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John Wilson - Chairman
© Fonterra Co-operative Group Ltd. ‹#›
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Key highlightsKey highlightsFORECAST CASH PAYOUT VOLUME: MILK COLLECTIONS
$6.12 6%Forecast Farmgate Milk Price lifted to $5.80 kgMS. The full year dividend forecast remains at 32 cps
Record milk collections in the first half. Major North Island drought is having significant impact on second half volumes
VALUE: EARNINGS PER SHARE INTERIM DIVIDEND
29cpsN t P fit Aft T 33% t $459
16cpsI t i di id d t 50% f f tNet Profit After Tax up 33% to $459m Interim dividend represents 50% of our forecast dividend and the maximum available under the 40-50% range in our dividend policy
© Fonterra Co-operative Group Ltd. 3
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Forecast cash payoutForecast cash payout
0.307.90
(1)0.27 0.32 0.32
6.37 6.40 6.12
Dividend (1)
6.107.60
6.08 5.80
Farmgate Milk Price(2)
2010 2011 2012 2013 F
© Fonterra Co-operative Group Ltd. 4
(1) Cents per share (2) $ per kgMS.
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Tough conditions for farmersTough conditions for farmers
JANUARYSoil Moisture Anomaly (mm)
FEBRUARYSoil Moisture Anomaly (mm)
MARCH (MTD)Soil Moisture Anomaly (mm)
HISTORICAL AVERAGESoil Moisture Deficit (mm)
© Fonterra Co-operative Group Ltd. 5
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Dry conditions impacting volumesDry conditions impacting volumesFonterra’s Milk Supply Curve
80
902010/112011/12
50
60
70
itres
/day
) 2011/122012/13
30
40
50
ume
(000
li
0
10
20Vol
0Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
© Fonterra Co-operative Group Ltd. 6
Note: Volumes represent a six day moving average of daily production
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Faster cash payments to farmers for milkFaster cash payments to farmers for milk
• Backed by our strong balance sheet and operating cash flows, we were able to increase the advance rate paid to farmers for their milk
• The faster advance rate together with higher forecast milk price means onThe faster advance rate together with higher forecast milk price means on average farmer shareholders will receive around $100,000* earlier in the season
• Means we are getting cash to farmers faster, as they begin to dry off their herds for the winter earlier because of the drought
© Fonterra Co-operative Group Ltd. 7
* As at June 2013, compared to opening advance rate schedules
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Major initiatives benefitting our farmersMajor initiatives benefitting our farmers
1. A bonus issue of one for 40 – 24 April 2013
2. A further Supply Offer enabling shareholders to sell economic rights of some of their shares May 2013of their shares - May 2013
3. A Dividend Reinvestment Plan enabling shareholders and unit holders to gelect to receive dividends in the form of shares or units - later this year
4 Flexible contracts to give new and growing farmers more time and options to4. Flexible contracts to give new and growing farmers more time and options to fully back their milk production with Fonterra shares
5. New opportunities for winter milk supply contracts in the upper North Island to fuel Fonterra’s new UHT plant at Waitoa
© Fonterra Co-operative Group Ltd. 8
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Theo Spierings
© Fonterra Co-operative Group Ltd.
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Strong first halfStrong first half
Volume SALES VOLUME GROWTH:Volume• Good first half volume growth
• NZ Milk Products up 9% driven by record milk collections 8%• Higher sales growth in Asia/AME & Latam• ANZ volumes impacted by Norco divestment & less private label Total sales volume growth of
8% to 2.1m MT
Value NORMALISED EBIT:
$693m•NZ Milk Products up 65%• Favourable product mix due to relatively higher cheese and
casein prices• Improved price premiums
$693mUp 26% on the prior periodImproved price premiums
• Asia/AME up 27%• Sustained growth in foodservice and consumer brands
• Soprole up 40%Hi h l d i i Chil
p p p
© Fonterra Co-operative Group Ltd. 10
• Higher consumer sales and margins in Chile
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Segment performanceSegment performance
Volume (MT)
Value(Normalised EBIT $m)
NZ Milk Products (NZMP) 255
422
1,349
1,474
Consumer
H1 2013 H1 2012
271
1,349
844Consumer businesses (combined) 297
271
826
844
© Fonterra Co-operative Group Ltd. 11
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NZMP highlightsNZMP highlightsNormalised EBIT ($m) Volume( )
Volume 422
• 9% increase to 1.5 million MT
Growth
9%255
Value• Normalised EBIT margin up 2.8pp to 6.2%
• Key drivers of value:Value
Growth
65%
y
– effective management of our product mix
higher price premiums compared to
H1 2012 H1 2013
– higher price premiums compared to dairy commodity prices
• Operating costs lower on a per unit basis, despite higher activity levelsdespite higher activity levels
© Fonterra Co-operative Group Ltd. 12
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NZMP – Key Performance DriversNZMP Key Performance Drivers
