Royal FrieslandCampina N.V has recorded 16.7 percent to 160 million euros drop in profit over the first half-year 2016 compared to the same period in the 2015 financial year.
As a result of the significant hike in the member dairy farmers’ milk production ( 11.9 percent), basic dairy products such as milk powder, foil cheese and butter were produced that had to be sold below cost.
Growth in volume was realised in infant nutrition in China and South-East Asia, dairy-based beverages in South-East Asia and Eastern Europe and ingredients, with improved results.
Revenue decreased by 2.2 percent, down to 5,522 million euros. The decrease in revenue due to lower sales prices was largely compensated by a higher volume.
The milk price for member dairy farmers decreased to 30.24 euros per 100 kilos of milk (first half-year 2015: 36.48 euros) due to the lower guaranteed price for raw milk and the lower value creation (performance premium and reservation in member bonds). The interim pay-out amounts to 1.170 euros per 100 kilos of milk (2015: 2.018 euros).
Roelof Joosten, CEO of Royal FrieslandCampina N.V.: “We can look back on a special first half year. FrieslandCampina is doing well in Asia and with ingredients, realising a fine 2.3 percent growth in volume with added value products.”
“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 percent decrease in both profits and milk price for the member dairy farmers.”
Over the first half-year 2016 5,488 million kilos of milk were supplied by the member dairy farmers of Zuivelcoöperatie FrieslandCampina U.A.
This is a 583 million kilo milk increase (11.9 percent) compared to the same period last year. A high proportion of the increased milk volumes was processed into basic products.
The revenue decreased by 2.2 percent to 5,522 million euros (first half-year 2015: 5,645 million euros). On balance, currency translation effects had a negative effect of 87 million euros (1.5 percent) on revenue.
The sales (volumes) of added value products, including infant nutrition, ingredients for infant nutrition and condensed milk, increased by 2.3 percent. The volume of basic products increased even more significantly: by 16.8 percent.
The sales prices decreased by 5.6 percent and the prices of added value products decreased by 4.3 percent. 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.
The operating profit decreased by 18.8 percent to 255 million euros over the first half-year 2016 (first half-year 2015: 314 million euros). Currency translation effects had a negative effect of 30 million euros on the operating profit.
The gross profit decreased by 5.6 percent to 938 million euros (first half-year 2015: 994 million euros) because the sales prices incurred a quicker decrease than the cost.
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.
Profit over the first half-year 2016 decreased by 16.7 percent to 160 million euros (first half-year 2015: 192 million euros). Of this amount, 117 million euros is at the disposal of the shareholder and the provider of the cooperative loan (Zuivelcoöperatie FrieslandCampina U.A.) and the holders of member bonds (first half-year 2015: 152 million euros).
