Arafura Resources Annual Report 2023

FY2023 Annual Report · Arafura Resources

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ANNUAL

REPORT

2023

On the frontpage:
Kevin Anhamm, the Arla
Innovation Farm in Central
Europe, Kampt-Lintfort, Germany.

In the heart of North Rhine-Westphalia, Germany,
Kevin Anhamm operates the first Central European
Arla Innovation Farm alongside his wife Rebecca,
one full-time employee, one part-time employee
and two trainees. This means that there is now an
innovation farm in each of the four European Arla
areas. These farms serve as testing grounds for new
ideas and projects aimed at enhancing our carbon
footprint on farm.

At Kevin's farm, the key areas of focus include
feed efficiency, biodiversity and, in particular,
animal welfare. Kevin places great importance
on the well-being of his 295 Holstein dairy cows
with 180 female offspring, and is committed to
ongoing investments in this aspect. Kevin strives
to continually develop his farm and remain at
the forefront of modern agriculture. The external
opening of the Central European Innovation
Farm is scheduled for April 2024.

ABOUT THIS REPORT

This is our detailed annual report
of Arla's financial and sustainability
performance, risks, strategy
and governance. It includes our
consolidated financial statements and
our externally audited sustainability
statements.

In 2022, we integrated our financial
and sustainability (ESG) reports into
one comprehensive report to enhance
transparency in our reporting and
provide our stakeholders with a holistic
view of our company's performance and
long-term value creation. In 2023, we
made further changes to the report to
align with the European Sustainability
Reporting Standards (ESRS) structure
and requirements following the EU
Corporate Sustainability Reporting
Directive (CSRD), which Arla is obliged
to implement in 2025.

ESRS structure and requirements
According to the ESRS, companies
are required to disclose their
Environmental, Social and Governance
(ESG) information in a dedicated section
called 'Sustainability Statements',
placed within the management review
section. To meet this requirement, the
ESG data section, which was placed
after the financial statements in last
year's report, is now integrated into the
Environmental, Social and Governance
sections on pages 28-86.

In the first chapter of the sustainability
statements, we give a detailed account
of our double materiality assessment
and provide an overview of the ESRS
topics that we determined as material.
In the following sections, we report
on our impacts, ambitions, policies,
strategies, actions, resources and

progress towards targets for each of
these material topics. Use the little
coloured page tags to navigate and
understand the page structure. For
a detailed overview of all the ESRS
disclosure requirements addressed in
this report, please refer to page 154.

Consolidated financial
statements
In this condensed report, the
consolidated financial statements
on pages 87-144 do not include
the parent company financial
statements. These are included in the
report submitted for the authorities
in Denmark. The structure of the
consolidated financial statements is
unchanged compared to the structure
in the annual report 2022.

TABLE OF
CONTENTS

MANAGEMENT
REVIEW

INTRODUCTION

5 Chair letter
6 CEO letter
7 2023 performance at a glance
8
9 2023 highlights
10 Business model
11 Future26 – our strategy

Five-year overview

PERFORMANCE
REVIEW

13 Executive summary
14 External market overview
15 Performance overview
24 2024 outlook

RISKS AND
OPPORTUNITIES

26 Risk governance
27 Arla's risk position

II.

FINANCIAL
STATEMENTS

III.

REPORTS AND OTHER
DISCLOSURES

CONSOLIDATED
FINANCIAL STATEMENTS

MANAGEMENT'S AND
AUDITOR'S REPORTS

Primary statements
88
88
89
90
91
94

Income statement
Comprehensive income
Profit appropriation
Balance sheet
Equity
Cash flow

Notes
96
Introduction to notes
99 Note 1: Revenue and costs
105 Note 2: Net working capital
108 Note 3: Capital employed
116 Note 4: Funding
136 Note 5: Other areas

146

147

149

Board of Directors' and Executive
Board's report
Independent auditor's report on the
consolidated and parent company
financial statements
Independent auditor's
assurance report on
the sustainability statements

OTHER DISCLOSURES

152
153

154

155
157

UN Global Compact
Progress towards UN
Sustainable Development Goals
ESRS disclosure
requirements overview
Glossary
Corporate calendar

SUSTAINABILITY
STATEMENTS

General information
29 Sustainability in Arla
30 Materiality assessment

Environment
33

Climate change and
animal welfare

45 Biodiversity and nature
52 Resource use and circularity

Social
58

Employees and workers in
our value chain
Consumers – healthy and
safe nutrition

Governance
75 Governance framework
77 Management
81 Management remuneration
82 Fair and transparent tax

practices

84 Responsible business conduct

PAGE 3ARLA'S ANNUAL REPORT 2023
INTRODUCTION

ARLA® SKYR

Arla's wide range of nutritious
and affordable products create
value for consumers in 146
countries across the world.

5
6
7
8
9
10
11

Chair letter
CEO letter
2023 performance at a glance
Five-year overview
2023 highlights
Business model
Future 26 strategy

STRENGTHENING
THE FOUNDATION
FOR A SUSTAINABLE
FUTURE

ith changing market
conditions and a rapid
transition from the
extraordinary circum-
stances of 2022, 2023
marked a significant

year for Arla and our 7,999 farmer
owners. Thanks to the strong execution
by our farmer owners, employees
and management, Arla once again
demonstrated our agility in navigating
through these challenging market
conditions. I am incredibly proud of
our solid results, both financially and
in terms of sustainability goals, in the
ever-changing landscape of 2023.

Our Sustainability Incentive model,
launched in the summer of 2023,
builds upon a long-standing data and
science-based approach to how we in
Arla can reduce our carbon footprint.
In 2023, EUR 226 million was paid out
related to the Climate Check payment
and the incentive payment for the last
six months of the year.

The results for 2023 show that our
overall strategy is working as intended
and that we are able to accelerate our
efforts. CO2e emissions for owner milk
were reduced to an average of 1.08
per kg of milk compared to 1.12 the
previous year, highlighting our effective
approach and firm commitment to
leading the future of dairy in value
creation and sustainability.

With the introduction of the
Sustainability Incentive model and the
new customer programme, the value-
add happening on our owners' farms has
been even further strengthened. We are
pleased with the results of the year and
will continue working towards our goals
of creating long-term value for our
farmers, our customers and our society.

2023 was a year of two halves.
Production costs rose while milk
prices experienced a substantial
decline in the first half of 2023.
Since then, the market adjusted, and
milk prices stabilised and improved
towards the end of the year, but some
production costs remained at a high
level. Adjusting the economy on the
farms simultaneously with these
shifting conditions in an uncertain
market has been a challenge for
many farmer owners.

The average pre-paid milk price in
2023 was 44.1 EUR-cent/kg, which is
14.7% lower than the extraordinarily
high price level of last year.
Nevertheless, the solid financial results
allowed for a competitive milk price
and a supplementary payment of
EUR 270 million, equivalent to 2.07
EUR-cent per kg of owner milk, above
the level set in Arla's Retainment Policy,
subject to the final approval of the
Board of Representatives.

Sustainability is a challenge we cannot
ignore and is crucial to meet the mar-
kets needs. With the steps taken this
year, we are turning a challenge into an
opportunity. As an owner, I am proud
that we take responsibility for the
environmental challenges by investing
our time and capital in making the
changes happen. We do not sit idle, but
dare to be proactive and take on the
task through innovation and action.

JAN TOFT
NØRGAARD
Chair of the Board
of Directors

PAGE 5ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness model
COMPETITIVE
RETURNS IN
A DEFLATED
DAIRY MARKET

rla demonstrated its
robustness in a deflated
dairy market by returning
to strong branded growth
after a slow first half of
the year, reaffirming a
positive outlook for the first half of
2024. This was not least demonstrated
by supplementary payments to our
farmer owners of 2.07 EUR-cent/kg of
milk or a total EUR 270 million for the
full year. which is well above the 1.5
EUR-cent/kg that we committed to in
our retainment policy.

As expected, the 2023 dairy market
plummeted from an all-time high at the
end of 2022, putting companies and
farm economy under pressure. In the

second half, the market slowly started
to recover. While commodity prices
remained at a lower level compared
to the past couple of years, the level
in second half was high compared to
pre-Covid levels.

In this volatile market, Arla’s robustness
and ability to maximise price fluctua-
tions and maintain growth in market
shares in branded positions were once
again reaffirmed. Our revenue of EUR
13,674 million was almost on par with
the revenue for 2022, but increased
costs of goods sold combined with
general cost inflation led to a perfor-
mance price decrease of 8.1 EUR-cent/
kg to 47.0 EUR-cent/kg of milk against
the all-time high performance price in

2022. This result is 15% above the last
5-year average.

While we maximised a difficult commer-
cial landscape, our firmly embedded
efficiency programme helped keeping
our performance competitive, delivering
EUR 114 million in net savings, which
was above expectations. Unfortunately,
negative currency effects cut into our
profits, especially the historically low
SEK, but also GBP, USD, Nigerian Naira,
Bangladeshi Taka, and the heavily
devalued Argentinian peso.

Brands returned to volume growth
after challenging first half
For our brands, it was a year of two
halves. In the first half, consumers
continued to trade down to cheaper
products due to inflation, impacting
our strategic branded volume-driven
growth negatively across Europe and
International. However, we were able
to maintain volume growth for brands
like Starbucks™, Puck®, Arla® Protein
and Arla® Pro. As inflation eased in the
second half, all our brands regained
volume growth momentum. Our
strategic branded revenue growth for
the full year ended at -0.7%, which was
better than expected due to significant
growth of 4.1% in the second half.

Ground-breaking steps for
sustainability
Demand for sustainability actions
continued to build, and Arla and

its farmer owners responded by
further reducing CO2e emissions by
4 percentage points in scope 1 and 2
and by 3 percentage points in scope
3 in 2023. We have made substantial
investments in sustainability and will
continue to do so through our strong
financial position. We are proud of
not only being able to systematically
decarbonise dairy, but also to add a
second and third building block for
how we are accelerating the transition
together with our farmer owners.

While the first building block, the
annual Climate Check on farm, was
introduced in 2020, we activated
the second block, the Sustainability
Incentive model in 2023. Through this
model, EUR 226 million was distrib-
uted to farmer owners based on their
sustainability activities. Nearly 97% of
our farmer owners submitted their data
and uploaded almost 44,000 files to
document their on-farm activities.

The third building block was introduced
later in the year with the Customer
Sustainability Programme, which
commercialises our farmers' progress
by giving key customers access
to claimable CO2e reductions and
specific on-farm projects. By measur-
ing, incentivising and commercialising
on-farm sustainability actions at scale,
our clear operating model translates
science-based targets into tangible
actions and monetary value, providing

each farmer with a clear path to
improve sustainability and economy
on farm, while offering new value for
our customers. This ground-breaking
approach is one of our best proof-
points of how we are creating the
future of dairy.

Outlook for 2024
We anticipate continued volatility on
multiple levels. While difficult to predict
the full year, the first half of 2024
looks brighter than 2023. Uncertainty
remains as growing unrest around

the world and the related economic
slowdown can potentially impact our
business negatively. However, global
demand for dairy remains strong, and
we expect to regain branded growth
and to improve our performance com-
pared to 2023. We remain committed
to delivering our Future 26 ambitions
and continuing our efforts to be a
leading role model for sustainable dairy.

PEDER
TUBORGH
CEO of Arla

PAGE 6ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness model

2023
PERFORMANCE
AT A GLANCE

Competitiveness

Value creation

Sustainability

47.0

PERFORMANCE PRICE
EUR-CENT/KG

55.1
2.2

47.0
2.1

39.7
1.7

-0.7%

STRATEGIC BRANDED
VOLUME DRIVEN
REVENUE GROWTH1

4.5%

-3.2%

-0.7%

4%p

SCOPE 1+2 EMISSIONS
REDUCTION IN 2023

3%p

SCOPE 3 EMISSIONS2
REDUCTION IN 2023

29%

33%

12%

-63% GOAL

-30% GOAL

2021

2022

2023

2015

2022

2023

2030

2015

2022

2023

2030

Supplementary payment

2022

2023

13.7

REVENUE
EUR BILLION

13.8

13.7

11.2

2.8%

PROFIT SHARE3
OF REVENUE

3.0%

2.8%

114

NET EFFICIENCIES4
EUR MILLION

155

114

101

13.9

MILK VOLUME5
BILLION KG

13.8

13.7

13.9

2021

2022

2023

2021

2022

2023

2021

2022

2023

2021

2022

2023

2021

2022

2023

Read more
about our Future 26
strategy on page 11.

2.6

LEVERAGE

3.0

2.6

Within guidance

Outside guidance

1 -0.3% excluding our Russian business which was

divested in the first half of 2022.

2 Per kg of milk and whey.
3 Based on profit allocated to owners of Arla Foods amba.
4 Between 2021 and 2022, we altered the methods
of creating efficiencies due to the start of our new
strategy period. 2022 and 2023 numbers are therefore
not fully comparable with historic numbers related to
our previous efficiency programme, Calcium.
5 Standardised milk: 4.2% fat, 3.4% protein; 2021 and

2022 numbers are restated accordingly.

PAGE 7ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness modelFIVE-YEAR OVERVIEW

Financial key figures

EUR million

Performance price

EUR-cent/kg owner milk

Income statement

Revenue

EBITDA

EBIT

Net financials

Profit for the year

Profit appropriation for the year

Individual capital

Common capital

Supplementary payment

Balance sheet

Total assets

Investments in property, plant and equipment

Investments in right of use assets

Non-current assets

Current assets

Equity

Non-current liabilities

Current liabilities

Net interest-bearing debt including pension liabilities

Net working capital

Cash flows

Cash flow from operating activities

Cash flow from investing activities

Free cash flow

Cash flow from financing activities

Acquisition of enterprises

2023

2022

2021

2020

2019

EUR million

2023

2022

2021

2020

2019

Financial key figures

47.0

55.1

39.7

36.5

36.3

Profit share

Financial ratios

13,674

13,793

11,202

10,644

10,527

1,079

1,001

600

-145

399

270

529

-80

400

269

948

468

-61

346

207

909

458

-72

352

223

837

406

-59

323

123

127

8,299

8,746

7,813

7,331

7,106

445

4,788

3,511

3,052

2,650

2,597

2,850

1,104

1,151

-519

632

-592

-26

373

4,611

4,135

3,168

2,915

2,663

2,986

1,442

184

-443

-259

269

-11

452

4,668

3,145

2,910

2,446

2,457

2,466

810

780

-482

298

-330

478

102

4,413

2,918

2,639

2,296

2,396

2,427

679

731

-488

243

-293

425

4,243

2,863

2,494

2,304

2,308

2,362

823

773

-571

202

-136

-168

EBIT margin

Leverage

Interest cover

Equity ratio

Inflow of standard milk (mkg)

Inflow from owners in Denmark

Inflow from owners in the UK

Inflow from owners in Sweden

Inflow from owners in Germany

Inflow from owners in the Netherlands, Belgium and Luxembourg

Inflow from others

Total inflow of raw milk

Number of owners

Owners in Sweden

Owners in Denmark

Owners in Germany

Owners in the UK

Owners in the Netherlands, Belgium and Luxembourg

Total number of owners

Environmental, social and governance

Progress towards 2030 CO₂e reduction target (scope 1 and 2) market-based

CO₂e scope 3 owner milk (kg)

CO₂e scope 3 per kg of milk and whey (kg)

Progress towards 2030 CO₂e reduction target (scope 3 per kg milk and whey)

Average number of full-time employees

Gender diversity, Board of Directors

2.8%

4.4%

2.6

11.1

36%

5,277

3,412

1,925

1,646

798

816

2.8%

3.8%

3.0

19.6

35%

5,185

3,360

1,876

1,637

757

858

3.0%

4.2%

2.6

23.7

37%

5,185

3,345

1,896

1,683

749

968

3.2%

4.3%

2.7

16.8

35%

5,224

3,320

1,905

1,732

742

1,043

3.0%

3.9%

2.8

12.0

34%

5,214

3,262

1,863

1,712

734

1,314

13,874

13,673

13,826

13,966

14,099

1,996

1,948

1,329

1,981

745

7,999

-33%

1.08

1.14

-12%

2,108

2,105

1,429

2,053

797

8,492

-29%

1.12

1.18

-9%

2,236

2,274

1,497

2,127

822

8,956

-25%

1.15

1.20

-7%

2,374

2,357

1,576

2,241

858

9,406

-24%

1.15

1.21

-7%

2,497

2,436

1,731

2,190

905

9,759

-12%

1.15

1.21

-7%

21,307

20,907

20,617

20,020

19,174

25%

13%

PAGE 8ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness modelHIGHLIGHTS
2023

2023 WAS DOMINATED BY MARKET
VOLATILITY AND SHIFTING CONSUMER
BEHAVIOUR. NONETHELESS, WE MANAGED
TO WEATHER THE STORM, WORKED
HARD TO ADJUST, AND KEPT UP THE PACE
OF OUR BUSINESS AND SUSTAINABLE
TRANSFORMATION.

SUSTAINABILITY INCENTIVE
MODEL LAUNCH
In July 2023, we launched the Sustainability Incentive
model and issued the first payouts, and the initial results
confirm the model's potential and versatility. The model is a
point-based system, in which the farmers can collect points
based on their emission-reducing activities on the model's
19 different levers and earn additional payouts correspond-
ing to their actions. In 2023, we managed to lower scope
3 emissions per kilo milk and whey by 3 percentage points
and 12% in total compared to our 2015 baseline.
Read more on page 35.

m
6
2
2
R
U
E

Incentive pool
redistributed in
2023
This sum covers
incentive model pay-
ments to farmers for
the last six months of
the year as well as 1
EUR-cent/kg of milk
for submitting their
Climate Check data.

ARLA® PROTEIN
GROWS VOLUMES
SIGNIFICANTLY
In 2023, Arla® Protein continued
to shine as a remarkable success
story. With its natural, high-protein,
low-sugar and low-fat offerings,
Arla® Protein captured the broad
attention of consumers living an
active life across all backgrounds
and lifestyles. By emphasising the
fuelling power of protein and offer-
ing an array of delicious products
like milk-based beverages and
puddings, Arla® Protein struck a
chord with consumers, resulting in
volume growth of 60.6% in 2023.
Read more on page 17.

EFFICIENCY PROGRAMME
DELIVERS ABOVE EXPECTATIONS
Our efficiency programme, Fund our Future,
exceeded our expectations in 2023, delivering
net savings of EUR 114 million from significant
efficiency initiatives within digitalisation,
logistics and production optimisation, as well
as insourcing activities.
Read more on page 16.

INVESTING IN THE FUTURE
As set out in Arla’s Future 26 strategy, we contin-
ued to invest in growing our strategic business
in 2023. Investments in intangibles, property,
plant and equipment, including right of use
assets, amounted to an all-time high EUR 601
million (2022: EUR 521 million), and our strong
leverage of 2.6 supports our capability to invest
in the years to come.

CUSTOMER SUSTAINABILITY
PROGRAMME
As part of our ambition to lead in a more
climate-efficient dairy production, we launched
a new customer programme in 2023 that
simultaneously accelerates sustainability efforts
on farm and helps customers achieve their
reduction targets for scope 3. The Customer
Sustainability Programme was first launched in
October in the UK, where the first commercial
agreements were signed, and we will roll out
the programme to more retail and foodservice
customers across our European core markets
during 2024.
Read more on page 36.

PAGE 9ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness model
BUSINESS MODEL

SECURING THE HIGHEST VALUE FOR OUR FARMERS' MILK
WHILE CREATING VALUE FOR THEIR GROWTH

Arla is the fourth-largest dairy producer
in the world based on milk intake. As a
cooperative, our focus is on maximising
the value from our milk, and with our
cooperative set-up this means that all
the benefits from the sale of Arla prod-
ucts lead back to our farmer owners,
who actively contribute to sustainability

efforts and invest in the business to
enable development and the well-being
of future generations.

Farmers and cows
We have 7,999 farmer owners who
oversee a herd of over 1.5 million cows.
Their primary business goal is

to produce milk in a sustainable
and profitable manner, ensuring the
well-being of the cows and preserving
the surrounding environment.
Our farmers are rewarded for their
sustainability actions through our
incentive model.
Read more on page 35.

FARMERS
& COWS

MILK
COLLECTION

PRODUCTION
& PACKAGING

Protecting Nature

Regenerative Agriculture

Nutrients for Society

CONSUMERS

CUSTOMERS

Renewable Energy

Innovation

Milk collection
Every year, we collect approximately 13.9
billion kg of raw milk, primarily sourced
from our owners across seven countries.

Production and packaging
We operate 59 production and pack-
aging sites, producing 6.4 billion kg
of nutritious dairy products annually.
Our facilities create jobs worldwide,
offering safe conditions and fair wages.
Furthermore, we enhance the value of
our owners' milk through innovation,
branding and marketing. The profits are
distributed among the owners through
the milk payment system.

Customers
Our products are distributed in 146
countries, catering to a diverse range
of customers, including supermarket
chains, foodservice and business-to-
business. The key to our success lies
in fostering strong collaboration and
working towards a shared objective
of delivering exceptional service to
consumers while minimising the
environmental impact of shopping.

Consumers
Through our efforts, we nourish millions
of individuals, prioritising their health
and well-being. Our approach focuses on
innovative solutions, promoting positive
food habits and ensuring affordable
access to nutrition for low-income
consumers.
Read more on pages 68-73.

PAGE 10ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness model
FUTURE 26 – OUR STRATEGY

BRINGING HEALTH AND INSPIRATION
TO THE WORLD, NATURALLY

Creating the future of dairy
Arla aims to be a leader in driving
sustainable change in our industry and
in the food sector. While the global
demand for dairy is rising, consumer
preferences are evolving. Sustainability
is becoming a key factor in food
choices, and addressing poor diets

and malnutrition is essential. To tackle
these challenges, we are committed to
re-thinking our food system through
our Future 26 strategy and in close
collaboration with our customers,
positioning Arla as part of the solution,
offering solutions for healthy and
sustainable growth in our business.

1
2
0
2

103-107

Peer group index

We aspire to have a
competitive milk price
compared to our peers.

SCOPE 1+2: -63%
SCOPE 3: -30%

CO₂e reduction

We commit to the 1.5°C
ambition and to becoming
the most ambitious global
dairy cooperative.

1-4%

Branded
volume growth

We aim to create brands and
products that bring value to
our consumers' life through
health and nutrition.

70-100 mEUR
ANNUALLY

Eﬃciencies

We fund our future by
having an end-to-end focus
on becoming both more
eﬃcient and more eﬀective
in the way we work.

600-800 mEUR
ANNUALLY

Investments

Future26 steps up
investments to support
owners & value creation.

i
T
B
S

0
3
0
2

6
2

6F
2
0
2

O
R
E
Z
T
E
N

0
5
0
2

STRONGER PEOPLE

STRONGER PLANET

Despite continued market volatility,
we maintained a competitive milk
price to our farmer owners in 2023. We
made progress on our major strategic
objectives, and we demonstrated
strong performance in several product
categories as well as in our foodservice
and ingredients businesses (AFI).
See pages 15-23 for further details.

We continued to lead the way in
promoting sustainability and addressing
climate change and global food accessi-
bility. A major milestone in 2023 was
the introduction of our Sustainability
Incentive model to support and reward
our farmer owners in reducing their
climate footprint.
See page 35 for further details.

Our 2030 science-based targets
guide us on our path towards carbon
neutrality, and we progressed well on
both scope 1 and 2 as well as scope 3
emission reductions in 2023.
See pages 33-42 for further details.

In addition, we made substantial
progress on our digital and innovation
activities, which are integral to our
Future 26 strategy. To improve efficien-
cy, we focused on end-to-end processes
and digital optimisation. We also made
significant investments in transforma-
tional areas outlined in Future 26.
See page 16 for further details.

PAGE 11ARLA'S ANNUAL REPORT 2023I.II.III.SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESChair letterFuture 26 strategyCEO letter2023 performance at a glanceFive-year overview2023 highlightsBusiness model

LURPAK®

Our premium butter brand
Lurpak®, sold in 100 countries
across the world, reached a
milestone in Australia selling
more than 5 million kg of
products in 2023.

PERFORMANCE
REVIEW

13 Executive summary
14 External market overview
15 Performance overview
24 2024 outlook

NAVIGATING
VOLATILITY AND
GETTING BACK
TO GROWTH

2023 was in many ways a year of two
halves. From the end of 2022 and
into the beginning of 2023, we saw
a rapid drop in commodity prices as
both supply and demand reacted to
the record high price level present in
late 2022. Later in the year, there was
a notable resurgence in demand due
to the more affordable price levels and
a stagnation in global milk supply. This
led to a slight increase in commodity
prices once again.

branded positions, which returned to
volume growth of 4.1% in the second
half of the year after a challenging
first half. We took ground-breaking
steps on sustainability actions, and
saw accelerated emission reductions
both within the business and especially
on farms. We also saw our efficiency
programme delivering above ambition
level, and a robust financial position
with improved leverage.

During this volatility, we saw firm
underlying business performance and
solid market share developments in our

As a result of the significantly lower
commodity prices, a higher cost base
due to inflation as well as headwind
from adverse foreign exchange

rate developments, our average
performance price decreased by
14.7% compared to 2022, from 55.1
EUR-cent/kg to 47.0 EUR-cent/kg.
However, this level still surpassed
the 5-year average by 15%. The
supplementary payment of 2.07 EUR-
cent/kg of milk was well above the
guaranteed 1.5 EUR-cent/kg of milk
as per our retainment policy. Revenue
decreased slightly to EUR 13.7 billion,
down from EUR 13.8 billion in 2022.
In 2023, earnings were mainly driven
by rising commercial margins, while
commodities were under pressure.

Looking into 2024, our main focus is to
continue being competitive. We aim to
achieve this by maintaining the growth
momentum gained in the second half
of 2023. Additionally, we will manage
volatility in dairy prices and intake.
Furthermore, we will navigate external
factors such as foreign exchange rate
developments, consumer purchasing
power, and geopolitical tensions

47.0

PERFORMANCE PRICE
EUR-CENT/KG

13.7

REVENUE
BILLION EUR

55.1
2.2

47.0
2.1

36.3
1.0

36.5
1.8

39.7
1.7

13.8

13.7

10.5

10.6

11.2

-0.7%

STRATEGIC BRANDED
VOLUME-DRIVEN
REVENUE GROWTH

4%p

SCOPE 1+2 EMISSIONS
REDUCTION IN 2023

3%p

SCOPE 3 EMISSIONS
REDUCTION IN 2023

2019

2020

2021

2022

2023

2019

2020

2021

2022

2023

2019

2020

2021

2023

2015

2022

2023

2030

2015

2022

2023

2030

Supplementary payment

2022

7.7%

5.1%

4.5%

-3.2%

-0.7%

29%

33%

12%

-63% GOAL

-30% GOAL

TORBEN
DAHL
NYHOLM

CFO of Arla

PAGE 13ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overview2024 outlook Executive summarySUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESEXTERNAL
MARKET
OVERVIEW

AS A GLOBAL BUSINESS, WE ARE
IMPACTED BY THE VOLATILITY
OF THE EXTERNAL MARKET. IN 2023,
THIS VOLATILITY WAS REFLECTED
IN DECLINING COMMODITY PRICES,
INFLATIONARY PRESSURE, SHIFTING
CONSUMER BEHAVIOURS AS WELL AS
CHALLENGING FOREIGN EXCHANGE
RATE DEVELOPMENTS.

