Arla Foods Consolidated Annual Report 2021
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Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes
Capital employed
3.3 ASSOCIATES AND JOINT VENTURES
Accounting policies
Investments in which Arla has a significant but not
controlling influence are classified as associates.
Investments in which Arla has joint control are classified
as joint ventures.
The proportionate share of the net profit or loss in
associates and joint ventures is recognised in the
consolidated income statement, after elimination of the
proportionate share of unrealised inter-company profits
or losses.
Investments in associates and joint ventures
are recognised according to the equity method
and measured at the proportionate share of the
entities' net asset values, calculated in accordance
with Arla's accounting policies. The proportionate
share of unrealised inter-company profits and the
carrying amount of goodwill is added, whereas the
proportionate share of unrealised inter-company losses
is deducted. Dividends received from associates and
joint ventures reduce the value of the investment.
For investments held in listed companies, computation
of Arla's share of profit and equity is based on the latest
published financial information of the company, other
publicly available information on the company's
financial development, and the effect of revalued
net assets.
Investments in associates and joint ventures with
negative net asset values are measured at zero.
If Arla has a legal or constructive obligation to cover
a loss in the associate or joint venture, the loss is
recognised under provisions. Any amounts owed by
associates and joint ventures are written down to the
extent that the amount owed is deemed irrecoverable.
An impairment test is performed when there are
indications of impairment, such as significant adverse
changes in the environment in which the equity-
accounted investee operates, or a significant or
prolonged decline in the fair value of the investment
below its carrying amount.
Where the equity-accounted investment is considered
to be an integral part of a cash-generating unit (CGU),
the impairment test is performed at the CGU level,
using expected future net cash flows of the CGU. An
impairment loss is recognised when the recoverable
amount of the equity-accounted investment (or
CGU) becomes lower than the carrying amount. The
recoverable amount is defined as the higher of value
in use and fair value less costs to sell of the equity-
accounted investment (or CGU).
Uncertainties and estimates
Significant influence is defined as the power to
participate in financial and operating policy decisions of
the investee but does not constitute control or joint
control over those policies. Judgement is necessary in
determining when a significant influence exists. When
determining significant influence, factors such as
representation on the Board of Directors, participation
in policy-making, material transactions between the
entities and interchange of managerial personnel are
considered.
CDH and Mengniu
The group has a 30 per cent investment in CDH, which
is considered an associate based on a cooperation
agreement extending significant influence including the
right to representation on the Board. The cooperation
agreement with CDH also entitles Arla to representation
on the Board of Mengniu, a Hong Kong-listed dairy
company in which CDH is a significant shareholder.
It was agreed that Arla and Mengniu cooperate in
relation to the exchange of technical dairy knowledge
and expertise, and that Arla grants intellectual rights
to Mengniu. Based on these underlying agreements,
it is our assessment that Arla exercises a significant
influence in Mengniu.
Lantbrukarnas Riksforbund, Sweden (LRF)
Arla has an ownership interest of 24 per cent in LRF,
which is a politically independent professional
organisation for Swedish entrepreneurs involved in
agriculture, forestry and horticulture.
Based on a detailed analysis of the LRF arrangement,
Arla's active ownership interest constitutes a significant
influence in LRF. This includes, but is not limited
to, owner representation on the Board of Directors.
Furthermore, owners of Arla have represented the
Swedish dairy industry at the Board of Directors of LRF
and both Arla and our Swedish owners are individual
members of LRF.
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