Arla Foods, an international cooperative, has announced that it has improved its profitability and reported a revenue growth of 2.2% to US$5.96 billion in its first-half results in 2018, Food Business Africa reports.
According to the company, the rise in revenue was driven in part by the company’s strategic brands in the first half of 2018 and rebounding milk prices after a weak first quarter.
With a stable outlook for the rest of 2018, Arla expects to reach its full-year targets for net profits, branded growth and to exceed its expectations for cost reduction through its transformation programme Calcium.
The first half of 2018 was characterized by challenging market conditions with a continued weak GBP and unfavourable development in both fat and protein prices. However, price levels began to improve in the second quarter of 2018, and despite higher retail prices consumers remained attracted to Arla’s strategic brands across categories.
According to Food Business Africa, Total Arla Group revenue grew by 2.2% to US$5.96 billion, supported by higher strategic branded sales volumes, which were up 3% due to a strong performance by the Arla brand, Lurpak, Puck and Castello.
Arla delivered a performance price of 34.7 EUR-cent per kilogram of milk compared to 35.8 EUR-cent in the first half of 2017, as a result of lower commodity prices at the start of 2018.
Each year, Arla targets an annual net profit share in the range of 2.8 to 3.2% of revenue, which allows the company to balance its retained capital for future investments and provide a supplementary payment to farmer owners.
It also continues to pay out the highest possible share of our ongoing profit to our farmer-owners via the prepaid milk price throughout the year.
In the first half year of 2018, Arla delivered a net profit share of 2.2 per cent, up from last half year’s profit share of 2.1 per cent.
The company added that it expects to reach its full-year net profit share to be within the 2.8 to 3.2 per cent target range.
Operational costs increased in the first half year as a result of inventory revaluation from changes in milk price, higher sales volumes, as well as increased inflation-driven costs for energy and transportation.
“It was a tough start to 2018 as we took urgent action to repair our bottom line, which was impacted by the double-whammy of a weak British pound and unfavorable prices. This urgency delivered a positive result as we were able to improve our profitability and the performance of our milk price over the period.
However, there is more work to be done as we continue to relentlessly execute our transformation programme, Calcium, which will further improve our performance,” said CEO of Arla Foods, PederTuborgh.
Early in 2018, the three-year transformation and efficiency programme Calcium was announced by Arla’s management to reduce cost by US$467.7 million.
In the first half of 2018 Calcium was already able to deliver first positive contributions of US$11.11 million.
For the full-year of 2018, Arla expects Calcium to deliver a positive contribution of at least US$58.46 million, up from the initially forecasted US$35.08 million.
“I’m pleased to say that Calcium is starting to deliver – every week we see steady progress across the programme.
Our top management, leaders and employees are working adamantly on each initiative that will enable us to pay a more competitive milk price to our farmers, compete more effectively in the markets and categories we operate in worldwide and boost the strategic investments that will sustain our long-term profitable growth,” said CFO in Arla Foods, Natalie Knight.
Lurpak saw an 11.3% growth in revenue in the first half-year, adjusted for exchange rates to US$315.7 million, driven by substantial price increases in the butter and spreads category worldwide as well as continued volume gains.
Sales of Arla’s speciality cheese brand Castello grew 5.6 per cent to US$97.05 million, adjusted for exchange rates.
Volumes increased by 4.7 per cent primarily in North America and contributed most of the revenue growth.
“Our brands are at the heart of our business and drive the majority of Arla’s profitability.
With our brands and product portfolio, we have succeeded in meeting the growing demand for healthy, natural and safe food products.
And we will continue to provide dairy products in new, innovative formats that suit the changing lifestyles across the world,” said Natalie Knight.