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 PERFORMANCE REVIEW (CONTINUED) REVENUE INCREASE DRIVEN BY BRANDED GROWTH Reaching the midpoint of our 2020 guidance, our total revenue amounted to EUR 10.6 billion compared to EUR 10.5 billion in 2019, an increase of EUR 0.1 billion or 1.1 per cent compared to 2019. The develop- ment in revenue can be explained by changes in volume and product mix, sales prices, exchange rates as well as M&As. In 2020, we saw a revenue increase from volume and product mix of EUR 270 million driven by the success of our brands, also in meeting the changing consumer behaviour following Covid-19. See note 1.1 for further information. Sales prices declined modestly with an impact of EUR 133 million, and exchange rates had a negative impact of EUR 85 million. Lastly, there was an effect of EUR 65 million from M&As, mainly driven by the full-year impact of the licence agreement to manufacture, market and distribute the KraftⓇ cheese brand in MENA. BRAND GROWTH DRIVEN BY IN-HOME CONSUMPTION AND STRONG COMMERCIAL EXECUTION Good Growth 2020 set an ambitious goal of improving the overall quality and value of our revenue by shifting volumes from private label and industry sales into our high-value-adding branded product portfolio. In 2020, we delivered strategic branded volume driven revenue growth of 7.7 per cent compared to 5.1 per cent in 2019. This is an all-time high brand growth, partly due to our fast adaptation to Covid-19 consumer and consumption trends. The main driver of the branded volume driven revenue growth was our global butter and spreads brand LurpakⓇ, growing by 14.6 per cent. The Arla® brand, PuckⓇ and StarbucksTM also delivered growth above expectations of 3.0, 11.7 and 27.9 per cent, respectively. KraftⓇ performed very well during its first year on Arla hands, growing by 153 per cent due to the full-year effect and strong commercial execution in MENA. The overall branded growth was driven by increased in-home lunching, cooking and baking due to Covid-19 curfews combined with strong commercial execution. On the contrary, our foodservice business saw a decline due to lockdowns. Read more about our brands on page 23-24. STRONG PERFORMANCE ACROSS COMMERCIAL SEGMENTS Our International segment delivered strong strategic branded volume driven revenue growth of 11.6 per cent across most countries. The growth was particularly driven by the MENA region where branded revenue grew by 20.1 per cent as well as the Rest of World distributed sales. The Arla® brand grew modestly by 1.6 per cent, whereas LurpakⓇ, PuckⓇ and StarbucksTM achieved very high growth rates of 12.2, 11.6 and 20.7 per cent, respectively. KraftⓇ also got off to a very good start on Arla hands growing by 153 per cent. Read more about our International segment on page 27-28. Our European commercial segment, representing 60 per cent of Arla's revenue, delivered strong branded growth of 5.9 per cent despite the volatility in the market. Growth was driven by increased home consumption and e-commerce sales. This more than compensated for the decline in foodservice sales following lockdowns during the year. Growth was driven by the Arla® brand at 3.4 per cent, LurpakⓇ at 15.9 per cent and StarbucksTM at 32.4 per cent. Read more about our European segment on page 25-26. Arla Foods Ingredients (AFI) increased the value-add ingredient business to 73.7 per cent in 2020, driven by growth in the pediatric and medical nutrition segments, but the food segment and child nutrition manufacturing business were negatively impacted by lockdowns and delays in customers' new product launches. The share of milk sold by our Global Industry Sales decreased by 2.3 percentage points compared to last year as large volumes of milk were shifted into retail to meet the increasing demand during the pandemic. This truly demonstrated the flexibility of our Global Industry Sales business. Branded revenue, Revenue split by commercial segment split by brands 00 Europe 60% Arla Foods Ingredients 7% International 19% Global Industry Sales and other 14% Arla® 61% Castello® 3% Lurpak® 12% Branded volume driven revenue growth 2020 2019 2018 Puck® 8% Milk-based beverages 5% Other supported brands 11% 7.7% 5.1% 3.1% 58 ARLA FOODS ANNUAL REPORT 2020

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