The just-food interview part two: FrieslandCampina profitability ahead of schedule
FrieslandCampina CFO Kees Gielen
FrieslandCampina had something of a challenging year in 2013. During the period, the group's European business proved a sticking point as a goodwill adjustment associated with economic turbulence in the region hit the bottom line. However, strip out one-time charges and CFO Kees Gielen insists the firm is on the right track. Speaking to Hannah Abdulla in part-two of the just-food interview, Gielen highlighted the underlying strength of the business.
FrieslandCampina is, according to data from Rabobank, the world's fifth-largest dairy company by sales. The Dutch co-operative's global operations span categories from consumer products like Friso infant formula, Dutch Lady yoghurt, Milner cheese and Yazoo milkshake to ingredients for companies in sectors from bakery-to-baby food.
While one-time charges hit the bottom line in fiscal 2013, resulting in a 43.5% drop in net profit, the firm posted underlying net growth of 17.6%. Chief financial officer Kees Gielen is satisfied with the group's underlying performance and says the firm is "well ahead" of where it should be in terms of profitability according to its route2020 strategy.
Outlined in 2010, route2020 intended to provide a decade-long plan detailing targets for category and business growth, internally, as well as by region.
"We're well on schedule with targets. Where profitability is concerned, we are two, three years ahead of targets. And in terms of financial parameters, we are developing better than before," says Gielen.
By category, Gielen has been most impressed with the growth of infant nutrition which he notes is "well ahead of plans, [by] probably two-to-three years - the development has been that fast in this sector."
Helped by the repurchase of the Friso infant nutrition brand name in the Benelux, volume growth in its infant nutrition category grew 10.8%.
Similarly cheese has experienced "very good performance in the last two years, especially in the last year where volume growth was slightly below 10%", said Gielen.
However by area, there were some vast differences in performance notes Gielen. In Europe, this was particularly a result of the economic crisis.
FrieslandCampina's dairy-based beverages business in Europe performed poorly, falling by 3.4%. But given the circumstances, this is something "we have to accept", explains Gielen. In a sharp contrast, dairy-based beverage volume in Asia was up 10%, Gielen stresses.
Generally, Asia proved fruitful for FrieslandCampina during 2013 and together with Oceania, accounted for 25.7% of the company's (US$15.87bn) turnover in 2013. Its consumer sales business in Asia specifically, generated sales of EUR2.34bn in 2013, up over 12% on 2012.
It hasn't, however, all been plain sailing in Asia for FrieslandCampina. Last August, the firm was one of six fined for price-fixing on infant formula in China. The NDRC found a number of firms had imposed a fixed resale or minimum resale price on products, limiting competition in the market to the detriment of consumers. FrieslandCampina was fined CNY4.5m (US$728,4460 as a result of the investigation.
But a slapped wrist hasn't been enough to put the firm off its Asian expansion plans. In recent months, FrieslandCampina has made moves it hopes will bolster its presence in the region.
In November, FrieslandCampina announced plans to set up a dairy R&D site in China to improve product quality and safety. It has also purchased a 7.5% stake in New Zealand infant formula and dairy ingredients company Synlait Milk. The investment, it said, allowed it to safeguard the supply of raw materials from Oceania for use in products for Asia.
"China and Hong Kong are where we saw good growth last year, and that's where we will continue to focus," explains Gielen. Asia in general "would remain a focus" for FrieslandCampina during 2014, he adds.
But while Asia and select parts of the business have done well, 2013 was a challenge admits Gielen, with capacity being notably constrained. In 2014, this is all set to change with more "capacity coming on stream" to boost top line and volume growth.
He doesn't deny that the global economic crisis will continue to impact on operations during 2014 but says FrieslandCampina has started to "see first signs" of improvement.
"If you look at certain activities like M&A, which has been dead for a number of years, it is now picking up. Prices are picking up. We also see some of our partners are becoming more optimistic of what the market is going to look like. We don't think this year or next year is going to be easy but we see it turning around. We do assume slowly the market will pick up."
Volatility in currencies and gradual economic recovery meant the firm was unwilling to predict what its results could look like for the financial year 2014.
"2014 is going to be a difficult year - it won't be easy," says Gielen. We see currency movement and volatility has not stopped yet. The question is what is going to happen? Again it will be a year of unexpected elements.
"It won't be a walk in the park but at the end of the day, we love to do business and embrace challenges. Overall, we are a relatively new company. We've only been active since 2009. What we have today, we didn't have three years ago, and that's global category teams and global marketing teams. That's really part of our transformation from a supply-driven company to a market-driven company. People are pleased with FrieslandCampina's development which is very good.
"We will adapt to circumstances as they come," he concludes.
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