Fonterra Shareholders' Fund (NS) — AGM Information 2016

Dec 12, 2016

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING MONDAY 12 DECEMBER 2016

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JOHN SHEWAN

Chairman FSF Management Company

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AGENDA

Welcome and introduction Chairman’s address Opening remarks from Fonterra Chairman Fonterra CFO’s address Questions Resolution to re-elect retiring Director Kim Ellis Address by Kim Ellis General business

John Shewan John Shewan John Wilson Lukas Paravicini Lukas Paravicini John Shewan John Shewan

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2

KEY EVENTS IN THE YEAR

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16 November 2015 Business update announced with increased earnings per share 23 March 2016 Interim results announcement 20 April 2016 Interim distribution of 20 cents per unit paid 16 May 2016 Business update confirmed solid nine-month performance 7 June 2016 Early final distribution of 10 cents per unit paid 17 June 2016 Senior leadership team and business unit structure announced 9 September 2016 Final distribution of 10 cents per unit paid 22 September 2016 Annual results announcement

3

UNIT PRICE PERFORMANCE

Price Vol. (000) $6.50 1,600 • Volume Close Average volume Fonterra continued strong business performance in FY16 $6.00 • 1,200 Reflected in increasing FSF unit price – Over last 6 months¹ outperformed $5.50 the NZX50 (+4% versus -2%) 800 $5.00 • Full year distribution 40 cents per unit – Yield of 7.3%² 400 $4.50 • Continued strong FSF liquidity $4.00 - – Average daily trading volume of Aug-2015 Jan-2016 Jun-2016 Nov-2016

• Over last 6 months¹ outperformed the NZX50 (+4% versus -2%)

• Full year distribution 40 cents per unit

• Average daily trading volume of 424,000 units

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1. For the 6 months ending 30 November 2016

2. FY16 dividend over volume weighted average closing unit price ($5.50) across the year

4

FUND KEY STATISTICS

Units on Issue¹: Fund Market Capitalisation¹: Fonterra Market Capitalisation¹: Fund Size¹: 12-month High/Low¹: Liquidity²:

121 million

$719 million

$9.5 billion

7.6% of Fonterra shares on issue

$6.12 / $5.31

Top 5 ranking on the NZX50

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1. At 30 November 2016

1. Liquidity has been calculated as median daily value traded (12 months) / Average Daily New Zealand Free Float Market Cap (12 months) (Source: NZX) – at 6 December 2016.

5

UNIT REGISTER ANALYSIS

Holding by country

Holding by investor type

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21% 67%
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34% 59%

NZ Australia United States United Kingdom Hong Kong Other

Retail Institution Farmer Other

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As at November 2016 – comparison to October 2015

6

INVESTOR RELATIONS INITIATIVES

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• Introduced quarterly business updates - November 2015 and May 2016

• Monthly Global Dairy Update available on fonterra.com – Our Financials

• Targeted investor presentations in New Zealand (x2), Australia (x2), Europe, the United States and Asia

• Delivering a more focused approach to investor engagement

• Regular updates with New Zealand wealth managers and financial advisors

7

DIRECTOR CHANGES

Fonterra Co-operative Group

FSF Management Company

• Independent director changes

• Ian Farrelly retires

• John Waller ONZM retired

• Scott St John appointed

• With effect post annual meeting

• Scott St John appointed

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Farmer director changes

• Malcolm Bailey and Ian Farrelly retire

• Donna Smit elected

8

YEAR IN REVIEW John Wilson, Fonterra Chairman

Confidential to Fonterra Co-operative Group

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

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8.50
7.90
0.10
6.37 0.30 6.40 6.40
6.16
0.27 0.32 0.32 4.65 0.40 [1] Indicative
4.30
payout
0.25 level (after
0.40 retentions)
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
Farmgate Milk Price Dividend
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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

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© 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
production [+2][%]
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

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SCALE SUPPORTING EXPORT LEADERSHIP

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Other sources keep access secure, support growth and increase returns

Primary Investment WMP / SMP Whey Cheese / Whey / Nutritionals Fresh milk / UHT

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Fonterra Research & Development Centres Open Innovation

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© Fonterra Co-operative Group Ltd.

FINANCIAL PERFORMANCE Lukas Paravicini, CFO

• Future for dairy remains strong

Global Context

• Low global commodity prices

• Unstable world

• Transforming our business leads to strong results

Value Creation

• Strategy is working – more milk into higher value products

• Paying off – higher earnings and a stronger Co-op

• Doing what we said we would do

Trust

• Investing in our communities and our future

• Very focused on future delivery

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Continued strong business performance

VOLUME 23.7B LME

4%

REVENUE B $17.2 9%

NORMALISED EBIT M $1,358 39%

RETURN ON CAPITAL[1] 12.4$506%M Up from 8.9%

NET PROFIT AFTER TAX M $834

65%

ANNUAL DIVIDEND / YIELD[2] 40CPS 7.3%

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

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Transformation is unlocking value

Owner’s mindset 

Business-led 

Relentless execution 

employees involved >4,000

Initiatives[1] 4,000

Free Cash Flow[1] B $2.2 Working Capital -10 days

Capex[1] M $944

Debt B -$1.6

Closing Inventory -21%

1. Actual figures shown – not movements

Note: Free Cash Flow is net operating cash flows less net investing cash flows; Debt is economic net interesting bearing debt

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© Fonterra Co-operative Group Ltd.

