Cash drives strategy at FrieslandCampina

FrieslandCampina has kept the tension high since the half-year results, which ended with a veiled warning and without an interim payment. The question was: will there be a final payment at the closing of the books for the entire year, and if so, how much will it be? Those looking at the market for basic dairy will be disappointed. Based on that, there would be little left to distribute, but at FrieslandCampina, more factors come into play. The divisions with products with high added value, such as Specialised Nutrition and Ingredients, play a significant tune. However, the gross margin does not tell the whole story. Factors such as reduced inventories, lower pension costs, and moderate investments also helped boost the net result this year. CEO Jan Derck van Karnebeek expressed it as follows: We have an accounting figure called 'profit', but what matters is 'cash'. On that point, FrieslandCampina delivered. There will be a final payment of €1.31 per 100 kilos, 10 cents more than the previous year. For a dairy farm with 1 million kilos of milk, that means over €13,000. Additionally, FrieslandCampina is reporting its best results in five years. Smallest division performs best FrieslandCampina achieved the best results in the smallest division: Specialised Nutrition, or children's nutrition. Although the Chinese market still brings in the most money, FrieslandCampina also performs well elsewhere. The operating result of this division, with a turnover of €1.349 billion, increased by over 47% to €339 million. FrieslandCampina can consider itself fortunate not to have been affected by the scandal involving contaminated ARA oil from a Chinese supplier, which resulted in a global recall of children's nutrition. However, the company is not pleased with the issues faced by its competitors, according to Van Karnebeek. Such matters undermine confidence in the sector. The division for the Middle East, Pakistan, and Africa, the second smallest division, performed modestly but experienced volume growth and recorded a profit in Nigeria for the first time in a long time. Black figures were also reported from Pakistan. Borculo impacts Ingredients result The Ingredients division, which produces and sells high-quality whey products, again recorded a substantial profit. However, the result could have been higher if there had not been extra costs in various factories. Especially the problems in Borculo pressured the results. The outlook for Ingredients, according to Van Karnebeek, is distinctly positive. From this year, the performance of Wisconsin Whey Products is also included. Volatility and full factories The results of the Professional division, the largest by turnover, are the least positive. This is often the case. With a turnover of €3.9 billion, the result dropped to minus €70 million. According to the company, all the volatility of the market is being absorbed here. FrieslandCampina does not seem particularly concerned about this loss, especially not now that the number of members and milk supply is increasing. Last year, 182 new suppliers started delivering, and in the coming years, more are expected. Our factories are bursting at the seams, including those of Milcobel, said the CEO. Milk pressure not problematic From a strategic point of view, the current milk pressure is not seen as problematic. It is actually considered a positive development that the trend of many exits and little new entrants has reversed. There will still be plenty of exits in the coming years, and maintaining scale is crucial for the company. Van Karnebeek and CFO Hans Janssen emphasize that there will still be plenty of challenges in the coming years, particularly in reducing greenhouse gas emissions. Much has already been achieved by farmers, but there is still a significant task ahead. According to Van Karnebeek, this is achievable. Political clarity needed For this, political clarity is necessary, particularly regarding the nitrogen issue. The cabinet must provide clarity while also keeping an eye on food security and providing support for the requested adjustments. Legal certainty regarding permits and legislation is essential. In addition to support for innovations such as the Lely Sphere and Bovaer, FrieslandCampina also considers support for manure digesters necessary. These can contribute to lower nitrogen emissions, more use of organic fertilizers instead of chemical fertilizers, and increased energy production in the country. Difficult market and merger costs In the first half of this year, dairy farmers are expected to continue having difficulties. The global dairy market is facing a surplus supply, and many commodity prices remain under pressure. Better market conditions are only expected in the second half of the year. Additionally, the costs from the merger with Milcobel will put some pressure on the results this year.