1

Parent Company Management Review

1 Management Review  PRIMARY FINANCIAL STATEMENTS 2  Parent Company Income Statement 1 January - 31 December

Principal activities Arla Foods amba operates dairy activities in Denmark and purchases milk from the company’s owners in seven countries. Milk weighed in outside Denmark is resold to foreign subsidiaries in the Arla Foods Group. This structure ensures that all owners receive milk payments according to common guidelines and that they get influence in the owner democracy, including election to the Board of Representatives and the Board of Directors, in accordance with the rules laid down in the statutes and merger agreements.

Developments of the year The EU milk quota system was abolished in 2015 which led to increased milk supply adding pressure on the global dairy industry already affected by low market growth due to the Chinese slowdown in demand and the Russian embargo. These Difficult market conditions resultet in a low milk price and a decline in revenue from EUR 7.5 billion in 2014 to EUR 7.1 billion in 2015. Profit for the year amounted to EUR 0.2 billion (EUR 0.3 billion in 2014). Investments in subsidiaries have been impaired by EUR 0.3 billion (EUR 0.1 billion in 2014). Dividends from subsidiaries and associates of EUR 0.1 billion (EUR 0.1 billion in 2014) have been recognised in the income statement. Full ownership of the Lurpak® and Cocio® trademarks were acquired from the subsidiaries Mejeriforeningen og Cocio Chokolademælk A/S. Outlook The dairy market remains very unpredictable but with continued focus on increasing the sale of milk to existing and new customers in the retail and food service sectors as well as streamlining operations, Arla will be more resilient to volatility in the market. For more details, please see the Management Review in the Consolidated Financial Statements.

2  Parent Company Statement of Comprehensive Income 1 January - 31 December 3  Parent Company Balance Sheet 31 December 4  Parent Company Changes in Equity 1 January - 31 December 5  Parent Company Cash Flow Statement 1 January - 31 December NOTES 6  Note 1 Operating Profit 8  Note 2 Net Working Capital 9  Note 3 Other Operating Assets and Liabilities 11 Note 4 Financial Matters 16 Note 5 Other Areas

Please see the accounting policies in the Consolidated Financial Statements and Note 3.3.

2

ANNUAL REPORT 2015

PARENT COMPANY/PRIMARY FINANCIAL STATEMENTS

Parent Company Income Statement 1 January - 31 December (EURm)

NOTE

2015

2014

Revenue Production costs Gross profit

1.1 1.2-1.4

7,104 -6,063 1,041

7,520 -6,689 831

Sales and distribution costs Administration costs Other operating income and costs Earnings before interest and tax (EBIT)

1.2-1.4 1.2-1.4 1.5

-418 -160 -45 418

-377 -154 -14 286

537 -119 418

390 -104 286

-277 117 258 -10 248

-50 101 337 -1 336

Specification: Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation, amortisation and impairment losses Earnings before interest and tax (EBIT) Impairment of investments in subsidiaries Financial income and costs Profit before tax Tax Profit for the year

1.4

3.3 4.1 5.1

Parent Company Statement of Comprehensive Income 1 January - 31 December 2015

2014

Profit for the year

248

336

Other comprehensive income Items that may be reclassified subsequently to the income statement: Value adjustment of hedging instruments Foreign exchange adjustments Other comprehensive income, net of tax Total comprehensive income

25 -1 24 272

-50 2 -48 288

(EURm)

NOTE

ANNUAL REPORT 2015

PARENT COMPANY/PRIMARY FINANCIAL STATEMENTS

3

Parent Company Balance Sheet 31 December NOTE

2015

2014

3.1 3.2 3.3 3.3 3.3

159 623 760 295 582 2,419

82 640 874 262 607 2,465

2.1 2.2

263 193 773 10 24 42 194 1,499

250 177 947 2 11 41 188 1 1,617

TOTAL ASSETS

3,918

4,082

EQUITY AND LIABILITIES EQUITY Equity before proposed supplementary payments to owners Proposed supplementary payments to owners Total equity

2,141 113 2,254

1,996 104 2,100

4.2

284 284

524 524

4.2

485 404

388 506

Amounts owed to subsidiaries Provisions Derivatives Current tax Other current liabilities Deferred income Total current liabilities

