FrieslandCampina’s profits slumped 25% in the first half of the year as the Dutch dairy giant saw margins squeezed by falling prices.
While the company said it delivered solid volume growth in most markets, lower prices meant revenue was flat at €6.8bn.
But with high global milk supply and weakening demand driving prices lower, operating profit fell to €269m from €363m in the same period a year earlier.
Dairy giant’s milk supplies up
FrieslandCampina’s milk supply was up 19% in the first six months of the year, primarily due to a merger with dairy co-op Milcobel, although its farmers received a considerably lower price of €40.49 euros per 100kg, down from €55.63 this time last year.
While the company expects the Milcobel merger to deliver greater economies of scale over time, for now at least, this boost to supply in northwest Europe is exceeding the company’s processing capacity, according to CEO Jan Derck van Karnebeek. In turn, this is limiting the production of high-value products, he added.
Nonetheless, van Karnebeek said there are still positive developments and its “focus on higher-value-added products, cost control and commercial execution also paid off.”
Better performance in some markets
“The improved results in the Europe, Asia, Ingredients and Middle East, Pakistan & Africa business groups underline the strength of these choices”, he argued.
The company is now expecting a better result in the second half of the year with further volume growth, particularly in higher-value products.
It cautioned, however, that “although commodity dairy markets appear to be stabilising, margins and results remain sensitive to developments in supply and demand.”