Continued geopolitical turbulence
2023 unfortunately saw the high levels
of geopolitical turbulence continue. The
war in Ukraine continued, and the conflict
in Israel and Palestine escalated. Besides
dire humanitarian consequences, the
turbulence also drove uncertainty and
volatility in global markets in 2023.

Rapid dairy commodity price
decrease in the beginning of 2023
In the wake of the dairy commodity
price hike in 2022, driven by high
demand and constrained supply,
we as forecasted saw a rapid price

normalisation towards the end of 2022
and into the beginning of 2023. This
happened as demand cooled off as a
consequence of the cost of living and
price levels, while global milk supply
increased, driven by price levels as well
as lower energy, feed and fertiliser costs.

Notably, the price normalisation resulted
in EU mozzarella prices decreasing by
38%, while skimmed milk powder (SMP)
dropped by 29% from October 2022 to
February 2023. The commodity price
decrease was followed by a period of
relative stability in the second and third
quarter as supply and demand appeared
in balance. However, towards the end of
2023, dairy commodity prices started to
rise again. This happened primarily within
the EU region where SMP increased by
24% from August to December.

Inflationary pressure eased
off during year
The high inflationary pressure from
2022 continued into the initial months
of 2023. However, the pressure eased
off during the year, and the European
average 2023 inflation is projected
at 6.5%1, down from 9.3% in 2022
with relatively high inflation in the UK,
Sweden and Germany and lower infla-
tion in Denmark and the Netherlands.
Global inflation also declined, however
it remained at a higher level of 6.9%
(2022: 8.7%). The inflation levels were
high in Africa and the Middle East and
lower in North America, South East Asia

and China. Decreasing energy prices
drove the declining inflation as energy
shortage uncertainties were reduced,
while mainly packaging, ingredients and
salaries remained at a high level.

Decrease in economic activity
In an effort to mitigate inflationary
pressure, central banks continued to
raise interest rates in the first half of
2023, maintaining them at a high level
throughout the year. This contributed
to a further decrease in economic
activity. Consequently, global GDP
growth is projected at 3.0%1 in 2023
(2022: 3.5%). Within the euro area, the
projected growth rate for 2023 is 0.7%
(2022: 3.3%). Conversely, developing
countries showed more robust growth
projections, with an anticipated rate of
4.0% in 2023 (2022: 4.1%).

Changing consumer behaviour
Due to inflation and rising living expens-
es, European consumers continued to
adopt cost-saving measures affecting
the dairy category in the first half of
2023. The decline in retail dairy con-
sumption slowed down during the year
as inflationary pressure started to ease
off and wages increased, and towards
year-end we saw dairy consumption
increase again, resulting in a flat develop-
ment in retail dairy consumption across
the EU region for the full year 2023. In
response to the cost pressure, European
consumers also continued to trade
down from branded products to private

label offerings while actively seeking
value through promotions, resulting in
a decrease to branded consumption,
mainly in the butter, spreads and marga-
rine (BSM) retail category, as especially
consumers in the UK, NL and DE reduced
category consumption. Global dairy
demand was on average marginally down
compared to 2022.

Challenging foreign exchange rate
development
In 2023, several key currencies for Arla
weakened versus the euro. Especially
the SEK experienced a substantial de-
cline of 7.3% in the average rate for the
year, while the USD and GBP saw minor
declines of 2.8% and 2.0% respectively.
We also experienced an adverse impact

from devaluations in Argentina (356%
devaluation in 2023), Bangladesh and
Nigeria.

Farmer costs remain at high level
Following the unprecedented inflation
in most on-farm costs in 2022, some
costs decreased throughout 2023 as
conditions began to normalise, mainly
due to decreases in feed, fertiliser and
fuel prices. However, this was to a large
extent offset by increases in other costs,
such as labour and interest rates.

Lower farmgate milk prices
Driven by the commodity price normal-
isation, farmgate milk prices decreased
significantly across all major dairy-
producing regions during 2023. In the

EU-27, average farmgate milk prices
reduced by 20.8% compared to 2022.
On-farm costs did not experience
a similar decrease, which among
other factors led to a stagnation of milk
supply during the year.

From an Arla point of view, total stand-
ardised milk supply increased from 13.7
to 13.9 billion kg. The increase came
from owner milk which increased by
1.9%, driven by the first half of the year,
while contract milk decreased by 4.9%.
The volume increase in owner milk was
seen across all markets.

1 IMF, World Economic Outlook, October 2023

Development in foreign exchange rates

Commodity prices
EU-cent/kg, Milk Utilisation Equivalent

115

110

105

100

2020

GBP

2021

2022

2023

SEK

USD

Source: Nord Pool Group

2020

Gouda

Source: GDT

2021

2022

2023

Mozzarella

SMP

PAGE 14ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overview2024 outlook Executive summarySUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIES
PERFORMANCE
OVERVIEW

ARLA'S MISSION IS TO SECURE THE HIGHEST
VALUE FOR OUR FARMERS' MILK WHILE CREAT-
ING OPPORTUNITIES FOR THEIR CONTINUED
GROWTH. OUR COMMITMENT TO MAXIMISE
BOTH SHORT- AND LONG-TERM VALUE FOR OUR
OWNERS REQUIRES STRONG EXECUTION ON ALL
LEVELS OF THE BUSINESS.

Milk price decrease driven by
declining commodity prices
Arla's average pre-paid milk price
decreased by 15.0% to 44.1 EUR-cent/
kg in 2023 (2022: 52.0 EUR-cent/
kg). Our performance price, which
measures the value Arla adds to each
kg of our owners' milk, decreased by
14.7% to 47.0 EUR-cent/kg (2022:
55.1 EUR-cent/kg). The decrease in
the performance price was primarily
driven by declining commodity prices
and adverse foreign exchange rate
effects, mainly from SEK but also a
negative impact from GBP, USD, and
ARS (Argentine Peso).

Average pre-paid milk price for our owners
EUR-cent/kg of milk

59.1

41.3

2019

2020

2021

2022

2023

Additionally, an increase in opera-
tional costs, excluding raw milk, to
EUR 6,964 million (2022: EUR 6,175
million) further contributed to the
decline in performance. The rise in
operational costs, excluding raw milk,
was primarily due to changes in inven-
tory values resulting from decreasing
milk prices. Furthermore, inflation,
mainly affecting staff costs, packaging
and ingredients, also contributed to
higher operational costs.

Revenue decrease driven
by foreign exchange rate
developments
During 2023, revenue decreased by
0.9% to EUR 13.7 billion (2022: EUR
13.8 billion), with most of the decrease
occurring in the second half of the
year. Revenue was negatively impact-
ed by adverse foreign exchange rate
effects of EUR -344 million, primarily
driven by lower SEK, GBP and USD.

Prices contributed negatively
to revenue by EUR -204 million,
with a negative price impact in
Global Industry Sales (GIS) and our
ingredients business (AFI) being
offset by higher commercial prices.
Decreasing branded volumes were
offset by higher volumes in GIS which
combined with higher milk intake
gave a volume impact on revenue of
EUR 429 million.

PAGE 15ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overview2024 outlook Executive summaryGlobal Industry Sales /EuropeInternationalArla Foods Ingredients/ Global brandsSUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIES Strategic branded volume-driven revenue growth,

indexed to 2018
%

Financial leverage development
Target range: 2.8-3.4

7.7%

4.5%

-3.2%

-0.7%

113

118

115

114

105

2.8

2.7

3.0

2.6

2019

2020

2021

2022

2023

2019

2020

2021

2022

2023

Restored retail and foodservice
margins due to branded price
retention
In 2023, retail and foodservice margins
were high due to strong branded price
retention in a decreasing commodity
price market, mainly due to the first
half of the year with normalisation
effects towards year-end. The high
price environment in the first half of the
year negatively impacted our branded
volumes sold through retail. However,
we saw growth return in the second half
of the year as prices normalised and
consumer purchasing power increased.
Despite the market volatility in recent
years, overall branded volumes in 2023
were still at a significantly higher level
than before Covid-19 measured on a

2018 index. In total, strategic branded
volumes decreased by 0.7% in 2023.

Retail volumes decreased by 1.3% with
volumes in retail, excluding discounters,
decreasing by 2.0%, partly offset by
discounters increasing by 7.7%. Our
foodservice business delivered 2.3%
branded volume growth in 2023
(2022: 9.2%).

Fund our Future savings above
expectations
Our transformation and efficiency
programme, Fund our Future, delivered
above expectations and reached net
savings of EUR 114 million despite
volume headwind. This was driven by
a significant number of efficiency

initiatives, including shop floor
digitalisation, logistic route efficiencies,
recipe and pack optimisations as well
as insourcing of specialist areas within
marketing and IT.

Accelerated on-farm
emission reductions
We continued the positive momentum
from last year and reduced our scope 1
and 2 emissions by 4 percentage points
in 2023, and in total by 33% compared
to our 2015 baseline. The reduction was
mainly a result of energy optimisations
at sites and the impact from new green
power purchase agreements (PPAs).

We also accelerated our on-farm
emission reductions and reduced

scope 3 emissions per kg of milk and
whey by 3 percentage points (2022: 2
percentage points), and in total by 12%
compared to our 2015 baseline. The
reductions were a direct outcome of
ongoing climate initiatives implement-
ed on farms and especially driven by
fertiliser use and manure handling for
the herds. We expect the introduction
of the Sustainability Incentive model in
2023 to support our emissions focus
in the coming years. Read more about
how our farmers reduce their emissions
on pages 35-36.

Net profit within target range
In 2023, we achieved a net profit of
EUR 380 million1, or 2.8% of revenue,
which is within our target range of 2.8-
3.2%. Profit was mainly driven by high
retail and foodservice prices, however
with a normalisation towards the end
of the year.

Other comprehensive income im-
pacted by lower energy prices and
foreign exchange rate fluctuations
Other comprehensive income was EUR
-199 million (2022: EUR 156 million).
The net cost of EUR 199 million con-
sisted of negative value adjustments
of hedge instruments amounting to
EUR -141 million and negative value
adjustments of net assets measured in
foreign currencies (translation effect)
amounting to EUR -47 million. The
lower value of our hedge instruments,
which reduces our short-term foreign

exchange rate profit exposure and
secures our future interest and energy
costs at a certain level, was due to gen-
erally lower energy prices and foreign
exchange rate fluctuations.

Robust financial position
We kept our robust financial position
in the volatile market in 2023. Our
leverage landed at 2.6, which is an
improvement from 2022 (3.0) and
below our target range of 2.8-3.4.
This was due to a higher EBITDA and
lower level of net interest-bearing debt,
driven by decreased funds tied up in
net working capital, explained by lower
inventory and trade receivables.

Operating cash flow improved
significantly
Cash flow from operating activities
increased to EUR 1,151 million (2022:
EUR 184 million). The trend towards a
normalisation of milk prices in 2023,
on the back of the unusually high level
at the end of 2022, meant that the
adverse effect on funds tied up in net
working capital positions from last year
was partly released during 2023. Net
working capital contributed positively
with EUR 320 million compared to EUR
-707 million last year. In addition, cash
flow from operating activities improved
due to a higher EBITDA, partly offset by
higher paid interest expenses.

Increased level of investments
We continued to invest in significant
projects to support future growth
within our strategic business areas.
Investments in intangibles, property,
plant and equipment, including right
of use assets, amounted to EUR 601
million (2022: EUR 521 million). More
specifically, we continued to invest
in a capacity increase for milk-based
beverages in Esbjerg, Denmark, and
growth for Arla Foods Ingredients.
Additionally, new projects, including
the investment in butter capacity in
Holstebro, Denmark, were undertaken.

Lower net interest-bearing debt
Net interest-bearing debt decreased
to EUR 2,850 million (2022: EUR 2,986
million). The free operating cash flow of
EUR 643 million (defined as cash flow
net of operating and investing activities)
was partly used to pay farmer owners in
the form of a supplementary payment
for 2022 and a half-year supplementary
payment for 2023, and partly to repay
maturing loans and to reduce utilisation
of other short-term interest-bearing
credit facilities.

1 Excluding non-controlling interests' share of profit

PAGE 16ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overview2024 outlook Executive summaryGlobal Industry Sales /EuropeInternationalArla Foods Ingredients/ Global brandsSUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESGLOBAL BRANDS

OUR STRATEGIC GLOBAL BRANDS ARE AT THE HEART OF OUR BUSINESS
AND THEY DRIVE THE MAJORITY OF ARLA'S VALUE CREATION.

Our brands

STRATEGIC BRANDED

VOLUME-DRIVEN
REVENUE GROWTH

H2 2023

4.1%

H1 2023

-6.0%

7.2%

2.6%

-8.8%

-6.6%

-4.4%

0.5%

3.1%

15.2% 15.9%

9.9%

2023: -0.7%
2022: -3.2%

2023: -2.8%
2022: -4.3%

2023: 0.8%
2022: -7.6%

2023: -1.7%
2022: -6.9%

2023: 6.5%
2022: 4.7%

2023: 15.7%
2022: 12.4%

STRATEGIC
BRANDED NET
REVENUE GROWTH

1.2%

2022: 14.2%

2023: -2.3%
2022: 10.2%

2023: 2.9%
2022: 16.0%

2023: 3.0%
2022: 24.6%

2023: 4.9%
2022: 31.8%

In 2023, we saw branded revenue increase
by 1.2% to a record high level of EUR
6,375 million (2022: EUR 6,300 million)
due to higher prices with an underlying
decrease in branded volume-driven
revenue growth of -0.7% (-3.2% in 2022).
This was mainly the result of the high
price level of 2022 continuing into the
beginning of 2023, resulting in consumers
trading down to cheaper products and
in general buying less dairy products.
However, in the second half of the year, we
saw significant improvement in volume
growth of 4.1% attributed to the decrease
in price levels, stronger purchasing power
and increased marketing spend.

Arla® brand
Our Arla® brand with its various successful
sub-brands covering multiple categories
such as milk, yogurt, cream, powder and
cheese, was generally challenged in 2023,
with branded volumes declining by 2.8%
compared to 2022, bringing volumes back
to pre-Covid levels. The volume decrease
was partly offset by higher prices, which
resulted in a 2.3% revenue decrease to
EUR 3,618 million in 2023 (2022: EUR
3,702 million). Some of our sub-brands
experienced exceptional volume growth
despite higher price points. Arla® Protein
grew volumes by 60.6%, and our food-
service brand Arla® Pro also experienced
growth of 2.2% during the year. From a
market perspective, the UK performed
well with a branded volume growth of

5.9%. Arla® was recognised as Europe's
most popular dairy brand by the 2023
Kantar Brand Footprint report.

spearheaded by growth in South East Asia
and partly due to new product launches.

Lurpak®
Our brand Lurpak® experienced
revenue growth of 2.9% to EUR 772
million (2022: EUR 750 million). Volumes
increased by 0.8% compared to 2022
with an underlying decrease in first
half-year volumes due to high price
levels, offset by a second half-year where
we saw consumer demand increase
as prices normalised. In the European
market, volumes decreased by 0.6%
mainly driven by the UK, however with a
marked improvement in the second half
due to a new pack and price strategy.
International markets maintained strong
growth of 3.5%, mainly driven by South
East Asia and Rest of the world.

Castello®
Our speciality cheese brand, Castello®,
decreased by 1.7% in volumes compared
to 2022. However, due to higher prices,
revenue improved by 3.0% to EUR 246
million (2022: EUR 238 million). The
branded cheese category and in particular
speciality cheese, where Castello® oper-
ates, struggled in times of inflation and
recession, which also affected Castello®
in core European markets. In international
markets, volumes increased by 1.4%,

Puck®
Puck®, our leading brand in MENA, over-
all grew volumes by 6.5%, with revenue
growing by 4.9% to EUR 526 million
(2022: EUR 504 million). We saw strong
growth in the mozzarella and shredded
cheese, cooking and cream cheese cate-
gories supported by increased efforts in
communication, in-store activation and
product sampling, which led to better
market penetration.

Starbucks™
Our Starbucks™ ready-to-drink (RTD)
coffee assortment, available in more
than 50 countries in Europe, the Middle
East and Africa, delivered 15.7% volume
growth in 2023, with a revenue increase
of 13.7%. The volume growth was mainly
driven by our European business, which
grew by 21.8% based on strong brand
performance, portfolio developments with
strong growth in the chilled classics 750
ml platform and increased distribution
across markets. Our International business
grew a bit slower by 5.8% and was more
adversely impacted by the inflationary
environment and economic uncertainty.

PAGE 17ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESEUROPE

OUR EUROPEAN COMMERCIAL SEGMENT SPANS
EIGHT COUNTRIES IN NORTHERN AND WESTERN
EUROPE. WE CREATE VALUE FOR OUR FARMER OWNERS
BY BRINGING BRANDS LIKE LURPAK®, ARLA®
AND STARBUCKS™ TO CONSUMERS ACROSS THE
CONTINENT.

In 2023, revenue increased by 2.7%
to EUR 7,984 million (2022: EUR
7,771 million), mainly driven by price
increases executed in 2022 continuing
into the start of 2023. Due to high
inflation and elevated dairy prices,
branded dairy volumes were under
pressure in 2023, however consumers
started returning to branded products
in the second half of the year. In total,
we saw a decrease in branded volumes
of 1.3% against a decline in the general
branded European retail category of
approximately 2%. The butter and
spreadable category declined by
approximately 5%, but our Lurpak®
brand only declined by 0.6%.

Despite the challenging environment
that in particular affected Sweden
negatively, our Netherlands/Belgium/
France cluster achieved 6.9% branded

growth and the UK 2.2%.
Several of our European focus areas
performed well in 2023. This included
Arla® Protein growing by 60.5%,
Starbucks™ by 21.8% and Arla® Pro by
7.2%. We also launched an ambitious
bid to scale up Arla® Protein and Arla®
Skyr in France through a new long-
term partnership.

As part of our ambition to be a leader
in sustainability, we launched a new
customer programme across Europe.
A first for the industry, this will develop
solutions to help customers achieve
their reduction targets for scope 3 and
accelerate sustainability efforts on
farm. Several major customers joined
the programme in 2023.

STARBUCKS™
CHILLED COFFEE

Despite shifting consumer behaviour
in Europe, our Starbucks™ ready-to-go
coffee drinks continued their growth
journey and grew volumes by 21.8%.

Strategic branded volume-driven revenue
growth

-1.3%

2022: -4.2%

Revenue
EUR million

7,984

2022: 7,771

Revenue growth

2.7%

2022: 17.4%

Share of total Arla revenue

58.4%

2022: 56.3%

PAGE 18ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESUK

SWEDEN

DENMARK

GERMANY

THE NETHERLANDS,
BELGIUM AND FRANCE

FINLAND

2.2%

2022: -7.3%

2.4%

2022: 18.3%

Strategic branded
volume-driven
revenue growth

-5.1%

2022: -3.9%

Strategic branded
volume-driven
revenue growth

-0.2%

2022: -1.1%

Strategic branded
volume-driven
revenue growth

-5.4%

2022: -7.7%

Strategic branded
volume-driven
revenue growth

6.9%

2022: 1.3%

Strategic branded
volume-driven
revenue growth

-2.4%

2022: -1.8%

Strategic branded
volume-driven
revenue growth

Revenue
growth

Share of EU
revenue

2023: 38.3%
2022: 38.5%

-3.7%

2022: 11.4%

Revenue
growth

4.1%

2022: 20.3%

Share of EU
revenue

2023: 19.2%
2022: 20.5%

Revenue
growth

Share of EU
revenue

2023: 15.8%
2022: 15.5%

4.6%

2022: 20.9%

Revenue
growth

Share of EU
revenue

2023: 15.7%
2022: 15.4%

10.3%

2022: 23.1%

Revenue
growth

14.6%

2022: 9.7%

Revenue
growth

Share of EU
revenue

2023: 6.1%
2022: 5.7%

Share of EU
revenue

2023: 4.9%
2022: 4.4%

In 2023, brands initially faced declining
volumes due to high dairy commodity
prices and inflation in the UK. However,
cost reductions enabled a rebound in
the second half, leading to growth in
branded volume and market shares.
In total, the business grew branded
volumes by 2.2% and revenue by 2.4%
to EUR 3,060 million (2022: EUR 2,989
million), with strong growth in Arla®
Protein, Starbucks™ and Arla® Pro
growing by 66.4%, 26.2% and 8.5%,
respectively. In October, we launched
the Customer Sustainability Programme
to commercialise on-farm sustainability
efforts.

Strategic branded volumes decreased
by 5.1% as increased inflation and inter-
est rates, combined with a weakened
SEK, impacted Swedish households'
purchasing power and consumer
shopping behaviour. This resulted in a
category decline in dairy with an
increased share of private label. Our
performance in the market significantly
improved in the second half of the year,
mainly driven by yellow cheese, cottage
cheese and quark. Arla Sweden's reve-
nue decreased by 3.7% to EUR 1,536
million (2022: EUR 1,594 million), in
large part due to the 7.3% decrease of
the SEK versus the euro.

Revenue increased by 4.1% to EUR
1,258 million (2022: EUR 1,208 million)
despite pressure from consumer
behaviour still adjusting to increasing
focus on low prices, attractive promo-
tions and discount channels. Impact
from market trends resulted in price
decreases as well as volume pressure.
Overall, our brands remain in a strong
position, and strategic branded volumes
only declined by 0.2%. Arla® Organic
was under pressure with a volume de-
cline of 7.1% due to consumers trading
down and shifting towards private label.
However, Arla® Protein, Starbucks™
and Castello® grew volumes by 98.9%,
25.0% and 8.7%, respectively.

Revenue increased by 4.6% to EUR
1,253 million (2022: EUR 1,198 million)
mostly from pricing carry-overs on
private label and brands. Continued
high inflation led to discounter growth
and a general reduction in consumer
spending, and our branded volumes
decreased by 5.4%, mainly driven by a
decrease of 21.1% for our Kaergarden®
brand. However, the foodservice
business (Arla® Pro), Starbucks™ and
Arla® Buko delivered strong growth of
69.6%, 25.0% and 7.5%. respectively.

In 2023, our business in the
Netherlands, Belgium and France
achieved double-digit revenue growth
of 10.3% to EUR 489 million (2022:
EUR 443 million). This was driven by
volumes and favourable prices in the
first half of the year. Both the retail and
foodservice business showed consist-
ent volume and revenue growth across
all three markets. Notably, our brands
Starbucks™, Lurpak®, Arla® Pro and Arla®
Skyr delivered growth rates of 19.1%,
16.7%, 16.6% and 16.4%, respectively,
leading to overall branded volume-driv-
en revenue growth of 6.9%.

Strong revenue growth in both retail
and foodservice resulted in total
revenue growth of 14.6% to EUR 388
million (2022: EUR 339 million), driven
by price increases. Branded volumes
decreased by 2.4%, driven by the retail
segment which declined by 3.4%
due to the high price environment,
while the foodservice channel only
decreased branded volumes by 0.3%.
Despite the overall volume decrease,
we saw the Arla® Protein brand grow
branded volumes by 24.3%.

PAGE 19ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIES
INTERNATIONAL

OUR INTERNATIONAL SEGMENT
ENCOMPASSES AROUND 140 COUNTRIES
ON SIX CONTINENTS. OUR KEY BRANDS
IN THE SEGMENT INCLUDE PUCK®, ARLA
DANO®, LURPAK®, CASTELLO® AND
STARBUCKS™.

Revenue in the International segment
reached EUR 2,471 million (2022:
EUR 2,437 million1), equalling growth
of 1.4%2. Despite higher price levels,
branded volume growth remained
positive with 1.9% growth3. We saw
good progress in the majority of our
International business, and were able to
manage macroeconomic challenges in
emerging markets such as devaluation
of currencies, like we saw in Bangladesh
and Nigeria, and high inflation impacting
consumer behaviour and reducing
demand.

On a regional level, we saw strong
branded growth in MENA, South East
Asia and RoW, while we experienced a
decline in China and West Africa. From
a brand perspective, the volume growth
was mainly driven by Puck® growing
by 6.6%.

ARLA®
PRO

1 Excluding the divestment of our Russian business
2 0.3% including the divestment of our Russian business
3 0.4% including the divestment of Russia

Our foodservice business delivered
strong growth of 12.9% in our biggest
international market, MENA.

Strategic branded volume-driven revenue
growth3

1.9%

2022: 1.0%

Revenue
EUR million

2,471

2022: 2,4371

Revenue growth2

1.4%

2022: 19.2%

Share of total Arla revenue

18.1%

2022: 17.7%

PAGE 20ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESMIDDLE EAST AND
NORTH AFRICA

REST OF THE WORLD

NORTH AMERICA

SOUTH EAST ASIA

CHINA

WEST AFRICA

4.2%

2022: 4.3%

3.2%

2022: 31.3%

3.2%

2022: 8.6%

5.4%

2022: 8.6%

Strategic branded
volume-driven
revenue growth

Revenue
growth

Share of
International
revenue
2023: 40.3%
2022: 39.6%

Strategic branded
volume-driven
revenue growth1

0.3%

2022: -0.6%

Strategic branded
volume-driven
revenue growth

3.9%

2022: 21.3%

Strategic branded
volume-driven
revenue growth

-20.7%

2022: -44.1%

Strategic branded
volume-driven
revenue growth

-8.8%

2022: -17.8%

Strategic branded
volume-driven
revenue growth

Revenue
growth1

Share of
International
revenue
2023: 24.3%
2022: 23.4%

-2.0%

2022: 20.1%

Revenue
growth

-1.1%

2022: 49.4%

Revenue
growth

8.7%

2022: -44.3%

Share of
International
revenue
2023: 13.8%
2022: 14.2%

Share of
International
revenue
2023: 10.7%
2022: 11.0%

Revenue
growth

Share of
International
revenue
2023: 5.8%
2022: 5.4%

-18.8%

Revenue
growth

2022: 1.3%

Share of
International
revenue
2023: 5.1%
2022: 6.4%

MENA increased revenue by 3.2% to
EUR 996 million in 2023 (2022: EUR
964 million), and continued the brand-
ed growth journey with 4.2% branded
volume growth in 2023. This was driven
by strong performance in most markets
and brands. Notably, we experienced
12.9% branded volume growth in the
foodservice business, and our key brand
in the region, Puck®, grew volumes by
6.9%, gaining market shares in both the
cheese and cream categories.

