Fonterra makes progress on strategic priorities in Q1

5 December 2024

Fonterra makes progress on strategic priorities in Q1

Fonterra Co-operative Group Ltd today provided its FY25 Q1 business update, which shows the Co-op
has made significant progress on its shift in strategic direction while maintaining its focus on performance.
“During the first quarter of the year we released our revised strategy, which sees us focusing on our high
performing Ingredients and Foodservice businesses to grow returns for farmer shareholders and unit
holders,” says Fonterra CEO Miles Hurrell.
“We’ve announced investments to support this direction, including around $75 million to increase
production capacity for high value protein ingredients at our Studholme manufacturing site, with site works
now underway.
“To support ongoing growth in our thriving Foodservice business, we announced that we’re investing
around $150 million in a new UHT cream plant at our Edendale site, with the project to create 70 new
roles in Southland.
“We also launched a new Foodservice product, Anchor Easy Bakery UHT Cream, targeting China’s mid-
tier market.
“Alongside this, we’re investing in strengthening our supply chain network, with around $150 million
allocated to build a new cool store with capacity to store 26,000 tonnes of cheese at our Whareroa site.
“These strategic investments underpin our future growth, and I’m pleased our balance sheet strength is
enabling us to invest in our business,” says Mr Hurrell.
Fonterra has also progressed work to divest its global Consumer business, as well as integrated
businesses Fonterra Oceania and Sri Lanka.
“Last month, we confirmed we are pursuing a divestment for these businesses. This work is now
underway and we will share more information as it progresses.
“Our priority is maintaining momentum in our financial performance while the divestment process is
underway,” says Mr Hurrell.
Business performance
Fonterra's Q1 profit after tax was $263 million, equivalent to earnings per share of 16 cents.
“This is a strong start to the year, especially when taking into consideration the higher cost of milk and
narrower price relativities when compared to this time last year.
“While these factors have impacted our gross margins, this has been partially offset by improved product
mix, with a greater allocation of milk to higher value products in our Foodservice and Consumer channels.
“We ended FY24 with well managed inventory levels, meaning we started this year with lower levels than
the year prior.

Fonterra Co-operative Group
Page 2

“As a result, we have lower sales volumes in our Ingredients channel when compared to this time last
year. This channel was also impacted by the continued narrowing of price relativities in New Zealand. This
has been partially offset by the realignment of the Australian milk price with global commodity prices.

“While Foodservice and Consumer gross margins have been impacted by the higher cost of milk relative
to Q1 last year, it is pleasing to see margins have improved in our global markets since the end of last
financial year.
“Operating expenses for the first quarter of FY25 were in line with expectations as we continue to invest in
core IT and digital infrastructure and transformation initiatives,” says Mr Hurrell.
ENDS

For further information contact:

James Kaufman
Fonterra Communications
Phone: +64 21 507 072

About Fonterra

Fonterra is a co-operative owned and supplied by thousands of farming families across Aotearoa New Zealand.
Through the spirit of co-operation and a can-do attitude, Fonterra’s farmers and employees share the goodness of
our milk through innovative consumer, foodservice and ingredients brands. Sustainability is at the heart of everything
we do, and we’re committed to leaving things in a better way than we found them. We are passionate about
supporting our communities by Doing Good Together.


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.

---

Fonterra Co-operative Group
2025 Quarter One Business Update

Results at a glance
Earnings per share
16 cents
 from 20c
Profit after tax
$263m
 from 346m
Continuing operations’
operating profit (EBIT)
$396m
 from 575m
Farmgate Milk Price forecast
$9.50 – $10.50
per kgMS
Full year FY25 forecast
40 – 60 cents
per share
2

2025 Quarter One Business Update
•Progressing strategy to focus on Ingredients and Foodservice:
−site work underway at Studholme to increase production capacity in high value protein ingredients
−UHT cream plant at Edendale and Whareroa cool store works in advanced planning
•Pursuing both trade sale and IPO as options for divestment of global Consumer business, as well as
integrated businesses Fonterra Oceania and Fonterra Sri Lanka
•Good progress on sustainability targets, no longer using coal as a fuel source in the North Island
•Innovation continues to support growth in the Co-op’s higher value portfolios, with the launch of Easy
Bakery UHT Cream expanding our Foodservice UHT cream portfolio into the mid-tier Greater China market
•Q1 profit after tax of $263 million, equates to earnings per share of 16 cents, down on prior year due to:
−lower sales volumes, reflecting the strong finish to FY24 and therefore lower FY25 opening inventory
−gross margins impacted by higher cost of milk
•Season to date milk collections up on last year and revised full year forecast to 1,498m kgMS, up 1.8% on
prior year
•Forecast Farmgate Milk Price increased to $9.50 –$10.50 per kgMS, midpoint of $10.00 supported by
strong demand from key importing regions and a well contracted sales book
•Maintained forecast earnings range of 40 –60 cents per share
3

