avatar Glanbia, Inc Manufacturing

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    GLANBIA PLC ANNUAL REPORT 2006 Glanbia plc is a leading international dairy foods and nutritional ingredients Group, headquartered in Ireland. The Group is successfully developing a strategic international presence, which today represents nearly 40% of revenue. At the same time, the Group continues to consistently improve the cost base, productivity and long-term sustainability of the Irish operations. Combined these give Glanbia a strong platform from which to continue to grow and develop. Contents Performance Highlights 1 Our Business 2 Chairman’s Statement 4 Group Managing Director’s Review 6 Our Strategy Explained 10 Business Review 12 Consumer Foods 12 Agribusiness and Property 16 Food Ingredients and Nutritionals 18 Nutritionals 21 Joint Ventures and Associates 24 Corporate Social Responsibility 27 Finance Review 30 Board of Directors 32 Management 34 Report of the Directors 35 Corporate Governance 38 Financial Statements 46


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    GLANBIA PLC ANNUAL REPORT 2006 1 Performance Highlights Revenue billion Operating profit million Profit before tax million (Pre-exceptional) * * * €2.1 €88.4 €74.4 €1.9 €85.6 €71.5 * Including share of results of joint ventures and associates Operating margin Adjusted earnings Dividend per share (Pre-exceptional) per share 4.6% 22.6 cent 5.8 cent • 2006 was a good year for Glanbia. Results were in line with expectations, despite a particularly tough first half in Ireland. • Glanbia completed a major nutritionals acquisition and commissioned a world-class dairy processing plant, both in the USA. • Key financial performance indicators are trending positive and international operations and joint ventures are progressing well. • As to the future, Glanbia is on target to deliver double digit earnings growth in 2007 and the outlook is for sustained high growth.


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    2 GLANBIA PLC ANNUAL REPORT 2006 Our Business ,iÛi˜Õi %£°™ÊLˆˆœ˜ Glanbia is organised into three divisions and has Ón¯ operations in Ireland, Europe and the USA, with xn¯ international joint ventures in the UK, USA and Nigeria. £{¯ 2006 revenue amounted to €1.9 billion and was €2.1 billion, including the Group’s share of joint ventures "«iÀ>̈˜}Ê*ÀœvˆÌÊ %nx°Èʓˆˆœ˜ and associates, with approximately 40% generated by international operations. ә¯ xÓ¯ " -1 ,Ê"" - £™¯ , 1- --ÊEÊ*,"* ,/9 "" Ê ,  /-ÊEÊ 1/,/" - IRELAND Consumer Foods Agribusiness & Property Food Ingredients Ireland Leading brands & market positions Key linkage to farmer supply base Largest dairy processor in Ireland Business Review Page 12 Business Review Page 16 Business Review Page 18 Locations: 10 facilities in Locations: Agribusiness: 61 Locations: Two manufacturing Ireland. locations nation-wide. facilities located at Virginia, County Cavan and Ballyragget, County Kilkenny. Description: The key business Description: Agribusiness is Description: This business unit is dairy-based consumer the Group’s key linkage with unit processes one-third of the foods. The second business it’s large farmer supply base. total milk pool in Ireland and is the processing of pigs and Property is newly formed and markets over 190,000 tonnes of the manufacture of pigmeat is focused on maximising the dairy products and ingredients products. value of the Group’s property on a business-to-business basis portfolio. worldwide. Products: Branded liquid milk, Products: feed, fertilisers, farm Products: Butters, acid and dairy products, cheeses and inputs and the CountryLife rennet casein, cheese, milk fresh soups; fresh pork and retail range. powders, cream mixes and bacon products. other whey protein ingredients. Market positions: Brands: Gain Feeds, Market positions: No. 1 liquid milk IFI fertilisers, CountryLife. No. 1 dairy processor No. 1 cream brand No. 1 cheese processor No. 1 pigmeat processor. No. 1 casein producer in Europe. Brands: Avonmore, Yoplait, Nash’s, CMP, Snowcream, Premier, Kilmeaden.


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    GLANBIA PLC ANNUAL REPORT 2006 3 TOTAL GROUP (including joint ventures) 4,481 employees 5,312 milk suppliers 4.73 billion litres of milk processed 370,000 tonnes of cheese produced 210,000 tonnes of food ingredients manufactured INTERNATIONAL Food Ingredients USA Nutritionals Joint Ventures Large scale, modern plants Science based innovation Key element of growth strategy Business Review Page 20 Business Review Page 21 Business Review Page 24 Locations: Three processing Locations: Global operations Locations: UK, USA and plants in Idaho, which is the include Ireland, UK, Germany, Nigeria. fourth largest and fastest USA, South America and China. growing milk state in the USA. Description: This business unit Description: This new Description: The Group is a leading manufacturer of business focuses on providing currently has three key cheese and whey-based food science based nutritional International joint ventures. ingredients. The operations solutions in areas such as Glanbia Cheese in the UK, process 1.7 billion litres of milk sports & performance, weight Southwest Cheese in the USA per annum. management, health & wellness and Nutricima in Nigeria. and infant nutrition. Products: American-style Products: Whey protein Products: Pizza cheese for the cheddar cheese and whey isolates and other whey UK and European markets. products. powders, lactose, calcium, Cheese and whey products in lactoferrin, vitamin & mineral the USA. Milk and milk powder premixes. in Nigeria. Market positions: Market positions: Market positions: No. 1 American-style cheddar No. 1 supplier of customised No. 1 pizza cheese supplier in No. 2 whey protein nutrient premixes Europe. No. 3 lactose. Leading global supplier of advanced technology whey proteins and fractions. Brands: Provon, Thermax, Avonlac, Prolibra, Bioferrin, Salibra, Barflex, Barpro, Bartex, Barmax.


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    4 GLANBIA PLC ANNUAL REPORT 2006 Chairman’s Statement 2006 was a good year for the Group. Our results were in line with market expectations and taking our share of the revenue of our joint ventures and associates into account, we delivered top line revenue growth of 8% to €2.1 billion in 2006 (excluding joint ventures and associates revenue increased by 1% to €1.9 billion). This 2006 performance was against a background of a particularly tough first half and ongoing challenges in Ireland. A solid operating performance, the €66.4 million (2005:€61.1 million). changing mix of business and the benefits Net exceptionals for the year amounted of prior year rationalisation initiatives to €0.1 million (2005: €3.4 million). In improved profitability and margins. 2006 exceptional costs associated with Operating profit pre-exceptional was up the closure of the Pigmeat cannery 6% to €85.6 million (2005: €80.9 million) operations in Ireland and the disposal of and the operating margin pre-exceptional the remaining 25% interest in the Cheese increased 20 basis points to 4.6% (2005: Company Holdings Limited were offset by 4.4%). exceptional tax credits relating to former UK operations. Earnings per share grew Net financing costs pre-exceptional 14% to 22.5 cent (2005: 19.7 cent), while increased by €0.9 million to €14.0 adjusted earnings per share increased 8% million (2005: €13.1 million). This reflects to 22.6 cent (2005: 20.9 cent). an increase in average debt in the year primarily driven by the acquisition of Business environment Seltzer, a leading USA nutritional solutions The EU dairy sector is in its fourth and business in the second half. final year of the implementation of the Mid-Term Review (MTR) of the Common The Group’s share of results of joint Agriculture Policy. Managing a reduced ventures and associates, post interest and level of EU support to the dairy industry tax, increased to €2.8 million in 2006 (2005: was challenging in 2006, however world €0.9 million). This result primarily reflects market conditions improved in the latter the improved performance in Glanbia part of the year. Glanbia will continue to Cheese, the Group’s UK joint venture respond to this changing environment, with Leprino Foods and a small first time seeking out new opportunities to offset contribution from Southwest Cheese in the the challenges that have come from the USA. implementation of the MTR in a globalising dairy market. It is becoming increasingly Profit before tax pre-exceptional, including apparent that Glanbia is well positioned share of joint ventures and associates, to supply the improvement in world increased 8% to €74.4 million (2005:€68.7 market conditions in light of its significant million). 2006 pre-exceptional tax charge production platforms in Europe and the was €8.0 million (2005: €7.6 million). Profit USA. after tax pre-exceptional increased 9% to


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    GLANBIA PLC ANNUAL REPORT 2006 5 Changing EU policy, the potential evolution Corporate and Social Responsibility of the WTO driven trade liberalisation and Glanbia has a long and proud heritage of changing supply and demand dynamics, means that global dairy markets are in transition. Global markets are reasonably social and community involvement and as the organisation has evolved, so too has our Corporate and Social Responsibility 8% top line firm at present and the outlook is currently positive for 2007. While this is a challenging time for the industry and for farmers, there is a sense of optimism with commercial Programme. In the last four years we have adopted an integrated programme that underpins our commitment to key stakeholders through four key pillars: growth farmers taking a positive, long term Community, Workplace, Environment and including joint ventures view supported by an ongoing Glanbia Marketplace. The programme respects response to changes in the market place. all stakeholders, encourages our role Global demand for dairy products is expected to grow at close to 2% per in building strong communities, guides our sustainable engagement with the environment and ensures we deliver the 9% increase in profit annum. While developed markets will very best product to marketplace. This continue to dominate dairy consumption programme integrates business unit in absolute terms, in the near term, strategy with sustainability and is being significant growth opportunities will extended to all business units. come from developing countries. It is anticipated that global dairy supply may slow down from a trading perspective in Dividends and Annual General Meeting (AGM) after tax the next five years, arising from higher The Board is recommending a final pre-exceptional items costs of production - particularly in dividend of 3.4 cent per share, grain reliant dairy economies, - inherent compared with a 3.2 cent per share final supply constraints and changing climatic dividend in 2005. This brings the total conditions in Oceania. The continuation dividend for the year to 5.8 cent per share Glanbia has a strong of the quota regime in the EU up to (2005: 5.5 cent per share), representing 2015 also limits supply. However, some a 5% increase. Subject to shareholders strategic platform and movement on quota policy could occur in advance of 2015. Other unknowns at approval, dividends will be paid on 22 May 2007 to shareholders on the is on target to deliver this time are the degree to which USA register as at 27 April 2007. Irish dividend double digit growth in dairy policy will be revised stemming withholding tax will be deducted at the from the legislative debate taking place standard rate where appropriate. The 2007 and beyond in 2007. The outcome of the WTO Doha AGM will be held on Wednesday 16 May negotiations remain uncertain. It is 2007 and the Annual Report post out The Board would like to thank the Group essential that any possible agreement date is 13 April 2007. Managing Director, management and would not go beyond the reforms staff for their continued commitment already undertaken by the dairy sector Board changes to building strong and sustainable under MTR. Two new Directors were elected to the foundations for the future and our Board in May 2006, these are Patrick customers for their continuous support The global nutritional market exhibited Gleeson and Martin Keane, both farmers. for Glanbia. strong growth in 2006, estimated at €127 They replaced John Miller and Eric billion (US$159 billion), with half of this Stanley, who retired as longstanding I am confident that with our growing represented by the USA market. The Board members. On behalf of the Board I international presence and strong Irish weight management, health and wellness, would like to welcome the new Directors operations, Glanbia has a solid strategic sports and infant nutrition sectors are key to the Board and to thank John Miller platform and is on target to deliver targets for Glanbia Nutritionals where and Eric Stanley for their commitment double digit growth in 2007 and beyond. it is building strong positions. With the to Glanbia and their contributions to the acquisition of Seltzer in 2006, the Group Board over the years. is now a leading global supplier of customised nutrient premixes – a market Vision Michael Walsh that is growing strongly year on year. The transformation of the Group to Chairman date is a strong reflection of the vision and leadership provided by the Group Managing Director, John Moloney, supported by a strong management team and expert staff throughout the Group.


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    6 GLANBIA PLC ANNUAL REPORT 2006 Group Managing Director’s Review The 2006 results reflect a year of growth and progress with financial performance indicators trending positively and international operations and joint ventures progressing well. We achieved key strategic milestones during the year including the €81.8 million (US$105 million) Seltzer acquisition, which will enhance the scope and scale of our Nutritionals Division. In conjunction with our joint venture partner we also successfully opened one of the largest natural cheese and whey processing plants in the world, Southwest Cheese, which is a €151 million (US$190 million) 50:50 joint venture and makes Glanbia the No. 1 supplier of American-style cheddar in the USA. The Seltzer acquisition is performing ahead of expectations. The Southwest Cheese plant is fully commissioned and is producing product to a world class standard. Strategy Our strategic objectives are to achieve Glanbia’s vision is to be the most relevant and sustain double digit earnings supplier in international cheese, nutritional growth, to improve operating margins, and dairy ingredients and selected allocate capital to a mix of higher growth consumer foods. This relevance to our opportunities and to diversify the Group’s customers will be achieved through a earning base to reduce volatility. Our focus on international scale, leading adjusted earnings per share targets technologies and growth markets. are within a range of 10% to 14%. Our potential development spend in 2007 is €150 million which we will fund within robust financial ratios.


