CREATING
VALUE IN A YEAR
LIKE NO OTHER
CONSOLIDATED
ANNUAL REPORT
2020
ViSiON
TAbLE Of CONTENTS
CREATE THE
fUTURE Of DAiRY
TO bRiNG HEALTH AND
iNSPiRATiON TO THE
wORLD, NATURALLY.
OUR GOVERNANCE
38
Governance framework
40 Diversity and inclusion
42 Board of Directors
45 Executive Management Team
47
48 Responsible and transparent tax practices
49 Risk and compliance management
Management remuneration
OUR PERfORMANCE REViEw
56
57
61
Market overview
Performance review
Financial outlook
OUR CONSOLiDATED
fiNANCiAL STATEMENTS
63
73
Primary financial statements
Notes
OUR CONSOLiDATED
ENViRONMENTAL, SOCiAL
AND GOVERNANCE DATA
120 Primary statements
123 Notes
135 Glossary
137 Corporate calendar
MANAGEMENT REViEw
03
04
05
2020 Performance at a glance
CEO and Chairman letters
Message from the Chairman:
A busy and challenging year
Message from the CEO: Creating value
in a year like no other
Highlights
Five year overview
06
07
10
OUR STRATEGY
Business model
12
Good Growth 2020 strategy
13
Creating efficiencies with
16
Calcium programme
Embracing change: Major trends
and strategic responses
18
20 Dealing with Brexit
21
Essential business priorities for 2020
OUR bRANDS AND
COMMERCiAL SEGMENTS
23
25
27
29 Arla Foods Ingredients
30 Global Industry Sales
Brands
Europe
International
OUR RESPONSibiLiTY
32 Sustainability strategy
33
34
35
36
Environmental ambition
Climate Checks on farms
Facilitating better animal welfare
International dairy development
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
2020 PERfORMANCE
AT A GLANCE
fiNANCiAL PERfORMANCE
COST AND CASH
Revenue
Performance price
Milk volume
Profit share*
10.6
(billion EUR)
36.9
(EUR-cent/kg)
13.7
(billion kg)
3.2%
(of revenue)
2020
2019
2018
10.6
10.5
10.4
2020
2019
2018
36.9
36.6
36.4
2020
2019
2018
13.7
13.7
13.9
2020
2019
2018
3.2%
3.0%
2.8%
130
(million EUR)
2020
2019
2018
Leverage
2.7
130
110
114
2020
2019
2018
2.7
2.8
2.4
Target 2020: 10.4-10.8 billion
Target 2020: 2.8-3.2%
Target 2020: 75-100 million EUR
Target 2020: 2.8-3.4
QUALiTY Of bUSiNESS
CLiMATE iMPACT
Strategic branded volume
driven revenue growth
7.7%
Brand share
International share**
48.9%
23.6%
2020
2019
2018
7.7%
5.1%
3.1%
2020
2019
2018
48.9%
46.7%
45.2%
2020
2019
2018
23.6%
21.9%
19.6%
Target 2020: 2-4%
Target 2020: ≥ 45%
Target 2020: ≥ 23%
CO₂e emission reduction,
scope 1 and 2
CO₂e emission reduction,
scope 3 per kg of milk and whey
24%
Baseline: 2015
7%
Baseline: 2015
Science Based Target 2030: 30%
Science Based Target 2030: 30%
3 ARLA FOODS ANNUAL REPORT 2020
*Based on profit allocated to owners of Arla Foods amba
** International share is based on retail and foodservice revenue, excluding revenue from third party manufacturing, Arla Foods Ingredients and trading activities.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CREATiNG VALUE
iN A YEAR LiKE
NO OTHER
Jan Toft Nørgaard, Chairman of the Board,
and Peder Tuborgh, CEO, visit farmer owner
Lars Mågård Pedersen at his farm in Gjerlev,
Denmark.
4 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
A bUSY AND CHALLENGiNG YEAR
A busy and challenging year
2020 will be remembered as one of the most
challenging years in recent times, and Covid-19
continues to affect our lives and livelihoods.
Maintaining the food supply has been a critical
require ment of all governments, and as farmer
owners of a global company we have much to be
proud of in the way we have risen to the challenges
presented by this devastating pandemic.
Thanks to the efforts of everyone in Arla, farmer
owners, employees and management, we have
kept focus on our core purpose of producing and
delivering healthy and nutritious dairy products to
our customers and consumers, which is an
extraordinary achievement. In addition, as farmers
we have continued our collective commitment to
sustainability with the landmark introduction of
Climate Checks on all Arla farms and the rollout of
our updated Arlagården® programme.
Strong business results
We entered 2020 with positive sales momentum
underpinned by a strong financial position. Even
though Arla has been affected by the harsh impact
of Covid-19 on the foodservice sector and global
commodity markets, our retail business and strong
brand portfolio, together with our transformation
and efficiency programme Calcium, delivered a
financial performance above our expectations.
In a cooperative, strong results should reflect
directly on its owners. Thus the Board of Directors
has proposed to the Board of Representatives a
EUR-cent 1.75 supplementary payment per kilo
milk, thereby exceeding the retainment policy by
0.75 EUR-cent/kg as an extraordinary addition.
5 ARLA FOODS ANNUAL REPORT 2020
OUR STRONG
COOPERATiVE
SPiRiT HAS bEEN
CHALLENGED iN
THiS UNUSUAL
YEAR.
Competitive milk price
The Arla pre-paid milk price was kept at a competitive
and relatively stable level throughout 2020.
We ended the year with a performance price of
EUR-cent 36.9 per kilo, indicating our progress
towards a more competitive milk price. That said,
as a Board of Directors we fully recognise that
farmers are facing increasing production costs and
additional requirements. This is a challenge across
the European dairy industry that needs to be met
by actions across the industry and its wider
stakeholder group.
Sustainability
As farmer owners we have made great efforts to
meet important milestones in our transition towards
even more sustainable dairy production, and as a
cooperative we have created strong results. We
have updated and implemented our two major
programmes: Arlagården® and Global Climate
Checks. This enables us to collect one of the world’s
largest sets of externally verified climate data from
dairy farming, creating a solid foundation for
benchmarking, knowledge sharing and research
across the dairy industry. This effort will enable Arla
to lead the way towards a sustainable future for
dairy farming.
New ways of working in our democracy
As farmer owners we have always valued meeting
face-to-face, debating and challenging each other
and our business management. Covid-19
restrictions challenged this democratic set-up, as
most of our regular meetings had to be hosted on
digital platforms. This was new to many of us, but
in the spirit of our cooperative mindset, we have
managed to overcome this challenge, until we can
meet under more normal circumstances again.
Looking ahead
In the coming year, the Board of Directors will dive
deeply into forming our new business strategy and
define a future-oriented cooperative that meets
the changing demands of our customers and
consumers. We must constantly adapt to the
future demands and changes, while maintaining
the strong core that the cooperative concept gives
us as farmer owners. The Free Trade Agreement
between the UK and EU was a great relief, and we
look positively on the future of our UK business.
Jan Toft Nørgaard
Chairman of the Board of Directors
Performance price
36.9
(EUR-cent/kg)
2020
2019
2018
36.9
36.6
36.4
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CREATiNG VALUE iN A YEAR LiKE NO OTHER
A year like no other
2020 was defined by Covid-19, disrupting
consumer behaviour, business plans and political
agendas instantly as the virus spread across the
world. Despite being challenged at work and at
home, Arla farmers and colleagues maintained a
steady flow of dairy to society, whilst doing their
best to keep each other safe.
The improved quality of our business is reflected
in a performance price of 36.9 EUR-cent/kg, up
from 36.6 EUR-cent/kg in 2019. Our net profit
ended at 3.2 per cent and the financial leverage at
2.7, enabling the Board of Directors’ proposal to
the Board of Representatives of a EUR-cent 1.75
supplementary payment per kilo milk, which is
0.75 EUR-cent/kg more than in previous years.
The global dairy industry was heavily affected, not
least by the impact of lockdowns on the foodservice
sector, which precipitated a drop in global commodity
prices. We saw partial recovery in the second half,
but prices have not yet returned to the same levels
as before the pandemic. Despite this and a weaker
US dollar, we delivered a relatively strong Arla
performance price, given the volatility seen in the
dairy industry.
Solid performance
Our performance can be ascribed to the agility of
our organisation, the versatility and quality of our
business and solid deliveries in our Calcium
transformation programme.
The quality of our brands and our ability to move
more products into the soaring retail sector meant
that we achieved exceptionally strong growth in
our brands of 7.7 per cent. AFI also performed well,
driven by increased demand for whey proteins for
pediatric and medical nutrition products.
Calcium secured EUR 130 million in savings, primarily
from supply chain efficiencies, optimised marketing
spend and reduced expenses due to many office
employees working from home. Since 2018, we have
saved net EUR 354 million, and are on course to
achieve our 2021 target of net EUR 400 million.
6 ARLA FOODS ANNUAL REPORT 2020
DURiNG
COViD-19, wE
HAVE PROVEN
TO bE AGiLE
AND EffiCiENT
iN TiMES
Of ExTREME
UNCERTAiNTY.
Sustainability action
2020 saw us take further sustainability action
throughout the value chain, on packaging,
renewable energy for dairies, biogas trucks and
the launch of a carbon net zero organic milk.
The most prominent achievement is that 93 per
cent of our owners with considerable efforts
implemented Climate Checks and 100 per cent
our Arlagården® programme. Arla farmers are
among the most climate efficient in the world and
committed to making ongoing progress on our
climate and broader sustainability ambitions.
Expectations for 2021
2021 will be another challenging year with the
ongoing impact of Covid-19 and its effects on
economies and people’s livelihoods. We expect to
deliver growth, but not to the extent seen in 2020.
The Free Trade Agreement between the EU and
the UK announced just before the year end is
welcome news. Brexit does bring some non-tariff
barriers, however, we are well-prepared to manage
the new procedures and focused on minimising
the extra costs.
2021 will also be the year in which we will present
a new strategy to replace Good Growth 2020, which
has successfully improved the quality and resilience
of Arla over the past five years. Our strengthened
position makes our dairy cooperative a solid home
for farmers in the uncertain times ahead.
Peder Tuborgh
CEO
130
(million EUR)
2020
2019
2018
130
110
114
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
HiGHLiGHTS
The strong dedication from farmer owners and employees, close collaboration with customers, and our diverse and
resilient business enabled us to continue our sustainable growth while quickly adapting to the new reality defined
by Covid-19. We grew our brands in most markets, implemented Climate Checks on farms, and entered the market for
plant-based products, while continuing to deliver our transformation and efficiency programme, Calcium, and maintaining
a steady flow of products in all our markets.
ADAPTiNG fAST
TO NEw DEMAND
Extraordinary circumstances call for
extraordinary solutions. While retail faced
increasing demand from consumers
lunching and cooking at home, our
foodservice business was highly impacted
by lockdowns of restaurants, cafés, hotels
etc. A strong cross-functional collaboration
made it possible to quickly shift products
from foodservice into retail as well as to
accelerate our digital marketing and
e-commerce focus. This was possible due
to the agility of operations and markets
and the resilience of our organisation,
supported by a strong collaboration with
our customers and commercial partners.
7 ARLA FOODS ANNUAL REPORT 2020
ARLA EMPLOYEES
wALKED THE ExTRA MiLE
Since the beginning of the pandemic,
employees across the entire company
worked hard to uphold a steady flow of
products to consumers all over the world.
It took a massive effort to adjust routes,
milk allocation and production to meet the
spike in products for in-home consumption.
Huge extra amounts of ingredients and
packaging materials were sourced in a very
short time, and logistics did a tremendous
job delivering the products to stores with
changed time schedules and delivery
procedures. The production capacities at
some sites were tested, particularly at
Holstebro Dairy from where a record-high
86 trucks of Lurpak® products were
shipped to the UK in one week.
ARLA fARMER OwNERS
KEPT PRODUCTiON GOiNG
Like for everyone else, it was a challenge for
Arla’s farmer owners to balance work and
personal life during lockdowns, where home
schooling of children, keeping employees safe
and finding new ways of interacting with
business partners required extra resources.
Despite these circumstances, our farmer
owners managed to keep up milk production,
while installing their own safety measures for
employees at the farm. The farmer owners
also managed the challenge of keeping the
cooperative democracy alive by shifting to
online meeting formats during the pandemic.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
HiGHLiGHTS (CONTiNUED)
CONTiNUiNG OUR
SUSTAiNAbiLiTY ACTiONS
ON fARMS
While keeping operations running during the
pandemic, we managed to continue, together
with our farmer owners, the planned sustainable
actions on farms. With an updated version
of our comprehensive herd management
programme Arlagården®, we made it
mandatory for farmers to assess their herds
and facilities every three months. At the same
time, we launched the first Europe-wide,
incentivised Climate Check programme. With
93 per cent of farmers having submitted
climate data, we are in the process of building
one of the world’s largest sets of externally
verified climate data from dairy farming to
achieve our ambitious targets of reaching
30 per cent less CO₂e emissions by 2030 and
working towards carbon net zero by 2050.
Read more on page 33-34
bRANDED GROwTH
ACROSS MOST MARKETS
In 2020, our brands grew considerably in
almost all markets. The many consumers
lunching, cooking and baking at home
had a positive impact on particularly
Lurpak®, which grew sales by 14.6 per
cent after a record-year in 2019, and also
the Arla® brand and Puck® delivered solid
growth of 3.0 and 11.7 per cent
respectively. Early concerns of less
on-the-go coffee occasions were
disproved as Starbucks™ witnessed
double-digit growth driven by the core
markets Europe and MENA. Castello®
ramped up their digital campaigns and
more than tripled the number of people
they engaged with in 2020.
Read more on page 23-24
8 ARLA FOODS ANNUAL REPORT 2020
ACCELERATiNG
SUSTAiNAbiLiTY wiTH
THE ARLA® bRAND
The Arla® brand continuously takes actions
towards becoming more sustainable. Across all
core markets, we presented new concrete
initiatives and ran sustainability campaigns under
the Arla® brand to create awareness of these.
The activities included several new packaging
solutions, for example a new 100 per cent
recyclable Skyr bucket consisting of 40 per
cent less plastic and emitting 30 per cent less
CO₂. We also introduced carbon compensated
organic milk in Denmark following a similar
launch in Sweden last year. With continued
strong focus on animal welfare, we were happy
to achieve 2 hearts out of 3 for Arla® fresh milk in
the Danish governmental animal welfare label.
Read more on page 23
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
HiGHLiGHTS (CONTiNUED)
CALCiUM CONTiNUED TO
DELiVER STRONG RESULTS
Despite the significant disruption of
Covid-19 in most areas of the organisation,
our transformation and efficiency
programme Calcium exceeded our
expectations and delivered EUR 130
million in savings primarily from supply
chain efficiencies and optimised marketing
spend, but also from reduced expenses
due to many office employees working
from home. In three years, the programme
has created EUR 354 million in total
savings, and we are on course to achieve
our 2021 target of EUR 400 million.
Read more on page 16-17
9 ARLA FOODS ANNUAL REPORT 2020
ENTERiNG THE
PLANT-bASED MARKET
As a response to the increasing number
of people who seek to include more
plant-based foods into their diets, Arla
entered the plant-based category in the
dairy aisle with a new drink range under
the brand JÖRÐ. The range, which was
launched in May, initially includes three
variants based on the natural Nordic
ingredients of oat, barley and hemp.
JÖRÐ became available to Danish and UK
consumers in 2020 and will hit the
Swedish market in the third quarter
of 2021.
STRONG ExECUTiON
Of OUR KRAfT® bRAND
The Kraft® brand, which we acquired a licence
to manufacture, market and distribute in MENA
last year, got off to a good start, growing by a
staggering 153 per cent, which was above
our expectations. In the professional hands of
our brand team, Kraft® flourished in the
Ramadan season, and growth was further
boosted by the increased consumption of
dairy products at home during Covid-19.
Read more on page 24
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
fiVE-YEAR OVERViEw
fiNANCiAL KEY fiGURES
2020
2019
2018*
2017*
2016*
fiNANCiAL KEY fiGURES
2020
2019
2018*
2017*
2016*
Performance price (EUR-cent)
EUR-cent/kg owner milk
Income statement (EURm)
Revenue
EBITDA
EBIT
Net financials
Profit for the year
Profit appropriation for the year (EURm)
Individual capital
Common capital
Supplementary payment
Balance sheet (EURm)
Total assets
Non-current assets
Current assets
Equity
Non-current liabilities
Current liabilities
Net interest-bearing debt including pension liabilities
Net working capital
Cash flows (EURm)
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
36.9
36.6
36.4
38.1
30.9
10,644
909
458
-72
352
10,527
837
406
-59
323
10,425
767
404
-62
301
10,338
738
385
-64
299
41
81
223
7,331
4,413
2,918
2,639
2,296
2,396
2,427
679
731
-488
243
-293
-478
-
61
123
127
7,106
4,243
2,863
2,494
2,304
2,308
2,362
823
773
-571
202
-136
-425
-168
0
0
290
6,635
3,697
2,938
2,519
1,694
2,422
1,867
894
649
-432
217
-191
-383
-51
38
120
127
6,442
3,550
2,871
2,369
1,554
2,499
1,913
970
386
-219
167
-155
-248
-7
9,567
839
505
-107
356
30
193
124
6,382
3,714
2,668
2,192
1,742
2,448
2,017
831
806
-167
639
-624
-263
-
Financial ratios
Profit share
EBIT margin
Leverage
Interest cover
Equity ratio
Inflow of raw milk (mkg)
Inflow from owners in Denmark
Inflow from owners in the UK
Inflow from owners in Sweden
Inflow from owners in Germany
Inflow from owners in Netherlands, Belgium
and Luxenbourg
Inflow from others
Total inflow of raw milk
Number of owners
Owners in Sweden
Owners in Denmark
Owners in Germany
Owners in the UK
Owners in Netherlands, Belgium and Luxembourg
Total number of owners
Environmental, social and governance data
CO₂e scope 1 and 2 (mkg)
CO₂e scope 3 (mkg)
Average number of full-time equivalents
Gender diversity board
3.2%
4.3%
2.7
16.8
35%
4,962
3,271
1,826
1,714
742
1,231
13,746
2,374
2,357
1,576
2,241
858
9,406
3.0%
3.9%
2.8
12.0
34%
4,940
3,230
1,788
1,700
724
1,323
13,705
2,497
2,436
1,731
2,190
905
9,759
751
18,479
20,020
20%**
862
18,243
19,174
20%**
2.8%
3.9%
2.4
14.9
37%
4,937
3,196
1,826
1,762
725
1,457
13,903
2,630
2,593
1,841
2,289
966
10,319
946
18,411
19,190
13%
2.8%
3.7%
2.6
12.9
36%
4,827
3,203
1,855
1,759
729
1,564
13,937
2,780
2,675
2,327
2,395
1,085
11,262
930
18,528
18,973
12%
3.6%
5.3%
2.4
13.3
34%
4,728
3,210
1,909
1,758
715
1,554
13,874
2,972
2,877
2,461
2,485
1,127
11,922
940
18,644
18,765
7%
** The ratio pertains to all members of the BoD (including employee representatives and external advisors). Gender ratio within the elected
members is 13 per cent female, 87 per cent male.
* Not restated following the implementation of IFRS 16 leasing standard.
For in-depth info please refer to the Consolidated Financial Statements (from page 63),
and the Consolidated Environmental, Social and Governance Statements (from page 120.).
10 ARLA FOODS ANNUAL REPORT 2020
Our
Strategy
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
OUR bUSiNESS MODEL
OwNERS & COwS
MiLK COLLECTiON
We have 9,406 farmer owners, who are
responsible for over 1.5 million cows
Our farmers are among the best in the world in
innovating to make dairy farms more efficient
and sustainable
Animal welfare is key to our success: we provide
digital tools to our owners to constantly track
the well-being of their herds
We collect around 13.7 billion kilos of
raw milk mainly from our owners in seven
countries each year
We are switching to fossil-free fuel in our trucks.
This is already the reality in our Swedish business
PRODUCTiON,
PACKAGiNG & iNNOVATiON
We process milk at our 60 sites
We produce 6.8 billion kilos of nutritious
dairy products each year
We constantly develop new recyclable
packaging and reduce our use of virgin plastic
CONSUMERS & wASTE MANAGEMENT
CUSTOMERS
We provide accessible nutrition to millions of people
It is important to us that our products have the least possible negative impact on
the environment throughout the entire product lifecycle, and
we continuously work to reduce our waste
We sell our products in 153 countries
We add value to our owners’ milk through innovation, branding and marketing, and
when the products are sold, the money goes back to our owners as part of the milk
price
12 ARLA FOODS ANNUAL REPORT 2020
To read more about our environmental and social performance, go to page 122.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
In 2020, we concluded our Good Growth 2020 strategy. With the strategy
we strengthened our competitiveness and our international presence,
and we structurally improved the quality of our business by shifting volumes
from private label and industry sales into our branded retail and food
ingredient business. Our Good Growth 2020 strategy was supplemented
by our transformation and efficiency programme, Calcium, launched in 2018
as well as our ambitious sustainability strategy launched in 2019.
During the strategic journey we have seen unprecedented external
impacts, such as the Brexit vote in 2016, volatility in raw material prices,
and most recently the Covid-19 pandemic in 2020.
In 2021, we will build on the successes and strengths of Good Growth 2020
our transformation and efficiency programme Calcium, our sustainability
strategy, as well as the trends and lessons from recent external events. By
the end of 2021, we will launch a new group strategy for the years to come.
13 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
GOOD GROwTH 2020 STRATEGY
DELIVERED STRONG RESULTS
OUR ViSiON
Create the future of dairy to
bring health and inspiration
to the world, naturally.
OUR MiSSiON
To secure the highest value for
our farmers’ milk while creating
opportunities for their growth.
KEY ACHiEVEMENTS
Strategic branded volume
driven revenue growth*
4.6%
Baseline 2015: 1-2%
2015-2020 CAGR
Target: 3%
ExCEL
in 8 categories
fOCUS
in 6 regions
wiN
as ONE Arla
OUR STRATEGY ACCELERATOR
Cost savings at EUR 400+ million by 2021.
OUR SUSTAiNAbiLiTY STRATEGY
Stronger planet
Improving the environment
for future generations.
Stronger people
Increasing access to
healthy dairy nutrition and
inspiring good food habits.
OUR GOOD GROwTH iDENTiTY
Healthy, natural, responsible and cooperative growth.
Brand share
International share**
Calcium savings
48.9%
23.6%
Baseline 2015: 42%
Target 2020: >45%
Baseline 2015: 17%
Target 2020: ~23%
354 EURm
Baseline 2015: 0 EURm
Target 2021: 400 EURm
SUMMING UP GOOD GROwTH 2020
Despite Covid-19 and other unprecedented external
impacts throughout the strategy period, our Good Growth
2020 strategy delivered above expectations on all four
KPIs and was further strengthened by our ambitious
sustainability strategy.
The trends and lessons from the disruption caused by
Covid-19 are reflected in our 2021 business plan, where
we will further build on the successes and strengths of the
Good Growth 2020 strategy, our transformation and efficiency
programme Calcium, and our sustainability strategy.
By the end of 2021, we will launch a new strategy for the
years to come.
14 ARLA FOODS ANNUAL REPORT 2020
* Here we refer to the CAGR figures for the Good Growth strategy period 2015-2020.
** International share is based on retail and foodservice revenue, excluding revenue from third party manufacturing, Arla Foods Ingredients and trading activities.
Management Review
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GOOD GROwTH 2020 STRATEGY
IMPROVED THE QUALITY Of bUSINESS
Structural shift in business
(percentage of revenue)
Calcium savings
Target 2021: 400 EURm
Total CO₂e emissions
55%
37% Private label
14% Global Industry Sales
4% Other
44%
30% Private label
13% Global Industry Sales
1% Other
130
EURm
354
EURm
400
EURm
Strategic
focus
+11%p
56%
49% Brand share
7% AFI
110
EURm
114
EURm
45%
40% Brand
5% AFI
2014
mkg
22
21
20
19
2020
2018
2019
2020
2018-2020
status
2021
2021
target
2015
2016
2017
2018
2019
2020
A STRONGER ARLA fOODS
The Good Growth 2020 strategy has successfully improved the
quality of our business. The main value driver has been a shift of
volumes from private label and global industry sales to branded
products in our retail business and value added products in Arla
Foods Ingredients. This effect has been strengthened further
through acquisitions in Bahrain and the UK, as well the extension of
our strategic cooperation with Starbucks. This structural shift of
11 percentage points has markedly contributed to improving the
overall value creation of the company. We have furthermore
strengthened our international footprint, increasing the international
share by 7 percentage points, and thereby our position in high
growth areas.
GLObAL TRANSfORMATION JOURNEY
The strategy delivered results above our expectations despite
unprecedented external impacts on the way, including depreciation
in currencies, especially GBP and SEK, export sanctions on European
products in Russia, less owner milk intake than anticipated, and not
least the unstable fat and protein prices.
COMMiTTiNG TO A SUSTAiNAbLE fUTURE
Arla is committed to being a part of the solution to the world’s most
pressing issues. In 2019, we launched our new sustainability strategy
Stronger Planet - Stronger People, which focuses on improving the
environment for future generations, increasing access to healthy dairy
nutrition, and inspiring good food habits.
As a response to the unforeseen external impacts on our business,
we launched our savings and efficiency programme, Calcium, in 2018.
The programme contributed to delivering considerable savings,
improving our cost structure and strengthening our future
competitiveness, which is expressed in our performance price.
To accelerate our environmental ambitions we set the target to
reduce greenhouse gas emissions by 30 per cent over the next
decade, and to work towards becoming carbon net zero by 2050.
We already made good progress reducing our scope 1 and 2 CO₂e
emissions related to operations by 24 per cent compared to 2015.
15 ARLA FOODS ANNUAL REPORT 2020
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CREATING EffICIENCIES
wITH CALCIUM PROGRAMME
In 2018, we launched our transformation and efficiency programme, Calcium,
to accelerate Arla’s strategy by transforming the way we work, spend and invest.
In 2020, Calcium continued to create efficiencies and release money to reinvest
in our growth. In total, the programme has now delivered EUR 354 million in
savings.
Continued savings during Covid-19
We have come a long way on our Calcium journey
and continue to deliver savings at a good pace.
Meanwhile, we have delivered branded growth and
made investments for the future, Calcium is now a
more integrated part of our business. Despite the
extraordinary circumstances in 2020, the Calcium
programme exceeded our expectations and
delivered EUR 130 million in savings primarily from
supply chain efficiencies, optimised marketing spend
and reduced expenses due to many office employees
working from home. In three years, the programme
has created EUR 354 million in total savings, and we
are on course to achieve the 2021 target of EUR 400
million. The net effect on our cost base was lower due
to reinvestment and in-year non-recurring items*.
RESiLiENT AND EffiCiENT
SUPPLY CHAiN
During 2020, our supply chain proved
to be very resilient and at the same time
efficient in the way we operate. Despite the
volatile environment caused by Covid-19,
our supply chain delivered all time high net
productivity and thereby also strong
Calcium savings. Given the flexibility, agility
and strong collaboration throughout the
organisation, we managed to maintain high
service levels to our customers, while
safeguarding our employees.
EMbRACiNG DiGiTAL TOOLS
AND NEw wAYS Of wORKiNG
Covid-19 pushed us to more virtual and
remote ways of working. We successfully
embraced the new tools and digital ways
of working across countries, locations, and
teams. Across our Calcium work streams,
we quickly adapted to the new virtual
ways of working and held multiple online
training sessions events,
and multi-site boosts
with good results.
130
EURm saved in 2020
Target 2020: 75-100 EURm
400
EURm
(Full programme target 2021)
354
EURm
224
EURm
2020
December
2019
December
114
EURm
2018
December
16 ARLA FOODS ANNUAL REPORT 2020
*For further information go to note 1.2 on page 76.
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CREATING EffICIENCIES
wITH CALCIUM PROGRAMME
We saved in total 105* EURm through
initiatives in Logistics – and reduced our
carbon emissions.
By making Logistics’ cost to serve more
transparent, we will step-change our perfor-
mance management infrastructure and enable
cross-functional decision-making. As an example,
we have so far saved 12 EURm by enabling
reason codes in our systems identifying where
the finished goods waste comes from.
By reducing our material losses we saved in
total +70 EURm and decreased our waste.
We continuously optimise our sites, and despite
the challenging year, as an example, we
conducted online workshops at 10 UK sites to
understand the opportunities of reducing
material losses. We identified potential savings
of 1.1 EURm within our focus topics.
Our new trade investment
management tool called Alice is now
live in UK, Sweden and Denmark.
Alice optimises trade investment
management in Arla and empowers our
sales organisation with improved
transparency, planning, forecast
accuracy and on-shelf availability during
promotions.
Good service
and more
sustainable
products
OwNER/fARMER
LOGiSTiCS
PRODUCTiON
SUPPLiER
ADMiNiSTRATiON/
SALES AND MARKETiNG
CUSTOMERS
AND CONSUMERS
Savings and
efficiencies
contribute to
improving the
milk price
By continuously reducing
the number of SKUs and
relentlessly harmonising
product components, such
as ingredients and packaging,
we simplify the supply chain
and increase our speed to
market.
We have reduced our
number of SKUs by 13 per
cent and our plastic usage
by +400 tonnes in total.
We are improving our governance and
compliance around purchasing processes
and have reduced our number of suppliers.
We increased our purchasing order
compliance by 6 percentage points and
spend compliance by 2 percentage points.
Among others, this was a result of all new
white collar employees participating in
learning sessions on how to buy and order
in Arla.
In total, +560 contracts have been
negotiated and signed, creating savings of
196 EURm.
Adding a new market, Germany, to our
in-house agency, The Barn, we success-
fully continue to build strong digital
capabilities internally while delivering
significant efficiencies in marketing
spend to fund our journey.
We embarked on a journey to make
The Barn our number one digital agency
in terms of size and performance.
17 ARLA FOODS ANNUAL REPORT 2020
* All figures on this page are accumulated gross figures from 2018-2020.
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EMbRACiNG CHANGE: MAJOR TRENDS
AND STRATEGiC RESPONSES
COVID-19
UNCERTAiNTY iN GLObAL ECONOMiES
AND LOURiNG RECESSiON
The pandemic has different impacts across markets, resulting in
recession to a varying degree. IMF estimated growth in world GDP
of -3.5 per cent in 2020, where especially the Euro zone posted
high negative growth of -7.2 per cent and Emerging Markets and
Developing Countries -2.4 per cent 1). Most markets are expected
to have recovered by 2022, but there is high uncertainty on the
level of economic activity into 2021 and beyond 2).
CHANGED CUSTOMER AND
CONSUMER bEHAViOUR
In 2020, consumer food shopping behaviour changed rapidly
due to the disruption of Covid-19, impacting both retail and the
foodservice business. Increased in-home consumption and an
accelerated shift towards e-commerce were the consequences
of several lockdown periods. 2021 is starting with continued
lockdowns and high infection numbers across the world, and
these trends are likely to continue far into the year. However,
out-of-home eating is expected to rise again as the pandemic
is slowly overcome, and we enter into a ‘new normal’.
POLiTiCAL UNCERTAiNTY
As a consequence of Covid-19, some countries may impose
certain trade restrictions as focus on supporting domestic
businesses is likely to be increasing. Despite the post-Brexit Free
Trade Agreement between the UK and the EU, friction costs
and potential delays at borders will affect trade with the UK.
Ongoing trade wars between China and the USA and conflicts
in the Middle East will also continuously cause uncertainty in
the global markets into 2021, while a new presidency in the
US may open up for new opportunities.
Given our strong product portfolio and broad
international footprint, Arla is prepared to face the
louring recession in close collaboration with our
customers. This was demonstrated in 2020, when
we managed to shift product volumes from our
foodservice business into retail to meet the unprece-
dented high demand and quickly adapt to the new
market conditions. This agility and resilience of our
business is our strength in uncertain times.
During 2020, our strong commercial execution and
empowered front line proved that we were able to adapt
fast to new customer and consumer demand and
growing our e-commerce business. We kept a steady
supply of products during lockdowns, and we managed
to accelerate digital marketing and e-commerce at an
overproportionate speed meeting our customers where
they were. In 2020, Arla engaged with consumers more
than 600 million times through our digital platforms.
Given our broad global market footprint and a proven
resilient and agile business model, Arla is in a
strengthened position to address the impacts of
political uncertainty across our markets. We strongly
believe in and advocate for free trade, however, we
have prepared our business for different outcomes of
the Brexit negotiations since the Brexit vote in 2016
(read more on p. 20).
D
N
E
R
T
E
S
N
O
P
S
E
R
18 ARLA FOODS ANNUAL REPORT 2020
1) Source: IMF Outlook Report (June 2020)
2) World Economic Outlook, October 2020
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EMbRACiNG CHANGE: MAJOR TRENDS
AND STRATEGiC RESPONSES (CONTiNUED)
LONG-TERM TRENDS
ACCELERATiNG SUSTAiNAbiLiTY AGENDA
With the strong commitment to the Sustainable Development
Goals from governments and businesses across the world, there is
an increased focus on finding solutions to the world’s most
pressing issues. The latest UN reports highlight the severity of
climate change, and the new President of the USA has expressed
his aim to recommit to the Paris Agreement and ramp up global
climate ambition. Consumers are also increasingly looking for
sustainably produced products. Recent studies show that 35 per
cent of global consumers are willing to trade up for a sustainable
product 1).
INCREASiNG wORLD POPULATiON
By 2050, the world population is expected to have increased
to 9.7 billion people 2). Half of the growth is expected to
occur in Africa, and Asia is expected to be the second largest
contributor with 0.9 billion people. Especially the middle class
is growing rapidly in Asia and moderately in Africa. The rapidly
growing world population will challenge the global food
supply.
INCREASiNG ONLiNE CHANNEL
AND DiGiTALiSATiON
Covid-19 has accelerated the channel shift towards e-commerce
and discounters across countries and categories. Online
consumer bases have increased on average by 30 per cent in
food and household categories across markets 3). In addition to
the e-commerce trend, digitalisation is swiftly penetrating all
other business areas, putting increasing pressure on Arla’s
speed of adaptation to stay competitive.
In Arla, we want to be part of the solution driving the
sustainability agenda in the dairy industry and
creating value through sustainable dairy. We have set
the bar high with our Stronger Planet – Stronger
People strategy and an ambition of becoming carbon
net zero by 2050, and we constantly challenge
ourselves to find new ways of accelerating our
sustainability journey.
As a part of our Stronger Planet – Stronger People
sustainability strategy, Arla is committed to be part
of the solution of feeding the world. We have strength-
ened our focus on offering affordable nutrition in
selected international markets, e.g. our affordable and
healthy nutrition for infants and toddlers, Baby&ME
organic, was introduced in emerging markets in the
Middle East. We also support local dairy development
in emerging markets.
In Arla, we have responded quickly to the accelerated
digital trends. Building on our strong partnerships in the
grocery sector, we have launched various initiatives in
e-commerce, including investments in technology across
e-commerce sales and digital marketing. Our ambition is
that 10 per cent of sales across Europe come from online
by 2025. We have also launched significant initiatives
within supply chain and core business processes, for
example digital robots and artificial intelligence.
D
N
E
R
T
E
S
N
O
P
S
E
R
19 ARLA FOODS ANNUAL REPORT 2020
1) McKinsey 2017-2020 Global Sentiment Survey
2) UN World Population Prospects 2019
3) McKinsey & Company Covid-19 consumer pulse survey, March-September 2020
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DEALING wITH bRExIT
Since the Brexit vote in 2016, Arla has advocated for a trade deal which supports tariff-free trade in dairy, and we welcome
that the UK government and the EU finally came to an agreement at the very end of 2020. However, whereas zero tariffs
and quotas are good news, the non-tariff barriers within the deal will create friction resulting in additional complexity and
cost. Having prepared for this scenario for four and a half years, we have plans in place to mitigate these impacts in close
collaboration with our customers and suppliers, and we face the challenges posed by Brexit from a position of strength
with a fundamentally resilient and agile UK business.
cause significant disruption. We have plans in place
to deal with this, and we are in continuous dialogue
with our customers and suppliers about further
mitigation measures.
Our Brexit Task Force will continue to coordinate
our response as we navigate the unfolding of the
new EU/UK trading relationship. We will also be
monitoring the UK and EU dairy markets and
currency situation carefully and be ready to
respond as necessary.
As seen during Covid-19, our organisation is set up
to be agile and deal with uncertainty, and we will
use our resilience and agility also to face the
challenges posed by Brexit.
Our UK business
Our UK business currently accounts for 26 per
cent of our revenue and is one of the drivers of our
branded growth. Hence, it is very important for Arla
that our products and employees can move freely
from and to the UK. Some of the successful brands
in the UK market, including Lurpak®, Arla® Skyr and
Lactofree, are imported to the UK, while some
Castello® products are exported from the UK.
Brexit impacts in 2020
In 2020, the uncertainties caused by Brexit were
offset by Covid-19, which caused solid branded
growth in the UK due to increased lunching and
cooking at home. The UK business proved its
resilience during the pandemic and is operationally
ready to deal with the volatility caused by Brexit.
Expected future impacts and
mitigation plans
With a trade deal, Arla’s UK business is much
stronger than with no deal. However, as the UK
has left the EU Single Market and Customs Union
there will be additional administration, form filling
and controls of the products we import and export,
and possible delays at ports and borders may
ARLA iN THE UK
Revenue, EURb
2.7
Total assets, EURm
958
Share of the inflow of raw milk from owners
26%
Number of farmers in the UK
2,241
Number of employees in the UK
3,362 1)
Number of production and packaging facilities
10
Key brands
Lurpak®, Arla® Skyr and Lactofree, Castello®
20 ARLA FOODS ANNUAL REPORT 2020
1) Full-Time Equivalents (FTE)
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ESSENTiAL bUSiNESS
PRiORiTiES fOR 2020
Arla’s essential business priorities are the annual focal points on the Good Growth
2020 journey. They are set by our Executive Management Team and approved by
the Board of Directors. We follow up on our progress on a monthly basis.
DELiVER CALCiUM
TRANSfORMATiON
SUCCEED wiTH
COMMERCiAL PRiORiTiES
bUiLD STRONG CUSTOMER
PARTNERSHiP AND GROw
DRiVE CORE bRANDS
AND bOOST iNNOVATiON
Maintain momentum of ongoing
projects
Keep delivering supply chain savings
Anchor the transformation
beyond 2021
Maintain growth momentum in
markets such as China, Nigeria,
SEA and MENA
Strengthen our European market
and brand positions
Minimise any negative impacts of Brexit
Deliver improved service levels
Improve innovation impact
Overproportionately grow
branded volumes with our
top customers
Deliver big bets for our strategic
brands
Launch plant-based concept
in Europe
GROw ARLA fOODS
INGREDiENTS
TAKE LEAD AND ExECUTE
SUSTAiNAbiLiTY AGENDA
COViD-19 ADDiTiONS
iN HALf-YEAR REPORT
Secure the growth of early life
nutrition products in China
Grow value-added segment
Accelerate climate performance
at farm level with Climate Check
programme
Keep the business running
and performing during
Covid-19
Support branded growth with health
and packaging innovations
Adapting to new reality and
planning ahead
ExCiTE OUR PEOPLE
AbOUT THE fUTURE
DiRECTiON Of ARLA
Improve employee engagement
Excite employees about our
strategy beyond 2020
Target achieved
Trend on track
21 ARLA FOODS ANNUAL REPORT 2020
OUR bRANDS &
COMMERCiAL
SEGMENTS
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bRANDS
Our brands are at the heart of our business and drove overall strong growth in 2020. Given the challenging
conditions due to Covid-19, our brand teams quickly adapted to the new reality and changing consumer
behaviour. Strong digital mindsets and creative campaigning were imperative to embracing the changes and
turning them into commercial opportunities.
STRONG ARLA SUPPLY CHAiN SUPPORTED
LURPAK® GROwTH Of 15 PER CENT
2020 was another record-breaking year for Lurpak®, breaking last
year’s record of 300 million packs of butter and spreads sold by an
additional 45 million packs. The growth can primarily be explained by
high consumer loyalty to trusted brands and increased in-home
lunching and cooking due to Covid-19 restrictions. To satisfy this
massively increased demand the entire Arla supply chain did a
remarkable job. The global planning team needed to find more Danish
cream than ever before, procurement needed to source 15 per cent
more packaging materials without notice, and our Holstebro Dairy
needed to step up production and shipments to unprecedented
numbers. 2020 was a true example of the fantastic team efforts we
have seen all over Arla in this unusual year.
ARLA® bRAND GREw AND fURTHER
STRENGTHENED SUSTAiNAbiLiTY TRAiT
Overall, the Arla® brand had a strong year with branded growth of 3.0
per cent, driven by increasing retail sales, which more than offset the drop
in foodservice. The continued strong focus on animal welfare earned
the Arla® brand 2 out of 3 hearts on Arla 24 milk in the Danish
governmental animal welfare label ‘Better animal welfare’. As part of
Arla’s commitment to become carbon net zero by 2050, the Arla®
brand launched carbon reduced and recyclable packaging solutions,
and introduced carbon compensated milk in Denmark. Furthermore,
the Arla® brand continued to build a premium organic position in
overseas markets like China and the Middle East, while gaining market
shares for affordable nutrition in emerging markets like Nigeria, Senegal,
Ghana and Bangladesh.
CELEbRATiNG TEN YEAR ANNiVERSARY
wiTH STARbUCKS™
In 2020, we celebrated 10 years of cooperation with the American
coffee brand Starbucks™ where Arla manufactures, distributes and
markets Starbucks™ branded premium ready-to-drink coffee beverages
in Europe, the Middle East and North Africa. A highly successful
journey starting with 7 million units sold in 2010 and ending 2020
with close to 150 million units sold. Despite early concerns that less
on-the-go coffee occasions due to Covid-19 would reduce Starbucks’™
performance, we have witnessed very strong double-digit growth
mainly driven by our core markets in Europe and the UK. We constantly
follow the changing consumer trends, and in 2020, we launched two
additions to our plant-based range; Starbucks’™ Chilled Classics oat
and coconut iced coffee.
23 ARLA FOODS ANNUAL REPORT 2020
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bRANDS (CONTiNUED)
PUCK® IMPROVED POSITION
iN SAUDi ARAbiA
In 2020, with revenue exceeding EUR 400 million in MENA, our
strong Middle East brand, Puck® solidified its brand power and brand
share. This was a result of the household brand’s ability to quickly
adjust to the new consumer demand and inspire consumers through
online channels. With a special focus on supporting and inspiring
mothers to provide for a festive Ramadan despite the challenges
caused by the pandemic, Puck® launched the ‘Moms CAN’ campaign
reaching thousands of women.
