2011 Half-year Report - FrieslandCampina

Half-year Report 2011 Royal FrieslandCampina N.V.

2

Half-year Report 2011

Highlights first half of 2011

Revenue up, profit down, higher milk price • Net revenue up by 9.3 percent (adjusted for currency translation effects up by 10.3 percent) to 4,730 million euro due to higher selling prices and volume growth • The Consumer Products International and Ingredients business groups developed positively and contributed towards the result. Cheese, Butter & Milkpowder improved its result, the result of Consumer Products Europe fell due to pressure on margins • Market shares increased or maintained virtually across the board • Achievement of the route2020 strategy on schedule with investments in infant & toddler nutrition production and marketing & innovation

• Operating profit down by 11.8 percent to 210 million euro due to pressure on margins in Europe, investments in the organisation and negative currency translation effects • Profit down by 18.6 percent to 127 million euro.

Corrected for the amendment of the guaranteed price calculation and profit appropriation, profit down by 7.1 percent • Cash flow from operating activities down to 63 million euro (first half of 2010: 85 million euro) • Pro forma milk price up by 19.3 percent to 38.63 euro per 100 kilos of milk, of which 0.50 euro per 100 kilos of milk is the positive effect of the adjustment of the guaranteed price calculation and profit appropriation

Net revenue

Operating profit

in millions of euros

in millions of euros

Operating profit as a percentage of revenue in %

10,000 9,000 8,000 7,000

500

8,972 8,160

4,644

4,056

5,000

250 4,104

4,328

4,730

200 100

1,000

50

0

0 2009

2010

■■■ first half-year ■■■ second half-year

2011

210

3

2.7

4.4

3.2

2 110

1 0 2010

201 1

2009

eerste first

■■■ first half-year ■■■ second half-year

2010

halfjaar half-year

2011 eerste first

■■■ first half-year

halfjaar half-year

■■■ year

Pro forma milk price

in millions of euros

in euros per 100 kilogram, excl of VAT

1,000 900 800

285

280

700

129

240

104

200 100

78

0 2010

■■■ second half-year

2011 eerste first halfjaar half-year

26.59

27.34

20

444

16

359

12 8

269

63 85

0 2009

28

34.35

24

300 127

32.38

32

517

500

■■■ first half-year

36

786

400 156

38.63

40

600

182

80 40

4

Operating cash flows

320

120

238

in millions of euros

360

160

4.8

Profit

400

200

148

5.5

5

2009

eerste first halfjaar half-year

7 6

258

150

2,000

9 8

196

350 300

3,000

434

450 400

6,000 4,000

10

2009

2010

■■■ first half-year ■■■ second half-year

4 0

201 1 eerste first halfjaar half-year

2009 ■■■ first half-year ■■■ year

2010

2011 first eerste half-year halfjaar

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Royal FrieslandCampina N.V.

Key figures

4,730

million Revenue up by 9.3%

39.1

% Solvency stable

131

million Investment in route2020

38.63

euro Pro forma milk price up by 19%

4.5

billion Milk supply stabilises due to dry spring

2011 first half-year

2010 first half-year

2010 full year

Results in millions of euros Net revenue Operating profit Profit for the period

Balance sheet in millions of euros Balance sheet total Group equity Equity attributable to shareholder in the Company Net debt 1 Group equity as a percentage of the balance sheet total

Cash flow in millions of euros Net cash flow from operating activities Investments in property, plant, equipment and intangible assets Depreciation on buildings and equipment and Amortisation of intangible assets

4,730 210 127

4,328 238 156

8,972 434 285

5,544 2,166

5,206 1,937

5,299 2,071

2,057 920

1,828 937

1,961 776

39.1%

37.2%

39.1%

63

85

444

131

75

261

95

106

210

30.25 1.33 0.80 32.38

32.39 1.23 0.73 34.35

4,511

8,821

2

2

Value creation for member dairy farmers in euros per 100 kilogram milk excl. VAT at 4.41% fat, 3.47% protein

Guaranteed price Pro forma performance premium 2, 4 Pro forma reserve member bonds 2, 4 Pro forma milk price 2, 4 2, 3

Additional information Milk supplied by members in millions of kilos

2 36.33 1.38 0.92 38.63

2 4,513

The net debt relates to long-term interest-bearing debts, borrowings from financiers and the net obligations to/ receivables from affiliated companies, less cash and cash equivalents.

1

The method for calculating the 2011 guaranteed milk price and profit appropriation differs from the calculation method in previous years. The figures for 2010 have not been adjusted.

2

For 2011 this relates to the balance of the guaranteed price of 36.55 euro and an adjustment of -0.22 euro.

3

The definitive performance premium, reserve member bonds and milk price are determined on the basis of the profit figures for the whole year.

4

4

Half-year Report 2011

Developments in line with expectations Cees ’t Hart, Chief Executive Officer of Royal FrieslandCampina: “The developments were in line with expectations. We achieved growth in all four business groups and especially in Consumer Products International and Ingredients. We are on schedule with the adjustments in the organisation, the projects we have started and the new working method of marketing and innovation we have implemented in the context of the achievement of the route2020 strategy. In 2013-2014 we expect to see more visible results in the achievement of route2020.

“The development of our ingredients activities is more than satisfactory. We are achieving good results with both special ingredients and commodities. We are also satisfied with the developments in Asia and Africa. In the majority of markets and product categories we succeeded in passing on the higher raw materials costs and increasing volumes. The increased price of dairy products has, however, put sales volumes under pressure in a number of markets. The Cheese, Butter & Milkpowder business group achieved a further improvement of its result due to a higher margin, in part thanks to cost control. The operating profit was still negative.

Economic developments are under pressure in many European countries. Unemployment is rising and consumers in nearly every country are still reluctant to spend due to the economic uncertainty.

There is no growth in consumption and consumers remain extremely susceptible to low prices and product promotion campaigns. In Germany in particular the necessary price increases could not be passed on to the market. In the difficult European market we did succeed in increasing the market share of most brands or maintaining the market share at the same level as last year. The outcome of all this was a 0 million euro result for the Consumer Products Europe business group.

