Northington Partners Independent Report

19 October 2023

Northington Partners Independent Report

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

ENDS

For further information contact:

Anya Wicks
Company Secretary
Phone: +64 21 283 0945

---

FONTERRA
CO-OPERATIVE
COUNCIL
Review of FY23 Performance
Fonterra Co-operative Group
October 2023

Review of FY23 Performance |
2
Important Notice
Declarations
This report is dated 19 October 2023 and has been prepared by Northington Partners at the request
of the Fonterra Co-operative Council (“
FCC”) on behalf of Fonterra Co-operative Group Limited
(“
Fonterra”) for the purposes of s109LA of the Dairy Industry Restructuring Act 2001. The report is
intended to provide Fonterra shareholders and unitholders with an independent review of Fonterra’s
performance for FY23.
The analysis and views expressed in this report have been prepared independently of Fonterra and
FCC by Northington Partners. Fonterra has not provided any input into the content of this report and
provides no warranty or assurance as to the accuracy, adequacy or completeness of the information
in it. Fonterra does not accept or assume any duty, responsibility or liability to any party (including,
without limitation, in negligence) in connection with this report.
Qualifications
Northington Partners provides an independent corporate advisory service to companies operating
throughout New Zealand. The company specialises in corporate advisory, mergers and acquisitions,
capital raising support, expert opinions, financial instrument valuations, and business and share
valuations. Northington Partners is retained by a mix of publicly listed companies, substantial
privately held companies, and state-owned enterprises.
The individuals responsible for preparing this report are Greg Anderson B.Com, M.Com (Hons), Ph.D,
Jonathan Burke B.Com (Hons), Marcus Henderson CA, BAppSc (Hons), BCom and Fletcher Edmond
BSc. Each individual has a wealth of experience in providing independent corporate finance advice to
a wide range of clients.
Disclaimer and Restrictions on the Scope of our Work
In preparing this report, Northington Partners has relied on publicly available information, unless
stated otherwise. Northington Partners has not performed anything in the nature of an audit of that
information, and does not express any opinion on the reliability, accuracy, or completeness of the
information provided to us and upon which we have relied.
Northington Partners has used the provided information on the basis that it is true and accurate in
material respects and not misleading by reason of omission or otherwise. Accordingly, neither
Northington Partners nor its Directors, employees or agents, accept any responsibility or liability for
any such information being inaccurate, incomplete, unreliable or not soundly based or for any errors
in the analysis, statements and opinions provided in this report resulting directly or indirectly from any
such circumstances or from any assumptions upon which this report is based proving unjustified.
We reserve the right, but will be under no obligation, to review or amend our report if any additional
information which was in existence on the date of this report was not brought to our attention, or
subsequently comes to light.
To the maximum extent permitted by law, Northington Partners, its affiliates, directors, officers and
employees will not be liable for any loss or damage arising as a result ofreliance being placed on any
of the information contained in this report.

Review of FY23 Performance |
FY23 Highlights
Record Earnings and
Return on Capital
Fonterra reported a record full year normalised EBIT of $1,881 million, a material 90% increase on last year’s result of $991 million. Favourable
price relativities between Reference and Non-Reference Products continued in the second half of the financial year, helping to drive a 12.4%
return on capital (6.8% in FY22) and a significant improvement in normalised earnings per share (80 cents compared to 35 cents last year).
Ingredients Channel
Delivers a Significant
Increase in Earnings
Ingredients was again the largest contributor to EBIT at $1,577 million (+$764 million, +94%), with significantly improved earnings from
Foodservice as well (EBIT of $334 million (+$217 million, +185%)). The Consumer channel reported an EBIT of -$156 million (compared to EBIT
of $16 million in FY22). The Ingredients result reflects a 12% increase in revenue on an 8% increase in volume and an improved gross margin of
15.2% (10.8% in FY22). The loss in the Consumer channel is a result of impairments to the New ZealandConsumer business and Asia brands of
$121 million and $101 million, respectively, as well as increases in operating expenses due to inflation.
Milk Price Negatively
Impacted by Demand
Fonterra declared a final 2022/2023 Farmgate Milk Price (FGMP) of $8.22 per kgMS. A total dividend for the year of 50 cents per share and the
50 cents per share capital return from the Soprole divestment gave an effective total cash return of $9.22 per share backed kgMS. The
reductions in FGMP throughout the 2022/2023 season were the result of weak international demand for whole milk powder (particularly in
China), with prices dropping ~16% on average compared to the 2021/2022 season. This weaker international demand has continued in to the
2023/2024 season.
Resource Allocation
Framework and Targets
Introduced
Fonterra has introduced a Resource Allocation Framework to provide a clear structure for operational priorities, the allocation of milk into
product divisions and the allocation of operating cashflows to debt, new investment opportunities and distributions. Fonterra’s overall objective
is to maximise the risk-adjusted returns for shareholders. To further improve transparency and accountability, targets have also been set for the
following key metrics - cash operating expenses per kgMS and gross profit from core operations per kgMS. The combined benefits from
achieving the stated targets are expected to remove $1.0 billion from Fonterra’s cost base by 2030.
Well Positioned for Capital
Investment
Fonterra’s net debt has significantly reduced from $5.3 billion to $3.2 billion. Key drivers included higher earnings, the unwinding of excess
inventory from FY22 year end and the application of proceeds from the Soprole divestment. The much lower leverage position at the end of
FY23 (Debt/EBITDA of 1.3x vs 3.2x in FY22) means that Fonterra is currently well positioned to meet its capital expenditure requirements and
make long-term sustainability investments.
FY24 Earnings Outlook
The Fonterra Board has forecast earnings of 45 – 60 cents per share for FY24. The lower outlook largely reflects expectations of a reduction in
the favourable price relativities that were maintained throughout FY23, partially offset by forecast improvements in Consumer and Foodservice
margins.
Strong Performance
Against Current Long
Term Aspirations
Fonterra’s performance in FY23 in relation to earnings, return on capital and debt reduction was well ahead of the Long Term Aspiration targets
announced in 2021. The normalised EPS of 80 cents per share delivered in FY23 was a particular standout, well above the 60 cents midpoint
target set for FY30. However, as noted above, the strong performance in FY23 was driven by very favourable price relativities which are expected
to moderate over the FY24 year.
1
2
4
3
5
6
7
3

Review of FY23 Performance |
Table of Contents
SectionPage
Section 1FY23 Results Review5
Financial Performance6
Return on Capital9
Financial Position13
Outlook15
Section 2Revisiting Fonterra’s Long TermAspirations16
Long Term Strategy17
Drivers of Earnings19
Capital Structure22
Shareholder Returns24
Appendix – SupportingInformation27
4

Section 1:
FY23 Results Review
FONTERRA
CO-OPERATIVE
COUNCIL

Review of FY23 Performance |
Fonterra reported a record full year normalised EBIT of $1,881 million, a 90% increase on last year’s result.
Total Group Financial Performance
NZ$ Million (Normalised Basis)FY22FY23% Change
Sales Volume (‘000 MT)3,9243,9731%
Total Revenue 23,42526,04611%
Cost of Goods Sold(20,085)(21,447)7%
Gross Profit3,3404,59938%
Gross Margin14.3%17.7%n/a
Operating Expenses(2,397)(2,787)16%
Other Items486944%
Normalised EBIT9911,88190%
Normalised EBIT Margin4.2%7.2%n/a
Normalisations(15)337n/a
Reported EBIT9762,218127%
Reported Net Profit After Tax5831,577170%
Reported Earnings Per Share$0.36$0.95164%
Normalised Earnings Per Share$0.35$0.80129%
Dividend per Share$0.20$0.50150%
Fonterra delivered a record earnings result for FY23, with Normalised EBIT increasing by 90% to
$1.88 billion. Including the gain on sale for the Soprole business, Reported EBIT increased 127%
to $2.22 billion.
Despite limited growth in sales volume (+1%), the continued shift to higher value Non-Reference
Products (particularly cheese and proteins) resulted in an 11% increase in Revenue and a 38%
increase in Gross Profit. Total Group Gross Profit increased $1.3 billion relative to the prior year,
largely due to favourable pricing and margins in the Group’s Ingredients and Foodservice
channels. Gross margins improved materially year-on-year from 14.3% to 17.7%.
Total Group normalised operating expenses were $2.8 billion in FY23, also representing a
significant increase on last financial year. Key elements of this increase included $204 million of
impairments (mainly through the Consumer channel), $103 million for additional employee
benefits and higher professional fees from the implementation of the new Flexible Shareholding
capital structure and divestments.
Despite the increase in operating expenses, Normalised Earnings before Interest and Tax (EBIT)
increased ~90% to $1,881 million. This is equivalent to a Normalised EBIT margin of 7.2% (4.2%
in FY22) and is the highest Normalised EBIT margin since the FY16 result (7.9%, $1,358 million).
Reported EBIT was a record $2,218 million, a 127% increase on the FY22 result.
The combination of key factors outlined above resulted in a record year for the Group with
normalised EPS of 80 cents per share compared to opening guidance of 30 - 45 cents per share.
This result is also at the top end of the 65 cents per share to 80 cents per share guidance
provided in early August.
This outcome allowed the Group to declare a final dividend of 40 cents per share, bringing the
total FY23 dividend to 50 cents per share, equivalent to a 63% payout (slightly above the top of
target payout range of 40% to 60%).
Reported Gross Profit and Gross Margin
6
3,160
3,137
3,340
4,599
15.1%
14.9%
14.3%
17.7%
FY20FY21FY22FY23
Gross Profit (NZ$m)Gross Margin (%)

