?39 Illa-clingr fur life INTERIM REPORT 2015 Interim Results 25 March 2015 Interim Result 2014 Forecast Farmgate Milk Price Forecast Dividend $4.70 KGMS 20-30 CPS © Fonterra Co-operative Group Forecast Final Cash Payout Forecast Milk Collection Interim Dividend 1.551M KGMS 10 CPS $4.90 $5.00 Page 2 Key highlights Interim Results 2015 FORECAST PAYOUT PER KGMS FOR THE 2014/15 SEASON TOTAL SALES VOLUME (000s) $4.90-$5.00 2,189MT TOTAL GROUP REVENUE $9.7BN NORMALISED EBIT NET PROFIT AFTER TAX INTERIM DIVIDEND $376M $183M 10 Ingredients EBIT1 $299 m 2% CPS Consumer and Foodservice International Farming EBIT1 EBIT1 $116m 23% ($27m) 1. EBIT is on a normalised basis. © Fonterra Co-operative Group Page 3 Fonterra Group Normalised EBIT ($ million) 500 403 7 22 (29) (27) 400 376 300 200 100 0 31 January 2014 © Fonterra Co-operative Group Ingredients Consumer/ Foodservice International Other Farming (Eliminations) 31 January 2015 Page 4 Key performance drivers 600 Normalised EBIT ($ million) 161 500 Price Premiums (84) 52 (30) 90 (12) Product mix 403 (29) Livestock Changes (17) 71 (97) (39) Performance (58) 400 Opex Other 376 300 200 31 January NZ Australian 2014 Ingredients Ingredients Margins Margins Strategic Market Growth¹ Latin America International Farming Opex/ Other 31 January 2015 1. Includes New Zealand, Australia, Sri Lanka, Malaysia and Indonesia. © Fonterra Co-operative Group Page 5 ra I antEr If Dairy fur life INGREDIENTS Ingredients Performance held back by first quarter and Australian ingredients Normalised EBIT ($ million) 500 90 400 253 (84) (43) (27) 300 292 299 (182) 200 100 0 31 January Powder 2014 Products NonPrice Australia Operating powder Premiums Gross Expenses Products Margin Other 31 January 2015 Note: Powder products are Reference Commodity Products which inform the Farmgate Milk Price. These are currently Whole Milk Powder, Skim Milk Powder, Anhydrous Milk Fat, Butter and Buttermilk powder © Fonterra Co-operative Group Page 7 Driving Ingredients performance  Price premiums Optionality Underway Underway © Fonterra Co-operative Group Fix underperforming businesses Targeting 5% CAGR Investing in New Zealand $580m Align Australia to multi-hub strategy A$50m opportunity in Australia Page 8 Driving ‘optionality’ 100 Target 2% Capacity 2014/15 2013/14 2012/13 Volume (m litres/day) 80 60 40 20 0 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: Fonterra Co-operative Group Limited © Fonterra Co-operative Group Page 9 Driving operational excellence 2001 Clandeboye Dryer 2 © Fonterra Co-operative Group 2009 Edendale Dryer 4 2016 Lichfield Dryer 1 Page 10 Fixing underperforming businesses Australia Ingredients Multi-Hubs Australia Ingredients Performance impacted by product mix Lower high-value infant formula sales SMP sales at record low prices Fire at Stanhope impacted cheese Improving Performance Grow infant formula exports Milk Powder / Foodservice Cheese / Whey / Infant Formula Whey UHT / Foodservice Grow cheese Optimal product mix A$50m EBIT opportunity © Fonterra Co-operative Group Page 11 CONSUMER AND FOODSERVICE Consumer and Foodservice Higher profits on improvements in execution, mix and productivity Normalised EBIT ($ million) 250 200 43 48 150 100 (58) (4) (7) 116 Other 31 January 2015 94 50 0 31 January 2014 © Fonterra Co-operative Group Volume Price Cost of Operating Goods Sold Expenses Page 13 Driving performance: four strategic markets CHINA • Volume • Value INDONESIA • Volume BRAZIL • Value • Volume • Value AUSTRALIA • Volume • Value © Fonterra Co-operative Group Page 14 Driving performance: four leadership markets MALAYSIA • Volume • Value SRI LANKA • Volume • Value CHILE • Volume • Value NEW ZEALAND • Volume • Value © Fonterra Co-operative Group Page 15 Fixing underperforming businesses Australia Consumer and Foodservice SRI LANKA AUSTRALIA Consumer and Foodservice  Completed  Underway Retailers Brands and Foodservice market share • Building strategic relationships • Chilled spreads 22% • Ranked #1 supplier to Coles (#33 LY) • Cheese 