Arafura Resources Annual Report 2021

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FY2021 Annual Report · Arafura Resources

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BUILDING
STRENGTH IN
A VOLATILE
MARKET

Consolidated
Annual Report

OUR VISION
CREATE THE
fUTURE Of DAiRy
TO BRiNG HEALTH
AND iNSpiRATiON
TO THE wORLD,
NATURALLy

Arla Foods Consolidated Annual Report 2021

TABLE Of CONTENTS

MANAGEMENT REViEw
04
05
06

2021 Performance at a glance
Message from the Chairman and the CEO
Message from the Chairman:
Creating the future of dairy
from the ground up
Message from the CEO:
Solid performance and sustainability
action in another volatile year
Highlights
Five year overview

08
10

STRATEGy
13
14

Our business model
Good Growth 2020
prepared us for the future
Achievements of our Calcium programme
Trends shaping our strategy

15
16
18 Future 26 – Our new strategy
19
Lead sustainable dairy
20 Scale to grow
21
22

Build growth platforms
Collaborate for efficiencies

OUR SUSTAiNABiLiTy jOURNEy
24 Our sustainability strategy
25
26
27

Stronger planet – Our environmental ambition
Sustainability on farms
Stronger people – Our societal ambition

OUR BRANDS AND
COMMERCiAL SEGMENTS
29 Our global brands
32
33
34 Arla Foods Ingredients
35 Global industry sales

Europe
International

Navigation in the report

Brings you back to the table of contents

Read more in our
sustainability report.

Code
of Conduct

Policies

Processes, procedures
and standards

Guidelines and instructions

Go to our corporate website to read our Code of Conduct.

Our governance framework

Arla Foods Consolidated Annual Report 2021 / Management Review / Responsible and transparent tax practices

Contents

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.

125
EURm
remained
in Arla

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 Develop-
ment Goals (SDGs). Our tax payments contribute
directly and indirectly to the majority of the SDGs,
but in particular to SDG number 16 – 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 and the general public
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

Arla operates several subsidiaries globally. Our
subsidiaries are primarily limited liability and private
limited companies subject to regular corporate
taxation.

our tax position.

• Disclosures are made in accordance with relevant
regulations and applicable reporting standards
such as Interna tional Financial Reporting
Standards (IFRS)

Transactions between Arla companies are
determined and documented in accordance with
OECD’s Transfer Pricing Guidelines to ensure we
operate on market terms.

• 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, tax controls, 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.

Value generation
In 2021, Arla generated a total value of approxi-
mately EUR 5.6 billion* from the milk supplied. Milk
from our farmer owners generated EUR 5.0 billion
in milk payments , while other farmers received milk
payments of EUR 461 million leaving EUR 125
million in Arla. As a result, the majority of the taxes
are paid at farm level subject to local tax rules.

Moreover, the value generated by our activities
further cascades into societies via various types of
tax payments, both direct and indirect taxes that are
either born or collected by the Arla group

It is our ambition to continuously increase
transparency and reporting details on our total tax
contributions in the countries and societies in
which we operate and, in this respect, implement
the EU Directive on public country-by-country
reporting by 2024 at the latest.

8,956 farmers
20,617 employees
1.5 million cows

5.0

billion EUR paid to
farmer owners

Our Farmers

Corporate taxes
Cooperative taxes
Customs and Duties
Personal taxes
VAT

Society

Primary Statements

Notes

Statement by the Board of Directors and the Executive Board

Independent auditor's report

Contents

CONSOLIDATED
fINANCIAL
STATEMENTS

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

TABLE Of CONTENTS

pRiMARy STATEMENTS

NOTES

REpORTS

117 Statement by the Board of Directors

and the Executive Board
118 Independent auditor's report

65
Income statement
65 Comprehensive income
66 Profit appropriation
67 Balance sheet
68 Equity
71 Cash flow

Introduction to notes

74 Revenue and costs
74
76
78
79

1.1 Revenue
1.2 Operational costs
1.3 Other operating income and costs
1.4 Key performance indicators

80 Net working capital
80 2.1 Net working capital, other receivables

and current liabilities

83 Capital employed
83
86
89

3.1 Intangible assets and goodwill
3.2 Property, plant and equipment
3.3 Associates and Joint ventures

91 Funding
91 4.1 Financial risks
98 4.2 Financial items
99 4.3 Net interest-bearing debt
104 4.4 Derivatives
105 4.5 Financial instruments
106 4.6 Sale and repurchase agreements
107 4.7 Pension liabilities

111 Other areas
111 5.1 Tax
112 5.2 Provisions
112 5.3 Fees to auditors appointed by

the Board of Representatives
113 5.4 Management remuneration

and transactions
113 5.5 Contractual commitments,

contingent assets and liabilities

113 5.6 Events after the balance sheet date
114 5.7 General accounting policies
115 5.8 Group chart

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

INCOME STATEMENT

COMpREHENSiVE iNCOME

(EURm)

Revenue
Production costs
Gross profit

Sales and distribution costs
Administration costs
Other operating income
Other operating costs
Share of net profit/loss in joint ventures and associates
Earnings before interest and tax (EBIT)

Specification:
EBITDA
Depreciation, amortisation and impairment
Earnings before interest and tax (EBIT)

Financial income
Financial costs
Profit before tax

Tax
Profit for the year

Allocated as follows:
Owners of Arla Foods amba
Non-controlling interests
Total

Note

2021

2020 Develop-
ment, %

(EURm)

Profit for the year

Note

2021

2020

346

352

Other comprehensive income
Items that will not be reclassified to the income statement:
Remeasurements 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

-3
10

39
-1
127
-1
171

5
4

41
-3
-84
-
-37

517

315

503
14
517

308
7
315

1.1
1.2

1.2
1.2
1.3
1.3
3.3

1.2

4.2
4.2

5.1

11,202
-8,822
2,380

10,644
-8,301
2,343

-1,573
-427
110
-75
53
468

-1,483
-439
61
-52
28
458

948
-480
468

14
-75
407

-61
346

332
14
346

909
-451
458

7
-79
386

-34
352

345
7
352

5
6
2

6
-3
80
44
89
2

4
6
2

100
-5
5

79
-2

-4
100
-2

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

pROfiT AppROpRiATiON

(EURm)

2021

2020

Proﬁt appropriation for 2021

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

346
-14
332

203
4
207

83
42
125
332

352
-7
345

219
4
223

81
41
122
345

Performance price
39.7

EUR-cent/kg

Standard prepaid
milk price
37.0 EUR-cent/kg

Retainment

Common capital (2/3)
Individual capital (1/3)

EUR-cent/kg

83 EURm
42 EURm
EURm

125

0.67
0.33

1.00

Proﬁt for the year
332* EURm
2.65 EUR-cent/kg

Supplementary payment

Supplementary payment
Interest on individual capital

203 EURm
4 EURm
EURm

207

1.62
0.03

1.65

*Based on proﬁt allocated to owners of Arla Foods amba.

pROfiT AppROpRiATiON

The proposed supplementary payment for 2021 is
EUR 207 million, including interest. This corresponds
to 1.65 EUR-cent/kg of owner milk. Interest on
the carrying value of contributed individual capital
amounted to EUR 4 million. Contributed individual
capital carried an interest of 1.50 per cent in 2021.

In addition, EUR 125 million, equalling 1.00 EUR-cent/kg
of owner milk, is transferred to equity and split into 1/3
to individual capital (contributed individual capital),
amounting to EUR 42 million, and 2/3 to common
capital (reserve for special purposes), amounting to
EUR 83 million.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

BALANCE SHEET

(EURm)

Note

2021

2020 Develop-
ment, %

(EURm)

Note

2021

2020 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
4.5

946
3,072
530
21
69
30
4,668

1,248
1,007
74
285
434
97
3,145

931
2,915
470
29
40
28
4,413

1,080
811
57
424
420
126
2,918

7,813

7,331

2
5
13
-28
73
7
6

16
24
30
-33
3
-23
8

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
Other current liabilities
Total current liabilities

Total liabilities

Total equity and liabilities

2,062
542
46
207
2,857
53
2,910

245
24
64
2,113
2,446

628
1,445
18
86
280
2,457

1,968
513
-118
223
2,586
53
2,639

247
21
64
1,964
2,296

695
1,212
25
66
398
2,396

4,903

4,692

7,813

7,331

5
6
-139
-7
10
0
10

-1
14
0
8
7

-10
19
-28
30
-30
3

4.7
5.2
5.1
4.3

4.3
2.1
5.2
4.5

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

EQUiTy

(EURm)

Equity at 1 January 2021
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
Transactions with owners
Transactions with non-controlling interests
Supplementary payment related to 2020
Foreign currency translation adjustments
Total transactions with owners
Equity at 31 December 2021

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
Transactions with owners
Transactions with non-controlling interests
Supplementary payment related to 2019
Foreign currency translation adjustments
Total transactions with owners
Equity at 31 December 2020

Common capital

Individual capital

Other equity accounts

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s
u
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a
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203
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352
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315
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2,639

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

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 unallocated 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 currency translation 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 37 pER CENT

During 2021 equity increased by EUR 271 million
compared to last year and totalled EUR 2,910 million at
31 December 2021.

Transactions with farmer owners
A supplementary payment related to 2020 totalling
EUR 227 million was paid out in March 2021.
Additionally, EUR 20 million was paid out to owners
resigning or retiring from the cooperative, while an
amount of EUR 2 million was paid in. The Board of
Directors proposed to pay EUR 207 million in March
2022 as a supplementary payment including interest
on individual capital instruments for 2021. Furthermore,
it is expected that EUR 21 million will be paid out in
2022 to owners resigning or retiring.

Other equity adjustments
Other equity adjustments of EUR 170 million related to
other comprehensive income of EUR 171 million,
transactions with non-controlling interests of EUR -6
million and foreign exchange rate adjustments of EUR 5
million. Other comprehensive income included income
and expenses as well as gains and losses that are
excluded from the income statement and often not
realised at the balance sheet date. The net income of
EUR 171 million was due to positive value adjustments
on net assets measured in foreign currencies, positive
value adjustments on hedging instruments and
remeasurement of pension assets and liabilities.

The equity share of 37 per cent is calculated as equity
excluding non-controlling interests at EUR 2,857
million divided by total assets of EUR 7,813 million.

Development in equity
(EURm)

3,000

2,900

2,800

2,700

2,600

2,500

2,400

2,300

2,200

2,100

2,000

346

-227

170

2,910

-18

2,639

Equity including non-controlling
interests 1 January 2021

Proﬁt for the year

Supplementary payment
Other payments to farmer owners
related to 2020

Other equity adjustments

Equity including non-controlling
interests 31 December 2021

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

EQUiTy / CONTiNUED

Accounting policies and regulations according to Articles of Association and IFRS

Common capital
Recognised in 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 equity instruments
issued to owners. Furthermore, the capital account is
impacted by agreed contributions from new owners of
the cooperative.

Recognised in 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 offsetting
of material extraordinary losses or impairment in
accordance with 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 instruments
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
owner 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 derivatives
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
comprises the fair value adjustments of mortgage
credit bonds classified as financial assets measured at
fair value through other comprehensive income.

Reserve for foreign currency translation adjustments
comprises foreign 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 impairs 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
is recognised as part of the consolidated results and
equity, respectively, but is 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.

Milk payment to owners
The on-account settlement of owner milk is recognised
as a production cost in the income statement.

The supplementary payment is based on the result for
the year as part of the profit appropriation. The
supplementary payment is recognised as a reserve on
the equity statement until approved by the Board of
Representatives, based on a recommendation by the
Board of Directors.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

CASH fLOw

(EURm)

Note

2021

2020

(EURm)

Note

2021

2020

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

Acquisition of financial assets
Sale of financial assets
Sale of enterprises
Financial investing activities

3.3

2.1

5.1

3.1
3.2
3.2

948
-53
-80
-90
103
24
-45
8
-35
780

-45
-452
13
-484

-26
14
14
2

909
-28
53
4
-137
8
-53
3
-28
731

-53
-478
19
-512

-5
22
7
24

Cash flow from investing activities

-482

-488

Supplementary payment regarding the previous financial year
Transactions with owners
Transactions with non-controlling interests
New loans obtained
Other changes in loans
Payment of lease debt
Payment to pension plans
Cash flow from financing activities

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

4.3.c
4.3.c
4.3.c
4.3.c

-227
-18
-6
172
-147
-73
-31
-330

-32

126
3
97

-127
-22
-18
149
-173
-66
-36
-293

-50

187
-11
126

2021

2020

780
-484
296

780
-482
298

731
-512
219

731
-488
243

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Primary Statements

Contents

CASH fLOw / CONTiNUED

STRONG CASH fLOw fROM OpERATiNG ACTiViTiES TO SUppORT HiGH
iNVESTMENTS

Cash flow from operating activities increased by 6.7 per
cent to EUR 780 million compared to EUR 731 million
last year, mainly driven by higher EBITDA. Increased
prices resulted in more cash tied up in net working
capital; however, this was offset by settlement of
deferred VAT payments and duty declarations from
last year.

Cash flow from investing activities amounted to EUR
-482 million compared to EUR -488 million last year.
The overall investment level was consistent with last
year due to continuously high CAPEX investments
amounting to EUR 452 million, compared to EUR 478
million last year.

Cash flow from financing activities was EUR -330 million
compared to EUR -293 million last year, comprising
transactions with owners and other financing activities.
Transactions with owners comprised supplementary
payments of EUR 227 million in relation to the 2020
profit appropriation and further net payments of EUR
18 million. The net cash flow from other financing
activities was EUR -85 million, representing a green
bond issue in Sweden, offset by movements in
interest-bearing debt positions.

Combined cash and cash equivalents at 31 December
2021 were EUR 97 million, compared to EUR 126 million
last year. The movement was due to a net cash
outflow of EUR 32 million during 2021 and exchange
rate adjustments of cash funds of EUR 3 million.
An insignificant amount of cash and cash equivalents
at 31 December 2021 was deposited 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.

Development in cash ﬂow
(EURm)

1,000

948

-90

800

600

400

200

-200

-78

780

-482

298

-245

-85

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

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

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
profitability 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.

Basis for preparation
The consolidated financial statements are 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 the 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 that use similar measures.
Definitions are provided in the Glossary and Note 1.4.

The group's general accounting principles are disclosed
in Note 5.7, while accounting policies for the respective
areas are explained in relation to the individual notes.

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
details on how the exposure is managed.

Applying materiality
Our focus is to present information that is considered of
material importance to 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 readers 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
judgement in determining whether performance
obligations are achieved. Estimates are based on
historical experience and forecasted future sales.
Refer to Note 1.1 for more details.

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,
strategic ambitions and market data. The majority of
goodwill is allocated to activities in the UK. Refer to
Note 3.1.1 for more details.

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 associate. The classification is
based on an assessment of the level of influence
through board representation. Refer to Note 3.3 for
more details.

Valuation of inventory
Arla uses a standard cost model and estimates are
applied when assessing the historical cost price of
milk, utilities and other production-related costs.
Furthermore, 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 details.

Measurement of trade receivables
Allowance for doubtful trade receivable positions
requires estimates. Losses on trade receivables
recognised in the group are historically insignificant,
which is also the case this year.

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 to
benchmarks to ensure consistency on an annual basis
and in compliance with best practice. For the UK the
underlying pension liabilities are projected values for
individuals covered by the schemes. The underlying
values are updated on a triennial basis, most recently
performed in 2019, reflecting changes in members'
demographic data. Refer to Note 4.7 for more details.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
1.1 REVENUE

REVENUE iNCREASE DRiVEN By pRiCES

Development in revenue
(EURm)

Revenue increased by 5.2 per cent to EUR 11,202
million, compared to EUR 10,644 million last year.
The increase reflects general price increases and more
retail sales of branded volumes both in Europe and
internationally. Volume growth in food service and
commodity price increases in Global Industry Sales also
contributed to the revenue development.

Strategic branded sales volumes grew by 4.5 per cent,
compared to 7.7 per cent last year, driven by the Arla®
brand and milk-based beverages and other supported
brands.

