CONSOLIDATED HALF-YEAR REPORT. Improving the quality of our business

CONSOLIDATED HALF-YEAR REPORT Improving the quality of our business

Despite the difficult market conditions, we have continued to improve the quality of our business by relentlessly pursuing our strategic direction. As a result, the proportion of high profit products is the strongest in years. Content Management review 3 half-year in short 4 half-year highlighted events 6 Strategic commitment in a tough market by chairman of the Board of Directors, Åke Hantoft 7 In a strong position to maximise value creation by CEO, Peder Tuborgh 9 Seven essential business priorities for 10 Arla is performing strongly in a tough market 13 Preparing the business for a potential impact of the Brexit vote Consolidated financial statements 15 Income statement 16 Balance sheet 17 Cash flow statement 18 Revenue 19 Costs 20 Non-current assets, net working capital 21 Equity, net interest-bearing debt 23 Cash flow statement, milk and owners 26 Glossary The half-year report has not been audited or reviewed by the Group s auditors. Project management: Corporate Finance and Communication, Arla. Copy, design and production: We Love People. Translation: Textminded. Photos: Jens Bangsbo, Casper Sejersen, Hans-Henrik Hoeg and Arla. Corporate calender Financial reports and major events towards 31 March 2017 26 August 6 7 October 22 February 2017 1 2 March 2017 3 March 2017 Publication of consolidated half-year report Board of Representatives meeting Announcement: Annual results Board of Representatives meeting Publication of consolidated annual report

HALF-YEAR REPORT MANAGEMENT REVIEW 3 half-year in short Milk volume 7.2 billion kg Revenue 4.9 billion EUR Retail and foodservice volume driven revenue growth 4.3% Strategic branded volume driven revenue growth 6.1% 7.1 billion kg 5.1 billion EUR 2.9% Target 3-5% 3.1% Target 4-5% Share of business ** Scalability Brand International Trading 44.5% 19.7% 22.5% >5.0 41.5% 18.1% 22.9% >5.0 Target >2.0 Conversion cost index Profit share Performance price Leverage 99.0 2.5%*** of revenue * 30.0*** EUR-cent/kg 3.0*** 101.1 Target 98.5 2.3% * Target 2.8-3.2% * 33.8 EUR-cent/kg 4.0 Target Approximately 3.2 * Based on profit allocated to owners of Arla Foods amba. ** Brand and International share is based on retail and foodservice revenue. Trading is based on milk consumption. *** Excluding gain from sale of Rynkeby. Achievement expected. Achievement likely. Achievement challenged.

4 HALF-YEAR REPORT MANAGEMENT REVIEW Changing to perform in a difficult market For Arla, the first half of has been characterised by change. We have continued to face a tougher and more unrelenting market situation due to the oversupply of milk in Europe. Our response to this has been to significantly step up our value creation as outlined in our strategy, Good Growth 2020. A comprehensive restructuring of our organisation enables us to strengthen our brand building, category development, customer relationships and innovation while further drive quality and efficiency throughout the supply chain. By focusing on what consumers and customers want and need, we will build and expand our market positions in order to maximise the profit of all our farmers milk in the highly competitive dairy industry. Good Growth 2020 sets out how we will excel in eight product categories, focus on six regions and win as ONE Arla. To deliver the strategy faster, stronger and in a more united way, it was a natural step for us to restructure the organisation. Our new, simpler and more agile structure means we can more effectively allocate our global pool of raw milk to pursue strategically important priorities. As a consequence of the restructure, we have set a target for discontinuing the number of white collar employees across markets by 500. We have also set ourselves an ambitious cost saving target of EUR 400 million, to be achieved by the end of 2019. Dandelions are masters of change. They blossom and thrive under the most adverse conditions and, over time, their tiny seeds blossom again and again. Like a dandelion, Arla will harness the challenges the difficult market presents and transform these into powerful opportunities.

HALF-YEAR REPORT MANAGEMENT REVIEW 5 half-year highlighted events ONE Arla cooperative created in the UK Following the merger between the cooperative members Arla Milk Link and Arla Milk Cooperative on 1 January, Arla s owners in the UK united in a new cooperative, the UK Arla Farmers Cooperative Ltd. (UKAF). UKAF is now the single UK member of Arla Foods amba. The new organisation goes live On 1 March, the new organisational restructure went live. The new organisation is designed to optimise Arla s performance in a highly competitive global dairy market by strengthening value creation and functional efficiency as outlined in the new strategy, Good Growth 2020. Closure of Hatfield Peverel dairy Following an extensive review of the processing requirements across the UK and the significant investments in the Aylesbury facility, the decision was taken to close the milk processing production facilities at Hatfield Peverel dairy by the end of July. New strategic partnership in the US Arla and the US farmer-owned cooperative, Dairy Farmers of America (DFA), agreed to enter into a cooperation that includes the construction of a dairy plant in the US for Cheddar cheese production and the exploration of premiumquality opportunities within the Cheddar category. Full ownership of Westbury Dairies Ltd. Arla entered its cooperation with First Milk in 2010. Then, on 15 January, Arla took full ownership of Westbury Dairies Ltd. in the UK. The strategic decision means the Westbury facility is now part of the global Arla network and is supporting Good Growth 2020. New production site in Senegal opened A new Dano long-life milk powder packaging facility opened on 17 May in Dakar, Senegal with the capacity to handle 5,000 tonnes of milk powder made from owners milk. In line with Good Growth 2020, Senegal will be an important market and gateway to further expansion in West Africa. Sale of Rynkeby Foods A/S In order to focus on the core business and following the sale process initiated in, Arla sold Rynkeby Foods A/S to the largest producer of fruit-based beverages in Europe, Eckes-Granini Group GmbH. Investing in local dairy production in Nigeria Arla has officially committed to investing in local dairy production in Nigeria and to sharing knowledge about agricultural practices to improve local raw milk production and quality. In doing so, Arla can contribute to the sustainable development and growth of the dairy sector in the country. 1 billion SEK bonds issued For the fourth time, Arla issued 5-year SEK bonds for a principal amount of SEK 1 billion targeted at professional investors. The issue re-finances elements of Arla s existing bank debt as a supplement to other financing sources and will not affect Arla s ownership structure.

