Arla Foods amba Annual Report 2001/02 Skanderborgvej 277 DK-8260 Viby J. Denmark
tel. +45 89 38 10 00 fax +45 86 28 16 91 e-mail [email protected] www.arlafoods.com
CVR-nr. 25 31 37 63
Design, production & print: Datagraf Auning AS, Denmark Annual Report 2001/02 Contents
Key figures ...... 2 Managing financial risk at Arla Foods ...... 38 The Chairman’s report ...... 5 Accounts ...... 40 Report ...... 6 Accounting policies ...... 41 Changes in the production structure . . . 10 Profit & loss account ...... 45 Market reports Home markets ...... 13 Balance sheet ...... 46 European markets ...... 17 Overseas markets ...... 20 Equity movements ...... 48
Ingredients for the food industry ...... 24 Cash flow statement ...... 49
Relations with co-operative owners . . . . 25 Notes ...... 50
Innovation ...... 27 Group companies ...... 56
Environmental considerations ...... 28 Arla Foods’ Supervisory Board ...... 58
Subsidiaries ...... 30
The people behind Arla Foods’ products. Lars Wamberg met some of them in Sweden, the UK and Denmark and photographed them in typical working situations. The photos were all shot under available light. Front cover: Jessica Russo, 22, a machine operator at Gothenburg Dairy for the past year, works with The product photos show some of the year’s new products. production of drinking milk and yoghurt. The numbers refer to the back flap of the report where there is a short description of the products.
3
The Chairman’s Report
As a milk producer myself, I can the merger agreement, will adopt agricultural policies of the future, confirm that earnings from prima- a common milk price for co-oper- including the EU’s expansion ry production remain under pres- ative owners in both countries. towards the East and the mid-term sure. Nevertheless, at the same The work regarding the com- evaluation of the reform of the time, as Arla Foods’ owners we pany’s capital structure is proceed- Common Agricultural Policy. should be pleased that our com- ing within the Board as well as in For Arla Foods, the EU Commis- pany has achieved a result which the Consolidation Commitee. The sion’s proposals for an environ- few international dairy groups can answers to questions as to whether ment and agriculture-related redi- match this year. part of the equity capital should be rection of farm subsidies to more As the international market for individual and, therefore, transfer- direct subsidies to farmers will be dairy products continues to be red to co-operative owners’ ac- of crucial importance. characterised by tough competition, counts is greatly dependent on the Yet another important issue we’re compelled to follow the course fiscal consequences and we’re stems from the phasing out of the outlined in our strategy plan. We currently awaiting the Danish and milk quota system. If this were to have, however, proved our ability Swedish tax authorities’ proposals take place without compensation, to operate a profitable business – on this issue. it could lead to dramatic falls in both under last year’s favourable One pre-requisite is that, after milk prices. We are committed to market conditions and under this October 1, the joint company will working towards a solution in year’s more difficult circumstances. receive the milk and pay the com- which Denmark and Sweden obtain Arla Foods is now firmly placed mon milk price instead of the cur- similar terms as those of our on the map of the global dairy rent situation whereby the process colleagues in other countries. industry. The decision to embark is conducted by the two original During the year Arla Foods took on a cross-border merger has, companies. Clarification of the tax leave of a number of co-operative therefore, proved to be correct. consequences is crucial to the owners who ceased producing In March 2002 we decided to further work on the cross-border milk. New co-operative owners introduce a new, common milk merger and for the dismantling of have, however, joined us and we pricing system with effect from, the two national companies, Arla wish to welcome them to the and including, October 2003. Made ek.för. and MD Foods amba. company. as part of the ongoing harmonisa- During the year many co-opera- This welcome, of course, also tion of the payment system, the tive shareholders engaged in the extends to the 106 milk producers decision reflects the market’s re- debate concerning the quality from Hellevad Omegns Co-opera- quirements with regard to the fat programme for the entire value tive Dairy who joined Arla Foods’ and protein content of milk. Conse- chain from farm to table. This has on October 1, 2002. quently, the year saw the imple- provided us with a better under- The budget for 2002/03 is an mentation of extensive prepara- standing of the market’s demands ambitious one, which, despite the tions needed for creating common on milk producers. The discussions uncertainties in the markets, will terms and conditions for all our will continue right up until June allow us to pay a competitive milk co-operative owners. 2003, when the Board of Repre- price. Consequently we are well As we have now concluded the sentatives is expected to make its prepared for the challenges facing second year after the merger, much decision on the quality programme. us in the coming year. focus will be on October 1, 2003 The months ahead will also give a
when Arla Foods, in keeping with better insight into the shape of the Lars Lamberg ➜ At the Samden milk powder factory, trainee Palle Hvid Rasmussen is inspecting spray tower 1 to ensure that there are no lumps in the powder and that the powder layer is correct. Palle Hvid Rasmussen, 30, used to work at Fredericia and Taulov Dairies, but in December 2001, he began to train as a dairy expert.
5 Report
Despite the international economic partly as a result of increased Argentina was selected because of slowdown, Arla Foods succeeded supplies of bulk cheese and partly its extensive cheese production and in maintaining last year’s milk price because the launch of the euro large underexploited raw material paid to its co-operative owners. In generated some caution among, in base. view of the downturn, the result particular, German consumers. In the field of ingredients, a for the year should be regarded as Sales in the US and the Middle 50/50 joint venture with Germany’s highly satisfactory. East were satisfactory and sales in Nordzucker, Europe’s fifth largest While other dairy companies in South East Asia, with the excep- sugar producer, was formed for Europe as well as countries outside tion of Japan, give grounds for production of the sweetener Gaio Europe have cut milk prices by up believing that satisfactory earnings tagatose. Production is expected to 25%, Arla Foods proved more are achievable in the region and to start in the summer of 2003 at resistent to falling world prices for that prospects are good. Nordzucker’s plant in Hannover. dairy products thanks to a good 2001/2002 was a particularly If successful, the next step will balance between bulk products difficult year in respect of market be to establish a tagatose plant and brands. The rate for two of conditions in Brazil and Argentina at Arla Foods’ dairy in Taulov in Arla Foods’ main currencies, USD where the sales office in Buenos Eastern Jutland dollar and GBP, however, fell during Aires was closed down. A major Some key decisions were made the second half of the year. reorganisation of the Brazilian sales with regard to Arla Foods’ third Developments in Arla Foods’ company is being implemented. domestic market, the UK, during two large domestic markets were the year under review. In October characterised by considerable The strategy plan 2002, it was decided to build a pressure and increased competi- In consequence of the 2001 stra- new liquid milk dairy in Leeds as tion, not least in Denmark where tegy plan, Arla Foods implemented Arla Foods’ existing dairy in the the retail trade continues to focus a number of activities during the centre of the city did not allow for on own label products. In addition, financial year. further expansion. The new dairy, there is growing concern about The construction of a whey pro- which will be sited adjacent to the stagnating sales of organic milk. In tein factory in Argentina in a joint recently built warehouse at Stour- 2001/02, Arla Foods utilized only venture with Argentina’s largest ton, is expected to be commissio- around 30% of organic milk as dairy company, SanCor, is comple- ned in October 2004. Having “organic” with the remainder sold ted and the factory was commis- scope for further expansion, the as conventional milk products. sioned in September 2002. This dairy will be able to play a role in In general, the market position investment will contribute to any future rationalisation of dairy in Sweden was maintained and strengthening Arla Foods’ position production in the UK. good earnings were achieved. as a leading global supplier of The packing and production of A satisfactory result was achiev- whey proteins to the food industry. approx. 35,000 tons butter and ed in the UK both in terms of the The raw material base has already spreads from the New Zealand local milk business and imports been fully utilized in Sweden and dairy company, Fonterra, was from Denmark. Denmark and, in order to develop transferred from the company’s European export markets expe- this area further, it is necessary to UK plant to Arla Foods’ production rienced more pressure on prices, expand production elsewhere. facilities in Varde in Denmark and
6 Götene in Sweden. This is part of sales of milk from newsagents and this poses new demands on the the joint venture with Fonterra that service stations. Arla Mini is now traditional types of home-orienta- came into force last year. To ensure a realistic and healthy soft drink ted dairy products. a smooth running-in phase consider- alternative. able resources were required. In general, Swedish milk con- The structural plan After the close of the financial sumption has stabilised following During the year, substantial year Arla Foods acquired the UK several years of decline. The progress was made with the very cheese importer, H.T. Webb, whose increased consumption has, in comprehensive plan for the range of speciality cheese will part, been driven by popular coffee group’s post-merger operational broaden Arla Foods’ product port- bars’ sales of coffee drinks with structure aimed at maximising the folio and strengthen its position in milk. Although the trend has not synergies arising from the merger. a rapidly growing market segment. had a similar impact in Denmark, To date, the Board has approved In Denmark, Arla Foods acquired the launch of minimilk (with 0,5% 12 of the plan’s 18 projects and 50% of the share capital of Cocio fat) in 2000 has led to a reorien- the entire process is expected to Chokolademælk A/S with effect tation of the Danes’ milk-drinking be concluded during 2005. Finan- from March 1, 2002. Before the habits towards reduced fat. cing costs for the plan are expec- deal, Arla Foods supplied milk to Cheese sales were characteri- ted to be slightly below the DKK Cocio which recently commissioned sed by greater supplies to the 2.3 billion envisaged in 2001. The a new production facility. European market following falls investments under the plan are, On October 1, 2002 the dairy in skimmed milk powder prices. however, additional to the ordinary Hellevad Omegns Andelsmejeri Sales of sliced cheese and cream investment programme of DKK merged with Arla Foods. The two cheese, particularly to the German 1.6 billion. companies have enjoyed a close market, have, however, increased. The decision to construct a milk relationship for some considerable As for butter/spreads, Lurpak powder factory in Vimmerby means time. once again demonstrated its supe- that Arla Foods is now gathering a With regard to marketing Arla rior strengths in the UK market. large part of its powder production Foods launched the Arla master At the beginning of the financial in Sweden at the new plant, which brand which is designed to meet year, a spread with a 60% fat is scheduled for completion in 2004. the need for a common product content was launched under the In Sweden the special product brand in a number of markets. Lurpak brand achieving better- dairy in Linköping was commissio- The Arla master brand is red with than-expected sales. Lurpak sales ned in June. the name “Arla” in white on the also continued their upward curve red background – in contrast to in the Greek market where the Financing the green company logo. The partnership with the local company, Arla Foods’ rapid development objective of the Arla master brand Delta Foods, has led to improve- has generated an ongoing need is to increase awareness of the ments to the distribution system. for financing. The support by group’s products and its values. Lurpak butter also increased sales cooperative owners agreeing a An extensive reorganization of the in South East Asia although on a consolidation of 5 øre per kg milk existing brands has been carried lower volume level. per year ensures a reasonable out and these will be gathered Finally, Arla Foods initiated a solidity. In future, consideration will under the Arla master brand. programme for expanding the also be given to the disposal of group’s competencies within the activities that are not essential to Product categories food service segment. The pro- core dairy activities. In September Within the field of liquid milk, the gramme includes development and 2002, for instance, Arla Foods Danish and Swedish launches of supply of products for consumers sold the former headquarters of bottled milk were important events. on the move. In view of predictions Arla in Sweden, Torsgatan in The launch was successful and that increasing numbers of consu- Stockholm, under a lease-back has, so far, resulted in increased mers will eat outside the home, scheme.
7 Arla Foods is also considering a Besides the UK, the group also a job satisfaction survey among all range of borrowing models for its has pension commitments in the staff in Denmark and Sweden. The financing requirements, including Swedish companies. The Swedish survey showed a fair degree of job subordinated loan capital. arrangement, however, differs from satisfaction among staff compara- the UK system in that amounts ble to the average for this type of Pension commitments are not paid into pension funds but survey. The poll is a tool for Developments in international entered in the profit and loss measuring whether the group is finance markets, including the accounts. Since the Swedish achieving its targets in terms of dramatic falls in share prices over arrangement does not include its employees. It also provides a the past 12-18 months, have securities, the Swedish companies sound basis for further work. meant that the pension commit- are not directly affected by price Working procedures and mana- ments of numerous US or UK based movements in the annual actuarial gement principles were set out in companies are not fully covered. calculated commitment. the publication Our Day issued to This trend has also impacted on all employees in the spring. The Arla Foods in the UK which, as at Ett Arla publication aims at creating a September 29, 2002 had uncove- Following the decisions concerning broad understanding of the compa- red pension commitments of GBP Arla Foods’ organisation, strategy ny’s principles and values. 38 million. As was the case in and structural plans as well as its previous years, the amount is not consolidation plan, the company The future entered in the accounts. At other initiated a comprehensive project No significant cyclical improve- times the company has experienced aimed at integrating the working ments are expected for the cur- considerable fluctuations in its pen- processes and management rent financial year. The consolida- sion commitments, including move- sytems of the two original compa- tion of the retail sector and in the ments in the share and bond port- nies into one common system European dairy industry continues. folios which, through independent named Ett Arla. When the work is Consequently, Arla Foods faces pension funds cover the company’s completed in 2004, Arla Foods will considerable challenges in respect liabilities vis-à-vis its workforce, have achieved simpler and more of efficiency improvements. although not to the same extent efficient working processes The prospects for the EU’s as since September 11, 2001. through the creation of greater enlargement towards the East and Up to and including 2000/01 cohesion across divisions and the impending evaluation of the Arla Foods plc included these diffe- national borders. Community’s agricultural reforms rences over a future number of During the project phase the will help to clarify the dairy indus- years based on actuarial calcula- group will draw on substantial try’s future trends and make it tions every three years. For resources made available by easier for Arla Foods to adjust its 2001/02 this practice has been employees over and above their operations accordingly. adjusted in accordance with inter- daily duties. national accounting practice albeit still calculating any differences in Personnel the result over a future number of Inspired by the Swedish part of the years. group, Arla Foods has carried out
Credit Control Manager Nicola Purcell discusses ➜ an outstanding payment with her boss at the creditor department. Nicola Purcell, 34, has been employed at Arla Foods’ UK headquarters in Leeds since 1989.