298 79 1 90 23 1,380

311 2 101 132 18 1,458

Total liabilities

1,664

1,982

TOTAL EQUITY AND LIABILITIES

3,918

4,082

(EURm) ASSETS Non-current assets Intangible assets Property, plant and equipment Investments in subsidiaries Investments in associates Subordinated loans to subsidiaries Total non-current assets Current assets Inventories Trade receivables Amounts owed by subsidiaries Amounts owed by associates Derivatives Other receivables Securities Cash at bank and in hand Total current assets

LIABILITIES Non-current liabilities Loans Total non-current liabilities Current liabilities Loans Trade payables

4

ANNUAL REPORT 2015

PARENT COMPANY/PRIMARY FINANCIAL STATEMENTS

Parent Company Changes in Equity 1 January - 31 December

CAPITAL ACCOUNT

DELIVERY-BASED OWNER CERTIFICATES

CONTRIBUTED CAPITAL

RESERVE FOR SPECIAL PURPOSES

RESERVE FOR VALUE ADJUSTMENT OF HEDGING INSTRUMENTS

RESERVE FOR FOREIGN EXCHANGE ADJUSTMENTS

PROPOSED SUPPLEMENTARY PAYMENTS TO OWNERS

TOTAL

Equity at 1 January 2015

1,145

99

387

431

-63

-3

104

2,100

Profit for the year Other comprehensive income Total comprehensive income Capital issued to owners Payments to owners Supplementary payments to owners Foreign exchange adjustments Total transactions with owners Equity at 31 December 2015

-37 -37 -13 -13 1,095

-6 1 -5 94

31 31 5 -12 11 4 422

141 141 572

25 25 -38

-1 -1 -4

113 113 -105 1 -104 113

248 24 272 5 -18 -105 -118 2,254

Equity at 1 January 2014

1,103

107

323

261

-13

-5

121

1,897

Profit for the year Other comprehensive income Total comprehensive income Capital issued to new owners Payments to owners Supplementary payments to owners Foreign exchange adjustments Total transactions with owners Equity at 31 December 2014

23 23 23 -4 19 1,145

-6 -2 -8 99

39 39 24 -4 5 25 387

170 170 431

-50 -50 -63

2 2 -3

104 104 -122 1 -121 104

336 -48 288 47 -10 -122 -85 2,100

(EURm)

Profit appropriation (EURm)

2015

2014

Profit for the year

248

336

Proposed profit appropriation: Supplementary payment for milk Interest on contributed capital Total supplementary payment

110 3 113

101 3 104

Transferred to equity: Capital account Reserve for special purposes Contributed capital Total transferred to equity

-37 141 31 135

23 170 39 232

Total appropriated profit

248

336

Reference to Consolidated Financial Statements.

ANNUAL REPORT 2015

PARENT COMPANY/PRIMARY FINANCIAL STATEMENTS

5

Parent Company Cash Flow Statement 1 January - 31 December 2015

2014

537 -39 96 -21 42 -9 606

390 -99 -1 72 -21 50 -2 389

-82 -95 4 -173

-41 -120 3 -158

433

231

Investment in subsidiaries Investment in associates Repayment of subordinated loans Total financial investing activities Total cash flow from investing activities Total free cash flow

-202 -31 66 -167 -340 266

-102 -12 10 -104 -262 127

Cash flows from financing activities: Supplementary payment to owners Paid in funds from owners Paid out to owners Change in non-current liabilities Change in current liabilities Net change in marketable securities Total cash flow from financing activities

-105 5 -18 -240 97 -6 -267

-122 47 -10 -7 -19 -22 -133

-1

-6

1 -

7 1

(EURm)

NOTE

EBITDA Change in working capital Other operating items without cash impact Dividends received Interest paid Interest received Tax paid Total cash flow from operating activities Investment in intangible fixed assets Investment in property, plant and equipment Sale of property, plant and equipment Total operating investing activities Free operating cash flow

