Annual 2011 | Royal Report FrieslandCampina N.V. Annual Report 2011 Royal FrieslandCampina N.V. 1

Annual Report 2011 Royal FrieslandCampina N.V.

Caption on cover:

Milk is one of the richest natural sources of essential nutrients. The nutritional power of milk is the basis on which FrieslandCampina provides consumers around the world with healthy, sustainably produced food. 2

Explanatory note

In this Annual Report we are presenting the financial results and key developments of Royal FrieslandCampina N.V. (hereafter FrieslandCampina) during 2011.

The financial statements have been prepared as at 31 December 2011. The figures for 2011 and the comparative figures for 2010 have been prepared in accordance with the International Financial Reporting Standards to the extent they have been endorsed by the European Union (EU-IFRS).

The milk price for 2011 received by members of Zuivelcoöperatie FrieslandCampina U.A. for the milk they supplied was determined on the basis of FrieslandCampina’s method for determining milk prices 2011 – 2013. All amounts in this report are in euros, unless stated otherwise.

This Annual Report includes statements about future expectations. These statements are based on the current expectations, estimates and projections of FrieslandCampina’s management and the information currently available. The expectations are uncertain and contain elements of risk that are difficult to quantify. For this reason FrieslandCampina gives no assurance that the expectations will be realised.

The Annual Report of Royal FrieslandCampina N.V. has also been published on the website www.frieslandcampina.com and is available on request from the Corporate Communication department of FrieslandCampina ([email protected]). The terms used in this Annual Report include:

The annual report of Royal FrieslandCampina N.V. is Royal FrieslandCampina N.V. (the ‘Company’ available in Dutch, German and English language versions. or ‘FrieslandCampina’) In the case of conflict between versions the Dutch text is Zuivelcoöperatie FrieslandCampina U.A. (the ‘Cooperative’) legally binding as it is the original. The English version has Supervisory Board of the Company (the ‘Supervisory Board’) been produced solely for the purpose of convenience. Executive Board of the Company (the ‘Executive Board’) Contents

General Foreword 4 Major developments in 2011 8 Key figures 10 Major financial developments in 2011 11 Profile, strategy and organisation 12 Report of the Executive Board Operational developments 26 Consumer Products Europe 34 Consumer Products International 37 Cheese, Butter & Milkpowder 40 Ingredients 42 Innovation 44 Supply Chain 45 Quality 45 FrieslandCampina and its staff 46 Outlook 49 Responsibility statement 49 Corporate Social Responsibility 52 Corporate Governance 58 Risk management 64 Report of the Supervisory Board 76 Financial statements 2011 Consolidated financial statements 83 Consolidated income statement 86 Consolidated statement of comprehensive income 87 Consolidated statement of financial position 88 Consolidated statement of cash flows 89 Consolidated statement of changes in equity 90 Notes to the consolidated financial statements 92 Principal subsidiaries, joint ventures and associates 132 Company financial statements 133 Company balance sheet 133 Company income statement 133 Notes to the Company financial statements 134 Other information 138 Provisions of the Articles of Association governing profit appropriation 138 Proposed profit appropriation of profit attributable to the shareholder of the company 138 Subsequent events 138 Independent auditor’s report 139 Overviews Financial history 142 Milk price overview 143 Supervisory Board 144 Executive Board 146 Corporate Staff 147 Business management and addresses 148 4 General Foreword

Foreword

Dear reader,

The milk price rises sharply route2020 on schedule 2011 was a good year for FrieslandCampina. The milk price for Last year FrieslandCampina took further steps towards achieving member dairy farmers was higher than ever before. This means route2020, the strategic course that is leading to the sustainable that, as far as the creation of value for member dairy farmers is growth of FrieslandCampina. In 2011 over 376 million euro was concerned, FrieslandCampina is ahead of the schedule drawn up invested, most of which related to increasing capacity for future in the route2020 strategy. This proves that the choices made with growth. The largest investments were made at the production the merger three years ago were the right ones. Since the merger facilities in Beilen and Bedum and focused on the production of the operating profit has improved substantially from 248 million infant & toddler nutrition, primarily for the Asian market. We are euro in 2008 to 403 million euro in 2011. also investing heavily to ensure we can cope with the expected increase in member milk after 2015. As far as 2011 is concerned, the Ingredients and Consumer Products International business groups achieved good results. New global category teams for the growth categories dairy-based The growth of infant & toddler products was faster than expected. beverages, infant & toddler nutrition and branded cheese are The results were under pressure in Europe and were particularly focusing on accelerating the growth and developing new concepts disappointing in Germany and Hungary. Although the result and products. was slightly lower than for 2010, the 2011 financial year proved that with its broad product portfolio and geographical spread In Wageningen work started on the construction of the new of activities FrieslandCampina is very capable of offsetting FrieslandCampina Innovation Centre, where from 2013 on over disappointing results in certain markets. 450 specialists will work on innovation.

The good result was achieved thanks to the efforts and dedication To improve both our cooperation with customers and our internal of our employees. A special compliment is owed to our employees efficiency further, we have introduced key account management. in Thailand and Nigeria who, in 2011, were confronted with By clustering the sales and marketing activities of different extremely difficult working conditions as a result of heavy rain and product groups, FrieslandCampina now offers ‘One face to the severe flooding. Thanks to their unceasing efforts, flexibility and customer’. creativity the damage from production stoppages and distribution problems remained limited. FrieslandCampina’s new worldwide sustainability programme for both the Company and the Cooperative is an important Unfortunately sad events also happened in 2011. Fatal accidents cornerstone of route2020. The guiding principle is that a healthy resulted in two people losing their lives while carrying out their and successful FrieslandCampina can only exist if it contributes work for FrieslandCampina. These are incidents that must not towards a healthy social environment and a healthy living be allowed to happen. Safety is a priority for FrieslandCampina. environment and supplies nutritious products. Everything possible is being done to make everybody in the organisation more aware of the possible risks and to prevent Last year FrieslandCampina took the initiative to stimulate dairy risky behaviour. cows being put out in the meadow by making an amount of up to 45 million euro available for member dairy farmers who let their cows graze outdoors. This is contributing towards keeping the cow in the Dutch landscape. General Foreword 5

Further growth FrieslandCampina is a dairy company of global proportions. The Company expects to pass the revenue milestone of 10 billion euro in 2012. FrieslandCampina is one of the largest Dutch exporters and a major player in the Dutch Agriculture & Food sector.

Further investments in route2020, cost reductions and efficiency improvements will contribute towards growth and value creation for the Cooperative’s members. FrieslandCampina’s intended "In 2011 over 376 million euro acquisition of two dairy companies in South-East Europe announced in February 2012 will reinforce its position in this region. was invested, most of which FrieslandCampina stands for quality and sustainability and offers its people an inspiring and challenging working environment. related to increasing capacity FrieslandCampina’s ambition for the coming years is to rank among for future growth." the most attractive employers in the most important countries in which the Company is active.

Looking back at the past years many far-reaching changes have taken place within both the Company and the Cooperative. The dairy industry offers opportunities and I am convinced that in the coming years FrieslandCampina will seize these opportunities. My colleagues on the Executive Board and I are proud to be able to lead this outstanding company in a close relationship with the Cooperative’s member dairy farmers.

Cees ’t Hart CEO Royal FrieslandCampina N.V.

Amersfoort, 2 March 2012

Sooo delicious

In Campina you can taste the best from the land. Joep agrees. He has been helping his father around the farm for many years. Putting the cows out in the meadow, feeding them, making sure they have water. He doesn’t do it just to help his father, he also does it for himself because he finds Campina custard sooo delicious. Campina products are made naturally from Dutch milk produced by cows that from spring to autumn graze outside in the meadow. 8 General Major developments in 2011

Major developments in 2011

2011 a good year

Good results from the Ingredients and Safety and safety Consumer Products awareness are key A record year for International business operational focal points member dairy groups Economic conditions farmers with a milk in Europe led to price of 38.77 euro increasing pressure on per 100 kilos of volumes and disappointing results milk Robust growth in infant & toddler nutrition

The successful A stronger position in the area of merger is the basis purchasing has led to more savings A new innovation for future growth centre for 450 R&D employees under construction on the Wageningen University Effi ciency campus Integration completed improvements in successfully production achieved

Synergy achieved A clearer profi le faster and to as an employer a greater extent makes attracting than expected new talent easier General Major developments in 2011 9

Growth in infant & toddler nutrition in both business- to-business and business- to-consumer Achievement 130 million euro invested in capacity of route2020 expansion for infant & toddler nutrition in strategy on 2010 - 2012 schedule

Long-term investment plans envisage heavy investment in the expansion of milk processing capacity in preparation for the ending of the milk quota in 2015

Global category teams for dairy-based beverages, infant & toddler nutrition and branded cheese focus on accelerating growth and innovation

‘One face to the customer’ introduced FrieslandCampina encourages cows being put for business-to- out in the meadow with a fi nancial stimulus for business key dairy farmers of up to 45 million euro a year accounts

Letter of intent signed for Revamped sustainability programme formulated the acquisition of two dairy companies for the Company and the Cooperative as an to reinforce FrieslandCampina’s position important cornerstone of route2020 in South-East Europe 10 General Key figures

Key figures

Results in millions of euros

2011 2010

million euro Revenue 9,626 8,972 9,626 Operating profit 403 434 revenue up by 7% Profit 216 285

Balance sheet in millions of euros 2011 2010

Balance sheet total 5,739 5,299 Equity 2,264 2,071 Equity attributable to shareholder of the 39.4 % Company and other providers of capital 2,148 1,961 solvency strengthened Net debt 1 699 776 Equity as a percentage of the balance sheet total 39.4% 39.1%

Cash flow in millions of euros

2011 2010

Net cash from operating activities 508 444 376 million euro Net cash used in investing activities 340 239 Depreciation of plant and equipment investments and amortisation of intangible assets 176 210

Value creation for member dairy farmers in euro per 100 kilos (excl. VAT, at 4.41% fat and 3.47% protein) 2011 2010

euro Guaranteed price 1,2 36.94 32.39 38.77 Performance payment 1 1.10 1.23 milk price up by 13% Registered reserve member bonds 1 0.73 0.73 Milk price 1 38.77 34.35

Additional information 2011 2010

Employees (average numbers of FTEs) 19,036 19,484 10.1 billion kilos Number of member dairy farms at year end 14,391 14,829 Number of member dairy farmers at year end 19,848 20,375 milk processed Total milk processed (in millions of kilos) 10,140 10,266 Milk supplied by member dairy farmers 8,838 8,821 (in millions of kilos)

1 In 2011 the reservation policy and the guaranteed price calculation method were 2 For 2011 this means the balance of the guaranteed price of 36.88 euro and an amended compared to previous years. The figures for 2010 have not been adjusted. adjustment of 0.06 euro. General Major fi nancial developments in 2011 11

Major fi nancial developments in 2011

Increased Milk price revenue up Guaranteed price Performance Milk price for Revenue up by 7% Operating profi t up by 14% to 36.94 payment (1.10 euro) Cooperative members to 9.6 billion euro due down by 7% to euro per 100 kilos and distribution of up by 13% to 38.77 to higher sales prices 403 million euro due of milk (excl. VAT, at member bonds (0.73 euro per 100 kilos and volume growth in to investments in 4.41% fat and 3.47% euro) down by a total (excl. VAT, at 4.41% ingredients and infant route2020, diffi cult protein) of 7% to 1.83 euro fat and 3.47% protein) & toddler nutrition in economic conditions per 100 kilos Asia and Africa in Europe and negative currency translation effects Improved Cash fl ow from operating activities up by 64 million euro (14.4%) to 508 million euro primarily due to cash fl ow better management of working capital Currency develop- Profi t down by 24% ments have an overall to 216 million euro due negative effect of to lower operating profi t 11 million euro on and incidental higher tax profi t and 105 million charges; corrected for Reserve 122 million euro 65 million euro (0.73 euro on revenue the amended reservation added to equity euro per 100 kilos of policy profi t down strengthens milk) added to the reserve by 13% balance registered in the names of sheet member dairy farmers

Revenue Operating profi t Operating profi t in millions of euros in millions of euros as a percentage of revenue 9,626 10,000 500 4.8

9,454 5 8,972 434 4.2 8,160 403 8,000 400 4 3.2 6,000 300 3 2.6 258 248

4,000 200 2

2,000 100 1

0 0 0 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011

P r o fi t Net cash fl ow Milk price in millions of euros in millions of euros in euros per 100 kilos, excl. VAT 38.77

300 285 800 40 36.66 786 34.35

216 30 600 27. 34 508 200 182 444

351 20 135 400

100 200 10

0 0 0 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 12 General Profi le, strategy and organisation

140 14,391 years of experience member dairy farms

19,036 25 employees countries with FrieslandCampina offi ces and facilities

45 million euro 50 % per annum (2012 – 2014) available for putting cows of the profi t paid out to member dairy farmers out in the meadow General Profi le, strategy and organisation 13

Profi le, strategy and organisation

With an annual revenue of 9.6 billion euro, Royal FrieslandCampina N.V. ranks among the world’s fi ve largest dairy companies. The Company provides healthy food, rich in valuable nutrients, to hundreds of millions of people on a daily basis. FrieslandCampina has a broad product portfolio and an extensive geographical spread of activities. The Company is wholly owned by Zuivelcoöperatie FrieslandCampina U.A., with around 19,850 member dairy farmers in the Netherlands, Germany and Belgium one of the world’s largest dairy cooperatives.

FrieslandCampina’s history goes back to around 1871 when Dutch To achieve this ambition, FrieslandCampina has formulated the farmers joined together in cooperatives so that together they could route2020 strategy for the period 2010-2020. The key words in the safeguard the supply and sale of milk. Today FrieslandCampina strategy are growth and value creation: growth of the Company and supplies consumer products, such as dairy-based beverages, infant ensuring all the milk produced by the Cooperative’s member dairy & toddler nutrition, cheese, butter, cream and desserts, in many farmers reaches its maximum value. To this end FrieslandCampina European countries, in Asia and in Africa. FrieslandCampina also is striving to achieve the following targets in 2020: supplies products to professional customers, for example cream • an increased share of specialities and branded products in the and butter products to bakeries and the hotel, restaurant and food total sales volume; service sector, and produces ingredients and half-fi nished products • further growth of operating profi t; for manufacturers of infant & toddler nutrition, the food industry • a substantially higher performance payment and a higher and the pharmaceutical sector worldwide. distribution of member bonds for the member dairy farmers; and • climate-neutral growth throughout the chain from cow to FrieslandCampina’s offi ces and facilities in 25 countries employ consumer. a total of over 19,000 people. FrieslandCampina’s products fi nd their way to more than 100 countries. The Company’s central offi ce To implement the strategy FrieslandCampina has defi ned the is in Amersfoort, the Netherlands. FrieslandCampina’s activities markets and product categories to which it will commit above- are divided into four market-oriented business groups: Consumer average investment. Six value drivers have been selected for this: Products Europe; Consumer Products International; Cheese, Butter dairy-based beverages, infant & toddler nutrition, branded cheese, & Milkpowder and Ingredients. geographical growth (in dairy-based beverages, infant & toddler nutrition and branded cheese), food service in Europe and basic Ambition, targets and route2020 strategy products. FrieslandCampina has a double-edged ambition: on the one hand to bring the essential nutrients of natural dairy to people worldwide, These value drivers will be developed on the basis of the existing and on the other hand to be the most attractive dairy company for fi rm foundation; as an experienced specialist in the entire dairy the Cooperative’s member dairy farmers. The growing demand on production chain and on the basis of strengthening the functions the world market for healthy food that is produced in a sustainable that are particularly relevant for the success of these value drivers, manner offers FrieslandCampina opportunities. Milk contains such as innovation and talent management. You can read more essential nutrients, such as proteins, fats, lactose, vitamins and about the strategy on pages 16 to 19. minerals. 14 General Profi le, strategy and organisation

The foundation Profi t appropriation, milk price and guaranteed price Milk is, by nature, one of the richest sources of nutrition and is, Out of the profi t of Royal FrieslandCampina N.V., 50% is added to therefore, important for people’s health and wellness. In addition, the Company’s equity, 30% is paid out to member dairy farmers as milk offers endless possibilities to use as a basis for dairy products. a performance payment for the milk supplied and 20% is paid out FrieslandCampina has more than 140 years of experience in to the member dairy farmers in the form of fi xed member bonds. processing milk into dairy products. As the Company is directly linked to the Cooperative it controls the entire production chain The milk price FrieslandCampina paid the member dairy farmers from raw milk to distribution. This means FrieslandCampina can of Zuivelcoöperatie FrieslandCampina U.A. for the milk supplied guarantee the quality of its products. The Company also has during the 2011 fi nancial year comprised the guaranteed price, the strong and prominent brands and good market positions in various performance payment and the distributed registered fi xed member geographical regions and in different product groups. bonds per 100 kilos of milk. The amount of the performance payment and the distribution of the fi xed member bonds depend Safety on FrieslandCampina’s fi nancial performance and the reservation FrieslandCampina pays considerable attention to safety and has an policy. The performance payment is paid out to the Cooperative’s on-going worldwide programme to increase the safety awareness members annually, after the fi nancial statements have been of all its employees. The safety awareness programme and the adopted, in proportion to the value of the quantity of milk they improved management of risks and operating processing must lead have supplied during the year in question. to the number of accidents requiring sick leave being halved within fi ve years. The guaranteed price for the milk supplied by the member dairy farmers is based on the weighted average annual milk price Corporate Social Responsibility for raw milk of twelve German dairy companies, Arla Foods in It goes without saying that Corporate Social Responsibility (CSR) Denmark, Bel Leerdammer, Cono Kaasmakers and DOC Kaas in plays a key role in the route2020 strategy. As one of the world’s the Netherlands and Milcobel in Belgium, including any back- largest dairy concerns FrieslandCampina accepts its responsibility payment from the dairy cooperatives to their dairy farmers and for further increasing the sustainability of dairy farming and the any formation of equity registered in the names of the members of chains for processing and distributing dairy, for marketing healthy these cooperatives. You can read more about the 2011 milk price on food and for supporting local food production in Asia and Africa pages 29 and 30. by transferring knowledge and expertise to farmers in the dairy sector. FrieslandCampina strives for the climate-neutral growth of its activities; both at the farm level and at the company level. You can read more about Corporate Social Responsibility on page 52. General Profi le, strategy and organisation 15

Zuivelcoöperatie holding all shares in FrieslandCampina U.A.

Members

Districts

Royal Member council FrieslandCampina N.V.

Cooperative Council General Meeting of Shareholders Board

Supervisory Board

Executive Board

Corporate Centre

Consumer Products Consumer Products Cheese, Butter Ingredients Europe International & Milkpowder

FrieslandCampina Benelux FrieslandCampina Indonesia FrieslandCampina Cheese FrieslandCampina Domo

FrieslandCampina Dagvers FrieslandCampina Vietnam FrieslandCampina FrieslandCampina Kievit Cheese Specialties FrieslandCampina Germany FrieslandCampina Malaysia/ FrieslandCampina DMV Singapore FrieslandCampina FrieslandCampina Hungary Butter & Milkpowder FrieslandCampina FrieslandCampina Thailand Creamy Creation FrieslandCampina Romania FrieslandCampina China FrieslandCampina FrieslandCampina Hellas Dairy Feed FrieslandCampina Hong Kong FrieslandCampina Russia DFE pharma FrieslandCampina FrieslandCampina UK WAMCO Nigeria FrieslandCampina Spain FrieslandCampina Middle East

FrieslandCampina Professional FrieslandCampina Export 16 General Profi le, strategy and organisation

route2020 strategy in 2011

In 2011 FrieslandCampina made signifi cant progress towards the achievement of its route2020 strategy. Several investment projects were set in motion for the strategic growth categories specifi ed in route2020 – dairy-based beverages, infant & toddler nutrition and branded cheese. The organisation was adjusted further and the fi rst CSR initiatives to achieve the growth in a climate-neutral manner throughout the entire chain from cow to consumer in 2020 were taken.

create care change • together

Investments in strategic growth In the dairy-based beverages growth category FrieslandCampina One of the route2020 strategic categories is strengthening the wants to increase its share in the total dairy consumption. infant & toddler nutrition market positions worldwide both as To achieve this the Company is investing heavily in the ingredients and as end products. In anticipation of an increasing development of new concepts and products. The eighteen-month demand for high-quality infant & toddler nutrition, especially from investment programme that started in Aalter in Belgium last year Asia, in 2010 FrieslandCampina formulated an investment plan will result in the production capacity of the long-life dairy-based with which the production of infant & toddler nutrition would be beverages being doubled. The total investment will amount to doubled in the coming years. In 2011 a total of 376 million euro was 36 million euro. invested, 130 million of which was related to the expansion of the production facilities in Beilen and Bedum. In China, not only were With the introduction of Noord-Hollandse Gouda cheese in the activities in the fi eld of infant & toddler nutrition expanded, Germany, FrieslandCampina has taken a step towards its envisioned including activities under the Friso brand, but a sales company was substantial market share increase in the branded cheese category. set up for ingredients for the infant food and the food industry. Sales in Russia under the brand name Frico have been intensifi ed through the establishment of a local sales organisation.

In February 2012 the intended acquisition of two dairy companies Investments in millions of euros in South-East Europe was announced. The acquisitions will reinforce FrieslandCampina’s market position in South-East Europe. 376 400 Political developments in several countries in the Middle East led to the intended expansion of the activities in North Africa being 350 postponed.

300 261 240 231 250 Milk valorisation

200 FrieslandCampina has started a project that will match the offering of milk and the availability of production capacity to the 150 anticipated demand for milk and milk components. The project 100 must result in FrieslandCampina having the right processing 50 capacity available in time to handle the expected increase in the

0 volume of milk supplied by the member dairy farmers after the 2008 2009 2010 2011 milk quota is lifted in 2015. General Profi le, strategy and organisation 17

Organisational improvements Knowledge about milk During 2011 global category teams for dairy-based beverages, In the context of increasing knowledge about milk and the role infant & toddler nutrition and branded cheese were set up. The milk plays in day-to-day nutrition, more than 600 employees category teams focus on innovation and marketing. The research in marketing, sales and research & development participated & development organisation has been geared to the strategic in workshops and followed e-learning modules. A better guiding principles of route2020. This must lead to faster and more understanding of the nutritional aspects of dairy in the context effective innovation. In 2011 work started on building the new of product development, marketing and consumer information is FrieslandCampina Innovation Centre in Wageningen. The Innovation important in this respect. Centre will bring the research & development activities together in a new location and the capacity will be expanded further. Formulation of the CSR policy During 2011 the Foqus Planet sustainability programme was As of 1 September 2011 Consumer Products International’s offi ce developed in collaboration with the member dairy farmers. was relocated from Amersfoort to Singapore. Several support The programme revolves around stimulating dairy farmers to make departments were also moved to Singapore from Kuala Lumpur their business operations more sustainable through the exchange (Malaysia) during the course of the year. This move means the of knowledge in workshops, model farms and the internet. Last business group’s management team is now closer to the operating year more than 80 get-togethers were organised throughout the activities. Over 60% of Consumer Products International’s revenue Cooperative's working terrain in the Netherlands, Germany and is generated in Asia. Belgium during which Board members and over 7,800 members and business colleagues could exchange views. With the integration of the commodity activities in the fi eld of milk powder and cheese into a single Cheese, Butter & Milkpowder In 2011 FrieslandCampina was one of the fi rst companies in the business group, FrieslandCampina wants to bring more value to Netherlands to implement the international guidelines for Corporate commodity products. Social Responsibility. The so-called ISO 26000 guidelines help clarify the CSR principles, guidelines, priorities and concepts for companies Key account management has been implemented in the Ingredients and offer tips for implementing CSR policy. In 2011 FrieslandCampina business group. This has improved both the cooperation with rose from a 37th to a 20th position on the Ministry of Economic customers and internal effi ciency. In 2012 – 2013 all the activities Affairs, Agriculture and Innovation’s Transparency Benchmark. related to the marketing and sales of branded products (dairy- based beverages and fruit juices, desserts, cheese and butter) in the Netherlands will be clustered into a new operating company.

The sales activities of private label products to supermarkets in western Europe are also being restructured. This will cluster together the total product offering of dairy-based beverages, butter and cheese. It is also the intention to cluster all the activities related to the export of consumer products from the Netherlands to countries outside of Europe into a new operating company. The export of products such as condensed milk, milk powders, infant & Expanding production of toddler nutrition, cheese and butter is currently carried out by two infant & toddler nutrition separate operating companies. Infant & toddler nutrition, in the form of both ingredients and Automation fi nished end products, is one of the strategic value drivers for The objective of FrieslandCampina’s Summit project is to growth. This is why over 130 million euro is being invested in standardise operating processes and systems by developing FrieslandCampina Domo’s factories, especially in the Beilen and a single automation platform and infrastructure. In 2011 the Bedum production facilities, where the capacity is being expanded standards were developed that will initially be implemented in the substantially. Environment-saving measures are also playing a major Butter & Milkpowder operating company and the corporate staff role, for example through the reduction of energy consumption. departments. The new system will ultimately be used by all the In the Bedum facility not only is the production capacity being operating companies and departments. The changes will go hand expanded, a new water purifi cation system is being installed. in hand with an intensive guidance and training process for all The expansion will enable FrieslandCampina Domo to produce employees. more infant & toddler nutrition products in the future. 18

Strategy route2020: Growth & value creation

Benefi t platforms

Growth & development

Capabilities

Talent management

Foundation

Goodness of dairy 18 19

Strategy route2020: Aspiration Growth & value creation

To bring the To be the essential nutrients most attractive of natural dairy to dairy company for people worldwide member farmers

Value drivers

Dairy-based Infant & toddler Branded cheese Strongholds & Foodservice Basic products beverages nutrition (B2B, geographic in Europe B2C) expansion

Benefi t platforms

Growth & development Daily nutrition Health & wellness Functionality

Capabilities

Talent Business model management Milk valorisation Innovation & cost focus

Foundation

Sustainable dairy farming & The way we work Goodness of dairy Chain advantages business operations & safety 20 General Profi le, strategy and organisation

FrieslandCampina worldwide

FrieslandCampina has its own offi ces and facilities in 25 countries in Europe, Asia, Africa and North America. FrieslandCampina’s dairy products are available in over 100 countries. With its products FrieslandCampina plays an important role in providing hundreds of millions of people around the world on a daily basis. FrieslandCampina’s consumer products include dairy-based beverages, infant & toddler nutrition, cheese, butter, cream and desserts. FrieslandCampina also supplies products to the hotel, restaurant, food service and bakery sector and nutritional ingredients to customers in the food industry and the pharmaceutical industry.

324 North and revenue (in millions of euros) South America

United States of America 140 employees

5 locations General Profi le, strategy and organisation 21

6,307 Europe revenue (in millions The Netherlands of euros) Germany Belgium 12,662 Hungary employees Romania Greece Russia 71 United Kingdom locations France Spain Italy Austria

999 Africa and 1,996 Asia and revenue revenue (in millions (in millions of euros) the Middle East of euros) Australia

Ghana China 1,032 Nigeria 5,202 Hong Kong employees employees Indonesia Saudi Arabia Malaysia United Arab Emirates Singapore 4 23 Thailand locations locations The Philippines Vietnam 22 General Profi le, strategy and organisation

Our brands Consumer products

Het beste van ons land Liebe ist, wenn es Quality milk Melk maakt de koffi e proef je in Campina Landliebe ist

Membuka Potensi Sebenar De fruitigste drinkyoghurt Milner gemaakt met Voor het lekkerste halfvolle melk kopje koffi e

MET LGG®

voor een natuurlijke weerstand*

De enige echte Cea mai buna nutritie Voor een natuurlijke Premium Dutch special creata pentru tine weerstand quality cheese

De lekkere zuivel met 0% vet Milk, shaken up Growing up together en geen suiker toegevoegd

Raih esokmu It’s in you Fruchtiger yoghurtgenuss Daar word je blij van General Profi le, strategy and organisation 23

Professional Ingredients market

Napolact. Ca odinioara Unique conditions Als talenten samensmelten Closer to you make unique cheeses

Simply trusted

Γάλατα υπάρχουν πολλά, Passie voor fruit Vrijheid van smaak NΟΥΝΟΥ όμως, ένα.

Let’s talk

A Pöttyös az igazi!® Als je voor echt lekker gaat Het beste van ons land proef je in Campina

Where great things come to life

Desserts sind unsere Een lekker stukje zuivel Natuurlijk lekker Leidenschaft

Everything to help you grow

Iedereen DubbelFrisss We keep it cool, you get the best The pursuit of excipient excellence

Made-to-measure solutions

For decades sweetened condensed milk and evaporated milk have been an important source of proteins, fats and minerals in many countries. The products do not have to be refrigerated. The condensed milk is generally used in coffee or tea but is also used as a nourishing taste enhancer in dishes. Although in most cases it is sold in tins, not everyone can afford such a tin. This is why FrieslandCampina Wamco in Nigeria developed a special, small sachet packaging for Peak evaporated milk. The sachets enable mothers to buy the milk in small doses. 26 Report of the Executive Board Operational developments

Report of the Executive Board Good operating profi t with a record milk price for member dairy farmers

2011 was a record year for FrieslandCampina’s member dairy farmers. They received a milk price of 38.77 euro per 100 kilos of milk, 13% higher than in 2010. FrieslandCampina’s revenue rose by 7% to 9,626 million euro, primarily due to price increases. The Ingredients and Consumer Products International business groups were the main contributors towards the profi t and this revenue growth.

Investments in the organisation in the context of the route2020 Dutch Lady (South-East Asia) and Peak (Nigeria) performed well. strategy, diffi cult economic conditions in Europe and incidental Currency translation effects (primarily the euro against the US higher tax liabilities put pressure on the profi t. Operating result dollar) had a negative effect on revenue of 105 million euro. fell by 7% to 403 million euro and profi t fell by 24% to 216 million euro (corrected for the amendment to the reservation policy profi t The Consumer Products Europe business group achieved fell by 13%). a revenue growth of 4% to 3,395 million euro (2010: 3,269 million euro). The increase in revenue was due primarily to higher selling Higher revenue prices. Consumers’ reluctance to spend put sales volume under The revenue of Royal FrieslandCampina N.V. rose by 7% in 2011 to pressure, especially in the second half of the year. Despite market 9,626 million euro. The volume of infant & toddler nutrition rose in conditions being diffi cult the business group succeeded in retaining both the business-to-business market and the consumer market. the market share of most of its brands. Campina, the largest brand Brands such as Friso (infant & toddler nutrition), in the Netherlands, gained market share.

Roelof Joosten Kees Gielen Cees ‘t Hart Report of the Executive Board Operational developments 27

The Consumer Products International business group (Asia, Africa The Ingredients business group had a good year: its revenue and the Middle East) once again performed well with revenue rose by 16% to 1,930 million euro (2010: 1,669 million euro). rising by 8% to 2,460 million euro (2010: 2,277 million euro). This revenue increase was the result of higher sales volumes, The revenue increase was due to higher selling prices and volume primarily of ingredients for infant & toddler nutrition, and higher growth, especially of infant & toddler nutrition. The expensive euro prices. The high demand for ingredients from Asia was a major compared to the US dollar and the Vietnamese dong led to a contributor towards this increase. To answer the increased 92 million euro negative currency translation effect on revenue. demand a considerable amount was invested in expanding The Friso brand performed well in China and Hong Kong. Dutch production capacity. Lady achieved very good results in Malaysia. In Vietnam and Indonesia increasing price competition put pressure on the margin P r o fi t and market share of dairy-based beverages. Operating profi t for 2011 was 403 million euro, 7% less than for 2010 (434 million euro). Operating profi t as a percentage The Cheese, Butter & Milkpowder business group’s revenue rose of revenue amounted to 4.2% (2010: 4.8%). The increased by 7% to 2,822 million euro (2010: 2,641 million euro). milk price and the higher prices of other raw materials could The growth was the result of higher selling prices. Branded cheese, almost be fully passed on in the selling prices. Investments in like the branded products of the Consumer Products Europe the achievement of the route2020 strategy, diffi cult economic business group, experienced diffi culties in Europe due to the conditions in Europe and negative currency translation effects put economic conditions. The export of cheese outside the European pressure on the result. Thanks to lower depreciation and improved Union remained stable despite the political developments in effi ciency, FrieslandCampina was able to offset some of the North Africa and the Middle East. pressure on the margins.