8
Changes in the production structure
The map opposite lists the plants that were subject to closures, expansion or new constructions in 2001/02. The back flap of the cover of this report provides an overview of Arla Foods’ plants as at October 1, 2002.
During the year under review, the Danish and Swedish plants produced the following volumes within the four main categories: 1,617,000 tons fresh products 330,00 tons cheese 145,000 tons butter and spreads 290,000 tons ingredients and powder products
Butter and spreads Ingredients Fresh products In Denmark, production of Lurpak A new milk powder plant with an In Sweden, the dairy at Skövde butter at Varde Butter Dairy was annual capacity of 380 million kg was expanded to produce cottage transferred to Holstebro Dairy in milk (i.e. 20% of Arla Foods’ milk cheese for both the Swedish and June 2002. Holstebro now produ- volume is Sweden) is planned for Danish market. ces all Arla Foods’ Danish butter Vimmerby. The plant is expected to The Östgöta project involved the and spreads. From October 1, be commissioned by the end of expansion of the dairy at Linköping 2002, Varde Butter Dairy took 2004. The milk powder factories for the production of yoghurt and over the packing of the New at Mjölby and Kimstad will be cooking products. Norrköping dairy Zealand dairy group, Fonterra’s closed and powder production at a was closed during the summer of butter products. number of cheese dairies will be 2002 and its yoghurt production Butter production at Hellevad discontinued. transferred to Linköping dairy. Omegns Co-operative Dairy was The expansion of the plant at Fruit juice production is now transferred to Holstebro Dairy on Visby began in August 2002. centred on the expanded Alingsås November 1, 2002. The project will more than double Dairy. Halmstad Dairy will close in In Sweden, Götene Dairy took capacity to 16 million kg powder 2003. over production and packing of annually. In Denmark, the only change Fonterra’s spreadable products In Denmark, the Akafa and Arin- involved the transfer of cottage with effect from October 1, 2002. co milk powder factories will be cheese production from Christians- Götene Dairy plans further expan- upgraded and expanded. When feld Dairy to Skövde. sion in preparation for the transfer the expansion programmes are of butter production from Göten- completed at the end of 2003, the burg Dairy by the end of 2003. milk powder factory in Kjersing will An agreement with Skånemeje- close and its production transfer- rierne was signed during the year red to Akafa and Arinco. for the transfer of their butter and spreadable products production to Götene.
10 (Overview of production plants affected by structural changes in 2001/02)
Speciality cheese and its production of Danish Blue Firm cheese In Denmark, Farsø Dairy closed in transferred to Høgelund which will Expansion of Kalmar Dairy in August 2002 when the dairy’s then be responsible for Arla Foods’ Sweden is under way with expec- mozzarella production was trans- entire production of Danish Blue. ted completion in 2004 after ferred to Rødkærsbro Dairy. Here, As part of an agreement with which Borgholm Dairy will be capacity was increased by 4,000 the Danish competition authorities, closed. tons. Arla Foods’ mozzarella is Grøndal Dairy was sold off and its It has been decided to upgrade now produced at Rødkærsbro. production of feta transferred to Falkenberg Dairy from the end of The expansion of Høgelund Bislev Dairy. 2003, after which Stånga Dairy Dairy, which produces Danish A substantial expansion will be closed. Blue, is expected to be completed programme to increase capacity at in the summer of 2004. In Octo- Holstebro Cream Cheese dairy ber 2004, Grenå Dairy will close began.
11
Home markets
The size of Arla Foods’ market and blends have declined while As for product ranges, the trend shares in the Danish and Swedish cheese sales were maintained. towards a single Northern Euro- home markets restricts further During 2001/02 Arla Foods pean marketplace continues. growth within the field of traditio- launched more new products than Consequently, the challenge is to nal dairy products. The strategy ever before. On average four new create a Nordic marketing plan for these markets, therefore, aims products were launched each which, based on the Denmark and at developing new products desig- month. Due to a strong campaign, Sweden Divisions, will drive the ned to be consumed at different the launch of Arla Mini raised development of Arla Foods’ Nordic times of the day and, perhaps, by particular interest from the media brands and ranges over the different consumer segments. and among consumers in general. coming years. The launch of the Within this context, one important The products have proved very new Arla brand offers particularly market is the food service sector popular and have helped to achieve exciting challenges. which accounts for a rapidly Arla Foods’ ambition of increasing Competitive pressures are ex- growing share of food consumed milk consumption, especially pected to continue. Despite effici- outside the home, i.e. in canteens, among young consumers. ency enhancements in both pro- restaurants, pizza bars, petrol Marketing activities were duction and distribution during the stations, etc. comprehensive and the number of year, focus will be on further re- The UK is another crucially visitors to the arla.dk website sources and efficiency measures. important market for Arla Foods. increased markedly following the Food and beverage consumption The strong position held in the UK inclusion of consumer-related in- can be expected to see further for butter and fresh milk provides formation on food. changes with clear trends towards the foundation for further expan- Competition in the Danish convenience food and food services. sion. market hardened, particularly with Arla Foods intends to participate regard to butter and spreads in this development through new Denmark and the share of own-label service concepts and products. Overall sales in the Danish market products increased within the Moreover, it will be natural to were stable and in line with last fresh products area. Arla Foods consider the dairy range’s competi- year, although noticeable shifts intends to continue the develop- tive situation in relation to non- occurred between individual cate- ment and production of its custo- dairy based beverages, cold cuts gories. mers’ own-label products – the and breakfast and cooking The successful launch of mini- challenge will be to maintain a products. The task, therefore, re- milk (with 0,5% fat) and Arla Mini reasonable balance between mains to continue the development portion bottles helped to streng- production of own-label and Arla- of an attractive milk-based product then sales of liquid milk. This was branded products. range that is easily accessible to particularly due to Danish consu- Cross border consolidation of the consumers in a wide variety of mers’ demand for products with retail industry continues with the situations. reduced fat and a high level of formation of the retailers Coop Nor- convenience and accessibility. In den and Dansk Supermarked’s entry Sweden line with the falling demand for into the Swedish market as promi- Sales in the Swedish market
high-fat products, sales of butter nent examples from the past year. during the year under review ex- ➜ Tanker driver Carsten Nielsen, 42, has been collecting milk on Zealand since 1978 working out of Slagelse Dairy. This particular afternoon 1. 2. and evening he is working the 240 km route 15, which will take him to Stevns. Along the route he will collect 44 tons milk. After his return, he will start out on a shorter, 60 km trip to the north of Slagelse.
13 ceeded the budget and the total Arla Foods, therefore, has implemented to ensure that Arla volume of fresh products sold also begun to develop a product range Foods’ reputation as the premier exceeded the previous year’s sales. that matches consumer demand distributor is preserved. A brand analysis in October for healthy, quick meals for eating Owing to the continued expan- 2002 showed Arla to be Sweden’s at home or on the road. Recent sion of the range, a lack of space most popular brand. launches include Yoggi Yalla (bott- in the chilled stores is causing The biggest product in terms of led yoghurt drinks), milk in portion continuing concern. Consequently, volume, liquid milk, where per capi- bottles, junket in portion bottles, over the next four years, invest- ta consumption has been in decli- Mini Meal (vanilla rice with jam) ments in expansion at Jönköping, ne for several years, is now show- and fruit juice in bottles. Several Stockholm and Gothenburg will ing a stable trend. Milk used in new products of this type will be have high priority. The expansion coffee and the growing popularity added in the coming financial year. programmes include increased of milk as a good source of nutri- Sales and distribution in this inten- automatisation designed to contri- tion at a reasonable price is con- sely competitive market will, howe- bute to an improved working envi- tributing to this development. ver, continue to have very high ronment. Sales of junket and yoghurt also priority. A continuingly high level of pro- increased in volume, partly owing The transfer of a number of duct development gives ground for to the hot summer. Sales of cream products from one production site believing that Arla Foods will re- increased for the eighteenth year to another during the year impo- main at the forefront of consumer in succession. sed substantial demands on the trends and continue to be competi- Keso and Kesella (cottage cheese organisation at a time when consi- tive. It is expected that the result and fromage frais), also performed derable effort was devoted to for the coming year will increase well, with the flavoured varieties maintaining quality standards. and thus contribute to a stable milk achieving the highest volumes. The new production lines at price paid to farmers in Sweden. Firm cheese also had a good Linköping, Alingsås, and Skövde year. A weak Swedish krona meant were launched successfully, al- United Kingdom that competition from imported though operating below the expec- The UK market performed particu- products was not as tough as in ted production levels. Some work larly well during the year with the previous years. also remains in order to ensure volume of imported products cont- The fruit juice market is charac- stable supply reliability and this inuing to increase. The launch of terised by intense competition with has led to a shortfall in supplies to Lurpak Lighter Spreadable and the volumes somewhat lower than last the market. Furthermore, a range joint venture with Fonterra for year owing to competition from expansion in conjunction with butter and spreads in the UK discount products. unstable manning levels in the chil- market contributed to imports In keeping with the trend led stores meant that, on some from Scandinavia reaching the towards eating outside the home occasions, lead times could not be expected level of 84,000 tons. and the consequent greater indivi- maintained. Supply reliability is now Lurpak and Anchor are now the dual demand for a broader range, a top priority and measures desig- second and third largest brands in increased focus is on product and ned to achieve the previous 99% the entire butter, spreads and packaging development. supply reliability levels have been margarine category and their
3. 4. 5. 6.
14 market shares continue to increase. The year also saw the creation Expectations for both brands are, of a new Foodservice Business therefore, substantial. During the Unit, which will focus on the enor- year, production and packing of mous potential of Arla Foods’ Anchor was transferred from the products and brands in this rapidly UK to two of Arla Foods’ Scandina- growing “out of home” sector. vian operations and the brand was The UK factories continue to relaunched. perform well in terms of quality On the backdrop of the reorgan- and service which is of major im- isation of the business coupled portance in the development of with over capacity in the UK milk business relationships with cus- market, Arla Foods plc anticipated tomers. a small loss for the financial year. Investments in the Oakthorpe However, due to the considerable dairy in London continue and the efforts of all involved, the company construction of the new Stourton achieved a modest profit. dairy in Leeds has begun. The new Arla Foods remains committed Stourton warehouse, operated in to a long-term role in the UK mar- partnership with the distribution ket and is ready to play its part in company, Wincanton, was com- the restructuring of the industry. missioned in September and after Product development remains a some initial difficulties, the ware- cornerstone in the company’s strat- house is now operating to the egy. Alongside the Lurpak products, required standard. The opening of Cravendale PurFiltre is an example the warehouse means that the of adding value for the consumer, company now has full control over for the retail customers and for the distribution of all the com- the category. Following its phased pany’s added value products in roll-out and test marketing across the UK. the country, the brand was launched Arla Foods in the UK received nationally during the year. The several awards during the year for brand is now beginning to deliver both product quality and market- to its full potential and has achiev- ing. In addition, the company won ed high levels of consumer loyalty. recognition from the UK retailers It is expected that Cravendale Pur- regarding its vision of how to add Filtre will be a UK top 50 brand value to the butter, speads and within the next two years. margarine category. The restructuring of doorstep sales was completed during the year with the whole operation now converted to independent dairymen.
7. 8. 9. 10.
15
European markets
Operations in European markets Europe will remain relatively high discount sector which experienced were characterised by tough mar- on the agenda in the coming year. a marked increase in sales, while ket conditions and sharp price The consolidation and interna- the traditional retail sector saw a falls, especially for firm cheese tionalisation of the European retail corresponding fall with, for example, in bulk. The increased price com- sector continues with the largest sales of cheese from delicatessen petition is owing to a combination retail chains becoming increasingly counters in large supermarkets of rising production of cheese dominant. There is, therefore, no declining by more than 20%. This accompanied by a decline in doubt that Arla Foods’ long-term meant that Arla Foods suffered a demand. earnings potential in Europe is small volume decline in the large Cheese production increased as dependent on the company’s ability German market. There was also a result of very low prices for milk to create strong market positions strong pressure on prices. powder and butter. The causes of through marketing and product the fall in demand are, however, development in combination with Spain more complex. Cooked meat has ensuring a professional service to Previous years’ growth in cheese re-established itself among consu- multiples. sales continued in the year under mers bringing demand for cheese Resources will also be allocated review albeit at a more modest in line with pre-BSE and Foot & to the development of sales to the level. In particular, mozzarella for Mouth disease levels. The launch food service sector which is experi- the food industry was subject to of the euro also resulted in Euro- encing strong growth throughout tough competition where it was pean consumers adopting a cau- Europe. difficult to maintain price levels. tious attitude as they faced new During the first months of the As in previous years, direct sales price levels. Finally, the economic coming financial year, the new Arla to the retail sector developed posi- recession and general uncertainties Foods’ brand will appear on the tively as the sector continues its meant that German consumers packaging of a wide range of prod- spectacular development. Over in particular have become more ucts of strategic importance to the coming years, Arla Foods will, hesitant. Since the beginning of the European business. The aim is therefore, strengthen its efforts to the autumn 2002, however, prices to create a leading brand for dairy share in the growth of the Spanish have stabilised at a low level and products in order to achieve maxi- market. the first tentative signs of modest mum penetration in European mar- price increases are noticable. kets. The packaging changes are Greece Despite the tough market condi- scheduled for early in the new year. The result for 2001/02 did not tions, Arla Foods had a good year meet expectations. Considerable with a strong sales performance Germany resources have been committed to and, not least, earnings in Euro- Last year’s price increases and implementing the new company pean markets. The focus on added rising demand were followed by structure in the form of a joint value products and brands proved declining demand and strongly venture with Delta. The launch and its worth during periods of falling falling prices, particularly for bulk marketing of local and imported prices for bulk products. Conse- cheese and fresh products. In products was slightly delayed, which quently, investment in product addition, a significant majority of had an adverse impact on the
development and marketing in consumers have turned to the result. At the same time, price ➜ Christina Jensen, 23, adjusts a labelling machine at Vejle Cheese Store and Packing Unit (VOP) where she has been employed as a 11. 12. packing operator since 2002. Most of Arla Foods’ firm cheese is transported to VOP for slicing and packing before being despat- ched to customers.
