Financial Reports and Farmgate Milk Price

Under the guidelines, the Board would expect over time to distribute more than half of our net earnings, excluding abnormal gains.

The payout ratio is 60-80% of Reported Net Profit After Tax but excluding abnormal gains.

In addition to the payout ratio, two additional key principles will guide the Board when considering the payment of a dividend:

• A dividend should not require our Co-op to take on more debt; and,
• A dividend should not reduce our Co-op’s ability to service existing debt.

The distribution of any abnormal gains, such as an asset sale, will be considered separately.

An interim dividend will not be more than 50% of the forecast total dividend and no more than net earnings at half-year.

The Board will apply these guidelines at its discretion, alongside any factors it considers relevant.

Net Earnings:

• Payout ratio of 60-80% of Reported NPAT, but excluding abnormal gains.
• Distributions of any abnormal gains considered separately.

No borrowing to pay dividends:

• Dividend not to exceed 100% of Available Net Cash Flows.
• Available Net Cash Flow defined as cash flows available to reduce debt but excluding any material working capital changes considered highly likely to reverse in future periods.

Debt serviceability:

• Measured based on Debt to EBITDA ratio.
• Dividend payment will not result in Debt to EBITDA ratio in current and forecast year exceeding level required to maintain ‘A’ band credit rating.

The Fonterra Co-Operative Group Limited Dividend Reinvestment Plan allows farmer shareholders to receive shares in lieu of all or part of a cash dividend. The Fonterra Shareholders’ Fund (Fund) Distribution Reinvestment Plan allows unitholders to receive units in lieu of all or part of a cash distribution.