Arla Foods Consolidated Annual Report 2021 slide image

Arla Foods Consolidated Annual Report 2021

91 Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes Funding 4.1 FINANCIAL RISKS abu FINANCIAL RISK MANAGEMENT Financial risks are an inherent part of the group's operating activities and as a result, the group's profit is impacted by the development in currencies, interest rates and certain types of commodities. The global financial markets are volatile and thus it is critical for the group to have an appropriate financial risk management approach in place to mitigate short-term market volatility, while simultaneously achieving the highest possible milk price. The group's comprehensive financial risk management strategy and system builds on a thorough understanding of the interaction between the group's operating activities and underlying financial risks. The overall framework for managing financial risks, being the treasury and funding policy, is approved by the Board of Directors and managed centrally by the Treasury department. The policy outlines risk limits for each type of financial risk, permitted financial instruments and counterparties. The Board of Directors receives a report on the group's financial risk exposure on a monthly basis. Hedging the volatility of milk prices is not within the scope of financial risk management but is an inherent component of the group's business model. Table 4.1.1.a Liquidity reserves (EURM) Cash and cash equivalents Securities (free cash flow) Unutilised committed loan facilities Unutilised other loan facilities Total Liquidity reserves, 2021 Liquidity reserves, 2020 Contents III 2021 2020 97 126 12 18 689 326 167 12 965 482 4.1.1 Liquidity reserves and STRONG LIQUIDITY RESERVES Liquidity reserves increased by EUR 483 million to EUR 965 million in 2021. Looking at the maturity profile of the group's debt and the forecasted cash flow, the liquidity reserves are considered strong and expected to decrease to an adequate level during 2022. Ensuring availability of sufficient operating liquidity and credit facilities for operations is the primary goal of managing liquidity risk. Based on the liquidity models suggested by the rating agencies, Arla's liquidity reserves have been assessed as adequate for the coming 12 months. Supply chain finance programmes and trade receivables financing relating to customers form part of the group's liquidity management. Selected suppliers have access to the group's supply chain finance facilities, which allow those suppliers to benefit from the group's credit profile. More than 95 per cent of the day-to-day liquidity flow of the group is managed by the Treasury department and the internal bank via cash pooling arrangements. This secures a scalable and efficient operating model. As a result, the group has been able to achieve a cost- efficient utilisation of credit facilities. Arla operates in several countries where restrictions on the transferability of cash exist. However, the balances of cash deemed trapped are insignificant. 965 MILLION EUR Cash and cash equivalents 10% Securities (free cash flow) 1% Unutilised committed loan facilities 72% Unutilised other loan facilities 17% 482 MILLION EUR Cash and cash equivalents 26% Securities (free cash flow) 4% Unutilised committed loan facilities 68% Unutilised other loan facilities 2%
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