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Strong brands contribute to Arla's growth

Press Release   •   Feb 23, 2011 10:28 GMT

In 2010 Arla Foods reported an increase in turnover of three billion DKK and a significant boost in earnings to the company’s cooperative owners.

In 2010, Arla Foods delivered significantly improved earnings compared to 2009 to its owners, Danish and Swedish milk producers. For each kg of milk supplied by its cooperative owners, Arla delivered 38 Danish øre more to its owners in 2010 than in 2009.

In total, Arla's earnings for its owners (the Arla performance price) amounted to 252 øre per kg milk in 2010 against 214 øre per kg milk in 2009.

"The result shows that we have put the recession behind us, and that we're in control of our costs," says CEO Peder Tuborgh who, together with CFO, Frederik Lotz, presented the annual accounts to Arla's Board of Directors.

 

Arla's annual report is to be approved by the Board of Representatives on March 3, 2011.

Turnover growth of six per cent
For cooperative companies like Arla Foods, the earnings generated to its owners are the main indicator of the company's performance during the past year.

"In 2010, turnover and our earnings increased for our owners," Peder stated.

"Over the past year, Arla has shaken off the effects of the recession without letting go of its tight cost controls. We’ve committed to a number of investments that demonstrate the company's focus in the long-term and our readiness to exploit the opportunities offered by the markets in which we operate. One example is the decision to build the world's largest fresh milk dairy in the UK. Another is that we will continue to streamline and invest in our ingredients business, which is one of the world's leaders within its field," says Peder.

Arla Foods’ turnover totalled DKK 49 billion, close to DKK three billion above last year, and equates to an increase of approximately six per cent. Annual profits came in at DKK 1.268 billion against DKK 971 million in 2009. In 2010 Arla's Board of Directors decided that the company would aim for annual profits of 2.5 per cent of the turnover, which was achieved.

Growth in markets and brands
In 2010, Arla Foods delivered overall growth of approximately six per cent, with organic growth accounting for three per cent. An important achievement, comments CFO Frederik Lotz: "The key issue for us is that we strengthen organic growth in 2011. We want to grow through acquisitions, partnerships and mergers - such as the proposed merger in Germany. Nevertheless, organic growth is key to our strategy and it reflects our ability to expand our existing business.

"Our ambition is three strong global brands. The Arla brand generated slightly less revenue compared to 2009, mainly because many Danish consumers preferred discount products to quality brands, and because of tough competition on the Finnish dairy market. Still we succeeded in raising awareness of Arla® and our Closer to Nature™ positioning. Castello® saw six per cent growth in 2010 while sales of Lurpak® increased by 14 per cent," said Frederik.

"Our ingredients business grew by 23 per cent and increased its market share. Overall our growth markets performed extremely well, growing by 19 per cent. While these are quite small markets and, therefore, modest figures, we believe that they are significant. This is why it is imperative that we have the ability to grow and build platforms in these markets."

Growth has also been aided by general price rises in the market and by foreign exchange rate developments.

 

UK overview

During 2010, we achieved a turnover of £1.5 billion and made good progress towards our strategy for growth. As well as announcing that we have entered into a joint venture with Milk Link and First Milk in Westbury Dairies Ltd and that we will be manufacturing retail packet butter at this facility from August 2011, we communicated that Aylesbury will be the location of our new billion-litre dairy and that £150 million will be invested in this world-class facility.

In terms of product launches, we began commercial production of cottage cheese, for the first time in the UK, from the £70 million expansion at our flagship dairy in Stourton, Leeds, which saw us take an immediate 50 per cent share of this category. We also commenced supply of Starbucks chilled coffee drinks to UK customers and our new fresh milk contract with Sainsbury’s began in October.

Our key brands ‐ Lurpak, Cravendale and Anchor - all increased both in volume and value during the year, in value by 9.9 per cent, six per cent and 13.7 per cent respectively. All three brands also rose in the ranking of the UK’s top 100 grocery brands. The introduction of Lurpak Lighter Unsalted Spreadable was hailed as the launch of the year within the butter and spreads category by The Grocer and we announced the construction of an extension to our blowmoulding facility at Stourton to house an additional blowmoulding machine dedicated to Cravendale, to support the brand’s ambition of being a top 10 grocery brand by 2020.

We continued to develop our relationship with our group of supplying farmers, Arla Foods Milk Partnership and, in August, AFMP announced that it is in talks with the board of Arla amba to increase its shareholding in Arla Foods UK plc. A decision is expected in the first half of this year. The recent two pence per litre milk price increase to AFMP members demonstrates the success of Arla and AFMP’s partnership way of working and what can be achieved when farmers and processors work together.

2010 was a landmark year in terms of stepping up our environmental agenda. Not only did we announce our ambition for our new dairy to be the first zero carbon fresh milk processing facility, we launched a farm-to-store environmental strategy which saw us become the first in the industry to include not only our own operations but also those of AFMP members. As part of our commitment to cutting carbon throughout our entire supply chain, we have committed to funding a long-term programme to support all members of AFMP to reduce the environmental impact of their operations. This includes a complimentary on-farm carbon assessment for each member and the provision of over 250 on-farm workshops to guide members through key environmental contributory areas.

Other key achievements include being the first dairy company to incorporate 10 per cent, then 15 per cent rHDPE into all its fresh milk polybottles and we have had continued success with our lightweighting project which, since 2007, has seen us save 1,350 tonnes of plastic.

Commenting on 2010, Peter Lauritzen, CEO of Arla UK, said: “Despite our many successes, 2010 was a year of many challenges, several of which will continue to impact of the business in 2011. For example, the own label milk market remains highly competitive, the economic environment is very unpredictable, due to low consumer confidence, and the prices of utilities, plastic packaging and fuel are rising.

“These are tough conditions in which to operate which is why we enter the year with clear cost-focused objectives for generating supply chain efficiencies through our LEAN programme, increasing the market share of our brands, exploiting growth opportunities and progressing our plans for our new Aylesbury dairy, our facility at Stourton and our butter packing facility at Westbury.”

Arla Foods UK plc is home to some of the UK’s leading dairy brands including Cravendale, Lurpak and Anchor. Processing approximately two billion litres of milk a year Arla continues to be one of the UK’s leading dairy companies and a supplier of fresh liquid milk and cream to the top seven retailers.

Over 2,500 daily deliveries are made directly to stores nationwide and Arla brands can be found across the dairy category. As well as the leader of the butter, spreads and margarine sector, and a major supplier of other added value products including flavoured milk and cheese, Arla continues to build working relationships with Arla Foods Milk Partnership, a unique group of dairy farmers, which supplies around 90 per cent of Arla's total milk requirements.

Behind this leading business is a team of circa 2,800 people across the UK located at our dairies, distribution centres and head office.