Net cash flow Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December

3.1 3.2

6

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

Note 1 Operating Profit

NOTE 1.1 REVENUE SPLIT BY PRODUCT CATEGORIES

INTERNAL

EXTERNAL

TOTAL

2015 Raw milk Fresh dairy products Cheese Butter and spreads Milk powder Whey products Total

2,613 198 783 1,023 90 62 4,769

126 635 621 169 783 1 2,335

2,738 833 1,404 1,192 873 63 7,104

2014 Raw milk Fresh dairy products Cheese Butter and spreads Milk powder Whey products Total

2,901 166 837 947 50 77 4,978

70 650 652 193 976 1 2,542

2,971 816 1,489 1,140 1,026 78 7,520

2015

2014

Production costs Sales and distribution costs Administration costs Total

-6,063 -418 -160 -6,641

-6,689 -377 -154 -7,220

Costs relate to: Cost of raw milk Staff costs Depreciation, amortisation and impairment losses Other costs

-3,923 -406 -119 -2,193

-4,559 -394 -104 -2,163

Total

-6,641

-7,220

2015

2014

Wages, salaries and remuneration Pensions Other social security costs Total staff costs

-372 -33 -1 -406

-360 -32 -2 -394

Staff costs relate to: Production costs Sales and distribution costs Administration costs Total staff costs

-263 -53 -90 -406

-260 -47 -87 -394

5,351

5,307

(EURm)

NOTE 1.2 COSTS (EURm)

NOTE 1.3 STAFF COSTS (EURm)

Average number of full time employees

ANNUAL REPORT 2015

NOTE 1.4 DEPRECIATION, AMORTISATION AN D IMPAIRMENT LOSSES

PARENT COMPANY/NOTES

7

2015

2014

Intangible assets, amortisation Property, plant and equipment, depreciation Total depreciation, amortisation and impairment losses

-24 -95 -119

-17 -87 -104

Depreciation, amortisation and impairment losses relate to: Production costs Sales and distribution costs Administration costs Total depreciation, amortisation and impairment losses

-92 -3 -24 -119

-86 -3 -15 -104

2015

2014

1 13 14

8 1 9 18

2015

2014

-51 -8 -59

-1 -25 -6 -32

(EURm)

NOTE 1.5 OTHER OPERATING INCOME AND COSTS Note 1.5.a. Other operating income (EURm) Insurance proceeds Sale of electricity Other items Total other operating income

Note 1.5.b. Other operating cost (EURm) Loss on disposal of intangible assets and property, plant and equipment Financial instruments Other items Total other operating costs Reference to Consolidated Financial Statements.

8

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

Note 2 Net Working Capital

NOTE 2.1 INVENTORY

2015

2014

Inventory, gross Write-downs Total inventory

273 -10 263

259 -9 250

Raw materials and consumables Work in progress Finished goods and goods for resale Total inventory

121 57 85 263

110 49 91 250

2015

2014

195 -2 193

180 -3 177

3 -1 2

4 -1 3

(EURm)

NOTE 2.2 TRADE RECEIVABLES (EURm) Trade receivables before provisions for bad debts Write-downs for bad debts Total trade receivables, net Write-down for bad debts at 1 January Write-downs used Write-down for bad debts at 31 December

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

9

Note 3 Other Operating Assets and Liabilities

NOTE 3.1 INTANGIBLE ASSETS

2015 LICENSES AND TRADEMARKS ETC.

2015 IT AND PRODUCT DEVELOPMENT

2014 IT DEVELOPMENT

0 22 6 28 -2 -2 26

153 60 13 -7 219 -71 -22 7 -86 133

149 41 -37 153 -91 -17 37 -71 82

(EURm) Cost at 1 January Additions Reclassification Disposals Cost at 31 December Amortisation and impairment losses at 1 January Amortisation for the year Amortisation on disposals Amortisation and impairment losses at 31 December Carrying amount at 31 December

LAND AND BUILDINGS

PLANT AND MACHINERY

FIXTURE AND FITTING, TOOLS AND EQUIPMENT

ASSETS IN COURSE OF CONSTRUCTION

TOTAL

2015 Cost at 1 January Additions Transferred from assets in course of construction Reclassification Disposals Cost at 31 December Depreciation and impairment losses at 1 January Depreciation for the year Depreciation of disposals Depreciation and impairment losses at 31 December Carrying amount at 31 December Of which assets held under finance lease

