Dutch dairy cooperative FrieslandCampina has reported a 85.7% year-on-year drop in operating profit, to €47 million, in the first half of its financial year.
FrieslandCampina has attributed the drop in profits to the performance of its Food & Beverage and Trading units.
Net profit for the period decreased by 94.2% year-on-year, to €8 million, driven by interest rate increases, unfavourable currency translation effects, loss in purchasing power, and a shift in consumer spending.
In the first six months, FrieslandCampina’s revenue increased by 4.6%, to €6.9 billion, driven by previously implemented price increases.
Commodity dairy prices dropped faster than the milk price paid by FrieslandCampina to its member dairy farmers, based on its milk price system in this period, the company said.
Moreover, stocks produced at a higher cost price had to be sold at a lower market value, which impacted profitability, it added.
'Improving Profitability'
Jan Derck van Karnebeek, CEO of Royal FrieslandCampina N.V. said, "The results for the first half of the year are not at the level one can expect from FrieslandCampina. Improving our profitability in 2023 and beyond is therefore our top priority. That is why we have implemented short-term cost savings without jeopardising our long-term growth prospects.
"In addition, we are working on refining our strategy, known as 'Expedition 2030', to structurally improve the profitability of the company, including the lower-margin product and customer segments. We look at both the revenue and the cost side of the company for this."
Divisional Performance
The cooperative's Food & Beverage unit saw revenue growth of 1.9%, to €4.8 billion, driven by price increases, up from €4.7 billion in the same period last year.
However, operating profit of the business group decreased by 85.4%, to €23 million, from €158 million last year.
The Specialised Nutrition unit reported 17.1% year-on-year revenue growth to €582 million, and operating profit increased 30.9% to €127 million, partially driven by growth in infant nutrition sales under the Friso Prestige brand in the 'ultra-premium' segment in China.
Elsewhere, its Ingredients segment saw a 50.6% increase in operating profit, to €131 million.
The Trading division registered a 24.8% increase in revenue, but incurred an operating loss of €138 million due to a steep decline in commodity dairy prices.
Outlook For Second Half
The cooperative expects the milk price paid to member dairy farmers and commodity dairy prices to converge in the second half, resulting in a lower impact in the second half of the year.
It also foresees volumes to remain under pressure in all markets due to inflation and the loss in consumer purchasing power.
Rising interest rates and unfavourable currency translation effects are likely to affect the company’s performance in the second half.
FrieslandCampina also added that its cost structure will be reviewed, which may result in restructuring costs in this period.
