Valio’s difficult year 2014

The period from August 2014 to the year-end was extremely challenging for Valio Group due to a number of simultaneously unfavourable factors. The decrease in net sales and product profitability resulted in Valio lowering the price paid for raw milk to dairy co-operatives and a reduction in the number of Valio personnel.

The favourable development of exports to Russia collapsed in early August due to the import embargo, and hundreds of millions of litres of milk had to be processed into industrial butter and milk powder for world markets, the prices of which were at a record low. Valio was hit by far the hardest of all companies in Finland by Russia’s import restrictions.

Competition was also tight In Finland: Valio’s market share in basic milks fell below 30% because the company is not permitted to engage in price competition on market terms. 47% of the cheese consumed in Finland was imported, and Valio is now the only major domestic player making cheese from Finnish milk in Finland.

The economic situation in Finland made consumers focus even further on inexpensive products.

Due to the changes in the operating environment listed above, Valio’s capacity to pay its owner co-operatives for raw milk weakened, and consequently the price paid by the co-operatives to the milk producers also fell. Valio pays the profit accrued from its operations to the milk producers through the dairy co-operatives.

Valio’s strengths last year were again value added and new products, which generated increased sales in Finland and Sweden. Valio Hyvä suomalainen Arki® milk drink with a standardised protein content was a success in Finland, while Valio cheeses received recognition in terms of e.g. Alppi Kreivi® winning first prize in the Nordic cheese quality contest.

Valio key figures 2014

Valio Group net sales for 2014 stood at 1 950 million euros (2013: MEUR 2 029), down 3.9% on the previous year. Net sales decreased by 9.0% in international markets and 0.8% in Finland. The Valio Group milk margin** stood at 974 million euros (2013: MEUR 1 026).

The Valio Group milk return* fell to 43.7 cents/litre (2013: 48.0 cents/litre), while the price paid for raw milk stood at 45.4 cents/litre (2013: 47.5 cents/litre). The collapse in the latter half of the year is not fully visible in these figures as they are distorted by a record-high first half.

Loans from financial institutions at the end of 2014 totalled 290 million euros (2013: MEUR 194). Valio Group’s equity/assets ratio was 42% (2013: 47%). Investments totalled 152 million euros (2013: MEUR 118).

The milk volume taken in by Valio from its owners totalled 1 929 million litres (2013: 1 888 million litres).

In 2014, Valio paid Finnish milk producers 885 million euros (=45% of net sales), down 22 million euros on the previous year. Valio Group milk producers numbered 7 100 at the year-end.

Around 35% of Valio net sales were generated from exports and in the subsidiaries. The value of Valio’s exports* stood at 450 million euros. Valio is the biggest food exporter in Finland, and Russia was the company’s biggest export market. Valio Russia’s net sales for 2014 stood at around 258 million euros, which according to an estimate made in the summer would have exceeded 400 million euros under normal conditions. Russia accounted for 37% of Valio exports in 2014.

(*Valio exports = Product manufactured in Finland and exported).

Valio’s profit is paid to Finnish milk producers

Valio is a company owned by Finnish milk producer co-operatives and through them by the milk producers themselves. Valio’s mission is to process the milk produced by its owners that have a business relationship with the company as profitably as possible, and pay the return on operations to the milk producers. Valio’s most significant key figure is the milk return generated by the company, on the basis of which the price paid for raw milk is determined. Valio does not strive to make a profit for the company per se.

Dairy farming is the most important source of agricultural income in Finland, and milk production also supports a number of related businesses and professions. Valio’s 15 production plants in Finland, milk collection and product distribution operations, and Valio Group milk producers, employ a total of nearly 30 000 people in the country.

**Milk margin = Net sales less other costs excluding depreciation and the price paid for raw milk and interest on shareholder loan paid to owners.

*Milk return = (Milk margin less the requirement for depreciation of fixed assets i.e. financing requirement for investments) / milk volume supplied by the owners.

Helsinki, 3rd March 2015

Pia Kontunen
Vice President, Corporate Communications
Valio Ltd