“Thanks to our broad product portfolio of dairy-based beverages, infant & toddler nutrition, cheese, butter, cream, desserts and functional ingredients combined with the geographic spread of our activities, we are in a position to offset disappointing developments in one segment or region against positive developments in other segments and regions. This means that we, as FrieslandCampina, have been able to show a series of robust results over a number of years.

“Margin improvement, particularly in Europe, will remain importan in the second half of the year. It will involve finding the right balance between volume, selling price and margin. The development of consumers’ spending power in various countries will play a major role.

“In order to achieve the route2020 strategy we have started an investment programme amounting to over 300 million euro. At the same time, we will pay close attention to further cost control.

“This year we have amended the profit appropriation of previous years. Fifty percent of the profit will now be at the disposal of the cooperative’s members rather than forty percent. The pro forma milk price for FrieslandCampina’s member dairy farmers amounts to 38.63 euro per 100 kilos of milk – around 19 percent higher than for the first half of 2010.”

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Royal FrieslandCampina N.V.

First half of 2011: revenue up due to price rises and volume growth

FrieslandCampina invests in further growth In the first half of 2011 the net revenue of Royal FrieslandCampina N.V. rose by 9.3 percent to 4.7 billion euro. Corrected for the currency translation effect the net revenue rose by 10.3 percent.

Higher selling prices and a growth in the sales volumes of consumer products, especially in Asia and Africa, and of ingredients contributed towards the higher revenue. Brands such as Peak (Nigeria) and Friso (infant & toddler nutrition) performed well. The pro forma price for the milk supplied by FrieslandCampina member dairy farmers rose by 19.3 percent to 38.63 euro per 100 kilos of milk (first half of 2010: 32.38 euro per 100 kilos of milk).

The operating profit of FrieslandCampina was virtually the same as for the first half of 2010. Profit for the period fell by 29 million euro (18.6 percent) to 127 million euro. Of this decrease, 18 million euro was due to the amendments to the calculation of the guaranteed price and the profit appropri­ ation in 2011 compared with previous years.

The good results of the Consumer Products International and Ingredients business groups and the improvement to the result of the Cheese, Butter & Milkpowder business group offset the disappointing results of Consumer Products Europe. In the difficult European market the higher prices for raw milk and other raw materials could not, could not fully or could not immediately be passed on in the selling price. The 6 percent revenue growth achieved by Consumer Products Europe could not offset the cost price increase of 13 percent. Sales volume did increase slightly and the market share of most brands increased or remained the same.

Of the over 300 million euro Friesland­ Campina anticipates investing during 2011, 131 million euro was invested during the first half of the year. The majority of the investments were aimed at the achievement of the route2020 strategy.

Amendment of milk price method In 2011 the profit appropriation and the calculation for the guaranteed price for the milk supplied by the member dairy farmers applicable during 2008-2010 have been amended. This has had a negative effect of 18 million euro on the profit and a positive effect of 0.50 euro per 100 kilos of milk on the milk price. Since 2011, 50 percent of the profit is at the disposal of the cooperative’s members (was 40 percent) of which 30 percent is paid out to the member dairy farmers as the performance premium on the milk supplied and 20 percent is paid out in the form of fixed member bonds. Since 2011, the calculation of the guaranteed milk price has included any supplementary payment to and any supplementary formation of equity in the name of the dairy farmers of the reference companies.

Market developments in the first half of 2011 The global demand for dairy produce from both consumers and industrial customers developed positively during the first half of 2011. This development has been the trend since the second half of 2009. Economic growth, especially in China and India but also in South America, has contributed towards this. In the Benelux the demand for dairy produce has remained stable while in Germany and South and South-East Europe the demand has fallen.

The supply of milk has increased globally.

During the first half of 2011 the conditions were favourable for dairy production.

Despite the drought in Western Europe during April and May, milk production in Europe rose by around 2 percent. Favourable weather conditions in the southern hemisphere led to increased milk production in New Zealand, Argentina and Uruguay.

As the weak US dollar made the export of European products more difficult, American dairy producers were able to profit the most from the increasing global trade during the first half of 2011. The European dairy industry could profit from the increasing Russian demand for cheese, butter and skimmed-milk powder.

World market prices

Butter

in USD/ton

Whole milk powder Skimmed milk powder

5.500 5.000 4.500 4.000 3.500 3.000 2.500 2.000 1.500 2006

2007

2008

2009

2010

2011

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Half-year Report 2011

For FrieslandCampina, World Milk Day on 1 June was an opportunity to share knowledge about milk.

The overall effect was that the listed prices of dairy products such as milk powder, caseinates, butter, foil cheese and whey rose to levels approaching the record highs of 2007. There was, however, some downwards price pressure on skimmed and whole milk powder, whey and, more recently, also on cheese. Even so, from a historical perspective the listed prices remained high.

In Europe the price development of dairy products for consumers could not keep pace with the price development of commodities.

Higher net revenue During the first half of 2011 Friesland­ Campina’s net revenue rose by 9.3 percent to 4,730 million euro. Higher prices were responsible for the revenue rising by 410 million euro. The sales volume increased and there was a shift in the sales volume from commodities to added-value products.

Exchange rate variations (especially the high price of the euro compared to the US dollar) had a negative currency effect amounting to 43 million euro.

Consumer Products Europe’s net revenue rose by 6.0 percent to 1,689 million euro (first half of 2010: 1,594 million euro) primarily due to the rise in selling prices. The sales volumes of the brands remained the same as in the first half of 2010. There was a slight increase in the volume of private label products supplied to supermarkets. The market share of most products remained the same as or was higher than in 2010.

The net revenue of the Consumer Products International business group (Asia, Africa, the Middle East, export) rose by 9.1 percent to 1,205 million euro (first half of 2010: 1,104 million euro). The increase was due to higher selling prices and volume growth, in particular of infant & toddler nutrition. The expensive euro compared to the US dollar and the Vietnamese dong led to a negative currency effect on revenue of 36 million euro. The Friso brand performed well in China and Hong Kong. There was some pressure on the market share of dairy-based beverages in Vietnam, Indonesia and Thailand.

The net revenue of Cheese, Butter & Milkpowder rose by 9.6 percent to 1,389 million euro (first half of 2010: 1,267 million euro). The increase was due to the higher selling prices of commodities such as foil cheese, milk powder and butter.

