Fonterra Investor Day – December 2017 – Presentation

FonterraInvestor DayDECEMBER 2017

© Fonterra Co-operative Group Ltd.
Page 2
DisclaimerT
his presentation may contain forward-looking statements and projections. There can be no certainty of outcome in relation to the matters to which the
forward-looking statements and projections relate. These forward-looking statements and projections involve known and unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from the events or results expressed or implied by such statements and projections. Those risks, uncertainties, assumptions and other important factors are not all within the control of Fonterra Co-operative Group Limited (Fonterra) and its subsidiaries (the Fonterra Group) and cannot be predicted by the Fonterra Group.
While all reasonable care has been taken in the preparation of this presentation none of Fonterra or any of its respective subsidiaries, affiliates and
associated companies (or any of their respective officers, employees or agents) (Relevant Persons) makes any representation, assurance or guarantee as to the accuracy or completeness of any information in this presentation or likelihood of fulfilment of any forward-looking statement or projection or any outcomes expressed or implied in any forward-looking statement or projection. The forward-looking statements and projections in this report reflect views held only at the date of this presentation.
Statements about past performance are not necessarily indicative of future performance.Except as required by applicable law or any applicable Listing Rules, the Relevant Persons disclaim any obligation or undertaking to update any
information in this presentation.
This presentation does not constitute investment advice, or an inducement, recommendation or offer to buy or sell any securities in Fonterra or the
Fonterra Shareholders’ Fund.

© Fonterra Co-operative Group Ltd.
Page 3
Welcome – Simon Till Director Capital Markets

© Fonterra Co-operative Group Ltd.
Page 4
Investor Day purpose•
We have an aspirational ambition and a strategy to a
chieve it
–
$35 billion revenue from 30 billion LME by 2025
–
Demand-led strategy
–
Optimising New Zealand milk with support from global
milk pools
•
Role of our Global Consumer and Foodservice business
in this strategy
–
Key drivers of performance
–
Accelerating V3 strategy
•
The importance of innovation
“Improve understanding of Fonterra’s ambition and growt
h strategy”
123

© Fonterra Co-operative Group Ltd.
Page 5
FY18 Investor Day – Agenda
Session
Presenter
Objectives
Time
Welcome
Simon Till
•
Overview of the day
8
:30-8:45
Business Update
Theo Spierings
Paul WasherSimon Till
•
Regular quarterly update
•
Video and Q&A
8
:45-9:30
Ambition & Strategy
Theo Spierings
•
Demand-led strategy supporting growth of C&FS
•
Strong V3 Co-op, Innovative Co-op and Sustainable Co-
op
9:30-10:15
Morning Tea
10:15-10:45
Innovative Co-op
Judith Swales
•
Showcase what we are doing to transform culture and
capabilities
10:45-11:30
GCFS Overview
Lukas Paravicini
•
Overview of business
•
Our ambition for C&FS
1
1:30-12:00
Acceleration
Christina Zhu
•
Greater China overview
•
Acceleration in China
1
2:00-12:30
Lunch
12:30-1:30
Global Foodservice
Grant Watson
•
Overview of Foodservice and growth drivers
1:30-2:00
C
onsumer
Andy Dasgupta
•
Affordable Nutrition
2
:00-2:30
GCFS Close
Lukas Paravicini
•
Recap on ambition for C&FS
2
:30-2:50
Q&A/Close
Lukas ParaviciniPaul WasherSimon Till
•
Q&A and Closing
2
:50-3:30

© Fonterra Co-operative Group Ltd.
Page 6
Fonterra – key investment attributes
Co-operative with secure global access to quality milkScale and world-class ingredients businessFocused high-value consumer and foodservice businessesA strategy that’s delivering diversified and increased returnsFinancial strength and disciplineUnique co-operative structure supports strong credit profile, including effective subordination Highly experienced board and management teamStrong industry fundamentals

Business Update
DECEMBER 2017
OUR POTENTIAL

© Fonterra Co-operative Group Ltd.
Page 8
Fonterra Ambition and StrategyTheo SpieringsCEO

© Fonterra Co-operative Group Ltd.
Page 9
Value
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
Demand-led optimisation of N
ew Zealand milk,
supported by milk poolsInvestment in technology a
nd people for the future
Creation of sustainable v
alue for all stakeholders
Competitive advantage of
Cost Leadership through Scale Efficiency
To achieve our ambition we will need to d
eliver beyond V3
Three strategic horizons

Ambition

© Fonterra Co-operative Group Ltd.
Page 11
Clear financial goals
2025 Ambition
Key Drivers
Revenue
$1.2 / LME
•
Revenue growth in Consumer and Foodservice
•
Sales shift to Advanced Ingredients
Gross Margin
20%+
•
Driven by mix shift to Consumer and Foodservice
Normalised EBIT
50-100% uplift
•
Uplift from $1b base level (2015)
•
Grow contribution from Consumer and Foodservice
Return on Capital¹
11-13%
•
Target range
Gearing²
40-45%
•
Maintain “A” band credit rating
1
. Return on Capital (ROC) excludes goodwill, brands and equity accounted investments.
2. Fonterra’s target is to maintain its strong investment grade credit rating and debt payback and cash flow coverage metrics that support this.