6 HALF-YEAR REPORT MANAGEMENT REVIEW Strategic commitment in a tough market Åke Hantoft, Chairman of the Board of Directors Our performance price of EUR-cent 30.0 per kg clearly demonstrates how tough the market has been during the first half of. However, relative to our peers, Arla has performed well considering the challenging market situation. Standing firm on our strategy gives us a strong starting point as we prepare our business for the improving market conditions that we expect to see in the second half of and beyond. It has been a turbulent past year due to milk production significantly increasing in Europe following the abolition of EU milk quotas in April, which has driven prices down. This increase in supply continued during the first quarter of both in the European market and among Arla s farmers. Since the beginning of May, however, the volume of milk being produced has been decreasing as European farmers respond to the low farm gate prices. During the summer, this trend continued, helping to improve the balance between supply and demand. Commodity markets are finally beginning to stabilise and spot milk prices are increasing in major European markets. This positive trend is expected to shift the market into a recovery phase that will extend to retail and, subsequently, positively affect Arla s milk price. Pursuing our strategic commitment There is no doubt that the oversupply of milk in Europe has highlighted the need to strengthen our position in high growth markets outside of Europe, where purchasing power is growing and demand for dairy products is increasing. This is a focus area for our management team, as are the other important elements of our strategy, Good Growth 2020. Our commitment to this strategy is fundamental and when the Board of Directors monitors Arla s business performance on a monthly basis, we see a strong underlying, positive development. The cooperative is a strong foundation The severe downturn of the market that we have experienced over the last two and a half years has been an eye opener. For me, the difficult market situation makes the strengths of being an international dairy company even more obvious. It clearly demonstrates the value of our cooperative principles as well as the strengths of our strategy. As owners of Arla, every single one of us has chosen to be part of a large, international dairy company. We do not stake all our milk on one single market or a narrow product portfolio. Arla s earnings come from having a broad range of products and operating in a wide number of diverse markets. We share the returns from all products and all markets and, in both good and bad times, we have a secure home for all of our milk. In a difficult market we have paid a milk price above our peers, although our company might not always generate the highest milk price in every single market. However, being part of our cooperative provides long-term stability and security and, over time, profitability. Arla should be assessed on all of these qualities. The market is showing positive signs of recovery I am confident that our strategy will deliver positive results in the years to come, its main purpose being, as always, to create as much value as possible for the raw milk produced by our owners. Currently we see light at the end of the tunnel. This is much awaited although there is still a lot of hard work to come. Performance price (EUR-cent/kg) 50 40 30 20 10 0 36.9 FY 2012 41.0 FY 2013 41.7 FY 2014 33.7 FY 30.0* HY * Excluding gain from sale of Rynkeby.

HALF-YEAR REPORT MANAGEMENT REVIEW 7 In a strong position to maximise value creation Peder Tuborgh, CEO At a time when dairy companies have struggled with the continued oversupply of milk in Europe, we have succeeded in improving the quality of our business, which has resulted in improved profitability. We have also restructured our organisation so we are now in a strong position to maximise value creation as outlined in our strategy, Good Growth 2020. Increasing downward pressure on market prices continued to challenge Arla and our owners in the first half of. Despite the difficult environment, we have continued to improve the quality of our business by relentlessly pursuing our strategic direction. Our dairies have efficiently processed the extra milk and the commercial teams in all markets have proactively ensured that this extra volume has been sold into retail and foodservice channels, avoiding it being used for the production of low profit commodity products. As a result, the proportion of our high profit products is the strongest in years at 44.5 per cent. We have continually focused on the scalability of our business ensuring that capacity costs are increasing at a lower rate than our volume driven revenue growth, resulting in a scalability of >5.0. Our strategic brands have delivered solid volume driven revenue growth of 6.1 per cent as a result of significant investment in a focused marketing strategy and successful launches of new, innovative products that meet consumers needs. I am especially pleased that our Arla brand communication is resonating well with consumers. Rooted in our company identity as a farmer-owned dairy cooperative, the Arla brand communicates the nutritional benefits of milk and our use of natural ingredients. Organic milk and non-genetically modified feed as differentiators Furthermore, we have continued to consolidate our position as the largest organic dairy supplier in the world by deciding to recruit additional organic milk from our owners. Aligned with our vision, we have also decided to actively encourage farmers to produce milk using non-genetically modified feed in the coming years. This will become a differentiator for us as we see interesting commercial potential in some of our main markets for products made with this milk. Delivering the strategy in a faster, stronger and more united way Our focused commercial efforts in retail and foodservice have gained us market share in most European markets leading to growth in this important region. Outside Europe, we have continued to deliver strong growth rates by realising international opportunities, especially in emerging markets. To reinforce our ability to efficiently deliver our strategy, we have implemented a comprehensive restructure of our organisation based on functional areas and commercial zones, including a discontinuing of 500 white collar employees. The new organisation is designed to step up value creation and ensure more synergies across markets and in supply chain. During the coming months we will see the effect of the new structure with strengthened brand building, category development and customer relationships in addition to new innovations being more effectively launched. Brand share 44.5% Scalability >5.0 Well prepared for the future I am confident that the improved quality of our business and the new organisational structure put us in a more favourable position and will ensure we are ready to capture the full potential of the market when it turns. Due to declining milk production in Europe, we believe the current upward trend in Europe will continue into the second half of. This is sooner than we had hoped for and a much welcomed development for Arla and for the industry as a whole. 41.5% >5.0

Puck is one of our supported brands.

