Northington Partners Independent Report

15 May 2026

Northington Partners Independent Report


The attached independent report, prepared by Northington Partners at the request of the Fonterra
Co-operative Council (on behalf of Fonterra), for the purposes of s109LA of the Dairy Industry
Restructuring Act 2001, has been provided to shareholders by the Fonterra Co-operative Council.


ENDS


For further information contact:

Anya Wicks
Company Secretary
Phone: +64 21 283 0945

---

Review of 1H26 Performance
Fonterra Co-operative Group
May 2026

Review of 1H26 Performance |
2
Important Notice
Declarations
This report is dated 12 May 2026 and has been prepared by Northington Partners at the request of
the Fonterra Co-operative Council (“
FCC”) on behalf of Fonterra Co-operative Group Limited
(“
Fonterra”) for the purposes of s109LA of the Dairy Industry Restructuring Act 2001. The report is
intended to provide Fonterra shareholders and unitholders with an independent review of Fonterra’s
performance for 1H26.
The analysis and views expressed in this report have been prepared independently of Fonterra and
FCC by Northington Partners. Fonterra has not provided any input into the content of this report and
provides no warranty or assurance as to the accuracy, adequacy or completeness of the information
in it. Fonterra does not accept or assume any duty, responsibility or liability to any party (including,
without limitation, in negligence) in connection with this report.
Qualifications
Northington Partners provides an independent corporate advisory service to companies operating
throughout New Zealand. The company specialises in corporate advisory, mergers and acquisitions,
capital raising support, expert opinions, financial instrument valuations, and business and share
valuations. Northington Partners is retained by a mix of publicly listed companies, substantial
privately held companies, and state-owned enterprises.
The individuals responsible for preparing this report are Greg Anderson B.Com, M.Com (Hons), Ph.D,
Jonathan Burke B.Com (Hons), Mathew Rooza B.Com, CPA and Maia Trevelyan B.Com. The
Northington Partners’ team has a wealth of experience in providing independent corporate finance
advice to a wide range of clients.
Disclaimer and Restrictions on the Scope of our Work
In preparing this report, Northington Partners has relied on publicly available information, unless
stated otherwise. Northington Partners has not performed anything in the nature of an audit of that
information, and does not express any opinion on the reliability, accuracy or completeness of the
information provided to us and upon which we have relied.
Northington Partners has used the provided information on the basis that it is true and accurate in
material respects and not misleading by reason of omission or otherwise. Accordingly, neither
Northington Partners nor its Directors, employees or agents, accept any responsibility or liability for
any such information being inaccurate, incomplete, unreliable or not soundly based or for any errors
in the analysis, statements and opinions provided in this report resulting directly or indirectly from any
such circumstances or from any assumptions upon which this report is based proving unjustified.
We reserve the right, but will be under no obligation, to review or amend our report if any additional
information which was in existence on the date of this report was not brought to our attention, or
subsequently comes to light.
To the maximum extent permitted by law, Northington Partners, its affiliates, directors, officers and
employees will not be liable for any loss or damage arising as a result of reliance being placed on any
of the information contained in this report.

Review of 1H26 Performance |
1H26 Highlights
Strong earnings
performance
sustained
–Compared to 1H25, reported EBIT from pro forma continuing operations increased by $20m in 1H26 (+2%) to $932m. This was driven by favourable product mix and
resilient global demand for high value dairy Ingredients and Foodservice products, partially offset by ERP system build costs and an increase in other costs such as energy
and freight.
–Fonterra has declared a fully imputed interim dividend of 24 cents per share (22 cents in 1H25) as well as a 16 cents special Mainland dividend (representing 100% of the
estimated FY26 profits for the 8 months that Mainland Group has been under Fonterra’s ownership). Both the interim and special dividends (totalling 40 cents per share)
were paid on 14 April.
Reduced
performance in
Ingredients more
than offset by
improved
Foodservice
performance
–Ingredients EBIT from pro forma continuing operations (as if the Mainland Group divestment had already happened) was down $180m (-26%) to $560m compared to the
same period last year. Conversely, Foodservice EBIT from pro forma continuing operations was up $200m (+116%) to $372m.
–The value of protein and fat within the milk price is a key contributor to the relative earnings contributions from both channels. A greater share of the milk price cost uplift
witnessed in 1H26 was attributable to protein-based Reference Products (up ~42%) relative to flat prices for fat-based products (AMF and butter) compared to the same
period last year. This also highlights that despite the FGMP forecast for FY26 being lower than last year, the average cost of milk in 1H26 was materially higher compared to
1H25.
–The impact of the changing input prices was reflected in markedly reduced operating profit from Core Operations in the Ingredients channel, decreasing $245m (to $47m)
due to a significant increase in the protein-weighted milk costs. This was offset by a $65m improvement to the In-market component (up to $513m), reflecting margin
growth and a more favourable product mix.
–The Foodservice channel is on the other hand more sensitive to a fat-oriented product portfolio. Within this channel, Core Operations performed strongly with a $199m
improvement in operating profit (to $174m) due to a higher sustained margin (improved product pricing and flat fat-weighted milk costs). In-market profitability was up $1m
(to $198m). Return on capital remains comfortably above the bottom end of Fonterra’s 10% – 12% range for both channels, with Ingredients at 11.0% for the half and
Foodservice at 12.6%.
Significant cash
outflow partially
offset by favourable
working capital
position
–As is typical with Fonterra’s seasonal profile, free cash flow is generally negative in the first half of the year, with second-half inflows being used to support a significant
reduction in debt and gearing over the remainder of FY26.
–Compared to 1H25, the free cash outflow in 1H26 was reduced by $525m (-25%) to an outflow of $1,544m. This movement was driven by a $0.4b improvement in supplier
payables (a result of the accelerated advance rate in the prior season) and a $0.5b improvement in trade working capital, largely due to lower inventory pricing per metric
tonne, which was partially offset by volume growth from higher milk collections. These gains were partially offset by higher tax payments of $0.35b.
–Net debt decreased by $523m (-10%) to $4,927m, supported by stronger earnings and a higher supplier payable balance. Consequently, gearing fell from 39.4% to 36.5%,
reflecting both the lower debt levels and an increase in retained earnings.
Increase in the
Forecast Farmgate
Milk Price
–Fonterra has lifted its 2025/26 forecast FGMP midpoint by 20 cents to $9.70 per kgMS (~5% decrease on 2024/2025), with a range of $9.40 - $10.00 per kgMS. Whilst
emphasising the volatility inherent in the range, partially due to the on-going conflict in the Middle East, the improved forecast FGMP is largely due to an increase in protein-
based Reference product prices.
1
2
4
3
3