© Fonterra Co-operative Group Ltd.
Page 12
Value
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
Demand-led optimisation of N
ew Zealand milk,
supported by milk poolsInvestment in technology a
nd people for the future
Creation of sustainable value for all stakeholders
Competitive advantage of
Cost Leadership through Scale Efficiency
Delivering on our V3 strategy

© Fonterra Co-operative Group Ltd.
Page 13
Our strategic choices are anchored by our beliefs and assessed through commercial filters
Beliefs
Filters
Dairy industry is demand-ledNew Zealand milk can sustainably grow at 1.5% p.a.Global milk is needed to maximise Co-op value
Cost leadershipVolume and Value now Long-term value protectionShareholder wealth
Likelihood of success
Economic
Value-add
Ability
to Win
Market Potential
Strategic Relevance
Sustainability

© Fonterra Co-operative Group Ltd.
Page 14
2%
20%
36%
1
9%
10%
12%
More volume to higher value1 billion LMEs shifted to Consumer, Foodservice and Advanced
Ingredients
Deliver on Foodservice potentialSelectively invest in milk poolsGrow our active living businessDevelop leading positions in paediatric & maternal nutritionOptimise NZ milk
1
Alignour business and organisationBuild and growbeyond our current consumer positions
324567
DIRA
G
DT
AdvancedIngredients
Foodservice
Consumer
Note: Wheel shows percentage of total FY17 external sales (LME); Consumer, Foodservice and Ingredients growth rates include intercompany sales.
27%
3%
7%
5%
9%
FY17
22.9b
LME
%
FY17 sales volume growth over FY16
•
GDT –
Volumes aligned with l
ower production
•
Ingredients–
Lower New Zealand milk co
llections and record low
closing inventory
–
473m LMEs shifted to h
igher margin
Advanced Ingredients
•
Consumer and Foodservice –
Added 576m LMEs
–
Normalised EBIT up 6%
B
ase
Ingredients
11%

© Fonterra Co-operative Group Ltd.
Page 15
0
1,0002,0003,000
SMP
MPC
Caseins
FFMP
WPC
Butter
AMF
Cheese excl.
mozz
Mozz
Volume (mLME)
0
1,0002,000
3,000
UHT Cream
Cream Cheese
Butter
Cheese excl.
mozz
Mozzarella
WMP
SMP
Volume (mLME)
6,2006,4006,6006,8007,0007,200
WMP
Unconstrained demand will surpass Fonterra’s N
ew Zealand supply
1. SMP FY14-16 is ~20% infant grade growing to ~30% i
n FY22 unconstrained demand (as referenced above).
Source: Business Unit unconstrained demand forecasts, Fonterra in-house data for historical supply volumesNote: Demand growth in New Zealand milk pool plus HeerenveenNZMP
G
CFS
Note different scale
¹
Protein
Fat
Fat
Protein
NZMP demand CAGR ~5%
driven by category initiatives
GCFS 16% demand
CAGR for cream products
GCFS 14% demand CAGR
for mozzarella
2022 unconstrained demand
~26bn LME ~35bn LME in 2025
FY14-16 Average supply
FY22 Unconstrained Demand

© Fonterra Co-operative Group Ltd.
Page 16
5.5
10.0
Today
Acceleration
Inorganic
2025 Target
LME (billion)
Consumer and Foodservice ambition will require organic and inorganic growth
Organic
Partnerships

© Fonterra Co-operative Group Ltd.
Page 17
19.2
22.5
3
.2
12.5
2017
2
025 Estimate
Hold Share 1.5% Growth¹
LME (billion)
2025 estimated unconstrained demand of 35b LME
Capturing projected demand will require additional non-New Zealand milkWe estimate ~22.5b LME of this supply will originate fr
om New Zealand
1. Assumed underlying New Zealand milk growth at 1.5%
CAGR.
2. Equates to the total Fonterra NZ milk collected in the 2016/17 season of 17.1 million litres. An LME is a standard measure of the amount of milk (in litres) allocated to
each product based on the amount of fat and protein in the product relative to the amount of fat and protein in standardised raw milk
Source: DairyNZ, AgriHQ
Fonterra Non-NZ MilkFonterra NZ Milk
2
Fonterra Milk Sources

© Fonterra Co-operative Group Ltd.
Page 18
Demand-led optimisation of New Zealand milk, supported by global milk pools
22.4
~3
~2
~27
~7
~35
2017 Supply NZ Milk Pool
Growth
Existing
Offshore Pools
Growth
2025 Supply
Supply Gap Unconstrained
Demand
LME (billion)
•
Prioritise New Zealand m
ilk to the highest value
•
Future demand exceeds N
ew Zealand-sourced
supply
•
Capturing additional d
emand requires
offshore milk sources
•
Optimise Ingredients b
usiness
•
Accelerate milk into h
igher-value Consumer
& Foodservice
Fonterra Milk Sources

© Fonterra Co-operative Group Ltd.
Page 19
Milk pool strategic rationale
•
Enable growth of ingredients business to s
upport customer demand (All)
•
Secure access for our New Zealand milk e
xports (China)
•
De-risk supply for ingredients customers (
Australia and Europe)
•
Optimise our ingredients manufacturing f
ootprint (Europe and US)
•
Enable our development of higher margin c
onsumer brands and foodservice opportunities
(Chile, China and Australia)
Primary investment
Complementing our New Zealand milk
pool
Milk Powders / FoodserviceWhey
Cheese / Whey / NutritionalsUHT

