Arla Foods Annual Report 2020

Management Review Our Strategy Our Brands and Commercial Segments Our Responsibility Our Governance Our Performance Review Our Consolidated Financial Statements Our Consolidated Environmental, Social and Governance Data ARLA FOODS INGREDIENTS 2020 was a year defined by fluctuating and unprecedented market dynamics due to Covid-19. While Arla Foods Ingredients (AFI) increased the value-add ingredient business driven by growth in our pediatrics and medical nutrition segments, the food segment and child nutrition manufacturing business delivered slightly below 2019 levels. Revenue, EURM 716 2019: 710 Value-add share 73.7% 2019: 68.5% Growth of value- add products 5.3% 2019: 9.4% Revenue split by segments 20% 6% 17% 28% Food Pediatric Nutrition Health and performance 29% 2020 2019 29% 30% 28% 25% 17% 17% Child Nutrition manufacturing 20% 22% ■ Other 6% 6% AFI's performance in light of the pandemic In spite of the Covid-19 pandemic, we managed to increase our value-add ingredient business compared to 2019, especially driven by growth within our Pediatrics and Medical Nutrition segments. Contrary, our ingredient sales in sports nutrition were affected in the short term by lockdown of gyms in major markets leading to reduced demand for high-protein products like bars and ready-to-drinks. Our food business has been impacted by changing market conditions related to Covid-19. The child nutrition manufacturing business delivered slightly below 2019 levels, largely caused by delay in customer's new product launches. Looking ahead, the pandemic has intensified a global focus on health, and with the specialised nutritional solutions offered by AFI, we see strong indications of further growth. Product differentiation is key Protein will continue to be a strong trend within the global food and nutrition industry, supported by a widespread understanding of protein's distinctive role in health. High-quality proteins such as whey will remain key to a healthy future, and AFI will continue to deliver strong solutions to the market. AFI highlights in 2020 ■New protein tower capacity came online at the Danmark Protein production plant, significantly increasing our protein capacity. ■Construction of our new Innovation Centre in Nr. Virum ran according to plan. The Innovation Centre will create the foundation for AFI's development of new generations of products and technologies. It will operate in close cooperation with our key production site, Danmark Protein, and the customer-centric functions in AFI. The Innovation Centre will open in September 2021. ■Strong momentum within hydrolysates for the medical nutrition and infant formula market with exciting ongoing customer projects and a strong NPD pipeline. To continue the growth journey, we are investigating new potential investments within this area. China is, and will continue to be, a very important market both for our ingredient and Child Nutrition Manufacturing businesses. In 2020, we decided to strengthen our local presence in China to be closer to our customers and relevant decision-making bodies. We have made very good progress on several important projects to increase our raw material supply and some of these are coming on stream in 2021. Focus on sustainable development Arla has a strong sustainability agenda, and AFI aims to deliver on this through several focus areas, i.e. energy and water reduction. "THE COVID-19 PANDEMIC HAS INTENSIFIED THE GLOBAL FOCUS ON HEALTH, AND DESPITE THE SHORT-TERM NEGATIVE IMPACTS ON OUR BUSINESS, WE HAVE A STRONG INNOVATION PIPELINE WHICH WILL DRIVE FUTURE GROWTH OF OUR BROAD RANGE OF SPECIALISED NUTRITIONAL PRODUCTS." Henrik Andersen CEO, Arla Foods Ingredients 29 ARLA FOODS ANNUAL REPORT 2020

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