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15CONSOLIDATED ANNUAL REPORT
Navigating
through
a difficult
market
2015
in short
With market shares gained in most of our
markets, a much more profitable mix of
products and more efficient operations,
the Arla of today is an even more solid
business than when we entered 2015.
Peder Tuborgh, CEO
Performance price
33.7
EUR-cent/kg
Revenue
development
-3.3%
Branded
growth
+ 3.4%
Milk volume
14.2
billion kg
Milk volume
development
+ 4.6%
Revenue
28%
10.3
billion EUR
2%
7%
15%
3%
18%
9%
14%
4%
Consumer UK
Consumer Finland
Consumer Central
Europe
Arla Foods Ingredients
Consumer Sweden
Consumer Denmark
Consumer
International
Global Categories and
Operations
Others
CONTENT
MANAGEMENT REVIEW
4 CREATING VALUE
CONSOLIDATED FINANCIAL STATEMENTS
62 CONSOLIDATED FINANCIAL STATEMENTS
6 OUR BUSINESS REVIEW
120 ENDORSEMENTS
18 OUR FINANCIAL REVIEW
122 DEFINITIONS AND GLOSSARY
24 OUR MARKET REVIEW
40 OUR STRATEGY
46 OUR CORPORATE GOVERNANCE
Project management: Group Finance, Arla. Copy, design and production: We Love People. Translation: TextMinded.
Photos: Mikkel Bache, Jens Bangsbo, Stephanie Gongdon Barnes and Arla. Printer: Scanprint A/S.
The consolidated annual report is published in Danish, Swedish, German, French and English. Only the original Danish text is legally binding.
The translation has been prepared for practical reasons.
Financial statement for the parent company
Under section 149 of the Danish Financial Statements Act, this consolidated annual report represents an extract of the Company’s complete
annual report. In order to make this report more manageable and user-friendly, the Arla Foods Group has decided to publish a consolidated annual
report without the financial statements for the parent company, Arla Foods amba. The annual report for the parent company is an integrated part
of the full annual report and is available at www.arlafoods.dk. Profit sharing and supplementary payment from the parent company are set out in
the equity section of the consolidated annual report. The full annual report contains the statement from the Board of Directors and the Executive
Board as well as the independent auditor’s report.
Owners
Profit
23.9%
12,650
25.2%
0.4%
1.7%
7.0%
21.0%
20.8%
Development
in owners -5.7%
Denmark
Sweden
Germany
UK
Belgium
Luxembourg
The
Netherlands
295
million EUR
2.8%*
of revenue
* Based on profit allocated
to owners of Arla Foods amba
Equity
Net interest-
bearing debt
Leverage
2.1
billion EUR
Equity ratio
31%
2.5billion EUR
3.3
4
Value
creation
Arla is a farmer-owned cooperative.
Rooted in our mission and driven by our
new strategy, Good Growth 2020, our main
objective is to secure the highest value for
our farmers’ milk. Creating value for our
farmers’ milk is embedded throughout the
value chain - from the cow to the consumer.
We operate our entire value chain with
a continuous focus on efficiency and
optimising our raw material, capital and
human resources.
Vision
Creating the future of dairy to
bring health and inspiration to
the world, naturally
Owners
12,650 owners
in seven countries
Supplementary
payment
for milk
EUR 110 million
Contributed
capital
EUR 31 million
Interest on
contributed
capital
EUR 3 million
o
m
m
o
C
n
1 m il li o
4
R 1
U
a l E
p i t
a
n c
Arlagården®
Corporate democracy
EUR
10.3
billion
ARLA RE V E N U E
Control of
the entire
value chain
Cost of raw milk
EUR 4.5 billion
2.7-3%2015
target profit
share
Strategy:
Good Growth 2020
Excel in eight categories
Focus on six regions
Win as ONE Arla
ANNUAL REPORT 2015MANAGEMENT REVIEW/CREATING VALUE 5
Mission
To secure the highest value for
our farmers’ milk while creating
opportunities for their growth
Production, innovation
and sales
Production and packaging
facilities in 16 countries
Sales offices in 38 countries
19,025 colleagues
Milk inflow
14,192
million kg
Secure home for all
of our farmers’ milk
100+ years of
dairy expertise
Innovative products
Engaged and skilled
colleagues
Distribution network
Market insight
Global market
position
Strong brands
Brand share
42.1%
Trading share
21.5%
Customers
and consumers
Products sold in
100+ countries
Identity
Healthy, natural, responsible
and cooperative growth
Corporate democracy
2.7-3%
ANNUAL REPORT 2015MANAGEMENT REVIEW/CREATING VALUE OUR
BUSINESS
REVIEW
We illustrate our business model
as a milk wheel. We strive to keep
the wheel turning by continuously
seeking growth opportunities
worldwide while streamlining our
business internally.
OUR BUSINESS REVIEW
8 Change and challenges by chairman of
the Board of Directors, Åke Hantoft
9 Arla has become more resilient in the
tough market by CEO, Peder Tuborgh
10 Seven essential priorities for Arla
11 Seven essential priorities for 2015
12 Volume is king in retail and foodservice
13 Grow the Arla® brand volume
14 Grow butter and spreads volumes
15 Seven essential priorities for Arla in
2016
16 2015 highlighted events
8
Change and
challenges
Åke Hantoft, Chairman
of the Board of Directors
INFLOW OF RAW MILK
(mkg)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
,
1
3
5
7
0
,
1
2
6
7
6
,
1
4
1
9
2
,
1
0
4
1
0
,
9
2
4
1
2011
2012
2013
2014
2015
Two factors have defined the dairy industry in
2015. Firstly, it was a year in which general
market conditions resulted in a low milk price,
which in turn led to a very tough situation for
all dairy farmers - not only those in Arla.
Secondly, it has been a challenge for our
farmers to maintain a viable financial situation
and unfortunately some have been forced to
leave the industry.
2015 was also the year when the EU milk quota
system was abolished. It happened at a time
when milk prices were unsustainably low and
demand in some parts of the world was slowing
down. Despite this, it was positive news because
it means that milk production on our individual
farms is no longer limited by quotas. Since April,
many Arla farmers have increased their milk
production, resulting in an increase in Arla’s milk
intake of 4.6 per cent in 2015. We have upheld
the commitment we made to our owners and
have collected, processed and marketed this
additional volume without restrictions and at
a price that is, overall, competitive against
our peers.
The security this provides us as farmers is
incredibly valuable and it is fundamental to how
we in Arla interpret the cooperative model:
Same opportunities, same rights and same
obligations for all owners. Same milk price for
the same milk as well as one owner and one
vote. These are the values that our predecessors
committed to in the 1880s, when they founded
our cooperative.
REVISITING OUR COOPERATIVE VALUES
Some of these values were challenged in 2015.
From farmer to farmer, in member meetings, in
the Board of Representatives and in the Board
of Directors we have had fundamental
discussions about them. I believe discussions
like these strengthen our cooperative. They test
our values and democracy and this helps us to
develop. We will take this even further during
2016 when the Board of Directors will devote
time to revisiting our cooperative principles and
establishing an owner strategy dedicated to
bringing our joint European cooperative into
the future.
SPOTLIGHT ON ARLA FARMERS
In 2015, several retailers introduced initiatives
to support Arla farmers. We also saw Arla telling
consumers that we, the dairy farmers, are
owners of Arla and share the profit generated
from the sales of Arla’s products, irrespective of
the market in which they are sold. Our
farmer-owned story is being well received by
consumers, they like the idea of a one-for-all
and all-for-one cooperative. Campaigns have
been launched in several European and
international markets and more markets will
follow. It is encouraging to see Arla promoting
milk as a healthy product that consumers can
trust and that products are produced in a
responsible way. However, it is also an obligation.
It puts the spotlight on us as farmers and further
increases our everyday responsibility on farm
- taking good care of our cows and of the milk.
In 2015, our Arlagården® quality assurance
programme was rolled out in The Netherlands
and the UK. It now covers all Arla farms in the
seven owner countries. It is a strong asset for
our company today and it will increase in
importance in the future.
2016 will hopefully be the year in which we see
improvements in the global market. With a new
strategy designed to add value to our increasing
raw milk volumes through profitable products
and market positions, I believe that we have the
right plan in place to address opportunities
and challenges in a continuingly unpredictable
dairy market.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW 9
Arla has become
more resilient in the
tough market
Peder Tuborgh, CEO
PERFORMANCE PRICE
(EUR-cent/kg)
50
40
30
20
10
0
3
8
6
.
3
6
9
.
4
1
0
.
4
1
7
.
3
3
7
.
2011
2012
2013
2014
2015
There is no doubt that 2015 has been a very
difficult year for dairy farmers. No longer
limited by the EU milk quota system, the
increased milk supply from European dairy
farmers added to the pressure on the global
dairy industry, which was already severely
affected by low market growth, the Chinese
slowdown in demand and the Russian
embargo. It has affected the whole global
dairy industry.
In Arla, the situation has led to a decline in
revenue from EUR 10.6 billion in 2014 to EUR
10.3 billion in 2015. Our profit is also slightly
lower. Not only because our revenue decreased,
but because the Board of Directors agreed to
reduce the profit expectation. This reduction
was made in favour of a higher prepaid milk
price to help our owners in their very difficult
financial situation.
Prior to the start of 2015, we knew the year
would be tough and our plan was to minimise
the impact of the low price level in the market
by pursuing two agendas: One being to increase
our share of products in retail and foodservice
and the other to reduce our costs. Focusing
relentlessly on delivering according to these
agendas enabled us to maintain a competitive
milk price compared to our peers.
INCREASING OUR RETAIL SHARE
Despite the lower demand in most of our
markets, we set out to sell more products in the
retail and foodservice sector equal to a volume
increase of 500 million kg extra milk - and we
succeeded. We proactively increased our
marketing spend by 25 per cent which resulted
in stronger positions and brands. In particular, I
am pleased to see that the Arla® brand has
strengthened its ‘Healthy, Natural Goodness’
position. Our owners have been, and will be, an
important element in building the Arla® brand
as our surveys show that awareness of our
farmer ownership increases consumers’ trust
in Arla.
REDUCING OUR COSTS
In 2015, all functions and business groups
across Arla were obliged to adhere to a capacity
cost freeze. Furthermore, we delivered on our
long-term efficiency programmes. Through a
wide range of initiatives from 2012 to 2015,
including reduced spending, efficiency
improvements and continuous adjustment of
the organisation, we achieved our savings goal
of EUR 330 million. We have set a new target of
delivering additional savings of EUR 400 million
from 2016 to 2020. At 31 December 2015
leverage was 3.3 and we managed to meet our
long-term objective of 2.8 - 3.4.
Delivering consistently against the two agendas
has significantly improved the strength of our
business. With market shares gained in most of
our markets, a much more profitable mix of
products and more efficient operations, the Arla
of today is an even more solid business than
when we entered 2015.
FACING A PARADIGM SHIFT
This is an important foundation as we are now
facing a paradigm shift in Arla. Going forward,
our focus will, to a lesser extent, be about
building the milk pool through mergers and
acquisitions. With increasing volumes of milk
coming from our current owners, we need to
focus even more on organic growth within our
existing business. During the past years, we have
carefully prepared Arla for this situation and our
new strategy ‘Good Growth 2020’ is designed to
address this.
We have an extremely difficult task ahead of us
in 2016 as global milk supply still exceeds
demand and our main markets currently show
little or no growth. We hope for a turn in the
second half of 2016, however, the market
remains very unpredictable. One thing we do
know is that Arla stands stronger. So, even
though we expect the beginning of 2016 to be
as tough as 2015, we have become more
resilient to the volatility in the market.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW
10
Seven
essential
priorities
for Arla
Our seven essentials reflect Arla’s business priorities for the year. These goals
support the longer term view we take in our strategy. In order to deliver strong
results for our owners and ensure that we progress in accordance with Arla’s
strategic plan, the Executive Management Group prepare the seven essential
priorities each year, which are then approved by the Board of Directors.
The concept of seven essential goals has its
roots in this philosophy. They express business
priorities one year at a time. They break
long-term strategies into short-term goals and
create a year-on-year foundation for improved
performance within Arla.
Arla’s growth agenda has, to a great extent,
been driven by mergers and acquisitions and
going forward our growth agenda is driven by
good local partnerships and a willingness to
seize opportunities as they arise. A traditional
budget, which is static and discourages
investment, does not have the flexibility to
support this agenda.
In an increasingly volatile world, budgets are
outdated the moment they are entered into a
spreadsheet. Relative targets are far more
suitable for managing change. At Arla, we have
therefore substituted the traditional budget
with rolling forecasts and stretched targets.
These concepts are based on the idea that
success is fundamentally about achieving more
ambitious goals and performing significantly
better than the previous year.
Our seven essential priorities break down our long-term strategy into
short-term priorities for the year. They are supplemented by financial
targets. Our seven essentials and long-term strategy are both rooted in our
vision and mission, which define our overall direction and purpose.
Vision
Strategy 2017
Strategy 2020
Seven
essentials
2013
Financial
targets
2013
Seven
essentials
2014
Financial
targets
2014
Seven
essentials
2016
Financial
targets
2016
Seven
essentials
2017
Financial
targets
2017
Seven
essentials
2015
Financial
targets
2015
Mission
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW Volume is king
in retail and foodservice
Increase retail and foodservice volumes
by 300 - 500 million kg of milk.
Reduce the amount of milk procured
from non-owners.
Result
We have successfully increased retail and
foodservice volumes by approximately
500 million kg of milk. Furthermore, the
amount of milk procured from non-owners has
decreased by 5.6 per cent.
Read more about our volume agenda
on page 12
11
Grow volumes in
Consumer International and secure
profitability in Arla Foods Ingredients
Implement accelerated Consumer International
growth plan to increase volumes.
Deliver a minimum of two mergers or acquisitions in
growth markets and Arla Foods Ingredients.
Result
Growth in Consumer International is back on track
with volume driven revenue growth of 5.8 per cent and
a platform has been created for further growth.
Successful cooperations have been established
in growth markets during the year.
Profitability in Arla Foods
Ingredients is under pressure due
to decreasing sale prices.
Read more about growing volumes in
Consumer International on page 36
Seven essential priorities for
2015
In 2015, our seven essentials focused on
moving additional milk into value added products
in order to increase profitability. We knew that it
would be a very challenging year and our volume
agenda and efficiency programmes were
central to how we addressed the situation.
We had a plan for 2015 - and
we followed it.
Grow butter
and spread volumes
Grow Lurpak® and Anchor® butter and
spreadable products by 3 - 5 per cent.
Launch Lurpak® in Brazil, Mexico, Australia
and Central Europe.
Result
The butter and spreads category is delivering
volume driven revenue growth of 5.9 per cent.
This is a result of volume driven revenue growth
for Lurpak® of 6.1 per cent and volume driven
revenue development for Anchor® of -0.3 per cent.
Lurpak® is now being sold in Brazil, Mexico,
Australia, and Central Europe.
Read more about growing the butter
and spread volumes on page 14
Grow the Arla® brand volume
Complete the implementation of the new
Arla® brand platform globally and increase
brand volume by 3 - 5 per cent.
Result
The Arla® brand is performing positively
with volume driven revenue growth of
2.1 per cent, however, this is below target.
During 2015 we have succeeded in building
a solid foundation for the Arla® brand, which
is spearheading the new health strategy.
Read more about growing
the Arla® brand volume
on page 13
Deliver excellent customer
service through effective
IT and efficient planning
Improve customer service and track
relevant key performance
indicators for core market customer
delivery performance.
Result
We have improved the stability
of our IT system in 2015, however,
incidents in April and May affected
overall performance.
Strengthen delivery of efficiency
and Net Working Capital programmes
Continue implementation of LEAN, Total Cost of
Ownership, Design to Value and structural plans to deliver
cost efficiency gains of EUR 330 million by the end
of 2015 compared to 2012.
Freeze capacity costs outside supply chain across Arla
with the exception of growth markets.
Develop and implement next Net Working Capital plan to
deliver EUR 130 million cash release in 2015.
Result
In 2015 we delivered cost efficiency gains of
EUR 330 million compared to 2012. We have delivered capacity
costs outside supply chain at index 102 and have delivered
EUR 151 million cash release as a result of our Net Working
Capital programme.
Read more about our efficiency and Net Working
Capital programmes on page 23
Increase profitability in Consumer UK
and Consumer Central Europe
Secure increased profitability in Consumer UK through
cost savings in supply chain and other market related
measures of EUR 80 - 95 million. In addition, grow the
Arla brand and volume by 5 - 10 per cent.
Secure increased profitability in Consumer Central Europe
by further enhancing brands and value added products.
Result
Consumer UK has met its cost savings target of
EUR 80 - 95 million and delivered volume driven revenue
growth for the Arla brand of 5.1 per cent.
Profitability in Consumer Central Europe is under pressure
due to local market conditions. However, in 2015
Consumer Central Europe increased its brand share to
19.5 per cent and implemented several initiatives to
increase profitability going forward.
Read more about our progress in Consumer UK
and Consumer Central Europe on page 37
Meeting target
Progress towards target
No progress towards target
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW 12
Volume is king
in retail and foodservice
Arla has been preparing for
the abolition of the EU milk
quota system for several years and our
volume agenda remains imperative to
the business. By constantly growing
our brands and launching products in
existing as well as new markets, Arla
can continue its global growth journey
and accommodate our owners’
increasing milk volumes while securing
profitability in a difficult market. In
2015, we have remained committed to
our plan to move additional milk into
profitable branded and private label,
retail and foodservice products.
A competitive milk price
creates opportunities for our
farmer owners’ growth.
Arla is a cooperative
and thereby obliged to
handle all of our
owners’ milk and we
are also committed to
adding value to it.
Large milk volumes enable
scalability and provide the
opportunity for innovation,
product development
and branding.
2015
2014
Inflow of raw milk
Inflow of raw milk
14,192
million kg
13,570
million kg
Volume driven
revenue growth
Volume driven
revenue growth
4.3%
5.3%
Branded growth
Branded growth
3.4%
Trading share
21.5%
2.1%
Trading share
20.8%
When it comes to milk intake, Arla is ranked fifth
in the world. Arla’s cooperative business model
is built on the principle of the milk wheel
whereby continuous milk volumes keep the
wheel turning and provide the opportunity for
innovation, product development and branding
leading to value creation.
The abolition of EU milk quotas in 2015 is
accelerating the turning of the wheel and we
expect milk intake from our owners to increase
by 3 - 4 per cent year on year. This is why the
volume is king agenda continues to be an
essential priority in 2016.
In 2015, we proactively made the decision to
increase our investments in marketing by
25 per cent with the objective to transfer more
milk into retail and foodservice and reduce the
share of commodity products. We have also
sought new contracts and new consumers and
taken advantage of new opportunities both
inside and outside Europe to strengthen our
position. As a result, we have approximately
moved an additional 500 million kg of milk into
profitable positions in European core markets
and outside the EU compared to last year while
keeping the trading share under control at
21.5 per cent.
In 2016, we aim to add an additional 400 million
kg owner milk into retail and foodservice. As our
owners are supplying increasing volumes of
milk, we are facing a true paradigm shift. Going
forward our focus will no longer be on driving
growth and building the milk pool through
mergers and acquisitions. Rather, we will invest
in creating organic growth in our existing
business with milk from our current owners.
The increasing demand around
the world for healthy and natural
products offers an opportunity for
Arla. We have the platform to
meet this demand.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW 13
Grow the Arla®
brand volume
As a global dairy company, Arla is obliged to help people make healthier
choices by offering nutritious products and inspiring good food habits.
Spearheaded by the Arla® brand, our health strategy will be a growth driver in the
years to come. In 2015, we completed the implementation of the new Arla®
brand platform globally and achieved a volume driven revenue growth from the
Arla® brand of 2.1 per cent corresponding to revenue of EUR 2.7 billion.
Volume driven revenue growth of 2.1 per cent
for the Arla® brand shows that our 25 per cent
increase in marketing spend is paying off.
This is, however, not fully achieving our
ambition for the year in which we targeted
growth of 3 - 5 per cent for the Arla® brand,
but we have succeeded in building a solid
foundation.
HEALTH IS THE MAIN THEME
FOR THE ARLA® BRAND
The positioning of the Arla® brand is at the core
of our vision. The brand is spearheading our
intention ‘to bring health and inspiration to the
world, naturally’. In 2015 natural health became
the main theme for the Arla® brand and it is
absolutely integral to its development. During
the year, we have intensified our communication
to consumers about the value of Arla® branded
products in terms of natural ingredients, fewer
artificial additives and sustainability from cow to
consumer.
We also consolidated our Arla® brand portfolio
with a unified design and launched a variety of
new products across markets, many supporting
the strengthened health agenda, for example,
low-fat, high-protein and less sugar.
ARLA® BRAND PRODUCT
LAUNCHES IN 2015
Arla’s innovation pipeline is very promising. In
2015, we have launched several new products.
Arla® Big Milk is the UK’s first fresh milk
enriched with essential nutrients to
help support childrens’ growth and
development.
Fat-free, reduced sugar, high-protein Arla® skyr
was launched in Germany, the UK and Denmark
and Arla® Protein was launched in the UK.
Fulfilling the growing demand for
protein-rich food for breakfast and
snacks, Arla® Yoghurt Quark was
launched in Sweden.
Arla® BIO pasture milk from
organic farms where the cows,
from spring to autumn, spend at
least 120 days on pasture was
launched in Germany.
Arla Yoggi® Frozen, a low-fat frozen yogurt
ice cream was launched in Denmark as part
of Arla’s innovation strategy.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW 14
Grow butter
and spread volumes
Within the butter and spreads category, during 2015 we have focused
on Lurpak® and Anchor®. The intention was to grow the two strategic
brands by 3 - 5 per cent as well as launch Lurpak® in selected markets across
the world. Volume driven revenue growth for Lurpak® and Anchor® butter and
spreads products developed by 6.1 and -0.3 per cent respectively, and Lurpak®
was launched or promoted in Brazil, Mexico, Australia and Central Europe.
BUTTER AND SPREADS GROWTH
The butter and spreads category has grown by
0.5 per cent during 2015, fuelled by the
Lurpak® brand. Special focus has been placed
on spreadable products, which represent a
significant part of the Lurpak® business and
have huge potential for growth. In 2015, a new
marketing campaign was created to drive the
Lurpak® Spreadable business globally. In the UK,
Lurpak® Spreadable accounts for 86.9 per cent
of all Lurpak® volume, but for only 65.7 per cent
globally, signalling that there is an opportunity
to further grow the spreadable business in other
markets. The spreadable business grew 5.9 per
cent globally in 2015.
GLOBAL ROLL-OUT OF LURPAK®
Australia
Lurpak® has been high on the agenda in
Australia in 2015, following Arla entering a
cooperation with Australia’s largest cheese
importer, F. Mayer Imports. The target was to
grow volume by 15 per cent. We are not fully
achieving our ambition with volume driven
revenue growth of 7.7 per cent through an
intensive marketing programme, with activities
including TV campaigns, social media
interaction and sampling activities. This has
resulted in increased brand awareness of
Lurpak®, which also helps to build the brand
in the long term.
Marketing campaigns for Anchor® have also
been launched in the UK, focusing both on
Anchor butter and also repositioning Anchor®
as a ’great tasting dairy brand, not just a butter
brand’, the aim being to strengthen the brand
overall.
Mexico
Mexico - a country with a population of 123
million people - is finding it increasingly difficult
to supply enough dairy products for its growing
population. For years Arla was a niche player in
Mexico, mostly selling blue mould and white
cheese. In 2014, we boosted Lurpak® butter
through extensive marketing advertising.
As a result, Arla’s butter sales in Mexico are up
86.6 per cent in 2015.
Brazil
Brazil’s potential is vast. During 2015 we have
launched and supported Lurpak® with the
objective of positioning Lurpak® as the number
one international brand bringing its unique
features to Brazilian consumers. Consumers in
Sao Paolo have received Lurpak® particularly
well and sales have increased by 55 per cent
in 2015. Through the Weave Your Magic
campaign we have reached consumers via
digital media, food bloggers and celebrity
chefs and Lurpak® is expected to grow further
in 2016.
Central Europe
In the German market, Lurpak® is showing
positive growth rates of 161 per cent but based
on very limited volumes due to the competitive
price level and direct competitors. However, in
Germany, Arla Kærgården® represents a
significantly larger market share than Lurpak®.
During 2015, Lurpak® made a strong come
back in The Netherlands with growth rates of
29.8 per cent due to a successful cooperation
with a local retailer.
VOLUME DRIVEN REVENUE GROWTH
IN 2015
ACHIEVED
EXPECTED
6.1%
3-5%
-0.3%
3-5%
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW
15
Seven essential priorities
for Arla in 2016
Deliver significant growth
on brands
Deliver significant growth on
strategic brands, covered by our
three global brands, Arla®, Lurpak®
and Castello® and supported
brands.
Volume is king
Add an additional 400 million kg
owner milk into retail and
foodservice.
Improve Consumer Central Europe
peer performance
Improve Consumer Central Europe
peer performance by addressing
cost and brand performance
and competitively export
milk into retail outside EU.
Seven essential priorities for
2016
The seven essentials are the crucial priorities for Arla in
2016. They fully reflect the direction set in our new strategy
and maintain focus on the two overall agendas we have
worked to in 2015: increased profitability of the growing milk
volumes and improved cost efficiency across Arla. The seven
essential priorities have been filtered down into the
organisation. All business groups and functions have
created goals and activities to ensure that we will
deliver as a united group.
Strengthen the
Arla cooperative
Establish a process with the
Board of Directors, National
Councils and Board of
Representatives to create
strong owner relations.
Strengthen market positions in
Consumer International
Strengthen leading positions in China, the
US, Nigeria, Middle East and North Africa
measured by volume and market share.
Improve cash flow
Improve cash flow to achieve leverage of
2.8 - 3.2 and release EUR 150 million
in cash within net working capital.
Structurally reduce the cost level
Deliver conversion cost in production
at an index level of 98.5.
Volume driven revenue growth should
be > 2.0 times higher than the growth
in capacity costs.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR BUSINESS REVIEW
2015
highlighted events
NEW BUSINESS REGION
ESTABLISHED IN ASIA
China and South East Asia were integrated
as a new regional market called Business
Unit Asia. Synergies in product portfolio,
marketing and innovation will strengthen
Arla’s position in this high potential region.
NEW PRODUCTION FACILITY
IN PRONSFELD OPENED
The new powder and butter
facility in Pronsfeld, Germany,
officially opened. The
EUR 110 million investment
makes Pronsfeld by far the
largest production site in the
Arla Group.
3-4 %
NEW SUBSIDIARY IN AUSTRALIA
Arla entered a cooperation with
Australia’s largest cheese importer,
F. Mayer Imports with the ambition to
multiply its revenue in Australia fivefold.
ABOLITION OF EU MILK QUOTAS
On April 1, EU milk quotas were
abolished resulting in Arla’s raw
milk inflow increasing by expectedly
3 - 4 per cent year on year.
ACQUISITION OF
FALBYGDENS OST APPROVED
The purchase of Falbygdens Ost,
Sweden, was approved by the
Swedish Competition Authority
effective from April 1, 2015. The
strategic acquisition enhances
Arla’s ability to promote and
develop the speciality cheese
market.
ArNoCo IS RUNNING
AT FULL SPEED
Arla’s joint venture with Deutsches
Milchkontor eG (DMK), ArNoCo,
Germany, officially launched and
the new production facility is up
and running at full speed.
NEW SUBSIDIARIES
IN WEST AFRICA
Arla continued its expansion in
West Africa through two
subsidiaries in Nigeria and
Senegal respectively. These
provide the distribution backbone
that will help Arla fulfil its
ambitions in Sub-Sahara Africa.
NEW SUBSIDIARY IN EGYPT
Arla and Egypt-based dairy company,
Juhayna, entered into a cooperation
that enables Arla to sell its products
across Egypt, a country with a
population of 90 million.
ADJUSTMENT
OF EXPECTATIONS
The Board of Directors accepted
a lower year-end net result of
2.7 - 3 per cent for 2015 to
support the on-account price
to the owners.
ARLA AND LACTALIS AGREE ON
FUTURE OF WALHORN AG
Arla and Lactalis reached an agreement
concerning the future of the associated
company, Walhorn AG. Arla sold its
legal shares of Walhorn AG to Lactalis
on 30 June 2015.
ARLA CLOSES KISSLEG SITE
It was decided to close the
production plant in Kißlegg-
Zaisenhofen, Germany in 2016
as continued operation of the
site is not economically viable.
NEW BUSINESS REGION
ESTABLISHED IN AMERICA
USA and Latin America were
united in a new regional market
called Business Unit Americas.
This ensures stronger focus by
placing senior management
closer to customers and
consumers.
RYNKEBY FOODS FOR SALE
Following months of strategic
analysis, Arla decided to sell its juice
subsidiary, Rynkeby Foods. A sales
process is initiated to identify the
right buyer.
Good Growth
2020
NEW STRATEGY:
GOOD GROWTH 2020
Arla launched the new strategy
towards 2020 focusing on organic
growth and increasing the profitability
of the owners’ milk - through category
excellence, stronger brands, increased
focus on selected markets and
efficiency across the organisation.
OUR
FINANCIAL
REVIEW
We measure our performance by
the value we add to each kilo of
milk supplied by our owners. We
call it our performance price and it
is our key financial indicator.
OUR FINANCIAL REVIEW
20 Financial review
21 Financial highlights
23 Strengthen delivery of efficiency and
Net Working Capital programmes
20
Financial
review
Given the challenging conditions within the dairy industry in 2015, Arla has
performed satisfyingly. We achieved net profit of 2.8 per cent of revenue
in a depressed market and we delivered a performance price of EUR-cent
33.7 per kg to our owners.
MARKET SITUATION
Globally declining market prices have impacted
the entire industry and all of its players. In 2014,
the commodity price for whole milk powder
decreased significantly and in 2015 it remained
at a continuously low level despite short periods
of optimism during the year.
PERFORMANCE PRICE
The low price level for commodity products has
affected Arla’s ability to safeguard the milk price
for our owners. The performance price achieved
in 2015 was EUR-cent 33.7 per kg. This is
significantly below 2014 levels, which were
EUR-cent 41.7 per kg. We gave a solid
performance compared to our peers at 103.7
on the peer group index, which is within the
range of our expectations. However, the peer
group index is preliminary before year-end of
Royal FrieslandCampina N.V. and Deutsches
Milchkontor eG.
MILK VOLUME
Total milk volumes in 2015 were 14.2 billion kg,
an increase of 4.6 per cent compared to 2014.
The abolition of the EU milk quota system on
1 April 2015, the merger with Walhorn EGM,
Belgium on 1 August 2014 and new AMCo
members in the UK account for the majority of
the increased milk volumes. Despite this, milk
volumes in Sweden decreased due to owners
leaving the cooperative. Furthermore, milk
volumes from contract farmers have declined
by 5.6 per cent.
Our milk volumes may have increased, but we
have succeeded in keeping the trading share
under control at 21.5 per cent in 2015,
compared to 20.8 per cent in 2014. The trading
share showed a positive trend towards the end
of the year and we expect to maintain it at the
same level in 2016 even though milk volumes
will continue to increase.
REVENUE
Revenue in 2015 amounts to EUR 10.3 billion,
a decrease of 3.3 per cent compared to 2014.
Due to decreasing commodity prices, revenue
expectations were adjusted during the year.
The decrease in revenue is the result of a
negative price development of 11.4 per cent.
This is a consequence of the decline in world
market prices and the related impact on our
branded business, however, the negative price
effect is partly offset by the increasing volumes
and currency effects. This results in a negative
organic revenue development of 8.4 per cent.
MARKET PRICES/GDT DEVELOPMENT WMP, USD MT
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
Jan 14
Feb 14
M ar 14
Apr 14
Jun 14
M ay 14
Jul 14
Aug 14
Sep 14
Oct 14
N ov 14
Dec 14
Jan 15
Feb 15
M ar 15
Apr 15
Jun 15
M ay 15
Jul 15
Aug 15
Sep 15
Oct 15
N ov 15
Dec 15
Volume driven revenue growth was 4.3 per cent
in 2015, compared to 5.3 per cent in 2014, in
line with our expectation for the year. Our
branded share increased from 41.2 per cent in
2014 to 42.1 per cent in 2015, which clearly
shows that increasing our marketing spent by
25 per cent is paying off. The Lurpak® brand
(6.1 per cent) and the Arla® brand (2.1 per cent)
show progress while Castello® (0.1 per cent) is
struggling to keep pace.
In 2015, the average difference in performance
price between commodity and branded
products equated to approximately EUR-cent
10, proving that our strategy to sell as much
milk as possible into retail and foodservice is the
right one.
COST
We have succeeded in actively managing our
costs in 2015 according to the plan and have
implemented cost reduction programmes and
defined ambitious goals to significantly
streamline the organisation. Our ambition was to
make savings from cost reduction programmes
of EUR 330 million before the end of 2015
compared to 2012 - and we have achieved this
goal. To improve performance further, we have
set a new target of delivering an additional EUR
400 million in cost reductions between 2016
and 2020.
