Milk Price Downturn Hits Arla Profits

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

27/02/09 Arla's profits for 2008 total DKK 556 million, DKK 350 million below budget. Although the milk price (including the supplimentary 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 co-operative members is lower than expected at DKK 0.022 pr. kilo 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 has been 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 co-operative 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. 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). Arla’s milk price for 2008 (including the supplimentary 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.