Royal Friesland­Campina N.V. half-year results 2021

• Revenue slightly down (-1.8 percent) to 5.5 billion euros, before currency translation effects revenue up 0.8 percent driven by recovery in consumer and out-of-home channels.
• Profit decreased by 42.6 percent to 62 million euros, mainly due to a 57 million euros provision for a court ruling in Thailand and lower infant nutrition results in the business groups Specialised Nutrition and Ingredients as a result of continuing difficult market conditions in Asia.
• Underlying operating profit, excluding provision for a court ruling in Thailand and currency translation effects, decreased by 8.6 percent to 202 million euros.
• Operating cash flow decreased to 46 million euros mainly due to lower results and a one-off contribution of 88 million euros to a pension plan that was committed to in 2005.
• Accelerated implementation of Our Purpose, Our Plan 2.0 strategy, with associated structural cost reductions of at least 100 million euros per year starting in 2022, is on track.
• Milk price for member dairy farmers increased by 1.8 percent to 37.25 euros per 100 kilos of milk compared to the first half of 2020 due to higher basic dairy prices caused by increased demand on the world market. Due to the lagging result in the first half of 2021 there will be no supplementary cash payment for the first half of 2021.
• Milk supply decreased by 2.2 percent to 5,029 million kilos due to relatively cold weather in the first months of 2021 and high animal feed prices.
• Sustainability programme Nourishing a better planet, including CO2 reduction initiatives, improving biodiversity and the development of sustainable packaging, progressing well.

Hein Schumacher, CEO Royal FrieslandCampina N.V.: “Good results by the Food & Beverage and Trading business groups and realised cost reductions were not sufficient to offset the strong headwind in infant nutrition. Market conditions in this for FrieslandCampina important category remain difficult. This had a significant impact on the results of the Specialised Nutrition and Ingredients business groups.

Now that the corona measures in many markets are being relaxed, the out-of-home activities are recovering and the global demand for dairy is increasing significantly, resulting in rising basic dairy prices. This is good news for our Trading business and for the milk price paid to our members. However, the corona pandemic is not over yet and neither is the uncertainty that it brings, particularly not in countries where the vaccination coverage is still relatively low. In recent weeks we have seen the numbers of infected people increase rapidly again in various countries, so caution is still required. For the second half of the year, on the one hand we are cautiously optimistic about the recovery of the consumer and out-of-home channels, but on the other hand, the Asian infant nutrition market is not expected to recover.

The company’s accelerated transformation and the associated cost savings of at least 100 million euros per year as of 2022, are on track. On 16 June, FrieslandCampina’s Members’ Council approved the new financing system by member dairy farmers. This is a key milestone and I would like to thank our members for this. I have every confidence that together we, employees and member dairy farmers, are doing the right things for a future-proof FrieslandCampina.”

Transformation on track

On 10 November 2020, FrieslandCampina announced it would accelerate the company’s transformation with a focus on growth, structurally lower costs and an optimisation of the organisational structure. The transformation’s implementation is on track. Up to year-end 2021, approximately 1,000 jobs will be eliminated. Compared to the end of June 2020, a reduction of about 700 FTEs has been realised thus far.

Starting in 2022, costs are expected to be structurally lower by at least 100 million euros per year. Total restructuring costs amount to 150-175 million euros. Of these, 106 million euros were charged to the 2020 result.

The business portfolio is also being evaluated as part of the accelerated transformation of the company. The focus is on investing in strategic priority markets and disposing of non-core activities. A strategic partner was found for our animal feed business, Nutrifeed, in this respect. In addition, the sale of our Russian consumer activities to Ehrmann was announced. This transaction is expected to be completed in the third quarter.

Revenue slightly down

FrieslandCampina’s total revenue, compared to the same period last year, decreased slightly by 1.8 percent to 5.5 billion (first half of 2020: 5.6 billion euros). Adjusted for currency translation effects, revenue rose by 0.8 percent.

Consumer retail and e-commerce sales recovered. The revenue of the Food & Beverage business group rose by 1.0 percent and excluding currency translation effects by 4.1 percent. The Parrano, Chocomel and Valess brands, in particular, performed well. Recovery of the out-of-home channel, improved performance in Pakistan and an effective market approach in large parts of Africa also contributed to revenue growth for Food & Beverage.

