Ingredient Sales Aid FrieslandCampina in “Positive” H1

Profit doubled to 156 million euros. In particular, the sale of basic and special ingredients to the food industry and consumer products in Asia and Africa contributed to the positive results.

Sep 1 2010 --- Royal FrieslandCampina N.V. enjoyed a positive first half year of 2010. Compared with the first half year of 2009, revenue rose 5.5 percent to 4.3 billion euros. Profit doubled to 156 million euros. In particular, the sale of basic and special ingredients to the food industry and consumer products in Asia and Africa contributed to the positive results. Brands such as Frisian Flag (Indonesia), Peak (Nigeria), Foremost (Thailand) and Friso (baby and infant foods) did extremely well. Within cheese, Noord-Holland and Milner cheese performer well. The guaranteed price for milk supplied by the member farmers of FrieslandCampina rose by 16 percent to 30.25 euros per 100 kilograms of milk. The performance payment based on the first half year will be 1.33 euros per 100 kilograms of milk. Thus, the pro forma milk price (guaranteed price plus performance payment) amounts to 31.58 euros per 100 kilograms of milk.

Cees ’t Hart, Chief Executive Officer of Royal FrieslandCampina, is satisfied with the performance in the first half of 2010. ’t Hart: “We are doing well in the market. Furthermore, the strong rise in profits is clear proof of the success of the merger. As a merged company we are able to take advantage of the developments in the market more easily and more efficient. We are therefore ahead of realising our synergy goal. Volume growth in Asia and Africa is progressing well. Particularly in Asia we were able to gain from the economic recovery and pass on the increased raw material prices through to our selling prices. The lower exchange rate of the euro compared with many local currencies and the dollar was also beneficial. With the growing demand for dairy products around the world and the slight drop in the supply of milk, the price levels for products such as milk powder and foil cheese recovered well compared with the poor performance in 2009. This is also reflected in improved profits of the business groups Ingredients and Cheese & Butter, where Ingredients now has a positive operating profit and Cheese & Butter has narrowed the loss. The development of consumer activities in Europe is however disappointing. In this region both revenue and profit growth are under pressure. The economic recovery in Europe lags behind developments in other areas in the world. In addition, there is fierce competition and consumers continue to be cautious with their spendings.

Revenue in the first half year 2010 amounted to 4.3 billion euros. Compared with the same period of 2009 (4.1 billion euros), this is a rise of 224 million euros (5.5 percent). Revenue increased by 15.9 percent in the business group Consumer Products International (Asia, Africa, the Middle-East, export), reaching 1.1 billion euros. The rise in revenue was achieved in part by volume growth and price rises but was also due to currency effects. At Consumer Products Europe, revenue dropped by 2.3 percent to 1.4 billion euros. While growth was achieved in Russia, most other markets experienced lower volumes and pressure on prices. The market shares of most brands are stable. Cheese & Butter achieved an increase in revenue of 2.1 percent to arrive at nearly 1.1 billion euros. This increase is the consequence of higher prices for both cheese and butter and the positive level of cheese exports. The amount of cheese produced and sold was lower, partly as a consequence of the sale of the cheese plant Bleskensgraaf. At Ingredients, revenue rose by nearly 11 percent to reach 658 million euros. The higher selling prices of special ingredients for the food industry and of products such as milk powder and caseins made a significant contribution to the increased revenue.

The operating profit for the first half of 2010 was 238 million euros. This was more than double the figure for the same period of 2009 (110 million euros). The operating profit as a percentage of revenue amounted to 5.5 percent (first half year 2009: 2.7 percent).

The contribution of the business group Ingredients to the operating profit was particularly positive. The business group managed to convert a negative operating profit in the first half of 2009 to a positive contribution of 43 million euros (first half year 2009: -45 million euros). This was due mainly to the positive results achieved by special ingredients and the higher selling prices of standard products that resulted in improved margins.

Consumer Products International delivered very good results. This business group achieved an improvement in operating profit of 46 percent (62 million euros) to arrive at 197 million euros (first half year 2009: 135 million euros). During the first months of 2010 the business group was able to pass the price increases for raw materials through to the market and also to profit from the positive exchange rate.
Consumer Products Europe had a drop in operating profit of 48 percent (-52 million euros) to 57 million euros (first half year 2009: 109 million euros). The main reason for this are the lagging margins on cream and butter products at FrieslandCampina Professional. In order to maintain the market shares of the branded consumer products, a relatively large number of price promotions were necessary.
 
The business group Cheese & Butter had a negative operating profit of -31 million euros. However, compared with the same period of 2009 (-55 million euros), this was an improvement of 24 million euros (44 percent) as the consequence of better results at Cheese Specialties and Cheese. This ended in a neutral result of the cheese activities. At Butter, the margins were under pressure because the market was not able to absorb the relatively fast rising prices for milk fat. This resulted in a negative operating profit for this operating company.

Operating expenses rose in the first half of 2010 by 2.6 percent to 4.1 billion euros. A total of 1.3 billion euros was devoted to milk payments (first half year 2009: 1.2 billion euros). This is 9 percent up on the same period of 2009. Savings have been achieved in the area of purchasing as a consequence of the merger. Greater flexibility in milk processing also contributed to a reduction of costs as a consequence of the merger.

The results from joint ventures and associates fell in the first half year 2010 compared with the same period of 2009, from 11 million to 8 million euros. This is due in particular to lower profits of the European associates. Betagen in Thailand achieved an improved operating profit.

The balance of finance income and costs rose further by 5 million, resulting in costs of 35 million euros. The costs of a put option on DMV Fonterra Excipients rose as a consequence of the higher dividend payments to the holder of the put option. As a result of the issue of the private placement, the finance costs increased while net interest charges fell.

Income tax expense amounted to 55 million euros (first half year 2009: 13 million euros). The higher taxes were due to, among other things, the capitalisation of losses in Germany in 2009 and changes in tax rates in Hungary in 2009.
 
Profits over the first half year 2010 amounted to 156 million euros (first half year 2009: 78). The main reason for the improved profit are better returns at Ingredients, Consumer Products International and Cheese & Butter.

Of the profit, 108 million euros were appropriated to the equity holder of Royal FrieslandCampina N.V., i.e. Zuivelcoöperatie FrieslandCampina U.A., 15 million euros were appropriated to interest on member bond loans, 4 million euros to holders of perpetual notes and 29 million to minority interests.