Challenging first half of 2023 due to deterioration in economic conditions

Date: 20.07.2023Source: FrieslandCampina

The first half of 2023 was challenging for FrieslandCampina. As indicated at the start of the year in the ‘Outlook for 2023’, the economic conditions for the company deteriorated in the first six months of the year. The milk price that FrieslandCampina paid to its member dairy farmers over the past half year was higher than the sharply declined market prices for commodity dairy products, particularly for cheese and butter. Expensive product stocks had to be sold in a declining dairy market.

Furthermore, volumes declined as a result of market declines due to a loss of purchasing power and a shift in consumer spending towards private label. The Food & Beverage and Trading business groups were hit the hardest by this. The Ingredients and Specialised Nutrition business groups on the other hand had a good start of the year, but this could not compensate the loss in profitability at the other two business groups. As a result of the above developments, net profit declined sharply in the first half of the year.

Despite the challenging circumstances, FrieslandCampina has continued to invest in the company, future growth and sustainability. In Veghel (the Netherlands), FrieslandCampina Ingredients opened a new, sustainable production facility for lactoferrin, an important, high-quality protein for infant and adult nutrition. Furthermore, a large-scale pilot with a methane-reducing feed additive, in which almost 160 dairy farms with a total of almost 20,000 cows participated, was successfully completed.

This is promising news relating to the future reduction of greenhouse gas emissions at dairy farms. The company has also refinanced maturing debts by issuing a 300-million-euro Schuldschein linked to environmental, social and governance (ESG) goals. This would not have been possible without clear climate objectives and other sustainability priorities.

Said Jan Derck van Karnebeek, CEO Royal FrieslandCampina N.V: “The results for the first half of the year are not at the level one can expect from FrieslandCampina. Improving our profitability in 2023 and beyond is therefore our top priority. That is why we have implemented short-term cost savings without jeopardizing our long-term growth prospects. In addition, we are working on refining our strategy, known as ‘Expedition 2030’, to structurally improve the profitability of the company, including the lower-margin product and customer segments. We look at both the revenue and the cost side of the company for this. Making FrieslandCampina more sustainable, for example by implementing our climate plan, will also be an important focus point within Expedition 2030.”

In the first half of 2023, FrieslandCampina’s revenue increased by 4.6 per cent to 6.9 billion euros compared to 6.6 billion euros in the same period last year. The growth in revenue was primarily driven by earlier implemented price increases. In the first half of 2023, commodity dairy prices dropped faster than the milk price paid by FrieslandCampina to its member dairy farmers based on its milk price system.

On top of this stocks produced at a higher cost price had to be sold at a lower market value, which had an adverse effect on profitability.

The operating profit and profit declined in the first half of 2023 in comparison to the same period last year. Operating profit amounted to 47 million euros, a decrease of 85.7 per cent compared to 328 million euros in the first half of 2022. Profit amounted to 8 million euros, a decrease of 94.2 per cent compared to 139 million euros in the first half of 2022. Interest rate increases, unfavourable currency translation effects, loss in purchasing power and a shift in consumer spending all contributed to this. For more visit frieslandcampina.com

David Cox / IDM

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