Annual Report 2011 Royal FrieslandCampina N.V.
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Annual Report 2011 Royal FrieslandCampina N.V.
Caption on cover: Milk is one of the richest natural sources of essential nutrients. The nutritional power of milk is the basis on which FrieslandCampina provides consumers around the world with healthy, sustainably produced food.
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Explanatory note In this Annual Report we are presenting the financial results and key developments of Royal FrieslandCampina N.V. (hereafter FrieslandCampina) during 2011. The financial statements have been prepared as at 31 December 2011. The figures for 2011 and the comparative figures for 2010 have been prepared in accordance with the International Financial Reporting Standards to the extent they have been endorsed by the European Union (EU-IFRS). The milk price for 2011 received by members of Zuivelcoöperatie FrieslandCampina U.A. for the milk they supplied was determined on the basis of FrieslandCampina’s method for determining milk prices 2011 – 2013. All amounts in this report are in euros, unless stated otherwise. This Annual Report includes statements about future expectations. These statements are based on the current expectations, estimates and projections of FrieslandCampina’s management and the information currently available. The expectations are uncertain and contain elements of risk that are difficult to quantify. For this reason FrieslandCampina gives no assurance that the expectations will be realised. The Annual Report of Royal FrieslandCampina N.V. has also been published on the website www.frieslandcampina.com and is available on request from the Corporate Communication department of FrieslandCampina (corporate.communication@frieslandcampina.com).
The terms used in this Annual Report include:
The annual report of Royal FrieslandCampina N.V. is available in Dutch, German and English language versions. In the case of conflict between versions the Dutch text is legally binding as it is the original. The English version has been produced solely for the purpose of convenience.
Royal FrieslandCampina N.V. (the ‘Company’ or ‘FrieslandCampina’) Zuivelcoöperatie FrieslandCampina U.A. (the ‘Cooperative’) Supervisory Board of the Company (the ‘Supervisory Board’) Executive Board of the Company (the ‘Executive Board’)
Contents General
Foreword
4
Major developments in 2011
8
Key figures
Report of the Executive Board
10
Major financial developments in 2011
11
Profile, strategy and organisation
12
Operational developments
26
Consumer Products Europe
34
Consumer Products International
37
Cheese, Butter & Milkpowder
40
Ingredients
42
Innovation
44
Supply Chain
45
Quality
45
FrieslandCampina and its staff
46
Outlook
49
Responsibility statement
49
Corporate Social Responsibility
52
Corporate Governance
58
Risk management
64
Report of the Supervisory Board
76
Financial statements 2011
Overviews
Consolidated financial statements
83
Consolidated income statement
86
Consolidated statement of comprehensive income
87
Consolidated statement of financial position
88
Consolidated statement of cash flows
89
Consolidated statement of changes in equity
90
Notes to the consolidated financial statements
92
Principal subsidiaries, joint ventures and associates
132
Company financial statements
133
Company balance sheet
133
Company income statement
133
Notes to the Company financial statements
134
Other information
138
Provisions of the Articles of Association governing profit appropriation
138
Proposed profit appropriation of profit attributable to the shareholder of the company
138
Subsequent events
138
Independent auditor’s report
139
Financial history
142
Milk price overview
143
Supervisory Board
144
Executive Board
146
Corporate Staff
147
Business management and addresses
148
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General Foreword
Foreword Dear reader,
The milk price rises sharply 2011 was a good year for FrieslandCampina. The milk price for member dairy farmers was higher than ever before. This means that, as far as the creation of value for member dairy farmers is concerned, FrieslandCampina is ahead of the schedule drawn up in the route2020 strategy. This proves that the choices made with the merger three years ago were the right ones. Since the merger the operating profit has improved substantially from 248 million euro in 2008 to 403 million euro in 2011. As far as 2011 is concerned, the Ingredients and Consumer Products International business groups achieved good results. The growth of infant & toddler products was faster than expected. The results were under pressure in Europe and were particularly disappointing in Germany and Hungary. Although the result was slightly lower than for 2010, the 2011 financial year proved that with its broad product portfolio and geographical spread of activities FrieslandCampina is very capable of offsetting disappointing results in certain markets. The good result was achieved thanks to the efforts and dedication of our employees. A special compliment is owed to our employees in Thailand and Nigeria who, in 2011, were confronted with extremely difficult working conditions as a result of heavy rain and severe flooding. Thanks to their unceasing efforts, flexibility and creativity the damage from production stoppages and distribution problems remained limited. Unfortunately sad events also happened in 2011. Fatal accidents resulted in two people losing their lives while carrying out their work for FrieslandCampina. These are incidents that must not be allowed to happen. Safety is a priority for FrieslandCampina. Everything possible is being done to make everybody in the organisation more aware of the possible risks and to prevent risky behaviour.
route2020 on schedule Last year FrieslandCampina took further steps towards achieving route2020, the strategic course that is leading to the sustainable growth of FrieslandCampina. In 2011 over 376 million euro was invested, most of which related to increasing capacity for future growth. The largest investments were made at the production facilities in Beilen and Bedum and focused on the production of infant & toddler nutrition, primarily for the Asian market. We are also investing heavily to ensure we can cope with the expected increase in member milk after 2015. New global category teams for the growth categories dairy-based beverages, infant & toddler nutrition and branded cheese are focusing on accelerating the growth and developing new concepts and products. In Wageningen work started on the construction of the new FrieslandCampina Innovation Centre, where from 2013 on over 450 specialists will work on innovation. To improve both our cooperation with customers and our internal efficiency further, we have introduced key account management. By clustering the sales and marketing activities of different product groups, FrieslandCampina now offers ‘One face to the customer’. FrieslandCampina’s new worldwide sustainability programme for both the Company and the Cooperative is an important cornerstone of route2020. The guiding principle is that a healthy and successful FrieslandCampina can only exist if it contributes towards a healthy social environment and a healthy living environment and supplies nutritious products. Last year FrieslandCampina took the initiative to stimulate dairy cows being put out in the meadow by making an amount of up to 45 million euro available for member dairy farmers who let their cows graze outdoors. This is contributing towards keeping the cow in the Dutch landscape.
General Foreword
5
Further growth FrieslandCampina is a dairy company of global proportions. The Company expects to pass the revenue milestone of 10 billion euro in 2012. FrieslandCampina is one of the largest Dutch exporters and a major player in the Dutch Agriculture & Food sector. Further investments in route2020, cost reductions and efficiency improvements will contribute towards growth and value creation for the Cooperative’s members. FrieslandCampina’s intended acquisition of two dairy companies in South-East Europe announced in February 2012 will reinforce its position in this region. FrieslandCampina stands for quality and sustainability and offers its people an inspiring and challenging working environment. FrieslandCampina’s ambition for the coming years is to rank among the most attractive employers in the most important countries in which the Company is active. Looking back at the past years many far-reaching changes have taken place within both the Company and the Cooperative. The dairy industry offers opportunities and I am convinced that in the coming years FrieslandCampina will seize these opportunities. My colleagues on the Executive Board and I are proud to be able to lead this outstanding company in a close relationship with the Cooperative’s member dairy farmers. Cees ’t Hart CEO Royal FrieslandCampina N.V. Amersfoort, 2 March 2012
"In 2011 over 376 million euro was invested, most of which related to increasing capacity for future growth."
Sooo delicious
In Campina you can taste the best from the land. Joep agrees. He has been helping his father around the farm for many years. Putting the cows out in the meadow, feeding them, making sure they have water. He doesn’t do it just to help his father, he also does it for himself because he finds Campina custard sooo delicious. Campina products are made naturally from Dutch milk produced by cows that from spring to autumn graze outside in the meadow.
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General Major developments in 2011
Major developments in 2011
2011
a good year
A record year for member dairy farmers with a milk price of 38.77 euro per 100 kilos of milk
Good results from the Ingredients and Consumer Products International business groups
Robust growth in infant & toddler nutrition
The successful merger is the basis for future growth
Integration completed successfully
Synergy achieved faster and to a greater extent than expected
Efficiency improvements in production achieved
Economic conditions in Europe led to increasing pressure on volumes and disappointing results
A stronger position in the area of purchasing has led to more savings
Safety and safety awareness are key operational focal points
A new innovation centre for 450 R&D employees under construction on the Wageningen University campus
A clearer profile as an employer makes attracting new talent easier
General Major developments in 2011
Achievement
Growth in infant & toddler nutrition in both businessto-business and businessto-consumer
of route2020 strategy on schedule
9
130 million euro invested in capacity expansion for infant & toddler nutrition in 2010 - 2012
Long-term investment plans envisage heavy investment in the expansion of milk processing capacity in preparation for the ending of the milk quota in 2015
Global category teams for dairy-based beverages, infant & toddler nutrition and branded cheese focus on accelerating growth and innovation
‘One face to the customer’ introduced for business-tobusiness key accounts
FrieslandCampina encourages cows being put out in the meadow with a financial stimulus for dairy farmers of up to 45 million euro a year
Revamped sustainability programme formulated for the Company and the Cooperative as an important cornerstone of route2020
Letter of intent signed for the acquisition of two dairy companies to reinforce FrieslandCampina’s position in South-East Europe
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General Key figures
Key figures
9,626
Results in millions of euros
million euro
revenue up by 7%
Revenue Operating profit Profit
2011
2010
9,626 403 216
8,972 434 285
Balance sheet in millions of euros
39.4 % solvency strengthened
Balance sheet total Equity Equity attributable to shareholder of the Company and other providers of capital Net debt 1 Equity as a percentage of the balance sheet total
2011
2010
5,739 2,264
5,299 2,071
2,148 699
1,961 776
39.4%
39.1%
2011
2010
508 340
444 239
176
210
Cash flow in millions of euros
376
million euro
Net cash from operating activities Net cash used in investing activities Depreciation of plant and equipment and amortisation of intangible assets
investments
Value creation for member dairy farmers in euro per 100 kilos
38.77
(excl. VAT, at 4.41% fat and 3.47% protein)
euro
milk price up by 13%
Guaranteed price 1,2 Performance payment 1 Registered reserve member bonds 1 Milk price 1
2011
2010
36.94 1.10 0.73 38.77
32.39 1.23 0.73 34.35
2011
2010
19,036 14,391 19,848 10,140
19,484 14,829 20,375 10,266
8,838
8,821
Additional information
10.1
billion kilos
milk processed
Employees (average numbers of FTEs) Number of member dairy farms at year end Number of member dairy farmers at year end Total milk processed (in millions of kilos) Milk supplied by member dairy farmers (in millions of kilos)
1
I n 2011 the reservation policy and the guaranteed price calculation method were amended compared to previous years. The figures for 2010 have not been adjusted.
2
or 2011 this means the balance of the guaranteed price of 36.88 euro and an F adjustment of 0.06 euro.
General Major financial developments in 2011
11
Major financial developments in 2011 Milk price up
Profit down by 24% to 216 million euro due to lower operating profit and incidental higher tax charges; corrected for the amended reservation policy profit down by 13%
Guaranteed price up by 14% to 36.94 euro per 100 kilos of milk (excl. VAT, at 4.41% fat and 3.47% protein)
Performance payment (1.10 euro) and distribution of member bonds (0.73 euro) down by a total of 7% to 1.83 euro per 100 kilos
Improved cash ow
Cash ow from operating activities up by 64 million euro (14.4%) to 508 million euro primarily due to better management of working capital
Reserve strengthens balance sheet
500
65 million euro (0.73 euro per 100 kilos of milk) added to the reserve registered in the names of member dairy farmers
Operating profit as a percentage of revenue
434
9,626
10,000
8,972
in millions of euros
8,160
Operating profit
in millions of euros 9,454
Revenue
122 million euro added to equity
Milk price for Cooperative members up by 13% to 38.77 euro per 100 kilos (excl. VAT, at 4.41% fat and 3.47% protein)
5
8,000
400
6,000
300
4,000
200
2
2,000
100
1
4.2
Currency developments have an overall negative effect of 11 million euro on profit and 105 million euro on revenue
Operating profit down by 7% to 403 million euro due to investments in route2020, difficult economic conditions in Europe and negative currency translation effects
4.8
Revenue up by 7% to 9.6 billion euro due to higher sales prices and volume growth in ingredients and infant & toddler nutrition in Asia and Africa
403
Increased revenue
3
0 2008
2009
2010
2011
0 2008
2009
2010
2011
2008
2009
2010
Milk price
in millions of euros
in euros per 100 kilos, excl. VAT
0
0 2009
2010
2011
34.35
10
200
2008
30
20
100
0
27.34
444
508
786
600
400
40
351
135
200
800 216
182
300
36.66
Net cash flow
in millions of euros 285
Profit
2011
38.77
0
2.6
258
248
3.2
4
2008
2009
2010
2011
2008
2009
2010
2011
12
General Profile, strategy and organisation
140 years of experience
19,036
member dairy farms
25 countries with FrieslandCampina offices and facilities
employees
45
14,391
million euro
per annum (2012 – 2014) available for putting cows out in the meadow
50 % of the profit paid out to member dairy farmers
General Profile, strategy and organisation
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Profile, strategy and organisation With an annual revenue of 9.6 billion euro, Royal FrieslandCampina N.V. ranks among the world’s five largest dairy companies. The Company provides healthy food, rich in valuable nutrients, to hundreds of millions of people on a daily basis. FrieslandCampina has a broad product portfolio and an extensive geographical spread of activities. The Company is wholly owned by Zuivelcoöperatie FrieslandCampina U.A., with around 19,850 member dairy farmers in the Netherlands, Germany and Belgium one of the world’s largest dairy cooperatives.
FrieslandCampina’s history goes back to around 1871 when Dutch farmers joined together in cooperatives so that together they could safeguard the supply and sale of milk. Today FrieslandCampina supplies consumer products, such as dairy-based beverages, infant & toddler nutrition, cheese, butter, cream and desserts, in many European countries, in Asia and in Africa. FrieslandCampina also supplies products to professional customers, for example cream and butter products to bakeries and the hotel, restaurant and food service sector, and produces ingredients and half-finished products for manufacturers of infant & toddler nutrition, the food industry and the pharmaceutical sector worldwide. FrieslandCampina’s offices and facilities in 25 countries employ a total of over 19,000 people. FrieslandCampina’s products find their way to more than 100 countries. The Company’s central office is in Amersfoort, the Netherlands. FrieslandCampina’s activities are divided into four market-oriented business groups: Consumer Products Europe; Consumer Products International; Cheese, Butter & Milkpowder and Ingredients. Ambition, targets and route2020 strategy FrieslandCampina has a double-edged ambition: on the one hand to bring the essential nutrients of natural dairy to people worldwide, and on the other hand to be the most attractive dairy company for the Cooperative’s member dairy farmers. The growing demand on the world market for healthy food that is produced in a sustainable manner offers FrieslandCampina opportunities. Milk contains essential nutrients, such as proteins, fats, lactose, vitamins and minerals.
To achieve this ambition, FrieslandCampina has formulated the route2020 strategy for the period 2010-2020. The key words in the strategy are growth and value creation: growth of the Company and ensuring all the milk produced by the Cooperative’s member dairy farmers reaches its maximum value. To this end FrieslandCampina is striving to achieve the following targets in 2020: • an increased share of specialities and branded products in the total sales volume; • further growth of operating profit; • a substantially higher performance payment and a higher distribution of member bonds for the member dairy farmers; and • climate-neutral growth throughout the chain from cow to consumer. To implement the strategy FrieslandCampina has defined the markets and product categories to which it will commit aboveaverage investment. Six value drivers have been selected for this: dairy-based beverages, infant & toddler nutrition, branded cheese, geographical growth (in dairy-based beverages, infant & toddler nutrition and branded cheese), food service in Europe and basic products. These value drivers will be developed on the basis of the existing firm foundation; as an experienced specialist in the entire dairy production chain and on the basis of strengthening the functions that are particularly relevant for the success of these value drivers, such as innovation and talent management. You can read more about the strategy on pages 16 to 19.
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General Profile, strategy and organisation
The foundation Milk is, by nature, one of the richest sources of nutrition and is, therefore, important for people’s health and wellness. In addition, milk offers endless possibilities to use as a basis for dairy products. FrieslandCampina has more than 140 years of experience in processing milk into dairy products. As the Company is directly linked to the Cooperative it controls the entire production chain from raw milk to distribution. This means FrieslandCampina can guarantee the quality of its products. The Company also has strong and prominent brands and good market positions in various geographical regions and in different product groups. Safety FrieslandCampina pays considerable attention to safety and has an on-going worldwide programme to increase the safety awareness of all its employees. The safety awareness programme and the improved management of risks and operating processing must lead to the number of accidents requiring sick leave being halved within five years. Corporate Social Responsibility It goes without saying that Corporate Social Responsibility (CSR) plays a key role in the route2020 strategy. As one of the world’s largest dairy concerns FrieslandCampina accepts its responsibility for further increasing the sustainability of dairy farming and the chains for processing and distributing dairy, for marketing healthy food and for supporting local food production in Asia and Africa by transferring knowledge and expertise to farmers in the dairy sector. FrieslandCampina strives for the climate-neutral growth of its activities; both at the farm level and at the company level. You can read more about Corporate Social Responsibility on page 52.
Profit appropriation, milk price and guaranteed price Out of the profit of Royal FrieslandCampina N.V., 50% is added to the Company’s equity, 30% is paid out to member dairy farmers as a performance payment for the milk supplied and 20% is paid out to the member dairy farmers in the form of fixed member bonds. The milk price FrieslandCampina paid the member dairy farmers of Zuivelcoöperatie FrieslandCampina U.A. for the milk supplied during the 2011 financial year comprised the guaranteed price, the performance payment and the distributed registered fixed member bonds per 100 kilos of milk. The amount of the performance payment and the distribution of the fixed member bonds depend on FrieslandCampina’s financial performance and the reservation policy. The performance payment is paid out to the Cooperative’s members annually, after the financial statements have been adopted, in proportion to the value of the quantity of milk they have supplied during the year in question. The guaranteed price for the milk supplied by the member dairy farmers is based on the weighted average annual milk price for raw milk of twelve German dairy companies, Arla Foods in Denmark, Bel Leerdammer, Cono Kaasmakers and DOC Kaas in the Netherlands and Milcobel in Belgium, including any backpayment from the dairy cooperatives to their dairy farmers and any formation of equity registered in the names of the members of these cooperatives. You can read more about the 2011 milk price on pages 29 and 30.
General Profile, strategy and organisation
Zuivelcoรถperatie FrieslandCampina U.A.
holding all shares in
Members
Districts
Member council
Royal FrieslandCampina N.V. General Meeting of Shareholders
Cooperative Council Board
Supervisory Board
Executive Board
Corporate Centre
Consumer Products Europe
Consumer Products International
FrieslandCampina Benelux
FrieslandCampina Indonesia
FrieslandCampina Cheese
FrieslandCampina Domo
FrieslandCampina Dagvers
FrieslandCampina Vietnam
FrieslandCampina Germany
FrieslandCampina Cheese Specialties
FrieslandCampina Kievit
FrieslandCampina Malaysia/ Singapore
FrieslandCampina Hungary FrieslandCampina Romania FrieslandCampina Hellas FrieslandCampina Russia
FrieslandCampina Thailand FrieslandCampina China FrieslandCampina Hong Kong
FrieslandCampina UK
FrieslandCampina WAMCO Nigeria
FrieslandCampina Spain
FrieslandCampina Middle East
FrieslandCampina Professional
FrieslandCampina Export
Cheese, Butter & Milkpowder
FrieslandCampina Butter & Milkpowder
Ingredients
FrieslandCampina DMV FrieslandCampina Creamy Creation FrieslandCampina Dairy Feed DFE pharma
15
16
General Profile, strategy and organisation
route2020 strategy in 2011 In 2011 FrieslandCampina made significant progress towards the achievement of its route2020 strategy. Several investment projects were set in motion for the strategic growth categories specified in route2020 – dairy-based beverages, infant & toddler nutrition and branded cheese. The organisation was adjusted further and the first CSR initiatives to achieve the growth in a climate-neutral manner throughout the entire chain from cow to consumer in 2020 were taken. create care change • together
Investments in strategic growth One of the route2020 strategic categories is strengthening the infant & toddler nutrition market positions worldwide both as ingredients and as end products. In anticipation of an increasing demand for high-quality infant & toddler nutrition, especially from Asia, in 2010 FrieslandCampina formulated an investment plan with which the production of infant & toddler nutrition would be doubled in the coming years. In 2011 a total of 376 million euro was invested, 130 million of which was related to the expansion of the production facilities in Beilen and Bedum. In China, not only were the activities in the field of infant & toddler nutrition expanded, including activities under the Friso brand, but a sales company was set up for ingredients for the infant food and the food industry.
Investments 376
in millions of euros 400
250
2008
2009
261
231
300
240
350
200 150 100 50 0 2010
2011
In the dairy-based beverages growth category FrieslandCampina wants to increase its share in the total dairy consumption. To achieve this the Company is investing heavily in the development of new concepts and products. The eighteen-month investment programme that started in Aalter in Belgium last year will result in the production capacity of the long-life dairy-based beverages being doubled. The total investment will amount to 36 million euro. With the introduction of Noord-Hollandse Gouda cheese in Germany, FrieslandCampina has taken a step towards its envisioned substantial market share increase in the branded cheese category. Sales in Russia under the brand name Frico have been intensified through the establishment of a local sales organisation. In February 2012 the intended acquisition of two dairy companies in South-East Europe was announced. The acquisitions will reinforce FrieslandCampina’s market position in South-East Europe. Political developments in several countries in the Middle East led to the intended expansion of the activities in North Africa being postponed. Milk valorisation FrieslandCampina has started a project that will match the offering of milk and the availability of production capacity to the anticipated demand for milk and milk components. The project must result in FrieslandCampina having the right processing capacity available in time to handle the expected increase in the volume of milk supplied by the member dairy farmers after the milk quota is lifted in 2015.
General Profile, strategy and organisation
Organisational improvements During 2011 global category teams for dairy-based beverages, infant & toddler nutrition and branded cheese were set up. The category teams focus on innovation and marketing. The research & development organisation has been geared to the strategic guiding principles of route2020. This must lead to faster and more effective innovation. In 2011 work started on building the new FrieslandCampina Innovation Centre in Wageningen. The Innovation Centre will bring the research & development activities together in a new location and the capacity will be expanded further. As of 1 September 2011 Consumer Products International’s office was relocated from Amersfoort to Singapore. Several support departments were also moved to Singapore from Kuala Lumpur (Malaysia) during the course of the year. This move means the business group’s management team is now closer to the operating activities. Over 60% of Consumer Products International’s revenue is generated in Asia. With the integration of the commodity activities in the field of milk powder and cheese into a single Cheese, Butter & Milkpowder business group, FrieslandCampina wants to bring more value to commodity products. Key account management has been implemented in the Ingredients business group. This has improved both the cooperation with customers and internal efficiency. In 2012 – 2013 all the activities related to the marketing and sales of branded products (dairybased beverages and fruit juices, desserts, cheese and butter) in the Netherlands will be clustered into a new operating company. The sales activities of private label products to supermarkets in western Europe are also being restructured. This will cluster together the total product offering of dairy-based beverages, butter and cheese. It is also the intention to cluster all the activities related to the export of consumer products from the Netherlands to countries outside of Europe into a new operating company. The export of products such as condensed milk, milk powders, infant & toddler nutrition, cheese and butter is currently carried out by two separate operating companies. Automation The objective of FrieslandCampina’s Summit project is to standardise operating processes and systems by developing a single automation platform and infrastructure. In 2011 the standards were developed that will initially be implemented in the Butter & Milkpowder operating company and the corporate staff departments. The new system will ultimately be used by all the operating companies and departments. The changes will go hand in hand with an intensive guidance and training process for all employees.
17
Knowledge about milk In the context of increasing knowledge about milk and the role milk plays in day-to-day nutrition, more than 600 employees in marketing, sales and research & development participated in workshops and followed e-learning modules. A better understanding of the nutritional aspects of dairy in the context of product development, marketing and consumer information is important in this respect. Formulation of the CSR policy During 2011 the Foqus Planet sustainability programme was developed in collaboration with the member dairy farmers. The programme revolves around stimulating dairy farmers to make their business operations more sustainable through the exchange of knowledge in workshops, model farms and the internet. Last year more than 80 get-togethers were organised throughout the Cooperative's working terrain in the Netherlands, Germany and Belgium during which Board members and over 7,800 members and business colleagues could exchange views. In 2011 FrieslandCampina was one of the first companies in the Netherlands to implement the international guidelines for Corporate Social Responsibility. The so-called ISO 26000 guidelines help clarify the CSR principles, guidelines, priorities and concepts for companies and offer tips for implementing CSR policy. In 2011 FrieslandCampina rose from a 37th to a 20th position on the Ministry of Economic Affairs, Agriculture and Innovation’s Transparency Benchmark.
Expanding production of infant & toddler nutrition Infant & toddler nutrition, in the form of both ingredients and finished end products, is one of the strategic value drivers for growth. This is why over 130 million euro is being invested in FrieslandCampina Domo’s factories, especially in the Beilen and Bedum production facilities, where the capacity is being expanded substantially. Environment-saving measures are also playing a major role, for example through the reduction of energy consumption. In the Bedum facility not only is the production capacity being expanded, a new water purification system is being installed. The expansion will enable FrieslandCampina Domo to produce more infant & toddler nutrition products in the future.
18
Strategy route2020: Growth & value creation
BeneďŹ t platforms
Growth & development
Capabilities
Talent management
Foundation
Goodness of dairy
19
Aspiration
To bring the essential nutrients of natural dairy to people worldwide
To be the most attractive dairy company for member farmers
Value drivers
Dairy-based beverages
Infant & toddler nutrition (B2B, B2C)
Branded cheese
Strongholds & geographic expansion
Foodservice in Europe
Basic products
Daily nutrition
Health & wellness
Functionality
Milk valorisation
Innovation
Business model & cost focus
Chain advantages
Sustainable dairy farming & business operations
The way we work & safety
20
General Profile, strategy and organisation
FrieslandCampina worldwide FrieslandCampina has its own offices and facilities in 25 countries in Europe, Asia, Africa and North America. FrieslandCampina’s dairy products are available in over 100 countries. With its products FrieslandCampina plays an important role in providing hundreds of millions of people around the world on a daily basis. FrieslandCampina’s consumer products include dairy-based beverages, infant & toddler nutrition, cheese, butter, cream and desserts. FrieslandCampina also supplies products to the hotel, restaurant, food service and bakery sector and nutritional ingredients to customers in the food industry and the pharmaceutical industry.
324 North and South America revenue (in millions of euros)
140 employees
5 locations
United States of America
General Profile, strategy and organisation
6,307
revenue (in millions of euros)
12,662 employees
71 locations
999
revenue (in millions of euros)
1,032
Africa and the Middle East Ghana Nigeria
employees
4 locations
1,996 revenue (in millions of euros)
5,202 employees
Saudi Arabia United Arab Emirates
23 locations
21
Europe The Netherlands Germany Belgium Hungary Romania Greece Russia United Kingdom France Spain Italy Austria
Asia and Australia China Hong Kong Indonesia Malaysia Singapore Thailand The Philippines Vietnam
22
General Profile, strategy and organisation
Our brands Consumer products
Het beste van ons land proef je in Campina
Liebe ist, wenn es Landliebe ist
Quality milk
Melk maakt de koffie
Membuka Potensi Sebenar
De fruitigste drinkyoghurt
Milner gemaakt met halfvolle melk
Voor het lekkerste kopje koffie
MET LGGÂŽ
voor een natuurlijke weerstand*
De enige echte
Raih esokmu
Cea mai buna nutritie special creata pentru tine
Voor een natuurlijke weerstand
Premium Dutch quality cheese
De lekkere zuivel met 0% vet en geen suiker toegevoegd
Milk, shaken up
Growing up together
It’s in you
Fruchtiger yoghurtgenuss
Daar word je blij van
General Profile, strategy and organisation
Professional market
Napolact. Ca odinioara
Unique conditions make unique cheeses
Als talenten samensmelten
Ingredients
Closer to you
Simply trusted Γάλατα υπάρχουν πολλά, NΟΥΝΟΥ όμως, ένα.
Passie voor fruit
Vrijheid van smaak
Let’s talk
A Pöttyös az igazi!®
Als je voor echt lekker gaat
Het beste van ons land proef je in Campina
Where great things come to life
Desserts sind unsere Leidenschaft
Een lekker stukje zuivel
Natuurlijk lekker
Everything to help you grow
Iedereen DubbelFrisss
We keep it cool, you get the best The pursuit of excipient excellence
23
Made-to-measure solutions
For decades sweetened condensed milk and evaporated milk have been an important source of proteins, fats and minerals in many countries. The products do not have to be refrigerated. The condensed milk is generally used in coffee or tea but is also used as a nourishing taste enhancer in dishes. Although in most cases it is sold in tins, not everyone can afford such a tin. This is why FrieslandCampina Wamco in Nigeria developed a special, small sachet packaging for Peak evaporated milk. The sachets enable mothers to buy the milk in small doses.
26
Report of the Executive Board Operational developments
Report of the Executive Board Good operating profit with a record milk price for member dairy farmers 2011 was a record year for FrieslandCampina’s member dairy farmers. They received a milk price of 38.77 euro per 100 kilos of milk, 13% higher than in 2010. FrieslandCampina’s revenue rose by 7% to 9,626 million euro, primarily due to price increases. The Ingredients and Consumer Products International business groups were the main contributors towards the profit and this revenue growth.
Investments in the organisation in the context of the route2020 strategy, difficult economic conditions in Europe and incidental higher tax liabilities put pressure on the profit. Operating result fell by 7% to 403 million euro and profit fell by 24% to 216 million euro (corrected for the amendment to the reservation policy profit fell by 13%). Higher revenue The revenue of Royal FrieslandCampina N.V. rose by 7% in 2011 to 9,626 million euro. The volume of infant & toddler nutrition rose in both the business-to-business market and the consumer market. Brands such as Friso (infant & toddler nutrition),
Roelof Joosten
Dutch Lady (South-East Asia) and Peak (Nigeria) performed well. Currency translation effects (primarily the euro against the US dollar) had a negative effect on revenue of 105 million euro. The Consumer Products Europe business group achieved a revenue growth of 4% to 3,395 million euro (2010: 3,269 million euro). The increase in revenue was due primarily to higher selling prices. Consumers’ reluctance to spend put sales volume under pressure, especially in the second half of the year. Despite market conditions being difficult the business group succeeded in retaining the market share of most of its brands. Campina, the largest brand in the Netherlands, gained market share.
Kees Gielen
Cees ‘t Hart
Report of the Executive Board Operational developments
The Consumer Products International business group (Asia, Africa and the Middle East) once again performed well with revenue rising by 8% to 2,460 million euro (2010: 2,277 million euro). The revenue increase was due to higher selling prices and volume growth, especially of infant & toddler nutrition. The expensive euro compared to the US dollar and the Vietnamese dong led to a 92 million euro negative currency translation effect on revenue. The Friso brand performed well in China and Hong Kong. Dutch Lady achieved very good results in Malaysia. In Vietnam and Indonesia increasing price competition put pressure on the margin and market share of dairy-based beverages. The Cheese, Butter & Milkpowder business group’s revenue rose by 7% to 2,822 million euro (2010: 2,641 million euro). The growth was the result of higher selling prices. Branded cheese, like the branded products of the Consumer Products Europe business group, experienced difficulties in Europe due to the economic conditions. The export of cheese outside the European Union remained stable despite the political developments in North Africa and the Middle East.
Kapil Garg
Freek Rijna
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The Ingredients business group had a good year: its revenue rose by 16% to 1,930 million euro (2010: 1,669 million euro). This revenue increase was the result of higher sales volumes, primarily of ingredients for infant & toddler nutrition, and higher prices. The high demand for ingredients from Asia was a major contributor towards this increase. To answer the increased demand a considerable amount was invested in expanding production capacity. Profit Operating profit for 2011 was 403 million euro, 7% less than for 2010 (434 million euro). Operating profit as a percentage of revenue amounted to 4.2% (2010: 4.8%). The increased milk price and the higher prices of other raw materials could almost be fully passed on in the selling prices. Investments in the achievement of the route2020 strategy, difficult economic conditions in Europe and negative currency translation effects put pressure on the result. Thanks to lower depreciation and improved efficiency, FrieslandCampina was able to offset some of the pressure on the margins.
