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Dairy market still soft in EU - but not in the US

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FrieslandCampina underlined the poor conditions in the European dairy market, even while highlighting demand growth elsewhere – attested to by Glanbia, which flagged a shortage of milk for its US cheese business.

Dutch-based FrieslandCampina highlighted "positive" hopes for the dairy market long-term, underpinned by rising population and consumer wealth.

"At the moment, the global demand for dairy products is greater than the supply," the group's chief executive, Cees t'Hart, said.

The co-operative, owned by more than 19,000 dairy farmers, also said that "rapid urbanisation will reduce people's degree of self-sufficiency even further and the demand for food, including dairy products, will increase".

'Still not promising'

By region, FrieslandCampina highlighted growing Asian demand for dairy, and raised Africa as "continent with enormous potential", with the spread of supermarkets also helping distribution of milk products.

However, the group warned over Europe, for which Mr t'Hart noted that "economic forecasts are still not promising".

"In 2014, Europe is expected to have to continue contending with consumers who limit their expenditure because their incomes are under pressure from higher costs and increasing unemployment," the co-operative said.

"In such times, to remain attractive and have brands and propositions that can hold their own against private labels and discount outlets, a brand producer such as FrieslandCampina must manage on the basis of cost reduction and, at the same time, invest selectively."

Huge writedown

The group warned that "as a result of the continuing crisis the result expectations in Europe have been adjusted downwards".

The downgrade had prompted it to take a E200m charge against the value of the Nutricia Dairy & Drinks business bought in 2001, bringing FrieslandCampina brands including Chocomel, Fristi and Milli, and offices in Belgium, Germany, Hungary, the Netherlands and Romania.

The charge left FrieslandCampina swallowing a 44% slump to E157m in profits for last year, despite a rise of 10.8% to E11.42bn in revenues.

Excluding the charge, profits would have risen 17.6% to E327m, Mr T'hart said, terming 2013 a "good year".

'Increased competition for milk'

Separately, Irish-based Glanbia attested to the difficulty that the squeeze on milk supplies was posing to its Idaho-based US cheese business, facing "challenges related to increased competition for milk".

The tussle for supplies "is expected to lead to higher milk costs and some year-on-year volume declines", Glanbia said, in comments which come two days after the US Department of Agriculture raised forecasts tor domestic dairy prices, noting increased export demand for cheese and butter.

The group raised to $21.40-22.00 per hundredweight, from $20.85-21.55, its forecast for all-milk prices this year, putting a rise of potentially 10% in value on the cards.

However, Glanbia said that its outlook overall for 2014 was "positive", led by its global performance nutrition arm, and forecast 8-10% growth in underlying earnings per share this year.

Market reaction

The group reported earnings of 55.46 euro cents for 2013, a rise of 8.0%, on revenues up 8.0% at E3.28bn.

Glanbia had enjoyed a "strong end to 2013", Jack Gorman at Dublin-based broker Davy said, restating an "outperform" rating on the group's shares.

The shares stood 1.9% higher at E11.19 in afternoon deals in Dublin.


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