© Fonterra Co-operative Group Ltd.
Page 20
Value
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
We will also accelerate growth through innovation
NEW INNOVATION
D
IGITAL
TRANSFORMATION
DISRUPTIVE
BUSINESS MODELS
PARTNERSHIPS
EXPONENTIAL
TECHNOLOGIES
Competitive advantage of
Cost Leadership through Scale Efficiency

© Fonterra Co-operative Group Ltd.
Page 21
IOT
ENABLERS
We are embracing tomorrow’s innovation i
n what we do today
AGTECH
ENERGY AND
C
LEAN TECH
ROBOTICS
HYPER-
P
ERSONALISATION
DIGITAL
LIVING
SUSTAINABLE
FARMS
SUSTAINABLE
OPERATIONS
FUTURE
CONSUMERS
GAMIFICATION
AR/VR
PRECISION
FARMING
DIGITAL
MANUFACTURING
ENERGY AND
WATER
EFFICIENCY
GENOMICS
SOIL AND
CROP TECH
FOOD SAFETY AND
TRACEABILITY
BLOCKCHAIN
3D PRINTING
SHARING
ECONOMY
CONNECTED
LIFE
NEW
RETAIL
CONSUMERS OF
THE FUTURE
ROBOTICS AND
AUTOMATION
DIGITAL
ARTIFICIAL INTELLIGENCE
BIG DATA
BEHAVIOUR ECON
OMICS
Page 21

© Fonterra Co-operative Group Ltd.
Page 22
Value
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
And are on our way to becoming a Sustainable Co-op
•
Malnutrition
•
Obesity / Diet
•
Water / Environment
•
Climate and Energy
•
Productivity
Competitive advantage of
Cost Leadership through Scale Efficiency
MAKING A DIFFERENCE I
N THE LIVES OF
2 BILLION PEOPLE

© Fonterra Co-operative Group Ltd.
Page 23
Building Collective Pride
#431
Innovation and Global Reach
Innovative Farmers
Purest DairyMilk for Schools
The Co-op has positively shifted its reputation and ch
anged the minds of 1.5m New Zealanders
FY18 Objective: Top 3 for Reputation
16
April 2016
21
29
32
35
26
16
19
1145
March 2017
Innovation and Global Reach
InnovativeFarmers
Milk for Schools
#431
Purest Dairy
December 2016
June 2016
3517
July 2017

© Fonterra Co-operative Group Ltd.
Page 24
Fonterra presents a strong investment opportunity•
Demand-led optimisation of New Zealand milk, support
ed by global milk pools
•
Existing position provides foundation for growth str
ategy
–
Lowest cost production and vertically integrated mil
k pools
–
Strong foundation in global-scale ingredients busine
ss
–
End-to-end supply chain – providing quality and trace
ability
•
Focused growth strategy built on–
Targeted consumer markets for growth investment
–
Strong foodservice value proposition
–
Leverage our dairy know-how into higher-value produc
ts

© Fonterra Co-operative Group Ltd.
Page 25
Innovative Co-opJudith SwalesCOO Velocity and Innovation

© Fonterra Co-operative Group Ltd.
Page 26
Substantial magnitude of change
Technology
Urbanisation,rising middle
class
Healthy
aging,
millennials
Glocalisation
Health and
Wellness

© Fonterra Co-operative Group Ltd.
Page 27
Building the foundations for our future success
Demand-led optimisation of N
ew Zealand milk,
supported by milk poolsInvestment in technology a
nd people for the future
Creation of sustainable v
alue for all stakeholders
Growth
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
Competitive advantage of
Cost Leadership through Scale Efficiency
Value

© Fonterra Co-operative Group Ltd.
Page 28
V&I talent engine
Digital Transformation
Velocity and Innovation: creating future Fonterra
OUR 2025
AMBITION
Make a difference in the lives of 2 billion people by 2025
GROW AT HIGHER VALUE
MARKET LEADERSHIP
TRUST
30
Billion
LITRES5
-6 Milk
Pools
$35
BILLION
TURNOVER
NO.1
INGREDIENTS
No.1 or 2
Consumer
business
In our
Strategic Markets
Supported by Foodservice
TOP 3
R
EPUTATION
In our
Strategic markets
WORLD
C
LASS
Engagement
WHAT WE DO
We build
future
revenue streams
We enable delivery through a
central
performance engine
We support the core business through injecting specialised expertise
We
create innovative
customer experiences through technology
We build
future
capability
12
34
5
Science and Technology
Velocity

© Fonterra Co-operative Group Ltd.
Page 29
Value
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW
NEW INNOVATION
D
IGITAL
TRANSFORMATION
DISRUPTIVE
BUSINESS MODELS
PARTNERSHIPS
EXPONENTIAL
TECHNOLOGIES
Our innovation journey is well underway
Competitive advantage of
Cost Leadership through Scale Efficiency