Piet Hilardes
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Report of the Executive Board Operational developments
Revenue by business group in millions of euros
Revenue by geographical region in millions of euros
Consumer Products Europe
Ingredients 18.2% 1,930
32.0% 3,395 26.6% 2,822
9,626
Cheese, Butter & Milkpowder
North & South America
Africa & the Middle East 10% 999
Asia & Australia
21% 1,996
3% 324
The Netherlands 25% 2,435
9,626 14% 1,317
23.2% 2,460
27% 2,555
Consumer Products International
Rest of Europe
Revenue by business group in millions of euros
2011
2010
%1
Consumer Products Europe Consumer Products International Cheese, Butter & Milkpowder Ingredients Other Elimination of internal supplies Total
1
Germany
3,395 2,460 2,822 1,930 288 - 1,269
32.0 23.2 26.6 18.2
9,626
%1
3,269 2,277 2,641 1,669 255 - 1,139 8,972
33.2 23.1 26.8 16.9
Before Other and Eliminations of internal supplies
Revenue by geographical region in millions of euros
2011
2010
%
The Netherlands Germany Rest of Europe Asia and Australia Africa and the Middle East North and South America Total
2,435 1,317 2,555 1,996 999 324
25 14 27 21 10 3
9,626
100
%
2,291 1,287 2,380 1,781 945 288 8,972
26 14 27 20 10 3 100
Report of the Executive Board Operational developments
Consumer Products Europe’s operating profit fell to 55 million euro (2010: 126 million euro) as a result of difficult economic conditions in Europe and pressure on volume due to higher prices. Margins were under pressure during the first half of 2011 because, due to contractual agreements, in many cases there was a delay before the higher guaranteed price of raw milk and other raw materials could be passed on. The margins recovered in the second half of the year. In Germany price competition resulted in profit development lagging behind throughout the year. In Hungary profit was negatively influenced by the economic conditions and incidental higher tax liabilities. The sale of a participation in Spain resulted in a one-time income of 9 million euro. Consumer Products International’s operating profit remained stable at 353 million euro (2010: 356 million euro). Infant & toddler nutrition did particularly well. Not all the higher dairy product prices could be passed on in full. Measures to offset the pressure on margins included implementing cost savings. At the same time, revenue and volume development were stimulated by specific investments in advertising and promotion. The Cheese, Butter & Milkpowder business group achieved a negative operating profit of 97 million euro (2010: -92 million euro). The operating profit of this business group in particular is negatively influenced by the costs of the performance payment and the distribution of member bonds being charged to the business groups in proportion to the amount of member milk received. The Cheese, Butter & Milkpowder business group processed 56% of the member milk. Although the results from commodities such as foil cheese and milk powder improved slightly, the price development and sale of branded cheese were under pressure due to declining consumer confidence and the economic developments in a number of countries. The Ingredients business group improved its operating profit by 48% to 189 million euro (2010: 128 million euro). The maximum production capacity utilisation resulting from the growth, the good results with ingredients and the higher revenue prices contributed towards the higher profit. At 13 million euro the profit from joint ventures and associates remained the same as in 2010. Net financing income and expenses rose by 3 million euro, which resulted in an expense of 72 million euro. Net interest expense amounted to 42 million euro (2010: 44 million euro). Taxes amounted to 128 million euro (2010: 93 million euro). The effective tax rate rose from 24.4% to 37.2%. The increase was primarily due to incidental higher tax expenses in Hungary as a result of amended legislation and in Germany and Hungary due to the writing-down of deferred tax assets as a result of the expected drop in future results in both countries.
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Profit for 2011 amounted to 216 million euro (2010: 285 million euro). The most important reasons behind the reduced profit were higher investments in the organisation in the context of the route2020 strategy and higher tax expenses. The amendment of the milk price system and reservation policy led to a lower profit and a higher pay-out to the member dairy farmers. In 2011 operating costs rose by 8% to 9,243 million euro (2010: 8,558 million euro). Payment to the member dairy farmers, which is a component of operating costs, rose by 13% to 3,456 million euro (2010: 3,054 million euro). From the profit 122 million euro was attributed to the shareholder of Royal FrieslandCampina N.V., Zuivelcoöperatie FrieslandCampina U.A. (2010: 192 million euro). This is 70 million euro less than in 2010, in part as a result of the revised milk price system and reservation policy. The profit attributable to the providers of member certificates rose by 10 million euro to 39 million euro as a result of higher interest. From the profit 9 million euro was paid out to the providers of the perpetual notes (2010: 9 million euro) and 46 million euro was attributed to non-controlling interests (2010: 55 million euro). Milk price FrieslandCampina paid the member dairy farmers of Zuivelcoöperatie FrieslandCampina U.A. a milk price of 38.77 euro (excluding VAT) per 100 kilos of milk (at 4.41% fat and 3.47% protein). This is 13% higher than in 2010 (34.35 euro per 100 kilos of milk). The guaranteed price for 2011 was 36.94 euro excluding VAT per 100 kilos of milk, 14% higher than the 2010 guaranteed price (32.39 euro per 100 kilos of milk). The guaranteed price is calculated using the weighted average of the annual milk price for raw milk paid by the reference companies (twelve German dairy companies, Arla Foods in Denmark, Bel Leerdammer, Cono Kaasmakers and DOC Kaas in the Netherlands and Milcobel in Belgium) and since 2011 has included any back-payment from the dairy cooperatives to their dairy farmers and any formation of registered equity. The performance payment for 2011 was 1.10 euro per 100 kilos of milk excluding VAT. This is 11% lower than the performance payment for 2010 (1.23 euro per 100 kilos of milk).
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Report of the Executive Board Operational developments
The amount of the performance payment and the distribution of member bonds depends on the Company’s financial performance. 30% of FrieslandCampina’s profit based on the guaranteed price and after deduction of the distribution of member bonds, the recompense for perpetual notes and the profit attributable to non-controlling interests is paid out to members as a performance payment and 20% is reserved in the form of member bonds. The distribution of member bonds for 2011 was 65 million euro. This amounts to 0.73 euro per 100 kilos of milk (2010: 0.73 euro per 100 kilos of milk). Compared with 2010 the interest on member bonds rose from 29 million euro to 39 million euro due to the rise of the Euribor and the interest rate and an increase in the number of member bonds.
Financing FrieslandCampina raises loans from different groups of lenders (member dairy farmers, banks and investors). This ensures a good spread of any risks in FrieslandCampina’s financing. The major portion of the loan capital financing has been borrowed from financial institutions in and outside the Netherlands. The major portion of the bank loans comprises a committed credit facility (Revolving Credit Facility) amounting to 1 billion euro. At the end of 2011 a new agreement was signed with 14 banks. The conditions attached to the new agreement are more favourable for FrieslandCampina because the interest rate is lower and the term is longer. The term has been extended by two years to the end of August 2015. The amount of the facility remains unchanged at 1 billion euro. The amendment could be achieved on the grounds of FrieslandCampina’s improved creditworthiness profile and good performance. At the end of 2011 net debt amounted to 699 million euro, 77 million euro lower than at the end of 2010 (776 million euro). This was mainly due to an increase of cash and cash equivalents of 128 million euro less a 51 million euro increase of the interestbearing obligations and a 128 million increase in cash and cash equivalents. Working capital improved, especially in the second half of the year. The standards expressed in financial indicators applied by lenders were met.
Milk price As of the 2011 financial year FrieslandCampina’s milk price comprises the guaranteed price, the performance payment and the distribution of the fixed (registered) member bonds per 100 kilos of milk. In 2011 the reservation policy and the calculation of the guaranteed price for the milk of the member dairy farmers was amended compared with the years 2008 – 2010. This had a negative effect of 32 million euro on the profit and a positive effect of 0.48 euro per 100 kilos of milk on the milk price. 50% of the profit (was 40%) is available to the members of the Cooperative, of which 30% is paid out to the member dairy farmers as a performance payment for the milk supplied and 20% is paid out in the form of fixed member bonds. Since 2011 the calculation of the guaranteed price has included any backpayment and the formation of equity in the name of the reference cooperatives’ dairy farmers.
Pension charges and coverage ratio In 2011 pension charges rose from 81 million euro to 88 million euro. Most of the charges related to the Dutch pension plans. The most important pension agreements with FrieslandCampina’s Dutch employees are laid down in the Employment Agreement related to pensions for the dairy industry. Within the Company there are various other pension plans in place. The pension plans are administered by various external pension administrators the most important of which are Avéro Achmea Pensioen and Stichting Pensioenfonds Campina. In 2011 the pension funds were confronted with a continuing downwards market trend. This is the main reason why the coverage rate of Pensioenfonds Campina dropped from 99% at the end of 2010 to 96% at the end of 2011. At the end of 2011 the coverage rate of the separate investment fund administered by Avéro Achmea Pensioen was 113% (end of 2010 117%). This last coverage rate was determined on the basis of the insurance conditions agreed with the insurance company. The pension Employment Agreement has been extended without change until 1 January 2013. Currently FrieslandCampina is in consultations with the different social partners regarding bringing the pension structure in line with the market and the pension agreement worked out in 2011.
Report of the Executive Board Operational developments
European Union conditions related to the merger The European Union stipulated several conditions in connection with the merger of Friesland Foods and Campina in 2008. The independent Dutch Milk Foundation (DMF) implements the European Union’s condition that producers of fresh dairy products and naturally matured cheese must be able to purchase up to 1.2 billion kilos of Dutch raw milk from FrieslandCampina at the FrieslandCampina guaranteed price less 1%. Arla Foods and De Graafstroom have made use of this option and, via the Dutch Milk Foundation, have been guaranteed supplies until 1 January 2017.
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market being cheaper. The prices of whey products and skimmed milk powder from the EU in particular became more attractive. The same could not be said for butter. The price of butter was lower on the world market than it was in Europe, which meant virtually no butter could be exported from the EU. In 2011 a mix of factors led to prices for dairy products such as milk powder, caseinates, butter, foil cheese and whey rising to almost the record levels of 2007. In mid 2011 EU prices for dairy commodities stabilised. Thanks to the increasingly weak euro this re-stimulated export. The prices of whey products, including lactose, have increased dramatically.
The Foundation also administers the severance scheme for FrieslandCampina’s Dutch member dairy farmers. Member dairy farmers who wish to terminate their membership of FrieslandCampina and sell their milk elsewhere receive a severance payment of 5.00 euro per 100 kilos of milk. The quantity of milk that used to be supplied by the departing members is deducted from the volume of 1.2 billion kilos of milk. In the period 1 January to 31 December 2011 the Dutch Milk Foundation approved 25 requests from dairy farmers who wished to terminate their membership of Zuivelcoöperatie FrieslandCampina under the severance scheme. In total this involved nearly 21 million kilos of milk and an amount of 1 million euro. In 2010 the DMF approved 36 requests and in 2009 one request. Market developments in 2011 The worldwide demand for dairy products from both consumers and industrial customers developed positively in 2011. Economic growth, particularly in China and India but also in South America, has contributed towards this. In Europe the demand for dairy products was under pressure as a result of the decreasing spending power in a number of countries. The offering of milk is increasing worldwide. In 2011 the conditions for dairy products were good. In Europe milk production increased by around 2%. Favourable weather conditions in the southern hemisphere resulted in higher milk production in New Zealand, Argentina and Uruguay. In the first half of 2011 the weak US dollar made the export of European products difficult. American dairy production could, therefore, profit the most from the increasing global trade during the first half of 2011. During this period the European dairy industry could profit from the growing demand from Russia and Algeria. In mid 2011 the financial market’s loss of confidence in the euro led to the euro crisis and, as a result, a weaker euro and a stronger US dollar. This resulted in European dairy products on the world
Drink More, Do More! FrieslandCampina Malaysia’s employees have built-up a tradition when it comes to celebrating World Milk Day. In 2011 they held a Taste Election under the motto ‘Choose your favourite taste so you can enjoy all the goodness of milk even more. Drink more, do more!’. Each of the four varieties of milk drink FrieslandCampina markets in Malaysia was linked with a local celebrity. World Milk Day was the high-point of a three-week campaign. The election drew over a million unique visitors to the special facebook page and delivered 232,000 votes.
Naturally healthy and delicious
Looking after yourself begins with a healthy lifestyle. Enough exercise, regular relaxation and, first and foremost, a healthy diet are important. At the same time we all want to enjoy ourselves and eat delicious food. FrieslandCampina tries to help people find this balance with its natural dairy products. This is also the case in Hungary and Romania, where FrieslandCampina markets its Milli dairy products, including a range containing special ingredients, such as omega-3-fatty acids and probiotics.
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Report of the Executive Board Consumer Products Europe
Consumer Products Europe Revenue in millions of euros Operating profit in millions of euros Operating profit as a % of revenue
• •
•
2011
2010
3,395 55 1.6
3,269 126 3.9
Revenue growth through higher selling prices Disappointing profit due to declining consumer confidence and disappointing revenue and profit development in Germany and Hungary Market share of most dairy brands maintained
The Consumer Products Europe business group produces and sells drinking milk, dairy-based beverages, yoghurts, desserts, coffee creamers, cream products, butter specialities, soft-ice cream and milkshake mixes in Europe and fruit juices, fruit drinks and sports drinks in the Netherlands and Belgium. The business group targets both consumers and professional customers.
Market conditions In 2011, and particularly in the second half of the year, the economies of most European countries worsened after a relative recovery in 2010. In some countries there was shrinkage. Consumer confidence declined due to uncertainties regarding the future of the euro and rising unemployment. The result was a reduction in consumer spending. In most European countries the demand for dairy products fell and consumers often opted for cheaper alternatives. In Germany in particular revenue and margins were under pressure as a result of the supermarkets’ sharp focus on lower prices. Revenue and operating profit The business group’s revenue rose by 4% to 3,395 million euro (2010: 3,269 million euro). This was primarily due to price increases that, albeit after a delay, could be passed on throughout the year in contracts based on the increase in the price of raw milk and other raw materials. Thanks to the strong brand positions, including Campina in the Netherlands, and promotional campaigns the business group could maintain its level of total revenue and volume. In a number of countries, however, volume dropped as a result of price increases. Overall, the business group was able to maintain the market share of most brands. Operating profit dropped by 56% to 55 million euro (2010: 126 million euro). After an extremely difficult first half of the year margin developments recovered in the second half of the year. Increases in raw materials prices could not immediately be passed on in the selling price, especially during the first half of 2011. In general supermarkets tried to delay price increases as long as possible. In the second half of the year it was possible to pass on higher prices in contracts. Thanks to this and the results of efficiency programmes in production facilities, the margins recovered.
Report of the Executive Board Consumer Products Europe
35
Investments in Belgian companies The reshuffling of production in the Consumer Products Europe business group has led to an investment programme in the facilities in Aalter and Bornem (both in Belgium). By increasing the production capacity and renovations both facilities are now high-tech production facilities that in the coming years will produce products for the Belgian, British, German, French and Dutch markets. Well-known FrieslandCampina brands, such as Chocomel/ Cécémel and Fristi, will be produced in the Belgian facilities.
Fresh daily The Campina brand of fresh dairy products achieved growth in terms of revenue, volume and market share. The successful positioning of Dutch meadow milk and the many visitors to the open farm days showed once again that there is increasing demand from consumers for natural dairy products. For the tenth year in a row Campina was the best selling brand in Dutch supermarkets. Margins were, however, under pressure. Supermarkets also responded to the growing interest in the community for keeping cows in the Dutch landscape. Supermarkets are increasingly prepared, albeit reluctantly, to pay a premium for meadow milk. Benelux The FrieslandCampina Benelux operating company had a difficult year. Consumers were more price-aware when they shopped and chose cheaper products and/or offers more frequently. This put the revenue, volumes and margins of FrieslandCampina
Benelux’s branded products under pressure. Even so, thanks to strong market positions and support from promotions, the operating company succeeded in maintaining its market shares. Last year FrieslandCampina Benelux’s efforts to make its business operations more sustainable were recognised with the awarding of the FSC Retail Award for the successful Appelsientje consumer campaign, which drew attention to the importance of FSC certificated cardboard beverage packaging. Appelsientje was just the start – since last year all FrieslandCampina Benelux’s other beverages have also been packaged in responsibly produced cardboard. In this context, in 2011 a start was made on a more efficient provisioning in the Benelux by working in cooperation with food manufacturer H.J. Heinz Benelux and logistics services provider Nabuurs. The companies expect this collaboration for provisioning will reduce CO2 emissions by 20% in the period 2011 – 2015.
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Report of the Executive Board Consumer Products Europe
Germany In 2011 FrieslandCampina Germany’s revenue, and in particular its profit development, were disappointing. Local competition and declining consumption put the German dairy market under pressure. As in the previous years the German market was characterised by the domination of the large supermarket chains, which are increasingly competing on price. This was one of the reasons why the price and margin development of dairy products lagged behind in comparison with other countries. Very little of the higher prices paid out for the raw milk in 2011 could be passed on to the market. FrieslandCampina Germany did manage to maintain the volumes and market share of its Landliebe brand despite reduced spending on advertising & promotions. Volumes in the field of private label production were under pressure. Other European countries In Russia revenue and profit rose once again. The recovery of the dairy market continued in 2011. The revenue growth in euros was less exuberant than in 2010 due to a weaker rouble and a temporary stoppage of export of dairy products produced in Russia to White Russia. Sales of Campina Fruttis’ yoghurt and Campina Nezhny’s coffee creamer in individual portions developed positively, in part because more and more supermarkets are including Campina products in their range. FrieslandCampina Hungary had a difficult year. Revenue and profit were under pressure as the country’s economic situation led to a decline in consumer spending. In combination with a substantial increase in VAT and the devaluation of the Hungarian forint volumes dropped, especially of Milli brand premium products. The response was more special actions and the offering of cheaper products in smaller packaging. The OK value-for-money brand strengthened its market position. In Romania revenue rose slightly compared with 2010 while volume remained the same. Worsening economic conditions led to a slightly lower profit than in 2010. The Napolact brand developed
positively, in part thanks to its profiling based on natural dairy produce from Romania. Distribution around the country improved. Although reduced consumer spending power in Greece led to a slight drop of revenue and volume, FrieslandCampina Hellas managed to maintain its profit at virtually the same level thanks to continuing investment in the further expansion of its position as market leader with more intensive advertising and promotion activities and the offering of smaller and cheaper packaging. Market shares, on average, remained the same. The market share of Friso improved. The professional market FrieslandCampina Professional focuses on the catering, bakery and fast food chain markets with its cream products, butters, sauces, desserts and soft ice & milk shake mixes. Restaurants and the bakery sector in particular were confronted with the effects of lower consumer spending. Despite the difficult market conditions the operating company succeeded in increasing its revenue and volume compared with 2010. The profit for the entire year was slightly lower than for the previous financial year. The higher prices, especially for fat, could be better passed on to the market as the year progressed. The 50% interest in the Spanish company El Castillo Debic was sold to Lactalis. Production chains Despite the difficult market conditions the business group continued investing in staff and increasing the efficiency of the production chain. In 2011 the production capacity in Aalter and Bornem in Belgium was expanded. The aim of the 36 million euro investment is a doubling of the production capacity in Aalter and 90 extra jobs. The project will be completed in 2012, after which products formerly produced in Leeuwarden (the Netherlands) and Kalkar (Germany) will be relocated to Aalter. The production facility in Patras (Greece) was expanded in 2011, which means more products can now be produced in Greece.
Report of the Executive Board Consumer Products International
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Consumer Products International
Revenue in millions of euros Operating profit in millions of euros Operating profit as a % of revenue
•
•
•
2011
2010
2,460 353 14.3
2,277 356 15.6
Revenue up due to increased volume and price increases Profit remained the same; higher costs of raw materials offset Market position of Friso infant & toddler nutrition strengthened
The Consumer Products International business group produces and sells dairy products to consumers in South-East Asia, the Middle East and Africa (in particular in Nigeria and surrounding countries). Products are also exported around the world from the Netherlands.
Market conditions The Consumer Products International business group performed well despite the stagnating growth of the global economy and higher raw materials prices. The higher prices could not be fully passed on to the market in every country, which put margins under pressure in some countries. Measures to offset the pressure on margins included the implementation of cost savings. At the same time, to stimulate the continued development of revenue and sales volumes, specific investments were made in advertising and promotion. Revenue and operating profit The business group’s revenue rose by 8% to 2,460 million euro (2010: 2,277 million euro). The rise in revenue was due to volume growth, in particular of infant & toddler nutrition, and higher selling prices. China, Hong Kong and Malaysia made the greatest contributions towards the revenue growth with the Friso and Dutch Lady brands. In Indonesia and Vietnam higher food prices led to fiercer competition and reduced demand and, as a result, a slowdown of growth. Revenue development was negatively influenced by the high price of the euro against the US dollar and the local currencies in Asia. Overall the currency translation effect on revenue amounted to 92 million euro negative. At 353 million euro operating profit was virtually the same as for 2010 (356 million euro) thanks to a sharp focus on costs and the passing on of price rises as fully and as early as possible. Nigeria FrieslandCampina Wamco Nigeria saw its revenue and volume rise yet again. Operating profit fell slightly because, in view of the development of the consumers’ spending power, not all the higher raw materials prices could be passed on to the market. The Peak brand and the value-for-money Three Crowns brand remained just as popular with every level of the Nigerian population. The greatest growth was achieved by the evaporated milk in sachets introduced in 2009. There was heavy investment in new machinery and next to the production facility in Lagos land was
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Report of the Executive Board Consumer Products International
Black & White 70 years in Hong Kong Black & White is popular in teashops. For 70 years over 70% of the teashops in Hong Kong have chosen Black & White full condensed milk for their tea. The 70th anniversary was celebrated with an event that was visited by 20,000 consumers. A facebook campaign brought Black & White 11,000 fans who took part in a campaign. The celebration of Black & White’s 70th birthday in Hong Kong and the event contributed towards increasing brand confidence.
purchased for the future expansion that will be needed to answer the foreseen growing demand for dairy products. In July 2011 heavy rainfall led to the production facility in Lagos being flooded and machinery and stocks being damaged. Thanks to the enormous efforts of all the employees in a very short time the entire factory was cleaned and the machinery and installations were back in action. The insurance company will repay most of the costs of the flooding damage during 2012. Malaysia / Singapore / Hong Kong FrieslandCampina performed well in Malaysia, Singapore and Hong Kong. Revenue, volume and operating profit improved in all three countries. In Malaysia a more targeted positioning of the Dutch Lady brand led to increased market share. Sales of Growing Up Milk for children aged 1 to 6 continued developing particularly well. Reducing the number of products led to more efficiency. In Hong Kong sales of infant & toddler nutrition sold under the premium Friso brand rose again. FrieslandCampina’s high
food-safety standards are very attractive throughout the region and are, therefore, a major driver for growth. Dutch Lady long-life milk also performed extremely well. Thailand In Thailand FrieslandCampina achieved higher revenue and increased volume. As the selling prices of dairy products in Thailand are regulated by the government, price increases could only be passed on to a limited extent. This put margin development under pressure. A new variety of Foremost Calcimex was launched in the market. In 2011 the capital city Bangkok and the surrounding area suffered the worst flooding in over 50 years. For FrieslandCampina the consequences of the natural disaster included the temporary stoppage of one of the three production facilities in Bangkok and substantial disruption of distribution. Thanks to timely precautions being taken and the efforts of all the employees the damage was relatively small and the Foremost dairy products remained available in the shops.
Report of the Executive Board Consumer Products International
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Indonesia After an exceptionally good year in 2010, FrieslandCampina Indonesia’s growth stagnated somewhat in 2011. This put the operating profit under pressure. Fiercer competition in the domestic market, especially in nutrition for children aged 1 to 3 (Growing up Milk), caused problems for the operating company. FrieslandCampina Indonesia has now started a repositioning of its infant & toddler nutrition range. The first results are positive. The Middle East After a year of restructuring, in 2011 FrieslandCampina’s activities in the Middle East recovered. Revenue, volume and operating profit rose substantially compared with 2010. The distribution in Saudi Arabia improved considerably due to cooperation with a new partner. The region is also easier to manage from the new regional office in Dubai (United Arab Emirates). The first results of the introduction of Rainbow Gold were positive. Vietnam FrieslandCampina Vietnam experienced the consequences of high inflation. For the first time in years demand for food shrunk in this Asian country and, as a result, price competition rose as did the market demand for cheaper products. The market shares of the premium Dutch Lady brands, and to a lesser degree Friso, came under pressure. Revenue, volume and operating profit were all lower than in 2010. In the second half of 2011 the government implemented measures to regulate price increases. China In China FrieslandCampina was once again able to increase its revenue, volume and operating profit through the sale of Friso infant & toddler nutrition. The products are exported to China from the Netherlands. FrieslandCampina profited from the good image of Dutch dairy products in China. The operating company extended its distribution of Friso to include more cities.
Export FrieslandCampina Export, which sells long-life dairy products from the Netherlands around the world, was able to offset the (temporary) stopping of exports to North African countries caused by the political unrest in the region by exporting more to countries in Central America. Although the revenue rose as a result of higher selling prices, operating profit fell because the higher prices could not be passed on in all markets. Volume remained stable, in part because the production capacity was fully utilised.
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Report of the Executive Board Cheese, Butter & Milkpowder
Cheese, Butter & Milkpowder 2011 Revenue in millions of euros Operating profit in millions of euros Operating profit as a % of revenue
• • •
•
2,822 - 97 - 3.4
2010 2,641 - 92 - 3.5
Revenue growth due to higher selling prices Margin improvement of foil cheese Pressure on brands due to economic developments in Europe Investments in efficiency improvements
The Cheese, Butter & Milkpowder business group is responsible for the production and worldwide sales of cheese, butter and milk powder. The range comprises a wide variety of Gouda, Edam, Maasdam and foil cheese both as whole cheeses and in pre-packed pieces and slices, different types of butter and milk powders.
Market conditions In the first half of 2011 the positive price development of commodities that began in 2010 continued and reached a peak in mid 2011. Foil cheese and milk powder profited most from the price rises due to increased demand, including from Russia. In the second half of 2011 revenue prices fell to the same level as at the end of 2010. The selling prices of butter fell during the last quarter of the year to below the end of 2010 level. The negative economic sentiment led to a shift to cheaper products, at the cost of the position of branded articles. Revenue and operating profit Cheese, Butter & Milkpowder’s revenue rose by 7% to 2,822 million euro, primarily due to the higher prices of commodities such as foil cheese and milk powder. The sales volume of cheese fell because less supplementary cheese was purchased from external sources. Declining consumer confidence and economic/political developments in a number of countries led to pressure on margin development and sales of branded cheese and a slight drop in operating profit from -92 to -97 million euro. The business group’s profit was adversely affected by the performance payment and registered reserve being charged to the business groups in proportion to the quantity of member milk received. The investments in efficiency improvements and the reorganisation of the production and packaging facilities started in 2010 began to bear fruit. Cheese Specialties Declining consumer spending put sales of branded cheese under pressure in Europe and meant the necessary price increases could only partially, and after a delay, be passed on in the selling prices. The result was a drop in operating profit. In the Netherlands this had the greatest consequences for Milner and Noord-Hollandse Gouda. Milner’s market share in Greece was under pressure due to the growth of private label and full-fat cheese. The design and packaging of Milner was revamped in a number of countries. Noord-Hollandse cheese, with the EU Protected Geographical
Report of the Executive Board Cheese, Butter & Milkpowder
Designation (red EU seal), was introduced in Germany. The interest in authentic, regional cheese products is increasing. Customer focus is one of the value drivers of Cheese Specialties. In 2011 this led to the winning of the title ‘best outside sales force in the cheese segment in the Netherlands’. Outside of Europe the operating company succeeded in maintaining the export level of cheese under the Frico brand. In Russia more intensive marketing led to more growth. Political unrest and payment problems in several countries including Egypt and Libya put sales in these countries under pressure. During the last months of the year there were, however, signs of a recovery. The series of cheeses sold under the Dutch Master Pieces brand (with images of famous Dutch painters such as Rembrandt and Vermeer) was a success. The series of special cheeses was sold worldwide and were particularly popular in North and South America. Cheese The FrieslandCampina Cheese operating company developed positively in 2011 and was able to profit well from the higher prices for foil cheese. The price level did, however, decline again during the second half of the year. The sales organisation’s focus on market segments contributed towards the improvement of the product portfolio. Growth was achieved in particular in the ‘industry’ and ‘pre-packaged cheese for retail’ segments. Newly developed types of cheese were received positively by the market. In 2011 investments were made in expanding the cheese production capacity in Workum, Balkbrug and Marum. Once the investments are completed in 2012, FrieslandCampina Cheese in Workum will be one of the largest and most up-to-date cheese production facilities in Europe. In 2011 the cheese production facility in Dronrijp and the cheese packing facility in Leerbroek were closed down. Production was relocated to other facilities. In 2012 the cheese production facility in Varsseveld will be closed. These adjustments to the organisation will lead to a further improvement of efficiency.
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Butter & Milkpowder In 2011 the milk powder production and sales activities were transferred from the Ingredients business group to the Cheese & Butter business group and integrated with the Butter activities. This reorganisation and the combination with the Cheese activities has resulted in better planning and must benefit the total milk valorisation. The revenue of FrieslandCampina Butter & Milkpowder rose primarily thanks to a good first half year in which the operating company succeeded in passing on necessary price increases to the market. The industrial butter products profited the most from this. In the second half of the year, however, butter prices fell again, which put pressure on profit. Throughout the year high butter prices in Europe made the export outside Europe virtually impossible because butter on the world market was far cheaper. The butter production facility in Klerken (Belgium) was closed down and most of the production was relocated to the modernised facility in Noordwijk (Groningen). The milk powder activities developed well during the entire year. Both the price levels and the margins developed positively due to a healthy demand on the milk powder market.
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Report of the Executive Board Ingredients
Ingredients 2011 Revenue in millions of euros Operating profit in millions of euros Operating profit as a % of revenue
• •
•
•
1,930 189 9.8
2010 1,669 128 7.7
Good profits in all operating companies High demand for dairy ingredients, especially from Asia and the United States Kievit’s margins under pressure due to higher raw materials costs Capacity expansion of infant & toddler nutrition in full swing
The Ingredients business group focuses on the development of nutritious ingredients that add value to customers’ products. This involves ingredients based on milk, cheese whey and vegetable raw materials for customers in the infant & toddler nutrition sector, the food industry, the pharmaceutical industry and the young-animal feed industry. The ingredients developed by the business group can be found in all kinds of products from infant & toddler nutrition to biscuits, from medicines to ice cream and from medical food to cream liqueurs and cream soups.
Market conditions In 2011 the key trend for the Ingredients business group was the high demand for dairy ingredients, especially from Asia and the United States but also from Europe. The ingredients market was characterised by higher sales volumes and higher selling prices. The higher price of raw milk and other raw materials could be passed on to the market reasonably successfully. Organisational adjustments allowed the business group to focus more on its key corporate accounts and this resulted in a more coordinated and customer-oriented approach to these customers. In addition, the so-called ‘One face to the customer’ programme resulted in a further streamlining of the business group’s sales organisation. Both activities gave further substance to the motto: ’FrieslandCampina Ingredients – A powerhouse of specialised operating companies’. To respond properly to the increasing demand from China, in 2011 the business group opened a new sales office in Beijing to serve the Chinese market on behalf of all the business group’s operating companies. The business group also decided to set up an office in Singapore. Revenue and operating profit The Ingredients business group’s revenue rose by 16% to 1,930 million euro (2010: 1,669 million euro) thanks to higher volumes and selling prices. The operating profit amounted to 189 million euro, a growth of 48% compared with 2010 (2010: 128 million euro). Domo FrieslandCampina Domo’s operating profit improved, particularly in the second half of the year, due to the accelerated growth in demand and higher selling prices. All the capacity currently available was utilised. Work is still going full speed ahead on the capacity expansion and quality improvement of the production facilities in Beilen and Bedum started in 2011. In the context of the route2020 strategy, in which infant & toddler nutrition is one of the value drivers, 130 million euro is being invested in, among other improvements, increasing capacity and further improvements to safeguarding quality. The heavy investment will ensure that in the coming years FrieslandCampina is able to respond more effectively to the growing demand, especially from Asia, for infant & toddler nutrition ingredients and finished products.
Report of the Executive Board Ingredients
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Safety and safety awareness FrieslandCampina wants to reduce the number of work-related accidents resulting in sick leave. The target is to halve the number of accidents resulting in sick leave within five years. The number of accidents at each facility is registered and evaluated monthly by the Executive Board. In 2011 a worldwide programme aimed at making all employees more aware of safety issues was started. A target has been set for each location and all the employees have followed a safety training course. In 2011 training courses were also set up that involved managers walking a safety observation round. This must lead to increased safety awareness. The members of the Executive Board have also followed this training and in 2012 will walk a safety observation round in a different facility every two months.
Kievit In 2011 FrieslandCampina Kievit’s revenue rose thanks to higher sales prices and increased volume. Although the demand from Asia and the United States was good, there was some reduction in demand, especially for creamers (Kievit is the world market leader in the field of creamers) due to declining consumer confidence in Europe and unrest in the Middle East and North Africa. The operating company’s margins came under some pressure. DMV FrieslandCampina DMV had a good year with a noticeable increase in revenue and an improved operating profit. One reason for this was the higher selling prices for caseinates and whey concentrates resulting from the increased demand, especially from the United States and Asia. DMV’s ingredients are used in a variety of applications including medical foods, sports foods, weight products, dairy-based beverages and yoghurts. The ‘Solid DMV’ programme, aimed at reducing losses and improving efficiency contributed towards the higher operating profit in 2011. Creamy Creation FrieslandCampina Creamy Creation can look back on a good year. Despite the steep rise in raw material prices demand for cream liqueurs rose, especially from the United States.
