Arla Foods UK said it returned to “strong” branded growth in the second half of 2023 as the commodities-driven inflation of 2022 eased.

The Lurpak owner’s UK operations saw revenues rise 2.4% in 2023 to £2.6bn (€3bn), down from a 17.5% rise in revenues in 2022 driven by high inflation and elevated dairy prices.

Arla said branded volumes made a comeback during the year, driven by recovery in the second half, growing overall by 2.2%. Arla Protein, Starbucks and Arla Pro grew by 66.4%, 26.2% and 8.5% respectively.

“As we saw in the first half of 2023, inflationary pressure continued to dominate,” said Arla Foods UK MD Bas Padberg. “However, thanks to the strong execution by our farmer owners, employees and management, Arla has demonstrated its ability to adapt to challenging market conditions.

“As the UK’s largest dairy co-operative and supplier of some of the UK’s best-loved brands, it’s important that we ease pressures on cash-strapped shoppers when we can, as well as returning a fair price to our farmers so we can keep supermarket shelves full. Arla’s brand portfolio demonstrated its robustness in volatile conditions, and we made strong recovery in the second half of 2023 with a strategic branded volume growth.”

Total Arla group revenue for the year was €13.7bn, roughly the same level as its 2022 revenue of €13.8bn, as overall sales were affected by negative currency effects.

The cost of goods and general inflation led to a performance price decrease of 8.1 euro cents per kg against the all-time high performance price in 2022.

Although lower than 2022, the 2023 result is 15% above the last five-year average.

In 2023, Arla achieved 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%.

However, a strong year ending enabled the board to propose a higher-than-expected supplementary payment (dividend) to Arla Foods’ farmer owners of €270m for the full year.

For 2024, Arla said it expected group revenues would be further hampered by reduced sales prices compared with the record highs at the beginning of 2023 and adverse currency effects.

Therefore, it expected full-year sales to be between €13.2bn and €13.7bn as volatile market conditions, driven by external factors such as reduced consumer purchasing power, currency developments, and geopolitical tension and uncertainty, would continue to impact the business.

Despite the headline fall in sales forecast, Arla said the growth momentum experienced in the second half of 2023 should continue in the first half of 2024, which would see a group-wide expected return to branded volume driven growth for 2024 as a whole of 1%-3%.

CEO Peder Tuborgh said: “While we anticipate continued volatility on multiple levels, our strong performance in the second half of 2023 makes us face 2024 with great confidence. Uncertainty remains as growing unrest around the world and related economic slowdown can potentially impact our business negatively.

“However, Arla is in a robust financial position, global demand for dairy remains strong. Through our climate strategy, including the incentive model and the latest building block CSP, we will further accelerate our efforts to reduce our climate impact and reach our 2030 emission targets on scope 1, 2 and 3.

“We remain committed to delivering our Future26 ambitions and continuing our efforts to be a leading role model for sustainable dairy.”