© Fonterra Co-operative Group Ltd.
Page 30
IOT
ENABLERS
We are embracing tomorrow’s innovation i
n what we do today
AGTECH
ENERGY AND
C
LEAN TECH
ROBOTICS
HYPER-
P
ERSONALISATION
DIGITAL
LIVING
SUSTAINABLE
FARMS
SUSTAINABLE
OPERATIONS
FUTURE
CONSUMERS
GAMIFICATION
AR/VR
PRECISION
FARMING
DIGITAL
MANUFACTURING
ENERGY AND
WATER
EFFICIENCY
GENOMICS
SOIL AND
CROP TECH
FOOD SAFETY AND
TRACEABILITY
BLOCKCHAIN
3D PRINTING
SHARING
ECONOMY
CONNECTED
LIFE
NEW
RETAIL
CONSUMERS OF
THE FUTURE
ROBOTICS AND
AUTOMATION
DIGITAL
ARTIFICIAL INTELLIGENCE
BIG DATA
BEHAVIOUR ECON
OMICS
Page 30

© Fonterra Co-operative Group Ltd.
Page 31
Velocity and Innovation integral in delivering FY18 strategic priorities
•
Protect market share of New Zealand 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 poten
tial
•
Develop cheese / whey supply options
•
Grow Australian milk pool share
•
Invest to deliver future-oriented capabilities
Deliver on Foodservice potentialSelectively invest in milk poolsGrow our active living businessDevelop leading positions in paediatric & maternal nutritionOptimise NZ milk
1
Alignour business and organisationBuild and growbeyond our current consumer positions
324567

© Fonterra Co-operative Group Ltd.
Page 32

© Fonterra Co-operative Group Ltd.
Page 33

© Fonterra Co-operative Group Ltd.
Page 34

© Fonterra Co-operative Group Ltd.
Page 35

© Fonterra Co-operative Group Ltd.
Page 36
Behaviour: our next generation competitive advantage

© Fonterra Co-operative Group Ltd.
Page 37
We’re building a strong R&D network
CHINA
M
ALAYSIA
SRI LANKA
INDONESIA
AUSTRALIA
NEW ZEALAND
BRAZIL
CHILE

© Fonterra Co-operative Group Ltd.
Page 38
R&D focused on four platforms
Delivering specific nutritional benefits with focus on: •
Cognition
•
Mobility
•
Wellness
Improving: •
Affordability
•
Convenience
•
Environmental su
stainability
•
Functionality
•
Taste and texture
Dairy Beverage Solutions
Dairy Nutrition Delivery
Expected outcome: •
Differentiated products
•
World-leading dairy p
rotein portfolio
•
Optimised consumer e
xperience
Expected outcome: •
Dairy nutritional solutions
•
Substantiated health b
enefits
•
Cost-effective nutrition
Designing food solutions which provide superior functional and sensory performance across a range of applicationsExpected outcome: •
Next generation cream ch
eeses, mozzarella,
cheeses and creams
Delivering ‘More of the Right Milk’ through science and technologyExpected outcome: •
Safe, high-quality and t
raceable milk
•
More value to our milk
•
Milk is responsibly and su
stainably sourced
Dairy Farming Systems
Dairy Food Solutions

© Fonterra Co-operative Group Ltd.
Page 39

© Fonterra Co-operative Group Ltd.
Page 40
We’re building an ecosystem of partners
Growth
STRONG V3 CO-OP
INNOVATIVE CO-OP
SUSTAINABLE CO-OP
3 years
5 years
10+ years
NOW

© Fonterra Co-operative Group Ltd.
Page 41
Global Consumer and Foodservice(GCFS) Business OverviewLukas ParaviciniCOO Global Consumer and Foodservice

© Fonterra Co-operative Group Ltd.
Page 42
Ambition:To be a relevant dairy player with Fonterra’s Consumer and Foodservice brands, delivering annually +400m LMEs with an upskilled team
Our ambition for Global Consumer and Foodservice
2025

© Fonterra Co-operative Group Ltd.
Page 43
Global Consumer and Foodservice brandsCombination of strategic growth, seeding and cash markets
Asia
Latin America
Greater China

Our brands are getting global recognition
6
CANNES LIONS
11
SPIKES ASIA AWARDS
8
TANGRAMS AWARDS
& 1 AMES
7
LONDON INTERNATIONAL
AWARDS
2
CLIO AWARDS
2
BEST AWARDS
10
AXIS AWARDS
2
NZDM AWARDS
48 Awards in 18 months

© Fonterra Co-operative Group Ltd.
Page 45
GCFS is a highly attractive business today
Note: FY17 figures1
. Refers to normalised EBIT
Oceania
•
Volume (LMEs): 1.7b
•
Norm
1
.

EBIT: $101m
•
GM%: 20-25%
Asia
•
Volume (LMEs): 1.7b
•
Norm
1
.

EBIT: $201m
•
GM%: 25-30%
Greater China
•
Volume (LMEs): 1.3b
•
Norm
1
.

EBIT: $209m
•
GM%: 25-30%
Latin America
•
Volume (LMEs): 0.7b
•
Norm
1
.

