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
Funding
4.1 FINANCIAL RISKS
Financial risk management
Financial risks are an inherent part of the group's
operating activities and as a result, the group's profit is
impacted by the development in currencies, interest
rates and certain types of commodities. The global
financial markets are volatile and thus it is critical for the
group to have an appropriate financial risk management
approach in place to mitigate short-term market
volatility, whilst simultaneously achieving the highest
possible milk price.
The group's comprehensive financial risk management
strategy and system builds on a thorough understanding
of the interaction between the group's operating
activities and underlying financial risks. The overall
framework for managing financial risks, being the
treasury and funding policy, is approved by the Board
of Directors and managed centrally by the treasury
department. The policy outlines risk limits for each type
of financial risk, permitted financial instruments and
counterparties.
The Board of Directors receives a report on the group's
financial risk exposure on a monthly basis. Hedging the
volatility of milk prices is not within the scope of
financial risk management but is an inherent component
of the group's business model.
Table 4.1.1.a Liquidity reserves
(EURM)
Cash and cash equivalents
Securities (free cash flow)
Unutilised committed loan facilities
Unutilised other loan facilities
Total
Liquidity reserves,
2020
Liquidity reserves,
2019
4.1.1 Liquidity risk
Adequate liquidity reserves
Liquidity reserves decreased by EUR 163 million, to
EUR 482 million in 2020. Looking at the maturity profile
of the group's debt and the forecasted cash flow, the
liquidity reserves are still considered adequate.
Ensuring availability of sufficient operating liquidity and
credit facilities for operations is the primary goal of
managing liquidity risk. Based on the liquidity models
suggested by the rating agencies, Arla's liquidity reserves
have been assessed as adequate for the coming 12
months.
Supply chain finance programmes and factoring
relating to customers forms part of the group's liquidity
management. Selected suppliers have access to the
group's supply chain finance facilities, which allows
those suppliers to benefit from the group's credit profile.
More than 95 per cent of the day-to-day liquidity flow
of the group is managed by the treasury department
and the internal bank, via cash pooling arrangements.
This secures a scalable and efficient operating model.
As a result, the group has been able to achieve a
cost-efficient utilisation of credit facilities.
Arla operates in several countries where restrictions on
transferability of cash exist. However, the balances of
cash deemed trapped are insignificant.
482
MILLION EUR
Cash and cash equivalents 26%
Securities (free cash flow) 4%
Unutilised committed loan facilities 68%
Unutilised other loan facilities 2%
645
MILLION EUR
Cash and cash equivalents 29%
Securities (free cash flow) 1%
Unutilised committed loan facilities 55%
Unutilised other loan facilities 15%
92 ARLA FOODS ANNUAL REPORT 2020
2020
2019
126
187
18
6
326
355
12
97
482
645View entire presentation