17 competition for firm cheese was tinue in the coming years. The Norway stronger than expected. Sales of Finnish retail sector, which was Sales continue to advance, result- Lurpak butter are, however, devel- previously characterised by a ing in an excellent performance for oping positively and Lurpak is now certain stability, can expect in- the year. The volume of cheese Greece’s leading butter brand. The creasing competition after the imported over and above the quota distribution of Lurpak via Delta’s arrival of some discount chains continues to increase. The Norwe- system has provided a significantly during the year. gian market offers a range of broader and more detailed distribu- interesting growth opportunities tion which has positively contributed Italy which will be pursued in the to the result. As the objective re- The Italian subsidiary achieved a coming years. mains to establish Arla Foods as highly satisfactory result although the leading supplier of cheese and sales fell slightly because Arla France butter, the coming year will see a Foods, unlike others, did not lower The French subsidiary performed continuing high level of activity. The its prices for bulk cheese. Instead, satisfactorily with regard to both financial result is expected to im- these product types were profiled sales and earnings. The strategy prove significantly. on their higher and consistent continues to focus on the large quality and thus achieved a pre- French retail chains that dominate Finland mium in the market. Sales of most of the Southern European The Finnish subsidiary performed speciality cheese advanced during markets. well in respect of both sales and the year while butter sales were earnings. This is expected to con- stable.
13. 14. 15. 16.
18 ➜ Depot foreman Keith Schofield, 37, has been working at Arla Foods’ warehouse in Leeds for 20 years. Besides Arla Foods’ products, a wide range of other goods are packed here for transportation to local stores. Milkmen are also supplied with milk from here.
Holland are sold by Vache Bleu, which is number of Eastern European coun- Over the past few years, Arla owned by the Finnish dairy com- tries are expected to join the EU, Foods has achieved a strong posi- pany, Valio. significant differences in the poten- tion as a foreign supplier of added tial for growth and sales are likely value speciality cheese. In order to Poland to remain. Nevertheless, some of further enhance growth as well as The past year was characterised these markets already have well- deliver a professional service to by a difficult economic climate and developed retail and dairy sectors the retail sector, it is necessary to falling purchasing power which in place. strengthen our presence in the meant that the overall result was market. Increased resources will, unsatisfactory. However, there is The Faroe Islands therefore, be committed to estab- no doubt that the Polish market and Greenland lishing a local organisation to offers great long-term potential. Arla Foods’ sales of fresh pro- service customers and to build up ducts, fats and a broad range awareness of Arla Foods and its Other Eastern Europe of cheese products developed products among Dutch consumers. markets positively during the past year. Arla Foods has only minor market Belgium positions in the majority of these During the year under review, markets. However, over the next sales of speciality cheese to the few years there will be stronger retail sector were satisfactory. focus on selected markets and Arla Foods’ products in Belgium product categories. Although a
17. 18. 19. 20.
19 Overseas markets
Outside Europe, North America, In addition, substantial sums and marketing are being further the Middle East and Japan con- were invested in production in developed. tinue to occupy a key role in Arla order to expand both processing Foods’ strategies. and packaging capacity. Some North Africa Despite the global economic production was transferred from Sales to Egypt were adversely slowdown and the uncertainties Denmark to Saudi Arabia in order affected by the events of Septem- following the events of September to provide consumers with fresher ber 11, 2001. Sales to Libya, 11, 2001, Arla Foods achieved a products. With a growing popula- however, developed very positively. particularly good result in these tion and stable oil prices coupled markets. Total volume sales were with Arla Foods’ strong brands, USA satisfactory and profitable positions the company is poised to strengthen Despite a considerable decline in were maintained and developed in its market positions over the market conditions and a weakening most focus markets. coming years. of the US dollar, the financial year Although in the second half of saw highly satisfactory growth. the year, the US dollar was some- UAE and Oman Both the export business and local what weaker than expected, satis- During the year under review, Arla licensed production developed fa- factory earnings were maintained, Foods experienced a tremendous vourably. By continuing to focus on e.g. through price increases. At growth in sales of focus products added value products such as the the same time, there was strong to this market. This is expected to Rosenborg, Dofino and Denmark’s pressure on prices for dairy prod- continue. Finest brands, these brands were ucts in general. However, the impact significantly strengthened leading on Arla Foods was limited due to Bahrain, Kuwait and Qatar to a particularly attractive financial the high proportion of added value Through close contacts with result. The coming year is expec- products marketed under strong selected key customers, the ted to see further growth within brands such as Lurpak, Puck, Three company achieved satisfactory blue mould cheese and havarti. Cows, Power Cow, DANO and Milex. growth in tonnage and earnings. Canada Saudi Arabia Lebanon The Canadian market experienced Despite persistent concerns over The market saw growth in cheese considerable growth in 2001/2002. food safety, especially regarding sales, with the Puck brand enjoy- The purchase of a major import European products, Arla Foods ing a substantial market share. quota in 2001 opened the way for maintained its strategy for growth Sales of Lurpak butter were increased exports. At the same with most focus products achieving affected by price pressure from time, market shares for feta and an acceptable rise in tonnage and another supplier. havarti, produced locally under a earnings. Considerable resources licence agreement, rose. Arla were committed to maintaining and Yemen Foods’ Canadian licence partner, developing the substantial market Sales of Arla Foods Ingredients’ Amalgamated Dairies Ltd. has shares that Arla Foods’ brands retail packed milk powder products provided extra capacity which will enjoy throughout the region. are growing and both distribution allow for future growth in this busi-
21. 22. 23. 24.
20 ness area. Despite the weakening been achieved despite some diffi- cant decline in exports. It is hoped, of the Canadian dollar, a highly culties securing free access to the however, that current levels can satisfactory result was achieved. A market under the current quota be maintained. good result for the next financial system. Without the quotas, larger year is expected. volumes could be sold. Bangladesh Sales of Arla Foods Ingredients’ Argentina Japan retail packed milk powder products As a consequence of the catas- The Japanese economy continues are rising and efforts are being trophic economic situation, it was to suffer from a lack of growth made to expand distribution and decided to close Arla Foods’ and this is impacting on overall marketing. Argentinian subsidiary. A distribu- cheese consumption. For the first tor has been appointed to handle time in a decade, a fall in volume Australia future exports to Argentina. of around 1% is expected. How- Significant efforts were devoted to ever, Arla Foods’ sales of cream supporting and developing the Brazil cheese to industry and cheese to distribution of speciality cheese, At the beginning of the accounting the retail sector remain largely particularly under the Rosenborg year, Arla Foods entered into an unchanged from last year. The brand. This was achieved despite agreement with its partner, Dan economic slowdown does not seem local producers’ increasing presen- Vigor, for a 100% independent to have affected consumption of ce, especially within the field of business unit for managing both cheese within the fast food sector blue-mould cheese. In addition, the local production and sales of im- where the major part of Arla Foods’ first initiatives were implemented ported Arla Foods’ products. The exports of rindless cheese is sold. in preparation for next year’s implementation of the new busi- However, the most recent decline launch of Lurpak butter to the ness plan caused certain problems in world prices for cheese has led retail sector. which required corrective action. to a weakening of Arla Foods’ The situation has now stabilised share of total imports. Hopes are Russia although market conditions remain that improvements to world mar- Under the impact of the weakening weak. ket prices and unchanged export dollar, the year did not fully meet The result for the financial year subsidies will contribute to in- expectations. In addition, local is unsatisfactory and a substantial creased sales of, in particular, companies produced substantial effort is needed to achieve a satis- rindless cheese. quantities of cheese at very low factory result. prices sustained by high customs Korea duties on foreign cheese. The The Dominican Republic The Korean economy continues to ensuing price competition caused Results in the Dominican Republic, be tight and Arla Foods’ exports, many consumers to opt for cheap which is one of Arla Foods Ingredi- which largely comprise mozzarella products. ents’ largest markets for retail to industry, are under pressure Arla Foods’ position as an packed milk powder products, have from suppliers from Oceania. This attractive supplier of a large range exceeded expectations. This has has resulted in a relatively signifi- of speciality cheese continues to
25. 26. 27. 28.
21
be developed. Its products are of well-known products will be available in all retail chains in introduced in the coming year. Moscow and St. Petersburg and these positions will be further Pakistan enhanced in the coming year. Despite the impact from the situa- tion in neighbouring Afghanistan, South East Asia Arla Foods met its budget. After Sales continued to rise and with the war, Arla Foods’ customer has earnings up 20% on the year, the been able to sell Arla Foods’ result exceeds last year’s in terms products in Afghanistan. of both volume and earnings. This should be seen within the context India of general economic uncertainties India proved to be a major chal- in world markets. Hong Kong and lenge with sales for the year well Singapore remain the largest mar- below expectations. Although India, kets followed by the Philippines. as a member of the WTO, has Sales to China remain slightly be- lowered import levies, obstacles to low expected levels. This can be imports remain. largely ascribed to run-in costs. A high, but realistic, budget has Further advancement is expect- been set for India for the coming ed in the coming year, but the year. This is due not least to the strong competition from bulk fact that Arla Foods, in conjunction products from Oceania means that with the Danish Embassy in New further retail products under the Delhi, has instigated an analysis main Lurpak and Arla brands must of the potential for becoming a be developed and marketed. As supplier to India’s largest multiples. awareness of health and diet issues are growing in Asia, some organic products from Arla Foods have been launched in several
countries. Fat-reduced versions ➜ Farmer Jens Åge Skipper, 37, drives his heifers back to Højvang farm, south of Randers, where he 29. 30. keeps a herd of 80 dairy cows. He took over the farm from his father.
23 Ingredients for the food industry
During the year, Arla Foods Research continues into new prod- In the main markets – the Domini- strengthened its position as the ucts and new applications for exist- can Republic, Yemen and Bangla- leading and preferred supplier of ing special proteins. desh (see under Overseas added value dairy-based ingredi- Cheese powder sales are also Markets), Arla Foods Ingredients ents products for selected global developing positively. is either the market leader or the customers. Despite a highly com- The company has a significant market’s number two. petitive environment, especially for market position within several areas The business is developing well standard products, the result met of application, which will be further and the positive trend is expected expectations. strengthened in the coming year. to be maintained in the coming Turnover for the year was DKK The milk-based, low-calorie year. 5,391 million which is on a par sweetener, Gaio tagatose, is with last year. 1.7 billion kg milk expected to be launched commer- Licensed production was received as well as all whey cially in 2003 following the forma- Arla Foods is a global market from the Group’s cheese dairies in tion of a joint venture with one of leader within licensed production Denmark, a large part of the whey Europe’s leading sugar producers, of milk-based nutritional products. from Sweden and whey from Ger- the German Nordzucker. Several Major plant investments design- many. The raw materials were international customers have, for ed to increase capacity and quality processed into 290,000 tons some time, been showing an inter- assurance will be implemented to ingredients and powder products. est in the product which has simi- strengthen this business area lar sweetness properties to sugar, further. Industry but with only one third of the calo- The significant growth in ton- This business area comprises the ries. Diabetics will also be able to nage and earnings is expected to production and sale of added value benefit from the sweetener’s ability be maintained and developed in ingredients for global industrial cus- to maintain a stable blood sugar the coming year. tomers. So far, raw material short- level. Gaio tagatose is not harmful age and lack of production capacity to teeth and has been approved Sales of ingredients have restricted the growing sales of for use in selected food products Sales of standard products were functional milk proteins. However, in the US where it achieved GRAS characterised by high prices at the with the opening of a milk protein approval in 2001. Approval is also beginning of the financial year, but factory in Argentina and the supply being sought in Japan and Austra- a significant increase in supplies, of concentrated Swedish whey for lia and later in Europe. particularly from Oceania, caused processing in Denmark, the founda- prices to plummet in the spring/ tion has been laid for further growth Retail summer of 2002. The falling within the milk protein segment. The products in this business area prices, however, were partly offset Sales efforts will be further inten- are milk powder products in by repeated increases in export sified by the establishment of an consumer packs under the DANO subsidies from the EU. Prices for application centre in Buenos Aires, and Milex brands. The products both milk powder and milk proteins Argentina. are used primarily as basic nutri- stablised in the latter part of the Sales of special proteins for clini- tion for children and are sold in year at the lower level and the cal nutrition, drinks, infant milk selected markets in Latin America, trend is now towards slowly rising formula, etc. are another key area. the Middle East, Asia and Africa. prices.
31. 32. 33. 34.
24 Relations with co-operative owners
The Arla Farm’s considerable Arla Foods’ co-operative owners number of kilometres covered, i.e. importance as the first link in the continued in 2001/02 so that by from 39.5 million km in 2000/01 company’s value chain is a key the end of the year, the group had to 38.6 million km this year. component of Arla Foods’ strategy. a total of 13,642 co-operative Rooted in the increasing demands owners. In Sweden, the number on food producers by customers fell by 6.4%, to 6,539 while in and consumers on issues such as Denmark the fall was 10.3%, i.e. food safety, a new joint quality to 7,103. Overall milk supplies programme for the Arla Farm was remain largely unchanged which initiated during the year. The pro- means that the average annual gramme, which must be ready by supply per farm is now 546 tons in October 1, 2003, is based on the Denmark and 321 tons in Sweden. cornerstones of Arla Foods’ quality The merger between Arla Foods policies: the quality of the milk, and Denmark’s second largest co- food safety, animal welfare and the operative dairy, Hellevad Omegns environment and aims at profiling Andelsmejeri, became effective in the Arla Farm and, therefore, con- October 2002 adding around 100 tributing to enhancing the compe- new co-operative owners with a to- titiveness of Arla products. tal production of approx. 70 mil- At the same time, Arla Foods is lion kg to Arla Foods’ membership. committed to bringing milk prod- ucers and consumers closer to- Inter-dairy gether through a range of initiatives transport streamlined such as school visits to farms and The continued streamlining of consumer events. inter-dairy milk transport allowed total logistics’ costs to be kept New payment model down despite increased wage costs. October 1, 2003 will also see the Round-the-clock milk collection will launch of the new milk pricing soon be introduced in Denmark system approved by the Board of which, combined with the switch Representatives in the spring of to large tankers, has enabled the 2002. Although the joint payment number of tankers to be cut from model is part of the harmonisation 190 in the last financial year to process, it also represents an ad- 170 in 2001/02. This was imple- justment to the markets’ require- mented several years ago in ments in that a shift in the fat/ Sweden where 75 tankers operate protein ratio towards protein is 24 hours per day. In addition, strongly favoured by consumers. pump capacity was increased in both countries. The large tankers Fewer co-operative owners in conjunction with fewer suppliers The structural development among has meant a reduction in the
35. 36. 37. 38.
