Arla’s cost-saving program pushes revenue higher, pays out all 2018 profits to farmers

DENMARK – Danish dairy producer, Arla Foods has reported improved sales and revenues from benefits of the company’s transformation program and has said that it will pay out its full year net profit to farmers.

Group revenue increased to US$11.79 billion (EUR 10.4 billion) from US$11.67 billion driven by strong growth in branded sales volumes of 3.1%.

This was helped by product launches including organic baby brand, Baby&Me Organic in the UK; and Bio Nur, an innovative product consisting of 75% organic yoghurt and 25% organic fruit.

Arla grew its share of branded business to 45.2%, surpassing the long-term target in the Good Growth Strategy 2020 of 45%.

The butter and spreads brand Lurpak grew revenue 6.3% to US$635.6 million, while Arla’s leading cheese brand in the Middle East and North Africa, Puck, grew revenue 3.8% to US$398.8 million.

Sales of Arla’s speciality cheese Castello declined 0.6% attributed to exchange rates.

“Our brands are at the heart of our business and therefore it is of utmost importance that we continue to deliver products that meet consumers demands and changing eating habits.

We are committed to delivering popular brands and innovation, such as nutritious on-the-go products, so consumers continue to be attracted to the Arla brands,” said Arla Foods CFO Natalie Knight.

Calcium, an internal transformation program was launched in April with a goal to deliver more than 400 million euro of savings by the end of 2020 through improved efficiency.

Arla said this initiative has performed beyond expectations, delivering significantly above the initial target of US$33.9 million for the year 2018 as cost savings of US$129.11 million were achieved.

“Early in 2018 we took decisive action by ramping up our transformation programme Calcium and I am very happy to be able to say that the whole organization has embraced the journey and therefore we are already substantially changing the way we work, spend and invest in our business.

As a result, we improved our performance as a business throughout the year and go into 2019 in a significantly better position than a year ago,” said Arla Foods CEO Peder Tuborgh.

Markets deliver as investments pay

Europe, which represents 62% of Arla’s total group revenue, saw significant growth in milk and yogurts with Arla Skyr recording a 22% sales growth.

The International Zone was impacted by exchange rates delivering revenue of US$1.78 billion (EUR 1.576 billion).

According to Arla, the Middle East and North Africa continues to be its biggest market outside Europe, after it posted revenue growth to US$634 million compared to US$622 million in 2017.

Going forward, the company expects to strengthen its position in this market after acquiring Kraft-branded processed cheese business from Mondelez last December.

It looks to focus on investing in new technologies and supply chain with greater consideration for energy efficiencies and optimizations.

Arla said it plans to invest US$519 million (EUR 458 million) in 2019 in a new powder tower in Pronsfeld, Germany, expansion and modernization of production sites in northern Europe as well as large investments in Arla Foods Ingredients.

Arla expects upto US$12 billion in revenues and 2.8-3.2% in net profit share net profit share this current year.

Net profit to be paid to farmers

Arla Foods announced that it would pay out its full net profit for 2018 of €290m

(US$329 million) to farmers.

This will be paid out as 2.3 eurocent per kilogram of milk each farmer owner has delivered to the cooperative.

Arla Foods Chairman Jan Toft Norgaard said, “As a farmer-owned dairy company we care deeply about the livelihood of our farmers and we see how many of our colleagues have been affected by the drought last summer. We have this exceptional opportunity to help them without putting our company Arla at risk and I am proud that we have proposed to do so.”

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