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    GLANBIA PLC ANNUAL REPORT 2006 7 Significant progress was achieved in the Nutricima in Nigeria, our joint venture pursuit of our objectives in 2006. We with PZ Cussons plc, this business is are developing a strategic international expected to have annualised revenues presence, which at this time represents of approximately US$100 million by the nearly 40% of revenue. This gives the Group a strong platform from which to continue to grow and develop overseas. end of 2007. Southwest Cheese, the joint venture with key milk supply organisations in New Mexico, was commissioned on €214 million The scale agenda is being progressed time and on budget in 2006 and will development through organic growth, acquisition and reach full capacity in 2007. We expect joint ventures. annualised revenues of US$350 million in investment since 2004 2007. Overall revenue in our joint ventures Glanbia has a clear acquisition strategy and associates grew strongly in 2006, with focusing on value, extending our Glanbia’s share of revenue growing to geographic reach and achieving a strong €262.9 million from €131.4 million and we complementary fit, particularly in the expect to see strong growth in 2007. nutritionals sector where our vision is to be a key global provider of nutritional Investment ingredients and nutritional solutions. This During 2006 the Group committed will be achieved by building a scalable, €50 million in development capital sustainable business. As I referenced expenditure, including €5 million to build above, the Seltzer acquisition last year is a the Group’s first nutritionals operation significant milestone for the Group giving in China and €22.5 million for a planned scale to our Nutritionals business in strong capacity expansion and new plant in growth segments. the Nigerian joint venture, Nutricima. Acquisition and investment expenditure in Acquisition capability remains and 2006 totalled €73.3 million which primarily is an ongoing focus for the Group. related to the acquisition of Seltzer. In In particular we continue to examine December 2006 we divested our remaining nutritional ingredient companies with 25% interest in The Cheese Company specialist or complementary products and Holdings Limited realising €70 million for technologies. the Group. Joint ventures have become an important The Group has had a strong programme part of Glanbia’s development strategy of investment behind its growth strategy in over the last number of years as we recent years with €214 million invested in leverage our dairy and nutritionals development opportunities since 2004. technology and operational strength in strategic partnerships with complementary Innovation world class companies. We are building Continuous innovation and market new businesses at first cost from the knowledge, clearly linked to the ground up, both in terms of physical asset business, is critical to Glanbia. Our construction and market development innovation platform is founded on an and now have a number of key platforms ongoing investment in R & D, successful in place to drive growth and earnings commercialisation of research and effective momentum. partnerships with third level educational In Glanbia Cheese, with our partner, establishments. We have invested in defined and strategically important Glanbia has a clear Leprino Foods, we have leveraged technical innovation skills around acquisition strategy unique technology and this business nutritional and dairy ingredients that are reported a good performance in 2006. driving formats and applications and that and acquisitions are We are confident of a continued good performance in 2007. In the case of underpin our intellectual property offering to customers. an ongoing focus for the Group


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    8 GLANBIA PLC ANNUAL REPORT 2006 Group Managing Director’s Review (continued) Glanbia innovation is based on a close To deliver our stated strategy of being Continuous innovation and study of consumer lifestyle changes and increasingly relevant to our customers we market knowledge, clearly consumer food choices. In order to be have developed the breadth, depth and relevant and provide the most effective strength of our customer relations and linked to the business, is nutritional solution to customers, the contacts in all key beverage, dairy food Group continuously tracks health and and food ingredients segments through critical to Glanbia. wellness developments. There is also a strong technical and innovation skills. growing market for convenient, on- We work with our customers driving new the-move products and foods aimed at solutions to meet consumer trends and special diets. Trends like this provide needs. the fuel for innovation and ensures that innovations are commercially relevant. As stated earlier we have in 2006 developed our international joint Our capabilities ventures with key partners. In our We continue to underpin our strategic Southwest Cheese joint venture in the development through the ongoing USA we delivered a commissioned, evolution of our capabilities. We have large scale manufacturing facility from a achieved world class manufacturing greenfield site. Similarly we are building skills in a wide variety of dairy products another business from the ground up and ingredients. These skills are in Nigeria where with our partner, PZ demonstrated in the large scale Cussons plc, we have committed further operations in Ireland and the USA, where expenditure to maximise the opportunity excellent management of all aspects of afforded by the Nigerian consumer processing operations is a primary focus. food market. With our partners, we look forward to the further development of these operations. Our capabilities stem from our people and ultimately the implementation of the Group growth strategy is dependant on people. The ability of the Glanbia team to change and adapt to the ever evolving environment in which we operate, is the basis for future growth and success.


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    GLANBIA PLC ANNUAL REPORT 2006 9 The Group has a constant focus on Joint ventures have people development, at all levels, and Glanbia is developing become an important part operates three core programmes - senior leadership, management development a strategic international of Glanbia’s development and a graduate programme. presence, which today strategy over the last 2007 outlook Ireland will remain challenging in light represents nearly number of years as we of the competitive retail environment leverage our dairy and nutritionals technology and the ongoing effects of the implementation of EU dairy reform. Irish operations continue to focus on key 40% of revenue . aspects of business execution which and operational strength drive performance, productivity and cost competitiveness. International operations in strategic partnerships are expected to perform well in 2007 and are well positioned for good growth with complementary world going forward. class companies. Glanbia is successfully developing a strategic international presence, which today represents nearly 40% of revenue. This gives the Group a strong platform from which to continue to grow and develop overseas. At the same time, the Group continues to consistently and solidly improve the long-term sustainability of the Irish operations. As to the future, Glanbia is on target to deliver double digit earnings growth in 2007 and we believe the outlook is positive for sustained high growth. John Moloney Group Managing Director Working with our customers, driving new solutions, meeting consumer trends and needs


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    10 GLANBIA PLC ANNUAL REPORT 2006 Our Strategy Explained Glanbia is entering a different phase as the Group moves into 2007. It is timely, therefore, to clearly set out the Group’s vision and strategic roadmap for the next three years. VISION » STRATEGIC OBJECTIVES » FINANCIAL TARGETS » Glanbia’s vision is to be Our objectives are to: Adjusted earnings per share growth the most relevant Group Achieve and sustain double in international cheese, digit earnings growth. nutritional and dairy Improve operating margins. 10-14% ingredients and selected Operating margin pre Diversify the Group’s earning consumer foods. base to reduce volatility. joint ventures Allocate capital to a mix of We will achieve this higher growth opportunities. 5%+ relevance for our Operating profit from customers through a international operations & joint ventures focus on international scale, leading >50% technologies and Potential development growth markets. spend 2007 €150 million Free cash flow €45 million+ EBIT interest cover 5-6 times


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    GLANBIA PLC ANNUAL REPORT 2006 11 We are aware that we have a lot to deliver on. However, the investment and rationalisation programme undertaken in recent years has created, we believe, an excellent platform from which to drive the business forward. STRATEGIC IMPERATIVES » KEY INITIATIVES » GLANBIA’S CAPABILITIES » 1 Deliver growth and performance in Consumer Foods: expand beverages, World class manufacturing skills in the period 2007 to 2009. food service and convenience offering. a wide variety of dairy products and ingredients. Pigmeat: maintain stable performance. Depth and strength of customer Agribusiness: continue to reshape the relations and contacts in all key business to fit changes in farming. beverage, dairy food and food ingredients segments. Property: to maximise the value of the Group’s property assets. Strong technical and innovation skills driving new formats, products and Food Ingredients Ireland: sustain services. cost competitiveness and manage remaining MTR impacts. Partnering with leading companies Food Ingredients USA: deliver strong and organisations in high growth growth including integration with markets. Southwest Cheese. Project, plant and investment Nutritionals: Deliver organic growth/ management skills to deliver from NPD. Leverage Seltzer acquisition. greenfield sites to full commissioning large scale manufacturing facilities. Joint ventures: drive growth and earnings momentum. 2 Extend growth and performance Further acquisitions, with focus on beyond 2009. nutritionals. Expansion of international operations. Focus on cost reduction, competitiveness and productivity throughout the Group. 3 Improve financial flexibility. Maintain progress towards financial flexibility and improving ratios.


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    12 GLANBIA PLC ANNUAL REPORT 2006 Consumer Foods VÀi>“ Ì ˆ˜Žo ˆŽ ˜ÕÌÀˆÌˆœ˜>Ê V iiÃi Üիà ޜ}ÕÀÌ LiÛiÀ>}iÃ


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    GLANBIA PLC ANNUAL REPORT 2006 13 Consumer Foods This division includes Consumer Foods The position of the brand portfolio in the Ireland which incorporates nutritional Top 100 list of grocery brands improved beverages, fresh dairy products and significantly in 2006 with Avonmore Fresh cheeses, soups and spreads; and Milk moving up from No. 5 to No. 3. Also Pigmeat, which produces a range of pork the launch of Yoplait Essence resulted and bacon products. in a significant increase in market share position in the important functional Revenue was up 3.5% to €511 million segment of the fresh dairy products (2005: €493.6 million), 28% of total Group market. Colin Gordon Jim Hanley sales. Operating profit was down 10% CEO Consumer Foods CEO Glanbia Meats to €24.5 million (2005: €27.1 million), Environment Ireland leading to a 70 basis points reduction The Irish grocery market is intensely in the operating margin to 4.8% (2005: competitive and concentrated with 5.5%). A steady performance from the promotional activity a constant feature of / ÀiiÊÞi>ÀÊÀiÛi˜ÕiÊ>˜>ÞÈÃÊ­%½äää® consumer foods business was more than the fresh dairy market. In most categories offset by difficulties in Pigmeat, including the share of retailer own brands increased {™Î]xnÓ x££]äÓÓ margin erosion due to lower prices in 2006. {x£]£Ó{ in certain segments and losses at the cannery operation. Health and convenience are the drivers of new product development and Consumer Foods Ireland innovation in the Irish retail food sector. Consumer Foods Ireland is focused According to independent research on three distinct sectors of the Irish conducted by both the Irish Food Board fast moving consumer goods market: and Glanbia Consumer Foods, Irish ä{ äx äÈ nutritious beverages; fresh dairy products consumers regard health and nutrition as and cheeses, soups and spreads. Glanbia the most important factor affecting their is the leading supplier of branded and food purchase decisions, ahead of price. value-added milk, yogurts, cheddar When asked what they wanted most to cheeses and fresh soups to the grocery see next from their local convenience trade. store, over 70% of respondents said that they wanted more health foods on-the- With household brands including go. Against this background Glanbia ‘Avonmore’, ‘Premier’, ‘Yoplait’, continued its investment in product ‘Kilmeaden’, ‘Snowcream’, ‘Petits Filous’ innovation and extension during 2006 and ‘CMP’ Glanbia has No. 1 market with a strong pipeline of healthy and positions in fresh milk, fresh cream, fruit convenient offerings. yogurt, kids fromage frais, drinking yogurt and fresh soup. Nutritional beverages The nutritional beverages business Consumer Foods Ireland employs over includes milks and juices and this 800 people at 10 locations throughout business performed well in 2006, Ireland and processes 260 million litres retaining its leading market share of milk annually. Overall the consumer position in milk in the context of foods business had a demanding but increased Northern Ireland imports satisfactory year and revenue, operating and the growth of own label brands. profits and margins were broadly similar Consumer Foods Ireland increased its to last year. The business significantly marketing investment significantly and increased marketing investment, maintaining leading market share benefited from volume increases from the integration of the CMP brand and the Market Positions: positions in key categories. In the context ongoing launch of new products. Glanbia of increased energy and labour costs, commenced a series of Irish TV weather No.1 Liquid Milk the re-structuring of the fresh dairy sponsorships in 2006 which have proved No.1 Cream Brand production facilities at Inch, County effective at driving awareness and recall Wexford and the integration of CMP, of the Avonmore brand nationally. No.1 Pigmeat Processor purchased from Dairygold in 2005, had a positive impact.


