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Arla profits boom as mergers bear fruit

By Rod Addy+

29-Aug-2013

Dairy giant Arla has doubled profits for the first half of its financial year, amid news the two mergers it undertook in 2012 were paying off.

Arla delivered capacity cost savings of £57M on an annual basis

Arla delivered capacity cost savings of £57M on an annual basis

Arla announced its merger with German processing co-operative Milch-Union Hocheifel (MUH) and with the UK’s Milk Link in May last year.

Now, in Arla’s interim financial statement, chief financial officer Frederik Lotz said: “The process of integrating the companies with which we have merged is progressing faster than expected, and the positive results that we intended are now beginning to be realised.

“In less than a year, we have succeeded in increasing the profitability of the additional billions of kilogrammes of milk that we are now processing as a result of the mergers, and this is strengthening the combined earnings from our core business in our Europe.”

Revenues had increased significantly, off the back of organic growth in Arla’s core and growth markets and the effect of the mergers, the business claimed.

Higher milk prices

Arla Foods ceo Peder Tuborg said Arla’s global market performance had been boosted by higher milk prices as demand outstripped supply. The company had been able to pass these increases on to farmers, he said.

“We have strictly adhered to our corporate strategy both inside and outside Europe, and in the first half of 2013 this has enabled us to increase the milk price paid to our owners three times, which has increased earnings for farmers,” he said.

Arla said it had increased sales to the Middle East, Africa, Russia and China, third-party manufacturers in the global dairy industry via milk powder products, and ingredients customers through Arla Foods Ingredients. These are its strategic growth areas.

“Efficiency improvements are being delivered on schedule resulting in savings of approximately DKK 500M (£57M) in capacity costs on an annual basis,” said Lotz.

‘Keep a firm eye on costs’

“Given the strong growth realised this year, it is particularly important to keep a firm eye on costs, and I am therefore pleased that Arla’s relative cost level for 2013 will be lower than in 2012.”

Arla reported global sales had sailed past DKK35.7bn (£4bn) in the first six months of 2013, comprehensively beating the DKK29.9 (£3.3bn) it made in the same period last year. UK revenue stood at DKK9.2bn (£1.05bn), Arla’s biggest national market at 26% of total consolidated revenue.

Pre-tax profit rocketed to DKK1,141M (£134.3M), more than double the figure for the previous half year, DKK455M (£52.18M).

The firm has predicted revenue of DKK 73bn (£8.3bn) for the full-year and profit of DKK 2.2bn (£251M).

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