Fonterra provides Milk Price, earnings and Q1 update

3 December 2021

Fonterra provides Milk Price, earnings and Q1 update


Fonterra Co-operative Group today lifted its 2021/22 forecast Farmgate Milk Price range, reported a solid
start to the 2022 financial year and revised its earnings guidance.

The Co-op has lifted and narrowed the forecast Farmgate Milk Price range to NZD $8.40 - $9.00 per
kgMS, up from NZD $7.90 - $8.90 per kgMS. This increases the midpoint of the range, which farmers are
paid off, to NZD $8.70 per kgMS. The higher milk price has seen the Co-op revise its earnings guidance
to 25-35 cents per share from 25-40 cents per share.

Fonterra CEO Miles Hurrell says the lift in the 2021/22 forecast Farmgate Milk Price range is good news
and is an important boost to New Zealand communities. With a midpoint of $8.70 per kgMS, it would
contribute more than $13.2 billion to the New Zealand economy.

“It’s the result of consistent strong demand for dairy at a time of constrained global supply.

“We’ve seen the impact of a number of events play out this first quarter. That includes the high price of
feed in the US which has seen milk production growth stall and a lower-than-expected supply picture in
Europe.

“Fonterra’s New Zealand milk supply is down around 3% on this time last season. While we expect that
milk supply will be less than last season’s 1,539 million kgMS, the improving weather conditions and
forecast milk collections for the balance of this season that are generally on par with last season support
our current season forecast of 1,525 million kgMS.

“While we’ve seen demand soften slightly in China, global demand remains strong, and we think that will
remain the case for the short to medium term.

“A higher forecast Farmgate Milk Price at this level can put pressure on our margins and therefore our
earnings, which is why we’ve reduced the top end of our earnings guidance.”

First quarter business update

Fonterra has delivered a Total Group EBIT of $190 million for the three months ending 31 October 2021.
This was achieved at a time when input costs are significantly higher than the same period last year.
These have been driven by a 30% increase in Whole Milk Powder prices.

Mr Hurrell says there have been a number of factors at play in the first quarter. “We’re seeing stable sales
volumes in our Foodservice channel, but a milk price at these high levels has squeezed margins. Our
Chilean business continues to improve but tightening margins and weaker local currency in other markets
have impacted our Consumer channel overall.

Fonterra Co-operative Group
Page 2

“In our Ingredients channel, we’re seeing margins in our longer-term pricing contracts return to more
normal levels, which has helped push Total Group gross margin up from the last quarter last year.

“We continue to see the benefit of our focus on financial discipline with lower interest expense, and
operating expenditure down 2% on the same quarter last year.

“Looking at the whole picture, I’m proud of what we’ve achieved. With EBIT of $190 million and a strong
Farmgate Milk Price, we are starting to consistently deliver solid commercial outcomes.”

Outlook

While the impacts of COVID-19 continue to be felt around the world, Mr Hurrell says the Co-op is working
hard to deliver for farmer owners, unit holders and customers and supporting employees.

“The resilience of our people and our supply chain means we continue to stay on top of the strong
demand for our New Zealand milk.”

“However, it is concerning to hear about new variants, which are potentially more resistant to vaccines.
There is also the ongoing question of whether economies can rebound from the pandemic and then
sustain their financial health.

“That’s why we have a 60-cent range on our forecast Farmgate Milk Price range.”

Supporting our people

Globally, teams are starting to return to the office following extended COVID-19 lockdowns. Mr Hurrell
says it’s been a challenging time for employees.

“In some of our regions, our people have spent more than 18 months working from home. We’ve
supported them during this time and continue to support their safe return to the office. I want to
acknowledge the extra effort from our employees that is helping us deliver good results for the Co-op.

“Here in New Zealand, we recently completed the rollout of our vaccination programme in partnership with
the Ministry of Health, which saw more than 8,000 doses administered.”

Path to 2030

Fonterra set out the next phase of its long-term strategy in September, with three key strategic choices
guiding the Co-op – a continued focus on New Zealand milk and to lead in sustainability and dairy
innovation and science.

Mr Hurrell says the Co-op is confident in its strategy and 2030 targets and is already showing early signs
of progress.

“As we continue to focus on New Zealand milk, work is underway on the divestment of our Chilean
business and the ownership review of our Australian business, with the appointment of advisors to assist
with both processes. Dependent on the outcome of these processes, we intend to return around $1 billion
of capital to our shareholders and unit holders by FY24.

Mr Hurrell says the focus on New Zealand milk is paying off with customers. “We recently launched our
Mainland cheese range in Dubai’s largest supermarket chain. The range completely sold out, with
customers using social media sites to track down the cheese in-store. Our in-region team is now looking
at launching the range into other countries.

