Arla Foods Consolidated Annual Report 2021

80 Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes Net working capital 2.1 NET WORKING CAPITAL, OTHER RECEIVABLES AND CURRENT LIABILITIES Contents ||| anu NET WORKING CAPITAL POSITION DRIVEN BY HIGHER PRICES AND INVENTORY VOLUMES Net working capital increased by EUR 131 million to EUR 810 million, representing an increase of 19.3 per cent compared to last year. This increase was due to deliberately reduced use of trade receivable finance programmes, higher prices and inventory values. We continuously strive to optimise our net working capital positions through initiatives such as increased use of global procurement agreements, optimisation of inventory levels, improved payment terms, as well as utilisation of finance programmes with customers and suppliers when relevant. Inventory Inventory increased by EUR 168 million to EUR 1,248 million, compared to EUR 1,080 million last year. The increase, corresponding to 15.6 per cent, was primarily driven by higher milk prices. Excluding currency effects, the carrying amount of inventory increased by EUR 132 million. Trade receivables During the Covid-19 pandemic and onwards, we have carefully monitored the development in trade receivables. We have not experienced any significant adverse developments in overdues, and the provision for expected losses increased by EUR 1 million to a level of EUR 15 million at 31 December 2021. Trade and other payables Trade and other payables increased by EUR 233 million to EUR 1,445 million, compared to EUR 1,212 million last year. Excluding currency effects, the carrying amount of trade and other payables increased by EUR 192 million. Continued utilisation of global contracts, focus on payment terms and use of supply chain finance programmes were the main reasons for the development. Trade receivables increased by EUR 196 million to EUR 1,007 million, compared to EUR 811 million last year. Excluding currency effects, the carrying amount of trade receivables increased by EUR 172 million. This was driven mainly by increased selling prices and reduced utilisation of trade receivables finance programmes. The group utilised these programmes to manage liquidity and reduce credit risk on trade receivables. participating in the programmes are no more than 180 days. Increased utilisation of supply chain finance programmes had a positive impact on the net working capital level compared to last year. Other receivables and other current liabilities Other receivables decreased by EUR 139 million to EUR 285 million compared to EUR 424 million last year, mainly A number of Arla's strategic suppliers participate in supply chain finance programmes, where the supply chain finance provider and related financial institutions act as a funding partner. When suppliers participate in these programmes, the supplier has the option, at their own discretion and flexibility, to receive early payment from the funding partner based on invoices sent to Arla. This is conditioned by Arla's recognition and approval of received goods or services and an irrevocable acceptance to pay the invoice at the due date via the funding partner. The arrangement of early payment is an exclusive transaction between the supplier and the supply chain finance provider. Managing credit risk exposure on trade receivables is guided by group-wide policies. Credit limits are set based on the customer's financial position and current market conditions. The customer portfolio is diversified in terms of geography, industry sector and customer size. In 2021, the group was not extraordinarily exposed to credit risk related to significant individual customers, but to the general credit risk in the retail sector. Read more about credit risk in Note 4.1.5. Supply chain finance programmes are applied on EUR 221 million of the total trade and other payables position, compared to EUR 183 million last year. Development in net working capital (EURM) 1,200 1,100 Extended payment terms are not embedded in the programmes themselves but agreed with vendors directly. The liquidity risk for Arla on termination of the programmes is limited. The payment terms for suppliers 1,000 900 800 700 679 600 1 January 2021 132 Inventory driven by postponed VAT claims from last year. Other current liabilities decreased by EUR 118 million to EUR 280 million, compared to EUR 398 million last year. This was due to the settlement of employee income tax payments from last year and settlement of holiday accruals. 170 -192 Trade receivables excluding owner milk Trade and other payables 45 810 -24 Owner milk Currency 31 December 2021

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