Review of FY23 Performance |
Financial Performance by Channel
The Ingredients channel had a very strong year in FY23, with an increase in EBIT of $764 million
representing a 94% improvement over the previous year. The main driver of this performance
was the sustained price differential between Non-Reference Products (particularly cheese and
protein portfolios) and Reference Products (particularly WMP and butter) throughout the year.
As summarised in the adjacent chart, FY23 price relativities began at the FY22 peak and
performed above historic levels throughout the year. Management estimates that the earnings
benefit from the pricing differential was mostly delivered via protein and cheese products and
represented close to 40 cents of the 80 cents normalised EPS.
The FY23 result for the Ingredients channel benefited from higher sales volumes due to the sell
down of additional inventory held at FY22 year-end. This sell down was supported by the securing
of new contracts and tenders in both the Asia Pacific and Africa regions. Additionally, the
business was able to increase sales volumes of cream products to European customers on the
back of more competitive pricing. Greater China sales volumes and demand were negatively
impacted by local milk processors converting excess liquid milk into WMP. This is expected to be
a short-term issue, as consumption of dairy continues to increase in China following the lift of
COVID-19 related restrictions.
2,500
5,000
7,500
Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Jan-23Apr-23Jul-23
USD / MT
Cheddar (Non-Reference Product)Whole Mik Powder (Reference Product)
Source: Global Dairy Trade, adjusted forward 3 months to reflect shipment delay.
WMP and Cheddar used as proxies for Reference & Non-Reference Products.
FY23
Price Relativities
FY22
Foodservice EBIT grew to $334 million in FY23 (vs. $117 million in FY22), with particularly strong
performance following in-market price increases in the first quarter, supported by increased out-
of -home dining in Australia and the removal of COVID-19 restrictions in China and Southeast
Asia.
The Consumer channel reported a loss of $156 million at the EBIT level in FY23, compared to a
profit of $16 million in FY22. This result includes $222 million of impairments in the New
Zealand consumer business and Asia brands. The impairments for the New Zealand consumer
business reflect higher input costs which began to flow through during the second half of the
prior year, and which were not fully offset by increases in sales prices. The impairments for the
Asia brands are largely due to a reduction in forecast sales growth as well as changes to discount
rates and exchange rates.
The EBIT contribution from Discontinued Operations in FY23 was $463 million, representing
earnings from Soprole, Hangu China Farm and DPA Brazil. Note that while the EBIT contribution
from Soprole increased from $78 million to $431 million, approximately $349 million of that
increase related to the gain on sale. Both Hangu China Farm and DPA Brazil delivered relatively
immaterial contribution at the EBIT level, with DPA Brazil the only asset still owned and held for
sale at the end of FY23.
Ingredients was again the largest contributor to EBIT at $1,577 million (+$764 million, +94%), with significantly improved
earnings from Foodservice as well (EBIT of $334 million (+$217 million, +185%).
Reported EBIT Bridge FY22 – FY23 (NZ$ million)
7
976
764
217
(172)
433
2,218
FY22 Reported
EBIT
IngredientsFoodserviceConsumerDiscontinued OpsFY23 Reported
EBIT

Review of FY23 Performance |
Fonterra announced changes to its segment reporting structure in October 2022. The FY23
annual results were reported for the first time using the following updated structure:
Consistent with Fonterra’s focus on New Zealand milk collection, supply chain operations and
manufacturing efficiency, Core Operations is a new reportable segment that represents the
collecting, processing and delivery of product to customer facing markets, as well as Farm
Source
TM
retail stores and several Group functions. Previously, Core Operations were allocated
between geographic segments based on activity and share of product sold.
Global Markets and Greater China represent all Ingredients, Foodservice and Consumer channels
within their respective geographic locations, but now show the in-market value after purchasing
from Core Operations at internal transfer prices.
The Global Markets business covers all sales regions outside of the Greater China region, which
includes Africa, Middle East, Europe, North Asia, Americas, New Zealand, Australia, Pacific
Islands, Southeast Asia, and South Asia.
The performance of Core Operations reflects the efficiency of NZ milk collection, manufacturing,
supply chain operations and ability to optimise product mix. The performance of the regional
business units reflects the in-market value added after purchasing the products from Core
Operations.
Reported EBIT from Core Operations increased from $155 million in FY22 to $806 million in
FY23, with a significant increase of the EBIT margin from 0.9% to 4.2%. The key driver of this
dramatic increase again reflects the benefit of price relativities.
Fonterra introduced major changes to its segment reporting structure in FY23, with the changes designed to better align reporting with
the current focus on New Zealand milk.
The improvement in earnings for Global Markets was attributed to increases to in-market pricing (to reflect
higher cost of goods), which increased gross margin by 19%. Volume also increased by 10%. Some of
these gains were offset by an increase in operating expenses, mainly due to $176 million of impairments
recognised in the period.
Reported EBIT in Greater China increased by 7%, or $25 million to $370 million. The reasonable growth
achieved in the Ingredients and Foodservice businesses following the lifting of COVID restrictions in the
second half of the financial year was partially offset by $46 million of impairments of the Group’s Asia
consumer brands.
Financial Performance by Segment
FY22 Reporting SegmentsFY23 Reporting Segments
Asia Pacific
Global Markets
Core Operations
AMENA
Greater ChinaGreater China
155
446
345
806
579
370
Core OperationsGlobal MarketsGreater China
FY22FY23
Reported EBIT by Segment (NZ$ million)
8

Review of FY23 Performance |
Our review of Fonterra’s financial performance since inception (published in November 2018)
noted that the average return on capital employed (“
ROCE”) was approximately 6.0%, below the
assessed benchmark range of 6.9% - 7.7%. The chart below summarises ROCE since FY19 and
shows the dramatic improvement recorded in FY23.
These results are based on Fonterra’s approach to calculating ROCE; it reflects normalised EBIT
and is based on the book value of equity.Normalised EBIT excludes the $349 million related to
the gain on sale from Soprole, as well as a $12 million loss related to the disposal of Hangu
China Farm. FY23 impairments totaling $252 million, mainly recognised in the Group’s
Consumer channel, are however included in the calculation of normalised EBIT. Based on
reported earnings, we estimate the actual ROCE for FY23 at 14.7%.
The level of capital employed has not changed significantly over the last five years, and the
improved outcome in FY23 therefore reflects the increase in normalised EBIT. As discussed
previously, the improved earnings in FY23 is in turn attributed to the favourable price relativity
between Reference and Non-Reference Product prices. To the extent that that relativity is
expected to return to historical averages, the near-term ROCE is also likely to reduce.
Return on Capital
Historical Return on Capital (Based on Fonterra Estimates)
ROCE = (Group Normalised EBIT + finance income on long term advances) x (1 – notional tax rate)
Explanation
Return on Capital (ROC) or Return on Capital Employed (ROCE) is a measure of how well
capital has been invested. As shown below, this is assessed by looking at the post-tax
return from the assets as a proportion of their book value.
Average Capital Employed (Seasonally-adjusted)
Fonterra provided a breakdown of return on capital by channel for the first time in FY23, along
with the comparable data for FY22. In line with the earnings improvements previously discussed,
the ROCE for both the Ingredients and Foodservice channels were materially higher in FY23. The
relative year-on-year improvement was higher for Ingredients due to the larger impact of the price
relativities in this channel.
ROCE calculations reflect the impact of the impairments taken in FY23 – that is, the channel
earnings used in the calculation have not been normalised for the impairments. While the
reported ROCE for the Consumer channel is clearly well below an acceptable target, the outcome
in FY23 was particularly affected by the significant impairment charge of $222 million.
We welcome the on-going provision of the return on capital information by channel. This level of
detail was not available in 2018 when we completed the performance review but will be an
important input when assessing capital allocation decisions in the future.
Increased earnings in FY23 has driven a significant improvement in return on capital employed, increasing from an average of 6.4% over the
previous four years to 12.4% in FY23.
9.0%
5.5%
(0.4%)
16.4%
15.7%
(4.6%)
IngredientsFoodserviceConsumer
FY22FY23
Historical Return on Capital by Channel (Based on Fonterra Estimates)
9
752
805
812
837
1,587
13,419
12,313
12,281
12,356
12,774
5.6%
6.6%
6.6%
6.8%
12.4%
FY19FY20FY21FY22FY23
Group Normalised EBIT Average Capital Employed Return on Capital
1
1.
Plus finance income on long term advances less notional tax charge

Review of FY23 Performance |
$9.30
($0.01)
($1.92)
$0.98
($0.13)
$8.22
FY22 FGMPVolumePricingForeign ExchangeCash CostsFY23 FGMP
Fonterra declared a final Farmgate Milk Price of $8.22 per kgMS for the 2022/2023 season, a
meaningful decrease from the $9.30 in the prior year. The reductions have been largely
attributed to the negative impact of weak international demand for whole milk powder
(particularly in China). The impact of reduced demand was mainly reflected in pricing rather than
volume, with WMP pricing an average of ~16% lower than last year. As summarised in the chart
below, reduced pricing had a negative impact of $1.92 per kgMS, partly offset by favourable
foreign exchange movement resulting from on-going weakness in the New Zealand dollar.
At the time of the results announcement, Fonterra indicated continuing weakness in
international demand from key importing regions but that conditions were expected to improve
from early 2024. The most recent GDT auctions have confirmed an improvement in the market
demand and have led to a 50 cent upgrade to the forecast FY24 FGMP, now at $6.50 - $8.00
per kgMS with a mid-point of $7.25 per kgMS
1
. Notwithstanding the improvement, the mid-point
of $7.25 per kgMS remains below Dairy NZ’s estimated national breakeven milk price of $7.78
per kgMS, placing significant pressure on many farmers.
Fonterra declared a final 2022/2023 Farmgate Milk Price of $8.22 per kgMS.
Final Milk Price Negatively Impacted by WMP Demand
Net $0.95 reduction in Revenue
Normalised Earnings Per Share and Payout Ratio ($ per kgMS)
2022/2023 Farmgate Milk Price Guidance Range
8.22
7.50
8.00
8.50
9.00
9.50
10.00
10.50
$ per kgMS
Guidance RangeGuidance - MidpointActual FGMP
The graph below shows that the milk price guidance for FY23 issued to farmers in May 2022 was
much higher than the final declared price of $8.22. Frequent downgrades during the season
highlighted the difficulty and complexity of the Group’s milk price forecasts.
We therefore understand the need to maintain a reasonably wide range between the high and low
guidance prices for the FY24 FGMP (currently $1.50 kgMS). We note that in recent years prior to
FY23, much of the uncertainty and subsequent changes to milk price midpoints were favourable
uplifts, peaking at the final price of $9.30 for the 2021/2022 season. Given that this pattern
effectively happened in reverse during FY23, farmers should exercise caution and apply
contingencies to any milk price guidance and consider the flow on impact to on-farm financing
decisions for the upcoming season.
10
1
As at 10 October 2023