EBIT: $103m
•
GM%: 30-35%

© Fonterra Co-operative Group Ltd.
Page 46
5.5
10.0
Today
Acceleration
Inorganic
2025 Target
LME (billion)
Organic
Partnerships
Growth will be delivered organically and t
hrough partnerships

© Fonterra Co-operative Group Ltd.
Page 47
WHATAccelerate, Diversify F
oodservice
Culinary @ HomeHealthy LivingAffordable Nutrition
Achieving our ambition
HOWFive Must Win Battles1. Innovation2
. Revenue Growth
Management
3. Perfect Store4. Cost Leadership5. Digital
ENABLERSPEOPLE
PARTNERSHIPS
INNOVATIVE CO-OP
1
2
3

© Fonterra Co-operative Group Ltd.
Page 48
> $1b innovation pipeline
Winning with Taste
to Delight Consumers
Portfolio Optimisation
and Rationalisation
Shaping the Future
Consumer-led Pipeline
60:40 Sensory Win on ALL key
products
Formulation Simplification
Agile process balancing three
principles (taste, nutrition, regulatory)
Agile Network
Leverage R&D / LAC networks
Make Choice
80% portfolio on 3 Must Win Battles
(MWB)
Set up Innovative Approach
•
Ideation + crowdsourcing co
mmunities
•
Robust screening best ideas to sh
ape our MWB platforms with
fast evolving consumer aspirations!
A solid and consumer relevant pipeline : > incremental $ 1b innovation pipeline
Ambient Yoghurt Life style Protein Healthy Living
LIQUID& CULTURED
1
2
3

© Fonterra Co-operative Group Ltd.
Page 49
Global Revenue Growth Management –focussing on systematic value pricing
PACK-PRICE C
HANNEL STRATEGY
EFFECTIVE PROMOTIONSTRADE INVESTMENT MANAGEMENT
Fonterra Global RGM Programme
Overall objectives and philosophy
Organisation and capabilities, processes, technology
Enablers
SET
:
RGM plan
SEE: Situational Assessment
GET : Execution

© Fonterra Co-operative Group Ltd.
Page 50
Creating the Perfect StoreNote: All Pricing, promotion and distribution decisi
ons are at the sole
discretion of the retailer. RSP = Recommended Shelf Price1. Revenue Growth Management.
1.
Perfect
Store
Principles
2.
5Ps
Framework
3.
Perfect
Store
Playbook
4.
Execution
Tools
5.
Tracking,
Reporting &
Lift & Shift
Priorities:• MCL Compliance• Promotional Compliance
Brand Strategies
Shopper Insights
RGM¹ Insights
Channel Strategies
Establish a set of shopper
based
in store standards
that support
profitable
s
hare growth
for Fonterra’s
G
lobal Consumer Brands by
winning at the
First Moment
o
f Truth (FMOT)

© Fonterra Co-operative Group Ltd.
Page 51
Significant conversion cost potential
World Class End to End Supply Chain
The Right Service at the Right Cost
Integrated Factory Management
Conversion Cost
Absolute Material Loss
Failure Cost
Current Leadership Focus•
Making losses visible, continuously measuring and un
dertaking
focussed intervention
•
Leaders on the floor coaching
•
Creating ownership at equipment level
•
Line structure reorganisation driving accountability

© Fonterra Co-operative Group Ltd.
Page 52
1.
China Accelerate
2.
Global Foodservice
3.
Affordable Nutrition
4.
Partnerships
Four key areas of growth beyond today’s trajectory

© Fonterra Co-operative Group Ltd.
Page 53
AccelerationChristina ZhuPresident Greater China

© Fonterra Co-operative Group Ltd.
Page 54
China at a glance
•
World’s
s

econd largest economy
and
top receiver
of foreign
direct investment
•
Drivers changing from export and i
nvestment to
personal
consumption
•
Single-digit GDP growth
i
s the
“new normal”
•
Forward focus on
q
uality
,
innovation
, and
open trade
and investment
•
Stable governance and l
eadership
under President Xi
Jinping and the Communist Party of China
•
Strong
o

penness
and
engagement
– AIIB and One Belt,
One Road
•
Strong continued regulatory e
mphasis on
food safety
and quality
•
Special New Zealand-China t
rade relationship
as FTA
upgrade talks continue
•
Demographic changes:co
ntinued urbanisation and
population aging, relaxation of the one-child policy
•
Steady household i
ncome growth
–
‘Trading-up’
–
Focus on
f

ood safety
and health
•
Increasing brand loyalty
•
World’s most dynamic d
igital economy
Economy
G
overnment/regulatory
Consumer trends

© Fonterra Co-operative Group Ltd.
Page 55
Chinese dairy demand is growing faster than local supply
9.7
52.8
0.8
1
7.7
8.9
3
5.1
0.0
2
0.0
40.060.0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
LME (billion litres)
ConsumptionNet ImportsProduction
China equilibrium modelSource: Fonterra GDI / Combined Forecast Model

© Fonterra Co-operative Group Ltd.
Page 56
China
$812b
18% 17%
USA
$462b
16% 9%
UK
$119B
10%
19%
Japan
$81B
5%
7%
Germany
Korea
$53B
13%
16%
France
$64B
9%
8%
$42B
7%
7%
2016-18E CAGR %
Portion in total retail %
Online Retail Transaction (2017E, USD)
405060708090
100
50
300
60
70
40
Packaged food 4%
F
resh food 2%
Home care 8%
38%
Consumer e
lectronics
21%
Personal care
31%
Apparel
Purchased Online
P
ercent of digital consumers purchasing the category in any channel
Evaluated Online
Percent of digital consumers purchasing the
category in any channel
E-commerce Value Penetration (E-commerce market size as % of total retail value)
China is world’s largest e-commerce market, with growth in fresh and packaged food still to comeSource: McKinsey iConsumer China 2017, Euromonitor, t
eam analysis
China’s e-commerce market equals total of top 6 f
rom the rest of the world
2017 Online penetration rate by category in China

