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Last Updated: Thursday, 11 August 2005, 15:48 GMT 16:48 UK
Dairy firm Arla in profits alert
Bottles of milk
Arla has about one-third of the UK milk market
Milk supplier, Arla Foods UK, has seen its shares fall nearly 8% after it issued a profits warning.

The Danish-owned firm, which merged with Express Dairies in 2003, said higher oil and utility prices were hitting its UK profit margins.

It said it could not pass on the extra costs and that profits for the current year would be below its expectations.

The firm said the cost pressures could last into the next financial year but it was taking steps to "mitigate them".

Supermarket supplier

In the short run, what has happened to fuel prices for deliveries is the most pressing concern
Tim Smith, Arla chief executive

Arla Foods, which is 51% Danish owned, has about 35% of the UK fresh milk market, and is known for dairy brands such as Lurpak and Anchor butter, and for Cravendale milk.

It supplies both Tesco and Asda supermarkets and, in May, the Morrisons supermarket chain gave Arla all its supply contracts for Scotland.

The firm's chief executive Tim Smith told Reuters that the steep increase in diesel prices and in plastics for packaging had hurt it the most.

"In the short run, what has happened to fuel prices for deliveries is the most pressing concern," he said.

Big surprise

Analysts said the profits warning was unexpected.

"This has been a bit of a surprise," said analyst Charles Hall at Panmure Gordon.

"It's very close to the year-end and everyone has been aware of oil prices for some time."

Arla said it had expected reforms to Europe's Common Agricultural Policy (CAP), implemented on 1 July, to result in lower skimmed milk and butter prices from farmers, but said this had not happened yet.

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