Revenue increased by 5.4% to EUR 601
million in 2023 (2022: EUR 570 million)
due to a high price environment and
branded volume growth of 3.2%.
Branded growth was positive despite
the negative impact from customers
trading down from branded products
to private label and discounters gaining
market shares. The main driver was
Starbucks™ which increased branded
volumes by 10.6% in 2023.

In 2023, our revenue experienced a de-
cline of 2.0% to EUR 340 million (2022:
EUR 347 million). We managed to
achieve modest growth of 0.3% for our
brands within a volatile market setting,
mainly driven by the Tre Stelle® brand
in Canada growing volumes by 2.0%.
However, this was to a large extent
offset by Puck® volumes decreasing by
12.0%. We saw positive branded growth
of 0.8% in Canada, while USA decreased
by 0.4%, mainly driven by cheese and
cooking categories.

Revenue decreased by 1.1% to EUR
266 million in 2023 (2022: EUR 269
million), mainly due to the challeng-
ing macroeconomic situation in
Bangladesh where, despite several price
increases in the market, our revenue
decreased due to significant negative
currency devaluations. This was partly
compensated by strong revenue growth
in both the Philippines and Indonesia.
Branded volumes increased by 3.9%,
mainly driven by Lurpak® increasing
by 47.4%. Foodservice remained an
important growth driver in South East
Asia, growing by 2.8%.

With the European milk price levels
declining, we regained competitiveness
for our UHT products in the Chinese
market, contributing to a revenue
increase of 8.7% to EUR 142 million
(2022: EUR 131 million). Branded
growth decreased by 20.7% due to
a decline in milk and butter sales,
however this was more than offset by
increased private label volumes. Our
Early Life Nutrition (ELN) business grew
revenue by 17.4% after we obtained
registration for three ELN brands in the
market.

Our 2023 revenue in West Africa was
significantly impacted by the currency
devaluation in Nigeria. Revenue
declined by 18.8% to EUR 127 million
in 2023 (2022: EUR 157 million). The
following inflation led to a decline in the
milk powder category, impacting our
branded volume growth. As a conse-
quence, branded volumes decreased by
8.8% due to a volume decrease of 6.1%
for the Arla Dano® brand. During 2023,
we opened our Arla farm in Kaduna,
which was well received by society and
the authorities, boding well for further
backwards integration in Nigeria.

1 Russia was divested in the first half of 2022, impacting
year on year comparison in 2023. Branded revenue
growth and revenue growth including Russia was -3.6%
and 0.8%

PAGE 21ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESARLA FOODS INGREDIENTS

ARLA FOODS INGREDIENTS (AFI) IS A GLOBAL LEADER IN WHEY-BASED
INGREDIENTS THAT ARE USED IN A WIDE RANGE OF CATEGORIES FROM INFANT,
CLINICAL AND SPORTS NUTRITION TO DAIRY AND BAKERY. IN ADDITION,
WE MANUFACTURE CHILD NUTRITION PRODUCTS FOR THIRD PARTIES.
AFI IS A 100% OWNED SUBSIDIARY OF ARLA.

AFI's 2023 performance was driven by a
continuous effort to produce new innova-
tions, and despite market price volatility,
our ingredients business kept
a strong momentum during 2023.

permeate volumes and a new source
of WPC raw material to enable further
growth. The value-add share decreased
slightly as sourced volumes saw an
upward trend.

However, AFI faced a very dynamic market
environment and was especially subject
to exceptionally volatile market prices
for whey and lactose-based ingredients
as well as foreign exchange rate volatility
such as the devaluation in Argentina,
where AFI has a production site. AFI
saw a benefit from underlying market
developments such as a strong demand
for our specialised whey protein products,
combined with raw material and energy
prices normalising after record high levels.
All in all, this resulted in higher growth in
the value-add segment of 10.4% (2022:
6.8%) but a revenue decrease of 6.3%
to EUR 963 million in 2023 (2022: EUR
1,028 million).

In 2023, AFI acquired full ownership of MV
Ingredients in the UK. The full ownership
of MV Ingredients brought AFI additional

Implementation of our Future 26 strategy
continued at full force: AFI entered into
a Joint Development Agreement with
Novonesis to develop new generations
of highly specialised proteins based on
precision fermentation. Also, a major
investment programme was initiated at
Danmark Protein to increase capacities of
our unique protein solutions. Finally, we
began an investment in a new permeate
dryer at our plant in Argentina.

The Advanced Nutrition business,
primarily producing early life nutrition
products, was challenged during 2023
following rising production costs and
strategic customers facing difficult
market conditions in China. However,
we introduced new customers in 2023,
bringing the performance on a par with
2022 levels.

ARLA®
PROTEIN

AFI's whey based ingredients are used
in a wide range of categories, such as
infant, clinical and sports nutrition.

Growth of the value-add segment

10.4%

2022: 6.8%

Value-add share

79.7%

2022: 80.4%

Revenue
EUR million

963

2022: 1,028

Share of total Arla revenue

7.0%

2022: 7.5%

PAGE 22ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternationalArla Foods Ingredients/ Global brands2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESGLOBAL
INDUSTRY SALES

IN ADDITION TO OUR RETAIL
CHANNELS, WE CONDUCT
BUSINESS-TO-BUSINESS SALES OF
CHEESE, MILK POWDER AND BUTTER
TO OTHER COMPANIES TO USE AS
INGREDIENTS IN THEIR PRODUCTION,
ALSO ALLOWING US TO BALANCE
OUR MILK THROUGHOUT THE YEAR.

European and global dairy commodity
market prices decreased rapidly in the
beginning of 2023 due to increased
milk production, weak demand due to
high prices and lower Chinese import
volumes. In the second half of 2023,
mainly driven by a decreasing milk
production, we saw commodity prices
starting to recover.

In total, revenue from Global Industry
Sales decreased by 10.9% in 2023,
driven by the lower commodity prices.
Despite higher volumes handled in
Global Industry Sales, the overall share
of milk solids sold through Global
Industry Sales increased to 27.4%
(2022: 23.6%). This increase was mainly
driven by lower sales volumes in other
parts of our business and a higher
overall milk intake.

ARLA®
KO

Our Global Industry Sales
model allows us to balance our
milk throughout the year.

Share of milk solids sold through Global
Industry Sales

27.4%

2022: 23.6%

Revenue
EUR million

2,256

2022: 2,531

Revenue growth

-10.9%

2022: 50.1%

Share of total Arla revenue

16.5%

2022: 17.6%

PAGE 23ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overviewExecutive summaryEuropeInternational/ Global brandsArla Foods Ingredients2024 outlook Global Industry Sales /SUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIES2024 OUTLOOK

WE FORESEE 2024 TO BE ANOTHER CHALLENGING YEAR WITH
VOLATILE MARKET CONDITIONS. HOWEVER, WE EXPECT THE
POSITIVE MOMENTUM OF OUR BRANDS, EFFICIENCIES AND
SUSTAINABILITY EFFORTS TO CONTINUE.

Looking ahead to 2024, we anticipate
another challenging year with volatile
market conditions, driven by external
factors such as continued pressure on
consumer spending, foreign exchange
rate developments and geopolitical
tension and uncertainty.

In late 2023, lower prices and stronger
purchasing power stimulated demand
for dairy which, combined with global
milk supply stagnation, moved com-
modity and farm prices upward. This
helped relieve economic pressure on
farmers and created more stable milk
supply and prices.

For our brands, the momentum from
late 2023 is expected to continue
into the first half of 2024. We antici-
pate branded volume growth
for 2024 as a whole of 1.0-3.0%,
despite a more uncertain market
and a lower growth outlook for the
second half of the year.

For revenue, it takes expectations to a
range of EUR 13.2-13.7 billion, as sales
prices towards the end of 2023 are at a
lower level than the record high levels
present at the beginning of 2023. The
profit share is expected to be between
2.8 and 3.2%, and leverage between
2.4 and 2.8, driven by an expected
strong cash flow. We expect to keep a
firm momentum through our efficiency
programme and to deliver savings in the
range of EUR 85-105 million.

Through our climate strategy, including
the Incentive model, we will keep the
current pace in our efforts to reduce
our climate impact. This is expected to
enable us to reach our 2030 emission
reduction targets – a 63% reduction
in scope 1 and 2 emissions and a 30%
reduction in scope 3 emissions per
kg of milk and whey – by leveraging
the strong momentum fuelled by the
important milestones achieved in 2023.

Outlook
20231

Results
2023

Outlook
2024

STRATEGIC BRANDED
VOLUME-DRIVEN
REVENUE GROWTH

-2.0 ~ - 1.0%

-0.7%

1.0-3.0%

REVENUE
EUR BILLION

PROFIT SHARE

EFFICIENCIES
EUR MILLION

LEVERAGE

SCOPE 1+2 EMISSIONS
PERCENTAGE POINTS

SCOPE 3 EMISSIONS
PERCENTAGE POINTS

1 As announced in the 2023 half-year report

13.2-13.7

2.8-3.0%

85-105

2.4-2.8

REDUCTION

13.7

2.8%

114

2.6

-4%P

-3%P

13.2-13.7

2.8-3.2%

85-105

2.4-2.8

REDUCTION

PAGE 24ARLA'S ANNUAL REPORT 2023I.II.III.External market overviewPerformance overview2024 outlook Executive summarySUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIESRISKS

AND

As a global company, we
closely monitor, evaluate
and adjust to external risks
and opportunities in the
markets we operate in.
STARBUCKS™
FRAPPUCCINO

OPPORTUNITIES

26
27

Risk governance
Arla's risk position

RISK
GOVERNANCE

AS A GLOBAL COMPANY WITH
THE AMBITION TO LEAD SUSTAINABLE
DAIRY, ARLA ENCOUNTERS VARIOUS
RISKS AND OPPORTUNITIES.
EFFECTIVE RISK MANAGEMENT IS
CRUCIAL FOR GENERATING AND
PROTECTING VALUE, ENSURING
THE CONTINUITY OF OUR
OPERATIONS AND ACHIEVING
OUR STRATEGIC GOALS.

Risk identification, assessment
and mitigation
In 2023, we further strengthened our
risk management process by enhancing
the approach across business units,
ensuring a shared understanding
and clear roles for risk identification,
assessment and mitigation. We
continued to roll out our enterprise risk
management framework, improving our
risk infrastructure, communication and
documentation.

Arla's risk management focuses on
identifying and minimising risks and
uncertainties, mitigating internal and
external impacts, and capitalising on
business opportunities to maximise
value. Our risk owners continuously
monitor trends that may affect Arla in
the future to identify key risks. These
risks are evaluated using a two-dimen-
sional heat map that measures their
potential impact on operating profit and
the likelihood of occurrence.

The Executive Management Team
(EMT) and the Board of Directors (BoD)
regularly review and evaluate the most
significant risks. The BoD is responsible
for maintaining a strong risk and
compliance management system as
well as an internal control system. The
EMT is accountable for the risks and

is responsible for ensuring effective
risk mitigation and identifying related
opportunities. The EMT examines
our risk map and the top risks are
presented to the BoD. Both the EMT
and BoD take measures to avoid un-
necessary risks and mitigate others.
The process is adaptable, allowing for
prompt assessment of unforeseen
risks, such as the war in Ukraine and
the Israel-Gaza conflict.

Risk description
Peripheral risks: These risks are outside of our
management's direct control.
Market-specific risks: These risks are considered managed
within the strategic and business planning process.
Company-specific risks: These are risks Arla can directly
manage and mitigate. They serve as a starting point for
the development of global policies and internal control
procedures.

l
a
c
i
t
i
r
C

r
o
a
M

t
c
a
p
m

t
fi
o
r
P

e
t
a
r
e
d
o
M

Corporate risk management

UNDERSTAND

PLAN

Identification

Evaluation

Reporting

Planning

· Risk map or
catalogue
· Classification of
risk types.

· Estimates of the
probability of
occurrence
· Assessment of
risk impact

· Monthly risk reports
· Early-warning
indicators
· Risk in value
management

· Risk in operative planning
· Risk in strategic planning
· Risk in investment valuation
· Risk-return portfolio
management

ACT

Risk response

· Peripheral
· Market-specific
· Company-specific

Crisis management

· Contingency measures
· Business continuity measures
· Communication measures

Possible
Likelihood

Likely

Very likely

Peripheral risks

1. Climate-related regulatory changes

2. Geopolitical instability and economic turmoil

Market-specific
risks

3. Transformation of consumer behaviour

4. Loss of competitiveness in branded portfolio

5. Loss of international competitiveness due

to increased production costs

Company-specific
risks

6. IT disruptions, including major cyber attacks

7. Major product quality and safety issues

8. Currency volatility

PAGE 26ARLA'S ANNUAL REPORT 2023I.II.III.Arla's risk positionSUSTAINABILITY STATEMENTSINTRODUCTIONPERFORMANCE REVIEWRISKS AND OPPORTUNITIES
Risk description

Risk development

Read more on page 136

PAGE 96

The following sections
provide additional disclosures
supplementing the primary
financial statements.

ARLA'S ANNUAL REPORT 2023

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

INTRODUCTION TO NOTES
(CONTINUED)

of moving milk volumes into branded
positions and to international markets.

2023 was yet another very unusual year
with general macroeconomic uncer-
tainty.

The record high commodity prices of
milk, especially in the second half of
2022, dropped rapidly in the first half of
2023. Despite the volatile market con-
ditions, revenue for 2023 amounting to
EUR 13,674 million was only 1% lower
than the record high level from last year.

The high inflationary pressure from
2022 eased during the initial months of
2023 but remained on a high level com-
pared to previous years, impacting the
level of operational costs such as sala-
ries, packaging, additives and consuma-
bles.

Lower milk costs paid to farmers were
therefore partly offset by increased
costs within production.

In addition to this, the high prices paid to
farmers, especially in the second half of
2022, for milk used in the production of
products sold in the first half of 2023
had a significant negative impact on the
cost of goods sold compared to last
year.

ARLA'S ANNUAL REPORT 2023

The performance price for 2023 totalled
47.0 EUR-cent/kg of owner milk, repre-
senting a reduction of 14.7% compared
to last year.

The continued volatility in milk prices
also impacted net working capital and
therefore cash flow. Cash flow from op-
erating activities increased to EUR 1,151
million (2022: EUR 184 million).
The trend towards a normalisation of
milk prices on the back of the very unu-
sual high level at the end of 2022 meant
that the adverse effect on funds tied up
in net working capital positions from last
year was partly released during 2023.

This reduced net interest-bearing debt
and leverage landed at 2.6, safely below
our target range of 2.8 to 3.4.

The volatility experienced in the second
half of 2022 and continuing during
2023 makes comparison with previous
years difficult. As uncertainty continues
into 2024, predictability is still difficult
and stakeholders should be careful
about using reported results as projec-
tions for the future.

Valuation of inventory
Due to the macroeconomic volatility
and the related effect on commodity
prices, the valuation of individual cost
components (such as milk-based com-
ponents, additives, packaging, energy
etc.) in our standard cost models was
frequently updated throughout 2023

and thoroughly reviewed at 31 Decem-
ber 2023.

The conversion from standard cost to
actual cost at the time of production for
the individual inventory categories was
correspondingly carefully assessed.

Furthermore, net realisable value was
assessed based on the price develop-
ment for especially milk commodity
products at the end of the year.

Please refer to Note 2.1 Inventory for
more details.

Valuation of certain assets and
liabilities based on a projection of
expected future cash flow
Interest rates remained at the high level
from last year. The valuation of goodwill,
gross pension liabilities and interest
hedge instruments was therefore also in
2023 carefully assessed.

Headroom related to goodwill in-
creased, primarily due to improvements
in expected future cash flow.

The value of interest hedge instruments
decreased by EUR 52 million as a result
of lower long-term interest levels and
utilisation of interest hedges during the
year, while pension liabilities remained
at the same level as last year.

Please refer to Note 3.1 Goodwill, Note
4.4 Hedge instruments and Note 4.7
Pension liabilities for more details.

Sustainability Incentive model
recognised as part of milk costs
A new Incentive model for owners was
introduced during the summer of 2023,
allowing up to EUR 500 million to be re-
distributed among farmers depending
on sustainability initiatives on farms.
This is one of the key levers to achieve
the CO2e savings on farms and is ex-
pected to have a positive effect on sales
and the value of our brands.

In 2023, a total of EUR 226 million of
the cost of owner milk was paid out re-
lated to Climate Checks and the new
Sustainability Incentive model intro-
duced in July. The amount was included
in the cost of owner milk. Read more in
Note 1.2 Operational costs.

Classification of power purchase
agreements
To support the reduction of scope 1+2
CO2e emissions, Arla has entered into
11 power purchase agreements (PPAs)
with a contractual annual energy vol-
ume of 446 GWh. Solar energy accounts
for 287 GWh and wind energy accounts
for 159 GWh. The first two agreements
went live in 2023.

Through a structured process, the ac-
counting classification of the individual
contracts was rigorously assessed based

on the latest available guidance and
involvement of external expertise. All
contracts are for the purpose of own
use and classified as executory supplier
contracts.

System (ETS) related to farm emis-
sions. A carbon tax would increase pro-
duction costs and could potentially
force farmers to reduce production or
leave the business.

Please refer to Note 4.1.4 Commodity
price risk and Note 5.5 Contractual com-
mitments, contingent assets and liabili-
ties.

· Extreme weather events like heat

waves, draughts or floods which can
have a negative impact on crop yields
and cows' productivity.

· Land use regulations to reach EU cli-

mate targets of converting agriculture
to forest land which would potentially
reduce the production of feed for cows
and shrink herd numbers on farms.

Climate-related risks in the
consolidated financial statements
Climate-related risks are high on the
agenda in Arla. The management has as-
sessed the impact on the consolidated
financial statements from such risks and
initiatives taken or to be taken towards
addressing them. There was no material
impact on the consolidated financial
statements 2023 from climate changes
or the actions taken against climate-
related risks. Potential future impacts
were also evaluated. Read more on
pages 43-44.

Points of considerations are described
below.

Risk of decline in milk volumes
Climate-related risks that can potentially
reduce milk volumes in the future are:

· The Danish Government’s commit-

ment to introducing a carbon tax on
methane and nitrous oxide emissions
from agricultural activities. Also, the
EU is discussing an Emissions Trading

PAGE 97

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

other factors. By nature, these are asso-
ciated with uncertainty and unpredicta-
bility which can have a significant effect
on the amounts recognised in the con-
solidated financial statements. The most
significant accounting estimates and
judgements are listed below with refer-
ence to further comments in the notes.

INTRODUCTION TO NOTES
(CONTINUED)

Risk of increased production costs
Climate-related risks that could poten-
tially affect the future of dairy opera-
tions are:

· Regulations to reduce emissions in

production. Denmark has proposed an
emission tax on industry operations.
Arla's operations will be impacted by
this. Other countries will potentially
follow Denmark and introduce similar
taxes, or employ other regulatory tools
to reduce emissions in the future.
Dairy production would be more ex-
pensive compared to countries where
such initiatives are not implemented,
which would harm Arla's competitive-
ness. We are constantly lowering CO2
emissions from operations. This is

enforced by the Future 26 strategy's
science-based targets of lowering
scope 1 and 2 CO2 emissions by 63%
by 2030.

· Changes in consumer behaviour

driven by costumers pushing for more
sustainable products increase the
need for sustainable dairy production
to stay competitive.

Risk of impairment of production
capacity
As a consequence of the above climate-
related risks, Arla could face impairment
of its production capacity due to:

· Equipment becoming outdated in the

sustainability transformation.

· Excess production capacity if milk vol-

umes and operations decline.

The potential consequences of the
above were considered as part of our
impairment test conducted during 2023
and our assessment of value in use for
property, plant and equipment. Non-cur-
rent assets in the balance sheet were
not affected by such impairment in
2023. Sustainability is now an integral
part of all investments in property, plant
and equipment which ensures future
investments to address the risks identi-
fied.

Significant accounting estimates
and judgements
Preparing the group's consolidated
financial statements requires manage-
ment to apply accounting estimates and
judgements that affect the recognition
and measurement of the group's assets,
liabilities, income and expenses. The es-
timates and judgements are based on
historical experience and

Significant accounting estimates and judgements
Measurement of revenue and rebates
Valuation of inventory
Measurement of trade receivables
Valuation of goodwill
Classification of investments

Note
1.1
2.1
2.1
3.1
3.3
4.1.4.a Classification of power purchase agreements
4.7
5.1

Valuation of pension plans
Tax

Estimate/
Judgement
Estimate
Estimate
Estimate
Estimate
Judgement
Judgement
Estimate
Estimate

ARLA'S ANNUAL REPORT 2023

PAGE 98

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

NOTE 1.
REVENUE AND COSTS

1.1 REVENUE

Financial comments
Revenue decreased by 0.9% to EUR
13,674 million (2022: EUR 13,793 mil-
lion). Prices contributed negatively to
revenue by EUR -206 million, mainly
driven by Global Industry Sales and AFI,

but partly offset by higher commercial
pricing.

Branded volumes were under pressure
in 2023 due to high inflation and ele-
vated dairy prices. However, consumers
started returning to branded products in
the second half of the year. The result
was a slight decline in strategic branded
sales volumes of 0.7% (2022: -3.2%).

This was offset by higher volumes in
Global Industry Sales, resulting in a posi-
tive net volume impact of EUR 429 mil-
lion.

Europe is Arla's largest commercial seg-
ment, comprising 58.4% of total reve-
nue (2022: 56.3%). Revenue in Europe
increased to EUR 7,984 million (2022:
EUR 7,771 million).

Development in revenue
(EUR million)

2022

Sales prices

Volume/mix

Currency

2023

ARLA'S ANNUAL REPORT 2023

Table 1.1.a Revenue split by country*

(EUR million)

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

Total

III.

Share of revenue
in 2023

25%
12%
12%
10%
6%
4%
3%
2%
2%
2%
22%

2023

3.441
1.661
1.645
1.319
873
499
388
302
277
270
2.999

2022

3.474
1.737
1.717
1.306
775
468
337
278
230
328
3.143

13.674

13.793

100%

*The figures in this table represents total revenue by country and includes all sales in the countries, irrespective
of organisational structure. Therefore, the figures cannot be compared to the commercial segment review in
the management review.

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

Table 1.1.b - Revenue split by brand
(EUR million)

Arla
Lurpak
Puck
Castello
Milk based beverage
Other supported brands

Strategic branded revenue

Arla Foods Ingredients
Global Industry Sales, private label and other

Total

2023

3,618
772
529
246
376
834

6,375

963
6,336

13,674

2022

3,702
750
504
239
353
746

6,294

1,028
6,471

13,793

PAGE 99

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

in the European commercial segment
(2022: 53.9%).

up 85.7% of total sales in International
(2022: 85.4%).

The International segment accounted
for 18.1% of total revenue (2022:
17.7%). The revenue in International in-
creased to EUR 2,471 million (2022:
EUR 2,437 million), driven by branded
volume growth, despite high prices and
macroeconomic challenges in emerging
markets such as inflation and devalua-
tion of currencies. Branded sales made

Arla Foods Ingredients accounted for
7.0% of total revenue (2022: 7.5%),
amounting to EUR 963 million (2022:
EUR 1,028 million). AFI maintained a
high value-add share of 79.7% (2022:
80.4%).

Global Industry Sales and other seg-
ments represented 16.5% of total

1.1 REVENUE
(CONTINUED)

The increase was driven by higher prices
and stable volumes. In Europe, strategic
branded revenue declined by 1.3%, pri-
marily driven by butter and spreadable
product categories. Branded sales in-
creased from EUR 4,183 million in 2022
to EUR 4,228 million in 2023, and
accounted for 53.0% of total revenue

Revenue split by commercial segment
(EUR million)

2023

2022

7,984

7,771

2,471

2,437*

2,256

2,531

963

1,028

Europe

International

Arla Foods Ingredients

Global Industry Sales
and other sales

*Excluding sales in Russia of EUR 26 million.

ARLA'S ANNUAL REPORT 2023

revenue and decreased by 10.8% to EUR
2,256 million (2022: EUR 2,531 million).
The development was primarily com-
modity price driven.

Arla’s revenue was negatively impacted
by currency effects of EUR 342 million,
primarily driven by lower SEK, GBP and
USD related exchange rates.

Accounting policies
Revenue is recognised when a contract
exists with a customer for the produc-
tion and transfer of dairy products
across various product categories and
geographical regions. Revenue by com-
mercial segment or market is based on
the group's internal financial reporting
practices.

Revenue is recognised in the income
statement when a performance obliga-
tion is satisfied, at the price allocated to
that performance obligation. This is de-
fined 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 cus-
tomers 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 pay-
ments such as sales rebates, cash dis-
counts, listing fees, promotions, VAT and

duties. Contracts with customers can
contain various types of discounts. His-
torical 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 trans-
ferred to the customer, also taking into
consideration the level of rebates.

The vast majority of all contracts have
short payment terms. Therefore, an ad-
justment of the transaction price with
regard to a financing component in the
contracts with customers is not re-
quired.

Uncertainties and estimates
Revenue, net of rebates, is recognised
when goods are transferred to custom-
ers. Estimates are applied when measur-
ing accruals for rebates and other sales
incentives. The majority of rebates are
calculated based on terms agreed with
the customer. For some customer rela-
tionships, the final settlement of the
rebate depends on future sales volumes,
prices and other incentives. Therefore,
there is an element of estimation and
judgement in determining whether per-
formance obligations are achieved. Esti-
mates are based on historical experi-
ence and forecasted future sales.

PAGE 100

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

1.2 OPERATIONAL COSTS

Financial comments
Operational costs amounted to
EUR 13,117 million, which was a de-
crease of 2% compared to last year.
Lower milk costs paid to farmers were
partly offset by increased production
costs. In addition, the higher level of
milk prices paid to farmers, especially in
the second half of 2022, had a signifi-
cant negative impact on the develop-
ment of the cost of goods sold in 2023
compared to last year.

Production costs decreased by 2% to
EUR 10,894 million (2022: EUR 11,145
million). Excluding costs of raw milk, pro-
duction costs increased to EUR 4,741
million (2022: EUR 3,965 million), repre-
senting an increase of 19.6%. The in-
crease was driven by inflation effects on
production materials such as packaging,
additives and consumables and higher
costs related to salaries, partly offset by
lower energy prices. Besides, the level of
cost of goods sold was impacted nega-
tively by the phasing effect related to
products produced last year at a higher
milk cost and sold during 2023.

Sales and distribution costs decreased
by 1% to EUR 1,764 million (2022: EUR
1,771 million).

Administration costs increased by 5%
to EUR 459 million (2022: EUR 439 mil-
lion), mainly driven by an increase in
staff costs.

The volatility of the external environ-
ment, especially the swings in raw milk
availability, put pressure on our transfor-
mation and efficiency programme, Fund
our Future. However, for 2023 we
achieved net savings of EUR 114 million
of which EUR 89 million related to

Development in operational costs
(EUR million)

Table 1.2.a Operational costs split by function and type
(EUR million)

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

III.

