Solid results for Friesland­Campina in a dynamic year

• Revenue rose by 22.4 percent to 14.1 billion euros, primarily driven by price increases as a result of higher commodity dairy quotations and other cost increases. The consumer dairy business was unable to fully pass on high cost increases to customers.
• Operating profit rose 32.7 percent to 471 million, adjusted for currency effects and other operating expenses and income, operating profit rose by 94.5 percent to 712 million euro.
• Profit increased by 69.8 percent to 292 million euros.
• At 293 million euros, the operating cash flow was at a low level due to higher stock and accounts receivable positions resulting from high milk prices and inflation.
• Other operating expenses and income amounted to -260 million euros, particularly for restructuring, divestments and higher foreign currency exchange costs in Nigeria.
• Performance price for member dairy farmers increased by 47.2 percent to 58.69 euros per 100 kilos of supplied milk, including a supplementary cash payment of 0.90 euro per 100 kilos of milk.
• Climate plan published with SBTi validated 2030 targets that are in line with the Paris climate goals.
• Total reported greenhouse gas emissions from the milk production on member dairy farms and from milk processing and transporting, decreased by 2.7 percent to 11,472 kt CO₂ equivalents.
• Various pilots were initiated, including on livestock feed and circular barn systems, to enable further greenhouse gas reduction in the future.

Hein Schumacher, CEO Royal FrieslandCampina N.V.:

“2022 was in many ways again an extraordinary year. Consider, for example, the elimination of the corona measures, the nitrogen debate, the war in Ukraine, the energy crisis and above all the high inflation that has hit everyone hard in the chain, producers, retailers, and consumers. Primarily due to high inflation, the results of our consumer activities in the Food & Beverage business group were under pressure as we were unable to fully pass on the huge cost increases to our customers. However, this was more than offset by the excellent results achieved by the Specialised Nutrition, Ingredients and Trading business groups and by the strong results of the new Professional foodservice business.

On balance, we can look back on significant revenue and profit growth for FrieslandCampina in 2022. We also achieved a historically high performance price of 58.69 euros per 100 kilos of supplied milk, including a supplementary cash payment in the amount of 0.90 euro. In 2022, the total amount paid to member dairy farmers was over 5.4 billion euros: a record pay-out.

Positive progress was made on the sustainability agenda in 2022. First, we published our climate plan and achieved further reduction in greenhouse gas emissions. Furthermore, we also made significant progress in making our packaging reusable and recyclable. To be able to further reduce greenhouse gas emissions in the future, we have started various pilots together with member dairy farms and strategic partners; for example, relating to livestock feed and circular barn systems. We also made significant investments in making our production processes, installations and distribution networks more sustainable. But we definitely are not there yet, and we are expecting an additional investment of approximately more than 1.5 billion euros until 2030 in sustainability.

2022 also marked the end of our 150-year anniversary, which was appropriately concluded with the short film 'A New Day', our tribute to generations of FrieslandCampina dairy farmers. I would like to sincerely thank all member dairy farmers, employees and partners for the enormous effort in 2022 that they have put into achieving the results and making FrieslandCampina more sustainable and future-proof.”

Strong increase in revenue, operating profit and profit

The business groups largely offset the significantly higher costs of raw materials, packaging and energy through price increases. As a result, all business groups showed significant revenue growth. However, due to high inflation, consumer dairy volumes and margins came under pressure as it was not possible to fully pass on the huge cost increases to customers.

Lower profit margins and restructuring costs reduced the operating profit of the business group Food & Beverage compared to 2021. The Food & Beverage Professional business improved operating profit in 2022 considerably due to the revival of the foodservice market following the corona pandemic, higher commodity dairy quotations, innovation and the expansion of its distribution network. The other business groups benefited equally from market recovery. The operating profit of the business group Ingredients increased due to the recovery of infant and adult nutrition markets. Specialised Nutrition realised a good operating profit, primarily driven by improved sales in China. Finally, Trading benefited from historically high commodity dairy quotations by quickly responding to changing market developments.

