November 16, 2020
FrieslandCampina accelerates transformation
FrieslandCampina has evaluated its "Our Purpose, Our Plan" strategy initiated in 2018 due to the impact of the COVID-19 pandemic.
While the current strategy has grown in relevance, the plan's implementation needs acceleration and strong execution, intensifying the focus on growth categories whilst structurally reducing costs, the dairy cooperative said.
The goal of accelerating FrieslandCampina's transformation is to future-proof the cooperative, rendering it capable of operating successfully even in extremely challenging market conditions.
Hein Schumacher, CEO of Royal FrieslandCampina NV, said: "To date this year, the majority of our operating companies have managed to increase revenue and we have also strengthened our positions in important consumer markets such as the Netherlands, the Philippines, Pakistan, Indonesia and China. We are weathering a perfect storm in 2020, however.
"Setbacks directly or indirectly caused by the coronavirus pandemic - such as the still closed border between Hong Kong and China, the fall in foodservice revenue worldwide, the devaluation of local currencies such as the Nigerian naira against the euro and lower bulk dairy prices - have significant financial impact on our profitability in 2020 and cannot fully be offset.
"Furthermore, profit margins in the Netherlands, Belgium and Germany remain under pressure. We have the right strategy, but market conditions now require that we accelerate its implementation whilst intensifying the focus on profitable revenue growth and cost savings. We are fully aware that this will entail tough decisions which will have an impact on our people. Nevertheless, these interventions are necessary to enable us to operate successfully as a business and to continue to pay our member dairy farmers an exemplary milk price in the future."
During the transformation process, FrieslandCampina will focus on five priorities.
Accelerating the implementation of the strategic themes from the Our Purpose, Our Plan strategy
- Win with nutrition: Due to the coronavirus crisis, the importance of nutritious dairy products has continued to grow in our home markets and in emerging markets. We will continue to innovate and invest in this, independently and - where prudent and relevant - through strategic partnerships.
- Lead with sustainability: As a dairy cooperative, FrieslandCampina has a clear view of the entire value chain, from grass to glass. This unique position is increasingly relevant to its customers and consumers and the cooperative will make even better use of it by converting sustainability stronger into its brands and products.
- Elevate FrieslandCampina's essentials: Commodity dairy prices are under pressure due to the coronavirus crisis. FrieslandCampina will enable faster growth for value-added, higher margin essentials and excel in commodity management for bulk dairy products.
Successfully implementing a new route to market for the infant nutrition business in Hong Kong/China
Hong Kong has been an important gateway to southern China for FrieslandCampina for many years. As the borders between Hong Kong and China are still closed, that route to market is no longer viable and the profitability of its business in Hong Kong is under tremendous strain.
Therefore, FrieslandCampina is implementing a new route to market for Hong Kong and southern China, with a prominent role for e-commerce and product innovations.
Nonetheless, it will take time before this new route to market replaces the old one in terms of revenue and profit.
In this regard, the company will focus on the production network, management layers, support services and functions.
Productivity will need to further increase in the supply chain, particularly in the Netherlands, Belgium and Germany, with the focus on production sites with structural overcapacity, FrieslandCampina said.
Relocating activities and/or (partially) closing certain production sites - as was announced for FrieslandCampina's plant in Rijkevoort, the Netherlands, earlier this year - is in line with the strategy.
"Building on the focus achieved in recent years, we will continue to review our worldwide business portfolio; as a result, non-core assets could be divested," FrielandCampina said.
Proceeds generated from potential divested assets will be used to strengthen FrieslandCampina's equity. Together with the cooperation, the cooperative will continue to work on a future-proof member financing system.
Preserving and reinforcing our distinctive culture
FrieslandCampina has a unique culture shaped each and every day by purpose-driven, results-oriented people who think and act with customers and consumers in mind.
The resilience that this culture engenders has shown its worth during the coronavirus crisis, particularly during lockdowns and when international trade was severely hampered due to the crisis, FrieslandCampina said.
Throughout the coronavirus crisis, the cooperative has continued to collect and process all of the milk from its nearly 11,500 member dairy farms and has always been able to supply nutritious dairy products to all of its customers and consumers in over 100 countries.
"Preserving and reinforcing our distinctive culture during the transformation will be essential. In the period ahead, further decisions will be made on the implementation of the transformation and the underlying initiatives and projects. Our people, member dairy farmers and other stakeholders will be kept abreast of the progress being made," FrieslandCampina said.
Financial and people aspects
In order to accelerate the business transformation and, in particular, to continue to optimise the organisation, FrieslandCampina expects to incur restructuring costs of €150 million (US$178 million) to €175 million (US$207 million), which will be charged to profit in 2020 and 2021 (the majority to 2020 profit).
The proposed measures are geared towards structurally reducing FrieslandCampina's costs by more than €100 million (US$118 million) per annum from 2022 onwards. The future savings will be used to improve the company's profitability, pay an exemplary milk price to the member dairy farmers and invest in the growth of the business.
As a result of the proposed measures, FrieslandCampina anticipates the reduction of approximately 1,000 jobs by the end of 2021, mainly in the Netherlands, Belgium and Germany. Where possible, this will be achieved through natural staff turnover, redeployment and refraining from filling vacancies.
"Compulsory redundancies cannot be ruled out, however. Once we know the details of the plans, the relevant employee representation will be timely consulted followed by communication with the involved employees," the cooperative said.
To contribute to the cost savings, there will be no 2020 long-term bonus for FrieslandCampina's senior management.
"Finally, together with the cooperation, we are looking at the current setup of the member financing system in order to future-proof the system and ensure that it contributes to a financially solid and successful FrieslandCampina," the cooperative said.