25
Innovation
Few consumers are more deman- ucts which are implemented that wide-ranging co-operation is ding with regard to food safety and through the application of a maintained between selected nutrition than astronauts and common project method within suppliers and other partners and cosmonauts. Arla Foods Innova- cross-disciplinary teams involving Arla Foods. tion, therefore, faced a huge chal- representatives from production, lenge when, towards the end of marketing and innovation. Product development 2001, it entered into partnership All product areas must be continu- with the American space agency Research ally maintained and developed. NASA to develop milk-based Arla Foods defines research as Basic products must be improved products for space journeys – for activities aimed at creating know- and upgraded and new consumer crews on the space shuttle and, ledge, competencies or methods options and new consumer groups further down the line, for future that will lay the foundation for must be considered. Changing missions to Mars. The aim is to further development of technology consumption patterns with varying create value for both organisations and products. It is of paramount eating times, demand for low-calo- and the knowledge created during importance that the research is rie products and new flavours as this project, especially with regard targetted towards tomorrow’s well as greater convenience are to nutrition and shelf-life, will be of consumers. Arla Foods’ research constantly calling for the updating great importance to Arla Foods’ strategy comprises eight research of product ranges. Arla Foods has future product development. areas which cover the entire value a special commitment to frequent This highly specialised task is, chain, ranging from quality control product launches particularly in however, only a small aspect of of raw materials, ingredients and the Danish and Swedish markets. Arla Foods’ innovation activities. process technologies to quality In Arla Foods’ strategic plan- In fact, Arla Foods develops some experience and food safety. ning, food service plays a promi- 200 new products annually and In practice, research activities nent role. All indications are for approx. 200 employees have “inno- are largely carried out by external strong growth in this segment vation” as their primary responsibi- partners such as universities and where a regular flow of new prod- lity. About 0.6% of Arla Foods’ other institutes of higher learning ucts is required. Arla Foods is turnover (more than DKK 200 in Denmark, Sweden and other already active in the market with million per year) is invested in European countries. Some re- a range of new products such as innovation, which is governed by search projects are undertaken the MiniMeal series, Arla Mini (milk consumers’ demands and require- inhouse. in plastic bottles) and, indirectly, ments, expressed or tacit. This is through the sale of ingredients true of both long-term research Technology development (e.g. cheese and milkshakes) to and fast product adjusments. The Another innovation-focused area is leading fast food chains. rationale behind this approach the continuing development of Expectations are that, in future, is set out in Arla Foods’ mission technology for improving produc- fewer consumers will cater for statement: To provide modern tion calculations and creating the themselves, partly due to a short- consumers with milk-based food foundations for entirely new prod- age of time and partly because of products, which create security, ucts. Production techniques and a lack of cooking skills. Meeting inspiration, and well-being. processes are also developed, their requirements with new, At any given time, Arla Foods improved or tested. As is the case innovative products will provide
works with 400 innovative prod- with research projects, it is crucial interesting opportunities. ➜ 1 At ⁄2 hourly intervals, laboratory assistant Åse Lindblom, 36, collects milk samples at the packing unit at Stockholm Dairy. 39. 40. She records the samples at the laboratory and then carries out bacteriological tests and measures the fat content in the milk. Åsa Lindblom has been employed at the dairy for 10 years
27 Environmental considerations
The production of milk and dairy The most energy-intensive pro- should be evaluated in relation to products affects the environment cesses are the evaporation and health safety and environmental all the way from farm to consumer. drying of milk. However, cooling impact before the end of 2005/06. Arla Foods continually strives to and cleaning also account for con- reduce negative environmental siderable energy consumption. Emissions
impact and resource consumption. Over an extended period there has Arla Foods aims at reducing CO2
The Group’s environmental policy been considerable focus on energy emissions by 5% and NOx emis- covers a series of goals and target consumption and new energy man- sions by 10% by 2005/06. To areas which are prioritised by agement systems and new energy achieve these goals, a number of means of Life Cycle Analysis (LCA) conscious planning have led to initiatives have been taken. Thus and other methods that allow ac- considerable savings. (See fig. 2). Götene Dairy has introduced the tion to be taken against the most It is possible, however, to re- first wood pellet bio-combustion important environmental conse- duce environmental impact further plant to replace three old oil quences. by optimising control of energy generators which used approx. consumption at the individual 10,000 cubic metres of oil per The Arla Farm plants. Work is currently being year. (See Fig. 3). The Arla Farm is the first link in carried out at Esbjerg Dairy to The transport of milk in trucks the chain where efforts to reduce create tools for managing energy affects the environment in the
environmental impact can be achiev- consumption and thus ensure form of emissions of CO2, NOx and ed as the basic tenet is that Arla more efficient use of energy. The particles. To minimise these emis- Foods’ milk producers manage an experience gained from this can sions, joint environmental targets important part of Danish and be applied in similar endeavours at for transport at group level are Swedish nature. Recommendations other plants. being prepared. At Hobro Garage are being drawn up for areas such The target is to reduce total a two-year project aims at reducing as groundwater protection and re- energy consumption by a further diesel consumption by training ducing the effects of climate chan- 5% before 2005/06. drivers. As the project has prog- ge and the emission of greenhouse ressed, the drivers have been gases. Chemicals able to monitor the considerable The use of chemicals on farms, fall in diesel consumption online. Water and Energy during production and in connec- Experience from similar projects To ensure optimum hygiene stan- tion with cleaning cannot be avoid- has shown a potential saving of dards, the dairies use substantial ed. To ensure the best possible 5-10%, with equivalent reductions amounts of water for cleaning. working environment and reduce in emissions. Over the years, a variety of environmental impact, it is impor- measures have been introduced tant to limit the quantities of Working environment to reduce water consumption at chemicals used and to choose the Alongside the work to reduce the production plants. (See fig. 1). most environmental-friendly and impact on the environment, efforts The goal is to reduce water safe products for each task. to enhance working conditions are consumption by a further 7.5% by The objective is that all chemi- also continuing. For several years 2005/06. cals used at the group’s plants now, Arla Foods has focused on
41. 42. 43. 44.
28 reducing work-related accidents by actively involved in environmental Fig. 1 Water consumption at e.g. recording and analysing the work and that the goals are met. Danish production plants cause of such accidents. Recently, The system is based on ISO 14001 Key figures in m3/ton finished product a comprehensive “safety culture and the working environment stan- 7,00 analysis” was carried out in co- dard OHSAS 18001 and is imple- 6,00 operation with the Mejeriindustri- mented on an ongoing basis. 5,00 ens Bedriftssundhedstjeneste (The The aim is that all production 4,00
Dairy Industry’s Industrial Health units in Denmark and Sweden are 3,00
Service). Nine Danish Arla Foods ISO 14001 accredited by the end 2,00 plants took part in the survey, of 2005/06. In 2000/01, 31% 1,00 which comprised interviews with of the plants had been accredited, 0,00 employees, managers and repre- with 40% in 2001/02. During the 96/97 97/98 98/99 99/00 00/01 01/02 sentatives from the safety organi- year, Holstebro Dairy became the sation. first Arla Foods plant to achieve The safety culture is defined as OHSAS 18001 accreditation. those values, habits and percep- Fig. 2 Energy consumption at tions which express the attitudes Environmental training Danish production plants of management and employees to Environmental training is an impor- Key figures in MWh/ton finished product preventive measures, risks and tant tool for increasing awareness 1,40 accidents. Experience shows that about environmental impact and 1,20 focus on a company’s safety cul- about the opportunities for em- 1,00 ture positively contributes to ployees to reduce such effects. In 0,80 improving safety during the daily the Sweden Division, production 0,60 work. workers and drivers have been 0,40
In the past year, the Denmark receiving such training for many 0,20
Division has been part of the years and the focus is now shifting 0,00 project “Down with work-related towards training sales people and 96/97 97/98 98/99 99/00 00/01 01/02 accidents” during which a safety marketing staff. Since environmen- culture analysis was carried out. tal impact etc. depends on prod- This led to a reduction in the ucts and packaging, it is important average accident frequency from that sales staff are able to explain Fig. 3 Emission of NOx from Götene
34.8 in 2000/01 to 31.4 in Arla Foods’ efforts within these ton/per year
2001/02. areas. Moreover, marketing staff, 60,0
who are involved in product develop- 50,0
Managing the environment ment, can affect the entire value 40,0 By changing from oil and working environment chain from farm to consumer. 30,0 to bio-fuel NOx Arla Foods’ environment and work- 20,0 emission have been ing environment management 10,0 significantly reduced. system helps to ensure that all 0,0 members of the organisation are 1996 1997 1998 1999 2000 2001
45. 46. 47. 48.
29 Subsidiaries
Semper AB In the nutrition sector, Semper A 5-6% rise in demand for fruit is developing and selling products juice and drinks resulted in in- for clinical nutrition, primarily creased sales to the Danish retail Semper continued last year’s posi- aimed at the Nordic markets, and and catering sectors of 5%, tive development with sales rising gluten-free products. Semper while turnover from exports and by 7% and turnover of SEK 1,055 Nutrition’s positive development industrial customers declined. million. Exports, which rose by continued during the year, with 8% The 14% rise in profit on ordi- 15%, totalled SEK 245 million and sales growth to SEK 186 million. nary operations, which was achiev- now account for more than 20% Earnings also improved significantly. ed despite increasing raw material of the total turnover. Profit on The food service sector posted prices especially for orange ordinary operations increased by an increase in total turnover of concentrate, derives from rising SEK 21 million to SEK 66 million, 7%, to SEK 275 million. In the gross margins following ongoing i.e. a rise of 40%. Swedish market, turnover rose by endeavours to improve profitability. Turnover for baby food in the 3%, while export turnover rose The significant fall in profits Swedish market rose by 9% to 26% to SEK 56 million. Beverage after tax is solely due to a one-off SEK 436 million, strengthening sales rose considerably, as did cost arising from the closure of Semper’s dominant position in the exports of frozen pancakes which the factory in Rynkeby. Production Swedish market. The most impor- were the subject of a considerable at the plant, which accounts for tant export markets are Finland investment programme during the approximately 12% of Rynkeby where Semper is the second- year. Foods’ volume, will cease no later largest supplier, and Russia which Semper’s positive growth is than June 1, 2003. Rynkeby’s saw growth of more than 50%. expected to continue in the coming production will either be transfer- This positive trend is expected to year. red to the factory in Ringe, acqui- continue. red by associated companies or Friggs’ health products saw a outsourced. 4% increase in turnover to SEK Rynkeby Foods At year end, the construction of 227 million although the market a fully automated tower store at for this product type contracted The market for Rynkeby Foods’ the factory in Ringe had com- for the first time in many years. core products, fruit juice and menced. It is expected to become Semper AB has, therefore, main- drinks, developed positively in operational in the spring of 2004. tained its position as Swedish mar- 2001/02 with turnover rising By releasing the existing warehouse, ket leader in consumer goods. The from DKK 806 million in 2000/01 extra space will be made available Friggs range, which was success- to DKK 823 million in 2001/02. for production expansion. fully launched in Norway, also per- Profit on ordinary operations rose Rynkeby Foods continues to formed well in Finland. to DKK 32 million compared to expect continued satisfactory During the year, the health food DKK 28 million in 2000/01. How- growth in its core product areas. company in Anjo in Sweden was ever, a one-off cost of DKK 22 Turnover for 2002/03 is, how- sold in order to focus on the con- million under special items im- ever, expected to be in line with sumer goods business. pacted on the accounts. 2001/02 levels. This is partly due
The telephone is an indispensible tool for Business Manager Matthew ➜ Lee, 26, who is responsible for liaising with the UK multiple, Tesco. 49. Tesco operates 720 stores in the UK with another 1,000 in the pipe- line. Matthew Lee has worked at Arla Foods UK headquarters in Leeds for three years.
