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
INTRODUCTION TO NOTES
The following sections provide additional disclosures supplementing the primary financial statements.
NOTE 1
REVENUE AND COSTS
Details on the group's performance and
rentability are disclosed in Note 1.
NOTE 2
NET WORKING CAPITAL
Details on the development and
composition of inventory and trade
balances against customers and
vendors are disclosed in Note 2.
NOTE 3
CAPITAL EMPLOYED
Details on the production capacity,
intangible assets and financial investments
held by the group are disclosed in Note 3.
NOTE 4
FUNDING
Details on funding of the group's activities
and the associated financial risks are
disclosed in Note 4.
NOTE 5
OTHER AREAS
The general accounting policies, the group
structure and other IFRS requirements are
disclosed in Note 5.
BASIS FOR PREPARATION
The annual report is based on the group's monthly
reporting procedures. Group entities are required to
report using standard accounting principles in
accordance with the International Financial Reporting
Standards as adopted by EU (IFRS).
In response to the Guidelines on Alternative Performance
Measures (APMs) issued by the European Securities and
Markets Authority (ESMA), we have provided additional
information on the APMS used by the group. These
APMs are deemed critical to understanding the financial
performance and financial position of the group, in
particular the performance price. As they are not
defined by IFRS, they may not be directly comparable
with other companies who use similar measures.
Definitions are provided in the Glossary and Note 1.4.
For details on the basis for preparation and general
accounting policies applied, refer to Note 5.6.
CURRENCY EXPOSURE
The group's financial position is significantly exposed to
currencies, both due to transactions conducted in
currencies other than the EUR and due to the
translation of financial reporting from entities not part
of the Eurozone. The most significant exposure relates
to financial reporting from entities operating in GBP and
SEK, and to transactions relating to sales in USD or
USD-related currencies. Refer to Note 4.1.2 for more
detail on how the exposure is managed.
APPLYING MATERIALITY
Our focus is to present information that is considered of
material importance for our stakeholders in a simple
and structured way. Disclosures that are required by
IFRS are included in the annual report, unless the
information is considered of immaterial importance to
the users of the annual report.
SIGNIFICANT ACCOUNTING
ESTIMATES AND ASSESSMENTS
Preparing the group's consolidated financial statements
requires management to apply accounting estimates and
judgements that affect the recognition and measurement
of the group's assets, liabilities, income and expenses.
The estimates and judgements are based on historical
experience and other factors. By nature, these are
associated with uncertainty and unpredictability, which
can have a significant effect on the amounts recognised
in the consolidated financial statements. The most
significant accounting estimates are addressed below.
Measurement of revenue and rebates
Revenue, net of rebates, is recognised when goods are
transferred to customers. Estimates are applied when
measuring the accruals for rebates and other sales
incentives. The majority of rebates are calculated using
terms agreed with the customer. For some customer
relationships, the final settlement of the rebate depends
on future volumes, prices and other incentives.
Therefore there is an element of estimation and
judgment in determining whether performance
obligations are achieved. Estimates are based on
historical trends and information on sales or purchase
forecasts. Refer to Note 1.1 for more detail.
Valuation of goodwill
Estimates are applied in assessing the value in use of
goodwill. Goodwill is not subject to amortisation but is
tested annually for impairment. Assessing expected
future cash flows and setting discount rates involves
a level of estimation based on approved forecasts and
market data. The majority of goodwill is allocated to
activities in the UK. Refer to Note 3.1.1 for more detail.
Influence assessment and classification
of investments
The group holds an investment in COFCO Dairy
Holdings Limited / Mengniu Dairy Company Limited,
which is classified as an associated company. The
classification is based on an assessment of the level of
influence through board representation. Refer to Note
3.3 for more detail.
Valuation of inventory
Estimates are applied in assessing net realisable
inventory values. Most significantly, this includes the
assessment of expected future market prices and the
quality of certain products within the cheese category,
some of which need to mature for up to two years.
Refer to Note 2.1 for more detail.
Classification of spare parts
Accounting estimates are applied on the classification
of spare parts for production equipment. The group has
updated the accounting estimates in 2020, which has
led to a partly reclassification of spare parts from
inventory and property, plant and equipment Refer to
Note 2.1 for more detail.
Measurement of trade receivables
Allowance for doubtful trade receivable positions
requires estimates. Losses on trade receivables
recognised in the group are historically of insignificance,
which is also the case this year. During the year the
Covid-19 pandemic has however challenged the
foodservice business and forced extra focus on
accounting estimates on trade receivables positions
within this sector.
Valuation of pension plans
Judgements are applied when setting actuarial
assumptions such as the discount rate, expected future
salary increases, inflation and mortality. The actuarial
assumptions vary from country to country, based on
national economic and social conditions. They are set
using available market data and compared with
benchmarks to ensure consistency on an annual basis
and in compliance with best practice. Refer to Note 4.7
for more detail.
73 ARLA FOODS ANNUAL REPORT 2020View entire presentation