Arla defies economic crisis in Europe

Arla Foods delivered double-digit growth in both revenue and earnings in 2011. This is despite the fact that 80 per cent of Arla’s business is based in Europe where the 2011 debt crisis caused consumers to be cautious.

In a year when the financial crisis continued to trouble consumers across Europe and where Arla’s brands were the means to growth outside Europe, the company succeeded in substantially raising earnings for its approximately 8,200 co-operative owners in Denmark, Sweden and Germany. For each kilogramme of milk supplied by co-operative owners, Arla generated a performance price of DKK 2.80 in 2011 (11 per cent above the 2010 price of DKK 2.52).

Revenue rose by 12 per cent to almost DKK 55 billion against approximately DKK 49 billion in 2010. During 2011, Arla also paid DKK 1.6 billion more to the co-operative owners than in the previous year. After this, the profit ends at DKK 1.311 billion (DKK 1.268 billion in 2010).

”These are strong results in a difficult time. Primarily because we have improved earnings for our owners to a level that is almost on par with the best we’ve ever delivered,” says Arla Foods CEO Peder Tuborgh.

The annual accounts were presented to Arla’s Board of Directors yesterday. The appropriation of profits will be determined by the Board of Representatives on 1 March, 2012 when the accounts will be finally approved.

Growth outside Europe

Like most other sectors, the dairy industry had its problems in 2011, especially in Europe where debt crises and economic uncertainty impacted on the buying patterns of European consumers.

”During an economic crisis, more consumers choose to buy discount products and fewer branded products. This has an effect on Arla’s earnings. But at the same time, we’re seeing a rising demand in markets outside Europe, which will offset the flattening growth in Europe,” adds Peder Tuborgh

”We’ve been successful in new markets, particularly in MENA (Middle East and North Africa) and Russia where we expanded our position in the market by 27% and 33% respectively. We’ve also seen a major breakthrough in Germany following our merger with Hansa-Milch and our acquisition of Allgäuland-Käsereien. This is a critical step towards becoming a significant player in the German market,” says Peder Tuborgh.

Further growth for global brands

Half of Arla’s revenue growth was through organic growth, in part driven by Arla’s three global brands Arla, Lurpak and Castello. The Arla brand showed a significant growth of 8 per cent in 2011, resulting in global revenues of DKK 20.6 billion. During the year, Castello was launched as a high quality cheese brand and got off to a promising start with 8 per cent growth globally while Lurpak showed impressive growth of 13 per cent globally.

”In total we achieved six per cent organic growth in 2011, which should be regarded as highly satisfactory. This is due in part to the general price rises in Europe and in part to increased sales outside Europe. The fact that our three global brands, Arla, Castello and Lurpak are all growing faster than the rest of the company as a whole and are therefore driving up Arla’s organic growth is particularly positive. They underline that the quality of Arla’s growth is high because growth to a great extent is driven by strategically important products with high added value,” says CFO Frederik Lotz referring to Arla’s Group strategy to focus on selected global markets.

Ingredients for success

In respect of organic growth, however, few business areas show growth rates as high as those of Arla Foods Ingredients (AFI), which is responsible for Arla’s global production of whey, whey proteins and ingredients for the food industry.

”AFI has had a strong year, and exited 2011 as one of Arla’s most profitable business areas. Despite the rise in raw material prices, AFI succeeded in launching new products and increasing revenues by 25 per cent. This is built on an extremely high level of added value and the outlook is for this excellent trend to be sustained in 2012,” says Frederik Lotz.

Expectations for 2012

Although growth is expected to be maintained in 2012, the year will not be without its challenges.

”While 2011 was a good year for Arla, the last quarter showed slight pressure on performance, reflecting a deteriorating business environment in Europe, which has continued into 2012. We expect significant revenue growth and for profits to be on par with 2011 albeit with fluctuations in the milk price for our co-operative owners over the year,” says Peder Tuborgh.

”To secure the top-line expansion effectively converts to the bottom-line, we’re working on all fronts to improve our internal efficiency. For the Group as a whole, we’re focusing on growing revenues considerably faster than costs. We’re making progress in this direction, but there’s still some way to go. We’re focusing, therefore, on creating a more structured and less complex way of working, and we expect to launch some specific initiatives in 2012.”

Arla’s Group strategy 2015 includes the aim of achieving an annual revenue of DKK 75 billion by 2015, with this growth target impacting on Arla over the coming year.

”To play an active role in the consolidation of the European dairy sector is one of the cornerstones of our strategy,” Peder Tuborgh says. “This will be high on the agenda for 2012 and onwards into 2015.”

Download an overview of how Arla’s business developed on each core market and strategic growth market in 2011 >>