Sales volumes were lower than in the first half of 2010.

Ingredients’ net revenue rose by 16.1 percent to 943 million euro (first half of 2010: 812 million euro) due to price increases and increased sales volumes. The main contributor towards this was the high demand from Asia.

Operating profit and profit The operating profit for the first half of 2011 amounted to 210 million euro, 11.8 percent lower than for the first half of 2010 (238 million euro). Operating profit as a percentage of net revenue was 4.4 percent (first half of 2010: 5.5 percent).

At 192 million euro Consumer Products International’s operating profit remained stable (first half of 2010: 197 million euro).

Although the business group managed to maintain its margins reasonably successfully during the first months of 2011, the high price put sales volumes under pressure in a number of countries.

The Ingredients business group increased its operating profit by 53.4 percent to 89 million euro (first half of 2010: 58 million euro), thanks to its good results from special ingredients and higher prices for standard products.

Consumer Products Europe’s operating profit fell by 57 million euro to 0 million euro. The major reason for this was increased competition as a result of stagnation in consumption, which meant the price increases of raw milk and other raw materials could not, or could only partially and after a delay, be passed on in the selling price. This put considerable pressure on margins.

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Royal FrieslandCampina N.V.

The Cheese, Butter & Milkpowder business group achieved a negative operating profit of 29 million euro. Compared to the first half of 2010 (-46 million euro) this is an improvement of 17 million euro (37 percent) and was due to improved results from commodities.

The profit was appropriated as follows: 78 million to Zuivelcoöperatie Friesland­ Campina U.A., the shareholder of Royal FrieslandCampina N.V., 17 million euro to the interest on member bonds, 4 million euro to the providers of the perpetual notes and 28 million euro to minority interests.

The results of the business groups were influenced by the attribution of the performance premium and the reserves registered in the names of member dairy farmers in proportion to the quantity of member milk received by the business groups. This had a particularly severe effect on the result of Cheese, Butter & Milkpowder business group which processes around 55 percent of the member milk.

Cash flow Cash flow from operating activities fell to 63 million euro (first half of 2010: 85 million euro) due to the reduced profit. The reduced cash flow is due to the lower profit as well as the substantially higher working capital. The increase in working capital was due to higher prices and an increase in the volume of inventories. Cash flow from investing activities rose as a result of increased investments in property, plant, equipment and intangible assets. Total investments amounted to 131 million euro (first half of 2010: 75 million euro).

In the first half of 2011 the result from joint ventures and associates was 5 million euro – 3 million lower than in the first half of 2010.

Higher raw materials costs put these results under pressure.

Net financing income and expenses rose by 5 million euro, which resulted in an expense of 40 million euro. The net interest expense was 26 million euro (first half of 2010: 24 million euro).

Taxation amounted to 48 million euro (first half of 2010: 55 million euro). The effective tax rate rose from 26.5 percent to 27.4 percent .

Profit over the first half year of 2011 amounted to 127 million euro (first half of 2010: 156 million euro). The main reasons for this drop in profit were the amendments to the guaranteed price calculation and profit appropriation, lower margins and the higher investments in the organisation in the context of the achievement of route2020.

In the first half of 2011 operating expenses rose by 10.4 percent to 4,532 million euro (first half of 2010: 4,104 million euro). In the first half of 2011 the payment to member dairy farmers, a component of operating expenses, was 23 percent higher at 1,750 million euro (first half of 2010: 1,420 million euro).

Financing FrieslandCampina raises loans from different groups of lenders (member dairy farmers, banks and investors). This enhances the Company’s flexibility. The major portion of the loan capital financing has been borrowed from financial institutions in and outside the Netherlands. The major portion of the bank loans comprises a committed credit facility amounting to 1 billion euro and with a term to the end of August 2013. FrieslandCampina has taken out private loans of 196 million dollar with institutional investors in the United States and 25 million euro with a European investor.

Financial position On 30 June 2011 net debt amounted to 920 million euro, 144 million euro more than at the end of 2010. The increase was due to additional financing requirements as a result of the increase in working capital.

On 30 June 2011 group equity amounted to 2.166 million euro (end of 2010: 2.071 million euro). Group equity was strengthened by adding the profit from 2010 to the Company’s reserve.

Solvency (group equity as a percentage of the balance sheet total) amounted to 39.1 percent – the same as at the end of 2010.

Milk price determination system As of the 2011 financial year Friesland­ Campina’s milk price comprises the guaranteed price, the performance premium and the value of the fixed member bonds per 100 kilos of milk.

The guaranteed price is calculated on the basis of the weighted average annual milk prices for raw milk paid by the reference companies (twelve German dairy companies, Arla Foods in Denmark, Bel Leerdammer, Cono Kaasmakers and DOC Kaas in the Netherlands and Milcobel in Belgium), and as of 2011 includes any supplementary payment from the dairy cooperation to its members and any formation of registered equity in the names of members of these cooperatives.

The guaranteed price for the first half of 2011 was 36.33 euro excluding VAT per 100 kilos of milk with 4.41 percent fat and 3.47 percent protein (first half of 2010: 30.25 euro, whole of 2010: 32.39 euro).

The amount of the performance premium and the fixed member bonds depends on the Company’s financial performance. Thirty percent of FrieslandCampina’s profit based on the guaranteed price and after deduction of the recompense for member bonds and perpetual notes and the profit attributable to minority interests, is paid out to member dairy farmers in cash as a performance premium and 20 percent is reserved in the names of the member dairy farmers. The performance premium is paid out to the Cooperative’s members annually, after the financial statements have been adopted, in proportion to the value of the milk they have supplied during the year in question. The pro forma performance premium for the first half of 2011 amounted to 1.38 euro per 100 kilos of milk excluding VAT. This is 3.8 percent higher than the pro forma performance premium for the first half of 2010 (1.33 euro per 100 kilos of milk).

In the first half of 2011 the pro forma reserve registered in the names of member dairy farmers was 41 million euro. This amounts to 0.92 euro per 100 kilos of milk (first half of 2010: 0.80 euro per 100 kilos of milk). Up to and including last year the value of the fixed member bonds was not a component of FrieslandCampina’s milk price.

