Growth in retail sales & demand for international industrial products drove Valio’s good result

Growth in retail sales & demand for international industrial products drove Valio’s good result

Photo - Valio

Valio Group net sales in 2021 were EUR 1,918 million, up 6.1% on the previous year (EUR 1,808 million). Domestic net sales increased by 10.9 percent, and international net sales fell by 0.7%. The coronavirus pandemic affected domestic consumption and was visible in the growth in retail sales. HoReCa sales increased considerably with the acquisition of Heinon Tukku. In the challenging situation, the successful business operations enabled Valio to keep the raw milk price paid to the cooperatives higher than the average European price. The milk return increased, as in previous years. In April 2022, the basic raw milk price paid to the cooperatives was 8.5 cents higher than in the previous year.

Valio improved its profitability and recorded a good financial performance in 2021, despite the fact that a second consecutive year of coronavirus impacted Valio’s operations in all markets. At the same time, the dairy product business continued to strengthen: in the domestic dairy market Valio focused on its much-loved consumer brands, and in international markets on value-added ingredients for industrial customers.

Retail sales growth and the acquisition of Heinon Tukku boosted domestic net sales

Valio’s domestic net sales were EUR 1,178 million (EUR 1,062 million). The coronavirus pandemic increased retail sales and our hotel, restaurant and catering (HoReCa) business. People cooked a lot at home, and retail sales continued to grow on the previous year. Eating at restaurants increased in the summer when restrictions were loosened and diners returned to the cities and their workplaces. HoReCa sales increased considerably compared to 2020.

Valio also carried out many strategic undertakings: The Heinon Tukku acquisition, the letter of intent on the production of manure-based biogas with St1 Oy, and the spin-off of the business operations of Valio Oddlygood plant-based products.

“I am especially proud of the fact that we were able for the second consecutive coronavirus year to grow our net sales, strengthen our result, and advance our strategy with determination. We succeeded in securing our employees’ health and, despite the challenging conditions, our personnel managed to keep all Valio’s factories operating normally throughout the year; delivery reliability to customers continuously exceeded 99 per cent,” says Valio’s chief executive officer Annikka Hurme.

The new and innovative Valio PROfeel puddings set new sales records and sliced cheeses continued to gain market share. Valio Oltermanni and Monterey Jack cheeses and the Valio Oddlygood Barista oat drink cinnamon roll flavor became hugely popular.

Stronger demand for international industrial products

Net sales from international operations totalled EUR 740 million (EUR 746 million). Growth was particularly strong in Sweden, where net sales grew by around 10%. Growth stemmed especially from cooking products, Valio Oddlygood products, snacks and Valio PROfeel products.

Demand for international industrial products, that is butter and milk powder, also was strong. By using value-added powders, a chocolate manufacturer, for instance, can reduce the sugar content of its products without changing the taste, or the powder has some other benefit for the customer. The most significant new products launched were Valio Eila NUTRI F+ powder for the Korean company Maeil Dairies, and Valio Eila Pro lactose-free skim milk powder as an ingredient for Nestlé’s baby food powder.

In China, sales continued to grow by about 16%, as in the previous year. In the United States, sales returned closer to the pre-pandemic level.

After the close of the financial period, Valio announced on 7 March 2022 that it will discontinue its business operations in Russia.

Valio pays all its profit to its owners, the dairy farms

Valio is owned by 4,000 dairy farms, and Valio pays its operating profit to the dairy farms through four cooperatives. Valio’s financial success is measured with a milk margin and a milk return. The milk margin amounted to EUR 862 million (EUR 861 million), and the milk return stood at 43.7 cents per litre (41.5 c/l).

Valio switched to a contract production model at the beginning of 2021 in an effort to secure the future of dairy farms. Better predictability of the milk volume is necessary so that Valio can adjust its production capacity to market demand. In accordance with contract production, Valio’s milk procurement cooperatives supply a pre-agreed volume of raw milk to Valio. The average price paid for raw milk was 42.3 cents per litre (40.9 c/l). The price included after payments to dairy cooperatives for 2021. The sustainability bonus to encourage the continuous improvement of animal welfare remained at two cents per litre.

