2008 – a good year that ended in difficult circumstances

Arla's profits for 2008 total DKK 556 million, DKK 350 million below budget. Although the milk price (including the supplementary payment and consolidation to member’s capital account) for the cooperative milk producers in 2008 was the highest ever, amounting to DKK 2.5 billion more than in 2007, the result is not satisfactory, according to Peder Tuborgh, CEO of Arla Foods.

As a result of Arla not achieving the budgeted profits of DKK 900 million, but only the DKK 556 million, the supplementary payment to cooperative members is lower than expected at DKK 0.022 per kilo of milk.

Commenting on the results, Peder Tuborgh says:  "The financial crisis, which has also put the milk market under considerable pressure, has clearly impacted on the year's result.  Contributory factors also include the decline in foreign exchange rates, consumers buying less and opting for cheaper products, and milk supply exceeding demand.  The final months of the year were worse than feared and as a consequence we had to downgrade our expectations for the year in December 2008.

“Although 2008 got off to a fairly good start, in global terms, the trend over the last six months of 2008 was uniformly downwards: towards historically low milk prices. This has impacted on all dairy companies, including Arla and its co-operative members.

"The total milk price paid to Arla’s cooperative members in 2008 is good, but this is in strong contrast to the current price which is under heavy pressure.”

Jørn Wendel Andersen, Group Finance Director, comments:  "The result of DKK 556 million for 2008 is lower than it has been for many years. If the milk price paid to co-operative members had been reduced further during the autumn, the result would have been higher. Nevertheless, in view of our owners' financial situation, it was a question of keeping the milk price high for as long as possible.”

Despite the financial crisis and the significant fall in exchange rates, Arla's turnover increased by four per cent* from DKK 47 billion in 2007 to DKK 49 billion in 2008.  Arla’s milk price for 2008 (including the supplementary payment and consolidation to member’s capital account) set a new record of DKK 2.82 against DKK 2.47 in 2007, a rise of 14 per cent.

* had foreign exchange rates remain unchanged, the increase in turnover would have been nine per cent.  (Arla’s result is significantly negatively affected by the falls in sterling and the Swedish krona).

UK overview

In the UK, Arla increased its milk price to Arla Foods Milk Partnership members by 2ppl during 2008.  The delay in recovering inflationary costs from the marketplace and maintaining the milk price to AFMP members, despite the fall in commodity prices, has impacted on profits for the year which are lower than forecast.

Throughout the year we made good progress on the strategy which is being executed on plan. We have strengthened our relationships with our customers and continued to deliver good growth for all of our leading brands, with Cravendale growing by 30 per cent and Lurpak by 20 per cent.  We have also further developed our relationship with our supplying farmers who, through a joint venture with Arla Foods amba, now own a share in Arla Foods UK plc.

Investment at our dairy at Stourton, Leeds, to install the world’s largest milk filling machine, has increased capacity at the site to process over 600 million litres of milk per annum and has allowed us to close our dairy in Manchester. A further £70 million investment at Stourton was announced in January 2009 which will see Arla UK manufacture cottage cheese for the first time.  The investment will also allow us to transfer production of cream, crème fraîche and soured cream to a new processing facility at Stourton.  We have also closed our distribution centre at Sheffield Park, near Uckfield, to further improve efficiencies in our supply chain.

Each of our processing facilities is accredited to ISO 14001 and OHSAS 18001 environmental and health and safety standards; accreditation that we first achieved in September 2007.  In line with our global strategy of reducing greenhouse gas emissions within production, transport and packaging by 25 per cent by 2020, we continue to make significant progress.  In addition, we are focused on achieving zero waste to landfill with every opportunity taken to recycle materials and, where this is not possible, to recover energy from waste.