Review of FY23 Performance |
$0.19
$0.14
$0.15
$0.30
$0.05
$0.20
$0.20
$0.50
$0.24
$0.34
$0.35
$0.80
45%
57%
59%
63%
FY20FY21FY22FY23
Normalised Retentions Per ShareDividend Per SharePayout Ratio
Fonterra announced a final dividend of 40 cents per share for FY23, bringing the total dividend
for the year to 50 cents per share. This is a meaningful increase on the total dividend paid in
FY22 of 20 cents per share.
Fonterra’s dividend policy is to pay 40% to 60% of reported net profit after tax that is attributable
to Co-operative equity holders (excluding abnormal gains such as the $349 million gain realised
from the sale of Soprole). The adjusted NPAT for the basis of the dividend calculation was $0.79
per share, meaning the 50 cents per share dividend corresponds to a 63% payout ratio. The
decision to distribute slightly above the upper end of the guidance range was justified by a
strengthened balance sheet and strong leverage metrics relative to targeted levels.
Importantly, proceeds from the completed sale of Soprole allowed the Group to also declare a
one-off tax-free capital return of $804 million, or 50 cents per share. The potential capital return
had been signaled by the Co-op at the start of the divestment process and helped to bolster the
lower FGMP in FY23.
Shareholders have benefitted from strong dividends and a capital return during FY23. The total payout was $8.72 for the year. This
is likely to reduce in the upcoming financial year with expectations of a reduced milk price and reduced earnings / dividends.
The chart below summarises the total payout per share since FY20 (see page 35 for further
details). With a final 2022/2023 Farmgate milk price of $8.22 and the 50 cent total dividend,
total payout reached $8.72 per share backed kgMS in FY23. Even including the capital return, the
total cash return of $9.22 in FY23 was below the FGMP ($9.30) and total payout ($9.50) in the
prior year
1
. While relatively high in historical terms, the lower FY23 payout was also exacerbated
by a dramatic increase in on-farm costs during the year.
Given the sale of Soprole and the lower earnings guidance issued for FY24, shareholders are
likely to receive dividends which are more in line with prior years (an implied 18 – 36 cents per
share under the current EPS guidance range). Combined with the expectation of a lower milk price
for the current season, total payout is likely to continue trending downwards from its peak in
FY22.
Normalised Earnings Per Share and Payout Ratio
Total Payout
1
$7.14
$7.54
$9.30
$8.22
$0.05
$0.20
$0.20
$0.50
$7.19
$7.74
$9.50
$8.72
FY20FY21FY22FY23
Farmgate Milk PriceDividend per Share
Excludes 50c
capital return
Total Payout and Payout Ratio
11
1. Per share backed kgMS

Review of FY23 Performance |
Fonterra has announced new initiatives that guide allocation of capital and resources to help maximise risk-adjusted returns for
shareholders.
Resource Allocation Framework and Efficiency Targets Introduced
Fonterra has introduced the Resource Allocation Framework summarised below to provide (a) a clear structure for operational priorities; (b) the allocation of milk into product divisions; and (c) the allocation
of operating cashflows to debt, new investment opportunities and distributions. Fonterra’s overall objective is to maximise the risk-adjusted returns for shareholders through implementation of this
framework in key budgeting and investment decisions.
Target metrics for cash operating expenses per kgMS and gross profit from core operations per kgMS have also been set and were announced at year-end. Both metrics are designed to monitor the cost base
having regard to changing milk volumes and adjustments for inflation, with the aim of ensuring that underlying efficiency gains/losses are more transparent. The combined benefits from achieving the stated
targets in these areas are expected to remove $1.0 billion from Fonterra’s cost base by 2030 via a collection of measures including better procurement and targeted investment in new systems and
automation. Further discussion of these metrics is set out on page 20.
We think that publicly announcing these frameworks should improve transparency and accountability to shareholders and is a progressive step in terms of investment and operational discipline. These
initiatives now need to be implemented and managed effectively and we plan to report on the new metrics in detail in future.
Collect and Process Milk
Sustaining Capital
Ingredients
Consumer
Preliminary Cash Flow from Core Operations
Foodservice
Debt
Capital Returns
Preliminary Cash Flow
Dividends
Growth Capital
Share Buybacks
Innovation
Total Shareholder Returns
Farm Profitability
Reported Cashflow
Strong Balance Sheet
Sustain safe, productive operations
A primary allocation of capital is used to deliver a safe, sustainable capacity of processing assets, while
maintaining a surplus margin for plant capacity
Competition for milk
We allocate milk to the products and channels where we believe it will earn the highest risk-adjusted returns.
Competition for cash
We allocate cash to our balance sheet, shareholders and businesses where we believe it will earn the highest
risk-adjusted returns.
Outcome for the Shareholder
Management is aligned to the delivery of value to our stakeholders through targets and incentives.
Fonterra Resource Allocation Framework
12

Review of FY23 Performance |
Net debt has decreased by $2.1 billion due to record FY23 earnings, the unwinding of excess inventory from FY22 year end and the
application of proceeds from the Soprole divestment.
Key contributors to the changes in net debt over the FY23 period are summarised below. Healthy
operating cash flows from record earnings and positive working capital movements (including the
unwinding of excess inventory from FY22 year-end) have helped to significantly reduce net debt by
$2,132 million during the year. This reduction was also supported by the net sale proceeds from
the Soprole divestment (noting that the capital return which was made after balance date has
been incorporated into the net figures shown in the chart).
The net impact of dividends during the FY23 year includes the FY22 final dividend and the FY23
interim dividend (totaling $403 million), as well as the $804 million capital return.
Further analysis of the ending net debt position and the corresponding key metrics is set out on
page 22.
Financial Position at FY23 Year-End
NZ$ MillionFY22FY23% Change
Assets
Cash and Cash Equivalents2881,822533%
Receivables2,4822,473(0%)
Inventories5,1484,346(16%)
Other Current Assets 874854(2%)
PP&E6,4656,343(2%)
Intangible Assets2,1531,824(15%)
Other Non-Current Assets 1,371939(32%)
Total Assets18,78118,601(1%)
Liabilities
Payables2,4032,373(1%)
Owing to Suppliers2,1191,997(6%)
Current Borrowings356785121%
Capital Return Payable-804n/a
Other Current Liabilities1,6401,302(21%)
Non-Current Borrowings4,9003,156(36%)
Other Non-Current Liabilities457216(53%)
Total Liabilities11,87510,633(10%)
Net Assets6,9067,96815%
Equity Attributable to Co-op6,9337,90614%
Net Debt Bridge (NZ$ million)
$5,339m
($2,311m)
($871m)
($846m)
$714m
$1,207m
($25m)
$3,207m
FY22
Net Debt
Cash from
Operations
Change in Net
Working
Capital
Divestments
& Asset Sales
Capital
Expenditure
& Other
Dividends &
Capital
Return
Other
Financing
Cash Flow
FY23
Net Debt
Net Assets increased to $7,968 million at the end of FY23, representing an increase of $1,062
million (+15%) from the previous year.
The Group’s cash and cash equivalents increased to $1,822 million following the sale of Soprole
and strong operating cash flow during FY23. However, we note that the capital return of $804
million was yet to be paid as at the balance date.
The abnormally high inventory balance of $5,148 million at the end of FY22 has reduced to
$4,346 million as at 31 July 2023. This reflects two factors: the excess inventories on hand at
the end of FY22 have been sold; and in addition to lower volumes of inventory held at FY23 year
end, reductions to the milk price decrease the value of inventory held on a per metric tonne
basis.
13

Review of FY23 Performance |
211
239
202
243
52
82
133
141
15
26
78
85
104
119
121
152
37
79
53
47
106
63
30
79
525
608
617
747
FY20FY21FY22FY23
Sustaining Capital for NZ Operations
Regulatory Requirements including Wastewater
Decarbonisation
Sustaining Capital for Other Operations
Capital investment for the last four years has been broken down into three broad categories:
1.Sustaining capital expenditure;
2.Growth capital expenditure; and
3.Other capital investment.
Most of the expenditure in FY23 was allocated to sustaining capital expenditure ($621 million)
which generally reflects the maintenance and improvement of existing assets. Fonterra has
further broken down this category into four sub-components categories, as shown in the chart
below.
Key FY23 projects within this category included the installation of a biomass boiler to remove the
use of coal at the Group’s Waitoa processing site, introduction of improved refrigerant technology
at the Whareroa site and a utilities upgrade at the Te Rapa site. Fonterra also continued with its
annual replacement programmes for trucks, trailers and milk vats which will help to achieve
future operating efficiency targets.
Also included within the sustaining capital expenditure for FY23 is $85 million of decarbonisation
spending, to support Fonterra’s aim of improving the sustainable collection and processing of milk
across the Group’s network of assets. Investment in decarbonisation has increased significantly
in the past two financial years and will continue in the medium to long term.
Total capital invested during FY23 was $747 million, representing an increase of $130 million compared to the prior year.
The Group invested $47 million during FY23 in capital projects to drive future growth. This included
an upgrade to the probiotic’s capacity in Palmerston North and the expansion of a cheese
processing capacity in Malaysia which supports global foodservice customers. The $79 million of
other investments were mainly for right-of -use assets and equity investments.
As already mentioned, the Group made a number of divestments during the year in line with its
strategy to increase focus on Core Operations (i.e. New Zealand milk collection and processing).
Fonterra completed the divestment of Soprole in March 2023, fully exited the last China Farms
asset in April 2023 and continued to progress the sale process of DPA Brazil.
The net gain / (loss) on sale for FY23 was $337 million on a pre-tax basis ($248 million post-tax),
with the $349 million Soprole gain marginally offset by a $12 million loss on sale of the Hangu
China Farm asset.
As at balance date, the agreed sale of DPA Brazil to French dairy company Lactalis continues to
progress through various conditions and regulatory approval processes. Expectations are that the
sale process will be completed by the end of FY24, with proceeds from Fonterra’s 51% share of the
business used to repay debt held directly by DPA Brazil.
Capital Expenditure & Divestments
FY23FY22
Sale PriceGain/(Loss)Sale PriceGain/(Loss)
Soprole
1,066349
China Farms (Hangu)
18(12)
Global Dairy Trade2642
Total
1,0843372642
Historical Capital Invested by Type (NZ$ million)
Summary of Recent Divestments (NZ$ million)
Note: Gain / (Loss) on Sale is on a pre-tax basis
Other Capital Invested
Growth Capital Expenditure
382
446
534
621
14

