Friesland Foods delivered a good performance in 2007. Profit for the year rose by 35 percent, landing at 172 million euros (2006: 128 million). Revenue was up 400 million euros on 2006, rising to 5.1 billion euros (8.5 percent). Revenue growth was posted in all business groups and regions thanks mainly to higher selling prices.

In Asia and Africa, volumes increased as well (by 9 percent), although margins did come under pressure here in the last quarter of the year because increases in the cost of raw materials were not fully covered by higher selling prices. The increase in profit was attributable to the Classic Dairy and Industrial business groups.

Foreword:
Esteemed members,
The year 2007 was an exceptional and turbulent year. Increasing demand for dairy products in growth economies in particular and slightly lagging supplies of milk in a number of regions in the world led to a special dynamic in the dairy market. For the first time there was a shortage of milk. Thanks, in part, to the commitment of our employees, Friesland Foods managed to respond adequately to the changing market environment.

This has resulted in marked growth in revenue and a good profi t. And that is precisely what we intend to achieve with Vision 2015, our long-term strategic plan: a healthy and growing enterprise offering its member dairy farmers and employees sustainable perspectives for the future.

Increases in revenue and profit Revenue rose by 8.5 percent, landing at 5.1 billion euros. Profit for the year was up 35 percent to 172 million euros. This increase in profit was attributable, in part, to non-recurring income items, as well as to a higher operating profit. After world market prices for milk powder and butter had soared, the company came in a position, in the course of the second half of the year, to gradually raise its selling prices of fresh and long-life dairy products and cheese in Western Europe where contracts so allowed.

In Asia and Africa, in particular, but also in a number of industrial and professional product segments, the company was yet unable to fully recharge increases in the milk prices and in the cost of raw materials to the customer, which resulted in pressure on margins in the fourth quarter of 2007. Overall, Friesland Foods again managed to improve its net profi t margin from 5.5 percent in 2006 to 5.9 percent in 2007.

Vision 2015
Friesland Foods fleshed out its long-term strategic vision in 2007 in Vision 2015, a plan focusing on sustainable value creation for its member dairy farmers. This plan centres around growth. Friesland Foods is well-placed to achieve further growth and profi t improvements in the medium and long term thanks to the broad spread of operations across various product categories and countries, and to solid market positions in Asian, Middle Eastern and African countries where the economy and population, as well as consumption levels, are recording robust growth. In the medium and long term, Friesland Foods expects the volume of member milk to increase by approximately 20 to 30 percent.

Friesland Foods guarantees the purchase and sale of member milk. This milk will be used, among other purposes, to meet the growing demand for milk by Friesland Foods’ foreign production sites. The Medium Term Strategy Plan 2008-2010 was defined in 2007 based on the policy principles of Vision 2015.

We may be able to accelerate even faster towards the targets defined in Vision 2015. Within the scope, Friesland Foods and Campina are involved in exploratory talks about a merger. The fi rst informal talks between the Chairmen of the Boards of the Cooperatives and the Presidents of the Boards of Management were held in September 2007. When they discovered that they held similar views, a letter of intent was signed in December 2007 and the announcement was made that exploratory talks were taking place.

Friesland Foods and Campina expect their merger to strengthen their international position and facilitate further growth. It is in the best interest of our member dairy farmers, employees, customers and consumers that the enterprise bolsters its operations and continues to grow. A draft merger agreement is expected to be discussed with the members and the Works Council in April 2008, following which a decision will be taken in May. After the competition authorities have given their approval, the merger process will then be fi nalised by the end of 2008.

Structure
Current and expected developments in the dairy market have made us realise that the existing structure and milk pricing system at Friesland Foods may result in an unwelcome imbalance in milk pricing as well as in income allocation to milk and capital. In collaboration with the Regional Councils, the Board of the cooperative and the Board of Management have developed a proposal for the revision of the milk pricing system, the share structure and the dividend policy. This proposal will be discussed with the members of the cooperative in April 2008.

Challenge
For me personally 2007 was also an exceptional and turbulent year. After the unexpected withdrawal by our President, Luc Dahlhaus, I was given the privilege to lead this great company together with my colleagues, which was truly an experience in these exciting times. It was a challenge that went beyond merely achieving operational targets. Milk is one of the most important sources of nutrition in the world.

We do not always realise this in the Netherlands; after all, we all grew up on milk. My longstanding experience in different countries in the world has demonstrated to me how special and important milk is for the development and growth of children and adults alike. This is where our challenge lies in the future: offering our dairy products to one billion people in the world, whether they are poor or well-off. Our business allows us to do just that: we have the milk, the potential consumers, the knowledge, the people and the brands to build a strong bridge between ‘West and East’, a bridge that is the pillar supporting the success of our business.

Succession
Cees ’t Hart has now been appointed to take up the position of President of the Board of Management with effect from 1 May 2008. We wish him every success in further expanding our company and achieving our mission: creation of both long-term and short-term value for our owners, the member dairy farmers, by undertaking profi table international dairy and dairy-related operations.

Theo Spierings
Acting President of the Board of Management
Meppel, the Netherlands, 28 February 2008

Download Friesland Foods, Annual Report 2007

PDF format, 4.5MB, 110Pages.

Milk is power. Milk is life. Milk is health and pleasure all rolled into one. Milk has everything that people need to make a start in life, to grow, but also to enjoy life: energy, nutrients and vitamins. Friesland Foods offers these essential building blocks for the body in its dairy products, ingredients and fruit-based drinks. These products combine fl avour, fi tness and convenience, and contribute to a healthy and active life, each and every day. Hundreds of millions of people all over the world consume Friesland Foods products every day, at breakfast, in their coffee or tea, during lunch and dinner, or as a snack.

The dairy world is set to change drastically in the period up to 2015. Friesland Foods aims to offer its member dairy farmers (who own the company) and employees sustainable perspectives for the future.

For this reason, this Annual Report looks forward as well as back. There are many changes waiting to happen. Our long-term strategy as advocated in Vision 2015 will be the theme of this Annual Report as we intend to rely on it as our guideline in weathering the upcoming changes.

Visit Friesland Foods Website

Friesland Foods has a tradition of more than 125 years, in which the company has developed into a leading producer and supplier of dairy products, fruit-based drinks and ingredients. The company boasts strong market and brand positions in Western and Central Europe, Southeast Asia, West Africa and the Middle East. On a global scale, Friesland Foods has 14,600 employees. Revenue was 5.1 billion euros in 2007.

Friesland Foods sells a rich, varied offering of nutritious, tasty and healthy food products under well-known, reliable brands. Taste, health, convenience, reliability and vitality for consumers are key characteristics. In the professional market, Friesland Foods is a key supplier of dairy products to bakeries, restaurants and bars, and fastfood chains. In addition, Friesland Foods is a co-innovator and supplier of high-grade ingredients to producers of food products and pharmaceuticals.

Friesland Foods has cooperative roots: dairy farmers own the company and are its suppliers of milk. This guarantees commitment and quality in the production chain.

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