Annual Report 2007

Royal Friesland Foods N.V.

The power of milk Vision 2015

Annual Report 2007 Royal Friesland Foods N.V.

Royal Friesland Foods N.V.

Blankenstein 142
7943 PE Meppel
T +31 (0)522 27 62 76
F +31 (0)522 27 64 44
The Netherlands
mail@frieslandfoods.com
www.frieslandfoods.com
Annual Report 2007
Royal Friesland Foods N.V.

This is a translation of the authentic text published in Dutch.

Only the Dutch annual report will be submitted to the shareholder fot approval.

1
Contents

General
Profile Friesland Foods 4
Foreword 5
Friesland Foods at a glance 6
Headline figures 6
Graphics 6
Organisation 8
Structure 9
Mission, vision and strategy 16

Supervisory Board
Composition of the Supervisory Board 18
Supervisory Board report 19

Board of Management
Composition of the Board of Management 21
Board of Management review 28

Risk management 42

Corporate governance 46

Financial statements
Consolidated income statement 50
Consolidated balance sheet 51
Consolidated cash flow statement 52
Consolidated statement of changes in equity 53
Notes to the consolidated financial statements 55
Principal subsidiaries 80
Company balance sheet 81
Company income statement 81
Notes to the company financial statements 82

Other information
Auditor’s report 84
Provisions of the Articles of Association governing profit appropriation 85
Report on depositary receipts for Class B shares 86
Report of Stichting toezicht certificaten Friesland Foods 87
Five-year summary 88
World map of locations 92
Key drive brands 92
Product introductions in 2007 94
Senior management 101
Operating companies 102

2
Growth
Milk is power. Milk is life. Milk is health The dairy world is set to change drastically

and pleasure all rolled into one. Milk has in the period up to 2015. Friesland Foods

everything that people need to make a start aims to offer its member dairy farmers

in life, to grow, but also to enjoy life: energy, (who own the company) and employees

nutrients and vitamins. Friesland Foods sustainable perspectives for the future.

offers these essential building blocks for For this reason, this Annual Report looks

the body in its dairy products, ingredients forward as well as back. There are many

and fruit-based drinks. These products changes waiting to happen. Our long-term

combine flavour, fitness and convenience, strategy as advocated in Vision 2015 will

and contribute to a healthy and active life, be the theme of this Annual Report as

each and every day. Hundreds of millions of we intend to rely on it as our guideline in

people all over the world consume Friesland weathering the upcoming changes.

Foods products every day, at breakfast, in

their coffee or tea, during lunch and dinner,

or as a snack.

Royal Friesland Foods N.V. 3

 Profile
Friesland Foods

Friesland Foods has a tradition of more for consumers are key characteristics. In

than 125 years, in which the company has the professional market, Friesland Foods

developed into a leading producer and is a key supplier of dairy products to

supplier of dairy products, fruit-based drinks bakeries, restaurants and bars, and fast-

and ingredients. The company boasts strong food chains. In addition, Friesland Foods is

market and brand positions in Western and a co-innovator and supplier of high-grade

Central Europe, Southeast Asia, West Africa ingredients to producers of food products

and the Middle East. On a global scale, and pharmaceuticals.

Friesland Foods has 14,600 employees.

Revenue was 5.1 billion euros in 2007. Friesland Foods has cooperative roots:

dairy farmers own the company and are

Friesland Foods sells a rich, varied offering of its suppliers of milk. This guarantees

nutritious, tasty and healthy food products commitment and quality in the production

under well-known, reliable brands. Taste, chain.

health, convenience, reliability and vitality

4 Annual Report 2007


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 profit. 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 profit 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 profit improvements in the
medium and long term thanks to the broad
Foreword
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 first 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 finalised 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 long-
standing 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 profitable international dairy and
dairy-related operations.
Theo Spierings
Acting President of the Board of Management
Meppel, the Netherlands, 28 February 2008
Royal Friesland Foods N.V. 5
 Friesland Foods
at a glance
Headline figures

Good financial performance Results 2007 2006

In millions of euros
•Profit for the year up 35 percent, rising to 172 million euros thanks,
Revenue 5,075 4,675
in part, to non-recurring income items
Operating profit 299 257
•Milk price up by 20 percent, rising to 37.07 1 euros per
Profit for the year 2 172 128
100 kilograms of milk
Dividend 60 45
•Increase in profit for the year chiefly attributable to cheese, milk
powders and ingredients
•Margin developments in fresh dairy products in the Netherlands
and cream-based products disappointing
Balance sheet 2007 2006
•Volume growth of 9 percent in Asia and Africa, higher raw material
In millions of euros
costs could not be fully passed on
Total assets 2,990 2,651
Revenue on the rise Equity 1,157 1,050
Net debt 3 582 574
•Revenue up by 8.5 percent, rising to 5.1 billion euros
•Revenue increases in all regions and business groups
•Revenue quality continues to improve

Strong financial position Ratios 2007 2006

•Marginal drop in solvency ratio to 38.7 percent

Operating profit as a % of revenue 5.9 5.5
due to higher working capital
Profit for the year as a % of revenue 3.4 2.7
•Further improvements in financing ratios
Profit for the year as a % of average equity
attributable to equity holders of the parent 18.7 15.4
Equity as a % of total assets 38.7 39.6

1
Estimate of competitive milk price (inclusive VAT) used in 2007 financial statements.
2
In the financial statements profit for the year is defined as profit for the year attributable to equity holders of the parent.
3
Net debt represents non-current interest-bearing borrowings and current borrowings less cash and cash equivalents.
4
The 2003 figures have been adjusted broadly in line with IFRS.

Operating profit as a percentage

Revenue of revenue 4 Profit for1 the year 4
Nettowinst
In millions of euros In % In millions of euros
5,200 7 180 172
5,075
5.9 160
5,000 6
5.5
140
128
4,800 5 4.8
4,675 4.3 120
4.2
104
4,600 4,575 4 100 96 96
4,449
4,419
4,400 3 80

60
4,200 2
40
4,000 1
20

3,800 0 0
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

6 Annual Report 2007

 Friesland Foods
at a glance

Cash flows Cash flows 2007 2006

In millions of euros
•Cash flows from operating activities down despite higher profit
Net cash flows from operating activities 225 244
for the year due to higher working capital as a result
of increases in volume and value of inventories Investment in property, plant,
equipment and intangible assets 187 166
•Investing activities relate mainly to the construction of a
Depreciation and amortisation 124 126
second production site in Vietnam (Hanam), the installation
of a second spray-dryer in Salatiga (Indonesia) and the
expansion of the cheese-storage facility in Workum (the
Netherlands) Per share of EUR 46.00 2007 2006
In euros

Increase in dividend Earnings per share, basic 15.63 12.92

Dividend proposed per Class A share 2.62 2.39
• Total dividend distribution up 35 percent
Dividend proposed per Class B share 10.24 6.81
• Dividend on Class A shares 0.36 euros per
100 kilograms of milk
Highest price of depositary receipts for
• Dividend per depositary receipt for Class B share 10.24 euros
Class B shares 84.00 70.00
Drop in number of employees Lowest price of depositary receipts for
Class B shares 74.00 61.00
•Number of employees down by 730 (5 percent), due, in
Closing price of depositary receipts for
particular, to restructuring in Central Europe
Class B shares 84.00 70.00

Staff 2007 2006

Average number of FTEs
Employees 14,582 15,312

Dividend per Class A share and

Operating cash flows Earnings per share 4 Class B share
In millions of euros In euros In euros
350 18 12
308 15.63
16 10.24
300
281 10
14
252 12.92
250 244
225 12 8
10.63 10.74
10.21 6.81
200 10
6 5.32
150 8
4.32
6 4 3.48
100
2.57 2.39 2.62
4 2.16
2 1.74
50
2

0 0 0
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Share A Share B

Royal Friesland Foods N.V. 7

 Friesland Foods
at a glance

Organisation

Board of Management

Corporate Staff

Classic Dairy Industrial Consumer Products Europe Consumer Products

International

Friesland Foods Cheese
Friesland Foods Butter
Friesland Foods Fresh
Friesland Foods Domo
Friesland Foods Kievit
Friesland Foods Professional
Friesland Foods Western Europe Friesland Foods
Frisan Flag Indonesia
Friesland Foods Hellas
Friesland Foods
Friesland Foods Central Europe Dutch Lady Vietnam

Friesland Foods Romania Friesland Foods

Foremost Thailand

Friesland Foods Dutch Lady

Malaysia/Singapore/Hong Kong

Friesland Foods
WAMCO Nigeria

Friesland Foods Middle East

Friesland Foods
Consumer Products

Friesland Foods started to adjust its organisational

structure in 2007 in line with the long-term strategy
plan Vision 2015. The company has been divided
into four business groups: Classic Dairy, Industrial,
Consumer Products Europe and Consumer Products
International. Operating companies with similar
strategic targets and/or types of activities were
joined in these business groups.

8 Annual Report 2007


Structure
Member dairy farmers
Dividend
Zuivelcoöperatie Friesland Foods U.A.
on A shares
Friesland Foods B.V.
Royal Friesland Foods N.V. shares are held by
Zuivelcoöperatie Friesland Foods U.A. For a
portion of these shares, depositary receipts
for shares have been issued to member dairy
farmers, including those who have stopped
farming. Royal Friesland Foods N.V. is the sole
shareholder of Friesland Foods B.V. and Friesland
International B.V., among other subsidiaries. The
Dutch activities are concentrated in Friesland
Foods B.V. and the foreign activities in Friesland
International B.V.
Friesland Foods processes approximately
6.9 billion kilograms of milk annually. In the
Netherlands, Friesland Foods purchased
5.3 billion kilograms of milk from 9,417 dairy
farms owned by members of Zuivelcoöperatie
Friesland Foods U.A. in 2007. The milk has
to meet the criteria laid down in Qarant, the
Dividend
on A shares
Royal Friesland Foods N.V.
company’s own quality assurance system
for farm milk. This allows Friesland Foods
to assure compliance with customer and
consumer requirements of the quality of
the milk and the way it is produced on dairy
farms. Zuivelcoöperatie Friesland Foods U.A.
has members in the Netherlands only. The
milk supplied by these members is processed
at production locations in the Netherlands,
Belgium and Germany.
Friesland Foods pays the member dairy farmers
of the cooperative a competitive price for the
milk they supply. The members are paid a price
for the milk supplied based on developments in
the milk prices paid by four competitor Western
European dairy companies. The members of
the cooperative are also entitled to dividend.
If Zuivelcoöperatie Friesland Foods U.A. should
Friesland Foods
at a glance
(Former) Member dairy farmers
with depositary receipts
for B shares
Dividend
on depositary receipts
for B shares
Friesland International B.V.
decide to distribute dividend on Class A shares
rather than to retain earnings, the dividend
will be allocated to the members in proportion
to the value of the milk supplied in that year.
Members and former members who hold
depositary receipts for Class B shares will directly
receive a dividend in proportion to the share
capital invested by them.
Within the scope of Vision 2015, Friesland Foods
started to review its current structure in 2007
with a view to achieving more balanced member
participation in operating income. The review
also includes an assessment of the milk pricing
system, the share structure and dividend policy.
Any decisions on changes in the structure will
be taken in 2008. Because of these discussions,
the trade in depositary receipts for Class B shares
was (temporarily) suspended at the end of 2007.
Royal Friesland Foods N.V. 9
 The power of milk
Vision 2015
Accelerate growth

Vision 2015

10
 The power of milk

What do a baby in Vietnam, a grandmother in Nigeria,

a child in Germany and a farmer in the Netherlands
all have in common?
What do 6 billion people around the world all share?

11
 Vision 2015

They all started with milk. Milk was their first source of
energy, of vitamins, of essential building blocks that the
body needs. Both literally and figuratively, it gave them
something to grow on. That is the enormous power of milk.

12
 The power of milk

Milk is goodness.
Milk means power. Milk means nutrition.
Milk means life. Milk means health.
Milk means pleasure. Milk is a miracle.

13
 Vision 2015

The farmers’ cows stand as a symbol for the source of

pure goodness. They are our secret weapon. Every single
day, they deliver.

14
Healthy changes - Healthy chances

The power of milk

Leveraging a changing business environment to our

advantage. This encapsulates the long-term vision of
Friesland Foods as described here. Friesland Foods is
committed to turning the changes that we see into
sustainable advantages. It is with this ambition in mind
that we have developed Vision 2015.

15
 Friesland Foods
at a glance

Mission, vision and strategy

Mission
Creation of both long-term and short-term
value for our owners, the member dairy farmers,
by undertaking profitable international dairy
and dairy-related operations.
Development, production and sale of a wide
range of reliable, natural and nutritious dairy
products that contribute to a healthy and
active life.
Vision 2015
The dairy world is a dynamic one. To allow the
company to constantly cater to changes and
to continue to offer its member dairy farmers/
owners and staff perspectives for the future,
Friesland Foods defined a long-term strategy
plan by the name of Vision 2015 in 2006/2007.
This plan centres around growth.
The plan was motivated by the announced
reform of European dairy policy and the
implications of a potential WTO agreement.
The reform will have a profound impact on
the environment in which the group, the
cooperative, and the member dairy farmers of
Friesland Foods operate. The main effects for EU
Member States will be the abolition of export
support, less domestic support and import
protection, and the abolition of milk quota.
Friesland Foods expects worldwide demand for
dairy products to outpace supply. This trend
was already clearly visible in 2007. The broad
spread of operations across various product
categories and countries, as well as the solid
market positions in countries recording robust
economic growth in Asia, the Middle East and
Africa, ensure that Friesland Foods is well placed
to achieve further medium-term and long-term
growth and profit improvement.
The policy reform will have far-reaching
consequences for both Friesland Foods and
its member dairy farmers. The price threshold
for dairy products will be dropped due to the
reduction in government subsidies and the
liberalisation of the market. As a result, the
selling prices of dairy products will gravitate
towards the prices on the world market and
increasingly show fluctuations.
Depending on EU decision-making, milk quotas
for dairy farmers are almost certain to have
been abolished by 2015. In the period up to
2015, 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 the group’s foreign
production sites.
Targets
Vision 2015 aims to create sustainable value for
the member dairy farmers.
The targets defined in Vision 2015 are as follows:
•achieving an average increase in net sales by
6 to 7 percent per annum in the period from
2006 to 2015;
•doubling shareholder value;
•facilitating an increase in member milk by
20 to 30 percent;
•posting a profit for the year that is structurally
higher than 3 percent of revenue;
•offering dairy products to one billion
consumers in 2015.

Strategy

In order to achieve the targets, a strategy has

Ensuring Sustainable been developed that rests on the following three
Shareholder Value Growth pillars:

Extend and Defend
Core Business in Cheese,
Fresh and Long-Life
Achieve Cost-Leadership in
Cheese & Fresh Dairy
Build Business Create Viable I Extend and defend core business in cheese,
in Emerging Markets Long -Term fresh and long-life dairy products;
Ingredients Business
II Build business in emerging markets;
Accelerate Growth in Invest in Existing III Create viable long-term ingredients business.
Existing Emerging Markets Ingredients Business

I The first pillar is extending and defending

core activities relating to cheese, fresh and
Continue Value Enter into New Create and Build long-life dairy products. This is achieved, on
Added Strategy Emerging Markets New Ingredients
True Branded Europe Business
the one hand, by streamlining processes and
further cost-cutting, and by supporting the
strong brands in Europe. Investments will be
made in brand development and innovation.

16 Annual Report 2007


II The second pillar is building business in
emerging markets, in particular Asia, Africa,
the Middle East and Greece. This will mainly
be achieved by growth initiatives in the
countries in which Friesland Foods currently
already has market presence, but also by
launching activities in untapped countries.
Export activities from the Netherlands will be
further stepped up as well.
III The third pillar is the objective to create
viable long-term ingredients business
worldwide. Increasing consumption on a
global scale causes a growing lack of milk
ingredients in different parts of the world
(e.g. Asia and Africa). With its ingredients-
related activities, Friesland Foods builds a
bridge between milk supplies of her member
dairy farmers and growing demand for dairy
products in the rest of the world.
Medium Term Strategy Plan 2008-2010
The Medium Term Strategy Plan 2008-2010 was
defined in 2007 based on the policy principles
of Vision 2015. The Medium Term Strategy
Plan formulates targets and activities for each
business group. The activities undertaken by the
operating companies within a business group are
now more attuned to each other than ever. This
is designed to promote mutual collaboration
and accelerate the achievement of the strategic
targets of Friesland Foods.
The business group Classic Dairy collaborates
closely with clients to create added value, based
on cost leadership. Its activities involve cheese,
milk powder and fresh dairy products. This
business group comprises most of the milk-
processing activities in the Netherlands.
In the period leading up to 2010, the business
group Industrial will concentrate mainly on
creating value by processing more Dutch
member milk. Product innovation and
technological improvements are prerequisites
for achieving the growth targets. Focus will be
on the added value of products and worldwide
expansion of the ingredients-based activities.
With a view to achieving the ambitious growth
targets, Friesland Foods will gradually increase its
production capacity over the coming years, both
in the Netherlands and in growth markets.
The business group Consumer Products Europe
seeks to achieve profitable growth in branded
products such as Chocomel, Fristi, Friesche
Vlag (coffee enrichers), Appelsientje, CoolBest,
DubbelFrisss, Milli, Pöttyös and Completa. It
aims to accelerate revenue growth in Greece
with NoyNoy.
The business group Consumer Products
International focuses on boosting the production
of nutritious dairy-based products and their
sales to consumers of all ages and across socio-
economic groups. Revenue growth is essential.
Priority is given to further development of
positions in these international markets; we are
on our way to serving one billion consumers.
Temporary margin fluctuations as a result of
changes in prices of raw materials are accepted
in the process.
The organisational structure will also be further
geared to the policy principles and targets of
Vision 2015. At the end of 2007, the Dutch fresh
dairy activities were transferred to Friesland
Foods Fresh, a new operating company in the
Classic Dairy business group. The activities
of Friesland Foods Consumer Products will
be split on a step-by-step basis. In 2008, the
activities in the Middle East and Hong Kong
will be transferred to the Consumer Products
International business group. The Beilen-based
activities will become a division of Friesland
Foods Domo. These adjustments are expected
to have been effected by the end of 2008. A
Business Development Unit was established in
Friesland Foods
at a glance
Malaysia for the activities involving the branded
products. This Unit coordinates activities in
the areas of marketing, innovation and human
resources for the different operating companies
of the Consumer Products International and
Consumer Products Europe business groups.
In the course of 2008, a new innovation
infrastructure will be implemented for the
Consumer Products Europe and Consumer
Products International business groups.
This structure is designed to guarantee that
investments in innovations yield adequate
returns.
A corporate centre for head-office functions
will be established in the first half of 2008. This
corporate centre will comprise the Board of
Management and a number of corporate support
departments. In February 2008, a number of
support services for the Netherlands, Germany
and Belgium were transferred to a shared
services organisation.
Recruitment and selection, and staff
development will be areas for urgent attention
in the planning period; this will be necessary to
actually achieve the growth targets. This goes
for the corporate culture and the envisaged
corporate identity as well, both with respect
to the group as a whole and regarding the
individual divisions.
Advertising and promotional expenses will
keep pace with the revenue figure. Further
development of the key drive brands will
continue to take top priority for Friesland Foods.
Friesland Foods is very much focused on
managing overheads and working capital.
Structural reductions in overheads and working
capital are planned for 2008. This is to lead to
lower costs and a working capital position that
is in balance with revenue increases in 2009 and
following years.
Royal Friesland Foods N.V. 17

Sybren S.U. Attema (1960)
Chairman of the Board of Zuivelcoöperatie
Friesland Foods U.A. and, as such, Chairman of the
Supervisory Board of Royal Friesland Foods N.V.
Chairman of the Supervisory Board since
December 2003, member of the Supervisory
Board since 1997.
Eligible for reappointment in 2008.
Occupation: dairy farmer.
Other positions held: board member of the Dutch
Dairy Association (NZO), member of the dairy
farming committee of the Dutch Dairy Board
(Productschap Zuivel).
Piet Boer (1960)
Vice-Chairman of the Board of Zuivelcoöperatie
Friesland Foods U.A. Vice-Chairman of the
Supervisory Board since January 2004, member
of the Supervisory Board since 1999.
Scheduled to retire in 2009.
Occupation: dairy farmer.
Other positions held: member of the Supervisory
Board of Alfa Top-Holding B.V.
Rob ter Haar (1950)
Secretary of the Supervisory Board since January
2004, member of the Supervisory Board since
2001.
Eligible for reappointment in 2009.
Other positions held: Chairman of the Supervisory
Board of Parcom Ventures B.V., member of the
Supervisory Board of Unibail-Rodamco S.A.,
member of the Supervisory Board of Maxeda B.V.,
member of the Supervisory Board of B.V. Sperwer
Holding.
Jentje de Boer (1962)
Member of the Board of Zuivelcoöperatie
Friesland Foods U.A. Member of the Supervisory
Board since 2004.
Eligible for reappointment in 2008.
Occupation: dairy farmer.
18
Composition of the
Supervisory Board
Walter J.A. Gerritsen (1971)
Member of the Board of Zuivelcoöperatie
Friesland Foods U.A. Member of the Supervisory
Board since 2005.
Eligible for reappointment in 2009.
Occupation: dairy farmer.
Other positions held: Vice-Chairman of the Dutch
chapter of European Dairy Farmers, member of the
Board of Rabobank Didam.
Jorrit Jorritsma (1954)
Secretary of the Board of Zuivelcoöperatie
Friesland Foods U.A. Member of the Supervisory
Board since 1999.
Scheduled to retire in 2009.
Occupation: dairy farmer.
Other positions held: Chairman of the Supervisory
Board of Rabobank ‘De Stellingwerven’, Chairman
of Projectenfonds Noord Nederland.
Frans A.M. Keurentjes (1957)
Member of the Board of Zuivelcoöperatie
Friesland Foods U.A. Member of the Supervisory
Board since 2006.
Eligible for reappointment in 2010.
Occupation: dairy farmer.
Other positions held: member of the Supervisory
Board of Rabobank West-Groningen,
member of the Executive Committee of the
Noorderzijlvest District Water Board (Waterschap
Noorderzijlvest), member of the Northern
Agricultural Tenancies Authority (Grondkamer
Noord), Member of the Provincial Parliament of
the Province of Groningen.
Jan Peelen (1940)
Member of the Supervisory Board since 2000.
Eligible for reappointment in 2008.
Other positions held: member of the Supervisory
Board of Corporate Express N.V., member of the
Supervisory Board of Arcadis N.V., Chairman of the
Supervisory Board of VVAA Groep B.V., member
of the Supervisory Board of Albron B.V., member
of the Supervisory Committee of the Netherlands
Genomics Initiative (NROG).
Henk Scheffers (1948)
Member of the Supervisory Board since 2006.
Eligible for reappointment in 2010.
Other positions held: member of the Investment
Committee of NPM Capital N.V., member of
the Supervisory Board of Wolters Kluwer N.V.,
Chairman of the Audit Committee of Wolters
Kluwer N.V., member of the Supervisory Board
of Aalberts Industries N.V., Vice-Chairman of the
Supervisory Board of Flint Holding N.V.
Jan Cees P. Vogelaar (1962)
Member of the Board of Zuivelcoöperatie
Friesland Foods U.A. Member of the Supervisory
Board since 2002.
Eligible for reappointment in 2010.
Occupation: dairy farmer/arable farmer/wind
energy producer.
Other positions held: member of the board of
Innovatienetwerk Groene Ruimte en Agroclusters
of the Ministry of Agriculture, Nature and Food
Quality, member of the Advisory Council of the
Animal Sciences Group of Wageningen University
and Research Centre.
Executive Committee of
the Supervisory Board
Sybren Attema, Chairman
Piet Boer
Rob ter Haar
Audit Committee of
the Supervisory Board
Henk Scheffers, Chairman
Jentje de Boer
Rob ter Haar
Jan Cees Vogelaar
Annual Report 2007

Financial statements and
appropriation of profit
At the Supervisory Board meeting of 28 February
2008, the members of the Supervisory Board
and the Board of Management signed the 2007
financial statements drawn up by the Board of
Management. The financial statements were
audited by Deloitte Accountants B.V., who issued
an unqualified auditor’s report on them. The
Supervisory Board has approved the proposal by
the Board of Management to retain 112 million
euros of the profit for 2007 of 172 million euros,
to add this amount to the general reserve and
to declare a cash dividend of 60 million euros,
that is, 2.62 euros per Class A share of 46.00
euros nominal value each and 10.24 euros per
Class B share of 46.00 euros nominal value each.
The Annual General Meeting of Shareholders
adopted the 2007 financial statements on
28 February 2008 and, in accordance with
Article 21(2)(d) of the Articles of Association,
endorsed the Board of Management’s conduct
of affairs during the year under review and, in
accordance with Article 21(2)(e) of the Articles of
Association, endorsed the supervision exercised
by the Supervisory Board during the same year.
Supervisory
Board report
Resignations and reappointments
In accordance with the rotation schedule, Jakob
Draijer resigned from the Supervisory Board
of Royal Friesland Foods N.V. on 19 December
2007. The Board is highly appreciative of Jakob
Draijer’s contribution to the Supervisory Board,
of which he had been a member since 1998.
Piet Boer and Jorrit Jorritsma were due to retire
by rotation at the end of 2007; both were
eligible for reappointment. The Supervisory
Board decided to reappoint them for a new term
of office of two years. The new term of office
will end after two years because both are due to
retire at the end of 2009 and are not eligible for
reappointment to the Board of Zuivelcoöperatie
Friesland Foods U.A. The rotation schedule used
by the Supervisory Board is geared to that used
by the Board of the cooperative.
Topics discussed
The Board met six times during the year under
review. At the meetings, the following topics,
among other issues, were discussed: the vision
and strategy of Friesland Foods (Vision 2015)
and the related restructuring operations,
the exploratory merger talks with Campina,
the company’s annual report and financial
statements, as well as the audit of the financial
statements (including consultations with the
independent external auditor), the management
letter and its follow-up, financial developments,
the budget and the Medium Term Strategy
Plan 2008-2010, investments and disposals,
the revision of the pension plan structure, the
remuneration of the members of the Board of
Management, the division of duties within the
Board of Management and the reappointment of
two members of the Supervisory Board.
Without the Board of Management being
present, the Supervisory Board evaluated the
performance of the Board of Management
and its individual members. The Supervisory
Board also discussed its own performance
and that of its individual members. The Board
considered candidates for the succession of Luc
Dahlhaus, who retired as President of the Board
of Management of Royal Friesland Foods N.V.
due to health reasons on 1 May 2007. In January
2008, the Supervisory Board decided to appoint
Cees ’t Hart (49) President of the Board of
Management of Friesland Foods as from
1 May 2008. The Board also discussed filling
the vacancy that opened up when Robert van
Ballegooijen left the company. In addition, the
supervisory directors considered candidates for
the succession of Jakob Draijer. The Supervisory
Board took a financial training course early
in 2007. During the year under review, the
Supervisory Board paid visits to two operating
companies. A delegation from the Supervisory
Board attended several consultative meetings of
the Central Works Council.
The Supervisory Board’s Executive Committee,
which serves as a combined remuneration
committee and selection/appointment
committee, met on six occasions during the
year to prepare the decision-making process by
the Supervisory Board on the following topics:
the vision and strategy of Friesland Foods
(Vision 2015) and the related restructuring
operations, the exploratory merger talks with
Campina, the division of duties within the Board
of Management, candidates for the succession
of Luc Dahlhaus, filling the vacancy created
by the departure of Robert van Ballegooijen,
candidates for the succession of Jakob Draijer,
the reappointment of two members of the
Supervisory Board and the remuneration of
the members of the Board of Management. In
addition, the Executive Committee conducted
progress meetings with the individual members
of the Board of Management.
Royal Friesland Foods N.V. 19

Audit Committee
The Audit Committee met on five occasions
during the year to prepare the decision-making
process by the Supervisory Board on the
following topics: the company’s annual report
and financial statements, as well as the audit of
the financial statements (including consultations
with the independent external auditor), the
management letter and its follow-up, the
progress of the audit of the financial statements
and the customer satisfaction survey conducted
by the auditor. In addition, the Audit Committee
discussed an internal risk management and
control system, the status of the treasury policy,
the covenant with the Dutch tax authorities,
the revision of the pension plan structure and
compliance with regulations and codes of
conduct. There were no transactions in the year
under review involving material conflicts of
interest of Board of Management or Supervisory
Board members (as defined in the Supervisory
Board regulations). All external Supervisory
Board members are independent within the
meaning of the Dutch Corporate Governance
Code.
20
Supervisory Board report
Word of appreciation
The Supervisory Board would like to express its
huge appreciation for the Board of Management
of Friesland Foods. Under the leadership of
acting President Theo Spierings, the Board of
Management and senior management have
superbly steered the company through very
turbulent times by adjusting the corporate
strategy and organisation, based on our
long-term strategy plan Vision 2015, defining
the Medium Term Strategy Plan 2008–2010,
responding proactively to major changes in the
marketplace, and taking the initiative to start
merger talks with Campina. All of these projects
have been tackled with enormous vigour and
dynamism. The company’s employees are also
to be complimented. Taking a flexible approach
to changes in circumstances and organisational
requirements, learning new working methods,
dealing with constant scale increases and taking
responsibility for work processes require a high
level of willingness to change. The Supervisory
Board members are well aware that this is easier
said than done. For their agility, the employees
deserve a compliment, as well as for their efforts
over the past year.
Meppel, the Netherlands, 28 February 2008
The Supervisory Board
Annual Report 2007
Composition of the
Board of Management

Theo C.A. Spierings (1964)

Acting President of the Board of Management of Friesland Foods since 23 March
2007. Member of the Board of Management and Chief Operating Officer since
2005, and employee of Friesland Foods (and legal predecessors) since 1986.

