2009 – a difficult year for Arla’s farmer owners but a strong performance in the last quarter delivers profit above budget
Earnings for Arla Foods amba’s owners reduced to an unsustainably low level during 2009 due to the global recession that impacted the entire dairy industry. However, the company’s successful cost reduction programme and a rise in the price for bulk industrial products at the latter end of the year resulted in Arla’s profit being slightly ahead of budget.
Better than expected
Arla Foods’ annual profits for 2009 totalled DKK 971 million, DKK 71 million higher than budget, exceeding the expectations of the business.
”As a business our profits were better than we anticipated when we posted the results for the first half year,” says Arla Foods CEO Peder Tuborgh. ”But with a strong final push, we outperformed our budget.”
He explains: ”If we hadn't implemented a major savings programme and succeeded in saving DKK 840 million, and if bulk industrial product prices had not begun to recover in the last quarter, our owners’ earnings would have been even lower, which would have been unsustainable for our owners.”
Currency effect and low prices
Despite profit being ahead of expectations, Arla’s turnover was significantly dented as customers and consumers reacted to the global recession, purchasing fewer and lower priced dairy products.
The impact of the recession was compounded by prices on the global dairy market decreasing dramatically at the start of 2009 and weak exchange rates for Swedish kroner and British sterling. These currencies, which fell significantly against the Danish kroner and the euro, form a substantial part of the Group’s turnover.
All these factors forced Arla to cut the milk price to its owners dramatically.
“2009 was a seriously tough year for our owners and their overall return per kilogramme of milk - DKK 2.14 - is not high enough,” said Peder Tuborgh.
Apportioning Arla’s profits
As a co-operative, the owners of Arla, through the Board of Representatives, will determine how the annual profits are to be apportioned. This decision will be made at the meeting of the Board of Representatives on 3-4 March. Today, 23 February, Arla Foods' Board of Directors has put forward a proposal for how the profit will be apportioned.
It has identified three options: pay out the profits to the owners; retain the profits in the company or a combination of the two.
A summary of 2009 and looking ahead to 2010
Reflecting on 2009, Peder Tuborgh, said: “The recession was fast and deep, but didn't bring the business to a halt.
”On the contrary, we took action and we focused on our broad product portfolio, strong markets and skilled employees who have worked hard to generate revenue. I’m pleased about that.
”We’ve shown that we can react quickly. We identified extraordinary savings that provided immediate liquidity. 2009 has also been a difficult year for employees with cutbacks and redundancies. The savings, however, were necessary and we avoided a further reduction in the milk price. That's the reaction of a strong organisation.”
Arla's business in its core markets is progressing despite the downturn – particularly in the UK and Sweden.
“We are embarking on 2010 with a sound business based on Arla's Group strategy,” Peder Tuborgh said.
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