Europe is Arla's largest commercial segment,
comprising 59.1 per cent of total revenue, compared to
60.2 per cent last year. Revenue in Europe increased to
EUR 6,621 million compared to EUR 6,413 last year.
The increase was driven by higher prices and stable
volumes. The strategic branded revenue in Europe grew
by 5.8 per cent despite volatility in the market. Branded
sales accounted for 55.3 per cent of revenue compared
to 53.0 per cent last year.

The International segment accounted for 18.8 per cent
of total revenue, compared to 18.6 per cent last year.
The share of branded sales was 86.0 per cent in
International, consistent with last year.

The revenue in International increased to EUR 2,101
million, compared to EUR 1,975 million last year, driven
by prices and generally increased volumes, partly offset
by foreign exchange movements in the US dollar.

Arla Foods Ingredients comprised 7.1 per cent of total
revenue, compared to 6.7 per cent last year. Revenue
increased to EUR 793 million compared to EUR 716
million last year. The increase was due to sales of
value-added products within the ingredients segment.

Global Industry Sales and other segments represented
15.0 per cent of total revenue and increased by 9.5 per
cent to EUR 1,687 million compared to EUR 1,541
million last year. The increase was due to increased
commodity prices during the year.

Revenue was positively impacted by foreign exchange
rate movements of EUR 54 million, primarily driven by
SEK and GBP.

11,500

11,200

10,900

10,600

10,300

10,000

10,644

2020

432

11,202

Selling prices

Volume/mix

Currency

2021

Revenue split by commercial segment,
2021

Revenue split by commercial segment,
2020

11,202

MILLION EUR

10,644

MILLION EUR

Europe 59%
International 19%
Arla Foods Ingredients 7%
Global Industry Sales and other sales 15%

Europe 60%
International 19%
Arla Foods Ingredients 7%
Global Industry Sales and other sales 14%

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
1.1 REVENUE

Table 1.1.a Revenue split by country
(EURm)

2021

2020

Share of revenue in 2021

Accounting policies

Uncertainties and estimates

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
disclosures.

United Kingdom
Sweden
Germany
Denmark
Netherlands
China
Saudi Arabia
Finland
USA
UAE
Other*
Total

2,891
1,546
1,301
1,082
598
419
342
309
215
206
2,293
11,202

2,740
1,478
1,267
1,031
526
368
352
316
177
201
2,188
10,644

26%

14%

12%

10%

5%
4%
3%
3%
2%
2%

19%

*Other countries include, among others, Belgium, Canada, Oman, Spain, Nigeria, France, Australia.

Table 1.1.a represents 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 28
to 35.

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

2021

2020

3,359
646
383
192
293
599
5,472

3,116
638
427
177
232
566
5,156

794
4,936
11,202

716
4,772
10,644

Revenue is recognised when a contract exists 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 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 regard to
a financing component in the contracts with customers
is not required.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
1.2 OpERATiONAL COSTS

INfLATiON AND HiGHER COST Of RAw MiLK

Development in operational costs
(EURm)

Operational costs were EUR 10,822 million, which
is an increase of 5.9 per cent compared to last year.
This development was mainly driven by higher milk
costs, primarily to owners, and by inflation on other
production and distribution-related costs, partly offset
by Calcium savings.

Production costs increased by 6.3 per cent to EUR 8,822
million from EUR 8,301 million last year. Excluding
costs relating to raw milk, production costs increased
to EUR 3,599 million from EUR 3,459 million last year.
The increase related to a more expensive production
mix meeting the demand for more branded products
and the effect of inflation resulting in higher costs of
utilities, such as electricity and other production-related
materials. Excluding the effect from inflation, Calcium
savings amounted to EUR 133 million in 2021. Refer to
pages 16-17 for more details on Calcium initiatives.

Sales and distribution costs increased by 6.1 per cent
to EUR 1,573 million compared to EUR 1,483 million
last year. Driver shortages in the UK and increased
fuel prices were the main reasons. Research and
development costs amounted to EUR 89 million,
compared to EUR 72 million last year.

Administration costs decreased 2.7 per cent to EUR
427 million compared to EUR 439 million last year due
to cost control and non-recurring one-offs in 2020,
partly offset by salary increases.

Cost of raw milk
The cost of raw milk increased by 7.9 per cent to EUR
5,223 million compared to EUR 4,842 million last year.
The increase was driven by higher milk prices.

Owner milk
Costs related to owner milk increased by EUR 398
million due to a higher average prepaid milk price.

Other milk
The cost of Other milk decreased by EUR 17 million
due to lower volumes, partly offset by higher prices.
Other milk consists of speciality milk and other contract
milk acquired to meet local market demands.

Staff costs and FTE
Staff costs increased by 1.1 per cent to EUR 1,360 million
compared to EUR 1,345 million last year. Staff costs
increased due to additional FTEs from insourcing
activities and due to salary increases, partly offset by
non-recurring items in 2020.

The total number of FTEs increased to 20,617
compared to 20,020 last year. Refer to the ESG section,
Note 1.2, for further details on the FTE development.

Marketing spend
The marketing spend was consistent with last year
and amounted to EUR 238 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
by 6.4 per cent to EUR 480 million compared to EUR
451 million last year. The increase was primarily due
to higher CAPEX investments, including the powder
production capacity in Germany, cheese production
facilities in Bahrain and an expansion of the mozzarella
production facilities in Denmark.

260

-133

10,822

381

11,000

10,800

10,600

10,400

10,223

10,200

10,000

2020

Milk costs

Inﬂation

Currency

2021

Volume/mix and other
Calcium, net of
changes in operational costs
reinvestments

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
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
Transport costs
Marketing costs
Depreciation, amortisation and impairment
Other costs**
Total

*Other production materials include packaging, additives, consumables, variable energy and changes in inventory.
**Other costs mainly include maintenance, utilities and IT.

Costs split by type,
2021

Costs split by type,
2020

10,822

MILLION EUR

10,223

MILLION EUR

Weighed-in raw milk 48%
Other production materials* 18%
Staff costs 13%
Transport costs 7%
Marketing costs 2%
Depreciation, amortisation and impairment 4%
Other costs** 8%

Weighed-in raw milk 47%
Other production materials* 18%
Staff costs 13%
Transport costs 6%
Marketing costs 3%
Depreciation, amortisation and impairment 5%
Other costs** 8%

2021

2020

Table 1.2.b Weighed-in raw milk

2021

2020

8,822
1,573
427
10,822

8,301
1,483
439
10,223

Owner milk
Other milk
Total

5,223
1,959
1,360
718
238
480
844
10,822

4,842
1,860
1,345
640
248
451
837
10,223

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 relate to:
Production costs
Sales and distribution costs
Administration costs
Total

Mkg

12,518
1,128
13,646

EURm

4,762
461
5,223

Mkg

12,638
1,231
13,869

EURm

4,364
478
4,842

2021

2020

1,177
83
5
95
1,360

756
394
210
1,360

1,166
83
4
92
1,345

729
383
233
1,345

Average number of full-time employees

20,617

20,020

Table 1.2.d Depreciation, amortisation and impairment
(EURm)

Intangible assets, amortisation and impairment
Property, plant and equipment and RoU assets, depreciation and impairment
Total

Depreciation, amortisation and impairment relate to:
Production costs
Sales and distribution costs
Administration costs
Total

2021

2020

74
406
480

329
75
76
480

70
381
451

316
80
55
451

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
1.2 OpERATiONAL COSTS

Revenue and costs
1.3 OTHER OpERATiNG iNCOME AND COSTS

Accounting policies

pOSiTiVE HEDGiNG iMpACT

Accounting policies

Production costs
Production costs cover direct and indirect costs related
to production, including volume movements in inventory
and related inventory revaluation. Direct costs comprise
purchase of milk from owners, inbound transport
costs, packaging, additives, consumables, energy and
variable salaries directly related to production. Indirect
costs comprise other costs related to production
of goods, including depreciation and impairment
losses on production-related materials 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,
sponsorships, 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, such as the development of marketing
campaigns, advertisement, exhibits, and others.

Administration costs
Administration costs relate to management and
administration, including administrative staff, office
premises and office costs, as well as depreciation
and impairment.

Other operating income and costs, net, amounted to
EUR 35 million, compared to EUR 9 million last year.
This was primarily attributable to positive effects from
energy commodity hedges, negative effects from
currency hedges, sale of fixed assets and other items
that were not part of the regular dairy business.

Other operating income and costs consist of items
outside the regular course of dairy business activities,
including 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, this item includes gains and losses from
the disposal of fixed assets no longer used within our
dairy operations.

Table 1.3 Other operating income and costs
(EURm)

Sale of electricity
Income from hedging instruments transferred from equity
Gain on disposal of intangible assets and PP&E
Other items
Other operating income

Cost related to sale of electricity
Cost of hedging instruments transferred from equity
Other items
Other operating costs

2021

2020

28
36
17
29
110

-24
-38
-13
-75

24
14
15
8
61

-29
-12
-11
-52

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Revenue and costs
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

fiNANCiAL COMMENTS

Arla's performance price is a key measure of the overall
performance, expressing the value added to each kg 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 attributable to farmer owners, divided by
the weighed-in milk volume in 2021. The performance
price was 39.7 EUR-cent/kg owner milk, compared to
36.5 EUR-cent/kg owner milk last year.

Table 1.4.1 Performance price

2021

2020

EURm

Mkg EUR-cent/
kg

EURm

Mkg EUR-cent/
kg

Table 1.4.2 Strategic branded volume-driven revenue growth
(EURm)

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, %

2021

2020

5,156
230
86
5,472

4,867
378
-89
5,156

4.5%

7.7%

Strategic branded VDRG is calculated as the volume growth of EUR 230 million divided by EUR 5,156 million and equals
4.5 per cent in 2021.

Owner milk
Adjustment to standard milk
(4.2% fat, 3.4% protein)
Arla Foods amba's share of profit
for the year
Total

4,762

12,518*

38.0

4,364

12,638*

332

12,518

-1.0

2.7
39.7

345

12,638

34.5

-0.7

2.7
36.5

Note 1.4.3 Profit share

fiNANCiAL COMMENTS

The profit share of Arla is targeted at 2.8-3.2 per cent of
revenue, calculated from the profit attributable to our
farmer owners.

For 2021, the profit attributable to our farmer owners
amounted to EUR 332 million compared to EUR 345

million last year. This corresponded to 3.0 per cent of
revenue, or 2.7 EUR-cent per kilo of milk delivered, and was
distributed to the supplementary payment and retainment
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 of strategic brands is a performance measure
applied to support and understand the non-price
revenue growth and performance of our branded
business.

Strategic branded VDRG increased by 4.5 per cent
in 2021 on top of the significant increase last year
of 7.7 per cent. Continued high demand for 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

2021

2020

11,202
346
-14
332
3.0%

10,644
352
-7
345
3.2%

Profit share is calculated as EUR 332 million divided by EUR 11.202 million and equals 3.0 per cent in 2021.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Net working capital
2.1 NET wORKiNG CApiTAL, OTHER RECEiVABLES AND CURRENT LiABiLiTiES

NET wORKiNG CApiTAL pOSiTiON DRiVEN By HiGHER pRiCES
AND iNVENTORy VOLUMES

Net working capital increased by EUR 131 million to
EUR 810 million, representing an increase of 19.3 per
cent compared to last year. This increase was due to
deliberately reduced use of trade receivable finance
programmes, higher prices and inventory values.
We continuously strive to optimise our net working
capital positions through initiatives such as increased
use of global procurement agreements, optimisation of
inventory levels, improved payment terms, as well as
utilisation of finance programmes with customers and
suppliers when relevant.

Inventory
Inventory increased by EUR 168 million to EUR 1,248
million, compared to EUR 1,080 million last year. The
increase, corresponding to 15.6 per cent, was primarily
driven by higher milk prices. Excluding currency effects,
the carrying amount of inventory increased by EUR 132
million.

Trade receivables
Trade receivables increased by EUR 196 million to EUR
1,007 million, compared to EUR 811 million last year.
Excluding currency effects, the carrying amount of trade
receivables increased by EUR 172 million. This was
driven mainly by increased selling prices and reduced
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 2021, 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.

During the Covid-19 pandemic and onwards, we
have carefully monitored the development in trade
receivables. We have not experienced any significant
adverse developments in overdues, and the provision
for expected losses increased by EUR 1 million to a level
of EUR 15 million at 31 December 2021.

Trade and other payables
Trade and other payables increased by EUR 233 million
to EUR 1,445 million, compared to EUR 1,212 million
last year. Excluding currency effects, the carrying
amount of trade and other payables increased by EUR
192 million. Continued utilisation of global contracts,
focus on payment terms and use of supply chain
finance programmes were the main reasons for the
development.

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 the due date via the
funding partner. The arrangement of early payment is
an exclusive transaction between the supplier and the
supply chain finance provider.

Supply chain finance programmes are applied on EUR
221 million of the total trade and other payables
position, compared to EUR 183 million last year.

Extended payment terms are not embedded in the
programmes themselves but agreed with vendors
directly. The liquidity risk for Arla on termination of the
programmes is limited. The payment terms for suppliers

participating in the programmes are no more than 180
days. Increased utilisation of supply chain finance
programmes had a positive impact on the net working
capital level compared to last year.

Other receivables and other current liabilities
Other receivables decreased by EUR 139 million to EUR
285 million compared to EUR 424 million last year, mainly

driven by postponed VAT claims from last year. Other
current liabilities decreased by EUR 118 million to EUR
280 million, compared to EUR 398 million last year. This
was due to the settlement of employee income tax
payments from last year and settlement of holiday
accruals.

Development in net working capital
(EURm)

1,200

1,100

1,000

900

800

700

600

170

-192

132

-24

810

679

1 January 2021

Inventory

Trade receivables

Trade and other payables
excluding owner milk

Owner milk

Currency

31 December 2021

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Net working capital
2.1 NET wORKiNG CApiTAL, OTHER RECEiVABLES AND CURRENT LiABiLiTiES

Net working capital
(EURm)

1,175

970

1,103

894

1,000

823

1,500

1,000

500

2017

2018

2019

Net working capital excluding payables related to owner milk

Net working capital

867

679

2020

1,022

810

2021

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

Cash flow

Included in
operating
cash flow

1 January

Non-cash changes

Write-
downs

Currency

Reclassi-
fications

31
December

Table 2.1.d Trade receivables' age profile
(EURm)

2021

2020

1,269
-21
1,248

274
382
592
1,248

1,119
-39
1,080

265
319
496
1,080

2021

2020

1,022
-15
1,007

825
-14
811

2021

2020

Gross
carrying
amount

Expected
loss rate

Gross
carrying
amount

Expected
loss rate

1,080
811

-1,212
679

1,092
889

-1,158
823

135
171

-216
90

113
-51

-66
-4

-3
-1

-
-4

-23
1

-
-22

36
26

-17
45

-44
-24

11
-57

-
-

-58
-4

1
-61

1,248
1,007

-1,445
810

1,080
811

-1,212
679

Not overdue
Overdue by less than 30 days
Overdue by between 30 and 89 days
Overdue by more than 90 days
Total trade receivables before provision for expected losses

837
119
38
28
1,022

0%
0%
3%
50%

682
93
26
24
825

0%
0%
4%
54%

Historically, experienced loss rates on balances not overdue or overdue by less than 30 days are below 1 per cent.

Table 2.1.a Net working capital
(EURm)

2021
Inventory
Trade receivables
Trade and
other payables
Total net working capital

2020
Inventory
Trade receivables
Trade and
other payables
Total net working capital

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Net working capital
2.1 NET wORKiNG CApiTAL, OTHER RECEiVABLES AND CURRENT LiABiLiTiES

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 and commercial
goods includes the purchase price plus delivery costs.
The prepaid milk 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 flows.

Expected losses are assessed for major individual
receivables or in groups at 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 amortised 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 the number of days
overdue adjusted for significant negative developments
in certain geographical areas.

The financial uncertainty associated with the 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 the exact amounts
to be settled and the timing of these settlements.

