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Royal Friesland Foods Net Profit Increases Despite Difficult Market Conditions

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MEPPEL, The Netherlands, September 9 /PRNewswire/ --

First half 2004

- Net profit climbs 9% to 35 million euros

- Net turnover down 4% to 2.2 billion euros

- Key drive brand turnover growth under pressure due to currency movements and mounting competition

- Operating profit up thanks to lower net expenses

The net profit of Koninklijke Friesland Foods N.V. (Royal Friesland Foods) for the first half of 2004 increased by 9% to 35 million euros compared with the same period of 2003. Net turnover for the same period fell by 4% to 2,209 million euros.

The fall in net turnover by 4% is due to adverse foreign exchange effects, lower selling prices and lower sales volumes. Sales by volume fell by 1% due to sluggish market growth and fierce competition in Europe. The turnover of key drive brands also fell by 1%. Adjusted for currency movements, turnover of the key drive brands grew by 3%. As a percentage of total turnover, turnover of the key drive brands rose from 44% to 45%, the frontrunners for turnover growth compared with the first half of 2003 being the brands Peak, Pöttyös Túró Rudi, Frico and Dutch Lady.

Operating profit before amortisation of goodwill rose by 10% to 106 million euros, the result of lower net expenses, particularly in the form of reorganisation costs and pension contributions. No benefit could be enjoyed from the lower purchasing prices for raw materials in Europe due to the fall in selling prices and the reduction in subsidies from the European Union. A provision of 5 million euros has been formed for reorganisations announced at Frico Cheese (packaging, maturation and logistics), Friesche Vlag (out-of-home activities) and Friesland Consumer Products (infant foods activities). An amount of 15 million euros has been added to the provision for the pension fund. The coverage of the pension fund, including the 4% provision in the balance sheet, was 115% at the end of June 2004. Operating profit before amortisation of goodwill as a percentage of turnover (ROS) rose from 4.2% to 4.8%. Tax charges were 27 million euros, 13 million euros above the same period of 2003, when this item was favourably affected by lower tax liabilities than anticipated. Minority interests of 11 million euros went down due to activities in Southeast Asia being less profitable.

Solvency (capital base as a percentage of total assets) improved from 33.7% at year-end 2003 to 34.3%. Since year-end 2003, seasonal effects have led to stocks growing by 4% and debtors by 5%. This is the main cause of net debt increasing since year-end 2003 by 3% to 686 million euros. Average working capital at 5% of net turnover was unchanged from the same period of 2003. Cash flow from operating activities amounted to 76 million euros, representing a decrease of 14 million euros compared with the same period of 2003.

Stagnating market growth

The growth of net turnover and key drive brands in Western Europe and Central Europe is under pressure. This is, on the one hand, the result of stagnating market growth and pressure on selling prices due to increasing competition between various supermarket chains, and on the other, the effect of consumer purchasing preferences moving from branded products to retailers' own brands and cheaper supermarkets. Turnover and margin growth of out-of-home products remain under pressure due to low consumer spending in this segment. The result in Greece improved once again. The activities directed at food producers also showing good results in respect of added-value products. Operating profit for Europe increased by 66% thanks to lower net expenses.

Growth measured in local currencies was positive in Asia, with net turnover improving further particularly in Thailand and Vietnam. However, due to flattening of growth in Indonesia and unfavourable currency movements, net turnover for Asia was down by 3% and operating profit by 29%. Africa showed growth, particularly from Peak in Nigeria, which continues to improve in performance.

The subsidies from the European Union (refunds and internal markups) fell by over 20% in the first half of 2004 in anticipation of the lowering of intervention prices in July 2004. Nevertheless, the selling prices for generic milk powders were up slightly on the same period of 2003 due to strong demand and a lower supply of milk within the European Union. Butter prices were roughly the same as in the first half of 2003.

Prospects

We do not expect market conditions to change significantly in the second half of 2004. Cost control will remain an important issue for operations.

Royal Friesland Foods

On 7 June 2004, Her Majesty Queen Beatrix granted Friesland Coberco Dairy Foods Holding N.V. the right to use the 'Koninklijk' designation ('Royal' in English). On that date, the name of holding company became Koninklijke Friesland Foods N.V. The entire group will adopt a new house style, including logo, during 2005.

Royal Friesland Foods is a multinational company that profitably develops, produces and sells a wide range of branded dairy products and fruit-based drinks for the consumer market, professional users and food producers. In Western Europe, Central Europe, West Africa and Southeast Asia in particular, Royal Friesland Foods has a strong presence on the dairy market. Turnover amounts to 4.6 billion euros. Royal Friesland Foods employs 18,000 staff, of whom 12,500 work outside the Netherlands. The company's leading brands are Appelsientje, Bonnet, Chocomel/Cécémel, Completa, CoolBest, Debic, DubbelFrisss, Dutch Lady, Extran, Frico, Friso, Foremost, Friesche Vlag, Frisian Flag, Fristi, Milli, NoyNoy, Peak, Pöttyös Túró Rudi, Rainbow, and Taksi.

SOURCE Royal Friesland Foods



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