Fonterra Shareholders Fund : ' Fund Interim Results 2022

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	Results for announcement to the market
	Name of issuer			Fonterra Shareholders' Fund
use	Reporting Period			6 months to 31 January 2022
Previous Reporting Period			6 months to 31 January 2021
Currency			NZD
					Amount (m's)		Percentage change
	Revenue from continuing		($10)	(112%)
	operations
personal	Total Revenue		($10)	(112%)
Net profit/(loss) from			$nil	-%
continuing operations
	Total net profit/(loss)			$nil	-%
		Interim Distribution
	Amount per Quoted Equity		$0.05
	Security
	Imputed amount per Quoted			Not Applicable
	Equity Security
	Record Date		24/03/2022
	Distribution Payment Date		14/04/2022
					Current period		Prior comparable period
	Net tangible assets per		$3.50		$4.54
	Quoted Equity Security
For	A brief explanation of any of			Please refer to the interim financial statements for further
the figures above necessary			explanation.
to enable the figures to be			Revenue from continuing operations comprises net fair value
	understood			movements of Economic Rights of Fonterra Shares, and (if any)
					dividend income.
		Authority for this announcement
	Name of person authorised			Andrew Cordner
	to make this announcement
	Contact person for this			Simon Till
	announcement
	Contact phone number		[phone]
	Contact email address			[e-mail]
	Date of release through MAP		17/03/2022

Unaudited interim financial statements accompany this announcement.

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Fonterra

onlyShareholders' useFund Interim Financial personalStatements

FOR SIX MONTHS ENDED 31 JANUARY 2022

For

For personal use only

INTERIM FINANCIAL STATEMENTS 2022

Contents

CHAIRMAN'S REPORT	2
MANAGER'S STATEMENT	6
STATEMENT OF COMPREHENSIVE INCOME	7
STATEMENT OF CHANGES IN AMOUNTS ATTRIBUTABLE TO UNIT HOLDERS	7
STATEMENT OF FINANCIAL POSITION	8
CASH FLOW STATEMENT	8
SIGNIFICANT ACCOUNTING POLICIES	9
NOTES TO THE INTERIM FINANCIAL STATEMENTS	10
INDEPENDENT REVIEW REPORT	12
DIRECTORY	13

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FONTERRA SHAREHOLDERS' FUND

INTERIM FINANCIAL STATEMENTS 2022

Chairman's Report

onlyDear unit holders

At the start of the 2022 Financial Year (FY22) Fonterra set out its long-term strategy and targets for the value it is aiming to create over the next eight years. Fonterra also shared its aspiration to be net zero with its emissions by 2050.

useTo achieve these outcomes, Fonterra made three important strategic choices

- to focus on creating value from New Zealand milk and to be a leader in both sustainability and dairy innovation and science.

Fonterra CEO Miles Hurrell believes that while it's early days, they are making good progress in putting in place the necessary buildings blocks to achieve their 2030 targets.

I will take the opportunity to note in this report some of the highlights and challenges so far. For further clarity and detail, I encourage you to read Fonterra's FY22 Interim Report.

Fonterra's performance for the six months to 31 January 2022 reflects personalconsistent and strong demand across its multiple markets and products

t a time when constrained milk supply and a significantly higher cost of milk are having a significant impact.

Profit after tax for the first six months to 31 January 2022 is $364 million, and an interim dividend of 5 cents per share has been declared. As a result, unit holders will receive an interim distribution of 5 cents per unit. The record date for the interim distribution is 24 March 2022 and the payment date is 14 April 2022. The suspension of the distribution reinvestment plan remains in place as Fonterra progresses the requirements to be able to implement its Flexible Shareholding structure.

Performance for the first six months to 31 January 2022

Fonterra's cost of milk has been around $2 per kgMS higher for the first six months relative to the prior year. In the context of this significant increase Fonterra has performed well.

Fonterra's gross margin in its Ingredients channel improved for the first six months compared to the same period last year. This was mainly due to improved pricing, particularly in the protein portfolio for its casein and whey protein concentrate products. However, the higher cost of milk put pressure on Fonterra's gross margins in the Foodservice and Consumer

Forchannels, and it also felt the impact of COVID-19 in many of its markets. Lower New Zealand milk collections reduced total production, and this impacted overall sales volumes.

Despite these challenges, the region comprising Africa, Middle East, Europe, North Asia, and Americas (AMENA) has had a strong start to the year, delivering a 25% increase in normalised EBIT to $250 million. Fonterra achieved this through improved pricing and product mix in the Ingredients channel and continued volume and gross margin growth in its consumer business in Chile.

In Greater China, Fonterra continues to see strong demand for dairy as it finds new ways to drive demand. However, normalised EBIT from this region is down 20% to $236 million, mainly due to the Foodservice channel where, despite steady volumes, the higher milk cost has impacted gross margins.

In Asia Pacific, normalised EBIT decreased 33% to $158 million. Fonterra's Australian business experienced improved gross margins due to better pricing in its Ingredients channel. However, this was more than offset by lower gross margins in the Foodservice and Consumer channels across the Asia Pacific region, which was most notable in the South East Asia and New Zealand businesses.

