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 EQUITY (CONTINUED) וווי Regulations according to Articles of Association and IFRS Common capital Recognised within the capital account are technical items such as actuarial gains or losses on defined benefit pension schemes, effects from disposals and acquisitions of non-controlling interests in subsidiaries and exchange rate differences in the equity instruments issued to owners. Furthermore, the capital account is impacted by agreed contributions from new owners of the cooperative. Recognised within the reserve for special purposes is the annual profit appropriation to common capital. It may, upon the Board of Director's proposal, be applied by the Board of Representatives for the full or partial off-setting of material extraordinary losses or impair- ment in accordance to article 20.1 (iii) of the articles of association. Individual capital Individual capital instruments are regulated in article 20 of the articles of association and the general membership terms. Equity instruments issued as contributed individual capital relate to amounts transferred as part of the annual profit appropriation. The individual balances carry interest at CIBOR 12 months +1.5 per cent that are approved and paid out together with the supplementary payment in connection with the annual profit appropriation. Delivery-based owner certificates are equity instru- ments issued to the original Danish and Swedish owners. Issue of these instruments ceased in 2010. Injected individual capital are equity instruments issued in connection with cooperative mergers and when new owners enter the cooperative. Balances on delivery-based owner certificates and injected individual capital instruments carry no interest. Balances on contributed individual capital, delivery-based owners certificates and on injected individual capital can be paid out over three years upon termination of membership to Arla Foods amba in accordance with the articles of association, subject to the Board of Representatives' approval. Balances are denominated in the currency relevant to the country in which owners are registered. Foreign currency translation adjustments are calculated annually and the effect is transferred to the capital account. Proposed supplementary payment to owners is recognised separately in equity until approved by the Board of Representatives. Other equity accounts Reserve for value adjustments of hedging instruments comprises the fair value adjustment of derivative financial instruments classified as and meeting the conditions for hedging of future cash flows where the hedged transaction has not yet been realised. Reserve for fair value adjustments through OCI comprise of the fair value adjustments of mortgage credit bonds classified as financial assets measured at fair value though other comprehensive income. Reserve for foreign exchange adjustments comprises currency translation differences arising during the translation of the financial statements of foreign companies, including value adjustments relating to assets and liabilities that constitute part of the group's net investment, and value adjustments relating to hedging transactions securing the group's net investment. Non-impairment clause Under the articles of association, no payment may be made by Arla Foods amba to owners that impair the sum of the capital account and equity accounts prescribed by law and IFRS. The non-impairment clause is assessed on the basis of the most recent annual report presented under IFRS. Individual capital accounts and reserve for special purposes are not covered by the non-impairment clause. Non-controlling interests Subsidiaries are fully recognised in the consolidated financial statements. Non-controlling interests' share of the results for the year and of the equity in subsidiaries are recognised as part of the consolidated results and equity, respectively, but are listed separately. On initial recognition, non-controlling interests are measured at either the fair value of the equity interest or the proportional share of the fair value of the acquired companies identified assets, liabilities and contingent liabilities. The measurement of non-con- trolling interests is selected on a transactional basis. 70 ARLA FOODS ANNUAL REPORT 2020

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