383 23 -2 404 -217 -17 1 -233 171 9

996 65 -13 -14 1,034 -590 -71 12 -649 385 15

56 11 -2 65 -38 -7 1 -44 21 2

50 95 -99 46 46 -

1,485 95 -13 -18 1,549 -845 -95 14 -926 623 22

2014 Cost at 1 January Additions Transferred from assets in course of construction Disposals Cost at 31 December Depreciation and impairment losses at 1 January Depreciation for the year Depreciation of disposals Depreciation and impairment losses at 31 December Carrying amount at 31 December Of which assets held under finance lease

378 5 383 -201 -16 -217 166 9

894 118 -16 996 -540 -64 14 -590 406 12

46 10 56 -31 -7 -38 18 3

63 120 -133 50 50 -

1,381 120 -16 1,485 -772 -87 14 -845 640 24

NOTE 3.2 PROPERTY, PLANT AND EQUIPMENT (EURm)

10

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

NOTE 3.3 INVESTMENTS AND SUBORDINATED LOANS

Accounting policies Further to the group accounting policies the following policies apply to the parent company. Dividends from subsidiaries and associates Dividends from subsidiaries and associates are recognized in the income statement.

Participating interests in subsidiaries and associates Participating interests in subsidiaries and associates are measured at cost. If there are indications of impairment, an impairment test is performed. If the carrying amount exceeds the recoverable amount, it will be written down to the recoverable amount.

(EURm)

INVESTMENTS IN SUBSIDIARIES

INVESTMENTS IN SUBORDINATED LOANS ASSOCIATES TO SUBSIDIARIES

2015 Cost at 1 January Additions Reclassification Disposals Cost at 31 December Adjustments at 1 January Exchange rate adjustments Impairment Other adjustments Adjustments at 31 December Carrying amount at 31 December

924 202 -6 1,120 -50 -277 -33 -360 760

262 31 293 2 2 295

682 -66 616 -75 17 24 -34 582

2014 Cost at 1 January Additions Disposals Cost at 31 December Adjustments at 1 January Exchange rate adjustments Impairment Adjustments at 31 December Carrying amount at 31 December

822 103 -1 924 -50 -50 874

250 12 262 262

692 -10 682 -86 11 -75 607

The investments in Arla Foods Deutschland GmbH and Mejeriforeningen have been written down by EUR 277 million to the recoverable amounts. The impairment of the investment in Arla Foods Deutschland GmbH is due to operating loss while the impairment of the investment in Mejeriforeningen is triggered by significant dividends from Mejeriforeningen in 2015. Reference to the Group Chart in the Consolidated Financial Statements.

Transactions with subsidiaries (EURm)

2015

2014

Sale of goods Purchase of distribution services Sale of administration services Royalty from subsidiaries Interest from subsidiaries Dividends from subsidiaries

4,769 -50 83 4 35 96

4,978 -37 77 4 39 72

Transactions with associates Reference to Consolidated Financial Statements.

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

11

Note 4 Financial Matters

NOTE 4.1 FINANCIAL INCOME AND COSTS

2015

2014

Financial income: Interest, securities Dividends from subsidiaries Interest from subsidiaries Foreign exchange gains (net) Fair value adjustment Total financial income

2 96 35 4 1 138

2 72 39 8 1 122

Financial costs: Financial costs on financial instruments measured at amortised cost Interest transferred to property, plant and equipment Total financial costs

-23 2 -21

-26 5 -21

Net financial income

117

101

2015

2014

Long-term borrowings: Issued bonds Mortgage credit institutions Bank borrowings Finance lease liabilities Other non-current borrowings Total

270 9 1 4 284

159 348 10 2 5 524

Short-term borrowings: Issued bonds Mortgage credit institutions Bank borrowings Commercial papers Finance lease liabilities Other current borrowings Total

164 194 115 1 11 485

2 189 194 1 2 388

Total long-term and short-term borrowings

769

912

2015

2014

-194 485 284 575

-1 -188 388 524 723

(EURm)

