Arla Foods’ Chairman Expresses Cautious Optimism 

05/03/07 Arla Foods recorded profits of DKK 933 million (£85.4 million) for year ended 31 December 2006, compared with DKK 30 million (£2.74 million) for the previous year. This is significantly better than expected even after the revised projections following the boycott in the Middle East. The result is strongly affected by extraordinary income.

Arla Foods’ Supervisory Board are recommending to the Board of Representatives a result based on a milk price of 2.2666 DKK per litre.

The consequences of the consumer boycott in the Middle East at the start of the year 2006 had a negative impact on co-operative owners’ earnings of DKK 450 million which was offset by extraordinary income from the disposal of companies and properties.

”All things considered, and here I’m particularly referring to the widespread and unforeseen consumer boycott in the Middle East, we can take satisfaction in the year’s result,” says Arla Foods’ Chairman Knud Erik Jensen who adds that the EU’s common agricultural reforms continue to have an adverse impact on the result.

“With regard to the Middle East, the outcome has been slightly worse than expected last spring,” adds Knud Erik Jensen. “However, the fact that we’re back in the Middle East and expect to return to previous levels of sales by the end of 2007 gives us grounds for cautious optimism”.

A series of cost-cutting measures have had a significant impact. By contrast, the continued reduction in the EU’s export subsidies and increasing competition in home markets and in Europe have impacted negatively on the result.

Against the backdrop of the boycott in the first three months of 2006, Arla Foods reduced the on account payments to co-operative owners on 1 April 2006. This contributed to the net result by approx. DKK 155 million (£14.2 million).

Group CEO Peder Tuborgh notes that: “Operating profits were significantly affected, owing to the Middle East boycott and the competitive situation in Europe which viewed in isolation is unsatisfactory. Overall, however, the result is satisfactory. It is gratifying that the company has been able to return to the Middle Eastern market and to implement the strategy as planned. The strategy aims at the continued strengthening of the core business and disposal of non-core activities. Both factors have impacted on the result.”

The year end 2006 accounts are Arla Foods’ first based on the calendar year. Below are the comparative figures for the adjustment period and for the previous financial year.