FrieslandCampina realises revenue growth, accelerated implementation of strategy on schedule
- Revenue increased by 3.2 percent to 11.5 billion euros. Adjusted for currency translation effects, revenue rose by 4.3 percent primarily due to price increases, higher commodity dairy prices, and the cautious recovery of out-of-home markets in Europe.
- Operating profit increased by 32.5 percent to 355 million euros. Operating profit before currency translation effects adjusted for other income and expenses declined by 1.6 percent to 380 million euros.
- In the second half of 2021, revenue grew by 8.4 percent compared to the same period in 2020, and operating profit excluding currency translation effects adjusted for other income and expenses increased by 13.3 percent from 150 million euros to 170 million euros.
- Profit increased by 117.7 percent to 172 million euros due to lower restructuring costs and improved results of both the Professional business and the Trading business group.
- Operating cash flow remained at a satisfactory level of 594 million euros, the decrease compared to 2020 was primarily due to a one-off 88 million euros defined payment to a pension plan dating back to 2005.
- Sharply increased raw material costs necessitate price increases. As a result, business group Trading benefited from increased commodity dairy prices.
- Business groups Specialised Nutrition and Ingredients affected by declining birth rates in the Asian market.
- The milk price for member dairy farmers increased by 9.8 percent to 39.23 euros per 100 kilos of milk. The performance price increased by 11.6 percent to 39.88 euros per 100 kilos of milk.
- The accelerated implementation of Our Purpose, Our Plan strategy is on track. The reduction target of 1,000 jobs was amply achieved with a reduction of 1,745 employees (FTEs) at year-end 2021.
- The sustainability programme Nourishing a better planet in 2021 resulted in improvements on all six priorities. Greenhouse gas emissions decreased by 4.0 percent, the percentage of recyclable packaging rose to 90 percent, and FrieslandCampina used 100 percent green electricity worldwide of which 50 percent was produced by its own member dairy farmers.
Hein Schumacher, CEO Royal FrieslandCampina N.V.:
“The year in which we celebrated our 150th anniversary, the result, and therefore the subsequent cash payment to members, still fell short of our objectives. However, we did make excellent progress in strengthening the company’s foundation. The cost saving measures were effectively implemented and completed ahead of schedule. Excellent results were obtained across the entire line in relation to sustainability. The adopted new member financing has strengthened the company’s equity.
At the same time, infant nutrition activities were under severe pressure and consequently the results of our Ingredients and Specialised Nutrition business as well. A declining market due to a strong decrease in the birth rate and strong local competition were the key reasons for a weak start to the year. This was contrasted by sharp growth in revenue and an improved result for FrieslandCampina Professional, particularly in the second half of 2021.
For 2022, inflation and price increases are the key challenges in terms of keeping the result up to par. We are cautiously optimistic about the recovery of the Professional market, as well as continued high commodity dairy prices. Combined with a slightly improved market for infant nutrition, we expect an increase in revenue of two to four percent with constant margins in comparison to 2021 for the year as a whole.”
Revenue
Despite the impact of the corona pandemic, revenue increased by 4.3 percent before currency translation effects, primarily driven by higher commodity dairy prices, price increases and the cautious recovery of out-of-home business in Europe. Currency translation effects had a negative impact of -1.1 percent on revenue due to the devaluation of the Nigerian naira and dollar-related currencies in Asia. Reported revenue rose by 3.2 percent to 11.5 billion euros in 2021 (2020: 11.1 billion euros).
Over the entire year, the Food & Beverage business group did well. The Professional business evolved into a global business in 2021. From April to October, volumes and revenue of Professional, partly as a result of higher basic dairy prices, returned to the level of 2019, before the pandemic. Revenue of the Food & Beverage business group rose by 4.3 percent to 7,891 million euros (2020: 7,565 million euros), driven by price increases and the growth of out-of-home activities, primarily in Europe. Before currency translation effects, growth was 5.8 percent.