Review of 1H26 Performance |
1H26 Highlights (continued)
Midpoint Profit
guidance upgraded
–Fonterra narrowed earnings guidance from 45 – 65 cents per share to 50 – 65 cents, reflecting an increase of ~5% at the guidance mid-point. This increase is supported by
the higher sales volumes forecasted in 2H26, despite some compressed margins due to rising input costs and uncertainty related to the Middle East conflict. Based on
Fonterra’s dividend policy of paying out 60% - 80% of earnings excluding abnormal gains and its recent dividends being towards the higher end of this range (supported by
reduced debt levels), this implies total dividends for FY26 of approximately 40 – 52 cents per share (excluding the Mainland special dividend).
–Given year-to -date EPS from pro forma continuing operations of 35 cents, the updated guidance suggests a lower contribution from 2H26 (15 – 30 cents), factoring in
uncertainty related to Middle East conflict, including risks around input cost inflation and shipping disruption.
–In addition, Fonterra reaffirmed its target of returning the business to FY25 earnings levels (EBIT of ~$1.7b) by FY28 despite the divestment of Mainland Group. This target
is supported by cost-out and growth initiatives.
Mainland Group
update
–Ahead of the 1H26 results, Fonterra announced the sale of Mainland Group to Lactalis for $4.22b went unconditional, with all regulatory approvals being obtained and the
separation of Mainland Group from Fonterra being complete.
–The transaction has subsequently completed with shareholders receiving their $2.00 per share capital return on 14 April 2026.
5
6
4

Review of 1H26 Performance |
Table of Contents
5
SectionPage
Section 11H26 Results Review6
Financial Performance7
Financial Position11
Outlook12
Section 2Mainland Group14
Financial Performance15
Post Divestment Fonterra Outlook16
Appendix – Supporting Information17

Section 1:
1H26 Results Review

Review of 1H26 Performance |
Fonterra reported earnings (EBIT) from pro forma continuing operations of $932m for the half, an increase of $20m on 1H25. This was
driven by a favourable product mix and resilient global demand for high value dairy products, partially offset by ERP system build costs
and an increase in other costs such as energy and freight.
Total Group Financial Performance
NZ$ Million (Pro Forma Continuing Operations)1H261H25% Change
Sales Volume (‘000 MT)1,4551,472(1%)
Total Revenue 12,32811,3179%
Cost of Goods Sold(10,562)(9,619)10%
Gross Profit1,7661,6984%
Gross Margin14.3%15.0%n/a
Operating Expenses(880) (858) 3%
Other Items4672(36%)
EBIT9329122%
EBIT Margin7.6%8.1%n/a
Net Finance Costs & Tax(356) (336) 6%
Net Profit After Tax (NPAT)576 576 0%
Pro Forma Adjustments124 82 51%
Net Profit After Tax (Continuing Ops)700 658 6%
Net Profit After Tax (Discontinued Ops)50 71 (30%)
Total Group Net Profit After Tax750 729 3%
Earnings Per Share (Pro Forma Continuing Ops)$0.35$0.350%
Earnings Per Share (Continuing Ops)$0.42$0.405%
Dividend Per Share$0.40
1
$0.2282%
Our assessment of Fonterra’s results for 1H26 is complicated by earnings relating to discontinued
businesses (Mainland Group). The divestment of Mainland represents a significant shift in
operations, with historic transfer pricing between Mainland Group entities now being less relevant.
We have therefore focused on the results for the pro forma continuing operations – this framework
assumes Mainland had been divested and the contract pricing arrangements with Lactalis were
already in place. This approach for the 1H26 results will also provide better comparability to results
in future periods. See the Appendix for a summary of the recent reporting changes.
Fonterra delivered another strong earnings result for 1H26, with reported earnings before interest
and tax (EBIT) from pro forma continuing operations increasing by 2% to $932m, despite the $79m
of technology (ERP) upgrade costs and and an increase in other costs such as energy and freight.
–Despite a slight decrease in sales volumes, a favourable product mix shift from reference
products to higher value non-reference products contributed to a 9% increase in revenue
($12,328m in 1H26 vs $11,317m in 1H25).
–In line with the revenue increase, gross profit for 1H26 increased on last year ($1,766m in 1H26
vs $1,698m in 1H25), albeit with a slight decrease in the margin (14.3% vs 15.0%). This was
driven by favourable product mix and resilient global demand for high value dairy products, more
than compensating for lower margins in the Ingredients channel and an increase in other costs
such as energy and freight.
–Operating expenses from pro forma continuing operations increased by $22m (3%), reflecting the
$26m increase in technology (ERP) upgrade costs to $79m, when compared to 1H25.
–Reported EBIT from pro forma continuing operations was up $20m (2%) to $932m.
–Net finance costs & tax from pro forma continuing operations increased by $20m (6%), largely
reflecting a $17m increase in tax expense due to a one-off tax associated with exiting a product
line.
–The resulting reported pro forma continuing operations NPAT for 1H26 was $576m (35c per
share), compared to an equivalent $576m in 1H25 (35c per share).
–Based on the full year earnings guidance of 50c – 65c per share and the 35c per share reported
for 1H26, expected EPS for 2H26 is significantly lower at 15c – 30c per share. This EPS
differential between the first half and second half is consistent with historical seasonal variability.
–The Group declared an interim dividend of 24c per share, a 2c increase compared to 1H25.
Fonterra also declared a special dividend of 16c per share, reflecting a 100% payout of Mainland
earnings for the period up to divestment, giving a total dividend of 40c per share. The interim
dividend aligns with Fonterra’s full year dividend policy target payout range of 60% to 80%, and is
consistent with Fonterra paying out up to 50% of its forecast full year dividend at the half year.
7
1
Including a Special Mainland dividend of 16 cents