Responsibilities:
Classic Dairy business group
Industrial business group

Other responsibilities:
Company Secretary
Corporate Human Resources
Corporate Supply Chain

André A. Boudewijns (1955)

Employee and Chief Financial Officer of Friesland Foods since 2005.

Responsibilities:
Corporate Finance & Reporting
Corporate Information & Communication Technology
Corporate Legal Affairs
Corporate Public Affairs
Corporate Risk & Control
Corporate Strategy
Corporate Treasury

Johan G.M. Priem (1954)

Employee and member of the Board of Management and Chief Operating Officer
of Friesland Foods (and legal predecessors) since 1997.

Responsibilities:
Consumer Products Europe business group
Consumer Products International business group
Business Development Unit

Other responsibilities:
Cooperative Affairs
Corporate Research

Royal Friesland Foods N.V. 21

 Board of
Management review

Vision 2015

The road ahead is determined by our vision for the future.

The world is changing. And we are changing right along
with it. Milk is only getting more interesting.
More and more people want dairy in every conceivable
form, to enjoy at every possible moment.

22 Jaaroverzicht 2007
 Board of
Management review

The power of milk

If we want to continue to be successful in the future,

we know we can rely on the millions of people who
love our product. It’s simply a matter of offering that
product in the right variation, at the right place and
at an affordable price.

Royal Friesland Foods N.V. 23

 Board of
Management review

Vision 2015

New worlds are opening before us. New cultures with new
customs. New target groups with new wishes and needs.
Are we sufficiently prepared? Milk and people are the basic
ingredients for our success. That’s why Friesland Foods will
invariably pay close attention to what customers and con-
sumers have to say.

24 Jaaroverzicht 2007
 Corporate
Board of
governance review
Management

The power of milk

Understanding what people need, and making and supplying

what people want, is precisely what motivates us.

Royal Friesland Foods N.V. 25

 Jaarrekening
Board of 2007
Management review

Vision 2015

How will people think about dairy in the future?

What will the wishes and needs of the future be?
What changes do we expect?
Do we see risks?
Do we see opportunities?

26 Jaaroverzicht
Jaaroverzicht
2007
2007
 Corporate
Board of
governance review
Management

The power of milk

It is only logical therefore that

we always put the user first,
both in terms of how we think and
how we act. Now and into the future.

Royal Friesland Foods N.V. 27


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.
Margins did come under pressure here in the
last quarter of the year in particular 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.
28
Board of
Management review
Profit for the year was raised by a non-recurring
income item as a result of the sale of Friso baby
and infant foods in the Netherlands. Moreover,
restructuring expenses were lower than last year.
Operating profit showed a modest increase.
The year 2007 was characterised by sharp
increases in the world market prices of milk and
whey powder, and butter due to the globally
increasing demand for dairy products and
somewhat lagging supplies of milk. Selling prices
in other product categories such as cheese,
fresh and long-life dairy in Western Europe also
started to rise over the course of the year. World
market prices for powders and butter have
dropped since September.
In Central Europe, Asia and Africa, and in the
professional cream-based products segment,
the cost of raw materials could not, for the time
being, be fully recharged to the customer, which
led to pressure on margins. In addition, currency
developments and the abolition of export
subsidies had an adverse effect on revenue. This
was offset by higher sales volumes.
Sales of key drive brands were up 12 percent on
2006.
Results
Operating profit was up 42 million euros,
16 percent, rising to 299 million euros.
Operating profit as a percentage of revenue
(ROS) increased from 5.5 to 5.9 percent.
The cost of raw materials and consumables,
and goods for resale rose to 3.2 billion euros.
The increase by 335 million euros (12 percent)
was attributable to the higher cost of raw
materials on the world market and higher milk
prices in the Netherlands. In 2007 Friesland
Foods processed 6.9 billion kilograms of milk,
5.3 billion kilograms of which were supplied
by Dutch member dairy farmers. This is the
same figure as in 2006. Based on the forecast
developments in milk prices paid by the index
companies in 2007, the milk price used in the
financial statements is 37.07 euros per 100
kilograms of milk (inclusive of 5.374 percent
VAT). Adjusted for differences in the fat and
protein content of the milk, this represents an
increase by 6.16 euros (inclusive of VAT) per 100
kilograms of milk (20 percent) relative to the
market price of milk in 2006. For 2006, Friesland
Foods paid a competitive milk price of 30.84
euros (inclusive of VAT) per 100 kilograms of
milk, at 4.435 percent fat and 3.483 percent
protein. This is lower by 0.35 euros per 100
kilograms of milk than the provisional milk
price of 31.19 euros per 100 kilograms of milk
published in May 2007. The annual report of
one of the index companies showed that the
milk price paid was not fully based on the
results it had achieved in the market and that
the milk price was partially equity-financed. In
such instances, the Friesland Foods Milk Price
Regulations stipulate that the milk price needs
to be adjusted accordingly. Allowance will be
made for this adjustment in the settlement for
2007, which will take place in May 2008.
The employee benefits expense was up
2 percent, rising to 448 million euros. The
number of employees dropped by 730, landing
at 14,582. In the Consumer Products Europe
business group, 743 jobs were lost due to
restructurings, whereas the staff base in the
Industrial business group increased by
71 people.
Restructuring expenses amounted to 11 million
euros (2006: 24 million), which was due mainly
to the cost of the shut-down of the Groningen-
based production site and the restructuring of
the corporate staff departments.
The income tax expense increased by 2 million
to 65 million euros. The tax burden dropped by
3 percent to 25 percent of pre-tax profit due, in
particular, to one-off tax benefits in 2007 and
non-recurring tax expenses in 2006.
As a result of these developments, profit for
the year increased to 172 million euros. Profit
for the year as a percentage of revenue was 3.4
Annual Report 2007

percent (2006: 2.7 percent). This marks the first
time that Friesland Foods reached the target of
achieving a net profit margin of more than 3
percent.
Cash flows
Net cash flows from operating activities
amounted to 225 million euros in 2007 (2006:
244 million). This drop was caused chiefly by
higher working capital. The increase in working
capital was seen in inventories in particular, the
main reason being sharp increases in the cost
of raw materials during the year. These resulted
in higher values of inventories, especially in the
fourth quarter of the year. In addition, inventory
volumes saw modest increases at year end.
Investments in land, buildings, plants, equipment
and intangible assets increased by 21 million
euros relative to 2006. Key investment projects
in 2007 included the cheese-storage facility
in Workum (the Netherlands), the second
spray-dryer in Salatiga (Indonesia) and the
construction of a second production site in
Vietnam (Hanam). In 2007 Friesland Foods
spent 39 million euros less on acquisitions than
in 2006 (42 million euros).
Financial position
Equity was up 10 percent in 2007. The solvency
ratio (equity as a percentage of total assets)
dropped, however, to 38.7 percent (2006: 39.6
percent). This was the result of higher total
assets due to an increase in working capital. Net
debt rose by 8 million to 582 million euros.
Friesland Foods comfortably meets the
requirements imposed by lenders, as expressed
in the headline figures. The ratio of net debt
to operating profit before depreciation and
amortisation plus dividends from associates and
exclusive of exceptional items is not allowed
to exceed 3.5 : 1. At year-end 2007 this ratio
was 1.4 : 1, the same as in 2006. In addition,
Board of
Management review
the ratio of operating profit before depreciation
and amortisation plus dividends from associates
and exclusive of exceptional items to interest
(interest coverage ratio) should be at least
3.5 : 1. This ratio was 13.0 : 1 at year-end 2007
(2006: 12.8 : 1).
Friesland Foods has contracted loan capital
from different groups of lenders (banks and
investors), which is beneficial to the company’s
flexibility. In addition to having been raised with
Dutch and foreign banks, a substantial portion
of the company’s funding has been contracted
from institutional investors in the United States Departure of Luc Dahlhaus
and private investors in Europe. The majority of
bank loans are comprised of a syndicated credit Luc Dahlhaus retired from Friesland Foods
facility of 550 million euros, the remaining term in April 2007. Many members of staff and
to maturity of which is no more than three external business relations came to say their
years. Friesland Foods has contracted a credit at farewells to him at a reception held in his
favourable conditions. At year-end 2007, 340 honour. Mr Dahlhaus worked for Friesland
million euros had been drawn on the credit facility. Foods and its predecessors for over 31 years.
His time in Nigeria, West Africa, where he
arrived at the age of 37 with his wife and two
Increase in dividend daughters, was very special to him, and in
November 2007 he was made a Member of
Total dividend distributions on Classes A and B the Order of the Federal Public by President
shares increased by 35 percent compared with Obasanjo of Nigeria - only the third Dutch
2006. The dividend per Class A share is 2.62 national to receive this distinction. Mr
euros (2006: 2.39 euros), and 10.24 euros per Dahlhaus took the opportunity to donate the
Class B share or depositary receipt for Class money raised at his farewell reception
B share (2006: 6.81 euros). As in 2006, the (37,000 euros) to the Olu Akinkugbe
dividend distribution on Class A shares reached Foundation. The foundation was set up several
the maximum amount as provided in the Articles years ago in honour of the former chairman
of Association. Based on the dividend distributed of the supervisory board of Friesland Foods
on Class A shares, Zuivelcoöperatie Friesland WAMCO Nigeria, Chief Olu Akinkugbe, to
Foods will distribute 0.36 euros exclusive of VAT provide mothers and children in Nigeria with
per 100 kilograms of milk to the member dairy information and advice on nutrition in order
farmers (2006: 0.33 euros exclusive of VAT). to prevent malnutrition, poor health and child
mortality.
On 2 March 2007 share premium reserve A of
62 million euros was converted into Class A
share capital at a nominal value of 46.00 euros
each. As a consequence, the Class A share
capital has increased to 330 million euros. The
number of Class A shares rose from 5,840,363 to
7,179,950. The Class B share capital amounts to
186 million euros. The ratio of Class A to Class B
shares is now 64 : 36.
Royal Friesland Foods N.V. 29

New method for ingredient
production
In 2007 Friesland Foods Domo decided to
invest in a new method for the production
of ingredients. The new technology is special
because it extracts ingredients directly from
milk rather than from whey, which has been
the standard procedure up to now. The main
advantage of the new technology is that the
extracted ingredients, such as protein, lactose
and minerals, are very pure. Another benefit
is that milk is much richer in substance
than whey, offering better opportunities
for producing high-quality dairy-based
ingredients. The new technology allows milk
to be separated under very mild conditions.
“We will soon be able to supply highly pure
products to our customers, which will find all
manner of applications in their preparation
methods. We are also creating extra potential
for our customers by giving them the option
to source our ingredients in liquid form as
well,” said project leader Jaap de Slegte. The
construction of the new production facility
will begin in 2008. The development of this
new technology is Friesland Foods’ answer
to the growing demand for ingredients and
the expected increase in milk supply by its
member dairy farmers.
30
Exploratory merger talks between
Friesland Foods and Campina
Friesland Foods and Campina announced on 19
December 2007 that they were exploring the
possibility of a merger between their respective
cooperatives and dairy operations as a means
for accelerating towards their targets. Friesland
Foods and Campina expect their merger to
considerably strengthen their international
position and facilitate further growth in Europe,
Asia and Africa. It is in the best interest of the
member dairy farmers (who will become the
joint owners of Friesland Campina), customers,
consumers and employees that the enterprise
bolsters its operations and continues to grow.
Strength and versatility
The merger is bound to give rise to a leading
multinational dairy company. The spread over
product groups and geographies, and the strong
brands and international scale in research,
production, marketing and sales are sure to
make Friesland Campina a versatile enterprise.
One that will be able to capitalise on the ever-
increasing pace of changes in market conditions,
including:
• ongoing liberalisation/deregulation
(EU/WTO);
• a highly volatile world dairy market;
• increasing global competition; and
• increasing dairy foods consumption levels on a
global scale.
Both companies expect to be able to use the
merger to accelerate towards achieving the
following strategic targets as a single enterprise:
• bolstering growth in brands and added-value
product concepts;
• achieving cost leadership through scale
in production and more flexibility in milk
processing for cheese and consumer milk
products;
• enhancing market and brand positions in
emerging markets; and
• consolidating global dairy ingredients
activities.
Board of
Management review
Significant synergy benefits are expected, for
instance in purchasing, production, logistics,
marketing, sales and overheads.
The starting point in the further explorations
is that the international business of Friesland
Campina should create clear added value for
its member dairy farmers and offer them the
opportunity to grow alongside the new company
without experiencing any restrictions where
milk volumes are concerned. The merger should
lead to the establishment of a new cooperative
by the name of Zuivelcoöperatie Friesland
Campina in which, after the merger, all current
members of Friesland Foods and Campina should
participate equally and have the same rights and
obligations, with voting rights in proportion to
the volume of milk supplied.
Process
The Supervisory Boards, Boards of Management,
the General Meeting of Friesland Foods and
the Council of Members of Campina are
supportive of the merger talks. The Boards of the
Cooperatives and the Boards of Management
signed a letter of intent on 17 December 2007,
based on which the strategy, synergies, control
structure, financial position and milk pricing
systems will be reviewed. They plan to present
a draft merger agreement to the members, the
Works Council and the trade unions in April
2008, and intend to ask for the approval of a
merger agreement by the General Meeting of
Friesland Foods and the Council of Members of
Campina by May 2008. The merger agreement
is subject to the approval of the European
Commission and the Netherlands Competition
Authority (NMa). The merger is expected to be
completed by the end of 2008.
Annual Report 2007

Developments by region
Revenue from European activities increased by
8 percent to 3.9 billion euros in the year under
review. The increase was achieved mainly by
the Dutch activities as a result of higher selling
prices of dairy products. Revenue from activities
undertaken in Hungary fell due to restructurings
in 2006 and early in 2007.
Despite the reduction in export subsidies
on cheese, condensed milk and low-fat and
whole-milk powder, total operating profit in
Europe rose by 42 percent to 230 million euros.
Operating profit as a percentage of revenue
increased to 5.9 percent (2006: 4.5 percent).
In Asia, revenue rose by 12 percent to 977
million euros (2006: 873 million). Operating
profit was down 14 percent to 85 million
euros (2006: 99 million) due to the fact that
the higher cost of raw materials was not fully
covered by higher selling prices, and an increase
in advertising and promotional expenses. In
Asia, operating profit as a percentage of revenue
fell from 11.3 percent to 8.7 percent.
In the other regions, revenue was up 8 percent,
rising to 338 million euros (2006: 314 million).
Key countries are Nigeria and Saudi-Arabia.
Operating profit showed a 15% drop in this
region, from 36 million euros in 2006 to 30
million euros in the year under review. Again,
the cause lay in the fact that the high cost of
raw materials could not be fully incorporated in
the selling price. In the other regions, operating
profit as a percentage of revenue was down
from 11.5 to 8.9 percent.
Board of
Management review
Developments by business group
All business groups can look back on a turbulent
year, with market dynamics having a different
effect on every group. Friesland Foods seeks
to maintain or increase its market share in all
markets where it has a presence.
Classic Dairy
The Classic Dairy business group comprises
most of the milk-processing activities in the
Netherlands. These are Friesland Foods Cheese,
Friesland Foods Fresh and Friesland Foods Butter.
In the second quarter of 2007 prices of milk
powder and butter were on the rise in particular,
which was attributable to growing demand for
dairy products and lagging supply. As a result
of this situation, a shift took place in the use of
farm milk. In order to be able to meet the higher
demand for butter and powder, the production
of cheese was scaled down temporarily. Prices on
the cheese market went up as well in the second
half of 2007. This resulted in substantially higher
selling prices for cheese. The large demand for
dairy has translated into higher selling prices.
Thanks to these developments, revenue in the
Classic Dairy business group rose by 5 percent
to 1.6 billion euros. The favourable results are
mainly attributable to the good showing by
Friesland Foods Cheese and Friesland Foods
Butter. The operating losses incurred by these
operating companies in 2006 were reversed
and profits posted in 2007. This is particularly
remarkable where the milk powder and butter
activities are concerned. The performance of
the operating company Friesland Foods Fresh
continued to be disappointing. Although a range
of price increases were implemented over the
course of the year, margins still come in below
those posted in other product groups.
Royal Friesland Foods N.V.
Successful introduction of
pasture milk
In April 2007 Friesland Foods introduced
pasture milk. This milk is obtained from cows
that graze outdoors for at least six hours a
day, 120 days a year. This milk is available
for sale in Dutch supermarkets under the
popular Friesche Vlag brand as well as under
under private labels. In addition, Stichting
Weidegang, a foundation for the promotion
of outdoor grazing, was set up at the initiative
of Friesland Foods, to increase the visibility
of cows in fields. A grazing bonus at the
end of the year encourages farmers to keep
their cows outdoors. Friesland Foods has
committed itself to setting aside 2 million
euros a year for this bonus over a three-year
period. Around 80 percent of Friesland Foods
members participate in this scheme, and
together they supply nearly 4 billion kilograms
of milk. Fresh milk, buttermilk, yoghurt and
long-life dairy products made from pasture
milk are now available in supermarkets.
Pasture milk products are produced at the
Groningen and Nijkerk production locations.
31

Friesland Foods Cheese
The financial performance of Friesland Foods
Cheese in 2007 improved sharply on 2006.
Revenue rose markedly thanks mainly to higher
selling prices, for instance of pre-packaged
cheese. Higher sales volumes accounted for a
modest increase in revenue. Especially in the
second half of 2007, Friesland Foods Cheese
managed to ride the wave of the surging market,
despite high milk prices, the lagging dollar and
the abolition of EU subsidies. Where long-term
contracts had been concluded, the higher milk
prices could not immediately be recharged to
the customer. This delay in recharges was a
factor in the Netherlands in particular.
Friesland Foods Cheese launched a new
commercial approach in 2007. The operating
company formed two commercial groups that
are tailored to its key sales channels: European
Retail and International Markets. European
Retail focuses on cheese sales to European
supermarkets in the Benelux, Germany and
France. International Markets concentrates
mainly on cheese sales to other European
countries and the rest of the world. The business
unit for Spain is a division of International
Markets. The most important commercial
results in 2007 were strong growth in pre-
packaged products and growth in low-fat
cheese products. The year 2007 also saw a
worldwide reintroduction of the Frico brand.
The reintroduction of the Castillo de Holanda
brand also proved to be a success formula on the
Spanish Canary Islands.
32
The Friesland Foods Cheese facility in Leerdam
was revamped in 2007. Following property
alterations, the site has doubled in surface
area in order to meet the growing demand
for pre-packaged products. In view of this, the
activities of the small-product packaging facility
in Wolvega were further expanded as well. This
facility puts out more than 3.5 million consumer
packages per week. In 2007 the Director of
Operations became responsible for Maturing,
Packaging and Logistics so as to streamline
and fine-tune the operating process. Focus is
on efficiency and quality improvements. World
Class Operations Management (WCOM) will be
rolled out further throughout Friesland Foods
Cheese.
The storage and maturing facility in Meppel
was closed in 2007 in line with the previously
initiated restructuring of the cheese activities.
Some of the activities have been transferred to
other cheese-producing facilities.
Friesland Foods Butter
Friesland Foods Butter in particular managed to
make the most of the booming market and the
higher demand for dairy products worldwide.
The positive developments were attributable to
higher selling prices and sales of more fractioned
products. Although revenue was up markedly
and profit improved sharply, demand did drop in
the second half of 2007 as a result of the high
prices of butter and milk powder. EU export
subsidies for dairy products were abolished
completely in the first half of the year. The
selling prices of milk powder, whey and butter
were increased over the course of the first half
of 2007, as soon as contracts so allowed. The
selling prices of butter and milk powder dropped
at year end. This was due, in part, to a temporary
decline in demand. The market for milk fat in
particular is in need of a new equilibrium.
Board of
Management review
The ambition of Friesland Foods Butter is to
offer the best of taste through innovative
partnerships. Health, convenience, taste and
functional features are key priorities now and in
the near future. Innovations at Friesland Foods
Butter mainly involve developing new packaging
and fractioning milk fats.
Friesland Foods Fresh
Friesland Foods successfully introduced pasture
milk in April 2007. The entire product range of
fresh dairy, including products marketed under
the Friesche Vlag brand and private labels, is
now made of milk from cows that are out to
pasture from spring to autumn. The introduction
of pasture milk allowed Friesland Foods to
increase prices for the first time in years. But
despite a total of three further price hikes in
2007, the performance of fresh dairy products
continues to be disappointing. Due to pending
contracts, price increases for most private-label
products could not be implemented until the
end of 2007. Revenue was up on 2006. The
sales, marketing and production activities were
transferred to Friesland Foods Fresh, the new
operating company and a division of the Classic
Dairy business group, as at 1 November 2007.
It was announced in 2007 that the production
facility in Groningen would be closed down in
mid-2008 and that the fresh dairy activities
would be bundled in Nijkerk.
Annual Report 2007
 Board of
Management review

Industrial The renovated plant for the production of

This business group comprises the activities of
the operating companies Friesland Foods Domo,
Friesland Foods Kievit and Friesland Foods
Professional. This group posted an increase in
revenue by 24 percent to 797 million euros. This
was attributable, for the most part, to growth in
high value-added speciality products at Friesland
Foods Domo and Friesland Foods Kievit.
Friesland Foods Domo
The performance of Friesland Foods Domo
improved sharply in 2007, with revenue rising
considerably also. The results for 2007 are the
best in the history of Friesland Foods Domo. In
addition to higher selling prices, sales volumes
were up as well, thanks, in particular, to higher
sales of Vivinal GOS and Vivinal MCA (milk
calcium). The production of lactose and pharma
lactose was reduced for the production of Vivinal
GOS.
The good showing of Friesland Foods Domo was
mainly attributable to the growing demand for
functional foods, such as infant nutrition and
health foods. The chosen strategy to change
from a bulk-oriented organisation into a leading
supplier of high-grade ingredients has clearly
paid dividends. In 2007, an important decision
was taken to invest in new milk-separation
technology, so as to add even more value to
high-quality milk components. Demand for high
value ingredients continues to grow.
galacto-oligosaccharides in Borculo became
operational in the first half of the year. This
expansion of the production capacity allows
Friesland Foods Domo to respond to the sharp
increase in demand for soluble dietary fibres
for children’s foods, dairy products and drinks.
Friesland Foods Domo and Australian dairy
company Warrnambool Cheese and Butter
Factory Holdings Ltd. concluded a joint venture
agreement on 13 July 2007. They will jointly
build a new production facility for ingredients
in Australia, which will become operational in
2009. The 50/50 joint venture under the name
Great Ocean Ingredients Pty Ltd. will produce
nutritional and functional ingredients for the
infant nutrition, food and pharmaceutical
industries throughout the world. This partnership
is in line with the policy pursued by Friesland
Foods to create innovations in collaborative
alliances. The provision of bespoke solutions
to customers results in excellent customer
satisfaction. In 2007 Friesland Foods Domo
introduced further efficiencies in its distribution,
sales, marketing and service by concentrating
the distribution activities for pharmaceuticals
and food ingredients in Europe (excluding Spain)
in one division.
Constant innovation has been one of the pillars
of the success of Friesland Foods Domo over
the past years. In order to keep this innovation
process going, Friesland Foods Domo is
committed to hiring talented researchers and
continually making investments in research
facilities. One of the key objectives of the
innovation process is to add value to raw
materials. For this purpose, the chain from raw
materials to new products needs to be managed
as best as possible.
Awards for Friesland Foods Frisian
Flag Indonesia and Friesland Foods
Foremost Thailand
Friesland Foods Frisian Flag Indonesia and
Friesland Foods Foremost Thailand both won
awards in 2007, Frisian Flag for the best large
foreign company in Indonesia and Foremost
for the best Dutch company in Thailand.
Frisian Flag Indonesia, the country’s leading
dairy producer, was one of a total of 5,160
companies judged on management, product
quality, production facilities, corporate social
responsibility and environmental awareness.
The company has two factories in Jakarta and
produces a wide range of dairy products locally.
The company is also a very active supporter
of the production of local fresh milk and
processes milk from 30,000 farmers in Java
every day.
Foremost came first out of 200 Dutch
companies active in Thailand. Managing
director Ian Gearing believes that Foremost
won the award because it is an innovative,
bold company, as demonstrated by products
such as Foremost Calcimex Beautiva. This milk
with collagen and aloe vera helps to promote
beauty from the inside out.

Royal Friesland Foods N.V. 33


Whipped cream presented at its best
In 2007 Friesland Foods Professional
developed a new nozzle for cream-filled
spray cans used in the catering industry to
enable whipped cream to be presented very
professionally. A new cream-filled spray can
line was also brought into production. In
the opinion of Stefaan Naeyaert, product
group manager for cream at Friesland Foods
Professional, there is a growing demand for
cream-filled spray cans. “Once the new spray
can line was in place, work could start on
a new nozzle. That was necessary,” said Mr
Naeyaert. “A market survey of our customers
revealed that we could improve our product
in a number of areas. The presentation of the
whipped cream, for instance, could look more
professional, and in addition we strengthened
the nozzle. The surface pressed when serving
cream has been made larger and more
sturdy, making it easier to handle.” The new
nozzle was introduced in Italy and Spain in
September 2007 and will be introduced in
Belgium and the Netherlands in 2008. “Initial
responses have been very positive,” said Mr
Naeyaert. “Sales are up compared to last
year.”
34
It is the ambition of Friesland Foods Domo
to consistently introduce new products over
the next few years as well; for this reason, it
undertakes short-term, medium-term and
long-term projects. For Friesland Foods Domo,
2007 was a year in which many new ideas and
concepts saw the light of day; these are expected
to be followed up successfully in 2008.
Friesland Foods Kievit
Friesland Foods Kievit did well in 2007. Profit
was up sharply thanks to a significant increase
in revenue, stability of margins despite sizeable
increases in the cost of raw materials, and
higher sales of speciality products. A sales office
specifically targeting the Asian market opened
its doors in Salatiga, Indonesia, early in 2007.
The expansion of the production capacity in
Salatiga with a new spray-dryer is proceeding on
schedule. The food industry continues to display
a growing interest in encapsulated fish oils,
which were introduced a number of years ago.
As a result of increasing demand, a five-shift
system is now being employed at the Dutch
production facility in Meppel.
In addition to geographical expansion, such
as in Asia, innovation is another key to further
growth for Friesland Foods Kievit. Building on
the successful innovations of the past few years,
a separate business unit was formed for the
development of new encapsulation technologies.
Board of
Management review
Friesland Foods Professional
Revenue generated by Friesland Foods
Professional saw a significant increase in 2007,
although profit dropped sharply. This was due
to the fact that the strong increase in the price
of milk fat could not be fully covered by higher
selling prices. Revenue from the foodservice
channel is expected to grow further, for instance
by spreading product sales over more countries.
In Germany and France, the company introduced
an improved whipped cream product in a spray
can for professional users. The new nozzle
improves the firmness of the whipped cream
topping. A new spray can production line was
launched at our production facility in Lummen,
Belgium. The semi-industry segment also
showed further growth. In addition to the bakery
sector, the food industry is gaining more and
more of a presence in this segment. The growth
in the semi-industrial segment has resulted in
capacity restrictions in Nuenen.
Owing to sharp increases in the price of butter
in combination with the abolition of EU
subsidies, returns for customers in the bakery
and ice cream industries in particular have
become subject to severe pressure, potentially
causing the risk of a decline in demand because
customers will start to use substitution products.
Friesland Foods Professional seeks to resolve this
situation together with its customers.
Annual Report 2007
 Board of
Management review

Consumer Products Europe Chocomel celebrated its 75th anniversary in

This business group comprises the activities
undertaken by the operating companies Friesland
Foods Western Europe, Friesland Foods Hellas,
Friesland Foods Central Europe and Friesland
Foods Romania. The strategy of the Consumer
Products Europe business group focuses on
improving the market position and strengthening
brands. This has led to better brand positioning for
Chocomel/Cecemel, Milli, Pöttyös and NoyNoy.
However, the focus on maintaining and/or
improving market share and the brand position
has also resulted in a significant decline in profit
as a result of the inability to fully recharge
increases in purchase prices to the customer. On a
positive note, revenue did show limited growth.
2007. Revenue from Chocomel rose significantly
in 2007 thanks, in part, to the introduction
of Chocomel Hot in 2007. Its success was
mainly attributable to the wide range of
Chocomel applications. Chocomel is available in
supermarkets as well as in bars and restaurants,
and can be consumed either hot or cold.
Friesche Vlag coffee creamer delivered a good
performance in 2007, with revenue rising
slightly. DubbelFrisss had a challenging year due
to substantial competition in this segment. Fristi
did well in 2007 without posting exceptional
growth. The same goes for Extran, the sports Chocomel Hot at the push of
drink. a button

In July 2007 the activities of Friso baby and infant
foods in the Benelux countries were sold to Hero
Nederland B.V. because they were no longer
in line with Friesland Foods’ strategic vision.
Friesland Foods will continue to produce the
Friso baby and infant foods products for Hero. In
addition, Friesland Foods will continue to focus
on developing and selling infant formula and
children’s foods, under the Friso name, among
other labels, in a number of foreign markets.
Friesland Foods discontinued its operations in
Slovakia and the Czech Republic early in 2007.
The market positions in these countries were too
weak and there was no prospect of improvement.
Friesland Foods Western Europe
Revenue generated by Friesland Foods Western
Europe showed marked growth. Appelsientje put
in an excellent performance in the Netherlands
and Belgium. The mild variety, which was
introduced in 2006, was a particular success.
The CoolBest label developed well thanks mainly
to the introduction of new fruit flavours such
as pomegranate and açaí. In 2007 CoolBest
introduced CoolBest Vitaday, the first fruit juice
containing prebiotics. These ingredients have
a beneficial effect on the intrinsic strength of
the immune system by selectively stimulating
the growth and/or activity of one or a limited
number of bacteria in the colon.
Friesland Foods Hellas
In Greece, revenue from the NoyNoy label
showed a marked increase. In 2007 Friesland
Foods Hellas launched a comprehensive and
varied offering of Dutch cheese under this
strong label. Increases in milk prices and higher
advertising and promotional expenses caused
profit to drop strongly. The introduction of
NoyNoy cheese was the result of a partnership
between the operating companies Friesland
Foods Hellas and Friesland Foods Cheese, and
is a good example of synergies within Friesland
Foods. The new NoyNoy cheese comes in
22 different varieties. With this introduction,
Friesland Foods Hellas has strengthened its
position in the Greek dairy market. Although
NoyNoy yoghurt is doing well, the Greek yoghurt
market is fiercely competitive, causing pressure
on margins.
Friesland Foods Central Europe
Dairy consumption in Hungary fell by 7 percent,
causing a drop in revenue, due to a decline in
purchasing power and the high inflation rate.
Reductions in the product offering and customer
numbers over the course of 2006 still affected
the revenue figure for 2007. Profit did see a rise
however.
The launch of Chocomel Hot capsules for
Senseo coffee machines proved a great
success. “Even though the targets for
Chocomel Hot capsules were ambitious,
we have exceeded our expectations. We’re
surprised at how much demand there is,”
said Dax Denneboom, senior brand manager
for Chocomel at Friesland Foods Western
Europe. Chocomel has responded to trends
by enabling people to enjoy the same high-
quality Chocomel experience at home as they
can find in bars and restaurants. Chocomel
Hot is easy, fast and offers excellent product
quality thanks to its patented system of
Chocomel Hot capsules and a special capsule
holder. The capsules contain a Chocomel
concentrate that is mixed with hot water
from a Senseo machine in the capsule’s
special mixing chamber, creating an extra
layer of foam. Chocomel Hot is available
in supermarkets, where it can be found in
the same section as coffee pods. A new
production line has been set up in Kalkar,
Germany, to produce Chocomel Hot capsules.