Finance programmes
The classification of trade receivable finance
programmes and supply chain finance programmes
is subject to judgement. The utilisation of these
programmes is recognised in net working capital.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
3.1 INTANGiBLE ASSETS

STABLE LEVEL Of iNTANGiBLE ASSETS AND GOODwiLL

Intangible assets and goodwill amounted to EUR 946
million, representing an increase of EUR 15 million
compared to last year.

Goodwill
The carrying value of goodwill amounted to EUR 710
million, compared to EUR 667 million last year. This
increase was due to exchange rate movements. Of the
total carrying value of goodwill, EUR 498 million related
to activities in the UK, compared to EUR 462 million last
year. Refer to Note 3.1.1 for more details.

Licences and trademarks
The carrying value of licences and trademarks
amounted to EUR 76 million, compared to EUR 81
million last year. The carrying amount primarily relates
to the 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 amounts are recognised for these. Arla has
the licence to manufacture, distribute and market
StarbucksTM premium ready-to-drink coffee beverages
under a long-term strategic licence agreement.
Additionally, Arla holds a long-term licence agreement
to manufacture, distribute and market KraftTM branded
cheese products in the MENA region. No values are
recognised due to these licence agreements.

IT and other development projects
The carrying amount of IT and other development
projects was EUR 160 million, compared to EUR 183
million last year. The group continued to invest in the
development of IT. In 2021, 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,
2021

Intangible assets and goodwill,
2020

946

MILLION EUR

931

MILLION EUR

Goodwill 75%
Licences and trademarks 8%
IT and other development projects 17%

Goodwill 72%
Licences and trademarks 8%
IT and other development projects 20%

Table 3.1.a Intangible assets and goodwill
(EURm)

Goodwill

Licence and
trademarks

IT and other
development
projects

2021
Cost at 1 January
Exchange rate adjustments
Additions
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

2020
Cost at 1 January
Exchange rate adjustments
Additions
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

667
43
-
-
710
-
-
-
-
-
710

700
-33
-
-
667
-
-
-
-
-
667

163
3
-
-
166
-82
-1
-7
-
-90
76

173
-2
-
-8
163
-83
1
-8
8
-82
81

513
2
45
-2
558
-330
-3
-67
2
-398
160

472
1
53
-13
513
-280
-1
-62
13
-330
183

Total

1,343
48
45
-2
1,434
-412
-4
-74
2
-488
946

1,345
-34
53
-21
1,343
-363
-
-70
21
-412
931

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
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.

Table 3.1.b Goodwill split by commercial segment and country
(EURm)

2021

2020

GOODwiLL SUppORTED By fUTURE26 OUTLOOK

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
flows derived from forecasts and long-term strategic
targets. Future cash flows and earnings targets are
projected for individual cash-generating units, based
on expected developments identified in the Future26
process as well as past experience. The impairment tests
do not include revenue growth in the terminal value.

Procedure for impairment tests
Impairment tests of goodwill are based on an assessment
of their value in use. Milk costs in the forecast are
recognised at a milk price that corresponds to the price

at the time the test was performed and longer-term. The
key operational assumption is future profitability based
on a combination of the impact from moving milk intake
into value-add products and more profitable markets and
operational efficiency initiatives.

Test results
There was no identified impairment of goodwill at year-
end. Sensitivities to changes in milk prices and discount
rates were calculated. The discount rate could rise up to
3 percentage points in the UK and 1 percentage point
in Finland before goodwill could be at risk of being
impaired. Goodwill allocated to other markets was
tested applying similar assumptions. It is not likely that
any reasonable change in those assumptions would
lead to an impairment.

UK
Finland
Sweden
Other
Europe total

MENA
International

Argentina
Arla Foods Ingredients
Total

498
40
22
63
623

78
78

9
9
710

462
40
22
63
587

72
72

8
8
667

Table 3.1.1 Impairment tests
(EURm)

2021
UK
Finland
Sweden
Europe other
MENA
Arla Foods ingredients

2020
UK
Finland
Sweden
Europe other
MENA
Arla Foods ingredients

Applied key assumptions

Discount rate,
net of tax

Discount rate,
before tax

6.5%
5.6%
6.1%
5.7%
12.0%
6.3%

6.1%
5.5%
5.9%
5.4%
11.6%
6.0%

7.2%
6.0%
6.7%
6.3%
13.7%
7.0%

6.8%
6.0%
6.6%
6.0%
13.0%
6.7%

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
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
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 belongs.

An impairment loss on other non-current assets is
recognised in the income statement under production
costs, selling 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 anticipations of future free
cash flows and assumptions on discount rates.

Anticipated future free cash flows
The anticipated future free cash flows are based on
current forecasts and long-term 2026 targets derived
from the Future26 process. These are determined at
cash-generating unit 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 subject to
judgement by nature. They include expectations
regarding revenue growth, EBIT margins and capital
expenditure. The assumptions include moving milk
intake into value-add products and more profitable
markets and operational efficiency 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.

Discount rates
A discount rate, namely weighted average cost of
capital (WACC), is applied for specific cash-generating
units based on assumptions regarding interest 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.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
3.2 pROpERTy, pLANT AND EQUipMENT

Expanding production capacities

Arla's main property, plant and equipment are located in
Denmark, the UK, Germany and Sweden. The carrying
amount increased to EUR 3,072 million compared to
EUR 2,915 million last year. The increase amounted
to EUR 157 million, driven by high CAPEX investment
levels and currencies.

Key investments in 2021 included continued expansion
of the powder production capacity in Germany, further
investments in the production facilities in Bahrain,
a new AFI innovation center and expansion of the
mozzarella production capacity in Denmark.

Property, plant and equipment
by country, 2021

Property, plant and equipment
by country, 2020

3,072

MILLION EUR

2,915

MILLION EUR

Denmark 45%
Sweden 10%
UK 19%
Germany 15%
Other 11%

Denmark 46%
Sweden 11%
UK 19%
Germany 14%
Other 10%

Table 3.2.a Property, plant and equipment
(EURm)

2021
Cost at 1 January
Exchange rate adjustments
Additions
Transferred from assets under construction
Disposals
Reclassifications
Cost at 31 December
Depreciation and impairment at 1 January
Exchange rate adjustments
Depreciation and impairment for the year
Depreciation on disposals
Reclassifications
Depreciation and impairment at 31 December
Carrying amount at 31 December
Right of use assets included in the carrying amount

2020
Cost at 1 January
Exchange rate adjustments
Additions
Transferred from assets under construction
Disposals
Reclassifications
Cost at 31 December
Depreciation and impairment at 1 January
Exchange rate adjustments
Depreciation and impairment for the year
Depreciation on disposals
Depreciation and impairment at 31 December
Carrying amount at 31 December
Right of use assets included in the carrying amount

Land
and
buildings

Plant
and
machinery

Fixtures
and
fittings,
tools and
equipment

Assets
under
construc-
tion

1,770
38
104
100
-27
2
1,987
-764
-9
-78
15
-2
-838
1,149
141

1,666
-17
81
66
-26
-
1,770
-705
1
-73
13
-764
1,006
136

3,471
45
133
169
-46
28
3,800
-2,219
-29
-251
38
-28
-2,489
1,311
8

3,152
-13
102
195
-23
58
3,471
-2,021
5
-234
31
-2,219
1,252
13

724
20
53
12
-32
5
782
-520
-11
-77
30
-5
-583
199
81

685
-14
60
28
-35
-
724
-474
4
-74
24
-520
204
80

453
11
231
-281
-1
-
413
-
-
-
-
-
-
413
-

407
-2
337
-289
-
-
453
-
-
-
-
-
453

Total

6,418
114
521
-
-106
35
6,982
-3,503
-49
-406
83
-35
-3,910
3,072
230

5,910
-46
580
-
-84
58
6,418
-3,200
10
-381
68
-3,503
2,915
229

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
3.2 pROpERTy, pLANT AND EQUipMENT

Investments in and depreciation of property, plant and equipment and right of use assets
(EURm)

Accounting policies

600

400

248

200

2017

506
81

425

367

297

580

102

478

381

314

521

452

406
74

332

383

298

306

2018

2019

2020

2021

Right of use assets
Depreciation of property, plant and equipment
Investments in property, plant and equipment

Table 3.2.b Estimated useful life in years
(EURm)

Office buildings
Production buildings
Technical plant
Other fixtures and fittings, tools and equipment

2021

2020

50
20-30
5-20
3-7

Property, plant and equipment are 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
amount 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 amount 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 in production costs, selling 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 in 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.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
3.2 pROpERTy, pLANT AND EQUipMENT

3.2.1 Right of use assets

fiNANCiAL COMMENTS

Arla leases various offices, warehouses, vehicles and
other equipment. Leases 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.

Additions to right of use assets during the year amounted
to EUR 69 million, compared to EUR 102 million last year.
The total carrying amount of right of use assets was EUR
230 million, compared to EUR 229 million last year, as
specified in table 3.2.1.a. Lease liabilities are specified in
Note 4.3.

Filling machinery and other technical plants represent
another major right of use asset category. Filling
machines typically have useful lives of seven years,
whereas other technical plants are depreciated
between one and seven years. Cars and trucks have on
average useful lives of four and five years, respectively.
In total, the group has approximately 4,000 leases.

Table 3.2.1.a Right of use assets
(EURm)

2021
Carrying amount at 1 January
Additions
Disposals
Depreciation and amortisation for the year
Depreciation on disposals
Exhange rate adjustments
Carrying amount at 31 December

2020
Carrying amount at 1 January
Additions
Disposals
Depreciation and impairment for the year
Depreciation on disposals
Exhange rate adjustments
Carrying amount at 31 December

Land and
buildings

Plant and
machinery

Fixtures and
fittings, tools
and equipment

136
30
-5
-31
5
6
141

109
55
-8
-23
5
-2
136

13
4
-7
-9
6
1
8

21
4
-8
-10
6
-
13

80
35
-18
-34
16
2
81

78
43
-19
-34
13
-1
80

Table 3.2.1.b Amounts recognised in the income statement
(EURm)

Expenses related to short-term and low-value leases
Interest expenses on lease liabilities
Total amounts recognised in the income statement

Payment of lease debt
Total cash outflow from right of use assets

Accounting policies

2021

2020

38
7
45

73
118

39
8
47

67
114

Leases 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.

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.

Total

229
69
-30
-74
27
9
230

208
102
-35
-67
24
-3
229

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 payments 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.

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 have a lease term of less than one
year. Low-value assets have an individual value of less
than EUR 5 thousand.

Uncertainties and estimates

The group has applied estimates and judgements with
an impact on the recognition and measurement of
right of use assets and lease liabilities. This includes an
assessment of the incremental borrowing rate, service
components and facts and circumstances that could
create an economic incentive to utilise the extension
options of lease arrangements.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Capital employed
3.3 jOiNT VENTURES AND ASSOCiATES

Financial comments

The share of the profit or loss in joint ventures and
associates increased by 82 per cent to EUR 53 million
compared to EUR 28 million last year, and relates
primarily to the profit or loss 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 416
million, compared to EUR 343 million last year. The carrying
amount of the investment in CDH includes goodwill
amounting to EUR 149 million, compared to EUR 138
million last year driven by the development in HKD and CNY.

The fair value of the indirect share in Mengniu equals
EUR 1,043 million, compared to EUR 1,024 million
last year based on the official listed share price at
31 December 2021.

The investment in CDH is part of the China business
unit and is currently managed in China, along with
sales activi ties with similar characteristics. The need
for impairment of the investment is tested at the China

business unit level, using the expected future net
cash flow. Impairment risks include substantial and
long-term reductions in leading share 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 amount of the investment, there
is no indication of impairment. Mengniu reported
group revenue of EUR 9,664 million and a profit of
EUR 445 million in 2020. 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 amount of joint ventures decreased
to EUR 20 million compared to EUR 40 million last
year. The decrease results from the sale of Biolac
in November 2021. The remaining value primarily
relates to the German joint venture ArNoCo. The
carrying amount does not include goodwill.

Recognised value of associates and
joint ventures, 2021

Recognised value of associates and
joint ventures, 2020

Table 3.3.a Associates and Joint ventures
Value of associates and joint ventures
(EURm)

Share of equity in COFCO Dairy Holdings Ltd.
Goodwill in COFCO Dairy Holdings Ltd.
Share of equity in immaterial associates
Recognised value of associates

Share of equity in immaterial joint ventures
Recognised value of associates and joint ventures

Table 3.3.b COFCO Dairy Holdings Ltd.
Disclosures of financial information*
(EURm)

Revenue
Net profit/loss
Non-current assets
Dividends received
Ownership share
Group share of net profit/loss
Recognised value

2021

2020

267
149
94
510

20
530

205
138
87
430

40
470

2021

2020

-
-23
729
12
30%
36
416

16
16
702
0
30%
21
343

530

MILLION EUR

470

MILLION EUR

Share of equity in CDH/Mengniu 50%
Goodwill in CDH/Mengniu 28%
Share of equity in immaterial associates 18%
Share of equity in immaterial joint ventures 4%

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%

COFCO Dairy Holdings Ltd. has no other significant assets or liabilities.
* Based on latest available financial reporting

Fair value based on listed share price

1,043

1,024

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

2021

2020

56
68
13
-5

109
68
30
-7

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

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 a significant
influence in 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 of LRF
and both Arla and our Swedish owners are individual
members of LRF.

Capital employed
3.3 ASSOCiATES AND jOiNT VENTURES

Accounting policies

Investments in which Arla has a significant but not
controlling influence are classified as associates.
Investments in which Arla has joint control are classified
as joint ventures.

The proportionate share of the net profit or loss in
associates and joint ventures is recognised in the
consolidated income statement, after elimination of the
proportionate share of unrealised inter-company profits
or losses.

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 flows 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-
accounted investment (or CGU).

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 inter-company profits and the
carrying amount of goodwill is added, whereas the
proportionate share of unrealised inter-company 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 revalued
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 loss in the associate or joint venture, the loss 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 are
indications of impairment, such as significant adverse
changes in the environment in which the equity-
accounted investee operates, or a significant or
prolonged decline in the fair value of the investment
below its carrying amount.

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 a 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 associate based on a cooperation
agreement extending significant influence including the
right to representation on the Board. 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 exercises a significant
influence in Mengniu.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

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, while 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
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

Liquidity reserves, 2021

Liquidity reserves, 2020

2021

2020

97
12
689
167
965

126
18
326
12
482

4.1.1 Liquidity reserves

STRONG LiQUiDiTy RESERVES

Liquidity reserves increased by EUR 483 million to EUR
965 million in 2021. Looking at the maturity profile
of the group's debt and the forecasted cash flow, the
liquidity reserves are considered strong and expected to
decrease to an adequate level during 2022.

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 trade receivables
financing relating to customers form part of the group's
liquidity management. Selected suppliers have access
to the group's supply chain finance facilities, which
allow those suppliers to benefit from the group's
credit profile.

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
the transferability of cash exist. However, the balances
of cash deemed trapped are insignificant.

