Prepared Foods January 31, 2005 enewsletter

Britain's biggest milk supplier Arla Foods (U.K.) PLC said chief executive Neil Davidson has decided to retire and will leave the company at the end of September.

In a statement ahead of its annual shareholder meeting, the dairy group also announced that trading in the first four months of its fiscal year has been in line with expectations, aided by strong sales of Lurpak butter.

Shares in a number of rival British food producers have been hurt in recent weeks following a spate of glum trading statements.

Food manufacturers such as Northern Foods PLC and Uniq PLC have reported growing pressure to cut prices from their main supermarket customers such as Marks & Spencer Group PLC and Tesco PLC.

However, Arla did go on to say that having been hit by a rise in the price of various raw materials such as fuel and plastics in recent months it is in talks with both producers and customers to recover those costs.

"Over recent months, our business has continued to experience significant non-milk inflationary pressures, and we have begun price negotiations to recover this from the market," it said.

The company, which processes 2.4 billion liters of milk each year, said those costs had risen by the equivalent of one pence per liter.

Following discussions with British farmers, Arla agreed in December to hold milk prices, unlike its two main rivals Robert Wiseman Dairies PLC and Dairy Crest Group PLC which negotiated reductions from their suppliers.

However, it said that decision will be reviewed at the start of April.

Arla, forged out of the October 2003 merger between Arla Foods PLC and Express Dairies PLC, said the integration of the two businesses should be complete by the time of Davidson's departure.

As part of that process, the company announced the closure of a dairy in Stratford, east London with the loss of 40 jobs, a further 140 jobs being relocated to another depot north of the capital.

Arla said its Scottish expansion plans are progressing, with planning permission for a new dairy at Lockerbie granted just before Christmas.