Fonterra revises 2017/18 Forecast Farmgate Milk Price

7 December 2017
FONTERRA REVISES 2017/18 FORECAST FARMGATE MILK PRICE
Fonterra Co-operative Group Limited today reduced its forecast Farmgate Milk Price for the
2017/18 season from $6.75 to $6.40 per kgMS and updated the market on its financial results for
the first three months of the 2018 financial year.
Chairman John Wilson says the lower forecast Farmgate Milk Price reflects a prudent approach to
ongoing volatility in the global dairy market. The GlobalDairyTrade price for whole milk powder is a
big influencer of the Farmgate Milk Price and it has declined by almost 10 percent since 1 August
2017.
“While the result of the arbitration with Danone has impacted our earnings guidance for the season,
it has no influence on our forecast Farmgate Milk Price,” says Mr Wilson.
“What is driving this forecast is that despite demand for dairy remaining strong, particularly in
China, other parts of Asia and Latin America, we are seeing strong production out of Europe and
continued high levels of EU intervention stockpiles of Skim Milk Powder.
“This downward pressure on global prices is being partly offset by the lower NZ-US dollar exchange
rate,” says Mr Wilson.
“Our strong financial position, customer order book at this point in the year, and confidence in
demand means that the Board is able to increase the payments made in January by 10 cents per
kgMS and will hold the Advance Rate through to the payments in May.
“In effect, our farmers will receive equal or higher payments for their milk over this period than were
scheduled under the previous $6.75 milk price.
Fonterra has also updated its full season New Zealand milk collection forecast due to ongoing
challenging weather conditions. The Co-operative has reduced its forecast by 1 per cent to 1,525
million kgMS – the same volume as last season.
First Quarter Financial Results
Fonterra’s first quarter revenue of $4 billion is up 4 per cent on the same period last year. Sales
volumes are down 20 per cent to 3.9 billion liquid milk equivalent (LME), while the gross margin of
16.7 per cent is also down.
Chief Executive Theo Spierings says the first quarter financial results were generally as expected
as the Co-operative started the year with record low inventory followed by the second year of low
spring milk collections from New Zealand due to wet weather.
“This has challenged our Ingredients business where we had lower volumes to sell. As a result,
sales were down 19 per cent to 3.6 billion LMEs compared to the same time last year.

Fonterra Co-operative Group
Confidential to Fonterra Co-operative Group Page 2

The gross margin in Ingredients was in line with the second half of last year. However, when we
compare it to the same period last year it was down from 12.1 per cent to 8.1 per cent, mainly due
to the rise in commodity prices,” says Mr Spierings.
“Our Consumer and Foodservice business continued with strong sales volumes in our key markets
across both Greater China and Asia with, overall, just a 3 per cent decline to 1.3 billion LMEs in
total volume compared to the record levels at the same time last year.
“Gross margin in Consumer and Foodservice was 24 per cent. While this is down on the 31 per
cent in the first quarter of 2017 when input costs were lower, it is up on the gross margin
percentage in the last quarter of 2017. This positive trend demonstrates we can create more value
in our Consumer and Foodservice business despite higher input costs and reflects the strength of
our strategy of moving more volume into higher value.”
Mr Spierings says the Co-operative expected performance to be weighted to the second half of the
year and remains confident in its full year forecasts following revisions after the recent Danone
announcement.
“We are focused on continued tight operational and financial discipline and a keen eye on our
customers’ needs to maximise sales opportunities.”

ENDS

For further information contact:

Philippa Norman
Phone: +64 21 507 072

About Fonterra
Fonterra is a global leader in dairy nutrition – the preferred supplier of dairy ingredients to many of the world’s
leading food companies. It is also a market leader with its own consumer dairy brands in New Zealand and
Australia, Asia, Africa, the Middle East and Latin America. Fonterra is a farmer-owned co-operative and the
largest exporter of milk in the world. It is one of the world’s largest investors in dairy research and innovation
drawing on generations of dairy expertise to produce more than two million tonnes of dairy ingredients, value
added dairy ingredients, specialty ingredients and consumer products for 140 markets.
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Business
Update
DECEMBER 2017
OUR POTENTIAL

© Fonterra Co-operative Group Ltd.
Page 2
Disclaimer
This 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 FonterraGroup.
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 securitiesin Fonterra or the
Fonterra Shareholders’ Fund.

