What is the cost of Huishan Dairy FrieslandCampina fiasco?

Yang Kai, CEO of Huishan Dairy, and Cees 't Hart, CEO of FrieslandCampina at the time, had a world first in 2014 by working together through a joint venture. That same Yang Kai is now causing major problems at Huishan Dairy. The question is whether the company will survive. FrieslandCampina is losing money on this deal anyway.

FrieslandCampina, one of the largest dairy processors in the European Union, is not coming out of the situation in China completely unscathed. On Friday 24 March, the shares of Huishan Dairy were down more than 85 percent. All details about this were provided by Boerenbusiness outlined before† The Chinese company is likely to be rescued by the concerned stakeholder. However, does that also mean that FrieslandCampina is not experiencing any pain at all from these developments?

Shares as part of joint venture
The Financial Times estimates the losses, on paper, at around 46 million euros. FrieslandCampina bought shares in the company as part of the partnership with Huishan Dairy. That is something that is quite common in China. At the time, FrieslandCampina bought shares worth 24 million euros from the Chinese company.  

FrieslandCampina's shares had a value of approximately 31 million euros on 2016 December 53. Due to the price drop of March 24, 2017, FrieslandCampina's shares have also decreased in value. The loss therefore amounts to 45,6 million euros. This means that a value of 7,4 million euros remains.

Only loss on paper
It is not (yet) known whether a dividend was also paid on the shares, but based on the original value, this is a considerable loss. However, this only applies if the shares are sold. If the shares remain in FrieslandCampina's possession and the value starts to rise again, this means that the losses will disappear again. This is therefore only a loss on paper.

Incidentally, FrieslandCampina is not the only one with interests in a Chinese dairy processor. For example, Danone owns a 10 percent share in Mengniu.

File: Huishan Dairy

Source chart: Bloomberg Markets 

Herman van den Pol

Herma van den Pol has been with us since 2011 Boerenbusiness and has developed over the years into a market expert Milk & Feed. In addition, she can be seen weekly in the market flash about the dairy market.

h.vandenpol@boerenbusiness. Nl

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