Northington Partners Independent Report

13 May 2025

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 1H25 Performance
Fonterra Co-operative Group
May 2025

Review of 1H25 Performance |
Important Notice
2
Declarations
This report is dated 8 May 2025 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”).
The report is intended to provide Fonterra shareholders and unitholders with an independent review
of Fonterra’s performance for 1H25, in line with the requirements of s109LA of the Dairy Industry
Restructuring Act 2001.
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) and Mathew Rooza B.Com, CPA. 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 of reliance being placed on any
of the information contained in this report.

Review of 1H25 Performance |
1H25 Highlights
3
Strong group earnings
performance sustained
Reported EBIT from continuing operations in 1H25 increased by $113m (+11%) to $1,099m compared to 1H24, despite the $52m of technology (ERP)
upgrade costs and ~$47m of increased operating expenses (including costs related to the proposed Consumer business divestment).
Earnings per share were also up 10% to 44 cents despite these higher costs and the changes to Fonterra’s tax position which were introduced at the start of
FY25. Excluding technology costs (noting ERP costs will persist for some time), divestment costs and increased tax expense attri butable to the change in tax
treatment, we estimate earnings per share were up approximately 25% on a like-for-like basis.
Strong performance in
Ingredients partially offset
by reduced performance in
Foodservice and Consumer
Compared to 1H24, Ingredients EBIT was up $229m (+49%) to $696m, largely driven by favourable margin hedging in the Non-Reference portfolio,
favourable New Zealand milk expense phasing (partially offset by narrower price relativities) and favourable Australian margins due to a lower milk price.
For the same period, Foodservice EBIT was down $112m (-33%) to $230m and Consumer EBIT was down $4m (-2%) to $173m. Increased milk costs
negatively impacted margins across both channels. Additionally, Foodservice margins were affected by ERP system upgrade expenses, while Consumer
margins were impacted by costs related to the proposed Consumer divestment.
Significant cash outflow
and increased gearing
largely reflects increased
cost of milk and higher
advance rates
Compared to 1H24, net debt was up $1,226m (+29%) to $5,450m due to an increase in working capital employed during the year resulting from higher milk
prices and accelerated advance rates. Gearing has increased from 34.6% to 39.4% as a consequence. However, free cash flow for the first six months of the
year is typically negative (reflecting seasonality) and cash flows in the second half should support a significant reduction in debt/gearing over the remainder
of FY25.
Farmgate Milk Price Range
narrowed
While the range of the Forecast Farmgate Milk Price for the 2024/2025 season has narrowed to $9.70 - $10.30 per kgMS (from $9.50 - $10.50 per kgMS),
the mid-point remains unchanged at $10.00 per kgMS (~28% up on final 2023/2024 FGMP). The higher FGMP is largely due to increased Reference product
prices coupled with favourable currency movements.
Although the opening Forecast FGMP for the 2025/2026 season is some way off, Fonterra has separately announced new sustainabilit y payments will be
introduced as customer incentives for farms which meet certain emissions-related criteria. These new incentives will be funded by Mars and Nestle.
Profit guidance upgraded
Prior to the interim results, Fonterra upgraded earnings guidance from 40 – 60 cents per share to 55 – 75 cents, reflecting an increase of 30% at the
guidance mid-point. This increase is supported by the underlying strength in Ingredients and resilience across the Consumer business (despite higher milk
costs).
Given year-to-date EPS from continuing operations of 44 cents, the updated guidance suggests a lower contribution from 2H25 (11 – 31 cents) as a result of
normal seasonal factors.
Divestment update
Ahead of the 1H25 results, Fonterra provided more detail on the Mainland Group (the name for the Consumer and related businesses proposed for
divestment). This notably now excludes the China Consumer business and the Dammam plant in Saudi Arabia, with a reduction in pro forma FY24 EBIT to
$200m (compared to $282m pro forma FY24 EBIT for the “In Scope” business previously). The lower pro forma EBIT also reflects standalone operating costs
for Mainland and ongoing milk supply arrangements with Fonterra.
Fonterra is currently marketing the Mainland Group business to prospective IPO and trade sale investors. Any decision to divest and the required shareholder
consultation is likely to occur over the next few months.
1
2
4
3
5
6