Our total costs have decreased by 4.6 per cent
in 2015 compared to 2014. The non-raw milk
cost has increased by 4.4 per cent, predomi-
nantly as a result of our higher marketing spend
to drive the brand agenda, in addition to an
increase in production costs and currency
effects. Cost of raw milk has decreased by 13.3
per cent despite the increase in volumes during
the year. As the performance price indicates, the
average cost per kg milk has decreased to
EUR-cent 32.04.
Our scalability shows overall positive development
at 4.3 due to a firm control of our capacity costs.
PROFIT
Profit for the year amounts to EUR 295 million
and corresponds to a profit share of 2.8 per cent
of revenue*. During the year, expectations were
* Based on profit allocated to owners of Arla Foods amba
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR FINANCIAL REVIEW ANNUAL REPORT 2015
MANAGEMENT REVIEW/OUR FINANCIAL REVIEW
21
Financial highlights
Inflow of raw milk (mkg)
Owners in Denmark
Owners in Sweden
Owners in Germany
Owners in the UK
Owners in Belgium
Owners in Luxembourg
Owners in The Netherlands
Others
Total inflow of raw milk
Number of owners
Owners in Denmark
Owners in Sweden
Owners in Germany
Owners in the UK
Owners in Belgium
Owners in Luxembourg
Owners in The Netherlands
Total number of owners
Performance price
EUR-cent/kg owner milk
Key figures (EURm)
Income statement
Revenue
EBITDA
EBIT
Net financials
Net profit for the year
Consolidation for the year
Contributed capital
Common capital
Supplementary payment
Balance sheet
Total assets
Non-current assets
Current assets
Equity
Total non-current liabilities
Total current liabilities
Net interest bearing debt inclusive pensions
Primary net working capital
Cash flows
Cash flow from operating activities
Cash flow from investing activities
Free cash flow
Cash flow from financing activities
Investments in property, plant and equipment
Purchase of enterprises
Financial ratios
Organic growth
EBIT margin
Leverage
Interest cover
Equity ratio
Please refer to definitions and glossary on page 122
5
1
0
2
4
1
0
2
3
1
0
2
2
1
0
2
1
1
0
2
4,705
1,995
1,741
3,320
531
130
41
1,729
14,192
3,027
3,174
2,636
2,654
882
221
56
12,650
4,550
2,035
1,526
3,088
403
119
17
1,832
13,570
3,144
3,366
2,769
2,854
997
228
55
13,413
4,508
2,016
1,332
1,254
253
111
-
3,202
12,676
3,168
3,385
2,500
2,815
529
232
-
12,629
4,419
2,059
685
286
53
27
-
2,881
10,410
3,354
3,661
2,911
1,584
501
245
-
12,256
4,320
1,819
369
-
-
-
-
2,733
9,241
3,514
3,865
645
-
-
-
-
8,024
33.7
41.7
41.0
36.9
38.6
10,262
754
400
-63
295
31
141
113
6,736
3,903
2,833
10,614
681
368
-30
320
39
171
104
6,613
3,774
2,839
9,870
737
425
-88
300
43
131
121
6,187
3,427
2,760
8,479
597
336
-70
255
38
63
149
5,828
3,273
2,555
7,368
475
236
-41
188
37
81
66
4,728
2,521
2,207
2,148
1,874
1,708
1,463
1,281
2,084
2,504
2,497
999
669
-402
267
-274
-348
-29
-8.4%
3.9%
3.3
13.2
31%
2,137
2,602
2,547
928
511
-416
95
-93
-429
15
6.7%
3.5%
3.7
8.2
28%
2,189
2,290
2,394
906
342
-470
-128
110
-505
-
6.6%
4.3%
3.2
11.1
28%
2,049
2,316
2,298
790
510
-715
-204
235
-444
-39
2.1%
4.0%
3.9
11.5
25%
1,542
1,904
1,647
827
309
-333
-24
33
-291
-20
6.1%
3.2%
3.5
9.7
27%
22
revised down to 2.7 - 3 per cent year in favour
of the prepaid milk price.
FINANCIAL POSITION
At 31 December 2015, leverage was 3.3 and
within our long-term target range of 2.8 - 3.4
compared to 3.7 at 31 December 2014. We
met our ambition as a result of improvements in
EBITDA combined with a decision to reduce
CAPEX investments. We have reduced our
capital expenditure and going forward we will
focus on investments that support our new
strategy. Investments in property, plant and
equipment have decreased by EUR 73 million
to EUR 350 million.
Our net working capital is also developing very
strongly compared to our projections as a result
of Programme Zero, our working capital project,
which delivered a EUR 151 million reduction in
2015. The expectation was a reduction of EUR
130 million. Since 2011, Programme Zero has
focused on releasing cash and has created a
cash-oriented mindset in Arla.
EQUITY
At 31 December 2015, equity amounts to EUR
2.1 billion, which is an increase of 14.6 per cent
compared to 2014. 29.3 per cent of the total
equity is individual capital while 69 per cent is
common capital. The equity ratio amounts to
31 per cent compared to 28 per cent in 2014
which is a comfortable level.
CASH FLOW
In 2015, cash flow from operating activities was
EUR 669 million compared to EUR 511 million
in 2014 primarily due to improvements in net
working capital. Cash flow from investing
activities reduced to EUR -402 million
compared to EUR -416 million and consists
mainly of investments in property, plant and
equipment. Cash flow from financing activities
in 2015 was EUR -274 million compared to EUR
-93 million in 2014 and is affected by the 2014
supplementary payment of EUR 105 million
and repayment of EUR 18 million individual
capital to owners resigning or retiring.
The combined amounts of cash and cash
equivalents amounts to EUR 70 million at 31
December 2015.
OUTLOOK FOR 2016
The global dairy industry has rarely been as
unpredictable and 2015 has been as challenging
as we anticipated. We expect a positive turn in
the market in the second half of 2016, however,
the market remains very unpredictable.
FINANCIAL EXPECTATIONS FOR 2016
EXPECTATIONS FOR 2015
ACHIEVED IN 2015
EXPECTATIONS FOR 2016
PEER GROUP PERFORMANCE
(peer group index)*
103 - 105
MILK VOLUME (bkg)
REVENUE (EURb)
REVENUE GROWTH
(volume driven revenue growth)
PROFIT
LEVERAGE
* Peer group index for 2015 is preliminary
** Profit expectation was changed to 2.7 - 3% during 2015
*** Expectation to leverage was changed to 3.3 - 3.6 during 2015
14.0
-
3 - 5%
2.7 - 3.2%**
3.2 - 3.4***
103.7
14.2
10.3
4.3%
2.8%
3.3
103 - 105
14.6
-
3 - 5%
2.8 - 3.2%
~ 3.2
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR FINANCIAL REVIEW 23
Strengthen delivery of efficiency
and Net Working Capital programmes
As a part of Arla’s short-term strategy for 2015, we have focused on
strengthening delivery of both our efficiency and Net Working Capital
programmes. We have concentrated on three measures to achieve this essential
priority in 2015 and have delivered a solid performance on all of them.
EFFICIENCY PROGRAMMES
Continue implementation of LEAN, Total
Cost of Ownership, Design to Value and
structural plans to deliver cost efficiency
gains of EUR 330 million by the end of 2015
compared to 2012.
Status in 2015
As a result of our cost agenda, Arla has achieved
its target of EUR 330 million savings in 2015
compared to 2012. This is achieved with the
implementation of LEAN, Design to Value and
Total Cost of Ownership.
LEAN
In 2015 we continued to implement LEAN,
which is an enabler of continuous improvement
within all functions across the organisation.
Today, LEAN is implemented at more than
60 dairies and in a number of supply chain
administrative functions. We have also begun
the first LEAN implementation in other
administrative areas
Going forward, LEAN will play a major part in
delivering target cost savings of EUR 400
million from 2016 towards 2020
Design to Value
The purpose of Design to Value is to optimise
products and packaging for improved
competitiveness and quality, which means
doing it better, at less cost and without losing
focus on the customer experience
In 2015, Design to Value has delivered cost
savings of EUR 41 million compared to 2012,
which is EUR 7 million above the initial target
During the process, savings and standardisation
complement one another. For example, the
custom-made packaging for Puck® cream
cheese spread has been replaced by standard
jars reducing cost
Tumblers to jars: Changing from a custom-made
Arla designed glass to standard screw lid jars.
Total Cost of Ownership
Total Cost of Ownership projects achieve
savings by optimising products and service
specifications, standardising and rationalising
materials and ensuring more alignment
across product categories and business
groups. For example, standardisation of
product flavours across Arla
Going forward, we expect savings from Total
Cost of Ownership of EUR 65 million in 2016
Target towards 2020
To improve performance further, we have
set a new target of delivering an additional
EUR 400 million in cost reductions, mainly in
supply chain, from 2016 towards 2020 of
which EUR 100 million should be delivered
in 2016. The task of achieving this will be the
responsibility of the entire organisation.
COST FREEZE
Freeze capacity costs outside supply chain
across Arla with the exception of growth
markets.
The capacity cost freeze is part of Arla’s cost
agenda as we need to demonstrate to our
owners that we control our cost base and, in
particular, in challenging times are able to
reduce it even further. Almost all functions and
business groups across Arla have, in 2015, been
obliged to adhere to the capacity cost freeze.
The exceptions are supply chain, which has its
on-going efficiency programmes and selected
markets within Consumer International, where
maintaining growth momentum is crucial and in
line with Arla’s strategy. The capacity cost
freeze is one of Arla’s initiatives to mitigate the
challenges of the volatile global milk market
during the year. The measures used to freeze
capacity costs involved reduced travelling and
training, restructuring and redundancies. In
2016, our short-term priorities will contribute
further to this agenda.
NET WORKING CAPITAL
Develop and implement Net Working Capital
plan to deliver EUR 130 million cash release
in 2015.
For our business to remain successful it is
important that as little cash as possible is tied in
to running our operations. One way to release
cash is by reducing net working capital. These
ambitions are ongoing and supported by
Programme Zero, which has been running
effectively since 2011.
During 2015, pressure was put on our net
working capital due to the increasing milk
volumes and as a result of the increased level of
inventory. In order to achieve the target for
2015 we have focused on:
Reducing the rate of overdue payments from
customers by optimising the money collection
processes
Improvement of payment terms with
suppliers and customers
Optimisation of inventories globally
The target for 2015 was to release approximately
EUR 130 million - and we succeeded by
releasing EUR 151 million.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR FINANCIAL REVIEW OUR
MARKET
REVIEW
To become a leading global
dairy company we need to
share global synergies while
respecting local differences.
Our activities are segmented
into eight business groups,
each with a strong presence
in its respective markets.
OUR MARKET REVIEW
26 Overview of business groups
28 Consumer UK
29 Consumer Central Europe
30 Consumer International
31 Consumer Sweden
32 Consumer Denmark
33 Global Categories and Operations
34 Arla Foods Ingredients
35 Consumer Finland
36 Grow volumes in
Consumer International
37 Increase profitability in Consumer UK
and Consumer Central Europe
38 An ambitious health agenda
39 Farmer-owned is a global differentiator
26
Overview of business groups
Arla is the world’s seventh largest dairy company based on
revenue. In 2015, we are structured in eight business groups
and our activities cover all continents. Across business groups
we share brands and product portfolios while respecting local
requirements for dairy products.
CONSUMER
DENMARK
9%
OF TOTAL REVENUE
Read more on page 32
CONSUMER
UNITED KINGDOM
28%OF TOTAL REVENUE
Read more on page 28
GLOBAL
CATEGORIES AND
OPERATIONS
7%
OF TOTAL REVENUE
Read more on page 33
ARLA FOODS
INGREDIENTS
4%
OF TOTAL REVENUE
Read more on page 34
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR MARKET REVIEW 27
CONSUMER
FINLAND
3%OF TOTAL REVENUE
Read more on page 35
CONSUMER
SWEDEN
14%OF TOTAL REVENUE
Read more on page 31
CONSUMER
INTERNATIONAL
15%OF TOTAL REVENUE
Read more on page 30
CONSUMER
CENTRAL EUROPE
18%
OF TOTAL REVENUE
Read more on page 29
A part of revenue and a share of full time colleagues is not attributable to business groups,
therefore the revenue percentages do not total 100 per cent.
New market definitions will be implemented in our reporting from 2016.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR MARKET REVIEW 28
CONSUMER
UNITED KINGDOM
Arla is the largest dairy company in the UK. As well as being number one
in fresh liquid milk, butter, spreads and cream, Arla is also the UK’s largest
cheese producer. Consumer UK covers the manufacture and distribution
of a broad range of dairy categories and is the number one supplier in
private label to most major grocery retailers. In addition, the business
group has leading branded positions. The head office is situated in Leeds.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
Consumer UK has grown volumes by
200 million kg, while reducing costs by
EUR 80 - 95 million
Awareness of the Arla® brand has increased
with the launch of products such as Arla® Big
Milk and by entering the yogurt category with
products including Arla® Skyr and Arla®
Protein. The business group has also
launched the farmer-owned marque and
introduced the farm assurance scheme,
Arlagården®
Record sales ware experienced in the butter
and spreads category with Lurpak® and
Anchor®
Branded business has grown and some of the
successes within this include Lurpak® growth
in a declining category, Cravendale® growth
in retail channels, Castello® growth and
double digit growth of Lactofree®
The ‘Organised to Win’ initiative was launched
to encourage integrated working across
categories leading to increased collaboration
and efficiencies as well as a reduction of 100
full time colleagues
Short term
Milk volumes for retail are expected to flatten
or decline however there is ample opportunity
to grow through increasing innovation in new
value-add categories such as fortified and
fat-free milk and yogurt
Global market pressure will continue to
impact the UK market, driven by increased
global supply and weakening demand. Supply
will also increase in the UK
Healthy eating is in increasing focus and will
require food companies to develop healthier
and more natural products
The growth of discounters is expected to
continue
Long term
Structural changes in both the dairy and
grocery markets, an increase in online
shopping and a move towards more healthy
and natural diets present significant
opportunities
2016 will see the launch of Consumer UK’s
Championing British Dairy strategy. Building
on its recent success, Consumer UK will take
advantage of the increased amount of milk
available to it by growing new categories and
retail channels as well as maximising its position
within the growing consumer health agenda
Volume driven revenue growth
4.7%
Brand share
25.5%
Branded growth
5.2%
Average number of
full time colleagues
3,372
Net working capital
332 million EUR
Read more about the profitability
in Consumer UK on page 37
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
52%
Fresh
dairy products
20%
Butter and spreads
1%
Whey products
18%
Cheese
2%
Milk powder
7%
Other
2,890
million EUR
CONSUMER
CENTRAL EUROPE
Consumer Central Europe includes two of Arla’s core markets, Germany
and The Netherlands, and it is also responsible for Belgium, Luxembourg,
France and Austria. The head office is situated in Düsseldorf, Germany.
The business group covers production and logistics, as well as having
responsibility for retail sales. Arla holds a top three position in the
German dairy industry and a top two position in the fresh dairy market in
The Netherlands.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
The new powder and butter facility in
Pronsfeld officially opened in January. It is now
the largest production site in the Arla Group
The integration process following the merger
in 2014 with the Belgian cooperative, EGM
Walhorn, has successfully completed
Implementation of SAP in Upahl was finalised,
while the planned implementation in Nijkerk,
The Netherlands, was postponed
Distribution set-up was improved with a new
warehouse that opened in Krefeld to
centralise and streamline the distribution of
dairy products in Central Europe
Product and organisational synergies were
reaped through the launch of skyr in
Germany and The Netherlands - a product
which has proved to be a success in other
business groups
Short term
Demand for organic products will continue to
increase
The health trend will continue, with a growing
demand for innovative health concepts
among consumers
E-commerce will continue to emerge
Long term
Innovation will be even more important to
fulfil consumer needs and demands
Creating new customer opportunities will
be key
29
Volume driven revenue growth
0.6%
Brand share
19.5%
Branded growth
4%
Average number of
full time colleagues
1,959
Net working capital
207 million EUR
Read more about the profitability
in Consumer Central Europe on
page 37
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
58%
Fresh
dairy products
10%
Butter and spreads
19%
Cheese
13%
Other
1,844
million EUR
30
CONSUMER
INTERNATIONAL
Consumer International is Arla’s growth engine and is responsible for
delivering growth outside the core markets. It covers all retail sales
outside Denmark, Sweden, Finland, the UK, Germany and The Netherlands
for cheese, butter and spreads and milk powder.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
Establishment of new subsidiaries in Nigeria,
Senegal, Egypt and Australia
Re-packaging site in Nigeria is up and running
according to plan and the first Arla Dano®
products have been sent to market
Successful re-launch of Puck® in the Middle
East and North Africa to support the new
brand positioning ’Mealtime joy everyday’
using new packaging design and promotions
Consumer International’s approach towards
2020 is to build five regional powerhouses
which will be the epicentres for Arla’s
expansion in each region. During 2015 the
regional powerhouses in Kuala Lumpur, Asia
and New Jersey, USA were established
Short term
More milk will be moved out of EU
Global demand will grow at a lower rate than
during the period 2012 - 2014
Long term
Living standards will increase in emerging
markets
Global demand for milk powder and liquid
milk drinks will increase
Growing demand for healthy, natural and
organic products
Volume driven revenue growth
5.8%
Brand share
71.4%
Branded growth
5.9%
Average number of
full time colleagues
1,968
Net working capital
292 million EUR
Read more about growing
volumes in Consumer
International on page 36
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
9%
Fresh
dairy products
9%
Butter and spreads
1%
Other
55%
Cheese
26%
Milk powder
1,499
million EUR
31
CONSUMER
SWEDEN
Consumer Sweden covers production and logistics of fresh milk and
fermented products in Sweden, as well as retail sales. The business group
has a strong focus on growing both brands and private label, a close
cooperation and service to customers as well as constantly improving
logistics and delivery reliability. Arla is market leader in Sweden, marketing
a broad range of dairy products. The head office is situated in Stockholm.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
International competition is stepping up,
most notably from large European dairy
companies
Demand for products of Swedish and local
origin is expected to grow
Interest in health is expected to grow as is the
trend towards organic and natural products
Polarisation will increase and we expect to
see more premium and more discount
products. The trend will be driven by
increased demand for different products for
different occasions, both within branded
products and private labels
Growing requirements for transparency and
responsibility are expected
The purchase of Falbygden Ost was approved
by the Swedish Competition Authority
effective from 1 April 2015. The acquisition
enhances the premium cheese category
Falkenberg dairy, Europe’s largest cottage
cheese dairy, is now fully operational
following the opening in 2014. According to
the plan, the dairy in Skövde closed in 2015
The volume agenda in Sweden has, among
other things, been anchored in the health
strategy. Examples of activities include
sponsoring sport events and promoting the
natural benefits of milk
The ’We are Arla’ and ’Arla 100 years’
campaigns were launched and highlight Arla’s
farmer ownership. The campaigns included
events in which customers and consumers
could meet our owners
Several sustainability initiatives have
been introduced to drive environmental
improvements at dairies and within transport.
An example is replacing fossil fuels with more
sustainable alternatives within the distribution
fleet, which will reduce Co2 emissions
Volume driven revenue growth
2.9%
Brand share
85.8%
Branded growth
1.8%
Average number of
full time colleagues
2,237
Net working capital
66 million EUR
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
57%
Fresh
dairy products
17%
Butter and spreads
22%
Cheese
4%
Other
1,451
million EUR
32
CONSUMER
DENMARK
Consumer Denmark covers production and logistics of fresh milk and
fermented products in Denmark, as well as having retail sales responsibility
for this country. As market leader within the Danish dairy industry,
Consumer Denmark has a strong focus on developing the core business,
creating value through brands as well as ensuring an effective and lean
business. The head office is situated in Viby.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
Consumer Denmark has launched several
product innovations across categories
including yogurt, cheese and milk and it has
also entered new categories, for example, ice
cream. The value from these innovations is a
strong growth driver for Consumer Denmark
Arla’s health strategy has successfully been
implemented and included the launch of
products rich in protein for both the health
industry and sports purposes
Despite an increased focus on discount
products and private label products from
consumers and retailers, Consumer Denmark
have succeeded in achieving branded growth
of 4.9 per cent. The growth has been
delivered across brands and categories and is
also driven by a strong innovation pipeline
Short term
Consumers will demand more locally
produced food products and premium
products will grow in popularity
Retailers will increasingly develop their own
concepts and private label ranges
Long term
Milk consumption among consumers in
Denmark will decline
The number of consumers focusing on food
and health benefits will increase
Discounters will grow and create new
positions in an extremely challenging market
Volume driven revenue growth
3.5%
Brand share
69.4%
Branded growth
4.9%
Average number of
full time colleagues
1,734
Net working capital
41 million EUR
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
59%
Fresh
dairy products
12%
Butter and spreads
24%
Cheese
5%
Other
917million EUR
33
GLOBAL CATEGORIES
AND OPERATIONS
Global Categories and Operations plays a leading role in translating
innovative ideas into profitable products and solutions, and sets the
marketing framework for our three global brands: Arla®, Castello® and
Lurpak®. Furthermore, Global Categories and Operations drives Arla’s
strategic innovation activities.
The business group handles milk planning, logistics and the production of
butter and spreads, cheese as well as milk powder and the supply chain
consists of 32 sites globally.
Global Categories and Operations is also responsible for trading on the
commodity market and holds a global leading position within industrial
sales of mozzarella and milk powder.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
A number of new concepts were launched
including skyr, Protein, Castello® Burger Blue,
Lactofree, Milk Plus, Naifu and ‘Good2Go’
The ‘farmer-owned’ campaign was launched
and driven by Global Categories and
Operations
Arla established itself as the largest mozzarella
producer in Europe. Branderup Dairy was
converted to mozzarella production to
support this
The efficiency agenda has been achieved:
Conversion cost, scalability and net working
capital improved through tight cost
management and LEAN activities
The strong milk volume growth post abolition
of EU milk quotas was managed by capacity
boosts at selected sites and a three per cent
higher target on milk volume for each site
As Global Categories and Operations operates
across all markets, both the local trends on the
individual consumer markets but also the
general global trends are relevant for product
innovations, marketing and operations. The
trends on the commodity market specifically
affect Global Categories and Operations’ trading
business.
Short term
The negative trend in price development
on the commodity market is expected to
level out
Long term
On the commodity market we expect that
increasing global demand will surpass global
supply and affect prices positively
Volume driven revenue growth
4.5%
Trading share
21.5%
Average number of
full time colleagues
5,141
Net working capital
276 million EUR
BRANDS
REVENUE
773million EUR
34
ARLA FOODS
INGREDIENTS
Arla Foods Ingredients is a global leader in natural whey ingredients for
products in a range of categories - from bakery, beverages, dairy and ice
cream to clinical, infant and sports nutrition. The products are sold in
more than 90 countries. All ingredients are produced at a site in Denmark
or by one of our joint ventures in Argentina, Germany and the UK.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
The lactose site at Denmark Protein is fully up
and running and the first dry-blend lactose
powder has been delivered
Construction of a hydrolysate plant began
and it is expected to be ready for production
in the first half of 2016
Whey conversion to kosher and halal
standards is fully implemented and all whey
intakes at Denmark Protein are now kosher
and halal
Export of value added products based on
speciality whey protein concentrate has
increased to the US. This is a consequence
of demand for egg replacement products
due to avian flu
Sales of whey protein concentrate volumes
have increased by 27 per cent and lactose
sales by 124 per cent as a result of new
contracts and new lactose manufacturing
facilities
Short term
Whey protein concentrate and lactose
markets have been oversupplied, however
demand is growing and growth is expected to
continue in 2016. This is putting sales prices
under pressure
Long term
A slowdown in supply is expected to restore
the balance in the whey protein concentrate
and lactose markets in the long run
Customers will continue to ask for specialised
ingredients and quality demands will become
stricter
The volume growth within infant formula in
China is expected to slow down
Revenue
368 million EUR*
Volume driven revenue growth
25.4%
Average number of
full time colleagues
615
Net working capital
90 million EUR
Whey intake
6.5 billion kg
* A large part of Arla Foods Ingredients
activities are carried out in joint ventures,
which are not included in the consolidated
financial statements. Revenue including joint
ventures amounts to EUR 486 million.
PRODUCT CATEGORIES
Bakery
Ice cream
Clinical nutrition
Infant nutrition
Health foods
Dairy products
Beverage
Culinary and meat
Sports nutrition
35
CONSUMER
FINLAND
Arla is Finland’s second-largest producer of milk-based products. Over the
years Arla has enlarged the product range in Finland and today offers
products from all the Arla product categories. The head office is located in
Sipoo, just outside Helsinki. Consumer Finland has a strong focus on value
added products that strengthen the Arla® brand.
OPERATIONAL HIGHLIGHTS IN 2015
EXPECTED MARKET TRENDS
A number of value added products were
launched including an Arla® Protein
assortment, Arla® Luonto+ products and
a family cheese concept
During the year Consumer Finland analysed
customer strategies and operations to obtain
a deeper understanding and has adjusted
procedures accordingly
A more consumer centric approach has
been taken to get a better understanding
of consumer needs. Activities include
ethnographic studies, visiting consumers’
homes and going grocery shopping
together as well as inviting them to product
development workshops
During the year Consumer Finland focused
on gaining market position within private
label
Short term
The tough operating conditions are expected
to continue due to the Russian embargo. Prior
to the embargo a significant proportion of
Consumer Finland’s production was exported
to Russia. The price pressure on dairy
products will continue as will private label
growth
The trend towards healthy products will
increase, with growing demand for products
with less sugar and no additives
Long term
Requirements for transparency, responsibility
and traceability are expected to increase
Consumer trends will change rapidly and
there will be big demand for product
development and innovation
Polarisation of consumer behaviour is
expected going forward
Volume driven revenue growth
6.4%
Brand share
60.2%
Branded growth
-10.4%
Average number of
full time colleagues
307
Net working capital
14 million EUR
REVENUE SPLIT BY PRODUCT CATEGORY
REVENUE
64%
Fresh
dairy products
7%
Butter and spreads
20%
Cheese
9%
Other
346
million EUR
36
Grow volumes in
Consumer International
Consumer International is a key contributor to Arla’s mission, which is to create as much
value as possible from our owners’ milk. The business group’s main focus is to move milk
into profitable positions in markets outside the EU. As a result, Consumer International has been
fully engaged in the task of moving an additional 500 million kg of milk into retail and foodservice
and contributed significantly to the achievement of this goal, despite the Russian embargo.
IMPLEMENT ACCELERATED CONSUMER INTERNATIONAL GROWTH PLAN TO INCREASE VOLUMES
In 2015, one of the main challenges for Consumer International was to compensate for the lost business in Russia due to the
embargo, and the business group did so by accelerating growth in other emerging markets. Consumer International achieved volume
driven growth of 5.8 per cent indicating that growth is back on track and has established a platform for further growth. Lurpak® and
the Middle Eastern brand Puck® contributed significantly to the volume growth, while the Arla® brand, despite positive growth rates,
has not performed according to target. In addition, Castello® has struggled due to the Russian embargo.
MIDDLE EAST
AND NORTH AFRICA
Focused marketing efforts
have resulted in our strong
regional brand Puck® now
leading the long life dairy
category for processed cream
cheese in jars in Saudi Arabia,
which is the largest cheese
category in the country.
Overall the Saudi business has
delivered volume driven
revenue growth of 20.7 per
cent in 2015. During the year
Arla created a subsidiary in
Egypt with Egypt-based dairy
company, Juhayna, to enable
product sales across the
country.
SUB-SAHARAN AFRICA
In 2015 a subsidiary was
established in Nigeria and one
was agreed in Senegal. In
Nigeria, the biggest market in
the region, Arla changed its
business model from one
based on various distribution
agreements to a partnership
with a single leading
distributor Tolaram Group.
Due to practical issues in the
transition process, Arla did not
achieve the expected volume
growth rate in Nigeria.
However, volumes look
promising in 2016.
ASIA
Arla achieved volume driven
revenue growth of 136.9 per
cent in China in 2015. This is a
result of the intensive work to
create an Arla® brand position
in China built on food quality,
safety, traceability throughout
the entire value chain and
European products made from
natural ingredients. China is
the largest single market in
Asia and we are using it as an
engine for our activities in the
entire region.
AMERICAS
The lead market in this region
is the US, where we aim to
create a leading position
within speciality cheese with
the Castello® range in the
future. In terms of the Arla®
brand, we have a new
ambition, which is to move
from the deli section to the
dairy aisles with US retailers
and its natural goodness
position will be the main driver.
A key activity has been the
launch of Arla® branded cream
cheese, which will challenge
existing competitors as it is
made only from natural
ingredients and milk from
Arla farmers.
RUSSIA
In 2015, we have experienced
the full effect of the Russian
embargo. Arla’s lost revenue
totals approximately EUR 38.9
million in 2015, resulting in
revenue in Russia of EUR 37.2
million in 2015. With a
population of more than 140
million people, who share
European dairy habits, Russia
will continue to be a key
market for Arla. However, due
to the embargo the growth
targets have been postponed.
Currently the strategic focus is
on preparing for the upturn in
order to maintain our position
as one of the leading
international players in the
Russian dairy market, when
the embargo is lifted. During
2015, we have therefore
increased our local production
of branded yellow cheeses,
which we produce in
partnership with Molvest, as
well as having established a
new production line for local
processed cream cheese.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR MARKET REVIEW 37
Increase profitability in Consumer UK
and Consumer Central Europe
In 2015, Arla has focused on increasing profitability in Consumer UK and Consumer
Central Europe. During the year, Consumer UK regained momentum and delivered
a solid contribution to the profitability of Arla while Consumer Central Europe is struggling
due to the local market being under severe pressure. As a result, improving Consumer
Central Europe peer performance is an essential priority in 2016 and we have a strong
platform in place to deliver on this short-term goal.
SECURE INCREASED PROFITABILITY IN CONSUMER
CENTRAL EUROPE BY FURTHER ENHANCING BRANDS
AND VALUE ADDED PRODUCTS
During 2015, external and internal factors had significant impact on
profitability in Consumer Central Europe.
The dairy market in Central Europe is under severe pressure and both
Arla and its competitors are struggling. As a result, Consumer Central
Europe is unable to keep pace with other core markets in Arla. The tough
market situation is a consequence of the Russian embargo on European
dairy products. The ban hit the dairy market in Central Europe harder than
any other of Arla’s core markets affecting the general market prices
negatively. Furthermore, Consumer Central Europe has a significant share
of UHT milk and non-branded products within its product portfolio and
these products are very sensitive to world market prices.
In 2015, following mergers, Consumer Central Europe have focused on
integrating and aligning merged activities with the intention to reap
long-term synergies and we have invested in marketing and innovation
to increase brand share and move products up the value chain. We have
achieved volume driven revenue growth for our global strategic brands
of 3.1 per cent as well as increased the brand share to 19.5 per cent in
2015, compared to 19.1 per cent last year.
Based on the activities in 2015, combined with the investments in new
production capacity, IT system implementations and a new logistics setup,
we have now established a strong production platform. Furthermore,
Consumer Central Europe has successfully implemented cost freezing
activities in 2015 and a larger cost efficiency programme is planned
for 2016.
In Arla, some business groups perform better than average while other
business groups perform below average. The current level of sales prices
in the Central European dairy market cannot support the average milk
price in Arla and, as a result, we have incurred significant losses in
Consumer Central Europe in 2015.
In 2015, Consumer Central Europe has taken several steps to drive more
synergies from the business and to improve its financial performance.
Arla’s strategy is to allocate more milk to markets outside EU into
profitable positions and Consumer Central Europe will be an important
driver to succeed with our target of allocating an additional 150 million
kg of milk to our international markets in 2016. This means that actions
have been made to improve the profitability of Consumer Central Europe.
SECURE INCREASED PROFITABILITY IN CONSUMER
UK THROUGH COST SAVINGS IN SUPPLY CHAIN AND
OTHER MARKET RELATED MEASURES OF EUR 80 - 95
MILLION AND GROWTH IN THE ARLA BRAND
POSITION AND VOLUME OF 5 - 10 PER CENT
2015 was predicted to be a challenging year for Consumer UK. The
business group delivered many initiatives which were incorporated into a
strong and ambitious plan. The overall focus was to improve performance
through strong cost control, securing volumes and delivering an
improved Arla brand position. Consumer UK has succeeded in delivering
these targets. As a result, 2015 was a big step forward in terms of market
position and profitability.
Internally, Consumer UK has undergone significant structural change in
order to prepare the organisation to be the leading dairy company in the
UK. This organisational restructure and streamlining combined with
increased supply chain efficiency, such as increased capacity and
improved production costs, along with other measures has enabled
Consumer UK to achieve its cost savings target of EUR 80 - 95 million.
Arla is now the leading dairy company in the UK. Within the milk category,
the Arla® brand is ranked number one based on revenue partly generated
by the Arla® Cravendale brand. This is supported by volume driven
revenue growth of 5.1 per cent against a target of 5 - 10 per cent. Within
the butter and spreads category as well as the speciality cheese category,
Arla produces the leading brands Lurpak® and Castello®.
BUILDING THE ARLA® BRAND SUCCESS IN CONSUMER UK
HAS BEEN ACHIEVED THROUGH:
Positioning the Arla® brand as a health brand: Aligned with the global
health agenda spearheaded by the Arla® brand.
