FrieslandCampina Revenues Decrease Amid “Turbulent Year”
02 Mar 2017 --- Dutch headquartered dairy giant, Royal FrieslandCampina N.V. has reported that 2016 profit increased by 5.5 percent to 362 million euros in comparison to the previous year. Operating profit declined by 2.3 percent to 563 million euros. Adjusted for negative currency effects of 30 million euros, the operating profit is 593 million euros. The margin stayed up to par due to the sale of more added-value products, especially in Asia, and lower procurement costs.
The volume of milk supplied by member dairy farmers increased by 7.1 percent to 10.8 billion kilos. In spite of the growth in volume, revenue decreased by 1.9 percent to 11.0 billion euros due to negative currency effects. The cash flow from operating activities decreased to 850 million euros due to the stocks having a higher value at the end of 2016.
The milk price for member dairy farmers decreased by 6.9 percent to 32.26 euros per 100 kilos of milk due to a lower guaranteed price for raw milk. The value creation for members (performance premium and reservation in member bonds) increased by 15 million euros to 371 million euros. Per 100 kilos of milk, the value creation decreased by 2.5 percent to 3.44 euros due to the fact that milk volume increased more than profit (dilution effect).
Roelof Joosten, CEO Royal FrieslandCampina: “We are looking back on a turbulent year. Political and economic instability has increased in Africa and in the Middle East. Protectionism is increasing throughout the world. In the first half of 2016, the supply of milk in the European Union was of such magnitude that basic products could only be sold below cost. Starting in May, the dairy sector recovered somewhat due to declining milk production in a number of European countries and the relatively low stocks held by buyers. FrieslandCampina anticipated this development by introducing timely price increases in the cheese and butter segment. For the coming year, the company's decisiveness will become even more key to be able to respond to the rapid changes in the market on a timely basis.”
In terms of outlook, the company noted that global milk production is expected to rise somewhat in 2017. A marginal increase in milk production is expected within the European Union. In the Netherlands, milk production is expected to decrease due to the introduction of the phosphate reduction measures.
The demand for dairy products in Europe is expected to remain stable or stay on a slightly declining trend. In Africa, the Middle East and South America a further decline in demand is foreseen. In Asia, particularly in China, a slight increase in the demand for dairy products is expected. As a consequence of the abovementioned trends, it is expected that the prices for basic dairy products will continue to fluctuate around the year-end 2016/beginning of 2017 level.
Revenue is expected to increase in 2017 due to the acquisition of the controlling interest in Engro Foods, the higher price levels of dairy products and further volume growth in added-value products. Due consideration is provided to an increase in the purchase prices of most raw materials.
In 2017, investments amounting to approximately 500 million euros are foreseen in quality improvements and the expansion of capacity. In 2017, investments in Research & Development will increase by approximately 10 percent in order to be able to further improve the competitive position over time.
This week it emerged that FrieslandCampina N.V. is investigating the sale of Riedel, market leader in the field of fruit juices and fruit drinks in the Netherlands. The brand portfolio of Riedel includes familiar brands, such as Appelsientje, CoolBest, DubbelFrisss, Taksi and Extran. Riedel is located in Ede and has its own production and packaging facilities. The move follows an update of the company’s strategy route2020, in which they increased the focus on the dairy portfolio.
