Arla Foods Consolidated Annual Report 2021
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Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes
Funding
4.1 FINANCIAL RISKS
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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%View entire presentation