22% • Yoghurt 17% • New private label contract with Woolworths  Improving margin Lower operating costs¹ • • 21% lower over two years • Saving of $35 million • Improve contribution from yoghurts and dairy desserts Drive product innovation Underway 1. First half 2013 operating costs compared to first half 2015. © Fonterra Co-operative Group Progressing  Page 16 antenna Dairy fur life FARMING International farming key part of the China strategy • 2 hubs • 9 farms • 24,000 milking cows Future processing capability Brands in China • 25,000 heifers and calves • Targeting one billion litres from China farms • Partnerships to fund growth © Fonterra Co-operative Group Page 18 International Farming Higher volumes but at a much weaker domestic milk price 15 Established Farms Normalised EBIT ($ million) 10 5 8 2 Start-up Farms (7) (4) 0 (5) (10) (9) (10) (15) (20) (25) (17) (30) 31 January 2014 © Fonterra Co-operative Group Price Volume Cost Start-up Farms 31 Jan 2015 Livestock Farm Valuation Operating Earnings (27) 31 January 2015 Page 19 - Fqntarra) Dairy for life Normalisation adjustments $ million Six months ended 31 January 2015 Six months ended 31 January 2014 Total EBIT 483 416 Net gain on Latin American strategic realignment (129) – Time value of options 22 (13) Total normalisation adjustments (107) (13) Total normalised EBIT 376 403 © Fonterra Co-operative Group Page 21 From EBIT to NPAT 350 107 303 300 EBIT Net Finance Costs $483m ($303m) $ million $ million 250 150 Tax 49 200 147 $3m 100 Net Profit After Tax $183m 50 0 31 January 2014 Higher Non-cash 31 January Cash and Fair Value 2015 Accrued Movements¹ Interest 1. Fair value movements include hyperinflation adjustments in Venezuela. © Fonterra Co-operative Group Page 22 Capital expenditure 709 417 252 85 80 386 2015 Capital Expenditure 113 Full Year Forecast $1.6 bn Beingmate¹ (net) $0.7 bn Total $2.3 bn 210 31 January 2014 31 January 2015 China Farms Consumer Global Ingredients and Operations 1. Net of proceeds from sale of Darnum plant. © Fonterra Co-operative Group Page 23 Working capital days 103 104 97 97 87 31 January 2011 31 January 2012 31 January 2013 31 January 2014 31 January 2015 Note: Excluding supplier payables. © Fonterra Co-operative Group Page 24 Balance sheet Economic debt to debt plus equity¹ Higher gearing levels due to: 48.5% 50.7% 46.9% 44.6% • Lower equity retentions in 2014 • Higher capital expenditure 40.0%² • Increased investment in growth – Edendale, A-Ware, China Farms Fitch AA(stable outlook) S&P A (stable outlook) As at 31 January 2015 (Drawn debt) 4.1 years3 Credit Rating Weighted Average Term to Maturity 31 Jan 2011 31 Jan 2012 31 Jan 2013 31 Jan 2014 31 Jan 2015 1. Gearing is measured in terms of economic net interest bearing debt over economic net interest bearing debt plus equity (reflecting the effect of debt hedging in place at balance date) and equity excludes the cash flow reserve. 2. First half 2013 gearing benefited from a temporary injection of $493 million capital from seeding Fonterra Shareholders’ Fund for the launch of Trading Among Farmers. 3. If bank facilities are fully drawn upon, then Weighted Average Term to Maturity is 3.5 years. Page 25 © Fonterra Co-operative Group Outlook: 2015 Financial Year Expectation is that global dairy markets will remain challenging this year • Maintaining Farmgate Milk Price at $4.70 kgMS 8.50 7.90 6.37 0.30 0.10 6.40 0.32 0.27 • Forecast dividend lowered to 20 to 30 cents per share 6.16 4.90-5.00 0.32 • Business transformation programme underway to accelerate delivery • Single minded focus on delivering results and improving performance: – Increasing sales volumes 6.10 7.60 6.08 5.84 8.40 4.70 2010 2011 2012 2013 2014 2015F Farmgate Milk Price © Fonterra Co-operative Group – Reducing complexity – Taking costs out to maximise returns Dividend Page 26 STAYING ON STRATEGY Purpose of our strategy is to create value Low margin High margin GDT 2025 Aspiration 20% 26% 19% Consumer and Foodservice Today 30% 55% 40% Ingredients 10% Partnership © Fonterra Co-operative Group Page 28 Progress on multi-hub strategy Europe • A-ware JV – whey plant has been commissioned • Dairy Crest alliance for distribution of specialty ingredients underway Australia • Fonterra and Beingmate JV to acquire Darnum © Fonterra Co-operative Group China • Purchase of 18.8% of Beingmate complete • Abbott – antitrust approval received from Chinese government New Zealand • Increasing processing capacity and optionality to meet global demand Page 29 Priorities: driving performance 2012-2014 SET STRATEGY STRENGTHEN CORE © Fonterra Co-operative Group 2015-2017 DRIVE PERFORMANCE 2020 SCALE-UP TO GLOBAL CO-OP Page 30 Business Transformation Programme August Onwards June to August April to June Quantify Performance Potential Principles of the Business Transformation © Fonterra Co-operative Group Detailed and Measureable Business Improvement initiatives Implement Business Transformation • Owner’s mindset • Business-led • Relentless execution Page 31 SUPPLEMENTARY INFORMATION Fonterra was formed to take New Zealand dairy to the world at scale A clear plan It starts on our farms A strong Co-op 22% 33% $100BN¹ $10BN² In the past five years: In the past five years: • Fonterra milk collection up 22% • Value of Co-op up 33% • Fonterra cow numbers up 300,000 • Peak milk collection up 15m litres per day • Powder dryer capacity up 17% 1. Value of NZ dairy farm assets. 2. Rounded market value of Fonterra as at 23 March 2015. © Fonterra Co-operative Group Page 33 Interim results summary $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume (billion MT) 2.19 1.99 10% Revenue 9,746 11,292 (14%) Normalised EBIT 376 403 (7%) Net profit after tax 183 217 (16%) Earnings per share (cents) 10 13 (23%) Dividend per share (cents) 10 5 100% © Fonterra Co-operative Group Page 34 Ingredients $ million Six months ended Six months ended 31 January 2015 31 January 2014 Total volume¹ (000 MT) 1,538 1,543 – Revenue 7,617 9,900 (23%) Normalised EBIT 299 292 2% Normalised EBIT percentage 4% 3% Change 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 35 Consumer and Foodservice Oceania $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume¹ (000 MT) 310 313 (1%) Revenue 1,043 1,050 (1%) Normalised EBIT 10 (5) 300% Normalised EBIT percentage 1% – 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 36 Consumer and Foodservice Asia $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume¹ (000 MT) 142 137 4% Revenue 968 886 9% Normalised EBIT 56 20 180% Normalised EBIT percentage 6% 2% 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 37 Consumer and Foodservice Greater China $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume¹ (000 MT) 64 47 36% Revenue 389 295 32% Normalised EBIT 15 14 7% Normalised EBIT percentage 4% 5% 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 38 Consumer and Foodservice Latin America $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume¹ (000 MT) 324 165 96% Revenue 856 440 95% Normalised EBIT 35 65 (46%) Normalised EBIT percentage 4% 15% 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 39 International Farming $ million Six months ended Six months ended 31 January 2015 31 January 2014 Change Total volume¹ (000 MT) 67 34 97% Revenue 66 37 78% Normalised EBIT (27) 2 Normalised EBIT percentage (41%) 5% 1. Total volume includes intercompany volumes. © Fonterra Co-operative Group Page 40 Balance sheet strength Strong fundamentals Fitch AA(stable outlook) S&P A (stable outlook) As at 31 January 2015 (Drawn debt) 4.1 years¹ Credit Rating Weighted Average Term to Maturity Diversified funding sources Offshore DCM 35% NZ DCM 17% Debt maturity profile Bank Facilities 48% Strong liquidity As at 31 January 2015 2,500 Bank Facility DCM $ million 2,000 1,500 1,000 500 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2029 Drawn Facilities $1.8bn 35% Undrawn Facilities and Cash $3.4bn 65% 1. If bank facilities are fully drawn upon, then Weighted Average Term to Maturity is 3.5 years. © Fonterra Co-operative Group Page 41