FrieslandCampina’s revenue rose by 22.4 percent to 14.1 billion euros in 2022 (2021: 11.5 billion euros), adjusted for currency translation effects revenue rose by 20.1 percent to 13.8 billion euros. Operating profit rose by 32.7 percent to 471 million euros (2021: 355 million euros). Without currency translation effects and adjusted for restructuring costs and other operating expenses and income, operating profit rose by 94.5 percent to 712 million euros (2021: 366 million euros). Profit increased by 69.8 percent to 292 million euros (2021: 172 million euros).

Other operating expenses and income amounted to -260 million euros (2021: -11 million euros) and mainly consisted of production network restructurings and divestments of 176 million euros and a liability of 63 million euros related to higher foreign currency exchange costs in Nigeria.

Low operating cash flow

In 2022, high milk prices and inflation resulted in considerably higher stock and accounts receivable positions, resulting in operating cash flow that was significantly lower than in 2021. The cash flow from operating activities amounted to 293 million euros (2021: 594 million euros).

Optimisation of the organisation

Several production facilities in the Netherlands, Germany and Thailand were entirely or partially closed down in order to further optimise the production network. However, also significant investments were made in new, more sustainable production facilities: new packing lines for recyclable PET bottles were installed in Aalter (Belgium), and in the Netherlands, fresh daily dairy production was expanded in Maasdam and the lactoferrin production capacity was expanded in Veghel. Furthermore, new production sites are under construction in Indonesia and Malaysia and will become operational in the coming years. The average number of employees in 2022 declined to 21,715 (2021: 22,961), primarily due to restructurings.

Innovation

Investment in research and development amounted to 93 million euros in 2022 (2021: 85 million euros). New cheese products were introduced in the consumer dairy segment in markets outside Europe, including Pakistan and Egypt. The Parrano brand grew in part due to the introduction of new flavours. Aside from new dairy products, plant-based options were introduced under the brand names Chocomel and Friesche Vlag. Professional introduced Debic Vegan-top and expanded its dairy product range with cream cheese. FrieslandCampina Ingredients expanded its supplement portfolio with amongst others BiotisTM GOS-OP Purity, a high-quality prebiotic ingredient that promotes intestinal health.

Value creation for members

^{All amounts stated in this section are exclusive of VAT.}

FrieslandCampina realised a performance price of 58.69 euros per 100 kilogrammes of milk for its member farmers, an increase of 47.2 percent compared to last year (2021: 39.88 euros). The FrieslandCampina Performance Prices consist of the FrieslandCampina Milk Price plus interest on member bonds and retained earnings.

The FrieslandCampina Milk Price rose by 46.2 per cent, from 39.23 euros to 57.35 euros per 100 kilograms of milk (2021). This includes the FrieslandCampina Guaranteed Price, as well as supplements for special milk flows, meadow milk, and Foqus planet with on top a supplementary cash payment of 0.90 euro per 100 kilos of milk (2021: 0.14 euro) due to higher operating profit.

The FrieslandCampina Guaranteed Price, which corresponds to the average yearly prices for raw milk of reference farms in North-western Europe rose by 45.9 percent to 55.21 euros (2021: 37.84 euros) per 100 kilos of supplied milk. The high prices for raw milk resulted from the lower supply of raw milk and the high demand for dairy products following the corona pandemic.

The amount of member milk supplied decreased by 2.5 per cent from 9,745 million kilograms in 2021 to 9,502 million kilograms in 2022, mainly caused by the decline in the number of member dairy farms from 10,564 to 9,927. In spite of this, the total amount paid to member dairy farmers for their supplied farm milk increased by 41.4 percent to 5,423 million euros (2021: 3,835 million euros).

Further steps in making the dairy chain sustainable

Climate

In April 2022, FrieslandCampina published its climate plan with targets for 2030. For milk processing and transport (scope 1 and 2), FrieslandCampina has set a target of a 63 percent reduction in greenhouse gas emissions in 2030 compared to 2015. The target in milk production at member dairy farms (scope 3 - member milk) is 33 percent and at suppliers (scope 3 - other) 43 percent. The Science Based Targets initiative (SBTi) has confirmed that these climate targets are in line with the Paris climate goals.

