milk
FrieslandCampina gets benefit of doubt from S&P
Credit rating agency Standard & Poors (S&P) gives the new strategy of FrieslandCampina the benefit of the doubt and maintains the credit status stable. This year, the dairy giant will still be affected by restructuring issues, but for the following years, revenue and profit growth are expected.
Earlier this year, credit rating agency Fitch published a report on FrieslandCampina, also keeping the credit status stable.
Meanwhile, the American credit rating agency is not renewing the existing credit rating (BBB/Stable/A-2) without a struggle. It notes that the results for 2023 turned out worse than expected, both in terms of return development and performance in various markets with highly fluctuating exchange rates and restructuring costs. In addition to these costs and the expenses of a bought-out long-term contract, S&P is also facing €136 million in employee severance costs.
Milk Supply
There is also the threat of stricter environmental requirements for the member companies of FrieslandCampina, which could jeopardize the supply base.
However, there are also some positives. Last year, free cash flow was €105 million higher than initially expected, totaling €306 million. Furthermore, the new business strategy of the company is reassuring.
For 2024, S&P believes that not many results will be visible, but definitely in the following two years. The best results are expected to be achieved by FrieslandCampina in the Specialised Nutrition and Ingredients divisions. The first business segment - especially in infant nutrition - is achieving excellent results thanks to strong sales of Friso premium products in China and a limited number of other markets.
Cheese and Whey
S&P also positively receives FrieslandCampina's plan to position itself higher in the private-label market, especially for cheese. Another positive point is the investments in high-quality whey ingredients in Borculo.
For 2024, S&P foresees a revenue of almost €12.9 billion, slightly lower than the revenue for 2023. For the following three years, a limited revenue growth of 2.6% per year is expected, reaching nearly €14 billion by the end of 2027.
Better Margin, Higher Debt
While the operating margin is slowly increasing, an increasing debt burden is also anticipated. At the end of last year, it was the lowest in a long time at over €2.5 billion, but it is expected to rise again to nearly €3.7 billion by the end of 2027. This is slightly more than at the end of 2020, when the revenue was almost €3 billion lower.