Royal Friesland Foods N.V. 35

 Board of
Management review

North and
South America

Africa and
the Middle East
2%
125
13%
646

Asia

35%
The Milli label is on its way to reach the 100 22% Revenue broken down 1.760 Europe excluding
million euros revenue mark in Hungary and 1.127 by geographical area the Netherlands
Romania. Although revenue from Pöttyös In millions of euros

did not increase in Hungary, its market share

did rise. Much attention was paid in 2007 to
efficiency improvements and streamlining of
work processes. The World Class Operations
28%
Management quality system was an important 1.417
source of input in this regard. In Hungary,
production has now been concentrated in two
locations, in Mátészalka and Debrecen. The Netherlands

Friesland Foods Romania

Revenue in Romania showed a marked increase,
mainly thanks to higher selling prices. Profit 32%
fell, however, due to higher advertising and Consumer Products
1.611
International 32%
promotional expenses, and lower exceptional Classic
Revenue broken down 1.635 Dairy
income items than in 2006. Friesland Foods shut
down a production facility in Romania in 2007 by business group 1
and announced that another branch will close In millions of euros
its doors in 2008. The main reasons for closing
these facilities are cost inefficiencies and the lack
of growth potential at the sites in question.
20% 16%
1.018 797

Consumer Products Industrial

Europe

1
Excluding revenue ‘Other’ of 14 million euros.

Operating profit broken down by region

In millions of euros

250
230

200

162
150

99
100
85

50 36
30

0
Europe Asia Other

2006
2007

36 Annual Report 2007


Consumer Products International
This business group comprises the operating
companies in Indonesia, Nigeria, Thailand,
Vietnam, Malaysia/Singapore/Hong Kong, and
the Middle East, as well as the export activities
of Friesland Foods Consumer Products. Vision
2015 projected an acceleration in revenue
growth. This was achieved with a 9 percent
increase in revenue.
In Asia and Africa, Friesland Foods aims to have
price increases keep pace with the local rate
of inflation. The purpose of this policy is to
maintain and, where possible, improve market
positions, even if it means accepting lower
margins. This policy was successful in 2007;
market shares increased, although the profit
figure was down temporarily as a result of this
policy.
A key driver of revenue growth is the higher
budget for advertising and promotional
activities. Revenue from all key drive brands
increased in 2007; all operating companies
shared in the revenue growth and strengthened
their market positions. Volumes increased in
Asia and Africa. In all countries, focus was on
improving the position of enhanced nutrition
for infants and children between the ages of 0
and 6.
It is Friesland Foods’ international ambition
to reach one billion consumers with dairy
products in 2015. The plan to treble the number
of consumers has been formalised in Vision
2015. The goal is to achieve the highest possible
value of member milk. Friesland Foods is in the
position to fulfil that bridging function with its
milk, in the form of powder and ingredients.
The ‘one-billion-consumers vision’ is also an
important source of inspiration for staff.
Board of
Management review
Friesland Foods Frisian Flag Indonesia
In Indonesia marked growth was achieved mainly
in the enhanced children’s foods and ready-to-
drink milk segments. Revenue was up strongly.
The Indonesian market was characterised by
increases in volumes as well as in price levels.
Rising advertising and promotional expenses
were contributing factors also.
Despite the implementation of a number of price
increases, profit was down to a limited extent.
The first initiatives were also taken in 2007 for
a project aimed at reaching more consumers
with dairy products. Where the market strategy
used to be to target the high and middle-income
segments, in 2007 Friesland Foods started
to introduce products that are affordable for
low-income earners as well, including Yes!, an
inexpensive dairy-based drink. The low price and
new distribution model has tapped a new, large
target group, tying it in with Friesland Foods’
strategy to reach more consumers.
Friesland Foods Dutch Lady Vietnam
Revenue generated by Friesland Foods Dutch
Lady Vietnam was up significantly thanks
mainly to higher revenues from infant formula.
This success can be attributed to the improved
positioning of the Friso label. Profit was down
significantly, however, chiefly as a result of
higher advertising and promotional expenses,
and the inability to fully recharge increases in
the cost of raw materials to the consumer. Great
headway was made in northern Vietnam with
the construction of a second production facility
that will become operational early in 2008.
This new facility was built to accommodate
production increases, as well as for logistical
reasons.
Royal Friesland Foods N.V.
Special project in Indonesia
The aim of Friesland Foods Indonesia is to
supply food to everyone in Indonesia by
making nutritious milk products accessible to
the entire Indonesian population, including
the poorest of the poor. In Indonesia, 35
percent of the population (80 to 100 million
people) are classified as poor. A special market
strategy, which is based on affordability, has
been developed to target this group. The focus
is on selling products to women and children,
specifically the products Yes! Mut Mut, Yes!
Milkshake and Yes! Fruity in 90-ml bottles.
Since the target group is a new one, the
company has decided to introduce the product
through trusted members of the community
in addition to marketing it through existing
distribution channels. Housewives from within
the community are trained as distributors for
Frisian Flag Indonesia, referred to as Kartinis.
Each Kartini recruits a team of six housewives
to work as housewife retailers (Putris) and
manages the team. Putris sell the products
to kiosks and consumers. Young women from
within the community are trained as sales
clerks for Frisian Flag Indonesia, referred to as
Srikandis. The Srikandis sell products directly
to consumers: door-to-door, at schools and
through health centres.
37

New look for Peak in Nigeria
In Nigeria, Peak means milk. This well known
brand was updated in 2007 with a new
look, a new recipe and a new slogan (Peak.
For Stronger Bodies ‘n’ Sharper Minds),
in response to increased competition in
Nigeria. Its packaging was modernised but
not drastically changed, as Siska Schipper,
marketing manager at Friesland Foods
WAMCO Nigeria, explained. “The symbols
on the packaging are still as relevant as they
always were. The mountain stands for peak
performance, and the palm trees for growth
and good nutrition - things that matter a
great deal to Nigerians.”
The operating company adapted the recipe
on the basis of a UNICEF study into the
most common vitamin and mineral deficits
found among the population in developing
countries. Ingredients such as vitamins A, B1,
B12 and iodine were added to support the
development of the body and the mind. The
slogan was also changed, to reflect Nigerian
culture and society. Ms Schipper explained,
“As Nigerians are proud, performance-
focused and want to excel both physically and
intellectually, we decided to incorporate that
in the brand image.”
38
Friesland Foods Foremost Thailand
For the first time in years, Friesland Foods has
been able to implement sharp price increases
in Thailand. This is exceptional because prices
of dairy products are regulated by the Thai
government. These price increases were
insufficient, however, to offset the hikes in the
cost of raw materials. This caused the profit to
drop considerably. Revenue was up markedly as
a result of higher volumes and prices. From its
base in Thailand, Friesland Foods has now also
directed its focus on Cambodia and Laos, mainly
with children’s foods produced by the company
in Vietnam.
Friesland Foods Dutch Lady Malaysia/Singapore/
Hong Kong
In Malaysia Friesland Foods successfully
introduced a no-fat yoghurt and comfortably
achieved its growth targets in the children’s
foods segment. Profit was up markedly as
well, which helped Friesland Foods Dutch Lady
Malaysia to improve its market position and
become a key player in the Malaysian market.
Strong growth was registered for Friso in
Singapore and Hong Kong.
Friesland Foods WAMCO Nigeria
Friesland Foods clearly takes pole position
in the Nigerian market. The Peak label was
relaunched in 2007. The new variety contains
added vitamins and is broadly marketed, so
that it is now within reach for new consumers.
Accordingly, revenue was up significantly. Profit
saw a modest drop only due to the favourable
exchange rate of the Nigerian naira to the US
dollar and a number of price increases.
Board of
Management review
Friesland Foods Middle East
Activities in the Middle East are aimed at
expanding the Rainbow product range. The
products that used to be sold as Jamjoom were
rebranded as Rainbow in 2007. This is in line
with the ambition to achieve a regional branding
policy and market homogeneous concepts
in every region. Rainbow is a tea enricher, a
milk product designed to be added to tea. A
number of new varieties were introduced in
2007. Friesland Foods has also started to market
children’s foods in the United Arab Emirates.
Friesland Foods Consumer Products
Friesland Foods Consumer Products experienced
a difficult year. The high cost of raw materials
in combination with the reduction in export
subsidies and the weak US dollar caused profit
to fall sharply despite modest revenue growth.
In West African countries such as Ghana, Ivory
Coast, Cameroon, Togo, Benin, Gabon and
Burkina Faso, growth is falling short of earlier
expectations.
Annual Report 2007

Innovation
Innovation plays a key role in the growth
ambitions of Friesland Foods. Friesland Foods
Corporate Research specialises in strategic
research with a view to creating added value.
It is the supplier of new technologies and
technological building blocks. New technology
is not only being developed at Friesland Foods,
but also in collaboration with universities,
competence centres and other enterprises.
In terms of innovation, Friesland Foods
focuses mainly on large growth segment and
growth markets where we already have a
presence. Friesland Foods Corporate Research
and Friesland Foods Domo work together
to substantiate health claims attributed to
ingredients that Friesland Foods produces
and applies on a global scale. In addition, the
partners collaborate in the further development
of the ingredient Vivinal GOS, which closely
mirrors the worldwide trend to live a healthy
and active life. Besides children’s foods, there
are a host of opportunities in the markets for
clinical foods, dairy foods, fruit-based drinks,
and for products containing probiotics. Friesland
Foods invests heavily in researching consumer
requirements. This offers a clear understanding
of how preferences vary from country to
country. Process optimisation and fractioning
techniques are areas of urgent attention also.
From a nutritional perspective, emphasis is on
improvement of the immune system, bone
development and weight control. Friesland
Foods sets store by being able to guarantee a
high and constant product quality at the lowest
possible cost. Quality as it is perceived by
consumers is decisive in this respect, which is
why it is the topic of extensive studies. Milk is a
highly perishable product. Extension of the life of
products while preserving their quality and taste
is and will remain a key research area.
Board of
Management review
Human resources policy
Friesland Foods aspires to be a reliable,
committed and dynamic employer. By making
targeted investments in our envisaged corporate
culture, Friesland Foods aims to increase its
employees’ expertise and improve their work
effectiveness. In concrete terms, this means
safety in the workplace, excellent opportunities
for employee development, good working
conditions, a pleasant work climate and fitting
remuneration.
Vision 2015 will have a major impact on human
resources policy. It is a huge challenge for the
organisation to achieve the growth ambitions
in the market on the one hand and to pursue
cost leadership on the other. The organisational
structure was revised in 2007 in order to
facilitate this. The company was divided into
four business groups: Classic Dairy, Industrial,
Consumer Products Europe and Consumer
Products International. Operating companies
with similar strategic targets and/or types of
activities were joined in these business groups.
Another development in 2007 was the
establishment of a Business Development Unit,
which supports our operating companies in Asia,
Africa and Europe in their commercial activities
and human resources policies. A Shared Service
Centre for Human Resources Nederland was set
up in 2007 as well. This Centre addresses issues
relating to conditions of employment for all our
companies operating in the Netherlands. This
structure allows the company to streamline
and standardise working methods. The Shared
Service Centre will be expanded in 2008 to
include other activities such as ICT.
Royal Friesland Foods N.V.
Putting the Customer First for
successful change management
The dairy world is undergoing many changes,
and Friesland Foods is preparing for the
future with Vision 2015. This vision is already
being realised, as can be seen at Friesland
Foods Butter. Having seen a great deal of
support from Europe disappear, this operating
company was reorganised along more
market-oriented lines, and to great success.
The company achieved excellent results
in the market in 2007 with its butter and
milk powder products. According to former
general manager Douwe Tamminga, these
good results are largely attributable to the
cultural change project known as Putting the
Customer First. “Our organisation was highly
milk-driven and mostly internally focused.
The cultural change project literally puts our
internal and external customers first in our
thoughts and actions. We also apply the same
attitude within our own organisation, where
all the departments are in effect each other’s
customers.” Where in the past staff were used
to focusing on milk in their work, now they are
expected to focus on service and customers.
“Our Putting the Customer First project can
be said to have had a stimulating effect.”
39

In terms of staff recruitment, Friesland Foods
will more emphatically promote itself as the
company behind the well-known labels and as
an internationally oriented employer. Leadership
and professional development programmes
will be available so as to offer the employees
the tools to manage, and cope with, change.
In addition, a strategic policy plan will be
developed for the international career planning
of our managers.
In 2007 the production facilities worldwide
started to follow the principles of World Class
Operations Management. The company has
implemented this programme because it will
help on the way towards becoming a ‘world-
class’ enterprise in 2015 where many savings
have already been achieved and ongoing
improvement is business as usual. An internal
developed change management training is linked
to this program.
It was announced in 2007 that the Groningen-
based production site would be shut down. By
relocating the production facility from Groningen
to Nijkerk, 70 jobs will be lost in Groningen. The
Groningen site will be shut down in mid-2008.
The redundant employees will be eligible for the
Friesland Foods Redundancy Plan. The years of
reorganising the cheese activities finally came to
an end with the closure of the Meppel location
in June 2007. Production facilities were closed
also in Satu Mare and Deta in Romania, in
Gyöngyös and Nagyvánhegyes in Hungary, and
in Nitra in Slovakia.
European Consultative Forum
In 2007 a European Consultative Forum was
established for Friesland Foods. This Forum
addresses employee participation issues on a
pan-European level. In close consultation with
employee representatives of the European
branches, agreements were made about the
approach to, and responsibilities regarding, the
discussion of relevant issues that affect the
interests of our employees across Europe.
40
Board of
Management review
Corporate social responsibility
Corporate social responsibility
Corporate social responsibility and sustainability
form an integral part of the operations of People
Friesland Foods. Within this scope, Friesland Being an inspiring employer that respects
Foods undertakes a range of activities to people and encourages them to put forth their
create sustainable value. In order to share this best efforts.
policy with the outside world, a sustainability
report was published for the first time in Profit
2007. Friesland Foods will continue to issue Striking a balance between optimum
sustainability reports once every two years. profitability and broad responsibilities.
The first Friesland Foods sustainability report Planet
describes how Friesland Foods processes Acknowledging responsibility towards society
natural raw materials into healthy products at large and the environment.
using sustainable processing techniques. Each
link in the production chain is vital in order to Partners
ultimately allow the delivery of a high-quality Promoting an inspiring network of partners
product. As farm milk is Friesland Foods’ and creating mutual understanding and
most important resource, special attention loyalty.
is focused in the sustainability report on
assuring the quality and food safety of milk, Portfolio
and encouraging the local production of farm Offering a wide range of food products that
milk in the countries where Friesland Foods meet consumer demands.
has operations. In addition to milk, fruit is
an important ingredient as well. Friesland
Foods promotes the responsible production
of fruit by maintaining good relations with
suppliers. Responsible processing is centred
on human and environmental aspects. On a
global scale, focus is on training and educating
employees, and creating a safe and healthy
working environment. Friesland Foods seeks
to continually improve our environmental
performance, e.g. by implementing ISO 14001
in all production locations. The production chain
ends with the dairy products and fruit-based
juices that we produce. Our healthy products
are geared to local trends in society in the areas
of food and health.
Annual Report 2007

Support for Osteoporosis Foundation
In 2007 Friesland Foods made a creative
contribution to a healthy society with its support
for the Thai Osteoporosis Foundation. As each
person in Thailand drinks on average just 20
litres of milk a year, many of them miss out
on the essential nutrients necessary for strong
bones that are found in milk. To raise awareness
of osteoporosis among the population,
Friesland Foods supports the activities of the
Thai Osteoporosis Foundation in many ways.
These include participating in events such as the
Calcimex Bone Check Road Show, where people
can have their bones checked and learn about
the nutrients needed for strong bones.
Board of
Management review
Outlook
We will see selling prices of dairy products
fluctuate in 2008 more than we were
accustomed to in the past. This could already
be identified in 2007. Slight changes in supply
and demand are enough to lead to major
price fluctuations, particularly in milk and
whey powders, and butter. This is the result
of the ever-progressing liberalisation of the
dairy market, the abolition of export subsidies,
a greater variety in supplies due to weather
conditions and consumer purchasing patterns.
Now, more than ever, it is a question of timing;
determining the price level and the maturity
of a contract can have a huge impact on
selling prices and margins. This may also cause
greater variances in the milk prices that are
paid to the member dairy farmers of different
dairy companies. Consumption levels of dairy
products worldwide are expected to continue to
increase and Friesland Foods is likely to achieve
its growth targets. Pressure on margins will stay
strong in 2008 as a result of the high cost of
raw materials, particularly in Asia and Africa. The
Board of Management of Friesland Foods is not
making any forward-looking statements about
the company’s financial performance in 2008.
Meppel, the Netherlands, 28 February 2008
The Board of Management
Royal Friesland Foods N.V. 41

Doing business means taking risks. The
achievement of business objectives is
contingent, in part, on external economic
factors, the unpredictability of market
developments, calamities and human
factors. In 2007 the company worked on
a more integrated approach to identifying
the risks and uncertainties inherent in
the corporate objectives, their internal
management and control, and securing
the effectiveness of the internal control
structure.
42
Risk management
Risk management and internal control
The Board of Management bears the ultimate
responsibility for managing the risks associated
with the company’s objectives and the reliability
of the internal and external financial and other
reports. Friesland Foods bases its internal control
structure on the principle that the management
boards of the operating companies bear the
primary responsibility for the day-to-day
performance, compliance and monitoring of the
systems that have been put in place to manage
the key operational risks to which the company
is exposed as best as possible.
In designing and evaluating the structure of
our risk management and control systems, the
international COSO framework was used as
a frame of reference. Friesland Foods has the
following standards, procedures and guidelines
in place for controlling its business processes:
• a code of conduct governing all employees of
Friesland Foods;
• systems for operational and financial
planning, including setting budgets and other
operational and financial targets;
• guidelines and procedures for the format and
drafting of management reports and financial
reporting;
• periodic review of the achievement of set
targets based on pre-defined critical success
factors for all operational and functional
disciplines;
• guidelines for the continuity and reliability of
electronic data processing;
• guidelines for the management of production
processes and quality controls based on
internationally recognised and certified
methodologies;
• a quality assurance system for milk and raw
materials;
• standards, procedures and guidelines for food
safety;
• procedures for crisis management;
• authorisation procedures and segregation of
duties;
• whistle-blowing procedures;
• guidelines and procedures for treasury and
currency management;
• guidelines and procedures for business
insurance;
• a system of internal management
representations about compliance with
guidelines, procedures and standards.
Early in 2007 the Board of Management assessed
the key risks and uncertainties associated with
the company’s new long-term strategy plan
(Vision 2015). All operating companies also
performed risk assessments during the year
under review within the scope of the Medium
Term Strategy Plan 2008-2010.
A Corporate Risk & Control Department
was formed in 2007. This corporate support
department assists the Board of Management
and the operating companies in performing risk
assessments, designing their risk management
and internal control systems, and monitoring the
systems’ effectiveness.
With however much care these systems and
controls are designed, they do not provide
absolute assurance that the strategic,
operational, (financial) reporting and compliance
objectives will consistently and fully be achieved.
Reality shows that:
• decision-making processes are prone to human
error;
• different factors need to be weighed
consistently when accepting risks and
implementing controls;
• agreements within the company may be
ignored;
• conspiracies between officers can lead to the
circumvention of internal controls;
• minor errors or mistakes can have major
consequences.
Annual Report 2007

Business risks
There were no major changes in the risk profile
of Friesland Foods in 2007 compared with last
year. What follows is a brief description of a
number of significant business risks incurred by
Friesland Foods and the related specific controls.
Product and service variances
Friesland Foods incurs its largest risks in
respect of its day-to-day production and
service provision. These include: production
interruptions, product contamination, products
and supplies that do not meet the proper
specifications, and disruption of logistical
services. Friesland Foods anticipates these risks
by using various quality assurance systems,
including HACCP, ISO, HALAL and Qarant, its
own quality assurance system for the production
of farm milk, which tracks products throughout
the production chain. Operational policy also
includes educating and training employees,
using and updating crisis manuals, evaluating
variances and taking measures to prevent
variances. Friesland Foods works with natural
products. An unexpected outbreak of animal
disease, particularly in cattle, could have an
adverse effect on the production and sale of
dairy products, i.e. on the financial performance
of Friesland Foods.
Changing customer requirements
Changes in the market happen in quick
succession. Customers are increasingly
tightening conditions, and consumers expect
more and more of products and their uses.
Governments impose new requirements in
the areas of food safety, health and product
information. There are major differences in
this regard among the countries in which
Friesland Foods is active. The approach to
these changes and the regular review of the
competitive position are priorities in the
company’s strategy, its innovation initiatives,
organisational structure, annual planning and
policy implementation.
Risk management
Political risks In control statement
Friesland Foods occupies important market and
brand positions in Southeast Asia, West Africa, With due observance of the limitations that
Central Europe and the Middle East. Political are inevitably inherent in any risk management
and economic changes in these regions might and internal control systems, our internal risk
have consequences for the operations in these management and control systems provide
countries and could thus affect the financial reasonable assurance that our financial reports
performance and position of Friesland Foods. are free of material misstatement and that these
Despite the fact that a number of countries systems were adequate and effective in 2007.
experienced dramatic changes over the past few There are no indications that they will not be
years, Friesland Foods occupies a relatively stable adequate and effective in the current year.
position in the different regions. The company
translates changes into adjustments to its The phrase ‘reasonable assurance’ is taken to
product range, pricing, organisational measures mean the level of assurance that would be
and the embedding of its operations in the provided by a director acting with due care under
local environment. Risks are spread through the the given circumstances. The set of procedures
spreading of activities, both where products and involving the internal risk management and
geographical presence are concerned. control systems, and the related findings,
recommendations and measures have been
Our focal points for the longer term include the discussed with the Audit Committee and the
development of the right staff competences, the Supervisory Board.
increase in the average age of our employees and
succession issues. In addition, extra attention is
paid to formulating an appropriate and timely
response to trends in information technology.
The list of risks outlined above is not necessarily
exhaustive. Risks that have not been recognised
at present or are not considered material may
subsequently have a significant adverse effect on
Friesland Foods’ ability to achieve its operational
objectives. The internal reporting systems, the
budget cycle and the standards, procedures and
guidelines of Friesland Foods are geared, in part,
to the timely identification of these risks.
Royal Friesland Foods N.V. 43
 Jaarrekening
Board of 2007
Management review

The Future of Friesland Foods

Vision 2015

All of these new developments represent

a unique opportunity for Friesland Foods.

