Arla Downgrades 2008 Result, as Hirtshals Joins

The market situation changed from a global shortage of milk in 2007 to a milk surplus at the end of 2008, which caused global market prices to fall. Other factors include provisions for losses in the Chinese market as a result of the melamine crisis.

10/12/08 Developments in the second half of this year have had a serious impact on earn-ings. As a result, Arla has downgraded its expectations for 2008 from profits of approx. 900 million DKK to 600-700 million DKK.

The financial crisis is affecting Arla in several ways: During this autumn, it became clear that the financial crisis had developed into an economic crisis with consumers opting for cheaper dairy products and, in certain markets, avoiding buying them altogether. The latter especially has had a strong impact on Arla’s trading business.

In addition, earnings were hit by losses on securities as a result of the general fall in share prices and foreign exchange adjustments in relation to Arla’s two main cur-rencies: Sterling and the Swedish Krona.

Also, the market situation changed from a global shortage of milk in 2007 to a milk surplus at the end of 2008, which caused global market prices to fall. The trend was further intensified by the financial crisis.

Other factors include provisions for losses in the Chinese market as a result of the melamine crisis.

Arla Foods wants to maintain the on account price throughout the year, but the reduced earnings mean that the amount available for distribution is expected to fall from 15.6 DKK øre to 10-12 DKK øre per kg milk.

“At the beginning of the autumn, we still believed that we would meet the budget. In recent months, however, global market prices for milk have fallen at a rate that nobody could have predicted only a few months ago - a fall that has been intensi-fied by the financial crisis,” says CEO Peder Tuborgh, Arla Foods

The Board of Directors will assess the situation when the annual accounts for 2008 are available and will propose how profits should be allocated at the Board of Rep-resentatives’ meeting in early March.

To alleviate the effects of reduced earnings, the leadership will be focusing on cost savings in its 2009 budget.

“The economic crisis is developing dramatically. As we’re preparing the budget for 2009, it seems that we’re taking a snapshot that may be superseded by subse-quent events,” says CFO Jørn Wendel Andersen.

At its meeting in January, the Board of Directors will consider the budget for 2009 and a reduction in the Arla price.

Meanwhile in its search for a solution to the financial challenges ahead, Hirtshals Co-operative Dairy has approached Arla Foods with a view to merging the two companies.

This means that Hirtshals Co-operative Dairy’s co-operative members will be offered membership of Arla Foods following a takeover of Hirtshals by Arla Foods.

Hirtshals Co-operative Dairy’s Board of Directors will present their decision to the dairy’s co-operative members at an extraordinary meeting on 18 December.

Hirtshals Co-operative Dairy has also decided to close down production at Ingstrup dairy and to suspend operations at the end of this week. Ingstrup Dairy’s employees were in-formed at a meeting on Wednesday morning.

The Chairman of Hirtshals Co-operative Dairy, Cyril V. Post, welcomes the fact that the dairy’s future has been settled and accepts that it would have been hard to raise the fi-nance to solve the problems in the current economic crisis.
 
”We stand to lose 30-40 per cent of our milk from the end of 2008 because several co-operative members have given notice of their intention to resign,” says Cyril V. Post. “The financial crisis is also causing many consumers to opt for cheaper products. As this is an area we don’t cover, our financial situation has been extremely difficult.”

“In this situation, we are pleased that our approach to Arla Foods has been successful and that the dairy will now continue.”

Arla Foods intends to maintain Hirtshals Co-operative Dairy and will, together with the dairy, evaluate its production and dairy products.

”Hirtshals Co-operative Dairy has some interesting products,” says Lars Aagaard, Director of Arla’s Danish business. “We will now look into the opportunities for regional milk from North Jutlandian farmers. We will also ensure that it is still possible to buy milk from Hirtshals with the lighthouse on the carton.”