Strong growth in Russia for Arla Foods

25 Feb 2013

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Arla Foods has reported a 15 per cent increase in turnover to DKK 63.1 billion and a forty percent increase in profit despite pressure being put on European milk prices in the first half of last year.

“2012 was a landmark year for Arla. In a tough market, Arla has continued to develop a strong cooperative with promising new positions in several core markets and strong brands. The Arla performance price is below the 2011 level, but it should be noted that it is at the high end of the European spectrum for dairy companies, which have all had to operate under the same market pressure,” says Arla Foods’ CEO, Peder Tuborgh.

The net result of 1.9 billion DKK is the highest in Arla’s history, and the performance price the third highest ever.

A world in two parts
While growth in European markets for food products is low, markets outside the EU are experiencing double-digit growth rates. Arla delivered growth in both turnover and earnings in almost all markets outside the EU in 2012. In Russia, Arla’s turnover increased by almost 28 per cent to over DKK 600 million, and in the Middle East and Africa, sales of dairy products to consumers grew by 22 per cent to approximately DKK 3 billion.

“It became clear in 2012 that future opportunities lie in new growth markets. Our ingredients business and markets outside Europe in 2012 contributed significantly to the company’s profit – in fact, we have never experienced such a positive development in our profits outside the EU. It is evidence that our international strategy is now delivering for us in financial terms and it demonstrates that the international markets will be crucial for our future earnings,” says Peder Tuborgh.

Global brands and ingredients deliver
Despite the generally low growth rates in the EU dairy market, Arla’s global brands, led by the Arla® brand and Lurpak®, achieved overall growth. Globally, the Arla® brand grew by 3.4 per cent and Lurpak® by 5.1 per cent. Arla’s third and smallest global brand – Castello® – suffered as a result of European consumers’ general reluctance to buy slightly more expensive branded products. As a result, global turnover from Castello® products decreased by 1.1 per cent in 2012 compared to 2011.

Arla Foods Ingredients (AFI), which is responsible for Arla’s global production, sales and development of whey proteins and ingredients to the food industry, achieved 10 per cent growth in 2012, delivering DKK 2.2 billion in turnover.

“Overall, the group delivered organic growth of 2.1 per cent, which was primarily driven by the growth markets of Russia, the Middle East and Africa as well as our whey and ingredients business. These three areas have not only shown impressive sales figures, they are also where earnings growth has been greatest,” says CFO at Arla Foods, Frederik Lotz.

Lower costs
In an effort to increase earnings for Arla’s owners Arla’s management team, in 2012, set about creating a more flexible business that can operate more efficiently and at a lower cost. The main effect of this will be felt in 2013 and beyond.

“In 2012, we introduced a number of new efficiency measures, which together are expected to save at least DKK 2.5 billion in costs by 2017. The effect of this will be more visible in 2013 but, in 2012, we experienced a significant decrease in fixed costs,” says Frederik Lotz.

Outlook for 2013
In 2013, Arla forecasts that it will achieve a turnover of around DKK 72 billion and a profit that is three per cent of turnover, equivalent to DKK 2.2 billion. Based on current expectations for the markets, Arla’s ambition is to deliver earnings to its members that exceed those in 2012.

“The milk price is influenced by factors we cannot always predict or control. We saw this clearly in 2012. The forecasts for 2013 are based on there continuing to be low or no growth in the EU, where we derive most of our turnover and earnings, while the impressive growth rates outside the EU will continue. Regardless of market developments, we are confident in our ability to deliver for our owners. Having taken the decision to deliver several major mergers and acquisitions, Arla’s owners have enabled us to create a platform from which we can deliver increased earnings. We must now deliver this uplift to them,” says Peder Tuborgh.

 

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