Fonterra Shareholders' Fund (NS) — AGM Information 2016

Dec 7, 2016

FONTERRA CO-OPERATIVE GROUP LIMITED

2016 ANNUAL MEETING

8 DECEMBER 2016

JOHN WILSON Chairman

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© Fonterra Co-operative Group Ltd.

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Co-operative spirit at work during the earthquake response

Page 3 © Fonterra Co-operative Group Ltd.

Tough season for farmers But solid earnings growth and strong Co-operative

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8.50
0.10
7.90
0.30
6.37 6.40 6.40 Indicative
6.16
0.27 0.32 0.32 0.40 [1] payout level
4.65 (after
4.30
retentions)
0.25
0.40 for budgeting
6.10 7.60 6.08 5.84 8.40 4.40 3.90 6.00
2010 2011 2012 2013 2014 2015 2016 2017
forecast
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Farmgate Milk Price Dividend

1. For farm budgeting purposes a 40 cent dividend is assumed (based on FY17 EPS forecast 50-60 cents) – this is consistent with Fonterra policy of paying out 65-75 per cent of adjusted net profit after tax over time Note: Farmgate Milk Price: $ per kgMS; Dividend: $ per share

Page 4 © Fonterra Co-operative Group Ltd.

Benefits from a strong Co-operative

Competitive Milk Price

Complemented by Co-op Initiatives

Milk Price model put in place in 2009

• Changes to approaches used since then have resulted in structural increase

• Additional 36c to the Farmgate Milk Price[1]

• 2016 milk price would have been $3.54 using model assumptions from 2009

• $560m additional to milk price

• Reflects improvements by Fonterra and in our operating environment

• Improved manufacturing performance

• Improved supply chain

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Strong Co-operative balance sheet

• Early dividend & Co-op support loan

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Farm Source™ rewards & benefits

• Around $30 million in savings for our farmers

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Enhanced digital offering & apps

• Co-op updates and timely milk collection info

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Business support on the ground

• Regional heads and technical reps

• Lower manufacturing and capital costs

1. Fonterra Farmgate Milk Price Statement 2016 Page 5 © Fonterra Co-operative Group Ltd.

Continued strong business performance

VOLUME 23.7B LME

REVENUE B $17.2

NORMALISED EBIT M $1,358

4%

9%

39%

RETURN ON CAPITAL[1] 12.4%M $506

NET PROFIT AFTER TAX M $834

ANNUAL DIVIDEND / YIELD[2] 40CPS 7.3%

Up from 8.9%

65% 60%

Ingredients Volume (LME)3 22.4B Gross Margin 14.3% Normalised EBIT $1,204M Return on Capital1 13.4%		Consumer and Foodservice Volume (LME)3 4.9B Gross Margin 28.7% Normalised EBIT $580M Return on Capital1 41.7%		China Farms Volume (LME)3 0.2B Gross Margin (22.4%) Normalised EBIT ($59M)

1. Return on Capital (ROC) excludes goodwill, brands and equity accounted investments; Group ROC including these items was 9.2% in FY16 (FY15: 6.9%) 2. FY16 dividend over volume weighted average closing FCG share price ($5.50) across the year; 3. Includes sales to other strategic platforms Page 6 © Fonterra Co-operative Group Ltd.

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Investing for growth in Canterbury

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Investments support efficiency and flexibility

Page 8 © Fonterra Co-operative Group Ltd.

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Other sources keep access secure, support growth and increase returns

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Primary Investment
WMP / SMP
Whey
Cheese / Whey / Nutritionals
Fresh milk / UHT
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Page 10 © Fonterra Co-operative Group Ltd.

Tough season for farmers But solid earnings growth and strong Co-operative

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8.50
0.10
7.90
0.30
6.37 6.40 6.40 Indicative
6.16
0.27 0.32 0.32 0.40 [1] payout level
4.65 (after
4.30
retentions)
0.25
0.40 for budgeting
6.10 7.60 6.08 5.84 8.40 4.40 3.90 6.00
2010 2011 2012 2013 2014 2015 2016 2017
forecast
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Farmgate Milk Price Dividend

1. For farm budgeting purposes a 40 cent dividend is assumed (based on FY17 EPS forecast 50-60 cents) – this is consistent with Fonterra policy of paying out 65-75 per cent of adjusted net profit after tax over time Note: Farmgate Milk Price: $ per kgMS; Dividend: $ per share

Page 11 © Fonterra Co-operative Group Ltd.

Global dairy update – supply driven rebalancing

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Supply EU Russia China
Demand
12 months EU’s largest dairy 12 months
+2 [%] +26 [%]
production export market imports
US
Last 3 months Trade embargo remains Last 3 months
-2 [%] +12 [%]
(Jul, Aug, Sep) (Aug, Sep, Oct)
12 months
[+2][%]
production
Asia (excl China)
Middle East & Africa
12 months
+5 [%]
imports
12 months
-6 [%]
imports
Fonterra in NZ
Latin America Australia
12 months
-3 [%]
production
12 months 12 months
+13 [%] -7 [%] Last 3 months
imports production -6 [%]
(Sep, Oct, Nov)
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Note: All 12 month figures are rolling 12 months compared to previous comparable period: Australia (October), EU (September), United States (October), China (October), Asia (August), Middle East & Africa (August), Latin America (August), New Zealand (Fonterra only) (November) Source: Government milk production statistics; GTIS trade data; Fonterra analysis Page 12 © Fonterra Co-operative Group Ltd.

Priorities for the coming year

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1. Continued commitment to most sustainable returns

2. More momentum in strategy delivering to support higher returns

3. Expansion of Farm Source support to farmers