For Valio, 2017 was a good year from a business development perspective: net sales increased by 4.3 percent, and Valio was able to pay the co-operatives a steady milk price despite the challenging market situation. Valio introduced more than 100 new products and maintained a positive growth trend in added value products both in Finland and in exports. In addition to existing export markets, we also entered new consumer markets. Other significant events of the year included the commissioning of the world’s most modern snack plant in Riihimäki and the historically most extensive quality and production reforms to improve animal welfare.
In 2017 Valio was voted the most responsible company in Finland for the fourth consecutive year in Scandinavia’s biggest Sustainable Brand Index™. In addition to the Board of Director’s Report and Financial Statements that were published today, Valio will publish its Sustainability Report 2017 in English later in April.
Challenging milk market situation
Valio Group net sales in 2017 were EUR 1,708 million (EUR 1,638 million in 2016). Domestic net sales remained unchanged and international net sales increased by 12.4 percent. Valio continued its growth particularly in Sweden, the Baltics, Russia and China. The milk margin** was EUR 797 million (772 million) and the milk return* was 37.9 cents per liter. The milk market situation remained challenging despite the overall economic growth.
“The biggest challenges come from the dairy industry’s operating environment. The imbalance of the global markets continues, and the growth in milk production is expected to outpace the demand for dairy products,” says Valio’s CEO Annikka Hurme.
The very low price of milk powder and the drop in the price of industrial butter from the peak prices at the beginning of the year chipped away at the milk return, i.e. Valio’s profitability. The situation is expected to continue because of the high volume of EU milk powder intervention stocks. The cause of the development is the EU and global overproduction of milk. About 35−40 percent of Valio’s raw milk is made into powder and butter, so changes to productivity have a direct impact on Valio’s profitability. The overall downward trend in the consumption of dairy products in Finnish markets is increasing the channeling of raw milk into these industrial products. Therefore, it is important to grow the exports from Finland.
“Accessing new export markets and achieving profitable growth requires us to invest in personnel and in marketing in the upcoming years. Consequently, we are constantly looking for new ways to do things more agilely and efficiently. There are no shortcuts to accessing new export markets; it’s a matter of going through the regulatory permit processes as well as long-term building of recognition,” Hurme notes.
The goal is to pay the EU’s highest and most stable milk price
Valio is owned by 5,500 Valio dairy farmer entrepreneurs through 16 co-operatives. Valio’s goal is to pay its owner co-ops the most stable and predictable milk price possible and the highest price in the EU. The price paid by Valio has remained higher than the average EU price throughout the 21st century. The average price paid for raw milk last year was 39.0 cents per liter (38.1). It was decided to pay 0.5 cents per liter in after payments for 2017. The total raw milk price paid to owners was nine million euros more than in the previous year.
“All business earnings, less expenses and funds allocated for business development, are paid to the owner entrepreneurs. Additionally, keep in mind that the investments of our owners help us to create premium products and future favorites,” Hurme says.
Responsibility bonus to improve animal welfare
In 2017 Valio implemented the most extensive quality and production reform in its history. Since January 2018 Valio has paid a one-cent-per-liter responsibility bonus to entrepreneurs who commit to improving animal welfare. The goal is that all dairy farms are within the sphere of the new agreement by 2020. In March 2018 about 90 percent of the milk liters received by Valio were sourced from farms within the sphere of the responsibility bonus.
The responsibility bonus requires that the dairy farm commits to, e.g., planned animal healthcare, regular hoof check-ups and hoof treatment, and to the use of anesthetic, pain control medication and sedation during disbudding. Additionally, every new barn must be a free-stall barn.
100 years of nutrition innovations
2017 marked the 100th anniversary of the establishment of Valio’s first research laboratory. Chemist Artturi Ilmari Virtanen started his life’s work at the Valio laboratory in 1919 and headed the laboratory for nearly 50 years.
Valio’s newest innovations, like ValSa® milk salt and snacks with reduced sugar, are responses to the global nutrition challenges. Valio updated its salt and sugar reduction targets in 2017. The targets are part of Valio’s nutritional commitment, which is contributing to the UN’s sustainable development goals.
Launched on the markets in September 2016, Valio MiFU® friable cooking crumbs have made milk protein a main source of protein at meal time. The product family expanded with the introduction of Valio MiFU® strips in September 2017.
At the end of the year Valio announced the market launch of the totally plant-based Valio Oddlygood® product family. The new products are a response to a major trend in consumer behavior: Finnish consumers want variety and inspiring options in their food choices. In the new product category Valio is tapping into its decades of product development and technology expertise.
World’s most modern snack plant in Riihimäki
Commissioned in September 2017, the Riihimäki R2 snack plant is the largest single investment in Valio’s history. The plant’s annual production capacity is 120 million kilograms and it employs some 70 people.
The dairy’s energy, logistics and water consumption solutions reduce losses and conserve natural resources, and over three-quarters of the thermal energy used at the plant is produced from renewable fuels. The world’s most modern heat recovery system brings an energy savings of 30% compared to the old Riihimäki plant.
Most responsible company in Finland
In 2017 Valio was voted the most responsible company in Finland for the fourth consecutive year in Scandinavia’s biggest Sustainable Brand Index™. Valio examined the views of its different stakeholders groups in its own sustainability survey in December 2017. In addition to more than 1,000 consumers, Valio’s personnel and owner entrepreneurs, customers, partners, and social leaders took part in the survey.
The majority of all respondent groups considered Valio as a company that operates responsibly. The themes considered as the most important for responsible operations were Valio’s economic impacts, i.e. employment and retention of the Finnish dairy industry, product safety, procurement transparency, supply reliability, and animal welfare.
“We will continue working on these and other issues. This year we will step up our communications around the specific actions Valio is doing to promote sustainability. An active, open dialogue and concrete actions are tremendously important factors affecting trust,” Hurme concludes.
Valio Group’s key figures in 2017
|Net sales, M€||1,708||1,638||+4.3%|
|Milk margin, M€||797||772||+3.2%|
|Milk return, cents/l||37.9||36.1||+5.0%|
|Milk volume, ML||1,837||1,861||-1.3%|
|Equity to assets ratio||45%||43%||+2.0 percent points|
**Milk margin: Net sales less all other costs excluding the price paid to the owners for raw milk, interest on shareholder loans, depreciation according to plan, supplementary payments to the pension fund, pension contribution refunds, and items not included in actual business operations, such as sales gains from sale of business operations, and provisions. The milk margin includes taxes for appropriations, and the tax effect of Valio Ltd profit less the tax share of the net profit corresponding to the amount of the average dividend percentage from the share capital.
*Milk return: Milk margin less estimated required financing for investments, and the figure is divided by the milk volume taken in from the owners of Valio Ltd.