Kapil Garg Freek Rijna Piet Hilardes 28 Report of the Executive Board Operational developments

Revenue by business group Revenue by geographical region in millions of euros in millions of euros

North & South Africa & America Consumer Ingredients the Middle East 3% Products 18.2% 10% 324 The Netherlands 1,930 Europe 999 25% 32.0% 2,435 3,395 Asia & Australia 21% 1,996 26.6% 9,626 9,626 2,822 14% Cheese, Butter 1,317 & Milkpowder Germany 23.2% 2,460 27% 2,555 Consumer Products Rest of Europe International

Revenue by business group 2011 2010 in millions of euros % 1 % 1 Consumer Products Europe 3,395 32.0 3,269 33.2 Consumer Products International 2,460 23.2 2,277 23.1 Cheese, Butter & Milkpowder 2,822 26.6 2,641 26.8 Ingredients 1,930 18.2 1,669 16.9 Other 288 255 Elimination of internal supplies - 1,269 - 1,139 Total 9,626 8,972

1 Before Other and Eliminations of internal supplies

Revenue by geographical region 2011 2010 in millions of euros % % The Netherlands 2,435 25 2,291 26 Germany 1,317 14 1,287 14 Rest of Europe 2,555 27 2,380 27 Asia and Australia 1,996 21 1,781 20 Africa and the Middle East 999 10 945 10 North and South America 324 3 288 3 Total 9,626 100 8,972 100 Report of the Executive Board Operational developments 29

Consumer Products Europe’s operating profit fell to 55 million Profit for 2011 amounted to 216 million euro (2010: 285 million euro (2010: 126 million euro) as a result of difficult economic euro). The most important reasons behind the reduced profit conditions in Europe and pressure on volume due to higher prices. were higher investments in the organisation in the context of the Margins were under pressure during the first half of 2011 because, route2020 strategy and higher tax expenses. The amendment of due to contractual agreements, in many cases there was a delay the milk price system and reservation policy led to a lower profit before the higher guaranteed price of raw milk and other raw and a higher pay-out to the member dairy farmers. materials could be passed on. The margins recovered in the second half of the year. In Germany price competition resulted in profit In 2011 operating costs rose by 8% to 9,243 million euro (2010: development lagging behind throughout the year. In Hungary 8,558 million euro). Payment to the member dairy farmers, which profit was negatively influenced by the economic conditions and is a component of operating costs, rose by 13% to 3,456 million incidental higher tax liabilities. The sale of a participation in Spain euro (2010: 3,054 million euro). resulted in a one-time income of 9 million euro. From the profit 122 million euro was attributed to the Consumer Products International’s operating profit remained shareholder of Royal FrieslandCampina N.V., Zuivelcoöperatie stable at 353 million euro (2010: 356 million euro). Infant & toddler FrieslandCampina U.A. (2010: 192 million euro). This is 70 million nutrition did particularly well. Not all the higher dairy product euro less than in 2010, in part as a result of the revised milk price prices could be passed on in full. Measures to offset the pressure system and reservation policy. The profit attributable to on margins included implementing cost savings. At the same time, the providers of member certificates rose by 10 million euro to revenue and volume development were stimulated by specific 39 million euro as a result of higher interest. From the profit investments in advertising and promotion. 9 million euro was paid out to the providers of the perpetual notes (2010: 9 million euro) and 46 million euro was attributed The Cheese, Butter & Milkpowder business group achieved a negative to non-controlling interests (2010: 55 million euro). operating profit of 97 million euro (2010: -92 million euro). The operating profit of this business group in particular is negatively Milk price influenced by the costs of the performance payment and the FrieslandCampina paid the member dairy farmers of Zuivelcoöperatie distribution of member bonds being charged to the business groups FrieslandCampina U.A. a milk price of 38.77 euro (excluding VAT) per in proportion to the amount of member milk received. The Cheese, 100 kilos of milk (at 4.41% fat and 3.47% protein). This is 13% higher Butter & Milkpowder business group processed 56% of the member than in 2010 (34.35 euro per 100 kilos of milk). milk. Although the results from commodities such as foil cheese and milk powder improved slightly, the price development and sale The guaranteed price for 2011 was 36.94 euro excluding VAT of branded cheese were under pressure due to declining consumer per 100 kilos of milk, 14% higher than the 2010 guaranteed confidence and the economic developments in a number of countries. price (32.39 euro per 100 kilos of milk). The guaranteed price is calculated using the weighted average of the annual milk price The Ingredients business group improved its operating profit by for raw milk paid by the reference companies (twelve German 48% to 189 million euro (2010: 128 million euro). The maximum dairy companies, Arla Foods in Denmark, Bel Leerdammer, production capacity utilisation resulting from the growth, the good Cono Kaasmakers and DOC Kaas in the Netherlands and Milcobel results with ingredients and the higher revenue prices contributed in Belgium) and since 2011 has included any back-payment from towards the higher profit. the dairy cooperatives to their dairy farmers and any formation of registered equity. At 13 million euro the profit from joint ventures and associates remained the same as in 2010. The performance payment for 2011 was 1.10 euro per 100 kilos of milk excluding VAT. This is 11% lower than the performance Net financing income and expenses rose by 3 million euro, which payment for 2010 (1.23 euro per 100 kilos of milk). resulted in an expense of 72 million euro. Net interest expense amounted to 42 million euro (2010: 44 million euro).

Taxes amounted to 128 million euro (2010: 93 million euro). The effective tax rate rose from 24.4% to 37.2%. The increase was primarily due to incidental higher tax expenses in Hungary as a result of amended legislation and in Germany and Hungary due to the writing-down of deferred tax assets as a result of the expected drop in future results in both countries. 30 Report of the Executive Board Operational developments

The amount of the performance payment and the distribution of Financing member bonds depends on the Company’s financial performance. FrieslandCampina raises loans from different groups of lenders 30% of FrieslandCampina’s profit based on the guaranteed price (member dairy farmers, banks and investors). This ensures a and after deduction of the distribution of member bonds, the good spread of any risks in FrieslandCampina’s financing. recompense for perpetual notes and the profit attributable to The major portion of the loan capital financing has been borrowed non-controlling interests is paid out to members as a performance from financial institutions in and outside the Netherlands. payment and 20% is reserved in the form of member bonds. The major portion of the bank loans comprises a committed credit facility (Revolving Credit Facility) amounting to 1 billion euro. The distribution of member bonds for 2011 was 65 million euro. At the end of 2011 a new agreement was signed with 14 banks. This amounts to 0.73 euro per 100 kilos of milk (2010: 0.73 euro per The conditions attached to the new agreement are more 100 kilos of milk). favourable for FrieslandCampina because the interest rate is lower and the term is longer. The term has been extended by two years Compared with 2010 the interest on member bonds rose from to the end of August 2015. The amount of the facility remains 29 million euro to 39 million euro due to the rise of the Euribor and unchanged at 1 billion euro. The amendment could be achieved the interest rate and an increase in the number of member bonds. on the grounds of FrieslandCampina’s improved creditworthiness profile and good performance.

At the end of 2011 net debt amounted to 699 million euro, 77 million euro lower than at the end of 2010 (776 million euro). This was mainly due to an increase of cash and cash equivalents of 128 million euro less a 51 million euro increase of the interest- bearing obligations and a 128 million increase in cash and cash equivalents. Working capital improved, especially in the second half of the year. The standards expressed in financial indicators applied by lenders were met.

Pension charges and coverage ratio In 2011 pension charges rose from 81 million euro to 88 million Milk price euro. Most of the charges related to the Dutch pension plans. The most important pension agreements with FrieslandCampina’s As of the 2011 financial year FrieslandCampina’s milk price Dutch employees are laid down in the Employment Agreement comprises the guaranteed price, the performance payment related to pensions for the dairy industry. Within the Company and the distribution of the fixed (registered) member bonds there are various other pension plans in place. The pension plans per 100 kilos of milk. In 2011 the reservation policy and are administered by various external pension administrators the calculation of the guaranteed price for the milk of the the most important of which are Avéro Achmea Pensioen and member dairy farmers was amended compared with the Stichting Pensioenfonds Campina. In 2011 the pension funds were years 2008 – 2010. This had a negative effect of 32 million confronted with a continuing downwards market trend. This is the euro on the profit and a positive effect of 0.48 euro main reason why the coverage rate of Pensioenfonds Campina per 100 kilos of milk on the milk price. 50% of the profit dropped from 99% at the end of 2010 to 96% at the end of 2011. (was 40%) is available to the members of the Cooperative, At the end of 2011 the coverage rate of the separate investment of which 30% is paid out to the member dairy farmers as fund administered by Avéro Achmea Pensioen was 113% (end of a performance payment for the milk supplied and 20% is 2010 117%). This last coverage rate was determined on the basis paid out in the form of fixed member bonds. Since 2011 the of the insurance conditions agreed with the insurance company. calculation of the guaranteed price has included any back- The pension Employment Agreement has been extended without payment and the formation of equity in the name of the change until 1 January 2013. Currently FrieslandCampina is in reference cooperatives’ dairy farmers. consultations with the different social partners regarding bringing the pension structure in line with the market and the pension agreement worked out in 2011. Report of the Executive Board Operational developments 31

European Union conditions related to the merger market being cheaper. The prices of whey products and skimmed The European Union stipulated several conditions in connection milk powder from the EU in particular became more attractive. with the merger of Friesland Foods and Campina in 2008. The same could not be said for butter. The price of butter was lower on the world market than it was in Europe, which meant The independent Dutch Milk Foundation (DMF) implements the virtually no butter could be exported from the EU. European Union’s condition that producers of fresh dairy products and naturally matured cheese must be able to purchase up to In 2011 a mix of factors led to prices for dairy products such as 1.2 billion kilos of Dutch raw milk from FrieslandCampina at the milk powder, caseinates, butter, foil cheese and whey rising to FrieslandCampina guaranteed price less 1%. Arla Foods and almost the record levels of 2007. In mid 2011 EU prices for dairy De Graafstroom have made use of this option and, via the Dutch commodities stabilised. Thanks to the increasingly weak euro Milk Foundation, have been guaranteed supplies until 1 January this re-stimulated export. The prices of whey products, including 2017. lactose, have increased dramatically.

The Foundation also administers the severance scheme for FrieslandCampina’s Dutch member dairy farmers. Member dairy farmers who wish to terminate their membership of FrieslandCampina and sell their milk elsewhere receive a severance payment of 5.00 euro per 100 kilos of milk. The quantity of milk that used to be supplied by the departing members is deducted from the volume of 1.2 billion kilos of milk. In the period 1 January to 31 December 2011 the Dutch Milk Foundation approved 25 requests from dairy farmers who wished to terminate their membership of Zuivelcoöperatie FrieslandCampina under the severance scheme. In total this involved nearly 21 million kilos of milk and an amount of 1 million euro. In 2010 the DMF approved 36 requests and in 2009 one request.

Market developments in 2011 The worldwide demand for dairy products from both consumers and industrial customers developed positively in 2011. Economic growth, particularly in China and India but also in South America, has contributed towards this. In Europe the demand for dairy products was under pressure as a result of the decreasing spending power in a number of countries. The offering of milk is increasing worldwide. In 2011 the conditions for dairy products were good. In Europe milk production increased by around 2%. Favourable weather conditions in the southern hemisphere resulted in higher milk production in New Zealand, Argentina Drink More, Do More! and Uruguay. FrieslandCampina Malaysia’s employees have built-up a tradition In the fi rst half of 2011 the weak US dollar made the export of when it comes to celebrating World Milk Day. In 2011 they held European products diffi cult. American dairy production could, a Taste Election under the motto ‘Choose your favourite taste so therefore, profi t the most from the increasing global trade during you can enjoy all the goodness of milk even more. Drink more, the fi rst half of 2011. During this period the European dairy industry do more!’. Each of the four varieties of milk drink FrieslandCampina could profi t from the growing demand from Russia and Algeria. In markets in Malaysia was linked with a local celebrity. World Milk mid 2011 the fi nancial market’s loss of confi dence in the euro led Day was the high-point of a three-week campaign. The election to the euro crisis and, as a result, a weaker euro and a stronger drew over a million unique visitors to the special facebook page US dollar. This resulted in European dairy products on the world and delivered 232,000 votes. Naturally healthy and delicious

Looking after yourself begins with a healthy lifestyle. Enough exercise, regular relaxation and, first and foremost, a healthy diet are important. At the same time we all want to enjoy ourselves and eat delicious food. FrieslandCampina tries to help people find this balance with its natural dairy products. This is also the case in Hungary and Romania, where FrieslandCampina markets its Milli dairy products, including a range containing special ingredients, such as omega-3-fatty acids and probiotics.

34 Report of the Executive Board Consumer Products Europe

Consumer Products Europe

2011 2010 Market conditions In 2011, and particularly in the second half of the year, the Revenue in millions of euros 3,395 3,269 economies of most European countries worsened after a relative Operating profi t in millions of euros 55 126 recovery in 2010. In some countries there was shrinkage. Operating profi t as a % of revenue 1.6 3.9 Consumer confi dence declined due to uncertainties regarding the future of the euro and rising unemployment. The result was a reduction in consumer spending. In most European countries • Revenue growth through higher selling prices the demand for dairy products fell and consumers often opted for cheaper alternatives. In Germany in particular revenue and • Disappointing profi t due to declining margins were under pressure as a result of the supermarkets’ consumer confi dence and disappointing sharp focus on lower prices. revenue and profi t development in Germany and Hungary Revenue and operating profi t The business group’s revenue rose by 4% to 3,395 million euro • Market share of most dairy brands (2010: 3,269 million euro). This was primarily due to price increases maintained that, albeit after a delay, could be passed on throughout the year in contracts based on the increase in the price of raw milk and other raw materials. Thanks to the strong brand positions, including Campina in the Netherlands, and promotional campaigns the business group could maintain its level of total revenue and volume. In a number of countries, however, volume dropped as a result of price increases. Overall, the business group was able to The Consumer Products Europe business group maintain the market share of most brands. produces and sells drinking milk, dairy-based beverages, yoghurts, desserts, coffee creamers, Operating profi t dropped by 56% to 55 million euro (2010: 126 cream products, butter specialities, soft-ice million euro). After an extremely diffi cult fi rst half of the year margin developments recovered in the second half of the year. cream and milkshake mixes in Europe and fruit Increases in raw materials prices could not immediately be juices, fruit drinks and sports drinks in the passed on in the selling price, especially during the fi rst half of Netherlands and Belgium. The business group 2011. In general supermarkets tried to delay price increases as targets both consumers and professional long as possible. In the second half of the year it was possible to customers. pass on higher prices in contracts. Thanks to this and the results of effi ciency programmes in production facilities, the margins recovered. Report of the Executive Board Consumer Products Europe 35

Investments in Belgian companies

The reshuffl ing of production in the Consumer Products Europe business group has led to an investment programme in the facilities in Aalter and Bornem (both in Belgium). By increasing the production capacity and renovations both facilities are now high-tech production facilities that in the coming years will produce products for the Belgian, British, German, French and Dutch markets. Well-known FrieslandCampina brands, such as Chocomel/ Cécémel and Fristi, will be produced in the Belgian facilities.

Fresh daily Benelux’s branded products under pressure. Even so, thanks The Campina brand of fresh dairy products achieved growth to strong market positions and support from promotions, the in terms of revenue, volume and market share. The successful operating company succeeded in maintaining its market shares. positioning of Dutch meadow milk and the many visitors to the open farm days showed once again that there is increasing Last year FrieslandCampina Benelux’s efforts to make its business demand from consumers for natural dairy products. operations more sustainable were recognised with the awarding For the tenth year in a row Campina was the best selling brand in of the FSC Retail Award for the successful Appelsientje consumer Dutch supermarkets. Margins were, however, under pressure. campaign, which drew attention to the importance of FSC certifi cated cardboard beverage packaging. Appelsientje was just Supermarkets also responded to the growing interest in the start – since last year all FrieslandCampina Benelux’s other the community for keeping cows in the Dutch landscape. beverages have also been packaged in responsibly produced Supermarkets are increasingly prepared, albeit reluctantly, to pay cardboard. In this context, in 2011 a start was made on a more a premium for meadow milk. effi cient provisioning in the Benelux by working in cooperation with food manufacturer H.J. Heinz Benelux and logistics services Benelux provider Nabuurs. The companies expect this collaboration for

The FrieslandCampina Benelux operating company had a diffi cult provisioning will reduce CO2 emissions by 20% in the period year. Consumers were more price-aware when they shopped and 2011 – 2015. chose cheaper products and/or offers more frequently. This put the revenue, volumes and margins of FrieslandCampina 36 Report of the Executive Board Consumer Products Europe

Germany positively, in part thanks to its profi ling based on natural dairy In 2011 FrieslandCampina Germany’s revenue, and in particular produce from Romania. Distribution around the country improved. its profi t development, were disappointing. Local competition and declining consumption put the German dairy market under Although reduced consumer spending power in Greece led to pressure. As in the previous years the German market was a slight drop of revenue and volume, FrieslandCampina Hellas characterised by the domination of the large supermarket chains, managed to maintain its profi t at virtually the same level thanks which are increasingly competing on price. This was one of the to continuing investment in the further expansion of its position reasons why the price and margin development of dairy products as market leader with more intensive advertising and promotion lagged behind in comparison with other countries. Very little of the activities and the offering of smaller and cheaper packaging. higher prices paid out for the raw milk in 2011 could be passed on Market shares, on average, remained the same. The market share to the market. FrieslandCampina Germany did manage to maintain of Friso improved. the volumes and market share of its Landliebe brand despite reduced spending on advertising & promotions. Volumes in the The professional market fi eld of private label production were under pressure. FrieslandCampina Professional focuses on the catering, bakery and fast food chain markets with its cream products, butters, sauces, Other European countries desserts and soft ice & milk shake mixes. Restaurants and the In Russia revenue and profi t rose once again. The recovery of bakery sector in particular were confronted with the effects of the dairy market continued in 2011. The revenue growth in euros lower consumer spending. Despite the diffi cult market conditions was less exuberant than in 2010 due to a weaker rouble and a the operating company succeeded in increasing its revenue and temporary stoppage of export of dairy products produced in volume compared with 2010. The profi t for the entire year was Russia to White Russia. Sales of Campina Fruttis’ yoghurt and slightly lower than for the previous fi nancial year. The higher Campina Nezhny’s coffee creamer in individual portions developed prices, especially for fat, could be better passed on to the market positively, in part because more and more supermarkets are as the year progressed. The 50% interest in the Spanish company including Campina products in their range. El Castillo Debic was sold to Lactalis.

FrieslandCampina Hungary had a diffi cult year. Revenue and profi t Production chains were under pressure as the country’s economic situation led to a Despite the diffi cult market conditions the business group decline in consumer spending. In combination with a substantial continued investing in staff and increasing the effi ciency of the increase in VAT and the devaluation of the Hungarian forint production chain. In 2011 the production capacity in Aalter and volumes dropped, especially of Milli brand premium products. Bornem in Belgium was expanded. The aim of the 36 million euro The response was more special actions and the offering of cheaper investment is a doubling of the production capacity in Aalter and products in smaller packaging. The OK value-for-money brand 90 extra jobs. The project will be completed in 2012, after which strengthened its market position. products formerly produced in Leeuwarden (the Netherlands) and Kalkar (Germany) will be relocated to Aalter. The production In Romania revenue rose slightly compared with 2010 while volume facility in Patras (Greece) was expanded in 2011, which means more remained the same. Worsening economic conditions led to a products can now be produced in Greece. slightly lower profi t than in 2010. The Napolact brand developed Report of the Executive Board Consumer Products International 37

Consumer Products International

2011 2010 Market conditions The Consumer Products International business group performed Revenue in millions of euros 2,460 2,277 well despite the stagnating growth of the global economy and Operating profi t in millions of euros 353 356 higher raw materials prices. The higher prices could not be fully Operating profi t as a % of revenue 14.3 15.6 passed on to the market in every country, which put margins under pressure in some countries. Measures to offset the pressure on margins included the implementation of cost savings. At the same • Revenue up due to increased volume and time, to stimulate the continued development of revenue and price increases sales volumes, specifi c investments were made in advertising and promotion. • Profi t remained the same; higher costs of raw materials offset Revenue and operating profi t The business group’s revenue rose by 8% to 2,460 million euro • Market position of Friso infant & toddler (2010: 2,277 million euro). The rise in revenue was due to volume nutrition strengthened growth, in particular of infant & toddler nutrition, and higher selling prices. China, Hong Kong and Malaysia made the greatest contributions towards the revenue growth with the Friso and Dutch Lady brands. In Indonesia and Vietnam higher food prices led to fi ercer competition and reduced demand and, as a result, a slow- down of growth. Revenue development was negatively infl uenced by the high price of the euro against the US dollar and the local currencies in Asia. Overall the currency translation effect on revenue amounted to 92 million euro negative. At 353 million euro operating profi t was virtually the same as for 2010 (356 million euro) thanks to a sharp focus on costs and the passing on of price rises The Consumer Products International business as fully and as early as possible. group produces and sells dairy products to consumers in South-East Asia, the Middle East Nigeria and Africa (in particular in Nigeria and FrieslandCampina Wamco Nigeria saw its revenue and volume rise yet again. Operating profi t fell slightly because, in view of the surrounding countries). Products are development of the consumers’ spending power, not all the higher also exported around the world from raw materials prices could be passed on to the market. The Peak the Netherlands. brand and the value-for-money Three Crowns brand remained just as popular with every level of the Nigerian population. The greatest growth was achieved by the evaporated milk in sachets introduced in 2009. There was heavy investment in new machinery and next to the production facility in Lagos land was 38 Report of the Executive Board Consumer Products International

Black & White 70 years in Hong Kong

Black & White is popular in teashops. For 70 years over 70% of the teashops in Hong Kong have chosen Black & White full condensed milk for their tea. The 70th anniversary was celebrated with an event that was visited by 20,000 consumers. A facebook campaign brought Black & White 11,000 fans who took part in a campaign.

The celebration of Black & White’s 70th birthday in Hong Kong and the event contributed towards increasing brand confi dence.

purchased for the future expansion that will be needed to answer food-safety standards are very attractive throughout the region the foreseen growing demand for dairy products. and are, therefore, a major driver for growth. Dutch Lady long-life milk also performed extremely well. In July 2011 heavy rainfall led to the production facility in Lagos being fl ooded and machinery and stocks being damaged. Thailand Thanks to the enormous efforts of all the employees in a very In Thailand FrieslandCampina achieved higher revenue and short time the entire factory was cleaned and the machinery and increased volume. As the selling prices of dairy products in installations were back in action. The insurance company will Thailand are regulated by the government, price increases repay most of the costs of the fl ooding damage during 2012. could only be passed on to a limited extent. This put margin development under pressure. A new variety of Foremost Calcimex Malaysia / Singapore / Hong Kong was launched in the market. In 2011 the capital city Bangkok and FrieslandCampina performed well in Malaysia, Singapore and the surrounding area suffered the worst fl ooding in over 50 years. Hong Kong. Revenue, volume and operating profi t improved in all For FrieslandCampina the consequences of the natural disaster three countries. In Malaysia a more targeted positioning of the included the temporary stoppage of one of the three production Dutch Lady brand led to increased market share. Sales of Growing facilities in Bangkok and substantial disruption of distribution. Up Milk for children aged 1 to 6 continued developing particularly Thanks to timely precautions being taken and the efforts of all well. Reducing the number of products led to more effi ciency. the employees the damage was relatively small and the Foremost In Hong Kong sales of infant & toddler nutrition sold under the dairy products remained available in the shops. premium Friso brand rose again. FrieslandCampina’s high Report of the Executive Board Consumer Products International 39

Indonesia After an exceptionally good year in 2010, FrieslandCampina Indonesia’s growth stagnated somewhat in 2011. This put the operating profi t under pressure. Fiercer competition in the domestic market, especially in nutrition for children aged 1 to 3 (Growing up Milk), caused problems for the operating company. FrieslandCampina Indonesia has now started a repositioning of its infant & toddler nutrition range. The fi rst results are positive.

The Middle East After a year of restructuring, in 2011 FrieslandCampina’s activities in the Middle East recovered. Revenue, volume and operating profi t rose substantially compared with 2010. The distribution in Saudi Arabia improved considerably due to cooperation with a new partner. The region is also easier to manage from the new regional offi ce in Dubai (United Arab Emirates). The fi rst results of the introduction of Rainbow Gold were positive. Vietnam FrieslandCampina Vietnam experienced the consequences of Export high infl ation. For the fi rst time in years demand for food shrunk FrieslandCampina Export, which sells long-life dairy products in this Asian country and, as a result, price competition rose as from the Netherlands around the world, was able to offset the did the market demand for cheaper products. The market shares (temporary) stopping of exports to North African countries caused of the premium Dutch Lady brands, and to a lesser degree Friso, by the political unrest in the region by exporting more to countries came under pressure. Revenue, volume and operating profi t were in Central America. Although the revenue rose as a result of higher all lower than in 2010. In the second half of 2011 the government selling prices, operating profi t fell because the higher prices could implemented measures to regulate price increases. not be passed on in all markets. Volume remained stable, in part because the production capacity was fully utilised. China In China FrieslandCampina was once again able to increase its revenue, volume and operating profi t through the sale of Friso infant & toddler nutrition. The products are exported to China from the Netherlands. FrieslandCampina profi ted from the good image of Dutch dairy products in China. The operating company extended its distribution of Friso to include more cities. 40 Report of the Executive Board Cheese, Butter & Milkpowder

Cheese, Butter & Milkpowder

2011 2010 Market conditions In the fi rst half of 2011 the positive price development of Revenue in millions of euros 2,822 2,641 commodities that began in 2010 continued and reached a peak Operating profi t in millions of euros - 97 - 92 in mid 2011. Foil cheese and milk powder profi ted most from the Operating profi t as a % of revenue - 3.4 - 3.5 price rises due to increased demand, including from Russia. In the second half of 2011 revenue prices fell to the same level as at the end of 2010. The selling prices of butter fell during the last quarter • Revenue growth due to higher selling prices of the year to below the end of 2010 level. The negative economic sentiment led to a shift to cheaper products, at the cost of the • Margin improvement of foil cheese position of branded articles. • Pressure on brands due to economic developments in Europe Revenue and operating profi t Cheese, Butter & Milkpowder’s revenue rose by 7% to 2,822 million • Investments in effi ciency improvements euro, primarily due to the higher prices of commodities such as foil cheese and milk powder. The sales volume of cheese fell because less supplementary cheese was purchased from external sources. Declining consumer confi dence and economic/political developments in a number of countries led to pressure on margin development and sales of branded cheese and a slight drop in operating profi t from -92 to -97 million euro. The business group’s profi t was adversely affected by the performance payment and registered reserve being charged to the business groups in proportion to the quantity of member milk received. The investments in effi ciency improvements and the reorganisation of the production and packaging facilities started in The Cheese, Butter & Milkpowder business group 2010 began to bear fruit. is responsible for the production and worldwide sales of cheese, butter and milk powder. Cheese Specialties The range comprises a wide variety of Gouda, Declining consumer spending put sales of branded cheese under pressure in Europe and meant the necessary price increases could Edam, Maasdam and foil cheese both as whole only partially, and after a delay, be passed on in the selling prices. cheeses and in pre-packed pieces and slices, The result was a drop in operating profi t. In the Netherlands this different types of butter and milk powders. had the greatest consequences for Milner and Noord-Hollandse Gouda. Milner’s market share in Greece was under pressure due to the growth of private label and full-fat cheese. The design and packaging of Milner was revamped in a number of countries. Noord-Hollandse cheese, with the EU Protected Geographical Report of the Executive Board Cheese, Butter & Milkpowder 41

Designation (red EU seal), was introduced in Germany. The interest Butter & Milkpowder in authentic, regional cheese products is increasing. In 2011 the milk powder production and sales activities were transferred from the Ingredients business group to the Cheese Customer focus is one of the value drivers of Cheese Specialties. & Butter business group and integrated with the Butter activities. In 2011 this led to the winning of the title ‘best outside sales force This reorganisation and the combination with the Cheese activities in the cheese segment in the Netherlands’. has resulted in better planning and must benefi t the total milk valorisation. Outside of Europe the operating company succeeded in maintaining the export level of cheese under the Frico brand. The revenue of FrieslandCampina Butter & Milkpowder rose In Russia more intensive marketing led to more growth. Political primarily thanks to a good fi rst half year in which the operating unrest and payment problems in several countries including Egypt company succeeded in passing on necessary price increases to and Libya put sales in these countries under pressure. During the the market. The industrial butter products profi ted the most from last months of the year there were, however, signs of a recovery. this. In the second half of the year, however, butter prices fell The series of cheeses sold under the Dutch Master Pieces brand again, which put pressure on profi t. Throughout the year high (with images of famous Dutch painters such as Rembrandt and butter prices in Europe made the export outside Europe virtually Vermeer) was a success. The series of special cheeses was sold impossible because butter on the world market was far cheaper. worldwide and were particularly popular in North and South The butter production facility in Klerken (Belgium) was closed America. down and most of the production was relocated to the modernised facility in Noordwijk (Groningen). Cheese The FrieslandCampina Cheese operating company developed The milk powder activities developed well during the entire year. positively in 2011 and was able to profi t well from the higher Both the price levels and the margins developed positively due to prices for foil cheese. The price level did, however, decline again a healthy demand on the milk powder market. during the second half of the year. The sales organisation’s focus on market segments contributed towards the improvement of the product portfolio. Growth was achieved in particular in the ‘industry’ and ‘pre-packaged cheese for retail’ segments. Newly developed types of cheese were received positively by the market. In 2011 investments were made in expanding the cheese production capacity in Workum, Balkbrug and Marum. Once the investments are completed in 2012, FrieslandCampina Cheese in Workum will be one of the largest and most up-to-date cheese production facilities in Europe. In 2011 the cheese production facility in Dronrijp and the cheese packing facility in Leerbroek were closed down. Production was relocated to other facilities. In 2012 the cheese production facility in Varsseveld will be closed. These adjustments to the organisation will lead to a further improvement of effi ciency. 42 Report of the Executive Board Ingredients

Ingredients

2011 2010 Market conditions In 2011 the key trend for the Ingredients business group was Revenue in millions of euros 1,930 1,669 the high demand for dairy ingredients, especially from Asia and Operating profi t in millions of euros 189 128 the United States but also from Europe. The ingredients market Operating profi t as a % of revenue 9.8 7.7 was characterised by higher sales volumes and higher selling prices. The higher price of raw milk and other raw materials could be passed on to the market reasonably successfully. • Good profi ts in all operating companies Organisational adjustments allowed the business group to focus more on its key corporate accounts and this resulted in a more • High demand for dairy ingredients, especially coordinated and customer-oriented approach to these customers. from Asia and the United States In addition, the so-called ‘One face to the customer’ programme • Kievit’s margins under pressure due to resulted in a further streamlining of the business group’s sales higher raw materials costs organisation. Both activities gave further substance to the motto: ’FrieslandCampina Ingredients – A powerhouse of specialised • Capacity expansion of infant & toddler operating companies’. nutrition in full swing To respond properly to the increasing demand from China, in 2011 the business group opened a new sales offi ce in Beijing to serve the Chinese market on behalf of all the business group’s operating companies. The business group also decided to set up an offi ce in Singapore.

Revenue and operating profi t The Ingredients business group’s revenue rose by 16% to 1,930 million euro (2010: 1,669 million euro) thanks to higher The Ingredients business group focuses on the volumes and selling prices. The operating profi t amounted to development of nutritious ingredients that add 189 million euro, a growth of 48% compared with 2010 value to customers’ products. This involves (2010: 128 million euro). ingredients based on milk, cheese whey and Domo vegetable raw materials for customers in the FrieslandCampina Domo’s operating profi t improved, particularly infant & toddler nutrition sector, the food in the second half of the year, due to the accelerated growth industry, the pharmaceutical industry and the in demand and higher selling prices. All the capacity currently young-animal feed industry. The ingredients available was utilised. Work is still going full speed ahead on the developed by the business group can be found in capacity expansion and quality improvement of the production all kinds of products from infant & toddler facilities in Beilen and Bedum started in 2011. In the context of the route2020 strategy, in which infant & toddler nutrition is one of nutrition to biscuits, from medicines to ice the value drivers, 130 million euro is being invested in, among other cream and from medical food to cream liqueurs improvements, increasing capacity and further improvements to and cream soups. safeguarding quality. The heavy investment will ensure that in the coming years FrieslandCampina is able to respond more effectively to the growing demand, especially from Asia, for infant & toddler nutrition ingredients and fi nished products. Report of the Executive Board Ingredients 43

Safety and safety awareness

FrieslandCampina wants to reduce the number of work-related accidents resulting in sick leave. The target is to halve the number of accidents resulting in sick leave within fi ve years. The number of accidents at each facility is registered and evaluated monthly by the Executive Board. In 2011 a worldwide programme aimed at making all employees more aware of safety issues was started. A target has been set for each location and all the employees have followed a safety training course. In 2011 training courses were also set up that involved managers walking a safety observation round. This must lead to increased safety awareness. The members of the Executive Board have also followed this training and in 2012 will walk a safety observation round in a different facility every two months.

Kievit Dairy Feed In 2011 FrieslandCampina Kievit’s revenue rose thanks to higher FrieslandCampina Dairy Feed is one of the world’s largest sales prices and increased volume. Although the demand from producers of young-animal feed. The products fi nd their way Asia and the United States was good, there was some reduction in to young animals in around 50 countries in Europe, the Middle demand, especially for creamers (Kievit is the world market leader East, Central and South America, Oceania and South-East Asia. in the fi eld of creamers) due to declining consumer confi dence The operating company plays a major role in the processing of in Europe and unrest in the Middle East and North Africa. The residue from other FrieslandCampina companies. All the remaining operating company’s margins came under some pressure. valuable components, such as proteins, fats and lactose, are extracted from these residual products. They are then used to DMV produce young-animal feed, with the addition of the vitamins, FrieslandCampina DMV had a good year with a noticeable increase minerals, proteins and vegetable fats and other nutrients young in revenue and an improved operating profi t. One reason for this animals need. In 2011 the operating company improved its revenue was the higher selling prices for caseinates and whey concentrates and operating profi t still further. resulting from the increased demand, especially from the United States and Asia. DMV’s ingredients are used in a variety DFE pharma of applications including medical foods, sports foods, weight In 2011 DMV-Fonterra Excipients changed its trading name to products, dairy-based beverages and yoghurts. The ‘Solid DMV’ DFE pharma. The joint venture had a good year with a substantial programme, aimed at reducing losses and improving effi ciency increase of its sales volume. Operating profi t also improved as contributed towards the higher operating profi t in 2011. a result of the far higher demand for pharmaceutical lactose. The operating company’s activities were given an extra boost by Creamy Creation investments in the production facility in Foxhol (the Netherlands), FrieslandCampina Creamy Creation can look back on a good year. where new equipment for fi llers based on potato starch went into Despite the steep rise in raw material prices demand for cream operation. The operating company also took a major step forward liqueurs rose, especially from the United States. in its objective of achieving a leading position in pharmaceutical carrier materials with the acquisition of Brahmar Cellulose Private Limited in India. The acquisition has brought DFE pharma a better market position as a manufacturer and supplier of the most common carriers and super disintegrators to the pharmaceutical industry. 44 Report of the Executive Board Innovation

Innovation

The goal of the Research & Development activities is to develop and Vifi t to Mona. Thanks to new technological innovations it will new, healthier and improved products, to achieve improvements be possible to dramatically reduce the amount of energy needed in the fi eld of the production process and to fi nd new applications to produce dry ingredients. This will be implemented in for milk and milk components. The activities are aimed not the production facilities in the coming years. only at consumers and professional customers (bakeries and the food service sector) but also at customers in the food and In 2011 FrieslandCampina researchers published articles about pharmaceutical industries. FrieslandCampina wants to offer various research fi elds, such as the health aspects of milk, intestine top-quality products with outstanding characteristics which do health, the physical-chemical characteristics of milk components, optimum justice to ‘All the goodness of milk’. In the year under the texture of cheese, aroma and taste analyses and separation review the total costs of Research & Development activities technology. In addition, during the year under review 16 patent amounted to 66 million euro (2010: 61 million euro). applications were submitted with the emphasis on functional ingredients for infant nutrition and the protection of new product Innovation programmes and process innovations. To move the starting points of the route2020 strategy forward, in 2011 a number of innovation programmes were implemented Construction of new Innovation Centre in close cooperation with marketing and operations. These Innovation is fostered by meeting each other, sharing information, programmes revolve around four innovation platforms: (children’s) inspiring each other and working together. To encourage this growth & development, daily nutrition, health & wellness and cooperation FrieslandCampina decided to concentrate all the functionality. These platforms are fed by the available expertise in different R&D departments, which are currently scattered around the fi elds of life sciences, process technology, sensory & consumer the Netherlands, under one roof in a new, advanced Innovation science and food structuring. The research activities also Centre embedded in the top-knowledge infrastructure of contribute towards new insights into the nutritional characteristics Wageningen University. Construction began in December 2011 and of milk, retaining the good characteristics of dairy throughout the new FrieslandCampina Innovation Centre is expected to go the production chain and sustainability. into operation in the second half of 2013. In the fi rst instance 450 employees will be working in the fi eld of innovation. In 2011 a large number of product introductions were achieved This number may double in the following years. and various product and process improvements were implemented. Examples include innovations in the fi eld of infant & toddler Around 60% of all FrieslandCampina’s R&D employees will work in nutrition, the revamping of the Optimel range, packaging, such the new Innovation Centre. The remaining employees are spread as for the Appelsientje range, and the introduction of spray- across facilities in Germany, Belgium, Hungary, the United States, dried ingredients for bakery applications and coffee enrichers. Indonesia, Vietnam, Malaysia, Thailand and Nigeria. Considerable attention was paid to reducing sugar content and led to 10 – 30% less sugar in many products ranging from Fristi

Innovation in Wageningen

At the end of December 2011 the foundations were laid for the new FrieslandCampina Innovation Centre in Wageningen, where all the employees involved with Research & Development in the Netherlands will work together. The building will house around 450 employees and will contain not only laboratories, taste-test areas, a test production facility, technical support areas and offi ces, but also an Experience Centre with a trial bakery and an innovation kitchen. The Innovation Centre will contribute towards a further acceleration of innovation. Wageningen has been chosen for the location of the Centre because of its proximity to Wageningen University & Research and the top Agrofood companies. Report of the Executive Board Supply Chain & Quality 45

Supply Chain Quality

Corporate Supply Chain offers strategic advice and expertise in the To safeguard the safety and quality of its products throughout the fi eld of production, logistics and distribution. The most important entire production chain, from farm to consumer, FrieslandCampina focal areas are determining the optimum global manufacturing has its own integral quality system, called Foqus. With Foqus and distribution network, multi-year planning and investment, FrieslandCampina offers consumers, customers and the authorities the development and continuous improvement of standards and the guarantee that the products and production processes meet best practices in the fi eld of production and logistics, safety and the stringent standards in the fi eld of food safety, quality, safety, sustainability throughout the production chain. In 2011 a start was working conditions, fi re protection and environment. made on the development of a sales & operations planning method that will be implemented integrally throughout FrieslandCampina. The FrieslandCampina organisation can control the entire The department is also working on the strategy for the design of production chain from farm to end product. The guiding principles so-called Manufacturing Operations Management Systems that of the quality control are the statutory stipulations, with the are responsible for meeting the information requirements in the addition of supplementary demands. The various international fi eld of production, maintenance quality and stocks and providing standards, such as HACCP, ISO 9001 and ISO 22000, are integrated integration between the administrative systems and the factory into Foqus so that both FrieslandCampina’s customers and fl oor. the consumers can be assured that the products are safe and of high quality. Safety FrieslandCampina strives to minimise risks related to safety and the environment. The most important goal in the fi eld of safe working is reducing the number of accidents requiring sick leave. All the Company’s business facilities operate in accordance with the FrieslandCampina standards. One of the minimum requirements is that the premises apply a management system for safety and the environment that as a minimum meets the requirements of OHSAS 18001 (for work safety) and ISO 14001 (for the environment). The management system determines whether the facility complies with the internal standards and external legislation. Since 2011 the number of accidents requiring sick leave for all facilities has been registered in accordance with an unambiguous defi nition. This so-called LTA rate is evaluated by the Executive Board each month. Various on-going programmes are aimed at improving safety and safety awareness. One of these is the Safety Awareness programme. Safety Cultures enable a plan of approach for improvements to be drawn up for each facility. The components include workshops for management teams and safety awareness training for all the employees at a production facility.

