Lackluster Asian infant nutrition market takes toll on FrieslandCampina’s results

21 Jul 2021 --- A “difficult” infant nutrition market in Asia and a Thai court case has put pressure on FrieslandCampina’s profits for the first half of 2021.

“The Asian infant nutrition market is difficult because of decreasing birth rates, the continued closure of Hong Kong border with China and strong growth of local brands in China,” Jan-Willem ter Avest, a spokesperson for FrieslandCampina, tells NutritionInsight.

He explains that Hong Kong is traditionally an important gateway to the Southern China market. Notably, sales of Friso Gold formula in China and Hong Kong decreased, while Friso Prestige in the ultra-premium segment in China grew.

While China recently began allowing couples to have up to three children, industry players previously shared that this was unlikely to lead to growth in the sector. This is because value and premiumization are currently the predominant growth drivers. F&B brands like Parrano, Chocomel and Valess performed especially well. 

F&B insufficient to offset headwinds
Overall, FrieslandCampina’s revenue decreased by 1.8 percent to €5.5 billion (US$6.5 billion). Adjusted for currency translation effects, revenue rose by 0.8 percent.

“Good results by the Food & Beverage and Trading business groups and realized cost reductions were not sufficient to offset the strong headwind in infant nutrition. Market conditions in this important category for FrieslandCampina remain difficult,” says CEO Hein Schumacher. 

Notably, profit decreased by 42.6 percent to €62 million (US$73 million), in part driven by the infant nutrition segment’s impact on the Specialized Nutrition and Ingredients business groups. 

These businesses’ revenues decreased by 14.9 percent and 3.9 percent, respectively. However, higher volumes and price increases drove a revenue increase in the medical, seniors and sports nutrition segments.

A new approach?
Another major impact on FrieslandCampina’s profitability is a court ruling in Thailand, which demanded the group hand €57 million (US$67 million) to a former B2B client. The unnamed client said that FrieslandCampina had overcharged it between 2009 and 2019. The group is now appealing the court’s judgment.

While the group is “cautiously optimistic” about the recovery of the consumer and out-of-home channels globally, it does not expect the Asian infant nutrition market to recover.

Ter Avest explains that in light of these results, a new market approach with a prominent role for e-commerce and innovation is needed. Notably, the rise of working from home led to e-commerce channels benefiting many of FrieslandCampina’s brands.

“Additionally, the medical, senior and sports nutrition segments offer interesting opportunities,” he adds.

The company also notes that the development of the COVID-19 pandemic and its impact on the company remains uncertain. FrieslandCampina expects basic dairy prices to continue to hover around current levels in the second half of 2021. As a result, milk prices are expected to do the same.The group is focused on investing in strategic priority markets and disposing of non-core activities like Nutrifeed. 

Pandemic’s impact
Now that the COVID-19 lockdown measures in many markets are being relaxed, many out-of-home activities are recovering. Schumacher adds that the global demand for dairy is increasing significantly, resulting in rising basic dairy prices.

“This is good news for our Trading business and for the milk price paid to our members,” he states. 

Ter Avest elaborates that foodservice businesses like restaurants and hotels are key clients for FrieslandCampina. 

“The COVID-19 measures, especially the lockdowns, have brought these activities to a halt or at least at a lower level. Fortunately, now that many governments are relaxing the measures, these foodservice activities are getting back on track,” he details. 

“However, the pandemic is not over yet, and neither is the uncertainty that it brings, particularly not in countries where the vaccination coverage is still relatively low,” Schumacher warns. 

“In recent weeks we have seen the numbers of infected people increase rapidly again in various countries, so caution is still required.”

By Katherine Durrell