At €5645m revenue was at the same level as in the same period in 2014 (€5635m). The milk price for member dairy farmers fell to €36.48/100kg of milk (H1 2014 €44.19) due to the lower guaranteed price for raw milk. Value creation (performance premium plus issuance of member bonds) rose by €2.49 to €4.22 (H1 2014: €1.73). The interim pay-out amounted to €2.018/100kg milk (2014: €0.825).
Roelof Joosten, chief executive of Royal FrieslandCampina NV said: “In the current uncertain markets we were able to achieve a good result. This proves the success of the route2020 strategy, aimed at achieving sustainable growth and value creation, which we have followed since 2010. Thanks to our strong market positions and cost reductions we have managed to compensate the drop in the guaranteed price for the member dairy farmers to an extent in the milk price. As a result we will be able to pay the member dairy farmers an interim pay-out of just over €2.”
Considerably higher profit, stable revenue in uncertain market
- Revenue stable at €5645m due to 1.6% positive volume-mix effect, 6.4% lower sales prices and favourable currency translation effects of 4.4%
- Growth in China, Hong Kong, Indonesia, Africa, South-east Europe and in the FrieslandCampina Ingredients business group
- Lower volumes in Western Europe due to difficult market conditions
- In the second quarter of the year lagging demand coupled with an increased supply of milk puts pressure on prices, especially of commodities
- Operating result up by 81.5% to €314m in part due to the lower guaranteed price for raw milk and lower purchasing costs: positive currency translation effects on the operating result amount to €23m
- Profit up by 84.6% to €192m; positive currency translation effects amounting to €17m
- Cashflow from operating activities up to €319m (H1 2014 -€192 million) in part due to the higher profit
Milk price significantly lower, interim pay-out considerably higher
- Guaranteed price for the co-operative’s member dairy farmers down by 24.3% to €31.84
- Value creation (performance premium of €2.69 and member bonds reservation of €1.53) up by 144% to €4.22 (H1 2014: €1.73)
- Milk price down by 17.4% to €36.48
- Interim pay-out (75% of the pro forma performance premium) to member dairy farmers in September 2015 up by 145% to €2.018/100kg milk
- Milk produced by member dairy farmers up by 1.8% to 4905m kilograms of milk compared to first half of 2014
route2020 strategy
- Achievement of the strategy forms the basis of the good results
- Volume mix improvement of 1.6%
- 15.8% volume growth with Friso and B2B infant nutrition
- Dairy-based beverages volume down by 0.5% due to difficult market conditions
- Volume of cheese for the retail segment up by 14.0% and margins improved. Volume of branded cheese down by 6.0%. Excluding the effect of the Russian boycott the volume of branded cheese rose by 0.5%
- Investment level down
- A further reduction in the number of accidents at FrieslandCampina facilities
Investments in efficiency and the organisation
- Friesland Huishan Dairy joint venture established on April 1, 2015. The company will exploit a fully-integrated chain of infant nutrition suppliers in China
- €182m invested in increasing interest in FrieslandCampina WAMCO Nigeria Plc. from 54.58 to 67.81%
- €25m provision for reorganisation costs related to the closure of Den Hollander Food in Lochem and efficiency measures in the Beilen, Leeuwarden and Gutersloh production facilities
- First phase of the new FrieslandCampina Ingredients production facility for special milk powders and ingredients in Borculo completed and the sustainable energy provision (pyrolysis installation) goes into service
Revenue remains stable
At €5645m revenue was virtually the same as for the first half of 2014 (€5635m). Currency translation effects had a net positive influence of €250m (4.4%) on revenue (H1 2014: -€177m). The volume-mix effect was 1.6% positive, but sales prices fell by 6.4%. Acquisitions contributed 0.6% towards revenue. Sales of infant nutrition, ingredients for infant nutrition and condensed milk rose, which increased the share of added-value products in the revenue. Revenue from dairy-based beverages rose despite a slight decrease in sales volumes due to the difficult market conditions. The volume of commodities rose, but lower sales prices put pressure on revenue.
Substantially improved operating profit
In the first half of 2015 operating profit rose by 81.5% to €314m (H1 2014: €173m). Currency translation effects had a positive influence of €23m on operating profit. Three of the four business groups improved their operating profit. The operating margin improved by 2.5% points due to the more favourable sales mix (increased share of products with a higher added-value in the revenue), the lower guaranteed price for raw milk, cost-reducing measures in all business units, improved purchasing conditions for non-milk-related raw materials and packaging materials, and favourable currency developments. The operating profit was negatively influenced by a provision of €25m for the closure of Den Hollander Food in Lochem and efficiency measures at the Beilen, Leeuwarden and Gütersloh (Germany) production facilities.
Operating costs in the first half of 2015 fell by 2.5% to €5332m as a result of the lower costs for milk, raw materials and energy (H1 2014: €5466m). Despite the milk supply increasing by 1.8% to 4905m kilograms of milk, the higher performance premium and the higher issuance of member bonds, in the first half of 2015 the pro forma payment to member dairy farmers for milk fell by 15.6% to €1800m (H1 2014: €2134m). This was due to the lower guaranteed price.
A sharp rise in profit
Profit over the first half of 2015 rose by 84.6% to €192m (H1 2014: €104m). This rise in profit was due to increased sales of products with a higher added-value, favourable currency translation effects of €17m, the lower guaranteed price for raw milk and lower operating costs. The profit attributable to the company’s shareholder (the co-operative) amounted to €152m (H1 2014: €72m). A large portion of FrieslandCampina’s revenue is generated through the export of its products from the Netherlands to other countries. FrieslandCampina’s result is even more dependent on export.
Interim pay-out of €2.018/100kg of milk
In September 2015 the co-operative’s member dairy farmers will receive an interim pay-out of €2.018/100kg of milk. This is 75% of the pro forma performance premium over the first half of the year. The final settlement will be paid-out in April 2016 on the basis of FrieslandCampina’s results for 2015 and the total quantity of milk supplied by the member during 2015.
Outlook
The worldwide offering of milk is expected to increase slightly in the second half of 2015. Demand for dairy products in local markets and on the world market is likely to increase very little due to the lagging demand for dairy raw materials in China and Russia’s on-going boycott of dairy products from the European Union. This is likely to continue putting considerable pressure on the sales prices of dairy products in the second half of the year. FrieslandCampina is not making any concrete statement regarding the expected result for the whole of 2015.
More details can be found in the full half-year report 2015.
