Arla Foods’ increases revenues despite pandemic disruptions and high inflation

10 Feb 2022 --- Arla Foods’ annual results are indicative of the European dairy cooperative’s buoyancy throughout 2021, in spite of continued disruptions from the COVID-19 pandemic and renewed market volatility created by high inflation. The company reports delivering branded growth and returns to its farmer-owners at the top end of expectations.

Total Arla Group revenue increased by 5.6% to €11.2 billion (US$12.8 billion), compared to €10.6 billion (US$12.1 billion) in 2020. This was driven mainly by higher sales prices and strategic branded sales growth of 4.5%.

“2021 was a tough year on farms as both our members and company were impacted by the continued effects of the pandemic and rapidly rising production costs,” says Arla Foods Chairman, Jan Toft Nørgaard.

“Thanks to the dedicated efforts of farmers, employees and management, we successfully navigated this challenging environment and secured a high value for our milk.”

Arla Foods CEO, Peder Tuborgh, adds: “Month on month, we managed sales and operations firmly to maintain product availability amidst fluctuating demand between in-home consumption, dining out and on-the-go as lockdowns eased and we returned to the workplace.”

Dairy products remain popular in both physical and virtual shopping baskets, Arla reports.

Physical and virtual channels see gains

Dairy products remain popular in both physical and virtual shopping baskets, Arla reports.

The company increased investments in its e-commerce business underpinned a 17% growth in online channels.

Retail sales in 2021 “reached the top end of expectations” and Arla’s strategic brands delivered 4.5% branded volume growth.

Arla continued to see high consumer demand for in-home dairy products, with brands such as Arla, Castello and Starbucks “exceeding their unprecedented branded growth in 2020” and Lurpak gaining market shares in both Denmark and UK.

Farmers shoulder weight of rising costs rising costs
Arla’s farmer-owners were again challenged throughout 2021 due to rising costs and additional requirements on their farms. Arla maintained a competitive prepaid milk price that increased by 23% throughout the year.

To support the investment levels that will be required by both Arla and its farmer-owners to deliver on the company’s new five-year strategy, Future26, in 2021, the Board of Representatives approved a new retainment policy proposed by the Board of Directors.

The new policy increases the supplementary payments to farmer-owners to 1.5 eurocent per kilo of milk instead of 1.0 eurocent per kilo of milk, provided the company achieves an annual net profit of at least 2.8% of revenue.

Arla Europe “captures opportunities”
Arla Europe increased revenue to €6.6 billion (US$7.6 billion) compared to €6.4 (US$7.3 billion) in 2020. It reports that it has continued to gain market shares in the majority of the European markets with a strong branded portfolio, delivering year-on-year market share improvement of 0.3% across categories despite fewer in-home meal occasions as lockdowns lifted.

Arla Europe delivered an overall branded volume driven growth of 2.3% on top of last year's exceptional growth of 5.9%, with Arla, Starbucks and Castello all delivering robust growth.

From a market perspective, the UK and the combined region of the Netherlands, Belgium and France increased their branded volume driven growth by 3.8% and 8.4%, respectively.

Meanwhile, Arla’s European Foodservice business “captured the opportunities with strong delivery, key account management and agility,” as the hospitality sector re-opened in many countries and delivered 7.8% branded volume growth.

Arla farmers were challenged throughout 2021 due to rising costs and additional requirements on their farms.Arla international sees boost for cheeses
Arla International delivered branded volume driven growth of 9.1% on top of last year’s 11.6%.

In addition to pricing, International grew market share in key positions for Puck in the Middle East and North Africa (MENA) where it became the number one spreadable cheese brand and for Arla Dano in Bangladesh, which won best milk brand for the 7th year.

To support continued growth and expansion plans for the MENA region, Arla invested in its production capabilities for processed cheeses, on-the-go Starbucks and Puck cooking cream and sauces in its sites in Bahrain and Saudi Arabia.

Overall, International revenue increased to €2.1 billion (US$2.4 billion) compared to €2 billion (US$2.3 billion) in 2020.

Arla Foods Ingredients navigates price hike challenges
Arla Foods Ingredients (AFI), a 100% owned subsidiary of Arla, grew its value-add segment by 14.5% and delivered increased revenue of EUR 794 million (US$907.5 million) compared to EUR 716 million (US$818.4 million) in 2020.

However, significant increases in raw material and energy prices challenged margins.

Due to strong global demand and price increases, especially in the second half of 2021, Global Industry Sales increased revenue of EUR 1,686 million (US$1.9 billion) compared to EUR 1,541 (US$1.8 billion), despite a lower share of milk due to increased sales through Arla’s retail channels.

“2021 was another year defined by COVID-19 and although the global economy recovered much faster than expected, the volatility of the dairy market and high inflation put pressure on us and our farmer-owners,” comments Arla Foods CFO, Torben Dahl Nyholm.

“With strong operational execution we successfully navigated the global challenges, strengthened our financial position, and grew our brands, while delivering savings across our supply chain.”

Outlook for 2022
Arla expects inflation and volatility to continue to impact the business and other sectors well into 2022.

“The impact on consumer behavior of on-going market volatility and high inflation will be multifaceted and difficult to predict. It is likely that we will see a slowdown in our branded growth as the market resettles at a new level,” forecasts Tuborgh.

“Our cooperative stands on a strong foundation and as we have demonstrated in 2020 and 2021, we will continue our strong operational execution throughout our supply chain to meet any new demands and requirements in this uncertain environment.”

Arla plans to invest EUR 600 million (US$685.6 million) in 2022, mainly in structural investments such as expanding Starbucks production capacity at Esbjerg Dairy in Denmark, finalizing the powder tower in Pronsfeld in Germany and the mozzarella expansion at Branderup dairy in Denmark, along with production expansions in AFI’s production sites.

Arla also plans to invest in further digitalization solutions across its supply chain.

Group revenue outlook for 2022 is expected to be in the range of EUR 11.8 to 12.4 billion (US$13.5 billion to US$14.2 billion), while net profit share could be in the range of 2.8% to 3.2%.

Edited by Benjamin Ferrer