The declining birth rate trend in Asia accelerated as a result of the persistent corona pandemic and the revenue of the Specialised Nutrition business group consequently dropped by 3.5 percent to 1,086 million euros (2020: 1,125 million euros). Despite the significant decline in business in Hong Kong, a key gateway to the Chinese market for the Specialised Nutrition business group, and declining birth rates in almost all Asian countries, FrieslandCampina managed to retain the Chinese infant nutrition consumer through focused investments in marketing and e-commerce, and by developing a new distribution network reaching the regions and smaller cities. In China, Friso Prestige showed strong growth, despite increasing (local) competition. Before currency translation effects, revenue fell by 3.8 percent. Friso's market share in China remained stable compared to 2020.
At 1,279 million euros, the revenue of the Ingredients business group remained relatively stable (+1.5 percent). The infant nutrition segment was under considerable pressure due to declining birth rates and difficult market conditions in Asia. However, this was offset by growth in premium ingredients and the positive performance of the medical, seniors and sports nutrition segment. Before currency effects, revenue rose by 1.8 per cent.
The constant increase in prices on the commodity dairy market between March and the end of 2021 resulted in historically high price levels and revenue growth of 4.8 percent to 1,244 million euros (2020: 1,187 million euros) for the Trading business group.
Operating profit and profit
The corona pandemic still had a significant impact on the operating profit and profit in 2021. However, lower restructuring charges, initial recovery of out-of-home markets in Europe and improved results of the Trading business group resulted in a 32.5 percent improvement in operating profit to 355 million euros (2020: 268 million euros). A provision of 58 million euros has been made for a court ruling in Thailand. In addition, there was a release of a pension commitment (51 million euros). Operating profit before currency translation effects, adjusted for other income and expenses, declined by 1.6 percent to 380 million euros.
Due to the higher operating profit, combined with a lower effective tax burden, FrieslandCampina’s profit in 2021 rose by 117.7 percent to 172 million euros (2020: 79 million euros).
Operating cash flow
Cash flow from operating activities decreased by 143 million euros to 594 million euros (2020: 737 million euros). This decrease was primarily caused by a one-off 88 million euros defined contribution to a pension plan dating back to 2005 and the use of the restructuring provisions made in 2020.
Innovation
Multiple new product innovations were delivered in 2021. The business group Food & Beverage increased the Lattiz market share in its most important markets (Netherlands, Belgium, France, and Denmark) and entered new markets with the smart milk solution for coffee professionals (Cyprus, Poland, and the Czech Republic). Lattiz is preparing for entering new European markets in 2022. In September 2021, Debic Cream Plus Mascarpone was successfully launched in the hospitality and baking sector in five countries (Netherlands, Belgium, France, Italy, and Poland). 2021 was a successful year for Valess: over 30 percent increase in revenue with a significantly improved profit margin. This was the result of successful innovations, such as Valess Nuggets, Beef Style Burger and Family Packs, and significant growth in distribution in the Netherlands and Germany. With its innovative ‘route-to-market’ model, FrisoGo, the business group Specialised Nutrition made progress in reaching smaller Chinese cities. FrisoGo is an in-house developed app that connects Mom & Baby shops, local service suppliers and Friso with each other. In 2021, In China and Hongkong Friso Prestige Bio managed to multiply its market share in the organic segment almost fivefold in comparison to 2020. FrieslandCampina Ingredients introduced new products with a focus on vitality and mobility. Examples include the launch of plant-based protein-rich sports products under the brand name Plantaris™, and a climate-neutral powder base for infant nutrition. Revenue from consumer business through the e-commerce channel grew by 56 percent worldwide. For FrieslandCampina as a whole e-commerce revenue rose by 18 percent.
Value creation for members
The member milk supply decreased by 3.2 percent to 9,745 million kilos, primarily due to the relatively cold weather in the first months of 2021 and the impact of high feed costs.