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    14 GLANBIA PLC ANNUAL REPORT 2006 Consumer Foods (continued) Progress was also made in extending Fresh dairy products The key opportunity for this business the product range targeting the In 2006 the business successfully will be to continue to deliver fresh and growing consumer trend towards more stabilised its overall market share and convenient product solutions and to nutritious and healthier beverages. improved its position in the growing extend the product range, focusing on The launch of Avonmore probiotic milk functional foods area with the launch the growing consumer trend for more extended the brand’s presence in the of products targeting health benefits. innovative foods in convenient formats. all important functional area while the The manufacturing cost base continues launch of Avonmore coffee milk has to improve, despite increased energy Strategy provided incremental volume growth and labour costs, as a result of The strategy of the business is to grow to the flavoured milk range targeting competitiveness initiatives including the market share by building the relevance older consumers. Growth in the market rationalisation of the Yoplait production of the core brands, increased customer continues to be driven by demand for facilities undertaken in 2005 together with partnerships and through sustained more value added products where the ongoing improvements in supply chain innovation growth. Avonmore brand has a leading share management and capacity consolidation. position. Outlook Within the functional segment, the Nutritious, fresh and natural continue The CMP brand was integrated Yoplait brand increased its share position to be the key drivers for food and successfully into existing operations, significantly as a result of the launch of beverages among Irish consumers. allowing the business to extend its its Essence range of health shots while However, the marketplace is becoming beverage portfolio into water and juice Everybody/Everykid had a positive year more competitive which is driving the categories where performance was in line overall, assisted by brand extensions. need for a lower cost base. Against with expectations. this background Consumer Foods will Cheese, soups and spreads continue with its product innovation A concerted marketing and innovation and cost management programmes, focus helped Glanbia’s cheese, soup underpinned by strong marketing and spreads businesses defend and investment to maintain the relevance of grow their overall market share positions its product portfolio to customers and in these increasingly competitive food consumers. categories during 2006. Pigmeat Kilmeaden cheese extended its offering The pigmeat business, Glanbia Meats, further into the premium segment of the is the leading pork processor in Ireland market, which saw it grow its leading producing a range of pork and bacon market share position in the natural block products for domestic and export cheese segment, while Avonmore cheese markets. The business, which employs also defended its position. 975 people, operates from three facilities including two modern slaughtering Avonmore soup retained its leading plants at Roscrea, County Tipperary and market position and achieved overall Edenderry, County Offaly. market growth in this sector. Soups also benefited from the re-launch of the core range with a more contemporary image and the introduction of a new fresh soup meal, under the Avonmore Fresh Fare banner, which brings greater convenience and freshness to today’s time conscious consumer.


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    GLANBIA PLC ANNUAL REPORT 2006 15 In 2006 Glanbia Meats processed 1.3 Environment million animals, or 50% of national 2006 was a satisfactory year for European supply. Products include a wide range of pork markets with product prices high boneless pork and bacon cuts. Sales are during the summer due to strong evenly split between domestic and export demand on domestic and export markets. markets. Key export markets in 2006 were the UK, Japan, China and Russia. Production of pigs in Ireland declined by 3% in 2006, continuing the trend of the Segments of the business had a difficult last few years. The business expectation 2006 and its overall performance is for Irish pig production to stabilise as declined. The two key factors affecting confidence returns to the sector. performance were margin erosion due to lower prices in certain segments of the Consumption of pork continues to business and the accelerated decline of grow on a global basis by 1% annually the cannery operation leading eventually and demand from Asia remains strong to the decision to close this business in as a result of population growth and November 2006. Investment in labour increasing wealth. Domestic demand in and energy saving projects as well as Ireland strengthened within retail and improved operational efficiency and foodservice channels and this has been product and customer mix, helped to as a result of strong population growth, offset market difficulties. a growing consumer preference for added value products (where pig meat The closure of the cannery operation is often the protein of choice) as well as gave rise in 2006 to an exceptional the comparative price advantage that pig item of €3.3 million primarily relating meat enjoys relative to prime beef cuts. to redundancy costs. The overall cost associated with this rationalisation is Strategy expected to be largely neutral when The Glanbia Meats strategy is to focus the property element of this business is activities on primary pork processing. disposed of in due course. The business continues to hold a very strong position as supplier of choice Primary processing to all of the major multiples and value The slaughtering and deboning business added processors in Ireland and it performed satisfactorly in 2006 with sales has strengthened its relationship with improvement domestically and on export customers in all key export markets. markets, in particular in the Russian market where consumer buying power is Outlook increasing year on year. The outlook for the pigmeat business is for an improved performance in 2007. Pig Canned meats production is expected to stabilise and The canned meats sector has been in improvements in operational efficiency decline as a result of changing consumer continue as a consequence of ongoing needs and a growing preference for fresh consolidation and modernisation of the and chilled foods. As a result, significant sector. competitive pressures had built up within the sector and this, together with significant increases in meat, tinplate and energy prices in 2006, resulted in the decision to focus investment on primary Over 70% of consumers tell us meat processing and to close the cannery operation in Ireland. they want more health foods-on-the-go from their local stores


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    16 GLANBIA PLC ANNUAL REPORT 2006 Agribusiness and Property >ˆ˜Êii`à }Àˆ‡ˆ˜Ž Ì ˆ˜Žo œÕ˜ÌÀÞˆvi >˜Lˆ>Ê ÃÌ>Ìià >ÃÌiÀVÀœ« iÀ̈ˆÃiÀ


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    GLANBIA PLC ANNUAL REPORT 2006 17 Agribusiness and Property Revenue was up 15% to €264.5 million Strategy (2005: €229.1 million). Operating profit The strategy for the business is to grow was up 58% to €16.9 million (2005: market share in core sectors while continuing €10.7 million), substantially driven by to reshape the business to fit the changing Property. The operating margin was up face of farming. Irish agriculture is in 170 basis points to 6.4% (2005: 4.7%). The transition from an era characterised by Agribusiness margin was 3.7% (2005: 3.6%). strong price support systems to one with reduced production supports, concerns for Agribusiness environmental management and greater Colm Eustace Ger Mullally Agribusiness is the primary interface through reliance on direct income payments. While CEO Glanbia CEO Glanbia Property which Glanbia trades with its farmer suppliers. undoubtedly 2006 was a challenging time for Agribusiness The business is engaged primarily in feed farmers, there is a sense of optimism as the milling, grain processing and marketing, industry reaches the final year of MTR with and the retailing of a range of farm inputs, commercial farmers taking a positive, long / ÀiiÊÞi>ÀÊÀiÛi˜ÕiÊ>˜>ÞÈÃÊ­%½äää® including fertilisers, feed and grain, as well term view. as a broader CountryLife product offering. ÓÈ{]{™Ó Glanbia Agribusiness also has a modest Glanbia is responding to these changes Óә]£{Ó ÓÓÇ]ÎÈn involvement in the bio energy sector through with a tailored service to meet the needs of a shareholding in Eilish Oils, a County farmers while also recognising the potential Wicklow based business which pioneered the created by growing rural populations. The commercial production and use of pure plant needs of farmers are such that Agribusiness oil biofuel from oilseed rape. is moving inputs from factory to farm at minimum cost and selling these inputs at With a strong portfolio of leading brands, competitive prices. To be relevant to the Glanbia Agribusiness is market leader part-time farmer and also non farmers living ä{ äx äÈ in animal feeds, fertilisers, seed grain, in rural Ireland, the business is building on chemicals and veterinary product sales. strategic branch locations with a wider range Among the brands in the range are: of retail products under the CountryLife CountryLife, Gain Feeds, IFI, Mastercrop concept. The retailing strategy is to capture Agribusiness has 61 locations and Mastervet. In recent years Agribusiness the convenience needs of a growing rural has reorganised its retail branch structure population for pet food, gardening, hardware nationwide including nine and now operates from 61 locations – of and outdoor clothing through CountryLife CountryLife outlets which nine are CountryLife stores. The while also catering for the needs of the core business employs 400 people and operates farmer customer base. It is planned that 19 in 16 counties in Ireland. branches will be redeveloped under this The remit of this business, based in Ireland CountryLife concept by the end of 2007. and trading as Glanbia Estates, is to Environment maximise the potential value of the Group’s 2006 was a satisfactory year for the business The competitiveness of the business is also property portfolio and to review options for with some improvement in revenue, profits sustained by continuous cost efficiency key sites. and margins. This performance is measured programmes and technology upgrades, against a background of ongoing challenges which are an integral element in the 2006 was a good year for the business which in farming due to the implementation of EU reshaping of the business. successfully completed the disposal of policy changes under MTR. non-core assets arising mainly as a result of Outlook Agribusiness branch network rationalisation. The 2006 result was driven by good demand Agribusiness will continue to evolve with a Property values in Ireland grew strongly in in key segments, such as feed and fertiliser, continued expansion of the product offering. 2006 with residential prices increasing by and growth in market share as a result of In particular Agribusiness continues to work approximately 15% and development activity competitive pricing and strong promotional to meet the challenges of the implications in both residential and commercial sectors activity. The business continued to rollout of EU Reform and to remain relevant and reaching record levels. the Countrylife format with nine branches competitive for its growing customer base. redeveloped to date. Outlook Property Glanbia Estates has identified a pipeline As a key assembler of tillage crops in Ireland, In 2005 Glanbia established a dedicated of potential transactions and these are Glanbia has called for a meaningful level property business to create a strategic focus expected to be completed at a steady pace of Government support for the fledgling on the Group’s property portfolio which for over the medium term. bio energy industry to encourage energy many years has been an integral feature of diversity and the establishment of a the Irish businesses. domestic bio fuels infrastructure linked to agricultural production.


  • Page 20

    18 GLANBIA PLC ANNUAL REPORT 2006 Food Ingredients and Nutritionals “ i> Ãi VÀ iiÞo 7 “ Ü «œ ˆŽ ` Ã> iÞ >À ˜ `` ˆV> iÀ iÀ “


  • Page 21

    GLANBIA PLC ANNUAL REPORT 2006 19 Food Ingredients and Nutritionals Revenue decreased by 3% to €1.08 Environment billion (2005: €1.11 billion) due to lower 2006 was the third year of implementation market prices in dairy ingredients. of EU reform through MTR, and as such Despite lower revenue, operating profit was a particularly challenging time for was up 3% to €44.2 million (2005: €43.1 both producers and processors in the million) and the operating margin grew 20 Irish dairy industry. The reduction of basis points to 4.1% (2005: 3.9%), mainly market supports to dairy processors because of the increased contribution progressed aggressively in 2006, with a from the higher margin Nutritionals number of supports, including casein aid, Jeff Williams Jim Bergin business. Overall, this division delivered reduced to zero. Market returns in the President Glanbia CEO Food a good performance, particularly in light first half of the year were weak with the Foods Inc Ingredients Ireland of the difficult market environment in the added difficulty of reduced milk supply first half. due to difficult weather conditions. The second half was stronger with an increase / ÀiiÊÞi>ÀÊÀiÛi˜ÕiÊ>˜>ÞÈÃÊ­%½äää® Food Ingredients Ireland in volumes and more stable world Glanbia is the largest dairy ingredients markets. business in Ireland, assembling a milk £]äÇx]£xÎ £]£äÇ]Ónn £]äÇÇ]™£Î pool of 1.4 billion litres from the Group’s Energy costs eased somewhat in the 5,000 Irish milk suppliers and processing second half of 2006 following a period of it into butter, cheese, milk proteins and historically high prices. whey derivatives. It markets over 190,000 tonnes of dairy products and ingredients The case for rationalisation of the industry on a business-to-business basis to at both supplier and processor level customers in over 40 countries. remains compelling in an Irish context. ä{ äx äÈ Consequently the Irish Government Food Ingredients Ireland employs over launched a €100 million Dairy Capital 400 people at two locations, Ballyragget, Fund in 2006 which offers grant aid of County Kilkenny and Virginia, County up to 50% for capital projects, subject Cavan. to competitive tender. Glanbia has submitted a number of projects for The Ballyragget facility is the largest consideration and the outcome is integrated dairy site in Europe, expected in quarter two 2007. processing 20% of the Irish milk pool and has a significant whey output, with 40% Strategy of the Irish whey pool processed into a Food Ingredients Ireland continues range of infant formula and nutritional to strive to maximise product mix ingredients. Food Ingredients Ireland is in a changing global dairy market. the largest supplier of lactose and other Recognising that EU policy changes are whey proteins to the three largest infant rebalancing the relative performance formula manufacturers in the world, all of certain dairy products, we are of which have production facilities in restructuring our product offerings to Ireland. It is also the largest manufacturer reflect global trends and are exploring of casein – another protein found in milk opportunities in growing segments of the – and the Ballyragget facility produces market. both acid casein and rennet casein for European and USA markets. The Irish manufacturing environment continues to present cost and The Virginia facility in County Cavan competitive challenges. The business produces a range of fat filled milk maintains its relentless pursuit of powders and fresh cream. It has been the efficiencies to offset these challenges Process and manufacturing principal cream supplier to Baileys Irish and our cost reduction programmes are Cream Liqueurs for over thirty years. It is delivering considerable benefits in plant capability to a world class also the main supplier of milk powder to performance, conversion efficiencies Nutricima, the Glanbia PZ Cussons plc and quality development. We further standard joint venture in Nigeria. augmented the management team in 2006 which we believe will strengthen the business in meeting challenges and maximising the opportunities ahead.