Dairy Feed FrieslandCampina Dairy Feed is one of the world’s largest producers of young-animal feed. The products find their way to young animals in around 50 countries in Europe, the Middle East, Central and South America, Oceania and South-East Asia. The operating company plays a major role in the processing of residue from other FrieslandCampina companies. All the remaining valuable components, such as proteins, fats and lactose, are extracted from these residual products. They are then used to produce young-animal feed, with the addition of the vitamins, minerals, proteins and vegetable fats and other nutrients young animals need. In 2011 the operating company improved its revenue and operating profit still further. DFE pharma In 2011 DMV-Fonterra Excipients changed its trading name to DFE pharma. The joint venture had a good year with a substantial increase of its sales volume. Operating profit also improved as a result of the far higher demand for pharmaceutical lactose. The operating company’s activities were given an extra boost by investments in the production facility in Foxhol (the Netherlands), where new equipment for fillers based on potato starch went into operation. The operating company also took a major step forward in its objective of achieving a leading position in pharmaceutical carrier materials with the acquisition of Brahmar Cellulose Private Limited in India. The acquisition has brought DFE pharma a better market position as a manufacturer and supplier of the most common carriers and super disintegrators to the pharmaceutical industry.
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Report of the Executive Board Innovation
Innovation The goal of the Research & Development activities is to develop new, healthier and improved products, to achieve improvements in the field of the production process and to find new applications for milk and milk components. The activities are aimed not only at consumers and professional customers (bakeries and the food service sector) but also at customers in the food and pharmaceutical industries. FrieslandCampina wants to offer top-quality products with outstanding characteristics which do optimum justice to ‘All the goodness of milk’. In the year under review the total costs of Research & Development activities amounted to 66 million euro (2010: 61 million euro). Innovation programmes To move the starting points of the route2020 strategy forward, in 2011 a number of innovation programmes were implemented in close cooperation with marketing and operations. These programmes revolve around four innovation platforms: (children’s) growth & development, daily nutrition, health & wellness and functionality. These platforms are fed by the available expertise in the fields of life sciences, process technology, sensory & consumer science and food structuring. The research activities also contribute towards new insights into the nutritional characteristics of milk, retaining the good characteristics of dairy throughout the production chain and sustainability. In 2011 a large number of product introductions were achieved and various product and process improvements were implemented. Examples include innovations in the field of infant & toddler nutrition, the revamping of the Optimel range, packaging, such as for the Appelsientje range, and the introduction of spraydried ingredients for bakery applications and coffee enrichers. Considerable attention was paid to reducing sugar content and led to 10 – 30% less sugar in many products ranging from Fristi
Innovation in Wageningen At the end of December 2011 the foundations were laid for the new FrieslandCampina Innovation Centre in Wageningen, where all the employees involved with Research & Development in the Netherlands will work together. The building will house around 450 employees and will contain not only laboratories, taste-test areas, a test production facility, technical support areas and offices, but also an Experience Centre with a trial bakery and an innovation kitchen. The Innovation Centre will contribute towards a further acceleration of innovation. Wageningen has been chosen for the location of the Centre because of its proximity to Wageningen University & Research and the top Agrofood companies.
and Vifit to Mona. Thanks to new technological innovations it will be possible to dramatically reduce the amount of energy needed to produce dry ingredients. This will be implemented in the production facilities in the coming years. In 2011 FrieslandCampina researchers published articles about various research fields, such as the health aspects of milk, intestine health, the physical-chemical characteristics of milk components, the texture of cheese, aroma and taste analyses and separation technology. In addition, during the year under review 16 patent applications were submitted with the emphasis on functional ingredients for infant nutrition and the protection of new product and process innovations. Construction of new Innovation Centre Innovation is fostered by meeting each other, sharing information, inspiring each other and working together. To encourage this cooperation FrieslandCampina decided to concentrate all the different R&D departments, which are currently scattered around the Netherlands, under one roof in a new, advanced Innovation Centre embedded in the top-knowledge infrastructure of Wageningen University. Construction began in December 2011 and the new FrieslandCampina Innovation Centre is expected to go into operation in the second half of 2013. In the first instance 450 employees will be working in the field of innovation. This number may double in the following years. Around 60% of all FrieslandCampina’s R&D employees will work in the new Innovation Centre. The remaining employees are spread across facilities in Germany, Belgium, Hungary, the United States, Indonesia, Vietnam, Malaysia, Thailand and Nigeria.
Report of the Executive Board Supply Chain & Quality
Supply Chain Corporate Supply Chain offers strategic advice and expertise in the field of production, logistics and distribution. The most important focal areas are determining the optimum global manufacturing and distribution network, multi-year planning and investment, the development and continuous improvement of standards and best practices in the field of production and logistics, safety and sustainability throughout the production chain. In 2011 a start was made on the development of a sales & operations planning method that will be implemented integrally throughout FrieslandCampina. The department is also working on the strategy for the design of so-called Manufacturing Operations Management Systems that are responsible for meeting the information requirements in the field of production, maintenance quality and stocks and providing integration between the administrative systems and the factory floor.
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Quality To safeguard the safety and quality of its products throughout the entire production chain, from farm to consumer, FrieslandCampina has its own integral quality system, called Foqus. With Foqus FrieslandCampina offers consumers, customers and the authorities the guarantee that the products and production processes meet the stringent standards in the field of food safety, quality, safety, working conditions, fire protection and environment. The FrieslandCampina organisation can control the entire production chain from farm to end product. The guiding principles of the quality control are the statutory stipulations, with the addition of supplementary demands. The various international standards, such as HACCP, ISO 9001 and ISO 22000, are integrated into Foqus so that both FrieslandCampina’s customers and the consumers can be assured that the products are safe and of high quality.
Safety FrieslandCampina strives to minimise risks related to safety and the environment. The most important goal in the field of safe working is reducing the number of accidents requiring sick leave. All the Company’s business facilities operate in accordance with the FrieslandCampina standards. One of the minimum requirements is that the premises apply a management system for safety and the environment that as a minimum meets the requirements of OHSAS 18001 (for work safety) and ISO 14001 (for the environment). The management system determines whether the facility complies with the internal standards and external legislation. Since 2011 the number of accidents requiring sick leave for all facilities has been registered in accordance with an unambiguous definition. This so-called LTA rate is evaluated by the Executive Board each month. Various on-going programmes are aimed at improving safety and safety awareness. One of these is the Safety Awareness programme. Safety Cultures enable a plan of approach for improvements to be drawn up for each facility. The components include workshops for management teams and safety awareness training for all the employees at a production facility.
Employees improve FrieslandCampina Production processes, maintenance, working methods, energy and water usage, the return from machines: virtually every process in a company can be tuned and improved continuously. Continuous improvement involves all FrieslandCampina’s employees all year round. They work to achieve improvements via improvement systems in every production facility. Internal audits at the facilities ascertain whether they have achieved the goals they have set themselves. In 2011 the employees of FrieslandCampina in Vietnam achieved the highest score.
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Report of the Executive Board FrieslandCampina and its staff
FrieslandCampina and its staff Employees by geographical region
Talent management Talent and leadership development are prerequisites for the successful implementation of the route2020 strategy. From the perspective of both the Company and its employees there is a need for leadership programmes aimed specifically at different target groups within the organisation.
average numbers of FTEs
1% North & Africa & 5% the Middle East 1,032 140 South America
Asia
27% 5,202
34% 6,494
The Netherlands
19,036 23% 4,340
10% 1,828
Germany
Rest of Europe
FrieslandCampina’s human resources policy is aimed at recruiting and retaining the right employees for the Company, motivating them and ensuring the development of sufficient talent for critical functions, including management positions. Many employees find FrieslandCampina an attractive employer that offers its staff a challenging and inspiring working environment in which the optimum personal and career development of every employer is encouraged. In the context of route2020 FrieslandCampina’s ambition is to rank among the ten most attractive employers in the key countries and industries in which it is active within a few years. The global human resources strategy is one of the cornerstones supported by the Company’s route2020 strategy. A number of guiding principles and goals for the human resources policy have been formulated and are applicable for the entire organisation worldwide. In view of the Company’s geographical spread and the differences between one country and another, the personnel policy is developed and implemented locally within this framework and with the support of the central office. Examples of globally applied, centrally designed HR policy components are talent management, performance management, job grading, expatriate management and learning & development via the FrieslandCampina Academy.
Two programmes have been developed in cooperation with the IMD Business School in Switzerland: the ‘Courage to Lead’ programme for the Executive Board and the Leadership Team and, as a direct extension of this, the ‘Leading with Impact’ programme for senior management, the so-called Top 200. This programme was started during 2011. The ‘Leading to Success’ programme, developed in cooperation with the Ashbridge International Business School in the UK, is aimed at talented employees with less work experience. Participants in this programme are selected in close cooperation with line managers. In 2011 124 candidates from around the world were selected for this ‘high potential’ programme. The intention is for around 50 high potentials to be selected to participate in this 18-month programme each year. During the 18 months the group comes together three times, for a week each time, in the Netherlands, in China and in England. Between these ‘get together weeks’ the participants learn together in a ‘virtual’ classroom and carry out business assignments. This programme will prepare groups of potential leaders for the future. FrieslandCampina does not expect its managers to conform to a prescribed model. There is a need for authenticity: people who have their own opinion, who are at the centre of the community and, first and foremost, who have an inquiring mind and are open to modernisation and change. FrieslandCampina also selects its management on their ability to achieve targets, to learn and to build up and lead a team. FrieslandCampina believes careers should be built step-by-step. Gaining experience, carrying out challenging projects and following good training courses is in line with this. A good succession planning process is essential. The business groups provide input for succession planning throughout the Company. This takes place during the so-called Talent Days organised four times a year at various levels in the business groups and in the Executive Board. FrieslandCampina also keeps a critical eye on whether there is sufficient talent in house that can move upwards. Talent Councils play a major role in this process. These advisory groups for specific functional areas ensure there is a business cross-over exchange of talent within the Company and between different countries and operating companies.
Report of the Executive Board FrieslandCampina and its staff
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FrieslandCampina Academy In 2011 the FrieslandCampina Academy supported employee development by developing, organising and running training programmes. These training programmes were developed on the basis of the route2020 strategy. During 2011 more than 3,000 employees participated successfully in one of the 250 multiday FrieslandCampina training courses. As many of the training courses as possible are organised at a national or regional level to ensure they answer local needs and reflect local cultural differences. The range of courses offered by the FrieslandCampina Academy was revamped last year. New courses offered in 2011 included the ‘Leading Self’ and ‘Leading People’ management skills programmes. At the end of 2011 a worldwide learning programme was launched in the context of the FrieslandCampina Code of Conduct. Compensation, Benefits & Global Mobility In 2011 the function classification for Senior Management and Managerial Staff worldwide was harmonised. This project started in 2009 with classifying all the functions in Belgium, the Netherlands and Germany. In 2010 this was followed by the rest of Europe and the United States. During 2011 Asia, Africa and the Middle East were completed. This means that all Senior Management and Managerial Staff functions worldwide (around 4,500) have now been classified following a single, uniform system that enables the weight of the different functions to be compared with each other. The development and implementation of its Global Mobility Policy, Short Term Assignment Policy and Cross Border Computer Policy means FrieslandCampina now has modern, globally harmonised regulations that will promote international mobility within the Company. To support FrieslandCampina’s internationally mobile employees, a global cooperation with Deloitte Global Employer Services has been started in the fields of compliance (taxation, social security and visas). During 2011 the first major step was taken towards the worldwide implementation of an integrated HR platform that supports the most important HR processes, such as Performance Management, Compensation Management, Talent Management and Learning & Development. The system was set up to support an effective and efficient execution of the assessment process, and the consequences of this process in terms of personal development and salary, of a pilot group of 300 employees. In 2012 managers and employees in the Netherlands, the United States and Saudi Arabia will evaluate the system in preparation for a possible worldwide roll-out in 2013.
Management capability programme: Leading Self Leading Self is one of the management training programmes developed and organised by the FrieslandCampina Academy. The programme helps new and more experienced managers develop the management competencies. By understanding their own behaviour the participants learn how to be an effective manager. The programme comprises one two-day module and one three-day module. The entire programme is active and relevant; it always revolves around the working situation of FrieslandCampina’s employees. Leading Self is one of a series of management training courses offered to all managers around the world. The other programmes are Leading People and Leadership in Business.
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Report of the Executive Board FrieslandCampina and its staff
Flooding in Thailand and Nigeria In the autumn of 2011 Thailand was affected by severe flooding. The region around Bangkok in particular had to cope with the effects of the constantly rising water. FrieslandCampina’s facilities in Thailand also had to deal with the flooding. Thanks to their enormous efforts, the facilities’ management and employees succeeded in keeping the production and distribution of long-life dairy products going as much as possible. This enabled the increasingly empty supermarkets to continue being supplied with dairy products for the Thai population. Earlier in 2011 the flooding of FrieslandCampina’s production facility in Nigeria resulted in extensive damage to the factory and warehouse. Thanks to the employee’s enormous efforts the distribution of dairy products could be restarted after just a few weeks.
HR in the Netherlands The Employability 2020 project focuses on the production facilities’ staffing requirements in terms of both quantity and quality. The rising average age of the employees working in the production facilities and the expected natural outflow means that around 50% of the current employees will leave FrieslandCampina between now and 2020. At the same time, a shortage of well-trained technical staff is forecast. To enable FrieslandCampina to respond to this situation in good time a cooperation has been set up with training institutes to ensure the dairy expertise and experience that has been amassed will be safeguarded for the future. In addition, in the context of the theme Sustainable Employability, a programme has been developed aimed at maintaining existing employees’ fitness in terms of both their work and their health.
This programme, called ‘Fit4Work’ is a response to the increasing speed of developments in operations and automation as well as to the fact that the pensionable age will be raised to 67. Once again the mobility centre succeeded in finding new positions for 201 of the 276 employees who lost their jobs during 2011 as a result of reorganisations (2010: 347 of 410). In line with FrieslandCampina’s sustainability targets, several initiatives aimed at arriving at a more sustainable employment conditions policy were started. The first concrete steps involve a new, sustainable, lease car policy that will go into effect in 2012 and that will include an NS (Dutch railway) business card for lease car users to encourage them to use public transport.
Report of the Executive Board Outlook & Responsibility statement
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Outlook
Responsibility statement
In 2012 a slight increase in the demand for dairy at a global level is anticipated as a result of increasing consumption at a global level. In Europe dairy consumption will probably remain under pressure due to consumers’ reticence when it comes to spending. The availability of milk will increase slightly at a global level and, at certain times during the year, the supply of milk could exceed the demand, which will put pressure on prices. Small fluctuations in supply and demand on the international dairy market can have major consequences for the price development of commodities like milk powder, foil cheese and butter. This also influences price levels in other product categories. If the cost of raw milk and other raw materials goes up, margins could come under pressure if these price increases cannot be passed on in the selling prices in full or in time. The moment at which the price and duration of a contract are fixed can have a substantial effect on the achieved selling price and margin development.
The Executive Board of Royal FrieslandCampina N.V. declares that the financial statements give a true and fair view of the assets, liabilities, financial position and the profit of Royal FrieslandCampina N.V. and the companies included in the consolidation. The Executive Board also declares that the annual report gives a true and fair view of the situation as at the balance sheet date and the business development during the financial year of Royal FrieslandCampina N.V. and the associated companies for which the financial information is recognised in its financial statements. The annual report also describes the material risks with which Royal FrieslandCampina N.V. is confronted.
For FrieslandCampina 2012 will be a year of further progress in the route2020 strategy. FrieslandCampina will strive to achieve growth in dairy-based beverages, infant & toddler nutrition, branded cheese and specialised ingredients. Investments are planned in the field of production capacity expansion, machinery replacement, efficiency improvement and innovation. The innovation programmes are linked to the strategic growth categories. Research & Development expenses are expected to increase slightly. FrieslandCampina’s solid financial base means the Company is well prepared to achieve its plans in the context of the route2020 strategy. FrieslandCampina has an amount of 715 million euro available from its current credit facility.
Kees (C.J.M.) Gielen Chief Financial Officer
In the field of human resources demographic developments in the different regions will be the guideline for achieving the right staffing level as will staff training and education. Increased efficiency, the expansion of activities and possible acquisitions could all lead to changes in the number of employees. A greater focus on Corporate Social Responsibility throughout the dairy production chain must contribute towards sustainable value creation for all stakeholders. No statement is being made regarding the expected result for 2012.
Executive Board Cees (C.C.) ’t Hart Chief Executive Officer
Kapil (K.) Garg Chief Operating Officer Piet (P.J.) Hilarides Chief Operating Officer Roelof (R.A.) Joosten Chief Operating Officer Freek (F.) Rijna Chief Operating Officer Amersfoort, 2 March 2012
Cows in the meadow
Cows in the meadow are a characteristic component of the Dutch landscape. To retain this image, FrieslandCampina has taken the initiative to stimulate cows being put out in the meadow by making a sum of up to 45 million euro per annum available for member dairy farmers who let their cows graze outside. Dairy farmers who put their cows out in the meadow on at least 120 days a year, for at least six hours a day, receive a premium of 0.50 euro per 100 kilos of milk. FrieslandCampina has expanded its range of dairy products made from meadow milk still further. In this way the Company wants to enable customers and consumers to make a considered choice for meadow milk products and thus contribute towards keeping cows in the Dutch landscape.
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Corporate Social Responsibility
Corporate Social Responsibility A healthy and successful FrieslandCampina can only exist in healthy social surroundings, a healthy living environment with healthy products. This is the conviction that forms the basis of FrieslandCampina’s global programme for Corporate Social Responsibility (CSR) and sustainability. By nature milk is one of the richest sources of nutrition as it contains proteins, vitamins and minerals that are essential for a healthy life. Through its products FrieslandCampina makes a contribution towards supplying the world not just with food but with assured nutrition.
Financial as well as social value (‘shared value’) FrieslandCampina foresees a challenging future for a world with seven billion citizens in 2011 and nine billion in 2050. The growth of the world population will bring about great changes in the way in which society is provided, in a sustainable and efficient way, with food, animal feed and (bio-based) energy. FrieslandCampina believes in the ‘shared value’ model whereby financial value creation goes hand in hand with the social added value of its activities, services and products. FrieslandCampina strives for a good return alongside an optimum embedding in society and the safeguarding of FrieslandCampina’s continuity.
FrieslandCampina focuses its active CSR efforts and leadership on four areas in which it can make a difference: • Nutrition & health (in particular dealing with undernourishment) • Efficient and sustainable production chains (sustainable purchasing, less energy, water and waste, more sustainable energy) • Dairy farming development in Asia and Africa (the support of small farmers in Asia and Africa); • Sustainable dairy farming within its own Cooperative (with 14,400 dairy farms in the Netherlands, Germany and Belgium) Within these four priority areas FrieslandCampina carries out specific action plans in order to achieve its CSR ambitions. Targets and action plans have been developed for each of the priority areas and will be reported each year in the CSR Report.
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Corporate Social Responsibility
CSR Mission, vision and strategy Voedingswaarde & gezondheid Nutrition & health
Efficiënte en duurzame productieketens
Ontwikkeling melkveehouderij farming development inDairy Azië en Afrika
Duurzame melkveehouderij
FrieslandCampina aims to in Asia and Africa Kleine melkveehouders in Tekort aan nutriënten Grondstofgebruik De standaard contribute towards combating Enough nutritious for a Azië en Afrika verder food helpen terugdringen verbeteren bepalen undernourishment in the world on constantly increasing world population the basis of the nutritional relevance is one of the four cornerstones of dairy products. The Company also of FrieslandCampina’s CSR policy. wants to help drive back obesity, FrieslandCampina’s focus is primarily especially among young people, on programmes that will enable including through improving the farmers in Asia and Africa to run information regarding healthy eating farms in the best possible way CSR Governance Board – Four CSRtheir implementation teams and lifestyle and emphasising the and thus increase the quantity and CSR performance measurement – Reporting – quality Stakeholder – Partnerships importance of sport and exercise. of dairydialogue production. In developing these programmes Employee and member dairy farmer engagement – CSR training programmes – Annual CSR Team Award the emphasis is on cooperation with other organisations.
Sustainability practices for suppliers – Code of Conduct – Foqus quality control system – Policy & position papers
Efficient and sustainable production chains In the context of agreements within the Dutch dairy sector, FrieslandCampina’s goal is to achieve its future growth in a climate-neutral manner. Towards this end it is working on improving energy efficiency and the transition to sustainably Efficiënte en Voedingswaarde generated energy. This means that duurzame gezondheid the& entire chain, from dairy farm productieketens to dairy facility, must Tekortproduction aan nutriënten Grondstofgebruik ultimately be able to meet its own terugdringen verbeteren energy requirements, for example by using energy generated from biomass and wind and/or solar energy.
Sustainable dairy farming FrieslandCampina deems it important that milk and other raw materials necessary for its dairy products are produced in a sustainable manner. This means agricultural and dairy farming methods that not only have the minimum possible impact on the environment but also contribute Ontwikkeling Duurzame towards the wellbeing of the local melkveehouderij melkveehouderij incommunity. Azië en Afrika
CSR
Mission, vision and strategy
Kleine melkveehouders in Azië en Afrika verder helpen
De standaard bepalen
CSR Governance Board – Four CSR implementation teams CSR performance measurement – Reporting – Stakeholder dialogue – Partnerships Employee and member dairy farmer engagement – CSR training programmes – Annual CSR Team Award Sustainability practices for suppliers – Code of Conduct – Foqus quality control system – Policy & position papers
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Corporate Social Responsibility
Campina Open Farm Days How are cows cared for and milked? And how happy are the cows when on a fine spring day they can go back outside into the meadow for the first time? During the Open Farm Days nearly 100,000 consumers visited the 90 dairy farms participating in the Campina Open Farm Day programme. The Open Farm Days enable consumers to see with their own eyes where the milk for Campina products comes from and how carefully the cows are handled. This is how Campina surrounds its products with care – from grass to glass.
Actions in 2011 Sustainability programme for dairy farming With the member dairy farmers’ formal approval of the sustainability programme for dairy farming in December 2011, the Cooperative and its members have taken a major step towards further sustainability of the chain. The members are very aware that society’s appreciation of dairy farming is crucial. This includes looking after the animals properly, conserving the natural environment and making efforts to maintain outdoor grazing in the Netherlands. FrieslandCampina’s sustainability programme for dairy farming includes making 45 million euro a year available to stimulate the outdoor grazing of cows. Dairy farmers who are members of Zuivelcoöperatie FrieslandCampina U.A. and who put their cows out in the meadow will be eligible for a meadow milk premium of 0.50 euro per 100 kilo milk. The initiative is a component of FrieslandCampina’s sustainability agenda. The financial boost of 45 million euro will start in 2012 and will continue until at least 2014. From 2012 FrieslandCampina will offer member dairy farmers who put their cows out in the meadow for at least six hours a day, on at least 120 days a year, a meadow milk premium of 0.50 euro per 100 kilo milk. In 2011 member dairy farmers who put their cows out in the meadow received a premium of 0.05 euro per 100 kilo milk. This means the meadow milk premium for a farm that supplies 600,000 kilo milk a year will increase from 300 euro a year to 3,000 euro a year.
FrieslandCampina will expand its range of dairy products guaranteed to be made from Dutch meadow milk. In this way the Company will enable customers and consumers to make a considered choice that is in accordance with their desire for more products that have been produced in a sustainable manner. Safety and environment FrieslandCampina has formulated targets in the field of work safety and the environment. The most important target in the field of work safety is a substantial reduction in the number of accidents resulting in sick leave. The number of accidents at each facility is registered with an unambiguous definition. Reports are evaluated monthly by the Executive Board. In 2011 there were two accidents with a fatal outcome and one extremely serious accident. The ongoing safety awareness programme and the management of risks and operating processes must lead to a reduction in the number of accidents. The target is a 50% reduction within five years. Increased awareness of safety issues In 2011 a worldwide programme aimed at making all employees more aware of safety issues was started. This was achieved by determining the level of cultural maturity. A target was then set for each location and all the employees followed a safety training course. Safety is high on the agenda and is the number-one priority. This has brought about the cultural changes needed to achieve lower accident figures.
Corporate Social Responsibility
Observation & identification training in the field of safety In 2011 training courses were set up that involved managers walking a safety observation round. This is a separate programme that must also lead to increased safety awareness. The Executive Board members have also been trained in walking safety observation rounds and will walk a safety observation round at a facility every two months in 2012. Systematically working on safety and the environment The Foqus SHE management system is active throughout FrieslandCampina. The system is based on ISO 18001 and ISO 14001. Every production facility must achieve a certain level in this system. In 2011 a large number of internal auditors were trained to evaluate the safety and environmental performance of all the facilities and audits of the first 19 production facilities were carried out. In 2011 all Consumer Products Europe’s locations were awarded both ISO 18001 and ISO 14001 certification. At FrieslandCampina Indonesia’s production facilities, which have been ISO 14001 certificated for a number of years, various savings programmes are running aimed at reducing the impact on the environment. Water saving, emission reduction and waste recycling are major programmes. FrieslandCampina Indonesia is one of only a limited number of companies that have been awarded the Ministry of the Environment’s prestigious ‘Green Award’ for its efforts.
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Improving the environmental performance Improving energy performance is a focus of every FrieslandCampina production facility. In several countries, including the Netherlands and Belgium, agreements related to the further improvement of energy efficiency have been made with the government by means of covenants. This is translated into a plan of approach for each facility. At FrieslandCampina DMV in Veghel (the Netherlands), for example, an extensive measuring system has been implemented per department and per production line. This is providing a considerable amount of information for the department and, with the help of so-called Small Group Activities, more and more operational improvements are being identified and implemented. This has led to an improvement of the facility’s energy efficiency. Progress in the field of waste water has been made by FrieslandCampina Domo in Bedum in the Netherlands where whey is processed into dairy ingredients for other food production factories. The process includes desalination, which results in salt in the waste water. This affects the quality of the surface water. In 2011 the Bedum facility invested in a so-called ‘evaporator’ as a result of which the salt no longer enters the waste water.
Enjoying together
Every day FrieslandCampina uses its 140 years of expertise and experience with dairy products to offer hundreds of millions of people around the world energy-rich food. Every day growing children, teenagers and adults in Malaysia, Singapore and Vietnam enjoy a wide range of dairy products from the Dutch Lady range. And every day making a contribution towards a healthy future remains a challenge FrieslandCampina is very happy to accept.
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Corporate governance
Corporate governance at a glance
Basic principles
Shareholders structure
Royal FrieslandCampina N.V. (the ‘Company’) voluntarily applies the principles of the Dutch Corporate Governance Code (the ‘Code’). The manner in which these principles are applied is described in this section. The principles of the Code the Company does not apply, and the reason why not, are also included. Zuivelcoöperatie FrieslandCampina U.A. (the ‘Cooperative’) is exempted from applying the statutory two-tier rules ("structuurregime"). The Company is a statutory two-tier company. A covenant has been agreed with the Central Works Council (the ‘CWC’) on the grounds of which the members of the Company’s Supervisory Board (the ‘Supervisory Board’) are appointed by the Supervisory Board, the so-called co-option system.
All the shares in the Company’s capital are held by the Cooperative, the members of which are involved in dairy farming or the acquisition, processing or sale of milk. The Cooperative’s geographical area of operations is divided into 21 districts, each of which has a District Council. The Cooperative's members appoint the Boards of the 21 districts. Together the 210 members of the District Councils form the Members' Council of the Cooperative. The Members' Council appoints the nine members of the Cooperative Board on the recommendation of the Cooperative Council. The Cooperative is the sole shareholder of the Company. The Cooperative Board exercises the Cooperative’s shareholders’ rights and in this capacity functions as the General meeting of Shareholders of the Company. There are a number of decisions regarding which, on the grounds of the Company’s Articles of Association, the Company’s Executive Board (the ‘Executive Board’) must obtain the approval of the General Meeting of Shareholders. For a number of the decisions for which the Cooperative Board votes on behalf of the Cooperative, the Cooperative Board must obtain the approval of the Members' Council before casting its vote. Such approval from the Members' Council is also applicable for a number of other major decisions of the Company’s General Meeting of Shareholders.
Board structure The Company has a so-called two-tier structure with a management board – the Executive Board – and a Supervisory Board. The Executive Board comprises six members (in 2011, the year under review, five members), including a Chief Executive Officer (CEO), a Chief Financial Officer (CFO) and four Chief Operating Officers (COOs). Each COO is responsible for one of the business groups. The Executive Board’s composition and division of tasks is explained on page 146. The Supervisory Board comprises thirteen members: nine members of the Cooperative Board plus four ‘external’ members. The Supervisory Board’s composition can be found on pages 144 and 145.
Supervisory Board Committees
Report of the Supervisory Board The topics covered in the report of the Supervisory Board include the activities of the Supervisory Board and its Committees during the year under review. This report is included on pages 76 to 79.
The Supervisory Board has formed two committees: the Audit Committee, which comprises four Supervisory Board members, and the Remuneration & Appointment Committee, which comprises three Supervisory Board members. The composition of the Supervisory Board’s Committees can be found on pages 144 and 145.
Corporate governance
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Corporate governance The corporate governance principles followed by Royal FrieslandCampina N.V. are laid down in the Articles of Association and the Regulations of the Company’s various bodies, all of which are published on the Company’s website. Although the Code is not applicable to the Company, because according to the applicable law only stock exchange listed companies are governed by the Code, the Company applies the principles and best practices provisions of the Code that are compatible with its structure of authority and the nature of the Cooperative. The provisions that are not applied are specified in this overview along with the reasons why they are not applied. During the year under review there were no structural changes to the governance structure. The Regulations of the Executive Board have been brought in line with the existing governance practices.
Executive Board Tasks and responsibilities The Executive Board, which on the grounds of the Articles of Association comprises a minimum of two members, is charged with the management of the Company. This means that the Executive Board’s responsibilities include the policy and business progress within the Company and with this the achievement of the goals, strategy, profit development and the social aspects of doing business that are relevant for the Company. The Executive Board is also responsible for the compliance with legislation and regulations, the management of the risks coupled with the company’s activities and the financing of the Company. The Executive Board discusses the internal risk management and control systems with the Supervisory Board and the Audit Committee. In discharging its duties the Executive Board is led by the interests of the Company and its affiliated enterprise. The Executive Board is accountable to the Supervisory Board and the General Meeting of Shareholders for its policy. Appointment The members of the Executive Board are appointed by the Supervisory Board for an indefinite period. The basis for noncompliance with the recommendation of the Code (appointment for a maximum term of four years) rests in the principles of the statutory two-tier rules whereby the members of the Executive Board are appointed by the Supervisory Board. In addition, the Cooperative is oriented towards the long term. The Supervisory
Board notifies the General Meeting of Shareholders of an intended appointment and does not dismiss members of the Executive Board, or not until after the General Meeting of Shareholders has expressed its opinion. Remuneration of Executive Board members All the relevant recommendations of the Code are applied in the remuneration policy. The remuneration policy is not made public because the Company is legally exempt from publication. The remuneration policy is proposed by the Supervisory Board and approved by the General Meeting of Shareholders and is accounted for every year in the meeting of the Members' Council. Important changes in the remuneration policy are submitted to the General Meeting of Shareholders for approval. FrieslandCampina is accountable to the General Meeting of Shareholders and the Members' Council. Supervisory Board The Supervisory Board supervises the policy of the Executive Board and the general business progress of the Company and its associated companies and advises the Executive Board. The Supervisory Board discusses with the Executive Board the strategy and main risks related to the Company’s operations as well as the organisation and functioning of and any significant changes to the risk management and control systems. The Supervisory Board also has the authorities and powers specified in the provisions of Book 2 of the Dutch Civil Code in respect of statutory two-tier companies. These powers include,
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Corporate governance
in particular, the appointment of the Executive Board members, the determination of the number of members of the Executive Board and the approval of a number of other decisions of the Executive Board as specified in legislation. The Supervisory Board also has the authority to approve certain decisions of the Executive Board as stipulated in the Articles of Association. In the performance of its duties the members of the Supervisory Board are led by the interests of the Company and its affiliated enterprise and takes into account the interests of all the Company’s stakeholders and all the aspects of social responsibility relevant to the Company. Composition, independence and appointment A covenant has been signed with the CWC that includes agreements regarding the composition of the Supervisory Board, the required profile of the members of the Supervisory Board, the strengthened rights of the CWC in respect of the appointment of Supervisory Board members and the way in which the CWC exercises these rights. The profile sketch has been published on the Company’s website as an appendix to the Supervisory Board Regulations. On the basis of the Covenant the Supervisory Board is composed properly if two-thirds of its members are members of the Cooperative Board (the ‘internal members’) and one-third of its members are recruited from outside (external members). The chosen composition reflects the two-thirds to one-third dominance of internal members in a Supervisory Board permitted by the Law for large cooperatives. This dominance by internal members is carried through to the Company level. This stipulation deviates from the Code’s best practice provision which states that all Supervisory Board members, with the exception of a maximum of one member, must be independent. All the external Board members are independent in the sense of the Code. The external Supervisory Board members are selected on the basis of the criteria laid down in the profile sketch. At least one Supervisory Board member is a so-called financial expert, which means he or she has acquired relevant expertise and experience in the field of financial administration/accounting with a large legal entity. The membership of other Supervisory Boards and the holding of other positions by both Supervisory Board members and Executive Board members is evaluated by the Supervisory Board on a case by case basis, taking into consideration the nature of the membership or position and the demands it would place on the time of the member concerned. Every member of the Supervisory Board and the Executive Board must ensure he or she devotes sufficient time and attention to the Company to guarantee his or her duties are fulfilled properly.
