FrieslandCampina hails “dynamic” half-year results driven by infant nutrition amid uncertain outlook
20 Jul 2022 --- FrieslandCampina marked a “dynamic first half of 2022” in its latest financial report, observing growth across its Specialised Nutrition and Ingredients segments. Recording a €77 million (US$79 million) net profit increase due to recovery in infant nutrition activities, the company underscores profit margins in its retail channel are under pressure due to cost increases.
“There was good revenue and profit growth in the first half of the year. Revenue and profit from infant nutrition in China experienced significant growth, in part due to the strong growth of (infant formula brand) Friso Prestige. However, costs also rapidly increased across the board, making price increases inevitable,” says Hein Schumacher, CEO at FrieslandCampina.
The Netherlands-based dairy giant’s revenue increased from €5.5 billion (US$5.6 billion) to €6.6 billion (US$6.8 billion), while net profit increased to €139 million (US$142 million).
“After strategic evaluation, we decided to continue to build the infant nutrition business under a strong Friso brand. Friso children's nutrition adds value to FrieslandCampina's business portfolio. Specialised Nutrition will focus fully on the Friso-branded infant nutrition activities with geographical focus on China, Greece, Malaysia, Mexico and Vietnam,” Jan-Willem ter Avest, corporate media relations at FrieslandCampina tells NutritionInsight.
“Friso will continue to focus infant nutrition in these five key markets. Despite challenging market circumstances, we have the ambition to continue growing our topline and market shares. We will do so through innovation, strengthening our brand proposition and value, and strong route to market,” he adds.
The company says it is confronted with “extreme inflation.” Consumer income on the line
According to Schumacher, FrieslandCampina will expand its lactoferrin production in Veghel, Netherlands, and continue to build the infant nutrition business under a strong Friso brand. The company also recently agreed to sell its production location for local infant nutrition in Xiushui, China.
The revenue and market share of the growing ultra-premium segment improved due to the company’s expanded distribution to smaller cities in China. Friso Gold, in the declining premium segment, experienced a further decrease.
“COVID-19 lockdowns in China produced challenges for the shipping, import and distribution of products. Furthermore, the disposable income of consumers was under pressure due to inflation. This was particularly evident in Southeast Asia, where the infant nutrition category was under pressure.”
Revenues amid price hikes
FrieslandCampina’s Specialised Nutrition business group saw revenues increase 18.6% to €612 million (US$625 million) compared to the same period of the previous year, which was €516 million (US$527 million) in the first half of 2021.
“Although Friso’s market share remained stable, revenue and profit in China rose significantly, in part due to the strong growth of Friso Prestige,” adds Schumacher. The company launched “a number of Friso innovations” in China, Southeast Asia and Greece.
Despite the “persistent closure of the border between Hong Kong and China, as well as significantly increased raw material prices,” the improved product mix and positive currency translation effects resulted in a significant increase in operating profit, the company notes.
Issues surrounding the border closure had an impact on the company’s half year results in the beginning of 2021, exacerbated by decreasing birth rates in Asia.
“With parents increasingly being aware on the importance of optimal nutritional diet in early life, Child Nutrition is foreseen to develop coming years, particularly in China & APAC,” ter Avest adds,
Lockdowns in China were a catalyst for shipping and distribution problems.
Market traction
Price increases across infant nutrition, elderly nutrition and pharmaceutical market segments drove revenue in the Ingredients business segment with a 31.8% increase, to €775 million (US$790 million), compared to the first half of 2021, at €588 million (US$599 million).
The segment previously pegged gut health and aging to drive innovation. Also, FrieslandCampina’s move to break into the plant-based protein arena with the introduction of Plantaris “created traction in the market,” the company notes.
Nonetheless, inflation, supply and demand dynamics resulted in “a significant increase” in raw material and energy costs.
Managing priorities amid setbacks
Schumacher explains the Ukraine war, COVID-19 pandemic, increasing costs in energy, fuel, transport and raw materials, as well as disruptions in the international supply chain and trade, leave the outlook for the rest of the year uncertain.
“The end of all uncertainties is not yet in sight. We are still faced with inflation-related challenges and the associated price increases, mounting raw material shortages, declining consumer confidence and the COVID-19 pandemic, which has yet to completely pass.”
As a result, the company is not issuing an outlook for the expected profit for 2022 and also not making any forecasts over the future development of milk prices.
In the short term, the company’s most important priority is to manage challenges due to increased inflation, for example, by effectively managing margins and specific risk mitigation measures within the supply chain.
“These are turbulent, highly dynamic times. What the long-term effects are on our markets and business operations remain to be seen. Naturally, this depends on geopolitical and economic developments, including the effects of measures introduced by governments, central bank(s) and the degree to which the availability and affordability of food is impacted,” FrieslandCampina underscores.
By Andria Kades