  • Page 22

    20 GLANBIA PLC ANNUAL REPORT 2006 Food Ingredients and Nutritionals (continued) Implementation of our co-operation Cheese Strategy agreement with Dairygold was completed Over 80% of the Idaho milk supply goes The business strategy is to be the number in 2006 with the contract manufacture into cheese production, with Glanbia one supplier of American-style cheese by Dairygold of cheese for Glanbia and producing half of Idaho cheese output. to key industrial customers. Glanbia by Glanbia of butter for Dairygold. Our markets the cheese and whey output joint venture with Corman SA, which is Glanbia Foods Inc processes 1.7 billion of the Southwest Cheese joint venture the largest butterfat processor in the litres of milk into over 180,000 tonnes of in New Mexico and the successful world, progressed steadily through cheese in its two Idaho cheese factories. commissioning of this plant further 2006. Advanced butter fractionation Cheese is sold on a business to business consolidated Glanbia’s position of scale has commenced and will enable the basis to USA customer s predominantly in regions with growing milk supply. In production of butter fractions for as “natural” American-style cheese in 2006 Glanbia Foods Inc made significant customised solutions in the bakery and a block format, for the retail or food progress in integrating the supply chain confectionery industries. service sectors. Approximately a quarter network comprising the Idaho plants and of production is in a 500 pound barrel Southwest Cheese. The Glanbia Innovation Centre provides format sold primarily to the food service a further platform for our innovation channel as an American “processed” Glanbia Foods Inc has strong and long programme. The demands of our new cheese slice which is used in quick serve standing relationships with customers consumer business in Nigeria in addition restaurants. of scale who are linked to growth to joint innovation programmes with opportunities in the consumer market our leading customers underpin our Nutritional ingredients place. These relationships are the commitment to organic growth through Glanbia is a global leader in the supply bedrock of the business and are based our experience and technical capabilities. of dairy based nutritional ingredients, on shared strategic direction. Joint new producing over 47,000 tonnes. The product and innovation projects focus Outlook world market for dairy based nutritional on new consumer trends, such as the The outlook for 2007 is for another ingredients, and in particular for whey growing demand for organic and BST challenging year, notwithstanding a more products, is growing as consumers free products. The business strives for favourable dairy market outlook and a become more familiar with the benefits product excellence and regularly is an less penal energy environment. of whey. award winner at the World and USA Cheese Championships. In addition Global dairy markets are currently Environment constant innovation is essential to expand reasonably firm. In Ireland, the final year Cheese is a growing market in the USA the product offering and develop product of MTR continues to affect producers and with American-style cheese production variants which utilise existing assets, processors and there is no expectation growing at 3.3% in 2006. American-style expertise and routes to market. of a material uplift in performance from cheddar is the most popular cheese type, Food Ingredients Ireland. However, representing approximately 42% of the Outlook this business continues to pursue total cheese production in the USA. This In the USA, demand and milk availability productivity, quality and efficiency gains category has a historical average annual are expected to be strong in 2007. Idaho and is reorganising it’s product offering to growth rate of 1.8%, however, it grew at a milk supply is forecast to grow further in reflect changes in market demand. robust rate of 4% in 2006. the current year and our USA operations are expected to run at full capacity. This Food Ingredients USA Production volumes in Glanbia Foods business is expected to perform well Glanbia Foods, Inc. with our joint Inc. reached record levels in 2006 and in 2007 and will continue its focus on venture Southwest Cheese, is the largest demand was excellent for all cheese operational excellence and increasing it’s manufacturer of American-style cheddar types. Milk supply in Idaho was up 7% market position. cheese in the USA , with a market share of year on year. While cheese pricing was 16% and also is one of the worlds leading volatile, there was a strong demand for producers of whey based nutritional dairy proteins, especially in the second ingredients. Glanbia Foods Inc. is located half of the year and this lifted whey in Idaho - the third fastest growing protein and lactose prices to near record milk state in the USA behind Texas and levels by the year end. New Mexico. It employs 540 people and operates three plants - two cheese Food Ingredients USA delivered a good facilities at Twin Falls and Gooding, which performance in 2006 with excellent is the largest barrel cheese plant in the management of manufacturing costs. world, as well as a specialist nutritionals facility at Richfield.


  • Page 23

    GLANBIA PLC ANNUAL REPORT 2006 21 Nutritionals Glanbia Nutritionals Glanbia Nutritionals services the Environment Glanbia Nutritionals is a growing health and wellness, functional The global nutritional market exhibited business in a growth market, delivering foods, sports nutrition, infant and strong growth in 2006, estimated innovative, science-based nutritional clinical nutrition sectors with a range at US$159 billion with half of this solutions to the global nutrition industry. of patented or branded products. represented by growth in the USA. Through these patents and brands Glanbia is a leading supplier of the Company is building a worldwide Key sectors, such as weight advanced technology whey proteins reputation for customised products, management, sports nutrition, and fractions and in recent years has innovative processing technologies health/wellness and infant expanded its portfolio to include and outstanding customer service. nutrition had positive growth customised nutrient vitamin and mineral The business produces a wide range trends during the year. premixes and olive-based antioxidants. of speciality whey proteins and other Glanbia’s growth in the premix market nutritional ingredients for use by food was strengthened considerably with the and beverage companies in ready- acquisition of Seltzer, a leading USA to-drink and powdered beverages, nutritional solutions company. nutritional bars, dairy products, snacks and confectionery applications. The business continues to evolve with over 240 employees at global locations in Ireland (Kilkenny); USA (Wisconsin, Idaho, Illinois and California); Germany; UK; Belgium; Brazil; Uruguay; Argentina; China and Singapore.


  • Page 24

    22 GLANBIA PLC ANNUAL REPORT 2006 Science of Nutritionals *ÀœˆLÀ> "ˆÛV̈ÛÒ Ì ˆ˜Žo i>Ì ÊE 7i˜iÃà “>˜>}i“i˜Ì 7iˆ} Ì VÕÃ̜“ˆÃi`Ê œÛœ˜Ò -«œÀÌÃÊ«iÀvœÀ“>˜Vi ˜ÕÌÀˆÌˆœ˜ÊL>ÀÃ


  • Page 25

    GLANBIA PLC ANNUAL REPORT 2006 23 Nutritionals (continued) With over 300 million adults obese Development/Investments worldwide (reference: WHO and the During 2006 additional investments were International Obesity Task Force), the made in building a strong team with a anti-obesity effect of dietary calcium blend of science based research and - supported by cellular, animal, human development, marketing and operational epidemiological studies and clinical trials skills to drive the business forward. - presents a strong growth opportunity The most significant development in this for Glanbia. business in 2006 was the acquisition of Seltzer in September. This acquisition is Jerry O’Dea Hugh McGuire The sports nutrition market is expected a strong fit with the existing Nutritionals CEO Glanbia Nutritionals CEO Glanbia Nutritionals to grow at 4% to 6% per annum over the business and with its strategy of building Americas Europe and Asia Pacific next three years due to the increasing a nutritional premix business of scale to popularity of sports supplements. This pursue global growth in this fast growing market is valued at US$2.4 billion and sector. This acquisition, combined with Glanbia Nutritionals, with its guaranteed the Glanbia premix business in Germany scale supply of whey protein, has a strong and the planned €5 million investment position within the sector. in a new facility in China, will further advance the international development Glanbia Nutritionals is a leading supplier of the Glanbia Nutritonals strategy. to the infant nutrition market, which is Wayne Seltzer President of Seltzer worth US$15 billion and growing at 3% to Innovation Companies Inc. 4% per annum. China, with a population The development work in the Group’s of 1.3 billion and growing at 0.9% per Innovation Centres in the USA and annum, is expected to become the Ireland, assisted by teams in Germany largest market in the world for infant and the UK, led to a number of formula by 2009. Glanbia will further commercial developments in 2006. augment its position in the infant formula The business continues to develop sector when the €5 million investment products and solutions that match a in a nutritional manufacturing facility in market need, or a customer requirement, China is complete in 2008. working closely with universities and other research agencies. During 2006 A development focus of Glanbia we invested heavily in a number of Nutritonals is the growing premix market. clinical trials to support the products Key markets are beverages, cereals and and applications being developed in the functional foods all of which exhibit innovation centres. positive growth trends. Outlook Strategy The Nutritionals business is expected The vision of Glanbia Nutritionals is to deliver a strong performance in 2007. Nutritional solutions to become one of the most relevant Existing operations are expected to Consumer products players in the delivery of science-based continue to grow organically and Seltzer nutritional solutions to the global will contribute for a full year in 2007. Protein fortification nutrition industry. This will be achieved Bars and drinks through acquisition and joint venture, capacity expansion and through Sports and performance nutrition continued investment in research and Ready to mix powders development, in both dairy and non dairy Weight management sectors, to deliver new and innovative products and solutions that will afford Bars and beverages Glanbia a point of difference in the Health and wellness market and deliver value added to customers. A key platform in successful Bars and protein fortified drinks delivery is strong customer partnerships Nutrition bar solutions - based on continuous research and a clear focus on finding innovative solutions Mineral and vitamin premixes to achieve commercialisation.


  • Page 26

    24 GLANBIA PLC ANNUAL REPORT 2006 Joint Ventures and Associates >˜Lˆ> iiÃiÊ -œÕÌ ÜiÃÌ ÕÌÀˆVˆ“> iiÃi >˜Lˆ>Ê iiÃiÊÓääÈÊ܈˜˜iÀÊ *ˆââ>ÊEÊ*>ÃÌ>ÊÃÜVˆ>̈œ˜Ê iÜÊ ˜}Ài`ˆi˜ÌʜvÊÌ iÊ9i>ÀÊÜ>À`Ê


  • Page 27

    GLANBIA PLC ANNUAL REPORT 2006 25 Joint Ventures and Associates Revenue (€'000)1 Profit after interest and tax (€'000)2 International joint ventures are a key Up 100% Up 205% platform in developing a strategic international 2006: €262,871 2006: €2,842 (1) Not included in Group revenue presence 2005: €131,444 2005: €932 (2) Included in the income statement as share of results of joint ventures and associates The Group currently has three key Glanbia Cheese reported an improved international joint ventures which leverage performance in 2006 arising from Glanbia’s strength in world class dairy increased demand and the benefits of operations and are an important part of product development for existing and the Group’s growth strategy. These are new customers. In the last five years Glanbia Cheese in the UK, Southwest Glanbia Cheese has invested €52 million Cheese in the USA and Nutricima in (Stg£35 million) in the introduction of Nigeria. the Leprino patented and proprietary technology to its manufacturing facilities. Overall the joint ventures and associates The Glanbia Cheese strategy is to grew strongly in 2006 with Glanbia’s share maintain and build on its position as of revenue up 100% to €262.9 million and the leading supplier of mozzarella profit after interest and tax up 205% to cheese in Europe. This will be achieved €2.8 million. This result primarily reflects through a combination of on-going the improved performance in Glanbia innovation in mozzarella production Cheese, the Group’s UK joint venture technology - product quality, flexibility with Leprino Foods and a small first time and functionality. These value offerings contribution from Southwest Cheese in enable the business to offer significantly the USA. differentiated products to the marketplace. UK - Glanbia Cheese Glanbia has a 51% interest in Glanbia Outlook Cheese which is a joint venture with The ongoing investment in technology Leprino Foods in the USA. Glanbia transfer will continue in 2007 with a new Cheese produces mozzarella cheese for string cheese plant in Magheralin.The the European market in QLC, chilled, business had a good performance in 2006 shredded, ribbon, block and string and this is expected to continue in 2007. formats. It is the number one mozzarella supplier to the European market. Nigeria - Nutricima Glanbia entered a 50:50 joint venture The business employs 350 people at with PZ Cussons plc - Nutricima - which three sites, which includes two cheese supplies evaporated milk and milk processing facilities at Magheralin, powder to the local Nigerian market. Northern Ireland, Llangefni, North Wales and an administrative centre in Northwich, Glanbia brings to this joint venture a Building new England. knowledge of the operation of food plants and food innovation, while PZ businesses Cussons, which has over a century of experience in trading in Nigeria has at first cost, from significant knowledge of the Nigerian marketplace. the ground up


