Half-year report: FrieslandCampina invests in further growth

31 August 2011

In the first half of 2011 the net revenue of Royal FrieslandCampina N.V. rose by 9.3 percent to 4.7 billion euro. Corrected for the currency translation effect the net revenue rose by 10.3 percent. Higher selling prices and a growth in the sales volumes of consumer products, especially in Asia and Africa, and of ingredients contributed towards the higher revenue. Brands such as Peak (Nigeria) and Friso (infant & toddler nutrition) performed well. The pro forma price for the milk supplied by FrieslandCampina member dairy farmers rose by 19.3 percent to 38.63 euro per 100 kilos of milk (first half of 2010: 32.38 euro per 100 kilos of milk).

Highlights first half of 2011

  • Net revenue up by 9.3 percent (adjusted for currency translation effects up by 10.3 percent to 4,730 million euro due to higher selling prices and volume growth
  • The Consumer Products International and Ingredients business groups developed positively and contributed towards the result. Cheese, Butter & Milkpowder improved its result, the result of Consumer Products Europe fell due to pressure on margins
  • Market shares increased or maintained virtually across the board
  • Achievement of the route2020 strategy on schedule with investments in infant & toddler nutrition production and marketing & innovation
  • Operating profit down by 11.8 percent to 210 million euro due to pressure on margins in Europe, investments in the organisation and negative currency translation effects
  • Profit down by 18.6 percent to 127 million euro. Corrected for the amendment of the guaranteed price calculation and profit appropriation, profit down by 7.1 percent
  • Cash flow from operating activities down to 63 million euro (first half of 2010: 85 million euro). 
  • Pro forma milk price up by 19.3 percent to 38.63 euro per 100 kilos of milk, of which 0.50 euro per 100 kilos of milk is the positive effect of the adjustment of the guaranteed price calculation and profit appropriation.


in millions of euros


Net revenue 4,730 4,328 8,972
Operating Profit 210 238 434
Profit 127 156 285
Pro forma milk price
(in euro per 100 kg)
38.63 32.38 34.35

Cees ’t Hart, Chief Executive Officer of Royal FrieslandCampina: “The developments were in line with expectations. We achieved growth in all four business groups and especially in Consumer Products International and Ingredients. We are on schedule with the adjustments in the organisation, the projects we have started and the new working method of marketing and innovation we have implemented in the context of the achievement of the route2020 strategy. In 2013-2014 we expect to see more visible results in the achievement of route2020.

“We are especially satisfied with the development of the results of our ingredients activities. The developments in Asia and Africa were also positive. In the majority of markets and product categories we succeeded in passing on the higher raw materials costs and increasing volumes. In Europe we have had a more difficult time. There is no growth in consumption and consumers remain extremely susceptible to low prices and product promotion campaigns. In Germany in particular the necessary price increases could not be passed on to the market. In the difficult European market we did succeed in increasing the market share of most brands or maintaining the market share at the same level as last year.”

The major financial developments during the first half of 2011
During the first half of 2011 FrieslandCampina’s net revenue rose by 9.3 percent to 4,730 million euro. Higher prices were responsible for the revenue rising by 410 million euro. The sales volume increased and there was a shift in the sales volume from commodities to added-value products. Exchange rate variations (especially the high price of the euro compared to the US dollar) had a negative currency effect amounting to 43 million euro.

The operating profit for the first half of 2011 amounted to 210 million euro, 11.8 percent lower than for the first half of 2010 (238 million euro). Operating profit as a percentage of net revenue was 4.4 percent (first half of 2010: 5.5 percent).

Profit over the first half year of 2011 amounted to 127 million euro (first half of 2010: 156 million euro). The main reasons for this drop in profit were the amendments to the guaranteed price calculation and profit appropriation, lower margins and the higher investments in the organisation in the context of the achievement of route2020.

In the first half of 2011 operating expenses rose by 10.4 percent to 4,532 million euro (first half of 2010: 4,104 million euro). In the first half of 2011 the payment to member dairy farmers, a component of operating expenses, was 23 percent higher at 1,750 million euro (first half of 2010: 1,420 million euro).

Cash flow from operating activities fell to 63 million euro (first half of 2010: 85 million euro) due to the reduced profit and the considerably higher working capital. The increase in working capital was due to higher prices and an increase in the volume of inventories. Cash flow from investing activities rose as a result of increased investments in property, plant, equipment and intangible assets. Total investments amounted to 131 million euro (first half of 2010: 75 million euro).

On 30 June 2011 net debt amounted to 920 million euro, 144 million euro more than at the end of 2010. The increase was due to additional financing requirements as a result of the increase in working capital.
On 30 June 2011 group equity amounted to 2.166 million euro (end of 2010: 2.071 million euro). Group equity was strengthened by adding the profit from 2010 to the Company’s reserve.
Solvency (group equity as a percentage of the balance sheet total) amounted to 39.1 percent – the same as at the end of 2010.
In 2011 the profit appropriation and the calculation for the guaranteed price for the milk supplied by the member dairy farmers applicable during 2008 -2010 have been amended. This has had a negative effect of 18 million euro on the profit and a positive effect of 0.50 euro per 100 kilos of milk on the milk price. Since 2011, 50 percent of the profit is at the disposal of the cooperative’s members (was 40 percent) of which 30 percent is paid out to the member dairy farmers as the performance premium on the milk supplied and 20 percent is paid out in the form of fixed member bonds. Since 2011, the calculation of the guaranteed milk price has included any supplementary payment to and any supplementary formation of equity in the name of the member dairy farmers of the reference companies.

Taxation amounted to 48 million euro (first half of 2010: 55 million euro). The effective tax rate rose from 26.1 percent to 27.4 percent .

