FrieslandCampina achieves good result in first half of 2012

30 August 2012
  • Revenue up by 7.6% to 5,089 million euro
  • Operating profit up by 3.3% to 217 million euro
  • Profit up by 8.7%% to 138 million euro
  • Pro forma performance premium (1.42 euro) and pro forma distribution of member bonds (0.95 euro) in total up to 2.37 euro per 100 kilos of milk

 

In the first half of 2012 the net revenue of Royal FrieslandCampina N.V. rose by 7.6% to 5,089 million euro. Profit rose by 8.7% to 138 million euro. Volume growth and higher sales prices, to offset the increased costs, contributed towards the revenue growth and improved result. In the first half of 2012 the overall volume rose by 2.4 % but the strategic value drivers achieved a volume growth of 4.5 %. Most of the volume growth was achieved in the consumer and business to business markets for infant & toddler nutrition. The dairy-based beverage category also achieved growth, most of it in Asia.

The results from operating activities were 9.4% higher than for the first half of 2011. After the reservation of 15 million euro (2011: 2 million euro) for the payment of the meadow milk premium (amounts to 0.32 euro per 100 kilos of milk calculated over all member milk) operating profit rose by 3.3% to 217 million euro.

The Consumer Products International and Ingredients business groups once again increased both their revenue and their result. Consumer Products Europe improved its result despite the difficult market conditions in Europe. Its revenue dropped due to pressure on volume. The Cheese, Butter & Milkpowder business group’s revenue and result both fell primarily due to low sales prices for butter and milk powder.

Cees ’t Hart CEO Royal FrieslandCampina:
“FrieslandCampina can look back on a good first half of 2012. Both revenue and result rose despite the difficult market conditions in Europe and the steep drop in the market prices for butter and milk powder. In part due to this the guaranteed price of milk from the member dairy farmers was less than in the first half of 2011. Asia, where FrieslandCampina achieved a quarter of its total revenue, made a major contribution towards the revenue growth and improved result. The volume of infant & toddler nutrition has increased in both the Ingredients and Consumer Products International business groups.”

Results

in millions of euros

1st half-year 2012

1st half-year 2011

 

Change %

Year

2011

 

Revenue

 

5,089

 

4,730

 

7.6

 

9,626

Operating profit

217

210

3.3

403

Profit

138

127

8.7

216

 

Balance sheet

in millions of euros

 

 

 

 

Balance sheet total

6,368

5,544

 

5,739

Equity

2,397

2,166

 

2,264

Equity attributable to the shareholder of the Company and other capital providers

 

2,280

 

2,057

 

 

2,148

Net debt1)

1,059

920

 

699

Equity as a percentage of the balance sheet total

 

37.6%

 

39.1%

 

 

39.4%

 

Cash flow

in millions of euros

 

 

 

 

Net cash from operating activities

247

63

 

508

Net cash used in investment activities

-461

119

 

-340

 

Value creation for member dairy farmers                                                                                                                                                                                                     

in euros per 100 kilos milk

(excl. VAT at 4.41% fat, 3.47% protein)

 

 

 

 

 

Guaranteed price

 

34.142)

 

36.33

 

-6.0

 

36.94

Pro forma performance premium3)

1.42

1.38

2.9

1.10

Pro forma registered reserve3)

0.95

0.92

3.3

0.73

Pro forma milk price3)

36.51

38.63

-5.5

38.77

Pro forma meadow milk premium4)

0.32

0.03

 

0.03

Pro forma special supplements5)

0.11

0.12

 

0.12

Pro forma milk price + supplements

36.94

38.78

-4.7

38.92

 

 

 

 

 

Milk supplied by members

(in millions of kilos)

 

4,560

 

4,513

 

1.0

 

8,838

 

1. The net debt relates to long-term interest-bearing debts, borrowings from financiers and the balance of obligations to claims from associated companies less cash and cash equivalents.

2. This relates to the balance of the guaranteed price of 34.17 euro and an adjustment of –0.03 euro for a too high estimate over the first half of 2012.

3. The definite performance premium, registered reserve and milk price are determined on the basis of the profit figures for the whole year.

4. As of 2012 dairy farmers who put their cows out to pasture receive a meadow milk premium of 0.50 euro per 100 kilos of milk. 5. Averaged over all FrieslandCampina member milk this is 0.32 euro per 100 kilos of milk.

5. Special supplements concern the total amount of payouts per 100 kilos of milk of 1.20 euro for Campina milk, of 8.60 euro for organic milk and of 1.00 euro for Landliebe milk.

 

Increased Revenue
Revenue for the first half of 2012 rose by 7.6% to 5,089 million euro. Volume growth, higher sales prices and currency translation effects contributed towards the increase in revenue. The acquisition of Alaska Milk Corporation contributed 63 million euro (or 1.3%) towards the revenue growth. Organic revenue growth amounted to 6.3%. The currency translation effect on revenue amounted to 63 million euro positive.

