Inside Milk
FrieslandCampina has to remediate after loss of members
The loss of members recorded by the FrieslandCampina cooperative until 1 October has further increased the underutilization costs at the dairy group of the same name. It increases the need for adjustments at the factories.
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This is what financial CEO Hans Janssen said this week in a webcast for the members. The estimated annual cost of line underutilization is estimated at €100 million, said Hein Schumacher, CEO of FrieslandCampina. According to Janssen, another €10 million will be added due to the departure of more than 270 million milk, according to the position as at 1 October.
Janssen did not discuss the effects of the loss of members on the core capital of the cooperative. The resistance is now 15,5% and should be increased to 25%. Due to the introduction of delivery certificates, this is expected to increase to 2022% in 23. Schumacher said that after 2015, processing capacity was built for 15 billion kilos of milk, while now only 10 billion kilos come in. That is why several factories have been closed in recent years. That process is not over yet. Production lines are also adapted here and there.
Borculo never played well
The fate of the Borculo factory is still under study, Schumacher said. There has been much speculation about this factory. Schumacher denied that Borculo is standing still, but according to him the factory is 'quite low filled'. The factory has never run very well, he said. "Borculo has never been full and it was a very expensive factory. The (calculated) capacity of 750 million kilos was never achieved."
According to Schumacher, what to do with the factory is now being considered: partly renting out, operating in collaboration with others or selling. The cost reduction operation launched last year has now been completed and ultimately cost €135 million, which is less than first estimated. Meanwhile, other costs have again risen sharply. For example, raw material costs for the company have increased by €500 million this year. This is partly due to at a higher milk price for members, partly due to other factors.
Speculation to the realm of fables
FrieslandCampina is financially sound, according to Schumacher and Janssen, with a sufficient balance sheet. Solvency is good, as is the repayment capacity, profitability is picking up, but the return on invested capital, at 3,3%, remains much lower than the desired 10%. Speculations about possible 'falling over' referred them to the realm of fables.