Arla Foods has started a transformation programme which aims to save more than €400 million by the end of 2020 through improved efficiency in all areas of the company.
While the initiative has been planned since the end of last year, the scope of the cost-savings ambition has been increased by Arla’s management in recent months “in light of unique external challenges facing Arla as a result of the extent of the company’s exposure to the British pound and unfavourable developments in commodity markets”.
Called Calcium, the programme aims to create efficiencies with two purposes in mind: to improve returns to Arla farmer owners and to reinvest into business areas that fuel growth.
Arla Foods CEO Peder Tuborgh said: “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.”
“What is new, however, are two unexpected developments that have hit us, both of which are outside of our control. These are the currency impact of Brexit on our actual performance and the impact of the reversal in commodity prices on fat and protein on our relative performance against our international peers.
“These developments have negatively impacted our profitability, and as a responsible business we have to act to remove the impact of these new developments, and the action we are taking is a three-year transformation programme which cuts across our whole business and sets out to restore our profitability.”
The Calcium programme will cover activities throughout Arla, including production, products, procurement, promotional marketing and people. It aims at unleashing the full potential in Arla’s organisation by transforming ways of working, reducing bureaucracy and complexities, and cutting costs.
Of the total cost reduction of more than €400 million, Arla expects to return approximately €300 million to the farmers through the farmgate milk price with the additional savings being reinvested in the company’s Good Growth 2020 strategy to fuel further growth and improve profitability.
Peder Tuborgh added: “Calcium has a high level of involvement amongst our employees and is galvanising and energising our people to deliver better returns for our farmers, and I am incredible proud of them.”
Arla said it is too early to disclose publicly what the specific consequences will be within specific areas of the company, including what number of jobs that will be affected by the ongoing work.
In its full-year results released in February, Arla posted a 8.1% rise in revenue to €10.3 billion due to higher sales prices and increased global demand for dairy products.
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