FDBusiness.com

Globally declining milk prices have impacted Arla Foods’ performance in the first half of 2015. The international dairy co-operative has reported a 3.8% fall in revenue to Eur5.13 billion and a drop in the financial returns paid to its members. Arla Foods expects to process an additional 3-4% of raw milk every year following the abolition of EU milk quotas. However, the depressed global dairy market has impaired Arla Foods’ ability to safeguard the milk price and deliver value to its owners. The performance price for the first half of the year at EUR-cent 33.8 is significantly below 2014. The performance price indicates the value Arla Foods has generated from each kilo of milk supplied by its owners.

Arla Foods is adapting to the depressed global dairy market by directing its increasing milk volumes into retail and branded products, to limit the amount going into less profitable commodity products; focusing on active cost management across its operations; and concentrating on investments that support expansion in the international dairy group’s strategic growth markets outside the EU.

Peder Tuborgh, chief executive of Arla Foods.

“Our revenue is in line with expectations for the first half of 2015,” says Peder Tuborgh, CEO of Arla Foods. “We are doing everything we can to minimize the effects of the general global market situation, however it cannot change the fact that our farmer owners are in a tough situation right now.”

Arla Foods has reduced capital expenditure for 2015 and has postponed a number of projects until the dairy market improves. The dairy group is focusing on investments that support the development of its strategic growth markets outside the EU which enables it to channel additional owner milk into branded products.

“When times are challenging for our owners, it is essential that we keep a firm grip on our costs. For this reason we have reduced investments by 30 per cent and are continuing to streamline the organization vigorously and control costs. Our ambition is to achieve total savings from cost programmes of 330 million euro before the end of 2015 compared to 2012 – and we are on track to do so,” says Peder Tuborgh.

In line with its strategy of accelerating growth outside its European core markets, Arla Foods has established a new subsidiary in Australia in co-operation with Australia’s largest cheese importer, F Mayer Imports with the ambition to multiply its revenue in Australia fivefold. In Egypt, Arla Foods has formed a similar alliance with local dairy company Juhayna.

Arla’s profit in the first half year accounts for 2.3% of the company’s revenue, but for the full year profits are expected within the 2.7–3.0% range. Revenue for the full year is expected to reach Eur10.2–10.3 billion.

“The global dairy market has rarely been as unpredictable as now, and unfortunately 2015 is proving to be as challenging as we anticipated. Our long-term view is that the market will turn again in the first half of next year, which is why we will stay focused on our strategic agenda,” says Peder Tuborgh.