Review of FY23 Performance |
Reflecting changing market conditions, the Group has issued guidance of normalised EPS from
continuing operations of 45 cents to 60 cents for FY24. While obviously a reduction on the record
result achieved in FY23, the FY24 guidance is still slightly higher than the top end of the target range
set out in the Long-Term Aspirations announced in 2021 (FY24 target earnings per share range of 45
cents to 55 cents).
Management has also advised that the EPS guidance for FY24 incorporates an allowance for a 15c
contribution from favourable price relativities. The outlook for price relativities for the first half of
FY24 is shown in the graph below. While the favourable conditions enjoyed in FY23 were maintained
in the first three months of the current year, recent GDT auctions indicate the differential will reduce
in the near term. This is generally consistent with the expectation of reverting to a longer-term
average throughout FY24, with long term relativities expected to deliver ~5 cents of earnings per
share. As discussed further in Section 2, the external factors driving the price relativities will continue
to be a key determinant of Fonterra’s performance (particularly for the Ingredients channel).
Fonterra’s EPS guidance indicates that FY24 earnings are likely be more in line with historical averages and well below the record
achieved in FY23.
FY24 Outlook
Fonterra continues to benefit from a dominant share of NZ milk supply and has increased its share of
Australian milk supply over the past few years. However, there are some signs of medium and longer
terms risks to the Group’s supply base emerging including farm conversions to other land uses and
increased competitor activity. In recent years, the shift to value-added products and productivity
gains have helped to offset reductions in New Zealand milk collections, but we believe Fonterra
remains at risk that the trend of reduced collections will continue. The impact of the change to the
minimum required shareholding which was designed to help with farmer retentions is not yet verified.
The medium to longer term outlook for Australian business remains uncertain with some question
marks remaining in relation to the Group’s decision to hold the Australian business (announced
September 2022). We expect Fonterra will continue to focus on operational efficiency and strict
resource allocation within the Australian business throughout FY24. We also think a significant
turnaround in the Australian business in the short term is unlikely and that asset performance should
be scrutinised closely over the next couple of years.
Although the asset base in Greater China is now much smaller in comparison to six or seven years
ago, operational exposure remains high with 28% of external volume sold through Greater China in
FY23 (based on continuing operations). Improvements to demand and pricing are expected in the
short term with the removal of WMP and SMP duties from 1 January 2024 onwards. Fonterra
continues to monitor the competitive dynamic relating to China domestic production and will be
constantly reviewing the optimal product production to meet demand. However, we note that
Fonterra ultimately has limited control over key drivers of supply and demand in China.
2,500
3,000
3,500
4,000
4,500
5,000
5,500
USD / MT
Cheddar (Non-Reference Product)Whole Mik Powder (Reference Product)
Note: GDT prices are adjusted forward 3 months to reflect delay between GDT
contracts struck and the shipment date (at which the invoice and revenue is recognised)
FY24 H1FY23 H2
FY24 Year-to-Date Price Relativities
80.8%
80.0%
79.0%
79.1%
79.0%
18.3%
15.8%
15.4%
15.9%
16.7%
20192020202120222023
New Zealand Market ShareAustralia Market Share
Milk Collections Market Share (% of kgMS)
New Zealand market share and collections are for the period 1 June –31 May.
Australia market share and collections are for the period 1 August –31 July.
15

Section Two:
Revisiting Fonterra’s Long TermAspirations
FONTERRA
CO-OPERATIVE
COUNCIL

Review of FY23 Performance |
In this section we review Fonterra’s progress relative to the LTAs established in 2021 and the key factors that will contribute to its future
performance, including recent strategic initiatives as part of Fonterra’s focus on NZ milk and moving towards higher value products.
Introduction
As part of a significant reset of the business announced in 2019, Fonterra provided some key
business targets for the following 3-5 years. Those targets were subsequently updated and amended
in September 2021 with the publication of Long TermAspirations (“
LTAs” ) which extended out to
2030. The table below summarises Fonterra’s results to date relative to the LTA targets:
−While the FY22 results were ahead of target on most profitability measures, outcomes for capital
investment and debt levels were below target largely as a result ofincreased working capital.
−The FY23 performance was significantly ahead of all near-term (FY24) and longer-term (FY30)
earnings related LTA targets. As previously discussed, this outcome is largely attributable to
favourable price relativities between Reference and Non-Reference Products and a reduced cost
of milk driving Group gross margins up to 17.0% from 13.3% in FY22 (continuing operations).
−The FY23 debt-related LTAs were supported by a significant reduction in working capital and asset
sales, driving net debt down to $3.2 billion in FY23 relative to $5.3 billion in FY22 (see page 22
for further information).
While Fonterra has clearly surpassed the targets in FY23, much of the out-performance centred on
“abnormal” price relativities which are unlikely to be maintained at similar levels over the long
term. We analyse the impact of price relativities on FY23 performance and the potential impact on
future performance on page 19.
Current expectations are that current year earnings will be much lower than FY23. We note that
Fonterra has provided initial EPS guidance for FY24 of 45 – 60 cents per share. This level of
earnings is in line with the original LTA target of 45 –55 cents and implies EBIT around the $1.2
billion level (vs $1.9 billion in FY23).
Fonterra has also announced its intention to provide an update on long-term strategy and targets in
early CY24. We expect this to be in the form of both revisions to the existing metrics as well as the
introduction of new measures.
LTA MeasureForecast
FY22
Actual
FY22
Actual
FY23
Forecast
FY24
Forecast
FY27
Forecast
FY30
Principal Drivers of Performance Relative
to LTA
EBIT ($ million)875–9759911,8811,025–1,1251,150–1,2501,325–1,425
•Commodity prices / FGMP
•Price relativities
•Success of value-add strategy
•Cost efficiencies / margins
Earnings per Share
(cents)
25–40358045–5550–6055–65
Return on Capital6.5%–7.0%6.8%12.4%7%–8%7.5%–8.5%9%–10%
Capital Investment
($ million)
650617747980980980•Plant maintenance requirements
•Sustainability investment
•Growth capital investment
Debt to EBITDA2.4x3.2x1.3x<2.5x<2.5x<2.5x•Cash profitability
•Working capital management
•Net investment (capex less
divestment)
Gearing Ratio35%42%29%<35%<35%<35%
Dividends (cents)15–2020 5022–2730–3540–45•Profitability
•Dividend policy
Factors
largely out of
Fonterra’s
control
17

Review of FY23 Performance |
Focus on NZ Milk and Value-add
Fonterra is making good progress on its strategy to prioritise NZ Milk and shift greater volume into higher value Non-Reference Products
across the specialised Ingredients, Foodservice and Consumer channels.
Non-Current Asset Carrying Value by Geography (Portion of Total)
Fonterra’s strategic repositioning into NZ milk has seen some significant changes in its asset
portfolio and capital investment over the last few years. The review and subsequent sale of its
interests in China and the Americas has allowed greater focus on its NZ manufacturing sites and
sustainability initiatives. The chart below shows that approximately 61% of the asset base in FY19
(excluding working capital) was located in NZ, increasing to 76% in FY23 largely as a result of the
divestment program.
In order to better measure the earnings contribution and return on capital from the NZ milk strategy,
Fonterra has initiated reporting for a new Core Operations segment which represents the key
activities of collecting and processing milk into products for its customer facing operations. The
performance of Core Operations reflects the efficiency of Fonterra in milk collection, manufacturing
and supply chain as well as its ability to maximise the product mix, including between Reference
and Non-Reference Products. We assume the revised LTAs expected to be announced in early CY24
will be consistent with the new reporting structure.
Fonterra’s focus on shifting milk into value-add products is another of its key long-term strategic
priorities. The chart below illustrates that the business has made some progress in this respect over
the last five years, with the allocation of milk volumes into Non-Reference Products increasing from
27.3% in FY19 to 31.4% in FY23. Non-Reference Products focus on speciality ingredients targeting
health and wellness as well as products sold into the Foodservice and Consumer channels, including
branded products.
Given the scale and nature of the Fonterra business, we expect that on-going annual increases in the
proportion of Non-Reference Products will be relatively modest. Some guidance from the Company in
relation to realistic long-term targets would be useful as part of the LTA reset in CY24.
Reference and Non-Reference Product Volume - NZ Milk Solids Manufactured (million kgMS)
1,107
1,088
1,073
1,035
1,015
416
429
466
443
465
27.3%
28.3%
30.3%
30.0%
31.4%
FY19FY20FY21FY22FY23
Reference ProductsNon-Reference ProductsNon-Reference Percentage
60.3%
60.6%
60.9%
61.0%
71.1%
73.4%
72.7%
76.3%
6.6%
7.5%
8.2%
9.9%
11.3%
10.7%
11.4%
11.3%
14.7%
13.3%
10.0%
9.2%
8.8%
8.9%
9.3%
11.7%
7.8%
4.3%
4.2%
9.6%
9.7%
11.5%
8.2%
9.1%
11.4%
11.5%
11.2%
FY16FY17FY18FY19FY20FY21FY22FY23
New ZealandAustraliaChinaAmericasRest of World
18

