Arla Foods reports strong growth in second half of 2023
Arla Foods managed to adapt to a tough dairy market by returning to strong branded growth in the second half of 2023, and thereby reaffirming a positive outlook for the first half of 2024. A strong year ending enables the Board to propose a higher-than-expected supplementary payment to Arla Foods’ farmer owners - in total 270 mEUR for the full year. Arla Foods and its farmer owners also made significant progress in reducing carbon emissions, cutting close to 1 million tonnes of CO2e in the last two years. This means that Arla Foods is on track towards its 2030 reductions. With the 2023 launch of the Sustainability Incentive Model, a point-based system that rewards on-farm sustainability activities, as well as a new programme to help customers with their scope 3 reductions, Arla Foods expects to further accelerate reductions is 2024.
Arla Foods UK follows the same trend, as revenue rose 2.4% in 2023 to £2.6bn (EUR 3bn), versus a 17.5% growth in 2022, which reflects the challenges faced by high inflation and elevated dairy prices, however consumers started returning to branded products in the second half of the year.
In total, within the UK branded volumes grew by 2.2%, with strong growth in Arla Protein, Starbucks and Arla Pro, growing by 66.4%, 26.2% and 8.5% respectively.
Bas Padberg, managing director of Arla Foods UK, comments: “As we saw in the first half of 2023, inflationary pressure continued to dominate, however, thanks to the strong execution by our farmer owners, employees and management, Arla has demonstrated its ability to adapt to challenging market conditions.
“As the UK’s largest dairy cooperative and supplier of some of the UKs best loved brands, it’s important that we ease pressures on cash strapped shoppers when we can, as well as returning a fair price to our farmers so we can keep supermarket shelves full. Arla’s brand portfolio demonstrated its robustness in volatile conditions, and we made strong recovery in the second half of 2023 with a strategic branded volume growth.”
ON TRACK TOWARDS 2030 TARGET WITH ACCELLERATED EMISSION REDUCTIONS
Arla’s farmer owners are once again showing their commitment to reducing carbon emissions. On average, they delivered a 3.6% CO2e cut compared to 2022, leading to a drop in on-farm emissions from 1.12 to 1.08 kg CO2e per kg of owner milk.
The total Scope 3 emissions, which account for 96% of Arla’s total carbon footprint, were reduced by 3 percentage points per kg of milk and whey, and in total by 12% compared to the company’s 2015 baseline.
In scope 1 and 2, Arla lowered its emissions by 4 percentage points in 2023, and in total by 33% compared to the company’s 2015 baseline. This was mainly due to energy optimization at sites and impact from power purchase agreements.
In the two years between 2021 and 2023, Arla together with its farmer owners have cut nearly 1 million tonnes of CO2e and is on track to deliver its 2030 reduction targets of -63% on Scope 1+2 and -30% on Scope 3.
Bas Padberg continues: “We are also pleased to report that we remain on track towards our CO2e reduction target for 2030, which is testament to the innovation and action taking place, across the entire business. This news comes as we continue to implement our Customer Sustainability Programme (CSP), which means we are collaborating with our customers to deliver progress towards our shared climate targets, as well as our Sustainability Incentive Model, which ties a part of the milk price farmers receive directly to sustainability actions on farm.”
TOTAL GROUP RESULTS
Total Arla Group revenue ended at EUR 13.7 billion, roughly the same level as its 2022 revenue of EUR 13.8 billion. The revenue was impacted by negative currency effects, primarily on SEK, GBP and USD. The cost of goods and general inflation led to a performance price decrease of 8.1 EUR-cent/kg to 47.0 EUR-cent/kg against the all-time high performance price in 2022. Although lower than 2022, the 2023 result is 15% above the last 5-year average.
In 2023, Arla achieved a net profit of EUR 380 million, or 2.8% of revenue, which is at the bottom end of its target range of 2.8-3.2%.
OUTLOOK FOR 2024
Arla expects the volatile market conditions, driven by external factors such as reduced consumer purchasing power, currency developments, and geopolitical tension and uncertainty, to continue to impact the business in 2024. Arla expects the growth momentum experienced in the last half of 2023 to continue in the first half of 2024, which results in an expected return to branded volume driven growth for 2024 as a whole of 1.0-3.0%, despite a more uncertain market and growth outlook for the second half of the year.
Through Arla’s climate strategy, including the Sustainability Incentive model and latest building block CSP, the company aims to keep current pace in its efforts to reduce its climate impact. This will enable Arla to reach its 2030 emission reduction targets - a 63% reduction in scope 1 and 2 emissions and a 30% reduction in scope 3 emissions per kg of milk and whey - by leveraging the strong momentum fueled by the important milestones achieved in 2023.
Commenting on the effects of this, Peder Tuborgh says: “While we anticipate continued volatility on multiple levels, our strong performance in the second half of 2023 makes us face 2024 with great confidence. Uncertainty remains as growing unrest around the world and related economic slowdown can potentially impact our business negatively. However, Arla is in a robust financial position, global demand for dairy remains strong. Through our climate strategy, including the incentive model and the latest building block CSP, we will further accelerate our efforts to reduce our climate impact and reach our 2030 emission targets on scope 1, 2 and 3. We remain committed to delivering our Future26 ambitions and continuing our efforts to be a leading role model for sustainable dairy.”
Group revenue outlook for 2024 is expected to be EUR 13.2-13.7 billion, the reduction is primarily driven by reduced sales prices compared to the record highs in the beginning of 2023 and adverse currency effects. Net profit share will be in the range of 2.8 to 3.2% and efficiencies in the range of EUR 85-105 million. Leverage is expected to be in the range of 2.4-2.8. Arla will publish its Financial and Sustainability Annual Report 2023 on February 29.