Supervisory Board members are appointed by the Supervisory Board for a term of four years and may be reappointed a maximum of twice. An exception to this is applicable for the incumbent Chairman who may be appointed for a fourth term in connection with the fact that the Company wants to be able to appoint a Supervisory Board member for this function who has a lot of experience of the day to day business of the Company and the Cooperative. The term of office of a Supervisory Board member who is also a member of the Cooperative Board always ends upon the termination of the Cooperative Board membership. Information concerning the dates of (re)appointment and current terms of the Supervisory Board members can be found in the appointment and resignation roster on page 78. Remuneration The General Meeting of Shareholders fixes the remuneration of the Supervisory Board members each year on the recommendation of the Supervisory Board and is accountable to the Members' Council for its decisions. The remuneration is not dependent on the Company’s results.
Corporate governance
Supervisory Board committees The Supervisory Board has an Remuneration & Appointment Committee and an Audit Committee. The task of these Committees is to prepare the decision making of the Supervisory Board; they have no independent decision-making authority. The Regulations of the Committees are published on the Company’s website. Both Committees report regularly to the Supervisory Board regarding their deliberations and findings. Remuneration & Appointment Committee The Remuneration & Appointment Committee comprises the Supervisory Board member with the social profile, who is also the Chairman of the Remuneration & Appointment Committee, plus the Chairman and Vice-chairman of the Supervisory Board. The duties of the Remuneration & Appointment Committee include: • proposals for the remuneration policy of the Executive Board and the individual Board members; • compiling the remuneration report; • selecting and appointing the members (including drawing up appointment criteria and procedures) of the Executive Board and the external Supervisory Board members; • regular evaluation of the size and composition of the Supervisory Board, the Supervisory Board Committees and the Executive Board; • regular evaluation of the functioning of the Executive Board and the Supervisory Board and the individual members of both these Boards and the Supervisory Board’s committees; • preparation of the decision making regarding the Executive Board remuneration policy; and • supervision of the Executive Board’s remuneration policy, selection criteria and appointment procedures for members of the senior management. Audit Committee The Audit Committee comprises the financial expert and one other external Supervisory Board member and two Supervisory Board members who are also members of the Cooperative Board. The duties of the Audit Committee are of a preparatory nature and relate to: • the accuracy and completeness of the financial reporting; • compliance with recommendations from the Corporate Internal Audit department and the external auditor; • the administrative organisation; • the functioning of the internal risk management and control systems; • compliance with legislation and regulations, the policy in respect of tax planning; • financing and application of information and communication technology; • the role and functioning of the internal auditor; and
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• t he appointment of and relationship with the external auditor (including the auditor’s independence, remuneration and any audit tasks). The Audit Committee is the first contact point for the external auditor should the audit reveal irregularities in the Company’s financial reporting. Conflict of interests FrieslandCampina has drawn up strict rules to prevent every form and appearance of a conflict of interest between the Company on the one hand and the members of the Executive Board and the members of the Supervisory Board on the other hand. Decisions to enter into transactions involving conflicting interests of Executive Board or Supervisory Board members of a material significance for the Company and/or for the relevant individual must, in accordance with these rules, be approved by the Supervisory Board. During the year under review no conflicts of interests were reported.
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Corporate governance
The General Meeting of Shareholders The Company’s General Meeting of Shareholders has the authority to approve certain Executive Board decisions. These decisions, which are stipulated in the Articles of Association, are major decisions relating to the operations, legal structure and financial structure of the Company (and the companies in which it holds shares) as well as decisions related to major investments. The most important other authorities of the General Meeting of Shareholders are: • adoption of the Company’s financial statements and profit appropriation; • discharging the members of the Executive Board for their management and the members of the Supervisory Board for their supervision of the Executive Board; • adoption of the dividend; • adoption of the remuneration policy for the Executive Board and the remuneration of the Supervisory Board members; • appointment and dismissal of the external auditor; • amendments to the Articles of Association; and • issuing of shares, exclusion of the application right, authorisation to repurchase the Company’s own shares, reduction of the paid-up capital, dissolution, application for bankruptcy. During the Company’s General Meeting of Shareholders the Cooperative Board exercises its voting rights on behalf of the Cooperative. In respect of a number of major shareholders’ decisions, stipulated in the Cooperative’s Articles of Association, the Board exercises its voting rights with the prior approval of the Members' Council. The Company, share capital and Articles of Association Royal FrieslandCampina N.V. is a public limited liability company registered in Amersfoort, the Netherlands, and has its central office at Stationsplein 4, Amersfoort. The Company’s Articles of Association were last amended on 2 February 2011 and are published on the Company’s website. The Company is registered with the Chamber of Commerce under number 11057544. At 31 December 2011 the Company’s authorised capital amounted to EUR 1,000,000,000 divided into 10,000,000 (ten million) shares with a nominal value of EUR 100. The shares are registered. On the same day 3,702,777 shares were issued and paid up and all are held by the Cooperative. For the sake of brevity, for the stipulations regarding the issuing of shares, application rights, acquisition of own shares and capital reduction, please refer to the Company’s Articles of Association.
Audit of the financial reporting and the roles of the internal and external auditors Financial reporting The Executive Board is responsible for the quality and completeness of the published financial announcements. The Supervisory Board ensures that the Executive Board fulfils this responsibility. External auditor The external auditor is appointed by the General Meeting of Shareholders on the recommendation of the Supervisory Board. The Supervisory Board is advised by both the Audit Committee and the Executive Board. The remuneration of the external auditor and orders to the external accountant to carry out tasks not related to the audit are approved by the Supervisory Board on the recommendation of the Audit Committee and after consultation with the Executive Board. The external auditor is present during the Supervisory Board meeting in which the decision to approve the financial statements is taken. The external auditor’s findings regarding the audit of the financial statements are reported to the Executive Board and Supervisory Board at the same time. Internal audit function The functioning of the internal auditor is the responsibility of the Executive Board. Both the Audit Committee and the external auditor are involved in the plan of work of the internal auditor and are notified of his/her findings. The internal auditor has regular consultations with the external auditor and the Chairman of the Audit Committee.
Corporate governance
Best practice provisions of the Code not applied by FrieslandCampina: The Company fully endorses the Code by applying the principles and best practice provisions or by explaining why the Company deviates from the Code. The principles listed below are not applied for the reason indicated in the foregoing text or below: II.1.1 Appointment of a member of the Executive Board for a period of a maximum of four years: see motivation under ‘Executive Board-Appointment’. II.1.9-11 and IV Response time to shareholders, Supervisory Board notification in the case of an acquisition bid; principles in respect of the (General Meeting of) Shareholders and information provision/logistics regarding the General meeting: not applicable due to the fact that the Company is not stock exchange listed and all the shares in its capital are held by the Cooperative. II 2.12-15 Publishing remuneration report, most important components of employment conditions or severance payment of Executive Board member: the Company utilises the statutory exception as understood in Art. 2:383b of the Dutch Civil Code for so-called ‘private public liability companies’. III.2.1 All Supervisory Board members, with the exception of a maximum of one, are independent: see motivation under ‘Supervisory Board – Composition, independence and appointment’. III.3.5 A Supervisory Board member may only be a member of the Supervisory Board member for a maximum of three terms of four years: see motivation under ‘Supervisory Board – Composition, independence and appointment'. III.5 For practical purposes, the Remuneration Committee and the Selection & Appointment Committee are combined into the Remuneration & Appointment Committee.
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Risk management
Risk management The achievement of business objectives goes hand in hand with risks and uncertainties, including due to external economic factors, market developments, calamities and internal factors. FrieslandCampina divides risks into four groups: compliance, strategic, tactical & operational and (financial) management.
Each risk group has its own objectives for managing the risks: • Compliance – The Company wants to avoid these risks and their consequences as far as possible, whatever the scale of any resulting damages; • Strategic – Major risks that could impede the achievement of the route2020 strategy are recognised in good time and, as far as possible, managed over the long term; • Tactical & operational – The material influence that risks could have over the (financial) goals for the current year and the medium term (three years) are limited as far as possible; • (Financial) management – The Company strives to have in place the measures necessary to ensure the effective management of the named risks.
Employee safety is the top priority for FrieslandCampina. The Company wants to achieve a noticeable reduction in the number of job-related accidents. More attention is being paid to the existing programmes aimed at increasing the safety awareness of employees and managers.
Although all types of risk are important for FrieslandCampina, in 2011 the relevance of some risks increased noticeably (see table on page 65). The economic and political developments in Europe led to FrieslandCampina being prepared for several scenarios in certain countries, including Greece and Hungary. The Company is well informed regarding consumer spending and, where this is under pressure, extra attention is needed to show the added value of brands. The economic developments also demanded additional attention being paid to the Company’s financing and pension provisions. FrieslandCampina’s creditworthiness is good and in 2011 the Company successfully extended the financing facilities to make the Company’s further development possible.
In 2011 attention was paid to further improving the organisation and functioning of the internal management system.
The existing milk quota for FrieslandCampina’s member dairy farmers will be withdrawn in 2015 and the Company is making preparations to ensure that, should there be a significant increase in the quantity and fluctuations of the milk offered, this can be properly processed and valorised. FrieslandCampina implements general risk management measures as well as specific risk management measures for each type of risk.
General risk management measures Risk management organisation The ultimate responsibility for the management of the risks inherent to achieving the Company’s objectives and for the reliability of the internal and external (financial) reports rests with the Executive Board. The responsibility for designing and embedding the measures to manage risks is delegated to corporate staff departments. These departments are also responsible for monitoring and evaluating the application of the measures.
Risk management
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The most important types of risk for FrieslandCampina Relevance in 2011 compared with 2010 Increased
Compliance
Strategic
Employee safety
X
Food safety
X
Legislation and regulations
X
Innovation and added value
X
Milk valorisation and processing capacity
X
Acquisitions and partnerships Tactical & operational
(Financial) management
Equal
X
Economic and political developments
X
Competition and market developments
X
Purchasing market and price development
X
Personnel and organisation
X
Calamities including animal diseases
X
Financing, foreign currencies and pensions ICT and management information
During 2011 a new corporate Enterprise Risk Management department was established. This department is responsible for supporting risk assesments at various levels in the organisation and for coordinating the management and further improvement of the internal risk management and control systems. The department reports to the Executive Board and the Audit Committee. The primary responsibility for the correct (day-to-day) application, compliance and monitoring of the systems that have been put in place to adequately manage the relevant risks rests with the managements of the business groups and operating companies. The managements of the business groups and operating companies evaluate the application of and compliance with the risk management measures and submit their findings to the Executive Board in the form of a Statement of Internal Control.
X X
In 2011 the Corporate Internal Audit department carried out audits to ascertain the effectiveness of the implemented risk management measures. The audits were carried out in accordance with a programme drawn up in consultation with the Supervisory Board’s Audit Committee. The acquired information was used to improve the internal risk management and control systems. The department also carried out specific assignments, such as an ICT audit. The resulting findings and recommendations were agreed with the management responsible and reported to the Executive Board and the Audit Committee. Code of Conduct and Whistleblower’s procedure FrieslandCampina has laid down its principles regarding standards of behaviour in a Code of Conduct. This is applicable to every FrieslandCampina employee and is published internally.
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Risk management
Improvements to the risk management organisation in 2011 • Implementation of food and employee safety programmes accelerated • Implementation of Internal Control Framework largely completed • Enterprise risk assessment expanded • Risk management organisation reinforced • More attention paid to the Code of Conduct and Whistleblower’s procedure • Research & Development departments integrated • Policy and initiatives in the field of sustainability strengthened • Programmes for talent and career development started • Organisation and process for carrying out acquisitions improved
In 2011 familiarity with the Code of Conduct within the Company was increased. In 2011 a group of 200 managers with final responsibility within business groups, operating companies and corporate departments successfully completed a test. In 2012 other groups of employees will also participate in this test. The Company has a Whistleblower’s procedure. Employees who suspect deviations from the conduct standards are taking place can, in accordance with this procedure, report their suspicions to the management, an internal ombudsman (trusted representative), the Corporate Compliance Officer or an independent external body. Corporate Manual A Corporate Manual containing the most important policy principles, responsibilities and authorities relating to the main functions and processes within the organisation is available. The Manual also lays-down the manner in which organisational risks should be managed. In 2011 considerable attention was paid to completing and improving the Manual. Business planning and review The Company has implemented procedures for strategic planning, budgeting, internal monthly management and (financial) reporting and (quarterly) financial forecasts and produced detailed guidelines for the content and preparation of the relevant reports.
The business group managements consult their operating companies on a monthly basis regarding the achievement of the (financial and non-financial) targets, in part as a result of the financial and operational reports (business reviews). The business groups’ Chief Operating Officers report to the Executive Board (of which they are members) via the monthly reports. The monthly reports are distributed to and explained to the Supervisory Board. Risk inventory and evaluation 2011 In 2010 the Executive Board, together with the corporate staff departments and an external advisor, identified and assessed the business risks linked to the route2020 strategy. At the end of 2011 this assessment was expanded with the business groups’ management teams. The measures aimed at managing and reducing these business risks were evaluated and, where necessary, initiatives to improve the management of these risks were determined. Most of these initiatives were already included in the existing plans of the business groups and corporate departments. The most important findings of this assessment are described in this section. Expanding this approach to include the business groups has brought more specific insights to the fore. The intention is to indentify and assess the risks in every operating company during 2012 and to repeat the assessment annually. Internal Control Framework The reference guide for the design and evaluation of FrieslandCampina’s risk management and control systems is the internationally renowned COSO framework for internal control. This has been given shape in the Internal Control Framework (ICF). During 2011 the ICF was for a large part implemented throughout most of the Company and is now being applied by business groups and operating companies. The entire organisation uses a single automated system for this purpose. The ICF contains prescribed control measures. The correct application of these measures in the components of the organisation is evaluated and the evaluations, and any improvement measures to correct shortfalls, are recorded in the system. The Corporate Internal Audit carries out annual reviews to evaluate the correct application of the ICF. The findings are reported to the responsible management, the Executive Board and the Audit Committee.
Risk management
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Operational risks In addition to the general management measures described above there are also specific measures for the operational risks.
Description of the risk Employee safety FrieslandCampina strives for minimum risks in the area of safety. The most important goal is to halve the number of accidents requiring sick leave within five years. All the business locations are expected to operate in accordance with the FrieslandCampina standards. Every accident, whatever its nature, can have severe personal and social consequences for those involved. An unfavourable development of accidents could also damage FrieslandCampina’s reputation as an employer.
Food safety FrieslandCampina’s customers and the consumers must be able to trust that the products are safe and of high quality. FrieslandCampina’s business activities involve risks that can lead to variances in product quality, for example due to interruption of production, contamination of products or raw materials or deliveries that do not comply with specifications. Variations in product quality could severely damage the Company’s reputation and position including the growth and profitability of the brands concerned.
Legislation and regulations FrieslandCampina is subject to national and international laws and regulations including in the field of product safety, competition, trade mark rights, labour agreements, employee safety, the environment, corporate governance, publications and taxes. Non-compliance with the legislation and regulations could mean FrieslandCampina is confronted with undesirable (legal) consequences and financial and/or reputation damage.
How the risks are managed
• A ll the Company’s locations must have a safety management system that as a minimum complies with the stipulations of OHSAS 18001. The internal standards were implemented fully in 2011. • The International Safety, Health & Environment Council prepares policy and supervises the implementation of safety risk management programmes. • Programme started to increase safety awareness, including training of all employees (per location) and observation rounds by managers. • Monthly evaluation of accident figures by the Executive Board. • Internal audits started in 2011. • 19 sites have now been audited.
• F oqus quality system incorporating the international standards (such as ISO 9001, ISO 22000 and HACCP) integral to the entire production chain (farm to distribution). • 95% of the production facilities are HACCP certificated. • Internal Foqus audits by 30 trained internal auditors. • Internal procedures related to food safety, the registration and handling of consumer complaints and issue and crisis management. • Registration and analysis of incidents. • For these risks FrieslandCampina has arranged suitable product liability and recall insurance.
• A pplication of the Code of Conduct and Whistleblower’s procedure (see pages 65 and 66). • Corporate governance structure (see page 58). • Internal procedures, authorisations and guidelines applicable to external representation. • Involvement of legal specialists in all components of the organisation’s training programmes. • Internal training programmes. • Compliance statements from operating companies, business groups and corporate departments.
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Risk management
Description of the risk Innovation and added value A timely response to consumers’ and customers’ needs through successful product and process innovations in strategic categories is essential for the achievement of the Company’s goals. A lack of successful innovations could severely hinder the implementation of the route2020 strategy.
Milk valorisation and processing capacity In June 2008 the EU Ministers for Agriculture decided that the milk quotas would remain in place until 2014/2015. In the meantime an annual increase of 1% of the milk quota has been implemented. The milk quota is expected to lead to an increase in the quantity of milk supplied by member dairy farmers. FrieslandCampina is obliged to process this milk.
How the risks are managed • I nnovation Governance Board that monitors the effectiveness of innovations. • Portfolio management system. In 2011 the Apropos project was carried out to arrive at a standard innovation process. • Increasing understanding of nutritional aspects of dairy by marketing, sales and R&D through workshops and training. • Innovation programmes Growth & development, Daily nutrition, Health & wellness and Functionality set up in 2011. • R&D organisation tuned to spearheads. • Work started on building new FrieslandCampina Innovation Centre in Wageningen. • Adequate organisation and processes to protect brands and intellectual property, including through patents.
• P roject chess2020 started in 2011 to inventory the expected demand from operating companies for milk components and the expected supply of milk components (by member dairy farmers). • FrieslandCampina’s extra processing capacity will also be achieved in chess2020.
Acquisitions and partnerships To maintain and further expand its market position, it is important that FrieslandCampina successfully completes large projects, such as acquisitions, the entering into of cooperation agreements, joint ventures and large investments. The execution of this type of large project involves risks, such as those related to the adjustment and integration of the operating activities or differences in business culture.
• T he Corporate Mergers & Acquisitions department was strengthened in 2011. • The process for carrying out acquisition projects has been improved. • Project reporting informs the Executive Board of project status and progress.
Economic and political developments FrieslandCampina occupies strong market and brand positions in many regions including Asia, West Africa, Western, Eastern and Central Europe and the Middle East. Political or economic changes in these regions could affect the market positions in these countries and could, therefore, affect FrieslandCampina’s results and financial position. Public statements and developments in the Netherlands or other (Western European) countries could also have an adverse effect on FrieslandCampina’s operating profit and financial position, for example due to a boycott of FrieslandCampina’s products.
• T he diversification of activities, in respect of both products and geography, spreads the risks. • Frequent monitoring of economic indicators and market information to enable a timely response to developments. • Regular evaluation and updating of financial forecasts. • Scenario planning for countries with an increased economic risk (such as Greece and Hungary). • Active involvement of FrieslandCampina in social discussions about (dairy) cattle farming and the dairy sector.
Risk management
Description of the risk Competition and market developments The dairy sector is undergoing rapid changes. Customers are tightening their conditions for purchasing FrieslandCampina’s products. Consumers have increasingly high expectations regarding the products and the way they can be used. Customers’ preferences are also changing. There are also major differences between the different countries in which FrieslandCampina is active. In its key sales markets FrieslandCampina has to compete not only against many smaller (local) producers, but also against large multinationals. These companies, several of which are listed, have the financial resources to capitalise on certain trends and/or to develop and market (new) products.
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How the risks are managed
• R esponding to these changes and regularly reviewing its competitive position are priorities in the route2020 strategy, organisational structure, annual planning and operations. • Category teams have been set up to cluster expertise and plans related to strategic segments. • The Company has clustered its knowledge regarding how the dairy market and the competition are developing into a Dairy News Analysis system. The use of this system was further refined in 2011. • Analysis of market and consumer developments with the aid of market research agencies. • The Executive Board and the managements of the business groups are kept up to date with market and competition developments.
If FrieslandCampina was unable to respond to changes in the market and be innovative, this could have an adverse effect on its competitive position and, therefore, its operating profit and financial position.
Purchasing market and price developments In a number of markets FrieslandCampina is both the buyer and the seller of dairy products and non-dairy-based products (such as fruit drinks and ingredients). FrieslandCampina sells products such as cheese, butter, infant & toddler nutrition, milk powder and fresh and long-life dairy products that are traded on the consumer markets in various countries. These products are subject to price fluctuations. FrieslandCampina also buys products from third parties, such as unprocessed raw milk, dairy-related raw materials, milk powder, fruit juice concentrates, fruit preparations, sugar, cocoa, vegetable oil, energy, ingredients and (raw materials for) packaging materials such as tin, cardboard and plastic. FrieslandCampina’s operating profit and financial position can be affected by price fluctuations resulting from changes in the supply and availability of these products (for example due to weather conditions). Steep price rises that cannot, or can only partially, be passed on to customers, or a continuing shortage in the supply of certain products can adversely affect FrieslandCampina’s operating profit and financial position.
• FrieslandCampina’s strategy to limit these risks is aimed at increasing the share in the total revenue of products with added value and minimising costs by working as efficiently as possible. • Price developments, both the current and anticipated prices of dairy products and raw materials, are followed very closely. • The purchase of raw materials, ingredients, packaging materials, energy and services is organised centrally in category teams. • The purchasing process organisation is standardised and alternatives are sought in order to safeguard the supply certainty of critical products. • Assurance of supply is also improved by the acquisition of preferred customer status, which means FrieslandCampina has priority in times of shortage. • The risk of price fluctuations is also limited by concluding long-term purchase contracts and forward contracts.
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Risk management
Description of the risk Personnel and organisation The ability to recruit, retain and develop the right people is a key factor for the achievement of FrieslandCampina’s goals.
Calamities including animal diseases FrieslandCampina works with natural products. A widespread or long-term outbreak of (contagious) animal diseases, especially in cattle, would adversely affect the production and sales of dairy products and, therefore, FrieslandCampina’s results. For the production and delivery of its products FrieslandCampina is dependent on the good functioning of production and distribution facilities and the availability of raw materials, energy and services. Natural disasters, such as floods, can disrupt the Company throughout the production chain. Such risks cannot be (completely) excluded.
Financing, foreign currency and pensions General The most critical types of risk for FrieslandCampina are financing risks, credit risks, currency risks, interest risks and the risks related to pension schemes.
How the risks are managed
• A global personnel and organisation strategy to support the Company’s route2020 strategy. • Talent and leadership development programmes for both senior management and less experienced talents. • Unambiguous systems and programmes for performance assessment and career development. • Training programmes run by the FrieslandCampina Academy. • Worldwide harmonisation of function classification for senior management and other managers (around 4,500 people). • Start of project Employability 2020 in cooperation with training institutes to safeguard dairy expertise and experience for the future in view of the average higher age of production employees in the Netherlands. • For more information please see ‘FrieslandCampina and its staff’ (pages 46 to 48).
• T he Foqus quality system for the processing of raw milk. The products can be tracked throughout the production chain. • The proper functioning and compliance of the quality system is evaluated regularly through internal and external verification. • The Company has the procedures and organisation to deal with a crisis appropriately, within the operating companies and business groups and at a corporate level. All the people involved have been trained in crisis management. • The evaluation of product deviations and the implementation of measures to prevent these deviations are a component of business operations. • Should such a calamity occur, the Company is appropriately insured against damage, consequential loss and liability.
• I nternal Treasury Committee tasked with reviewing the risk policy and regularly evaluating the risks and their management. • Improving reporting related to risks. • Risk management guidelines and procedures. • Implementation of treasury management system started in 2011.
Risk management
Description of the risk Financing risks As FrieslandCampina is an international concern, global economic developments have a considerable influence on the value of FrieslandCampina’s assets, cash flows and profit. If the risks are not sufficiently hedged or managed, this could have an adverse effect on the cash flows, profit and margins. This could make access to the capital market or other financial markets more difficult. Economic developments could also affect FrieslandCampina’s ability to fulfil its current/future agreements with lenders. Credit risks FrieslandCampina can be faced with the risk that customers or financial institutions cannot fulfil their obligations. Customers’ or financial institutions’ failure to fulfil their obligations, or to be late fulfilling them, adversely affects FrieslandCampina’s operating profit and financial position. FrieslandCampina regularly reviews the creditworthiness of its customers and financial counterparties and limits the credit risk related to these parties. This does not, however, provide a guarantee that customers/financial counterparties will always (be able to) fulfil their obligations. Currency risks As FrieslandCampina is active in various countries around the world and purchases raw materials on the global market, a substantial portion of its assets, liabilities and results is sensitive to currency fluctuations. This can also affect the Company’s competitive strength, which means that, for example, changes in the exchange rates of foreign currencies such as the US dollar, the Indonesian rupiah and the Nigerian naira against the euro could affect FrieslandCampina’s operating profit and financial position. Interest rate risks FrieslandCampina can face the risk of interest rate fluctuations in respect of its (non-current and current) liabilities with variable interest rates. The market value of borrowings with a fixed interest rate are also influenced by the market interest rate. Interest rate fluctuations can have a negative or positive effect on FrieslandCampina’s operating profit and financial position.
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How the risks are managed
• The primary goal is to have access to the capital market and other financial markets at all times. To ensure this important financial ratios are carefully monitored and in 2011 FrieslandCampina arranged committed facilities with an ample liquidity buffer. • A focus within the Company on managing these risks and diversification in respect of lenders. • The implementation in 2011 of project Redcap to reduce working capital. • FrieslandCampina is confident that the strategic plans of route2020 can be properly financed.
• The activities are spread across many sectors and regions. This diversity protects the Company as a whole. • There are no customers that account for more than 5% of the Company’s total revenue. Certain customers can, however, account for a significant portion of the activities of one operating company. The loss of such a customer could, therefore have a considerable effect on the financial position of the operating company concerned. • A portion of the receivables from customers is insured with a reputable insurance company.
• T he aim of the currency risk management is to prevent undesirable fluctuations in the operating profit due to these currency fluctuations. When hedging currency risks related to operational transactions specific product and market conditions are taken into account. Some of the transaction risks are hedged. • For more information about the management of financial risks including sensitivities see Note 30 of the ‘Notes to the consolidated financial statements’. • F or a portion of its liabilities FrieslandCampina has entered into interest rate swaps so that, on balance, it pays a fixed interest rate. FrieslandCampina’s sensitivity analysis at the end of 2011 indicated that if the interest rate was raised or lowered by 0.5% the cumulative interest liabilities for 2011 would have been less than 1 million euro higher or lower.
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Risk management
Description of the risk Pension plan risks The principle pension plans for Dutch FrieslandCampina employees are administered by a Company pension fund and an insurance company. Under the pension plan administered by the insurance company any returns on the plan assets, which are held by a separate investment fund, are shared. Developments in interest rates on the global capital market, and other factors which are beyond FrieslandCampina’s control, could have an adverse effect on the equity position (coverage ratio) of the pension fund and/or the separate investment fund and could result in FrieslandCampina having to make additional payments.
ICT and management information If the Company’s route2020 objectives are to be achieved successfully, its current and future information and communication requirements must be supported in an effective, reliable and efficient manner both through the availability of infrastructure, technology and well-qualified people, and through the setting up of good operating processes and systems.
The information above is not necessarily exhaustive and is not listed in order of priority. It is possible that risks that have not, as yet, been recognised, or have not been considered substantial, could in the future have a significant adverse effect on FrieslandCampina’s ability to achieve its business objectives. FrieslandCampina’s internal reporting systems, budget cycles and guidelines, procedures, systems and organisational measures are geared, in part, to the timely identification of these risks.
How the risks are managed
• A t the end of 2011 the coverage rate of the Company pension fund dropped to 96% (end 2010: 99%). In accordance with the fund related to this pension plan supplementary payments are limited and maximised. • The pension plan administered by the insurance company must maintain a minimum coverage rate. At the end of 2011 the coverage rate was 113% (end 2010: 117%). • As a result of the market developments mentioned earlier, the value of the investments and the scale of the liabilities in accordance with IFRS (IAS 19) could also have an adverse effect on FrieslandCampina’s operating profit and financial position. For additional information please see Note 20 in the ‘Notes to the consolidated financial statements’.
• T he Summit project is standardising the operating processes and systems by using a single enterprise resource planning system (SAP). • In 2011 the design of the processes and systems was completed. Eventually all the operating companies and departments will work with the new system, which will be implemented in phases in the period 2012 to 2017. • In organising the project standard methods have been used to ensure proper project management and quality control. The execution is being monitored by a Steering Group with a broad and senior composition. • The Executive Board is informed of the progress, risks and results of the project on a regular basis.
Risk management
Management statement The Executive Board is ultimately responsible for the management of the risks that are coupled with the Company’s objectives and the reliability of the internal and external (financial) reporting. The Executive Board is also responsible for evaluating the effectiveness of the measures to prevent or mitigate these risks. By means of the measures described above the Executive Board has fulfilled its responsibilities in the year under review. Taking into account the limitations that are inevitably inherent in any risk management and internal control system, and the possibilities for improving the system, the Company’s internal management and control systems provide a reasonable degree of assurance that: • The Executive Board will be informed, in good time, of the degree to which the Company’s strategic, operational and financial objectives are being achieved; • The internal and external (financial) reporting does not contain any material misstatement and that the management and control systems functioned properly during 2011; • The Company has complied with the relevant legislation and regulations. The phrase ‘reasonable assurance’ is understood to mean the level of assurance that would be provided by a Director acting with due care and attention under the given circumstances. However professional the systems mentioned above may be they can neither provide absolute assurance that the operational and financial objectives will be achieved, nor entirely prevent misstatements, errors or contraventions of legislation and regulations. All the procedures relating to the internal risk management and control systems and the resulting findings, recommendations and measures have been discussed with the Audit Committee, the Supervisory Board and the external auditor. Executive Board Amersfoort, 2 March 2012
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Learning and innovating
Every day FrieslandCampina’s dairy specialists are at work developing new, improved dairy products and optimising production processes even further. New knowledge leads to new understanding and new technology makes more and more possible. FrieslandCampina’s product development team in Wageningen in the Netherlands, for example, makes use of a pilot set-up of a UHT (Ultra High Temperature) installation when developing new, liquid dairy products. By heating the product to a very high temperature very quickly, UHT treatment kills any undesirable micro-organisms in the product. The process technologists optimise the processing conditions to ensure the maximum possible retention of the product’s original taste and aroma and, at the same time, the minimum possible use of energy and water during the process. Good for the environment because it contributes towards reducing energy usage and good for the consumer because the products retain their taste.
