Arla Group’s board of directors has proposed paying out 2018’s entire net profit to its European farmer owners following the difficulties experienced by producers during this summer’s drought.
The motion has been facilitated by a strong showing in Arla’s half-year results, with Arla UK increasing net revenue by 2.3% in the first half of the year to £961m.
“We are proposing that extraordinary measures be taken in this situation, and the board is satisfied with the positive development of the company’s balance sheet, which makes this proposal possible,” said Arla Foods chairman Jan Toft Nørgaard.
A final decision on the proposals is expected in February 2019, and if approved would be paid out the following month in line with the regular supplementary payment in March.
Size of proposal
The size of the proposal is predicted to be worth 2-2.2p/litre (2.3-2.5EURc/kg milk) to each of Arla’s 12,000 European dairy farmers, provided full-year profits of €285-310m (£256-279m) are achieved this year.
Arla usually appropriates some of its end of year profits into a 13th extra payment to producers, with the rest of the profits reinvested into consolidation within the business.
However, this motion proposes deviating from the company’s usual proposal for one year in light of the difficult market conditions experienced by dairy farmers across Europe.
Arla half-year results key points compared with H1 2017
- Milk price down 3% to 35.8EURc/kg (31p/litre)
- Milk volume no change at 7bn kg (6.8bn litres)
- Profit share for farmer-owners up 1 percentage point to 2.2% of revenue
- UK revenue up 3.3% to £961m
- European revenue up 2% to €5.1bn (£4.6bn)
“Our balance sheet has improved significantly over the last few years, and the strength of our balance sheet makes room for this extraordinary initiative while still maintaining our investment plans for the continued future growth of the company,” said CEO of Arla Foods, Peder Tuborgh.
“If the board’s proposal is approved, our financial ratios are expected to remain within the target range, provided there is a firm commitment by the BoR to return to the agreed retainment policy after 2018,” he says.