Fonterra announces 2018 Interim Results

Page 1



Reporting Period Six months ended 31 January 2018
Previous Reporting Period Six months ended 31 January 2017


Amount
(Million)
Percentage
Change
Revenue from ordinary activities NZ$9,839 6%
Profit (loss) from ordinary activities after tax attributable to
security holder
1

NZ$(354) (186)%
Net profit (loss) attributable to security holders NZ$(348) (183)%

1
Net profit attributable to shareholders of the company is equivalent to profit from ordinary activities after tax attributable to
shareholders of the company (as required to be disclosed pursuant to Clause 1.2 of Appendix 1 of the Fonterra Shareholders’
Market Listing Rules, and Clause 1.2 of Appendix 1 of the NZX Debt Market Listing Rules).

Interim/Final Dividend
Amount per Security
Imputed Amount
per Security
Interim dividend NZ$0.10 $0.00

Record Date 6 April 2018
Dividend Payment Date 20 April 2018

Comments
On 20 March 2018, the Board of Directors declared a dividend of
10.0 cents per share to be paid on 20 April 2018 to
Shareholders on the share register at 6 April 2018.

To be followed by the balance of the information required in the report pursuant to Appendix 1 – Including
the Net Tangible Asset amount per security for the current and previous reporting period.

---

INTERIM
REPORT 2018
INTERIM REPORT 2018
FONTERRA CO-OPERATIVE GROUP LIMITED

CHAIRMAN AND CHIEF EXECUTIVE
OFFICER’S LETTER 2
HIGHLIGHTS 1
OUR CO-OPERATIVE 8
OUR POTENTIAL 12
OUR PERFORMANCE 16
INTERIM FINANCIAL STATEMENTS 30
CONTENTS
INTERIM
DIVIDEND
PER SHARE
FORECAST
FARMGATE
MILK PRICE
2017/2018
NEW ZEALAND
MILK COLLECTION
FORECAST
$
6.55
1,4 80
10
CPS
M
KGMS
FARM SOURCE
TM
REWARDS
DOLLARS EARNED THIS YEAR
NUMBER OF FARMERS WHO
HAVE EARNED FARM SOURCE
TM

REWARDS DOLLARS THIS YEAR
8,200
FS $
7M
OUR
CO-OPERATIVE
We have a unique strength coming from being a vertically
integrated supply chain of scale – connecting high quality milk
from pasture fed cows to customers around the world.
Fonterra uses several non-GAAP measures when discussing
financial performance. These measures include normalised
segment earnings, normalised EBIT, EBIT, normalisation
adjustments, normalised earnings per share, normalised NPAT
and payout. These are non-GAAP financial measures and are
not defined 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.
These non-GAAP measures are not subject to audit. Please
refer to page 48 for the reconciliation of the NZ IFRS measures
to the non-GAAP measures and page 49 for definitions of the
non-GAAP measures used by Fonterra.

GROUP
NORMALISED
EBIT (NZD)
NET LOSS
AFTER TAX
(NZD)
NORMALISED
NPAT (NZD)
$
458M
$
348M
$
248M
INGREDIENTS
NORMALISED EBIT
GOAL FOR LITRES
OF MILK PROCESSED
BY 2025
CONSUMER AND
FOODSERVICE
NORMALISED EBIT
$
558M
$
193M
EXPECTED INCREASE
IN DEMAND FOR
FOOD BY 2050
50% 30B
Our Global Foodservice
business topped $2 billion
in revenue last year,
making it the sixth
biggest exporter.
We’ve set up a new
medical nutrition
and ‘healthy ageing’
division and launched a
fast-acting milk protein.
We’ve introduced new
financial tools to help
our farmers become
fully shared up.
OUR
PERFORMANCE
OUR
POTENTIAL
We focused on shifting more of our farmers' milk
into higher value products. We remain on-track
to deliver an additional 400 million LME to our
Consumer and Foodservice business this year.
We delivered a strong Ingredients performance and
continued to make progress in moving milk up the value
chain, with volume growth across a number of Consumer
and Foodservice markets.
()
HIGHLIGHTS | 1
FONTERRA INTERIM REPORT 201 8

CHAIRMAN AND
CHIEF EXECUTIVE
OFFICER’S LETTER
The Board will decide how the Beingmate impairment
and the Danone payment will be treated for final
dividend purposes after the end of the financial year
when it will have the full picture of its operating
performance. Given the possible impact of these
decisions, the Board is providing a forecast dividend
range for the full-year of 25–35 cents per share.
Based on our dividend policy, this forecast dividend
range would allow for the full impact of the Danone
payment, at the low end, through to an adjustment
for both the Beingmate impairment and the Danone
payment as one-off events at the higher end.
In the circumstances, we have taken a prudent
approach in determining the 10 cent interim dividend.
We continue to offer a dividend reinvestment plan
at a discount of 2.5 per cent to the strike price.
Eligible shareholders who wish to participate in
the plan for the interim dividend need to submit a
notice of participation by 6 April 2018.
As indicated in December, the decision in our
arbitration with Danone resulted in a downward
revision of our earnings guidance of 10 cents to
35-45 cents per share.
FARMERS WILL WELCOME
WHAT IS THE THIRD
HIGHEST FORECAST
AVAILABLE FOR PAYOUT
IN THE LAST DECADE,
BUT THE CO-OPERATIVE
IS ACUTELY AWARE OF
THE CHALLENGES MANY
OF OUR FARMERS HAVE
FACED THIS SEASON
WITH DIFFICULT WEATHER
CONDITIONS IMPACTING
MILK PRODUCTION AND
THEREFORE FARM REVENUE.
In what has been a challenging year to date
for conditions on-farm, it’s pleasing to be able
to increase our forecast Farmgate Milk Price
for the 2017/18 season to $6.55 per kgMS and
announce an interim dividend of 10 cents.
2 | CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER
FONTERRA INTERIM REPORT 2018

We remain disappointed that the arbitration tribunal
did not fully recognise the terms of our supply
agreement with Danone, including the agreed
limitations of liability, which was the basis on which
we had agreed to do business.
In this period, we have reported $232 million related
to the Danone arbitration, which represent the recall
costs awarded to Danone and interest, and other
costs associated with the arbitration. This brings the
arbitration proceedings to a close.
The Co-operative has also re-assessed the value of
our Beingmate investment so that it reflects a fair
value at this point in time.
We have assessed the carrying value of Beingmate
at $244 million which is the fair value of the
investment, less the costs to sell the asset.
Shareholders will be rightfully frustrated with
this outcome.
While Fonterra appreciates the substantial
opportunity to build a significant business in
China, Beingmate’s continued poor performance is
unacceptable. The urgent recovery of the investment
is a key priority for the senior management team
and the Board.
The opportunity in the Chinese infant formula
market remains – as does the potential for our
Beingmate partnership – but an immediate business
transformation is needed in order for Beingmate to
benefit from the market opportunities.
THE GLOBAL SUPPLY AND
DEMAND PICTURE REMAINS
IN BALANCE
Our farmers have endured tough farming conditions
across much of the country. A cold, wet spring
followed by low rainfall in early summer and then
unusually high summer temperatures resulted in
milk collection across New Zealand declining. Our
full-year forecast New Zealand milk collection has
been revised to 1,480 million kgMS, down three per
cent compared to last season’s actual total collection
of 1,526 million kgMS.
USEFUL FACT
Global demand for dairy
nutrition remains strong, and
we’re seeing positive growth in
China, Asia and Latin America.
Continuing strong global demand for dairy is being
led by China – where imports are up 13 per cent
over the last 12 months – and is strongly supported
by growth in Asia and Latin America. However, we
are mindful of the potential impact of strong spring
production in Europe on market sentiment.
Fundamentally, the market is balanced and we would
expect prices to stay at current levels.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER | 3
FONTERRA INTERIM REPORT 2018FONTERRA INTERIM REPORT 2018

FINANCIAL PERFORMANCE
While the overall improvement in the Farmgate Milk
Price compared to last year is good news for farmers,
it does increase the pressure on our margins across
the business.
Our low starting inventory levels, which were then
followed by reduced New Zealand milk collections
due to the difficult weather conditions, impacted our
overall sales volume in the first half.
In the context of these two key challenges, our half-
year operating performance is in line with expectations.
Ongoing financial discipline has enabled the
Co-operative to maintain a strong balance sheet
and manage the impact of the Danone arbitration
decision and Beingmate impairment.
Our debt and gearing levels are both traditionally
higher at the end of the first six months of the year,
reflecting the seasonal profile of our business. As
at 31 January 2018, debt was $7.1 billion – better
than expected but $945 million higher than the
comparable period last year. This is due in part to
lower earnings, the impact of the Danone arbitration,
and the timing of capital expenditure – particularly
the expansion of Clandeboye with a new mozzarella
plant, and a new cream cheese plant build at our
Darfield site.
As a result, our gearing ratio at the half-year has
increased to 51.6 per cent. We remain committed to
our end of year gearing range target of 40 - 45 per cent.
Normalised operating costs were up three per cent
for the six months to 31 January 2018, after two
years of declining costs. This is a result of increased
research and development spending to support
new product development, digital platforms and
technology opportunities.
INGREDIENTS BUSINESS
Our Ingredients business delivered a strong result,
with revenue up $678 million, or nine per cent, and
normalised EBIT also up nine per cent at $558 million.
The increase in normalised EBIT is reflective of higher
margins, improvements in optimisation of our overall
product mix and increased demand in our business
in Australia.
The result benefited from higher stream returns in
the first half compared to the same period last year.
This enabled the overall New Zealand Ingredients
gross margin, including both reference and non-
reference products, to increase by 14 per cent to
$734 million.
While revenue and gross margin per metric tonne
for reference and non-reference products both
increased, the relative increase in the milk price cost
was greater for reference products, such as butter,
due to the significant increase in fat prices. Stream
returns on non-reference products were $90 million,
$50 million ahead of the same period last year.
CHAIRMAN AND
CHIEF EXECUTIVE
OFFICER’S LETTER
ANCHOR
TM
IN
SRI LANKA
Our farmer shareholders
Ross and Shayney Wallis
visited Sri Lanka where
1.3 billion glasses of
Anchor
TM
milk are
consumed each year.
4 | CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER
FONTERRA INTERIM REPORT 2018

CONSUMER AND FOODSERVICE
Our strategy emphasises making the most of our
farmers’ milk by shifting more volume into higher
value products at velocity. Our high-value Consumer
and Foodservice business delivered revenue of
$3.5 billion for the six months to 31 January 2018,
an increase of seven per cent.
Overall, normalised EBIT decreased 38 per cent
to $193 million due to pressure on our margins in
this business. It’s important to note that this result
is compared to an exceptional $313 million last
year when the first half-year input costs were
considerably lower.
Higher input costs over the first half of this year
meant margins were reduced by 15 per cent. Strong
competition in the Co-operative's strategic markets,
especially in Foodservice, limited our options to pass
through the higher input costs.
Consumer and Foodservice volumes were two per
cent lower. Our sales volumes in the key markets of
Asia, Latin America, and Greater China improved but
this was offset by lower volumes in Oceania.
Oceania volumes were primarily affected by
operational start up challenges at our new
distribution centre in New Zealand which have
now been resolved.
CREATING VALUE IN CHINA
While our Beingmate investment has
underperformed, which we are very concerned
about, our integrated business in China is delivering
positive results for our Co-operative. We expect this
high growth in China to continue.
In our first half, China volumes accounted for
2.2 billion LME of our total 9.8 billion LME in
Ingredients, with around 80 per cent of this milk
sourced in New Zealand.
In our Consumer and Foodservice business, China
volumes accounted for 600 million LME of the total
2.7 billion LME over the first half, with Consumer and
Foodservice in Greater China achieving normalised
EBIT of $92 million on volume growth of
three per cent.
MOZZARELLA
Mozzarella is one
of Fonterra’s most
profitable products.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER | 5
FONTERRA INTERIM REPORT 2018FONTERRA INTERIM REPORT 2018

BEINGMATE
As a result of Beingmate’s continued poor
performance, its share price has deteriorated to a
level where it is necessary for the Co-operative to
reassess the value of its investment.
We have determined a fair value of $244 million
using an estimate of what someone would pay for a
similar long-term equity stake in Beingmate today. In
this instance, we have used Beingmate’s base share
price. We have therefore taken an impairment of
$405 million.
Clearly this outcome is unacceptable to our
shareholders. The recovery of the value of this
investment is the number one immediate priority for
the Chief Executive and the senior management team.
As an 18.8 per cent shareholder, we do not have
direct control over the company but we are working
to influence its direction and continue to call for
an urgent business transformation through our
relationship with Beingmate’s founder and
majority shareholder.
The Board has a working group – that includes
Independent Directors Simon Israel and Clinton
Dines, who both have significant China experience
and expertise – to provide guidance and oversight to
management as they work to recover the investment.

CHINA FARMS
China Farms continued to lift efficiencies as our milk
production increases. Operating costs per litre of
milk are down six per cent over the reporting period.
Our normalised EBIT has improved to a $12 million
loss, compared to a $24 million loss in the same
period last year.
Our China Farms result is buoyed by an internal raw
milk price between China Farms and our Ingredients
business which is currently higher than the
unsustainably low domestic milk price.
The future of our investment in these farms is
promising. Chinese demand for high-quality local
fresh milk continues to grow and our recent
partnerships with Alibaba and Starbucks in China
have us well placed to maximise this opportunity.
In February this year, we launched a new ‘Daily Fresh’
milk range through Alibaba’s Hema Fresh stores
in Shanghai and Suzhou and volumes are growing
rapidly. Sourced directly from the Co-operative’s
farm hub in Hebei province, the bottles of fresh milk
capitalise on the continued shift in China’s consumer
market to premium products.
CHAIRMAN AND
CHIEF EXECUTIVE
OFFICER’S LETTER
INFANT MILK
FORMULA
The China Infant Milk Formula
market is growing at five per cent,
with total value sales projected
to grow from RMB84 billion to
RMB100 billion (NZD18 billion to
NZD22 billion) by 2020.
6 | CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER
FONTERRA INTERIM REPORT 2018

FONTERRA AUSTRALIA
In Australia, we continue to grow our market share,
with milk supply increasing by 400 million litres
to two billion litres since last season. We are now
Australia’s leading dairy processor in a competitive
market and are taking advantage of good demand
growth prospects especially in cheese, whey
and nutritionals.
To meet growing consumer demand, we are
focusing our annual capital expenditure on key
sites in Victoria and Tasmania – most notably an
expansion of Fonterra Australia’s flagship Stanhope
cheese facility in northern Victoria, almost doubling
the size of the cheese plant.
Long term, we expect competition for milk volumes
to increase. In preparation, our Australian business
is working to improve our connection to local
suppliers, beyond just the local milk price. This
includes the recent launch of a tailored version of
our Farm Source™ services and rewards programme,
and continued discussions on the potential for
developing an ownership model in Australia.
OUTLOOK
We expect our earnings to be weighted toward the
second half of the year and that is reflected in our
forecast earnings per share, which is in our target
dividend range of 25 to 35 cents, giving a total
forecast available for payout to our farmers of
$6.80 to $6.90.
Despite more favourable weather conditions recently,
we still expect our New Zealand milk volumes
to be down for the year and will be managing
our inventory and product mix carefully for the
remainder of the season to ensure we maximise the
overall value of our farmers’ milk.
A strong commitment to our strategy of shifting
more volume into higher value products at velocity
is critical to the business achieving its forecast. We
will continue to put as much milk as possible into
higher value products, particularly into our Advanced
Ingredients business, and Consumer and Foodservice
business where we are still targeting an additional
400 million LME of volume this year.
Our management team is working hard to recover
the impact of the Danone and Beingmate events,
the latter being the primary focus for the senior
management team and the Board.
Our Co-operative remains focused on providing high
quality dairy nutrition to customers around the world
and delivering sustainable value for our farmers –
that’s a sustainable Farmgate Milk Price, dividend,
and return on their investment in the Co-op.
John Wilson Theo Spierings
Chairman Chief Executive Officer
FONTERRA
MILK FOR
SCHOOLS
Fonterra Milk for
Schools celebrated
its fifth anniversary
this year.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S LETTER | 7
FONTERRA INTERIM REPORT 2018FONTERRA INTERIM REPORT 2018