Review of 1H25 Performance |
Table of Contents
4
SectionPage
Section 11H25 Results Review5
Financial Performance6
Financial Position10
Outlook11
Section 2Strategic Update12
Divestment13
Operational Efficiency Metrics 15
Appendix – Supporting Information16

Section 1:
1H25 Results Review
FONTERRA
CO-OPERATIVE
COUNCIL

Review of 1H25 Performance |
Fonterra reported earnings (EBIT) from continuing operations of $1,099m for the half, an increase of $113m on 1H24. This is despite the
$52m of technology (ERP) upgrade costs and one-off costs related to the proposed Consumer business divestment.
Total Group Financial Performance
NZ$ Million (Continuing Operations)1H251H24% Change
Sales Volume (‘000 MT)1,7231,7210%
Total Revenue 12,59211,08514%
Cost of Goods Sold(10,364)(9,049)15%
Gross Profit2,2282,0369%
Gross Margin17.7%18.4%n/a
Operating Expenses(1,208) (1,109) 9%
Other Items795934%
Reported EBIT1,09998611%
Reported EBIT Margin8.7%8.9%n/a
Net Finance Costs & Tax(378) (272) 39%
Net Profit After Tax (Continuing Ops)721 714 1%
Net Profit After Tax (Discontinued. Ops)8 (40) n/a
Total Group Net Profit After Tax729 674 8%
Earnings Per Share (Continuing Ops)$0.44$0.432%
Dividend per Share$0.22$0.1547%
Fonterra delivered a solid earnings result for 1H25, with reported earnings before interest and tax
(EBIT) and reported net profit after tax (NPAT) above 1H24 performance and long-term historical
averages. Reported EBIT from continuing operations increased by 11% to $1,099m, despite the
$52m of technology (ERP) upgrade costs and ~$47m of other opex increases, including one-off
costs related to the proposed Consumer business divestment.
Fonterra’s 1H25 results represents the 4
th
consecutive improvement in half-year performance.
Despite the higher cost of milk, Fonterra’s focus on improving operational efficiencies and its strategy
to “unleash our Ingredients engine” is demonstrating sustained earnings improvement.
–Despite flat sales volumes, a favourable product mix shift from reference products to higher value
non-reference products contributed to a 14% increase in revenue ($12,592m in 1H25 vs
$11,085m in 1H24).
–In line with the revenue increase, group gross profit for 1H25 increased on last year ($2,228m in
1H25 vs $2,036m in 1H24), albeit with a slight decrease in gross margins (17.7% vs 18.4%). This
was largely driven by improved margins in the Ingredients channel and sales volume growth in the
Consumer and Foodservice channels, more than compensating for lower margins in both the
Consumer and Foodservice channels.
–Operating expenses from continuing operations increased by $99m (9%), largely reflecting $52m
of technology (ERP) upgrade costs and ~$47m of other cost increases (including costs related to
the proposed Consumer business divestment).
–Reported EBIT from continuing operations was up $113m (11%) to $1,099m.
–Net finance costs & tax from continuing operations increased by $106m (39%), largely reflecting
a $103m increase in tax expense. Approximately $59m (4c per share) of that increase was
attributable to the change in tax treatment for supply backed dividends and the remaining
increase due to improved performance. Net finance costs increased by $3m when compared to
1H24, due to the higher net debt balance from an increase in working capital.
–The resulting reported NPAT for 1H25 was $729m (44c per share), compared to an equivalent
$674m in 1H24 (40c per share).
–Based on the full year earnings guidance of 55c – 75c per share and the 44c per share reported
for 1H25, expected EPS for 2H25 is significantly lower at 11c – 31c per share. This EPS
differential between the first half and second half is consistent with historical seasonal variability.
–The Group declared an interim dividend of 22c per share, a 7c increase compared to 1H24. This
aligns with Fonterra’s full year dividend policy target payout range of 60% to 80%, and is
consistent with Fonterra paying out up to 50% of its forecast full year dividend at interim.
Reported EBIT and Reported EBIT Margin (Continuing Operations)
6
602
543
864
986
1,099
6.3%
5.4%
7.0%
8.9%
8.7%
1H211H221H231H241H25
Reported EBITEBIT Margin

