Budget increased in 2010

In 2009, the economic situation forced Arla Foods to make cuts across the business.  A new and increased budget for 2010 focuses on marketing, an increase in capacity, as well as efficiency measures.

Following a tough year caused by the global economic situation, Arla Foods is now adopting proactive measures to reinforce its leading position in a market which, in 2009, was characterised by strong price competition. 

Arla Foods’ board of directors has approved the new budget this week, which is in line with the company’s corporate strategy.

Better times ahead
”The objective is to achieve the highest possible milk price for our farmers in a very price conscious market with substantial and rapid fluctuations. During the past year, we have put considerable effort into the savings programme and have been dealing with the implications of the global economic situation. During 2010, we will again show our customers, and consumers, across the world what Arla stands for and what we can and want to achieve,” says Arla Foods’ CEO Peder Tuborgh.

Marketing to increase profits
In 2010, the investment behind Lurpak® and Castello® will proceed at full speed. These global brands will help move more of Arla’s raw milk from industrial to value added products.

The Arla brand and the concept ‘Closer to Nature’ will also be highly visible in 2010. This, however, will require a huge marketing effort which is reflected in an increase in the 2010 marketing budget by circa 30 per cent, compared with 2009.
 
More capacity needed
The objective behind the increase in marketing spend is to achieve an increase sales, and thus also production, of Arla’s value added products. This will create a need for increased capacity in the company’s production chain. Consequently, nearly half of 2010’s total investment budget of circa DKK 1.843 billion will be spent on increasing capacity and structural adjustments. This investment level is twice that of 2009 and accounts for circa four per cent of the expected turnover.

”Our focus is to continue to add more value to our milk and to continue to work towards achieving our growth target for 2015 of DKK 75 billion, and we’ll not achieve this without significantly expanding our capacity,” says Peder Tuborgh.

Focus on prices
Expectations are that prices in the retail market will rise in the same way that prices for industrial products have and we will continue to ensure that our farmers get the best price for their milk.

“In recent months we have seen a rise in commodity prices, which have been mainly driven by increases in the price of industrial products, in particular bulk cream. As a result of these developments we raised the milk price paid to the members of the cooperative in October and again December by a total of DKK 20 øre per kg. However, the overall price for raw milk is insufficient to ensure that dairy production is sustainable globally which is why there needs to be an improvement in dairy product prices in the retail sector,” says Peder Tuborgh.

Key figures 2010

· Arla Foods expects a growth in the turnover for 2010 by 2-3% to circa 47 billion DKK.

Arla Foods’ operative budget (in brief)

· Milk utilisation: in 2009, 31 per cent of Arla’s raw milk went to industrial products – this must be reduced to 27 per cent. Sales of added value products are crucial in order to achieve the highest possible milk price for the owners, the dairy farmers. 
· Marketing: the launch of the Arla brand and Closer to Nature’. Additional focus on Lurpak and Castello, Arla’s two other global brands. In local markets, there is huge support for the marketing of local brands such as Arlako®.
· Costs: Arla will adhere to the savings plan from the spring of 2009 with a focus on efficiency. Costs must be kept at 2009 levels. 

Three major new investments starting in 2010:

DP WPC towers: Building a new drying tower at Denmark Protein Nr. Vium: Expanding yellow cheese capacity to 44 million kg cheese per year.

The largest single amount in 2010 has been allocated to the completion of the expansion of Stourton to the tune of DKK 182 million.