8

Half-year Report 2011

At FrieslandCampina Domo’s facility in Beilen the production capacity is being increased with a new drying tower, mixing equipment and a packaging assembly line.

Compared to the first half of 2010 the interest on member bonds rose by 15 million euro to 17 million euro as a result of the increased Euribor. The profit attributable to the Company’s shareholder (the Cooperative) amounted to 78 million euro.

This is 30 million euro less than in the first half of 2010, partly due to the amended milk price system.

Progress of the route2020 strategy FrieslandCampina’s route2020 strategy is aimed at growth and value creation in selected markets and product categories.

To achieve the growth in the infant & toddler nutrition segment, in 2011 a start was made on a 100 million euro investment programme in the Beilen and Bedum production facilities. Investments in Beilen will amount to 70 million euro and will cover the expansion of the mixing capacity, a new drying tower and a new infant food packaging assembly line. Investments in Bedum will amount to 30 million euro for expanding the drying and processing capacity for desalinated whey products, which are used as ingredients for infant & toddler nutrition. All the investment must be completed in 2013.

The efforts in the field of marketing and innovation are concentrated on the four priority platforms: growth & development, daily nutrition, health & wellness and functionality. The Research & Development organisation has been tuned to the valuedrivers with a focus on dairy-based beverages, infant & toddler nutrition and branded cheese. The R&D capacity in the field of infant & toddler nutrition is being expanded further. A start has been made with the construction of the new FrieslandCampina R&D Centre in Wageningen.

As a consequence of route2020 FrieslandCampina has re-formulated its CSR mission, vision and strategy. First and foremost FrieslandCampina will strive to achieve its future growth in a climate-neutral manner. FrieslandCampina’s CSR strategy focuses on four priority areas. Two of these areas – sustainable dairy farming and sustainable production chains – are aimed at the continuing reduction of the environmental burden created by FrieslandCampina’s activities. Nutrition & health relates primarily to combating undernourishment and obesity. The fourth priority area – developing dairy farming in Asia and Africa – focuses on supporting farmers in countries in these regions.

The six value-drivers for value growth are: • Worldwide growth in dairy-based beverages by increasing the share in total consumption.

• Strengthening worldwide market positions in infant foods, both ingredients and end products.

• Increased market share in branded cheese, including through expanding the brand portfolio.

• Geographical growth in the above categories and improving the strong positions outside of these categories.

• Foodservice in Europe: strengthening and expanding existing strong positions in the out of home category, partly through geographical expansion.

• Strengthening of basis products, such as standard ingredients, industrial cheese and private labels in order to reduce the share of member milk that is processed into commodities.

9

Royal FrieslandCampina N.V.

Composition of the Supervisory Board and the Executive Board Supervisory Board On 15 June 2011 the Member Council of Zuivelcoöperatie FrieslandCampina U.A. appointed Sjoerd Galema and Hans Stöcker as members of the Board of Zuivelcoöperatie FrieslandCampina U.A. as of 14 December 2011 on which date they will also become members of the Supervisory Board of Royal FrieslandCampina N.V. Messrs. Galema and Stöcker will fill the vacancies that will arise due to the resignation according to the roster of Jorrit Jorritsma and Kees Wantenaar on 14 December 2011 neither of whom can be reappointed. Rob ter Haar will also resign on 14 December 2011 and cannot be reappointed. His successor will be announced before this date.

During the Board meeting on 9 August 2011 the then Vice-Chairman, Piet Boer, was elected as the new Chairman of the Board of Zuivelcoöperatie FrieslandCampina U.A. which means also as the Chairman of the Supervisory Board of Royal Friesland­ Campina. Piet Boer will take over from Kees Wantenaar as Chairman on 15 December 2011.

Executive Board There were no changes to the composition of the Executive Board.

European Commission conditions related to the merger During the period 1 January – 30 June 2011, the Dutch Milk Foundation (DMF) approved 11 requests from member dairy farmers wishing to terminate their FrieslandCampina membership utilising the severance scheme of 5.00 euro per 100 kilos of milk. This scheme was set-up in 2008 by the European Commission in connection with the merger of Friesland Foods and Campina.

Risks The risks and uncertainties that could have an adverse material effect on the Company’s result and shareholders’ equity were described in the 2010 Annual Report.

Reference to this description of risks and uncertainties should be deemed a component of this half-year report. The major risks and uncertainties for the second half of 2011 are related to the development of world-market prices and the availability of raw materials as well as foreign currency exchange rate developments. Substantial changes in the prices of raw materials (for example due to weather conditions), or a continuing scarcity of supply of certain products, could have a negative effect on FrieslandCampina’s operating profit and financial position. Being able to pass on higher cost prices depends on several factors including the duration of contracts and the ability of markets to pay the higher prices. Too high prices for dairy products and dairy raw materials could lead to reduced sales because dairy products are replaced by cheaper products. FrieslandCampina has an operating company in Greece. The economic situation in that country and any resulting risks, such as a reduction in the population’s spending power and the financial situation of the various parties in the chain, are being followed very closely. Other risks and uncertainties that have not, as yet, been recognised, or have not yet been considered significant, could in the future have a substantial effect on FrieslandCampina and its goals, revenue, results, assets and liquidity.

Outlook The economic outlook remains uncertain. In Europe the expectation is that consumers will remain reluctant to spend due to the economic uncertainty and that the consumption of dairy products will remain under pressure. The uncertain economic situation in several European countries reinforces this view. At a global level, although a continued gradual increase in dairy consumption is anticipated the effects of the unrest in the financial markets on consumer confidence remain to be seen. Too

high prices for dairy products could lead to dairy products being replaced with other products. Minor fluctuations in supply and demand on the world market could have major consequences for the price development of dairy products. Partly due to this, FrieslandCampina cannot make any concrete statement regarding the expected result for the whole of 2011.