Review of 1H25 Performance |
Financial Performance by Channel & Segment
There was a material shift in the composition of operating earnings (EBIT) between channels in
1H25 vs 1H24:
EBIT from the Ingredients channel was up by $229m in 1H25, reflecting the following key factors:
–Increased contribution from Core Operations due to favourable margin hedging in the Non-
Reference portfolio and milk expense phasing in New Zealand which was partially offset by
narrower price relativities; and
–Favourable in-market margins due to Australia having a stable milk price against higher global
commodity prices and strong protein prices in Europe.
Conversely, EBIT for Foodservice and Consumer was down $112m and $4m respectively, both
channels negatively impacted by:
–Lower contribution from Core Operations, reflecting higher input costs from the rising cost of
milk. Foodservice was further impacted by costs associated with ERP system upgrade
expenses;
–Lower in-market margins, reflecting pressure from higher milk costs. Consumer margins were
further impacted by changes in product mix due to customers switching to value-focused
options; and
–Increased operating expenses due to the costs associated with the Consumer divestment,
with Foodservice further impacted due to increased staff costs, advertising and promotion.
Similar market dynamics led to a shift in earnings contributions across Segments
–Core Operations reported a $101m improvement in EBIT, largely reflecting higher margins in
New Zealand milk processing (Ingredients).
–Total Global Markets earnings were up $60m to $582m, largely driven by improvements in
the Ingredients channel.
–We note that Fonterra has split Global Markets into two segments for reporting purposes,
Global Markets Ingredients and Global Markets Consumer & Foodservice. We believe that this
aligns with Fonterra’s potential divestment of the Consumer and related businesses with
René Dedoncker (the CEO-elect for Mainland) the new Managing Director of Global Markets
Consumer & Foodservice.
–Greater China delivered a $48m reduction in EBIT, with a $21m improvement in Ingredients
offset by the $69m reduction in Foodservice earnings from the region.
Favourable Non-Reference portfolio margin hedging and New Zealand milk expense phasing contributed to improved performance in the
Ingredients channel, offset by lower margin & earnings in Fonterra’s downstream businesses due to the higher cost of milk.
Reported EBIT by Channel (NZ$ million)
7
Reported EBIT by Segment (NZ$ million)
Note: Segment and Channel Information is available for continuing operations only
467
342
177
696
230
173
IngredientsFoodserviceConsumer
1H241H25
166
277
245
298
267
315
267
250
Core OperationsGlobal Markets IngredientsGlobal Markets Consumer &
Foodservice
Greater China
1H241H25

Review of 1H25 Performance |
Fonterra’s Price Relativities for Reference and Non-Reference products narrowed by ~US$520/MT compared to 1H24, resulting in a lower
earnings benefit (~4cps vs ~6cps in 1H24). Lower price relativities were offset by a favourable product mix shift into higher value Non-
Reference products.
Historical Price Relativities (Non-Reference / Reference Product Prices)
8
Price Relativities have narrowed during 1H25. This reflects that the average Reference portfolio
prices increased ~23% in USD terms compared to a 5% increase for the Non-Reference portfolio
(both vs 1H24). Using the price of cheddar vs WMP as a proxy for the portfolios, FY25 (1.2x) is
tracking lower than FY24 (1.3x).
While better than expected, price relativities have continued to reduce at the start of 2H25 vs 2H24.
This is consistent with Fonterra’s view that the differential between Non-Reference and Reference
products is set to return to more normalised levels, particularly relative to FY23 where favourable
price relativities contributed ~40cents per share compared to FY24 where the benefit was
~12cents. Fonterra has previously indicated that it expects price relativities to contribute between 0-
5cps benefit per year in the long run. This is also consistent with the expected weakening in second
half earnings implied from Fonterra’s FY25 earnings guidance – 2H25 implied earnings of 11 –
31cps vs 1H25 of 44cps.
Source: Global Dairy Trade, adjusted forward 3 months to reflect shipment delay.
WMP and Cheddar used as proxies for Reference & Non-Reference Products.
Price Relativities (Cheddar vs WMP)
First Half
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
AugSeptOctNovDecJanFebMarAprMayJunJul
Cheddar Price Relative to WMP Price as
Proxy for Price Relativities
FY21FY22FY23FY24FY25
1H251H242H242H25
2,000
3,000
4,000
5,000
6,000
Aug-23Oct-23Dec-23Feb-24Apr-24Jun-24Aug-24Oct-24Dec-24Feb-25
USD / MT
Cheddar (Non-Reference Product)Whole Mik Powder (Reference Product)
Fonterra avg price
differential:
US$1,141/MT
Avg price differential:
US$621/MT
Price Relativities

