Declining milk prices hits Arla; revenue drops 3.8% year-on-year

Globally declining milk prices have impacted Arla Foods in the first half of 2015 with revenue down 3.8% year-on-year, the co-op has announced.

Its overall revenue has dropped 3.8% to €5.13 billion in the first half of the year while performance price was 33.8c/kg compared to 41.7c/kg in the 2014, it said.

However, Arla said it has managed to navigate through the hard-pressed world market relatively well by growing brand volumes and keeping a tight grip on costs.

The global market prices have been under heavy pressure since last year as China’s import of commodity products turned stagnant and Russia introduced an embargo on EU dairy products, it said.

At the same time, European milk production has increased after the abolishment of the EU milk quotas on April 1 and production has also gone up in New Zealand and the U.S.

Since the start of 2014 the global market commodity price for whole milk powder has dropped 53.1% and the current price levels were last seen in 2009, Arla said.

Consequently, it said the challenges in the first half of 2015 were expected, however the global price levels have dropped to an unforeseen low.

Peder Tuborgh, CEO of Arla Foods, said that Arla’s revenue is in line with expectations for the first half of 2015.

“We have mitigated the impact of the negative market by directing the increasing milk volumes into retail and branded products, consequently limiting the amount going into less profitable commodity products.

“We are doing everything we can to minimize the effects of the general global market situation, however it cannot change the fact that our farmer owners are in a tough situation right now,” he said.

Image: Arla
Image: Arla

Tuborgh said that even when its milk intake has increased by 7% Arla has managed to keep its industry trading sales share at 20-22% while moving more milk into branded retail sales and food service.

“Lurpak is doing especially well, winning market shares and growing sales in key markets in Europe, Middle East, Latin America and beyond.

“We need to grow our three global brands significantly, as outlined in our strategy, and we are targeting volume-driven revenue growth of three to five per cent in 2015,he said.

An important part of Arla’s strategy is to accelerate growth outside our European core markets.

“With the exception of Russia that is still opting not to import quality products from the EU, our business in growth markets outside the EU is progressing according to plan.

“Our branded sales in China will double this year, and our volume-driven revenue growth in the Middle East and Africa of 15% is strong and contributes to our international business being a highly profitable business group in Arla,” Arla’s CEO said.

Arla’s profit in the first half year accounts for 2.3% of the company’s revenue, but for the full year profits are expected within the range 2.7-3.0%. Revenue for the full year is expected to reach €10.2-10.3 billion.

Tuborgh said that the global dairy market has rarely been as unpredictable as now, and unfortunately 2015 is proving to be as challenging as we anticipated.

“Our long-term view is that the market will turn again in the first half of next year, which is why we will stay focused on our strategic agenda,” he said.

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