regulatory funding $380,000, NZKGI funding $464,000 and industry good funding $116,000. (Refer note 27 to the Financial Statements on page 62.) *** Included within total pool costs is interest income $5.9m, interest paid $1.9m and an interest charge from ZESPRI of $6.3m. This results in an overall interest expense to the pools of $2.3m. **** ZESPRI margin is calculated in accordance with the Supply Agreement being 7 percent of net sales (excluding collaborative marketing programmes), and 7 percent of fruit payments to suppliers. 29

32 INDUSTRY PERFORMANCE ZESPRI Group Limited INDUSTRY STATISTICS Total fruit and service payments (including loyalty premium) $6.82 $7.59 $8.99 $8.37 $7.23 $6.87 Crop Volumes (000) Trays Submitted 87,752 85,799 66,093 64,077 68,718 65,475 Trays supplied FOBS 84,669 81,534 65,096 62,186 66,291 63,675 Trays sold 82,283 79,652 64,644 61,252 65,109 61,518 Trays sold % trays supplied 97% 98% 99% 98% 98% 97% General Statistics Production per hectare (trays submitted) 7,655 7,847 6,247 6,175 6,933 6,445 Producing hectares 11,464 10,934 10,580 10,376 10,100 10,159 Orchard gate return per hectare $28,687 $34,738 $38,488 $33,685 $29,297 $27,973 Number of producers 2,748 2,760 2,703 2,719 2,504 2,506 Average number of trays supplied per producer 30,811 29,541 24,083 22,871 26,474 25,409 Number of Orchards Registered 0-2 hectares , hectares 1,460 1,537 1,465 1,526 1,438 1, hectares Over 10 hectares Total (KPINS) 3,025 3,190 3,153 3,118 2,902 2,861 Average Orchard Size (Hectares) GREEN GOLD Number of Packhouses Used 0-500,000 trays ,001-1,000,000 trays ,000,001-2,000,000 trays Over 2,000,000 trays Total Average trays packed per packhouse (000) 1, Number of Coolstores Used 0-500,000 trays ,001-1,000,000 trays ,000,001-2,000,000 trays Over 2,000,000 trays Total Average trays stored per coolstore (000) 1, Number of Employees Onshore * Offshore Total Sales per Employee (000 s) $4,907 $5,742 $4,846 $4,479 $4,350 $4,146 Onshore seasonal staff per year * Includes temporary staff for SAP upgrade project. 30

33 Grower Steve Kenna in his Katikati orchard.

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35 CORPORATE GOVERNANCE THE BOARD The Board of Directors held 11 meetings during the financial year, as well as meeting for strategic planning sessions, the annual budget-setting round and for the annual directors conference. Members of ZESPRI s eight-member Board bring together a wide range of experience, from international marketing and corporate governance to industry knowledge and financial expertise. Their task is to provide strong strategic direction for the company and ensure it meets all regulatory requirements. Directors are elected by the shareholders. Under the company s constitution at least one third of the directors retire by rotation at each Annual General Meeting. In 2006, Chairman Craig Greenlees, Keith Thorpe and Graham Cathie will retire and are eligible for re-election. The names of the company s directors, their remuneration and interests are recorded on pages 65 to 68 of the Financial Statements under Disclosures. GOVERNANCE The ZESPRI Board voluntarily complies with the following requirements for New Zealand s publicly listed companies: ZESPRI maintains a minimum of three independent directors from outside the industry who are not shareholders. ZESPRI adopts comprehensive approval and disclosure restrictions on directors and employees trading in ZESPRI Group Limited (ZGL) shares. The Board has a separate Audit and Risk Management Committee which reviews the company s overall risk, both financial and non-financial. The ARMC monitors ZESPRI s Treasury Management Policy, its insurance portfolio, its internal audit function and reviews internal controls which are relevant to financial reporting. The ARMC was chaired in the year under review by John Loughlin and is currently chaired by Graham Drury. The ARMC met nine times during the financial year. Comprehensive policies regarding actual or potential conflicts of interest applying to both directors and employees are in place, which incorporate Companies Act 1993 requirements. Details of all current matters to March 31, 2006 which have been entered in the Interests Register by individual directors are outlined under Disclosures on page 65 to 68. Where a director had declared an interest in a particular entity as a shareholder and/or director, the declaration serves as notice that the director may benefit from any transactions between the Company or Group and the identified entities. An Organisation and Administration Committee oversees the appointment and remuneration of senior executives and strategic staffing matters. This committee is chaired by Alan Sutherland and met eight times during the financial year. No member of the Board of ZESPRI Group Limited or of any subsidiary requested the use of information received in his capacity as a director which would not otherwise have been available to that director. The company has fully documented policies on delegation of decision-making authority at Board and management level, and compliance with these and other internal policies is monitored by internal audit procedures. During the year the Board resolved to continue with directors and officers liability insurance and prospectus indemnity insurance cover, with the premium costs met by ZESPRI Group Limited as authorised by its constitution. MANAGEMENT The Executive Team is responsible for the day-to-day operation of ZESPRI and implementing its business strategies. Chief Executive Tim Goodacre s background is in agricultural production, administration, international trade and relationship management. His management team has a wide range of experience in delivering excellent financial results, managing business relationships and maximising business opportunities. The members of the Executive Team are profiled on page