FONTERRA INTERIM REPORT 2018
A STRONG CO-OP
DOING WHAT’S
RIGHT
8 | OUR CO-OPERATIVE
With the environment high on the national
agenda, we demonstrated the significant progress
our farmers and their Co-operative have already
made, as well as making further sustainability
commitments relating to water quality, emissions
and on-farm best practice. We published our first
stand-alone sustainability report, an independently
audited report looking at our commitments and
progress right across the global supply chain.
FARMING WITH FARM SOURCE™
Across a challenging half year for conditions
on-farm, we have supported farmers by using
our collective buying power for farm supplies
through our Farm Source™ stores and by offering
competitive terms.
We know that if farmers buy their supplies
exclusively from us, we can make a real difference,
with the average sized Fonterra farm saving
approximately 10 cents per kgMS. As well as
lowering the cost of farm supplies, we continue to
reward farmers with Farm Source™ Rewards Dollars.
In the year to date, 8,200 farmers have collectively
earned almost seven million Farm Source™ Rewards
Dollars, bringing the total number of Farm Source™
Rewards Dollars earned by farmers since inception
to more than 40 million.
WE DEVELOPED NEW
FLEXIBLE FINANCIAL
TOOLS, INTRODUCED
MY CONNECT WEBINARS
TO UPDATE FARMERS
ON IMPORTANT
ISSUES, MAINTAINED
OUR COMPETITIVE FARM
SOURCE™ OFFERING
FOR FARM SUPPLIES AND
LOOKED AT NEW WAYS
FOR OUR CO-OPERATIVE
TO BUILD DEEPER
CONNECTIONS WITH THE
FARMERS WHO SUPPLY
US IN AUSTRALIA AND
LATIN AMERICA.
FARM SOURCE
TM
REWARDS
In the last financial
year, our farmers
earned $17.8 million
worth of Farm Source
TM

Rewards Dollars.
With weather extremes affecting
production this season, it was as
important as ever that we used the
collective strength of our Co-operative
to support our farmers, giving them
services and advice.
$
1 7. 8M
FONTERRA INTERIM REPORT 2018

FONTERRA INTERIM REPORT 2018
FLEXIBLE TOOLS TO HELP
FARMERS SHARE UP
In the last financial year, our shareholders earned
$17.8 million worth of Farm Source™ Rewards Dollars.
As well as redeeming these in store, farmers will have
the option of using them to help meet their share
requirements. The Farm Source™ Rewards Dollars for
Shares scheme will allow farmers to use their Rewards
Dollars to purchase shares during the offer window,
before the share compliance date of December 1
each year.
Also new is the Contract Fee for Units programme
where we can now redirect the contract fee from
Share-Up Over Time contracts into a trust that will
purchase units on the farmer’s behalf. These units can
then be used at a later date to acquire shares.
We have further simplified sharing up with the
introduction of a Strike Price Contract. This is designed
to help farmers who want to grow their businesses by
providing greater flexibility for sharing up over time.
Under this programme, farmers buy a minimum
shareholding in the first year - equal to 20 per cent of
their production quantity. In subsequent years they
will be required to buy additional shares only when
the Farmgate Milk Price goes over the published Strike
Price. This is set at $5.25 for the 2018/19 season.
MY CONNECT – BUILDING
KNOWLEDGE AND CONNECTION
TO OUR CO-OP
The Shareholders’ Council, supported by our Farm
Source team, has led My Connect, a replacement for
the Fonterra Networkers programme, designed to
help farmers better connect with one another, share
knowledge, and engage more with experts from
within our business.
Our new My Connect Conference in May will be an
opportunity for all Fonterra farmers to come together,
share what’s happening on-farm, hear updates and get
insights from our strategic markets, and set the My
Connect agenda for the coming season.
We’ve put farmers in charge of My Connect webinar
content, asking them to vote for the topics which most
interest them, such as understanding the Farmgate
Milk Price or the strategy behind our global milk pools.
FARM SOURCE™ EXPANDS
INTO AUSTRALIA
In February, Farm Source™ was launched in Australia
where Fonterra, as the country’s leading processor,
now collects two billion litres of milk from 1,300
farmers in Victoria and Tasmania.
The Australian offering has been tailored to local
farmers who supply Fonterra through supply
arrangements. It combines a range of farm services
which have already been available to them with better,
faster and easier-to-use tools and services that will
support our suppliers’ growth and profitability.
TIAKI
SUSTAINABLE
DAIRYING
This programme supports
farmers in staying ahead
of regulatory requirements
and satisfying evolving
consumer and market
expectations.
OUR CO-OPERATIVE | 9
OUR CO1OPERATIVE
FONTERRA INTERIM REPORT 2018

NUTRIENT
MANAGEMENT
95 per cent of supplying
farms in New Zealand are
participating in nutrient
management reporting
and benchmarking.
This initiative is part of a wider programme underway
in Australia to secure our share of supply as our Co-
operative works to expand our near-full production
capacity across our key Australian sites. We are in
the process of adding 500 million litres of processing
capacity to meet growing demand for our Ingredients,
Consumer and Foodservice products – particularly
cheese from our Stanhope site.
We know our co-operative principles appeal to
Australian farmers, along with the sense of certainty an
ownership model provides. Therefore we are looking
at how that might be achieved in Australia to provide a
connection deeper than just the milk price.
We have provided similar opportunities in Latin
America where farmer suppliers were offered the
opportunity to acquire shares in Prolesur, our Chilean
Ingredients business that supplies our Soprole
TM

operations with milk. These initiatives can provide
closer connection with overseas farmers, without
affecting our New Zealand shareholders’ ownership
and control of their Co-operative.
OPENING OUR GATES TO ALL
OF NEW ZEALAND
The Co-operative’s commitments and achievements
in sustainability were acknowledged this year with the
release of a sustainability report compiled using the
internationally recognised Global Reporting Initiative
(GRI) framework and independently assured.
The report gives an objective view of Fonterra’s
environmental footprint and our contribution to the
United Nations' Sustainability Development Goals.
Highlights in the report include:
• New Zealand has among the lowest greenhouse
gas emissions per litre of milk collected in the world
(0.85 per kgCO2/kgFPCM).
• More than 140,000 Kiwi kids get a free 200ml
serving of milk each school day from our Fonterra
Milk for Schools programme, which celebrates its
fifth anniversary this year.
• New specialised milk product was launched in
Malaysia this year to help combat high rates of
cholesterol and diabetes in this market.
• 95 per cent of supplying farms in NZ are
participating in nutrient management reporting
and benchmarking.
• 98.4 per cent of waterways on supplying farms in
NZ are fenced to keep cows out of waterways and
collection of milk was suspended at 78 farms in the
past season due to non-completion of fencing.
In addition to reporting on our progress, 40 of our
farmers invited Kiwis to see it for themselves in
December. The Open Gates initiative received positive
feedback from people who appreciated the chance to
see on-farm initiatives like fencing of waterways and
riparian planting.
A STRONG CO-OP
DOING WHAT’S
RIGHT
10 | OUR CO-OPERATIVE
FONTERRA INTERIM REPORT 2018FONTERRA INTERIM REPORT 2018

OPEN GATES
We opened our gates to
the New Zealand public
to see for themselves
the good work our
farmers are doing.
COMMITTING TO WATER QUALITY
In November we announced six commitments to
help improve water quality in farming regions. Each is
underpinned by a set of clear actions.
These include supporting regional councils to
set environmental limits for water use, investing
$250 million to drive a 20 per cent reduction in water
use across our 26 manufacturing sites and almost
doubling the Co-operative’s network of Sustainable
Dairying Advisors.
These commitments complement existing
programmes including our Living Water partnership
with the Department of Conservation, work with local
communities and our promise to help restore
50 key freshwater catchments.
The commitments announced in November are:
1. Farm within regional environmental limits.
2. Encourage strong environmental farming practices.
3. Reduce water use and improve wastewater quality
at manufacturing plants.
4. Build partnerships to improve waterway health.
5. Invest in science and innovation to find
new solutions.
6. Make the products people value most.
CREATING SUSTAINABLE VALUE
FOR ALL OF OUR FARMERS
Environmental sustainability is critical to our future.
It’s important to customers and they look to us to
demonstrate it on-farm.
We have a good story to tell, firstly because our
Co-operative’s farmers recognised the need for
change back in 2003 with initiatives such as the
Clean Streams Accord, and secondly, because
farmers have all invested time, money and passion
into making far-reaching changes to their farm
management systems.
Farmers have made these improvements because
it’s the right thing to do for the communities in
which we live and operate. There’s an added benefit
in that customers globally are increasingly seeking
out nutrition that can be verified as produced using
ethical and sustainable practices.
Fonterra’s global Trusted Goodness
TM
programme
earns our farmers greater value due to the grass-fed,
Non-GMO and animal welfare standards behind
their milk. The programme, which is represented by
a global quality seal, is being progressively rolled out
across parts of our NZMP brand and in the first half
of the financial year has already delivered incremental
price achievement of $6.9 million over and above the
equivalent standard products.
OUR CO-OPERATIVE | 11
OUR CO1OPERATIVE
FONTERRA INTERIM REPORT 2018

We have a goal to be processing
30 billion litres of milk a year by
2025 across five to six countries.
The growth required to achieve
this goal is ambitious but our
team is united in how we’re
making it happen.
OUR
POTENTIAL
BUILDING THE
FOUNDATIONS
FOR OUR
FUTURE SUCCESS.
It requires us to keep one eye on today and the other
on the future, and sees us focusing on three horizons
– creating a Strong V3 Co-op which will set the
foundations for the future, an Innovative Co-op which
will enable us to lead the future and a Sustainable
Co-op which will ensure the future.
We’re working on all three, creating sustainable value
for our shareholders – that’s a sustainable Farmgate
Milk Price, dividend and investment in the Co-op. At the
same time, we will be making a difference in the lives of
two billion people and helping feed the world’s growing
population, which by 2050 is expected to drive a
50 per cent increase in the demand for food.
A STRONG V3 CO-OP
A Strong V3 (Volume, Value, Velocity) Co-op is about
converting more milk into higher returning products
at speed.
At the heart of this strategy we continue to put more
milk into the products that create the most value
– that’s Consumer and Foodservice products and
Advanced Ingredients like NZMP’s pharmaceutical
lactose used in asthma inhalers .
We have been adding about 400 million additional LME
to our Consumer and Foodservice business each year
and we expect this to continue.
VALUE
STRONG V3
CO-OP
STRONG V3
CO-OP
Demand-led
optimisation of
New Zealand
milk, supported
by milk pools.
Investment in
technology
and people for
the future.
Creation of
sustainable
value for all
stakeholders.
INNOVATIVE
CO-OP
INNOVATIVE
CO-OP
SUSTAINABLE
CO-OP
SUSTAINABLE

CO-OP
NOW
3 years5 years10+ years
FONTERRA INTERIM REPORT 2018
12 | OUR POTENTIAL

The Ingredients engine
Our Ingredients business represents two-thirds of
Fonterra’s earnings. Customers want to buy high volume,
quality ingredients from a trusted source. We create value
in these ingredients through our scale, having a lean
supply chain that’s focused on our customers’ needs and
prioritising demand for higher value ingredients.
Our manufacturing sites can process multiple products,
giving us flexibility to respond to market changes and
ensuring we are getting the most out of every drop of
milk. That’s why we have invested in sites like Clandeboye,
where we can produce mozzarella, whey protein
concentrate and edible lactose.
We have also taken our dairy manufacturing, food quality
and sales expertise and applied it around the world. This
means we can supplement our New Zealand milk source
and create more opportunities to produce higher value
products to meet growing global demand.
A good example of this from the first half of this year is
our work with US whey protein concentrate and lactose
manufacturer Columbia River Technologies – a joint
venture between dairy co-op Tillamook and Threemile
Canyon Farms. Each party brings something different
to the table. Threemile Canyon Farms supply the milk,
Tillamook makes the cheese, and using our intellectual
property, we commercialise the whey and lactose
by-products of the cheese making process. Whey protein
is a key ingredient in infant formula and sports nutrition
products, and demand is growing for these products,
especially in the US, European and Asian markets.
The launch of our dedicated medical nutrition division this
year further strengthens our focus on selling advanced
ingredient solutions to help people suffering from
malnutrition and other diseases, as well as help people
age in good health. The global medical nutrition industry
is valued at $17.5 billion today and is expected to grow to
almost $24 billion by 2020.
Growing our Consumer and
Foodservice business
Growth in demand from Consumer and Foodservice
markets is also set to be significant. Key trends driving this
are population growth, urbanisation and a growing middle
class with an increasing enthusiasm for Western-style foods
and greater awareness around healthy diets and lifestyles.
Our global brands – Anchor™, Anlene™ and Anmum™ –
and regional brands – like Western Star™ and Soprole™
– are trusted and well positioned to meet the needs of
customers. Our strong sales over the Chinese Double
11 sales period, especially for our Anchor™ UHT milk which
was the most popular product in the imported UHT milk
category, are evidence of this.
We have expanded the Anlene™ proposition to make
it relevant to the lives of more adults in Asia and are
aiming for 18 per cent growth this year. We are building
on Anlene's scientific roots in helping bone health and
preventing osteoporosis and tapping into a global trend
for healthy ageing – a market segment with an estimated
value of $8.5 billion per annum by 2026.
DOUBLE
11 SALES
Anchor™, Anlene™
and Anmum™
sales during the
Double 11 sales
period increased
by about 65 per
cent compared to
last year.
$
21.75M
OUR POTENTIAL
OUR POTENTIAL | 13
FONTERRA INTERIM REPORT 2018

Anchor Food Professionals™ is in high demand from
chefs across the globe. Our targeted product range
and innovative chef-led strategy gives us a competitive
edge in the Asian Bakery, Italian Kitchen and Quick
Serve Restaurants channels. In December Anchor Food
Professionals™ became New Zealand’s sixth biggest export
business, having generated $2 billion in annual revenue.
The growth in tea and coffee consumption creates a new
opportunity to further grow our Foodservice business.
People are moving away from the traditional straight brew
to more indulgent drinks, which increasingly means more
dairy. That’s why we are now carving out a new channel
called Beverage House and selling cream, cream cheese
and milk to the likes of Starbucks.
INNOVATIVE CO-OP
As we move further through the Innovative Co-op horizon,
we prepare ourselves to lead in the face of fast-moving
trends, sudden changes in customer behaviour and
unprecedented changes in technology.
It requires us to innovate throughout our value chain and
use technology to create more value. We’ve already started,
stimulating teams to think differently, be fast and agile, and
identify and deliver technology gains.
Disrupt
Our Disrupt programme encourages and fosters diverse
ideas for new business models from our people around
the world. In just two years, the initiative has involved
some 1,300 individuals, spanning at least eight languages,
27 nationalities, and included thinking from people aged
between 21 and 60.
We have already implemented four Disrupt ideas. Some
are highly digital – such as using technology to extend the
reach of our Foodservice business to cities where we don’t
have a sales team on the ground – and some require us to
just think differently about old challenges. For example, our
‘Reach the Unreached’ venture in Sri Lanka is an innovative
new business model that gets affordable dairy nutrition to
rural people who wouldn’t normally have access to it.
Velocity and Velocity
NXT
Velocity is our way of working. It’s both a mindset of
accountability and action, and a set of tools for uncovering
and delivering significant value in our business. Over the
last two-and-a-half years more than 4,260 initiatives have
been completed by employees and delivered improvements
in working capital, earnings and Farmgate Milk Price. Of
these, 675 have been completed this year.
Many of these initiatives are incremental improvements
but we are also challenging ourselves to be bold and
harness emerging technologies that will streamline our
business, improve process and capture value in new ways.
Velocity
NXT
supports our people to implement both
sustainable and disruptive initiatives that are more complex
to develop as they typically require new technology, tools,
capabilities and greater cross-functional collaboration –
such as advanced analytics, machine learning, the Internet
of Things, and robotics and software automation.
OUR
POTENTIAL
DISRUPT
Disrupt helped us win the
Diversity and Inclusion
Award at the 2017 Deloitte
Top 200 Awards.
14 | OUR POTENTIAL
FONTERRA INTERIM REPORT 2018