© Fonterra Co-operative Group Ltd.
Page 57
•
No other multinational dairy company in C
hina has the same mix of businesses
•
Gives us a unique strategic advantage –
integrated supply chains are important
to Chinese consumers and offer value to potential digital partners
•
Multiple milk pools – downstream value f
rom China Farms
We have a right to win with our unique i
ntegrated business model
Partnerships
Foodservice
Ingredients
Consumer
Brands
Milk Pools and
M
anufacturing

© Fonterra Co-operative Group Ltd.
Page 58
China opportunityFonterra well positioned in every segment1. Based on April-2017 external data and analysis.2
. Includes Beingmate sales of ~180m LME.
3. Indicative share of sourcing.Source: Euromonitor; Fonterra analysis
Deliver on Foodservice potentialSelectively invest in milk poolsGrow our active living businessDevelop
leading positions
in paed & maternal nutritionOptimise NZ milk
1
Alignour business and organisationBuild and growbeyond our current consumer positions
324567
FY17
Fonterra Milk Source (%)³
8b
3.7b
31b
1.3b
3b
0.2b¹
30-35b
2
0.34b
5
.5b
LME b
I
ngredients
Consumer & FoodserviceAdvanced NutritionDomestic Milk Pool
2013
8b
3.5b
28b
0.4b
2b
0.02b0
.06b
4b
77
50
90
80
10
50
10
10
7
10
6
100
NZ
AU
EU
China
Total Fonterra China
b LME
Fonterra
b LME
China market²

© Fonterra Co-operative Group Ltd.
Page 59
Consumer brands in Greater China•
Three strong brands:
A
nchor
,
Anlene
and
Anmum
•
Anchor is our leading import brand by market share
•
2017 Double 11 sales up more than 67% y.o.y., surpas
sing
RMB 100 million across all platforms
•
Wide geographic reach via a strong team and distribu
tion channels
•
Strategic e-commerce partnerships
Volume growth led by Anchor penetration, e-commerce and portfolio expansion

© Fonterra Co-operative Group Ltd.
Page 60

© Fonterra Co-operative Group Ltd.
Page 61
Foodservice in Greater China•
#1 in the market through the Anchor Food Professiona
ls brand
•
Key product categories:
b
utter, UHT cream
,
mozzarella
and
cream cheese
•
Key focus channels: bakery, beverage and casual dini
ng
•
Strong distribution, with a forward focus on tier 2,
3 and 4 cities
•
Route-to-market transformation sparking further volu
me growth,
value and direct customer ownership
•
Fonterra Application Centres in Shanghai, Beijing, G
uangzhou
and Chengdu
World-class dairy application
experts and advanced technology
Experienced and
innovative chef teams
Professional service teams
Over
50%
of
pizzas in China are topped with our cheese
Over
50%
of
leading bakery chains choose our products
Accelerated volume growth through Route-to-market transformation

© Fonterra Co-operative Group Ltd.
Page 62
Focus on speed
and agility to
defend and grow
market leadership
Why Acceleration1. Multinational Corporation
China is a “winner-take-all” market
, requiring players to
rapidly scale with sustainable margins
1
Chinese consumers are
increasingly brand loyal, prefer to
trade up, and adapt to “new” quickly
2
As a result, “
cards can re-shuffle quickly”
in the market
3
The emerging
era of “New Retail”
is characterised by
omni-channel, instant fulfillment, and focus on fresh food
4
5
We are the
only MNC
1
uniquely positioned to create a full
e
nd-to-end value chain
across consumer and foodservice

© Fonterra Co-operative Group Ltd.
Page 63
Omni-channel journeysMulti-scenario triggeredSocial embeddedMore than standard SKUsPersonalisationthrough data
The journey to New Retail
“New Retail”
“Platform pure play”
Brand.com
Stage I (Before 2010) Disruptive C2C
Stage II (2010-2015) Incubating B2C
GMVRMB Tn
5~40
<5
>40
B2C %
10-50%
<10%
>50%
Stage III (2015-) Crowded B2C
Market characteristics
Small medium businesses e
nter C2C platforms featuring
cheap liquidation •
Product distribution redefined
•
Accessibility and price as c
onsumer priorities
•
Product and service quality l
ess important
B2C platforms taking off with most brands joining•
Product authenticity and d
elivery/service quality as
hygiene factors
•
Brand loyalty on the rise
•
Vertical e-tailers emerged
B
2C platforms highly
competitive, with most brands homogenised•
In-platform traffic competition a
round earned/paid ads
•
Social/content marketing e
merging
•
Data and analytics piloting b
ut value yet realised

