‘Tough’ dairy industry hits Arla’s revenue

By Laurence Gibbons contact

- Last updated on GMT

Arla has been hit by changing global milk prices
Arla has been hit by changing global milk prices

Related tags: Milk

Arla Foods’s revenue has dropped 3.8% to £3.78bn (€5.12bn) during the first half of this year as a result of the globally declining milk prices creating a “tough” situation for the industry.

Despite expected challenges, the current price levels have dropped to an “unforeseen low”,​ not seen since 2009, Arla claimed.

Since the start of 2014, the global market commodity price for whole milk powder has dropped 53.1%, the firm said.

Prices have been under heavy pressure since last year as China’s import of commodity products stagnated and Russia introduced an embargo on EU dairy products. At the same time, European milk production has increased after the EU abolished milk quotas on April 1 and production has also gone up in New Zealand and the US.

The firm’s chairman Åke Hantoft said it had been a “very challenging year”​ for all dairy farmers.

‘Heavy challenge’

“The current earnings do not cover the costs of milk production, which is a heavy challenge for us farmers and our individual businesses,” ​Hantoft said.

Arla results in numbers

  • €33.8 cent/kg (performance price)
  • €5.13bn (revenue)
  • €116M (profit)
  • 7.0bnkg (total milk volume)
  • 6.25bnkg (owners’ milk volume)

“In the past year Arla has been working very actively to buffer the market situation without damaging our market positions. This proves that we have the right strategy, however no strategy can remove the current world market slump.”

Arla was forced to cut its milk price by 1.8p per litre in July.

It has also reduced investments by 30% and would continue to streamline the business and control costs, it claimed.

Arla’s ceo Peder Tuborgh said the firm was on track to achieve total savings from cost programmes of €330M before the end of the year, compared with 2012.

During the first half of 2015, Arla achieved a volume-driven revenue growth of its three global brands: Arla, Lurpak and Castello of 2.4%, he added.

“Even when our milk intake has increased by 7% we have managed to keep our industry trading sales share at 20–22% while moving more milk into branded retail sales and foodservice,”​ he said.

‘Growing sales’

“Lurpak is doing especially well, winning market shares and growing sales in key markets in Europe, Middle East, Latin America and beyond. We need to grow our three global brands significantly, as outlined in our strategy, and we are targeting volume-driven revenue growth of three to five per cent in 2015.”

Arla’s profit in the first half year accounted for 2.3% of its revenue, but for the full year profits are expected within the range 2.7–3.0%, he added. Revenue for the full year is expected to reach €10.2–10.3bn.

“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,”​ Tuborgh said.

Related topics: Dairy, Dairy-based ingredients

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