Responsibility statement The Executive Board of Royal Friesland­ Campina N.V. declares that the half-year report, prepared in accordance with the applicable reporting regulations for interim reporting, gives a true and fair view of the assets, liabilities, financial position and profit of Royal FrieslandCampina N.V. and the companies included in the consolidation; and that the half-year report gives a true and fair view of the situation on the balance sheet date, the business development during the first half of 2011 of Royal FrieslandCampina N.V. and the associated companies for which the financial information is recognised in the half-year report and that the material risks with which Royal FrieslandCampina N.V. is confronted are described in the half-year report in accordance with the Financial Supervision Act. Cees (C.C.) ’t Hart Chief Executive Officer Kees (C.J.M.) Gielen Chief Financial Officer Kapil (K.) Garg Chief Operating Officer Consumer Products International Piet (P.J.) Hilarides Chief Operating Officer Cheese, Butter & Milkpowder Freek (F.) Rijna Chief Operating Officer Consumer Products Europe

Amersfoort, 26 August 2011

10

Half-year Report 2011

Consumer Products Europe • Revenue • Low

up due to higher selling prices

consumer confidence in Europe

• Margins • Market

under considerable pressure

share of most brands the same or higher than in 2010 2011 first half-year

Net revenue Operating profit Operating profit as a % of net revenue

The Consumer Products Europe business group can look back on a difficult first half year. This was due primarily to the falling consumer confidence in Europe. Economic stagnation and uncertainty in a number of countries led to higher unemployment and, as a result, consumer spending was under pressure. Consumers remained price and promotional campaign sensitive and, therefore, opted for cheaper products more often. Germany in particular faced increased price competition between dairy companies.

In the first half of 2011 Consumer Products Europe’s net revenue was 1,689 million euro, a representing increase of 6 percent compared to the first half of 2010 (1,594 million euro) primarily due to higher prices. The sales volume of the brands was the same as in the first half of 2010. The sales volume of private label products rose slightly. Margin development of the different dairy products lagged behind the increase in the price of raw milk and other raw materials. Price increases could not, or could only partially and after a delay be passed on to the market. As a result, operating profit fell to 0 million euro (first half of 2010: 57 million euro).

Key brands

1,689 0 0

2010 first half-year 1,594 57 3.6

2010 full year 3,269 126 3.9

Fresh daily dairy produce under the Campina brand developed positively in the Netherlands. For the first time in a number of years market share and volume rose. The positioning of Dutch meadow milk was successful. The Campina Open Farm Days in the spring were also exceptionally popular and highlighted the relationship between the farmer, the milk and the Campina brand.

Campina Optimel continued developing well and responded successfully to the growing demand for reduced-calorie products. As far as fruit juices were concerned, Appelsientje developed positively and the business unit was able to pass the increased price of fruit concentrates on to the market. Market shares increased.

In Germany the price development of dairy products lagged behind in comparison with neighbouring countries. The competitive market made it impossible to implement the necessary price increases. Due to the disappointing volume and margin developments both revenue and result came under pressure in Germany. Further volume increases were achieved with the Landliebe brand. In Belgium, expanding the production capacity of the Aalter factory involved substantial investment. The work must be

completed in 2012 in order to take over some of the production from Kalkar (Germany) after which Kalkar will be closed.

In Greece, although revenue fell slightly due to the reduction in consumers’ spending power, a good level of result was maintained.

FrieslandCampina Hellas continued investing in marketing and promotional campaigns in order to extend its leading market position.

The market share of most NoyNoy products developed positively. Investment in the Patras production facility will enable the range of dairy products currently being produced in Kalkar (Germany) to be produced in Greece from 2012 on.

Consumer spending also lagged behind in Hungary as a result of the economic situation. Passing on the price increases when consumer spending power and confidence were falling put pressure on the sales volume.

In Russia the Fruttis brand developed well in 2010 and this positive trend continued in the first half of 2011.

After several difficult years, in Romania there was a modest positive development in volumes although margins remain under pressure.

FrieslandCampina Professional had a difficult first half of 2011. High prices for fats could not be sufficiently passed on to the market, for one reason because in a number of other countries the prices of fats were far lower. In many cases annual contracts for spouty cream in a can had been signed, which meant price increases could not be passed on sufficiently. Sales volume was, however, maintained.

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Royal FrieslandCampina N.V.

Consumer Products International • Higher

revenue due to price increases and volume growth in infant & toddler nutrition

• Margin

development stagnation as a result of higher raw materials prices

• High

selling prices inhibit growth development 2011 first half-year

Net revenue Operating profit Operating profit as a % of net revenue

In the first half of 2011 the net revenue of the Consumer Products International business group rose by 9 percent to 1.2 billion euro.

The increase was due to higher selling prices and volume growth, especially of infant & toddler nutrition. The expensive euro compared to the US-dollar and the Vietnamese dong led to a negative currency effect of around 36 million euro. In a number of countries volume was under pressure as a result of lower demand due to the increased price of dairy products and other food.

Because of this and increasing price competition, in a number of countries margin development and market share came under some pressure. The higher price of raw materials, such as milk powder, sugar and other ingredients, could not be passed on in all cases. Finding the right balance between selling price, margin and volume development is a key factor for success and differs per market and product category. To offset the pressure on margins cost savings were implemented. Abundant investment in advertising and promotional campaigns did, however, continue. Operating profit fell to 192 million euro (first half of 2010: 197 million euro). Operating profit as a percentage of net revenue amounted to 15.9 percent (first half of 2010: 17.8 percent).

Key brands

1,205 192 15.9

2010 first half-year 1,104 197 17.8

2010 full year 2,277 356 15.6

FrieslandCampina Wamco Nigeria can look back on another good first half-year. Peak remained exceptionally successful and the Three Crowns ‘value-for-money’ brand performed well. Evaporated milk achieved the greatest growth in Nigeria. In July heavy rainfall resulted in the production facility in Lagos being flooded. Damage to several machines and the time needed to clean equipment, buildings and grounds meant production came to a halt for a few days.

FrieslandCampina Middle East succeeded in improving its market position. In Saudi Arabia FrieslandCampina began cooperating with a new distributor. The operating company’s regional office was relocated from Jeddah (Saudi Arabia) to Dubai (United Arab Emirates). It is anticipated that the activities throughout the region can be run better from Dubai.

FrieslandCampina Export saw its exports increase, especially to countries in Central America and Africa. Export to Libya came to a halt due to the unrest in the country and the sanctions that were imposed.

FrieslandCampina Hong Kong and FrieslandCampina China developed very positively and were particularly successful with Friso infant & toddler nutrition.

