Solid results from Arla Foods UK
Dairies suggests that everything is going to plan, writes
Anthony Fletcher.
The figures suggest a strong performance across the board. Before exceptional items and goodwill amortisation, pre-tax profits were £21.1 million based on sales of £697.9 million. During the first half year, sales of Lurpak rose by 10 per cent while Anchor Spreadable accounted for even stronger growth, 13 per cent.
Arla's filtered milk, Cravendale, recorded an advance in sales of 23 per cent.
"The first trading results of the merged company demonstrate progress in all key areas," said Arla Foods UK chairman Sir David Naish. "Our brands are performing strongly, supermarket milk volumes are in lines with expectations, our major dairy investments are on schedule and we have continued to outperform the market in home delivery."
Managing director Neil Davidson emphasises that the benefits of the merger are now beginning to materialise.
"We now have a well-balanced business with strong finances and substantial managerial and technical resources well equipped to offer effective competition right across the chilled dairy cabinet."
The division is confident of consolidating its new position as the country's leading dairy company. Asda recently selected Arla Foods UK as its sole milk supplier, a move that saw shares drop in its other two suppliers, Robert Wiseman Dairies and Dairy Crest.
In addition to the 250 million litres Arla already supplies to ASDA, the UK's second largest multiple, the deal will result in Arla selling a further 200 million litres. This is substantially more than Danish-Swedish group Arla's total supplies of liquid milk to the Danish market.
Asda said the move was prompted following concerns that farmers were not being paid enough for their milk. Farmers went on strike last autumn in protest against dairy companies, accusing them of swallowing up supermarket price increases without passing on any benefits to the farmers.
The supermarket group asked its three suppliers to come up with a new supply chain that would give Asda a dedicated group of farmers, with Arla winning the tender. This signals a return for Asda to its dairy roots, with Asda and Arla once being part of Yorkshire-based Associated Dairies, which was formed in the 1960's.
Asda's move is expected to send shockwaves throughout the UK dairy industry. Wiseman recently secured a new deal with Tesco, but it faces a series of critical talks with Morrisons to safeguard its current volumes with Safeway.
Wiseman is set to lose some £70m of revenues from losing its Asda contract. The company currently supplies almost half of Asda's milk, which accounts for 15 per cent of Wiseman's annual milk volumes. Its shares slumped by 17 per cent as a result.
Dairy Crest's shares also fell by 4.65 per cent following the announcement, with the company currently providing 10 per cent of Asda's milk.
Arla's milk pool is reported to be one of the largest in Britain, with farmers stretching from south west of England to the north east of Scotland, and ASDA has emphasised the importance of Arla providing a more direct line from cow to consumers.
Arla Foods UK and the milk producer group, Arla Milk Partnership, will now embark on a programme aimed at selecting a group of dedicated milk suppliers to ASDA in order to meet the multiple's wishes for a closer relationship with Arla's British milk producers.
As a consequence of Asda Wal-Mart's decision to appoint Arla as the sole supplier, Davidson expects that the company will now look to build a new dairy in Scotland. Arla is set to deliver 55 million litres milk to Asda Wal-Mart's Scottish stores alone, and a new dairy in Scotland would allow the company to try for listings with other Scottish multiples.
