Campina Performing Well in Healthy Dairy and Ingredients

20/03/08 The global consumer trend towards a more healthy lifestyle and consumption of natural foods led to growth and improved results for Campina in the 2007 financial year. The rapid rise in demand for low-fat dairy such as Campina Optimel/Optiwell, Campina Milner, Campina Vifit and Campina Valess had a healthy impact on the dairy cooperative and its owners, the member farmers. Turnover on all activities in the ingredients sector also rose sharply. Turnover for the Industrial Products group went up by 30 percent, yielding a much higher result than in the previous year. Campina’s total turnover rose by 11 percent to EUR 4 billion. The performance price improved substantially compared with 2006, increasing by 13.5 percent to EUR 36.93 (including VAT) or by EUR 4.40 for every 100 kg of milk supplied. The cash milk price paid to member dairy farmers increased by 16.5 percent to EUR 34.57 (excluding VAT) or by EUR 4.89 for every 100 kg of milk supplied.

Growth in healthy concepts
In 2007 Campina strengthened its reputation as a producer of innovative, natural dairy-based products which tie in with a healthy lifestyle (health & wellness). The company won over millions of new European consumers with its Campina Optimel/Optiwell (drinking yoghurts, yoghurts, quark and fat-free pudding/custard with no added sugar), Campina Optimel/Optiwell Control (the dairy drink that helps weight control), Campina Vifit, Campina Milner (low-fat cheese) and Campina Valess (a dairy-based meat replacement product) labels. In Belgium, too, the position of low-fat dairy was further improved with the successful launch of Campina Calcifort, a calcium-rich dairy drink.

In the Netherlands, the company maintained its position as the biggest brand in Dutch supermarkets for the sixth consecutive year, partly on the strength of its health concepts. Substantially more Campina Optimel products were consumed in 2007 than in the previous year. Sales of Campina Milner and Campina Valess also rose sharply due to increased consumer interest in healthy foods. In Germany, not only was Optiwell Control the best-selling new dairy product on the market, it was also the most successful retail product launch.

In 2007 Campina’s health products accounted for a large part of the overall turnover, again more than in the previous year. ‘In the wake of this success we’ll be making substantial investments in health & wellness concepts over the coming years, with a view to ensuring that they will make an even greater contribution to Campina’s turnover’, says Kees Gielen, Campina’s CEO. The 2007 figures are very promising in this respect: Campina’s weight control drink Optimel/Optiwell grew by 56 percent; sales of Campina Milner went up by 21 percent; and sales of Campina Vifit rose by 14 percent.

Successful ingredients
Campina’s ingredients activities were extremely successful in 2007 and led to a sharp rise in turnover and results. The increase in turnover was partly due to the joint venture DMV-Fonterra Excipients, the Dairy Ingredients business line (higher sales prices) and the Holland Dairy Feed business unit (higher volumes). The joint venture DMV-Fonterra Excipients specialises in the production of excipients for medicines used in tablets, capsules and inhaled medicines, had a very good year. A very good result was achieved owing to a shortage of pharmaceutical lactose on the world market on the one hand, and the position as market leader, which made it possible to achieve efficiency gains, on the other hand.

Energetic start to 2008
2007 was a highly unusual year for the dairy industry as a whole. Prices for basic dairy products rose sharply and quickly to record heights during the year. The main drivers behind this movement were the effects of the weather and rising global demand for basic dairy products. Campina was unable to benefit in all respects from the sharp rise in prices. This is because it does not trade in bulk products but instead converts the milk into added-value products for consumers and industrial buyers. Moreover, the contracts it concludes with many of its clients and buyers are based on mutually beneficial long-term partnerships.

2007 was a genuinely positive dairy year with a sharp rise in the market prices of dairy products worldwide. At Campina, the Industrial Products group was more than capable of keeping pace with the increase. The cheese division also performed in line with these positive trends. By contrast, the revenue of Campina’s important ‘white’ consumer dairy operations (milk, dairy drinks, yoghurts and desserts) was not entirely able to keep pace with the rise in the market for basic dairy products in 2007. In the year under review, substantial price rises were passed on to customers, but not to the extent that the Consumer Products Europe group was able to keep up with the rising prices for basic dairy. The CPE group’s margin and result were therefore lower than in 2006.

Butter sales were virtually the same as in 2006. The margin in the Campina Buttergold butter division, however, was under a great deal of pressure from the rise in the fat prices/butter quotations in 2007, combined with the fixed contracts customary in the market. Although the division increased consumer prices and the prices for industrial specialities several times, it was not enough to offset the increased costs. Campina Buttergold therefore closed 2007 with a negative result.

During the second half of 2007, Campina was able to substantially increase its prices for many products in numerous markets, thereby reflecting the sharp rise in production costs throughout the dairy chain. Now that commodity prices have fallen from last year’s peak, Campina’s strategy is proving its worth. This is especially true of its broad product package, where the focus is on products and ingredients with an added value for buyers and consumers. Campina therefore made an energetic start to 2008.

CEO Kees Gielen: ‘2007 was a turbulent year. For the first time in our history we were confronted with prices for basic dairy products that rose to record highs in a very short space of time. Nobody could have predicted that. However, we responded decisively and took steps to reflect these increases in our prices. This was tricky because our policy is to establish long-term relationships with our clients and buyers. We therefore took steps in the second half of 2007 to reconcile this policy with the need to implement vital price increases, since costs had shot up throughout the entire dairy chain from production to transport. We worked very hard to achieve this and I’m proud of the fact that we managed to pass on these increases.’

Excellent results in Russia
In Russia, Campina again posted excellent results. In Russia, Campina produces and sells yoghurt and yoghurt drinks under the Campina Fruttis and Nezhny brands. Since this year, Campina has also been producing coffee creamer locally, which will enable the Consumer Products Europe group to accelerate its expansion in this segment. To this end, Campina invested in a coffee creamer production line in November 2007 and is currently investing in a second yoghurt drink line.

