Arla Foods reports its 2013 results announcing its highest Performance Price ever in its history and an improved balance sheet. This is as a result of a strong European business and rapid growth in its growth markets outside the EU – at a time when Arla’s most important ingredient, milk, has increased in value worldwide.
Three strategic growth markets have been prioritised outside the EU, where Arla has an increased focus on investments and higher growth ambitions than on other export markets: Russia, China, and the Middle East & Africa. In 2013 Arla’s revenue grew 35 per cent in Russia, 60 per cent in China, and 10 per cent in the Middle East & Africa.
“Our growth machine lies outside the EU, where we expect to increase our sales rapidly between now and 2017. This is driven by Arla’s strong brands, which are in higher and higher demand by consumers in the growing middle class who are willing to pay for higher quality and better product safety. We are building a long-term presence in Russia, China, the Middle East and Africa, which will give an even better return to the milk price for our cooperative owners,” says Frederik Lotz.
The most defining key figure in any Arla financial report is the Performance Price, which indicates how much value Arla has been able to generate from each kilo of milk supplied to the company by the cooperative owners in Sweden, Denmark, Germany, UK, Belgium and Luxembourg throughout the year. The 2013 Performance Price amounts to 33.91 pence per kilo (3.05 DKK per kilo) with a total volume of owner milk of 9.5 billion kilos (compared to 30.21 pence per kilo (2.71 DKK per kilo) with a total volume of owner milk of 7.5 billion kilos in 2012).
Arla’s total revenue rose by over £1.1 billion (10 billion DKK) to £8.4 billion (73.6 billion DKK) up by 16.6 per cent. The company’s net profit was the planned three per cent of the revenue, equal to £250 million (2.2 billion DKK), compared to £207 million (1.9 billion DKK) in 2012.
“Milk has become a more valuable commodity globally, and that naturally has a positive effect on our results. With this tailwind we have driven our business forward in 2013 – with a strong efficient base in Europe, promising growth rates in Russia, China, the Middle East and Africa as well as a very profitable ingredients business in Arla Foods Ingredients. Our main focus is to create the best possible milk price for our owners, and the 2013 results confirm that we have the right strategy to achieve this,” says Arla Foods’ CEO, Peder Tuborgh.
“The Performance Price is up by 12.5 per cent in 2013, and that has been much needed among our farmers. The higher milk price strengthens the economy on the farms. The milk production is rising, and the relationship between a farmer’s profits and costs has been improved. This development was necessary and must be carried on in 2014,” says Arla Foods’ board of directors chairman, Åke Hantoft.
Europe still leaning towards discount
Measured by revenue the UK remains Arla’s biggest market followed by Sweden and Germany. Although Denmark is the country that supplies the most milk to Arla, Denmark is now Arla’s fourth biggest market.
“In Europe our focus has been on integrating the companies that we merged with in 2012, and that has already made us more efficient and given us a more complete product portfolio. European consumers are still among the most price-focused in the world, and that means tough competition between discount products and quality brands. Our organic growth on our European core markets in 2013 reached 3.5 per cent, which is reasonable given the pressure from discount,” says Arla Foods’ Chief Financial Officer, Frederik Lotz.
“Our three global brands – Arla®, Castello® and Lurpak® – have been pressed by discount trends and private labels in 2013. All three brands are performing well on the growth markets outside the EU, but the volumes in Europe has not grown the way we wanted them to. In 2014 we will continue to focus on creating global growth with all three brands,” continues Frederik Lotz.
In 2014, Arla expects to reach a revenue of £8.7 billion (79 billion DKK) and a net profit of the targeted three per cent of the revenue, equal to £265 million (2.4 billion DKK). Given the current market expectations it is Arla’s ambition to deliver a Performance Price in the area of 36.1 pence per kilo – 37.3 pence per kilo (3.25 – 3.35 DKK per kilo).
“Arla operates in a complex industry where production and thereby the supply of milk dictates the milk prices in a global and interconnected world. For example a drought in New Zealand can impact prices in Europe. We are off to a good start in 2014, but we are well aware that a lot of milk is being produced in the world at the moment which may put pressure on prices late in the year. We expect a higher performance price for the year 2014 than the year 2013 as our business continues to grow both in and outside Europe,” says Peder Tuborgh.
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