New category entry: Entering the yogurt category enables Consumer UK
to strengthen its position as a leading dairy company in the UK.
Commercialising the cooperative: Externally, UK farmers have added value
to the business group by promoting Arla. Consumer UK was the frontrunner
in launching the company-wide farmer-owned campaign.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR MARKET REVIEW 38
An ambitious
health agenda
Arla strives to bring health and inspiration to the world, naturally. Providing the
natural health benefits of milk to people across the world is at the very core of
our cooperative. In 2015, we launched an ambitious health strategy and
throughout the year, the health theme has gained momentum in our organisation
and our communication towards consumers, customers and stakeholders.
By spreading knowledge and launching new dairy products, we will make it easier
for people to live healthily.
It is Arla’s goal to be recognised as a global
leader in natural nutrition. In 2015, we stepped
up our Healthy and Natural agenda with the
launch of a global health agenda across
business groups to guide innovation and
market activities.
HEALTH IS A GLOBAL
OPPORTUNITY FOR ARLA
All over the world people are concerned about
their health. They are looking for healthy food
for themselves and their families and simple
ways to live healthier lives. Dairy products are an
easy and tasty way to consume essential
nutrients for the body and they can be enjoyed
throughout the day and at all stages in life.
This presents a great opportunity for Arla.
Globally, we face problems with obesity,
malnutrition, diabetes and other lifestyle
diseases. Millions struggle with the consequences
of bad diets and lack of knowledge when it
comes to good health. As a global
dairy company, Arla is obliged to help people
live healthy lives. Adopting this stance
has motivated our ambitious health agenda,
committing our business to focus increasingly
on health as both a growth driver for Arla
and a positive contribution to health on a
global scale.
... worldwide, over
800 million people go to
bed hungry every single day and
almost two billion lack sufficient
nutrients? Arla Foods Ingredients
is creating a healthy biscuit and a
porridge supplement that are highly
affordable and packed with nutrients,
specifically for the poorest
consumers in Ethiopia.
Did you
know
that… ?
… a reduced
sugar, low fat yogurt
targeted at the whole family
has been launched under the
Arla brand in the UK in 2015?
The everyday yogurt contains
30 per cent less sugar than
standard yogurts and
contains only 62
calories.
… Arla®
Dano has put
health on the agenda in
Sub-Saharan Africa? Educating
school children about milk
nutrients and offering consumers
free health checks play a part
in our health activities in Ivory
Coast, Mauritania,
Cameroon and Mali.
… as we age we lose
muscle mass, and protein in
the daily diet strengthens and
maintains muscles, organs and bones?
High-protein drink Arla® Protino was
launched in Denmark, Sweden and the
UK in 2015. The product is formulated
specifically for sick, weak and elderly
consumers who have lost their appetite
but need a proper nutrition profile.
From agenda to action
3 areas of our
health agenda
1
PRODUCT INNOVATION:
WE MAKE MILK EVEN BETTER
Milk is naturally nutritious.
To match specific requirements,
we lend nature a helping hand
and make our milk even better
- by adding natural protein,
probiotics, vitamins or fibre,
or reducing lactose.
2
FOOD INSPIRATION:
WE INSPIRE GOOD
FOOD HABITS
Through a wide collection of
online recipes, on-pack
information, collaboration with
retail customers, inspirational
events and educational
programmes, we share our
knowledge of what is good to eat
and how to prepare a healthy
breakfast, lunch, snack or dinner.
3
RESEARCH COLLABORATION:
WE PARTNER TO SPREAD
KNOWLEDGE ABOUT MILK
AND HEALTH
We invest in research and
collaborate with experts to
understand more and share
knowledge about the health
benefits of milk, and we build
partnerships with our retail
customers to strengthen their
health profile and to make
healthy products more available.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR MARKET REVIEW
ANNUAL REPORT 2015
MANAGEMENT REVIEW/OUR MARKET REVIEW
39
Farmer-owned is
a global differentiator
In 2015, Arla’s history of farmer ownership became a competitive differentiator.
In a move to share our cooperative story with consumers, the global launch of
a product marque offers the opportunity to easily identify and trust that Arla®
branded products are responsibly produced by a farmer-owned business where
the profits go back to the owners. The long-term initiative springs from Arla’s
corporate identity, Good Growth, and adds value to the Arla® brand at a time of
low milk prices.
In 2015 and early 2016, a new marque on
Arla® branded products is making it easier for
consumers all over the world to identify that
our products are from a dairy company owned
by farmers, who are committed to delivering
natural and nutritious milk produced in a
responsible manner. The marque is one of
many initiatives aimed at consumers that
Arla has conducted to communicate its
farmer ownership.
The decision to increase consumer awareness
of Arla’s farmer ownership is based on
substantial consumer insight revealing that
confidence in Arla’s products increases when
consumers know that we are farmer-owned.
Our quality assurance programme, Arlagården®,
fits perfectly with consumers’ expectations.
By explaining what we do and how we do it,
Arla can provide the product traceability and
transparency of origin that consumers are
increasingly demanding.
A GLOBAL SIGN OF TRUST
Arla’s cooperative roots provide added value
across the world. In Europe, consumers across
borders say they trust a farmer-owned
company to pay more attention to animal
welfare and quality than others. They associate
the cooperative with honesty as well as better
tasting, healthy and more natural products.
In China and other emerging markets being
farmer-owned has proved to be a strong asset
in attracting the best partners. European
products are considered to be of high quality
and European farmers are believed to
produce milk with greater care.
SUPPORTING THE MILK PRICE
It is important to create awareness that when
buying an Arla product the profit goes to the
dairy farmers, not a group of shareholders with
little or no association to dairy farming. This
message is even more important at a point in
time when the milk price is under pressure as a
result of global market volatility.
In a volatile market trust in Arla’s products is
paramount. In 2015, we saw UK farmers taking
action to raise awareness of their plight
amongst the general public through the
media. Industry support for the farmer-owned
marque gathered momentum as major
grocery retailer Asda in the UK committed to
carrying the marque on all of its own label
fresh liquid milk. Other retailers have since
followed the example with similar initiatives in
other markets to support farmers.
A LONG-TERM INITIATIVE
FOR QUALITY GUARANTEE
Being a large cooperative means people
expect more from us. In order to meet their
expectations we created the farmer-owned
marque as a long-term initiative. Being
farmer-owned, Arla is in control of all stages of
production from farm to the final product and
we promise healthy, fresh and naturally great
tasting products. The farmer-owned marque is
the reason to believe this promise.
Farmer-owned
campaign kicks off
ACTIONS:
CONSUMER UK
In the UK, a campaign called ’White
Wednesdays’ mobilised many farmers
and colleagues across the country
each Wednesday in December to tell
the story of Arla being farmer-owned
and the associated benefits
Marque on 68 milk collection tankers,
with 12 more to follow
Marque on Arla® brand packaging and
trucks from October 2015
CONSUMER SWEDEN
Open days for consumers, customers,
colleagues and Arla farmers at eight
dairies and the launch of the
campaign ’We are Arla’ where farmers
meets consumers
Marque on Arla® brand packaging
from January 2016
CONSUMER DENMARK
Events like the Arla Food Festival and
Open Farm Sunday combined with
advertisements create awareness of
our farmer ownership
Marque on Arla® brand packaging and
trucks from September 2015
CONSUMER CENTRAL EUROPE
Marque on Arla® brand packaging
from the beginning of 2016
CONSUMER INTERNATIONAL
Marque in Latin America and South
East Asia from the end of 2015
Marque in Middle East, Africa and
China from the first quarter of 2016
SYMBOLS
The farmer-owned marque works in all
markets, with minor tweeks to the
wording. Across core and growth
markets, the launch of the on-pack
marque has been followed by activities
in social media, websites and events.
On-pack marque
in core markets
On-pack marque
in growth markets
Trailers, trucks and tail lifts will also
carry the logo
OUR
STRATEGY
We have performed well during 2015 and
Strategy 2017 has been our guiding star.
Strategy 2020 will take us successfully into
the next decade as we raise our ambitions to
the next level. We are not redefining the way
we run our business with Strategy 2020. We
will focus even stronger on the categories and
markets where we see the greatest potential
to create value for our farmers’ milk.
OUR STRATEGY
42 We are in a strong position
for further growth
43 Arla’s Strategy: Good Growth 2020
42
We are in a strong position
for further growth
In December 2015, Arla’s Board of Directors and Executive Management
Group presented a new corporate strategy for the coming five years called
‘Good Growth 2020’. Building on the solid position Arla has established, the
new strategy is an evolution of the direction that we have followed in
Strategy 2013 and Strategy 2017.
In our latest strategy plan, Strategy 2017, we have successfully
pursued the following ambitions and we now have a favourable position
for further growth:
Develop the core: Capture benefits of leading positions and grow our
three global brands
Deliver the growth: Move milk outside Europe to increase revenue from
non-core markets to 20 per cent
Faster, simpler and leaner: Achieve cost leadership and strong execution
with savings of EUR 330 million
The new strategy is not a radical change of direction for Arla and we will
build on the solid position that we have established during the previous
two strategy periods. We have been preparing Arla to take the role of an
international dairy company and our achievements are the main reasons
why we are in a favourable position for further growth. Taking Arla into the
next decade, we will shape a more efficient supply chain, improve our
marketing spend effectiveness through more global branding and drive
radical innovation across borders.
STRONG CUSTOMER
RELATIONS
We have increased Arla’s
strategic collaboration with
key retailers in order to be
their preferred partner to
drive profitable growth in
the dairy categories.
EFFICIENCY
We have built a more competitive
Arla through a year-long
restructuring of our supply
chain. New technology and
ongoing efficiency programmes
have streamlined Arla’s
operations and together with
the cross-organisational
programmes Design to Value,
Total Cost of Ownership and
Programme Zero, we have
delivered the goal of
EUR 330 million in savings
during 2012 - 2015.
INVESTMENT IN BRANDS
AND INNOVATION
Our decision to focus on
three global brands with
strong individual profiles
has reduced the number
of sub-brands and focused
our resources.
OWNERS IN SEVEN COUNTRIES
We have built a stronger Arla
through cooperative mergers and,
today, 12,650 owners in seven
countries deliver milk to Arla. As the
milk pool has grown, we have been
able to strengthen our position as
an attractive partner for customers.
SUPERMARKET
Brands
Local partnership
Owners in seven countries
Customer
relations
N
O
I
T
I
S
O
P
Northern Europe
International
expansion
Efficiency
2008
Innovation
TIME
Good Growth
2015
INNOVATION
Arla has, year on year,
increased the investment in
marketing and innovation in
response to consumers’
needs across the world.
NUMBER ONE
IN NORTHERN EUROPE
Arla has become the number one dairy
company in the UK, Sweden and
Denmark and among the top three in
Germany, The Netherlands and Finland.
LOCAL PARTNERSHIPS
Local partners play an
important role in Arla’s
expansion and we have built
partnerships outside Europe
in China, Russia, Egypt,
Nigeria, Senegal, Ivory
Coast, Brazil and Australia.
INTERNATIONAL
EXPANSION
By the end of 2015, Arla
established a strong position
in the Middle East and North
Africa and has gained
footholds in China, South
East Asia, Sub-Saharan
Africa, Russia and Americas.
A STRONG IDENTITY:
GOOD GROWTH
Good Growth is our strong
identity and it guides Arla’s
decisions towards 2020. We
have started to commercialise
its core principles of healthy,
natural, responsible and
cooperative growth.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR STRATEGY 43
Arla’s Strategy:
Good Growth 2020
Since 2008, our milk intake has increased mainly due to mergers with other dairy
cooperatives. Not only did this milk come with new owners of the cooperative,
it also came with market positions. However, this is a luxury we do not have going
forward. After the abolition of the EU milk quota system in April, extra milk is now
coming from our existing owners without market positions and we face a true
paradigm shift. Our new strategy Good Growth 2020 is designed to address this
and will take Arla into the next decade.
OUR VISION
CREATE THE FUTURE OF DAIRY TO BRING HEALTH
AND INSPIRATION TO THE WORLD, NATURALLY
EXCEL
IN EIGHT CATEGORIES
FOCUS
ON SIX REGIONS
WIN
AS ONE ARLA
OUR IDENTITY
HEALTHY, NATURAL, RESPONSIBLE AND COOPERATIVE GROWTH
OUR MISSION
TO SECURE THE HIGHEST VALUE FOR OUR FARMERS’ MILK
WHILE CREATING OPPORTUNITIES FOR THEIR GROWTH
THE FINANCIAL TARGETS OF
GOOD GROWTH 2020
ACHIEVED IN 2015
TARGET IN 2020
PEER GROUP PERFORMANCE (peer group index)*
REVENUE GROWTH IN RETAIL AND FOODSERVICE
(volume driven revenue growth)
TRADING SHARE
BRAND SHARE
GROWTH OUTSIDE EUROPE IN RETAIL AND
FOODSERVICE (volume driven revenue growth)
*Peer group index for 2015 is preliminary
103.7
3.6%
21.5%
42.1%
16.9%
103 - 105
4%
~ 20%
>45%
>25%
Market trends
going forward
GLOBAL SUPPLY AND DEMAND
The dairy industry has become
increasingly globalised due to the
growing geographical discrepancy
between supply and demand. Big dairy
producing regions like Europe, the US
and New Zealand will increase their
supply, while there is a growing milk
deficit in Asia and Africa. Consequently,
we expect about half of our growth to
come from outside the EU. The other
half will come from within the EU where
our task is to grow in key categories and
add value through innovation.
CUSTOMERS AND COMPETITION
Global champions in the highly
competitive dairy industry focus on
selected categories and win market
shares with strong brands and scale.
It is imperative that Arla’s three global
brands grow stronger. In Northern
Europe, discounters and private label
are growing rapidly and putting
pressure on profitability. Arla’s
customers are looking to build their
own brands, which is why we also want
to be a strong private label partner.
CONSUMER TRENDS
In the coming years, more people will
live in the big cities, where they will eat
on-the-go, adopt new food cultures
quickly and have more money to spend
on food. They will look for brands that
they can trust to be healthy, natural,
of high quality and produced in a
responsible way. People want food that
can improve their own health and that
helps them provide for their children or
loved ones in the best possible way
during their busy everyday lives.
Another global trend is that consumers
want locally produced products. Arla
needs to play a role in both the global
and local games.
MANAGEMENT REVIEW/OUR STRATEGY 44
EXCEL IN EIGHT CATEGORIES
To be a leading global dairy company, Arla
needs to go for leading category positions that
we can grow across markets, regionally or
globally. By leading we mean to be among the
very best, although not necessarily number one
in all categories in all markets.
By analysing our own category strengths and
matching these to the consumer needs we see
globally, we have identified eight categories as
the ones in which we see growth opportunities
on a global or regional scale.
Within these eight categories, we want to excel
with innovative products, a world class supply
chain, compelling marketing and strong
partnerships with our customers. We will still be
active in other categories, for example in yellow
and white cheese, however these will be driven
from a national perspective.
We will grow the categories through our three
global brands: Arla®, Lurpak® and Castello® as
well as through foodservice and business to
business sales.
The dairy champion that brings health
and natural goodness to the world
Champion of
good food
Foodservice
MILK AND POWDER
MILK BASED BEVERAGES
BUTTER AND SPREADS
MOZZARELLA
Creatively
crafted cheeses
Business to business
SPREADABLE CHEESE
YOGURT
SPECIALITY CHEESES
INGREDIENTS
WIN AS ONE ARLA
To deliver Strategy 2020, we need to organise
Arla to win in the global dairy game - as ONE
united and efficient Arla. Over the past years
Arla has grown significantly in Europe with six
mergers in Central Europe, the UK and Sweden.
We have been aligning the different entities
into one and harvesting the synergies that the
mergers created. Through our Good Growth
2020 strategy we will take this unity to the
next level.
We will improve our skills and use the same
processes and tools across the organisation.
We will put a lot of focus on strengthening our
global category and brand building, our
innovation across borders and our commercial
excellence. Our marketing will become more
global, improving our spend effectiveness, and
we will drive more radical innovation across
borders. Our entire supply chain will be even
more efficient as we will establish one European
milk pool to ensure a more holistic use of our
milk across Arla. Overall, we have set a new
ambitious cost improvement target of
EUR 400 million to be reached by 2020.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR STRATEGY
45
FOCUS ON SIX REGIONS
Arla has identified the six market regions with
the biggest potential to grow a long-term
profitable business for our owners. We will not
be pulling out of any markets, rather we will
focus our innovation, investments and
competences on these lead markets.
EUROPE
In Europe, people share food cultures and trends and we will increase
collaboration and innovation across the region. We will grow the value of our
products through innovation and branding and increase efficiency. In the UK,
Sweden and Denmark we will develop our position as the overall dairy
champion by expanding the role of dairy in people’s lives and suggesting new
ways and occasions for consuming dairy products. In other markets, we will
be a champion in several of our global categories.
MIDDLE EAST AND NORTH AFRICA
Middle East is Arla’s strongest region after Europe and we are expanding it
into North Africa through the recent subsidiary in Egypt. We lead several
categories in the region, in particular processed cream cheese under the
strong regional brand Puck® and in butter and spreads with Lurpak®. The
ambition is to grow our current positions and build new ones within value
added milk concepts and milk-based beverages. Also, it is a new ambition to
be a strong player in foodservice.
CHINA AND SOUTH EAST ASIA
China is crucial for Arla’s success in Asia. We will work closely with our
partner, Mengniu to build leading positions in imported standard long life
milk and build the category for value added milk beverages as a healthier
alternative to soft drinks, both under the Arla® brand. We will sow the seeds
for positions in other dairy categories. One is mozzarella, which will drive our
expansion into foodservice to capitalise on the Asians’ craving for pizza.
Selected markets in South East Asia will also be important for Arla’s growth.
USA
The USA is the world’s largest cheese market. Our main ambition is for
Castello® to be one of the leading speciality cheese brands by developing its
position and expanding the range with new cheeses within Arla’s broad
portfolio. An equally important ambition is to build a strong number two
position in the huge cream cheese category, currently dominated by
domestic brands. However, our Arla® branded products have a unique selling
point - they are made from natural ingredients.
SUB-SAHARAN AFRICA
Demand for dairy is growing in West Africa and Nigeria is the region’s largest
and most important market for Arla. We want to lead the milk powder
category and create the foundations for positions in other dairy categories.
To make our products more widely available, we will leverage the new
subsidiary’s distribution network. As we grow our position in Nigeria, we will
expand into other markets in the region.
RUSSIA
Russians share European dairy habits so this huge country holds a lot
of potential for Arla in the future. However, due to the current embargo on
European imports, we will not make larger strategic bets in Russia at this
point in time. We will maintain consumers’ loyalty to the Arla® brand by
offering locally produced yellow cheese and processed cheese in retail
and foodservice. Existing and new products will be produced by our local
partner, Molvest.
RETAIL AND FOODSERVICE
REVENUE TARGET
Grow revenue by
3
per cent annually
Double
revenue
Quadruple
revenue
Double
revenue
Triple
revenue
Maintain
revenue position
The six focus regions in Good Growth 2020 are not directly comparable to markets defined in the consolidated financial statements in
2015. This is due to new definitions that will be implemented in our reporting from 2016.
The
preferred
partner
We will continuously develop our skills and ability to be a strong partner for our customers and to help them grow the dairy categories.
Arla is a strong player in both industry and retail. Our new strategy will expand our global focus on foodservice customers in restaurants,
hotels, canteens and coffee shops, for example. For this purpose, we are developing a global foodservice product portfolio. We will also
pursue new opportunities within online sales, which is a fast growing channel for dairy products.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR STRATEGY
OUR CORPORATE
GOVERNANCE
Arla is owned by dairy farmers in seven countries.
This makes us unique and presents us with both
opportunities and challenges. The strength of the
cooperative will help us create the future of dairy
and bring health and inspiration to the world.
OUR CORPORATE GOVERNANCE
48 Framework for our corporate
governance
50 Inclusion and diversity
50 Executive Management Group
52 Board of Directors
54 Our corporate responsibility
56 Our corporate risk governance
58 Our tax affairs
60 Our moral compass
48
ANNUAL REPORT 2015
MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE
Framework for our
corporate governance
Arla is a cooperative owned by dairy farmers. Being a large cooperative is an
important differentiator for us. Operating it across seven countries is both very
rewarding and challenging. Arla’s democratic structure gives decision-making
authority to the Board of Directors and to the Board of Representatives.
Arla’s cooperative foundation has a long
history. More than 100 years ago the first dairy
cooperatives were founded in Scandinavia with
the purpose of buying, processing and selling
the owners’ milk in the best possible way.
Today, our cooperative owners are still both
owners of, and suppliers to, Arla. This is the
key strength of the cooperative: the
long-term, mutually obliging cooperation.
Arla’s owners are obliged to supply their milk
to Arla, thereby securing a supply of our most
important raw material. And Arla is obliged to
buy their milk. Unlike a limited liability
company, the purpose of the cooperative is to
pay its owners the highest possible price for
their milk. In this way, Arla creates value for its
farmers. The cooperative is a unique business
model, which requires a democratic and
representative governance illustrated in Arla’s
governance model.
Arla’s mission is to secure the highest
value for our farmers’ milk while creating
opportunities for their growth.
ARLA’S GOVERNANCE MODEL
12,650
Owners
Different democratic structures
in DK, SE, UK and DE
inclusive BE, NL and LUX
District councils
Members
191
Members
18
2
9
5
Board of Representatives
Board of Directors
4 national councils
Executive Board
Executive Management Group
Functional boards
19,025
Colleagues
In February 2016, Arla announced significant changes to the organisation.
The changes are commencing with a new executive management team
based on functional areas and commercial markets. There are seven
members of the new executive management team which is a reduction
from nine previously.
WHISTLEBLOWER SERVICE
Arla Foods is an organisation with strong sense of responsibility and integrity. Arla Foods’ Code of Conduct - Our Responsibility - contains general
guidelines for conducting business. In addition to this, Arla has a whistleblower service to enable its colleagues in all companies that are majority
owned or controlled by Arla to report information about possible irregularities. It is also a channel to voice concerns regarding potential violation of
Arla Foods’ Code of Conduct or legislation. Since the service started in 2012, Arla has received 26 whistleblowing reports. In 2015, we received nine
reports, seven of which were investigated further. The rest were related to human resource issues which, for legal reasons, we cannot register.
49
THE BOARD OF DIRECTORS’ FOCUS IN 2015
Work in the Board of Directors follows an annual plan to cover all the important areas - supervision,
strategy, organisation and corporate governance. Here are a few highlights from 2015.
Supervision
Strategy
Organisation
Financial and
strategic supervision
in a very difficult
market situation
Continued work to
align conditions
for milk settlement
and quality
Deciding on the business
strategy towards 2020
and preparing the process
for developing an owner
strategy
Deciding on recruitment of
new organic farmers and
on managing principles for
setting the organic
supplement
Corporate
governance
Election of the
Board of Directors,
which for the
coming two years
will consist of 15
farmers and three
employee
representatives
which is a lower
number than in
the last term
COOPERATIVE GOVERNANCE
In Arla, cooperative governance lies with
the Board of Directors and the Board of
Representatives. Their primary tasks are the
development of the ownership base, safeguarding
the cooperative democracy, embedding
decisions and developing competencies.
OWNERS
In 2015, 12,650 milk producers in Denmark,
Sweden, the UK, Germany, Belgium, Luxembourg
and The Netherlands were joint owners of Arla.
DISTRICT COUNCILS
Each owner country has its own democratic
structure resulting in different local organisations.
Each year, the cooperative members convene
for a local annual assembly in Denmark,
Sweden, the UK and Central Europe (Germany,
The Netherlands, Belgium and Luxembourg) to
ensure the democratic influence of the
cooperative owners in the seven owner
countries. The members of the district council
elect the members who represent their district
on the Board of Representatives.
BOARD OF REPRESENTATIVES
The Board of Representatives is the company’s
supreme body comprising 191 members of
whom 179 are cooperative owners while 12 are
Arla colleagues. Cooperative owners are elected
every other year in odd years. The Board of
Representatives makes decisions including
appropriation of the profit for the year and
elects the Board of Directors. The Board of
Representatives meets at least two times a year.
BOARD OF DIRECTORS
Together with the Board of Representatives, the
Board of Directors is responsible for decisions
relating to long-term strategies. The Board of
Directors consists of 15 elected Arla farmers
and three employee representatives. The
composition of the Board reflects Arla’s
ownership. The Board of Directors is responsible
for monitoring the company’s activities and
asset management, maintaining the accounts
satisfactorily and appointing the Executive
Board. The Board of Directors is also responsible
for ensuring that Arla is managed in the best
interests of its owners.
National councils
Arla has four national councils that are
subcommittees of the Board of Directors but
consist of members of the Board of Directors as
well as members of the Board of Representatives.
The national councils are established in the four
democratic areas of Sweden, Denmark, Central
Europe and UK to take care of the matters that
are of special interest to the owners in each
country.
CORPORATE GOVERNANCE
In Arla, corporate governance is shared
between the Executive Management Group and
the Board of Directors. Together, they define the
company’s strategic direction and ensure
adherence to this, organise and manage the
company, supervise management and ensure
compliance.
EXECUTIVE BOARD
The Executive Board consists of Arla’s CEO and
vice CEO. They must ensure the proper,
long-term growth of the company in a global
perspective, drive the corporate strategy, and
follow up on the targets for the year. This is
where the group’s ambitions are defined for
cross-disciplinary efforts.
EXECUTIVE MANAGEMENT GROUP
The Executive Management Group is responsible
for Arla’s day-to-day business operations and for
preparing strategies and planning the future
operating structure. The Executive Management
Group holds a minimum of 11 meetings a year.
The Executive Board, Arla’s business groups,
finance and HR are represented in the group.
FUNCTIONAL BOARDS
The functional boards are interdisciplinary
forums to create one course for Arla. It is within
these boards that a number of Arla’s global
polices are defined, where best practices are
shared and implemented and where efficiency
measures are managed. The functional boards
hold four to six meetings a year.
Finance Board
Supply Chain Board
Innovation and Marketing Board
Customer Board
Human Resource Board
Anchored in the Finance Board is the Compliance
Committee. Financial compliance is key to
being a responsible company, and Arla is
committed to meeting all applicable laws, rules
and regulations in the markets in which we
operate. The purpose of the committee is to
ensure that Arla remains compliant as it
becomes a fast growing global company.
To ensure commitment to the Code of Conduct
internally, we have established a CSR committee
that is chaired by the CEO and is made up of
representatives from the senior management
team. The committee prioritises the areas that
need additional focus to ensure the company’s
long-term commitment to responsibility.
COLLEAGUES
Arla has 19,025 colleagues globally, who are
represented in the Board of Directors and Board
of Representatives.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 50
Inclusion and
diversity
In Arla, we believe that inclusion and diversity
are imperative to our business. We define
diversity broadly as differences between people
from different backgrounds. In 2010, we
launched a 10-year Global Diversity and
Inclusion strategy. We believe this will benefit
both our people, business, suppliers, consumers
and customers.
TARGETS DEFINED FOR 2020
In terms of the composition of teams, the
long-term target is that a maximum of
70 per cent of members of any one team
should represent the same:
National/ethnic background
Gender
Generation
Educational/professional background
INCLUSION AND DIVERSITY
ACTIVITIES IN 2015
Ongoing activities from last year’s gender
representation task force have continued
while others have been initiated
Our Arla Leadership Development
Programmes have a specific and separate
module dedicated to diversity and
inclusion training
A leadership assessment of all senior directors
and above has been executed. Each person
had a one-to-one development session with
an experienced psychologist to ensure full
understanding of their leadership strengths
and development areas
’Our People’ process reviewed the performance
and development plans for all females at
director level and above in order to put in
place development actions for each of them
Our 2015 global Future 15 graduate
programme has 50 per cent female
representation and colleagues represent
a wide diversity of ethnic and educational
backgrounds
INCLUSION AND DIVERSITY
GOING FORWARD
In 2016, we will continuously focus on
implementing operational practices that aim to
improve gender representation within all levels
of our organisation. A key priority is to create a
female development programme to encourage
and empower women to aspire for bigger roles
or to maximise their performance in the roles
they currently hold. To reach our 2020 targets,
we continuously implement techniques to
Executive
Management
Group
EXECUTIVE
BOARD
Peder Tuborgh
Povl Krogsgaard
CEO
Vice CEO
2005: CEO, Arla Foods
2002: Executive Group
Director, Nordics
Division, Arla Foods
2000: Divisional
Director, Denmark
Division, Arla Foods
1994: Marketing
Director, Denmark
Division, MD Foods
1990: Marketing
Manager, Danya Foods
Saudi Arabia
1987: Product
Manager, MD Foods
Germany
2004: Vice CEO,
Arla Foods
2000: Executive Group
Director, Arla Foods
1998: Executive Group
Director, MD Foods
1994: CEO, Mejeriernes
Produktionsselskab
1991: Director, Home
Market Division, MD
Foods
1989: Production
Manager, Yellow
Cheese, MD Foods
1988: Head of Home
Market Division, MD
Foods
1987: Head of
Mejeriselskabet,
Denmark
1979: Danske Mejeriers
Fællesorganisation
mitigate unconscious bias in our HR processes,
and we will further develop the proposals of the
gender representation task force and monitor
its impact.
DIVERSITY NUMBERS IN 2015
Arla has set targets for the underrepresented
gender in the Board of Directors in compliance
with the legislation introduced in 2012. As men
are highly overrepresented in the industry, the
target reflects the gender composition in the
owner group. The Board of Directors and Board
of Representatives are elected in a democratic
process. Diversity is increased by enhancing
awareness of the benefits related to diversity in
general - not just gender.
Gender in the Board of Representatives in 2015
Gender in the Board of Directors in 2015
13%
6%
87%
94%
Gender in the Executive Management Group
in 2015
0%
100%
DIVERSITY NUMBERS IN 2015
FOR COLLEAGUES
Nationalities at director level and above
59%
14%
11%
7%
11%
Other
nationalities
Gender status in 2015 at director level and above
21%
79%
Gender status in 2015 in Arla as a whole
28%
72%
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE
51
Executive
Management
Group
OTHER EXECUTIVE
MANAGEMENT GROUP
Natalie Knight
Ola Arvidsson
CFO
CHRO
2016: CFO Arla foods
2007: CHRO, Arla Foods
2006: HR Director,
Arla Foods
2005: Vice President
HR, Unilever Nordic,
Helsingborg
2003: European HR
Director, Unilever
Home and Personal
Care Europe, Brussels
2001: HR Director,
Unilever, Sweden
2000: HR Director,
Lever Faberge Nordic,
Unilever, Sweden
1998: HR Director
DiversyeLever Nordic,
Unilever, Sweden and
Denmark
1995: HR Manager,
Unilever, Sweden
1988: Officer, Royal
Combat Engineering
Corps, Swedish Army
2015: Senior Vice
President, Group
Functions Finance,
Adidas
2011: Senior Vice
President, Brand and
Commercial Finance,
Adidas
2008: CFO, Adidas,
North America
2004: Vice President,
Mergers and
Acquisitions and
Investor Relations,
Adidas
1999: Vice President,
Head of Investor
Relations, Adidas
1998: Investor
Relations Manager,
BASF
1995: Investor
Relations Specialist,
Bankgesellschaft Berlin
Joined the Executive
Management Group
1 January 2016
Henri de Sauvage
Nolting
Executive Vice President,
Consumer Sweden,
Consumer Finland and
Consumer Denmark
2013: Executive Vice
President, Consumer
Sweden and Finland,
from 2014 also
Consumer Denmark
2009: Chairman of
Unilever Nordic
2006: Country Manager,
Unilever, Sweden
2004: Chairman of Ice
Cream, Unilever Nordic
1998: Customer &
Category Director, Lever
Faberge, The
Netherlands
1996: General Manager,
Hefei Lever, China
1993: Factory Manager,
Lever Vlaardingen, The
Netherlands
1991: Operations
Manager, Lever Brothers
Port Sunlight, UK
1989: Technical
Manager, Unilever de
Fenix, The Netherlands
Peter Giørtz-Carlsen
Executive Vice
President, Consumer
UK
Tim Ørting
Jørgensen
Executive Vice
President, Consumer
Central Europe
Finn S. Hansen
Executive Vice
President, CIN
2014: Executive Vice
President, Consumer
UK
2011: Executive Vice
President, Consumer
Denmark, Arla Foods
2010: Vice CEO,
Bestseller Fashion
Group, China
2008: Managing
Director, Cocio
Chokolademælk A/S
2003: Vice President,
Corporate Strategy,
Arla Foods
2002: Business
Development Director,
Semco/Bravida,
Danmark
2012: Executive Vice
President, Consumer
Central Europe, Arla
Foods
2007: Executive Vice
President, Consumer
International, Arla
Foods
2001: Divisional
Director, Denmark
Division, Arla Foods
1999: Group Project
Manager, MD Foods
2012: Executive Vice
President, Consumer
International, Arla Foods
2008: Senior Vice
President, Middle East
and North Africa, Arla
Foods, Dubai
1994: Regional Director,
Division Overseas, Arla
Foods, Copenhagen
1994: Regional Director,
Overseas Division, MD
Foods, Copenhagen
1996: Commercial
Manager, MD Foods do
Brasil/Dan Vigor, Brazil
1990: General Manager,
Danya Foods, Riyadh,
Saudi Arabia
1993: Product
Manager, Danya Foods,
Saudi Arabia
1988: Branch Manager,
Danya Foods, Jeddah,
Saudi Arabia
1999: Management
Consultant, Accenture
Strategy Practice
1992: Trade Marketing
Manager for France, MD
Foods
1986: Export Manager,
Dofo Cheese, Haderslev,
Denmark
1991: Trade Marketing
Assistant, Cheese
Division, MD Foods
1984: Area Manager,
Dofo Cheese, Haderslev,
Denmark
1981: Traffic Manager,
Dofo Cheese Inc., Canada
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 52
Board
of Directors
Åke
Hantoft
Chairman
Jan Toft
Nørgaard
Vice Chairman
Viggo
Ø. Bloch
Palle
Borgström
Jonas
Carlgren
Matthieu
Dobbelstein
Manfred
Graff
Heléne
Gunnarson
Markus
Hübers
Bjørn
Jepsen
Year of birth:
1952
Year of birth:
1960
Year of birth:
1955
Year of birth:
1960
Year of birth:
1968
Year of birth:
1957
Year of birth:
1959
Year of birth:
1969
Year of birth:
1975
Year of birth:
1963
Nationality:
Swedish
Nationality:
Danish
Nationality:
Danish
Nationality:
Swedish
Nationality:
Swedish
Nationality:
Belgian
Nationality:
German
Nationality:
Swedish
Nationality:
German
Nationality:
Danish
Member
of the
board since:
2000
Member
of the
board since:
2000
Member
of the
board since:
2003
Member
of the
board since:
2008
Member
of the
oard since:
2011
Member
of the
board since:
2014
Member
of the
board since:
2012
Member
of the
board since:
2008
Member
of the
board since:
2016
Member
of the
board since:
2011
Resigned from the
board 31 December
2015
Joined the board
1 January 2016
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 53
Thomas
Johansen
Steen Nørgaard
Madsen
Torben
Myrup
Jonathan
Ovens
Johnnie
Russell
Manfred
Sievers
Ib Bjerglund
Nielsen
Employee
representative
Harry
Shaw
Employee
representative
Haakan
Gillström
Employee
representative
Year of birth:
1959
Year of birth:
1956
Nationality:
Danish
Member
of the
board since:
2002
Nationality:
Danish
Member
of the
board since:
2005
Year of birth:
1956
Nationality:
Danish
Member
of the
board since:
2006
Year of birth:
1957
Nationality:
British
Member
of the
board since:
2014
Year of birth:
1950
Year of birth:
1955
Nationality:
British
Member
of the
board since:
2012
Nationality:
German
Member
of the
board since:
2013
Year of birth:
1960
Nationality:
Danish
Member
of the
board since:
2013
Year of birth:
1952
Year of birth:
1953
Nationality:
British
Member
of the
board since:
2013
Nationality:
Swedish
Member
of the
board since:
2015
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 54
Our corporate
responsibility
At Arla, we are dedicated to developing our business in a responsible manner. This is embedded
in our identity, Good Growth. We believe sustainability and profitability go hand in hand, and
that our commitment to being responsible will benefit us commercially. During the year, our
Code of Conduct - Our Responsibility - has been revised and updated. This strengthens the
expectations we have of ourselves and those of our stakeholders, and it further embeds
responsibility in our corporate culture.