Milk price
The guaranteed price for the first half of 2011 was 36.33 euro excluding VAT per 100 kilos of milk with 4.41 percent fat and 3.47 percent protein (first half of 2010: 30.25 euro, whole of 2010: 32.39 euro).

The pro forma performance premium for the first half of 2011 amounted to 1.38 euro per 100 kilos of milk excluding VAT. This is 3.8 percent higher than the pro forma performance premium for the first half of 2010 (1.33 euro per 100 kilos of milk).

In the first half of 2011 the pro forma reserve registered in the names of member dairy farmers was 41 million euro. This amounts to 0.92 euro per 100 kilos of milk (first half of 2010: 0.80 euro per 100 kilos of milk).

Developments per business group
Consumer Products Europe’s net revenue rose by 6.0 percent to 1,689 million euro (first half of 2010: 1,594 million euro). The increase was due primarily to higher selling prices. The sales volume of the brands was the same as in the first half of 2010. The sales volumes of private label products to supermarkets rose slightly. The market shares of most brands was the same or higher than in 2010. Consumer Products Europe’s operating profit fell from 57 million euro to 0 million euro. The main reason for this was the increasing competition resulting from a stagnation in consumption, which meant the increased price of raw milk and other raw materials could not, or could only partially and after a delay, be passed on in the selling price. This put margins under considerable pressure.

The net revenue of the Consumer Products International business group (Asia, Africa, the Middle East and export) rose by 9.1 percent to 1,205 million euro (first half of 2010: 1,104 million euro). The increase in revenue was due to higher selling prices and volume growth, especially of infant & toddler nutrition. The expensive euro compared to the US-dollar and the Vietnamese dong led to a negative currency effect of around 36 million euro. The Friso brand performed well in China and Hong Kong. There was some pressure on the market shares of dairy based beverages in Vietnam, Indonesia and Thailand. Consumer Products International succeeded in holding operating profit at a good level of 192 million euro (first half of 2010: 197 million euro). In the first months of 2011 the business group was reasonably successful when it came to maintaining the margins although, due to the high price level, sales volumes came under pressure in a number of countries.

Cheese, Butter & Milkpowder increased its net revenue by 9.6 percent to 1,389 million euro (first half of 2010: 1,267 million euro). The increase was due to higher selling prices for commodities such as foil cheese, milk powder and butter. The sales volume was lower than in the first half of 2010.
The business group achieved a negative operating profit of 29 million euro. Compared with the first half of 2010 (-46 million euro) this is an improvement of 17 million euro (37 percent) and was due to an improvement in profit from commodities.

The net revenue of the Ingredients business group rose by 16.1 percent to 943 million euro (first half of 2010: 812 million euro). The increased revenue is due to both price rises and higher sales volume. The primary contributor towards this was the high demand from Asia for dairy ingredients. The business group’s operating profit rose by 53.4 percent to 89 million euro (first half of 2010: 58 million euro).

In the first half of 2011 the result from joint ventures and associates was 5 million euro – 3 million lower than in the first half of 2010. Higher raw materials costs put these results under pressure.

Progress of the route2020 strategy
FrieslandCampina’s route2020 strategy is aimed at growth and value creation in selected markets and product categories.
To achieve the growth in the infant & toddler food segment, in 2011 a start was made on a 100 million euro investment programme in the Beilen and Bedum production facilities. Investments in Beilen will amount to 70 million euro and will cover the expansion of the mixing capacity, a new drying tower and a new infant food packaging assembly line. Investments in Bedum will amount to 30 million euro for expanding the drying and processing capacity for desalinated whey products, which are used as ingredients of infant & toddler food. All the investment must be completed in 2013.

The efforts in the field of marketing and innovation are concentrated on the four priority platforms: growth & development, daily nutrition, health & wellness and functionality. The Research & Development organisation has been tuned to the value-drivers with a focus on dairy-based beverages, infant & toddler food and branded cheese. The R&D capacity in the field of infant & toddler food is being expanded further. A start has been made with the construction of the new FrieslandCampina R&D Centre in Wageningen. 

As a consequence of route2020, FrieslandCampina has re-formulated its CSR mission, vision and strategy. First and foremost FrieslandCampina will strive to achieve its future growth in a climate-neutral manner. FrieslandCampina’s CSR strategy focuses on four priority areas. Two of these areas – sustainable dairy farming and sustainable production chains – are aimed at the continuing reduction of the environmental burden created by FrieslandCampina’s activities. Nutrition & health relates primarily to combating undernourishment and obesity. The fourth priority area – developing dairy farming in Asia and Africa – focuses on supporting farmers in countries in these regions.

The six value-drivers for value growth are: 

  • Worldwide growth in dairy-based beverages by increasing the share in total consumption. 
  • Strengthening worldwide market positions in infant foods, both ingredients and end products. 
  • Increased market share in branded cheese, including through expanding the brand portfolio.
  • Geographical growth in the above categories and improving the strong positions outside of these categories.
  • Foodservice in Europe: strengthening and expanding existing strong positions in the out of home category, partly through geographical expansion.
  • Strengthening of basis products, such as standard ingredients, industrial cheese and private labels in order to reduce the share of member milk that is processed into commodities.

The economic outlook remains uncertain. In Europe the expectation is that consumers will remain reluctant to spend due to the economic uncertainty and that the consumption of dairy products will remain under pressure. The uncertain economic situation in several European countries reinforces this view. At a global level, although a continued gradual increase in dairy consumption is anticipated the effects of the unrest in the financial markets on consumer confidence remain to be seen. Too high prices for dairy products could lead to dairy products being replaced with other products. Minor fluctuations in supply and demand on the world market could have major consequences for the price development of dairy products. Partly due to this, FrieslandCampina cannot make any concrete statement regarding the expected result for the whole of 2011.