In Malaysia the positioning of the Dutch Lady brand was accentuated, which led to increased market share.

In Thailand the selling prices of dairy products were regulated, which meant price increases could only be passed on to a limited degree. A new variety of Foremost Calcimex was introduced.

In Indonesia the sales volume of sweetened condensed milk stagnated somewhat after the robust growth in 2010. Competition is increasing in the area of infant food.

FrieslandCampina Vietnam was confronted with the effects of higher food prices. For the first time in years the demand for food shrunk. Price competition increased, which put some pressure on the market share of Dutch Lady and Friso.

12

Half-year Report 2011

Cheese, Butter & Milkpowder • Revenue

rises due to higher selling prices

• Profit

improvement due to cost reductions and improved margin on commodities

• Investments

in efficiency improvements 2011 first half-year

Net revenue Operating profit Operating profit as a % of net revenue

The Cheese, Butter & Milkpowder business group achieved a further improvement of its revenue and profit. In the first half of 2011 the net revenue of the Cheese, Butter & Milkpowder business group rose to 1,389 million euro - an increase of 9.6 percent compared with the first half of 2010 (1,267 million euro). The revenue increase was due to higher prices for commodities such as foil cheese, milk powder and butter.

The sales volume was lower than in the first half of 2010 primarily due to Friesland­ Campina terminating a number of supplementary-purchase contracts.

Operating profit rose to -29 million euro (first half of 2010: -46 million euro). Operating profit as a percentage of net revenue was -2.1 percent (first half of 2010: -3.6 percent).

1,389 - 29 - 2.1

2010 first half-year 1,267 - 46 - 3.6

2,641 - 92 - 3.5

During the first half of 2011 FrieslandCampina Cheese achieved a 30 percent increase in the selling price of foil cheese. The price increase for branded cheeses lagged behind.

The necessary price increases could only be passed on to the market after a delay. In addition, sales of branded cheese were under pressure due to economic and political developments in a number of countries.

Market shares, especially in the premium segment, came under pressure. The export of cheese under the brand name Frico was adversely influenced by the political unrest in Egypt and Libya. The economic crisis in Greece exerted pressure on revenue.

FrieslandCampina Butter had an excellent first half-year. The operating company succeeded in passing on the necessary price increases to the market. The industrial butter products profitted most from this, the selling price of butter for consumers lagged behind.

Key brands

1

2010 full year 1

he milk powder activities were transferred from Ingredients to Cheese, Butter & Milkpowder as of 1 January 2011.

T The comparative figures for 2010 have been adjusted.

Both the price level and margins of FrieslandCampina Milkpowder developed well.

As a result of the reorganisations announced in 2009, the production facilities for butter products in Klerken (Belgium) and cheese in Dronrijp (the Netherlands) closed during the first half of 2011. The production has been relocated to other FrieslandCampina facilities and some has been out-sourced.

Investments were made to expand the cheese production capacity in Workum, Balkbrug and Marum (all in the Netherlands).

13

Royal FrieslandCampina N.V.

Ingredients • Higher

prices received for the increased demand from Asia for ingredients

• Better

result from caseinate, pharma lactose and cream liqueur

• Investments

in capacity expansion for infant & toddler nutrition 2011 first half-year

Net revenue Operating profit Operating profit as a % of net revenue

The Ingredients business group can look back on a good first half of 2011 with net revenue of 943 million euro, an increase of 16.1 percent compared to the first half of 2010 (812 million euro). The increased revenue is due to both price rises and higher sales volume. The primary contributor towards this was the high demand from Asia for dairy ingredients. The business group succeeded in passing on the increased price for raw milk and other raw materials to the market, albeit with some delay. This led to operating profit rising by 31 million euro to 89 million euro – an increase of 53.4 percent.

Operating profit as a percentage of net revenue amounted to 9.4 percent (first half of 2010: 7.1 percent).

The revenue and sales volumes of FrieslandCampina Domo increased.

Especially good progress was achieved by the infant & toddler nutrition in consumer packaging. The margins on ingredients for infant & toddler nutrition and operating profit came under some pressure due to higher raw materials costs which could not be passed on to customers in full due to on-going sales contracts.

943 89 9.4

2010 first half-year 812 58 7.1

1,669 128 7.7

FrieslandCampina Kievit’s revenue rose slightly as a result of higher selling prices and a slight increase in sales volume. The result was, however, under some pressure due to higher raw materials prices. The unrest in the Middle East and North Africa let to a drop in sales of creamers in this region. The higher prices put sales in Asia under pressure.

FrieslandCampina DMV’s performance was excellent. Both revenue and result improved due to higher selling prices, increased demand and improved margins.

FrieslandCampina Creamy Creation also had a good six months. After a difficult 2010 the operating company was able to respond to the increasing demand for cream liqueurs.

The higher prices for fat could be passed on in the selling prices.

FrieslandCampina Dairy Feed can look back on a satisfactory first half of 2011 in which it was able to extend its leading position in calf feed in the Netherlands.

Key brands

1

2010 full year 1

he milk powder activities were transferred from Ingredients to Cheese, Butter & Milkpowder as of 1 January 2011.

T The comparative figures for 2010 have been adjusted.

The DMV-Fonterra Excipients joint venture had an exceptional six months in which sales volumes and revenue both increased and the result improved. The company was able to respond well to the much higher global demand for pharma-lactose.

Investment plans amounting to around 70 million euro were approved for the production facility in Beilen - Friesland­ Campina’s most important production facility for infant & toddler nutrition. The investment will enable the production capacity to be expanded and the quality to be improved through a variety of upgrades including a new drying tower, mixing equipment and packaging assembly line. The production capacity for desalinated whey in the Bedum production facility will also be expanded.

