Friesland­Campina Members’ Council adopts proposal on future-proof member financing

Today, the Members’ Council of Zuivelcoöperatie FrieslandCampina U.A. adopted the proposal on a future-proof member financing system by a broad majority. In addition, Mr Frans Keurentjes, chair of the Board of the cooperative and of the Supervisory Board of the company passed the position of chair on to Mr Erwin Wunnekink. Furthermore, the Members’ Council appointed a new Board member and reappointed two Board members. Finally, the management provided the Members’ Council with an update on developments in society, on economic developments and developments within the dairy market and the company.

Future-proof member financing system

At the heart of the revised member financing system is the linking of a significant part of members’ capital to their milk deliveries through supply certificates and a cooperative solution for the future tradability of free member bonds. This is to reduce the imbalances in members’ capital commitment caused by an ageing membership. In addition, it will also improve the quality of the company’s equity as a result of the issuance of the supply certificates. The revised member financing system will take effect as of 1 January 2022.

Commenting on the changes, the chair of Zuivelcoöperatie FrieslandCampina U.A., Erwin Wunnekink, said: “By adopting the proposal for a new member financing system, we, as members, are demonstrating that there is still a strong desire to work together in a cooperative context. In my view, the resolution of the imbalance in free member bonds, caused by an ageing member base, by current members is living proof of this commitment. Similarly, the fact that, as of next year, we will jointly be issuing supply certificates to the amount of roughly 800 million euros is an important signal that the members believe in processing our milk in a cooperative context. Together, we will enable the company’s Executive Board to realise its plans and continue to build on a future-proof dairy company and thereby achieve a good milk price and a good return for our members.’

Supply certificates worth 8 euros per 100 kilos of milk delivered

From 1 January 2022, the cooperative will be issuing its member dairy farmers with supply certificates worth 8 euros per 100 kilos of milk delivered. The quantity of milk delivered in the period from 1 October 2020 until 30 September 2021 will be used to determine the first issue of supply certificates. Members who have less than 8 euros per 100 kilos of milk in fixed member bonds and/or member certificates will be able to make use of a deferred payment scheme of up to 12 years. This will be an interest-free, deferred payment obligation for the member of the cooperative. During the first eight years, repayment will take place on the basis of the supplementary cash payment received by the members as part of the retained earnings policy. Special arrangements will be made for members who are carrying out a business takeover as part of their business succession and who do not have sufficient funds to pay for the supply certificates.

Cooperative solution

Members and former members will continue to be able to finance the company through free member bonds. In order to safeguard the liquidity of the free member bonds, any imbalances in the internal market of free member bonds will be resolved by the cooperative within its own membership circle as of 1 January 2022. If the liquidity provider creates a balance equal to or greater than 30 million euros on the trading day, then the members will collectively purchase the excess of free member bonds for a nominal amount of 25 million euros (excluding any interest components) up to a maximum of three times in a period of two consecutive years. This cooperative solution also offers a greater degree of security to former members who still have free member bonds and may wish to sell them in the future.

In addition, the Board of the cooperative aims to reduce the current imbalance in the internal market for the trading of free member bonds. Members will therefore receive a premium in 2022 if they purchase free member bonds during the trading days of June 2021, August 2021 and/or October 2021 and use the net increase in the number of free member bonds to finance the supply certificates in January 2022.

The revised member financing system will strengthen the foundations of the company, given that the capital in the form of supply certificates will contribute to the company’s equity. Once the supply certificates are introduced in 2022, the 'Balanced Growth' scheme will be discontinued.

Adjustment of retained earnings policy

The retained earnings policy of the company will also be amended in connection with the introduction of supply certificates. The current retained earnings policy consists of a supplementary cash payment of 35% of the profits, 10% payment in member bonds and a 55% addition to the retained earnings. For the financial years 2021 and 2022, 40% of the profits will be paid out as a supplementary cash payment and 60% will be added to retained earnings.

