Fonterra lifts earnings guidance, posts strong Q1

8 December 2022

Fonterra lifts earnings guidance, posts strong Q1


Fonterra Co-operative Group Limited today upgraded its earnings guidance to 50 – 70 cents per share
from 45 - 60 cents per share and lowered and narrowed its forecast Farmgate Milk Price range of $8.50 -
$10.00 per kgMS to $8.50 - $9.50 per kgMS, with a midpoint of $9.00 while holding its advance rate. It
also reported a strong start to the 2023 financial year.

Fonterra CEO Miles Hurrell said it was a positive start to the year given the current global operating
environment. “We continue to feel the impact of geopolitical and macroeconomic events, with higher
costs at every point in our supply chain. It’s a similar story behind the farm gate with our farmer
shareholders managing significantly higher input costs.

“Globally, milk supply from key exporting regions is down over the last 12 months. Production in Europe
and Australia continues to be down, with US milk supply showing a slight improvement in recent months.
Here in New Zealand, our milk production is down 2.9% on the same point last season.

“Global market volatility has prompted some softening of demand for whole milk powder, particularly in
Greater China and this is reflected in our forecast Farmgate Milk Price range. We’ve seen increased
participation from other regions which has offset in part the drop in demand from Greater China. While it’s
still early in the financial year, we are happy with our sales contract rate.”

Financial performance

“The strong performance of our Ingredients channel reflects continued favourable margins in our protein
portfolio, particularly for our casein and caseinate products used in medical nutrition. This is driving the
increase in Total Group normalised EBIT, which is up 94% to $368 million. Normalised profit after tax is
also up 84% to $214 million and normalised earnings per share are 13 cents, compared with 7 cents at
the same point last year.

“The sustained strong margins in our protein portfolio give us the confidence to upgrade our earnings
guidance, although the wider range reflects the volatility in the market which we expect to continue in the
short to medium term. If these conditions continue for a further extended period, it could have an
additional positive impact on forecast earnings.”

Performance in the Co-op’s Foodservice channel improved relative to the same period last year, but the
high milk price is continuing to put significant pressure on margins in both the Foodservice and Consumer
channels.

Mr Hurrell said significant progress had been made on shipping the additional inventory held at financial
year end. “As planned, inventory volume has returned to normal levels. Lower milk collections at the start
of the season have also contributed to the reduced inventory levels.”

Fonterra Co-operative Group
Page 2


Progress against strategy

Mr Hurrell said the Co-op was making good progress against its 2030 strategic ambitions. “As we focus
on our New Zealand milk pool, we’ve agreed the sale of our Chilean business. We continue to target a
significant capital return for our farmer shareholders and unit holders.

“Sustainability is at the heart of everything we do. We recently released our Sustainable Finance
Framework, which aligns our funding strategy with our sustainability ambitions.

“Together with Nestlé, we’re working on a New Zealand first - the development of a commercially viable,
Net Zero Carbon, dairy farm. Over the next five years, the partnership will examine all aspects of farm
operations to identify opportunities for carbon reduction by using proven and future technologies to work
towards its net zero carbon target. We’ve also signalled that we’re considering setting a target for scope 3
emissions.

“A strong united Co-op is important for our shareholders, our unit holders and New Zealand as a whole,
so we’re looking forward to implementing our Flexible Shareholding capital structure next year.

“Our Flexible Shareholding capital structure makes it easier for new farmers to join our Co-op, and for
existing farmers to remain with our Co-op. This supports our strategy, to maintain a sustainable milk
supply, protect farmer ownership and control, and support a stable balance sheet.”

Looking ahead, Mr Hurrell said the long-term outlook for dairy remains strong. “There’s no doubt that
we’re in a period of increased global uncertainty. Inflationary pressures are being felt both on farm and
across our business but looking further out, the fundamentals for dairy remain positive.”

ENDS

Non-GAAP financial information

Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined or
specified by NZ IFRS.

Management believes that these measures provide useful information as they provide valuable insight on the underlying
performance of the business. They 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 NZ IFRS.

Non-GAAP measures are not subject to audit unless they are included in Fonterra’s audited annual financial statements.

