The year's budget reflects the strategy - and the crisis

A milk market under pressure and the financial crisis are having a serious impact. Arla's budget for 2009 is tight and the price paid to co-operative members will be reduced to 232.4 øre per kg milk. The strategy, however, will bring Arla further forward.

On Thursday, Arla Foods’ Board of Directors approved the budget for 2009. Reflecting the company's new strategy, the budget focuses strongly on certain selected markets and products while other areas will have lower priority.

”Because 2009 will be a difficult year, we must concentrate on two areas," CEO Peder Tuborgh, says. "On the one hand, we must continue to pursue our chosen strategy, a strategy in which we have confidence, and on the other hand, we must control our costs and generate savings wherever we can. We believe this is the way to get through the current slow-down. In other words, we have weighed the short-term challenges against our long-term, strategic ambitions and found a sensible balance based on the goal of securing the best possible earnings.”

Arla Foods' aim of paying one of Europe's highest milk prices will be achieved through a policy of tight, targeted financial management, Peder Tuborgh says.

”All parts of the business will have to be made more efficient and productivity will be improved in order to minimise cost increases at a time when, unfortunately, we can expect turnover to fall," he warns.

Reduced Arla price
In addition to approving the budget for 2009, the Board of Directors have decided to reduce the so-called "Arla price", the price paid to the group's co-operative members, to 232.4 øre per kg milk supplied to the company.

”In terms of price, we have returned to the period prior to the major price increases in the summer of 2007,” Peder Tuborgh adds. "Although this represents a dramatic fall, we cannot allow the global crisis to deflect us from our objectives. Regardless of the difficult market conditions, we must continue to develop the business and increase profitability. The fact that we have a strong company and a strong strategy will see us through."

Arla Foods’ Chairman, Ove Møberg, admits that the global crisis is having a serious impact on co-operative members.

”The reduction in the Arla price is a very large fall which will increase the financial pressure on many of them," he says. "The members work hard and the dairies are extremely efficient but we're affected by external factors that are difficult to influence. While highly regrettable, the reduced price is, unfortunately, unavoidable," he says.

Factors affecting Arla's earnings:
The global financial crisis means that:
· Consumers are buying less or going for discount products.
· Global milk prices are declining
· Historically large fluctuations in foreign exchange rates
· Tougher competition in the retail sector

Main points of Arla Foods’ Strategy 2013:
· Highest possible milk price
· The best dairy company for 250 million consumers in Northern Europe including the UK
· Added value whey proteins
· Three global brands: Castello, Lurpak and Arla
· Turnover: DKK 75 billion by 2013

Key figures 2009:
· Budgeted net turnover: DKK 47 billion
· Budgeted net profit 2009: DKK 899 million
· Current Arla price: With effect from Jan 1, 2009, the Arla price will be reduced to DKK 232.4 (SEK 303.5) for conventional milk and DKK 300.3 (SEK 429.0) for organic milk