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Developments in the second half of this year have had a serious impact on earnings at Arla Foods. As a result, the Danish dairy company has downgraded its expectations for 2008 from profits of approx 900m DKK to 600-700m 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 currencies: Sterling and 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 and the provision 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 intensified by the financial crisis,” said Arla Foods CEO, Peder Tuborgh.

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 Representatives’ 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 As we are preparing the budget for 2009, it seems that we are taking a snapshot that may be superseded by subsequent events,” said CFO Jørn Wendel Andersen.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.