FrieslandCampina, the recently-formed Dutch dairy giant, is unlikely to close a raft of factories, a leading industry analyst said today (26 March), despite the company looking to conserve costs amid low milk prices.
The company, set up late last year after the merger of Dutch dairy groups Friesland Foods and Campina, said earlier today that it would cut capital spending and monitor costs after annual profits fell.
FrieslandCampina’s net profit dropped to EUR135m (US$183m) in 2008 from EUR183.3m in 2007. The company said a “plentiful” supply of dairy products due to increased global milk production led to “pressure on prices”.
FrieslandCampina’s operating profit was also hit, dropping to EUR248m from EUR373m in the previous year.
The merger of the two companies created a dairy group with revenues of EUR9.5bn and a deal of that size could be expected to create opportunities for cost cuts and synergies.
Since the merger was sealed in December, FrieslandCampina has sold a production facility in Germany and agreed to sell a Dutch fresh dairy business to Arla Foods.
However, Mark Voorbergen, dairy specialist at researchers Rabobank, played down the prospects of further cut backs at FrieslandCampina, despite the gloomy outlook for dairy prices.
Voorbergen told just-food that the rationale behind the merger of Friesland and Campina was one of scale rather than synergies.
“The main driver [of the merger] was to improve the overall revenue level and to move further towards the East,” Voorbergen said. “It was not so much about cost efficiency. Both companies were pretty lean and mean before the merger and I don’t expect factories closing.”
Dairy firms have seen dairy prices plummet due to an over-supply of key commodities and a fall in demand during the downturn.
Stocks of cheese and butter have built up, which have hit prices for the commodities. FrieslandCampina said today that 2008 had been a “challenging year” for its cheese and butter business, which made an annual operating loss of EUR77m.
Voorbergen predicted less volatile prices in the months ahead, as EU intervention had helped improve sentiment in the sector.
“I wouldn’t go as far as saying there will be a reversal of the trend but there will be more stable prices with minor ups and downs this calendar year,” he said.
Officials at FrieslandCampina could not be reached for immediate comment.