Fonterra announces step-change in strategic direction

16 May 2024

Fonterra announces step-change in strategic direction

Fonterra Co-operative Group Ltd has today announced a step-change in its strategic direction, as it
commits to deepening its position as a world-leading provider of high-value, innovative dairy ingredients.

As part of this, the Co-op has announced it is exploring full or partial divestment options for some or all of
its global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri
Lanka.

Chairman Peter McBride says this is a significant move for the Co-op which will set it up to grow long-term
value for farmer shareholders and unit holders.

“We have conducted a strategic review which has reinforced the role of our core business. This is working
alongside farmers to collect a sustainable supply of milk and efficiently manufacture products valued by
customers, to deliver strong returns to farmer shareholders and unit holders,” says Mr McBride.

CEO Miles Hurrell says the review has also given the Co-op confidence in the role it plays in the dairy
nutrition value chain, with one of its greatest strengths being the production of world-class, innovative
ingredients for customers to take to consumers.

“We believe we can grow further value for the Co-op by focusing on being a B2B dairy nutrition provider,
working closely with customers through our high-performing Ingredients and Foodservice channels.

“This will be enabled by strong relationships with farmers, a flexible manufacturing and supply chain
footprint, deeper partnerships with strategic ingredients customers, further investment in our Foodservice
channel, continued delivery on our sustainability commitments and investment in innovation.

“In this context, we are exploring divestment options for our global Consumer business as well as our
integrated businesses Fonterra Oceania and Fonterra Sri Lanka,” says Mr Hurrell.

Fonterra’s Consumer and associated businesses

Fonterra’s global Consumer business has grown over the years since Fonterra was formed and is
performing well. It includes a portfolio of market leading brands such as Anchor, Mainland, Kāpiti, Anlene,
Anmum, Fernleaf, Western Star, Perfect Italiano and others.

Fonterra Oceania is a fully integrated business, recently created through merging Fonterra Brands New
Zealand and Fonterra Australia. It comprises Consumer, Foodservice and Ingredients businesses.
Fonterra Sri Lanka comprises Consumer and Foodservice businesses.

Collectively, the businesses in scope for potential divestment utilised approximately 15% of the Co-op’s
total milk solids and represented approximately 19% of Fonterra’s group operating earnings in the first half
of FY24, with our Consumer businesses delivering strong underlying earnings.

Fonterra Co-operative Group
Page 2


“A divestment of these assets would help create a simpler, higher performing Co-op with our focus on our
core Ingredients and Foodservice business and doing what we do best,” says Mr Hurrell.

“While these are great businesses with recent strengthening in performance and potential for more,
ownership of these businesses is not required to fulfil Fonterra’s core function of collecting, processing
and selling milk. Due to our co-operative structure, we believe prioritising our Ingredients and Foodservice
channels and releasing capital in our Consumer and associated businesses would generate more value.

“At the same time, we believe Fonterra is not the highest-value owner of the Consumer and associated
businesses in the longer term and a divestment could allow a new owner with the right expertise and
resources to unlock their full potential.

“This presents a great opportunity for these brands and businesses. While I recognise there’s a strong
connection to brands such as Anchor, a new owner could help these businesses to flourish.

“We have also received unsolicited interest in parts of these businesses, making now a good time to
consider their ownership,” says Mr Hurrell.

Next steps

As a next step, Fonterra will appoint advisors to assist with assessing divestment options.

“We recognise a divestment of this scale would be significant for Fonterra. Throughout this process we
will be considering how best to maximise overall returns to our farmer shareholders and unit holders.

“The choices we make when considering divestment options will be driven by a clear-eyed view of the
best value creating pathway for the Co-op – both in terms of the potential proceeds from a sale and the
ability for Fonterra to generate consistent economic returns over the long-term.

“Any decisions about use of net proceeds from a sale will be guided by our Resource Allocation
Framework, which allocates funds to debt repayment, investment to support our strategy and distributions
to shareholders and unit holders.

“We expect a divestment process to take at least 12 to 18 months. If we were to proceed with a
divestment of this size we would seek shareholder support,” says Mr Hurrell.