36 CORPORATE GOVERNANCE BOARD PROFILES Craig Greenlees Chairman ZGL/ZIL and Director since 1998; Member of the Organisation and Administration Committee; Member of the Audit and Risk Management Committee; Member of the Industry and Advisory Council; Member of Innovation Advisory Board; Member of the Supply Chain Committee. Mr Greenlees is a long-time Bay of Plenty kiwifruit grower and champion of the industry s integrated orchard to retail supply and marketing structure. He is founding partner and joint owner of Direct Management Services, a kiwifruit growing, management, packaging, cool storage and export marketing business and he manages the family kiwifruit orchard. He is also a Director of G6 Kiwi Limited. Mr Greenlees has had experience in corporate finance, information systems and forestry management. Graham Cathie ZGL/ ZIL Director since 2001; Chairman of the Industry Advisory Council; Member of the Supply Chain Committee. Mr Cathie has been involved in the kiwifruit industry for 26 years, starting out as an orchardist and later founding Centrepac, which was one of the largest post harvest operations in the Bay of Plenty until it merged with Apata. He has held a wide range of industry leadership positions including as an elected member of NZGI, chairman of the Cool Store Association and vice president of Tauranga Fruit Growers Association. Graham Drury ZGL/ZIL Director since 2003; Member of the Audit and Risk Management; Committee (Chairman since February 2006); Member of the Organisation and Administration Committee (since October 2005). Mr Drury has a background in law and commerce and has wide experience at Senior Executive and Director level in sectors as diverse as timber importation, property development and investment, manufacturing and horticulture. He owns a Paengaroa kiwifruit orchard and is a director of Satara Co-operative Group Limited. He is a past member of the Arbitrators and Mediators Institute of New Zealand John Loughlin ZGL/ZIL Director since 2002; Chairman of Supply Chain Committee; Member of the Audit and Risk Management Committee; Member of the Organisation and Administration Committee. Mr Loughlin brings diverse experience to the business as a former Chief Executive and Chief Financial Officer of former listed meat marketer and processor Richmond Limited, and as a Senior Executive in the banking, insurance and investment sectors. He is currently a Principal in the niche investment banking organisation Loughlin Gibbs Limited. He is the chairman of Prism Group Holdings Limited and Allied Farmers Limited and a Director of Toll NZ Limited, Metlifecare Limited, MIT Development Limited, Lean Meats Limited, Centralines Limited and Hawke s Bay Inc. He is an Issuer Appointee to NZX Discipline. Mr Loughlin and his wife have developed a vineyard and the award-winning Askerne winery business in Hawke s Bay. 34