422
31 1425 10
255
87 31 14
$MN
Z$
H1 2012 Product Mix Price Quality & Global Other H1 2013H1 2012 Product Mix Price Premiums
Quality & Productivity
Improvements
Global Sourcing
Other H1 2013
© Fonterra Co-operative Group Ltd. 13
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ANZ highlightsANZ highlightsVolumeNormalised EBIT ($m)• 1% higher after adjusting for sale of
Norco distribution business
Value• Normalised EBIT margin down 1.5pp to
4 9%
Volume Growth1
1%
145
98 4.9%• NZ consumer brands earnings slightly up• Australian consumer brands impacted by
i d t d d t i t i h
ValueGrowth
increased trade spend to maintain share• Australian milk processing business
impacted by intensifying competition for ilk l
-32%
H1 2012 H1 2013milk supply
© Fonterra Co-operative Group Ltd. 14
1 Volume growth after adjusting for the sale of the Norco business
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ANZ – key performance driversANZ key performance drivers
145 (33)
(12)
M
0 1 (6)3 98 (24)N
Z$M
74
Normalised Australian Milk Brands Brands New Tip Top RD1 Group Other Normalised Cororooke Reported EBITNormalised EBIT H1 2012
Australian Milk Processing
Brands Australia
Brands New Zealand
Tip Top RD1 Group Other Normalised EBIT H1 2013
Cororooke Closure
Reported EBIT H1 2013
© Fonterra Co-operative Group Ltd. 15
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Turnaround of ANZ underwayTurnaround of ANZ underway
RE-SHAPE
Current Future State
RE-ORGANISE
From Scattered Reso rcesCurrent Future State
Consumer • Number of brands
• A&P spread across brands
• Majority of A&P on fewer brands
• Everyday Nutrition key
ANZ
From: Scattered Resources
brands • Everyday Nutrition key priority
• New innovations
Milk • Under utilised assets • Higher utilisation of value
Ingredients Brands AU Brands NZ Subsidiaries
Milk Processing
• Under-utilised assets
• Competitive milk pool
• Higher utilisation of value add plants at the expense of commodity exports
Foodservice • Strong footprint in • Fast expansion of
APMEA
To: Focused Regional Operations
Foodservice • Strong footprint in Australia
• Fast expansion of foodservice operations
• Continued investment in network of chefs
Australia NZ ASEANASEAN MENAMENA
© Fonterra Co-operative Group Ltd. 16
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Asia/AME highlightsAsia/AME highlightsVolumeNormalised EBIT ($m)• 13% increase to 186K MT
100 Value• Normalised EBIT margin up 1.8pp to
9.5%
Volume Growth
13%79
100
• Foodservice performing strongly across all key marketsM l i i d d bl di it l
Value Growth
27% • Malaysia experienced double digit value growth
• Philippines impacted by flooding and
27%
H1 2012 H1 2013
increased competition• Growth markets like China, Middle East
& Vietnam ahead of plan
© Fonterra Co-operative Group Ltd. 17
& Vietnam ahead of plan
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Latam highlightsLatam highlights VolumeNormalised EBIT ($m) • 11% growth in volume to 187K MT
Value67 V l Value• Normalised EBIT margin down 0.7pp to 12%
• Soprole performed strongly with normalisedEBIT f $53 40%
64 67 Volume Growth
11%EBIT of $53m, up 40%
– Product innovation with successful launch of new desserts and yoghurts
ValueGrowth
5% – Growth in both flavoured and white milk
• DPA normalised EBIT of $13 million was 46% lower
H1 2012 H1 2013
5%
– Prior year impairment charge of $8m
– Negative impact from lower volumes in Venezuela
© Fonterra Co-operative Group Ltd. 18
Venezuela
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Jonathan Mason
© Fonterra Co-operative Group Ltd. ‹#›
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Improved Gearing and Working CapitalImproved Gearing and Working Capital
Half Year Gearing1 Working Capital Days2Half Year Gearing
60%54%
Working Capital Days2
54%49% 47%
40%103
104
97
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
H1 2009 H12010 H12011 H12012 H12013 H12011 H12012 H12011
© Fonterra Co-operative Group Ltd. 20
g g g y ( g g gbalance date)
2. Excluding suppliers payable
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Interim dividend declaredInterim dividend declared
• Board declared dividend of 16 cps 16
• Represents 50%of forecast dividend for the current financial year
8
12
• Maximum available under 40-50% range in our dividend policy
8
p y
• Reflects expectation that earnings will be weighted more to the first half of the year H1 2011 H1 2012 H1 2013weighted more to the first half of the year H1 2011 H1 2012 H1 2013
© Fonterra Co-operative Group Ltd. 21
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Supply OfferSupply Offer
•Supply Offer in May 2013
•Maximum of $475m, being the net proceeds of the original seeding of the Fonterra Shareholders’ Fund
•Sell price will be based on an average of the Unit price over a 10 day period
•Limit of 25 per cent of Wet Shares
•More to come in late April with the Supply Offer•More to come in late April with the Supply Offer Booklet
© Fonterra Co-operative Group Ltd. 22
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Theo Spierings
© Fonterra Co-operative Group Ltd.
