Said Hein Schumacher, CEO Royal FrieslandCampina N.V.: “The corona pandemic has created extraordinary market conditions in the first half of 2020. In many countries, lockdown measures forced people to stay at home and hotels, restaurants, bars and other out-of-home outlets shut down. Basic dairy prices fell sharply but certain costs rose, for example for transportation and shipping containers. In this unprecedented situation, our member dairy farmers continued to supply their milk, which was collected on time and processed in full at our production locations. We have also always delivered our products to our customers in these challenging months. We have worked hard and diligently on all this. For this, I would like to thank our member dairy farmers, employees and business partners from the bottom of my heart. We started 2020 well with results above last year, but this changed in mid-March due to the corona pandemic. As a result, FrieslandCampina felt the financial impact of the corona pandemic in the first half of 2020. Our total revenue stayed virtually the same, but we saw a shift from the profitable out-of-home segment, where revenue mostly fell away, to sales growth for basic dairy products where prices and profit margins dropped significantly due to the corona crisis. Revenue for the profitable infant nutrition business in Hong Kong also declined as a result of the closed borders with China.
“Despite taking numerous, far-reaching measures to absorb the impact of the corona pandemic on our results, unfortunately our operating result and profit still came under pressure due to the global corona crisis in the first half of the year. However, I also see positive developments: the company has rapidly adapted to a new situation of ‘business as unusual’ as we have come to call it at FrieslandCampina. There is an enormous focus on the primary process, on the production and distribution of our products and we are making huge strides with further digitization and e-commerce. Finally, we recently strengthened our market positions in Ingredients worldwide and in key consumer markets such as China, Indonesia, Nigeria, Pakistan and our home markets the Netherlands and Germany. Looking ahead, we must now assume that we will enter a global recession in 2020 and that recovery will take time. This necessitates us to further intervene in our cost structure and take measures to structurally improve our productivity. However, we will also continue to invest in our brands, innovations, sales channels (such as e-commerce) and growth markets. This combination should ensure that we emerge stronger from this challenging period.”
Total revenue was virtually flat (+0.3%) at EUR 5.6 billion in the first half of 2020. The business groups Dairy Essentials and Ingredients saw revenue increase by 5.8% and 3.6%, respectively. Revenue for the business group Specialised Nutrition was lower (-0.8%), mainly because sales of infant nutrition products in Hong Kong fell due to the closed borders with China. Despite a strong start of the year, revenue of the business group Consumer Dairy declined in the first half of 2020 (-1.9%), mainly due to a significant decline in out-of-home volumes caused by the temporary shutdown of foodservice outlets.
Market shares of important consumer brands including Rainbow (Middle East), Peak (Nigeria), Frisian Flag (Indonesia), Olper’s (Pakistan), Campina, Optimel, Parrano (the Netherlands) and Landliebe (Germany) rose. After China recovered from the corona epidemic in the second quarter of the year, infant nutrition sales in this important market returned to pre-crisis levels. The Friso brand in particular achieved sales growth in China with Friso Prestige. The resolution of the lactoferrin shortage with which the company was confronted last year and the successful deployment of the e-commerce channel during the corona crisis, enabled the Friso brand to improve its market position in China.
On a comparable basis, operating profit decreased by 17.2% and profit decreased by 37.2% in the first half of 2020. The business groups Consumer Dairy and Ingredients saw a substantial increase in their operating profit (by 18.1% and 21.9% respectively), while the business groups Specialised Nutrition and Dairy Essentials reported lower operating profit (-16.5% and -50.5% respectively). Dairy Essentials saw its business results deteriorate significantly as of the end of the first quarter due to a sharp decline in basic dairy prices as well as restructuring charges for the intended closure of the production facility in Rijkevoort (the Netherlands). Consumer Dairy showed an increase in operating profit despite the fact that profitable market segments such as ‘food service’ largely disappeared as a result of the corona pandemic. As a result of the application of the statutory fiscal cooperative regime, the allocation of the performance premium and member bonds is no longer included in operating profit as of 2020 but is allocated directly from equity to the members. As a result of this change, the company’s reported operating profit rose by 5.2% to EUR 221 million in the first half of 2020 (first half 2019: EUR 210 million) and reported profit in the first half of 2020 decreased by 10.7% to EUR 108 million (first half 2019: EUR 121 million). For more visit frieslandcampina.com