© Fonterra Co-operative Group Ltd.
Page 3
Good season for our farmers
Forecasting a second year of solid results after two seasons of
unusually low milk prices
1. Total available for payout= Forecast FarmgateMilk 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: FarmgateMilk Price: $ per kgMS; Dividend: $ per share
6.107.606.085.848.404.403.906.126.40
0.27
0.30
0.32
0.32
0.10
0.25
0.40
0.40
201020112012201320142015201620172018
forecast
Farmgate Milk PriceDividend
Total
available for
payout
1
6.37
7.90
6.40
6.16
8.50
4.65
4.30
6.52
6.75-6.85

© Fonterra Co-operative Group Ltd.
Page 4
10
20
30
40
50
60
70
80
90
100
JunJulAugSepOctNovDecJanFebMarAprMay
Volume (m litres/day)
Low spring volumes –improved peak collection
Milk collection forecast for the season maintained
SeasonTotal Milk Solids (kgMS)Peak Day Milk
—2015/161,566m (down 3%)87m litres
—2016/171,526m (down 3%)80m litres
—2017/18F1,525m (flat)82mlitres
•Wet conditions have
impacted milk production
volumes through spring
•Volumes recovered in
October with the quarter
in line with last season
•Forecast reduced to
1,525m kgMS, same as
lastseason
•Lower production
volumes impacted costs
and sales this quarter

© Fonterra Co-operative Group Ltd.
Page 5
Global dairy market –continued strong demand
Note: All 12 month figures are rolling 12 months compared to previous comparable period: Australia (Oct), EU (Oct), United States (Oct), China (Oct), Asia (Aug), Middle East & Africa
(Aug), Latin America (Aug)
Source: Government milk production statistics; GTIS trade data; Fonterra analysis
Demand
Supply
Russia
EU’s largest dairy
export market –trade
embargo remains
US
12 months
production
+2
%
Australia
12 months
production
-2
%
Fonterra in NZ
12 months
production
Last 3 months
(Sep, Oct, Nov)
1
%
0.5
%
Asia (excl China)
12 months
imports
+7
%
Middle East & Africa
12 months
imports
-3
%
EU
12 months
production
Last 3 months
(Aug, Sep, Oct)
0
%
+5
%
Latin America
12 months
imports
+7
%
China
12 months
imports
Last 3 months
(Aug, Sep, Oct)
+13
%
+30
%

© Fonterra Co-operative Group Ltd.
Page 6
1,500
2,500
3,500
4,500
5,500
AugSepOctNovDecJanFebMarAprMayJunJulAugSepOct
2,000
4,000
6,000
AugSepOctNovDecJanFebMarAprMayJunJulAugSepOct
Products informing the milk priceOther key products
Note: All prices in US dollars per MT; Changes shown for FY17 and Q1 FY18 respectively
Source: GDT data
Dairy prices at higher levels
Currently neutral outlook for stream returns
Butter
Cheddar
Rennet Casein
+109%
Whole Milk Powder
+38%
-4%
-0.2%
2,000
3,000
4,000
5,000
6,000
AugSepOctNovDecJanFebMarAprMayJunJulAugSepOct
4,000
6,000
8,000
10,000
12,000
AugSepOctNovDecJanFebMarAprMayJunJulAugSepOct
+3%
+42%+4%
-8%