For further information contact:

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

---

8 December 2022

¹
²
Note: Figures are Total Group, which includes continuing and discontinued operations
1.Includesamounts attributable to non-controlling interests
2.Attributable to equity holders of the Co-operative, excludes $5 million of normalised profit after tax
attributable to non-controlling interests
•Strong first quarter with earnings upgraded to 50-70 cents
per share, and lowered and narrowed the forecast Farmgate
Milk Price range
•Continued high volatility from geopolitical and
macroeconomic events impacting operating environment
•Recent dairy prices reflect both lower milk supply and
variable demand impacted by market volatility
•First quarter earnings performance driven by strong margins
in protein and cheese products
•Inventory volume has returned to normal levels
•Announced sale of Soprole in November, as we make good
progress against our 2030 ambitions
2

Q1FY22
3
1.Source: GlobalDairyTrade
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in which the sale would be deemed for financial reporting purposes to have been
completed, and will normally be the month in which the sale is invoiced and the product is shipped
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butterprices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
2,000
31 Jul 2131 Jan 22
Reference and non-reference (cheddar) price relativities on GDT¹
(USD/MT)
31 Jul 22
,
,
4,000
6,000
Q1FY23
31 Jan 23
•Cheddar prices illustrate the favourable price relativities of
cheese compared to powder and cream products
•Price relativities of other proteins are even more favourable
•Price relativities are significantly favourable compared to
average historical levels
2,000
4,000
2017
(USD/MT)
2022
,
,
6,000
2019201820202021
,
,
,
,
,
,
,
,
,
Reference product shipment price² ³
Non-reference (cheddar) product shipment price² ⁴
Non-reference product (cheddar) contract shipment price² ⁴
Reference product contract shipment price² ³
Reference product shipment price² ³
Non-reference (cheese) product shipment price² ⁴
Non-reference product contract shipment price² ⁴
Reference product contract shipment price² ³

12 month milk supply growth year-on-year¹
Milk supply of key exporting regions for the
12 months to September¹ (billion, litres)
Source: Dairy Companies Association of New Zealand (DCANZ), Dairy Australia, United States Department of Agriculture (USDA) and Eurostat
1.Milk supply figures are for 1 October to 30 September. Key exportingregions include New Zealand, Australia, United States and European Union (excluding UK)
•12 month year-on-year milk supply is down in key
exporting regions
•US production flat with improvement in recent months.
Reduction in New Zealand, Australia and Europe
•Fonterra’s New Zealand milk collections are down 2.9%
season-to-date, as at the end of November
2019202020212022
4

0
3,000
6,000
9,000
12,000
15,000
WMPSMPCheddarCasein
202120222023 Q1
Average product prices
(US$/MT)
•Continued strong prices for our protein portfolio including:
ocasein and caseinate used in food applications for medical
nutritionand processed cheese; and
owhey protein concentrate, used in products such as high
proteinbeverages
•Macroeconomic and geopolitical events resulting in softening of whole
milk powder prices in USD
Source: GDT and USDA
5

Monthly Milk Price 2021/22 Season
Monthly Milk Price 2022/23 Season¹
•USD product prices started the FY23 season higher
than prior season, but have subsequently reduced
•Macroeconomic and geopolitical events resulting in
softening of powder prices, with WMP USD prices on
GDT down on average 22% in the first quarter
compared to highs experienced in March 2022
•Lower USD product prices offset by favourable
foreign exchange conversion rate compared to FY22
8.00
10.00
(NZ$)
31 May31 Aug30 Nov28 Feb
Monthly Milk Prices
31 May
11.00
9.00
1. 2022/23 Season monthly milk prices are subject to change throughout the season
6