  • Page 28

    26 GLANBIA PLC ANNUAL REPORT 2006 Joint Ventures and Associates (continued) Nutricima employs 244 people at USA: Southwest Cheese Milk supply continues to grow in the its facility – an evaporated milk Southwest Cheese, located in Clovis, New Mexico/West Texas region. Sales manufacturing plant and a milk powder New Mexico, is one of the largest of natural cheese in the USA continues packing facility. Much of the milk natural cheese and high protein whey to grow at 1% to 2% per annum and powder packed and sold in Nigeria is processing plants in the world. It is a also global demand for high quality sourced in Ireland. In December 2006 €151 million (US$190 million) 50:50 joint milk proteins continues to grow. During the partners announced plans to double venture between Glanbia plc and the its first year of operation, in addition the capacity of the evaporated milk Greater Southwest Agency. to serving the domestic USA market, facility and to develop a second facility Southwest Cheese product has been to produce a further range of beverages Given our knowledge of large scale dairy sold into markets in Mexico, Africa, to meet the increasing requirements operations, Glanbia was responsible for South America, Asia and Europe. of Nigeria’s fast growing, dynamic the plant design and construction of the Southwest Cheese has built a strong consumer market. Glanbia is to invest Southwest Cheese facility, which was team capable of delivering world class €22.5 million in these projects over the commissioned on time and on budget performance in an ever changing next two years. in 2006. Glanbia Foods Inc and Glanbia marketplace. Currently over 200 people Nutritionals sell the cheese and whey are employed at Southwest Cheese Despite strong competition Nutricima produced by Southwest Cheese on a where quality, consistency and efficiency grew market share and delivered strong commission basis. The milk is supplied are the key drivers of success. top line growth in 2006. The business by the Greater Southwest Agency who performed satisfactorily although overall co-ordinate supplies from Dairy Farmers Outlook results were impacted by significant of America, Select Milk Producers, Inc., Southwest Cheese will continue its ramp market development expenditure. The Lone Star Milk Producers and Zia Milk up to full capacity in 2007. It is already product portfolio was strengthened Producers. producing product to world class in 2006 with two new brands ‘Coast’ a standards and is forecast to perform as powdered milk product and ‘Powerfist’ During 2006 both the cheese line and planned in 2007. an energy drink, complementing the the whey plant were commissioned. At successful ‘Nunu’ powdered milk brand. full capacity in 2007, Southwest Cheese Overall Outlook will process 250 million gallons of milk Glanbia is successfully developing a A pipeline of new products, including and 230 million gallons of high value- strategic international presence and our flavoured milk powders under the added whey per annum into American- international joint ventures are a key ‘Nunu’ brand and capacity expansion is style cheeses and proteins for the global platform for this development. We are underway and this business is forecast to nutritional market. The large scale, pleased with the progress made in 2006 achieve further top line growth in 2007. automated, state of the art plant allows and our international joint ventures are Southwest Cheese to produce a high all well positioned for growth in 2007. quality product in high volume to meet the needs of the national and growing international markets.


  • Page 29

    GLANBIA PLC ANNUAL REPORT 2006 27 Corporate Social Responsibility As a Group whose origins are rooted in the founding principles of the Co-Operative Movement, Glanbia has evolved a strong Corporate & Social Responsibility (CSR) programme which respects all stakeholders, encourages our role in building strong communities, guides our sustainable engagement with the environment and ensures we deliver the very best product to the marketplace. Over the last number of years the Group has established the four key pillars of its CSR programme: Community, Workplace, Environment and Marketplace. Through strong and progressive programmes we are seeking to further deploy the principles across all elements of the Group’s businesses, bringing more employees and stakeholders into the process of operating a holistic CSR programme. Community • Character & Leadership Development “Glanbia is a wonderful Glanbia endeavours to be an active and • Education & Career Development supporter of the willing participant in local communities in • Health & Life Skills the areas in which it operates. A formal • The Arts Boys and Girls Clubs community programme encourages • Sports, Fitness & Recreation and facilitates a range of initiatives and through their – principally in Ireland and the USA – to During 2006, local Champions hosted a foster this spirit of community involvement. number of initiatives to raise funds and contributions have The Group’s key community initiatives widened the circle of awareness of the include: a programme of corporate Boys and Girls Club. allowed us to provide giving to employee nominated charities, nutritious meals for a volunteering programme with Junior Overall 2006 was a successful year for the Achievement Ireland and local sports USA Champions who helped to install club members from sponsorships that link in to the Group a full commercially enhanced kitchen ethos. for the Magic Valley Club and plans are our new modern progressing rapidly on the development Through a policy of volunteering, Glanbia of a new Club in the neighbouring town of commercial kitchen” employees elect to become ‘Community Buhl. Don Hall, Champions’ which means that employees, Executive Director, in the corporate giving programme, direct Community – Ireland Boys and Girls Club, Magic Valley not only the selection of charities but also In 2006 the employees of Glanbia the area of giving within these initiatives. operations in Ireland hosted a number of events for their chosen charity, Our Lady’s Community – USA Children’s Hospital, Crumlin, Dublin. In 2006, the Food Ingredients USA employees hosted a number of events for their chosen charity, The Boys & Girls Club of Magic Valley, Idaho. The mission of the Boys & Girls Clubs of Magic Valley is "to inspire and enable all young people, especially those from disadvantaged circumstances, to realise their full potential as productive, responsible and caring citizens". It has five core programming areas:


  • Page 30

    28 GLANBIA PLC ANNUAL REPORT 2006 Corporate Social Responsibility (continued) Our Lady's Children’s Hospital Crumlin In September the Champions brought “Glanbia‘s enormous is an acute paediatric teaching hospital the cause to the heart of the farming with 243 beds, employing 1,200 staff. It is community, with another fundraising event commitment to Ireland's largest paediatric hospital and is at the National Ploughing Championships, helping others is highly responsible for the provision of the majority Ireland’s biggest annual outdoor festival. of tertiary care services for children and All these and a number of other events commended by all the medical research for childhood illnesses. contributed to this year’s special Air Ambulance project, which made its staff in Our Lady’s” In 2006 the Glanbia corporate contribution inaugural flight in early 2007. Eamonn Coghlan, to the hospital commissioned seven Director Fundraising & Development, much needed food trolleys to improve In Ireland, a significant number of Glanbia Our Lady’s Children’s Hospital transportation, at optimum temperature, personnel contribute their time to another from kitchen to patient. company cause, Junior Achievement Ireland. Junior Achievement is helping to Complementing the corporate contribution create a culture of enterprise within the the Glanbia Champions raised a total of education system. Programmes begin at €35,000 by organising a variety of fund- primary school level, teaching children how raising events with the end goal of fitting they can impact the world around them out of a dedicated Air Ambulance for as individuals, employees and consumers the hospital. During the year a number and continue through to secondary of female employees ran in the Dublin school, preparing students for their future Mini Marathon and the Champions careers. Business volunteers recruited from organised a special sponsored cycle. A supporting organisations teach the Junior golf classic, which brought together teams Achievement programmes including 15 of employees, customers and suppliers, Glanbia volunteers who taught over 460 proved a success both from a funding and pupils in 2006. a general awareness perspective. Glanbia continued its support for the GAA in 2006 with the sponsorship of the Kilkenny and Waterford senior hurling teams. These Community Workplace sponsorships – which reach deep into these local communities - provide a positive link What we have in place What we have in place between the GAA, which represents strong • Employee driven programmes for • Extensive employee communication community values and actively promotes corporate charities - USA and Ireland. via face to face briefings and other health and fitness and Glanbia as a food • Commitment to local sports and well mediums. and nutrition business. being sponsorships. • A commitment to achieving an injury • A volunteering programme with Junior free work environment. The workplace Achievement Ireland. • A Health and Safety Forum which The Group employs 3,926 people allows sharing of best practice and worldwide and is proud to be regarded as discussion and review of legislation an employer of choice in what is a dynamic changes. and challenging food industry environment. Environment Marketplace In our unfolding Workplace programme our objective in 2006 was twofold - to enhance What we have in place What we have in place Internal Communications and Health and • Integrated environmental and business • We consider consumer needs and Safety. unit goals. wants in framing all consumer • ISO 14001 accredited environmental communications. management at all Irish sites. • Commitment to Guideline Daily • In the USA all manufacturing sites Amount (GDA) communication. have adopted the EPA framework and • Both the Idaho and Ballyragget are accredited to this environmental ingredients businesses won gold for management system. their cheese at the USA and World Cheese Awards 2007.


  • Page 31

    GLANBIA PLC ANNUAL REPORT 2006 29 Internal communication • recycling and re-using raw materials The internal communications policy and reducing discharges to land, air or encourages and facilitates dialogue water; and face-to-face communication. • maintaining an environmental Internal communication methodology management system at all our was enhanced in 2006 with systems manufacturing plants. and solutions deployed to enable quicker and more open channels of In 2006 the Group achieved the ISO14001 communications. Communication tools, Environmental Management System at all such as publications, magazines and an Irish manufacturing plants. intranet function, were further enhanced to complement the face-to-face meetings In the USA our new wastewater treatment and bring Group wide news and events facility, commissioned in 2006 at our consistently to Group employees. Gooding, Idaho plant was awarded the Pacific Northwest Clean Water Health and Safety Association Idaho Outstanding Water The Group’s Health and Safety policy Reuse Award. places the utmost importance on the safety of our staff, contractors and the The marketplace public. A Group Health and Safety Task The objective of the marketplace Forum is in place to facilitate the sharing programme is to manage our corporate of best practice and review legislative brand reputation. As a business we are changes and impacts on health and conscious that we must bring to the safety policy. The Forum also ensures market the very best product we can. that policy is clearly communicated to all This requires a strong commitment to employees and implemented throughout customers and consumers, from the the organisation. In addition we have public consumer to industrial user. These implemented an annual health and safety relationships are the very foundation of audit to measure the effectiveness of the our brand. policy. During 2006 the Irish Consumer Foods The environment business brought forward initiatives Our primary objective is to manage involving greater market research, our business in an environmentally a strong investment in nutritional responsible manner. We are deeply education, as well as a new programme conscious of our role in managing for tracking and reporting complaints, our environmental impacts and are consumer satisfaction and measuring committed to sustainable growth in consumer satisfaction within a qualitative harmony with our environment and the matrix. communities where we operate. This commitment is delivered by: As part of the nutritional education • Environmental goals and risk initiative, Guideline Daily Amount management being intrinsic to overall communication has been adopted business strategy; by Glanbia to appear in 2007. This • Ongoing communications with local development complements our communities and authorities, regulatory commitment to highlighting the agencies and interest groups; BIG 8 (information on the content of key nutrients) on all packaging.