NOTE 4.2 NET INTEREST-BEARING DEBT Note 4.2.a Borrowings (EURm)

Note 4.2.b Net interest-bearing debt (EURm) Cash at bank and in hand Securities Current liabilities Non-current liabilities Net interest-bearing debt

12

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

Note 4.2.c Net interest-bearing debt, maturity (EURm)

31 December 2015 DKK EUR SEK Other Total

TOTAL 285 279 11 575

2016 7 279 11 297

2017 7 7

2018 6 6

2019 6 6

2020 14 14

2021 16 16

2022 15 15

20232025 52 52

AFTER 2025 162 162

31 December 2014 DKK EUR SEK Total

TOTAL 371 352 723

2015 5 194 199

2016 18 158 176

2017 16 16

2018 14 14

2019 13 13

2020 13 13

2021 21 21

20222024 70 70

AFTER 2024 201 201

NOTE 4.3 FINANCIAL RISKS Financial risk management Financial risks are an inherent part of Arla operating activiees and hence, Arla’s yearly profit is impacted by the developments in currencies, interest rates and certain types of commodities. Both the Global and national financial and commodity markets remain volatile and thus, it is critical for Arla to have a well implemented financial risk management system in order to protect farmers against short term market volatilities while at the same time achieving the

Note 4.3.a Liquidity reserves (EURm) Cash refunds Securities (free cash flow) Unutilised committed loan facilities Other unutilised loan facilities Total

highest possible milk price. Arla Financial Management is described in the consolidated report in Note 5.3. Arla manages liquidity risk by ensuring the availability of sufficient operating liquidity and credit facilities for operations. Any major acquisitions or investments are funded separately. Arla Liquidity management is described in the consolidated report in Note 5.3.a.

Assumptions: The contractual cash flows are based on: • the earliest possible date at which Arla can be required to settle the financial liability • the interest rate cash flows are based on contractual interest rate. Floating interest rate payments have been determined using the current floating rate for each tenure at the reporting date.

2015

2014

333 103 436

1 2 322 401 726

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

Note 4.3.b Gross Financial liabilities (EURm)

31 December 2015 Issued bonds Mortgage credit institutions Credit institutions Interest expense - interest bearing debt Trade payables etc. Derivative instruments Total

31 December 2014 Issued bonds Mortgage credit institutions Credit institutions Interest expense - interest bearing debt Trade payables etc. Derivative instruments Total

13

Non-discounted contractual cash flows CARRYING VALUE

TOTAL

2016

2017

2018

2019

2020

2021

2022

20232025

AFTER 2025

164 270 335 403 79

164 278 368 30 403 79

164 331 6 403 45

19 2 9

5 12 2 8

6 3 2 7

6 2 2 3

13 1 2 3

16 2 2

53 5 2

179 7 -

1,251

1,322

949

30

27

18

13

19

20

60

186

CARRYING VALUE

TOTAL

2015

2016

2017

2018

2019

2020

2021

20222024

AFTER 2024

159 350 412 817 101 1,839

158 360 412 51 817 160 1,958

3 395 11 817 58 1,284

158 12 6 7 27 210

13 5 4 18 40

13 3 3 17 36

13 2 3 14 32

13 1 3 8 25

20 3 8 31

70 7 10 87

203 10 213

Note 4.3.c Currency risks The currency risks primarily arise from transaction risks in the form of future commercial payments. Arla risk management policies are described in Note 5.3.c in the consolidated group report. The aggregate currency exposure is composed of all assets and liabilities denominated in foreign

(EURm) Currency risk 31 December 2015 Applied sensitivity Impact on profit or loss Impact on OCI Currency risk 31 December 2014 Applied sensitivity Impact on profit or loss Impact on OCI *) incl. SAR and AED

currencies, and economic hedged projected cash flows for unrecognised firm commitments, and anticipated transactions. The sensitivity below presents the impact before tax of a reasonable change in the currency rates. The sensitivity analysis only include currency exposures