million
∆
¹
Sales volume (‘000 MT)
Revenue ($)
Cost of goods sold ($)
Gross profit ($)
Gross margin (%)
Operating expenses ($)
Other
²
($)
Normalised EBIT($)
Normalised profit after
tax
³
($)
Normalised EPS
⁴
(cents)
Note: Total Group figures are for the three months ended 31 October. This includes continuing and
discontinued operations and are on a normalised basis unless otherwise stated
1.Percentages as shown in the table may not align to the calculation of percentages based on numbers
in the table due to rounding of figures
2.Consists of other operating income, net foreign exchange gains/(losses) and share of profit or loss on equity
accounted investees
3.Includesamounts attributable to non-controlling interests
4.Attributable to equity holders of the Co-operative, excludes $5 million of normalised profit after tax attributable
to non-controlling interests
•Higher sales volumes reflect catch-up of delayed shipments
which impacted FY22 year end inventory
•Gross margin up due to strong product prices, partially offset
by higher monthly milk prices increasing cost of goods sold
•Increased operating expenditure reflects higher sales volume
and inflationary pressure felt across the business
•Substantial improvement in gross profit (up 43%) and
normalised EBIT (up 94%) driven by:
ofavourable pricing in our Ingredients channel, particularly
in our protein and cheese portfolios
oFoodservice EBIT improved, but cost of milk continues to
impact margins in Consumer and Foodservice
7

30 November31 October31 July
FY21FY22
Inventoryvolume (‘000 MT)
•As planned, total inventory volume has returned to
normal levels
•Additional year end inventory of 126,000 MT shipped
during the first quarter
•Lower milk collections this season have also
contributed to inventory level
31 July31 October30 November
FY23

•Flexible Shareholding capital structure to be implemented in
late March 2023
•Agreement to sell Soproleannounced in November –targeting
a significant capital return
•Launch of Sustainable Finance Framework –aligning funding
strategy with sustainability ambitions
•Development of commercially-viable, Net Zero Carbon dairy
farm with Nestlé
•Considering a scope 3 emissions target
9

per kgMS
•USD product prices started the FY23 season higher than
prior season, but have subsequently reduced reflecting
variable demand impacted by market volatility
•Favourable foreign exchange conversion has partially
offsetting reduced USD product prices
Source: GlobalDairyTrade. Data is up to GDT event 320on 15November 2022
1.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butter prices
2.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month in
which the sale would be deemed for financial reporting purposes to have been completed, and will normally be the month in which the sale is invoiced and
the product is shipped
31 Oct 22
2021/22
Season
2020/21
Season
2022/23
Season
Forecast
,
3,000
4,000
5,000
Reference product prices (US$/MT)
Average reference product shipment price for the season
31 May 2031 May 2131 May 22
Reference product shipment price¹ ²
10

per share
•Strong margins in protein portfolio have sustained longer
than expected
•Favourable contract rate but overall heightened market
volatility continues
FY22 H2FY22 H1FY23 H1
,
,
3,000
4,000
5,000
Reference and non-reference
product prices (US$/MT)
,
,
Source: GlobalDairyTrade. Data is up to GDT event 320 on 15November 2022
1.The shipment price is a weighted average price of GDT contracts struck 1 to 5 months prior to the agreed shipment month. Shipment month is the month
in which the sale would be deemed for financial reporting purposes to have been completed, and will normally be the month in which the sale is invoiced
and the product is shipped
2.The contracted shipment price is the weighted average shipment price of GDT contracts won 1 to 5 months prior on the GlobalDairyTrade platform. These
contracts are yet to be shipped or invoiced and the weighted average price will change closer to the actual shipment date as newcontracts are written
3.Reference product shipment price is represented by a weighted average of the WMP, SMP, AMF and butter prices achieved on GDT
4.Non-reference product shipment price is represented by the cheddar prices achieved on GDT
6,000
11
31 Jul 2131 Jan 2231 Jul 2231 Jan 23
Non-reference product shipment price¹ ⁴
Reference product shipment price¹ ³
Non-reference product contract shipment price² ⁴
Reference product contract shipment price² ³
31 Jan 23

12

¹
21
178
250
190
368
20192020202120222023
EBIT ($ million)
641
746
758
661
944
20192020202120222023
Gross Profit ($ million)
(1,245)
(648)
(845)
(1,168)
(568)
20192020202120222023
Free Cash Flow ($ million)
²
1.Total Group figures for the three months ended31 October. This includes continuing and discontinued operations, and are on a normalised basis unless stated otherwise
2.Free cash flow is not normalised. Refer to Glossary for definition
3.9
4.24.2
4.4
5.8
20192020202120222023
Revenue ($ billion)
783
831
832
801
875
20192020202120222023
Sales Volume ('000 MT)
656
552
523
513
581
20192020202120222023
Opex ($ million)
13

