Arla sees “unprecedented” sales volumes amid pandemic, braces for Brexit

03 Sep 2020 --- COVID-19 pandemic-related global logistics and supply chain challenges have prompted dairy producer Arla to maintain an agile outlook for this year. In the first half-year, the multinational cooperative’s global branded sales volumes grew an “unprecedented” 10.4 percent. The company reports robust performance across its regions, notwithstanding pandemic difficulties including an impacted foodservice business. Looking ahead, it is further preparing for Brexit and recession-related hurdles.

“It has truly been abnormal times this year and I am very proud of our people and our results. The COVID-19 pandemic is one of the most severe crisis situations I have experienced as CEO of Arla, and we – as many other food companies – saw a very quick change in consumers’ eating habits as countries shut down around the world,” details Peder Tuborgh, CEO of Arla.

“We quickly channeled milk from our Foodservice business into retail and successfully maintained a steady flow of products in demand while our Foodservice business found creative solutions to support their customers. This shows just how robust and agile our cooperative is for our dairy farmers,” he highlights further.

As restaurants, coffee shops and canteens had to close due to the pandemic, Arla’s foodservice business declined rapidly, but still delivered 3.3 percent volume growth.Total Arla Group revenue grew 2.8 percent to €EUR 5.4 billion (US$6.4 billion), compared to €EUR 5.2 billion (US$6.1 billion) in the first half of 2019, driven mainly by higher branded sales volumes in retail across markets. The company reports growth in profitability, having achieved a net profit share of 3.0 percent of revenue up from 2.3 percent in the first half of 2019.

Despite the global market headwinds, it highlights that the milk price to farmer owners remained stable at a competitive level. The cooperative’s performance price – which measures the value Arla creates per kg of owner milk – was at €0.37 (US$0.44) compared to €0.36 (US$0.43) in the first half of 2019.

“We have had to navigate very high levels of volatility in the global dairy industry, seeing commodity prices drop significantly and currencies being severely impacted globally. Due to our position both geographically and across categories, we have delivered very strong financial results, increased our profitability and secured continued savings through Calcium. But the situation remains very volatile and we need to continue to be vigilant in securing our business continuity,” says Tuborgh.

Uncertainty to continue: bracing for Brexit
The uncertainty around the duration and intensity of the economic and market impacts caused by the COVID-19 pandemic is expected to continue throughout the second half of 2020. “Arla will focus on continuing to steer successfully through the coming deadline for Brexit negotiations and the looming global recession,” the company states.

“In the short term, we are looking at two very severe and unpredictable risks for the second half of 2020. One being the COVID-19 pandemic that continues to require us to be in crisis mode, along with the potential adverse consequences surrounding Brexit negotiations. In the longer term, we need the business to be ready to navigate successfully through the expected global recession” says Tuborgh.

Despite the uncertain external factors in mind, Arla still expects to meet its expectations for full year with revenue outlook 2020 at €10.4 to 10.8 billion (US$12.4 to 12.8 billion), a net profit of 2.8 to 3.2 percent of revenue and a year-end leverage at the bottom or below target range of 2.8 to 3.4 percent.

Regional performance
As restaurants, coffee shops and canteens had to close due to the pandemic, Arla’s foodservice business declined rapidly, but still delivered 3.3 percent volume growth. “Consumers instead turned to trusted household dairy products as in-home cooking and consumption increased and this more than offset lost foodservice sales and lower commodity prices,” the group notes.

Arla’s European foodservice business saw a steep reduction, but this was “more than compensated” by the strong performance of retail and a significant increase in e-commerce.Overall strategic branded sales volume increased an “unprecedented” 10.4 percent. Global brands Lurpak and Puck grew 17.7 percent and 16.7 percent respectively. Arla’s Milk Based Beverages (MBB) delivered 13.1 percent volume growth, mainly driven by demand from Starbucks.

“As consumers around the world were forced to stay home, we expected our household brands to do well and they certainly have. During the lockdown, people have loved to cook with our Lurpak butter and dairy has seen a boost in relevance in households across markets as consumers have valued our products. As countries are opening again, we are looking at how we best continue to deliver our trusted brands to customers and consumers,” says Tuborgh.

Commercial zones perform “above expectations”
Arla’s European foodservice business saw a steep reduction, but this was “more than compensated” by the strong performance of retail and a significant increase in e-commerce. The Europe zone delivered an exceptional branded sales volume growth reaching 6.3 percent driven mostly by Lurpak, Arla and Starbucks. Arla’s Europe zone grew revenue 0.9 percent to €3.2 billion (US$3.8 billion) compared to €3.1 billion (US$3.7 billion) in the same period last year.

Meanwhile, Arla’s International zone delivered the highest revenue growth in the past five years of 22.1 percent, seeing an increase to €1 billion compared to €839 million (US$992 million) in the first half of 2019. Middle East and North Africa (MENA) was the main driver for the significant growth as home cooking and overall dairy consumption rose steeply due to lockdowns and curfews. All other international markets also contributed positively to the revenue growth. Overall branded sales volume growth reached 19.5 percent.

In the first half of 2020, Arla Foods Ingredients (AFI) delivered a strong performance supported by stable operations and increased demand for AFI’s value-added products within Pediatric, Health & Performance and Food segments. AFI grew revenue 2.4 percent to €360 million (US$426 million), up from €352 million (US$416.3 million) in the same period last year.

Trading, which is business-to-business commodity sales, continued its strong position from 2019, but as COVID-19 hit, global market commodity prices fell significantly and volumes were reduced as they were channeled into retail. Trading revenue decreased by 8.3 percent in the first half of 2020, from €861 million (US$1 billion) to €790 million (US$934.8 million)

Edited by Benjamin Ferrer