Friesland­Campina’s revenue and profit improve in first half of 2022

• Revenue rose from 5.5 billion to 6.6 billion euros. Adjusted for currency translation effects, revenue rose from 5.5 to 6.5 billion euros, primarily due to price increases, higher commodity dairy prices and the recovery of European out-of-home markets.
• Volume in the retail channel was under pressure. Volumes of the Professional business and the Ingredients business group increased.
• Operating profit increased from 130 million to 328 million euros.
• The significant rise in the cost of raw materials necessitated price increases, profit margins in the retail channel to be under pressure. The Trading business group and the Professional business benefitted from high commodity dairy prices. All business groups benefitted from the revaluation of stocks.
• Net profit increased by 77 million euros to 139 million euros due to higher commodity dairy prices and the recovery in infant nutrition activities.
• At -89 million euros, the operating cash flow was at a lower level; the decrease was due to higher working capital, partly compensated by higher results.
• The planned sale of parts of the German consumer business, the closures of a production facility in Rotterdam and two powder towers in Leeuwarden in the Netherlands, and a production facility for pasteurised dairy in Thailand, resulted in one-off operating expenses.
• FrieslandCampina continues building its infant nutrition business under a strong Friso brand after strategic evaluation.
• Significant progress on sustainability. Climate plan published with SBTi validated targets, in line with the Paris Climate Agreement (limit global warming to no more than 1.5 degrees Celsius).
• The pro forma milk price for member dairy farmers increased by 37.8 percent to 51.33 euros per 100 kilos of milk. The pro forma performance price increased by 39.8 percent to 52.63 euros per 100 kilos of milk.
• Market developments in the second half of 2022 will be uncertain due to the war in Ukraine, the corona pandemic, rising costs and possible impact of the Dutch Cabinet’s nitrogen proposals on members and the company.
• In relation to the uncertain outlook for the second half of the year, there will be no interim pro forma supplementary cash payment to member dairy farmers.

Hein Schumacher, CEO Royal FrieslandCampina N.V.:

“We are looking back on a dynamic first half of 2022. My first thoughts here are the Cabinet’s nitrogen proposals and the farmers’ responses, the war in Ukraine and its effects on the global economy, as well as the extreme inflation we are confronted with. A lot has also happened at the company since the beginning of this year. Within the cooperative, the implementation of the new member financing system was started in 2022 and in June the Members' Council approved an amendment to the member acceptance policy. Both steps were important for the continuity of the company. The first contributes to the quality of the company's equity and the second is important in view of the future milk supply.

To be able to respond effectively to opportunities in the market so that we can continue to add value to the milk supplied by our member dairy farmers in the future, FrieslandCampina is constantly working on improving its production network and strengthening its brand portfolio. That is why we invest in new production facilities in Indonesia and Malaysia, new recyclable PET packaging lines in Belgium's Aalter and expand our lactoferrin production in Veghel. After strategic evaluation, we decided to continue to build the infant nutrition business under a strong Friso brand. We announced to divest part of our German consumer business and to continue to focus on a number of our successful international consumer brands in Germany, including Chocomel, Valess and Frico. In the Netherlands we also decided to close a production location in Rotterdam and two powder towers in Leeuwarden. In Thailand we will focus on production and sales of long-life dairy products and closed our production site for pasteurised products. Finally, we recently signed an agreement for the sale of our production location for local infant nutrition in Xiushui, China.

We also made significant progress in the area of sustainability. In April, we published our Climate Plan with clear targets. The renowned Science Based Targets initiative (SBTi) has confirmed that the climate targets for our global production and transport activities are in line with the 1.5-degree scenario of the Paris Agreement. To implement our Climate Plan and significantly reduce greenhouse gas emissions, we have announced various initiatives, including a large-scale pilot with a livestock feed additive that reduces the methane emission of cows.

The figures show that there was good revenue and profit growth in the first half of the year. Revenue and profit from infant nutrition in China experienced significant growth, in part due to the strong growth of Friso Prestige. However, costs also rapidly increased across the board, making price increases inevitable. Our Professional and Trading businesses benefitted from high fat, protein, and commodity dairy prices. Profit margins, particularly in the retail channel, were under pressure, because it was not possible to fully pass on cost increases. The historically high milk price in the first half of the year of course is favourable for our member dairy farmers since they too are confronted with significantly increased costs in their farming operations.