2022

11,145
1,771
439

13,355

7,180
2,181
1,427
820
240
472
1,035

2023

10,894
1,764
459

13,117

6,153
2,884
1,511
795
262
479
1,033

13,117

13,355

*Other production materials includes packaging, additives, consumables, variable energy and effects of cost of
goods sold related to changes in inventory
**Other costs mainly includes maintenance, utilities and IT

Table 1.2.b Weighed-in raw milk

2023

2022

Owner milk
Other milk

Total

Mkg

EUR million

Mkg

EUR million

13,058
816

13,874

5,751
402

6,153

12,815
963

13,778

6,661
519

7,180

Milk volumes have been restated from raw milk to standardised milk. Standardised milk with a composition of
3.4% protein and 4.2% fat is the generally used measure for weighed-in milk in Arla. Comparison numbers have
been restated as well.

2022

Milk costs

COGS from
inventory and
others

Inflation

Efficiency
cost impact

Currency

2023

ARLA'S ANNUAL REPORT 2023

PAGE 101

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

cooperative owners is recognised at pre-
paid prices for the accounting period
and therefore does not include the sup-
plementary payment, which is classified
as distributions to owners and recog-
nised directly in equity.

Sales and distribution costs
Costs relating to sales staff, write-down
of receivables, sponsorships, research
and development, depreciation and im-
pairment losses are recognised as sales
and distribution costs. Sales and distri-
bution costs also include marketing ex-
penses relating to investment in the
group’s brands such as the development
of marketing campaigns, advertise-
ments, exhibits and others.

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

1.2 OPERATIONAL COSTS
(CONTINUED)

operational costs, reducing our future
cost base.

Cost of raw milk
The cost of raw milk decreased by
14.3% to EUR 6,153 million (2022: EUR
7,180 million).

Owner milk
Costs related to owner milk decreased
by EUR 910 million due to a lower aver-
age prepaid milk price. Arla's average
prepaid milk price decreased to 44.1
EUR-cent/kg in 2023 (2022: 52.0 EUR-
cent/kg), which constitutes a 15.2%
decrease.

In 2023, a total of EUR 226 million were
paid out related to Climate Checks and
the new Sustainability Incentive model
introduced in July. The amount was in-
cluded in the cost of owner milk.

Other milk
The cost of other milk decreased by
EUR 117 million due to lower prices, and
lower volume intake in the UK. Other
milk consists of speciality milk and other
contract milk acquired to meet local
market demands.

Staff costs and number of FTEs
Staff costs increased by 5.9% to EUR
1,511 million (2022: EUR 1,427 million).

ARLA'S ANNUAL REPORT 2023

Staff costs increased due to regular
salary increases, additional FTEs in
Denmark and the UK and continued in-
sourcing of IT activities. The total num-
ber of FTEs increased to 21,307 (2022:
20,907). Please refer to the ESG section,
Note 1.2, for further details.

Marketing spend
The marketing spend increased by
EUR 22 million to EUR 262 million
(2022: EUR 240 million), driven by
higher marketing spend to encourage
sales, especially in the UK and China.

Depreciation, amortisation
and impairment
Depreciation, amortisation and impair-
ment were consistent with last year and
amounted to EUR 479 million (2022:
EUR 472 million).

Accounting policies
Production costs
Production costs cover direct and indi-
rect costs related to production, includ-
ing volume movements in inventory and
related inventory revaluation. Direct
costs comprise purchase of milk from
owners, inbound transport costs, pack-
aging, additives, consumables, energy
and variable salaries directly related to
production. Indirect costs comprise
other costs related to the production of
goods, including depreciation and im-
pairment losses on production equip-
ment and other supply chain-related
costs. The purchase of milk from

Table 1.2.c Staff costs
(EUR million)

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

Average number of full-time employees

Table 1.2.d Depreciation, amortisation and impairment
(EUR million)

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

Total

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

Total

III.

2022

1,239
88
3
97

1,427

800
412
215

2023

1,324
85
1
101

1,511

842
434
235

1,511

1,427

21,307

20,907

2023

62
417

479

346
60
73

479

2022

61
411

472

336
67
69

472

PAGE 102

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

1.3 OTHER OPERATING
INCOME AND COSTS

Financial comments
Other operating income decreased by
30% to EUR 113 million (2022: EUR 162
million).

Income from the sale of excess electric-
ity volumes from power production
plants was EUR 30 million (2022: EUR
58 million). The reduction was due to
lower market prices for electricity com-
pared to last year.

Remeasurement of our existing 50%
share in MV Ingredients Ltd. following
the acquisition of the remaining 50%
share in MV Ingredients Ltd. in the UK
led to a gain of EUR 22 million in 2023.
Please refer to Note 3.4 for further
details.

Income from currency hedging instru-
ments reclassified from OCI was EUR 18
million (2022: EUR 8 million). Please re-
fer to Note 4.4 for further details.

Gains on the disposal of intangible as-
sets and property, plant and equipment
were EUR 6 million (2022: EUR 11

million) following disposals in the UK
and Saudi Arabia.

Other items amounted to EUR 37 mil-
lion (2022: EUR 13 million), mainly
driven by EUR 8 million insurance com-
pensation following a fire accident, and
EUR 8 million following the termination
of a rental agreement.

Other operating costs decreased by 8%
to EUR 121 million (2022: 131 EUR mil-
lion).

Costs of commodity hedging instru-
ments reclassified from OCI were EUR
61 million (2022: a gain of EUR 72

Table 1.3 Other operating income and costs
(EUR million)

Sale of electricity
Remeasurement gain of existing shares of MV Ingredient Ltd.
Income from currency hedging instruments reclassified from OCI
Gains on the disposal of intangible assets and property, plant and equipment
Income from commodity hedging instruments reclassified from OCI
Other income items

2023

2022

30
22
18
6
-
37

58
-
8
11
72
13

Other operating income

113

162

Costs of commodity hedging instruments reclassified from OCI
Costs related to the sale of electricity
Costs of currency hedging instruments reclassified from OCI
Other cost items

61
27
15
18

-
32
76
23

Other operating costs

121

131

million), exclusively driven by energy
hedging instruments. Please refer to
Note 4.4 for further details.

Costs related to the sale of electricity
were EUR 27 million (2022: EUR 32 mil-
lion) in line with the previous year.

Costs of currency hedging instruments
reclassified from OCI were EUR 15 mil-
lion (2022: EUR 76 million). Please refer
to Note 4.4 for further details.

Other items amounted to EUR 18 mil-
lion (2022: EUR 23 million) and were
mainly driven by write-downs on non-
dairy assets in the amount of EUR 5 mil-
lion.

Accounting policies
Other operating income and costs con-
sist of items outside the regular course
of dairy business activities, including
items such as gains and losses relating
to the settlement of disputes, remeas-
urement gains from step acquisitions of
entities, net results from financial hedg-
ing activities and net results from the
production and sale of energy from our
biogas plants. Furthermore, this item in-
cludes gains and losses from the dis-
posal of non-current assets and divest-
ment of entities.

ARLA'S ANNUAL REPORT 2023

PAGE 103

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

For 2023, the profit attributable to our
farmer owners amounted to EUR 380
million (2022: EUR 382 million). This
corresponded to 2.8% of revenue, or 2.9
EUR-cent/kg of milk delivered, and was
distributed to the supplementary pay-
ment and retainment as disclosed in the
statement of profit appropriation.

Accounting policies
Profit share is a measure of profit rela-
tive to revenue calculated as Arla Foods
amba’s share of profit for the year di-
vided by total revenue.

Profit share is calculated as EUR 380
million divided by EUR 13,674 million
and equalled 2.8% in 2023.

1.4 KEY PERFORMANCE
INDICATORS

The alternative performance measures
disclosed in Note 1.4 are key perfor-
mance indicators for the group. They
are not IFRS requirements.

1.4.1 PERFORMANCE PRICE

Financial comments
Arla’s performance price is a key meas-
ure of the overall performance, express-
ing the value added to each kg of milk
supplied by our farmer owners. The per-
formance 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 2023. The perfor-
mance price was 47.0 EUR-cent/kg of
owner milk, (2022: 55.1 EUR-cent/kg).

1.4.2 STRATEGIC BRANDED
VOLUME-DRIVEN REVENUE
GROWTH

Financial comments
Volume-driven revenue growth (VDRG)
is defined as revenue growth derived
from growth in volumes keeping prices
constant.

VDRG of strategic brands is a perfor-
mance measure applied to support and
understand the non-price revenue
growth and performance of our branded
business.

Strategic branded VDRG decreased by
0.7% (2022: -3.2%). Sales of branded
products were also in 2023 under pres-
sure from high dairy pricing and infla-
tion, however demand started returning
in the second half of the year.

Accounting policies
Strategic branded volume-driven reve-
nue growth (strategic branded VDRG) is
a measure of the share of revenue
growth relative to volumes.

Volume-driven revenue is calculated by
keeping prices fixed year on year.

Strategic branded VDRG is calculated as
the volume growth of EUR -46 million
divided by total strategic branded reve-
nue of EUR 6,375 million and equalled -
0.7% in 2023.

1.4.3 PROFIT SHARE

Financial comments
The profit share of Arla is targeted at
2.8-3.2% of revenue, calculated on the
basis of the profit attributable to our
farmer owners.

Table 1.4.1 Performance price

2023

2022

EUR
million

Mkg.

EUR-
cent/kg

EUR
million

Mkg.

EUR-
cent/kg

5,751 13,058

44.1

6,661 12,494

52.0

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

380

2.9

382

Total

6,131 13,058

47.0

7,043 12,494

Table 1.4.2 Strategic branded volume driven revenue growth
(EUR million)

Strategic branded revenue last year
Strategic branded VDRG
Price and exchange rate adjustments

Strategic branded revenue

2023

6,294
-46
127

6,375

3.1

55.1

2022

5,472
-176
998

6,294

Strategic branded volume driven revenue growth, %

-0.7%

-3.2%

Table 1.4.3 Profit share
(EUR million)

Revenue
Profit for the year
Profit relating to non-controlling interests

Profit attributable to farmer owners

Profit share

2023

13,674
399
-19

380

2022

13,793
400
-18

382

2.8%

ARLA'S ANNUAL REPORT 2023

PAGE 104

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

Table 2.1.a Net working capital

(EUR million)

1 January

Cash flow

Included in
operating
cash flow

Non-cash flow

M&A

Write-
downs

Currency

31 Decem-
ber

NOTE 2.
NET WORKING CAPITAL

2.1 NET WORKING
CAPITAL

Financial comments
Net working capital decreased by EUR
338 million to EUR 1,104 million, (2022:
EUR 1,442 million), representing a de-
crease of 23% compared to last year.
The decrease was driven by lower inven-
tory, trade receivables positions and

lower trade payables and other payables,
including owner milk positions.

Inventory
Inventory decreased by 22% to EUR
1,384 million (2022: EUR 1,772 million).
The decrease was driven by lower milk

Development in net working capital
(EUR million)

2023
Inventory
Trade receivables
Trade payables and other payables

Total net working capital

2022
Inventory
Trade receivables
Trade payables and other payables

Total net working capital

Table 2.1.b Inventory
(EUR million)

Inventory before write-downs
Write-downs

Total inventory

Raw materials and consumables
Work in progress
Finished goods and goods for resale

Total inventory

1,772
1,267
-1,597

1,442

1,248
1,007
-1,445

810

-375
-117
172

-320

569
318
-180

707

2
4
-3

-
-
-

10
2
-

-11
-4
-

-15

-25
-11
3

-33

-34
-54
28

-60

2023

1,403
-19

1,384

307
380
697

1,384
1,145
-1,425

1,104

1,772
1,267
-1,597

1,442

2022

1,801
-29

1,772

401
622
749

1,384

1,772

Trade receivables
Trade receivables decreased by 10% to
EUR 1,145 million (2022: EUR 1,267 mil-
lion). The development was driven by
lower selling prices and negative cur-
rency effects, partly offset by higher

PAGE 105

1 January 2023

Inventory

Trade
receivables

Trade payables
and other payables
excluding owner
milk

ARLA'S ANNUAL REPORT 2023

Owner milk

Currency

31 December 2023

prices paid to our farmer owners, a de-
crease in the prices of energy and utili-
ties, partly offset by inflation in staff
costs, packaging and ingredients, and to
a lesser extent lower volumes. In addi-
tion, the effect from currencies reduced

the inventory value. Excluding currency
effects, the carrying amount of inven-
tory decreased by EUR 363 million.

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

2.1 NET WORKING CAPITAL
(CONTINUED)

(2022: EUR 1,597 million). A lower pre-
paid milk price and lower inflation were
the main reasons for the development.

payables, including owner milk,
decreased by EUR 169 million.

volumes. Accordingly, the utilisation of
trade receivables finance programmes
decreased to EUR 267 million (2022:
EUR 335 million). The group utilises
these programmes to manage liquidity
and reduce credit risk on trade receiva-
bles.

Managing credit risk exposure on trade
receivables is guided by group-wide poli-
cies. Credit limits are set based on the
customer's financial position and current
market conditions. The customer portfo-
lio is diversified in terms of geography, in-
dustry sector and customer size. In 2023,
the group was not extraordinarily exposed
to credit risk related to significant individ-
ual customers, but to the general credit
risk in the retail sector. Read more about
credit risk in Note 4.1.5.

Overdue above 30 days amounted to
6.6% of the trade receivables position
(2022: 8.8%). Provision for expected
losses was EUR 17 million (2022:
EUR 19 million).

Excluding currency effects, the carrying
amount of trade receivables decreased
by EUR 111 million.

Trade payables and other payables
Trade payables and other payables de-
creased by 11% to EUR 1,425 million

ARLA'S ANNUAL REPORT 2023

A number of Arla's strategic suppliers
participate in supply chain finance pro-
grammes, where the supply chain fi-
nance provider and related financial in-
stitutions act as a funding partner. When
suppliers participate in these pro-
grammes, 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 ser-
vices and an irrevocable acceptance to
pay the invoice at the due date via the
funding partner. The arrangement of
early payment is an exclusive transac-
tion between the supplier and the sup-
ply chain finance provider.

Extended payment terms are not em-
bedded in the programmes themselves,
but agreed with vendors directly.

The liquidity risk for Arla on termination
of the programmes is limited. The pay-
ment terms for suppliers participating in
the programmes are no more than 180
days. Utilisation of supply chain finance
programmes at year-end decreased by
16% to EUR 176 million (2022: EUR 210
million).

Excluding currency effects, the carrying
amount of trade payables and other

Accounting policies
Inventory
Inventories are measured at the lower of
cost or net realisable value, calculated
on a first-in, first-out basis. The net real-
isable value is established taking into
account inventory marketability and an
estimate of the selling price, less com-
pletion costs and costs incurred to exe-
cute the sale.

The cost of raw materials, consumables
and commercial goods includes the pur-
chase price plus delivery costs. The pre-
paid milk price to Arla's owners is used
as the purchase price for owner milk.

The cost of work in progress and manu-
factured goods also includes an appro-
priate share of production overheads,
including depreciation, based on the
normal operating capacity of the pro-
duction 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.

III.

2023

1,162
-17

1,145

2022

1,286
-19

1,267

Table 2.1.c Trade receivables
(EUR million)

Trade receivables before provision for expected losses
Provision for expected losses

Total trade receivables

Table 2.1.d Trade receivables
age profile

(EUR million)

Not overdue
Overdue by less than 30 days
Overdue by between 30 and 89 days
Overdue by more than 90 days

Total trade receivables

2023

2022

Gross carrying
amount

Expected loss
rate

Gross carrying
amount

Expected loss
rate

912
173
32
45

1,162

0%
1%
0%
33%

1,013
160
72
41

1,286

0%
0%
1%
44%

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

Net working capital
(EUR million)

Net working capital excluding owner milk

Net working capital

1,000

823

2019

867

679

2020

810

2021

1,740

1,022

1,442

1,339

1,104

2022

2023

PAGE 106

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

example the number of days overdue,
adjusted for significant negative devel-
opments in certain geographical areas.

The financial uncertainty associated
with the provision for expected losses is
usually considered to be limited. How-
ever, if a customer's ability to pay were
to deteriorate in the future, further
write-downs may be necessary.

Based on the macroeconomic volatility
in 2023, expected losses were carefully
assessed.

Customer-specific bonuses are calcu-
lated based on actual agreements with
retailers, however some uncertainty ex-
ists when estimating the exact amounts
to be settled and the timing of these
settlements.

Finance programmes
The classification of trade receivables
finance programmes and supply chain
finance programmes is subject to judge-
ment. The utilisation of these pro-
grammes is recognised in net working
capital.

2.1 NET WORKING CAPITAL
(CONTINUED)

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 his-
torical records of losses. Calculated
expected losses are adjusted for specific
significant negative developments in
geographical areas.

Trade receivables are derecognised
once the criteria for derecognition have
been met and all substantial risk and
rewards transferred.

Trade payables and other payables
Trade payables are measured at amor-
tised cost, which usually corresponds to
the invoiced amounts.

The amounts payable to suppliers in-
cluded in supply chain finance pro-
grammes are classified as trade paya-
bles in the balance sheet and in the cash
flow statement as cash flow from work-
ing capital.

Uncertainties and estimates
Inventory
The group uses monthly standard costs
to calculate inventory and revises all in-
direct 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

ARLA'S ANNUAL REPORT 2023

component in the standard cost calcula-
tion is the cost of raw milk from farmers.
This is determined using the average
prepaid milk price that matches the pro-
duction date of inventory.

Due to the macroeconomic volatility
and the related effect on commodity
prices, the valuation of individual cost
components such as milk-based compo-
nents, energy, packaging, consumables
and utilities etc. in our standard cost
models was frequently updated
throughout 2023 and thoroughly as-
sessed at 31 December 2023.

Conversion from standard cost to reflect
cost at the time of production for the in-
dividual inventory categories was corre-
spondingly assessed.

Indirect production costs are calculated
based on relevant assumptions with re-
spect 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 mar-
kets.

Receivables
Expected losses are based on a calcula-
tion including several parameters, for

2.2 OTHER RECEIVABLES
AND OTHER CURRENT
LIABILITIES

Financial comments
Other receivables
Other receivables decreased by EUR 10
million to EUR 309 million (2022: EUR
319 million). They mainly consist of VAT
receivables, prepayments, income tax
receivables and other items.

Other items amounted to EUR 83 mil-
lion (2022: EUR 113 million), mainly

driven by insurance recoveries, various
subsidies, disposal proceeds and other
taxes.

Other current liabilities
Other current liabilities increased by
EUR 5 million to EUR 306 million (2022:
EUR 301 million). They mainly consist of
employee-related accruals, income tax
and VAT payables, accrued interests and
other items.

Employee-related accruals amounted to
EUR 174 million (2022: EUR 156 mil-
lion), mainly driven by holiday pay, salary

and bonuses and related salary cost
accruals.

Other items amounted to EUR 64 mil-
lion (2022: EUR 68 million), mainly
driven by invoice financing payables
within the framework of our finance
programme.

Accounting policies
Other receivables and other
current liabilities
Other receivables and other current lia-
bilities are measured at amortised cost
usually corresponding to the nominal
amount.

Table 2.2 Other receivables and current liabilities
(EUR million)

VAT
Prepayments
Income tax
Amounts owed by associates and joint ventures
Accrued interest
Other

Other receivables
Employee related liabilities
Income tax
VAT
Accrued interest
Deferred income
Amounts owed to associates and joint ventures
Other

Other current liabilities

2023

125
55
21
20
5
83

309

174
23
17
12
9
7
64

306

2022

159
33
7
5
2
113

319

156
14
6
10
24
23
68

301

PAGE 107

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

NOTE 3.
CAPITAL EMPLOYED

3.1 INTANGIBLE ASSETS
AND GOODWILL

Financial comments

Intangible assets and goodwill
Intangible assets and goodwill
amounted to EUR 1,010 million, on par
with last year.

Goodwill
The carrying amount of goodwill
amounted to EUR 752 million (2022: EUR
702 million). Acquisitions during the year
amounted to EUR 45 million and related
to the acquisition of the remaining 50%
share in MV Ingredients Ltd. from our
joint venture partner. Please refer to table
3.1.b for a specification of goodwill.

Licences and trademarks
The carrying amount of licences and
trademarks amounted to EUR 60 million
(2022: EUR 66 million). The carrying

ARLA'S ANNUAL REPORT 2023

amount primarily relates to the recogni-
tion of trademarks from business combi-
nations and includes Yeo Valley® and
Svensk Mjölk®. The decrease in value
was due to amortisation.

The strategic brands Arla®, Lurpak®,
Castello® and Puck® are internally gen-
erated trademarks and are consequently
not recognised in the balance sheet.
Arla has the licence to manufacture, dis-
tribute and market Starbucks™ premium
ready-to-drink coffee beverages under a
long-term strategic licence agreement.
Similarly, Arla holds a long-term licence
agreement on the Kraft™ branded
cheese products in the MENA region. No
values are recognised for these licence
agreements.

additional EUR 68 million. One of the
key projects in 2023 was a go-live of the
SAP S/4 Hana platform.

Accounting policies
Goodwill
Goodwill represents the premium paid
by Arla above the fair value of the net as-
sets 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 fol-
low the management structure and in-
ternal financial reporting. Cash-generat-
ing units are the smallest group of as-
sets which can generate independent
cash inflows.

IT and other development projects
The carrying amount of IT and other de-
velopment projects was EUR 198 million
(2022: EUR 186 million). The group con-
tinued to invest in IT projects with an

Licences and trademarks
Licences and trademarks are initially
recognised at cost. The cost is subse-
quently amortised on a straight-line

Table 3.1.a Intangible assets and goodwill

(EUR million)

2023
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
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

2022
Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
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

Goodwill

Licences and
trademarks

IT and other
develop-
ment
projects

702
5
-
45
-

752

-
-
-
-

752

710
-24
-
16
-

702

-
-
-
-

702

160
1
-
-
-

161

-94
-
-7
-

-101

166
-6
-
-
-

160

-90
3
-7
-

-94

631
-1
68
-
-190

508

-445
-
-55
190

-310

198

558
-1
76
-
-2

631

-398
5
-54
2

-445

186

III.

Total

1,493
5
68
45
-190

1,421

-539
-
-62
190

-411

1,010

1,434
-31
76
16
-2

1,493

-488
8
-61
2

-539

954

PAGE 108

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.1 INTANGIBLE ASSETS AND
GOODWILL (CONTINUED)

basis over their expected useful lives,
with a maximum of 20 years.

IT and other development projects
Costs accrued during the research or ex-
ploration phase of conducting general
assessments of requirements and avail-
able technologies are treated as ex-
penses as incurred. On the other hand,
costs directly related to the develop-
ment stage of IT and other development
projects, including design, program-
ming, installation and testing, are recog-
nised as intangible assets. However, this
is only the case if the expenditure can be
measured reliably, the project is techni-
cally and commercially viable, there is a
likelihood of future economic benefits
and the group intends to and has the
necessary resources to complete and
utilise the asset. These IT and develop-
ment projects are then amortised on a
straight-line basis over a period of five to
eight years.

3.1.1 IMPAIRMENT TEST
OF GOODWILL

Financial comments
Goodwill is allocated to relevant cash-
generating units, primarily in our UK
activities within the commercial seg-
ment Europe.

ARLA'S ANNUAL REPORT 2023

Basis for impairment test and
applied estimates
Impairment tests are conducted using
expected future cash flows derived from
forecasts and long-term strategic tar-
gets. Projections for future cash flows
and earnings targets are made for each
individual cash-generating unit, taking
into account expected developments
identified in the Future 26 strategy pro-
cess and past experience. This includes
costs related to sustainability initiatives
initiated as a part of Arla's Future 26 am-
bitions. 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 the 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 as-
sumption is future profitability, which
considers the impact of moving milk in-
take into value-add products and more
profitable markets as well as operational
efficiency initiatives.

Test results
In 2023, high interest rates persisted,
leading to continued high discount rates
that exerted pressure on the headroom
in the goodwill impairment tests.
Throughout the year, close monitoring
of all goodwill positions and assess-
ments of supporting business cases

were conducted. No impairment was
identified.

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

Stronger cash flows in many markets
improved the expected future cash flow
levels in the impairment models. Sensi-
tivity calculations indicated that with the
currently applied discount rate, a 1 per-
centage point reduction in margins
would not result in impairment on any
markets. However, in Finland, break-
even was reached when a similar calcu-
lation of a 1 percentage point reduction
in margins was performed.

Furthermore, the inclusion of a goodwill
position related to the MV Ingredients
Ltd. acquisition did not alter the conclu-
sions of the impairment test in AFI.

UK
Finland
Sweden
Other

Europe

MENA
China

International

Argentina
UK

Arla Foods Ingredients

Total

III.

2022

473
40
20
60

593

83
16

10
-

2023

480
40
20
62

602

80
16

9
45

752

702

Table 3.1.1 Applied key assumptions

2023

2022

(EUR million)

UK
Finland
Sweden
Europe, other
MENA
China
Arla Foods Ingredients

Discount rate,
net of tax

Discount rate,
before tax

Discount rate,
net of tax

Discount rate,
before tax

8.5%
7.5%
6.9%
7.4%
11.1%
7.8%
7.9%

9.5%
8.3%
7.7%
8.3%
12.4%
8.5%
8.7%

8.6%
7.6%
7.6%
7.4%
13.0%
11.5%
8.1%

9.5%
8.2%
8.4%
8.3%
14.4%
12.2%
9.1%

PAGE 109

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

period, it has been set to the expected
inflation rate in the terminal period, as-
suming no nominal growth.

Discount rates
A discount rate, specifically the
weighted average cost of capital (WACC),
is applied for each individual cash-gen-
erating unit. The rate is determined
based on assumptions regarding inter-
est rates and risk premiums. WACC is re-
calculated to a before-tax rate. Changes
in future cash flow or discount rate esti-
mates can lead to significantly different
values.

3.1 INTANGIBLE ASSETS AND
GOODWILL (CONTINUED)

Accounting policies
Impairment occurs when the carrying
amount of an asset exceeds its recover-
able amount through use or sale. For im-
pairment testing, assets are grouped
into the smallest cash-generating unit
that generates largely independent cash
inflows. However, for goodwill, which
does not generate independent cash in-
flows, impairment tests are prepared at
the level where cash flows are consid-
ered to be largely independent.

The grouping of cash-generating units is
determined based on the management
structure and internal financial report-
ing, which is assessed annually.

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 assess-
ment of the time value of money and
risks specific to the asset or cash-gener-
ating unit.

ARLA'S ANNUAL REPORT 2023

The carrying amount of other non-cur-
rent assets is assessed annually against
their recoverable amount to identify any
indications of impairment. Any impair-
ment of goodwill is separately recog-
nised in the income statement and can-
not be reversed.

The recoverable amount of other non-
current assets is determined as the
higher value of the asset's value in use
(present value of estimated future net
cash flows from its use or the group of
cash-generating units) and its market
value (fair value) less expected disposal
costs.