SUSTAINABLE CO-OP
Strong healthy local environments and communities are
the foundation for sustainable and profitable dairy farming.
That’s why the Sustainable Co-op horizon is important. It
requires us to look at how we create value for our farmers,
customers and local communities. We are looking at the
future challenges facing global food producers and making
sure we are considering the long-term implications of the
actions and plans today.
We have organised our Sustainable Co-op priorities into
three main areas that will make the biggest difference to
people’s lives:
• Nutrition: improving health and wellbeing through
products and services we deliver.
• Environment: achieving a healthy environment for
farming and society.
• Community: delivering prosperity for our farmers and
wider communities.
In December 2017 we published our first Sustainability
Report. It highlights our commitment to an open
discussion on how we’re taking our responsibilities
seriously and where we are making real progress.
Making changes today that will
ensure the future
We have created new global Food and Nutrition
Guidelines, endorsed by the New Zealand Nutrition
Foundation. The guidelines help ensure we’re continuously
moving our product portfolio towards reduced use of
added sugars, salt and other additives.
Our farmers continue to make a significant contribution
to improving water quality in New Zealand’s waterways.
We’re investing to improve our waste water treatment at
sites like Brightwater and we’ve improved our storm water
management systems at our sites in Takaka and Tirau in
the first half of the year.
Our energy efficiency gains from last season meant we
saved enough energy to power all the households in
Hamilton city for nearly four years, and we’re continuing
to focus on reducing energy use across our sites.
We have made good progress on our roadmap with the
Ministry for the Environment for a low emission future. In
particular, we have completed a feasibility study to assess
how we could transition to renewable energy sources
and we continue to look for ways to demonstrate what’s
possible. This year we approved investment to convert the
boiler at our Brightwater site to co-fire with wood biomass.
This will reduce carbon emissions at the site by 25 per cent.
Details of how we are delivering our third priority are
covered in depth in this report’s ‘Our Co-op’ and
‘Our Performance’ sections.
OUR POTENTIAL
OUR POTENTIAL | 15
FONTERRA INTERIM REPORT 2018

$
9. 8B
SALES
REVENUE
Up six per cent
compared with the
same period last year.
GROUP
OVERVIEW
Sales revenue for the six months to 31 January 2018 rose
six per cent to $9.8 billion, reflecting improved global
prices for dairy.
USEFUL FACT
Starbucks in Mainland China uses
Fonterra milk from New Zealand and
China. By 2020, we have plans to be a
major supplier to all Starbucks stores
in China. Milk products will be supplied
from our China Farms and New Zealand.
Revenue increased despite a decline in total sales volume
of 1.3 billion LME, as we started the year with record low
opening inventory followed by a second year of lower
milk collections. Milk collections this season were heavily
impacted by the difficult weather conditions experienced
across New Zealand. As a result, sales volumes in our
Ingredients business were down 11 per cent compared to
the same time last year. In Consumer and Foodservice, we
moved 2.7 billion LME into higher value products over the
six months ended 31 January 2018. This included volume
growth in Greater China, Latin America and Asia, but was
offset by declines in Oceania as our New Zealand business
exited some private label contracts and experienced
operational challenges at our new distribution centre.
We delivered strong Ingredients
performance and continued to make
progress in moving milk up the value chain,
with volume growth across a number of
Consumer and Foodservice markets.
HIGHLIGHTS
>Operating performance in line with
expectations, normalised EBIT of
$458 million.
>Results impacted by Danone arbitration
decision and Beingmate impairment.
>Volume in LME down 11 per cent, due
to record low opening inventory and
reduced milk collection.
>A strong Ingredients performance,
generating normalised EBIT of
$558 million, up nine per cent.
>In our Consumer and Foodservice
businesses we increased prices but
not enough to recover the higher input
costs, resulting in a 38% decline in
normalised EBIT.
>Higher gearing mainly due to lower
earnings, including abnormal items.
16 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

CONSUMER AND
FOODSERVICE
Our new Foodservice channel,
Beverage House, will sell cream,
cream cheese and milk to the
likes of Starbucks.
NZD MILLION
SIX MONTHS ENDED
31 JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017CHANGE
Volume (LME, billion)10.511.7(11%)
Volume (’000 MT)2,0032,131
1
(6%)
Sales revenue 9,8399,2416%
Gross margin1,6621,761(6%)
Gross margin percentage1 7%19%
Reported operating expenses(1,864)(1,232)51%
Normalised operating expenses (1,263)(1,232)3%
Reported EBIT (176)644(127%)
Normalised EBIT458607(25%)
Net finance costs(201)(157)28%
Tax credit/(expense)29(69)(142%)
Net (loss)/profit after tax(348)418(183%)
Earnings per share (cents)(22)26(185%)
Dividend per share (cents)1020(50%)
Gearing ratio
2
51.6%46.6%
Free cash flow(690)(417)(65%)
Capital expenditure34624442%
1. China Farms volumes for the 2017 half year have been restated to aid comparability between segments. Previously China Farms volumes were converted to metric tonnes based on the litres of raw
milk sold. These volumes are now converted based on weight of milk solids (i.e. fat and protein content) in line with the Ingredients methodology, where 1 litre of milk converts to approximately 0.07 kg.
2. Gearing ratio is economic net interest bearing debt divided by economic net interest bearing debt, plus equity, excluding hedge reserves.
OUR PERFORMANCE
OUR PERFORMANCE | 17
FONTERRA INTERIM REPORT 2018

NORMALISED EBIT
Operating performance in
line with expectations.
GROWING
DEMAND
In the USA, more than
50 per cent of all food
and beverage spend is
now out of home, and
the China foodservice
dairy market has grown
by 30 per cent between
2013 and 2017.
Group normalised EBIT of $458 million was down 25 per cent
compared to the same period last year. Our Ingredients business
delivered a strong result, with normalised EBIT of $558 million,
up nine per cent on last year, driven by a solid performance from
New Zealand and an improved performance in Australia. We
made good progress on our five "must win battles" in Consumer
and Foodservice. However, these could not fully recover the
impact of higher commodity prices which compressed margins.
As a result, normalised EBIT for Consumer and Foodservice
declined 38 per cent to $193 million.
Growth in Greater China was driven by a strong performance
from our Consumer business, which delivered double-digit
volume growth for the first six months of the year. We
continued to make progress in our Foodservice business.
However, margins have declined compared to the same period
last year when margins were higher due to the lower dairy
commodity price environment. The benefits of our turnaround
in the Australia Consumer and Foodservice business have
continued to improve the Oceania result. However, higher dairy
commodity prices and operational challenges in New Zealand
have impacted overall earnings. Our Soprole
TM
business in Latin
America continues to perform well. The decline in the Brazilian
economy has been challenging. However, we have made further
market share gains in the chilled dairy category this year.
Our China Farms’ result has improved compared to last year due
to the efficiencies generated from the farms being fully stocked
with livestock and further on-farm cost control. We are well
positioned to benefit from the shift in demand from ambient
products towards fresh milk in the Greater China market.
USEFUL FACT
This year we celebrated the tenth birthday
of our Hangu Farm, east of Beijing, which
was our first farm in Greater China.
Normalised operating costs were up three per cent for the
six months to 31 January 2018, after two years of declines.
The increased spend this half has been targeted at new product
innovation, digital platforms and technology opportunities.
We will continue to focus our spend in these key areas where
we see long-term benefits to our business.
Our reported EBIT has decreased 127 per cent to a loss of
$176 million for the six months to 31 January 2018 reflecting the
$196 million relating to the Danone arbitration decision, and the
impairment and share of operating losses from our investment
in Beingmate of $433 million.
GROUP
OVERVIEW
$
458M
18 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

STRONG CO-OPERATIVE
Ongoing financial discipline has enabled the Co-operative
to maintain a strong balance sheet and absorb the impact
of abnormal items incurred over this period. This included
the recall costs awarded to Danone and the impact of the
impairment of our investment in Beingmate.
Economic net interest-bearing debt and gearing are both
typically higher for the Co-operative at the end of the first
six months of the year, reflecting the seasonal profile of our
business. As at 31 January 2018, economic net interest-bearing
debt was $7.1 billion and better than expected due to higher
cash collections following strong Ingredients sales in the
second quarter. Relative to the previous comparable period,
economic net interest-bearing debt was $945 million higher as
additional funding was required over the period. This is due to
lower earnings, including the Danone arbitration decision, the
timing of capital expenditure, the impact of the translation of
overseas debt due to a lower New Zealand Dollar, and the final
dividend being part-paid early in the prior year. Consistent with
the higher seasonal debt level and the impact of the Beingmate
impairment on retained earnings, the gearing ratio at half year
has increased to 51.6 per cent. We continue to be committed to
our target end of year gearing range of 40-45 per cent.
Efficient working capital management continues to be a key
focus of our financial discipline. The investment required in
working capital has increased due to the higher milk price, and
increased inventory volumes, including an increased portion of
higher value products. Increased inventory volumes this period
reflect the record low closing volumes in the prior period in
our Ingredients business returning to more normal levels, and
growth in milk collection in our Australian business.
During the period, expenditure on capital investments was in
line with expectations but higher than the previous comparable
period due to timing differences. Spend is also typically
proportionally lower in the first six months of the year as
scheduled maintenance occurs at our sites during winter when
volumes are lower.
The interim dividend of 10 cents per share reflects the lower
earnings this year as well as our commitment to financial
discipline and maintaining a strong balance sheet. This is in
line with Fonterra’s dividend policy to pay out 65–75 per cent of
adjusted net profit after tax over time.
OUR PERFORMANCE
OUR PERFORMANCE | 19
FONTERRA INTERIM REPORT 2018

INGREDIENTS
VOLUME
Fonterra’s milk collection across New Zealand was down
two per cent to 1,036 million kgMS for the 2017/18 season to
31 January 2018. Lower collections were primarily due to the
difficult weather conditions experienced this season, with a
very wet spring followed by a hot, dry summer, which affected
soil and pasture quality across the country. Although the rain
in early January helped in some regions, collections for the
season to date have declined, with the North Island down
three per cent, and the South Island flat compared to last season.
In Australia, milk collection for the 2017/18 season to
31 January 2018 was 100 million kgMS, 27 per cent up on the
same period last season. This volume includes milk collected
directly and through third parties. The Australian business
has benefited from an improvement in product mix and has
attracted new suppliers to Fonterra over the course of the year.
The increase in volumes collected represents a significant gain
in market share of around four per cent for Fonterra.
Total sales volumes in Ingredients were 9.8 billion LME, a
decrease of 11 per cent compared to the same period last year.
This decline reflects our record low opening inventory volumes
and the unusual profile of New Zealand milk collection this
season. Opening inventory at the start of the period was
approximately 63,000 metric tonnes lower than the previous
period, a decline of 15 per cent, as we continued our efforts
to drive lower inventory levels. Our total Ingredients' sales
include 132 million LME from our China Farms as we continue to
progress our strategy of a vertically integrated milk pool in China.
This includes global sales from our Ingredients
businesses in New Zealand, Australia, Latin
America and China. It also includes the Fonterra
Farm Source™ rural supplies retail chain in
New Zealand.
HIGHLIGHTS
>Normalised EBIT of $558 million, up
nine per cent.
>Lower sales volumes due to record low
opening inventories and a two percent
decrease in New Zealand milk collections
for the season to date.
>Sales revenue increased nine per cent due
to higher dairy commodity prices.
>Australian Ingredients gross margin up
$23 million, or 86 per cent.
NORMALISED
EBIT
Ingredients
Normalised EBIT was
up nine percent.
EXPORT
During peak season,
one container of
product is loaded
every three minutes
for export.
$
558M
20 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

NZD MILLION
SIX MONTHS ENDED
31 JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017CHANGE
Volume (LME, billion)9. 811.0(11%)
Volume (’000 MT)1,4411,543
1
(7%)
Sales revenue 7,9067,2289%
Total gross margin8 748019%
– New Zealand product mix73464414%
New Zealand Reference products37224651%
New Zealand Non-reference products362398(9%)
– Australia Ingredients502786%
– China raw milk
2
(9)(9)-
– Other gross margin
3
99139(29%)
Normalised EBIT
4
5585109%
Gross margin ($ per MT)
– Reference products ($ per MT)41325363%
– Non-reference products ($ per MT)1,3091,17811%
1 China Farms volumes for the 2017 half year have been restated to aid comparability between segments. Previously China Farms volumes were converted to metric tonnes based on the litres
of raw milk sold. These volumes are now converted based on weight of milk solids (i.e. fat and protein content) in line with the Ingredients methodology, where 1 litre of milk converts to
approximately 0.07 kg.
2 China raw milk gross margin represents the net benefit/(loss) from the external sale of milk produced by China Farms and sold to the Ingredients business in China at an internal raw milk price.
3 Other gross margin for the six months ended 31 January 2017 has been restated to reflect the China raw milk gross margin that was presented for the first time in the 2017 annual review.
4 Normalised EBIT for Ingredients excludes unallocated costs.
LOWER VOLUMES
Sales volumes for
Ingredients were 9.8B LME,
down from 11B LME for the
same period last year.11%
INHALABLE
LACTOSE
The pharmaceutical
lactose made at Kapuni is
used in asthma inhalers all
around the world.
OUR PERFORMANCE
OUR PERFORMANCE | 21
FONTERRA INTERIM REPORT 2018

VALUE
The Ingredients business delivered a strong result, particularly
given the significant reduction in opening inventories and the
variability in milk collections this season. Revenue was up $678
million, or nine per cent, and normalised EBIT was $558 million,
also an increase of nine per cent. The increase in normalised
EBIT is reflective of higher margins, improvements in our overall
product mix and stronger operational performance from our
business in Australia.
USEFUL FACT
NZMP SureStart™ Lipid 100, our
breakthrough milk lipid ingredient,
was selected as a finalist in the
‘Ingredient of the Year – Infant Nutrition’
at the NutraIngredients Awards 2017.
Our New Zealand Ingredients business manufactures five
commodity products that inform the Farmgate Milk Price. These
are referred to as reference products, while all other products
are referred to as non-reference products.
Revenue for both reference and non-reference products has
increased, up 23 per cent and 10 per cent respectively even
with the lower volumes due to higher prices for the period to
31 January 2018.
The overall New Zealand Ingredients' gross margin, including
both reference and non-reference products, increased by 14
per cent to $734 million. Gross margins for reference products
increased 51 per cent or $126 million for the six-month period.
Last year, with rapidly increasing dairy commodity prices, we
made lower margins on these products due to the natural
pricing lag inherent in our sales contracts. This year as prices
stabilised, albeit at a higher level, margins for our reference
product portfolio improved. For non-reference products, gross
margin was $362 million, a decline of nine per cent compared to
the same period last year, largely driven by lower volumes.
Product stream returns result from the relative difference
between reference product and non-reference product prices
and costs. For the six months to 31 January 2018, non-reference
product stream returns were $90 million, $50 million ahead of
the comparable period last year. These additional stream returns
were predominantly due to the improved margins for non-
reference products this period.
INGREDIENTS
NEW ZEALAND INGREDIENTS
– REVENUE AND VOLUME
1
SIX MONTHS ENDED 31
JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017CHANGE
Production Volume (’000 MT)
Reference products1,2661,292(2%)
Non-reference products4834576%
Sales Volume (’000 MT)
Reference products900973(8%)
Non-reference products277338(18%)
Revenue Per MT (NZD)
Reference products4,7833,87323%
Non-reference products5,7265,20110%
1 Figures exclude bulk liquid milk. The bulk liquid milk volume for the six months ended 31 January 2018 was 34,000 MT
(six months ended 31 January 2017 was 37,000 MT).
22 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