14

Half-year Report 2011

Condensed consolidated income statement In millions of euros

first half-year 2011 Revenue Other operating income Operating income

first half-year 2010

4,730 12 4,742

4,328 14 4,342

- 4,532 210

- 4,104 238

Share of profit of joint ventures and associates Finance income and costs Profit before tax

5 - 40 175

8 - 35 211

Income tax expense Profit for the period

- 48 127

- 55 156

17 4 78 99 28 127

15 4 108 127 29 156

Operating expenses Operating profit

Profit attributable to: - providers of member bonds - providers of perpetual notes - shareholder of the company - shareholder and other providers of capital of the company - non-controlling interests

Condensed consolidated statement of comprehensive income In millions of euros

first half-year 2011 Attributable to shareholder of the company and other providers of Non-controlling interests equity

Profit for the period Effective portion of cash flow hedges Tax on perpetual notes and member bonds Currency translation differences Other comprehensive income Total comprehensive income for the period

Total

first half-year 2010 Attributable to shareholder of the company and other providers of Non-controlling interests equity

28

127

127

7 4 - 13 -2

-6 -6

7 4 - 19 -8

97

22

119

99

Total

29

156

-9 4 57 52

14 14

-9 4 71 66

179

43

222

15

Royal FrieslandCampina N.V.

Condensed consolidated statement of financial position In millions of euros

30 June 2011 Assets Non-current assets Property, plant and equipment Intangible assets Financial assets

Current assets Inventories Receivables Cash and cash equivalents

Assets held for sale Total assets Equity and liabilities Group equity Issued capital Retained earnings and reserves Perpetual notes Member bonds Equity attributable to shareholder of the company and other providers of capital Non-controlling interests Group equity Non-current liabilities Provisions Non-current interest-bearing borrowings Other non-current liabilities

Current liabilities Current borrowings Other current liabilities

Total equity and liabilities

31 December 2010

1,500 952 467 2,919

1,495 903 467 2,865

1,157 1,190 267 2,614

1,005 1,124 292 2,421

11 5,544

13 5,299

370 604 126 957

370 530 130 931

2,057 109 2,166

1,961 110 2,071

358 775 152 1,285

343 776 38 1,157

408 1,685 2,093

314 1,757 2,071

5,544

5,299

16

Half-year Report 2011

Condensed consolidated statement of cash flows In millions of euros

first half-year 2011

first half-year 2010 1

This statement shows the cash flows generated by the Company, translated into euros where applicable. Cash flows denominated in foreign currencies are translated into euros at the exchange rates prevailing on the transaction date.

The statement of cash flows has been prepared using the indirect method.

Profit before tax Depreciation and amortisation of property, plant, equipment and intangible assets Movements in inventories, receivables and liabilities Other operating activities Net cash from operating activities

175

211

95 - 218 11 63

106 - 251 19 85

Investment in property, plant, equipment and intangible assets Other investing activities Net cash used in investing activities

- 131 12 - 119

- 75 23 - 52

Interest-bearing borrowings drawn and repayments Other financing activities Net cash used in financing activities

117 - 75 42

42 - 93 - 51

Net cash flow

- 14

- 18

Cash and cash equivalents at 1 January Net cash flows Translation differences in cash and cash equivalents Cash and cash equivalents at 30 June

292 - 14 - 11 267

272 - 18 25 279

1

he comparative figures in the condensed consolidated statement of cash flows differ in specification from the figures as presented in the 2010 Half-year Report. In the 2010 Half-year T Report the reserve member bonds was included in the cash flow from financing activities. As of the 2010 Annual Report it has been included as an adjustment to the profit before tax in the cash flow from operating activities.

Condensed consolidated statement of changes in equity In millions of euros

first half-year 2011 Equity attributable to shareholder of the company and other providers of Non-controlling interests capital

At 1 January Total comprehensive income Transactions with shareholder and other providers of capital: - dividends paid to non-controlling interests - amounts paid to providers of perpetual notes - amounts paid to providers of member bonds - addition member bonds for the year - sale of shares to Zuivelcoรถperatie FrieslandCampina U.A. - other changes Total transactions with shareholder and other providers of capital At 30 June

Total

first half-year 2010 Equity attributable to shareholder of the company and other providers of Non-controlling interests capital

110 22

2,071 119

1,652 179

- 23 -9 - 31 41

- 23 -9 - 31 41

-9 - 31 36

-2

-2

1

- 24 2,166

-3 1,828

1,961 97

-1 2,057

- 23 109

Total

97 43

1,749 222

- 46

- 46 -9 - 31 36

15

15 1

- 31 109

- 34 1,937

17

Royal FrieslandCampina N.V.

Notes to the condensed consolidated half-year figures General Royal FrieslandCampina N.V. has its registered office in Amersfoort, the Netherlands. The address is: Stationsplein 4, 3818 LE, Amersfoort, the Netherlands. The consolidated financial statements for the half-year ended 30 June 2011 comprise the financial statements of Royal FrieslandCampina N.V. and its subsidiaries (jointly referred to as FrieslandCampina).

Judgements, estimates and assumptions In preparing the half-year financial figures, management consistently used judgements, estimates and assumptions based on historical experience and various other factors that it believed to be reasonable under the circumstances for the purposes of making judgements about the carrying values of assets and liabilities. Actual results may differ from management’s estimates.

Zuivelcoöperatie FrieslandCampina U.A. is the sole shareholder of Royal FrieslandCampina N.V. (the company).

The assumptions and estimates are evaluated continuously. For an overview of the most important assumptions please see the 2010 Financial Statements. During the first half of 2011 there were no major changes, with the exception of an adjustment to the estimate in respect of the depreciation percentages property, plant and equipment (see page 19).

The half-year figures in this report have not been audited or subjected to a limited review.

Accounting policies This half-year report was prepared in accordance with IAS 34 ‘Interim financial reporting’, insofar as endorsed by the European Union. This half-year report must be read together with the 2010 financial statements, which were prepared in accordance with IFRS as endorsed by the European Union and their interpretations as adopted by the International Accounting Standards Board (IASB).

The accounting policies applied in this consolidated half-year report are consistent with the policies for valuation and determination of result and the calculation methods used in preparing the 2010 financial statements. The company has, in addition, applied the following new and/or amended IFRS and IFRIC interpretations: - IAS 24 Related parties; - IAS 32 Financial instruments: classification of right issues; - IFRIC 14 The limit on a Defined Benefits Asset, Minimum Funding Requirements and their interaction; - IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; - Improvements to IFRS (May 2011).

These new standards and amendments to existing standards and interpretations have had no material effect on the equity, result and/or explanatory notes.