Review of FY23 Performance |
Impact of Price Relativities
While prices for Non-Reference Products remain favourable relative to Reference Products, it is unlikely that the price differential will be
sustained. Consistent with Management, our analysis suggests that favourable price relativities in FY23 contributed over half of Fonterra’s
underlying EPS (>40 cents).
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
R² = 0.7976
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
1.11.151.21.251.31.351.41.45
Ingredients Segment Gross Margin
Non-Reference / Reference Product Price Relativities
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
AugSepOctNovDecJanFebMarAprMayJunJul
Cheddar Price Relativity to WMP Price as Proxy
for Price Relativities
FY19FY20FY21FY22FY23FY24
Historic Price Relativities (Non-Reference / Reference Product Prices)
Relationship Between Price Relativities and the Ingredients Segment Gross Margin
Fonterra’s strong FY23 earnings performance is predominantly attributable to the high price
relativity between Non-Reference and Reference Products. The bottom left chart summarises the
price relativities by financial year using monthly GDT data for the prices of cheddar and WMP as a
proxy. This illustrates that the average price relativity in FY23 was materially higher than any other
recent period with an annual average of ~1.4x (FY16 and FY20 being the next highest at ~1.3x).
The start of FY24 has also indicated a continuation of this trend.
While it is difficult to reliably identify specific factors which drive the changes through time, the price
relativity must ultimately be underpinned by changing supply and demand dynamics between the
product categories. This implies a current demand imbalance for Non-Reference Products. Without
any evidence for a structural change in the market, we would expect that over the long-run, the
price relativity will revert to average levels as the current price signalling should see more supply of
Non-Reference Products.
As is the case with general commodity prices, Fonterra is effectively a ‘price-taker’ in relation to
price relativities. Year-to -year volatility in earnings will therefore continue to be exposed to the
underlying variability in this key driver of performance.
Based on the monthly GDT prices for Non-Reference and Reference Products averaged over financial
years, the chart below right shows a strong relationship between the relative prices and the gross
margins generated by the Ingredients segment. Eight years of monthly pricing data suggests that the
price relativities have averaged 1.27x, consistent with the Ingredients segment delivering gross
margins of ~10.4%. Our analysis further suggests that FY23 excess or “abnormal” price relativities
were >$830 million (the gross margin difference of an average year at 10.4% and FY23 actual
Ingredients gross margins of 15.2%), equivalent to approximately 40 cents per share. This is consistent
with an estimate provided by Management and explains the majority of Fonterra’s financial
outperformance in FY23 relative to recent financial years.
If the price relativities revert to the historic mean, we expect that the gross margin achieved by the
Ingredients channel will reduce towards 10% in the long-run (absent periodic volatility and Fonterra’s
other cost reduction initiatives but before any further improvement in the relative volume split between
Reference and Non-Reference Products). However, on the evidence of FY24 pricing year to date for
Non-Reference Products, we would suggest that Fonterra could outperform relative to its current EPS
guidance of 45 – 60 cents per share.
19

Review of FY23 Performance |
Fonterra has introduced two new efficiency targets focusing on operating costs and gross profit per kgMS. The new targets are part of a
strategy to reduce its cost base by ~$1 billion by 2030 to drive enhanced margins and profitability.
Operational Efficiency Metrics
Cash Operating Expenses per kgMS (Inflation Adjusted)
Fonterra has announced a target of sustainably removing ~$1 billion of costs from its operational
and overhead cost base by 2030 and has introduced two new efficiency targets to support that goal.
1.Cash operating expenses per kgMS
Cash operating expenses represent the global overheads of the Group and include head office,
selling, marketing, storage and distribution costs. In order to objectively assess cost efficiencies
relative to varying milk volumes, the cash operating costs are assessed per kgMS of NZ milk
solids collected.
The total costs in FY23 were $2.1 billion (based on continuing operations) and are targeted to
reduce by ~$0.5 billion in nominal terms by 2030, largely offsetting expected cost inflation over
the period to FY30. Fonterra also stated a target to reduce “real” (excluding the impact of
inflation) cash operating costs by 4% per annum. Our analysis implies a reduction from
$1.39/kgMS in FY23 to ~$1.09/kgMS in FY30, assuming flat milk volumes over the full period.
This is illustrated in the chart below.
The information provided by Fonterra implies a >20% reduction in real operating expenses on a
per kgMS basis by FY30. Given Fonterra’s recent performance shows no efficiency gains were
generated in real terms between FY20 and FY23 (on the back of a 2% decrease in milk volumes),
it could be argued that this appears to be an ambitious target.
While Fonterra has not provided specific details of how it expects to deliver the reduction in cash
operating expenses, we assume that it will be mostly driven by reductions in head office
headcount, reduced consulting fees and efficiencies in advertising and distribution costs.
2.Gross profit from Core Operations per kgMS
This metric is aimed at improving efficiencies in Fonterra’s core NZ processing and
manufacturing cost base to improve gross profit margins on each kgMS. These costs largely
represent manufacturing costs, employee expenses and the other costs directly incurred in
getting milk products to the point of sale. The measure has intentionally excluded the cost of
milk (i.e. the FGMP) which is out of Fonterra’s control and is assessed on total kgMS sales
volumes across Core Operations (rather than milk collected).
The target is to maintain current gross profits from Core Operations at ~$9.20 per kgMS
between FY23 and FY30 (in real terms). We note that a metric based on gross profit per kgMS
not only incorporates cost savings, but also the impact of revenue per kgMS. This in turn will
depend on the future sales mix (Reference vs Non-Reference) and on-going revenue variability.
We understand why Fonterra may have adopted this metric instead of the potentially more
meaningful measure of manufacturing costs per kgMS. All else being equal, processing costs
per unit will be higher for higher value products and just focusing on costs will not fairly
measure any change in operating efficiency. However, in our view, an evaluation of the long-
term target is difficult because it includes factors over which Fonterra has limited influence.
Nonetheless, Fonterra has established its aim to drive annual operational costs savings of 2%
per year on a per kgMS basis to achieve total cost savings of ~$0.5 billion by FY30, relative to a
current manufacturing cost base of $4.0 billion (FY23). Similar to the cash operating expense
per kgMS target, this reduction in Fonterra’s core processing and manufacturing cost base will
offset expected cost inflation over the period to FY30. We estimate this represents an effective
reduction in the cost of milk collection, processing and manufacturing of ~$0.30 per kgMS by
FY30 relative to what they would be without the cost efficiencies.
Collectively, the $1 billion in cost efficiency target savings by FY30 would represent a 4.1% EBIT
margin improvement on FY23 sales and compares to long-run average historic Group EBIT margins
of 4% - 5%. Therefore, the efficiency improvements will be a meaningful contributor to future
earnings performance if they are successfully delivered.
20
1.39
1.36
1.34
1.39
1.16
1.18
1.26
1.09
FY20FY21FY22FY23FY30
Inflation-AdjustedActualTarget Improvement
~

Review of FY23 Performance |
211
239
202
243
52
82
133
141
78
85
104
119
121
152
37
79
53
47
106
63
30
79
525
608
617
747
950
1050
1125
1200
1150
1050
950
FY20FY21FY22FY23FY24FY25FY26FY27FY28FY29FY30
Sustaining Capital for NZ OperationsRegulatory Requirements including WastewaterDecarbonisation
Sustaining Capital for Other OperationsGrowth Capital ExpenditureOther Capital Invested
Fonterra is forecasting approximately ~$800m of capex per annum to support its operations and sustainability targets, with ~$250 million
per annum for other, yet to be identified growth investments.
Long Term Capital Expenditure Outlook
Forecast
Following a period of relatively low investment over the last four years, Fonterra expects capex over
the period to FY30 will be materially higher. As summarised in the chart below, the average annual
spend between FY24 – FY30 exceeds $1 billion.
This reflects an estimated average investment of ~$800m per year across:
−A catch-up on maintenance for existing plant (referred to as “sustaining capital expenditure”) in
both Fonterra’s NZ operations as well as for “other” operations (primarily Australia); and
−Increased capital expenditure to meet Fonterra’s sustainability goals, made up of investment in
“decarbonisation” and “regulatory requirements”. This includes investment in key projects such
as coal to electric / biomass boilers, improved refrigerants and wastewater collection and
treatment – expected to be ~$1 billion over the next decade.
We also estimate an average of ~$300 million additional investment per year earmarked for
growth. While the nature of this growth capital expenditure has not been detailed, it includes
investment in plant upgrades, extensions and investment in new product lines such as the FY23
investment in string cheese processing capacity in Malaysia.
The projected level of capital expenditure represents a material increase in investment - ~$500
million more than average capital expenditure over the FY20 – FY22 period and at least twice the
current depreciation charge (~$480 million). However, we suggest that:
−The sustaining capital expenditure is necessary to meet Fonterra’s new asset health targets and
follows a period of relative under-investment. This capital expenditure is unlikely to contribute to
earnings growth but is fundamental to maintaining plant and meeting Fonterra’s customer
expectations;
−Similarly, the material increase in decarbonisation and regulatory capital expenditure (>$1 billion
over the next 4 years) is essential to meet Fonterra’s own sustainability targets as well as the
increased ESG demands of its customers. While it is hard to determine the earnings or premium
contribution from this investment, without it, Fonterra could lose the increasing number of
customers who are seeking sustainably-sourced milk; and
−Any investment in growth projects is likely to face significant scrutiny and will have to satisfy
Fonterra’s internal return requirements (9% - 10% on capital employed) which will contribute to
future earnings growth. Maintaining this investment discipline will clearly be important.
Forecast Capital Expenditure FY24 –FY30 (NZ$ million)
21

Review of FY23 Performance |
$6,641m
$1,339m
$2,731m
$2,839m
($7,466m)
($2,877m)
$3,207m
FY18
Net Debt
Change in Net
Working Capital
Capital
Expenditure
& Other
Dividends &
Other
Cash from
Operations
Divestments &
Asset Sales
FY23
Net Debt
Capital Structure
Asset divestments of ~$2.9 billion over the last five years have been the primary contributor to Fonterra more than halving its debt level
over the period, with cash from operations largely funding Fonterra’s working capital, capital expenditure and shareholder returns.
Net Debt (NZ$ million) and Gearing
3
(%)
6,641
6,001
5,238
4,325
5,339
3,207
50.1%49.5%
44.2%
38.5%
42.4%
28.8%
FY18FY19FY20FY21FY22FY23
Adjusted Net DebtGearing
Debt / EBITDA
2
Fonterra has significantly reduced its net debt over the last five years, from >$6.6 billion in FY18
to $3.2 billion in FY23. The chart below demonstrates that this reduction has been driven by $2.9
billion of asset sales, with the cash flow generated from operations largely used to maintain
Fonterra’s investment in working capital and capital expenditure, as well as funding distributions
to shareholders.
The significant debt reduction along with continued growth in earnings has resulted in a material
improvement in Fonterra’s key credit ratios (bottom right charts) and the maintenance of
Fonterra’s high investment grade credit rating (A-).
After allowing for the final FY23 dividend of 40 cents paid in FY24 (~$640 million), we expect that
near term earnings performance should support Fonterra maintaining net debt below $4 billion
despite the expected increase in capital expenditure. We note that the mid-point of the 45 – 60 cent
EPS guidance for FY24 is equivalent to over $1.8 billion of EBITDA (a proxy for pre interest and tax
cash flows), an earnings level which underpins this view. Absent any significant growth investment
or acquisitions / divestments, this should see Fonterra preserve its LTA debt targets comfortably
below 2.5x debt / EBITDA and 35% gearing levels. We also expect that retaining the current high
investment grade rating will be a key priority to ensuring these target ratios are maintained.
FY18 –FY23 Free Cash Flows & Net Debt Bridge
1
(NZ$ million)
Result of increase in
working capital days
and milk price
Net reduction from
operating cash flows
less capex and
dividends of $557m
4.6x
4.3x
3.3x
2.7x
3.2x
1.3x
FY18FY19FY20FY21FY22FY23
22
1
Publicly available Fonterra information and Northington estimates
2
Calculated as Adjusted Net Debt / Normalised EBITDA
3
Calculated as Adjusted Net Debt / (Adjusted Net Debt + Equity (excluding cash flow hedge reserve))