Below is an extract from our responsibility report, where we report, year-on-year, on how we are adhering to our
Code of Conduct. We are proud of what we have achieved during 2015, while we acknowledge that there are
opportunities for improvement in the years to come. Read more about how we meet our responsibilities in Arla’s
Corporate Responsibility report on http://www.arla.com/company/responsibility/csr-reports/ in accordance with
section 99a in the Danish Financial Statements Act where the foundations on which we base our Code of
Conduct can also be found.
RESPONSIBLE BUSINESS
CONFIDENCE IN PRODUCTS
PRINCIPLES:
BUSINESS PRINCIPLES - We act credibly and with integrity in all of our
operations
OPERATIONAL PRINCIPLES - We manage our business in a responsible
and cooperative way that promotes the financial interests of our owners
MARKET CONDUCT - We have open and honest relationships with all of
our stakeholders
PROCUREMENT AND SUPPLIER RELATIONS - We expect our suppliers to
support us in our commitment to abide by our Code of Conduct
ACTIONS IN 2015:
Revision of Our Responsibility - Arla’s Code of Conduct, which is now
available in 12 languages. The scope includes all companies controlled
and/or owned by Arla
An anti-bribery compliance officer appointed and the process and
training developed
Due diligence process for presumed new business partners revised
Communication about being farmer-owned
Active consumer dialogue in digital channels
Both praise and criticism from customers
Arla signed up for EU trade associations’ fair business practice initiative
Clarified demands on subcontractors
Responsible supply of soy, palm and cocoa
PRINCIPLES:
FOOD SAFETY - We ensure our products are safe, no matter where they
are manufactured
FOOD AND HEALTH - We make healthy and natural dairy products
available to consumers around the globe to enhance the quality of
people’s lives
ACTIONS IN 2015:
Transition to global food safety standards - the Global Food
Safety Initiative
Screening developed for foreign substances in milk
More stringent test for antibiotics in raw milk
New requirements in new markets
Increased food safety knowledge among subcontractors
One global ingredient specification governance model
Health strategy implemented
Introduction of Arla® brand - Nutrition Criteria
Inspiring good food habits
Arla Foods Dairy Health and Nutrition Excellence Centre opened
Dairy and dietary guidelines discussed from a sustainability perspective
Current nutrition and health status of different regions of the
world mapped
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 55
CARE FOR ENVIRONMENT
AND ANIMAL WELFARE
RESPONSIBLE RELATIONS
PRINCIPLES:
ENVIRONMENT AND CLIMATE - We continually improve our environmental
performance by applying sound and sustainable principles throughout
our entire value chain
AGRICULTURE - We support sustainable dairy farming
ACTIONS IN 2015:
Mapping the total environmental impact from cow to consumer, using
the Natural Capital Accounting has been initiated
Several sites have switched to renewable energy sources
Solar panels produce energy for sites in Ivory Coast and Bangladesh
Water recovery and recycling taking place at a number of dairies
Transport optimisation, minimising fuel consumption and switch to
biofuels
Renewable cartons for milk introduced
Smarter packaging developed to reduce food waste
Arlagården® launched in all countries, ensuring all Arla farmers apply
the same standards for milk quality, food safety and animal welfare
Ongoing implementation of the sustainable dairy farming programme,
including carbon assessment at farms
Ongoing research for locally produced protein as an alternative to soy
Recruitment of organic milk continues
PRINCIPLES:
WORKPLACE - We have competent, committed and engaged employees,
and we provide safe and healthy working conditions
HUMAN RIGHTS - We respect and support internationally recognised
human rights
SOCIETY AND COMMUNITY RELATIONS - We engage in open, respectful
and constructive community relations
ACTIONS IN 2015:
Barometer engagement survey in 28 countries and 14 languages;
response rate 89 per cent, overall score outperformed benchmark group;
impressive agility score and engagement score continues to climb
Behaviour-based safety programmes in place at many sites
Head of security position established with focus on colleagues’ safety
and handling security related incidents
Training focus on compliance, leadership programmes and a broad
spectrum of e-learning
New human rights policy in place
Human rights assessment procedure and tools developed and used in
Nigeria and Senegal
We opened dialogue with West African farmers and engaged in
‘Milky Way to Development’ with international NGO Care to ensure
sustainable development for dairy farmers in the region
Change to passport practise in Saudi Arabia
Active in global network organisations such as Global Dairy Platform,
Sustainable Agriculture Initiative and International Dairy Federation
Product donations to charities have continued, so has farm visits events.
The cooking websites continue to be an inspiration for many consumers
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 56
Our corporate risk
governance
Being in control of the entire value chain means that Arla is well-protected against certain
risks. However, as a global dairy company engaged in sales and production across the world,
we are exposed to both industry-related political and socio-economic risks. Arla is continuously
working actively to identify the corporate risks that can seriously damage the business, and
2015 underlined the importance of this work. A prolonged Russian embargo, the worsening
of our owners’ financial situation and a few isolated cases of unacceptable behaviour called
for mitigating actions during the year.
In 2015, some of our corporate risks turned
into reality.
A
corporate risks that can seriously damage our
business. Having identified our Black Swans, we
are able to implement mitigating actions to
reduce the risks to an acceptable level.
strategy is to spread the risk and this is
supported by our growth agenda. Today, Arla
has sales, production and subsidiaries globally.
Severe reduction in reputation and
consumer confidence
During an internal assessment of costs in
Sweden, we found an unacceptable spending
pattern in a few isolated cases in specific areas
of the organisation, mainly related to customer
entertainment. Measures have been taken to
rectify this including a review of control systems
and processes.
CORPORATE RISK GOVERNANCE
Risk is an integral part of doing business and all
big companies face some similar risks. What
distinguishes them is their ability to manage
these risks. For this reason, corporate risk
governance is an important priority for Arla’s
Board of Directors. However, being in charge of
the entire value chain means that Arla is
well-protected against individual risks.
D
Political and/or socio-economic
instability in emerging markets
The Russian embargo initiated in 2014 has
had a significant impact on Arla in 2015 due
to the indirect effect on the European market.
The inability to supply the Russian market
reinforces the pressure that increasing milk
volumes bring and that ultimately affect the
milk price. Furthermore, the Russian embargo
on dairy products was extended to cover
products made from vegetable fat and the
length of the embargo has been prolonged.
E
Lack of milk supply/owner dissatisfaction
Owners in some of our core markets have
experienced a challenging year due to the
volatile market situation and, consequently, a
lower milk price. These challenges have partly
caused the reduction in number of owners
but despite this our milk inflow has increased
in 2015.
This underlines the importance of corporate risk
governance. In Arla, we are working actively to
identify our Black Swans, which are the
We continuously evaluate corporate risks that
may impair our performance significantly and
therefore prevent Arla from offering a
competitive milk price. Effective risk governance
ensures that the risks we take are calculated
and well-managed by adequate mitigating
actions and it is therefore an important tool in
helping us reduce uncertainty and achieving
our objectives.
Evaluation
Risk
identification
Risk
management
Mitigating
actions
Risk
assessment
At Arla, we take a three pronged approach to
corporate risk governance.
1. Spreading the risk
Arla is a continuously growing business and a
significant share of the growth is achieved in
markets outside Arla’s core markets. Our
2. Calculated risk
Some risks are worth taking to preserve our
business in the long term. If we do not invest in
growth, we cannot keep pace with our
competitors. The Board of Directors has to
weigh the pros and cons of each individual
risk and carefully choose the best opportunities
for Arla.
3. Adaptability
One of the key roles of the global finance
community is to capture the performance of
our business to support a ‘no surprise culture’. It
is vital for management at all levels to carefully
monitor market movements and to be able to
exercise due care and flexibility to minimise the
risk of surprises in operations.
RISK ASSESSMENT
In 2015, Arla’s Board of Directors identified the
six corporate risks that are the most critical to
our business currently. The risk picture remains
unchanged, however, we have increased focus
on the risk from political and socio-economic
instability in emerging markets and owner
dissatisfaction based on events during 2015.
When mapping risks the probability is based on
the risk that an event will occur and the
assumed frequency. Its potential impact is also
assessed before precautions are taken. The
impact is considered major if it unsettles the
entire business platform.
In addition, we are exposed to financial risks as a
result of our operating, investing and financing
activities and these are managed centrally for
Arla. The corporate financial risks are described
in note 5.3 in the consolidated financial
statements.
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 57
CORPORATE RISKS
A
C
E
B
F
D
Critical
Major
IMPACT
Moderate
Low
PROBABILITY
Minor
High
RISK
CHARACTERISTICS
MITIGATING ACTIONS
A
Severe reduction in
reputation and
consumer confidence
B
Large-scale
production site
accidents
C
Anti-competitive
ruling
D
Political and/or
socio-economic
instability in
emerging markets
E
Lack of milk supply/
owner dissatisfaction
F
IT meltdown
An external or internal event resulting in a significant
impact on the reputation of Arla - either immediately or
over time
The causes could be animal welfare, ethics or food safety
resulting in major product recall and medium/long-term
damage to our brands and positions
Fire, chemical spill, explosion, sabotage related to one or
more of Arla’s production sites
The specialisation of dairies has increased the level
of exposure
Clear focus on our responsibility and the revision of our Code of Conduct
- Our Responsibility
Quality programmes across all sites and physical locations
Systematic focus on ‘issues management’ in order to constantly be aware of
potential damaging issues that could arise
An emergency programme exists across all production sites
Learnings from historical accidents are continuously built into the
emergency programme in order to prevent accidents
Continuous back-up plans for re-allocation of raw milk to other production
sites in the case of a serious breakdown
Anti-competitive agreement and/or abuse of dominant
position
Compliance manager function supported by governance model
and mandate
Adverse publicity and damage to reputation
“Tone from the top”
Time-consuming and costly investigations, additional
third-party claims, sanctions include imprisonment
Regulative measures or financial downturn in individual
countries or regions preventing Arla from exporting or
selling products in the market
A potential political and social unrest impacting Arla’s
profit in one of our growth markets
Local restrictions on foreign currency transfers
Significant drop in the supply of raw milk from owners
Lack of milk supply due to the inability to pay a
competitive milk price compared to competitors
Significant worsening of the financial situation for
our owners
Fragmentation of the owner group
Implementation of compliance programme for all relevant employees
Diversification strategy across many international markets reducing
dependency on single growth markets
Joint ventures and partnerships with lower risk
Establishment of regional powerhouses in growth markets to support local
operations
Strategy 2020 emphasising profit and performance in order to pay a
competitive milk prices to owners
Establishment of a process with the Board of Directors, National Councils
and the Board of Representatives to strengthen the democratic process
in Arla
An internal or external event causing a major IT-related issue
with significant medium- or long-term business impact
Examples: Digital terrorism, bankruptcy of key vendors,
environmental threats such as solar flares and earth quakes,
IT infrastructure breakdown or radical political disturbance in
India where the vendors’ global outsourcing centre of IT
services is located
Multi-vendor set-up completed in order to reduce exposure to single
vendors
Clear mandate and process for information security in place
Thorough due diligence processes and recruitment checks at all
strategic vendors
Roll-out of IT Code of Conduct and cyber security e-learning
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 58
Our tax affairs
At Arla we are dedicated to developing our business in a responsible way. Our
approach to taxes conforms with our global Code of Conduct - Our Responsibility
- and is founded on a set of Key Tax Principles approved by the Board of Directors.
We aim to ensure full compliance and support transparency. Our goal is to
proactively manage tax in order to control our tax risks.
Our Key Tax Principles
Arla’s strategic ambition is to act as a good
partner in all tax matters, achieving a balance
between managing tax costs, driving
efficiencies and ensuring optimisations in a
responsible way.
Our Key Tax Principles are aligned with this
ambition and are the cornerstones for all
tax-related matters in Arla.
Arla aims to report the right and proper
amount of tax according to where value
is created
Arla is committed to pay taxes
legally due and to ensure
compliance with legislative
requirements in all jurisdictions
in which the business operates
Arla does not use tax havens to
reduce the group’s tax liabilities
Arla will not set up tax structures
intended for tax avoidance which have
no commercial substance and do not
meet the spirit of the law
Arla is transparent about our approach to tax
and our tax position. Disclosures are made
in accordance with relevant regulations and
applicable reporting standards such as IFRS
Arla builds on good relations
with tax authorities and trusts
that transparency, collaboration
and proactiveness minimises
the extent of disputes
ACCOUNTABILITY AND GOVERNANCE
Our global tax function is organised and driven
to ensure that, as a business, we have the right
policies and procedures in place to adhere to
the Key Tax Principles.
We continuously work on establishing internal
standards and control mechanisms required to
adhere to our Key Tax Principles. Accountability
for all tax processes is clearly described and,
with a few exceptions, lies within the global
tax function.
OPERATING UNDER
A COOPERATIVE TAX SCHEME
As a dairy cooperative based in Denmark our
activities are governed by the Danish tax rules
for cooperatives. Danish cooperative tax rules
are based on the fact that the cooperative acts
as its owners’ extended arm. Our owners are
also our suppliers, and earnings go back to
them in the form of payment for their milk. The
company’s earnings can therefore be viewed as
the owners’ personal income.
This means that our owners, as opposed to
shareholders, pay income tax on the amount
of milk they have delivered in a year multiplied
by the milk price - prepaid as well as any
supplementary payment - under the applicable
rules in the countries in which Arla has owners.
It also means that Arla as a cooperative pays
income tax in Denmark based on our assets
(equity). This income tax should be viewed as
interest on the tax of the share of earnings
retained in the company.
Arla holds a number of subsidiaries globally. Our
subsidiaries are typically limited liability and
private limited companies subject to regular
corporate taxation - just like all other such
companies.
GUIDE TO COOPERATIVE TAXES
Limited liability company
Profits
Minimum
payment for
commodity
Shareholder
Supplier
Cooperative
Maximum
payment for
commodity
Owner/supplier
Danish cooperative tax rules take account of the fact
that Arla’s suppliers are also Arla’s owners and that
earnings do not accrue to the company but its
owners in the form of the highest possible payment
for their milk.
Paid to owners
for local taxation
4.0 billion EUR
Subject to local tax rate in the country of the owner
ANNUAL REPORT 2015MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE 60
ANNUAL REPORT 2015
Our moral
compass
With a global strategy and a company in growth, a strong and uniform
approach to compliance and governance is important. Knowing right
from wrong goes beyond laws, regulations and a strict set of rules.
For us, responsible business conduct comes from living our company
values, through our culture of openness and transparency starting at
the top of the organisation and spanning all our business groups.
Strong values are the foundation of our
company. Arla’s corporate directives and polices
establish a clear link between our values,
incorporated in our responsibility, and the way
we conduct our business and engage with our
stakeholders, internally and externally. They are
global principles that provide guidance to every
colleague to align behaviour and actions across
countries and functions and put our corporate
values into practice.
Adherence to our corporate directives and
policies is monitored closely across the
organisation and immediate action is taken to
remedy non-compliance. Our compliance
activities are structured in accordance to the
internal control framework, COSO. The activities
are dedicated to developing and sustaining
efficient systems and internal controls that
support business objectives.
OUR GOVERNANCE FRAMEWORK
Code of
Conduct
Directives
Policies
Procedures/guidelines
Good practice
Put simply, Arla is people. We are a
large cooperative and we rely on one
another to act responsibly in
accordance to our shared goals and
values. We are dedicated to managing
our resources in the best possible way.
We achieve this through a combination
of policies and culture which frame our
behaviour. An example of this is within
CAPEX, where a budget of two per
cent of revenue sets the framework,
supported by several policies and
guidelines regarding leasing and
investment to ensure compliance.
Behaviour is monitored actively and
corrective actions taken if needed.
This also applies to our cost behaviour,
as prudence is an integral part of our
everyday operations.
MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE ANNUAL REPORT 2015
61
Internal controls
We believe that a strong internal
control environment is a prerequisite
to create a ‘no surprise’ culture. Using a
risk-based approach, the compliance
maturity in Arla is monitored through
various compliance activities and local
compliance visits in order to ensure
implementation of adequate risk
mitigating measures.
Fraud
Arla has a zero-tolerance approach to fraud and takes all forms
of non-compliant transactions very seriously. We have a clear
commitment to thoroughly investigate the validity of any
credible allegations of fraud and to ensure that the appropriate
actions are subsequently taken.
Bribery
It is our policy to conduct all of our business in an honest and ethical
manner. We take a zero-tolerance approach to corruption such as
bribery and facilitation payments and are committed to acting
professionally, fairly and with integrity in all our business dealings and
relationships, wherever we operate, and to implementing and
enforcing effective systems to counter corruption.
MANAGEMENT REVIEW/OUR CORPORATE GOVERNANCE CONSOLIDATED
FINANCIAL
STATEMENTS
We want our financial reporting to be best practice and we
work diligently to produce a more reader-friendly report.
We have grouped the consolidated financial statements into
sections to increase understanding of each accounting area.
Each section begins with an overview of the structure,
a short introduction and the financial highlights. The notes
include information about the accounting policies applied,
significant management judgements and estimates, in
addition to the financial figures and our financial comments
if relevant.
CONSOLIDATED
FINANCIAL STATEMENTS
64 Primary statements
72 Note 1 Operating profit
78 Note 2 Net working capital
81
Note 3 Other operating assets
and liabilities
90
Note 4 Purchase and sale
of business or activities
93 Note 5 Financial matters
113 Note 6 Other areas
120
Independent auditor’s report
121
Statement by the Board of Directors
and the Executive Board
122
Definitions and glossary
Primary
statements
An important key figure for the group is the performance price which
measures the value added to each kg of milk supplied by our owners.
The performance price is calculated as the prepaid milk price plus the
result for the year attributable to owner of Arla Foods amba divided by
milk volume supplied.
In 2015, the Board of Directors agreed to reduce the profit expectations
to 2.7 - 3 per cent in favour of a higher prepaid milk price. The decision
was made to help our owners during the very difficult financial situation.
As a result, profit for the year amounts to EUR 295 million and corresponds
to a profit share of 2.8 per cent based on profit allocated to owners of
Arla Foods amba.
The proposed supplementary payment for 2015 is EUR 113 million
corresponding to EUR-cent 1 per kg owner milk before adjustments
according to merger agreements. At 31 December, equity amounts
to EUR 2.148 million which equals an equity ratio of 31 per cent.
CONTENT
65 Consolidated income statement
66 Consolidated statement of comprehensive
income
67 Consolidated balance sheet
68 Consolidated statement of changes in equity
68 Basis for profit appropriation
70 Consolidated cash flow statement
Performance price
Profit
Equity
Leverage
33.7
EUR-cent/kg
million EUR
295
2.8%*
of revenue
*Based on profit allocated to owners of Arla Foods amba
2.1
billion EUR
Equity ratio
31%
3.3
ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
65
Consolidated income statement
1 January - 31 December
(EURm)
Revenue
Production costs
Gross profit
Sales and distribution costs
Administration costs
Other operating income
Other operating costs
Share of results after tax in joint ventures and associates
Earnings before interest and tax (EBIT)
Specification:
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Depreciation, amortisation and impairment losses
Earnings before interest and tax (EBIT)
Financial income
Financial costs
Profit before tax
Tax
Profit for the year
Minority interests
Arla Foods amba’s share of profit for the year
NOTE
1.1
1.2
1.2
1.2
1.3
1.3
3.4
1.2
5.1
5.1
6.1
2015
10,262
-7,833
2,429
-1,597
-417
37
-74
22
400
754
-354
400
14
-77
337
-42
295
-10
285
2014
10,614
-8,470
2,144
-1,454
-393
66
-52
57
368
681
-313
368
54
-84
338
-18
320
-6
314
66
Consolidated statement of comprehensive income
1 January - 31 December
(EURm)
Profit for the year
Other comprehensive income
Items that will not be reclassified to the income statement:
Actuarial gains/(losses) on defined benefit plans etc.
Income tax on actuarial gains/(losses) on defined benefit plans
Items that may be reclassified subsequently to the income statement:
Deferred gains/(losses) on cash flow hedges arising during the period
Value adjustments of hedging instruments reclassified to other operating income and costs
Value adjustments of hedging instruments reclassified to financial items
Value adjustments of hedging instruments reclassified to production costs
Value adjustments of financial assets for the period classified as held for sale
Foreign exchange adjustments of foreign entities
Income tax on items that may be reclassified to profit or loss
Other comprehensive income, net of tax
Total comprehensive income
Allocated as follows:
Arla Foods amba’s share of comprehensive income
Minority interests
Total
NOTE
5.7
2015
295
2014
320
34
-13
-49
53
20
12
-
41
-1
97
392
380
12
392
-65
12
-80
-25
20
-1
3
67
6
-63
257
249
8
257
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
67
Consolidated balance sheet
31 December
(EURm)
Assets
Non-current assets:
Intangible assets
Property, plant and equipment
Investments in associates
Investments in joint ventures
Deferred tax
Other non-current assets
Total non-current assets
Current assets:
Inventories
Trade receivables
Derivatives
Current tax
Other receivables
Securities
Cash and cash equivalents
Total current assets excluding assets held for sale
Assets held for sale
Total current assets
Total assets
Equity and liabilites
Equity:
Equity excluding proposed supplementary payment to owners
Proposed supplementary payment to owners
Arla Foods amba’s share of equity
Minority interests
Total equity
Liabilities
Non-current liabilities:
Pension liabilities
Provisions
Deferred tax
Loans
Other non-current liabilities
Total non-current liabilities
Current liabilities:
Loans
Trade payables
Provisions
Derivatives
Current tax
Other current liabilities
Total current liabilities excluding liabilities regarding assets held for sale
Liabilities regarding assets held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
NOTE
2015
2014
3.1
3.3
3.4
3.4
6.1
2.1
2.1
3.4
4.2
5.7
3.5
6.1
5.2
5.2
5.2
2.1
3.5
3.4
4.2
873
2,457
434
50
64
25
3,903
1,007
910
75
1
202
509
70
2,774
59
2,833
6,736
2,000
113
2,113
35
2,148
294
8
65
1,714
3
2,084
1,076
918
19
158
5
298
2,474
30
2,504
4,588
6,736
791
2,399
432
55
72
25
3,774
988
917
30
5
250
560
81
2,831
8
2,839
6,613
1,747
104
1,851
23
1,874
376
8
46
1,702
5
2,137
1,130
977
19
206
9
261
2,602
-
2,602
4,739
6,613
68
Consolidated statement of changes in equity
1 January - 31 December
COMMON CAPITAL
INDIVIDUAL CAPITAL
OTHER EQUITY ACCOUNTS
T
N
U
O
C
C
A
L
A
T
I
P
A
C
901
-
21
21
-
-
-
-
-
-13
-13
909
924
-
-42
-42
23
-
-
-
-4
19
901
I
L
A
C
E
P
S
R
O
F
E
V
R
E
S
E
R
S
E
S
O
P
R
U
P
432
141
-
141
-
-
-
-
-
-
-
573
261
171
-
171
-
-
-
-
-
-
432
S
E
T
A
C
F
I
I
T
R
E
C
R
E
N
W
O
D
E
S
A
B
-
Y
R
E
V
L
E
D
I
99
-
-
-
-
-6
-
-
-
1
-5
94
107
-
-
-
-
-6
-
-
-2
-8
99
L
A
T
I
P
A
C
D
E
T
U
B
I
R
T
N
O
C
S
R
E
N
W
O
O
T
T
N
E
M
Y
A
P
Y
R
A
T
N
E
M
E
L
P
P
U
S
D
E
S
O
P
O
R
P
387
31
-
31
5
-12
-
-
-
11
4
422
323
39
-
39
24
-4
-
-
5
25
387
104
113
-
113
-
-
-
-
-105
1
-104
113
121
104
-
104
-
-
-
-122
1
-121
104
S
T
N
E
M
U
R
T
S
N
I
I
G
N
G
D
E
H
E
U
L
A
V
R
O
F
E
V
R
E
S
E
R
F
O
T
N
E
M
T
S
U
D
A
J
-131
-
36
36
-
-
-
-
-
-
-
-95
-45
-
-86
-86
-
-
-
-
-
-
-131
E
L
A
S
R
O
F
E
L
B
A
L
I
A
V
A
E
V
R
E
S
E
R
E
G
N
A
H
C
X
E
N
G
E
R
O
F
I
S
T
N
E
M
T
S
U
D
A
J
R
O
F
E
V
R
E
S
E
R
5
-
-
-
-
-
-
-
-
-
-
5
2
-
3
3
-
-
-
-
-
-
5
54
-
38
38
-
-
-
-
-
-
-
92
-6
-
60
60
-
-
-
-
-
-
54
L
A
T
O
T
1,851
285
95
380
5
-18
-
-
-105
-
-118
2,113
1,687
314
-65
249
47
-10
-
-122
-
-85
1,851
S
T
S
E
R
E
T
N
I
Y
T
I
R
O
N
M
I
23
10
2
12
-
-
-10
10
-
-
-
35
21
6
2
8
-
-
-6
-
-
-6
23
I
Y
T
U
Q
E
L
A
T
O
T
1,874
295
97
392
5
-18
-10
10
-105
-
-118
2,148
1,708
320
-63
257
47
-10
-6
-122
-
-91
1,874
(EURm)
Equity at 1 January 2015
Profit for the year
Other comprehensive income
Total comprehensive income
Capital issued to new owners
Payments to owners
Dividend to minority shareholders
Disposal of non-controlling interests
Supplementary payment to owners
Foreign exchange adjustments
Total transactions with owners
Equity at 31 December 2015
Equity at 1 January 2014
Profit for the year
Other comprehensive income
Total comprehensive income
Capital issued to new owners
Payments to owners
Dividend to minority shareholders
Supplementary payment to owners
Foreign exchange adjustments
Total transactions with owners
Equity at 31 December 2014
Basis for profit appropriation
2015
2014
Profit for the year
Minority interests
Arla Foods amba’s share of the net profit for the year
Proposed profit appropriation:
Supplementary payment for milk
Interest on contributed capital
Supplementary payment, total
Transferred to equity:
Reserve for special purposes
Contributed capital
Transferred to equity, total
Appropriated profit, total
295
-10
285
110
3
113
141
31
172
285
320
-6
314
101
3
104
171
39
210
314
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
PROFIT APPROPRIATION
Supplementary payment:
1EUR-cent/kg owner milk
Consolidation principles:
Common capital 2/3
Individual capital 1/3
69
Performance price
33.72
EUR-cent/kg
Prepaid
31.44 EUR-cent/kg
Profit for the year
285 EURm
***
2.28 EUR-cent/kg
Supplementary payment
125 EURm
3*
-15**
113 EURm
EURm
EURm
Common capital
105 EURm
21**
15**
141 EURm
EURm
EURm
Consolidation
157 EURm
Individual capital
52 EURm
-21**
31 EURm
EURm
* Interest on contributed capital: 0.02 EUR-cent/kg owner milk
** According to merger agreements
*** Based on profit allocated to owners of Arla Foods amba
Understanding the equity
Equity accounts regulated by the articles of
association can be split into three main categories;
common capital, individual capital and other equity
accounts. The characteristics of each account is
explained in detail below:
Common capital
Common capital is by nature undivided and consists
of the capital account and the reserve for special
purposes. The capital account represents a strong
foundation for the cooperative’s equity as the
non-impairment clause described below determines
that the account can not be used for payment to
owners. The reserve for special purposes is an
account that in extraordinary situations can be used
to compensate owners for losses or impairments
affecting the profit for appropriation. Amounts
transferred from the annual profit appropriation to
common capital are booked on this account.
Individual capital
Individual capital is capital allocated to each owner
based on their delivered milk volume. Individual
capital consists of delivery-based owner certificates
and contributed capital. Amounts registered on
these accounts will, subject to approval by the Board
of Representatives, be paid out if the owner decides
to leave the cooperative. Amounts allocated to
individual capital as part of the annual profit
appropriation are interest bearing. Also characterised
as individual capital is the account for proposed
supplementary payment to owners that will be
paid out following the approval of the annual report.
Other equity accounts
Other equity accounts include accounts prescribed
by IFRS that shall be traced individually and can not
be used for payment to owners. This includes
reserve for value adjustment of hedging
instruments, available for sale reserve and reserve
for foreign exchange adjustments.
Minority interests
Minority interests include the share of group
equity attributable to holders of minority interests
in group companies.
Financial comments
During 2015, equity increased by EUR 274 million
compared to 31 December 2014.
Profit appropriation
Basis for proposed supplementary payment is
EUR 125 million corresponding to EUR-cent 1 per kg
owner milk. As set out in the merger agreement with
AMCo, the UK, EUR 15 million of their share of
supplementary payment is transferred separately
to reserve for special purposes. Interest on
consolidated contributed capital amounts to
EUR 3 million where after supplementary payment
is EUR 113 million. This is an increase of EUR 9
million compared to last year due to increased milk
volumes from owners. The average supplementary
payment of EUR-cent 1 per kg owner milk is
unchanged from last year.
Basis for consolidation is EUR 157 million split by
1/3 to contributed capital amounting to EUR 52
million and by 2/3 to reserve for special purposes
amounting to EUR 105 million. As set out in merger
agreements, EUR 21 million of the contributed
capital amounting to EUR 52 million is transferred
from contributed capital to reserve for special
purposes.
Consolidation for the year totals EUR 172 million of
which EUR 31 million is transferred to contributed
capital and EUR 141 million is transferred to reserve
for special purposes. Compared to last year this is a
decrease of EUR 38 million.
Other comprehensive income
Other comprehensive income amounting to
EUR 97 million is primarily attributable to positive
value adjustments of hedging instruments and net
assets measured in foreign currencies. Furthermore,
actuarial gains on pension liabilities have positively
impacted the capital account due to higher
interest rates.
Payments to and from owners
A supplementary payment relating to 2014 totalling
EUR 105 million was paid out in March 2015.
Additionally, EUR 18 million was paid out to owners
resigning or retiring from the cooperative.
It is expected that EUR 20 million will be paid out in
2016 to owners resigning or retiring.
