Fonterra Shareholders' Fund (NS) — AGM Information 2017

Nov 2, 2017

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING FRIDAY 3 NOVEMBER 2017

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JOHN SHEWAN

Chairman FSF Management Company

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AGENDA

Welcome and introduction

Chairman’s address Fonterra Chairman address Fonterra CEO’s address

John Shewan John Shewan John Wilson Theo Spierings

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Questions

Resolution to re-elect retiring Director Pip Dunphy Address by Pip Dunphy General business

John Shewan John Shewan

2

2017 – A YEAR OF SIGNIFICANT CHANGE IN MARKET CONDITIONS

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FARMGATE MILK PRICE NOW AHEAD OF DAIRY NZ’S ‘ONFARM’ BREAK-EVEN POINT…

57%

VS. 2015/16

…RESULTING IN A SHARP INCREASE IN FONTERRA’S INPUT COSTS…

GROSS MARGIN

10%

NORMALISED NET PROFIT EBIT AFTER TAX 15% 11%

CONSUMER & FOODSERVICE GROWTH

…OFFSET BY SIGNIFICANT GROWTH IN SALES OF

HIGHER VALUE PRODUCTS… 12%

ADVANCED INGREDIENTS SALES GROWTH

9%

CONTINUED PROGRESS IN OPERATING COST MANAGEMENT 6%

3

POSITIVE FINANCIAL OUTCOME

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RETURN ON 11.1% CAPITAL[1]

44.3%

GEARING RATIO[2]

EARNINGS 46CENTS PER SHARE

40CENTS

DIVIDEND PER SHARE

1 Return on capital excludes goodwill, brands and equity accounted investments. Return on capital including these items was 8.3%.

2 Gearing ratio is economic net interest bearing debt divided by economic net interest bearing debt plus equity excluding hedge reserves.

4

KEY EVENTS IN THE YEAR

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18 November 2016 22 March 2017 20 April 2017 24 May 2017 25 September 2017 20 October 2017

Business update announced Interim results announced Interim distribution of 20 cents per unit paid Business update announced

Annual results announced – EPS confirmed at 46 cents

Final distribution of 20 cents per unit paid

5

UNIT PRICE PERFORMANCE

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Price Vol. (000)
7.00 1,800
Trade Volume Closing Price
6.50 1,500
6.00 1,200
5.50 900
5.00 600
4.50 300
4.00 0
Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17
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• FSF unit price increased 6% in FY17

• 31 July 2016: $5.69

• 31 July 2017: $6.05

• Full year distribution 40 cents per unit

• Yield of 6.7%

• Strong liquidity in FSF units[1]

• Average daily trading volume of 554,000 units

1 FY17 dividend over volume weighted average closing unit price ($5.96) across the year.

6

FUND KEY STATISTICS

Units on Issue¹:

131 million

$810 million

Fund Market Capitalisation¹: Fonterra Market Capitalisation¹: Fund Size¹:

$10 billion

• 8.1% of Fonterra shares on issue

: 12-month High/Low[2]

$6.40 (21 Feb 17) / $5.80 (7 Nov 16 )

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1 At 24 October 2017

• 2 24 October 2016 – 24 October 2017

7

UNIT REGISTER ANALYSIS

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Holding by country Holding by investor type

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United Kingdom N/C Other 1%
United States 2% 3% [4%]
6%
Australia
18% New Zealand
4%
69%
3%
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Farmer
Shareholder
1%
6%
PWM
N/C
Institution
17%
3%
39%
Retail 38%
4%
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• PWM = Private Wealth Management

As at 23 October 2017 – comparison 28 October 2016

8

DIRECTOR CHANGES

Fonterra Co-operative Group

Independent director changes

FSF Management Company

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• David Jackson – retired 2 Nov 2017

• Ian Farrelly – retired 12 Dec 2016

• Bruce Hassall – appointed 2 Nov 2017

• Scott St John – appointed 12 Dec 2016

Farmer director changes

• Michael Spaans – retired 31 July 2017

• David MacLeod – retired 2 Nov 2017

• Leonie Guiney – retired 2 Nov 2017

• John Monaghan – retired by rotation and re-elected 2 Nov 17

• Andrew MacFarlane – elected 2 Nov 2017

• Brent Goldsack – elected 2 Nov 2017

9

YEAR IN REVIEW John Wilson, Fonterra Chairman

Confidential to Fonterra Co-operative Group

Good season for our farmers Return to solid results after two seasons of unusually low milk prices

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8.50
7.90 Total
0.10 7.20-7.30 available for
0.30 6.52 payout [1]
6.37 6.40
6.16
0.27 0.32 0.32 0.40
4.65
4.30
0.25
0.40
6.10 7.60 6.08 5.84 8.40 4.40 3.90 6.12 6.75
2010 2011 2012 2013 2014 2015 2016 2017 2018
forecast
Farmgate Milk Price Dividend
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1. Total available for payout = Forecast Farmgate Milk Price + Forecast Earnings Per Share (EPS) of 45-55 cents; For farm budgeting purposes the likely dividend will be calculated in accordance 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.