  • Page 32

    30 GLANBIA PLC ANNUAL REPORT 2006 Finance Review Accounting policies International operations now represent The consolidated financial statements almost 40% of total Group revenue. of the Group have been prepared The Group’s international margins grew in accordance with EU endorsed by 80 basis points to 5.3% in 2006, International Financial Reporting demonstrating continued successful Standards (“IFRS”), IFRIC interpretations expansion of the Group’s international and Companies Acts, 1963 to 2006 operations. Ireland continues to remain applicable to companies reporting under challenging with the Group’s focus IFRS. Further details of the basis of on business execution, improving Geoff Meagher preparation and significant accounting productivity and management of the cost Group Finance Director policies of the Group are included in base. pages 55 to 64. Exceptional items Results Net exceptional loss for the year Taxation Revenue grew by 1% in 2006 to €1.9 amounted to €0.1 million compared with 2006 Group tax of €8.0 million (2005: billion primarily driven by growth in a restated 2005 loss of €3.4 million. The €7.6 million) was offset by an exceptional the Consumer Foods, Nutritionals and 2006 exceptional items include, €3.3 tax credit of €12.3 million, which was Agribusiness segments of the business. million restructuring costs related to the the recognition of a deferred tax asset Including the Group’s share of revenue of closure of Pigmeat Cannery operations, relating to tax losses in former UK its joint ventures and associates, revenue €9.1 million relating to disposal of the operations which are now being utilised. grew by 8% in 2006 to €2.1 billion. A solid Group’s remaining 25% interest and operating performance, the changing related Stg£35 million loan note from The The pre-exceptional taxation charge of mix of business and the benefits of prior Cheese Company Holdings Limited and €8.0 million represents an effective tax year rationalisation initiatives improved an exceptional credit of €12.3 million rate of 11%, reflecting the mix of profits in profitability and margins. Operating which is the recognition of a deferred tax the various tax jurisdictions in which the profit pre-exceptional was up 6% to asset relating to tax losses in former UK Group operates. €85.6 million (2005: €80.9 million) and operations which are now being utilised. the operating margin pre-exceptional Earnings per share increased 20 basis points to 4.6%. Pre- Joint ventures and associates Earnings per share grew 14% to 22.5 cent exceptional profit before taxation was up The Group has three key international (2005: 19.7 cent), while adjusted earnings 8% to €74.4 million. The Group’s pre- joint ventures, producing cheese, whey per share increased 8% to 22.6 cent (2005: exceptional net financing cost increased and milk products; Glanbia Cheese, in 20.9 cent). €0.9 million to €14.0 million in 2006. the UK, Southwest Cheese in the USA Details of divisional operating and Nutricima in Nigeria. Glanbia’s share Cash generation performance are given in the Business of revenues increased 100% in 2006 to Summary cash flows for 2006, 2005 and Review on pages 12 to 26. €262.9 million, driven by strong growth 2004 are set out on page 31. Net cash in Southwest Cheese. The Group’s share generated from operations amounted to Net finance cost ratios of profit after interest and tax increased €33.2 million compared to €137.6 million 2006 2005 2004 205% to €2.8 million. This result primarily in 2005. 2006 net cash generated from EBIT: Net finance reflects the improved performance in operations included a €40 million working cost (times) 6.1 6.2 5.4 Glanbia Cheese and a small first time capital increase arising from continued Net debt: EBITDA (times) 1.9 2.1 2.3 contribution from Southwest Cheese. business expansion and year end cash flow timing. Acquisition and investment These ratios are a measure of Joint ventures and associates expenditure during the year amounted performance and financial strength of € million (Glanbia share) 2006 2005 2004 to €73.3 million, consisting primarily of the Group which has been improving in the purchase of Seltzer, a leading USA recent years. The Group has strong net Revenues 262.9 131.4 95.0 nutritionals solutions business. The Group finance cost cover and despite significant Operating profit after realised €70 million from the disposal development expenditure, which has interest and tax 2.8 0.9 (1.5) of the Group’s remaining interest in The amounted to €214 million since 2004, net Cheese Company Holdings Limited. debt to EBITDA ratios have declined. The Group has invested significantly in its The Group has made solid progress joint ventures and associates, whose net in strengthening its cash generation Operating margins assets were €66.4 million at December characteristics, which has ensured that 2006 2005 2004 2006. The Group has committed to further debt levels at December 2006 remain Ireland 4.3% 4.4% 5.2% investments of €22.5 million in Nutricima consistent with 2005. International 5.3% 4.5% 4.2% during 2007. Group 4.6% 4.4% 4.9%


  • Page 33

    GLANBIA PLC ANNUAL REPORT 2006 31 Cash flow Currency risk 2006 2005 2004 The Group has significant investment in overseas subsidiaries. €'000 €'000 €'000 As a result the Group’s Euro denominated balance sheet can Profit for the year (pre-exceptional items) 66,404 61,123 70,625 be significantly affected by rate movements. The Group seeks Exceptional items (134) (3,410) 1,294 to mitigate the effects of these structural currency exposures by Depreciation, amortisation borrowing in the same currencies as the operating or functional and other adjusting items 32,692 33,017 41,009 currencies of its main operating entities, thereby matching to Cash generated from operations some extent the currency of its borrowings with that of its assets. pre working capital movements 98,962 90,730 112,928 The Group also has transactional currency exposures that arise Working capital movements (40,476) 73,105 (29,481) from sales or purchases by an operating entity in currencies other Net interest and taxes paid (25,241) (26,284) (15,821) than the operating functional currency. The Group requires all its operating entities to mitigate such currency exposures under Net cash generated from operations 33,245 137,551 67,626 strategies agreed by the Board and utilising approved currency Cash flows from investing activities hedging instruments. Acquisitions and investments (73,298) (24,580) (65,368) Capital expenditure (37,962) (46,214) (60,946) Liquidity risk Disposals of assets and investments 83,349 18,665 84,686 The Group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of Cash flows from financing activities Share capital issued 312 2,376 761 borrowings with a range of maturities. In order to preserve Dividends paid (16,472) (15,612) (14,814) continuity of funding, the Group’s policy is that, at a minimum, committed facilities should be available at all times to meet Net (increase)/decrease in net debt (10,826) 72,732 11,399 the full extent of its anticipated finance requirements, arising Net debt at the beginning of the year (224,152) (272,167) (269,556) in the ordinary course of business, during the succeeding two Effect of exchange rate changes, year period. At the year end, the Group had multi-currency fair value and IFRS adjustments 10,484 (24,717) (14,010) committed bank term facilities of €622.1 million of which €138.3 million was undrawn. The weighted average period to maturity of Net debt at the end of the year (224,494) (224,152) (272,167) these facilities was 4.3 years. Finance and interest rate risk Balance sheet The Group’s objective in relation to interest rate management is Equity shareholders’ funds increased by €76.8 million to to minimise the impact of interest rate volatility on interest costs €200.5 million at the end of 2006. This increase was delivered in order to protect reported profitability. The Group borrows through profit for the year of €66.3 million and a reduction at both fixed and floating rates of interest and uses interest of €40.1 million in the deficit in the Group’s defined benefit rate swaps to manage the Group’s exposure to interest rate pension schemes. The benefit of actuarial gains, combined fluctuations. with improvements in investment returns resulted in an overall reduction in the Group’s retirement benefit obligation to €124.9 At the year end 41% (2005: 50%) of debt was held at floating million (€113.2 million net of deferred tax asset). The Group rates. Further information on borrowings and financial liabilities is continues to invest in capital projects to support its growth contained in note 30 to the financial statements. strategy and capital expenditure of €37.9 million amounted Share price to 1.27 times depreciation (2005:1.69 times). Group net debt The Company’s ordinary shares traded in the range €1.93 to of €224.5 million remains consistent with the restated 2005 €3.13 during 2006. The year end share price was €2.96 (2005: level of €224.2 million. The Group’s net debt as a percentage €2.40), representing a capital appreciation in 2006 of 23%. of shareholder’s equity has improved to 112% from 181% in 2005, as has the Group’s net debt as a percentage of market Summary capitalisation, with an improvement to 26% (2005: 32%) 2006 was a good year for the Group with earnings growth and further strengthening of the Group’s balance sheet. The Group Financial instruments and derivative financial instruments continues its programme of investment behind its growth The conduct of its ordinary business operations necessitates strategy within robust financial parameters. With the positive the holding and issuing of financial instruments and derivative trends achieved in key financial performance indicators, the financial instruments by the Group. The main risks arising from Group is well positioned to take advantage of value enhancing issuing, holding and managing these financial instruments development opportunities. typically include liquidity risk, interest rate risk and currency risk. The Group approach is to centrally manage these risks against comprehensive policy guidelines. The Board agrees and regularly reviews these guidelines. Geoff Meagher Deputy Group Managing Director/Group Finance Director


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    32 GLANBIA PLC ANNUAL REPORT 2006 Board of Directors 1 4 2 3 5 6 7 8 Executive Directors Non-Executive Directors 8. Paul Haran (aged 49) was appointed to the Board in 1. John J Moloney B.Agr.Sc., MBA, (aged 52) is 4. Michael J Walsh (aged 64) is Chairman of Glanbia 2005. He also serves on the Court of Directors of the Bank Group Managing Director since 2001. He was appointed plc. He was appointed to the Board in 1989, was appointed of Ireland and the Board of the Mater Private Hospital. He to the Board in 1997. He was appointed Deputy Group Vice-Chairman of the Company in 1996 and was appointed is a member of the Road Safety Authority. He is Principal Managing Director in 2000 and assumed the responsibilities Chairman of the Company in 2005. He is also Chairman of of the UCD College of Business and Law. Paul Haran chairs of Chief Operating Officer in 2001. He joined the Group in Glanbia Co-operative Society Limited and is a director of a the Boards of the UCD Michael Smurfit Graduate School of 1987 and held a number of senior management positions number of other Irish societies including Irish Co-operative Business, the National Qualifications Authority and Edward including Chief Executive of the Food Ingredients and Organisation Society Limited and The Irish Dairy Board Co- Dillon and Company. He also chairs the Working Group on Agricultural Trading Divisions. He previously worked with operative Limited. He farms at Coolroe, Graiguenamanagh, Legal Costs. He retired in 2004 as Secretary General of the the Department of Agriculture, Food and Forestry and in Co. Kilkenny. Department of Enterprise, Trade and Employment. the meat industry in Ireland. He is a Director of The Irish Dairy Board Co-operative Limited and a Council Member of 5. Liam Herlihy (aged 55) is Vice-Chairman of Glanbia 9. Jerry V Liston B.A., MBA, (aged 66) was appointed both the Irish Business and Employers Confederation and plc. He was appointed to the Board in 1997 and was to the Board in 2002. He is Chairman of the Irish Aviation the Irish Management Institute. appointed Vice-Chairman of the Company in 2001. He Authority and holds directorships in various other is also Vice-Chairman of Glanbia Co-operative Society companies including Balcas Timber Limited and Kevin 2. Geoffrey J Meagher CPA, (aged 57) joined the Limited and a Director of Irish Co-operative Organisation Broderick Limited. He was formerly Chief Executive of Board as Group Finance Director in 1993 and is also Deputy Society Limited. He completed the Institute of Directors United Drug plc, a past Chairman of the Irish Management Group Managing Director since June 2005. He joined the Development Programme (2006) and holds a certificate Institute and past Executive Chairman of the Michael Group in 1975 and held a number of positions including of merit in Corporate Governance from the Institute of Smurfit Graduate School of Business. that of Group Financial Controller. Prior to that he trained Directors Centre for Corporate Governance at UCD. He and worked with PricewaterhouseCoopers, Chartered also completed the ICOS Diploma in Corporate Direction 10. William G Murphy B. Comm, (aged 61) retired Accountants. in 2002. He farms at Headborough, Knockanore, Tallow, Co. as Deputy Group Managing Director of Glanbia plc in 2005. Waterford. He joined the Group in 1977 and has held a number of 3. Kevin E Toland FCMA, (aged 41) was appointed senior management positions. He was appointed to the to the Board in 2003. He is CEO & President Glanbia USA 6. John V Quinlan B.Agr.Sc., (aged 61) is Vice- Board in 1989. He is a Director of IAWS plc and a number of & Nutritionals, having previously held the positions of Chairman of Glanbia plc. He was first appointed to the unlisted companies. Group Development Director and Chief Executive of the Board in 1996, re-appointed in 2001 and appointed Vice- Consumer Foods Division. Prior to joining Glanbia in 1999, Chairman of the Company in June 2005. He is Chairman The following non-executive Directors are he held a number of senior management positions with of Irish Co-operative Society Limited and a Director of a farmers and are also Directors of Glanbia Coca-Cola Bottlers in Russia and with Grand Metropolitan number of Irish companies including Malting Company Co-operative Society Limited: plc in Ireland and Central Europe. of Ireland Limited. He completed the ICOS Diploma in Corporate Direction in 2004. He farms at Baptistgrange, 11. Henry V Corbally (aged 52) completed the Lisronagh, Clonmel, Co. Tipperary. ICOS Diploma in Corporate Direction in 2002. He is also Vice-Chairman of the National Dairy Council and a Director 7. John E Callaghan FCA, FIB, (aged 64) was of Kilmainhamwood Community Employment Scheme appointed to the Board in 1998. He is a Director of a Limited. He farms at Kilmainhamwood, Kells, Co. Meath. number of Irish companies including Rabobank Ireland plc and Vivas Insurance Limited. He was formerly Managing 12. John G Fitzgerald (aged 51) farms at Ross, Partner of KPMG (Ireland), Chief Executive of Fyffes plc and Kilmeaden, Co. Waterford. He has completed an ICOS Chairman of First Active plc. course in co-operative training. 13. Edward P Fitzpatrick (aged 59) is a Director of both South Eastern Cattle Breeding Society Limited and Castlegannon Show Limited. He completed the ICOS Diploma in Corporate Direction in 2003. He farms at Knockmoylan, Mullinavat, Co. Kilkenny.


