Friesland Foods focuses on brands as consumers shift spending

By Ahmed ElAmin

- Last updated on GMT

Related tags Milk European union Europe

Price increases for raw materials, packaging and transport led to a
fall in operating profit of seven per cent in the first half of
2005 for Dutch dairy producer Royal Friesland Foods.

The company said it is focusing on branded products based on enhanced nutrition, which are showing healthy growth in its portfolio. In western Europe, the company said its net turnover remainsunder pressure due to the shift in consumer spending from standard dairy products and branded drinks to private label products.

As a result the company has also been putting more into marketing its brands. The turnover on brands it considers key to its business increased by one per cent to €1 billion. When adjusted forforeign exchange effects, turnover of the key drive brands grew by three per cent.

Most of the growth was attributable to the Rainbow, Peak/Bonnet, Debic, Pöttyös/Dots and Chocomel/Cécémel brands. Branded products based on enhanced nutrition showed healthy growth, the companystated.

"The innovation activities focus on this important segment,"​ the company said.

It reported that operating profit decreased by to €98m as it was unable to pass on the higher costs by raising prices fully. In its western European market the company has been cuttingcosts in attempt to regain profitability in the region.

"The main cause was the lower margin due to increased raw material, packaging and transport costs that could not yet be fully passed on in the selling prices,"​ the company stated.

The company's overall net turnover fell by one per cent to €2.2bn. At constant exchange rates, net turnover was the same as in the first half of 2004.

The company made a net profit of €45 million in the first half of 2005, a decline of eight per cent. he fall in net profit was mainly due to a fall in margins in Asia and Africa.

However, the company was able to report that operating profit in western European countries compared to last year, mainly due to lower losses incurred by Friesland Foods Cheese.

"An effect of the cost-control programmes was further savings in the area of procurement and recipe management,"​ the company.

Net turnover in Europe amounted to €1.8bn. The fall of two per cent was due to lower export refunds, the partial discontinuation of the milk powder production in Hungary and less whey processingfor third parties.

Operating profit rose by €3m to €83m, an increase of four per cent. Operating margin rose to 4.6 per cent from 4.4 per cent.

In western Europe, consumers are shifting to private label products from standard dairy products and branded drinks to private label products. Central Europe is also experiencing a shift frombrands to private labels. Romania is developing well. In Hungary, competition is intensifying. Turnover in Greece remained stable, the company reported.

The company noted its net turnover was affected by discontinuing providing whey processing for third parties in China, and closing part of its milk powder production in Hungary. The reduction inexport refunds from the EU has also affected business.

The subsidies from the European Union for dairy products fell by 30 per cent on average in the first half of 2005, with the subsidies for skimmed milk powder dropping by about 57 per cent.

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