HALF-YEAR REPORT MANAGEMENT REVIEW 9 Seven essential business priorities for The seven essentials reflect the business priorities for Arla in. The priorities support the direction set out in our strategy, Good Growth 2020. The seven essential priorities are being worked with throughout the restructured organisation with all business zones and functions having created goals and activities to ensure that we will deliver as a united group. Volume is king Target: Add an additional 400 million kg owner milk into retail and foodservice. Status: Comments: Our strategy, Good Growth 2020 focuses on increasing volumes in retail and foodservice to ensure that as little milk as possible is sold into low margin channels, for example, into commodity markets. Retail and foodservice volumes increased by approximately 200 million kg and we are on track to deliver the additional 400 million kg by the year-end. At 4.3 per cent, volume driven revenue growth in retail and foodservice is solid and within our target range of 3-5 per cent for. We have high expectations for retail and foodservice volume driven revenue growth within International and, relative to our peers, we are performing well in Europe. Deliver significant growth on brands Target: Deliver significant growth on strategic brands, covered by our three global brands, Arla, Lurpak and Castello and supported brands. Status: Comments: Delivering branded growth is an important driver to increase the quality of sales. Strategic branded volume driven revenue growth stands at 6.1 per cent and brands are now growing at double the rate of private label. This growth is expected to continue towards year-end. Intensified sales efforts and increased investment in marketing have resulted in our branded growth being driven by the Arla brand (5.0 per cent), Lurpak (7.6 per cent) and supported brands (10.2 per cent) while Castello continues to struggle (-0.7 per cent). With a brand share of 44.5 per cent the proportion of high profit products is the strongest in years. Improve Central Europe peer performance* Target: Improve Central Europe peer performance by addressing cost and brand performance and competitively export milk into retail and foodservice outside EU. Status: Comments: Market conditions remain challenging in Central Europe and we must maintain focus on the business to improve peer performance. Our Central European business has a significant share of UHT milk and non-branded products and these are very sensitive to the world market prices. However, strategic branded volume driven revenue growth of 5.2 per cent in Central Europe and an increasing brand share of 20.9 per cent show that the initiatives implemented are paying off while scalability of >5.0 shows strong cost performance. Finally, we have succeeded in exporting additional milk from an over-supplied Central European market into our international markets. Strengthen market positions in International** Structurally reduce the cost level Improve cash flow Strengthen the Arla cooperative Target: Strengthen leading positions in China, the US, Nigeria, Middle East and North Africa measured by volume and market share. Status: Comments: As outlined in our strategy, we have identified the emerging markets with the greatest potential to grow a long-term profitable business. During the first half of, we have succeeded in growing volumes in retail and foodservice in the majority of these markets. China and South East Asia grew by 55.6 per cent, Sub-Saharan Africa including Nigeria grew by 26.4 per cent and Middle East and North Africa grew by 6.8 per cent and we expect to further strengthen our position in these regions. In the US, volume driven revenue growth stands at 0.4 per cent but we expect to improve this figure through the launch of new high-potential products. Target: Volume driven revenue growth should be > 2.0 times higher than the growth in capacity costs. Deliver a conversion cost in production at an index level of 98.5. Status: Comments: Scalability is the most important cost measurement in Arla ensuring that capacity costs are increasing at a lower rate than revenue. Our scalability shows an overall positive development at >5.0 due to strong volume driven revenue growth and a firm control of capacity costs. Our strong cost performance is, in part, due to huge efforts to run an efficient supply chain, however, conversion cost is not fully in line with expectations at 99.0. Our new ambitious cost improvement target of EUR 400 million in supply chain, to be reached by 2019, has had a positive effect on the first half of supported by the increasing milk volumes. Target: Improve cash flow to achieve leverage of 2.8-3.2 and release EUR 130 million**** in cash within net working capital. Status: Comments: At 30 June, leverage was 3.0 and clearly within our long-term target range***. We expect this strong performance to continue ensuring flexibility for our business towards year-end as inappropriate levels limit our ability to operate. Primary net working capital, excluding owner milk, improved by EUR 24 million compared to 31 December predominantly due to exchange rates. However, we must place additional focus on net working capital across the business to meet the target by the end of the year. Target: Establish a process with the Board of Directors, National Councils and Board of Representatives to create strong owner relations. Status: Comments: The new owner strategy will prepare Arla for the future and ensure a competent and aligned fundamental owner structure that unites owners across countries. The journey towards a stronger cooperative began in February and is progressing as planned. Key decisions are to be made during the second half of the year in order for the first elements of the strategy to come into effect in 2017. * After the reorganisation Consumer Central Europe is referred to as Central Europe. The priorities remain unchanged. ** After the reorganisation Consumer International is referred to as International. The priorities remain unchanged. *** Excluding gain from sale of Rynkeby. **** Changed from EUR 150 million due to a higher share of sales in International. Achievement challenged. Achievement likely. Achievement expected.

10 HALF-YEAR REPORT MANAGEMENT REVIEW Arla is performing strongly in a tough market Arla is in a strong position compared to our peers. Despite the oversupply of milk in Europe and the resulting downward pressure on global market prices, we have improved the quality of our revenue significantly, with brands and high margin channels delivering the majority of our growth. European oversupply of milk disturbs the global market Record high milk production in Europe, following the abolition of the EU milk quota system on 1 April, has had a significant impact on the global market situation. The market continued to be influenced by the oversupply of milk, which has been generating downward pressure on market prices throughout the first half of. Despite higher European exports during the period, the increase was not sufficient to absorb the higher milk volumes being produced within Europe. Towards the end of the first half of, however, milk production growth rates began to slow down, and in some markets, even decline, strengthening the expectation of a more stable market in the second half of. Milk intake increases by 1.9 per cent Our total milk volume in the first half of was 7.2 billion kg. This reflects an increase of 1.9 per cent compared to the first half of and is considerably lower than the market average. Following record high volumes in the first quarter of, our owners reduced milk production towards the end of the first half of the year in response to the low price level. Cold spring weather conditions also contributed to reduced volumes. European oversupply puts pressure on Arla s prices Revenue for the first half of amounted to EUR 4.9 billion, a decrease of 5.3 per cent compared to the first half of. This decline was driven by a negative price Market prices /Global Dairy Trade (GDT) development WMP, USD per million tons 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 development of EUR 369 million as a direct result of the oversupply of milk across Europe. This development was partly offset by revenue from higher milk volumes during the first half year and an improved product mix, positively impacting revenue by EUR 197 million. This corresponds to volume driven revenue growth of 3.7 per cent. Based on the current market situation, we expect revenue within the range of EUR 9.5 9.8 billion compared to EUR 10.3 billion in. However, market developments are subject to significant uncertainty. Quality of revenue improves significantly Improving the profitability of our products is a core element of our strategy, Good Growth 2020, and this was a focus area in the first half of. By moving additional milk into the high margin retail and foodservice channels, into branded products and into profitable positions outside Europe, we succeeded in improving the quality of our revenue significantly and ensured the least possible amount of milk was sold to commodity products. In the first half of, retail and foodservice volume driven revenue growth was 4.3 per cent compared to 2.9 per cent in the same period last year. This development was driven by solid growth rates in Europe of 2.5 per cent and strong growth rates in International of 12.8 per cent. In the second half of, growth rates are expected to moderate due to seasonality, pricing and market trends. As a result, the full year retail and foodservice volume driven revenue growth will be at the low end of our 3 to 5 per cent communicated target range, with Good Growth 2020 driving more synergies across our European markets and a more focused effort in International, which sees us targeting bigger bets. In the first half of, the average difference in price between commodity and branded products equated to approximately EUR-cent 26 per kg. This proves that our strategy to sell as much milk as possible into retail and foodservice is the right one. Despite the increasing milk volumes, we succeeded in reducing our trading share from 22.9 per cent of total revenue to 22.5 per cent in the first half of. Strong brand performance We believe that growing our strategic brands is essential to our strategic ambitions of exciting consumers, delivering higher profitability and lower sales volatility. In the first half of, brands successfully delivered the majority of our growth and, supporting our strategy, brands are now growing at double the pace of private label. Strategic branded volume driven revenue growth increased by a record level of 6.1 per cent in the first half of, compared to