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Strategy: Blueprint for growthStrategy: Blueprint for growthSTRATEGIC PATHS PROGRESS
MARGINPOTENTIAL
Inc
• New plant investments and Studholme acquisition• Strong 1st half for price premiums, quality and productivity• New group optimisation function driving better decision making
Optimise NZ milk1EVERYDAY NUTRITION
creasing M
• Reshape Australia & New Zealand brands (refer slide 16)• Taskforce developing a prioritised view of markets, products and brands
• ASEAN & China roll-out ahead of plan • Continued focus on product innovation for both pastry and hot kitchen
Deliver on f d i t ti l
Build and grow beyond our current consumer positions
2
3OUT-OF-HOME M
argin
Continued focus on product innovation for both pastry and hot kitchen• $100m UHT plant investment supports expansion
• China, Vietnam Anlene roll-out on track• Greenfields plant in the Netherlands to process whey and lactose into
premium nutrition dairy ingredients
Grow our position in mobility
foodservice potential3
4ADVANCEDNUTRITION premium nutrition dairy ingredients
• Expansion of Anmum in China • New third party manufacturing contracts for paediatrics• Increased through-put from paediatric plant in Australia
Develop selected leading position in paediatrics & maternal
5
• Signed agreements to complete our first farming hub in China• China farms on track to produce 69,000 MT of milk by end of 2013
Selectivelyinvest in milk pools
Alignment of b siness and organisation
6
7
ENABLERS
• Rightsizing of Europe and US operations complete• Restructure ANZ, ASEAN & MENA
© Fonterra Co-operative Group Ltd. 24
business and organisation7 ,• Support review underway
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Everyday NutritionEveryday Nutrition
• B2B: Optimise NZ Milk• B2B: Optimise NZ Milk • Enhance asset footprint (Darfield, Studholme,
Waitoa UHT)
• New group optimisation function driving better decision making
• Strong first half for price achievement and cost to serve
• Quality and productivity programmes delivering ahead of plan
• B2C: Build and grow beyond our current consumer positions
• Everyday Nutrition Taskforce developing aEveryday Nutrition Taskforce developing a prioritised view across products and brand
• Reshape Australia & New Zealand brands
Focused growth ASEAN/MENA
© Fonterra Co-operative Group Ltd. 25
• Focused growth ASEAN/MENA
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Out-of-homeOu o o e
• First half volume growth of 11.5%• EBIT from ASEAN & China foodservice
roll-out well ahead of planroll-out well ahead of plan• Expanding to 2nd and 3rd tier cities in
China
• Investing in network of chefs and front-line sales staffContinued focus on differentiated• Continued focus on differentiated, functional, product innovation for both pastry and hot kitchens
• $100m investment in Waitoa UHT plant will help support Foodservice expansion
© Fonterra Co-operative Group Ltd. 26
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Advanced Nutritiond a ced ut t o• Growing our position in mobilityg p y
• China Anlene rollout on track• Vietnam rollout ahead of plan
• Develop leading position in paediatrics and maternal
• Expansion of Anmum in Chinap• New third party manufacturing contracts for
paediatrics• Increased through-put from paediatrics plant• Increased through-put from paediatrics plant
in Australia• Greenfields plant in the Netherlands to process
h d l t i t i t iti d iwhey and lactose into premium nutrition dairy ingredients
© Fonterra Co-operative Group Ltd. 27
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Aligning resources with strategic priorities
• Review of support services underwayOptimise
1
Aligning resources with strategic priorities
• Major re-organisation of our Asia/AME and ANZ operations
pNZ milk
Build and growbeyond our current consumer positions
2
• Tracking ahead of $60m operating cost savings target
consumer positions
Deliver on foodservice potential
3
Significant investment
• Improved alignment of operating costs with strategic priorities (refer graph below)Grow our position in
mobility
4
5Critical
required to deliver
1,116
21 6 1,143
21 1,164Develop selected leading positions in paeds & maternal
Selectively
6
Critical enabler
MSelectivelyinvest in milk pools
Alignment of business and
i ti
7
NZ$
M
© Fonterra Co-operative Group Ltd. 28
H1 2012 Total Opex
China Growth (A+P and staff