© Fonterra Co-operative Group Ltd.
Page 7
Continued focus on more volume to higher value
Note: Wheel shows percentage of total YTD external sales (LME)
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
Buildandgrow
beyond our current
consumerpositions
3
2
4
5
6
7
DIRA
GDT
Advanced
Ingredients
Foodservice
Consumer
YTD
3.9b
LME
•Ingredients
–Lower sales due to low
opening inventory and
production phased to the end
of the firstquarter
–Advanced Ingredients target of
additional 400m LME remains
•Consumer & Foodservice
–Slightly below first quarter
lastyear
–Growth in Greater China and
Asia volumes
–Full year target of an additional
400m LME remains
Base
Ingredients

© Fonterra Co-operative Group Ltd.
Page 8
FY18 Q1 performance summary
1.2017 comparative impacted by one off sale of inventory below cost –gross margin excluding this input was 4%.
Note: Volume is in billion LME. All changes are expressed relative to the first quarter of FY17
$142M3.9B$4.0B
CAPEX
Consumer & Foodservice
Volume (LME)1.3B
Gross Margin24.0%
Ingredients
Volume (LME)3.6B
Gross Margin8.1%
VOLUME (LME)REVENUE
20% 4% 22%
16.7%
GROSS MARGIN
$636M
OPEX
2% FROM21.9%
FROM12.1%FROM31.2%
DOW N19%DOW N3%
China Farms
Volume (LME)0.1B
Gross Margin¹7.3%
FROM-11.6%
UP6%

© Fonterra Co-operative Group Ltd.
Page 9
4.5
3.6
Q1 FY17Q1 FY18
•Sales volumes lower due to low product levels
–Record low opening inventory
–Delayed product availability due to lower milk
collection volumes early in the quarter
Value
•Lower margin percentage due to higher
commodityprices
•Margins in line with second half of last year
–Lower regulated return due to a decrease in the milk
price model cost of capital
–Pressure from fixed costs given lower volumes
•Slow start to price achievement
•Strong performance from Australia
Volume (B LME)¹
Volume
Gross Margin (%)
1.Includes sales to other strategic platforms.
Note: Volume is in billion LME. All changes are expressed relative to the first quarter of FY17
Ingredients
Challenging first quarter
(19%)
12.1%
8.1%
Q1 FY17Q1 FY18

© Fonterra Co-operative Group Ltd.
Page 10
1.3 1.3
Q1 FY17Q1 FY18
•Slight decline for the period with higher prices affecting
consumer behaviour
•Greater China and Asia volumes both up
•Full year target of moving an additional 400m LME into
higher value products remains
Value
•Higher input costs continue to put pressure on margins
•Gross margin percentage up on Q4 FY17 but down on
Q1 FY17
Volume (B LME)¹
Volume
Gross Margin (%)
1.Includes sales to other strategic platforms; Q1 FY17 included sales from discontinued / transferred business in Oceania –on a like for like basis, Consumer and Foodservice volumes
declined 2%
Note: Volume is in billion LME. All changes are expressed relative to the first quarter of FY17
Consumer & Foodservice
Solid first quarter
(3%)
31.2%
24.0%
Q1 FY17Q1 FY18

© Fonterra Co-operative Group Ltd.
Page 11
Asia
OceaniaLatin America
1.Q1 FY17 included sales from discontinued/transferred business in Oceania –on a like-for-like basis, Oceania volumes declined 8%.
Note: All volumes include intercompany sales. Volume is in million LME. All changes are expressed relative to the first quarter of FY17
Consumer and Foodservice
Continued growth in Greater China and Asia
271
273
Q1 FY17Q1 FY18
184
181
Q1 FY17Q1 FY18
469
412
Q1 FY17Q1 FY18
414427
Q1 FY17Q1 FY18
Volume¹Volume
(12%)(1%)
VolumeVolume
3%1%
23%
Gross Margin
FROM33%
18%
Gross Margin
FROM24%
29%
Gross Margin
FROM39%
29%
Gross Margin
FROM33%
Greater China