In Germany, Landliebe, one of the most popular brands in the German supermarkets, posted a strong growth in turnover. Although the volume of private label dairy products on the German market fell, turnover rose, albeit slightly. Campina UK had a good year as far as sales of Yazoo, the milk drink marketed by Campina in the United Kingdom, was concerned. Turnover and results fell however due to a decline in sales at a major supermarket chain. Sales and margins in France and Spain were under severe pressure.

Brand offensive
In May Campina will launch a brand offensive to win more ground in the European supermarkets with products sold under the Campina Optimel/Optiwell, Campina Milner, Campina Vifit, Campina Valess, Landliebe and Mona brands. The product range will also be expanded to include new variants. ‘More flavours, more customers,’ explains CEO Kees Gielen. According to Gielen, the Netherlands, Germany and Belgium are leading the trend in healthy eating. ‘Russia is also becoming more health conscious. Sales of milk, yoghurt and drinking yoghurt rose beyond all our expectations in this growth market and we believe that low-fat products will soon make a substantial contribution to our results.’ Valess is also experiencing a rising trend, with a 25 percent growth in sales. This healthy dairy-based meat replacement is currently only available from a select group of sales outlets in the Netherlands and Belgium, but will be rolled out to a number of European countries over the coming year.

Sharp increase in performance price
Campina is dedicated to adding value to the milk supplied by its owners, the approximately 7,700 member farmers who live and work in the Netherlands, Germany and Belgium. Campina does this by collecting the milk as efficiently as possible and converting it into products that will strengthen its market position. The stronger Campina’s market position and the lower its costs, the better it is for the cooperative and thus for its member farmers. Campina’s earnings, once costs have been deducted, constitute the performance price for every 100 kg of milk supplied by its members. The lion’s share of the performance price goes into the members’ bank accounts and a portion is invested in the further consolidation of Campina. After all, investments in innovation, international growth and efficiency add long-term value to the milk produced by the member farmers.

The more than 7,700 members of the Campina cooperative benefited from the increase in milk prices. Campina managed to realise a much higher performance price than in the previous year. The performance price including VAT for 2007 amounted to EUR 36.93 (2006: EUR 32.53). Compared to 2006, this represents an increase of 13.5 percent. The cash milk price excluding VAT for 2007 was EUR 34.57 per 100 kg of milk, an increase of EUR 4.89 or 16.5 percent. Measured over the 2003-2007 period, this is well above the market average.

Campina’s new milk proves its value
Campina is actively pursuing the growth of its healthy concepts while at the same time continuing to focus on its classic dairy range. Despite the increased consumption of extra healthy dairy, consumers are still spending a high proportion of their dairy outgoings on classics such as milk, natural yoghurt and custard. The company is therefore committed to maintaining its market position in classic dairy.

Campina’s new milk with a more balanced fatty acid composition, which was launched in the Dutch supermarkets a year ago, has clearly proved its value for the position of the Campina brand in classic dairy. Campina has more than held on to its position as the biggest A-brand in classic dairy (milk, yoghurt, custard) in the Netherlands. Research has shown that 60 percent of consumers are aware that there have been changes in the milk product range. And people are increasingly associating Campina with natural, healthy foods. Whereas for decades milk was seen as ‘just’ milk, in spring 2007 Campina began to differentiate the milk it sells. If Campina hadn’t begun distinguishing between different milk flows, liquid milk would still be able to compete only in terms of price. However, consumers are now beginning to recognise that Campina is offering something extra in terms of fat composition, especially as its milk is also produced in a natural way by the member farmers and their cows.

CEO Kees Gielen: ‘The launch of our new milk has certainly enabled the Campina brand to hold on to its position in all those retail outlets where we have always competed with cheaper supermarket brands. We’ve taken milk out of the basic commodities corner. People are now making a conscious decision to buy the milk we produce. Early this year the company also started making Campina yoghurt, custard and porridge based on Campina milk with a more balanced fatty acid composition. Campina custard is now also made with less sugar, so it, too, can be marketed as more responsible while being just as tasty as ever.’

Strategic growth
In 2007, to reinforce its health mission, Campina concluded a joint venture which also made a positive contribution to its results. Its collaboration with Thai Advance Food resulted in the creation of Betagen Holding Ltd. The joint venture markets a yoghurt drink under the Betagen label which has a positive effect on digestion and consequently ensures a better all-round resistance. This dairy drink had already enjoyed years of success in the Asian market, and this success continued in 2007.

At the end of 2007, Campina acquired the ingredients subsidiary Satro GmbH. Satro produces ingredients for the food industry and for out-of-home locations, with dairy, instant desserts and ready-mixes for the food industry and drinks as its key areas of application. The acquisition is very important for a number of regional market positions and new sales channels.

Campina wants to promote its own consumer products more actively in the out-of-home market. One strategy is to sell its products from Campina chilled dispensers, not just in supermarkets but also elsewhere, including outside the designated dairy aisles. The company has already tested the Campina dispensers in 20 locations. Campina believes there are major opportunities to be exploited by using these dispensers to promote the sale of healthy drinks, milk and Café Fresco. Campina chilled dispensers will be appearing in supermarkets and in out-of-home locations such as petrol stations, public transport waiting areas and catering outlets from April.

Outlook for 2008: milk price to go up
Given the promising start to 2008, Campina is confident of the performance for the year as a whole. CEO Kees Gielen: ‘The turbulence in 2007 and current market developments make it difficult to predict the future.  However, Campina started the year well and this in combination with our innovative strength ensures we can look forward to the future with confidence. We anticipate realising a relatively good milk price.’