30
to increased focus and enhanced Expectations for the coming With a turnover of over DKK competitiveness and partly to the year are positive. The price for the 800 million, the company is one of closure of the factory in Rynkeby, most important raw material, the largest producers of flexible which will result in the cessation of orange juice, is expected to in- packaging in Northern Europe. It certain products outside the core crease further. is expected that further synergies ranges. will be realised through rationalisa- The cost of raw materials can tion of production, optimum use of be expected to continue upwards capacity, purchasing and customer in 2002/03. This will be compen- Danapak support as well as product and sated for by higher sales prices range development. Through Teich and efficiency measures. The Danapak Group posted a loss AG, the new company is part of On February 1, 2002, Rynkeby on ordinary operations of DKK 22 the Constantia group which is Foods A/S and JO Bolaget enter- million for 2001/02 against a loss Europe’s third largest producer of ed a partnership within the fields of DKK 33 million in 2000/01. The flexible packaging. The new com- of purchasing, development and turnover, DKK 771 million, was pany, Danapak Flexibles A/S, is marketing as well as shared brands affected by the many changes in headquartered in Odense and as and production under joint man- the group and is therefore not com- a result Danapak has moved its agement. Together, the two com- parable with last year’s result. Turn- headquarters to its cartons factory panies form Scandinavia’s largest over for the cartons/packaging in Korsør. juice producer with a market share business was DKK 434 million. From February 2002, Danapak exceeding 60% in Sweden and Den- During the year, Danapak con- was affected by considerable rises mark. The vision is one of continu- tinued to adjust the organisation in the cost of raw materials for ous growth as market leaders in to the increasing competition in both plastic and cartons. However, the two domestic markets, and in the marketplace. owing to a targetted effort it has the longer-term, to expand into the In May 2002, Danapak ac- largely been possible to compensate rest of Scandinavia. quired a majority share in the for the increased costs through cartons company Westergaard & higher sales prices. By the autumn, Philipson A/S (now Danapak WP) the prices of raw materials were which is now the leading cartons expected to have stabilised. JO Bolaget company in the Danish market. During the year, investments in Sales in the UK were unsatisfac- fixed assets totalling DKK 27 Jointly owned by Arla Foods and tory and Danapak has discontinued million were made and a number Skånemejerier with a 50% share- its operations in Northampton. of efficiency projects were initiated. holding, JO Bolaget produces fruit In July 2002, Danapak formed During 2002/03 Danapak will juice, fruit drinks and fruit soup. a Northern European joint venture continue its efforts to increase Sales for 2001/02 totalled 121 with the Austrian company Teich profitability. million litres and turnover rose by AG within the field of flexible In the cartons business, Dana- SEK 6 million to SEK 885 million packaging. Danapak has 40% of pak will defend and expand its with fruit juice accounting for 92% the new company and Teich AG position as market leader in
of the turnover. 60%. Denmark. Following the purchase ➜ At Vellev Dairy, which produces 11,500 kg Cave Cheese per day, Anders Kristensen, 33, passes a cheese to a colleague who will wrap 50. 51. it in a cheese cloth and place it in a cheese mould for pressing. Anders Kristensen, a third year trainee, has been working at Vellev Dairy since April 1, 2002.
33 of Danapak WP, the company intends to continue to participate in the further consolidation of the Danish cartons industry. With the formation of the Northern European joint venture, Danapak is poised to improve its competitivness. Danapak expects an improve- ment in its operating profits in the coming year.
De danske Mejeriers Fællesindkøb
De danske Mejeriers Fællesindkøb achieved a turnover of DKK 656 million for 2001/02 compared to As at 1 October 2002, the Crispy Food contributed positively DKK 588 million in 2000/01. The Trade Department changed its to the 2001/02 result. The 12% increase exceeded expecta- name to Procudan. improvement was largely due to tions. In general, all companies The Industry Deparment expan- increased exports to European have shown satisfactory growth. ded its position within its core markets, where the Top Cup Profit on ordinary operations customer areas (i.e. the bakery concept continues to generate was DKK 15 million against DKK and cake sectors, the confectio- considerable interest. Exports to 11 million last year. nary industry and the brewery Japan have also been substantial. Member turnover accounted for industry). Fællesindkøbet’s expectations 73% of group turnover against Dairy Fruit A/S increased turn- for the period up to and including 71% in 2000/01. over by 60% largely due to increas- 2004/05 are set out in a new The Trade Department’s global ed co-operation with Arla Foods long-term plan. Despite antici- purchasing partnership with Arla in Denmark and Sweden. The pated, stronger competition with Foods with regard to “ingredients” current expansion of Dairy Fruits’ regard to pricing, quality and continued to develop in 2001/02. Development Department will help service, prospects are promising. This strengthened the depart- strengthen the company’s innova- For the 2002/03 financial year, a ment’s sales to other food indus- tion activities. Exports to new satisfactory export-led develop- tries due to the synergy effects markets such as Germany are ment in turnover is expected. The from, inter alia, the alignment of expected to increase in 2002/03. overall result is also expected to purchasing prices. With a rise in turnover of 34%, be satisfactory.
52. 53. 54. 55.
34 ➜ Distribution driver Bo Thomsen, 44, has worked as a relief driver at Stockholm Dairy for the past five years. During the day, he and his colleagues deliver Arla Foods’ products to approx. 5,500 customers including supermarkets, schools, hospitals, and restaurants in the Stockholm area.
Frödinge Mejeri AB Hatting AB, which handles sales to zer and packaging machinery for Swedish stores, entered a part- the new pie range. Frödinge Mejeri AB produces and nership with Topp (which is part of Production is expected to in- sells frozen layer cakes and a vari- Finland’s frozen vegetables and crease in the coming year, es- ety of savoury and fruit pies as ready-made meals’ Chips Group). pecially with regard to exports to well as the Swedish speciality, This has increased the frozen existing markets as a result of cheesecake. In 2001/02 the foods range. new customers. company achieved a turnover of Sales to the UK, where Frödinge SEK 309 million which represents has a market share of around 11%, a 2% advance on the previous rose satisfactorily, despite a gene- year. Profit on ordinary operations ral slowdown in sales of this type Medipharm AB rose to SEK 26 million against SEK of product. The strength of GBP 22 million in the previous year. against the Swedish krona contrib- Medipharm AB produces bacteria In the home market where the uted positively to the result. The culture for the agricultural sector company is a market leader, sales German market contracted after and the food industry and its of cheesecake rose slightly. Sales the loss of a major customer. In products are marketed both inside of pies, especially savoury pies, Finland sales continue to improve and outside Sweden. increased considerably although and volume doubled. Profit on ordinary operations Frödinge lost market shares in the Investments totalling SEK 14 was SEK 18 million against SEK layer cake segment. Frödinge & million included a high-speed free- 17 million last year.
56. 57. 58. 59.
35
Within the field of special cultu- Arla Foods res and cheese ripening cultures, Andelssmør A.m.b.a Enzobact achieved strong growth Holding A/S during the year. Renewed marke- Arla Foods owns approx. 92% of ting of starter cultures for salami Wholly-owned by Arla Foods, Arla the shares of Andelssmør A.m.b.a. and kefir is now resulting in new Foods Holding A/S is the holding which handles the vast majority of leads and customers. Supplies of company for a number of Arla Danish butter exports. The com- the kefir cultures to the home of Foods’ shareholdings, including pany operates as an integral part kefir, Russia, have begun. Medani A/S, Arla Insurance of Arla Foods. The result for the In the ensiling area, the trend Company (Guernsey) Ltd. and year is satisfactory. is towards more microbiological Rynkeby Foods A/S. agents as a substitute for chemi- The company operates as an cals. Statements by experts in integral part of Arla Foods. The favour of microbiological agents result for the year is satisfactory. are expected to increase sales of AM Foods Medipharm’s ensiling products further. In 1996, MD Foods (67%) and During the year, Medipharm Arla (33%) formed a joint company acquired 100% of its US subsid- Medani A/S for the production and sale of iary. The move was based on the cappuccino and chocolate instant potential which Medipharm has The company owns Arla Foods’ products for the food service identified for all product areas in head office, Ravnsbjerg Erhvervs- sector and retail segments. the US. To meet increased de- center. The company is also re- Following a period of consolida- mand for the company’s products, sponsible for a number of finan- tion, the company is undergoing a SEK 15 million investment pro- cing and investment activities. strong expansion and has posted gramme has been launched. The Despite the turbulence in the an approx. 40% improvement on programme includes a 100% in- financial markets in 2001/02, last year’s result. The 2001/02 crease in freeze drying capacity, Medani achieved a satisfactory financial year was satisfactory. increased fermenting capacity and result. the deployment of new technology to produce “drip-frozen” products. As Medipharm operates within previously unexploited product areas where the proportion of new Arla Insurance Com- users or so-called “non-users” is pany (Guernsey) Ltd. substantial, the potential for further The company acts as a reinsuran- growth is regarded as particularly ce company for the Arla Foods good. The aim is to achieve a 25% group. The year’s result is satis-
increase in turnover year on year. factory. ➜ Operator Jessica Russo keeps the fourth bottling line running during her 5 am to 1 pm shift at Gothenburg Dairy. 60. 61. She also cleans the machinery and weigh the briquettes which must weigh between 1,054 and 1,057 grams in random tests.
37 Managing financial risk at Arla Foods
During the financial year, the Board A foreign currency policy that of refinancing. Diversification of approved a new financial policy for sets out the framework for maxi- both lenders and loan repayment the Group. mising long-term earnings based periods are utilized to achieve this. The main objective of the policy on market conditions. According to The financing policy lays down is to ensure a stable cash flow the policy, individual business units broad targets for the Group’s over- and financial flexibility in a volatile are responsible for foreign exchan- all capital structure as well as market. ge hedging while all external hedg- internal rules for the financing The new policy is designed to ing is effectuated by the Finance requirements of the Group’s units. ensure a forward-looking approach Department. The term target continues to be to financial management as well as The aim of hedging by way of applied in connection with the ma- compliance with best practice for financial instruments is to generate nagement of the Group’s financial corporate governance and interna- a stable cash flow and thus mini- assets and liabilities. The term for tional accounting standards. mise fluctuations in the milk price. the long-term portion of the debt The new policy introduces new The Group’s total exports stand should be in the interval of 0-7 quantitative measurement methods at approx. DKK 10 billion of which years. for financial management. approximately 40% is in Euro, 30% The average repayment time for Arla Foods’ financial policy is in USD and 18% in GBP. the long-term portion of the debt divided into four main areas: Foreign exchange hedging is must be at least 2 years. based on commercial considera- The considerable fall in interna- A general finance policy that tions. To measure the effective- tional interest rates has led the determines the allocation of re- ness of the hedging, an exchange Group to increase the period of sponsibility between the Supervisory rate index has been set up which the overall debt and more long- Board, the Management Board measures the result of hedging in term fixed interest loans have and the Finance Department. It relation to market developments. been taken out. also specifies which financial pro- The terms for the long term ducts and counterparts can be Value-at-Risk (VaR), the internatio- debt have been increased to used. The requirements for such nal standard for measuring finan- approximately 3.2 years, compa- products are the existence of a cial risk, has been introduced to red to 2.6 years last year. well-functioning market and that calculate the total monthly ex- A specific framework for the such products can be accurately change rate risk to which Arla amortization of the Group’s debt is valued. The choice of counterparts Foods is exposed. This tool has a in place. is determined on the basis of long- 95% probability. The total interest bearing debt standing mutual association of stood at approx. DKK 8,019 benefit to both parties. Risks are A policy for financing and borro- million as at September 29, minimized by selecting partners wing that underpins the Group’s 2002, compared to approx. DKK with a high rating only. strategic planning. 7,876 million the previous year. In addition, the financial policy The overall objective of the financing The average repayment time on sets out the Group’s general credit policy is to minimise long-term bor- the long term debt as at 29 policy as well as the systems for rowing costs while ensuring a loan September, 2002 stood at approx. operational management. composition that reduces the risk 5.2 years.
62. 63. 64. 65.
38 At the end of the financial year, Figure 1: Position in percentage of the distribution of interest bearing annual budget debt was 68% in DKK, 23% in %
SEK and 6% in GBP and 3% in 100 other currencies. 80
Leasing is only utilized when 60 deemed to be attractive for the 40 Term Group. 20 Option 0 Open
An interest rate and liquidity poli- USD GBP EUR SAR SEK cy that is linked to the financing policy and ensures the Group’s financial preparedness so that liqu- idity risk is minimised. This is achi- Figure 2: Arla Foods foreign exchange index eved through maintaining sufficient 104 operating liquidity and liquidity for 103 acquisitions. 102
Liquidity stand-by consists of 101 funds held in bank accounts, 100 short-term bonds and unexploited 99 drawing rights in banks and finan- 98 cial institutions. 97 The total liquidity reserve was 96 Market index approximately DKK 4.3 billion as 95 Forward index at 29/09/2002. Oct.01 Nov.01 Dec.01 Jan.02 Feb.02 Mar.02 Apr.02 May02 Jun.02 Jul.02 Aug.02 Sep.02 A framework for evaluating the interest risk relating to the Group’s asset portfolio of fixed interest claims has been determined. The risk relating to receivables from debtors is not regarded as being unusual.
Other During the financial year work continued on adapting the Group’s balance sheet for the purpose of strengthening solidity. This work will continue in the coming finan- cial year.
66. 67. 68. 69.