HALF-YEAR REPORT MANAGEMENT REVIEW 11 3.1 per cent in the corresponding period last year. This demonstrates that the quality of our marketing spend is improving and our plan to increase the marketing spend is paying off. The strategic branded growth is attributable to a strong growth rate of 3.1 per cent in Europe and even stronger growth rates of 14.3 per cent in International, primarily driven by China and South East Asia as well as Nigeria and Sub-Saharan Africa. By year-end, we expect to meet our target for strategic branded volume driven revenue growth of 4-5 per cent. The strategic branded volume driven revenue growth was driven by the Arla brand (5.0 per cent), Lurpak (7.6 per cent), and supported brands (10.2 per cent) while Castello (-0.7 per cent) continued to struggle. With our brand share reaching 44.5 per cent of total revenue in the first half of, compared to 41.5 per cent in the first half of, the proportion of high profit products is the strongest in years due to us successfully achieving strategic bets across all markets. Retail and foodservice volume driven revenue growth Split of strategic branded volume driven revenue growth 4.3% 2.9% 5.0% 1.8% Strategic branded volume driven revenue growth 6.1% 3.1% 7.6% 7.9% International share of revenue 19.7% 18.1% -0.7% -1.0% Trading share Supported brands including 22.5% 22.9% 10.2% 6.2%

12 HALF-YEAR REPORT MANAGEMENT REVIEW Increasing revenue from value added positions outside Europe Another key to our success and adding to the quality of sales, is our ability to move more milk into high margin international markets. We have succeeded in increasing the share of our sales in International from 18.1 per cent in the first half of to 19.7 per cent, adding significant incremental value to our owners milk. Moving milk into profitable positions outside Europe is directly in line with our strategy, Good Growth 2020. Scalability is improving Scalability is the most important cost measurement within Arla as it provides an objective criterion to evaluate the efficiency of our core operations. Scalability is the ratio between volume driven revenue growth and capacity costs. At >5.0 in the first half of, scalability maintains a strong position above target due to a firm control of capacity costs across Arla. We expect that scalability will meet the target of >2.0 by the end of. In the first half of, we restructured the organisation and made 500 white collar employees redundant in order to drive a more common agenda in Arla across functions and zones, which is strengthening collaboration, synergies, efficiencies and impact in markets. Due to severance and redundancy costs associated with this change, the reorganisation has not yet led to visible cost reductions despite it being efficiently executed. We expect to see the first cost improvements during the second half of and achieve annual savings of approximately EUR 35 million in 2017 and onwards. Conversion cost is expected to meet target by year-end Supply chain efficiency, expressed as our conversion cost index, measures how supply chain costs develop in relation to volumes. During the first half of, volumes grew more than supply chain costs, consequently registering an index of 99.0. Due to lower expected milk intake in the second half of the year, versus previous forecast, our conversion cost will be challenged, however, we are implementing corrective actions to meet the target of 98.5 by year-end. To support the conversion cost ambition, our strategy, Good Growth 2020, includes an ambitious new cost improvement target of EUR 400 million, to be reached by the end of 2019. Over time, all zones and functions will contribute to these savings, with the primary focus being on cost improvements within supply chain. The efficiency programme kicked off at the beginning of and the first EUR 100 million of savings are on track to be delivered by year-end. Divestment of Rynkeby Foods A/S In May, Arla concluded an agreement to divest Rynkeby Foods A/S. The company and its subsidiaries have juice activities primarily in Denmark, Sweden and Finland, a production site in Denmark, yearly revenue of EUR 130 million and 200 employees. This divestment represented the last non-core business unit within Arla, thus giving us singular focus on the dairy sector. The activities in Rynkeby Foods A/S were deconsolidated with effect from May and the divestment resulted in a gain of EUR 120 million. Improved profit According to the underlying business performance, profit for the period amounted to EUR 124 million corresponding to a profit share of 2.5 per cent of revenue*/** compared to 2.3 per cent in the same period last year. Based on our performance within our core business, we are confident that the profit share will be within the target range of 2.8 to 3.2 per cent of revenue by year-end. Profit for the first half year, including the gain from the divestment of Rynkeby Foods A/S of EUR 120 million amounted to EUR 244 million, corresponding to a profit share of 4.9 per cent. Strong performance versus peers At EUR-cent 30.0 per kg*, the performance price is significantly below levels of EUR-cent 33.8 per kg. However, during the same period, we have considerably outperformed our peer group. Leverage is performing strongly Financial leverage is the most important balance sheet ratio in Arla demonstrating the relationship between our net interest-bearing debt and profitability (EBITDA). This measure is critical for us to secure necessary funding with external parties, to conduct daily operations and to invest in future business opportunities. At 30 June, leverage was 3.0* compared to 4.0 at 30 June and is well within our long-term target range of 2.8 to 3.4. A reduction of EUR 202 million in net-interest bearing debt compared to last year drives leverage down combined with an improved delivery on EBITDA. Our year-end forecast for leverage looks very promising and is expected to outperform our target of 3.2. Positive price outlook in second half year Looking into the second half of, European farmers are expected to reduce their milk production in response to the low market prices. Arla s milk volumes are also expected to decline compared to. As a result, milk prices are expected to increase with the first positive price outlook at the end of the first half of. This is expected to lead to an increase in the Arla pre-paid milk price in the third quarter of. We expect to continue to deliver strong relative performance towards our peers by year-end and we anticipate to be in the high end of the target range of 103 to 105 on the peer group index. This means that we will have delivered between 3 to 5 per cent higher milk prices for our farmers compared to competitors throughout Europe. * Excluding gain from sale of Rynkeby. ** Based on profit allocated to owners of Arla Foods amba.