“We’re also focused on delivering innovative new solutions for our customers. Our new Ingredients
ecommerce platform, myNZMP
TM
, is being embraced by customers across China, Latin America, South
East Asia and the Middle East.”

Fonterra Co-operative Group
Page 3

Mr Hurrell says the Co-op is also using innovative technology to make the most of the natural goodness
found in our New Zealand dairy.

“A transformative dairy science collaboration with Vitakey will explore how we can further unlock the
benefits of our probiotic strains. Our goal is to design dairy products that incorporate targeted and time-
controlled release of specific dairy nutrients in a way that locks in the freshness for longer and allows the
nutrients to be more active and beneficial in the body.”

New Zealand is already the most carbon-efficient dairy producing nation on the planet and Mr Hurrell says
the Co-op is making strides in its intention to retain a significant advantage by being a leader in
sustainability.

“By treating water at our Maungatūroto site using a natural wetland, we can reduce water use on site by
up to 25%. On-farm, we’ve just introduced Farm Insights Reports, which give farmers a comprehensive
picture of their overall farm from an environmental performance and animal health perspective. This
enables them to focus on the improvements which will have the biggest impact.

“We’re also working to find a solution to the challenge of on-farm emissions and one of the exciting
projects we’ve been working on is Kowbucha™, a probiotic which could switch off the bugs that create
methane in cows. Initial results have been promising, showing a reduction of up to 50% in methane, and
we’re now at the stage of trialling it on farm.

“This is just some of the great work underway in the Co-op that will enhance our New Zealand sustainable
nutrition story.”

ENDS

For further information contact:

Fonterra Communications
24-hour media line
Phone: +64 21 507 072

---

3 December 2021

2
•Lifted and narrowed forecast Farmgate Milk Price range,
with a midpoint of $8.70, from $8.40
•Lowered the top end of earnings guidance as margins
tighten with increase in Farmgate Milk Price
•Supply chain continuing to deliver for customers
•Normalised EBIT of $190 million, with tighter margins relative
to strong first quarter last year
•Input costs are significantly higher than same period last
year –driven by a 30% increase in WMP prices³
•Commenced divestment of Chile and ownership review
of Australia
¹
²
1.Total Group normalised EBIT includes Continuing and Discontinued Operations
2.Attributable to equity holders of the Co-operative, excludes non-controlling interests
3.Percentage increase from weighted average GDT WMP shipment price from FY21 Q1 to FY22 Q1

Source: GlobalDairyTrade
1.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3,000
4,000
3
Aug-20Feb-21Aug-21
Reference and non-reference
price relativities
(US$/MT)
Q1
FY22
•Continued strong demand for New Zealand dairy and
global supply growth has slowed
•Operating under very different pricing conditions
thanthistimelast year
•Higher reference product prices has meant cost of
milk is significantly higher than prior year Q1
•Average GDT WMP shipment prices in Q1 were
30% higher than Q1 last year
•Favourable price relativities:
•Reflecting strong demand for both reference
and non-reference products
•Up from last quarter (prior year’s Q4) but less
favourable than Q1 last year
Q1
FY21
GDT Cheddar shipment price¹ (non-reference)
GDT WMP shipment price¹ (reference)

1.Total Group figures for the three months ended 31 October. This includes Continuing and Discontinued
Operations and are on a normalised basis unless otherwise stated
2.FY21 performance includes Ying and YutianChina Farms and China Farms joint venture, which have
subsequently been sold
3.Percentages as shown in table may not align to the calculation of percentages based on numbers in the
table due to rounding of figures
4.Consists of other operating income, net foreign exchange gains/(losses) and share of equity accounted
investees
•Sales volume down, mainly impacted by lower milk production
early in the season
•Sales prices in-market have increased to reflect higher input
costs, but partially offset by weaker local currency
•Gross profit impacted by tighter margins from increased cost of
milk and alsolower sales volume
•NormalisedEBIT of $190 million from our diversified portfolio:
•Better performance in the Ingredients channel
•Foodservice maintained stable sales volumes but tighter
margins due to higher milk price
•In Consumer continued improvement by Chile offset by
lower margins in other markets
million¹
²
∆
³
Sales volume (‘000 MT)
Revenue ($)
Cost of good sold ($)
Gross profit ($)
Gross margin (%)
Operating expenses ($)
Other
⁴
($)
Normalised EBIT ($)
Reported EBIT ($)
4

