Merger with Milcobel puts pressure on FrieslandCampina's profits

The official verdict about FrieslandCampina remains unchanged is stable at BBB+ and Fitch is less critical than last year. Fitch's assessment is important for institutions that want to lend money to FrieslandCampina.

According to the credit rating agency, they generally have little risk to fear when they lend money to FrieslandCampina. The dairy company applies a financially conservative policy and generates a relatively low, but nevertheless stable profit annually. It also assumes that FrieslandCampina applies a cautious back-payment policy. If the income does not allow it, no back-payment is paid. FrieslandCampina has demonstrated this in previous years.

Margin
For the current year, Fitch assumes a more or less stable to slightly declining profit, with a turnover growth of 1,1%. The net profit for the years up to and including 2028-2029 is estimated at €70 to €90 million per year. That would also mean a slightly lower back payment. In the past year, the gross margin was 7,5%, for this year Fitch expects a margin of 7,4%. Next year and the years after that, this percentage will drop to almost 7%.

The reason for this is the expected merger with Milcobel. This will lead to a turnover increase of 2026% in 12,1, but will probably be followed by an annual turnover increase of perhaps 4% to 6% in the years thereafter. Much also depends on external factors that no one can yet predict, but Fitch expects a continuing slight decline in milk supply in the dairy sector.

For FrieslandCampina this can have the advantage that less product needs to be put on the market separately. On average, trading activities are less profitable for FrieslandCampina than sales via fixed channels.

environment
Compared to other large dairy companies, FrieslandCampina occupies a kind of intermediate position according to Fitch. It does not receive the same status as Nestlé, for example, because it has less strong brands and does not have an equally strong position everywhere in the world. Fonterra also receives a slightly higher credit rating, because its members have a less strong financial position than other lenders. It does have a higher status than the cooperative Dairy Farmers of America, because FrieslandCampina has a better geographical spread in terms of sales and strong brands.