HALF-YEAR REPORT MANAGEMENT REVIEW 13 Preparing the business for a potential impact of the Brexit vote Despite the new challenges facing Arla, the Brexit vote will not change the importance of the UK market for Arla. Following the EU referendum on 23 June, the UK is expected to initiate exit negotiations for the country to leave the EU in the autumn. The outcome of the negotiations between the EU and the UK is uncertain. As a dairy company with 12,037 owners in seven EU member states and with approximately 80 per cent of our total revenue generated in the EU, it is essential that our products can move freely across the markets in which we operate to optimise the utilisation of our milk pool. With 2,594 owners based in the UK, the country is Arla s biggest single market accounting for approximately 25 per cent of the total revenue with more than 77.8 per cent based on local milk and the remaining share from sales of imported products. Up to, and immediately following the Brexit vote, the exchange rate between GBP and EUR was highly volatile. Compared to 31 December, GBP decreased by 12 per cent affecting the financial position of net assets in the UK. However, as a result of Arla s hedging strategy, profit for the period is not significantly affected by the volatile exchange rates and we do not expect any significant impact on profits for the remainder of. As an effect of the Brexit vote and the uncertainty following the decision the interest rate level has decreased. The decrease in the interest rate level has affected the discount rate used in the pension assumption and has, as a result, impacted the net pension liability negatively compared to 31 December. Arla will focus on minimising any potential negative impact of the Brexit vote and utilise potential opportunities for the business as a result of the Brexit vote. For Arla it is important that a trade agreement is reached that will not limit the free movement of dairy products. We are working with all relevant stakeholders to ensure that Brexit will have as little impact as possible on Arla. Despite the new challenges facing Arla, a Brexit will not change the importance of the UK market for Arla. Arla has created a senior management task force to monitor and prepare the business to deal with the developments following the Brexit vote and ultimately secure the highest possible returns for our farmer s milk.

Puck Cubed White Feta We have extended our new Puck white cheese range with the launch of Puck Cubed Feta in Middle Eastern markets in March. Our delicious tasting premium feta is pre-cut into cubes and the packaging includes an innovative drainer for easy serving. Lurpak Spreadable Infusions Our Lurpak Spreadable Infusions range has been developed to perfectly accompany an assortment of breads from around the world. This latest edition to our Lurpak portfolio launched in the UK in May. Arla B.O.B Arla Best of Both is a unique and new branded milk product that launched in the UK in January. Arla B.O.B is fat-free milk that tastes as good as semi-skimmed milk. Innovative products drive our strong brand growth Brands successfully delivered the majority of our growth in the first half of aided by the launch of new innovative branded products. Highly profitable brands are essential to our growth and, as competition gets tougher and consumers have increasingly more choices, innovative branded products are an important element of our strategy, Good Growth 2020. Castello Cheddar With the launch of Castello Cheddar in Germany we are targeting new attractive potential consumers who attach a lot of importance to high quality and exclusive taste, both of which are key characteristics of our Castello brand. Arla Skyr Drinking Yogurt We have extended our award winning skyr range with the launch of a new fat free, reduced sugar and high protein yogurt designed for consumers who are increasingly enjoying food on-the-go. Arla Move Arla Move is an entire new product range containing a water-added whey protein aimed at people who live an active life. The assortment of sport nutrition products was launched in Denmark in January.

HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS 15 Income statement Full year Revenue 4,853 5,127 10,262 Production costs -3,700-3,948-7,833 Gross profit 1,153 1,179 2,429 Sales and distribution costs -804-801 -1,597 Administration and joint costs -211-213 -417 Other operating income 52 36 37 Other operating cost -16-51 -74 Gain from sale of enterprise 120 0 0 Share of results after tax in joint ventures and associates 14 16 22 Earnings before interest and tax (EBIT) 308 166 400 Specification: EBITDA excluding gain from sale of enterprise 363 341 754 Gain from sale of enterprise 120 0 0 Depreciations -175-175 -354 Earnings before interest and tax (EBIT) 308 166 400 Financial income 2 13 14 Financial costs -49-40 -77 Profit before tax 261 139 337 Tax -17-17 -42 Profit for the period 244 122 295 Specification: Profit for the period from ordinary activities 124 122 295 Gain from sale of enterprise 120 0 0 Profit for the period including gain from sale of enterprise 244 122 295 Minority interests -5-6 -10 Owners of Arla Foods amba 239 116 285 Arla s consolidated annual report is prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional disclosure requirements in the Danish Financial Statement Act. The consolidated half-year report is prepared according to the same principles.

