Arla Posts H1 Profits But Warns of “Challenging Autumn”

Arla Foods has succeeded in increasing the ongoing payment to its co-operative owners while at the same time, delivering profits of DKK 697 million. (In 2009, interim profits were DKK 263 million based on a net turnover of DKK 22.3 billion).

Sep 2 2010 --- Arla Foods has posted a profit of DKK 697 million based on a turnover of DKK 23.8 billion for the first half of 2010. Both turnover and earnings increased - but a challenging autumn awaits.

Increased prices in the global market, rising foreign exchange rates as well as strict control of costs are the main reasons why, in the first six months of the year, Arla Foods has succeeded in increasing the ongoing payment to its co-operative owners  while at the same time, delivering profits of DKK 697 million. (In 2009, interim profits were DKK 263 million based on a net turnover of DKK 22.3 billion).

”Arla Foods has had a good half-year during which we increased the milk price paid to our owners three times," says Arla Foods’ CFO Frederik Lotz. ”Last year's extensive savings campaign trimmed the Group's costs and we’ve succeeded in maintaining the low cost levels achieved by the savings campaign in 2009. The accounts demonstrate that we have a sound platform for growth."

Growth is also reflected in earnings. For each kg milk supplied by Danish and Swedish co-operative owners to Arla during the first six months of 2010, Arla generated earnings for its owners of DKK 2.38 (In 2009, the figure was DKK 2.14).

”Overall, these are satisfactory interim results," Frederik Lotz said. "We are maintaining  good market positions in our biggest markets in the UK, Sweden and Denmark, and  the significant part of the growth in the first half year was also created by external factors such as the positive foreign exchange rate developments for our key export currencies. We are continuing to see increasing growth in markets such as Russia, China and the Middle East as well as the potential for further growth in a number of our  (core?) markets going forward.”

Arla Foods has recently decided that the Group’s annual results should represent 2.5 per cent of its turnover (compared to two per cent previously). The company has, therefore, revised its target for this year’s profit from DKK 950 million to DKK 1.2 billion.

Although both turnover and earnings increased in the first half of the year, the next six months will have their own challenges. The first half of the year was characterised by higher prices in international commodity markets  where Arla sells butter, cheese and powder to industrial customers. The first half of the year was characterised by higher prices in international commodity markets where Arla sells butter, cheese and powder to industrial customers. However, it is not anticipated that these high prices will continue for the remainder of the year.

”We have to expect lower earnings from the commodity markets in the second half of the year and at the same time  we will see the full effects of the increases in the Arla price,” says Frederik Lotz. ”A decisive factor will be how consumer confidence  develops. European consumers still bear the scars of the economic recession  – many are still cautious and prefer discount products to brands and this obviously impacts on earnings.”