44 Jaaroverzicht
Jaaroverzicht
2007
2007
 Board
Corporate
ofgegevens
Overige
governance review
Management

The power of milk

We already have all the ingredients for success:

• Friesland has a growing consumer base
• Friesland generates sufficient milk for growth
• Friesland has the concepts and ingredients to bridge milk and
consumers
• Friesland Foods is well structured for growth
• The merger with Campina will accelerate the realisation of
Vision 2015

Royal Friesland Foods N.V. 45

 Corporate
governance
Corporate governance at Friesland Foods The cooperative’s General Meeting
of Members
involves the General Meeting of Members
and the Board of Zuivelcoöperatie Friesland The members of the cooperative are assigned by
the Board to one of twelve geographical regions.
Foods U.A., as well as the Annual General
Each region has a Regional Meeting to which
Meeting of Shareholders, the Supervisory all active members within the region belong.
The members of the Regional Meeting elect
Board and the Board of Management of
the Board for the region, known as the Regional
Royal Friesland Foods N.V. The cooperative Council and consisting of eight natural persons.
The cooperative’s General Meeting of Members
is the sole shareholder of the company.
comprises all the members of the twelve
The cooperative is an exempted statutory Regional Councils. At least two General Meetings
of Members are held each year, at least one of
two-tier cooperative. The company is an
which is held within six months of the end of the
exempted statutory two-tier company, financial year.
but has opted to apply the two-tier regime
voluntarily.
Cooperative
Member dairy farmers (organised in regions)
Regional Councils
General Meetings of Members
Board
Diagram of the
General Meeting of Shareholders
governance structure
Supervisory Board
Board of Management
Operating Companies Management
Employees
Company
46
On the proposal of the Board of the cooperative,
the General Meeting of Members sets the
number of members of the Board. The Board
members are appointed by the General Meeting
of Members from among the members of the
cooperative upon the binding nomination of the
Chairmen of the Regional Councils (known as the
Platform). A Board member can be suspended
or removed at any time by a resolution of
the General Meeting of Members passed by
a majority of at least two-thirds of the votes
cast at this meeting. The General Meeting of
Members sets the remuneration to be granted to
the Board members of the cooperative.
The Board of the cooperative requires the
approval of the General Meeting of Members
for specific important decisions on operations,
as well as for major decisions concerning the
legal and capital structure of the company,
and decisions concerning major investments,
all of which are described in the Articles of
Association. Approval is required, inter alia,
for proposed amendments to the Articles of
Association of the cooperative and of the
company, as well as for proposed amendments
to the Articles of Association of the company’s
direct and indirect subsidiaries that conduct
the business activities. Approval is also required
in certain cases for decisions of the Board to
exercise the voting rights attaching to the shares
held by the cooperative.
The Board of the cooperative
The Board of the cooperative is responsible
for the affairs of the cooperative, in particular
protecting the interests of the members in the
cooperative and in the business activities carried
out by the company and its subsidiaries. The
maximum term of office for a Board member is
five consecutive financial years. A member of the
Board who stands down at the end of his term
of office can be immediately reappointed for at
most one more term.
Annual Report 2007

The company’s General Meeting of
Shareholders
All the company’s Class A and Class B shares
are held by the cooperative, which gives the
cooperative full control at the General Meeting
of Shareholders of the company. The Board of
the cooperative exercises the voting rights at
the General Meeting of the company on behalf
of the cooperative, in certain cases subject to
the formal approval of the General Meeting of
Members.
The cooperative acts as the administration
office for the Class B shares for which depositary
receipts have been issued. The cooperative’s
powers in relation to the holders of depositary
receipts are exercised by the Board of the
cooperative. The way in which the Board of the
cooperative exercises these powers is supervised
by a trust office established for that specific
purpose: Stichting toezicht certificaten Friesland
Foods. The holders of the depositary receipts
do not have the rights conferred by law upon
holders of depositary receipts issued with the
cooperation of a company. The Board of the
cooperative convenes an exploratory meeting
for the holders of depositary receipts once a
year, following the adoption of the company’s
financial statements, at which it renders account
for the dividend policy of the company.
The company’s financial statements are
submitted for adoption to the company’s annual
General Meeting of Shareholders. A decision on
the appropriation of profit is also taken at this
meeting.
The General Meeting of Shareholders of the
company has the authority to approve certain
decisions of the Board of Management as
described in the Articles of Association. These
concern important decisions on operations, as
well as major decisions concerning the legal
and capital structure of the company (and
the companies in which it holds shares) and
decisions concerning major investments.
The company’s Board of Management
The Board of Management is responsible for
the policy and the operational affairs of the
company. The Board members are appointed for
an indefinite period. Their employment terms
and conditions, including remuneration, are set
by the Supervisory Board.
The company’s Supervisory Board
The Supervisory Board supervises the
conduct of company affairs by the Board of
Management and has the authority to approve
certain decisions of the Board of Management
described in the Articles of Association. The
Supervisory Board has the powers as laid down
in the provisions of Book 2 of the Dutch Civil
Code regarding two-tier companies, such as
the appointment of members of the Board of
Management, the number of members of the
Board of Management and the approval of a
number of other statutory decisions by the
Board of Management. In the performance of
their duties, the members of the Supervisory
Board must be led by the interests of the
company and its related businesses.
An agreement has been concluded with
the Central Works Council concerning the
composition of the Supervisory Board, the
required profile for members of the Supervisory
Board, the strengthened recommendation rights
of the Central Works Council in the appointment
of members of the Supervisory Board, and the
way in which the Central Works Council shall
exercise these rights. Based on this agreement,
the Supervisory Board is properly composed if
two-thirds of its members are Board members
of the cooperative (the internal members) and
if one-third of its members are recruited from
outside (the external members). The chosen
composition reflects the member dominance of
two-thirds of the total number of Supervisory
Board members permitted by law for large
cooperatives. This member dominance is carried
through to company level.
Corporate governance
The external members of the Supervisory
Board are selected and appointed based on the
following criteria: social experience involving the
practical aspects of being a supervisory director,
insight into international business, general social
background and specific affinity with social
relations, human resources and organisation,
and experience in the multinationals arena. One
of the members of the Supervisory Board is a
so-called financial expert, meaning that he has
gained relevant knowledge of, and experience in,
finance and accounting with a major legal entity.
The members of the Supervisory Board are
appointed for a term of four years. External
members of the Supervisory Board stand
down after ten years. The term of office of
a Supervisory Board member who is also a
member of the cooperative’s Board always ends
upon termination of this Board membership.
The Supervisory Board has an Executive
Committee and an Audit Committee. The
Executive Committee consists of the Chairman,
the Vice-Chairman and the Secretary of the
Supervisory Board.
The Executive Committee coordinates the
general contacts with the Board of Management.
The Executive Committee also provides the
input for decisions of the Supervisory Board on
the selection and appointment of members of
the Board of Management and the Supervisory
Board. Finally, it provides the input for decisions
on the remuneration policy, the remuneration
of individual members of the Board of
Management and the remuneration policy for
senior management.
The Audit Committee consists of a member
of the Executive Committee other than its
Chairman, the financial expert of the Supervisory
Board, and two members of the Supervisory
Board who are also Board members of the
cooperative. The duties of the Audit Committee
are preparatory in nature and concern the
accuracy and completeness of the financial
reporting, the internal accounting and control
Royal Friesland Foods N.V. 47
systems, risk management, compliance
with regulations, and the appointment and
procedures of the independent external auditor.
Neither the Executive Committee nor the Audit
Committee has the authority to make decisions
independently. Both committees report to the
full Supervisory Board.
The Dutch Corporate Governance Code
Although neither the Corporate Governance
Code nor the Order in Council directly applies to
the cooperative and the company, the company
will actively apply the principles and best
practice provisions of the Code and the Order
in Council. This notwithstanding, the company
has evaluated these principles and best practice
provisions in relation to the ‘family’ nature
of the business and the private character of
the company. As a result, it has decided not
to apply a number of them. Moreover, some
other principles and best practice provisions are
rendered inappropriate due to certain policy
decisions that the company has made.
For Friesland Foods, the General Meeting of
Members of the cooperative is the body to
which an account is rendered each year on
the structure of the company in broad terms
and on its compliance with the Code, as well
as to major changes relating to either aspect.
Friesland Foods has whistle-blowing procedures
in place.
Deviations from the Code ensuing from
the special structure of the Company
Due to the special structure of Friesland
Foods and the resulting member dominance
on the Supervisory Board, the Code’s best
practice provision that all Supervisory Board
members, with the exception of not more than
one person, shall be independent cannot be
complied with. This best practice provision will
only be applied to the external members of the
Supervisory Board.
48
It follows from the chosen control structure that
final control is indirectly in the hands of the
General Meeting of Members of the cooperative.
This means that the holders of depositary
receipts for Class B shares have no voting rights,
nor do they have the right to table agenda items
or attend the General Meeting of Shareholders
of the company. As the cooperative acts as the
trust office, it is not independent. Supervision
is exercised, however, by Stichting toezicht
certificaten Friesland Foods.
The business activities are carried out by
the company. Within this framework, the
cooperative is involved in defining corporate
strategy, including the related policy principles.
The General Meeting of Members of the
cooperative has no formal powers regarding
approval or adoption of the company’s financial
statements or regarding the appropriation of
profit.
Deviations from the Code ensuing from the
private character of the company
The private character of the company means
that the remuneration of individual Board of
Management members and other important
provisions in their employment contracts
are not published. Friesland Foods does not
grant share options to its employees. Against
this background, no rules have been drawn
up regarding private investments in other
companies by members of the Board of
Management and the Supervisory Board. If
necessary, a temporary embargo can be placed
on the trade in the securities of other companies,
based on the insider trading regulation. This
regulation also includes a rule for the trade in
bonds of the company applying to members
of the Supervisory Board and the Board of
Management, and a few other categories of
employees of the company. The Model Code for
the prevention of insider trading includes a rule
for the trade in depositary receipts for Class B
shares in the company applying to members of
the Regional Councils, Board members of the
cooperative, members of the Supervisory Board
and the Board of Management, and a few other
categories of employees of the company.
Deviations from the Code ensuing from
policy decisions of the company
The members of the Board of Management of
the company are appointed for an indefinite
period. The influence of the cooperative on
the members of the Board of Management in
the exercise of their duties is intrinsic in the
overlap of persons who are members of the
Board of the cooperative, the General Meeting
of Shareholders of the company and the internal
members of the Supervisory Board. For this
reason – as well as because of the anticipated
upward pressure on remuneration –, the best
practice provision of appointing members of the
Board of Management for a four-year term is not
followed.
For practical reasons, Friesland Foods has placed
the duties that the Corporate Governance
Code confers upon the appointment and
remuneration committees in the hands of single
committee: the Executive Committee of the
Supervisory Board. The number of seats on other
supervisory boards and other positions that
members of the Supervisory Board and the Board
of Management are allowed to hold is decided
on a case-by-case basis by the Supervisory
Board according to the demands placed on the
time of the member concerned. Each member
of the Supervisory Board and the Board of
Management must ensure that he devotes
sufficient time and attention to the company
to guarantee proper fulfilment of his duties as a
Board member. Although Friesland Foods does
not have an internal audit department, it did
establish a Corporate Risk & Control Department
in 2007, which is concerned with assuring the
effectiveness of the internal risk management
and control systems.
Annual Report 2007
Financial
statements 2007
Royal Friesland Foods N.V.

Royal Friesland Foods N.V. 49

 Financial statements 2007

Consolidated income statement 1 2007 2006

in millions of euros, unless stated otherwise

Revenue (3) 5,075 4,675

Rental income 5 8
Other operating income (4) 40 10
Operating income 5,120 4,693

Costs of raw materials, consumables and goods for resale 2 (5) – 3,232 – 2,897
Employee benefits expense (6) – 448 – 439
Depreciation and amortisation – 124 – 126
Other operating expenses (7) – 1,017 – 974
Operating expenses – 4,821 – 4,436
Operating profit 299 257

Share of profit of associates 3 3

Finance income and costs (8) – 29 – 26
Profit before tax 273 234

Income tax expense (9) – 65 – 63

Profit for the year from continuing operations 208 171

Profit for the year attributable to perpetual notes providers 3 –9 –9

Profit for the year attributable to equity holders 199 162
0 0

Profit for the year attributable to minority interests – 27 – 34

Profit for the year attributable to equity holders of the parent 172 128

Attributable to equity holders of the parent (10)

Per share of EUR 46,00 4
in euros
Earnings per Class A share, basic 12.98 11.34
Earnings per Class B share, basic 20.20 15.21
Earnings per Class A share, fully diluted 12.58 9.22
Earnings per Class B share, fully diluted 20.20 15.21
Earnings per share, basic 15.63 12.92
Earnings per share, fully diluted 15.32 11.38
Dividend proposed for the year per Class A share 5 2.62 2.39
Dividend proposed for the year per Class B share 10.24 6.81
Dividend distributed for the year per Class A share 5 2.39 2.57
Dividend distributed for the year per Class B share 6.81 5.32

1 See the notes on pages 55 to 79 inclusive.

2 The figures for 2006 have been restated due to the reclassification of costs of raw materials and consumables and other operating expenses.
3 The figures for 2006 have been restated, because the changed classification of the perpetual notes to equity has resulted in the compensation on these notes being classified as profit attribution.
4 The per-share amounts have been calculated on the basis of non-rounded figures.
5 The Class A shares issued in 2007 following the conversion of share premium reserve A share in the dividend A for 2006.

50 Annual Report 2007

 Financial statements 2007

Consolidated balance sheet 2007 2006

At year-end, before appropriation of profit, in millions of euros, unless stated otherwise

Assets
Non-current assets
Property, plant and equipment (12) 861 835
Intangible assets (13) 609 606
Deferred tax assets (22) 23 14
Investments in associates (14) 13 11
Derivative financial instruments 1 (31) 11 13
Financial assets (15) 17 3
1,534 1,482

Current assets
Inventories (16) 703 490
Trade and other receivables (17) 588 496
Government grants 2 5
Income tax receivable 6 9
Derivative financial instruments 1 (31) 7 5
Cash and cash equivalents (18) 132 145
1,438 1,150

Assets held for sale (19) 18 19

Total assets 2,990 2,651
0.0 0.0

Equity and liabilities

Equity
Issued capital 516 454
Share premium 19 81
Unrealised gains and losses arising from cash flow hedges 13 12
Currency translation reserve –4 13
Retained earnings 429 302
Equity attributable to equity holders of the parent (34) 973 862
Minority interests 59 64
Perpetual notes 2 (20) 125 124
Total equity 1,157 1,050

Non-current liabilities
Pensions and other long-term employee benefits (21) 92 84
Deferred tax liabilities (22) 27 25
Provisions (23) 7 4
Derivative financial instruments 1 (31) 31 19
Non-current interest-bearing borrowings (24) 422 434
579 566

Current liabilities
Current borrowings (25) 292 285
Trade and other payables (26) 892 703
Income tax payable 43 38
Provisions (23) 21 6
1,248 1,032

Liabilities held for sale (27) 6 3

Total equity and liabilities 2,990 2,651
0.0 0.0

Net debt 3 582 574

1 The figures for 2006 have been restated, because the derivative financial instruments were partly reclassified from current to non-current.
2 The figures for 2006 have been restated, because the perpetual notes are reclassified as equity, on account of enhanced insight.
3 Net debt represents non-current interest-bearing borrowings and current borrowings less cash and cash equivalents.

Royal Friesland Foods N.V. 51

 Financial statements 2007

Consolidated cash flow statement 2007 2006

In millions of euros, unless stated otherwise

This statement shows the cash flows generated by Friesland Foods, translated
into euros where applicable. The cash flow statement was prepared using the
indirect method.

Cash flows from operating activities

Profit before tax 273 234
Adjustments for:
Interest expense 1 28 25
Depreciation and amortisation 124 126
Impairment of property, plant and equipment, intangible assets and assets
held for sale 0
16
Movements in working capital – 138 – 56
Movements in pensions and other long-term employee benefits 10 12
Movements in provisions 18
42 123
Cash flows from operating activities 315 357
Income tax paid – 63 – 88
Interest paid 1 – 27 – 25
Net cash flows from operating activities 225 244
0.0 0.0

Cash flows from investing activities

Investment in property, plant and equipment and intangible assets – 187 – 166
Disposals of property, plant and equipment, intangible assets and assets
held for sale 28 24
Acquisitions (33) –3 – 42
Net cash flows used in investing activities – 162 – 184
0.0 0.0

Cash flows from financing activities

Dividends paid to equity holders of the parent – 45 – 36
Dividends paid to minority interests – 25 – 21
Profit distributed on perpetual notes 1 –9 –9
Drawn non-current interest-bearing borrowings 20 10
Repayment of non-current interest-bearing borrowings – 11 –3
Movements in current borrowings and derivative financial instruments –2 10
Net cash flows used in financing activities – 72 – 49
Net cash flows –9 11

Cash and cash equivalents at beginning of year 145 134

Net cash flows –9 11
Translation differences in cash and cash equivalents –4
Cash and cash equivalents at end of year 132 145
0.0 0.0

1 The figures for 2006 have been restated because the changed classification of the perpetual notes has resulted in the compensation on these notes being classified as profit distribution.

52 Annual Report 2007

 Financial statements 2007

Consolidated statement of changes in equity 2007

In millions of euros, unless stated otherwise
Equity
attributable to
equity holders of Minority
the parent interests Perpetual notes Total

At beginning of year 862 64 124 1,050

Movements in unrealised gains and losses 1 1

Currency translation differences – 17 –6 – 23
Amortisation of issue costs 1 1
Profit for the year 172 27 9 208
Total income and expense 156 21 10 187
Dividends paid to equity holders of the parent – 45 – 45
Dividends paid to minority interests – 25 – 25
Profit distributed to perpetual notes providers –9 –9
Acquisition of shares from minority interest holders –1 –1
At end of year 973 59 125 1,157
0.0 0.0 0.0 0.0

2006

Equity
attributable to
equity holders of Minority
the parent interests Perpetual notes Total

At beginning of year 796 66 124 986

0
Movements in unrealised gains and losses 8 8
Currency translation differences –4 –3 –7
Profit for the year 128 34 9 171
Total income and expense 132 31 9 172
Dividends paid to equity holders of the parent – 36 – 36
Dividends paid to minority interests – 21 – 21
Profit distributed to perpetual notes providers –9 –9
Acquisition of shares from minority interest holders – 30 – 12 – 42
At end of year 862 64 124 1,050
0.0 0.0 0.0

Royal Friesland Foods N.V. 53

 Financial statements 2007

Consolidated statement of changes in equity 2007

In millions of euros, unless stated otherwise

Unrealised gains
Equity attributable to equity holders and losses arising Currency
of the parent (34) from cash flow translation Retained
Issued capital Share premium hedges reserve earnings Total

At beginning of year 454 81 12 13 302 862

Movements in unrealised gains and losses 1 1

Currency translation differences – 17 – 17
Profit for the year 172 172
Total income and expense 1 – 17 172 156
Issue of Class A shares chargeable to share premium
reserve A 62 – 62 0
Dividends paid to equity holders of the parent – 45 – 45
At end of year 516 19 13 –4 429 973

2006

Unrealised gains
and losses arising Currency
from cash flow translation Retained
Issued capital Share premium hedges reserve earnings Total

At beginning of year 454 81 4 17 240 796

0

Movements in unrealised gains and losses 8 8

Currency translation differences –4 –4
Profit for the year 128 128
Total income and expense 8 –4 128 132
Acquisition of shares from minority interest holders – 30 – 30
Dividends paid to equity holders of the parent – 36 – 36
At end of year 454 81 12 13 302 862

54 Annual Report 2007

Notes to the consolidated financial statements
Accounting policies
General and basis of consolidation
Royal Friesland Foods N.V. is a public limited
liability company having its registered office
in Meppel, the Netherlands. The consolidated
financial statements for the year ended
31 December 2007 comprise the financial
statements of Royal Friesland Foods N.V.
and its subsidiaries (jointly referred to as
Friesland Foods).
After having been approved by the Supervisory
Board, the consolidated financial statements
for the year ended 31 December 2007 were
authorised for issue in accordance with a
resolution of the Board of Management on
28 February 2008.
Subsidiaries are fully consolidated, and all
intragroup balances, transactions, income and
expenses are eliminated in full. The financial
statements of the subsidiaries are prepared
for the same year under review as the parent
company, using consistent accounting policies.
Subsidiaries are consolidated from the date
on which Friesland Foods obtains control, and
continue to be consolidated until the date
that such control ceases. Minority interests
in subsidiaries are presented separately in
the balance sheet and the income statement.
Friesland Foods’ interests in joint ventures are
recognised as investments in associates.
The income statement is presented in accor-
dance with the provisions of Section 402 of
Part 9 of Book 2 of the Dutch Civil Code.
Summary of significant
accounting policies
General
The consolidated financial statements have
been prepared in accordance with International
Financial Reporting Standards (IFRS), which
have been accepted by the European Union,
and their interpretations as adopted by the
International Accounting Standards Board
(IASB).
Changes in the accounting policies
On account of enhanced insight, the perpetual
notes, previously classified as loan capital, are
now presented as equity. This adjustment was
also applied to the comparative figures for
2006. In addition, the interest charge for these
perpetual notes has been disclosed as part of
the appropriation of profit. This adjustment did
not have any impact on the profit attributable
to equity holders for the years 2007 and 2006.
In the comparative figures for 2006, the
amounts receivable as well as payable relative
to derivative financial instruments were partly
reclassified from current to non-current.
Unless stated otherwise, the financial state-
ments have been prepared on a historical cost
basis, except for derivative financial instru-
ments and employee-related obligations
arising from defined benefit plans, which have
been measured at fair value.
In preparing the financial statements, Friesland
Foods used judgements, estimates and
assumptions based on historical experience
and various other factors that it believed to be
reasonable under the circumstances, the results
of which form the basis for making judgements
about the carrying values of assets and
liabilities that are not readily apparent from
other sources. The actual results may differ
from management’s estimates. This applies in
particular to the assumptions made relative to
the milk price payable to the members of
Zuivelcooperatie Friesland Foods U.A. The
assumptions used in recognising goodwill
(intangible assets) create a risk of restatement
of this asset’s carrying value in future financial
years.
Effect of new IFRS standards
Friesland Foods has not opted for early applica-
tion of the following new standards that will be
mandatory for financial years beginning on or
after 1 January 2008:
- IFRS 8 Operating segments
- IFRS 23 Borrowing costs
Friesland Foods does not expect the applica-
tion of these new standards and interpre-
tations to have a significant effect on the
financial statements.
Foreign currency translation
The consolidated financial statements are
presented in euros, which is Friesland Foods’
functional currency. Monetary assets and
liabilities denominated in foreign currencies
are translated at the currency rate of exchange
ruling at the balance sheet date. Income and
expenses denominated in foreign currencies are
translated at the currency rate of exchange
ruling at the date of the transaction. All
differences are taken to the income statement
with the exception of differences on foreign
currency borrowings that provide a hedge
against a net investment in a foreign entity.
These are taken directly to equity until the
disposal of the net investment, at which time
they are recognised in the income statement.
Non-monetary items that are measured in
terms of historical cost in a foreign currency
are translated using the exchange rates as at
the dates of the initial transactions. Non-
monetary items measured at fair value in
Financial statements 2007
a foreign currency are translated using the
exchange rates as at the dates when the fair
value was determined.
Assets and liabilities of foreign subsidiaries are
translated at the currency rate of exchange
ruling at the balance sheet date; their income
and expenses are translated at the average
exchange rate during the year. Translation
differences on the profit of the foreign
subsidiaries, arising from differences between
the average rate of exchange and the year-end
rate are taken directly to equity. Similarly,
differences on the currency translation of
equity of foreign subsidiaries and in relation
to receivables on and payables to subsidiaries
that qualify as net investments in a foreign
operation and whose settlement is not
expected in the near future are also taken to
equity.
Translation differences relating to foreign
subsidiaries are recognised as a separate
component of equity. Upon the sale of a
foreign subsidiary, the cumulative gain or loss
previously reported in equity is included in the
income statement.
Segment information
The group segments for which financial
information is provided are defined based on
profitability and risk profiles, with primary
segment reporting by geographical area based
on the location of the assets. Friesland Foods
charges sales between segments as if these
were transactions with third parties. Second-
ary information is reported by business group.
These groups include: Classic Dairy, Industrial,
Consumer Products Europe and Consumer
Products International.
Segment assets and liabilities disclose the
situation at year-end. Eliminations show
inter-segment balances.
Property, plant and equipment
Property, plant and equipment are stated
at the lower of cost, less depreciation on a
straight-line basis over the useful life of the
assets, taking into account any residual value,
excluding the costs of day-to-day servicing,
and recoverable amount. Cost is stated net
of investment grants where applicable. Such
cost includes the cost of replacing part of such
plant and equipment when that cost is incurred
if the recognition criteria are met.
Property, plant and equipment also include
assets of which Friesland Foods has acquired
beneficial ownership under finance lease
agreements.
Leased assets are capitalised at the inception
of the lease at the fair value of the leased
property or, if lower, at the present value of the
Royal Friesland Foods N.V. 55
Notes to the consolidated financial statements
minimum lease payments. Capitalised leased
assets are depreciated over the shorter of the
estimated useful life of the asset and the lease
term or valued at the lower recoverable value.
Annual depreciation is calculated at fixed per-
centages of cost. Land is not depreciated.
The carrying values of plant and equipment
are reviewed for impairment when events or
changes in circumstances indicate that the
carrying value may not be recoverable. Where
an indication exists that the carrying amount
of a cash-generating unit exceeds its recover-
able amount, the asset is considered impaired
and is written down to its recoverable amount.
The recoverable amount of property, plant and
equipment is based on the higher of an asset’s
fair value less costs to sell and its value in use.
In assessing value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset.
Where an asset is concerned that does not
independently generate cash inflows, the re-
coverable amount of the cash-generating unit
to which the asset belongs is determined.
Impairment losses are taken to the income
statement.
The asset’s residual value and useful life are
reviewed, and adjusted if appropriate, at each
financial year end. An item of property, plant
and equipment is derecognised upon disposal
or when no future economic benefits are
expected from its use or disposal. Any gain
or loss arising on derecognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount of
the asset) is included in the income statement
in the year the asset is derecognised.
Intangible assets
Intangible assets are separately identifiable
non-financial assets that have no physical sub-
stance, e.g. goodwill and computer software.
Goodwill acquired in a business combination is
capitalised. Goodwill is the excess of the cost
of the business combination over Friesland
Foods’ interest in the net fair value of the iden-
tifiable assets and liabilities, and contingent
liabilities of the acquired operations.
Goodwill acquired in a business combination is,
from the acquisition date, allocated to each of
Friesland Foods’ cash-generating units that are
expected to benefit from the synergies of the
combination.
As from 1 January 2004, goodwill acquired in
business combinations and goodwill already
disclosed in the balance sheet has no longer
been amortised. Goodwill is reviewed for
impairment annually.
56
For the purpose of impairment testing, good-
will acquired in a business combination is, from
the acquisition date, allocated to each of
Friesland Foods’ cash-generating units, or
groups of cash-generating units, that are
expected to benefit from the synergies of the
combination, irrespective of whether other
assets or liabilities of Friesland Foods are
assigned to those units or groups of units. Each
unit or group of units to which the goodwill is
so allocated:
- represents the lowest level within Friesland
Foods at which the goodwill is monitored for
internal management purposes; and
- is not larger than a segment based on either
Friesland Foods’ primary or Friesland Foods’
secondary reporting format determined in
accordance with IAS 14 Segment Reporting.
Impairment is determined by assessing the
recoverable amount of the cash-generating
unit (group of cash-generating units) to which
the goodwill relates.
Where the recoverable amount of the cash-
generating unit is less than the carrying
amount, an impairment loss is recognised. In
assessing the recoverable amount, the esti-
mated future cash flows are discounted to their
present value using a pre-tax discount rate
that reflects current market assessments of the
time value of money and the risks specific to
the cash-generating unit.
Where the recoverable amount of the cash-
generating unit is less than the carrying
amount, an impairment loss is recognised in
the income statement.
Where goodwill forms part of a cash-
generating unit (group of cash-generating
units) and part of the operation within that
unit is disposed of, the goodwill associated
with the operation disposed of is included in
the carrying amount of the operation when
determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circum-
stance is measured based on the relative values
of the operation disposed of and the portion of
the cash-generating unit retained.
Goodwill arising from the acquisition of shares
from minority interest holders is deducted
directly from equity.
The useful lives of intangible assets are
assessed to be either finite or indefinite.
Intangible assets with finite lives are amortised
over the useful economic life and assessed for
impairment whenever there is an indication
that the intangible asset may be impaired.
The amortisation period and the amortisation
method for an intangible asset with a finite
useful life are reviewed at least at each finan-
cial year-end. Changes in the expected useful
life or the expected pattern of consumption
Financial statements 2007
of future economic benefits embodied in the
asset are accounted for by changing the amor-
tisation period or method, as appropriate, and
treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are
tested for impairment annually either individu-
ally or at the cash-generating unit level. Such
intangibles are not amortised. The useful life
of an intangible asset with an indefinite life
is reviewed annually to determine whether
indefinite life assessment continues to be
supportable. If not, the change in the useful life
assessment from indefinite to finite is made on
a prospective basis.
Computer software is measured at cost less
amortisation on a straight-line basis over the
useful life of the asset, taking into account any
impairment losses. The amortisation rate is
20%. The asset’s residual value and useful life
are reviewed annually, and adjusted if appro-
priate, at each financial year-end. Where the
recoverable amount of computer software is
less than the carrying amount, an impairment
loss is recognised.
Following initial recognition, intangible as-
sets are carried at cost less any accumulated
amortisation and any accumulated impairment
losses. Internally generated intangible assets,
excluding capitalised development costs, are
not capitalised and expenditure is recognised
in the income statement in the year in which
the expenditure is incurred.
Research costs are expensed as incurred. An
intangible asset arising from development ex-
penditure on an individual project is recognised
only when Friesland Foods can demonstrate
the technical feasibility of completing the
intangible asset so that it will be available for
use or sale, its intention to complete and its
ability to use or sell the asset, how the asset
will generate future economic benefits, the
ability of resources to complete and the
availability to measure reliably the expenditure
during the development. Following the initial
recognition of the development expenditure,
the cost model is applied requiring the asset to
be carried at cost less any accumulated amor-
tisation and accumulated impairment losses.
Any expenditure capitalised is amortised over
the period of expected future sales from the
related project.
The carrying value of development costs is
reviewed for impairment annually when the
asset is not yet in use or more frequently when
an indication of impairment arises during the
year under review.
Annual report 2007
Notes to the consolidated financial statements
Taxes
Current tax assets and liabilities for the current
and prior periods are measured at the amount
expected to be recovered from, or paid to, the
taxation authorities. The tax rates and tax laws
used to compute the amount are those that
are enacted or substantively enacted at the
balance sheet date.
Deferred income tax is provided using the
liability method on temporary differences at
the balance sheet date between the tax bases
of assets and liabilities and their carrying
amounts for financial reporting purposes.
Deferred income tax assets are recognised for
all deductible temporary differences, carry-
forward of unused tax credits and unused tax
losses, to the extent that it is probable that
taxable profit will be available against which
the deductible temporary differences, and the
carry-forward of unused tax credits and unused
tax losses can be utilised.
The carrying amount of deferred income tax
assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer
probable that sufficient taxable profit will be
available to allow all or part of the deferred
income tax asset to be utilised. Unrecognised
deferred income tax assets are reassessed at
each balance sheet date and are recognised to
the extent that it has become probable that
future taxable profit will allow the deferred tax
asset to be recovered.
Deferred income tax assets and liabilities are
measured at the tax rates that are expected to
apply to the year when the asset is realised or
the liability is settled, based on tax rates (and
tax laws) that have been enacted or substan-
tively enacted at the balance sheet date.
Income tax relating to items recognised di-
rectly in equity is recognised in equity and not
in the income statement.
Deferred tax assets and deferred tax liabilities
are offset, if a legally enforceable right exists
to set off current tax assets against current
tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation
authority.
Investments in associates
Unconsolidated associates are accounted for
under the equity method of accounting. An
associate is an entity in which the Friesland
Foods has significant influence rather than
control and which not a subsidiary. Friesland
Foods recognises its interests in joint ventures
using the equity method.
Financial assets
Financial assets are recognised at amortised
cost, taking into account any allowances for
uncollectible amounts deemed necessary.
Inventories
Raw materials and consumables are valued at
the lower of cost on a first-in, first-out basis,
net of an allowance for obsolescence, and net
realisable value if appropriate.
Finished goods are stated at the lower of
full absorption cost, net of an allowance
for obsolescence where necessary, and net
realisable value if appropriate. Full absorption
cost comprises the cost of direct materials
and labour and a proportion of manufacturing
overheads based on normal operating capacity.
Net realisable value is the estimated selling
price in the ordinary course of business, less
estimated costs of completion and the
estimated costs necessary to make the sale.
Inventories are stated net of unrealised gains
on intragroup transactions.
Trade and other receivables
Trade and other receivables are recognised
and carried at original invoice amount less
an allowance for any uncollectible amounts.
Provision is made when there is objective
evidence that Friesland Foods will not be able
to collect the debts. Bad debts are written off
when identified.
Cash and cash equivalents
Cash and cash equivalents comprise cash at
banks and in hand and short-term deposits.
Pensions and other long-term employee
benefits
Friesland Foods operates a number of defined
benefit plans that mainly relate to the pension
plan of the Dutch divisions. These plans are
comprised principally of an indexed average
salary plan. In addition, Friesland Foods has a
number of defined contribution plans for some
foreign operations. The pension plans of the
Dutch employees are insured with an insurance
company and some industry-wide pension
funds.
The cost of providing benefits under the
different pension plans is determined
separately for each plan using the ‘pro-
jected unit credit actuarial valuation method’.
Actuarial gains and losses are recognised as
income or expense when the net cumulative
unrecognised actuarial gains and losses for
each individual plan at the end of the previous
year under review exceed 10% of the higher
of the present value of the pension obligation
and the fair value of plan assets. These gains or
Financial statements 2007
losses are recognised over the expected aver-
age remaining working lives of the employees
participating in the plans.
Provisions
Provisions are recognised when Friesland Foods
has a present obligation (legal or constructive)
as a result of a past event, it is probable that
an outflow of resources embodying economic
benefits will be required to settle the obliga-
tion and a reliable estimate can be made of the
amount of the obligation. If the effect of the
time value of money is material, provisions are
discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to
the liability.
Provisions for restructuring are formed when
Friesland Foods has a detailed formal plan for
the restructuring and has started to implement
the restructuring plan or has raised a valid
expectation in those affected that it will carry
out the restructuring by announcing its main
features to those affected by it.
Non-current borrowings
All non-current borrowings are initially
recognised at the fair value of the considera-
tion received less directly attributable issue
costs. After initial recognition, non-current
borrowings are subsequently measured at
amortised cost using the effective
interest method. In calculating amortised cost,
allowance is made for all costs, premiums or
discounts in relation to the issue of the loan.
Increases or decreases in value are recognised
in the income statement for the year in which
the liabilities are no longer disclosed in the
balance sheet or their value is restated, as well
as during the periodic assessment of amortised
cost. If hedge accounting is used for deriva-
tive financial instruments, however, to hedge
the fair value of non-current borrowings, the
liability in question is measured at amortised
cost adjusted for the value of the derivative
financial instrument.
Leases
Finance leases are recognised at the present
value of the minimum lease payments. Lease
payments are apportioned between the finance
charges and reduction in the lease liability so
as to achieve a constant rate of interest on
the remaining balance of the liability. Finance
charges are recognised directly in the income
statement. The amounts for the reduction
in the outstanding liability due in the next
financial year are recognised as current liabili-
ties. Issue costs, if any, are deducted from the
payments qualifying as non-current liabilities
and recognised as an expense in the income
Royal Friesland Foods N.V. 57
Notes to the consolidated financial statements
statement on a straight-line basis over the
lease term.
Capitalised leased assets are depreciated over
the shorter of the estimated useful life of the
asset and the lease term, if there is no reason-
able certainty that Friesland Foods will obtain
ownership by the end of the lease term.
Leases where Friesland Foods does not retain
substantially all the risks and benefits of own-
ership of the asset are classified as operating
leases. Operating lease payments are recog-
nised as an expense in the income statement in
the year to which they relate.
Revenue recognition
Costs are determined with due observance of
the aforementioned accounting policies and
allocated to the financial year to which they
relate. Revenue is recognised to the extent that
it is probable that, and in the year in which, the
economic benefits will flow to Friesland Foods
and the revenue can be reliably measured.
Losses are accounted for in the year in which
they are foreseeable.
Revenue
This relates to the sale of goods to custom-
ers, exclusive of sales tax, less any discounts,
etc. Export grants received are recognised as
revenue.
Revenue is recognised when the significant
risks and rewards of ownership of the goods
have passed to the buyer.
Government grants
Government grants are recognised at fair value
where there is reasonable assurance that the
grant will be received and all attaching condi-
tions will be complied with. When the grant
relates to an expense item, it is recognised as
income over the period necessary to match the
grant on a systematic basis to the costs that it
is intended to compensate.
Where the grant relates to an asset, the fair
value is deducted from the carrying amount
of the asset and is released to the income
statement over the expected useful life of the
relevant asset by equal annual instalments.
Costs of raw materials, consumables and
goods for resale
This item represents the costs of raw materi-
als and consumables or the purchase price of
products sold. The costs of raw materials and
consumables are calculated based on the first-
in, first-out principle.
58
Finance income and costs
Finance income comprises interest received on
loans to and other interest-bearing receivables
from third parties, currency translation gains
on financial assets and liabilities, and gains
on derivative financial instruments. Finance
costs comprise interest paid on loans and other
interest-bearing borrowings from third parties,
currency translation losses on financial assets
and liabilities and losses on derivative financial
instruments.
Dividends
In accordance with Dutch law and the provi-
sions of the Articles of Association governing
profit appropriation, dividends qualify as an
appropriation of profit in the year in which they
are declared by the Annual General Meeting of
Shareholders and are subsequently distributed.
Other dividends are carried as liabilities in the
period in which they are declared.
Derivative financial instruments
Friesland Foods uses derivative financial instru-
ments such as forward currency contracts,
interest rate swaps and forward rate agree-
ments (FRAs) to hedge its risks associated with
interest rate and foreign currency fluctuations.
Such derivative financial instruments are
recognised at fair value in the balance sheet.
The fair value of forward currency contracts
is calculated by reference to current forward
exchange rates for contracts with similar
maturity profiles. The fair value of interest rate
swap contracts is determined by reference to
market values for similar instruments or by
calculating their present value based on
current market information.
For the purpose of hedge accounting, hedges
are classified as fair value hedges when
hedging the exposure to changes in the fair
value of a recognised asset or liability or
contractual obligation. They are classified as
cash flow hedges when hedging exposure to
variability in cash flows that is either
attributable to a particular risk associated
with a recognised asset or liability, or to a
currency risk associated with a contractual
obligation denominated in a foreign currency,
or to a forecast transaction.
For fair value hedges that qualify for hedge
accounting, any changes in the fair value of the
derivative financial instrument are recognised
in the income statement. The carrying amount
of the hedged item or hedged contractual
obligation is adjusted for gains and losses
attributable to the risk being hedged, and
gains and losses are taken to the income
statement. Any adjustment to the carrying
amount of a hedged financial instrument
Financial statements 2007
stated at amortised cost for which the
effective interest method is used is amortised
to the income statement.
For cash flow hedges that qualify for hedge
accounting, the effective portion of the gain
or loss on the derivative financial instrument
is recognised directly in equity, while the
ineffective portion is recognised in the income
statement.
Gains or losses from hedges of investments in
foreign operations are recognised directly in
equity.
Any amounts previously recognised in equity
are subsequently reclassified into profit or loss
in the same period during which the hedged
future cash flows, anticipated future trans-
action or contractual obligation affect profit or
loss, such as when a forecast sale or purchase
occurs. If, however, a hedged anticipated
future transaction should subsequently result
in recognition in the balance sheet of a non-
financial asset or liability, or an anticipated
future transaction regarding a non-financial
asset or liability should be reclassified into
a contractual obligation subject to fair value
hedge accounting, any amounts previously
recognised in equity are added to the original
cost or other carrying amount of the asset or
liability or of the contractual obligation.
Derivative financial instruments that do not
qualify for hedge accounting are classified as
held for sale and any changes in their fair value
are taken directly to the income statement.
Friesland Foods discontinues hedge account-
ing if the hedging instrument expires or is
sold, terminated or exercised or the hedge no
longer meets the criteria for hedge accounting.
Any amounts previously recognised in equity
remain in equity until the forecast transaction
occurs. If the forecast transaction is no longer
expected to occur, amounts previously recog-
nised in equity are transferred to the income
statement for that period.
A hedging relationship qualifies for hedge
accounting if there is formal designation and
documentation of the hedging relationship
and if the hedge is determined actually to have
been highly effective throughout the financial
reporting periods for which the hedge was
designated.
Annual report 2007
 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

