News FrieslandCampina
What does less milk yield FrieslandCampina?
FrieslandCampina collected about 2018% less milk in the first half of 1,5, which is 79,5 million kilos of milk. However, less milk has not resulted in a higher profit. What do the results show, and what are the expectations for the rest of the year?
FrieslandCampina introduced in April the growth agreement† This should ensure that the milk supply is better balanced with market demand. It now looks like more will be announced about the deal over the course of the year. In any case, he will continue. In addition, there will be a renewed multi-year vision, which should follow the 'Strategy route 2020'.
Milk supply stagnating
Even without this growth agreement, the milk supply will stagnate. For example, the first half of 2018 will yield a supply of 5,356 million kilos. This is a decrease of 1,5% or 79,5 million kilos, which is slightly more than the decrease in the total Dutch milk lake. The processor states that this decrease is partly due to the introduction of the phosphate rights system, as a result of which approximately 1 cows have disappeared from the members (until 2018 June 34.000).
34.000
cows
If the number of animals is calculated in the milk supply (and the average milk production per cow is taken into account), then only a small number of dairy cows are producing well. The processor is not making any statements about the second half of 2018, but based on noises from the field, it can be determined that even more cows will disappear.
It is certain that there less milk has reached the processor. However, not all milk could be processed and a limited volume had to be sold on the spot market. It may mean that the processing capacity, despite expansions, is still too small. It may also mean that due to the problems in the factories, it was necessary to opt for sales on the spot market.
High guaranteed price?
Another setback was the relative high guaranteed price for milk. This does not match the actual valuation of the basic dairy products, so a loss had to be taken. Less milk has not been able to change this. If you turn it around, it can be said that the processor has not been able to earn as much from the products as the reference companies on which the guaranteed price is based. Less milk does not immediately change that. It will then only be a little easier to shift to products with a better value.
FrieslandCampina itself indicates that, among other things, skimmed milk powder in intervention causes a nuisance. In total, about 100.000 tons have been released. This has been purchased in recent years at a price of approximately €1.700 per tonne, but has yielded an average of €1.100 per tonne in recent months. Another thing that is mentioned is the stocks that were built up at the end of 2017 at higher prices, but now have to be sold at a loss.
Less profit
In total, profit is approximately 33% lower, bringing it down to €109 million. While a number of reasons have already been mentioned, there is another pain point and that is the high margin products; especially baby food. In Asia the processor has had a tough first quarter while relying heavily on this segment for its profitability.
Net sales in Asia and Oceania amounted to €1.875 million, representing a 33% share of total sales. In 2017, that was still €2.224 million. It is by far the most important market. The Netherlands follows with a share of 25% and a limited decrease in turnover to €1.403 million, after which the rest of Europe comes in third place with a share of 24%. Here a revenue growth is seen from €1.306 million to €1.397 million.
In addition, the infant nutrition market is under pressure. The 'Specialized Nutrition' component has a negative price effect on turnover and results. Turnover after various currency effects decreased by more than 10%. Also carry 'Ingredients' and 'Dairy Essentials' (basic dairy) negative contribute to turnover. Only the 'Consumer Dairy' division managed to make a positive contribution to the turnover, but still recorded a negative operating result compared to 2017.
Lower performance fee
Below the line, it results in a reduction of the performance premium. The pro forma value creation amounts to €0,71 per 100 kilos, compared to €2017 in the first half of 2. The pro forma performance premium is €0,55 per 100 kilos, which was previously €1,56 per 100 kilos. Finally, the pro forma issuance of member bonds amounts to €0,61 per 100 kilos, compared to €2017 in 0,44.
FrieslandCampina is not making any statements about the rest of 2018. However, the first half does not give any reason to expect a trend break. The measures being taken at the moment appear to be aimed at limiting further losses. It will be exciting to see what the strategy update will bring, because the market still offers opportunities. The question now is: can the company break away from the quota era and take advantage of the free market?
Would you like more information about the milk prices? View our milk price comparator.
Herman van den Pol
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