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FrieslandCampina eyes Asian expansion

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Royal FrieslandCampina is eying overseas expansion, as profits rise in the face of a falling milk price, thanks to strong Asian demand for consumer dairy products.

The Dutch dairy co-operative declared its interest in buying a 51% stake in the Pakistani dairy company Engro Foods from Karachi-based parent Engro Corp.

FrieslandCampina announced its inentions as it revealed rising profits, despite a fall in revenues and a drop of nearly 19% in the price paid to its farmer owners for milk.

Profits rise

FrieslandCampina's net profits rose by 13% in 2015, to E343m euro.

"Margins increased due to the sale of more added-value products in Asia and the increased sales of dairy ingredients and infant nutrition by FrieslandCampina Ingredients," FrieslandCampina said.

Revenues fell by 0.7%, to E11.265bn, even though the co-operative's farmer members are continuing to ramp up milk production.

Milk output rose by 6.4 in 2015, to 10.1bn kilos.

But a lower global milk price mean the amount paid to co-operative's members fell by 19%, to E34.64 per 100 kilos of milk.

The increase in profits was ascribed to the "higher portion of the revenue generated by products with higher added-value," as well as lower milk costs.

Gloomy outlook

Still, despite its success, the cooperative painted a gloomy picture of the outlook for dairy prices.

"Global milk production is expected to continue to increase in 2016," FrieslandCampina said.

"Whether the demand for dairy products on the world market will increase at the same rate as worldwide milk production is uncertain."

Much depends on the development of demand in China, FrieslandCampina said, as well as whether or not Russia lifts an embargo on the import of dairy products from the European Union.

"As a result of these developments, prices for basic dairy products are expected to remain under pressure for some time."

Chief executive Roelof Joosten said: "The focus remains on sustainable growth of the most valuable product market combinations and product market combinations that absorb mainly member milk."

Engro approach

FrieslandCampina is planning expansion, in line with its strategy of looking for "new product-market combinations".

The co-operative will "start investigating a possible acquisition of an interest up to 51 % in Engro Foods in Pakistan".

Shares in Engro Foods, and its parent company Engro Corp, rose 5% to hit limit up in Karachi on the news.

By Agrimoney.com

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