Review of 1H26 Performance |
Financial Performance by Channel & Segment
There was a material shift in the composition of operating earnings (EBIT) between channels in
1H26 vs 1H25:
EBIT from the Ingredients channel was down by $180m in 1H26, reflecting the following key
factors:
–Lower contribution from Core Operations (-$245m) as a result of the higher cost of protein
being expensed through FY26 relative to the prior year, with protein-based Reference Products
up ~42%;
–Lower sales volume as milk shifted to high-value products and management of inventory
(-$10m); and
–Favourable in-market margins due to strong protein prices in Europe and US ($82m).
Conversely, EBIT for Foodservice was up $200m, positively impacted by:
–Higher contribution from Core Operations ($199m), reflecting improved product pricing and flat
fat-weighted milk costs;
–Better pricing and product mix supported margins while input cost pressure eased over first
half (-$6m); and
–Improved operating expenses ($7m) reflect the rationalisation of the residual Consumer
business in Greater China.
Similar market dynamics led to a shift in earnings contributions across Segments
–Core Operations reported a $46m decline in EBIT, largely reflecting the $26m increase in
technology (ERP) upgrade costs to $79m (compared to 1H25) and an increase in other costs
such as energy and freight.
–In-market earnings were up $66m to $711m, largely due to favourable Ingredients margins In-
market.
Although price relativities widened when compared to 1H25, earnings from the Ingredients channel decreased due to a higher cost of
protein. Foodservice’s higher contribution from Core Operations was due to lower input cost for milk.
Pro forma EBIT by Channel (NZ$ million)
8
Pro forma EBIT by Segment (NZ$ million)
740
172
560
372
IngredientsFoodservice
1H251H26
267
645
221
711
Core OperationsIn-market
1H251H26

Review of 1H26 Performance |
2,000
3,000
4,000
5,000
6,000
Aug-24Nov-24Feb-25May-25Aug-25Nov-25Feb-26
USD / MT
Cheddar (Non-Reference Product)Whole Mik Powder (Reference Product)
Fonterra’s Price Relativities for Reference and Non-Reference products widened by ~US$194/MT compared to 1H25. This benefit plus
favourable product mix were however partly offset by Fonterra’s financial trading book, resulting in a lower earnings benefit (~2cps vs
~4cps in 1H25).
Price Relativities
Price Relativities (Cheddar vs WMP)
9
Price Relativities have widened during 1H26. This reflects that the average Reference portfolio
prices increased ~5% in USD terms compared to a 9% increase for the Non-Reference portfolio
(both vs 1H25). Using the price of cheddar vs WMP as a proxy for the portfolios, 1H26 (1.3x) is
tracking higher than FY25 (1.2x).
While price relativities have widened and provided favourable pricing, this was offset by
Fonterra’s financial trading portfolio. This type of outcome is expected as an increasing volume of
Fonterra’s financial portfolio is used for hedging purposes (reducing volatility), meaning under an
increasing milk price environment, downside risk is reduced but not all upside is captured.
Fonterra noted that the current earnings guidance reflects the net price relativity position to be
neutral year-on-year and that the impact of price relativities is likely to be significantly reduced in
the future.
Source: Global Dairy Trade, adjusted forward 3 months to reflect shipment delay.
WMP and Cheddar used as proxies for Reference & Non-Reference Products.
Historical Price Relativities (Non-Reference / Reference Product Prices)
Fonterra noted that while price relativities will always be present, the impact to Fonterra earnings will
likely be lower than historical periods due to Fonterra’s increased ability to lock in margins with
customer contracts and hedging, meaning that the Company is therefore less exposed to price
volatility. This is largely due to the growing size of the fixed price book being offered to customers (i.e
long term fixed price commitments), which grows the use of fixed milk price instruments. For context
on the growing financial trading portfolio, Fonterra reported that:
–The portion of Fonterra’s book subject to hedging (i.e. where Fonterra locks in margins) is
approximately 50% larger than 5 years ago and a more material portion of its Non-Reference book.
–The duration of fixed price contracts varies customer to customer but is generally 6-12 months
(none longer than 12 months).
Avg price differential:
US$621/MT
Avg price differential:
US$815/MT
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
AugSeptOctNovDecJanFebMarAprMayJunJul
Cheddar Price Relative to WMP Price as Proxy
for Price Relativities
FY22FY23FY24FY25FY26
First Half
1H261H252H252H26

