Annual Report 2013 N.V. Royal FrieslandCampina Annual Report 2013 | Royal FrieslandCampina N.V. Explanatory note In this Annual Report we are presenting the financial results and key developments of Royal FrieslandCampina N.V. (hereafter FrieslandCampina) during 2013. The financial statements have been prepared as at 31 December 2013. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards, to the extent they have been endorsed by the European Union, and with Title 9 Book 2 of the Civil Code valid in the Netherlands. Since 1 January 2013 FrieslandCampina has applied the amended IFRS regarding employee remuneration. The comparable figures for 2012 have been adjusted to take account of the new regulations. The milk price for 2013 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. This Annual Report is available in Dutch, English and German language versions. In the case of conflict between the versions the Dutch text is binding. The Annual Report of Royal FrieslandCampina N.V. has also been published on the website http://annualreport.frieslandcampina.com. The iPad app FrieslandCampina Annual Report 2013 can be downloaded and the Annual Report is available on request from the Corporate Communication department of FrieslandCampina: [email protected]. The terms used in this Annual Report include: 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 4 Foreword from the CEO 73 Financial statements 2013 6 Royal FrieslandCampina at a glance 76 Consolidated financial statements 8 Major developments in 2013 76 Consolidated income statement 10 Key figures 77 Consolidated statement of comprehensive income 12 Worldwide 78 Consolidated statement of financial position 14 FrieslandCampina brands 79 Consolidated statement of cash flows 16 route2020 strategy: 80 Consolidated statement of changes in equity sustainable growth and value creation 82 Notes to the consolidated financial statements 18 Global challenges 134 Principle subsidiaries, joint ventures and associates 22 Report of the Executive Board 136 Company financial statements 22 A good year with a historically high milk price 136 Company statement of financial position 36 Consumer Products Europe, Middle East & Africa 136 Company income statement 38 Consumer Products Asia 137 Notes to the Company financial statements 40 Cheese, Butter & Milkpowder 140 Other information 42 Ingredients 140 Provisions of the Articles of Association governing 52 Outlook profit appropriation 53 Responsibility statement 140 Proposed appropriation of profit attributable to the shareholder of the company 56 Corporate governance 140 Subsequent events 56 Corporate governance 141 Independent auditor’s report 62 Risk management 66 Report of the Supervisory Board 144 Overviews 144 Financial history 145 Milk price overview 146 Supervisory Board 148 Executive Board 149 Corporate staff 150 Business groups and addresses 4 Foreword from the CEO Dear reader, In many respects 2013 was a good year for FrieslandCampina. Once again FrieslandCampina took steps towards achieving its ambition of creating the most successful, professional and attractive dairy company. The guaranteed price for milk was at a previously unknown high throughout the entire year. On top of that, FrieslandCampina was able to improve its results in the market still further. Together these led to the highest milk price ever paid out by FrieslandCampina. FrieslandCampina achieved growth, primarily in Asia. In Indonesia and Vietnam FrieslandCampina once again improved its market positions after several difficult years. Developments in Europe were less favourable due to the persisting economic crisis and have resulted in expectations regarding results for the region being adjusted downwards. This has led to a goodwill impairment of 200 million euro. Ahead of schedule Half way through the planned route2020 strategy execution period, FrieslandCampina is ahead of schedule. Growth and value creation are being achieved faster than anticipated. In 2013 FrieslandCampina performed especially well in infant nutrition and ingredients for the food industry. By contrast, volumes and market shares in Europe were under pressure and currency translation differences had a negative effect on the results in euro. Exceptional opening of the Innovation Centre The opening, in October 2013, of the new and inspiring FrieslandCampina Innovation Centre in Wageningen by Queen Máxima marked the step forward FrieslandCampina has taken in its innovation policy for the coming years, of which the new Development Centre in Singapore is also a component. During the coming years innovations in the fields of infant nutrition, dairy-based beverages, technologies and improved recipes will be achieved. Foreword from the CEO 5 Contributing towards global food supplies Feeding the world’s growing population is an enormous challenge. FrieslandCampina can contribute towards this with its range of products, through the development of dairy farming in a number of countries and by making the production chain more sustainable. At the end of 2013 the Dutch Prime Minister was present during two very important moments for FrieslandCampina in China and Indonesia. The first was the signing of an agreement between China Agricultural University, Wageningen University & Research Centre and FrieslandCampina for the establishment of the Sino-Dutch Dairy Development Centre – a new research and knowledge centre in China that will focus on improving the production, quality and safety of Chinese dairy products. Then, in Indonesia, the Prime Minister and his delegation experienced the role FrieslandCampina is playing in the further development of local dairy farming and how important the Frisian Flag brand is in Indonesia. The strength of the chain Dealing with the challenges facing FrieslandCampina and the dairy branch will require the efforts of the entire chain. The Company, the Cooperative and its member dairy farmers in the Netherlands, Germany and Belgium form a chain. That gives strength and offers prospects. The dairy sector is well prepared. The opportunities for growth are there. Together we are strong, but no chain is stronger than its weakest link. Not all dairy farmers are sufficiently aware that when it comes to the way they operate they must take the wishes of society, customers and consumers more into account. Innovating with everyone involved in the dairy farming sector is vital if the boundary conditions specified for the sector to justify the growth are to be met. CO2 reduction and a more efficient utilisation of minerals are essential. As is ensuring cows are still part of the landscape which, both in the Netherlands and abroad, is an important ‘hallmark’ of the Dutch dairy sector. Investing in quality and sustainability FrieslandCampina has now existed for five years. During this time the Company has grown in every respect, even in a period during which the economy in many European countries has stagnated. Over the past five years FrieslandCampina has invested 1.8 billion euro, primarily in expansion and renovation of production capacity in order to be able to meet the growing demand for speciality products and to be able to respond to the ending of the milk quota in 2015. Investments amounting to 650 million euro are budgeted for 2014. The dairy sector is making a positive contribution towards the Dutch economy. Dairy product exports are continuing to increase. Our cheese, infant nutrition, condensed milk and numerous dairy-based nutrition ingredients are finding their way to many countries around the world. We are also gaining more and more knowledge and sharing more of our knowledge as we learn to work together more effectively and continue to invest in quality and sustainability within the dairy chain. Looking ahead The economic forecasts for Europe are still not promising. The rapid growth in emerging countries is slowing down. But, to offset this, at the moment the global demand for dairy products is greater than the supply. Markets will remain volatile. FrieslandCampina will, therefore, continue focusing on costs by reducing complexity, speeding up decision- making processes and making more use of its scale. Our ambitions are guiding our course. Cees ’t Hart CEO Royal FrieslandCampina N.V. Amersfoort (Netherlands), 28 February 2014 6 Royal FrieslandCampina at a glance 11.4 billion euro revenue 21,186 employees Facilities/Offices in 28 countries Export to over 100 countries NL BE DE 19,244 member dairy farmers own the Company Millions of consumers every day Royal FrieslandCampina at a glance 7 Revenue in millions of euros Revenue increase 2013 11,418 2012 10,309 10.8% 2011 9,626 2010 8,972 Operating