965

MILLION EUR

482

MILLION EUR

Cash and cash equivalents 10%
Securities (free cash flow) 1%
Unutilised committed loan facilities 72%
Unutilised other loan facilities 17%

Cash and cash equivalents 26%
Securities (free cash flow) 4%
Unutilised committed loan facilities 68%
Unutilised other loan facilities 2%

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

Table 4.1.1.b Contractual expected non-discounted cash flows from gross financial liabilities
(EURm)

2021
Issued bonds
Mortgage credit institutions
Credit institutions
Lease liabilities
Other current liabilities
Interest expenses – interest-bearing debt
Trade and other payables
Derivative instruments
Total

2020
Issued bonds
Mortgage credit institutions
Credit institutions
Lease liabilities
Other current liabilities
Interest expenses – interest-bearing debt
Trade and other payables
Derivative instruments
Total

Carrying
amount

440
1,033
1,036
233
15
-
1,445
86
4,288

Carrying
amount

399
1,042
986
233
70
-
1,212
66
4,008

Non-discounted contractual cash flows

Total

2022

2023

2024

2025

2026

2027

2028

2029-2031

After 2031

444
1,040
1,038
233
15
65
1,445
86
4,366

-
11
599
60
15
14
1,445
47
2,191

149
11
194
50
-
11
-
13
428

149
12
243
35
-
6
-
7
452

-
87
1
27
-
5
-
5
125

146
50
1
19
-
3
-
2
221

-
55
-
16
-
3
-
1
75

-
61
-
7
-
2
-
1
71

-
249
-
14
-
7
-
4
274

-
504
-
5
-
14
-
6
529

Non-discounted contractual cash flows

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

Assumptions
The contractual cash flows are based on the following assumptions:
• The cash flows are based on the earliest possible date at which the group can be required to settle the financial liability
• The interest rate cash flows are based on the contractual interest rate. Floating interest payments have been determined using the current floating rate for each item at the reporting date

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

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 policy states 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 years, net debt

2021

2020

Minimum

Maximum

Policy

5.8 years
0%
100%

5.0 years
0%
84%

2 years
-
50%

-
25%
-

How we act and operate
In addition to the treasury and funding policy, the
Board of Directors has 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
investing in the business. It is the group's objective
to maintain its credit quality at a robust investment
grade level.

a positive or negative amount is recognised in other
income or other costs, respectively. A net loss of EUR
31 million was recognised in other costs compared to
a gain of EUR 17 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 40 million compared to the
revenue reported last year. Simultaneously, costs
decreased by EUR 27 million compared to last year's
reported costs. 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 in other comprehen-
sive income as foreign currency translation adjustments.
In 2021, a net gain of EUR 132 million was recognised in
other comprehensive income compared to a net loss of
EUR 84 million last year.

Indirectly the prepaid milk price absorbs both
transaction and translation effects, and the net profit
or loss therefore has limited exposure to currency
risks. The prepaid milk price is set based on achieving
an annual profit of 2.8 to 3.2 per cent. The prepaid
milk price is initially measured and paid out based on
a EUR amount and is consequently exposed to EUR
fluctuations against GBP, SEK and DKK.

Compared to last year, the average rate of the USD
weakened by 4 per cent, whereas the GBP and SEK
strengthened by 3 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
less efficient currency markets represented 4 per cent
of the group's revenue in 2021.

4.1.2 Currency risk

Revenue split by currency,
2021

Revenue split by currency,
2020

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 13
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 in financial income or financial costs. A net
loss of EUR 28 million was recognised in financial costs
compared to a loss of EUR 25 million last year. Exchange
rate losses relate primarily to the devaluations of the
Lebanese, Nigerian and Argentine currencies, which
amounted to EUR 21 million.

To manage short-term volatility from currency
fluctuations, derivatives are used to hedge the currency
exposure. When settling the hedging instrument,

11,202

MILLION EUR

10,644

MILLION EUR

EUR 31%
USD 9%

GBP 25%
SAR 3%

SEK 13%
Other 8%

DKK 11%

EUR 30%
USD 9%

GBP 25%
SAR 3%

SEK 13%
Other 8%

DKK 12%

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

Table 4.1.2.a Exchange rates

EUR/GBP
EUR/SEK
EUR/DKK
EUR/USD
EUR/SAR

2021

0.839
10.241
7.437
1.133
4.253

Closing rate
2020

Change

2021

Average rate
2020

Change

Risk mitigation

0.903
10.081
7.441
1.230
4.616

7.1%
-1.6%
0.1%
7.9%
7.9%

0.860
10.145
7.437
1.182
4.434

0.889
10.483
7.454
1.140
4.279

3.3%
3.2%
0.2%
-3.7%
-3.6%

Table 4.1.2.b Currency exposure

Balance sheet
exposure

Potential
accounting impact

Open
positions

Hedging
of future
cash flows

External
exposure Sensitivity

Income
statement

Other
compre-
hensive
income

2021
EUR/DKK
USD/DKK*
GBP/DKK
SEK/DKK
SAR/DKK

2020
EUR/DKK
USD/DKK*
GBP/DKK
SEK/DKK
SAR/DKK

*Incl. AED

-86
44
25
12
9

-94
10
-9
-35
8

278
-252
-418
-49
-176

-10
-197
-415
-87
-187

192
-207
-393
-37
-167

-104
-187
-424
-122
-179

1%
5%
5%
5%
5%

-1
2
1
1
-

-1
1
-
-2
-

3
-13
-21
-2
-9

-
-10
-21
-4
-9

The group's external exposure is calculated as external
financial assets and liabilities denominated in currencies
other than the functional currency of each legal entity,
plus any external derivatives converted at 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 is 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
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 receiva-

bles and trade payables.

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.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

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 1.0 to 3.6.

The duration increased due to new interest rate hedges
partly offset by a reduction in time to maturity of the
remaining hedges.

Table 4.1.3 Sensitivity based on a 1 percentage point increase in interest rates
(EURm)

2021
Financial assets
Derivatives

Financial liabilities
Net interest-bearing debt
excluding pension liabilities

2020
Financial assets
Derivatives
Financial liabilities
Net interest-bearing debt
excluding pension liabilities

Potential
accounting impact

Carrying
amount

Sensitivity

Income
statement

Other
comprehen-
sive income

-536
-

2,757

2,221

-550
-
2,730

2,180

1%
1%

1%
1%
1%

5
6

-12

-1

6
5
-13

-2

-1
56

-1
42
-

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 in comprehensive income.
Profit exposure relates to net potential impairment
of non-current assets. Other comprehensive income
exposure relates to revaluation of net pension liabilities
and interest hedging of future cash flows.

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 opposite effect.

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 at
31 December 2021. 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.

Duration

3.6

2.6

2021

2020

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 derivatives 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. This allows
the group to 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,
such as 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.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

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 production and
distribution costs.

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 opposite effect.

Policy
According to the treasury and funding policy, the
forecasted consumption of 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 into financial derivative contracts,
which are 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 be effectively hedged by matching
the underlying costs, but Arla aims to minimise the
basic risk.

Dairy derivative markets in the EU, the US and
New Zealand remain small but are evolving. The group
has engaged in hedging activities for a small 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 to hedge commodity price risk.
This secures full flexibility to change suppliers without
having to take future hedging into consideration.

Hedging activities focus 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 at the start of the year, and with the prices at
31 December 2021 the total energy commodity spend
has increased to EUR 350 million for 2022.

The purpose of hedging is to reduce volatility in energy-
related costs. In 2021, hedging activities resulted in
a gain of EUR 29 million compared to a loss of EUR
15 million last year. However, the gain in 2021 was
more than offset by significantly higher physical energy
costs. The result of hedging activities, classified as hedge
accounting, is recognised in other income and costs.

At the end of 2021, 25 per cent of the energy spend for
2022 was hedged. A 25 per cent increase in commodity
prices would negatively impact profit by approximately
EUR 66 million. Conversely, other comprehensive
income would be positively impacted by EUR 14 million.

Table 4.1.4 Hedged commodities
(EURm)

2021
Diesel/natural gas
Electricity

2020
Diesel/natural gas
Electricity

Potential
accounting impact

Sensitivity

Contract
value

Income
statement

Other
compre hen-
sive income

25%
25%

15
12
27

2
-
2

-43
-23
-66

-7
-4
-11

7
7
14

6
4
10

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.1 fiNANCiAL RiSKS

4.1.5 Credit risk

LiMiTED LOSSES

In 2021, 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.

Further information on trade receivables is provided in
Table 2.1.c.

External rating of financial counterparties,
2021

External rating of financial counterparties,
2020

The maximum exposure to credit risk is approximately
equal to the carrying amount.

As in previous years, the group 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 qualify for netting in case
of default.

AAA 67%
BBB+ 9%

605

MILLION EUR

603

MILLION EUR

AA- 3%
Below investment grade 5%

A+ 9%

A 7%

AAA 69%
BBB+ 6%

AA- 3%
Below investment grade 7%

A+ 11%

A 4%

Table 4.1.5 External rating of financial counterparties
(EURm)

Counterparty rating

2021
Securities
Cash
Derivatives
Total

2020
Securities
Cash
Derivatives
Total

AAA

402
5
-
407

415
-
-
415

AA-

-
17
1
18

-
10
9
19

A+

-
14
39
53

-
44
22
66

Below
investment
grade

BBB+

32
24
0
56

5
23
10
38

-
30
1
31

-
44
0
44

-
7
33
40

-
5
16
21

Total

434
97
74
605

420
126
57
603

Risk mitigation

Risk
Credit risks arise from operating activities and
engagement with financial counterparties. Furthermore,
a weak counterparty credit quality can reduce their
ability to support the group going forward, thereby
jeopardising the fulfilment of our group 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
counterparty (or its parent) to financial contracts and
deposits must as a minimum have a long-term rating
corresponding to A3 from Moody's, A- from S&P or
A- from Fitch. If the group has only obtained credit
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 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 seeks the best coverage available. The
group has determined that this is an acceptable risk
given the levels of investment 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.

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.2 fiNANCiAL iTEMS

LOwER iNTEREST EXpENSES OffSET By HiGHER EXCHANGE RATE LOSSES

Accounting policies

Capitalisation of interest was performed by using an
interest rate matching the group's average external
interest rate in 2021. Financial income and financial
costs relating to financial assets and financial liabilities
were recognised using the effective interest method.

Financial income and financial 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
of financial assets and financial liabilities, as well
as the interest portion of financial lease payments.
Additionally, realised and unrealised gains and losses
on derivatives 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.

Net financial costs decreased by EUR 11 million to EUR
61 million mainly due to lower interest expenses, which
were partly offset by higher exchange rate.

Net interest expenses amounted to EUR 40 million,
representing a decrease of EUR 14 million compared to
last year due to the expiry of old interest hedges and
new interest rate hedges at attractive interest rates.

Average interest expenses, excluding interest related to
pension assets and liabilities, were 1.8 per cent
compared to 2.3 per cent last year. Interest cover
increased to 23.7 compared to 17.0 last year.

Exchange rate losses relate primarily to the devaluation
of the Lebanese, Nigerian and Argentine currencies,
which amounted to EUR 21 million.

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
Total financial costs

Net financial costs

2021

2020

7
7
14

-45
-28
-2
7
-7
-75

-61

2
5
7

-54
-25
-2
8
-6
-79

-72

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.3 NET iNTEREST-BEARiNG DEBT

INCREASED NET iNTEREST-BEARiNG DEBT

Net interest-bearing debt
(EURm)

Net interest-bearing debt, excluding pension liabilities,
increased to EUR 2,221 million compared to EUR 2,180
million last year.

Pension liabilities decreased by EUR 2 million to
EUR 245 million. Net interest-bearing debt, including
pension liabilities, amounted to EUR 2,466 million
compared to EUR 2,427 million last year. The UK
pension scheme net assets were EUR 55 million
compared to EUR 40 million last year. These assets
are excluded from the calculation of pension liabilities,
net interest-bearing debt and leverage.

Arla's leverage ratio was 2.6, 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
increased by 0.8 years to 5.8 years. Average maturity is
impacted by new facilities and offset by a lapse of time
to maturity and the level of net interest-bearing debt.

The equity ratio increased to 37 per cent, compared to
35 per cent last year.

Funding
The group applies a diversified funding strategy to
balance the liquidity and refinancing risk with the aim
of achieving low financing costs. 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 the three-
month EURIBOR rate, and derivatives are applied
to match the currency of our funding needs. The
interest profile is managed with interest rate swaps
independently 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 2021.

During Covid-19, governments offered different
programmes to subsidise companies. However, the net
effect on net interest-bearing debt is limited for the
group.

During 2021, the group had a limited need for new
funding. The most significant funding activities during
the year were:
• Five-year EUR 400 million ESG-linked revolving credit

multi-bank facility

• Five-year bond issue of SEK 1,500 million
• Seven-year EUR 100 million credit facility from

European Investment Bank

• Arla has a commercial paper programme in Sweden
denominated in SEK and EUR. The programme was
unutilised at the end of the year due to a strong
liquidity position. The average utilisation in 2021 was
EUR 122 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.

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
its debt. The group's long-term target range for
leverage is between 2.8 and 3.4.

Leverage

2.6

2020: 2.7

3,000

2,500

2,000

1,500

1,000

500

2
4
9

2
4
7

2
4
5

2
7
7

2
2
0

1
6
3
6

2017

1
6
4
7

2018

2
1
1
3

2019

2
1
8
0

2020

2
2
2
1

2021

Leverage
Pension liabilities
Net interest-bearing debt excluding pension liabilities
Target range for leverage 2.8 - 3.4

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

2021

2020

2,113
644
-531
-5
2,221
245
2,466

1,964
766
-546
-4
2,180
247
2,427

100

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
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

Total interest-bearing borrowings

2021

2020

Table 4.3.c Cash flow, net interest-bearing debt
(EURm)

440
1,021
478
174
2,113

299
1,033
455
177
1,964

-
102
11
456
59
16
644

100
-
9
531
56
70
766

2021
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

Additions Reclasses

Foreign
exchange
move-
ments

Fair value
changes

31
December

247
1,964
766
2,977

-424
-126
2,427

-14
-
-48
-62

-17

-12
32
-59

-
46
-
46

-
-
46

-
62
-62
-

-
-
16

-4
24
-12
8

-3
-3
6

16
17
-
33

-1

-
-
32

245
2,113
644
3,002

-439
-97
2,466

2,757

2,730

Long- and short-term borrowings payments of EUR -48 million (EUR 0 million and EUR -48 million, respectively) can be reconciled to
the cash flow statement as new loans obtained (EUR 172 million), other changes in loans (EUR -147 million) and lease payments
(EUR -73 million).

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

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

Long- and short-term borrowings payments of EUR 90 million (EUR 0 million and EUR 90 million, respectively) can be reconciled to
the cash flow statement as new loans obtained of EUR 149 million, other changes in loans of EUR -173 million and lease payments
of EUR -66 million.

101

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.3 NET iNTEREST-BEARiNG DEBT

Maturity of net interest-bearing debt excluding
pension liabilities at December 2021
(EURm)

Maturity of net interest-bearing debt excluding
pension liabilities at December 2020
(EURm)

Interest proﬁle for net interest-bearing debt
excluding pension liabilities at 31 December 2021
(EURm)

Interest proﬁle for net interest-bearing debt
excluding pension liabilities at 31 December 2020
(EURm)

600

500

400

300

200

100

600

500

400

300

200

100

2400

1800

1200

600

2,400

1,800

1,200

600

0-1Y 1-2Y 2-3Y 3-4Y 4-5Y 5-6Y 6-7Y 7-10Y >10Y

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)

2021
DKK
SEK
EUR
GBP
Other
Total

2020
DKK
SEK
EUR
GBP
Other
Total

Total
873
572
592
43
141
2,221

Total
794
434
782
47
123
2,180

2022
20
109
5
7
-37
104

2021
-88
108
185
6
6
217

2023
26
153
207
8
48
442

2022
77
6
111
8
4
206

2024
55
152
108
6
116
437

2023
22
155
109
7
5
298

2025
94
4
4
5
7
114

2024
19
154
107
5
104
389

2026
56
150
3
4
3
216

2025
92
4
3
4
2
105

2027
55
4
4
4
4
71

2026
54
7
9
4
2
76

2029-
2031
202
-
55
4
-
261

2028-
2030
194
-
28
4
-
226

2028
61
-
4
3
-
68

2027
55
-
2
4
-
61

After
2031
304
-
202
2
-
508

After
2030
369
-
228
5
-
602

Table 4.3.e Currency profile of net interest-bearing debt excluding pension liabilities
(EURm)
Disclosed before and after the effect of derivatives

2021
DKK
SEK
EUR
GBP
Other
Total

2020
DKK
SEK
EUR
GBP
Other
Total

Original
principal
873
572
592
43
141
2,221

Effect
of swap
-
-586
64
522
-
-

794
434
782
47
123
2,180

-
-581
101
480
-
-

After
swap
873
-14
656
565
141
2,221

794
-147
883
527
123
2,180

102

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.3 NET iNTEREST-BEARiNG DEBT

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

2021
Issued bonds:
Commercial papers
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
SEK 750mmaturing 03.04.2024
SEK 1,500m maturing 17.07.2026
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

0-1 years
1-2 years
1-2 years
2-3 years
2-3 years
4-5 years

Fair value
Cash flow
Fair value
Fair value
Cash flow
Cash flow

102
74
73
73
74
146
542

2020
Issued bonds:
SEK 500m maturing 31.05.2021
SEK 500m maturing 31.05.2021
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
SEK 750m maturing 03.07.2023
SEK 750m maturing 03.04.2024
Total issued bonds

1-2 years
0-1 years

Fair value
Cash flow

97
935
1,032

Mortgages credit institutions:
Fixed-rate
Floating-rate
Total mortgage credit institutions

Fixed
Floating
Fixed
Fixed
Floating
Floating

Fixed
Floating

0.16%
1.14%
1.51%
1.58%
0.91%
0.60%
0.89%

0.25%
0.26%
0.26%

0.02%
0.61%
0.36%

0-1 years
0-1 years

Fair value
Cash flow

Cash flow
Cash flow

390
544
934

233
16
249

Bank borrowings:
Fixed-rate
Floating-rate
Total bank borrowings

Other borrowings:
Lease liabilities
Other borrowings
Total other borrowings

Fixed
Floating

3.18% 0-20 years
3.41%
0-1 years
3.19%

Floating
Fixed
Floating
Floating
Fixed
Fixed

Fixed
Floating

1.60%
1.88%
0.91%
1.14%
1.51%
1.58%
1.40%

0.37%
0.43%
0.42%

0.02%
0.77%
0.46%

0-1 years
0-1 years
0-1 years
0-1 years
2-3 years
3-4 years

Cash flow
Fair value
Cash flow
Cash flow
Fair value
Fair value

50
50
75
75
74
75
399

1-2 years
0-1 years

Fair value
Cash flow

124
918
1,042

0-1 years
0-1 years

Fair value
Cash flow

Cash flow
Cash flow

404
582
986

233
70
303

FIxed
Floating

3.38% 0-20 years
3.69%
0-1 years
3.45%

103

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
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 initial 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
Debt to mortgage credit 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 leases
are recognised under liabilities and measured at
amortised cost. Other financial liabilities are measured
at amortised cost. For details on pension liabilities, refer
to Note 4.7.