Review of 1H26 Performance |
$7.54
$9.30
$8.22
$7.83
$10.16
FY21FY22FY23FY24FY25FY26
The Farmgate Milk Price range has increased from $9.20 - $9.80 to $9.40 - $10.00 per kgMS.
Whilst emphasising the volatility inherent in the range, partially due to the on-going conflict in the
Middle East, the improved forecast FGMP is largely due to an increase in protein-based
Reference product prices during February and March.


Fonterra has lifted the forecast Farmgate Milk Price mid-point by 20 cents to $9.70.
Milk Price Range of $9.40 - $10.00 per kgMS
Historical Farmgate Milk Price vs 2025/26 Season Forecast
GDT Price Index
With the end of the 2025/2026 season fast approaching, the mid-point Farmgate Milk Price of $9.70
per kgMS represents a 20 cents increase on the previous Farmgate Milk Price midpoint of $9.50. This
recent recovery of milk price is largely attributed to:
−An increasing trend in the GDT Price Index as summarised in the chart above (representing the
change in prices for both Reference and Non-Reference milk products). This reflects a combination
of low skim milk powder stock globally, lower Chinese domestic milk production growth, and
declining milk prices in the United States and European Union.
−Fonterra’s strong underlying margins and cost control despite significant on-going volatility,
particularly as the conflict in the Middle East continues.
10
1
As per forecast update 23 March 2026
$10.00 High
$9.40 Low
Forecast Farmgate Milk Price
for 2025/26 Season
1
Source: GDT
2024/2025
Season
2025/2026
Season
(to March)
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24Jul-24Jan-25Jul-25Jan-26
Index Value

Review of 1H26 Performance |
Compared to 1H25, net debt was down $523m (-10%) to $4,927m, supported by stronger earnings and a higher supplier payable
balance. Consequently, gearing fell from 39.4% to 36.5%, reflecting both the lower debt levels and an increase in retained earnings.
Financial Position
11
NZ$ Million1H261H25% Change
Assets
Cash and Cash Equivalents117218(46%)
Receivables1,9122,499(23%)
Inventories6,7338,049(16%)
Other Current Assets 5,0493561318%
PP&E5,6616,394(11%)
Intangible Assets7871,779(56%)
Other Non-Current Assets 8241,053(22%)
Total Assets21,08320,3484%
Liabilities
Payables5,3795,3531%
Current Borrowings1,2091,793(33%)
Other Current Liabilities1,23879955%
Non-Current Borrowings4,1154,163(1%)
Other Non-Current Liabilities35624247%
Total Liabilities12,29712,350(0%)
Net Assets8,7867,9989%
Equity Attributable to Co-op8,7067,91610%
Adjusted Net Debt (NZ$ million) and Gearing Ratio (%)
Fonterra’s net debt has decreased by $523m compared to 1H25 ($4,927m in 1H26 vs $5,450m
in 1H25). The lower debt position largely reflects stronger earnings and a higher supplier payable
balance ($3,074m at 1H26 vs $2,461m at 1H25). Inventories have decreased by $1,316m
(16%) when compared to 1H25 ($6,733m in 1H26 vs $8,049m in 1H25).
As a result of the lower net debt, gearing levels have also decreased to 36.5% at 1H26 vs 39.4%
at 1H25. With the first half typically representing a seasonal peak in debt levels, Fonterra is
expected to have improved financial flexibility and debt headroom at the end of FY26.
Return on capital (“ROC”) has increased to 11.2% in 1H26, higher than the 10.4% achieved in
1H25. 1H26 ROC includes
Mainland Group return on capital of 9.2%, up from 7.1%.
Historical Return on Capital (Based on Fonterra Estimates)
1
1
Rolling twelve months.
ROC from FY24 based on fully imputed dividends (higher Fonterra tax expense) resulting in a lower ROC compared to prior periods.
12,356
13,005
12,774
12,303
11,904
12,159
12,348
12,845
6.8%
8.6%
12.4%
13.4%
11.3%
10.4%
10.9%
11.2%
FY221H23FY231H24FY241H25FY251H26
Average Capital Employed Return on Capital
$5,607m
$5,811m
$4,224m
$5,450m
$4,927m
44.1%
43.3%
34.6%
39.4%
36.5%
1H221H231H241H251H26
Adjusted Net DebtGearing Ratio

