FDBusiness.com

Three of Europe’s top ten dairy processors – Arla Foods, Royal FrieslandCampina and Bongrain – reported first half results in the past week. All showed major progress over the corresponding period in 2009 with Scandinavian co-operative Arla Foods and Dutch co-operative Royal FrieslandCampina both doubling profits. Although Bongrain of France significantly increased profitability and sales in the first half of 2010, the results are still below the French and international dairy group’s historic level of performance.

The marked improvement in results is hardly surprising as they follow drastic cost cutting and streamlining programmes at all three groups and are compared with the first half of 2009, which was a torrid period for the international dairy industry.

Cees ’t Hart, chief executive of FrieslandCampina.

Sustaining any recover is uncertain as volatility has become a characteristic of global dairy commodity prices, and consumer confidence in many markets remains frail.

Indeed, Bongrain has cautioned that for 2010 as a whole, it will not be possible to maintain the level of improvement in performance achieved during the first half, while Arla Food has warned of a challenging autumn ahead. “The economic recovery in Europe lags behind developments in other areas in the world,” says Cees ’t Hart, chief executive of FrieslandCampina. “In addition, there is fierce competition and consumers continue to be cautious with their spending.”

Another French company, Sodiaal, is about to join the world’s elite dairy groups, as it nears completion of its acquisition of Entremont to create the fourth largest dairy group in Europe with combined annual sales of more than Eur4b.

Heinz head William Johnson agrees that consumer confidence in the mature markets of Europe and the US is fragile and the outlook is bleak. “Many consumers have gone into what I like to term as economic hibernation, eating at home more often, eating out less, reducing spending and worrying more about the future,” he remarks.

Patrick Coveney, chief executive of Greencore.

Heinz is relying on emerging markets like China, India, Latin America and Russia to power growth and these are expected to deliver at least 20% of total group sales by 2013 – more than double their contribution of just five years ago. “Emerging markets are key to unlocking future growth because their economies are growing at a significantly higher rate than developed markets; the middle-class in emerging markets will eventually outnumber the combined populations of the US and Europe,” Johnson adds.

By disposing of its Dutch business, Greencore has become the third major UK food manufacturer to retreat from continental Europe in the last twelve months. Greencore is concentrating on developing its leading position in convenience foods in the UK supplemented by a growing convenience foods business in the US. Uniq has only just completed the sale of its operations in mainland Europe to transform into a UK-focused chilled foods business. Greggs, the UK’s top retail baker, has withdrawn from Belgium, where it had been operating ten shops as part of its overseas expansion plans. However, the shops had been loss making for five years.