$
734M
Our Australian Ingredients business delivered another stronger
performance for the six months to 31 January 2018, compared to
the same period last year with a gross margin of $50 million, up
$23 million or 86 per cent. This was driven by strong demand for
butter and cream and greater efficiencies at our factories.
Our Ingredients' gross margin included a $9 million loss for
the six-month period, representing the difference between
the domestic milk price and the internal raw milk price paid to
China Farms.
USEFUL FACT
In Australia we produced 27 per cent
more milk in the first six months
compared to the same period last year.
Our New Zealand operations faced some challenges over the
course of the first half, as difficult weather conditions impacted
the country. Previous investments in capacity and lower milk
collections this season have ensured there were no peak costs
for the six months to 31 January 2018.
Our Global Operations team tightly managed capital
expenditure through the year by focusing on value added
products, efficiency gains and sustainability improvements.
This year we invested in our mozzarella plant at Clandeboye and
in a new cream cheese plant at our site in Darfield. In addition
to this, our Ingredients business in Australia will benefit from
further investments at key sites in Victoria and Tasmania to
increase capacity and meet growing demand for our products,
particularly mozzarella. The majority of this spend will be at
our Stanhope site, where we are almost doubling the size of
our plant. This will increase cheese production by a further
35,000 metric tonnes for a range of cheeses, including cheddar,
mozzarella and parmesan.
NEW STANHOPE
PLANT
The expansion of Stanhope
in Australia will almost
double the size of our
new cheese plant.
NEW
ZEALAND
INGREDIENTS
GROSS
MARGIN
The overall New
Zealand Ingredients
gross margin
increased by 14 per
cent to $734 million.
OUR PERFORMANCE
OUR PERFORMANCE | 23

CONSUMER AND
FOODSERVICE
VOLUME
We achieved volume growth in Greater China, Asia and
Latin America, but this was offset by the decline in volumes
in Oceania. As a result, overall volumes in our Consumer and
Foodservice business declined two per cent. Given the significant
increase in prices for butter, which has a high LME factor, our
product mix shifted away from butter, towards UHT cream,
which has a relatively lower LME factor. As a result, total LMEs in
Foodservice were flat compared to the same period last year.
• Greater China: additional 16 million LME, largely due to strong
growth in our Consumer business, as well as further expansion
in our Foodservice business in Mainland China.
• Oceania: good demand in Australia, however overall
volumes down due to higher fat prices in our butter
portfolio, operational challenges in New Zealand and our
exit from parts of our private label portfolio.
• Asia: growth of two per cent due to strong demand in
Malaysia, Thailand and Vietnam.
• Latin America: three per cent volume growth, reflecting
growth in Soprole
TM
but partially offset by challenging
economic environments in Brazil and Venezuela.
VALUE
Our Consumer and Foodservice business delivered revenue of
$3.5 billion for the six months to 31 January 2018, an increase of
seven per cent. Our normalised EBIT of $193 million decreased
38 per cent, as the increased prices were not sufficient
to recover the impact of higher commodity prices, which
compressed margins.
This comprises our Consumer and Foodservice
businesses in Greater China, Latin America,
Asia and Oceania.
HIGHLIGHTS
>Sales revenue up seven per cent.
>Increased volumes in Greater China,
Latin America and Asia.
>We increased prices but these were not
sufficient to recover the impact of higher
commodity prices, resulting in a decrease
of 38 per cent in normalised EBIT.
>Strong Consumer growth in Greater China.
>Consistent earnings in Greater China and
Latin America in a higher dairy commodity
price environment.
SALES
REVENUE
Consumer and
Foodservice
sales revenue
increased
seven per cent.
$
3
,
473M
24 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

NZD MILLION
SIX MONTHS ENDED
31 JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017CHANGE
Volume (LME, billion)2.72.7(2%)
Consumer1.61.6(3%)
Foodservice1.11.10%
Volume (‘000 MT) 893908(2%)
Sales revenue 3,4733,2397%
Gross margin821963(15%)
Gross margin (%)24%30%
Consumer2 7%31%
Foodservice17%27%
Normalised EBIT193313(38%)
NORMALISED EBIT: KEY PERFORMANCE DRIVERS
NZD MILLION
SIX MONTHS ENDED
31 JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017
Normalised EBIT prior year313241
Volume(20)102
Price301(38)
Cost of goods sold(420)21
Operating expenses432
Other 15(45)
Normalised EBIT193313
WESTERN STAR
CREAM
Our Cobden site in
Australia has a state of
the art bottling facility
where we produce
Western Star
TM
cream.
TEA
MACCHIATOS
The Chinese drink which
has people queuing for
hours has grown the
volume of our cream
and cream cheese by
47 per cent over the
last six months.
OUR PERFORMANCE
OUR PERFORMANCE | 25
FONTERRA INTERIM REPORT 2018

CONSUMER AND
FOODSERVICE
The key performance drivers table shows increased prices
contributed an additional $301 million to earnings for the six
months to 31 January 2018. Although we had improvements in
performance at our key sites, higher input prices resulted in
an increase in cost of goods sold of $420 million. This year the
average commodity prices for our key Foodservice products,
such as butter and cream, increased by 80 per cent and

18 per cent respectively.
Our strategy for Consumer and Foodservice is focussed on
five ‘must win battles’ which will help us drive a greater value
proposition for the business. These are innovation, strategic
pricing, route to market, cost leadership and digital. We track
these initiatives through our Velocity programme which enables
us to measure performance and act in an agile manner. For the
six months to 31 January 2018 we delivered around $90 million
from our key ‘must win battle’ initiatives, which partially offset
the increase in cost of goods sold this year.
For the six months to 31 January 2018 our Greater China and
Latin American businesses produced solid earnings in a higher
dairy commodity price environment:
• Greater China: largest contributor to earnings with
normalised EBIT of $92 million, but slightly down on last year
due to increased input costs.
• Latin America: consistant performance by Soprole
TM
, earnings
impacted by challenging markets in Brazil and Venezuela.
• Asia: normalised EBIT of $56 million, a 55 per cent decline,
driven by the lag in pricing on our periodic contracts in a
rising commodity price environment.
• Oceania: strong performance in Australia, more than offset by
margin co
mpression and operational challenges in New Zealand.
REGIONAL UPDATE
Greater China
Our Greater China business continues to grow volume with
an additional 16 million LME, as we progress our strategy of
moving more volume into higher value products. On a metric
tonne basis volume in Greater China has increased 15 per cent.
However, the shift in our product mix away from butter, with its
relatively higher LME factor, towards UHT cream has impacted
growth on an LME basis. We have made progress in driving
growth in our online presence, with sales via TMall and JD.com
growing 81 per cent and 73 per cent respectively.
Normalised EBIT has declined four per cent to $92 million in an
environment where average input costs have increased by more
than 55 per cent. Our Consumer business delivered double-
digit volume growth along with a positive EBIT contribution,
E-Commerce channel growth, price structure optimisation
and portfolio expansion. The Foodservice business continued
to perform well, reflecting the success of our Anchor Food
Professional
TM
model, particularly in mainland China, where sales
of our UHT whipping cream have performed strongly, up 62 per
cent. Foodservice margins have declined compared to the same
period last year when margins were higher due to the lower
dairy commodity price environment, particularly for butter.
The Greater China result has been normalised to exclude the
$433 million impact of losses relating to and the impairment on
our 18.8 per cent investment in Beingmate.
CONSUMER AND FOODSERVICE PERFORMANCE
LME (BILLION)NORMALISED EBIT ($M)
SIX MONTHS ENDED
31 JANUARY
2018
31 JANUARY
2017CHANGE
31 JANUARY
2018
31 JANUARY
2017CHANGE
Consumer and Foodservice2.72.7(2%)193313(38%)
Greater China0.60.63%9296(4%)
Latin America0.40.43%3035(14%)
Asia0.90.92%56124(55%)
Oceania0.80.9(10%)1558(74%)
26 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

Latin America
Sales volumes in Latin America were up three per cent. The
ongoing solid performance of Soprole
TM
in Chile was partially
offset by challenging conditions in Venezuela and Brazil.
This resulted in normalised EBIT being down $5 million to
$30 million for the period.
Our Soprole
TM
business continues to perform well with strong
demand in the mature cheese and butter categories. This
resulted in increased volumes and improved margins despite
the higher input costs this year. We achieved strong growth in
our higher value yoghurt and dairy desserts categories.
The economy in Brazil continues to provide challenges, with
further retraction seen in the chilled dairy category this year.
However, focus on product innovation and sales execution
has enabled us to gain market share and improve margins in a
competitive environment.
Asia
Our business in Asia continued to deliver volume growth
with 874 million LME, up two per cent on the same time
last year. However, normalised EBIT declined by 55 per cent
to $56 million, as the sharp increase in input costs could not be
fully recovered through pricing. This was further impacted by
price controls in some of our markets.
Indonesia had good volume growth in Foodservice. In
Consumer, Anlene
TM
has performed well on the back of the
launch of our Anlene
TM
Actifit range and our new “Total Anlene”
campaign as we continue to expand our offering to customers.
Our Malaysian business achieved strong volume growth
due to the launch of Fernleaf
TM
UHT and our Anlene
TM
Gold
formulation, which better supports joint mobility.
Oceania
The solid performance in our Australian business was impacted
by a disappointing result from our Consumer business in
New Zealand. This is reflected by the 74 per cent decline in
normalised EBIT for Oceania, down to $15 million this year from
$58 million in the previous comparable period.
Our Australian business is performing well, with normalised
EBIT stable despite significantly higher input costs and lower
overall sales volumes. The business has continued to focus
on key product categories such as cheese and butter, where
demand is growing and where we have strong brands and
market share.
The New Zealand business has faced some challenges this year,
with increased dairy commodity prices and lower category
growth. Although we had strong ice cream demand this
summer, record high fat prices impacted overall performance.
In addition, our exit from some of our private label portfolio and
operational start up challenges at our new distribution centre
have impacted the overall Oceania result.
OUR PERFORMANCE
OUR PERFORMANCE | 27
FONTERRA INTERIM REPORT 2018

CHINA
FARMS
VOLUME
Our farming operations in China comprise seven farms across
two hubs, with around 34,000 milking cows. We finished this
farm development programme in 2016 and all of our farms are
fully operational and stocked with productive livestock.
Sales volumes decreased by 15 per cent to 132 million LME for
the six months to 31 January 2018, as the comparable period last
year included sales of milk powder.
USEFUL FACT
This year we launched our Daily Fresh
milk range into Alibaba’s new premium
food stores, Hema Fresh, using milk
sourced directly from our farms in
the Hebei province.
We are progressing with our third hub, a joint venture between
Fonterra and Abbott, which leverages our expertise in dairy
nutrition and farming, and Abbott’s continued commitment to
business development in China. Construction of the first two
farms is complete and further development will follow over the
coming years.
This comprises our farming
operations in China, which produce
high quality fresh milk as part of our
integrated China strategy.
HIGHLIGHTS
>Continued focus on efficiencies and cost
control to offset low milk prices.
>Fresh milk sales introduced into retail formats.
>Sales volumes down 15 per cent as the
comparable period included milk powder sales.
HEMA FRESH
The milk bottles have
unique labels for
each day of the week,
emphasising freshness.
OPERATING COSTS
We delivered a six per cent
reduction in operating costs
on our China Farms.6%
28 | OUR PERFORMANCE
FONTERRA INTERIM REPORT 2018

NZD MILLION
SIX MONTHS ENDED
31 JANUARY 2018
SIX MONTHS ENDED
31 JANUARY 2017CHANGE
Volume (LME, billion)0.10.2(15%)
Volume (‘000 MT)1013
1
(19%)
Sales revenue 1231221%
Normalised EBIT(12)(24)49%
1 China Farms volumes for the 2017 half year have been restated to aid comparability between segments. Previously China Farms volumes were converted to metric tonnes based on the litres
of raw milk sold. These volumes are now converted based on weight of milk solids (i.e. fat and protein content) in line with the Ingredients methodology, where 1 litre of milk converts to
approximately 0.07 kg.
VALUE
Operating performance for China Farms has improved from a
normalised EBIT $24 million loss in the previous comparable
period to a $12 million loss, largely due to ongoing cost control
and scale efficiencies on-farm as our production volumes
increase. For the six months to 31 January, we delivered a
0.20 RMB per litre or six per cent reduction in operating costs,
due to more efficient operations as well as improved fixed cost
and overhead recoveries. The China Farms' result also benefited
from the internal raw milk price between China Farms and
Ingredients. This reflects the long-term milk price forecast for
high quality milk in China, and the fact that the responsibility for
driving the greatest value from the raw milk produced in China
now resides with the Ingredients team.
USEFUL FACT
Last year China Farms was the only dairy
business in China to obtain Safety Quality
Food (SQF) certification. This year we
were recertified with an “excellent” grade
for all seven farms.
CHINA
China is our largest
and most strategically
important market.
OUR PERFORMANCE
OUR PERFORMANCE | 29
FONTERRA INTERIM REPORT 2018

INTERIM
FINANCIAL
RESULTS
For the six months ended
31 January 2018
CONTENTS
DIRECTORS’ STATEMENT 31
INCOME STATEMENT 32
STATEMENT OF COMPREHENSIVE INCOME 33
STATEMENT OF FINANCIAL POSITION 34
STATEMENT OF CHANGES IN EQUITY 35
CASH FLOW STATEMENT 36
BASIS OF PREPARATION 37
NOTES TO THE FINANCIAL STATEMENTS 38
30 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

DIRECTORS’ STATEMENT
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
The Directors of Fonterra Co-operative Group Limited (Fonterra) present to Shareholders the financial statements for Fonterra and its
subsidiaries (together the Group) and the Group’s interest in its equity accounted investments for the six months ended 31 January 2018.
The Directors present financial statements for the six months, which fairly present the financial position of the Group and its financial
performance and cash flows for that period.
The Directors consider the financial statements of the Group have been prepared using accounting policies which have been
consistently applied and supported by reasonable judgements and estimates, and that all relevant financial reporting and accounting
standards have been followed.
The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the
financial position of the Group and facilitate compliance of the financial statements with the NZX Listing Rules.
The Directors consider that they have taken adequate steps to safeguard the assets of the Group, and to prevent and detect fraud and
other irregularities.
The Directors hereby approve and authorise for issue the financial statements for the six months ended 31 January 2018.
For and on behalf of the Board:

JOHN WILSON BRUCE HASSALL
CHAIRMAN DIRECTOR
20 March 2018 20 March 2018
INTERIM FINANCIAL STATEMENTS | 31
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
NOTES
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Revenue from sale of goods9,8399,24119,232
Cost of goods sold2(8,177)(7,480)(15,968)
Gross profit1,6621,7613,264
Other operating income5290190
Selling and marketing expenses(346)(329)(641)
Distribution expenses(278)(283)(550)
Administrative expenses(461)(440)(810)
Other operating expenses(178)(180)(334)
WPC 80 recall costs(196)––
Impairment of equity accounted investees(405)–(35)
Net foreign exchange (losses)/gains(29)3029
Share of profit/(loss) of equity accounted investees3(5)7
(Loss)/profit before net finance costs and tax(176)6441,120
Finance income111734
Finance costs(212)(174)(389)
Net finance costs(201)(157)(355)
(Loss)/profit before tax(377)487765
Tax credit/(expense)29(69)(20)
(Loss)/profit after tax(348)418745
(Loss)/profit after tax is attributable to:
Equity holders of the Co-operative(354)413734
Non-controlling interests6511
(Loss)/profit after tax(348)418745
GROUP $
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Earnings per share:
Basic and diluted earnings per share(0.22)0.260.46
32 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
(Loss)/profit after tax(348)418745
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges and other costs of hedging, net of tax(128)56128
Net investment hedges and translation of foreign operations, net of tax209(127)(124)
Hyperinflation (loss)/gain attributable to equity holders(1)4(1)
Share of equity accounted investees’ movements in reserves(1)1–
Other reserve movements1(2)(2)
Total items that may be reclassified subsequently to profit or loss80(68)1
Items that will not be reclassified subsequently to profit or loss:
Net fair value gains on investments in shares422
Foreign currency translation gain/(loss) attributable to non-controlling interests
12
1
(3)
Hyperinflation movements attributable to non-controlling interests–3–
Non-controlling interests other movements–(2)(2)
Total items that will not be reclassified subsequently to profit or loss164(3)
Total other comprehensive income/(expense) recognised directly in equity96(64)(2)
Total comprehensive (expense)/income(252)354743
Total comprehensive (expense)/income is attributable to:
Equity holders of the Co-operative (270)347737
Non-controlling interests1876
Total comprehensive (expense)/income(252)354743
INTERIM FINANCIAL STATEMENTS | 33
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

