28 January 2013

4 minute read

Arla's Board of Directors has approved the Group's investment plan for 2013. The plan includes investments totalling over DKK 2 billion, for capacity expansion, rationalisation measures, environmental improvements, maintenance, quality and innovation.

The 2013 investment level is approximately three per cent of expected revenue, and is also an ambition within Arla's Group strategy for 2017 (compared with approximately 3.4 per cent in 2012). The objective is to contribute to the increased profitability of Arla's activities, and therefore improve long-term earnings for Arla's owners.

"This year, the largest proportion of our investments will be devoted to expanding the production capabilities of a number of our dairies which manufacture products for export to the growth markets outside the EU, for example. Our ability to improve profitability for Arla's owners is dependent upon us increasing sales of quality products all over the world, which is why, during 2013, we are investing in new production and expanding existing facilities," said Povl Krogsgaard, who has responsibility for Arla's investment plan.

Dairies Must be More Effective

Almost 40 per cent of Arla's total investment plan will be devoted to expanding the production facilities. The second-largest focus area for Arla's investments in 2013 is production rationalisation initiatives.

"Arla's Group strategy includes the objective to reduce our production costs by DKK 2.5 billion by the end of 2015, via, for example, investing in projects to streamline production at our dairies. This year, we are investing approximately DKK 370 million in such projects," said Mr Krogsgaard.

New Facilities and Increased Production

The largest single investment for Arla in 2013 will be the construction of a completely new production facility at Nr. Vium in Denmark, which will manufacture highly-processed whey-based lactose products. These ingredients will be used in products in areas including child nutrition, and will also be sold globally by Arla's subsidiary, Arla Foods Ingredients.

"To date, we have been able to utilise and process all the constituents of the raw milk supplied by our owners, with the exception of one - the lactose that is released when we concentrate the protein from the whey. Going forward, the new lactose facility will enable us to achieve optimum processing of all the constituents of milk and therefore produce profitable lactose products for the food industry," said Henrik Andersen, CEO of Arla Foods Ingredients.

Overall, Arla is investing approximately DKK 900 million in the new facility, of which approximately DKK 275 million will be invested in 2013 The facility becomes partly operational at the end of 2014, and fully operational in 2016 and 20 new jobs will be created.

Among the dairies that will receive the bulk of Arla's investment in 2013, is the Pronsfeld dairy in Germany, where Arla will invest approximately DKK 232 million in initiatives to increase production of milk powder and butter. The expansion of Taulov dairy in Denmark will be completed in 2013 with an investment in yellow cheese production totalling approximately DKK 215 million.

Greater Respect for Nature Less Energy Consumption

Approximately DKK 140 million will be invested in reducing the environmental impact of production within Arla. Arla currently has 71 dairies globally and all are working to reduce their CO2 emissions. Arla's investments in 2013 will make it possible to reduce dairies' total CO2 emissions by two per cent in 2013.

"We are continuing our efforts to achieve our climate strategy objective of reducing our total CO2 consumption by 25 per cent before 2020. Thanks to new technology, we can further reduce the impact of our production processes on the environment and nature, and this year we are investing in 50 Closer to Nature projects, in order to achieve this aim," said Povl Krogsgaard.

Arla's investments in environmental improvements are also expected to cut the Group's total energy consumption by 1.5 per cent in 2013, which corresponds to a reduction of 36,863 MWh, which is equivalent to approximately 8,200 households' annual electricity consumption.

Key elements of the 2013 investment plan:

• Arla expects to significantly increase its exports to the strategic growth markets of Russia, China, the Middle East and Africa up to and during 2017. Arla is therefore investing in new dairy expansions to increase the volume of produce available for export.
• Arla's aim is to double the revenue of its subsidiary Arla Foods Ingredients, which sells whey proteins, lactose and milk-based ingredients to the global food industry, from approximately DKK 2.5 billion in 2012 to more than DKK 5 billion in 2017. Therefore Arla is investing in a new lactose manufacturing facility.
• Arla's ambition is to reduce its production costs by DKK 2.5 billion before the end of 2015. Arla is therefore investing in measures to increase efficiencies at its dairies.
• Arla's climate strategy aims to achieve a reduction in total Group CO2 emissions by 25 per cent before 2020. Therefore Arla is investing in projects that will deliver environmental improvements at individual dairies, in order to reduce energy consumption.

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