37 Peter McBride ZGL/ZIL Director since 2002; Chairman of Innovation Advisory Board; Member of the Industry Advisory Council. Mr McBride s career has been focused on agri-business development and management in kiwifruit, apples and dairying enterprises. He and his family have a long history of investment and commitment to the growth of the kiwifruit industry through their orchard holdings. His industry focus is currently on developing a new orchard with his wife and ensuring that ongoing investment in innovation returns optimum value to the industry. David Pilkington ZGL/ZIL Director since February 2005; Director of Aragorn Limited; Member of the Innovation Advisory Board. Mr Pilkington joined ZESPRI with an extensive career in the New Zealand agricultural industry, including 28 years with Fonterra (formerly the New Zealand Dairy Board) where he held a number of senior management positions, including managing operations in North America and Japan. His most recent role at Fonterra was Managing Director of New Zealand Milk, the consumer products business. Now a professional director, he is on the boards of publicly listed Restaurant Brands and Port of Tauranga as well as Ballance Agri-Nutrients and Douglas Pharmaceuticals. He is Chairman of Ruapehu Alpine Lifts and the new pipfruit breeding company, Prevar. Alan Sutherland ZGL/ZIL Director since 2001; Chairman of the Organisation and Administration Committee; Member of the Audit and Risk Management Committee. Mr Sutherland has had extensive experience as a professional management consultant in New Zealand and overseas. He has experience in finance, strategy, feasibility studies, economic studies, corporate planning and organisation structure and systems with a wide range of leading consulting groups, including being a Director of Coopers and Lybrand Consulting. He has undertaken assignments for international development agencies with the United Nations, World Bank, Asian Development Bank and the New Zealand Government. Mr Sutherland and his wife own an orchard in Katikati producing kiwifruit and avocados. Keith Thorpe ZGL/ZIL Director since 2003; Chairman of Aragorn Limited; Member of the Organisation and Administration Committee. Mr Thorpe has more than 20 years experience in international consumer marketing and has been involved in developing company strategy at both an executive and board level. He is currently the Chairman of a major Australian liquor marketer and distributor, Swift and Moore Pty Limited, director of Custom Consulting Ltd and a director of Cavalier Corporation. Mr Thorpe is the past Chairman of Lion Nathan New Zealand and has been involved in developing that company s international business, including acquisitions in China and joint ventures in North America, Europe and East Asia. 35

38 CORPORATE GOVERNANCE ZESPRI EXECUTIVE TEAM Tim Goodacre Chief Executive Tim Goodacre is the Chief Executive of the billion dollar New Zealand kiwifruit exporting business ZESPRI International. Tim moved to New Zealand from Australia in 2002 leaving his role as Corporate Manager for the Australian Wheat Board where he played a key role in transforming the Board from a statutory marketer to a grower-owned, publicly listed company. Tim has a long history in agriculture, coming from a farming family and spending 15 years as a Government policy advisor on farming, forestry and fisheries followed by 12 years in a range of senior roles with the Australian Wheat Board. Ian Boyd GM ZESPRI Global Supply Ian Boyd has worked for ZESPRI since October He is General Manager of ZESPRI Global Supply which is responsible for implementing the 12 month strategy involving offshore GOLD orchards and GREEN procurement. Prior to joining ZESPRI Ian had retired after a long career with Fletcher Challenge where he held various positions, including Chief Operating Officer and Joint CEO of Fletcher Forests, Managing Director of Wrightson Limited, and Chief Executive of Fletcher Challenges forestry and newsprint mill investments in Chile and Brazil when he was based in Santiago, Chile for four years. He has B. For Sc from Canterbury University and is married with three adult children. Yu-Jan Chen GM Asia/America Yu-Jan Chen became General Manager Asia-America in April He joined ZESPRI, then the New Zealand Kiwifruit Marketing Board, in 1994 as General Manager Japan. After a successful selling season, he became General Manager East Asia in 1996 with responsibility for Japan and East Asia. After graduating from university in Taiwan, Yu-Jan worked in the marketing division of a leading food company for two years before studying strategic management at Tsukuba University in Japan on a Japanese government scholarship. He worked in Taiwan as a consultant before completing his MBA at IMD, Lausanne, Switzerland and joining Proctor & Gamble s International marketing division in Geneva. Yu-Jan and his wife are now based in Tokyo and have two grown sons at university in the United States. Luc Clerx GM Europe Luc Clerx has been General Manager Europe since January He started his career in the fruit trade with the New Zealand Apple and Pear Marketing Board in Belgium before joining the New Zealand Kiwifruit Marketing Board s new sales and marketing organisation in Antwerp in Since then he has held several roles, including Regional Manager North Europe from 1995 and Deputy General Manager from 2001, and is well known in the European fruit world. Luc is a Master of Romantic Philology Linguistics and Literature and has worked as a College Vice Principal and Professor of French. In 2002 he completed his MBA in General Management for International Executives at INSEAD, France. Merv Dallas Chief Financial Officer Merv joined ZESPRI as Group Financial Controller in 2002 when ZESPRI moved its head office to Tauranga. In December 2005 he was appointed Chief Financial Officer, responsible for the overall finance function of the ZESPRI Group of Companies and Information Systems. Before moving to ZESPRI, Merv worked for the Sky City Group as General Manager of Finance, initially in Sky City Auckland and latterly in Adelaide. The role in Adelaide included responsibility for finance, and information services. Merv also has experience in shipping, commercial banking and the hospitality industry. Merv and his wife Debbie have two children, Erin and Hamish. Merv is a Chartered Accountant and has a Bachelor of Commerce from the University of Auckland. 36

