Arla Foods Achieves Record Organic Revenue Growth in 2017
Strong performances by Arla Foods’ global brands, its international markets, and the ingredients business ensured a year of high growth for international dairy co-operative Arla Foods in 2017, as it delivered a 27.4% increase in pre-paid milk price to its farmer owners, and a net profit of 2.8% of revenue within its target range.
This was achieved in another volatile year in the global dairy market characterised by significant shifts in market prices, which supported an increase in sales prices of €1 billion.
Group revenue increased by 8.1% to €10.3 billion driven by higher sales prices, increased branded share of sales, and a better geographical and product mix. Revenue from International markets rose by 13.2% and Arla Foods Ingredients achieved revenue growth of 19.6%. Arla® brand revenue increased by 10.1%.
Core to Arla Foods’ ‘Good Growth 2020 Strategy’ is a focus on meeting increasing demand from consumers around the world for dairy products, as part of a healthier and more natural lifestyle. The Arla® brand, which is at the forefront of this commitment, registered strong gains in many markets, propelled by organic launches in the Middle East, cream cheese launches in the US, and high demand for Arla’s innovative skyr and protein products in Europe.
Peder Tuborgh, chief executive of Arla Foods, comments: “In 2017, we delivered a strong performance built on the good balance of brands, categories, and geographies that we have in our business to drive growth. Most importantly, this enabled us to pay out significantly higher milk prices to our farmer owners and utilize our balance sheet to enable the substantial capital investments we are making in 2018.”
Branded Growth
Branded growth remains crucial for Arla Foods because it helps offset market and raw material price volatility, having greater impact on non-branded products. In 2017, Arla Foods grew its share of branded business to 44.6% – near the long-term ambition in Good Growth Strategy 2020 of 45%.
This has enabled the Arla® brand to capitalise on increasing demand for dairy as part of a healthier lifestyle from consumers around the world. Strong gains in many markets with Arla® skyr as an example of this trend, performing particularly impressively in the German market showing a revenue growth of 94%, and Arla® protein drinks, launched into six new markets in 2017 and now available in 14 markets worldwide.
Internationally, cream cheese launches propelled growth in the US, while Arla® branded organic milk was launched in the Middle East. Arla Foods’ strategic brands all performed well in 2017, mainly driven by increased sales prices and a strategic branded volume driven revenue growth of 3.0%.
Natalie Knight, chief financial officer at Arla Foods, says: “This is the single biggest organic revenue increase inside one year in company history when you don’t count mergers. It was driven by our continued drive into international markets as well as our focus on growing and developing our strategic brands on all markets.”
The International commercial segment, which comprises 16% of Arla Foods total revenue, showed a strong performance throughout 2017. International sales to retail and foodservice customers delivered a 13.2% increase in revenue to reach an all-time high, achieving €1.616 billion.
As Arla Foods’ largest commercial market, Europe showed solid performance in 2017 with total revenue increasing by 3.9% to €6,568 million. This reflects the longer-term rebound in demand for natural, whole fat dairy products such as butter and cheeses as well as the trend towards convenient high-protein products.
For Arla Foods Ingredients, a fully-owned subsidiary, 2017 was another strong year, showing significant top and bottom line growth driven by innovation in its specialty protein range. As a global leader in whey-based ingredients, Arla Foods Ingredients supports a wide range of categories from bakery, beverages, dairy, and ice cream to clinical, infant and sports nutrition. Sold in more than 90 countries, revenue grew 19.6% to €651 million driven by the sale of higher volumes in Arla Infant Milk Formula Business to Business as well as strong price and volume growth in the value-added protein segment.
Expectations For 2018
Arla Foods’ Good Growth 2020 Strategy remains key for strengthening brands and business in 2018. The €527 million investment plan recently announced will drive branded and international growth with increasing investments in innovative technology and new, expanded, and improved production capacity to enable this. Strategic growth markets such as Middle East and North Africa, China, South-East Asia, Sub-Saharan Africa, and the US remain in focus for 2018.
Revenue in 2018 is expected to be at a similar level of between €10 to 10.5 billion as a result of higher milk volumes and an improving product mix, which are likely to be largely offset by expected negative currency developments. Arla Foods will continue to target a net profit share for 2018 in the range of 2.8% to 3.2% of revenue, but expects seasonality to have a high impact on the 2018 half-year results, which are expected to be below the annual target range.
“We welcome an even more consumer-driven dairy market, where inclusiveness with the whole value chain and holistic responsibility will be more important than ever. As a farmer-owned dairy company we must meet these demands by being transparent and using the tools we have in our quality assurance programme Arlagården®, to bring consumers and customers closer to Arla,” says Peder Tuborgh.