Variable milk supply and strong demand from key importing regions
Production
Imports
•Current dairy market conditions remain favourable:
–Continued strong demand from key import
regions, particularly Southeast Asia
–China import demand improving as local supply
growth moderates
–US production constrained to date, signs of
growth as yield per cow increases and more
recently total milking cows has grown
–Favourable weather in Victoria and New South
Wales driving improved Australian production,
offsetting declines in smaller regions
–Strong New Zealand production due to
favourable weather and pasture conditions
across most of the country
–EU production continues to be adversely
impacted by weather and animal health issues
US
3-month
0.3%
12-month
0.3%
EU
3-month

0.8%
12-month
0.1%
China
3-month

9.1%
12-month

12.2%
Asia (excl China)
3-month
11.9%
12-month

10.3%
New Zealand
3-month
4.7%
12-month
1.1%
Australia
3-month
1.7%
12-month
3.4%
Middle East & Africa
3-month

1.6%
12-month
2.4%
Latin America
3-month
9.1%
12-month
7.5%
4

2,500
3,500
4,500
5,500
6,500
Revenue price relativities unfavourable compared to Q1 prior year
Fonterra Revenue Reference and Non-Reference Price Relativities (USD/MT)
Note: Data represents Fonterra’s actual Reference and Non-Reference prices of the New Zealand Ingredients portfolio on a Free Alongside Ship (FAS) basis
5
Q1 FY23
Q1 FY24
Q1 FY25
Reference Product shipment price
Non-Reference Product shipment price
Average Non-Reference price:
Average Reference price:
USD 4,939
USD 4,315
Average Non-Reference price:
Average Reference price:
USD 4,333
USD 3,312
Average Non-Reference price:
Average Reference price:
USD 4,398
USD 3,924
Price difference: 623Price difference: 1,021Price difference: 474
Unfavourable price relativities compared to prior
year due to an 18% increase in Reference prices
relative to a 1% increase in Non-Reference prices

346
46392(58)
(81)
(40)
8
42263
Key performance drivers
Operating profit drivers
20c EPS24c EPS
16c EPS
FY24 Q1
Profit after tax
Reversal of FY24
Discontinued
operations
loss after tax
FY24 Q1
Continuing
operations
profit after tax
VolumeMarginOperating
expenses and other
Net finance
costs
TaxFY25 Q1
Profit after tax
Note: For the three months ended 31 October. Profit after tax presented in the graph includes profit attributable to non-controlling interests. EPS presented is for profit attributable to equity holders of the Co-operative
FY24 Q1 to FY25 Q1 profit after tax
($ million)
6
Margins impacted by rate of
increase in cost of milk at end
of FY24 relative to in-market
price increases
Lower sales volumes reflecting the
strong finish to FY24 and therefore
lower FY25 opening inventory
Driven by planned $31m
increase in IT & Digital
transformation spend

Stable Ingredients performance, recovery in Foodservice and Consumer
ConsumerFoodservice
Ingredients
7
•Lower sales volumes compared to FY24 Q1
reflecting lower opening inventoryand this
year’s greater allocation of milk to Foodservice
and Consumer
•Lower gross margins compared to FY24 Q1 as
price relativities narrow in NZ, partially offset by
improved alignment between the domestic milk
price and global commodity prices in Australia
•Higher sales volumes due to growth in Greater
China and Southeast Asia
•Lower gross margins compared to FY24 Q1 due
to materially higher cost of milk
•Margins improving following sharp increase in
milk costs in FY24 Q4 as in-market teams
successfully adjust pricing to reflect higher costs
•Volume growth driven by successful brand
promotion in Southeast Asia
•Gross margins impacted by sharp increase in
milk costs in FY24 Q4
•FY25 Q1 margin recovery driven by price
increases in Southeast Asia, partially offset by
slower recovery in NZ
415668601550372
16.2%
11.9%
13.7%
11.3%
15.9%
Q1Q2Q3Q4Q1
FY24FY25
Volume (000' MT)
Gross margin
146149133136152
29.4%
23.3%
23.5%
16.0%
18.0%
Q1Q2Q3Q4Q1
FY24FY25
174169163166180
28.8%
25.2%
26.5%
18.5%
22.9%
Q1Q2Q3Q4Q1
FY24FY25