1 Segment information 2007

Eliminations
and
Segmentation by geographical location of assets Europe Asia Other unallocated Total

Sales to external customers 1 3,766 971 338 0

5,075
Inter-segment sales 155 6 – 161 0
Total revenue 3,921 977 338 – 161 5,075
Rental and other income 43 1 1 45
Total operating income 3,964 978 339 – 161 5,120

Operating profit 230 85 30 – 46 299

Finance income and costs and share of profit of associates – 26 – 26
Income tax expense – 65 – 65
Profit for the year from continuing operations 208 0
Operating profit as a % of revenue 5.9 8.7 8.9 5.9
Carrying amounts of assets employed in operating activities 2 2,300 393 103 – 15 2,781
Carrying amounts of other assets 209 209
2,990 0.0
Liabilities resulting from operating activities 3 827 166 66 – 16 1,043
Other liabilities 790 790
1,833 0.0
Investment in property, plant, equipment and intangible assets 121 56 5 5 187
Depreciation, amortisation and impairment of property, plant,
equipment, intangible assets and assets held for sale – 99 – 18 –4 –3 – 124
Allocation to provisions and non-cash expense pension costs 50 3 1 0
54
Share of profit of associates 3 0 0 0
3
Investments in associates 13 0 0 0
13

‘Other’ mainly relates to West-Africa and the Middle East and ‘unallocated’ mainly relates to corporate
staff departments.
Intersegment sales are partly valued at market prices and based on a resale minus method and partly
based on a cost plus method.

2007
Consumer Consumer
Products Products Eliminations
Segmentation by business group Classic Dairy Industrial Europe International and other Total

Sales to external customers 1,635 797 1,018 1,611 14 5,075

Carrying amounts of assets employed in operating activities 2 832 394 253 713 589 2,781
Investment in property, plant, equipment and intangible assets 55 45 21 61 5 187
Depreciation, amortisation and impairment of property, plant,
equipment, intangible assets and assets for sale. – 46 – 21 – 18 – 35 –4 – 124

The part ‘other’ of the segment ‘Eliminations and other’ relates to corporate staff departments
and Cooperative Affairs & Raw Materials.

1 For a breakdown of revenue by geographical sales market, reference is made to page 61.
2 Excluding deferred tax assets, investments in associates, financial assets, income tax receivables, cash and cash equivalents and assets held for sale.
3 Concerns pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments.

Royal Friesland Foods N.V. 59

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Segment information 2006

Eliminations
and
Segmentation by geographical location of the assets Europe Asia Other unallocated Total

Sales to external customers 1 3,493 868 314 0

4,675
Inter-segment sales 132 5 – 137 0
Total revenue 3,625 873 314 – 137 4,675
Rental and other income 16 2 18
Total operating income 3,641 875 314 – 137 4,693

Operating profit 162 99 36 – 40 257

Finance income and costs and share of profit of associates – 23 – 23
Income tax expense – 63 – 63
Profit for the year from continuing operations 171 0.0
Operating profit as a % of revenue 4.5 11.3 11.5 5.5
Carrying amounts of assets employed in operating activities 2 2,084 293 80 –7 2,450
Carrying amounts of other assets 201 201
2,651 0.0
Liabilities resulting from operating activities 3 665 131 31 – 11 816
Other liabilities 785 785
1,601 0.0
Investment in property, plant, equipment and intangible assets 118 38 6 4 166
Depreciation, amortisation and impairment of property, plant,
equipment, intangible assets and assets held for sale – 117 – 17 –5 –3 – 142
Allocation to provisions and non-cash expense pension costs 30 2 2 1 35
Share of profit of associates 3 0 0 0
3
Investments in associates 11 0 0 0
11

‘Other’ mainly relates to West-Africa and the Middle East and ‘unallocated’ mainly relates to corporate
staff departments.
Intersegment sales are partly valued at market prices and based on a resale minus method and partly
based on a cost plus method.

2006
Consumer Consumer
Products Products Eliminations
Segmentation by business group Classic Dairy Industrial Europe International and other Total

Sales to external customers 1,550 644 975 1,474 32 4,675

Carrying amounts of assets employed in operating activities 2 711 302 247 575 615 2,450
Investment in property, plant, equipment and intangible assets 43 31 22 59 11 166
Depreciation, amortisation and impairment of property, plant,
equipment, intangible assets and assets for sale. – 45 – 21 – 24 – 36 – 16 – 142

The part ‘other’ of the segment ‘Eliminations and other’ relates to corporate staff departments
and Cooperative Affairs & Raw Materials.

1 For a breakdown of revenue by geographical sales market, reference is made to page 61.
2 Excluding deferred tax assets, investments in associates, financial assets, income tax receivables, cash and cash equivalents and assets held for sale.
3 Concerns pensions and other long-term employee benefits, provisions, trade and other payables and derivative financial instruments.

60 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

2 Exchange rates Year-end 2007 Average 2007 Year-end 2006 Average 2006
1
Principal exchange rates

US dollar 1.47 1.37 1.32 1.26

Hungarian forint (per 100) 2.53 2.51 2.52 2.64
Indonesian rupiah (per 10,000) 1.38 1.26 1.19 1.15
Romanian leu 3.58 3.33 3.38 3.53
Malaysian ringgit 4.87 4.71 4.65 4.62
Nigerian naira (per 100) 1.74 1.72 1.69 1.61
Thai baht (per 100) 0.43 0.44 0.47 0.47
Vietnamese dong (per 10,000) 2.36 2.21 2.12 2.01

3 Revenue 2007 2006

Revenue by geographical sales market
% %
Europe, exclusive of the Netherlands 1,760 35 1,609 34
The Netherlands 1,417 28 1,378 30
Asia and Australia 1,127 22 998 21
Africa and the Middle East 646 13 584 13
North and South America 125 2 106 2
5,075 100 4,675 100
0.0 0.0 0.0 0.0
Differences with the breakdown of sales to external customers by geographical location of the assets arise
from the classification by area where the sales were made.
Revenue is inclusive of EUR 32 million (2006: EUR 70 million) in various government grants. These
government grants relate principally to exports of cheese, butter and milk powder, and to butter processing.
The conditions of these grants have been met and the related obligations fulfilled.

4 Other operating income

Other operating income includes gains on services rendered to external customers, insurance payments,
proceeds from the sale of property, plant and equipment and business activities.
In the year under review, business activities were sold generating a gain of EUR 32 million.
These transactions involved assets in the amount of EUR 16 million, but no liabilities.
Insurance payments as a result of insured events, net of costs, were EUR 1 million (2006: nil).

5 Costs of raw materials, consumables and goods for resale 2007 2006
% %
Raw materials 2 2,619 81 2,306 80
Packaging materials 2 458 14 441 15
Third-party products 155 5 150 5
3,232 100 2,897 100
0.0 0.0 0.0 0.0

6 Employee benefits expense 2007 2006

% %
Wages and salaries 362 81 352 81
Social security costs 51 11 50 11
Pension costs 35 8 37 8
448 100 439 100
0.0 0.0 0.0 0.0

Employees by geographical segment (average number of FTEs):

The Netherlands 4,921 34 4,936 32
Europe, exclusive of the Netherlands 4,352 30 5,062 33
Asia 4,411 30 4,342 29
Other 898 6 972 6
14,582 100 15,312 100
0.0 0.0 0.0 0.0

1 EUR 1 expressed in the relevant currency.

2 The figures for 2006 have been restated due to the reclassification of costs of raw materials, packaging materials and other operating expenses.

Royal Friesland Foods N.V. 61

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

2007 2006
Employees by business group (average number of FTEs): % %
Classic Dairy 2,396 17 2,452 16
Industrial 1,226 8 1,155 8
Consumer Products Europe 4,293 29 5,036 33
Consumer Products International 6,336 44 6,342 41
Other 331 2 327 2
14,582 100 15,312 100
0.0 0.0 0.0 0.0

7 Other operating expenses 2007 2006

Transport costs 232 221
Advertising and promotional expenses 207 194
Work outsourced out and temporary staff 139 118
Utilities 118 117
Maintenance and repair costs 80 75
Other 1 241 249
1,017 974

Other operating expenses include:

- Research and development costs for new products amounting to EUR 29 million (2006: EUR 24 million).
- Leasing charges that qualify as operating lease payments amounting to EUR 7 million (2006: EUR 12 million).
- Various government grants of EUR 8 million (2006: EUR 7 million). The conditions of these grants have
been met and the related obligations fulfilled.

8 Finance income and costs 2007 2006

Interest income 5 2
Interest expense – 28 – 25
Gains/losses on currency exchange rate differences –6 –3
– 29 – 26
0.0 0.0

9 Income tax expense 2007 2006

Breakdown of tax expense
Current tax expense – 72 – 56
Deferred tax expense 7 –7
– 65 – 63
Breakdown of deferred tax expense 0.0 0.0

Property, plant and equipment –2 –2

Intangible assets –2 –3
Employee benefits –2 7
Inventories, receivables, debts and provisions 9 – 10
Unused tax losses and facilities 2 –7
Other 2 8
7 –7
0.0 0.0

Profit before tax less share of profit of associates and profit for the year
attributable to perpetual notes providers 261 222

Tax expense Amount % Amount %

Theoretical tax rate 69 26 52 23
Non-deductible expenses 4 2 3 1
Untaxed income –1 0
–1 0

Unrecognised tax losses for the year 1 0

1 0

Changes in deferred taxes due to reduction in tax rate 0

3 2
Sale of subsidiaries –2 –1 2 1
Other –6 –2 3 1
Effective tax burden 65 25 63 28
0.0 0.0 0.0 0.0

The theoretical tax rate is calculated by weighting the applicable tax rate in each country by the profit or loss posted in that country.
Unrecognised tax losses amounted to EUR 18 million at year-end 2007 (2006: EUR 15 million).

1 The figures for 2006 have been restated due to the reclassification of costs of raw materials, packaging materials and other operating expenses.

62 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

10 Earnings per share and attribution per share 2007 2006

Basic earnings per share amounts are calculated by dividing profit for the year attributable to equity holders of the parent by
the weighted average number of shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the profit attributable to equity holders of the parent by the
weighted average number of shares outstanding during the year adjusted for the effects of the dilution as a result of the
conversion of the Class A share premium reserve into Class A shares.

Average number of issued and paid-up Class A shares, basic 6,959,744 5,840,363
Conversion of share premium reserve A into Class A shares 0
1,339,587
Adjustment of new shares to full year 220,206
Number of Class A shares, fully diluted 7,179,950 7,179,950

Number of Class B shares 4,033,865 4,033,865

Average total number of issued and paid-up shares, basic 10,993,609 9,874,228
Average total number of shares, fully diluted 11,213,815 11,213,815

Number of issued and paid-up Class A shares at year-end 7,179,950 5,840,363

Number of issued and paid-up Class B shares at year-end 4,033,865 4,033,865
Total number of issued and paid-up shares at year-end 11,213,815 9,874,228

Earnings attributable to Class A shares, basic 91 66

Earnings attributable to Class B shares, basic 81 62
Earnings attributable to equity holders of the parent 172 128

Per share of EUR 46.00 1 (in euros)

Earnings per Class A share, basic 12.98 11.34
Earnings per Class B share, basic 20.20 15.21
Earnings per Class A share, fully diluted 12.58 9.22
Earnings per Class B share, fully diluted 20.20 15.21
Earnings per share, basic 15.63 12.92
Earnings per share, fully diluted 15.32 11.38
Proposed dividend for the year per Class A share 2 2.62 2.39
Proposed dividend for the year per Class B share 10.24 6.81
Dividend distributed for the year per Class A share 2 2.39 2.57
Dividend distributed for the year per Class B share 6.81 5.32

Where the dividend portion is concerned, the attribution of earnings to Class A and B shares is based on the provisions
governing the appropriation of profit, and the addition to the reserve is distributed proportionately to the capital issued
at year-end in accordance with the provisions of the Articles of Association.

In the Annual General Meeting of Shareholders, each Class A share and Class B share will entitle the holder to one vote.

11 Proposed appropriation of profit 2007 2006

Subject to the approval of the Supervisory Board, the Board of Management
has proposed to appropriate the profit attributable to equity holders of the Addition to Dividend
parent for 2007 as follows: reserves distribution Total Total

Retained earnings 112 112 83

Distribution of cash dividend on Class A shares 19 19 17
Distribution of cash dividend on Class B shares 41 41 28
112 60 172 128
0.0 0.0

Non-retained earnings will be distributed. The amount available for distribution on a Class B share is twice as high as that
on a Class A share. The actual distribution on Class A shares per year is capped at an amount based on the total nominal
value of the Class A shares plus the balance of share premium reserve A at the balance sheet date, at a rate corresponding
with the average effective return on certain treasury bonds increased by one hundred and fifty (150) basis points.

1 The per-share amounts have been calculated on the basis of non-rounded figures.
2 The Class A shares issued in 2007 following the conversion of share premium reserve A share in the dividend A for 2006.

Royal Friesland Foods N.V. 63

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

If, in any financial year, the amount available for distribution on Class A shares should exceed this cap,
any excess will be distributed on the Class B shares. This holds true for 2007 and 2006.
For 2007, a cash dividend of EUR 2.62 (2006: EUR 2.39) per Class A share of EUR 46.00 nominal value
each and a cash dividend of EUR 10.24 (2006: EUR 6.81) per Class B share of EUR 46.00 nominal value
each will be distributed on 7 March 2008.

12 Property, plant and equipment 2007

Other Not employed
Land and Plant and non-current in business
buildings equipment assets operations Total
0

Net carrying amount at beginning of year 255 517 57 6 835

Additions 41 123 16 0
180
Disposals –1 –2 – 16 –4 – 23
Currency translation differences –3 –5 –2 0
– 10
Transfers 18 – 19 –8 9 0
Depreciation charge for the year – 23 – 85 – 13 0
– 121
Impairment 1 –1 0
Net carrying amount at end of year 288 528 34 11 861
0.0 0.0 0.0 0.0 0.0

Cost 588 1,436 103 20 2,147

Accumulated depreciation and impairment – 300 – 908 – 69 –9 – 1,286
Net carrying amount at end of year 288 528 34 11 861

2006
Other Not employed
Land and Plant and non-current in business
0 buildings equipment assets operations Total

Net carrying amount at beginning of year 264 515 52 6 837

Additions 27 112 20 0
159
Disposals –6 –4 –6 0
– 16
Currency translation differences –2 –3 0 0
–5
Transfers –6 –8 7 7 0
Transfer to assets held for sale –7 –7
Depreciation charge for the year – 19 – 91 – 13 0
– 123
Impairment –3 –4 –3 – 10
Net carrying amount at end of year 255 517 57 6 835
0.0 0.0 0.0 0.0 0.0

Cost 514 1,409 142 18 2,083

Accumulated depreciation and impairment – 259 – 892 – 85 – 12 – 1,248
Net carrying amount at end of year 255 517 57 6 835

The depreciation rates are between 4% and 10% for buildings, between 5% and 20% for plant and
equipment and between 5% and 20% for other non-current assets.
On 1 October 2007, the depreciation rates were revised based on an investigation. For 2007 this results in
the depreciation charges being on balance EUR 3 million lower. On the basis of a full year, the depreciation
charges would have been EUR 12 million lower.
Impairment relates mainly to the downward revaluation of the appraised net realisable value of property,
plant and equipment affected by restructuring decisions.
The net carrying amounts of buildings, plant and equipment to which finance leases relate amount to
EUR 21 million (2006: EUR 10 million).
The net carrying amount at year-end includes EUR 95 million (2006: EUR 56 million) in non-current assets
under construction.

64 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

13 Intangible assets 2007 2006

Goodwill Software Totaal Goodwill Software Totaal

Net carrying amount at beginning of year 595 11 606 598 8 606

Additions 0
7 7 0
7 7
Disposals 0 0
0 0
–1 –1
Currency translation differences –1 0
–1 1 0
1
Amortisation charge for the year –3 –3 –3 –3
Impairment 0 –4 –4
Net carrying amount at end of year 594 15 609 595 11 606
0.0 0.0 0.0 0.0 0.0 0.0

Cost 659 35 694 660 25 685

Accumulated amortisation and impairment – 65 – 20 – 85 – 65 – 14 – 79
Net carrying amount at end of year 594 15 609 595 11 606

For the purposes of impairment testing, goodwill is allocated to the cash-generating units Western Europe and Central
Europe. The recoverable amounts of both cash-generating units have been determined based on the medium-term plan until
2010. The discount rate applied to cash flow projections is 7.4% for Western Europe (2006: 7.2%) and 12.1% on average for
Central Europe (2006: 12.6%). Cash flows beyond 2010 are extrapolated using a growth rate that is the same as the current
inflation rates in the countries in question.
The annual amortisation rate for software is 20%.

14 Investments in associates 2007 2006

Net carrying amount at beginning of year 11 11
Investment 2 0

Changes as a result of the income statement 3 3

Dividends received –3 –3
Net carrying amount at end of year 13 11
0,0 0,0

Net asset value Share of profit Share of revenue Shareholding as % Share of revenue Shareholding as %

CSK Food Enrichment B.V., Leeuwarden,

the Netherlands 5 2 n.b. 49 15 49
Het Kaasmerk B.V., Leiden,
the Netherlands 1 0
n.b. 49 1 49
Great Ocean Ingredients Pty Limited,
Allansford, Victoria, Australia 1 3 0
n.b. 50
Unifine Debic Ingredientes de Pastelaria S.A.
Lissabon, Portugal 1 1 0
n.b. 50 3 50
El Castillo Debic Food Service S.L.,
Barcelona, Spain 1 3 1 n.b. 50 17 50
13 3 36
0,0 0,0 0,0

Share in assets Share in assets

Non-current assets n.b. 6

Current assets n.b. 7
Equity n.b. 7
Non-current liabilities n.b. 1
Current liabilities n.b. 5

When these financial statements were prepared, the associates’ balance sheets and revenue figures for 2007 were not yet
available.
,

15 Financial assets 2007 2006

Loan notes 5 3
Non-current receivables 12
17 3
0.0 0.0

16 Inventories 2007 2006

Raw materials and consumables 232 137
Finished goods and goods for resale 471 353
703 490
0.0 0.0

1 These are joint ventures.

Royal Friesland Foods N.V. 65

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

17 Trade and other receivables 2007 2006

Trade receivables 519
519 439
Provision for doubtful debts – 14
– 14 – 12
Other receivables 33
33 29
538
538 456
Tax receivable (exclusive of income tax) and receivable of social security contributions 50
50 40
588
588 496
0.0 0.0 0.0

Provision for doubtful debts

At beginning of year – 12
– 12 – 17
Currency translation differences 0 0
1
Charged to the income statement –4
–4 –3
Released to the income statement 1
1 0

Trade receivables written off 1

1 2
Received on trade receivables written off 5
At end of year – 14
– 14 – 12
0.0 0.0

Term of payment exceeded by trade and other receivables

Prompt payment 426
426 357
Term of payment exceeded by up to 3 months 106
106 91
Term of payment exceeded by 3 to 6 months 4
4 3
Term of payment exceeded by more than 6 months 2
2 5
538
538 456
0.0 0.0 0.0

Trade and other receivables are non-interest-bearing and generally fall due between 10 and 90 days.
With respect to its trade receivables, Friesland Foods has accepted pledges, which can be cashed in, sold
or re-pledged. The fair value of these pledges totals EUR 14 million.

18 Cash and cash equivalents 2007 2006

Deposits 25
25 29
Other cash and cash equivalents 107
107 116
132
132 145
0.0 0.0 0.0

Of cash and cash equivalents, EUR 34 million (2006: EUR 32 million) is not at the Company’s free
disposal. This relates to EUR 25 million in deposits and EUR 9 million in issued guarantee.
The guarantee issued concerns a pledge for a documentary letter of credit and is valid until
August 2008.

66 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

19 Assets held for sale

Assets held for sale relate to land, buildings, plant and equipment of EUR 11 million
(2006: EUR 16 million) and current assets of EUR 7 million (2006: EUR 3 million), which will be
sold within one year. The assets are available for sale as a result of restructuring and because of a
business activity does no longer fit in the strategy of the company.
These assets are recognised at the lower of their carrying amount and fair value less costs to
sell based on valuation reports.
The balance of the impairment losses and of the difference between the market price and the
carrying amount was EUR 3 million (2006: EUR 1 million). This amount was recognised in the
income statement under other operating income.

