‘The end of all uncertainties is not yet in sight’: FrieslandCampina adjusts portfolio across Europe and Asia in face of ‘great uncertainty’

Detailing the Dutch company’s first half performance, CEO Hein Schumacher said the dairy cooperative saw a ‘dynamic’ start to the year.

“To be able to respond effectively to opportunities in the market so that we can continue to add value to the milk supplied by our member dairy farmers in the future, FrieslandCampina is constantly working on improving its production network and strengthening its brand portfolio,”​ he explained.

In Asia, FrieslandCampina has invested in new production facilities in Malaysia and Indonesia. Meanwhile, in Thailand it closed its production site for pasteurised milk to ‘focus on production and sales of long-life dairy products’ in the market. The company also adjusted its production footprint in China with the recently inked agreement to sell its production location for local infant nutrition in Xiushui to local peer Yili Group.

The dairy cooperative remains committed to expanding its presence in the global infant formula market, however. Having completed a strategic review of its global infant nutrition brand Friso, FrieslandCampina said it now plans to expand in the segment. “After strategic evaluation, we decided to continue to build the infant nutrition business under a strong Friso brand,”​ Schumacher revealed.

In Europe, FrieslandCampina also completed a series of investments and disposals, the chief executive detailed. It has invested in new recyclable PET packaging lines in Belgium's Aalter and expanded its lactoferrin production in Veghel. Meanwhile, the company previously announced plans to sell off part of its German consumer business to focus on growing international consumer brands in Germany, including Chocomel, Valess and Frico.

“In the Netherlands we also decided to close a production location in Rotterdam and two powder towers in Leeuwarden,”​ Schumacher detailed.

Sales and earnings up but retail profits ‘under pressure’

Turning to the cooperative’s financial performance in the first six months of the year, FrieslandCampina's reported net turnover rose to €6.6bn, up from €5.5bn last year. Operating profit also increased from €130m to €328m in the period. Net profit increased €77m in the period, climbing to €139m.

The top line was boosted by price increases, higher basic dairy prices and the recovery of out-of-home channels in Europe, FrieslandCampina said.

However, the dairy major described volumes and profits in the retail channel as ‘under pressure’. The company noted that ‘strongly increased’ raw material costs necessitated price increases.

“Across the board we saw rapidly rising costs and these necessitated price increases. Our Professional and Trading businesses benefited from high fat, protein and basic dairy prices. In the retail channel in particular, profit margins were under pressure because the cost increases could not be fully passed on,”​ Schumacher noted.

“The historically high milk price in the first half is of course beneficial to our member dairy farmers, as they too have to deal with sharply increased operating costs.”​

‘The end of all uncertainties is not yet in sight’

Outlining the externalities that are impacting the dairy sector, the chief executive pointed to issues as diverse as the Dutch government’s nitrogen plans, which have sparked farmer protests across the country; the economic impact of war in Ukraine; and ‘enormous’ inflation.

Schumacher said these disruptive influences will continue to be felt in the remainder of the year.

“The end of all uncertainties is not yet in sight. We still face challenges in the field of inflation and associated price increases, increasing raw material shortages, decreasing consumer confidence and the corona pandemic that is certainly not over,”​ he stressed.

“There is also great uncertainty about the consequences of the government's announced nitrogen plans for our members and our company. For this reason, we are extra cautious about our outlook for the rest of the year.”​

In this context, the cooperative decided not to pay out an interim pro forma cash supplementary payment to its member dairy farmers.