The company, whose products include Lurpak butter, Three Cows cheese and Dano milk powder, says that its half-year profits were down US$17 million to US$41 million for the first half of 2006.
Arla, which has been operating in the region for more than 40 years, was boycotted after a Danish newspaper printed cartoons depicting the Prophet Mohammed. The cartoons sparked protests across the world and led to Danish products being withdrawn from sale in the Middle East for several months.
As part of its recovery strategy, the company has commissioned a pan-Arab television campaign created by Fortune Promoseven in a bid to boost sales, and has made a commitment to building stronger relations with local communities as part of its new marketing action plan. It claims that sales have now returned to pre-boycott levels, with the exception of its key market of Saudi Arabia, which remains "sluggish".
Arla marketing manager, Laurent Ponty, told Campaign: "If you compare our sales levels with last year they vary between 50% and 100%. "There are areas and countries where it is taking more time than others so it's difficult to generalise. But as a whole, we are back on the shelves. You can find our products in every country in the Gulf, so the consumer is getting used to our products once again."
Ponty said Arla representatives were still talking with political and religious authorities in Saudi Arabia in a bid to speed up the company's revival in the Kingdom. "Saudi is a big country and the trade there is much more fragmented than it is, for example, in the UAE. So it takes time to visit all of our clients," he said.
"It's a case of going into dialogue with the authorities, whether they be political or religious, to explain our position and the situation of the company."
Arla has been working with PR agency Promoseven Weber Shandwick to help it overcome the crisis. Ponty said that the company's marketing strategy was leveraging its heritage and its long association with the region.
"Whether it's Lurpak or Three Cows, it's not only you as the consumer that's buying them - your mother was buying them before you as well. So we have played on our heritage and our history," said Ponty. "In terms of marketing it has been stressful, but somehow interesting because we have come out of it positively.
"One thing we have learned is the importance of being close to local communities. It's one thing to do a pan-Arab TV ad, it's another thing to do an activity for the local school. That is something we're going to be concentrating on in the future - local communities."