Review of 1H26 Performance |
On a Continuing Operations basis,
based on FY24 disclosures
(including Mainland)
$0.35 $0.35
$0.21
$0.23
$0.31
$0.36
$0.75
$0.58
$0.56
$0.58
FY21FY22FY23FY24FY25FY26
1H2H
Fonterra narrowed earnings guidance from 45 - 65 cents per share to 50 – 65 cents, reflecting an increase of 5% at the guidance mid-
point and implying a lower 2H26 earnings contribution of 15 – 30 cents per share. This increase is supported by the higher sales volumes
forecasted in 2H26, despite some compressed margins due to rising input costs and uncertainty related to the Middle East conflic t.
Full year FY26 Outlook
Monthly Milk Prices (NZ$ per kgMS)
Despite the forecast FGMP for the current season being lower than last season, the average cost of
milk was materially higher in the first half of 1H26 relative to 1H25. This was primarily driven by an
increase in protein-based Reference product prices (up ~42%) relative to flat prices for fat-based
products (AMF and butter) compared to the same period last year, meaning a greater share of the
milk cost uplift is in the protein component. The value of protein and fat within the milk price is a key
contributor to the relative earnings contributions from both channels.
Fonterra narrowed its earnings guidance from 45 - 65 cents per share to 50 – 65 cents per share
(mid-point of 57.5 cents per share). The guidance implies EPS for the second half of 15 – 30 cents
per share, lower than the 1H26 outcome largely as a result of the following factors:
–First half pro forma continuing operations earnings of 35c, and forecasting for a slightly lower
2H26;
–Higher sales volumes in 2H26 forecasted, with some compression of margins due to rising input
costs; and
–Uncertainty related to the Middle East conflict, including risks around input cost inflation and
shipping disruption.
12
Normalised Earnings Per Share for 1H26 and Projection for 2H26
1
Source: Extract from Fonterra’s 1H26 Presentation
1
$6
$7
$8
$9
$10
$11
$12
JunJulAugSeptOctNovDecJanFebMarAprMay
FY25FY26
2025/26 season forecast
monthly milk prices, informing
the forecast $9.70 Farmgate
Milk Price midpoint (range
$9.40 - $10.00)
2024/25 season monthly milk
prices average to $10.16, the
Farmgate Milk Price
Higher milk cost at start
of season driven by
demand for WMP
1
FY26 and 2H26 based on midpoint forecast earnings range of 50c – 65c per share. FY25 sourced from FY25 disclosure
Pro Forma Continuing Operations
(excluding Mainland)

Review of 1H26 Performance |
2.65
2.85
2.71
2.72
2.73
2.30
2.63
2.58
2.66
2.73
2.64
FY22FY23FY24FY25FY26 ForecastFY27
Inflation-AdjustedActualPlannedStrategic Target
1.35
1.41
1.43
1.50
1.17
1.30
1.36
1.47
1.01
0.98
1.43
1.05
FY22FY23FY24FY25FY26 ForecastFY27
Inflation-AdjustedActualPlannedStrategic Target
Fonterra reports on two efficiency targets focusing on operating costs and manufacturing costs per kgMS. These efficiency metrics were
introduced as part of Fonterra’s drive to enhance efficiencies and reduce its cost base.
Operational Efficiency Metrics
Cash operating expenses represent the global overheads of the Group and include head office,
selling, marketing, storage and distribution costs. In order to objectively assess cost efficiencies
relative to varying milk volumes, the cash operating costs are assessed per kgMS of New Zealand
and Australia milk solids collected.
Total cash operating expenses (excluding ERP & Mainland Group) in FY26 are forecast at $0.98 per
kgMS, $0.14 lower than Fonterra’s FY26 strategic target of $1.12 per kgMS and $0.03 lower than
the $1.01 per kgMS achieved in FY25.
The information provided by Fonterra (illustrated in the chart above) implies Fonterra has $0.07
headroom in nominal operating expenses on a per kgMS basis to achieve its strategic target by FY27.
This metric measures the manufacturing performance of Fonterra. It is aimed at measuring targeted
efficiencies in the core New Zealand processing and manufacturing cost base to improve gross profit
margins on each kgMS. These costs largely represent materials, labour, energy & packaging and the
other costs directly incurred in processing milk products to the point of sale. The measure has
intentionally excluded the cost of milk (i.e. the FGMP) which is out of Fonterra’s control and is assessed
per kgMS of New Zealand milk solids collected.
The core manufacturing costs per kgMS NZ milk collections in FY26 are forecast at $2.73 per kgMS,
$0.11 higher than Fonterra’s FY26 strategic target of $2.62 per kgMS and $0.01 higher than the $2.72
per kgMS outcome in FY25 (inflation-adjusted). The higher forecasted cost in FY26 is due to higher
input costs including lactose and additional secondary processing costs, partially offset by higher milk
solids collections and ongoing efficiency gains.
The information provided by Fonterra (illustrated in the chart above) implies a ~3% decrease in nominal
operating expenses on a per kgMS basis by FY27. This suggests ongoing manufacturing efficiencies are
expected over the medium term when backing out an allowance for future inflation. Fonterra confirmed
it is reviewing its approach to lifting manufacturing performance as it works back toward the strategic
targets.
13
Cash Operating Expenses per kgMS Collected
Core Operations Manufacturing Cash Costs per kgMS NZ Milk Collections

