Friesland Foods fails to halt European sales slump

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Dutch dairy producer Friesland Foods claims that increased sales
volumes of its key brands to Southeast Asia and West Africa have
helped it deliver "satisfactory" 2004 results, but a
continuing sales decline across Europe may still prove a
contentious issue for shareholders, Tom Armitage reports.

The company's operating profit has risen steadily by 3.2 per cent on the previous year to €158 million - despite currency fluctuations which Friesland claims adversely affected profits by around €30 million, compared with 2003.

Conversely, turnover fell 3 per cent to €4.4 billion, which the company pinned on exchange rate fluctuations and a 2 per cent drop in the volume of milk supplied by Dutch dairy member-farmers.

Ongoing milk price skirmishes across the leading Dutch multiples - operated by Laurus and Ahold - also contributed to lowered revenues for Friesland, as well as putting pressure on the €570 million Dutch dairy market (something which similarly hit compatriot dairy co-operative Campina's sales late last year).

Lowered liquid milk volumes across Western Europe resulted in an approximate 3 per cent (or €1) decrease in the price of milk, costing Friesland around €52 million.

The company noted, however, that key brands including Peak in Nigeria, Dutch Lady in Southeast Asia and Pöttyös in Central Europe had all made an "especially high contribution to the growth in turnover"​ during 2004, although conceded that its so-called key drive brands in Europe had lost out to the burgeoning popularity of private label dairy.

Friesland said that sales of its key brands, when expressed as a proportion of its net turnover, had risen by 5 per cent (on a constant currency basis) during 2004, accounting for 46 per cent of its total sales.

Restructuring costs across its Friesland Foods Cheese and Friesland Foods Western Europe divisions, together with organisational changes at its headquarters in Leeuwarden, amounted to a loss of €14 million, while the termination of its activities in China have yet to be realised financially.

Meanwhile, Friesland's subsidiary Kievit has acquired a number of assets from local rival Tirta Amerta Agung, allowing it to establish a new production base for powdered ingredients in Indonesia, in Salatiga on Central Java.

The new Kievit site will produce a number of basic ingredients for the food industry, such as creamers, and will allow the company to make considerable cost savings.

"The expensive euro makes export from the Netherlands difficult and establishing a local presence enables a quicker and better response to the rapid developments and wishes of clients in South-East Asia,"​ the company said in a statement yesterday.

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