KRAfT® GREw REMARKAbLY
IN THE MENA REGION
In May 2019, the Kraft® portfolio was added to our Arla Middle East
and North Africa (MENA) business and delivered strong results
during the first year. With our strong market presence in MENA and
exceptionally high front line power, combined with an increased
digital focus, Kraft® was relaunched in the region with the “Kraft it!”
campaign. Consumers welcomed the ’new’ Kraft® brand, and sales
really started picking up.
CASTELLO’S ‘fEED YOUR SENSES’ DiGiTAL CAMPAiGN
ENGAGED OVER 30 MiLLiON PEOPLE GLObALLY
As a response to people increasingly searching the internet for food
inspiration during Covid-19, Castello® ramped up the digital ‘Feed your
senses’ campaign and met consumers head on with a bunch of digital
content. On top of this, a new global content partnership with the food
content platform ‘Tastemade’ was launched in 6 markets, taking
Castello® to a more millennial audience. As a result, Castello® more
than tripled the number of people it engaged with compared to last
year. Year on year, the digital campaign, supported by strong promotions
and in-store activation, has driven solid growth in the pre-packed
cheese business, which is now above 6 per cent.
24 ARLA FOODS ANNUAL REPORT 2020
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EUROPE
Our European commercial segment delivered record-high branded growth of 5.9 per cent in a year of extreme
Covid-19 volatility in the market. Growth was driven by significantly increased in-home consumption and
e-commerce sales with 9.5 per cent strategic branded volume driven revenue growth in retail, which more than
compensated the foodservice reduction following lock-downs during the year. Growth was driven in particular
by the Arla® brand with 3.4 per cent, Lurpak® with 15.9 per cent and Starbucks™ with 32.4 per cent. The Calcium
transformation journey continued to strengthen our competitiveness in Europe.
Revenue,
EURm
6,413
2019: 6,353
Strategic branded volume
driven revenue growth
Brand share,
EURm
Revenue split by country,
2020
5.9%
2019: 2.9%
54.1%
2019: 53%
STRATEGiC bRANDED VOLUME DRiVEN
REVENUE GROwTH bY COUNTRY
UK
13.1%
2019: 8.8%
Germany
7.1%
2019: 2.6%
Denmark
5.1%
2019: 0.4%
Sweden
NL, B, F
Finland
2.5%
2019: 0.7%
9.8%
2019: 5.2%
-7.3%
2019: 3.2%
25 ARLA FOODS ANNUAL REPORT 2020
5%
5%
37%
16%
16%
21%
UK
Sweden
Germany
Denmark
Netherlands,
Belgium and France
Finland
2020 2019
37% 36%
21% 21%
16% 17%
16% 16%
5%
5%
5%
5%
“2020 wAS iNDEED A SPECiAL
bUT POSiTiVE YEAR fOR OUR
COMMERCiAL EUROPEAN
bUSiNESS. COViD-19 HAD A
HiGH iMPACT ON THE DAiRY
MARKET, AND wE MANAGED THE
SiGNifiCANT CHANGES wELL.
bASED ON ExCELLENT wORK
fROM ALL EMPLOYEES ACROSS
fUNCTiONS wE STRENGTHENED
OUR bUSiNESS wiTH RECORD-
HiGH bRANDED GROwTH,
MARKET SHARE GAiNS AND
STRONG CUSTOMER SERViCE
DURiNG A VERY VOLATiLE
YEAR.”
Peter Giørtz-Carlsen,
Member of the Executive Board,
and Chief Commercial Officer, Europe
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EUROPE (CONTiNUED)
DENMARK
UK
The branded business continued to grow in 2020, resulting in
revenue of EUR 998 million. Covid-19 had a significant impact on our
channel mix with higher consumption in retail while our foodservice
declined. We strengthened the milk category by launching our
‘Animal Welfare’ concept with 2 hearts on all Arla24 milk, and we
continued our sustainability journey by introducing Climate Checks
on all farms, reducing waste, and launching CO₂e neutral organic milk.
During the uncertain Covid-19 times, strong cooperation across the full
supply chain supported all our customers by securing products in a
safe and timely way.
SwEDEN
Against a backdrop of Covid-19 and the impacts on our foodservice
channel, Arla Sweden delivered very satisfactory results in 2020 with
total revenue of EUR 1,361 million. Almost all categories and brands
delivered growth, particularly the Arla Köket®, Svensk Smör® and
Starbucks™ brands. In the context of an exceptional working
environment, we succeeded in providing a seamless supply of
nutritious dairy products to the Swedish consumers, whilst safeguarding
the health and wellbeing of our colleagues. As part of Arla’s sustainability
agenda, we introduced our Zero Vision for animal welfare initiative
and launched animal welfare milk.
fiNLAND
Our sizeable Finish foodservice was significantly impacted by Covid-19
as lockdowns and increased in-home consumption resulted in lower
sales. Contrary, we experienced growth across most main brands
resulting in total revenue of EUR 314 million. In particular Arla Lempi®
grew considerably as the naturality of the products and the sustainable
packaging continue to be key differentiators for our consumers.
Innovation is a continuous strong focus of the Finnish business and in
2020, a new range of wellbeing yogurts, Arla Got Guts?, was launched.
Our UK market had an exceptional year of double digit branded
growth driven by strong commercial execution and increased in-home
consumption as a result of extended periods of Covid-19-related
restricted living. Revenue in the UK was EUR 2,380 million. The Arla®,
Lurpak® and Starbucks™ brands grew and consolidated their number
one positions, while overall the business broke through GBP
1.0 billion branded retail sales value for the first time. In addition, our
UK business proudly supported a number of charities providing food
for the nation during these uncertain times, at the same time
propelling our sustainability agenda with a number of innovative
prototype solutions to better recycle farm waste.
GERMANY
Germany had another year of strong branded growth with
initiatives on key Arla sub-brands, in particular Arla Bio®, Arla®
Kaergarden and Arla® Skyr. Several of these initiatives contributed
to our sustainability agenda, e.g. removal of cup lids and launches
of recyclable and carbon reduced packaging. Despite the impacts
of Covid-19, we managed to handle increased customer demand
well due to tremendous efforts from the entire supply chain. The
decline in the foodservice business was compensated by high
demand for especially cooking and milk products, both in private
label and branded products. Total revenue was EUR 1,024 million.
NETHERLANDS, bELGiUM AND fRANCE
Despite the challenges impacting 2020, Arla NL/BE/FR continued to
deliver significant branded revenue growth of 9.8 per cent, and total
revenue was EUR 336 million. Our key brands Arla®, including
Organic, Lactofree and Skyr, and Melkunie®, including Protein and
Breaker, all drove exceptional growth, most of them double digit.
A strong marketing campaign to build Lurpak® as a leading brand was
launched in the fourth quarter. Belgium continued delivering on
growth with Arla® Skyr and Melkunie® Protein, while France was able
to deliver growth with Arla Pro® despite the food service challenges
caused by Covid-19.
26 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
INTERNATIONAL
In a year influenced by Covid-19 and a weaker oil price, our international segment delivered strong strategic
branded volume driven revenue growth of 11.6 per cent. Particularly the MENA region had an extraordinary
year growing the branded revenue by 20.1 per cent. The Arla® brand grew modestly by 1.6 per cent, whereas
Lurpak®, Puck® and Starbucks™ achieved very high growth rates of 12.2, 11.6 and 20.7 per cent respectively.
Also Kraft® got off to a very good start in Arla hands growing 153.4 per cent. Despite the impacts of Covid-19,
we continued to increase our focus on front line execution as well as to deliver on Arla’s sustainability agenda,
engaging with our customers and partners throughout the business.
Revenue,
EURm
1,975
2019: 1,802
Strategic branded volume
driven revenue growth
Brand share
EURm
Revenue split by country,
2020
11.6%
2019: 10.3%
86.3%
2019: 82.7%
7%
9%
9%
14%
38%
23%
Middle East and
North Africa
Rest of world
North America
Southeast Asia
China
West Africa
2020 2019
38% 36%
23% 21%
14% 17%
9% 16%
5%
9%
5%
7%
“2020 wAS AN
UNPRECEDENTED YEAR.
COViD-19 bROUGHT NEw
PERSPECTiVES TO THE wAY
wE DO bUSiNESS, bUT DUE
TO OUR fRONT LiNE fOCUS
AND AN ExTRAORDiNARY
CONTRibUTiON fROM OUR
EMPLOYEES, wE MANAGED TO
STRENGTHEN OUR bUSiNESS
fURTHER THROUGH SOLID
bRANDED GROwTH AND
iNCREASiNG MARKET
SHARES, wHiLE KEEPiNG
OUR EMPLOYEES SAfE.”
Simon Stevens,
Executive Vice President – International,
and member of the Executive Management Team
STRATEGiC bRANDED VOLUME DRiVEN
REVENUE GROwTH bY REGiON
Middle East and North Africa
West Africa
China
20.1%
2019: 7.0%
-1.3%
2019: 22.6%
9.3%
2019: 61.9%
Southeast Asia
-3.3%
2019: 24.2%
North America
7.6%
2019: -4.1%
Rest of World
9.5%
2019: 6.1%
27 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
INTERNATIONAL (CONTiNUED)
MiDDLE EAST AND NORTH AfRiCA
Our strategic agenda in the Middle East and North Africa progressed
ahead of expectations in 2020. Revenue grew by 17.5 per cent to
record-high revenue of EUR 748 million in the region. The growth was
mainly driven by our core brands Puck®, Lurpak® and Kraft®. At the
same time, our biggest market Saudi Arabia posted unexpectedly high
branded volume driven revenue growth of 26.9 per cent, and we also
increased our market shares considerably in UAE and Kuwait in core
categories. Keeping especially our front line sales force safe during
Covid-19, we managed to operate at almost full capacity at all times,
which turned out to be a big competitive advantage.
wEST AfRiCA
Despite a turbulent year with market lockdowns and economic downturn,
we grew our strategic brands across West Africa and managed a profit
improvement through proactive price management. Revenue for the
region grew by 8.6 per cent to EUR 133 million, mainly driven by Ghana
and Senegal. The weakened oil price caused reductions in bulk volumes,
but consumer products continued to grow. Devaluation of the Nigerian
Naira was neutralised by active price management. We successfully entered
into the evaporated milk segment in Senegal seeing good opportunities to
grow products outside our main powder category across West Africa.
CHiNA
Our Chinese business performed well in 2020 with revenue growth
of 24.3 per cent to EUR 190 million, primarily driven by the milk
category. As expected, we did not grow exports of Early Life Nutrition
products after a year of high sales in 2019. Through our partnership
with Mengniu, cheese and butter export sales grew by 73 per cent.
The successful launch of liquid Lurpak® contributed to the strong
profit and growth in the business.
SOUTH EAST ASiA
Indonesia was challenged by the impacts of Covid-19 and did not
meet our expectations of growth, while other main markets in South
East Asia increased revenue. Overall, revenue totalled EUR 171
million, unchanged from last year. In Bangladesh, Dano® became
the number one dairy brand in the market for the first time ever.
By focusing on affordable ranges and digital ways of working with
our foodservice customers we achieved profitable growth of
18 per cent. In Indonesia, our Organic Early Life Nutrition launch
was impacted by the challenges of building brand awareness and
converting consumers during Covid-19.
NORTH AMERiCA
Despite a volatile domestic milk price and significant duty increases in
the US, revenue increased by 6.2 prer cent to EUR 270 million in
2020. The US saw a remarkable increase in consumer demand for
Arla® brand products during Covid-19, and Canada saw a strong
increase in the cooking assortment, driven by Apetina® and local
brand Tre Stelle®. This more than offset the decline in foodservice in
both countries. Furthermore, the local production sites benefitted
from very high capacity utilisation and were at the same time able to
limit the organisational impacts of the pandemic to a minimum.
REST Of wORLD
Rest of world, including Australia, Russia and Latin America, delivered
strategic branded volume driven revenue growth of 9.5 per cent and
total revenue of EUR 463 million. Covid-19 influenced our foodservice
business negatively, whereas retail sales increased. The growth was
driven by increased in-home consumption, which especially Lurpak®
benefitted from, growing by 16.8 per cent. Also our On-The-Go
Starbucks™ Iced Coffee business grew by 23 per cent overall with
particularly high growth rates in Poland, Italy and Switzerland.
28 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
ARLA fOODS INGREDiENTS
2020 was a year defined by fluctuating and unprecedented market dynamics due to Covid-19. While Arla Foods
Ingredients (AFI) increased the value-add ingredient business driven by growth in our pediatrics and medical nutrition
segments, the food segment and child nutrition manufacturing business delivered slightly below 2019 levels.
AFI’s performance in light of the pandemic
In spite of the Covid-19 pandemic, we managed to
increase our value-add ingredient business
compared to 2019, especially driven by growth within
our Pediatrics and Medical Nutrition segments.
Contrary, our ingredient sales in sports nutrition were
affected in the short term by lockdown of gyms in
major markets leading to reduced demand for
high-protein products like bars and ready-to-drinks.
Our food business has been impacted by changing
market conditions related to Covid-19. The child
nutrition manufacturing business delivered slightly
below 2019 levels, largely caused by delay in
customer’s new product launches.
Looking ahead, the pandemic has intensified a
global focus on health, and with the specialised
nutritional solutions offered by AFI, we see strong
indications of further growth.
Product differentiation is key
Protein will continue to be a strong trend within the
global food and nutrition industry, supported by a
widespread understanding of protein’s distinctive
role in health. High-quality proteins such as whey
will remain key to a healthy future, and AFI will
continue to deliver strong solutions to the market.
AFI highlights in 2020
New protein tower capacity came online at the
Danmark Protein production plant, significantly
increasing our protein capacity.
Construction of our new Innovation Centre in
Nr. Virum ran according to plan. The Innovation
Centre will create the foundation for AFI’s
development of new generations of products and
technologies. It will operate in close cooperation
with our key production site, Danmark Protein, and
the customer-centric functions in AFI. The
Innovation Centre will open in September 2021.
Strong momentum within hydrolysates for the
medical nutrition and infant formula market with
exciting ongoing customer projects and
a strong NPD pipeline. To continue the growth
journey, we are investigating new potential
investments within this area.
China is, and will continue to be, a very important
market both for our ingredient and Child
Nutrition Manufacturing businesses. In 2020,
we decided to strengthen our local presence in
China to be closer to our customers and relevant
decision-making bodies.
We have made very good progress on several
important projects to increase our raw material
supply and some of these are coming on stream
in 2021.
Focus on sustainable development
Arla has a strong sustainability agenda, and AFI
aims to deliver on this through several focus areas,
i.e. energy and water reduction.
“THE COViD-19 PANDEMiC
HAS iNTENSifiED THE
GLObAL fOCUS ON
HEALTH, AND DESPiTE
THE SHORT-TERM
NEGATiVE iMPACTS ON
OUR bUSiNESS, wE HAVE
A STRONG iNNOVATiON
PiPELiNE wHiCH wiLL
DRiVE fUTURE GROwTH
Of OUR bROAD RANGE
Of SPECiALiSED
NUTRiTiONAL PRODUCTS.”
Henrik Andersen
CEO, Arla Foods Ingredients
Revenue,
EURm
716
2019: 710
Growth of value-
add products
5.3%
2019: 9.4%
Value-add share
73.7%
2019: 68.5%
Revenue split by segments
6%
29%
20%
17%
28%
Food
Pediatric Nutrition
Health and performance
Child Nutrition manufacturing
Other
2020 2019
29% 30%
28% 25%
17%
17%
20% 22%
6%
6%
29 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
GLObAL INDUSTRY SALES
The flexibility of our Global Industry Sales business model enabled us to quickly shift milk volumes from Global Industry Sales into retail to meet increasing
retail demand caused by Covid-19 and ensure delivery of food supplies. As a consequence, the share of milk solids sold by Global Industry Sales decreased
by 2.3 percentage points compared to last year, but this was compensated by the higher volumes sold in our retail business. During 2020, we also succeeded
in increasing the proportion of higher-value commodity products sold.
Revenue,
EURm
Total volume of bulk
products (tonnes)
1,541
362
2019: 1,662
2019:385
Global industry share
22.7%
2019: 25.0%
Revenue split by segments
1%
6%
20%
33%
40%
2020
33%
40%
20%
6%
1%
2019
34%
36%
21%
6%
3%
Raw milk
Powder
Cheese
Butter
Other
30 ARLA FOODS ANNUAL REPORT 2020
of strategic investments in support of Global Industry
Sales has meant that the proportion of higher-value
commodity products sold has started to increase. In
2020, mozzarella, the first of our strategic invest-
ments to come on stream, represented approximately
18.5 per cent of volume (12.5 per cent of sales), up by
5.3 percentage points on last year.
Unstable commodity markets
Highly affected by the pandemic, the global
commodity markets were volatile in 2020. The start
of the year showed strong global demand and rising
prices across all categories, but this came to a halt
in March when first export-related logistics issues
followed by lockdowns resulted in short-term
disruption in supply chains. This caused a sharp price
collapse, but in the third quarter of 2020, prices
recovered to slightly below 2019 levels and remained
stable until the last quarter of the year.
Towards the end of 2020, the second round of
lockdowns caused understandable hesitation in
the market and prices started to weaken again,
particularly in the mozarella category, which is
especially impacted by foodservice restrictions.
In addition to our main sales channels, Arla conducts
business-to-business sales to other companies for use
in their production, as well as industry sales of cheese,
milk powder and butter. We refer to these activities as
Global Industry Sales (formerly referred to as ‘Trading’).
Flexible business model proved valuable
Our Global Industry Sales business model allows us to
manage seasonal and regional variability in owner
milk production and balance our milk throughout the
year, while it provides the capacity and capability for
our farmer members to grow.
When the initial Covid-19 lockdowns caused
significant uplifts in retail demand across all countries,
the flexibility of our business model enabled us to
ensure that we had enough milk to produce the
branded and retail products needed to meet the
increased and very volatile demand.
Reduced revenue due to
changing market conditions
As a result of the increased demand from the retail
business the overall share of milk solids sold by
our Global Industry Sales fell from 25.0 per cent
last year to 22.7 per cent in 2020, equivalent to
approximately 360,000 tonnes of product. As a result
of this volume reduction as well as the general market
conditions caused by the pandemic, revenue
declined to EUR 1,541 million from EUR 1,662
million, and now represents 14.2 per cent of Arla’s
total revenue. Despite these declines, our programme
“THE GLObAL PANDEMiC
HAS DEMONSTRATED THE
iMPORTANCE AND AGiLiTY
Of GLObAL INDUSTRY
SALES AS wE wERE AbLE
TO MANAGE THE MiLK
bALANCE TO HANDLE THE
ExTREMELY VOLATiLE
CONSUMER DEMAND
wHiLST ENSURiNG THAT
wE CONTiNUED TO ADD
VALUE TO ALL MEMbER
MiLK DELiVERED TO THE
COOPERATiVE.”
Thomas Carstensen
Senior Vice President, Milk & Trading
European commodity prices 2019-2020
(EURm)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
Q1
2019
Q2
2019
Q3
2019
Q4
2019
Q1
2020
Q2
2020
Q3
2020
Q4
2020
SMP
Yellow Cheese
WMP
Butter
Mozzarella
OUR
RESPONSIbILITY
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
SUSTAiNAbiLiTY
STRATEGY
The global population in need of nutritious food is growing and the Earth’s
ecosystems are already under pressure. We take responsibility for moving dairy
production and consumption in a more sustainable direction now and for
future generations.
STRONGER PLANET
Improving the environment
for future generations
STRONGER PEOPLE
Increasing access to healthy dairy nutrition
and inspiring good food habits
Farm
Operation
Logistics
Packaging
Food
waste
Health
Inspiration
Inter-
national
dairy
develop-
ment
CODE Of CONDUCT
Supporting the realisation of the Sustainable Development Goals (SDGs)
Our new sustainability strategy, launched in 2019,
focuses on improving the environment for future
generations, and increasing access to healthy dairy
nutrition and inspiring good food habits. The
strategy is founded on our commitments to
respect human rights and ensure responsible
business practices across our markets.
Arla contributes to the realisation of the UN’s
Sustainable Development Goals (SDGs). The SDGs
are closely linked and we know that we have an
influence on all of them through our general
business practices and commitments, as defined in
our Code of Conduct. Our prioritised focus is on the
SDGs relating to food, environment and climate.
They are linked directly to our value chain, as this is
where we could have the biggest positive impact
and carefully address the potential negative impact.
In this report we provide our Consolidated
Environmental, Social and Governance data on
selected KPIs. Moreover, we elaborate on some of
our major Stronger Planet - Stronger People
achievements in 2020, including Climate Checks
on farms, strengthened animal welfare schemes as
well as our commitment to support dairy production
in emerging markets.
For the statutory reporting on §99a, we refer to our
Corporate Responsibility Report 2020.
32 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
ENViRONMENTAL
AMbiTiON
Together with our 9,406 farmer owners we launched our ambitious climate targets in March 2019. The ambition is to become
carbon net zero by 2050 and to reach our Science Based Targets by 2030, reducing scope 1 and 2 emissions by 30 per cent in
absolute terms, and scope 3 emissions by 30 per cent per kilo milk. The Science Based Targets are aligned with climate science
and define a clear path to further improve Arla’s climate performance.
OUR AMbiTiON COVERS THREE THEMES
TO REACH OUR GOALS wE wiLL fOCUS ON THREE AREAS
Better climate
Clean air & water
More nature
Farms
Production
Packaging and food waste
Nitrogen and phosphorus
cycles in balance
Increased biodiversity
and access to nature
Optimised feed for cows
Optimised use of manure and
fertilizer
Boosted carbon capture in the
soil on farms
Improve efficiency in energy
and fuel use
Increase share of renewable
energy and fuels
New technologies
Improve packaging
recyclability
Increase use of recycled
materials and reduce use of
virgin plastics
Reduce food waste
wHERE DO OUR EMiSSiONS COME fROM?
Scope 1
3%
Farms
Transport
Production and offices
Transport
Waste management
Scope 3
96%
Scope 2
1%
33 ARLA FOODS ANNUAL REPORT 2020
Scope 1 emissions relate to the activities under our direct control.
They include transport using Arla’s vehicles, and emissions from Arla’s
production facilities.
Scope 2 emissions are the indirect emissions caused by the energy
that Arla purchases, i.e. electricity, steam, heating or cooling.
Scope 3 emissions are the indirect emissions from purchased goods
and services (e.g raw milk from our owners, packaging and external
transport), but also from waste handling (eg. recycling) at our sites.
Read more about our efforts to reduce our carbon footprint
on page 34.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CLIMATE CHECKS
ON fARMS
In Arla, we acknowledge our responsibility to reduce our environmental
footprint as much as possible, and together with our farmer owners we have
set ambitious reduction targets accepted by Science Based Targets for 2030
and a carbon net zero ambition for 2050. In 2020, we implemented our global
Climate Check tool on 93 per cent of our owners’ farms, enabling us to build
one of the world’s largest sets of externally verified dairy farming climate data.
Our farmer owners produce milk with a climate
impact per kilo milk of about half the world
average 1). However, we continuously work
together with our owners to reduce farm level
emissions even further to reach our 2030 and
2050 climate targets.
In 2019, we introduced our new global Climate
Check tool, which we continued to roll out in 2020.
It has now been implemented by 93 per cent of our
active farmer owners covering 96 per cent of our
owner milk volume. The tool helps farmers to
identify emissions on the farm, providing a clear
picture of the actions they can take to reduce
emissions further. To reach our 2030 target, farmer
owners must reduce emissions by an average of
3 per cent annually.
All our farmer owners provide information covering
aspects like herd size, housing, milk volumes, feed
usage and feed production, energy and fuel usage
and renewable energy production. The data is
audited by an external advisor who visits the farm
to also point out areas where the farmer is doing
well, and to give detailed advice on action plans to
improve efficiency and reduce emissions and the
environ mental impact.
With this externally verified dairy farming climate
data set, Arla is also building a solid foundation for
benchmarking and knowledge sharing across the
dairy industry. During 2020, we were in close
dialogue with our farmer owners and key stake-
holders, such as farm advisory experts, to collect
feedback and advice on how to improve and
strengthen the assessments even further.
Farmer owners who signed up for the Climate
Check programme in 2020 were paid a financial
incentive of EUR-cent 1.0 per kilo of milk. Covid-19
caused a delay in conducting the Climate Checks,
but by the end of March 2021, all Arla farmers who
signed up for the Climate Check programme are
estimated to have completed a Climate Check.
Go to page 124 to read more about our CO₂e
emissions. Visit our Responsibility Report to read
more about Climate Checks.
CLiMATE CHECKS
Areas measured in the Climate Checks:
Number of
animals
Feed
composition
Crop
production
Use of
fertilizer
Manure
handling
Use of
electricity, fuel
and renewable
energy
Arla is involved in developing an
international standard for carbon
sequestration (capturing and storing
carbon in the soil), which will be
piloted on Arla farms in 2021.
34 ARLA FOODS ANNUAL REPORT 2020
1) the Food and Agriculture Organization of the United Nations and Global Dairy Platform, 2019
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
fACiLiTATiNG bETTER
ANiMAL wELfARE
In Arla, we strongly believe that all animals should be treated well. Animal welfare and sustainable milk production are two
sides of the same coin: Healthy cows that are well cared for produce more milk in a more sustainable way. That makes it a
key focus for Arla and our farmer owners to thoroughly monitor and constantly improve the health and welfare of our cows.
Our efforts towards better animal welfare are coordinated through our
Arlagården® platform. Arlagården® initially focused mainly on milk quality
and food safety, but it has been expanded to include more and clearer
standards, also for animal welfare, the environment and people on the
farm, to reflect our priorities as well as the ones of our customers and
consumers. We have developed a comprehensive digital tool to more
efficiently and transparently conduct and align assessments, reporting
and data utilisation across all seven owner countries. It is now mandatory
for Arla’s cooperative farmers to assess their herds and facilities every
three months and report the data in the new digital tool.
Among the 120 questions that all of our 9,406 farmers in 2020 submitted
data on, were questions covering housing, feeding, grazing and the
general wellbeing of the cows. To have an even clearer picture of animal
welfare on farms, Arla also gathers data from the National Herd Databases
of our owner countries to obtain information concerning the average
lifespan, mortality and the average age of the cows at first calving.
Farmers complete the animal welfare questionnaires based on their
self-assessment and receive regular visits from auditors to validate all data
submitted, including animal welfare questions. In 2020, the audit process
was upgraded and harmonised across all owner countries to ensure that
auditors follow the same procedure and standards everywhere. Each
year, 30 per cent of all farms are audited. In 2020, we disclosed the
percentage of farmer owners reporting on animal welfare, audited farms,
and somatic cell count. Read more in the ESG note 1.4. From 2021, we
will report the results of the animal welfare questionnaires from audited
farms, focusing on the measures we find the most important to work with
to improve animal welfare. We will also disclose the ratio of audited
farmers complying with our animal welfare standards.
35 ARLA FOODS ANNUAL REPORT 2020
We measure the general wellbeing of the cows using four indicators developed
based on scientific research into the most common dairy cattle issues.
Cows with good body condition Fit cows have the perfect amount
of fat reserve on their bodies: not too little and not too much. Our
farmers determine if their cows are fit by using body condition scoring,
which is a visual and tactile evaluation of the cows. They categorise the
animal into three categories: normal, thin and very thin.
COwS wiTH GOOD
bODY CONDiTiON
MObiLE
COwS
CLEAN
COwS
COwS wiTHOUT
iNJURiES
Mobile cows walk without
any problems, and have no
pain in their legs and feet.
If mobility is impaired, cows
limp, which can be caused
by a range of conditions,
like disease, poor manage-
ment and environmental
factors. Farmers categorise
the cows into three
categories: normal, slightly
lame, and obviously lame.
Clean cows have a lower
risk of being infected by
disease. Farmers assess the
cleanness of the cows by
looking at the size of dirt
and muck patches on their
bodies and categorise the cows into three
categories: normal (clean), slightly dirty and dirty.
Cows without injuries An injury on a cow can
be a lump, bump, ulcer, sore or coloured area
on the skin. Farmers categorise the cows into
three categories: normal (without injuries), with
small injuries, and with bigger injuries.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
INTERNATIONAL DAIRY
DEVELOPMENT
Contributing to the development of a sustainable and commercially viable dairy sector, improving farmer capacity and providing
nutritious food to a growing population in selected emerging markets is a key priority to Arla. Despite delays caused by
Covid-19, we continued to strengthen our partnerships in 2020, and we have now enrolled 1,000 farmers in our programmes.
As part of our ‘Stronger Planet – Stronger People’
sustainability strategy, we engage in partnerships
to support national dairy sector development in
emerging markets. Through these strategic
cross-sectorial partnerships we work to promote
sustainable dairy production, enhance food safety
and quality, improve food security and provide
access to affordable nutrition for low-income
consumers. Despite delays in the implementation
of our programmes across all countries, we
managed to reach our 2020 target of having
enrolled 1,000 farmers in our programmes.
ADVANCiNG LOCAL DAiRY
DEVELOPMENT iN NiGERiA
By 2050, Nigeria’s population will be twice as big as
it is today reaching nearly 400 million people, which
means that the demand for nutritious food is
increasing rapidly . Since 2015, Arla has been the
lead commercial partner in the cross-sectorial “Milky
Way Partnership in Nigeria” with among others the
Danish Agricultural and Food Council/SEGES, CARE
Denmark and Nigerian based NGOs, supported by
the Danish Ministry of Foreign Affairs.
The Milky Way Partnership has reached more than
400 farmers, but one of the most challenging parts
of the project is to reach a sufficient volume of milk
intake. During 2020, focus was on capacity building
of local farmers as well as adjusted off-take
arrangements and new partnerships to increase the
number of farmers enrolled. Among others, the
Milky Way Partnership programme was scaled up
through its participation in the public private
DAMAU Household Milk Farm Project with Kaduna
State Government with the aim of settling 1,000
farm households in a 9,000 hectare area by
providing infrastructure and three imported cows
for each farmer. Arla also signed an agreement with
SAHEL Consulting under the Melinda and Bill Gates
Foundation to enrol additional 600 households
from surrounding farm clusters in Kaduna State.
SUPPORTiNG THE LOCAL
DAiRY SECTOR iN INDONESiA
One of the largest challenges in the Indonesian
dairy sector is the dairy milk production shortage
in terms of quality and quantity, to meet the
increasing consumer demand. Since 2018, Arla
has worked together with our Joint Venture partner,
Indolakto, and one of the largest local dairy
cooperatives in Indonesia, KPSP Setia Kawan,
setting up a calf rearing centre in East Java. The
rearing centre rears calves into high quality cows
through good rearing practice and sells them at a
fair price to local farmers, who also receive training
in good dairy farming practices. This way, local
farmers can have access to high quality cows,
36 ARLA FOODS ANNUAL REPORT 2020
which are guaranteed to produce a high quantity of
milk and provide more income for a living.
Today, the rearing centre is a separate business unit
of the cooperative, which aims to provide sustainable
income from selling cows. During 2020, it provided
more than 60 high quality cows to local farmers, 15
per cent cheaper compared to the usual market
price, while still creating a commercially sustainable
social enterprise independent of external funding.
This was despite the reduced purchasing power
during the first half of 2020 due to the impacts of
Covid-19.
Read more about our international
dairy projects in emerging markets in our
Responsibility Report 2020.
OUR
GOVERNANCE
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
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Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
GOVERNANCE fRAMEwORK
Arla is a cooperative owned by 9,406
dairy farmers in seven countries.
Ensuring that all of our owners are
able to raise their voice and seek
consensus and representation for their
opinions is essential in a trustworthy
and successful cooperative. Our
owners elect members to the Board
of Representatives, which in turn
elects the Board of Directors. The
company’s governance is shared
between these elected bodies and
the Executive Management Team.
Members of the Board of Representa-
tives are elected for a period of two
years. The democratic process leading
up to elections is challenged in
the online format, thus the BoR has
decided to postpone the 2021
elections to 2022.
38 ARLA FOODS ANNUAL REPORT 2020
COOPERATiVE
GOVERNANCE
OwNERS
OwNER NATiONALiTiES
9,406 dairy farmers
DK
SE
LUX
DE
BE
NL
UK
LOCAL
REPRESENTATiVES
OUR bOARD
AND COUNCiLS
CORPORATE
GOVERNANCE
DiSTRiCTS
REGiONS
bOARD Of REPRESENTATiVES
175 owners +12 employee representatives
77 DK members
50 SE members
23 CE members
25 UK members
Area council
Area council
bOARD Of DIRECTORS
15 owners +3 employee representatives
+ 2 external advisors
Area
council
Area council
ExECUTiVE bOARD
CEO + CCO
ExECUTiVE MANAGEMENT TEAM
Executive Board + 5 officers
20,020 EMPLOYEES
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GOVERNANCE fRAMEwORK (CONTiNUED)
COOPERATiVE
GOVERNANCE
Arla’s democratic structure gives decision-making
authority to the Board of Directors (BoD) and to the
Board of Representatives (BoR). Their primary tasks
are to develop the ownership base, safeguard the
cooperative democracy, embed decisions and
develop leadership competencies amongst farmer
owners, and set the overall strategic direction for Arla.
Owners
In 2020, 9,406 milk producers in Sweden, Denmark,
Germany, the UK, Belgium, Netherlands and
Luxemburg were the joint owners of Arla. Last year,
the cooperative had 9,759 joint owners. The decline
in the number of farmers is partly due to farmers
who stopped producing milk, or sold their business
to another member, and to a lesser extent due to
famers resigning to supply another dairy company.
This decline is in line with the trend seen in the
whole dairy sector over a number of years. All
cooperative owners have the opportunity to
influence significant decisions.
the BoR has decided to postpone the 2021 elections
to 2022. The BoR makes decisions including
appropriation of profit for the year and elects the BoD.
The BoR meets at least twice a year.
District councils
Each year, cooperative owners convene for a local
annual assembly in their respective countries to
ensure the democratic influence of the cooperative
owners in the owner countries. The members in the
district elect members to represent their district on
the BoR.
Board of Representatives
The BoR is the supreme decision-making body
comprising 187 members, of whom 175 are
cooperative owners, and 12 are employee represent-
atives. Owner representatives are elected every other
year in odd years. The democratic process leading up
to elections is challenged in the online format, thus
Board of Directors
Appointed by the BoR, the BoD is responsible for
strategic direction setting, monitoring the company’s
activities and asset management, maintaining the
accounts satisfactorily and appointing the Executive
Board. The BoD is also responsible for ensuring that
Arla is managed in the best interest of the farmer
owners and making decisions concerning the
ownership structure. They also take care of other
stakeholders’ interests in the company: lenders,
investors in bond instruments and employees,
among others.
The BoD consists of 15 elected farmer owners, three
employee representatives and two external advisors.
In the 2019 election cycle, four new elected
members joined the BoD, and two external
members were also appointed to ensure that the
BoD’s skill set covers all important areas for leading
an international business. The composition of the
elected members of the BoD reflects Arla’s
ownership structure across the countries.
Area councils
Arla has four area councils that are sub-committees
of the BoD and consist of members of the BoD, as
well as members of the BoR. The area councils are
established in the four democratic areas: Sweden,
Denmark, Central Europe and the UK to take care of
matters of special interest to the farmer owners in
each geographic area.
CORPORATE
GOVERNANCE
Corporate governance in Arla is shared between
the Executive Board and the Board of Directors
(BoD). Together they define and ensure adherence
to the company’s strategic direction, organise and
manage the company, supervise management and
ensure compliance.
Executive Board
The Executive Board, appointed by the Board of
Directors, is responsible for managing the company,
ensuring the proper long-term growth of the
company from a global perspective, driving the
strategic direction, following up on targets for the
year and defining company policies, while striving for
a sustainable increase in company value. Further-
more, the Executive Board ensures appropriate risk
management and risk controlling, as well as
compliance with statutory regulations and internal
guidelines. The Executive Board is usually comprised
of the CEO and another member of the Executive
Management Team. From 1 February 2019, Chief
Commercial Officer for Europe, Peter Giørtz-Carlsen
was appointed to the Executive Board.
Executive Management Team
The Executive Management Team (EMT) is
appointed by the Executive Board. The EMT is
responsible for Arla’s day-to-day business
operations, preparing strategies and planning the
future operating structure. The EMT consists of
the Executive Board plus four functional experts
and one commercial leader. The functional
experts cover the management areas of Finance,
IT and Legal (CFO), Marketing and Innovation
(CMO), Human Resources (CHRO), and Supply
Chain (CSO); while the commercial leader is
responsible for our international commercial
segment. The members of the EMT keep each
other informed on all significant developments in
their business area and align on all cross-function-
al measures.
Employees
Arla has 20,020 full-time equivalents (FTE) globally,
compared to 19,174 last year. Our employees are
represented by three members in the BoD and 12
members in the BoR.
39 ARLA FOODS ANNUAL REPORT 2020
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DIVERSITY
AND INCLUSION
In Arla, we believe that diversity and inclusion are imperative to the success of our business as we know
that a diverse and inclusive workforce generates innovation and stronger results. Our definition is broad
as we look at both gender, nationality, age but also diversity of thought and values.
Our strategic principles
To secure a stronger leadership pipeline and improve opportunities
for all to advance, we aim for no more than 70 per cent of the same
gender, nationality and age respectively in any given team. We
welcome multiple generations in our workforce with attractive
working conditions, but recognise that within some lines of work,
especially our blue collar workforce, we often face a less diverse
supply of labour, which makes it difficult to reach our aim. Our
strategic principles are embedded and unfolded in all our processes
and priorities, enabling us to recognise and harvest the benefits of
diversity and inclusion.
Competency development
We offer training to our people managers and talent acquisition
partners regarding unconscious bias awareness, to promote unbiased
selection and people assessment.
Recruitment
Hiring managers and talent acquisition partners must adhere to the
systems, structures and processes defined in our Global Recruitment
Policy to select the best candidate based on merit. We require all
executives to be recruited from a pool of candidates which includes
both genders and more than one nationality. To support a fair and
unbiased hiring process, the talent acquisition partners are there to
ensure compliance with the recruitment process and policy.
Fair pay
We strive to offer fair and competitive remuneration at market level
and in line with local legislation, and have a structured approach to
remuneration, ensuring that salaries are unbiased towards gender,
age, seniority, tenure or nationality.
Talent programmes
Our talents are identified, deployed and developed based on clear and
inclusive definitions. We actively seek to ensure a healthy diversity in
our talent identification when selecting candidates to create a diverse
talent pipeline for the long term performance of Arla.
Building and sustaining an internal community
In 2017, we established an international community called ‘The
Diversity and Inclusion Network’ which is endorsed and supported by
top management. This community offers a broad range of activities,
including discussion panels with external speakers, establishment of
an internal discussion forum and interviews with internal role models.
Monitoring
We are committed to report on our progress towards our long-term
diversity and inclusion goals to our Executive Management Team and
externally on a regular basis.
40 ARLA FOODS ANNUAL REPORT 2020
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DiVERSiTY
AND iNCLUSiON (CONTiNUED)
As part of our commitment to accelerating diversity and inclusion, we publish the demographics of our
workforce by gender, age and nationality on an annual basis. Transparency is critical to achieving our goal of
becoming an inclusive and diverse company. While we have made good progress in this direction, we know
there is more work to do.
Gender distribution*
Gender distribution in management
Total number of nationalities
Female
Male
27%
2019: 27%
73%
2019: 73%
Female
Male
2020
2019
2020
2019
14%
20%
16%
26%
29%
20%
16%
26%
86%
80%
84%
74%
71%
80%
84%
74%
EMT
BoD**
BoR
Director+ level
* This is the gender ratio in the total workforce. Gender ratio in blue
collar workforce: female: 18%; male: 82% ; and in white collar workforce:
female: 42%; male: 58%.
** The presented ratio pertains to all the members of the BoD (20), including employee
representatives and external advisors. Gender ratio among members elected by the general
assembly is 13 per cent female, 87 per cent male.
Age distribution
9%
17%
Diversity in
teams, age*
86%
Age distribution on the director+ level
42%
36%
23%
25%
26%
14%
8%
30-39
40-49
50-59
60->70
115
Split by nationalities
Nationalities in the EMT
26%
8%
36%
Nationality distribution
at director+ level
15%
15%
55%
Other
Diversity in
teams,
nationality*
33%
14%
16%
9%
6%
<30
30-39
40-49
50-59
>70
* Percentage of teams that have members from at least two age categories.
* Percentage of teams that have members of at least two nationalities.
41 ARLA FOODS ANNUAL REPORT 2020
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bOARD Of DiRECTORS
Jan Toft Nørgaard
Heléne Gunnarson
Nana Bule
Jonas Carlgren
Arthur Fearnall
Håkan Gillström
Marcel Goffinet
Manfred Graff
René Lund Hansen
Jan Erik (Janne) Hansson
Harry Shaw
Simon Simonsen
Inger-Lise Sjöström
Bjørn Jepsen
Walter Lausen
Jørn Kjær Madsen
Ib Bjerglund Nielsen
Steen Nørgaard Madsen
Florence Rollet
Johnnie Russell
42 ARLA FOODS ANNUAL REPORT 2020
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bOARD Of DiRECTORS (CONTiNUED)
Our Board of Directors (BoD) consists of 15 elected farmer owners, three employee representatives and two external
advisors, who complement each other with different skills and expertise to conduct good global governance.