An impairment loss on other non-cur-
rent assets is recognised in the income
statement under production costs, sell-
ing and distribution costs or administra-
tion costs, respectively. Impairment rec-
ognised can only be reversed to the ex-
tent 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 carry-
ing amount does not exceed the carry-
ing amount that would have been deter-
mined, net of depreciation or amortisa-
tion, if no impairment loss had been
recognised.

Uncertainties and estimates
Uncertainties and estimates play a sig-
nificant role in the goodwill impairment
tests. The group of cash-generating
units to which goodwill is allocated is

defined based on the management
structure and assessed annually.

Goodwill impairment tests are con-
ducted at least once a year for each
group of cash-generating units. The ex-
pected cash flow approach is used to de-
termine the value in use, with key pa-
rameters including anticipated future
free cash flows and assumptions on dis-
count rates.

Anticipated future free cash flows
The anticipated future free cash flows
are determined based on current fore-
casts and long-term 2026 targets de-
rived from the Future 26 process. These
forecasts and targets are established at
the cash-generating unit level during
the forecast and target planning pro-
cess. External sources of information
and industry-relevant observations, such
as macroeconomic and market condi-
tions, are considered in this determina-
tion.

All applied assumptions undergo scru-
tiny during the forecast and target plan-
ning process, relying on management's
best estimates and expectations, which
inherently involve judgement. These as-
sumptions encompass expectations re-
lated to revenue growth, EBIT margins
and capital expenditure. They also in-
clude moving milk intake into value-add
products and more profitable markets
and operational efficiency initiatives. For
the growth rate beyond the strategy

PAGE 110

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.2 PROPERTY, PLANT
AND EQUIPMENT

Financial comments
Arla's main property, plant and equip-
ment are located in Denmark, the UK,
Germany and Sweden. The carrying
amount was EUR 3,149 million (2022:
EUR 3,031 million).

Additions amounted to EUR 533 million
2022: EUR 429 million).

Additions included major projects, such
as investments in a capacity increase for
milk-based beverages in Esbjerg,

Denmark, and growth investments for
Arla Foods Ingredients, Denmark.
In 2023, new investments were initiated,
including investments in butter capacity
in Holstebro, Denmark.

Depreciation amounted to EUR 417 mil-
lion, on a par with last year.

Accounting policies
Property, plant and equipment are
measured at cost less accumulated de-
preciation and accumulated impairment
losses. Assets under construction, land
and decommissioned plants are not
depreciated.

Property, plant and equipment by country
(EUR million)

2023

2022

1,467

1,395

558

577

320

308

433

456

347

336

Denmark

Sweden

Germany

Other

ARLA'S ANNUAL REPORT 2023

Table 3.2.a Property, plant and equipment

(EUR million)

2023

Cost at 1 January
Exchange rate adjustments
Additions
Mergers and acquisitions
Transferred from assets in the course of construction
Disposals

Cost at 31 December

Depreciation and impairment at 1 January
Exchange rate adjustments
Depreciation and impairment for the year
Mergers and acquisitions
Depreciation on disposals

Depreciation and impairment at 31 December

Carrying amount at 31 December

Right-of-use assets carrying amount at 31 December

2022
Cost at 1 January
Exchange rate adjustments
Additions
Transferred from assets in the course of construction
Disposals

Cost at 31 December

Depreciation and impairment at 1 January
Exchange rate adjustments
Depreciation and impairment for the year
Mergers and acquisitions
Depreciation on disposals

Depreciation and impairment at 31 December

Carrying amount at 31 December

Right-of-use assets carrying amount at 31 December

Land and
building

Plant and
machinery

Fixture and fit-
ting, tools and
equipment

Asset in the
course of con-
struction

2,047
-2
79
2
43
-11

2,158

-888
2
-94
-1
7

-974

1,184

120

1,987
-43
58
62
-17

2,047

-838
22
-86
-
14

-888

1,159

124

3,984
4
101
19
109
-24

4,193

-2,641
-4
-248
-12
22

-2,883

1,310

3,800
-73
114
189
-46

3,984

-2,489
57
-247
-
38

-2,641

1,343

805
1
68
-
17
-48

843

-609
-1
-75
-
47

-638

205

782
-19
58
21
-37

805

-583
17
-78
-
35

-609

196

III.

Total

7,169
1
533
24
-
-83

7,644

-4,138
-3
-417
-13
76

-4,495

333
-2
285
3
-169
-

450

-
-
-
-
-

450

3,149

222

413
-3
199
-272
-4

333

-
-
-
-
-

6,982
-138
429
-
-104

7,169

-3,910
96
-411
-
87

-4,138

333

3,031

209

PAGE 111

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.2 PROPERTY, PLANT AND
EQUIPMENT (CONTINUED)

Cost
Cost comprises the acquisition price as
well as costs directly associated with an
asset until the asset is ready for its in-
tended use. For self-constructed assets,
cost comprises direct and indirect costs
relating to materials, components, pay-
roll and the borrowing costs from spe-
cific and general borrowing that directly
concerns the construction of assets. If
significant parts of an item of property,

plant and equipment have different use-
ful lives, they are recognised as separate
items (major components) and depreci-
ated 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 ex-
penditure items of property, plant and
equipment are only recognised as an ad-
dition 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 as incurred.

Depreciation
Depreciation aims to allocate the cost of
the asset, less any amounts estimated to
be recoverable at the end of its ex-
pected use, to the periods in which the
group obtains benefits from its use.
Property, plant and equipment are de-
preciated on a straight-line basis from
the time of acquisition, or when the as-
set is available for use based on an as-
sessment of the estimated useful life.

Investments in and depreciation of property, plant and equipment and right-of-use assets
(EUR million)

Investments in property, plant and equipment

Depreciation of property, plant and equipment

Right-of-use assets

506

425

367

297

580

102

478

381

314

521

452

406

332

429

373

414

340

533

445

417

347

2019

2020

2021

2022

2023

ARLA'S ANNUAL REPORT 2023

The depreciation base is measured tak-
ing 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 con-
dition 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 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 ac-
counting estimates, the effect of which
is adjusted only in current and future pe-
riods. Depreciation is recognised in the
income

statement in production costs, sales and
distribution costs or administration
costs.

Uncertainties and estimates
Estimates are made in assessing the
useful lives of items of property, plant
and equipment that determine the pe-
riod over which the depreciable amount
of the asset is expensed in the income
statement. The depreciable amount of
an item of property, plant and equip-
ment 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 and the useful life and residual
values of items of property, plant and
equipment.

As a consequence of climate-related
risks, Arla could face future impairment
of production capacity due to equip-
ment becoming outdated in the sustain-
ability transformation or from excess
production capacity if milk volumes and
operations decline.

Non-current assets in the balance sheet
were not affected by such impairment in
2023. Sustainability is now an integral
part of all CAPEX investments which en-
sures future investments to address the
risks identified.

Table 3.2.b Estimated useful life in years
(EUR million)

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

2023

50
20-30
5-20
3-7

2022

50
20-30
5-20
3-7

PAGE 112

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.2 PROPERTY, PLANT AND
EQUIPMENT (CONTINUED)

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.

Filling machinery and other technical
plants represent another major right-of-
use asset category. Filling machines typ-
ically have useful lives of seven years,
whereas other technical plants are de-
preciated 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.

Additions to right-of-use assets during
the year amounted to EUR 88 million
(2022: EUR 56 million). The total carry-
ing amount of right-of-use assets was
EUR 222 million (2022: EUR 209 mil-
lion), as specified in table 3.2.1.a. Lease
liabilities are specified in Note 4.3.

Accounting policies
All leases are recognised as a right-of-
use asset and a corresponding liability at
the date at which the leased asset is
available for use by the group. A lease li-
ability is initially measured on a present
value basis, which comprises the net
present value of fixed lease payments
less any lease incentives receivable, vari-
able lease payments based on an index
or a rate and a potential exercise price if
a purchase option exists.

The lease payments are discounted us-
ing an incremental borrowing rate.

The corresponding right-of-use asset is
measured at cost comprising initial
measurement of the lease liability, any
lease payments made at or before the
commencement date less any lease
incentives received and any initial direct
costs and restoration costs.

The right-of-use asset is subsequently
depreciated on a straight-line basis over
the shorter of the asset's useful life and
the lease term.

Each lease payment comprises a reduc-
tion of the lease liability and a finance
cost. The finance cost is charged to
profit or loss over the lease period as a
constant periodic rate of interest on the
remaining balance of the liability.

ARLA'S ANNUAL REPORT 2023

Short-term leases and leases of low-
value assets are recognised as an
expense in the income statement.

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 incre-
mental borrowing rate, service compo-
nents and facts and circumstances that
could create an economic incentive to
utilise the extension options of lease
arrangements.

Table 3.2.1.a Right-of-use assets

(EUR million)

2023

Carrying amount at 1 January

Additions

Disposals

Depreciations and impairments for the year

Depreciation on disposals

Exchange rate adjustments

Carrying amount at 31 December

2022

Carrying amount at 1 January

Additions

Disposals

Depreciations and impairments for the year

Depreciation on disposals

Exchange rate adjustments

Carrying amount at 31 December

RoU
Land and
buildings

RoU
Plant and
machinery

RoU
Fixtures and
fittings, tools
and equipment

124

-10

-30

-1

120

141

-7

-30

-4

124

-8

-4

-12

-6

-26

-36

-32

-35

-1

III.

Total

209

-44

-70

-1

222

230

-51

-71

-5

209

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

2023

2022

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

39
8

125

40
7

118

PAGE 113

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.3 JOINT VENTURES
AND ASSOCIATES

Financial comments
The share of the profit in joint ventures
and associates decreased by 15% to
EUR 51 million (2022: EUR 60 million),
and related primarily to the profit from
our investment in Mengniu.

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 in-
vestment in Mengniu was EUR 445 mil-
lion, unchanged from last year. The car-
rying amount of the investment in CDH
included goodwill amounting to EUR
152 million (2022: EUR 158 million)
driven by currency adjustments.

The fair value of the indirect share in
Mengniu equalled EUR 507 million
(2022: EUR 888 million) based on the
official listed share price at 31 Decem-
ber 2023.

Impairment risks included substantial
and long-term reductions in leading
stock indexes in Asia or an adverse and
permanent reduction in the expected
performance of Mengniu. As the fair
value exceeded the carrying amount of
the investment, there was no indication
of impairment.

ARLA'S ANNUAL REPORT 2023

In 2022, Mengniu reported group reve-
nue of EUR 12,481 million and a profit of
EUR 699 million. Consolidated figures
are not available for the CDH group. CDH
holds no significant investments other
than the investment in Mengniu, and re-
ported revenue relates to received divi-
dend payments from Mengniu. Through
the investment in CDH, Arla holds a
5.3% indirect investment in Mengniu.
See table 3.3.b for more details on CDH.

The carrying amount of the investment
related to the membership of Lant-
brukarnas Riksförbund in Sweden
amounted to EUR 91 million and was on
a par with last year.

Joint ventures
The carrying amount of joint ventures
equalled EUR 24 million, unchanged
from last year.

In 2023, Arla acquired the remaining
50% share in MV Ingredients Ltd. from a
joint venture partner. See Note 3.4 for
more details on the MV Ingredients Ltd.
acquisition.

Accounting policies
Investments in which Arla has a signifi-
cant 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 pro-
portionate share of unrealised inter-
company profits or losses.

Investments in associates and joint ven-
tures are recognised according to the
equity method and measured at the pro-
portionate share of the entities' net as-
set values, calculated in accordance
with Arla's accounting policies. The pro-
portionate 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. Divi-
dends received from associates and
joint ventures reduce the value of the
investment.

For investments held in listed compa-
nies, computation of Arla's share of
profit and equity is based on the latest
published financial information of the
company, other publicly available infor-
mation on the company's financial de-
velopment and the effect of revalued
net assets.

Investments in associates and joint ven-
tures 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

Table 3.3.a Associates and joint ventures
(EUR million)

Value of associates and joint ventures
Share of equity in COFCO Dairy Holdings Ltd. (Mengniu)
Goodwill in COFCO Dairy Holdings Ltd. (Mengniu)
Share of equity in immaterial associates

Recognised value of associates

Share of equity in immaterial joint ventures

Recognised value of associates and joint ventures

III.

2023

2022

293
152
91

536

560

290
158
93

541

565

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

2023

2022

Revenue

Net profit

Non-current assets

Dividends received

Ownership share

Group share of net profit

Recognised value

708

30%

445

742

30%

448

COFCO Dairy Holdings Ltd. has no other significant assets or liabilities

* Based on the latest available financial reporting

Fair value based on listed share price

507

888

Table 3.3.c Transactions with associates and joint ventures
(EUR million)

2023

2022

Sales of goods
Purchase of goods
Trade receivables*
Trade payables*

* Included in other receivables and other payables

-
77
15
-6

31
48
3
-21

PAGE 114

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

3.3 JOINT VENTURES
AND ASSOCIATES (CONTINUED)

that the amount owed is deemed irre-
coverable.

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 signif-
icant or prolonged decline in the fair
value of the investment below its carry-
ing amount.

Where the equity-accounted investment
is considered to be an integral part of a
cash-generating unit (CGU), the impair-
ment test is performed at the CGU level
using expected future net cash flows of
the CGU. An impairment loss is recog-
nised 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).

Uncertainties and estimates
Significant influence is defined as the
power to participate in financial and op-
erating policy decisions of the investee,
but does not constitute control or joint
control over those policies. Judgement
is necessary in determining when a sig-
nificant influence exists. When

ARLA'S ANNUAL REPORT 2023

determining significant influence, fac-
tors such as representation on the Board
of Directors, participation in policy-mak-
ing, material transactions between the
entities and interchange of managerial
personnel are considered.

CDH and Mengniu
The group has a 30% investment in
CDH, which is considered an associate
based on a cooperation agreement ex-
tending significant influence, including
the right to representation on the Board
of Directors. The cooperation agree-
ment with CDH also entitles Arla to rep-
resentation on the Board of Directors of
Mengniu, a Hong Kong-listed dairy com-
pany in which CDH is a significant share-
holder.

Based on these underlying agreements,
it is our assessment that Arla exercises a
significant influence in Mengniu.

Lantbrukarnas Riksforbund,
Sweden (LRF)
Arla has an ownership interest of 24% 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 in-
terest constitutes a significant influence
in LRF. This includes, but is not limited
to, owner representation on the Board
of Directors. Furthermore, Arla's owners

have represented the Swedish dairy in-
dustry on the Board of Directors of LRF,
and both Arla and our Swedish owners
are individual members of LRF.

Based on this, it is our assessment that
Arla exercises a significant influence in
LRF, and the investment is therefore
classified as an associate.

3.4 PURCHASE AND SALE
OF BUSINESS ACTIVITIES

MV Ingredients Ltd.
In August 2023, Arla acquired the re-
maining 50% of the shares in the joint
venture MV Ingredients Ltd. located
in UK.

Through the transaction, the group's
share in MV Ingredients Ltd. increased
from a 50% owned joint venture to a
wholly owned subsidiary.

With the reclassification from invest-
ments in joint ventures and associates
to investments in subsidiaries, the exist-
ing investment was deemed disposed of
and remeasured to fair value according
to the new acquisition when recognised
as a fully controlled entity.

The fair value of the acquired activities
amounted to EUR 62 million including
recognised goodwill of EUR 45 million.

The assets acquired were whey-based
production facilities and working capital
items. Goodwill represented the value of
synergies, nearby capacity and access to
a higher whey pool.

The remeasurement of the existing
share in MV Ingredients Ltd. to fair value
generated a gain of EUR 22 million rec-
ognised as other operating income in
the income statement. Please refer to
Note 1.3 for more details.

Table 3.4 Mergers and acquisitions
(EUR million)

Property, plant and equipment
Inventory
Cash
Other assets
Liabilities

Fair value of acquired net assets

Goodwill

Fair value of acquired activities

Cash balance in acquired activities
Fair value of previously held investments

Cash flow from acquisition

2023

2022

11
2
5
4
-5

-5
-31

-
2
-
-
-7

-5

-
-

PAGE 115

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

NOTE 4.
FUNDING

4.1 FINANCIAL RISKS

Financial comments
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 so it is critical for the group to have
an appropriate financial risk manage-
ment approach in place to mitigate
short-term market volatility, while simul-
taneously 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. The policy outlines risk limits

ARLA'S ANNUAL REPORT 2023

for each type of financial risk, permitted
financial instruments and counterpar-
ties.

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 fi-
nancial risk management, but is an in-
herent component of the group's busi-
ness model.

4.1.1 LIQUIDITY RESERVES

Adequate liquidity reserves
In 2023, liquidity reserves increased by
EUR 359 million to EUR 1,349 million.
Looking at the maturity profile of the
group's debt and the forecasted cash
flow, the liquidity reserves are consid-
ered adequate and are expected to re-
main at the same level during 2024. En-
suring the availability of sufficient oper-
ating liquidity and credit facilities for
operations is the primary goal of manag-
ing liquidity risk. Based on the liquidity

models suggested by the rating agen-
cies, Arla's liquidity reserves amounting
to EUR 1,349 million are 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 suppli-
ers have access to the group's supply
chain finance facilities, which allow
those suppliers to benefit from the
group's credit profile.

More than 93% (2022: 95%) of the day-
to-day liquidity flow of the group is man-
aged and controlled centrally and to a
wide extent via cash pooling arrange-
ments. This secures a scalable and effi-
cient operating model. As a result, the
group is able to ensure cost-efficient uti-
lisation of credit facilities.

Table 4.1.1.a Liquidity reserves
(EUR million)

Free cash
Restricted cash
Not readily available cash

Cash and cash equivalents

Free securities
Restricted securities
Securities used in repurchase arrangements

Securities

Free cash
Free securities
Unutilised committed loan facilities > 1 year
Other unutilised loan facilities

Liquidity reserves

III.

2022

55
18
33

106

13
49
370

432

55
13
475
447

990

2023

78
16
44

138

29
37
337

403

78
29
615
627

1,349

Interest-bearing debt maturing < 1 year

477

401

Liquidity reserves

2023

2022

46%

48%

46%

45%

10%

11%

Cash and cash equivalents

Securities (free cash flow)

Unutilised committed loan
facilities > 1 year

Other unutilised loan facilities

PAGE 116

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.1 FINANCIAL RISKS
(CONTINUED)

Arla operates in several countries with
restrictions and regulations on the
transferability of cash and securities. At
31 December 2023, cash of EUR 16 mil-
lion (2022: EUR 18 million) was located
in countries with restrictions and regula-
tions on the transferability of cash, while
the amount related to restricted securi-
ties was EUR 37 million (2022: EUR 49
million). Cash and securities in Argen-
tina, China, Bangladesh and Senegal are
reported as restricted.

Cash is considered not readily available
for upstreaming in the group if a transfer
is not possible within five days. Arla has
cash positions in a number of countries
where a transfer is deemed to take more
than five days due to various circum-
stances such as local administrative pro-
cesses or shareholder agreements. At
31 December 2023, EUR 44 million
(2022: EUR 33 million) were considered
as not readily available cash.

ARLA'S ANNUAL REPORT 2023

Table 4.1.1.b Expected non-discounted contractual cash flow on gross financial liabilities

Non-discounted contractual cash flow

(EUR million)

2023

Issued bonds
Mortgage credit institutions
Credit institutions
Schuldschein
Lease liabilities
Other non-current liabilities
Interest expense - interest-bearing debt
Trade payables and other payables
Derivative instruments

Total

(EUR million)

2022
Issued bonds
Mortgage credit institutions
Credit institutions
Schuldschein
Lease liabilities
Interest expense - interest-bearing debt
Trade payables and other payables
Derivative instruments

Total

Carrying
amount

535
1,212
852
350
223
10
-
1,425
43

4,650

Carrying
amount

490
1,221
1,424
-
214
-
1,597
36

5,000

Total

2024

2025

2026

2027

2028

2029

2030

2031-2033

After 2033

534
1,216
1,142
352
223
18
916
1,425
43

5,869

127
10
891
-
63
18
110
1,425
36

2,680

109
85
47
-
50
-
101
-
2

394

181
49
1
201
37
-
84
-
2

555

-
54
101
-
25
-
68
-
1

249

117
61
1
151
16
-
59
-
1

406

-
68
100
-
32
-
52
-
1

253

-
90
1
-
-
-
52
-
-

143

-
295
-
-
-
-
156
-
-

451

-
504
-
-
-
-
234
-
-

738

Total

2023

2024

2025

2026

2027

2028

2029

2030-2032

After 2032

Non-discounted contractual cash flow

493
1,229
1,425
-
218
359
1,597
36

5,375

134
11
507
-
59
53
1,597
30

2,409

135
11
517
-
47
41
-
5

756

-
86
47
-
38
38
-
1

210

179
50
1
-
25
30
-
-

285

-
54
251
-
17
22
-
-

344

45
61
1
-
23
17
-
-

147

-
68
101
-
1
17
-
-

187

-
273
-
-
4
51
-
-

328

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 forecasted interest expense 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.

-
615
-
-
4
90
-
-

709

PAGE 117

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.1 FINANCIAL RISKS
(CONTINUED)

Risk mitigation
Risk
Liquidity and funding are vital for the
group to be able to pay its financial lia-
bilities as they become due. Risk man-
agement 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 thresh-
old 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.

How we act and operate
In addition to the treasury and funding
policy, the Board of Directors has ap-
proved a long-term financing strategy,
which defines the direction for financing
of the group. This includes

counterparties, instruments and risk ap-
petite and describes future funding op-
portunities to be explored and imple-
mented. The funding strategy is sup-
ported by farmer owners' long-term
commitment to investing in the busi-
ness. It is the group's objective to main-
tain its credit quality at a robust invest-
ment grade level.

4.1.2 CURRENCY RISK

Financial comments
The group is exposed to both transac-
tion 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 24 million
compared to last year due to negative
transaction effects. Part of this exposure
was hedged by costs in the same cur-
rency. 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 instru-
ments is recognised in financial income
or financial costs. A net loss of EUR 62
million (2022: EUR -46 million) was rec-
ognised in financial costs. Exchange rate
losses related primarily to the devalua-
tions of the Argentine, Bangladeshi and
Nigerian currencies, amounting to EUR
93 million in total. The negative effect
from the devaluation in Argentina was
partly offset by interest income from se-
curities of EUR 40 million.

To manage short-term volatility from
currency fluctuations, derivatives are
used to hedge the currency exposure.
When settling the hedging instrument, a
positive or negative amount is recog-
nised in other income or other costs,
respectively. A net profit impact of EUR
3 million (2022: EUR 68 million) was rec-
ognised. Please refer to table 1.3. A
profit impact from hedging should be
expected in years where export curren-
cies weaken during the year and vice
versa.

The group is exposed to translation ef-
fects from entities reporting in curren-
cies other than EUR. The group is mainly
exposed to translation of entities report-
ing in GBP, SEK, USD and DKK. Due to
translation effects, revenue decreased
by EUR 317 million compared to the rev-
enue reported last year.

Simultaneously, costs increased by EUR
41 million compared to last year's re-
ported costs. The group's financial posi-
tion is similarly exposed, impacting the
value of assets and liabilities reported in
currencies other than EUR. The transla-
tion effect on net assets is recognised in
other comprehensive income as foreign
currency translation adjustments. In
2023, a net loss of EUR 47 million

(2022: EUR 48 million) was recognised
in other comprehensive income.

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

Compared to last year, the average rate
of the SEK weakened by 7.3%, USD
weakened by 2.8% and GBP weakened
by 2.0%.

The group is increasingly involved in
emerging markets where efficient hedg-
ing 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, Leba-
non and Argentina. Countries with less
efficient currency markets represented
4% (2022: 4%) of the group's revenue in
2023.

Revenue split by currency
(EUR million)

2023

2022

4,531

4,466

3,423

3,415

Table 4.1.1.c Average maturity

Average maturity, gross debt
Maturity < 1 year, net debt
Maturity > 2 year, net debt

ARLA'S ANNUAL REPORT 2023

Policy

2023

4.9 years
0%
96%

2022

Minimum

Maximum

5.2 years
0%
78%

2 years
-
50%

-
25%
-

1,552

1,616

1,392

1,388

1,428

1,492

941

1,005

406

411

EURs

GBP

SEK

DKK

USD

SAR

Other

PAGE 118

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

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 for-
eign operations should be hedged
(translation risks) with an obligation to
inform the Board of Directors at the next
meeting.

4.1 FINANCIAL RISKS
(CONTINUED)

Risk mitigation
The group's external exposure is calcu-
lated as external financial assets and lia-
bilities denominated in currencies other
than the functional currency of each le-
gal 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 cur-
rency 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% of the net recognised

trade receivables 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.

ARLA'S ANNUAL REPORT 2023

Table 4.1.2.a Exchange rates

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

Closing rate

Average rate

2023

2022

Change

2023

2022

Change

0.869
11.048
7.454
1.106
4.164

0.884
11.156
7.436
1.066
3.982

1.8%
1.0%
-0.2%
-3.6%
-4.4%

0.870
11.468
7.451
1.081
4.057

0.852
10.629
7.439
1.051
3.947

-2.0%
-7.3%
-0.2%
-2.8%
-2.7%

Table 4.1.2.b Currency exposure

(EUR million)

2023

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

2022

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

* Including AED

Balance sheet exposure

Potential accounting impact

Open
positions

Hedging of
future cash
flows

External
exposure

Sensitivity

Income
statement

Other com-
prehensive
income

107
-12
45
-30
3

270
-62
10
45
47

-
-335
-311
-14
-84

11
-544
-345
-65
-103

107
-347
-266
-44
-81

281
-606
-335
-20
-56

1.0%
5.0%
5.0%
5.0%
5.0%

1
-1
2
-2
-

3
-3
-
2
2

-
-17
-16
-1
-4

-
-27
-17
-3
-5

PAGE 119

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.1 FINANCIAL RISKS
(CONTINUED)

4.1.3 INTEREST RATE RISK

Financial comments
The average duration of the group's in-
terest hedging of interest-bearing debt,
including derivatives but excluding pen-
sion liabilities, has decreased by 0.8
to 2.3.

The duration decreased due to a reduc-
tion in interest rate hedges and reduced
time to maturity which was only partly
offset by lower net interest-bearing
debt.

The value of hedged future interest
cash flow amounts to EUR 80 million.
Please refer to table 4.4.a.

Risk mitigation
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 other comprehensive income expo-
sure. Profit exposure relates to net po-
tential impairment of non-current as-
sets. Other comprehensive income ex-
posure relates to revaluation of net

ARLA'S ANNUAL REPORT 2023

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 instru-
ments and debt instruments measured
on a 1% 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 in-
terest rate payments on the group's un-
hedged floating-rate debt. Table 4.1.3.a
shows the one-year cash flow sensitivity,
depicting a 1% increase in interest rates
at 31 December 2023. 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.

