FSF Annual Meeting presentation 12 November 2018

FONTERRA
SHAREHOLDERS’
FUND
ANNUAL MEETING
12 NOVEMBER 2018

JOHN SHEWAN
Chairman
FSF Management Company

2
AGENDA
Welcome and introductionJohn Shewan
FSFManagement Company Chairman’s addressJohn Shewan
Fonterra Chairman’s and CEO’s address John Monaghan/
Miles Hurrell
Questions
Resolution to re-elect John Shewan Pip Dunphy
Address by John Shewan
General business John Shewan

3
2018 -A VERY POOR YEAR
•Unacceptable performance
•Significant decline in unit price
•Dividend reduced to 10 cents per unit
•What caused this outcome?
•What is being done about it?
•What is the role of the board of the Manager of FSF?

4
Price
UNIT PRICE DECLINE REFLECTS
EARNINGS DROP
4.00
4.50
5.00
5.50
6.00
6.50
7.00
Aug 17Oct 17Dec 17Feb 18Apr 18Jun 18Aug 18Oct 18
H1
Q3

5
THE PERFORMANCE IN 2018 HAS RE-
ENERGISED TWO KEY QUESTIONS
•Is the Farmgate Milk Price setting mechanism fair to unit holders?
The Farmgate Milk Price is calculated in accordance with the Milk
Price Manual. Both the Farmgate Milk Price and underlying
methodology are subject to regulatory oversight.
•Is the Fonterra Shareholders’ Fund model achieving its objectives
and is it sustainable?
The model has achieved the objectives of eliminating redemption risk
and providing investors with the opportunity to invest in dairy. Farmer
shareholders and unit holders’ interests are aligned in requiring an
acceptable return on their invested capital.

6
KEY FUND STATISTICS
Units on Issue¹:101 million
Fund Market Capitalisation¹:$493 million
Fonterra Market Capitalisation¹:$7.4 billion
Fund Size¹:6.3% of Fonterra shares on issue
12-month High/Low²:$6.66 (11 Jan 18) / $4.50 (10 Oct 18)
1.At 6 November 2018.
2.28 September 2017 –6 November 2018.

7
72%
18%
7%
3%
•Reduction in institution holdings picked up by retail investors
•The geographic split is largely unchanged with New Zealand dominating the register
52%
25%
14%
8%
1%
Retail
14%
Institution
3%
Other
Holding by country¹
Holding by investor type¹
1
As at 28 September 2018 –comparison 25 August 2017
3%
0.2%
13%
* PWM = Private Wealth Management
PWM*
New Zealand
Australia
0.8%
United States
Other
4%
3%
0.2%
Farmer
Shareholder
UNIT REGISTER ANALYSIS

8
FSFMANAGEMENT COMPANY
DIRECTORS
Independent directors
•John Shewan –retires by rotation, offers himself for re-election
Fonterra directors
•Nicola Shadbolt –retiring from the Fonterra and FSFManagement
Company Boards
•Farmer Director Donna Smit joins the FSFManagement Company
Board

9
OUTLOOK FOR THE FUND FOR 2019
AND BEYOND
•Investors require an appropriate dividend and positive outlook for
Fonterra’s earnings to drive the unit price
•The Fund’s performance is tied inextricably to Fonterra’s
performance
•There are clear challenges but also much to be positive about
•Fonterra’s new Chairman and CEO have recently set out the
roadmap, including what will be done differently
•Today provides unit holders the opportunity to hear directly from
them and to ask questions

JOHN MONAGHAN
Chairman

12
STRONG FARMGATE MILK PRICE
RANGE
4.726.107.606.085.848.404.403.906.126.69
6.25
to
6.50
0.48
0.27
0.30
0.32
0.32
0.10
0.25
0.40
0.40
0.10
5.20
6.37
7.90
6.40
6.16
8.50
4.65
4.30
6.52
6.79
20092010201120122013201420152016201720182019
Forecast
Farmgate Milk PriceDividend
1.Total available for pay-out = Forecast Farmgate Milk Price range of $6.25 -$6.50 + Forecast Earnings Per Share (EPS) of 25-35 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
6.50 –6.85
Forecast total
available for
payout
1

