Dairy giant FrieslandCampina has posted a revenue decline of 5.8% in the first half of its financial year, to €5.72 billion, however this was largely due to currency effects.
The company said that if currency effects and disposals (including the sale of the Riedel business) are excluded, revenue declined by 0.8% for the period.
Profit was down 32.7% for the period, largely due to losses on cheese, butter and milk powder basic dairy sales, with price fluctuations in the dairy industry having an impact on its production processes.
Sold At A Loss
'Inventories of these basic dairy products, which were produced in previous months at higher milk prices, had to be sold at a loss,' FrieslandCampina said. 'The negative trend in the added value volumes has not yet reversed itself. This underlines the importance of the transformation process initiated last year.'
The company added that sales of its consumer products and ingredients businesses, if adjusted for currency effects, were stable.
“In the first quarter of 2018, similar to the last quarter of 2017, FrieslandCampina faced low prices for basic dairy products, which insufficiently compensated the guaranteed price of milk paid by the company to member dairy farmers," said Hein Schumacher, CEO Royal FrieslandCampina N.V. "This puts pressure on the Company’s results. There was a recovery in the second quarter."
Schumacher said that the group is focused on investing in its Asia business in order to make it a more "nimble organisation", due to strong price competition in that market.
"In part for this reason, the organisation structure was adjusted effective on 1 January 2018 and an intensive transformation programme is underway," he said. "This enables us to operate faster in the market and to structurally lower costs.”
Transformation Programme
FrieslandCampina said that as part of its transformation programme, it has commenced a review of non-profitable activities across its business, which has included the closure of two production facilities in France.
"The costs involved in these closures were recognised in the first half-year," said Schumacher. "Together with other restructuring initiatives, €30 million in transformation and restructuring costs were recognised."
Looking ahead, FrieslandCampina said that it expects global milk production to increase in the second half of 2018, due to relatively high milk prices, however it refrained from making 'any specific pronouncements' about the company's full year performance.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