How we act and operate
The purpose of interest rate hedging is
to mitigate risk and secure relatively sta-
ble 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 inde-
pendently 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-effi-
cient manner without changing underly-
ing loan agreements.

The mandate from the Board of Direc-
tors provides the group with the oppor-
tunity to use derivatives, such as interest
rate swaps and options, in addition to in-
terest conditions embedded in the loan
agreements.

Table 4.1.3.a Interest rate risk

(EUR million)

2023
Financial assets
Derivatives
Financial liabilities

Net interest-bearing debt excluding
pension liabilities

2022

Financial assets
Derivatives
Financial liabilities

Net interest-bearing debt excluding
pension liabilities

Table 4.1.3.b Duration

Duration

Carrying
amount

Sensitivity

Potential accounting impact

Income
statement

Other
comprehensive
income

1.0%
1.0%
1.0%

-499
-
3,182

2,683

-542
-
3,367

2,825

5
6
-17

-6

5
6
-19

-8

-1
36
-

-1
42
-

2023

2.3

2022

3.1

Minimum

Maximum

Policy

PAGE 120

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.1 FINANCIAL RISKS
(CONTINUED)

4.1.4 COMMODITY PRICE RISK

Financial comments
Energy commodity contracts are pre-
dominately related to a floating official
price index. The Treasury department
uses financial derivatives to hedge en-
ergy commodity price risk. This secures
full flexibility to change suppliers with-
out having to take future hedging into
consideration.

Hedging activities focus on the most
significant risks, including electricity,
natural gas and diesel. The total fore-
casted energy commodity spend for
2024 excluding taxes and distribution
costs, is EUR 167 million with the prices
at 31 December 2023.

The purpose of hedging is to reduce vol-
atility in energy-related costs. In 2023,
hedging activities resulted in a loss of
EUR 61 million (2022: EUR +72 million),
please refer to table 1.3. However, the
loss in 2023 was more than offset by
significantly lower physical energy costs.
The result of hedging activities, classi-
fied as hedge accounting, is recognised
in other income and costs.

At the end of 2023, 49% of the fore-
casted energy spend for 2024 was

ARLA'S ANNUAL REPORT 2023

hedged. A 50% increase in commodity
prices would negatively impact the fore-
casted unhedged energy spend by ap-
proximately EUR 43 million. If the fore-
casted energy prices were 50% higher at
31 December 2023, a gain of EUR 48
million would positively impact other
comprehensive income.

Other commodity contracts covering in-
gredients and packaging primarily de-
pend on a fluctuating official price index.

Power purchase agreements
Arla has signed power purchase agree-
ments covering 446 GWh, of which 83
GWh went into operation in 2023.

Accounting classification of the individ-
ual contracts was assessed through a
structured process based on the latest
available guidance and involvement of
external expertise. It was concluded that
all contracts are for the purpose of own
use and are therefore classified as exec-
utory supplier contracts.

For contractual obligations, please refer
to Note 5.5.

Risk mitigation
Risk
The group is exposed to commodity
risks related to the production and distri-
bution of dairy products. Increased com-
modity prices negatively impact produc-
tion and distribution costs.

Fair value sensitivity
A change in commodity prices will
impact the fair value of the group's
hedged commodity derivative instru-
ments, measured through other com-
prehensive income and the unhedged
energy consumption through the
income statement. Table 4.1.4.b shows
the sensitivity of a 50% 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 48 months, of which
100% can be hedged for the first 18
months, with a declining proportion
thereafter.

How we act and operate
Energy commodity price risks are man-
aged by the Treasury department. Com-
modity price risks are mainly hedged by
entering into financial derivative con-
tracts, 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 com-
modities can be effectively hedged by

Table 4.1.4.a Contracted power purchase agreements

Country

Denmark

Sweden

Germany

Total

Type of energy

Solar
Wind

Total

Annual MWh
of energy
contracted

Price terms

Average
duration

Operating

Objective Classification

276,630

Fixed

10 years

2023

Own use

100,000

Fixed

10 years

2025

Own use

49,207

Fixed

12 years

2024

Own use

19,732

Fixed

15 years

2024

Own use

Executory
contracts
Executory
contracts
Executory
contracts
Executory
contracts

445,569

286,754
158,815

445,569

Table 4.1.4.b Hedged commodities

Potential accounting impact

Sensitivity

Carrying
amount

Income
statement

Other
comprehensive
income

2023

Diesel / natural gas
Electricity

2022

Diesel / natural gas
Electricity

50%
50%

-9
-9

-18

6
31

-26
-17

-43

-10
-14

-24

30
18

94
58

152

PAGE 121

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.1 FINANCIAL RISKS
(CONTINUED)

matching the underlying costs, but Arla
aims to minimise the basic risk.

Dairy derivative markets in the EU, the
USA 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 vol-
ume. As the dairy derivative market de-
velops, we expect this to play an increas-
ing role in managing fixed price con-
tracts with customers in the coming
years.

4.1.5 CREDIT RISK

Financial comments
In 2023, the group continued to experi-
ence very limited losses from defaulting
counterparties such as customers, sup-
pliers 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 coun-
terparty or its parent company. In a
small number of geographical locations
which are not serviced by our relation-
ship banks and where financial counter-
parties with a satisfactory credit rating
do not operate, the group deviated from

ARLA'S ANNUAL REPORT 2023

the rating requirement. Out of the EUR
59 million placed in weaker speculative
grade EUR 37 million was restricted sur-
plus cash in Argentina invested in secu-
rities.

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

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

As in previous years, the group continu-
ously 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 deriva-
tive contracts. Table 4.1.5 shows the
counterparty exposure for those agree-
ments covered by entering into netting
agreements that qualify for netting in
case of default.

Risk mitigation
Risk
Credit risks arise from operating activi-
ties and engagement with financial
counterparties. Furthermore, a weak
counterparty credit quality can reduce
their ability to support the group going
forward, thereby jeopardising the fulfil-
ment of our group strategy.

Policy
Counterparties for financial contracts
are selected based on a relationship
bank strategy. Approval by the Executive
Board and the CFO is required, following
a recommendation from Treasury. A
minimum long-term rating of A3 from
Moody's, A- from S&P or A- from Fitch is
needed for a counterparty (or its parent).
If credit is solely obtained from the
counterparty, no rating is necessary. If
the counterparty has multiple credit rat-
ings, the average rating is used, rounded
up. However, in geographies without
sufficient coverage from our relation-
ship banks, Treasury may deviate from
these requirements.

How we act and operate
The group has a comprehensive credit
risk policy and utilises credit insurance
and trade financing products extensively
for exports. In some emerging markets,
obtaining the required credit coverage
may be challenging, but the group
strives to secure the best available cov-
erage. This is considered an acceptable
risk due to the group's investments in
emerging markets. If a customer pay-
ment is delayed, internal procedures are
followed to minimise losses. The group
works with a select few financial coun-
terparties and continuously monitors
their credit ratings.

External rating of financial counterparties

2022

2023

54%

49%

25%

21%

AAA

AA-

A+

A-

BBB+

Stronger
speculative
grade*

Weaker
speculative
grade*

Table 4.1.5 External rating of financial counterparties and securities
(EUR million)

Counterparty rating

2023
Securities
Cash
Derivatives

Total

2022

Securities
Cash
Derivatives

Total

AAA

AA-

A+

366
-
-

366

383
-
-

383

-
15
-

-
-
-

-
5
15

-
15
13

-
30
114

144

-
5
189

194

-
4
-

-
33
33

Stronger
speculative
grade*

Weaker
speculative
grade*

A-

BBB+

-
22
1

-
-
-

-
11
1

-
20
4

-
29
1

-
28
-

37
22
-

49
5
-

* Definition based on S&P rating scale. Stronger speculative grade: BB+ to B- and weaker speculative grade: CCC+ to D.

Total

403
138
132

673

432
106
239

777

PAGE 122

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.2 FINANCIAL ITEMS

Financial comments
Financial items increased by EUR 65 mil-
lion to EUR 145 million, mainly due to
higher interest on financial instruments.

Net interest expenses amounted to EUR
97 million, representing an increase of
EUR 44 million compared to last year
due to higher interest rates compared to
last year.

Average interest expenses, excluding in-
terest related to pension assets and lia-
bilities, were 3.9% (2022: 2.3%). For a

definition of average interest expenses,
excluding interest related to pension as-
sets and liabilities, please refer to the
glossary. Interest cover decreased to
11.1 (2022: 19.6).

Exchange rate losses related to the de-
valuation of the Argentine, Bangladeshi
and Nigerian currencies amounted to
EUR 93 million, of which EUR 40 million
were offset by interest income on the
restricted cash and securities. The nega-
tive foreign currency effect in Argentina
was partly offset by interest income
from investments in money market
funds.

Accounting policies
Financial income and financial costs as
well as capital gains and losses are rec-
ognised in the income statement at
amounts that can be attributed to the
year. Financial items comprise realised
and unrealised value adjustments of se-
curities 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, con-
struction or development of qualified

assets are attributed to the costs of such
assets and are therefore not included in
financial costs.

Capitalisation of interest was performed
by using an interest rate matching the
group's average external interest rate in
2023. Financial income and financial
costs relating to financial assets and
financial liabilities were recognised
using the effective interest method.

Table 4.2 Financial income and financial costs
(EUR million)

Financial income:

Interest securities, cash and cash equivalents
Foreign exchange rate gains
Fair value adjustments and other financial income

Total financial income

Financial costs:

Interest on financial instruments measured at amortised cost
Foreign 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

ARLA'S ANNUAL REPORT 2023

2023

2022

57
74
4

135

-151
-136
-3
14
-4

-280

-145

22
83
15

120

-71
-129
-2
7
-5

-200

-80

PAGE 123

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

· Bond issue of SEK 1,200 million which
will expire after two years while SEK
800 million will expire after five years.

· Schuldschein issue of EUR 350 million,
of which EUR 200 million will expire
after three years and EUR 150 million
will expire after five years. A
Schuldschein is a form of private
placement loan, primarily used by
companies to raise funds directly from
investors, typically institutional inves-
tors or banks. The loan is unsecured.

· Arla has a commercial paper pro-

gramme in Sweden denominated in
SEK and EUR. The average utilisation in
2023 was EUR 144 million.

· During the year, Arla entered into sale
and repurchase arrangements based
on its holdings of listed AAA-rated Dan-
ish mortgage bonds. Please refer to
Note 4.6 for more details.

In 2023, bonds were repaid at
a value of EUR 137 million, of which
EUR 128 million matured before the
end of 2023. EUR 9 million will mature
in April 2024.

4.3 NET INTEREST-
BEARING DEBT

Financial comments
Net interest-bearing debt, excluding
pension liabilities, decreased to EUR
2,683 million (2022: EUR 2,825 million).
The decrease in net interest-bearing
debt was mainly driven by the decrease
in net working capital.

Pension liabilities increased by EUR 6
million to EUR 167 million. Net interest-
bearing debt, including pension liabili-
ties, amounted to EUR 2,850 million
(2022: EUR 2,986 million). The UK pen-
sion scheme net assets were EUR 21
million (2022: EUR 16 million). These as-
sets are excluded from the calculation
of pension liabilities, net interest-bear-
ing debt and leverage.

Arla's leverage ratio was 2.6, a decrease
of 0.4 compared to last year. This is
according to expectations, however bet-
ter than the long-term target range of
2.8-3.4.

The average maturity of interest-bearing
borrowings decreased by 0.3 years to
4.9 years. Average maturity is impacted
by a lapse of time to maturity, the level
of net interest-bearing debt and offset
by new facilities.

The equity ratio increased to 36%
(2022: 35%).

ARLA'S ANNUAL REPORT 2023

Funding
The group applies a diversified funding
strategy to balance the liquidity and refi-
nancing risk with the aim of achieving
low financing costs. Major acquisitions
or investments are funded separately.

A diverse funding strategy includes di-
versification of markets, currencies, in-
struments, banks, lenders and maturi-
ties to secure broad access to funding
and to ensure that the group is inde-
pendent of one single funding partner
or one single market. All funding oppor-
tunities are benchmarked against the
three-month EURIBOR rate, and deriva-
tives are applied to match the currency
of our funding needs. The interest pro-
file is managed with interest rate swaps
independently of the individual loans. At
31 December 2023, 24% (2022: 22%) of
the total interest-bearing borrowings is
covered by interest rate swaps.

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 2023.

During 2023, the group's most signifi-
cant funding activities were:

· Extension of EUR 400 million ESG-

linked revolving credit multi-bank facil-
ity to 2029.

2.6

Leverage in 2023

(2022: 3.0)

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.

Net interest-bearing debt
(EUR million)

Target range leverage 2.8 - 3.4

Pension liabilities

Net interests-bearing debt
excluding pension liabilities

Leverage

3,500

3,000

2,500

2,000

1,500

1,000

500

249

247

245

161

167

2,113

2019

2,180

2020

2,221

2021

2,825

2022

2,683

2023

PAGE 124

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.3 NET INTEREST-BEARING DEBT (CONTINUED)

Table 4.3.a Net interest-bearing debt
(EUR million)

Long-term borrowings
Short-term borrowings
Securities, cash and cash equivalents (excluding restricted securities and cash)
Other interest-bearing assets

Net interest-bearing debt excluding pension liabilities

Pension liabilities

Net interest-bearing debt including pension liabilities

Table 4.3.b Borrowings
(EUR million)

Long-term borrowings:

Issued bonds
Mortgage credit institutions
Bank borrowings
Schuldschein
Lease liabilities

Total long-term borrowings

Short-term borrowings:

Issued bonds
Commercial papers
Mortgage credit institutions
Bank borrowings
Repurchased liability
Lease liabilities
Other current liabilities

Total short-term borrowings

2023

2022

2,369
813
-488
-11

2,683

167

2,850

2,640
727
-538
-4

2,825

161

2,986

2023

2022

407
1,201
251
350
160

2,369

128
103
11
161
337
63
10

813

357
1,210
918
-
155

2,640

133
88
11
48
370
59
18

727

Total interest-bearing borrowings

3,182

3,367

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

Non-cash changes

(EUR million)

1 January

Included
in financing
activities

Additions

Reclassifi-
cations

Foreign
exchange
movements

Fair value
changes

Restricted
cash and
securities

31 Decem-
ber

2023
Pension liabilities
Long-term borrowings
Short-term borrowings

Total interest-bearing
debt

Securities and other in-
terest-bearing assets

Cash

Net interest-bearing
debt

161
2,640
727

-22
-27
-241

3,528

-290

-436
-106

17
-40

-
76
-

-
-

2,986

-313

9
-335
335

-
-

-
2
-8

-6

3
8

19
13
-

2
-

-
-
-

167
2,369
813

3,349

37
16

-377
-122

2,850

Long- and short-term borrowings payments of EUR -268 million (EUR -27 million and EUR -241 million, respectively)
can be reconciled to the cash flow statement as new loans obtained (EUR 777 million), other changes in loans (EUR -967 million) and
lease payments (EUR -78 million)

2022
Pension liabilities
Long-term borrowings
Short-term borrowings

Total interest-bearing
debt

Securities and other in-
terest-bearing assets

Cash

Net interest-bearing
debt

245
2,113
644

-22
696
-100

3,002

574

-439
-97

1
-9

-
49
-

-
-

2,466

566

-190
190

-14
-32
-7

-48
4
-

161
2,640
727

-
-

-53

-44

3,528

-
-

2
-

-436
-106

-53

-42

2,986

Long- and short-term borrowings payments of EUR 596 million (EUR 696 million and EUR -100 million, respectively)
can be reconciled to the cash flow statement as new loans obtained (EUR 810 million), other changes in loans (EUR -143 million)
and lease payments (EUR -71 million)

ARLA'S ANNUAL REPORT 2023

PAGE 125

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.3 NET INTEREST-BEARING DEBT (CONTINUED)

Maturity of net interest-bearing debt excluding pension
liabilities at 31 December 2023
(EUR million)

Maturity of net interest-bearing debt excluding pension

liabilities at 31 December 2022
(EUR million)

Interest proﬁle for net interest-bearing debt excluding
pension liabilities at 31 December 2023
(EUR million)

Interest proﬁle for net interest-bearing debt excluding
pension liabilities at 31 December 2022
(EUR million)

Debt

Unused committed facilities

Debt

Unused committed facilities

Fixed debt

Fixed via swap

Floating

Fixed debt

Fixed via swap

Floating

215

469

315

291

345

181

400

200

499

293

225

707

185

277

296

250

172

127

169

277

615

3,000

2,500

2,000

1,500

1,000

500

3,000

2,500

2,000

1,500

1,000

500

0-1Y

1-2Y

2-3Y

3-4Y

4-5Y

5-6Y

6-7Y 7-10Y >10Y

0-1Y

1-2Y

2-3Y

3-4Y

4-5Y

5-6Y

6-7Y 7-10Y >10Y

10Y

Table 4.3.d Net interest-bearing debt excluding pension liabilities and the effect of hedging, maturity

Table 4.3.e Currency profile of net interest-bearing debt excluding pension liabilities*

(EUR million)

Total

2024

2025

2026

2027

2028

2029

2030

2031-
2033

After
2033

(EUR million)

Original
principal

Effect
of swap

After swap

2023

DKK
SEK
EUR
GBP
Other

Total

2022
DKK
SEK
EUR
GBP
Other

Total

982
671
930
34
66

2,683

-9
239
79
5
1

315

99
116
14
8
54

291

60
187
209
7
6

469

59
5
108
6
3

181

64
120
156
3
2

345

76
4
112
5
3

200

66
-
24
-
-

215
-
78
-
-

293

352
-
150
-
-3

499

Total

2023

2024

2025

2026

2027

2028

2029

2030-
2032

After
2032

1,046
606
1,014
39
120

2,825

30
228
-10
8
-71

185

36
139
390
7
135

707

97
5
163
6
6

277

57
183
5
5
46

296

58
3
105
5
1

172

61
48
7
8
3

127

67
-
102
-
-

169

201
-
76
-
-

277

439
-
176
-
-

615

2023

DKK
SEK
EUR
GBP
Other

Total

2022
DKK
SEK
EUR
GBP
Other

Total

* Before and after derivative financial instruments.

982
671
930
34
66

2,683

1,046
606
1,014
39
120

2,825

-
-570
46
524
-

-
-538
183
355
-

982
101
976
558
66

2,683

1,046
68
1,197
394
120

2,825

ARLA'S ANNUAL REPORT 2023

PAGE 126

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.3 NET INTEREST-BEARING
DEBT (CONTINUED)

Table 4.3.f Interest rate risk excluding effect of hedging

(EUR million)

2023

Issued bonds:
Commercial papers
652 mSEK maturing 03.04.2024
750 mSEK maturing 03.04.2024
1,200 mSEK maturing 16.06.2025
500 mSEK maturing 14.04.2026
1,500 mSEK maturing 17.07.2026
500 mSEK maturing 14.01.2028
400 mSEK maturing 12.10.2028
400 mSEK maturing 12.10.2028

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:

Finance leases
Other borrowings

Total other borrowings

ARLA'S ANNUAL REPORT 2023

Interest
rate

Average
interest rate

Fixed for

Carrying
amount

Interest
rate risk

Interest
rate

Average
interest rate

Fixed for

Carrying
amount

Interest
rate risk

Fixed
Floating
Fixed
Floating
Floating
Floating
Floating
Floating
Fixed

Fixed
Floating

4.4%
5.3%
1.6%
5.2%
5.5%
4.8%
5.8%
5.9%
4.9%

4.7%

3.8%
4.7%

4.6%

3.8%
4.7%

4.4%

3.8%
3.0%

3.7%

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

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

103
59
68
109
45
137
45
36
36

638

1-2 years
0-1 year

Fair value
Cash flow

71
1,141

1,212

0-1 year
0-1 year

402
697

Fair value
Cash flow

1,099

223
10

233

Cash flow
Cash flow

0-20 years
0-1 year

2022

Issued bonds:

Commercial papers
750 mSEK maturing 03.07.2023
750 mSEK maturing 03.07.2023
750 mSEK maturing 03.04.2024
750 mSEK maturing 03.04.2024
500 mSEK maturing 14.01.2026
1,500 mSEK maturing 17.07.2026
500 mSEK maturing 14.01.2028

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:
Finance leases
Other borrowings

Total other borrowings

Fixed
Floating
Fixed
Fixed
Floating
Floating
Floating
Floating

Fixed
Floating

2.5%
3.7%
1.5%
1.6%
3.9%
4.0%
2.4%
4.2%

2.8%

1.9%
3.0%

2.9%

1.9%
2.9%

2.6%

3.1%
3.7%

3.2%

0-1 year
0-1 year
0-1 year
2-3 years
2-3 years
3-4 years
3-4 years
5-6 years

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

88
67
66
66
67
45
134
45

578

1-2 years
0-1 year

Fair value
Cash flow

125
1,096

1,221

0-1 year
0-1 year

377
959

Fair value
Cash flow

1,336

214
18

232

Cash flow
Cash flow

0-20 years
0-1 year

PAGE 127

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

costs. Subsequently, liabilities are meas-
ured at amortised cost with the differ-
ence between loan proceeds and the
nominal value recognised in the income
statement over the expected life of the
loan.

Capitalised residual lease obligations re-
lated to leases are recognised under lia-
bilities and measured at amortised cost.
Other financial liabilities are measured
at amortised cost. For details on pension
liabilities, please refer to Note 4.7.

4.3 NET INTEREST-BEARING
DEBT (CONTINUED)

Financial assets where the group in-
tends to collect the contractual cash
flow are classified and measured at
amortised cost.

quently measured at fair value with
adjustments made in other comprehen-
sive income and accumulated in the fair
value reserve in equity.

Accounting policies
Financial instruments
Financial instruments are recognised at
the date of trade. The group ceases to
recognise financial assets when the con-
tractual rights to the underlying cash
flows either cease to exist or are trans-
ferred to the purchaser of the financial
asset, and substantially all risks and re-
wards 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 has a legal right of offsetting and
either intends to offset or settle the
financial asset and the liability simulta-
neously.

Financial assets
Financial assets are classified on 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 on
initial recognition depends on the finan-
cial asset's contractual cash flow charac-
teristics and how these are managed.

Financial assets that are part of liquidity
management are classified and meas-
ured at fair value through other compre-
hensive income. All other financial as-
sets 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 con-
verted 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 subse-

Interest income, impairment and foreign
currency translation adjustments of
debt instruments are recognised in the
income statement on a continuous ba-
sis under financial income and financial
costs. In connection with the sale of fi-
nancial 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 finan-
cial 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
Upon initial recognition, debt to mort-
gage credit and credit institutions as
well as issued bonds are measured at
the trade date at fair value plus transac-
tion

ARLA'S ANNUAL REPORT 2023

PAGE 128

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.4 DERIVATIVES

Financial comments
The group has entered into derivative
contracts to secure a stable cash flow
in future years. The value of cash flow
hedges decreased by EUR 141 million to
EUR 70 million. The decrease was due to
lower values of currency, interest and
commodity hedge contracts.

Currency contracts
The value of currency contracts de-
creased by EUR 34 million compared to
last year. The lower value was due to
changed currency exchange rates com-
bined with maturing of existing con-
tracts and value adjustments of new
contracts.

Interest rate contracts
The value of interest rate contracts used
for hedging decreased by EUR 52 mil-
lion compared to last year. The lower
value is a result of lower long-term inter-
est levels and utilisation of interest
hedges during the year.

Commodity contracts
The value of commodity contracts used
for hedging decreased by EUR 55 mil-
lion compared to last year. The lower
value is a result of market prices de-
creasing to levels below the hedged
prices combined with maturing of exist-
ing contracts and value adjustments of
new contracts.

ARLA'S ANNUAL REPORT 2023

Hedging of future cash flows
The group uses currency forwards 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 objec-
tive of the currency swaps is to match
the timing of the in- and outflow of for-
eign currency cash flows.

Accounting policies
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 bal-
ance sheet.

Fair value hedging
Changes in the fair value of derivatives
which meet the criteria for hedging the
fair value of recognised assets and liabil-
ities 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 recog-
nised in other comprehensive income as
a reserve for hedging transactions under
equity until the hedged cash flows im-
pact the income statement. The reserve
for hedging instruments under equity is
presented net of tax. The cumulative
gains or losses from hedging transac-
tions 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 rec-
ognised 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.

Table 4.4.a Hedging of future cash flow from highly probable forecast transactions

(EUR million)

2023

Currency contracts
Interest rate contracts
Commodity contracts

Hedging of future cash flow

(EUR million)

2022
Currency contracts
Interest rate contracts
Commodity contracts

Hedging of future cash flow

Expected recognition

Carrying
amount

Fair value
recognised
in OCI

2024

2025

2026

2027 After 2027

8
80
-18

8
22
-18

-
21
-

-
12
-

-
11
-

-
14
-

Expected recognition

Carrying
amount

Fair value
recognised
in OCI

2023

2024

2025

2026 After 2026

42
132
37

211

42
132
37

211

42
30
28

100

-
27
8

-
25
1

-
15
-

-
35
-

Table 4.4.b Value adjustment of hedging instruments
(EUR million)

Deferred gains and losses on cash flow hedges arising during the year
Value adjustments of currency hedging instruments reclassified to other operating
income and costs
Value adjustments of commodity hedging instruments reclassified to other operating
income and costs

Value adjustments of currency hedging instruments reclassified to financial items
Value adjustments of interest hedging instruments reclassified to financial items

Total value adjustment of hedging instruments recognised in other
comprehensive income during the year

2023

-112

2022

265

-61
20
9

-69

72
-34
-9

-141

225

PAGE 129

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.5 FINANCIAL
INSTRUMENTS

Table 4.5.a Categories of financial instruments
(EUR million)

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

ARLA'S ANNUAL REPORT 2023

2023

2022

Table 4.5.b Fair value hierarchy - carrying amount
(EUR million)

Level 1

Level 2

Level 3

Total

45
8

403

9
66
12

1,145
309
138

1,592

1
10
30

2,369
813
1,425

4,607

47
7

432

43
96
53

192

1,267
319
106

1,692

1
-
16

2,640
727
1,597

4,964

2023

Financial assets:
Bonds
Shares
Derivatives

Total financial assets

Financial liabilities:
Issued bonds
Mortgage credit institutions
Derivatives

Total financial liabilities

2022

Financial assets:
Bonds
Shares
Derivatives

Total financial assets

Financial liabilities:
Issued bonds
Mortgage credit institutions
Derivatives

Total financial liabilities

403
8
-

411

-
1,212
-

1,212

432
7
-

439

-
1,221
-

1,221

-
-
132

132

535
-
43

578

-
-
239

239

490
-
36

526

-
-
-

403
8
132

543

535
1,212
43

1,790

432
7
239

678

490
1,221
36

1,747

PAGE 130

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.5 FINANCIAL INSTRUMENTS
(CONTINUED)

Risk mitigation
Methods and assumptions applied when
measuring the fair values of financial in-
struments:

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 dis-
counted cash flow models and observa-
ble market data. The fair value is deter-
mined as a termination price and, conse-
quently, 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 ad-
justed 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 valu-
ation techniques and observable market
data.