Section 2:
Mainland Group Analysis

Review of 1H26 Performance |
Mainland Group reported pro forma earnings (EBIT) of $299m for the half, an increase of $104m on 1H25. Improved earnings were due
to higher sales volumes, inventory revaluations and easing input costs.
Mainland Group Performance
NZ$ Million (Mainland Group Pro Forma)1H261H25% Change
Sales Volume (‘000 MT)2722518%
Total Revenue 3,2832,92312%
Cost of Goods Sold (excl. D&A)*(2,655)(2,354)13%
Gross Profit62856910%
Gross Margin19.1%19.5%n/a
Operating Expenses (excl. D&A)*(347) (334) 4%
Other21.0 15.0 40%
EBITDA302 250 21%
Depreciation and amoritisation(3) (55) (95%)
EBIT29919553%
EBIT Margin9.1%6.7%n/a
Net Finance Costs & Tax(125) (42) 198%
Net Profit After Tax (NPAT)174 153 14%
Normalisation adjustments (EBIT)36 40 (10%)
Normalised EBIT335 235 43%
Normalisation adjustments (NPAT)90 40 125%
Normalised NPAT264 193 37%
Dividend per Share$0.16
Return on Capital9.2%7.1%30%
Average capital employed3,076 2,956 4%
Mainland’s improved performance is due to tailwinds from higher volumes, inventory revaluations
and easing input costs.
–Fonterra communicated approximately half of Mainland Group’s improved earnings is due to the
Australian ingredient's operations, with lower milk prices in the period leading to lower input costs
and inventory revaluations. Because the Australian FGMP is not necessarily representative of
prevailing global dairy commodity prices, exchange rates and commercial processing returns,
domestic milk prices have a significant bearing on Fonterra Australia’s performance (and other
processors), as summarised in the table below:
Assuming the long-term Australian FGMP is consistent with international dairy commodity prices,
we believe it is unlikely this improvement in the Australia business can be maintained in the long
term.
–The remaining earnings improvement is due to margin growth within South East Asia (consumer
channel), as a result of the lower historical milk price.
–Mainland Group achieved a return on capital for the period of 9.2%
2
, up from 7.1%, but below
Fonterra’s target range of 10% - 12%.
–As communicated by Fonterra, the special Mainland Group dividend of 16c per share reflects a
100% payout of Mainland Group’s earnings.
15
Fonterra Australia PerformanceFY21FY22FY23FY24FY251H26
Reported EBIT741067579
Avg Milk Price (AUD per kgMS)6.537.409.579.208.158.90
1
NZ FGMP (NZ$ per kgMS)7.549.308.227.8310.16~9.70
1
Revised weighted average Fonterra Australian milk price for the 2025/26 season as at 26 May 2025.
2
Rolling twelve months.

Review of 1H26 Performance |
$612m
$120m
$68m
$932m
$1,544m
$1,732m
Fonterra Pro Forma
Continuing
Operations (1H26)
2H26 Assumed
Earnings
Forecast Fonterra
Pro Forma
Continuing
Operations (FY26)
ERP CompletionImplied Earnings
Improvement
Fonterra Post
Divestment (FY28)
0.14
0.180.18
0.57
0.58
0.42
>0.50
0.71
0.76
80%
76%
Group FY25Group FY26
Forecast
FY26 Pro Forma
Forecast
FY28
Forecast
Retentions per ShareDividend per SharePayout Ratio
16
Post Divestment Fonterra Earnings Outlook
Fonterra reaffirmed its target of returning the business to FY25 earnings levels by FY28 (EBIT of ~$1.7b) despite the divestment of
Mainland Group, supported by cost-out and growth initiatives.
Fonterra reaffirmed its target of returning the business to FY25 earnings levels (EBIT of ~$1.7b)
by FY28 despite the divestment of Mainland Group, supported by cost-out and growth initiatives.
Achieving EBIT of ~$1,732m (as reported in FY25) by FY28 will require ~5.4% EBIT growth per
year relative to Fonterra’s pro-forma continuing operations FY25 EBIT of $1,480m, or ~5.9%
based on our estimate of FY26 earnings. We note the following in relation to this target:
−Significant earnings improvement will be derived from completion of the current ERP upgrade
by FY28 and the related reduction in expenses. This expense totalled $123m in FY25, and is
expected to peak in FY26/27, totalling $240m across the 2 periods.
−Fonterra also expects that substantial earnings growth will be driven by ongoing operating
efficiencies and expected cost savings in a simplified business. Investment in recent and
future growth initiatives should reasonably be expected to contribute to increased earnings.
Our break-down of the potential contributors to earnings improvement is summarised in the chart
above. After accounting for the expected operating cost reductions, we believe that the level of
earnings improvement needed to reach the target earnings by FY28 should be readily achievable.
This level of FY28 earnings and our estimate of forecast capital employed by FY28 of ~$10bn
should also deliver an outcome towards the upper end of Fonterra’s 10% - 12% return on capital
target.
Post Divestment Earnings Outlook and Indicative ContributionsPost Divestment Earnings and Dividend per share
The divestment of Mainland Group will result in an immediate decrease in total earnings, as
reflected in Fonterra’s pro forma continuing operations.
We assume FY26 pro forma earnings of 60c per share, towards the upper end of Fonterra’s 50–65c
per share guidance. This excludes the 16c per share contribution from Mainland Group. Based on
Fonterra’s target to achieve FY25 EBIT of $1,732m by FY28 and assuming a dividend payout within
Fonterra’s policy to distribute 60%–80% of Reported Net Profit After Tax (excluding abnormal gains),
we estimate that dividends should exceed 50c per share by FY28. The ultimate earnings and
dividends will depend on performance expectations being met and the level of debt funding incurred
to meet Fonterra’s capital expenditure plans.
With Mainland Group Earnings
1
Northington Partners analysis, assuming FY26 pro forma earnings of 60c per share (the upper end of Fonterra’s 50–65c per share
guidance).
2
Northington Partners estimates.
1
2