EUR/DKK 1% -

USD/DKK *) 5% -2 -23

GBP/DKK 5% -10

SEK/DKK 5% 3 -

EUR/DKK 1% -

USD/DKK 5% -3 -11

GBP/DKK 5% 2 -8

SEK/DKK 5% 3 -2

Note 4.3.d Interest rate risk Arla is exposed to interest-rate risks on borrowings, issued bonds and deposits. The risk management policy is described in the consolidated report in Note 5.3.d. Fair value sensitivity A change in interest rates will impact the fair value of Arla’s interest rate derivative instruments and debt

arising from financial instruments and thus, the analysis does not included the hedged commercial transactions. The applied change in the exchange rate is based on the historical currency fluctuations and the sensitivity analysis assumes unchanged interest rate levels.

instruments measured at either fair value through profit or loss or other comprehensive income. Cash flow sensitivity A change in interest rates will impact the interest rate payments on Arla’s unhedged floating rate debt.

14

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

Note 4.3.e Credit risk Arla’s exposure towards credit risk arises from its operating activities and its financial contracts with financial intuitions. Arla’s risk management policies are described in Note 5.3.f.

The maximum exposure to credit risk is approximately equal to the carrying value as at 31 December 2015 and 2014 .

Further information on trade receivables is provided in Note 2.2.

NOTE 4.4 DERIVATIVE FINANCIAL INSTRUMENTS Fair value of hedge instruments not qualifying for hedge accounting (economic hedge) When hedging fair value that does not meet the criteria for hedge accounting, recognition at fair value takes place in the balance sheet and value adjustments are recognised in the income statement as financial items.

Arla uses currency option strategies, which are hedging forecast sales and purchases. These option strategies does not qualify for hedge accounting and hence, the fair value adjustment is recognised directly in profit or loss.

Currency swaps are used as part of the daily liquidity management. The objective of the currency swaps is to match the timing of in- and outflow of foreign currency cash flows.

Note 4.4.a Hedging of future cash flow from highly probable forecast transactions Arla uses forward currency contracts to hedge currency risks regarding expected future revenue and costs. (EURm)

2015 Currency contracts Interest rate contracts Commodity contracts

2014 Currency contracts Interest rate contracts Commodity contracts

Expected recognition FAIR VALUE CARRYING RECOGNISED VALUE IN OCI

2016

2017

2018

2019

LATER THAN 2019

9 -33 -15

9 -5 -15

-7 -

-7 -

-5 -

-9 -

FAIR VALUE CARRYING RECOGNISED VALUE IN OCI

2015

2016

2017

2018

LATER THAN 2018

-10 -5 -8

-6 -4

-7 -

-7 -

-16 -

9 -33 -15

-10 -41 -12

-10 -41 -12

NOTE 4.5 FINANCIAL INSTRUMENTS DISCLOSED Note 4.5.a Categories of financial instruments (EURm)

2015

2014

Available for sale financial assets Loans and receivables Financial assets measured at fair value through profit or loss Financial liabilities measured at fair value through profit or loss Financial liabilities measured at amortised cost

194 1,365 30 79 1,471

187 1,556 16 101 1,729

The fair value of financial assets and financial liabilities measured at amortised cost is approximately equal to the carrying value.

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

15

Note 4.5.b Fair value hierarchy – Accounting value The table below shows the classification of financial instruments that are measured at fair value according to the following fair value hierarchy:

Level 1: Fair values measured using unadjusted quoted prices in an active market Level 2: Fair values measured using valuation techniques and observable market data.

Level 3: Fair values measured using valuation techniques and observable as well a significant non-observable market data.

(EURm) 31 December 2015 Financial assets Bonds Shares Derivatives Total financial assets Financial liabilities Issued bonds Mortgage credit institutions Derivatives Total financial liabilities

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

194 5 199

24 24

-

194 5 24 223

270 270

164 79 243

-

164 270 79 513

31 December 2014 Financial assets Bonds Shares Derivatives Total financial assets Financial liabilities Issued bonds Mortgage credit institutions Derivatives Total financial liabilities

LEVEL 1

LEVEL 2

LEVEL 3

TOTAL

187 5 192

11 11

-

187 5 11 203

350 350

159 101 260

-

159 350 101 610

Methods and assumptions applied when measuring fair values of financial instruments: Bonds and shares The fair value is determined using the quoted prices in an active market.