39 Murray Denyer Board Secretary Murray Denyer is ZESPRI s Board Secretary and Chief Legal Counsel. His small team provides legal advice and support to all areas of ZESPRI s business, as well as to the Board of Directors. Murray also shares responsibility with Todd Muller for liaison with Government. Prior to joining ZESPRI in 2003, Murray was a Senior Associate at law firm Minter Ellison Rudd Watts, practicing general commercial, public and international trade law. Murray s career began as a diplomat for the New Zealand Government, where his eight years of service included a three year posting to New Zealand s Embassy in the Netherlands. Murray and his wife Lisa have two preschool children. Murray has a Bachelor of Laws and a Bachelor of Commerce from Auckland University. Lain Jager GM Supply Chain Lain Jager joined ZESPRI in 1999 as Human Resources Manager and was promoted to the GM Supply Chain role in July Before ZESPRI, Lain was Director, Human Resources at the Sheraton Auckland. Prior to that he was Executive Development Manager for Pacific Steel and Human Resources Manager for Sheraton Rotorua. Lain, who grew up in New Plymouth, has a Masters degree in Psychology, Philosophy and English from the University of Waikato. He and his wife Debra have two boys, Cai (6) and Jed (4) and a dog called George. Peter Luxton GM Global Marketing Services Peter Luxton has been in the kiwifruit industry since 1986 when he established the New Zealand Kiwifruit Authority s head office in Amsterdam. Since then he has held marketing and sales management positions for ZESPRI, including Regional Manager Southern Europe. He transferred back to New Zealand in 2001 to take up the position of GM Global Marketing Services. Prior to joining ZESPRI, Peter held a number of senior roles in the Department of Trade and Enterprise, including Senior Private Secretary in the office of the Minister of Regional Development, Assistant Trade Commissioner in Vienna and Trade Commissioner in Den Haag, The Netherlands. Todd Muller GM Corporate and Grower Services As GM Corporate and Grower Services, Todd Muller is responsible for grower, shareholder, Government and community relations and communication, Innovation and Human Resources. Todd s family has been in the kiwifruit industry since Todd has a Masters degree from Waikato University, majoring in Politics and English. This interest in politics was further strengthened with a year as President of the Waikato Students Union in The political thread continued in Wellington, where he worked as the Executive Assistant to then Prime Minister Jim Bolger from 1994 to Todd returned to Tauranga in 1998 and has worked for ZESPRI ever since. He lives with his wife Michelle, daughter Aimee and infant son Bradley in Papamoa. Todd has recently returned from a seven month secondment with Fonterra. 37

40 2005 s largest shipment sails off from the Port of Tauranga on the Knud Lauritzen.

41 Z E S PRI G ROUP LIMITED AN D S UBS IDIARIES FINANCIAL REPORT FOR THE YEAR ENDED 3 1 MARC H 2006 pg Statements of Financial Performance 40 Statements of Movements in Equity 40 Statements of Financial Position 41 Statements of Cash Flows 42 Notes to the Financial Statements 43 Auditors Report 64 Disclosures 65 39