Arla’s first half revenues drop 3.8% as milk prices plunge

Arla Foods saw overall revenues drop 3.8% in the first six months of the year as declining global milk prices hit the dairy industry.

Revenues dropped to €5.1bn in the first half, from €5.3bn in the corresponding period last year. However, Arla saw revenue growth of 2.4% across its three global brands Arla, Lurpak and Castello driven by improving volumes.

Arla said: “Globally declining milk prices impacted Arla Foods and the entire dairy industry in the first half of 2015, creating a tough situation for Arla’s farmer-owners. Arla has managed to navigate through the hard-pressed world market relatively well by growing brand volumes and keeping a tight grip on costs.”

The company added that global prices have been under “heavy pressure” since China’s import of commodity products fell and the Russian embargo on EU dairy products.

Since the start of 2014 the global market commodity price for whole milk powder has dropped 53.1% to prices not seen since 2009.

Arla’s profit in the first half year constituted 2.3% of the company’s revenue, but for the full year profits are expected to be between 2.7%–3%. Revenue for the full year is expected to reach €10.2bn-€10.3bn.

Peder Tuborgh, CEO of Arla Foods, commented: “Our revenue is in line with expectations for the first half of 2015. We have mitigated the impact of the negative market by directing the increasing milk volumes into retail and branded products, consequently limiting the amount going into less profitable commodity products.

“We are doing everything we can to minimize the effects of the general global market situation, however it cannot change the fact that our farmer owners are in a tough situation right now.”

Åke Hantoft, chairman of Arla Foods added: “2015 has proven to be a very challenging year indeed for dairy farmers – both in Arla and elsewhere. The current earnings do not cover the costs of milk production, which is a heavy challenge for us farmers and our individual businesses. In the past year Arla has been working very actively to buffer the market situation without damaging our market positions. This proves that we have the right strategy, however no strategy can remove the current world market slump.”

To constrain costs, Arla reduced its investment by 30% and is “continuing to streamline the organisation vigorously and control costs”. It plans to save €330m before the end of 2015 compared to 2012.

Tuborgh added: “The global dairy market has rarely been as unpredictable as now, and unfortunately 2015 is proving to be as challenging as we anticipated. Our long-term view is that the market will turn again in the first half of next year, which is why we will stay focused on our strategic agenda.”