39 Annual Report 2001/02
Management’s statement Aarhus, 27 November 2002
Management Board of Supervisory Board of Arla Foods amba Arla Foods amba Lars Lamberg Knud Erik Jensen Jens Bigum Chairman Deputy Chairman Man. Director Bertil Andersson Leif Backstad Åke Modig Dep. Man. Director Kaj W. Christensen Christer Eliasson
Jørn Wendel Andersen Anders Ericsson Leif Eriksson Finance Director Elisabeth Gauffin Åke Hantoft
Tommy Jacobsson Thomas Erling Johansen
Sören Kihlberg Kr. Ole Kristensen
Ove Møberg Hans Peter Nielsen
Per Norstedt Jan Nørgaard
Kaj Ole Pedersen Søren Rasmussen
Pejter Andersen Søndergaard Bent Juul Sørensen
Auditors’ report audit includes an assessment of Aarhus, 27 November 2002 We have audited the group the accounting policies applied and accounts and annual accounts of the accounting estimates made. Arla Foods amba for 2001/2002 In addition, we evaluated the over- KPMG C. Jespersen presented by the Management all adequacy of the presentation in Board and the Supervisory Board. the accounts. E. Black Pedersen State Authorised Basis of opinion Our audit did not result in any Public Accountant We planned and conducted our qualifications. audit in accordance with generally J. Bräuner Knudsen accepted international auditing Opinion State Authorised standards and Danish auditing In our opinion, the group accounts Public Accountant principles to obtain reasonable and annual accounts have been assurance that the accounts are presented in accordance with the free from material misstatement. accounting provisions of Danish PricewaterhouseCoopers Based on an evaluation of materi- legislation and give a true and fair ality and risk, we have during the view of the Group’s and the Göran Tidström audit tested the basis and docu- company’s assets and liabilities, Authorised Accountant mentation for the amounts and financial position and profit for the disclosures in the accounts. An year. Jesper Lund State Authorised Public Accountant
40 Accounting policies
General information The consolidated accounts have In Arla Foods Ingredients S.A., The accounts of the parent compa- been prepared by a consolidation Argentina, the company’s invest- ny, Arla Foods amba, and the of similar items from the parent ments are made in USD. USD is consolidated accounts of the Arla company and the individual subsi- also the reporting currency. Foods Group have been presented diaries’ annual accounts. Intra- Financial instruments especially in accordance with the Danish group income and expenses, comprise forward exchange con- Annual Accounts Act with such shares, outstanding accounts, divi- tracts and options. deviations as follow from the spe- dends and unrealised gains and For financial instruments entered cial circumstances of the parent losses have been eliminated. into to hedge receivables and pay- company and the Group. These As regards the acquisition and ables in foreign currency, the deviations relate, in particular, to sale of subsidiaries, the operations hedged rate is used to value the the presentation of the results of of such subsidiaries have been hedged item. The financial instru- the non-dairy subsidiaries and included in the consolidated ac- ments are therefore not valued as associated companies in the profit counts for that part of the year in independent items. Foreign ex- and loss account for the parent which the subsidiaries have been change rate adjustments of finan- company, cf. below. owned by the Arla Foods Group. In cial instruments which are used to The accounting policies are connection with the acquisition of hedge the income and expenditure unchanged compared to last year companies, the additional value on in the coming year are, however, with the exception of the accounting the individual assets and liabilities deferred until such income and treatment of pension commitments and any additional group goodwill expenditure are realised. which has been changed to comply has been capitalised and amortised. Financial instruments not used with international accounting poli- to hedge income and expenditure cies, cf. page 8 of the report. Foreign currency and are valued at their market values The changed accounting policies financial instruments at the balance sheet date. Both regarding pension commitments For foreign subsidiaries, the profit realised and unrealised gains and do not have any effect on the and loss accounts are translated losses on these are included in the comparative figures for 2000/01 using the average exchange rates, profit and loss account. and only a minor effect on this whereas the balance sheet items Receivables and payables de- year’s results. are translated using the rates nominated in foreign currencies ruling at the balance sheet date. which have not been hedged are Consolidation The translation differences that stated at the exchange rate ruling The consolidated accounts com- may arise on translation of the at the balance sheet date. prise Arla Foods amba (the parent foreign companies’ opening equity company) and those subsidiaries, using the rates ruling at the balan- Subsidies cf. the list of group companies on ce sheet date and the translation EU subsidies and subsidies from pages 61-62, in which the parent differences resulting from transla- other public authorities for invest- company directly or indirectly holds tion of the foreign companies’ ments in fixed assets are deducted more than 50% of the voting rights profit and loss accounts using the from the purchase price. or in which the parent company in average rates are adjusted over Subsidies granted for product other ways has a controlling interest. the equity. development, etc. are entered as The accounts used for the For foreign associated under- income under the item other oper- consolidation have, in all material takings, the reported shares of ating income at the time when a respects, been prepared in accor- profits and shares of net book repayment obligation is no longer dance with the accounting policies value are recognised at the rate contingent. of the parent company. ruling at the balance sheet date.
41 Profit and loss account The share of results after tax of entered at the current tax rate, non-dairy subsidiaries has not been calculated on the basis of the pre- Turnover included in the parent company’s tax results for the year, adjusted The turnover includes the year’s profit and loss account, but has for non-taxable income and expens- invoiced sales of finished products been taken directly to equity under es. Deferred tax is stated as one less sales discounts. Any refunds revaluation reserves. figure for jointly taxed companies. and production subsidies from the The different treatment of The deferred tax is entered at the EU are included in the turnover. shares of profits in dairy-related current tax rate of all timing differ- The turnover for Arla Foods and non-dairy undertakings in the ences between the results for amba also includes declared profit and loss account of the accounting and tax purposes. supplementary payments from parent company serves to show other sales companies within the the direct income from the milk Balance sheet Arla Foods Group. supplied by the members of Arla Foods amba. Fixed assets in general Production costs Undertakings in which the The acquisition costs of fixed assets Production costs include cost of Group holds between 20% and at the establishment of the Arla sales, including purchases from 50% of the voting rights without Foods Group at 17 April 2000 Arla Foods’ members as well as having a controlling interest are equal the book values in the found- costs, including depreciation, regarded as associated. These ing companies and their subsi- wages and salaries incurred to undertakings are included under diaries at 16 April 2000 subject realise the turnover for the year. one item in the profit and loss to the value adjustments made in account and the balance sheet, the opening balance sheet at 17 Development costs and their turnover has therefore April 2000. The costs of developing new prod- not been included in the consoli- ucts are entered as expenses as dated turnover. Intangible fixed assets they are incurred. Intangible fixed assets are valued Financial items at cost less accumulated amorti- Share of results in subsidiaries Interest income and interest sation and write-downs. and associalted undertakings expenditure are recognised in the Intangible fixed assets comprise The profit and loss account of the profit and loss account at amounts goodwill from the acquisition of parent company includes the relating to the financial year. undertakings, licences, trade- proportionate share of the profits Furthermore, financial items marks, etc. as well as the equali- or losses of the individual dairy- comprise both realised and unre- sation sum for former members of related subsidiaries after tax and alised value adjustments of securi- Kløver Mælk A.m.b.A. after the deduction of declared ties and exchange rate adjust- The assets are amortised on a supplementary payments and unre- ments. straight-line basis over their alised intra-group profits. expected useful lives: Dairy-related subsidiaries are Corporation tax defined as subsidiaries which are The taxable income of the compa- Goodwill 5-20 years primarily involved in the process- nies is calculated in accordance Licences and trade- ing/selling of the milk weighed in with the national rules in force marks, etc. 10 years from Arla Foods’ members. The from time to time. For companies Equalisation sum 3 years subsidiaries are listed separately which are jointly taxed, tax on the on pages 56-57. results for the financial year is
42 Tangible fixed assets lated in accordance with the Ar- Equity Tangible fixed assets are valued at ticles of Association of the individ- According to Article 15 of the cost less accumulated depreciation ual companies. Articles of Association, the compa- and write-downs. Other investments (shares, ny’s equity consists of: The assets are depreciated on mortgage deeds, bond holdings, a straight-line basis as from the etc.) are entered at acquisition Capital account: time of acquisition or commission- value, although written down to The company’s capital account ing based on the expected useful market values, if such values are consists of the undistributed equity lives of the assets as follows: consistently lower. of the company.
Office buildings: 50 years Stocks Reserve A: Production Raw materials, consumables and Reserve A consists of reserves in buildings: 20 - 30 years goods for resale are valued at personal accounts in MD Foods Plant and cost. The cost of the milk that amba, for which the following machinery: 5 - 10 years forms part of stock has been terms apply: Fixtures and fittings, entered at the on-account price, tools and equipment: 3 - 7 years including supplementary payments 1. The Board of Representatives to Arla Foods amba members. may decide to service deposits The book value of plant and Work in progress and finished in the personal accounts at a machineries, fixtures and fittings, goods are valued at cost consisting rate of interest not exceeding etc. at 17 April 2000 is, however, of the cost of raw materials and the official Danish discount rate. depreciated on a straight-line basis consumables with the addition of 2. Any decisions concerning over five years from this date. processing costs and other costs payments from the personal Assets in course of construc- directly or indirectly related to the accounts shall be made by the tion are not depreciated. individual goods. Board of Representatives. Assets with a short useful life, Stocks are valued according to 3. The plan is for the reserve to minor assets and minor costs of the FIFO method. If the cost ex- be paid out in the course of the improvement and computer soft- ceeds the net realisable value, 2000/2001 - 2007/2008 ware are expensed in the year of write-down is made to the net real- financial years. acquisition. isable value. The net realisable value is determined based on the No payments shall be made to the Investments turnover rate, marketability and members of Arla Foods amba Participating interests in subsidia- development in the expected sales which reduce the total of the ries and associated undertakings price of the goods. company’s capital account and are entered at the ownership Reserve A Upon the effecting of share of the companies’ equity Receivables such payments from Reserve A, a value at the end of the financial Receivables are recorded at nomi- corresponding amount shall be year, calculated in accordance with nal value less write-down for antici- paid into the capital account. In the Group’s accounting policies. pated bad debts based on an indi- addition, DKK 280 million shall be Furthermore, unrealised intra- vidual assessment of the debtors. added to the capital account group profits have been deducted. through consolidation and concur- For those cooperative societies Other current assets rently with payments from Reserve which form part of the Group, the Securities are valued at market va- A. DKK 70 million of this amount ownership share has been calcu- lue at the end of the financial year. has been transferred to the capital
43 account up to and including the As regards the defined contribu- Other provisions : financial year 2001/2002. tion schemes used in the Danish Other provisions comprise, in companies, the Group currently particular, the remaining part of Reserve B: pays fixed contributions to inde- the provisions for structural ration- Reserve B comprises the reserves pendent pension funds. The Group alisations made in the opening set aside on the incorporation of has not commitments of additional balance sheet at 17 April 2000. the company. payments. Defined benefit schemes, which Cash flow statement Revaluation reserves: are primarily used by the Group’s The cash flow statement is pre- The account includes net revalua- undertakings in Sweden and pared according to the indirect tion in accordance with the equity England, are those for which the method on the basis of the consol- method for non-dairy subsidiaries company is committed to pay a idated results. The statement and associated undertakings. certain amount in connection with shows the cash flows of the Furthermore, unrealised gains on retirement, depending on e.g. the Group, divided into operating, securities which are current seniority of the employees. investing and financing activities assets are included. The commitment regarding and how these cash flows have defined benefit schemes is calcu- affected the Group’s cash funds. Subsidiary reserves: lated annually by means of an The cash flow from operating The account includes net revalua- actuarial computation based on activities is calculated as the tion of dairy-related companies the expected future development in consolidated results adjusted for according to the equity method. interest, inflation and average non-cash operating items such as useful lives. depreciation and write-downs and Subordinate loan capital The actuarially calculated current changes to the working capital. Pursuant to the Memorandum of value less the market value of any The cash flow for investing Association, Arla ekonomisk fören- assets related to the scheme are activities comprises cash flows in ing contributed SEK 330 million in provided in the balance sheet un- connection with the purchase and the form of subordinate loan capi- der pension commitments. sale of intangible and tangible fixed tal, which in the event of the bank- Actuarial gains and losses arising assets as well as investments. ruptcy of the company ranks after as a consequence of the changed The cash flow from financing other claims. The loan, on which assumptions in the calculation of comprises the raising and repay- interest accrues at the same rate the pension commitment or in the ment of long-term and short-term as Reserve A, shall be repaid by computation of the assets related debt to financial institutions as well one eighth annually, the first time to the pension scheme are recog- as mortgage lenders. in the 2001/2002 financial year. nised in the profit and loss The cash funds are made up of account over the anticipated aver- cash funds and listed bonds Provisions age number of years remaining for entered in the balance sheet as Pensions: each employee. current assets. The Group has entered into pen- If the total actuarial gains and The cash flow statement cannot sion agreements with many of the losses do not exceed 10% of the be derived solely from the consoli- Group’s employees. current value of the pension dated accounts. The pension schemes comprise commitment, they will not be the defined contribution schemes incorporated in the accounts. and the defined benefit schemes.