104

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.4 DERiVATiVES

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 the fair value
adjustment is therefore 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

2021

2020

12
3
24

38
-5
8

Table 4.4.a Hedging of future cash flows from highly probable forecast transactions
(EURm)

Accounting policies

2021
Currency contracts
Interest rate contracts
Commodity contracts
Hedging of future cash flow

2020
Currency contracts
Interest rate contracts
Commodity contracts
Hedging of future cash flow

Carrying
value

-17
-24
27
-14

Carrying
value

11
-66
2
-53

Expected recognition
in income statement

Fair value
recognised
in OCI

2022

2023

2024

2025

-17
-24
27
-14

-17
-8
26
1

-
-6
1
-5

-
-
-
-

-
1
-
1

Expected recognition
in income statement

Fair value
recognised
in OCI

2021

2022

2023

2024

11
-66
2
-53

11
-11
1
1

-
-10
1
-9

-
-9
-
-9

-
-8
-
-8

After
2025

-
-11
-
-11

After
2024

-
-28
-
-28

Derivatives are recognised from the trade date and
measured in the financial statements at fair value.
Positive and negative fair values of derivatives are
recognised as separate items in the balance sheet.

Fair value hedging
Changes in the fair value of derivatives 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 derivatives 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 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 derivatives 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.

105

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.5 fiNANCiAL iNSTRUMENTS

Table 4.5.a Categories of financial instruments
(EURm)

2021

2020

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 receivables
Cash
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

22
9
31

434
434

2
22
28
52

38
9
47

420
420

14
1
4
19

2021
Bonds
Shares
Derivatives
Total financial assets

Issued bonds
Mortgage credit institutions
Derivatives
Total financial liabilities

1,007
285
97
1,389

811
424
-
1,235

2020
Bonds
Shares
Derivatives
Total financial assets

Issued bonds
Mortgage credit institutions
Derivatives
Total financial liabilities

44
44

19
22
1
42

19
19

3
42
2
47

2,113
644
1,445
4,202

1,964
766
1,212
3,942

434
9
-
443

-
1,032
-
1,032

420
9
-
429

-
1,042
-
1,042

-
-
74
74

440

86
526

-
-
57
57

399
-
66
465

-
-
-
-

434
9
74
517

440
1,032
86
1,558

420
9
57
486

399
1,.042
66
1,507

106

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
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 proceeds from these bonds create a repurchase
obligation which is recognised in short-term borrowings.

In addition to mortgage bonds, the group holds other
securities with a carrying amount of EUR 5 million.

Table 4.6 Transfer of financial assets
(EURm)

2021
Mortgage bonds
Repurchase liabilities
Net position

2020
Mortgage bonds
Repurchase liabilities
Net position

Carrying
value

Notional
amount

398
-385
13

409
-398
11

394
-387
7

405
-397
8

Fair
value

398
-385
13

409
-398
11

107

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.7 pENSiON LiABiLiTiES

NET pENSiON LiABiLiTiES DOwN EUR 31 MiLLiON fROM pREVIOUS yEAR

Table 4.7.a Pension liabilities recognised in the balance sheet
(EURm)

The group's pension assets and liabilities consist primarily
of defined benefit plans in Sweden and the UK.

The group also operates defined contribution plans for
employees. For these defined contribution plans, the
group is not subject to the same investment, interest
rate, inflation or longevity risks as it is for the defined
benefit plans. The benefits that employees receive
are dependent on the contribution paid, investment
returns, and the form of benefit chosen at retirement.

Pension plans in Sweden
The recognised net pension liability in Sweden was
EUR 225 million at 31 December 2021, an increase of
EUR 4 million compared to the previous year.

The defined benefit plan does not currently require the
group to make further cash contributions. These
pension plans are contribution-based plans, guaranteeing
a defined benefit pension at retirement. The plan assets
are legally structured as a trust, and the group has
control over the operation of the plan and the
associated 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 69 million at 31 December 2021, an increase of
EUR 29 million compared to the previous year. The
increase can mainly be attributed to contributions to
the plan by Arla of EUR 17 million during the year and
actuarial gains of EUR 54 million, offset by a reduction
in the fair value of plan assets of EUR 46 million.

The defined benefit plan in the UK is a defined benefit
final salary scheme. The plan is closed to both new
entrants and future accruals. The plan is a registered
pension scheme, and the assets are held in legally
separate, trustee-administered funds. The trustees
of the plan are required by law to act in the best
interests of the plan participants while at the same time

administering the plan in accordance with the purpose
for which the trust was created, and is responsible for
drawing up the investment, funding and governance
policies. A representative of the group attends trustee
meetings to provide the group's view on the investment
strategy, but the ultimate power lies with the trustees.

During the reporting period, the trustees of the plan
entered into a buy-in policy with Aviva Life & Pensions
UK Limited that provides insurance for 25 per cent
of the pension liabilities. According to the policy,
payments that are exactly equal to the benefits paid
to the insured population, are made to the plan. This
has removed all investment, interest rate, inflation and
longevity risks in respect of these members. The value
of the annuity policy is determined using the disclosed
assumptions used for valuing the liabilities and is equal
to the accounting liabilities of the insured pensioner
population.

Employer contributions are determined based on 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 carried
out as at 31 December 2023. The most recent full
actuarial valuation of the plan was carried out as at
31 December 2019. The valuation indicated that,
on the agreed funding basis, the plan had a deficit of
GBP 22 million. To meet this deficit, the group agreed
to pay annual contributions of GBP 13 million until
March 2021. The next valuation will be carried out as
at 31 December 2022.

The results of the 2019 actuarial valuation have been
used and updated for IAS19 'Employee benefits'
purposes by a qualified independent actuary. The plan
exposes the group to inflation risk, interest rate risk and
market investment risk, as well as longevity risk.

Defined contribution plans are in place for other
employees. Contributions are made both by Arla and
the employee at a rate determined by Arla.

2021
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Net pension liabilities recognised in 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

2020
Present value of funded liabilities
Fair value of plan assets
Deficit of funded plans
Present value of unfunded liabilities
Net pension liabilities recognised in 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

Other

Total

235
-13
222
3
225

235
3
238

-
225
225

231
-13
218
3
221

231
3
234

-
221
221

1,473
-1,542
-69
-
-69

1,473
-
1,473

-69
-
-69

1,456
-1,496
-40
-
-40

1,456
-
1,456

-40
-
-40

44
-26
18
2
20

44
2
46

-
20
20

49
-29
20
6
26

49
6
55

-
26
26

1,752
-1,581
171
5
176

1,752
5
1,757

-69
245
176

1,736
-1,538
198
9
207

1,736
9
1,745

-40
247
207

108

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.7 pENSiON LiABiLiTiES

Table 4.7.b Development in pension liabilities
(EURm)

2021

2020

Table 4.7.c Development in fair value of plan assets
(EURm)

Present value of liabilities 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
Foreign currency translation adjustment
Present value of pension liabilities at 31 December

1,745
5
23
-44
-
-74
102
1,757

1,708
4
30
153
-17
-63
-70
1,745

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
Foreign currency translation adjustments
Fair value of plan assets at 31 December

Maturity of pension liabilities, at 31 December 2021
(EURm)

Maturity of pension liabilities, at 31 December 2020
(EURm)

Actual return on plan assets:
Calculated interest income
Return excluding calculated interest
Actual return

2021

2020

1,538
21

-47
17
60
112
1,581

21
-47
-26

1,475
28

141
26
-53
-79
1,538

28
141
169

600

500

400

300

200

100

600

500

400

300

200

100

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

Sweden

Other

The group expects to contribute EUR 13 million to the plan assets in 2022 and EUR 48 million in 2023-2026.

Table 4.7.d Specification of plan assets
(EURm)

Liability hedge portfolio
Annuity policies
Debt vehicles
Bonds
Equity instruments
Properties
Infrastructure
Other assets
Fair value of plan assets at 31 December

2021

2020

289
321
440
168
52
134
74
103
1,581

18
20
28
11
3
8
5
7
100

485
-
434
208
116
126
69
100
1,538

32
-
28
14
8
8
4
7
100

109

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.7 pENSiON LiABiLiTiES

Plan asset investment

Plan assets generate returns that are used to satisfy
the plan liabilities. They are not necessarily intended
to be realised in the short term. The trustees invest
in different categories of assets and with different
allocations among those categories, according to the
plan investment principles.

Currently, the plan investment strategy is to maintain
a balance of growth assets (equities, property and
infrastructure), income assets (comprising credit
investments and corporate bonds) and matching assets
(comprising a liability hedge portfolio and a buy-in
annuity policy), with a weighting towards matching
assets. There are no direct investments in the group.

Part of the investment objective is to minimise
fluctuations in the plan's funding levels due to changes
in the value of the liabilities. This is primarily achieved

Table 4.7.e Assumptions for the actuarial calculations

using a Liability Driven Investment (LDI) portfolio, the
main goal of which is to align movements in the value
of the assets with movements in the liabilities caused
by changes in market conditions. The plan has hedging
that covers the majority of interest rate and inflation
movements, as measured based on the trustees'
funding assumptions which use a discount rate derived
from gilt yields.

LDI primarily involves the use of government bonds.
Derivatives such as interest rate and inflation swaps are
also used. There are no annuities or longevity swaps in
the LDI portfolios. The value of the LDI assets is
determined based on the latest market bid price for the
underlying investments, which are traded daily on liquid
markets.

Discount rate assumptions
Discount rate, Sweden
Discount rate, UK

Inflation assumptions
Inflation (CPI), Sweden
Inflation (CPI), UK

Mortality assumptions
Life expectancy at age 65 for a:
Male in the UK
Female in the UK
Male in Sweden
Female in Sweden

2021
%

2020
%

1.7
1.9

2.1
2.7

21.0
23.0
22.0
24.0

1.3
1.4

1.5
2.1

20.9
23.0
22.0
24.0

Table 4.7.f 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

2021
+
-26
2
82
16

2021
-
26
-2
-82
-16

2020
+
-28
3
84
17

2020
-
28
-3
-84
-17

110

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Funding
4.7 pENSiON LiABiLiTiES

Table 4.7.g Recognised in the income statement
(EURm)

2021

2020

Accounting policies

Current service costs
Administration costs
Recognised as staff costs

Interest costs on pension liabilities
Interest income on plan assets
Recognised as financial costs

Total amount recognised in the income statement

Table 4.7.h Recognised in other comprehensive income
(EURm)

Remeasurements of defined benefit plans
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
Total amount recognised in other comprehensive income

5
-
5

23
-21
2

4
-
4

30
-28
2

2021

2020

-47
-3

-153

141
5

Pension liabilities and similar non-current liabilities
The group has 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. 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
whether the return generated by the assets will meet
the pension liability, which are affected by assumptions
concerning mortality and inflation.

The group's net liability is the amount presented in 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 liability 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
comprehensive income.

Interest cost for the period is calculated using the
discounted rate used to measure the defined benefit
liability at the start of the reporting period applied
to the carrying amount of the net liability, taking into
account changes arising from contributions and benefit
payments. The net interest cost and other costs relating
to defined benefit plans are recognised in the income
statement. The net liability primarily covers defined
benefit plans in the UK and Sweden.

Uncertainties and estimates

The defined benefit liability 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 net position.

111

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Other areas
5.1 TAX

CURRENT AND DEfERRED TAX

Tax in the income statement
Tax costs increased to EUR 61 million compared to
EUR 34 million last year, primarily due to an increase in
deferred tax costs.

Current income tax
Cost related to current income taxes increased to
EUR 44 million compared to EUR 35 million last year,
mainly due to adjustments to current taxes of previous
years, partially offset by deferred tax movements from
previous years.

Deferred tax
Net deferred tax liabilities amounted to EUR 43 million,
representing an increase of EUR 8 million compared
to last year. Out of the net movements, EUR 17 million
impacted the income statement and EUR 9 million in
offsetting movements impacted the balance sheet.
The impact of changes in tax rates and laws is primarily
a result of the UK income tax rate change announced
and enacted in 2021.

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 21 million relating to property, plant and
equipment and tax losses carried forward.

Table 5.1.a Tax recognised in the income statement
(EURm)

2021

2020

Current income tax
Current income tax on net/profit for the year relating to:
Cooperative tax
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

10
28
6
44

10
-4
11
17

9
26
-
35

-
-2
1
-1

Table 5.1.b Calculation of effective tax rate
(EURm)

2021

2020

EURm

Profit before tax
Tax applying the statutory Danish 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

Table 5.1.c Deferred tax assets and liabilities
(EURm)

Net deferred tax asset/(liability) at 1 January
Deferred tax recognised in the income statement
Deferred tax recognised in other comprehensive income
Impact of change in tax rates
Foreign currency translation adjustments
Net deferred tax asset/(liability) at 31 December

Deferred tax, by gross temporary difference
Intangible assets
Property, plant and 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

22.0
-2.0
-4.9
-1.5
2.7
0.5
-1.8
15.0

89
-8
-20
-6
11
2
-7
61

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

2021

2020

-35
-6
9
-11
-
-43

-7
29
-33
7
-39
-43

21
-64
-43

-38
2
4
-1
-2
-35

-9
22
-21
9
-36
-35

29
-64
-35

112

Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes

Contents

Other areas
5.1 TAX

5.2 pROViSiONS

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 offsetting 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 recognised deferred tax assets in respect of
tax losses carried forward in the amount of EUR 7 million.
Temporary differences on which deferred tax assets
have not been recognised totalled EUR 32 million,
which is on a level similar to last year. Unrecognised
deferred tax assets relate to tax losses carried forward.

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 income
taxation. Cooperative taxation is based on the capital
of the cooperative, while 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 tax paid on account.
Current tax liabilities are disclosed as part of Other
current liabilities.

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 by applying tax rates (and
laws) that have been enacted or substantially enacted
by the end of the reporting period and that are expected
to apply when the related deferred tax asset is realised

or the deferred tax liability is settled. Changes in deferred
tax assets and 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.

pROViSiONS

Uncertainties and estimates

Provisions amounted to EUR 42 million in 2021,
compared to EUR 46 million last year. Provisions
primarily relate to provisions for insurance incidents
that have occurred, but have not yet been settled.