Review of 1H25 Performance |
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Index Value
$7.14
$7.54
$9.30
$8.22
$7.83
FY20FY21FY22FY23FY24FY25
The Farmgate Milk Price range has narrowed from $9.50 - $10.50 to $9.70 - $10.30 per kgMS.
The lower range reflects a well contracted sales book with ~93% of USD cash flows being hedged
for the remainder of the season.
With only several weeks until the end of the 2024/2025 season, the mid-point Farmgate Milk
Price of $10.00 per kgMS represents a significant improvement (~28% ) on the final outcome for
the previous season. This largely reflects improved GDT auction prices for key Reference
products, with a 23% increase in 1H25 vs 1H24. This trend is summarised in the GDT Price Index
chart below (representing the change in prices for both Reference and Non-Reference milk
products). Currency has also assisted with the current average NZD/USD conversion rate for the
2024/2025 season expected at 0.5981 vs 0.6120 for the previous year.

While the forecast Farmgate Milk Price has narrowed to $9.70 - $10.30, the mid-point remains at $10.00 per kgMS.
Milk Price Range of $9.70 - $10.30 per kgMS
Historical Farmgate Milk Price vs 2024/25 Season Forecast
GDT Price Index
9
1
As per forecast update 20 March 2025
$10.30 High
$9.70 Low
Forecast Farmgate Milk Price
for 2024/25 Season
1
Source: GDT
2023/2024
Season
2024/2025
Season
(to March)

Review of 1H25 Performance |
Compared to 1H24, net debt was up $1,226m (+29%) to $5,450m due to an increase in working capital employed resulting from higher
milk prices and accelerated advance rates. Gearing has increased from 34.6% to 39.4% as a consequence.
10
NZ$ Million1H251H24% Change
Assets
Cash and Cash Equivalents218239(9%)
Receivables2,4992,12218%
Inventories8,0496,49924%
Other Current Assets 356362(2%)
PP&E6,3946,2832%
Intangible Assets1,7791,813(2%)
Other Non-Current Assets 1,05391315%
Total Assets20,34818,23112%
Liabilities
Payables5,0374,7905%
Current Borrowings1,7931,27041%
Other Current Liabilities1,121465141%
Non-Current Borrowings4,1633,37123%
Other Non-Current Liabilities242255(5%)
Total Liabilities12,35610,15122%
Net Assets7,9928,080(1%)
Equity Attributable to Co-op7,9108,014(1%)
Adjusted Net Debt (NZ$ million) and Gearing Ratio (%)
Fonterra’s net debt has increased by $1,226m compared to 1H24 ($5,450m in 1H25 vs $4,224m in
1H24). The higher debt position largely reflects an increase in working capital during the year as a
consequence of higher milk prices and the accelerated advance rate (85% to January 2025 vs 75%
to January 2024). Inventories have increased by $1,550m (24%) when compared to 1H24 ($8,049m
in 1H25 vs $6,499m in 1H24).
As a result of the higher net debt, gearing levels have also increased to 39.4% at 1H25 vs 34.6% at
1H24. With the first half typically representing a seasonal peak in debt levels, Fonterra should have
sufficient financial flexibility and debt headroom at the end of FY25.
Return on capital (“ROC”) has decreased to 10.2% in 1H25, significantly lower than the 13.4%
achieved in 1H24. However, we note that the rolling 12-month ROC reported for 1H24 includes the
higher 2H23 earnings contribution. In addition, the 1H25 result is negatively impacted by the change
in notional tax rate from 16.1% to 27.0%, increasing the tax charge by $185m and reducing ROC by
1.5%.
Historical Return on Capital (Based on Fonterra Estimates)
1
1
Rolling twelve months
$6,108m
$5,607m
$5,811m
$4,224m
$5,450m
47.3%
44.1%
43.3%
34.6%
39.4%
1H211H221H231H241H25
Adjusted Net DebtGearing Ratio
12,303
12,281
12,146
12,356
13,005
12,774
12,303
11,904
12,165
6.7%
6.6%
6.1%
6.8%
8.6%
12.4%
13.4%
11.3%
10.2%
1H21FY211H22FY221H23FY231H24FY241H25
Average Capital Employed Return on Capital
Financial Position