FY25 outlook
$9.50 – $10.50
per kgMS
Forecast Farmgate Milk Price
FY25 forecast earnings¹
per share
40 – 60 cents
The forecast range reflects:
•underlying operating profit stable as volume, product mix, and
sales pricing offsets higher cost of milk in second half of
financial year
•increased investment in IT & Digital transformation technology
and higher effective annual tax rate, which will generate
imputation credits
The forecast range reflects:
•US and EU milk supply continuing to be constrained relative to
demand, and increased production in New Zealand
•recovery of demand in Greater China is maintained and strong
demand in Southeast Asia continues
1.Forecast excludes costs associated with divestment of Consumer businessand integrated businesses Fonterra Oceania and Fonterra Sri Lanka

Additional
Information
9
Additional
Information

Fonterra’s New Zealand milk collections
•Season to date collections, 1 June – 31
October,were 512 million kgMS, 4.7% ahead of
the last season
•Higher collections due to
−Favourable weather conditions in the
North Island with above normal soil
moisture levels. Sunlight levels and
temperatures are tracking above average
and contributing to strong pasture growth
−South Island started the season with an
earlier calving pattern and favourable
weather conditions but experienced heavy
rainfall in October
•Variable weather conditions across the South
Island as some regions in lower South Island
showing a large water table surplus
-
10
20
30
40
50
60
70
80
90
JunJulAugSepOctNovDecJanFebMarAprMay
2022/23
2023/24
2024/25
SeasonTotal Milk Solids (kgMS)Peak Day Milk
2022/231,480m (up 0.1%)
78m litres
2023/241,471m (down 0.6%)
76m litres
2024/251,498m
1
(up 1.8%)
77m litres
1. Current full season forecast
10
Volume (million litres/day)

Continuing and discontinued operations
NZD million
20242025∆%
1
Sales volume ('000 MT)
735704
(4)%
Sales volume (million kgMS)
329311
(5)%
Revenue
4,9725,197
5%
Cost of goods sold
(3,908)(4,272)
(9)%
Gross profit
1,064925
(13)%
Operating expenses
(525)(575)
(10)%
Other
2
3646
28%
EBIT
575396
(31)%
Net finance costs and tax expense
(183)(133)
27%
Profit after tax from continuing operations
392263
(33)%
Profit/(Loss) after tax from discontinued operations
(46)-
-
Total Group profit after tax
3
346263
(24)%
Gross margin
21.4%17.8%
EBIT margin
11.6%7.6%
Note: Total Group figures are for the three months ended 31 October
1.Percentages as shown in table may not align to the calculation of percentages based on numbers in the table due to rounding of figures
2.Consists of other operating income, net foreign exchange gains/(losses) and share of equity accounted investees
3.Includes amounts attributable to non-controlling interests
•Lower sales volumes reflecting the strong finish to FY24
and therefore lower FY25 opening inventory
•Increased allocation of milk solids to higher value
products reducing impact of lower volumes and
increased cost of milk
•Increased operating expenses reflect planned $35m
spend in Q1 on IT & Digital transformation
•Lower financing costs and lower taxable operating profit
11

Key financial metrics for Total Group Q1
Sales volume (‘000 MT)
Revenue ($ billion)Gross profit ($ million)
Operating expenses ($ million)
785
661
944
1,130
925
20212022202320242025
832
801
875
794
704
20212022202320242025
4.2
4.4
5.8
5.1
5.2
20212022202320242025
560
513
581
630
575
20212022202320242025
EBIT ($ million)
235
190
368
536
396
20212022202320242025
Profit after tax ($ million)
121116
214
346
263
20212022202320242025
Note: Figures are for the 3 months ended 31 October and are presented on a reported basis, unless otherwise stated. Comparative information has been re-presented for consistency with the current period
12

Free cash flow
1
($ million)
(844)
(1,166)
(565)
(517)
(1,134)
20212022202320242025
Continuing operations EBIT
2