Improved operating profit
The results from operating activities were 9.4% higher than for the first half of 2011. After reserving 15 million euro (2011: 2 million euro) to pay the meadow milk premium (spread across all member milk amounts to 0.32 euro per 100 kilos) operating profit rose by 3.3% to 217 million euro.

Operating expenses in the first half of 2012 rose by 7.7% to 4,879 million euro due to higher packaging materials, raw materials and energy costs (first half of 2011: 4,532 million euro). Payments to member dairy farmers, a component of business expenses, fell by 3.8% to 1,696 million euro in the first half of 2012 as a result of the lower guaranteed price (first half of 2011: 1,763 million euro).

Higher profit
The profit over the first half of 2012 rose by 8.7% to 138 million euro (first half of 2011: 127 million euro). The higher profit was achieved due to the increased operating profit and reduced financing expenses, despite higher tax expenses compared to the first half of 2011.

Improved cash flow
Cash flow from operating activities rose to 247 million euro (first half of 2011: 63 million euro) mainly due to better working capital management. The net cash flows from investing and financing activities rose as a result of the acquisition of Alaska Milk Corporation.

Acquisition of Alaska Milk Corporation
On 20 March 2012 FrieslandCampina gained control of the Philippians dairy company Alaska Milk Corporation (AMC). On this date FrieslandCampina increased its shareholding from 8% to 68.5%. On 14 June 2012 FrieslandCampina’s interest was further increased to 97.7%. AMC produces, distributes and sells dairy-based beverages and milk powders under the brand names Alaska, Carnation, Liberty, Alpine and Milkmaid in the Philippines. The acquisition has strengthened FrieslandCampina’s position in Asia – a strategic growth area in the context of route2020. Since 20 March 2012 AMC has been consolidated as a component of the Consumer Products International business group. In the three months to 30 June 2012 AMC contributed 63 million euro net revenue and 7 million euro profit towards FrieslandCampina’s results. FrieslandCampina acquired AMC with a cash payment of 341 million euro.

Financial position
As at 30 June 2012 net debt amounted to 1,059 million euro. This 139 million euro increase compared with the end of 2011 was due to the greater need for financing to pay for acquisitions.

On 30 June 2012 group equity was 2,397 million euro (end of 2011: 2,264 million euro). Equity was strengthened by the attribution of profit. Solvency (equity as a percentage of the balance sheet total) fell to 37.6% (end of 2011: 39.4%) due to the increase of the balance sheet total primarily as a result of the acquisition of Alaska Milk Corporation.

The balance of financing income and expenses fell by 22 million euro, which resulted in an expense of 18 million euro. The reduction was due primarily to the positive currency translation effect on an interim short-term loan. The net interest expense was 20 million euro (first half of 2011: 26 million euro).

The result from joint ventures and associates rose from 5 million euro in the first half of 2011 to 7 million euro in the first half of 2012.

Taxation amounted to 68 million euro (first half of 2011: 48 million euro). The increase was primarily due to the higher profit. In the first half of 2011 taxation was offset by an exceptional tax rebate in the Netherlands.

 

Per business group (Note: the business groups’ results incorporate the performance premium and the reservation of member bonds, which are charged to the different business groups according to the quantity of member dairy farmers’ milk it processed. This had the greatest downwards effect on the result of Cheese, Butter & Milkpowder because this business group processed around 55% of the members’ milk.)

Consumer Products Europe
In the first half of 2012 the Consumer Products Europe business group recovered from its disappointing result in 2011. Margins recovered although revenue fell. Revenue from third parties fell by 1.1% to 1,427 million euro due to volumes falling as a result of reduced consumer spending. Sales prices rose slightly. The market share of several brands was under pressure. The market share of the Campina brand rose in the Netherlands.

Consumer Products Europe’s operating profit rose to 40 million euro (first half of 2011: 8 million euro). The business group achieved an improvement to its result through far-reaching efficiency improvements, cost control and passing-on higher raw materials prices.

Consumer Products International
The revenue from third parties of Consumer Products International (Asia, Africa, the Middle East, FrieslandCampina Export) rose by 24.1% to 1,495 million euro. The increased revenue was due to volume growth, in particular of infant & toddler nutrition. The Friso brand once again performed well. Revenue was also driven by higher sales prices, the acquisition of Alaska Milk Corporation and a positive currency translation effect (53 million euro). In Nigeria revenue growth stabilised as a result of the political unrest. In most countries the market share of infant & toddler nutrition increased. The market share of dairy-based beverages was under pressure.

The Consumer Products International business group’s operating profit rose by 21.7% to 224 million euro. Since the second half of 2011 it has been possible to pass-on the higher raw materials and packaging prices in the sales prices. This has led to recovered margins compared to the first half of 2011.