Regulations according to Articles
of Association and IFRS
Recognised within the capital account are technical items such as
movements on actuarial gains or losses on defined benefit pension
schemes, effects from disposal and acquisitions of non-controlling
interests in subsidiaries and exchange rate differences in the owners’
equity instruments. Furthermore, the account is impacted by agreed
contributions from new members of the cooperative.
Recognised within the reserve for special purposes is the annual
profit appropriation to common capital. Further it may, upon the
Board of Director’s proposal, be applied by the Board of
Representatives for the full or partial off-setting of material
extraordinary losses or impairment in accordance to article 21(iii)
of the Articles of Association.
Delivery-based owner certificates are established in accordance
with article 21(1)(ii) of the Articles of Association and related
regulations. Consolidation on this account is suspended from 2010.
Contributed capital is established in accordance with article 21(1)
(iii) of the Articles of Association and regulation. Amounts
consolidated as contributed capital via the annual profit
appropriation carry interest at CIBOR 12 months + 1.5%. Amounts
paid into the contributed capital in connection with mergers carry
no interest. Interest is paid out along with the supplementary
payment.
Individual owners’ balances on delivery-based owner certificates
and on contributed capital can be paid out over three years upon
termination of membership of Arla Foods amba in accordance with
the Articles of Association subject to the Board of Representatives’
approval. Balances on individual accounts are denominated in the
currency relevant to the country in which the members are registered.
Foreign currency translation adjustments are calculated annually, the
amount of which is then transferred to the capital account.
Proposed supplementary payment to owners is recognised
separately in equity until paid out.
Reserve for value adjustments of hedging instruments comprise
the fair value adjustment of derivative financial instruments
classified as and meeting the conditions for hedging of future cash
flows and where the hedged transaction has not yet been realised.
Available for sale reserve comprises value adjustments on
securities classified as held for sale.
Reserve for foreign exchange adjustments comprises currency
translation differences arising during the translation of the financial
statements of foreign companies including value adjustments
relating to assets and liabilities that constitute part of the group’s
net investment, and value adjustments relating to hedging
transactions that hedge the group’s net investment.
Non-impairment clause
Under the Article of Association, no payment may be made by
Arla Foods amba to owners that impair the sum of the capital
account and equity accounts prescribed by law and by IFRS. The
non-impairment clause is assessed on the basis of the most recent
annual report presented under IFRS. Individual accounts, reserve for
special purposes and proposed supplementary payment to owners
are not covered by the non-impairment clause.
Minority interests
Subsidiaries are fully recognised in the consolidated financial
statements. Minority interests’ share of the results for the year and
of the equity in the subsidiaries that are not wholly owned are
recognised as part of the consolidated results and equity,
respectively, but are listed separately. On initial recognition, minority
interests are measured at either the fair value of the equity interest
or the proportional share of the fair value of the acquired companies
identified assets, liabilities and contingent liabilities. The
measurement of minority interests is selected on a transactional
basis, and disclosure is made in the note pertaining to business
combinations.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
70
ANNUAL REPORT 2015
CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
Consolidated cash flow statement
1 January - 31 December
(EURm)
NOTE
2015
2014
Cash flows from operating activities
EBITDA
Share of results in joint ventures and associates
Change in primary working capital
Change in other working capital
Other operating items without cash impact
Dividends received, joint ventures and associates
Interest paid
Interest received
Tax paid
Total cash flow from operating activities
Investment in intangible fixed assets
Investment in property, plant and equipment
Sale of property, plant and equipment
Total operating investing activities
Free operating cash flow
Sale of financial assets
Acquisition of enterprises
Sale of enterprises
Total financial investing activities
Total cash flow from investing activities
Total free cash flow
Cash flows from financing activities
Supplementary payment regarding the previous financial year
Paid in funds from new owners
Paid out from equity regarding terminated membership contracts
Loans obtained, net
Change in current liabilities
Net change in marketable securities
Total cash flow from financing activities
Net cash flow
Cash and cash equivalents at 1 January
Exchange rate adjustments of cash funds
Transferred to assets held for sale
Cash and cash equivalents at 31 December
3.4
2.1
6.1
3.1
3.3
3.3
5.2
754
-22
-23
10
11
8
-56
6
-19
669
-70
-348
8
-410
259
-
-29
37
8
-402
267
-105
5
-18
-173
-33
50
-274
-7
81
3
-7
70
681
-57
-16
-75
42
7
-72
3
-2
511
-33
-429
-
-462
49
14
15
17
46
-416
95
-122
12
-10
44
-35
18
-93
2
76
3
-
81
71
SPECIFICATION OF TOTAL FREE CASH FLOW (EURm)
6
9
2
2
0
1
4
4
9
-
1
0
6
-
4
1
0
8
2
6
7
800
600
400
200
0
Operating cash flow before
Change in inventories
Change in trade
Change in trade payables
Change in owner
Total operational
primary working capital
receivables
excluding owner milk
milk payment
investing activities
Total financial
Total free cash flow
investing activities
Accounting policies
Financial comments
The consolidated cash flow statement is presented
according to the indirect method, whereby the cash
flow from operating activities is determined by
adjusting EBITDA for the effects of non-cash items
such as undistributed results in joint ventures and
associates and the effects of changes in primary
working capital items during the period.
Cash flows from operating activities were improved
by EUR 158 million to EUR 669 million. The change
is attributable to higher EBITDA and changes in
primary working capital. Our efforts to reduce
working capital continues to release cash, however
payables related to owner milk have decreased by
EUR 106 million due to the lower milk price and the
timing of milk payments.
Cash flows from investment activities were EUR
-402 million compared with EUR -416 million in
2014. Significant investments relate to the facilities
in Upahl in Germany, Videbæk in Denmark and
Falkenberg in Sweden. Free cash flows totalled EUR
267 million compared with EUR 95 million in 2014.
These are calculated as cash flows from operating
activities less cash flows from investment activities.
Cash flows from financing activities were EUR -274
million, which were mainly affected by the
supplementary payment relating to 2014, paid out
in 2015, and repayment of loans.
Combined cash and cash equivalents represented
EUR 70 million, compared with EUR 81 million at the
end of 2014.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/PRIMARY STATEMENTS
Note 1
Operating profit
CONTENT
73 Note 1.1 Revenue
75 Note 1.2 Costs
77 Note 1.3 Other operating income and costs
Operating profit is defined as earnings before share of result from joint
ventures and associates, interest and tax. In 2015 operating profit
amounts to EUR 378 corresponding to an increase of EUR 68 million.
Revenue has decreased by 3.3 per cent compared to 2014. The decline
in world market prices has had significant negative price effect only
partly offset by increasing milk volumes resulting in an organic revenue
development of -8.4 per cent.
Total costs have decreased by 4.6 per cent in 2015 compared to 2014
primarily due to a significant decrease of EUR 637 million in production
cost as a result of the lower milk price despite the increased volume.
The average cost per kg milk has decreased to EUR-cent 32.04 per kg.
Sales and distribution costs as well as administration costs have
increased by EUR 143 million and EUR 24 million respectively.
Non raw milk cost has increased 4.4 per cent.
Organic revenue
development
Average cost
per kg milk
Milk volume
development
Average number of
full time employees
-8.4%
32.04
EUR-cent/kg
4.6%
19,025
NOTE 1.1 REVENUE
Accounting policies
Revenue from the sale of dairy and other food
products is recognised in the income statement
when delivery and risk of the products have passed
to the buyer, the amount of revenue can be
measured reliably, and collection is probable.
Revenue comprises invoiced sales for the year less
sales rebates, cash discounts, VAT and duties.
Revenue by business group/market and product
category is based on the group’s internal financial
reporting.
Note 1.1.a Revenue split by business group/market
(EURm)
2015
Consumer UK 1
Consumer Sweden 1
Consumer Finland 1
Consumer Denmark 1
Consumer Central Europe 1
Consumer International 2,3
Arla Foods Ingredients 2
Global Categories and Operations - trading 4
Others 4
Total revenue
1 Core markets
2 Growth markets and Arla Foods Ingredients
3 Value markets
4 Trading and others
REVENUE SPLIT BY MARKET IN
CONSUMER INTERNATIONAL (EURm)
39
107
2015
2014
Russia
652
601
534
605
193
203
Middle East and Africa
China and TPM
Value markets
73
2014
REVENUE
2,828
1,516
352
957
1,990
1,437
340
983
211
10,614
7,643
1,179
598
1,194
ORGANIC
DEVELOPMENT
-8.1%
-4.1%
-1.6%
-4.2%
-11.5%
-0.1%
5.2%
-22.1%
n/a
-8.4%
-6.3%
0.0%
4.1%
n/a
REVENUE
2,890
1,451
346
917
1,844
1,499
368
773
174
10,262
7,448
1,250
617
947
DEVELOPMENT IN REVENUE (EURm)
11,000
10,500
10,000
9,500
9,000
,
1
0
6
1
4
9
5
,
-
1
2
1
3
4
3
2
,
1
0
2
6
2
3
3
4
2014
M&A effect
Sales prices
Volume/mix
Currency
2015
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
74
Note 1.1.b Brand share by business group
Consumer UK
Consumer Sweden
Consumer Finland
Consumer Denmark
Consumer Central Europe
Consumer International
Arla Foods Ingredients
Global Categories and Operations - trading
Total brand share
2015
25.5%
85.8%
60.2%
69.4%
19.5%
71.4%
39.9%
1.2%
42.1%
2014
25.6%
88.1%
72.6%
66.4%
19.1%
70.7%
44.9%
1.5%
41.2%
REVENUE SPLIT BY PRODUCT CATEGORY
Fresh dairy products
Cheese
Butter and spreads
Milk powder
Whey products
2015
42%
25%
13%
8%
4%
Fresh dairy products
Cheese
Butter and spreads
Milk powder
Whey products
2014
42%
25%
13%
10%
3%
Other
8%
Other
7%
Financial comments
Revenue has decreased by 3.3 per cent compared to
2014 due to the decline in world market prices
affected by the Russian embargo, the consequences
of the declining Chinese demand and the abolition
of the EU milk quota system. Revenue has
decreased primarily in core markets and on trading
activities handled by Global Categories and
Operations. However, revenue in growth markets
and value markets has increased in 2015.
The negative price development resulted in a
decrease in revenue of 11.4 per cent. However the
negative effect is partially offset by a positive
development in currencies of 4.1 per cent and a
positive development from the increasing volumes
of 3.1 per cent.
Adjusting total revenue for the effect from
acquisitions and divestments results in a negative
organic revenue development of 8.4 per cent.
Even with volume driven revenue growth of 4.3
percent, driven by Arla Foods Ingredients, Consumer
International and Consumer Finland, volumes
have not increased enough to compensate for the
market volatility.
In 2015, the group remained committed to the plan
to move additional milk into profitable branded and
private label, retail and foodservice products and as
a result, the brand share has increased from 41.2 per
cent to 42.1 per cent. The group managed to move
more milk into branded products, primarily in
Consumer Denmark and Consumer International.
Revenue split by category remains unchanged
compared to last year. Fresh dairy products are by far
the largest category consisting of milk, cream, UHT
and yogurt.
NOTE 1.2 COSTS
Accounting policies
Production costs
Production costs comprise purchase of goods;
including the purchase of milk from cooperative
owners, and direct and indirect costs including
depreciation and impairment losses on production
plant as well as payroll costs related to revenue for
the year. The purchase of milk from cooperative
owners is recognised at prepaid prices for the
accounting period and therefore does not include
supplementary payment, which is classified as
distributions to owners and recognised directly
in equity.
Sales and distribution costs
Costs incurred on the sale and distribution of goods
sold in the course of the year, and for promotional
campaigns are recognised as sales and distribution
costs. Costs relating to sales staff, write-down of
receivables sponsorship, research and development,
advertising and exhibits, and depreciation and
impairment losses, are also recognised as sales and
distribution costs.
Administration costs
Administration costs incurred in the course of
the year relate to management and administration,
including administrative staff, office premises
and office costs, as well as depreciation and
impairment losses.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 1.2.a Split of total functional costs
(EURm)
Production costs
Sales and distribution costs
Administration costs
Total
of this:
Cost of raw milk
Staff costs
Depreciation, amortisation and impairment
Other costs*
Total
75
2014
-8,470
-1,454
-393
-10,317
-5,242
-1,156
-313
-3,606
-10,317
2015
-7,833
-1,597
-417
-9,847
-4,547
-1,225
-354
-3,721
-9,847
*Other cost mainly includes packaging, additives, consumables, change in inventory, transportation, marketing and utilities.
DEVELOPMENT IN FUNCTIONAL COST 2011 - 2015 PER KG OWNER MILK
(index)
DEVELOPMENT IN COST (EURm)
110
100
90
80
70
60
50
2011
2012
2013
2014
2015
Production costs (excluding cost of raw milk)
Total cost
Administration costs
Sales and distribution costs
11,000
10,500
10,000
9,500
9,000
,
1
0
3
1
7
-
8
9
5
2
3
4
,
9
8
4
7
2
0
0
-
9
2014
Milk price effect
Growth in milk volume
Growth in cost base
excluding milk
Currency
2015
Financial comments
Total functional costs have declined by EUR 470
million equal to 4.6 per cent compared to last year
primarily due to declining milk prices of EUR 695
million. Excluding cost of raw milk other costs have
increased with 4.4 per cent primarily as a result of
higher activity and currency effects.
The focus is on keeping costs down to pass on the
highest possible milk price to the owners through
the prepaid price milk and supplementary payment.
In general variable costs excluding milk cost have
risen due to increased activities, while fixed costs
have increased at a proportionately lesser rate.
Hence, the total costs per kg milk, excluding cost of
raw milk, has decreased due to economies of scale.
Production costs excluding milk have only increased
by 1.8 per cent compared to a growth in milk
volume of 4.6 per cent due to a constant focus on
scalability.
Sales and distribution cost have increased by 9.8 per
cent, mainly driven by marketing costs to support
the strategic goal of moving more milk into branded
products.
Administration costs have increased by EUR 24
million, driven by increased cost related to product
development, and insourcing of cost beneficial
activities.
Research and development costs incurred, amount
to EUR 46 million compared with EUR 39 million
last year.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
76
Note 1.2.b Cost of raw milk
2015
2014
Owner milk
Other milk
Total
WEIGHED IN
MIO. KG.
12,463
1,729
14,192
EURm
-3,918
-629
-4,547
WEIGHED IN
MIO. KG.
11,738
1,832
13,570
EURm
-4,559
-683
-5,242
Financial comments
The cost of raw milk has decreased by EUR 695
million. Lower milk prices have reduced costs by
EUR 895 million offset by increased volumes of EUR
200 million. The costs related to the prepaid milk
price to owners has been reduced by EUR 641
million, even though the inflow of raw milk has
increased by 725 million kg. This illustrates the
difficult situation our owners are in.
Other non-owner milk primarily relates to speciality
milk in the Allgäu region in Germany and in Finland.
Note 1.2.c Staff costs
(EURm)
Wages, salaries and remuneration
Pensions - defined contribution plans
Pensions - defined benefit plans
Other social security costs
Total staff costs
Staff costs relate to:
Production costs
Sales and distribution costs
Administration costs
Staff cost recognised as inventory or fixed assets
Total staff costs
Average number of full time employees
2015
-1,043
-70
-5
-107
-1,225
-676
-355
-182
-12
-1,225
19,025
2014
-982
-64
-2
-108
-1,156
-641
-344
-161
-10
-1,156
19,155
Financial comments
Staff costs, adjusted for currency effects, have
increased by 3.5 per cent to EUR 1,225 million. The
increased costs in production and sales, related to
the handling of increased milk volumes, has been
compensated with the implementation of efficiency
programs and a continuous focus on staff costs.
Salary levels and developments are closely monitored
and benchmarked against local market levels. The
increased focus on innovation and in-sourcing of cost
beneficial activities, has increased staff costs.
During the year-end, the number of full time
employees has decreased by 130 employees,
when compared to last year.
Note 1.2.d Depreciation, amortisation and impairment losses
(EURm)
Intangible assets, amortisation
Property, plant and equipment, depreciation
Total depreciation, amortisation and impairment losses
Depreciation/amortisation and impairment losses relate to:
Production costs
Sales and distribution costs
Administration costs
Total depreciation, amortisation and impairment losses
Financial comments
Depreciation, amortisation and impairment losses
has increased due to the full year effect of significant
CAPEX-investments in previous years, as well as
currency effects.
2015
-34
-320
-354
-287
-31
-36
-354
2014
-31
-282
-313
-263
-21
-29
-313
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
77
2015
2014
2
-
6
3
7
19
37
10
22
8
-
-
26
66
2015
2014
-3
-5
-51
-15
-74
-3
-5
-25
-19
-52
NOTE 1.3 OTHER OPERATING INCOME AND COSTS
Accounting policies
Other operating income and costs comprise items
secondary to the group’s primary activities.
These items comprise gains and losses relating to:
Divestment of intangible assets and property,
plant and equipment
Gains and losses relating to financial instruments
Compensation from insurance contracts
Note 1.3.a Other operating income
(EURm)
Gain on disposal of intangible assets and property, plant and equipment
Insurance proceeds
Sale of electricity
Rent and other secondary income
Value adjustment related to divestments
Other items
Total other operating income
1.3.b Other operating cost
(EURm)
Loss on disposal of intangible assets and property, plant and equipment
Costs relating to the sale of electricity
Financial instruments
Other items
Total other operating costs
Financial comments
Losses on financial instruments used for hedging
of future sales have increased by EUR 26 million as
a result of the increasing GBP and USD during
the year.
In 2015 the group settled an earn out regarding
a divestment made in prior years with an income
effect of EUR 7 million.
Other operating income and costs include income
and costs related to the sale of surplus power from
condensation plants. The net result of this was
EUR 1 million compared with EUR 3 million in 2014.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 2
Net working capital
Release of cash is a key driver in funding new activities and investments
and securing long term earnings for owners. One way to release cash is
by reducing net working capital.
Despite positive effects from Programme Zero, the total primary net
working capital increased by EUR 71 million, corresponding to an increase
of 8 per cent, which is caused by difference in the timing of payment for
owner milk near year-end.
However corrected for owner milk the total primary net working capital
has decreased by EUR 34 million.
CONTENT
79 Note 2.1 Net working capital
8%Primary net working capital development
79
NOTE 2.1. NET WORKING CAPITAL
Accounting policies
Inventories
Inventories are measured at the lower of cost or net
realisable value, calculated on a first-in, first-out basis.
The net realisable value is established taking into
account the inventories’ negotiability, market ability
and estimate of the selling price, less completion
costs and costs incurred to execute the sale.
The cost of raw materials, consumables as well as
commercial goods includes the purchase price plus
delivery costs. The prepaid price to Arla’s owners is
used as the purchase price for owner milk.
The cost of work in progress and manufactured goods
also includes an appropriate share of production
overheads, including depreciation, based on the
normal operating capacity of the production facilities.
Trade receivables
Trade receivables are recognised at the invoiced
amount less write-downs for amounts considered
irrecoverable (amortised cost). Write-downs are
measured as the difference between the carrying
amount and the present value of anticipated cash
flow. Write-downs are assessed on major individual
receivables or in groups at portfolio level based on
the receivables’ age and maturity profile as well as
historical records of losses.
Trade payables
Trade payables are measured at amortised cost,
which usually corresponds to the invoiced amounts.
Uncertainties and estimates
Inventories
The entities in the group that use standard costs for
calculating inventory revise their indirect production
costs at least once a year. Standard costs are also
revised if they deviate materially from the actual cost
of the individual product. Indirect production costs are
calculated based on relevant assumptions with
respect to capacity utilisation, production time and
other factors characterising the individual product.
The assessment of the net realisable value requires
judgement, particularly in relation to the estimate of
the selling price of certain cheese stocks with long
maturity, discounted products and bulk products to
be sold in the world market.
Receivables
Write-downs of receivables are based on individual
assessments, in cases where signs of impairment are
detected, in connection with customers’ insolvency or
anticipated insolvency. Furthermore a mathematical
computation based on number of days overdue is
used. Additional write-downs may be necessary in
future reporting periods if customers’ financial
conditions worsen and customers are no longer able
to meet their payment obligations. Movements for
the year related to write-down of receivables
pertaining to sales and services are shown below.
Customer specific bonuses are calculated based on
actual agreements with retailers, however, some
uncertainty exists when estimating exact amounts
to be settled and timing of these settlements.
Note 2.1.a Primary net working capital
(EURm)
Inventories
Trade receivables
Trade payables
Total primary net working capital
Payables for member milk
Total primary net working capital excluding owner milk
Note 2.1.b Inventory
(EURm)
Inventory, gross
Write-downs
Total inventory
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Total inventory
2015
1,007
910
-918
999
200
1,199
2015
1,036
-29
1,007
224
294
489
1,007
2014
988
917
-977
928
305
1,233
2014
1,025
-37
988
213
334
441
988
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
2015
922
-12
910
23
-
-9
-2
12
2014
940
-23
917
12
1
11
-1
23
80
Note 2.1.c Trade receivables
(EURm)
Trade receivables before provision for bad debts
Write-downs for bad debts
Total trade receivables, net
Write-down for bad debts at 1 January
Foreign currency translation adjustments
Additions/reversals
Write-downs used
Write-down for bad debts at 31 December
DEVELOPMENT IN PRIMARY WORKING CAPITAL (EURm)
9
2
8
-
1
5
-
2
5
-
3
3
1
0
5
3
9
9
9
9
1,000
900
800
700
600
1 January 2015
Inventory
owner milk
Trade payables excluding
Trade receivables
Owner milk
Currency
31 December 2015
Financial comments
The group has constant focus on improving net
working capital. Processes are continuously being
optimised with focus on payment terms, inventory
forecasting accuracy and internal planning.
The primary net working capital is positively affected
by the working capital project Programme Zero,
which have succeeded in delivering an improvement
in primary net working capital of EUR 151 million.
Increased volumes at year end combined with a shift
into more value adding products has increased the
value of inventory. This has been offset by the
declining milk price which has impacted the
inventory by approximately 10 per cent. The net
effect has been a decline of EUR 15 million
excluding currency.
The declining milk price and focus on cash
collection has reduced trade receivables. This has
been partly offset by higher volumes. Trade
receivables excluding currency has decreased by
EUR 25 million compared to last year.
Exposure to credit risk on trade receivables is
managed locally in the operating entities. Credit
limits are set based on the customer’s financial
position and the current market conditions.
Generally, the group does not hold collateral as
security for trade receivables. The customer
portfolio is diversified in terms of geography, industry
sector and customer size. The group is not exposed
to credit risk related to significant individual
customers but to the general credit risk in the retail
sector. Historically amounts written off as
irrecoverable have been relatively low, which is also
the case in 2015. Overdue above 90 days on trade
receivables amounts to less than 2 per cent.
Trade payables excluding owner milk and currency
increased EUR 33 million. Owner milk decreased by
EUR 105 million due to lower milk price and timing
of the biweekly milk payment.
Currency have increased net working capital with
EUR 39 million.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 3
Other operating
assets and liabilities
In order to accommodate for the increase in milk volumes, adequate
production capacity was required. During 2015, the group invested
approximately EUR 350 million in property, plant and equipment to
improve capacity, efficiency, quality and environmental performance.
Furthermore, EUR 70 million was invested in IT and other development
projects. These investments contribute to increased long term profitability,
and makes production more efficient and environmentally friendly.
These initiatives directly support our Good Growth strategy.
CONTENT
82 Note3.1 Intangible assets
84 Note 3.2 Impairment tests
85 Note 3.3 Property, plant and equipment
87 Note 3.4 Joint ventures and associates
89 Note 3.5 Provisions
Property, plant
and equipment
by country
Investments in
property, plant and
equipment
Carrying value
of joint ventures
and associates
37%
13%
32%
11%
7%
Other
484
million EUR
350
million EUR
82
NOTE 3.1 INTANGIBLE ASSETS
Accounting policies
Goodwill
Goodwill represents the premium paid by the group
above the fair value of the net assets of an acquired
company. On initial recognition, goodwill is
recognised at cost as described under note 4.1
‘Business combinations’. Goodwill is subsequently
measured at cost less any accumulated impairment.
The carrying amount of goodwill is allocated to the
group’s cash-generating units that follow the
management structure and internal financial
reporting. Cash-generating units are the smallest
group of assets which is able to generate independ-
ent cash inflows.
Licences and trademarks
Licences and trademarks are initially recognised at
cost. The cost is subsequently amortised on a
straight-line basis over their expected useful lives.
IT and other development projects
Costs incurred during the research phase in carrying
out general assessments of the group’s needs and
available technologies are expensed as incurred.
Directly attributable costs incurred during the
development stage for IT and other development
projects relating to the design, programming,
installation and testing of projects before they are
ready for commercial use are capitalised as
intangible assets. Such costs are only capitalised
provided the expenditure can be measured reliably,
the project is technically and commercially viable,
future economic benefits are probable and the
group intends to and has sufficient resources to
complete and use the asset. IT and other develop-
ment projects are amortised on a straight-line basis
over five to eight years.
Note 3.1.a Intangible assets
(EURm)
2015
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Reclassification
Disposals
Cost at 31 December
Amortisation and impairments at 1 January
Exchange rate adjustments
Amortisation for the year
Amortisation on disposals
Amortisation and impairment at 31 December
Carrying amount at 31 December
2014
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Reclassification
Disposals
Cost at 31 December
Amortisation and impairments at 1 January
Exchange rate adjustments
Amortisation for the year
Reclassification
Amortisation on disposals
Amortisation and impairment at 31 December
Carrying amount at 31 December
GOODWILL
LICENSES AND
TRADEMARKS
IT AND OTHER
DEVELOPMENT
PROJECTS
645
26
-
10
-3
-
678
-
-
-
-
-
678
618
27
-
-
-
-
645
-
-
-
-
-
-
645
103
-2
-
2
-
-1
102
-60
1
-6
-
-65
37
104
1
5
7
-2
-12
103
-57
-1
-8
2
4
-60
43
206
-
70
-
13
-8
281
-103
-
-28
8
-123
158
197
-
45
-
1
-37
206
-116
-
-23
-1
37
-103
103
TOTAL
954
24
70
12
10
-9
1,061
-163
1
-34
8
-188
873
919
28
50
7
-1
-49
954
-173
-1
-31
1
41
-163
791
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
83
INTANGIBLE ASSETS (EURm)
2014
2015
Goodwill
645
Licences and trademarks etc.
IT-development
158
103
37
43
678
GLOBAL BRANDS
SELECTION OF OTHER BRANDS
Financial comments
Intangible assets increased by EUR 82 million during
2015. There were no impairments in 2015.
Goodwill
Goodwill primarily related to activities in Consumer
UK, Consumer Finland and Consumer Sweden.
During 2015 goodwill increased following the
acquisition of Falbygden Ost, Sweden as described
in note 4.1.
Licences and trademarks.
Licences and trademarks primarily include Cocio®,
Anchor®, God Morgon® and Hansano®. Other brands
including the 3 global brands; Arla®, Lurpak® and
Castello® are not recognised with a value on the
balance sheet.
IT and other development projects
The group continues to invest in the development
of IT. Focus has been on integrating seven UK sites,
Finland, Upahl in Germany and Falbygden, Sweden,
into the Arla IT platform.
Other development cost capitalised relates to
development of new products.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
84
NOTE 3.2 IMPAIRMENT TESTS
Accounting policies
Impairment is indicated where the carrying amount
of an asset is greater than its recoverable amount
through either use or sale. For impairment testing,
assets are grouped together into the smallest group
of assets that generates cash inflows from
continuing use (cash-generating unit) that are
largely independent of the cash inflows of other
assets or cash-generating units. The cash-generat-
ing units are determined based on the management
structure and the internal financial reporting. The
cash-generating units are reassessed each year.
The carrying amount of goodwill is tested for
impairment together with the other non-current
assets in the cash-generating unit to which the
goodwill is allocated. The recoverable amount of
goodwill is recognised as the present value of the
expected future net cash flows from the cash-gener-
ating unit to which the goodwill is linked, discounted
using a pre-tax discount rate that reflects the current
market assessments of the time value of money and
risks specific to the asset or cash-generating unit.
on the balance sheet at the lower value of the
recoverable amount and the carrying amount. The
recoverable amount of other non-current assets is
the higher value of the asset’s value in use and the
market value (fair value), less expected disposal
costs. The value in use is calculated as the present
value of the estimated future net cash flows from
the use of the asset or the cash-generating unit of
which the asset is part of.
An impairment loss on other non-current assets is
recognised in the income statement under
production costs, sales and distribution costs or
administration costs, respectively. Impairment made
is reversed to the extent that the assumptions and
estimates that led to the impairment have changed.
An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed
the carrying amount that would have been
determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Uncertainties and estimates
Impairment of goodwill is recognised on a separate
line in the income statement and is not reversed.
The carrying amount of other non-current assets is
assessed annually to determine whether there is any
indication of impairment. The assets are measured
Due to the nature of the group, significant estimates
are made of anticipated cash flows together with an
assessment of the long-term growth rate and
profitability. Additionally, an assessment of a
reasonable discount rate is made, reflecting the risks
inherent in the asset or cash-generating unit. This
naturally results in a degree of uncertainty. Changes
in the future cash flow or discount rate estimates
used may result in materially different values.
Anticipated cash flows
The anticipated cash flows are based on current
forecasts and the strategy goals for 2017. It has
been ensured that anticipated cash flows are not
impaired in the strategy goals for 2020.
Growth and profitability
Goodwill is allocated primarily to our core markets,
which in general are characterised by slightly
increasing or stable volumes. The focus of our
business is continual optimisation of the cost
structure, specific costs (conversion cost and
scalability) and use of capital. The aim of improving
profitability and in turn adding value to the milk
price. Our commercial focus is to increase branded
volumes through continued product innovation, and
further development of global and local brands. This
will support increasing sales volumes due to an
expected increase in milk intake from our owners.
Discount rate
A discount rate (WACC) is applied for the specific
business areas based on assumptions about interest
rates, tax rates and risk premiums.
Note 3.2.a Impairment tests
(EURm)
2015
Consumer UK
Consumer Finland
Consumer Sweden
Other
Total carrying amount at 31 December
2014
Consumer UK
Consumer Finland
Consumer Sweden
Other
Total carrying amount at 31 December
APPLIED KEY ASSUMPTIONS
CARRYING AMOUNT,
GOODWILL
550
40
24
64
678
DISCOUNT RATE,
NET OF TAX
7.2%
6.1%
6.3%
6.3%
DISCOUNT RATE,
BEFORE TAX
9.1%
7.8%
8.3%
6.9%
524
40
17
64
645
7.8%
6.7%
7.1%
6.9%
10.0%
8.5%
9.3%
7.6%
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
85
changes in milk prices and discount rates have been
calculated. The discount rate may rise by 4 per
centage points before the need for impairment
arises. In 2015, underlying earnings improved
compared with 2014.
In our opinion, there are no significant risks to the
group’s general goodwill and there is no indication
of impairment need for other intangible assets.
Financial comments
Procedure for impairment tests
The goodwill in Consumer UK was generated in
connection with the purchase of Express Dairies
Limited in 2003 and 2007, the acquisition of AFF in
2009 and the merger with Milk Link in 2012. In
Consumer Finland, the goodwill arose in connection
with the purchase of Ingman in 2007.
The remaining goodwill arose primarily from the
purchase of Tholstrup in 2006 and the merger with
Milko in 2011. The business groups Consumer
Denmark and Consumer Sweden support the export
business of Consumer International. This means that
these earnings contribute to support the value of
the assets here. For this reason, these goodwill
amounts are tested together. There is no goodwill
related to the business groups Consumer Central
Europe and Arla Foods Ingredients.
Applied estimates
The impairment tests do not include growth in the
terminal value. In the applied forecasts, the milk is
the most significant cost. The milk is recognised at a
milk price that corresponds to the expected price at
the time the test is performed. In the applied
forecasts, the key operational assumption is an
increased profitability based on a combination of
positive impact from moving the milk intake into
value added products and cost reductions measured
through scalability and conversion costs.
Test results
No impairment write-downs of intangible assets
have been recorded in 2015. For goodwill in
Consumer Finland, there was indication of an
impairment loss because of the challenging market
situation after the Russian embargo. Impairment
testing showed that there was no need for
impairment in 2015. In that regard, sensitivities to
NOTE 3.3 PROPERTY, PLANT AND EQUIPMENT
Accounting policies
Property, plant and equipment are measured at cost
less accumulated depreciation and impairment.
Depreciation aims to allocate the cost of the asset,
less any amounts estimated to be recovered at the
end of its expected use, to the periods in which the
group obtains benefits from its use. Assets under
construction, land and decommissioned plants are
not depreciated.
Cost
Cost comprises the acquisition price as well as costs
directly associated with the asset until such time as
the asset is ready for its intended use. For
self-constructed assets, cost comprises direct and
indirect costs relating to materials, components,
payroll and the borrowing costs from specific and
general borrowing that directly concerns the
construction of assets. If significant parts of an item
of property, plant and equipment have different
useful lives, they are recognised as separate items
(major components). When component parts are
replaced, any remaining carrying value of replaced
parts is removed from the balance sheet and
recognised as an accelerated depreciation charge in
the income statement. Subsequent expenditure
items of property, plant and equipment are only
recognised as an addition to the carrying amount of
the item, when it is likely that incurring the cost will
result in financial benefits for the group. Other costs
such as general repair and maintenance are
recognised in the income statement when incurred.
