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FrieslandCampina sees flat revenues, increased profit

FrieslandCampina has reported its 1H19 results. Revenue was 45.7 billion, unchanged from 1H18. Operating profit increased by 18.6% to €210 million.

The company said that results improved due to an increase in the sale of value-added products, mainly consisting of cheese. Its activities in Africa in particular showed strong growth and also exhibited positive momentum in Asia; overall the Consumer Dairy business group’s branded volumes grew by 4.8%.

Hein Schumacher, CEO, said: “These results show a positive impact from the changes initiated last year and are reason for cautious optimism. Following the launch of our market-driven strategy, we are seeing a positive momentum. After a strong finish in 2018, our consumer business experienced continued growth in a challenging market, and our market shares and margins improved. However, increasing protein prices put pressure on the development of the result in essentially all business groups. Throughout the entire chain, from grass to glass, our ambition to lead with sustainability is taking further shape and significant progress has been made.”

The reduced milk supply in the Netherlands contributed to improved profit due to a decrease in the production of (still loss making) basic dairy products, such as butter and milk powder. Increased protein prices put pressure on overall margins as sales prices continued to lag market input costs developments. In China volumes stabilised due to challenging market conditions and the constrained supply of a number of key ingredients.

Profit for the entire company rose to €121 million euros, an increase of 11.0%.

The milk supplied by member dairy farmers in the first half of this year decreased by 268 million kilos (-5.0%) to 5,088 million kilos of milk in comparison to the same period in 2018. This decrease is partly due to members who left the cooperative. Fewer cows as a result of the phosphate-related restrictions (phosphate legislation) in the Netherlands, limited feed stocks (silage and other feeds) due to last year’s drought, and higher feed costs also played a role.

Due to the development of the milk supply, it was decided to reassess the planned strategic expansions of processing capacity. FrieslandCampina said it will continue to focus on realising flexible capacity for processing the milk from member dairy farms and on speeding up market introductions of innovative new protein and dairy solutions.

In the coming months, the company says it expects continued volatility, especially in the prices of dairy components. As such, it is cautious in providing a precise financial outlook for the year. In general, FrieslandCampina said it is aiming for continued growth in value-added products and to strengthen its market shares in branded dairy. The current momentum provides the company with cautious optimism but with clear caveats around cost prices and restraints in production which make it hard to fully meet market demand, particularly in China. These, it said, are the main factors that could impact the results for 2019.