Provisions are particularly associated with estimates on
insurance provisions. Insurance provisions are assessed
based on historical records of, among other things,
the number of insurance events and related costs
considered. The scope and extent of onerous contracts
are also estimated.

Table 5.2 Provisions
(EURm)

Insurance
provisions

Restructuring
provisions

Other
provisions

Total
2021

Total
2020

2021
Provisions at 1 January
New provisions during the year
Used during the year
Total provisions 31 December
Non-current provisions
Current provisions
Total provisions 31 December

20
1
-7
14
4
10
14

10
-
-7
3
-
3
3

16
9
-
25
20
5
25

46
10
-14
42
24
18
42

32
19
-5
46
21
25
46

5.3 fEES TO AUDiTORS AppOiNTED
By THE BOARD Of REpRESENTATiVES

fEES pAiD TO Ey

The fees to auditors are attributable to EY.

Table 5.3 Fees to auditors appointed by the Board of Representatives
(EURm)

Statutory audit
Other assurance engagements
Tax assistance
Other services
Total fees to auditors

2021

2020

1.6
0.3
0.4
0.5
2.8

1.5
0.2
0.6
0.4
2.7

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Other areas
5.4 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 most
recently 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 same terms as
apply to the other owners. Similarly, individual capital
instruments are issued to the BoD on the same terms as
apply 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 5.4.b Transactions with the Board of Directors
(EURm)

Purchase of raw milk
Supplementary payment regarding previous years
Total

Unsettled milk deliveries recognised in trade and other payables
Individual capital instruments
Total

Refer to Note 3.3 for information on transactions with associates and joint ventures.

2021

2020

27.4
1.4
28.8

2.6
2.9
5.5

26.5
0.8
27.3

1.5
2.6
4.1

Table 5.4.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 accrued amounts related to the respective reporting period. The amounts are based on
reported key figures together with estimates of performance compared to peers, which means that the final future
payout may differ.

2021

2020

5.5 CONTRACTUAL COMMiTMENTS,
CONTiNGENT ASSETS AND LiABiLiTiES

1.3
1.3

2.4
0.3
0.8
2.9
6.4

1.3
1.3

2.4
0.3
1.4
4.7
8.8

CONTRACTUAL OBLiGATiONS AND COMMiTMENTS

Arla's contractual obligations and commitments
amounted to EUR 370 million compared to
EUR 364 million last year. The development was
caused by increased surety and guarantee obligations
and less commitments relating to property, plant and
equipment purchase agreements.

Contractual obligations and commitments consisted of
surety and guarantee obligations, IT licences, short-term
and low-value leases and commitments relating to
property, plant and equipment purchase agreements.

The group provided security upon property for mortgage
debt based on the Danish Mortgage Act with a nominal
value of EUR 1,040 million, compared to EUR 1,061
million last year.

The group is party to a small number of lawsuits,
disputes and other claims. The management assesses
that the outcome of these will not have a material
impact on the group's financial position beyond
what has already been recognised in the financial
statements.

5.6 SUBSEQUENT EVENTS AfTER
THE BALANCE SHEET DATE

No subsequent events with a material impact on the financial statements occurred after the balance sheet date.

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5.7 GENERAL ACCOUNTiNG pOLiCiES

Basis for preparation
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
requirements in the Danish Financial Statements
Act for large companies in class C. 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
9 February 2022 and presented for approval by the
Board of Representatives on 23 February 2022.

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.

Consolidated financial statements
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 the 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
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 loss 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 has transactions 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 rate 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 net profit or loss for the year are translated
into EUR using the average monthly exchange rate
if this does not differ materially from the transaction
date rate. Exchange rate differences are recognised in
other comprehensive income and accumulated in the
translation reserve.

On partial divestment of associates and joint ventures,
the relevant proportional amount of the cumulative
foreign currency translation adjustment reserve is
transferred to the net profit or loss for the year, along
with any gains or losses related to the divestment. Any
repayment of outstanding balances considered part
of the net investment is not in itself considered to be a
partial divestment of the subsidiary.

Adoption of new or amended IFRS
The group has implemented all new standards and
interpretations effective in the EU from 2021.

Future implementations
The IASB has issued a number of new or amended
and revised accounting standards and interpretations
which are not yet applicable. Arla will adopt these new
standards when they become mandatory. No material
impact is expected from that.

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Other areas
5.8 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 W.L.L.
Arla Oy

Massby Facility & Services Ltd. Oy
Osuuskunta MS tuottajapalvelu **

Arla Foods Distribution A/S

Cocio Chokolademælk A/S

Arla Foods International A/S

Arla Foods UK Holding Limited

Arla Foods UK Farmers Joint Venture Co. Ltd.
Arla Foods UK plc

Arla Foods GP Limited
Arla Foods Finance Limited
Arla Foods Limited

Arla Foods Hatfield Limited
Arla Foods Limited Partnership
Yeo Valley Dairies Limited
Arla Foods Cheese Company Limited
Arla Foods Ingredients UK Limited
MV Ingredients Limited *

Arla Foods UK Property Co. Limited

Arla Foods B.V.
Arla Foods Comércio, Importacâo e Exportacão
de Productos Alimenticios Ltda.

Arla Foods Ltd.

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
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
GBP
EUR

BRL

SAR

%
100
100
100
100
100
100
100

100
100
100
100
100
100
60
37
100
50
100
100
100
100
100
33
100
100
100
100
100
100
50
100
100

100

Arla Foods amba
AF A/S

Arla Foods Finance A/S

Kingdom Food Products ApS
Ejendomsanpartsselskabet St. Ravnsbjerg
Arla Insurance Company (Guernsey) Limited
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
Arla Foods Belgien AG
Arla Foods Ingredients (Deutschland) GmbH

Arla CoAr Holding GmbH

ArNoCo GmbH & Co. KG *

Arla Biolac Holding 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 Limited
Arla Global Dairy Products Ltd.

Arla Global Development Company Ltd.

TG Arla Dairy Products LFTZ Enterprise

TG Arla Dairy Products Ltd.

Arla For General Trading Ltd.

Country

Denmark
Denmark
Denmark
Denmark
Denmark
Guernsey
Denmark
Denmark
Denmark
Denmark
Senegal
Denmark
Belgium
Germany
Germany
Germany
Germany
Kuwait
Lebanon
Qatar
Bahrain
Hong Kong
China
China
Malaysia
Philippines
Ghana
Nigeria
Nigeria
Nigeria
Nigeria
Iraq

Contents

Group
equity
interest

%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
49
50
40
51
100
50
50
100
100
100
100
99
50
100
51

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Other areas
5.8 GROUp CHART

Arla Foods amba
Arla Foods AB

Svenska Bönders Klassiska Ostar AB
Arla Gefleortens AB
Årets Kock Aktiebolag
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.

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

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 Global Shared Services Sp. Z.o.o.
Arla National Food Products LLC

Arla National Food Products Company LLC

Cocio Chokolademælk A/S
Marygold Trading K/S °
Mejeriforeningen
PT. Arla Indofood Makmur Dairy Import

PT. Arla Indofood Sukses Dairy Manufacturing.

COFCO Dairy Holdings Limited **
Svensk Mjölk Ekonomisk förening
Lantbrukarnas Riksförbund upa **
Jörd International A/S
Ejendomsselskabet Gjellerupvej 105 P/S
Svenska Osteklassiker AB
Komplementarselskabet Gjellerupvej 105 ApS
PT Arla Foods Indonesia
Arla Foods Arinco A/S

%
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

DKK
Denmark
EUR
Germany
EUR
Germany
AUD
Australia
MXN
Mexico
EUR
Spain
France
EUR
Dominican Republic DOP
PLN
Poland
PLN
Poland
AED
UAE
OMR
Oman
DKK
Denmark
DKK
Denmark
DKK
Denmark
IDR
Indonesia
Indonesia
IDR
British Virgin Islands HKD
SEK
Sweden
SEK
Sweden
DKK
Denmark
DKK
Denmark
SEK
Sweden
DKK
Denmark
IDR
Indonesia
DKK
Denmark

%
100
100
51
100
100
100
100
100
100
49
67
50
100
89
50
100
30
75
24
100
100
68
100
100
100

* Joint ventures ** Associates
° According to section 5 of the Danish Financial Statements Act, the company does not prepare a statutory report.
In addition, the group 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 consolidated financial statements that do not
include 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 is available on www. arlafoods.com. Profit sharing and supplementary payments 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.

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Contents

STATEMENT By THE BOARD Of DiRECTORS
AND THE EXECUTiVE BOARD

Today, the Board of Directors and the Executive Director
discussed and approved the annual report of Arla Foods
amba for the financial year 2021. 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 2021
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 2021.

In our opinion, the management's review of the annual
report includes a true and fair view of the developments
of the group's and the parent company's financial
position, activities, 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, 9 February 2022

Peder Tuborgh
CEO

Peter Giørtz-Carlsen
Executive Board Member

Jan Toft Nørgaard
Chairman

Manfred Graff
Vice Chairman

René Lund Hansen

Jonas Carlgren

Arthur Fearnall

Gustav Kämpe

Marita Wolf

Bjørn Jepsen

Steen Nørgaard Madsen

Walter Lausen

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

118

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Contents

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 2021, 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 2021 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 2021 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 the additional requirements applicable in
Denmark, and we have fulfilled our other ethical

responsibilities in accordance with these requirements
and the IESBA Code.

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, 9 February 2022
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

Contents

ENViRONMENTAL,
SOCiAL AND
GOVERNANCE
(ESG) REpORT

TABLE Of CONTENTS

Contents

ESG pERfORMANCE REViEw

NOTES

ASSURANCE REpORT

Sustainability performance review
121 Sustainability performance at a glance
Letter from the Chief Agriculture,
122
Sustainability and Communications Officer

123 Five-year overview

Environmental figures
124
127
128
128
129

1.1 Greenhouse gas emissions (CO₂e)
1.2 Renewable energy share
1.3 Solid waste
1.4 Water
1.5 Animal welfare

Governance data
134
134
135

3.1 Gender diversity – Board of Directors
3.2 Board meeting attendance
3.3 General accounting policies

136

Independent auditor’s reasonable
assurance report

Social figures
130
131
132
132
133
133 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 Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Sustainability performance at a glance

Contents

SUSTAiNABiLiTy pERfORMANCE AT A GLANCE

ENViRONMENTAL DATA

CO₂e emission reduction*,
SCOpE 1 AND 2

CO₂e emission reduction,
SCOpE 3 per kg of milk
and whey

25%

2020: 24%

2020: 7%

Renewable energy share*

33%

ANiMAL wELfARE
Share of audited farmers without major issues

98.4%

No major cleanliness issues

99.8%

No major body condition
issues

Baseline: 2015, Science Based
Target 2030: 63%

Baseline: 2015, Science Based
Target 2030: 30%

2021

2020

33%

31%

100.0%

No injury issues

99.5%

No major mobility issues

Ratios calculated based on 3,337 Arlagården® audits performed in 2021 corresponding to
37% of Arla's active farmers

SOCiAL DATA

Accident frequency/
per 1 million working hours

4.3

2021

2020

2019

Food safety
Number of recalls

2021

2020

2019

4.3

5.2

6.0

Full-time equivalents

20,617

Share of females
at director level or above

27%

2021

2020

2019

20,617

20,020

19,174

2021

2020

2019

27%

26%

*Market based accounting

122

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Letter from Chief Agriculture Sustainability and Communication officer

Contents

COMMiTTED TO TRANSpARENT ACTiON

Being science-based and data driven is fundamental
to our approach, as we believe that to lower our
carbon footprint we first have to be sure we measure
it correctly. I am proud to say that we are the first large
dairy company to receive reasonable assurance on
our complete ESG data, including scope 3 emissions,
presented in this report.

Taking concrete action and being innovative
forerunners is another key element of our value
creation and sustainability. In 2021, we established
24 pilot farms to explore regenerative dairy farming
practices and create data-driven proof points of their
impact on nature and climate. In Sweden and the UK,
we opened innovation farms that will serve as hubs for
cutting-edge trials in collaboration with farmers,
researchers, customers and industry stakeholders.

Our sustainability commitments and targets cover our
whole value chain from the farm up, and are a key part of
our new five-year business strategy, Future26, launched at
the end of 2021.

“

Data transparency, accuracy and
credibility are prerequisites for our
success on the sustainability
journey

”

Making sustainability core to our business strategy ensures
that it gets the right focus and investment that will be
needed to drive change and impact in the years ahead and
enable us to deliver on our vision.

Having grown up on a dairy farm, I have spent my whole
working life at Arla Foods and feel immensely privileged
to be given the role as our first Chief Agriculture and
Sustainability Officer. I look forward to sharing our
progress with you and reporting on it through this and
future ESG reports.

Hanne Søndergaard
EVP, Chief Agriculture, Sustainability and
Communications Officer

Dairy is an important part of many people’s diets around
the world, providing high quality proteins and nutrition,
through a wide range of tasty, versatile and affordable
products. The global dairy industry also helps to
support the livelihoods of hundreds of millions of
people and our farmers play an important role in the
stewardship of the land.

At Arla, we have been working with sustainability
for many years, and our farmers are amongst the
most climate efficient globally, with 1.15 kg of CO₂e
emissions per kg of milk.* In 2021, we raised our
climate ambition to support the 1.5°C global warming
target of the Paris agreement, committing ourselves to
lowering our scope 1 and 2 emissions by 63 per cent
by 2030*. I am pleased that these plans have been
approved by the Science Based Targets initiative.

* FAO and GDP. 2018. Climate change and the global dairy cattle sector – The role of the dairy sector in a low-carbon future.

wE ARE COMMiTTED TO TAKING ACTION

2030

Updated
in 2021

-63%

CO₂e, scope 1 and 2,
in total

2030

-30%

CO₂e, scope 3 per kg
of milk and whey

2030

-50%

Food waste

2030

Virgin fossil
plastic**

2025

100%

Recyclable
packaging**

2025

2030

2050

**On branded products

123

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Five-year overview

Contents

fiVE-yEAR OVERViEw

Five-year ESG overview

ESG note

2021

2020

2019

2018

2017

Environmental data
CO₂e emissions
CO₂e reduction scope 1 and 2 (baseline: 2015)
CO₂e reduction scope 3 per kg of milk and whey (baseline: 2015)
CO₂e scope 1 (mkg)
CO₂e Scope 2 – market-based (mkg)
CO₂e scope 3 (mkg)
Total CO₂e (mkg)
CO₂e scope 2 – location-based (mkg)
Total CO₂e – location-based (mkg)
CO₂e scope 3 per kg of milk and whey (kg)

CO₂e reduction (scope 1 and 2) – location-based
Energy mix
Renewable energy share (%) – market-based
Renewable energy share (%) – location-based
Waste and water
Solid waste (tonnes)
Water consumption (thousand m3)
Animal welfare
Somatic cell count (thousand cells/ml)
Share of audited farmers with no major cleanliness issues
Share of audited farmers with no major mobility issues
Share of audited farmers with no major injury issues
Share of audited farmers with no major body condition issues

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 (%)

* Including all board members, those elected by the general meeting, employee representatives and external advisors, the share of females was 20 per cent as of 31 December 2021.

-25%
-7%
447
286
19,050
19,783
243
19,740
1.20

-20%

33%
32%

33,500
18,860

191
98.4%
99.5%
100%
99.8%

20,617
27%
27%
14%
1.03
13%
0
4.3

13%
98%

1.1

1.2
1.2

1.3
1.4

1.5
1.5
1.5
1.5
1.5

2.1
2.2
2.2
2.2
2.3
2.4
2.5
2.6

3.1
3.2

-24%
-7%
474
277
18,625
19,376
237
19,336
1.21

-16%

31%
35%

32,975
18,663

-12%
-7%
463
399
18,387
19,249
274
19,124
1.21

-4%
-7%
490
456
18,553
19,499
263
19,306
1.20

-5%
-6%
492
438
18,671
19,601
313
19,476
1.22

-14%

-12%

-6%

33%

27%

24%

33,713
18,059

34,600
18,084

32,608
18,670

194

196

198

194

20,020
27%
26%
14%
1.05
10%
1
5.2

13%
99%

19,174
27%
26%
29%
1.05
12%
4
6.0

13%
96%

19,190
27%
23%
29%
1.06
12%
2
7.9

13%
99%

18,973
26%
22%
29%
-
11%
10
9.3

12%
99%

124

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Notes

Contents

Environmental figures
1.1 GREENHOUSE GAS EMiSSiONS (CO2e)

OUR fARMERS REMAiN AMONGST MOST CLiMATE EffiCiENT

To follow up on Arla’s contribution to climate change
and the progress towards our emission targets, our
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 Corporate Standard (GHG
protocol). In line with Arla’s Science Based Targets, the
group does not account for carbon credits.