The revenues of Specialised Nutrition and Ingredients were under pressure due to the difficult infant nutrition market and decreased by 14.9 percent and 3.9 percent, respectively. The sale of Friso Gold in China and Hong Kong, in particular, decreased, while Friso Prestige in the ultra-premium segment in China grew. Higher volumes and price increases drove an increase in revenue in the medical, seniors and sports nutrition segment.

Revenue of the business group Trading fell by 3.9 percent due to lower milk supply and lower sales of liquid products such as raw milk, cream, skimmed milk and milk concentrate.

Profit and operating profit lagging

Operating profit decreased by 41.2 percent to 130 million euros in the first half of 2021 (first half of 2020: 221 million euros) and profit decreased by 42,6 percent to 62 million euros (first half of 2020: 108 million euros). The underlying operating profit, excluding the provision for the court ruling in Thailand and currency translation effects, decreased by 8.6 percent to 202 million euros. The underlying result of the Food & Beverage business group rose because of the positive selling price trend, growth in priority brands and an improved market approach. The business group Trading benefited from higher prices and consequently made a significantly smaller loss than in the comparable period last year. The results of Specialised Nutrition and Ingredients decreased as a result of unfavourable market trends in the infant nutrition market.

Decreased operating cash flow

The operating cash flow in the first half of 2021 was 46 million euros (first half of 2020: 125 million euros). The decrease was primarily caused by lower results and a one-off contribution of 88 million euros to a pension plan that was committed to in 2005.

Milk supply 2.2 percent lower

The milk supplied by member dairy farmers in the first half of 2021 decreased by 2.2 percent to 5,029 million kilos compared to the first half of 2020 (5,144 million kilos). This decrease is primarily due to cold weather in the first months of 2021 and increased feed prices.

Milk price increased by 1.8 percent

The milk price for member dairy farmers over the first half of 2021 increased by 1.8 percent to 37.25 euros per 100 kilos of milk, excluding VAT compared to the first half of 2020 (36.59 euros). This increase, in part, was due to an increase in commodity dairy prices resulting from growing market demand. The organic milk price was 49.16 euros, excluding VAT, per 100 kilos of milk (first half of 2020: 48.73 euros).

Interim payment

Due to the lagging result in the first half of 2021 there will be no interim payment (first half of 2020: 0.22 euro, excluding VAT, per 100 kilos of milk).

Nourishing a better planet

FrieslandCampina’s Global Nutritional Standards, applicable to the period 2021-25, have been expanded to include Affordable Nutritional Standards and were further refined to counter malnutrition and excessive food intake. FrieslandCampina has moved up to a third position in the 2021 Global Access To Nutrition Index (ATNI).

By 2050, FrieslandCampina aims to be producing (net) climate-neutral dairy and, by 2030, it intends to reduce the emission of greenhouse gases by more than one-third (compared to 2015) in line with the Paris Climate Agreement and Green Deal climate targets.

In the first half of 2021, 68 additional member dairy farmers started to produce solar energy within the Solar Programme. Together with existing solar energy producers, they can produce an estimated 75 GWh of power per year. At present, 26 mono-manure digesters are operational and nine are under construction as part of the Jumpstart project.

In the first half of 2021, new local initiatives were also started that should contribute to a better earning model for the farmer and an increase in biodiversity in the vicinity of Rotterdam, in Brabant and Midden-Delfland.

FrieslandCampina aims to have its packaging, throughout the world, 100 percent recyclable by 2025, and circular and climate-neutral by 2050. For this purpose in the first half of 2021 fully recyclable PET plastic bottles using 100 percent recycled materials were introduced by various international brands. Next to this a new packaging for Campina’s organic line in the Netherlands was developed with a reduction in packaging materials of 22 tons per year.

FrieslandCampina became a partner in the VIVE programme for sustainable procurement. VIVE is facilitating the creation of the world’s first sustainable end-to-end sugar trade.

Outlook

For the second half of 2021, FrieslandCampina expects a continuation of the situation in the second quarter. On the one hand, FrieslandCampina is cautiously optimistic about the recovery of the consumer and out-of-home channels that has set in; on the other hand, the Asian infant nutrition market is not expected to recover. Moreover, the development of the corona pandemic and its impact on the company remains uncertain. FrieslandCampina expects basic dairy prices to continue to hover around current levels in the second half of 2021 and, as a result, milk prices are expected to do the same.