A good year with a historically-high milk price

12 March 2014

FrieslandCampina can look back on a good year. The member dairy farmers received a historically-high milk price. The Company’s good results and the sharp rise in the prices for dairy products contributed towards this. Nearly all the business groups improved their result. FrieslandCampina’s achievement of its route2020 strategy is ahead of schedule. All the strategic growth categories except dairy-based beverages in Europe improved their performance. The infant nutrition category achieved the strongest volume growth. The Cheese, Butter & Milkpowder business group achieved the greatest result improvement in 2013. Due to the persisting crisis in Europe a goodwill impairment of 200 million euro was charged to the result.

Cees ’t Hart, CEO Royal FrieslandCampina:
“2013 was a good year for FrieslandCampina. The improved result was due primarily to volume growth in the three strategic growth categories (infant nutrition, dairy-based beverages and branded cheese), the passing on of the higher guaranteed price, far-reaching efficiency improvements in production, and cost control in the European operating companies.

Profit amounted to 157 million euro. Our profit was adversely affected by a goodwill impairment and negative currency translation effects in the second half of the year. Without this goodwill impairment profit would have risen by 17.6 percent to 327 million euro.

We are ahead of schedule with our route2020 strategy. At the same time we are continuing to improve our processes and will pay even closer attention to costs. We will also continue investing in the renewal and expansion of our milk processing capacity so as to ensure that we can continue processing all the milk supplied by our members, now and after the withdrawal of the milk quota in 2015, into dairy products for which there is a demand elsewhere in the world. All in all we have invested 1.8 billion euro during the past five years.”

A good year

  • Revenue up by 10.8 percent to 11.4 billion euro through volume growth and higher prices 
  • Operating profit down by 35.7 percent to 313 million euro 
  • Operating profit up by 5.3 percent to 513 million euro before goodwill impairment. This includes the increase of the performance premium and distribution of member bonds amounting to 72 million euro and despite negative currency translation effects
  • Profit down by 43.5 percent to 157 million euro 
  • Profit without goodwill impairment up by 17.6 percent to 327 million euro
  • Goodwill impairment of 200 million euro because expectations regarding results in Europe have been adjusted downwards due to the persisting crisis 
  • Improved results from the Consumer Products Asia, Ingredients and Cheese, Butter & Milkpowder business groups
  • Economic conditions in Europe put pressure on volumes and margins for Consumer Products Europe, Middle East & Africa
  • Cash flow from operating activities down to 596 million euro (2012: 842 million euro) due to the increase of the working capital due to higher prices and due to investments in route2020
  • Solvency up from 33.1 to 37.0 percent


Performance for member dairy farmers up by 28.3 percent to 3.04 euro
per 100 kilo milk (excluding VAT at 4.41 percent fat and 3.47 percent protein)

  • Performance premium (1.81 euro) and distribution of member bonds (1.23 euro) up by 28.3 percent to 3.04 euro (2012: 2.37 euro)
  • Guaranteed price up by 5.58 euro (16.5 percent) to 39.45 euro
  • Milk price for Cooperative’s member dairy farmers up by 6.25 euro (17.2 percent) to 42.49 euro (2012: 36.24 euro)
  • Milk price + supplements up by 6.22 euro (17.0 percent) to 42.90 euro (2012: 36.68 euro)


Acceleration of route2020 strategy

  • 10.8 percent volume growth in infant nutrition
  • 10.8 percent volume growth in dairy-based beverages in Asia and Africa
  • 9.5 percent volume growth in branded cheese due to increased export
  • Investments of 559 million euro mainly in expanding infant nutrition and milk processing capacity
  • Major improvements to safety and safety awareness
  • Further implementation of sustainability programmes



  • Opening of new FrieslandCampina Innovation Centre in Wageningen by Queen Máxima
  • Acquisition of Zijerveld and Veldhuyzen B.V. and G. den Hollander Holding B.V. strengthen positions in cheese
  • Restructuring in Europe to improve position
  • Repurchase of Friso infant nutrition brand name in the Benelux 
  • FrieslandCampina acquires 7.5 percent interest in Synlait Milk Ltd. in New Zealand 
  • Stock exchange listed perpetual notes repaid



Further revenue growth
In 2013 revenue rose by 10.8 percent to 11.4 billion euro. This revenue growth was achieved through volume growth and higher prices. The volume growth of infant nutrition by 10.8 percent and of dairy-based beverages in Asia and Africa also by 10.8 percent was positive. The branded cheese category achieved volume growth of 9.5 percent through increased export. In Europe pressure on volumes and revenue continued as the economic crisis led to declining consumer spending.

Half of the revenue growth was achieved through price increases. Acquisitions contributed 364 million euro (3.5 percent) towards the revenue growth. Currency translation effects had a net negative effect on revenue of 157 million euro (1.5 percent).

Improved operating profit before goodwill impairment
Operating profit before goodwill impairment rose by 5.3 percent to 513 million euro. The improved operating profit was due to volume growth, the possibility of passing-on the higher guaranteed price and far-reaching efficiency improvements in production and cost management by the European operating companies, despite negative currency translation effects.

In 2013 operating costs before goodwill impairment rose by 11.1 percent to 10,928 million euro (2012: 9,837 million euro) as a result of the higher guaranteed price for raw milk and the increase of 72 million euro due to the higher performance premium and distribution of member bonds, acquisitions and the increase in personnel costs caused by the Company’s growth.

