A Landmark Result For Arla Foods
Mergers, acquisitions and strong brands were behind a 15% rise to DKr63.1 billion (Eur8.5 billion) in Arla Foods’ turnover in 2012. As expected, consolidated net profit amounted to 3% of turnover and totalled DKr1.9 billion in 2012 – the highest in Arla’s history.
2012 saw strategic developments in Arla’s growth markets and historic expansion inEurope. This was despite a first half-year during which prices in the global dairy industry were under severe pressure due to an unexpected increase in global milk production, which affected earnings across the industry.
For each kilogramme of milk supplied to the company by the owners – the 12,300 cooperative members in Sweden, Denmark, Germany, UK, Belgium and Luxembourg – Arla generated earnings of DKr2.71 in 2012. This performance price was 4% lower than in 2011 due to tougher market conditions in the first half of the year.
“2012 was a landmark year for Arla. In a tough market, Arla has continued to develop a strong co-operative with promising new positions in several core markets and strong brands. The Arla performance price is below the 2011 level, but it should be noted that it is at the high end of the European spectrum for dairy companies, which have all had to operate under the same market pressure,” says Arla Foods’ chief executive, Peder Tuborgh.
Peder Tuborgh.
While growth in European markets for food products is low, markets outside the EU are experiencing double-digit growth rates. Arla delivered growth in both turnover and earnings in almost all markets outside the EU in 2012. In Russia, Arla’s turnover increased by almost 28% to over DKr600 million, and in the Middle East and Africa, sales of dairy products to consumers grew by 22% to approximately DKr3 billion.
“It became clear in 2012 that future opportunities lie in new growth markets. Our ingredients business and markets outside Europe in 2012 contributed significantly to the company’s profit – in fact, we have never experienced such a positive development in our profits outside the EU. It is evidence that our international strategy is now delivering for us in financial terms and it demonstrates that the international markets will be crucial for our future earnings,” says Peder Tuborgh.
Despite the generally low growth rates in the EU dairy market, Arla’s global brands, led by the Arla® brand and Lurpak®, achieved overall growth. Globally, the Arla® brand grew by 3.4% and Lurpak® by 5.1%. Arla’s third and smallest global brand – Castello® – suffered as a result of European consumers’ general reluctance to buy slightly more expensive branded products. As a result, global turnover from Castello® products decreased by 1.1% in 2012 compared to 2011.
Arla Foods Ingredients (AFI), which is responsible for Arla’s global production, sales and development of whey proteins and ingredients to the food industry, increased turnover by 10% to DKr2.2 billion.
“Overall, the group delivered organic growth of 2.1 per cent, which was primarily driven by the growth markets of Russia, the Middle East and Africa as well as our whey and ingredients business. These three areas have not only shown impressive sales figures, they are also where earnings growth has been greatest,” says Frederik Lotz, chief financial officer at Arla Foods.
In an effort to increase earnings for Arla’s owners Arla’s management team, in 2012, set about creating a more flexible business that can operate more efficiently and at a lower cost. The main effect of this will be felt in 2013 and beyond.
“In 2012, we introduced a number of new efficiency measures, which together are expected to save at least DKr2.5 billion in costs by 2017. The effect of this will be more visible in 2013 but, in 2012, we experienced a significant decrease in fixed costs,” says Frederik Lotz.
In 2013, Arla forecasts that it will achieve a turnover of around DKr72 billion and a profit that is 3% of turnover, equivalent to DKr2.2 billion. Based on current expectations for the markets, Arla’s ambition is to deliver earnings to its members that exceed those in 2012.