Employees improve FrieslandCampina

Production processes, maintenance, working methods, energy and water usage, the return from machines: virtually every process in a company can be tuned and improved continuously. Continuous improvement involves all FrieslandCampina’s employees all year round. They work to achieve improvements via improvement systems in every production facility. Internal audits at the facilities ascertain whether they have achieved the goals they have set themselves. In 2011 the employees of FrieslandCampina in Vietnam achieved the highest score. 46 Report of the Executive Board FrieslandCampina and its staff

FrieslandCampina and its staff

Employees by geographical region Talent management average numbers of FTEs Talent and leadership development are prerequisites for the successful implementation of the route2020 strategy. Africa & 5% 1% North & From the perspective of both the Company and its employees there the Middle East 1,032 140 South America is a need for leadership programmes aimed specifi cally at different target groups within the organisation.

Two programmes have been developed in cooperation with the IMD Asia 27% 34% The Netherlands Business School in Switzerland: the ‘Courage to Lead’ programme 5,202 6,494 for the Executive Board and the Leadership Team and, as a direct extension of this, the ‘Leading with Impact’ programme for senior 19,036 management, the so-called Top 200. This programme was started during 2011.

10% 23% 1,828 The ‘Leading to Success’ programme, developed in cooperation 4,340 Germany with the Ashbridge International Business School in the UK, Rest of Europe is aimed at talented employees with less work experience. Participants in this programme are selected in close cooperation with line managers. FrieslandCampina’s human resources policy is aimed at recruiting and retaining the right employees for the Company, motivating In 2011 124 candidates from around the world were selected for them and ensuring the development of suffi cient talent for critical this ‘high potential’ programme. The intention is for around functions, including management positions. Many employees 50 high potentials to be selected to participate in this 18-month fi nd FrieslandCampina an attractive employer that offers its staff programme each year. During the 18 months the group comes a challenging and inspiring working environment in which the together three times, for a week each time, in the Netherlands, optimum personal and career development of every employer in China and in England. Between these ‘get together weeks’ the is encouraged. In the context of route2020 FrieslandCampina’s participants learn together in a ‘virtual’ classroom and carry out ambition is to rank among the ten most attractive employers in the business assignments. This programme will prepare groups of key countries and industries in which it is active within a few years. potential leaders for the future.

The global human resources strategy is one of the cornerstones FrieslandCampina does not expect its managers to conform to supported by the Company’s route2020 strategy. A number of a prescribed model. There is a need for authenticity: people who guiding principles and goals for the human resources policy have have their own opinion, who are at the centre of the community been formulated and are applicable for the entire organisation and, fi rst and foremost, who have an inquiring mind and are open worldwide. In view of the Company’s geographical spread and the to modernisation and change. FrieslandCampina also selects differences between one country and another, the personnel policy its management on their ability to achieve targets, to learn and is developed and implemented locally within this framework and to build up and lead a team. with the support of the central offi ce. Examples of globally applied, centrally designed HR policy components are talent management, FrieslandCampina believes careers should be built step-by-step. performance management, job grading, expatriate management Gaining experience, carrying out challenging projects and following and learning & development via the FrieslandCampina Academy. good training courses is in line with this. A good succession planning process is essential. The business groups provide input for succession planning throughout the Company. This takes place during the so-called Talent Days organised four times a year at various levels in the business groups and in the Executive Board. FrieslandCampina also keeps a critical eye on whether there is suffi cient talent in house that can move upwards. Talent Councils play a major role in this process. These advisory groups for specifi c functional areas ensure there is a business cross-over exchange of talent within the Company and between different countries and operating companies. Report of the Executive Board FrieslandCampina and its staff 47

FrieslandCampina Academy In 2011 the FrieslandCampina Academy supported employee development by developing, organising and running training programmes. These training programmes were developed on the basis of the route2020 strategy. During 2011 more than 3,000 employees participated successfully in one of the 250 multi- day FrieslandCampina training courses. As many of the training courses as possible are organised at a national or regional level to ensure they answer local needs and refl ect local cultural differences. The range of courses offered by the FrieslandCampina Academy was revamped last year. New courses offered in 2011 included the ‘Leading Self’ and ‘Leading People’ management skills programmes. At the end of 2011 a worldwide learning programme was launched in the context of the FrieslandCampina Code of Conduct.

Compensation, Benefi ts & Global Mobility In 2011 the function classifi cation for Senior Management and Managerial Staff worldwide was harmonised. This project started in 2009 with classifying all the functions in Belgium, the Netherlands and Germany. In 2010 this was followed by the rest of Europe and the United States. During 2011 Asia, Africa and the Middle East were completed. This means that all Senior Management and Managerial Staff functions worldwide (around 4,500) have now been classifi ed following a single, uniform system that enables the weight of the different functions to be compared with each other.

The development and implementation of its Global Mobility Policy, Short Term Assignment Policy and Cross Border Computer Policy means FrieslandCampina now has modern, globally harmonised regulations that will promote international mobility within the Company. To support FrieslandCampina’s internationally mobile employees, a global cooperation with Deloitte Global Employer Services has been started in the fi elds of compliance (taxation, social security and visas). Management capability programme:

During 2011 the fi rst major step was taken towards the worldwide Leading Self implementation of an integrated HR platform that supports the most important HR processes, such as Performance Management, Leading Self is one of the management training programmes Compensation Management, Talent Management and Learning developed and organised by the FrieslandCampina Academy. & Development. The system was set up to support an effective The programme helps new and more experienced managers and effi cient execution of the assessment process, and the develop the management competencies. By understanding their consequences of this process in terms of personal development own behaviour the participants learn how to be an effective and salary, of a pilot group of 300 employees. In 2012 managers manager. The programme comprises one two-day module and and employees in the Netherlands, the United States and one three-day module. The entire programme is active and Saudi Arabia will evaluate the system in preparation for relevant; it always revolves around the working situation of a possible worldwide roll-out in 2013. FrieslandCampina’s employees. Leading Self is one of a series of management training courses offered to all managers around the world. The other programmes are Leading People and Leadership in Business. 48 Report of the Executive Board FrieslandCampina and its staff

Flooding in Thailand and Nigeria

In the autumn of 2011 Thailand was affected by severe fl ooding. The region around Bangkok in particular had to cope with the effects of the constantly rising water. FrieslandCampina’s facilities in Thailand also had to deal with the fl ooding. Thanks to their enormous efforts, the facilities’ management and employees succeeded in keeping the production and distribution of long-life dairy products going as much as possible. This enabled the increasingly empty supermarkets to continue being supplied with dairy products for the Thai population.

Earlier in 2011 the fl ooding of FrieslandCampina’s production facility in Nigeria resulted in extensive damage to the factory and warehouse. Thanks to the employee’s enormous efforts the distribution of dairy products could be restarted after just a few weeks.

HR in the Netherlands This programme, called ‘Fit4Work’ is a response to the increasing The Employability 2020 project focuses on the production facilities’ speed of developments in operations and automation as well as to staffi ng requirements in terms of both quantity and quality. The the fact that the pensionable age will be raised to 67. rising average age of the employees working in the production facilities and the expected natural outfl ow means that around 50% Once again the mobility centre succeeded in fi nding new positions of the current employees will leave FrieslandCampina between now for 201 of the 276 employees who lost their jobs during 2011 as a and 2020. At the same time, a shortage of well-trained technical result of reorganisations (2010: 347 of 410). staff is forecast. To enable FrieslandCampina to respond to this situation in good time a cooperation has been set up with training In line with FrieslandCampina’s sustainability targets, several institutes to ensure the dairy expertise and experience that has initiatives aimed at arriving at a more sustainable employment been amassed will be safeguarded for the future. conditions policy were started. The fi rst concrete steps involve a new, sustainable, lease car policy that will go into effect in 2012 In addition, in the context of the theme Sustainable Employability, and that will include an NS (Dutch railway) business card for lease a programme has been developed aimed at maintaining existing car users to encourage them to use public transport. employees’ fi tness in terms of both their work and their health. Report of the Executive Board Outlook & Responsibility statement 49

Outlook Responsibility statement

In 2012 a slight increase in the demand for dairy at a global level The Executive Board of Royal FrieslandCampina N.V. declares is anticipated as a result of increasing consumption at a global that the financial statements give a true and fair view of the level. In Europe dairy consumption will probably remain under assets, liabilities, financial position and the profit of Royal pressure due to consumers’ reticence when it comes to spending. FrieslandCampina N.V. and the companies included in the The availability of milk will increase slightly at a global level and, consolidation. The Executive Board also declares that the annual at certain times during the year, the supply of milk could exceed report gives a true and fair view of the situation as at the balance the demand, which will put pressure on prices. Small fluctuations sheet date and the business development during the financial in supply and demand on the international dairy market can have year of Royal FrieslandCampina N.V. and the associated companies major consequences for the price development of commodities for which the financial information is recognised in its financial like milk powder, foil cheese and butter. This also influences price statements. The annual report also describes the material risks levels in other product categories. If the cost of raw milk and other with which Royal FrieslandCampina N.V. is confronted. raw materials goes up, margins could come under pressure if these price increases cannot be passed on in the selling prices in full or Executive Board in time. The moment at which the price and duration of a contract are fixed can have a substantial effect on the achieved selling price Cees (C.C.) ’t Hart and margin development. Chief Executive Officer

For FrieslandCampina 2012 will be a year of further progress in Kees (C.J.M.) Gielen the route2020 strategy. FrieslandCampina will strive to achieve Chief Financial Officer growth in dairy-based beverages, infant & toddler nutrition, branded cheese and specialised ingredients. Investments are Kapil (K.) Garg planned in the field of production capacity expansion, machinery Chief Operating Officer replacement, efficiency improvement and innovation. The innovation programmes are linked to the strategic growth Piet (P.J.) Hilarides categories. Research & Development expenses are expected to Chief Operating Officer increase slightly. FrieslandCampina’s solid financial base means the Company is well prepared to achieve its plans in the context Roelof (R.A.) Joosten of the route2020 strategy. FrieslandCampina has an amount Chief Operating Officer of 715 million euro available from its current credit facility. Freek (F.) Rijna In the field of human resources demographic developments Chief Operating Officer in the different regions will be the guideline for achieving the right staffing level as will staff training and education. Increased Amersfoort, 2 March 2012 efficiency, the expansion of activities and possible acquisitions could all lead to changes in the number of employees. A greater focus on Corporate Social Responsibility throughout the dairy production chain must contribute towards sustainable value creation for all stakeholders. No statement is being made regarding the expected result for 2012. Cows in the meadow

Cows in the meadow are a characteristic component of the Dutch landscape. To retain this image, FrieslandCampina has taken the initiative to stimulate cows being put out in the meadow by making a sum of up to 45 million euro per annum available for member dairy farmers who let their cows graze outside. Dairy farmers who put their cows out in the meadow on at least 120 days a year, for at least six hours a day, receive a premium of 0.50 euro per 100 kilos of milk. FrieslandCampina has expanded its range of dairy products made from meadow milk still further. In this way the Company wants to enable customers and consumers to make a considered choice for meadow milk products and thus contribute towards keeping cows in the Dutch landscape.

52 Corporate Social Responsibility

Corporate Social Responsibility

A healthy and successful FrieslandCampina can only exist in healthy social surroundings, a healthy living environment with healthy products. This is the conviction that forms the basis of FrieslandCampina’s global programme for Corporate Social Responsibility (CSR) and sustainability. By nature milk is one of the richest sources of nutrition as it contains proteins, vitamins and minerals that are essential for a healthy life. Through its products FrieslandCampina makes a contribution towards supplying the world not just with food but with assured nutrition.

Financial as well as social value (‘shared value’) FrieslandCampina focuses its active CSR efforts and leadership FrieslandCampina foresees a challenging future for a world with on four areas in which it can make a difference: seven billion citizens in 2011 and nine billion in 2050. The growth • Nutrition & health of the world population will bring about great changes in the way (in particular dealing with undernourishment) in which society is provided, in a sustainable and effi cient way, • Effi cient and sustainable production chains with food, animal feed and (bio-based) energy. FrieslandCampina (sustainable purchasing, less energy, water and waste, believes in the ‘shared value’ model whereby fi nancial value more sustainable energy) creation goes hand in hand with the social added value of its • Dairy farming development in Asia and Africa activities, services and products. FrieslandCampina strives for a (the support of small farmers in Asia and Africa); good return alongside an optimum embedding in society and the • Sustainable dairy farming within its own Cooperative (with safeguarding of FrieslandCampina’s continuity. 14,400 dairy farms in the Netherlands, Germany and Belgium)

Within these four priority areas FrieslandCampina carries out specifi c action plans in order to achieve its CSR ambitions. Targets and action plans have been developed for each of the priority areas and will be reported each year in the CSR Report.

Scan this QR code with the QR reader on your mobile phone to download the FrieslandCampina iPad app. Corporate Social Responsibility 53

CSR

Mission, vision and strategy

Voedingswaarde Efficiënte en Ontwikkeling Duurzame duurzame melkveehouderij Nutrition& gezondheid & health productieketens inDairy Azië farming en Afrika development melkveehouderij FrieslandCampina aims to in Asia and Africa Tekort aan nutriënten Grondstofgebruik Kleine melkveehouders in De standaard contributeterugdringen towards combating verbeteren AziëEnough en Afrika nutritious verder foodhelpen for a bepalen undernourishment in the world on constantly increasing world population the basis of the nutritional relevance is one of the four cornerstones of dairy products. The Company also of FrieslandCampina’s CSR policy. wants to help drive back obesity, FrieslandCampina’s focus is primarily especially among young people, on programmes that will enable including through improving the farmers in Asia and Africa to run information regarding healthy eatingCSR Governance Board – Four CSRtheir implementation farms in the best teams possible way and lifestyle and emphasising the and thus increase the quantity and importance of sportCSR and performance exercise. measurement – Reporting – qualityStakeholder of dairy dialogue production. – Partnerships In developing these programmes Employee and member dairy farmer engagement – CSR trainingthe emphasis programmes is on cooperation – Annual CSR Team Award with other organisations. Sustainability practices for suppliers – Code of Conduct – Foqus quality control system – Policy & position papers

Effi cient and sustainable Sustainable dairy farming production chains FrieslandCampina deems it important In the context of agreements CSR that milk and other raw materials within the Dutch dairy sector, necessary for its dairy products are FrieslandCampina’s goal is to achieve produced in a sustainable manner. its future growth in a climate-neutral This means agricultural and dairy manner. Towards this end it is working Mission, vision andfarming strategy methods that not only have on improving energy effi ciency the minimum possible impact on and the transition to sustainably the environment but also contribute Voedingswaarde Efficiënte en Ontwikkeling Duurzame generated energy. This means that duurzame melkveehouderijtowards the wellbeing of the local the& entire gezondheid chain, from dairy farm productieketens incommunity. Azië en Afrika melkveehouderij to dairyTekort production aan nutriënten facility, must Grondstofgebruik Kleine melkveehouders in De standaard ultimatelyterugdringen be able to meet its own verbeteren Azië en Afrika verder helpen bepalen energy requirements, for example by using energy generated from biomass and wind and/or solar energy.

CSR Governance Board – Four CSR implementation teams

CSR performance measurement – Reporting – Stakeholder dialogue – Partnerships

Employee and member dairy farmer engagement – CSR training programmes – Annual CSR Team Award

Sustainability practices for suppliers – Code of Conduct – Foqus quality control system – Policy & position papers 54 Corporate Social Responsibility

Campina Open Farm Days

How are cows cared for and milked? And how happy are the cows when on a fi ne spring day they can go back outside into the meadow for the fi rst time? During the Open Farm Days nearly 100,000 consumers visited the 90 dairy farms participating in the Campina Open Farm Day programme. The Open Farm Days enable consumers to see with their own eyes where the milk for Campina products comes from and how carefully the cows are handled. This is how Campina surrounds its products with care – from grass to glass.

Actions in 2011 FrieslandCampina will expand its range of dairy products Sustainability programme for dairy farming guaranteed to be made from Dutch meadow milk. In this way With the member dairy farmers’ formal approval of the the Company will enable customers and consumers to make a sustainability programme for dairy farming in December 2011, the considered choice that is in accordance with their desire for more Cooperative and its members have taken a major step towards products that have been produced in a sustainable manner. further sustainability of the chain. The members are very aware that society’s appreciation of dairy farming is crucial. This Safety and environment includes looking after the animals properly, conserving the natural FrieslandCampina has formulated targets in the fi eld of work safety environment and making efforts to maintain outdoor grazing in and the environment. The most important target in the fi eld of the Netherlands. work safety is a substantial reduction in the number of accidents resulting in sick leave. The number of accidents at each facility is FrieslandCampina’s sustainability programme for dairy farming registered with an unambiguous defi nition. Reports are evaluated includes making 45 million euro a year available to stimulate the monthly by the Executive Board. In 2011 there were two accidents outdoor grazing of cows. with a fatal outcome and one extremely serious accident. The on- going safety awareness programme and the management of risks Dairy farmers who are members of Zuivelcoöperatie and operating processes must lead to a reduction in the number of FrieslandCampina U.A. and who put their cows out in the meadow accidents. The target is a 50% reduction within fi ve years. will be eligible for a meadow milk premium of 0.50 euro per 100 kilo milk. The initiative is a component of FrieslandCampina’s Increased awareness of safety issues sustainability agenda. The fi nancial boost of 45 million euro In 2011 a worldwide programme aimed at making all employees will start in 2012 and will continue until at least 2014. From 2012 more aware of safety issues was started. This was achieved by FrieslandCampina will offer member dairy farmers who put their determining the level of cultural maturity. A target was then set cows out in the meadow for at least six hours a day, on at least 120 for each location and all the employees followed a safety training days a year, a meadow milk premium of 0.50 euro per 100 kilo milk. course. Safety is high on the agenda and is the number-one In 2011 member dairy farmers who put their cows out in the meadow priority. This has brought about the cultural changes needed to received a premium of 0.05 euro per 100 kilo milk. This means the achieve lower accident fi gures. meadow milk premium for a farm that supplies 600,000 kilo milk a year will increase from 300 euro a year to 3,000 euro a year. Corporate Social Responsibility 55

Observation & identifi cation training in the fi eld of safety Improving the environmental performance In 2011 training courses were set up that involved managers Improving energy performance is a focus of every FrieslandCampina walking a safety observation round. This is a separate production facility. In several countries, including the Netherlands programme that must also lead to increased safety awareness. and Belgium, agreements related to the further improvement of The Executive Board members have also been trained in walking energy effi ciency have been made with the government by means safety observation rounds and will walk a safety observation of covenants. This is translated into a plan of approach for each round at a facility every two months in 2012. facility. At FrieslandCampina DMV in Veghel (the Netherlands), for example, an extensive measuring system has been implemented Systematically working on safety and the environment per department and per production line. This is providing a The Foqus SHE management system is active throughout considerable amount of information for the department and, FrieslandCampina. The system is based on ISO 18001 and ISO with the help of so-called Small Group Activities, more and more 14001. Every production facility must achieve a certain level in this operational improvements are being identifi ed and implemented. system. In 2011 a large number of internal auditors were trained This has led to an improvement of the facility’s energy effi ciency. to evaluate the safety and environmental performance of all the facilities and audits of the fi rst 19 production facilities were Progress in the fi eld of waste water has been made by carried out. In 2011 all Consumer Products Europe’s locations were FrieslandCampina Domo in Bedum in the Netherlands where whey awarded both ISO 18001 and ISO 14001 certifi cation. is processed into dairy ingredients for other food production factories. The process includes desalination, which results in salt At FrieslandCampina Indonesia’s production facilities, which have in the waste water. This affects the quality of the surface water. been ISO 14001 certifi cated for a number of years, various savings In 2011 the Bedum facility invested in a so-called ‘evaporator’ programmes are running aimed at reducing the impact on the as a result of which the salt no longer enters the waste water. environment. Water saving, emission reduction and waste recycling are major programmes. FrieslandCampina Indonesia is one of only a limited number of companies that have been awarded the Ministry of the Environment’s prestigious ‘Green Award’ for its efforts. Enjoying together

Every day FrieslandCampina uses its 140 years of expertise and experience with dairy products to offer hundreds of millions of people around the world energy-rich food. Every day growing children, teenagers and adults in Malaysia, Singapore and Vietnam enjoy a wide range of dairy products from the Dutch Lady range. And every day making a contribution towards a healthy future remains a challenge FrieslandCampina is very happy to accept.

58 Corporate governance

Corporate governance at a glance

Basic principles Shareholders structure

Royal FrieslandCampina N.V. (the ‘Company’) voluntarily All the shares in the Company’s capital are held by the applies the principles of the Dutch Corporate Governance Cooperative, the members of which are involved in dairy Code (the ‘Code’). The manner in which these principles farming or the acquisition, processing or sale of milk. are applied is described in this section. The principles of The Cooperative’s geographical area of operations is the Code the Company does not apply, and the reason why divided into 21 districts, each of which has a District not, are also included. Zuivelcoöperatie FrieslandCampina Council. The Cooperative's members appoint the Boards of U.A. (the ‘Cooperative’) is exempted from applying the the 21 districts. Together the 210 members of the District statutory two-tier rules ("structuurregime"). The Company Councils form the Members' Council of the Cooperative. is a statutory two-tier company. A covenant has been The Members' Council appoints the nine members of agreed with the Central Works Council (the ‘CWC’) on the Cooperative Board on the recommendation of the grounds of which the members of the Company’s the Cooperative Council. The Cooperative is the sole Supervisory Board (the ‘Supervisory Board’) are appointed shareholder of the Company. The Cooperative Board by the Supervisory Board, the so-called co-option system. exercises the Cooperative’s shareholders’ rights and in this capacity functions as the General meeting of Shareholders of the Company. There are a number of decisions regarding which, on the grounds of the Company’s Articles of Association, the Company’s Executive Board (the ‘Executive Board’) must obtain the approval of the General Meeting of Shareholders. For a number of the Board structure decisions for which the Cooperative Board votes on behalf of the Cooperative, the Cooperative Board must obtain the The Company has a so-called two-tier structure with approval of the Members' Council before casting its vote. a management board – the Executive Board – and a Such approval from the Members' Council is also Supervisory Board. The Executive Board comprises six applicable for a number of other major decisions of members (in 2011, the year under review, five members), the Company’s General Meeting of Shareholders. including a Chief Executive Officer (CEO), a Chief Financial Officer (CFO) and four Chief Operating Officers (COOs). Each COO is responsible for one of the business groups. The Executive Board’s composition and division of tasks is explained on page 146.

The Supervisory Board comprises thirteen members: nine members of the Cooperative Board plus four ‘external’ members. The Supervisory Board’s composition can be found on pages 144 and 145.

Supervisory Board Committees

The Supervisory Board has formed two committees: Report of the Supervisory Board the Audit Committee, which comprises four Supervisory Board members, and the Remuneration & Appointment The topics covered in the report of the Supervisory Board Committee, which comprises three Supervisory Board include the activities of the Supervisory Board and its members. The composition of the Supervisory Board’s Committees during the year under review. This report is Committees can be found on pages 144 and 145. included on pages 76 to 79. Corporate governance 59

Corporate governance

The corporate governance principles followed by Royal FrieslandCampina N.V. are laid down in the Articles of Association and the Regulations of the Company’s various bodies, all of which are published on the Company’s website. Although the Code is not applicable to the Company, because according to the applicable law only stock exchange listed companies are governed by the Code, the Company applies the principles and best practices provisions of the Code that are compatible with its structure of authority and the nature of the Cooperative. The provisions that are not applied are specified in this overview along with the reasons why they are not applied. During the year under review there were no structural changes to the governance structure. The Regulations of the Executive Board have been brought in line with the existing governance practices.

Executive Board Board notifies the General Meeting of Shareholders of an intended Tasks and responsibilities appointment and does not dismiss members of the Executive The Executive Board, which on the grounds of the Articles of Board, or not until after the General Meeting of Shareholders Association comprises a minimum of two members, is charged has expressed its opinion. with the management of the Company. This means that the Executive Board’s responsibilities include the policy and business Remuneration of Executive Board members progress within the Company and with this the achievement of All the relevant recommendations of the Code are applied in the the goals, strategy, profit development and the social aspects of remuneration policy. The remuneration policy is not made public doing business that are relevant for the Company. The Executive because the Company is legally exempt from publication. Board is also responsible for the compliance with legislation The remuneration policy is proposed by the Supervisory Board and regulations, the management of the risks coupled with and approved by the General Meeting of Shareholders and is the company’s activities and the financing of the Company. accounted for every year in the meeting of the Members' Council. The Executive Board discusses the internal risk management Important changes in the remuneration policy are submitted to the and control systems with the Supervisory Board and the Audit General Meeting of Shareholders for approval. FrieslandCampina Committee. is accountable to the General Meeting of Shareholders and the Members' Council. In discharging its duties the Executive Board is led by the interests of the Company and its affiliated enterprise. The Executive Board Supervisory Board is accountable to the Supervisory Board and the General Meeting The Supervisory Board supervises the policy of the Executive of Shareholders for its policy. Board and the general business progress of the Company and its associated companies and advises the Executive Board. Appointment The Supervisory Board discusses with the Executive Board the The members of the Executive Board are appointed by the strategy and main risks related to the Company’s operations as Supervisory Board for an indefinite period. The basis for non- well as the organisation and functioning of and any significant compliance with the recommendation of the Code (appointment changes to the risk management and control systems. for a maximum term of four years) rests in the principles of the statutory two-tier rules whereby the members of the Executive The Supervisory Board also has the authorities and powers Board are appointed by the Supervisory Board. In addition, the specified in the provisions of Book 2 of the Dutch Civil Code in Cooperative is oriented towards the long term. The Supervisory respect of statutory two-tier companies. These powers include, 60 Corporate governance

in particular, the appointment of the Executive Board members, the Supervisory Board members are appointed by the Supervisory determination of the number of members of the Executive Board Board for a term of four years and may be reappointed a maximum and the approval of a number of other decisions of the Executive of twice. An exception to this is applicable for the incumbent Board as specified in legislation. The Supervisory Board also has Chairman who may be appointed for a fourth term in connection the authority to approve certain decisions of the Executive Board with the fact that the Company wants to be able to appoint a as stipulated in the Articles of Association. Supervisory Board member for this function who has a lot of experience of the day to day business of the Company and the In the performance of its duties the members of the Supervisory Cooperative. Board are led by the interests of the Company and its affiliated enterprise and takes into account the interests of all the The term of office of a Supervisory Board member who is also Company’s stakeholders and all the aspects of social responsibility a member of the Cooperative Board always ends upon the relevant to the Company. termination of the Cooperative Board membership. Information concerning the dates of (re)appointment and current terms of Composition, independence and appointment the Supervisory Board members can be found in the appointment A covenant has been signed with the CWC that includes and resignation roster on page 78. agreements regarding the composition of the Supervisory Board, the required profile of the members of the Supervisory Board, Remuneration the strengthened rights of the CWC in respect of the appointment The General Meeting of Shareholders fixes the remuneration of the of Supervisory Board members and the way in which the CWC Supervisory Board members each year on the recommendation of exercises these rights. The profile sketch has been published on the Supervisory Board and is accountable to the Members' Council the Company’s website as an appendix to the Supervisory Board for its decisions. The remuneration is not dependent on the Regulations. On the basis of the Covenant the Supervisory Board Company’s results. is composed properly if two-thirds of its members are members of the Cooperative Board (the ‘internal members’) and one-third of its members are recruited from outside (external members).

The chosen composition reflects the two-thirds to one-third dominance of internal members in a Supervisory Board permitted by the Law for large cooperatives. This dominance by internal members is carried through to the Company level.

This stipulation deviates from the Code’s best practice provision which states that all Supervisory Board members, with the exception of a maximum of one member, must be independent. All the external Board members are independent in the sense of the Code. The external Supervisory Board members are selected on the basis of the criteria laid down in the profile sketch. At least one Supervisory Board member is a so-called financial expert, which means he or she has acquired relevant expertise and experience in the field of financial administration/accounting with a large legal entity.

The membership of other Supervisory Boards and the holding of other positions by both Supervisory Board members and Executive Board members is evaluated by the Supervisory Board on a case by case basis, taking into consideration the nature of the membership or position and the demands it would place on the time of the member concerned. Every member of the Supervisory Board and the Executive Board must ensure he or she devotes sufficient time and attention to the Company to guarantee his or her duties are fulfilled properly. Corporate governance 61

Supervisory Board committees • the appointment of and relationship with the external auditor The Supervisory Board has an Remuneration & Appointment (including the auditor’s independence, remuneration and any Committee and an Audit Committee. The task of these Committees audit tasks). is to prepare the decision making of the Supervisory Board; they The Audit Committee is the first contact point for the external have no independent decision-making authority. The Regulations auditor should the audit reveal irregularities in the Company’s of the Committees are published on the Company’s website. Both financial reporting. Committees report regularly to the Supervisory Board regarding their deliberations and findings. Conflict of interests FrieslandCampina has drawn up strict rules to prevent every form Remuneration & Appointment Committee and appearance of a conflict of interest between the Company on The Remuneration & Appointment Committee comprises the the one hand and the members of the Executive Board and the Supervisory Board member with the social profile, who is also the members of the Supervisory Board on the other hand. Decisions to Chairman of the Remuneration & Appointment Committee, plus enter into transactions involving conflicting interests of Executive the Chairman and Vice-chairman of the Supervisory Board. Board or Supervisory Board members of a material significance for the Company and/or for the relevant individual must, in accordance The duties of the Remuneration & Appointment Committee include: with these rules, be approved by the Supervisory Board. During the • proposals for the remuneration policy of the Executive Board year under review no conflicts of interests were reported. and the individual Board members; • compiling the remuneration report; • selecting and appointing the members (including drawing up appointment criteria and procedures) of the Executive Board and the external Supervisory Board members; • regular evaluation of the size and composition of the Supervisory Board, the Supervisory Board Committees and the Executive Board; • regular evaluation of the functioning of the Executive Board and the Supervisory Board and the individual members of both these Boards and the Supervisory Board’s committees; • preparation of the decision making regarding the Executive Board remuneration policy; and • supervision of the Executive Board’s remuneration policy, selection criteria and appointment procedures for members of the senior management.

