Arla, the Danish dairy co-op, has announced plans to invest almost €620m in expand capacity across a number of its dairy processing sites.

The dairy company announced this week it would invest a record €619m next year in a number of its dairy processing sites, including an expansion of its milk powder manufacturing site in Germany, an expansion of its mozzarella plant in Denmark and upgrading a new facility in Bahrain.

Arla also said it would make “significant investments” into increasing the capacity at a number of its dairy ingredients sites.

Expansion

The farmer-owned dairy co-op announced this expansion of its dairy processing capacity as it announced its financial results for 2019. Arla processes almost 14bn litres of milk each year and is supplied by 11,000 dairy farmers in Denmark, Sweden, Germany, Luxemburg, Belgium and the UK.

For 2019, Arla paid an average milk price of 36.6c/l to its farmer suppliers, which was pretty much in line with the milk price it paid in 2018.

Profits

Just like a steady milk price, Arla’s profits were also steady last year. The co-op recorded pre-tax profits of €347m for 2019, which was up 1% year on year.

Operating profits were flat at €406m, with operating profit margins steady at 3.9%. The co-op’s turnover for the year grew by just 1% to just over €10.5bn.

Arla’s ingredients business recorded strong growth of 9% last year as sales reached €710m. The co-op’s international business also saw strong growth as sales to international markets grew by 14% last year to reach €1.8bn.

Decline

In contrast, Arla reported a 2% decline in sales of its commodity dairy products such as milk powders, cheese and raw milk. Arla also saw a 2% decline in sales in its home markets in Europe to less than €6.4bn.

Over 40% of Arla’s turnover now comes from sales of branded consumer products.

In 2019, Arla achieved solid growth of 5% across its portfolio of consumer dairy brands. Sales of dairy products under the Arla brand grew by 5% to just over €3bn, while sales of its Lurpak butter brand also grew by 5% to reach €588m. Arla said it sold more than 100,000t of butter under the Lurpak brand last year.

Arla headquarters.

Arla’s range of branded milk-based beverages saw double-digit growth of 11% last year to €207m. This was predominantly driven by the range of milk-based, ready to drink coffee beverages that Arla manufactures under the Starbucks brand which are sold in Europe, the Middle East and Africa.

Competitiveness

“Throughout 2019, we continued to build on the positive momentum that we have created in the business and Arla is a stronger company than we were a year ago. We have strengthened our competitiveness and beat our financial targets while continuing our transformation through Calcium,” said Arla Foods CEO Peder Tuborgh.

In 2018, the Danish co-op implemented a cost-cutting programme across the business known as Calcium, which aims to deliver €400m in savings by 2021.

This programme delivered €110m in cost savings during 2019, which was ahead of the €75m to €100m target range of savings for the year.

Since implementing the Calcium cost-cutting programme, Arla has stripped out almost €225m in cost savings from its business.