Low Milk Powder Selling Prices Hit FrieslandCampina Ingredients Performance

Revenue generated by the Ingredients business group was 1.4 billion euros in 2008. Its operating profit was 69 million euros. The business group underperformed compared with 2007. This mainly has to do with low milk powder selling prices.

26/03/09 Royal FrieslandCampina N.V. said it delivered a good performance in 2008, considering the market conditions. The new company, which ensued from the merger between Friesland Foods and Campina, pays its member dairy farmers a milk price of 36.37 euros per 100 kilograms of farm milk (exclusive of VAT) for 2008, up 4.4 percent on 2007. Revenue was up 446 million euros to 9.5 billion euros. The profit for 2008 is 135 million euros. The diversity in geographical markets, the broad range of value-added products and the brands proved their added value. Conversely, commodities (milk powder, butter and some of the cheese in the company’s range) had a very difficult time. The global recession adversely affects price developments. Consequently, FrieslandCampina said it is taking additional measures in the fields of capital expenditure, cost control and production efficiency.

Cees 't Hart, CEO of Royal FrieslandCampina N.V said “The diversity in our geographical markets, our broad range of value-added products and our brands prove their added value, enabling us to pay our member dairy farmers a good milk price in the difficult year 2008. The global economic recession is bound to affect price developments in the market, our results and, hence, the milk price for member dairy farmers in 2009. Accordingly, cost savings, capital expenditure restrictions and production efficiency should be key this year. The current economic situation also offers opportunities, specifically because we just merged. Our pooled innovative power and our staff's milk expertise should enable us to properly meet customers' and consumers' requirements, both in the area of consumer products and that of dairy ingredients.”

Revenue generated by the Ingredients business group was 1.4 billion euros in 2008. Its operating profit was 69 million euros. The business group underperformed compared with 2007. This mainly has to do with low milk powder selling prices.

FrieslandCampina Domo's sales levels went up markedly. The improvement was achieved thanks to the marketing of new products and concepts. The specialties volume growth continued, as more and more functional products, such as Vivinal GOS, are used in infant foods. Margins of standard products were under pressure.

Despite rising purchase prices and stagnating sales, FrieslandCampina Kievit, which specialises in encapsulation technology, succeeded in repeating the sound result achieved in 2007. FrieslandCampina DMV had a difficult year. Prices of basic dairy products were still high in the first half of 2008, which caused a considerable drop in demand, as customers sought cheaper alternatives. FrieslandCampina Dairy Feed, FrieslandCampina Creamy Creation and joint venture DMV-Fonterra Excipients posted good results in 2008.

The year 2008 was challenging for the Cheese & Butter business group. Revenue amounted to 2.5 billion euros. Its operating profit was minus 77 million euros, an underperformance compared with 2007. The main cause for this was diving selling prices of cheese and butter due to the large supply in Europe throughout the year.

The naturally matured Gouda cheese performed well most of the year. Foil cheeses clearly showed price decreases due to decreasing demand and increasing supply. Although value-added products were also subject to the trend of falling prices, Milner improved its sales as well as its market position. The butter market was characterised by falling prices, in particular in the second half of 2008.

FrieslandCampina said that the current economic developments create a high level of uncertainty in the business community and among consumers. The lack of confidence, which has ensued from the credit crunch, has led to a recession in many countries. Selling prices of, in particular, standard dairy products (commodities) are under pressure around the world, primarily due to reluctant demand among customers. Short-term and medium-term developments are very difficult to forecast. For 2009, additional measures have been taken in the fields of capital expenditure restrictions, cost control and production efficiency. No statement is being made on the expected result for 2009.