Higher profit without goodwill impairment
Profit without goodwill impairment for 2013 rose by 17.6 percent to 327 million euro (2012: 278 million euro) due to a higher operating profit before impairment. Of the profit, 78 million euro was attributed to minority interests.

Goodwill impairment
A goodwill impairment of 200 million euro was recognised in the 2013 financial year. The impairment concerns a portion of the goodwill relating primarily to the acquisition of the former Nutricia Dairy & Drinks in 2001 (with brands including Chocomel, Fristi, Extran, Milli and Pöttyös and offices in the Netherlands, Belgium, Germany, Hungary and Romania). The reason for the goodwill impairment is the economic situation in Europe. As a result of the continuing crisis the result expectations in Europe have been adjusted downwards.

Operational cash flow down
Cash flow from operating activities fell to 596 million euro (2012: 842 million euro) as a result of increased working capital due to the higher guaranteed price, which raised the value of inventories and receivables. In 2013 the outgoing cash flow for investments, particularly in production capacity expansion, amounted to 521 million euro (2012: 392 million euro). Cash and cash equivalents amounting to 79 million euro was invested in the acquisition of Zijerveld and Den Hollander Food. Most of the investments could be financed out of the Companies own means. In addition, the stock exchange-listed perpetual bonds of 125 million euro were repaid. The cash flow from financing activities amounted to -182 million euro (2012: 199 million euro).
Net cash and cash equivalents fell from 756 million euro (end of 2012) to 560 million euro.

Achievement of the route2020 strategy
FrieslandCampina’s route2020 strategy is aimed at sustainable growth and value-creation in selected markets and product categories.

Growth categories
Total volume rose by 3.0 percent (2012: 2.4 percent). Volume growth within the three growth categories of infant nutrition, dairy-based beverages and branded cheese, amounted to 5.4 percent (2012: 4.1 percent). Most of the organic growth was achieved in the infant nutrition category in which a total of 10.8 percent volume growth was achieved in the consumer market and business-to-business market (2012: 10.2 percent). The dairy-based beverage category also achieved volume growth, mainly in Asia and Africa where 10.8 percent volume growth was achieved (2012: 9.5 percent). In Europe the development of dairy-based beverages lagged behind due to the economic crisis and volume declined by 3.4 percent. The volume of branded cheese rose by 9.5 percent due to increased export outside Europe (2012: 4.4 percent).

Value creation for member dairy farmers
For 2013, on top of the guaranteed price a total of 282 million euro (2012: 210 million euro) will be distributed to member dairy farmers of which the performance premium accounted for 168 million euro (1.81 euro per 100 kilos of milk excluding VAT). The distribution of member bonds for 2013 amounted to 114 million euro (1.23 euro per 100 kilos of milk excluding VAT). In total the Company’s performance per 100 kilos of milk amounted to 3.04 euro (2012: 2.37 euro), an increase of 28.3 percent.

On 12 April 2013 the European Commission approved FrieslandCampina’s acquisition of cheese specialist Zijerveld and its packaging unit Den Hollander Food. Since 1 May 2013 both companies have been part of the Cheese, Butter & Milkpowder business group. FrieslandCampina acquired Zijerveld and Den Hollander Food through the payment of 80 million euro in cash plus a contingent consideration of 19 million euro.

In July 2013 FrieslandCampina acquired a 7.5 percent interest in Synlait Milk Ltd. in New Zealand. FrieslandCampina already purchased dairy raw materials from Synlait Milk. This investment has safeguarded the supply of raw materials from Oceania for use in products for Asia.

In November 2013 FrieslandCampina reached agreement with Hero regarding the repurchase of the Friso brand name in the Benelux. This has brought to an end the sometimes confusing situation in which both FrieslandCampina and Hero used the same Friso brand name.

In 2013 FrieslandCampina invested 559 million euro. The aims of the investments included the achievement of growth in the growth categories and ensuring the anticipated increasing quantity of milk from the member dairy farmers after 2015 (when the EU milk quota ends) can be processed. In 2013 various investment projects were completed. FrieslandCampina has invested 1.8 billion euro during the past five years. Investments amounting to 652 million euro are foreseen in 2014.

2013 proved how difficult it is to predict what the dairy market will do. The rapid rise in the listed prices for commodities and the persistently high price level throughout the year took producers and customers around the world by surprise. FrieslandCampina is, therefore, remaining cautious in its forecasts and is not making any predictions regarding the expected results for 2014.

In 2014 FrieslandCampina anticipates achieving further growth with infant nutrition and dairy-based beverages in Asia and Africa and has taken increasing competition from local suppliers of dairy products into account. In 2014 Europe is expected to have to continue contending with consumers who limit their expenditure because their incomes are under pressure from higher costs and increasing unemployment.

The worldwide offering of milk is expected to increase slightly in 2014. Weather conditions and the availability of dairy cattle remain the key factors for milk production. New Zealand is expected to produce more milk, but production in North and South America is expected to continue lagging behind. In the European Union growth is expected to be below the available quota set in the previous milk quota year (2014 – 2015). In the Netherlands, Denmark and Germany milk production will probably increase further in advance of the ending of the milk quota in 2015.

The long-term forecasts for the dairy market remain positive. As the world’s population grows and welfare increases in many regions the demand for dairy products will continue rising. Growth in Asia is expected to remain positive. Africa is a continent with enormous potential. Currency developments, weather conditions, political unrest and differences of opinion between sections of the population could, however adversely affect developments. The far-reaching globalisation is affected product price development and is leading to more market volatility. This can lead to increasing exchange rate differences.

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