23 May 2018
FONTERRA INCREASES FARMGATE MILK PRICE AND REVISES FORECAST EARNINGS
Fonterra Co-operative Group today increased its 2017/18 forecast Farmgate Milk Price by 20 cents
to $6.75 per kgMS.
Chairman John Wilson says the Co-operative’s strong milk price reflects a global supply anddemand picture that continues to be positive for farmers.
“Global dairy prices have risen since the start of the season. The price of Whole Milk Powder isparticularly strong due to continued growth in demand from China and across Asia,” says MrWilson.
“Our Co-operative’s forecast milk collections here in New Zealand have increased to 1,500 million
kgMS, up from the 1,480 million kgMS we reported at half year, thanks to improved farming
conditions in March and April after a challenging spring and summer.
Commenting on what the higher forecast Farmgate Milk Price means for the business, Mr Wilson
says the higher milk price is good news for farmers who are still recovering after the two years oflower milk prices in 2015 and 2016. However, the higher milk price puts pressure on Fonterra’s
earnings in a year which is already proving challenging due to the payment to Danone and theimpairment of the Co-operative’s Beingmate investment.
“As a result, we are revising our forecast normalised earnings per share guidance range down to25-30 cents per share and our forecast dividend range for the full year down to 15-20 cents pershare.”“The business’ revised earnings forecast is disappointing for our shareholders and unitholders.
However, the total forecast cash payout for farmers increases to $6.90-$6.95 per kgMS which is thethird highest payout this decade.”
Chief Executive Theo Spierings says the earnings challenge that comes with the higher milk price iscompounded by the timing and significance of this particular increase.
“There is always a natural lag in being able to pass through an increase in our input costs. But thisincrease has been both rapid and late in the year, making it difficult for these higher costs to flow
through into our sales for this financial year.

Fonterra Co-operative Group“Against this backdrop, we can see our sales margins are not where they need to be at this point in
the year to achieve our original earnings forecast”.
Third Quarter Business Update
Fonterra’s revenue of $14.8 billion for the first nine months of 2017/18 is up seven per cent on thesame period last year, as a result of higher prices.
“In the first half of the year we felt the impact of the record low inventory followed by the low spring
milk collections in New Zealand due to difficult weather conditions. This meant our sales teams had
less product to sell. We were expecting our earnings to be weighted in the second half of the year
and this has not transpired due to the rapid rise in our input costs late in the season into our valueadd business.”
With total volumes down five per cent to 16 billion LMEs and gross margin down to 16 per cent from18 per cent for the first nine months of the year, compared to the same period last year, MrSpierings says the business has not delivered the third quarter results it had planned.
“With the increase in the price of milk fats we have also seen continued demand towards productswith a lower fat composition, sustained competition in Greater China’s foodservice market andfurther constraints in some Asian markets limiting our ability to pass through costs,” says MrSpierings.
These challenges, along with the Danone payment and the impairment of our Beingmate
investment mean our gearing ratio is expected to be above our target 40-45 per cent range. We
expect to be back within the target range next year,” continues Mr Spierings.
“While the strong milk price is good for our farmers, it does make the remainder of the year
challenging for the business. We remain committed to maximising the total payout for our farmers
and value for our unitholders by delivering the best possible earnings.”
ENDS
For further information contact:
Dan Wrigley
Fonterra Communications
Phone: +64 21 820 679
24-hour media line
Phone: +64 21 507 072

About Fonterra
We’re a global dairy nutrition company owned by more than 10,000 farmers and their families. We’ve built ourexpertise on the legacy of the thousands of farmers who’ve made New Zealand a world leader in dairy. With acan-do attitude and a collaborative spirit, we’re a world leading dairy exporter. Our 22,000 people share thegoodness of dairy nutrition with the world through our innovative consumer, foodservice and ingredient solutions
brands, and our farming and processing operations across four continents.

Confidential to Fonterra Co-operative Group

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