Forecast Farmgate Milk Price Increase and Earnings Revision

23 May 2018

FONTERRA INCREASES FARMGATE MILK PRICE AND REVISES FORECAST EARNINGS

Fonterra Co-operative Group today increased its 2017/18 forecast Farmgate Milk Price by 20 cents
to $6.75 per kgMS.
Chairman John Wilson says the Co-operative’s strong milk price reflects a global supply and
demand picture that continues to be positive for farmers.
“Global dairy prices have risen since the start of the season. The price of Whole Milk Powder is
particularly strong due to continued growth in demand from China and across Asia,” says Mr
Wilson.
“Our Co-operative’s forecast milk collections here in New Zealand have increased to 1,500 million
kgMS, up from the 1,480 million kgMS we reported at half year, thanks to improved farming
conditions in March and April after a challenging spring and summer.
Commenting on what the higher forecast Farmgate Milk Price means for the business, Mr Wilson
says the higher milk price is good news for farmers who are still recovering after the two years of
lower milk prices in 2015 and 2016. However, the higher milk price puts pressure on Fonterra’s
earnings in a year which is already proving challenging due to the payment to Danone and the
impairment of the Co-operative’s Beingmate investment.
“As a result, we are revising our forecast normalised earnings per share guidance range down to
25-30 cents per share and our forecast dividend range for the full year down to 15-20 cents per
share.”
“The business’ revised earnings forecast is disappointing for our shareholders and unitholders.
However, the total forecast cash payout for farmers increases to $6.90-$6.95 per kgMS which is the
third highest payout this decade.”
Chief Executive Theo Spierings says the earnings challenge that comes with the higher milk price is
compounded by the timing and significance of this particular increase.
“There is always a natural lag in being able to pass through an increase in our input costs. But this
increase has been both rapid and late in the year, making it difficult for these higher costs to flow
through into our sales for this financial year.

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

“Against this backdrop, we can see our sales margins are not where they need to be at this point in
the year to achieve our original earnings forecast”.
Third Quarter Business Update
Fonterra’s revenue of $14.8 billion for the first nine months of 2017/18 is up seven per cent on the
same period last year, as a result of higher prices.
“In the first half of the year we felt the impact of the record low inventory followed by the low spring
milk collections in New Zealand due to difficult weather conditions. This meant our sales teams had
less product to sell. We were expecting our earnings to be weighted in the second half of the year
and this has not transpired due to the rapid rise in our input costs late in the season into our value-
add business.”
With total volumes down five per cent to 16 billion LMEs and gross margin down to 16 per cent from
18 per cent for the first nine months of the year, compared to the same period last year, Mr
Spierings says the business has not delivered the third quarter results it had planned.
“With the increase in the price of milk fats we have also seen continued demand towards products
with a lower fat composition, sustained competition in Greater China’s foodservice market and
further constraints in some Asian markets limiting our ability to pass through costs,” says Mr
Spierings.
These challenges, along with the Danone payment and the impairment of our Beingmate
investment mean our gearing ratio is expected to be above our target 40-45 per cent range. We
expect to be back within the target range next year,” continues Mr Spierings.
“While the strong milk price is good for our farmers, it does make the remainder of the year
challenging for the business. We remain committed to maximising the total payout for our farmers
and value for our unitholders by delivering the best possible earnings.”
ENDS

For further information contact:
Dan Wrigley
Fonterra Communications
Phone: +64 21 820 679

24-hour media line
Phone: +64 21 507 072


About Fonterra
We’re a global dairy nutrition company owned by more than 10,000 farmers and their families. We’ve built our
expertise on the legacy of the thousands of farmers who’ve made New Zealand a world leader in dairy. With a
can-do attitude and a collaborative spirit, we’re a world leading dairy exporter. Our 22,000 people share the
goodness of dairy nutrition with the world through our innovative consumer, foodservice and ingredient solutions
brands, and our farming and processing operations across four continents.

---

OUR
PO
T
E
N
TI
A
L
OUR
CO
-
OPERATIVE
OUR
PERFORMANCE
Business Update
MAY 2018

© 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
materiallydifferentfromtheeventsorresultsexpressedorimpliedbysuchstatementsandprojections.Thoserisks,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
likelihoodoffulfilmentofanyforward-lookingstatementorprojectionoranyoutcomesexpressedorimpliedinanyforward-looking
statement or projection. The forward-looking statements and projections in this report reflect views held only at the date of
thispresentation.
Statementsaboutpastperformancearenotnecessarilyindicativeoffutureperformance.
ExceptasrequiredbyapplicablelaworanyapplicableListingRules,theRelevantPersonsdisclaimanyobligationorundertakingto
update any information in thispresentation.
Thispresentationdoesnotconstituteinvestmentadvice,oraninducement,recommendationoroffertobuy orsellany securitiesin
Fonterra or the Fonterra Shareholders’Fund.