Audit Committee The Audit Committee comprises the financial expert and one other external Supervisory Board member and two Supervisory Board members who are also members of the Cooperative Board. The duties of the Audit Committee are of a preparatory nature and relate to: • the accuracy and completeness of the financial reporting; • compliance with recommendations from the Corporate Internal Audit department and the external auditor; • the administrative organisation; • the functioning of the internal risk management and control systems; • compliance with legislation and regulations, the policy in respect of tax planning; • financing and application of information and communication technology; • the role and functioning of the internal auditor; and 62 Corporate governance

The General Meeting of Shareholders The Company’s General Meeting of Shareholders has the authority Audit of the financial reporting and the roles of the internal and to approve certain Executive Board decisions. These decisions, external auditors which are stipulated in the Articles of Association, are major Financial reporting decisions relating to the operations, legal structure and financial The Executive Board is responsible for the quality and structure of the Company (and the companies in which it holds completeness of the published financial announcements. shares) as well as decisions related to major investments. The Supervisory Board ensures that the Executive Board fulfils this responsibility. The most important other authorities of the General Meeting of Shareholders are: External auditor • adoption of the Company’s financial statements and profit The external auditor is appointed by the General Meeting of appropriation; Shareholders on the recommendation of the Supervisory Board. • discharging the members of the Executive Board for their The Supervisory Board is advised by both the Audit Committee management and the members of the Supervisory Board for and the Executive Board. The remuneration of the external auditor their supervision of the Executive Board; and orders to the external accountant to carry out tasks not • adoption of the dividend; related to the audit are approved by the Supervisory Board on the • adoption of the remuneration policy for the Executive Board recommendation of the Audit Committee and after consultation and the remuneration of the Supervisory Board members; with the Executive Board. The external auditor is present during • appointment and dismissal of the external auditor; the Supervisory Board meeting in which the decision to approve • amendments to the Articles of Association; and the financial statements is taken. The external auditor’s findings • issuing of shares, exclusion of the application right, regarding the audit of the financial statements are reported to authorisation to repurchase the Company’s own shares, the Executive Board and Supervisory Board at the same time. reduction of the paid-up capital, dissolution, application for bankruptcy. Internal audit function The functioning of the internal auditor is the responsibility of During the Company’s General Meeting of Shareholders the the Executive Board. Both the Audit Committee and the external Cooperative Board exercises its voting rights on behalf of the auditor are involved in the plan of work of the internal auditor and Cooperative. In respect of a number of major shareholders’ are notified of his/her findings. The internal auditor has regular decisions, stipulated in the Cooperative’s Articles of Association, consultations with the external auditor and the Chairman of the the Board exercises its voting rights with the prior approval of the Audit Committee. Members' Council.

The Company, share capital and Articles of Association Royal FrieslandCampina N.V. is a public limited liability company registered in Amersfoort, the Netherlands, and has its central office at Stationsplein 4, Amersfoort. The Company’s Articles of Association were last amended on 2 February 2011 and are published on the Company’s website. The Company is registered with the Chamber of Commerce under number 11057544. At 31 December 2011 the Company’s authorised capital amounted to EUR 1,000,000,000 divided into 10,000,000 (ten million) shares with a nominal value of EUR 100. The shares are registered. On the same day 3,702,777 shares were issued and paid up and all are held by the Cooperative. For the sake of brevity, for the stipulations regarding the issuing of shares, application rights, acquisition of own shares and capital reduction, please refer to the Company’s Articles of Association. Corporate governance 63

Best practice provisions of the Code not applied by FrieslandCampina: The Company fully endorses the Code by applying the principles and best practice provisions or by explaining why the Company deviates from the Code. The principles listed below are not applied for the reason indicated in the foregoing text or below:

II.1.1 Appointment of a member of the Executive Board for a period of a maximum of four years: see motivation under ‘Executive Board-Appointment’.

II.1.9-11 and IV Response time to shareholders, Supervisory Board notification in the case of an acquisition bid; principles in respect of the (General Meeting of) Shareholders and information provision/logistics regarding the General meeting: not applicable due to the fact that the Company is not stock exchange listed and all the shares in its capital are held by the Cooperative.

II 2.12-15 Publishing remuneration report, most important components of employment conditions or severance payment of Executive Board member: the Company utilises the statutory exception as understood in Art. 2:383b of the Dutch Civil Code for so-called ‘private public liability companies’.

III.2.1 All Supervisory Board members, with the exception of a maximum of one, are independent: see motivation under ‘Supervisory Board – Composition, independence and appointment’.

III.3.5 A Supervisory Board member may only be a member of the Supervisory Board member for a maximum of three terms of four years: see motivation under ‘Supervisory Board – Composition, independence and appointment'.

III.5 For practical purposes, the Remuneration Committee and the Selection & Appointment Committee are combined into the Remuneration & Appointment Committee. 64 Risk management

Risk management

The achievement of business objectives goes hand in hand with risks and uncertainties, including due to external economic factors, market developments, calamities and internal factors. FrieslandCampina divides risks into four groups: compliance, strategic, tactical & operational and (financial) management.

Each risk group has its own objectives for managing the risks: Employee safety is the top priority for FrieslandCampina. • Compliance – The Company wants to avoid these risks and their The Company wants to achieve a noticeable reduction in the consequences as far as possible, whatever the scale of any number of job-related accidents. More attention is being paid to resulting damages; the existing programmes aimed at increasing the safety awareness • Strategic – Major risks that could impede the achievement of the of employees and managers. route2020 strategy are recognised in good time and, as far as possible, managed over the long term; The existing milk quota for FrieslandCampina’s member dairy • Tactical & operational – The material influence that risks could farmers will be withdrawn in 2015 and the Company is making have over the (financial) goals for the current year and the preparations to ensure that, should there be a significant increase medium term (three years) are limited as far as possible; in the quantity and fluctuations of the milk offered, this can be • (Financial) management – The Company strives to have in place properly processed and valorised. the measures necessary to ensure the effective management of the named risks. FrieslandCampina implements general risk management measures as well as specific risk management measures for each type of risk.

Although all types of risk are important for FrieslandCampina, in In 2011 attention was paid to further improving the organisation 2011 the relevance of some risks increased noticeably (see table and functioning of the internal management system. on page 65). The economic and political developments in Europe led to FrieslandCampina being prepared for several scenarios in General risk management measures certain countries, including Greece and Hungary. The Company Risk management organisation is well informed regarding consumer spending and, where this is The ultimate responsibility for the management of the risks under pressure, extra attention is needed to show the added value inherent to achieving the Company’s objectives and for the of brands. The economic developments also demanded additional reliability of the internal and external (financial) reports rests attention being paid to the Company’s financing and pension with the Executive Board. The responsibility for designing and provisions. FrieslandCampina’s creditworthiness is good and in 2011 embedding the measures to manage risks is delegated to corporate the Company successfully extended the financing facilities to make staff departments. These departments are also responsible the Company’s further development possible. for monitoring and evaluating the application of the measures. Risk management 65

The most important types of risk for FrieslandCampina

Relevance in 2011 compared with 2010

Increased Equal

Compliance Employee safety X

Food safety X

Legislation and regulations X

Strategic Innovation and added value X

Milk valorisation and processing capacity X

Acquisitions and partnerships X

Tactical & operational Economic and political developments X

Competition and market developments X

Purchasing market and price development X

Personnel and organisation X

Calamities including animal diseases X

(Financial) management Financing, foreign currencies and pensions X

ICT and management information X

During 2011 a new corporate Enterprise Risk Management In 2011 the Corporate Internal Audit department carried out department was established. This department is responsible for audits to ascertain the effectiveness of the implemented risk supporting risk assesments at various levels in the organisation management measures. The audits were carried out in accordance and for coordinating the management and further improvement with a programme drawn up in consultation with the Supervisory of the internal risk management and control systems. Board’s Audit Committee. The acquired information was used to The department reports to the Executive Board and the Audit improve the internal risk management and control systems. Committee. The department also carried out specific assignments, such as an ICT audit. The resulting findings and recommendations were The primary responsibility for the correct (day-to-day) application, agreed with the management responsible and reported to the compliance and monitoring of the systems that have been put Executive Board and the Audit Committee. in place to adequately manage the relevant risks rests with the managements of the business groups and operating companies. Code of Conduct and Whistleblower’s procedure The managements of the business groups and operating FrieslandCampina has laid down its principles regarding standards companies evaluate the application of and compliance with of behaviour in a Code of Conduct. This is applicable to every the risk management measures and submit their findings to FrieslandCampina employee and is published internally. the Executive Board in the form of a Statement of Internal Control. 66 Risk management

The business group managements consult their operating companies on a monthly basis regarding the achievement of the (financial and non-financial) targets, in part as a result of the Improvements to the risk management organisation in 2011 financial and operational reports (business reviews). The business • Implementation of food and employee safety programmes groups’ Chief Operating Officers report to the Executive Board (of accelerated which they are members) via the monthly reports. The monthly • Implementation of Internal Control Framework largely completed reports are distributed to and explained to the Supervisory Board. • Enterprise risk assessment expanded • Risk management organisation reinforced Risk inventory and evaluation 2011 • More attention paid to the Code of Conduct and Whistleblower’s In 2010 the Executive Board, together with the corporate staff procedure departments and an external advisor, identified and assessed • Research & Development departments integrated the business risks linked to the route2020 strategy. At the • Policy and initiatives in the field of sustainability strengthened end of 2011 this assessment was expanded with the business • Programmes for talent and career development started groups’ management teams. The measures aimed at managing • Organisation and process for carrying out acquisitions improved and reducing these business risks were evaluated and, where necessary, initiatives to improve the management of these risks were determined. Most of these initiatives were already included in the existing plans of the business groups and corporate In 2011 familiarity with the Code of Conduct within the Company departments. The most important findings of this assessment was increased. In 2011 a group of 200 managers with final are described in this section. responsibility within business groups, operating companies and corporate departments successfully completed a test. In 2012 other Expanding this approach to include the business groups has groups of employees will also participate in this test. brought more specific insights to the fore. The intention is to indentify and assess the risks in every operating company during The Company has a Whistleblower’s procedure. Employees who 2012 and to repeat the assessment annually. suspect deviations from the conduct standards are taking place can, in accordance with this procedure, report their suspicions to Internal Control Framework the management, an internal ombudsman (trusted representative), The reference guide for the design and evaluation of the Corporate Compliance Officer or an independent external body. FrieslandCampina’s risk management and control systems is the internationally renowned COSO framework for internal control. Corporate Manual This has been given shape in the Internal Control Framework (ICF). A Corporate Manual containing the most important policy During 2011 the ICF was for a large part implemented throughout principles, responsibilities and authorities relating to the main most of the Company and is now being applied by business groups functions and processes within the organisation is available. and operating companies. The entire organisation uses a single The Manual also lays-down the manner in which organisational automated system for this purpose. risks should be managed. In 2011 considerable attention was paid to completing and improving the Manual. The ICF contains prescribed control measures. The correct application of these measures in the components of the Business planning and review organisation is evaluated and the evaluations, and any The Company has implemented procedures for strategic planning, improvement measures to correct shortfalls, are recorded in the budgeting, internal monthly management and (financial) reporting system. The Corporate Internal Audit carries out annual reviews and (quarterly) financial forecasts and produced detailed to evaluate the correct application of the ICF. The findings are guidelines for the content and preparation of the relevant reports. reported to the responsible management, the Executive Board and the Audit Committee.

Risk management 67

Operational risks In addition to the general management measures described above there are also specific measures for the operational risks.

Description of the risk How the risks are managed

Employee safety FrieslandCampina strives for minimum risks in the area of safety. • All the Company’s locations must have a safety management The most important goal is to halve the number of accidents system that as a minimum complies with the stipulations of requiring sick leave within five years. All the business locations OHSAS 18001. The internal standards were implemented fully are expected to operate in accordance with the FrieslandCampina in 2011. standards. • The International Safety, Health & Environment Council prepares policy and supervises the implementation of safety Every accident, whatever its nature, can have severe personal risk management programmes. and social consequences for those involved. An unfavourable • Programme started to increase safety awareness, including development of accidents could also damage FrieslandCampina’s training of all employees (per location) and observation rounds reputation as an employer. by managers. • Monthly evaluation of accident figures by the Executive Board. • Internal audits started in 2011. • 19 sites have now been audited.

Food safety FrieslandCampina’s customers and the consumers must be able • Foqus quality system incorporating the international standards to trust that the products are safe and of high quality. (such as ISO 9001, ISO 22000 and HACCP) integral to the entire production chain (farm to distribution). FrieslandCampina’s business activities involve risks that can lead • 95% of the production facilities are HACCP certificated. to variances in product quality, for example due to interruption • Internal Foqus audits by 30 trained internal auditors. of production, contamination of products or raw materials or • Internal procedures related to food safety, the registration deliveries that do not comply with specifications. and handling of consumer complaints and issue and crisis management. Variations in product quality could severely damage the • Registration and analysis of incidents. Company’s reputation and position including the growth and • For these risks FrieslandCampina has arranged suitable product profitability of the brands concerned. liability and recall insurance.

Legislation and regulations FrieslandCampina is subject to national and international laws and • Application of the Code of Conduct and Whistleblower’s regulations including in the field of product safety, competition, procedure (see pages 65 and 66). trade mark rights, labour agreements, employee safety, the • Corporate governance structure (see page 58). environment, corporate governance, publications and taxes. • Internal procedures, authorisations and guidelines applicable Non-compliance with the legislation and regulations could to external representation. mean FrieslandCampina is confronted with undesirable (legal) • Involvement of legal specialists in all components of the consequences and financial and/or reputation damage. organisation’s training programmes. • Internal training programmes. • Compliance statements from operating companies, business groups and corporate departments. 68 Risk management

Description of the risk How the risks are managed

Innovation and added value A timely response to consumers’ and customers’ needs through • Innovation Governance Board that monitors the effectiveness successful product and process innovations in strategic categories of innovations. is essential for the achievement of the Company’s goals. • Portfolio management system. In 2011 the Apropos project was carried out to arrive at a standard innovation process. A lack of successful innovations could severely hinder the • Increasing understanding of nutritional aspects of dairy by implementation of the route2020 strategy. marketing, sales and R&D through workshops and training. • Innovation programmes Growth & development, Daily nutrition, Health & wellness and Functionality set up in 2011. • R&D organisation tuned to spearheads. • Work started on building new FrieslandCampina Innovation Centre in Wageningen. • Adequate organisation and processes to protect brands and intellectual property, including through patents.

Milk valorisation and processing capacity In June 2008 the EU Ministers for Agriculture decided that • Project chess2020 started in 2011 to inventory the expected the milk quotas would remain in place until 2014/2015. In the demand from operating companies for milk components and meantime an annual increase of 1% of the milk quota has been the expected supply of milk components (by member dairy implemented. farmers). • FrieslandCampina’s extra processing capacity will also be The milk quota is expected to lead to an increase in the quantity achieved in chess2020. of milk supplied by member dairy farmers. FrieslandCampina is obliged to process this milk.

Acquisitions and partnerships To maintain and further expand its market position, it is • The Corporate Mergers & Acquisitions department was important that FrieslandCampina successfully completes large strengthened in 2011. projects, such as acquisitions, the entering into of cooperation • The process for carrying out acquisition projects has been agreements, joint ventures and large investments. The execution improved. of this type of large project involves risks, such as those related • Project reporting informs the Executive Board of project status to the adjustment and integration of the operating activities or and progress. differences in business culture.

Economic and political developments FrieslandCampina occupies strong market and brand positions in • The diversification of activities, in respect of both products and many regions including Asia, West Africa, Western, Eastern and geography, spreads the risks. Central Europe and the Middle East. Political or economic changes • Frequent monitoring of economic indicators and market in these regions could affect the market positions in these information to enable a timely response to developments. countries and could, therefore, affect FrieslandCampina’s results • Regular evaluation and updating of financial forecasts. and financial position. Public statements and developments in • Scenario planning for countries with an increased economic risk the Netherlands or other (Western European) countries could (such as Greece and Hungary). also have an adverse effect on FrieslandCampina’s operating • Active involvement of FrieslandCampina in social discussions profit and financial position, for example due to a boycott of about (dairy) cattle farming and the dairy sector. FrieslandCampina’s products. Risk management 69

Description of the risk How the risks are managed

Competition and market developments The dairy sector is undergoing rapid changes. Customers are • Responding to these changes and regularly reviewing its tightening their conditions for purchasing FrieslandCampina’s competitive position are priorities in the route2020 strategy, products. Consumers have increasingly high expectations organisational structure, annual planning and operations. regarding the products and the way they can be used. Customers’ • Category teams have been set up to cluster expertise and plans preferences are also changing. There are also major differences related to strategic segments. between the different countries in which FrieslandCampina is • The Company has clustered its knowledge regarding how active. the dairy market and the competition are developing into a Dairy News Analysis system. The use of this system was In its key sales markets FrieslandCampina has to compete not further refined in 2011. only against many smaller (local) producers, but also against large • Analysis of market and consumer developments with the aid multinationals. These companies, several of which are listed, have of market research agencies. the financial resources to capitalise on certain trends and/or to • The Executive Board and the managements of the business develop and market (new) products. groups are kept up to date with market and competition developments. If FrieslandCampina was unable to respond to changes in the market and be innovative, this could have an adverse effect on its competitive position and, therefore, its operating profit and financial position.

Purchasing market and price developments In a number of markets FrieslandCampina is both the buyer and • FrieslandCampina’s strategy to limit these risks is aimed at the seller of dairy products and non-dairy-based products (such increasing the share in the total revenue of products with as fruit drinks and ingredients). FrieslandCampina sells products added value and minimising costs by working as efficiently such as cheese, butter, infant & toddler nutrition, milk powder and as possible. fresh and long-life dairy products that are traded on the consumer • Price developments, both the current and anticipated prices markets in various countries. These products are subject to price of dairy products and raw materials, are followed very closely. fluctuations. FrieslandCampina also buys products from third • The purchase of raw materials, ingredients, packaging parties, such as unprocessed raw milk, dairy-related raw materials, materials, energy and services is organised centrally in milk powder, fruit juice concentrates, fruit preparations, sugar, category teams. cocoa, vegetable oil, energy, ingredients and (raw materials • The purchasing process organisation is standardised and for) packaging materials such as tin, cardboard and plastic. alternatives are sought in order to safeguard the supply FrieslandCampina’s operating profit and financial position can be certainty of critical products. affected by price fluctuations resulting from changes in the supply • Assurance of supply is also improved by the acquisition of and availability of these products (for example due to weather preferred customer status, which means FrieslandCampina conditions). Steep price rises that cannot, or can only partially, be has priority in times of shortage. passed on to customers, or a continuing shortage in the supply • The risk of price fluctuations is also limited by concluding of certain products can adversely affect FrieslandCampina’s long-term purchase contracts and forward contracts. operating profit and financial position. 70 Risk management

Description of the risk How the risks are managed

Personnel and organisation The ability to recruit, retain and develop the right people is a key • A global personnel and organisation strategy to support factor for the achievement of FrieslandCampina’s goals. the Company’s route2020 strategy. • Talent and leadership development programmes for both senior management and less experienced talents. • Unambiguous systems and programmes for performance assessment and career development. • Training programmes run by the FrieslandCampina Academy. • Worldwide harmonisation of function classification for senior management and other managers (around 4,500 people). • Start of project Employability 2020 in cooperation with training institutes to safeguard dairy expertise and experience for the future in view of the average higher age of production employees in the Netherlands. • For more information please see ‘FrieslandCampina and its staff’ (pages 46 to 48).

Calamities including animal diseases FrieslandCampina works with natural products. A widespread or • The Foqus quality system for the processing of raw milk. long-term outbreak of (contagious) animal diseases, especially in The products can be tracked throughout the production chain. cattle, would adversely affect the production and sales of dairy • The proper functioning and compliance of the quality system is products and, therefore, FrieslandCampina’s results. evaluated regularly through internal and external verification. • The Company has the procedures and organisation to deal For the production and delivery of its products FrieslandCampina with a crisis appropriately, within the operating companies is dependent on the good functioning of production and and business groups and at a corporate level. All the people distribution facilities and the availability of raw materials, energy involved have been trained in crisis management. and services. Natural disasters, such as floods, can disrupt the • The evaluation of product deviations and the implementation Company throughout the production chain. of measures to prevent these deviations are a component of business operations. Such risks cannot be (completely) excluded. • Should such a calamity occur, the Company is appropriately insured against damage, consequential loss and liability.

Financing, foreign currency and pensions General The most critical types of risk for FrieslandCampina are financing • Internal Treasury Committee tasked with reviewing the risk risks, credit risks, currency risks, interest risks and the risks policy and regularly evaluating the risks and their management. related to pension schemes. • Improving reporting related to risks. • Risk management guidelines and procedures. • Implementation of treasury management system started in 2011. Risk management 71

Description of the risk How the risks are managed

Financing risks As FrieslandCampina is an international concern, global economic • The primary goal is to have access to the capital market and other developments have a considerable influence on the value of financial markets at all times. To ensure this important financial FrieslandCampina’s assets, cash flows and profit. If the risks are ratios are carefully monitored and in 2011 FrieslandCampina not sufficiently hedged or managed, this could have an adverse arranged committed facilities with an ample liquidity buffer. effect on the cash flows, profit and margins. This could make • A focus within the Company on managing these risks and access to the capital market or other financial markets more diversification in respect of lenders. difficult. • The implementation in 2011 of project Redcap to reduce working capital. Economic developments could also affect FrieslandCampina’s • FrieslandCampina is confident that the strategic plans of ability to fulfil its current/future agreements with lenders. route2020 can be properly financed.

Credit risks FrieslandCampina can be faced with the risk that customers or • The activities are spread across many sectors and regions. financial institutions cannot fulfil their obligations. This diversity protects the Company as a whole. • There are no customers that account for more than 5% Customers’ or financial institutions’ failure to fulfil their of the Company’s total revenue. Certain customers can, obligations, or to be late fulfilling them, adversely affects however, account for a significant portion of the activities of FrieslandCampina’s operating profit and financial position. one operating company. The loss of such a customer could, therefore have a considerable effect on the financial position FrieslandCampina regularly reviews the creditworthiness of its of the operating company concerned. customers and financial counterparties and limits the credit • A portion of the receivables from customers is insured with risk related to these parties. This does not, however, provide a a reputable insurance company. guarantee that customers/financial counterparties will always (be able to) fulfil their obligations.

Currency risks As FrieslandCampina is active in various countries around the • The aim of the currency risk management is to prevent world and purchases raw materials on the global market, a undesirable fluctuations in the operating profit due to these substantial portion of its assets, liabilities and results is sensitive currency fluctuations. When hedging currency risks related to to currency fluctuations. This can also affect the Company’s operational transactions specific product and market conditions competitive strength, which means that, for example, changes in are taken into account. Some of the transaction risks are the exchange rates of foreign currencies such as the US dollar, the hedged. Indonesian rupiah and the Nigerian naira against the euro could • For more information about the management of financial affect FrieslandCampina’s operating profit and financial position. risks including sensitivities see Note 30 of the ‘Notes to the consolidated financial statements’. Interest rate risks FrieslandCampina can face the risk of interest rate fluctuations • For a portion of its liabilities FrieslandCampina has entered into in respect of its (non-current and current) liabilities with variable interest rate swaps so that, on balance, it pays a fixed interest interest rates. The market value of borrowings with a fixed rate. FrieslandCampina’s sensitivity analysis at the end of 2011 interest rate are also influenced by the market interest rate. indicated that if the interest rate was raised or lowered by 0.5% the cumulative interest liabilities for 2011 would have been less Interest rate fluctuations can have a negative or positive effect on than 1 million euro higher or lower. FrieslandCampina’s operating profit and financial position. 72 Risk management

Description of the risk How the risks are managed

Pension plan risks The principle pension plans for Dutch FrieslandCampina • At the end of 2011 the coverage rate of the Company pension employees are administered by a Company pension fund and an fund dropped to 96% (end 2010: 99%). In accordance with the insurance company. Under the pension plan administered by the fund related to this pension plan supplementary payments are insurance company any returns on the plan assets, which are limited and maximised. held by a separate investment fund, are shared. Developments • The pension plan administered by the insurance company in interest rates on the global capital market, and other factors must maintain a minimum coverage rate. At the end of 2011 which are beyond FrieslandCampina’s control, could have an the coverage rate was 113% (end 2010: 117%). adverse effect on the equity position (coverage ratio) of the • As a result of the market developments mentioned earlier, pension fund and/or the separate investment fund and could the value of the investments and the scale of the liabilities in result in FrieslandCampina having to make additional payments. accordance with IFRS (IAS 19) could also have an adverse effect on FrieslandCampina’s operating profit and financial position. For additional information please see Note 20 in the ‘Notes to the consolidated financial statements’.

ICT and management information If the Company’s route2020 objectives are to be achieved • The Summit project is standardising the operating processes successfully, its current and future information and and systems by using a single enterprise resource planning communication requirements must be supported in an effective, system (SAP). reliable and efficient manner both through the availability of • In 2011 the design of the processes and systems was completed. infrastructure, technology and well-qualified people, and through Eventually all the operating companies and departments will the setting up of good operating processes and systems. work with the new system, which will be implemented in phases in the period 2012 to 2017. • In organising the project standard methods have been used to ensure proper project management and quality control. The execution is being monitored by a Steering Group with a broad and senior composition. • The Executive Board is informed of the progress, risks and results of the project on a regular basis.

The information above is not necessarily exhaustive and is not listed in order of priority. It is possible that risks that have not, as yet, been recognised, or have not been considered substantial, could in the future have a significant adverse effect on FrieslandCampina’s ability to achieve its business objectives. FrieslandCampina’s internal reporting systems, budget cycles and guidelines, procedures, systems and organisational measures are geared, in part, to the timely identification of these risks. Risk management 73

Management statement The Executive Board is ultimately responsible for the management of the risks that are coupled with the Company’s objectives and the reliability of the internal and external (financial) reporting. The Executive Board is also responsible for evaluating the effectiveness of the measures to prevent or mitigate these risks. By means of the measures described above the Executive Board has fulfilled its responsibilities in the year under review.

Taking into account the limitations that are inevitably inherent in any risk management and internal control system, and the possibilities for improving the system, the Company’s internal management and control systems provide a reasonable degree of assurance that: • The Executive Board will be informed, in good time, of the degree to which the Company’s strategic, operational and financial objectives are being achieved; • The internal and external (financial) reporting does not contain any material misstatement and that the management and control systems functioned properly during 2011; • The Company has complied with the relevant legislation and regulations.

The phrase ‘reasonable assurance’ is understood to mean the level of assurance that would be provided by a Director acting with due care and attention under the given circumstances. However professional the systems mentioned above may be they can neither provide absolute assurance that the operational and financial objectives will be achieved, nor entirely prevent misstatements, errors or contraventions of legislation and regulations.

All the procedures relating to the internal risk management and control systems and the resulting findings, recommendations and measures have been discussed with the Audit Committee, the Supervisory Board and the external auditor.

Executive Board

Amersfoort, 2 March 2012 Learning and innovating

Every day FrieslandCampina’s dairy specialists are at work developing new, improved dairy products and optimising production processes even further. New knowledge leads to new understanding and new technology makes more and more possible. FrieslandCampina’s product development team in Wageningen in the Netherlands, for example, makes use of a pilot set-up of a UHT (Ultra High Temperature) installation when developing new, liquid dairy products. By heating the product to a very high temperature very quickly, UHT treatment kills any undesirable micro-organisms in the product. The process technologists optimise the processing conditions to ensure the maximum possible retention of the product’s original taste and aroma and, at the same time, the minimum possible use of energy and water during the process. Good for the environment because it contributes towards reducing energy usage and good for the consumer because the products retain their taste.

76 Report of the Supervisory Board

Report of the Supervisory Board

Piet Boer Jan Uijttewaal Peter Elverding Sjoerd Galema Tex Gunning Angelique Huijben-Pijnenburg

Supervisory Board activities several larger investment proposals including the building of an During the year under review the Supervisory Board met innovation centre in Wageningen and the further extension and seven times. The Supervisory Board also paid a working visit to improvement of FrieslandCampina Domo’s production facilities. FrieslandCampina Russia. During the summer considerable attention was paid to the progress of the activities related to the route2020 strategy. Market The Supervisory Board meetings took place in the presence of the developments, FrieslandCampina’s organisation and sustainability Executive Board. After nearly every meeting the Supervisory Board aspects were also on the agenda as were acquisition proposals and and Company Secretary met in closed session during which the their possible consequences for FrieslandCampina’s fi nancing. topics discussed included the functioning of the Supervisory Board and the Executive Board as well as appointments and aspects such The management reported on the fl ooding in Nigeria and as remuneration and remuneration policy. Thailand, the resulting water damage, especially in Nigeria, and the measures taken to prevent damage in Thailand. The pension During the year under review the Supervisory Board paid plans for Dutch employees received considerable attention particular attention to FrieslandCampina’s progress towards and the Supervisory Board approved the amendments to the achieving its strategic goals and the related risks. The Supervisory Melkgeldreglement (Payment for milk regulation) in 2012. Board established that, overall, good progress had been made with route2020. Working capital development over recent years The usual topics were also discussed including the development was also discussed in depth as were the management’s measures of the Company’s results during the year under review and during to structurally reduce the level of the working capital. The every meeting the management reported business progress within Supervisory Board noted that by the end of 2011 these measures the organisation. During the meeting in March the 2010 annual had led to a lower level of working capital. Continued attention will report and fi nancial statements for 2010, and the fi ndings of the be paid to this topic in the coming years. external auditor, the Audit Committee and the management with regard to risk management and the internal control systems were The effects and possible consequences of the euro crisis and discussed. At the end of the year under review the Supervisory measures to mitigate the effects for FrieslandCampina were also Board discussed the budget for the coming year with the discussed extensively, including the management’s risk analysis management. Both the Supervisory Board’s committees reported and any consequences for FrieslandCampina’s medium-term their most important fi ndings. fi nancing. In the meantime FrieslandCampina has extended its most important credit facility, amounting to 1 billion euro, by two During the closed sessions the functioning of the Executive Board years until 2015 with improved conditions – a quite exceptional and the Supervisory Board and their members was discussed. achievement in these times. The Supervisory Board also approved When evaluating the Supervisory Board’s functioning, Report of the Supervisory Board 77

Jan Keijsers Frans Keurentjes Simon Ruiter Henk Scheffers Hans Stöcker Ben van der Veer Erwin Wunnekink

the guidance of an external advisor, who interviewed each of the Audit Committee members individually, was sought. The evaluation of the Executive During the year under review the Audit Committee met four times. Board members included each member being interviewed by the Remuneration & Appointment Committee. The results were During these meetings the topics discussed were the draft annual discussed by the Supervisory Committee. The salary of the report and fi nancial statements for 2010, the management letter Executive Board was discussed in respect of both the 2011 targets from the external auditor and the management’s response and the and the results achieved in respect of the 2010 targets and, in view auditor’s report regarding his audit tasks. Attention was paid to the of this, the (short- and long-term) bonus to be awarded for 2010. valuation of goodwill and deferred tax assets on the balance sheet. The decision making related to all these topics was prepared by the The tasks assigned to the external auditor, the external auditor’s Remuneration & Appointment Committee. Other topics prepared independence, the audit plan for 2011 and the fee paid to the by the Remuneration & Appointment Committee and discussed external auditor were also discussed and the auditor’s tasks were by the Supervisory Board were the selection of a new (external) evaluated. During each meeting the internal auditors reported Supervisory Board member, the composition of the Supervisory on their activities and audit plan and the treasury department Board and its committees, and the introduction programme of the reported the current status of the Company’s fi nancing. three new Supervisory Board members. Management’s mandates in respect of treasury-related topics such as liquidity, refi nancing, interest rate related risks and currency In September the Supervisory Board, accompanied by several exchange rate differences were discussed as was the progress Executive Board members, visited Russia, where their programme of work related to the internal control framework. Due attention included visits to FrieslandCampina’s factory in Stupino and was paid to improvement of risk management. The progress of discussions about the strategy of this company and major goals on-going ICT projects was reported on a regular basis and for the coming period. Market developments in Russia were also on attention was also paid to quality assurance, legal and fi scal topics the agenda and the visit included talks with the Mayor of Stupino as well as compliance. and The Dutch Ambassador to Russia. The quarterly results were presented and discussed and risk Supervisory Board committees management was a recurring topic. After every meeting the Audit The Supervisory Board has formed two committees, the Audit Committee reported its fi ndings to the Supervisory Board. Committee and the Remuneration & Appointment Committee, The composition of the Audit Committee can be found on page 145. to advise them and prepare their decisions in respect of Two members of the Audit Committee, Messrs Henk Scheffers specifi c tasks. (Chairman) and Ben van der Veer, qualify as fi nancial experts in the sense of the Supervisory Board Charter. 78 Report of the Supervisory Board

Supervisory Board appointment and resignation roster

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

P. Boer ▲ ● 1 • J.H.G.M. Uijttewaal ● • ▲ P.A.F.W. Elverding ▲ ● • S.H. Galema ▲ ▲ ● L.W. Gunning ▲ ▲ ● A.A.M Huijben-Pijnenburg ▲ ▲ ● J.P.C. Keijsers ▲ ● • F.A.M. Keurentjes ▲ ● • S.R.F. Ruiter ▲ ● • H. Scheffers ▲ ● • H. Stöcker ▲ ▲ ● B. van der Veer ▲ ▲ ● W.M. Wunnekink ▲ ▲ ● 1 As the Chairman eligible for reappointment for an extra term on the grounds of the Articles of Association ▲ Resigns, eligible for reappointment ● Resigns, not eligible for reappointment

• Current member’s successor resigns, eligible for reappointment

Remuneration & Appointment Committee Composition of the Supervisory Board, committees and The Remuneration & Appointment Committee met five times Executive Board during the year under review. Supervisory Board FrieslandCampina’s Supervisory Board comprises thirteen During these meetings the Committee prepared the Supervisory members. Nine of the members are members of the Board of Board’s decision making related to remuneration, the remuneration Zuivelcoöperatie FrieslandCampina U.A. and four are external policy for Executive Board, the selection and appointment of Supervisory Board members. On 14 December 2011 Mr Kees new members of the Supervisory Board and the Executive Board Wantenaar resigned as Chairman of the Supervisory Board and the composition of the Supervisory Board’s committees. and Messrs Rob ter Haar and Jorrit Jorritsma resigned as The evaluation of the functioning of the Executive Board and members of the Supervisory Board. The Supervisory Board owes the individual members of the Executive Board was prepared them a considerable debt of gratitude for their contributions and the evaluation of the Supervisory Board organised. The towards the Board’s discussions and is especially grateful to Committee also discussed talent management and looked at the Mr Kees Wantenaar for the manner in which he has helped top management and the progress of programmes in the field of shape FrieslandCampina since the merger. All three gentlemen leadership development. The composition of the Remuneration resigned in accordance with the roster and were not eligible for & Appointment Committee can be found on page 145. reappointment. On the same date Messrs Sjoerd Galema, Tex Gunning and Hans Stöcker were appointed as members of the Supervisory Board. The new members of the Supervisory Board Report of the Supervisory Board 79

were selected taking into account the profile of the Supervisory Executive Board Board as published on FrieslandCampina’s website. As of 1 January 2012 the Supervisory Board appointed Mr Roelof Joosten a member of the Executive Board in the position of Chief As of 14 December 2011 Mr Piet Boer succeeded Mr Kees Operating Officer of the Ingredients business group. As Executive Wantenaar as Chairman of the Supervisory Board of Royal Director he had been responsible for the activities of this business FrieslandCampina N.V. and of the Board of Zuivelcoöperatie group since November 2010. Mr Roelof Joosten has worked for FrieslandCampina U.A. Mr Jan Uijttewaal was selected to succeed FrieslandCampina in various functions since November 2004. Mr Piet Boer as Vice-chairman of the Supervisory Board and the The composition of the Executive Board can be found on page 146. Board of the Cooperative. Mr Peter Elverding was reappointed as a member of the Supervisory Board. All the external members of Financial statements and appropriation of profit the Board (the members who are not also members of the Board of In February 2012 the Audit Committee discussed the 2011 financial the Cooperative) are independent of the Company as stipulated in statements drawn up by the Executive Board and notified the the Dutch Corporate Governance Code and the Supervisory Board Supervisory Board of their findings. During the Supervisory Board Regulations. meeting of 2 March 2012 the Supervisory Board members and the Executive Board members signed the financial statements. Diversity The financial statements were audited by KPMG Accountants FrieslandCampina strives for a composition of its Supervisory N.V., which then issued an unqualified auditor’s report. The Board that is balanced and in which the combination of the financial statements will be submitted to the General Meeting of members’ experience, expertise and independence ensures the Shareholders (the Board of Zuivelcoöperatie FrieslandCampina U.A.) Supervisory Board can fulfil its various duties on behalf of the for adoption on 26 April 2012. Company in the best possible way. FrieslandCampina also strives for a balanced participation of men and women in the Supervisory The Supervisory Board has approved the Executive Board’s Board with at least one female external member. The Supervisory proposal to add an amount of 122 million euro to the general Board also strives to ensure that where its internal members are reserve. In addition, an amount of 65 million euro has been concerned the ratio of men and women reflects the Cooperative’s reserved in the form of fixed member bonds registered in the membership. Although this was taken into account when seeking names of member dairy farmers. In accordance with Article 21, a candidate to fill the vacancy for an external candidate that arose Clause 2, Item d of the Articles of Association, during the General during 2011, this did not result in the appointment of a woman. Meeting of Shareholders the members of the Executive Board The next time a vacancy arises the search criteria will once again will be discharged for their management during the 2011 financial emphasise that the candidates should be female. year and, in accordance with Article 21, Clause 2, Item e of the Articles of Association the members of the Supervisory Board will Committees be discharged for their supervision of the Executive Board during Mr Jan Uijttewaal stepped down as a member of the Audit 2011. Committee on 14 December 2011. His place on the Committee was taken by Mr Simon Ruiter. On 14 December 2011 Mr Jan Uijttewaal On 26 April 2012 the Member Council of Zuivelcoöperatie joined the Remuneration & Appointment Committee to fill the FrieslandCampina U.A. will be asked to approve the decision of vacancy arising from the departure of Mr Kees Wantenaar. the Cooperative’s Board, in its capacity as the General Meeting of Shareholders, to adopt the 2011 financial statements of Royal The composition of the Supervisory Board and its committees FrieslandCampina N.V. and approve the appropriation of profit. can be found on pages 144 and 145. Supervisory Board

Amersfoort, 2 March 2012 Moving together

In many countries sport means more than just physical exercise. It is part of the local culture and brings people together. In the Netherlands young and old alike venture onto the ice during the winter months as soon as the ditches and lakes freeze. For more than 75 years enjoying a steaming cup of the only genuine Chocomel together in the cold outside air has, for many people, become a tradition. At the same time FrieslandCampina has kept Chocomel up-to-date, for example with the introduction of Chocomel Dark in the autumn of 2011.