STATEMENT OF FINANCIAL POSITION
AS AT 31 JANUARY 2018
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
NOTES
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
ASSETS
Current assets
Cash and cash equivalents359348393
Trade and other receivables 2,3282,2102,303
Inventories5,0174,5662,593
Tax receivable412332
Derivative financial instruments 395454580
Other current assets 332140181
Total current assets8,4727,7416,082
Non-current assets
Property, plant and equipment6,5556,1126,391
Equity accounted investments 609916887
Livestock298317319
Intangible assets3,2003,0713,115
Deferred tax assets507328363
Derivative financial instruments196242239
Other non-current assets 324617446
Total non-current assets11,68911,60311,760
Total assets20,16119,34417,842
LIABILITIES
Current liabilities
Bank overdraft7911
Borrowings51,3839831,112
Trade and other payables 2,2422,1762,117
Owing to suppliers2,7372,3591,330
Tax payable393134
Derivative financial instruments914943
Provisions794740
Other current liabilities413844
Total current liabilities 6,6195,6924,731
Non-current liabilities
Borrowings56,2295,7685,151
Derivative financial instruments 466567547
Provisions142158148
Deferred tax liabilities9269
Other non-current liabilities888
Total non-current liabilities 6,8546,5275,863
Total liabilities13,47312,21910,594
Net assets6,6887,1257,248
EQUITY
Subscribed equity5,8775,8415,858
Retained earnings9611,6381,637
Foreign currency translation reserve(343)(555)(552)
Hedge reserves64120192
Other reserves9105
Total equity attributable to equity holders of the Co-operative6,5687,0547,140
Non-controlling interests12071108
Total equity6,6887,1257,248
34 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
ATTRIBUTABLE TO EQUITY HOLDERS OF THE CO-OPERATIVE
GROUP $ MILLION
SUBSCRIBED
EQUITY
RETAINED
EARNINGS
FOREIGN
CURRENCY
TRANSLATION
RESERVE
HEDGE
RESERVES
OTHER
RESERVESTOTAL
NON-
CONTROLLING
INTERESTS
TOTAL
EQUITY
As at 1 August 20175,8581,637(552)19257,1401087,248
(Loss)/profit after tax–(354)–––(354)6(348)
Other comprehensive (expense)/income–(1)209(128)4841296
Total comprehensive (expense)/income–(355)209(128)4(270)18(252)
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders of the Co-operative–(321)–––(321)–(321)
Equity instruments issued19––––191534
Dividend paid to non-controlling interests––––––(21)(21)
As at 31 January 201 8 (unaudited)5,877961(343)6496,5681206,688
As at 1 August 20165,8331,384(428)6466,859886,947
Profit after tax–413–––4135418
Other comprehensive income/(expense)–1(127)564(66)2(64)
Total comprehensive income/(expense)–414(127)5643477354
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders of the Co-operative–(160)–––(160)–(160)
Equity instruments issued8––––8–8
Dividend paid to non-controlling interests––––––(24)(24)
As at 31 January 2017 (unaudited)5,8411,638(555)120107,054717,125
As at 1 August 20165,8331,384(428)6466,859886,947
Profit after tax–734–––73411745
Other comprehensive income/(expense)––(124)128(1)3(5)(2)
Total comprehensive income/(expense)–734(124)128(1)7376743
Transactions with equity holders in their capacity as equity holders:
Dividend paid to equity holders of the Co-operative–(481)–––(481)–(481)
Equity instruments issued25––––254267
Dividend paid to non-controlling interests––––––(28)(28)
As at 31 July 2017 (audited)5,8581,637(552)19257,1401087,248
INTERIM FINANCIAL STATEMENTS | 35
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Cash flows from operating activities
(Loss)/profit before net finance costs and tax(176)6441,120
Adjustments for:
Foreign exchange losses/(gains)127(38)(1)
Depreciation and amortisation275289526
Other 431(12)15
833239540
(Increase)/decrease in working capital:
Inventories(2,419)(2,161)(177)
Trade and other receivables3(561)(634)
Amounts owing to suppliers1,2731,641745
Payables and accruals22778(100)
Other movements 8(6)(48)
Total(908)(1,009)(214)
Cash flows from operations(251)(126)1,446
Net taxes paid(41)(41)(70)
Net cash flows from operating activities(292)(167)1,376
Cash flows from investing activities
Cash was provided from:
–Proceeds from disposal of property, plant and equipment497105
–Proceeds from sale of livestock584162
–Proceeds from sale of investments6––
–Co-operative support loans138441
–Other cash inflows1310
Cash was applied to:
–Acquisition of property, plant and equipment (400)(277)(690)
–Acquisition of livestock(24)(53)(89)
–Acquisition of intangible assets(74)(29)(103)
–Advances to and investments in equity accounted investees(92)(36)(42)
–Other cash outflows(15)––
Net cash flows from investing activities(398)(250)(706)
Cash flows from financing activities
Cash was provided from:
–Proceeds from borrowings2,8112,7884,174
–Interest received9613
–Other cash inflows–3638
Cash was applied to:
–Interest paid(199)(186)(393)
–Repayment of borrowings(1,589)(2,058)(3,968)
–Dividends paid to non-controlling interests(21)(24)(28)
–Dividends paid to equity holders of the Co-operative(302)(152)(456)
–Other cash outflows(58)–(2)
Net cash flows from financing activities651410(622)
Net (decrease)/increase in cash and cash equivalents(39)(7)48
Cash and cash equivalents at the beginning of the year382357357
Effect of exchange rate changes on cash balances9(11)(23)
Cash and cash equivalents at the end of the period352339382
Reconciliation of closing cash balances to the statement of financial position:
Cash and cash equivalents359348393
Bank overdraft(7)(9)(11)
Closing cash balances352339382

36 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

A) GENERAL INFORMATION
Fonterra Co-operative Group Limited (Fonterra, the Company or the
Co-operative) is a co-operative company incorporated and domiciled
in New Zealand. Fonterra is registered under the Companies Act 1993
and the Co-operative Companies Act 1996, and is an FMC Reporting
Entity under the Financial Markets Conduct Act 2013. Fonterra is also
required to comply with the Dairy Industry Restructuring Act 2001.
These interim financial statements, as at and for the six months ended
31 January 2018, comprise Fonterra and its subsidiaries (together
referred to as the Group) and the Group’s interest in its equity
accounted investees after adjustments to align to the accounting
policies of the Group.
The Group operates predominantly in the international dairy industry.
The Group is primarily involved in the collection, manufacture and sale
of milk and milk-derived products and in fast-moving consumer goods
and foodservice businesses.
B) BASIS OF PREPARATION
These interim financial statements have been prepared in accordance
with International Accounting Standard 34: Interim Financial Reporting
and New Zealand Equivalent to International Accounting Standard
34: Interim Financial Reporting. They have also been prepared in
accordance with Generally Accepted Accounting Practice (GAAP)
applicable to for-profit entities. They should be read in conjunction
with the financial statements for the year ended 31 July 2017.
These interim financial statements are presented in New Zealand
dollars ($ or NZD), which is Fonterra’s functional currency, and
rounded to the nearest million, except where otherwise stated.
The preparation of interim financial statements requires management
to make judgements, estimates, and assumptions that affect the
application of accounting policies and the reported amounts of assets
and liabilities, income and expenses. Actual results may differ from
these estimates. In preparing these interim financial statements, the
significant judgements made by management in applying the Group’s
accounting policies and key sources of estimation uncertainty were
the same as those applied to the financial statements for the year
ended 31 July 2017.
Investment in Beingmate Baby & Child Food Co., Ltd.
Throughout the period Beingmate’s share price has traded significantly
below the share price at the time Fonterra acquired its investment
and the base share price used in the valuation assessment at 31
July 2017. As a result the carrying value of the investment has been
assessed for impairment. To assess the recoverable amount of the
investment a fair value less costs to sell methodology has been applied.
This methodology continues to be appropriate as the uncertainty in
forecasting future cash flows following changes in regulations in the
market remains.
The fair value of the investment has been determined using an estimate
of what a market participant would pay for a similar long-term strategic
equity stake in Beingmate under current market conditions. The key
assumptions used in determining the fair value are the base share price
and the net premium above the base share price (acquisition premium)
that would be paid for a long-term strategic investment of a similar size.
The value of the investment has reduced since 31 July 2017 as a result of
the following:
–Reduction in the base share price, reflecting the decrease in the
traded price of Beingmate shares from 31 July 2017, and
–Reduction in the net premium. The premium reflects that Beingmate is
an established local participant in a growth market and has a number
of brands registered under the new regulations effective 1 January
2018. The significant reduction in the net premium from 31 July 2017
reflects the poor financial performance, reduction in market share, and
the operational and governance challenges experienced by Beingmate.
The value of the investment on a fair value basis supports a carrying
value of $244 million, therefore an impairment loss of $405 million has
been recognised in the period (after share of losses of $28 million and
favourable foreign currency translation movements of $60 million).
The assumptions underlying the calculation of the Fair Value of the
18.8% strategic investment in Beingmate are:
AS AT
RMB PER SHARE
31 JAN 2018
(UNAUDITED)
31 JULY 2017
(AUDITED)
Weighted average
share price period
15 trading days from
22 January 2018
30 trading days
pre-trading halt date
up to 10 July 2017
Weighted average base price5.3613.66
Net premium
(including cost to sell)0.522.45
Implied value per share5.8816.11
For the year ended 31 July 2017, Beingmate shares were on a trading
halt from 12 July 2017 to 4 September 2017, therefore in the absence of
an active market, the period immediately before the trading halt (26
May to 10 July 2017) was considered the most appropriate period to
determine the base price given during this period the shares traded at
a relatively stable range.
For the six months ended 31 January 2018, to remove the impact of
market volatility, a 15 trading day period immediately after the forecast
earnings downgrade announced by Beingmate on the 21 January 2018
was used (22 January 2018 to 9 February 2018). It was appropriate to use
information from immediately after the reporting date as the Beingmate
share price continued to decline despite no new information being
provided to the market. We considered this the most appropriate period
as the market had fully reflected the earnings downgrade impact.
C) ACCOUNTING POLICIES
The same accounting policies are followed in these interim financial
statements as were applied in the Group’s financial statements for the
year ended 31 July 2017.
Accounting Standards issued but not yet effective
The two accounting standards issued but not yet effective that could
be expected to have a material impact on the Group’s financial
statements are:
NZ IFRS 15 Revenue from Contracts with Customers
There has been no change to Fonterra’s preliminary assessment that
the application of NZ IFRS 15 will not have a material impact on its
financial position and performance.
NZ IFRS 16 Leases
During the six months to 31 January 2018 Fonterra has continued to
assess the impact of NZ IFRS 16 and evaluate the policy choices. The
impact of adoption on Fonterra’s financial position and performance has
not yet been fully assessed. Fonterra has evaluated the transition options
and plans to utilise the modified retrospective approach. This means that
the cumulative effect of adopting NZ IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings on 1 August 2019
with no restatement of comparative information.
BASIS OF PREPARATION
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
INTERIM FINANCIAL STATEMENTS | 37
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

PERFORMANCE
1 SEGMENT REPORTING
The financial information reviewed by the Fonterra Management Team has evolved over the past two years to reflect the changes in the
management structure to support the operations of the Group. From 1 August 2017 the financial information reviewed by the Fonterra
Management Team is solely based on the previously identified ‘strategic platforms’.
a) Operating segments
Operating segments reflect the way financial information is regularly reviewed by the Fonterra Management Team (FMT). The measure of profit
or loss used by the FMT to evaluate the underlying performance of operating segments is normalised segment earnings before net finance costs
and tax. To enable underlying segment performance to be compared between reporting periods a normalised segment income statement has
been presented. Comparative segment income statements have been re-presented on a normalised basis.
Transactions between segments are based on estimated market prices, with the exception of the sale of milk from China Farms to Ingredients.
The transfer price used for these transactions is an amount reflective of long-term milk price trends in China.
Unallocated costs represent corporate costs including Co-operative Affairs and group services.
REPORTABLE SEGMENTDESCRIPTION
Ingredients Represents the collection, processing and distribution of the ingredients business in New Zealand, global sales
and marketing of New Zealand and non-New Zealand ingredients products, Fonterra Farm Source™ stores,

the ingredients business in Australia (including Milk Supply and Manufacturing) and the ingredients business
South America.
Consumer and foodservice
– OceaniaRepresents the fast-moving consumer goods (FMCG) and foodservice businesses in New Zealand and Australia
(including export to the Pacific Islands).
– AsiaRepresents FMCG and foodservice businesses in Asia (excluding Greater China), Africa and the Middle East.
– Greater ChinaRepresents FMCG and foodservice businesses in Greater China.
– Latin AmericaRepresents FMCG and foodservice businesses in South America and the Caribbean.
China Farms Represents farming operations in China.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
38 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