© Fonterra Co-operative Group Ltd.
Page 3
Higher forecast pay-out for farmers
4.726.107.606.085.848.404.403.906.126.757.00
0.48
0.27
0.30
0.32
0.32
0.10
0.25
0.40
Range
0.15
to
0.20
5.20
6.37
7.90
6.40
6.16
8.50
4.65
4.30
6.52
2009201020112012201320142015201620172018
forecast
2019
forecast
Farmgate Milk PriceDividend
Improved Farmgate Milk Price, lower forecast dividend range
1.For farm budgeting purposes a target full year dividend range of 15-20 cents per share is assumed. The dividend will be calculated in accordance with Fonterra
policy of paying out 65-75 per cent of adjusted net profit after tax over time. 2. The forecast earnings range for FY2019 will be provided at a later date.
Note: Farmgate Milk Price: $ per kgMS; Dividend: $ per share
Indicative
payoutfor
budgeting¹
6.90-6.95
0.40
2

© Fonterra Co-operative Group Ltd.
Page 4
10
20
30
40
50
60
70
80
90
100
JunJulAugSepOctNovDecJanFebMarAprMay
Volume (m litres/day)
Strong late season collections
But lower overall volumes this season
SeasonTotal Milk Solids (kgMS)Peak Day Milk
—2015/161,566m (down 3%)87m litres
—2016/171,526m (down 3%)80m litres
—2017/18F1,500m (down 2%)82mlitres
•Season forecast increased
to 1,500 million kgMS,
from 1,480 million kgMS
•Driven by favourable late
season conditions
•Full season forecast down
2% on last year due to
difficult weather conditions
impacting pasturegrowth

© Fonterra Co-operative Group Ltd.
Page 5
Strong dairy demand continues
Note: All 12 month figures are rolling 12-months compared to previous comparable period: Australia (Mar), EU (Mar), United States (Feb), China (Mar), Asia
(Jan), Middle East & Africa (Jan), Latin America (Jan)
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
Fonterra in NZ
12 months
production
Last 3 months
(Feb, Mar, Apr)
-2
%
-2
%
Asia (excl China)
12 months
imports
0
%
Middle East & Africa
12 months
imports
-2
%
EU
12 months
production
Last 3 months
(Jan, Feb, March)
+3
%
Latin America
12 months
imports
-1
%
China
12 months
imports
Last 3 months
(Jan, Feb, March)
+17
%
+15
%
+3
%
+2
%

© Fonterra Co-operative Group Ltd.
Page 6
2,000
4,000
6,000
8,000
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
Jun
Jul
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
Note: All prices in US dollars per MT. 9M refers to the nine-month period ended 30 April.
Source: GDT data
Strength in commodity prices supports a higher milk price
Continued margin pressure from higher prices, particularly for fat products
2,000
3,000
4,000
5,000
6,000
AugSep
Oct
NovDec
Jan
FebMar
Apr
May
Jun
Jul
AugSep
Oct
NovDec
Jan
FebMar
Apr
May
Anhydrous Milk Fat
Whole Milk Powder
9M 2017
Avg price $3,026
9M 2018
Avg price $3,067
9M 2017
Avg price $5,261
9M 2018
Avg price $6,468
Skim Milk Powder
1,000
2,000
3,000
4,000
5,000
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
Jun
Jul
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
9M 2017
Avg price $2,322
9M 2018
Avg price $1,885
2,000
4,000
6,000
8,000
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
Jun
Jul
AugSep
Oct
NovDec
Jan
Feb
Mar
Apr
May
Butter
9M 2017
Avg price $4,203
9M 2018
Avg price $5,359

© Fonterra Co-operative Group Ltd.
Page 7
Continued focus on Volume to higher Value
Growth in Q3 but revised full year target for additional LME
Deliver
onFoodservicepotential
Selectivelyinvest
in milkpools
Grow
ourAnlene™business
Develop
leadingpositionsin
paed& maternalnutrition
Optimise
NZmilk
1
Align
our business andorganisation
Build andgrow
beyond our current
consumerpositions
3
2
4
5
6
7
•Volumes down 5% to 16.0b
LME comparable year-to-date
•Ingredients
–Lower collections and
opening inventory resulted
in 5% lower sales volumes
comparable year-to-date
•Consumer & Foodservice
–Volume growth in three
regions, but overall below
expectations
–Full year target of
additional LME revised to
130M LME
DIRA
Consumer
Foodservice
YTD
16.0b
LME
GDT
Advanced
Ingredients
Base
Ingredients