82 83

Financial statements 2011

Royal FrieslandCampina N.V. 84

Contents

Consolidated financial statements Consolidated income statement 86 Consolidated statement of comprehensive income 87 Consolidated statement of financial position 88 Consolidated statement of cash flows 89 Consolidated statement of changes in equity 90 Notes to the consolidated financial statements 92 General and accounting policies 92 Segmentation 102 Assets and liabilities held for sale 104 Acquisitions 104 Revenue 104 Other operating income 105 Raw materials and consumables used 105 Employee benefits expense 105 Other operating expenses 105 Finance income and cost 106 Income tax expense 106 Property, plant and equipment 107 Intangible assets 109 Investments in joint ventures and associates 111 Derivatives 112 Other Financial assets 113 Inventories 113 Trade and other receivables 114 Cash and cash equivalents 114 Equity 115 Employee benefits 116 Deferred tax assets and liabilities 119 Provisions 120 Interest-bearing borrowings 121 Other financial liabilities 122 Current borrowings 123 85

Trade and other payables 123 Commitments and contingencies 123 Related parties 124 Remuneration of members of the Supervisory Board and the Executive Board 125 Financial risk management and financial instruments 125 Cash flow statement 131 Subsequent events 131 Principal subsidiaries, joint ventures and associates 132

Company financial statements Company balance sheet 133 Company income statement 133 Notes to the company financial statements 134 General 134 Investments in subsidiaries 134 Loans to subsidiaries 134 Amounts due from subsidiaries 135 Equity attributable to the shareholder of the company and other providers of capital 135 Interest-bearing borrowings 135 Borrowings from subsidiaries 136 Derivatives 136 Commitments and contingencies 136 Remuneration of members of the Supervisory Board and the Executive Board 136

Other information Provisions of the Articles of Association governing profit appropriation 138 Proposed appropriation of profit attributable to the shareholder of the company 138 Subsequent events 138 Independent auditor’s report 139 86 Financial statements Consolidated income statement

Consolidated income statement in millions of euros, unless stated otherwise

Note 2011 2010

Revenue (4) 9,626 8,972 Other operating income (5) 20 20 Operating income 9,646 8,992

Raw materials and consumables used (6) - 6,472 - 5,779 Employee benefits expense (7) - 831 - 817 Depreciation of plant and equipment and amortisation (11) (12) - 176 - 210 intangible assets Other expenses (8) - 1,764 - 1,752 Total expenses - 9,243 - 8,558 Operating profit 403 434

Finance income (9) 34 40 Finance costs (9) - 106 - 109 Net finance costs - 72 - 69

Share of profit of joint ventures and associates 13 13

Profit before tax 344 378

Income tax expense (10) - 128 - 93 Profit for the year 216 285

Profit attributable to: • providers of member bonds 39 29 • providers of perpetual notes 9 9 • shareholder of the company 122 192 • shareholder and other providers of capital of the company 170 230 • non-controlling interests 46 55 Profit for the year 216 285 Financial statements Consolidated statement of comprehensive income 87

Consolidated statement of comprehensive income in millions of euros, unless stated otherwise

2011 2010

Profit for the year 216 285

Effective portion of cash flow hedges, net of tax 4 15 Currency translation differences, net of tax - 21 37 Other comprehensive income for the year, net of tax - 17 52 Total comprehensive income for the year 199 337

Attributable to: • shareholder and other providers of capital of the company 154 275 • non-controlling interest 45 62 88 Financial statements Consolidated statement of financial position

Consolidated statement of financial position At 31 December, in millions of euros, unless stated otherwise

Note 2011 2010 Assets Property, plant and equipment (11) 1,660 1,495 Intangible assets (12) 945 903 Deferred tax assets (21) 224 233 Investment in joint ventures and associates (13) 111 103 Employee benefits (20) 78 61 Other financial assets (15) 73 70 Non-current assets 3,091 2,865

Inventories (16) 1,085 1,005 Trade and other receivables (17) 1,127 1,110 Income tax receivable 12 12 Other financial assets (14) 2 Cash and cash equivalents (18) 420 292 Assets held for sale (2) 4 13 Current assets 2,648 2,434

Total assets 5,739 5,299

Equity Issued capital 370 370 Share premium 113 113 Perpetual notes 130 130 Member bonds 1,003 931 Other reserves - 59 - 43 Retained earnings 591 460 Equity attributable to shareholder of the company and 2,148 1,961 other providers of capital Non-controlling interests 116 110 Total equity 2,264 2,071

Liabilities Employee benefits (20) 304 263 Deferred tax liabilities (21) 63 35 Provisions (22) 25 45 Interest-bearing borrowings (23) 891 776 Other financial liabilities (24) 150 38 Non-current liabilities 1,433 1,157

Current borrowings (25) 250 314 Trade and other payables (26) 1,676 1,633 Income tax payable 69 82 Provisions (22) 37 39 Other financial liabilities (14) 10 3 Current liabilities 2,042 2,071 Total liabilities 3,475 3,228

Total equity and liabilities 5,739 5,299 Financial statements Consolidated statement of cash flows 89

Consolidated statement of cash flows in millions of euros, unless stated otherwise

Note 2011 2010 Cash flows from operating activities Profit before tax 344 378 Adjustments for: • interest (9) 42 44 • depreciation of plant and equipment and amortisation of intangible assets 176 210 • impairment of property, plant and equipment, intangible assets and assets 12 28 held for sale • reversal of impairment of property, plant and equipment, intangible assets - 1 - 7 and assets held for sale • share of profit of joint ventures and associates (13) - 13 - 13 • put option costs (9) 19 25 • revaluation result of derivatives 1 1 • addition member bonds 65 65 • book profit on disposals - 11 Total adjustments 290 353 Movements: • movements in the measurement of securities (15) - 2 - 8 • movements in inventories (31) - 79 - 171 • movements in receivables (31) - 21 - 184 • movements in liabilities (31) 101 173 • movements in employee benefits (20) 24 20 • movements in provisions (22) - 22 5 Total movements 1 - 165 Cash flow from operating activities 635 566 Dividend received (13) 3 12 Income tax paid - 94 - 91 Interest paid - 73 - 60 Interest received 37 17 Net cash from operating activities 508 444

Cash flows from investing activities Investment in property, plant and equipment and intangible assets - 368 - 261 Disposals of property, plant and equipment, intangible assets and assets 29 18 held for sale Transactions related to loans provided 4 4 Acquisitions (3) - 5 Net cash used in investing activities - 340 - 239

Cash flows from financing activities Disposal of non-controlling interests 17 Dividends paid to non-controlling interests - 39 - 66 Amounts paid to providers of perpetual notes - 9 - 9 Amounts paid to providers of member bonds - 32 - 31 Interest-bearing borrowings drawn 69 218 Repayment of interest-bearing borrowings - 25 - 270 Paid to holder of put option - 8 - 42 Repayment of derivatives 2 - 15 Net cash used in financing activities - 42 - 198 Net cash flow 126 7

Cash and cash equivalents at 1 January (18) 292 272 Net cash flows 126 7 Translation differences in cash and cash equivalents 2 13 Cash and cash equivalents at 31 December (18) 420 292 90 Financial statements Consolidated statement of changes in equity

Consolidated statement of changes in equity in millions of euros, unless stated otherwise

2011

Share Cash flow Currency Non- Issued premium Perpetual Member hedge translation Retained controlling capital reserve notes bonds reserve reserve earnings 1 Equity 2 interests Total At 1 January 370 113 130 931 - 14 -29 460 1,961 110 2,071 Comprehensive income: • profit for the year 9 39 122 170 46 216 • other comprehensive 4 - 20 - 16 - 1 - 17 income Total comprehensive 9 39 4 - 20 122 154 45 199 income for the year

Transactions with shareholder and other providers of capital recognised directly in equity:

• dividends paid to - 39 - 39 non-controlling interests • amounts paid to providers of perpetual - 9 2 - 7 - 7 notes • amounts paid to providers - 32 7 - 25 - 25 of member bonds • addition member bonds 65 65 65 for the year • leaving premium to member dairy farmers - 1 - 1 - 1 Zuivelcoöperatie FrieslandCampina U.A.

• other 1 1 1 Total transactions with shareholder and other -9 33 9 33 -39 -6 providers of capital At 31 December 370 113 130 1,003 -10 -49 591 2,148 116 2,264

1 Including the appropriation of profit of prior years and the undistributed profit for the year 2011. 2 Equity attributable to shareholder of the company and other providers of capital. Financial statements Consolidated statement of changes in equity 91

2010

Share Cash flow Currency Non- Issued premium Perpetual Member hedge translation Retained controlling capital reserve notes bonds reserve reserve earnings 1 Equity 2 interests Total At 1 January 370 110 130 868 - 29 - 59 262 1,652 97 1,749 Comprehensive income: • profit for the year 9 29 192 230 55 285 • other comprehensive 15 30 45 7 52 income Total comprehensive 9 29 15 30 192 275 62 337 income for the year

Transactions with shareholder and other providers of capital recognised directly in equity: • dividends paid to - 66 - 66 non-controlling interests • amounts paid to providers of perpetual - 9 2 - 7 - 7 notes • amounts paid to providers of member - 31 5 - 26 - 26 bonds • addition member bonds 65 65 65 for the year • capital contribution by Zuivelcoöperatie 3 3 3 FrieslandCampina U.A. • transactions with owners of non-controlling 17 17 interests • leaving premium to member dairy farmers - 1 - 1 - 1 Zuivelcoöperatie FrieslandCampina U.A. Total transactions with shareholder and other 3 - 9 34 6 34 - 49 - 15 providers of capital At 31 December 370 113 130 931 - 14 - 29 460 1,961 110 2,071

1 Including the appropriation of profit of prior years and the undistributed profit for the year 2010. 2 Equity attributable to shareholder of the company and other providers of capital. 92 Financial statements Notes to the consolidated financial statements

Notes to the consolidated financial statements in millions of euros, unless stated otherwise

General Use of estimates and judgements Royal FrieslandCampina N.V. has its registered office in The preparation of the consolidated financial statements in Amersfoort, the Netherlands. The address is: Stationsplein 4, conformity with IFRSs requires management to make judgements, 3818 LE, Amersfoort, the Netherlands. The consolidated financial estimates and assumptions that affect the application of statements for the year ended 31 December 2011 comprise the accounting policies and the reported amounts of assets, liabilities, financial statements of Royal FrieslandCampina N.V. and its income and expenses. The actual results may differ from subsidiaries (jointly referred to as FrieslandCampina). management’s estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. The judgements, assumptions Zuivelcoöperatie FrieslandCampina U.A. is the sole shareholder of and estimates have been made taking into account the opinions Royal FrieslandCampina N.V. (FrieslandCampina). and advice of (external) experts. Revisions to accounting estimates are recognised in the period in which the estimates are revised and FrieslandCampina processes over 10 billion kilograms of milk in any future periods affected. The estimates and judgements that per year into a very varied range of nutritious, tasty and are considered most critical are: healthy food products for consumers. In the professional • impairments; market, FrieslandCampina is a key supplier of dairy products • useful lives of property, plant and equipment and intangible to bakeries, restaurants, bars and fast-food chains. In addition, assets; FrieslandCampina also supplies high-quality ingredients to • utilisation of tax losses; producers of foodstuffs and pharmaceuticals. • measurement of defined benefit obligations; • key assumptions used in discounted cash flow projections; All disclosures are based on continuing operations. • provisions and contingencies.

Basis of preparation For more detailed information regarding the handling of the items Statement of compliance mentioned please see the Notes to the financial statements. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards Changes in accounting policies and disclosures (IFRSs) as endorsed by the European Union, and their New and amended standards adopted by FrieslandCampina interpretations as adopted by the International Accounting The following new standards and amendments to standards are Standards Board (IASB). mandatory for the first time for the financial year beginning 1 January 2011 FrieslandCampina N.V.’s consolidated financial statements at • IAS 24 Related Party Disclosures; the revised standard simplifies 31 December 2011 will be authorised for publication after it is the definition of a related party, clarifying its intended meaning authorised for issue by the Executive Board and the Supervisory and eliminating inconsistencies from the definition. The change Board on 2 March 2012, by the Executive Board on 14 March in accounting policy only affects disclosure. 2012. On 26 April 2012 the financial statements will be submitted • IAS 32 Financial Instruments: classification of right issues; the for approval to the Board of Zuivelcoöperatie FrieslandCampina amendment addresses the accounting for right issues and do U.A. in its role as the General Meeting of Shareholders of Royal not affect FrieslandCampina’s consolidated financial statements. FrieslandCampina N.V. • IFRIC 14 The Limit on a Defined Benefits Asset, Minimum Funding Requirements and their interaction; this amendments Basis of measurement allows for the recognition of an asset for any surplus Unless stated otherwise, the financial statements have been arising from the voluntary prepayment of minimum funding prepared on a historical cost basis, except for the following contributions for defined-benefit plans in respect of future material items in the statement of financial position: services. This amendment does not have a material effect on • non-derivative financial instruments at fair value through the FrieslandCampina’s consolidated financial statements. income statement are measured at fair value; • IFRIC 19 Extinguishing Financial Liabilities with Equity • derivatives are measured at fair value; Instruments; this amendment clarifies the accounting when the • the asset from the defined benefit pension schemes is terms of a debt are renegotiated with the result that the liability recognised as plan assets, plus unrecognised past service costs, is extinguished by the debtor issuing own equity instruments to less the present value of the defined benefit obligation and is the creditor. This amendment does not affect FrieslandCampina’s limited as explained in Note 20. consolidated financial statements. • Improvements to IFRSs 2010; In May 2010, the IASB issued Functional and presentation currency the improvement to IFRSs, a collection of amendments to The consolidated financial statements are presented in euros, seven International Financial Reporting Standards, as part which is FrieslandCampina’s functional currency. All financial of its programme of annual improvements to its standards. information presented in euros has been rounded off to the The improvements have not had a material effect on nearest million, unless stated otherwise. FrieslandCampina’s consolidated financial statements. These new standards, revisions to existing standards and interpretations are not expected to have any effect on equity Financial statements Notes to the consolidated financial statements 93

and the income statement but could lead to amendments to the acquiree; plus Notes to the financial statements. • if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less New standards, amendments and interpretations issued but not • the net recognised amount (generally fair value) of the effective for the financial year beginning 1 January 2011 and not identifiable assets acquired and liabilities assumed. early adopted A number of new standards, amendments to standards and When the excess is negative, a bargain purchase gain is recognised interpretations are effective for annual periods beginning after immediately in the income statement. The consideration 1 January 2011, and have not been applied in preparing these transferred does not include amounts related to the settlement consolidated financial statements. None of these changes is of pre-existing relationships. Such amounts are generally expected to have a significant effect on the consolidated financial recognised in the income statement. Transaction costs, other statements of FrieslandCampina, except for IFRS 9 Financial than those associated with the issue of debt or equity securities, Instruments and IAS 19 Employee benefits. that FrieslandCampina incurs in connection with a business combination are expensed as incurred. Furthermore, FrieslandCampina is currently evaluating the impact of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Any contingent consideration payable is measured at fair value at Arrangements. the acquisition date. Subsequent changes in the fair value of the contingent consideration are recognised in the income statement. IFRS 9 becomes mandatory for FrieslandCampina’s 2016 If the contingent consideration is classified as equity, then it is not consolidated financial statements and could change remeasured and settlement is accounted for within equity. the classification and measurement of financial assets. FrieslandCampina will not adopt this standard early and the extent Acquisition of non-controlling interests of the effect has not been determined. Acquisition of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore Amendments to IAS 19, effective for annual periods beginning no goodwill is recognised as a result. Adjustments to non- on or after January 1, 2013, introduce requirements to recognise controlling interests arising from transactions that do not involve actuarial gains and losses immediately in other comprehensive the loss of control are based on a proportionate amount of the net income and to calculate the expected return on plan assets based assets of the subsidiary. on the rate used to discount the defined benefit obligation. These amendments will have a material effect on the annual report Subsidiaries of FrieslandCampina, in particular because FrieslandCampina Subsidiaries are entities controlled by FrieslandCampina. currently applies the corridor method and after the amendment Subsidiaries are fully consolidated from the date that control FrieslandCampina must recognise all actuarial gains and losses commences until the date that control ceases. arising immediately in other comprehensive income. The above mentioned amendments to IAS 19 will affect equity, profit or Loss of control loss and the disclosures. Currently FrieslandCampina does not On the loss of control, FrieslandCampina derecognises the assets anticipate adopting this standard before its effective date. and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any Summary of significant accounting policies surplus or deficit arising on the loss of control is recognised in the The accounting policies set out below have been applied income statement. If FrieslandCampina retains any interest in the consistently to all periods presented in these consolidated previous subsidiary such interest is measured at fair value at the financial statements, and have been applied consistently by date control is lost. Subsequently it is accounted for as an equity- FrieslandCampina entities. accounted investee or as a financial asset held for sale depending on the level of influence retained. Basis of Consolidation Business combinations Associates and joint ventures Business combinations are accounted for using the acquisition Associates are those entities in which FrieslandCampina has method as at the acquisition date, which is the date on which significant influence, but not control, over the financial and control is transferred to FrieslandCampina. Control is the power operating policies. Significant influence is presumed to exist to govern the financial and operational policies of an entity so when FrieslandCampina holds between 20% and 50% of the as to obtain benefits from its activities. In assessing control, voting power of another entity. A joint venture is a contractual FrieslandCampina takes into consideration currently exercisable arrangement whereby FrieslandCampina and other parties potential voting rights. undertake an economic activity through a jointly controlled entity. Joint control exists when strategic, financial and operating policy FrieslandCampina measures goodwill at the acquisition date as: decisions relating to the activities require the unanimous consent • the fair value of the consideration transferred; plus of the parties sharing control. • the recognised amount of any non-controlling interests in the Investments in associates and joint ventures are accounted for 94 Financial statements Notes to the consolidated financial statements

using the equity method and are recognised initially at cost. proportion of the translation difference is allocated to non- The cost of the investment includes transaction costs. controlling interests. When a foreign operation is disposed of The consolidated financial statements include FrieslandCampina’s such that control, significant influence or joint control is lost, the share of the income statement and other comprehensive income of cumulative amount in the translation reserve related to that foreign equity accounted investees, from the date that significant influence operation is reclassified to the income statement as part of the gain or joint control commences until the date that significant influence or loss on disposal. When FrieslandCampina disposes of only part or joint control ceases. of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount When FrieslandCampina’s share of losses exceeds its interest in is reclassified to non-controlling interest. When FrieslandCampina an equity-accounted investee, the carrying amount of the disposes of only part of its investment in an associate or joint investment, including any long-term interest that forms a part venture that includes a foreign operation while retaining significant thereof, is reduced to zero, and the recognition of further losses influence or joint control, the relevant proportion of the cumulative is discontinued except to the extent that FrieslandCampina has amount is reclassified to the income statement. an obligation or has made payments on behalf of the investee. If the settlement of a monetary item receivable from or payable to Transactions eliminated on consolidation a foreign operation is neither planned nor likely in the foreseeable Intra-group balances and transactions, and any unrealised gains future, foreign currency gains and losses arising from such an arising from intra-group transactions, are eliminated in preparing item are considered to form part of a net investment in the foreign the consolidated financial statements. Unrealised gains arising operation and are recognised in other comprehensive income and from transactions with associates and joint ventures are eliminated presented in the currency translation reserve in equity. to the extent of FrieslandCampina’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised Hedging of net investments in foreign activities gains, but only to the extent that there is no evidence FrieslandCampina applies hedge accounting to the currency of impairment. translation differences that arise through translating the functional currency of the foreign activity into the functional currency of A list of the principal subsidiaries, joint ventures and associates is FrieslandCampina (the euro), whether or not the net-investment is included on page 132. held directly or via an intermediary holding. The portion of the gain or loss on an instrument used to hedge Foreign currency translation a net investment in a foreign operation that is determined to be Foreign currency transactions an effective hedge is recognised in other comprehensive income. Monetary assets and liabilities denominated in foreign currencies The ineffective portion is recognised immediately in the income are translated at the exchange rates at the balance sheet date. statement. Gains and losses accumulated in equity are included Transactions denominated in foreign currencies are translated at in the income statement when the foreign operation is partially the exchange rate at the date of the transaction. disposed of or sold.

Non-monetary items valued at historical cost in foreign currencies The following exchange rates have been used in the preparation of are translated at the exchange rates at the date of the initial the consolidated financial statements: transaction. Non-monetary items valued at fair value in foreign currencies are translated using the exchange rates at the date on 2011 which the fair value was determined. At year-end Average US dollar 1.29 1.40 Foreign currency differences arising on retranslation are Pound sterling 0.83 0.87 recognised in the income statement, except for the following Hong Kong dollar 10.05 10.89 differences which are recognised in other comprehensive income Indonesian rupiah (10,000) 1.18 1.23 arising on the retranslation of: Malaysian ringgit 4.10 4.27 • a financial liability designated as a hedge of the net investment Nigerian naira (100) 2.10 2.18 in a foreign operation to the extend the hedge is effective, or Vietnamese dong (10,000) 2.72 2.89 • qualifying cash flow hedges to the extent the hedge is effective. 2010 Foreign operations At year-end Average Assets and liabilities of foreign subsidiaries are translated at US dollar 1.34 1.32 the exchange rates on the balance sheet date; their income Pound sterling 0.86 0.86 and expenses are translated at the exchange rates on the date Hong Kong dollar 10.39 10.29 of the transaction. Foreign currency translation differences Indonesian rupiah (10,000) 1.20 1.21 are recognised in other comprehensive income and presented Malaysian ringgit 4.13 4.28 in the currency translation reserve in equity. If however, the Nigerian naira (100) 2.03 2.00 foreign operation is a non-wholly owned subsidiary, the relevant Vietnamese dong (10,000) 2.61 2.54 Financial statements Notes to the consolidated financial statements 95

Financial Instruments All other financial liabilities (including liabilities designated as at Non-derivative financial assets fair value through profit or loss) are recognised initially on the FrieslandCampina initially recognises loans and receivables on the trade date, which is the date that FrieslandCampina becomes a date that they are originated. All other financial assets (including party to the contractual provision of the instrument. assets designated as at fair value through the income statement) are recognised initially on the trade date, which is the date that FrieslandCampina derecognises a financial liability when its FrieslandCampina becomes a party to the contractual provision of contractual obligations are discharged, cancelled or expire. the instrument. FrieslandCampina classifies non-derivative financial liabilities into FrieslandCampina derecognises a financial asset when the the other financial liabilities category. Such financial liabilities contractual rights to the cash flows from the asset expire, or it are initially recognised at fair value less any directly attributable transfers the rights to receive the contractual cash flows in a transaction costs. Subsequent to initial recognition, these financial transaction in which substantially all the risks and rewards of liabilities are measured at amortised costs using the effective ownership of the financial asset are transferred. interest method. Other financial liabilities comprise loans and borrowings, bank Financial assets and liabilities are offset and the net amount overdrafts and trade and other payables. presented in the statement of financial position if, and only if, FrieslandCampina has a legal right to offset the amounts and Equity intends either to settle on a net basis or to realise the asset and Share capital settle the liability simultaneously. The shares are classified as equity. Costs directly attributable to the extension of the share capital are deducted from equity after FrieslandCampina classifies non-derivative financial assets into the taxation. following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and Other financial instruments available-for-sale financial assets. Other financial instruments are classified as equity if the instruments do not have a maturity date and FrieslandCampina can Financial assets at fair value through profit or loss defer the interest payments. A financial asset is classified as at fair value through profit or loss if it is designated as such on initial recognition. Financial assets are Dividends designated at fair value through profit or loss if FrieslandCampina Dividends are recognised as a liability in the period in which they manages such investments and makes purchase and sale decisions are declared. based on their fair value. Attributable transaction costs are recognised in the income statement as incurred. Financial assets Derivatives, including hedge accounting at fair value through profit or loss are measured at fair value and FrieslandCampina holds derivatives to hedge its foreign currency changes therein, taking into account any dividend income, are risk and interest rate risk exposure. On initial designation of the recognised in the income statement. Financial assets designated as derivative as a hedging instrument, FrieslandCampina formally at fair value through profit or loss comprise equity securities that documents the relationship between the hedging instrument and otherwise would have been classified as available for sale. the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged Loans and receivables risk, together with the methods that will be used to assess the Loans and receivables are financial assets with fixed or effectiveness of the hedging relationship. FrieslandCampina determinable payments that are not quoted in an active market. assesses, both at the inception of the hedge relationship as well Such assets are recognised initially at fair value plus any directly as on an ongoing basis, whether the hedging instruments are attributable transaction costs. Subsequent to initial recognition, expected to be highly effective in offsetting changes in the fair loans and receivables are measured at amortised costs using the value or cash flows of the respective hedged items attributable to effective interest method, less any impairment losses. the hedged risk, and whether the actual results of each hedge are Loans and receivables comprise cash and cash equivalents, and within the range of 80%-125%. For a cash flow hedge of a forecast trade and other receivables. transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could Cash and cash equivalents ultimately affect reported profit or loss. Cash and cash equivalents comprise cash at banks and in hand and short-term deposits with maturities of three months or less from Derivatives are recognised initially at fair value: attributable the acquisition date. transaction costs are recognised in the income statement as incurred. Subsequent to initial recognition, derivatives are Non-derivative financial liabilities measured at fair value and changes are accounted for as described FrieslandCampina initially recognises debt securities and below. subordinated liabilities on the date that they are originated. 96 Financial statements Notes to the consolidated financial statements

Cash flow hedges Subsequent costs When a derivative is designated as the hedging instrument in a Subsequent costs are capitalised only when it is probable that the hedge of the variability in cash flows attributable to a particular future economic benefits associated with the expenditure will flow risk associated with a recognised asset, or liability or a highly to FrieslandCampina. Ongoing repairs and maintenance costs are probable forecast transaction that could affect the income expensed as incurred. statement, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income Depreciation and presented in the hedging reserve in equity. Any ineffective Items of property, plant and equipment are depreciated on a portion of changes in the fair value of the derivative is recognised straight-line basis in the income statement over the estimated immediately in the income statement. useful life of each component. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is If the hedged item is a non-financial asset, the amount reasonably certain that FrieslandCampina will obtain ownership by accumulated in equity is included in the carrying amount of the the end of the lease term. Items of property, plant and equipment asset when the asset is recognised. In other cases, the amount are depreciated from the date that they are installed and are ready accumulated in equity is reclassified to the income statement for use. in the same period that the hedged item affects the income statement. If the hedging instrument no longer meets the criteria The estimated useful lives for the current year of significant items for hedge accounting, expires, is sold, terminated or exercised, of property, plant and equipment are as follows: hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, the balance in equity Land not applicable is reclassified to the income statement. Buildings 10-25 years Plant and equipment 5-33 years Other non-trading derivatives Other operational assets 4-20 years When a derivative is not designated as a hedge relationship that qualifies for hedge accounting, all changes in its fair value are Depreciation methods, useful lives and residual values are recognised immediately in the income statement. reviewed at each reporting date and if appropriate, adjusted. The useful lives of the major plant and equipment items were revised in Property, plant and equipment 2011 (see Note 12). Recognition and measurement Items of property, plant and equipment are measured at cost less Intangible assets and goodwill accumulated depreciation and accumulated impairment losses. Goodwill The cost price includes any costs directly attributable to the Goodwill that arises on the acquisition of subsidiaries is presented acquisition of the asset. The cost price of self-manufactured assets with intangible assets. For the measurement of goodwill at initial comprise: recognition, see the Note regarding the basis of Consolidation. • costs of materials and direct labour costs; Goodwill is measured at cost less accumulated impairment losses. • any other costs directly attributable to making the asset ready In respect of equity-accounted investees the carrying amount of for use; goodwill is included in the carrying amount of the investment, and • if FrieslandCampina has an obligation to remove the asset, an any impairment loss is allocated to the carrying amount of the estimate of the cost of dismantling and removing the items; equity-accounted investee as a whole. • capitalised borrowing costs. Research and development Property, plant and equipment also include assets of which Expenditure on research activities, undertaken with the prospect of FrieslandCampina has acquired beneficial ownership under gaining new technical knowledge and understanding is recognised finance lease agreements. On initial recognition, the leased asset in the income statement as incurred. Development expenditure is is measured at an amount equal to the lower of its fair value and capitalised only if development costs can be measured reliably, the the present value of the minimum lease payments. Subsequent to product process is technically and commercially feasible, future initial recognition, the asset is accounted for in accordance with economic benefits are probable, and FrieslandCampina intends to the accounting policy applicable to that asset. and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of If parts of an item of property, plant and equipment have different materials, direct labour, overhead costs directly attributable to useful lives, they are accounted for as separate items of property, preparing the asset for its intended use, and capitalised borrowing plant and equipment. Any gain or loss on the disposal of an item costs. Other development expenditure is recognised in the income of property, plant and equipment is determined on the basis of a statement as incurred. Capitalised development expenditure is comparison of the proceeds from the sale and the carrying amount measured at cost less accumulated amortisation and accumulated of the property, plant or equipment and is recognised in the impairment losses. income statement. Financial statements Notes to the consolidated financial statements 97

Other intangible assets Non-financial assets Other intangible assets that are acquired by FrieslandCampina The carrying amounts of FrieslandCampina’s non-financial assets, and have finite useful lives are measured at cost less accumulated other than inventories and deferred tax assets, are reviewed at amortisation and accumulated impairment losses. each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable Subsequent costs amount is estimated. Goodwill and intangible assets with an Subsequent costs are capitalised only when it increases the future indefinite life are tested annually for impairment. An impairment economic benefits embodied in the specific asset to which it loss is recognised if the carrying amount of an asset or Cash- relates. All other expenditure, including expenditure on internally generating unit (CGU) exceeds its recoverable amount. generated goodwill and brands, is recognised in the income statement as incurred. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. When assessing Amortisation value in use, the estimated future cash flows are discounted to Intangible assets other than goodwill are amortised on a straight- their present value using a pre-tax discount rate that reflects the line basis in the income statement over their estimated useful lives current market assessment of the time value of money and the calculated from the date that they are available for use. risks specific to the asset or CGU. For the purpose of impairment The estimated useful lives for the current and comparative years testing, assets are grouped together into the smallest group of are as follows: assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Software 5 years Subject to the operating segment ceiling test, CGUs to which Trademark and patents 10 years goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest Amortisation methods, useful lives and residual values are level within FrieslandCampina at which goodwill is monitored reviewed at each reporting date and adjusted if appropriate. for internal reporting purposes. Goodwill acquired in a business combination is allocated to the FrieslandCampina CGUs that are Inventories expected to benefit from the synergies of that combination. Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out Impairment losses are recognised in the income statement. principle, and includes expenditure incurred in acquiring the Impairment losses recognised in respect of CGUs are allocated first inventories, production or conversion costs, and other costs to reduce the carrying amount of any goodwill allocated to the incurred in bring them to their existing location and condition. CGU, and then to reduce the carrying amounts of the other assets In the case of manufactured inventories, cost includes an in the CGU on a pro rata basis. appropriate share of production overheads based on normal operating capacity. The net realisable value is the estimated An impairment loss in respect of goodwill is not reversed. selling price in the ordinary course of business, less the estimated An impairment loss on other assets is reversed only to the extent costs of completion and selling expenses. that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation Impairment or amortisation, if no impairment loss had been recognised. Non-derivative financial assets A financial asset not classified as at fair value through profit or Assets held for sale or distribution loss is assessed at each reporting date to determine whether Non-current assets, or disposal groups comprising assets and there is objective evidence that it is impaired. A financial asset is liabilities, that are expected to be recovered primarily through sale impaired if there is objective evidence of impairment as a result of rather than through continuing use, are classified as held for sale. one or more events that occurred after the initial recognition of Immediately before classification as held for sale, the assets, or the asset, and the loss event(s) has had an effect on the estimated components of a disposal group, are remeasured in accordance future cash flows of the asset that can be measured reliably. with FrieslandCampina’s accounting policies. Thereafter the assets, or disposal group, are generally measured at the lower of their Financial assets measured at amortised cost carrying amount and fair value less costs to sell. Any impairment FrieslandCampina considers evidence of impairment for financial loss on a disposal group is first allocated to goodwill, and then to assets measured at amortised cost at both a specific asset and remaining assets and liabilities on a pro rata basis, except that collective level. An impairment loss in respect of a financial asset no loss is allocated to inventories, financial assets, deferred tax measured at amortised costs is calculated as the difference between assets or employee benefit assets, which continue to be measured its carrying amount and the present value of the estimated future in accordance with FrieslandCampina’s accounting policies. cash flows discounted at the asset’s original effective interest rate. Impairment losses on initial classification as held for sale and If an event occurring after the impairment was recognised causes subsequent gains and losses on remeasurement are recognised the amount of impairment loss to decrease, the decrease in through the income statement. Gains are not recognised in excess impairment loss is reversed through the income statement. of any cumulative impairment loss. 98 Financial statements Notes to the consolidated financial statements