2007
2007 2006
Net carrying amount at beginning of year 19
19 18
Transfer from property, plant and equipment 0 0
7
Addition current assets 7
7 3
Disposals –9
–9 –7
Impairment 1
1 –2
Net carrying amount at end of year 18
18 19
0.0 0.0

20 Perpetual notes
In 2003, Friesland Foods issued perpetual cumulative subordinated notes for an amount of
EUR 125 million with a coupon of 7.125%, the effective interest rate of 7.66% being based on
amortised issue costs and share premium income. The notes are listed on Euronext Amsterdam.
There is no repayment commitment, but the notes can be repaid in full each year, for the first time
on 2 June 2008. Royal Friesland Foods has to inform the holders of the notes at least 30 days and
not more than 60 days in advance. The notes are subordinated to the claims of all present and
future creditors, to the extent that these are not subordinated.
Interest payments may be deferred, provided that Royal Friesland Foods N.V. has not distributed
any dividend in the 12 months prior to the annual coupon date. Deferred interest will be payable on
the date on which dividend is next distributed.

21 Pensions and other long-term employee benefits

Friesland Foods operates a number of defined benefit plans that mainly relate to the pension
plan of its Dutch operations. This plan is comprised principally of an indexed average salary
plan. In addition, Friesland Foods has a number of defined contribution plans for some foreign
operations. The pension plans of the Dutch employees are insured with an insurance company and
some industrial-wide pension funds. The most important pension plan insured with an insurance
company has a profit-sharing agreement based on a segregated investment fund and has a required
coverage ratio (the ratio of plan assets to the pension obligation calculated under the conditions of
the insurance contract) of at least 115%.
At year-end 2007, the coverage ratio of the insured pension plan was 125% (2006: 124%), thereby
fulfilling the contractual obligation vis-à-vis the insurance company.
In 2007, part of the pension obligation of the Dutch operations (nearly all pensioners and
deferreds) was transferred to another insurance company, which was done in such a way that
Friesland Foods no longer has any obligation. As a result, this pension obligation will no longer be
disclosed in the balance sheet. Under the provisions of IAS 19, this concerns a termination of the
pension scheme for this specific group of insured persons. This has led to a write-off of the costs
not yet recognised relative to years of past service and part of the actuarial gains and losses not yet
recognised.
The following tables summarise the assumptions used in determining the (movements in the)
present value of pension obligation and the plan assets and the components of the net benefit
expense recognised in the consolidated balance sheet and income statement.

Royal Friesland Foods N.V. 67

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Assumptions 2007 2006

Discount rate 5.5% 4.4%
Age-related salary increases 0 - 2% 0 - 2%
Wage inflation 2.7% 2.5%
Price inflation 2.2% 2.0%
Indexation
- actives 2.7% 2.5%
- pensioners 0 - 2% 0 - 2%
Francise trend 2.2% 2.0%
Expected rate of return on plan assets 5.5% 5.5%

Breakdown of pension costs payable at year-end

Present value of pension obligation 762 1,640
Fair value of plan assets 790 1,546
– 28 94

Past-service cost not yet recognised – 35

Unrecognised actuarial gains and losses at year-end 120 25
92 84
0.0 0.0

Movements in pension costs payable

At beginning of year 84 73
Pension costs of defined benefit plans 31 30
Contributions paid – 21 – 18
Currency translation differences –2 –1
At end of year 92 84
0.0 0.0

Present value of pension obligation

At beginning of year 1,640 1,654
Changes due to new pension plan 39
Increase in present value of pension obligation 37 40
Interest expense 64 66
Benefits paid – 53 – 65
Currency translation gains and losses –2 –1
Transfer of pension obligation – 717
Actuarial gains and losses – 207 – 93
At end of year 762 1,640
0.0 0.0

Funded pension obligation 690 1,567

Pension obligation not yet funded 72 73
At end of year 762 1,640

68 Annual report 2007

Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Fair value of plan assets 2007 2006

At beginning of year 1,546 1,487
Expected return on plan assets 71 80
Contributions received 21 18
Benefits paid – 53 – 65
Transfer of pension obligation, single premiums – 792
Actuarial gains and losses –3 26
At end of year 790 1,546

Unrecognised actuarial gains and losses

At beginning of year 25 – 94
Present value of pension obligation 207 93
Plan assets –3 26
Release due to transfer of pension obligation – 109
At end of year 120 25

Past-service cost not yet recognised

At beginning of year 35
Liability in respect of new pension plan 39
Depreciation –3 –4
Write-off due to transfer of pension obligation – 32
At end of year 0 35

Pension costs disclosed in the income statement

Increase in present value of pension obligation 37 40
Interest expense 64 66
Expected return on plan assets – 71 – 80
Depreciation of past-service cost 3 4
Gain/loss on transfer of pension obligation –2
Expense item disclosed in income statement by virtue of IAS 19-based
defined benefit plans 31 30
Pension costs by virtue of defined contribution plans and industry
multi-employer plans 10 11
Employees’ share in pension costs –6 –4
35 37
0.0 0.0

The industry multi-employer plans are defined benefit plans. The funds are unable to provide
Friesland Foods with the required information. As a result, the related contributions are recognised as being
for defined contribution plans.

Friesland Foods expects to contribute EUR 20 million to its defined pension plans in 2008.

The key investment categories based on percentage of fair market value of total assets are: % %
Shares 47 43
Fixed-interest securities 40 41
Convertible bonds 5 6
Real estate 7 5
Other 1 5
0.0 0.0

Expected return on plan assets is based on the expected long-term return on the basis of the long-term
investment strategy and the different investment categories. A long-term return is assumed for each long-
term investment category making allowance for the long-term risk of the investment and historical returns
of the investment category in question. A weighted average expected long-term return is determined based
on the long-term return from each investment category and the strategic asset allocation.

Royal Friesland Foods N.V. 69

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Five-year summary 2007 2006 2005 2004 2003

Present value of pension obligation 762 1,640 1,654 1,502 1,310
Fair value of plan assets 790 1,546 1,487 1,343 1,280
– 28 94 167 159 30
Actuarial gains and losses on pension obligation
(excess/deficit) 207 93 – 97 – 146
Actuarial gains and losses on plan assets (deficit/excess) –3 26 115 34

22 Deferred taxes 2007 2006

Assets by type of temporary difference
Intangible assets 21 18
Employee benefits 8 10
Inventories, receivables, derevative financial instruments,
debts and provisions 16 7
Unused tax losses and relief facilities 8 5
53 40
0.0 0.0

Liabilities by type of temporary difference

Property, plant and equipment 23 21
Intangible assets 20 16
Inventories, receivables, derevative financial instruments,
debts and provisions 8 7
Other 6 7
57 51

Net debt 4 11
0.0 0

Disclosed as follows in the balance sheet:

Deferred tax assets 23 14
Deferred tax liabilities 27 25
Net debt 4 11

Friesland Foods expects to be able to offset unused tax losses against future profits.

23 Provisions 2007 2006

Restructuring
provisions Other provisions Total Total

At beginning of year 7 3 10 10
Charged to the income statement 12 13 25 8
Released to the income statement –1 –1 – 2 –3
Utilised –5 – 5 –5
At end of year 13 15 28 10
0 0 0 0

Non-current provisions 4 3 7 4
Current provisions 9 12 21 6
13 15 28 10

Restructuring provisions
Restructuring provisions will result in future cash outflows. Since their present value is not materially
different, the provisions are recognised at their non-discounted value.
The restructuring provisions relate to a number of projects, in particular the production plant situated in
Groningen and the corporate staff departments.

Other provisions
These provisions are formed for obligations of which the extent or likelihood is uncertain at the balance
sheet date. The timing of the cash outflow of these provisions is uncertain. These provisions are stated at
actual value since their present value is not materially different. Non-current provisions are mainly medium-
term in nature.
The other provisions also comprise an amount of EUR 5 million for onerous contracts.

70 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

24 Non-current interest-bearing borrowings 2007 2006

Amounts owed Amounts owed Other amounts
to institutional to syndicate of owed to credit
investors credit institutions institutions Other debts Total Total

At beginning of year 162 249 12 11 434 449

Additions 0
20 20 10
Repayments –4 –7 – 11 –3
Transfer to current borrowings –8 –1 –9 –2
Amortisation of issue costs 1 1
Adjustment for currency / interest rate swap – 13 – 13 – 20
At end of year 149 250 0 23 422 434

2007 2006
Total Interest % Interest %
Repayment schedule and interest rates: 2009 - 2012 After 2012 repayment at year end at year end

Amounts owed to institutional investors 70 79 149 4.7 4.5

Amounts owed to syndicate of credit institutions 250 0
250 3.0 3.0
Other debts 12 11 23 5.7 5.8
Total 332 90 422 3.7 3.8

Amounts owed to institutional investors comprise private placements for a total amount of USD 213
million. These loans are recognised at amortised cost, adjusted for the value of the fair value hedge
contracted for the loan.
The amounts owed to syndicate of credit institutions concern an unconditional multicurrency credit facility
of EUR 550 million. This facility will mature in 2010.
The main terms and conditions applying to the loans and credit facility are:
- the ratio of net debt to operating profit before depreciation and amortisation plus dividends from
associates, and exclusive of exceptional items must not exceed 3.5 : 1.
- the ratio of operating profit before depreciation and amortisation plus dividends from associates, and
exclusive of exceptional items to interest must be at least 3.5 : 1.
The loans and amounts drawn from the credit facility become repayable on demand if the above terms and
conditions cease to be met.
By means of a cross-currency interest rate swap, repayment and interest obligations to institutional
investors denominated in USD have been converted into EUR, and fixed interest rates have been converted
into floating interest rates. The USD 213 million portion has been fixed at EUR 181 million through the swap
referred to above. The floating interest rates are based on six-month EURIBOR plus a mark-up.
The interest rate on the amounts owed to a syndicate of credit institutions was fixed through two swaps,
within a spread of 2.9% and 3.4%. The interest rates on these swaps range only based on the ratio of net
debt to operating profit before depreciation and amortisation plus dividends from associates, and exclusive
of exceptional items.

Finance leases 2007 2006

Total lease payment 29 12

Present value of lease payments 21 11

Included in current borrowings –2 –3
19 8

The finance leases are recognised as ‘Other amounts owed to credit institutions’ and ‘Other debts’.
EUR 8 million will be repaid in the years 2009 to 2012, and EUR 11 million in subsequent years. The average
interest rate on these amounts owed and debts at year-end 2007 was 5.5% (2006: 5.9%).
The lease instalments payable comprise an amount of EUR 26 million (present value EUR 18 million) for a
joint venture agreement with a third party for the ripening, storage and packaging of cheese. This agreement
expires in 2015.

Royal Friesland Foods N.V. 71

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

25 Current borrowings 2007 2006

Current portion of non-current interest bearing borrowings 10 2
Bank overdraft 282 283
292 285
0.0 0.0

At year-end 2007, ‘Bank overdraft’ included an amount of EUR 90 million in the form of a current drawing
on the unconditional multicurrency credit facility included in ‘non-current interest bearing borrowings.’
Of this amount the interest rate of EUR 50 million has been hedged within a spread of 2.9% and 3.4%.
The interest rate of the other EUR 40 million is floating and is based on EURIBOR plus a mark-up depending
on the ratio of net debt to operating profit before depreciation and amortisation plus dividends from
associates, and exclusive of exceptional items. Friesland Foods can determine the interest period to which
the EURIBOR applies.
Other amounts under ‘Bank overdraft’ relate mainly to conditional bank overdrafts. This item also includes
short-term borrowings from institutions other than banks.
The average interest rate on current borrowings at year-end 2007 was 4.1% (2006: 3.2%).

26 Trade and other payables 2007 2006

Amounts owed to Dutch dairy farmers 302 221
Amounts owed to other suppliers 338 257
Amounts owed relating to investing activities 35 42
Tax payable (exclusive of income tax) and social security contributions 19 22
Other payables 198 161
892 703
0.0 0.0

Trade and other payables are non-interest-bearing and generally fall due between 10 and 90 days, except for
a portion of the amounts owed to dairy farmers, which is paid in the month of May following the financial
year.

27 Liabilities held for sale

The liabilities held for sale concern liabilities of a business activity whose operations are no longer in line
with the company’s strategy.

28 Security
No security has been provided for current and non-current borrowings.

29 Commitments and contingencies 2008 2009 - 2012 After 2012 2007 Total 2006 Total
Commitments: non-current assets and guarantees
Guarantees to third parties 17 0 0
17 48
Rental and lease obligations 23 38 18 79 64
Purchase commitments relating to non-current assets 21 0 0
21 22
Other commitments 4 4 1 9 8
65 42 19 126 142

The guarantees to third parties relate mainly to guarantees issued relating to export grants.

Friesland Foods has granted an outside party the right, subject to certain conditions, to indirectly acquire 4%
of the shares in PT Frisian Flag Indonesia in the period from 2007 to 2011, and an additional 4% indirectly in
the period 2012 to 2015 inclusive. This right has not been used in 2007.

30 Related party disclosures

Zuivelcoöperatie Friesland Foods U.A., the shareholder, and Friesland Foods B.V., a subsidiary of Royal
Friesland Foods N.V., have agreed that the latter will purchase from the cooperative the milk supplied to
it by its members (5.3 billion kgs for 2007). The price to be paid for this milk is based on the price paid by
Friesland Foods B.V. for 2005, indexed annually to the movements in the milk prices paid by four Western
European dairy companies relative to 2005. The financial statements include the estimated amount due at
year-end. The estimate is based on the provisional information of the dairy companies in question.

72 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

In 2008, based on the annual reports of the dairy companies concerned, the actual index for 2007 is
determined. The result that arises due to the difference between the estimated and the actual index is taken
to the income statement for 2008. Owing to the extreme volatility of the milk price in 2007, the estimate is
more complex than in previous years. When estimating the milk price, all relevant information of the dairy
companies concerned as available upon the compilation of the financial statements, is taken into account.
However, the actual milk price can still differ substantially from the milk price estimated for the financial
statement purposes.
Friesland Foods has rented milk tanks to members of Zuivelcoöperatie Friesland Foods U.A. (2007: EUR 5
million, 2006: EUR 7 million). On 1 October 2007, these milk tanks and rental activities were transferred to
a third party.
Friesland Foods has sold milk tanks to members of Zuivelcoöperatie Friesland Foods U.A. (2007: EUR 2
million, 2006: EUR 6 million).

31 Financial instruments and risks

For notes to the objectives and policies with regard to the role of derivatives and other financial instruments
in Friesland Foods’ activities, please refer to pages 76 and 77.

Carrying amounts and fair values of financial instruments 2007 2006

Carrying Carrying
Assets amount Fair value amount Fair value

Financial assets 17 17 3 3
Trade and other receivables 588 588 496 496
Derivative financial instruments 18 18 18 18
Cash and cash equivalents 132 132 145 145
Liabilities
Perpetual notes 125 125 124 129
Non-current interest-bearing borrowings 422 422 434 435
Current borrowings 292 292 285 285
Trade and other payables 892 892 703 703
Derivative financial instruments 31 31 19 19

The fair value is the amount that would have been received or paid had the assets or liabilities been settled at the balance
sheet date without further obligations. The fair value of the perpetual notes is based on the closing price on Euronext
Amsterdam as at year-end. The fair value of derivative financial instruments relating to forward currency contracts is
calculated by reference to current forward exchange rates for contracts with similar maturity profiles. With respect to
interest rate swap contracts, it is determined by calculating their present value based on current market information. The fair
value of all other items is determined based on the discounted value of the estimated future cash flows at discounts rates
that reflect current market assessments.

Cash flows financial liabilities

2007 2008 2009 - 2012 After 2012 Total
Non-current interest-bearing borrowings – 26 – 371 – 96 – 493
Current borrowings – 292 – 292
Trade and other payables – 892 – 892
Derivative financial instruments – 16 – 15 – 31
– 1,210 – 387 – 111 – 1,708

2006 2007 2008 - 2011 After 2011 Total

Non-current interest-bearing borrowings – 18 – 377 – 94 – 489
Current borrowings – 285 – 285
Trade and other payables – 703 – 703
Derivative financial instruments – 10 –9 – 19
– 1,006 – 387 – 103 – 1,496

Royal Friesland Foods N.V. 73

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

The cash flows of the financial liabilities comprise undiscounted principal amounts and interest that have been recognised in
the period in which payment falls due.

Receivables and debts denominated in currencies other than the local currency 2007 2006
Receivables and Receivables and
cash and cash cash and cash
equivalents Debts equivalents Debts

US dollar 15 40 15 23
Euro 6 12 3 3
Indonesian rupiah 4 2 0 0

Hungarian forint 4 0
19 0

Pound Sterling 4 3 2

The amounts disclosed concern cash and cash equivalents, receivables and debts denominated in currencies other than the
local currency, net of the amounts for which the currency risk has been hedged by means of derivative financial instruments.

Interest on borrowings and perpetual notes can be broken down as follows 2007 2006
Carrying Carrying Carrying Carrying
amount amount amount amount
exclusive of inclusive of exclusive of inclusive of
hedging hedging hedging hedging

Fixed rate 307 458 300 487

Floating rate 532 381 543 356
839 839 843 843

Contract volume Fair value at Contract volume Fair value at

Hedging activities at year-end year-end at year-end year-end

Fair value hedges

Cross currency interest rate swaps 181 – 31 181 – 19

Cash flow hedges

Interest rate swaps for the purposes of fixing interest on non-current
liabilities 300 11 350 13
Other derivative financial instruments carried as assets 96 7 90 3
Other derivative financial instruments carried as liabilities 15 7

Derivative financial instruments not subject to hedge accounting

Carried as assets 28 44 2
Carried as liabilities 11 20

Fair value at Fair value at

Total derivative financial instruments year-end year-end

Carried as assets 18 18
Carried as liabilities 31 19

Fair value hedges

Friesland Foods has contracted currency interest rate swaps on loans of USD 213 million as a result of
which the repayment and interest obligations relating to amounts owed to institutional investors have been
converted into obligations denominated in EUR and the fixed interest was converted into floating interest.

Cash flow hedges

The interest rate swaps were contracted to convert the floating-interest obligations on non-current liabilities
into fixed-interest obligations.
Of the other derivative financial instruments carried as assets, an amount of USD 134 million (2006: USD
125 million) relates to the hedging of estimated future cash flows from export income and HKD 223 million
(2006: HKD 186 million) from import payments.
The hedges comply with the documentation requirements for hedge accounting of IAS 32/39 and are tested
for effectiveness prior to and during their term.

74 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Derivative financial instruments not subject to hedge accounting

These derivative financial instruments relate to contracted sales and purchases, outstanding receivables and
payables, and bank balances. The changes in the value of the derivative are largely offset by counterweight
value changes in receivables, payables and bank balances. These qualify as natural hedges rather than as
speculative instruments.

Contract volume Contract volume

at year-end at year-end
Maturity schedule of derivative financial instruments
2008 2009 - 2012 After 2012 2007 2008 - 2011 After 2011

Fair value hedges

Cross currency interest rate swaps 86 95 86 95
Cash flow hedges
Interest rate swaps for the purposes of fixing interest
on non-current liabilities 50 250 50 300
Other derivative financial instruments carried as
assets 96 90
Other derivative financial instruments carried as
liabilities 15 7

Derivative financial instruments not subject to hedge

accounting
Carried as assets 28 44
Carries as liabilities 11 20

Derivative financial instruments relating to foreign currency risks Year-end 2007 Year-end 2006
Forward-bought Forward-sold Forward-bought Forward-sold
Contractvolumes currencies EUR currencies currencies EUR currencies

US dollar 132 185 141 185

Japanese yen 2 276 1 190
Hong Kong dollar 21 223 18 186
Pound Sterling 3 2 1 1
158 161

Derivative financial instruments relating to interest rate and

currency risk on non-current interest bearing borrowings 2007 2006
Contract volumes in EUR
Euro 300 350
US dollar 181 181
481 531

32 Financial risk management: objectives and policy

Management of risks relative to Friesland Foods’ capital
Friesland Foods manages its capital in order to maintain a good credit rating (investment grade at the
relevant credit rating agencies) and to ensure that the continuity of the subsidiaries as a going concern is
safeguarded. The return to the stakeholders in Friesland Foods is maximised through optimising the best
possible mix of debt and equity. Within this same scope, Friesland Foods applies guidelines for the solvency
ratios of different types of subsidiaries.

The capital structure of Friesland Foods comprises debt (including non-current interest-bearing borrowings
and current borrowings) and equity in the form of equity attributable to equity holders of the parent,
minority interests and perpetual subordinated notes.

Royal Friesland Foods N.V. 75

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Management of financial risks

Friesland Foods’ principal financial instruments, other than derivatives, comprise loans from credit
institutions and institutional investors, perpetual notes, and cash and cash equivalents. The main purpose of
these financial instruments is to raise finance for Friesland Foods’ operations from a diversity of markets and
investors. Friesland Foods has various other financial assets and liabilities such as trade receivables and trade
payables, which arise directly from its operations. Friesland Foods closely monitors the market risks relative
to all financial derivative instruments.
Friesland Foods also enters into derivative transactions, including principally forward currency contracts
and interest rate swaps. The purpose is to manage the interest rate and currency risks arising from Friesland
Foods’ operations and its sources of finance. It is, and has been throughout the year under review, Friesland
Foods’ policy that no trading in financial instruments shall be undertaken. The main risks arising from
Friesland Foods’ financial instruments are foreign currency risk, interest rate risk, liquidity risk and credit
risk. Friesland Foods has policies in place to manage the above risks.

Currency fluctuations
Since Friesland Foods conducts business worldwide, a considerable share of the assets, liabilities and results
is sensitive to currency fluctuations. The purpose of the defined group policy for managing transaction
risks is to limit the financial performance’s exposure to currency fluctuations. In hedging transaction risks,
allowance is made for specific product and market considerations. Currency risks resulting from investments
in foreign subsidiaries and associates are not hedged. The risk associated with currency mismatches between
assets and liabilities is mitigated by funding foreign subsidiaries in local currencies where possible. The
solvency requirements that Friesland Foods imposes on foreign subsidiaries do result in certain currency risk,
however.

Currency fluctuations sensitivity analysis

Friesland Foods is mostly sensitive to currency fluctuations of the US dollar compared with the euro. The
below stated breakdown outlines the impact of a 10% strengthening of the US dollar exchange rate on
the valuation of monetary assets and liabilities as at year end which are denominated in US dollars. A 10%
exchange rate change is assumed to be an actual possibility. The impact is apparent from a change in profit
and in the other equity components. A positive figure means an increase in profit and in the amount of the
other equity components, while a negative figure means a decrease.

Impact on 2007 2006

Profit for the year from continuing operations –3 –1
Other equity components – 10 – 11

At a 10% weakening of the US dollar rate compared with the euro the above stated amounts for 2007 are
respectively + EUR 2 million and + EUR 8 million.
The impact on the profit for the year from continuing operations mainly concerns receivables, cash and
cash equivalents and debts. The impact on the other equity components mainly concerns the valuation of
derivatives for cash flow hedges.

Interest rate risk

The objective of interest rate risk management is to limit the effect of interest rate fluctuations on profit
and reduce interest expense where possible. Interest rate derivatives are used to match borrowings to the
intended interest rate risk profile. In order to manage the risk profile, the Board of Management has decided
on a spread for the ratio of floating to fixed-interest components, as well as for the modified duration 1)
of the receivables portfolio. It is the policy of Friesland Foods to have its interest-bearing debt with fixed
interest rates account for about 60% of total interest-bearing debts including perpetual notes. At year-end
2007, this was 65% (2006: 70%).

1 A measure for the volatility of the fair value of the loans portfolio for a change of 1 percentage point in interest rate.

76 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

Interest rate fluctuations sensitivity analysis

The below stated sensitivity analysis was performed based on the impact of the interest rates on derivatives
and other financial instruments as at year end. For cash and cash equivalents and debts with variable
interest rates, the analysis was performed based on the assumption that the outstanding amount as at year
end was outstanding for the full year. In the analysis, an increase or decrease of 50 basis points is used as an
actual possible change in the interest rates. An increase or decrease of 50 basis points has the impact as set
out below, where an increase in the rates leads to a negative impact and a decrease to a positive impact on
profit.

Impact on: 2007 2006

Profit for the year from continuing operations 1 1

The impact is caused by financial instruments with variable interest rates.

Liquidity risk
Friesland Foods’ objective is to maintain a balance between continuity of funding and flexibility through the
use of various financial instruments. Friesland Foods’ policy is that not more than one-third of borrowings
should mature in any twelve month period. At year-end 2007 this is 2% of the borrowings. In addition, total
net debt should be fully hedged by long-term loans and unconditional credit facilities. At year-end 2007, this
was fully hedged. Friesland Foods manages its liquidity risk in particular by keeping a substantial amount
available under an unconditional syndicated credit facility of EUR 550 million, which will expire in 2010.
Of this facility, EUR 210 million was unused as at year-end 2007 (2006: EUR 145 million).

Credit risk
Friesland Foods is exposed to credit risks associated with its trade receivables, cash and cash equivalents,
and derivative financial instruments. Friesland Foods monitors credit risk by systematically monitoring
credit ratings of its customers and financial counterparties. Friesland Foods trades generally with recognised,
creditworthy third parties with whom it maintains long-standing trading relations. The credit position of
customers that are considered less creditworthy or are subject to political transfer risks is hedged by regular
trade credit instruments or credit insurance in accordance with the financial risk management policy of
Friesland Foods. Thanks to the spread of geographical areas and product groups, there is no significant
concentration of credit risk in the trade receivables of Friesland Foods.
Where possible, cash and cash equivalents have been deposited with first-class international banks,
i.e. banks with credit ratings of at least ‘single A’. However, since a significant portion of cash and cash
equivalents has been deposited by subsidiaries in relatively unstable political climates, these assets are
subject to local country risks. In order to mitigate these risks where possible, Friesland Foods pursues an
active dividend policy in relation to these subsidiaries. Derivative financial instruments are traded only
with financial institutions with good credit ratings, i.e. credit ratings of at least ‘double A’. Friesland Foods’
maximum risk exposure in relation to these instruments is equal to the current carrying amount.

33 Acquisitions 2007 2006

Fair value of acquired net asset value
Goodwill 30
Acquisition of shares from minority interest holders 3 12
Investment 3 42
3 42

Cash flows from acquisitions 0.0 0.0

Cash payments –3 – 42

In 2007, capital was contributed to the new joint venture Great Ocean Ingredients Pty Limited, Allansford,
Victoria Australia.
In 2006, the acquisition of 21.9% of the shares from minority interest holders resulted in an increase in the
interest in PT Frisian Flag Indonesia, a subsidiary, from 56.2% to 78.1%.

Royal Friesland Foods N.V. 77

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

34 Equity attributable to equity holders of the parent

2007 2006
Number of Number of Number of Number of
Class A shares Class B shares Total shares Class A shares Class B shares Total shares

At beginning of year 5,840,363 4,033,865 9,874,228 5,840,363 4,033,865 9,874,228

Issue of shares charged to share premium reserve A 1,339,587 1,339,587
At end of year 7,179,950 4,033,865 11,213,815 5,840,363 4,033,865 9,874,228
0 0 0 0 0 0

Issued capital 330 186 516 269 185 454

Breakdown by shares and reserves 2007

Unrealised gains
and losses Currency
arising from cash translation Retained
Issued capital Share premium flow hedges reserve earnings Total

Class A shares 330 0

8 –3 250 585
Class B shares 186 19 5 –1 179 388
At end of year 516 19 13 –4 429 973
0.0 0.0 0.0 0.0 0.0 0.0

2006
Unrealised gains
and losses Currency
arising from cash translation Retained
Issued capital Share premium flow hedges reserve earnings Total

Class A shares 269 62 8 7 176 522

Class B shares 185 19 4 6 126 340
At end of year 454 81 12 13 302 862
0.0 0.0 0.0 0.0 0.0 0.0

Issued capital
The authorised capital amounts to EUR 863 million, divided into 12,500,000 Class A shares of
EUR 46.00 nominal value each and 6,250,000 Class B shares of EUR 46.00 nominal value each.
The Class A shares and B shares are held by Zuivelcoöperatie Friesland Foods U.A.
Depository receipts of Class B shares are held by member farmers or former member farmers of
Zuivelcoöperatie Friesland Foods U.A.

Detailed breakdown of shares and reserves 2007

Unrealised gains
and losses Currency
arising from cash translation Retained
Class A shares and reserves Issued capital Share premium flow hedges reserve earnings Total

At beginning of year 269 62 8 7 176 522

Total income and expenses for the year 0 – 10 91 81
Issue of Class A shares charged to share premium A 62 – 62 0
Rounding difference –1 –1
Dividends paid – 17 – 17
At end of year 330 0 8 –3 250 585

2006
Unrealised gains
and losses Currency
arising from cash translation Retained
Class A shares and reserves Issued capital Share premium flow hedges reserve earnings Total

At beginning of year 269 62 3 10 143 487

Total income and expenses for the year 5 –3 66 68
Acquisition of shares from minority interest holders – 18 – 18
Dividends paid – 15 – 15
At end of year 269 62 8 7 176 522

78 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

2007
Unrealised gains
and losses Currency
arising from cash translation Retained
Class B shares and reserves Issued capital Share premium flow hedges reserve earnings Total

At beginnning of year 185 19 4 6 126 340

Total income and expenses for the year 1 –7 81 75
Rounding difference 1 1
Dividends paid – 28 – 28
At end of year 186 19 5 –1 179 388

2006
Unrealised gains
and losses Currency
arising from cash translation Retained
Class B shares and reserves Issued capital Share premium flow hedges reserve earnings Total

At beginnning of year 185 19 1 7 97 309

Total income and expenses for the year 3 –1 62 64
Acquisition of shares from minority interest holders – 12 – 12
Dividends paid – 21 – 21
At end of year 185 19 4 6 126 340

Pursuant to the Articles of Association, a dividend may be distributed if and to the extent that the balance of
the share premium reserves and the general reserves is positive.