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    GLANBIA PLC ANNUAL REPORT 2006 33 9 10 11 12 13 14 15 16 17 18 19 20 21 22 14. James A Gilsenan (aged 47) completed the JE Callaghan (aged 64) Principal Bankers ICOS Diploma in Corporate Direction in 2003. He farms at CL Hill (aged 48) ABN AMRO Bank N.V., Allied Irish Banks, p.l.c., Bank of Drogheda Road, Collon, Co. Louth. JJ Moloney (aged 52) Ireland, BNP Paribas S.A., Barclays Bank Ireland PLC, WG Murphy (aged 61) Citibank, N.A., IIB Bank Limited, National Irish Bank Limited, 15. Patrick Gleeson (aged 45) was appointed to the M Parsons (aged 57) Rabobank Ireland plc, Ulster Bank Ireland Limited. Board in May 2006. He is also a Committee Member of Messrs Mn Keane and P Gleeson were appointed to the Centenary Thurles Co-operative Society Limited and farms Board of Directors during the year and retire in accordance Solicitors at Loughmore, Templemore, Co. Tipperary. with the Articles of Association and, being eligible, offer Arthur Cox, Earlsfort Centre, Earlsfort Terrace, themselves for re-election. Dublin 2, Ireland. 16. Christopher L Hill B.Agr.Sc., (aged 48) is a Pinsent Masons, 3 Colmore Circus, Director of Wicklow Rural Partnership Limited and a In accordance with the provisions of the 2003 Combined Birmingham B4 6BH, UK. member of the Wicklow County Development Board. He Code on Corporate Governance of the Irish and London completed the ICOS Diploma in Corporate Direction in Stock Exchanges, Messrs MJ Walsh, JV Quinlan and L Stockbroker 2002. He farms at Johnstown House, Arklow, Co. Wicklow. Herlihy, being directors who have each served a period in J & E Davy, 49 Dawson Street, excess of nine years on the Board will retire at the AGM Dublin 2, Ireland. (Corporate Broker) 17. Martin Keane (aged 51) was appointed to the and, being eligible, offer themselves for re-appointment. Oriel Securities Limited, 125 Wood Street, Board in May 2006. He is also a Director of Donaghmore London EC2V 7AN. (London Broker) Famine Work House and Agricultural Museum Co-operative All are farmers and are Directors with the exception of JE Society Limited and farms at Errill, Portlaoise, Co. Laois. Callaghan, JJ Moloney and WG Murphy. Shareholder Enquiries All shareholders’ enquiries should be addressed to the 18. Michael Keane (aged 54) farms at Foxhall, Board Committees Registrar, Computershare Investor Services (Ireland) Ballinamona, Ardmore, Youghal, Co. Waterford. Audit Committee Limited, Heron House, Corrig Road, Sandyford Industrial JE Callaghan-Chairman, HV Corbally, JG Fitzgerald, PM Estate, Dublin 18. The Registrar can be contacted 19. Matthew Merrick (aged 55) is the Vice-Chairman Haran, L Herlihy, JV Liston, EM Power, JV Quinlan. on telephone number 01 2475349 (within Ireland), of the County Offaly Enterprise Board and a board member 00353 1 247 5349 (outside Ireland), or by e-mail to of IFAC Accountants. He farms at Shean, Edenderry, Remuneration Committee webqueries@computershare.ie Co. Offaly. JV Liston -Chairman, JE Callaghan, PM Haran, L Herlihy, JV Quinlan, MJ Walsh. Shareholders may check their accounts on the Company’s 20. Michael Parsons (aged 57) is Chairman of Share Register by accessing the Company’s website at Kilkenny Co-operative Livestock Market Limited and Nomination Committee www.glanbia.com, clicking on “Investors” and “Shareholder a Director of Kilkenny, Carlow and District Farm Relief MJ Walsh-Chairman, JE Callaghan, PM Haran, JV Liston. Information”. Shareholders may check their shareholdings, Services Society Limited. He farms at Outrath, Kilkenny. recent dividend payment details and can also download forms required to notify the Registrar of changes in their details. Secretary and Registered Office 21. Eamon M Power (aged 52) completed the ICOS 22. Michael Horan B. Comm, FCA, Glanbia House, Diploma in Corporate Direction in 2004 and is a Master Electronic Communication Kilkenny, Ireland. Farmer. He also represents the Group on the Tus Forum and For Shareholders who wish to avail of the convenience of the Progressive Genetic Advisory Committee. He farms at electronic communication, you may register your e-mail Registrar and Transfer Office address by accessing our Registrar’s website at www. Corse, Fethard-on-Sea, Co. Wexford. Computershare Investor Services (Ireland) Limited, Heron computershare.com/register/ie , selecting Glanbia plc from House, Corrig Road, Sandyford Industrial Estate, the drop down menu “Company Selection” and clicking Directors offering themselves for Dublin 18, Ireland. on ”submit”. You will need your Shareholder Reference re-appointment Number (SRN) which is located on your share certificate or Auditors dividend counterfoil. This will allow shareholders to receive The following Directors are retiring by rotation in PricewaterhouseCoopers, Ballycar House, Newtown, communications (interim/annual reports, etc) as soon as accordance with the Articles of Association of the Waterford, Ireland. they are published and should benefit the environment Company and, being eligible, offer themselves for and reduce the Company’s costs. We also have a system to re-appointment: allow you to submit your proxy via the internet and via the CREST system. Please see proxy form for details of how to operate such systems.


  • Page 36

    34 GLANBIA PLC ANNUAL REPORT 2006 Senior Management Group CEO’s A Senior Executive Management team is chaired by John The Group CEO’s are as follows: Moloney, Group Managing Director and oversees the Consumer Foods – Colin Gordon development and execution of the Group’s strategy. It also has Pigmeat – Jim Hanley overall responsibility for achieving business results. Agribusiness – Colm Eustace Property – Ger Mullally Members: Food Ingredients Ireland – Jim Bergin John Moloney, Group Managing Director Food Ingredients USA – Jeff Williams Geoff Meagher, Deputy Group Managing Director and Group Nutritionals USA – Jerry O’Dea Finance Director Nutritionals Europe and Asia Pacific – Hugh McGuire Kevin Toland, CEO and President, Glanbia USA and Nutritionals Seltzer Companies Inc. – Wayne Seltzer Siobhan Talbot, Deputy Group Finance Director Jim Bergin, CEO , Food Ingredients Ireland Colin Gordon, CEO, Consumer Foods Ireland Brian Phelan, Group HR Director Biographies Biographies John Moloney B.Agr.Sc., MBA, (aged 52) is Group Managing Director since 2001. He Jim Hanley age 44, was appointed Chief Executive of Glanbia Meats in March 2007. He was appointed to the Board in 1997. He was appointed Deputy Group Managing Director joined the Group in 1989 and has worked in the pigmeat sector for 25 years. Since joining in 2000 and assumed the responsibilities of Chief Operating Officer in 2001. He joined Glanbia he has held a number of positions including General Sales Manager and more the Group in 1987 and held a number of senior management positions including Chief recently Deputy CEO for Meats. Executive of the Food Ingredients and Agricultural Trading Divisions. He previously worked with the Department of Agriculture, Food and Forestry and in the meat industry in Ireland. Ger Mullally (B.Agr Sc. MBA) age 49, is Chief Executive of Glanbia Estates. He was He is a Director of The Irish Dairy Board Co-operative Limited and a Council Member of appointed to this role in November 2005 after six years as Chief Executive of Agribusiness. both the Irish Business and Employers Confederation and the Irish Management Institute. He joined the Group in 1980 where he has held a number of senior positions within Agribusiness. Geoff Meagher CPA, (aged 57) joined the Board as Group Finance Director in 1993 and is also Deputy Group Managing Director since June 2005. He joined the Group in 1975 Colm Eustace ((B. Agr Sc. MBA) age 46, is CEO for Glanbia Agribusiness since and held a number of positions including that of Group Financial Controller. Prior to that he November 2005. He joined the Group in 1986 where he has held a number of senior trained and worked with PricewaterhouseCoopers, Chartered Accountants. positions. Kevin Toland FCMA, (aged 41) was appointed to the Board in 2003. He is CEO & Jeff Williams (BSC Sc. Marketing, MBA) age 50, is President of Glanbia Foods, Inc., a President Glanbia USA & Nutritionals, having previously held the positions of Group position he has held since January 2005. He joined the Group in 1990 during which time Development Director and Chief Executive of the Consumer Foods Division. Prior to joining he has held a number of senior positions. Prior to this he was involved in Commercial and Glanbia in 1999, he held a number of senior management positions with Coca-Cola Bottlers Investment Banking. He is a member of the International Dairy Foods Association Board, in Russia and with Grand Metropolitan plc in Ireland and Central Europe. National Cheese Institute Board and the Leadership Idaho Agriculture Board of Trustees. Siobhan Talbot (B.Comm, FCA) age 43 was appointed Deputy Group Finance Director Hugh McGuire (M.Sc, Dip Finance) age 36, is CEO for Glanbia Nutritionals in Europe of Glanbia plc in June 2005. She was formerly Group Secretary. Prior to this she held a and Asia Pacific. He joined the Group in 2003 from McKinsey & Co. where he worked as number of senior positions in finance since she joined the Group in 1992, including Group a Consultant across a range of industry sectors. Prior to this he worked in the consumer Operations Controller. Prior to joining the Group she worked with PricewaterhouseCoopers goods industry with Nestle and Leaf. in Dublin and Sydney, Australia. Jerry O’Dea (BSC Food Sc., MBA) age 47, is President of Glanbia Nutritionals, Inc., Brian Phelan (B. Comm, FCA) age 40, is Group Human Resources Director of Glanbia a position he has held since October 2002. He joined the Group in 1981 and has held plc. Brian was appointed to this role in 2004. Prior to this he was Chief Financial Officer of a number of senior positions including Vice President, General Manager of Glanbia the Consumer Foods Division. He also worked in Glanbia Ingredients in Ireland and the Ingredients USA. He is a member of the Nominations Committee of the United States Dairy USA. Prior to joining the Group in 1994 he worked with KPMG. Export Council (USDEC) and the board of the American Dairy Products Institute (ADPI). Jim Bergin (B. Comm, MSc Mngt Practice) age 44 is Chief Executive of Glanbia Wayne Seltzer age 64, is President of Seltzer Companies Inc., which he founded in Ingredients Ireland. He was appointed in March 2005. He joined the Group in 1984 and has 1981. He is a graduate of University of California at Los Angeles and has been with the held a number of senior positions including Group IT Manager and subsequently Group Group since Glanbia acquired Seltzer in September of last year. Prior to establishing Seltzer Business Process Director. He joined the Ingredients Business as Operations Manager in Companies he held a senior position at Gillies International. May 2003. Colin Gordon (BBS, MBS, FMII) age 45, is Chief Executive of Glanbia Consumer Foods Ireland. He joined the Group in March 2006. He previously worked in C&C Group plc, the drinks and snack food company where he held a number of senior positions including, most In February 2007 John Madden, CEO of Glanbia Meats, retired after 12 years in the organisation. recently Managing Director of C&C (Ireland) Ltd.


  • Page 37

    GLANBIA PLC ANNUAL REPORT 2006 35 Report of the Directors for the year ended 30 December 2006 Introduction Key strategic milestones were reached during the year The Directors are pleased to present their report to including a US$105 million US Nutritionals acquisition, shareholders together with the audited financial statements Seltzer, and the opening of one of the largest natural for the year ended 30 December 2006. cheese and whey processing plants in the world, Southwest Cheese, which is a US$190 million 50:50 joint venture. The Principal activities Seltzer acquisition is performing ahead of expectations. Glanbia plc is an international dairy, consumer foods and The Southwest Cheese plant is fully commissioned and is nutritional products company. It is principally engaged in manufacturing product to a world class standard. the processing and marketing of cheese, dairy-based food ingredient and nutritional products; dairy-based consumer A further €50 million of development capital expenditure was products and meat products; manufacture of animal feedstuffs committed in 2006, including €5 million to build the Group’s and trading in agricultural products; and maximising the value first nutritionals operation in the Asia Pacific region and €22.5 of the Group’s property assets. Group processing operations million for a planned capacity expansion and new plant in the are located in Ireland, the UK, Germany and the USA. Sales Nigerian joint venture. and marketing activities are undertaken in various European countries and in the USA, South America, Asia and Africa. The The Group Managing Director’s review on pages 6 to 9 Group serves a broad customer base in the retail, food service provides an overview of the Group’s vision and strategy for and food and beverage processing sectors. the next three years. The Business Review on pages 12 to 26 includes analysis, by operational division, of the 2006 results, The Group’s strategy is to build international relevance trading environment and current business outlook of each in cheese, nutritional ingredients and selected consumer business unit including joint ventures. The Finance Review on foods, balancing it’s strong market positions in Ireland pages 30 to 31 analyses the financial results for 2006 including with an increasing presence in overseas markets. The joint commentary on the financial ratios and Group balance sheet. ventures in Nigeria and the USA are central to this strategic development, as is the continuing development of its Nutritionals business. Business review Full-year results were in line with market expectations, despite a tough first half and ongoing challenges in Ireland. A solid operating performance, the changing mix of business and the benefits of prior year rationalisation initiatives improved profitability and margins. Key financial performance indicators are trending positively and international operations and joint ventures are progressing well. The highlights of the results for the year were as follows: 2006 2005 Change (as restated) Revenue €1,853.4 m €1,830.0 m Up 1% Operating profit pre-exceptional €85.6 m €80.9 m Up 6% Operating margin pre-exceptional 4.6% 4.4% Up 20 bps Net financing costs pre-exceptional (€14.0 m) (€13.1 m) Up €0.9 m Share of results of joint ventures and associates after interest and tax €2.8 m €0.9 m Up 205% Profit before tax pre-exceptional €74.4 m €68.7 m Up 8% Profit after tax pre-exceptional €66.4 m €61.1 m Up 9% Exceptional items (€0.1 m) (€3.4 m) See note Earnings per share 22.5 c 19.7 c Up 14% Adjusted earnings per share 22.6 c 20.9 c Up 8% Dividend per share in respect of the year 5.8 c 5.5 c Up 5% Net debt €224.5 m €224.2 m Similar Exceptional items are €3.3 million restructuring costs relating to the closure of the Pigmeat cannery operation, €9.1 million being the cost of the disposal of the Group’s remaining 25% interest and related loan note in The Cheese Company Holdings Limited to Milk Link Limited for €70 million and €12.3 million being the recognition of a deferred tax asset relating to the Group’s former UK operations.