JAN TOfT NøRGAARD (1960)
Member since: 1998
Nationality: Danish
Profession: Dairy farmer
Internal positions: Chairman of the Board,
Learning and Development Committee,
Remuneration Committee
External positions: Comp. Board of the Danish
Agriculture and Food Council 2009 -
HELéNE GUNNARSON (1969)
Member since: 2008
Nationality: Swedish
Profession: Dairy farmer
Internal positions: Vice chairman of the Board
Global Training Committee, Learning and Develop-
ment Committee, Remuneration Committee
External positions: Member of the Swedish Dairy
Association 2014 -, Member of the Board of
Varbergs Sparbank
NANA bULE (1978)
Member since: 2019
Nationality: Danish
Profession: CEO of Microsoft Denmark & Iceland
External positions: Member of the Board of
Energinet 2018 -, Member of the Board of
Confederation of the Danish Industry 2019 -
JONAS CARLGREN (1968)
Member since: 2011
Nationality: Swedish
Profession: Dairy farmer
Internal positions: Global Appeals Committee,
Remuneration Committee
External positions: Chairman of the Board of the
Swedish Dairy Association 2019 -, Member of the
Board of the Swedish Farmers’ Foundation for
Agricultural Research 2016 -, Dairy Ambassador for
UN High Level Political Forum
ARTHUR fEARNALL (1963)
Member since: 2018
Nationality: British
Profession: Dairy farmer
Internal positions: Chairman of the Arla UK Area
Council, Global Appeals Committee
HåKAN GiLLSTRöM (1953)
Member since: 2015
Nationality: Swedish
Profession: Dairy worker
External positions: Member of the Swedish
workers’ union
MARCEL GOffiNET (1988)
Member since: 2019
Nationality: Belgian
Profession: Dairy farmer
Internal positions: Member of the Global
Appeals Committee
External positions: Chairman of the Board of
Agra Ost Agriculture Research, member of the
municipal government of St.Vith
MANfRED GRAff (1959)
Member since: 2012
Nationality: German
Profession: Dairy farmer
Internal positions: Chairman of the Arla Central
Europe Area Council, Learning and Development
Committee, Remuneration Committee
External positions: Member of Board of the
German Milch NRW 2007 -, Member of Board of
the German Federation of Cooperatives 2015 -
RENé LUND HANSEN (1967)
Member since: 2019
Nationality: Danish
Profession: Dairy farmer
External positions: Member of the cattle section and
the Comp. Board of the Danish Agriculture and Food
Council 2019 -, Member of the Board of Agri Nord
2012 -
Diversity in the BoD*
80% 20%
Tenure
0-3 years, 50%
4-7 years, 25%
8-19 years, 25%
*The ratio pertains to all members of the BoD
(including employee representatives and external
advisors). Gender ratio within the elected members is
13 per cent female, 87 per cent male. In accordance
with section 99b of the Danish Financial Statements
Act, in 2019 Arla set a 4-year target to achieve a female
representation in the general assembly members of
the Board of Directors of at least 13 per cent, reflecting
the gender ratio of our Board of Representatives.
43 ARLA FOODS ANNUAL REPORT 2020
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bOARD Of DiRECTORS (CONTiNUED)
JAN ERiK (JANNE) HANSSON (1963)
Member since: 2018
Nationality: Swedish
Profession: Dairy farmer
Internal positions: Chairman of the Global
Organic Committee
External positions: Member of the Board of the
Swedish Dairy Association
INGER-LiSE SJöSTRöM (1973)
Member since: 2017
Nationality: Swedish
Profession: Dairy farmer
Internal positions: Chairman of the Arla
Swedish Area Council, Learning and
Development Committee
External positions: Member of the Board of
the Swedish Dairy Association 2017 -
JøRN KJæR MADSEN (1967)
Member since: 2019
Nationality: Danish
Profession: Dairy farmer
Internal positions: Global Appeals Committee
External positions: Member of the Board of
Andelssmør A.M.B.A 2020 -, Member of the Board
of GLS-a 2018 -
fLORENCE ROLLET (1966)
Member since: 2019
Nationality: French
Profession: Senior advisor to Luxury Tech Funds
External positions: Member of the Global
Advisory Board of the EMLyon Business School
2018 -
JOHNNiE RUSSELL (1950)
Member since: 2012
Nationality: British
Profession: Dairy farmer, chartered accountant
Internal positions: Learning and Development
Committee, Remuneration Committee
External positions: Chairman of the ING Bank UK
Pension Fund and two other entities
HARRY SHAw (1952)
Member since: 2013
Nationality: British
Profession: Despatch operator
External positions: Member of the British
workers’ union
SiMON SiMONSEN (1970)
Member since: 2017
Nationality: Danish
Profession: Dairy farmer
Internal positions: Remuneration Committee
External positions: Dairy Ambassador for
UN High Level Political Forum
bJøRN JEPSEN (1963)
Member since: 2011
Nationality: Danish
Profession: Dairy farmer
Internal positions: Global Organic Committee
External positions: Member of the cattle section
of the Danish Agriculture and Food Council 2009 -,
Member of the Board of the Danish Cattle Levy
Fund 2009 -, Member of the Board of the Danish
Milk Levy Fund 2019 -, Vice Chairman of Skjern
Bank 2012 -, Vice Chairman of the Danish Dairy
Board 2019 -
wALTER LAUSEN (1959)
Member since: 2019
Nationality: German
Profession: Dairy farmer
Internal positions: Global Organic Committee
Ib bJERGLUND NiELSEN (1960)
Member since: 2013
Nationality: Danish
Profession: Dairy production worker
External positions of trust: Member of the
Danish worker’s union
STEEN NøRGAARD MADSEN (1956)
Member since: 2005
Nationality: Danish
Profession: Dairy farmer
Internal positions: Arla Denmark Area Council
Chairman, Learning and Development Committee
External positions: Deputy Chairman of the
Comp. Board of the Danish Agriculture and Food
Council 2014 -, Chairman of the Agro Food Park
steering committee 2016 -, Chairman of the
Danish Milk Levy Fund 2012 -, Chairman of the
Danish Dairy Board 2012 -
44 ARLA FOODS ANNUAL REPORT 2020
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ExECUTiVE MANAGEMENT TEAM
From left to right: David Boulanger, Simon Stevens, Torben Dahl Nyholm, Peder Tuborgh, Peter Giørtz-Carlsen, Ola Arvidsson, Hanne Søndergaard.
45 ARLA FOODS ANNUAL REPORT 2020
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ExECUTiVE MANAGEMENT TEAM (CONTiNUED)
Our Executive Management Team consists of the CEO, four functional experts, and one commercial leader for the European
and international commercial segments respectively. The Executive Management Team is responsible for Arla’s day-to-day
business operations and for developing Group strategies. In 2020, we welcomed three new members: Torben Dahl Nyholm,
David Boulanger and Simon Stevens.
DAViD bOULANGER (1970)
CSO, Executive Vice President, Supply Chain
Nationality: French
David joined Arla Foods in October 2020. He has
26 years of experience in Supply Chain & Operations
and held several senior leadership positions in the
food industry within Mars, Mondelez & Danone in
various geographies. Most recently, before joining
Arla as Chief Supply Chain Officer, he was Senior
Vice President Operations for Danone Specialized
Nutrition Division, operating globally in the Early
Life & Medical Nutrition fields. David holds an
Engineering Degree from the Ecole Civil des Mines
de Paris in France and a master’s degree in
mathematics
SiMON STEVENS (1965)
Executive Vice President, International
Nationality: British
Simon joined Arla in 2002 as UK Sales Director
before becoming Senior Vice President for Sales
and Marketing, where he played a major role in the
significant transformation of the UK business. In
2016, Simon moved to the newly set up Europe
Zone as Senior Vice President for Commercial
Operations and in 2020, he moved to Dubai to lead
the MENA business. Prior to Arla, Simon worked 14
years for Unilever in various Sales and Marketing
Director roles in UK, Netherlands and Italy. Simon
holds a 1ST class Bsc Hons degree in Management
Sciences from Loughborough University.
46 ARLA FOODS ANNUAL REPORT 2020
TORbEN DAHL NYHOLM (1981)
CFO and Executive Vice President, Finance,
Legal and IT
Nationality: Danish
Torben joined Arla in 2012 after working several
years in the M&A consultancy industry. Starting out
in Arla as a Business Controller in Corporate
finance, he has subsequently held a number of
significant project and leadership roles across the
finance organisation focusing mainly on the
interface between finance and strategy, latest as
Head of Performance Management. Torben holds
a M.Sc. in Finance and International Business from
Aarhus University.
PEDER TUbORGH (1963)
CEO, member of the Executive Board,
Head of Milk, Members and Trading, Chairman
of Arla Foods Ingredients
Nationality: Danish
Peder has been with Arla for 32 years, formerly
under MD Foods, and has held various senior
management and executive positions including
Marketing Director, Divisional Director and
Executive Group Director. Peder has worked in
Germany, Saudi Arabia and Denmark as part of his
longstanding career with Arla. Peder holds a
master’s degree in economics and business
administration from the University of Odense.
Peder is also:
- Member of the Global Dairy Platform
PETER GiøRTz-CARLSEN (1973)
CCO, Executive Vice President for Europe,
member of the Executive Board
Nationality: Danish
Peter joined Arla in 2003 as Vice President of
Corporate Strategy and has held various senior
positions in Arla, including Executive Vice President
of Consumer DK and UK, before he became
Executive Vice President of Europe in 2016. Prior
to joining Arla, Peter was Vice CEO at Bestseller
Fashion Group China. He holds a master’s degree in
business administration, organisation and
management from Aarhus University’s School of
Business.
Peter is also:
- Vice Chairman of AIM, the European Brands
Association
- Sits on the Policy and Issues Council (PIC) of the
UK’s Institute of Grocery Distribution (IGD)
- Vice Chairman of the Board of the European
Dairy Association (EDA)
OLA ARViDSSON (1968)
CHRO, Executive Vice President, HR and
Corporate Affairs
Nationality: Swedish
Ola joined Arla in 2006 as Corporate HR director,
and has been the Chief HR officer of Arla since
2007. He came to Arla from Unilever, where he
held various director positions across Europe and
the Nordics, with his last position as Vice President
in HR. Prior to Unilever, Ola served as an Officer in
the Royal Combat Engineering Corps in the
Swedish Army. He holds a master’s degree in HR
management from Lund University.
Ola is also:
- Member of the Board of AP Pension,
- Central Board Member of the Danish Industry
HANNE SøNDERGAARD (1965)
CMO, Executive Vice President, Marketing,
Innovation, Communications and Sustainability
Nationality: Danish
Hanne has been with Arla for 30 years, first joining
under MD Foods and then moving to the UK where
she played a leading role in developing the Arla UK
business. She became the Vice CEO for Arla UK
before moving back to Denmark in 2010. With a
natural ability for marketing, Hanne was responsible
for various brands and categories before taking on
her current role. She holds business degrees from
Aarhus University’s School of Business and Harvard
Business School.
Hanne is also:
- Member of the Board of Arla Fonden and of
Danish Technical University
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MANAGEMENT
REMUNERATION
Arla’s executive remuneration policy is designed to encourage high performance and support value creation.
The policy ensures alignment with the Group’s strategic direction and the interests of our farmer owners. We have
a structured approach to remuneration, ensuring that salaries are unbiased towards gender, nationality and age.
executives and members of senior management
are employed on terms according to international
standards, including adequate non-compete
restrictions, as well as confidentiality and loyalty
restrictions.
and international FMCG companies, providing a
competitive and sustainable mix of fixed and variable
pay. Pension contributions and non-monetary
benefits such as company car, telephone etc. are
also part of the package.
Levels of fixed remuneration are set based on
individual experience, contribution and function, while
variable pay reflects performance against annual
business targets. The variable pay component
consists of an annual short term incentive (STI)
plan, and a long-term (three-year) incentive (LTI)
plan. The STI is composed of the same elements
for the executives. The main components of the LTI
are branded volume growth and the group’s
performance versus a peer group index (see
graphs). The LTI programme started in 2018 also
included a component related to our transformation
and efficiency programme, Calcium.
Remuneration governance
Arla’s remuneration practice is governed by the
remuneration policy set by the Board of Directors
(BoD) and reviewed every four years. The BoD is
guided by external advisors using market data
sources and benchmarks from comparable
industries and companies. On an annual basis, the
BoD assesses the remuneration paid to the
Executive Board as well as variable pay programmes
to other executives and senior management. The
Remuneration Committee, consisting of six Board
members including the chairmanship, meets as a
minimum twice a year. The Committee monitors
that the remuneration policy is followed and
provides recommendations to the BoD.
The Board of Representatives (BoR) is updated
regularly on remuneration of the BoD and the
development in variable pay for executives.
Our remuneration practices
Remuneration packages are constructed to ensure
attraction, engagement and retention of the best
senior managers, and at the same time should
drive strong performance in both short- and
long-term business results. In line with Scandinavian
practice, the majority of the remuneration is fixed.
However, in recent years the variable part of the
remuneration has increased to ensure that total
remuneration is also dependent on achievement
of Arla’s short- and long-term financial targets. All
47 ARLA FOODS ANNUAL REPORT 2020
Our performance measures
Board of Directors (BoD)
The remuneration of the BoD comprises a fixed fee
and is not incentive-based. We believe this ensures
that the Board is primarily focused on the
cooperative’s long-term interests. Beyond a minimal
travel per diem, no additional compensation is paid
for meeting attendance or committee service. The
BoD’s remuneration is assessed and adjusted on a
bi-annual basis and approved by the BoR. The most
recent adjustment made was in 2019. For more
details on specific amounts please refer to page 114.
Executive Board and
Executive Management Team
The compensation elements and approach for the
Executive Board and the Executive Management
Team (together: executives) are identical.
Remuneration paid to the Executive Board is
assessed annually by the BoD based on recom-
mendations from the Remuneration Committee.
For more details on specific amount go to page 114.
The remuneration package for the executives is
based on external benchmarks against European
SHORT-TERM COMPONENTS
LONG-TERM COMPONENTS
Calcium
Profit
Leadership
Branded volume growth
Performance vs. peer group
Branded volume growth
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RESPONSibLE AND TRANSPARENT
TAx PRACTiCES
In Arla, we acknowledge that tax is vital for the economic and social development. Conforming with our Code of Conduct
and Good Growth identity, we are strongly committed to paying our taxes legally due and reporting transparently on our
tax practices.
Taking a responsible and transparent approach to
tax matters supports the strategy of growing our
company on a solid foundation and is in line with our
commitment to the UN Sustainable Development
Goals (SDGs). Our tax payments contribute directly
and indirectly to the majority of the SDGs, but in
particular to SDG #16.6 – development of
effective, accountable and transparent institutions.
We are committed to paying taxes in the countries
where we operate and generate value as well as
ensuring that requirements on tax reporting and
tax transparency are met. We strive for an open
dialogue with tax authorities around the world
regarding our business and our tax affairs.
Our key tax principles
Our approach to tax matters conforms with
Arla’s global Code of Conduct and is founded on
a set of key tax principles approved by our Board
of Directors:
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 Interna-
tional Financial Reporting Standards (IFRS)
Arla builds on good relations with tax authorities
and trusts that transparency, collaboration and
proactiveness minimise the extent of disputes
In order to always adhere to our key tax principles,
our global tax function is organised to ensure that
we have the right policies, people and procedures
in place to promote strong tax governance.
Cooperative and corporate tax
As a cooperative, Arla’s farmer owners are also our
suppliers, and earnings are not accumulated in
the company but paid to the farmers in the form of
the highest possible milk price. Based in Denmark,
Arla Foods amba is governed by the Danish tax rules
for cooperatives paying income tax in Denmark
based on the value of its equity.
Arla operates several subsidiaries globally. Our
subsidiaries are primarily limited liability and private
limited companies subject to regular corporate
taxation.
48 ARLA FOODS ANNUAL REPORT 2020
Value generation through milk payments
In 2020, Arla generated a total value of
approximately EUR 5.2 billion* from the milk
supplied. Milk from our farmer owners generated
EUR 4.6 billion in milk payments , while other
farmers received milk payments of EUR 478 million
leaving EUR 122 million in Arla. As a result, the
majority of the taxes are paid at farm level subject
to local tax rules.
*On account milk price for the year plus an estimated
supplementary price of 1.75 EUR-cent/kg owner milk
VALUE GENERATiON
THROUGH PAiD OUT
MiLK PRiCES
478
EURm paid to
other farmers
1,867
122
EURm remained
in Arla
989
Milk payments
to farmer owners
per country
EURm
659
1,131
DK
UK
SE
DE, NL, BEL, LUX
4.6
EURb paid to
farmer owners
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RISK AND COMPLIANCE
MANAGEMENT
As a cooperative with cross-country ownership and global activities Arla faces multiple risks and uncertainties that may
threat our business and our ability to pay a competitive milk price to our owners. Steering through 2020 with the impacts
of Covid-19 and the threat of a hard Brexit exemplifies why strong risk and compliance management is important.
Arla’s risk and compliance management aims to
reduce uncertainties, mitigate adverse internal and
external impacts, capture business opportunities
to maximise value creation, and to ensure a
compliant business conduct. We take measures to
identify, understand, assess and deal with risks
effectively. Our focus is on risks that may threat
the realisation of our strategy, and we also address
risks inherent in the business processes of the
company.
Risk management
The Board of Directors has the overall responsibility
for overseeing risk and for maintaining robust risk
and compliance management as well as an
internal control system. The Board of Directors
recognises the importance of identifying and
actively monitoring the most persistent risks, as
well as long-term threats, trends, or challenges
facing the Group. The most significant risks are
regularly reviewed and assessed by the Executive
Management Team and the Board of Directors,
who are also responsible for reviewing the
effectiveness of the risk and compliance
management and internal control processes
throughout the year. Generally, our risk and
compliance activities are monitored and
discussed quarterly by the Executive Manage-
ment Team and annually by the Board
of Directors.
In 2020, the Board of Directors monitored and
discussed the impacts of Covid-19 on a frequent
basis, focusing on business continuity and the
health and safety of our employees. The continued
risk of a hard Brexit and the effect of Brexit-related
friction costs were monitored closely by the Board
of Directors, and relevant members of the Board
were also engaged in dialogue with representatives
from both the EU and the UK government. Internally,
a dedicated task force team consisting of specialists
from relevant parts of Arla worked intensively
managing the Covid-19 situation and preparing
for Brexit.
Risk identification
We identify compliance risks using several
methods, including monitoring of regulatory
developments, investigations upon alleged
misconduct reports, compliance training, internal
compliance reviews and process risk mapping, as
well as CSR due diligence.
Policy framework
We continuously work on improving our corporate
policies to reflect our values and commitments as
stated in our Code of Conduct. Our policies govern
general employee behaviour in key areas of good
business conduct, guide us to act responsibly and
with integrity, and govern our ways of working as
ONE aligned and efficient Arla.
49 ARLA FOODS ANNUAL REPORT 2020
Controls
We have zero tolerance towards violation of
principles set by our policies and secure this
through a coherent system of internal controls,
which are regularly assessed for effectiveness and
adequacy. We continue to develop our internal
control environment with system-embedded
controls as well as monitoring of our procedures to
avoid negligence and misconduct across business
processes. As a part of the control scheme, we
also develop data privacy control points,
subject to regular monitoring and review.
In 2020, we continued to build a
compliant culture. In 2019, we
focused on enhancing controls
and policies in our sales and
purchasing processes. We also
progressed in utilising
analytics and robotic
process automation to
strengthen our
compliance.
Code
of Conduct
Policies
Processes, procedures
and standards
Guidelines and instructions
Our governance framework
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RISK AND COMPLIANCE
MANAGEMENT (CONTiNUED)
to 2019. None of these investigations resulted in
material financial losses to the group, but they
provided us with valuable knowledge about the
state of our control environment, which has
proven to be strong.
Reporting
We report on our compliance at various organisational
levels throughout the year. Compliance scores are
reported quarterly to the Executive Management
Team, country-specific risks are reported to middle
management on a frequent basis, and compliance
concerns are reported annually to the Board of
Directors. Final observations from all compliance
activities and investigations in the year are reported
in the Annual Compliance Report to the Board of
Directors. In 2020, we improved our internal controls
and compliance processes, driven by the power of
compliance KPIs reporting and regular dialogue
within the business.
Go to our corporate webpage to read our
Code of Conduct.
Education and awareness
Our Code of Conduct and internal policies are
communicated to all employees supported by a
range of activities combining mandatory training
programmes and awareness campaigns. All
internal principles for business conduct are
available to our employees in a central Policy
Portal on Arla’s intranet, which is also accessible on
mobile devices. We offer a combined scheme of
training, including e-learning on major compliance
matters (e.g. competition law and information
security) and classroom training as appropriate.
In 2020, we saw a significant improvement in
identification of potentially fraudulent e-mails after
conducting cyber threat tests and subsequently
assigning targeted training to employees who
failed to recognise the risk.
Investigations
Openness and trust are among our core values
and incorporated into our Code of Conduct. If
employees believe that the Code of Conduct has
been violated, we encourage them to report
these violations. Concerns can be raised by
reporting to relevant management, HR or our
Risk Controls and Compliance department.
We also offer anonymous reporting through our
whistle-blower system, applying strict principles
of confidentiality and ensuring that no retaliatory
action will be taken against the person who
reports the violation. In 2020, we decreased the
number of reported fraud allegations compared
Key changes in Arla’s
risk position in 2020
The impacts of Covid-19 caused
confusion, concern and uncertainty
for people and economies across the
world, which was also reflected in Arla’s
risk position. We continuously address
the adverse consequences, while
trying to capture the opportunities and
continue with our operations.
During Covid-19, we experienced a
disruptive pace of change as more
consumers turned to e-commerce
and changed their shopping habits.
Due to our diverse and resilient
business we quickly adapted to the
new demand and continuously work
to strengthen our online presence.
The societal push for sustainable
production with low climate impact
increases at a steady pace.
Sustainability continues to be a key
priority for Arla, and we have set
ambitious targets for reducing our
environmental impacts and
implementing tools enabling us to
collect one of the world’s largest
sets of externally verified climate
data from dairy farming.
50 ARLA FOODS ANNUAL REPORT 2020
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RISK AND COMPLIANCE
MANAGEMENT (CONTiNUED)
TYPES Of RiSK
STRATEGiC: risks arising from external or internal trends or events that may
have material impact on the realisation of our strategic objectives
OPERATiONAL: risks that may compromise the execution of business functions
fiNANCiAL: risks that may cause unexpected volatility in milk price,
net sales, margins or market shares
LEGAL AND REGULATORY: risks related to legal or regulatory developments
that may have material impact on our realisation of business objectives
IMPACT
We differentiate risks within each major category by their potential impact. Impact indicates the level
of monetary and/or reputational loss. In this report, we focus on critical and major risks, but in our
internal risk management we also track and mitigate risks below these materiality levels.
Major: Long term impairment of market position and/or national media coverage resulting
in damage to brands/image and/or monetary loss 10-50 EURm.
Critical: Permanent reduction of brand value and/or extensive international media
coverage damaging the image of Arla and/or monetary loss in excess of 50 EURm.
Likelihood: When we talk about the movement of risk, we refer to change in the likelihood
of the risk materialising, considering the mitigation activities and controls lowering that likelihood.
51 ARLA FOODS ANNUAL REPORT 2020
Risk Owner
Mitigation
chain, our organisation is set up to deal with
uncertainty, and we can use our resilience and agility
to face the challenges. On a global scale, Covid-19
has also increased the uncertainty with regard to
the economic outlook, but as a global company we
have plans in place to act in various scenarios.
Impact:
2020 movement: New
Transformation of consumer
preferences (Covid-19 impact)
An example of the changing consumer preferences
is the increased demand for more sustainable
products. Recent studies show that 35 per cent of
global consumers are willing to trade up for a more
sustainable product. This is a great opportunity, but
also a great risk due to today’s significant GHG
emissions in dairy production, which potentially
could lead consumers towards dairy alternatives.
: Hanne Søndergaard, Chief Marketing Officer
: As part of our ‘Stronger Planet - Stronger
People’ sustainability strategy, we continuously
work to develop more sustainable packaging and
products. In 2021, we plan to step up our health
and sustainability proposition through big plays
for the Arla Brand while accelerating our communi-
cation to consumers regarding the many steps that
we take on our sustainability journey. We will also
continue to develop products that fit consumers’
demand for value offering. Read more in our
Responsibility Report.
Impact:
2020 movement: Stable
Strategic risks
Negative consequence of Brexit
The UK is a significant market for Arla, accounting
for 26 per cent of sales. The Free Trade Agreement
between the UK and the EU was welcomed, however,
the non-tariff barriers within the deal will create
friction resulting in additional complexity and cost.
: Peter Giørtz-Carlsen, Chief Commercial Officer
: Since the Brexit vote in 2016, we have
developed detailed scenario and mitigation action
plans, and we have continuously been mapping
potential impacts of various outcomes of the Brexit
negotiations. Looking into 2021, despite the Free
Trade Agreement, Brexit is placed as a mission
critical project on our business plan, and we are
well prepared to handle the impacts of Brexit on
our UK business. To read more go to page 20.
Impact:
2020 movement:
Political instability and economic
turmoil (Covid-19 impact)
Political instability across the countries where Arla
operates is a major risk with potential of significantly
affecting our sales and profitability. Political
uncertainty impacts exchange rates, interest rates,
international trade relationships, the ‘free’
movement of goods and services, production, etc.
: Peder Tuborgh, Chief Executive Officer
: During 2020, political uncertainty impacted
our business in multiple places from Lebanon in
the Middle East, over Sub-Saharan Africa to South
East Asia and most recently Brexit in Europe. With
our broad international footprint and agile supply
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MANAGEMENT (CONTiNUED)
Risk Owner
Mitigation
Insufficient response to sustainable
production and/or non-compliance with
climate regulations
The EU’s climate ambitions cause a potential risk
for Arla as they could lead to restrictions that we
are unable to comply with, thus forcing us to
reduce dairy production or impose significant cost
on Arla or our farmer owners.
: Hanne Søndergaard, Chief Marketing Officer
: As part of our sustainability strategy we introduced
environmental targets approved by the Science
Based Targets Initiative, and we are working hard to
reduce our carbon footprint. Our farmers perform
Climate Checks that provide data for impact analysis
and in 2021, we will continue rolling out the Climate
Checks to our farmers and launch a review of carbon
sequestration to monitor carbon footprint. We will
also watch Farm to Fork strategy development to
secure a prompt reaction to any further regulations.
To read more go to page 34.
Impact:
2020 movement: Stable
Disruptive pace of channel shift due to new
consumer shopping habits (Covid-19 impact)
As more consumers turned to e-commerce grocery
deliveries during Covid-19, the e-commerce space
developed at a pace that would normally be seen over
a 5-year period. We saw bricks and clicks players
increase their e-commerce participation and pure
players attracting new customers as the convenience
of having groceries delivered was maximised during a
period of huge change. The digital commerce sector
has seen a period of rapid innovation as food boxes
from retailers and food aggregator partnerships all
look to respond to the consumer demand of
delivered groceries.
: Peter Giørtz-Carlsen,
Chief Commercial Officer
: In 2020, we continued to build on our
partnerships across the grocery channel to invest
in people and technology, take advantage of the
change in shopping behaviour, and to capitalise on
this growing channel. In 2021, we will continue
adjusting according to the changing consumer
behaviour and look for new growth opportunities
across the e-commerce channel in order to
maintain our leading position within dairy and
secure our position on the digital shelf. This
includes investments in technology across
e-commerce sales and digital marketing as well as
building capabilities across the organisation to
harness the local market strengths. As Covid-19
impacts on the economies of European countries
start to take effect, we see consumers looking for
both value and convenience and the grocery
channel becoming more competitive as retailers
enhance their value proposition for consumers.
Impact:
2020 movement:
Operational risks
Health and Safety risk of business
continuity due to Covid-19
We acknowledge the risk of spreading the virus
among our employees, which besides posing a
health and safety risk for our employees, could
impact Arla’s brand reputation as well as business
continuity due to high absence rates.
: Ola Arvidsson, Chief Human Resources Officer
: During 2020, we conducted risk assessments
at all locations and applied adequate measures,
including social distancing, cleaning, working from
home, limitation on travel, etc. to avoid spreading
the virus. In 2021, we will continue with these
measures as required.
Impact:
2020 movement: New
Information security and cyber-attack
(Covid-19 impact)
Increasing significance of e-commerce and a shift
in working patterns caused by Covid-19 elevate
the risk of major cyber-attacks even further,
potentially resulting in inability to manufacture, sell
or ship products when integrated finance, logistics
or office support systems are disrupted..
Milk price and volume volatility
(Covid-19 impact)
Milk markets are significantly price volatile, which
European dairy companies and milk farmers have
had to cope with since the liberalisation of the
European milk markets in 2007. Commodity milk
prices quickly reflect global and European demand
and supply balances, and hence small changes in
consumer demand or farmer supply tend to drive
significant price adjustments. Covid-19 has
impacted dairy consumption and caused some
price volatility during 2020.
: Peder Tuborgh, Chief Executive Officer
: In Arla, we constantly monitor commodity
price developments and adjust our business
accordingly. But most importantly we keep front
line focus on our retail and brand portfolio where
we at all times generate the highest value for our
farmers’ milk and ensure stable value creation
across the commodity price cycles. Also, in 2020,
we succeeded in growing our branded share of
business. To read more go to page 54-62.
Impact:
2020 movement:
: Torben Dahl Nyholm, Chief Financial Officer
: In 2020, we ran a broad project to enable
periodic security vulnerability scanning. The core
network perimeter was strengthened with firewalls,
the latest threat prevention and security technologies.
We implemented a security education platform to
educate users on cyber-risk, as well as to test and
build their awareness through simulated phishing
campaigns. In 2021, we will continue to remediate
security vulnerabilities identified during scans in
2020. We will further improve our threat detection
and prevention capabilities, including cloud,
network, e-mail and endpoint protection
technologies. In addition, enhanced education
curriculum targeted to high-risk functions will
be applied.
Impact:
2020 movement: Stable
Financial risks
Currency fluctuation
As 58 per cent of Arla’s revenue is generated in
currencies other than EUR or DKK, our key financial
risk relates to the fluctuation of currencies in our
global markets.
52 ARLA FOODS ANNUAL REPORT 2020
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Risk Owner
Mitigation
communicated on a regular basis to relevant
employees in markets where we are present. Most
of these sessions are carried out as mandatory
face-to-face training sessions. Additionally, we have
an extensive written compliance programme as
well as a regularly updated competition law policy.
E-learning is also available to all colleagues
worldwide. We review our business processes and
IT systems and strengthen our internal policies and
procedures annually. We implemented a control
framework, which is supported by continuous
education of employees and audits of relevant
business partners. We have also improved our
HR processes, policies and procedures to ensure
data privacy of employees. To read more go to
page 49-50.
Impact:
2020 movement: Stable
RISK AND COMPLIANCE
MANAGEMENT (CONTiNUED)
: Torben Dahl Nyholm, Chief Financial Officer
: We have centralised foreign currency
exposure management in place, and we reduce
our short-term transactional exposure through
hedging activities in our main currencies.
Impact:
2020 movement: Stable
Legal and regulatory risks
Major product quality and/or safety issues
resulting in product recall
Food safety and compliance with health and safety
regulations is a top priority across our supply chain
and commercial business. It is also part of our social
responsibility commitments stated in our Code of
Conduct. Major product quality and/or food safety
deviation may lead to a brand reputation risk and
lack of trust in our products from Arla customers
and consumers. Furthermore, downgrade of
products may lead to financial losses.
: David Boulanger, Chief Supply Chain Officer
: We constantly improve and extend our quality
assurance programme. We have quality and food
safety management programmes in place driven
from a central QEHS department, and we monitor
our core production performance indicators
monthly. In 2021, we will focus on further
implementation of Arla QEHS Manual and Arla
Food Safety Mandatory standards, as well as
obtaining food safety certification from a third
party certifying body and further auditing against
customer requirements.
Impact:
2020 movement: Stable
Legal non-compliance, corruption, fraud
and unethical business conduct
Any instance of corruption or unethical business
conduct raises risk of reputational damage, fines
and criminal prosecution. Across all core business
processes an inherent risk of misconduct exists and
needs mitigation. For example, we need to ensure
competition law compliance in all areas, markets
and functions. This requires that we act in
accordance with the legislation when entering into
agreements with suppliers and customers.
Competition law infringements are subject to
significant regulatory fines but also entails a risk of
material damage to our reputation. We must also
secure the privacy of our employees’, customers’
and other business partners’ personal data in line
with GDPR. Actual or perceived violations of GDPR
or other data privacy and system security
regulations could raise a risk of significant
regulatory fines and reputation damage.
: Torben Dahl Nyholm, Chief Financial Officer
: We have zero tolerance for misconduct which
may compromise our reputation or corporate
integrity. We constantly educate our employees on
the principles of our Code of Conduct and internal
policies, e.g. anti-harassment, anti-bribery, fraud,
and third party entertainment policy. We monitor
any misconduct through a system of internal
controls in all business processes, and we identify
irregularities through reporting structures,
including a group-wide whistle-blower programme.
We have taken significant steps to ensure
competition law compliance. The messaging from
top management is unambiguous, and it is
53 ARLA FOODS ANNUAL REPORT 2020
OUR
PERfORMANCE
REViEw
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In a year like no other, defined by the Covid-19 pandemic,
Arla managed sales and operations in a robust way
and delivered solid results on our Key Performance
Indicators (KPIs). Despite the challenging market
environment and volatility in market prices and
currencies, Arla managed to improve the performance
price to 36.9 EUR-cent/kg in 2020, up from
36.6 EUR-cent/kg in 2019. In a rapidly changing
and volatile retail and foodservice environment,
Arla delivered strong branded volume driven revenue
growth of 7.7 per cent and a net profit of 3.2 per cent.
At the same time, our Calcium transformation
and efficiency programme contributed
EUR 130 million in savings, and our financial
leverage closed the year at a firm 2.7 level.
55 ARLA FOODS ANNUAL REPORT 2020
Torben Dahl Nyholm
Chief Financial Officer
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MARKET OVERVIEw
In 2020, the global macroeconomic environment was characterised by the uncertainty caused by Covid-19, expected
recessions looming across most markets, as well as continued uncertainties in global political and trade relations, most
notably exemplified by the Brexit preparations. During the year, lockdowns, curfews and other restrictive measures
impacted all parts of the global dairy supply chain from farmer to consumer, and the turmoil caused instability in
market milk prices during the first half of the year.
UNCERTAiNTY iN THE
MACROECONOMiC ENViRONMENT
When the pandemic hit the Western world in early
spring 2020, an economic slowdown had already
been forecasted by analysts, and the latest IMF
forecasts predict a Euro area GDP growth of -7.2
per cent in 2020. With the Covid-19 crisis hitting
many nations’ economies hard, the depth of the
crisis and the speed of the recovery is still largely
uncertain, partly because government support
packages mitigate the impact in most countries.
The macroeconomic environment was further-
more impacted by the uncertainty caused by the
ongoing Brexit negotiations.
Average exchange rates, 2019-2020
Currency
2019
2020
Change
vs. 2019
EUR/USD
EUR/GBP
EUR/SEK
1.119 1.140
-1.8%
0.877 0.889
-1.3%
10.587 10.483
1.0%
The disruption following the pandemic caused
volatility in exchange rates across Arla’s core
markets. The GBP, which was also affected by the
uncertainty caused by Brexit, declined and
fluctuated below pre-Covid-19 levels with an
average 1.3 per cent lower EUR/GBP exchange rate
in 2020 than in 2019. The USD declined modestly
during 2020 and was down by 1.8 per cent
compared to 2019. The SEK increased by 1.0 per
cent against the EUR during 2020 compared to
2019. Lastly, USD shortage resulted in the
devaluation of local currencies in some emerging
markets.
CHANGiNG CUSTOMER AND
CONSUMER bEHAViOUR DRiVEN
bY COViD-19
During 2020, customer and consumer behaviour
changed significantly, causing volatility in retail
and food service demand for dairy products. As
restaurants, cafes and canteens closed during
lockdowns, consumers increased in-home
consumption and made fewer trips to grocery
stores, resulting in larger baskets at single
shopping trips and increased reliance on online
grocery shopping. Especially during the first
lockdowns in spring, uncertainty and anxiety drove
unprecedented growth in e-commerce and retail
dairy consumption. The foodservice sector was, on
the other hand, negatively affected by lockdowns
and curfews. In the UK, 14 per cent of sales in
the dairy category are now online, and the dairy
category is ahead of the total online grocery
development. Over a 12-week period in autumn
2020, online dairy sales grew by +89 per cent with
retailers seeing strong double-digit growth.
STAbLE EUROPEAN MiLK SUPPLY
fROM DAiRY fARMERS
European milk production and intake remained
stable despite the turmoil in markets and volatility
in demand caused by the Covid-19 pandemic.
European milk volumes grew by 1.7 per cent.
Milk farmers across Europe were able to keep
supply largely undisrupted and thereby played a
vital role in ensuring critical food supplies during
the pandemic.
VOLATiLiTY iN MARKET
MiLK PRiCES
2020 was characterised by market imbalances
caused by sudden fluctuations in demand, which
led to volatility and low predictability in European
market milk prices. In the second quarter, milk
prices dropped by 20-25 per cent across all
industry dairy products, but stabilised again in the
third quarter. However, the second round of
lockdowns in the last quarter caused hesitancy in
the market, and prices weakened again, particularly
in the mozzarella category.
Online development in the UK*
(per cent/EURm)
20
15
10
5
239
8%
8%
247
14%
487
500
400
300
200
100
2018
2019
2020
e-commerce channel share (%)
e-commerce value sales (EURm)
Source: Kantar, November 2020
European commodity prices in 2020
(EURm)
4,000
3,500
3,000
2,500
2,000
1,500
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2019
2020
Yellow cheese
Mozzarella
56 ARLA FOODS ANNUAL REPORT 2020
* Source: Kantar, November 2020
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PERfORMANCE REVIEw
Our ability to keep operations running during the Covid-19 pandemic and quickly react to changes in market trends and
demands was a defining factor in 2020. In this environment, we grew our strategic branded volume driven revenue by
7.7 per cent across our brands and commercial segments, while strengthening our business execution through our
transformation and efficiency programme Calcium with EUR 130 million in additional savings. With this result, we are on
course to reach our 2021 target of EUR 400 million in savings. We also continued delivering on our sustainability strategy and
further reduced our scope 1 and 2 CO₂e emissions, reaching a total reduction of 24 per cent compared to the 2015 baseline.
STAbLE AND COMPETiTiVE
PREPAiD MiLK PRiCE
Arla targets an annual net profit share in the range
of 2.8 to 3.2 per cent of revenue, allowing us to
actively balance the retained capital for future
investments and provide a competitive supple-
mentary payment to our farmer owners. This also
enabled us to pay out the largest possible share of
our profit via the pre-paid milk price to our farmer
owners during the year. In 2020, we achieved a net
profit within the target range of EUR 345 million
equalling 3.2 per cent of revenue and 0.2 percentage
points higher than in 2019, which is a strong result
for our cooperative. The average pre-paid milk price
was 34.1 EUR-cent/kg which was unchanged
compared to last year. The performance price for
2020 was 36.9 EUR-cent/kg, compared to 36.6
EUR-cent/kg in 2019 (an increase of 0.8 per cent).
Performance price
(EUR-cent/kg)
38.1
36.4
36.6
36.9
30.9
Standard prepaid milk price 2019-2020
(EUR-cent/kg)
38
37
36
35
34
33
32
31
30
2016
2017
2018
2019
2020
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2019
2020
MODEST GROwTH iN MiLK iNTAKE
fROM fARMER OwNERS
Despite the turmoil caused by the Covid-19
pandemic, Arla maintained a stable average
pre-paid milk price in 2020. However, as global
commodity prices dropped as a consequence of
the uncertainty in the market, Arla’s pre-paid milk
price decreased in May, but increased again in
October and November as the 2020 year-end
outlook improved.
In 2020, we saw a modest increase in the milk
intake from our owners of 1.1 per cent compared
to 2019. The growth was seen across our main
owner countries with the highest increase in
volumes from our UK and Swedish farmer owners.
In Sweden, the milk intake increased by 2.1 per
cent and showed growth for the first time in more
than 5 years. This was partly due to good farming
conditions in 2020 after two years of draught, as
well as increasing milk volumes at farms offsetting
the loss from farms that reduced their volumes or
stopped producing for Arla.
57 ARLA FOODS ANNUAL REPORT 2020
“ARLA’S MiSSiON
iS TO SECURE THE
HiGHEST VALUE
fOR OUR fARMERS’
MiLK wHiLE
CREATiNG
OPPORTUNiTiES
fOR THEiR
GROwTH.”
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
PERfORMANCE REVIEw (CONTiNUED)
REVENUE iNCREASE DRiVEN bY
bRANDED GROwTH
Reaching the midpoint of our 2020 guidance, our total
revenue amounted to EUR 10.6 billion compared to
EUR 10.5 billion in 2019, an increase of EUR 0.1 billion
or 1.1 per cent compared to 2019. The develop -
ment in revenue can be explained by changes in
volume and product mix, sales prices, exchange rates
as well as M&As. In 2020, we saw a revenue increase
from volume and product mix of EUR 270 million
driven by the success of our brands, also in meeting
the changing consumer behaviour following Covid-19.
See note 1.1 for further information. Sales prices
declined modestly with an impact of EUR 133 million,
and exchange rates had a negative impact of EUR 85
million. Lastly, there was an effect of EUR 65 million
from M&As, mainly driven by the full-year impact of
the licence agreement to manufacture, market and
distribute the Kraft® cheese brand in MENA.
bRAND GROwTH DRiVEN bY
iN-HOME CONSUMPTiON AND
STRONG COMMERCiAL ExECUTiON
Good Growth 2020 set an ambitious goal of
improving the overall quality and value of our revenue
by shifting volumes from private label and industry
sales into our high-value-adding branded product
portfolio. In 2020, we delivered strategic branded
volume driven revenue growth of 7.7 per cent
compared to 5.1 per cent in 2019. This is an all-time
high brand growth, partly due to our fast adaptation
to Covid-19 consumer and consumption trends.
The main driver of the branded volume driven revenue
growth was our global butter and spreads brand
Lurpak®, growing by 14.6 per cent. The Arla® brand,
Puck® and Starbucks™ also delivered growth
above expectations of 3.0, 11.7 and 27.9 per cent,
58 ARLA FOODS ANNUAL REPORT 2020
respectively. Kraft® performed very well during its first
year on Arla hands, growing by 153 per cent due to the
full-year effect and strong commercial execution in
MENA. The overall branded growth was driven by
increased in-home lunching, cooking and baking due
to Covid-19 curfews combined with strong commercial
execution. On the contrary, our foodservice business
saw a decline due to lockdowns.
Read more about our brands on page 23-24.
STRONG PERfORMANCE ACROSS
COMMERCiAL SEGMENTS
Our International segment delivered strong strategic
branded volume driven revenue growth of 11.6 per
cent across most countries. The growth was
particularly driven by the MENA region where
branded revenue grew by 20.1 per cent as well as the
Rest of World distributed sales. The Arla® brand grew
modestly by 1.6 per cent, whereas Lurpak®, Puck® and
Starbucks™ achieved very high growth rates of
12.2, 11.6 and 20.7 per cent, respectively. Kraft®
also got off to a very good start on Arla hands
growing by 153 per cent.
Read more about our International segment
on page 27-28.
Our European commercial segment, representing
60 per cent of Arla’s revenue, delivered strong
branded growth of 5.9 per cent despite the volatility
in the market. Growth was driven by increased home
consumption and e-commerce sales. This more than
compensated for the decline in foodservice sales
following lockdowns during the year. Growth was
driven by the Arla® brand at 3.4 per cent, Lurpak® at
15.9 per cent and Starbucks™ at 32.4 per cent.