Depreciation
Property, plant and equipment are depreciated on a
straight-line basis from the time of acquisition, or
when the asset is available for use based on an
assessment of the anticipated useful life.
The estimated useful lives are as follows:
Office buildings – 50 years
Production buildings – 20 years
Technical facilities and
machinery – 5 - 20 years
Other fixtures and fittings, tools and
equipment – 3 - 7 years
The depreciation base is measured taking into
account the residual value of the asset, being the
estimated value the asset can generate through sale
or scrappage at the end of its useful life, and reduced
with any impairment made. The residual value is
determined at the date of acquisition and is
reviewed annually. Depreciation ceases when the
carrying value of an item is lower than the residual
value. Changes during the depreciation period or in
the residual value are treated as changes to the
accounting estimates, the effect of which is adjusted
only in the current and future periods. Depreciation,
to the extent it does not form part of the cost of
self-constructed assets, is recognised in the income
statement as production, sales and distribution costs
or administration costs.
Uncertainties and estimates
Estimates are made in assessing the useful lives of
items of property, plant and equipment that
determine the period over which the depreciable
amount of the asset is expensed to the income
statement. The depreciable amount of an item of
property, plant and equipment is a function of the
asset’s cost or carrying amount and its residual
value. Estimates are made in assessing the amount
that the group can recover at the end of the useful
life of an asset. An annual review of the appropriate-
ness of the depreciation method, useful life and
residual values of items of property, plant and
equipment is undertaken.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
86
Note 3.3.a Property, plant and equipment
(EURm)
LAND AND
BUILDINGS
PLANT AND
MACHINERY
FIXTURE AND
FITTING, TOOLS
AND EQUIPMENT
ASSETS IN
COURSE OF
CONSTRUCTION
2015
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Transferred from assets in course of construction
Reclassification
Disposals
Cost at 31 December
Depreciation and impairments at 1 January
Exchange rate adjustments
Depreciation for the year
Reclassification
Depreciation on disposals
Depreciation and impairment at 31 December
Carrying amount at 31 December
Of which assets held under finance lease
2014
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Transferred from assets in course of construction
Disposals
Cost at 31 December
Depreciation and impairments at 1 January
Exchange rate adjustments
Depreciation for the year
Impairment for the year
Depreciation on disposals
Depreciation and impairment at 31 December
Carrying amount at 31 December
Of which assets held under finance lease
1,382
48
18
2
65
-24
-25
1,466
-500
-15
-72
13
21
-553
913
44
1,250
22
10
-
100
-
1,382
-418
-20
-62
-
-
-500
882
48
2,368
36
97
2
154
-43
-67
2,547
-1,273
-12
-203
22
64
-1,402
1,145
21
2,133
4
70
-
243
-82
2,368
-1,160
3
-182
-
66
-1,273
1,095
29
472
24
16
-
31
-6
-18
519
-336
-16
-45
5
17
-375
144
4
441
5
8
1
33
-16
472
-312
-
-38
-
14
-336
136
5
286
1
219
-
-250
-1
-
255
-
-
-
-
-
-
255
-
325
4
335
-
-376
-2
286
-
-
-
-
-
-
286
-
TOTAL
4,508
109
350
4
-
-74
-110
4,787
-2,109
-43
-320
40
102
-2,330
2,457
69
4,149
35
423
1
-
-100
4,508
-1,890
-17
-282
-
80
-2,109
2,399
82
PROPERTY, PLANT AND EQUIPMENT
BY COUNTRY
INVESTMENTS AND DEPRECIATIONS PROPERTY,
PLANT AND EQUIPMENT (EURm)
11%
7%
6%
11%
37%
37%
32%
32%
14%
13%
2014
2015
Denmark
Sweden
UK
Germany
Other
550
500
450
400
350
300
250
200
150
2011
2012
2013
2014
2015
Investments property,
plant and equipment
Depreciations property,
plant and equipment
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 87
Financial comments
Property, plant and equipment increased by
EUR 58 million to EUR 2,457 million in 2015.
The largest part of the group’s tangible assets are
located in its core markets in Denmark, Sweden,
Germany and the UK.
Investments in dairy structure and capacity
continued in alignment with our strategy. The group
continues to strive for efficiency improvements by
investing in new facilities. The year’s investments
add a total of EUR 350 million to property, plant and
equipment.
Significant investments related to facilities in Upahl
in Germany, Videbæk in Denmark and Falkenberg in
Sweden.
NOTE 3.4 JOINT VENTURES AND ASSOCIATES
Accounting policies
Investments in which Arla exercise significant
influence, but does not control, are classified as
associates. Investments in which Arla has joint
control are classified as joint ventures.
The proportionate share of the results of associates
and joint ventures after tax is recognised in the
consolidated income statement, after elimination of
the proportionate share of unrealised intra-group
profit or loss.
Investments in associates and joint ventures are
recognised according to the equity method, and
measured at the proportionate share of the entities’
net asset values, calculated in accordance with the
group’s accounting policies. The proportionate share
of unrealised intra-group profits and the carrying
amount of goodwill are added. Whereas the
proportionate share of unrealised intra-group losses
is deducted. Dividends received from associates and
joint ventures reduce the value of the investment.
For investments held in listed companies, the
computation of the group’s share of profit and equity
is based on the latest published financial information
from the company, other publicly available
information on the company’s financial development,
and the effect of re-assessed net assets.
Investments in associates and joint ventures with
negative net asset values are measured at EUR 0. If the
group has a legal or constructive obligation to cover
a deficit in the associate or joint venture, the deficit is
recognised under provisions. Any amounts owed by
associates and joint ventures are written down to the
extent that the amount owed is deemed irrecoverable.
On acquisition of investments in associates and joint
ventures, the acquisition method is described in
note 4.1.
An impairment test is performed when there is
objective evidence of impairment, such as significant
adverse changes in the environment in which the
equity-accounted investee operates, or a significant
or prolonged decline in the fair value of the
investment below its carrying value. Where the
equity-accounted investment is considered to be an
integrated part of a cash generating unit (CGU) the
impairment test is performed at the CGU level, using
expected future net cash flow of the CGU. An
impairment loss is recognised when the recoverable
amount of the equity-accounted investment (or
CGU) becomes lower than the carrying amount.
Recoverable amount being the higher of value in
use, and fair value less costs to sell, of the
equity-accounted investment (or CGU).
Note 3.4.a Joint ventures
Reconciliation of recognised value of joint ventures
(EURm)
Share of equity in material joint ventures
Goodwill in material joint ventures
Share of equity in non-material joint ventures
Recognised value, total
Note 3.4.b Associates
Reconciliation of recognised value of associates
(EURm)
Share of equity in material associates
Goodwill in material associates
Share of equity in non-material associates
Recognised value, total
2015
2014
-
-
50
50
-
-
55
55
2015
2014
167
158
109
434
148
142
142
432
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
88
Note 3.4.c Material associates
Financial information for associates that are considered material for the group
(EURm)
COFCO DAIRY HOLDING LIMITED, CHINA
2014
2015
Revenue
Results after tax
Other comprehensive income
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Dividends received
Ownership share
Group share of result after tax
Recognised value, total
Note 3.4.d Transactions with joint ventures and associates
(EURm)
Sale of goods to joint ventures
Sale of goods to associates
Total sale of goods to joint ventures and associates
Purchase of goods from joint ventures
Purchase of goods from associates
Total purchase of goods from joint ventures and associates
Trade receivables joint ventures1
Trade receivables associates1
Total trade receivables joint ventures and associates
Trade payables joint ventures2
Trade payables associates2
Total trade payables joint ventures and associates
1) Included in other receivables
2) Included in other payables
10
10
-
722
-
-
-
4
30%
21
325
8
8
-
649
-
-
-
3
30%
13
290
2015
2014
4
155
159
60
-
60
-
2
2
3
-
3
9
113
122
27
-
27
3
58
61
-
-
-
Financial comments
Significant influence is defined as the power to
participate in the financial and operating policy
decisions of the investee but is not control or joint
control over those policies. Judgement is necessary
in determining when significant influence exists.
COFCO Dairy Holding Limited (China) and China
Mengniu Dairy Company Limited
The group holds a 30% investment in COFCO Dairy
Holding Limited (China) which is considered an
associated company based on a cooperation
agreement giving significant influence, including
right of Board representation. The cooperation
agreement with COFCO also entitles Arla to Board
representation in China Mengniu Dairy Company
Limited - a Hong Kong listed dairy company
controlled by COFCO. It is agreed that Arla and China
Mengniu Dairy Company Limited cooperate within
the exchange of technical dairy knowledge and
expertise and that Arla grants intellectual rights to
China Mengniu Dairy Company Limited. Based on
the underlying agreements it is assessed that Arla
has significant influence in China Mengniu Dairy
Company Limited. Currently, COFCO Dairy Holding
Limited holds no other investments.
At 31 December 2015, the group’s proportionate
share of the net asset values of COFCO Dairy
Holdings Limited, including China Mengniu Dairy
Company Limited, is EUR 325 million compared to
EUR 290 million last year. The carrying amount of
the investment in COFCO Dairy Holdings Limited
includes goodwill amounting to EUR 158 million
compared to EUR 142 million last year.
The fair value of the indirect held shares in China
Mengniu Dairy Company Limited equals EUR 311
million compared to EUR 355 million last year.
The investment in COFCO Dairy Holdings Limited is
part of the China business unit and is therefore
managed together with sales activities with similar
characteristics in China. A potential impairment of
the investment is tested at the China business unit
level using expected future net cash flow of the
China business unit.
Impairment testing showed that there was no need
for impairment in 2015. Impairment risks could
include, substantial and long term reduction in
leading stock indexes in Asia, issue of import
restrictions on dairy products in China, or an adverse
and permanent reduction in the expected perfor-
mance of China Mengniu Dairy Company Limited.
Lantbrukarnas Riksförbund, Sweden (LRF)
The group has an ownership interest of 23% in LRF
which is a politically independent professional
organisation for Swedish entrepreneurs involved in
agriculture, forestry and horticulture.
Based on a detailed analysis of the LRF set-up, it has
been assessed that Arla’s active ownership interest
provides significant influence over LRF. This includes
but is not limited to, the representation on the Board
of Directors (historically a member of Arla’s Board of
Directors has represented the Swedish dairy industry
at the Board of Directors in LRF.)
Vigor Alimentos S.A., Brazil
The group holds an 8% investment in Vigor
Alimentos S.A. which is considered an associated
company based on a cooperation agreement giving
significant influence, including right of Board
representation.
The fair value of shares in Vigor based on latest
official share price equals the carrying amount.
Divestments
During 2015, the interest in Walhorn AG was sold at
amounts close to the carrying amount.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
89
NOTE 3.5 PROVISIONS
Accounting policies
The provisions in the balance sheet represent the
best estimate of the amount that will be required to
settle a present legal or constructive obligation
arising from a past event, and it is probable that the
group will be required to pay an amount that can be
reliably estimated.
Insurance provisions
Insurance provisions are recognised on the basis of
the risk relating to future payment of losses, injuries
or damages that have already occurred. Insurance
provisions primarily cover provisions relating to
occupational injuries.
Restructuring provisions
Costs relating to restructuring are recognised as
liabilities when a detailed, formal plan for the
restructuring is published for the persons affected by
the plan no later than at the reporting date. No
provision is made for future operating losses.
Other provisions
Other provisions consist of different provisions for
specific purposes, including onerous contracts
which are recognised when the expected benefits to
be derived by the group from a contract are lower
than the unavoidable cost of meeting its obligations
under the contract.
Uncertainties and estimates
Provisions are particularly associated with estimates
on restructuring and insurance provisions. The
scope and size of onerous contracts as well as
employee and other liabilities related to the
restructuring are also estimated. Insurance
provisions are assessed based on historical records
of, among other things, the number of insurance
events and related costs.
Note 3.5.a Provisions
(EURm)
2015
Provisions at 1 January
New provisions during the year
Reversals
Used during the year
Provisions at 31 December
Current provisions
Non-current provisions
Total provisions
2014
Provisions at 1 January
New provisions during the year
Reversals
Used during the year
Provisions at 31 December
Current provisions
Non-current provisions
Total provisions
INSURANCE
PROVISIONS
RESTRUCTURING
PROVISIONS
OTHER
PROVISIONS
TOTAL
13
5
-
-4
14
6
8
14
16
4
-2
-5
13
5
8
13
5
5
-
-4
6
6
-
6
22
-
-9
-8
5
5
-
5
9
17
-4
-15
7
7
-
7
13
18
-8
-14
9
9
-
9
27
27
-4
-23
27
19
8
27
51
22
-19
-27
27
19
8
27
Financial comments
Provisions primarily pertain to insurance provisions
for insurance incidents that have occurred but are
not reported, and restructuring provisions.
Insurance provisions primarily concern occupational
injuries. No major insurance incidents have occurred
during the year, however the group has seen an
increase in claims related to transportation.
Restructuring provisions mainly relate to the
decommissioning of facilities and severance
payments in connection to the planned closing of
Kisslegg, Germany and restructuring of the
customer service in Sweden. Minor new provisions
were made for redundancies in connection with the
efficiency programmes. Restructuring provisions
were reduced during the year according to
disbursements of termination benefits. Other
provisions primarily include onerous contracts. With
the exception of occupational injuries, all provisions
are expected to be released within one year.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 4
Purchase and sale
of business or activities
Going forward, the group’s focus will, to a lesser extent, be about building
the milk pool through mergers and acquisitions. With increasing volumes
of milk coming from our current owners, the group need to focus even
more on organic growth within our existing business. In 2015 the group
initiated a process to sell Rynkeby Foods, which is the last remaining
subsidiary not linked to the dairy industry.
CONTENT
91 Note 4.1 Business combinations
92 Note 4.2 Assets held for sale
91
NOTE 4.1 BUSINESS COMBINATIONS
Accounting policies
Recognition date and considerations
Newly acquired companies are recognised in the
consolidated financial statements at the date when
the group obtains control. The purchase considera-
tion is generally measured at fair value. If an
agreement relating to a business combination
requires that the purchase consideration be adjusted
in connection with future events or the performance
of certain obligations (contingent consideration), this
portion of the purchase consideration is recognised
at fair value at the date of acquisition. Changes in
estimates relating to a contingent consideration are
recognised in the income statement. Costs directly
attributable to the acquisition are recognised in the
income statement as incurred.
The acquired assets, liabilities and contingent
liabilities are generally measured at their fair value at
the date of acquisition.
Goodwill arises when the aggregate of the fair value
of consideration transferred, previously held interest
and the value assigned to non-controlling interest
holders exceeds the fair value of the identifiable net
assets of the acquired company. Any goodwill that
arises, which is not amortised, is tested annually for
impairment.
The methodology outlined above also applies to
mergers with other cooperatives, where the owners
of the acquired company become owners of Arla
Foods amba. The purchase consideration is
calculated at the acquisition date fair values of the
assets transferred and equity instruments issued.
Positive differences between the consideration and
fair value are recognised as goodwill.
Divestment
Changes in the group’s interest in a subsidiary that
do not result in a loss of control are recognised as
equity transactions.
When the group loses control of a subsidiary, the
carrying amount of the assets (including allocated
goodwill) and liabilities of the subsidiary, together
with any related non-controlling interest and other
components of equity, such as foreign currency
reserves, are de-recognised. Gains and losses arising
from divestments are recognised in the income
statement under other operating income and costs.
Uncertainties and estimates
For mergers and acquisitions where the group
acquires control of the company in question, the
purchase method is applied. There can be uncertainty
associated with the identification of assets, liabilities
and contingent liabilities, and with measuring the fair
value at the time of acquisition. Significant estimates
are made in the measurement of the fair value of the
consideration transferred by the group in the
acquisition of companies where the owners of the
company acquired become owners of Arla. The
measurement of the fair value of the company
acquired is often used to determine the value of the
consideration transferred by the group, as this is a
more reliable valuation basis considering that the
group’s equity is not based on a quoted price.
Note 4.1.a Business combinations
Mergers and acquisitions in 2015
(EURm)
INCOME STATEMENT
CONSOLIDATED
FROM
HOLDING
ACQUIRED
REVENUE
PER YEAR
NUMBER OF
EMPLOYEES
Company: Falbygdens Ost
1 April
Asset deal
50
90
Intangible assets exclusive goodwill
Property, plant and equipment
Inventory
Other assets
Liabilities
Total net assets acquired
Goodwill
Purchase price, net
Cash in acquired company
Issued individual capital
Issued common capital
Other payment
Cash payment during the year
Falbygdens Ost
2
3
15
3
-4
19
10
29
-
-
-
29
29
Mergers and acquisitions in 2014
(EURm)
INCOME STATEMENT
CONSOLIDATED
FROM
HOLDING
ACQUIRED
REVENUE
PER YEAR
NUMBER OF
EMPLOYEES
Company: Walhorn
1 August
100%
239
24
Intangible assets excluding goodwill
Property, plant and equipment
Other assets
Liabilities
Total net assets acquired
Goodwill
Purchase price, net
Cash in acquired company
Issued individual capital
Issued common capital
Other payment
Cash payment during the year
Walhorn
-
1
40
-18
23
-
23
15
-12
-23
-3
-
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
92
Financial comments
On April 1 2015, Arla acquired Falbygden Ost, a
significant market participant within premium
cheese in Sweden. The acquisition is in line with
Arla’s strategy on branded premium cheese.
Goodwill amounts to EUR 10 million and is
attributable to customer relations, the distribution
network and expected synergies. In 2015,
contribution to revenue was EUR 36 million.
The effect on profit was insignificant due to the
transaction and integration costs.
NOTE 4.2 ASSETS HELD FOR SALE
Accounting policies
Assets held for sale are non-current assets and
divestment groups, the value of which is highly
probable to be recovered through a sale within 12
months rather than ongoing use within the group’s
operations. Assets held for sale and divestment
groups are measured at the lower of their carrying
amount at the classification date as ‘held for sale’
and their fair value, less cost to sell. Property, plant
and equipment and intangible assets are not
depreciated or amortised from the time they are
classified as ‘held for sale.’ Any impairment loss on a
divestment group is allocated first to goodwill, and
then to the remaining assets and liabilities on a pro
rata basis, except that no loss is allocated to items
that continue to be measured in accordance with
the group’s other accounting policies, such as
inventories, financial assets and deferred tax assets.
Impairment that arises at the initial classification as
‘held for sale’, and any profit or loss in connection
with subsequent remeasurement is recognised in
the income statement under the items to which it
relates.
2015
2014
26
9
17
7
59
8
-
-
-
8
2015
2014
5
25
30
-
-
-
Note 4.2.a Assets held for sale
(EURm)
Fixed assets
Inventories
Receivables
Cash and cash equivalents
Carrying amount assets
Note 4.2.b Liabilities associated with assets held for sale
(EURm)
Loans
Other current liabilities
Carrying amount liabilities
Financial comments
In November 2015 the group announced that a
divestment process regarding Rynkeby Foods,
Denmark, was initiated. The process is focused on
identifying the right buyer able to take Rynkeby
Foods forward in its strategic development. The
divestment is expected to be concluded by the end
of the second quarter of 2016.
Land in the UK held for sale last year has not been
sold and has, as a consequence, been reclassified to
property, plant and equipment.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 5
Financial Matters
Financial risk management is conducted to support the best possible
earnings for the group whilst ensuring that risks are managed in a responsi-
ble manner appropriate for the owners. The purpose is to contribute to
ensuring a stable cash flow and financial manoeuvrability in a world of
change.
The group’s investments are financed by both equity and external funding.
The balance between the two is expressed in the equity ratio. The Group’s
policy is to retain a credible balance between debt, equity and earnings
resulting in a robust credit rating at investment grade level.
The group’s ambition is to reduce its refinancing risk by ensuring a reason-
able distribution in its repayment profile for its interest bearing debt. Risks
related to interest and foreign exchanges rates are managed by use of
derivatives.
Hedging the volatility in milk prices is not within the scope of financial risk
management, but is an inherent component of the group business model.
CONTENT
94
Note 5.1 Financial items
95
Note 5.2 Net interest-bearing debt
100
Note 5.3 Financial risks
107
Note 5.4 Derivative financial instruments
108
Note 5.5 Financial instruments disclosed
109 Note 5.6 Transfer of financial assets
110 Note 5.7 Pension obligations
Leverage
Average interest rate
(excluding pensions)
Net interest-
bearing debt
2.6%
2.5
billion EUR
3.3
94
NOTE 5.1 FINANCIAL ITEMS
Accounting policies
Financial income and financial costs
Interest income and costs as well as capital gains
and losses are recognised in the income statement
at the amounts that can be attributed to the period.
Additionally, financial items comprise realised and
unrealised value adjustments of securities and
currency adjustments on financial assets and
financial liabilities as well as the interest portion of
financial lease payments. Additionally, realised and
unrealised gains and losses on derivative financial
instruments not classified as hedging contracts are
included. Borrowing costs from general borrowing,
or loans that directly relate to the acquisition,
construction or development of qualified assets are
attributed to the cost of such assets, and are
therefore not included in financial cost.
Financial income and cost relating to financial assets
and financial liabilities are recognised using the
effective interest method.
Note 5.1.a Financial income and financial costs
(EURm)
2015
2014
Financial income
Interest, cash and cash equivalents
Interest, securities
Fair value adjustments
Other financial income
Total financial income
Financial costs
Financial cost on financial instruments measured at amortised cost
Exchange rate losses, net
Fair value adjustments
Interests, pension liabilities
Interests transferred to property, plant and equipment
Other financial costs
Total financial costs
Financial cost, net
Financial comments
Financial costs have decreased due to lower interest
rates and margins. Average interest cost, excluding
pensions, totalled 2.6 per cent compared with
3.0 per cent last year.
Net financial costs increased by EUR 33 million due
to an one off income in 2014 related to reassess-
ment of LRF - Lantbrukarnas Riksförbund, Sweden.
1
4
2
7
14
-65
-6
-1
-10
8
-3
-77
-63
1
4
1
48
54
-73
-3
-
-15
10
-3
-84
-30
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
95
NOTE 5.2 NET INTEREST-BEARING DEBT
Accounting policies
Financial instruments
Financial instruments are recognised at the date of
trade.
The group ceases to recognise financial assets when
the contractual rights to the underlying cash flows
either cease to exist or are transferred to the
purchaser of the financial asset, and substantially all
risks and reward related to ownership are also
transferred to the purchaser.
Financial assets and liabilities are offset and the net
amount presented in the balance sheet when and
only when the group obtains a legal right of
offsetting and either intends to offset or settle the
financial asset and the liability simultaneously.
Available for sale financial assets
Financial assets classified as available for sale consist
of mortgage credit bonds, which correspond in part
to raised mortgage debt.
Available for sale financial assets are measured on
first-time recognition at fair value plus transaction
costs. The financial assets are subsequently
measured at fair value with adjustments made in
other comprehensive income and accumulated in
the available-for-sale reserve in equity. Interest
income, impairments and foreign currency
translation adjustments of debt instruments are
recognised in the statement of income on a
continuous basis under financial income and
financial costs.
For sales of financial assets classified as available for
sale, realised gains or losses are recognised under
financial income and financial costs.
Liabilities
Debts to mortgage and credit institutions as well as
issued bonds are measured at the trade date upon
first recognition at fair value plus transaction costs.
Subsequently, liabilities are measured at amortised
cost with the difference between the loan proceeds
and the nominal value recognised in the income
statement over the expected life of the loan.
Capitalised residual lease obligations related to
financial lease agreements are recognised under
liabilities, measured at amortised cost.
Other financial liabilities are measured at amortised
cost.
Financial assets measured at fair value
Securities classified at fair value consist primarily of
listed securities, which are monitored, measured and
reported continuously in accordance with the
group’s treasury and funding policy. Changes in the
fair value are recognised in the income statement
under financial income and financial costs
Cash and cash equivalents
Cash and cash equivalents consist of readily
available cash at bank and deposits together with
exchange listed debt securities with an original
maturity of three months or less, which have only an
insignificant risk of changes in value and can be
readily converted to cash or cash equivalents.
Note 5.2.a Net interest bearing debt and leverage
NET INTEREST BEARING DEBT AND LEVERAGE (EURm)
3,000
2,500
2,000
1,500
1,000
500
0
Pensions
Net interest-bearing debt
excluding pensions
Leverage
Target range leverage
2.8-3.4
4.0
3.5
3.0
2.5
2.0
2011
2012
2013
2014
2015
The group’s net interest-bearing debt consists of current and non-current liabilities to
banks and credit institutions, less interest-bearing assets. The group’s definition of
leverage is the ratio between net interest-bearing debt including pensions and EBITDA and
expresses the group’s capacity to service the debt. The group’s long-term target range for
leverage is between 2.8 and 3.4.
Leverage 2012 was influenced by acquisitions of Milk Union Hocheifel, Germany and Milk
Link in the UK in October 2012.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
96
Note 5.2.a Borrowings
(EURm)
Long-term borrowings
Issued bonds
Mortgage credit institutions
Bank borrowings
Finance lease liabilities
Other non-current liabilities
Total
Short-term borrowings
Issued bonds
Commercial papers
Mortgage credit institutions
Bank borrowings
Finance lease liabilities
Other current liabilities
Total
Total interest bearing borrowings
Note 5.2.b Net interest-bearing debt
(EURm)
Securities, cash and cash equivalents
Other interest-bearing assets
Long-term borrowings
Short-term borrowings
Net interest-bearing debt excluding pension liabilities
Pension liabilities
Net interest-bearing debt including pension liabilities
2015
2014
330
700
657
27
3
1,717
164
115
1
778
18
13
1,089
2,806
-579
-24
1,717
1,089
2,203
294
2,497
472
817
370
43
5
1,707
-
194
5
911
20
2
1,132
2,839
-641
-27
1,707
1,132
2,171
376
2,547
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 97
Note 5.2.c Net interest-bearing debt excluding pension obligations, maturity
(EURm)
December 31, 2015
DKK
EUR
GBP
SEK
Other
Total
December 31, 2014
DKK
EUR
GBP
SEK
Other
Total
Total
794
229
434
679
67
2,203
Total
753
360
318
691
49
2,171
2016
75
34
6
317
57
489
2015
-43
113
181
215
9
475
2017
38
76
40
-
10
164
2016
17
49
13
158
40
277
2018
12
32
127
198
-
369
2017
20
93
102
-
-
215
2019
21
30
3
164
-
218
2018
19
31
10
158
-
218
2020
28
30
252
-
-
310
2019
48
29
3
158
-
238
2021
30
6
3
-
-
39
2020
49
24
3
-
-
76
2022 2023-2025 After 2025
442
118
7
12
-
-
-
-
-
-
449
130
30
2
3
-
-
35
2021 2022-2024 After 2024
408
178
11
8
-
3
2
-
-
-
421
189
57
2
3
-
-
62
MATURITY OF NET INTEREST-BEARING DEBT EXCLUDING PENSIONS
AT 31 DECEMBER 2015 (EURm)
MATURITY OF NET INTEREST-BEARING DEBT EXCLUDING PENSIONS
AT 31 DECEMBER 2014 (EURm)
700
600
500
400
300
200
100
0
700
600
500
400
300
200
100
0
0-1
1-2
2-3
3-4
4-5
5-6
6-7
7-10
10>
0-1
1-2
2-3
3-4
4-5
5-6
6-7
7-10
10>
Maturity profile
Unutilised committed facilities
Maturity profile
Unutilised committed facilities
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 98
Note 5.2.d Interest rate risk at 31 December
(EURm)
INTEREST
RATE
AVERAGE
INTEREST RATE
FIXED FOR
CARRYING
AMOUNT
INTEREST
RATE RISK
2015
Issued bonds:
SEK 1.150m maturing 22.06.2016
SEK 500m maturing 04.06.2018
SEK 800m maturing 28.05.2019
SEK 350m maturing 22.06.2016
SEK 1.000m maturing 04.06.2018
SEK 700m maturing 28.05.2019
Total issued bonds
Mortgages credit institutions:
Floating-rate
Fixed-rate
Total mortgages credit institutions
Bank borrowings:
Fixed-rate
Floating-rate
Total bank borrowings
Commercial papers:
Fixed-rate
Total commercial papers
Finance lease liabilities:
Fixed-rate
Floating-rate
Total finance lease liabilities
2014
Issued bonds:
SEK 1.150m maturing 22.06.2016
SEK 500m maturing 04.06.2018
SEK 800m maturing 28.05.2019
SEK 350m maturing 22.06.2016
SEK 1.000m maturing 04.06.2018
SEK 700m maturing 28.05.2019
Total issued bonds
Mortgages credit institutions:
Floating-rate
Fixed-rate
Total mortgages credit institutions
Bank borrowings:
Fixed-rate
Floating-rate
Total bank borrowings
Commercial papers:
Fixed-rate
Total commercial papers
Finance lease liabilities:
Fixed-rate
Floating-rate
Total finance lease liabilities
Fixed
Fixed
Fixed
Floating
Floating
Floating
Floating
Fixed
Fixed
Floating
Fixed
Fixed
Floating
Fixed
Fixed
Fixed
Floating
Floating
Floating
Floating
Fixed
Fixed
Floating
Fixed
Fixed
Floating
5.00%
3.25%
2.63%
1.40%
1.27%
0.73%
2.61%
0.70%
-
0.70%
0.01%
1.28%
0.85%
0.08%
0.08%
4.85%
2.25%
2.81%
5.00%
3.25%
2.63%
2.06%
1.97%
1.42%
2.93%
1,00%
2,95%
1,00%
0,15%
1,53%
1,00%
0,83%
0,83%
4,98%
2,33%
2,96%
0-1 years
2-3 years
3-4 years
0-1 years
0-1 years
0-1 years
0-1 years
3-4 years
0-1 years
0-1 years
0-1 years
0-4 years
0-1 years
1-2 years
3-4 years
4-5 years
0-1 years
0-1 years
0-1 years
0-1 years
3-4 years
0-1 years
0-1 years
0-1 years
0-4 years
0-1 years
126
57
87
38
109
77
494
701
-
701
498
953
1,451
115
115
10
35
45
122
50
84
37
105
74
472
821
1
822
496
792
1,288
194
194
15
48
63
Fair value
Fair value
Fair value
Cash flow
Cash flow
Cash flow
Cash flow
Fair value
Fair value
Cash flow
Fair value
Fair value
Cash flow
Fair value
Fair value
Fair value
Cash flow
Cash flow
Cash flow
Cash flow
Fair value
Fair value
Cash flow
Fair value
Fair value
Cash flow
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 99
INTEREST PROFILE FOR NET INTEREST-BEARING DEBT
EXCLUDING PENSIONS AT 31 DECEMBER 2015 (EURm)
INTEREST PROFILE FOR NET INTEREST-BEARING DEBT
EXCLUDING PENSIONS AT 31 DECEMBER 2014 (EURm)
2,500
2,000
D
B
N
I
1,500
1,000
500
0
2,500
2,000
D
B
N
I
1,500
1,000
500
0
1Y
2Y
3Y
4Y
5Y
6Y
7Y
10Y
15Y
25Y
1Y
2Y
3Y
4Y
5Y
6Y
7Y
10Y
15Y
25Y
Fixed debt
Fixed via swap
Floating
Note 5.2.e Currency profile of net interest bearing debt excluding pensions at 31 December 2015
(EURm)
Currency profile of net interest-bearing debt excluding pensions before and after
derivative financial instruments
ORIGINAL
PRINCIPAL
EFFECT
OF SWAP
AFTER
SWAP
2015
DKK
EUR
GBP
SEK
Other
Total
2014
DKK
EUR
GBP
SEK
Other
Total
794
229
434
679
67
2,203
753
360
318
691
49
2,171
-
273
273
-546
-
-
-
158
264
-422
-
-
794
502
707
133
67
2,203
753
518
582
269
49
2,171
Financial comments
The group’s net interest-bearing debt, including
pensions, decreased by EUR 50 million to
EUR 2,497 million at 31 December 2015.
Net interest-bearing debt, excluding pension liability,
increased by EUR 32 million to EUR 2,203 million at
31 December 2015. The group’s leverage ratio
decreased by 0.4 to 3.3 at 31 December 2015.
This is inside the group’s long-term target range of
2.8-3.4. One of the 7 essentials for 2016 is to reach
a leverage of 3.2 or below.
The average maturity of the group’s interest bearing
borrowings, has decreased by 0.3 to 4.4 at 31
December 2015. The average maturity is impacted
by lapse of time, refinancing of committed facilities
and the level of net interest bearing debt.
The solvency ratio measured 31 per cent compared
to 28 per cent last year.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
100
NOTE 5.3 FINANCIAL RISKS
Financial risk management
Financial risks are an inherent part of the group’s
operating activities and hence, the group’s profit is
impacted by the developments in currencies,
interest rates and certain types of commodities. The
global financial markets are volatile and thus, it is
critical for the group to have a well implemented
financial risk management approach in order to
mitigate short-term market volatilities while at the
same time achieving the highest possible milk price.
