Overview of annual performance of Global dairy giants
In February, almost all leaders of the global dairy market reported their results for 2023. Some companies will present their results until May 2024. However, today we can already see the picture being formed by major milk processors for themselves and the market. DairyNews Today has compiled key results and forecasts from leading companies for 2024. Read more in the overview.
How are cooperatives doing?
In 2023, FrieslandCampina’s revenue decreased by 7.1%, reaching 13.1 billion euros, primarily due to adverse effects of currency recalculations, reduced volumes in consumer markets, exacerbated by high inflation. As reported by the company’s press service, the operational profit of 75 million euros was negatively affected by the mismatch between the guaranteed price of milk for participants and market prices for dairy products. Additionally, the sale of expensive stocks in a market characterized by low prices and adverse currency recalculations further contributed to this decline.
Dairy farmers experienced a 16.2% decrease in milk prices, reaching 48.08 euros per 100 kilograms. Due to the negative annual results, additional monetary compensation will not be provided to participating dairy farmers.
Commentary by Jan Derk van Karnebeek, CEO of Royal FrieslandCampina N.V.:
“The year 2023 was challenging for FrieslandCampina. The business results, especially concerning our global dairy production and trade activities, were under significant pressure. On the contrary, business groups dealing with specialized nutrition and ingredients had a good year, although it was not enough to offset the disappointing results of the other two business groups. Disappointing operational profit, combined with one-time expenses and higher financing costs, led to a negative net result for 2023. As a result, we are not providing additional monetary compensation to our dairy farmer members. This is disappointing, especially considering the increased expenses for our members and the efforts to further enhance farm sustainability. Given these sobering results, in the second half of 2023, we initiated the ‘Expedition 2030’ transformation, entirely focused on turning FrieslandCampina into the leading dairy company it has always been.
The core of Expedition 2030 consists of seven powerful business groups, each with its specific markets, product categories, strategy, and required employees, competencies, and investment levels. The strength of FrieslandCampina lies in the diversity of our business. We have aligned the new business structure with a comprehensive cost reduction program to ensure that the business groups, our production environment, and support services have an appropriate cost structure. Unfortunately, this means that 1800 jobs will be eliminated worldwide over the next two years. It was a difficult but necessary decision, and we will do everything in our power to support the affected employees in this process. We will also continue to pay special attention to increasing the sustainability of our dairy network. We do this for our owners – our dairy farmer members, for our employees worldwide, and, of course, also for our customers and consumers and all other stakeholders in a successful and promising FrieslandCampina.”
Another major dairy cooperative and milk processor, the Arla Group, reports that in 2023, it maintained a stable financial position, with total revenue reaching 13.7 billion euros, almost matching the 2022 figure of 13.8 billion euros. The negative impact of currency exchange rates, especially on the Swedish krona, British pounds, and US dollars, combined with the cost of goods and overall inflation, contributed to a reduction in product prices to 47.0 euros cents/kg, which is 8.1 euro cents/kg lower than the record-high level in 2022. Despite this decline, the 2023 result was 15% higher than the average over the last 5 years.
Arla Foods Chairman Jan Toft Norgaard explained this stability by the collective efforts of farm owners, employees, and management, demonstrating the company’s ability to adapt to complex market conditions. Norgaard expressed pride in the high results, highlighting the competitive milk price and noteworthy achievements in sustainable development in 2023.
In 2023, Arla achieved a net profit of 380 million euros, equivalent to 2.8% of revenue, which corresponds to the lower limit of the target range of 2.8-3.2%. Such high financial performance allowed the Arla Board of Directors to propose an additional payment of 2.07 euro cents per kilogram of delivered milk, totaling 270 million euros. Peder Tuborg, CEO of Arla Foods, noted that the proposed payment and competitive milk price in 2023 reflect Arla’s financial stability in the face of challenges in the global dairy market and unfavorable currency trends. Notably, Arla’s investments reached a record level of 601 million euros, exceeding the 2022 figure of 521 million euros.
Attention on Danone and Nestle These companies have a very high business diversification, as well as product distribution and production worldwide. As reported by Danone, despite ongoing investments, the company reached a record level of free cash flow of 2.6 billion euros, allowing for further strategic investments and easing the reduction of debt. Current earnings per share demonstrated positive growth at +3.4%, reaching 3.54 euros. Looking ahead to 2024, Danone’s management expects sales growth in the range of +3% to +5%, coupled with a moderate improvement in the current operating margin.