Read more about our European segment
on page 25-26.
Arla Foods Ingredients (AFI) increased the value-add
ingredient business to 73.7 per cent in 2020, driven
by growth in the pediatric and medical nutrition
segments, but the food segment and child nutrition
manufacturing business were negatively impacted by
lockdowns and delays in customers’ new product
launches.
The share of milk sold by our Global Industry Sales
decreased by 2.3 percentage points compared to last
year as large volumes of milk were shifted into retail
to meet the increasing demand during the pandemic.
This truly demonstrated the flexibility of our Global
Industry Sales business.
Revenue split by
commercial segment
Branded revenue,
split by brands
Europe 60%
Arla Foods
Ingredients 7%
International 19%
Global Industry Sales
and other 14%
Arla® 61%
Castello® 3%
Lurpak® 12%
Puck® 8%
Milk-based beverages 5%
Other supported brands 11%
Branded volume driven revenue growth
2020
2019
2018
7.7%
5.1%
3.1%
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
PERfORMANCE REVIEw (CONTiNUED)
Financial leverage development
2.8
2.7
2.6
2.4
2.4
130
110
114
2016
2017
2018
2019
2020
130
(EURm)
2020
2019
2018
THiRD YEAR Of STRONG
CALCiUM DELiVERY
Our transformation and efficiency programme,
Calcium, was initiated as part of the strategy to
increase efficiencies and operational execution
across the business and strengthen Arla for the
future. 2020 was the third year of the Calcium
programme, and again the programme delivered
strong results with savings of EUR 130 million,
significantly ahead of our target range of EUR
75-100 million for the year. The accumulated
Calcium savings achieved since the programme
start in 2018 increased to EUR 354 million,
approaching our 2021 target of EUR 400 million.
Savings were primarily achieved through further
supply chain efficiencies as well as decreased
marketing spend and SG&A optimisation, supported
by reduced expenses due to employees working
from home and less business travel during Covid-19.
Read more about our Calcium programme
on page 16-17.
LEVERAGE bETTER
THAN TARGET RANGE
Arla’s leverage is calculated as the ratio of net
interest-bearing debt, including pension liabilities,
to operating profit, i.e. EBITDA. This measures Arla’s
ability to generate profit compared to our net-interest
bearing debt. Leverage is our most important
indicator of our financial position and our long-term
target range is 2.8-3.4. In 2020, leverage decreased
to 2.7 compared to 2.8 in 2019 despite a high level
of investment. This was the result of strong cash
generation from operations as well as firm cash
management throughout the year.
Net interest-bearing debt including pensions
increased to EUR 2,427 million compared to EUR
2,362 million in 2019. The increase was primarily
due to a high investment level. EBITDA increased
by EUR 72 million to EUR 909 million compared to
EUR 837 million last year.
Arla’s overall financial position is strong and
provides us with flexibility to fund our strategy and
pursue our vision to create the future of dairy. Arla
does not hold a public rating; however, based on
the market pricing of our bond issues and feedback
from several external financial relations, Arla is
considered a solid investment grade company and
is committed to maintaining this status going
forward.
STRONG CASH fLOw fROM
OPERATiNG ACTiViTiES
Arla’s cash flow from operating activities decreased
to EUR 731 million compared to EUR 773 million
last year. The higher EBITDA was more than offset
by increased positions of other working capital
items, such as import VAT, duties and HR-related
liabilities.
NET wORKiNG CAPiTAL
The net working capital position decreased to EUR
679 million compared to EUR 823 million last year.
This was primarily driven by a decline in the value
of trade receivables and increased trade payables.
Increased working capital requirements, primarily
related to stronger sales, were offset by the effect
of the utilisation of receivables finance programmes
and improved internal processes. Turnover days
improved by 1.6 days from 2019 to 2020.
59 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
PERfORMANCE REVIEw (CONTiNUED)
INVESTMENTS
In 2020, Arla invested significantly in our global
supply chain and IT infrastructure. Our CAPEX
investments, including right of use assets, totalled
at EUR 580 million. Key CAPEX projects included
continued activities related to the construction of
our powder tower in Pronsfeld, Germany, a capacity
increase in mozzarella production at our site in
Branderup, Denmark, as well as investments in our
newly acquired plant in Bahrain. These projects
will continue into 2021.
In 2020, we also strengthened our investment
process by formalising the use of a climate-adjusted
payback indicator to embed the carbon footprint of
CAPEX and M&A investments into our investment
approval and prioritisation process, underlining
our commitment to investing in the sustainable
future of dairy.
MEASURiNG AND REPORTiNG OUR
STRONGER PLANET AND STRONGER
PEOPLE iMPACT
During 2020, we continued our efforts to reduce
our environmental impact and reached a reduction
in CO₂e emissions from operations (scope 1 and 2)
of 24 per cent compared to the baseline year
2015. Understanding and measuring our climate
impact correctly is an indispensable first step
towards lowering our climate footprint. In this
turbulent year, Arla managed to reach two
important milestones on this journey. With the
concerted effort of 9,406 farmer owners, carbon
emissions from 96 per cent of Arla’s milk volume
were measured for the first time using our Climate
Check questionnaire. The external verification of
the survey data began in 2020 and is expected to
be finished by the end of March 2021.
Read more on page 34.
CLiMATE iMPACT
CO₂e emission reduction,
scope 1 and 2
24%
Baseline: 2015
Science Based Target 2030: 30%
CO₂e emission reduction,
scope 3 per kg of milk and whey
7%
Baseline: 2015
Science Based Target 2030: 30%
Investments in property, plant
and equipment including
right of use assets
(EURm)
506
580
383
263
248
2016
2017
2018
2019
2020
60 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
fINANCIAL OUTLOOK
In 2021, we will further adapt and adjust to the significant changes experienced during 2020, most notably caused by the continuation of the
Covid-19 pandemic. However, 2021 will also be a year when we continue to build on the current strategic momentum, continue our branded
volume driven revenue growth, strive to deliver a strong final year of our transformation and efficiency programme Calcium and take new
important steps towards delivering our Sustainability Strategy.
UNCERTAiNTY IN 2021
AND LEARNiNGS fROM 2020
The macroeconomic and political outlook for 2021
remains challenging, primarily due to the continuation
of the Covid-19 pandemic. As indicated by the IMF,
the global GDP growth projection for 2021 is 5.5 per
cent, but will still not recover to 2019 levels.
Emerging and developing economies are projected
to grow by 6.3 per cent (-2.4 per cent in 2020) and
advanced economies by 4.3 per cent (-4.9 per cent
in 2020). This could potentially have an impact on
the buying power and dairy demand growth.
requirements in this uncertain environment.
Our most important learning from 2020 is that agility
and speed of adaptation are key to success during
these uncertain times.
Brexit ended with a free trade agreement, and hence
the outlook for our core UK market is relatively stable
despite expected friction cost and uncertainty
regarding custom clearance delays etc.
Our financial outlook and guidance for 2021 are
subject to these uncertainties.
In 2021, the consequences of Covid-19 will continue
to significantly impact our business, and we strive to
continue our strong commercial execution with the
agility and resilience of our supply chain and farmer
owners to quickly adapt to new demands and
CONSUMER TRENDS
iN UNCERTAiN TiMES
The main consumer trends expected to impact dairy
in 2021, especially in the Western markets, are
e-commerce, growing in-home consumption, and
significant uncertainty about the return of foodservice.
This is due to the continued uncertainty caused by
the pandemic, and the speed of return to the ‘new
normal’. Despite the Covid-19 impacts, we still
predict a continuation of the strong consumer and
societal trends of sustainably produced food,
increasing expectations for nutritious products and
guidelines, and growing convenience and on-the-go
sales. This is coupled with with higher consumer
and societal demands for transparency and
accountability.
fURTHER iMPROViNG THE QUALiTY
Of OUR bUSiNESS THROUGH
STRATEGiC bRANDED GROwTH
Despite the very strong growth in 2020, we still
expect to grow our brand positions in 2021. We
expect to grow branded volumes in the range of
1-3 per cent and hence further improve the quality
of our revenue and the competitiveness of our
business portfolio. The 2021 branded growth target
is expected to move our branded share of revenue to
50 per cent and our international share above 23.5
per cent. In 2021, the continued strategic branded
growth is expected to be driven by strong commer-
cial execution across our European and international
commercial segments.
fiNAL DELiVERY Of EUR 400
MiLLiON iN CALCiUM SAViNGS
We expect to further strengthen Arla’s
competitiveness, driven by our transformation
and efficiency programme, Calcium. Our ambition
for 2021 is to achieve savings of EUR >45 million
and hence take the final steps towards reaching
our full programme target of EUR 400 million.
TARGETS, ACHiEVEMENTS, OUTLOOK
Revenue
Profit share
Calcium savings
Leverage
International share
Brand share
10.3 - 10.6
2.8 - 3.2%
>45
2.8 - 3.4
>23.5%
>50%
Strategic branded volume
driven revenue growth
1 - 3%
2020: 10.6 EURb
2020: 3.2% of revenue
2020: 130 EURm
2020: 2.7
2020: 23.6%
2020: 48.9%
2020: 7.7%
61 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
fINANCIAL OUTLOOK (CONTiNUED)
In 2021, Calcium savings are expected to be largely
driven by efficiencies in our production, logistics
and procurement activities, but we expect savings
to slow down to some extent due to unprecedented
high levels in 2020.
ExPECTED NET PROfiT Of
AT LEAST 2.8 PER CENT
As we always focus on paying out the largest
possible share of our profit via the prepaid milk
price to our farmer owners, we continue to target
a net profit share for 2021 in the range of 2.8 to 3.2
per cent. Our net profit target range is a full-year
target, and results for the half-year 2021 are
expected to be below the annual target range due
to seasonality in our profit creation.
SiGNifiCANT iNVESTMENTS
iN 2021
2021 will be another important investment year
for Arla with an investment outlook of EUR 700
million, driven by structural investments, Calcium
efficiency initiatives and sustainability activities.
Our main projects will be the finalisation of our
powder tower in Pronsfeld, Germany and the
mozzarella capacity increase project in Branderup,
Denmark. Another key investment project will be
the expansion of our production site in Bahrain, as
well as investments at our production site in Riyad,
Saudi Arabia. AFI also continues to be a core
investment area in 2021 focused on the Denmark
Protein and ARINCO sites. Our continued strong
financial position allows us to invest in the
capacities and technologies required to build the
future of dairy, while stepping up our focus on
energy efficiency and other investments driven by
our ambitious sustainability strategy.
SOLiD LEVEL Of LEVERAGE
ExPECTED iN 2021
Sufficient financial room to manoeuvre is a priority
for Arla as it enables us to strategically position
ourselves for future growth. Based on our ambitious
investment plans for 2021, we expect leverage to
increase slightly versus the 2020 level. However,
continued improvement of our working capital
position and a strong operational cash flow will likely
deliver leverage at the lower end of our long-term
target range of 2.8-3.4.
CONTiNUED DELiVERY
ACCORDiNG TO GOOD GROwTH 2020
AND NEw LEARNiNGS
2021 will be a year in which we continue to build
on the momentum of the Good Growth 2020
strategy as well as the learnings from the first year
of the Covid-19 pandemic.
As reflected in our Essential Business Priorities for
2021, we will continue our strong operations in
light of Covid-19 and further develop our branded
market positions, protect and develop strategic
positions with our top customers, and further
strengthen e-commerce. At the same time, we will
focus on delivering the last stretch of our Calcium
programme and accelerating our sustainability
agenda. We will continue to implement our Climate
Check programme, make efficiency improvements
of our Arlagården® programme and support
livelihoods in selected growth markets. A new
strategy will be defined to set the future course for
Arla beyond 2021.
ESSENTIAL bUSINESS PRIORITIES fOR 2021
CONTiNUE STRONG
OPERATiONS iN LiGHT Of
COViD-19
Continue operational stability and
security of supply for our customers.
Sustain and further develop branded
market positions captured during
Covid-19, while engaging and securing
the safety of our employees.
POwER UP GROwTH
CHANNELS AND KEY
CUSTOMERS
Protect and develop strategic positions
with our top customers, step up
e-commerce and drive new concepts
for foodservice.
wiN wiTH fORESiGHT
iN CHANGiNG
CONSUMER TRENDS
Step up health and sustainability
proposition through big plays for the
Arla Brand, while developing our
strategic brands to capture consumers’
demand for value offering.
DEMONSTRATE AND
ACCELERATE
SUSTAiNAbiLiTY
Accelerate our sustainability agenda
and demonstrate our progress, while
further building on our strong farmer
owner engagement and progress.
DELiVER CALCiUM
AND EMbED NEw wAYS
Of wORKiNG
Deliver the last stretch of EUR >45
million to reach our 2021 target of EUR
400 million sustainable cost savings,
and continue to build our future pipeline,
while anchoring the transformation and
embedding Covid-19 learnings across
the organisation.
DELiVER MISSION-
CRITICAL PROJECTS
Navigate outcome of Brexit and
minimise friction costs, secure more
whey for AFI and deliver on key
investment projects.
wiN THE fUTURE
Create even stronger member relations
where trust in the cooperative is further
enhanced, while defining a new group
strategy to set the future course for Arla.
62 ARLA FOODS ANNUAL REPORT 2020
The forward-looking statements in this Annual Report reflect our current expectations for future events and financial results. Such statements are inherently subject to uncertainty, and actual results may therefore
deviate from expectations. Factors which may cause the actual results to deviate from expectations include general economic developments and developments in the financial markets, changes or amendments to
legislation and regulation in our markets, changes in demand for products, competition and the prices of raw materials. See also the section on risk (from page 49).
OUR
CONSOLiDATED
fiNANCiAL
STATEMENTS
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
TAbLE Of CONTENTS
PRiMARY STATEMENTS
NOTES
REPORTS
65
Income statement
65 Comprehensive income
66 Profit appropriation
67 Balance sheet
68 Equity
71 Cash flow
73
Introduction to notes
Revenue and costs
1.1 Revenue
74
1.2 Operational costs
76
1.3 Other operating income and costs
78
1.4 Key Performance indicators
79
Net working capital
80 2.1 Net working capital, other receivables
and current liabilities
3.1 Intangible assets and goodwill
3.2 Property, plant and equipment
3.3 Associates and Joint ventures
Capital employed
83
86
89
90 3.4 Provisions
91
3.5 Purchase and sale of business
or activities
64 ARLA FOODS ANNUAL REPORT 2020
118 Statement by the Board of Directors
and the Executive Board
119 Independent auditor’s report
Funding
92 4.1 Financial risks
99 4.2 Financial items
100 4.3 Net interest-bearing debt
105 4.4 Derivatives
106 4.5 Financial instruments
107 4.6 Sale and repurchase agreements
108 4.7 Pension liabilities
Other areas
112 5.1 Tax
113 5.2 Fees to auditors appointed by
the Board of Representatives
114 5.3 Management remuneration
and transactions
114 5.4 Contractual commitments,
contingent assets and liabilities
114 5.5 Subsequent events after
the balance sheet date
115 5.6 General accounting policies
116 5.7 Group chart
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
COMPREHENSiVE
iNCOME
Note
2020
2019 Develop-
ment, %
(EURm)
Profit for the year
Note
2020
2019
352
323
Other comprehensive income
Items that will not be reclassified to the income statement:
Re-measurements of defined benefit schemes
Tax on remeasurements of defined benefit schemes
Items that may be reclassified subsequently to the income statement:
Value adjustments of hedging instruments
Fair value adjustments of certain financial assets
Adjustments related to foreign currency translation
Tax on items that may be reclassified to the income statement
Other comprehensive income, net of tax
4.7
4.4
Total comprehensive income
Allocated as follows:
Owners of Arla Foods amba
Non-controlling interests
Total
5
4
41
-3
-84
0
-37
-50
11
-22
-2
42
-1
-22
315
301
308
7
315
289
12
301
1.1
1.2
1.2
1.2
1.3
1.3
3.4
1.2
4.2
4.2
5.1
10,644
-8,301
2,343
10,527
-8,325
2,202
-1,483
-439
-52
61
28
458
-1,416
-389
-64
39
34
406
909
-451
458
7
-79
386
-34
352
-7
345
837
-431
406
10
-69
347
-24
323
-12
311
1
0
6
5
13
-19
56
-18
13
9
5
13
-30
14
11
42
9
-42
11
INCOME
STATEMENT
(EURm)
Revenue
Production costs
Gross profit
Sales and distribution costs
Administration costs
Other operating costs
Other operating income
Share of results after tax in joint ventures and associates
Earnings before interest and tax (EBIT)
Specification:
EBITDA
Depreciation, amortisation and impairment losses
Earnings before interest and tax (EBIT)
Financial income
Financial costs
Profit before tax
Tax
Profit for the year
Non-controlling interests
Arla Foods amba's share of profit for the year
65 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
PROfiT
APPROPRiATiON
(EURm)
2020
2019
Profit appropriation for 2020
Supplementary payment:
1,75 EUR-cent/kg owner milk
Consolidation principles:
Common capital 2/3
Individual capital 1/3
Supplementary
payment
219 EURm
4 EURm
EURm
223
Consolidation
81 EURm
41 EURm
EURm
122
Common capital
81 EURm
Individual capital
41 EURm
352
-7
345
219
4
223
81
41
122
345
323
-12
311
124
3
127
123
61
184
311
Performance price
36.9
EUR-cent/kg
Standard prepaid
milk price
34.1 EUR-cent/kg
Profit for the year
345* EURm
2.8 EUR-cent/kg
*Based on profit allocated to owners of Arla Foods amba
Profit appropriation
The proposed supplementary payment for 2020 is EUR
223 million, including interest, corresponding to 1,75
EUR-cent/kg owner milk. Interest on the carrying value
of contributed individual capital amounted to EUR 4
million. Contributed individual capital carried an interest
of 1.60 per cent in 2020.
In addition, EUR 122 million is transferred to equity and
split into 1/3 to individual capital (contributed
individual capital), amounting to EUR 41 million and
2/3 to common capital (reserve for special purposes),
amounting to EUR 81 million.
Profit for the year
Non-controlling interests
Arla Foods amba's share of net profit for the year
Profit appropriation:
Supplementary payment for milk
Interest on contributed individual capital
Total supplementary payment
Transferred to equity:
Reserve for special purposes
Contributed individual capital
Total transferred to equity
Appropriated profit
66 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
bALANCE
SHEET
(EURm)
Note
2020
2019 Develop-
ment, %
(EURm)
Note
2020
2019 Develop-
ment, %
Assets
Non-current assets
Intangible assets and goodwill
Property, plant, equipment and right of use assets
Investments in associates and joint ventures
Deferred tax
Pension assets
Other non-current assets
Total non-current assets
Current assets
Inventory
Trade receivables
Derivatives
Other receivables
Securities
Cash and cash equivalents
Total current assets
Total assets
3.1
3.2
3.3
5.1
4.7
2.1
2.1
4.5
2.1
4.6
931
2,915
470
29
40
28
4,413
1,080
811
57
424
420
126
2,918
982
2,710
468
43
16
24
4,243
1,092
889
20
240
435
187
2,863
7,331
7,106
-5
8
0
-33
150
17
4
-1
-9
185
77
-3
-33
2
3
Equity and liabilities
Equity
Common capital
Individual capital
Other equity accounts
Proposed supplementary payment to owners
Equity attributable to the owners of Arla Foods amba
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Pension liabilities
Provisions
Deferred tax
Loans
Total non-current liabilities
Current liabilities
Loans
Trade and other payables
Provisions
Derivatives
Current tax
Other current liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
1,968
513
-118
223
2,586
53
2,639
247
21
64
1,964
2,296
695
1,212
25
66
11
387
2,396
1,894
498
-72
127
2,447
47
2,494
249
23
81
1,951
2,304
776
1,158
9
86
5
274
2,308
4,692
4,612
7,331
7,106
4
3
64
76
6
13
6
-1
-9
-21
1
0
-10
5
178
-23
120
41
4
2
3
4.7
3.4
5.1
4.3
4.3
2.1
3.4
4.5
67 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
EQUiTY
(EURm)
Equity at 1 January 2020
Supplementary payment for milk
Interest on contributed individual capital
Reserve for special purposes
Contributed individual capital
Non-controlling interests
Profit for the year
Other comprehensive income
Total comprehensive income
Payments to owners
Transactions with non-controlling interests
Supplementary payment related to 2019
Foreign exchange adjustments
Total transactions with owners
Equity at 31 December 2020
Equity at 1 January 2019
Supplementary payment for milk
Interest on contributed individual capital
Reserve for special purposes
Contributed individual capital
Non-controlling interests
Profit for the year
Other comprehensive income
Total comprehensive income
Payments to owners
Transactions with non-controlling interests
Supplementary payment related to 2018
Foreign exchange adjustments
Total transactions with owners
Equity at 31 December 2019
68 ARLA FOODS ANNUAL REPORT 2020
Common capital
Individual capital
Other equity accounts
t
n
u
o
c
c
a
l
a
t
i
p
a
C
885
-
-
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9
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-16
878
928
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1,009
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81
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81
-
81
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-
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1,090
886
-
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123
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271
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-
41
-
41
-
41
-11
-
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1
-10
302
222
-
-
-
61
-
61
-
61
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-
-
-1
-12
271
68
-
-
-
-
-
-
-
-
-4
-
-
1
-3
65
72
-
-
-
-
-
-
-
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-
-
-
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68
159
-
-
-
-
-
-
-
-
-7
-
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-13
146
162
-
-
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-9
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159
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127
219
4
-
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223
-
223
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223
290
124
3
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127
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127
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127
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41
-
-
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r
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t
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2,447
219
4
81
41
-
345
-37
308
-22
-20
-127
-
-169
2,586
2,471
124
3
123
61
-
311
-22
289
-24
-
-289
-
-313
2,447
g
n
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N
s
t
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t
n
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47
-
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7
7
-
7
-
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-
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53
48
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12
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12
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r
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t
n
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2,494
219
4
81
41
7
352
-37
315
-22
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-3
-170
2,639
2,519
124
3
123
61
12
323
-22
301
-24
-15
-289
2
-326
2,494
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
EQUiTY (CONTiNUED)
Understanding 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 are explained below.
Common capital
Common capital is by nature un-allocated to individual
members 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 on
page 70, ensures that the account cannot be used for
payments 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 recognised in this account.
Individual capital
Individual capital is capital allocated to each owner
based on their delivered milk volume. Individual capital
consists of contributed individual capital, delivery-based
owner certificates and injected individual capital.
Amounts registered to these accounts will, subject to
approval by the Board of Representatives, be paid out
when owners leave the cooperative. Amounts allocated
to contributed individual capital as part of the
annual profit appropriation are interest-bearing. The
account for proposed supplementary payment that will
be paid out following the approval of the annual report
is also classified as individual capital.
Other equity accounts
Other equity accounts include accounts prescribed
by IFRS. These include reserves for value adjustments
of hedging instruments, the reserve for fair value
adjustments of certain financial assets and the reserve
for foreign exchange adjustments.
Non-controlling interests
Non-controlling interests represent the share of group
equity attributable to holders of non-controlling
interests in group companies.
Equity share 35 per cent
During 2020 equity increased by EUR 145 million
compared to last year and totalled EUR 2,639 million
at 31 December 2020.
Transactions with farmer owners
A supplementary payment relating to 2019 totalling
EUR 127 million was paid out in March 2020. Additionally,
EUR 22 million was paid out to owners resigning or
retiring from the cooperative. The Board of Directors
proposes to pay EUR 223 million in March 2021 as a
supplementary payment including interest on individual
capital instruments for 2020. Furthermore, it is
expected that EUR 18 million will be paid out in 2021
to owners resigning or retiring.
Other equity adjustments
Other equity adjustments of EUR -58 million relates to
other comprehensive income of EUR -37 million and to
changes in non-controlling interests of EUR -21 million.
Other comprehensive income includes income and
expenses as well as gains and losses that are excluded
from the income statement. Typically they have not yet
been realised. The net cost of EUR -37 million was due
to negative value adjustments on net assets measured
in foreign currencies, partly offset by positive value
adjustments on hedging instruments and actuarial
gains on pension assets and liabilities. The net cost of
EUR -21 million in non-controlling interests relates to
purchases of equity instruments in subsidiaries and the
net effect of dividends and capital increases.
The equity share of 35 per cent is calculated as equity
excluding non-controlling interests at EUR 2,586
million divided by total assets of EUR 7,331 million.
69 ARLA FOODS ANNUAL REPORT 2020
Development in equity
(EURm)
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
352
-127
-22
-58
2,639
2,494
Equity including non-controlling
interests 1 January 2020
Profit for the year
Supplementary payment
Other payments to farmer owners
related to 2019
Other equity adjustments
Equity including non-controlling
interests 31 December 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
EQUiTY (CONTiNUED)
Regulations according to Articles of Association and IFRS
Common capital
Recognised within the capital account are technical
items such as actuarial gains or losses on defined
benefit pension schemes, effects from disposals and
acquisitions of non-controlling interests in subsidiaries and
exchange rate differences in the equity instruments
issued to owners. Furthermore, the capital account is
impacted by agreed contributions from new owners of
the cooperative.
Recognised within the reserve for special purposes is
the annual profit appropriation to common capital. 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 impair-
ment in accordance to article 20.1(iii) of the articles of
association.
Individual capital
Individual capital instruments are regulated in article
20 of the articles of association and the general
membership terms.
Equity instruments issued as contributed individual
capital relate to amounts transferred as part of the
annual profit appropriation. The individual balances carry
interest at CIBOR 12 months + 1.5 per cent that are
approved and paid out together with the supplementary
payment in connection with the annual profit
appropriation.
Delivery-based owner certificates are equity instru-
ments issued to the original Danish and Swedish owners.
Issue of these instruments ceased in 2010.
Injected individual capital are equity instruments
issued in connection with cooperative mergers and
when new owners enter the cooperative.
Balances on delivery-based owner certificates and
injected individual capital instruments carry no interest.
Balances on contributed individual capital, delivery- based
owners certificates and on injected individual capital
can be paid out over three years upon termination of
membership to Arla Foods amba in accordance with
the articles of association, subject to the Board of
Representatives’ approval. Balances are denominated in
the currency relevant to the country in which owners
are registered. Foreign currency translation adjustments
are calculated annually and the effect is transferred to
the capital account.
Proposed supplementary payment to owners is
recognised separately in equity until approved by the
Board of Representatives.
Other equity accounts
Reserve for value adjustments of hedging instruments
comprises the fair value adjustment of derivative
financial instruments classified as and meeting the
conditions for hedging of future cash flows where the
hedged transaction has not yet been realised.
Reserve for fair value adjustments through OCI
comprise of the fair value adjustments of mortgage
credit bonds classified as financial assets
measured at fair value though other comprehensive
income.
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 securing the group’s net
investment.
Non-impairment clause
Under the articles 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 IFRS. The non-impairment clause
is assessed on the basis of the most recent annual
report presented under IFRS. Individual capital accounts
and reserve for special purposes are not covered by the
non-impairment clause.
Non-controlling interests
Subsidiaries are fully recognised in the consolidated
financial statements. Non-controlling interests’ share of
the results for the year and of the equity in subsidiaries
are recognised as part of the consolidated results and
equity, respectively, but are listed separately.
On initial recognition, non-controlling 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 non-con-
trolling interests is selected on a transactional basis.
70 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CASH fLOw
(EURm)
Note
2020
2019
(EURm)
Note
2020
2019
EBITDA
Reversal of share of results in joint ventures and associates
Reversal of other operating items without cash impact
Change in net working capital
Change in other receivables and other current liabilities
Dividends received, joint ventures and associates
Interest paid
Interest received
Taxes paid
Cash flow from operating activities
Investment in intangible fixed assets
Investment in property, plant and equipment
Sale of property, plant and equipment
Operating investing activities
Sale of financial assets
Acquisition of enterprises
Sale of enterprises
Financial investing activities
3.3
2.1
5.1
3.1
3.2
3.2
3.5
3.5
909
-28
53
4
-137
8
-53
3
-28
731
-53
-478
19
-512
17
0
7
24
837
-34
16
79
-37
8
-69
3
-30
773
-52
-425
21
-456
37
-168
16
-115
Cash flow from investing activities
-488
-571
Supplementary payment regarding the previous financial year
Paid in and out from equity regarding individual capital instruments
Paid out to non-controlling interests
Loans obtained, net
Payment of lease debt
Payment to pension plans
Cash flow from financing activities
4.3.c
4.3.c
4.3.c
Net cash flow
Cash and cash equivalents at 1 January
Exchange rate adjustment of cash funds
Cash and cash equivalents at 31 December
Free operating cash flow
Cash flow from operating activities
Operating investing activities
Free operating cash flow
Free cash flow
Cash flow from operating activities
Cash flow from investing activities
Free cash flow
-127
-22
-18
-24
-66
-36
-293
-50
187
-11
126
-289
-24
-15
295
-66
-37
-136
66
119
2
187
2020
2019
731
-512
219
731
-488
243
773
-456
317
773
-571
202
71 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CASH fLOw (CONTiNUED)
Strong operational cash flow and increased investments
Development in cash flow
(EURm)
Combined cash and cash equivalents as of 31 December
2020 were EUR 126 million, compared to EUR 187
million last year. The movement was due to a net cash
out-flow of EUR 50 million during 2020 and exchange
rate adjustments on cash funds of EUR 11 million. An
insignificant amount of cash and cash equivalents at
31 December 2020 was deposits in restricted accounts.
Accounting policies
The consolidated cash flow statement is presented
according to the indirect method, with cash flow from
operating activities determined by adjusting EBITDA for
the effects of non-cash items such as undistributed
results in joint ventures and associates, changes in
working capital items and other non-cash items.
1000
800
600
400
200
0
-200
909
4
-182
731
-488
243
-149
-144
50
EBITDA
Cash flow from operating activities
Net working capital
Other payments and adjustment
with impact on operating cash flow
Investing activities
Free cash flow
Supplementary payments
Other financing activities
and leaving members
Reduction in cash
Free operating cash flow is a measure of the amount of
cash generated by normal operations. Cash flow from
operating activities decreased by 5 per cent to EUR 731
million compared with EUR 773 million last year, mainly
due to postponed declaration of VAT and duties offset
by extended payment terms for employee income taxes
in Denmark. Improved net working capital contributed a
modest positive net cash release of EUR 4 million whilst
still maintaining the previously years trend of improving
the net working capital position.
Cash flow from investment activities amounted to
EUR 488 million compared with EUR 571 million last
year. The overall investment level last year was higher
due to the acquisition of the cheese business in Bahrain,
however 2020 included a record high CAPEX investment
of EUR 478 million. The free operating cash flow ended
at EUR 219 million.
Cash flow from financing activities was EUR -293
million. A supplementary payment of EUR 127 million
was issued in relation to the 2019 profit allocation and
further payments, representing EUR 22 million from
individual capital instruments, were paid out to owners
who resigned or retired. Cash flow from other financing
activities amounted to EUR 144 million and related to
repayment of net interest bearing debt of EUR 90
million, payments to pension schemes of EUR 36
million and transactions with non-controlling interests
of EUR 18 million.
72 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
INTRODUCTiON TO NOTES
The following sections provide additional disclosures supplementing the primary financial statements.
NOTE 1
REVENUE AND COSTS
Details on the group’s performance and
rentability are disclosed in Note 1.
NOTE 2
NET wORKiNG CAPiTAL
Details on the development and
composition of inventory and trade
balances against customers and
vendors are disclosed in Note 2.
NOTE 3
CAPiTAL EMPLOYED
Details on the production capacity,
intangible assets and financial investments
held by the group are disclosed in Note 3.
NOTE 4
fUNDiNG
Details on funding of the group’s activities
and the associated financial risks are
disclosed in Note 4.
NOTE 5
OTHER AREAS
The general accounting policies, the group
structure and other IFRS requirements are
disclosed in Note 5.
73 ARLA FOODS ANNUAL REPORT 2020
bASiS fOR PREPARATiON
The annual report is based on the group’s monthly
reporting procedures. Group entities are required to
report using standard accounting principles in
accordance with the International Financial Reporting
Standards as adopted by EU (IFRS).
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and
Markets Authority (ESMA), we have provided additional
information on the APMs used by the group. These
APMs are deemed critical to understanding the financial
performance and financial position of the group, in
particular the performance price. As they are not
defined by IFRS, they may not be directly comparable
with other companies who use similar measures.
Definitions are provided in the Glossary and Note 1.4.
For details on the basis for preparation and general
accounting policies applied, refer to Note 5.6.
CURRENCY ExPOSURE
The group’s financial position is significantly exposed to
currencies, both due to transactions conducted in
currencies other than the EUR and due to the
translation of financial reporting from entities not part
of the Eurozone. The most significant exposure relates
to financial reporting from entities operating in GBP and
SEK, and to transactions relating to sales in USD or
USD-related currencies. Refer to Note 4.1.2 for more
detail on how the exposure is managed.
APPLYiNG MATERiALiTY
Our focus is to present information that is considered of
material importance for our stakeholders in a simple
and structured way. Disclosures that are required by
IFRS are included in the annual report, unless the
information is considered of immaterial importance to
the users of the annual report.
SiGNifiCANT ACCOUNTiNG
ESTiMATES AND ASSESSMENTS
Preparing the group’s consolidated financial statements
requires management to apply accounting estimates and
judgements that affect the recognition and measurement
of the group’s assets, liabilities, income and expenses.
The estimates and judgements are based on historical
experience and other factors. By nature, these are
associated with uncertainty and unpredictability, which
can have a significant effect on the amounts recognised
in the consolidated financial statements. The most
significant accounting estimates are addressed below.
Measurement of revenue and rebates
Revenue, net of rebates, is recognised when goods are
transferred to customers. Estimates are applied when
measuring the accruals for rebates and other sales
incentives. The majority of rebates are calculated using
terms agreed with the customer. For some customer
relationships, the final settlement of the rebate depends
on future volumes, prices and other incentives.
Therefore there is an element of estimation and
judgment in determining whether performance
obligations are achieved. Estimates are based on
historical trends and information on sales or purchase
forecasts. Refer to Note 1.1 for more detail.
Valuation of goodwill
Estimates are applied in assessing the value in use of
goodwill. Goodwill is not subject to amortisation but is
tested annually for impairment. Assessing expected
future cash flows and setting discount rates involves
a level of estimation based on approved forecasts and
market data. The majority of goodwill is allocated to
activities in the UK. Refer to Note 3.1.1 for more detail.
Influence assessment and classification
of investments
The group holds an investment in COFCO Dairy
Holdings Limited / Mengniu Dairy Company Limited,
which is classified as an associated company. The
classification is based on an assessment of the level of
influence through board representation. Refer to Note
3.3 for more detail.
Valuation of inventory
Estimates are applied in assessing net realisable
inventory values. Most significantly, this includes the
assessment of expected future market prices and the
quality of certain products within the cheese category,
some of which need to mature for up to two years.
Refer to Note 2.1 for more detail.
Classification of spare parts
Accounting estimates are applied on the classification
of spare parts for production equipment. The group has
updated the accounting estimates in 2020, which has
led to a partly reclassification of spare parts from
inventory and property, plant and equipment Refer to
Note 2.1 for more detail.
Measurement of trade receivables
Allowance for doubtful trade receivable positions
requires estimates. Losses on trade receivables
recognised in the group are historically of insignificance,
which is also the case this year. During the year the
Covid-19 pandemic has however challenged the
foodservice business and forced extra focus on
accounting estimates on trade receivables positions
within this sector.
Valuation of pension plans
Judgements are applied when setting actuarial
assumptions such as the discount rate, expected future
salary increases, inflation and mortality. The actuarial
assumptions vary from country to country, based on
national economic and social conditions. They are set
using available market data and compared with
benchmarks to ensure consistency on an annual basis
and in compliance with best practice. Refer to Note 4.7
for more detail.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
Revenue and cost
1.1 REVENUE
Adaption to changed consumer behaviour drove stronger sales and improved brand positions
Development in revenue
(EURm)
Revenue increased by 1.1 per cent to EUR 10,644 million,
compared to EUR 10,527 million last year. The increase
reflects more retail sales of branded volumes both in
Europe and International, and a full year effect of M&A
activities from 2019. These were partly offset by lower
sales volumes in food service and global industry sales and
a negative effect from lower sales prices and currencies.
Strategic branded sales volumes grew by 7.7 per cent,
compared to 5.1 per cent last year, driven by Lurpak®,
Puck®, Arla® and other supported brands. Price levels
decreased by 1.2 per cent compared to last year.
Europe is Arla’s largest commercial segment, comprising
60.2 per cent of total revenue which was consistent with
last year. Revenue in Europe increased by EUR 66 million,
driven by higher volumes partly offset by lower prices and
adverse currency effects. The strategic branded revenue in
Europe grew 5.9 per cent despite volatility in the market.
Branded sales grew to 53.0 per cent of revenue compared
to 50.4 per cent last year.
The international segment accounted for 18,6 per cent
of total revenue, compared to 17.1 per cent last year.
The strategic branded revenue in international
represented 86.0 per cent of revenue compared to
82.7 per cent last year.
The revenue in international increased by EUR 174 million
driven by the full year of effect of the acquisition of the
cheese business in MENA completed last year and
generally increased volumes due to the Covid-19 situation.
The increase was partly offset by adverse foreign exchange
movements in the US dollar.
Arla Foods Ingredients comprised 6.7 per cent of total
revenue, which is consistent with last year. Revenue
increased due to sales of value-added products within
the ingredients segment.
Our Global Industry Sales and other segment represented
14.5 per cent of the total revenue and decreased by 1.3
per cent to EUR 1.541 million versus EUR 1,662 million
last year. The decrease was driven by lower volumes due
to high growth in the retail segments.
The full year effect of M&A activities in 2019 including
purchase of the Kraft branded cheese business in MENA
and the divestment of the remaining Allgäu-activities in
Germany, contributed to a revenue increase of EUR 65
million in 2020.
Revenue was negatively impacted by adverse foreign
exchange rate movements of EUR 85 million, driven
primarily by USD and GBP.
11,000
10,750
10,500
10,250
10,000
9,750
9,500
10,527
-133
270
65
-85
10,644
2019
Sales prices
Volume/mix
M&A
Currency
2020
Revenue split by commercial segment,
2020
Revenue split by commercial segment,
2019
10,644
MILLION EUR
10,527
MILLION EUR
Europe 60%
International 19%
Arla Foods Ingredients 7%
Global industry sales and other sales 14%
Europe 60%
International 17%
Arla Foods Ingredients 7%
Global industry sales and other sales 16%
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1.1 REVENUE
Table 1.1.a Revenue split by country
(EURm)
2020
2019
Share of revenue in 2020
Accounting policies
Uncertainties and estimates
United Kingdom
Sweden
Germany
Denmark
Netherlands
China
Saudi Arabia
Finland
Oman
USA
Other*
Total
2,740
1,478
1,267
1,031
526
368
352
316
194
177
2,195
10,644
2,716
1,464
1,343
1,054
507
331
282
324
167
176
2,163
10,527
5%
3%
3%
3%
2%
2%
26%
14%
12%
10%
21%
*Other countries include, amongst others, Belgium, Canada, UAE, Spain, France, Australia
Table 1.1.a represents the total revenue by country and includes all sales that occur in the countries, irrespective
of organisational structure. Therefore, the figures cannot be compared to our commercial segment review on page
25 to 30.
Table 1.1.b Revenue split by brand
(EURm)
Arla®
Lurpak®
Puck®
Castello®
Milk based beverage brands
Other supported brands
Strategic branded revenue
AFI
Non-strategic brands and other
Total
75 ARLA FOODS ANNUAL REPORT 2020
2020
2019
3,116
638
427
177
232
566
5,156
3,033
588
363
179
207
452
4,822
716
4,772
10,644
710
4,995
10,527
Revenue, net of rebates, is recognised when goods are
transferred to customers. Estimates are applied when
measuring accruals for rebates and other sales
incentives. The majority of rebates are calculated based
on terms agreed with the customer. For some customer
relationships, the final settlement of the rebate depends
on future sales volumes and prices, as well as other
incentives. Thus, there is an element of uncertainty in
estimating the exact value.
Since Arla’s main line of business is the sale of fresh
dairy products, returns of goods rarely occur and
therefore do not require specific accounting disclosure.
Based on current milk price, Arla contractually secured
approximately EUR 295 million revenue related to raw
milk sales for 2020 and approximately EUR 234 million
for 2021 and later.
Revenue is is recognised when there is a contract with
a customer for the production and transfer of dairy
products across various product categories and
geographical regions. Revenue per commercial
segment or market is based on the group’s internal
financial reporting practices.
Revenue is recognised in the income statement when
a performance obligation is satisfied, at the price
allocated to that performance obligation. This is defined
as the point in time when control of the products has
been transferred to the buyer, the amount of revenue
can be measured reliably and collection is probable.
The transfer of control to customers takes place
according to trade agreement terms, i.e. the Incoterms
and can vary depending on the customer or specific
trade.
Revenue comprises invoiced sales for the year less
customer-specific payments, such as sales rebates, cash
discounts, listing fees, promotions, VAT and duties.
Contracts with customers can contain various types of
discounts. Historical experience is used to estimate
discounts, in order to correctly recognise revenue.
Furthermore, revenue is only recognised when it is
highly probable that a material reversal in the amount
of revenue will not occur. This is generally the case
when the control of the product is transferred to the
customer also taking into consideration the level of
rebates.
The vast majority of all contracts have short payment
terms with an average of 35 days. Therefore, an
adjustment of the transaction price with regards to
a financing component in the contracts with customers
is not required.
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Development in operational costs
(EURm)
10,400
10,350
10,300
10,250
10,200
10,150
10,100
10,050
10,000
Other milk
Costs of Other milk decreased by EUR 30 million due to
lower volumes. Other milk consists of speciality milk
and other contract milk acquired to meet local market
demands.
Staff costs and FTE
Staff costs increased 5.4 per cent to EUR 1,345 million
compared to EUR 1,276 million last year. Staff costs
increased due to additional FTE’s from the insourcing
activities primarily in IT and transportation and due to
inflation.
The total number of FTE’s increased to 20.020
compared to 19,174 last year.
Marketing spend
Marketing spend was consistent with last year and
amounted to EUR 248 million. Continued focus on
efficiency improvements enabled by the Calcium
transformation and efficiency programme including
insourcing and upscaling of “The Barn” our in-house
content studio, allowed us to increase our marketing
activities while keeping costs consistent with last year.