a) Operating segments continued
GROUP $ MILLION
31 JANUARY 2018 (UNAUDITED)
INGREDIENTSCONSUMER AND FOODSERVICE
CHINA
FARMS
UNALLOCATED
COSTS AND
ELIMINATIONS
TOTAL
OCEANIAASIA
GREATER
CHINA
LATIN
AMERICATOTAL
Normalised segment income statement
External revenue
1
6,4481,0029057317503,388––9,836
Inter-segment revenue1,45585–––85123(1,663)–
Revenue from sale of goods7,9031,0879057317503,473123(1,663)9,836
Cost of goods sold(7,032)(879)(694)(549)(530)(2,652)(131)1,638(8,177)
Segment gross profit871208211182220821(8)(25)1,659
Operating expenses(391)(192)(154)(98)(196)(640)(14)(218)(1,263)
Net other operating income321273138(1)52
Net foreign exchange gains/(losses)15(2)(3)11(3)4(37)(21)
Share of profit/(loss) of equity
accounted investees31–––22(2)–31
Normalised segment earnings before net
finance costs and tax55815569230193(12)(281)458
Normalisation adjustments:
Reduction in the carrying value of
investment in Beingmate
2
–––(433)–(433)––(433)
WPC80 recall costs
3
(196)–––––––(196)
Time value of options
4
(5)–––––––(5)
Segment earnings before net finance
costs and tax3571556(341)30(240)(12)(281)(176)
Finance income11
Finance costs(212)
Loss before tax(377)
Other segment information:
Volume
5
(liquid milk equivalents, billion)9.780.820.870.600.372.660.13(2.12)10.45
Volume
5
(metric tonnes, thousand)1,44130916112929489310(341)2,003
Depreciation and amortisation ($ million)(198)(15)(7)(1)(14)(37)(14)(26)(275)
1 Total Group revenue from the sale of goods is $9,839 million, the difference of $3 million relates to the normalisation of time value of options.
2 Of the $433 million normalisation adjustment, $405 million relates to the impairment of equity accounted investees and $28 million to the share of losses of Beingmate.
3 The $196 million normalisation adjustment relates to operating expenses.
4 Of the $5 million normalisation adjustment, $3 million relates to revenue offset by $8 million of net foreign exchange losses.
5 Includes sales to other strategic platforms. Total column represents total external sales.
INTERIM FINANCIAL STATEMENTS | 39
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
a) Operating segments continued
GROUP $ MILLION
31 JANUARY 2017 (UNAUDITED)
INGREDIENTSCONSUMER AND FOODSERVICE
CHINA
FARMS
UNALLOCATED
COSTS AND
ELIMINATIONS
TOTAL
OCEANIAASIA
GREATER
CHINA
LATIN
AMERICATOTAL
Normalised segment income statement
External revenue
1
6,1599208355677513,073––9,232
Inter-segment revenue1,0606898––166122(1,348)–
Revenue from sale of goods7,2199889335677513,239122(1,348)9,232
Cost of goods sold(6,427)(745)(645)(369)(517)(2,276)(128)1,351(7,480)
Segment gross profit792243288198234963(6)31,752
Operating expenses(367)(186)(165)(83)(204)(638)(20)(207)(1,232)
Net other operating income2323531312–48
Net foreign exchange gains/(losses)37(1)(2)––(3)(2)1244
Share of profit/(loss) of equity
accounted investees25––(24)2(22)(8)–(5)
Normalised segment earnings before
net finance costs and tax510581249635313(24)(192)607
Normalisation adjustments:
Gain on sale of Darnum
manufacturing plant
2
42–––––––42
Time value of options
3
(5)–––––––(5)
Segment earnings before net finance
costs and tax547581249635313(24)(192)644
Finance income17
Finance costs(174)
Profit before tax487
Other segment information:
Volume
4
(liquid milk equivalents, billion)10.980.910.860.580.362.710.16(2.14)11.71
Volume
4,5
(metric tonnes, thousand)1,54333515611230590813(333)2,131
Depreciation and amortisation ($ million)(208)(15)(8)(1)(17)(41)(13)(27)(289)
1 Total Group revenue from the sale of goods is $9,241 million, the difference of $9 million relates to the normalisation of time value of options.
2 The $42 million normalisation adjustment relates to other operating income.
3 Of the $5 million normalisation adjustment, $9 million relates to revenue offset by $14 million of net foreign exchange losses.
4 Includes sales to other strategic platforms. Total column represents total external sales.
5 China Farms volumes for the six months ended 31 January 2017 (metric tonnes, thousand) have been restated to align to the same product volume to weight conversion
methodology as used by the Ingredients business to aid comparability between segments. Previously China Farms volumes were converted to metric tonnes based on the
litres of raw milk sold.
40 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

a) Operating segments continued
GROUP $ MILLION
31 JULY 2017 (AUDITED)
INGREDIENTSCONSUMER AND FOODSERVICE
CHINA
FARMS
UNALLOCATED
COSTS AND
ELIMINATIONS
TOTAL
OCEANIAASIA
GREATER
CHINA
LATIN
AMERICATOTAL
Normalised segment income statement
External revenue
1
12,9861,8101,6681,2721,4786,228––19,214
Inter-segment revenue2,2801421425–289269(2,838)–
Revenue from sale of goods15,2661,9521,8101,2771,4786,517269(2,838)19,214
Cost of goods sold(13,793)(1,514)(1,309)(918)(1,032)(4,773)(246)2,844(15,968)
Segment gross profit1,4734385013594461,7442363,246
Operating expenses(725)(339)(298)(156)(357)(1,150)(31)(429)(2,335)
Net other operating income1062367181410148
Net foreign exchange gains/(losses)42–(5)–3(2)(1)948
Share of profit/(loss) of equity
accounted investees47–––44(4)148
Normalised segment earnings before
net finance costs and tax9431012012091036141(403)1,155
Normalisation adjustments:
Gain on sale of Darnum
manufacturing plant
2
42–––––––42
Reduction in the carrying value of
investment in Beingmate
3
–––(76)–(76)––(76)
Time value of options
4
(1)–––––––(1)
Segment earnings before net finance
costs and tax9841012011331035381(403)1,120
Finance income34
Finance costs(389)
Profit before tax765
Other segment information:
Volume
5
(liquid milk equivalents, billion)21.301.741.701.280.745.460.34(4.16)22.94
Volume
5
(metric tonnes, thousand)3,0196363102376001,78326(648)4,180
Depreciation and amortisation ($ million)(367)(31)(15)(2)(33)(81)(26)(52)(526)
Capital employed
6
($ million)7,95046311722270872789(518)9,093
Return on capital
7
10.3%13.5%118.4%680.5%23.3%47.2%NA11.1%
For the year ended 31 July 2017 the Group’s return on capital including intangible assets, goodwill and equity accounted investments,
was 8.3 per cent.
1 Total Group revenue from the sale of goods is $19,232 million, the difference of $18 million relates to the normalisation of time value of options.
2 The $42 million normalisation adjustment relates to other operating income.
3 Of the $76 million normalisation adjustment, $35 million relates to impairment of equity accounted investees and $41 million relates to the share of losses of Beingmate.
4 Of the $1 million normalisation adjustment, $18 million relates to revenue offset by $19 million of net foreign exchange losses.
5 Includes sales to other strategic platforms. Total column represents total external sales.
6 Capital employed excludes brands, goodwill and equity accounted investments.
7 Return on capital is calculated as normalised EBIT, less equity accounted investees’ earnings, less a notional royalty charge for use of the Group’s brands, less a notional tax
charge, divided by capital employed.
INTERIM FINANCIAL STATEMENTS | 41
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

b) Geographical revenue
GROUP $ MILLION
CHINA
REST
OF ASIAAUSTRALIA
NEW
ZEALAND
UNITED
STATESEUROPE
LATIN
AMERICA
REST OF
WORLDTOTAL
Geographical segment external revenue:
Six months ended 31 January 2018 (unaudited)2,0942,6508601,0213213371,0951,4619,839
Six months ended 31 January 2017 (unaudited)1,5652,4047859776504301,0651,3659,241
Year ended 31 July 2017 (audited)3,3835,1651,5922,0561,2548382,1622,78219,232
Revenue is allocated to geographical segments on the basis of the destination of the goods sold.
c) Non-current assets
GROUP $ MILLION
GLOBAL INGREDIENTS
AND OPERATIONS
OCEANIA
ASIAGREATER
CHINA
LATIN
AMERICA
TOTAL
GROUP
NEW
ZEALAND
REST OF
WORLD
NEW
ZEALANDAUSTRALIA
Geographical segment non-current assets:
As at 31 January 2018 (unaudited)5,4094241,3008687741,1671,04410,986
As at 31 January 2017 (unaudited)5,3763011,2947977231,5401,00211,033
As at 31 July 2017 (audited)5,4793471,2858407381,48198811,158
GROUP $ MILLION
AS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Reconciliation of geographical segment’s non-current assets to total non-current assets:
Geographical segment non-current assets 10,98611,03311,158
Deferred tax assets507328363
Derivative financial instruments 196242239
Total non-current assets11,68911,60311,760
2 COST OF GOODS SOLD
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Opening inventory2,5932,4012,401
Cost of milk:
–New Zealand sourced6,5806,0789,471
–Non-New Zealand sourced737521932
Other costs3,2843,0465,757
Closing inventory(5,017)(4,566)(2,593)
Total cost of goods sold8,1777,48015,968
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
42 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

DEBT AND EQUITY
3 SUBSCRIBED EQUITY INSTRUMENTS
Co-operative shares, including shares held within the Group
Co-operative shares may only be held by a shareholder supplying milk to the Company (farmer shareholder), by former farmer shareholders for
up to three seasons after cessation of milk supply, or by Fonterra Farmer Custodian Limited (the Custodian). Voting rights in the Company are
dependent on milk supply supported by Co-operative shares.¹
CO-OPERATIVE SHARES
(THOUSANDS)
Balance at 1 August 20171,606,933
Shares issued under the dividend reinvestment plan²3,309
Balance at 31 January 2018 (unaudited)1,610,242
Balance at 1 August 20161,602,703
Shares issued under the dividend reinvestment plan²1,369
Balance at 31 January 2017 (unaudited)1,604,072
Balance at 1 August 20161,602,703
Shares issued under the dividend reinvestment plan²4,230
Balance at 31 July 2017 (audited)1,606,933
1 These rights are also attached to vouchers when backed by milk supply (subject to limits).
2 Total value of $19 million (31 January 2017: $8 million; 31 July 2017: $25 million).
The rights attaching to Co-operative shares are set out in Fonterra’s Constitution, available in the ‘About Us/Our Governance’ section of
Fonterra’s website.
Units in the Fonterra Shareholders’ Fund
The Custodian holds legal title of Co-operative shares of which the Economic Rights have been sold to the Fund on trust for the benefit of the
Fund. At 31 January 2018, 137,366,342 Co-operative shares (31 January 2017: 123,422,471; 31 July 2017: 126,047,304) were legally owned by the
Custodian, on trust for the benefit of the Fund.
UNITS
(THOUSANDS)
Balance at 1 August 2017126,047
Units issued19,504
Units surrendered(8,185)
Balance at 31 January 2018 (unaudited)137,366
Balance at 1 August 2016111,992
Units issued22,222
Units surrendered(10,792)
Balance at 31 January 2017 (unaudited)123,422
Balance at 1 August 2016111,992
Units issued29,933
Units surrendered(15,878)
Balance at 31 July 2017 (audited)126,047
The rights attaching to units are set out in the Trust Deed constituting the Fonterra Shareholders’ Fund, available in the ‘Investors/Fonterra
Shareholder’s Fund’ section of Fonterra’s website.
INTERIM FINANCIAL STATEMENTS | 43
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

4 DIVIDENDS PAID
The Dividend Reinvestment Plan applied to all dividends in the table below.
$ MILLION
SIX MONTHS ENDEDYEAR ENDED
DIVIDENDS
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
2017 Final dividend – 20 cents per share¹321––
2017 Interim dividend – 20 cents per share²––321
2016 Final dividend – 10 cents per share³–160160
1 Declared on 23 September 2017 and paid on 20 October 2017 to all Co-operative shares on issue at 9 October 2017.
2 Declared on 21 March 2017 and paid on 20 April 2017 to all Co-operative shares on issue at 5 April 2017.
3 Declared on 18 August 2016 and paid on 9 September 2016 to all Co-operative shares on issue at 1 September 2016.
Dividend declared after balance date
On 20 March 2018, the Board declared an interim dividend of 10 cents per share, to be paid 20 April 2018 to all Co-operative shares on issue as at
6 April 2018.
Fonterra has a Dividend Reinvestment Plan, where eligible shareholders can choose to reinvest all or part of their dividend in additional
Co-operative shares. The Dividend Reinvestment Plan does apply to this dividend. Participation in the Dividend Reinvestment Plan requires
shareholders to submit an election notice for participation by 6 April 2018. Full details of the Dividend Reinvestment Plan are available in the
‘Investors/Dividends’ section of Fonterra’s website.
5 BORROWINGS
Economic net interest-bearing debt
Economic net interest-bearing debt reflects the effect of debt hedging in place at balance date.
GROUP $ MILLION
AS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Net interest-bearing debt position
Total borrowings7,6126,7516,263
Cash and cash equivalents(359)(348)(393)
Interest-bearing advances(323)(481)(435)
Bank overdraft7911
Net interest-bearing debt6,9375,9315,446
Value of derivatives used to manage changes in hedged risks on debt instruments123184155
Economic net interest-bearing debt7,0606,1155,601
Total borrowings in the table above are represented by:
GROUP $ MILLION
AS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Commercial paper239313164
Bank loans1,7631,226854
Finance leases134139137
Capital notes353535
NZX-listed bonds500499500
Medium-term notes4,9414,5394,573
Total borrowings7,6126,7516,263
Included within the statement of financial position as follows:
Total current borrowings1,3839831,112
Total non-current borrowings6,2295,7685,151
Total borrowings7,6126,7516,263
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
44 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

LONG-TERM ASSETS
6 PROPERTY, PLANT AND EQUIPMENT
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Additions310205754
Disposals(7)(20)(48)
Capital commitments236159235
INVESTMENTS
7 EQUITY ACCOUNTED INVESTMENTS
The Group’s significant equity accounted investments are listed below. The ownership interest in these entities is 51 per cent or less and the
Group is not considered to exercise a controlling interest.
OWNERSHIP INTERESTS (%)
AS AT
EQUITY ACCOUNTED INVESTEE NAME
COUNTRY OF INCORPORATION AND
PRINCIPAL PLACE OF BUSINESS
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
DMV Fonterra Excipients GmbH & Co KGGermany505050
Beingmate Baby & Child Food Co., Ltd
1
China18.818.818.8
Falcon Dairy Holdings LimitedHong Kong515151
All investees have balance dates of 31 December.
1 For further information on the carrying value of the investment in Beingmate please refer to the 'Basis of Preparation' section of these financial statements.
OTHER
8 CONTINGENT LIABILITIES, PROVISIONS AND COMMITMENTS
Contingent liabilities
In the normal course of business, Fonterra, its subsidiaries and equity accounted investees, are exposed to claims and legal proceedings that may
in some cases result in costs to the Group.
In early August 2013, Fonterra publicly announced a potential food safety issue with three batches of Whey Protein Concentrate (WPC80)
produced at the Hautapu manufacturing site and initiated a precautionary product recall.
In late August 2013, the New Zealand Government confirmed that the Clostridium samples found in WPC80 were not Clostridium botulinum and were
not toxigenic, meaning the consumers of products containing the relevant batches of WPC80 were never in danger from Clostridium botulinum.
In January 2014, Danone formally initiated legal proceedings against Fonterra in the High Court of New Zealand and separate Singapore
arbitration proceedings against Fonterra in relation to the WPC80 precautionary recall. The New Zealand High Court proceedings have been
stayed pending completion of the Singapore arbitration.
On 1 December 2017, the Singapore arbitration panel issued its award ( judgement), finding in favour of Danone and ordered Fonterra to pay
EUR105 million ($183 million) in recall costs to Danone. Following a comprehensive review of the award, Fonterra has accepted the outcome.
Fonterra paid the award in December 2017.
In addition to the recall costs, Fonterra has agreed to pay Danone EUR29 million ($49 million) representing interest on the award amount and
Danone's costs in connection with the arbitration proceedings.
It is unclear whether Danone will continue to pursue the New Zealand High Court proceedings that were stayed pending the decision in the
Singapore arbitration. Due to the uncertainty regarding whether Danone will seek to re-initiate these proceedings, and the nature and scope of
these potential proceedings in light of the arbitration findings and award, no amount has been recognised in relation to these proceedings.
The Directors believe that these proceedings have been adequately disclosed by the Group and that there are no additional claims or legal
proceedings in respect of this matter that are pending at the date of these financial statements that require provision or disclosure.
The Group has no other contingent liabilities as at 31 January 2018 (31 January 2017: nil; 31 July 2017: nil).
INTERIM FINANCIAL STATEMENTS | 45
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

9 FAIR VALUE
Fair value hierarchy
The fair value hierarchy described below is used to provide an indication of the level of estimation or judgement required in determining fair value:
–Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
–Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
–Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The following table shows the fair value hierarchy for assets and liabilities measured at fair value on the statement of financial position:
GROUP $ MILLION
LEVEL 1LEVEL 2LEVEL 3
AS ATAS ATAS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Derivative assets
–Commodity derivatives212230511–––
–Foreign exchange derivatives–––390453595–––
–Interest rate derivatives¹–––175220193–––
Derivative liabilities
–Commodity derivatives(4)(26)(7)–(1)(2)–––
–Foreign exchange derivatives–––(77)(23)(24)–––
–Interest rate derivatives¹–––(476)(566)(557)–––
Investments in shares1281015––7–9
Investment in Beingmate²––––––244–617
Livestock––––––298317319
Fair value294333284206549317945
1 Includes cross-currency interest rate swaps.
2 The key assumptions used in determining the fair value of the investment in Beingmate are the base share price and the premium above base share price that would be paid
for a long term strategic investment of a similar size.
The following table shows the fair value hierarchy for each class of financial asset and liability where the carrying value in the statement of
financial position differs from the fair value:
GROUP $ MILLION
CARRYING VALUELEVEL 1LEVEL 2
AS ATAS ATAS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Financial assets
Long-term advances138481300–––133489289
Financial liabilities
Borrowings
–NZX-listed bonds(500)(499)(500)(512)(490)(510)–––
–Capital notes(35)(35)(35)(34)(33)(33)–––
–Medium-term notes(4,941)(4,539)(4,573)–––(5,223)(4,780)(4,829)
–Finance leases(134)(139)(137)–––(149)(158)(155)
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE SIX MONTHS ENDED 31 JANUARY 2018
46 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

