Devondale Murray Goulburn Quarterly Update March 2016

In this report Welcome to our Quarterly Update March 2016. The following is included in this report:

→ Half year results update

1

→ Global dairy markets

2

→ Milk supply update

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→ New Director

3

→ Capital investments update

4

→ New products/contracts/markets

5

→ MG Trading update

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2016 Financial Calendar August 2016

Results announced for full year ended 30 June 2016

October 2016

Annual General Meeting

Devondale Murray Goulburn Quarterly Update March 2016

Half year results update MG delivers despite tough global dairy market Highlights • Solid revenue growth achieved despite dairy commodity prices trading near record lows. • Shift to ready-to-consume dairy foods continuing, with Dairy Foods sales up 27 percent in the first half. • MG maintains FY16 Available Weighted Average Southern Milk Region Farmgate Milk Price (FMP) (1) of $5.60 per kilogram milk solids (kgms).

On 29 February 2016, MG announced its financial results and trading update for the half year ended 31 December 2015. MG has navigated a difficult trading environment in the first half with the continued decline in Chinese imports of commodity dairy ingredients and the ongoing Russian embargo on dairy. This has been compounded by increased European milk supply, resulting in a period of significant oversupply in global dairy commodity markets, driving commodity prices towards record lows. Against this backdrop, MG has continued to perform well, with substantial further progress made in moving product mix from commodity products towards higher-margin, value-added or ready-to-consume dairy foods. MG’s ability to drive strong revenue growth in tough markets demonstrates that the Company’s growth and value creation strategy is supporting MG’s ability to deliver higher returns, particularly with farmgate milk prices significantly above those achieved when global commodity prices were last at these low levels.

Key financial results for half year ended 30 December 2015: • Revenue of $1.38 billion, up 3.7 percent. • Net Profit after Tax attributable to shareholders and unitholders of $10.0 million, compared to $15.2 million in 1H FY15, impacted by low dairy commodity prices. • Outstanding growth in the ‘ready-to-consume’ Dairy Foods business, both domestically and internationally, with revenues 27 percent higher to $695 million. • Ingredients and Nutritionals segment sales impacted by depressed commodity markets, with revenues of $517 million, down 13 percent on 1H FY15.

In Australia, Dairy Foods’ strong sales growth of 28 percent was underpinned by a surge in demand for Devondale consumer milk powders, dairy beverages sales across the chilled milk and UHT categories, and a very strong performance by the food service business.

• Other Segment – which includes MG Trading and Milk Broking – delivers revenues of $250.3 million, up 1.8 percent on 1H FY15.

Internationally, Dairy Foods sales growth of 21 percent was supported by a broadened distribution network and very strong demand for Devondale branded consumer milk powders.

• 1H FY16 milk intake of 2.0 billion litres.

For the Ingredients and Nutritionals segment, while commodity prices have not improved as we expected, sales of value-added nutritional powders grew 3.8 percent in the half. This follows the outstanding nutritionals revenue growth of 33.5 percent achieved in this part of the business during FY15. Given the growing significance of value-added nutritional powders in our business, MG has been focused on securing anchor supply agreements with global nutritional suppliers to support the planned nutritional investment at Koroit. Negotiations are well advanced and MG expects to be in a position to make formal announcements in the coming weeks.

• Fully franked interim dividend/ distribution of 3.5 cents per share/unit declared.

MG has also launched Devondale Natra Start infant formula – representing an exciting new milestone for the business – further information on the launch is provided overleaf. Looking ahead, MG expects to maintain its opening Available Weighted Average Southern Milk Region FMP of $5.60 (1) per kgms in FY16, with Southern Milk Region milk intake of approximately 230 million kgms or higher. However, this is subject to there being no further material deterioration in dairy commodity prices or unfavourable changes to the current AUD:USD exchange rate. This is at the bottom end of the previous guidance provided and reflects the lack of improvement in global dairy commodity prices and the continued weak outlook for those prices. 1

1. For the purposes of the Profit Sharing Mechanism, the Actual Weighted Average Southern Milk Region FMP $5.56 per kilogram milk solids is used, based on the maintenance of the $5.60 per kilogram milk solids. The Actual Weighted Average Southern Milk Region FMP does not include the add-back of quality adjustments accrued from the supply of non-premium milk.

Devondale Murray Goulburn Quarterly Update March 2016

Global dairy markets Commodity markets remain challenged The dairy commodity market continues to be challenging, with prices across major commodities remaining well below ten-year averages. Whole milk powder (WMP) is 38 percent and skim milk powder (SMP) 42 percent below their respective ten-year average prices. Demand for commodities continues to be weak as Russia remains closed to western dairy food imports and China reduces its imports of ingredients – China commodity imports are substantially down (WMP down 49 percent and SMP down 21 percent (1)). However, consumer demand in China for ready-to-consume dairy foods continues to grow strongly, with imports increasing for infant formula (+46 percent) and ‘fluid and fresh dairy’ (+43 percent) (1), which is consistent with MG’s strategic move to Dairy Foods. Looking ahead, MG expects near term prices for commodities to remain steady or slightly lower for the remainder of 2016. In this environment, MG continues to divert more milk away from volatile commodities, towards higher-margin, ready-to-consume dairy foods where consumer demand for dairy products remains strong, particularly in Asia.

Consumer demand in China