Cheese, Butter & Milkpowder
The Cheese, Butter & Milkpowder business group’s revenue from third parties was 1,188 million euro – a drop of 0.9% compared to the first half of 2011. The drop, which was due to lower sales prices especially for butter and milk powder, was partially offset by a higher volume.

The Cheese, Butter & Milkpowder business group’s operating profit fell by 80 million euro to 109 million euro negative. The drop was due to increased pressure on margins across most of the commodities range. Sales prices for butter and milk powder fell particularly sharply. The operating profit of Cheese, Butter & Milkpowder was negatively influenced by the attribution of the performance premium and the registered reserve to the different business groups in proportion to the quantity of member milk received.FrieslandCampina Cheese achieved a satisfactory performance in view of the market conditions while FrieslandCampina Cheese Specialties achieved a slightly improved result with branded cheese.

Ingredients
Ingredients’ net revenue from third parties rose by 12.8% to 836 million euro. The business group was able to increase its revenue due to increased raw materials prices being offset by a higher volume and higher market prices.

Ingredients’ operating profit rose by 19.1% to 106 million euro. This business group also improved its result because the higher raw materials prices could be passed-on, which was not the case in the first half of 2011.

Milk price for member dairy farmers
The milk price FrieslandCampina pays its member dairy farmers comprises the guaranteed price, the performance premium and the value of the fixed member bonds per 100 kilos of milk. The guaranteed price over the first half of 2012 amounted to 34.14 euro excluding VAT per 100 kilos of milk with 4.41% fat and 3.47% protein (first half of 2011: 36.33 euro, whole of 2011: 36.94 euro). The pro forma performance premium over the first half of 2012 was 1.42 euro per 100 kilos of milk excluding VAT (first half of 2011: 1.38 euro per 100 kilos of milk). The pro forma reserve in the name of member dairy farmers over the first half of 2012 amounted to 43 million euro. This amounts to 0.95 euro per 100 kilos of milk (first half of 2011: 0.92 euro per 100 kilos of milk).

Since 1 January 2012, member dairy farmers who put their cows out to pasture in the meadow for at least six hours a day on at least 120 days a year have received a meadow milk premium of 0.50 euro per 100 kilos of milk. Until this year the meadow milk premium was 0.05 euro per 100 kilos of milk. Calculated over all member milk the meadow milk premium amounts to 0.32 euro per 100 kilos of milk.

FrieslandCampina pays member dairy farmers premiums for specific product propositions, such as organic milk. Member dairy farmers who supply Campina milk receive a reimbursement for expenses of 1.20 euro, members who supply organic milk receive a premium of 8.60 euro and members who supply Landliebe milk receive 1.00 euro per 100 kilos of milk. Calculated over the total quantity of FrieslandCampina the premiums amount to 0.11 euro per 100 kilos of milk.

Compared with the first half of 2011 the interest on member bonds rose from 17 million euro to 22 million euro as a result of the increased number of member bonds, the increased Euribor and the increase of the supplement from 2.5% to 3.0% since June 2011. The profit attributable to the shareholder of the Company (the Cooperative) amounted to 80 million euro (2011: 78 million euro).

Financing
FrieslandCampina raises loans from different groups of lenders (member dairy farmers, banks and investors). The major portion of the loan capital has been borrowed from financial institutions in and outside the Netherlands. The major portion of the bank loans comprises a committed credit facility amounting to 1 billion euro and with a term to the end of August 2015. In addition FrieslandCampina has taken out loans of 308 million dollar and 25 million euro with institutional investors. At the end of June 2012 private loans of 500 million dollar were taken out with institutional investors in the United States. These private loans, which will go into effect on 30 August 2012, have terms of between 5 and 15 years. The reasons for the loans include the financing of acquisitions, such as the acquisition of Alaska Milk Corporation in the first half of 2012.

Outlook
FrieslandCampina cannot make any concrete statement regarding the expected result for the whole of 2012.

The economic outlook remains uncertain. The forecast is that consumers in Europe will continue to be reticent in their spending due to the economic situation and that, as a result, dairy product consumption will remain under pressure. At a global level dairy product consumption is expected to increase slightly this year due to the demand in the emerging markets. As a result of the drought in the United States, rising animal feed prices and the lagging behind of milk production in the EU, the worldwide supply of milk could come under some pressure. Small fluctuations in supply and demand on the world market can have major consequences for the price development of dairy products.

The disappearance of the milk quota in 2015 and the difficult economic situation in Europe are creating a new dynamic in the global dairy market. FrieslandCampina is seeing an acceleration of the international consolidation of dairy companies. This is partly a reaction to the merger of Friesland Foods and Campina and partly due to parties determining their position ahead of the ending of the milk quota within the European Union in 2015. In the coming years the markets will become even more volatile. The route2020 strategy is proving its robustness in these difficult and volatile conditions and forms a good basis for further growth and result improvement.