Review of FY23 Performance |
Fonterra’s recent capital structure changes should support greater flexibility for farmers while maintaining Fonterra’s competit iveness for
milk supply and ensuring the financial sustainability of the Co-op.
Competition for NZ Milk and Shareholder Flexibility
Given that Fonterra’s revised strategy is designed to optimise the value of NZ milk volumes,
maintaining stability in its future milk volumes will be critical to future performance. Fonterra’s NZ
milk collections have been relatively stable over the last five years, an outcome that is consistent
with the overall market levelling off in terms of total milk production. This has resulted in Fonterra
maintaining ~79% market share since FY21. Long-term NZ milk volumes are also expected to
remain broadly consistent with the current level, but with the potential for further small declines.
The potential for increased competition, including from new market entrants, could however
impact on Fonterra’s milk volumes. Any further declines would generate excess processing
capacity and could have a negative impact on margins.
Recent changes to the minimum required shareholding (as outlined in the Appendix on page 39)
should support a more sustainable supply of milk, particularly in an environment of increased
competition from competitors who may not require farmers to invest capital to support supply (i.e.
buy shares). However, restricting share trading to meet Fonterra’s new minimum required
shareholding in the farmer-only market means that farmers now set the price for shares and this
has resulted in a larger disconnect between the Fonterra share price and the FSF unit price
(currently a ~25% difference)
1
. See page 37 for a recent history of relative prices between the
shares and units.
While the changes to the minimum required shareholding reduce the investment needed by
farmers to continue to supply Fonterra, the investment in FCG shares remains material even at the
minimum level. Fonterra must therefore ensure that the shares deliver long-term returns in line
with the level of required investment and the risk profile of the business. The shares must be seen
as a compelling, standalone investment opportunity rather than just a cost of remaining with the
Co-op.
Any future loss of milk supply volumes could limit future earnings growth, but we also expect that it
may provide some potential benefits, including:
−Reducing the requirement for Fonterra to collect milk from farmer suppliers that may be of
marginal profitability (i.e. sub-optimal from a cost or volume basis, for instance, due to location
and size); and
−Reduce the need to invest in processing capacity or provide the opportunity to shutdown
marginal processing capacity and avoid capacity duplication with other milk processors.
Taking all factors into consideration, we consider that Fonterra’s future collection volumes may
decline further (through either or both of declines in total market collections and increased
competition), but the net earnings impact may be limited and more than offset by Fonterra’s other
strategic objectives.
1,523
1,517
1,539
1,478
1,480
80.8%
80.0%
79.0%
79.1%
79.0%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
FY19FY20FY21FY22FY23
Fonterra NZ Market Share
Milk Solids Collected (million kgMS)
Fonterra NZ Milk Collections and Market Share
23
1
As at 10 October 2023

Review of FY23 Performance |
Future Earnings and Dividends
We expect that future earnings and dividends could be more stable if Fonterra’s NZ milk and value-add strategy is successfully
implemented, but with long-run variability ultimately driven by the price relativities between Reference and Non-Reference Products.
Normalised Earnings Per Share and Payout Ratio
In line with the significant EPS variability, Fonterra’s recent dividends have been highly volatile. As
summarised in the chart below, dividends have varied between nil in FY19 and 50 cents in FY23
(excluding capital returns / special dividends). The current dividend policy was introduced in FY19,
and is based on a target of distributing between 40% – 60% of reported profit after tax but
excluding abnormal gains.
Increased EPS stability along with a relatively broad dividend payout range and increased financial
capacity to debt fund capital expenditure (from reduced debt levels) should support Fonterra’s
ability to provide greater dividend consistency to shareholders. Based on FY24 earnings guidance
and our assessment of normalised EPS, short-term dividends >25 cents per share should be
maintainable, albeit with annual variability through any abnormal price relativities. We note that
based on current pricing for FCG shares and FSF units, a dividend of 25 cents translates to a
current cash yield of over 11% and 8% respectively
2
.
Fonterra’s recent earnings profile has been relatively volatile, with much of this variability
attributable to not only price relativities, but also the underperformance in the businesses which
Fonterra has subsequently divested (e.g. China Farms and Beingmate).
With an increased focus on Core Operations utilising NZ milk, we would expect some reduction in
earnings variability. However, year-to -year earnings will continue to be significantly influenced by the
price relativities for Reference and Non-Reference Products. Other key factors contributing to
Fonterra’s future earnings performance will include:
−Fonterra’s success in achieving its target of delivering $1 billion in overhead and manufacturing
cost savings (equivalent to ~62 cents per share on a pre-tax basis
1
);
−The ability to source new growth investments expected to average ~$250 million per year and
those growth investments achieving their target returns. Based on the combined impact of
Fonterra’s target return on capital of 9% - 10% and the level of expected growth capital
investment, post-tax returns could increase by >$150 million by FY30 (>10cents per share);
−Execution of the value-add strategy from both increasing volumes of Non-Reference Products
and increasing brand equity (supporting higher margins in the Active Living, Foodservice and
Consumer channels); and
−Market factors including global demand for milk proteins and the performance of Fonterra’s
international operations, particularly Australia and Asia.
We believe the business should be capable of generating “stabilised” EPS >45 cents over the short-
term relative to FY24 guidance of 45 – 60 cents and a 5-year historic average of ~38 cents.
Variability around this level will depend on annual price relativities. Long-term performance will
largely hinge on Fonterra’s ability to deliver on its strategic targets (as noted earlier), which provide
the potential for Fonterra to more than double normalised EPS by FY30.
2
As of 10 October 2023
24
$0.09$0.09
$0.14
$0.16
$0.19
$0.14
$0.15
$0.30
$0.40$0.40
$0.10
-
$0.05
$0.20
$0.20
$0.50
$0.49$0.49
$0.24
$0.16
$0.24
$0.34
$0.35
$0.80
74%
85%
42%
0%
45%
57%
59%
63%
FY16FY17FY18FY19FY20FY21FY22FY23
Normalised Retentions Per ShareDividend Per SharePayout Ratio
1
Based on the ~1.61 billion shares currently on issue

Review of FY23 Performance |
1.5%
6.9%
6.3%
6.0%
30.5%
69.2%
FY22FY23
Core Operations ROCEAustralia ROCEOther Global Markets ROCEGroup ROCE
Fonterra is seeking to improve returns on its invested capital by increasing earnings from a smaller, more focused capital base. We expect
that improved investment disciplines and greater contributions from Fonterra’s value-add strategy should increase returns to be more
commensurate with its risk profile.
Return on Capital
6.8%
7.1%
9.2%
6.5%
5.4%
4.9%
7.3%
6.2%
5.8%
Fonterra Post-Tax ROCEWACC - LowWACC - High
Since Inception
Last 10 Years
Last 5 Years
Northington View of ROCE
1
and WACC (%)
Estimated Segment Return on Capital
2
(%)
2
Northington analysis based on post-tax segment EBIT and geographic grouping of non-current assets as a proxy for
the proportion of total capital employed.
6.8%
12.4%
As noted on page 9, Fonterra’s return on capital has improved from 6.8% in FY22 to 12.4% in
FY23. There has been particularly strong improvement across the Ingredients and Foodservice
channels and continued weak performance in the Consumer channel. Over the longer term,
average returns have continued to trend upwards, with recent returns now typically exceeding the
return requirements expected for Fonterra’s relative risk profile (i.e. its risk-adjusted cost of
capital). These results are summarised in the chart below, showing an estimate of Fonterra’s
average ROCE for the last 5 years, the last 10 years and since inception in 2001. Actual returns
are compared to our assessment of Fonterra’s weighted average cost of capital (“
WACC”), which
varies over the period primarily due to interest rates.
While the increased reporting on returns by channel are a welcome new metric, it would be useful
to also understand Fonterra’s returns by segment, particularly at a NZ and Australia regional level,
to better assess performance and capital allocation decisions. Fonterra’s Australian operations
were recently reviewed as part of the broader strategy to focus on NZ milk and, while the decision
was made to retain the Australian business, improved transparency on its performance and the
decision to retain the business would be useful.
Based on Fonterra’s new disclosures, we have sought to independently assess ROCE performance on
a segment basis across Core Operations (NZ), Australia and other global markets. Our approach uses
the percentage of total fixed assets employed in each geographic region as a proxy for the relative
weighting of total capital employed to each segment.
The chart below summarises the results, demonstrating that the return on Core Operations has
increased significantly from 1.5% to 6.9% between FY22 and FY23, Australia has maintained returns
just over 6% while the remaining global operations have delivered a strong performance in both
years. While the global operations performance is not unexpected and largely reflects the small
amounts of capital investment in these regions (now primarily working capital following the sale of
China Farms and assets in the Americas), the Australian return on capital remains low relative to
Group performance and our estimate of the expected return requirements. Consequently, we would
expect to see improved performance in Australia to support Fonterra’s decision to retain the business
and invest further capital into this market.
1
Our calculation of Group ROCE differs to Fonterra. We use reported EBIT (as opposed to
Normalised EBIT) and the market value of equity (as opposed to book value) in our assessment of
capital employed.
25