Confidential to Fonterra Co-operativeGroup
5
•Nutifoodlaunches 100%
NZ grass-fed milk into
Vietnam, using our
sustainability credentials
•Mainland cheese
launched in Dubai, selling
out in all supermarkets
•Vitakeypartnership looks
to further unlock the
benefits of our
probiotic strains
•New ecommerce
platform, myNZMP™, a
hit with global customers
•Wetland filter allows
Maungatūrotosite to
recycle water, reducing
water use by up to 25%
•Methane-busting
Kowbucha™moves to
on-farm trials after
promising lab tests

per kgMS
3,000
4,000
2020/2021
Season
2019/2020
Season
2021/2022
Season
Forecast
Jun-19Jun-20
•Lifted and narrowed range:
oConsistent strong demand for New Zealand
dairy and global supply growth has slowed
oRange reflects ongoing uncertainties
including supply chain congestion and
macroeconomic risk
Jun-21
(US$/MT)
Farmgate Milk Price for the season
6
Source: GlobalDairyTrade
1.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
2.The contracted shipment price is the weighted average shipment price of New Zealand WMP contracts won 1 –5 months prior on the GlobalDairyTradeplatform. These contracts are yet to be shipped or invoiced and the weighted average
price will change closer to the actual shipment date as new contracts are written
GDT WMP shipment price¹
GDT WMP contracted shipment price²

per share
Source: GlobalDairyTrade
1.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
2.The contracted shipment price is the weighted average shipment price of New Zealand WMP and Cheddar contracts won 1 –5 months prior on the GlobalDairyTradeplatform. These contracts are yet to be shipped or invoiced and the
weighted average price will change closer to the actual shipment date as new contracts are written
3,000
4,000
FY21FY22
Feb
Aug
•Lowered the top end of range due to:
oIncreased pressure on Foodservice and
Consumer margins due to rising input costs
oPrice relativities improving in Q2 from Q1 but
not strong enough to maintain top end of range
Aug
(US$/MT)
7
Feb
GDT WMP shipment price¹
GDT Cheddar shipment price¹
GDT WMP contracted shipment price²
GDT Cheddar contracted shipment price²

8

0
10
20
30
40
50
60
70
80
90
JunJulAugSepOctNovDecJanFebMarAprMay
SeasonTotal Milk Solids
(kgMS)
Peak Day
Milk
2019/201,517m (down 0.4%)83m litres
2020/211,539m (up 1.5%)
83m litres
2021/221,525m (down 0.9%)¹
80m litres
Volume (m litres/day)
1. Current full season forecast
•Season to date collection, June –October, was
510.9 million kgMS, 3.2% behind
last season
•Cold and wet spring with limited sunshine
affecting pasture growth and collections early in
the season
•Full season forecast remains at 1,525 million
kgMS, down 0.9% on last season
•Improvingweatherconditionsand expectation
thebalance of this season’s collections are on
par with last season supports current forecast

¹
72
21
178
250
190
20182019202020212022
EBIT ($ million)
660
641
746758
661
20182019202020212022
Gross Profit ($ million)
(671)
(1,245)
(648)
(845)
(1,168)
20182019202020212022
Free Cash Flow ($ million)
1.Total Group figures for the three months ended31 October. This includes Continuing and Discontinued Operations, and are on a normalised basis unless stated otherwise
4.0
3.9
4.24.2
4.4
20182019202020212022
Revenue ($ billion)
805
783
831
832
801
20182019202020212022
Sales Volume ('000 MT)
636
656
552
523
513
20182019202020212022
Opex ($ million)

FY21FY22 Q1 YTDFY22 FY Target
Total recordable injury frequency rate (TRIFR) per million work hours¹5.76.05.6
Female representation in senior leadership²32.4%32.7%35.8%
Employee engagement4.09–³Top Quartile³
Farmer sentiment (Net Promoter Score for Fonterra in New Zealand)231930
Number of farms with Farm Environment Plans (New Zealand)53%57%67%
Reduction in water used at sites in water-constrained regions versus FY18(2.6)%(4.8)%⁴(8.0)%
Reduction in greenhouse gas emissions from manufacturing versus FY18(6.5)%(10.2)%⁴(6.5)%
Fonterra % kgMSof New Zealand milk collected for the season ended 31May79%
80.1%⁵
79.3%
New Zealand Farmgate Milk Price (per kgMS)$7.54$8.40-$9.00⁶$7.25-$8.75
Return on capital6.6%
On track⁷
6.5% to 7.0%
Debt/EBITDA2.7x
On track⁷
2.4x
Adjusted Net Debt Gearing Ratio38.5%
On track⁷
34.5%
Normalised earnings per share34c
On track⁷
25c to 40c
1.Part of zero harm philosophy which also includes target 0 serious harm/0 fatalities
2.Senior leadership defined as Band 14+
3.Under ongoing management review of the provider and means of determining engagement, measurement of this
metric may not be completed during the FY22 financial year
4.Calculated using a combination of actual data and estimates. FY22 GHG target flat reflecting improved efficiencies
offset by increased volumes
5.Season to 30 September 2021. Prior comparable season to 30 September 2020: 80.0%
6.Latest publicly announced Forecast Farmgate Milk Price
7.FY22 Q1 reflects a full year forecast basis
In accordance with the Constitution of Fonterra, the Board Statement of Intentions sets out the
Board’s intentions for the performance and operations of Fonterra. The table below provides an
update as at31 October 2021, of Fonterra’s performance against these targets.