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Report of the Supervisory Board
Report of the Supervisory Board
Piet Boer
Jan Uijttewaal
Peter Elverding
Supervisory Board activities During the year under review the Supervisory Board met seven times. The Supervisory Board also paid a working visit to FrieslandCampina Russia. The Supervisory Board meetings took place in the presence of the Executive Board. After nearly every meeting the Supervisory Board and Company Secretary met in closed session during which the topics discussed included the functioning of the Supervisory Board and the Executive Board as well as appointments and aspects such as remuneration and remuneration policy. During the year under review the Supervisory Board paid particular attention to FrieslandCampina’s progress towards achieving its strategic goals and the related risks. The Supervisory Board established that, overall, good progress had been made with route2020. Working capital development over recent years was also discussed in depth as were the management’s measures to structurally reduce the level of the working capital. The Supervisory Board noted that by the end of 2011 these measures had led to a lower level of working capital. Continued attention will be paid to this topic in the coming years. The effects and possible consequences of the euro crisis and measures to mitigate the effects for FrieslandCampina were also discussed extensively, including the management’s risk analysis and any consequences for FrieslandCampina’s medium-term financing. In the meantime FrieslandCampina has extended its most important credit facility, amounting to 1 billion euro, by two years until 2015 with improved conditions – a quite exceptional achievement in these times. The Supervisory Board also approved
Sjoerd Galema
Tex Gunning
Angelique Huijben-Pijnenburg
several larger investment proposals including the building of an innovation centre in Wageningen and the further extension and improvement of FrieslandCampina Domo’s production facilities. During the summer considerable attention was paid to the progress of the activities related to the route2020 strategy. Market developments, FrieslandCampina’s organisation and sustainability aspects were also on the agenda as were acquisition proposals and their possible consequences for FrieslandCampina’s financing. The management reported on the flooding in Nigeria and Thailand, the resulting water damage, especially in Nigeria, and the measures taken to prevent damage in Thailand. The pension plans for Dutch employees received considerable attention and the Supervisory Board approved the amendments to the Melkgeldreglement (Payment for milk regulation) in 2012. The usual topics were also discussed including the development of the Company’s results during the year under review and during every meeting the management reported business progress within the organisation. During the meeting in March the 2010 annual report and financial statements for 2010, and the findings of the external auditor, the Audit Committee and the management with regard to risk management and the internal control systems were discussed. At the end of the year under review the Supervisory Board discussed the budget for the coming year with the management. Both the Supervisory Board’s committees reported their most important findings. During the closed sessions the functioning of the Executive Board and the Supervisory Board and their members was discussed. When evaluating the Supervisory Board’s functioning,
Report of the Supervisory Board
Jan Keijsers
Frans Keurentjes
Simon Ruiter
Henk Scheffers
the guidance of an external advisor, who interviewed each of the members individually, was sought. The evaluation of the Executive Board members included each member being interviewed by the Remuneration & Appointment Committee. The results were discussed by the Supervisory Committee. The salary of the Executive Board was discussed in respect of both the 2011 targets and the results achieved in respect of the 2010 targets and, in view of this, the (short- and long-term) bonus to be awarded for 2010. The decision making related to all these topics was prepared by the Remuneration & Appointment Committee. Other topics prepared by the Remuneration & Appointment Committee and discussed by the Supervisory Board were the selection of a new (external) Supervisory Board member, the composition of the Supervisory Board and its committees, and the introduction programme of the three new Supervisory Board members. In September the Supervisory Board, accompanied by several Executive Board members, visited Russia, where their programme included visits to FrieslandCampina’s factory in Stupino and discussions about the strategy of this company and major goals for the coming period. Market developments in Russia were also on the agenda and the visit included talks with the Mayor of Stupino and The Dutch Ambassador to Russia. Supervisory Board committees The Supervisory Board has formed two committees, the Audit Committee and the Remuneration & Appointment Committee, to advise them and prepare their decisions in respect of specific tasks.
Hans Stöcker
Ben van der Veer
77
Erwin Wunnekink
Audit Committee During the year under review the Audit Committee met four times. During these meetings the topics discussed were the draft annual report and financial statements for 2010, the management letter from the external auditor and the management’s response and the auditor’s report regarding his audit tasks. Attention was paid to the valuation of goodwill and deferred tax assets on the balance sheet. The tasks assigned to the external auditor, the external auditor’s independence, the audit plan for 2011 and the fee paid to the external auditor were also discussed and the auditor’s tasks were evaluated. During each meeting the internal auditors reported on their activities and audit plan and the treasury department reported the current status of the Company’s financing. Management’s mandates in respect of treasury-related topics such as liquidity, refinancing, interest rate related risks and currency exchange rate differences were discussed as was the progress of work related to the internal control framework. Due attention was paid to improvement of risk management. The progress of on-going ICT projects was reported on a regular basis and attention was also paid to quality assurance, legal and fiscal topics as well as compliance. The quarterly results were presented and discussed and risk management was a recurring topic. After every meeting the Audit Committee reported its findings to the Supervisory Board. The composition of the Audit Committee can be found on page 145. Two members of the Audit Committee, Messrs Henk Scheffers (Chairman) and Ben van der Veer, qualify as financial experts in the sense of the Supervisory Board Charter.
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Report of the Supervisory Board
Supervisory Board appointment and resignation roster 2012
2013
2014
2015
2016
▲
P. Boer
2017
2018
2019
2021
2022
2023
•
●1
▲
•
●
J.H.G.M. Uijttewaal
2020
P.A.F.W. Elverding
▲
●
•
S.H. Galema
▲
▲
●
L.W. Gunning
▲
▲
●
▲
A.A.M Huijben-Pijnenburg
▲
▲
J.P.C. Keijsers
•
●
▲
F.A.M. Keurentjes
•
●
▲
S.R.F. Ruiter
●
•
●
▲
H. Scheffers
▲
H. Stöcker B. van der Veer
▲
W.M. Wunnekink
▲
•
●
▲
●
▲
●
▲
●
As the Chairman eligible for reappointment for an extra term on the grounds of the Articles of Association
1
▲
Resigns, eligible for reappointment
●
Resigns, not eligible for reappointment
•
Current member’s successor resigns, eligible for reappointment
Remuneration & Appointment Committee The Remuneration & Appointment Committee met five times during the year under review. During these meetings the Committee prepared the Supervisory Board’s decision making related to remuneration, the remuneration policy for Executive Board, the selection and appointment of new members of the Supervisory Board and the Executive Board and the composition of the Supervisory Board’s committees. The evaluation of the functioning of the Executive Board and the individual members of the Executive Board was prepared and the evaluation of the Supervisory Board organised. The Committee also discussed talent management and looked at the top management and the progress of programmes in the field of leadership development. The composition of the Remuneration & Appointment Committee can be found on page 145.
Composition of the Supervisory Board, committees and Executive Board Supervisory Board FrieslandCampina’s Supervisory Board comprises thirteen members. Nine of the members are members of the Board of Zuivelcoöperatie FrieslandCampina U.A. and four are external Supervisory Board members. On 14 December 2011 Mr Kees Wantenaar resigned as Chairman of the Supervisory Board and Messrs Rob ter Haar and Jorrit Jorritsma resigned as members of the Supervisory Board. The Supervisory Board owes them a considerable debt of gratitude for their contributions towards the Board’s discussions and is especially grateful to Mr Kees Wantenaar for the manner in which he has helped shape FrieslandCampina since the merger. All three gentlemen resigned in accordance with the roster and were not eligible for reappointment. On the same date Messrs Sjoerd Galema, Tex Gunning and Hans Stöcker were appointed as members of the Supervisory Board. The new members of the Supervisory Board
Report of the Supervisory Board
were selected taking into account the profile of the Supervisory Board as published on FrieslandCampina’s website. As of 14 December 2011 Mr Piet Boer succeeded Mr Kees Wantenaar as Chairman of the Supervisory Board of Royal FrieslandCampina N.V. and of the Board of Zuivelcoöperatie FrieslandCampina U.A. Mr Jan Uijttewaal was selected to succeed Mr Piet Boer as Vice-chairman of the Supervisory Board and the Board of the Cooperative. Mr Peter Elverding was reappointed as a member of the Supervisory Board. All the external members of the Board (the members who are not also members of the Board of the Cooperative) are independent of the Company as stipulated in the Dutch Corporate Governance Code and the Supervisory Board Regulations. Diversity FrieslandCampina strives for a composition of its Supervisory Board that is balanced and in which the combination of the members’ experience, expertise and independence ensures the Supervisory Board can fulfil its various duties on behalf of the Company in the best possible way. FrieslandCampina also strives for a balanced participation of men and women in the Supervisory Board with at least one female external member. The Supervisory Board also strives to ensure that where its internal members are concerned the ratio of men and women reflects the Cooperative’s membership. Although this was taken into account when seeking a candidate to fill the vacancy for an external candidate that arose during 2011, this did not result in the appointment of a woman. The next time a vacancy arises the search criteria will once again emphasise that the candidates should be female. Committees Mr Jan Uijttewaal stepped down as a member of the Audit Committee on 14 December 2011. His place on the Committee was taken by Mr Simon Ruiter. On 14 December 2011 Mr Jan Uijttewaal joined the Remuneration & Appointment Committee to fill the vacancy arising from the departure of Mr Kees Wantenaar. The composition of the Supervisory Board and its committees can be found on pages 144 and 145.
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Executive Board As of 1 January 2012 the Supervisory Board appointed Mr Roelof Joosten a member of the Executive Board in the position of Chief Operating Officer of the Ingredients business group. As Executive Director he had been responsible for the activities of this business group since November 2010. Mr Roelof Joosten has worked for FrieslandCampina in various functions since November 2004. The composition of the Executive Board can be found on page 146. Financial statements and appropriation of profit In February 2012 the Audit Committee discussed the 2011 financial statements drawn up by the Executive Board and notified the Supervisory Board of their findings. During the Supervisory Board meeting of 2 March 2012 the Supervisory Board members and the Executive Board members signed the financial statements. The financial statements were audited by KPMG Accountants N.V., which then issued an unqualified auditor’s report. The financial statements will be submitted to the General Meeting of Shareholders (the Board of Zuivelcoöperatie FrieslandCampina U.A.) for adoption on 26 April 2012. The Supervisory Board has approved the Executive Board’s proposal to add an amount of 122 million euro to the general reserve. In addition, an amount of 65 million euro has been reserved in the form of fixed member bonds registered in the names of member dairy farmers. In accordance with Article 21, Clause 2, Item d of the Articles of Association, during the General Meeting of Shareholders the members of the Executive Board will be discharged for their management during the 2011 financial year and, in accordance with Article 21, Clause 2, Item e of the Articles of Association the members of the Supervisory Board will be discharged for their supervision of the Executive Board during 2011. On 26 April 2012 the Member Council of Zuivelcoöperatie FrieslandCampina U.A. will be asked to approve the decision of the Cooperative’s Board, in its capacity as the General Meeting of Shareholders, to adopt the 2011 financial statements of Royal FrieslandCampina N.V. and approve the appropriation of profit. Supervisory Board Amersfoort, 2 March 2012
Moving together
In many countries sport means more than just physical exercise. It is part of the local culture and brings people together. In the Netherlands young and old alike venture onto the ice during the winter months as soon as the ditches and lakes freeze. For more than 75 years enjoying a steaming cup of the only genuine Chocomel together in the cold outside air has, for many people, become a tradition. At the same time FrieslandCampina has kept Chocomel up-to-date, for example with the introduction of Chocomel Dark in the autumn of 2011.
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83
Financial statements 2011 Royal FrieslandCampina N.V.
84
Contents Consolidated financial statements
Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of cash flows Consolidated statement of changes in equity Notes to the consolidated financial statements General and accounting policies Segmentation Assets and liabilities held for sale Acquisitions Revenue Other operating income Raw materials and consumables used Employee benefits expense Other operating expenses Finance income and cost Income tax expense Property, plant and equipment Intangible assets Investments in joint ventures and associates Derivatives Other Financial assets Inventories Trade and other receivables Cash and cash equivalents Equity Employee benefits Deferred tax assets and liabilities Provisions Interest-bearing borrowings Other financial liabilities Current borrowings
86 87 88 89 90 92 92 102 104 104 104 105 105 105 105 106 106 107 109 111 112 113 113 114 114 115 116 119 120 121 122 123
85
Trade and other payables Commitments and contingencies Related parties Remuneration of members of the Supervisory Board and the Executive Board Financial risk management and financial instruments Cash flow statement Subsequent events Principal subsidiaries, joint ventures and associates Company financial statements
Other information
Company balance sheet Company income statement Notes to the company financial statements General Investments in subsidiaries Loans to subsidiaries Amounts due from subsidiaries Equity attributable to the shareholder of the company and other providers of capital Interest-bearing borrowings Borrowings from subsidiaries Derivatives Commitments and contingencies Remuneration of members of the Supervisory Board and the Executive Board Provisions of the Articles of Association governing profit appropriation Proposed appropriation of profit attributable to the shareholder of the company Subsequent events Independent auditor’s report
123 123 124 125 125 131 131 132 133 133 134 134 134 134 135 135 135 136 136 136 136
138 138 138 139
86
Financial statements Consolidated income statement
Consolidated income statement in millions of euros, unless stated otherwise
Note
2011
2010
Revenue Other operating income Operating income
(4) (5)
9,626 20 9,646
8,972 20 8,992
Raw materials and consumables used Employee benefits expense
(6) (7)
- 6,472 - 831
- 5,779 - 817
(11) (12)
- 176
- 210
Other expenses Total expenses Operating profit
(8)
- 1,764
Finance income Finance costs Net finance costs
(9) (9)
Depreciation of plant and equipment and amortisation intangible assets
Share of profit of joint ventures and associates Profit before tax Income tax expense Profit for the year Profit attributable to: • providers of member bonds • providers of perpetual notes • shareholder of the company • shareholder and other providers of capital of the company • non-controlling interests Profit for the year
- 1,752 - 9,243 403
(10)
34 - 106
- 8,558 434 40 - 109
- 72
- 69
13
13
344
378
- 128 216
- 93 285
39 9 122 170 46 216
29 9 192 230 55 285
Financial statements Consolidated statement of comprehensive income
87
Consolidated statement of comprehensive income in millions of euros, unless stated otherwise
2011
2010
Profit for the year
216
285
Effective portion of cash flow hedges, net of tax Currency translation differences, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year
4 - 21 - 17 199
15 37 52 337
Attributable to: • shareholder and other providers of capital of the company • non-controlling interest
154 45
275 62
88
Financial statements Consolidated statement of financial position
Consolidated statement of financial position At 31 December, in millions of euros, unless stated otherwise
Assets Property, plant and equipment Intangible assets Deferred tax assets Investment in joint ventures and associates Employee benefits Other financial assets Non-current assets Inventories Trade and other receivables Income tax receivable Other financial assets Cash and cash equivalents Assets held for sale Current assets
Note
2011
2010
(11) (12) (21) (13) (20) (15)
1,660 945 224 111 78 73 3,091
1,495 903 233 103 61 70 2,865
(16) (17)
1,085 1,127 12 420 4 2,648
1,005 1,110 12 2 292 13 2,434
5,739
5,299
370 113 130 1,003 - 59 591
370 113 130 931 - 43 460
2,148
1,961
116 2,264
110 2,071
(20) (21) (22) (23) (24)
304 63 25 891 150 1,433
263 35 45 776 38 1,157
(25) (26)
250 1,676 69 37 10 2,042 3,475
314 1,633 82 39 3 2,071 3,228
5,739
5,299
(14) (18) (2)
Total assets Equity Issued capital Share premium Perpetual notes Member bonds Other reserves Retained earnings Equity attributable to shareholder of the company and other providers of capital Non-controlling interests Total equity Liabilities Employee benefits Deferred tax liabilities Provisions Interest-bearing borrowings Other financial liabilities Non-current liabilities Current borrowings Trade and other payables Income tax payable Provisions Other financial liabilities Current liabilities Total liabilities Total equity and liabilities
(22) (14)
Financial statements Consolidated statement of cash flows
89
Consolidated statement of cash flows in millions of euros, unless stated otherwise
2011
Note
Cash flows from operating activities Profit before tax Adjustments for: • interest • depreciation of plant and equipment and amortisation of intangible assets
2010
344 42 176
44 210
• impairment of property, plant and equipment, intangible assets and assets held for sale
12
28
• reversal of impairment of property, plant and equipment, intangible assets and assets held for sale
-1
-7
- 13 19 1 65 - 11
- 13 25 1 65
• share of profit of joint ventures and associates • put option costs • revaluation result of derivatives • addition member bonds • book profit on disposals Total adjustments Movements: • movements in the measurement of securities • movements in inventories • movements in receivables • movements in liabilities • movements in employee benefits • movements in provisions Total movements Cash flow from operating activities Dividend received Income tax paid Interest paid Interest received Net cash from operating activities
(9)
378
(13) (9)
290 (15) (31) (31) (31) (20) (22)
Disposals of property, plant and equipment, intangible assets and assets held for sale (3)
- 165 566 12 - 91 - 60 17 444
- 368
- 261
29
18
4 -5
4 - 340
Cash flows from financing activities Disposal of non-controlling interests Dividends paid to non-controlling interests Amounts paid to providers of perpetual notes Amounts paid to providers of member bonds Interest-bearing borrowings drawn Repayment of interest-bearing borrowings Paid to holder of put option Repayment of derivatives Net cash used in financing activities Net cash flow Cash and cash equivalents at 1 January Net cash flows Translation differences in cash and cash equivalents Cash and cash equivalents at 31 December
-8 - 171 - 184 173 20 5 1 635 3 - 94 - 73 37 508
(13)
Cash flows from investing activities Investment in property, plant and equipment and intangible assets
Transactions related to loans provided Acquisitions Net cash used in investing activities
-2 - 79 - 21 101 24 - 22
353
17 - 66 -9 - 31 218 - 270 - 42 - 15
- 39 -9 - 32 69 - 25 -8 2
(18)
(18)
- 239
- 42 126
- 198 7
292 126 2 420
272 7 13 292
90
Financial statements Consolidated statement of changes in equity
Consolidated statement of changes in equity in millions of euros, unless stated otherwise
2011
At 1 January Comprehensive income: • profit for the year
Issued capital
Share premium reserve
Perpetual notes
Member bonds
370
113
130
931
9
39
• other comprehensive income Total comprehensive income for the year
9
39
Cash flow Currency hedge translation reserve reserve
- 14
-29
4
- 20
4
- 20
Retained earnings 1
Equity
2
Noncontrolling interests
Total
460
1,961
110
2,071
122
170
46
216
- 16
-1
- 17
154
45
199
- 39
- 39
122
Transactions with shareholder and other providers of capital recognised directly in equity: • dividends paid to non-controlling interests • amounts paid to providers of perpetual notes
-9
• amounts paid to providers of member bonds
- 32
• addition member bonds for the year
65
• leaving premium to member dairy farmers Zuivelcoöperatie FrieslandCampina U.A. • other Total transactions with shareholder and other providers of capital At 31 December
370
113
-9
33
130
1,003
-10
Including the appropriation of profit of prior years and the undistributed profit for the year 2011.
1
Equity attributable to shareholder of the company and other providers of capital.
2
-49
2
-7
-7
7
- 25
- 25
65
65
-1
-1
-1
1
1
1
9
33
-39
-6
591
2,148
116
2,264
Financial statements Consolidated statement of changes in equity
91
2010
At 1 January
Issued capital
Share premium reserve
Perpetual notes
Member bonds
Cash flow hedge reserve
Currency translation reserve
370
110
130
868
- 29
- 59
9
29
Comprehensive income: • profit for the year • other comprehensive income Total comprehensive income for the year
9
29
15
30
15
30
Retained earnings 1
Noncontrolling Equity interests 2
Total
262
1,652
97
1,749
192
230
55
285
45
7
52
275
62
337
- 66
- 66
192
Transactions with shareholder and other providers of capital recognised directly in equity: • dividends paid to non-controlling interests • amounts paid to providers of perpetual notes
-9
• amounts paid to providers of member bonds
- 31
• addition member bonds for the year
65
• capital contribution by Zuivelcoöperatie FrieslandCampina U.A.
2
-7
-7
5
- 26
- 26
65
65
3
3
3
• transactions with owners of non-controlling interests
17
• leaving premium to member dairy farmers Zuivelcoöperatie FrieslandCampina U.A. Total transactions with shareholder and other providers of capital At 31 December
370
3
-9
34
113
130
931
- 14
Including the appropriation of profit of prior years and the undistributed profit for the year 2010.
1
Equity attributable to shareholder of the company and other providers of capital.
2
- 29
17
-1
-1
-1
6
34
- 49
- 15
460
1,961
110
2,071
92
Financial statements Notes to the consolidated financial statements
Notes to the consolidated financial statements in millions of euros, unless stated otherwise
General Royal FrieslandCampina N.V. has its registered office in Amersfoort, the Netherlands. The address is: Stationsplein 4, 3818 LE, Amersfoort, the Netherlands. The consolidated financial statements for the year ended 31 December 2011 comprise the financial statements of Royal FrieslandCampina N.V. and its subsidiaries (jointly referred to as FrieslandCampina). Zuivelcoöperatie FrieslandCampina U.A. is the sole shareholder of Royal FrieslandCampina N.V. (FrieslandCampina). FrieslandCampina processes over 10 billion kilograms of milk per year into a very varied range of nutritious, tasty and healthy food products for consumers. In the professional market, FrieslandCampina is a key supplier of dairy products to bakeries, restaurants, bars and fast-food chains. In addition, FrieslandCampina also supplies high-quality ingredients to producers of foodstuffs and pharmaceuticals. All disclosures are based on continuing operations. Basis of preparation Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the European Union, and their interpretations as adopted by the International Accounting Standards Board (IASB). FrieslandCampina N.V.’s consolidated financial statements at 31 December 2011 will be authorised for publication after it is authorised for issue by the Executive Board and the Supervisory Board on 2 March 2012, by the Executive Board on 14 March 2012. On 26 April 2012 the financial statements will be submitted for approval to the Board of Zuivelcoöperatie FrieslandCampina U.A. in its role as the General Meeting of Shareholders of Royal FrieslandCampina N.V. Basis of measurement Unless stated otherwise, the financial statements have been prepared on a historical cost basis, except for the following material items in the statement of financial position: • non-derivative financial instruments at fair value through the income statement are measured at fair value; • derivatives are measured at fair value; • the asset from the defined benefit pension schemes is recognised as plan assets, plus unrecognised past service costs, less the present value of the defined benefit obligation and is limited as explained in Note 20. Functional and presentation currency The consolidated financial statements are presented in euros, which is FrieslandCampina’s functional currency. All financial information presented in euros has been rounded off to the nearest million, unless stated otherwise.
Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The actual results may differ from management’s estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. The judgements, assumptions and estimates have been made taking into account the opinions and advice of (external) experts. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The estimates and judgements that are considered most critical are: • impairments; • useful lives of property, plant and equipment and intangible assets; • utilisation of tax losses; • measurement of defined benefit obligations; • key assumptions used in discounted cash flow projections; • provisions and contingencies. For more detailed information regarding the handling of the items mentioned please see the Notes to the financial statements. Changes in accounting policies and disclosures New and amended standards adopted by FrieslandCampina The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2011 • IAS 24 Related Party Disclosures; the revised standard simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. The change in accounting policy only affects disclosure. • IAS 32 Financial Instruments: classification of right issues; the amendment addresses the accounting for right issues and do not affect FrieslandCampina’s consolidated financial statements. • IFRIC 14 The Limit on a Defined Benefits Asset, Minimum Funding Requirements and their interaction; this amendments allows for the recognition of an asset for any surplus arising from the voluntary prepayment of minimum funding contributions for defined-benefit plans in respect of future services. This amendment does not have a material effect on FrieslandCampina’s consolidated financial statements. • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments; this amendment clarifies the accounting when the terms of a debt are renegotiated with the result that the liability is extinguished by the debtor issuing own equity instruments to the creditor. This amendment does not affect FrieslandCampina’s consolidated financial statements. • Improvements to IFRSs 2010; In May 2010, the IASB issued the improvement to IFRSs, a collection of amendments to seven International Financial Reporting Standards, as part of its programme of annual improvements to its standards. The improvements have not had a material effect on FrieslandCampina’s consolidated financial statements. These new standards, revisions to existing standards and interpretations are not expected to have any effect on equity
Financial statements Notes to the consolidated financial statements
and the income statement but could lead to amendments to the Notes to the financial statements. New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011 and not early adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2011, and have not been applied in preparing these consolidated financial statements. None of these changes is expected to have a significant effect on the consolidated financial statements of FrieslandCampina, except for IFRS 9 Financial Instruments and IAS 19 Employee benefits. Furthermore, FrieslandCampina is currently evaluating the impact of IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements. IFRS 9 becomes mandatory for FrieslandCampina’s 2016 consolidated financial statements and could change the classification and measurement of financial assets. FrieslandCampina will not adopt this standard early and the extent of the effect has not been determined. Amendments to IAS 19, effective for annual periods beginning on or after January 1, 2013, introduce requirements to recognise actuarial gains and losses immediately in other comprehensive income and to calculate the expected return on plan assets based on the rate used to discount the defined benefit obligation. These amendments will have a material effect on the annual report of FrieslandCampina, in particular because FrieslandCampina currently applies the corridor method and after the amendment FrieslandCampina must recognise all actuarial gains and losses arising immediately in other comprehensive income. The above mentioned amendments to IAS 19 will affect equity, profit or loss and the disclosures. Currently FrieslandCampina does not anticipate adopting this standard before its effective date. Summary of significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by FrieslandCampina entities. Basis of Consolidation Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to FrieslandCampina. Control is the power to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, FrieslandCampina takes into consideration currently exercisable potential voting rights. FrieslandCampina measures goodwill at the acquisition date as: • the fair value of the consideration transferred; plus • the recognised amount of any non-controlling interests in the
93
acquiree; plus • if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less • the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in the income statement. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the income statement. Transaction costs, other than those associated with the issue of debt or equity securities, that FrieslandCampina incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is measured at fair value at the acquisition date. Subsequent changes in the fair value of the contingent consideration are recognised in the income statement. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Acquisition of non-controlling interests Acquisition of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to noncontrolling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. Subsidiaries Subsidiaries are entities controlled by FrieslandCampina. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. Loss of control On the loss of control, FrieslandCampina derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the income statement. If FrieslandCampina retains any interest in the previous subsidiary such interest is measured at fair value at the date control is lost. Subsequently it is accounted for as an equityaccounted investee or as a financial asset held for sale depending on the level of influence retained. Associates and joint ventures Associates are those entities in which FrieslandCampina has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when FrieslandCampina holds between 20% and 50% of the voting power of another entity. A joint venture is a contractual arrangement whereby FrieslandCampina and other parties undertake an economic activity through a jointly controlled entity. Joint control exists when strategic, financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Investments in associates and joint ventures are accounted for
94
Financial statements Notes to the consolidated financial statements
using the equity method and are recognised initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include FrieslandCampina’s share of the income statement and other comprehensive income of equity accounted investees, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When FrieslandCampina’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of the investment, including any long-term interest that forms a part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that FrieslandCampina has an obligation or has made payments on behalf of the investee. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of FrieslandCampina’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. A list of the principal subsidiaries, joint ventures and associates is included on page 132. Foreign currency translation Foreign currency transactions Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates at the balance sheet date. Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction. Non-monetary items valued at historical cost in foreign currencies are translated at the exchange rates at the date of the initial transaction. Non-monetary items valued at fair value in foreign currencies are translated using the exchange rates at the date on which the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement, except for the following differences which are recognised in other comprehensive income arising on the retranslation of: • a financial liability designated as a hedge of the net investment in a foreign operation to the extend the hedge is effective, or • qualifying cash flow hedges to the extent the hedge is effective.
proportion of the translation difference is allocated to noncontrolling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the income statement as part of the gain or loss on disposal. When FrieslandCampina disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reclassified to non-controlling interest. When FrieslandCampina disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to the income statement. If the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such an item are considered to form part of a net investment in the foreign operation and are recognised in other comprehensive income and presented in the currency translation reserve in equity. Hedging of net investments in foreign activities FrieslandCampina applies hedge accounting to the currency translation differences that arise through translating the functional currency of the foreign activity into the functional currency of FrieslandCampina (the euro), whether or not the net-investment is held directly or via an intermediary holding. The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income. The ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold. The following exchange rates have been used in the preparation of the consolidated financial statements: 2011 US dollar Pound sterling Hong Kong dollar Indonesian rupiah (10,000) Malaysian ringgit Nigerian naira (100) Vietnamese dong (10,000)
At year-end
Average
1.29 0.83 10.05 1.18 4.10 2.10 2.72
1.40 0.87 10.89 1.23 4.27 2.18 2.89
At year-end
Average
1.34 0.86 10.39 1.20 4.13 2.03 2.61
1.32 0.86 10.29 1.21 4.28 2.00 2.54
2010 Foreign operations Assets and liabilities of foreign subsidiaries are translated at the exchange rates on the balance sheet date; their income and expenses are translated at the exchange rates on the date of the transaction. Foreign currency translation differences are recognised in other comprehensive income and presented in the currency translation reserve in equity. If however, the foreign operation is a non-wholly owned subsidiary, the relevant
US dollar Pound sterling Hong Kong dollar Indonesian rupiah (10,000) Malaysian ringgit Nigerian naira (100) Vietnamese dong (10,000)
Financial statements Notes to the consolidated financial statements
Financial Instruments Non-derivative financial assets FrieslandCampina initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through the income statement) are recognised initially on the trade date, which is the date that FrieslandCampina becomes a party to the contractual provision of the instrument. FrieslandCampina derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Financial assets and liabilities are offset and the net amount presented in the statement of financial position if, and only if, FrieslandCampina has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. FrieslandCampina classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. Financial assets at fair value through profit or loss A financial asset is classified as at fair value through profit or loss if it is designated as such on initial recognition. Financial assets are designated at fair value through profit or loss if FrieslandCampina manages such investments and makes purchase and sale decisions based on their fair value. Attributable transaction costs are recognised in the income statement as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, taking into account any dividend income, are recognised in the income statement. Financial assets designated as at fair value through profit or loss comprise equity securities that otherwise would have been classified as available for sale. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised costs using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, and trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash at banks and in hand and short-term deposits with maturities of three months or less from the acquisition date. Non-derivative financial liabilities FrieslandCampina initially recognises debt securities and subordinated liabilities on the date that they are originated.
95
All other financial liabilities (including liabilities designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that FrieslandCampina becomes a party to the contractual provision of the instrument. FrieslandCampina derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. FrieslandCampina classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised costs using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts and trade and other payables. Equity Share capital The shares are classified as equity. Costs directly attributable to the extension of the share capital are deducted from equity after taxation. Other financial instruments Other financial instruments are classified as equity if the instruments do not have a maturity date and FrieslandCampina can defer the interest payments. Dividends Dividends are recognised as a liability in the period in which they are declared. Derivatives, including hedge accounting FrieslandCampina holds derivatives to hedge its foreign currency risk and interest rate risk exposure. On initial designation of the derivative as a hedging instrument, FrieslandCampina formally documents the relationship between the hedging instrument and the hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. FrieslandCampina assesses, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be highly effective in offsetting changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within the range of 80%-125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value: attributable transaction costs are recognised in the income statement as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes are accounted for as described below.
96
Financial statements Notes to the consolidated financial statements
Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset, or liability or a highly probable forecast transaction that could affect the income statement, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the income statement. If the hedged item is a non-financial asset, the amount accumulated in equity is included in the carrying amount of the asset when the asset is recognised. In other cases, the amount accumulated in equity is reclassified to the income statement in the same period that the hedged item affects the income statement. If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated or exercised, hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, the balance in equity is reclassified to the income statement. Other non-trading derivatives When a derivative is not designated as a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in the income statement. Property, plant and equipment Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost price includes any costs directly attributable to the acquisition of the asset. The cost price of self-manufactured assets comprise: • costs of materials and direct labour costs; • any other costs directly attributable to making the asset ready for use; • if FrieslandCampina has an obligation to remove the asset, an estimate of the cost of dismantling and removing the items; • capitalised borrowing costs. Property, plant and equipment also include assets of which FrieslandCampina has acquired beneficial ownership under finance lease agreements. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. If parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Any gain or loss on the disposal of an item of property, plant and equipment is determined on the basis of a comparison of the proceeds from the sale and the carrying amount of the property, plant or equipment and is recognised in the income statement.
Subsequent costs Subsequent costs are capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to FrieslandCampina. Ongoing repairs and maintenance costs are expensed as incurred. Depreciation Items of property, plant and equipment are depreciated on a straight-line basis in the income statement over the estimated useful life of each component. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that FrieslandCampina will obtain ownership by the end of the lease term. Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use. The estimated useful lives for the current year of significant items of property, plant and equipment are as follows: Land not applicable Buildings 10-25 years Plant and equipment 5-33 years Other operational assets 4-20 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and if appropriate, adjusted. The useful lives of the major plant and equipment items were revised in 2011 (see Note 12). Intangible assets and goodwill Goodwill Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. For the measurement of goodwill at initial recognition, see the Note regarding the basis of Consolidation. Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity-accounted investee as a whole. Research and development Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding is recognised in the income statement as incurred. Development expenditure is capitalised only if development costs can be measured reliably, the product process is technically and commercially feasible, future economic benefits are probable, and FrieslandCampina intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour, overhead costs directly attributable to preparing the asset for its intended use, and capitalised borrowing costs. Other development expenditure is recognised in the income statement as incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.
Financial statements Notes to the consolidated financial statements
Other intangible assets Other intangible assets that are acquired by FrieslandCampina and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Subsequent costs Subsequent costs are capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the income statement as incurred. Amortisation Intangible assets other than goodwill are amortised on a straightline basis in the income statement over their estimated useful lives calculated from the date that they are available for use. The estimated useful lives for the current and comparative years are as follows: Software 5 years Trademark and patents 10 years Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bring them to their existing location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. The net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Impairment Non-derivative financial assets A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and the loss event(s) has had an effect on the estimated future cash flows of the asset that can be measured reliably. Financial assets measured at amortised cost FrieslandCampina considers evidence of impairment for financial assets measured at amortised cost at both a specific asset and collective level. An impairment loss in respect of a financial asset measured at amortised costs is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. If an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income statement.