Review of 1H25 Performance |
Prior to the interim results, Fonterra upgraded earnings guidance from 40c – 60c per share to 55c –
75c per share (mid-point 65c). Consensus broker estimates are currently at 67c, slightly above the
mid-point of this range. The Fonterra guidance implies EPS for the second half of 11c – 31c, lower
than the 1H25 outcome largely as a result of the following factors:
–The increasing cost of milk (bottom chart) will flow through to lower margins in the Foodservice
and Consumer channels for 2H25;
–The benefits of price relativities between Reference and Non-Reference products in 1H25
remaining consistent during 2H25; and
–Normal seasonal factors with 2H earnings typically lower due to lower sales volumes and lower
milk collections impacting cost recovery in Core Operations.
Fonterra now has a stronger balance sheet which supported the increase in its dividend policy from a
payout of 40% - 60% of earnings to 60% - 80% (excluding abnormal gains), as updated in September
2024. Consistent with Fonterra’s FY25 earnings guidance and revised dividend payout policy, total
dividends for FY25 should be in the vicinity of 47c (consistent with broker estimates). This suggests a
2H25 dividend consistent with the 2H24 dividend of 25c (excluding the 15c special dividend).
At Fonterra’s current share price (farmer-only market), FY25 dividends of 47c per share would
represent a cash dividend yield of >10%.
11
Monthly Milk Prices (NZ$ per kgMS)
Normalised Earnings Per Share for 1H25 and Projection for 2H25
1
1
2H25 based on midpoint forecast earnings range of 55c – 75c per share.
1
Source: Extract from Fonterra’s 1HFY25 Presentation
1
2023/24 season monthly
milk price (Farmgate Milk
Price of $7.83)
2024/25 season monthly
milk price (estimated
midpoint Farmgate Milk
Price of $10.00)
$0.18
$0.25
$0.22
$0.37
$0.44 $0.44
$0.06
$0.09
$0.13
$0.43
$0.27
$0.21
$0.24
$0.34
$0.35
$0.80
$0.71
$0.65
FY20FY21FY22FY23FY24FY25
1H2H
Prior to the interim results, Fonterra upgraded earnings guidance from 40 – 60 cents per share to 55 – 75 cents, reflecting an increase of
30% at the guidance mid-point and implying a lower 2H25 earnings contribution of 11 – 31 cents per share. This increase is supported by
the underlying strength in Ingredients and resilience across Consumer (despite higher milk costs).
Full year FY25 Outlook

Section 2:
Strategic Update
FONTERRA
CO-OPERATIVE
COUNCIL

Review of 1H25 Performance |
Mainland Divestment
13
Fonterra is well advanced with the potential divestment of its Consumer business, as well as its integrated businesses Fonterra Oceania
and Sri Lanka. With “Mainland Group” chosen for the corporate brand, divestment is expected either through an IPO or trade sale
following shareholder approval.
Divestment Update
Fonterra first announced a potential step-change in strategic direction in May 2024 (subsequently
confirmed in November 2024) involving the potential divestment of the Consumer business, as well
as its integrated Fonterra Oceania and Sri Lanka businesses via either an IPO or trade sale.
In February 2025, Fonterra announced that the new standalone entity would be named Mainland
Group with René Dedoncker, Fonterra’s current Managing Director Global Markets Consumer &
Foodservice, as CEO-elect and Paul Victor as CFO-elect.
René and Paul led roadshow meetings with potential investor groups commencing in March 2025,
while Fonterra also released the divestment roadshow presentation providing more details in relation
to the Mainland business.
Fonterra will seek shareholder approval prior to any divestment whether it be by IPO or trade sale.
Therefore, shareholders should expect to receive more information on any proposed divestment of
Mainland and the impact on the residual Fonterra business in due course.
However, we note that the “In-Scope” businesses (the entities comprised within Mainland) generated
overall EBIT improvement of $28m (~16%) relative to 1H24. This is likely to support Mainland
delivering solid earnings growth for FY25 on the pro-forma standalone EBIT of ~$200m for FY24.
Discount of FCG Share Price to FSF Unit Price
1
1
Calculated as (FCG price per share / FSF price per share) - 1
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Price Discount
Capital Structure Review
Announcement Date
New Capital Structure
Implementation
Potential Divestment
of Consumer
Announced
Restricted Market Discount
Since the announcement of the potential divestment, the price discount for Fonterra shares (FCG)
in the farmer-only market has narrowed relative to units in the Fonterra Shareholders’ Fund (FSF).
We believe that while some of this will be due to increased performance and confidence in
Fonterra, it is also likely attributable to the expectation of a shareholder capital return following the
potential sale of Mainland. We note that the current pricing discount for the FCG shares (~15%) is
lower than the average discount of 22% that has prevailed since the new capital structure was
implemented in March 2023, as well as the ~35% discount observed prior to Fonterra announcing
the potential Consumer divestment.
1
Calculated on a rolling 12-month basis