Fonterra’s long-term strategy

In 2021, Fonterra released its long-term strategy Our Path to 2030 which included financial targets out to
2030.

These targets were based on a strategy which included the businesses that are now in scope for potential
divestment and, in these circumstances, it is appropriate for Fonterra to withdraw these financial targets.

It is also appropriate for Fonterra to terminate its on-market share buyback programme, which was
expected to run until 13 August 2024.

“At all times, we remain committed to maximising returns through the Farmgate Milk Price and dividends,
and achieving a strong return on capital that is greater than farmers’ cost of capital.

“Fonterra will continue to provide updates on our forecast Farmgate Milk Price and earnings guidance as
part of our quarterly reporting process or as required. Our FY24 forecast earnings are not impacted by this
announcement.

The Co-op’s sustainability targets and associated investment plans remain unchanged. Fonterra also
remains committed to improving cost efficiency across the Co-op and will continue to report progress
against efficiency measures annually.

Fonterra Co-operative Group
Page 3

“Through our work to date, Fonterra has strong foundations which puts us in the position to consider
where we will next invest for long-term growth.

“We intend to provide a further update on our revised long-term strategy in due course. This will include
further detail on our plans to grow the long-term value of Fonterra and the measures through which we will
track our progress,” says Mr Hurrell.

Notes:
• In FY23, Fonterra’s Ingredients business represented ~80% of the Co-op’s New Zealand milk
solids sold and returned $17.4 billion in revenue by selling a range of products, from high quality
powders to premium proteins through GDT, resellers, and direct to strategic customers. It has a
global sales footprint and customer base, with growing demand in developed economies such as
North America.
• In FY23, Fonterra’s Foodservice business represented ~13% of the Co-op’s New Zealand milk
solids sold and returned $3.9 billion in revenue by selling products such as UHT cream, cream
cheese and mozzarella to customers including restaurants, bakeries and hospitality businesses. It
has a strong position in Greater China with further growth potential in other markets seeing
economic growth, such as in Southeast Asia.
• In FY23, Fonterra’s Consumer business represented ~7% of the Co-op’s New Zealand milk solids
sold and returned $3.3 billion in revenue. It sells everyday dairy products such as fresh milk,
cheese and butter enjoyed in homes around the world. It has a global footprint with brands most
prominent in New Zealand, Australia, Sri Lanka, China and Southeast Asia.

Please find appended to this announcement an information pack with further detail on the scope, revenue
and allocation of milk solids to these businesses.

ENDS

For further information contact:

Philippa Norman
Fonterra Communications
Phone: +64 21 507 072


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.

---

Confidential to Fonterra Co-operative Group

22
This presentation contains information on the past performance of certain business units and activities of Fonterra Co-operative Group Limited (“Fonterra”) and its subsidiaries (the “Fonterra
Group”). This information has been extracted (for the purpose of indicating the scope and approximate financial performance of the businesses that have been assessed as in-scope for
potential divestment) by Fonterra from financial statements and internal analysis. The extraction reflects a number of assessments and assumptions. None of the (1) the basis of those
assessments and assumptions; (2) the extraction methodology; nor (3) all of the resulting information has been audited or externally reviewed.
This presentation may also contain forward-looking statements, financial targets and ambitions (“Forward Statements”), each of which is based on a range of assumptions. None of the Forward
Statements is intended as a forecast, estimate or projection of the outcome that will, or is likely to, eventuate. They should not be taken as forecasts or a guarantee of returns to shareholders.
The Forward Statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from the
events or results expressed or implied by such Forward Statements. Those risks, uncertainties, assumptions and other important factors are not all within the control of Fonterra or the Fonterra
Group and cannot be predicted by the Fonterra Group. The Forward Statements in this presentation reflect views held only at the date of this presentation.
While all reasonable care has been taken in the preparation of this presentation, none of Fonterra, the Fonterra Group, or any of their respective subsidiaries, affiliates and associated
companies (or any of their respective officers, employees or agents) (together “Relevant Persons”) makes any representation or gives any assurance or guarantee as to the accuracy or
completeness of any information in this presentation or the likelihood of fulfilment of any Forward Statement or any outcomes expressed or implied in any Forward Statement. Accordingly, to the
maximum extent permitted by law, none of the Relevant Persons accepts any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of any
Forward Statements or for any loss, howsoever arising, from the use of this presentation.
Statements about past performance are not necessarily indicative of future performance.
Except to the extent (if any) as required by applicable law or any applicable Listing Rules (including the Fonterra Shareholders’ Market Rules), the Relevant Persons disclaim any obligation or
undertaking to update any information in this presentation.
This presentation does not constitute investment advice or opinions, or an inducement, recommendation or offer to buy or sell any securities in Fonterra or the Fonterra Shareholders’ Fund..
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.