Appendix 1:
Supporting Information

Review of 1H26 Performance |
Reporting Changes
18
Following the divestment of the Mainland Group, reporting has been refined to better reflect the performance of the continuing business.
Segment & Channel Changes
Earnings Reporting Changes
Pre-Divestment Structure
Total Group
Earnings
Post-Divestment Structure
Continuing
Operations
Discontinued
Operations
(Mainland)
Continuing
Operations
Normalisations
+
=
Discontinued
Operations
Normalisations
+
=
Core Operations
Global Markets
Greater China
Segments
Channels
Ingredients
Foodservice
Consumer
Ingredients
Foodservice
Discontinued Operations
–Global Markets and Greater China
allocated to Ingredients and
Foodservice, with minor adjustments as
per the Mainland Group divestment.
–Pre-divestment basis: Reported
Continued & Discontinued Operations.
–Post-divestment basis: Pro Forma
Continuing & Mainland Group as the
primary analytical view.
–Normalisations are management
adjustments applied outside statutory
Continuing/Discontinued Operations to
reflect underlying performance.
–Consumer removed from reporting
segments, and largely reclassified as
Discontinued Operations following the
sale of Mainland Group, with minor
exposure from Foodservice and
Ingredients also included.
Commentary
Core Operations
Continuing Operations
Post-Divestment Structure (Pro Forma Earnings)
Pre-Divestment Structure Reporting Requirements
Commentary
Pro Forma Continuing
Operations
Pro Forma Mainland Group

Review of 1H26 Performance |
Continuing and Discontinuing Operations
19
NZ$ Million6 Months to 31 January 20266 Months to 31 January 2025
Continuing
Operations
Discontinued
Operations
Total
Group
Continuing
Operations
Discontinued
Operations
Total
Group
Sales Volume (‘000 MT)1,4552721,7271,4722511,723
Total Revenue 12,4641,45413,91811,4001,19212,592
Cost of Goods Sold(10,580)(944)(11,524)(9,631)(733)(10,364)
Gross Profit
1,8845102,3941,7694592,228
Gross Margin (%)15.1%35.1%17.2%15.5%38.5%17.7%
Operating Expenses(880)(350)(1,230)(858)(350)(1,208)
Other Items462167721587
Reported EBIT
1,0501811,2319831241,107
Reported EBIT Margin (%)8.4%12.4%8.8%8.6%10.4%8.8%
Normalisations(124)21490(82)12240
Normalised EBIT9263951,3219012461,147
Reported Net Profit After Tax
7005075065871729
Normalisations (post tax adjustments)(124)21490(82)12240
Normalised Net Profit After Tax
576264840576193769

Review of 1H26 Performance |
FY26 Integrated Scorecard
20
Key Performance Indicator (KPI)
FY24
Actual
FY25
Actual
FY26
Scorecard
FY26
YTD
People
Serious harm
1
16651
Quality of post-Health, Safety and Wellbeing incident actions0.410.400.60.51
Culture Measure79818079
Nature
GHG emissions (Scope 1,2)
2
(18.5)%(20.7)%(26.7)%(26.1)%
Additional percentage of New Zealand supplying Farms achieving Emissions
Excellence
-(2.2)%6%
3
-
Relationships
Share of New Zealand milk collected for the season to 31 May78.1%77.8%78%77.8%
Delivered in full, on time (DIFOT, at time of arrival)66.1%73.7%77%81.5%
Financial / Assets &
Infrastructure
Cash operating expenses per kgMS (real)
4
1.431.501.411.43
Core Operations manufacturing cash costs per kgMS (real)
5
2.712.742.652.73
Return on capital (FY)11.3%10.9%10% - 12%On track
Farmgate Milk Price ($)7.8310.169.00 - $11.009.40 - $10.00
6
Alignment Rights
Total shareholder return
(Volume weighted average share price plus distributions (dividend, capital
returns))
7
$2.66 ($0.55)$4.70 ($0.57)Not Available$5.34 (TBC)
On-farm profitability ($ per hectare)
8
$2,845Not AvailableNot AvailableNot Available
1. Includes Contractors.
2. Relative to FY18 Baseline. Scope 1&2 including farms under Fonterra operational control.
3. Additional 490 farms with minimum of 270 reducing footprint. FY26 performance available at completion of season.
4. Based on New Zealand and Australia milk solids. Excludes divestment-related costs. Restated to FY26 base year.
5. Based on New Zealand milk solids collected. Excludes the cost of milk. Restated to FY26 base year.
6. Latest Forecast Farmgate Milk Price announced 23 March 2026 with midpoint of $9.70 per kgMS.
7. For the period 1 October to 30 September. As an indication, FY26 YTD is the 12-month VWAP to 30January 2026.
8. DairyNZ Economic Survey 2023-2024 (Owner-Operator). Publication of 2025 survey expected in July 2026.