Depreciation, amortisation and impairment
Depreciation, amortisation and impairment increased
4.9 per cent to EUR 451 million compared to EUR 431
million last year. The increase was primarily due to
higher levels of CAPEX investments.
184
-84
49
-72
10,223
10,130
16
2019
Milk cost
Volume/mix and other changes
Calcium net of re-investments
in operational costs
M&A
Currency
2020
Revenue and cost
1.2 OPERATiONAL COSTS
Calcium contributes to lower cost
Operational costs were EUR 10,223 million which is an
increase of 0.9 per cent compared with last year.
Production costs decreased 0.3 per cent to EUR 8,301
million from EUR 8,325 million last year. Excluding costs
relating to raw milk, production costs decreased to EUR
3,459 million compared to EUR 3,499 million last year.
Increased costs related to higher sales of branded
products and full year effect of M&A activities from
2019 were offset by savings from Calcium initiatives.
The Calcium savings were EUR 130 million in 2020.
The net cost effect compared to last year amounted
to EUR 84 million and includes re-investments and
non-recurring in-year items. Refer to pages 16-17 for
more on Calcium initiatives.
Sales and distribution costs increased 4.7 per cent to
EUR 1,483 million compared to EUR 1,416 million last
year, mainly due to higher sales and salary costs in the
MENA region. Research and development costs
amounted to EUR 72 million, compared to EUR 66
million last year. In addition EUR 13 million related to
capitalised development activities.
Administration costs increased 12.9 per cent to EUR
439 million compared to EUR 389 million last year due
to increased staff costs, operational costs within IT,
depreciations and costs related full year effect of M&A’s
from 2019.
Cost of raw milk
The cost of raw milk increased to EUR 4,842 million
compared to EUR 4,826 million. The increase was a
result of higher weighed-in milk volumes from owners
partly offset by lower volumes on other purchased milk.
Owner milk
Costs related to owner milk increased by EUR 46 million
due to higher volumes. Average pre-paid milk price was
on the same level as last year.
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1.2 OPERATiONAL COSTS
Table 1.2.a Operational costs split by function and type
(EURm)
Production costs
Sales and distribution costs
Administration costs
Total
Specification:
Weighed-in raw milk
Other production materials*
Staff costs
Transportation costs
Marketing costs
Depreciation, amortisation and impairment
Other costs**
Total
2020
2019
Table 1.2.b Weighed-in raw milk
2020
2019
8,301
1,483
439
10,223
8,325
1,416
389
10,130
Owner milk
Other milk
Total
4,842
1,860
1,345
640
248
451
837
10,223
4,826
1,836
1,276
645
250
431
866
10,130
Table 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
Weighed in
mkg
12,515
1,231
13,746
EURm
4,364
478
4,842
Weighed in
mkg
12,382
1,323
13,705
EURm
4,318
508
4,826
2020
2019
1,166
83
4
92
1,345
729
383
233
1,345
1,089
79
3
105
1,276
722
355
199
1,276
*Other production materials includes packaging, additives, consumables and changes in inventory
**Other costs mainly includes maintenance, utilities and IT
Cost split by type,
2020
Cost split by type,
2019
Staff costs relate to:
Production costs
Sales and distribution costs
Administration costs
Total staff costs
Average number of full-time employees
20,020
19,174
10,223
MILLION EUR
10,130
MILLION EUR
Table 1.2.d Depreciation, amortisation and impairment
(EURm)
Intangible assets, amortisation
Property, plant and equipment including right of use assets, depreciation
Total depreciation, amortisation and impairment
Weighed-in raw milk 47%
Other production materials* 18%
Staff costs 13%
Transportation costs 6%
Marketing costs 3%
Depreciation, amortisation and impairment 5%
Other costs** 8%
Weighed-in raw milk 48%
Other production materials* 19%
Staff costs 13%
Transportation costs 6%
Marketing costs 2%
Depreciation, amortisation and impairment 4%
Other costs** 8%
Depreciation, amortisation and impairment relate to:
Production costs
Sales and distribution costs
Administration costs
Total depreciation, amortisation and impairment
2020
2019
70
381
451
316
80
55
451
64
367
431
310
74
47
431
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1.2 OPERATiONAL COSTS
Revenue and cost
1.3 OTHER OPERATiNG iNCOME AND COSTS
Accounting policies
Positive hedging impact
Accounting policies
Production costs
Production costs include direct and indirect costs
related to production including movements in volumes
on inventory and related inventory revaluation. Direct
costs comprise purchase of milk from owners, inbound
transportation costs, packaging, additives, consumables,
energy and variable salaries directly related to the
production. Indirect costs comprise other costs related
to the production of goods including depreciation and
impairment losses on production-related material and
other supply chain related costs. The purchase of milk
from cooperative owners is recognised at prepaid prices
for the accounting period and therefore does not
include the supplementary payment, which is classified
as distributions to owners and recognised directly
in equity.
Sales and distribution costs
Costs relating to sales staff, the write-down of
receivables, sponsorship, research and development,
depreciation and impairment losses are recognised as
sales and distribution costs. Sales and distribution
costs also include marketing expenses relating to
investment in the group’s brands, like the development
of marketing campaigns, advertisement, exhibits,
and others.
Other operating income and costs had a net positive
development of EUR 34 million compared to last year.
This was primarily attributable to a net positive hedging
effect of EUR 26 million from negative currency
developments, mainly in USD.
Other items included the net result from sale of surplus
energy and other items not part of the regular dairy
activities.
Other operating income and costs consist of items
outside the regular course of dairy business activities.
It includes items such as gains and losses relating to the
settlement of disputes, revaluation gains from step
acquisition of entities, the net result from financial
hedging activities and the net result from the
production and sale of energy from our biogas plants.
Furthermore, it includes gains and losses from the
disposal of fixed assets no longer used within our dairy
operations.
Administration costs
Administration costs relate to management and
administration, including administrative staff, office
premises and office costs, as well as depreciation
and impairment.
Table 1.3 Other operating income and costs
(EURm)
Sale of electricity
Income of hedging instruments transferred from equity
Gain on disposal of intangible assets and PP&E
Other operating income
Total other operating income
Cost related to sale of electricity
Expense of hedging instruments transferred from equity
Other operating costs
Total other operating costs
2020
2019
24
14
15
8
61
-29
-12
-11
-52
22
3
14
0
39
-29
-27
-8
-64
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1.4 KEY PERfORMANCE iNDiCATORS
The alternative performance measures disclosed below are key performance indicators for the group.
They are not IFRS requirements.
1.4.1 Performance price
Table 1.4.2 Strategic branded volume driven revenue growth
(EURm)
Stabile milk prices and decreased costs led to higher performance price
Arla’s performance price is a key measure of the overall
performance, expressing the value added to each kilo of
milk supplied by our farmer owners. The performance
price is calculated as the standardised prepaid milk price,
included in production costs, plus Arla Foods amba’s
share of profit for the year, divided by the weighed-in milk
volume in 2020. The performance price was 36.9
EUR-cent/kg owner milk, compared to 36.6 EUR-cent/
kg owner milk last year.
Strategic branded revenue last year*
Strategic branded volume driven revenue growth
Price- and exchange rate adjustments
Strategic branded revenue
Strategic branded volume driven revenue growth, %
2020
2019
4,867
378
-89
5,156
4,591
236
-5
4,822
7.7%
5.1%
Table 1.4.1 Performance price
2020
2019
Strategic branded VDRG is calculated as the volume growth of EUR 378 million divided by EUR 4.867 million and equals 7.7 per cent in 2020.
*2020 includes an adjustment of EUR 45m due to changes in the other supported brand category.
EURm Volume
in mkg
EUR-cent/
kg
EURm Volume
in mkg
EUR-cent/
kg
Owner milk
Adjustment to standard milk
(4.2% fat, 3.4% protein)
Arla Foods amba's share of profit
for the year
Total
4,364
12,515
34.9
4,318
12,382
345
12,515
-0.8
2.8
36.9
311
12,382
34.9
-0.8
2.5
36.6
Note 1.4.3 Profit share
Financial comments
The profit share in Arla is targeted at 2.8-3.2 per cent
of revenue, calculated from the profit attributable to our
farmer owners.
For 2020 the profit to farmer owners amounted to EUR
345 million compared to EUR 311 million last year.
This corresponded to 3.2 per cent of revenue or 2.8
EUR-cent per kilo milk delivered and was distributed to
supplementary payment and consolidation as disclosed
in the statement of profit appropriation.
1.4.2 Strategic branded volume driven revenue growth
Financial comments
Volume driven revenue growth (VDRG) is defined as
revenue growth that is derived from growth in volumes
keeping prices constant.
VDRG on strategic brands is an alternative performance
measure applied to support and understand the
non-price revenue growth and performance of our
branded business.
79 ARLA FOODS ANNUAL REPORT 2020
Strategic branded VDRG increased significantly in
2020 to 7.7 per cent compared to 5.1 per cent last year.
A higher demand of branded products in the retail
business was the main driver of the increase.
Table 1.4.3 Profit share
(EURm)
Revenue
Profit for the year
Profit relating to non-controlling interests
Profit attributable to farmer owners
Profit share
2020
2019
10,644
352
-7
345
10,527
323
-12
311
3.2%
3.0%
Profit share is calculated as EUR 345 million divided by EUR 10.644 million and equals 3.2 per cent in 2020.
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Net working capital
2.1 NET wORKiNG CAPiTAL, OTHER RECEiVAbLES AND CURRENT LiAbiLiTiES
Net working capital position improved
Net working capital decreased by EUR 144 million to
EUR 679 million, representing an improvement of 17.5
per cent compared to last year. Continued focus on
optimising net working capital, including initiatives such
as increased use of global procurement agreements,
improved payment terms, as well as utilisation of
finance programmes with our customers and supplies,
supported this development. A higher inventory level
was partly offset by reclassification of spare parts to
plant and machinery and by write downs.
Inventory
Inventory decreased by EUR 12 million to EUR 1,080
million, compared to EUR 1,092 million last year.
Underlying inventory increased with 10 per cent
primarily driven by higher volumes in International,
especially in MENA, and by a different composition of
inventories compared to last year. This was offset by
reclassification of spare parts to plant and machinery,
write-downs and exchange rates.
Trade receivables
Trade receivables decreased by EUR 78 million to EUR
811 million, compared to EUR 889 million last year.
Excluding the effect of currencies and others, trade
receivables decreased EUR 51 million. This decrease
was driven by a focus on cash collection and utilisation
of trade receivables finance programmes. The group
utilised these programmes to manage liquidity and
reduce credit risk on trade receivables.
Managing credit risk exposure on trade receivables is
guided by group-wide policies. Credit limits are set
based on the customer’s financial position and current
market conditions. The customer portfolio is diversified
in terms of geography, industry sector and customer
size. In 2020, the group was not extraordinarily exposed
to credit risk related to significant individual customers,
but to the general credit risk in the retail sector. Read
more about credit risk in note 4.1.5.
Historically, amounts written off as irrecoverable
were relatively low. This was unchanged in 2020, with
EUR 3 million recognised in the income statement as
losses arising from bad debt, compared to EUR 6 million
last year.
Trade and other payables
Trade and other payables increased with EUR 54 million
to EUR 1,212 million, compared to EUR 1,158 million
last year. Continued utilisation of global contracts, focus
on payment terms and use of supply chain finance
programmes resulted in trade and other payables
increased with EUR 66 million partly offset by adverse
foreign exchange effects of EUR 11 million.
A number of Arla’s strategic suppliers participate in
supply chain finance programmes, where the supply
chain finance provider and related financial institutions
act as a funding partner. When suppliers participate in
these programmes, the supplier has the option, at their
own discretion and flexibility, to receive early payment
from the funding partner based on invoices sent to Arla.
This is conditioned by Arla’s recognition and approval of
received goods or services and an irrevocable acceptance
to pay the invoice at due date via the funding partner.
The arrangement of early payment is an exclusive
transaction between the supplier and the supply chain
finance provider.
The liability for Arla, represented by the invoice, is
recognised within trade and other payables until
maturity. The programme is one of many components
in the overall relationship between strategic suppliers
and Arla to improve the cash position for both parties.
Extended payment terms are not embedded in the
programmes themselves but agreed with vendors
directly. The liquidity risk for Arla by termination of
programmes is limited. The payment terms for suppliers
participating in the programmes are no more than 180
days. Increased utilisation of supply chain finance
80 ARLA FOODS ANNUAL REPORT 2020
programmes had a positive impact on the net working
capital level compared to last year.
Other receivables and other current liabilities
Other receivables increased EUR 184 million to EUR
424 million compared to EUR 240 million last year,
mainly driven by postponed declaration of VAT and duty
receivables in Denmark.
Other current liabilities increased EUR 113 million to
EUR 387 million compared to EUR 274 million last year,
mainly due to extended payment terms for employee
income taxes as part of the Danish government’s
Covid-19 funding programmes.
Development in net working capital
(EURm)
900
850
800
750
700
650
600
32
-54
823
-56
-9
-
-57
679
1 January 2020
Inventory
Trade receivables
Trade and other payables
excluding owner milk
Owner milk
M&A
Currency
31 December 2020
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Net working capital
2.1 NET wORKiNG CAPiTAL, OTHER RECEiVAbLES AND CURRENT LiAbiLiTiES
Net working capital
(EURm)
1,175
970
1,004
831
1,103
894
1,000
823
1,500
1,000
500
0
2016
2017
2018
2019
Net working capital excluding payables related to owner milk
Net working capital
Table 2.1.a Net working capital
(EURm)
Table 2.1.b Inventory
(EURm)
Inventory before write-downs
Write-downs
Total inventory
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Total inventory
Table 2.1.c Trade receivables
(EURm)
Trade receivables before provision for expected losses
Provision for expected losses
Total trade receivables
867
679
2020
Cash flow
Included in
operating
cash flow
1 January
Non-cash changes
Acqui-
sitions
Write-
downs
Currency
Reclasses
31
December
Table 2.1.d Trade receivables age profile
(EURm)
2020
Inventory
Trade receivables
Trade and
other payables
Total net
working capital
2019
Inventory
Trade receivables
Trade and
other payables
Total net
working capital
1,092
889
-1,158
823
1,074
989
-1,169
894
113
-51
-66
-4
-13
-96
30
-79
-
-
-
-
18
-
-
18
-23
1
-
-22
4
2
-
6
-44
-24
11
-57
14
15
-9
20
-58
-4
1,080
811
1
-1,212
-61
679
-5
-21
1,092
889
-10
-1,158
-36
823
81 ARLA FOODS ANNUAL REPORT 2020
Not overdue
Overdue less than 30 days
Overdue between 30 & 89 days
Overdue more than 90 days
Total trade receivables
Historically, experienced loss rates on balances not due or less than 30 days are below 1 per cent.
2020
2019
1,119
-39
1,080
174
324
582
1,080
1.112
-20
1.092
223
346
523
1.092
2020
2019
825
-14
811
904
-15
889
2020
2019
Gross
carrying
amount
Expected
loss rate
Gross
carrying
amount
Expected
loss rate
682
93
26
24
825
0%
0%
4%
54%
703
130
39
32
904
0%
0%
5%
41%
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Accounting policies
Uncertainties and estimates
Inventory
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 inventory marketability and an 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 expected losses in accordance with
the simplified approach for amounts considered
irrecoverable (amortised cost). Expected losses are
measured as the difference between the carrying
amount and the present value of anticipated cash flow.
Expected losses are assessed on major individual
receivables or in groups at a portfolio level, based on
the receivables' age and maturity profile as well as
historical records of losses. Calculated expected losses
are adjusted for specific significant negative
developments in geographical areas.
Trade and other payables
Trade payables are measured at amortised cost,
which usually corresponds to the invoiced amounts.
Other receivables and other current liabilities
Other receivables and other current liabilities are
measured at amortized cost usually corresponding
to the nominal amount.
Inventory
The group uses monthly standard costs to calculate
inventory and revises all 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. A key component in the standard cost
calculation is the cost of raw milk from farmers. This is
determined using the average prepaid milk price that
matches the production date of inventory.
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 stock with long
maturities and bulk products to be sold on European
or global commodity markets.
Receivables
Expected losses are based on a calculation, including
several parameters, for example, number of days
overdue adjusted for significant negative developments
in certain geographical areas.
The financial uncertainty associated with provision for
expected losses is usually considered to be limited.
However, if a customer’s ability to pay were to
deteriorate in the future, further write-downs may be
necessary.
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.
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Capital employed
3.1 INTANGibLE ASSETS
Stable level of intangible assets and goodwill
Intangible assets and goodwill amounted to EUR 931
million, representing a decrease of EUR 51 million
compared to last year.
Goodwill
The carrying value of goodwill amounted to EUR 667
million, compared to EUR 700 million last year. This
decrease was due to exchange rate movements. Of the
total carrying value of goodwill, EUR 462 million related
to activities in the UK, compared to EUR 489 million last
year. Refer to Note 3.1.1 for more details.
Licenses and trademarks
The carrying value of licences and trademarks
amounted to EUR 81 million, compared to EUR 90
million last year.. The carrying value primarily relates
to recognition of trademarks in connection with
business combinations and includes brands such as
Yeo Valley®, Anchor® and Hansano®. The decrease in
value compared to last year was due to amortisation.
The strategic brands, Arla®, Lurpak®, Castello® and
Puck®, are internally generated trademarks and
consequently no carrying values are recognised for
these. Arla has the license to manufacture, distribute,
and market StarbucksTM premium ready-to-drink coffee
beverage under a long-term strategic license
agreement. Additionally Arla holds a long term license
agreement to manufacture, distribute and market Kraft
branded cheese products in the MENA region. No
values are recognised due to these license agreements.
IT and other development projects
The carrying value of IT and other development
projects was EUR 183 million, compared to EUR 192
million last year. The group continued to invest in the
development of IT. In 2020, IT investments related to
Focus Trade Investment, a freight cost management
solution and a new milk settlement system. Other
capitalised development costs included innovation
activities and the development of new products.
Intangible assets and goodwill,
2020
Intangible assets and goodwill,
2019
931
MILLION EUR
982
MILLION EUR
Goodwill 72%
Licences and trademarks 8%
IT and other development projects 20%
Goodwill 71%
Licences and trademarks 9%
IT and other development projects 20%
83 ARLA FOODS ANNUAL REPORT 2020
Table 3.1.a Intangible assets and goodwill
(EURm)
Goodwill
Licenses and
trademarks
IT and other
development
projects
2020
Cost at 1 January
Exchange rate adjustments
Additions
Reclassification
Disposals
Cost at 31 December
Amortisation and impairment at 1 January
Exchange rate adjustments
Amortisation and impairment for the year
Reclassification
Amortisation on disposals
Amortisation and impairment at 31 December
Carrying amount at 31 December
2019
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Reclassification
Disposals
Cost at 31 December
Amortisation and impairment at 1 January
Exchange rate adjustments
Amortisation and impairment for the year
Amortisation on disposals
Amortisation and impairment at 31 December
Carrying amount at 31 December
700
-33
-
-
-
667
-
-
-
-
-
-
667
598
25
-
80
-1
-2
700
-1
-
-1
2
-
700
173
-2
-
-
-8
163
-83
1
-8
-
8
-82
81
170
3
-
-
-
-
173
-74
-1
-
-8
-83
90
472
1
53
-
-13
513
-280
-1
-62
-
13
-330
183
431
-
52
-
1
-12
472
-237
-
-55
12
-280
192
Total
1,345
-34
53
-
-21
1,343
-363
-
-70
-
21
-412
931
1.199
28
52
80
0
-14
1,345
-312
-1
-64
14
-363
982
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3.1 INTANGibLE ASSETS
Accounting policies
3.1.1 Impairment test of goodwill
Goodwill
Goodwill represents the premium paid by Arla above
the fair value of the net assets of an acquired company.
On initial recognition, goodwill is recognised at cost.
Goodwill is not amortised, but 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 can
generate independent 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 or exploration phase
in carrying out general assessments of requirements 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 development projects are amortised
on a straight-line basis over five to eight years.
Goodwill supported by strong results
Goodwill is allocated to relevant cash-generating units,
primarily to our activities in the UK within the commercial
segment Europe.
Basis for impairment test and applied estimates
Impairment tests are based on expected future cash
flow derived from forecasts and targets. Revenue growth
rates are projected for individual markets, based on
expected developments as well as past experience.
The impairment tests do not include revenue growth in
the terminal value. A new strategy is expected to be
launched in early 2021, it is however not expected to
have any adverse impact on basis for the impairment test.
Table 3.1.b Goodwill split by commercial segment and country
(EURm)
2020
2019
UK
Finland
Sweden
Other *
Europe total
MENA
International
Argentina
Arla Foods Ingredients
Total
*Europe Other includes an immaterial amount of goodwill related to Russia
84 ARLA FOODS ANNUAL REPORT 2020
462
40
22
63
587
72
72
8
8
667
489
40
21
61
611
80
80
9
9
700
Table 3.1.1 Impairment tests
(EURm)
2020
UK
Finland
Sweden
Europe other*
MENA
Arla Foods ingredients
2019
UK
Finland
Sweden
Europe other*
Arla Foods ingredients
*Europe other includes an immaterial amount of goodwill related to Russia
Procedure for impairment tests
Impairment tests of goodwill are based on an assessment
of their value in use. Milk costs are recognised at a milk
price that corresponds to the price at the time the
test is performed. In the applied forecasts, the key
operational assumption is future profitability based on a
combination of the impact from moving milk intake into
value added products and more profitable markets.
Test results
There are no identified impairments of goodwill at the
year-end. Sensitivities to changes in milk prices and
discount rates were calculated. The discount rate could
rise up to 5 percentage points before goodwill in the UK
could be at risk of being impaired. Goodwill allocated to
other markets was tested applying consistent
assumptions.
Applied key assumptions
Discount rate,
net of tax
Discount rate,
before tax
6.1%
5.5%
5.9%
5.4%
11.6%
6.0%
7.0%
6.0%
6.3%
5.9%
7.0%
6.8%
6.0%
6.6%
6.0%
13.0%
6.7%
7.8%
6.7%
7.0%
6.6%
7.8%
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3.1 INTANGibLE ASSETS
Accounting policies
Uncertainties and estimates
Impairment occurs when 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 (a cash-
generating unit) that are largely independent of the
cash inflows of other assets or cash-generating units.
For goodwill which does not generate largely
independent cash inflows, impairment tests are
prepared at the level where cash flows are considered
to be generated largely independently.
The group of cash-generating units is determined
based on the management structure and internal
financial reporting. The structure of cash-generating
units is revised yearly. The carrying amount of goodwill
is tested for impairment together with 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 group of cash-generating units
to which the goodwill is allocated, discounted using a
pre-tax discount rate that reflects the current market
assessment of the time value of money and risks
specific to the asset or cash-generating unit.
The carrying amount of other non-current assets is
assessed annually against its recoverable amount to
determine whether there is any indication of impairment.
Any impairment of goodwill is recognised as a separate
line item in the income statement and cannot be
reversed.
The recoverable amount of other non-current assets is
the higher value of the asset’s value-in-use and its
market value, i.e. 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 group of cash-generating units to 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 recognised can only be
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.
Goodwill impairment tests are performed for the group
of cash-generating units to which goodwill is allocated.
The group of cash-generating units is defined based on
the management structure for commercial segments
and is linked to individual markets. The structure and
groups of cash-generating units are assessed on an
annual basis.
The impairment test of goodwill is performed at least
annually for each group of cash-generating units to
which goodwill is allocated.
To determine the value in use, the expected cash flow
approach is applied. The most important parameters in
the impairment test include expectations on future free
cash flow and assumptions on discount rates.
Anticipated future free cash flows
The anticipated future free cash flows are based on
current forecasts and targets set for 2021. These are
determined at cash-generating units level in the
forecast and target planning process, and are based on
external sources of information and industry-relevant
observations such as macroeconomic and market
conditions. All applied assumptions are challenged
through the forecast and target planning process based
on management’s best estimates and expectations,
which are judgmental by nature. They include
expectations regarding revenue growth, EBIT margins
and capital expenditure.The assumptions include
moving milk intake into value-added products, more
profitable markets and cost reduction initiatives. The
growth rate beyond the strategy period has been set to
the expected inflation rate in the terminal period and
assumes no nominal growth.
Discounts rates
A discount rate, namely weighted average cost of
capital (WACC), is applied for specific business areas
based on assumptions regarding interest rates, tax rates
and risk premiums. The WACC is recalculated to a
before-tax rate. Changes in the future cash flow or
discount rate estimates used may result in materially
different values.
85 ARLA FOODS ANNUAL REPORT 2020
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3.2 PROPERTY, PLANT AND EQUiPMENT
Expanding production capacities
Arla’s main tangible assets are located in Denmark, the
UK, Germany and Sweden. The carrying value increased
to EUR 2,915 million compared to EUR 2,710 million
last year. The CAPEX investment level was once again
record-high with a total increase of 14,6 per cent to
EUR 580 million compared to EUR 506 million last year.
Key investments in 2020 included continued expansion
of our powder production capacity in Germany,
expansion of the mozzarella production capacity in
Denmark and further investments in our newly acquired
production facilities in Bahrain.
Property, plant and equipment
by country, 2020
Property, plant and equipment
by country, 2019
2,915
MILLION EUR
2,710
MILLION EUR
Denmark 46%
Sweden 11%
UK 19%
Germany 14%
Other 10%
Denmark 44%
Sweden 11%
UK 21%
Germany 13%
Other 11%
86 ARLA FOODS ANNUAL REPORT 2020
Table 3.2.a Property, plant and equipment
(EURm)
2020
Cost at 1 January
Exchange rate adjustments
Additions
Transferred from assets in course of construction
Disposals
Reclassification
Cost at 31 December
Depreciation and impairments at 1 January
Exchange rate adjustments
Depreciation and impairments for the year
Depreciation on disposals
Depreciations and impairment at 31 December
Carrying amount at 31 December
Right of use assets included in the carrying amount
2019
Cost at 1 January
Change in accounting policies
Adjusted 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 and impairments for the year
Depreciation on disposals
Reclassification
Depreciations and impairment at 31 December
Carrying amount at 31 December
Right of use assets included in the carrying amount
Land
and
building
Plant
and
machinery
Fixture
and
fitting,
tools and
equipment
Asset in
course
of con-
struction
1,666
-17
81
66
-26
-
1,770
-705
1
-73
13
-764
1.006
136
1,461
95
1,556
18
47
23
36
-14
1,666
-645
-4
-70
8
6
-705
961
109
3,152
-13
102
195
-23
58
3,471
-2.021
5
-234
31
-2.219
1.252
13
2,907
27
2,934
15
78
23
162
-60
3,152
-1,841
-7
-223
56
-6
-2,021
1,131
21
685
-14
60
28
-35
-
724
-474
4
-74
24
-520
204
80
552
77
629
10
45
2
22
-23
685
-415
-7
-74
22
-
-474
211
78
407
-2
337
-289
-
-
453
-
-
-
-
-
453
289
-
289
2
336
-
-220
-
407
-
-
-
-
-
-
407
Total
5,910
-46
580
-
-84
58
6,418
-3,200
10
-381
68
-3.503
2.915
229
5,209
199
5,408
45
506
48
-
-97
5,910
-2,901
-18
-367
86
-
-3,200
2,710
208
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Capital employed
3.2 PROPERTY, PLANT AND EQUiPMENT
Investments and depreciation property, plant and equipment and right of use assets
(EURm)
Accounting policies
Property, plant and equipment is measured at cost
less accumulated depreciation and accumulated
impairment losses.. Assets under construction, land
and decommissioned plants are not depreciated.
Cost
Cost comprises the acquisition price as well as costs
directly associated with an asset until 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) and depreciated separately. 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
Depreciation aims to allocate the cost of the asset, less
any amounts estimated to be recoverable at the end of
its expected use, to the periods in which the group
obtains benefits from its use. 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 estimated useful life.
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
balance sheet date if the asset was of the age and in the
condition expected at the end of its useful life, and
reduced by 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, or when an item
is decommissioned. Changes during the depreciation
period or in the residual value are treated as changes to
accounting estimates, the effect of which is adjusted
only in current and future periods. Depreciation is
recognised in the income statement within production
costs, 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 is
performed to assess the appropriateness of the
depreciation method, useful life and residual values of
items of property, plant and equipment.
600
400
200
0
383
298
306
292
263
248
506
81
425
367
70
297
580
102
478
381
67
314
2016
2017
2018
2019
2020
Right of use assets
Depreciation property, plant and equipment
Investments property, plant and equipment
Table 3.2.b Estimated useful life in years
(EURm)
Office buildings
Production buildings
Technical facilities
Other fixtures and fittings, tools and equipment
87 ARLA FOODS ANNUAL REPORT 2020
2020
2019
50
20-30
5-20
3-7
50
20-30
5-20
3-7
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3.2 PROPERTY, PLANT AND EQUiPMENT
3.2.1 Right of use assets
Financial comments
Arla leases various offices, warehouses, vehicles and
other equipment. Lease contracts are typically agreed for
a fixed duration, but may include an extension option.
Significant right of use assets include office buildings and
warehouses in Denmark, Germany, Sweden and the UK
with remaining useful lives between 10 and 20 years.
Filling machinery and other technical facilities represent
another major right of use asset category. Filling
machines typically have useful lives of 7 years, whereas
other technical facilities are depreciated between 1 to
7 years. Cars and trucks have on average useful lives of
4 and 5 years respectively. In total the group has
approximately 4,000 lease contracts.
Additions to right of use assets during the year
amounted to EUR 102 million, compared to EUR 81 last
year. The main reason for the high level of additions in
2020, besides regular renewal of lease agreements, was
insourcing of distribution activities in the UK, which led to
many new lease agreements on trucks and trailers. The
total carrying amount of right of use assets was EUR 229
million, compared to EUR 208 million last year, as specified
in table 3.2.1.a. Lease liabilities are specified in note 4.3.
Total cash outflow from right of use assets amounted to
EUR 114 million compared to EUR 116 million last year.
This comprised, lease debt payments of EUR 67 million,
compared to EUR 66 million last year, non-capitalised
short-term and low value lease costs of EUR 39 million
compared to EUR 43 million last year, and interest
expenses on lease liabilities of EUR 8 million compared to
EUR 7 million last year.
Table 3.2.1.a Right of use assets
(EURm)
2020
Carrying amount at 1 January
Additions
Disposals
Depreciations and impairments for the year
Depreciation on disposals
Exhange rate adjustments
Carrying amount at 31 December
2019
Carrying amount at 1 January
Additions
Disposals
Depreciations and impairments for the year
Depreciation on disposals
Exhange rate adjustments
Carrying amount at 31 December
88 ARLA FOODS ANNUAL REPORT 2020
Land and
building
Plant and
machinery
Fixture and
fitting, tools
and equipment
109
55
-8
-23
5
-2
136
95
38
-6
-22
3
1
109
21
4
-8
-10
6
-
13
27
7
-1
-13
1
-
21
78
43
-19
-34
13
-1
80
77
36
-9
-35
9
-
78
Total
208
102
-35
-67
24
-3
229
199
81
-16
-70
13
1
208
Accounting policies
Lease contracts are typically agreed for a fixed duration,
but may have an option to extend at a future date.
All leases are recognised as a right of use asset and a
corresponding liability at the date at which the leased
asset is available for use by the group.
A lease liability is initially measured on a present value
basis, which comprises the net present value of the
following:
fixed lease payments (including in-substance fixed
payments), less any lease incentives receivable
variable lease payment based on an index or a rate
amounts expected to be payable by the group under
residual value guarantees
the exercise price of a purchase option if the group is
reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the
group is reasonably certain to exercise that exit option
The lease payments are discounted using an incremental
borrowing rate, being the rate that the Group would
have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment
with similar terms and conditions.
The corresponding right of use asset is measured at
cost comprising the following:
the amount of the initial measurement of the lease
liability
any lease payments made at or before the com-
mencement date less any lease incentives received
any initial direct costs, and
restoration costs
The right of use asset is subsequently depreciated over
the shorter of the asset's useful life and the lease term
on a straight-line basis. In addition, the value of the right
of use asset is adjusted for certain remeasurements of
the lease liability.
Each lease payment comprises a reduction of the lease
liability and a finance cost. The finance cost is charged
to profit or loss over the lease period to produce a
constant periodic rate of interest on the remaining
balance of the liability for each period.
Short-term leases and leases of low-value assets are
recognised as an expense in the income statement.
Short-term leases are those with a lease term of less
than 1 year. Leases of low-value assets are those with
an underlying asset value less than EUR 5 thousand.
Uncertainties and estimates
The group has applied estimates and judgements with
impact on the recognition and measurement of right of
use assets and lease liabilities. This includes assessment
of the incremental borrowing rate, service components
and facts and circumstances that could create an
economic incentive to utilise extension options of lease
arrangements.
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3.3 JOiNT VENTURES AND ASSOCiATES
Financial comments
The share of result in joint ventures and associates
decreased 18 per cent to EUR 28 million compared to EUR
34 million last year and relates primarily to results from our
investments in Mengniu and Lantbrukarnas Riksförbund
(LRF).
COFCO Dairy Holdings Limited (CDH) and China Mengniu
Dairy Company Limited (Mengniu)
The group’s proportionate share of the net asset value of
CDH including the investment in Mengniu is EUR 343
million, compared to EUR 340 million last year. The carrying
amount of the investment in CDH includes goodwill
amounting to EUR 138 million, compared to EUR 151
million last year driven by the development in USD and CNY.
The fair value of the indirect share in Mengniu equals EUR
1.024 million, compared to EUR 755 million last year based
on the official listed share price at 31 December 2020.
The investment in CDH is part of the China business unit
and is currently managed in China, along with sales
activities with similar characteristics. A potential impairment
of the investment is tested at the China business unit level,
using expected future net cash flow. Impairment risks
include substantial and long-term reductions in leading
stock indexes in Asia, the issue of import restrictions on
dairy products in China, or an adverse and permanent
reduction in the expected performance of Mengniu. As the
fair value exceeds the carrying value of the investment,
there is no indication of impairment. Mengniu reported a
group revenue of EUR 10.221 million and a result of EUR
530 million in 2019. Consolidated figures are not available
for the CDH group. CDH holds no other significant
investment than the investment in Mengniu and reported
revenue relates to received dividend payments from
Mengniu. Through the investment in CDH Arla holds a
5,3 per cent indirect investment in Mengniu. See table
3.3.b for more details on CDH.
Joint ventures
The carrying value of joint ventures increased to EUR 40
million compared to EUR 38 million last year. The value
primarily relates to the German joint ventures Biolac and
ArNoCo. The carrying value does not include goodwill.
Recognised value of associates and
joint ventures, 2020
Recognised value of associates and
joint ventures, 2019
Table 3.3.a Associates and Joint ventures
Value of associates and joint ventures
(EURm)
Share of equity in CDH/Mengniu
Goodwill in CDH/Mengniu
Share of equity in other associates
Recognised value of associates
Share of equity in other joint ventures
Recognised value of associates and joint ventures
Table 3.3.b COFCO Dairy Holdings Limited
Disclosures of financial information*
(EURm)
Revenue
Results after tax
Non-current assets
Dividends received
Ownership share
Group share of result after tax
Recognised value
2020
2019
205
138
87
430
40
470
189
151
90
430
38
468
2020
2019
16
16
702
0
30%
21
343
11
11
683
5
30%
28
340
470
MILLION EUR
468
MILLION EUR
Share of equity in CDH/Mengniu 44%
Goodwill in CDH/Mengniu 29%
Share of equity in immaterial associates 19%
Share of equity in immaterial joint ventures 8%
Share of equity in CDH/Mengniu 41%
Goodwill in CDH/Mengniu 32%
Share of equity in immaterial associates 19%
Share of equity in immaterial joint ventures 8%
89 ARLA FOODS ANNUAL REPORT 2020
CDH has no other significant assets or liabilities. * Based on latest available financial reporting
Fair value based on listed share price
1,024
755
Table 3.3.c Transactions with associates and joint ventures
(EURm)
Sale of goods
Purchase of goods
Trade receivables*
Trade payables*
* Included in other receivables and other payables
2020
2019
109
68
30
-7
55
65
10
-10
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3.3 ASSOCiATES AND JOiNT VENTURES
Accounting policies
Investments where Arla exercises significant influence,
but not control, are classified as associates. Investments
in which Arla has joint control are classified as joint
ventures.
The proportionate share of 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 Arla’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, computation
of Arla's share of profit and equity is based on the latest
published financial information of the company, other
publicly available information on the company’s
financial development, and the effect of reassessed
net assets.
Investments in associates and joint ventures with
negative net asset values are measured at zero.
If Arla 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.
An impairment test is performed when there is
impairment indicators, 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.
90 ARLA FOODS ANNUAL REPORT 2020
Where the equity-accounted investment is considered
to be an integral 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. The
recoverable amount is defined as the higher of value in
use, and fair value less costs to sell, of the equity-ac-
counted investment (or CGU).
Uncertainties and estimates
Significant influence is defined as the power to
participate in financial and operating policy decisions of
the investee but does not constitute control or joint
control over those policies. Judgement is necessary in
determining when significant influence exists. When
determining significant influence, factors such as
representation on the Board of Directors, participation
in policy-making, material transactions between the
entities and interchange of managerial personnel are
considered.
CDH and Mengniu
The group has a 30 per cent investment in CDH,
which is considered an associated company based on
a cooperation agreement extending significant
influence including the right of Board representation.
The cooperation agreement with CDH also entitles
Arla to representation on the Board of Mengniu, a Hong
Kong listed dairy company in which CDH is a significant
shareholder. It was agreed that Arla and Mengniu
cooperate in relation to the exchange of technical dairy
knowledge and expertise, and that Arla grants
intellectual rights to Mengniu. Based on these
underlying agreements, it is our assessment that
Arla has significant influence in Mengniu.
Lantbrukarnas Riksforbund, Sweden (LRF)
Arla has an ownership interest of 24 per cent 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 arrangement,
Arla’s active ownership interest constitutes significant
influence over LRF. This includes, but is not limited to,
owner representation on the Board of Directors.
Furthermore, owners of Arla have represented the
Swedish dairy industry at the Board of Directors in LRF
and both Arla and our Swedish owners are individual
members of LRF.
Capital employed
3.4 PROViSiONS
Provisions
Uncertainties and estimates
Provisions amounted to EUR 46 million in 2020,
compared to EUR 32 million last year. Provisions
primarily relate to insurance provisions for insurance
incidents that occurred but have not been settled.
Insurance provisions primarily relate to occupational
injuries. No major occupational incidents occurred
during the year. The general provision for occupational
injuries of EUR 9 million is recorded as a long-term
provision.
Provisions are particularly associated with estimates on
insurance provisions. Insurance provisions are assessed
based on historical records of, amongst other things,
the number of insurance events and related costs
considered. The scope and size of onerous contracts
are also estimated.
NOTE 3: CAPITAL EMPLOYED (CONTiNUED)
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Capital employed
3.5 PURCHASE AND SALE Of bUSiNESS OR ACTiViTiES
Acquisitions and divestments
Accounting policies
Arla had no acquisition or divestment activities of any
significance in 2020.
Prior year acquisitions
In May 2019 Arla acquired the operations of the cheese
business in MENA from Mondeléz International
including production facilities in Bahrain and related
working capital items. The acquisition was in line with
the strategy to expand branded cheese production in
the MENA region and to improve overall efficiency in
the group’s supply chain.
The fair value of the net assets acquired was EUR 66
million and consisted of production facilities and
inventories. Goodwill totalled EUR 80 million and
presents the benefit of access to production facilities in
Bahrain, a location well-positioned to support our
strategic ambition in MENA and the possibility to further
optimise Arla’s supply chain structure.
In 2019 the revenue contribution from the Mondeléz
acquisition was EUR 51 million.
Prior year divestments
In March 2019 Arla divested both its minority interests
in NGF Nature Energy Videbæk A/S, Denmark and
Martin Sengele Produits Laitiers SAS, France (the Allgäu
business), for total proceeds of EUR 16 million.
2020
2019
0
0
0
0
0
0
0
48
18
66
80
146
22
168
Table 3.5.a Mergers and acquisitions
(EURm)
Property, plant and equipment
Inventory
Total net assets acquired
Goodwill
Purchase price, net
Deferred payment
Cash payment during the year
91 ARLA FOODS ANNUAL REPORT 2020
Recognition date and considerations
Newly acquired companies are recognised in the
consolidated financial statements at the date when the
group obtains control. The purchase consideration 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
considerations 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.
In a business combination achieved in stages (step
acquisition), the shareholding held immediately before
the step acquisition where control is gained is
remeasured at fair value at the acquisition date. Any
gains or losses arising from such remeasurement are
recognised in the income statement. The total fair value
of the shareholding held immediately after the step
acquisition is estimated and recognised as the cost of
the total shareholding in the company.
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 identified goodwill is not
subject to amortization, but 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 when fair values of
the assets are transferred and equity instruments are
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.
Enterprises divested are recognised in the consolidated
income statement up to the date of disposal. Compara-
tive figures are not restated to reflect disposals. Gains or
losses on divestment of subsidiaries and associates are
determined as the difference between the selling price
and the carrying amount of the net assets, including
goodwill, at the date of divestment and costs necessary
to make the sale.
Uncertainties and estimates
To determine the classification of investments, a
discretionary assessment of the level of influence is
required.
Acquisitions where the group gains control of an entity
requires estimates and judgements to be applied, as
uncertainties regarding identification and fair value
measurement of assets, liabilities and contingent
liabilities exist.
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treasury and funding policy, is approved by the Board
of Directors and managed centrally by the treasury
department. The policy outlines risk limits for each type
of financial risk, permitted financial instruments and
counterparties.
The Board of Directors receives a report on the group’s
financial risk exposure on a monthly basis. Hedging the
volatility of milk prices is not within the scope of
financial risk management but is an inherent component
of the group’s business model.
Table 4.1.1.a Liquidity reserves
(EURm)
Cash and cash equivalents
Securities (free cash flow)
Unutilised committed loan facilities
Unutilised other loan facilities
Total
2020
2019
126
18
326
12
482
187
6
355
97
645
Liquidity reserves,
2020
Liquidity reserves,
2019
482
MILLION EUR
645
MILLION EUR
Cash and cash equivalents 26%
Securities (free cash flow) 4%
Unutilised committed loan facilities 68%
Unutilised other loan facilities 2%
Cash and cash equivalents 29%
Securities (free cash flow) 1%
Unutilised committed loan facilities 55%
Unutilised other loan facilities 15%
More than 95 per cent of the day-to-day liquidity flow
of the group is managed by the treasury department
and the internal bank, via cash pooling arrangements.