One of our greatest strengths is the production of world-class, innovative
ingredients for customers to take to consumers.
We can grow further value by focusing on being a B2B dairy nutrition provider,
working closely with customers through our high-performing Ingredients and
Foodservice channels.
This will be enabled by:
•strong relationships with farmers,
•building a flexible manufacturing and supply chain footprint,
•building deeper partnerships with strategic ingredients customers,
•further investment in our Foodservice channel,
•a continued delivery on our sustainability commitments,
•and investment in innovation.
In this context, we are exploring full or partial divestment options for some or
all of our Consumer businesses, as well as Fonterra Oceania and Fonterra Sri
Lanka.
Deepen Fonterra’s position in high-value, innovative ingredients
3

4
•••
•In FY23, our Ingredients channel
represented ~ of our New
Zealand milk solids sold.
•It contributed in revenue
and in gross profit.
•In FY23 our Foodservice channel
represented ~ of our New
Zealand milk solids sold.
•It contributedin revenue
and in gross profit.
•In FY23 our Consumer channel
represented of our New
Zealand milk solids sold.
•It contributed in revenue
and in gross profit.

5
Ingredients and Foodservice
have complementary products,
manufacturing processes and
go-to-market approaches.
Consumer utilises different
product formats and requires
specialised expertise and
marketing approaches to
reach consumers.
We have expertise in dairy
science and innovation,
making us leaders in dairy
proteins and other advanced
solutions.
Ingredients and Foodservice is
where we can best apply this
expertise, along with our
manufacturing and customer
partnering capability.
Anchor Food Professionals has a strong presence in Greater
China and potential for further growth in markets such as
South East Asia. We partner with foodservice customers to
test and develop products for their kitchens, using our
network of application centresand professional chefs.
We go to market
through two key
brands: NZMP, our
ingredients brand,
and Anchor Food
Professionals, our
Foodservice brand.
NZMP has offices in 13 global locations and
customers in over 100 countries. We sell product
through GDT, our digital portal MyNZMP, a vast
network of resellers, and direct to strategic customers.
We are committing to deepening our position as a world-leading provider of high-value, innovative dairy ingredients

•Ownership of these businesses is not required to fulfil Fonterra’s core function of
collecting, processing and selling milk.
•We believe prioritising our Ingredients and Foodservice channels and releasing
capital in our Consumer and associated businesses would generate more value.
•A divestment of these assets would help create a simpler, higher performing Co-
op with our focus on our core business and doing what we do best.
•A divestment could allow a new owner with the right expertise and resources to
unlock the full potential of these businesses.
•We would expect tocontinue supplying milk to these brands throughIngredients
supply agreements.
•We have also received unsolicited interest in parts of these businesses.
6

Global Consumer brands
Oceania Consumer brands
An overview of what would be in scope for a potential divestment
Notes:
1.Key brandsonly, not exhaustive.‘Anchor Food Professionals’ is a Foodservice brand and excluded.
2.Americas includes Mexico and other Caribbean and Central American countries
7
Oceania
•Fonterra Oceania (previously known
as FBNZ and Fonterra Australia)
Sri Lanka
South East Asia
•Indonesia
•Malaysia
•Philippines
•Singapore
•Thailand
•Vietnam
Greater China
•China
•Taiwan
•Hong Kong
Rest of the World
•Americas
2
•Middle East
•Africa
Oceania
•FBNZ and Fonterra Australia
Foodservice
Sri Lanka
Oceania
•Fonterra Australia Ingredients

