A year ago, Kerry Group’s Dairy Ireland division saw its reported revenue tumble 13.4% as the sale of the Group’s Meats & Meals business offset strong gains driven by increased pricing. While no divestments or acquisition affecting the division were completed this year, turbulence in the dairy markets impacted the division’s performance. According to Kerry’s preliminary FY23 results, Dairy Ireland’s reported revenue performance slipped by 16.6%, with pricing dropping by 9.3%, volumes down 6.5% and an EBITDA margin shrunk to 4.2%.
The division comprises Kerry’s dairy ingredients and consumer products businesses, for which no data has been released in the preliminary results. However, Kerry flagged that the performance of the ingredients business had been impacted ‘by the sharp fall in dairy market sales prices’, particularly in mid 2023, while Consumer Products ‘performed well given the market context, supported by good growth in branded cheese’.
Meanwhile, the Taste & Nutrition division, which last year posted reported revenue growth of 29.4% and a 7.8% volume growth, saw volumes grow more modestly at 1.1%, with pricing up 1.1% and EBITDA margin also up, to 17%. The division was impacted by the effect of disposals and currency.
Overall, the Group’s revenue was down 8.6% and before-tax earnings were down 4.2%, though net profit increased to €728.1m from €606.5m in 2022.
Regarding its sustainability initiative Beyond the Horizon, Kerry reportedly achieved a 48% reduction in scope 1 and 2 carbon emissions and reduced food waste by 39% versus its 2017 baseline.
Return to branded products keeps Arla on the up
Challenging market conditions also affected Arla Foods’ performance. The dairy major reported total group revenue roughly in line with last year (€13.7bn versus €13.8bn) and a net profit of €380m, or 2.8% of revenue which is at the bottom end of its target range of 2.8-3.2%. Inflation, input costs and negative currency effects impacted the group’s revenue, though the company says the result was 15% above the five-year average.
The second half of 2023 was particularly strong for the dairy co-op’s strategic branded volume growth, which grew 4.1% in H2 2023 after dipping by 6% in H1. This is attributed to consumers returning to branded products after the effects of food inflation, which had led shoppers to purchase cheaper and fewer dairy products, started to ease in the second half of 2023. Arla reported a 1.2% increase in branded revenue thanks to higher pricing, though volume dipped 0.7% which was still better than company had initially expected.
In Europe, branded volumes declined 1.3%, with Sweden being the hardest-hit at -5.1%, but elsewhere UK saw 2.2% growth and so did the Netherlands, Belgium and France (6.9% altogether). The fastest-growing brand in Europe was Arla Protein, which grew 60.5% followed by Starbucks-branded products (21.8%). Lurpak volumes were flat at 0.8% YoY though revenue grew 2.9%. Similarly, specialty cheese products from Castello saw a volume decline of 1.7% but revenue improved 3% due to higher prices.
In MENA, Puck spreadable cheese grew volumes by 6.5% and revenue by 4.9%.
Arla has proposed to pay its farmers a higher supplementary payment, in total €270m for the full year.
On sustainability, Arla reported a 3% decrease in scope 3 emissions per kilo of milk and whey on the company’s 2015 baseline, which is a 12% decrease in total; the aim is to reduce scope 3 emissions by 30% by 2030. In scope 1 and 2, the reduction was 4% in 2023, or 33% in total compared to the 2015 baseline, with a target of 63% reduction of scope 1 and 2 emissions by 2030.
Fortified milks a key growth driver for Nestlé’s dairy business
Fortified milks, coffee creamers and home-baking products were key growth drivers for Nestlé's dairy portfolio, according to the company's FY23 results.
Infant nutrition also posted high single-digit growth of 8.5% driven by premium infant formula sales, including HMOs products and specialty formulas. Sales of premium products have tripled in the past decade, the company pointed out, with a share of 36% of all sales compared to 11% in 2013.
Dairy products and ingredients are set to play a key role in Nestlé’s focus on growing its healthy ageing offering going forward. The company said the global over 65 population will double by 2050 to 1.6bn people, creating favorable conditions to broaden its offerings for that demographic group. CEO Mark Schneider said: “This will be a significant demographic tailwind and it’s also an area where through our industry-reading research and development effort, we can bring our specific nutritional expertise to the table.”