Solid business performance

REVENUE B $19.2 12%

VOLUME

NORMALISED EBIT M $1,155 15% ANNUAL DIVIDEND YIELD[2] 40CPS 6.7%

22.9B LME

3%

RETURN ON CAPITAL[1] 11.1%

NPAT EPS $745M 46C 11%

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Down from 12.4% 11% Stable
Ingredients Consumer and Foodservice China Farms
Volume (LME) [3] 21.3 B Volume (LME) [3] 5.5 B Volume (LME) [3] 0.3B
Gross Margin (%) 9.7% Gross Margin (%) 26.8% Gross Margin (%) 8.6%
Normalised EBIT $943M Normalised EBIT $614M Normalised EBIT $1M
Return on Capital [1] 10.3% Return on Capital [1] 47.2%
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1. Return on Capital (ROC) excludes goodwill, brands and equity accounted investments; Group ROC including these items was 8.3% in FY17 (FY16: 9.2%) 2. FY17 dividend over volume weighted average FCG price of $5.96 across the year; 3. Includes sales to other strategic platforms. Page 12 © Fonterra Co-operative Group Ltd.

Global dairy market – positive outlook with continued balancing of supply and demand

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Supply EU Russia China
Demand
12 months EU’s largest dairy 12 months
-2 [%] +9 [%]
production export market – trade imports
US Last 3 months +1 [%] embargo remains Last 3 months
+15 [%]
(Apr, May, Jun) (May, Jun, Jul)
12 months
production [+2][%]
Asia (excl China)
Middle East & Africa
12 months
+10 [%]
imports
12 months
-2 [%]
imports
Fonterra in NZ
Latin America Australia
12 months
-2 [%]
production
12 months 12 months
+11 [%] -7 [%] Last 3 months
imports production 0 [%]
(Jun, Jul, Aug)
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Note: All 12 month figures are rolling 12 months compared to previous comparable period: Australia (Jun), EU (Jun), United States (Jul), China (Jul), Asia (May), Middle East & Africa (May), Latin America (May)

Source: Government milk production statistics; GTIS trade data; Fonterra analysis] Page 13 © Fonterra Co-operative Group Ltd.

Dairy prices rose strongly over the year Improved Farmgate Milk Price put pressure on margins

Products informing milk price up significantly

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Whole Milk Powder
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5,500
4,500
+38%
3,500
2,500
1,500
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
Butter
6,000 +109%
5,000
4,000
3,000
2,000
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
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Other products up but to a lower degree

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Cheddar
6,000
5,000 +42%
4,000
3,000
2,000
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
Rennet Casein
12,000
10,000
8,000 +3%
6,000
4,000
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
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Note: All prices in US dollars per MT Source: GDT data

Page 14 © Fonterra Co-operative Group Ltd.

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Page 17 © Fonterra Co-operative Group Ltd.

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FINANCIAL PERFORMANCE Theo Spierings, CEO

Solid business performance

VOLUME

22.9B LME

3%

REVENUE B $19.2 12%

NORMALISED EBIT M $1,155 15%

RETURN ON CAPITAL[1] 11.1%

ANNUAL DIVIDEND YIELD2 40CPS6.7% Stable 11.1% RETURN ON CAPITAL1 Down from 12.4% $745M 46C NPAT EPS 11%
Ingredients Volume (LME)3 21.3 B Gross Margin (%) 9.7% Normalised EBIT $943M Return on Capital1 10.3% Consumer and Foodservice Volume (LME)3 5.5 B Gross Margin (%) 26.8% Normalised EBIT $614M Return on Capital1 47.2% China Farms Volume (LME)3 0.3B Gross Margin (%) 8.6% Normalised EBIT $1M
Ingredients Volume (LME)3 21.3 B Gross Margin (%) 9.7% Normalised EBIT $943M Return on Capital1 10.3%	China Farms Volume (LME)3 0.3B Gross Margin (%) 8.6% Normalised EBIT $1M

1. Return on Capital (ROC) excludes goodwill, brands and equity accounted investments; Group ROC including these items was 8.3% in FY17 (FY16: 9.2%) 2. FY17 dividend over volume weighted average FCG price of $5.96 across the year; 3. Includes sales to other strategic platforms. Page 19 © Fonterra Co-operative Group Ltd.