MILES HURRELL
Chief Executive Officer

14
EARNINGS PERFORMANCE
Margin pressure, higher costs and one-offs
GROSSMARGIN¹
$3,152M
3%
REVENUE
$20.4B
6%
VOLUME
22.2BLME
3%
ANNUALDIVIDEND
10CPS
YIELD 1.7%
3
NORMALISEDEBIT
2
$902M
22%
OPEX
1
$2,496M
7%
NET PROFIT AFTERTAX
$(196)M
126%, EPS (14)c
NORMALISED NPAT
2
$382M
51%, EPS¹24c
Ingredients
Volume (LME)
4
20.5B
Gross Margin (%)¹ 9.0%
Normalised EBIT $879M
Return on Capital
6
8.3%
Consumer and Foodservice
Volume (LME)
4
5.6B
Gross Margin (%)¹ 23.6%
Normalised EBIT $525M
Return on Capital
6
8.3%
China Farms
Volume (LME)
5
0.3B
Gross Margin (%)¹ 2.1%
Normalised EBIT $(9)M
75%
1.Reflect normalisation adjustments.
2.Attributable to equity holders.
3.FY18 divided over volume weighted average FCG price of $5.84 across the year.
4.Includes inter-company sales.
5.Prior year volumes include 26m LME of milkpowdersnot included this year.
6.Return on Capital (ROC) includes goodwill, brands and equity accounted investments.
Excluding goodwill, brands and equity accounted investments ROC was 8.2% in Ingredients
and 35.1% in Consumer and Foodservice.

15
VALUE CREATION
Requires improved performance and better use of capital
$861M
CAPEX
1%
83 DAYS
WORKING CAPITAL
8 days
$2,496M
OPEX
2
7%
15.4%
GROSS MARGIN
2
Down from 16.9%
$902M
NORMALISED EBIT
2
22%
6.3%
RETURN ON CAPITAL
Down from 8.3%
$6.2B
NET DEBT
3
Up 11%
Return
Capital
1.Return on Capital (ROC) includes goodwill, brands and equity accounted investments. Excluding goodwill, brands and equity accounted investments ROC
was 8.0% in FY18 and 11.1% in FY17.
2.Reflect normalisation adjustments.
3.Economic net interest-bearing debt.
1,2

16
COMMITTED TO REDUCING DEBT
A strong balance sheet provides options
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.
$6.3B
TOTAL EQUITY
12%
$6.2B
NET DEBT²
Up 11%
4.5X
DEBT/EARNINGS³
Up from 3.5x
48.4%
GEARING¹
Up 4.1%
AA-
CREDIT RATING
FitchS&P
STABLESTABLE

17
MORE VOLUME TO HIGHER VALUE
465 million more LMEs shifted to higher value
Note: Wheel shows category percentage of total FY18 external sales (LME)
1. Additional LME volumes include inter-company sales.
–Total volumes declined 3%
due to lower collections
–More volume into higher
value, up from 42% to 45%
–334m¹ LMEs shifted to
higher-margin Advanced
Ingredients
–Added 131m¹ more LMEs
Combined consumer,
Foodservice and
Advanced Ingredients
2%
20%
33%
22%
11%
12%
DIRA
GDT
Advanced
Ingredients
Foodservice
Consumer
FY18
22.2b
LME
Base
Ingredients
45%

18

19

20

21

22

JOHN MONAGHAN
Chairman

24

25
PORTFOLIO REVIEW PHASES
IMMEDIATE ACTIONS
IN FY18
•Debt reduction focus
1
STRATEGIC REVIEW OF
PORTFOLIO
•Strategic alignment
•Value creation potential
•Agree where to exit /
optimise / invest
2
DELIVERY OF
STRATEGIC REVIEW
ACTIONS
•Exit / optimise and
reallocate capital
•Invest
•Reduce debt / return
capital
3

26

QUESTIONS

FONTERRA
SHAREHOLDERS’
FUND

RESOLUTION 1
That John Shewan, who retires by rotation and, being
eligible, offers himself for re-election, be re-elected as
Director of the Manager of the Fund

JOHN SHEWAN
Director
FSF Management Company

RESOLUTION 1
That John Shewan, who retires by rotation and, being
eligible, offers himself for re-election, be re-elected as
Director of the Manager of the Fund

32
VOTING
•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
areavailable.

FONTERRA
SHAREHOLDERS’
FUND
ANNUAL MEETING
12 NOVEMBER 2018

GENERAL BUSINESS

THANK YOU
MEETING CLOSED.