44 Profit and loss account
PARENT COMPANY GROUP 02.10.00 01.10.01 01.10.01 02.10.00 – 30.09.01 – 29.09.02 DKK million Note – 29.09.02 – 30.09.01
24,526 25,751 Turnover 1 39,441 38,133 –21,772 –22,863 Production costs 2 –31,909 –30,.919 2,754 2,888 Gross profit 7,532 7,214
–1.,311 –1,365 Sales and distribution costs 2 –4,794 –4,548 –320 –404 Administration and joint costs 2/3 –1,304 –1,128 31 50 Other operating income 187 156 –41 –97 Other operating charges –213 –98 1,113 1,072 Operating profit 1,408 1,596
76 31 Results in subsidiaries 4 – – –10 –16 Results in associated undertakings –6 0 – – Divestment of subsidiary 5 111 – –165 –82 Net financial items 6 –307 –381 1,014 1,005 Profit before tax 1,206 1,215
–26 –16 Corporation tax 7 –47 –57 988 989 Profit for the year 1,159 1.,
Minority interest share – – of results in subsidiaries 2 –1 988 989 Arla Foods amba’s share of results for the year 1,161 1,157
Proposed allocation: 690 575 Supplementary payments to Arla Foods’ members 575 690 222 383 Transferred to capital account 383 222 76 31 Transferred to subsidiary reserves – – – – Transferred to other reserves 203 245 988 989 Total 1,161 1,157
45 Balance sheet
PARENT COMPANY GROUP Balance sheet Balance sheet at 30.09.01 at 29.09.02 DKK million Note at 29.09.02 at 30.09.01
ASSETS Fixed assets Intangible fixed assets 8 0 0 Licences and trademarks, etc. 75 94 296 277 Goodwill incl. group goodwill 642 594 184 92 Equalisation sum 92 184 480 369 Total 809 872
Tangible fixed assets 8 1,380 1,389 Land and buildings 3,199 3,659 1,682 1,898 Plant and machinery 3,887 3,393 60 59 Other assets, fixtures and fittings, etc. 547 521 151 142 Tangible assets in course of construction 481 472 3,273 3,488 Total 8,114 8,045
Investments 9 2,734 2,162 Participating interests in subsidiaries – – 94 99 Part. interests in associated undertakings 274 273 814 823 Other securities and participating interests 1,053 1,324 0 0 Other receivables 3 9 3,642 3,084 Total 1,330 1,606
7,395 6,941 Total fixed assets 10,253 10,523
Current assets Stocks 428 442 Raw materials and consumables 783 745 766 730 Work in progress 1,125 1,163 153 206 Finished goods and goods for resale 1,852 1,575 1,347 1,378 Total 3,760 3,483
Receivables 1,121 1,120 Trade receivables 4,022 3,988 3,477 3,931 Amounts owed by affiliated undertakings 0 0 204 158 Amounts owed by associated undertakings 360 210 32 24 Land and buildings for disposal 77 62 190 736 Other receivables 1,343 630 7 6 Prepayments and accrued income 81 97 5,031 5,975 Total 5,883 4,987
0 0 Securities 927 560
445 502 Cash at bank and in hand 913 1,305
6,823 7,855 Total current assets 11,483 10,335
14,218 14,796 TOTAL ASSETS 21,736 20,858
46 Balance sheet
PARENT COMPANY GROUP Balance sheet Balance sheet at 30.09.01 at 29.09.02 DKK million Note at 29.09.02 at 30.09.01
EQUITY, MINORITY INTERESTS AND LIABILITIES Equity 4,928 5,311 Capital account 5.,11 4,928 649 555 Reserve A 555 649 500 500 Reserve B 500 500 77 284 Revaluation reserve – – –43 –18 Subsidiary reserves – – – – Other reserves 266 34 6,111 6,632 Total equity 6,632 6,111
– – Minority interests 10 87 85
252 236 Subordinate loan capital 11 236 252
6,363 6,868 Total capital base 6,955 6,448
Provisions 33 24 Deferred tax 12 240 370 0 0 Pensions 13 699 609 193 149 Other provisions 14 694 735 226 173 Total provisions 1,633 1.,
Payables Long-term payables 15 1,020 1,882 Mortgage lenders 2,461 1,574 1,652 1,376 Credit institutions, etc. 2,137 2,319 2,672 3,258 Total 4,598 3,893
Short-term payables 112 383 Short-term part of long-term payables 451 171 1,254 373 Credit institutions 2,036 3,040 690 575 Supplementary payments 575 690 804 1,088 Trade payables 2,676 2,292 1,432 1,492 Amounts owed to affiliated undertak. 1,156 1,074 1 0 Amounts owed to associated undertak. 0 7 34 29 Corporation tax 44 60 593 524 Other payables 1,579 1,432 37 33 Accruals and deferred income 33 37 4,957 4,497 Total 8,550 8,803
7,629 7,755 Total payables 13,148 12,696
14,218 14,796 TOTAL EQUITY, MINORITY INTERESTS AND LIABILITIES 21,736 20,858
Contingent liabilities and guarantees, etc. 16
47 Equity movements
PARENT COMPANY GROUP 2001/02 DKK million 2001/02
Capital account: 4,928 Balance at 1 October 2001 4,928 383 Transferred from profit for the year 383 5,311 Total 5,311
Reserve A: 649 Balance at 1 October 2001 649 –94 Paid to MD Foods amba –94 555 Total 555
Reserve B: 500 Balance at 1 October 2001 500 500 Total 500
Revaluation reserves: 77 Balance at 1 October 2001 – Profit in non-dairy subsidiaries and 172 associated undertakings, net – 35 Exchange rate adjustments, etc. – 284 Total –
Subsidiary reserves: –43 Balance at 1 October 2001 – 31 Transferred from profit for the year – –6 Exchange rate adjustments, etc. – –18 Total –
Other reserves: – Balance at 1 October 2001 34 – Transferred from profit for the year 203 – Exchange rate adjustments, etc. 29 – Total 266
6,632 TOTAL EQUITY 6,632
48 Cash flow statement
GROUP
DKK million 2001/02 2000/01
Cash flow from operating activities: Profit for the year 1,161 1,157 Depreciation and other operating items without cash impact 1,356 1,336 Share of results in investments 6 0 Changes in pensions and other provisions 49 –40 Changes in stocks –277 100 Changes in receivables –896 –170 Changes in trade payables and other payables, etc. –336 –1,118 Corporation tax paid –71 –21 Cash flow from operating activities 992 1,244
Cash flow for investments: Investments in intangible fixed assets, net –119 –70 Investments in tangible fixed assets, net –1,110 –1,476 Investments in participating interests, net 231 390 Cash flow for investments –998 –1,156
Cash flow from financing activities: Changes in debt to credit institutions and mortgage lenders –19 –43 Cash flow from financing activities –19 –43
Changes in cash funds and securities –25 45
Cash funds and securities at 30 September 2001 1,865 1,820 Cash funds and securities at 29 September 2002 1,840 1,865
49 Notes
PARENT COMPANY Note GROUP 2000/01 2001/02 DKK million 2001/02 2000/01 1 Turnover Analysed by market Sweden 10,281 10,062 Denmark 9,353 9,248 Other EU countries 12,960 12,396 Rest of Europe 770 782 Middle East 2,445 2,103 North America 1,018 928 Central and South America 871 932 Asia 1,264 1,225 Africa 457 430 Other countries 22 27 Total 39,441 38,133
Turnover in markets outside Sweden and Denmark 19,807 18,823 Corresponding to 50% 49%
Analysed by product group: Fresh products 15,893 15,430 Cheese 10,606 10,640 Butter and spreads 5,120 4,289 Condensed milk products 5,410 5,573 Packaging and additives 974 1,065 Other turnover 1,438 1,136 Total 39,441 38,133
2 Costs Staff costs: By function –1,840 –1,901 Production –3,672 –3,663 –176 –176 Sale and distribution –1,582 –1,565 –191 –223 Administration and joint costs –622 –534 –2,207 –2,300 Total –5,876 –5,762
By type –2,083 –2,156 Wages and salaries –4,976 –4,926 –110 –130 Pensions –374 –314 –14 –14 Other social security costs –526 –522 –2,207 –2,300 Total –5,876 –5,762
6,775 6,770 Average number of employees (man years) 17,866 18,200
Salaries and remuneration incl. pensions for the Group include the parent company's Management Board by DKK 7 million (2000/2001: DKK 6 million) and fees to the parent company's Supervisory Board and Board of Representatives of DKK 10 million (2000/2001: DKK 10 million).
50 Notes
PARENT COMPANY GROUP 2000/01 2001/02Note DKK million 2001/02 2000/01
2 Costs (continued) Depreciation: By function –92 –92 Equalisation sum (production) –92 –92 –433 –518 Production –992 –903 –3 –2 Sales and distribution –136 –128 0 0 Administration –140 –156 4 6 Profit/loss on sale of intangible and tangible fixed assets –11 –12 –524 –606 Total –1,371 –1,291
3 Fees for the auditors appointed by the Board of Representatives Audit fee: –4 –4 KPMG C. Jespersen –2 –2 PricewaterhouseCoopers Other services: –2 –3 KPMG C. Jespersen 0 –1 PricewaterhouseCoopers –8 –10 Total
Results in subsidiaries 102 424 Profit in subsidiaries before tax –26 –11 Loss in subsidiaries after tax 76 31 Total
The figures include only the results of dairy-related subsidiaries. The non-dairy subsidiaries and associated undertakings have achieved the following net profit, 169 172 which has been taken directly to equity:
Divestment of subsidiary 5 The item only comprises the net profit from the sale of Arla Foods Fastighetsförvaltning AB, who owns the domicile property in Stockholm.
Financial items, net 6 Expenses: –30 –24 Interest payable to affiliated undertakings –17 –20 –331 –201 Other financing charges –426 –601 –361 –225 Total –443 –621
Income: 111 121 Interest receivable from affiliated undertakings 9 8 85 22 Other financing income 127 232 196 143 Total 136 240
–165 –82 Financial items, net –307 –381
Corporation tax –25 –337 Tax on taxable income for the year –74 –54 –1 10 Adjustment of deferred tax 11 1 0 7 Correction of tax for previous years 16 –4 –26 –16 Total –47 –57 0 24 Corporation tax paid in (including on-account tax) in the course of the year 71 21
51 Notes
Note GROUP 8 Intangible and tangible fixed assets
DKK million Intangible fixed assets Tangible fixed assets Licences Goodwill Plant Other assets Assets in and trade- incl. Equal- Land and fixtures course of marks, group- isation and machin- and fit- construc- etc. goodwill sum buildings ery tings etc. tion Cost at 1 October 2001 106 699 276 3,986 4,358 782 472 Exchange rate adjustm. -1 -1 0 82 61 2 17 Additions during the year 0 127 0 306 1,136 240 237 Transferred during the year 0 0 0 84 161 0 -245 Disposals during the year -2 -13 0 -756 -248 -81 0 Cost at 29 September 2002 103 812 276 3,702 5,468 943 481
Depreciation and write-downs at 1 October 2001 –12 –105 –92 –327 –965 –261 0 Exchange rate adjustm. -1 1 0 -5 -1 -5 0 Depreciation and write-downs for the year -16 -72 -92 -214 -787 -179 0 Depreciation and write-downs on discontinued assets 1 6 0 43 172 49 0 Depr. and write-downs at 29 September 2002 -28 -170 -184 -503 -1,581 -396 0 Net book value at 29 September 2002 75 642 92 3,199 3,887 547 481
New acquisitions for the year have been reduced by EU subsidies and subsidies from other public authorities of DKK 27 million. At the annual adjustment at 1 January 2002, the total property valuation of Danish properties with a book value of DKK 1,814 million amounted to DKK 1,906 million, to which should be added investments subsequent to this date.
PARENT COMPANY Intangible and tangible fixed assets (continued)
DKK million Intangible fixed assets Tangible fixed assets Goodwill Plant Other assets Assets in incl. Equal- Land and fixtures course of group- isation and machin- and fit- construc- goodwill sum buildings ery tings etc. tion Cost at 1 October 2001 323 276 1,520 2,104 78 151 Additions during the year 0 0 88 486 22 142 Transferred during the year 0 0 37 114 0 –151 Disposals during the year 0 0 –11 –4 –10 0 Cost at 29 September 2002 323 276 1,634 2,700 90 142
Depreciation and write-downs at 1 October 2001 –27 –92 –140 –422 –18 0 Depreciation and write-downs –19 –92 –106 –380 –15 0 Depreciation and write-downs on discontinued assets 001020 Depreciation and write-downs at 02.09.29 –46 –184 –245 –802 –31 0
Net book value at 29 September 2002 277 92 1.389 1.898 59 142
New acquisitions for the year have been reduced by EU subsidies and subsidies from other public authorities of DKK 26 million. At the annual adjustment at 1 January 2002, the total property valuation of Danish properties amounted to DKK 1,435 million, to which should be added investments subsequent to this date.
52 Notes
Note GROUP 9 Investments Part. interests in Other securities and DKK million associated undertakings participating interests Other receivables Cost at 1 October 2001 275 1,313 9 Exchange rate adjustments –49 10 0 Additions during the year 64 0 0 Disposals during the year –3 –276 –6 Cost at 29 September 2002 287 1,047 3
Adjustments at 1 October 2001 –2 11 0 Profit/loss for the year –6 0 0 Other adjustments –5 –5 0 Adjustments at 29 September 2002 –13 6 0
Net book value at 29 September 2002 274 1,053 3
PARENT COMPANY Investments Participating interests Part. interests in Other securities and parti- DKK million in subsidiaries associated undertakings cipating interests Cost at 1 October 2001 2,478 99 803 Exchange rate adjustments 22 0 9 Additions during the year 34 5 0 Disposals during the year –722 0 0 Cost at 29 September 2002 1,812 104 812
Adjustments at 1 October 2001 256 –5 11 Exchange rate adjustments 6 0 0 Profit for the year 186 3 0 Changes in intra-group profit, stocks –28 0 0 Other adjustments –70 –3 0 Adjustments at 29 September 2002 350 –5 11
Net book value at 29 September 2002 2,162 99 823
53 Notes
PARENT COMPANY Note GROUP 02.10.00 01.10.01 01.10.01 02.10.00 – 30.09.01 – 29.09.02 DKK million – 29.09.02 – 30.09.01
10 Minority interests Minority interests beginning of year 85 89 Share of results for the year –2 1 Changes in ownership share 4 –5 Minority interests, year-end 87 85
11 Subordinate loan capital 288 252 Subordinate loan capital, beginning 252 288 –36 18 Exchange rate adjustments 18 –36 0 –34 Repayments during the year –34 0 252 236 Subordinate loan capital, year-end 236 252
12 Deferred tax 36 33 Deferred tax beginning of year 370 421 –4 1 Exchange rate adjustments 15 –50 – – Disposal on sale of subsidiary –134 – 1 –10 Other changes in deferred tax during the year –11 –1 33 24 Deferred tax, year-end 240 370
13 Pensions The provision comprises defined benefit schemes in Sweden and UK and is computed as follows:
Current value of the pension commitments 1,885 1,654 Not included actuarial losses –441 –219 Market value of the assets of the pension schemes –745 –826 Total 699 609
The defined benefit schemes in UK are administered by independent pension funds who invest the amounts paid in to cover the commitments. The actuarial current value of the commitments (DKK 1,191 million at 29 September 2002 against DKK 1,022 million at 30 September 2001) less the market value of the assets (DKK 745 million at 29 September 2002 against DKK 826 million at 30 September 2001) amounts to DKK 446 million. This actuarial loss is included in the profit and loss account over the anticipated average number of working years remaining for the employees.
The defined benefit schemes in Sweden are not covered by payments to pension funds. The actuarial current value of the commitments is in all material respects recorded in the balance sheet.
14 Other provisions 259 193 Other provisions beginning of the year 735 500 0 – Reassessment of the opening balance sheet – 300
259 193 Adjusted other provisions, beginning 735 800 5 0 Provided during the year 9 8 –71 –44 Applied during the year –50 –73 193 149 Other provisions, year-end 694 735
54 Notes
PARENT COMPANY Note GROUP 30.09.01 29.09.02 DKK million 29.09.02 30.09.01
15 Long-term payables Long-term payables falling due after 1,312 2,112 five years after the balance sheet date 2,722 1.876
16 Contingent liabilities, guarantees, etc. Contingent liabilities 3,100 2,444 Surety and guarantee obligations 1,121 1,167 142 144 Leasing obligation (total 299 310 Obligations relating to agreement 219 314 on the supply of fixed assets 475 417
To cover exchange risks, the following forward exchange contracts have been entered into: 1,521 869 Forward contracts (buying) 1,262 1,777 4,665 4,856 Forward contracts (selling) 5,162 4,889 0 1,050 Interest swaps 1,213 0
The following assets have been deposited as security for debt: 170 170 Owner's mortgage in real property 463 444 468 448 with a book value of 1,221 1,421 0 0 Securities, book value 587 0
Arla Foods amba has received guarantee certificates from members of the cooperative. The basis for these guarantees is the individual member's deliveries over the past 5 financial years 573 590 calculated as DKK 20 per 1,000 kg milk delivered. 590 573 DKK 0 has been provided as security for debt.