($ million)
178
157
353
575
396
20212022202320242025
Continuing operations profit after tax
2

($ million)
68
95
212
392
263
20212022202320242025
Note: Figures are for the 3 months ended 31 October and are presented on a reported basis, unless otherwise stated
1.Comparative information has been re-presented for consistency with the current period
2.Soprole was classed as a discontinued operation in 2023. Consequently, 2021 and 2022 are re-presented
Key financial metrics for Total Group Q1
13

Data sources
Dairy Production and Imports
•12-month production
−New Zealand, Australia US (Oct 2023 to Oct 2024) DCANZ, Dairy Australia, USDA
−EU (Sep 2023 to Sep 2024), Eurostat
•3-month production
−New Zealand, Australia, US (Aug 2023 – Oct 2023 to Aug 2024 – Oct 2024) DCANZ, Dairy Australia, USDA
−EU (Jul 2023 – Sep 2023 to Jul 2024 – Sep 2024) Eurostat
•12-month imports
−China (Oct 2023 to Oct 2024) S&P Global
−LATAM, Asia (excl. China), Middle East & Africa (Sep 2023 – Sep 2024) S&P Global
•3-month imports
−China (Aug 2023 – Oct 2023 to Aug 2024 – Oct 2024) S&P Global
−LATAM, Asia (excl. China), Middle East & Africa (Jul 2023 – Sep 2023 to Jul 2024 – Sep 2024) S&P Global
14

Glossary
Consumer
represents the channel of branded consumer products, such as
powders, yoghurts, milk, butter, and cheese

Continuing operations
means operations of the Group that are not discontinued operations

Core Operations
represents core operating functions including New Zealand milk
collection and processing operations and assets, supply chain and
sustainability, Fonterra Farm Source retail stores, and the
optimisation function

Discontinued operations
means a component of the Group that is classified as held for sale (or
has been sold) and represents, or is part of a single coordinated plan to
dispose of, a separate major line of business or geographical area of
operations, or is a subsidiary acquired exclusively with a view to resale

Eliminations
represents eliminations of inter-business unit sales

Farmgate Milk Price
means the average price paid by Fonterra in New Zealand for each
kgMS supplied by Fonterra’s farmer shareholders under Fonterra’s
standard terms of supply. The Farmgate Milk Price is set by the Board,
based on the recommendation of the Milk Price Panel. In making that
recommendation, the Panel provides assurance to the Board that the
Farmgate Milk Price has been calculated in accordance with the
Farmgate Milk Price Manual
Foodservice
represents the channel selling to businesses that cater for out-of-home
consumption; restaurants, hotels, cafés, airports, catering companies
etc. The focus is on customers such as; bakeries, cafés, Italian
restaurants, and global quick-service restaurant chains. High
performance dairy ingredients including whipping creams, mozzarella,
cream cheese and butter sheets, are sold in alongside our business
solutions under the Anchor Food Professionals brand
Gearing ratio (%)
is adjusted net debt divided by total capital. Total capital is equity
excluding hedge reserves, plus adjusted net debt

Ingredients
represents the channel comprising bulk and specialty dairy products
such as milk powders, dairy fats, cheese and proteins manufactured in
New Zealand, Australia and Europe, or sourced through our global
network, and sold to food producers and distributors

kgMS
means kilograms of milk solids, the measure of the amount of fat and
protein in the milk supplied to Fonterra
Non-Reference Products
means all NZ milk solids processed by Core Operations, except for
Reference Commodity Products

Price relativities
refers to the difference in the weighted average price (in USD) between
the Reference Product portfolio and Non-Reference Product portfolio.
The difference between these two weighted average prices is a key
driver of the Ingredients’ gross margin

Reference Products
are the five commodity groups used to calculate the Farmgate Milk
Price, being Whole Milk Powder (WMP) and Skim Milk Powder (SMP),
and their by-products Butter, Anhydrous Milk Fat (AMF) and Buttermilk
Powder (BMP)
Season
New Zealand: A period of 12 months from 1 June to 31 May
Australia: A period of 12 months from 1 July to 30 June
Total Group
is used to indicate that a measure or sub-total comprises continuing
operations, discontinued operations and non-controlling interests. E.g.
‘Total Group EBIT’
15

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.
Please refer to the Glossary for definitions of non-GAAP measures referred to by Fonterra.
16
Non-GAAP Measures