The end of all uncertainties is not yet in sight. We are still faced with inflation-related challenges and the associated price increases, mounting raw material shortages, declining consumer confidence and the corona pandemic, which has yet to completely pass. We are also still confronted with major uncertainty concerning the impact of the Dutch Cabinet’s announced nitrogen proposals on our members and our company. For this reason, we are exercising extra caution in terms of our outlook for the rest of the year, and we have decided to forego the interim pro forma supplementary cash payment to our member dairy farmers.

I would like to conclude by thanking our members and employees for all their hard work over the past months. The resilience they display in this respect every day gives me every confidence that FrieslandCampina will also be able to successfully cope with present and future challenges.”

Increased revenue

Driven by price increases, higher commodity dairy prices and the recovery of out-of-home markets in Europe, the reported revenue in the first half of 2022 increased by 19.4 percent to 6.6 billion euros (first half of 2021: 5.5 billion euros). Revenue, before currency translation effects, increased by 17.0 percent. Currency translation effects had a positive effect of 2.4 percent on revenue.

Revenue of the Food & Beverage business group in the first half of 2022 increased by 19.7 percent to 4.5 billion euros (first half of 2021: 3.8 billion euros). The volume of retail brands decreased slightly in comparison to the first half of 2021. Professional benefitted from higher commodity dairy prices, particularly for butter, and the growth of out-of-home activities in Europe. Before currency translation effects, revenue of the Food & Beverage business group grew by 17.6 percent.

Revenue of the Specialised Nutrition business group increased by 18.6 percent to 612 million euros compared to the same period of the previous year (first half of 2021: 516 million euros). Although Friso’s market share remained stable, revenue and profit in China rose significantly, in part due to the strong growth of Friso Prestige. The revenue and market share of the growing ultra-premium segment improved due to the further expansion of distribution to smaller cities in China.

Revenue of the Ingredients business group increased by 31.8 percent to 775 million euros, primarily due to price increases, particularly in the infant nutrition, elderly nutrition and pharmaceutical market segments (first half of 2021: 588 million euros).

For the Trading business group, the strong increase in commodity dairy prices in the first half of 2022 resulted in noticeably higher price levels and an increase in revenue of 21.7 percent to 663 million euros (first half of 2021: 545 million euros).

Increased operating profit and net profit

FrieslandCampina’s operating profit in the first half of 2022 substantially increased to 328 million euros (first half of 2021: 130 million euros) and profit increased to 139 million euros (first half of 2021: 62 million euros).
The result of the Food & Beverage business group rose because of the recovery of the European out-of-home markets and high butter market prices within Professional. Despite price increases, margins in the retail channel were under pressure. The Trading business group benefitted from high commodity dairy prices. The Specialised Nutrition business group benefitted from, among other things, an improved product mix. The recovery of the infant nutrition segment and a positive contribution by adult nutrition and pharmaceuticals, contributed to the improved result of the Ingredients business group.

Operating cash flow

The cash flow from operating activities in the first half of 2022 amounted to -89 million euros (first half of 2021: 46 million euros). The decrease was due to higher working capital as a result of higher milk and sales prices, partly compensated by the higher results.

Slight drop in milk supply

The milk supplied by member dairy farmers in the first half of 2022 decreased by 4.6 percent to 4.8 billion kilos in comparison to the first half of 2021 (5.0 billion kilos) due to a decline in the number of members, lower quality of grass silage and higher feed costs.

Milk price rose by 37.8 percent

The milk price for member dairy farmers over the first half of 2022 increased by 37.8 percent to 51.33 euros per 100 kilos of milk exclusive of VAT in comparison to the first half of 2021 (37.25 euros). This increase was in part due to an increase in commodity dairy prices resulting from increased market demand. The organic milk price was 57.31 euros per 100 kilos of milk exclusive of VAT (first half of 2021: 49.16 euros).

Interim payment

In view of the major uncertainty concerning market developments in the second half of the year, it was decided not to issue an interim pro forma supplementary cash payment to our member dairy farmers. The payment of the supplementary cash payment will therefore be based on the final 2022 results.

Outlook

As a result of the war in Ukraine, the corona pandemic, and rising costs, including the cost of energy, fuel, transport and raw materials, and general disruptions in international supply chain and trade, the outlook for the second half of the year is uncertain. A turnaround of commodity dairy prices can have significant impact on the result. FrieslandCampina will continue to study how it can further optimise its production network. Because of the many uncertainties, FrieslandCampina is not issuing an outlook for the expected profit for 2022 and is also not making any forecasts concerning the future development of the milk prices.