Brexit: Arla Foods hit hard, dairy co-operative to cut €400m

23 Apr 2018

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23 Apr 2018 --- European dairy cooperative Arla Foods says that it needs to make €400 million in savings partly because of the currency implications of Brexit as well as pressure from commodity prices.
The dairy giant plans to cut €400m (US$493.9m) on costs from its business and has launched an internal transformation program called “Calcium” to do so.

The program is set to deliver the savings by the end of 2020, according to Arla Foods, through improved efficiency in all areas of the company. It will also boost Arla’s performance to the benefit of its farmer-owners and further strengthen the company’s investment capability.

The Denmark-headquartered company which owns the brands Lurpak and Castello cheeses, says that a weaker pound after the UK voted to leave the European Union prompted it to start a cost-cutting exercise.

While the transformational aspirations of Calcium have been carefully planned since the end of 2017 the scope of the cost-savings has been increased by Arla’s management in recent months in light of the challenges facing Arla as a result of the extent of the company’s exposure to the British pound and unfavorable developments in commodity markets.

“At Arla Foods we have always had a culture and strong track record of creating efficiencies and removing costs for the benefit of our farmer owners, customers and consumers, so in that sense nothing is new,” says CEO of Arla Foods, Peder Tuborgh.

“What is new, however, are two unexpected developments that have hit us, both of which are outside of our control. These are the currency impact of Brexit on our actual performance and the impact of the reversal in commodity prices on fat and protein on our relative performance against our international peers.”

“These developments have negatively impacted our profitability, and as a responsible business we have to act to remove the impact of these new developments, and the action we are taking is a three-year transformation programme which cuts across our whole business and sets out to restore our profitability.”

With Good Growth 2020, Arla has a strong strategy in place that has been growing the company’s business successfully and remains right for the trends that are driving the global food and dairy market.

Ongoing cost savings and efficiencies are a vital part of Good Growth 2020 strategy, says Arla.

The “Calcium” program will change the company by creating significant efficiencies with two main purposes in mind: To improve returns to its farmer-owners and maintain a competitive milk price as well as to reinvest into business areas that fuel growth.

Increasing returns to farmers
The Calcium program will cover activities throughout Arla, covering production, products, procurement, promotional marketing and people. It aims at unleashing the full potential in Arla’s organization by transforming ways of working, reducing bureaucracy and complexities and cutting costs.

Of the total cost reduction of more than €400 million, Arla expects to return approximately €300 million to the farmers through the farmgate milk price with the additional savings being reinvested in the company’s Good Growth 2020 strategy to fuel further growth and improve profitability.

“Calcium has a high level of involvement among our employees and is galvanizing and energizing our people to deliver better returns for our farmers, and I am incredibly proud of them,” adds Tuborgh.

While the Calcium program is already underway, Arla Foods says it’s too early to disclose publicly what the specific consequences will be within specific areas of the company, including what number of jobs that will be affected by the ongoing work.

“Arla expects to communicate openly about the process over the course of the program,” it adds.