Arla Foods has downgraded its earnings expectations for 2008 as a result of the value of raw milk dropping “rapidly” after four years of gains.
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The company said that developments in the second half of the year have had a “serious impact” on earnings. As a result, Arla has lowered its profit forecast of DKK900m to DKK600-700m.
Consumers opting for cheaper dairy products had a “strong” impact on the company’s business, Arla said, while earnings were also hit by losses on securities as a result of the general fall in share prices and foreign exchange adjustments.
The market situation also changed from a global shortage of milk in 2007 to a milk surplus at the end of 2008, which caused global prices to fall. The trend was further intensified by the financial crisis.
Other factors include provisions for losses in the Chinese market as a result of the melamine crisis.
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By GlobalDataArla’s reduced earnings mean that the amount available for distribution is expected to fall from DKK15.6øre to DKK10-12øre 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 CEO Peder Tuborgh.
“The economic crisis is developing dramatically. As we’re preparing the budget for 2009, it seems that we’re taking a snapshot that may be superseded by subse-quent events,” added CFO Jørn Wendel Andersen.
