Corona cuts into FrieslandCampina profit

FrieslandCampina's result in the first 6 months of this year took a major blow as a result of the worldwide corona pandemic. The dairy group is having a head start in Hong Kong. Milk supply also increased. Dairy farmers notice the consequences in their wallets. 

With a stable turnover of €5,6 billion, profits plummet by 37,2% compared to the same period last year to just under €110 million. According to CEO Hein Schumacher, market conditions have been unprecedented in recent months. Due to the lockdowns in many countries, the prices of basic dairy dropped. The costs, for example for container transport overseas, rose sharply.

Stagnant sales in Hong Kong
There were also bright spots. The Consumer Dairy and Ingredients divisions saw an increase in operating profit. Probably by hoarding consumers. On the other hand, Specialized Nutrition, which includes the sale of baby milk powder, performed significantly less. Sales in Hong Kong stagnated due to the closed borders with China.

In China itself, sales of Friso milk powder in the second quarter were back at the level of before the corona crisis, after a turnover dip in the previous 3 months. The lactoferrin shortage is said to be a thing of the past, while sales received a boost thanks to internet sales. This offers prospects for the somewhat longer term, although the top of the dairy group has already stated several times that competition on the Chinese market is fierce. 

Interim benefit down considerably
The payment to the member dairy farmers is severely affected by the lesser performance. For example, the milk price decreased by €2,75 to €33 per 100 kilos between January and June. The pro-forma performance premium that the member dairy farmer receives is a mere €0,22 per 100 kilos of milk. Last year this was still €0,65. Moreover, there is no prospect of recovery. FrieslandCampina indicates that it is going to restructure, which will negatively affect profitability in 2020. 

FrieslandCampina had to process more milk for the first time in years, as a result of the growing weather. The supply increased by 1,1% to 5.144 million kilos. In view of the growth cap that the cooperative imposed 2 years ago, this is an increase that is moving towards the growth cap of 1,5%. If growth continues in the second half of this year, the (too) fast-growing dairy farmer will face a deduction from the milk money. Because production was lower in 2019 (partly due to stoppages) and there is a rolling average, there is still more room for growth than the 0,4 percentage point suggests at first glance.

FrieslandCampina does not want to say how much that space is from a competitive point of view. However, the discount scheme is not yet on the agenda, a spokesperson said. 

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

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