Level 3: Fair values measured using valu-
ation techniques and observable as well
as significant non-observable market
data.

4.6 SALE AND
REPURCHASE
ARRANGEMENTS

Financial comments
The group has invested in listed Danish
mortgage bonds underlying its mort-
gage debt. By entering into a sale and
repurchase arrangement on the mort-
gage bonds, the group is able to achieve
a lower interest rate compared to cur-
rent market interest rates on mortgage
debt. The mortgage bonds are meas-
ured at fair value through other compre-
hensive income.

Table 4.6 Transfer of financial assets

(EUR million)

2023

Mortgage bonds
Repurchased liability

Net position

2022
Mortgage bonds
Repurchased liability

Net position

The proceeds from these bonds create a
repurchase obligation which is recog-
nised in short-term borrowings and
measured at fair value.

In addition to mortgage bonds, the
group holds other securities with a car-
rying amount of EUR 40 million.

Carrying
amount

Notional
amount

Fair value

363
-337

379
-370

363
-335

377
-369

363
-337

379
-370

ARLA'S ANNUAL REPORT 2023

PAGE 131

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.7 PENSION LIABILITIES

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

The group also operates defined contri-
bution 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 ben-
efit chosen at retirement.

Pension plans in Sweden
The recognised net pension liability
in Sweden was EUR 152 million at
31 December 2023, an increase of EUR
8 million compared to the previous year.
The increase is predominantly driven by
an increase in the funded liabilities
resulting from a fall in the discount rate
assumption used in the previous year. In
addition, the inflation rate assumption
used in the previous year has decreased,
which has partially offset the discount
rate effect. Mortality assumptions
remained consistent with last year. See
Note 4.7.f for a summary of assumptions
used.

These pension plans are contribution-
based plans, guaranteeing a defined

ARLA'S ANNUAL REPORT 2023

benefit pension at retirement. The plan
assets are legally structured as a trust,
and the group has control over the oper-
ation of the plan and the associated in-
vestments.

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 21 million at 31 December
2023, an increase of EUR 5 million com-
pared to the previous year.

UK assumptions changed in a similar
way to Sweden, with a fall in both the
discount rate assumption and the infla-
tion rate assumption. In addition, an
update in mortality assumptions at
31 December 2023 resulted in lower life
expectancy in the UK. This all resulted in
lower pension liabilities in the UK, which
stood at EUR 932 million at 31 Decem-
ber 2023, a decrease of EUR 11 million
from the previous year.

2023 resulted in a negative return on
plan assets of EUR 28 million. In addition
to this EUR 54 million was paid out of
the plan in the UK. These decreases
were partially offset by interest income,
contributions to the plan and favourable
exchange rate adjustments, leading to
an overall net decrease in the fair value
of plan assets in the UK of EUR 6 million.

Arla managed to increase its net pen-
sion asset position in the UK. This was
helped by the investment strategy
adopted by the trustees, which aims to
mitigate any major fluctuations in asset
values due to external factors by incor-
porating matching assets into the asset
portfolio. This minimises movements in
the net pension asset position and in-
creases the stability of the ongoing pen-
sion position. More details of the invest-
ment strategy can be found in the 'Plan
asset investments in the UK' section.

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, but retains a salary link.
The plan is a registered pension scheme,
and the assets are held in legally sepa-
rate, 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 ad-
ministering the plan in accordance with
the purpose for which the trust was cre-
ated, and are responsible for drawing up
the investment, funding and govern-
ance policies. A representative of the
group attends trustee meetings to pro-
vide the group's view on the investment
strategy, but the ultimate control lies
with the trustees.

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

Sweden

Other

Total

2023
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

2022

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

162
-12

150
2

152

162
2

164

-
152

152

153
-11

142
2

144

153
2

155

-
144

144

932
-953

-21
-

-21

932
-

932

-21
-

-21

943
-959

-16
-

-16

943
-

943

-16
-

-16

31
-17

1,125
-982

14
1

31
1

-
15

143
3

146

1,125
3

1,128

-21
167

146

35
-20

1,131
-990

15
2

35
2

-
17

141
4

145

1,131
4

1,135

-16
161

145

PAGE 132

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.7 PENSION LIABILITIES
(CONTINUED)

made both by Arla and the employee at
a rate determined by Arla.

(comprising a liability hedge portfolio
and a buy-in annuity policy), with a
weighting towards matching assets.

Employer contributions are determined
based on the advice of an independent
qualified actuary on the basis of triennial
valuation negotiations between the plan
and Arla, and ultimately approved by
HRM Pensions Regulator. The most re-
cent triennial valuation of the plan was
carried out at 31 December 2022, and
on the agreed funding basis, the plan
was in a surplus position.

Defined contribution plans are in place
for other employees. Contributions are

Plan asset investments in the UK
Plan assets generate returns that are
used to satisfy the plan liabilities. They
are not necessarily intended to be real-
ised in the short term. The trustees in-
vest in different categories of assets and
with different allocations among those
categories according to the plan invest-
ment principles.

Currently, the plan investment strategy
is to maintain a balance of growth assets
(property and infrastructure), income as-
sets (comprising credit investments and
corporate bonds) and matching assets

Part of the investment objective is to
minimise fluctuations in the plan's fund-
ing levels due to changes in the value of
the liabilities. This is primarily achieved
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 in place that co-
vers

Maturity of pension liabilities at 31 December 2023
(EUR million)

Maturity of pension liabilities at 31 December 2022

(EUR million)

UK 936

Sweden 162

Other 30

UK 943

Sweden 155

Other 37

600

500

400

300

200

100

600

500

400

300

200

100

Table 4.7.b Development in pension liabilities
(EUR million)

2023

2022

Present value of liabilities at 1 January
Current service costs
Interest costs
Actuarial gains and losses from changes in financial assumptions (OCI)
Actuarial gains and losses from changes in demographic assumptions (OCI)
Benefits paid
Exchange rate adjustment

Present value of pension liabilities at 31 December

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

Fair value of plan assets at 1 January
Interest income
Return on plan assets excluding amounts included in net interest on the net de-
fined benefit liability (OCI)
Contributions to plans
Benefits paid
Exchange rate adjustments

Fair value of plan assets at 31 December

Actual return on plan assets:

Calculated interest income
Return excluding calculated interest

Actual return

1,135
1
50
22
-33
-65
18

1,128

2023

990
47

-30
12
-55
18

982

47
-30

1,757
3
31
-505
-6
-64
-81

1,135

2022

1,581
29

-512
12
-54
-66

990

29
-512

-483

The group expects to contribute EUR 24 million to the plan assets in 2024 and EUR 83 million in 2025-2028.

0-1Y

1-5Y

5-10Y 10-20Y 20-30Y 30-40Y

>40Y

6-7Y

0-1Y

1-5Y

5-10Y 10-20Y 20-30Y 30-40Y

>40Y

6-7Y

ARLA'S ANNUAL REPORT 2023

PAGE 133

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.7 PENSION LIABILITIES
(CONTINUED)

governments (debt vehicles and bonds),
commercial property investments (prop-
erties) as well as insurance-linked secu-
rities and cash (other assets).

the assets will meet the pension liabili-
ties, which are affected by assumptions
concerning mortality and inflation.

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 govern-
ment 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 under-
lying investments, which are traded daily
on liquid markets.

Annuity policies consist of a bulk annuity
contract with an insurance company.
This allows the trustees to reduce their
scheme's risk by acquiring an asset
(annuity contract) whose cashflows are
designed to exactly meet a specified set
of benefit payments under the pension
scheme.

Infrastructure investments are in large-
scale public systems, services and facili-
ties such as power, road and water sys-
tems. These investments aim to gener-
ate stable long-term inflation-linked
cash flows.

The remainder of the plan assets con-
sists of loans to companies or

ARLA'S ANNUAL REPORT 2023

Accounting policies
Pension liabilities and similar non-
current liabilities
The group has post-employment pen-
sion plan arrangements with a signifi-
cant number of current and former
employees. The post-employment pen-
sion plan agreements take the form of
defined contribution plans and defined
benefit plans.

Defined contribution plans
For defined contribution plans, the
group pays fixed contributions to inde-
pendent pension companies. The group
has no obligation to make supplemen-
tary payments beyond those fixed pay-
ments, 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 state-
ment as incurred.

Defined benefit plans
Defined benefit plans are characterised
by the group's obligation to make spe-
cific payments from the date the plan
member is retired, depending on, for ex-
ample, the member's seniority and final
salary. The group is subject to the risks
and rewards associated with the uncer-
tainty whether the return generated by

The group's net liability is the amount
presented as a pension liability in the
balance sheet.

The net liability is calculated separately
for each defined benefit plan. The net li-
ability 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) dis-
counted to a present value (the defined
benefit liability), less the fair value of as-
sets held separately from the group in a
plan fund.

The group uses qualified actuaries to an-
nually calculate the defined benefit lia-
bility using the projected unit credit
method.

The balance sheet amount of the net lia-
bility is impacted by remeasurements,
which include the effect of changes in
assumptions used to calculate the
future liability (actuarial gains and
losses) and the return generated on plan
assets (excluding interest). Remeasure-
ments are recognised in other compre-
hensive income.

Interest costs for the period are calcu-
lated using the discounted rate used to

III.

27
22
22
12
8
1
8

100

Table 4.7.d Specification of plan assets
(EUR million)

Liability hedge portfolio
Debt vehicles
Annuity policies
Properties
Infrastructure
Bonds
Other assets

Fair value of plan assets at 31 December

2023

295
295
211
82
64
9
26

982

30
30
21
8
7
1
3

100

2022

269
216
221
117
81
9
77

990

Table 4.7.e Assumptions for the actuarial calculations
%

2023

2022

Discount rate assumptions

Discount rate, Sweden
Discount rate, UK

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

Mortality assumptions (life expectancy in years at age 65)

Male in the UK
Female in the UK
Male in Sweden
Female in Sweden

3.5
4.6

1.5
2.4

20.3
22.5
22.0
24.0

4.0
4.9

2.0
2.6

21.0
23.0
22.0
24.0

Table 4.7.f Sensitivity of pension liabilities to key assumptions
2023
(EUR million)

2023

2022

Impact on pension liabilities at 31 December

Discount rate +/- 10bps
Life expectancy +/- 1 year
Inflation +/- 10 bps

+
-13
41
8

-
13
-41
-8

+
-14
36
8

-
14
-36
-8

PAGE 134

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

4.7 PENSION LIABILITIES
(CONTINUED)

measure the defined benefit liability at
the start of the reporting period applied
to the carrying amount of the net liabil-
ity, taking into account changes arising
from contributions and benefit pay-
ments. The net interest costs 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, in-
cluding discount rates, inflation rates,
salary growth and mortality rates. Any
changes in assumptions can have a sig-
nificant impact on the net position. The
group is aware of a case in the UK involv-
ing Virgin Media and NTL Pension

Trustee, which could potentially lead to
additional liabilities for some pension
schemes and sponsors, including (if ap-
plicable) the group. This case is subject
to appeal and the impact (if any) is not
known and will be assessed as relevant
in the future.

Table 4.7.g Recognised in the income statement
(EUR million)

Current service costs

Recognised as staff costs

Interest costs on pension liabilities
Interest income on plan assets

Recognised as financial costs

2023

2022

50
-47

31
-29

Total amount recognised in the income statement

Table 4.7.h Recognised in other comprehensive income
(EUR million)

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 de-
fined benefit liability

Total amount recognised in other comprehensive income

2023

-22

-30

-19

2022

505

-512

-1

ARLA'S ANNUAL REPORT 2023

PAGE 135

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

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

Current income tax
Current income tax on profit for the year relating to:
Cooperative tax
Corporate income tax
Adjustments to current taxes of previous years

Total current income tax costs

Deferred tax

Change in deferred tax for the year
Adjustment to deferred taxes of previous years

Total deferred tax costs

Total tax costs in the income statement

NOTE 5.
OTHER AREAS

5.1 TAX

Current and deferred tax
Tax in the income statement
Tax costs increased to EUR 56 million
(2022: EUR 49 million), primarily due to
an increase in total deferred tax costs.

The effective tax rate increased to
12.3% compared to 10.9% last year, pri-
marily due to changes in recognised tax
losses.

Current income tax
Cost related to current income taxes de-
creased to EUR 31 million (2022: EUR
42 million), mainly due to adjustments
to current taxes relating to previous
years.

Deferred tax
Costs incurred in the income statement
relating to adjustments of deferred
taxes amounted to EUR 25 million, rep-
resenting an increase of EUR 18 million
compared to last year. The increase was

ARLA'S ANNUAL REPORT 2023

driven by higher deferred tax costs in
the current year as well as additional de-
ferred tax costs from prior-year effects.

Net deferred tax liabilities amounted
to EUR 60 million, representing a net
decrease of EUR 4 million compared to
last year. See table 5.1.c. The primary
changes in gross temporary differences
were driven by enhanced capital allow-
ances on property, plant and equipment,
the effect of which was offset by a de-
crease in deferred tax liabilities relating
to provisions, pension liabilities and
other liabilities.

Deferred tax liabilities equalled EUR 83
million which mainly relate to provisions,
pension liabilities and other liabilities, fi-
nancial assets and other items. These
were in part offset by deferred tax assets
amounting to EUR 23 million relating to
property, plant and equipment and tax
losses carried forward.

The group recognises deferred tax as-
sets, including the value of tax losses
carried forward, where management
assesses that the tax assets may be uti-
lised in the foreseeable future by offset-
ting against taxable income. The assess-
ment is performed on an ongoing basis
and is based on the budgets and busi-
ness plans for future years.

The group recognised deferred tax as-
sets in respect of tax losses carried for-
ward in the amount of EUR 7 million.
Deferred tax assets relating to tax losses
carried forward not recognised totalled
EUR 31 million and related to activities
in the UK, Denmark, Sweden, the USA
and Brazil.

Expected effects from Pillar
II taxes
Based on preliminary analyses, the
group expects the impact of the Pillar II
rules to result in an immaterial financial
impact for the financial year 2024.

Table 5.1.b Calculation of effective tax rate
(EUR million)

Profit before tax
Tax applying the statutory Danish corporate income tax rate
Effect of tax rates in other jurisdictions
Effect of companies subject to cooperative taxation
Non-deductible expenses, less tax-exempt income
Impact of changes in tax rates and laws
Adjustment for tax costs of previous years
Recognition and adjustments of previously unrecognised tax losses
Current year losses for which no deferred tax asset is recognised
Other adjustments

Total

2023

2022

22.0%
-3.1%
-8.1%
0.2%
0.0%
-1.3%
0.6%
0.0%
2.0%

12.3%

455
100
-14
-37
1
-
-6
3
-
9

22.0%
-2.8%
-7.7%
-0.6%
0.0%
-0.8%
-1.0%
0.3%
1.5%

10.9%

III.

2023

2022

8
31
-8

23
2

10
31
1

16
-9

449
99
-13
-34
-3
-
-4
-4
1
7

PAGE 136

II.

CONSOLIDATED FINANCIAL STATEMENTS

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

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 taxa-
ble profits. Actual future taxes may
deviate from these estimates due to
changes in expectations relating to
future taxable income, future statutory
changes in income taxation or the out-
come 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.

Table 5.1.c. Deferred tax assets and liabilities
(EUR million)

Net deferred tax liability at 1 January
Deferred tax recognised in the income statement
Deferred tax recognised in other comprehensive income
Acquisitions in connection with business combinations
Exchange rate adjustments
Balance sheet reclassification of deferred tax assets/liabilities

Net deferred tax liability at 31 December

Deferred tax, by gross temporary difference
Intangible assets
Property, plant and equipment
Provisions, pension liabilities and other liabilities
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

deferred tax is not recognised in tempo-
rary differences on initial recognition of
goodwill or arising at the acquisition
date of an asset or liability without af-
fecting 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 en-
acted or substantially enacted by the
end of the reporting period and that are
expected to apply when the related de-
ferred tax asset is realised or the de-
ferred 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 in-
come.

Deferred tax assets, including the value
of tax losses carried forward, are recog-
nised under other non-current assets at
the value at which they are expected to
be used, either by elimination in the tax
on future earnings or by offsetting
against deferred tax payable in compa-
nies within the same legal tax entity or
jurisdiction.

The mandatory exception in IAS 12 from
recognising and disclosing deferred tax
assets and liabilities related to Pillar II in-
come taxes has been applied.

5.1 TAX
(CONTINUED)

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 di-
rectly in other comprehensive income.

Current tax
Current tax is assessed based on tax leg-
islation for entities in the group subject
to cooperative or corporate income tax-
ation. Cooperative taxation is based on
the capital of the cooperative, while cor-
porate income tax is assessed based on
the company's taxable income for the
year. Current tax liabilities comprise the
expected tax payable/receivable on the
taxable income or loss for the year, any
adjustments to the tax payable or receiv-
able 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 consoli-
dated financial statements. However,

ARLA'S ANNUAL REPORT 2023

III.

2023

2022

-64
-25
13
-2
-0
18

-60

-4
4
-31
7
-36

-60

23
-83

-60

-43
-7
-17
-
3
-

-64

-6
22
-51
9
-38

-64

22
-86

-64

PAGE 137

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

5.2 PROVISIONS

Provisions
Provisions amounted to EUR 51 million
(2022: EUR 48 million). Provisions pri-
marily relate to provisions for insurance
incidents that have occurred, but have
not yet been settled.

Uncertainties and estimates
Provisions are particularly associated
with estimates of 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 were
also estimated.

5.3 FEES TO AUDITORS

Fees paid to EY
EY is appointed as auditors of Arla by the
Board of Representatives.

Table 5.2 Provisions

(EUR million)

Provisions at 1 January
New provisions during the year
Reversals
Used during the year

Provisions at 31 December

Non-current provisions
Current provisions

Provisions at 31 December

Insurance
provisions

Restructuring
provisions

Other
provisions

Total
2023

Total
2022

21
3
-
-

10
14

4
1
-
-1

1
3

23
3
-3
-

20
3

48
7
-3
-1

31
20

42
8
-1
-1

28
20

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

Statutory audit
Other assurance engagements
Tax assistance
Other services

Total fees to auditors

2023

2022

1.8
0.3
0.3
0.3

2.7

1.7
0.4
0.3
0.3

2.7

ARLA'S ANNUAL REPORT 2023

PAGE 138

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

The Executive Board consists of Chief
Executive Officer Peder Tuborgh and
Chief Operations Officer, Europe, Peter
Giørtz-Carlsen. The principles applied to
the remuneration of the Executive Board
are described on page 81.

Table 5.4.a includes accrued amounts
related to the respective reporting
period. The amount was based on
reported key figures together with esti-
mates of performance compared to
peers and, consequently, the final future
payout may differ.

5.4 MANAGEMENT
REMUNERATION AND
TRANSACTIONS WITH
RELATED PARTIES

Remuneration paid to
management
The remuneration to the 19 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 remunera-
tion was most recently adjusted in 2022.
The principles applied to the remunera-
tion of the BoD are described on page
81. Members of the BoD are paid for
milk supplies to Arla Foods amba in ac-
cordance with the same terms as apply
to other owners. Similarly, individual
capital instruments are issued to the
BoD on the same terms as apply to other
owners.

Table 5.4.a Management remuneration
(EUR million)

Board of Directors

Wages, salaries and remuneration

Total

Executive Board

Fixed compensation
Pension and other benefits
Short-term variable incentives
Long-term variable incentives

Total

Table 5.4.b Transactions with the Board of Directors
(EUR million)

Purchase of raw milk
Half-year supplementary payment
Supplementary payment regarding previous years

Total

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

Total

2023

2022

1.7

2.5
0.5
0.7
1.0

4.7

2023

30.3
0.4
1.1

31.8

1.2
2.8

4.0

1.6

2.5
0.4
0.5
0.8

4.2

2022

36.2
0.3
1.1

37.6

1.4
2.6

4.0

ARLA'S ANNUAL REPORT 2023

PAGE 139

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

position beyond what has already been
recognised in the financial statements.

5.6 EVENTS AFTER THE
BALANCE SHEET DATE

5.5 CONTRACTUAL
COMMITMENTS,
CONTINGENT ASSETS
AND LIABILITIES

Financial comments
Contractual obligations and commit-
ments amounted to EUR 614 million
(2022: EUR 420 million). Arla signed
power purchase agreements in Den-
mark, Germany, the UK and Sweden dur-
ing the year, counting an increase in
contractual commitments of EUR 143
million. Commitments to investments in
property, plant and equipment in-
creased by EUR 44 million. Other

contractual obligations and commit-
ments consisted of IT licences, short-
term and low-value leases and others
and increased by net EUR 7 million.

Arla provided security in property for
mortgage debt based on the Danish
Mortgage Act with a nominal value of
EUR 1,216 million (2022: EUR 1,229 mil-
lion). Financial surety and guarantee ob-
ligations amounted to EUR 18 million
(2022: EUR 28 million).

Arla is party to a small number of law-
suits, disputes and other claims. It is
management's assessment that the out-
come of these will most likely not have a
material impact on the group's financial

Table 5.5 Contractual commitments*
(EUR million)

2023

IT contracts
Short-term and low value leases
Power purchase agreements
Property, plant and equipment investment commitments

Total

2022

IT contracts
Short-term and low value leases
Power purchase agreements
Property, plant and equipment investment commitments

Total

0-1 years

1-5 years

5+ years

Total

34
39
11
187

259

27
29
-
149

205

31
-
120
27

178

29
-
23
21

-
-
177
-

177

-
-
142
-

142

65
27
308
214

614

56
29
165
170

420

* Other contractual commitments not disclosed in the table include mortgaged property provided
as security for mortgage loans and financial surety and guarantee obligations.

ARLA'S ANNUAL REPORT 2023

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

5.7 GENERAL ACCOUNTING
POLICIES

Basis for preparation
The consolidated financial statements
included in this annual report are pre-
pared in accordance with IFRS Account-
ing Standards as adopted by the EU, and
additional disclosure requirements in
the Danish Financial Statements Act for
large class C companies. Arla is not an
EU public interest entity as the group
has no debt instruments traded in a reg-
ulated EU marketplace. The consoli-
dated financial statements were author-
ised for issue by the company's Board of
Directors on 19 February 2024 and pre-
sented for approval by the Board of Rep-
resentatives on 28 February 2024.

The functional currency of the parent
company is DKK. The presentation cur-
rency of the parent company and of the
group is EUR.

These financial statements are prepared
in million EUR with rounding.

Consolidated financial statements
The consolidated financial statements
are prepared as a compilation of the par-
ent company's and the individual subsid-
iaries' financial statements in line with
the group's accounting policies. Reve-
nue, costs, assets and liabilities, along
with items included in the equity of sub-
sidiaries, are aggregated and presented
on a line-by-line basis. Inter-company
shareholdings, balances and transac-
tions as well as unrealised income and
expenses arising from inter-company
transactions are eliminated.

The consolidated financial statements
comprise Arla Foods amba (parent com-
pany) and the subsidiaries in which the
parent company directly or indirectly
holds more than 50% of the voting
rights or otherwise maintains control to
obtain benefits from its activities. Enti-
ties in which the group exercises joint
control through a contractual arrange-
ment are considered joint ventures.
Entities in which the group exercises a
significant but not a controlling influ-
ence are considered associates. A signif-
icant influence is typically obtained by
holding or having at the group's dis-
posal, directly or indirectly, more than
20%, but less than 50% of the voting
rights in an entity.

Unrealised gains arising from transac-
tions 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 carry-
ing amount of the investment in propor-
tion to the group's interest in the com-
pany. 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 identi-
fied in these accounting policies.

Translation of transactions and
monetary items in foreign
currencies
For each reporting entity in the group, a
functional currency is determined, being
the currency used in the primary eco-
nomic environment where the entity op-
erates. 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 denomi-
nated in foreign currencies are trans-
lated into the functional currency using
the exchange rate applicable at the re-
porting 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 cur-
rency upon initial recognition.

PAGE 140

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

Adoption of new or
amended IFRS
The group has implemented all new
standards and interpretations effective
in the EU from 1 January 2023. The new
standards and interpretations did not
have any material impact on the consoli-
dated financial statements.

Future implementations
The IASB has issued a number of new or
amended and revised accounting stand-
ards and interpretations which are not
yet applicable. Arla will adopt these new
standards when they become manda-
tory. It is expected that the future imple-
mentation of the new or amended
standards will not have a material
impact on the consolidated financial
statements.

5.7 GENERAL ACCOUNTING
POLICIES
(CONTINUED)

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 rec-
ognised 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 cur-
rency 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 repay-
ment of outstanding balances consid-
ered part of the net investment is not in
itself considered to be a partial divest-
ment of the subsidiary.

ARLA'S ANNUAL REPORT 2023

PAGE 141

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: 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 K.K.

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 Unipessoal 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

Country

Denmark

Japan

USA

Korea

China

Argentina

Brazil

Singapore

Mexico
Denmark

Bahrain

Finland

Denmark

Arla Foods UK Farmers Joint Venture Co. Limited UK

Arla Foods UK plc

Arla Foods GP Limited

Arla Foods Limited Partnership

Currency

Group equity
interest

DKK

JPY

USD

KRW

CNY

USD

BRL

SGD

MXN
DKK

BHD

EUR

DKK

GBP

100

100
100

100

Currency

Group equity
interest

Arla Foods amba

Arla Foods Finance Limited

Arla Foods Limited

Arla Foods Hatfield Limited

Yeo Valley Dairies Limited

Arla Foods Cheese Company Limited

Arla Foods Ingredients UK Limited

MV Ingredients Limited

Arla Foods UK Property Co. Limited

Country

Denmark

Arla Foods B.V.

Netherlands

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

Brazil

DKK

GBP

EUR

BRL

Arla Foods Ltd.

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

Kingdom of Saudi Arabia SAR

Denmark

Guernsey

Denmark

Senegal

Denmark

Belgium

DKK

EUR

DKK

XOF

DKK

EUR

100

ARLA'S ANNUAL REPORT 2023

PAGE 142

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

5.8 GROUP CHART
(CONTINUED)

Arla Foods amba

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

Arla Foods Trading and Procurement Limited

Arla Foods Sdn. Bhd.

Arla Foods Corporation

Arla Foods Limited

Arla Global Dairy Products Ltd.

Arla Global Dairy Products Limited

TG Arla Dairy Products LFTZ Enterprise

TG Arla Dairy Products Ltd.

Arl For General Trading Ltd.

Arla Foods AB

Arla Gelfeortens AB

Årets Kock Aktiebolag

Arla Foods Russia Holding AB

Country

Denmark

Germany

Kuwait

Lebanon

Qatar

Hong Kong

Malaysia

Philippines

Ghana

Nigeria

Iraq
Sweden

Sweden

Currency

Group equity
interest

DKK

EUR

KWD

LBP

QAR

HKD

MYR

PHP

GHS

NGN

USD
SEK

SEK

100

51
100

100

Arla Foods amba

Arla Foods Inc.

