Arla Foods has today posted a profit of DKK 697 million (£81.2 million) based on a turnover of DKK 23.8 billion (£2.77 billion) for the first half of 2010. Both turnover and earnings increased - but a challenging autumn awaits.
Increased prices in the global markets, rising foreign exchange rates as well as strict control of costs are the main reasons why, in the first six months of the year, Arla Foods has succeeded in increasing the ongoing payment to its co-operative owners while at the same time delivering profits of DKK 697 million (£81.2 million). In 2009, interim profits were DKK 263 million (£31 million) based on a net turnover of DKK 22.3 billion (£2.63 billion).
“Arla Foods has had a good half-year during which we increased the milk price paid to our owners three times,” says Arla Foods’ CFO, Frederik Lotz. “Last year's extensive savings campaign trimmed the Group's costs and we’ve succeeded in maintaining the low cost levels achieved by the savings campaign in 2009. The accounts demonstrate that we have a sound platform for growth.”
Growth is also reflected in earnings. For each kg of milk supplied by Danish and Swedish co-operative owners to Arla during the first six months of 2010, Arla generated earnings for its owners of DKK 2.38 (27.7p). In 2009, the figure was DKK 2.14 (25.2p).
Growth and foreign exchange rates
“Overall, these are satisfactory interim results," said Frederik Lotz. “We are maintaining good market positions in our biggest markets in the UK, Sweden and Denmark, and the significant part of the growth in the first half of the year was also created by external factors such as the positive foreign exchange rate developments for our key export currencies. We are continuing to see increasing growth in markets such as Russia, China and the Middle East as well as the potential for further growth in a number of our core markets going forward.”
Arla Foods has recently decided that the Group’s annual profit should represent 2.5 per cent of its turnover (compared to two per cent previously). The company has, therefore, revised its target for this year’s profit from DKK 950 million (£110.7 million) to DKK 1.2 billion (£140 million).
Challenging autumn
Although both turnover and earnings increased in the first half of the year, the next six months will have their own challenges. The first half of the year was characterised by higher prices in international commodity markets where Arla sells butter, cheese and powder to industrial customers. However, it is not anticipated that these high prices will continue for the remainder of the year.
“We have to expect lower earnings from the commodity markets in the second half of the year and at the same time we will see the full effects of the increases in the Arla price,” said Frederik Lotz. “A decisive factor will be how consumer confidence develops. European consumers still bear the scars of the economic recession – many are still cautious and prefer discount products to brands and this obviously impacts on earnings.”
UK overview
Arla successfully launched cottage cheese for the first time in the UK in August following £70 million investment in its flagship dairy in Leeds. Earlier in the year the new state of the art facility began producing fresh and cultured cream, allowing the company to close its creamery in Northallerton in June.
Arla’s branded business continues to perform well and the £35 million that is being invested in its top four brands during 2010 is delivering results. Lurpak retains its position as the number one butter, spreads and margarine brand for the third consecutive year and Anchor’sMade by Cows since 1886 advertisement and new Original Butter Co. positioning, both of which draw on the brand’s heritage, have driven volume and value growth and consumers have voted the TV advertisement Anchor’s best yet.
Arla’s milk brand, Cravendale, continues to go from strength to strength, with value doubling in size in the last four years. It is forecast to break through the 200 million litre barrier by the end of the year, is one of the UK’s fastest growing grocery brands and is commanding a five per cent share of the fresh milk market.
Lactofree, Arla’s dairy alternative product range, is enjoying value growth of 37 per cent year on year. It is the fastest growing brand within the dairy alternative market and thanks to the new TV advertisement, which launched in January 2010, awareness of the product range is increasing.
In line with the company’s ambition to forge ever closer links with its supplying farmers, Arla Foods Milk Partnership (AFMP), the Arla Foods amba board has extended an invitation to Arla UK’s direct supply group to invest further in the UK business, which the farmer board, alongside its members, is currently considering.
Commenting on Arla UK’s performance in the first half of 2010, Peter Lauritzen, CEO, said: “We have made pleasing progress against our strategy and are delivering in line with our expectations. Our plans for our new dairy on the outskirts of London are developing rapidly and the invitation for AFMP farmers to invest further in the business marks another important milestone in Arla UK’s journey.”