97
Non-financial assets The carrying amounts of FrieslandCampina’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. Goodwill and intangible assets with an indefinite life are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or Cashgenerating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. When assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to the operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level within FrieslandCampina at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to the FrieslandCampina CGUs that are expected to benefit from the synergies of that combination. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. An impairment loss on other assets is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Assets held for sale or distribution Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with FrieslandCampina’s accounting policies. Thereafter the assets, or disposal group, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit assets, which continue to be measured in accordance with FrieslandCampina’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised through the income statement. Gains are not recognised in excess of any cumulative impairment loss.
98
Financial statements Notes to the consolidated financial statements
Once classified as held for sale intangible assets and property, plant and equipment are not amortised or depreciated. In addition, equity accounting of equity-accounted investees ceases once classified as held for sale. Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligations to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefits expense in the income statement in the periods during which the related services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. FrieslandCampina has insured certain pension obligations with industry-wide pension funds in the Netherlands. Although these plans have the characteristics of defined benefit plans, the funds have stated that they are unable to provide the information necessary for the calculations and so these plans are treated as defined contribution plans in the financial statements. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The pension obligations in respect of defined benefit plans are calculated annually on the basis of expected future developments in discount rates, salaries and life expectancy. The present value of the obligations is calculated actuarially using the projected unit credit method. The present value of the obligations less the fair value of the plan assets, taking into account unrecognised actuarial results and unrecognised past-service costs, is recognised as a pension obligation, or as a pension asset, under non-current financial assets. The discount rate used is the return at the balance sheet date on high-quality corporate bonds with at least an AA credit rating and with maturity dates similar to the term of the pension obligations. Actuarial gains and losses resulting from changes in assumptions for calculating the pension obligations or differences between the expected and actual return on plan assets, are determined separately for each plan and recognised through the income statement over the expected average remaining service period. This only applies if and to the extent that the actuarial gains or losses exceed 10 percent of the higher of the pension obligations and the fair value of the plan assets at the beginning of the financial year. If the calculation of the net pension obligations results in a positive balance, the asset recognised is limited to the sum of any unrecognised actuarial losses and past-service costs and the present value of any future repayments by the fund or lower future pension contributions. If plan benefits are changed on the basis of a regulation, the portion of the changed benefits relating to past service is recognised in the income statement on a straight-
line basis and over the average period until the benefits become unconditional. To the extent that the benefits vest immediately the expense is recognised immediately in the income statement. FrieslandCampina recognises gains and losses on the curtailment or settlement of a defined benefit plan at the time the curtailment or settlement occurs. The gain or loss on curtailment or settlement comprises any resulting change in the fair value of plan assets, any change in the present value of the defined benefit obligation, any related actuarial gains and losses and past service costs not previously recognised. Other long-term employee benefits The net obligation for other deferred employee remuneration is recognised in the same way as defined benefit plans, except for the actuarial gains and losses which are recognised immediately in the income statement. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed at the time the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if FrieslandCampina has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Provisions A provision is recognised when, as a result of a past event, FrieslandCampina has a present legal or constructive obligation, that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are discounted using a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance costs. Provisions for restructuring are formed when FrieslandCampina has formalised a detailed and formal restructuring plan, and has either started implementing the restructuring plan or has announced the main lines of the restructuring in such a way that the people who will be affected by it have a valid reason for expecting the restructuring will take place. A provision for onerous contracts is recognised when the expected benefits to be derived by FrieslandCampina from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, FrieslandCampina recognises any impairment loss on the assets associated with the contract. Revenue Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or
Financial statements Notes to the consolidated financial statements
receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, the discount is recognised as a reduction of revenue as the sales are recognised. FrieslandCampina has customer loyalty programmes in place through which customers can earn points when they purchase certain FrieslandCampina products. When a minimum number of points has been earned, they can be exchanged for discounts on third-party goods or services. The proceeds are allocated to the products sold and the points granted, with the value attributed to the points being their fair value. Recognition of the fair value of the points granted is deferred and the fair value is recognised as revenue when points are redeemed. Government grants Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all related conditions will be complied with. When a grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. If a grant relates to an asset, it is deducted from the carrying amount of the asset and is released to the income statement over the expected useful life of the relevant asset through the lower depreciation charge. Cost of raw materials, consumables and trade goods This concerns the cost of the raw materials and consumables related to the products sold and/or the cost of acquiring the products sold. The cost of raw materials and consumables is calculated in accordance with the first-in-first-out principle. The cost includes the currency translation differences related to trade payables as well as the differences in valuation of related derivatives. Leases At inception of an arrangement, FrieslandCampina determines whether such an arrangement is or contains a lease. This will be the case if the following two criteria are met: the fulfillment of the arrangement is dependent on the use of a specific asset or assets; and the arrangement contains a right to use the asset(s). At inception or on reassessment of the arrangement, FrieslandCampina separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If FrieslandCampina concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using FrieslandCampina’s incremental borrowing rate.
99
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so at to produce a constant periodic rate of interest on the remaining balance of the liability. Finance income and finance costs Finance income comprises interest received on loans and receivables from third parties, dividend income, fair value gains on financial assets at fair value through profit or loss, gains on hedging instruments that are recognised in the income statement and reclassifications of amounts previously recognised in other comprehensive income. Interest income is recognised in the income statement as it accrues using the effective interest method. Finance costs comprises interest expenses on borrowings, fair value losses on financial assets at fair value through profit or loss, unwinding the discount on provisions, impairment losses recognised on financial assets (other than trade receivables), losses on hedging instruments that are recognised in the income statement and reclassifications of amounts previously recognised in other comprehensive income. Foreign currency gains and losses from trade debtors and creditors is recognised as a component of operating profit. All other foreign currency gains and losses are reported on a net basis as either finance income or finance costs depending on whether foreign currency movements are in a net gain or net loss position. Tax Tax expense comprises current and deferred tax. Current and deferred tax is recognised in the income statement except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not be reversed in the foreseeable future;
100
Financial statements Notes to the consolidated financial statements
• taxable temporary differences arising on the initial recognition of goodwill.
segments have changed. The comparative figures have been adjusted accordingly.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Cash flows The cash flow statement is prepared using the indirect method. Cash flows in foreign currencies have been translated into euros at the exchange rates prevailing on the transaction date.
In determining the amount of current and deferred tax FrieslandCampina takes into account the effect of uncertain tax positions and whether additional taxes and interest may be due. FrieslandCampina believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes FrieslandCampina to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will affect tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend settling current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Segment reporting The identified operating segments are the separate segments within FrieslandCampina for which financial information is available and frequently evaluated by the highest decision-making body (Executive Board) in order to come to decisions regarding the attributing of the available means to the segment and to determine the performance of the segment. FrieslandCampina has divided the operating segments into business units: Consumer Products Europe, Consumer Products International, Cheese, Butter & Milkpowder and Ingredients. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and liabilities and corporate expenses. At the beginning of 2011 the milk powder activities of the Ingredients business group were transferred to the Cheese, Butter & Milkpowder business group. As a result of this transfer the composition of the Ingredients and Cheese, Butter & Milkpowder
Determination of fair values A number of FrieslandCampina’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and or disclosure purposes based on the following methods. If applicable, further information about the assumptions made in determining fair values is disclosed in the Notes specific to that asset or liability. Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on market values. The market value of property, plant and equipment is based on the market prices for similar items or the appraisals of an external assessor. Intangible assets The fair value of patents and brand names acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets. Inventories The fair value of inventories acquired in a business combination is determined based on the estimated selling price in the ordinary course of business less the estimated cost of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories. Trade and other receivables The fair value of trade and other receivables, outstanding for longer than a year, is estimated as the present value of future cash flows, discounted at the actual interest rate at the reporting date. Derivatives The fair value of forward exchange contracts is generally estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using current interest rates and current foreign currency rates. The fair value of interest rate swaps and cross-currency interest rate swaps is estimated by discounting the cash flows resulting from the contractual interest rates of both legs of the transaction, taking into account the current interest rates, current foreign currency rates and the current creditworthiness of the swap counterparties.
Financial statements Notes to the consolidated financial statements
Non-derivative financial instruments Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements. The fair value of the put option liability is estimated based on a discounted cash flow analysis.
101
102
Financial statements Notes to the consolidated financial statements
1 Segmentation FrieslandCampina has four reportable segments, FrieslandCampina’s business groups. Each of the four business groups is responsible for a particular product group; two are also responsible for a specific region. • Consumer Products Europe : liquid milk, dairy-based beverages, yoghurts, desserts, coffee creamers, cream and fruit juices and beverages in Europe. Brand names include Campina, Chocomel/Cecémel, Fruttis, Landliebe, Milli, Mona, NoyNoy and Optimel/Optiwell; • Consumer Products International: liquid milk, milk powder, condensed milk, infant and toddler nutrition, dairy based beverages, yoghurts and desserts in Asia, Africa and the Middle East. Brand names include Dutch Lady, Foremost,Frisian Flag, Rainbow and Peak; • Cheese, Butter & Milkpowder: cheese, butter and milkpowder, all over the world; • Ingredients: ingredients for the food and pharmaceutical industries, all over the world. At the beginning of 2011 the milk powder activities of the Ingredients business group were transferred to the Cheese, Butter & Milkpowder business group. As a result of this transfer the composition of the Ingredients and Cheese, Butter & Milkpowder segments has changed. The comparative figures have been adjusted accordingly.
2011 Segmentation by business group Consumer Consumer Products Products Europe International
Sales to external customers Inter-segment sales Total revenue Other operating income Total operating income Operating profit Share of profit of joint ventures and associates
Cheese, Butter & Milkpowder
Ingredients
Other
2,895 500 3,395 14 3,409
2,457 3 2,460 5 2,465
2,474 348 2,822
1,512 418 1,930
288
Elimination
2,822
1,930
288 1 289
55
353
- 97
189
- 97
403
1
5
5
1
1
13
- 1,269 - 1,269 - 1,269
Finance income and cost Income tax expense Profit for the year Operating profit as a % of revenue Carrying amounts of assets employed in operating activities 1
Total
9,626 9,626 20 9,646
- 72 - 128 216 1.6
14.3
- 3.4
9.8
1,901
718
1,037
1,141
4.2 607
- 514
4,890
- 514
849 5,739 2,080 1,395 3,475
Carrying amounts of other assets 623
499
371
303
798
Investments in property, plant, equipment and intangible assets
126
53
55
105
37
376
Depreciation of plant and equipment and amortisation of intangible assets
- 68
- 21
- 40
- 39
-8
- 176
-4
-1
-6
-1
- 12
Liabilities resulting from operating activities 2 Other liabilities
Impairment of property, plant and equipment, intangible assets and assets held for sale Reversal of impairment of property, plant and equipment, intangible assets and assets held for sale Investments in joint ventures and associates
1 2
69
20
1 14
6
111
Financial statements Notes to the consolidated financial statements
103
2011 Geographical information Sales to external customers 3
The Netherlands Germany Rest of Europe Asia and Australia Africa and the Middle East North and South America Total 1
Carrying amount of operating non-current assets 4
4,961 1,033 1,362 1,613 533 124 9,626
1,518 347 442 238 49 11 2,605
Excluding deferred tax assets, investments in joint ventures and affiliated companies, other financial assets, income tax receivables, receivables from
affiliated companies, cash and cash equivalents and assets held for sale. 2
Pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments.
Please see Note 4 for a breakdown of revenue according to the customer’s geographical location.
3
4
Relates to property, plant and equipment and intangible assets.
2010 Segmentation by business group Consumer Products Europe
Consumer Products International
Cheese, Butter & Milkpowder
Ingredients
Other
2,839 430 3,269 8 3,277
2,276 1 2,277 4 2,281
2,329 312 2,641 2 2,643
1,273 396 1,669 1 1,670
255
Operating profit Share of profit of joint ventures and associates Finance income and cost Income tax expense Profit for the year
126 1
356 6
- 92 3
128 3
Operating profit as a % of revenue
3.9
15.6
- 3.5
7.7
1,859
653
1,015
963
Sales to external customers Inter-segment sales Total revenue Other operating income Total operating income
Carrying amounts of assets employed in operating activities 1
255 5 260
Elimination
- 1,139 - 1,139 - 1,139
- 84
8,972 20 8,992 434 13 - 69 - 93 285 4.8
553
- 477
4,566
- 477
733 5,299 2,021 1,207 3,228
Carrying amounts of other assets Liabilities resulting from operating activities 2 Other liabilities
Total
8,972
611
424
357
349
757
67
48
61
65
20
261
- 84
- 26
- 49
- 44
-7
- 210
Impairment of property, plant and equipment, intangible assets and assets held for sale
-4
-5
- 12
-1
-6
- 28
Reversal of impairment of property, plant and equipment, intangible assets and assets held for sale
6
Investments in joint ventures and associates
3
IInvestments in property, plant, equipment and intangible assets Depreciation of plant and equipment and amortisation of intangible assets
1 66
15
7 13
6
103
104
Financial statements Notes to the consolidated financial statements
2010 Geographical information Carrying amount of Sales to external customers 3 non-current operating assets 4
The Netherlands Germany Rest of Europe Asia and Australia Africa and the Middle East North and South America Total
4,507 989 1,382 1,486 500 108 8,972
1,380 310 445 218 36 9 2,398
Excluding deferred tax assets, investments in joint ventures and affiliated companies, other financial assets, income tax receivables, receivables from
1
affiliated companies, cash and cash equivalents and assets held for sale. Pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments.
2
Please see Note 4 for a breakdown of revenue according to the customer’s geographical location.
3
Relates to property, plant and equipment and intangible assets.
4
2 Assets and liabilities held for sale Assets held for sale are property, plant and equipment amounting to EUR 4 million (2010: EUR 13 million). At the end of 2011 and 2010 no liabilities related to current and non-current liabilities were held for sale. The Oud Gastel facility (Consumer Products Europe) and the Drachten and Tilburg (Cheese, Butter & Milkpowder) facilities were sold in 2011, the book profit is recognised as other operating income. In addition, during 2011 the Cheese, Butter & Milkpowder business group’s facilities in Dronrijp and Leerbroek were classified as assets held for sale. These assets are expected to be sold within a year. During 2011 the El Castillo Debic Food Services S.L. joint venture (part of Consumer Products Europe) was classified as an asset held for sale and was sold in October 2011. FrieslandCampina realised a book profit of EUR 9 million. This profit is recognised as other operating income. 2011 At 1 January Transfer of associates Transfer of property, plant and equipment Movements of current assets Disposals Reversal of impairment At 31 December
2010
13 3 1
4 8 -1
- 13 2 13
4
3 Acquisitions In December 2011 DMV-Fonterra Excipients GmbH & Co KG, part of Ingredients, acquired the activities of Brahmar Cellulose Private Limited in India. The total purchase price of EUR 6 million has been handled on the basis of the acquisition method. A portion of this price has not yet been paid. This acquisition is not of a material nature for FrieslandCampina in respect of the notification requirements of IFRS 3. 4 Revenue 2011
2010
Revenue by geographical sales market The Netherlands Germany Rest of Europe Asia and Australia Africa and the Middle East North and South America
2,435 1,317 2,555 1,996 999 324 9,626
% 25 14 27 21 10 3 100
2,291 1,287 2,380 1,781 945 288 8,972
% 26 14 27 20 10 3 100
Financial statements Notes to the consolidated financial statements
105
Differences with the breakdown of sales to external customers by geographical location of the assets as presented in Note 1 arise from the classification according to the area where the sales were generated. Revenue includes EUR 4 million (2010: EUR 10 million) of government grants. The conditions for these grants have been met and the related obligations have been fulfilled. 5
Other operating income Other operating income includes proceeds from services provided to external customers, rental income and the sale of property, plant and equipment. Other operating income also includes the EUR 9 million book profit on the sale of El Castillo Debic Food Services S.L.
6
Raw materials and consumables used 2011
Milk from member dairy farmers Cost of other raw materials, consumables and goods for resale
7
- 3,456 - 3,016 - 6,472
% 53 47 100
2010
- 3,054 - 2,725 - 5,779
Employee benefits expense 2011
Wages and salaries Social security charges Pension costs
Employees by business group (average number of FTEs) Consumer Products Europe Consumer Products International Cheese, Butter & Milkpowder Ingredients Other
Employees by geographical region (average number of FTEs) The Netherlands Germany Rest of Europe Asia and Australia Africa and the Middle East North and South America
8
% 53 47 100
2010
- 638 - 105 - 88 - 831
% 77 13 10 100
- 627 - 109 - 81 - 817
% 77 13 10 100
7,399 6,104 2,339 2,486 708 19,036
39 32 12 13 4 100
8,008 5,938 2,535 2,342 661 19,484
41 30 13 12 4 100
6,494 1,828 4,340 5,202 1,032 140 19,036
34 10 23 27 5 1 100
6,649 2,216 4,458 5,024 1,007 130 19,484
34 11 23 26 5 1 100
Other operating expenses
Transport Advertising and promotions Work contracted out and temporary staff Utilities Maintenance and repairs Other
2011
2010
- 422 - 377 - 277 - 185 - 139 - 364 - 1,764
- 404 - 395 - 250 - 192 - 137 - 374 - 1,752
106
Financial statements Notes to the consolidated financial statements
The other expenses include: • research and development expense of EUR 66 million (2010: EUR 61 million); • operational leasing charges amounting to EUR 43 million (2010: EUR 42 million); • various government grants amounting to EUR 5 million (2010: EUR 5 million). The conditions for these grants have been met and the related obligations fulfilled; • impairment of property, plant and equipment and intangible assets amounting to EUR 12 million (2010: EUR 28 million) and income in respect of the reversal of impairment of property, plant and equipment and assets held for sale amounting to EUR 1 million (2010: EUR 7 million); • the external auditor’s audit and consultancy costs amounting to EUR 3.3 million (2010: EUR 2.9 million). 2011
2010
Specification of the external auditor’s audit and consultancy costs
Audit of the financial statements Other audit engagements Tax consultancy Other non-audit-related services
9
Total KPMG network
Total KPMG network
- 2.2 - 0.5 - 0.4 - 0.2 - 3.3
- 2.0 - 0.3 - 0.3 - 0.3 - 2.9
Finance income and cost 2011 Interest income Interest expense Put option costs Other finance income Other finance costs
32 - 74 - 19 2 - 13 - 72
2010 27 - 71 - 25 13 - 13 - 69
Interest expenses includes EUR 7 million (2010: EUR 8 million) resulting from financing by Zuivelcoöperatie FrieslandCampina U.A. of Royal FrieslandCampina N.V. Other finance income includes EUR 2 million (2010: EUR 9 million) in income from securities. Other finance cost includes amortisation of transaction costs of EUR 3 million (2010: EUR 4 million). Foreign exchange results arising from the costs of raw materials and consumables used are included in cost of sales or in the appropriate element of operating expenses. In 2011 FrieslandCampina included a positive net exchange effect of EUR 1 million in operating profit (2010: 6 million). 10 Income tax expense 2011 Breakdown of tax expense Current tax expense Current tax expense, current year Adjustments for prior years Deferred tax expense Deferred tax expense recognised in the current year Adjustments to deferred tax attributable to changes in tax rates and laws Write-down of deferred tax assets Adjustments change in filing Other Income tax expense
2010
- 79 -1 - 80
- 128 1 - 127
- 11 -8 - 28 7 -8 - 48 - 128
9 9 6 2 8 34 - 93
Financial statements Notes to the consolidated financial statements
2011
Before tax
Tax (expense) benefit
Net of tax
Income tax recognised directly in equity Perpetual notes Member bonds
-9 - 39
2 7
Income tax recognised as other comprehensive income Foreign currency exchange Cash flow hedge
- 21 5
-1
2010
Before tax
Tax (expense) benefit
Net of tax
-7 - 32
-9 - 29
2 5
-7 - 24
- 21 4
37 19
-4
37 15
2011 Effective tax rate Theoretical tax rate in the Netherlands Effect of different tax rates in other countries Effect of change in tax rate Share of result of joint ventures and associates Withholding tax on dividends Non-deductible expenses Tax exempt income Recognition of tax losses Adjustments to estimates relating to prior years Evaporation of losses and tax credits Tax credits employed Effective tax rate
107
Amount 86 6 8 -8 5 14 -3 28 -6
% 25.0 1.7 2.3 - 2.3 1.5 4.1 - 0.9 8.1 - 1.7
-2 128
- 0.6 37.2
2010 Amount 96 5 -9 -4 8 12 -8 -6 3 4 -8 93
% 25.5 1.2 - 2.4 - 1.0 2.1 3.0 - 2.1 - 1.6 0.8 1.0 - 2.1 24.4
The theoretical tax rate is calculated by applying the tax rate in the Netherlands of 25% to the result before tax. 11
Property, plant and equipment 2011
Carrying amount at 1 January Consolidation and deconsolidation Additions Disposals Currency translation differences Transfers Transfer to assets held for sale Depreciation Impairment Reversal of impairment Carrying amount at 31 December Cost Accumulated depreciation and impairment Carrying amount at 31 December
Land and buildings
Plant and equipment
467 2 71
947 2 243 -4 -1 9
Other operating assets
81
Total
-2 - 10 -1 - 34 -1 1 493
- 108 -6
- 19
1,082
85
1,495 4 340 -5 -3 -3 -1 - 161 -7 1 1,660
1,044 - 551 493
2,853 - 1,771 1,082
308 - 223 85
4,205 - 2,545 1,660
26 -1 -2
108
Financial statements Notes to the consolidated financial statements
2010
Carrying amount at 1 January Additions Disposals Currency translation differences Transfers Transfer to assets held for sale Depreciation Impairment Reversal of impairment Carrying amount at 31 December Cost Accumulated depreciation and impairment Carrying amount at 31 December
Land and buildings
Plant and equipment
Other operating assets
464 49 - 12 6
913 175 -1 16 2
86 27 -5 2 -2
- 140 - 18
- 20 -7
947
81
-8 - 195 - 27 5 1,495
2,740 - 1,793 947
310 - 229 81
4,071 - 2,576 1,495
-8 - 35 -2 5 467 1,021 - 554 467
Total
1,463 251 - 18 24
Impairment relates mainly to the downward revaluation of the appraised net recoverable amount of property, plant and equipment of Consumer Products Europe and Cheese, Butter & Milkpowder, affected by proposed restructuring decisions. Impairment and reversal of impairment is classified as other operating expenses in the income statement. As of 1 January 2011 FrieslandCampina implemented a change in its depreciation terms for plant and equipment which has, in general, led to a lengthening of the depreciation period. The effect of these changes on depreciation expense in the current year is EUR 32 million. As a result of heavy rain, on 10 July the FrieslandCampina WAMCO Nigeria Plc. production facility was flooded. The cost of the damage to the land, buildings and equipment was less than EUR 1 million. The compensation received from third parties for land, buildings and equipment, which included an impairment, amounting to EUR 1 million is recognised in the income statement under other operating expenses. The carrying amount of buildings, plant and equipment for which financial lease agreements apply was EUR 14 million (2010: EUR 17 million). The carrying amount at 31 December included EUR 237 million (2010: EUR 159 million) non-current assets under construction. At the end of the financial year FrieslandCampina was committed to investments in property, plant and equipment amounting to EUR 79 million (2010: EUR 40 million). Additions include capitalised interest amounting to EUR 2 million (2010: EUR 1 million). The applicable interest rate is 5.0% (2010: 4.3%).
Financial statements Notes to the consolidated financial statements
109
12 Intangible assets 2011 Goodwill
Software
Other
Total
838 1
36
29 1 21 3 3 1 -4
54
903 2 21 15 3 - 18 - 15 -5 39 945
69 - 15 54
1,063 - 118 945
Carrying amount at 1 January Consolidation and deconsolidation Additions arising from internal development Additions Transfers Currency translation differences Amortisation Impairment Change in value in connection with put option Carrying amount at 31 December
-4 39 855
36
Cost Accumulated amortisation and impairment Carrying amount at 31 December
859 -4 855
135 - 99 36
12 - 19 - 11 -1
2010
Carrying amount at 1 January Additions Currency translation differences Amortisation Impairment Change in value in connection with put option Carrying amount at 31 December Cost Accumulated amortisation and impairment Carrying amount at 31 December
Goodwill
Software
Other
Total
839
39 10
32
- 12 -1
-3
36
29
910 10 -5 - 15 -1 4 903
128 - 92 36
42 - 13 29
1,008 - 105 903
-5
4 838 838 838
In 2010 FrieslandCampina started a worldwide IT-standardisation programme. During 2011 an amount of EUR 21 million was capitalised for this programme. Part of this system is expected to go into service during 2012. See Note 24 for the change in value in connection with the put option. Impairment testing for cash-generating units containing goodwill The recoverable amounts per group of cash flow generating units is calculated during the fourth quarter of each year, or at another time if there is an indication for impairment. Goodwill is monitored and tested at the business groups level (groups of cash flow generating units). The aggregate carrying amounts of goodwill allocated to each cash-generated unit are as follows:
Consumer Products Europe Cheese, Butter & Milkpowder Ingredients
2011
2010
753
772 4 62 838
102 855
110
Financial statements Notes to the consolidated financial statements
The principle assumptions applied when calculating the business value per business group are: Business group
%
%
%
Terminal value
Budgeted EBITDA
Pre-tax discount rate
2011 Consumer Products Europe Cheese, Butter & Milkpowder Ingredients
2010
2 2 2
2 2 2
2011 6-9 2-3 14-21
2010 4-11 3-5 13-15
2011 12 11 10
2010 10-20 11 12
Budgeted EBITDA margins are based on current experience, specific expectations for the near future and market-based growth rates. The discount rates are based on statements from financial advisers. The discount rates are pre-tax, in accordance with IAS 36.55. The recoverable amounts of the cash-generating units were determined on the basis of the 2012 budget and long term plans. For the period after 2017, a growth rate has been used that is equal to the expected long-term inflation rates of up to 2%. The calculation of the recoverable amounts has changed in comparasion with 2010 because as of 2011 long-term/multi-year plans have been drawn-up. Such plans were not available in 2010. These long-term/multi year plans now form the basis for the period 2013 – 2016. In 2010 an extrapolation for the following 4 years was still based on the budget. The outcome of the impairment tests was that the recoverable amounts exceed the carrying amounts of the cash-generating units, with the exception of Cheese, Butter & Milkpowder. In 2011 it was determined that the carrying amount of the cash flow generating unit Cheese, Butter & Milkpowder was higher and, therefore, an impairment of EUR 4 million was justified. The impairment is attributed in full to the goodwill and recognised in the income statement under other operating expenses, this impairment test did not lead to the devaluation of individual assets within Cheese, Butter & Milkpowder. Adjustments to the long term EBITDA expectations of the milk powder activities and the relocation of the milk powder activities from Ingredients to Cheese, Butter & Milkpowder are the primary causes of the impairment. Sensitivity to changes in assumptions The impairment test shows that the estimated recoverable amount of Consumer Products Europe exceeds the carrying amount by EUR 275 million. The Executive Board has identified two important assumptions changes in which could lead to an impairment. Underneath, per assumption is shown, the extent to which one of these two assumptions must change in order for the estimated recoverable amount to equal the carrying value. Change needed for carrying amount to equal recoverable amount: Pre-tax discount rate Estimated EBITDA
+ 2% - 1%
The values attributed to the important assumptions represent Management’s judgement regarding future developments in Consumer Products Europe and are based on both external and internal sources. The outcome of the impairment testing of Ingredients showed that the recoverable amount exceeded the carrying value of the cash flow generating unit. In this instance a reasonable amendment of the assumption will not lead to a lower recoverable value than the carrying value of Ingredients.
Financial statements Notes to the consolidated financial statements
111
13 Investments in joint ventures and associates
Carrying amount at 1 January Additions Transfer to assets held for sale Currency translation differences Profit for the year Dividends received Carrying amount at 31 December
2011Â
2010Â
103 1 -3
90
13 -3 111
12 13 - 12 103
Financial data of joint ventures and associates: Share of profit Share of revenue
13 138
13 110
Share in balance sheet: Non-current assets Current assets Equity Non-current liabilities Current liabilities
166 90 152 53 51
150 84 132 48 54
Please see the list of Principal subsidiaries, joint ventures and associates on page 132 for the names of joint ventures and associates.
112
Financial statements Notes to the consolidated financial statements
14 Derivatives Please see Note 30 for the objectives, guidelines and policies related to the use of derivatives in FrieslandCampina’s activities. In the statement of financial position the derivatives are included in current and non-current other financial assets and liabilities. 2011
2010
Hedging activities Assets
138
12
Cross currency swaps for fixing interest on non-current liabilities (carried as assets)
After 2016
18
Cross currency swaps for fixing interest on non-current liabilities (carried as liabilities)
2013/ 2016
7
95
8
95
Interest rate swaps for fixing interest on interestbearing liabilities
2012/ 2016
25
600
29
400
Cross currency swap for fixing non-current liabilities Constant maturity swaps for fixing interest on non-current liabilities Currency derivatives carried as assets Currency derivatives carried as liabilities Derivatives not subject to hedge accounting
2012 2012
Liabilities
Notional amount
Assets
Currency derivatives carried as assets Currency derivatives carried as liabilities Cash flow hedges
Liabilities
Notional amount
Maturity
138
1 6 18
2013/ 2016
32 1
13
1 38
18
2011
2
2012 2012
5 6
21 46
23 133
1 1
1 3
Total derivates
18
38
14
41
Classified as current Classified as non-current
18
10 28
2 12
3 38
100 99 50
Cash flow hedges Cross-currency interest rate swaps have been contracted for borrowings of USD 308 million, as a result of which the USD repayment and interest obligations to institutional investors have been converted into EUR liabilities. The interest rate swaps have been contracted to convert the floating-interest obligations on the interest-bearing liabilities into fixedinterest liabilities. Currency derivatives relate to hedged expected future cash flows from export income for an amount of USD 11 million (2010: USD 68 million). The hedges to which hedge accounting is applied meet the documentation requirements for hedge accounting in IAS 39 and are tested for effectiveness prior to and during their term. These hedges were effective as a result of which, at 31 December 2011 EUR -10 million was recognised in equity as cash flow hedge reserve. Of this sum, EUR 9 million relates to the cross currency swaps and EUR -19 million to the interest rate swaps. During 2011 EUR 4 million was transferred to the income statement from the cash flow hedge reserve, this was the effective portion of the interest expense during the financial year.
113
Financial statements Notes to the consolidated financial statements
Derivatives not subject to hedge accounting Derivatives not subject to hedge accounting relate to contracted sales and purchases, loans and outstanding receivables and payables. The changes in the value of these derivatives are largely offset by countervailing value changes in receivables and payables. These qualify as natural hedges rather than as speculative instruments. 15 Other financial assets
Loans Securities Derivatives Long-term receivables
2011
2010
34 18 18 3 73
39 16 12 3 70
Loans concerns a loan to the Great Ocean Ingredients Pty.Ltd. joint venture and loans to other third parties. The average interest rate on the loans at the end of 2011 was 2.2% (2010: 5.7%). In 2011 FrieslandCampina reclassified EUR 3 million from employee benefits to non-current receivables. This is related primarily to an independently determined right to reimbursements connected to pension obligations. Please see Note 14 for information regarding derivatives. 16 Inventories
Raw materials and consumables Finished goods and goods for resale
2011
2010
371 714 1,085
323 682 1,005
Inventories of finished goods and goods for resale included EUR 171 million (2010: EUR 158 million) valued at lower market value. In 2011 the write-down of inventories to net realisable value amounted to EUR 22 million (2010: EUR 15 million). The write-down is included in the raw materials and consumables used. There are no inventories pledged as security for liabilities.
114
Financial statements Notes to the consolidated financial statements
17 Trade and other receivables
Trade receivables Receivable from affiliated companies Other receivables Provision for doubtful debts Receivables related to tax (excluding income tax) and social security contributions Prepayments
Provision for doubtful debts At 1 January Currency translation differences Charged to the income statement Released to the income statement Trade receivables written off Recovered on written off trade receivables At 31 December
Maturity schedule: trade and other receivables Within payment term Overdue by less than 3 months Overdue by 3 and 6 months Overdue by more than 6 months
2011
2010
964 23 56 - 14 1,029
926 22 64 - 17 995
72
94
26 1,127
21 1,110
- 17
- 19 -1 -8 2 8 1 - 17
-2 2 3 - 14
Gross
Impairment
Net
938 97
-4 -2
934 95
8 1,043
-8 - 14
1,029
Trade and other receivables are non-interest-bearing and generally fall due between 10 and 90 days. In various countries FrieslandCampina has taken out credit insurance to mitigate the credit risk related to customers. At the end of 2011 this insured position amounted to EUR 315 million (2010: EUR 380 million). 18 Cash and cash equivalents
Deposits Cash and cash equivalents
2011
2010
106 314 420
116 176 292
Cash and cash equivalents up to an amount of EUR 1 million (2010: EUR 2 million) are not at FrieslandCampina’s free disposal. These amounts are totally related to bank guarantees.