Arla Foods Production LLC

Arla Foods Transport LLC

Arla Foods Deutschland GmbH
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.
Arla Foods Logistics GmbH
Arla Foods Mayer Australia Pty, Ltd.
Arla Foods Mexico S.A. de C.V.
Arla Foods S.A.

Country

Denmark

USA

USA
Germany
Denmark

USA
Denmark

USA
Denmark
Denmark
Norway
Bangladesh

China
UAE
Greece
Canada
Germany
Australia
Mexico
Spain

Currency

Group equity
interest

DKK

USD

USD
EUR
DKK

USD
DKK

USD
DKK
DKK
NOK
BDT

CNY
AED
EUR
CAD
EUR
AUD
MXN
EUR

100

100
100
100

100
100

100
100
98
100
51

100
100
100
100
100
51
100
100

ARLA'S ANNUAL REPORT 2023

PAGE 143

II.

CONSOLIDATED FINANCIAL STATEMENTS

III.

Primary statements

Notes

/ Introduction to notes

Note 1: Revenue and costs

Note 2: Net working capital

Note 3: Capital employed

Note 4: Funding

Note 5: Other areas /

5.8 GROUP CHART
(CONTINUED)

Arla Foods amba

Arla Foods France S.a.r.l.
Arla Foods S.R.L.
Arla Foods SA
Arla Global Shared Services Sp. Z.o.o.
Arla Foods LLC

Arla National Food Products Company LLC

Cocio Chokolademælk A/S
Marygold Trading K/S °
Mejeriforeningen
COFCO Dairy Holdings Limited**
Svensk Mjölk Ekonomisk förening

Svensk Mjölk AB

Lantbrukarnas Riksförbund upa**
Jörd International A/S
Ejendomsselskabet Gjellerupvej 105 P/S
Svenska Ostklassiker AB
Komplementarselskabet Gjellerupvej 105 ApS
PT Arla Foods Indonesia
Arla Foods Arinco A/S
Green Fertilizer Denmark ApS**

Country

Denmark

France
Dominican Republic
Poland
Poland
UAE

Oman
Denmark
Denmark
Denmark
British Virgin Islands
Sweden

Sweden
Sweden
Denmark
Denmark
Sweden
Denmark
Indonesia
Denmark
Denmark

Currency

Group equity
interest

DKK

EUR
DOP
PLN
PLN
AED

OMR
DKK
DKK
DKK
HKD
SEK

SEK
SEK
DKK
DKK
SEK
DKK
IDR
DKK
DKK

100
100
100
100
49

67
50
100
89
30
75

100
24
100
100
68
100
100
80
25

* 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 Finan-
cial 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 pub-
lish 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 integral part of the full
annual report and is available at
www.arlafoods.com. Profit sharing and
supplementary payments from the par-
ent company are set out in the equity
section of the consolidated financial
statements. The full annual report con-
tains the statement by the Board of Di-
rectors and the Executive Board as well
as the independent auditor's report.

ARLA'S ANNUAL REPORT 2023

PAGE 144

Our popular heritage cheese, Castello®
Creamy Blue, contributed to 13% of
Castello’s total revenue in 2023.

CASTELLO®
CREAMY
BLUE

146

147
149

Board of Directors' and Executive
Board's report
Independent auditor's report
Independent auditor's
assurance report

MANAGEMENT'S

AND AUDITOR'S

REPORTS

BOARD OF DIRECTORS’ AND
EXECUTIVE BOARD’S REPORT

Today, the Board of Directors and the
Executive Board have discussed and
approved the annual report of Arla
Foods amba for the financial year 2023.
The annual report has been prepared
in accordance with IFRS Accounting
Standards as adopted by the EU and
additional disclosure requirements of
the Danish Financial Statements Act.

It is our opinion that the consolidated
financial statements and the parent
company financial statements give
a true and fair view of the group's
and the parent company's financial
position at 31 December 2023 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 2023.

In our opinion, the management's
review of the annual report (pages
4-86) includes a true and fair view of

the development in the group's and the
parent company's financial position,
activities, financial matters, results for
the year and cash flows as well as a
description of the most significant risks
and uncertainties which may affect the
group and the parent company.

Arla's consolidated environmental,
social and governance statements
have been prepared in accordance with
Arla's ESG accounting principles. In our
opinion, they give a true and fair view
and a balanced and reasonable presen-
tation of the group's environmental,
social and governance performance in
accordance with these principles.

We hereby recommend the annual
report for adoption by the Board of
Representatives.

Aarhus, 19 February 2024

Peder Tuborgh
CEO

Peter Giørtz-Carlsen
COO

Jan Toft Nørgaard
Chairman

Manfred Graff
Vice Chairman

Anders
Olsson

Arthur
Fearnall

Bjørn
Jepsen

Daniel
Halmsjö

Florence
Rollet

Grant
Cathcart

Gustav
Kämpe

Ib Bjerglund
Nielsen

Inger-Lise
Sjöström

Johnnie
Russell

Jørn Kjær
Madsen

Marcel
Goffinet

Marita
Wolf

Nana
Bule

René Lund
Hansen

Simon
Simonsen

Steen Nørgaard
Madsen

PAGE 146ARLA'S ANNUAL REPORT 2023I.II.III.MANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURESBoard of Directors' and Executive Board's report Independent auditor's assurance reportIndependent auditor's reportINDEPENDENT
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 2023,
which comprise income statement,
statement of comprehensive income,
balance sheet, statement of changes in
equity, cash flow statement and notes,
including material accounting policy in-
formation, for the Group and the Parent
Company. The consolidated financial
statements and the parent company
financial statements are prepared
in accordance with IFRS Accounting
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 2023 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 2023 in accordance with
IFRS Accounting Standards as adopted
by the EU and additional requirements
of the Danish Financial Statements Act.

Basis for opinion
We conducted our audit in accor-
dance with International Standards
on Auditing (ISAs) and additional

requirements 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 state-
ments" (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'
International Code of Ethics for
Professional Accountants (IESBA Code)
and the additional ethical requirements
applicable in Denmark, and we have ful-
filled 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 mate-
rially 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 ac-
cordance 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 IFRS
Accounting 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, mat-
ters 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 ma-
terial 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, misrepresentations 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 con-
cern basis of accounting in preparing
the financial statements and, based

PAGE 147ARLA'S ANNUAL REPORT 2023I.II.III.Board of Directors' and Executive Board's reportIndependent auditor's reportMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES Independent auditor's assurance reportWe 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, 19 February 2024
EY Godkendt Revisionspartnerselskab
CVR no. 33 94 61 71

Henrik Kronborg Iversen
State Authorised Public Accountant
MNE no. 24687

Jan K. Mortensen
State Authorised Public Accountant
MNE no. 40030

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 con-
cern. 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 disclo-
sures 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 finan-
cial 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 in-
formation of the entities or business
activities within the Group to express
an opinion on the consolidated finan-
cial statements. We are responsible
for the direction, supervision and
performance of the group audit. We
remain solely responsible for our
audit opinion.

PAGE 148ARLA'S ANNUAL REPORT 2023I.II.III.Board of Directors' and Executive Board's reportIndependent auditor's reportMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES Independent auditor's assurance reportINDEPENDENT AUDITOR’S
ASSURANCE REPORT ON THE
SUSTAINABILITY STATEMENTS

TO THE STAKEHOLDERS
OF ARLA FOODS AMBA

As agreed, we have performed an
examination with a combined reason-
able and limited assurance, as defined
by the International Standards on
Assurance Engagements, on Arla Foods
amba’s Sustainability Statements in
the Annual Report on pages 28-86 for
the period from 1 January 2023 to 31
December 2023.

Specifically, we are to conclude on:

1. Reasonable assurance over the follow-
ing KPI’s identified in the Sustainability
Statements (In the following referred to
as ‘Selected sustainability KPI’s under
reasonable assurance’):

· KPI’s in the table on Accidents on

page 65

· KPI’s in the tables on Numbers of

employees (headcounts), Number of
employees (headcounts) by contract
type and Distribution of employees
by age group on page 65

· KPI’s in the table on Number of

recalls on page 73

· KPI’s in the tables on Greenhouse

gas emissions progress, Greenhouse
gas emissions scope 1-3 and GHG
intensity per net revenue on page 40

· KPI’s in the tables on Total energy
consumption, Energy intensity
based on net revenue and Electricity
consumption in Europe on page 41

· KPI’s in the table on Animal welfare

indicators on page 42

2. "Limited assurance over the remain-
ing information in the Sustainability
Statements, which can be found on
pages 28-86 of the Annual Report.

In preparing the Sustainability
Statements, Arla Foods Amba applied
the Accounting policies described
on pages 28-86. The Sustainability
Statements needs to be read and un-
derstood together with the Accounting
policies, which management is solely
responsible for selecting and applying.
The absence of an established practice
on which to derive, evaluate, and
measure the Sustainability Statements
allows for different, but acceptable,
measurement techniques and can
affect comparability between entities
and over time.

Management's responsibilities
Arla Foods amba's Management is re-
sponsible for selecting the Accounting
policies and for presenting the
Sustainability statements in accordance
with the Accounting policies, 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
Sustainability statements, such that
it is free from material misstatement,
whether due to fraud or error.

Auditor's responsibilities
Our responsibility is to express a con-
clusion based on our examinations on
the presentation of the Sustainability
statements in accordance with the
scope defined above.

We conducted our examinations in
accordance with ISAE 3000 Assurance
Engagements Other than Audits
or Reviews of Historical Financial
Information and additional require-
ments under Danish audit regulation
to obtain assurance for the purposes of
our conclusion.

EY Godkendt Revisionspartnerselskab
applies International Standard on
Quality Management 1, ISQM1, which
requires the firm to design, implement
and operate a system of quality
management including policies or
procedures regarding compliance with
ethical requirements, professional
standards and applicable legal and
regulatory requirements.

We have complied with the indepen-
dence and other ethical requirements
of the International Ethics Standards
Board for Accountants' International
Code of Ethics for Professional (IESBA
Code), which is founded on fundamen-
tal principles of integrity, objectivity,
professional competence and due care,
confidentiality and professional be-
haviour as well as ethical requirements
applicable in Denmark.

Description of procedures performed
In obtaining reasonable assurance over
the Selected sustainability KPI’s under
reasonable assurance our objective
was to perform such procedures and to
obtain such evidences which we consider
necessary in order to provide us with
sufficient appropriate evidence to express
an opinion with reasonable assurance.

In obtaining limited assurance over
the remaining information in the
Sustainability Statements our objective
was to perform such procedures as to
obtain information and explanations
which we consider necessary in order
to provide us with sufficient appropriate
evidence to express a conclusion with
limited assurance. The procedures
performed in connection with our limited
assurance engagement are less than
those performed in connection with
a reasonable assurance engagement.
Consequently, the degree of assurance
for our conclusion is substantially less
than the assurance which would be
obtained had we performed a reasonable
assurance engagement.

As part of our examination, we performed
the below procedures:

Interviewed those in charge of
Sustainability Statements to develop
an understanding of the process for
the preparation of the Sustainability
statements and for carrying out
internal control procedures.

· Performed analytical review of the
data and trends to identify areas of
the Sustainability Statements with
a significant risk of misleading or
unbalanced information or material
misstatements and obtained an
understanding of any explanations
provided for significant variances.

· Based on inquiries we evaluated

the appropriateness of A ccounting
policies used, their consistent
application and related disclosures
in the Sustainability statements.
This includes the reasonableness of
estimates made by management.

· Designed and performed further
procedures responsive to those
risks and obtained evidence that is
sufficient and appropriate to provide
a basis for our conclusion.

In addition to the above we performed
the following procedures for the Selected
sustainability KPI’s under reasonable
assurance:

· Agreed key items and representative
samples based on generally accepted
sampling methodology to source
information to check accuracy and
completeness of the data

· Site visits to conduct walkthroughs
of data gathering, calculation and
consolidation processes related to
the reasonable assurance of metrics.

PAGE 149ARLA'S ANNUAL REPORT 2023I.II.III.Board of Directors' and Executive Board's reportIndependent auditor's reportMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES Independent auditor's assurance reportIn our opinion, the examinations
performed provide a sufficient basis for
our conclusion.

Copenhagen 19 February 2024
EY Godkendt Revisionspartnerselskab
CVR no. 30 70 02 28

Henrik Kronborg Iversen
State Authorised Public
Accountant
MNE no. 24687

Monica Mai Bak Larsen
Partner, Climate Change and
Sustainability Services

Conclusion
In our opinion the Selected sustainability
KPI’s under reasonable assurance for
the period from 1 January 2023 to 31
December 2023, which has been subject
to our reasonable assurance procedures
have, in all material respects, been pre-
pared in accordance with the Accounting
policies on pages 40, 41, 42, 65, 73.

Based on the limited assurance examina-
tions and the evidence obtained, nothing
has come to our attention that causes us
to believe that the remaining information
in Arla Foods amba’s Sustainability
Statements in the Annual Report on
pages 28-86 for the period from 1 January
2023 to 31 December 2023, have not
been prepared, in all material respects, in
accordance with the Accounting policies
described on pages 28-86.

PAGE 150ARLA'S ANNUAL REPORT 2023I.II.III.Board of Directors' and Executive Board's reportIndependent auditor's reportMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES Independent auditor's assurance reportOTHER

DISCLOSURES

152
153

154

155
157

UN Global Compact
Progress towards UN
Sustainable Development Goals
ESRS disclosure
requirements overview
Glossary
Corporate calendar

LURPAK®
SPREADABLE

The packaging of all
our Lurpak® Spreadable
products are designed for
recyclability.

Since 2008, Arla has been a partici-
pant of the Global Compact’s Nordic
Network. In May 2009, Arla signed
up to Caring for Climate, a voluntary
and complementary action platform
seeking to demonstrate leader-
ship around the issue of climate
change. In 2010, Arla’s CEO signed
a CEO Statement of Support for the
Women’s Empowerment Principles,
an initiative from the Global Compact
and UNIFEM (the UN Development
Fund for Women). Read more about
the Global Compact and its principles
at www.unglobalcompact.org and
more about Arla’s Code of Conduct
at arla.com.

UN GLOBAL
COMPACT

IN EARLY 2008, ARLA SIGNED UP
TO THE GLOBAL COMPACT, THE UN
INITIATIVE TO PROMOTE ETHICAL
BUSINESS PRACTICES. AS A PAR-
TICIPANT, WE ARE COMMITTED TO
OBSERVING THE GLOBAL COMPACT’S
10 FUNDAMENTAL PRINCIPLES.

Human rights
1. Support and respect the

protection of internationally
proclaimed human rights
2. Make sure that they are not

complicit in human rights abuses

4. The elimination of all forms of
forced and compulsory labour
5. The effective abolition of child

labour

6. The elimination of discrimination
in respect of employment and
occupation

Environment
7. Support a precautionary approach

to environmental challenges
8. Undertake initiatives to promote

greater environmental responsibility

9. Encourage the development and

diffusion of environmentally friendly
technologies

Labour
3. Uphold the freedom of association
and the effective recognition of
the right to collective bargaining

Anti-corruption
10. Work against corruption in all its
forms, including extortion and
bribery

PAGE 152ARLA'S ANNUAL REPORT 2023I.II.III.ESRS disclosure requirements overviewProgress towards UN SDGsUN Global CompactCorporate calendarGlossaryMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURESOUR PROGRESS TOWARDS
THE UN SUSTAINABLE
DEVELOPMENT GOALS

Standard

Environmental data

CO₂e emissions

CO₂e reduction scope 1 and 2 (baseline: 2015)

CO₂e reduction scope 3 per kg of milk and whey (baseline: 2015)

Total CO₂e (mkg)

Energy mix

Renewable electricity share EU (%)

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 issues related to body condition

Social data

Total share of women (%)

Share of women at level director and above (%)

Share of women in Executive Management Team (%)

Gender pay ratio, white-collar (man to woman)

Employee turnover (%)

Food safety – number of recalls

Accident frequency (per 1 million working hours)

Governance data

Share of women, Board of Directors (%)

Non-audited targets and ambitions

Nutrition and affordability

Resilient dairy farmer communities

Responsible sourcing

Anti-corruption and bribery

UN SDGs

Page

2.3, 2.4, 12.2, 12.3, 12.5, 13.1

7.2, 7.3

6.3, 6.4

15.1

5.1, 5.5

5.1, 5.5, 8.5, 8.7

8.5, 8.7

2.1

8.8

5.1, 5.5

41-42

2.1, 3.4

69-70, 73

1, 2.3, 2.A, 5A, 8.2, 8.3, 12.2, 17.B

2.3, 2.4, 6.3, 6.4, 8.7, 8.8, 12.2, 12.4, 13.1, 15.1, 15.2

16.5

46-47, 50

84-86

PAGE 153ARLA'S ANNUAL REPORT 2023I.II.III.Progress towards UN SDGsUN Global CompactCorporate calendarGlossaryESRS disclosure requirements overviewMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURESDISCLOSURE
REQUIREMENTS

EUROPEAN SUSTAINABILITY REPORTING
STANDARDS (ESRS) COVERED BY ARLA’S
SUSTAINABILITY STATEMENTS

Progress towards compliance
with CSRD requirements:

Under materiality threshold

Internal work initiated

Moderate progress

Advanced progress

Status

Standard

Page

Status

Standard

Page

Status

Standard

Page

Status

Standard

Page

ESRS E1-9

ESRS S1 SBM-3

26-27, 30-32

ESRS S2-5

53-54, 56-57

ESRS S3 SBM-3

ESRS S3-1

ESRS S3-2

ESRS S3-3

ESRS S3-4

ESRS S3-5

60-63, 67

60, 66

63, 67

ESRS 2 BP-1

ESRS 2 BP-2

ESRS 2 GOV-1

30-32, 40, 41,
43, 50

26, 32, 43,
75-80, 86

ESRS 2 GOV-2

26, 32, 43, 76

ESRS 2 GOV-3

ESRS 2 GOV-4

ESRS 2 GOV-5

26-27, 43-44

ESRS 2 SBM-1

10, 26-27, 29,
32, 75

ESRS 2 SBM-2

26-27, 32

ESRS 2 SBM-3

ESRS 2 IRO-1

ESRS 2 IRO-2

26-27, 30-32,
43

26-27, 30-32,
43-44

26-27, 30-32,
154

ESRS E1 GOV-3

ESRS E1-1

29, 32-38, 45,
52, 58, 68

ESRS E1 SBM-3

26-27, 43

ESRS E1 IRO-1

ESRS E1-2

ESRS E1-3

ESRS E1-4

ESRS E1-5

ESRS E1-6

ESRS E1-7

ESRS E1-8

30-32, 34,
43-44

34, 42, 76,

33-42

33-36, 40-42,
76

41-42

40-41

34, 40, 41, 46

ESRS E2 IRO-1

ESRS E2-1

ESRS E2-2

ESRS E2-3

ESRS E2-4

ESRS E2-5

ESRS E2-6

ESRS E3 IRO-1

ESRS E3-1

ESRS E3-2

ESRS E3-3

ESRS E3-4

ESRS E3-5

ESRS E4 SBM-3

26-27

ESRS E4 IRO-1

ESRS E4-1

ESRS E4-2

ESRS E4-3

ESRS E4-4

ESRS E4-5

ESRS E4-6

ESRS E5 IRO-1

ESRS E5-1

ESRS E5-2

ESRS E5-3

46-47, 51, 76

45-47, 50

42, 51, 53

53-55, 57

34, 53-56

ESRS E5-4

ESRS E5-5

ESRS E5-6

ESRS S1-1

ESRS S1-2

ESRS S1-3

ESRS S1-4

ESRS S1-5

ESRS S1-6

ESRS S1-7

ESRS S1-8

ESRS S1-9

ESRS S1-10

ESRS S1-11

ESRS S1-12

ESRS S1-13

ESRS S1-14

ESRS S1-15

ESRS S1-16

ESRS S1-17

ESRS S2 SBM-3

26-27, 30-32

ESRS S2-1

ESRS S2-2

ESRS S2-3

ESRS S2-4

62-64, 66-67

63, 67, 84

62-64, 66-67

60-63, 85

ESRS S4 SBM-3

26-27, 30-32

ESRS S4-1

ESRS S4-2

ESRS S4-3

ESRS S4-4

ESRS S4-5

72-73

70, 72-73

70-73

ESRS G1 GOV-1

30-31, 67, 76

ESRS G1-1

ESRS G1-2

ESRS G1-3

ESRS G1-4

ESRS G1-5

ESRS G1-6

42, 67, 84-86

85-86

67, 84-86

78, 80, 85-86

85-86

65-66

PAGE 154ARLA'S ANNUAL REPORT 2023I.II.III.UN Global CompactProgress towards UN SDGsCorporate calendarGlossaryESRS disclosure requirements overviewMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES

GLOSSARY

Arlagården® is the name of our quality assurance
programme.

Arla® Nutrition Criteria are our guidelines to
ensure nutritional quality of our products.

Average interest expenses excluding interest
related to pension assets and liabilities is
calculated as a total of external interest expenses
excluding cash discounts and mora interest, plus
interest on finance leases and reduced by interest
income on securities divided by net interest-bearing
debt excluding pension assets and liabilities.

Carbon pricing describes a mechanism that
places a financial cost on carbon dioxide and other
greenhouse gas emissions, thereby financially
incentivising low-carbon investments and more
sustainable solutions.

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.

CPI is an abbreviation of Consumer Price Index.

CSRD is an abbreviation for Corporate Sustainability
Reporting Directive and is a regulatory framework
proposed by the European Commission. It aims
at improving the transparency, comparability, and
reliability of companies' sustainability disclosures on
environmental, social, and governance.

BEPS is an abbreviation referring to base erosion
and profit shifting. These are tax avoidance strate-
gies 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
break-down of organic matter in the absence of
oxygen. primarily consisting of methane and carbon
dioxide. In Arla, biogas is primarily produced from
cow manure.

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.

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.

Digital reach is defined as engagement with Arla's
digitil content, i.e. spending more than two minutes
on our website, watching our videos to the end on
YouTube and liking or commenting on content on
our social media platforms.

Equity ratio is the ratio of equity, excluding minority
interests, to total assets, and is a measure of the
financial strength of Arla.

ESRS is an abbreviation of European Sustainability
Reporting Standards and refers to a proposed set
of reporting standard for sustainability-related
disclosures by companies operating in the European
Union. This standard is developed by the European
Financial Reporting Advisory Group and aims to
provide a common framework for companies to dis-
close their environmental, social, and governance
performance.

FMCG is an abbreviation of fast-moving consumer
goods.

Free cash flow is defined as cash flow from
operating activities after deducting cash flow from
investing activities.

FTE is an abbreviation of 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.

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, mainte-
nance, energy, cleaning, IT, travel, consultancy, etc.

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 abbreviation of Europe, the Middle East
and Africa.

GDPR is an abbreviation of the General Data Pro-
tection 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 in-
dividuals 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.

IFRS is an abbreviation of International FInancial
Reporting Standards which are a globally recognised
set of accounting standards developed and main-
tained by the International Accounting Standards
Board (IASB).

lncoterms 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 com-
mercial 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 incremen-
tal revenue generated from innovation projects up
to 36 months from their launch.

Interest cover is the ratio of EBITDA to net
interest costs.

Lactalbumin, also known as ‘whey protein’, is the
albu-min contained in milk and obtained from whey.

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 abbreviation of the Middle East and
North Africa.

Meal kits are a subscription service-food business
model where a company sends customers pre-por-
tioned 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. Securities, cash and cash
equivalents defined as restricted are not included
when deducting liabilities with securities, cash and
cash equivalents.

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. Securities, cash and cash
equivalents defined as restricted are not included
when deducting liabilities with securities, cash and
cash equivalents.

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.

PAGE 155ARLA'S ANNUAL REPORT 2023I.II.III.UN Global CompactGlossaryProgress towards UN SDGsCorporate calendarESRS disclosure requirements overviewMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES

OCI is an abbreviation of other comprehensive
income. OCI includes revenue, expenses, gains and
losses that have yet to be realised.

QEHS stands for Quality, Environmental. Health. and
Safety. It is a department within Arla's supply chain
safeguarding the quality and safety of production.

USD-related currencies are currencies which
move in the same direction as the USD (i.e. when
the USD depreciates against the EUR, it also
depreciate against the EUR). Currencies in the MENA
region are typical examples.

OECD refers to the Organisation for Economic
Cooperation and Development.

Value-added protein segment contains
products with special functionality and compounds,
compared to standard protein concentrates with a
protein content of approximately 80%.

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 iso-
late 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 of whole milk powder.

On-the-go refers to food consumed while on the
go, and also to packaging solutions supporting this
food consumption trend.

Risk commodities refer to commodities that
are associated with environmental, social, and
governance risks throughout their supply chains.

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.

Performance price for Arla Foods is defined as the
pre-paid 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.

PPA is an abbreviation for power purchase agree-
ments which are contractual agreements between
two parties, typically a power producer and a buyer,
for the pourchase and sale of electricity.

Pre-paid milk price describes the cash payment
farmers receive per kg of milk delivered during the
settlement period.

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.

SEA is an abbreviation of 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®, Puck® and Starbucks™.

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.

UNGP is an abbreviation for United Nations Guiding
Principles on Business and Human RIghts. These
principles provide a global standard for preventing
and addressing the adverse human rights impacts of
business activities.

UN SDGs is an abbreviation for United Nations
Sustainability Development Goals. The United
Nations established these 17 goals in 2015 with
the aim of providing a comprehensive framework to
address various social, economic, and environmen-
tal challenges and to guide global efforts towards
sustainable development by 2030.

PAGE 156ARLA'S ANNUAL REPORT 2023I.II.III.UN Global CompactGlossaryProgress towards UN SDGsCorporate calendarESRS disclosure requirements overviewMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURES

CORPORATE
CALENDAR

FEB

28-29

FEB

MAY

AUG

OCT

1-2

Board of Representatives
meeting

Publication of the consolidated annual
report for 2023

Elections for the Board of
Representatives

Publication of the consolidated
half-year results for 2024

Board of Representatives
meeting

PAGE 157ARLA'S ANNUAL REPORT 2023I.II.III.UN Global CompactProgress towards UN SDGsGlossaryCorporate calendarESRS disclosure requirements overviewMANAGEMENT'S AND AUDITOR'S REPORTSOTHER DISCLOSURESArla Foods amba Sønderhøj 14
DK-8260 Viby J.
Denmark

CVR no.: 25 31 37 63
Phone +45 89 38 10 00
E-mail arla@arlafoods.com

www.arla.com

Arla Foods UK plc
4 Savannah Way
Leeds Valley Park
Leeds, LS10 1 AB
England

Phone +44 113 382 7000
E-mail arla@arlafoods.com