FDBusiness.com

In 2019 international dairy co-operative Arla Foods exceeded expectations for sales of its global brands whilst simultaneously transforming its business and securing cost-savings at the top end of expectations through its Calcium programme. This enabled Arla Foods to deliver a stable milk price to its farmers owners and a strong cash flow further strengthened the company’s investment power in future growth.

Group revenue increased to €10.5 billion -compared to €10.4 billion in 2018 and €10.3 billion in 2017 – driven mainly by the global brand portfolio that achieved a year-on-year branded sales volume increase of 5.1%. Arla’s performance price – which measures the value Arla creates per kilogram of owner milk – continued its upward trend during 2019 to 36.6 eurocent compared to 36.4 eurocent in 2018.

“Throughout 2019 we continued to build on the positive momentum that we have created in the business and Arla is a stronger company than we were a year ago. We have strengthened our competitiveness and beat our financial targets while continuing our transformation through Calcium,” says Peder Tuborgh, chief executive of Arla Foods.

Arla’s branded sales volume grew 5.1% in 2019, compared to 3.1% in 2018, mainly driven by the Arla® brand. Global revenues of the Arla® brand grew to €3.03 billion compared to €2.875 Billion in 2018, driven by a series of successful launches across its Lactofree and organic ranges, the introduction of new flexitarian options as well as the rapid growth of Skyr in core European markets.

The performance of Lurpak® underlined the resurgent popularity of butter both for cooking and everyday consumption. Innovations such as the Lurpak softest launch in the UK and the new butter box packaging for block butter, with sales of over 100,000 tonnes. Lurpak® revenue increased to €588 million, compared to €561 million last year.

“Arla’s global brands continue to be at the heart of our business and in 2019 we have clearly strengthened consumer trust in our brands. We delivered a range of popular dairy products that capitalized on increasing consumer demand for healthy and sustainable food choices, which helped us exceed our expectations for branded growth in 2019,” says CFO of Arla Foods, Natalie Knight, chief financial officer at Arla Foods.

Commercial Segments Deliver on Good Growth 2020 Strategy

To build on its position as a leading global dairy business, Arla Foods focuses its activities on four commercial segments.

Peder Tuborgh, chief executive of Arla Foods.

Arla Foods’ Europe segment represents just over 60% of the business. Core brands delivered a 2.9% branded volume growth, compared to 2.5% in 2018 with growth across all markets, especially in the UK that delivered 8.8% branded volume growth. However, the overall revenue in the Europe segment decreased by €154 million to €6.353 billion, largely as a result of stepping out of unprofitable private label contracts and exchange rates.

Arla Foods’ International segment, which represents 17% of the total business, delivered overall double-digit branded volume revenue growth of 10.3% with growth across all regions except North America. Revenue increased by €226 million, to €1.802 billion, which is the highest increase in the past three years. On top of this, the acquisition of the state-of-the art production facility in Bahrain from Mondeléz International and the long term Kraft^® brand license for the cheese business in MENA enables Arla Foods to step change its production capability in the region.

Arla Foods Ingredients (AFI), a 100% owned subsidiary of Arla Foods, increased revenue by €58 million in 2019 to €710 million, driven by higher sales of value-added products within the pediatric, health & performance and food segments, as well as higher prices and the full-year effect from the acquisition of the remaining 50% share of Arla Foods Ingredients Argentina in 2018.

Trading, which is business to business commodity sales decreased revenue by €28 million to €1.662 billion, mainly due to lower volumes and negative currency effects.

Calcium Delivers Above Expectations

Arla Foods’ transformation and efficiencies programme, Calcium, again delivered above expectations, with savings of €110 million exceeding the high-end 2019 target of €75-100 million. As a result, the accumulated savings of €224 million since the launch in 2018, means that Arla Foods is more than halfway towards the 2021 end goal of €400 million in sustainable savings.

Peder Tuborgh says about the transformation: “In 2019 we were able to grow and improve our quality of business while continuing to deliver efficiencies beyond our initial expectations. This clearly shows that our employees are transforming the way they work, spend and invest in our business. The changes becoming more and more embedded in our ways of working and I am very proud of our people and our results so far.”

Investments in Sustainable Growth

2020 is expected to be another big investment year. Arla Foods plans to invest a record €619 million in major projects to expand capacity in growth sectors such as milk powder for the international markets by continuing the completion of a powder tower in Pronsfeld, Germany, expansion of mozzarella capacity in Branderup, Denmark, and upgrades to the newly acquired Bahrain production site, as well as significant investments into capacity increases for AFI.

In 2020 Arla will build on the momentum created in 2019 and further strengthen the cooperative’s competitiveness with focus on branded growth, the Calcium transformation and efficiencies programme, and increase its focus on taking action on the sustainability agenda across the whole value chain.

The end of 2020 also marks the completion of the group’s Good Growth 2020 strategic period, and Arla Foods expects to reach all its long-term financial targets.

“As we come into the home stretch of our Good Growth 2020 strategy, it’s clear that it has been a very successful guide for us to grow our global and branded positions. Looking forward, we will continue to capitalize on these strengths, increase our innovation capabilities and most importantly, strengthen our commitment to sustainability to secure even more value for our farmer owners going forward,” says Peder Tuborgh.

Group revenue for 2020 is expected to be €10.4-10.8 billion, net profit share will be in the range of 2.8% to 3.2%, and leverage is expected to be within target range of 2.8-3.4.