The Articles of Association stipulate that the Company keeps separate general reserves for the Class A and
Class B shares. Movements in the general reserve are allocated in proportion to the issued capital at the
end of the year, with the exception of dividend, which is allocated in accordance with the appropriation of
profit. The unrealised gains and losses arising from cash flow hedges and the currency translation reserve are
statutory reserves that are not distributable.

Unrealised gains and losses arising from cash flow hedges 2007 2006
At beginning of year 12 4
Gains and losses arising from cash flow hedges 7 13
Transferred to income statement –6 –1
Income tax on gains and losses and transfers –4
At end of year 13 12
0.0 0.0

35 Renumeration of members of the Supervisory Board and the Board of Management 2007 2006
Supervisory Board
Short-term benefits 0.8 0.7

Board of Management 1
Short-term employee benefits 3.7 3.3
Long-term employee benefits 0.6 0.4
Pension plans 0.5 0.5
4.8 4.2

1 The figures for 2006 have been restated to reflect non-financial benefits as well.

Royal Friesland Foods N.V. 79


Principal subsidiaries 1
at 31 december 2007
Royal Friesland Foods N.V.
Friesland Brands B.V., Meppel, the Netherlands
Friesland Foods B.V., Meppel, the Netherlands
Friesland International B.V., Meppel, the Netherlands
Friesland Foods Cheese
Frico Cheese Packaging B.V., Wolvega, the Netherlands
Friesland Foods Canarias S.A., Las Palmas, Spain
Friesland Foods Cheese Deutschland GmbH, Essen, Germany
Friesland Foods Cheese Ibérica S.L., Barcelona, Spain
Friesland Foods Cheese France S.A.S., Sénas, France
Kaasfabriek Eyssen B.V., Oosthuizen, the Netherlands
Kaashandel Culemborg B.V., Hardinxveld-Giessendam, the Netherlands
K.H. de Jong’s Exporthandel B.V., Drachten, the Netherlands
Société Industrielle Fromagère S.A.S.U., Charmoille, France
Friesland Foods Fresh
Friese Ekologische Zuivel B.V., Drachten, the Netherlands
Friesland Foods Domo
Friesland Foods Domo UK Ltd, Saltney, United Kingdom
Friesland Foods Kievit
PT Kievit Indonesia, Jakarta, Indonesia
Friesland Foods Professional
Friesland Foods Professional Belgium N.V./S.A., Lummen, Belgium
Friesland Foods Professional Deutschland GmbH, Aachen, Germany
Friesland Foods Professional France S.A.S., Créteil, France
Friesland Foods Professional Italy S.r.l., Calderara di Reno (BO), Italy
Friesland Foods Western Europe
A.L. Hoogesteger Fresh Specialist B.V., Zwanenburg, the Netherlands
Friesland Foods Deutschland GmbH, Kalkar, Germany
Friesland Foods België/Belgique N.V./S.A., Bornem, Belgium
Friesland Foods Riedel B.V., Ede, the Netherlands
Friesland Foods Central Europe
Friesland Hungária zRt, Debrecen, Hungary
1 Unless stated otherwise, the subsidiaries are wholly owned.
80
Financial statements 2007
Friesland Foods Romania
Napolact S.A., Cluj-Napoca, Romania (91.4%)
S.C. Friesland Romania S.A., Satu Mare, Romania (99.9%)
S.C. Industrializarea Laptelui Mures S.A., Târgu Mures, Romania (90.3%)
Friesland Foods Hellas
Friesland Hellas S.A.C.I., Maroussi, Greece
Friesland Foods WAMCO Nigeria
Friesland Foods WAMCO Nigeria Plc, Lagos, Nigeria (52.8%)
Friesland Foods Frisian Flag Indonesia
PT Frisian Flag Indonesia, Jakarta, Indonesia (78.1%)
Friesland Foods Foremost Thailand
Foremost Dairies Co (Bangkok) Ltd, Bangkok, Thailand (99.6%)
Friesland Foods Foremost (Thailand) Public Company Ltd., Bangkok,
Thailand (99.6%)
Friesland Foods Dutch Lady Vietnam
Dutch Lady Vietnam Food & Beverage Company Ltd, Ho Chi Minh City,
Vietnam (70%)
Dutch Lady Ha Nam Food and Beverage Company Ltd, Phu Ly,
Vietnam (70%)
Friesland Foods Dutch Lady Malaysia/Singapore/Hong Kong
Dutch Lady Milk Industries Berhad, Petaling Jaya, Malaysia (50.1%)
Friesland Foods Ltd, Hong Kong
Friesland (Singapore) Pte Ltd, Singapore
Friesland Foods Middle East
Friesland Arabia Ltd, Jeddah, Saudi Arabia
Friesland Foods Consumer Products
Friesland Coberco West Africa SARL, Abidjan, Ivory Coast
Friesland Foods Cameroun SARL, Douala, Cameroon
Friesland Ghana Ltd, Accra, Ghana
Annual Report 2007
 Company balance sheet and Company income statement Financial statements 2007
In millions of euros, unless stated otherwise

Company balance sheet 1 2007 2006

at year-end, before appropriation of profit

Assets
Non-current assets
Investments in subsidiaries (2) 975 861
Loans to subsidiaries (3) 713 10
Derivative financial instruments 2 11 13
1,699 884

Current assets
Amounts due from subsidiaries (4) 184 996
Derivative financial instruments 2 (9) 8 5
192 1,001

Cash and cash equivalents 8 10

Total assets 1,899 1,895
0.0 0.0

Equity and liabilities

Equity
Equity attributable to equity holders of the parent (5) 973 862
Perpetual notes 3 125 124
1,098 986

Non-current liabilities
Deferred tax liabilities 3 3
Derivative financial instruments 2 31 19
Non-current interest-bearing borrowings (6) 399 412
433 434

Current liabilities
Current borrowings 204 270
Loans from subsidiaries (7) 130 176
Income tax payable (8) 14 15
Other current liabilities 12 9
Derivative financial instruments (9) 8 5
368 475

Total equity and liabilities 1,899 1,895

0.0 0.0

Company income statement 2007 2006

Share of profit of subsidiaries 171 125

Other income 1 3
Profit for the year 172 128

Proposed appropriation of profit

Addition to reserves 112 83
Dividend 60 45
172 128

1 See the notes on pages 82 to 83 inclusive.

2 The figures for 2006 have been restated, because the derivative financial instruments were partly reclassified from current to non-current.
3 The figures for 2006 have been restated, because the perpetual notes are reclassified as equity, on account of enhanced insight.

Royal Friesland Foods N.V. 81

 Notes to the Company financial statements Financial statements 2007
In millions of euros, unless stated otherwise

1 General
Accounting policies and notes
These financial statements were prepared in accordance with Dutch statutory provisions and regulations.
The financial statements are presented in accordance with the provisions of Section 362(8) of Part 9 of Book
2 of the Dutch Civil Code, which stipulates the application of consistent accounting policies in the company
and consolidated financial statements.
For the accounting policies concerning the valuation of assets and liabilities, and the presentation of the
income statement, reference is made to the section ‘Accounting policies’ on pages 55 to 58. For items
not dealt with in the notes to the company financial statements, reference is made to the notes to the
consolidated financial statements. Consolidated subsidiaries are accounted for using the equity method.

A statutory reserve is formed for the retained earnings of subsidiaries where distribution is subject
to restrictions.
A list of subsidiaries, branches and associates, and interests in joint ventures, prepared in accordance
with legal provisions, is available for inspection at the Company’s offices and has been filed with the
Trade Register in Meppel, the Netherlands.

2 Investments in subsidiaries 2007 2006

At beginning of year 861 802
Profit for the year 171 125
Currency translation differences – 17 –3
Dividend – 42 – 34
Goodwill – 30
Other movements 2 1
At end of year 975 861
0.00 0.00

3 Loans to subsidiaries 2007 2006

At beginning of year 10 17
Drawn 707
Transferred to current –7
Repayments –4
At end of year 713 10
0.0 0.0

Repayment schedule 2009 - 2012 After 2012 Total

Loans to subsidiaries 713 713

The loans granted relate mainly to the financing of subsidiaries. The average interest rate was 5.5% at
year-end 2007 (2006: 4.8%).

4 Amounts due from subsidiaries

Current assets also include loans granted to subsidiaries.
The average interest rate on loans of EUR 169 million was 5.4% and on loans of EUR 15 million 0% at year-
end 2007 (2006: 5.4% on loans of EUR 772 million and 0% on loans of EUR 224 million).

5 Equity attributable to equity holders of the parent 2007 2006

Currency
Revaluation translation General
Issued capital Share premium reserve reserve reserve Total Total

Class A shares 330 0

8 –3 250 585 522
Class B shares 186 19 5 –1 179 388 340
At end of year 516 19 13 –4 429 973 862

82 Annual report 2007

 Notes to the consolidated financial statements Financial statements 2007
In millions of euros, unless stated otherwise

A statutory reserve is formed for the retained earnings of subsidiaries where distribution is subject to
restrictions. This does not apply to the years 2007 and 2006, however.
The revaluation reserve and the currency translation reserve are statutory reserves and therefore
undistributable.

6 Non-current interest-bearing borrowings 2007 2006

Amounts owed Amounts owed Other amounts
to institutional to syndicate of owed to credit
investors credit institutions institutions Total Total

At beginning of year 162 249 1 412 432

Additions 0 0
1
Repayments –1 –1
Amortisation issue costs 1 1 0

Adjustment for currency/interest rate swap – 13 – 13 – 21

At end of year 149 250 0 399 412
0.0 0.0 0.0 0.0 0.0

Total Interest % at Interest % at

Repayment schedule and interest rates 2009 - 2012 After 2012 repayment year end year end

Amounts owed to institutional investors 70 79 149 4.7 4.5

Amounts owed to syndicate of credit institutions 250 250 3.0 3.0
Total 320 79 399 3.6 3.6

For the notes to amounts owed to institutional investors and amounts owed to syndicate
of credit institutions, reference is made to page 71 of the notes to the consolidated
financial statements.

7 Loans from subsidiaries

The interest rate at year-end 2007 was 4.8% on loans of EUR 65 million and was nil on loans of EUR 65 million.

8 Income tax payable

A fiscal unit has been formed among the group companies located in the Netherlands. The Company is the
first liable party for the income tax debts.

9 Derivative financial instruments

The difference in the amount with the consolidated financial statements involves the fair value of derivative
financial instruments transacted with a subsidiary.

10 Commitments and contingencies

The Company has issued a liability statement for Friesland Brands B.V. in accordance with Section 403 of
Part 9 of Book 2 of the Dutch Civil Code.

Meppel, the Netherlands, 28 February 2008

Board of Management Supervisory Board

Royal Friesland Foods N.V. Royal Friesland Foods N.V.

Theo C.A. Spierings, acting President Sybren S.U. Attema, Chairman

André A. Boudewijns Piet Boer, Vice-Chairman
Johan G.M. Priem Rob ter Haar, Secretary
Jentje de Boer
Walter J.A. Gerritsen
Jorrit Jorritsma
Frans A.M. Keurentjes
Jan Peelen
Henk Scheffers
Jan C.P. Vogelaar

Royal Friesland Foods N.V. 83


To the shareholders of
Royal Friesland Foods N.V.
Report on the financial statements
We have audited the accompanying financial
statements of Royal Friesland Foods N.V.,
Meppel, the Netherlands, for the year 2007
as set out on pages 50 to 83. These financial
statements consist of the consolidated
financial statements and the company
financial statements. The consolidated financial
statements comprise the consolidated balance
sheet as at 31 December 2007, the income
statement, the cash flow statement and the
statement of changes in equity for the year then
ended, and a summary of significant accounting
policies and other explanatory notes. The
company financial statements comprise the
company balance sheet as at 31 December
2007 and the company income statement for
the year then ended and the notes.
Management’s responsibility
The Board of Management of Royal Friesland
Foods N.V. is responsible for the preparation
and fair presentation of the financial statements
in accordance with International Financial
Reporting Standards as adopted by the
European Union and with Part 9 of Book 2, of
the Dutch Civil Code, and for the preparation of
the Board of Management review in accordance
with Part 9 of Book 2 of the Dutch Civil
Code. This responsibility includes: designing,
implementing and maintaining internal
control relevant to the preparation and fair
presentation of the financial statements that
are free from material misstatement, whether
due to fraud or error; selecting and applying
appropriate accounting policies; and making
accounting estimates that are reasonable in the
circumstances.
84
Auditor’s report
Auditor’s responsibility
Our responsibility is to express an opinion on
the financial statements based on our audit. We
conducted our audit in accordance with Dutch
law. This law requires that we comply with
ethical requirements and plan and perform the
audit to obtain reasonable assurance whether
the financial statements are free from material
misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and
disclosures in the financial statements. The
procedures selected depend on the auditor’s
judgment, including the assessment of the
risks of material misstatement of the financial
statements, whether due to fraud or error. In
making those risk assessments, the auditor
considers internal control relevant to the entity’s
preparation and fair presentation of the financial
statements in order to design audit procedures
that are appropriate in the circumstances, but
not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal
control. An audit also includes evaluating the
appropriateness of accounting policies used and
the reasonableness of accounting estimates
made by management, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion with respect to the consolidated
financial statements
In our opinion, the consolidated financial
statements give a true and fair view of the
financial position of Royal Friesland Foods N.V.
as at 31 December 2007 and of its result and
cash flows for the year then ended in accordance
with International Financial Reporting Standards
as adopted by the European Union and with Part
9 of Book 2 of the Dutch Civil Code.
Opinion with respect to the company
financial statements
In our opinion, the company financial statements
give a true and fair view of the financial position
of Royal Friesland Foods N.V. as at 31 December
2007 and of its result for the year then ended in
accordance with Part 9 of Book 2 of the Dutch
Civil Code.
Report on other legal and regulatory
requirements
Pursuant to the legal requirement under Section
393(5)(e) of Book 2 of the Dutch Civil Code, we
report, to the extent of our competence, that the
Board of Management review is consistent with
the financial statements as required by Section
391(4) of Book 2 of the Dutch Civil Code.
Amsterdam, the Netherlands, 28 February 2008
Deloitte Accountants B.V.
P.J.M. Peerlings
Annual Report 2007

Provisions of the Articles of Association
governing profit appropriation
The provisions on the appropriation of profit
are included in Article 28 of the Articles of
Association. These can be summarised as
follows: profit shall be distributed after adoption
of the financial statements showing such
distribution to be legitimate.
The General Meeting of Shareholders is
authorised to retain part of the profit on a
proposal from the Board of Management,
which shall be subject to the approval of the
Supervisory Board. The retained profit shall be
added to general reserves A and B in proportion
to the capital issued in the form of Class A and
Class B shares outstanding on the last day of the
last financial year.
Other information
Unretained profit shall be distributed. The
amount available for distribution on a Class
B share shall at least be twice the amount to
be distributed on a Class A share. The amount
actually to be paid on Class A shares per annum
shall not exceed an amount calculated on the
total nominal value of the Class A shares plus
share premium reserve A on the balance sheet
date, at a percentage equal to the average
effective return on certain government bonds
plus 150 (in words: one hundred and fifty) basis
points.
If, in any financial year, the amount available for
distribution on Class A shares should exceed the
aforementioned maximum, the excess shall be
distributed on the Class B shares.
Royal Friesland Foods N.V. 85
 Report on depositary receipts
for Class B shares

Report of the Board of Zuivelcoöperatie
Friesland Foods U.A., the cooperative, on
the administration of registered Class B
shares in the capital of Royal Friesland
Foods N.V.
Depositary receipts for Class B shares in Royal
Friesland Foods N.V. are traded on an internal
exchange. Member dairy farmers and former
members of Zuivelcoöperatie Friesland Foods
U.A. may hold or trade depositary receipts.
There are six trading days per year, in principle.
In 2007 the highest price of the depositary Meppel, the Netherlands, 28 February 2008
receipts for Class B shares was 84.00 euros on 27
September 2007 and the lowest price was 74.00 The Board of Zuivelcoöperatie Friesland Foods U.A.
euros on 25 January 2007.
S.S.U. Attema, Chairman
The dividend will be released for payment on P. Boer, Vice-Chairman
7 March 2008. In September 2007 the Boards J. Jorritsma, Secretary
of Zuivelcoöperatie Friesland Foods U.A. and J. de Boer
Stichting toezicht certificaten Friesland Foods W.J.A. Gerritsen
U.A. decided to cancel the trading days for F.A.M. Keurentjes
depositary receipts for Class B shares scheduled J.C.P. Vogelaar
for 29 November 2007 and 31 January 2008, the
reason being to prevent the potential trade in Price of depositary receipts of B shares
In euros
depositary receipts for Class B shares on unequal
terms based on a discrepancy in information. 85

The Board of Zuivelcoöperatie Friesland
Foods U.A. exercises all rights attaching to the
registered Class B shares. The administration of
the shares is supervised by a trust office by the
name of Stichting toezicht certificaten Friesland
Foods. Rabobank Nederland has been appointed
as an independent administrator.
At 31 December 2007 the number of depositary
receipts for Class B shares administered was
4,033,864. This number of depositary receipts,
For this reason, the Boards of Zuivelcoöperatie 83
Friesland Foods U.A. and Stichting toezicht 81
certificaten Friesland Foods decided, in January 79
2008, not to hold a trading day in March 77
2008, but rather to schedule the next trading 75
day for 29 May 2008. This was decided in 73
view of the adoption of a proposed resolution
71
on 9 April 2008 by the General Meeting of
69
Zuivelcoöperatie Friesland Foods U.A. about
67
the revision of the organisational and income
65
allocation structure. As soon as the proposed
25 January 2007

29 March 2007

31 May 2007

26 July 2007

27 September 2007

29 November 2007

each with a nominal value of 46.00 euros, resolution is announced in April, all stakeholders 31 January 2008
represents a total nominal value of 185,557,744 will have the same information at their disposal
euros. and there will be no risk of trading on unequal
terms.

Trading volume of depositary

receipts for B shares
In numbers
Price and trading volume of depositary receipts for Class B Shares
50,000 47,468
Date Price in euros Demand Supply Done Traded in
45,000
(double counting) euros
40,000
2007 36,740
35,000 33,428
25 January 74.00 d/b 1) 30,120 17,117 28,976 2,144,224
30,000 28,976
29 March 75.00 d/b 32,653 25,815 47,468 3,560,100 26,414
31 May 77.00 d/b 21,847 13,427 26,414 2,033,878 25,000

26 July 80.00 d/b 28,047 16,714 33,428 2,674,240 20,000

27 September 84.00 d/b 27,050 21,501 36,740 3,086,160 15,000
29 November Trading day cancelled 10,000

5,000
2008
0
31 January
25 January 2007

29 March 2007

31 May 2007

26 July 2007

27 September 2007

29 November 2007

31 January 2008

Trading day cancelled

1
d/b done/bid

86 Annual Report 2007

 Report of Stichting toezicht certificaten
Friesland Foods
One of the objectives of Stichting
toezicht certificaten Friesland Foods
(‘the foundation’) is to supervise the
administration of the non-cancellable
registered depositary receipts for Class B
shares issued by Zuivelcoöperatie Friesland
Foods U.A. (‘the cooperative’) in the name
of Royal Friesland Foods N.V. In doing so,
the foundation should protect the interests
of the depositary receipt holders, the
cooperative, the organiser of the internal
stock exchange and the internal stock
exchange manager.
The activities performed by the foundation
during the year under review as part of its
supervisory duties included the following:
• elaborating on its report for 2006 at the
meeting of depositary receipt holders of 13
April 2007;
• monitoring compliance with the internal stock
exchange regulations;
• reviewing the reports on the trade in
depositary receipts on the trading days held
in 2007;
• monitoring compliance with the Model Code;
• supervising the way in which the Board of the
cooperative exercised its powers under the
share administration rules;
• putting up 2,454 depositary receipts for Class
B shares for sale that should have been sold in
2006 (this relates to the depositary receipts
of members who have not stopped farming
that come under the exclusive control of the
foundation). These depositary receipts were
sold on the internal stock exchange in the
course of 2007;
• taking the decision, in connection with the
discussion about the structure of Friesland
Foods, to cancel the trading days scheduled for
29 November 2007, 31 January and 27 March
2008, in consultation with the Board of the
cooperative and the internal stock exchange
manager. The next trading day was scheduled
for 29 May 2008.
The Board has established that the procedures
were performed in accordance with the
applicable rules.
Under the terms of the Model Code, an embargo
on trading was imposed in the spring of 2007
on the Members of the General Meeting of the
cooperative for the time between the receipt of
the draft Annual Report 2006 of Royal Friesland
Foods N.V. (under embargo) and 8 March 2007,
the date of publication of the Annual Report.
This embargo applied to the trading day of 29
March 2007. The reason for the embargo was
the inside information possessed by Regional
Council members concerning the Annual Report.
Under the terms of the Model Code, an embargo
on trading was imposed in mid-2007 on the
members of the Board and of the General
Meeting of the cooperative. This embargo was
instituted on 12 June 2007 and was in effect
until at least 31 December 2007. The embargo
was imposed in connection with information
that was exchanged with the persons in question
within the scope of the discussion about the
structure. Any orders submitted for the trading
day of 26 July 2007 were cancelled. No orders
were submitted by members of the Board and
the Regional Council members for the trading
day of 27 September 2007.
Luc Dahlhaus resigned from the Board of the
trust office as at 1 May 2007; the vacancy
created by his resignation will be filled by the
new President of the Board of Management.
Amsterdam, the Netherlands, 28 February 2008
The Board of Stichting toezicht certificaten
Friesland Foods
W.G. van Hassel, Chairman
F.H.J. Boons
F.K. van Zinderen Bakker
S.S.U. Attema
Royal Friesland Foods N.V. 87
 Other information

IFRS IFRS IFRS IFRS Dutch GAAP

Five-year summary 2007 2006 2005 2004 2003
In millions of euros, unless stated otherwise

Headline figures 1
Income statement
Revenue 5,075 4,675 4,419 4,449 4,575
Operating profit before amortisation of goodwill 299 257 211 188 188
Profit for the year attributable to equity holders of the parent 172 128 104 96 56
Dividend 60 45 36 28 22

Balance sheet
Total assets 2,990 2,651 2,580 2,487 2,398
Capital base 2 1,157 1,050 986 883 809
Equity attributable to equity holders of the parent 973 862 796 699 621
Net debt 582 574 581 587 667

Cash flows
Net cash flows from operating activities 225 244 252 281 308
Investment in property, plant, equipment and intangible assets 187 166 185 166 177
Depreciation and amortisation 124 126 121 119 147

Staff (average number of FTE’s)

Employees 14,582 15,312 16,438 17,580 18,005

Ratios
Operating profit as % of revenue 5.9 5.5 4.8 4.2 4.1
Profit for the year attributable to equity holders of the parent as a % of
revenue 3.4 2.7 2.4 2.2 1.2
Profit for the year attributable to equity holders of the parent as a % of
average equity attributable to equity holders of the parent 18.7 15.4 13.9 14.5 8.8
Capital base as a % of total assets 2 38.7 39.6 38.2 35.5 33.7

Per share of EUR 46.00 (in euros)

Earnings per share, basic 15.63 12.92 10.74 10.21 6.20
Dividend proposed for the year per Class A share 2.62 2.39 2.57 2.16 1.74
Dividend proposed for the year per Class B share 10.24 6.81 5.32 4.32 3.48

Number of outstanding shares (in thousands) 11,214 9,874 9,874 9,426 9,379
Average number of outstanding shares (in thousands) 10,994 9,874 9,687 9,406 9,033

Highest price of depositary receipts for Class B shares (in euros) 84.00 70.00 58.50 58.00 60.00
Lowest price of depositary receipts for Class B shares (in euros) 74.00 61.00 52.50 50.00 53.10
Closing price of depositary receipts for Class B shares (in euros) 84.00 70.00 58.50 53.00 58.00

1 For an explanation of the concepts and changes compared with the previous financial statements, reference is made to the notes to the financial statements.
2 Capital base includes equity and convertible liabilities.

88 Annual report 2007

 Other information

IFRS IFRS IFRS IFRS Dutch GAAP

Five-year summary 2007 2006 2005 2004 2003
In millions of euros, unless stated otherwise

Consolidated income statement 1

Revenue 5,075 4,675 4,419 4,449 4,575

Rental income 5 8 11 14
Other operating income 40 10 6 7 18
Costs of raw materials, consumables and goods for resale – 3,232 – 2,897 – 2,818 – 2,864 – 2,993
Employee benefits expense – 448 – 439 – 425 – 423 – 432
Depreciation and amortisation – 124 – 126 – 121 – 119 – 112
Other operating expense – 1,017 – 974 – 861 – 876 – 868
Operating profit before goodwill amortisation 299 257 211 188 188

Goodwill amortisation – 35
Operating profit 299 257 211 188 153

Share of profit of associates 3 3 4 2 4

Finance income and costs – 29 – 26 – 25 – 28 – 34
Profit before tax 273 234 190 162 123

Income tax expense – 65 – 63 – 55 – 34 – 29

Profit for the year from continuing operations 208 171 135 128 94

Profit for the year attributable to perpetual notes providers –9 –9 –9 –9 –5

Profit for the year attributable to equity holders 199 162 126 119 89

Profit for the year attributable to minority interests – 27 – 34 – 22 – 23 – 33

Profit for the year attributable to equity holders of the parent 172 128 104 96 56
0.0 0.0 0.0 0.0 0.0

Per share of EUR 46.00 (in euros)

Earnings per share, basic 15.63 12.92 10.74 10.21 6.20

1 For an explanation of the concepts and changes compared with the previous financial statements, reference is made to the notes to the financial statements.

Royal Friesland Foods N.V. 89

 Other information

IFRS IFRS IFRS IFRS Dutch GAAP

Five-year summary 2007 2006 2005 2004 2003
In millions of euros

Consolidated balance sheet 1

at year-end, before appropriation of profit

Assets
Property, plant and equipment 861 835 837 809 774
Intangible assets 609 606 606 609 591
Deferred tax assets 23 14 18 11 14
Investments in associates 13 11 11 10 22
Derivative financial instruments (non-current) 11 13 7 0 0

Financial assets 17 3 15 23 2
Inventories 703 490 455 429 415
Trade and other receivables 588 496 467 443 495
Government grants 2 5 8 12 0

Income tax receivable 6 9 3 3 8

Derivative financial instruments (current) 7 5 1 1 0

Cash and cash equivalents 132 145 134 132 77

Assets held for sale 18 19 18 5
Total assets 2,990 2,651 2,580 2,487 2,398
0.0 0.0 0.0

Equity and liabilities

Issued capital 516 454 454 434 431
Share premium 19 81 81 100 102
Unrealised gains and losses arising from cash flow hedges 13 12 4 –7
Currency translation reserve –4 13 17 8
Retained earnings 429 302 240 164 88
Equity attributable to equity holders of the parent 973 862 796 699 621
Minority interests 59 64 66 59 63
Perpetual notes 125 124 124 123 122
Total equity 1,157 1,050 986 881 806

Convertible debt 2 3
Pensions and other long-term employee benefits 92 84 73 47 46
Deferred tax liabilities 27 25 18 22 39
Provisions (non-current) 7 4 5 22 43
Derivative financial instruments (non-current) 31 19 2 25 0

Non-current interest-bearing borrowings 422 434 449 381 557

Current borrowings 292 285 266 336 184
Trade and other payables 892 703 705 725 698
Income tax payable 43 38 70 36 22
Provisions (current) 21 6 5 10 0

Derivative financial instruments (current) 1 0 0

Liabilities held for sale 6 3

Total equity and liabilities 2,990 2,651 2,580 2,487 2,398
0.0 0.0 0.0 0.0 0.0

Capital base 2 1,157 1,050 986 883 809

Net debt 582 574 581 587 667

1 For an explanation of the concepts and changes compared with the previous financial statements, reference is made to the notes to the financial statements.
2 Capital base includes equity and convertible liabilities.