Non-option derivatives The fair value is calculated using discounted cash flows models and observable market data. The fair value is determined as a termination price and hence, the value is not adjusted for credit risks.

Option instruments The fair value is calculated using option models and observable market data, such as option volatilities. The fair value is determined as a termination price and hence, the value is not adjusted for credit risks.

16

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

NOTE 4.6 TRANSFER OF FINANCIAL ASSETS Arla has invested in the mortgage bonds underlying its mortgage debt. The reason for investing in the mortgage bonds is that Arla is able to achieve a lower interest rate than the current market interest rate on mortgage debt by entering into a sale and repurchase agreement on the listed Danish mortgage bonds. The net interest rate payable by Arla when financing through this kind of sale and repurchase is the interest rate inherent in the sale and repurchase agreement and the contribution to the mortgage institute.

Due to the repurchase agreement the risks and rewards arising from the ownership of the transferred mortgage bonds have been retained by Arla. The received proceeds have been recognised as a repurchase liability. If Arla is not able to settle the repurchase liability, the counterparty only has collateral in the transferred mortgage bonds and hence, the counterparty is not able to seek any other form for recourse from Arla.

Transfer of financial assets (EURm)

31 December 2015 Mortgage bonds Repurchase liability Net position

CARRYING VALUE 194 194 -

NOTIONAL VALUE 198 198 -

FAIR VALUE 194 194 -

31 December 2014 Mortgage bonds Repurchase liability Net position

CARRYING VALUE 187 186 1

NOTIONAL VALUE 194 194 -

FAIR VALUE 187 186 1

2015

2014

-8 -2 -10

-5 4 -1

Note 5.1.b Calculation of effective tax rate

2015

2014

Statutory corporate income tax rate in Denmark Adjustment for cooperative tax Adjustment regarding previous years Effective tax rate

23.5% -20.4% 0.8% 3.9%

24.5% -23.0% -1.2% 0.3%

Note 5 Other Areas

NOTE 5.1 TAX Note 5.1.a Tax in the income statement (EURm) Tax on taxable equity (cooperative tax) Adjustments regarding previous years, actual tax Total tax in the income statement

ANNUAL REPORT 2015

PARENT COMPANY/NOTES

NOTE 5.2 FEES TO AUDITORS APPOINTED BY THE BOARD OF REPRESENTATIVES

17

2015

2014

Statutory audit

-0.3

-0.4

Tax assistance Other services Total fees to auditors

-0.1 -0.2 -0.6

-0.1 -0.1 -0.6

2015

2014

1,456

1,609

0-1 year 1-5 years Over 5 years Operating rent commitments

8 15 12 35

8 14 14 36

0-1 year 1-5 years Over 5 years Operating lease commitments

9 11 20

10 10 20

Commitments in relation to agreements on the purchase of property, plant and equipment

46

59

6

6

(EURm)

NOTE 5.3 MANAGEMENT REMUNERATION AND TRANSACTIONS Remuneration for the Executive Board is proposed by the chairmanship and approved by the Board of Directors. Remuneration for the Board of Directors is approved by the Board of Representatives. Remuneration is negotiated on an annual basis. The Board of Directors and Executive Board exercise a significant influence.

Members of the Board of Directors are paid for milk supplies to Arla Foods amba on equal terms with other members of the company.

Note 5.3.a Management remuneration Reference to Consolidated Financial Statements.

Note 5.3.b Transactions with the Board of Directors Reference to Consolidated Financial Statements.

NOTE 5.4 CONTRACTUAL COMMITMENTS AND CONTINGENT LIABILITIES (EURm) Surety and guarantee commitments

Other guarantees and commitments

Arla Foods amba is party to a small number of lawsuits, disputes, etc. The management believes that the outcome of these lawsuits will not significantly impact the company’s financial position beyond what is recognised in the balance sheet and/or disclosed in the annual report.

NOTE 5.5 CO-OPERATIVE MEMBER’S LIABILITY No co-operative members are personally liable for the parent company’s obligations.