News

Arla reports ”robust” performance

22 Feb 2016

Arla delivered what it describes as a robust performance against difficult conditions in 2015, including increased milk supply in Europe combined with China’s slowdown in demand and the Russian embargo.

Arla delivered what it describes as a robust performance against difficult conditions in 2015, which, the company says, was a tough year for the global dairy industry. Increased milk supply in Europe combined with China’s slowdown in demand and the Russian embargo have sent world market prices down, Arla notes, but the company navigated through the global crisis by moving even more of its milk into branded dairy products and foodservice, improving market positions and driving down costs.

Arla came out of 2015 with €10.3 billion in revenue, a 3.3% decline compared to the year before. This was fully in line with the company’s expectations.

The performance price, which measures the value Arla has generated from each kilo of milk supplied by the farmer-owners, was 33.7 eurocent per kilo with a total volume of owner milk of 12.5 billion kilos in 2015 (compared to 41.7 eurocent per kilo with a total volume of owner milk of 11.7 billion kilos in 2014).

“We knew 2015 would be tough on all markets, and it was,” said CEO of Arla Foods, Peder Tuborgh. “Dairy prices have been under pressure worldwide all year, and every dairy farmer has felt the consequences. It affected Arla’s milk price to our owners and our revenue in 2015. Having said that, Arla has achieved what we set out to do within our business in a year when the entire dairy industry has struggled.”

“We have worked intensely to minimise the damage from the negative global trends by reducing costs and by maintaining and improving our market positions in Europe while creating new market positions for our branded products outside the EU.”

The net profit of the Arla Group in 2015 accounts for €295 million, of which the profit share of Arla Foods amba is €285 million, corresponding to 2.8% of group revenue.

“Normally our profit target is 3 per cent of our revenue, but in August last year the Board of Directors agreed to reduce the profit target from 3 per cent to the range 2.7 to 3.0 per cent of the company’s revenue,” said chairman of Arla Foods, Åke Hantoft.

“This reduction was made in favour of the prepaid milk price to support our farmer-owners in their very difficult financial situation, which is caused by the global decline in milk prices,”

Arla’s Board of Representatives will decide how to appropriate profits at their next meeting on February 23-24.

Arla’s overall volume of milk grew by approx. 622 million kilos in 2015 to 14.19 billion kilos. Despite the lack of general growth in most of the markets where Arla operates, the company set the target to grow its sales in the more profitable retail and foodservice sector equal to a volume increase of approx. 500 million kg extra milk. This, it says, was successfully achieved.

Arla recently announced its new Strategy 2020 setting out how it planned to grow its business in eight global dairy categories and six market regions as the company moves towards 2020 as one effective and unified company in a dramatically changing global dairy market.

“We are working fiercely to expand our branded business in growth regions outside the EU but also within our European lead markets,” said Tuborgh. “We are launching new innovations and have increased the marketing spend to support this. We have gained market shares in most of our markets although the competition is fierce, with everyone competing for their share of the market while global prices are under pressure. We are confident that Arla has the right strategy to take the company and its owners forward as we focus on organic growth within our existing branded business.”

In 2015, Arla says it also delivered on its long-term efficiency programmes. Through reduced spending, efficiency improvements and continuous adjustment of the organisation, Arla achieved its annual savings goal of €330 million in 2015 compared to 2012 cost-levels.

“Delivering consistently on both agendas – expanding our branded business while reducing costs – has significantly improved the strength of our business,” said Tuborgh. “Constantly becoming more cost-efficient is a crucial part of our efforts to create the best value for our farmer-owners in the extremely tough conditions. We have therefore set a new target of delivering additional annual savings of 400 million euro by 2020, starting with the first 100 million euro in 2016.”

Two of the world’s biggest importers of dairy products – China and Russia – took in significantly less of Europe’s growing milk pool in 2015, leading to declining prices worldwide and in Europe in particular. Consequently, Arla’s overall revenue in European core markets declined by approx. €200 million (3%) in spite of the fact that the company gained market shares and increased sales volumes.

Outside the EU, Arla says it continues to expand its branded sales. In 2015 Arla grew its sales of consumer products by 20% in the Middle East & North Africa, by 50% in China, and by 14% in the United States.

“Arla has performed in line with expectations in a highly competitive European market, and in our prioritised markets outside the EU we are harvesting double-digit sales growth as planned,” said Tuborgh. “We have continued to pave the way for international growth by setting up strong regional sales teams close to the customers and consumers and by entering partnerships with strong local players in Nigeria, Senegal, Egypt and Australia.”

Arla says that the global market is expected to remain unpredictable and tough in 2016, but a turn for the better is anticipated towards the end of 2016.Arla expects its revenue to be on par with 2015 level, and the company expects its profit to be within the range 2.8 to 3.2% of the company’s revenue.

“The global dairy industry has rarely been as tough and unpredictable, and 2015 has unfortunately been as challenging as we anticipated. We have an extremely difficult task ahead of us in 2016 as global milk supply still exceeds demand. We do expect that the global market will begin to turn for the better towards the end of 2016,” concluded Tuborgh.