Valio Group key figures

Owned by 18 Finnish dairy co-operatives, Valio is a company whose goal is to add value to the milk produced by its owners. Valio collects around 85% of all raw milk in Finland, its milk production employing 30,000 people.

Valio’s entire profit goes to milk producers

Valio’s entire profit goes to milk producers

Owned by Finnish milk producers

Valio Ltd is a company owned by 18 Finnish dairy co-operatives and collects around 85% of all Finnish raw milk. Valio Group comprised 9 dairy co-operatives with around 8 000 milk producers at the end of 2012, while the total number of milk producers in Finland was some 9 300.

Valio’s financial success is measured by the value added to the milk produced by the owners that have a business relationship with Valio, expressed as the milk return* which goes to Valio dairy farms in the form of the price paid for raw milk. Valio does not strive to make a profit for the company, but to pay its producers a price for raw milk on a par with the best European dairies.

Valio’s year 2012 was a success

The market success of Valio products benefits Finnish milk producers and the whole of Finland, since Valio pays all the profits it generates to its owners, Valio Group milk producers. Through the price paid for raw milk to producers and the operations of 15 Valio plants, well over one billion euros stays in Finland as a result of Valio’s operations.

In 2012, Valio paid its dairy co-operatives 46.7 cents per litre (including after payment) for their raw milk, the highest price in the company’s history and 2.6 cents higher than in 2011.

The money paid to the owners in 2012 amounted to 883 million euros (2011: MEUR 836).

The milk margin* stood at 991 million euros and the milk return** increased to a record high of 46.6 cents/litre.

Valio Ltd is a company owned by 18 Finnish dairy co-operatives whose procurement share of Finnish raw milk is around 85%. In 2012, Valio took in 1 865 million litres of milk.

Valio’s financial success is measured by the value added to the milk produced by the owners that have a business relationship with Valio, expressed as the milk return* which goes to Valio dairy farms in the form of the price paid for raw milk.

Valio does not strive to make a profit for the company.

* 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.

Milk is an important source of livelihood in Finland

Milk is an important source of livelihood in Finland

Grass grows all over Finland to feed the country’s cattle and there is a plentiful supply of clean drinking water.

Income from dairy farming accounts for over 40% of that from all agriculture in Finland. In Kainuu and Lapland, almost 90% of agricultural income comes from dairy farms’ milk and beef production.

The share of income derived from milk is over 65% in Ostrobothnia and the area east of Central Finland.

Dairy farming directly or indirectly employs tens of thousands of people, especially in sparsely populated areas.

Energy and silage prices continued to rise in 2012, by 10–20% depending on the silage type. The rise in silage prices that started in 2009 has continued for an exceptionally long period without interruption.

Preliminary accounting data indicate that the milk production profitability factor* increased in 2011 on the previous year to 0.59 (2010: 0.58).

The forecast for the production profitability factor in 2012 at dairy farms is 0.66, which indicates positive development, considering e.g. the increase in silage prices.

Measured by the production profitability factor, milk is the second most profitable form of agricultural production after poultry farming.

The average profitability factor for different types of agricultural production was 0.49 in 2011, and the forecast for 2012 is 0.55.

The size of the grass silage crop of summer 2012 was good, but in places wet conditions hampered harvesting and deteriorated quality. The digestibility of silage, especially that from the spring harvest, improved in comparison to 2011.

In places, especially in Central Ostrobothnia and Northern Finland, rainfall seriously hampered both the spring and summer silage harvest.

* The profitability factor indicates the share of the required wage for farmers (EUR 14.5/hour) and return on equity (5.3%) realised (Taloustohtori 2012).

Annual Report

Annual Report

Once the company’s own costs are deducted from net sales, the resulting figure is the milk margin, which is a significant performance indicator, on the basis of which the price paid for raw milk to Valio milk producers is calculated. Valio’s milk margin grew by 3% to 991 million euros (2011: MEUR 963).

Valio generated a record high milk return** of 46.6 cents/litre (2011: 45 c/l) for the milk produced by its owners. The milk return exceeded the average price of raw milk in Europe by 11.9 cents.

Import competition continued to fiercen – Valio was accused of underpricing

Competition in the Finnish dairy product market fiercened in 2012. The share of imported cheeses rose to around 50% of consumption. The share of imported yoghurts remained at under 30%.

Valio continued to lose sales volumes in the basic milks markets, but the basic milks business remained profitable.

Valio received a decision from the Finnish Competition Authority (FCA) in December 2012 stipulating that the company should cease activities which the FCA interprets to amount to restrictive trade practices.

In the FCA’s opinion, the wholesale prices of Valio’s basic milks were lower than the cost of producing those basic milks, as calculated by the FCA. Due to the FCA’s decision, Valio had to raise the prices of basic milks by around 30% as of the beginning of February 2013.

Valio contests the FCA’s allegations. Valio’s basic milks business is profitable to the company.

Valio’s investments totalled around 105 million euros. The company’s solvency is strong. The asset/equity ratio stood at 47%.

Russia and Sweden are the engines of international sales

The majority of growth in international sales stemmed from Russia and Sweden.

Valio net sales in Russia increased by around 10% to 341 million euros (2011: MEUR 310) and in Sweden by around 10% to 85 million euros (2011: MEUR 77).

In Estonia, Valio is a major player in fresh dairy products and the biggest cheese producer. Operations there reached a high level of profitability. In Estonia, Valio mainly processes local milk for the Baltic and Russian markets.

In the market for demineralised whey powders (Valio Demi™), Valio is one of the three major players worldwide and in the largest market area in China. Valio Demi™ powders are employed e.g. as ingredients in baby's milk formulas.

Valio net sales in China increased by 63% to 41.4 million euros (2011: MEUR 25.4).

Globally Valio invests in the commercialisation and market specific conceptualisation of health and well-being products such as functional lactic acid bacteria LGG®, and lactose free items, and invests in ingredients sales.

* 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.

Investments 2012

Investments 2012

Preliminary planning commenced for a new production plant in Riihimäki– the biggest investments in Lapinlahti

The planning process will take 2–3 years, during which time the different alternatives for the development of the Valio Riihimäki dairy will be specified.

Valio’s investments in 2012 totalled around 105 million euros, of which 93.5% were allocated to Finland.

In Finland, the most significant investments were the new ingredients plant which reached its rooftop height, and the new boiler plant using Finnish fuel. Both are being built on the site of the Valio Lapinlahti plant.

The work on raising production capacity for Valio Oltermanni® cheese at the Valio Haapavesi plant was completed.

Warehousing and production facilities were expanded at Valio’s newest dairy in Oulu, which celebrated its 30th anniversary in 2012.

Management of waste water loading enhanced

Valio’s environmental investments amounted to 3.4 million euros.

For instance, waste water management at the Haapavesi plant, and waste water loading management at the Suonenjoki plant, were improved.

In addition, production energy efficiency was improved by investing in a lost heat recovery system at the Seinäjoki and Lapinlahti plants.

Valio has 15 production plants in Finland, two in Estonia, and one in Moscow. Valio sold its Belgian subsidiary Valio Vache Bleue to that company’s management on 6th July 2012. Valio had owned the company since 1996.