Arla profits fall by 46% on year during first half of 2023

Inflation, adverse exchange rates, and falling dairy commodity prices have put pressure on margins at European dairy co-operative Arla.

Arla made a pre-tax profit of €123m (£105m) during the first six months of 2023, down by 46% on the same period last year.

Net profit as a percentage of total revenue was down from 3% to 1.5% during the period.

See also: Arla to pay farmers for environmental sustainability from 2023

Despite this fall in profits, farmer owners will still receive a half-year supplementary payment of one euro cent/kg of milk, or about 0.83p/litre.

Group revenue totalled more than €7bn (£6bn), an increase of 11% year on year.

UK market

Arla Foods UK net revenue increased by 16% to €1.6bn (£1.37bn) during the first six months of the year.

There has been limited demand reported from the UK food service sector in recent months; however, Arla is expecting to see positive growth in the second half of the year.

Revenue growth rates for Arla’s branded products were also weaker, with the exception of its Starbucks range.

Jonathan Dixon, senior vice-president of sales at Arla Foods UK said: “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.”

Sustainability payments

Arla has now made its first payment to its farmers as part of its sustainability incentive model.

An average payment of 1.44 euro cents/kg (1.19p/litre) of milk was made to farmers, and uptake is reported to be at about 99% of all farmer owners.

Arla Foods chief executive Peder Tuborgh said: “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.”

Outlook

Arla is forecasting revenue of between €13.2bn (£11.2bn) and €13.7bn (£11.6bn) in 2023 overall, with profits as percentage of revenue expected to be in the region of 2.8% to 3%.

Mr Tuborgh said: “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.”