The improved business result enables a subsequent cash payment of 0.14 euro per 100 kilos of milk to member dairy farmers over 2021. In addition to the FrieslandCampina guaranteed price, a total of 14 million euros will be paid to member dairy farmers in 2022 over the year 2021 (2020: 0 euro).
The FrieslandCampina milk price for member dairy farmers increased by 9.8 percent to 39.23 euros per 100 kilos of milk, exclusive of VAT in 2021 (2020: 35.72 euros). The FrieslandCampina guaranteed price over 2021 amounted to 37.84 euros per 100 kilos of milk, an increase of 9.8 percent in comparison to 2020 (34.46 euros). This increase was the result of higher commodity dairy prices due to increased market demand.
The total compensation paid to member dairy farmers for their supplied milk increased by 6.2 percent to 3,835 million euros in 2021 (2020: 3,610 million euros). This increase is mainly due to the higher milk price.
Transformation on track
The acceleration of the transformation of FrieslandCampina announced on 10 November 2020 is on track. The focus is on growth, structurally lower costs, and optimisation of the organisation structure. The number of FTEs at year-end 2021 decreased by 1,745 to 22,038 (2020: 23,783 FTEs). The reduction target of 1,000 FTEs was thus amply achieved. Starting in 2022, costs are expected to be structurally lower by at least 100 million euros per year. The total restructuring costs of the transformation were 115 million euros, of which 9 million euros were charged to the 2021 result.
In 2021 we successfully completed our three-year supply chain optimisation programme (“Supply Chain Unlock”). With this programme FrieslandCampina focuses on improving its supply chain, resulting in cost savings, cash flow improvements (e.g. through improved working capital) and optimisation of the production network. In total, Supply Chain Unlock delivered more than 400 million euros in cost savings over a three-year period. To be able to respond effectively to developments in the market, in 2022 steps will also be taken to further optimise the organisation.
Nourishing a better planet reinforces focus on six sustainability priorities
The sustainability programme Nourishing a better planet, refined at year-end 2020, resulted in strengthening our focus on all six priorities, for example through new initiatives for further reducing greenhouse gas emissions, promoting biodiversity, and making packaging more sustainable.
FrieslandCampina’s reported greenhouse gas emissions were reduced by 4.0 percent compared to 2020 to 12,754 kt CO2 equivalents, partly due to measures taken on the members' dairy farms. The target for 2030 is a 40 percent reduction in greenhouse gas emissions by production and transport and a 33 percent reduction at member dairy farms compared to 2015. In 2021, the first hydrogen-fuelled milk truck was put into use to further reduce CO2 emissions from transport. In terms of soy, FrieslandCampina took the initiative of working together with Agrifirm to improve the guarantee that livestock feed is deforestation-free.
In 2021, FrieslandCampina used 100 percent green electricity worldwide. 93 percent of electricity consumption of its production locations in the Netherlands is covered by electricity produced by its own member farmers; globally this is 50 percent. In 2021, the company purchased almost 475,000 MWh in green electricity certificates from member dairy farmers and purchased electricity from more than 100 member dairy farms. Approximately 3,400 member dairy farmers generated green electricity from solar panels, small windmills and mono-manure digesters at their farms, enough to supply more than 170,000 households with electricity. Almost two million cubic metres of green gas was produced by the Jumpstart mono-manure digester programme.
In 2021, FrieslandCampina rose from fourth to third place on the Global Access to Nutrition Index by the independent, non-profit Access to Nutrition Foundation. This organisation evaluates the performance of the world’s 25 largest food and beverage producers in terms of facilitating access to healthy, affordable nutrition worldwide.
The percentage of recyclable packaging rose to 90 percent (2020: 87 percent). FrieslandCampina invested in the design and implementation of recyclable cups and bottles. A new wrapper was implemented for bottles and plastic yoghurt and quark cups, so that these can be better sorted and recycled.
In 2021, despite the corona pandemic, 70,385 (2020: 57,534) local dairy farmers participated in Dairy Development trainings in Nigeria, Vietnam, Thailand, Malaysia, Indonesia, Pakistan, and Romania.