Dairy cooperative Arla to pay entire 2018 profit to drought-hit farmers

COPENHAGEN (Reuters) - Farmers’ cooperative Arla Foods, one of the world’s biggest dairy firms, plans to pay out its entire 2018 net profit of up to 310 million euros (278.48 million pounds) to its members after one of the hottest and driest summers on record.

FILE PHOTO: Arla FoodÕs milk powder is stacked in a supermarket in Copenhagen, Denmark December 15, 2017. REUTERS/Julie Astrid Thomsen/File Photo

The firm, owned by 11,200 farmers in Denmark, Sweden, Germany, Britain, Luxembourg, the Netherlands and Belgium, traditionally pays only a part of its profit to owners, but said it would make an exception this year due to the drought.

European farmers are trying to recoup losses caused by a summer heatwave that has shrunk cereal harvests and dried out pastures, leaving some on the edge of bankruptcy and shutting the EU out of lucrative export markets.

“It is obvious farmers have had a tough time acquiring fodder, and it’s been more expensive. This puts the farmers’ economy under pressure,” Arla Chief Executive Peder Tuborgh told Reuters on Thursday.

Arla expects to make a full-year net profit of up to 310 million euros, or 3.2 percent of its turnover. Last year, the company paid out 127 million euros to its members of out of a net profit of 321 million.

For the first half of this year, Arla made a net profit of 120 million euros on revenue of 5.1 billion, with results held back in part by a weaker British pound.

Arla, which makes about 25 percent of its sales in Britain, said the weakening of the pound in the wake of Britain’s June 2016 vote to leave the European Union cost the company around 150 million euros per year.

Earlier this year, concerns about Brexit contributed to the launch of a cost-cutting programme at Arla aimed at saving 400 million euros by the end of 2020.

“It is clear that a no deal (Brexit) would put a lot of industries, including ours, in a completely different situation, but I won’t speculate on that at this moment. The forces that will be unleashed across industries will be enormous and negative,” Tuborgh said, referring to the possibility Britain could crash out of the EU without a deal on future relations.

He added Arla was preparing for all Brexit eventualities.

Earlier this year, Arla said it aimed to increase investments this year by almost 60 percent to 527 million euros to meet growing global demand for dairy products and consumers’ shift to healthier options.

Arla competes with food giants such as Danone DANO.PA and Nestle NESN.S.

Weak British pound hits profits at Danish dairy firm Arla -

Reporting by Emil Gjerding Nielson; Editing by Jacob Gronholt-Pedersen and Mark Potter