16 HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS Balance sheet Full year Assets Non-current assets: Intangible assets 824 854 873 Property, plant and equipment 2,338 2,474 2,457 Investments in associates 439 468 434 Investments in joint ventures 48 55 50 Deferred tax 61 65 64 Other non-current assets 23 27 25 Total non-current assets 3,733 3,943 3,903 Current assets: Inventories 977 1,093 1,007 Trade receivables 882 884 910 Derivatives 90 36 75 Current tax 1 7 1 Other receivables 192 214 202 Securities 505 514 509 Cash and cash equivalents 110 79 70 Total current assets excluding assets held for sale 2,757 2,827 2,774 Assets held for sale - 9 59 Total current assets 2,757 2,836 2,833 Total assets 6,490 6,779 6,736 Equity and liabilities Equity: Equity excluding proposed supplementary payment to owners 2,090 1,991 2,000 Proposed supplementary payment to owners - - 113 Arla Foods amba s share of equity 2,090 1,991 2,113 Minority interests 41 28 35 Total equity 2,131 2,019 2,148 Liabilities Non-current liabilities: Pension liabilities 346 310 294 Provisions 14 16 8 Deferred tax 51 53 65 Loans 1,661 1,464 1,714 Other non-current liabilities 5 6 3 Total non-current liabilities 2,077 1,849 2,084 Current liabilities: Loans 911 1,514 1,076 Trade payables 807 924 918 Provisions 20 10 19 Derivatives 171 163 158 Current tax 14 11 5 Other current liabilities 359 289 298 Total current liabilities excluding liabilities regarding assets held for sale 2,282 2,911 2,474 Liabilities regarding assets held for sale - - 30 Total current liabilities 2,282 2,911 2,504 Total liabilities 4,359 4,760 4,588 Total equity and liabilities 6,490 6,779 6,736

HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS 17 Cash flow statement Full year Cash flows from operating activities EBITDA excluding gain from sale of enterprise 363 341 754 Share of results in joint ventures and associates -14-16 -22 Change in primary working capital -88-62 -23 Change in other working capital 86 52 10 Other operating items without cash impact 23 5 11 Dividends received, joint ventures and associates 4 2 8 Interest paid -34-23 -56 Interest received 4 3 6 Tax paid -4-10 -19 Total cash flow from operating activities 340 292 669 Investment in intangible fixed assets -21-23 -70 Investment in property, plant and equipment -136-150 -348 Sale of property, plant and equipment 11 3 8 Total operating investing activities -146-170 -410 Free operating cash flow 194 122 259 Net financial investments 139-22 8 Total free cash flow 333 100 267 Cash flows from financing activities Supplementary payment related to the previous financial year -113-105 -105 Paid in funds from new owners - 1 5 Paid out from equity in relation to terminated membership contracts -19-18 -18 Loans obtained, net -52-122 -173 Change in current liabilities -107 90-33 Net change in marketable securities -2 50 50 Total cash flow from financing activities -293-104 -274 Net cash flow 40-4 -7 Cash and cash equivalents at 1 January 70 81 81 Exchange rate adjustments of cash funds -7 2 3 Transferred to/from assets held for sale 7 - -7 Cash and cash equivalents at period end 110 79 70

18 HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS Revenue Branded growth mitigates lower market prices Revenue for the first half of the year totalled EUR 4,853 million, a decrease of 5.3 per cent compared to same period last year. The oversupply in the European milk market has had a significant impact on prices. Arla remains focused on moving the additional milk into markets outside Europe, into retail and foodservice channels as well as into branded products which delivers higher prices and greater profitability compared to trading products on the commodity market. Overall volume driven revenue growth is 3.7 per cent. Our International business contributed significantly to this, achieving volume driven revenue growth of 12.8 per cent, primarily due to increased sales in Sub-Saharan Africa, China and South East Asia. Volume driven revenue growth in branded positions was 6.1 per cent resulting in a brand share of 44.5 per cent. This is an increase in brand share of 3.0 per centage points compared to the same period last year. The brand share in International is significantly higher than the brand share in Europe where some markets are dominated by private label products. The Arla, Lurpak and supported brands, including Puck have been key drivers of the increase in brand share. The negative price development has decreased revenue by 7.2 per cent and this was further accelerated by exchange rates, principally due to changes in GBP. Divestment of Rynkeby Foods A/S negatively impacted revenue by EUR 11 million compared to the same period last year. Revenue by business area, half-year Revenue by business area, half-year 15% 17% 5% 15% 4,853 million EUR 5% 65% 65% 5,127 13% million EUR Volume driven revenue growth, half-year Europe 3,179 3,320 2.5% International 719 666 12.8% Arla Foods Ingredients 252 269 - Milk trade and other 703 872 - Brand share by business zone Development in revenue Europe 47.5% 46.3% International 81.9% 80.9% 5,400 5,300 5,200 5,127-11 197-369 Arla brand share 44.5% 41.5% 5,100 5,000-91 4,900 4,853 0 HY M&A and divestments Volume/mix Sales prices Currency HY Revenue by category Milk, yogurt, powder and cooking (MYPC) 45.8% 44.6% Cheese 25.0% 24.0% Butter, spreads and margarine (BSM) 13.2% 12.9% Other 16.0% 18.5%

HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS 19 Costs Cost development under control The Group has maintained its strong focus on reducing costs in order to secure the highest possible milk price to the owners. Total operational costs decreased by EUR 246 million. The cost of raw milk has decreased by EUR 215 million. Lower milk prices to our owners have reduced costs by EUR 192 million while the cost for higher milk volumes amounts to EUR 34 million. Cost for other milk and the effect of changes in currency has decreased the cost compared to last year. The average cost for other milk has decreased more than the average cost of milk. Staff costs have increased by EUR 25 million compared to. The handling of increased milk volumes is partly responsible for the increase. Redundancy and severance payments relating to the reduction of 500 white collar employees, in line with Good Growth 2020, are also contributing factors. We expect to see the benefits of reducing staff costs in the 2017 figures. While the reduction in white collar employees is being executed according to plan, the full effect is not yet reflected in the average number of full time employees, the reason being that the figure is calculated as a weighted average. Divestment of Rynkeby Foods A/S have decreased the average number of full time employees by 70 compared to the same period last year. The full year effect is a reduction of 200 full time employees. Marketing spend increased moderately while the net effect of other costs has decreased by EUR 56 million compared to the same period last year. Cost split by type, half-year Cost split by type, half-year 39% 38% 44% 4,715 4,961 47% million EUR million EUR 4% 3% 13% 12% Cost of raw milk -2,094-2,309 Staff costs -631-606 Depreciation, amortisation and impairment -175-175 Other costs* -1,815-1,871 Total costs -4,715-4,961 Average number of full time employees 18,941 19,118 * Other costs mainly include packaging, additives, consumables, change in inventory, transportation, marketing and utilities. Cost of raw milk Development in cost Weighed in mkg EURm Weighed in mkg EURm Owner milk 6,370-1,811 6,251-1,995 Other milk 844-283 830-314 Total 7,214-2,094 7,081-2.309 5,000 4,950 4,900 4,850 4,800 4,750 4,700 4,961 34-192 -31 31-88 4,715 0 HY Milk volume effect Milk price effect Other milk Growth in cost base excluding milk Currency HY

