An Arla lorry© FLPA/REX/Shutterstock

Arla Foods has put a cost-cutting initiative into action to find at least €400m (£350m) of efficiency savings by 2020.

The programme, called “Calcium”, was launched as a result of external challenges facing the business, including Arla’s exposure to the weakened pound and unfavourable developments in commodity markets.

Cutbacks would likely affect Arla employees across production, products, procurement and marketing departments and job losses are expected.

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However, an Arla UK spokesperson said it was too early to tell how the British-based element of the business would be affected.

The aims of the cutbacks are to improve farmer returns and maintain a competitive milk price as well as freeing up capital to reinvest in the business to fuel growth.

Of the €400m (£350m) of expected savings, €300m (£263m) would be returned to the co-op’s 11,200 European dairy producers – based in the UK, Denmark, Sweden, Germany, Belgium, Luxembourg and the Netherlands – through higher milk prices, with the remaining €100m (£88m) earmarked for reinvestment in Arla’s Good Growth 2020 strategy.

 

Arla Foods’ turnover was €10.3bn (£9.02bn) in 2017, 7.2% higher than the previous year.

However, profit share – the percentage of turnover distributed to co-op owners – dropped from 3.6% in 2016 to 2.8% in 2017 as a result of a 5% drop in gross profit to €2.275bn (£1.99bn).

“At Arla Foods we have always had a culture and strong track record of creating efficiencies and removing costs for the benefit of our farmer-owners, customers and consumers, so in that sense nothing is new,” said Arla Foods CEO Peder Tuborgh.

“What is new, however, are two unexpected developments that have hit us, both of which are outside of our control.”

Currency and commodities

“These are the currency implications of Brexit on our actual performance and the effect of the reversal in commodity prices on fat and protein on our relative performance against our international peers.”

Mr Tuborgh added that these two developments had negatively affected Arla’s profitability and as a responsible business it had to act to mitigate the effect of these new developments.

“The action we are taking is a three-year transformation programme that cuts across our whole business and sets out to restore our profitability,” he said.