Value creation

Higher return on capital from gains on all business drivers

RETURN ON CAPITAL

GROSS MARGIN

21.1%

Up from 17.4%

CAPEX M $944 38%

12.4% M $506 Up from 8.9%

OPEX M $2,528 8%

NORMALISED EBIT M $1,358 39%

WORKING CAPITAL 77 DAYS Down 10 days

DIVESTMENTS M $308

Note: Return on Capital (ROC) excludes goodwill, brands and equity accounted investments; Group ROC including these items was 9.2% (2015: 6.9%)

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Financial discipline Strengthening balance sheet supports solid credit rating

GEARING[1] 44.3% M $506 Down from 49.7%

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NET DEBT [2] DEBT / EARNINGS [3]
$5.5B 2.8X
23% Down from 4.7x
FREE CASH FLOW CREDIT RATING
B A A-
$2.2
STABLE STABLE
Fitch S&P
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1. Gearing ratio is economic net interest bearing debt divided by economic net interest bearing debt plus equity excluding cash flow hedge reserve 2. Economic net interest-bearing debt

3. Debt payback ratio is economic net interest bearing debt divided by EBITDA. Both debt and EBITDA are adjusted for the impact of operating leases

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Delivering our strategy Volume to higher Value at Velocity

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1
Optimise DIRA • GDT volume lower
NZ milk Consumer 31%
•
5% Ingredients
2 Build and grow GDT
–
beyond our current 2% 24% Optionality improved mix
consumer positions Foodservice 12%
–
Ingredients solutions for
3 20%
15%
Deliver 8% customers adding value
on Foodservice potential
–
Lower operating costs
4 FY16
Grow –
our Anlene™ business 23.7b Return on capital of 13.4%
LME • Consumer and Foodservice
5 Develop
leading positions in – Added 380m more LMEs
paed & maternal nutrition
–
6 58% 1 billion added in 2 years
Selectively invest
in milk pools – Return on capital of 41.7%
Ingredients
7 19%
Align FY16 sales volume
our business and organisation % growth over FY15
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Note: Return on Capital (ROC) excludes goodwill, brands and equity accounted investments Source: Wheel shows percentage of total FY16 external sales (LME) by strategic platform; Growth rates include intercompany sales to other strategic platforms

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China opportunity Fonterra well positioned in every segment

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LME b 2013 TODAY Fonterra Milk Source (%)
1
Optimise Ingredients
NZ milk
8b 6b 80 10 10
2 Build and grow
beyond our current 3.5b 3.5b
consumer positions
Consumer & Foodservice
3
Deliver
on Foodservice potential 28b 30b 100
4 0.4b 1b
Grow
our Anlene™ business Advanced Nutrition
5 Develop leading positions 2b 3b 50 50
in paed & maternal nutrition
0.02b 0.27b [1]
6
Selectively invest
Domestic Milk Pool
in milk pools
7 36b [2] 100
Align
0.06b 0.23b
our business and organisation
Total Fonterra China
1. Today includes Beingmate sales of 0.25b LME 4b 5b 80 8 7 5
2. Based on external data and analysis
Source: Euromonitor; Fonterra analysis b LME Fonterra b LME China market [2] NZ AU EU China
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1. Today includes Beingmate sales of 0.25b LME 2. Based on external data and analysis Source: Euromonitor; Fonterra analysis Page 23 © Fonterra Co-operative Group Ltd.

Doing what we said we will in FY17

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|||||
|---|---|---|---|
|1|Optimise|Optimisation|& Price Achievement|
|NZ milk|
|Fonterra story|
|2|Build and grow|
|beyond our current|
|consumer positions|
|Accelerate growth in our 8 strategic|
|3|
|Deliver|and leadership markets|
|on Foodservice potential|
|Brazil transformation|
|4|
|Grow|
|our Anlene™ business|Maximise Beingmate partnership|
|5|Develop|
|leading positions in|
|paed|& maternal nutrition|China Farms – Downstream Value|
|6|
|Selectively invest|Australian endgame|
|in milk pools|
|7|Align|Disrupt|
|our business and|
|organisation|Velocity / Engagement|

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• Optimising for lower volumes

• • Launched ‘Trusted Goodness’ • Volumes and margins up on last year

• • Gross margin increased due to strategic pricing in anticipation of higher milk prices

• • New structure delivering but tough market

• • Darnum JV operational

• • Anmum volumes up 78%

• • Integrating China businesses

• • Turnaround delivering

• • Two new start-ups established

• • Additional Velocity benefits identified

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FY17 Q1 performance summary

VOLUME (LME)

4.9B

REVENUE B $3.8

GROSS MARGIN OPEX CAPEX 21.9% $621M $116M

2.0%

5.9% FROM 22.6% 1.7% 55%

Ingredients Consumer & Foodservice China Farms Volume 4.5B Volume 1.3B Volume 0.1B UP 2% UP 11% UP 62% Gross Margin 12% Gross Margin 31% Gross Margin[1] -12% FROM 15% FROM 28% FROM -8%

1. Impacted by one-off sale of inventory below cost – gross margin excluding this impact was 4% Note: Volume is in billion LME; All changes are expressed relative to first quarter of FY16

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© Fonterra Co-operative Group Ltd.

QUESTIONS

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING MONDAY 12 DECEMBER 2016

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RESOLUTION 1

That Kim Ellis, who retires by rotation and, being eligible, offers himself for re-election, be re-elected as Director of the Manager of the Fund

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KIM ELLIS

Director FSF Management Company

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VOTING

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• In respect of each resolution, please tick the “for”, “against” or “abstain” box.

• Once you have completed your voting, please place your vote in a ballot box.

• Please raise your hand if you require a pen.

• Results will be announced to the NZX and ASX as soon as they are available.

30

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING MONDAY 12 DECEMBER 2016

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GENERAL BUSINESS

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THANK YOU MEETING CLOSED.

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