Fonterra increases forecast Milk Price & reduces earnings

28 FEBRUARY 2019

FONTERRA INCREASES 2018/19 FORECAST FARMGATE MILK PRICE
AND REDUCES EARNINGS GUIDANCE

• 2018/19 forecast Farmgate Milk Price range increased to $6.30-$6.60 per kgMS
• DIRA Milk Price and Advance Rate based on $6.45 per kgMS
• FY19 forecast earnings per share revised to 15-25 cents per share
• No interim dividend
• Full strategic review underway – including the dividend policy
• Forecast milk collections revised to 1,530 million kgMS

Fonterra Co-operative Group Limited has increased its 2018/19 forecast Farmgate Milk
Price range to $6.30-$6.60 per kgMS, up from $6.00-$6.30, and revised its forecast
earnings down to 15-25 cents per share.

Chairman John Monaghan says the improved milk price forecast reflects the increases in
global milk prices over the last quarter.

“Since our last milk price update in December, global demand has strengthened. This is
driven predominantly by stronger demand from Asia, including Greater China. The
European Union’s (EU) intervention stocks of Skim Milk Powder (SMP) have also now
cleared for the season and, as a result, we expect demand for SMP to be strong.

“Global supply remains above last season’s levels, but growth has slowed due to
challenging weather conditions in some of the world’s largest milk producing regions – in
particular, Australia’s milk production is forecast to be down 5-7% on last season and the
EU’s growth has slowed and is now forecast to be less than 1% up on last year.

“Here in New Zealand, due to hot, dry weather since the start of the year, we’ve revised
our Co-op’s forecast milk collections down from 1,550 million kgMS to 1,530 million kgMS.
This is up 2% on last year.

“We’ve seen the positive impact of this supply-demand picture on a couple of fronts – the
number of bidders and, more importantly, prices for the reference products that make up
our milk price have increased over the last six GDT events.

“We expect demand to remain stronger relative to supply for the rest of the season.”

The DIRA milk price and the advance rate paid to farmers have been set off a milk price
of $6.45 per kgMS.

Fonterra is also advising its farmers and unit holders that its forecast earnings range has
been reduced to 15-25 cents per share and that it will not be paying an interim dividend. A
decision on any full year dividend can only be made at the end of the financial year, and
will depend on the Co-op’s full year earnings and balance sheet position.

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

Mr Monaghan says that, while the milk price is strong, the Co-op’s earnings performance
is not satisfactory and the Co-op needs to deliver farmers and unit holders a respectable
return on their investment. The Board is making solid progress with a full review of the
strategy which includes a review of the dividend policy.

“We are taking a close look at our business with our portfolio review, where we can win in
the world, and the products and markets where we have a real competitive advantage.
We need a fundamental change in direction if we are to deliver on our full potential. We
will provide an update on the strategy and the progress that has been made on the
portfolio review at our interim results on March 20.”

CEO Miles Hurrell says the underlying performance of the business is not where it needs
to be.

“The main pressure points on our earnings are the three we highlighted in our Q1
business update – that’s challenges in our Australian Ingredients and our Foodservice
businesses in wider Asia. We are making inroads in addressing them but they will not be
solved overnight.

“Since our Q1 business update, we have also felt the impact of difficult trading conditions
in Latin America, mainly due to geopolitical situations in some countries. In addition, the
increase in milk price, which is the primary cost input into our non-milk price products, has
put pressure on the margins for those products, and they significantly contribute to our
earnings.

“We remain committed to financial discipline. We are making good progress on our
portfolio review and asset divestments in order to reduce our debt by $800 million this
financial year. We are also on track to meet our targets for capital expenditure and
operating expenses,” says Mr Hurrell.

-ENDS-

For further information contact:
Fonterra Communications
24-hour media line
Phone: +64 21 507 072