8
•Dammam
•Biyagama
•Dairymas
•Susumas
•Takanini (Auckland)
•Bridge St (Eltham)
•Makomako Rd (Palmerston North)
•Cobden
•Stanhope
•Darnum
•Spreyton
•Wynyard
•Tullamarine 1
•Tullamarine 2
•Campbellfield
•Bayswater
•Cikarang

H1 FY24 Operating Earnings* reflects improved performance in our Consumer business
796
190
FY24 H1
986
(20)
33
177
487
309
0
IngredientsFoodserviceConsumer
*Notes:
1.Operating earnings is EBIT contribution
from continuing operations. This includes
$45 million of depreciation and amortisation
for In Scope business.
2.Total reconciles to FY24 H1 audited
financial statements.
3.In preparing the In Scope and Out of Scope
breakdowns, we have applied the same
principles and assumptions as used in our
publishedchannel and segment reporting
for our financial statements for FY24. These
breakdowns are unaudited.
4.Reflects existing transfer pricing
arrangements.
5.Core Operations is fully attributed to theOut
of Scope businesses.
9
Consumer and
associated business
Ingredients and
Foodservice business

9.4
3.4
In Scope businesses have capital employed of $3.4 billion
Sources
include NZ, AU
and other non-
NZ milk
FY23
1,880
127
FY23
2,007
21.9
5.4
FY23
27.3
Notes:*
1.Capital employed is a 12-month average and excludes discontinued operations.
2.Reported FY23 revenue is $24.6 billion from continuing operations after adjusting for eliminations. See slide 17.
3.Underlying operating earnings represent EBIT contribution from continuing operations after adjusting for $252 million of impairments ($244 million in Consumer).This includes ~$100 million of depreciation and amortisationin the In Scope business.
4.These breakdowns are unaudited. See slide 9.
85%
15%
FY23
10
12.8
Consumer and
associated business
Ingredients and
Foodservice business

11
Divestment process
•Strong team will continue to lead good performance of these
businesses.
•Fonterra will appoint advisors to assist with assessing
divestment options.
•We expect a divestment process to take at least 12 –18 months.
•If we were to proceed with a divestment of this sizewe would
seek shareholder support.
•We will keep farmers,unit holders and our people updated and
will share any new information as it’s available.
Strategy
•Further update on revised long-term strategy, including detail on
our plans to grow value and the measures through which we will
track our progress, will be provided in due course.

1212

In Scope vsOut of Scope
0.3
0.4
2.0
7.6
1.8
Ingredients
FoodserviceConsumer
9.4
2.7
796
190
FY24 H1
986
(20)
33
177
487
309
0
IngredientsFoodserviceConsumer
*Notes:
1.Reported FY24 H1 revenue is $11.1 billion from continuing operations after adjusting for eliminations.
2.Operating earnings is EBIT contribution from continuing operations. This includes $45 million of depreciation and amortisation for In Scope business. Total reconciles to FY24 H1 audited financial statements. In preparing the In Scope and Out of Scope
breakdowns, we have applied the same principles and assumptions as used in our FY24 published channel and segment reporting. These breakdowns are unaudited. Reflects existing transfer pricing arrangements. Core Operations is fully attributed to
Out of Scope.
12.1
FY24 H1
13
Consumer and
associated business
Ingredients and
Foodservice business
Consumer and
associated business
Ingredients and
Foodservice business