90 Annual report 2007

 Other information

IFRS IFRS IFRS IFRS Dutch GAAP

Five-year summary 2007 2006 2005 2004 2003
in millions of euros, unless stated otherwise

Consolidated cash flow statement 1

Cash flows from operating activities

Profit before tax 273 234 190 162 123
Interest expense 28 25 24 30
Goodwill amortisation 0 0
35
Depreciation and amortisation 124 126 121 119 112
Impairment of property, plant, equipment, intangible assets and assets
held for sale 0
16 10 6 5
Amortisation of issue costs of non-current borrowings 3 2 2
Investments in associates –1 –1 –4
Movements in working capital – 138 – 56 – 38 24 41
Movements in pensions and other long-term employee benefits 10 12 24 19 26
Movements in provisions 18 – 22 – 18 –3
Cash flows from operating activities 315 357 311 343 337
Income tax paid – 63 – 88 – 34 – 34 – 29
Interest paid – 27 – 25 – 25 – 28
Net cash flows from operating activities 225 244 252 281 308

Cash flows from investing activities

Investment in property, plant, equipment and intangible assets – 187 – 166 – 185 – 166 – 177
Proceeds from sale of property, plant, equipment, intangible assets and
assets held for sale 28 24 19 8 2
Acquisitions –3 – 42 0
–3 –7
Proceeds from sale of subsidiaries and business activities 9 9 2
Net cash flows used in investing activities – 162 – 184 – 157 – 152 – 180

Cash flows from financing activities

Dividends paid to equity holders of the parent – 45 – 36 – 28 – 22 – 34
Dividends paid to minority interests – 25 – 21 – 22 – 17 – 23
Profit distributed on perpetual notes –9 –9 –9 –9
Issue of Class B shares 1 1 4
New perpetual notes 0
125
Drawn non-current interest-bearing borrowings 20 10 258 7 201
Issue costs on non-current borrowings –2 –9
Repayment of non-current interest-bearing borrowings – 11 –3 – 204 –3 – 67
Repayment of convertible debt –2 –1 –5
Other changes of financial assets 8
Movements in current borrowings and derivative financial instruments –2 10 – 89 – 85 – 328
Net cash flows used in financing activities – 72 – 49 – 97 – 129 – 128
Net cash flows –9 11 –2 0 0

Cash and cash equivalents at beginning of year 145 134 132 135 90
Net cash flows –9 11 –2 0 0

Translation differences in cash and cash equivalents –4 4 –3 – 13

Cash and cash equivalents at end of year 132 145 134 132 77

0.0 0.0 0.0 0.0 0.0

1 For an explanation of the concepts and changes compared with the previous financial statements, reference is made to the notes to the financial statements.

Royal Friesland Foods N.V. 91

 Other information

Locations
The Netherlands Europe

•• Sales
Production
•• Belgium
Germany
•• Italy
The Netherlands

•• Sales and production

Head office
•• France
Greece
•• Romania
Spain

• Hungary

Key drive brands

Broad-based
dairy brands

Specific segments

Drinks

92 Annual Report 2007

 Other information

Africa and the Middle East Asia

•• Ghana
Nigeria
•• Hong Kong
Indonesia

•• Saudi Arabia
•• Malaysia
Singapore
United Arab Emirates
•• Thailand
Vietnam

Royal Friesland Foods N.V. 93

 Other information

Product introductions in 2007

Appelsientje FruitSensatie Reason for launch
Responding to the need among customers to
Product type be surprised by new, exciting fruit flavours.
Fruit-based drink. For Appelsientje FruitSensatie, familiar and new
types of fruit have been selected.

Target group
Consumers in the Netherlands.

Castillo de Holanda Reason for launch

Responding to the growing demand for cheese
Product type products that contribute to a healthy lifestyle.
Range of healthy, low-fat and low-salt
Gouda cheese varieties. Target group
Young, health-conscious people in the Spanish
Canary Islands.

Cécémel Frappé Reason for launch

Responding to the trend of textures that are
Product type a cross between eating and drinking. Creating
Cécémel Frappé represents an ice-cold a new consumption moment for Cécémel: the
chocolate sensation. It is available in bars summer season.
and restaurants only, and is prepared fresh.
The basis of the product is Cécémel Frappé Target group
concentrate and crushed ice. Adults in Belgium.

Chocomel Hot Reason for launch

Product type
Hot chocolate drink that can be prepared
in the Senseo® coffee pad machine
using a special capsule holder and
Chocomel Hot capsules.
Allowing consumers to prepare a high-quality
cup of hot chocolate at home.
Target group
Adults in the Netherlands.

Completa stick Reason for launch

Updating the look of Completa powdered coffee
Product type creamer, making it look better and increasing its
Powdered coffee creamer in a new convenience. This product also responds to the
single-use pack. need for customised coffee moments, where and
whenever you want.

Target group
Coffee consumers in Hungary.

94 Annual Report 2007

 Other information

CoolBest Açai Reason for launch

Broadening the CoolBest product offering by
Product type adding a new exotic fruit to the PowerFruits
Refrigerated fruit-based drink. range. Açaí is a berry from the Amazon that is an
exceptional source of dietary fibre.

Target group
Health-conscious adults in the Netherlands.

CoolBest VitaDay Reason for launch

Broadening of the CoolBest product range with
Product type a new concept. VitaDay with added prebiotics
Refrigerated fruit-based drink containing boosts our natural resistance to disease and
prebiotics. selectively stimulates the growth and/or activity
of bacteria in the colon.

Target group
Health-conscious and active adults in the
Netherlands.

Debic whipped cream Reason for launch

Developing a new nozzle that creates a whipped
Product type cream topping that is visually equal to that
Sweetened and unsweetened whipped cream. created by a professional whipping cream
machine.

Target group
Professional chefs in Europe.

Dots Giant Reason for launch

Responding to the growing demand for healthy
Product type snacks.
Fresh dairy bar made from freshly curdled cream
containing chocolate. Target group
Young people in Romania between the ages of
18 and 30.

Dutch Lady 0% Fat Drinking Yoghurt Reason for launch

Product type
No-fat yoghurt drink with a new apple-aloe
vera flavour containing active bacterial cultures;
contains fruit juice and has 25 percent fewer
calories than other low-fat yoghurt drinks.
Responding to the rapidly growing demand for
yoghurt and capitalising on the success of Dutch
Lady yoghurt drinks with their unique double-
fruit combinations.
Target group
Women in Malaysia between the ages of
20 and 40.

Royal Friesland Foods N.V. 95

 Other information

Dutch Lady Step 1 and Step 2 Reason for launch

Dutch Lady Growing Up Milk 123 and 456
Product type
Milk powder for babies, toddlers and infants,
enriched with TT-ratio.
Responding to the need for healthy foods by
enriching products with TT-Ratio™, that help
babies, toddlers and infants to better process
information.
Target group
Malaysian mothers of babies, toddlers and
infants.

Dutch Lady Sterilised Milk Reason for launch

Responding to the changing consumption habits
Product type of teenagers outside the home.
Sterilised, low-fat milk in a chocolate or
strawberry flavour. Target group
Young people in Malaysia between the ages of
13 and 18.

Foremost Calcimex Beautiva Reason for launch

Responding to the need for trendy and beauty
Product type ingredients in foods.
Long-life, no-fat milk product containing
pomegranate, currant juice and collagen. Target group
Students and young female professionals.

Foremost Hi-5 Mixed Berry and Carrot Reason for launch

Foremost Hi-5 Red Bean and Pearl Barley Responding to the need among consumers
for value-added foods that help to improve
Product type eyesight, increase energy levels and generally
Long-life soy milk. boost health.

Target group
Health-conscious adults over the age of 20 in
Thailand.

New design for Frico Reason for launch

Product type
All cheese slices for the self-serve corner in the
supermarket and traditional cheeses for staff-
assisted dispensing.
Creating a new design that ties in with consumer
demands and gives the Frico cheese label an eye-
catching new look.
Target group
Adults and families in Germany.

96 Annual Report 2007


Low-fat Frico Edam
Product type
Low-fat Edam cheese.
Frico Leicht & Lecker Rucola
Product type
A flavoursome, semi-soft low-fat cheese
containing added rocket. The absolute fat
content is only 12 percent.
Other information
Frico Chevrette Reason for launch
Broadening of the product offering in response
Product type to the growing demand for goat’s cheese.
Ripened goat’s cheese.
Target group
Adults in Spain, Russia and the US in particular.
Reason for launch
Broadening of the low-fat cheese range in
response to the growing number of health-
conscious consumers in export markets.
Target group
Adult, health-conscious consumers in the UK,
Russia and the Middle East.
Frico Frühlings-Gouda, Mai Gouda, Herbst Reason for launch
Gouda and Winter Gouda Offering a new range of seasonal specialities.
The cheeses are characterised by the specific
Product type seasonal features and the different maturing
Four flavoursome, semi-soft cheeses. periods. Each cheese is available in a different
season.
Target group
Adults and families in Germany.
Reason for launch
Broadening the product range of Frico Leicht &
Lecker by adding rocket, a popular ingredient.
Responding to the growing demand for low-fat
products.
Target group
Women in Germany between the ages of
30 and 59.
Friesche Vlag Cappuccino Reason for launch
Responding to the growing demand for serving
Product type customised and luxurious coffees at home.
Convenient powder sachets used for creating
a rich layer of cappuccino foam. The foamer is Target group
produced by Friesland Foods Kievit. Adults in the Netherlands.
Royal Friesland Foods N.V. 97
 Other information

Friesche Vlag Eftelingvla Reason for launch

Responding to the need for flavourful, healthy
Product type desserts for the entire family that bring a little
Semi-skimmed custard containing added fun to the dinner table.
calcium.
Target group
Families with children in the Netherlands.

Friesche Vlag Magere Fruityoghurt Reason for launch

Responding to the need for flavourful and
Product type healthy products containing fewer calories. Two
Low-fat yoghurt containing added fruit or flavours continuing no added fruit, but fruit juice
fruit juice. were developed especially for children.

Target group
Families with children in the Netherlands.

Friesche Vlag pasture milk Reason for launch

Taking up our corporate social responsibility
Product type by preparing all fresh dairy products under the
All fresh dairy products sold under the Friesche Vlag label from pasture milk. Pasture
Friesche Vlag label. milk is obtained from cows that graze outdoors
from spring to autumn.

Target group
Families with children in the Netherlands.

Frisian Flag Liquid Milk Reason for launch

Responding to the need for larger (family) packs
Product type and creating a presence on the milk market.
Milk in a one-litre family pack. Family packs are available in the flavours
skimmed milk, whole milk and chocolate.

Target group
Families with children in Indonesia.

Frisian Flag Powder Milk Reason for launch

Responding to the trend that chocolate milk
Product type is a growing segment of the Indonesian milk
Chocolate-flavoured milk powder. market by improving product features and
packaging materials.

Target group
Modern Indonesian mothers in urban areas with
children between the ages of 6 and 12.

98 Annual Report 2007

 Other information

Frisian Flag Step 1 & Step 2 Reason for launch

Frisian Flag 123 & 456 Powder Milk Responding to the need for healthy foods by
enriching products with TT-Ratio™, that help
Product type babies, toddlers and infants to better process
Milk powder for babies, toddlers and infants, information.
enriched with TT-ratio.
Target group
Mothers of babies, toddlers and infants in
Indonasia.

Milli Caucasian Kefir Reason for launch

Responding to the growing demand by health-
Product type conscious families for healthy dairy products
Freshly fermented dairy product. containing added natural probiotics, based on a
traditional recipe from the Caucasus.

Target group
Modern, working mothers in Romania between
the ages of 25 and 45.

Nedgold Reason for launch

Creating a consistent and recognisable look for
Product type the Nedgold product range through package
Butter and butter oil. restyling. The new package design is based on
the so-called ‘Holland feel’, taste and quality.

Target group
Consumers and the food service industry
worldwide, with focus being placed on the
Middle East, the Far East and Africa.

NOYNOY FUN FUN

Reason for launch
Product type Broadening of the product range by adding a
Children’s yoghurt with a top cup. new [cookie/biscuit] flavour that is especially
popular with children.

Target group
Children in Greece between the ages of 5 and 11.

NoyNoy Cheese Reason for launch

Responding to the growing need for a healthy
Product type lifestyle by offering a unique, innovative range
Varied offering of yellow cheese, consisting of of yellow cheeses. This reinforces the leading
22 different products. position of NoyNoy on the Greek market.

Target group
Women in Greece.

Royal Friesland Foods N.V. 99

 Other information

Peak Reason for launch

Introducing a new package design and better
Product type ingredients.
Unsweetened condensed whole milk and
instant whole-milk powder. Target group
Mothers in Nigeria.

Peak Milk Powder sachet Reason for launch

Increasing Peak’s market share in Nigeria by
Product type offering smaller-size packs.
Extra enriched instant whole-milk powder.
Target group
Mothers in Nigeria.

Pöttyös Túró Bonbon Reason for launch

Product type
Bonbon-type dairy dessert made from curdled
milk containing a creamy nut filling.
Creating a new consumption moment: the
family moment. A dairy product to celebrate a
special occasion and/or to enjoy together.
Target group
Well-educated men and women in Hungary.

Rainbow Strawberry Milk Drink No Sugar Reason for launch

Added Broadening the product range in response to the
need for healthy foods.
Product type
Long-life milk-based drink. Target group
Women and families with children between the
ages of 6 and 12 in the Middle East.

Yes! Susu Reason for launch

Responding to the growing demand for milk in
Product type Tetra Fino packs, which are relatively cheaper
Milk product in a Tetra Fino pack. than the standard cartons and bottles.

Target group
Children in Indonesia between the ages of
7 and 14.

100 Annual Report 2007

 Other information

Senior management
Head office
as at 28 February 2008

Friesland Foods
Corporate directors
Blankenstein 142 T +31 522 27 62 76 W.S.J.M. Buck Corporate Public Affairs
7943 PE Meppel F +31 522 27 64 44 J.H.W. Elfers Interim Director of Corporate Human Resources
P.O. Box 124 mail@frieslandfoods.com G.W.J. Heerink Cooperative Affairs
7940 AC Meppel www.frieslandfoods.com H.L.M. Hermsen Corporate Strategy
The Netherlands H.E. Huistra Corporate Supply Chain
T. Jongsma Corporate Research
R.J.P. Koning Corporate Legal Affairs/Company Secretary
Board of Management K.A. Springer Corporate Treasury
T.C.A. Spierings Acting President and Chief Operating Officer L.H.L. Steenbrink Corporate Finance & Reporting
Classic Dairy business group F.J. Voortman Corporate Information & Communication Technology
Industrial business group Vacancy Corporate Risk & Control
Company Secretary
Corporate Human Resources
Corporate Supply Chain

A.A. Boudewijns Chief Financial Officer

Corporate Finance & Reporting
Corporate Information &
Communication Technology
Corporate Legal Affairs
Corporate Public Affairs
Corporate Risk & Control
Corporate Strategy
Corporate Treasury

J.G.M. Priem Chief Operating Officer

Consumer Products Europe business group
Consumer Products International business group
Business Development Unit
Cooperative Affairs & Raw Materials
Corporate Research

Friesland Foods Corporate Research

Harderwijkerstraat 41006 T +31 570 69 59 11

7418 BA Deventer F +31 570 69 59 18
P.O. Box 87
7400 AB Deventer
The Netherlands

Royal Friesland Foods N.V. 101

 Other information

Operating companies
Business group Classic Dairy

Friesland Foods Cheese Friesland Foods Butter Friesland Foods Fresh

Friesland Foods Cheese develops, produces, Friesland Foods Butter processes milk and Friesland Foods Fresh produces and sells fresh
matures, markets and sells a wide range of cream into a wide range of butter and butter dairy products and dairy-based drinks.
traditional Dutch cheeses, including Gouda, oil products, and milk powders. The products
Edam and Maasdam, as well as speciality are sold globally as ingredients to leading food Address
cheeses under the Frico label. producers, including bakeries, and the chocolate Gildenstraat 30 T +31 33 247 62 22
and ice-cream industries. Butter and butter oil 3861 RG Nijkerk F +31 33 245 48 87
Address (butter ghee) are sold to consumers in Europe P.O. Box 1089
Frisaxstraat 4 T +31 561 69 22 22 and the Middle East. The branches of Friesland 3860 BB Nijkerk
8471 ZW Wolvega F +31 561 61 21 15 Foods in Africa and Asia are key buyers of milk The Netherlands
P.O. Box 4 powder.
8470 AA Wolvega Management
The Netherlands Address M. Ligthart Managing Director
Kanaalstraat 4-6 T +31 573 28 84 44 J.R. Hoekzema Director of Finance
Management 7241 DA Lochem F +31 573 28 84 56 C.G. van Leeuwen Director of Sales
W.S. van Walt Meijer Managing Director P.O. Box 97 L. Rippen Director of Marketing
B. Kats Director of Finance & 7240 AB Lochem A.A. van Schaik Director of Operations
Accounting The Netherlands
J.H. Helms Interim Director of
Human Resources & Management
Communications K.A. de Jong Managing Director
J.T. de Haan Commercial Director of M.H. ten Bloemendal Human Resources
International Markets Manager
A.J.M. Verhoeven Director of Operations P.G. Boer Manager of Sales
F.J.J. Saelman Commercial Director of J.H. van Hout Operations Manager
European Retail Group Lochem
Business units I.C. Ogink Director of Finance &
Friesland Foods Cheese Benelux Accounting
Nijkerk, the Netherlands H. van Bochove
Friesland Foods Cheese Deutschland
Essen, Germany A.C. Schrieks
Friesland Foods Cheese Export
Wolvega, the Netherlands J.T. de Haan
Friesland Foods Cheese France
Sénas, France J.C.A. Asselberghs
Friesland Foods Cheese Ibérica
Barcelona, Spain M.A. Lassance

Key brand names

Key brand names Key brand names

102 Annual Report 2007

 Other information

Business group Industrial

Friesland Foods Domo Friesland Foods Kievit Friesland Foods Professional

Friesland Foods Domo develops, produces and Friesland Foods Kievit encapsulates functional Friesland Foods Professional develops, produces,
markets high-quality ingredients and semi- ingredients for the worldwide food industry. markets and sells a range of value-added dairy
finished products based on whey and milk. Its Encapsulation is increasingly gaining ground products for the professional and foodservice
product range includes (semi)demineralised as a means to provide access to functional market such as bakeries, fast-food chains, and
whey products, high-protein whey concentrates, ingredients in products. Friesland Foods Kievit the hotel and catering industry. Its product
biofunctional ingredients and various types creates leading products for customers by range comprises cream-based products, butter
of lactose (milk sugars). These ingredients are undertaking joint innovation initiatives. specialities, fillings and desserts, and ice-cream and
supplied to the infant nutritian, foods and On a global scale, Friesland Foods Kievit focuses milkshake mixes.
pharmaceutical industries throughout the world. on the following core segments: beverages,
enhanced nutrition, infant formula, savoury Address
Address and bakery. The product offering includes Grote Baan 34 T +32 13 310 310
Hanzeplein 25 T +31 38 467 74 44 coffee creamers, soup creamers, foamers and 3560 Lummen F +32 13 310 319
8017 JD Zwolle F +31 38 467 75 55 nutritional oil powders. Belgium
P.O. Box 449 E lummen.info@frieslandfoods.be
8000 AK Zwolle Address
The Netherlands Oliemolenweg 4a T +31 522 23 81 38 Management
7944 HX Meppel F +31 522 23 81 00 F. Smeulders Managing Director
Management P.O. Box 189 P.R. Helderman Commercial Director
R.A. Joosten Managing Director 7940 AD Meppel H. Loomans Director of Finance & ICT
E.W. Groot Koerkamp Director of Finance & The Netherlands J.H. Weijers Director of Operations
Accounting
K.E. Horn Director of Technology Management Business units
Z.W. Leene Commercial Director I.L.M. de Grefte Managing Director Friesland Foods Professional International
H. van Pel Director of Operations L. Coolen Commercial Director Food Service Chains
S.M. Zweers Director of Human D.A.J. Kirpestein Director of Innovation Lummen, Belgium L. Witters
Resources A.J. Leegstra Director of Finance & Friesland Foods Professional International
Accounting Lummen, Belgium J. Thirion
A.M. Verbeek Operations Manager Friesland Foods Professional Germany
Aachen, Germany P.J.J. Vandermeulen
Business unit Friesland Foods Professional France
Friesland Foods Kievit Indonesia Créteil, France P. Parzy
Salatiga, Indonesia A.R. Bouwer Friesland Foods Professional
The Netherlands
Nuenen, the Netherlands U.A.E. Melort
Friesland Foods Professional Belgium
Lummen, Belgium U.A.E. Melort
Friesland Foods Professional Semi Industry
Nuenen, the Netherlands B. Leirs
Friesland Foods Professional
Spraycans/Insourcing
Brand Lummen, Belgium P.J.J. Vandermeulen
Brand Key brand names

Royal Friesland Foods N.V. 103

 Other information

Business group Consumer Products Europe

Friesland Foods Western Europe Friesland Foods Hellas Friesland Foods Central Europe

Friesland Foods Western Europe is responsible Friesland Foods Hellas produces, markets and Friesland Foods Central Europe develops,
for the development, production, marketing and sells dairy products in Greece. Its product range produces, markets and sells fresh dairy products,
sale of dairy-based drinks, coffee enrichers, fruit includes infant and children’s foods, condensed dairy snacks and coffee enrichers in Hungary.
juices and sports drinks for the Dutch, Belgian milk, long-life milk, chocolate milk, yoghurt,
and German markets. cheese and cream products. Address
1134 Budapest, Váci út 33 T +36 1 802 7700
Address Address 1394 Budapest, Pf. 363 F +36 1 802 7709
Horapark 4 T +31 318 43 92 00 44 Kifissias Avenue T +30 210 61 66 400 Hungary
6717 LZ Ede F +31 318 43 92 01 15125 Maroussi F +30 210 61 66 449
P.O. Box 159 Greece Management
6710 BD Ede J.A.M.F. Castelein Managing Director
The Netherlands Management E.H.B.V. Joosten Director of Operations
G.J. Sklikas Managing Director M. Fejes Poórné Director of Human
Management R. van Deventer Director of Finance & Resources
F. Rijna Managing Director Administration J. Sipos Director of Trade
J.H.D. Habets Director of Human J.K. Kallergis Director of Human Marketing
Resources Resources P. Szautner Director of Consumer
D.J.A. Hoekstra Director of Operations A. Mantis Director of Marketing Marketing & New
F.A.M. Reefman Director of Marketing J. Siambanis Director of Sales Business Development
P.L.S. Reekmans Director of Business Units M. Skaramagas Director of Operations C. Vasvári Director of Finance &
H. van Someren Director of Finance & Administration
Accounting

Business units
Friesland Foods België/Belgique
Bornem, Belgium T. van Daele
Friesland Foods Deutschland
Kalkar, Germany S. Schulz
A.L. Hoogesteger Fresh Specialist
Zwanenburg,
The Netherlands M.A.M. van ‘t Hek

Key brand names

Key brand names Key brand names

104 Annual Report 2007

 Other information

Business group Consumer Products International

Friesland Foods Romania Friesland Foods Friesland Foods

Frisian Flag Indonesia Dutch Lady Vietnam

Friesland Foods Romania develops, produces, Friesland Foods Frisian Flag Indonesia produces, Friesland Foods Dutch Lady Vietnam produces,
markets and sells mainly fresh dairy products, markets, sells and distributes dairy products in markets and sells dairy products in Vietnam.
dairy snacks and coffee enrichers in Romania. Indonesia, the archipelago comprising 7,000 Its product range includes infant formula and
islands. Its product range includes infant and children’s foods, condensed milk, milk powders,
Address children’s foods, condensed milk, milk powders long-life milk, yoghurt drinks and yoghurt.
Calea Baciului 2-4 T +40 264 50 20 00 and long-life milk.
400230 Cluj Napoca F +40 264 41 38 55 Address
Romania Address Binh Hoa Commune T +84 65 0754 422
Jalan Raya Bogor Km 5 T + 62 21 841 09 45 Thuan An District F +84 64 0754 726
Management Jakarta 13760 F + 62 21 877 95 376 Binh Duong Province
J.A.M.F. Castelein Interim Managing Director P.O. Box 4074 Vietnam
O. Frunzar Director of Finance & Jakarta 13040
Administration Indonesia Management
S. Kacso Director of Logistics J. Bles Managing Director
C.D.A. Nicula Director of Human Management S. Ahmed Director of Operations
Resources C.H.M. Ruygrok Managing Director C.V. Hai Interim General Director
R. Orbulescu Director of Marketing E.M. Klavert Director of Sales T.Q. Huan Director of Trade
D. Radu Director of Sales J. Langhout Director of Operations Marketing
J. Szasz Director of Operations H.H. Poedjono Director of Human P.J.F. Kerckhaert Director of Finance &
Resources/General Affairs Accounting
M.H. Rooding Director of Finance & J.W. Kivits Director of Consumer
Accounting Marketing
L. Xie Director of Consumer N.H. Thiet Director of Human
Marketing Resources

Key brand names

Key brand names

Brand

Royal Friesland Foods N.V. 105

 Other information

Friesland Foods Friesland Foods Dutch Lady Friesland Foods

Foremost Thailand Malaysia/Singapore/Hong Kong WAMCO Nigeria

Friesland Foods Thailand produces, markets and Friesland Foods Dutch Lady Malaysia produces,
sells dairy products in Thailand. Its product range markets and sells dairy products in Malaysia. Friesland Foods WAMCO Nigeria produces,
comprises condensed milk, milk powder, fresh Its product range includes infant formula and markets and sells dairy products in Nigeria. Its
and long-life milk, and yoghurt drinks. children’s foods, condensed milk, milk powders, product range comprises condensed milk, long-
long-life milk and yoghurt drinks. life milk and milk powders.
Address
6th Floor S.P. Building T +66 2620 1900 Address Address
388 Phaholyothin road F +66 2273 0214 13, Jalan Semangat T +603 7956 7477 Plot 7B Acme Road T + 234 1 271 51 00
Samsen Nai, Phayathai 46200 Petaling Jaya F +603 7955 2985 Ogba F + 234 1 271 51 01
Bangkok 10400 Malaysia Ikeja Industrial Estate
Thailand Lagos State
Management Nigeria
Management J.P.F. Laarakker Managing Director
I.M. Gearing Managing Director A. van Berlo Director of Operations Management
R. Chongcharoenrat Director of Human F. Huang Director of Corporate K. Garg Managing Director
Resources Affairs I.A. Agoye Director of Corporate
J.S. Krol Director of Finance & B. Khoo Director of Sales Affairs
Accounting M.A. Rahim Director of Human H.R. Berghorst Operations Manager
V. Paovarojkit Director of Sales Resources S. Bulthuis Finance Manager
H. Pijffers Director of Operations W.C. Soon Director of Finance & P. Eshikena Sales Manager
K. Tangkiriphiman Director of Marketing Administration R. Maduekwe Human Resources
P. Yoosamran Director of Corporate J.P. Tanis Director of Marketing Manager
Affairs
Business units
Friesland Foods Hong Kong
Hong Kong F. van Amelsvoort
(until 15 March 2008)
C.L. Saw
(from 15 March 2008)
Friesland Foods Singapore
Singapore E. Koh Boon Leng

Key brand name Key brand names

Key brand names

106 Annual Report 2007

 Other information

Friesland Foods Middle East Friesland Foods Business Development Unit

Consumer Products

Friesland Foods Middle East produces and Friesland Foods Consumer Products develops, Address
imports dairy products from the Netherlands, produces and sells mainly long-life dairy products 13, Jalan Semangat T +603 7956 7477
and markets them in Saudi-Arabia, Kuwait, in a selected number of markets in Europe, 46200 Petaling Jaya F +603 7955 2985
Bahrain, Qatar, the United Arab Emirates and Africa, Latin-America and Asia. Its product range Malaysia
Oman. Its product range includes condensed comprises condensed milk, long-life milk, coffee
milk, long-life milk, milk powders, growing-up enrichers, milk powders, and infant formula and Management
milk, yoghurt and cream products. children’s foods. K. Maggioros Director of Business
Development Unit
Address Address L. Girish Marketing Manager for
No. 306, 3rd Floor T +966 2652 9231 P. Stuyvesantweg 1 T +31 58 299 91 11 Infants/Toddlers
Arabian Business F +966 2652 9246 8937 AC Leeuwarden F +31 58 299 22 86 E.I.E.M. Janmaat Human Resources
Center P.O. Box 226 Development Manager
Arabian Business Center 8901 MA Leeuwarden J. Ler Consumer Marketing
King Abdullah Street The Netherlands Manager for Adults/Family
Jeddah
Kingdom of Saudi Arabia Management
H. Huistra Managing Director
Management P. Leliefeld Interim Director of Human
M. Potter Managing Director Resources
K. Bakhsh Director of Finance & E. Vos Finance & Accounting
Administration Manager
A. Khan Director of Operations
(until 1 April 2008) Business units
R.J. Reinders Director of Operations Friesland Foods Export
(from 1 April 2008) Leeuwarden, the Netherlands T.G.H. Smalbraak
G.J. Scheringa Commercial Director Friesland Foods Research & Development
Vacancy Director of Human Leeuwarden, the Netherlands G.H.W. Willems
Resources Friesland Foods Supply Point Beilen
Beilen, the Netherlands P.C. Beemsterboer
Friesland Foods Supply Point Leeuwarden
Leeuwarden, the Netherlands C.J. van Wees
Friesland Foods West Africa
Accra, Ghana P. Verhaak

Key brand names

Key brand names

Royal Friesland Foods N.V. 107

 Annual Report 2007
Royal Friesland Foods N.V.

The power of milk Vision 2015

Annual Report 2007 Royal Friesland Foods N.V.

Royal Friesland Foods N.V.

Blankenstein 142
7943 PE Meppel
T +31 (0)522 27 62 76
F +31 (0)522 27 64 44
The Netherlands
mail@frieslandfoods.com
www.frieslandfoods.com