Arla has posted a revenue increase of 17% due to significant price increases in its retail and food service businesses, but the co-op warned of upcoming challenges.
Total Arla group revenue was €6.38 billion (£5.4bn) for first half of 2022, up 17 percent compared to €5.44 billion (£4.6bn) in first half of 2021.
Profit share was 3% and in line with the co-op’s new retainment policy, Arla will pay out its first ever half year supplementary payment to farmer owners of 1 eurocent per kg of milk based on the milk volumes delivered in the first half of 2022.
Arla’s average pre-paid milk price to farmer owners increased 30.9% in the first half of 2022 compared to the same period in 2021 with further increases over the summer.
However, this has yet to secure an increase in milk production due to the continued and significant increase in on-farm costs and uncertainty created by the current global market conditions.
As examples, the prices of fertiliser have increased 145%, fuel by 134% and feed by 36% on average while global inflation is forecasted at 7.7 percent for 2022.
Arla’s milk volume decreased to 6.8 billion kg compared to 7.0 billion kg in the same period last year, in line with global trends.
Arla Foods CEO, Peder Tuborgh said: “It is an extraordinary time for both our farmer owners and the company as food and farming industries experience high levels of exposure to inflationary pressure.
"I am pleased that we have been able to move the pre-paid milk price up for our farmer owners to help them with their increased production costs.
"We are now also able to deliver on our first ever half year supplementary payment to support future investments in sustainable actions on their farms.”
In the first half of 2022, Arla’s strategic brands delivered revenue growth of 12.7 percent to €2.9 billion (£2.4bn) mainly due to price increases.
Arla’s food service business continued to bounce back from the pandemic in both its Europe and International zones and delivered branded volume growth above pre-Covid levels of 19%, mainly driven by the Danish and UK markets.
In Arla’s European and UK business segment, revenue increased to €3.5 billion (£3bn) compared to €3.2 billion (£2.7bn) in the same period last year.
Arla continued to maintain its competitiveness despite branded volume driven growth declining -2.1 percent as result of the current market conditions.
CFO of Arla Foods, Torben Dahl Nyholm added that the the impact of Russia’s invasion had added substantial pressure on global markets, supply chains and businesses, leading to an accelerated inflationary environment.
"The current global milk supply shortage resulted in a market situation where the dairy commodity markets put significant pressure on our retail product margins in the first half of 2022.”
With on-going inflationary pressure and political unrest negatively impacting global growth, Arla expects the second half of 2022 to be even more challenging.
Global milk production is expected to decline further and contribute to sustained high dairy prices, which will likely further diminish consumer confidence and consumption.
Arla is adjusting its expectations for full year 2022 with revenue in the range of 13.5-14-0, its branded sales volumes growth to -2.0 to -3.0%. Year-end leverage expectations are 2.7-3.1 and net profit share 2.8-3.0%.
Peder Tuborgh said: “2022 continues to be characterised by volatility and inflation, exacerbated by Russia’s invasion of Ukraine.
"Changes in consumer behaviour continue to be multifaceted and difficult to predict and we expect our branded growth will slow down further."