Review of 1H26 Performance |
Historical Financial Information
Sales Volume (‘000 MT)
Reported EBIT (NZ$ million)
Revenue (NZ$ million)
Normalised EBIT (NZ$ million)
Total Assets (NZ$ million)
Total Equity (NZ$ million)
1
1
Excluding non-controlling interests
Note: Includes continued & discontinued operations where known
21
Capital Expenditure (NZ$ million)
Free Cash Flow (NZ$ million)
346
(417)
(690)
(782)
369
(632)
(849)
(30)
(397)
(2,069)
(1,544)
1H161H171H181H191H201H211H221H231H241H251H26
453
244
346
316
112
147
180
245
225
244
383
1H161H171H181H191H201H211H221H231H241H251H26
2,324
2,131
2,003
2,075
2,037
1,994
1,921
1,994
1,780
1,723
1,727
1H161H171H181H191H201H211H221H231H241H251H26
8,388
9,232
9,836
9,745
10,423
9,915
10,797
13,249
11,257
12,592
13,918
1H161H171H181H191H201H211H221H231H241H251H26
6,795
7,054
6,568
6,421
6,257
7,148
6,700
7,913
8,014
7,910
8,786
1H161H171H181H191H201H211H221H231H241H251H26
752
644
(176)
312
806
657
607
858
953
1,107
1,231
1H161H171H181H191H201H211H221H231H241H251H26
665
607
458
312
584
684
607
940
1,019
1,107
1,321
1H161H171H181H191H201H211H221H231H241H251H26
19,076
19,344
20,161
20,301
20,148
19,955
20,816
21,391
18,231
20,348
21,083
1H161H171H181H191H201H211H221H231H241H251H26

Review of 1H26 Performance |
Reported EBIT Bridge by Segment and Channel
Reported EBIT Bridge by Channel
Reported EBIT Bridge by Segment
22
$1,231m
$1,107m
($124m)
$983m
($71m)
$912m
($245m)
$199m
$65m
$1m
$932m
$118m
$1,050m
$181m
Reported
Group
Discountinued
Operations
Continuing
Operations
Pro Forma
Normalisations
Pro Forma
Continuing
Operations
IngredientsFoodserviceIngredientsFoodservicePro Forma
Continuing
Operations
Pro Forma
Normalisations
Continuing
Operations
Discontinued
Operations
Reported
Group
1H25 EBITCore OperationsIn-market1H26 EBIT
$1,231m
$1,107m
($124m)
$983m
($71m)
$912m
($245m)
$65m
$199m
$1m
$932m
$118m
$1,050m
$181m
Reported
Group
Discountinued
Operations
Continuing
Operations
Pro Forma
Normalisations
Pro Forma
Continuing
Operations
Core OperationsIn-marketCore OperationsIn-marketPro Forma
Continuing
Operations
Pro Forma
Normalisations
Continuing
Operations
Discontinued
Operations
Reported
Group
1H25 EBITIngredientsFoodservice1H26 EBIT

Review of 1H26 Performance |
Abbreviations & Definitions
TermDefinition
CAGRCompound average growth rate
CapexCapital expenditure
Co-op, Group or the CompanyFonterra Co-operative Group Limited
CYCalendar year ending 31 December
DIRADairy Industry Restructuring Act
EBITEarnings before interest and tax
EBITDAEarnings before interest, tax, depreciation and amortisation
EPSEarnings per share
ESGEnvironmental, social and governance
FCGShares in Fonterra Co-operative Group Ltd (FCG.NZ)
FGMPFarmgate Milk Price
FSFShares in Fonterra Shareholders’ Fund (FSF.NZ)
FundFonterra Shareholders’ Fund (FSF.NZ)
FYFinancial year ending 31 July
GDTGlobal Dairy Trade
kgMSKilograms of milk solids
Mainland or Mainland GroupThe business being sold to Lactalis, combining the integrated businesses in Oceania and Sri Lanka with the global Consumer channel (excluding-China) and the MEA Foodservice business
MTMetric tonnes
NPATNet profit after tax
Non-Reference ProductsProducts that are not included in the calculation of the Farmgate Milk Price
NTMNext Twelve Months
NWCNet working capital
NZDNew Zealand dollars
PP&EPlant, property and equipment
Price RelativitiesRefers to the difference in the weighted average price (in USD) between the Reference Product portfolio and Non Reference Product portfolio
Reference ProductsIncludes commodity products and groups that are included in the calculation of the Farmgate Milk Price
Share StandardMeans one share per one kgMS supplied
ROC or ROCEReturn on capital employed
SMP
Skim milk powder
TSR
Total shareholder return
USDUnited States dollars
WACCWeighted average cost of capital
WMPWhole milk powder
23

www.northington.co.nz
Auckland
Level 33, Vero Centre
48 Shortland Street
PO Box 105-384
Auckland 1143
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70 Gloucester Street
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Christchurc h 8011