20 HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS Non-current assets Focused CAPEX investments Investments in property, plant and equipment total EUR 136 million compared to EUR 150 million last year. Of these, 64 per cent has been made in the milk, yogurt, powder and cooking category. The remaining investments have mainly been made in the cheese category and in the new innovation centre in Aarhus. Following the decision to close Hatfield Peverel dairy, in the UK, the value of our production facilities was written down by EUR 5 million. Intangible assets have decreased primarily due to currency effects. No impairment has been made in. Non-current assets also include investments in joint ventures and associates. The book value of China Mengniu Dairy Company Limited is EUR 322 million. Fair value of the shares, based on the listed stock price at 30 June, is EUR 327 million. Non-current assets by type 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 649 1,792 458 HY 2012 714 2,150 424 HY 2013 767 2,315 438 HY 2014 854 2,474 615 HY Intangible assets Property, plant and equipment Other 824 2,338 571 HY Intangible assets Property, plant and equipment Goodwill 628 692 Licenses and trademarks 34 44 IT and development projects 162 118 Total intangible assets 824 854 Land and buildings 850 946 Plant and machinery 1,136 1,129 Fixtures and fittings, tools and equipment 129 147 Assets in the course of construction 223 252 Total property, plant and equipment 2,338 2,474 Net working capital Continuous focus on net working capital Net working capital Primary net working capital, excluding owner milk, has decreased by EUR 24 million compared to 31 December predominantly due to exchange rates. We work to continuously reduce net working capital to release funds. Trade payables related to owner milk have decreased by EUR 77 million due to the lower milk price and the alignment of payments to owners across the different countries. This has resulted in an increase in our primary net working capital of EUR 53 million compared to 31 December. 1.500 1.000 0 1,041 903 HY 2012 1,258 1,024 HY 2013 1,456 1,155 HY 2014 1,342 1,053 HY 1,175 1,052 HY Primary net working capital excluding owner milk Primary net working capital

HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS 21 Equity Solid equity position Equity amounts to EUR 2,131 million, which corresponds to a decrease of EUR 17 million compared to 31 December. Profit for the period, before minority interest, was EUR 244 million. Supplementary payments of EUR 113 million were made in relation to the profit allocation. Further payments, totalling EUR 19 million in individual capital, have been paid out to owners who have resigned or retired. Value adjustments following changes in interest and foreign exchange rates have negatively impacted equity by EUR 136 million, of which value adjustments on pension liabilities amount to EUR 86 million and value adjustments of hedging instruments amounts to EUR 30 million. The equity ratio that is measured, excluding the value of minority interest, amounts to 32 per cent compared to 31 per cent as of 31 December and 29 per cent as at 30 June. Equity ratio, half-year 32% Equity ratio, half-year 29% Equity Full year Common capital 1,640 1,484 1,482 Individual capital 499 487 516 Other reserves -49 20 2 Proposed supplementary payment to owners - - 113 Equity before minority interest 2,090 1,991 2,113 Minority interest 41 28 35 Equity incl. minority interest 2,131 2,019 2,148 Net interest-bearing debt Improved leverage The Group s leverage is 3.0 adjusted for gain in relation to the divestment of Rynkeby Foods A/S. Leverage including the gain from the divestment of Rynkeby Foods A/S is 2.6. This is an improvement of 0.2 compared to 31 December. Net interest-bearing debt has been reduced due to improved cash flow. The net pension liability has increased by EUR 52 million compared to 31 December as a result of lower interest rate levels in the UK and Sweden partly offset by payments to the pension schemes. Average interest costs, excluding pensions, totalled 2.8 per cent compared to 2.6 per cent in the same period last year. The bond issue of SEK 1 billion and a new mortgage loan of EUR 90 million have been obtained since 31 December. These have had a positive effect on our maturity profile, extending the average maturity from 4.4 to 5.6 compared to 31 December. Net financial cost has increased by EUR 21 million compared to the same period last year. Interest cost is marginally lower than last year while currency and value adjustments have had a negative impact. The first half of was positively impacted by currency and value adjustments which have not been repeated in. Leverage, half-year 3.0 * Leverage, half-year 4.0 Net interest-bearing debt 3,000 2,500 2,000 1,500 1,000 500 0 356 2,146 369 2,532 344 2,347 HY 2012 HY 2013 HY 2014 HY HY Leverage* 4.5 3.4 3.7 4.0 3.0 Pensions Net interest-bearing debt excluding pensions Target range leverage 2.8-3.4 Excluding gain from sale of Rynkeby. 310 2,383 346 1,949 5 4 3 2 1 0