© Fonterra Co-operative Group Ltd.
Page 12
Australian growth plans to meet strong
global demand
-12
-8
-4
0
4
8
12
16
11.522.533.5
•Fonterra Australia has reached full milk
processing capacity at 2 billion litres
•Invest initial $100m immediately to de-
bottleneck plants in Australia
•Unlock 500 million litres of milk
processingcapacity
•Evaluating opportunity to introduce targeted
co-op solution for Australian farmers
•Strongly aligned with our integrated
cheese/whey/nutritionals milk pool strategy
Growing volume and value in AustraliaOur growth plans
ROC (%)
Milk pool
(billion litres)
Today
Future
FY15

© Fonterra Co-operative Group Ltd.
Page 13
Page 13
Confidential to Fonterra Co-operative Group
Outlook

© Fonterra Co-operative Group Ltd.
Page 14
Outlook for balance of 2018
•Forecast Farmgate Milk Price of $6.40 perkgMS
–Global demand remains stable
–Increased global supply placing pressure on prices, as reflected in GDT events
sinceSeptember
–NZD weakening against USD, has provided some offset
–Full year NZ milk collection forecast same as last year, 3% below initial forecast
•Reduced forecast earnings from 45-55 cents to 35-45 cents per share
–Following the outcome of the WPC80 arbitration with Danone
–Half year earnings expected to be down on last year with earnings weighted towards
the second half of the year
–Stream returns to remain neutral
–Expect some strengthening in Consumer and Foodservice margins later in the year

© Fonterra Co-operative Group Ltd.
Page 15
Glossary
AMF
Anhydrous Milk Fat
BMP
Butter Milk Powder
Base Price
Prices used by Fonterra’s sales team as referenced
against GDT prices and other relevant benchmarks
DIRA
Dairy Industry Restructuring Act 2001 (New Zealand)
GDT
GlobalDairyTrade, the online provider of the twice
monthly global auctions of dairy ingredients
Gearing Ratio
Economic net interest bearing debt divided by
economic net interest bearing debt plus equity
excluding cash-flow hedge reserves
Farmgate Milk Price
The price for milk supplied in New Zealand to
Fonterra by farmer shareholders
Fluid and Fresh Dairy
The Fonterra grouping of skim milk, whole milk and
cream –pasteurisedor UHT processed, concentrated
milk products andyoghurt
kgMS
Kilogram of milk solids, the measure of the amount of
fat and protein in the milk supplied to Fonterra
LME (Liquid Milk Equivalent)
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
Non-Reference Products
All dairy products, except for Reference, produced by
the NZ Ingredients business
Price Achievement
Revenue achieved over the base price less
incremental supply chain costs above those set out in
the Milk Price model
Reference Products
The dairy products used in the calculation of the
Farmgate Milk Price, which are currently WMP, SMP,
BMP, butter and AMF
Regulated Return
The earnings component of Milk Price generated from
a WACC return on an assumed asset base
Season
New Zealand: A period of 12 months to 31 May in
eachyear
Australia: A period of 12 months to 30 June in
eachyear
SMP
Skim Milk Powder
Stream Returns
The gross margin differential between Non-Reference
Product streams and the WMP stream (based on
base prices)
WACC
Weighted Average Cost of Capital
WMP
Whole Milk Powder
Acronyms and Definitions

© Fonterra Co-operative Group Ltd.
Page 16
Glossary
Ingredients
The Ingredients platform comprises bulk and specialty dairy products such as milk powders, dairy fats, cheese and proteins manufactured in New Zealand, Australia,
Europe and Latin America, or sourced through our global network, and sold to food producers and distributors in over 140 countries. It also includes Fonterra Farm
Source™ retail stores.
Consumer
The Consumer platform comprises branded consumer products, such as powders, yoghurts, milk, butter, and cheese. Base productsare sourced from the ingredients
business and manufactured into higher-value consumer dairy products.
Foodservice
The Foodservice platform comprises a range of branded products and solutions for commercial kitchens, including bakery butter, culinary creams, and cheeses.
China Farms
The China Farms platform comprises the farming operations in China, which produce high quality fresh milk for the Chinese market.
Fonterra Strategic Platforms