Frieslandcampina Annual Report 2016
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Annual Report 2016 Royal FrieslandCampina N.V. Contents 4 A word from the CEO 75 Financial statements 2016 6 Key figures 78 Consolidated financial statements 10 Key developments in 2016 78 Consolidated income statement 13 About Royal FrieslandCampina 79 Consolidated statement of comprehensive 13 route2020 strategy: sustainable growth income and value creation 80 Consolidated statement of financial position 17 Markets 81 Consolidated statement of cash flows 18 Brands 82 Consolidated statement of changes in equity 84 Notes to the consolidated financial statements 21 Report of the Executive Board 140 Principal subsidiaries, joint ventures and 21 Developments and results associates 33 Innovation 142 Company financial statements 35 Quality 142 Company statement of financial position 36 European Union conditions related to 142 Company income statement the merger at the end of 2008 143 Notes to the company financial statements 38 Business groups 148 Other information 48 Corporate social responsibility 148 Provisions of the Articles of Association 54 FrieslandCampina and its employees governing profit appropriation 56 Safety 149 Independent auditor’s report 57 Risk management 59 Outlook 158 Overviews 60 Management statement 158 Financial history 60 Executive responsibility 159 Milk price overview 160 Risk management framework 62 Report of the Supervisory Board 163 Supervisory Board 168 Executive Board 68 Corporate governance 170 Corporate staff 171 Business groups and addresses 32 Explanatory note The terms used in this Annual Report include: The financial results and the key developments of Royal FrieslandCampina N.V. (the ‘Company’ or ‘Business’ or Royal FrieslandCampina N.V. (hereinafter referred to as ‘FrieslandCampina’) FrieslandCampina) for the year 2016 are presented in this Zuivelcoöperatie FrieslandCampina U.A. (the ‘Cooperative’) Annual Report. Supervisory Board of the Company (the ‘Supervisory Board’) Executive Board of the Company (the ‘Executive Board’) The financial statements have been drawn up as at 31 December 2016. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted in the European Union and, insofar as this is applicable, in accordance with Part 9 Book 2 of the Dutch Civil Code. The 2016 milk price that the members of Zuivelcoöperatie FrieslandCampina U.A. receive for the milk they supply is determined on the basis of the FrieslandCampina 2014-2016 milk pricing methodology. All amounts in this Annual Report are in euros, unless specified otherwise. This Annual Report contains statements about future expectations. These statements are based on current expectations, estimates and projections of the management of FrieslandCampina and information that is currently available. The expectations are uncertain and contain elements of risk that are difficult to quantify. FrieslandCampina therefore does not provide any certainty that the expectations will be realised. This annual report is available in Dutch, English and German language versions. In case of discrepancies between these versions, the Dutch text prevails. The Annual Report of Royal FrieslandCampina N.V. is also available on the website www.frieslandcampina.com. A copy of the Annual Report may be requested from the Corporate Communication department of FrieslandCampina: [email protected]. Contents Per hour, FrieslandCampina processes 1.2 million kilos of milk produced at member dairy farms. 24 hours per day, 7 days per week. This creates a tremendous dynamic. The milk is used to manufacture valuable foodstuffs and ingredients that respond to the needs of customers and consumers throughout the world. That’s captivating. Better nutrition and a good living for our farmers, now and for generations to come. That’s the challenge. 23 Contents A word from the CEO Dear Reader, Viewed from a geopolitical perspective, 2016 was a turbulent year for the world, as well as for the European dairy sector and for FrieslandCampina. Political and economic instability has increased in North Africa and in the Middle East, in part due to the low oil prices. Attacks in various countries have created major unrest and uncertainty. Protectionism is increasing; many countries are trying to protect their own industry against international competition. The undermining of free trade is an undesirable development for FrieslandCampina as a multinational and an exporter. Rising profits 2016 also was a year with two faces. In the first half of the year, the supply of milk in the European Union (particularly in the Netherlands and Ireland) was of such magnitude that basic products generally could only be sold below Due to the growth of the Dutch dairy farming sector in 2015 cost price. Starting in May, the dairy sector recovered and 2016, the phosphate ceiling was exceeded and is in somewhat due to declining milk production in a number of danger of being exceeded again in 2017. At the end of 2016, European countries and the relatively low stocks held by a sector plan was agreed on that is meant to significantly buyers. FrieslandCampina anticipated this development by reduce phosphate production in 2017. This sector plan is introducing timely price increases in the cheese and butter painful for dairy farmers, because dairy cattle will have segment. The growth in volume of added-value products to be removed, which will have a negative impact on the and considerable cost savings significantly contributed to magnitude of milk production on the farm. However, over the 5.5 percent increase in profit. the longer term it is necessary to continue to comply with the European environmental requirements and to develop a Growth in milk volume more sustainable dairy farming sector. In spite of the increase in profit, the milk price for FrieslandCampina’s member dairy farmers declined by Nourishing by nature 6.9 percent to 32.26 euros per 100 kilos of milk due to the 2016 also was the year in which the updated strong increase in milk production and the low guaranteed FrieslandCampina route2020 strategy was launched with price. Particularly during the initial months of 2016, milk nourishing by nature as its guideline: better nutrition for production increased rapidly. A high proportion of the the world’s consumers, a good living for our farmers, now increased milk volumes was processed into basic products. and for generations to come. Nourishing by nature provided Due to the full utilisation of production capacity, milk was clear direction in its first year and is highly consistent with also temporarily sold below the guaranteed price on the the Sustainable Development Goals of the United Nations. spot market. The low guaranteed price and the persistent lack of clarity concerning the effective date of the phosphate legislation in the Netherlands, and the associated determination of a reference point, were a reason for many member dairy farmers to continue to produce milk in abundance. 4 Contents A word from the CEO All FrieslandCampina consumer products have been 2017 priorities assessed on the basis of the refined FrieslandCampina Even better exploiting and providing insight into the Global Nutritional Standards. Good steps have been taken nutritional value of our dairy products form the basis for and even more products have been selected for which the the successful valorisation of the milk of our member dairy sugar, salt and calorific contents will be reduced over the farmers. In 2017, the timely anticipation of rapid changes in coming years. Newly developed consumer products must the market and society is key. In this respect we will have to meet the nutritional criteria. This enables FrieslandCampina make clear choices in order to achieve acceleration in the to offer better products. priority product-market combinations in which we can best valorise the milk. Further improvement in the gross profit Other important choices concern measures designed to and the cash flow is the basic underlying principle in this stay competitive and as such contribute to the income of respect. member dairy farmers. Programmes are underway in many business units with the objective of further increasing Thanks efficiency and reducing costs. I would like to thank our employees on behalf of the entire Executive Board. Due to their high level of commitment Successes and disappointments and effort, FrieslandCampina has succeeded in effectively A lot has happened in 2016. With the acquisition of a anticipating the market’s and society’s dynamic. The quality 51 percent interest in Engro Foods in Pakistan at the end of each link in the chain, from dairy farmer to consumer, is of December, FrieslandCampina is entering a large dairy a determining factor for the success of the entire chain. The market in Central Asia. Additional investments were made in control FrieslandCampina has over this entire chain – from safety, quality, capacity and sustainability. We experienced grass to glass – gives it a strong starting point. growth in Southeast Asia and China due to our focus on the key product market combinations. In spite of difficult Roelof Joosten market conditions, we succeeded in further expanding our Chief Executive Officer position in the Middle East. Innovation has contributed Royal FrieslandCampina N.V. to renewal in the prioritised markets, improvements in production methods and more sustainable production. Amersfoort (Netherlands), 24 February 2017 Some things did not go as well in 2016. The results in Germany