© Fonterra Co-operative Group Ltd.
Page 64
Key ProductsKey ChannelsSustainable Growth
•
Invest for long-term growth without gross m
argin compromise
•
Leverage local and offshore milk supply
•
Build scale through hero products:–
Anchor import UHT portfolio (milk, skim, p
owder, ambient yoghurt)
–
Cross-border maternal
–
Culinary @ home
–
Fresh milk
•
Deliver integrated consumer experiences via:–
New retail and omnichannel
–
E-commerce partnerships
Consumer: build scale with sustainable m
argin in key products and channels

© Fonterra Co-operative Group Ltd.
Page 65
Route-to-MarketDairy ConversionProduct Portfolio
Foodservice: deepen reach to defend and strengthen market leadership
•
Leverage local and offshore milk supply
•
Local demand-driven products,
e.g. AEC
l
ighter tasting cream
•
Geographic expansion,
with focus on
i
mproving coverage of third and fourth
tier cities
•
Expand category leadership
from current
b
akery focus to beverage and casual dining
•
Optimise sales model with differentiated p
ropositions for targeted customer segments
•
Enhance distributor management playbook

© Fonterra Co-operative Group Ltd.
Page 66
FoodserviceGrant WatsonDirector Global Foodservice

© Fonterra Co-operative Group Ltd.
Page 67
Anchor Food Professionals is the high performance foodservice business of Fonterra
In 2021, global foodservice is predicted to be worth US$3 trillion
Restaurants
Bakeries
Cinemas and Theaters
Airports
Cafes
Hotels
>50%
of food $ are spent
out-of-home
$1
in every $6 is dairy-
intensive globally

© Fonterra Co-operative Group Ltd.
Page 68
Global Foodservice channel-led strategyNote: Aspiration refers to 2025.
Fit for
purpose
products
World-
l
eading
technology
platforms
U
nique
New
Z
ealand
taste and
p
rovenance
Chef
n
etwork
and
a
pplication
kitchens
Full dairy
range and
brand
h
eritage
NZ
$

5bn
Revenue
17%
Fonterra’s global milk
p
ool
Bakery
Butter
Culinary
Creams
Cream
Cheese
Mozzarella
Whipping
Creams
Beverage
Cream
6. RIGHT TO WINWe will drive a step-change in accelerated growth a
nd sustainable competitive advantage
3. CHANNEL FOCUSWe focus on three specific types of food s
ervice businesses
7. ENABLERSWe are investing in new capability to enable the C
hannel-led System
4. CATEGORY FOCUSOur innovation focuses on six hero productsm
ade for our customers’ most important
applications
1. ASPIRATIONWe have clear growtha
spirations
5. MARKET FOCUSWe focus on 20 markets led by China, Indonesia, Australia andG
lobal Accounts with expansion into USA and Brazil
2. RIGHT TO PLAYWe are uniquely positioned to deliver ono
ur growth aspirations
ASIAN
BAKERY
ITALIAN
KITCHEN
BEVERAGE
HOUSE
QSR
Build
channel teams
Create responsive
manufacturing
platforms
Optimise pricing for
full potential growth
Drive improved
sales capability
Improve ex-NZ
supply chain
Optimise sales
channels within
Fonterra
Leverage Anchor
FP brand
Extend hero product
leadership
Optimise
operating model
Accelerate markets
Turbo-charge categories
Strategic framework
5bn
L

ME
1 million MT

© Fonterra Co-operative Group Ltd.
Page 69
FY17 Channel SummaryActual Volume (MT)1. Beverage House and Other comprises restaurants, ai
rlines, hotels and catering institutions.
Asian
Bakery
38%
Italian
Kitchen
12%
Western QSR
20%
Beverage House &
Other¹
30%
ASIAN BAKERY VOLUME IS UP DUE TO UHT WHIPPING CREAM AND BULK BUTTER SALES
ITALIAN KITCHEN VOLUME IS UP MOSTLY AS A RESULT OF BLOCK MOZZARELLA SALES
BEVERAGE HOUSE IS A NEW CHANNEL FOCUSED ON DAIRY IN CHINA’S TEA HOUSES
WESTERN QSR GROWTH IS DUE TO IQF MOZZARELLA SALES

© Fonterra Co-operative Group Ltd.
Page 70
NON HERO PRODUCTS ACCOUNT F
OR A FURTHER 101K MTs.
UHT CREAM IS THE MOST PROFITABLE CATEGORY.
UHT CREAM SALESARE PREDOMINATELYWHIPPING CREAM.
FY17 Category SummaryActual Volume (MT)1. DBD = Dairy Beverage Desserts.N
ote: Other Products account for a further 101,000 MTs
0
80,000
DBD (QSR)
Bulk Butter
Mozzarella
Slice-on-slice
Cheese
Value-add
Butter
Cream Cheese UHT Cream
Volume (MT)
Gross Margin (%)
Lowest
Highest

© Fonterra Co-operative Group Ltd.
Page 71
1 .Develop
C
oncept/
Hypothesis
2.
Consumer/
In-Store
Validation
3. Quantify
Value
Proposition
4.
Packaging
/ POSM/
Promotion
5. Kitchen
SOP
Deliver double-digit diversified growth
Winning in China
1.
Develop Anchor Online
2.
Leverage China Farms (White Gold)
3.
Accelerate channel-led momentum
Diversified Growth
1.
Accelerate Americas
2.
Scale-up Brazil entry
3.
Double Soprole by 2021
ACCELERATING OUR MOMENTUM
ANCHOR FOOD PROFESSIONALS
Must win battles
1.
Revenue Growth Management (RGM): B
est-in-class RGM capabilities
2.
Low-cost operator: Best-in-class global a
nd local distribution operating models
3.
Digital: End-to-end sales d
igital ecosystem
4.
Supply: Supply to meet a
ccelerated demand
5.
Innovation: Broaden hero p
roduct portfolio
2
1
3