This secures a scalable and efficient operating model.
As a result, the group has been able to achieve a
cost-efficient utilisation of credit facilities.
Arla operates in several countries where restrictions on
transferability of cash exist. However, the balances of
cash deemed trapped are insignificant.
Funding
4.1 fiNANCiAL RiSKS
Financial risk management
Financial risks are an inherent part of the group’s
operating activities and as a result, the group’s profit is
impacted by the development 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 an appropriate financial risk management
approach in place to mitigate short-term market
volatility, whilst simultaneously achieving the highest
possible milk price.
The group’s comprehensive financial risk management
strategy and system builds on a thorough understanding
of the interaction between the group’s operating
activities and underlying financial risks. The overall
framework for managing financial risks, being the
4.1.1 Liquidity risk
Adequate liquidity reserves
Liquidity reserves decreased by EUR 163 million, to
EUR 482 million in 2020. Looking at the maturity profile
of the group’s debt and the forecasted cash flow, the
liquidity reserves are still considered adequate.
Ensuring availability of sufficient operating liquidity and
credit facilities for operations is the primary goal of
managing liquidity risk. Based on the liquidity models
suggested by the rating agencies, Arla’s liquidity reserves
have been assessed as adequate for the coming 12
months.
Supply chain finance programmes and factoring
relating to customers forms part of the group’s liquidity
management. Selected suppliers have access to the
group’s supply chain finance facilities, which allows
those suppliers to benefit from the group’s credit profile.
92 ARLA FOODS ANNUAL REPORT 2020
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Table 4.1.1.b Contractual expected non-discounted cash flow on gross financial liabilities
(EURm)
2020
Issued bonds
Mortgage credit institutions
Credit institutions
Lease liabilities
Other non-current liabilities
Interest expense - interest bearing debt
Trade and other payables
Derivative instruments
Total
2019
Issued bonds
Mortgage credit institutions
Credit institutions
Lease liabilities
Other non-current liabilities
Interest expense - interest bearing debt
Trade and other payables
Derivative instruments
Total
Carrying
amount
399
1,042
986
233
70
-
1,212
66
4,008
Carrying
amount
382
957
1,175
213
13
-
1,158
86
3,984
Non-discounted contractual cash flow
Total
2021
2022
2023
2024
2025
2026
2027
2028-2030
After 2030
399
1,061
987
233
70
72
1,212
66
4,100
100
8
531
56
70
13
1,212
22
2,012
-
12
152
43
-
12
-
10
229
150
12
101
36
-
9
-
9
317
149
12
201
27
-
4
-
7
400
-
87
1
20
-
3
-
3
114
-
51
1
24
-
3
-
2
81
-
56
-
6
-
3
-
1
66
-
219
-
10
-
7
-
3
239
-
604
-
11
-
18
-
9
642
Non-discounted contractual cash flow
Total
2020
2021
2022
2023
2024
2025
2026
2027-2029
After 2029
382
976
1,176
213
13
110
1,158
86
4,114
-
1
717
62
13
13
1,158
40
2,004
96
9
21
42
-
11
-
12
191
-
12
125
31
-
10
-
10
188
143
12
101
23
-
9
-
9
297
143
12
212
15
-
6
-
3
391
-
87
-
8
-
5
-
1
101
-
50
-
6
-
5
-
1
62
-
183
-
13
-
15
-
2
213
-
610
-
13
-
36
-
8
667
Assumptions
Contractual cash flows are based on the earliest possible date at which the group can be required to settle the financial liability and the interest rate cash flow is based on the contractual interest rate.
Floating interest payments were determined using the current floating rate for each item at the reporting date.
93 ARLA FOODS ANNUAL REPORT 2020
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Risk mitigation
Risk
Liquidity and funding are vital for the group to be able
to pay its financial liabilities as they become due. It also
impacts our ability to attract new funding in the longer
term and is crucial to fulfilling the group’s strategic
ambitions.
Policy
The treasury and funding policies state the minimum
average maturity threshold for net interest-bearing debt
and sets limitations on debt maturing within the next
12- and 24-month periods. Unused committed facilities
are taken into account when calculating average
maturity.
Average maturity
Average maturity, gross debt
Maturity < 1 year, net debt
Maturity > 2 year, net debt
2020
2019
Minimum
Maximum
Policy
5.0 years
0%
84%
5.2 years
0%
93%
2 years
-
50%
-
25%
-
How we act and operate
In addition to the treasury and funding policy, the Board
of Directors have approved a long-term financing
strategy, which defines the direction for financing of the
group. This includes counterparties, instruments and
risk appetite and describes future funding opportunities
to be explored and implemented. The funding strategy
is supported by members’ long-term commitment to
invest in the business. It is the group’s objective to
maintain its credit quality at a robust investment grade
level.
4.1.2 Currency risk
Currency impact on revenue, costs and financial position
The group is exposed to both transaction and translation
effects from foreign exchange rates.
Transaction effects are due to sales in currencies other
than the functional currencies of the individual entities.
The group is mainly exposed to USD and USD pegged
currencies as well as GBP. Revenue decreased by EUR 12
million compared to last year due to negative transaction
effects. Part of this exposure was hedged by costs in the
same currency. Financial instruments such as trade
receivables, trade payables and other items denominated
in currencies other than the individual entities’ functional
currencies are also exposed to currency risks. The net
effect from the revaluation of these financial instruments
is recognised within financial income or financial costs.
A net loss of EUR 25 million was recognised in financial
costs compared to a loss of EUR 3 million last year.
Exchange rate losses relate primarily to the devaluations
of Lebanese, Nigerian and Argentine currencies, which
amounted to EUR 20 million.
To manage short term volatility from currency
fluctuations, derivatives are used to hedge the currency
exposure. When settling the hedging instrument, a
94 ARLA FOODS ANNUAL REPORT 2020
positive or negative amount is recognised within other
income or other costs respectively. A net gain of EUR 17
million was recognised within other costs compared to a
loss of EUR 24 million last year. A loss from hedges will
be expected in years where export currencies strengthen
during the year and vice versa.
The group is exposed to translation effects from entities
reporting in currencies other than EUR. The group is
mainly exposed to translation of entities reporting in GBP,
DKK, SEK, CNY and USD. Due to translation effects,
revenue decreased by EUR 73 million compared to the
revenue reported last year. Simultaneously, costs
decreased by EUR 80 million compared to last year’s
reported cost. The group’s financial position is similarly
exposed, impacting the value of assets and liabilities
reported in currencies other than EUR. The translation
effect on net assets is recognised within other compre-
hensive income as foreign exchange adjustments. In
2020 a net loss of EUR 84 million was recognised in
other comprehensive income compared to a gain of
EUR 42 million last year.
Indirectly the prepaid milk price absorbs both transaction
and translation effects and the net result therefore has
limited exposure to currency risks. The prepaid milk is set
based on achieving an annual profit of 2.8 to 3.2 per
cent. The prepaid price is initially measured and paid out
based on a EUR amount and consequently exposed to
EUR fluctuations against GBP, SEK and DKK.
Compared to last year, the average rate of the USD
weakened by 2 per cent, the GBP weakened by 1 per
cent and the SEK strengthened by 1 per cent.
The group is increasingly involved in emerging markets
where efficient hedging is often not feasible due to
currency regulations, illiquid financial markets or
expensive hedging costs. Among the most important
markets are Nigeria, the Dominican Republic, Bangladesh,
Lebanon and Argentina. Countries with currency
restrictions represented 4 per cent of the group’s
revenue in 2020.
Revenue split by currency,
2020
Revenue split by currency,
2019
10,644
MILLION EUR
10,527
MILLION EUR
EUR 30%
USD 9%
GBP 25%
SAR 3%
SEK 13%
Other 8%
DKK 12%
EUR 31%
USD 9%
GBP 25%
SAR 3%
SEK 13%
Other 7%
DKK 12%
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Table 4.1.2.a Exchange rates
EUR/GBP
EUR/SEK
EUR/DKK
EUR/USD
EUR/SAR
2020
0.903
10.081
7.441
1.230
4.616
Closing rate
2019
Change
2020
Average rate
2019
Change
Risk mitigation
0.854
10.470
7.472
1.120
4.201
-5.7%
3.7%
0.4%
-9.8%
-9.9%
0.889
10.483
7.454
1.140
4.279
0.877
10.587
7.466
1.119
4.199
-1.3%
1.0%
0.2%
-1.8%
-1.9%
Table 4.1.2.b Currency exposure
Balance sheet
exposure
Potential
accounting impact
Open
positions
Hedge of
future
cash flow
External
exposure Sensitivity
Income
statement
Other
compre-
hensive
income
2020
EUR/DKK
USD/DKK*
GBP/DKK
SEK/DKK
SAR/DKK
2019
EUR/DKK
USD/DKK*
GBP/DKK
SEK/DKK
SAR/DKK
*Incl. AED
-94
10
-9
-35
8
-346
219
39
-24
-165
-10
-197
-415
-87
-187
0
-276
-311
0
-24
-104
-187
-424
-122
-179
-346
-57
-272
-24
-189
1%
5%
5%
5%
5%
1%
5%
5%
5%
5%
-1
1
-
-2
-
-3
11
2
-1
-8
-
-10
-21
-4
-9
0
-14
-16
0
-1
95 ARLA FOODS ANNUAL REPORT 2020
The currency exposure is continuously managed by the
treasury department. Individual currency exposures are
hedged in accordance with the treasury and funding
policy.
Financial instruments used to hedge the currency
exposure do not necessarily need to qualify for hedge
accounting, and hence some of the applied financial
instruments, i.e. some option strategies, are accounted
for as fair value through the income statement.
Arla Foods amba’s functional currency is DKK. However,
the risk in relation to the EUR currency is assessed in
the same manner as for DKK. The Executive Management
Team has the discretion to decide if and when
investments in foreign operations should be hedged
(translation risks) with an obligation to inform the Board
of Directors at the next meeting.
The group’s external exposure is calculated as external
financial assets and liabilities denominated in currencies
different from the functional currency of each legal
entity, plus any external derivatives converted on group
level into currency risk against DKK, i.e. EUR/DKK, USD/
DKK etc. The same also applies to the group’s net
internal exposure. The aggregate of the group’s external
and internal currency exposure, represents the net
exposure, which is outlined in Table 4.1.2.b.
Net foreign currency investments in subsidiaries, as well
as instruments hedging those investments, are
excluded.
Risk
The group operates in many different countries and has
significant investments in operations outside of
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.
Policy
According to the treasury and funding policy, the
treasury department can hedge:
Up to 15 months of the net forecasted cash receipts
and payables.
Up to 100 per cent of net recognised trade receivables
and trade payables.
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4.1.3 Interest rate risk
Risk mitigation
Limited hedging activities due to decreased debt levels
The average duration of the group’s interest on
interest-bearing debt, including derivatives but excluding
pension liabilities, has increased by 0.2 to 2.6. The
duration is increased due to new interest rate hedges
partly offset by a reduction in time to maturity on the
remaining hedges.
Risk
The group is exposed to interest rate risk on interest-
bearing borrowings, pension liabilities, interest-bearing
assets and on the value of non-current assets where
an impairment test is performed. The risk is divided
between profit exposure and exposure within
comprehensive income. Profit exposure relates to net
potential impairment of non-current assets. Exposure
other comprehensive income relates to revaluation of
net pension liabilities and interest hedging of future
cash flow.
Cash flow sensitivity
A change in interest rates will impact interest rate
payments on the group’s unhedged floating rate debt.
Table 4.1.3 shows the one-year cash flow sensitivity,
depicting a 1 per cent increase in interest rates on the
31 December 2020. A decrease in the interest rate
would have the opposite effect.
Policy
Interest rate risk must be managed according to the
treasury and funding policy. Interest rate risk is
measured as the duration of the debt portfolio,
including hedging instruments, but excluding pension
liabilities.
Potential
accounting impact
Income
statement
Other
comprehen-
sive income
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
on a 1 per cent increase in interest rates. A decrease in
the interest rate would have the adverse effect.
6
5
-13
-2
5
4
-23
-14
-1
42
-
41
-2
31
-
29
Duration
2.6
2.4
1
7
2020
2019
Minimum
Maximum
Policy
How we act and operate
The purpose of interest rate hedging is to mitigate risk
and secure relatively stable and predictable financing
costs. 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 risks related to fluctuations in the interest
rate, and to manage the interest profile of the
interest-bearing debt. By having a portfolio approach
and using derivatives, the group can independently
manage and optimise interest rate risk, as the interest
rate profile can be changed without having to change
the funding itself. Thereby, the group can operate in a
fast, flexible and cost-efficient manner without
changing underlying loan agreements.
The mandate from the Board of Directors provides the
group with the opportunity to use derivatives, like
interest rate swaps and options, in addition to interest
conditions embedded in the loan agreements. During
the year, the group has not traded in any options
contracts.
Table 4.1.3 Sensitivity based on a 1 percentage point increase in interest rate
(EURm)
2020
Financial assets
Derivatives
Financial liabilities
Net interest-bearing debt
excluding pension liabilities
2019
Financial assets
Derivatives
Financial liabilities
Net interest-bearing debt
excluding pension liabilities
Carrying value
Sensitivity
-550
-
2,730
2,180
-627
-
2,740
2,113
1%
1%
1%
1%
1%
1%
96 ARLA FOODS ANNUAL REPORT 2020
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4.1.4 Commodity price risk
Risk mitigation
Risk
The group is exposed to commodity risks related to the
production and distribution of dairy products. Increased
commodity prices negatively impact the costs of
production and distribution.
Fair value sensitivity
A change in commodity prices will impact the fair value
of the group’s hedged commodity derivative instruments,
measured through other comprehensive income and
the unhedged energy consumption through the
income statement. The table shows the sensitivity of
a 25 per cent increase in commodity prices for both
hedged and unhedged commodity purchases. A
decrease in commodity prices would have the reverse
effect.
Policy
According to the treasury policy, the forecasted
consumption on electricity, natural gas and diesel can
be hedged for up to 36 months, of which 100 per cent
can be hedged for the first 18 months, with a limited
proportion thereafter.
How we act and operate
Energy commodity price risks are managed by the
treasury department. Commodity price risks are mainly
hedged by entering financial derivative contracts,
independent of the physical supplier contracts. Arla is
also exploring other commodities relevant for financial
risk management.
Arla’s energy exposure and hedging are managed as a
portfolio across energy type and country. Not all energy
commodities can effectively be hedged by matching
the underlying costs, but Arla aims to minimise the base
risk.
Dairy derivative market in EU, US and New Zealand
remain small but are evolving. The group has engaged
in hedging activities for a minor part of the group’s dairy
commodity trading volume. As the dairy derivative
market develops, we expect this to play a role in
managing fixed price contracts with customers, in the
coming years.
Difficult hedging conditions in a volatile market
Supply contracts are predominately related to a floating
official price index. The treasury department uses
financial derivatives hedge commodity price risk. This
secures full flexibility to change suppliers without
having to take future hedging into consideration.
Hedging activities concentrate on the most significant
risks, including electricity, natural gas and diesel. The
total energy commodity spends, excluding taxes and
distribution costs, amounted to approximately EUR 70
million.
The purpose of hedging is to reduce volatility in costs
related to energy. In 2020, hedging activities have
resulted in a loss of EUR 15 million vs a loss on
EUR 6 million last year. However, the loss in 2020 was
more than offset by lower physically energy costs of
EUR 24 million. The result of hedging activities,
classified as hedge accounting, is recognised in other
income and costs.
At the end of 2020, 35 per cent of the energy spend for
2021 was hedged. A 25 per cent increase in commodity
prices would negatively impact profit by approximately
EUR 11 million. Conversely, other comprehensive
income would be positively impacted by EUR 10
million.
Table 4.1.4 Hedged commodities
(EURm)
2020
Diesel / natural gas
Electricity
2019
Diesel / natural gas
Electricity
Potential
accounting impact
Sensitivity
Contract
value
Income
statement
Other
compre hen-
sive income
25%
25%
25%
25%
2
-
2
-4
-1
-5
-7
-4
-11
-8
-6
-14
6
4
10
6
4
10
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4.1 fiNANCiAL RiSKS
4.1.5 Credit risk
Limited losses
External rating of financial counterparties,
2020
External rating of financial counterparties,
2019
In 2020 the group continued to experience very limited
losses from defaulting counterparties such as customers,
suppliers and financial counterparties.
All major financial counterparties had satisfactory credit
ratings at year-end. The Arla requirement is a credit rating
of at least A-/A-/A3 from either S&P, Fitch or Moody’s
either for the financial counterparty or its parent
company. In a small number of geographical locations
which are not serviced by our relationship banks and
where financial counterparties with a satisfying credit
rating do not operate, the group deviated from the rating
requirement.
The maximum exposure to credit risk is approximately
equal to the carrying amount.
The group has, like in previous years, continuously
worked with credit exposure and experienced a very low
level of losses arising from customers.
To manage the financial counterparty risk, the group
uses master netting agreements when entering into
derivative contracts. Table 4.1.5 shows the counterparty
exposure for those agreements covered by entering into
netting agreements that qualifies for netting in case of
default.
AAA 69%
BBB+ 6%
Further information on trade receivables is provided in
Table 2.1.c.
603
MILLION EUR
626
MILLION EUR
AA- 3%
Below investment grade 7%
A+ 11%
A 4%
AAA 69%
BBB+ 1%
AA- 6%
Below investment grade 6%
A+ 14%
A 4%
Table 4.1.5 External rating of financial counterparties
(EURm)
Counterparty rating
AA-
A+
A
BBB+
Below
investment
grade
10
9
19
-
30
7
37
44
22
66
-
78
7
85
5
16
21
-
19
5
24
5
23
10
38
-
7
-
7
44
0
44
-
37
1
38
AAA
415
415
435
-
-
435
2020
Securities
Cash
Derivatives
Total
2019
Securities
Cash
Derivatives
Total
Risk mitigation
Risk
Credit risks arise from operating activities and
engagement with financial counterparties. Further-
more, a weak counterparty credit quality can reduce
their ability to support the group going forward, thereby
jeopardising the fulfilment of our group’s strategy.
Policy
Counterparties are selected based on a relationship
bank strategy. Financial counterparties must be
approved by the Managing Directors and the CFO upon
recommendation from our Treasury team. A counter-
party (or its parent) in financial contracts and deposits
must as a minimum have a long rating corresponding to
A3 with Moody’s, A- with Standard & Poor’s or A- with
Fitch. If the Group has only obtained credits from the
counterparty, no rating is required. If the counterparty is
rated by several credit rating agencies, an average is
used, rounded up to the nearest notch. In geographies
Total
420
126
57
603
435
171
20
626
which are not properly covered by our relationship
banks, the Treasury team may deviate from the
counterparty requirement in this section.
How we act and operate
The Group has an extensive credit risk policy and uses
credit insurance and other trade financing products
extensively in connection with exports. In certain
emerging markets, it is not always possible to obtain
credit coverage with the required rating, however, the
Group then applies for the best coverage available. The
Group has determined that this is an acceptable risk
given levels of investment in in emerging markets.
If a customer payment is late, internal procedures are
followed to mitigate losses. The group uses a limited
number of financial counterparties where credit ratings
are monitored on an ongoing basis.
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4.2 fiNANCiAL iTEMS
Lower interest costs offset by higher exchange rate losses
Accounting policies
Net financial costs increased by EUR 13 million, to EUR
72 million mainly due to exchange rate losses, which
were partly offset by lower interest costs.
liabilities, was 2.3 per cent compared to 3.0 per cent
last year. Interest cover increased to 17.0 compared to
12.0 last year.
Net interest costs amounted to EUR 54 million,
representing a decrease of EUR 15 million compared to
last year due to a lower average interest level and
expiration of interest hedges. The average interest cost,
excluding interest related to pension assets and
Exchange rate losses relate primarily to the devaluation
of Lebanese, Nigerian and Argentine currencies, which
amounted to EUR 20 million.
Capitalisation of interest was performed by using an
interest rate matching the group’s average external
interest rate in 2020. Financial income and costs
relating to financial assets and financial liabilities were
recognised using the effective interest method.
Financial income and costs as well as capital gains and
losses, are recognised in the income statement at
amounts that can be attributed to the year. 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 costs of such assets and are therefore
not included in financial costs.
Table 4.2 Financial income and financial costs
(EURm)
Financial income:
Interest securities, cash and cash equivalents
Fair value adjustments and other financial income
Total financial income
Financial costs:
Interest on financial instruments measured at amortised cost
Net exchange rate losses
Interest on pension liabilities
Interest transferred to property, plant and equipment
Fair value adjustments and other financial costs, net
Total financial costs
Net financial costs
2020
2019
2
5
7
-54
-25
-2
8
-6
-79
-72
3
7
10
-69
-3
-4
8
-1
-69
-59
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4.3 NET iNTEREST-bEARiNG DEbT
Increased net interest-bearing debt
Net interest-bearing debt, excluding pension liabilities,
increased to EUR 2,180 million compared to EUR 2,113
million last year. The increase was driven by changed
rules for vacation accruals in Denmark which made EUR
60 million interest-bearing end of September 2020.
Pension liabilities decreased by EUR 2 million to EUR
247 million. Net interest-bearing debt, including
pension liabilities, amount to EUR 2,427 million
compared to EUR 2,362 million last year. The UK
pension scheme net asset was EUR 40 million
compared to EUR 16 million last year. This asset is
excluded in the calculation of pension liabilities, net
interest-bearing debt and leverage.
Arla’s leverage ratio was 2.7, a decrease of 0.1
compared to last year. This was below the long-term
target range of 2.8 to 3.4, underpinning a strong
financial position.
The average maturity of interest-bearing borrowings
decreased by 0.2 years to 5.0 years. Average maturity is
impacted by a lapse of time to maturity, refinancing or
obtaining new committed facilities, and the level of net
interest-bearing debt.
The equity ratio increased to 35 per cent, compared to
34 per cent last year.
Funding
The group applies a diversified funding strategy to
balance the liquidity and refinancing risk with the aim of
a low financing cost. Major acquisitions or investments
are funded separately.
A diverse funding strategy includes diversification of
markets, currencies, instruments, banks, lenders and
maturities to secure broad access to funding and to
ensure that the group is independent of one single
funding partner or one single market. All funding
opportunities are benchmarked against EURIBOR 3
months and derivatives are applied to match the
currency of our funding needs. The interest profile is
managed with interest rate swaps independent of the
individual loans.
The credit facilities contain financial covenants on
equity/total assets and minimum equity, as well as
standard non-financial covenants. The group did not
default on or fail to fulfil any loan agreements in 2020.
During Covid-19 governments granted different
programmes to subsidise corporates. However, the net
effect on net interest-bearing debt is limited for the
group.
During 2020 the group had limited need for new
funding. The most significant funding activities during
the year were:
An EUR 80 million mortgage loan
Establishment of a new EUR 500 million ”Euro
commercial paper” programme and in connection to
this a Covid-19 emergency facility of 300 mGBP from
Bank of England which was never utilised
Arla has a commercial paper programme in Sweden
denominated in SEK and EUR. The programme is
unutilised end of year due to a strong liquidity position.
The average utilization in 2020 was EUR 75 million
During the year, Arla entered into sale and repurchase
arrangements based on its holdings in listed
AAA-rated Danish mortgage bonds. Refer to Note 4.6
for more details.
100 ARLA FOODS ANNUAL REPORT 2020
Net interest-bearing debt
(EURm)
3,000
2,500
2,000
1,500
1,000
500
0
2
4
9
2
4
7
3
6
9
2
7
7
2
2
0
,
1
6
4
8
2016
,
1
6
3
6
2017
,
1
6
4
7
2018
,
2
1
1
3
2019
,
2
1
8
0
2020
4
3
2
1
0
Leverage
Pension liabilities
Net interest-bearing debt excluding pension liabilities
Target range leverage 2.8 - 3.4
Net interest-bearing debt consists of current and
non-current liabilities, less interest-bearing assets.
The definition of leverage is the ratio between net
interest-bearing debt including pension liabilities 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
2.7
2019: 2.8
Table 4.3.a Net interest-bearing debt
(EURm)
Long-term borrowings
Short-term borrowings
Securities, cash and cash equivalents
Other interest-bearing assets
Net interest-bearing debt excluding pension liabilities
Pension liabilities
Net interest-bearing debt including pension liabilities
2020
2019
1,964
766
-546
-4
2,180
247
2,427
1,951
789
-622
-5
2,113
249
2,362
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4.3 NET iNTEREST-bEARiNG DEbT
Table 4.3.b Borrowings
(EURm)
Long-term borrowings:
Issued bonds
Mortgage credit institutions
Bank borrowings
Lease liabilities
Total long-term borrowings
Short-term borrowings:
Issued bonds
Commercial papers
Mortgage credit institutions
Bank borrowings
Lease liabilities
Other current liabilities
Total short-term borrowings
2020
2019
Table 4.3.c Cash flow, net interest-bearing debt
(EURm)
299
1,033
455
177
1,964
382
957
458
154
1,951
100
-
9
531
56
70
766
-
192
-
525
59
13
789
2020
Pension liabilities
Long-term borrowings
Short-term borrowings
Total interest-bearing debt
UK pension assets
Securities and other
Interest-bearing assets
Cash
Net interest-bearing debt
Cash flow
Non-cash changes
Included in
financing
activities
1 January
Acqui-
sitions and
additions Reclasses
Foreign
exchange
move-
ments
Fair value
changes
31
December
249
1,951
789
2,989
-
-440
-187
2,362
-10
-
-90
-100
-26
17
50
-59
-
70
-
70
-
-
-
70
-84
84
-
25
-
-
25
7
5
-17
-5
2
-2
11
6
1
22
-
23
-1
1
-
23
247
1,964
766
2,977
-
-424
-126
2,427
Total interest-bearing borrowings
2,730
2,740
Long- and short-term borrowings payments of EUR 90 million (EUR 0 million and EUR 90 million respectively) reconciles to the cash
flow statement as loans obtained, net of EUR 24 million and lease payments of EUR 66 million.
2019
Pension liabilities
Long-term borrowings
Short-term borrowings
Total interest-bearing debt
UK pension assets
Securities and other
Interest-bearing assets
Cash
Net interest-bearing debt
224
1,510
930
2,664
-4
-475
-119
2,066
-10
408
-179
219
-27
37
-66
163
-
57
-
57
-
-
-
57
-1
-38
38
-1
16
-3
-
12
-5
-8
-
-13
-2
1
-2
-16
41
22
-
63
17
-
-
80
249
1,951
789
2,989
-
-440
-187
2,362
Long- and short-term borrowing payments totalling EUR 229 million (EUR 408 million and EUR -179 million respectively)
equals net impact of cash flow received from new loans, EUR 295 million, and cash payments related to lease arrangements
EUR -66 million.
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4.3 NET iNTEREST-bEARiNG DEbT
Maturity of net interest-bearing debt excluding
pension liabilities at December 2020
(EURm)
Maturity of net interest-bearing debt excluding
pension liabilities at December 2019
(EURm)
Interest profile for net interest-bearing debt
excluding pension liabilities at 31 December 2020
(EURm)
Interest profile for net interest-bearing debt
excluding pension liabilities at 31 December 2019
(EURm)
600
500
400
300
200
100
0
600
500
400
300
200
100
0
2,400
1,800
1,200
600
0
2,400
1,800
1,200
600
0
0-1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-6Y 6-7Y 7-10Y >10Y
0-1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-6Y 6-7Y 7-10Y >10Y
1Y
2Y
3Y
4Y
5Y
6Y
7Y
10Y
1Y
2Y
3Y
4Y
5Y
6Y
7Y
10Y
Unused committed facilities
Debt
Floating
Fixed via swap
Fixed debt
Table 4.3.d Net interest-bearing debt excluding pension liabilities and the effect of hedging, maturity
(EURm)
2020
DKK
SEK
EUR
GBP
Other
Total
2019
DKK
SEK
EUR
GBP
Other
Total
Total
794
434
782
47
123
2,180
Total
809
612
451
158
83
2,113
2021
-88
108
185
6
6
217
2020
-27
200
19
10
-43
159
2022
77
6
111
8
4
206
2021
22
102
29
10
5
168
2023
22
155
109
7
5
298
2022
21
6
12
124
4
167
2024
19
154
107
5
104
389
2023
19
148
106
3
3
279
2025
92
4
3
4
2
105
2024
17
147
103
2
113
382
2026
54
7
9
4
2
76
2025
89
1
2
2
1
95
2028-
2030
194
-
28
4
-
226
2027-
2029
183
4
6
2
-
195
2027
55
-
2
4
-
61
2026
52
1
1
2
-
56
After
2030
369
-
228
5
-
602
After
2029
433
3
173
3
-
612
102 ARLA FOODS ANNUAL REPORT 2020
Table 4.3.e Currency profile of net interest-bearing debt excluding pension liabilities
(EURm)
Disclosed before and after the effect of derivative financial instruments
2020
DKK
SEK
EUR
GBP
Other
Total
2018
DKK
SEK
EUR
GBP
Other
Total
Original
principal
794
434
782
47
123
2,180
Effect
of swap
-
-581
101
480
-
-
809
612
451
158
83
2,113
-
-566
334
232
-
-
After
swap
794
-147
883
527
123
2,180
809
46
785
390
83
2,113
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Table 4.3.f Interest rate risk excluding effect of hedging
(EURm)
Interest
rate
Average
interest
rate
Fixed
for
Carrying
amount
Interest
rate risk
Interest
rate
Average
interest
rate
Fixed
for
Carrying
amount
Interest
rate risk
0-1 years
2-3 years
3-4 years
0-1 years
0-1 years
0-1 years
0-1 years
Fair value
Fair value
Fair value
Cash flow
Cash flow
Cash flow
Fair value
50
74
75
50
75
75
0
399
2019
Issued bonds:
SEK 500m maturing 31.05.2021
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
SEK 500m maturing 31.05.2021
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
Commercial papers
Total issued bonds
1-2 years
0-1 years
Fair value
Cash flow
124
918
1,042
Mortgages credit institutions:
Fixed-rate
Floating-rate
Total mortgage credit institutions
Fixed
Fixed
Fixed
Floating
Floating
Floating
Fixed
Fixed
Floating
Fixed
Floating
1.88%
1.51%
1.58%
1.60%
0.91%
1.14%
-
1.40%
0.37%
0.43%
0.42%
0.02%
0.77%
0.46%
0-1 years
0-1 years
Fair value
Cash flow
Cash flow
Cash flow
404
582
986
233
70
303
Bank borrowings:
Fixed-rate
Floating-rate
Total bank borrowings
Other borrowings:
Lease liabilities
Other borrowings
Total other borrowings
Floating
Floating
3.38% 0-20 years
3.69%
0-1 years
3.45%
Fixed
Fixed
Fixed
Floating
Floating
Floating
Fixed
Fixed
Floating
1.88%
1.51%
1.58%
1.76%
1.11%
0.88%
0.32%
1.04%
0.82%
0.56%
0.58%
1-2 years
3-4 years
4-5 years
0-1 years
0-1 years
0-1 years
0-1 years
1-2 years
0-1 years
Fixed
Floating
-0.39%
0.79%
0.27%
0-1 years
0-1 years
Fixed
Floating
3.16% 0-20 years
3.59%
0-1 years
3.18%
Fair value
Fair value
Fair value
Cash flow
Cash flow
Cash flow
Fair value
Fair value
Cash flow
Fair value
Cash flow
Cash flow
Cash flow
48
72
71
48
71
72
192
574
78
879
957
431
552
983
213
13
226
2020
Issued bonds:
SEK 500m maturing 31.05.2021
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
SEK 500m maturing 31.05.2021
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
Commercial papers
Total issued bonds
Mortgages credit institutions:
Fixed-rate
Floating-rate
Total mortgage credit institutions
Bank borrowings:
Fixed-rate
Floating-rate
Total bank borrowings
Other borrowings:
Lease liabilities
Other borrowings
Total other borrowings
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4.3 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 risk
and reward related to ownership are also transferred to
the purchaser.
Financial assets and liabilities are offset, and the net
amount is 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.
Financial assets
Financial assets are classified at initial recognition and
subsequently measured at: amortised cost, fair value
through other comprehensive income or fair value
through the income statement.
The classification of financial assets at initial recognition
depends on the financial asset’s contractual cash flow
characteristics and how these are managed.
Financial assets where the group intends to collect the
contractual cashflow are classified and measured at
amortised cost.
Financial assets that are part of liquidity management
are classified and measured at fair value through other
comprehensive income. All other financial assets are
classified and measured at fair value through the
income statement.
Financial assets measured at amortised cost
Financial assets measured at amortised cost 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 an
insignificant risk of change in value and can be readily
converted to cash or cash equivalents.
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at fair value through other
comprehensive income consist of mortgage credit
bonds, which correspond in part to raised mortgage
debt.
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 fair value reserve in equity.
Interest income, impairment and foreign currency
translation adjustments of debt instruments are
recognised in the income statement on a continuous
basis, under financial income and financial costs. In
connection with the sale of financial assets classified at
fair value through other comprehensive income,
accumulated gains or losses, previously recognised in
the fair value reserve, are recycled to financial income
and financial costs.
Financial assets measured at fair value
through profit or loss
Securities classified at fair value through the income
statement consist primarily of listed securities which
are monitored, measured and reported continuously,
in accordance with the group’s treasury and funding
policy. Changes in fair value are recognised in the
income statement 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 loan proceeds and the
nominal value recognised in the income statement
over the expected life of the loan.
Capitalised residual lease obligations related to lease
agreements are recognised under liabilities, measured
at amortised cost. Other financial liabilities are
measured at amortised cost. For details on pension
liabilities, refer to Note 4.7.
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4.4 DERiVATiVE fiNANCiAL iNSTRUMENTS
Hedging of future cash flows
The group uses forward currency to hedge currency
risks on expected future net revenue and costs. Interest
rate swaps are used to hedge risks against movements
in expected future interest payments and commodity
swaps are used for energy hedging
Fair value of hedge instruments not qualifying for
hedge accounting (financial hedge)
The group uses currency options which hedge
forecasted sales and purchases. Some of these options
do not qualify for hedge accounting and hence, the fair
value adjustment is recognised directly in the income
statement.
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.
Table 4.4.b Value adjustment of hedging instruments
(EURm)
Deferred gains and losses on cash flow hedges arising during the year
Value adjustments of hedging instruments reclassified to other operating income and costs
Value adjustments of hedging instruments reclassified to financial items
Total value adjustment of hedging instruments recognised in
other comprehensive income during the year
2020
2019
38
-5
8
41
-21
-22
21
-22
Table 4.4.a Hedging of future cash flow from highly probable forecast transactions
(EURm)
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 as
separate line items in the balance sheet.
Fair value hedging
Changes in the fair value of derivative financial
instruments which meet 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 for the portion that is hedged.
Cash flow hedging
Changes in the fair value of derivative financial
instruments, that are classified as hedges of future cash
flows and effectively hedge changes in future cash
flows, are recognised in other comprehensive income
as a reserve for hedging transactions under equity, until
the hedged cash flows impact the income statement.
The reserve for hedging instruments under equity is
presented net of tax. The cumulative gains or losses
from hedging transactions that are retained in equity
are reclassified and recognised under the same line
item as the basic adjustment for the hedged item.
The accumulated change in value recognised in other
comprehensive income is recycled to the income
statement once the hedged cash flows affect the
income statement, or are no longer likely to be realised.
For derivative financial instruments that do not meet
the criteria for classification as hedging instruments,
changes in fair value are recognised as they occur in the
income statement, under financial income and costs.
Expected recognition
in income statement
Fair value
recognised
in other
comprehensive
income
2021
2022
2023
2024
11
-66
2
-53
11
-11
1
1
-
-10
1
-9
-
-9
-
-9
-
-8
-
-8
Expected recognition
in income statement
Fair value
recognised
in other
comprehensive
income
2020
2021
2022
2023
-14
-71
-4
-89
-14
-13
-4
-31
-
-12
-
-12
-
-11
-
-11
-
-9
-
-9
After
2024
-
-28
-
-28
After
2023
-
-26
-
-26
Carrying
value
11
-66
2
-53
Carrying
value
-14
-71
-4
-89
2020
Currency contracts
Interest rate contracts
Commodity contracts
Hedging of future cash flow
2019
Currency contracts
Interest rate contracts
Commodity contracts
Hedging of future cash flow
105 ARLA FOODS ANNUAL REPORT 2020
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4.5 fiNANCiAL iNSTRUMENTS
Table 4.5.a Categories of financial instruments
(EURm)
2020
2019
Table 4.5.b Fair value hierarchy - carrying amount
(EURm)
Level 1
Level 2
Level 3
Total
Derivatives
Shares
Financial assets measured at fair value through the income statement
Securities
Financial assets measured at fair value through other comprehensive income
Currency instruments
Interest rate instruments
Commodity instruments
Derivative assets used as hedging instruments
Trade receivables
Other receivable
Financial assets measured at amortised cost
Derivatives
Financial liabilities measured at fair value through the income statement
Currency instruments
Interest rate instruments
Commodity instruments
Derivative liabilities used as hedging instruments
Long term borrowings*
Short term borrowings*
Trade payables and other payables
Financial liabilities measured at amortised cost
*Including lease liabilities
2020
Financial assets:
Bonds
Shares
Derivatives
Total financial assets
Financial liabilities:
Issued bonds
Mortgage credit institutions
Derivatives
Total financial liabilities
2019
Financial assets:
Bonds
Shares
Derivatives
Total financial assets
Financial liabilities:
Derivatives
Total financial liabilities
38
9
47
420
420
14
1
4
19
18
9
27
435
435
1
-
1
2
811
424
1,235
889
240
1,129
19
19
3
42
2
47
22
22
15
44
5
64
1.964
766
1.212
3.942
1,951
789
1,158
3,898
106 ARLA FOODS ANNUAL REPORT 2020
420
9
429
1,042
57
57 -
399
66
1,042
465 -
435
9
444
-
-
-
-
20
20
86
86
-
-
-
-
-
-
420
9
57
486
399
1,.042
66
1,507
435
9
20
464
86
86
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4.5 fiNANCiAL iNSTRUMENTS
Funding
4.6 SALE AND REPURCHASE AGREEMENTS
Risk mitigation
Attractive funding arrangement
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.
The group has invested in listed Danish mortgage
bonds underlying its mortgage debt. By entering into
a sale and repurchase agreement on the mortgage
bonds, the group is able to archieve a lower interest
rate, compared to current market interest rates on
mortgage debt. The mortgage bonds are measured at
fair value through other comprehensive income.
The receipt of proceeds from these bonds create
a repurchase obligation which has been recognised
within short-term loans.
In addition to mortgage bonds, the group holds other
securities with a carrying value of EUR 5 million.
Table 4.6 Transfer of financial assets
(EURm)
2020
Mortgage bonds
Repurchase liabilities
Net position
2019
Mortgage bonds
Repurchase liabilities
Net position
Carrying
value
Notional
amount
409
-398
11
430
-429
1
405
-397
8
425
-424
1
Fair
value
409
-398
11
430
-429
1
107 ARLA FOODS ANNUAL REPORT 2020
NOTE 4.7 PENSiON LiAbiLiTiES
Net pension liabilities on same level as last year
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4.7 PENSiON LiAbiLiTiES
Net pension assets at EUR 40 million in the UK
Pension assets and liabilities consist primarily of defined
benefit plans in the UK and Sweden. The defined benefit
plans provide pension disbursements to participating
employees based on seniority and final salary. Pension
assets were EUR 40 million compared to EUR 16 million
last year. Pension liabilities were EUR 247 million
compared to EUR 249 million last year. The improvement
is primarily explained by payments to the pensions
schemes in the UK. Remeasurements of pensions plans
resulted in a net gain of EUR 5 million and consisted of a
remeasurement gain on pension assets of EUR 141
million, offset by actuarial losses of EUR 136 million.
Pension plans in Sweden
The defined benefit plan in Sweden does not currently
require the group to make further cash contributions.
The recognised net liability was EUR 221 million, a
decrease of EUR 2 million compared to last year.
These pension plans are contribution-based plans,
guaranteeing a defined benefit pension at retirement.
Contributions have been paid by the group. The
schemes do not provide any insured disability benefits.
The plan assets are legally structured as a trust and the
group has control over the operation of the plan and
their investments.
These pension plans do not include a risk-sharing
element between the group and the plan participants.
Pension plans in the UK
The recognised net pension asset in the UK was EUR 40
million, representing an improvement of EUR 24 million
compared to last year. The improvement is mainly
explained by contributions from Arla of EUR 26 million.
A remeasurement gain on the pension assets
amounting to EUR 141 million was offset by actuarial
losses of EUR 140 million.
The defined benefit plan in the UK is governed by an
independent pension trust that oversee the interest of
the members of the plan including investing the plan’s
assets to cover future pension payments. The assets
under management amounted to EUR 1.456 million at
end of 2020 compared to EUR 1.420 million last year.
108 ARLA FOODS ANNUAL REPORT 2020
The pension plan is a defined benefit final salary
scheme. The plan is closed to both new entrants and
future accrual. The plan does not provide any insured
disability benefits. However members of the plan at the
time of closure are provided with a salary continuation
arrangement if they are absent on a long term basis.
Employer contributions are determined with the advice
of independent qualified actuary on the basis of
triennial valuation negotiations between the plan and
Arla and ultimately approved by HRM Pensions
Regulator. The next triennial valuation will be
undertaken as at 31 December 2023.
The plan is legally structured as trust-based statutory
sectionalized pension plan. The group has limited
control over the operation of the plan and their
investments. The trustees of the plan (of which Arla
appoints the majority, ie 4 out of 6) set the investment
strategy and have established a policy on asset
allocation to best match the assets to the liabilities of
the schemes. The trustees appoint an independent
external advisor to the schemes who is responsible for
advising on the investment strategy and investing the
assets. The scheme is managed under a risk-controlled
investment strategy, which includes a liability-driven
investment approach that seeks to match, where
appropriate, the profile of the liabilities.
During the year the UK pension asset and liability
management has shown strong resilience against the
volatile market conditions and further de-risking has
taken place. The level of interest hedging against the
liabilities was increased to 80 per cent compared to
65 per cent last year with the inflation hedging 67.5 per
cent compared to 65 per cent last year. Thus the overall
level of risk within the scheme has reduced, thereby
lowered the likelihood of increased contributions from
the employer.
Defined contribution schemes are in place for other
employees. Contributions are made both by Arla and
the employee at a rate determined by Arla.