Review of FY23 Performance |
Sustainability Targets
Fonterra is investing significantly into sustainability initiatives across the supply chain to showcase the NZ sustainable milk story. Along
with its financial strategy, this should support top and bottom-line growth in a market where customers also have high sustainability goals.
MetricActual
FY22
Actual
FY23
Scorecard
FY24
Targets
Climate Change
Scope 1 & 2 GHG emissions
relative to FY18 baseline levels
(11.2)%(14.1)%(15.6)%
•50% reduction in manufacturing emissions by
2030
•100% by 2050 (net zero)
Scope 3, on farm, GHG emissions
reduction target
Not Available•Targets expected by end of calendar year 2023
Coal usageNot Available•Stop using coal by 2037
Land & Water
Fonterra farm environment plan
adoption rate (NZ)
71%85%92%•100% by 2025
Fonterra water usageNot Available
•Reduce water usage at manufacturing sites by
30% by 2030
Water improvement plans in placeNot Available44%100%
Packaging & Waste
Packaging56%63%Not Available
•100% reusable, recyclable or compostable
packaging by 2025
Waste33% reduction since FY1946% reduction since FY19Not Available•Zero solid waste to landfill
Fonterra has established a strategy to be a leader in sustainability. It has also established a range of
targets in support of its goals, as summarised below. Fonterra has committed ~$1 billion of
investment to support its sustainability initiatives over the next decade. The sustainability strategy
aligns with Fonterra’s customers who have established emission reduction targets and are seeking
sustainably sourced milk. The number of customers seeking supply chain reduction commitments
has increased dramatically in recent years.
A significant portion of Fonterra’s customer emissions come from their supply chain, many of whom
now have ambitious sustainability goals for net zero emissions by 2050 (if not earlier). While Fonterra
can do its part through climate initiatives at the factory and indirectly via organisations that it uses in
production (Scope 1 and 2 emissions), more reductions are expected on-farm (Scope 3). Although
Fonterra has not yet established Scope 3 emission reduction targets, it is expected to do so before
the end of CY23. It is expected that Fonterra will work with its farmers to understand their emission
profile and ways to reduce or mitigate those emissions. In the short-term, this is likely to be through
improved animal health and wellbeing, nutrient optimisation and on-farm efficiencies. However, new
innovations and technological solutions will be required longer term – Fonterra has also committed
to investment that supports these goals, including through R&D.
We expect that Fonterra’s performance against its sustainability targets, including for Scope 3
emissions on-farm, will have a significant influence on Fonterra’s long-term financial performance.
While it is hard to determine what “sustainability premium” Fonterra and farmers may receive for the
investment required to support the sustainability goals, without the investment Fonterra may simply
lose customer and consumer confidence which could significantly undermine the business. The
carbon footprint of NZ’s on-farm milk supply is amongst the lowest in the world – maintaining this
edge will be essential to preserving Fonterra’s competitive advantage.
26

Appendix – Supporting Information

Review of FY23 Performance |
FY23 & FY24 Integrated Scorecard
Key Performance Indicator (KPI)
FY21
Actual
FY22
Actual
FY23
Target
FY23
Actual
FY24
Scorecard
People
Serious harm98554
Gender diversity (Band 12+)36.3%37.6%38.8%39.5%40.0%
Culture Measuren/a-n/a79-
Nature
GHG emissions (Scope 1,2)(6.6%)(11.2%)(10.6%)(14.1%)(15.6%)
FEP adoption (New Zealand)53%71%84%85%92%
Water Improvement Plans in place--37.5%44.0%100.0%
Relationships
Share of New Zealand milk collected for the season to 31 May79.0%79.1%79.0%79.0%79.0%
Delivered in full, on time (DIFOT, ex-New Zealand)n/a51.6%n/a53.2%80.0%
Financial / Assets &
Infrastructure
Cash operating expenses per kgMS (real)n/a1.34n/a1.391.37
Gross profit from Core operations per kgMS (real)n/a8.83n/a9.218.52
Return on capital6.6%6.8%7.0% - 7.5%12.4%8.0% - 9.0%
Farmgate Milk Price ($)7.549.309.508.226.00 – 7.50
Alignment Rights
Total shareholder return (share price plus dividend)n/a
$2.73
($0.20)
n/a
$3.20
($1.00)
No Target
On-farm profitability ($ per hectare)n/a4,150n/a2,063No Target
28

Review of FY23 Performance |
Historical Financial Information
Sales Volume (‘000 MT)
3,965
4,303
4,313
4,180
4,123
4,152
4,069
4,102
3,924
3,973
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Reported EBIT (NZ$ million)
Revenue (NZ$ million)
22,275
18,845
17,199
19,232
20,438
19,920
20,975
21,124
23,425
26,046
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Normalised EBIT (NZ$ million)
503
974
1,358
1,155
902
812
879
952
991
1,881
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Total Assets (NZ$ million)
503
942
1,431
1,120
269
(16)
1,147
959
976
2,218
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Total Equity (NZ$ million)
1
1
Excluding minority interests
Note: Includes continued & discontinued operations where known.
6,492
6,473
6,859
7,140
6,219
5,757
6,692
6,863
6,933
7,906
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
29
15,529
18,315
17,118
17,842
18,099
17,284
17,916
17,341
18,78118,601
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23

Review of FY23 Performance |
Production & Operational Efficiency
557
641
586
559
605
673
479
562
626
707
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Operating Expenses per MT
Cost of Goods Sold per MT
1
1
Impact of inventory movements on cost of goods sold have been spread pro-rata across Milk COGS and Other COGS.
1,472
1,608
1,408
1,361
1,486
1,530
1,460
1,286
1,473
1,620
3,525
2,010
1,737
2,459
2,705
2,543
2,906
3,000
3,557
3,515
4,997
3,618
3,146
3,820
4,191
4,073
4,366
4,286
5,030
5,134
FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Milk COGS per MTOther (non-milk) COGS per MT
30

Review of FY23 Performance |
EBIT Bridge by Channel and Segment
Reported EBIT Bridge by Channel
Reported EBIT Bridge by Segment
$976m
$575m
$79m
($3m)
$172m
$69m
($108m)
$17m
$69m
($61m)
$433m
$2,218m
ReportedIngredientsFoodserviceConsumerIngredientsFoodserviceConsumerIngredientsFoodserviceConsumerDiscontinued
Operations
Reported
FY22 EBITCore OperationsGlobal MarketsGreater ChinaFY23 EBIT
$976m
$575m
$172m
$17m
$79m
$69m
$69m
($3m)
($108m)
($61m)
$433m
$2,218m
ReportedCore OperationsGlobal MarketsGreater ChinaCore OperationsGlobal MarketsGreater ChinaCore OperationsGlobal MarketsGreater ChinaDiscontinued
Operations
Reported
FY22 EBITIngredientsFoodServiceConsumerFY23 EBIT
31

Review of FY23 Performance |
Summary of Normalisations
ItemImpact on EBITImpact on Gearing
Gain on Sale of Soprole▲$349m gain on sale▼
Sale proceeds reduce Net Debt, although this was offset
by the one-off $804m capital return. The gain on sale
increases Equity.
Gain on Sale of Hangu China farm▼
$12m loss on sale for the 100% owned
subsidiary.
▼
Sale proceeds reduce Net Debt, while the loss on sale
decreases Equity. Given current gearing levels the net
impact should be a reduction in Gearing.
Normalisation Adjustments to EBIT
NZ$ millionFY20FY21FY22FY23
Disposals$543m$23m$42m$337m
Impairment ($232m)($16m)($57m)
Other / Strategy ($43m)
Total$268m$7m($15m)$337m
Reported EBIT$1,147m$959m$976m$2,218m
Normalisations($268m)($7m)$15m($337m)
Normalised EBIT$879m$952m$991m$1,881m
Impact of FY23 Normalisations
32

Review of FY23 Performance |
Long Term Reference vs Non-Reference Price Relativities
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
Apr-23
Jun-23
Aug-23
USD / MT
Whole Milk Powder (Reference Product)Cheddar (Non-Reference Product)
-1,000
-500
-
500
1,000
1,500
2,000
2,500
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Feb-23
Apr-23
Jun-23
Aug-23
USD / MT
Reference vs Non-Reference Price Relativity Proxies
Price Margin between Reference and Non-Reference Proxies
33
Source: GDT

Review of FY23 Performance |
Free Cash Flow
NZ$ MillionFY22FY23% Change
Profit before Finance and Tax9762,218127%
Adjustments952502(47%)
Change in NWC(1,598)871(155%)
Interest & Taxes Paid(434)(409)(6%)
Cash Flow from Operations(104)3,182n/a
Divestments & Asset Sales268463154%
Capital Expenditure & Other(543)(714)31%
Cash Flow from Investments(517)132(126%)
Dividends Paid(323)(403)25%
Capital Return Payable-804n/a
Other Financing Cash Flows(70)25(136%)
Cash Flow from Financing(393)(1,182)201%
Net Cash Flow(1,014)2,132(310%)
Free Cash Flow (Operating & Investing)(621)3,314(634%)
Free Cash Flow (NZ$ million)
34
2,184
670
600
1,095
1,828
1,417
(621)
3,314
FY16FY17FY18FY19FY20FY21FY22FY23

Review of FY23 Performance |
Historical Total Payout
$5.33
$3.60
$4.25
$4.59
$4.10
$4.46
$7.66
$5.23
$6.37
$7.90
$6.40
$6.16
$8.50
$4.65
$4.30
$6.52
$6.79
$6.35
$7.19
$7.74
$9.50
$8.72
FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Dividend per ShareFarmgate Milk Price
10 Year Average Payout of $7.03 per kgMS
Total Payout (Nominal NZ$ per kgMS)
Total Payout
1
(Real NZ$ per kgMS)
Figures reflect the average payout for a 100% share-backed supplier.
1
Adjustment made based on CPI average during relevant period, reflects price in today’s dollars
$8.88
$5.86
$6.80
$7.15
$6.18
$6.54
$10.90
$7.21
$8.62
$10.30
$8.16
$7.79
$10.59
$5.76
$5.31
$7.93
$8.14
$7.48
$8.32
$8.78
$10.14
$8.72
FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23
Dividend per ShareFarmgate Milk Price
10 Year Average Payout of $8.12 per kgMS
1
35