The group’s comprehensive financial risk manage-
ment strategy and system builds on a thorough
understanding of the interaction between the
group’s operating activities and the financial risks.
The overall framework for managing financial risks
being the treasury and funding policy is approved by
the Board of Directors and managed centrally by the
corporate treasury and finance department. The
treasury and funding policy states risk limits for each
type of financial risk, permitted financial instruments
and counterparties.
Each month, the Board of Directors receives a report
on the goup’s financial risk exposures from the
corporate treasury and finance department, which
manages the financial risks on a continuous basis.
Hedging the volatility of milk prices is not within the
scope of financial risk management, but an inherent
component of the group’s business model.
Note 5.3.a Liquidity risk
Related business activity
Liquidity is vital for the group to be able to pay its
financial liabilities as they become due.
counterparties. The group has, to a very high degree,
centralized its cash management in order to control
and optimise the cash position.
ing debt, and sets limitations on debt maturing
within the next 12 and 24 months.
Risks impact
Insufficient liquidity will hinder the group in
meeting its financial liabilities on a timely basis.
This could cause breaches on loan covenants,
reduce the ability to pay for owner milk and in the
extreme impact the ability to continue as a going
concern.
Performance indicator
Level of unutilized committed credit facilities and
available cash and securities against the forecasted
cash flow for the following 12 months. The group
aims to have an adequate liquidity and credit
facilities reserve in the level of the requirement for
an investment grade company.
Mitigation process
The group seeks to have diversified funding with a
balanced mix in maturity, commitments and
Policies and systems
The treasury and funding policy states the threshold
for minimum average maturity for net interest-bear-
Activities in 2015
During 2015 the group has implemented a liquidity
model inspired by the rating agencies. A part of the
process has been to refinance its bank debt and
significantly increase the commitment of the facilities.
The aim has been to comply with the liquidity
requirements for an investment grade company.
Unused credit facilities and available cash have
during 2015 been on a comfortable level and after
the re-financing it has also been in rating terms on
an adequate level.
Liquidity reserves
(EURm)
Cash and cash equivalents
Securities (free cash flow)
Unutilised committed loan facilities
Unutilised other loan facilities
Total
2015
2014
70
8
333
103
514
81
57
322
401
861
Financial comments
The group manages liquidity risk by ensuring the
availability of sufficient operating liquidity and credit
facilities for operations. Any major acquisitions or
investments are funded separately.
The management of the day-to-day liquidity flow is,
representing more than 95 per cent of the net
revenue of the group, conducted by Arla Foods
Finance A/S, via cash pool arrangements with the
group’s banks. This secures a scalable and efficient
operating model.
Within the group, the companies with excess
liquidity finance the companies with liquidity deficits.
As a result, the group achieves a cost-efficient
utilising of credit facilities.
The credit facilities contain relaxed financial
covenants on equity/total assets and minimum
equity as well as standard non-financial covenants.
The group did not in 2015 nor in 2014 default on or
fail to fulfil any loan agreements. Further information
on net interest bearing debt is provided in note 5.2.
The group’s liquidity reserves decreased by EUR 347
million to EUR 514 million at 31 December 2015.
The reduction is mainly due to a decrease in
uncommitted facilities, as loans of EUR 144 million
and commercial papers of EUR 79 million have been
repaid. The reduction in commercial papers follows
an uncompetitive pricing compared to other
facilities.
In the beginning of 2016 the group has obtained a
new 20 year mortgage loan of EUR 95 million which
all things equal will increase the liquidity reserve.
Credit lines and facilities are continually managed in
order to secure an adequate liquidity reserve.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
101
Note 5.3.b Funding activities
Access to funding is vital for the group to be able to
fulfil the strategy and ambitions.
strategy is supported by the members’ long term
commitment to invest in the business.
maintain its credit quality at a robust investment
grade level.
Risks impact
Insufficient funding will hinder the group in
achieving the strategic ambitions.
Mitigation process
The group seeks to have a diversified funding
platform comprising of bilateral bank financing,
mortgage loans, supranationals, capital market bond
issues, commercial papers and finance leases. The
funding of mergers, acquisitions and major
investments is assessed separately. The funding
Performance indicator
Average maturity for interest-bearing debt. Diversified
funding platform on both counterparties and markets.
Counterparties’ and investors’ perception of the group
as an investment grade credit.
Policies and systems
The treasury and funding policy states the threshold
for minimum average maturity for net interest-bear-
ing debt as well as a financing strategy approved by
the Board of Directors. It is the group’s objective to
Activities in 2015
During 2015 the group has re-financed the majority
of its overdrafts and revolving credit facilities
amounting to EUR 1 billion among its existing
banking group. This has resulted in increased
commitments, extended average maturity and the
introduction of extension options together with
reduced credit cost. The loan documentation for the
revolving credit facilities has been made as bilateral
agreements on the group’s standard documentation.
Gross financial liabilities
(EURm)
Non-discounted contractual cash flows
CARRYING
AMOUNT
494
TOTAL
492
2016
164
2017
-
2018
164
2019
164
2020
-
2021
-
2022
-
2015
Issued bonds
Mortgage credit
institutions
Credit institutions
Finance lease liabilities
Other non-current
liabilities
Interest expense - interest
bearing debt
Trade payables
Derivative instruments
Total
2014
Issued bonds
Mortgage credit
institutions
Credit institutions
Finance lease liabilities
Other non-current
liabilities
Interest expense - interest
bearing debt
Trade payables
Derivative instruments
Total
701
1,551
45
720
1,541
45
15
15
-
918
158
3,882
113
918
158
4,002
CARRYING
AMOUNT
472
822
1,485
63
TOTAL
474
845
1,486
63
2
845
19
13
22
918
71
2,054
2015
-
6
1,116
20
7
7
2
-
977
206
4,032
147
977
344
4,343
29
977
105
2,255
1
142
15
2
19
-
18
197
10
220
10
-
15
-
16
435
20
34
1
-
11
-
14
244
20
283
-
-
7
-
7
317
28
10
-
-
5
-
6
49
31
7
-
-
5
-
6
49
2023-
2025
-
AFTER
2025
-
135
-
-
-
12
-
8
155
473
-
-
-
17
-
12
502
2016
158
2017
-
2018
158
2019
158
2020
-
2021
-
2022-
2024
-
AFTER
2024
-
17
48
19
2
23
-
57
324
17
223
14
2
17
-
40
313
20
33
10
1
14
-
37
273
50
32
-
-
10
-
31
281
50
27
-
-
7
-
18
102
59
4
-
-
7
-
15
85
191
3
-
-
16
-
21
231
435
-
-
-
24
-
20
479
Assumptions
The contractual cash flows are based on the following assumptions:
The cash flows are based on the earliest possible date at which the group can be required to settle the financial liability
The interest rate cash flow are based on the contractual interest rate. Floating interest payments have been determined
using the current floating rate for each item at the reporting date
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 102
Financial comments
The group applies a diversified funding strategy in
order to mitigate the liquidity and refinancing risk
and to achieve an attractive low financing cost given
the balanced funding.
During 2015 the group has raised the following mix
of funding:
Bank and credit institutions: Refinancing of
EUR 1 billion overdrafts and revolving credit
facilities resulting in an increase to the average
maturity on these facilities from 0.7 to 3.3 years.
Mortgage credit institutions: Refinancing of
Swedish mortgage debt and reduction of
mortgage debt in Danish assets by EUR 100
million. The mortgage loans are governed by the
Danish Mortgage Act with mandatory security in
land and buildings.
Note 5.3.c Currency risks
Related business activity
Currency risks arise from the group’s export
activities, investments and financing activities.
Risk impact and mitigation process
Income statement
Volatility in currency rates impact the group’s
revenue, cost of sales and financial items with a
potential adverse effect on milk prices and cash flow.
Issued bonds: The Group can raise long-term
funding by issuing bonds under the EUR 750
million EMTN programme, however no bonds
have been issued in 2015.
Commercial papers: The group has a commercial
paper program in Sweden denominated in SEK
and EUR. The average utilization in 2015 was in
the level of EUR 200 million. At year end the
utilization was EUR 115 million.
Repo: The group is entering into sale and
re-purchase arrangement based on its investment
in listed AAA-rated Danish Mortgage Bonds. This
sale and re-purchase agreement is described in
further detail in note 5.6.
Balance sheet
Changes in currency rates could cause volatility in
balance, equity and cash flow. The majority of local
funding is obtained in local currencies. Investments
in subsidiaries are normally not hedged.
Performance indicator
Realised foreign currency gains and losses and
predictability in short term performance.
Activities in 2015
During the year the group has continued to hedge
the forecasted sales and purchases in foreign
currency always taking the current market situation
into consideration. The group is increasingly
involved in emerging markets where efficient
hedging is not possible either due to currency
regulations or illiquid financial markets. The risks
from these markets are however still negligible.
The currency exposure is continuously managed by
the corporate treasury and finance department. The
individual currency exposures are hedged in
accordance with the treasury and funding policy.
Policies and systems
The treasury and funding policy and profound
understanding of the business combined with deep
knowledge of the financial markets.
REVENUE SPLIT BY CURRENCY
4%
11%
4%
10%
12%
12%
15%
32%
30%
14%
27%
29%
2014
2015
EUR
GBP
SEK
DKK
USD
Other
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
103
EUR/DKK
USD/DKK*
GBP/DKK
SEK/DKK
-238
176
-393
-455
205
-250
-
-250
-
1%
-2
-
-337
292
-165
-210
172
-38
-
-38
-
1%
-
-
-17
252
-727
-492
-10
-502
-472
-30
-
5%
-2
-23
-22
196
-444
-270
-18
-288
-229
-59
-
5%
-3
-11
-494
577
-901
-818
616
-202
-203
-
1
5%
-
-10
-262
601
-874
-535
415
-120
-153
-
33
5%
2
-8
-690
38
490
-162
250
88
-
-
88
5%
4
-
-841
36
574
-231
254
23
-32
-
55
5%
3
-2
Note 5.3.c Currency risks
Currency exposures
(EURm)
2015
Financial liabilities
Financial assets
Derivatives
External exposures, net
Net internal exposure from financial activities
Exposures, net
The net exposure relates to:
Hedging of expected commercial cash flow that qualify for hedge accounting
Hedging of expected commercial cash flow where hedge accounting is not used
Exposure not hedged
Applied sensitivity
Impact on profit or loss
Impact on other comprehensive income
2014
Financial liabilities
Financial assets
Derivaties
External exposures, net
Net internal exposure from financial activities
Exposures, net
The net exposure relates to:
Hedging of expected commercial cash flow that qualify for hedge accounting
Hedging of expected commercial cash flow where hedge accounting is not used
Exposure not hedged
Applied sensitivity
Impact on profit or loss
Impact on other comprehensive income
* Incl. AED and SAR
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 104
Assumptions for the sensitivity analysis
The sensitivity analysis only includes currency
exposures arising from financial instruments and
thus, the analysis does not include the hedged
future commercial transactions. The applied change
in the exchange rate is based on the historical
currency fluctuations and the sensitivity analysis
assumes unchanged interest rate levels.
Financial comments
The group operates in many different countries and
has significant investment in operations outside
Denmark, of which the UK, Germany and Sweden
represent the largest part of the business by net
revenue, profit, and assets. A major part of the
currency risk from net revenue denominated
in foreign currencies is offset by sourcing in the
same currency.
The currency risks primarily arise from transactional
risks in the form of future commercial and financial
payments and translation risks relating to
Note 5.3.d Interest rate risk
Related business activity
Interest rate risks arise from group’s funding
activities and pension liabilities.
Risk impact
An increase in interest rates impacts group’s financial
items with an adverse effect on milk prices, but a
positive impact on other comprehensive income
due to hedge instruments.
investments in foreign operations in the form of
subsidiaries, joint ventures and associated
companies.
The executive management group has the discretion
to decide if and when investment in foreign
operations should be hedged (translation risks).
The transaction risks arise as a result of sales or
sourcing in currencies different from the functional
currency in each subsidiary. Measured in nominal
EUR the group’s consolidated risk is largest in EUR,
followed by USD, GBP and SEK.
According to the Treasury and Funding Policy,
the Corporate Treasury & Finance department
can hedge:
Up to 15 months of the net forecasted cash
receipts and payables. The level of hedging
activity is affected by factors such as the
underlying business, currency rates and the time
until forecasted cash flow will occur.
Up to 100 per cent of net recognised trade
receivables and trade payables.
The financial instruments used to hedge the
currency exposures need not to qualify for hedge
accounting and hence, some of the applied financial
instruments (i.e., option strategies) are accounted for
as fair value through profit or loss.
The group external exposure, net is calculated as
all assets and liabilities denominated in foreign
currencies per company, plus any external
derivatives all converted on group level into
currency risk against DKK i.e. EUR/DKK, USD/DKK
etc. In addition net exposure from financial activities
is calculated as all internal loans and derivatives
different from functional currency. These sum up
to the group’s aggregate currency exposure,
Exposure, net.
This analysis excludes net foreign currency
investments in subsidiaries together with instru-
ments hedging these investments. The hedging
relationships are fully effective and hence, the net
impact on profit or loss and other comprehensive
income from the movements in currency rates are
negligible.
Mitigation process
The interest rate exposures are continuously
managed by the Corporate Treasury & Finance
department. The exposures are hedged in
accordance with the Treasury and Funding Policy.
Performance indicator
Predictability in realised funding costs.
Policies and systems
The Treasury and Funding Policy and profound
understanding of the business of Arla combined with
deep knowledge of the financial markets.
Activities in 2015
Interest rate risk from refinancing was partly hedged
by entering into interest rate swaps.
Sensitivity based on 1 percentage point increase in interest rate
(EURm)
CARRYING VALUE
SENSITIVITY
Potential accounting impact
OTHER
COMPREHENSIVE
INCOME
INCOME
STATEMENT
2015
Financial assets
Derivatives
Financial liabilities
NIBD excluding pensions
Pensions
NIBD including pensions
Following year cash flow impact
2014
Financial assets
Derivatives
Financial liabilities
NIBD excluding pensions
Pensions
NIBD including pensions
Following year cash flow impact
-603
-
2,806
2,203
294
2,497
-668
-
2,839
2,171
376
2,547
1%
1%
1%
1%
1%
1%
1%
1%
4
12
-22
-6
n/a
-6
6
8
-23
-9
n/a
-9
-2
63
-
61
n/a
-1
67
-
66
n/a
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
105
Financial comments
The group is exposed to interest-rate risks on
interest bearing borrowings, pension liabilities,
interest bearing assets and the impairment test of
non-current assets. The risk is divided between profit
and loss exposure and exposure to other compre-
hensive income. The profit and loss exposure relates
to net interest paid, valuation of marketable
securities and potential impairments of fixed assets.
The exposure to other comprehensive income
relates to revaluation of net pension liabilities and
interest hedging instruments.
The interest rate risk from net borrowing is managed
by having an appropriate split between fixed and
floating interest rates.
The group actively uses derivative financial
instruments to reduce the risks related to
fluctuations in the interest-rate and to manage the
re-pricing profile of the group’s debt. According to
the Treasury and Funding Policy the average
duration of the net interest bearing debt should be
between 1 and 7.
Fair value sensitivity
A change in interest rates will impact the fair value of
the group’s interest bearing assets, interest rate
derivative instruments and debt instruments
measured at either fair value through profit or loss,
or through other comprehensive income. The table
above shows the fair value sensitivity. The sensitivity
is based on a 1 per centage increase in interest rates.
A decrease in the interest rate would have the
reverse effect.
The sensitivity on pensions can be calculated for the
pension liability, however a large part of the assets
are invested in non interest bearing assets like stocks
and property where the sensitivity can’t be
calculated and therefore we haven’t stated a
sensitivity on the net pension liability.
Cash flow sensitivity
A change in interest rates will impact the interest
rate payments on the group’s un-hedged floating
rate debt. The table above shows the one year cash
flow sensitivity from 1 per centage increase in
interest rates on the unhedged floating rate
instruments recognised as at 31 December.
A decrease in the interest rate would have the
reverse effect.
The average duration of the group’s interest rate
fixing on the interest bearing debt including
derivatives but excluding pensions, has decreased by
0.3 to 3.5 at 31 December 2015. The duration is
impacted by new variable rate loans converted into
fixed interest rate loans by means of interest swaps
and reduction in time to maturity and the level of
net interest bearing debt.
Note 5.3.e Commodities
Related business activity
Commodity risks arise from the group’s operating
activities of buying energy but also to a minor extent
from the commodities used in production.
Risks impact
Increased commodity prices impacts the cost of
production and cost of distribution negatively. This
could have an adverse effect on the milk price to
owners.
Mitigation process
Commodity price risks are mainly hedged by
entering into fixed price contracts with suppliers.
However, certain commodities, such as energy, are
hedged using derivative financial instruments.
Performance indicator
Realised commodity prices.
Policies and systems
The commodity price risks are managed by the
group’s procurement department. When financial
contracts are used, this is done in close collaboration
with the corporate treasury and finance department.
Activities in 2015
In accordance with the risk management strategy
the group’s hedged volumes and maturity profile of
energy hedging has decreased due to lapse of time.
No new hedging activity has been made in 2015.
Hedged commodities
(EURm)
2015
Oil / natural gas
Electricity
2014
Oil / natural gas
Electricity
SENSITIVITY
CONTRACT VALUE
5%
5%
5%
5%
-12
-7
-14
-4
POTENTIAL
ACCOUNTING
IMPACT
(OTHER
COMPREHENSIVE
INCOME)
1
1
3
2
Financial comments
The group is exposed to commodity risk on future
commodity purchases. The risk mainly concerns
energy commodities. The risk is divided between
profit and loss exposure and exposure to other
comprehensive income. The profit and loss exposure
relates to future purchases whereas the exposure to
other comprehensive income relates to the
revaluation of commodities hedges. The group uses
derivative financial instruments to reduce the risk of
fluctuations in the price of energy commodities. The
energy prices have declined significantly in 2015
and therefore the fixed price hedges have had a
negative impact on the income statement of approx-
imately EUR 20 million.
Fair value sensitivity
A change in commodity prices will impact the fair
value of the group’s hedged commodity derivative
instruments measured through other comprehen-
sive income. The table shows the sensitivity from 5
per cent increase in commodity prices for hedged
commodity purchases. A decrease in commodity
prices would have the reverse effect.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
106
Note 5.3.f Credit risk
Related business activity
Credit risks arise from the group’s operating activities
and engagement with financial counterparties.
products extensively in connection with export. If a
customer payment is late internal procedures are
followed to mitigate losses. The group uses a limited
number of financial counterparties.
Activities in 2015
The group has, like in previous years, continuously
worked with the credit exposure and has experi-
enced a very low level of losses on customers.
Risk impact
Losses arising from either customers, suppliers or
financial counterparties defaulting on their
obligations towards the group. Furthermore a weak
credit quality of a counterparty can reduce the
ability to support the group going forward thereby
jeopardising the group’s fulfilment of the strategy.
Mitigation process
The group has an extensive credit risks policy and
uses credit insurance and other trade finance
Performance indicator
Expected and realised credit losses on customers.
Policies and systems
Financial counterparties must be approved by manag-
ing directors and the CFO and have a credit rating of a
least A-/A-/A3 by S&P, Fitch or Moody’s. A credit
assessment is performed of all new customers. In
addition existing customers are subject to an ongoing
monitoring of their credit quality.
Netting of credit risk
In order to manage counterparty risk, the group uses
master netting agreements when entering into
derivative contracts with counterparties.
The table below show the counterparty exposures
for those agreements covered by entering into
netting agreements.
External rating of financial counterparties
(EURm)
ASSETS
QUALIFYING
FOR NETTING
NET
ASSETS
LIABILITIES
QUALIFYING
FOR NETTING
NET
LIABILITIES
2015
AA-
A+
A
A-
Total
2014
AA-
A+
A-
Total
32
9
14
2
57
3
16
4
23
32
9
14
1
56
3
16
4
23
-
-
-
1
1
-
-
-
-
42
17
60
1
120
63
49
67
179
32
9
14
1
56
3
16
4
23
10
8
46
-
64
60
33
63
156
In addition, the group has entered into sales and re-purchase agreements
on mortgage bonds described in further details in note 5.6.
Financial comments
Credit risk stems from the possibility that counter-
parties to transactions may default on their
obligations, thereby causing losses for the group.
Additionally, when money is borrowed, there is credit
risk of the refinancing.
For financial counterparties, the group minimises the
credit risk by only entering into new derivative
transactions with those with a credit rating of at least
A-/A-/A3 from either S&P, Fitch or Moody’s. In
general all financial counterparties had a satisfactory
credit rating at year end. According to the treasury
and funding policy, credit rating is not required from
lenders, however only in one case has a credit facility
been obtained from a counterparty with a lower
credit rating than A-/A-/A3. In some geographies
which are not serviced by our relationship banks and
where financial counterparties with a satisfying
credit rating don’t operate, the group might deviate
from the rating requirement. The risk is however
insignificant.
Other counterparties, customers and suppliers, are
subject to an ongoing monitoring of their fulfilment
of their contractual obligations and their credit
quality. Outside the group’s core markets credit
insurance and trade finance instruments are widely
used to reduce the risks.
Further information on trade receivables is provided
in note 2.1c.
The maximum exposure to credit risk is approximate-
ly equal to the carrying amount.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
107
Hedging of net investments
Changes to the fair value of derivative financial
instruments used to hedge net investments in
foreign subsidiaries (the currency risk associated
with the translation of foreign company’s net assets),
and that effectively hedge against foreign exchange
rate changes in these companies, are recognised in
the consolidated financial statements in other
comprehensive income under a special reserve for
foreign exchange rate adjustments.
For derivative financial instruments that do not meet
the conditions for treatment as hedging instru-
ments, changes in fair value are recognised on a
continuous basis in the income statement under
financial income and financial costs.
NOTE 5.4 DERIVATIVE FINANCIAL INSTRUMENTS
Accounting policies
Derivative financial instruments are recognised from
the trade date and measured in the financial
statement at fair value. Positive and negative fair
values of derivative financial instruments are
recognised on separate lines in the balance sheet
and offsetting of positive and negative amounts only
take place once the group has obtained the legal
right and intends to settle several financial
instruments net.
Fair value hedging
Changes in fair value of derivative financial
instruments, which are meeting the criteria for
hedging the fair value of recognised assets and
liabilities, are recognised alongside changes in the
value of the hedged asset or the hedged liability with
respect to the portion that is hedged.
Cash flow hedging
Changes in the portions of the fair value of derivative
financial instruments that are classified as and meet
the conditions for hedging of future cash flows, and
that effectively hedge changes in future cash flows,
are recognised under other comprehensive income
in a special reserve for hedging transactions under
equity, until the hedged cash flows affect the
income statement. The cumulative gains or losses
from such hedging transactions that are retained in
equity are reclassified from and recognised under
the same item as the hedged item (basic adjustment).
If the hedging instrument no longer meets the
criteria for hedge accounting, the hedge will cease
from that point onward.
The accumulated change in value recognised in
other comprehensive income is reclassified to the
income statement once the hedged cash flows
affect the income statement or are no longer likely.
If the hedged cash flows are no longer expected to
be realised, the cumulative value change is
immediately reclassified from equity to the income
statement.
Note 5.4.a Hedging of future cash flow from highly probable forecast transactions
(EURm)
Expected recognition
2015
Currency contracts
Interest rate contracts
Commodity contracts
2014
Currency contracts
Interest rate contracts
Commodity contracts
FAIR VALUE
RECOGNISED IN
OTHER
COMPREHEN-
SIVE INCOME
8
-85
-19
-96
FAIR VALUE
RECOGNISED IN
OTHER
COMPREHEN-
SIVE INCOME
-10
-104
-18
-132
CARRYING
VALUE
8
-85
-19
-96
CARRYING
VALUE
-10
-104
-18
-132
2016
8
-15
-19
-26
2015
-10
-16
-12
-38
2017
-
-14
-
-14
2016
-
-15
-6
-21
2018
-
-13
-
-13
2017
-
-14
-
-14
Note 5.4.b Net investment hedges
(EURm)
Net investment hedges (other comprehensive income) at 1 January
Change in net investment hedge
Net investment hedges (other comprehensive income) at 31 December
Profit or loss
2019
-
-11
-
-11
2018
-
-13
-
-13
LATER THAN
2019
-
-32
-
-32
LATER THAN
2018
-
-46
-
-46
2015
2014
-2
1
-1
-
1
-3
-2
-
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
108
Financial comments
Hedging of future cash flows
The group uses forward currency contracts to hedge
currency risks regarding expected future net
revenue and costs. Interest rate swaps are used to
hedge risks regarding movement in expected future
interest payments.
Hedging of net investments
As at 31 December 2015 the group has hedged an
insignificant part of currency exposures relating to its
investments in subsidiaries, joint ventures and
associated companies using loans and derivatives.
The above table shows the change in fair value
recognised in other comprehensive income and the
ineffectiveness recognised in profit or loss.
Currency swaps are used as part of the daily liquidity
management. The objective of the currency swaps is
to match the timing of in- and outflow of foreign
currency cash flows.
Fair value of hedge instruments not qualifying
for hedge accounting (financial hedge)
The group uses currency options which are hedging
forecasted sales and purchases. These options do
not qualify for hedge accounting and hence, the
fair value adjustment is recognised directly in profit
or loss.
NOTE 5.5 FINANCIAL INSTRUMENTS DISCLOSED
Note 5.5.a Categories of financial instruments
(EURm)
Available for sale financial assets
Loans and receivables
Financial assets measured at fair value through profit or loss
Derivatives
Financial liabilities measured at amortised cost
2015
509
949
100
158
3,658
2014
560
978
53
206
3,817
The fair value of financial assets and financial liabilities measured at amortised cost is approximately equal to the carrying amount.
5.5.b Fair value hierarchy - accounting value
Methods and assumptions applied when
measuring fair values of financial instruments:
Bonds and shares
The fair value is determined using the quoted prices
in an active market.
Non-option derivatives
The fair value is calculated using discounted cash
flow models and observable market data. The fair
value is determined as a termination price and
consequently, the value is not adjusted for credit
risks.
Option instruments
The fair value is calculated using option models and
observable market data, such as option volatilities.
The fair value is determined as a termination price
and consequently, the value is not adjusted for credit
risks.
Fair value hierarchy
Level 1: Fair values measured using unadjusted
quoted prices in an active market
Level 2: Fair values measured using valuation
techniques and observable market data
Level 3: Fair values measured using valuation
techniques and observable as well as significant
non-observable market data
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
109
Note 5.5.b Fair value hierachy - accounting value
(EURm)
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
2015
Financial assets
Bonds
Shares
Derivatives
Total assets
Financial liabilities
Issued Bonds
Mortgage credit institutions
Derivatives
Total liabilities
2014
Financial assets
Bonds
Shares
Derivatives
Total assets
Financial liabilities
Issued Bonds
Mortgage credit institutions
Derivatives
Total liabilities
509
14
-
523
-
701
-
701
572
13
-
585
-
822
-
822
-
-
75
75
494
-
158
652
-
-
30
30
472
-
206
678
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
509
14
75
598
494
701
158
1,353
572
13
30
615
472
822
206
1,500
NOTE 5.6 TRANSFER OF FINANCIAL ASSETS
Note 5.6.a Transfer of financial assets
(EURm)
CARRYING
VALUE
NOTIONAL
AMOUNT
FAIR VALUE
2015
Mortgage bonds
Re-purchase liability
Net position
2014
Mortgage bonds
Re-purchase liability
Net position
Financial comments
The group has invested in the mortgage bonds
underlying its mortgage debt. The reason for
investing in the mortgage bonds is that the group is
able to achieve a lower interest rate than the current
market interest rate on mortgage debt by entering
into a sale and re-purchase agreement on the listed
Danish mortgage bonds. The net interest rate
payable, by raising financing through this kind of sale
and re-purchase agreement, is the interest rate
inherent in the sale and re-purchase agreement and
the contribution to the mortgage institute.
Due to the re-purchase agreement the risks and
rewards arising from the ownership of the
transferred mortgage bonds have been retained by
the group. These mortgage bonds have been
501
-498
3
503
-496
7
513
-513
-
516
-516
-
501
-498
3
503
-496
7
classified as available for sale with value adjustments
through other comprehensive income. The received
proceeds creates a re-purchase obligation which has
been recognised within short term bank loans and
overdrafts.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
110
NOTE 5.7 PENSION OBLIGATIONS
Accounting policies
Pension liabilities and similar
non-current liabilities
The group has entered post-employment pension
plan agreements with a significant number of
employees. The post-employment pension plan
agreements take the form of defined benefit plan
and defined contribution plan agreements.
Defined contribution plans
For defined contribution plans, the group pays fixed
contributions to independent pension companies.
The group has no obligation to make supplementary
payments beyond those fixed payments, and the risk
and reward of the value of the pension plan
therefore rest with the plan members and not the
group. Amounts payable for contributions to defined
contribution plans are expensed in the income
statement as incurred.
Defined benefit plans
Defined benefit plans are characterised by the
group’s obligation to make a specific payment from
the date and during the period the plan member is
pensioned, depending on, for example, the
member’s seniority and final salary. The group is
subject to risks and rewards associated with the
uncertainty that the return generated by the assets
are able to meet the pension liability, which are
affected by assumptions concerning mortality
and inflation.
The group provides both funded and unfunded
defined benefit plans to certain employees. Funded
plans are where the group pays cash contributions
into a separately administered fund, which invest the
contributions into various assets with the aim of
generating returns to meet present and future
pension liabilities. Unfunded plans are where no
cash or other assets are set aside from the group’s
assets used in operations to cover the future
pension liability.
The group’s net liability is the amount presented on
the balance sheet as pension liability.
The net liability is calculated separately for each
defined benefit plan. The net liability is the amount
of future pension benefits that employees have
earned in current and prior periods (i.e. the liability
for pension payments for the portion of the
employee’s estimated final salary earned at the
balance sheet date) discounted to a present value
(the defined benefit liability), less the fair value of
assets held separately from the group in a plan fund.
The group uses qualified actuaries to annually
calculate the defined benefit liability using the
projected unit credit method.
The balance sheet amount of the net obligation is
impacted by remeasurement, which comprises the
effect of changes in assumptions used to calculate
the future liability (actuarial gain and losses) and the
return generated on plan assets (excluding interest).
Remeasurements are recognised through other
comprehensive income.
Interest cost for the period is calculated using the
discounted rate used to measure the defined benefit
liability at the start of the reporting period applied to
the carrying amount of the net liability, taking into
account changes arising from contributions and
benefit payments. The net interest cost and other
costs relating to defined benefit plans are
recognised in the income statement.
The provision covers defined benefit plans primarily
in the UK and Sweden.
Uncertainties and estimates
The cost relating to defined benefit pension plans
and their carrying amounts are assessed based on a
number of assumptions, including discount rates,
inflation rates, salary growth and mortality. A small
difference in actual experience compared with
assumptions and any changes in assumptions can
have a significant impact on the carrying amount of
the net liability.
Note 5.7.a Pension liabilities recognized in the balance sheet
(EURm)
SWEDEN
UK
OTHER
TOTAL
2015
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Pension liabilities recognised in the balance sheet, net
Specification of total liabilities
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
2014
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Pension liabilities recognised in the balance sheet, net
Specification of total liabilities:
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
194
-11
183
-
183
194
-
194
214
-11
203
-
203
214
-
214
1,364
-1,287
77
-
77
1,364
-
1,364
1,315
-1,172
143
-
143
1,315
-
1,315
39
-18
21
13
34
39
13
52
19
-4
15
15
30
19
15
34
1,597
-1,316
281
13
294
1,597
13
1,610
1,548
-1,187
361
15
376
1,548
15
1,563
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 5.7.b Development in defined benefit pension liabilities
(EURm)
Present value of liability at 1 January
Reclassification
Additions from mergers and acquisitions
Current service cost
Interest cost
Actuarial (gains)/losses from changes in financial assumptions (other comprehensive income)
Actuarial (gains)/losses from changes in demographic assumptions (other comprehensive income)
Benefits paid
Curtailments and settlements
Exchange rate adjustments
Present value of pension liability at 31 December
Note 5.7.c Development in fair value of plan assets
(EURm)
Fair value of plan assets at 1 January
Reclassification
Additions from mergers and acquisitions
Interest income
Return on plan assets excluding interest income (other comprehensive income)
Contributions to plans
Benefits paid
Administration expenses
Exchange rate adjustments
Fair value of plan assets at 31 December
The group expects to contribute EUR 36 million to the plan assets in 2016, EUR 84 million in 2017-2020 and
EUR 192 million from 2021 to the expiry of the obligations measured as non-discounted cash flow
Actual return on plan assets:
Calculated interest income
Return excluding calculated interest
Actual return
Note 5.7.d Sensitivity of defined benefit liabilities to key assumptions
(EURm)
Impact on defined benefit liabilities at 31 December 2015
Discount rate +/- 10bps
Salary increases +/- 10bps
Life expectancy +/- 1 year
Note 5.7.e Pension assets recognised in the balance sheet
(EURm)
Shares
Bonds
Properties
Other assets
Total assets
%
35%
26%
11%
28%
100%
2015
464
346
140
366
1,316
111
2014
1,324
-
7
6
59
168
-
-57
-6
62
1,563
2014
976
-
7
46
103
40
-47
-2
64
1,187
46
103
149
-
26
-15
-47
2014
182
187
95
723
1,187
2015
1,563
15
-
3
55
-51
-
-65
-
90
1,610
2015
1,187
16
-
46
-17
70
-57
-2
73
1,316
46
-17
29
+
-27
15
47
%
15%
16%
8%
61%
100%
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 112
Note 5.7.f Recognised in the income statement for the year
(EURm)
2015
2014
Current service cost
Past service cost
Administration cost
Curtailments and settlements
Recognised as staff costs
Interest cost on obligations
Interest income on plan assets
Recognised as financial (gains)/losses
Total amount recognised in the income statement
Note 5.7.g Recognised in other comprehensive income
(EURm)
Accumulated actuarial gains/(losses) at 1 January
Actuarial gains/(losses) for the year
Accumulated actuarial gains/(losses) at 31 December
Note 5.7.h Assumptions for the actuarial calculations at the balance sheet date are
3
-
2
-
5
55
-46
9
14
2015
-189
34
-155
2015
3,4%
3,8%
2.4%
4,3%
6
-
2
-6
2
59
-46
13
15
2014
-124
-65
-189
2014
2.6%
3.6%
2.4%
4.3%
Discount rate, Sweden
Discount rate, UK
Expected payroll increase, Sweden
Expected payroll increase, UK
Financial comments
The provision consists primarily of defined benefit
plans in the UK and Sweden. The defined benefit
plans provide pension disbursements to participat-
ing employees based on seniority and final salary.