Table 4.7.a Pension liabilities recognised on the balance sheet
(EURm)
2020
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Net pension liabilities recognised on the balance sheet
Specification of total liabilities:
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
Presented as:
Pension assets
Pension liabilities
Net pension liabilities
2019
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Net pension liabilities recognised on the balance sheet
Specification of total liabilities:
Present value of funded liabilities
Present value of unfunded liabilities
Total liabilities
Presented as:
Pension assets
Pension liabilities
Net pension liabilities
Sweden
UK
Other
Total
231
-13
218
3
221
231
3
234
-
221
221
232
-12
220
3
223
232
3
235
-
223
223
1.456
-1.496
-40
-
-40
1.456
-
1.456
-40
-
-40
1,420
-1,436
-16
-
-16
1,420
-
1,420
-16
-
-16
49
-29
20
6
26
1.736
-1.538
198
9
207
49
6
1.736
9
55 1.745
-
26
26
-40
247
207
46
-27
19
7
26
46
7
53
-
26
26
1,698
-1,475
223
10
233
1,698
10
1,708
-16
249
233
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4.7 PENSiON LiAbiLiTiES
Table 4.7.b Development in pension liabilities
(EURm)
2020
2019
Maturity of pension liability, at 31 December 2020
(EURm)
Maturity of pension liability, at 31 December 2019
(EURm)
Present value of liability at 1 January
Current service cost
Interest cost
Actuarial gains and losses from changes in financial assumptions (OCI)
Actuarial gains and losses from changes in demographic assumptions (OCI)
Benefits paid
Exchange rate adjustment
Present value of pension liability at 31 December
Table 4.7.c Development in fair value of plan assets
(EURm)
Fair value of plan assets at 1 January
Interest income
Return on plan assets, excluding amounts included in net interest
on the net defined benefit liability
Contributions to plans
Benefits paid
Exchange rate adjustments
Fair value of plan assets at 31 December
The Group expects to contribute EUR 15 million to the plan assets in 2021 and
EUR 59 million in 2022-2025.
Actual return on plan assets:
Calculated interest income
Return excluding calculated interest
Actual return
1,708
4
30
153
-17
-63
-70
1,745
1,485
3
40
177
3
-70
70
1,708
2020
2019
1,475
28
141
26
-53
-79
1,538
1,265
36
130
27
-60
77
1,475
28
141
169
36
130
166
600
500
400
300
200
100
0
600
500
400
300
200
100
0
0-1Y
1-5Y
5-10Y 10-20Y 20-30Y 30-40Y >40Y
0-1Y
1-5Y
5-10Y 10-20Y 20-30Y 30-40Y >40Y
UK
Sweden
Other
Table 4.7.d Sensitivity of pension liabilities to key assumptions
(EURm)
Impact on pension liabilities at 31 December
Discount rate +/- 10bps
Expected salary increases +/- 10bps
Life expectancy +/- 1 year
Inflation +/- 10 bps
2020
+
-28
3
84
17
2020
-
28
-3
-84
-17
2019
+
-27
3
77
18
2019
-
27
-3
-77
-17
109 ARLA FOODS ANNUAL REPORT 2020
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4.7 PENSiON LiAbiLiTiES
Table 4.7.e Pension assets recognised
(EURm)
2020
%
2019
%
Table 4.7.g Recognised in other comprehensive income
(EURm)
Liability hedge portfolio
Debt vehicles
Bonds
Equity instruments
Properties
Infrastructure
Other assets
Total assets
485
434
208
116
126
69
100
1,538
32
28
14
8
8
4
6
100
296
412
239
214
138
80
96
1,475
20
28
16
15
9
5
7
100
Actuarial gains and losses on liabilities from changes in financial assumptions (OCI)
Actuarial gains and losses on liabilities from changes
in demographic assumptions (OCI)
Return on plan assets, excluding amounts included in net interest
on the net defined benefit liability
Re-measurements of defined benefit schemes
Table 4.7.h Assumptions for the actuarial calculations
Table 4.7.f Recognised in the income statement for the year
(EURm)
2020
2019
Current service cost
Administration cost
Recognised as staff costs
Interest cost on pension liability
Interest income on plan assets
Recognised as financial cost
Total amount recognised in the income statement
4
-
4
30
-28
2
6
3
-
3
40
-36
4
7
Discount rate, Sweden
Discount rate, UK
Expected payroll increase, Sweden
Expected payroll increase, UK
Inflation (CPI), Sweden
Inflation (CPI), UK
2020
2019
-153
-177
17
141
5
-3
130
-50
2020
%
2019
%
1.3
1.4
2.0
2.6
1.5
2.1
1.5
2.1
2.3
2.3
1.8
1.8
110 ARLA FOODS ANNUAL REPORT 2020
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4.7 PENSiON LiAbiLiTiES
Accounting policies
Uncertainties and estimates
The carrying amount related to defined benefit pension
plans is assessed based on a number of assumptions,
including discount rates, inflation rates, salary growth
and mortality. A small difference in actual variables
compared to assumptions and any changes in
assumptions can have a significant impact on the
carrying amount of the net liability.
Pension liabilities and similar non-current liabilities
The group operates post-employment pension plan
arrangements with a significant number of current and
former employees. The post-employment pension plan
agreements take the form of defined benefit plans and
defined contribution plans.
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
rests with 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 specific payments from the date the
plan member is retired, depending on, for example, the
member's seniority and final salary. The group is subject
to the 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’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 includes 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 in other comprehen-
sive 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 net liability primarily covers defined
benefit plans in the UK and Sweden.
111 ARLA FOODS ANNUAL REPORT 2020
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5.1 TAx
Current and deferred tax
Tax in the income statement
Tax costs increased to EUR 34 million compared to
EUR 24 million last year, primarily due to an increase
in current income tax costs.
Current income tax
Cost related to current income taxes increased to
EUR 35 million compared to EUR 28 million last year,
primarily due to higher profits. Prepaid current income
tax and payments related to current tax previous years
totalled EUR 28 million, which were similar to last year.
Deferred tax
Net deferred tax liabilities amounted to EUR 35 million,
which represents a decrease of EUR 3 million compared
to last year, of which EUR 1 million impacted the
income statement. Net deferred tax liabilities consisted
of gross deferred tax liabilities of EUR 64 million relating
to temporary differences on intangible assets, pension
liabilities and other items. These were offset by deferred
tax assets of EUR 29 million relating to property, plant
and equipment and tax losses carried forward.
Table 5.1.b Calculation of effective tax rate
(EURm)
2020
2019
Profit before tax
Tax applying the statutory Danish corporate income tax rate
Effect of tax rates in other jurisdictions
Effect of companies subject to cooperative taxation
Tax-exempt income, less non-deductible expenses
Impact of changes in tax rates and laws
Adjustment for tax cost of previous years
Other adjustments
Total
22.0%
-1.8%
-8.8%
-0.5%
0.2%
-0.5%
-1.8%
8.8%
386
85
-7
-34
-2
1
-2
-7
34
22.0%
-0.9%
-9.2%
-1.4%
0.0%
0.9%
-4.4%
6.9%
347
76
-3
-32
-5
-
3
-15
24
Table 5.1.a Tax recognised in the income statement
(EURm)
2020
2019
Current income tax
Current income tax on result for the year relating to:
Cooperative tax
Corporate income tax
Adjustment for current tax of previous years
Total current income tax costs
Deferred tax
Change in deferred tax for the year
Adjustment for deferred tax of previous years
Impact of changes in tax rates and laws
Total deferred tax costs/income
Total tax costs in the income statement
112 ARLA FOODS ANNUAL REPORT 2020
9
26
-
35
-
-2
1
-1
34
8
19
1
28
-6
2
-
-4
24
Table 5.1.c. Deferred tax
(EURm)
Net deferred tax asset/(liability) at 1 January
Deferred tax recognised in income statement
Deferred tax recognised in other comprehensive income
Impact of change in tax rates
Exchange rate adjustments
Net deferred tax asset/(liability) at 31 December
Deferred tax, by gross temporary difference
Intangible assets
Property, plant & equipment
Provisions, pension liabilities and other assets
Tax losses carried forward
Other
Total deferred tax, by gross temporary difference
Recognised in the balance sheet as:
Deferred tax assets
Deferred tax liabilities
Total
2020
2019
-38
2
4
-1
-2
-35
-9
22
-21
9
-36
-35
29
-64
-35
-54
4
10
-
2
-38
-8
25
-12
12
-55
-38
43
-81
-38
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5.1 TAx
Other areas
5.2 fEES TO AUDiTORS APPOiNTED bY
THE bOARD Of REPRESENTATiVES
The group recognises deferred tax assets, including the
value of tax losses carried forward, where management
assesses that the tax assets may be utilised in the
foreseeable future by offset against taxable income. The
assessment is performed on an annual basis and is based
on the budgets and business plans for future years.
The group has recognised deferred tax assets in respect
of tax losses carried forward totalling EUR 9 million.
Temporary differences on which deferred tax assets have
not been recognised totalled EUR 29 million which is on
a similar level as last year. Unrecognised deferred tax
assets relate to tax losses carried forward.
Fees paid to EY
The fees to auditors are attributable to EY.
Table 5.2 Fees to auditors appointed by the Board of Representatives
(EURm)
Statutory audit
Other assurance engagements
Tax assistance
Other services
Total fees to auditors
2020
2019
1,5
0,2
0,6
0,4
2,7
1.5
0.1
0.7
0.9
3.2
Accounting policies
Tax in the income statement
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 (income or costs)
recognised directly in other comprehensive income.
Current tax
Current tax is assessed based on tax legislation for
entities in the group subject to cooperative or corporate
income taxation. Cooperative taxation is based on the
capital of the cooperative, while corporate income tax is
assessed based on the company’s taxable income for the
year. Current tax liabilities comprises the expected tax
payable/receivable on the taxable income or loss for the
year, any adjustment to the tax payable or receivable in
respect of previous years, and for tax paid on account.
Deferred tax
Deferred tax is measured in accordance with the balance
sheet liability method for all temporary differences
between the tax base of assets and liabilities and their
carrying amounts in the consolidated financial
statements. However, deferred tax is not recognised on
temporary differences on initial recognition of goodwill,
or arising at the acquisition date of an asset or liability
without affecting either the profit or loss for the year or
taxable income, except for those arising from M&A
activities.
Deferred tax is determined applying tax rates (and laws)
that have been enacted or substantially enacted by the
end of the reporting period and are expected to apply
when the related deferred tax asset is realised or deferred
tax liability is settled. Changes in deferred tax assets and
113 ARLA FOODS ANNUAL REPORT 2020
liabilities due to changes in the tax rate are recognised
in the income statement except for items recognised in
other comprehensive income.
Deferred tax assets, including the value of tax losses
carried forward, 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 assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to
the same taxation authority. Current tax assets and tax
liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on
a net basis, or to realise the asset and settle the liability
simultaneously.
Uncertainties and estimates
Deferred tax
Deferred tax reflects assessments of actual future tax due
on items in the financial statements, considering timing
and probability. These estimates also reflect expectations
about future taxable profits. Actual future taxes may
deviate from these estimates due to changes to
expectations relating to future taxable income, future
statutory changes in income taxation or the outcome of
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.
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5.3 MANAGEMENT REMUNERATiON AND
TRANSACTiONS wiTH RELATED PARTiES
Remuneration paid to management
The remuneration to the 18 registered members of the
Board of Directors (BoD) is assessed and adjusted on a
bi-annual basis and approved by the Board of
Representatives. The BoD’s remuneration was latest
adjusted in 2019. Principles applied to the remuneration
of the BoD are described on page 47. Members of the
Board are paid for milk supplies to Arla Foods amba, in
accordance with the terms for the other owners.
Similarly, individual capital instruments are issued to the
BoD on the same terms as to other owners.
The Executive Board consists of chief executive officer
Peder Tuborgh and chief commercial officer, Europe,
Peter Giørtz-Carlsen. Principles applied for the
remuneration of the Executive Board are described on
page 47.
Table 5.3.b Transactions with the Board of Directors
(EURm)
Purchase of raw milk
Supplementary payment regarding previous years
Total
Unsettled milk deliveries in trade and other payables
Individual capital instruments
Total
2020
2019
26.5
0.8
27.3
1.5
2.6
4.2
26.0
2.1
28.1
1.5
2.9
4.4
Table 5.3.a Management remuneration
(EURm)
Board of Directors
Wages, salaries and remuneration
Total
Executive Board
Fixed compensation
Pension
Short-term variable incentives
Long-term variable incentives
Total
The above table includes amount paid during the respective reporting period. The Executive Board remuneration
package includes incentive plans as described on page 47. For 2020 the accrued amount was EUR 6.1 million
(EUR 3.5 million last year). The amount was based on reported key figures together with estimates on performance
compared to peers and consequently the final future payout may differ.
114 ARLA FOODS ANNUAL REPORT 2020
Refer to note 3.3 for information on transactions with associates and joint ventures.
2020
2019
Other areas
5.4 CONTRACTUAL COMMiTMENTS,
CONTiNGENT ASSETS AND LiAbiLiTiES
1.3
1.3
2.4
0.3
1.0
0.9
4.6
1.3
1.3
2.3
0.3
0.5
0.4
3.5
Contractual obligations and commitments
Arla’s contractual obligations and commitments
amounted to EUR 364 million compared to EUR 254
million last year. Increased obligations on IT contracts,
increased guarantee obligations and increased
commitments on CAPEX purchases were the main
reasons for the development.
Contractual commitments consisted of IT licenses, short
term and low value lease contracts and agreements to
purchase property, plant and equipment.
The group provided security in property for mortgage
debt based on the Danish Mortgage Act with a nominal
value of EUR 1,061 million, compared to EUR 966
million last year.
The group is party to a small number of lawsuits,
disputes and other claims. Management believes that
the outcome of these will not have a material impact on
the group’s financial position beyond what is already
recognised in the financial statements.
Other areas
5.5 SUbSEQUENT EVENTS AfTER
THE bALANCE SHEET DATE
No subsequent events with a material impact on the financial statements occurred after the balance sheet date.
Management Review
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Our Consolidated Financial Statements
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Other areas
5.6 GENERAL ACCOUNTiNG POLiCiES
Consolidated financial statements
The consolidated financial statements included in this
annual report are prepared in accordance with
International Financial Reporting Standards (IFRS), as
adopted by the EU, and additional disclosure require-
ments in the Danish Financial Statement Act for class C
large companies. Arla is not an EU public interest entity
as the group has no debt instruments traded on a
regulated EU market place. The consolidated financial
statements were authorised for issue by the company’s
Board of Directors on 10 February 2021 and presented
for approval by the Board of Representatives on 25
February 2021.
The functional currency of the parent company is DKK.
The presentation currency of the parent company and
of the group is EUR.
These financial statements are prepared in million EUR
with roundings.
The consolidated financial statements are prepared as a
compilation of the parent company’s and the individual
subsidiaries’ financial statements, in line with the
group’s accounting policies. Revenue, costs, assets and
liabilities, along with items included in equity of
subsidiaries are aggregated and presented on a
line-by-line basis. Intra-group shareholdings, balances
and transactions, as well as 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 per cent of the voting rights, or otherwise
maintains control 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 a controlling influence, are
considered as 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 per cent, of the voting rights in an
entity.
Unrealised gains arising from transactions with joint
ventures and associates, i.e. profits from sales to joint
ventures or associates and whereby the customer pays
with funds partly owned by the group, 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 manner,
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. Some reclassifications have
been carried out compared to previously. These,
however, have no impact on the net profit or the equity.
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,
for example property, plant and equipment which are
measured based on historical cost in a foreign currency,
are translated into the functional currency upon 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 compre-
hensive 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. Any
repayment of outstanding balance considered part of
the net investment is not in itself considered to be a
partial divestment of the subsidiary.
Adoption of new or amended IFRS
The group implemented all new standards and
interpretations effective in the EU from 2020. IASB
issued a number of new or amended and revised
accounting standards and interpretations that have
not yet come into effect. Arla will adopt these new
standards when they become mandatory. No material
impact is expected from that.
115 ARLA FOODS ANNUAL REPORT 2020
Management Review
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Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
Other areas
5.7 GROUP CHART
Arla Foods amba
Arla Foods Ingredients Group P/S
Arla Foods Ingredients Energy A/S
Arla Foods Ingredients Japan 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 Comércio de Produtos
Alimentícios Ltda.
Arla Foods Ingredients Singapore Pte. Ltd.
Arla Foods Ingredients S.A. de C.V.
Arla Foods Holding A/S
Arla Foods WLL
Arla Oy
Massby Facility & Services Oy
Osuuskunta MS tuottajapalvelu **
Arla Foods Distribution A/S
Cocio Chokolademælk A/S
Arla Foods International A/S
Arla Foods UK Holding Ltd.
Arla Foods UK plc
Arla Foods GP Ltd.
Arla Foods Finance Ltd.
Arla Foods Ltd.
Arla Foods Hatfield Ltd.
Arla Foods Limited Partnership
Yeo Valley Dairies limited
Arla Foods Cheese Company Ltd.
Arla Foods Ingredients UK Ltd.
MV Ingredients Ltd. *
Arla Foods UK Property Co. Ltd.
Arla Foods B.V.
Arla Foods Comércio, Importacâo e Exportacão
de Productos Alimenticios Ltda.
Danya Foods Ltd.
116 ARLA FOODS ANNUAL REPORT 2020
Country
Currency
Group
Equity
interest
Country
Currency
Group
Equity
interest
Denmark
Denmark
Denmark
Japan
USA
Korea
China
Argentina
Brazil
Singapore
Mexico
Denmark
Bahrain
Finland
Finland
Finland
Denmark
Denmark
Denmark
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Netherlands
Brazil
Kingdom of
Saudi Arabia
DKK
DKK
DKK
JPY
USD
KRW
CNY
USD
BRL
SGD
MZN
DKK
BHD
EUR
EUR
EUR
DKK
DKK
DKK
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
GBP
EUR
BRL
SAR
Arla Foods amba
AF A/S
Arla Foods Finance A/S
Kingdom Food Products ApS
Ejendomsanpartsselskabet St. Ravnsbjerg
Arla Insurance Company (Guernsey) Ltd.
Arla Foods Energy A/S
Arla Foods Trading A/S
Arla DP Holding A/S
Arla Foods Investment A/S
Arla Senegal SA.
Tholstrup Cheese A/S
Tholstrup Cheese USA Inc.
Arla Foods Belgium A.G.
Arla Foods Ingredients (Deutschland) GmbH
Arla CoAr Holding GmbH
ArNoCo GmbH & Co. KG *
Arla Biolac Holding GmbH
Biolac GmbH & Co. KG *
Biolac Verwaltungs GmbH *
Arla Foods Kuwait Company WLL
Arla Kallassi Foods Lebanon S.A.L.
Arla Foods Qatar WLL
AFIQ WLL
Arla Foods Trading and Procurement Ltd.
Aishichenxi Dairy Products Import & Export Co. Ltd. **
Wuhan ASCX Dairy Co. Ltd.
Arla Foods Sdn. Bhd.
Arla Foods Corporation
Arla Foods Ltd.
Arla Global Dairy Products Ltd.
Arla Global Development Company Ltd.
TG Arla Dairy Products LFTZ Enterprise
TG Arla Dairy Products Ltd.
Denmark
Denmark
Denmark
Denmark
Denmark
Guernsey
Denmark
Denmark
Denmark
Denmark
Senegal
Denmark
USA
Belgium
Germany
Germany
Germany
Germany
Germany
Germany
Kuwait
Lebanon
Qatar
Bahrain
Hong Kong
China
China
Malaysia
Philippines
Ghana
Nigeria
Nigeria
Nigeria
Nigeria
DKK
DKK
DKK
DKK
DKK
DKK
DKK
DKK
DKK
DKK
XOF
DKK
USD
EUR
EUR
EUR
EUR
EUR
EUR
EUR
KWD
USD
QAR
BHD
HKD
CNY
CNY
MYR
PHP
GHS
NGN
NGN
NGN
NGN
%
100
100
100
100
100
100
100
100
100
100
100
100
100
60
37
100
50
100
100
100
100
33
100
100
100
100
100
100
50
100
100
100
75
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
50
50
49
50
40
51
100
50
50
100
100
100
100
99
50
100
Management Review
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Our Consolidated Financial Statements
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Other areas
5.7 GROUP CHART
Arla Foods amba
Arla Foods AB
Svenska Bönders Klassiska Ostar AB
Arla Gefleortens AB
Årets Kock AB
Arla Foods Russia Holding AB
Arla Foods LLC
Arla Foods Inc.
Arla Foods Production LLC
Arla Foods Transport LLC
Arla Foods Deutschland GmbH
Arla Foods Verwaltungs GmbH
Arla Foods Agrar Service GmbH
Arla Foods LLC
Team-Pack Vertriebs-Gesellschaft für Verpackungen mbH
Dofo Cheese Eksport K/S °
Dofo Inc.
Aktieselskabet J. Hansen
J.P. Hansen USA Incorporated
AFI Partner ApS
Andelssmør A.m.b.a.
Arla Foods AS
Arla Foods Bangladesh Ltd.
Arla Foods Dairy Products Technical Service (Beijing) Co. Ltd.
Arla Foods FZE
Arla Foods Hellas S.A.
Arla Foods Inc.
117 ARLA FOODS ANNUAL REPORT 2020
Country
Currency
Group
Equity
interest
Country
Currency
Group
Equity
interest
Denmark
Sweden
Sweden
Sweden
Sweden
Sweden
Russia
USA
USA
USA
Germany
Germany
Germany
Russia
Germany
Denmark
USA
Denmark
USA
Denmark
Denmark
Norway
Bangladesh
China
UAE
Greece
Canada
DKK
SEK
SEK
SEK
SEK
SEK
RUB
USD
USD
USD
EUR
EUR
EUR
RUB
EUR
DKK
USD
DKK
USD
DKK
DKK
NOK
BDT
CNY
AED
EUR
CAD
%
100
100
100
67
100
80
100
100
100
100
100
100
20
100
100
100
100
100
100
98
100
51
100
100
100
100
Arla Foods amba
Arla Foods Logistics GmbH
Hansa Verwaltungs und Vertriebs GmbH (In liquidation)
Arla Foods Mayer Australia Pty, Ltd.
Arla Foods Mexico S.A. de C.V.
Arla Foods S.A.
Arla Foods France S.a.r.l
Arla Foods S.R.L.
Arla Foods SA
Arla Foods UK Farmers Joint Venture Co. Ltd.
Arla Global Shared Services Sp. Z.o.o.
Arla National Foods Products LLC
Arla National Food Products Company LLC
Cocio Chokolademælk A/S
Marygold Trading K/S °
Mejeriforeningen
PT. Arla Indofood Makmur Dairy Import PMA.
PT. Arla Indofood Suksus Dairy Manufactoring PMA.
COFCO Dairy Holdings Limited **
Svensk Mjölk Ekonomisk förening
Lantbrukarnas Riksförbund upa **
Jörd International A/S
Ejendomsselskabet Gjellerupvej 105 P/S
Svenska Osteklassiker AB
DKK
Denmark
EUR
Germany
EUR
Germany
AUD
Australia
MXN
Mexico
EUR
Spain
France
EUR
Dominican Republic DOP
PLN
Poland
GBP
UK
PLN
Poland
AED
UAE
OMR
Oman
DKK
Denmark
DKK
Denmark
DKK
Denmark
IDR
Indonesia
Indonesia
IDR
British Virgin Irlands HKD
SEK
Sweden
SEK
Sweden
DKK
Denmark
DKK
Denmark
SEK
Sweden
%
100
100
51
100
100
100
100
100
100
100
49
67
50
100
91
50
100
30
75
24
100
100
68
* Joint ventures ** Associates
° According to Danish Act §5 the company does not make a statutory report
The group also owns a number of entities without material commercial activities.
Financial statements of the parent company
Under section 149 of the Danish Financial Statements Act, these consolidated financial statements represent an extract of Arla’s complete
annual report. In order to make this report more manageable and user-friendly, we publish group consolidated financial statements
without the financial statements of the parent company, Arla Foods amba. The annual report of the parent company is an integrated part
of the full annual report and available on www. arlafoods.com. Profit sharing and supplementary payment from the parent company are set
out in the equity section of the consolidated financial statements. The full annual report contains the statement from the Board of
Directors and the Executive Board as well as the independent auditor’s report.
Management Review
Our Strategy
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Our Responsibility
Our Governance
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Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
STATEMENT bY THE bOARD Of DiRECTORS
AND THE ExECUTiVE bOARD
Peder Tuborgh
CEO
Peter Giørtz-Carlsen
Executive Board Member
Jan Toft Nørgaard
Chairman
Heléne Gunnarson
Vice Chairman
René Lund Hansen
Jonas Carlgren
Arthur Fearnall
Manfred Graff
Jan-Erik Hansson
Walter Lausen
Bjørn Jepsen
Steen Nørgaard Madsen
Jørn Kjær Madsen
Johnnie Russell
Marcel Goffinet
Simon Simonsen
Inger-Lise Sjöstrom
Håkan Gillström
Employee representative
Ib Bjerglund Nielsen
Employee representative
Harry Shaw
Employee representative
Today, the Board of Directors and the Executive Director
discussed and approved the annual report of Arla Foods
amba for the financial year 2020. The annual report
was prepared in accordance with International Financial
Reporting Standards as adopted by the EU and
additional disclosure requirements in the Danish
Financial Statements Act.
It is our opinion, that the consolidated financial
statements, the parent company financial statements
and the environmental, social and governance data give
a true and fair view of the group’s and the parent
company’s financial position as at 31 December 2020
and of the results of the group’s and the parent
company’s activities and cash flows for the financial
year 1 January to 31 December 2020.
In our opinion, 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, financial matters, results for the year
and cash flow, as well as a description of the most
significant risks and uncertainties that may affect the
group and the parent company.
We hereby recommend the annual report for adoption
by the Board of Representatives.
Aarhus, 10th of February 2021
118 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
INDEPENDENT AUDiTOR’S REPORT
TO THE OwNERS Of ARLA fOODS AMbA
Opinion
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 2020, which comprise income statement,
statement of comprehensive income, balance sheet,
statement of changes in equity, cash flow statement
and notes, including accounting policies, for the group
and the parent company. The consolidated financial
statements and the parent company financial
statements are prepared in accordance with Interna-
tional Financial Reporting Standards as adopted by the
EU and additional requirements of the Danish Financial
Statements Act.
In our opinion, the consolidated financial statements
and the parent company financial statements give a
true and fair view of the financial position of the group
and the parent company at 31 December 2020 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 2020 in accordance with
International Financial Reporting Standards as adopted
by the EU and additional requirements of the Danish
Financial Statements Act.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs) and additional require-
ments applicable in Denmark. Our responsibilities under
those standards and requirements are further described
in the “Auditor’s responsibilities for the audit of the
consolidated financial statements and the parent
company financial statements” (hereinafter collectively
referred to as “the financial statements”) section of our
report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We are independent of the group in accordance with
the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (IESBA
Code) and additional requirements applicable in
Denmark, and we have fulfilled our other ethical
119 ARLA FOODS ANNUAL REPORT 2020
responsibilities in accordance with these rules and
requirements.
Statement on the Management’s review
Management is responsible for the Management’s
review.
Our opinion on the financial statements does not cover
the Management’s review, and we do not express any
assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the Management’s review
and, in doing so, consider whether the Management’s
review is materially inconsistent with the financial
statements or our knowledge obtained during the
audit, or otherwise appears to be materially misstated.
Moreover, it is our responsibility to consider whether
the Management’s review provides the information
required under the Danish Financial Statements Act.
Based on our procedures, we conclude that the
Management’s review is in accordance with the
financial statements and has been prepared in
accordance with the requirements of the Danish
Financial Statements Act. We did not identify any
material misstatement of the Management’s review.
Management’s responsibilities
for the 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
requirements of the Danish Financial Statements Act
and for such internal control as Management
determines is necessary to enable the preparation of
financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, Management is
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of
accounting in preparing the financial statements unless
Management either intends to liquidate the group or
the parent company or to cease operations, or has no
realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance as to
whether the financial statements as a whole are free
from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit
conducted in accordance with ISAs and additional
requirements applicable in Denmark will always detect
a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
As part of an audit conducted in accordance with ISAs
and additional requirements applicable in Denmark,
we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud or
error, design and perform audit procedures
responsive to those risks and obtain audit evidence
that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrep-
resentations or the override of internal control.
Obtain an understanding of internal control relevant
to the audit 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 group’s and the parent company’s internal
control.
Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting
estimates and related disclosures made by
Management.
Conclude on the appropriateness of Management’s
use of the going concern basis of accounting in
preparing the financial statements and, based on the
audit evidence obtained, whether a material
uncertainty exists related to events or conditions that
may cast significant doubt on the group’s and the
Parent Company’s ability to continue as a going
concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our
auditor’s report to the related disclosures in the
financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events
or conditions may cause the group and the parent
company to cease to continue as a going concern.
Evaluate the overall presentation, structure and
contents of the financial statements, including the
note disclosures, and whether the financial
statements represent the underlying transactions
and events in a manner that gives a true and fair view.
Obtain sufficient appropriate audit evidence
regarding the financial information of the entities or
business activities within the group to express an
opinion on the consolidated financial statements. We
are responsible for the direction, supervision and
performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings,
including any significant deficiencies in internal control
that we identify during our audit.
Aarhus, 10th of February 2021
EY Godkendt Revisionspartnerselskab
CVR no. 30 70 02 28
Henrik Kronborg Iversen
State Authorised
Public Accountant
MNE no. 24687
Jes Lauritzen
State Authorised
Public Accountant
MNE no. 10121
OUR CONSOLiDATED
ENViRONMENTAL,
SOCiAL AND
GOVERNANCE
DATA
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
TAbLE Of CONTENTS
CONSOLiDATED ESG OVERViEw
NOTES
REPORTS
122
Consolidated environmental, social
and governance data
Environmental figures
123
125
126
127
1.1 Greenhouse gas emissions (CO₂e)
1.2 Renewable energy share
1.3 Solid waste
1.4 Animal welfare
Governance data
132
132
133
3.1 Gender diversity - Board of Directors
3.2 Board meeting attendance
3.3 General accounting policies
134
Independent auditor’s combined
assurance report
Social figures
128
129
130
130
131
131 2.6 Accidents
2.1 Full-time equivalents
2.2 Gender diversity
2.3 Gender pay ratio
2.4 Employee turnover
2.5 Food safety - recalls
121 ARLA FOODS ANNUAL REPORT 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CONSOLiDATED ENViRONMENTAL,
SOCiAL AND GOVERNANCE DATA
offered an incentive of 1 EUR-cent/kg of milk to have
climate checks performed on their farms, which
resulted in a significant increase in farm-level emissions
data as 93 per cent of active owners completed the
detailed climate questionnaire. For more information on
the Climate Check programme go to page 34, and for
more information on measuring scope 3 at Arla go to
page 124.
In 2019, Arla’s emissions targets were officially
approved by the Science Based Targets initiative as
aligned with climate science.
Our Science Based Targets:
Reduce scope 1 and scope 2 greenhouse gas
emissions by 30 per cent in absolute terms from
2015 to 2030
Reduce scope 3 greenhouse gas emissions by 30 per
cent per kg of raw milk and whey from 2015 to 2030
Beyond the Science Based Targets, Arla also
announced the ambition to become carbon net zero
by 2050.
In 2020, following the group’s restatement policy and
the guidelines of the Science Based Targets initiative,
Arla restated the baselines for our Science Based
Targets due to significant methodological changes and
the widening of the reporting scope. Read more about
these changes on page 124. Details of Arla’s restatement
policy can be found on page 133.
Arla also publishes a Responsibility Report annually,
where the group presents in-depth analyses on the
progress towards environmental, social and governance
targets. A sub-set of the figures presented in this report
can be found there. Find the Responsibility Report and
further information about our sustainability efforts on
Arla’s webpage.
Sustainability at Arla
Sustainability is a cornerstone of Arla’s strategy. Arla
aims to deliver healthy and nutritious dairy products to
consumers globally and is committed to doing so with
a constantly reduced environmental impact. In 2019,
Arla launched a comprehensive sustainability strategy
to achieve these goals.
To signify our commitment to the sustainability agenda,
and to increase accountability towards the goals Arla
set, the group decided in 2019 to report on figures
describing Arla’s environmental, social and governance
performance in the Annual Report, and received limited
assurance on these figures from EY. In 2020, Arla aimed
to improve ESG data quality and strengthen the
reporting process. The effort was guided by EY’s
requirements for reasonable assurance, which Arla
received on most of the ESG KPIs in 2020. Due to
various reasons primarily related to lack of standardisation
in reporting across farms and the external validation
process of self-reported climate data slowed down by
the Covid-19 pandemic, scope 3 emissions on farms
were assured at the limited level in 2020. Read more
about the external asssurance on page 134.
ESG figures in the following section were chosen
according to their materiality, and following the most
recent reporting guidelines published by the CFA
Society Denmark, FSR – Danish Auditors, and Nasdaq.
Maturity and quality of data was also taken into
consideration when selecting the figures presented in
this section. Therefore, some of the KPIs recommended
by the above-mentioned professional bodies are not
part of the current report. Most notably, Arla is not
reporting on water consumption, mainly due to the fact
that the majority of the company’s water consumption
relates to farms, where it is currently not measured at a
satisfactory level.
Arla’s biggest environmental impact relates to indirect
scope 3 CO₂e emissions, more precisely to milk
production on farm (86 per cent of total CO₂e
emissions). From 2020, Arla’s farmer owners were
122 ARLA FOODS ANNUAL REPORT 2020
Five-year ESG overview
ESG note
2020
2019
2018
2017
2016
Environmental data
CO₂e scope 1 (mkg)
CO₂e scope 2 – location-based (mkg)
Scope 2 – market-based (mkg)
CO₂e scope 3 (mkg)*
Total CO₂e (mkg)
Total CO₂e – location-based (mkg)
Co₂e scope 3 per kg of milk and whey (kg)*
CO₂e reduction (scope 1 and 2) market-based
CO₂e reduction (scope 1 and 2)
location-based
Progress towards 2030 CO₂e reduction target
(scope 3 per kg milk and whey)*
Renewable energy share (%) market-based
Renewable energy share (%) location-based
Solid waste (tonnes)
Percentage of farmer owners reporting on
animal welfare (%)
Social data
Full-time equivalents (average)
Total share of females (%)
Share of females at director level or above (%)
Share of females in Executive Management
Team (%)
Gender pay ratio, white-collar
(male to female)
Employee turnover (%)
Food safety - number of recalls
Accident frequency
(Per 1 million. working hours)
Governance data
Share of females, Board of Directors (%)**
Board meeting attendance (%)
1.1
1.2
1.2
1.3
1.4
2.1
2.2
2.2
2.2
2.3
2.4
2.5
2.6
3.1
3.2
474
237
277
18,479
19,230
19,176
1.21
463
274
399
18,243
19,105
18,977
1.21
490
263
456
18,411
19,357
19,156
1.20
492
313
438
18,528
19,458
19,337
1.22
474
334
466
18,644
19,584
19,456
1.22
-24%
-12%
-4%
-16%
-14%
-12%
-7%
-7%
-5%
-6%
-6%
-4%
-6%
-6%
-7%
31%
35%
32,975
33%
33,713
27%
34,600
24%
32,608
21%
32,192
100%
89%
82%
20,020
27%
26%
19,174
27%
26%
19,190
27%
23%
18,973
26%
22%
18,765
26%
22%
14%
1.05
10%
1
5
13%
99%
29%
1.05
12%
4
6
13%
96%
29%
1.06
12%
2
8
13%
99%
29%
-
11%
10
10
12%
99%
29%
-
14%
6
11
7%
98%
* Scope 3 emissions from farm subject to limited assurance in 2020
** Including all board members, those elected by the general assembly, employee representatives and external advisors, the share of females
was 20 per cent as of 31 December 2020
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Environmental figures
1.1 GREENHOUSE GAS EMiSSiONS (CO2E)
Total C0₂e emissions impacted by milk and whey
CO₂e emissions 2020
(Mkg)
CO₂e emissions 2019
(Mkg)
To follow up on Arla’s contribution to climate change
and the progress towards our emission targets, the
total greenhouse gas emissions (expressed as CO₂
equivalents, CO₂e) are calculated annually. CO₂e is
categorised into three scopes according to the
methodology of the Greenhouse Gas Protocol.
The three scopes cover nearly all Arla’s activities.
Total C0₂e emissions increased to 19,230 million kilos
compared to 19,105 million kilos last year. The increase
can be explained by higher milk intake and increased
purchases of external whey in Arla Foods Ingredients,
while a change in methodology (market-based
accounting) and therefore accounting for the purchase
of renewable energy lowered the emissions. Read more
on page 124. In line with Arla’s Science Based Target,
the group does not account for carbon credits.
Since 2015, scope 1 and scope 2 CO₂e emissions
decreased by 24 per cent, and we are well on course
to reach our 2030 Science Based Target of reducing
emissions by 30 per cent.
Scope 3 emissions per kilo milk and whey amounted to
1.21 in 2020, down by 7 per cent since 2015 due to
activities on Arla farms. According to our Science Based
Target, scope 3 emissions per kilo of milk and whey
should be reduced by 30 per cent by 2030. In 2020,
emissions from milk only amounted to 1.17 kilo CO₂e
per kilo of milk while the impact of owner milk specifically
amounted to 1.15 kilo CO₂e per kilo of owner milk.
ESG Table 1.1 Greenhouse gas emissions*
(mkg)
2020
2019
2018
2017
2016
19,230
MKG
19,105
MKG
Scope 3 emissions from farms 86%
Scope 3 emissions from purchased goods and services 10%
CO₂e scope 1: 3%
CO₂e scope 2: 1%
Scope 3 emissions from farms 86%
Scope 3 emissions from purchased goods and services 10%
CO₂e scope 1: 2%
CO₂e scope 2: 2%
CO₂e scope 1
Operations
Transport
Total CO₂e scope 1
CO₂e scope 2
Total CO₂e scope 2 – market-based**
Scope 2 – location-based
CO₂e scope 3
Emissions from farms:
Emissions related to milk production and
operations on farm***
Emissions from purchased goods and services:
Whey
Packaging
Transport
Operations
Total CO₂e scope 3
Total CO₂e
Total CO₂e – location-based
123 ARLA FOODS ANNUAL REPORT 2020
381
93
474
277
237
366
97
463
399
274
400
90
490
456
263
408
84
492
438
313
388
86
474
466
334
16,499
16,380
16,406
16,666
16,603
1,133
396
306
145
18,479
19,230
19,176
1,032
384
312
135
18,243
19,105
18,977
1,162
383
326
134
18,411
19,357
19,156
1,002
384
345
131
18,528
19,458
19,337
1,117
433
359
132
18,644
19,584
19,456
Accounting policies
Greenhouse gas emissions are measured in CO₂e and
are categorised into three scopes.
Calculating CO₂ equivalents
Greenhouse gases are gases that contribute to the
warming of the climate by absorbing infrared radiation.
Besides the widely known carbon dioxide (CO₂), there
are two other major greenhouse gases associated with
dairy production: nitrous oxide (N₂O) and methane
(CH₄). In order to calculate the total greenhouse gas
emissions (the carbon footprint) for Arla, different
greenhouse gas emissions are converted into carbon
dioxide equivalents (CO₂e). The conversion of different
gases reflects their global warming potential.
The potency of the different gases is taken into
consideration according to the following calculations
(based on the IPCC**** Fifth Assessment Report,
Climate Change 2013):
1 kg of carbon dioxide (CO₂ )= 1 kg of CO₂e
1 kg of methane (CH₄) = 28 kg of CO₂e
1 kg of nitrous oxide (N₂O) = 265 kg of CO₂e
The majority of Arla’s emissions are methane
(e.g. produced by cows digesting the feed) and nitrous
oxide (e.g. from fertilizer and manure on farms, or
manure storage).
* Following our restatement policy and Science Based Targets, historical numbers are restated every five years, read more in note 3.5.
** In 2020, Arla switched to market-based reporting, read more on page 124.
*** Scope 3 emissions from farm subject to limited assurance in 2020.
**** The IPCC (Intergovernmental Panel on Climate Change) is the United Nations’ body for assessing the science related to climate change.
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1.1 GREENHOUSE GAS EMiSSiONS (CO2E)
Accounting policies (continued)
Greenhouse gas emissions are categorised into three
scopes according to where they appear across
the value chain, and what control the company has
over them.
Scope 1 – All direct emissions
Scope 1 emissions relate to activities under the group’s
control. This includes transport using Arla’s vehicles,
and direct emissions from Arla’s production facilities.
Scope 1 emissions are calculated in accordance with
the methodology set out in the Greenhouse Gas
Protocol Corporate Standard by applying emission
factors to Arla-specific activity data.
Scope 2 – Indirect emissions
Scope 2 emissions relate to the indirect emissions
caused by Arla’s energy purchases, i.e. electricity or
heat. Scope 2 emissions are calculated in accordance
with the methodology set out in the Greenhouse Gas
Protocol Corporate Standard by applying emission
factors to the group’s specific activity data. In 2020,
Arla switched from location-based scope 2 reporting
to market-based reporting and updated the 2015
baseline. The market-based allocation approach reflects
emissions from the specific electricity and other
contractual instruments that Arla purchases, which may
differ from the average electricity and other energy
sources generated in a specific country. This gives
Arla the chance to purchase electricity and other
contractual instruments that emit less greenhouse
gases than the country average. In accordance with
the GHG Protocol, Arla discloses scope 2 emissions
according to both the market- and location-based
method (also known as dual reporting).
Scope 3 – All other indirect emissions
Scope 3 emissions relate to emissions from sources
that Arla does not directly own or control. They cover
emissions from purchased goods and services
(e.g. raw milk purchased, packaging and transport
purchased from suppliers), but also waste processing
at sites (e.g. recycling or incineration).
124 ARLA FOODS ANNUAL REPORT 2020
Scope 3 emissions from raw milk are calculated in
accordance with the International Dairy Federation’s
guideline for the carbon footprint of dairy products (IDF
2015). Emissions related to raw milk include all
emissions on farm (e.g. from cows digesting the feed,
manure handling, nitrogen, diesel use for feed
cultivation and peat soil) and off farm (e.g. imported
feed, fertilizer production and transport). The majority
of Arla farmers report on climate data yearly. The
emission figure related to raw milk shown in this report
is an average emission per kg of milk, calculated based
on the self-reported climate data from farms where the
data has been validated by external climate experts,
multiplied by Arla’s total milk intake. Farms visited by
external climate experts are statistically representative
of all Arla farms.