© Fonterra Co-operative Group Ltd.
Page 8
$584M16.0B$14.8B
FY18 nine-month performance summary
CAPEX
Consumer & Foodservice
Volume4.0B
Gross Margin24%
China Farms
Volume0.2B
Gross Margin -5%
Ingredients
Volume14.8B
Gross Margin10%
VOLUME (LME)REVENUE
5% 7% 35%
16%
GROSS MARGIN
$1.9B
OPEX
2% FROM18%
1. Full year capex forecast range of $800 -850M 2. This is the volume of milk collections.
Note: Volume is in billion LME; All changes are expressed relative to first nine-months of FY17
FROM28%FROM1%
DOWN 5%
UP4%
Strong commodity prices continue to put pressure on margins
1
2

© Fonterra Co-operative Group Ltd.
Page 9
Ingredients
•Q3 volumes up 9% on last year
•Year-to-date volumes down 5% compared to last year due to:
–Lower opening inventory and collections
–Product mix
Value
•Year-to-date margins in-line with last year
•Strengthening commodity prices tightened margins in Q3 due
to:
–The natural pricing lag inherent in our sales contracts in a
rising milk price environment
–Lower price achievement, in particular, increased
competition from US and Europe in cheese and proteins
Volume
1. Includes sales to other strategic platforms
Note: Volume is in billion LME. All changes are expressed relative to the first nine-months of FY17
Volume (B LME)¹
Gross Margin (%)
10%
10%
9M FY179M FY18
15.9
15.0
9M FY179M FY18
(5%)
Strengthening commodity prices tightened margins in Q3

© Fonterra Co-operative Group Ltd.
Page 10
Consumer & Foodservice
High input costs for fats continue to put pressure on volumes and margins
•Volume growth in three regions (up 3%) but down in Oceania
(8%). Oceania impacted by NZ performance challenges
•Continued growth in Greater China, Q3 volumes up 12% but
lower than anticipated
•Lower volumes from butter products than expected
Value
•Sales growth of 6% year-to-date but continued pressure on
margins from:
–High input prices, especially fat products
–Increased competition in Greater China Foodservice,
including from European imports
•Further constraints on our ability to pass on higher input costs
in some Asian markets
Volume
Volume (B LME)
Gross Margin (%)
28.0%
24.0%
9M FY179M FY18
4.0
4.0
9M FY179M FY18
0%
Note: Volume is in billion LME. All changes are expressed relative to the nine-months of FY17

© Fonterra Co-operative Group Ltd.
Page 11
884
936
9M FY179M FY18
Asia
Greater China
Consumer and Foodservice
Continued growth in Greater China, Asia and LATAM
546
555
9M FY179M FY18
1,318
9M FY179M FY18
1,284
9M FY179M FY18
Oceania
Volume
Latin America
Volume
(8%)
2%
VolumeVolume
2%
6%
24%
Gross Margin
FROM29%
20%
Gross Margin
FROM24%
22%
Gross Margin
FROM32%
29%
Gross Margin
FROM31%
1,306
1,219
Note: Volume is in million LME. All changes are expressed relative to the nine-months of FY17

© Fonterra Co-operative Group Ltd.
Page 12
Progress but challenges continue
•CEO appointment progressing
•Q1 result announced:
–A small profit, including a one-off government
grant
–Lower sales, partly due to market-wide
clearing of unregistered products as new
regulations apply
Beingmateupdate
1
Strategic rationale continues
•Infant formula market growth
•Regulatory opportunity
•Brand equity
2
Way forward
•Appointment of new CEO
•Implement business transformation
•Continue utilising existing governance
structure

© Fonterra Co-operative Group Ltd.
Page 13
•Strong cash flow and liquidity
•Full year capex forecast range of $800 -850M
•Year-end gearing likely to be above 40-45%
target range
–due to abnormal items announced at interim
and the lower earnings
–returning within range next year
•Working capital days are up 9 days on last year
due to higher commodity prices, reflected in
higher inventory and receivables
•Year-end inventory volume expected to be in-line
with last year
Solid credit rating reflects strong fundamentalsFinancial discipline continued
Financial strength and discipline
Credit Rating
Fitch
A
(stable outlook)
S&P
A-
(stable outlook)
Debt WeightedAverage
Term to Maturity
As at
30Apr 2018
3.8 years
Workingcapital days–9 month average
109
99
103
89
80
78
87
30 April
2012
30 April
2013
30 April
2014
30 April
2015
30 April
2016
30 April
2017
30 April
2018

© Fonterra Co-operative Group Ltd.
Page 14
Summary and outlook for balance of 2018
Farmgate Milk Price to rise to $6.75 per kgMS
•Strong dairy demand continues
Operating performance impacted by higher commodity prices
•Ingredients’ lower margins in the third quarter are expected to continue due to pricing lags
and lower price achievement
•Consumer and Foodservice’ additional LME target revised down and gross margin forecast to
remain at current levels
•Balance sheet and cash flows remain strong
Forecast cash payoutrange of $6.90-$6.95
•Forecast normalised earnings range of 25-30 cents per share
•Forecast full year dividend range of 15-20 cents per share

© 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 –pasteurised or 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
Fonterra Strategic Platforms
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 distributorsin 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.