He pointed out that products from other parts of the portfolio – say, early life nutrition solutions – can play a holistic role in delivering benefits later in life, stating that “the right start in life can help with the later stages of life”. The company will target growth in four key areas – active lifestyle, though functional foods and supplement innovation; nutritional balance, e.g through high-protein dairy products; life stage transitions through menopause and cardio health support solutions; and preventative care, through immunity boosting products.
Nestlé also said it expected inflation to have a lesser impact on sales in 2024, with Schneider stating: “The situation on inflation and pricing is going to be a lot more nuanced compared to the two previous years,” adding that some commodities are likely to be affected more than others, giving an example with the still-elevated prices of cocoa and sugar. “The situation right now, while there is some stress and especially on the former Red Sea routes that connect Europe with Asia, on the global scale now is nowhere near the disruption that we have seen in 2021. The impact of this is going to be a lot less on our company than it used to be in 2021 and beginning of 2022.”
The company also reported a consumer return to branded goods in recent months, with CFO François-Xavier Roger predicting that private-label growth has peaked. “We have seen a little bit of trading down to the benefit of private labels but this market share corresponded to the range they had lost during the pandemic,” he explained. “In the last couple of months, we have started to regain market share against private label, therefore they have probably reached the full potential that they can achieve.”
Nestlé expects to lower some of its product prices this year, though Schneider refused to single out any specific product categories.
Overall, Nestlé predicted slower organic sales growth of 4% in 2024, having posted 7.2% organic growth for FY23 with pricing of 7.5% and real internal growth (volume+mix), of -0.3%.
On environmental sustainability, Nestlé said it achieved a 15.3% reduction in methane emissions on its 2018 baseline and a net GHG emissions reduction of 13.5%, with Schneider stating that the group had now ‘de-coupled the growth of the business from the growth of greenhouse gas emissions’. The company estimates that measures to reduce its emissions from dairy and livestock ingredient sourcing would lead to 23% reductions in the group’s carbon footprint by 2030.
Danone sees ‘encouraging signs’
Danone posted its FY23 alongside its fourth quarter results, highlighting ‘the progressive improvement’ of its volume-mix, which turned positive (+0.8%) in Q4. The FY23 volume/mix however remained negative, at -0.4% though like-for-like sales increased 7% with a growth of 5.1% in the fourth quarter.
Waters posted the strongest sales growth at 9.1% and a positive volume/mix of 0.8% according to the annual results. This was followed by Specialized Nutrition (6.7% sales growth and 0.6% volume/mix growth) and Essential Dairy and Plant-based Products (EDP) with a 6.6% like-for-like sales growth but negative volume/mix growth at -1.4%.
Regionally, China, North Asia and Oceania posted the strongest FY23 sales (10.1%) and volume-mix growth (8.6%) in 2023, followed by Latin America, the Rest of the World (comprising AMEA and CIS), Europe and North America. In Q4, Europe sales were up 6% with pricing up 5.7% and volume/mix back to positive, at 0.3%. For the same period, sales in North America were up 3.1% with volume/mix +2.8% led by coffee products and yogurts. In China, North Asia & Oceania, sales growth was 7.4% in Q4 with volume/mix up 4.8%. Latin America delivered an 8.1% increase in like for like sales growth and a decrease in volume/mix of 1.3% with prices up 8.1%. In Rest of the World, momentum in specialized nutrition across Asia and Middle East led the performance, which included like for like sales of +3.5% and a volume/mix of -2.9% with pricing up 6.4%.
Danone’s recurring operating margin grew 40 basis points YoY to 12.6%, driven by improvement of the margin from all operations. The deconsolidation of its Russian dairy business and the sale of the US organic dairy brands resulted in other operating income and expenses of -€1.44m in 2023 versus -€1.23m in 2022. The firm’s recurring operating income was €3.5bn.
CEO Antoine de Saint-Affrique said: "In a context which remains challenging, the progressive improvement of our volume-mix, turning positive in Q4, the visible progress made by EDP Europe, and the continued strong momentum of our Medical Nutrition activity are encouraging signs, even if lots remains to be done. Building on the positive momentum of 2023, we are starting this new financial year with confidence in our Renew strategy.
"We will continue to focus on consistent execution and delivery, in line with the mid-term ambition we defined in March 2022. We will keep progressively improving the resilience of Danone, further equipping it with the skills, science and tools it needs to be future fit."