Scope 3 emissions from whey, waste at sites, packaging,
third-party transport and extraction of fuels are
calculated by applying emission factors to Arla-specific
activity data. In 2020, Arla expanded the reporting
scope for packaging and transport suppliers, and now
covers 100 per cent of the spend on such suppliers (in
previous years reporting covered about
95 per cent). Arla collects data from transport and
packaging suppliers covering a minimum of 95 per cent
of the spend, and based on the collected data,
emissions are scaled up to cover 100 per cent.
According to the 2020 quantification of Arla’s total
climate impact, scope 1 and 2 emissions accounted for
3 and 1 per cent of total emissions, respectively. Scope
3 emissions accounted for 96 per cent of Arla’s total
climate impact. Milk production on farm (including,
among many factors, methane emitted by cows, and
emissions related to feed and transport of feed)
accounted for 86 per cent of the total emissions.
For transport, operations and packaging emission
factors are obtained from Sphera, an industry-leading
consultancy firm. The emission factors are updated
annually to the most recent complete data set for the
same year, in this case 2017. Farm-level emission
factors are obtained from 2.0 LCA Consultants, a Danish
consultancy firm formed by academics.
Where do our emissions come from?
CO₂
N₂O
N₂O
CH₄
CH₄
CO₂
CO₂
CO₂
CO₂
CO₂
Scope 1
3%
Feed production
Farms
Transport
Production and offices
Transport
Waste management
Scope 3
96%
Purchased energy
Scope 2
1%
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1.1 GREENHOUSE GAS EMiSSiONS (CO2E)
Uncertainties and estimates
In 2020, 93 per cent of Arla’s active farmer owners,
covering over 96 per cent of Arla’s owner milk volume,
completed a detailed climate questionnaire (farmers
receive an incentive of 1.0 EUR-cent/kg of milk to
complete the survey). The external validation of the
survey data was slightly delayed due to the Covid-19
pandemic, and covered 59 per cent of the farmer
owners who submitted their Climate Check data.
From 2020 onwards, farmers will complete the Climate
Check once a year based on data from their most
recently financial year. This could vary from farm to
farm, as some have financial years running from January
to December, while others run from July to June.
Therefore the figures presented in the Annual Report
are not necessarily based on farm data covering the
same period.
The methodology used to measure emissions on farm
is developing over time. Currently, factors that potentially
lower total net emissions, such as carbon sequestration
on farm and change in land use, are not included.
Significant changes in methodology will also be reflected
in the restatement of the baseline. The emission factor
related to externally purchased whey was unchanged at
1.0, a conservative estimate (Flysjö, 2012).
Other uncertainty relates to data collection regarding
packaging and transport from our suppliers. Each year,
Arla sends its suppliers detailed requests to provide the
necessary data, accompanied by a manual on how to
complete the related documentation. Manual data
entries from different sources are clear risks to data
quality. To minimise the risk of reporting errors, a
rigorous two-step internal validation process is in place.
ESG Table 1.2 Energy purchased for production
(Thousand MWh)
2020
2019
2018
2017
2016
Non renewable sources:
Natural gas, fuel oil and gas oil
Electricity
District heating
Renewable sources:
Biogas and biomass
District heating
Electricity
Total actual consumption
Renewable energy share, market-based*
Renenewable energy share, location-based
1,816
626
5
559
119
432
3,557
31%
35%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33%
-
27%
-
24%
-
21%
* In 2020, Arla switched to market-based accounting and the 2020 figures are based on the new method. The renewable energy share based
on national averages (location-based method) was 35 per cent in 2020 and is shown on a separate line.
Environmental figures
1.2 RENEwAbLE ENERGY SHARE
Share of renewable energy increased
The use of energy, including heat and electricity, at
Arla’s sites contributes to climate change, depletion of
non-renewable resources and pollution. As a result,
switching from fossil to renewable energy is an
important lever to fulfil Arla’s climate ambition and
reduce the carbon footprint from scope 1 and 2
emissions.
In 2020, the accounting method for treating renewable
energy was changed from location-based to market-based
accounting. In 2016-2019, Arla purchased a number of
green certificates without accounting for these in the
figures, therefore only 2020 figures are disclosed in ESG
table 1.2. The renewable energy share was 31 per cent
in 2020, positively impacted by increased purchases of
green electricity, which were offset by a lack of supply of
biogas at our Arla Foods Ingredients facilities in Denmark.
In line with our long-term environmental strategy, new
targets and initiatives are being developed to change
the future energy mix.
Accounting policies
Energy usage in production consists of renewable and
fossil-based fuels and electricity. Renewable energy is
energy based on renewable sources, which can be
naturally replenished, such as sun, wind, water, biomass,
and geothermal heat. From 2020, Arla measures and
reports emissions based on market-based accounting
and will account for the purchase of green electricity by
contractural agreement in the renewable energy share
calculation. The renewable electricity purchased from
national sources is assessed annually using figures for
the national electricity mix supplied by Sphera, an
industry-leading consultancy firm collecting, assessing
and analysing emission data based on the latest
scientific evidence. To calculate the share of renewables,
the total renewable energy use is divided by the group’s
total energy use.
Some Arla sites produce and sell excess energy, i.e.
electricity and heat. The energy sold was not deducted
in the calculation of the renewable energy share.
Uncertainties and estimates
The data presented in ESG table 1.2 is collected
monthly from our sites. Data for energy consumption is
primarily based on invoice information and automated
meter readings at each site, and therefore there is very
little uncertainty associated with these figures. Arla
does not not account for energy losses, therefore all
energy purchased is included in the figures.
125 ARLA FOODS ANNUAL REPORT 2020
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1.3 wASTE
Solid waste decreased
Solid waste, 2020
Solid waste, 2019
Waste that cannot be recovered through recycling,
reuse or composting impacts the environment. Arla
continuously seeks to increase production efficiency at
sites, reduce waste throughout the manufacturing and
transport process, as well as working with waste
management suppliers to reduce waste and improve
waste handling.
In 2020, waste decreased to 32,975 tonnes compared
to 33,713 tonnes last year.
In 2005, Arla set a target to generate zero waste for
landfill by 2020. Waste for landfill increased to 1,204
tonnes compared to 988 tonnes last year. Due to
expansions in international markets where waste
handling is less developed, Arla did not achieve the
2020 target.
32,975
TONNES
33,713
TONNES
ESG Table 1.3 Solid waste
(Tonnes)
Recycled waste
Waste for incineration with energy recovery
Waste for landfill
Hazardous waste
Total
2020
2019
2018
2017
2016
21,402
8,991
1,204
1,378
32,975
21,651
10,011
988
1,063
33,713
20,233
12,546
933
888
34,600
19,699
11,088
897
924
32,608
18,997
11,264
1,015
916
32,192
Recyclable waste 65%
Waste for incineration 27%
Waste for landfill 4%
Hazardous waste 4%
Recyclable waste 64%
Waste for incineration 30%
Waste for landfill 3%
Hazardous waste 3%
Accounting policies
Uncertainties and estimates
Solid waste is defined as materials from production
which are no longer intended for their original use and
which must be recovered (e.g. recycled, reused or
composted) or not recovered (e.g. landfilled). This
includes packaging waste, hazardous waste and other
non-hazardous waste. To follow up on the goal of zero
waste for landfill, Arla collects data monthly from all
sites where we have control.
Currently, Arla discloses only solid waste in ESG table
1.3. In general, solid waste figures and waste handling
methods were provided by the waste management
supplier structured according to EU and local regulations.
However, solid waste only makes up a small part of
Arla’s total waste. Other waste types are product waste
and sludge. Arla planned to report total operational
waste figures from 2020. However, a thorough analysis
revealed a lack of standardisation across Arla sites
concerning how to gather, organise and control product
waste and sludge data. Therefore, disclosure of the full
operational waste figures will be postponed until 2021.
126 ARLA FOODS ANNUAL REPORT 2020
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1.4 ANiMAL wELfARE
Animal welfare journey well on track
Animal welfare is a key priority for our farmer owners,
and for Arla as a company. In 2020, it became
mandatory for Arla’s owners to report on the welfare of
their cows quarterly through Arlagården®, including
information about the housing, grazing, health care
and general well-being of their cows (until 2019
farmers reported these figures on a voluntary basis as
part of Arlagården® Plus. The reported figures are
regularly audited by a world-leading quality assurance
and audit firm specialising in animal welfare. Read more
on page 35.
Animal welfare has multiple dimensions and Arla aims
to measure and externally report on the most important
aspects of it. In 2020, audits on farms were delayed due
to the Covid-19 pandemic and the complex process of
harmonising the audit process across all owner
countries. Consequently, the results of the quarterly
self-assessment by farmer owners will be reported
externally in the Annual Report 2021 after the
necessary external verification is completed. Arla is
committed to reporting on the most important
measures to describe and improve animal welfare:
the ratios of cows in good body condition, clean cows,
mobile cows and cows without injuries. Arla will also
disclose the ratio of audited farmers complying with our
animal welfare standards.
In 2020, the following indicators were reported
(see definitions and accounting policies below):
Percentage of farmer owners reporting
on animal welfare
Audits on farms
Somatic cell count
In 2020, the percentage of owners reporting on animal
welfare increased to 100 per cent compared to 89 per
cent in 2019 following the decision to make animal
welfare reporting mandatory as part of Arlagården®.
The average somatic cell count across Arla geographies
fell by 1 per cent to 194 thousand cells/ml compared to
196 thousand cells/ml last year. The percentage of audit
visits was lower in 2020 (23 per cent compared to
39 cent in 2019) due to the Covid-19 pandemic and the
audit harmonisation process. However, all farms deemed
as high risk from an animal welfare point of view were
audited in 2020.
Definitions
Percentage of farmer owners reporting
on animal welfare
The percentage of owners reporting on animal welfare
is defined as the number of owners who submitted their
mandatory Arlagården® questionnaire (in 2018-2019
Arlagården® Plus), including questions on animal
welfare for the fourth quarter of a given year, compared
to the total number of active owners in the same year.
Audits on farms
Audits on farms are the number of ordinary audits and
other audits, including spot check visits on farms in a
given year, compared to the total number of Arla owners.
Somatic cell count (average)
Somatic cells in milk are primarily white blood cells.
An elevated level of somatic cells can indicate
inflammation (mastitis) of the cow’s udder, which causes
the animal pain and stress, and also lowers milk quality.
ESG Table 1.4 Animal welfare indicators
2020
2019
2018
2017
2016
Farmer owners reporting
on animal welfare (%)
Audits on farms (%)
Somatic cell count (thousand cells/ml)
127 ARLA FOODS ANNUAL REPORT 2020
100%
23%
194
89%
39%
196
82%
50%
198
-
36%
194
-
36%
-
Percentage of farmer
owners reporting on
animal welfare
(per cent)
Percentage
of audits
(per cent)
Somatic cell count
(thousand cells/ml)
196
194
100%
89%
2019
2020
39%
23%
Accounting policies
Percentage of farmer owners reporting
on animal welfare
From 2020, it is mandatory for all farmer owners to
report on the welfare of their herds quarterly by
submitting a questionnaire in the Arlagården® system.
If they do not submit the questionnaire by the deadline
and after having received a reminder, owners will need
to cover the cost of the audit visit themselves.
Audits on farms
Animal welfare conditions on Arla farms are regularly
audited. The audit is conducted by an external party
and is free of charge for the farmers if they submit their
data on time. Farms in Denmark, Sweden, Germany
and Central Europe are audited every three years, while
farms in the UK are audited every 18 months (due to
compliance with local regulations). In a few cases
farmers could receive more than one audit in the same
calendar year.
Somatic cell count:
Arla monitors the somatic cell count (SCC) by analysing
milk at bulk tank level each time milk is collected from
the farms. Levels are continuously reported to
safeguard milk quality. The figure reported here is a
weighted average of Arla’s entire milk intake in a given
year. The SCC count is received from several laborato-
ries across owner countries. SCC levels are consistently
low across all markets.
Uncertainties and estimates
The UK somatic cell count includes the somatic cell
count for contract famers as well as owners, however
this has no significant impact on the total somatic cell
count for 2020.
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2.1 fULL-TIME EQUiVALENTS
FTEs increased due to insourcing, international expansion and Covid-19
Full-time equivalents split by employee type,
2020
Full-time equivalents split by employee type,
2019
People are Arla’s most important asset, so it is
imperative to know how the group deploys these
resources across geographies and time. The number
of employees is measured in full-time equivalents (FTE).
The total number of FTEs increased by 4.4 per cent
compared to last year. A key driver was insourcing and
expansion in international markets, including insourcing
of administrative tasks in UAE and Oman, but also the
full-year effect of the acquisition of the cheese business
in the Middle East from Mondeléz International in 2019.
The increase in FTEs in Denmark can be ascribed to the
expansion in Arla Foods Ingredients, while temporary
insourcing of distribution activities increased the
number of FTEs in the UK. During 2020, production
sites, especially in the UK and Sweden, temporarily
ramped up FTEs to ensure stable production despite
the Covid-19 situation.
Over the last five years, the FTE level has been relatively
stable, but shows a shift of FTEs from core European
countries to international markets, especially to MENA.
This supports Arla’s strategic plan to expand the share
of business outside Europe, where the outlook for
growth is more promising.
ESG Table 2.1 Full-time equivalents
2020
2019
2018
2017
2016
Denmark
UK
Sweden
Germany
Saudi Arabia
Poland
North America
Netherlands
Finland
Other countries
Full-time equivalents
7,350
3,761
3,114
1,632
970
529
479
351
336
1,498
20,020
7,258
3,407
2,977
1,681
952
511
477
339
319
1,253
19,174
7,264
3,387
3,001
1,759
965
463
502
327
325
1,197
19,190
7,069
3,477
3,029
1,809
1,009
433
496
320
325
1,006
18,973
6,956
3,532
3,175
1,780
895
425
477
313
321
891
18,765
128 ARLA FOODS ANNUAL REPORT 2020
20,020
19,174
Blue-collar employees 64%
White-collar employees 36%
Blue-collar employees 64%
White-collar employees 36%
Accounting policies
FTEs are defined as the contractual working hours of
an employee compared to a full-time contract in the
same position and country. The full-time equivalent
figure is used to measure the active workforce counted
in full-time positions. An FTE of 1.0 is equivalent to a
full-time worker, while an FTE of 0.5 equals half of the
full workload.
The average FTE figure reported in Note 1.2 in the
consolidated financial statements, and in ESG note 2.1
is calculated as an average figure for each legal entity
during the year based on quarterly measurements
taken at the end of each quarter.
All employees are included in the FTE figure, including
employees who are on permanent and temporary
contracts. Employees on long-term leave, e.g. maternity
leave or long-term sick leave, are excluded.
The majority of employees in production and logistics
are classified as blue-collar employees, while employees
in sales and administrative functions are classified as
white-collar employees. The ratio of white-collar to
blue-collar employees is calculated based on FTEs as
at 31 December.
Employee data is handled centrally in accordance with
GDPR. The FTE figure is reported internally on a
monthly basis. To improve data quality, data is validated
by each legal entity on a quarterly basis through the
financial consolidation system.
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Social figures
2.2 GENDER DiVERSiTY AND iNCLUSiON
Share of females in management stable
In Arla, we believe that gender diversity is key to the
success of our business. Arla’s policies do not distinguish
between men and women when it comes to promotion
opportunities or remuneration, however women are
underrepresented in Arla’s blue-collar workforce, and to
a lesser extent in the white-collar workforce as well.
Arla strives to create a workplace with a diverse
workforce, characterised by mutual respect and trust,
promoting equal opportunities and allowing colleagues
to live up to their full potential. Diversity, inclusion and
anti-harassment policies are in place to handle issues in
a structured manner and a whistleblower platform
enables employees to report any kind of harassment.
Work councils at both local and global levels also help
to ensure that workplace decisions are made in the best
interests of all colleagues and Arla. Gender diversity for
the Board of Directors is disclosed in ESG note 3.1.
Gender diversity (all employees)
In 2020, the female share of FTEs remained unchanged
from last year at 27 per cent. Read more about how Arla
works with diversity on page 40.
Gender diversity (in management)
26 per cent of positions at director level or above were
held by women, which is unchanged compared to last
year.
Gender diversity (in Executive Management Team)
14 per cent of the Executive Management Team
members were women, compared to 29 per cent last
year. The decrease is explained by the departure of the
previous CFO.
Gender diversity for all employees,
2020
Gender diversity for all employees,
2019
Female 27%
Male 73%
Female 27%
Male 73%
ESG Table 2.2.a Gender diversity for all employees
(all employees)
2020
2019
2018
2017
2016
Accounting policies
Total share of females
27%
27%
27%
26%
26%
ESG Table 2.2.b Gender diversity in management
(diversity in management)
2020
2019
2018
2017
2016
Share of females at director level or above
26%
26%
23%
22%
22%
ESG Table 2.2.c Gender diversity in Executive
Management Team
2020
2019
2018
2017
2016
Share of females in Executive Management Team (EMT)
14%
29%
29%
29%
29%
129 ARLA FOODS ANNUAL REPORT 2020
Gender diversity (all employees)
Gender diversity is defined as the share of female FTEs
compared to total FTEs. Gender diversity is based on
FTEs as at 31 December 2020. It covers all white-collar
and blue-collar employees.
Gender diversity (in management)
Arla’s gender diversity in management is defined as the
share of female FTEs in positions at director level or
above compared to total FTEs for positions at director
level or above.
Gender diversity (in Executive Management Team)
Gender diversity in management is defined as the share
of females in the Executive Management Team (EMT) as
at 31 December 2020.
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Social figures
2.3 GENDER PAY RATiO
Social figures
2.4 EMPLOYEE TURNOVER
Gap between male and female salary unchanged
Employee turnover decreased
Paying equal salaries for the same job regardless of
gender is a basic requirement for an ethical and
responsible company. In Arla, men and women in the
same or equivalent jobs receive the same level of pay.
This is ensured through well-defined and fixed salary
bands across all job categories.
The primary aim of the gender pay ratio is to ensure
equitable treatment between genders and show where
women are represented in the company hierarchy. In
2020, the median male salary at Arla was 5 per cent
higher than the median female salary, which is
unchanged compared to last year.
Attracting and retaining the right people are imperative
to the success of Arla’s business. Employee turnover
shows the fluctuation in the workforce. Turnover is
broken down by voluntary turnover (i.e. the employee
decides to leave the company) and involuntary turnover
(i.e. the employee is dismissed). With such differentiation,
turnover is an indicator of talent retention at Arla and also
indicates the efficiency of operations.
Employee turnover decreased to 10 per cent compared
to 12 per cent last year. The development was driven by
a decrease in voluntary turnover to 6 per cent, the
lowest level in the last five years, and possibly impacted
by the Covid-19 situation. The involuntary turnover
remained unchanged compared to last year at 4 per cent.
ESG Table 2.3 Gender pay ratio
Gender pay ratio
2020
2019
2018
1.05
1.05
1.06
Voluntary turnover
Involuntary turnover
Total turnover
6%
4%
10%
8%
4%
12%
8%
4%
12%
8%
3%
11%
9%
5%
14%
ESG Table 2.4 Employee turnover
2020
2019
2018
2017
2016
Accounting policies
Uncertainties and estimates
Accounting policies
The gender pay ratio is defined as the median male
salary divided by the median female salary. The salary
used in the calculation includes contractual base
salaries while pension and other benefits are not
included.
The ESG reporting guidelines issued by the Danish
Financial Association and Nasdaq, recommends
including the total workforce in the equation. However,
due to data limitations we only disclose the gender pay
ratio for the white-collar workforce. It is estimated that
including blue-collar employees would reduce the gap,
as males are overrepresented in the blue-collar
workforce.
Employee turnover is calculated as the ratio of total
employees leaving to the total number of employees
in the same period. The figure refers to the number of
employees and not to FTE.
Turnover is calculated for all employees on a perma-
nent contract and includes several reasons for their
departure, such as retirement, dismissal and resignation.
Departures are only included in the calculation from the
month when remuneration is no longer paid (e.g. some
tenured employees may be entitled to remuneration for a
few months after their dismissal).
130 ARLA FOODS ANNUAL REPORT 2020
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Social figures
2.5 fOOD SAfETY - NUMbER Of PRODUCT RECALLS
Social figures
2.6 ACCiDENTS
Number of product recalls decreased
As a global food company, food safety is key to Arla.
A core responsibility for Arla is to ensure that products
are safe for consumers to eat and drink, and that the
content of the product is clearly and appropriately
labelled on the packaging. Food safety is also one of our
most important indicators towards consumers,
signalling that Arla’s products are produced and
labelled according to the highest quality standards.
In 2020, the number of product recalls fell to 1
compared to 4 last year. Arla is dedicated to ensuring
that its products are safe to consume and works
continuously across the value chain, including with
suppliers, to reduce the number of recalls to as close to
zero as possible. All product incidents must be dealt
with in a timely manner to ensure the safety of our
consumers as well as the legality and quality of product
and brand protection (Arla or private label). The handling
of all public recall incidents follows a detailed and
standardised process. Product incident management is
also tested annually.
Accidents remains key priority
Arla has a complex and long value chain and offers a
large variety of jobs across geographies. Our employees
are key to the success of Arla, and it is our ambition to
provide all employees with safe and healthy working
conditions. Arla is committed to preventing accidents,
injuries and work-related illnesses.
A systematic approach to target-setting and tracking is
applied to mitigate risks and reduce problems in an
ongoing close collaboration with employees across the
organisation. Accidents resulting in injuries can be
lost-time accidents (LTAs) as well as non-lost-time
accidents (minor). The number of LTAs per 1 million
working hours decreased to 5 compared to 6 last year.
ESG Table 2.5 Recalls
2020
2019
2018
2017
2016
ESG Table 2.6 Accidents
(per 1 million working hours)
2020
2019
2018
2017
2016
Number of recalls
1
4
2
10
6
Accident frequency
5
6
8
10
11
Accounting policies
Accounting policies
In accordance with ESG reporting standards, product
recalls are defined as public recalls. A public recall is the
action taken when products pose a material food safety,
legal or brand integrity risk. Public recall is only relevant
if products are available to the consumers in the
marketplace.
Public recalls are reported as soon as they happen, and
an incident report must be completed about each
incident within two weekdays from the first notice of
the problem. The total number of public recalls is
reported externally on an annual basis.
Accidents are defined as any sudden and unplanned
event that results in personal injury, ill health, or
damage to or loss of property, plant, materials or the
environment, or a loss of business opportunity.
An LTA is a work place injury sustained by an employee
while completing work activities that results in the loss
of 1 or more days off from work on scheduled working
days/shifts. An accident is considered a lost-time accident
only when the employee is unable to perform the
regular duties of the job, takes time off for recovery, or is
assigned modified work duties for the recovery period.
All employees sustaining injury or illness related to
the work place are required to report it to their team
leader/manager as soon as reasonably practical,
regardless of severity. Employees at all sites have access
to a mobile application where they can quickly and
easily report any accidents. Notification must be done
prior to the injured party leaving work. Accidents
reported after the end of the injured party’s working day
may not be accepted as a workplace accident. However,
there could be accidents which are not reported. The
number of accidents is reported monthly to the Board
of Directors and Executive Management Team.
131 ARLA FOODS ANNUAL REPORT 2020
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Governance data
3.1 GENDER DiVERSiTY - bOARD Of DiRECTORS
Governance data
3.2 bOARD MEETiNG ATTENDANCE
Share of females unchanged from last year
Meeting attendance remains high
Gender diversity on the Board of Directors is important,
partly to ensure that both genders are represented at a
high level, and partly to bring a variety of perspectives
to the business. Ensuring gender diversity on the Board
of Directors is also a legal requirement in Denmark.
The current Board of Directors consists of 15 farmer
owners, three employee representatives and two
external advisors, where only owner representatives are
elected by the Board of Representatives by the general
meeting. Four of these 20 board members are female,
reflecting a ratio of 20 per cent female and 80 per cent
male which is unchanged compared to last year. In
accordance with section 99b of the Danish Financial
Statements Act, only members elected by the Board of
Representatives can count in the Board of Directors
figure. In 2020, two of the 15 farmer owners on the
Board of Directors were female which equates to a
composition of 13 per cent female and 87 per cent
male, which is unchanged compared to last year. In
2019, Arla set a 4-year target to achieve a female
representation on the Board of Directors of at least
13 per cent.
Attendance at the board meetings by the members
of the Board of Directors ensures that all Arla’s owners
and employees are represented when important
strategic decisions are made. Arla’s board members are
very dedicated, and as a general rule all board members
attend all meetings unless they are prevented from
doing so due to health reasons.
In 2020, board attendance increased to 99 per cent
from 96 per cent last year. Information on board
members can be found on page 42 to 44.
ESG Table 3.1 Gender diversity on Board of Directors
2020
2019
2018
2017
2016
Share of females on Board of Directors
13%
13%
13%
12%
7%
Number of meetings
Attendance
10
99%
10
96%
13
99%
9
99%
9
98%
ESG Table 3.2 Board meeting attendance
2020
2019
2018
2017
2016
Accounting policies
Accounting policies
The gender diversity ratio is calculated based on the
members of the Board of Directors elected by the
general meeting and excludes employee representa-
tives and advisors to the Board of Directors.
The board meeting attendance ratio is calculated as the
sum of board meetings attended per board member
and the total possible attendance.
The current Board of Directors consists of three
employee representatives, two external advisors and 15
owners. When calculating board meeting attendance,
all 20 board members are included.
132 ARLA FOODS ANNUAL REPORT 2020
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Environmental KPIs (Note 1.1-1.3) included data from
all production and logistical sites, This, together with
milk, external waste handling, external transport and
packaging cover all material activities in Arla’s value
chain. The environmental impact related to offices,
business travel and other less material activities was not
included in the total emission figure. This scope also
applies to the accident KPI, Note 2.6, however accidents
at head offices in Denmark, UK, Sweden and Germany
were also included.
Comparison figures
In line with ESG reporting guidelines, environmental
data is presented in absolute figures to ensure
comparability. Where relevant, a measure for progress
towards Arla’s previously communicated internal
targets is included. Baselines and comparison figures
are restated according to Arla’s restatement policy. By
default, Arla’s baseline emissions are reviewed every
five years from the target base year (2020, 2025, 2030),
if no significant structural or methodological changes
trigger a recalculation before. Every 5 years, Arla
assesses if the structural changes (e.g. acquistions or
divestments) in the past years reach the significance
threshold when added together in a cumulative
manner. Each year, Arla assesses if the structural
changes that year reach the significance threshold
(see below) by themselves or when added together.
A threshold is defined for each Science Based Target:
Scope 1 and 2: 5 per cent change compared to the
base year
Scope 3 per kg of raw milk: 3 per cent change
compared to the base year
Every time baseline emissions are recalculated due
to significant structural changes in the company (as
defined above), historic figures are also recalculated
and reported alongside the non-recalculated (actual)
historic emission figures. This provides the reader
with more clarity to understand Arla’s actual
emissions each year. Other externally reported ESG
KPIs are only restated if material mistakes in the
previous years’ reporting are discovered. The
materiality of mistakes is determined on a case-by-
case basis.
In accordance with the restatement policy and
Science Based Target, Arla restated the baseline in
2020, primarily driven by the switch to market-based
accounting.
Governance data
3.3 GENERAL ACCOUNTiNG POLiCiES
Basis for preparation
The consolidated environmental, social and governance
(ESG) data is based on ongoing monthly and annual
reporting procedures. The consolidated data complies
with the same consolidation principles as the
consolidated financial statements unless described
separately in the definition section of each ESG note.
All reported data follows the same reporting period as
the consolidated financial statements.
Materiality and reporting scope
When presenting the consolidated ESG data,
management focuses on presenting information that is
considered of material importance for stakeholders, or
which is recommended to be reported by relevant
professional groups or authorities.
To establish what is material for this report, a materiality
analysis was conducted in 2017. The analysis involved
consumers, customers, owners, non-profit organisa-
tions and financial institutions in Denmark, Sweden, the
UK and Germany. All stakeholder groups received a
survey and were asked to prioritise 22 defined areas of
interest. Moreover, a group of non-profit organisations
was interviewed to get a deeper understanding of their
views and opinions. In addition to prioritising the
group’s activities, these results were used to improve
communication processes and widen the reporting
scope. Based on results from the materiality analysis
and constant tracking of consumer preferences,
climate, food safety and animal care were identified
as focus areas. Recycling and waste, transparent and
accountable business were also ranked as highly
important to Arla’s stakeholders. The materiality
analysis undertook a light update in 2020 with
unchanged conclusions compared to the 2017 analysis.
The figures disclosed in the consolidated ESG data
section were chosen based on the materiality analysis,
but also consider the maturity of data to ensure high
data quality on each KPI. In some cases, it was
concluded that current data tracking or collection
capabilities do not provide sufficient data quality to
satisfy disclosure to the highest standards, despite the
fact that the figures could be of material importance to
stakeholders. In these cases, the necessary steps to
improve data tracking and collection have been intiated
and the plan is to extend the ESG reporting in 2021
and beyond.
This section was inspired by the principles and
recommendations of the The Danish Finance Society/
CFA Society Denmark, FSR – Danish Auditors and
Nasdaq published in the ESG reporting guidelines
booklet in 2019. Where maturity and availability of data
allowed, recommended ESG figures were added to this
section. In the coming years, plans are to widen the
scope of reporting to fully comply with best practice in
ESG reporting.
The above priorities are reflected throughout the
Annual Report: Animal welfare (page 35), governance
principles (page 38-39) and diversity policies (page 40)
are reported at length in the management review, while
in this section definitions, data and accounting policies
related to Arla’s greenhouse gas emissions (Note 1.1),
animal welfare (Note 1.4), food safety (Note 2.5), waste
and recycling (Note 1.3), and diversity (Note 2.2 and
2.3) are presented, making Arla’s business more
transparent and accountable.
133 ARLA FOODS ANNUAL REPORT 2020
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INDEPENDENT AUDiTOR’S
COMbiNED ASSURANCE REPORT
TO THE STAKEHOLDERS Of ARLA fOODS AMbA
At the request of the Management of Arla Foods Amba
(hereafter Arla) we have performed a combined
reasonable and limited assurance engagement on the
environmental, social and governance (hereafter ESG)
statements in the Annual Report on pages 121-133 for
the period 1 January 2020 to 31 December 2020.
As a result of our assurance engagement we shall
conclude whether the information in the ESG
statements in the Annual Report is free of material
misstatement and has been prepared in accordance
with the reporting approach and criteria described on
pages 121-133. The degree of assurance expressed in
the conclusion is reasonable except for the Scope 3
calculations on farm level, found on pages 122-123. For
this indicator the assurance expressed is limited.
Management’s responsibility
Arla’s Management is responsible for selecting the
reporting approach and criteria described on pages
121-133, and for the preparation and presentation of
the ESG statements in the Annual Report in accordance
with the reporting criteria. This responsibility includes
establishing and maintaining internal controls,
maintaining adequate records and making estimates
that are relevant to the preparation of the ESG
statement in the Annual Report, such that it is free from
material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express a conclusion on Arla’s
ESG statements in the Annual Report based on our
procedures and evidence obtained.
We conducted our engagement in accordance with the
International Standard for Assurance Engagements
Other Than Audits or Reviews of Historical Financial
In-formation (‘ISAE 3000’) and additional requirements
under Danish audit legislation. Those standards require
that we plan and perform our engagement to obtain
limited or reasonable assurance about whether, in all
material respects, the ESG statements in the Annual
Report is presented in accordance with the reporting
approach and criteria described on pages 121-133, and
to issue a report. The nature, timing, and extent of the
procedures selected depend on our judgment,
including an assessment of the risk of material
misstatement, whether due to fraud or error.
Our independence and quality control
We have maintained our independence and confirm
that we have met the requirements of the Code of
Ethics for Professional Accountants issued by the
International Ethics Standards Board for Accountants
and additional requirements applicable in Denmark and
have the required competencies and experience to
conduct this assurance engagement.
EY Godkendt Revisionspartnerselskab is subject to the
International Standard on Quality Control (ISQC) 1 and
thus uses a comprehensive quality control system,
documented policies and procedures regarding
compliance with ethical requirements, professional
standards and applicable requirements in Danish law
and other regulations.
Description of procedures performed
As part of our examination, we performed the below
procedures:
Interviews of relevant company professionals
responsible for sustainability strategy, management
and reporting, to understand the systems, processes
and controls related to gathering and consolidating
the information
Conducting interviews with representatives from
reporting dairy sites to obtain understanding and
evidence of the data gathering, controls and
consolidation process on site level. Conducting
walkthroughs of processes to assess whether data
have been collected and assessed as prescribed in
Arla’s manual for collection of ESG data
Analytical reviews, including sensitivity analysis, trend
analyses against previous period and cross-analysis
against applicable parameters, of data supplied
by Arla
Evaluation of the appropriateness of accounting
policies used and the reasonableness of accounting
estimates made by Management
Obtain evidence on a sample basis that the
information reconciles with underlying Arla
documentation
Evaluation of relevant internal and external
documentation, on a sample basis, to determine the
reliability of the non-financial information
Evaluated the consistency of the information in the
ESG statements in the Annual Report with the
information in the Annual Report which is not
included in the scope of our audit
We believe that the evidence we have obtained is
sufficient and appropriate to provide a basis for our
conclusion below.
The procedures performed on the information in scope
of the reasonable assurance are more robust than those
performed in connection with the limited assurance
and therefore higher assurance is obtained than in a
limited assurance engagement. Hence, the conclusion
based on our limited assurance procedures does not
comprise the same level of assurance as the conclusion
of our reasonable assurance procedures. Since this
engagement is combined, our conclusions regarding
reasonable assurance and limited assurance are
presented separately below.
Conclusion
In our opinion the information in Arla’s ESG statements
in the annual report for the period 1 January 2020 to
31 December 2020 which has been subject to our
reasonable assurance procedures have, in all material
respects, been prepared in accordance with the
reporting approach and criteria described on pages
121-133.
Based on the limited assurance procedures we have
performed, nothing has come to our attention that
causes us to believe that the information in Arla’s ESG
statements in the annual report for the period 1 January
2020 to 31 December 2020 subject to our limited
assurance procedures is not prepared, in all material
respects, in accordance with the reporting approach
and criteria described on pages 121-133.
Viby, 10th of February 2021
EY Godkendt Revisionspartnerselskab
CVR-nr. 30700228
Henrik Kronborg Iversen
State Authorised Public
Accountant
MNE no. 24687
Carina Ohm
Associate Partner
Head of climate Change
and Sustainability Services
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GLOSSARY
Arlagården® is the name of our quality
assurance programme.
CPI is an abbreviation of Consumer Price Index.
FMCG is an acronym for fast-moving consumer
goods.
BEPS is an acronym referring to base erosion and
profit shifting. These are tax avoidance strategies
that exploit gaps and mismatches in tax rules to
artificially shift profits to low or no-tax locations.
Biogas is the mixture of gases produced by the
breakdown of organic matter in the absence of
oxygen, primarily consisting of methane and
carbon dioxide. At Arla, biogas is primarily produced
from cow manure.
Biomass is plant or animal material used for
energy production. It can be purposely grown
energy crops, wood or forest residues, waste from
food crops, horticulture, food processing, animal
farming, or human waste from sewage plants.
Brand share measures revenue from strategic
brands as a proportion of total revenue, and is
defined as the ratio of revenue from strategic
branded products to total revenue.
CAPEX is an abbreviation of capital expenditure.
Capacity cost is defined as the cost of running
the general business, and includes staff costs,
maintenance, energy, cleaning, IT, travel and
consultancy etc.
Carbon sequestration refers to a natural or
artificial process by which carbon dioxide is
removed from the atmosphere and held in solid
or liquid form.
135 ARLA FOODS ANNUAL REPORT 2020
Digital engagement is defined as the number
of interactions consumers have across digital
channels. The interaction is measured in a number
of different ways, for example, by viewing a video
on all media channels for more than 10 seconds,
visiting a webpage, commenting, liking or sharing
on our social media channels.
Digital reach is defined as engagement with Arla’s
digitial content, i.e. spending more than 2 minutes
on our website, watching our videos to the end on
YouTube, and liking or commenting on content on
our social media platforms.
EBIT is an abbreviation of earnings before interest
and tax, and is a measure of earnings from
operations.
EBITDA is an abbreviation of earnings before
interest, tax, depreciation and amortisation from
ordinary operations.
EBIT margin measures EBIT as a percentage of
total revenue.
EMEA is an acronym referring to Europe,
the Middle East and Africa.
Equity ratio is the ratio of equity, excluding
minority interests, to total assets, and is a measure
of the financial strength of Arla.
Free cash flow is defined as cash flow from
operating activities after deducting cash flow from
investing activities.
FTE is an acronym for full-time equivalents. FTEs
are defined as the contractual working hours of an
employee compared to a full-time contract in the
same position and country. The FTE figure is used
to measure the active workforce counted in
full-time positions. An FTE of 1.0 is equivalent to a
full-time worker, while an FTE of 0.5 equals half of
the full workload.
GDPR is an acronym for the General Data
Protection Regulation, which regulates data
protection and privacy in the European Union (EU)
and the European Economic Area (EEA). It also
addresses the transfer of personal data outside the
EU and EEA areas. The GDPR aims primarily to give
control to individuals over their personal data and
to simplify the regulatory environment for
international business by unifying the regulation
within the EU.
Global industry share is a measure of the total
milk consumption for producing commodity
products relative to the total milk consumption, i.e.
based on volumes. Commodity products are sold
with lower or no value added, typically via business-
to-business sales for other companies to use in
their production as well as via industry sales of
cheese, butter or milk powder.
Greenhouse Gas Protocol (GHGP) provides
accounting and reporting standards, sector
guidance, calculation tools to account for
greenhouse gas emissions. It establishes a
comprehensive, global, standardised framework for
measuring and managing emissions from private
and public sector operations, value chains,
products, cities, and policies.
Incoterms refer to International Commercial
Terms. These are a series of pre-defined commercial
terms published by the International Chamber of
Commerce (ICC) relating to international commercial
law. They are widely used in international commercial
transactions or procurement processes and their
use is encouraged by trade councils, courts and
international lawyers.
Innovation pipeline is defined as the net
incremental revenue generated from innovation
projects up to 36 months from their launch.
Interest cover is the ratio of EBITDA to net
interest costs.
International share of business is defined as the
revenue from the International zone as a percentage
of of revenue from the International and Europe
zones.
Lactalbumin, also known as ‘whey protein’, is the
albumin contained in milk and obtained from
whey.
Management Review
Our Strategy
Our Brands and Commercial Segments
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Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
GLOSSARY (CONTiNUED)
Leverage is the ratio of net interest-bearing debt,
inclusive of pension liabilities, to EBITDA. It enables
evaluation of the ability to support future debt and
obligations; the long-term target range for leverage
is between 2.8 and 3.4.
MENA is an acronym referring to the Middle East
and North Africa.
Meal kits are a subscription service-foodservice
business model where a company sends customers
pre-portioned and sometimes partially prepared
food ingredients and recipes to prepare homecooked
meals.
Milk volume is defined as total intake of raw milk
in kg from owners and contractors.
M&A is an abbreviation of mergers and
acquisitions.
Net interest-bearing debt is defined as current
and non-current interest-bearing liabilities less
securities, cash and cash equivalents, and other
interest-bearing assets.
Net interest-bearing debt inclusive of
pension liabilities is defined as current and
non-current interest-bearing liabilities less
securities, cash and cash equivalents, and other
interest-bearing assets plus pension liabilities.
Net working capital is the capital tied up in
inventories, receivables and payables including
payables for owner milk.
136 ARLA FOODS ANNUAL REPORT 2020
Net working capital excluding owner milk is
defined as capital that is tied up in inventories,
receivables and payables excluding payables for
owner milk.
Non-GMO means non-genetically modified
organisms, for example non-genetically modified
feed crops for cows.
OCI is an acronym for other comprehensive
income. OCI includes revenue, expenses, gains, and
losses that have yet to be realised.
OECD refers to the Organisation for Economic
Cooperation and Development.
On-the-go refers to food consumed while on the
go, and also to packaging solutions supporting this
food consumption trend.
Other supported brands are brands other than
Arla®, Lurpak®, Puck®, Castello® and milk-based
branded beverages that contribute to strategic
branded volume driven revenue growth.
Private label refers to retail brands, which are
owned by retailers but produced by Arla based on
contract manufacturing agreements.
Profit margin is a measure of profitability. It is the
amount by which revenue from sales exceeds
costs in a business.
Profit share is defined as the ratio of profit for the
period allocated to owners of Arla Foods, to total
revenue.
QEHS stands for Quality, Environmental, Health,
and Safety. It is a department within Arla’s supply
chain safeguarding the quality and safety of
production.
SEA is an acronym referring to South-East Asia.
SMP is an abbreviation of skimmed milk powder.
Strategic brands are defined as products sold
under branded products such as Arla®, Lurpak®,
Castello® and Puck®.
Performance price for Arla Foods is defined as
the prepaid milk price plus net profit divided by
total member milk volume intake. It measures the
value creation per kg of owner milk including
retained earnings and supplementary payments.
Strategic branded volume driven revenue
growth is defined as revenue growth associated
with growth in volumes from strategic branded
products while keeping prices constant. It is also
referred to in the report as branded volume growth.
Prepaid milk price describes the cash payment
farmers receive per kg of milk delivered during the
settlement period.
USD-related currencies are currencies which
move in the same direction as the USD (i.e. when
the USD depreciates versus the EUR, they also
depreciate versus the EUR). Currencies in the
MENA region and the Chinese yen are typical
examples.
Value-added protein segment contains products
with special functionality and compounds,
compared to standard protein concentrates with
a protein content of approximately 80 per cent.
Volume driven revenue growth is defined as
revenue growth associated with growth in volumes
while keeping prices constant.
Whey protein hydrolysate is a concentrate or
isolate in which some of the amino bonds have
been broken by exposure of the proteins to heat,
acids or enzymes. This pre-digestion means that
hydrolysed proteins are more rapidly absorbed in
the gut than either whey concentrates or isolates.
WMP is an abbreviation referring to whole milk
powder.
Project management: Corporate external reporting, Arla. Design and production: We Love People. Translation: Semantix.
Photos: Hans-Henrik Hoeg and Arla. The Annual Report is published in English, Danish, Swedish, German, French and Dutch.
Only the original English text is legally binding. The translations have been prepared for practical purposes.
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility
Our Governance
Our Performance Review
Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
CORPORATE
CALENDAR
2021
Financial reports and major events
137 ARLA FOODS ANNUAL REPORT 2020
24-25
fEbRUARY
Board of Representatives meeting
25
fEbRUARY
Publication of the consolidated
annual report for 2020
27
MAY
Board of Representatives meeting
26
AUGUST
Publication of the consolidated
half-year results for 2021
5-6
OCTObER
Board of Representatives meeting
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