Review of 1H25 Performance |
5.8%
(4.0%)
(2.0%)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
FY22FY23FY24HY25FY25FY24 - FY30
GroupIngredientsFoodserviceConsumer
Return on Capital and Future Capital / Channel Mix
14
The proposed divestment of Mainland is unlikely to impact on Fonterra’s milk volumes as the related milk will still flow through the
Ingredients channel. However, the divestment is expected to result in a potentially significant capital return to shareholders and support a
higher return on capital for the remaining Fonterra business.
Return on capital for 1H25 of 10.2% for the Group is above the 5-year average and tracking to be
within the FY25 target range of 8%-10%. However, as noted on page 10, the change in tax treatment
for supply backed dividends decreased reported return on capital by 1.5% (i.e. on a like-for-like basis,
1H25 group return on capital would have been 11.7%, more consistent with FY23 and FY24).
While performance in the Consumer channel has improved, the 5.8% return for 1H25 is still well
below target levels and represents a key reason for Fonterra’s proposed divestment.
As part of its strategic reprioritisation into Ingredients and Foodservice, Fonterra has released revised
return on capital targets for the Group. The post divestment target range is 10%-12%, up from the
existing target of 8%-12%. Divesting the Consumer business will clearly support the revised return
target if Ingredients and Foodservice continue to perform near current levels.
Return on Capital by Channel
1
1
Calculated on a rolling 12-month basis
Existing Group
Target:
8- 10%
Proposed Group
Target:
10-12%
57.2%
58.9%
55.3%
53.2%
56%
54%
22.0%
21.5%
23.0%
23.2%
29%
30%
7.7%
6.5%
7.5%
7.9%
13.1%13.1%
14.2%
15.7%
15%
16%
0%
20%
40%
60%
80%
100%
FY22FY23FY24FY25FY26FY27
Ingredients - ReferenceIngredients - Non-referenceConsumerFoodservice
Milk Solids Allocation
We note that the divestment of the Consumer business will not result in milk solids relating to that
business diverting to other suppliers as Mainland will likely become a key Ingredients customer of
Fonterra through an ongoing supply agreement.
The chart below demonstrates Fonterra’s expectation of higher milk allocations to Ingredients in
2026 and 2027 because of the reclassification of current sales through the Consumer channel into
Ingredients following the proposed divestment. Fonterra’s target to allocate 76.4% of milk solids to
Ingredients for FY25 increases to 85% in FY26 as a result of the proposed divestment.
Capital investment prioritisation into higher returning Ingredients and Foodservice businesses is also
evident in recent announcements. These include the $75m investment in Studholme to support high-
value functional proteins (supporting enhanced capability and returns within Ingredients) and $150m
investment in a new UHT cream plant at Edendale (unlocking up to 20m kgMS additional processing
capacity in the Foodservice portfolio in FY26).
We estimate that the Consumer channel (and Mainland) employs more than $2.5bn of capital (out of
Fonterra’s total capital employed of over $12bn). While any sale proceeds may be used by Fonterra
to reduce debt or for reinvestment into the Ingredients and Foodservice channels, Fonterra has
indicated that it anticipates a significant capital return to be made to shareholders.