Emissions related to packaging and transport increased
mainly due to expanded production in our international
markets. According to our Science Based Target, scope 3
emissions per kg of milk and whey should be reduced by
30 per cent by 2030. In 2021 the reduction was 7 per
cent compared to 2015 and on par with last year,
showing that our farmers are amongst the most climate
efficient globally.

Since 2015, scope 1 and scope 2 CO₂e emissions
decreased by 25 per cent well in progress to reach our
updated scope 1 and 2 science-based reduction target
of 63 per cent by 2030.

Scope 3 emissions per kg milk and whey amounted to
1.20 kg, unchanged compared to last year. In 2021,
emissions specifically from Arla’s owners amounted to
1.15 kg CO₂e per kg of owner milk, on a par with last year.

In 2021, total C0₂e emissions increased to 19,783
million kg compared to 19,376 million kg last year
The development is explained by an increase in
externally purchased whey in Arla Foods Ingredients
and increased emissions related to expanding
production capacity at our production site in Bahrain.
These factors were partly offset by increased purchase
of biogas certificates.

CO₂e emission development
(mKG)

20,000

18,000

16,000

14,000

12,000

10,000

19,376

10%

86%

2020

-18

-259

684

19,783

Scope 1+2

13%

Other
scope 3

Milk
scope 3

83%

CO₂e scope 3
per kg milk
and whey

-7%

Compared to
2015

ESG Table 1.1 Greenhouse gas emissions
(mkg)

CO₂e reduction scope 1 and 2 market-based
(baseline: 2015)
CO₂e reduction scope 3 per kg milk and whey
(baseline: 2015)

CO₂e scope 1
Operations
Transport
CO₂e scope 1

CO₂e scope 2
CO₂e scope 2 – market-based*

CO₂e scope 3**
Purchased goods and services (category 1):
Milk***
Whey
Packaging
Purchased goods and services (category 1)

Fuel and energy-related activities (category 3)
Upstream transport and distribution (category 4)
Waste generated in operations (category 5)
CO₂e scope 3
Total CO₂e
CO₂e Scope 2 – location-based
Total CO₂e – location-based

2021

2020

2019

2018

2017

-25%

-24%

-12%

-7%

368
79
447

381
93
474

366
97
463

-4%

-7%

400
90
490

-5%

-6%

408
84
492

286

277

399

456

438

16,386
1,751
417
18,554

125
347
24
19,050
19,783
243
19,740

16,645
1,133
396
18,174

120
306
25
18,625
19,376
237
19,336

16,524
1,032
384
17,940

110
312
25
18,387
19,249
274
19,124

16,548
1,162
383
18,093

108
326
26
18,553
19,499
263
19,306

16,809
1,002
384
18,195

105
345
26
18,671
19,601
313
19,476

Scope 1+2

Scope 3
milk

2021

Scope 3
whey and other

* In 2020, Arla switched to market-based reporting, read more on page 125.
** Scope 3 emissions from categories 2, 6, 7, 8, 9, 12, 13 and 15 are immaterial to Arla’s scope 3 emissions and are therefore not included in
the emission figures in ESG Table 1.1. The categories mentioned individually account for less than 0.6 per cent of the Arla’s scope 3 emissions.
Categories 10, 11 and 14 are not applicable to Arla due to the nature of the products and the Arla business model.
*** The milk conversion factor from litre into kg was 1.02 for milk volumes until 30 June, 2021. Effective from 1 July 2021, the milk conversion
factor is 1.03. Historical figures for owner milk was re-statet to the new conversion factor.

125

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Notes

Contents

Environmental figures
1.1 GREENHOUSE GAS EMiSSiONS (CO2e)

Accounting policies

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: methane (CH₄) and nitrous oxide
(N₂O). In order to calculate Arla’s total greenhouse gas
emissions (the carbon footprint), 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 from
digestion and manure storage, nitrous oxide from
fertilizer and manure usage.

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 GHG protocol 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 GHG protocol by
applying emission factors to Arla-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 – 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 from owners and contract
farmers, whey, packaging and transport purchased from
suppliers), but also waste processing from sites. Scope 3
emissions are, in line with the GHG protocol, calculated
by applying emission factors to Arla-specific activity data.

wHERE DO OUR EMiSSiONS COME fROM?

N₂O

CO₂

N₂O/CH₄ CH₄

CH₄

CO₂

Scope 1
2%

Feed production

Farms

Transport

Production and offices

Transport

Waste
management

Scope 3
96%

Purchased energy

Scope 2
2%

According to the 2021 quantification of Arla’s climate impact, scope 1 and 2 emissions accounted for 2 and 2 per cent of total emissions, respectively. Scope 3 emissions
accounted for 96 per cent of Arla’s 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 83 per cent of total emissions.

* The IPCC (Intergovernmental Panel on Climate Change) is the United Nations’ body for assessing the science related to climate change.

126

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Notes

Contents

Environmental figures
1.1 GREENHOUSE GAS EMiSSiONS (CO2e)

Accounting policies (continued)

Emissions from whey relates to externally purchased whey
for the largest sites of Arla Foods Ingredients. Included
whey is standardised and recalculated based on the milk
solid content to consider the difference in quality and
fractions purchased at Arla. The emission factor related to
externally purchased whey was unchanged at 1.0, a
conservative estimate (Flysjö, 2012).

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. Biogenic emissions are not currently
disclosed in the ESG section but will be disclosed from
2022. 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. Emission factors are
unchanged compared to 2020 due to changes in delivery
time from Sphera. Farm-level emission factors are obtained
from 2.-0 LCA Consultants. For non-owner milk, emission
factors were unchanged at 2015 levels.

Scope 3 – Emissions on farm
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). The tool used for calculating the carbon footprint
from milk is based on an attributional life-cycle assessment
(LCA) that has been developed during the last decade in
collaboration with 2.-0 LCA Consultants, a Danish
consultancy firm formed by academics. For detailed
descriptions of methodology, please refer to Schmidt and
Dalgaard (2021). Farm-level emission factors are also
obtained from 2.-0 LCA Consultants. Non-owner milk
emissions are calculated by multiplying milk volume with
emission factors based on national inventory data and not
Arla specific data. The calculations are based on an earlier
version of the farm tool following IDF 2010 (Dalgaard R,
Schmidt J, Cenian K, 2016).

Emissions related to raw milk include emissions both on
and off farm. The emissions relate to the cow’s digestion,
feed production and purchase, manure storage, energy
usage, capital goods and peat soils. Emissions related to

feed include fertilizer for home-grown feed and purchased
feed, and transport of purchased feed. Manure storage can
result in methane and nitrous oxide emissions. The
amount of emissions varies depending on how manure is
covered and whether it is used for biogas production. Peat
soils are wetland with a high CO₂e content. When soils are
drained and used in crop production CO₂ and N₂O are
released. The emission figure related to raw milk presented
in this report is a weighed average emission per kg of milk,
calculated based on validated climate data from farms
where the data has been validated by external climate
experts, multiplied by the fat and protein adjusted milk
intake. Farms visited by external climate experts are
statistically representative of all Arla farms.

Uncertainties and estimates

In 2021, 93 per cent of Arla’s active farmer owners,
covering 98 per cent of Arla’s owner milk volume,
submitted a detailed Climate Check questionnaire (farmers
receive an incentive of 1.0 EUR-cent/kg of milk to
complete the survey). Their answers were validated by
external climate experts. This report includes only
externally validated data which at year end 2021,
accounted for 77 per cent of Arla’s active farmers.

Farmer owners complete the Climate Check once a year
based on data from their most recent 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 are not
necessarily based on farm data covering the same period.
The majority of data, 61 per cent, relates to the period
1 January 2020 to 31 December 2020 while 14 per cent
relates to earlier periods.

An uncertainty analysis has been carried out to understand
the biggest areas of uncertainty related to self-reported
farm emission data. The analysis was centred around four
key levers; herd, feed, crops and manure handling, and
addressed the parameters with the highest impact on the
emissions on farm. The analysis concluded that data could
be manipulated, in worst case up to 10-12 per cent, but
only if the farmer had a starting point of high emissions
and claimed to change from no biogas treatment to full
biogas treatment of slurry. Smaller farmers and farmers

using extensive grazing systems are not always measuring
the amount of feed that the cows eat or the dry matter
content of the grass on the fields. To enable these farmers
to report, the system contains a model which calculates
feed consumption based on herd size and milk yield.
Reporting on peat soils is a developing field and still
subject to higher uncertainty than other areas. Due to
it's relatively high climate impact uncertainties related
to peat soils could have significant impact on the total
reported greenhouse gas figure. The risk of errors and data
manipulation is minimised by external climate advisors
validating the data, and also by a systematic statistical
process conducted by Arla to filter outliers. All outliers
are flagged to the climate advisors, who may go back to
the farmer to investigate. Numbers are only released for
reporting after thorough investigation.

The methodology used to calculate emissions on farm is
developing over time. Currently, factors that potentially
lower total net emissions, such as carbon sequestration on
farm and direct land use change, are not included. IDF
2015 suggest that direct land use change should be
included in the calculations.

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.

wHERE DO OUR EMiSSiONS COME fROM ON fARM?

CO₂

N₂O

CH₄

CO₂

33%

10%

41%

Peat
soil

Feed purchased
and home-grown

Manure
storage

Cows’ digestion
of feed

Energy

Other emissions, 2 per cent, include capital goods and destruction of animal remains.

127

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Notes

Contents

Environmental figures
1.2 RENEwABLE ENERGy SHARE

SHARE Of RENEwABLE ENERGy iNCREASED

Accounting policies

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.

The renewable energy share increased to 33 per cent in
2021 compared to 31 per cent last year. The ratio was
positively impacted by the purchase of additional green
electricity and biogas in Denmark.

In 2020, the accounting method for renewable energy
was changed from location-based to market-based
accounting. Between 2016 and 2019, Arla purchased a
number of green certificates without accounting for
these in the figures, therefore only 2020-2021 figures
are disclosed in ESG Table 1.2.

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
contractual 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

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. The
data presented in ESG Table 1.2 is collected monthly
from Arla’s 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 account for energy losses, therefore all energy
purchased is included in the figures.

ESG Table 1.2 Energy purchased for production
(thousand MWh)

2021

2020

2019

2018

2017

THE GREEN pOwER LOOp pRESENT AND fUTURE

Non-renewable sources:
Natural gas, fuel oil and gas oil
Electricity
District heating
Non-renewable sources

Renewable sources:
Biogas and biomass
District heating
Electricity
Renewable sources
Total energy purchased for production

Renewable energy share, market-based*
Renenewable energy share, location-based

1,773
634
19
2,426

563
210
421
1,194
3,620

33%
32%

1,816
626
5
2,447

559
119
432
1,110
3,557

31%
35%

-
-
-

-
33%

-
27%

-
24%

One way of securing green electricity for our operations is by buying Guarantees of Origin (GO) certificates
directly from our farmer owners. This will secure our farmers a better price for their power and provide
Arla access to additional certificates.

pRESENT

Farmer/Owner

Utility company

Any company

Arla

100%

* 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.

fUTURE

128

Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Notes

Contents

Environmental figures
1.3 wASTE

Environmental figures
1.4 wATER

SOLiD wASTE iNCREASED

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 2021, solid waste increased to 33,500 tonnes
compared to 32,975 tonnes last year mainly driven by
expanded production capacity in Bahrain.

Currently, Arla discloses only solid waste in ESG Table
1.3. which is only a small part of Arla’s total waste. Other
waste types are product waste and sludge. Arla is working
to further improve the food waste reporting accuracy and
efficiency with the aim of including food waste in the ESG
reporting.

wATER CONSUMpTiON SLiGHTLy Up

Providing access to clean water is an important part of
Arla’s environmental ambition, and as such, reducing
water usage and enhancing water cleansing technolo-
gies at production sites is a key focus area.

In 2021, water consumption in Arla increased by
1 per cent compared to last year, driven by expanded
production capacity in Bahrain and increased
mozzarella production in Denmark.

ESG Table 1.3 Solid waste
(tonnes)

Recycled waste
Waste for incineration with energy recovery
Waste for landfill
Hazardous waste
Total

2021

2020

2019

2018

2017

21,640
8,679
1,921
1,260
33,500

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

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. Arla collects data monthly from
all sites where we have control.

Solid waste information is retrieved from external
waste handlers monthly and reported by the sites.
In 2021, data collection for Denmark and Sweden
was automatised. For the other countries, the source
remains manual entries by sites which increases the risk
of errors. Relevant controls are in place to mitigate the
risk of errors.

ESG Table 1.4 water consumption
thousand m³

Water purchased externally
Water from internal boreholes
Total

2021

2020

2019

2018

2017

11,057
7,803
18,860

10,918
7,745
18,663

10,589
7,470
18,059

10,484
7,600
18,084

10,862
7,808
18,670

Accounting policies

Uncertainties and estimates

The water consumption covers all water purchased
from external suppliers and water from internal
boreholes at production sites, warehouses and logistics
terminals. External borehole water includes water
purchased from external suppliers before internal
treatment. Internal borehole water relates to boreholes
on sites measured before internal treatment.

Water consumption data is based on monthly manual
input from sites. The externally purchased water is
checked against supplier data, while internal borehole
water is retrieved from manual meter readings.
To mitigate the risk of manual errors, data go through
thorough internal validation at the site and centrally
at Arla.

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Environmental figures
1.5 ANiMAL wELfARE

ANiMAL wELfARE jOURNEy ON TRACK

ESG Table 1.5 Animal welfare indicators

2021

2020

2019

2018

2017

Animal welfare is a key priority for our farmer owners,
and for Arla as a company. Arla is committed to
reporting on the most important measures to describe
and improve animal welfare. Our animal welfare KPIs
include somatic cell count, which is a good indicator
of disease and stress in cows, and four indicators
connected to the physical appearance and well-being
of cows. The indicators are body condition, cleanliness,
mobility and injuries. These indicators were developed
based on scientific research into the most common dairy
cattle issues.

welfare. The percentage of audited farms was 37 per
cent in 2021 corresponding to 3,337 audits.The results
of the audit can trigger a follow-up audit either if there
are major issues or if there are several minor issues. In
case of repeated animal welfare breaches, Arla stops
milk collection from the non-compliant farm, and in
rare, extreme cases terminates the membership. During
2020, the audit process was upgraded and harmonised
across all owner countries to ensure that auditors follow
the same procedure and standards everywhere.
Therefore, only 2021 data is reported.

Animal welfare on farm is externally audited at least
once every three years by a world-leading quality
assurance and audit firm, SGS, specialising in animal

The average somatic cell count across Arla geographies
fell by 2 per cent to 191 thousand cells/ml, the lowest
level for more than five years.

fOUR CORE ANiMAL wELfARE iNDiCATORS
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.

Mobile cows
walk without any
problems, and have
no pain in their legs
and hooves.

COwS wiTH GOOD
BODy CONDiTiON

MOBiLE
COwS

CLEAN
COwS

COwS wiTHOUT
iNjURiES

Clean cows
have a lower risk
of being infected
by disease.

Ratio calculated based on 3,337 Arlagården® audits performed in 2021.

Cows without injuries
An injury on a cow can be
a lump, bump, ulcer or sore.