© Fonterra Co-operative Group Ltd.
Page 72
ConsumerAndy DasguptaDirector Global Consumer Brands

© Fonterra Co-operative Group Ltd.
Page 73
63,660
58,030
45,970
37,860
11,220
3,790
1,730
Switzerland
United States
Australia
New Zealand
Indonesia
Bangledesh
Ethiopia
Affordable Nutrition will focus on those b
elow and just above the poverty line
1.
Purchasing power parity (PPP) reflects the cost of a basket
of goods across currencies.
2.
In US dollars.
Source: The World Bank website, “GNI per capita, PPP” 2016Annual income per capita ($PPP)¹
Gross national incom
e per capita ($PPP)²
1,601 – 46,499
~
1,600
Poverty line
> 46,500
Bottom of the pyramid
Middle C
lass
Affluent
4
1
2&3

© Fonterra Co-operative Group Ltd.
Page 74
Ethiopia
Brazil
Indonesia
China
$ million¹
Current Sales1% of BOP Food Spend²
1% of Affordable Nutrition spend is greater than cu
rrent Fonterra sales in many markets
1. Assuming 1NZD=0.7USD.2
. Assuming average food spend per capita per day of $1.7 PPP USD in Balance of Payments (BOP).
Source: MGI Cityscope; World resources instituteCurrent sales vs. 1% of BOP food spend²
9x
1.6x
12x
54x

© Fonterra Co-operative Group Ltd.
Page 75
What is Affordable Nutrition?
Key Pillars
Ensure attractiveness of aspirational proposition and meet consumer’s nutrition needs that allow us to compete vs other players in daily purchase basketFit into their daily purchase basket - $2.5-$4 per dayEnsure magic Price point – US$0.03-0.05Right pack size and formatDrive continuous cost reduction
Appeal
Ensure distribution that caters to small drop sizes at higher frequency in small locations. Ensure scale of business
AccessibilityAffordability
Create a
scale & profitable business
through making
t
rusted dairy-based nutrition accessible & affordable
everyday to a nutritionally deficient BOP population
Definition
50% of BOP population
has ~70% of total
spending power of
US$1.3tr
Poverty line
(~US$2.5 per day PPP)
$2.5-$4/day
$3,000
~
$1,600
TOPBOP
Annual income per household
Build visibility of brand proposition through relevant touch points – e.g. outdoor, digital (mobile), street play
Awareness

© Fonterra Co-operative Group Ltd.
Page 76
Immerse
Co-creation
Ethnography
and culture
study in market
Macro and micro
ecosystems –
34 stakeholder
interviews
Assess multiple
options –
Products and
RTM
1
Workshop to
develop
concepts based
on immersion
learning
Business case
development
addressing the
4 As
Aug-Sep 2017
Home visit and
observation –
84 families (2-6
hour per family)
Oct 2017
Assess multiple
options
Sep-Oct 2017
Business
model
Nov 2017
1
st
Gate/ Business model in December to move
to development
Journey to date1. Route-to-market

© Fonterra Co-operative Group Ltd.
Page 77
From Appeal to Affordability, Accessibility and Awareness
Child is the
centre of their
world
Milk is not
necessarily
perceived as
daily necessity
A great
faith in
tomorrow
Milk nutrition
appreciated
but forced to
trade off
Many commonalties exist
Brands are much
bigger in
Bangladesh;
Ethiopia more
unbranded
Less variety
in Ethiopia
Indulgence big
in Bangladesh
Some differences
Nutrition
(Functional)
Indulge/
Refinement
SATIETY
Hierarchy of
E
ating
Hierarchy of
Nutrition
Physical
Development
Mental
Development
Immunity

© Fonterra Co-operative Group Ltd.
Page 78
Global Consumer and Foodservice SummaryLukas ParaviciniCOO Global Consumer and Foodservice

© Fonterra Co-operative Group Ltd.
Page 79
WHATAccelerate, Diversify F
oodservice
Culinary @ HomeHealthy LivingAffordable Nutrition
Achieving our ambition
HOWFive Must Win Battles1. Innovation2
. Revenue Growth
Management
3. Perfect Store4. Cost Leadership5. Digital
ENABLERSPEOPLE
P
ARTNERSHIPS
INNOVATIVE CO-OP
1
2
3

© Fonterra Co-operative Group Ltd.
Page 80
Q&A and Close

© Fonterra Co-operative Group Ltd.
Page 81
Fonterra – key investment attributes
Co-operative with secure global access to quality milkScale and world-class ingredients businessFocussed high-value consumer and foodservice businessesA strategy that’s delivering diversified and increased returnsFinancial strength and disciplineUnique Co-operative structure supports strong credit profile, including effective subordination Highly experienced board and management teamStrong industry fundamentals