FrieslandCampina, the Dutch dairy giant, today (1 September) booked a fall in half-year profits as the co-operative felt the pressure on earnings from rising milk production.
Profit over the first half of this year fell by 16.7% to EUR160m (US$178m). Operating profit fell by 18.8% to EUR255m. The Milner cheese and Yazoo milkshake owner said currency translation effects had a negative effect of EUR30m on its operating profit.
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Gross profit decreased by 5.6% to EUR938m as FrieslandCampina’s sales prices incurred a quicker decrease than the cost, the company said. “The sales increased in volume; however, margins were at a lower level than in the first half year of 2015. Due to the high milk supply and the lagging demand, basic products were mostly sold under cost. Direct sales of raw milk in the spot market also showed a loss.”
The company booked first-half sales of EUR5.52bn, a fall of 2.2%, compared to the same period a year ago. FrieslandCampina said currency translation effects had a negative effect of EUR87m (1.5%) on revenue.
FrieslandCampina said the results were “in spite of growth in infant nutrition and dairy-based beverages”.
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“The sales (volumes) of added value products, including infant nutrition, ingredients for infant nutrition and condensed milk, increased by 2.3%,” the company said. “The volume of basic products increased even more significantly: by 16.8%. The sales prices decreased by 5.6% and the prices of added value products decreased by 4.3%. Over the first half year of 2016, more raw milk was sold directly to third parties due to high milk supply and fully-utilised production capacity.”
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By GlobalDataCEO Roelof Joosten: “Due to the increased milk production, we had to process significantly higher volumes of milk into basic dairy products that we could not sell at a profit in the market. This is visible in the 17% decrease in both profits and milk price for the member dairy farmers.”
FrieslandCampina said it “does not express any concrete outlooks relating to the results” for 2016 as a whole but it indicated it believed milk prices had “bottomed out”. It said: “In the second half year of 2016, worldwide supply of milk is expected to decrease compared to the first half-year. Demand for dairy products is expected to only show a modest increase over the second half year of 2016. This is due to the limited purchasing power in many oil-exporting countries, political instability in many countries, limited demand for dairy materials in China and Russia continuing to block the European Union’s dairy products.”
However, the company said the effect of the European Commission’s measures to reduce milk production in the EU “based on support measures is as yet unclear”. The impact of possible voluntary restriction of production of cooperatives or producer associations are also unclear, Friesland said.
Meanwhile, FrieslandCampina said the Netherlands is expected to impose measures to reduce phosphate production in cattle farms to below levels of 2 July. “It is as yet unclear whether or not this may lead to a reduction of the milk production in 2016.”