Is adjusted net debt divided by total capital. Total capital is
equity excluding hedge reserves, plus adjusted net debt. It
includes net borrowings attributed to disposal groups held for
sale
Is normalised profit after tax attributed to equity holders of the
Co-operative divided by the weighted average number of
shares on issue for the period
New Zealand: A period of 12 months from 1 June to 31 May
Is Total Group normalised EBIT including finance income on
long-term advances less a notional tax charge, divided by
average capital employed
Is adjusted net debt divided by Total Group normalised earnings
before interest, tax, depreciation and amortisation (Total Group
normalised EBITDA) excluding share of profit/loss of equity
accounted investees and net foreign exchange gains/losses
Means the average price paid by Fonterra for each kilogram of
milk solids (kgMS) supplied by Fonterra’s farmer shareholders
under Fonterra’s standard terms of supply. The season refers to
the 12-month milk season of 1 June to 31 May. The Farmgate
Milk Price is set by the Board, based on the recommendation of
the Milk Price Panel. In making that recommendation, the Panel
provides assurance to the Board that the Farmgate Milk Price
has been calculated in accordance with the Farmgate Milk Price
Manual
Means kilograms of milk solids, the measure of the amount of
fat and protein in the milk supplied to Fonterra

Disclaimer
Thispresentationmaycontainforward-lookingstatementsandprojections.Therecanbenocertaintyofoutcomein
relationtothematterstowhichtheforward-lookingstatementsandprojectionsrelate.Theseforward-looking
statementsandprojectionsinvolveknownandunknownrisks,uncertainties,assumptionsandotherimportantfactors
thatcouldcausetheactualoutcomestobemateriallydifferentfromtheeventsorresultsexpressedorimpliedbysuch
statementsandprojections.Thoserisks,uncertainties,assumptionsandotherimportantfactorsarenotallwithinthe
controlofFonterraCo-operativeGroupLimited(Fonterra)anditssubsidiaries(theFonterraGroup)andcannotbe
predictedbytheFonterraGroup.
Whileallreasonablecarehasbeentakeninthepreparationofthispresentation,noneofFonterraoranyofits
respectivesubsidiaries,affiliatesandassociatedcompanies(oranyoftheirrespectiveofficers,employeesoragents)
(RelevantPersons)makesanyrepresentation,assuranceorguaranteeastotheaccuracyorcompletenessofany
informationinthispresentationorlikelihoodoffulfilmentofanyforward-lookingstatementorprojectionorany
outcomesexpressedorimpliedinanyforward-lookingstatementorprojection.Theforward-lookingstatementsand
projectionsinthisreportreflectviewsheldonlyatthedateofthispresentation.
Statementsaboutpastperformancearenotnecessarilyindicativeoffutureperformance.
ExceptasrequiredbyapplicablelaworanyapplicableListingRules,theRelevantPersonsdisclaimanyobligationor
undertakingtoupdateanyinformationinthispresentation.
Thispresentationdoesnotconstituteinvestmentadvice,oraninducement,recommendationoroffertobuyorsellany
securitiesinFonterraortheFonterraShareholders’Fund.

Fonterra uses several non-GAAP measures when discussing financial performance. These measures include
normalised profit after tax, normalised EBIT, EBIT, normalised earnings per share, normalisation adjustments and total
Group measures. Total Group measures present the combined financial performance of the Group’s continuing and
discontinued operations. Non-GAAP financial measures are not defined or specified by NZ IFRS.
Management believes that these measures provide useful information as they provide valuable insight on the
underlying performance of the business. They are used internally to evaluate the underlying performance of business
units and to analyse trends.
These measures are not uniformly defined or utilised by all companies. Accordingly, these measures may not be
comparable with similarly titled measures used by other companies. Non-GAAP financial measures should not be
viewed in isolation nor considered as a substitute for measures reported in accordance with NZ IFRS. Non-GAAP
measures are not subject to audit unless they are included in Fonterra’s audited Financial Statements.
Definitions of non-GAAP measures used by Fonterra can be found in the Glossary.