costs)
Other Normalised H1 2013 Opex
Cororooke closure costs
H1 2013 Total Opex
organisation
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OutlookOutlook • Making good progress on strategy execution and positioning the business for long-
term growth• Strong first half earnings are unlikely to be repeated in the second half • For the full year we expect to see total milk volumes for the season to be in line with• For the full year we expect to see total milk volumes for the season to be in line with
last season• The ongoing volatility in dairy commodity markets could have a negative impact on
d t i fit bilitproduct mix profitability • In many of our consumer markets, we are expecting intensified competition in the
second half – particularly in Australia – and in Asia we are seeing signs of demand slowing
• Based on our best judgement the current expectation for the full year Milk Price is $5.80 kgMS and an earnings per share range of 45 to 50 cps$5.80 kgMS and an earnings per share range of 45 to 50 cps
• The dividend per share forecast of 32 cps remains unchanged
© Fonterra Co-operative Group Ltd. 29
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Supplementary Information
© Fonterra Co-operative Group Ltd.
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Interim results summaryInterim results summary
NZD million 6 months to 31 January 2013
6 months to 31 January 2012 Change
T t l S l V l ( illi MT) 2 1 1 9 8%Total Sales Volume (million MT) 2.1 1.9 8%
Revenue 9,334 10,026 (7%)
Normalised EBIT 693 552 26%
Net Profit After Tax 459 346 33%
Earnings per share (cents) 29 24 21%
Dividends per share (cents) 16 12 33%
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Normalised EBITNormalised EBIT
6 months to 31 January 2013
6 months to 31 January 2012
Reported EBIT 669 530Costs associated with the planned closure of the Cororooke site 24
Impairment losses recorded in equityImpairment losses recorded in equity accounted investees 20
Other items 2
N li d EBIT 693 2Normalised EBIT 693 552
Fonterra refers to Normalised Earnings/Normalised EBIT, EBIT, constant currency variances, Normalisation Adjustments and payout when discussingfinancial performance These are non-GAAP financial measures and are not prepared in accordance with IFRS Management believes that these measuresfinancial performance. These are non-GAAP financial measures and are not prepared in accordance with IFRS. Management believes that these measuresprovide useful information as they provide valuable insight on the underlying performance of the business. They are used internally to evaluate theunderlying performance of business units and to analyse trends. These measures are not uniformly defined or utilised by all companies. Accordingly, thesemeasures may not be comparable with similarly titled measures used by other companies. Non-GAAP financial measures should not be viewed in isolationnor considered as a substitute for measures reported in accordance with IFRS.
© Fonterra Co-operative Group Ltd. 32
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WMP and cheese pricesWMP and cheese pricesWeighted Average USD GDT Cheese Prices vs WMP Prices
5,000
5,500
4,000
4,500
3,000
3,500
2,500
Cheese WMP
© Fonterra Co-operative Group Ltd. 33
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NZMP contribution marginNZMP contribution margin
$million H1 2013 H2 2012Sales Volume (000MT) 1,474 1,349Gross Margin 797 617Selling, marketing and distribution expenses (137) (126)Contribution margin 660 491Contribution margin 660 491Contribution margin per MT ($) 448 364Growth 23%
Contribution margin growth of 23% reflects the improvement in:Contribution margin growth of 23% reflects the improvement in: • The operational performance of the business and • The benefit of product price relativities
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Balance sheet strengthBalance sheet strengthStrong Fundamentals Diversified Funding
CreditRating
S&P A+ (stable outlook)
Fitch AA-(stable outlook)
Offshore DCM 38% Bank Facilities
43%( )
WeightedAverage Term to Maturity
As at 31 January 2013 3.69 years
NZ DCM
2 500
3,000 Debt Maturity Profile (Year Ending January)
NZ DCM 19%
Strong LiquidityDrawn Facilities
1,500
2,000
2,500
D m
illio
ns Bank Facilities
Debt Capital Markets
Drawn Facilities $705m
20%
0
500
1,000NZD
Undrawn Facilities $2,800m
80%
© Fonterra Co-operative Group Ltd. 35