The first half of 2019 saw a rare stability in the otherwise volatile global dairy market resulting in stable prepaid milk prices to farmer owners across Europe. Arla’s milk price to its farmer owners remained unchanged for the first six months of the year (bar a 0.01p currency smoothing mechanism adjustment in the UK). The consistency of milk price was supported by a continued commitment to Arla’s branded agenda which focuses on delivering the most value for Arla owners milk.
Arla’s branded agenda played a strong role in increasing half year overall revenue by 3% compared to 2018. Notable sub brand growth includes BoB (46%), Lactofree (6%), Organic (12%) and Arla Pro (48%) helping drive overall Arla strategic branded revenue growth by 7%.
Natalie Knight, Group CFO comments, “We have continued to build engagement and relevance of our brands through innovative products, brand activation and digital content. Consumers are pushing for more nourishing and sustainable food choices, which is why our intensified climate agenda will help increase both the understanding of our farmer owned cooperative model and our competitive advantage”.
A cooperative mindset
Alongside the branded success, the farmer driven cooperative mindset at Arla is helping shape significant change both operationally and commercially. In March, Morrisons became the second retailer to join the Arla UK 360 programme, supporting over 200 Arla farmers as they transition to the programme by October 2019. Morrison’s commitment to supporting the programme across its entire milk supply from Arla is a strong result for a programme designed to drive industry R&D whilst sharing responsibility for animal welfare, the environment and sustainable production across the whole of the supply chain.
Group transformation agenda
Arla’s transformation programme Calcium which is being delivered across the entire company performed strongly in the first half of 2019. The programme has already delivered EUR 97 million of the EUR 75-100 million full year target for 2019. Due to the strong performance of Calcium year to date, Arla expects the programme to deliver at least EUR 100 million in 2019 although the expected savings will be significantly lower in the second half of the year compared to the first half. Calcium aims to reduce cost by EUR 400+ million, where EUR 300 million will go to improving the milk price to farmer owners and EUR 100+ million being reinvested in the company’s growth.
Forecast to year end
Arla delivered strong results in the first half of 2019 and the second half of the year will focus on delivering on full year targets while continuing to outperform our peers. There are however, external factors that could negatively impact Arla’s full year expectations.
The potential adverse consequences of a hard Brexit continues to be our biggest risk, along with the inherent volatility of the global milk markets. With this in mind, Arla’s group revenue outlook for full year 2019 is expected to be EUR 10.2-10.6 billion. Net profit share for 2019 is expected to be in the target range of 2.8-3.2 per cent of revenue. A potential no-deal Brexit could however negatively impact the outlook.