FDBusiness.com

Despite globally challenging market conditions including the impact of a continued weak pound and changes in fat and protein prices, Arla Foods UK delivered a steady start to the first half of the year. A 6.7 per cent volume driven branded growth contributed to an overall net revenue growth of 2.3 per cent, comparative to the first half of 2017, increasing revenue to £961m1 (€1.093bn).

The 6.7 per cent strategic branded sales volume for Arla Foods UK was supported by the core Arla® brand at 9.32 per cent growth, as well as Lurpak®at 2.22 per cent growth and Castello® at 8.82 per cent growth in the UK. Within the Arla portfolio, Arla’s foodservice range Arla Pro grew by 52.82 per cent whilst sales of B.O.B (Best of Both) grew at 38.12 per cent.

Ash Amirahmadi.

Ash Amirahmadi, managing director of Arla Foods UK, comments, “Year on year, Arla’s portfolio continues to lead the way in driving growth across the UK dairy sector. Our decision to invest to build capability in the growing channels of foodservice, online and convenience is paying off and will continue to do so as we further develop the UK business.”

Global Business

At a Global level across the farmer owned co-operative, total Arla Group revenue grew by 2.2 per cent to €5.1 billion, supported by higher strategic branded sales volumes, which were up 3.0 per cent due to strong performance by the Arla® brand, Lurpak®, Puck® and Castello®.

Each year, Arla targets an annual net profit share in the range of 2.8 to 3.2 per cent of revenue. This allows the company to balance its retained capital for future investments and provide a supplementary payment to farmer owners, while continuing to pay out the highest possible share of our ongoing profit to our farmer owners via the prepaid milk price throughout the year.

In the first half year of 2018, Arla delivered a net profit share of 2.2 per cent, up from last half year’s profit share of 2.1 per cent. The company expects to reach its full year net profit share to be within the 2.8 to 3.2 per cent target range.

Calcium

Early in 2018, the three year transformation and efficiency programme Calcium was announced by Arla’s management to reduce cost by over €400 million across the group. For the full-year of 2018, Arla expects Calcium to deliver a positive contribution of at least €50 million, up from the initially forecasted €30 million.

“It was a tough start to 2018 as we took urgent action to repair our bottom line. This urgency delivered a positive result as we were able to improve our profitability and the performance of our milk price over the period. However, there is more work to be done as we continue to relentlessly execute our transformation programme, Calcium, which will further improve our performance,” says Peder Tuborgh, chief executive of Arla Foods.

“I’m pleased to say that Calcium is starting to deliver – every week we see steady progress across the programme. Our top management, leaders and employees are working adamantly on each initiative that will enable us to pay a more competitive milk price to our farmers, compete more effectively in the markets and categories we operate in worldwide, and boost the strategic investments that will sustain our long term profitable growth,” says CFO in Arla Foods, Natalie Knight, chief financial officer of Arla Foods.

Of the €400 million Calcium is expected to deliver by 2021, Arla aims to direct €300 million to its farmer owners via the prepaid milk price while reinvesting €100 million into areas that fuel growth.

Full Year Expectations

Jan Toft Nørgaard, chairman of Arla Foods.

For the full year, Arla will remain focused on balancing branded growth in a higher retail price environment. Continued execution of the transformation programme Calcium will be the company’s other key priority. Arla’s revenue outlook for the full year 2018 is expected to be €10.0-10.5 billion and Arla’s branded growth is expected to be at the high-end of the previously communicated target range of 1.0-3.5 per cent.

Net profit share for 2018 is expected in the targeted 2.8-3.2 range.

A proposal to pay out the entire 2018 net profit of Arla Group has been prepared by Arla’s board due to the positive development of Arla Foods’ balance sheet. The board also recognizes that many Arla farmers are facing a tough financial situation due to this summer’s drought in Europe, and that it is in Arla’s best interest for this year’s net profit to be paid out to the farmers.

“As a farmer-owned dairy company, we care deeply about the livelihood of our farmers and we recognize that this summer’s drought in Europe has been extraordinary. We are proposing that extraordinary measures be taken in this situation, and the board is satisfied with the positive development of the company’s balance sheet, which makes this proposal possible.” says Jan Toft Nørgaard, chairman of Arla Foods.