To specifically meet the reduction targets, together with Agrifirm and DSM a pilot has been started at member dairy farms, that involves adding the methane inhibitor Bovaer to the ration of approximately 20,000 cows. In addition, FrieslandCampina, together with Lely and Rabobank, is helping 97 dairy farms to invest in a circular barn system that significantly reduces nitrogen emissions. Together with Agrifirm, FrieslandCampina is furthermore working to set up a fully separated, deforestation and conversion-free soy livestock feed chain for Europe. Since the beginning of the summer of 2022, Agrifirm has supplied over 20,000 tonnes guaranteed deforestation-free soy to FrieslandCampina members. Up until 2030, FrieslandCampina will invest an additional 1.5 billion euros for achieving its climate targets.

In 2022, greenhouse gas emissions from milk processing and transport (scope 1 and 2) decreased by 6.1 per cent to 649 kt CO2 equivalents (2021: 691 kt CO2 equivalents) due to investments in new CO2-reducing processes and plant closures. A decrease in production volume and a reduction in the share of CO2-intensive products, such as milk powder, in the product portfolio also contributed to this decrease. Further reductions in emissions were hampered by the limited availability of biofuels for production caused by the energy crisis.

Greenhouse gas emissions from the production of milk on member dairy farms (scope 3 – member milk) decreased by 2.5 percent to 10,823 kt CO2 equivalents (2021: 11,099 kt CO2 equivalents). The total greenhouse gas emissions decreased by 2.7 percent to 11,471 kt CO2 equivalents (2021: 11,790 kt CO2 equivalents).

In 2022, 89 percent of the electricity consumption of production sites in the Netherlands was covered by green electricity from FrieslandCampina’s members, globally this corresponds to 53 percent of electricity consumption. By the end of 2022, 41 member dairy farms were running a mono-manure digester producing a total of over 10 million m3 of biogas (2021: 8 million m3).

Packaging

In 2022, the percentage reusable and recyclable packaging increased to 91 percent (2021: 90 percent). FrieslandCampina invested among others in the design and introduction of recyclable cups and bottles. Different wrapping was introduced for bottles and plastic yogurt and quark cups, thus enabling better sorting and recycling.

Dairy Development

In 2022, a total of 70,101 local dairy farmers in Nigeria, Vietnam, Thailand, Malaysia, Indonesia, Pakistan and Romania took part in Dairy Development training programmes (2021: 70,385). In Nigeria, a mobile yogurt plant developed in the Netherlands was put into operation. In 2022, FrieslandCampina established two centres, one in Pakistan and one in the Philippines, to further develop the dairy farming sector through knowledge transfer between Dutch and local parties. Previously, centres were established in China, Nigeria and Ivory Coast.

Outlook 2023

In the fourth quarter of 2022, market conditions became less favourable and a sharp decline in commodity dairy quotations started. The negative impact of this on fourth-quarter results is expected to continue in 2023. The impact will be significant in the first half of the year. Besides the negative impact of these commodity dairy quotations on profitability, market conditions are expected to become more difficult as reduced consumer purchasing power in many markets will put volumes further under pressure.

Clear priorities have been established for 2023. There will be more focus on product and brand innovation to continue to meet consumer and customer demands and expectations. Plans therefore provide for higher investments in research and development (R&D), primarily focused on better nutrition and more sustainable production and packaging. In addition, FrieslandCampina will continue to invest in the marketing of its brands and in the Professional business to achieve growth there.

Sustainability will continue to be one of the pillars of FrieslandCampina’s strategy and business operations, with a primary focus in 2023 on greenhouse gas reduction through the climate plan and on sustainable packaging. Increasing biodiversity will be part of the 2023 sustainability priorities. Lastly FrieslandCampina will also continue to invest in its production network, for example in new, more sustainable production facilities in Indonesia and Malaysia.

In 2023, some interest-bearing borrowings will expire, FrieslandCampina expects to refinance these.