Net pension liabilities have been recognised at EUR
294 million, a decline of EUR 82 million compared
with last year. The present value of defined benefit
plans declined due primarily in the UK to the group’s
payments to these plans, and in Sweden to an
increase in the discount rate for the plan.
Pension plans in Sweden
The defined benefit plan in Sweden does not
currently require the group to make cash
contributions. The recognised net liability stood at
EUR 183 million, a decline of EUR 20 million
compared with last year. The decrease is primarily
due to actuarial gains of EUR 27 million resulting
from an increase in the discount rate, partly offset by
a foreign exchange rate adjustment of EUR 7 million.
The pension plans are contribution-based plans
guaranteeing defined benefit pension at retirement
on a final salary. Contributions are paid by the group.
The schemes do not provide any insured disability
benefits. The plan assets are legally structured as
a trust. The group has control over the operation of
the plans and their investments. The investment of
the assets are based on the investment strategy
defined by the board of the trust.
are determined with the advice of independent
qualified actuaries on the basis of tri-annual
valuations. The schemes do not provide any insured
disability benefits.
The schemes are legally structured as trust-based
statutory sectionalised pension schemes. The group
has limited control over the operation of the plans or
their investments. The trustees of the scheme set
the investment strategy and have set up a policy on
asset allocation to best match the assets to the
liabilities of the scheme. The trustees appoint an
independent external advisor to the schemes who is
responsible for advising on the investment strategy
and investing the assets.
The pension plans do not include a risk-sharing
element between the group and the plan
participants.
The pension plans do not include a risk-sharing
element between the group and the plan
participants.
Pension plans in the UK
The defined benefit plans in the United Kingdom are
administered by independent pension funds that
invest deposited amounts to cover pension liabilities.
All schemes are closed to future accrual.
The recognised net liability stood at EUR 77 million,
a decline of EUR 66 million compared with last year.
The value of the liability totalled EUR 1,364 million,
an increase of EUR 49 million compared with last
year. The decrease in the net liability is primarily due
to the group’s payments to these plans amounting
to EUR 70 million, actuarial gains of EUR 11 million
and a negative foreign exchange rate adjustment of
EUR 8 million.
The pension plans are defined benefit final salary
schemes. The schemes are closed to both new
entrants and future accrual. Employer contributions
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
Note 6
Other areas
This section covers a number of disclosures required for statutory
purposes. The tax position of the group, both current and deferred, is
assessed according to the national rules and regulations of the entities
across the group.
CONTENT
114
Note 6.1 Tax
115
Note 6.2 Fees to auditors appointed
by the Board of Representatives
116
Note 6.3 Management remuneration
and transactions
116
Note 6.4 Contractual commitments
and contingent liabilities
117
Note 6.5 Events after the balance sheet date
117 Note 6.6 General accounting policies
118
Note 6.7 Group chart
114
NOTE 6.1 TAX
Accounting policies
Tax in the income statement
Taxable income is assessed according to the national
rules and regulations that apply to the entities in the
group. Tax is assessed on the basis of cooperation or
income tax.
Tax in the income statement comprises current tax
and adjustments to deferred tax. Tax is recognised in
the income statement, except to the extent that it
relates to a business combination or items (earnings
and costs) recognised directly in equity or in other
comprehensive income.
Current tax
Current tax is assessed on the basis of cooperation
or income tax. Cooperative taxation is based on
capital, while income tax is based on the company’s
income for the year. Current tax payable and
receivable are recognised in the balance sheet as tax
calculated on the taxable income for the year,
adjusted for any tax from previous years’ taxable
income as well as prepaid on-account taxes. The
amount is calculated using tax rates enacted or
substantively enacted at the balance sheet date.
Deferred tax
Deferred tax and related adjustments for the year are
calculated applying the balance sheet liability
method as the tax base of temporary differences
between carrying amounts and the tax base of
assets and liabilities.
Deferred tax is not recognised on temporary
differences relating to goodwill, which is not
deductible for tax purposes or arising at the
acquisition date of items without affecting either the
profit or loss for the year or taxable income, with the
exception of those arising from business combina-
tions.
Deferred tax assets, including the value of tax loss
carry-forwards, are recognised under other
non-current assets at the value at which they are
expected to be used, either by elimination in the tax
of future earnings or by offsetting against deferred
tax payable in companies within the same legal tax
entity or jurisdiction.
Deferred tax is measured on the basis of the tax rules
and tax rates in the respective countries effective
under the legislation at the reporting date when the
deferred tax is expected to be realised. Changes in
deferred tax assets and liabilities as a result of
changes in the tax rate are recognised in the
comprehensive income for the year.
Uncertainties and estimates
Deferred tax:
Deferred tax reflects assessments of the actual
future tax due for items in the financial statements,
taking into account timing and probability. These
estimates also reflect expectations about future
taxable profits and the group’s tax planning. Actual
future taxes may deviate from these estimates as a
result of changes to expectations relating to future
taxable income, future statutory changes in income
taxation or the outcome of the tax authorities’ final
review of the group’s tax returns. Recognition of a
deferred tax asset also depends on an assessment of
the future use of the asset.
Note 6.1.a Tax in the income statement
(EURm)
Cooperative tax
Current tax
Deferred tax
Change in deferred tax resulting from a change in the tax rate
Adjustment regarding previous years, actual tax
Adjustment regarding previous years, deferred tax
Total tax in the income statement
Note 6.1.b Calculation of effective tax rate
(EURm)
Statutory corporate income tax rate in Denmark
Deviation in foreign subsidiaries' tax rates compared with the Danish tax rate (net)
Adjustment for cooperative tax
Non-taxable income less non-tax-deductible costs (net)
Change in tax percentage
Adjustment regarding previous years
Other adjustments
Effective tax rate
2015
2014
-8
-11
-14
-2
-6
-1
-42
2015
23.5%
-2.9%
-23.3%
3.5%
0.5%
2.1%
9.0%
12.4%
-5
-4
-12
-
3
-
-18
2014
24.5%
-0.3%
-22.6%
-2.1%
-%
-0.2%
6.2%
5.5%
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
115
Note 6.1.c Deferred tax
(EURm)
INTANGIBLE
ASSETS
PROPERTY,
PLANT AND
EQUIPMENT
FINANCIAL
ASSETS
CURRENT
ASSETS
PROVISIONS
OTHER
LIABILITIES
TAX LOSS
CARRY-
FORWARDS
OTHER
CATEGORY
TOTAL
2015
Net deferred tax asset/liability at 1 January
Income/charge to the income statement
Income/charge to other comprehensive income
Change in tax rate
Exchange rate adjustment
Other adjustments
Net deferred tax asset/liability at 31 December
Specified as follows:
Deferred tax asset at 31 December
Deferred tax liability at 31 December
2014
Net deferred tax asset/liability at 1 January
Income/charge to the income statement
Income/charge to other comprehensive income
Change in tax rate
Exchange rate adjustment
Other adjustments
Net deferred tax asset/liability at 31 December
Specified as follows:
Deferred tax asset at 31 December
Deferred tax liability at 31 December
Financial comments
Tax in the income statement
The tax cost has increased by EUR 24 million
primarily due to increased cooperative tax in
Denmark, reduced recognition of tax losses
compared to last year, and a reduction of deferred
tax assets due to lower tax rates.
Deferred tax
Deferred tax has changed from a net deferred tax
asset in 2014 of EUR 26 million to a net deferred tax
liability of EUR 1 million in 2015.
-
-
-
-
-
-1
-1
-
-1
-2
2
-
-
-
-
-
-
-
-10
6
-
-3
-
8
1
32
-31
2
15
-
-
1
-28
-10
18
-28
11
2
-
-
-
-11
2
-
2
7
-3
4
-
-
3
11
7
4
-
-
-1
-
-
-2
-3
-
-3
-
1
-
-
-
-1
-
2
-2
40
-20
-13
2
4
13
26
17
9
45
-9
12
-
-
-8
40
62
-22
2
-1
-
-
-
4
5
5
-
-9
-19
2
-
1
27
2
4
-2
13
-2
-
-1
-
-
10
10
-
4
6
-
-
-
3
13
4
9
-30
-
-
-
-
-11
-41
-
-41
-26
-5
-
-
1
-
-30
-25
-5
26
-15
-14
-2
4
-
-1
64
-65
21
-12
18
-
3
-4
26
72
-46
Deferred tax assets are primarily based on temporary
differences on property, plant and equipment
together with pension liabilities. Deferred tax
liabilities mainly relate to provisions and temporary
differences on property, plant and equipment.
A deferred tax asset of EUR 110 million has not been
recognised, as the group does not expect to be able
to utilize it within a limited time range. The increase
from EUR 55 million in 2014 is primarily caused by
non recognised tax losses related to entities in
Germany and the UK.
The change from 2014 to 2015 is primarily
explained by tax rate changes and temporary
differences arising from differences in accounting
and tax depreciation on property, plant and
equipment.
NOTE 6.2 FEES TO AUDITORS APPOINTED BY THE BOARD OF REPRESENTATIVES
(EURm)
2015
2014
Statutory audit
Other assurance engagements
Tax assistance
Other services
Total fees to auditors
Financial comments
In 2014 KPMG in Denmark joined the EY network
and following this in 2015, the group decided to
appoint EY in all significant entities. The above fees
to auditors are therefore attributable to EY. For 2014
the fees paid to the KPMG network amounted to
EUR 1.2 million. Other services comprise fees related
to due diligence in connection with mergers and
acquisitions of companies.
-1.2
-
-1.1
-1.6
-3.9
-0.6
-
-0.2
-0.1
-0.9
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
116
NOTE 6.3 MANAGEMENT REMUNERATION AND TRANSACTIONS
The remuneration of the Executive Board is
proposed by the Chairmanship and approved by
the Board of Directors. Remuneration for the
Board of Directors is approved by the Board of
Representatives. Remuneration is negotiated on
an annual basis.
The Board of Directors and Executive Board is
exercise significant influence. Members of the Board
of Directors are paid for milk supplies to Arla Foods
amba on equal terms with other owners of the
company.
Note 6.3.a Management remuneration
(EURm)
Board of Directors
Wages, salaries and remuneration
Total
Executive Board
Wages, salaries and remuneration
Pensions
Variable remuneration and incentive programmes
Total
Note 6.3.b. Transactions with the Board of Directors
(EURm)
Purchase of goods
Supplementary payments received regarding previous years
Total
Trade payables
Owner accounts
Total
2015
2014
-1.4
-1.4
-2.2
-0.3
-0.8
-3.3
2015
10.7
0.3
11.0
0.6
2.1
2.7
-1.4
-1.4
-1.9
-0.2
-0.4
-2.5
2014
13.4
0.4
13.8
1.0
2.1
3.1
NOTE 6.4 CONTRACTUAL COMMITMENTS AND CONTINGENT LIABILITIES
Uncertainties and estimates
The group has entered into a number of lease
agreements. Management assesses the substance
of the agreements in order to classify the lease
agreements as either financial or operating leases.
The group has mainly entered into lease agreements
for standardised assets that are short-term in
relation to the asset’s useful lives. As such, the lease
agreements have been classified as operating leases.
Note 6.4.a Contractual commitments and contingent liabilities
(EURm)
2015
2014
Surety and guarantee commitments
0-1 year
1-5 years
Over 5 years
Operating rent commitments
0-1 year
1-5 years
Over 5 years
Operating lease commitments
Commitments in relation to agreements on the purchase of intangible assets
Commitments in relation to agreements on the purchase of property, plant and equipment
Total commitments in relation to agreements
5
24
48
37
109
40
71
6
117
6
139
145
5
22
49
44
115
37
59
4
100
-
168
168
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
117
Contingent assets
Valio have been fined in the market court for a
breach of the Competition Act, but have appealed to
the Supreme Administrative Court. Arla has filed a
damage claim of EUR 50 million against Valio
because of predatory pricing.
Financial comments
The group is party to a small number of lawsuits,
disputes, and other claims. Management believes
that the outcome of these will not significantly
impact the group’s financial position beyond what is
already recognised in the balance sheet and/or
disclosed in the financial statements.
As security for mortgage debt based on the Danish
Mortgage act with a nominal value of EUR 720
million, compared with EUR 845 million at 31
December 2014, the group provided security in
property as security for the debt.
NOTE 6.5. EVENTS AFTER THE BALANCE SHEET DATE
In February 2016, Arla announced significant
changes to the organisation. The changes are
commencing with a new executive management
team based on functional areas and commercial
markets. There are seven members of the new
executive management team which is a reduction
from nine previously. As a result of these changes,
Arla is to reduce the organisation with 500 positions
across its markets.
No other events with a significant impact on the
business have occurred after the balance sheet date.
NOTE 6.6 GENERAL ACCOUNTING POLICIES
Consolidated financial statements
The consolidated financial statements included in
this Annual report have been prepared in accord-
ance with the International Financial Reporting
Standards (IFRS) as adopted by the EU and
additional disclosure requirements in the Danish
Financial Statement Act for class C large companies.
The consolidated financial statements were
authorised for issue by the Company’s board of
directors on 16 February 2016 and presented for
approval by the board of representatives on 24
February 2016.
The consolidated financial statements are prepared
as a compilation of the parent company’s and the
individual subsidiaries’ financial statements prepared
under the group’s accounting policies. Revenue,
costs, assets, liabilities together with items included
in the equity of subsidiaries are aggregated and
presented on a line-by-line basis in the consolidated
financial statements. Intra-group shareholdings,
balances and transactions as well as any unrealised
income and expenses arising from intra-group
transactions are eliminated.
The consolidated financial statements comprise Arla
Foods amba (parent company) and the subsidiaries
in which the parent company directly or indirectly
holds more than 50% of the voting rights or
otherwise maintains control in order to obtain
benefits from its activities. Entities in which the
group exercises joint control through a contractual
arrangement are considered to be joint ventures.
Entities in which the group exercises a significant
but not controlling influence are considered to be
associates. A significant influence is typically
obtained by holding or having at the group’s
disposal, directly or indirectly, more than 20 per cent
but less than 50% of the voting rights in an entity.
Unrealised gains (i.e. profits arising from sales to joint
ventures or associates, whereby the customer pays
with funds partly owned by the group) from
transactions with joint ventures and associates are
eliminated against the carrying amount of the
investment in proportion to the group’s interest in
the company. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent
that there is no evidence of impairment.
The consolidated financial statements are prepared
on a historical cost basis except for certain items
with alternative measurement bases, which are
identified in these accounting policies.
Translation of transactions and monetary
items in foreign currencies
For each reporting entity in the group, a functional
currency is determined, being the currency used in
the primary economic environment where the entity
operates. Where a reporting entity transacts in a
foreign currency, it will record the transaction in its
functional currency using the transaction date rate.
Monetary assets and liabilities denominated in
foreign currencies are translated into the functional
currency using the exchange rate applicable at the
reporting date. Exchange differences are recognised
in the income statement under financial items.
Non-monetary items, e.g. property, plant and
equipment which are measured based on historical
cost in a foreign currency, are translated into the
functional currency on initial recognition.
Translation of foreign operations
The assets and liabilities of consolidated entities,
including the share of net assets and goodwill of
joint ventures and associates with a functional
currency other than EUR, are translated into EUR
using the year-end exchange rate. The revenue,
costs and share of the results for the year are
translated into EUR using the average monthly
exchange rate if this does not differ materially from
the transaction date rate. Foreign currency
differences are recognised in other comprehensive
income and accumulated in the translation reserve.
On partial divestment of associates and joint
ventures, the relevant proportional amount of the
cumulative foreign currency translation adjustment
reserve is transferred to the results for the year along
with any gains or losses related to the divestment.
Repayment of outstanding balances considered part
of the net investment is not in itself considered to be
a partial divestment of the subsidiary.
Adoption of new or amended IFRSs
The group has implemented all new standards and
interpretations effective in the EU from 2015. Arla
made an early implementation of changes to IAS 19
and has implemented annual improvements to IFRS
2011-2013 all with the same starting date as IFRS
approved by IASB. None of these newly adopted
standards and interpretations have had or are
expected to have an impact on the consolidated
financial statements of Arla.
IASB has issued a number of new or amended and
revised accounting standards and interpretations
that have not yet come into effect. Arla expect to
incorporate the new standards when they become
mandatory.
In January 2016, the IASB issued the final version
of IFRS 16 “Leases”. The standard, which is effective
for annual periods beginning on or after 1 January
2019, brings significant changes to the treatment of
leasing contracts currently treated as operating
leases. At the moment, no in-depth analysis of the
impact of the new standard has been performed.
The standard is expected to have some impact on
the consolidated financial statements, as a
significant part of the Group’s operating leases will
be required to be recognized on the balance sheet.
Other new or revised accounting standards and
implementations are not expected to have a
material impact on the consolidated financial
statements of the group.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES
118
NOTE 6.7 GROUP CHART
COMPANY NAME
Arla Foods amba
Arla Foods Ingredients Group P/S
Arla Foods Ingredients Energy A/S
Arla Foods Ingredients KK
Arla Foods Ingredients Inc.
Arla Foods Ingredients Korea, Co. Ltd.
Arla Foods Ingredients Trading (Beijing) Co. Ltd.
Arla Foods Ingredients S.A.*
Arla Foods Ingredients Singapore Pte. Ltd.
Arla Foods Ingredients S.A. de C.V.
Arla Foods Ingredients UK Limited
AFI Partner ApS
Cocio Chokolademælk A/S
Cocio Beverage International P/S
CBI GP ApS
Andelssmør A.m.b.a.
Aktieselskabet J. Hansen
J.P. Hansen Inc.
Mejeriforeningen
Arla Foods Holding A/S
Arla Foods Distribution A/S
Økomælk A/S
Danmark Protein A/S
Cocio Chokolademælk A/S
Arla Foods International A/S
Arla Foods UK Holding Ltd
Arla Foods UK plc
Arla Foods Finance Ltd
Arla Foods Holding Co. Ltd
Arla Foods UK Services Ltd
Arla Foods Naim Limited
Arla Foods Limited
Milk Link Holdings Ltd.
Milk Link Processing Ltd.
Milk Link (Crediton No 2) Limited
Milk Link Investments Ltd.
The Cheese Company Holdings Ltd.
The Cheese Company Ltd.
Cornish Country Larder Ltd.
The Cheese Company Investments Ltd.
Westbury Dairies Ltd. ***
Arla Foods (Westbury) Ltd.
Arla Foods Cheese Company Ltd. UK
Arla Foods Ingredients UK Ltd.
MV Ingredients Ltd.*
Arla Foods UK Property Co. Ltd.
Arla Foods B.V.
Arla Foods Ltda
Danya Foods Ltd.
AF A/S
Arla Foods Finance A/S
Kingdom Food Products ApS
Ejendomsanpartsselskabet St. Ravnsbjerg
Arla Insurance Company (Guernsey) Ltd
Rynkeby Foods A/S
Rynkeby Foods AB
Rynkeby Foods Förvaltning AB
Rynkeby Foods HB
Rynkeby Foods Oy
Arla Foods Energy A/S
Arla Foods Trading A/S
Arla DP Holding A/S
Arla DP A/S
Arla Foods Investment A/S
Fidan A/S
Tholstrup International B.V.
Tholstrup Cheese Holding A/S
Tholstrup Cheese A/S
Tholstrup Cheese USA Inc.
Arla Foods Belgium A.G.
Mölkerei Walhorn GmbH
Arla Foods Ingredients GmbH
COUNTRY
CURRENCY
GROUP
EQUITY
INTEREST (%)
Denmark
Denmark
Denmark
Japan
USA
Korea
China
Argentina
Singapore
Mexico
UK
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
USA
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
UL
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Netherlands
Brazil
Saudi Arabia
Denmark
Denmark
Denmark
Denmark
Guernsey
Denmark
Sweden
Sweden
Sweden
Finland
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Netherlands
Denmark
Denmark
USA
Belgium
Germany
Germany
DKK
DKK
DKK
JPY
USD
KRW
CNY
USD
SGD
MZN
GBP
DKK
DKK
DKK
DKK
DKK
DKK
USD
DKK
DKK
DKK
DKK
DKK
DKK
DKK
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
EUR
BRL
SAR
DKK
DKK
DKK
DKK
DKK
DKK
SEK
SEK
SEK
EUR
DKK
DKK
DKK
DKK
DKK
DKK
EUR
DKK
DKK
USD
EUR
EUR
EUR
100
100
100
100
100
100
50
100
100
100
100
50
100
100
98
100
100
91
100
100
100
100
50
100
86
100
100
100
100
100
100
100
100
100
100
100
100
100
100
11
100
100
100
50
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
100
100
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 119
COMPANY NAME
COUNTRY
CURRENCY
GROUP
EQUITY
INTEREST (%)
Arla Tagatose Holding GmbH
Arla CoAr Holding GmbH
ArNoCo GmbH & Co. KG*
Arla Biolac Holding GmbH
Biolac GmbH & Co. KG*
Biolac Verwaltungs GmbH*
Arla Foods Kuwait Company LLC
Arla Kallassi Foods Lebanon S.A.L.
Arla Foods Qatar WLL
AFIQ WLL**
Arla Foods Trading and Procurement Ltd.
Arla Foods Sdn. Bhd.
Arla Foods AB
Boxholm Mejeri AB
Arla Oy Ab
Ranuan Meijeri Oy
Kiteen Meijeri Oy
Halkivahan Meijeri Oy
Massby Facility & Services Oy
Osuuskunta MS tuottajapalvelu**
Arla Foods UK Holding Ltd.
Restaurang akademien Aktiebolag**
Vardagspuls AB
Arla Foods Russia Holding AB
Arla Foods Artis LLC
L&L International AB
Milko Sverige AB
Videbæk Biogas A/S **
Arla Foods Inc.
Arla Foods Production LLC
Arla Foods Transport LLC
Arla Foods SA
COFCO Dairy Holdings Limited **
Arla Foods Inc.
Arla Global Financial Services Centre Sp. Z.o.o.
Arla National Foods Products LLC
Arla Foods Deutschland GmbH
Arla Foods Artis LLC
Martin Sengele Produits Laitiers SAS
Team-Pack GmbH
Arla Foods France, S.a.r.l
Milch-Union Hocheifel, Luxemburg GmbH
Milch-Union Hocheifel, Belgium AG
Hansa Verwaltungs und Vertriebs GmbH
Arla Foods Logistics GmbH
Vigor Alimentos S.A.**
Arla Foods Srl
Arla Foods S.a.r.l.
Arla Foods AS
Arla Foods S.A.
Arla Foods Hellas S.A.
Svensk Mjölk Ekonomisk förening**
Lantbrukarnas Riksförbund upa **
Arla Foods UK Farmers JV Company Limited
Arla Côte d'lvoire
Arla Foods Mayer Australia Pty, Ltd.
Arla Foods S.R.L.
Arla Foods Bangladesh Ltd.
Arla Foods Dairy Products Technical Service (Beijing) Co. Ltd.
Dofo Cheese Eksport K/S
Dofo Inc.
Marygold Trading K/S
TG Arla Dairy Products LFTZ Enterprices (JV)
Germany
Germany
Germany
Germany
Germany
Germany
Kuwait
Lebanon
Qatar
Bahrain
Hong Kong
Malaysia
Sweden
Sweden
Finland
Finland
Finland
Finland
Finland
Finland
UK
Sweden
Sweden
Sweden
Russia
Sweden
Sweden
Denmark
USA
USA
USA
Poland
Hong Kong
Canada
Poland
UAE
Germany
Russia
France
Germany
France
Luxemburg
Belgium
Germany
Germany
Brazil
Italy
France
Norway
Spain
Greece
Sweden
Sweden
UK
Ivory Coast
Australia
Domician Republic
Bangladesh
China
Denmark
USA
Denmark
Nigeria
EUR
EUR
EUR
EUR
EUR
EUR
KWD
USD
QAR
BHD
HKD
MYR
SEK
SEK
EUR
EUR
EUR
EUR
EUR
EUR
GBP
SEK
SEK
SEK
RUB
SEK
SEK
DKK
USD
USD
USD
PLN
HKD
CAD
PLN
AED
EUR
RUB
EUR
EUR
EUR
EUR
EUR
EUR
EUR
BRL
EUR
EUR
NOK
EUR
EUR
SEK
SEK
GBP
XOF
AUD
DOP
BDT
CNY
DKK
USD
DKK
NGN
100
100
50
100
50
50
49
50
40
25
100
100
100
100
100
99
99
97
60
39
14
50
100
100
80
100
100
50
100
100
100
100
30
100
100
40
100
20
100
100
100
100
100
100
100
8
100
100
100
100
100
73
23
100
51
51
100
51
100
100
100
100
50
* Joint ventures ** Associates *** Joint operation
The Group also owns a number of entities without material commercial activities.
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/NOTES 120
Independent
auditor’s report
TO THE OWNERS OF ARLA FOODS AMBA
are free from material misstatement, whether
due to fraud or error.
Independent auditors’ report on the
consolidated financial statements and the
parent company financial statements
We have audited the consolidated financial
statements and the parent company financial
statements of Arla Foods amba for the financial
year 1 January – 31 December 2015, which
comprise the income statement, statement of
comprehensive income, balance sheet,
statement of changes in equity, cash flow
statement and notes, including a summary of
significant accounting policies for the group
as well as for the parent company. The
consolidated financial statements and the
parent company financial statements are
prepared in accordance with International
Financial Reporting Standards as adopted by
the EU and additional disclosure requirements
in the Danish Financial Statements Act.
Management’s responsibility for the
consolidated financial statements and the
parent company financial statements
Management is responsible for the preparation
of consolidated financial statements and parent
company financial statements that give a true
and fair view in accordance with International
Financial Reporting Standards as adopted by
the EU and additional disclosure requirements
in the Danish Financial Statements Act and for
such internal control that Management
determines is necessary to enable the
preparation of consolidated financial statements
and parent company financial statements that
Auditors’ responsibility
Our responsibility is to express an opinion on the
consolidated financial statements and the parent
company financial statements based on our
audit. We conducted our audit in accordance
with International Standards on Auditing and
additional requirements under Danish audit regu-
lation. This requires that we comply with ethical
requirements and plan and perform the audit to
obtain reasonable assurance as to whether the
consolidated financial statements
and the parent company financial statements are
free from material misstatement. An audit
involves performing procedures to obtain audit
evidence about the amounts and disclosures
in the consolidated financial statements and
the parent company financial statements. The
procedures selected depend on the auditors’
judgement, including the assessment of the risks
of material misstatement of the consolidated
financial statements and the parent company
financial statements, whether due to fraud or
error. In making those risk assessments, the
auditors consider internal control relevant to the
Company’s preparation of consolidated financial
statements and parent company financial
statements that give a true and fair view in order
to design audit procedures that are appropriate
in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the
Company’s internal control. An audit also
includes evaluating the appropriateness of
accounting policies used and the reasonableness
of accounting estimates made by Management,
as well as evaluating the overall presentation of
the consolidated financial statements and the
parent company financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide
a basis for our opinion.
Our audit has not resulted in any qualification.
Opinion
In our opinion, the consolidated financial
statements and the parent company financial
statements give a true and fair view of the
group’s and the parent company’s financial
position at 31 December 2015 and of the
results of the group’s and the parent company’s
operations and cash flows for the financial year
1 January – 31 December 2015 in accordance
with International Financial Reporting
Standards as adopted by the EU and additional
disclosure requirements in the Danish Financial
Statements Act.
Statement on the Management’s review
Pursuant to the Danish Financial Statements
Act, we have read the Management’s review.
We have not performed any further procedures
in addition to the audit of the consolidated
financial statements and the parent company
financial statements. On this basis, it is our
opinion that the information provided in the
Management’s review is consistent with the
consolidated financial statements and the
parent company financial statements.
Aarhus, 16 February 2016
Ernst & Young
Godkendt Revisionspartnerselskab
CVR no. 30 70 02 28
Jesper Ridder Olsen
State Authorised Public Accountant
Morten Friis
State Authorised Public Accountant
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/ENDORSEMENTS
121
Statement by the
Board of Directors and
the Executive Board
Today, the Board of Directors and the Executive
Board discussed and approved the annual
report of Arla Foods amba for the financial year
2015. The annual report has been prepared in
accordance with International Financial
Reporting Standards as adopted by the EU
and additional disclosure requirements in the
Danish Financial Statements Act.
In our opinion, the Management’s review of the
annual report includes a true and fair view of
the developments of the group’s and the parent
company’s financial position, activities and
financial matters, results for the year and cash
flows as well as a description of the most
significant risks and uncertainties that may
affect the group and the parent company.
It is our opinion, that the consolidated financial
statements and the parent company financial
statements give a true and fair view of the
group’s and the parent company’s financial
position at 31 December 2015 and of the
results of the group’s and the parent company’s
activities and cash flows for the financial year
1 January - 31 December 2015.
We hereby recommend the annual report for
adoption by the Board of Representatives.
Aarhus, 16 February 2016
Peder Tuborgh
CEO
Povl Krogsgaard
Vice CEO
Åke Hantoft
Chairman
Jan Toft Nørgaard
Vice Chairman
Viggo Ø. Bloch
Palle Borgström
Jonas Carlgren
Manfred Graff
Heléne Gunnarson
Markus Hübers
Bjørn Jepsen
Thomas Johansen
Steen Nørgaard
Madsen
Torben Myrup
Jonathan Ovens
Johnnie Russell
Manfred Sievers
Ib Bjerglund Nielsen
Employee
representative
Harry Shaw
Employee
representative
Haakan Gillström
Employee
representative
ANNUAL REPORT 2015CONSOLIDATED FINANCIAL STATEMENTS/ENDORSEMENTS DEFINITIONS
EBIT
EBITDA
Earnings before interest and tax
Earnings before interest, tax, depreciations and amortisation
EBIT margin
EBIT / revenue
Interest cover
EBITDA / interest costs, net
Net interest-bearing
debt inclusive pension
Current interest-bearing liabilities - securities, cash and cash equivalents and
other interest-bearing assets + non-current liabilities
Net working capital
Inventories + trade receivables - trade payables
Leverage
Net interest-bearing liabilities, including pension liabilities / EBITDA
Equity ratio
Equity excluding minority interest / balance sheet total
GLOSSARY
Peer group index The peer group index evaluates the relative performance of Arla Foods amba compared
to competitors without considering the retainment policy.
Performance price and prepaid milk price The performance price for Arla Foods amba is defined as the
prepaid milk price plus net profit divided by total member milk volume intake. The prepaid milk price is the
cash payment owners receive for the milk delivered during the settlement period.
Organic revenue growth Organic revenue growth figures are adjusting for the effect of mergers,
acquisitions and divestments of businesses and currency effects.
Volume driven revenue growth Volume driven revenue growth is defined as revenue associated with
growth in volumes keeping the prices constant.
Capacity costs Capacity costs cover costs such as staff, maintenance, energy, cleaning, insurances, IT,
travelling and consultants.
Scalability Scalability is defined as the ratio between volume driven revenue growth and growth in total
capacity cost adjusted for special items.
Trading share Trading share measures the total milk consumed through trading goods compared to the
total milk consumption in Arla Foods amba. A trading good is a product sold with a low amount of value
added or no value added at all. Typically trading goods include business-to-business sales and bulk sales of
cheese, butter or milk powder.
Brand share Brand share is defined as the ratio of revenue on strategic branded products out of
total revenue.
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541
006
Arla Foods amba
Sønderhøj 14
DK-8260 Viby J.
Denmark
CVR no.: 25 31 37 63
Arla Foods UK plc
4 Savannah Way
Leeds Valley Park
Leeds, LS10 1 AB
England
Phone +45 89 38 10 00
E-mail arla@arlafoods.com
Phone +44 113 382 7000
E-mail arla@arlafoods.com
www.arla.com
www.arlafoods.co.uk