In Scope vsOut of Scope
(20)
45
102
1,605
289
(14)
IngredientsFoodserviceConsumer
1
0.8
3.6
18.9
3.1
(0.1)
IngredientsFoodserviceConsumer
21.9
5.4
27.3
FY23
*Notes:
1.Reported FY23 revenue is $24.6 billion from continuing operations after adjusting for eliminations
2.Underlying operating earnings represents EBIT contribution from continuing operations after adjusting for $252 million of impairments ($244 million in Consumer). This includes ~$100 million of depreciation and amortization in In Scope business. Total
reconciles to FY23 audited financial statements. In preparing the In Scope and Out of Scope breakdowns, we have applied the same principles and assumptions as used in our FY23 published channel and segment reporting. These breakdowns are
unaudited. Reflects existing transfer pricing arrangements. Core Operations is fully attributed to Out of Scope.
1,880
127
2,007
FY23
14
Consumer and
associated business
Ingredients and
Foodservice business
Consumer and
associated business
Ingredients and
Foodservice business

Revenue
1
(NZDb)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients-0.3-0.3
Foodservice-0.4-0.4
Consumer -1.80.22.0
Total-2.50.22.7
Revenue
(NZDb)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients0.85.21.67.6
Foodservice(0.0)0.51.31.8
Consumer (0.0)---
Total0.85.72.99.4
Revenue
(NZDb)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients0.05.41.67.0
Foodservice(0.0)0.91.32.2
Consumer (0.0)1.70.21.9
Total(0.0)8.03.111.1
Eliminations of inter-group transactions
* Refer slide 13 for notes
+
15
Source: Fonterra 2024 Interim Report Segment Reporting Note (page 24)

EBIT
(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients-(20)-(20)
Foodservice-33-33
Consumer -16710177
Total-18010190
EBIT

(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients13429558487
Foodservice3247230309
Consumer ----
Total166342288796
Source: 2024 Interim Results Presentation (page 16)
EBIT
(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients13427558467
Foodservice3280230342
Consumer -16710177
Total166522298986
* Refer slide 13 for notes
+
16

Revenue
(NZDb)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients-1.0-1.0
Foodservice-0.8-0.8
Consumer -3.20.43.6
Total-5.00.45.4
Revenue
(NZDb)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients1.712.84.418.9
Foodservice(0.1)1.02.23.1
Consumer (0.1)--(0.1)
Total1.513.86.621.9
Revenue
(NZDb)
Core
Operations
1
Global
Markets
Greater ChinaTotal
Ingredients(0.3)13.34.417.4
Foodservice(0.1)1.82.23.9
Consumer (0.1)3.00.43.3
Total(0.5)18.17.024.6
Eliminations of inter-group transactions
+
Source: Fonterra 2023 Financial Statements Segment Reporting Note (page19)
* Note:
1.Core Operations for total group shows the FX
movements in relation to the long term hedging
programme being the difference between the spot and
hedged FX rates for that period in relation to revenue.
The earnings impact of these movements at the Group
level is nil as offset by the equivalent movements in the
Milk Price.
2.Refer slide 14 for other notes
17

EBIT
(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients-(20)-(20)
Foodservice-45-45
Consumer -120(18)102
Total-145(18)127
EBIT
(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients8316021721,605
Foodservice(3)29263289
Consumer (14)--(14)
Total8146314351,880
1
EBIT

(NZDm)
Core
Operations
Global
Markets
Greater ChinaTotal
Ingredients8315821721,585
Foodservice(3)74263334
Consumer (14)120(18)88
Total8147764172,007
* Note:
1.Underlying operating earnings represents EBIT
contribution from continuing operations after adjusting for
$252 million of impairments ($244 million in Consumer).
This includes ~$100 million of depreciation and
amortization in In Scope business.
2.Refer slide 14 for other notes
+
18
Source: 2023 Annual Results Presentation (page 46 - 55) adjusted for $252 million impairments for the
corresponding segment and channel.

19
Financial measures
•FY24 forecast earnings not impacted by this announcement.
•Due to the significant potential transaction, our 2030 financial targets are being withdrawn.
•Our 2030 sustainability targets (including Scope 1, 2 & 3 emissions reduction targets) and investment plans remain
unchanged.
•We remain committed to improving cost efficiency across the Co-op and will continue to report progress against efficiency
measures.
Share buyback programme
•It is appropriate to terminate our on-market share buybackprogramme, which was expected to run until 13August 2024.
19