Agriculture’s cost crisis also impacts Valio

In 2021, agriculture faced a drastic cost crisis that is still ongoing. Costs rose substantially in the latter half of the year in particular. The price of fertilisers more than doubled, and major increases were seen in energy and animal feed prices, for example. The higher costs put heavy pressure on dairy farms’ finances. The index of purchase prices for the means of agricultural production (Statistics Finland) hit its highest level in the 2000s.

At the same time, the war in Ukraine is further increasing the already record-high prices of fertilisers, energy and feed. The prices for packaging materials and other raw materials increased globally. With the successful business and the three-year cost savings programme that ended in 2021, Valio was able to increase the price paid for raw milk to the cooperatives by 2 cents per litre from November onwards. We also paid an extra 1.5 cents per litre for ordinary raw milk received in the first half of the year, plus an after payment of 1.2 cents per litre from January–December 2021.

In a challenging situation, successful business operations enabled Valio to keep the raw milk price paid to the cooperatives higher than the average European price in 2021. In April 2022, the basic raw milk price paid to the cooperatives was 8.5 cents higher than in the previous year (source: EU commission).

Science-based climate targets

Valio’s target is to cut the carbon footprint of milk to zero by 2035. The science-based targets Valio set for reducing greenhouse gas emissions received approval from the Science Based Targets initiative (SBTi). Valio has committed to limiting the emissions of its production chain to the level required to keep the global temperature increase to a maximum of 1.5°C, in alignment with the Paris Agreement. Valio Finland’s overall emissions have decreased by about 6 per cent from 2019 to 2021.

Dairy farms now have access to the Carbo environmental calculator that helps them measure their own carbon footprint and find the ways to reduce it. The decrease of dairy farm greenhouse gas emissions are monitored with the CARBO environmental calculator. More than 1,000 farms, i.e. about a quarter of Valio’s dairy farms, calculated their carbon footprint during 2021.

Finland’s first milk truck powered by biogas made from manure started operating in Haapavesi in March 2021. It fills its fuel tank with biogas at the Vuorenmaa dairy farm.

After preparations made in 2021, Suomen Lantakaasu Oy, the joint venture established by Valio and St1, started operating at the beginning of 2022. The joint venture is part of the practical implementation of Valio’s ambitious climate programme. The company aims to process manure from farms into biogas for use by heavy vehicles. The biogas production will decrease fossil fuel emissions from transport, create new business for dairy farms, and increase energy self-sufficiency.

As of the beginning of 2021, all dairy farms met Valio’s sustainability criteria for animal welfare. The sustainability programme will expand in 2023 to cover new measures related to grazing, climate and biodiversity, in addition to the previous measures.

Efficiency improvement programme exceeded its goal

The three-year programme introduced in 2018 to improve cost efficiency came to the end and exceeded the goals set for it. Improving profitability, competitiveness and cost efficiency will continue with the new four-year project.

Year 2022

Year 2022 is continuing to progress along the guidelines of Valio’s strategy. Our goal is that strategic projects will generate new growth for Valio, improve operational efficiency and enhance profitability in the coming years.

The operating environment is still extremely challenging. The global increase in costs is directly reflected in Valio’s production costs. The prices of, for example, the energy, packaging materials and other raw materials used by the plants have risen significantly, and the container shortage is increasing export freight costs. Dairy farms continue to be in an exceptionally difficult situation. Fertiliser and energy prices are expected to remain at record-high levels for at least the first half of the year. Feed prices will likely drop in the summer, when the new feed crop increases the supply of animal feed.

“The coronavirus pandemic is now in its third year. It is important for us to look after the health of our personnel and to maintain production. Valio’s strength is that milk, the most important ingredient of our products manufactured in Finland, is produced locally, at Valio’s owners’ dairy farms. Products are manufactured in 12 plants, which helps to ensure the security of supply. We continue to prioritise people’s wellbeing, serving our customers in all our operations, and working together with cooperatives to support the dairy farms. Our task is to secure the future of Finnish agriculture and to take care of the domestic security of supply,” notes Annikka Hurme.

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