Better than expected result

Arla Foods’ result for 2004/05 totalled DKK 801 million, which is an advance of approx. 10% compared to the expected DKK 722 million.

Thus the result for the second half year exceeded expectations. On the basis of this, Arla Foods’ Supervisory Board recommends to the Board of Representatives that a supplementary payment of 5.88 øre per kg milk be paid to Arla’s co-operative members, bringing the overall payment for the year per kg milk to DKK 2.28.

The advance derives, in particular, from certain export markets which have seen earnings as well as volume increases for speciality cheese and milk powder. Implemented efficiency measures under the Group’s structural programme have also contributed to lower costs and thus to the result for the year.

Compared to the 2003/04 result of DKK 1.019 billion , the outcome shows a fall of approx. DKK 200 million, of which the major part is due to the impact of the second phase of the EU’s agricultural reforms. Falling foreign exchange rates also had a negative impact, particularly at the beginning of the year.

Arla Foods recorded a decline in turnover of DKK 900 million from DKK 47.3 billion in 2003/04 to DKK 46.4 billion in 2004/05.

The fall in turnover is largely due to two factors – the disposal of a number of non-core businesses such as Cremo, AM Foods and Danapak, and the general price fall in the international food industry and the European dairy sector as a result of Europe’s agricultural reforms.

Over the coming years, the reforms will transform the EU’s agricultural subsidies, including a tapered reduction of export subsidies to dairies, which will partly be compensated for by direct subsidies to farmers. A knock-on effect of this is that price competition will harden across all EU markets.

Arla Foods’ Chairman Knud Erik Jensen is confident that the Arla Group is well placed for future competition in the market place.

“In recent years we have undertaken a number of long-term investments as a result of which we are now a healthy business,” he says.

Knud Erik Jensen, however, is well aware that the Arla Group must deliver a strong performance in order to maintain the milk price at its current level in the next financial year.

“The Supervisory Board will support the management in its efforts to maintain the current level for the milk price,” the Chairman stated.

“We are a market and consumer-oriented business and we’re obviously satisfied with a result which is 10% above our expectations,” commented Managing Director Peder Tuborgh. “In order to secure an unchanged milk price in 2006, we must continue to strengthen our product development and our brands through tighter operational controls and focus on costs.”

The Supervisory Board’s recommendations will be presented to the Board of Representatives at their meeting in Halmstad on December 15 and 16.