10 NET TANGIBLE ASSETS PER SECURITY
GROUP
AS AT
31 JAN 2018
UNAUDITED
31 JAN 2017
UNAUDITED
31 JUL 2017
AUDITED
Net tangible assets per security¹
$ per listed debt security on issue5.796.736.86
$ per equity instrument on issue2.172.532.57
Listed debt securities on issue (million)603603603
Equity instruments on issue (million)1,6101,6041,607
1 Net tangible assets represents total assets less total liabilities less intangible assets.
INTERIM FINANCIAL STATEMENTS | 47
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

Fonterra uses several non-GAAP measures when discussing financial performance. For further details and definitions of non-GAAP measures
used by Fonterra, refer to the glossary on page 49. These are non-GAAP measures and are not prepared in accordance with IFRS.
Management believes that these measures provide useful information as they provide valuable insight on the underlying performance of the
business. They may be 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 IFRS.
Reconciliations for the IFRS measures to certain non-GAAP measures referred to by Fonterra are detailed below.
Reconciliation from the IFRS measure of profit for the period to Fonterra’s normalised EBITDA
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 201831 JAN 201731 JUL 2017
(Loss)/profit for the period (348)418745
Add: Depreciation 229240435
Add: Amortisation464991
Add: Net finance costs201157355
(Less)/Add: Taxation (credit)/expense(29)6920
Total EBITDA 999331,646
Add: WPC80 recall costs196––
Add: Reduction in the carrying value of investment in Beingmate433–76
Add: Time value of options551
Less: Gain on sale of Darnum manufacturing plant–(42)(42)
Total normalisation adjustments634(37)35
Normalised EBITDA7338961,681
Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised EBIT
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 201831 JAN 201731 JUL 2017
(Loss)/profit for the period (348)418745
Add: Net finance costs201157355
(Less)/Add: Taxation (credit)/expense(29)6920
Total EBIT(176)6441,120
Add/(Less): Normalisation adjustments (as detailed above)634(37)35
Total normalised EBIT4586071,155
Reconciliation from the NZ IFRS measure of profit for the period to Fonterra’s normalised earnings per share
GROUP $ MILLION
SIX MONTHS ENDEDYEAR ENDED
31 JAN 201831 JAN 2017
31 JUL 2017
(Loss)/profit for the period (348)418745
Add/(Less): Normalisation adjustments (as detailed above)634(37)35
Add: Normalisation adjustment to net finance costs26––
(Less)/Add: Tax on normalisation adjustments(64)812
Total normalised earnings248389792
Less: Share attributable to non-controlling interests(6)(5)(11)
Net normalised earnings attributable to equity holders of the Parent242384781
Weighted average number of shares (thousands of shares)1,608,8211,603,6981,604,744
Normalised earnings per share ($)0.150.240.49
NON-GAAP MEASURES
48 | INTERIM FINANCIAL STATEMENTS
FONTERRA INTERIM REPORT 2018

GLOSSARY
NON-GAAP MEASURES
Fonterra refers to non-GAAP financial measures throughout the Interim Report, and these measures are not prepared in accordance with
NZ IFRS. The definitions below explain how Fonterra calculates the non-GAAP measures referred to throughout the Interim Report.
EBITmeans earnings before interest and tax and is calculated as profit for the period before net finance costs
and tax.
EBITDAmeans earnings before interest, tax, depreciation and amortisation and is calculated as profit for the period
before net finance costs, tax, depreciation and amortisation.
Economic net
interest-bearing debt
means net interest-bearing debt including the effect of debt hedging.
Farmgate Milk Pricemeans the base price that Fonterra pays for milk supplied to it in New Zealand for a season. The season
refers to the 12-month milk season of 1 June to 31 May.
Gearing ratiois calculated as economic net interest-bearing debt divided by total capital. Total capital is equity excluding
the hedge reserves, plus economic net interest-bearing debt.
Normalisation adjustmentsmeans transactions that are unusual by nature and size. Excluding these transactions can assist users with
forming a view of the underlying performance of the business. Unusual transactions by nature are the
result of specific events or circumstances that are outside the control of the business, or relate to major
acquisitions, disposals or divestments, or are not expected to occur frequently. It also includes fair value
movements if they are non-cash and have no impact on profit over time. Unusual transactions by size are
those that are unusually large in a particular accounting period.
Normalised EBITmeans profit for the period before net finance costs and tax, and after normalisation adjustments.
Normalised earnings per share
(EPS)
means normalised profit after tax attributable to equity holders divided by the weighted average number of
shares for the period.
Normalised profit after taxmeans net profit after tax after normalisation adjustments, and the interest and tax impact of those
normalisation adjustments.
Normalised segment earningsmeans segmental profit for the period before net finance costs and tax, and after normalisation adjustments.
Payoutmeans the total cash payment to farmer shareholders. It is the sum of the Farmgate Milk Price (kg/MS) and
the dividend per share. Both of these components have established policies and procedures in place on how
they are determined.
Retentionsmeans net profit after tax attributable to farmer shareholders divided by the number of shares at 31 May,
less dividend per share.
Return on capitalis calculated as normalised EBIT less equity accounted investees’ earnings divided by capital employed.
Capital employed is calculated as the average for the period of: net assets excluding net interest-bearing
debt, deferred tax balances and brands, goodwill and equity accounted investments.
Segment earningsmeans segmental profit for the period before net finance costs and tax.
Working capitalis calculated as current trade receivables plus inventories, less current trade payables and accruals. It
excludes amounts owing to suppliers and employee entitlements.
Working capital daysis calculated as average period to date working capital divided by external revenue, multiplied by the
number of days in the period.
INTERIM FINANCIAL STATEMENTS | 49
FONTERRA INTERIM REPORT 2018
OUR PERFORMANCE

FONTERRA BOARD
OF DIRECTORS
John Wilson
Clinton Dines
Brent Goldsack
Bruce Hassall
Simon Israel
Andrew Macfarlane
John Monaghan
Nicola Shadbolt
Donna Smit
Scott St John
Ashley Waugh
FONTERRA
MANAGEMENT TEAM
Theo Spierings
Marc Rivers
Lukas Paravicini
Miles Hurrell
Robert Spurway
Judith Swales
Kelvin Wickham
REGISTERED OFFICE
Fonterra Co-operative Group Limited
Private Bag 92032
Auckland 1010
New Zealand
109 Fanshawe Street
Auckland Central 1010
New Zealand
Phone +64 9 374 9000
Fax +64 9 374 9001
AUDITORS
PricewaterhouseCoopers
Level 22, PwC Tower
188 Quay Street
Auckland 1142
New Zealand
FARMER SHAREHOLDER AND
SUPPLIER SERVICES
Freephone 0800 65 65 68
SHAREHOLDER INFORMATION
FONTERRA SHARES AND
FSF UNITS REGISTRY
Computershare Investor
Services Limited
Private Bag 92119
Auckland 1142
New Zealand
Level 2, 159 Hurstmere Road
Takapuna
Auckland 0622
New Zealand
CAPITAL NOTES REGISTRY
Link Market Services Limited
PO Box 91976
Auckland 1142
New Zealand
Level 11, Deloitte Centre
80 Queen Street
Auckland Central 1010
New Zealand
INVESTOR RELATIONS ENQUIRIES
investor.relations@fonterra.com
www.fonterra.com

This document is printed on an environmentally
responsible paper produced using elemental
chlorine free (ECF) FSC
®
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sourced from well-managed and legally harvested
forests, and manufactured under the strict ISO14001
environmental management system.

---

APPENDIX 3 – FSM Rules
Number of pages including this one
(Please provide any other relevant
FSM Rule 6.8.2. For rights, Rules 6.6.8 and 6.6.10. details on additional pages)
For change to allotment, FSM Rule 6.8.1, a separate notice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumberDate
Nature of event
BonusIf ticked,Rights Issue
Tick as appropriateIssuestate whether:Taxable/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
x
whether:
Interim
x
YearSpecialDRP Applies
x
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISIN
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISIN
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlement
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick if
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per securityPayment
(does not include any excluded income)
SupplementaryAmount per security
Currencydividendin dollars and cents
details -
FSM Rule 6.8.5
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credits
issue state strike priceW ithholding Tax(Give details)
Foreign
FDP Credits
W ithholding Tax(Give details)
Timing
(Refer Appendix 4 in the FSM Rules)
Record Date 5pmApplication Date
For calculation of entitlements -Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date. In the case
of applications this must be the
last business day of the week.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quoting Rights:Security Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
EMAIL: announce@nzx.com
Notice of event affecting securities
Fonterra Co-operative Group Limited
Marc RiversDirectors' resolution
(09) 374 9000(09) 374 900120032018
NZFCGE0001S7
N/A
In dollars and cents
Retained earnings
$0.100
N/AN/A
Enter N/A if not
applicable
N/A
Shares (FCG)
$$0.033000
NZD
$161,024,235
Date Payable
$
6 April, 201820 April, 2018
N/AN/A

---

21 March 2018
FONTERRA ANNOUNCES 2018 INTERIM RESULTS
Results Highlights

• Forecast Farmgate Milk Price $6.55 per kgMS
• Interim dividend of 10 cents per share – to be paid in April
• Full year forecast dividend range 25 – 35 cents per share
• Total forecast cash payout $6.80 - $6.90
• Revenue $9.8 billion, up 6% from the 2017 interim results
• Normalised EBIT $458 million*, down 25% from the 2017 interim results
• Beingmate investment impairment $405 million
• Normalised Net profit after tax (NPAT) $248 million*, down 36% from the 2017 interim results
• NPAT $348 million loss, down 183% from the 2017 interim results
• Normalised interim earnings per share 15 cents*
• Ingredients normalised EBIT $558 million*, up 9% from the 2017 interim results
• Consumer and Foodservice normalised EBIT $193 million*, down 38% from the 2017 interim
results

* Non-GAAP measures. Information on the non-GAAP financial information used by Fonterra are found at the
end of this document.

Forecast cash payout

Fonterra Co-operative Group Limited today increased its forecast Farmgate Milk Price for the
2017/18 season to $6.55 per kgMS and announced a full year forecast dividend range of 25 - 35
cents per share with an interim dividend of 10 cents per share.

Chairman John Wilson says the ongoing strong global demand for dairy and stable global supply
are continuing to support global prices, particularly for the important Whole Milk Powder category.

“Farmers will welcome a forecast cash payout of $6.80 - $6.90, which would be the third highest in
the last decade. This is also good news for New Zealand as it represents around $10 billion flowing
into the country’s economy. However, we are very aware of the challenges many of our farmers are
facing this season with difficult weather conditions impacting production.

“While the global supply and demand picture remains positive and we expect prices to stay around
current levels, we will be watching for any impact on market sentiment as spring production
volumes build in Europe,” he added.

Fonterra’s Greater China business continues to perform well overall but the Co-operative has re-
assessed the value of its Beingmate investment so that it reflects a fair value at this point in time.

Commenting on this decision, Mr Wilson says the Board has assessed the carrying value of
Beingmate at $244 million and therefore taken an impairment of $405 million.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 2


“While we appreciate the substantial opportunity and privilege of our business in China, our
shareholders and unitholders will be rightfully disappointed with this outcome. Beingmate’s
continued under-performance is unacceptable. The turnaround of the investment is a key priority for
our senior management team.”

“The opportunity in the Chinese infant formula market remains, as does the potential for our
Beingmate partnership – but an immediate business transformation is needed for Beingmate to
benefit from the ongoing changes in the market.”

In December, Fonterra paid $183 million to Danone following the conclusion of an arbitration that
arose from the WPC80 precautionary recall in 2013.

Mr Wilson says the Board will decide how the Beingmate impairment and the Danone payment will
be treated for final dividend purposes after the end of the financial year when it will have the full
picture of Fonterra’s operating performance. Given the possible impact of these decisions, the
Board is providing a forecast dividend range for the full-year of 25 – 35 cents per share, rather than
just the earnings per share guidance normally given.

“Based on our dividend policy, this forecast dividend range would allow for the Board to add back
the Beingmate impairment at the lower end through to an adjustment for both Beingmate and
Danone as one-off events at the higher end.

“In the circumstances, we have taken a prudent approach in determining the 10 cent interim
dividend.”

Our Business Performance

Chief Executive Theo Spierings says the operating performance for the first half year was generally
as expected.

“We knew going into this year we would have to carefully manage low starting inventory levels. This
was followed by reduced New Zealand milk collections due to difficult weather conditions, further
impacting our volumes available for sale.

“On top of this, we also had to navigate higher input costs which squeezed our margins.

“So, at the end of the first half, our total sales volumes are down 11 per cent to 10.5 billion LME,
and normalised earnings before interest and tax (EBIT) 25 per cent lower at $458 million*
compared to $607 million in the same period last year,” says Mr Spierings.

“Despite this, overall sales revenue in the business was up six per cent to $9.8 billion compared to
the same period last year, mainly due to the improved global prices for dairy.

“While our reported net profit after tax (NPAT) shows a loss of $348 million, it includes the payment
to Danone and the Beingmate impairment. As these are one-off events, our normalised Net Profit
After Tax of $248 million* is a better reflection of our underlying operating performance for the half
year.”

Commenting on the Ingredients business Mr Spierings says the team achieved a strong result with
normalised EBIT growth of nine per cent to $558 million* compared to $510 million* in the same
period last year, despite lower sales volumes of 9.8 billion LME.

“The result benefited from higher stream returns in the first half – $90 million compared to $40
million for the same period last year. These additional stream returns were predominantly due to
improved margins for non-reference products during this period.

In relation to Fonterra’s Consumer and Foodservice business, Mr Spierings says the higher input
costs meant margins were reduced by 15 per cent over the period, with strong competition in the

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 3

Co-operative’s strategic markets, especially in Foodservice, limiting the short-term options to pass
through the higher costs.

“Consumer and Foodservice’s volumes were two per cent lower compared to the same period last
year. Our sales volumes in Asia, Latin America, and Greater China improved but they were offset
by lower volumes in Oceania, caused primarily by operational start-up challenges at our new
distribution centre in Auckland, which is now operating as we’d expect.

“Overall, Consumer and Foodservice normalised EBIT was $193 million* compared to an
exceptional $313 million* in the prior comparable period when input costs were considerably lower.”

Mr Spierings says the Co-operative’s China Farms strategy is beginning to bear fruit and the farms’
improved performance is reflected a normalised EBIT loss of $12 million* – half the $24 million*
loss for the same period last year.

“This result is helped by the price the Ingredients business pays China Farms for its milk, which is
currently higher than the unsustainably low domestic milk price. This approach is producing better
results by allowing the China Farms managers to focus on ongoing on-farm efficiencies and the
Ingredients managers to focus on getting the best price for our high-quality milk.

“The potential is strong as Chinese demand for high-quality local fresh milk continues to grow. In
February this year, we launched a new premium ‘Daily Fresh’ milk range alongside Alibaba’s Hema
Fresh stores in Shanghai and Suzhou. This milk is sourced directly from our farm hub in Hebei
province. While early days, the opportunity for scale and reach alongside Alibaba is huge.”

Our Greater China Business

In talking about Fonterra’s Greater China business, Mr Spierings says that while the Beingmate
investment has underperformed, the Co-operative’s integrated Greater China business is delivering
positive results for shareholders and unitholders and continues to have high growth prospects.