Review of FY23 Performance |
Total Shareholder Returns Since Inception
1
CAGR = Compound annual growth rate.
2
Share price taken from FYE2017 (31/07/17)
The below chart identifies the current value of $1.00 invested in Fonterra Co-operative Group at its inception in 2001.
Including the 50c one-off tax-exempt capital return, values at the end of FY23 were $2.56 on a pre-tax basis ($1.85 post-tax), equivalent to a 4.3% pre-tax CAGR
1
(2.8% post-tax).
Without the inclusion of the capital return these values were $2.21 on a pre-tax basis ($1.58 post-tax), equivalent to a 3.6% pre-tax CAGR
1
(2.1% post-tax).
The pre-tax total shareholder return for the full FY23 year was +61%, a material increase from 4% in FY22. This outcome for FY23 reflects a 17.2% increase in share price over the year
(from $2.28 to $2.67), an effective 22% return from the capital return and a 22% dividend yield on the opening share price.
The annualised TSR in the last five years is 0.6% and -1.2% on a post and pre tax basis, respectively
2
.
$2.56
$1.77
$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$ per FCG Share
Fonterra Pre-Tax TSRFonterra Post-Tax TSR
Investment Value of $1 Invested in Fonterra at Inception
36

Review of FY23 Performance |
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Price Discount
Capital Structure Review
Announcement Date
~16% average
discount over the
last 12 months
FSF and FCG Share Price Comparison
Daily Share Price Comparison
1
Discount of FCG Share Price to FSF Share Price
1
37
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
NZD per Share / Unit
FSF Unit PriceFCG Share Price
Capital Structure Review
Announcement Date
1
Uses daily volume-weighted average price (VWAP). Source: Fonterra

Review of FY23 Performance |
Historical Earnings per Share Performance vs Guidance
FY16
FY17
FY18
FY19
FY20
FY21FY22
FY23
0
10
20
30
40
50
60
70
80
90
Sep-15Mar-16Sep-16Mar-17Sep-17Mar-18Sep-18Mar-19Sep-19Mar-20Sep-20Mar-21Sep-21Mar-22Sep-22Mar-23Sep-23
Earnings per Share
Historical Earnings Per Share Guidance Midpoint vs Actual Reported
= Actual EPS Reported at
end of guidance period
38

Review of FY23 Performance |
Flexible Shareholding Summary
A new Flexible Shareholding structure came into effect during FY23. The key changes between
the old structure and the new structure are summarised in the table below.
Key ItemsOld StructureNew Structure
Increased flexibility
Share minimum: 1:1 / 100%
Share minimum: 1:3 / 33%
Move to a farmer-only market
with the Fund capped
Shares and units traded and
exchanged between FSF and
FCG.
Capped FSF, can only transfer
shares into units
More types of farmers can hold
shares
Supplying Farmer owners and
sharemilkers if transferred
Addition of associated
sharemilkers, contract milkers
and farm lessors.
Entry provision eased
Up to 3 seasons to exit
Share-up & My Milk offered
Up to 6 seasons to exit
No Share-up & My Milk
Exit provisions extended
Up to 3 seasons to exit,
minimum 1/3 per year.
Large extension for current and
new supplying farmers.
Same voting rights
1 vote per 1000 kgMS supplied
(share-backed)
1 vote per 1000 kgMS supplied
(share-backed)
MetricAs at July 2023Threshold
Total Shares on Issue above the aggregate Share
Standard
12.22%+/- 15.00%
Shares Held by Ceased Shareholders and
Permitted Transfers
9.23%≤ 25.00%
Shares held for the Fonterra Shareholders’ Fund
(“Overall Limit”)
6.67%≤ 15.00%
Since Flexible Shareholding came into effect on 28
th
March 2023, there hasn’t been any material
change to the Group’s shareholding structure. As at 31
st
July 2023, the Group was well within the
specified thresholds for all three Flexible Shareholding metrics:
39

Review of FY23 Performance |
-
200
400
600
800
1,000
1,200
1,400
-
5,000
10,000
15,000
20,000
25,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
RevenueEBIT (RHS)
-
250
500
750
1,000
-
5,000
10,000
15,000
20,000
25,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
-
50
100
150
200
250
300
350
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
-
500
1,000
1,500
2,000
2,500
-
5,000
10,000
15,000
20,000
25,000
30,000
20132014201520162017201820192020202120222023
NZ$ Millions
NZ$ Millions
RevenueEBIT (RHS)
Comparable Company Performance
40
Fonterra is very different to other entities operating in the NZ dairy sector and to overseas dairy co-ops and companies. This is due to a range of factors including the DIRA regulatory regime, scale and
product mix. Arguably the most comparable entities to Fonterra can be found overseas. This includes Arla and Friesland Campina, which are both farmer co-operatives (based in Denmark and the
Netherlands respectively) with substantial commodity and consumer operations. However, neither company is subject to the samere gulatory regime as Fonterra.
The comparisons on the following pages provide a high-level overview of revenue and earnings over time for companies in both dairy ingredients and value-add sectors, along with a single ‘point in time’
view of summary financial ratios. It is important to note that these comparisons do not take into account the differing mix of c ore dairy ingredients and value-add divisions for each company, which is a
key driver of the differing margins and gearing.
They also do not take into account different regulatory regimes for the other dairy co-operatives and the impact such regimes may have on margins, capital investment required and ultimate returns.
Finally, the performance trends over time all reflect the currency exchange rates at the relevant time, and relative changes in those rates may affect the values presented.
Dairy Co-ops
All figures are quoted in New Zealand dollars unless otherwise stated. Figures sourced from Capital IQ and Annual Reports.
Note: Companies presented here have a December financial year end compared to Fonterra’s July year end.

Review of FY23 Performance |
-
5,000
10,000
15,000
20,000
25,000
30,000
-
50,000
100,000
150,000
200,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
-
50
100
150
200
250
300
350
400
450
-
2,000
4,000
6,000
8,000
10,000
12,000
20122013201420152016201720182019202020212022
NZ$ Millions
NZ$ Millions
Comparable Company Performance (Continued)
41
Dairy Companies
All figures are quoted in New Zealand dollars unless otherwise stated. Figures sourced from Capital IQ and Annual Reports.
Note: Companies presented here have a December financial year end compared to Fonterra’s July year end.

Review of FY23 Performance |
EBIT Margin
Gearing Ratio
5.0%
3.3%
5.2%
8.5%
31.9%
45.9%
20.7%
28.8%
10.4%
16.6%
3.6%
12.2%
27.1%
42.4%
23.7%
47.8%
Average EBIT Margin
10.7%
Average Gearing
35.3%
Average EBIT Margin
(excl. Fonterra) 4.5%
Average Gearing (excl.
Fonterra) 32.8%
Dairy Companies
Dairy Co-ops
Dairy Companies
Dairy Co-ops
42
All figures are quoted in New Zealand dollars unless otherwise stated. Figures sourced from Capital IQ and Annual Reports.
Note: Companies presented here have a December financial year end compared to Fonterra’s July year end.

Review of FY23 Performance |
11.0%
15.9%
38.8%
10.8%
16.0%
19.2%
44.0%
17.7%
Gross Margin
Operating Expenses to Sales
Dairy Companies
Dairy Co-ops
44.5%
45.4%
33.4%
46.1%
Average Gross Margin
42.3%
Average Gross Margin
(excl. Fonterra) 26.4%
34.2%
28.8%
29.8%
33.8%
Dairy Companies
Dairy Co-ops
43
All figures are quoted in New Zealand dollars unless otherwise stated. Figures sourced from Capital IQ and Annual Reports.
Note: Companies presented here have a December financial year end compared to Fonterra’s July year end.
Average Opex to
Sales 31.6%
Average Opex to Sales
(excl. Fonterra 21.9%

Review of FY23 Performance |
•The share price data below provides comparisons to New Zealand and international dairy competitors to illustrate the performance of Fonterra’s share price against some of the company’s peers.
•Fonterra is the only entity within our Co-op set that is both a co-operative and a publicly listed company, therefore comparison of market pricing has only been completed against other publicly listed companies.
Similar to prior analysis, it is important to note that this does not take into account any regulatory differences or local market conditions that may ultimately impact share price data. It also excludes dividends paid to
shareholders or unitholders.
•The below chart demonstrates the current share price of Fonterra and its competitors in comparison to their share price at the start of FY23 (1 August 2022). Fonterra’s final position of 0.99x indicates that the
share price is currently at 99% of its opening price ($2.29 opening vs $2.28 closing).
Daily price information has been rebased in NZD to 1/08/22 for comparability between share price and local currency.
Source: CapitalIQ as at 10 October 2023, Fonterra share price is represented by FCG.NZ
New Zealand Dairy Manufacturers
Global Dairy Competitors
Share Price Performance – Dairy Competitors
44
0.99x
0.41x
0.84x
0.2x
0.4x
0.6x
0.8x
1.0x
1.2x
1.4x
1.6x
FonterraSynlaitA2 Milk
0.99x
1.09x
0.99x
0.79x
0.7x
0.8x
0.9x
1.0x
1.1x
1.2x
1.3x
FonterraDanoneSavencia GroupKerry

Review of FY23 Performance |
Abbreviations & Definitions
TermDefinition
AMENARepresents the Ingredients, Foodservice and Consumer channels in Africa, Middle East, Europe, North Asia and Americas
CAGRCompound average growth rate
CapexCapital expenditure
Co-op, Group or the CompanyFonterra Co-operative Group Limited
CYCalendar year ending 31 December
DIRADairy Industry Restructuring Act
DPA BrazilDairy Partners Americas Brazil
EBITEarnings before interest and tax
EBITDAEarnings before interest, tax, depreciation and amortisation
EPSEarnings per share
ESGEnvironmental, social and governance
FCGShares in Fonterra Co-operative Group Ltd (FCG.NZ)
FGMPFarmgate Milk Price
FSFShares in Fonterra Shareholders’ Fund (FSF.NZ)
FYFinancial year ending 31 July
FXForeign exchange
GDTGlobal Dairy Trade
kgMSKilograms of milk solids
LTAsLong Term Aspirations
MTMetric tonnes
NPATNet profit after tax
Non-Reference ProductsProducts that are not included in the calculation of the Farmgate Milk Price.
NWCNet working capital
NZDNew Zealand dollars
PP&EPlant, property and equipment
Reference ProductsIncludes commodity products and groups that are included in the calculation of the Farmgate Milk Price.
RHSRight hand side (axis)
ROCEReturn on capital employed
SMP
Skim milk powder
TSR
Total shareholder return
USDUnited States dollars
WACCWeighted average cost of capital
WMPWhole milk powder
45

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