Financial risk management The most important objectives and procedures of the financial risk management within FrieslandCampina are consistent with the objectives and procedures presented in the 2010 consolidated financial statements.

Seasonal influences There is no significant seasonal pattern when comparing the first half and the second half of a year.

Segmentation The identified operating segments are the separate segments within FrieslandCampina for which financial information is available that is frequently evaluated by the highest decision making body (Executive Board) in order to come to decisions regarding attributing the available means to the segment and determining the performance of the segment. FrieslandCampina has divided the operating segments into business units: Consumer Products Europe, Consumer Products International, Cheese, Butter & Milkpowder and Ingredients.

At the beginning of 2011 the milk powder activities of the Ingredients business group were transferred to the Cheese, Butter & Milkpowder business group. As a result of this transfer the composition of the Ingredients and Cheese, Butter & Milkpowder segments has changed. The comparative figures have been adjusted accordingly.

18

Half-year Report 2011

Notes to the condensed consolidated half-year figures In millions of euros, unless stated otherwise

first half-year 2011 Consumer Products Europe

Consumer Products International

Cheese, Butter & Milkpowder

1,445 244 1,689

1,203 2 1,205

1,199 190 1,389

741 202 943

142 - 638 - 496

Operating profit Share of profit of joint ventures and associates Finance income and costs Income tax expense Profit for the period

0 1

192 2

- 29 2

89 -1

- 42 1 - 40 - 48

Operating profit as a % of revenue Carrying amount of assets employed in operating activities Carrying amount of other assets

0

15.9

- 2.1

9.4

1,655

475

783

875

Segmentation by business group Sales to external customers Inter-segment sales Total revenue

Elimination and Corporate & Ingredients Support

Total

4,730 4,730 210 5 - 40 - 48 127 4.4

1.069

4,857 687 5,544

first half-year 2010 Consumer Products Europe

Consumer Products International

Cheese, Butter & Milkpowder

1,382 212 1,594

1,102 2 1,104

1,111 156 1,267

611 201 812

122 - 571 - 449

Operating profit Share of profit of joint ventures and associates Finance income and costs Income tax expense Profit for the period

57 1

197 4

- 46 2

58 1

- 28

Operating profit as a % of revenue Carrying amount of assets employed in operating activities Carrying amount of other assets

3.6

17.8

- 3.6

7.1

1,827

650

1,022

953

Sales to external customers Inter-segment sales Total revenue

Elimination and Corporate & Ingredients Support

- 35 - 55

Total

4,328 4,328 238 8 - 35 - 55 156 5.5

101

4,553 653 5,206

19

Royal FrieslandCampina N.V.

Notes to the condensed consolidated half-year figures Operating expenses Operating expenses include the milk payments to member farmers of EUR 1,753 million (first half of 2010: EUR 1,420 million).

Intangible fixed assets The movements in the intangible non-current assets during the first half of 2011 can be specified as follows (in millions of euros):

Income tax expense The income tax expense was determined using the integrated approach, with the effective tax rate being based on the outlook for the whole of 2011. The 27.4% tax rate in the first half of 2011 is higher than the weighted average of 26.4%. This is due to a number of reasons including the non-capitalisation of losses in Germany and non-deductible withholding tax on received dividends from Nigeria, Indonesia and Thailand.

Carrying amount at 1 January Additions Transfers Currency translation differences Amortisation Change in value in connection with put option Carrying amount at 30 June

Impairment tests During the first six months of 2011 FrieslandCampina carried out an analysis in respect of the goodwill and other non-current assets.

This test revealed no events that indicated an impairment of goodwill or other non-current assets during the first half of 2011.

Property, plant and equipment The movements in the balance sheet item property, plant and equipment during the first half of 2011 can be specified as follows (in millions of euros):

Carrying amount at 1 January 1,495 Additions 119 Disposals -2 Currency translation differences - 19 Transfers -3 Depreciation - 87 Impairment -3 Carrying amount at 30 June 1,500 The useful lives of property, plant and equipment were reviewed as of 1 January 2011 and, in most cases, extended. This change in accounting estimates has resulted in a reduction of depreciation expense over the first half of 2011 amounting to EUR 8.5 million.

903 12 3 6 -8 36 952

During the first half of 2011 the value of the liability in respect of the put option related to DMV-Fonterra Excipients GmbH & Co KG rose by EUR 36 million. This increase in value has been added to the goodwill. On 30 June 2011 the total liability related to the put option amounted to EUR 115 million and was recognised in other long-term liabilities.

Inventories An amount of EUR 118 million (2010: EUR 245 million) of the inventories of finished goods and goods for resale was carried at lower market value. The write-down amounted to EUR 14 million on 30 June 2011.

Commitments and contingencies Commitments and contingencies do not materially differ from those included in the most recently published Financial statements of 2010.

Related-party transactions There were no changes in respect of the nature and size of the related parties compared with the notes to the 2010 financial statements.

Subsequent events On 10 July 2011 the production facility of FrieslandCampina WAMCO Nigeria Plc. was flooded as a result of heavy rain. The flooding caused damage most of which is expected to be covered by the insurance.

Amersfoort, 26 August 2011

FrieslandCampina plays an important role in providing food for hundreds of millions of people all over the world on a daily basis. FrieslandCampina’s products include dairy-based beverages, infant & toddler nutrition, cheese, butter, cream, desserts and functional dairy-based ingredients.

In addition to consumer products FrieslandCampina also supplies profes­ sional customers, the food industry and the pharmaceutical sector.

FrieslandCampina has more than 130 years of dairy experience. With annual revenue of nearly 9 billion euro FrieslandCampina is one of the world’s largest dairy companies. In the field of consumer products the Company is active in many European countries, in Asia and in Africa. Sales to industrial customers take place worldwide. FrieslandCampina’s own offices and facilities in 25 countries employ a total of over 19,000 people.

FrieslandCampina’s products find their way to more than 100 countries.

Royal FrieslandCampina N.V. is owned by Zuivelcoöperatie FrieslandCampina U.A., with 14,800 member dairy farms in the Netherlands, Germany and Belgium.

Royal FrieslandCampina N.V. Stationsplein 4 3818 LE Amersfoort The Netherlands T +31 (0)33 713 3333 www.frieslandcampina.com