22 HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS Maturity of net interest-bearing debt, half-year Maturity of net interest-bearing debt, half-year Liquidity reserves 1,000 800 1,000 800 37 861 Cash and cash equivalents 110 79 Securities (free cash flow) 10 14 Unutilised committed loan facilities - maturity >1 year 494 347 Unutilised other loan facilities 172 13 Total 786 453 600 600 400 200 0 301 0-1 1-2 2-3 291 81 13 205 100 363 3-4 4-5 5-6 90 104 265 6-7 33 109 488 7-10 10> 400 200 0 0-1 1-2 2-3 81 190 284 306 3-4 4-5 121 164 42 5-6 6-7 40 114 491 7-10 10> Unused committed facilities Maturity profile Pension liabilities Sweden UK Others Total Sweden UK Others Total Present value of funded liabilities 211 1,349 35 1,595 213 1,206 35 1,454 Fair value of plan assets -11-1,237-17 -1,265-12 -1,140-9 -1,161 Deficit of funded plans 200 112 18 330 201 66 26 293 Present value of unfunded liabilities - - 16 16 - - 17 17 Net pension liabilities recognised in the balance sheet 200 112 34 346 201 66 43 310 Assumptions Discounting rate, Sweden 2.8% 2.9% Discounting rate, UK 2.6% 3.8% Expected payroll increase, Sweden 2.4% 2.4% Expected payroll increase, UK 4.1% 4.3% Inflation (CPI), Sweden 1.6% 1.4% Inflation (CPI), UK 1.8% 2.2%

HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS 23 Cash flow statement Improved operating cash flow Cash flow from operating activities improved by EUR 48 million taking the total to EUR 340 million. The change is attributable to higher EBITDA and an improved position in other working capital items. Payables related to owner milk have decreased by EUR 77 million due to the lower milk price and the change in the timing of milk payments to owners. Combined cash and cash equivalents totals EUR 110 million, compared to EUR 70 million at the end of. The increase is mainly due to cash positions in new markets. Cash flow 400 300 200 340 292 333 After investments and the effect of the divestment of Rynkeby Foods A/S, free cash flow totals EUR 333 million, an improvement of EUR 233 million. The supplementary payment to owners and repayment of loans accounts for EUR 293 million. 100 0 HY HY HY 100 HY Cash flow from operating activities Free cash flow Milk and owners Increased milk volumes from owners Milk volumes increased by 1.9 per cent in the first half of following milk quotas being abolished in April. The number of owners, at 30 June, is 12,037, equating to a decrease of 613 owners compared to 31 December. In most member countries there has been a decline due to farmers either leaving Arla or exiting dairy farming. Monthly intake of raw milk (mkg) 1,300 1,250 1,200 1,150 1,100 1,050 1,000 950 900 January February March April May June Total intake of raw milk 7,214 million kg 7,081 million kg

24 HALF-YEAR REPORT CONSOLIDATED FINANCIAL STATEMENTS Inflow of raw milk (mkg) 2014 2013 2012 Inflow from owners in Denmark 2,413 2,308 2,308 2,246 2,242 Inflow from owners in Sweden 999 1,028 1,049 1,029 1,068 Inflow from owners in Germany 913 872 716 666 245 Inflow from owners in the UK 1,672 1,689 1,551 624 - Inflow from owners in Belgium 269 263 157 119 - Inflow from owners in Luxembourg 75 65 61 57 - Inflow from owners in the Netherlands 29 26 - - - Inflow from others 844 830 860 1,494 1,448 Total inflow of raw milk 7,214 7,081 6,702 6,235 5,003 Number of owners Full year Full year 2014 Full year 2013 Full year 2012 Owners in Denmark 2,876 3,027 3,144 3,168 3,354 Owners in Sweden 2,970 3,174 3,366 3,385 3,661 Owners in Germany 2,456 2,636 2,769 2,500 2,911 Owners in the UK 2,594 2,654 2,854 2,815 1,584 Owners in Belgium 865 882 997 529 501 Owners in Luxembourg 219 221 228 232 245 Owners in the Netherlands 57 56 55 - - Total number of owners 12,037 12,650 13,413 12,629 12,256 Conventional milk versus organic milk, half-year Conventional milk versus organic milk, half-year 6% 6% 7,214 million kg 7,081 million kg 94% 94% (mkg) Conventional milk 6,803 6,653 Organic milk 411 428 Total 7,214 7,081

When the milk price is under pressure, it is even more important that we create awareness among consumers that when they buy an Arla product the profit goes back to dairy farmers. Being farmer- owned means we are committed to high standards of animal welfare, product quality and food safety and many consumers value our special farmer-owned status. Our cooperative story has become an important differentiator. Anne-Dorthe Buck is one of Arla s 12,037 farmer-owners who are part of our cooperative story.

Glossary Brand share is defined as the ratio of revenue from strategic branded products out of Arla Foods amba s total revenue. Strategic branded products are those that are sold under one of the three global brands - Arla brand, Lurpak and Castello as well as supported brands. Conversion cost is defined as the total cost of production per kilo raw milk excluding the cost for milk and materials within the production site that are related to the production of goods. Leverage is defined as the ratio between net interest-bearing debt inclusive of pension liabilities and EBITDA. Peer group index. The peer group index evaluates the relative performance of Arla Foods amba compared to competitors without considering the retainment policy, which is calculated as the Arla Foods amba performance price divided by the weighted average performance price of the peer group. Performance price for Arla Foods amba is defined as the prepaid milk price plus net profit per total member milk intake. The prepaid milk price is the cash payment owners receive for the milk they supply during the settlement period. Retail and foodservice volume driven revenue growth is defined as revenue growth in the retail and foodservice business that is associated with growth in volumes while keeping the price constant. Scalability is defined as the ratio between volume driven revenue growth and growth in total capacity cost adjusted for special items. Strategic branded volume driven revenue growth is the revenue from strategic brands that is associated with growth in volumes while keeping the price constant. Strategic branded products are those that are sold under one of the three global brands - Arla brand, Lurpak and Castello - as well as supported brands. Trading share measures the total milk used to produce trading (commodity) products compared to the total amount of milk used within Arla Foods amba. A trading (commodity) product is a product sold with a lower amount of value added or no value added at all. Volume driven revenue growth is defined as revenue growth associated with growth in volumes while keeping prices constant. Arla Foods amba Sønderhøj 14 DK-8260 Viby J. Denmark CVR no.: 25 31 37 63 Arla Foods UK plc 4 Savannah Way Leeds Valley Park Leeds, LS10 1 AB England Phone +45 89 38 10 00 E-mail arla@arlafoods.com Phone +44 113 382 7000 E-mail arla@arlafoods.com www.arla.com www.arlafoods.co.uk