Directors of Arla have proposed to pay out the firm's entire 2018 net profit to the firm's farmer-owners in a bid to ease drought pressures.

It comes following a strong balance sheet across the group.

A spokesman for the firm said the board recognises that many of its suppliers are facing a tough financial situation due to this summer’s drought in Europe and that it is in Arla’s "best interest" for this year’s net profit to be paid out to the farmers.

Arla's Board of Directors has discussed and agreed on a proposal which will take effect when the annual results are approved early next year, thus making a one-year deviation from the company's usual profit appropriation policy.

Arla Foods chairman Jan Toft Norgaard said: "As a farmer-owned dairy company, we care deeply about the livelihood of our farmers and we recognize that this summer’s drought in Europe has been extraordinary.

We are proposing that extraordinary measures be taken in this situation, and the board is satisfied with the positive development of the company's balance sheet, which makes this proposal possible.

Potential pay-out in March 2019

The proposal will be discussed at the next Board of Representatives meeting in October. Based on this discussion, the board expects to bring the proposal forward for a final decision at the meeting in February 2019 when the annual results are approved.

The amount of this payout remains subject to there being no material changes to the profit level or financial outlook at the end of the year.

If approved, the extraordinary payment will follow the regular timing of the supplementary payment in Arla, with money being paid out in March 2019.

Also included in the proposal is the pre-requisite of a clear commitment to return to the company's existing retainment policy for the remainder of the current strategic period, affecting the financial years of 2019 and 2020.

"Our balance sheet has improved significantly over the last few years, and the strength of our balance sheet makes room for this extraordinary initiative while still maintaining our investment plans for the continued future growth of the company.

"If the board's proposal is approved, our financial ratios are expected to remain within the target range, provided there is a firm commitment by the Board of Representatives to return to the agreed retainment policy after 2018," said Arla Foods chief executive Peder Tuborgh.

For 2018, Arla expects net profit to be within the target range of 2.8-3.2% of group revenue. The company typically only pays out any profit above that level.

Arla Foods is a cooperative owned by dairy farmers in the UK, Denmark, Sweden, Germany, Belgium, Luxembourg and the Netherlands, countries which have all been affected by this summer's drought in Europe.

All earnings in 2018 will be paid as a supplementary payment; expected to be in the range of €285-310 million or equivalent to 2.3-2.5c/kg milk.