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.