Review of 1H25 Performance |
Fonterra appears to be successfully offsetting inflation in its cost base through ongoing efficiency improvements. Excluding ERP and
divestment costs, cash operating expenses are expected to be flat on FY24 with core operations manufacturing cash costs increasing only
modestly.
Operational Efficiency Metrics
15
Cash Operating Expenses per kgMS
1.Cash operating expenses per kgMS collected
Cash operating expenses represent the global overheads of the Group and include head office,
selling, marketing, storage and distribution costs. While FY25 total cash operating costs per
kgMS are forecast to increase to $1.45/kgMS (vs $1.36/kgMS in FY24), this is largely due to an
estimated cost of $130m (8c/kgMS) for the ERP system and approximately $30m (2c/kgMS) for
year to date Mainland divestment related costs. The total ERP cost is projected to be $450 -
$500m over 6 years with ~$250m expected over the FY25 and FY26 period.
Excluding ERP and Mainland related divestment costs, Fonterra’s FY25 cash operating expenses
are expected to be flat on FY24 at $1.35 per kgMS. This outcome is supported by higher
expected milk production. However, it is difficult to draw many conclusions from Fonterra’s
expectation of a material decrease in cash operating expenses per kgMS for FY26 and FY27 as it
largely represents the consequence of divesting Mainland.
2.Core Operations manufacturing cash costs per kgMS NZ milk collections
This metric measures the manufacturing performance in Fonterra’s core New Zealand
processing and manufacturing cost base. Fonterra forecasts FY25 manufacturing cash costs
per kgMS to increase 5c to $2.63, representing an underlying increase in the cost base of
approximately 4.6% which is partly offset by a 2.7% increase in New Zealand milk collections.
The overall 1.9% increase on FY24 is largely reflective of inflation and a more complex
manufacturing product mix.
Future manufacturing costs per kgMS of New Zealand milk collections are expected to be flat
(inflation adjusted), suggesting that Fonterra expects ongoing efficiency gains.
Core Operations Manufacturing Cash Costs per kgMS
1.32
1.31
1.37
1.39
1.10
1.17
1.30
1.36
1.35
1.45
1.12
1.05
FY21FY22FY23FY24FY25FY26FY27
Inflation-Adjusted
Actual
Planned
Excluding ERP & associated upgrades and YTD divestment costs
Strategic Targets
2.54
2.58
2.78
2.64
2.11
2.30
2.63
2.58
2.63
2.62
2.64
FY21FY22FY23FY24FY25FY26FY27
Inflation-Adjusted
Actual
Planned
Strategic Targets

Appendix – Supporting Information

Review of 1H25 Performance |
Continuing and Discontinuing Operations
17
NZ$ Million6 Months to 31 January 20246 Months to 31 January 2025
Continuing
Operations
Discontinued
Operations
Total
Group
Continuing
Operations
Discontinued
Operations
Total
Group
Sales Volume (‘000 MT)1,721591,7801,723-1,723
Total Revenue 11,08517211,25712,592-12,592
Cost of Goods Sold(9,049)(106)(9,155)(10,364)-(10,364)
Gross Profit2,036662,1022,228-2,228
Gross Margin (%)18.4%38.4%18.7%17.7%-17.7%
Operating Expenses(1,109)(99)(1,208)(1,208)-(1,208)
Other Items59-5979887
Reported EBIT986(33)9531,09981,107
Reported EBIT Margin (%)8.9%(19.2%)8.5%8.7%-8.8%
Normalisations-6666---
Normalised EBIT986331,0191,09981,107
Reported Net Profit After Tax714(40)6747218729
Normalised Net Profit After Tax714267407218729

Review of 1H25 Performance |
FY25 Integrated Scorecard
18
Key Performance Indicator (KPI)
FY23
Actual
FY24
Actual
FY25
Scorecard
FY25
YTD
People
Serious harm
1
1816121
Percentage of Health, Safety and Wellbeing priority actions fully completed by due date76%77%95%98%
Culture Measure79798179
Nature
GHG emissions (Scope 1,2)
2
(14.1%)(18.5%)(21.1%)(21.2%)
Absolute water reduction across manufacturing sites (15% by FY30)
2
(6.7%)(12.4%)(13.1%)(19.5%)
Relationships
Share of New Zealand milk collected for the season to 31 May79.0%78.1%78%78.2%
Delivered in full, on time (DIFOT, ex-New Zealand)53.2%70.8%80%79.4%
Financial / Assets &
Infrastructure
Cash operating expenses per kgMS (real)
3
1.371.361.461.45
Core Operations manufacturing cash costs per kgMS (real)
4
2.782.642.652.63
Return on capital (FY)12.4%11.3%8% - 10%On-track
Farmgate Milk Price ($)8.227.837.75 – 9.259.70 – 10.30
5
Alignment Rights
Total shareholder return
(12-month Volume Weighted Average Price of Fonterra Co-operative Unit plus dividend)
6
$2.38 ($1.00)$2.66 ($0.55)3.36
On-farm profitability ($ per hectare)
7
3,017Not AvailableNot Available
1. A broader definition, which also includes Contractors, has been adopted for FY25 resulting in an increased number of injuries captured under the revised definition
2. Relative to FY18 Baseline.
3. Based on New Zealand and Australia milk solids. FY25 excludes divestment related costs. Efficiency measures have been restated using FY25 as the base year.
4. Based on New Zealand milk solids collected. Excludes the cost of milk
5. Latest Forecast Farmgate Milk Price announced 20 March 2025 with midpoint of $10.00.
6. Volume Weighted Average Price (VWAP) for the period 1 October to 30 September. FY25 YTD is 12-month VWAP to 31 January 2025.
7. DairyNZ Economic Survey 2022-2023(Owner-Operator). Publication of 2024 survey expected in July 2025.

