Arla said profits were down on its predictions by around €13m, mostly due to the boycott, which was sparked early this year by cartoons of the prophet Muhammad in a Danish newspaper. Arla has faced a torrid six months in the Middle East, on of its key emerging markets, after it became a symbol of protest against Denmark. The firm was forced to halt production. It said this week that sales had not returned to pre-boycott levels in all countries except Saudi Arabia, where the group has the majority of its operations. Sales in Saudi Arabia remained 'sluggish', and Arla finance director Jørn Andersen said the group still expected to lose DKK400m (€53.5m) this year because of the boycott.
Arla recently re-started production of Puck cheese for the Middle East at its factory in Nibe, Denmark. A company spokesperson told DairyReporter.com, however, the decision had only been made to prevent Arla running out of fresh stock in the Middle East this autumn.
"If we want to stay in the market, we have to deliver fresh products. This is not because the situation in the Middle East has turned."
Arla has also been hit by problems closer to home in the first half of 2006.
It recently dropped its lower calorie Mini30 milk in Denmark only six months after the launch, because consumers did not like the taste.
The decision to pull the product was a blow to Arla's efforts to win back market share in Denmark by targeting consumer health trends, and more specifically, calorie-counting women. Arla's share has fallen from around 89 per cent in 2003 to 80 per cent this year.
The group has progressed in some areas over the last six months, however.
One example is its acquisition of Tholstrup Cheese in Denmark, handing Arla an important new inroad into increasingly competitive cheese markets across Europe and the US.
"The acquisition of the Danish Tholstrup Cheese fits in well with Arla Foods' strategy of further developing the speciality cheese category. The Supervisory Board's recent decision to expand the feta and mozzarella production in Denmark is linked to this," said Peder Tuborgh, the company's managing director.