A difficult six months but 2009 full year forecast achievable.
Arla Foods has today announced half year results in line with expectations. Net profit for January to June 2009 was DKK 263 million (£31m). Turnover was down by almost DKK 2 billion (£236m) of which DKK 1.7 billion (£202m) is due to the fall in the exchange rate between Swedish krona, sterling and Danish kroner.
Pressure on earnings has been significant as the dairy industry, Arla and its owners experience the effect of the global recession and contend with huge price pressures which have taken hold across the world during 2009 coupled with a major imbalance between supply and demand for milk. The price paid to milk producers, whose earnings are under pressure, remains Arla's high-est priority.
A DKK 1 billion (£118m) saving programme, which impacts all parts of the company, was launched in April to offset these challenges and the majority of the savings will be delivered in the second half of 2009. The programme will also ensure that Arla remains on course for the remainder of 2009 and the forecast for DKK 900 million annual profits remains intact. Prioritisation of activity and savings is based on the long-term goal set out in Arla’s five-year strategy, which was launched in 2008.
Lower interest rates and strong brands have also positively affected half year profits but a number of factors have negatively impacted earnings, including lower sales as consumers across the world buy fewer and cheaper products as a result of the economic downturn, intense pressure on dairy products and fierce competition in the retail sector.
“The half-year results are in line with our budget,” says Peder Tuborgh, CEO, Arla Foods. “The economic downturn is more extensive and prolonged than expected and has impacted all Arla's markets. The results demonstrate that the savings programme and the reduction in the milk price paid to our co-operative members were, unfortunately, necessary and appropriate measures. We are on the right course and we must continue to deliver the savings we identified in April.”
Peder continues: ”We are seeing some positive signs. Should these become stronger, the pressure will ease, but the uncertainty is making it difficult to predict the future. All employees understand the seriousness of the situation and are being proactive in the pursuit of savings.”
UK overview
Arla’s £70 million expansion at its flagship dairy in Leeds is progressing well with the installation of bespoke processing kit taking place in the coming months. As well as improving efficiencies, the increased capacity will allow for the production of cream as well as cottage cheese for the first time in the UK.
In line with seeking further efficiencies, Arla UK has embarked on a LEAN programme. A pilot is taking place on its Stourton campus where a robust LEAN model is being developed that is intended to be rolled out to other UK sites.
Despite consumers trading down to less expensive dairy products, Arla UK’s three major brands are performing well. The long shelf life of Cravendale continues to find favour with shoppers with the brand now worth £142m growing at 20 per cent year on year.