Once classified as held for sale intangible assets and property, line basis and over the average period until the benefits become plant and equipment are not amortised or depreciated. In addition, unconditional. To the extent that the benefits vest immediately the equity accounting of equity-accounted investees ceases once expense is recognised immediately in the income statement. classified as held for sale. FrieslandCampina recognises gains and losses on the curtailment Employee benefits or settlement of a defined benefit plan at the time the curtailment Defined contribution plans or settlement occurs. The gain or loss on curtailment or settlement A defined contribution plan is a post-employment benefit plan comprises any resulting change in the fair value of plan assets, under which an entity pays fixed contributions into a separate any change in the present value of the defined benefit obligation, entity and has no legal or constructive obligations to pay further any related actuarial gains and losses and past service costs not amounts. Obligations for contributions to defined contribution previously recognised. plans are recognised as an employee benefits expense in the income statement in the periods during which the related services Other long-term employee benefits are rendered by employees. Prepaid contributions are recognised The net obligation for other deferred employee remuneration is as an asset to the extent that a cash refund or a reduction in recognised in the same way as defined benefit plans, except for the future payments is available. actuarial gains and losses which are recognised immediately in the income statement. FrieslandCampina has insured certain pension obligations with industry-wide pension funds in the Netherlands. Although these Short-term employee benefits plans have the characteristics of defined benefit plans, the funds Short-term employee benefit obligations are measured on have stated that they are unable to provide the information an undiscounted basis and are expensed at the time the necessary for the calculations and so these plans are treated as related service is provided. A liability is recognised for the defined contribution plans in the financial statements. amount expected to be paid under short-term cash bonus if FrieslandCampina has a present legal or constructive obligation Defined benefit plans to pay this amount as a result of past service provided by the A defined benefit plan is a post-employment benefit plan other employee, and the obligation can be estimated reliably. than a defined contribution plan. The pension obligations in respect of defined benefit plans are calculated annually on the Provisions basis of expected future developments in discount rates, salaries A provision is recognised when, as a result of a past event, and life expectancy. The present value of the obligations is FrieslandCampina has a present legal or constructive obligation, calculated actuarially using the projected unit credit method. that can be estimated reliably, and it is probable that an outflow The present value of the obligations less the fair value of the of economic benefits will be required to settle the obligation. If plan assets, taking into account unrecognised actuarial results the effect of the time value of money is material, provisions are and unrecognised past-service costs, is recognised as a pension discounted using a pre-tax rate that reflects the current market obligation, or as a pension asset, under non-current financial assessments of the time value of money and the risks specific to assets. The discount rate used is the return at the balance sheet the liability. The unwinding of the discount is recognised as finance date on high-quality corporate bonds with at least an AA credit costs. rating and with maturity dates similar to the term of the pension obligations. Provisions for restructuring are formed when FrieslandCampina has formalised a detailed and formal restructuring plan, and Actuarial gains and losses resulting from changes in assumptions has either started implementing the restructuring plan or has for calculating the pension obligations or differences between announced the main lines of the restructuring in such a way the expected and actual return on plan assets, are determined that the people who will be affected by it have a valid reason for separately for each plan and recognised through the income expecting the restructuring will take place. statement over the expected average remaining service period. This only applies if and to the extent that the actuarial gains or A provision for onerous contracts is recognised when the expected losses exceed 10 percent of the higher of the pension obligations benefits to be derived by FrieslandCampina from a contract are and the fair value of the plan assets at the beginning of the lower than the unavoidable cost of meeting its obligations under financial year. the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and If the calculation of the net pension obligations results in a the expected net cost of continuing with the contract. Before positive balance, the asset recognised is limited to the sum of a provision is established, FrieslandCampina recognises any any unrecognised actuarial losses and past-service costs and the impairment loss on the assets associated with the contract. present value of any future repayments by the fund or lower future pension contributions. If plan benefits are changed on the basis Revenue of a regulation, the portion of the changed benefits relating to Revenue from the sale of goods in the course of ordinary activities past service is recognised in the income statement on a straight- is measured at the fair value of the consideration received or Financial statements Notes to the consolidated financial statements 99

receivable, net of returns, trade discounts and volume rebates. Payments made under operating leases are recognised in the Revenue is recognised when persuasive evidence exists, usually in income statement on a straight-line basis over the term of the the form of an executed sales agreement, that the significant risks lease. Lease incentives received are recognised as an integral part and rewards of ownership have been transferred to the customer, of the total lease expense, over the term of the lease. Minimum recovery of the consideration is probable, the associated costs lease payments made under finance leases are apportioned and possible return of goods can be estimated reliably, there is between the finance expense and the reduction of the outstanding no continuing management involvement with the goods, and the liability. The finance cost is allocated to each period during the amount of revenue can be measured reliably. If it is probable that lease term so at to produce a constant periodic rate of interest on discounts will be granted and the amount can be measured reliably, the remaining balance of the liability. the discount is recognised as a reduction of revenue as the sales are recognised. Finance income and finance costs Finance income comprises interest received on loans and FrieslandCampina has customer loyalty programmes in place receivables from third parties, dividend income, fair value gains through which customers can earn points when they purchase on financial assets at fair value through profit or loss, gains on certain FrieslandCampina products. When a minimum number of hedging instruments that are recognised in the income statement points has been earned, they can be exchanged for discounts on and reclassifications of amounts previously recognised in other third-party goods or services. The proceeds are allocated to the comprehensive income. products sold and the points granted, with the value attributed to Interest income is recognised in the income statement as it the points being their fair value. Recognition of the fair value of accrues using the effective interest method. the points granted is deferred and the fair value is recognised as revenue when points are redeemed. Finance costs comprises interest expenses on borrowings, fair value losses on financial assets at fair value through profit or Government grants loss, unwinding the discount on provisions, impairment losses Government grants are recognised at fair value where there recognised on financial assets (other than trade receivables), is reasonable assurance that the grant will be received and all losses on hedging instruments that are recognised in the income related conditions will be complied with. When a grant relates statement and reclassifications of amounts previously recognised to an expense item, it is recognised as income over the period in other comprehensive income. necessary to match the grant on a systematic basis to the costs that it is intended to compensate. If a grant relates to an asset, it is Foreign currency gains and losses from trade debtors and creditors deducted from the carrying amount of the asset and is released to is recognised as a component of operating profit. the income statement over the expected useful life of the relevant All other foreign currency gains and losses are reported on a net asset through the lower depreciation charge. basis as either finance income or finance costs depending on whether foreign currency movements are in a net gain or net loss Cost of raw materials, consumables and trade goods position. This concerns the cost of the raw materials and consumables related to the products sold and/or the cost of acquiring the Tax products sold. The cost of raw materials and consumables is Tax expense comprises current and deferred tax. Current and calculated in accordance with the first-in-first-out principle. The deferred tax is recognised in the income statement except to cost includes the currency translation differences related to the extent that it relates to a business combination, or items trade payables as well as the differences in valuation of related recognised directly in equity or in other comprehensive income. derivatives. Current tax is the expected tax payable or receivable on the Leases taxable income or loss for the year, using tax rates enacted or At inception of an arrangement, FrieslandCampina determines substantially enacted at the reporting date, and any adjustments to whether such an arrangement is or contains a lease. This will be tax payable in respect of previous years. Current tax payable also the case if the following two criteria are met: the fulfillment of the includes any tax liability arising from the declaration of dividends. arrangement is dependent on the use of a specific asset or assets; and the arrangement contains a right to use the asset(s). At inception Deferred tax is recognised in respect of temporary differences or on reassessment of the arrangement, FrieslandCampina separates between the carrying amounts of assets and liabilities for financial payments and other consideration required by such an arrangement reporting purposes and the amounts used for taxation purposes. into those for the lease and those for other elements on the basis of Deferred tax is not recognised for: their relative fair values. If FrieslandCampina concludes for a finance • temporary differences on the initial recognition of assets and lease that it is impracticable to separate the payments reliably, then liabilities in a transaction that is not a business combination and an asset and a liability are recognised at an amount equal to the fair that affects neither accounting nor taxable profit or loss; value of the underlying asset. Subsequently the liability is reduced • temporary differences related to investments in subsidiaries and as payments are made and an imputed finance cost on the liability is jointly controlled entities to the extent that it is probable that recognised using FrieslandCampina’s incremental borrowing rate. they will not be reversed in the foreseeable future; 100 Financial statements Notes to the consolidated financial statements

• taxable temporary differences arising on the initial recognition segments have changed. The comparative figures have been of goodwill. adjusted accordingly.

Deferred tax is measured at the tax rates that are expected to Cash flows be applied to temporary differences when they reverse, using tax The cash flow statement is prepared using the indirect method. rates enacted or substantively enacted at the reporting date. Cash flows in foreign currencies have been translated into euros at the exchange rates prevailing on the transaction date. In determining the amount of current and deferred tax FrieslandCampina takes into account the effect of uncertain tax Determination of fair values positions and whether additional taxes and interest may be due. A number of FrieslandCampina’s accounting policies and FrieslandCampina believes that its accruals for tax liabilities disclosures require the determination of fair value, for both are adequate for all open tax years based on its assessment financial and non-financial assets and liabilities. Fair values have of many factors, including interpretations of tax law and prior been determined for measurement and or disclosure purposes experience. This assessment relies on estimates and assumptions based on the following methods. If applicable, further information and may involve a series of judgements about future events. New about the assumptions made in determining fair values is disclosed information may become available that causes FrieslandCampina in the Notes specific to that asset or liability. to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will affect tax expense Property, plant and equipment in the period that such a determination is made. The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. Deferred tax assets and liabilities are offset if there is a legally The market value of property, plant and equipment is based on enforceable right to offset current tax liabilities and assets, and the market prices for similar items or the appraisals of an external they relate to taxes levied by the same tax authority on the same assessor. taxable entity, or on different tax entities, but they intend settling current tax liabilities and assets on a net basis or their tax assets Intangible assets and liabilities will be realised simultaneously. The fair value of patents and brand names acquired in a business combination is based on the discounted estimated royalty A deferred tax asset is recognised for unused tax losses, tax credits payments that have been avoided as a result of the patent or and deductible temporary differences to the extent that it is trademark being owned. The fair value of customer relationships probable that future taxable profits will be available against which acquired in a business combination is determined using the they can be utilised. Deferred tax assets are reviewed at each multi-period excess earnings method. The fair value of other reporting date and are reduced to the extent that it is no longer intangible assets is based on the discounted cash flows expected probable that the related tax benefit will be realised. Unrecognised to be derived from the use and eventual sale of the assets. deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable Inventories that future taxable profit will allow the deferred tax asset to be The fair value of inventories acquired in a business combination recovered. is determined based on the estimated selling price in the ordinary course of business less the estimated cost of completion and sale, Segment reporting and a reasonable profit margin based on the effort required to The identified operating segments are the separate segments complete and sell the inventories. within FrieslandCampina for which financial information is available and frequently evaluated by the highest decision-making Trade and other receivables body (Executive Board) in order to come to decisions regarding The fair value of trade and other receivables, outstanding for the attributing of the available means to the segment and to longer than a year, is estimated as the present value of future cash determine the performance of the segment. FrieslandCampina flows, discounted at the actual interest rate at the reporting date. has divided the operating segments into business units: Consumer Products Europe, Consumer Products International, Cheese, Butter Derivatives & Milkpowder and Ingredients. Inter-segment pricing is determined The fair value of forward exchange contracts is generally estimated on an arm’s length basis. Segment results, assets and liabilities by discounting the difference between the contractual forward include items directly attributable to a segment as well as those price and the current forward price for the residual maturity of the that can be allocated on a reasonable basis. Unallocated items contract using current interest rates and current foreign currency comprise mainly corporate assets and liabilities and corporate rates. expenses. The fair value of interest rate swaps and cross-currency interest rate At the beginning of 2011 the milk powder activities of the swaps is estimated by discounting the cash flows resulting from the Ingredients business group were transferred to the Cheese, Butter contractual interest rates of both legs of the transaction, taking into & Milkpowder business group. As a result of this transfer the account the current interest rates, current foreign currency rates composition of the Ingredients and Cheese, Butter & Milkpowder and the current creditworthiness of the swap counterparties. Financial statements Notes to the consolidated financial statements 101

Non-derivative financial instruments Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. The fair value of the put option liability is estimated based on a discounted cash flow analysis. 102 Financial statements Notes to the consolidated financial statements

1 Segmentation FrieslandCampina has four reportable segments, FrieslandCampina’s business groups. Each of the four business groups is responsible for a particular product group; two are also responsible for a specific region. • Consumer Products Europe : liquid milk, dairy-based beverages, yoghurts, desserts, coffee creamers, cream and fruit juices and beverages in Europe. Brand names include Campina, Chocomel/Cecémel, Fruttis, Landliebe, Milli, Mona, NoyNoy and Optimel/Optiwell; • Consumer Products International: liquid milk, milk powder, condensed milk, infant and toddler nutrition, dairy based beverages, yoghurts and desserts in Asia, Africa and the Middle East. Brand names include Dutch Lady, Foremost,Frisian Flag, Rainbow and Peak; • Cheese, Butter & Milkpowder: cheese, butter and milkpowder, all over the world; • Ingredients: ingredients for the food and pharmaceutical industries, all over the world.

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.

2011 Segmentation by business group

Consumer Consumer Cheese, Products Products Butter & Europe International Milkpowder Ingredients Other Elimination Total Sales to external customers 2,895 2,457 2,474 1,512 288 9,626 Inter-segment sales 500 3 348 418 - 1,269 Total revenue 3,395 2,460 2,822 1,930 288 - 1,269 9,626 Other operating income 14 5 1 20 Total operating income 3,409 2,465 2,822 1,930 289 - 1,269 9,646

Operating profit 55 353 - 97 189 - 97 403 Share of profit of joint ventures and 1 5 5 1 1 13 associates Finance income and cost - 72 Income tax expense - 128 Profit for the year 216

Operating profit as a % of revenue 1.6 14.3 - 3.4 9.8 4.2 Carrying amounts of assets employed in 1,901 718 1,037 1,141 607 - 514 4,890 operating activities 1 Carrying amounts of other assets 849 5,739 Liabilities resulting from operating activities 2 623 499 371 303 798 - 514 2,080 Other liabilities 1,395 3,475

Investments in property, plant, equipment 126 53 55 105 37 376 and intangible assets Depreciation of plant and equipment and - 68 - 21 - 40 - 39 - 8 - 176 amortisation of intangible assets Impairment of property, plant and equipment, - 4 - 1 - 6 - 1 - 12 intangible assets and assets held for sale Reversal of impairment of property, plant and equipment, intangible assets and assets 1 1 held for sale Investments in joint ventures and associates 2 69 20 14 6 111 Financial statements Notes to the consolidated financial statements 103

2011 Geographical information Carrying amount of operating Sales to external customers 3 non-current assets 4 The Netherlands 4,961 1,518 Germany 1,033 347 Rest of Europe 1,362 442 Asia and Australia 1,613 238 Africa and the Middle East 533 49 North and South America 124 11 Total 9,626 2,605

1 Excluding deferred tax assets, investments in joint ventures and affiliated companies, other financial assets, income tax receivables, receivables from affiliated companies, cash and cash equivalents and assets held for sale. 2 Pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments. 3 Please see Note 4 for a breakdown of revenue according to the customer’s geographical location. 4 Relates to property, plant and equipment and intangible assets.

2010 Segmentation by business group

Consumer Consumer Products Cheese, Products Interna- Butter & Europe tional Milkpowder Ingredients Other Elimination Total Sales to external customers 2,839 2,276 2,329 1,273 255 8,972 Inter-segment sales 430 1 312 396 - 1,139 Total revenue 3,269 2,277 2,641 1,669 255 - 1,139 8,972 Other operating income 8 4 2 1 5 20 Total operating income 3,277 2,281 2,643 1,670 260 - 1,139 8,992

Operating profit 126 356 - 92 128 - 84 434 Share of profit of joint ventures and associates 1 6 3 3 13 Finance income and cost - 69 Income tax expense - 93 Profit for the year 285

Operating profit as a % of revenue 3.9 15.6 - 3.5 7.7 4.8 Carrying amounts of assets employed in 1,859 653 1,015 963 553 - 477 4,566 operating activities 1 Carrying amounts of other assets 733 5,299 Liabilities resulting from operating activities 2 611 424 357 349 757 - 477 2,021 Other liabilities 1,207 3,228

IInvestments in property, plant, equipment and 67 48 61 65 20 261 intangible assets Depreciation of plant and equipment and - 84 - 26 - 49 - 44 - 7 - 210 amortisation of intangible assets Impairment of property, plant and equipment, - 4 - 5 - 12 - 1 - 6 - 28 intangible assets and assets held for sale Reversal of impairment of property, plant and equipment, intangible assets and assets 6 1 7 held for sale Investments in joint ventures and associates 3 66 15 13 6 103

104 Financial statements Notes to the consolidated financial statements

2010 Geographical information Carrying amount of Sales to external customers 3 non-current operating assets 4 The Netherlands 4,507 1,380 Germany 989 310 Rest of Europe 1,382 445 Asia and Australia 1,486 218 Africa and the Middle East 500 36 North and South America 108 9 Total 8,972 2,398

1 Excluding deferred tax assets, investments in joint ventures and affiliated companies, other financial assets, income tax receivables, receivables from affiliated companies, cash and cash equivalents and assets held for sale. 2 Pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments. 3 Please see Note 4 for a breakdown of revenue according to the customer’s geographical location. 4 Relates to property, plant and equipment and intangible assets.

2 Assets and liabilities held for sale Assets held for sale are property, plant and equipment amounting to EUR 4 million (2010: EUR 13 million). At the end of 2011 and 2010 no liabilities related to current and non-current liabilities were held for sale.

The Oud Gastel facility (Consumer Products Europe) and the Drachten and Tilburg (Cheese, Butter & Milkpowder) facilities were sold in 2011, the book profit is recognised as other operating income. In addition, during 2011 the Cheese, Butter & Milkpowder business group’s facilities in Dronrijp and Leerbroek were classified as assets held for sale. These assets are expected to be sold within a year.

During 2011 the El Castillo Debic Food Services S.L. joint venture (part of Consumer Products Europe) was classified as an asset held for sale and was sold in October 2011. FrieslandCampina realised a book profit of EUR 9 million. This profit is recognised as other operating income.

2011 2010

At 1 January 13 4 Transfer of associates 3 Transfer of property, plant and equipment 1 8 Movements of current assets - 1 Disposals - 13 Reversal of impairment 2 At 31 December 4 13

3 Acquisitions In December 2011 DMV-Fonterra Excipients GmbH & Co KG, part of Ingredients, acquired the activities of Brahmar Cellulose Private Limited in India. The total purchase price of EUR 6 million has been handled on the basis of the acquisition method. A portion of this price has not yet been paid. This acquisition is not of a material nature for FrieslandCampina in respect of the notification requirements of IFRS 3.

4 Revenue

2011 2010 Revenue by geographical sales market % % The Netherlands 2,435 25 2,291 26 Germany 1,317 14 1,287 14 Rest of Europe 2,555 27 2,380 27 Asia and Australia 1,996 21 1,781 20 Africa and the Middle East 999 10 945 10 North and South America 324 3 288 3 9,626 100 8,972 100 Financial statements Notes to the consolidated financial statements 105

Differences with the breakdown of sales to external customers by geographical location of the assets as presented in Note 1 arise from the classification according to the area where the sales were generated.

Revenue includes EUR 4 million (2010: EUR 10 million) of government grants. The conditions for these grants have been met and the related obligations have been fulfilled.

5 Other operating income Other operating income includes proceeds from services provided to external customers, rental income and the sale of property, plant and equipment. Other operating income also includes the EUR 9 million book profit on the sale of El Castillo Debic Food Services S.L.

6 Raw materials and consumables used

2011 2010

% % Milk from member dairy farmers - 3,456 53 - 3,054 53 Cost of other raw materials, consumables and goods for resale - 3,016 47 - 2,725 47 - 6,472 100 - 5,779 100

7 Employee benefits expense

2011 2010

% % Wages and salaries - 638 77 - 627 77 Social security charges - 105 13 - 109 13 Pension costs - 88 10 - 81 10 - 831 100 - 817 100

Employees by business group (average number of FTEs) Consumer Products Europe 7,399 39 8,008 41 Consumer Products International 6,104 32 5,938 30 Cheese, Butter & Milkpowder 2,339 12 2,535 13 Ingredients 2,486 13 2,342 12 Other 708 4 661 4 19,036 100 19,484 100

Employees by geographical region (average number of FTEs) The Netherlands 6,494 34 6,649 34 Germany 1,828 10 2,216 11 Rest of Europe 4,340 23 4,458 23 Asia and Australia 5,202 27 5,024 26 Africa and the Middle East 1,032 5 1,007 5 North and South America 140 1 130 1 19,036 100 19,484 100

8 Other operating expenses

2011 2010

Transport - 422 - 404 Advertising and promotions - 377 - 395 Work contracted out and temporary staff - 277 - 250 Utilities - 185 - 192 Maintenance and repairs - 139 - 137 Other - 364 - 374 - 1,764 - 1,752 106 Financial statements Notes to the consolidated financial statements

The other expenses include: • research and development expense of EUR 66 million (2010: EUR 61 million); • operational leasing charges amounting to EUR 43 million (2010: EUR 42 million); • various government grants amounting to EUR 5 million (2010: EUR 5 million). The conditions for these grants have been met and the related obligations fulfilled; • impairment of property, plant and equipment and intangible assets amounting to EUR 12 million (2010: EUR 28 million) and income in respect of the reversal of impairment of property, plant and equipment and assets held for sale amounting to EUR 1 million (2010: EUR 7 million); • the external auditor’s audit and consultancy costs amounting to EUR 3.3 million (2010: EUR 2.9 million).

2011 2010 Specification of the external auditor’s audit and consultancy costs Total KPMG Total KPMG network network Audit of the financial statements - 2.2 - 2.0 Other audit engagements - 0.5 - 0.3 Tax consultancy - 0.4 - 0.3 Other non-audit-related services - 0.2 - 0.3 - 3.3 - 2.9

9 Finance income and cost

2011 2010

Interest income 32 27 Interest expense - 74 - 71 Put option costs - 19 - 25 Other finance income 2 13 Other finance costs - 13 - 13 - 72 - 69

Interest expenses includes EUR 7 million (2010: EUR 8 million) resulting from financing by Zuivelcoöperatie FrieslandCampina U.A. of Royal FrieslandCampina N.V.

Other finance income includes EUR 2 million (2010: EUR 9 million) in income from securities. Other finance cost includes amortisation of transaction costs of EUR 3 million (2010: EUR 4 million).

Foreign exchange results arising from the costs of raw materials and consumables used are included in cost of sales or in the appropriate element of operating expenses. In 2011 FrieslandCampina included a positive net exchange effect of EUR 1 million in operating profit (2010: 6 million).

10 Income tax expense

2011 2010 Breakdown of tax expense Current tax expense Current tax expense, current year - 79 - 128 Adjustments for prior years - 1 1 - 80 - 127 Deferred tax expense Deferred tax expense recognised in the current year - 11 9 Adjustments to deferred tax attributable to changes in tax rates and laws - 8 9 Write-down of deferred tax assets - 28 6 Adjustments change in filing 7 2 Other - 8 8 - 48 34 Income tax expense - 128 - 93 Financial statements Notes to the consolidated financial statements 107

2011 2010 Tax Tax (expense) (expense) Before tax benefit Net of tax Before tax benefit Net of tax Income tax recognised directly in equity Perpetual notes - 9 2 - 7 - 9 2 - 7 Member bonds - 39 7 - 32 - 29 5 - 24

Income tax recognised as other comprehensive income Foreign currency exchange - 21 - 21 37 37 Cash flow hedge 5 - 1 4 19 - 4 15

2011 2010

Effective tax rate Amount % Amount % Theoretical tax rate in the Netherlands 86 25.0 96 25.5 Effect of different tax rates in other countries 6 1.7 5 1.2 Effect of change in tax rate 8 2.3 - 9 - 2.4 Share of result of joint ventures and associates - 8 - 2.3 - 4 - 1.0 Withholding tax on dividends 5 1.5 8 2.1 Non-deductible expenses 14 4.1 12 3.0 Tax exempt income - 3 - 0.9 - 8 - 2.1 Recognition of tax losses 28 8.1 - 6 - 1.6 Adjustments to estimates relating to prior years - 6 - 1.7 3 0.8 Evaporation of losses and tax credits 4 1.0 Tax credits employed - 2 - 0.6 - 8 - 2.1 Effective tax rate 128 37.2 93 24.4

The theoretical tax rate is calculated by applying the tax rate in the Netherlands of 25% to the result before tax.

11 Property, plant and equipment

2011

Other Land and Plant and operating buildings equipment assets Total Carrying amount at 1 January 467 947 81 1,495 Consolidation and deconsolidation 2 2 4 Additions 71 243 26 340 Disposals - 4 - 1 - 5 Currency translation differences - 2 - 1 - 3 Transfers - 10 9 - 2 - 3 Transfer to assets held for sale - 1 - 1 Depreciation - 34 - 108 - 19 - 161 Impairment - 1 - 6 - 7 Reversal of impairment 1 1 Carrying amount at 31 December 493 1,082 85 1,660

Cost 1,044 2,853 308 4,205 Accumulated depreciation and impairment - 551 - 1,771 - 223 - 2,545 Carrying amount at 31 December 493 1,082 85 1,660 108 Financial statements Notes to the consolidated financial statements

2010

Other Land and Plant and operating buildings equipment assets Total Carrying amount at 1 January 464 913 86 1,463 Additions 49 175 27 251 Disposals - 12 - 1 - 5 - 18 Currency translation differences 6 16 2 24 Transfers 2 - 2 Transfer to assets held for sale - 8 - 8 Depreciation - 35 - 140 - 20 - 195 Impairment - 2 - 18 - 7 - 27 Reversal of impairment 5 5 Carrying amount at 31 December 467 947 81 1,495

Cost 1,021 2,740 310 4,071 Accumulated depreciation and impairment - 554 - 1,793 - 229 - 2,576 Carrying amount at 31 December 467 947 81 1,495

Impairment relates mainly to the downward revaluation of the appraised net recoverable amount of property, plant and equipment of Consumer Products Europe and Cheese, Butter & Milkpowder, affected by proposed restructuring decisions. Impairment and reversal of impairment is classified as other operating expenses in the income statement.

As of 1 January 2011 FrieslandCampina implemented a change in its depreciation terms for plant and equipment which has, in general, led to a lengthening of the depreciation period. The effect of these changes on depreciation expense in the current year is EUR 32 million.

As a result of heavy rain, on 10 July the FrieslandCampina WAMCO Nigeria Plc. production facility was flooded. The cost of the damage to the land, buildings and equipment was less than EUR 1 million. The compensation received from third parties for land, buildings and equipment, which included an impairment, amounting to EUR 1 million is recognised in the income statement under other operating expenses.

The carrying amount of buildings, plant and equipment for which financial lease agreements apply was EUR 14 million (2010: EUR 17 million).

The carrying amount at 31 December included EUR 237 million (2010: EUR 159 million) non-current assets under construction.

At the end of the financial year FrieslandCampina was committed to investments in property, plant and equipment amounting to EUR 79 million (2010: EUR 40 million).

Additions include capitalised interest amounting to EUR 2 million (2010: EUR 1 million). The applicable interest rate is 5.0% (2010: 4.3%). Financial statements Notes to the consolidated financial statements 109

12 Intangible assets

2011

Goodwill Software Other Total Carrying amount at 1 January 838 36 29 903 Consolidation and deconsolidation 1 1 2 Additions arising from internal development 21 21 Additions 12 3 15 Transfers 3 3 Currency translation differences - 19 1 - 18 Amortisation - 11 - 4 - 15 Impairment - 4 - 1 - 5 Change in value in connection with put option 39 39 Carrying amount at 31 December 855 36 54 945

Cost 859 135 69 1,063 Accumulated amortisation and impairment - 4 - 99 - 15 - 118 Carrying amount at 31 December 855 36 54 945

2010

Goodwill Software Other Total Carrying amount at 1 January 839 39 32 910 Additions 10 10 Currency translation differences - 5 - 5 Amortisation - 12 - 3 - 15 Impairment - 1 - 1 Change in value in connection with put option 4 4 Carrying amount at 31 December 838 36 29 903

Cost 838 128 42 1,008 Accumulated amortisation and impairment - 92 - 13 - 105 Carrying amount at 31 December 838 36 29 903

In 2010 FrieslandCampina started a worldwide IT-standardisation programme. During 2011 an amount of EUR 21 million was capitalised for this programme. Part of this system is expected to go into service during 2012.

See Note 24 for the change in value in connection with the put option.

Impairment testing for cash-generating units containing goodwill The recoverable amounts per group of cash flow generating units is calculated during the fourth quarter of each year, or at another time if there is an indication for impairment. Goodwill is monitored and tested at the business groups level (groups of cash flow generating units).

The aggregate carrying amounts of goodwill allocated to each cash-generated unit are as follows:

2011 2010

Consumer Products Europe 753 772 Cheese, Butter & Milkpowder 4 Ingredients 102 62 855 838 110 Financial statements Notes to the consolidated financial statements

The principle assumptions applied when calculating the business value per business group are: % % % Business group Terminal value Budgeted EBITDA Pre-tax discount rate 2011 2010 2011 2010 2011 2010

Consumer Products Europe 2 2 6-9 4-11 12 10-20 Cheese, Butter & Milkpowder 2 2 2-3 3-5 11 11 Ingredients 2 2 14-21 13-15 10 12

Budgeted EBITDA margins are based on current experience, specific expectations for the near future and market-based growth rates. The discount rates are based on statements from financial advisers. The discount rates are pre-tax, in accordance with IAS 36.55.

The recoverable amounts of the cash-generating units were determined on the basis of the 2012 budget and long term plans. For the period after 2017, a growth rate has been used that is equal to the expected long-term inflation rates of up to 2%. The calculation of the recoverable amounts has changed in comparasion with 2010 because as of 2011 long-term/multi-year plans have been drawn-up. Such plans were not available in 2010. These long-term/multi year plans now form the basis for the period 2013 – 2016. In 2010 an extrapolation for the following 4 years was still based on the budget.

The outcome of the impairment tests was that the recoverable amounts exceed the carrying amounts of the cash-generating units, with the exception of Cheese, Butter & Milkpowder. In 2011 it was determined that the carrying amount of the cash flow generating unit Cheese, Butter & Milkpowder was higher and, therefore, an impairment of EUR 4 million was justified. The impairment is attributed in full to the goodwill and recognised in the income statement under other operating expenses, this impairment test did not lead to the devaluation of individual assets within Cheese, Butter & Milkpowder. Adjustments to the long term EBITDA expectations of the milk powder activities and the relocation of the milk powder activities from Ingredients to Cheese, Butter & Milkpowder are the primary causes of the impairment.

Sensitivity to changes in assumptions The impairment test shows that the estimated recoverable amount of Consumer Products Europe exceeds the carrying amount by EUR 275 million. The Executive Board has identified two important assumptions changes in which could lead to an impairment. Underneath, per assumption is shown, the extent to which one of these two assumptions must change in order for the estimated recoverable amount to equal the carrying value.

Change needed for carrying amount to equal recoverable amount:

Pre-tax discount rate + 2% Estimated EBITDA - 1%

The values attributed to the important assumptions represent Management’s judgement regarding future developments in Consumer Products Europe and are based on both external and internal sources.

The outcome of the impairment testing of Ingredients showed that the recoverable amount exceeded the carrying value of the cash flow generating unit. In this instance a reasonable amendment of the assumption will not lead to a lower recoverable value than the carrying value of Ingredients. Financial statements Notes to the consolidated financial statements 111

13 Investments in joint ventures and associates

2011 2010

Carrying amount at 1 January 103 90 Additions 1 Transfer to assets held for sale - 3 Currency translation differences 12 Profit for the year 13 13 Dividends received - 3 - 12 Carrying amount at 31 December 111 103

Financial data of joint ventures and associates: Share of profit 13 13 Share of revenue 138 110

Share in balance sheet: Non-current assets 166 150 Current assets 90 84 Equity 152 132 Non-current liabilities 53 48 Current liabilities 51 54

Please see the list of Principal subsidiaries, joint ventures and associates on page 132 for the names of joint ventures and associates. 112 Financial statements Notes to the consolidated financial statements

14 Derivatives Please see Note 30 for the objectives, guidelines and policies related to the use of derivatives in FrieslandCampina’s activities.

In the statement of financial position the derivatives are included in current and non-current other financial assets and liabilities.

2011 2010 Hedging activities

Notional Notional Maturity Assets Liabilities amount Assets Liabilities amount Cross currency swaps for fixing interest on After 18 138 12 138 non-current liabilities (carried as assets) 2016 Cross currency swaps for fixing interest on 2013/ 7 95 8 95 non-current liabilities (carried as liabilities) 2016 Interest rate swaps for fixing interest on interest- 2012/ 25 600 29 400 bearing liabilities 2016 Currency derivatives carried as assets 2012 1 21 Currency derivatives carried as liabilities 2012 6 1 46 Cash flow hedges 18 32 13 38

Cross currency swap for fixing non-current 2013/ 1 18 liabilities 2016 Constant maturity swaps for fixing interest on 2011 2 100 non-current liabilities Currency derivatives carried as assets 2012 23 1 99 Currency derivatives carried as liabilities 2012 5 133 1 50 Derivatives not subject to hedge accounting 6 1 3

Total derivates 18 38 14 41

Classified as current 10 2 3 Classified as non-current 18 28 12 38

Cash flow hedges Cross-currency interest rate swaps have been contracted for borrowings of USD 308 million, as a result of which the USD repayment and interest obligations to institutional investors have been converted into EUR liabilities.