Overall, Fonterra's Total Group normalised EBIT is down $77 million to $607 million. However, the decrease in EBIT was partially offset by lower interest expense due to reduced debt levels and gains from fixed interest rate hedges as interest rates have risen. Consequently, Fonterra's normalised profit after tax of $364 million is down $54 million.

Outlook for the remainder of FY22

Fonterra has reaffirmed the forecast Farmgate Milk Price range of $9.30 - $9.90 per kgMS and forecast normalised earnings guidance of 25 - 35 cents per share.

Fonterra has noted that pricing within its Ingredients channel, for both reference products (which inform its farmgate milk price) and non-reference products, has been supportive of both milk price and earnings and expects this to continue in the second half. However, pressure will remain on

its Foodservice and Consumer channel gross margins due to the higher input costs.

Fonterra has highlighted several risks they are continuing to watch closely in the second half. These include inflationary pressures, the potential impact of high dairy prices on demand, economic disruption due to the rapid spread of the Omicron variant and geopolitical events, such as Russia's invasion of Ukraine.

Progress towards 2030 targets

Fonterra's short-term financial performance is critical, as it funds the future. However, it is also aware it needs to focus on its long-term targets and,

as a result, take action today that will pay off in the future. Fonterra CEO Miles Hurrell considers that solid progress is being made across all three of Fonterra's strategic choices.

Focus on New Zealand milk

Fonterra believes its new 'Flexible Shareholding' capital structure is critical in helping maintain a sustainable New Zealand milk supply in an increasingly competitive environment. Following the positive farmer vote in December, discussions with the Government are progressing well and Fonterra expects to be able to provide a timeline for the implementation to farmers and unit holders in the next couple of months.

Fonterra is also continuing to make progress on the divestment of its Chilean business and the ownership review of the Australian business. As noted earlier, both businesses are performing well this year and it is Fonterra's priority to maximise their value. Hence, Fonterra will take time to ensure the best outcomes from these processes and remains confident on delivering on its intention to return around $1 billion of capital to Fonterra shareholders and unit holders by FY24.

Be a leader in dairy innovation and science

Fonterra continues to build on its legacy of dairy innovation, developing new solutions to solve problems customers face and helping people live longer and healthier lives. In doing so, it is looking at new ways to commercialise its intellectual property.

An example of this is the collaboration with VitaKey. VitaKey specialises in precision delivery of nutrition - an emerging area of research that seeks to deliver the right nutrients, in the right amount, to the right part of the body at the right time. Fonterra is working with them to explore how they can apply their capability to specific dairy nutrients in a way that allows the nutrients to be more active and beneficial in the body. This has started with two of Fonterra's probiotics that are used to address digestive issues and immunity.

Be a leader in sustainability

By investing in sustainability, Fonterra is making sure its milk is backed by the sustainability credentials consumers want and will be better able to support customers in their sustainability journey.

In this regard, finding a solution to the methane challenge will be significant. Fonterra is excited about the results of the next phase in the Kowbucha™ trials - a probiotic which could switch off the bugs that create methane

in cows. After moving from the lab to farm, initial results have shown a reduction in methane emissions of up to 20% when fed to calves. The trial is now continuing to the next phase.

Fonterra's focus on sustainability is helping maintain and win business. The combination of New Zealand milk having a carbon footprint one third the global average for milk production and Fonterra's sustainability credentials recently helped retain business in its Foodservice channel. Like Fonterra, one of their Quick Service Restaurant customers has a goal to be net zero by 2050. By using Fonterra's products over a competitor's, they've been able to reduce their carbon emissions by the equivalent of taking 1,760 cars off the road.

As said earlier, it is only early days on the long-term strategy - but it is evident progress is underway.

Capital Structure Review

As noted above, Fonterra is continuing to negotiate with the Government to achieve the legislative changes required to implement the new flexible shareholding structure. In communications with unit holders last year, the independent directors of the manager of the Fonterra Shareholders' Fund explained their concerns over the impact of the restructuring on the unit price, and advocated that Fonterra make an offer to unit holders to buy the Fund out. They noted that the purpose underlying the formation of the Fund was no longer relevant and that its retention under the new capital structure could have a further negative impact on value for unit holders.

Fonterra has not accepted the independent directors' recommendation. They say that consultation with farmers shows that they want to retain the Fund. They also argue that having the Fund provides transparency and scrutiny (from analysts and others) that is positive for all investors, including farmer shareholders.

The independent directors are not able to force a buyout of the Fund.

Looking ahead, the value of units will primarily be a function of Fonterra's earnings' performance and dividends. To that end it is positive to see Fonterra maintaining its current year earnings forecast.

We will continue to monitor the impact of the restructuring proposals on unit holders, and to communicate accordingly. We will also continue to emphasise to Fonterra the importance of unit holders as a stakeholder group.

John Shewan

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FONTERRA SHAREHOLDERS' FUND

INTERIM FINANCIAL STATEMENTS 2022

For personal use only

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