More volume to higher value 1 billion LMEs shifted to Consumer, Foodservice and Advanced Ingredients

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1 DIRA
Optimise
NZ milk Consumer 7% • GDT
3% –
2 Build and grow GDT Volumes aligned with
beyond our current 2% lower production
5%
consumer positions Foodservice 12% •
Ingredients
3 Deliver 27% 20% – Lower NZ milk
on Foodservice potential 10% collections and record
4 FY17 low closing inventory
Grow
our active living business 22.9b – 473m LMEs shifted to
LME higher margin Advanced
5 Develop 19% Ingredients
leading positions in paediatric
& maternal nutrition • Consumer & Foodservice
6 Advanced 36% – Added 576m more LMEs
Selectively invest
in milk pools Ingredients Base – Normalised EBIT up 6%
7 9% Ingredients
Align
our business and organisation 11%
FY17 sales volume
%
growth over FY16
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Note: Wheel shows percentage of total FY17 external sales (LME); Consumer, Foodservice and Ingredients growth rates include intercompany sales Page 20 © Fonterra Co-operative Group Ltd.

Value creation Solid profit with ongoing financial discipline

RETURN ON CAPITAL

GROSS MARGIN 17.0%

Down from 21.1%

CAPEX M $851

10%

11.1%

Down from 12.4%

OPEX WORKING CAPITAL $2,370M 75 DAYS 6% 2 days

6% 2 days NORMALISED EBIT NPAT EPS $1,155M $745M 46C 15% 11%

Note: Return on Capital (ROC) excludes goodwill, brands and equity accounted investments; Group ROC including these items was 8.3% (2016: 9.2%) Page 21 © Fonterra Co-operative Group Ltd.

Ingredients Return on capital of 10.3%

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Volume (m LME)¹
(5%)
22,391 21,304
2016 2017
Normalised EBIT ($m)
1,204
943
2016 2017
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Volume

• Challenging NZ milk collection profile

• Lower closing inventory carried into this year

• Growth in Advanced Ingredients of 9% (473m LME)

Value

• NZ Ingredients margins impacted by rising reference product prices relative to non-reference

• Stream returns down significantly from last year

• Australia: $62m normalised EBIT from recurring business

• China milk: ($38m) impact of ongoing lower domestic prices

Velocity

• Targeted capex with Foodservice focus and Stanhope rebuild

• Optionality used to prioritise higher value production

• Yield improvements and efficient peak management

1. Includes sales to other strategic platforms

Note: Return on Capital (ROC) excludes goodwill, brands and equity accounted investments Page 22 © Fonterra Co-operative Group Ltd.

Consumer and Foodservice

Solid performance led by Greater China

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Asia Greater China
Volume Normalised EBIT Volume Normalised EBIT
10%
1,549 1,703 244 201 46% 1,278 209
876
131
2016 2017 2016 2017 2016 2017 2016 2017
Oceania Latin America
Volume [1] Normalised EBIT Volume Normalised EBIT
(5%)
1,834 1,742 18% 735
97 101 623 108 103
2016 2017 2016 2017 2016 2017 2016 2017
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1. Sales volume growth of (1%) when excluding impact of discontinued businesses Note: All volumes include intercompany sales Page 23 © Fonterra Co-operative Group Ltd.

China opportunity Fonterra well positioned in every segment

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LME b 2013 TODAY Fonterra Milk Source (%) [3]
1
Optimise Ingredients
NZ milk
8b 8b 80 10 10
2 Build and grow
beyond our current 3.5b 3.7b
consumer positions
Consumer & Foodservice
3
Deliver
on Foodservice potential 28b 31b 90 10
4 0.4b 1.3b
Grow
our active living business Advanced Nutrition
5 Develop leading positions 2b 3b 50 50
in paed & maternal nutrition 0.02b 0.2b [1]
6
Selectively invest
Domestic Milk Pool
in milk pools
7 30-35b [2] 100
Align
0.06b 0.34b
our business and organisation
Total Fonterra China
1. Based on April-2017 external data and analysis
2. Includes Beingmate sales of ~180m LME 4b 5.5b 77 10 7 6
3. Indicative share of sourcing
Source: Euromonitor; Fonterra analysis b LME Fonterra b LME China market [2] NZ AU EU China
Page 24 © Fonterra Co-operative Group Ltd.
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1. Based on April-2017 external data and analysis

2. Includes Beingmate sales of ~180m LME

3. Indicative share of sourcing Source: Euromonitor; Fonterra analysis Page 24 © Fonterra Co-operative Group Ltd.

Beingmate is an important investment

Challenging last 12 months

Strong strategic rationale remains

• Regulatory changes

• Long-term, brand rationalisation will benefit major domestic players

• New regulations in place on 1 January 2018

• Beingmate in first wave of approvals

• Competitive environment

• Over-supply from non-approved players

• Price competition and de-stocking

  1. Market fundamentals are strong

  2. Partnership with Beingmate part of a larger, profitable Greater China business

  3. Strategic partnership value extends beyond direct investment

• Impacted Beingmate sales and profitability

• Financial impact

• Recognised share of one-off losses

• Impairment in carrying value

Page 25

© Fonterra Co-operative Group Ltd.