The Group is a party to a number of lawsuits. The outcome of these cases is not expected to significantly affect the profit for the year or the assessment of the Group's financial position.
55 Group companies
Subsidiaries, associated undertakings and participating interests The companies marked with x are defined as dairy-related and their results are included in the profit and loss account of the parent company. The other companies are defined as non-dairy, and their results are therefore taken directly to the equity of the parent company.
SUBSIDIARIES that are all included in the consolidated accounts Ownership share Arla Foods AB, Sweden 100.0% ASM Mjölksocker AB, Sweden (100.0%) Arla Ost och Smör Produktion AB, Sweden (100.0%) Friggs AB, Sweden (100.0%) Eterna Näringsprodukter AB, Sweden (100.0%) Bregott AB, Sweden (62.4%) Arla Foods Distribution amba, Denmark 100.0% Danos A/S, Denmark (100.0%) Gredstedbro Ost A/S, Denmark (100.0%) Danmark Protein A/S, Denmark (100.0%) Mejerigrossisten Fyn ApS, Denmark 100.0% Arla Foods Holding AB, Sweden 100.0% Oy Arla Foods Ab, Finland (100.0%) Arla Foods AS, Norway 100.0% Arla Foods Inc., Canada 100.0% Arla Foods GmbH, Germany 100.0% Arla Foods S.r.l., Italy 100.0% Arla Foods Specialost AB, Sweden 100.0% Arla Foods Inc., USA 100.0% Arla Foods S.A.R.L., France 100.0% Andelssmør A.m.b.a., Denmark 91.9% Arla Foods Fonterra P/S, Denmark 75.0% Enigheden A/S, Denmark 51.0% Arla Foods Ingredients amba, Denmark 100.0% Arla Foods Ingredients GmbH, Germany (100.0%) Arla Foods Ingredients Inc., USA (100.0%) Arla Foods Ingredients KK, Japan (100.0%) Arla Foods Ingredients AB, Sweden (100.0%) Arla Foods Ingredients Ltd., UK (100.0%) Arla Foods Ingredients Korea Co. Ltd., South Korea (70.0%) AM Produktion K/B, Sweden (66.7%. The remaining 33.3% is owned by Arla Foods AB) AM Foods K/S, Danmark (66.7%. The remaining 33.3% is owned by Arla Foods amba) Arla Foods Sp. Z o.o., Poland 100.0% Arla Foods International A/S, Denmark 100.0% Danya Foods Ltd., Saudi Arabia Arla Foods Plc., UK Arla Foods Argentina S.A., Argentina Frödinge Holding AB, Sweden 100.0% Frödinge Mejeri AB, Sweden (100.0%) Medipharm Holding AB, Sweden 100.0% Medipharm AB, Sweden (100.0%) Munka Invest AB, Sweden (100.0%) Medipharm Investments Ltd., USA (100.0%) Medipharm CZ s.r.o., The Czech Republic (100.0%) Medipharm Hungary Kft, Hungary (51.0%) Semper Holding AB, Sweden 100.0% Semper AB, Sweden (100.0%) Anjo Holding AB, Sweden 100.0% A/S Anjo, Denmark (100.0%)
56 Group companies
SUBSIDIARIES that are all included in the consolidated accounts (continued) Ownership share Arla Foods Holding A/S, Denmark 100.0% Medani A/S, Denmark (100.0%) Kingdom Food Products ApS, Denmark (100.0%) Arla Foods Leasing A/S, Denmark (100.0%) Ejendomsanpartsselskabet St. Ravnsbjerg, Denmark (100.0%) Rynkeby Foods A/S, Denmark (50,0%. The remaining 50.0% is owned by Kinmaco ApS) Kinmaco ApS, Denmark (100.0%) GB Finans A/S, Denmark (100.0%) Arla Insurance Company (Guernsey) Limited, Guernsey (100.0%) Kirkeby Mejeri A/S, Denmark (100.0%) De Danske Mejeriers Fællesindkøb Amba, Denmark 96.0% Dairy Fruit A/S, Denmark (100.0%) A/S Crispy Food International, Denmark (100.0%) IFEG International ApS, Denmark (100.0%) Ejendomsselskabet Østre Gjesingvej 19 A/S, Denmark (100.0%) Danapak A.m.b.a., Denmark 93.0% Danapak A/S, Denmark (100.0%) Danapak Kartonnage A/S, Denmark (100.0%) Danapak Plast A/S, Denmark (100.0%) Tölkki OY, Finland (100.0%) Danapak Faltschachtelsysteme GmbH, Germany (100.0%) Danapak Cartons Ltd., UK (100.0%) Danapak Leasing ApS, Denmark (100.0%) Finn Westergaard Holding A/S, Denmark (60.0%) Danapak WP A/S, Denmark (100.0%) Dana-Green 2000 A/S, Denmark (51.0%)
ASSOCIATED UNDERTAKINGS JO-Bolaget Fruktprodukter HB, Sweden (owned through Arla Foods AB) 50.0% HB Grådö Produktion, Sweden (owned through Arla Foods AB) 50.0% Synbiotics AB, Sweden (owned through Arla Foods AB) 50.0% Arla Foods Hellas S.A., Greece 60.0% Biolac GmbH, Germany 50.0% Arla Foods Ingredients S.A., Argentina (owned through Arla Foods Ingredients amba) 50.0% Dan Vigor Ltd. Brazil (owned through Arla Foods International A/S) 50.0% Matpartner R&S AB, Sweden (owned through Semper Holding AB) 50.0% Cocio A/S, Denmark (owned through Danmark Protein A/S) 50.0% Delimo A/S, Denmark (owned through Arla Foods Distribution amba) 48.0% Danapak Flexibles Group, Denmark (owned through Danapak A/S) 40.0% Kronost AB, Sweden (owned through Arla Foods AB) 25.0%
PARTICIPATING INTERESTS Mejeriforeningen, Denmark 89.5% Svensk Mjölk Ekonomisk förening, Sweden 42.0% Lantbrukarnas Riksförbund, förening upa, Sweden 19.0%
Pursuant to Section 43(2) of the Danish Annual Accounts Act and section 22(5) of the Danish Statutory Order of Annual Accounts, information about individual subsidiaries has been omitted as it is deemed that such information may cause considerable damage to these companies.
The Group moreover owns a number of companies without commercial activities.
57 Management and Supervisory Board
Jens Bigum Åke Modig Lars Lamberg Knud Erik Jensen Man. Director Dep.-Man. Director Chairman Deputy Chairman
Bertil Andersson Leif Backstad Kaj W. Christensen Christer Eliasson Anders Ericsson
Leif Eriksson Elisabeth Gauffin Åke Hantoft Tommy Jacobsson Thomas Johansen
Sören Kihlberg Kr. Ole Kristensen Ove Møberg Hans Peter Nielsen Per Norstedt
Jan Nørgaard Kaj Ole Pedersen Søren Rasmussen Pejter Søndergaard Bent Juul Sørensen
58 Key figures DKK million New products 2001/02
1. Kærgården 475 g, launched Denmark October 2001. 2. Hoobs yoghurt, launched UK October 2001 3. Lurpak Lighter Spreadable, launched UK October 2001 4. A38 Natural Light, launched Denmark October 2001 GROUP 5. Minimilk 1 litre, launched Denmark October 2001 01.10.01 00.10.02 00.04.17 6. Buko fresh cheese cucumber with garlic, launched Denmark October 2001 02.09.29 01.09.30 00.10.01 7. Herb butter with chilli and lime, launched Sweden October 2001 Profit 8. Gratella Mozzarella, launched Sweden January 2002 9. Kelda mild tomato soup, launched Sweden January 2002 Net turnover 39,441 38,133 17,453 10. Minifraiche 5%, launched Sweden January 2001 outside DK/SE 19,807 18,823 8,200 11. Dexter’s Laboratory yoghurt, launched UK January 2002 % outside DK/SE 50 % 49 % 47 % 12. Powerpuff Girls yoghurt, launched UK January 2002 Net profit 1,161 1,157 392 13. Karoline’s gratin cheese, launched Denmark January 2002 Supplementary payments 575 690 276 14. Rosenborg Danish Blue Cheese 25 oz., launched USA January 2002 15. Yoggi peach melba, launched Denmark February 2002 Consolidation 586 467 116 16. Dano full cream milk powder, launched Bangladesh February 2002 Financing 17. Cheasy 13% medium mature in slices, launched Denmark February 2002 Balance sheet total 21,736 20,858 21,275 18. Høng gold danablu, launched Denmark February 2002 Fixed assets 10,253 10,523 11,055 19. Malthe 30+ medium mature in slices, launched in Denmark February 2002 Gross investments 2,046 1,877 905 20. Cheasy 5% mild in slices, launched Denmark February 2002 21. Magré in slices, launched Sweden March 2002 Capital base 6,955 6,448 6,343 22. MiniMeal vanilla rice with blueberries, launched Denmark April 2002 Equity ratio 23. Arla Mini Vanilla, launched Denmark April 2002 In % 32 % 31 % 30 % 24. Arla Mini Cocoa, launched Denmark April 2002 Raw materials 25. Riberhus 30+ medium mature, launched Denmark April 2002 Milk received (the Group) million kg 7,041 7,085 3,344 26. Yoggi Dröm 4-pack, launched Denmark April 2002 27. Bregott organic, launched Sweden May 2002 Denmark 3,964 3,967 1,914 28. Garlic & chive cold sauce, launched Sweden May 2002 Sweden 2,157 2,167 993 29. Feta Snack, launched Sweden May 2002 Other countries 920 951 437 30. Cheese and tomato cold sauce, launched Sweden May 2002 No. of co-operative owners 13,642 14,909 16,121 31. Herb butter with garlic, launched Sweden May 2002 Denmark 7,103 7,921 8,639 32. Semi-skimmed milk 3dl, launched Sweden May 2002 33. Milk drink with chocolate flavour, launched Sweden May 2002 Sweden 6,539 6,988 7,482 34. Milk drink with strawberry flavour, launched Sweden May 2002 Employees 35. Yoggi yalla! drinking yoghurt with new flavour, launched Sweden May 2002 No. of employees (man years) 17,866 18,200 18,622 36. Organic milk 2 pts. for multiple, launched UK May 2002 37. Cravendale, launched nationwide in UK May 2002 38. World Cup yoghurt, launched UK May 2002 TURNOVER 39. Mini milk in cans, launched Denmark June 2002 40. Cheasy 6% fresh cheese chives and onion, launched Denmark June 2002 01.10.01 – 02.09.29 41. Milex Kinder 1-5, launched Panama June 2002 Divided into markets 42. Cream cheese natural, launched Singapore June 2002 Divided into markets 8 9 43. Cheasy curry sauce, launched Denmark August 2002 7 6 44. Lillebror cheese stickers, launched in new packaging Denmark August 2002 1. Sweden 10,281 10,062 5,060 5 1 45. Winnie the Pooh milk powder, launched Panama August 2002 2. Denmark 9,353 9,248 4,193 4 46. Dano full-cream milk powder, launched Yemen August 2002 3. Other EU countries 12,960 12,396 5,305 47. Cottage cheese & raspberries/blueberries, launched Sweden September 2002 4. Rest of Europe 770 782 330 48. MiniMeal vanilla rice with strawberries, launched Sweden September 2002 5. Middle East 2,445 2,103 885 49. Mild yoghurt with topping and honey, launched Sweden September 2002 6. North America 1,018 928 412 50. Scooby-Doo yoghurt, launched UK September 2002 3 51. Cream cheese light, launched Canada September 2002 7. Central and South America 871 932 601 2 52. Cream cheese with pepper, launched Canada September 2002 8. Asia 1,264 1,225 477 53. Milex full-cream milk powder, launched Honduras September 2002 9. Africa 457 430 175 54. Rosenborg noble blue, launched USA September 2002 10 Other 22 27 15 55. Apetina feta, launched Finland October 2002 Total 39,441 38,133 17,453 Divided into product categories 56. Apetina feta with red pepper, launched Finland October 2002 57. M1 full-cream milk powder, launched Honduras October 2002 15 16 58. Low fat spreadable product, launched Kuwait October 2002 Diveded into product categories 14 59. Apetina feta, relaunched Spain, Holland and Germany December 2002 11 Fresh products 15,893 15,430 7,061 60. Apetina feta in cubes, relaunched Holland, Belgium, France, Italy, Norway and Sweden December 2002 12 Cheese 10,606 10,640 4,652 61. Buko Garli with herbs, launched Holland January 2003 11 13 Butter and spreads 5,120 4,289 2,033 62. Buko fresh cheese, relaunched Germany January 2003 After milking, farmer Jens Åge Skipper ➜ 13 63. Buko fresh cheese with herbs, relaunched Germany January 2003 14 Condensed milk products 5,410 5,573 2,574 feeds his herd of 80 dairy cows. 64. Finello gratin cheese, relaunched Germany January 2003 15 Packaging 974 1,065 502 Originally, Jens Åge Skipper was a 65. Finello pasta cheese, relaunched Germany January 2003 16 Other turnover 1,438 1,136 631 66. Finello pizza cheese, relaunched Germany January 2003 member of the Randers & Viborg Total 39,441 38,133 17,453 67. Havarti in slices, relaunched Germany January 2003 co-operative dairy which merged with 12 68. Cave cheese in slices, relaunched Germany January 2003 the then MD Foods in 1996. 69. Buko pineapple, launched Holland January 2003
2