Somatic cell count (thousand cells/ml)
Share of audited farmers with no major cleanliness issues
Share of audited farmers with no major mobility issues
Share of audited farmers with no major injury issues
Share of audited farmers with no major issues related to
body condition

191
98.4%
99.5%
100.0%

99.8%

194
-
-
-

196
-
-
-

198
-
-
-

194
-
-
-

Accounting policies

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. 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 is a weighted average
of Arla’s entire milk intake in a given year. The SCC
count is received from several laboratories across owner
countries. SCC above 300 reduces the milk price to the
farmer, while an addition is given for SCC below 300.

Audit on farms and animal-based indicators
Animal welfare conditions on all Arla farms are regularly
audited. An audit entails a thorough check-up of the
herd and the farm from all relevant animal welfare
perspectives. Audits include basic audits (performed
every three years), spot checks, start-up visits, attention
and special attention audits. Audited farmers are
defined as the percentage of owners who received at
least one audit in 2021. One owner could potentially
receive more than one audit per year if the farmer owns
more than one farm or if the farmer receives both a
basic audit and a spot check audit. Follow-up audits are
not included in the figure.

Animal-based indicators evaluated by auditors
The KPIs reported in Table 1.5 relate to the share of
audited farmers with no major issues reported within
each category. When an auditor visits the farm, a sample
of the herd is selected. The sample size varies with the
herd size. The auditor scores the cows in the sample for
the four core welfare indicators on a scale of 0-2, where
0 means no issues identified, 1 means minor issues and
2 means major issues. The results are reported to Arla.
If the auditors find more than 5 per cent of the sampled
cows too thin, more than 25 per cent too dirty, more
than 15 per cent lame or more than 10 per cent injured,
they report it as a major animal welfare incident to Arla.

Uncertainties and estimates

The UK somatic cell count includes the somatic cell
count for contract farmers as well as owners, however
this has no significant impact on the total somatic cell
count.

Farms are audited every three years. A year-on-year
comparison may therefore be affected due to the fact
that it is not the same farms being audited every year.

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Social figures
2.1 fULL-TiME EQUiVALENTS

fTES iNCREASED DUE TO iNSOURCiNG AND iNTERNATiONAL EXpANSiON

Full-time equivalents split by employee type, 2021

People are crucial to Arla’s success, 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 (FTEs). The total
number of FTEs increased by 3.0 per cent compared to
last year. A key driver was insourcing of administrative
tasks in UAE and Oman and expansion of production
capacity in Bahrain to enable increased demand and
the move of production lines from Denmark and Saudi
Arabia. The increase in FTEs in Denmark can be
ascribed to expansion in Arla Foods Ingredients and
insourcing of IT and marketing activities.

Over the last five years, the FTE level increased on
average 2 per cent per year. The numbers show a shift
from our core European markets to Poland and
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

2021

2020

2019

2018

2017

Denmark
UK
Sweden
Germany
Saudi Arabia
Poland
North America
The Netherlands
Finland
Other countries
Full-time equivalents

7,565
3,616
3,076
1,590
974
582
501
349
364
2,000
20,617

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

White-collar

37%

Blue-collar

63%

20,617

Employees

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.

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Social figures
2.2 GENDER DiVERSiTy

SHARE Of fEMALES iN MANAGEMENT iNCREASED

Gender diversity for all employees, 2021

A diverse workforce is key to Arla’s success. 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's goal is to create a workplace with a diverse
workforce promoting equal opportunities regardless of
background, culture, religion, gender etc. Diversity,
inclusion and anti-harassment policies are in place to
handle issues in a structured manner and a whistle-
blower 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 2021, the female share of FTEs remained unchanged
from last year at 27 per cent. Read more about how Arla
works with diversity on page 55.

Gender diversity (in management)
27 per cent of positions at director level or above were
held by women, which was a small increase compared
to last year.

Gender diversity (in Executive Management Team)
14 per cent of the Executive Management Team
members were women, unchanged compared to last
year.

Female

27%

Male

73%

ESG Table 2.2.a Gender diversity for all employees
(all employees)

2021

2020

2019

2018

2017

Accounting policies

Total share of females

27%

26%

ESG Table 2.2.b Gender diversity in management
(diversity in management)

2021

2020

2019

2018

2017

Share of females at director level or above

27%

26%

23%

22%

ESG Table 2.2.c Gender diversity in Executive
Management Team

2021

2020

2019

2018

2017

Share of females in Executive Management Team (EMT)

14%

29%

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 2021. 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 2021.

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Social figures
2.3 GENDER pAy RATiO

Social figures
2.4 EMpLOyEE TURNOVER

GAp BETwEEN MALE AND fEMALE SALARy DECREASED

EMpLOyEE TURNOVER Up DUE TO COVID

Paying equal salaries for the same job regardless of
gender is a basic requirement for an ethical and
responsible company. At 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.

Gender pay ratio is an indicator of where women are
placed in the company hierarchy. Arla targets complete
equitable treatment between genders, which would be
represented by a gender pay ratio of 1.0. In 2021, the
median male salary at Arla was 3 per cent higher than
the median female salary, a decrease compared to 5
per cent 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. Arla aim for
a stable turnover and recognise that some turnover is
needed to remain competitive and innovative.

Employee turnover increased to 13 per cent compared
to 10 per cent last year. The development was driven by

an increase in voluntary turnover to 10 per cent from 6
per cent last year. The increase was slightly higher than
the level for previous years, likely impacted by the
Covid-19 situation and the unusually low voluntary
turnover in 2020. The involuntary turnover decreased
slightly to 3 per cent compared to 4 per cent last year.

ESG Table 2.3 Gender pay ratio

2021

2020

2019

2018

ESG Table 2.4 Employee turnover

2021

2020

2019

2018

2017

Gender pay ratio

1.03

1.05

1.06

Voluntary turnover
Involuntary turnover
Total turnover

10%
3%
13%

6%
4%
10%

8%
4%
12%

8%
3%
11%

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 pensions and other benefits are not
included.

The ESG reporting guidelines issued by CFA Society
Denmark and Nasdaq recommend including the total
workforce as well as bonus and pension in the equation.
However, due to data limitations only the gender pay
ratio for the white-collar workforce is disclosed. It is
estimated that including blue-collar employees in the
gender pay ratio would reduce the gap, as males are
overrepresented in the blue-collar 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 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).

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Social figures
2.5 fOOD SAfETy – NUMBER Of pRODUCT RECALLS

ZERO pRODUCT RECALLS iN 2021

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 the
most important indicators towards consumers,
signalling that Arla’s products are produced and
labelled according to the highest quality standards.

In 2021, no product recalls occurred, while last year
there was one. 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 products (Arla or
private label). The handling of all public recall incidents
follows a detailed and standardised process. Product
incident management is also tested annually.

ESG Table 2.5 Recalls

2021

2020

2019

2018

2017

Number of recalls

fEEDBACK LOOp TO REDUCE ACCiDENTS

Accidents,
near misses
and observation
registered

Data
shared across
organisation

Number
of accidents
reduced

Safety
improvement
initiatives
implemented

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.

2.6 ACCiDENTS

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.

ESG Table 2.6 Accidents
(per 1 million working hours)

2021

2020

2019

2018

2017

Accident frequency

4.3

5.2

6.0

7.9

9.3

ACCiDENTS REMAiNS KEy pRiORiTy

Arla has a comprehensive 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 4.3 compared to 5.2 last year.
The decrease is seen across both logistic and production
especially in Denmark, Sweden and Finland, but also at
international sites. The development is a result of
continued focus on safety awareness through cornerstone.

Accounting policies

An LTA is a workplace injury sustained by an employee
while completing work activities that result in the loss of
one or more days off from work on scheduled working
days/shifts. An accident is considered a lost-time acci-
dent 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 – both Arla employees and agency
workers undertaking an Arla job – sustaining injury or
illness related to the workplace are required to report it
to their team leader or manager as soon as reasonably
practical, regardless of severity.

Most site employees 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. The number of
accidents is reported monthly to the Board of Directors
and Executive Management Team.

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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 at 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 2021, 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
2021, Arla set a new four-year target to achieve a
female representation on the Board of Directors of at
least 20 per cent. In 2021, the target was not achieved.

ESG Table 3.1 Gender diversity on Board of Directors

2021

2020

2019

2018

2017

Share of females on the Board of Directors

13%

12%

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 2021, board attendance remained at the same level
last year. Information on board members can be found
on pages 42-44.

ESG Table 3.2 Board meeting attendance

2021

2020

2019

2018

2017

Number of meetings
Attendance

12
98%

10
99%

10
96%

13
99%

9
99%

Accounting policies

The gender diversity ratio is calculated as the share of
female members as at 31 December. It includes only
members of the Board of Directors elected by the

general meeting and excludes employee representatives
and advisors to the Board of Directors.

The board meeting attendance ratio is calculated as
the sum of regular 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.

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Governance data
3.3 GENERAL ACCOUNTiNG pOLiCiES

Basis for preparation
The environmental, social and governance (ESG) report
is based on ongoing monthly and annual reporting
procedures. The consolidation principles are based on
operational control 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
When presenting the ESG report, management
focuses on presenting information that is considered of
material importance to Arla’s stakeholders, or which is
recommended to be reported by relevant professional
groups or authorities.

During 2021, we updated our materiality analysis,
which is now based on the concept of double
materiality. This means that we are exploring the impact
Arla has on stakeholders in relation to social, environ-
mental or economic issues, as well as the impact of
these issues on Arla’s business.

Each topic in the materiality matrix (see graphic)
represents a wider agenda and underlying issues, which
are identified from relevant ESG/sustainability
frameworks, and qualified through insights from Arla’s
strategy process. Based on input from different expert
groups within the Arla value chain, a draft matrix was
prepared and sent out to a wider group of selected
external and internal stakeholders for further comments
and dialogue. The external stakeholders include top 20
customers, elected farmer owners, NGOs and financial
institutions in Denmark, Sweden, the UK and Central
Europe.

The 2021 update showed that food safety is still the top
priority for both external and internal stakeholders.
Other areas, which are still highly prioritised are animal
care and greenhouse gas emissions.

The above priorities are reflected throughout the
annual report: Animal welfare (page 26 and the CSR
report), governance principles (pages 46-56) and
diversity policies (page 55) are reported at length, while

in the ESG report, data and accounting policies related
to Arla’s greenhouse gas emissions (Note 1.1), animal
welfare (Note 1.5), food safety (Note 2.5), waste (Note
1.3) and diversity (Notes 2.2 and 2.3) are presented,
making Arla’s business more transparent and
accountable.

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 eg. recyclability in
packaging, the necessary steps to improve data
tracking and collection have been initiated. In the
coming years, plans are to widen the scope of reporting
to fully comply with best practice in ESG reporting.

Reporting scope
Environmental KPIs (Notes 1.1-1.4) 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, the 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 five years, Arla
assesses if the structural changes (e.g. acquisitions 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

When the 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.

MATERiALiTy ANALySiS

l
a
i
t
n
e
s
s
E

h
g
H

m
u
d
e
M

w
o
L

S
R
E
D
L
O
H
E
K
A
T
S
N
O
T
C
A
p
M
I

• Food

Safety

• Animal Care

• Greenhouse

gas emissions

and quality on farms

• Water availability
• Water availability and

quality on dairy sites

• Packaging

• Air pollution
• Responsible sourcing• Affordable
• Healthy soils

Food

• Waste

• Biodiversity & nature
• Healthy Foods
• Transparent & accountable
• Respect Human rights

business

• Product

innovation

• Natural products

incl. organic

• Diversity

& Inclusion

• Innovation

• Farmer development

• Safe & Healthy

work

• Local community

engagement

• Product information

supp. Informed
choices

• Supply chain efficiency
• Attractive employer

• Digitalisation

Low

Medium

High

Essential

IMpORTANCE TO ARLA

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Arla Foods Consolidated Annual Report 2021 / Environmental, social and governance (ESG) data / Independent Auditor’s reasonable Assurance Report

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INDEpENDENT AUDiTOR’S REASONABLE ASSURANCE REpORT

TO THE STAKEHOLDERS Of ARLA fOODS AMBA

We have been engaged by Arla Foods amba to perform
a reasonable assurance engagement, as defined by
International Standards on Assurance Engagements,
hereafter referred to as the engagement, to report on
Arla’s environmental, social and governance figures in
the ESG statements (the ‘Subject Matter’) contained in
the annual report on pages 121-135 for the period
1 January 2021 to 31 December 2021 (the ‘Report’).

Criteria applied by Arla
In preparing the Subject Matter, Arla applied the criteria
described on pages 121-135 (the ‘Criteria’). The Subject
Matter needs to be read and understood together with
the reporting criteria, which management is solely
responsible for selecting and applying. As a result, the
subject matter information may not be suitable for
another purpose.
The absence of an established practice on which to
derive, evaluate and measure the Subject Matter allows
for different, but acceptable, measurement techniques
and can affect comparability between entities and over
time.

Management’s responsibilities
Arla’s management is responsible for selecting the
Criteria, and for presenting the Subject Matter in
accordance with that Criteria, in all material respects.
This responsibility includes establishing and maintaining
internal controls, maintaining adequate records and
making estimates that are relevant to the preparation of
the subject matter, such that it is free from material
misstatement, whether due to fraud or error.

Auditor’s responsibilities
Our responsibility is to express an opinion on the
presentation of the Subject Matter based on the
evidence we have obtained.

We conducted our engagement in accordance with the
International Standard for Assurance Engagements
Other Than Audits or Reviews of Historical Financial
Information (‘ISAE 3000’) and additional requirements
under Danish audit legislation. Those standards require
that we plan and perform our engagement to obtain
reasonable assurance about whether, in all material
respects, the Subject Matter is presented in accordance
with the Criteria, 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, our procedures included:
• Interviews with relevant personnel to understand the
business and reporting process during the reporting
period, including the process for collecting, collating
and reporting the Subject Matter and inspected
relevant documentation

• Checking that the calculation criteria have

been correctly applied in accordance with the
methodologies outlined in the Criteria

• Undertaking analytical procedures to support the

reasonableness of the Subject Matter

• Identifying and on a sample basis testing assump-
tions supporting calculations of environmental
figures on pages124-129.

• When feasible testing, on a sample basis, underlying

source information to check the completeness
and the accuracy of the data. When not possible to
obtain underlying source information, performing
procedures such as recalculation and comparison to
financial metrics or statistical modelling to confirm
the logic of data

• Performing two physical site visits in Denmark and
Germany and two virtual site visits in Argentina and
the UK to visually inspect operations, make inquiries,
test that processes and controls are conducted in line
with our understanding, inspect documents on a
sample basis and evaluate if site follows group
reporting guidelines

• Interviews with external specialists responsible for
providing input to the calculations of the animal
welfare and farmer climate data to evaluate the
competence, capabilities and objectivity as well as
evaluate whether the results of the external
specialist’s work are adequate for our purposes

• Evaluating the consistency of the information in the
Subject Matter with the information in the annual
report which is not included in the scope of our
examinations

We also performed such other procedures as we
considered necessary in the circumstances.

We believe that the evidence we have obtained is
sufficient and appropriate to provide a reasonable
basis for our opinion.

Conclusion
In our opinion, Arla’s environmental, social and
governance figures in the ESG statements for the
period 1 January 2021 to 31 December 2021 are
presented, in all material respects, in accordance with
the criteria described on pages 121-135.

Aarhus, 9 February 2022
EY Godkendt Revisionspartnerselskab
CVR no. 30700228

Henrik Kronborg Iversen
State Authorised Public
Accountant
MNE no. 24687

Carina Ohm
Partner
Head of Climate Change
and Sustainability Services

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Arla Foods Consolidated Annual Report 2021 / Glossary

Contents

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.

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.

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Arla Foods Consolidated Annual Report 2021 / Glossary

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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.

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: Kristian Holm, Jens Bangsbo, 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.

Financial reports
and major events

23-24

fEBRUARy
Board of representatives
meeting

fEBRUARy
Publication of the
consolidated annual report
for 2021

MAy
Board of Representatives
Election

AUGUST
Publication of the
consolidated half-year
results for 2022

5-6

OCTOBER
Board of Representatives
Meeting

Contents

CORpORATE
CALENDAR 2022

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