Antoine de Saint-Affrique, CEO of Danone, commented: “In conditions that remain challenging, the gradual improvement in our assortment, which turned positive in the fourth quarter, the visible progress made by EDP Europe, and the sustained dynamism of our medical nutrition activity are encouraging signs, even though much still needs to be done.
Building on the positive momentum of 2023, we begin this new financial year with confidence in our renewal strategy. We will continue to focus on consistent execution and deliveries in line with the medium-term goals we set in March 2022. We will continue to gradually enhance Danone’s sustainability, equipping it with the skills, science, and tools needed to operate in the future.”
Nestle CEO Mark Schneider stated last Thursday, after the release of results, that “prices this year will be much lower than last year.” He emphasized a shift toward volume and assortment-driven growth, indicating a more widespread trend in the industry.
Full commentary from Nestle CEO Mark Schneider:
“Unprecedented inflation over the last two years has increased pressure on many consumers and impacted demand for food and beverage products. In this challenging context, we delivered strong organic growth and solid margin improvement with increased marketing and other growth investments. Our free cash flow generation returned to historical levels.
Looking to 2024, we are prioritizing volume- and mix-led growth with increased brand support, as we enhance value for consumers through active innovation and renovation, premiumization, affordability, and more nutritious options. We will continue to focus capital allocation on our fast-growing billionaire brands, which enables us to deliver dependable growth while enhancing brand loyalty.
To drive market share gains, our key priorities are delighting consumers through differentiated offerings and focusing on superior execution. We are confident that we have the right strategy, portfolio, and capabilities to deliver on our 2025 targets.”
In recent years, cost increases due to the pandemic and geopolitical events, such as the conflict in Ukraine, prompted Nestle and Danone to significantly raise prices. However, according to Nestle and Danone, consumers are currently seeking more economical alternatives, aligning with the trend outlined by competitor Unilever PLC earlier this month.
Unilever, another consumer goods giant, in its recent financial results suggested moderate price growth due to decreasing inflation. Antoine de Saint-Affrique, CEO of Danone, acknowledged a slowdown in inflationary pressure but warned that price increases may still persist, noting, “We expect our growth to have a price component; it will vary depending on the region.”
Word on Saputo and Savencia Savencia Fromage & Dairy reported consolidated sales volume of 6791 million euros as of December 31, 2023, indicating a growth of 3.7%. This growth, totaling 240 million euros, resulted from sustainable organic growth at +11.6% and a structural effect at +2.1%.
However, unfavorable changes in currency exchange rates, particularly the devaluation of the Argentine peso and fluctuations in the Chinese, Russian, and North American currencies against the euro, had a significant impact with a change effect of -10%.
Sales of cheese products grew by +8% compared to the same period last year. Despite economic difficulties, Savencia’s sales of cheese products increased by 8% compared to the same period last year. This growth was attributed to a strategic adjustment of prices in different markets to cope with inflation and sustainable sales volumes, demonstrating the strength of Savencia’s brand model in conditions of purchasing power strain, as reported by the company.
Sales of other dairy products increased by +17%. This growth was driven by high sales volume figures in certain countries, especially in the recovering foodservice sector. The pricing impact on part of the portfolio helped neutralize the negative influence of declining prices for industrial products worldwide in 2023.
Saputo Inc. disclosed its financial results for the third quarter of the 2024 fiscal year, ending on December 31, 2023, in early February. Key financial indicators for the third quarter of the 2024 fiscal year: Revenue: $4.267 billion, a decrease of 7.0%.
- Net loss: $124 million compared to net profit of $179 million.
- Adjusted EBITDA: $370 million, a decrease of 16.9%.
- Adjusted net profit: $163 million, down from $221 million.
- Net cash flow from operating activities: $388 million, compared to $134 million.
Outlook for the 2024 fiscal year and strategic direction:
Saputo plans to manage inflation through pricing protocols and cost containment measures, increase workforce stability, and enhance operational efficiency after completing major capital projects.
The global demand for dairy products is expected to remain moderate, with mixed prospects in U.S. market factors. Saputo remains vigilant in managing commodity prices, expects low market prices for cheeses and dairy ingredients, and anticipates continued impact on the European sector but to a lesser extent.