The interest rate swaps have been contracted to convert the floating-interest obligations on the interest-bearing liabilities into fixed- interest liabilities.

Currency derivatives relate to hedged expected future cash flows from export income for an amount of USD 11 million (2010: USD 68 million).

The hedges to which hedge accounting is applied meet the documentation requirements for hedge accounting in IAS 39 and are tested for effectiveness prior to and during their term. These hedges were effective as a result of which, at 31 December 2011 EUR -10 million was recognised in equity as cash flow hedge reserve. Of this sum, EUR 9 million relates to the cross currency swaps and EUR -19 million to the interest rate swaps. During 2011 EUR 4 million was transferred to the income statement from the cash flow hedge reserve, this was the effective portion of the interest expense during the financial year. Financial statements Notes to the consolidated financial statements 113

Derivatives not subject to hedge accounting Derivatives not subject to hedge accounting relate to contracted sales and purchases, loans and outstanding receivables and payables. The changes in the value of these derivatives are largely offset by countervailing value changes in receivables and payables. These qualify as natural hedges rather than as speculative instruments.

15 Other financial assets

2011 2010

Loans 34 39 Securities 18 16 Derivatives 18 12 Long-term receivables 3 3 73 70

Loans concerns a loan to the Great Ocean Ingredients Pty.Ltd. joint venture and loans to other third parties. The average interest rate on the loans at the end of 2011 was 2.2% (2010: 5.7%).

In 2011 FrieslandCampina reclassified EUR 3 million from employee benefits to non-current receivables. This is related primarily to an independently determined right to reimbursements connected to pension obligations.

Please see Note 14 for information regarding derivatives.

16 Inventories

2011 2010

Raw materials and consumables 371 323 Finished goods and goods for resale 714 682 1,085 1,005

Inventories of finished goods and goods for resale included EUR 171 million (2010: EUR 158 million) valued at lower market value.

In 2011 the write-down of inventories to net realisable value amounted to EUR 22 million (2010: EUR 15 million). The write-down is included in the raw materials and consumables used.

There are no inventories pledged as security for liabilities. 114 Financial statements Notes to the consolidated financial statements

17 Trade and other receivables

2011 2010

Trade receivables 964 926 Receivable from affiliated companies 23 22 Other receivables 56 64 Provision for doubtful debts - 14 - 17 1,029 995 Receivables related to tax (excluding income tax) and social security 72 94 contributions Prepayments 26 21 1,127 1,110

Provision for doubtful debts At 1 January - 17 - 19 Currency translation differences - 1 Charged to the income statement - 2 - 8 Released to the income statement 2 2 Trade receivables written off 3 8 Recovered on written off trade receivables 1 At 31 December - 14 - 17

Maturity schedule: trade and other receivables Gross Impairment Net Within payment term 938 - 4 934 Overdue by less than 3 months 97 - 2 95 Overdue by 3 and 6 months Overdue by more than 6 months 8 - 8 1,043 - 14 1,029

Trade and other receivables are non-interest-bearing and generally fall due between 10 and 90 days.

In various countries FrieslandCampina has taken out credit insurance to mitigate the credit risk related to customers. At the end of 2011 this insured position amounted to EUR 315 million (2010: EUR 380 million).

18 Cash and cash equivalents

2011 2010

Deposits 106 116 Cash and cash equivalents 314 176 420 292

Cash and cash equivalents up to an amount of EUR 1 million (2010: EUR 2 million) are not at FrieslandCampina’s free disposal. These amounts are totally related to bank guarantees. Financial statements Notes to the consolidated financial statements 115

19 Equity Issued capital The authorised capital amounts to EUR 1,000 million, divided into 10,000,000 shares with a nominal value of EUR 100. The shares are held by Zuivelcoöperatie FrieslandCampina U.A.

The number of shares in issue at both the start and the end of the year was 3,702,777. EUR 370 million has been paid up on these shares.

Perpetual notes In 2003, FrieslandCampina issued a 7.125% perpetual cumulative subordinated loan with a nominal value of EUR 125 million. The interest is recognised as profit attributable to providers of perpetual notes. The notes are listed on Euronext Amsterdam. There is no repayment commitment, but the notes can be repaid in full on 2 June of each year. Royal FrieslandCampina N.V. must notify holders of the notes no less than 30 days and no more than 60 days in advance of any repayment. The notes are subordinated to the claims of all present and future creditors, to the extent that these are not subordinated.

Interest payments may be deferred, provided that Royal FrieslandCampina N.V. has not distributed any performance premium in the 12 months prior to the annual coupon date. Deferred interest becomes payable on the date on which a performance premium is next distributed.

Member bonds Member bonds have been issued to Zuivelcoöperatie FrieslandCampina U.A. and its members. The member bonds are perpetual and have no expiry date. The bonds are subordinated to the claims of all other existing and future creditors to the extent that these are not subordinated. Interest payment may be deferred provided that Royal FrieslandCampina N.V has not distributed any performance premium in the 12 months prior to the annual coupon date. Deferred interest becomes payable on the date on which a performance premium is next distributed.

Cash flow hedge reserve The cash flow hedge reserve concerns changes in the fair value of interest rate swaps, cross currency swaps and forward currency contracts that are recognised in an effective hedge relationship.

Currency translation reserve The currency translation reserve concerns accrued gains and losses on foreign currency translation at subsidiaries, and currency valuation gains and losses on loans of a permanent nature granted to subsidiaries.

Retained earnings Retained earnings concerns the balance of accrued profits which have not been distributed to the shareholder. Pursuant to the Articles of Association, a dividend may be distributed if and to the extent that equity exceeds the issued share capital plus the reserves that have to be held by law.

116 Financial statements Notes to the consolidated financial statements

20 Employee benefits FrieslandCampina operates a number of defined benefit plans with obligations that relate primarily to the Dutch and German divisions. These plans are principally indexed average salary plans. FrieslandCampina also has a number of defined contribution plans for its Dutch and foreign activities. The average salary plan for the Dutch employees is insured with a company pension fund and an insurance company. The plan insured with the insurance company has a profit-sharing agreement based on a segregated investment fund and at year end 2011 had a required coverage ratio (the ratio of plan assets to the pension obligation calculated under the conditions of the insurance contract) of at least 110%.

At the end of 2011 the coverage ratio of the pension plan insured with the insurance company was 113% (2010: 117%) and thus fulfilled the contractual obligation towards the insurance company.

The tables below summarise the assumptions used in determining the present value and movements in the present value of the pension obligation and plan assets and the components of the net benefit expense recognised in the consolidated statement of financial position and consolidated income statement.

2011 2010

Assumptions 1 % % Discount rate 4.6 / 4.9 5.1 / 5.3 Age-related salary increases 0.0 - 1.5 0.0 - 1.5 Wage inflation 2.4 2.5 Price inflation 1.9 2.0 Indexation • active 2.4 2.5 • non-active and retired 0.0 - 1.9 0.0 - 2.0 Increase in contribution-free salary 1.9 2.0

AG forecast table AG forecast table 2010-2060 2010-2060 Mortality tables % % Expected rate of return on plan assets in the financial year 4.6 / 5.1 5.5 / 5.7 Expected rate of return on plan assets in the following financial year 4.2 / 4.8 4.6 / 5.1

The discount rate method applied gives a true reflection of the market for high-value company bonds and takes the mobility of the interest on loans with a longer term into account in the correct manner.

1 The percentages shown relate to the Dutch pensions mentioned above. Financial statements Notes to the consolidated financial statements 117

2011 2010 Breakdown of pension costs payable at 31 December Present value of pension benefits 2,288 2,176 Fair value of plan assets 1,969 1,893 Deficit of cover 319 283 Unrecognised actuarial gains and losses at 31 December - 80 - 67 Past-service costs not yet recognised - 13 - 14 Pension costs payable 226 202

Movement in the pension costs payable At 1 January 202 178 Consolidation and deconsolidation 1 Reclassification 3 Pension costs of defined benefit plans 73 67 Contributions paid - 52 - 47 Currency translation differences 3 Pension costs payable 226 202 Classified as non-current assets 78 61 Classified as non-current liabilities 304 263

Present value of pension benefits At 1 January 2,176 2,221 Consolidation and deconsolidation 1 Current service costs 51 49 Interest 112 107 Benefits paid - 89 - 78 Currency translation differences 3 Actuarial gains and losses 38 - 127 At 31 December 2,288 2,176

Funded pension benefits 2,072 1,977 Pension benefits not yet funded 216 199 At 31 December 2,288 2,176

Movement in the fair value of plan assets At 1 January 1,893 1,745 Expected return on plan assets 90 97 Contributions received from the employer 52 47 Benefits paid - 89 - 78 Reclassification - 3 Actuarial gains and losses 26 82 At 31 December 1,969 1,893

The actual income from investments in the financial year was EUR 116 million (2010: EUR 179 million). 118 Financial statements Notes to the consolidated financial statements

2011 2010 Unrecognised actuarial gains and losses At 1 January - 67 - 283 Actuarial gain related to awarded pension benefits - 38 127 Actuarial result from plan assets 26 82 Actuarial gains and losses - 1 7 At 31 December - 80 - 67

Past-service costs not yet recognised At 1 January - 14 - 15 Amortisation 1 1 At 31 December - 13 - 14

Pension costs recognised through the income statement Increase in present value of pension benefits 51 49 Interest 112 107 Expected return on plan assets - 90 - 97 Amortisation of past-service costs 1 1 Actuarial gains and losses - 1 7 Expense recognised in the income statement for IAS 19-based defined 73 67 benefit plans Pension costs for defined contribution plans and contributions to 20 19 multi-employer pension plans Employees' share in pension costs - 5 - 5 Pension costs recognised through the income statement 88 81

The multi-employer plans are defined benefit plans. As the funds are unable to provide FrieslandCampina with the required information, the contributions towards these plans are recognised as being for defined contribution plans.

FrieslandCampina expects to contribute EUR 73 million towards its defined benefit plans in 2012 and EUR 1 million towards the multi- employer plans.

2011 2010 Principal investment categories, by percentage of fair market value of the total investment: % % Equity securities 35 37 Fixed-income securities 59 59 Property 2 2 Other 4 2

The expected return on plan assets is based on the expected long-term return on the basis of the long-term investment strategy and the different investment categories. A long-term return is assumed for each long-term investment category taking into account the long-term risk of the investment, historical returns and market expectations. A weighted average expected long-term return is determined from the long-term return from each investment category and the strategic asset allocation. Financial statements Notes to the consolidated financial statements 119

2011 2010 2009 2008 2007 Financial history Present value of pension benefits 2,288 2,176 2,221 1,862 1,876 Fair value of plan assets 1,969 1,893 1,745 1,569 1,863 Deficit of cover 319 283 476 293 13

Actuarial gains and losses related to adjustments of assumptions or bases on experience Obligation pension benefits Actuarial gains and losses due to assumption changes - 49 71 - 282 82 318 Actuarial gains and losses due to experience changes 11 56 4 21 19 Total - 38 127 - 278 103 337

Plan assets Actuarial gains and losses due to experience changes 26 82 109 - 405 - 63

21 Deferred tax assets and liabilities

2011 Assets and liabilities per type of temporary difference Inventories, receivables, derivatives, Unused tax Property, plant Intangible Employee liabilities and losses and and equipment assets benefits provisions relief facilities Other Total At 1 January - 29 123 10 18 77 - 1 198 Recognised through the income statement - 14 - 36 7 10 - 16 1 - 48 Recognised in equity - 1 9 8 Currency translation differences 3 3 At 31 December - 43 90 17 27 70 161

Deferred tax receivables and liabilities relate to the following items of the financial position:

Assets Liabilities Net Property, plant and equipment 4 47 - 43 Intangible assets 125 35 90 Employee benefits 20 3 17 Inventories, receivables, derivatives, liabilities and provisions 33 6 27 Unused tax losses and relief facilities 70 70 Other 5 5 Netting - 33 - 33 Net deferred tax asset 224 63 161

2010 Assets and liabilities per type of temporary difference Inventories, receivables, derivatives, Unused tax Property, plant Intangible Employee liabilities and losses and and equipment assets benefits provisions relief facilities Other Total At 1 January - 37 20 18 9 167 - 11 166 Recognised through the income statement 9 102 - 8 11 -90 10 34 Recognised in equity - 3 - 3 Currency translation differences -1 1 1 1 At 31 December -29 123 10 18 77 -1 198 120 Financial statements Notes to the consolidated financial statements

Deferred tax receivables and liabilities relate to the following items of the financial position:

Assets Liabilities Net Property, plant and equipment 5 34 - 29 Intangible assets 146 23 123 Employee benefits 24 14 10 Inventories, receivables, derivatives, liabilities and provisions 26 8 18 Unused tax losses and relief facilities 77 77 Other 1 - 1 Netting - 45 - 45 Net deferred tax asset 233 35 198

The majority of the deferred tax receivables related to unused loss compensation and facilities concerns tax juristictions in which FrieslandCampina has suffered a fiscal loss in the current or previous financial year.

On the basis of its long-term plans, FrieslandCampina expects to be able to offset unused tax losses and facilities against future profits.

Deferred tax assets are not recognised if it is not probable that there will be future taxable profits within the entities against which the losses can be utilised.

Deferred tax assets have not been recognised in respect of the following losses and facilities:

2011 2010

Tax losses 224 98 Facilities available for relief 2 226 98

The unrated losses and facilities will not elapse under the current fiscal rules.

22 Provisions

2011 2010

Other Other Restructuring provisions Total Restructuring provisions Total At 1 January 49 35 84 60 19 79 Additions charged to the income statement 4 24 28 14 30 44 Released to the income statement - 7 - 7 - 14 - 12 - 6 - 18 Utilised - 20 - 16 - 36 - 13 - 8 - 21 At 31 December 26 36 62 49 35 84

Non-current provisions 12 13 25 35 10 45 Current provisions 14 23 37 14 25 39 26 36 62 49 35 84

Restructuring provisions The restructuring provision relates to the reorganisation of production and packaging facilities during the coming years. At the end of 2011 the restructuring provision for Consumer Products Europe concerned primarily the Elsterwerda and Kalkar facilities in Germany. For Cheese, Butter & Milkpowder, the reorganisation affects mainly the production facilities in Tilburg, Dronrijp and Varsseveld. In addition, the production site for butter oil and cream products in Klerken in Belgium will be closed.

The restructuring provision will result in future cash outflows. Financial statements Notes to the consolidated financial statements 121

Other provisions These provisions are formed for obligations the extent or likelihood of which is uncertain at the balance sheet date. The timing of the outflow of resources for these provisions is uncertain. These provisions are stated at nominal value as their present value is not materially different. Non-current provisions are mainly medium-term in nature.

Other provisions includes EUR 23 million (2010: EUR 21 million) for onerous contracts.

23 Interest-bearing borrowings 2011 2010

Amounts owed to syndicate of credit institutions 237 145 Amounts owed to institutional investors 265 258 Loans from affiliated entities 290 290 Loans from member farmers 42 23 Finance lease liabilities 13 14 Amounts owed to credit institutions 8 14 Other interest-bearing borrowings 36 32 891 776

The terms and conditions of outstanding loans are as follows:

Nominal Year of Nominal Carrying Nominal Carrying Loan Currency interest rate maturity amount 2011 amount 2011 amount 2010 amount 2010 Syndicate (variable interest) EUR 2.1 2015 245 237 150 145 Private Placement (fixed interest) USD 5.4 2013 87 89 84 87 Private Placement (fixed interest) USD/EUR 5.0 2017 74 74 72 72 Private Placement (fixed interest) USD 5.7 2020 102 102 99 99 Loan from Zuivelcoöperatie FrieslandCampina U.A. (variable EUR 2.4 2014 290 290 290 290 interest) Loans from member farmers EUR 3.0 2013/2014 42 42 23 23 (variable interest) Fonterra (variable interest) EUR/NZD 3.0 2018 33 33 30 30 Other 24 24 30 30 897 891 778 776

Owed to syndicate of credit institutions In 2009, agreement was reached with a syndicate of credit institutions regarding a EUR 1 billion refinancing of the credit facility with a term until August 2012. In 2011 the term of the credit facility was extended to August 2015 and the conditions related to the loan were improved. On 31 December 2011 EUR 285 million of the credit facility had been utilised (2010: EUR 295 million), of which EUR 40 million (2010: EUR 145 million) is recognised as current.

Borrowings from institutional investors (private placements) FrieslandCampina took out private loans with institutional investors in the United States amounting to USD 308 million and a private loan with a European investor amounting to EUR 25 million.

Cross-currency swaps have been used to convert the USD repayment and interest obligations related to these borrowings into EUR obligations at fixed interest rates. The cross-currency swaps were entered into hedge cash flows. Cash flow hedging has been applied to them. The cross-currency swaps have been recognised at fair value. The portion of the gains and losses made on these hedge instruments regarded as effective is recognised directly in equity. The borrowings of USD 308 million (2010: USD 308 million) have been fixed at EUR 233 million (2010: EUR 233 million) through these swaps.

Loans from member farmers These loans concern three-year deposit loans held by member dairy farmers. 122 Financial statements Notes to the consolidated financial statements

Financial lease liabilities

2011 2010

Present value of Present value of Future minimum minimum lease Future minimum minimum lease lease payments Interest payments lease payments Interest payments Less than 1 year 2 2 2 2 Between 9 7 10 7 1 and 5 years More than 5 years 9 6 11 8 20 6.3 15 23 6.3 17

The lease instalments payable in 2011 included EUR 16 million (present value EUR 12 million) for a joint venture agreement with a third party for ripening, storing and packaging cheese. This agreement expires in 2020.

EUR 2 million (2010: EUR 3 million) of the discounted value of the minimum payments is current and recognised under trade payables and other liabilities.

No security has been provided for current and non-current borrowings.

24 Other financial liabilities

2011 2010

Derivatives 28 38 Liability put option 122 150 38

The liability in connection with the put option relates to DMV Fonterra Excipients GmbH & Co. KG and is recognised under the terms of the agreement with Fonterra Co-operative Group Ltd. If Fonterra exercises the put option, FrieslandCampina is obliged to buy the 50% interest in DMV Fonterra Excipients currently held by Fonterra, for at least the value of Fonterra’s contribution at the commencement of the joint venture in 2006. The joint venture partner may exercise this option in June 2013. At year-end 2010, the option was classified as current as Fonterra Co-operative Group Ltd could have exercised the option in June 2011. This possibility was not utilised.

This option is treated on the basis that Fonterra will exercise the option, thus creating a liability which is determined in accordance with the conditions related to the agreement. The present value of this liability is calculated as at the balance sheet date. Changes in the value of the liability are recognised via goodwill. The changed value amounted to EUR 39 million in 2011 (2010: EUR 4 million).

As a result of the use of the anticipated acquisition method, DMV Fonterra Excipients is fully consolidated without recognition of a non-controlling interest being recognised in the statement of financial position and income statement. Dividends paid to Fonterra are recognised as a finance cost, as a compensation to the holder of the put option.

At the time the financial statements were prepared, FrieslandCampina’s management had no indication that Fonterra wished to exercise the option.

Please see Note 14 for information regarding derivatives. Financial statements Notes to the consolidated financial statements 123

25 Current borrowings

2011 2010

Current portion of interest-bearing borrowings 2 21 Bank overdrafts 248 293 250 314

At the end of 2011, ‘Bank overdrafts’ included an amount of EUR 40 million (2010: EUR 145 million) in the form of a current drawing on the credit facility of EUR 1 billion with a syndicate of credit institutions. See also Note 23.

The remaining portion of ‘Bank overdrafts’ relates mainly to conditional credit facilities.

The average interest rate on current borrowings at the end of 2011 was 2.5% (2010: 5.2%).

26 Trade and other payables

2011 2010

Amounts owed to member dairy farmers 421 417 Trade creditors 843 738 Payables related to tax (excluding income tax) and 33 37 social security contributions Liabilites in connection with put options 7 86 Other payables 372 355 1,676 1,633

Please see Note 24 for information regarding the liability in connection with the put option relating to DMV Fonterra Excipients.

27 Commitments and contingencies

2011

2012 2013 - 2016 After 2016 Total Guarantees to third parties 10 10 Operational lease obligations 34 78 11 123 Purchase commitments for non-current assets 72 7 79 Other liabilities 43 109 6 158 159 194 17 370

2010

2011 2012 - 2015 After 2015 Total Guarantees to third parties 8 8 Operational lease obligations 29 65 16 110 Purchase commitments for non-current assets 28 11 1 40 Other liabilities 22 46 68 87 122 17 226

FrieslandCampina has granted a third party the right, subject to certain conditions, to acquire 8% of the shares in PT Frisian Flag Indonesia in the period 2012 to 2015.

In the context of the merger, Friesland Foods and Campina made two commitments to the European Commission.

The first commitment requires member dairy farmers of Zuivelcoöperatie FrieslandCampina U.A. who terminate their membership to be paid a lump-sum leaving premium of 5 euros per 100 kilograms of milk delivered in the year preceding the year in which the application for eligibility for the lump-sum leaving premium is made. The eligibility requirement for the lump-sum leaving premium is that the dairy farmer must become a supplier to another purchaser of raw milk in the Netherlands. 124 Financial statements Notes to the consolidated financial statements

The second commitment is that a maximum of 1.2 billion kilograms raw milk per annum must be made available to purchasers who have a dairy plant and who produce fresh dairy products or naturally ripened Dutch cheese, or either of these in combination with other dairy products. Purchasers may only obtain this milk to expand production in existing plants, for production in new plants or for production in the plants in Nijkerk (fresh dairy products) and Bleskensgraaf (cheese) disposed of by FrieslandCampina in accordance with the agreement with the European Commission.

The milk is to be made available through an independent foundation. The price of the milk is the guaranteed milk price (paid by FrieslandCampina for milk delivered by its member dairy farmers) applicable in the month of delivery. There will be a discount of 1% on this price for the first five years after the commitment takes effect. The commitments will remain in force until member dairy farmers with a total milk volume of 1.2 billion kilograms have left FrieslandCampina or until the requirement is withdrawn by the European Commission when it is convinced that sufficient Dutch raw milk is available for the aforementioned purchasers.

28 Related parties Zuivelcoöperatie FrieslandCampina U.A. is the sole shareholder of Royal FrieslandCampina N.V.

See Note 29 for the remuneration of the Executive Board and the Supervisory Board.

See Note 20 for pension costs.

Zuivelcoöperatie FrieslandCampina U.A. Zuivelcoöperatie FrieslandCampina U.A., the shareholder of the company, and FrieslandCampina Nederland B.V., a subsidiary of the company, have agreed that the latter will purchase the milk supplied by the cooperative its members. In 2011 this was 8.8 billion kilograms (2010: 8.8 billion kilograms). The price to be paid for this milk is based on the weighted average milk price in Germany, the Netherlands, Denmark and Belgium, which represents 48 billion kilograms of milk in total. The milk price calculated in this way is guaranteed and, therefore, referred to as the guaranteed price. Based on the current profit appropriation policy (which has changed compared to 2010) the members also receive a premium on the guaranteed milk price equal to 30% of the profit calculated using the guaranteed price as the basis for the cost of the milk, after deduction of profit attributable to providers of member bonds, providers of perpetual notes and non-controlling interests. A further 20% of that result is appropriated as an addition to member bonds.

Zuivelcoöperatie FrieslandCampina U.A. issued a subordinated loan to finance the assets of Royal FrieslandCampina N.V. Interest costs were charged on this loan. The conditions under which these transactions can take place are the same as for transactions with third parties.

EUR 293 million (2010: EUR 314 million) of the member bond loan is placed with Zuivelcoöperatie FrieslandCampina U.A.

2011 2010

Interest charged by Zuivelcoöperatie FrieslandCampina U.A. - 7 - 7 Receivable from Zuivelcoöperatie FrieslandCampina U.A. 23 22 Payable to Zuivelcoöperatie FrieslandCampina U.A. 290 290

Joint ventures and associates Royal FrieslandCampina N.V. has granted a loan of EUR 23 million to the joint venture Great Ocean Ingredients Pty.Ltd.

FrieslandCampina regularly purchases goods from and sells goods to associates in which FrieslandCampina holds an interest of 50% or less and can exercise significant influence. The conditions under which these transactions can take place are the same as for transactions with third parties. During 2011 and 2010 FrieslandCampina entered into the following transactions with joint ventures and associates.

2011 2010

Purchase of raw materials, consumables and goods for resale 30 22 Sale of raw materials, consumables and goods for resale 80 57 Receivable from joint ventures and associates 34 34 Payable to joint ventures and associates 3 4 Financial statements Notes to the consolidated financial statements 125

29 Remuneration of members of the Supervisory Board and the Executive Board

2011 2010 Supervisory Board Short-term remuneration 0.9 1.0 0.9 1.0 Executive Board Short-term remuneration 4.1 4.9 Long-term remuneration 1.0 1.3 Pension plans 0.6 0.8 5.7 7.0

30 Financial risk management and financial instruments Financial risk management FrieslandCampina’s principal financial instruments are borrowings from credit institutions and institutional investors, perpetual notes and cash and cash equivalents. The main purpose of these financial instruments is to raise finance for FrieslandCampina’s operations from a variety of markets and investors. FrieslandCampina has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. FrieslandCampina monitors the market risks relative to all financial instruments very closely.

FrieslandCampina also enters into derivative transactions, primarily forward currency contracts and interest rate swaps, in order to manage the currency risks and interest rate risks arising from its operations and the financing of its operations. FrieslandCampina’s policy is, and has been throughout the year under review, that no trading takes place for speculative purposes. The main risks arising from FrieslandCampina’s financial instruments are foreign currency risks, interest rate risks, liquidity risks and credit risks. FrieslandCampina has policies in place to manage these risks.

Currency risks Since FrieslandCampina conducts business worldwide, a considerable portion of its assets, liabilities and results is sensitive to currency fluctuations. The purpose of the policy for managing transaction risks is to limit the effect of currency fluctuations on financial performance. Although, in principle, transaction risks are hedged, specific product and market circumstances may mean that this is not done.

Currency risks resulting from investments in foreign subsidiaries and joint ventures and associates are in principle not hedged. Although the risk associated with currency mismatches between assets and liabilities is mitigated by funding foreign subsidiaries in local currencies where possible, the solvency requirements that FrieslandCampina imposes on foreign subsidiaries do result in a degree of currency translation risk. The exception to this – the net investment hedge -hedges the currency translation risk on the net investment in the financing of a foreign subsidiary recognised in the current account in the currency of the net investment (EUR 15 million). Hedge accounting has been applied, the documentation stipulations of IAS 39 related to hedge accounting have been fulfilled and effectiveness test have been carried out before and during the term of the hedge. 126 Financial statements Notes to the consolidated financial statements

Exposure of currency risk The summary of quantitative data about FrieslandCampina’s exposure to foreign currency risk provided to management based on its risk management policy was as follows (positions given in USD):

2011 2010

USD/EUR USD/NGN USD/IDR USD/VND USD/EUR USD/NGN USD/IDR USD/VND Receivables 71 3 3 74 2 4 Cash 9 17 3 4 1 Liabilities - 12 - 7 - 29 - 7 - 9 - 8 - 18 - 1 Net statement of financial 68 13 - 23 - 7 69 - 5 - 14 - 1 position Forecast sales next year 870 712 Forecast purchases next year - 55 - 400 - 325 - 137 - 40 - 340 - 300 - 180 Net forecast transaction 815 - 400 - 325 - 137 672 - 340 - 300 - 180 exposure Forward exchange contracts - 125 - 216 Net exposure 31 December 758 - 387 - 348 - 144 525 - 345 - 314 - 181 USD Net exposure 31 December 585 - 299 - 269 - 111 392 - 258 - 235 - 135 EUR

The table above has been adjusted compared with 2010 in order to be in-line with internal reporting.

Sensitivity analysis FrieslandCampina is sensitive primarily to fluctuations in the US dollar exchange rate due to its sales and purchases in dollars. The largest currency pairings are EUR/USD, USD/NGN, USD/IDR and USD/VND. As far as the euro is concerned this relates mainly to sales in American dollars. As far as other currencies are concerned this relates mainly to the purchase of raw materials on the world market. The breakdown below summarises the impact of a 5% change of the US dollar exchange rate against the local currency in the income statement. A 5% change in the exchange rate is assumed to be a realistic possibility.

A positive figure means an increase in profit and in the amount of the cash flow hedge reserve, while a negative figure means a decrease. Currently there are no large cash flow hedges, which is why they have not been reported.

A strengthening (weakening) of the US dollar, as indicated below, against the EUR, NGN, IDR and VDN at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that FrieslandCampina considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any effect of forecasted sales and purchases.

Strengthening USD Weakening USD (in EUR) Effect on profit or loss Effect on profit or loss 31 December 2011 USD (5% movement against EUR) 31 - 31 NGN (5% movement against USD) - 15 15 IDR (5% movement against USD) - 13 13 VDN (5% movement against USD) - 7 7 31 December 2010 USD (5% movement against EUR) 21 - 21 NGN (5% movement against USD) - 13 13 IDR (5% movement against USD) - 12 12 VDN (5% movement against USD) - 7 7 Financial statements Notes to the consolidated financial statements 127

Interest rate risk The objective of interest rate risk management is to limit the effect of interest rate fluctuations on profit and to reduce interest expense where possible. Interest rate derivatives are used to match the effective interest in borrowings to the intended interest rate risk profile. The average percentage of FrieslandCampina’s interest bearing instruments (excluding member bonds and the perpetual notes) that is characterized by a fixed interest percentage or is fixed by means of a hedge is on average 58% for the next 5 years The overview below shows the situation at the end of the year:

Interest on borrowings 2011 2010

Carrying Carrying Carrying Carrying amount amount amount amount excluding including excluding including hedging hedging hedging hedging Fixed rate 278 678 273 773 Floating rate 863 463 817 317 1,141 1,141 1,090 1,090

FrieslandCampina carried out a sensitivity analysis based on the influence of interest rates on derivatives and other financial instruments at the end of the year. The analysis of cash and cash equivalents and liabilities with variable interest rates was carried out based on the assumption that the outstanding amount at the end of the year had been outstanding throughout the year. This sensitivity analysis indicates that, if interest would have risen or fallen by 0.5%, the cumulative interest expense for the current year would have been less than 1 million euro higher or lower. In addition to the sensitivity analysis another internal 5-year prospective analysis was carried out.

Liquidity risk FrieslandCampina’s objective is to maintain a balance between the continuity and flexibility of its funding by using a range of financial instruments. Total net debt should be funded mainly by long-term borrowings and committed credit facilities. FrieslandCampina manages its liquidity risk mainly by keeping available a significant amount of the unconditional credit facilities of EUR 1,265 million (2010: EUR 1,258 million). Of these facilities EUR 715 million (2010: EUR 705 million) was unused at the end of 2011. In November 2011 it was agreed with a syndicate of banks to extend the maturity of the committed credit facility of EUR 1 billion from August 2013 to August 2015.

The table below sets out the maturity dates of borrowings according to the nominal amounts in the contract, including related interest obligations.

Cash flows on borrowings

2011

Contractual Carrying amount cash flows 2012 2013 - 2016 After 2016 Non-derivative financial liabilities Loans - 1,128 - 1,266 - 284 - 754 - 228 Financial lease liabilities - 15 - 20 - 2 - 9 - 9 Trade and other payables - 1,674 - 1,674 - 1,674 Operational lease liabilities - 123 - 34 - 78 - 11 Purchase commitments for non-current assets - 79 - 72 - 7 Other commitments - 158 - 43 - 109 - 6 Derivatives Interest rate swaps - 25 - 30 - 16 - 14 Cross currency swaps - 8 - 4 - 2 - 2 Forward exchange - 5 - 5 - 5 - 2,855 - 3,359 - 2,132 - 973 - 254 128 Financial statements Notes to the consolidated financial statements

2010

Contractual Carrying amount cash flows 2011 2012 - 2015 After 2015 Non-derivative financial liabilities Loans - 1,075 - 1,212 - 348 - 647 - 217 Financial lease liabilities - 17 - 23 - 2 - 9 - 12 Trade and other payables - 1,631 - 1,631 - 1,631 Operational lease liabilities - 110 - 29 - 65 - 16 Purchase commitments for non-current assets - 40 - 28 - 11 - 1 Other commitments - 68 - 22 - 46 Derivatives Interest rate swaps - 29 - 33 - 17 - 16 Cross currency swaps - 8 - 6 - 2 - 4 Forward exchange and other - 4 - 4 - 4 - 2,764 - 3,127 - 2,083 - 798 - 246

Credit risk FrieslandCampina is exposed to credit risks associated with its trade receivables, cash and cash equivalents and derivative financial instruments. FrieslandCampina manages credit risk by systematically monitoring the credit ratings of its customers at a decentralised level and financial counterparties at a central level. During 2011 growing concerns regarding the financial positions of various governments, such as the Greek government, led FrieslandCampina further hone the existing risk policy aimed at limiting and mitigating these risks as far as possible.

FrieslandCampina generally trades with reputable third parties with whom it maintains long-standing trading relationships. The credit position of customers deemed less creditworthy or subject to political transfer risks is covered by documentary credit or credit insurance in accordance with FrieslandCampina’s financial risk management policy. Thanks to the spread of geographical areas and business groups, there is no significant concentration of credit risk in FrieslandCampina’s trade receivables. Please see Note 17 for further information on trade receivables.

Whenever possible, cash and cash equivalents have been deposited with first-class international banks, i.e. those with at least a ‘single A’ credit rating. Cash and cash equivalents held by subsidiaries in relatively unstable political climates are, however, subject to local country risks. To limit these risks as far as possible, FrieslandCampina follows an active dividend policy in relation to these subsidiaries. FrieslandCampina has, for example, outstanding monies in Nigeria. To mitigate this risk FrieslandCampina has not only an active dividend policy but also a stringent bank policy.

Derivatives are traded only with financial institutions with good credit ratings, i.e. at least ‘single A’. FrieslandCampina’s risk exposure on these instruments is not greater than the current carrying amount.

Management of risks relating to assets FrieslandCampina manages its assets so as to maintain a good credit standing (investment grade according to relevant financial parties) and to safeguard the continuity of the subsidiaries as going concerns. In this context, FrieslandCampina applies guidelines for the solvency ratios of different types of subsidiary.

Capital risk management FrieslandCampina’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital comprises debt, including interest-bearing borrowings and current borrowings as well as equity in the form of equity attributable to the shareholder of the company, member bonds, the perpetual notes and non-controlling interests.

