Arla Foods has said it expects dairy commodity prices to improve in the second half of the year, which it claimed today (3 September) will help it hit its forecast for annual profits.
The Lurpak butter manufacturer this morning booked a drop in first-half profits as a decline in global milk prices put “significant” pressure on earnings.
In the six months to the end of June, net profit slid 16.2% to DKK513m (US$86.5m), while operating profit declined 6.4% to DKK669m. There had been pressure on prices and therefore earnings from commodity trading and global e-auction sales, affecting 25% of its milk.
A spokesperson for Arla told just-food, however, that the company is foreseeing “improvements” in the second half of the year.
“Like everyone else we can’t put dates on it but we’re now seeing the tendency for improvements [in dairy commodity prices]. So much so, that we expect that to be one of the main contributors, not the only one, but one of the main contributors for us to still reach our full-year targets when it comes to results and earnings.”
For the full year, Arla reiterated it expects to deliver revenue of DKK60bn, a figure which excludes the effects of the potential mergers. Earnings are expected to be “slightly below the level of Arla earnings pr. kg of milk in 2011”, the group said.
Separately, Arla said it will increase its activities outside Europe and look to expand into countries where there is growth.
The spokesperson cited Middle East and North Africa (MENA), Russia, China, the US and Poland. “We adjusted the strategy recently,” the spokesperson said. “Some of these markets are markets that are now producing the highest growth rates, from perhaps a lower level than say our core markets, obviously, but still they are showing remarkable growth rates.”
The spokesperson pointed to Russia and China, in particular, as showing the largest potential for growth.
“Russia is showing 40% growth in the first six months of the year … our director for the Russian market foresees this growth rate of 35-40% is one that we anticipate to keep up in years to come, even as the business grows.
“China is definitely worth mentioning here because we’re seeing very rapid growth in the type of consumers that would prefer the type of product we are offering. With the middle class, for a large extent Russia as well, growth is very fast and the middle-class tend to be our type of consumer when it comes to the type of product we produce. This trend is very obvious to us in China and Russia, whereas perhaps in the Middle East its more of an established consumer group so it’s about making our products known to the existing consumer groups.”