Australian growth plans to meet strong global demand

Growin volume and value in Australia g

Our growth plans

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ROC (%)
16
12 Future
Today
8
4
0 Milk pool
1 1.5 2 2.5 3 3.5 (billion litres)
-4
-8 FY15
-12
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• Fonterra Australia has reached full milk processing capacity at 2 billion litres

• Invest initial $100m immediately to debottleneck plants in Australia

• Unlock 500 million litres of milk processing capacity

• Evaluating opportunity to introduce coop model to Fonterra

• Strongly aligned with our integrated cheese/whey/nutritionals milk pool strategy

Page 26 © Fonterra Co-operative Group Ltd.

Financial discipline Strength of the balance sheet underpins our Co-op

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GEARING [1]
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44.3%
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Stable
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NET DEBT [2] DEBT / EARNINGS [3]
$5.6B 3.5
Up 2% Up from 2.8x
TOTAL EQUITY CREDIT RATING
B A A-
$7.2
STABLE STABLE
Up 4%
Fitch S&P
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1. Gearing ratio is economic net interest bearing debt divided by economic net interest bearing debt plus total equity excluding hedge reserves 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 Page 27 © Fonterra Co-operative Group Ltd.

BUILDING THE WORLD’S LEADING SUSTAINABLE DAIRY CO-OP

Strategy focused on achieving our ambition Three strategic horizons

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Growth
•
Creating sustainable
SUSTAINABLE CO-OP value for all
stakeholders
•
Investing in
INNOVATIVE CO-OP technology and
people for the future
•
Demand-led strategy to
STRONG V3 CO-OP
optimise NZ milk,
supported by milk pools
NOW 3 years 5 years 10+ years
Competitive advantage of Cost Leadership through Scale Efficiency
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Page 29 © Fonterra Co-operative Group Ltd.

FY18 strategic priorities driving value

Deliver on Foodservice potential Selectively invest in milk pools Grow our active living business Develop leading positions in paediatric & maternal nutrition Optimise NZ milk 1 Align our business and organisation Build and grow beyond our current consumer positions 3 2 4 5 6 7	 Protect market share of NZ milk  Deliver sustainable value creation in NZMP
	 Deliver Everyday Nutrition focused growth path  Target positions in Affordable Nutrition
	 Deliver double-digit Foodservice diversified growth
	 Revitalise the Anlene brand (Healthy Living)  Build an Active Living portfolio
	 Deliver China and Beingmate partnership at full potential
	 Develop cheese / whey supply options  Grow Australian milk pool share
	 Invest to deliver future-oriented capabilities

Page 30 © Fonterra Co-operative Group Ltd.

We are embracing tomorrow’s innovation in what we do today

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AGTECH ENERGY & CLEAN FOOD SAFETY & ROBOTICS DIGITAL CONSUMERS OF HYPER-
TECH TRACEABILITY LIVING THE FUTURE PERSONALISATION
PRECISION ENERGY & BLOCKCHAIN DIGITAL NEW GAMIFICATION
FARMING WATER MANUFACTURING RETAIL
SUSTAINABLE EFFICIENCY SUSTAINABLE FUTURE
FARMS OPERATIONS CONSUMERS
CONNECTED
AR/VR
LIFE
SOIL & SHARING
CROP TECH 3D PRINTING ECONOMY GENOMICS
ENABLERS
DIGITAL ARTIFICIAL INTELLIGENCE BIG DATA BEHAVIOUR ECONOMICS
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Page 31 © Fonterra Co-operative Group Ltd.

We have already begun the innovation journey

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Growth
SUSTAINABLE CO-OP
DISRUPTIVE
INNOVATIVE CO-OP
BUSINESS MODELS
NEW INNOVATION
EXPONENTIAL
TECHNOLOGIES
DIGITAL
TRANSFORMATION
PARTNERSHIPS
STRONG V3 CO-OP
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NOW

3 years

5 years

10+ years

Page 32

© Fonterra Co-operative Group Ltd.

QUESTIONS

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING FRIDAY 3 NOVEMBER 2017

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RESOLUTION 1

That Pip Dunphy, who retires by rotation and, being eligible, offers herself for re-election, be re-elected as Director of the Manager of the Fund

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PIP DUNPHY

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.

37

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FONTERRA SHAREHOLDERS’ FUND

ANNUAL MEETING FRIDAY 3 NOVEMBER 2017

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GENERAL BUSINESS

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THANK YOU MEETING CLOSED.

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