Changes to the Board

During the meeting of the Members’ Council, Frans Keurentjes passed the position of chair to Erwin Wunnekink. Keurentjes, who has been a member of the Board of the cooperative and of the Supervisory Board of Royal FrieslandCampina N.V. (and of its predecessors) since 2006, has held the position of chair since December 2016. Wunnekink, who has been a member of the Board of the cooperative and of the Supervisory Board since December 2009, and who held the position of vice-chair on both bodies since December 2016, has also been reappointed as a member of the Board. Both within the cooperative and within the company, Wunnekink will be succeeded by Sandra Addink-Berendsen. Cor Hoogeveen has also been reappointed as a member of the Board. The reappointments will all take effect on 14 December 2021 and will also apply to a new term of membership of the Supervisory Board of Royal FrieslandCampina N.V.

The Members’ Council has appointed Nils den Besten as a member of the Board of Zuivelcoöperatie FrieslandCampina U.A. as of 14 December 2021. Den Besten will be filling in the vacancy on the Board created by the departure of Frans Keurentjes and has been appointed for a period of four years with the possibility of reappointment. He will also be joining the Supervisory Board of Royal FrieslandCampina N.V. Den Besten owns a dairy farm in Brandwijk in the Alblasserwaard. In addition to chairing the Supervisory Board at AB Midden Nederland, he has been a member of the Members’ Council of FrieslandCampina since 2015, in which capacity he has been involved, through the working group on Governance, in the administrative modernisation of the cooperative, which will take effect on 17 June. Between 2010 and 2012, Den Besten chaired the FrieslandCampina Youth Council.

Erwin Wunnekink took the opportunity to thank his predecessor as the new chair, saying: “Frans Keurentjes has undeniably made a significant contribution to strengthening both the cooperative and the company and did not shy away from any debate with either members or the management of the company. Under his stewardship, the ‘Merits of Milk’ vision kicked off the modernisation of the cooperative, of which we will be reaping the benefits in the years to come.” He also congratulated Cor Hoogeveen with his reappointment and Nils den Besten on joining the Board and extended his well-wishes to both.

In order to continue improving the effectiveness and agility of the cooperative, the number of districts will be reduced from 21 to 14 from 17 June 2021. Similarly, the number of Members’ Council members is to be cut from 210 to 140 by way of a transitional arrangement. During the meeting, the Members’ Council formally took leave of this group of members.

Business Update

CEO Hein Schumacher and CFO Hans Janssen of Royal FrieslandCampina N.V. provided the Members’ Council with a business update, which focused on developments in society, the economy and developments within the dairy market and the company.

Schumacher, first and foremost, highlighted the prominent position of climate change and sustainability on the social agenda, such as during the formation of the government in the Netherlands, for stakeholders and NGOs and, naturally, for FrieslandCampina and its member dairy farmers.

In addition, Schumacher addressed the corona crisis and its impact on the company. In the first few months of 2021, the Food & Beverage business group was still being impacted significantly by the hospitality sector and out-of-home channels being closed. However, the hospitality industry is now reopening in many European markets, and the prospects for the second half of the year are more positive. However, the improving economic outlook will also lead to increases in the prices of raw materials. A number of raw materials that are key to FrieslandCampina have already shown significant price increases in recent months. On the other hand, bulk dairy prices have also risen in recent months, which is beneficial to members and for the activities of the Trading business group.

The global trend of falling birth rates has accelerated due to the corona crisis, which is clearly noticeable in key FrieslandCampina markets where birth rates have dropped sharply over the past year (e.g. -18% in China and -20% in Hong Kong). In conjunction with the ongoing closure of the borders between Hong Kong and China and the increase in competition from local brands in China, this is detrimental to the infant nutrition business of the company. Schumacher also highlighted the growth of plant-based ‘dairy’ to members and emphasised that FrieslandCampina will be keeping a close eye on this category, as it seems to be moving from niche to mainstream.

Finally, Schumacher and Janssen provided an update on the transformation of the company that was initiated at the end of 2020. They provided an outline of the developments that have taken place over the past six months as part of the accelerated implementation of the ‘Our Purpose, Our Plan’ strategy: a new top management structure, various restructurings within the business groups and operating companies, and the divestments of the animal nutrition activities and Russian consumer activities.