Covenant guidelines are defined in order to safeguard the company’s credit profile at a solid investment grade. This implies the following guidelines and targets. Financial statements Notes to the consolidated financial statements 129

Covenant guidelines

Existing guidelines for financial ratios: Senior Net Debt / EBITDA < 3,0 Net Debt / EBITDA < 3,5 EBITDA / Net Interest > 3,5 The terms of the covenants for both facilities (Syndicate and Private Placement) have been met. The amounts drawn under the credit facility and the private placements become repayable on demand if the related terms and conditions cease to be met.

The table below sets out the specification of the (senior) net debt at year-end.

2011 2010

Interest bearing borrowings 891 776 Current borrowings 250 314 Receivable from affiliated companies - 23 - 22 Cash and cash equivalents - 420 - 292 Pledged cash and cash equivalents 1 Net debt 699 776 Loans from affiliated companies - 290 - 290 Senior net debt 409 486

Derivative assets and liabilities designated at cash flow hedges The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair values of the related hedging instruments.

Expected Fair value 2012 2013 - 2016 After 2016 cash outflow Interest rate swaps Liabilities 25 30 16 14

Cross currency swaps Assets 18 6 1 3 2 Liabilities 7 4 2 2

Accounting classifications and fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position are stated below. The fair value is the amount that would be received or paid if the receivables and/or liabilities were settled on the balance sheet date, without further liabilities.

2011

Designated at fair value through income Loans and Other financial Carrying statement Hedging receivables liabilities amount Fair value Other financial assets 18 18 37 73 73 Trade and other receivables 1,127 1,127 1,127 Cash and cash equivalents 420 420 420 Other financial liabilities 123 27 150 150 Interest-bearing borrowings 891 891 945 Current borrowings 250 250 250 Trade and other (financial) payables 5 5 1,676 1,686 1,686 130 Financial statements Notes to the consolidated financial statements

2010 Designated at fair value through income Loans and Other financial Carrying statement Hedging receivables liabilities amount Fair value Other financial assets 16 12 42 70 70 Trade and other receivables 1 1 1,110 1,112 1,112 Cash and cash equivalents 292 292 292 Other financial liabilities 37 1 38 38 Interest-bearing borrowings 776 776 781 Current borrowings 314 314 314 Trade and other (financial) payables 83 1 1,552 1,636 1,636

The put option related to DMV Fonterra Excipients is classified as ‘carried at fair value through the income statement’. The option is carried at fair value, but the changes in value are added or deducted to/from goodwill, see also Note 24.

Fair values hierarchy The table below analyses Financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1: Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: Fair value measured using inputs other than those in level 1 that observable for the asset or liability, either directly (for example, as prices) or indirectly (for example, derived from prices); Level 3: Fair value measured using inputs that are not based on observable market data.

2011 Level 1 Level 2 Level 3 Total Other financial assets 18 18 36 Total assets 18 18 36 Other financial liabilities 28 122 150 Trade and other payables 10 10 Total liabilities 38 122 160

2010 Level 1 Level 2 Level 3 Total Other financial assets 16 12 28 Trade and other receivables 2 2 Total assets 16 14 30 Other financial liabilities 38 80 118 Trade and other payables 3 3 Total liabilities 41 80 121

The other financial assets are classified as Level 1 valuation method with the quoted prices used as the basis for the valuation.

The derivatives are classified as Level 2 valuation method. The fair value of the forward currency contracts is calculated by comparison with the actual forward prices of contracts for comparable remaining terms. The fair value of interest swap contracts is determined using the discounted value based on actual market information.

The put option in respect of DMV Fonterra Excipients is determined on the basis of the discounted value method that uses actual market information and the future cash flows. The future cash flows are discounted at the prevailing discount rates. The fair value of the put option in respect of DMV Fonterra Excipients is classified as a Level 3 valuation method see Note 24 for the movement during the year and the principles of valuation and determination of result for the valuation method. Financial statements Notes to the consolidated financial statements 131

31 Cash flow statement The statement of cash flows has been prepared in accordance with the indirect method. The table below shows for 2011 the underlying relationships between the movements in the statement of financial position and the statement of cash flows for inventories, receivables and liabilities.

Inventories Receivables Liabilities At 31 December 2010 1,005 1,110 1,633 At 31 December 2011 1,085 1,127 1,676 Movements in statement of financial position 80 17 43

Adjustments: Currency translation effect 1 1 - 3 Consolidation and deconsolidation - 2 Interest movement financial position - 6 - 1 Movement related to put option liability 71 Movement related to liability capital expenditure - 8 Other movements 1 1 Movements in statement of cash flows - 79 - 21 101

32 Subsequent events On February 2, 2012 FrieslandCampina announced that it has signed a memorandum of understanding with Salford Capital Partners to acquire Imlek and Mlekara Subotica, both are companies in the Western Balkans. The closing of this transaction, which is subject to certain contractual and other conditions such as regulatory approval, is expected in the second quarter 2012. 132 Financial statements Principal subsidiaries, joint ventures and associates

Principal subsidiaries, joint ventures and associates 1

The Netherlands Austria DMV-Fonterra Excipients B.V., Foxhol FrieslandCampina Austria GmbH, Stainach Friesland Brands B.V., Leeuwarden FrieslandCampina Cheese & Butter B.V., Amersfoort Romania FrieslandCampina Consumer Products Europe B.V., Amersfoort Napolact S.A., Cluj-Napoca (91.43%) FrieslandCampina Consumer Products International B.V., Amersfoort FrieslandCampina Romania S.A., Satu Mare (99.99%) FrieslandCampina Creamy Creation B.V., Amersfoort Industrializarea Laptelui Mures S.A., Tirgu-Mures (90.27%) FrieslandCampina Dairy Feed B.V., Amersfoort FrieslandCampina DMV B.V., Amersfoort Russia FrieslandCampina Domo B.V., Amersfoort Campina OOO, Moscow FrieslandCampina International Holding B.V., Amersfoort FrieslandCampina Kievit B.V., Meppel Spain FrieslandCampina Nederland B.V., Amersfoort FrieslandCampina Iberia S.L., Barcelona FrieslandCampina Nederland Holding B.V., Amersfoort FrieslandCampina Canarias S.A., Las Palmas FrieslandCampina Riedel B.V., Amersfoort FrieslandCampina Valess B.V., Amersfoort China FrieslandCampina Werknemers B.V., Amersfoort DMV International Ltd., Hong Kong Kaashandel Culemborg B.V., Hardinxveld-Giessendam FrieslandCampina (Hong Kong) Ltd., Hong Kong FrieslandCampina Trading (Shanghai) Co. Ltd., Shanghai Belgium FrieslandCampina Belgium N.V., Aalter Indonesia Friesland Foods België/Belgique N.V./S.A., Bornem PT Frisian Flag Indonesia, Jakarta (95%) FrieslandCampina Belgium Cheese N.V., Aalter PT Kievit Indonesia, Jakarta FrieslandCampina Cheese N.V., Aalter FrieslandCampina Professional N.V., Lummen Malaysia/Singapore FrieslandCampina Finance N.V., Lummen Dutch Lady Milk Industries Berhad, Petaling Jaya (50.96%) FrieslandCampina C.V., Weelde (99.84%) FrieslandCampina (Singapore) Pte. Ltd., Singapore

Germany Saudi Arabia CMG Grundstücksverwaltungs- und Beteiligungs -GmbH, Friesland Arabia Ltd., Jeddah Heilbronn (89.56%) DMV-Fonterra Excipients GmbH & Co. KG, Goch (50%) 2 Thailand Friesland Foods Deutschland GmbH, Kalkar-Kehrum (94.9%) FrieslandCampina Fresh (Thailand) Co Ltd., Bangkok FrieslandCampina Cheese GmbH, Essen FrieslandCampina (Thailand) PCL., Bangkok (99.71%) FrieslandCampina Germany GmbH, Heilbronn (94.9%) FrieslandCampina Professional GmbH, Cologne Vietnam Sahnemolkerei Hubert Wiesehoff GmbH, Schoppingen (49%) 2 FrieslandCampina Ha Nam Co. Ltd., Phu Ly Satro GmbH, Lippstadt FrieslandCampina Vietnam Co. Ltd., Binh Duong Province (70%) DMV- Fonterra Excipients Technology GmbH, Goch Milchverwaltung FrieslandCampina Germany GmbH, Cologne Nigeria FrieslandCampina WAMCO Nigeria Plc., Ikeja (54.5%) France France Crème S.A.S., Saint-Paul-en-Jarez USA FrieslandCampina Cheese France S.A.S., Sénas FrieslandCampina USA LP, Wilmington, State: Delaware FrieslandCampina France S.A.S., Saint-Paul-en-Jarez Joint ventures and associates 3 Greece Betagen Holding Ltd., Hong Kong, China (50%) FrieslandCampina Hellas S.A., Maroussi, Athens Coöperatieve Zuivelinvesteerders U.A., Oudenhoorn, The Netherlands (49%) United Kingdom CSK Food Enrichment B.V., Leeuwarden, The Netherlands (82.33%) FrieslandCampina UK Ltd., Horsham FKS Frischkonzept Service GmbH, Viersen, Germany (49%) Great Ocean Ingredients Pty.Limited., Allansford, Victoria, Australia (50%) Hungary Het Kaasmerk B.V., Leiden, The Netherlands (74.48%) FrieslandCampina Hungária zRt, Debrecen Unifine Debic - Ingredientes de Pastelaria S.A., Lisbon, Portugal (50%) ATF Management Ltd., Bangkok, Thailand (49%)

1 Ownership 100%, unless stated otherwise. If the percentage is less than 100% the direct interest of the parent in the subsidiary is stated. 2 FrieslandCampina has control over these entities, based on voting power. 3 FrieslandCampina does not have control over these joint ventures and associates. Financial statements Company balance sheet 133

Company balance sheet At 31 December, before profit appropriation, in millions of euros, unless stated otherwise

Note 2011 2010

Assets Investments in subsidiaries (2) 1,955 1,787 Loans to subsidiaries (3) 1,226 551 Deferred tax assets 1 3 Other financial assets (8) 18 12 Non-current assets 3,200 2,353

Amounts due from subsidiaries (4) 236 1,110 Other financial assets (8) 13 14 Current assets 249 1,124

Total assets 3,449 3,477

Equity Issued capital 370 370 Share premium 113 113 Perpetual notes 130 130 Member bonds 1,003 931 Cash flow hedge reserve - 10 - 14 Currency translation reserve - 49 - 29 Retained earnings 591 460 Equity attributable to the shareholder of the company (5) 2.148 1.961 and other providers of capital

Liabilities Interest-bearing borrowings (6) 838 722 Other financial liabilities (8) 27 36 Non-current liabilities 865 758

Current borrowings 95 161 Trade and other payables 4 5 Borrowings from subsidiaries (7) 326 586 Other financial liabilities (8) 11 6 Current liabilities 436 758

Total liabilities 1,301 1,516

Total equity and liabilities 3,449 3,477

Company income statement in millions of euros, unless stated otherwise

2011 2010

Share of profit of subsidiaries 182 246 Finance income and costs 38 - 23 Other results - 50 7 Profit for the year 170 230 134 Financial statements Notes to the company financial statements

Notes to the company financial statements in millions of euros, unless stated otherwise

1 General Accounting policies and notes These financial statements were prepared in accordance with Dutch statutory provisions and regulations. The financial statements are presented in accordance with the provisions of Section 362(8) of Part 9 of Book 2 of the Dutch Civil Code, which stipulates the application of consistent accounting policies in the company and consolidated financial statements. Please see pages 92 to 101 of the Notes to the consolidated financial statements for the accounting policies for the valuation of assets and liabilities, and the presentation of the income statement. Please see the Notes to the consolidated financial statements for items not dealt with in the Notes to the company financial statements. Consolidated subsidiaries are valued using the equity method.

A statutory reserve has been formed for the retained earnings of subsidiaries where distribution is subject to restrictions.

A list of subsidiaries, branches and associates, and interests in joint ventures, prepared in accordance with statutory provisions, is available for inspection at FrieslandCampina’s offices and has been filed with the Trade Registry in Almere, the Netherlands.

The company income statement is presented in accordance with the provisions of Section 402 of Part 9 of Book 2 of the Dutch Civil Code.

2 Investments in subsidiaries

2011 2010

At 1 January 1,787 1,481 Capital contribution 182 Profit for the year 182 246 Other comprehensive income - 15 56 Dividend - 178 Other movements 1 At 31 December 1,955 1,787

3 Loans to subsidiaries

2011 2010

At 1 January 551 797 Transferred from/to current 675 - 246 At 31 December 1,226 551

2011 2010

Repayment schedule Total Total 2013 - 2016 After 2016 repayment 2012 - 2015 After 2015 repayment Loans to subsidiaries 1 1,225 1,226 1 550 551

The loans granted serve primarily to finance subsidiaries. The average interest rate on the financing of subsidiaries in 2011 was 3.2% (2010: 3.5%). Financial statements Notes to the company financial statements 135

4 Amounts due from subsidiaries The amounts due from subsidiaries relate to loans granted to subsidiaries.

The average interest rate on these loans to subsidiaries in 2011 was 2.1% (2010: 1.7%).

5 Equity attributable to the shareholder of the company and other providers of capital The authorised capital amounts to EUR 1,000 million, divided into 10,000,000 shares with a nominal value of EUR 100. The shares are held by Zuivelcoöperatie FrieslandCampina U.A.

The equity attributable to the shareholder of the company and other providers of capital that is included in the company financial statement is equal to the equity attributable to the shareholder of the company and other providers of capital that is included in the consolidated financial statement. Please see the statement of changes in equity on page 90 for additional details on equity.

The cash flow hedge reserve and the currency translation reserve are statutory reserves and as such cannot be distributed. In addition EUR 35 million of the retained earnings is designated as statutory reserve subsidiaries and as such cannot be distributed.

6 Interest-bearing borrowings

2011 2010

Amounts owed to syndicate of credit institutions 237 145 Amounts owed to institutional investors 265 258 Loan from affiliated entities 290 290 Loans from member farmers 42 23 Amounts owed to credit institutions 4 5 Other interest-bearing borrowings 1 838 722

The terms and conditions of outstanding loans were as follows:

Nominal Year of Nominal Carrying Nominal Carrying Loan Currency interest rate maturity amount 2011 amount 2011 amount 2010 amount 2010 Syndicate EUR 2.1 2015 245 237 150 145 Private Placement USD 5.4 2013 87 89 84 87 Private Placement USD/EUR 5.0 2017 74 74 72 72 Private Placement USD 5.7 2020 102 102 99 99 Loan from Zuivelcoöperatie EUR 2.4 2014 290 290 290 290 FrieslandCampina U.A. Loans from Member EUR 3.0 2013/2014 42 42 23 23 farmers Other 4 4 6 6 844 838 724 722

Please see Note 23 of the consolidated financial statements for amounts owed to syndicate of credit institutions and amounts owed to institutional investors.

136 Financial statements Notes to the company financial statements

7 Borrowings from subsidiaries The average interest rate for the current borrowings from subsidiaries at the end of 2011 was 0% (2010: 0%).

8 Derivatives The difference compared with the amount in the consolidated financial statements is the fair value of derivatives transacted with subsidiaries.

Please see Note 14 of the consolidated financial statements for information regarding derivatives.

9 Commitments and contingencies Royal FrieslandCampina N.V. has issued statements of liability in conformance with Article 403, Part 9 Book 2 of the Dutch Civil Code in respect of liabilities of Friesland Brands B.V. and FrieslandCampina Nederland Holding B.V. and the Dutch subsidiary of FrieslandCampina Nederland Holding B.V. resulting from legal proceedings.

FrieslandCampina N.V., together with the majority of the Dutch operating companies and Zuivelcoöperatie FrieslandCampina U.A., forms the fiscal unit Zuivelcoöperatie FrieslandCampina U.A. for corporation tax and income tax. On these grounds the company is severally liable for the tax liability of the fiscal unit as a whole.

10 Remuneration of the Supervisory Board and the Executive Board The remuneration of members of the Supervisory Board and the Executive Board is disclosed in Note 29 of the consolidated financial statements. During the year under review no employees were employed by the company.

Amersfoort, 2 March 2012

Executive Board Supervisory Board Royal FrieslandCampina N.V. Royal FrieslandCampina N.V. C.C. ‘t Hart, CEO P. Boer, Chairman C.J.M. Gielen J.H.G.M. Uijttewaal, Vice-chairman K. Garg P.A.F.W. Elverding P.J. Hilarides S.H. Galema R.A. Joosten L.W. Gunning F. Rijna A.A.M. Huijben-Pijnenburg J.P.C. Keijsers F.A.M. Keurentjes S.R.F. Ruiter H. Scheffers H. Stöcker B. van der Veer W.M. Wunnekink

137 138 Other Information Other Information

Provisions of the Articles of Association governing profit appropriation

The provisions regarding the appropriation of profit are included in Article 28 of the Articles of Association. These can be summarised as follows: profit will be distributed after adoption of the financial statements showing such distribution to be legitimate. The profit will be at the disposal of the General Meeting of Shareholders. The General Meeting will adopt the company’s reserve policy, as included in Article 27 of the Articles of Association, on a proposal from the Executive Board approved by the Supervisory Board. Distributions chargeable to a reserve may be made on a proposal from the Executive Board, which will be subject to the approval of the Supervisory Board, pursuant to a resolution passed by the General Meeting. Unretained profit will be distributed.

Proposed appropriation of profit attributable to the share holder of the company

The Executive Board, with the approval of the Supervisory Board, has proposed that the entire profit attributable to the shareholder of the company will be added to the retained earnings.

Subsequent events

For information regarding subsequent events, please see Note 32 to the consolidated financial statements.

Other Information Independent auditor’s report 139

Independent auditor’s report To: the shareholder of Royal FrieslandCampina N.V.

Report on the financial statements We have audited the accompanying financial statements 2011 of Royal FrieslandCampina N.V., Amersfoort. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated statement of financial position as at 31 December 2011, the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes, comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at 31 December 2011, the company income statement for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.

Management’s responsibility Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the report of the Executive Board in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of Royal FrieslandCampina N.V. as at 31 December 2011 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.

Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of Royal FrieslandCampina N.V. as at 31 December 2011 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the report of the Executive Board, to the extent we can assess, has been prepared in accordance with part 9 of Book 2 of this Code, and if the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the report of the Executive Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.

Amstelveen, the Netherlands, 2 March 2012 KPMG ACCOUNTANTS N.V.

E.H.W. Weusten

At home in every country

However tastes, traditions and habits may differ around the world, in many countries family and friends gather together around the table to share a meal. People from the Netherlands to Japan and from Australia to Mexico enjoy Frico cheese. The milk from Dutch cows has for many generations been used to make the famous Goudse and Edammer cheese. Frico cheese, from low-fat to full-fat and from mild to mature, also find their way to the table of this Egyptian family. 142 Overviews Financial history

Financial history in millions of euros, unless stated otherwise

2011 2010 2009 2008 20071

Headlines Income statement Revenue 9,626 8,972 8,160 9,454 9,008 Operating profit 2 428 347 276 Operating profit 403 434 258 248 373 Profit for the year 216 285 182 135 256

Guaranteed price 36.94 32.39 26.40 35.89 Performance premium in euros per 100 kilograms 1.10 1.23 0.59 0.48 Addition member bonds in euros per 100 kilograms 0.73 0.73 0.35 0.29 Milk price in euros per 100 kilograms (excl. VAT, 4,41% 38.77 34.35 27.34 36.66 34.85 fat, 3,47% protein)

Financial position Total assets 5,739 5,299 4,770 4,930 5,128 Equity 2,264 2,071 1,749 1,480 1,681 Equity attributable to the shareholder and other 2,148 1,961 1,652 1,395 1,601 providers of capital Net debt 699 776 842 1,494 1,343

Cash flows Net cash from operating activities 508 444 786 351 234 Net cash used in investing activities - 340 - 239 - 206 - 214 - 376 Depreciation of plant and equipment and amortisation 176 210 206 219 226 intangible assets

Ratios Equity as a % of total assets 39.4 39.1 36.7 30.0 32.8

Employees (average number of FTEs) 19,036 19,484 20,034 20,568 20,774

Total milk processed (in millions of kilograms) 10,140 10,266 10,755 11,446 11,700 Milk supplied by members (in millions of kilograms) 8,838 8,821 8,685 8,589 8,734

1 The 2007 figures are pro forma. 2 Before non-recurring income and expenses related to merger and reorganisation costs. Overviews Milk price 143

Milk price overview in euros per 100 kilogram of milk at 4,41% fat and 3,47% protein, excl. VAT

2011 2010

Fat 19.39 16.12 Protein 17.49 16.27 36.88 32.39 Adjustment guaranteed price 0.06 Guaranteed price 36.94 32.39 Performance premium 1.10 1.23 Addition member bonds 0.73 0.73 Milk price 38.77 34.35 144 Overviews Supervisory Board

Supervisory Board

Piet (P.) Boer (1960) Tex (L.W.) Gunning (1950) Position Chairman of the Supervisory Board of Position member of the Supervisory Board of Royal FrieslandCampina N.V., Chairman of the Board of Royal FrieslandCampina N.V. Zuivelcoöperatie FrieslandCampina U.A. First appointed 14 December 2011 First appointed 31 December 2008 Nationality Dutch Nationality Dutch Other positions held member of the Board of Management and Occupation dairy farmer Executive Committee of AkzoNobel N.V. responsible for Decorative Other positions held member of the Supervisory Board of Alfa Paints, member of the Supervisory Board of TNT Express Top-Holding B.V. Angelique (A.A.M.) Huijben-Pijnenburg (1968) Jan (J.H.G.M.) Uijttewaal (1962) Position member of the Supervisory Board of Position Vice-chairman of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Royal FrieslandCampina N.V., Vice-chairman of the Zuivelcoöperatie FrieslandCampina U.A. Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 15 December 2010 First appointed 31 December 2008 Nationality Dutch Nationality Dutch Occupation dairy farmer Occupation dairy farmer Other positions held member of the Board of AB Brabant, Other positions held Vice-chairman of the Supervisory Board of member of the General Management Board of the Brabantse Delta Rabobank Maas en Waal District Water Board

Peter (P.A.F.W.) Elverding (1948) Jan (J.P.C.) Keijsers (1955) Position member of the Supervisory Board of Royal Position member of the Supervisory Board of FrieslandCampina N.V. Royal FrieslandCampina N.V., member of the Board of First appointed 31 December 2008 Zuivelcoöperatie FrieslandCampina U.A. Nationality Dutch First appointed 31 December 2008 Other positions held Vice-chairman of the Supervisory Board of Nationality Dutch ING Groep N.V., Chairman of the Supervisory Board of Koninklijke Occupation dairy farmer BAM Groep nv, Chairman of the Supervisory Board of Océ N.V., Other positions held none member of the Supervisory Board of SHV Holdings N.V., Chairman of the Supervisory Board of Q-Park, member of the Board of Frans (F.A.M.) Keurentjes (1957) Stichting Instituut Gak Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Sjoerd (S.H.) Galema (1962) Zuivelcoöperatie FrieslandCampina U.A. Position member of the Supervisory Board of First appointed 31 December 2008 Royal FrieslandCampina N.V., member of the Board of Nationality Dutch Zuivelcoöperatie FrieslandCampina U.A. Occupation dairy farmer First appointed 14 December 2011 Other positions held member of the Groningen Provincial Council, Nationality Dutch member of Grondkamer Noord (Agricultural Land Tenancies Occupation dairy farmer Authority North) Other positions held Chairman of the Supervisory Board of Rabobank Sneek-Zuidwest Friesland, member of the Board of Simon (S.R.F.) Ruiter (1958) Inspiration MillenniumNetwerk Fryslân Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held Provincial Manager LTO-Noord, Province of North-Holland, Vice-chairman of the Supervisory Board of Rabobank Alkmaar e.o. Overviews Supervisory Board 145

Henk (H.) Scheffers (1948) Remuneration & Appointment Committee Position member of the Supervisory Board of Peter Elverding, Chairman Royal FrieslandCampina N.V. Piet Boer First appointed 31 December 2008 Jan Uijttewaal Nationality Dutch Other positions held Chairman of the Supervisory Board of Audit Committee Aalberts Industries N.V., member of the Supervisory Board of Henk Scheffers, Chairman Koninklijke BAM Groep nv, member of the Supervisory Board of Simon Ruiter Wolters Kluwer N.V., Vice-chairman of the Supervisory Board of Ben van der Veer Flint Holding N.V., member of the Investment Committee of NPM Erwin Wunnekink Capital N.V., member of the Supervisory Board of Made in Scotland, member of the Board of Stichting Administratiekantoor KAS BANK, member of the Supervisory Board of AON Nederland

Hans (H.) Stöcker (1964) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 14 December 2011 Nationality German Occupation dairy farmer Other positions held Chairman of Landesvereinigung Milch NRW, chairman of the Supervisory Board of Milchverwertungs- gesellschaft NRW, member of Kreisstelle Oberberg der Landwirtschaftskammerr NRW, member of Landschaftsbeirat Oberbergischer Kreis, member of Aufsichtsrat Raiffeisenerzeuger genossenschaft Bergisch Land, chairman of the Association "Milch und Kultur Rheinland und Westfalen"

Ben (B.) van der Veer (1951) Position member of the Supervisory Board of Royal FrieslandCampina N.V. First appointed 1 October 2009 Nationality Dutch Other positions held member of the Supervisory Board of Reed Elsevier N.V. and non-executive director Reed Elsevier PLC, member of the Supervisory Board of AEGON N.V., member of the Supervisory Board of TomTom N.V., member of the Supervisory Board of Siemens Nederland N.V. In accordance with the roster, on 14 December 2011 Messrs Kees Erwin (W.M.) Wunnekink (1970) Wantenaar, Rob ter Haar and Jorrit Jorritsma resigned as Position member of the member of the Supervisory Board of Royal Chairman and members of the Supervisory Board respectively. FrieslandCampina N.V., member of the Board of Zuivelcoöperatie None of them were eligible for reappointment. On the same date FrieslandCampina U.A. Messrs Sjoerd Galema, Tex Gunning and Hans Stöcker were First appointed 16 December 2009 appointed as members of the Supervisory Board. Nationality Dutch Mr Piet Boer was appointed Chairman of the Supervisory Board Occupation dairy farmer and Mr Jan Uijttewaal was appointed Vice-chairman of the Other positions held none Supervisory Board. 146 Overviews Executive Board

Executive Board

Cees (C.C.) ’t Hart (1958) Roelof (R.A.) Joosten (1958) Position Chief Executive Officer Position Chief Operating Officer Appointed 1 January 2009 Appointed 1 January 2012 Nationality Dutch Nationality Dutch Responsible for Responsible for Cooperative Affairs Business group Ingredients Corporate Communication & Sustainability Affairs Corporate Supply Chain Corporate Human Resources Corporate Key Account Management Corporate General Counsel & Company Secretary Corporate Public Affairs & Quality Affairs Freek (F.) Rijna (1955) Corporate Research & Development Position Chief Operating Officer Corporate Strategy Appointed 1 January 2009 Centre for Dairy Nutrition & Health Nationality Dutch Other positions held Responsible for Chairman of the Board of the Nederlandse Zuivelorganisatie NZO Business group Consumer Products Europe (Dutch Dairy Association) Global Marketing Member of the Board of Productschap Zuivel (Dutch Dairy Board) Customer Development & Consumer Marketing Member of the General Board of VNO-NCW (Confederation of Other positions held Dutch Industry and Employers) Chairman of the Board of FNLI (Federatie Nederlandse Levensmiddelenindustrie – Dutch Food Industry Federation) Kees (C.J.M.) Gielen (1959) President of the Supervisory Board of Kunststof Hergebruik B.V. Position Chief Financial Officer Member of the Board of VNO-NCW (Confederation of Dutch Appointed 1 January 2009 Industry and Employers) Nationality Dutch Responsible for Corporate Finance & Reporting Corporate ICT Corporate Internal Audit Corporate Procurement Corporate Tax Corporate Treasury Mergers & Acquisitions

Kapil (K.) Garg (1964) Position Chief Operating Officer Appointed 1 August 2010 Nationality Indian Responsible for Business group Consumer Products International

Piet (P.J.) Hilarides (1964) Position Chief Operating Officer Mr. Roelof Joosten was appointed a member of the Executive Appointed 1 January 2009 Board of Royal FrieslandCampina N.V. and responsible for the Nationality Dutch Ingredients business group as of 1 January 2012. As Executive Responsible for Director he had been responsible for the activities of this business Business group Cheese, Butter & Milkpowder group since January 2011. Roelof Joosten joined FrieslandCampina Milk Valorisation & Allocation in 2004. Overviews Corporate Staff 147

Corporate Staff

Corporate Staff T.J.C.M. Albers Corporate Director Strategy J. Bles Corporate Director Centre for Dairy Nutrition & Health W.S.J.M. Buck Corporate Director Public & Quality Affairs G. Hagedoorn Corporate Director Internal Audit J.C. Hordijk Corporate Director Customer & Trade Marketing J. van Hout Corporate Director Tax J.H.A. Keerberg Corporate Director Procurement H. van der Kooij Corporate Director General Counsel & Company Secretary E.M. Meijer Corporate Director Research & Development G. Otter Corporate Director ICT J.A.T.M. van de Rakt Corporate Director Supply Chain F.A.M. Reefman Corporate Director Global Marketing A.K. Schaap Corporate Director Co-operative Affairs K.A. Springer Corporate Director Treasury M.C. van Veen Corporate Director Finance & Reporting J.C. de Vries Corporate Director Human Resources C.J. van Wees Corporate Director Milk Valorisation & Allocation F.A.C. van Ooijen Corporate Director Communication & Sustainability Affairs P. Zink Secher Corporate Director Mergers & Acquisitions

Category and Innovation directors M. Erdl Director Innovation Dairy Based Beverages M.J. Jonkman Director Innovation Infant & Toddler Nutrition B.H.M. Kodden Director Global Category Team Infant & Toddler Nutrition F.A.M. Reefman Director Global Category Team Dairy Based Beverages M.R. Wijsman Director Innovation Branded Cheese P.A. Zinkweg Director Global Category Team Branded Cheese

148 Other Information Business management and adresses

FrieslandCampina Consumer Products Europe

FrieslandCampina Consumer Products Europe FrieslandCampina Russia Stationsplein 4 Chief Operating Officer: 42, Ul. Mosfilmovskaya Managing Director: 3818 LE Amersfoort F. Rijna 119285 Moscow J.J.F. van Douveren The Netherlands Russia T +31 33 713 3333 T +74 959 333 646

FrieslandCampina Benelux FrieslandCampina Professional Stationsplein 4 Managing Director: Grote Baan 34 Managing Director: 3818 LE Amersfoort P.L.S. Reekmans 3560 Lummen M.G. Bertacca The Netherlands Belgium T +31 33 713 3333 T +32 13 310 310

FrieslandCampina Dagvers FrieslandCampina UK Industrieweg 130-134 Managing Director: Denne House Managing Director: 3044 AT Rotterdam E.H. Schut Denne Road a.i. T. Barney The Netherlands West Sussex RH12 1JF T +31 10 488 7000 England T +44 1403 273 273 FrieslandCampina Germany Wimpfener Strasse 125 Managing Director: 74078 Heilbronn M. Feller Germany T +49 71 314 890

FrieslandCampina Hellas 18, Nik. Zekakou & K. Karamanli str. Managing Director: 15125 Marousi, Athens G.J. Sklikas Greece T +30 210 61 66 400

FrieslandCampina Hungary 1134 Budapest Managing Director: Váci út 33 K.G. Maggioros 1394 Budapest Pf. 363 Hungary T +36 1 802 7700

FrieslandCampina Romania Calea Baciului 2-4 Managing Director: 400230 Cluj Napoca K.G. Maggioros Romania T +40 264 50 2000

Other Information Business management and adresses 149

FrieslandCampina Consumer Products International

FrieslandCampina Consumer Products International FrieslandCampina Middle East FrieslandCampina AMEA Pte Ltd Chief Operating Officer: Palladium Tower, 8th Floor Managing Director: 11th floor Centennial Tower K. Garg Jumeirah Lake Towers E.M. Klavert 3 Temasek Avenue King Adbullah Street Singapore 039190 Dubai T +65 6597 0949 United Arab Emirates T +971 4 4551800 FrieslandCampina Export P. Stuyvesantweg 1 General Manager: FrieslandCampina Thailand 8937 AC Leeuwarden C.H.M. Ruygrok 6th floor, S.P. Building Managing Director: The Netherlands 388 Paholyothin Road C. Archjananun T +31 58 299 91 11 Samsen Nai, Phayathai Bangkok 10400 FrieslandCampina Indonesia Thailand Jalan Raya Bogor Km 5 Managing Director: T +66 26201900 Jakarta 13760 M.L. Spits Indonesia FrieslandCampina Vietnam T +62 21 841 0 945 Binh Hoa Commune Managing Director: Thuan An District P.M. Boot FrieslandCampina Malaysia Binh Duong Province 13, Jalan Semangat Managing Director: Vietnam 46200 Petaling Jaya S.G. van den Berg T +84 65 03754 422 Malaysia T +603 7956 7477 FrieslandCampina WAMCO Nigeria Plot 7B Acme Road Managing Director: FrieslandCampina Singapore Ogba R.J. Steetskamp 47, Scotts Road General Manager: Ikeja Industrial Estate Goldbell Towers B.L. Koh Lagos State 228233 Singapore Nigeria T +65 6419 8450 T +234 1 271 51 00

FrieslandCampina China FrieslandCampina West Africa 901 Shanghai Managing Director: Patrice Lumumba No. 11 General Manager: Times Square C. L. Saw Airport Residential Area P.A.H. Verhaak Office Tower Accra No 93 Huai Hai Zhong Road Ghana Shanghai 200021 T +233 2176 0433 China T +8621 639 10066

FrieslandCampina Hong Kong Room 1702-05 General Manager: Shun Tak Centre A. van den Berg West Tower 200 Connaught Road Central Hong Kong T +852 2547 6226 Every day Royal FrieslandCampina provides Annual 2011 | Royal Report FrieslandCampina N.V. hundreds of millions of people around the world with healthy food that is rich in valuable nutrients. FrieslandCampina’s wide product range includes dairy-based beverages, infant & toddler nutrition, cheese, butter, cream, desserts and nutritious dairy-based ingredients. FrieslandCampina is active around the world and focuses not only on consumer markets but also supplies professional customers, the food industry and the pharmaceutical sector.

With an annual revenue of 9.6 billion euro FrieslandCampina is one of the world’s largest dairy companies. In the fi eld 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 offi ces and facilities in 25 countries employ a total of 19,000 people. FrieslandCampina’s products fi nd their way to more than 100 countries.

Royal FrieslandCampina N.V. is owned by Zuivelcoöperatie FrieslandCampina U.A., which has 14,400 member dairy farms in the Netherlands, Germany and Belgium.

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