“In our first half, China volumes accounted for 2.2 billion LME of our total 9.8 billion LME in
ingredients, with around 80 per cent of this milk sourced in New Zealand. In our Consumer and
Foodservice business, China volumes accounted for 600 million LMEs of the total 2.7 billion LMEs
sold over the first half, with Consumer and Foodservice in Greater China achieving normalised
EBIT of $92 million* on volume growth of three per cent compared to the same period last year.

“Clearly the outcome of re-assessing the value of our investment in Beingmate downwards is
unacceptable to our shareholders and unitholders. The recovery of the value of this investment is
the number one immediate priority for me and the senior management team.

“To be blunt, the investment in Beingmate has not gone the way we expected and there are things
we would do differently knowing what we know now. We are very focused on doing all we can to
get things where they need to be.

“As an 18.8 per cent shareholder, we do not have direct control over the company but we are
influencing its direction and continue to call for an urgent business transformation by working co-
operatively with Beingmate’s founder and majority shareholder. We see there are a number of
opportunities to reverse the current performance, unlock the distribution network and meet
customers’ preferences for e-commerce.

“While this seems like a slow process and we’re not allowed to share all of the information about
Beingmate’s business, we are working hard in the background to get ourselves in a position where
there is a tangible action plan for transforming Beingmate that we can share more widely and
monitor progress,” says Mr Spierings.

A working group of the Board – that includes Independent Directors Simon Israel and Clinton Dines,
who both have significant China experience and expertise – is providing guidance and oversight as
the senior management team work to recover the investment.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 4


Outlook

Fonterra expects its earnings to be weighted to the second half of the year.

Despite more favourable weather conditions recently, the Co-operative still expects its New
Zealand milk volumes to be down for the year and will be managing its inventory and product mix
carefully for the remainder of the season to ensure it maximises the overall value of its farmers’
milk.

Mr Spierings says a strong commitment to the V3 strategy of shifting more volume into higher value
products at velocity is critical to the business achieving its forecast.

“We will continue to put as much milk as possible into higher value products, particularly into our
Advanced Ingredients business, and Consumer and Foodservice business where we are still
targeting an additional 400 million litres of volume this year.

“Our Co-operative remains focused on delivering sustainable value for our farmers – that’s a
sustainable Farmgate Milk Price, dividend, and return on their investment in the Co-op as we
provide high quality dairy nutrition to consumers around the world.”

The record date for the payment of the dividend is 6 April 2018, and the payment date is 20 April
2018. The Co-operative will continue to offer a dividend reinvestment plan, the strike price at which
shares are issued incorporating a discount of 2.5%. Eligible shareholders who wish to participate in
the dividend reinvestment plan for this dividend need to submit a notice of participation by 6 April
2018.

Click here to view Fonterra’s Interim Results presentation and Interim Review.

Non-GAAP financial information
Fonterra uses several non-GAAP measures when discussing financial performance. These
measures include normalised segment earnings, normalised EBIT, EBIT, normalisation
adjustments, normalised earnings per share, normalised NPAT and payout. These are non-GAAP
financial measures and are not defined 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. These non-GAAP measures are not subject to audit.

Definitions of the non-GAAP measures used by Fonterra, and reconciliations of the NZ IFRS
measures to the non-GAAP measures can be found on pages 48 to 49 of Fonterra’s Interim Report
that is available on Fonterra’s website here.


ENDS

For further information contact:
Simon Till
Director Capital Markets
Phone: +64 21 777 807

---

OUR
PO
T
E
N
TI
A
L
OUR
CO
-
OPERATIVE
OUR
PERFORMANCE
Interim
Result 2018
21 MARCH 2018

© Fonterra Co-operative Group Ltd.
Page 2
Disclaimer
This presentation may contain forward-looking statements and projections. There can be no certainty of outcome in relation to the
matters to which the forward-looking statements and projections relate. These forward-looking statements and projections involve
known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be
materiallydifferentfromtheeventsorresultsexpressedorimpliedbysuchstatementsandprojections.Thoserisks,uncertainties,
assumptions and other important factors are not all within the control of Fonterra Co-operative Group Limited (Fonterra) and its
subsidiaries (the Fonterra Group) and cannot be predicted by the FonterraGroup.
While all reasonable care has been taken in the preparation of this presentation none of Fonterra or any of its respective
subsidiaries, affiliates and associated companies (or any of their respective officers, employees or agents) (Relevant Persons)
makes any representation, assurance or guarantee as to the accuracy or completeness of any information in this presentation or
likelihoodoffulfilmentofanyforward-lookingstatementorprojectionoranyoutcomesexpressedorimpliedinanyforward-looking
statement or projection. The forward-looking statements and projections in this report reflect views held only at the date of
thispresentation.
Statementsaboutpastperformancearenotnecessarilyindicativeoffutureperformance.
ExceptasrequiredbyapplicablelaworanyapplicableListingRules,theRelevantPersonsdisclaimanyobligationorundertakingto
update any information in thispresentation.
Thispresentationdoesnotconstituteinvestmentadvice,oraninducement,recommendationoroffertobuy orsellany securitiesin
Fonterra or the Fonterra Shareholders’Fund.

© Fonterra Co-operative Group Ltd.
Page 3
•Industry outlook continues to be positive
•Global dairy prices reflect ongoing strong demand
•An increase in EU production may cause price volatility
Value
Creation
•Operating performance in line with expectations
•Danone costs and Beingmate impairment impacted our result
•Greater China operations making a significant contribution
•Comprehensive sustainability report issued
•Creating strong, healthy local environments and communities
•Advancing innovation and investing in the future
Global
Context
Trust

Page 4
Confidential to Fonterra Co-operative Group
Our Co-operative

© Fonterra Co-operative Group Ltd.
Page 5
Higher forecast pay-out for farmers
4.726.107.606.085.848.404.403.906.126.55
0.48
0.27
0.30
0.32
0.32
0.10
0.25
0.40
Range
0.25
to
0.35
5.20
6.37
7.90
6.40
6.16
8.50
4.65
4.30
6.52
2009201020112012201320142015201620172018
forecast
Farmgate Milk PriceDividend
Improved Farmgate Milk Price, plus forecast dividend range
1.For farm budgeting purposes a target full year dividend range of 25-35 cents per share is assumed. The dividend will be calculated in accordance with
Fonterra policy of paying out 65-75 per cent of adjusted net profit after tax over time.
Note: Farmgate Milk Price: $ per kgMS; Dividend: $ per share
Indicative
payoutfor
budgeting¹
6.80-6.90
0.40

© Fonterra Co-operative Group Ltd.
Page 6
10
20
30
40
50
60
70
80
90
100
JunJulAugSepOctNovDecJanFebMarAprMay
Volume (m litres/day)
Difficult weather conditions impacted New Zealand supply
Outlook for lower volumes overall this season
SeasonTotal Milk Solids (kgMS)Peak Day Milk
—2015/161,566m (down 3%)87m litres
—2016/171,526m (down 3%)80m litres
—2017/18F1,480m (down 3%)82mlitres
•Season forecast is
1,480 million
kgMS, 3% down
on last year
•Driven by difficult
weather
conditions
impacting
pasturegrowth
•Last season
benefited from
strong late season
collections

© Fonterra Co-operative Group Ltd.
Page 7
Global demand for dairy remains strong
Note: All 12 month figures are rolling 12-months compared to previous comparable period: Australia (Jan), EU (Dec), United States (Dec), China (Dec), Asia
(Oct), Middle East & Africa (Oct), Latin America (Oct)
Source: Government milk production statistics; GTIS trade data; Fonterra analysis
Demand
Supply
Russia
EU’s largest dairy
export market –trade
embargo remains
US
12 months
production
+1
%
Australia
12 months
production
0
%
Fonterra in NZ
12 months
production
Last 3 months
(Dec, Jan, Feb)
-6
%
1
%
Asia (excl China)
12 months
imports
+4
%
Middle East & Africa
12 months
imports
-1
%
EU
12 months
production
Last 3 months
(Oct, Nov, Dec)
+2
%
Latin America
12 months
imports
+5
%
China
12 months
imports
Last 3 months
(Oct, Nov, Dec)
+13
%
+16
%
-1
%

© Fonterra Co-operative Group Ltd.
Page 8
4,000
6,000
8,000
10,000
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
2,000
3,000
4,000
5,000
6,000
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Note: All prices in US dollars per MT, growth rate percentages represent growth for the six months to 31 January 2018. Source: GDT data
HY refers to the six month period ended 31January
Stable WMP prices –key driver of milk price
Positive stream returns contribute to earnings this half
Products informing milk price
Other products
2,000
3,000
4,000
5,000
6,000
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
1,000
2,000
3,000
4,000
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Skim Milk Powder
Cheddar
Rennet Casein
Whole Milk Powder
HY2017
Avg price $3,038
HY2018
Avg price $2,974
HY2017
Avg price $2,376
HY2018
Avg price $1,835
HY2017
Avg price $3,514
HY2018
Avg price $3,835
HY2017
Avg price $6,367
HY2018
Avg price $5,424

© Fonterra Co-operative Group Ltd.
Page 9
Higher input costs impacting returns
1.Prices for fresh cream have been used as a proxy for UHT cream.
Note: All prices in US dollars per MT, Source: GDT data, Dairy Australia and UDSNZ. HY refers to the
six month period ended 31January
Significant increase in fat prices, particularly butter
•Transfer price for Consumer
and Foodservice set quarterly
–Based on market prices
–3-month lag
•Significant increase in
commodity prices HY18
vs.HY17
–Butter prices up 80%
–Cream¹ prices up 18%
Pricing period determining the transfer price
from Ingredients to Consumer and
Foodservice for the six months ended 31 Jan
Year-on-year growth between pricing periods
of May to October
2,000
4,000
6,000
8,000
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
4,500
6,500
8,500
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Cream¹
Butter
18%
HY2017
Avgprice $3,938
80%
Average price for the reporting period August
to January
HY2018
Avg price $5,346
HY2017
Avg price $5,661
HY2018
Avg price $6,456

© Fonterra Co-operative Group Ltd.
Page 10
0.0
0.2
0.4
0.6
0.8
1980198419881992199620012005200920132018
Globally competitive cash pay-out
Driven by our demand-led strategy
Note: All prices are adjusted to a milk composition of 3.5% protein and 4.2% fat and for spot exchange rates
Source: DairyNZ (NZ to Dec 2017);Fonterra announced pay-out (milk price and dividend) (NZ from Jan 2018); USDA;
European Milk Market Observatory (Netherlands milk price)
•Higher NZ pay-out this
season
•Farmgate Milk Price
Manual reinforces
competitive milk price
•The 2016 manual change
has added six cents per
kgMS to milk price for the
2017/18 season-to-date
Global Milk Prices (USD / litre)
0.3
0.5
EUUSNZ

Page 11
Confidential to Fonterra Co-operative Group
Our Potential

© Fonterra Co-operative Group Ltd.
Page 12
1.Reported OPEX has been adjusted to normalise the impact of the Danone arbitration.
2.Adjusted to reflect abnormal items this period.
3.Includes inter-company sales. Prior year volumes include 30m LME of
milkpowdersnot included this year.
Ingredients
Volume (LME)³9.8B
Gross Margin11.1%
NormalisedEBIT$558M
Operating performance in line with expectations
Result impacted by lower volumes and abnormal items
China Farms
Volume (LME)³0.1B
Gross Margin (6.1)%
Normalised EBIT$(12)M
GROSSMARGIN
$1,662M
6%
REVENUE
$9.8B
6%
VOLUME
10.5BLME
11%
INTERIMDIVIDEND
10CPS
NORMALISEDEBIT
$458M
25%
NORMALISED OPEX¹
$1,263M
3%
Consumer and Foodservice
Volume (LME)³ 2.7B
Gross Margin 23.6%
Normalised EBIT$193M
NET PROFIT AFTERTAX
$(348M)
183%
NORMALISED NPAT²
$248M
36%, EPS
2
15c

© Fonterra Co-operative Group Ltd.
Page 13
Result impacted by Danone costs and Beingmate
Normalised earnings better reflect operating performance
1.NPAT is net profit after tax.
2.Includes $26m of net finance costs, and $62m of tax credits.
3.Beingmate investment includes $405m of impairment and $28m share of operating losses.
•Normalised NPAT of $248m
–Equates to normalised Earning
Per Share of 15 cents
–Total normalisations of$596m
•Beingmate investment
normalisation includes unrealised
impairment and share of operating
losses
•Danone arbitration decision
amount includes the finance costs
of the payment and a tax credit
$248
($3)
($160)
($433)
(400)
(200)
0
200
400
Reported
NPAT
Beingmate
Investment
3
Danone
arbitration
decision
2
Other
Normalised
NPAT
($348)
Half Year NPAT
1
reconciliation ($m)

© Fonterra Co-operative Group Ltd.
Page 14
2%
22%
33%
19%
11%
13%
Strategy focussed on moving volume to value
Lower volumes but increased proportion in higher value categories
Note: Wheel shows percentage of total first six months external sales (LME); Consumer, Foodservice and Ingredients growth ratesinclude intercompany sales
Deliver
onFoodservicepotential
Selectivelyinvest
in milkpools
Grow
ourAnlene™business
Develop
leadingpositionsin
paed& maternalnutrition
Optimise
NZmilk
1
Align
our business andorganisation
Build andgrow
beyond our current
consumerpositions
3
2
4
5
6
7
•Volumes down 11% to
10.5b LME
•GDT
–Volumes aligned with
lower production
•Ingredients
–Lower milk
collections, low
opening inventory
•Consumer & Foodservice
–Moved from butter to
higher margin cream
–Challenges in NZ
impacting Consumer
DIRA
19%
Consumer
3%
Foodservice
HY
10.5b
LME
0%
GDT
5%
Advanced
Ingredients
6%
Base
Ingredients
16%
Arrows represent H1FY18sales
volume relative toH1FY17

© Fonterra Co-operative Group Ltd.
Page 15
Greater China integrated strategy
Growing volume and value in our most important market
1.Billion LME.
2.Gross margin in $ million.
3.Includes 18.8% of Beingmate.
4.Indicative share of sourcing.
Deliver
on Foodservice potential
Selectively invest
in milk pools
Grow
our active living business
Develop leading positions
in paed & maternal nutrition
Optimise
NZ milk
1
Align
our business and organisation
Buildandgrow
beyond our current
consumerpositions
3
2
4
5
6
7
Strategic rationale
Ingredients
Consumer & Foodservice
Advanced Nutrition³
Domestic Milk Pool
HY18 LME¹
1.7bn
2.2bn
0.02bn
0.02bn
HY18 $GM²
40m
34m
China is a growing net
importerof dairy
Safe Consumer brands
Chinese partner
Farming at scale
Capabilities
1
2
3
4
5
7
6
HY2015
HY2018
134m
216m
(8m)
(3m)
148m
78m
0.3bn
0.6bn
0.10bn
0.13bn
77
10
7 6
NZ
AUEUChina
Percentage of Fonterra milk into China
4

© Fonterra Co-operative Group Ltd.
Page 16
(200)
0
200
400
HY15HY16HY17HY18
0
1,000
2,000
3,000
4,000
HY15HY16HY17HY18
Gross Margin ($m)
Volume (m LME)
1.Consumer and foodservice includes Quick Service restaurants and corporate overheads allocation.
2.H1 2018 includes normalisation adjustment for Beingmate impairment and share of losses.
Greater China growing volumes and earnings
Currently 23% of Fonterra total gross margin and 28% of volume
•Our integrated business in Greater
China, including Taiwan and
HongKong, is delivering value
•Gross margin of $390 million, 23%
of total Fonterra gross margin
•From HY15 to HY18:
–Volume growth of 45% and
gross margin growth of 57%
–Consumer and Foodservice
volumes have doubled and
gross margin is up 54%
–Ingredients volumes and gross
margin up 36% and 61%
Consumer &
Foodservice
Ingredients
China Farms
Consumer &
Foodservice
1,2
Ingredients
China Farms
45%
57%