Financial statements Notes to the consolidated financial statements
115
19 Equity Issued capital The authorised capital amounts to EUR 1,000 million, divided into 10,000,000 shares with a nominal value of EUR 100. The shares are held by Zuivelcoรถperatie FrieslandCampina U.A. The number of shares in issue at both the start and the end of the year was 3,702,777. EUR 370 million has been paid up on these shares. Perpetual notes In 2003, FrieslandCampina issued a 7.125% perpetual cumulative subordinated loan with a nominal value of EUR 125 million. The interest is recognised as profit attributable to providers of perpetual notes. The notes are listed on Euronext Amsterdam. There is no repayment commitment, but the notes can be repaid in full on 2 June of each year. Royal FrieslandCampina N.V. must notify holders of the notes no less than 30 days and no more than 60 days in advance of any repayment. The notes are subordinated to the claims of all present and future creditors, to the extent that these are not subordinated. Interest payments may be deferred, provided that Royal FrieslandCampina N.V. has not distributed any performance premium in the 12 months prior to the annual coupon date. Deferred interest becomes payable on the date on which a performance premium is next distributed. Member bonds Member bonds have been issued to Zuivelcoรถperatie FrieslandCampina U.A. and its members. The member bonds are perpetual and have no expiry date. The bonds are subordinated to the claims of all other existing and future creditors to the extent that these are not subordinated. Interest payment may be deferred provided that Royal FrieslandCampina N.V has not distributed any performance premium in the 12 months prior to the annual coupon date. Deferred interest becomes payable on the date on which a performance premium is next distributed. Cash flow hedge reserve The cash flow hedge reserve concerns changes in the fair value of interest rate swaps, cross currency swaps and forward currency contracts that are recognised in an effective hedge relationship. Currency translation reserve The currency translation reserve concerns accrued gains and losses on foreign currency translation at subsidiaries, and currency valuation gains and losses on loans of a permanent nature granted to subsidiaries. Retained earnings Retained earnings concerns the balance of accrued profits which have not been distributed to the shareholder. Pursuant to the Articles of Association, a dividend may be distributed if and to the extent that equity exceeds the issued share capital plus the reserves that have to be held by law.
116
Financial statements Notes to the consolidated financial statements
20 Employee benefits FrieslandCampina operates a number of defined benefit plans with obligations that relate primarily to the Dutch and German divisions. These plans are principally indexed average salary plans. FrieslandCampina also has a number of defined contribution plans for its Dutch and foreign activities. The average salary plan for the Dutch employees is insured with a company pension fund and an insurance company. The plan insured with the insurance company has a profit-sharing agreement based on a segregated investment fund and at year end 2011 had a required coverage ratio (the ratio of plan assets to the pension obligation calculated under the conditions of the insurance contract) of at least 110%. At the end of 2011 the coverage ratio of the pension plan insured with the insurance company was 113% (2010: 117%) and thus fulfilled the contractual obligation towards the insurance company. The tables below summarise the assumptions used in determining the present value and movements in the present value of the pension obligation and plan assets and the components of the net benefit expense recognised in the consolidated statement of financial position and consolidated income statement.
Assumptions 1 Discount rate Age-related salary increases Wage inflation Price inflation Indexation • active • non-active and retired Increase in contribution-free salary
Mortality tables Expected rate of return on plan assets in the financial year Expected rate of return on plan assets in the following financial year
2011
2010
% 4.6 / 4.9 0.0 - 1.5 2.4 1.9
% 5.1 / 5.3 0.0 - 1.5 2.5 2.0
2.4 0.0 - 1.9 1.9
2.5 0.0 - 2.0 2.0
AG forecast table 2010-2060 %
AG forecast table 2010-2060 %
4.6 / 5.1 4.2 / 4.8
5.5 / 5.7 4.6 / 5.1
The discount rate method applied gives a true reflection of the market for high-value company bonds and takes the mobility of the interest on loans with a longer term into account in the correct manner. 1
The percentages shown relate to the Dutch pensions mentioned above.
Financial statements Notes to the consolidated financial statements
Breakdown of pension costs payable at 31 December Present value of pension benefits Fair value of plan assets Deficit of cover Unrecognised actuarial gains and losses at 31 December Past-service costs not yet recognised Pension costs payable
117
2011Â
2010
2,288 1,969 319 - 80 - 13 226
2,176 1,893 283 - 67 - 14 202
202
178 1
Movement in the pension costs payable At 1 January Consolidation and deconsolidation Reclassification Pension costs of defined benefit plans Contributions paid Currency translation differences Pension costs payable Classified as non-current assets Classified as non-current liabilities
3 73 - 52 226 78 304
67 - 47 3 202 61 263
Present value of pension benefits At 1 January Consolidation and deconsolidation Current service costs Interest Benefits paid Currency translation differences Actuarial gains and losses At 31 December
38 2,288
2,221 1 49 107 - 78 3 - 127 2,176
Funded pension benefits Pension benefits not yet funded At 31 December
2,072 216 2,288
1,977 199 2,176
1,893 90 52 - 89 -3 26 1,969
1,745 97 47 - 78
Movement in the fair value of plan assets At 1 January Expected return on plan assets Contributions received from the employer Benefits paid Reclassification Actuarial gains and losses At 31 December
2,176 51 112 - 89
The actual income from investments in the financial year was EUR 116 million (2010: EUR 179 million).
82 1,893
118
Financial statements Notes to the consolidated financial statements
2011
2010
- 67 - 38 26 -1 - 80
- 283 127 82 7 - 67
- 14 1 - 13
- 15 1 - 14
51 112 - 90 1 -1
49 107 - 97 1 7
Expense recognised in the income statement for IAS 19-based defined benefit plans
73
67
Pension costs for defined contribution plans and contributions to multi-employer pension plans
20
19
Employees' share in pension costs Pension costs recognised through the income statement
-5 88
-5 81
Unrecognised actuarial gains and losses At 1 January Actuarial gain related to awarded pension benefits Actuarial result from plan assets Actuarial gains and losses At 31 December Past-service costs not yet recognised At 1 January Amortisation At 31 December
Pension costs recognised through the income statement Increase in present value of pension benefits Interest Expected return on plan assets Amortisation of past-service costs Actuarial gains and losses
The multi-employer plans are defined benefit plans. As the funds are unable to provide FrieslandCampina with the required information, the contributions towards these plans are recognised as being for defined contribution plans. FrieslandCampina expects to contribute EUR 73 million towards its defined benefit plans in 2012 and EUR 1 million towards the multiemployer plans. 2011
2010
% 35 59 2 4
% 37 59 2 2
Principal investment categories, by percentage of fair market value of the total investment: Equity securities Fixed-income securities Property Other
The expected return on plan assets is based on the expected long-term return on the basis of the long-term investment strategy and the different investment categories. A long-term return is assumed for each long-term investment category taking into account the long-term risk of the investment, historical returns and market expectations. A weighted average expected long-term return is determined from the long-term return from each investment category and the strategic asset allocation.
Financial statements Notes to the consolidated financial statements
2011
2010
2,288 1,969 319
2,176 1,893 283
2,221 1,745 476
1,862 1,569 293
1,876 1,863 13
Obligation pension benefits Actuarial gains and losses due to assumption changes Actuarial gains and losses due to experience changes Total
- 49 11 - 38
71 56 127
- 282 4 - 278
82 21 103
318 19 337
Plan assets Actuarial gains and losses due to experience changes
26
82
109
- 405
- 63
Financial history Present value of pension benefits Fair value of plan assets Deficit of cover
2009
2008
119
2007
Actuarial gains and losses related to adjustments of assumptions or bases on experience
21 Deferred tax assets and liabilities 2011 Assets and liabilities per type of temporary difference
At 1 January Recognised through the income statement Recognised in equity Currency translation differences At 31 December
Inventories, receivables, derivatives, liabilities and provisions
Unused tax losses and relief facilities
Property, plant and equipment
Intangible assets
Employee benefits
- 29 - 14
123 - 36
10 7
18 10 -1
77 - 16 9
- 43
3 90
17
27
70
Other
Total
-1 1
198 - 48 8 3 161
Deferred tax receivables and liabilities relate to the following items of the financial position:
Property, plant and equipment Intangible assets Employee benefits Inventories, receivables, derivatives, liabilities and provisions Unused tax losses and relief facilities Other Netting Net deferred tax asset
Assets
Liabilities
Net
4 125 20 33 70 5 - 33 224
47 35 3 6
- 43 90 17 27 70
5 - 33 63
161 2010
Assets and liabilities per type of temporary difference
At 1 January Recognised through the income statement Recognised in equity Currency translation differences At 31 December
Property, plant and equipment
Intangible assets
Employee benefits
- 37 9
20 102
18 -8
-1 -29
1 123
10
Inventories, receivables, derivatives, liabilities and provisions
9 11 -3 1 18
Unused tax losses and relief facilities
Other
Total
167 -90
- 11 10
77
-1
166 34 -3 1 198
120
Financial statements Notes to the consolidated financial statements
Deferred tax receivables and liabilities relate to the following items of the financial position:
Property, plant and equipment Intangible assets Employee benefits Inventories, receivables, derivatives, liabilities and provisions Unused tax losses and relief facilities Other Netting Net deferred tax asset
Assets
Liabilities
Net
5 146 24 26 77
34 23 14 8
- 29 123 10 18 77 -1
- 45 233
1 - 45 35
198
The majority of the deferred tax receivables related to unused loss compensation and facilities concerns tax juristictions in which FrieslandCampina has suffered a fiscal loss in the current or previous financial year. On the basis of its long-term plans, FrieslandCampina expects to be able to offset unused tax losses and facilities against future profits. Deferred tax assets are not recognised if it is not probable that there will be future taxable profits within the entities against which the losses can be utilised. Deferred tax assets have not been recognised in respect of the following losses and facilities:
Tax losses Facilities available for relief
2011
2010
224 2 226
98 98
The unrated losses and facilities will not elapse under the current fiscal rules. 22 Provisions 2011
Restructuring
Other provisions
49 4 -7 - 20 26
35 24 -7 - 16 36
84 28 - 14 - 36 62
12 14 26
13 23 36
25 37 62
At 1 January Additions charged to the income statement Released to the income statement Utilised At 31 December Non-current provisions Current provisions
2010 Other provisions
Total
60 14 - 12 - 13 49
19 30 -6 -8 35
79 44 - 18 - 21 84
35 14 49
10 25 35
45 39 84
Total Restructuring
Restructuring provisions The restructuring provision relates to the reorganisation of production and packaging facilities during the coming years. At the end of 2011 the restructuring provision for Consumer Products Europe concerned primarily the Elsterwerda and Kalkar facilities in Germany. For Cheese, Butter & Milkpowder, the reorganisation affects mainly the production facilities in Tilburg, Dronrijp and Varsseveld. In addition, the production site for butter oil and cream products in Klerken in Belgium will be closed. The restructuring provision will result in future cash outflows.
Financial statements Notes to the consolidated financial statements
121
Other provisions These provisions are formed for obligations the extent or likelihood of which is uncertain at the balance sheet date. The timing of the outflow of resources for these provisions is uncertain. These provisions are stated at nominal value as their present value is not materially different. Non-current provisions are mainly medium-term in nature. Other provisions includes EUR 23 million (2010: EUR 21 million) for onerous contracts. 23 Interest-bearing borrowings
Amounts owed to syndicate of credit institutions Amounts owed to institutional investors Loans from affiliated entities Loans from member farmers Finance lease liabilities Amounts owed to credit institutions Other interest-bearing borrowings
2011
2010
237 265 290 42 13 8 36 891
145 258 290 23 14 14 32 776
The terms and conditions of outstanding loans are as follows: Currency
Nominal interest rate
Year of maturity
Nominal amount 2011
Carrying amount 2011
Nominal amount 2010
Carrying amount 2010
Syndicate (variable interest) Private Placement (fixed interest) Private Placement (fixed interest) Private Placement (fixed interest)
EUR USD USD/EUR USD
2.1 5.4 5.0 5.7
2015 2013 2017 2020
245 87 74 102
237 89 74 102
150 84 72 99
145 87 72 99
Loan from Zuivelcoöperatie FrieslandCampina U.A. (variable interest)
EUR
2.4
2014
290
290
290
290
Loans from member farmers (variable interest)
EUR
3.0
2013/2014
42
42
23
23
EUR/NZD
3.0
2018
33 24 897
33 24 891
30 30 778
30 30 776
Loan
Fonterra (variable interest) Other
Owed to syndicate of credit institutions In 2009, agreement was reached with a syndicate of credit institutions regarding a EUR 1 billion refinancing of the credit facility with a term until August 2012. In 2011 the term of the credit facility was extended to August 2015 and the conditions related to the loan were improved. On 31 December 2011 EUR 285 million of the credit facility had been utilised (2010: EUR 295 million), of which EUR 40 million (2010: EUR 145 million) is recognised as current. Borrowings from institutional investors (private placements) FrieslandCampina took out private loans with institutional investors in the United States amounting to USD 308 million and a private loan with a European investor amounting to EUR 25 million. Cross-currency swaps have been used to convert the USD repayment and interest obligations related to these borrowings into EUR obligations at fixed interest rates. The cross-currency swaps were entered into hedge cash flows. Cash flow hedging has been applied to them. The cross-currency swaps have been recognised at fair value. The portion of the gains and losses made on these hedge instruments regarded as effective is recognised directly in equity. The borrowings of USD 308 million (2010: USD 308 million) have been fixed at EUR 233 million (2010: EUR 233 million) through these swaps. Loans from member farmers These loans concern three-year deposit loans held by member dairy farmers.
122
Financial statements Notes to the consolidated financial statements
Financial lease liabilities 2011
Future minimum lease payments
Interest
2010
Present value of minimum lease payments
Future minimum lease payments
Interest
Present value of minimum lease payments
Less than 1 year
2
2
2
2
Between 1 and 5 years
9
7
10
7
6 15
11 23
More than 5 years
9 20
6.3
8 17
6.3
The lease instalments payable in 2011 included EUR 16 million (present value EUR 12 million) for a joint venture agreement with a third party for ripening, storing and packaging cheese. This agreement expires in 2020. EUR 2 million (2010: EUR 3 million) of the discounted value of the minimum payments is current and recognised under trade payables and other liabilities. No security has been provided for current and non-current borrowings. 24 Other financial liabilities
Derivatives Liability put option
2011
2010
28 122 150
38 38
The liability in connection with the put option relates to DMV Fonterra Excipients GmbH & Co. KG and is recognised under the terms of the agreement with Fonterra Co-operative Group Ltd. If Fonterra exercises the put option, FrieslandCampina is obliged to buy the 50% interest in DMV Fonterra Excipients currently held by Fonterra, for at least the value of Fonterra’s contribution at the commencement of the joint venture in 2006. The joint venture partner may exercise this option in June 2013. At year-end 2010, the option was classified as current as Fonterra Co-operative Group Ltd could have exercised the option in June 2011. This possibility was not utilised. This option is treated on the basis that Fonterra will exercise the option, thus creating a liability which is determined in accordance with the conditions related to the agreement. The present value of this liability is calculated as at the balance sheet date. Changes in the value of the liability are recognised via goodwill. The changed value amounted to EUR 39 million in 2011 (2010: EUR 4 million). As a result of the use of the anticipated acquisition method, DMV Fonterra Excipients is fully consolidated without recognition of a non-controlling interest being recognised in the statement of financial position and income statement. Dividends paid to Fonterra are recognised as a finance cost, as a compensation to the holder of the put option. At the time the financial statements were prepared, FrieslandCampina’s management had no indication that Fonterra wished to exercise the option. Please see Note 14 for information regarding derivatives.
Financial statements Notes to the consolidated financial statements
123
25 Current borrowings
Current portion of interest-bearing borrowings Bank overdrafts
2011
2010
2 248 250
21 293 314
At the end of 2011, ‘Bank overdrafts’ included an amount of EUR 40 million (2010: EUR 145 million) in the form of a current drawing on the credit facility of EUR 1 billion with a syndicate of credit institutions. See also Note 23. The remaining portion of ‘Bank overdrafts’ relates mainly to conditional credit facilities. The average interest rate on current borrowings at the end of 2011 was 2.5% (2010: 5.2%). 26 Trade and other payables
Amounts owed to member dairy farmers Trade creditors Payables related to tax (excluding income tax) and social security contributions Liabilites in connection with put options Other payables
2011
2010
421 843
417 738
33
37
7 372 1,676
86 355 1,633
Please see Note 24 for information regarding the liability in connection with the put option relating to DMV Fonterra Excipients. 27 Commitments and contingencies 2011
Guarantees to third parties Operational lease obligations Purchase commitments for non-current assets Other liabilities
2012
2013 - 2016
After 2016
10 34 72 43 159
78 7 109 194
11
Total
10 123 79 158 370
6 17
2010
Guarantees to third parties Operational lease obligations Purchase commitments for non-current assets Other liabilities
2011
2012 - 2015
After 2015
8 29 28 22 87
65 11 46 122
16 1 17
Total
8 110 40 68 226
FrieslandCampina has granted a third party the right, subject to certain conditions, to acquire 8% of the shares in PT Frisian Flag Indonesia in the period 2012 to 2015. In the context of the merger, Friesland Foods and Campina made two commitments to the European Commission. The first commitment requires member dairy farmers of Zuivelcoöperatie FrieslandCampina U.A. who terminate their membership to be paid a lump-sum leaving premium of 5 euros per 100 kilograms of milk delivered in the year preceding the year in which the application for eligibility for the lump-sum leaving premium is made. The eligibility requirement for the lump-sum leaving premium is that the dairy farmer must become a supplier to another purchaser of raw milk in the Netherlands.
124
Financial statements Notes to the consolidated financial statements
The second commitment is that a maximum of 1.2 billion kilograms raw milk per annum must be made available to purchasers who have a dairy plant and who produce fresh dairy products or naturally ripened Dutch cheese, or either of these in combination with other dairy products. Purchasers may only obtain this milk to expand production in existing plants, for production in new plants or for production in the plants in Nijkerk (fresh dairy products) and Bleskensgraaf (cheese) disposed of by FrieslandCampina in accordance with the agreement with the European Commission. The milk is to be made available through an independent foundation. The price of the milk is the guaranteed milk price (paid by FrieslandCampina for milk delivered by its member dairy farmers) applicable in the month of delivery. There will be a discount of 1% on this price for the first five years after the commitment takes effect. The commitments will remain in force until member dairy farmers with a total milk volume of 1.2 billion kilograms have left FrieslandCampina or until the requirement is withdrawn by the European Commission when it is convinced that sufficient Dutch raw milk is available for the aforementioned purchasers. 28 Related parties Zuivelcoöperatie FrieslandCampina U.A. is the sole shareholder of Royal FrieslandCampina N.V. See Note 29 for the remuneration of the Executive Board and the Supervisory Board. See Note 20 for pension costs. Zuivelcoöperatie FrieslandCampina U.A. Zuivelcoöperatie FrieslandCampina U.A., the shareholder of the company, and FrieslandCampina Nederland B.V., a subsidiary of the company, have agreed that the latter will purchase the milk supplied by the cooperative its members. In 2011 this was 8.8 billion kilograms (2010: 8.8 billion kilograms). The price to be paid for this milk is based on the weighted average milk price in Germany, the Netherlands, Denmark and Belgium, which represents 48 billion kilograms of milk in total. The milk price calculated in this way is guaranteed and, therefore, referred to as the guaranteed price. Based on the current profit appropriation policy (which has changed compared to 2010) the members also receive a premium on the guaranteed milk price equal to 30% of the profit calculated using the guaranteed price as the basis for the cost of the milk, after deduction of profit attributable to providers of member bonds, providers of perpetual notes and non-controlling interests. A further 20% of that result is appropriated as an addition to member bonds. Zuivelcoöperatie FrieslandCampina U.A. issued a subordinated loan to finance the assets of Royal FrieslandCampina N.V. Interest costs were charged on this loan. The conditions under which these transactions can take place are the same as for transactions with third parties. EUR 293 million (2010: EUR 314 million) of the member bond loan is placed with Zuivelcoöperatie FrieslandCampina U.A. 2011 Interest charged by Zuivelcoöperatie FrieslandCampina U.A. Receivable from Zuivelcoöperatie FrieslandCampina U.A. Payable to Zuivelcoöperatie FrieslandCampina U.A.
-7 23 290
2010 -7 22 290
Joint ventures and associates Royal FrieslandCampina N.V. has granted a loan of EUR 23 million to the joint venture Great Ocean Ingredients Pty.Ltd. FrieslandCampina regularly purchases goods from and sells goods to associates in which FrieslandCampina holds an interest of 50% or less and can exercise significant influence. The conditions under which these transactions can take place are the same as for transactions with third parties. During 2011 and 2010 FrieslandCampina entered into the following transactions with joint ventures and associates. 2011 Purchase of raw materials, consumables and goods for resale Sale of raw materials, consumables and goods for resale Receivable from joint ventures and associates Payable to joint ventures and associates
30 80 34 3
2010 22 57 34 4
Financial statements Notes to the consolidated financial statements
125
29 Remuneration of members of the Supervisory Board and the Executive Board 2011 Supervisory Board Short-term remuneration Executive Board Short-term remuneration Long-term remuneration Pension plans
2010
0.9 0.9
1.0 1.0
4.1 1.0 0.6 5.7
4.9 1.3 0.8 7.0
30 Financial risk management and financial instruments Financial risk management FrieslandCampina’s principal financial instruments are borrowings from credit institutions and institutional investors, perpetual notes and cash and cash equivalents. The main purpose of these financial instruments is to raise finance for FrieslandCampina’s operations from a variety of markets and investors. FrieslandCampina has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. FrieslandCampina monitors the market risks relative to all financial instruments very closely. FrieslandCampina also enters into derivative transactions, primarily forward currency contracts and interest rate swaps, in order to manage the currency risks and interest rate risks arising from its operations and the financing of its operations. FrieslandCampina’s policy is, and has been throughout the year under review, that no trading takes place for speculative purposes. The main risks arising from FrieslandCampina’s financial instruments are foreign currency risks, interest rate risks, liquidity risks and credit risks. FrieslandCampina has policies in place to manage these risks. Currency risks Since FrieslandCampina conducts business worldwide, a considerable portion of its assets, liabilities and results is sensitive to currency fluctuations. The purpose of the policy for managing transaction risks is to limit the effect of currency fluctuations on financial performance. Although, in principle, transaction risks are hedged, specific product and market circumstances may mean that this is not done. Currency risks resulting from investments in foreign subsidiaries and joint ventures and associates are in principle not hedged. Although the risk associated with currency mismatches between assets and liabilities is mitigated by funding foreign subsidiaries in local currencies where possible, the solvency requirements that FrieslandCampina imposes on foreign subsidiaries do result in a degree of currency translation risk. The exception to this – the net investment hedge -hedges the currency translation risk on the net investment in the financing of a foreign subsidiary recognised in the current account in the currency of the net investment (EUR 15 million). Hedge accounting has been applied, the documentation stipulations of IAS 39 related to hedge accounting have been fulfilled and effectiveness test have been carried out before and during the term of the hedge.
126
Financial statements Notes to the consolidated financial statements
Exposure of currency risk The summary of quantitative data about FrieslandCampina’s exposure to foreign currency risk provided to management based on its risk management policy was as follows (positions given in USD): 2011
2010
USD/EUR
USD/NGN
USD/IDR
USD/VND
USD/EUR
USD/NGN
USD/IDR
Receivables Cash Liabilities
71 9 - 12
3 17 -7
3 3 - 29
2 1 -8
4
-7
74 4 -9
USD/VND
- 18
-1
Net statement of financial position
68
13
- 23
-7
69
-5
- 14
-1
Forecast sales next year Forecast purchases next year
870 - 55
- 400
- 325
- 137
712 - 40
- 340
- 300
- 180
Net forecast transaction exposure
815
- 400
- 325
- 137
672
- 340
- 300
- 180
Forward exchange contracts
- 125
Net exposure 31 December USD
- 216
758
- 387
- 348
- 144
525
- 345
- 314
- 181
Net exposure 31 December EUR
585
- 299
- 269
- 111
392
- 258
- 235
- 135
The table above has been adjusted compared with 2010 in order to be in-line with internal reporting. Sensitivity analysis FrieslandCampina is sensitive primarily to fluctuations in the US dollar exchange rate due to its sales and purchases in dollars. The largest currency pairings are EUR/USD, USD/NGN, USD/IDR and USD/VND. As far as the euro is concerned this relates mainly to sales in American dollars. As far as other currencies are concerned this relates mainly to the purchase of raw materials on the world market. The breakdown below summarises the impact of a 5% change of the US dollar exchange rate against the local currency in the income statement. A 5% change in the exchange rate is assumed to be a realistic possibility. A positive figure means an increase in profit and in the amount of the cash flow hedge reserve, while a negative figure means a decrease. Currently there are no large cash flow hedges, which is why they have not been reported. A strengthening (weakening) of the US dollar, as indicated below, against the EUR, NGN, IDR and VDN at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that FrieslandCampina considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any effect of forecasted sales and purchases.
(in EUR) 31 December 2011 USD (5% movement against EUR) NGN (5% movement against USD) IDR (5% movement against USD) VDN (5% movement against USD) 31 December 2010 USD (5% movement against EUR) NGN (5% movement against USD) IDR (5% movement against USD) VDN (5% movement against USD)
Strengthening USD
Weakening USD
Effect on profit or loss
Effect on profit or loss
31 - 15 - 13 -7
- 31 15 13 7
21 - 13 - 12 -7
- 21 13 12 7
Financial statements Notes to the consolidated financial statements
127
Interest rate risk The objective of interest rate risk management is to limit the effect of interest rate fluctuations on profit and to reduce interest expense where possible. Interest rate derivatives are used to match the effective interest in borrowings to the intended interest rate risk profile. The average percentage of FrieslandCampina’s interest bearing instruments (excluding member bonds and the perpetual notes) that is characterized by a fixed interest percentage or is fixed by means of a hedge is on average 58% for the next 5 years The overview below shows the situation at the end of the year: 2011
Interest on borrowings
2010
Carrying amount excluding hedging
Carrying amount including hedging
Carrying amount excluding hedging
Carrying amount including hedging
278 863 1,141
678 463 1,141
273 817 1,090
773 317 1,090
Fixed rate Floating rate
FrieslandCampina carried out a sensitivity analysis based on the influence of interest rates on derivatives and other financial instruments at the end of the year. The analysis of cash and cash equivalents and liabilities with variable interest rates was carried out based on the assumption that the outstanding amount at the end of the year had been outstanding throughout the year. This sensitivity analysis indicates that, if interest would have risen or fallen by 0.5%, the cumulative interest expense for the current year would have been less than 1 million euro higher or lower. In addition to the sensitivity analysis another internal 5-year prospective analysis was carried out. Liquidity risk FrieslandCampina’s objective is to maintain a balance between the continuity and flexibility of its funding by using a range of financial instruments. Total net debt should be funded mainly by long-term borrowings and committed credit facilities. FrieslandCampina manages its liquidity risk mainly by keeping available a significant amount of the unconditional credit facilities of EUR 1,265 million (2010: EUR 1,258 million). Of these facilities EUR 715 million (2010: EUR 705 million) was unused at the end of 2011. In November 2011 it was agreed with a syndicate of banks to extend the maturity of the committed credit facility of EUR 1 billion from August 2013 to August 2015. The table below sets out the maturity dates of borrowings according to the nominal amounts in the contract, including related interest obligations. Cash flows on borrowings 2011
Carrying amount
Non-derivative financial liabilities Loans Financial lease liabilities Trade and other payables Operational lease liabilities Purchase commitments for non-current assets Other commitments Derivatives Interest rate swaps Cross currency swaps Forward exchange
- 1,128 - 15 - 1,674
- 25 -8 -5 - 2,855
Contractual cash flows
2012
2013 - 2016
After 2016
- 1,266 - 20 - 1,674 - 123 - 79 - 158
- 284 -2 - 1,674 - 34 - 72 - 43
- 754 -9
- 228 -9
- 78 -7 - 109
- 11
- 30 -4 -5 - 3,359
- 16 -2 -5 - 2,132
- 14 -2 - 973
-6
- 254
128
Financial statements Notes to the consolidated financial statements
2010
Carrying amount
Non-derivative financial liabilities Loans Financial lease liabilities Trade and other payables Operational lease liabilities Purchase commitments for non-current assets Other commitments Derivatives Interest rate swaps Cross currency swaps Forward exchange and other
- 1,075 - 17 - 1,631
- 29 -8 -4 - 2,764
Contractual cash flows
2011
2012 - 2015
After 2015
- 1,212 - 23 - 1,631 - 110 - 40 - 68
- 348 -2 - 1,631 - 29 - 28 - 22
- 647 -9
- 217 - 12
- 65 - 11 - 46
- 16 -1
- 33 -6 -4 - 3,127
- 17 -2 -4 - 2,083
- 16 -4 - 798
- 246
Credit risk FrieslandCampina is exposed to credit risks associated with its trade receivables, cash and cash equivalents and derivative financial instruments. FrieslandCampina manages credit risk by systematically monitoring the credit ratings of its customers at a decentralised level and financial counterparties at a central level. During 2011 growing concerns regarding the financial positions of various governments, such as the Greek government, led FrieslandCampina further hone the existing risk policy aimed at limiting and mitigating these risks as far as possible. FrieslandCampina generally trades with reputable third parties with whom it maintains long-standing trading relationships. The credit position of customers deemed less creditworthy or subject to political transfer risks is covered by documentary credit or credit insurance in accordance with FrieslandCampina’s financial risk management policy. Thanks to the spread of geographical areas and business groups, there is no significant concentration of credit risk in FrieslandCampina’s trade receivables. Please see Note 17 for further information on trade receivables. Whenever possible, cash and cash equivalents have been deposited with first-class international banks, i.e. those with at least a ‘single A’ credit rating. Cash and cash equivalents held by subsidiaries in relatively unstable political climates are, however, subject to local country risks. To limit these risks as far as possible, FrieslandCampina follows an active dividend policy in relation to these subsidiaries. FrieslandCampina has, for example, outstanding monies in Nigeria. To mitigate this risk FrieslandCampina has not only an active dividend policy but also a stringent bank policy. Derivatives are traded only with financial institutions with good credit ratings, i.e. at least ‘single A’. FrieslandCampina’s risk exposure on these instruments is not greater than the current carrying amount. Management of risks relating to assets FrieslandCampina manages its assets so as to maintain a good credit standing (investment grade according to relevant financial parties) and to safeguard the continuity of the subsidiaries as going concerns. In this context, FrieslandCampina applies guidelines for the solvency ratios of different types of subsidiary. Capital risk management FrieslandCampina’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital comprises debt, including interest-bearing borrowings and current borrowings as well as equity in the form of equity attributable to the shareholder of the company, member bonds, the perpetual notes and non-controlling interests. Covenant guidelines are defined in order to safeguard the company’s credit profile at a solid investment grade. This implies the following guidelines and targets.
