2013 was favourable for FrieslandCampina as the Dutch dairy giant posted good underlying profit growth and sales. However, the company booked a EUR200m goodwill adjustment to make up for losses suffered as a result of the ongoing economic crisis in Europe, which hit its bottom line. While pleased with some movement forward, CFO Kees Gielen could not help but feel slightly anxious about the upcoming financial year, which he discussed in an exclusive interview with just-food’s Hannah Abdulla.
Looking at FrieslandCampina’s results by region, the dairy giant had a mixed 2013.
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The Dutch co-operative compiles its results for its businesses in Europe, the Middle East and Africa into a single division, with Asia being a separate unit. Operating profit from FrieslandCampina’s EMEA division fell in 2013 despite sales rising. By contrast, operating profit from FrieslandCampina’s consumer business in Asia was up 11%.
Speaking to just-food yesterday (12 March) after the results were published, Gielen says there was a “little higher [profit] growth than last year” in Europe but says there could be improvement. “We are still nowhere near where we would like to be,” he says.
Looking at the EMEA region more broadly, Gielen says profits were a “little lower” in the Middle East and Nigeria but adds the overall result was “satisfactory”.
However, it was Europe that cast a shadow over FrieslandCampina’s reported results. The Yazoo milkshake owner booked goodwill impairment charges linked to its business in Europe, due to what it called the “persisting crisis” in the region.
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By GlobalDataGielen, who, as then CEO, was part of the former Campina business that merged with Friesland Foods in 2008, says it is no secret the company’s volumes in Europe have declined over the last few years.
He says it has been enough of a challenge “just to hold on to the volume we had from the year before” and says FrieslandCampina has had to think about its market approach in each country to counter dropping volumes.
“Volume growth in Europe in the last three years has been very difficult. More broadly, the branded businesses have suffered too, it’s not just us. They’re losing share to, let’s say, businesses like Aldi and Lidl, and for our business that has been very similar.
“Before the crisis started, we had assumed the European markets would grow between 1-2%. The growth was always going to modest, but in actual fact it ended up being 0% or negative in most of the countries so it has hampered our development,” explains Gielen.
FrieslandCampina had to think on its feet about the long-term effect the crisis in Europe would have on its business. Gielen says costs are where it has focused its energies.
It began announcing plans for restructuring in its German plant in 2012 which Gielen says will continue until the end of 2014. Restructuring in Netherlands, including the closure of two sites, was announced at the end of 2013 and will continue on until 2015. So far between the two plants, at least 200 jobs are expected to be at risk. Elsewhere distribution and production jobs will also be affected. Restructuring in Belgium was also announced at the end of last year, which will commence this year. Nigeria is also to be hit with a restructuring plan. However, Gielen does not disclose any details on how streamlining efficiency will impact on the firm’s profitability.
If there is one thing he has to note as a benefit, Gieslen says the crisis has taught FrieslandCampina some lessons of how to manage a business through some tough trading conditions.
“We have been coping with the crisis very well in certain countries, let’s say Greece – it’s the perfect example of how you should behave in a crisis. The team there has performed solidly in the last four years, and when the crisis started they took measures; lowering prices, scaling back advertising and marketing – let’s say we shifted the business model somewhat and introduced efficiency programmes. Due to that we were able to maintain just below the same level of profit as before the crisis. So that was also a good example of different things we have been rolling out in some countries, depending what is applicable to them.”
This learning curve, he hopes, will serve the firm well in the coming year, where he predicts economic conditions will continue to be volatile.
What FrieslandCampina has tried to do, says Gielen, is prepare itself for any surprises that could adversely impact the company.
“The crisis will certainly continue to impact on our business this year. What we’ve tried to do is ensure, through restructuring and making sure our factories are as efficient as they can be, that when the crisis ends and the economy turns around we benefit from the growth that will take place from that moment forward.
“We don’t think this year or the next year is going to be easy and while we assume the market is going to pick up, there are of course always new things around the corner. The Ukraine crisis for example, again, that may adversely impact what is going to happen and what we thought is going to happen.”
Click here for part two of just-food’s interview with Gielen.
