Background Half-year figures
RFC is going to pay even more attention to little ones
FrieslandCampina is going to cut extra costs. A plan is being drawn up in which the entire organization is examined from A to Z. In view of the cost savings, it is a windfall that the Members' Council approved the explicit subordination of milk money last night (22 July).
In an explanation of the half-year figures FrieslandCampina announces that it is taking measures in the cost structure. The announcement does not come completely out of the blue, because cost reduction was already a theme at the head office in Amersfoort. In October last year, for example, the construction of a new factory in Bedum, Groningen, was closed.
Recently, the dairy company also announced that the curtain is falling for the cheese factory in Rijkevoort (North Brabant). The disappointing results due to the corona crisis have undoubtedly increased the urgency to examine the costs even more.
Multiple factory closures?
Between the lines, the statement states that factory closures are also likely in the coming months. FrieslandCampina does not want to get ahead of things, though. A spokesperson says that the entire organization is under scrutiny. This is not least the supply chain, as can be concluded from his words. According to the spokesperson, the remediation of jobs is not a goal in itself. This seems likely.
"We pay close attention to costs, the closure of the Rijkevoort factory is an example of this. We continuously strive for a balance between milk supply and market demand and act accordingly," said the spokesperson. After years of contraction, FrieslandCampina is now seeing the milk supply increase again. In the first six months, it grew by 1,1% to 5.144 million kilos.
The timing of the increase is unfortunate, as the demand for dairy has been hit by the corona crisis. Moreover, the growth is not a favorable development for dairy farmers who have scaled up production. They risk a discount on the milk money if growth exceeds 1,5% compared to base year 2018. Because production was lower in 2019 and there is a rolling average, there is more room than the 0,4 percentage point suggests. . FrieslandCampina does not want to say how much that space is from a competitive point of view. However, it is indicated that the possible discount is not yet on the agenda.
Bench above dairy farmer
With a view to cost savings, the management is undoubtedly relieved that the Members' Council has agreed this week to the explicit subordination of the milk money. This is a fairly technical intervention in the statutes. Simply put, this means that banks and other lenders will have priority as creditors over the member dairy farmers should FrieslandCampina go bankrupt or have to apply for a moratorium. The works council will consider the plan tomorrow, although the green light also appears to be a formality from that angle.
There are benefits to the surgery. With the explicit subordination of the milk money, FrieslandCampina can borrow at attractive interest rates, because lenders have more security. Reportedly, this results in annual savings of millions of euros in interest costs, which benefits the operating result. Talking about the operating result. Although FrieslandCampina does not provide a concrete estimate for the second half of 2020, a recovery is not obvious.
Wouter Job
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