0
10
20
30
40
50
60
70
80
90
JunJulAugSepOctNovDecJanFebMarAprMay
•Season to date collections June-
November were 680.8 million
kgMS, 2.9% behind last season
•Challenging wet weather
conditions throughout the
North Island combined with a
reduction in the number of cows
has reduced peak production
•Full season forecast is 1,480
million kgMS
•Milk flows for the balance of the
season expected to improve
compared to last season given
the challenging summer/autumn
period experienced in 2021/22
SeasonTotal Milk Solids
(kgMS)
Peak Day
Milk
2020/21
1,539m (up 1.5%)
83m litres
2021/221,478m (down 4.0%)
80m litres
2022/231,480m¹ (up 0.1%)
78m litres
Volume (m litres/day)
1. Current full season forecast
14

Means kilograms of milk solids, the measure of the
amount of fat and protein in the milk supplied to Fonterra
Normalised earnings per share is calculated as normalised
profit after tax attributed to equity holders of the Co-operative
divided by the weighted average number of shares on issue for
the period
Is aperiod of 12 months from 1 June to 31 May for the New
Zealand milk collected
Means the average price paid by Fonterra for each kilogram of
milk solids (kgMS) supplied by Fonterra’s farmer shareholders
under Fonterra’s standard terms of supply. The season refers to
the 12-month milk season of 1 June to 31 May. The Farmgate
Milk Price is set by the Board, based on the recommendation of
the Milk Price Panel. In making that recommendation, the Panel
provides assurance to the Board that the Farmgate Milk Price
has been calculated in accordance with the Farmgate Milk Price
Manual
Is the total of net cash flows from operating activities and net
cash flows from investing activities
15

Disclaimer
Thispresentationmaycontainforward-lookingstatementsandprojections.Therecanbenocertaintyofoutcomein
relationtothematterstowhichtheforward-lookingstatementsandprojectionsrelate.Theseforward-lookingstatements
andprojectionsinvolveknownandunknownrisks,uncertainties,assumptionsandotherimportantfactorsthatcouldcause
theactualoutcomestobemateriallydifferentfromtheeventsorresultsexpressedorimpliedbysuchstatementsand
projections.Thoserisks,uncertainties,assumptionsandotherimportantfactorsarenotallwithinthecontrolofFonterra
Co-operativeGroupLimited(Fonterra)anditssubsidiaries(theFonterraGroup)andcannotbepredictedbytheFonterra
Group.
Whileallreasonablecarehasbeentakeninthepreparationofthispresentation,noneofFonterraoranyofitsrespective
subsidiaries,affiliatesandassociatedcompanies(oranyoftheirrespectiveofficers,employeesoragents)(Relevant
Persons)makesanyrepresentation,assuranceorguaranteeastotheaccuracyorcompletenessofanyinformationinthis
presentationorlikelihoodoffulfilmentofanyforward-lookingstatementorprojectionoranyoutcomesexpressedor
impliedinanyforward-lookingstatementorprojection.Theforward-lookingstatementsandprojectionsinthisreportreflect
viewsheldonlyatthedateofthispresentation.
Statementsaboutpastperformancearenotnecessarilyindicativeoffutureperformance.
ExceptasrequiredbyapplicablelaworanyapplicableListingRules,theRelevantPersonsdisclaimanyobligationor
undertakingtoupdateanyinformationinthispresentation.
Thispresentationdoesnotconstituteinvestmentadvice,oraninducement,recommendationoroffertobuyorsellany
securitiesinFonterraortheFonterraShareholders’Fund.
16

Fonterra uses several non-GAAP measures when discussing financial performance. Non-GAAP measures are not defined
or specified by NZ IFRS.
Management believes that these measures provide useful information as they provide valuable insight on the underlying
performance of the business. They 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 NZ IFRS. Non-GAAP measures are
not subject to audit unless they are included in Fonterra’s audited annual financial statements.
Definitions of non-GAAP measures used by Fonterra can be found in the Glossary.
17