Financial statements Notes to the consolidated financial statements
129
Covenant guidelines Existing guidelines for financial ratios: Senior Net Debt / EBITDA Net Debt / EBITDA EBITDA / Net Interest
< 3,0 < 3,5 > 3,5
The terms of the covenants for both facilities (Syndicate and Private Placement) have been met. The amounts drawn under the credit facility and the private placements become repayable on demand if the related terms and conditions cease to be met. The table below sets out the specification of the (senior) net debt at year-end. 2011 Interest bearing borrowings Current borrowings Receivable from affiliated companies Cash and cash equivalents Pledged cash and cash equivalents Net debt Loans from affiliated companies Senior net debt
2010
891 250 - 23 - 420 1 699 - 290 409
776 314 - 22 - 292 776 - 290 486
Derivative assets and liabilities designated at cash flow hedges The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair values of the related hedging instruments. Fair value
Expected cash outflow
2012
2013 - 2016
Interest rate swaps Liabilities
25
30
16
14
Cross currency swaps Assets Liabilities
18 7
6 4
1 2
3 2
After 2016
2
Accounting classifications and fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position are stated below. The fair value is the amount that would be received or paid if the receivables and/or liabilities were settled on the balance sheet date, without further liabilities. 2011
Other financial assets Trade and other receivables Cash and cash equivalents Other financial liabilities Interest-bearing borrowings Current borrowings Trade and other (financial) payables
Designated at fair value through income statement
Hedging
18
18
123
27
5
5
Loans and Other financial receivables liabilities
37 1,127 420 891 250 1,676
Carrying amount
Fair value
73 1,127 420 150 891 250 1,686
73 1,127 420 150 945 250 1,686
130
Financial statements Notes to the consolidated financial statements
2010 Designated at fair value through income statement
Other financial assets Trade and other receivables Cash and cash equivalents Other financial liabilities Interest-bearing borrowings Current borrowings Trade and other (financial) payables
Hedging
16 1
12 1
Loans and receivables
Other financial liabilities
Carrying amount
Fair value
1 776 314 1,552
70 1,112 292 38 776 314 1,636
70 1,112 292 38 781 314 1,636
42 1,110 292
37
83
1
The put option related to DMV Fonterra Excipients is classified as â&#x20AC;&#x2DC;carried at fair value through the income statementâ&#x20AC;&#x2122;. The option is carried at fair value, but the changes in value are added or deducted to/from goodwill, see also Note 24. Fair values hierarchy The table below analyses Financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Level 2: Level 3:
Fair value measured using quoted prices (unadjusted) in active markets for identical assets or liabilities; Fair value measured using inputs other than those in level 1 that observable for the asset or liability, either directly (for example, as prices) or indirectly (for example, derived from prices); Fair value measured using inputs that are not based on observable market data. 2011
Other financial assets Total assets Other financial liabilities Trade and other payables Total liabilities
Level 1
Level 2
18 18
18 18 28 10 38
Level 3
Total
122
36 36 150 10 160
122
2010 Other financial assets Trade and other receivables Total assets Other financial liabilities Trade and other payables Total liabilities
Level 1
Level 2
16
12 2 14 38 3 41
16
Level 3
80 80
Total
28 2 30 118 3 121
The other financial assets are classified as Level 1 valuation method with the quoted prices used as the basis for the valuation. The derivatives are classified as Level 2 valuation method. The fair value of the forward currency contracts is calculated by comparison with the actual forward prices of contracts for comparable remaining terms. The fair value of interest swap contracts is determined using the discounted value based on actual market information. The put option in respect of DMV Fonterra Excipients is determined on the basis of the discounted value method that uses actual market information and the future cash flows. The future cash flows are discounted at the prevailing discount rates. The fair value of the put option in respect of DMV Fonterra Excipients is classified as a Level 3 valuation method see Note 24 for the movement during the year and the principles of valuation and determination of result for the valuation method.
Financial statements Notes to the consolidated financial statements
131
31 Cash flow statement The statement of cash flows has been prepared in accordance with the indirect method. The table below shows for 2011 the underlying relationships between the movements in the statement of financial position and the statement of cash flows for inventories, receivables and liabilities.
At 31 December 2010 At 31 December 2011 Movements in statement of financial position Adjustments: Currency translation effect Consolidation and deconsolidation Interest movement financial position Movement related to put option liability Movement related to liability capital expenditure Other movements Movements in statement of cash flows
Inventories
Receivables
Liabilities
1,005 1,085 80
1,110 1,127 17
1,633 1,676 43
1
1
-3 -2 -1 71 -8 1 101
-6
- 79
1 - 21
32 Subsequent events On February 2, 2012 FrieslandCampina announced that it has signed a memorandum of understanding with Salford Capital Partners to acquire Imlek and Mlekara Subotica, both are companies in the Western Balkans. The closing of this transaction, which is subject to certain contractual and other conditions such as regulatory approval, is expected in the second quarter 2012.
132
Financial statements Principal subsidiaries, joint ventures and associates
Principal subsidiaries, joint ventures and associates 1 The Netherlands DMV-Fonterra Excipients B.V., Foxhol Friesland Brands B.V., Leeuwarden FrieslandCampina Cheese & Butter B.V., Amersfoort FrieslandCampina Consumer Products Europe B.V., Amersfoort FrieslandCampina Consumer Products International B.V., Amersfoort FrieslandCampina Creamy Creation B.V., Amersfoort FrieslandCampina Dairy Feed B.V., Amersfoort FrieslandCampina DMV B.V., Amersfoort FrieslandCampina Domo B.V., Amersfoort FrieslandCampina International Holding B.V., Amersfoort FrieslandCampina Kievit B.V., Meppel FrieslandCampina Nederland B.V., Amersfoort FrieslandCampina Nederland Holding B.V., Amersfoort FrieslandCampina Riedel B.V., Amersfoort FrieslandCampina Valess B.V., Amersfoort FrieslandCampina Werknemers B.V., Amersfoort Kaashandel Culemborg B.V., Hardinxveld-Giessendam Belgium FrieslandCampina Belgium N.V., Aalter Friesland Foods België/Belgique N.V./S.A., Bornem FrieslandCampina Belgium Cheese N.V., Aalter FrieslandCampina Cheese N.V., Aalter FrieslandCampina Professional N.V., Lummen FrieslandCampina Finance N.V., Lummen FrieslandCampina C.V., Weelde (99.84%) Germany CMG Grundstücksverwaltungs- und Beteiligungs -GmbH, Heilbronn (89.56%) DMV-Fonterra Excipients GmbH & Co. KG, Goch (50%) 2 Friesland Foods Deutschland GmbH, Kalkar-Kehrum (94.9%) FrieslandCampina Cheese GmbH, Essen FrieslandCampina Germany GmbH, Heilbronn (94.9%) FrieslandCampina Professional GmbH, Cologne Sahnemolkerei Hubert Wiesehoff GmbH, Schoppingen (49%) 2 Satro GmbH, Lippstadt DMV- Fonterra Excipients Technology GmbH, Goch Milchverwaltung FrieslandCampina Germany GmbH, Cologne France France Crème S.A.S., Saint-Paul-en-Jarez FrieslandCampina Cheese France S.A.S., Sénas FrieslandCampina France S.A.S., Saint-Paul-en-Jarez Greece FrieslandCampina Hellas S.A., Maroussi, Athens United Kingdom FrieslandCampina UK Ltd., Horsham Hungary FrieslandCampina Hungária zRt, Debrecen
1
Austria FrieslandCampina Austria GmbH, Stainach Romania Napolact S.A., Cluj-Napoca (91.43%) FrieslandCampina Romania S.A., Satu Mare (99.99%) Industrializarea Laptelui Mures S.A., Tirgu-Mures (90.27%) Russia Campina OOO, Moscow Spain FrieslandCampina Iberia S.L., Barcelona FrieslandCampina Canarias S.A., Las Palmas China DMV International Ltd., Hong Kong FrieslandCampina (Hong Kong) Ltd., Hong Kong FrieslandCampina Trading (Shanghai) Co. Ltd., Shanghai Indonesia PT Frisian Flag Indonesia, Jakarta (95%) PT Kievit Indonesia, Jakarta Malaysia/Singapore Dutch Lady Milk Industries Berhad, Petaling Jaya (50.96%) FrieslandCampina (Singapore) Pte. Ltd., Singapore Saudi Arabia Friesland Arabia Ltd., Jeddah Thailand FrieslandCampina Fresh (Thailand) Co Ltd., Bangkok FrieslandCampina (Thailand) PCL., Bangkok (99.71%) Vietnam FrieslandCampina Ha Nam Co. Ltd., Phu Ly FrieslandCampina Vietnam Co. Ltd., Binh Duong Province (70%) Nigeria FrieslandCampina WAMCO Nigeria Plc., Ikeja (54.5%) USA FrieslandCampina USA LP, Wilmington, State: Delaware Joint ventures and associates 3 Betagen Holding Ltd., Hong Kong, China (50%) Coöperatieve Zuivelinvesteerders U.A., Oudenhoorn, The Netherlands (49%) CSK Food Enrichment B.V., Leeuwarden, The Netherlands (82.33%) FKS Frischkonzept Service GmbH, Viersen, Germany (49%) Great Ocean Ingredients Pty.Limited., Allansford, Victoria, Australia (50%) Het Kaasmerk B.V., Leiden, The Netherlands (74.48%) Unifine Debic - Ingredientes de Pastelaria S.A., Lisbon, Portugal (50%) ATF Management Ltd., Bangkok, Thailand (49%)
Ownership 100%, unless stated otherwise. If the percentage is less than 100% the direct interest of the parent in the subsidiary is stated.
2
FrieslandCampina has control over these entities, based on voting power.
3
FrieslandCampina does not have control over these joint ventures and associates.
Financial statements Company balance sheet
133
Company balance sheet At 31 December, before profit appropriation, in millions of euros, unless stated otherwise
Assets Investments in subsidiaries Loans to subsidiaries Deferred tax assets Other financial assets Non-current assets Amounts due from subsidiaries Other financial assets Current assets
Note
2011
2010
(2) (3)
1,955 1,226 1 18 3,200
1,787 551 3 12 2,353
236 13 249
1,110 14 1,124
3,449
3,477
370 113 130 1,003 - 10 - 49 591
370 113 130 931 - 14 - 29 460
(8)
(4) (8)
Total assets Equity Issued capital Share premium Perpetual notes Member bonds Cash flow hedge reserve Currency translation reserve Retained earnings Equity attributable to the shareholder of the company and other providers of capital
(5)
2.148
1.961
Liabilities Interest-bearing borrowings Other financial liabilities Non-current liabilities
(6) (8)
838 27 865
722 36 758
95 4 326 11 436
161 5 586 6 758
1,301
1,516
3,449
3,477
2011
2010
182 38 - 50 170
246 - 23 7 230
Current borrowings Trade and other payables Borrowings from subsidiaries Other financial liabilities Current liabilities Total liabilities Total equity and liabilities
(7) (8)
Company income statement in millions of euros, unless stated otherwise
Share of profit of subsidiaries Finance income and costs Other results Profit for the year
134
Financial statements Notes to the company financial statements
Notes to the company financial statements in millions of euros, unless stated otherwise
1 General Accounting policies and notes These financial statements were prepared in accordance with Dutch statutory provisions and regulations. The financial statements are presented in accordance with the provisions of Section 362(8) of Part 9 of Book 2 of the Dutch Civil Code, which stipulates the application of consistent accounting policies in the company and consolidated financial statements. Please see pages 92 to 101 of the Notes to the consolidated financial statements for the accounting policies for the valuation of assets and liabilities, and the presentation of the income statement. Please see the Notes to the consolidated financial statements for items not dealt with in the Notes to the company financial statements. Consolidated subsidiaries are valued using the equity method. A statutory reserve has been formed for the retained earnings of subsidiaries where distribution is subject to restrictions. A list of subsidiaries, branches and associates, and interests in joint ventures, prepared in accordance with statutory provisions, is available for inspection at FrieslandCampina’s offices and has been filed with the Trade Registry in Almere, the Netherlands. The company income statement is presented in accordance with the provisions of Section 402 of Part 9 of Book 2 of the Dutch Civil Code. 2
Investments in subsidiaries
At 1 January Capital contribution Profit for the year Other comprehensive income Dividend Other movements At 31 December 3
2011
2010
1,787
1,481 182 246 56 - 178
182 - 15 1 1,955
1,787
2011
2010
551 675 1,226
797 - 246 551
Loans to subsidiaries
At 1 January Transferred from/to current At 31 December 2011 Repayment schedule Loans to subsidiaries
2010
2013 - 2016
After 2016
Total repayment
2012 - 2015
After 2015
Total repayment
1
1,225
1,226
1
550
551
The loans granted serve primarily to finance subsidiaries. The average interest rate on the financing of subsidiaries in 2011 was 3.2% (2010: 3.5%).
Financial statements Notes to the company financial statements
4
135
Amounts due from subsidiaries The amounts due from subsidiaries relate to loans granted to subsidiaries. The average interest rate on these loans to subsidiaries in 2011 was 2.1% (2010: 1.7%).
5
Equity attributable to the shareholder of the company and other providers of capital The authorised capital amounts to EUR 1,000 million, divided into 10,000,000 shares with a nominal value of EUR 100. The shares are held by Zuivelcoöperatie FrieslandCampina U.A. The equity attributable to the shareholder of the company and other providers of capital that is included in the company financial statement is equal to the equity attributable to the shareholder of the company and other providers of capital that is included in the consolidated financial statement. Please see the statement of changes in equity on page 90 for additional details on equity. The cash flow hedge reserve and the currency translation reserve are statutory reserves and as such cannot be distributed. In addition EUR 35 million of the retained earnings is designated as statutory reserve subsidiaries and as such cannot be distributed.
6
Interest-bearing borrowings 2011
2010
237 265 290 42 4
145 258 290 23 5 1 722
Amounts owed to syndicate of credit institutions Amounts owed to institutional investors Loan from affiliated entities Loans from member farmers Amounts owed to credit institutions Other interest-bearing borrowings
838 The terms and conditions of outstanding loans were as follows: Currency
Nominal interest rate
Year of maturity
Nominal amount 2011
Carrying amount 2011
Nominal amount 2010
Carrying amount 2010
EUR USD USD/EUR USD
2.1 5.4 5.0 5.7
2015 2013 2017 2020
245 87 74 102
237 89 74 102
150 84 72 99
145 87 72 99
Loan from Zuivelcoöperatie FrieslandCampina U.A.
EUR
2.4
2014
290
290
290
290
Loans from Member farmers
EUR
3.0
2013/2014
42
42
23
23
4 844
4 838
6 724
6 722
Loan
Syndicate Private Placement Private Placement Private Placement
Other
Please see Note 23 of the consolidated financial statements for amounts owed to syndicate of credit institutions and amounts owed to institutional investors.
136
7
Financial statements Notes to the company financial statements
Borrowings from subsidiaries The average interest rate for the current borrowings from subsidiaries at the end of 2011 was 0% (2010: 0%).
8 Derivatives The difference compared with the amount in the consolidated financial statements is the fair value of derivatives transacted with subsidiaries. Please see Note 14 of the consolidated financial statements for information regarding derivatives. 9 Commitments and contingencies Royal FrieslandCampina N.V. has issued statements of liability in conformance with Article 403, Part 9 Book 2 of the Dutch Civil Code in respect of liabilities of Friesland Brands B.V. and FrieslandCampina Nederland Holding B.V. and the Dutch subsidiary of FrieslandCampina Nederland Holding B.V. resulting from legal proceedings. FrieslandCampina N.V., together with the majority of the Dutch operating companies and Zuivelcoöperatie FrieslandCampina U.A., forms the fiscal unit Zuivelcoöperatie FrieslandCampina U.A. for corporation tax and income tax. On these grounds the company is severally liable for the tax liability of the fiscal unit as a whole. 10 Remuneration of the Supervisory Board and the Executive Board The remuneration of members of the Supervisory Board and the Executive Board is disclosed in Note 29 of the consolidated financial statements. During the year under review no employees were employed by the company.
Amersfoort, 2 March 2012 Executive Board Royal FrieslandCampina N.V. C.C. ‘t Hart, CEO C.J.M. Gielen K. Garg P.J. Hilarides R.A. Joosten F. Rijna
Supervisory Board Royal FrieslandCampina N.V. P. Boer, Chairman J.H.G.M. Uijttewaal, Vice-chairman P.A.F.W. Elverding S.H. Galema L.W. Gunning A.A.M. Huijben-Pijnenburg J.P.C. Keijsers F.A.M. Keurentjes S.R.F. Ruiter H. Scheffers H. Stöcker B. van der Veer W.M. Wunnekink
137
138
Other Information
Other Information Provisions of the Articles of Association governing profit appropriation The provisions regarding the appropriation of profit are included in Article 28 of the Articles of Association. These can be summarised as follows: profit will be distributed after adoption of the financial statements showing such distribution to be legitimate. The profit will be at the disposal of the General Meeting of Shareholders. The General Meeting will adopt the companyâ&#x20AC;&#x2122;s reserve policy, as included in Article 27 of the Articles of Association, on a proposal from the Executive Board approved by the Supervisory Board. Distributions chargeable to a reserve may be made on a proposal from the Executive Board, which will be subject to the approval of the Supervisory Board, pursuant to a resolution passed by the General Meeting. Unretained profit will be distributed.
Proposed appropriation of profit attributable to the share holder of the company The Executive Board, with the approval of the Supervisory Board, has proposed that the entire profit attributable to the shareholder of the company will be added to the retained earnings.
Subsequent events For information regarding subsequent events, please see Note 32 to the consolidated financial statements.
Other Information Independent auditor’s report
139
Independent auditor’s report To: the shareholder of Royal FrieslandCampina N.V. Report on the financial statements We have audited the accompanying financial statements 2011 of Royal FrieslandCampina N.V., Amersfoort. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated statement of financial position as at 31 December 2011, the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes, comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at 31 December 2011, the company income statement for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information. Management’s responsibility Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the report of the Executive Board in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of Royal FrieslandCampina N.V. as at 31 December 2011 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code. Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of Royal FrieslandCampina N.V. as at 31 December 2011 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code. Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the report of the Executive Board, to the extent we can assess, has been prepared in accordance with part 9 of Book 2 of this Code, and if the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the report of the Executive Board, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
Amstelveen, the Netherlands, 2 March 2012 KPMG ACCOUNTANTS N.V. E.H.W. Weusten
At home in every country
However tastes, traditions and habits may differ around the world, in many countries family and friends gather together around the table to share a meal. People from the Netherlands to Japan and from Australia to Mexico enjoy Frico cheese. The milk from Dutch cows has for many generations been used to make the famous Goudse and Edammer cheese. Frico cheese, from low-fat to full-fat and from mild to mature, also find their way to the table of this Egyptian family.
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Overviews Financial history
Financial history in millions of euros, unless stated otherwise
2011
2010
9,626 403 216
8,972 428 434 285
8,160 347 258 182
9,454 276 248 135
Guaranteed price Performance premium in euros per 100 kilograms Addition member bonds in euros per 100 kilograms
36.94 1.10 0.73
32.39 1.23 0.73
26.40 0.59 0.35
35.89 0.48 0.29
Milk price in euros per 100 kilograms (excl. VAT, 4,41% fat, 3,47% protein)
38.77
34.35
27.34
36.66
34.85
5,739 2,264
5,299 2,071
4,770 1,749
4,930 1,480
5,128 1,681
2,148
1,961
1,652
1,395
1,601
699
776
842
1,494
1,343
508 - 340
444 - 239
786 - 206
351 - 214
234 - 376
176
210
206
219
226
39.4
39.1
36.7
30.0
32.8
Employees (average number of FTEs)
19,036
19,484
20,034
20,568
20,774
Total milk processed (in millions of kilograms) Milk supplied by members (in millions of kilograms)
10,140 8,838
10,266 8,821
10,755 8,685
11,446 8,589
11,700 8,734
Headlines Income statement Revenue Operating profitâ&#x20AC;&#x2030;2 Operating profit Profit for the year
Financial position Total assets Equity Equity attributable to the shareholder and other providers of capital Net debt Cash flows Net cash from operating activities Net cash used in investing activities Depreciation of plant and equipment and amortisation intangible assets Ratios Equity as a % of total assets
1
The 2007 figures are pro forma.
2
Before non-recurring income and expenses related to merger and reorganisation costs.
2009
2008
2007 1
9,008 373 256
Overviews Milk price
143
Milk price overview in euros per 100 kilogram of milk at 4,41% fat and 3,47% protein, excl. VAT
Fat Protein Adjustment guaranteed price Guaranteed price Performance premium Addition member bonds Milk price
2011
2010
19.39 17.49 36.88 0.06 36.94 1.10 0.73 38.77
16.12 16.27 32.39 32.39 1.23 0.73 34.35
144
Overviews Supervisory Board
Supervisory Board Piet (P.) Boer (1960) Position Chairman of the Supervisory Board of Royal FrieslandCampina N.V., Chairman of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held member of the Supervisory Board of Alfa Top-Holding B.V. Jan (J.H.G.M.) Uijttewaal (1962) Position Vice-chairman of the Supervisory Board of Royal FrieslandCampina N.V., Vice-chairman of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held Vice-chairman of the Supervisory Board of Rabobank Maas en Waal Peter (P.A.F.W.) Elverding (1948) Position member of the Supervisory Board of Royal FrieslandCampina N.V. First appointed 31 December 2008 Nationality Dutch Other positions held Vice-chairman of the Supervisory Board of ING Groep N.V., Chairman of the Supervisory Board of Koninklijke BAM Groep nv, Chairman of the Supervisory Board of Océ N.V., member of the Supervisory Board of SHV Holdings N.V., Chairman of the Supervisory Board of Q-Park, member of the Board of Stichting Instituut Gak Sjoerd (S.H.) Galema (1962) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 14 December 2011 Nationality Dutch Occupation dairy farmer Other positions held Chairman of the Supervisory Board of Rabobank Sneek-Zuidwest Friesland, member of the Board of Inspiration MillenniumNetwerk Fryslân
Tex (L.W.) Gunning (1950) Position member of the Supervisory Board of Royal FrieslandCampina N.V. First appointed 14 December 2011 Nationality Dutch Other positions held member of the Board of Management and Executive Committee of AkzoNobel N.V. responsible for Decorative Paints, member of the Supervisory Board of TNT Express Angelique (A.A.M.) Huijben-Pijnenburg (1968) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 15 December 2010 Nationality Dutch Occupation dairy farmer Other positions held member of the Board of AB Brabant, member of the General Management Board of the Brabantse Delta District Water Board Jan (J.P.C.) Keijsers (1955) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held none Frans (F.A.M.) Keurentjes (1957) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held member of the Groningen Provincial Council, member of Grondkamer Noord (Agricultural Land Tenancies Authority North) Simon (S.R.F.) Ruiter (1958) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoöperatie FrieslandCampina U.A. First appointed 31 December 2008 Nationality Dutch Occupation dairy farmer Other positions held Provincial Manager LTO-Noord, Province of North-Holland, Vice-chairman of the Supervisory Board of Rabobank Alkmaar e.o.
Overviews Supervisory Board
Henk (H.) Scheffers (1948) Position member of the Supervisory Board of Royal FrieslandCampina N.V. First appointed 31 December 2008 Nationality Dutch Other positions held Chairman of the Supervisory Board of Aalberts Industries N.V., member of the Supervisory Board of Koninklijke BAM Groep nv, member of the Supervisory Board of Wolters Kluwer N.V., Vice-chairman of the Supervisory Board of Flint Holding N.V., member of the Investment Committee of NPM Capital N.V., member of the Supervisory Board of Made in Scotland, member of the Board of Stichting Administratiekantoor KAS BANK, member of the Supervisory Board of AON Nederland
145
Remuneration & Appointment Committee Peter Elverding, Chairman Piet Boer Jan Uijttewaal Audit Committee Henk Scheffers, Chairman Simon Ruiter Ben van der Veer Erwin Wunnekink
Hans (H.) Stรถcker (1964) Position member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoรถperatie FrieslandCampina U.A. First appointed 14 December 2011 Nationality German Occupation dairy farmer Other positions held Chairman of Landesvereinigung Milch NRW, chairman of the Supervisory Board of Milchverwertungsgesellschaft NRW, member of Kreisstelle Oberberg der Landwirtschaftskammerr NRW, member of Landschaftsbeirat Oberbergischer Kreis, member of Aufsichtsrat Raiffeisenerzeuger genossenschaft Bergisch Land, chairman of the Association "Milch und Kultur Rheinland und Westfalen" Ben (B.) van der Veer (1951) Position member of the Supervisory Board of Royal FrieslandCampina N.V. First appointed 1 October 2009 Nationality Dutch Other positions held member of the Supervisory Board of Reed Elsevier N.V. and non-executive director Reed Elsevier PLC, member of the Supervisory Board of AEGON N.V., member of the Supervisory Board of TomTom N.V., member of the Supervisory Board of Siemens Nederland N.V. Erwin (W.M.) Wunnekink (1970) Position member of the member of the Supervisory Board of Royal FrieslandCampina N.V., member of the Board of Zuivelcoรถperatie FrieslandCampina U.A. First appointed 16 December 2009 Nationality Dutch Occupation dairy farmer Other positions held none
In accordance with the roster, on 14 December 2011 Messrs Kees Wantenaar, Rob ter Haar and Jorrit Jorritsma resigned as Chairman and members of the Supervisory Board respectively. None of them were eligible for reappointment. On the same date Messrs Sjoerd Galema, Tex Gunning and Hans Stรถcker were appointed as members of the Supervisory Board. Mr Piet Boer was appointed Chairman of the Supervisory Board and Mr Jan Uijttewaal was appointed Vice-chairman of the Supervisory Board.
146
Overviews Executive Board
Executive Board Cees (C.C.) â&#x20AC;&#x2122;t Hart (1958) Position Chief Executive Officer Appointed 1 January 2009 Nationality Dutch Responsible for Cooperative Affairs Corporate Communication & Sustainability Affairs Corporate Human Resources Corporate General Counsel & Company Secretary Corporate Public Affairs & Quality Affairs Corporate Research & Development Corporate Strategy Centre for Dairy Nutrition & Health Other positions held Chairman of the Board of the Nederlandse Zuivelorganisatie NZO (Dutch Dairy Association) Member of the Board of Productschap Zuivel (Dutch Dairy Board) Member of the General Board of VNO-NCW (Confederation of Dutch Industry and Employers) Kees (C.J.M.) Gielen (1959) Position Chief Financial Officer Appointed 1 January 2009 Nationality Dutch Responsible for Corporate Finance & Reporting Corporate ICT Corporate Internal Audit Corporate Procurement Corporate Tax Corporate Treasury Mergers & Acquisitions
Roelof (R.A.) Joosten (1958) Position Chief Operating Officer Appointed 1 January 2012 Nationality Dutch Responsible for Business group Ingredients Corporate Supply Chain Corporate Key Account Management Freek (F.) Rijna (1955) Position Chief Operating Officer Appointed 1 January 2009 Nationality Dutch Responsible for Business group Consumer Products Europe Global Marketing Customer Development & Consumer Marketing Other positions held Chairman of the Board of FNLI (Federatie Nederlandse Levensmiddelenindustrie â&#x20AC;&#x201C; Dutch Food Industry Federation) President of the Supervisory Board of Kunststof Hergebruik B.V. Member of the Board of VNO-NCW (Confederation of Dutch Industry and Employers)
Kapil (K.) Garg (1964) Position Chief Operating Officer Appointed 1 August 2010 Nationality Indian Responsible for Business group Consumer Products International Piet (P.J.) Hilarides (1964) Position Chief Operating Officer Appointed 1 January 2009 Nationality Dutch Responsible for Business group Cheese, Butter & Milkpowder Milk Valorisation & Allocation
Mr. Roelof Joosten was appointed a member of the Executive Board of Royal FrieslandCampina N.V. and responsible for the Ingredients business group as of 1 January 2012. As Executive Director he had been responsible for the activities of this business group since January 2011. Roelof Joosten joined FrieslandCampina in 2004.
Overviews Corporate Staff
Corporate Staff Corporate Staff T.J.C.M. Albers J. Bles W.S.J.M. Buck G. Hagedoorn J.C. Hordijk J. van Hout J.H.A. Keerberg H. van der Kooij E.M. Meijer G. Otter J.A.T.M. van de Rakt F.A.M. Reefman A.K. Schaap K.A. Springer M.C. van Veen J.C. de Vries C.J. van Wees F.A.C. van Ooijen P. Zink Secher
Corporate Director Strategy Corporate Director Centre for Dairy Nutrition & Health Corporate Director Public & Quality Affairs Corporate Director Internal Audit Corporate Director Customer & Trade Marketing Corporate Director Tax Corporate Director Procurement Corporate Director General Counsel & Company Secretary Corporate Director Research & Development Corporate Director ICT Corporate Director Supply Chain Corporate Director Global Marketing Corporate Director Co-operative Affairs Corporate Director Treasury Corporate Director Finance & Reporting Corporate Director Human Resources Corporate Director Milk Valorisation & Allocation Corporate Director Communication & Sustainability Affairs Corporate Director Mergers & Acquisitions
Category and Innovation directors M. Erdl Director Innovation Dairy Based Beverages M.J. Jonkman Director Innovation Infant & Toddler Nutrition B.H.M. Kodden Director Global Category Team Infant & Toddler Nutrition F.A.M. Reefman Director Global Category Team Dairy Based Beverages M.R. Wijsman Director Innovation Branded Cheese P.A. Zinkweg Director Global Category Team Branded Cheese
147
148
Other Information Business management and adresses
FrieslandCampina Consumer Products Europe FrieslandCampina Consumer Products Europe Stationsplein 4 Chief Operating Officer: 3818 LE Amersfoort F. Rijna The Netherlands T +31 33 713 3333
FrieslandCampina Russia 42, Ul. Mosfilmovskaya 119285 Moscow Russia T +74 959 333 646
FrieslandCampina Benelux Stationsplein 4 3818 LE Amersfoort The Netherlands T +31 33 713 3333
FrieslandCampina Professional Grote Baan 34 3560 Lummen Belgium T +32 13 310 310
FrieslandCampina Dagvers Industrieweg 130-134 3044 AT Rotterdam The Netherlands T +31 10 488 7000 FrieslandCampina Germany Wimpfener Strasse 125 74078 Heilbronn Germany T +49 71 314 890 FrieslandCampina Hellas 18, Nik. Zekakou & K. Karamanli str. 15125 Marousi, Athens Greece T +30 210 61 66 400 FrieslandCampina Hungary 1134 Budapest VĂĄci Ăşt 33 1394 Budapest Pf. 363 Hungary T +36 1 802 7700 FrieslandCampina Romania Calea Baciului 2-4 400230 Cluj Napoca Romania T +40 264 50 2000
Managing Director: P.L.S. Reekmans
Managing Director: E.H. Schut
Managing Director: M. Feller
Managing Director: G.J. Sklikas
Managing Director: K.G. Maggioros
Managing Director: K.G. Maggioros
FrieslandCampina UK Denne House Denne Road West Sussex RH12 1JF England T +44 1403 273 273
Managing Director: J.J.F. van Douveren
Managing Director: M.G. Bertacca
Managing Director: a.i. T. Barney
Other Information Business management and adresses
FrieslandCampina Consumer Products International FrieslandCampina Consumer Products International FrieslandCampina AMEA Pte Ltd Chief Operating Officer: 11th floor Centennial Tower K. Garg 3 Temasek Avenue Singapore 039190 T +65 6597 0949 FrieslandCampina Export P. Stuyvesantweg 1 8937 AC Leeuwarden The Netherlands T +31 58 299 91 11 FrieslandCampina Indonesia Jalan Raya Bogor Km 5 Jakarta 13760 Indonesia T +62 21 841 0 945 FrieslandCampina Malaysia 13, Jalan Semangat 46200 Petaling Jaya Malaysia T +603 7956 7477 FrieslandCampina Singapore 47, Scotts Road Goldbell Towers 228233 Singapore T +65 6419 8450 FrieslandCampina China 901 Shanghai Times Square Office Tower No 93 Huai Hai Zhong Road Shanghai 200021 China T +8621 639 10066 FrieslandCampina Hong Kong Room 1702-05 Shun Tak Centre West Tower 200 Connaught Road Central Hong Kong T +852 2547 6226
General Manager: C.H.M. Ruygrok
Managing Director: M.L. Spits
Managing Director: S.G. van den Berg
General Manager: B.L. Koh
Managing Director: C. L. Saw
General Manager: A. van den Berg
FrieslandCampina Middle East Palladium Tower, 8th Floor Jumeirah Lake Towers King Adbullah Street Dubai United Arab Emirates T +971 4 4551800 FrieslandCampina Thailand 6th floor, S.P. Building 388 Paholyothin Road Samsen Nai, Phayathai Bangkok 10400 Thailand T +66 26201900 FrieslandCampina Vietnam Binh Hoa Commune Thuan An District Binh Duong Province Vietnam T +84 65 03754 422 FrieslandCampina WAMCO Nigeria Plot 7B Acme Road Ogba Ikeja Industrial Estate Lagos State Nigeria T +234 1 271 51 00 FrieslandCampina West Africa Patrice Lumumba No. 11 Airport Residential Area Accra Ghana T +233 2176 0433
Managing Director: E.M. Klavert
Managing Director: C. Archjananun
Managing Director: P.M. Boot
Managing Director: R.J. Steetskamp
General Manager: P.A.H. Verhaak
149
Every day Royal FrieslandCampina provides hundreds of millions of people around the world with healthy food that is rich in valuable nutrients. FrieslandCampina’s wide product range includes dairy-based beverages, infant & toddler nutrition, cheese, butter, cream, desserts and nutritious dairy-based ingredients. FrieslandCampina is active around the world and focuses not only on consumer markets but also supplies professional customers, the food industry and the pharmaceutical sector. With an annual revenue of 9.6 billion euro FrieslandCampina is one of the world’s largest dairy companies. In the field of consumer products the Company is active in many European countries, in Asia and in Africa. Sales to industrial customers take place worldwide. FrieslandCampina’s own offices and facilities in 25 countries employ a total of 19,000 people. FrieslandCampina’s products find their way to more than 100 countries. Royal FrieslandCampina N.V. is owned by Zuivelcoöperatie FrieslandCampina U.A., which has 14,400 member dairy farms in the Netherlands, Germany and Belgium.
Royal FrieslandCampina N.V. Stationsplein 4 3818 LE Amersfoort The Netherlands T +31 33 713 3333 www.frieslandcampina.com