FrieslandCampina pursues Pakistan company as profits rise

By Jim Cornall

- Last updated on GMT

Friso is the top consumer brand worldwide for FrieslandCampina in terms of revenue
Friso is the top consumer brand worldwide for FrieslandCampina in terms of revenue

Related tags Infant nutrition Milk

In its report for the financial year ending December 31, 2015, Dutch dairy company FrieslandCampina announced net profits of $373m (€343m).

It also said that it will start investigating the possible acquisition of up to 51% of Engro Foods in Pakistan.  

The price paid for the increased volume of milk (which rose by 6.1%) fell by 18.9%, however, but FrieslandCampina said that because of the profits, the drop in price was limited.

There will also be restructuring costs of $54.4m (€50m) for announced facility closures and reorganizations, with the loss of around 800 jobs in the coming two years.

Increased profits

The company said that margins increased due to the sale of more added-value products in Asia and the increased sales of dairy ingredients and infant nutrition by FrieslandCampina Ingredients.

The volume in the infant nutrition category increased by 9%.

The increased demand for infant nutrition was met due to new production capacity, it said. Sales of Friso infant nutrition increased in all markets especially in China and Hong Kong, making it FrieslandCampina’s top selling consumer brand.

Lower purchasing costs and currency translation effects also contributed positively.

Milk prices down

However, the milk price for member dairy farmers fell by 18.9% to $37.40 (€34.64) per 100 kilos of milk due to the lower guaranteed price for raw milk.

Top 10 consumer brands in revenue in euro

  1. Friso [worldwide]
  2. Frisian Flag [Indonesia]
  3. Peak [Nigeria]
  4. Dutch Lady [Vietnam, Malaysia and Singapore]
  5. Alaska [Philippines]
  6. Campina [Netherlands and Belgium]
  7. Rainbow [Saudi Arabia and United Arab Emirates]
  8. Frico [worldwide]
  9. Landliebe [Germany, Hungary and Austria]
  10. Foremost [Thailand]

The guaranteed price for 2015 was $33.36 (€30.68) per 100 kilos of milk, a decrease of 22.1% compared with 2014 ($43.38/€39.38).

The payment to member dairy farmers for the raw milk supplied in 2015 fell by 13.4% to $3.82bn (€3.51bn) (2014: $4.41bn/€4.056bn) despite the volume increase of 6.4% to 10,060m kilos of milk.

The FrieslandCampina performance price for 2015 amounted to$40.49 (€37.23) per 100 kilos of milk excluding VAT (2014: $48.99/€45.05), a decrease of 17.4% compared to 2014.

Major developments in 2015

FrieslandCampina noted $613m (€564m) was invested in quality improvements and capacity expansion in 2015.

This included the establishment of the Friesland Huishan Dairy joint venture in China in April.

There was an investment of $197.9m (€182m) in increasing shares in FrieslandCampina WAMCO Nigeria PLC from 54.58 to 67.81%.

The top 5 industrial products in revenue in euro

  1. DMV Excellion (caseinates)
  2. Kievit Vana Capa (creamers)
  3. Domo Vivinal GOS (galacto-oligosaccharide)
  4. DFE Pharmatose (pharmaceutical lactose)
  5. Kievit Vana Grasa (fat powders)

Acquisitions included the mozzarella producer Fabrelac in Belgium, and the activities of Anika Group, an infant nutrition distributor in Russia, Belarus and the Ukraine.

Investments in 2016

The 2016 budget includes investments of around $598m (€550m).

One of the most important investments, the company said, was $32.6m (€30m) for FrieslandCampina Cheese in the Dutch communities of Gerkesklooster, Workum and Bedum. This will involve expansion of production and cheese storage capacity to replace the cheese production facility in Rijkevoort.

The other major project is the expansion of production capacity and application of microfiltration technology at the Dutch FrieslandCampina Ingredients facility in Veghel. This project, which will run until 2018, will see a $16.3m (€15m) investment in 2016.

Uncertain year ahead

FrieslandCampina noted that its outlook for 2016 is expected to be under pressure.

It cites the expected increase in global milk production, uncertainty over Chinese demand and the Russian embargo, low oil prices, and geopolitical tensions in certain regions as some of the factors behind the difficulties.

The company said that continuous cost reductions, both at production facilities and in offices, are foreseen in 2016 in order to offset the pressure on results and to enable investments. 

The report however, notes that for the longer term the outlook remains positive, stating that as the world’s population grows and prosperity increases in many regions, the demand for food will rise. In particular this points to food rich in nutrients, which includes dairy products.

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