Review of 1H25 Performance |
Historical Financial Information
19
Sales Volume (‘000 MT)
Reported EBIT (NZ$ million)
Revenue (NZ$ million)
Normalised EBIT (NZ$ million)
Total Assets (NZ$ million)
Total Equity (NZ$ million)
1
1
Excluding non-controlling interests
Note: Includes continued & discontinued operations where known.
Capital Expenditure (NZ$ million)
Free Cash Flow (NZ$ million)
2,324
2,131
2,003
2,075
2,037
1,994
1,921
1,994
1,780
1,723
1H161H171H181H191H201H211H221H231H241H25
8,388
9,232
9,836
9,745
10,423
9,915
10,797
13,249
11,257
12,592
1H161H171H181H191H201H211H221H231H241H25
19,076
19,344
20,161
20,301
20,148
19,955
20,816
21,391
18,231
20,348
1H161H171H181H191H201H211H221H231H241H25
6,795
7,054
6,568
6,421
6,257
7,148
6,700
7,913
8,014
7,910
1H161H171H181H191H201H211H221H231H241H25
665
607
458
312
584
684
607
940
1,019
1,107
1H161H171H181H191H201H211H221H231H241H25
752
644
(176)
312
806
657
607
858
953
1,107
1H161H171H181H191H201H211H221H231H241H25
346
(417)
(690)
(782)
369
(632)
(849)
(30)
(397)
(2,069)
1H161H171H181H191H201H211H221H231H241H25
453
244
346
316
112
147
180
245
225
244
1H161H171H181H191H201H211H221H231H241H25

Review of 1H25 Performance |
Reported EBIT Bridge by Segment and Channel
20
Reported EBIT Bridge by Channel
Reported EBIT Bridge by Segment
$1,107m
$953m
$136m
($28m)
($7m)
$72m
($15m)
$3m
$21m
($69m)
-
$41m
ReportedIngredientsFoodserviceConsumerIngredientsFoodserviceConsumerIngredientsFoodserviceConsumerDiscontinued
Operations
Reported
1H24 EBITCore OperationsGlobal MarketsGreater China1H25 EBIT
$1,107m
$953m
$136m
$72m
$21m
($28m)
($15m)
($69m)
($7m)
$3m
-
$41m
ReportedCore OperationsGlobal MarketsGreater ChinaCore OperationsGlobal MarketsGreater ChinaCore OperationsGlobal MarketsGreater ChinaDiscontinued
Operations
Reported
1H24 EBITIngredientsFoodServiceConsumer1H25 EBIT

Review of 1H25 Performance |
Abbreviations & Definitions
21
TermDefinition
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
FSFUnits in Fonterra Shareholders’ Fund (FSF.NZ)
FYFinancial year ending 31 July
GDTGlobal Dairy Trade
In Scope BusinessesGlobal Consumer business together with Fonterra Oceania and Fonterra Sri Lanka
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
NTMNext Twelve Months
NWCNet working capital
NZDNew Zealand dollars
PP&EPlant, property and equipment
Price RelativitiesRefers to the difference in the weighted average price (in USD) between the Reference Product portfolio and Non Reference Product portfolio
Reference ProductsIncludes commodity products and groups that are included in the calculation of the Farmgate Milk Price
Share StandardMeans one share per one kgMS supplied
RHSRight hand side (axis)
ROC or ROCEReturn on capital employed
SMP
Skim milk powder
TSR
Total shareholder return
USDUnited States dollars
WACCWeighted average cost of capital
WMPWhole milk powder

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