Arla Foods announces Half-Year Results for 2023: Finding the Right Balance in a Downward Market

Net revenue for Arla Foods UK in the first half of 2023 was £1.37bn (€1.6bn), a growth of 16.9 per cent vs the same period in 2022.

Total Strategic Branded Revenue Growth (SBRG) across the UK fell 5.2 per cent in the first half of 2023. After years of extraordinarily high growth in branded volumes, growth rates were impacted by changing consumer patterns due to general inflation in the UK, with conditions starting to improve towards the end of the period. Total Arla® Brands saw a 0.7 per cent volume decline vs the same period last year, while the Starbucks® brand continued to deliver a strong performance with growth of over 19 per cent, driven by growing in-home and on-the-go consumption.

“During the first half of 2023, we continued to see inflationary pressure resulting in consumers moving towards discount channels and private label products.  However, we have started to see our brand performance improve towards the end of the first half year due to significant investment in our brands and our continued innovation in the dairy aisle. This focus on growing our branded business in the short and long-term is already seeing positive growth for our Starbucks™ and Arla® Protein brands, and the improved performance across our brands is sustaining as we now have moved into the second half of the year,” says Jonathan Dixon, senior VP of sales at Arla Foods UK.

In volatile market conditions Arla’s foodservice business in the UK experienced negative volume growth of -1.8 per cent, compared to 19.0 per cent growth in the first half of 2022, where the surge in demand was due to Covid-19 restrictions easing. Arla expects to see positive growth in its UK foodservice business in the second half of the year.

Milk price affected by declining commodity prices

Driven by changes in commodity prices, Arla’s milk price dropped from its all-time high, seeking a new balance in a market where milk production is going up and consumers are spending less. Arla’s average pre-paid milk price increased to 48.2 EUR-cent/kg in the first half of 2023 compared to 46.6 EUR-cent/kg in the first half of 2022 and 52.0 EUR-cent/kg for the full 2022 year.

“As anticipated, the market conditions put our branded products under pressure. However, we managed to protect our relative market shares against our competitors, and I am pleased that we were able to secure group earnings, a competitive milk price and a half-year supplementary payment to our farmer owners of 1.0 EUR-cent/kg milk based on the half-year volumes as planned.” says Arla Foods CEO, Peder Tuborgh.

In the first half of 2023, Arla achieved a net profit of EUR 103 million, or 1.5 per cent of revenue compared to 3.0 per cent in the same period last year. 

Sustainability incentive in place

In 2022, Arla introduced its new Sustainability Incentive model to reward and accelerate Arla farmer owners’ implementation of climate and sustainability initiatives on farms. Throughout the first half of 2023, Arla farmers have familiarized themselves with the new science-based reward system. By June, 7,300 or 94 per cent of Arla’s farmer owners had submitted their annual Climate Check data and uploaded almost 30,000 documents to register sustainability activities such as feeding optimisation, manure handling, energy optimisation and renewable electricity.

“From 1^st July 2023, the Incentive model will be an integral part of the monthly milk price payment, which will give farmers a clear and very tangible financial incentive to reduce their carbon footprint from month to month and from year to year,” says Peder Tuborgh, Arla Foods CEO. 

Total Arla Group results

Arla group revenue was EUR 7,067 million for the first half of 2023, a 10.7 per cent increase compared to EUR 6,382 million in the first half of 2022, primarily driven by earlier implemented price increases in Arla’s retail and foodservice. Brand revenue grew by 6.9 per cent, driven by Lurpak with 7.2 per cent and the Arla brand with 3.6 per cent. Arla’s average performance price, which measures the value created per kilogram of owner milk, remained on par with the first half of 2022 with a slight increase of 0.1 EUR-cent/kg to 49.7 EUR-cent/kg. However, compared to the performance price for the full year of 2022, the performance price in first half 2023 saw a decrease of 5.4 EUR-cent/kg.

Outlook for 2023 

While Arla expects inflation to soften, commodity markets continue to be marked by uncertainty in the coming half year.

“We anticipate that inflation and its influence on consumer patterns will continue to mark the remaining part of 2023, putting pressure on branded volumes in most markets. However, we expect an increase in the underlying category growth to contribute to branded growth slowly picking up again,” says Peder Tuborgh, Arla Foods CEO.

Arla has lowered its full-year expectations for revenue to EUR 13.2-13.7 billion and expects to deliver a profit within the range of 2.8-3.0 per cent of revenue, narrowed from 2.8 - 3.2 per cent, making room for a supplementary payment in line with retainment policy.