  • Page 38

    36 GLANBIA PLC ANNUAL REPORT 2006 Report of the Directors (continued) for the year ended 30 December 2006 Outlook In accordance with the provisions of the 2003 Combined The Group’s aim is to achieve strong leadership positions in Code on Corporate Governance of the Irish and London Stock markets that offer profitable long-term growth. The Group Exchanges, Messrs MJ Walsh, L Herlihy and JV Quinlan, being looks to achieve this through a combination of being relevant Directors who have each served a period in excess of nine to its customers, growing its existing businesses, acquiring years on the Board will retire at the AGM and, being eligible, complementary new businesses, with emphasis on Nutritionals offer themselves for re-appointment. opportunities and achieving a high level of operational efficiency and productivity. None of the Directors proposed for re-appointment has a service contract with the Company. Ireland will remain challenging in light of the competitive retail environment and the ongoing effects of the implementation The Chairman wishes to confirm that following the completion of the Mid Term Review of the Common Agricultural Policy. of the performance evaluation process all Directors proposed Irish operations continue to focus on key aspects of business for re-election continue to be effective and these Directors execution which drive performance, productivity and cost continue to demonstrate commitment to their roles. competitiveness. International operations are expected to perform well in 2007 and are well positioned for good growth. Employees The Group’s 3,926 employees are the key to building The Group is successfully developing a strategic international sustainable growth through delivery of the strategy. The presence, which today represents nearly 40% of revenue. This Group provides opportunity, development and reward to gives the Group a strong platform from which to continue those who enjoy working in a challenging delivery focussed to grow and develop overseas. At the same time, the Group environment and is proud to be an employer of choice at its continues to consistently and solidly improve the long-term worldwide locations. sustainability of the Irish operations. Research and development As to the future, the Group is on target to deliver double digit The Group is committed to an ongoing and extensive earnings growth in 2007 and the Group believe the outlook is innovation programme to support a customer-led business positive for sustained high growth. and marketing approach. There is growing consumer awareness of the link between health and diet and the Share Capital Group is committed to achieving the highest standards of The authorised share capital of the Company is 306,000,000 best practice in relation to science-based innovation. It is ordinary shares of €0.06 each. The issued share capital as at 30 directed towards the development of technically superior December 2006 was 293,238,684 ordinary shares of €0.06 each. dairy-based food ingredient and nutritional products, cheese, high value consumer food products, other products and the Dividends enhancement of proprietary technologies and processes. On 4 October 2006 an interim dividend of 2.4c per share on the ordinary shares amounting to €6.9 million was paid to Through its research and development facilities in Kilkenny and shareholders on the register of members as at 15 September Idaho, USA, the Group’s business has developed and launched 2006. The Directors have recommended the payment of a advanced, differentiated and branded ingredients and final dividend of 3.4c per share on the ordinary shares which consumer products targeted at a range of nutritional benefits amounts to €10 million. Subject to shareholders approval this such as weight management and immune enhancement. dividend will be paid on Tuesday, 22 May 2007 to shareholders on the register of members as at Friday, 27 April 2007, the Substantial Interests record date. As at 23 February 2007, the Company has been advised of the following notifiable interests in its ordinary share capital: Directors No. of % of Messrs GE Stanley and JJ Miller retired on 24 May 2006. ordinary: issued shares share Messrs P Gleeson and MN Keane were appointed to the Shareholder capital Board on 24 May 2006. In accordance with the Articles of Association of the Company, they will retire at the 2007 Annual Glanbia Co-operative Society Limited 160,277,308 54.7% General Meeting and, being eligible, offer themselves for re- Bank of Ireland Nominees Limited* 25,309,608 8.6% appointment. Bank of Ireland Asset Management Limited** 14,163,481 4.8% In accordance with the Articles of Association of the Company, Messrs JE Callaghan, CL Hill, JJ Moloney, WG Murphy and M * Bank of Ireland Nominees Limited has confirmed that it has Parsons retire from the Board by rotation and, being eligible, no beneficial interest in the 25,309,608 shares. offer themselves for re-appointment. ** Bank of Ireland Asset Management Limited has confirmed that it has no beneficial interest in the 14,163,481 shares of which 14,038,750 are included in the Bank of Ireland Nominees Limited holding.


  • Page 39

    GLANBIA PLC ANNUAL REPORT 2006 37 Directors’ and Secretary’s share interests Special business at the Annual General Meeting The interests of the Directors and Group Secretary and Notice of the 2007 Annual General Meeting with details of the their spouses and minor children in the share capital of the special business to be considered at the meeting is set out in Company, subsidiary companies and the holding society are a separate circular which is enclosed with this Annual Report. disclosed in note 42 to the financial statements. Authority to allot shares Principal risks and uncertainties and Under the first item of special business, shareholders are financial risk management being asked to renew the Directors’ authority to allot relevant Under Irish company law (Statutory Instrument 116.2005- securities, within the meaning of Section 20 of the Companies European Communities (International Financial Reporting (Amendment) Act, 1983, up to an aggregate nominal amount Standards and Miscellaneous Amendments) Regulations of €765,678.96. 2005), the Group is required to give a description of the principal risks and uncertainties which it faces. These appear Disapplication of Pre-Emption Rights, Purchase of Company on page 44 of the Corporate Governance Report. Shares and Treasury Shares Under the second item of special business, shareholders A comprehensive analysis on the financial risk management are being asked to renew the authority to disapply the strict objectives and policies of the Company and the Group, statutory pre-emption provisions in the event of a rights including the policy for hedging each major type of issue or in any other issue up to an aggregate amount of forecasted transaction for which hedge accounting is used €765,678.96 in nominal value of ordinary shares, representing and the exposure of the Company and the Group to price 4.4% of the nominal value of the Company’s issued ordinary risk, credit risk, liquidity risk and cash flow risk, is contained in share capital for the time being. This authority will expire on notes 3, 30 and 36 to the financial statements. the earlier of the close of business on 15 August 2008 or the date of the Annual General Meeting of the Company in 2008. Subsidiary and associated undertakings A list of the principal subsidiary and associated undertakings At the last Annual General Meeting of the Company is included in note 43 to the financial statements. shareholders passed a resolution to give the Company, or any of its subsidiaries, the authority to purchase up to 10% Political donations of its own shares. This authority will expire on 16 May 2007. The Electoral Act, 1997 requires companies to disclose all Under the third item of special business, shareholders are political donations over €5,079 in aggregate made during being asked to extend this authority until the earlier of the the financial year. The Directors, on enquiry, have satisfied close of business on 15 August 2008 or the date of the Annual themselves that no such donations in excess of this amount General Meeting of the Company in 2008. While the Directors have been made by the Company. do not have any current intention to exercise this power, this authority is being sought as it is common practice for public Books of account companies. The measures taken by the Directors to secure compliance with the Company’s obligations to keep proper books of Shareholders are also being asked under the fourth item of account are the use of appropriate systems and procedures special business to pass a resolution authorising the Company and employment of competent persons. The books of to reissue such shares purchased by it and not cancelled account are kept at Glanbia House, Kilkenny, Ireland. as treasury shares. Such purchases would be made only at price levels which it considered to be in the best interests Corporate governance of the shareholders generally, after taking into account The Directors of the Company are committed to maintaining the Company’s overall financial position. Furthermore the the highest standards of corporate governance and a authority being sought from shareholders will provide that the statement of how the Company applies the main and minimum price which may be paid for such shares shall not be supporting principles of the 2003 Combined Code on less than the nominal value of the shares and the maximum Corporate Governance of the Irish and London Stock price will be 105% of the then market price of such shares. Exchanges (“the Combined Code”) appears on pages 38 to 41. Auditors The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office in accordance with Section 160(2) of the Companies Act, 1963. On behalf of the Board MJ Walsh JJ Moloney Chairman Group Managing Director Glanbia House Kilkenny 6 March 2007


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    38 GLANBIA PLC ANNUAL REPORT 2006 Directors’ Statement of Corporate Governance Glanbia plc (“the Company”) has primary listings on the Irish Chairman and Vice-Chairmen and London Stock Exchanges. Mr MJ Walsh has been Chairman of the Board since 9 June 2005. The Chairman is responsible for the efficient The Directors of the Company are committed to maintaining and effective working of the Board. He ensures that Board the highest standards of corporate governance and this agendas cover the key strategic issues confronting the Group statement describes how the Company applies the main and that Directors receive accurate, timely, clear and relevant and supporting principles of the 2003 Combined Code information. While Mr MJ Walsh holds a number of other on Corporate Governance of the Irish and London Stock directorships (see details on page 32) and farms at Coolroe, Exchanges (“the Combined Code”). Graiguenamanagh, County Kilkenny, the Board considers that these do not interfere with the discharge of his duties to the Board of Directors Group. Role The Board is responsible for the leadership, direction and The Company has two Vice-Chairmen, Mr L Herlihy and Mr JV control of the Company and its subsidiary companies (“the Quinlan. Group”) and is accountable to shareholders for financial performance. Senior Independent Director Mr JE Callaghan is the Senior Independent Director. As The Board has a formal schedule of matters reserved to it for Senior Independent Director, Mr Callaghan is available to decision such as the approval of annual and strategic business shareholders if they have concerns, which contact through the plans, capital expenditure, any change in Group strategy normal channels has failed to resolve. and any acquisition or disposal of Group assets, the approval of any dividends and Group treasury and risk management Managing Director policies. The day to day management of the Group has been delegated to the Group Managing Director, Mr JJ Moloney, The role of the Chairman, which is non-executive, is separate whose appointment to that position was effective from July, (and always has been separate) from the role of the Group 2001. His responsibilities include the formulation of strategy Managing Director. The division of responsibilities between and related plans and, subject to Board approval, their the Chairman and Group Managing Director have been clearly execution. He is also responsible for ensuring an effective established, set out in writing and agreed by the Board. organisation structure, for the appointment and direction of the senior executive management and for the operational Board composition management of all the Group’s businesses. The Company is a subsidiary of Glanbia Co-operative Society Limited (“the Society”). The Society nominates from its Company Secretary Board of Directors, which is elected on a three-year basis, Mr M Horan is the Group Secretary. All Directors have access fourteen non-executive Directors for appointment to the to the advice and service of the Group Secretary who is Board of the Company. The Society, an Irish industrial and responsible to the Board for ensuring that Board procedures provident society, owns 54.7% of the share capital of the are complied with and that applicable rules and regulations Company and many of its members supply milk and trade with are followed. Both the appointment and removal of the Irish subsidiaries of the Company. The remaining Directors Secretary is a matter for the Board. comprise three executive Directors and four non-executive Directors. Biographies of each of the Directors are set out on Terms of appointment pages 32 and 33. The terms and conditions of appointment of non-executive Directors are available for inspection at the Company’s The Board considers that the Directors bring to the Company registered office during normal business hours and at the the range of skills, knowledge and experience, including Annual General Meeting of the Company. international experience, necessary to lead the Group. Information on professional development All Directors have been advised of their fiduciary duties and of Directors are provided with a comprehensive information their obligation to bring an independent judgement to bear pack on joining the Company and advised of their legal on the issues of strategy, performance, resources, including and other duties and obligations as a director of a listed key appointments and standards of conduct. All Directors company. In addition, all new Directors receive induction on receive monthly Group financial statements and reports and their appointment covering such matters as the operation full Board papers are sent to each Director in sufficient time and activities of the Company and the Group, the role of the before Board meetings. Any required further information is Board and the Group’s corporate governance procedures. available to all Directors on request. As part of this programme, major shareholders are offered an opportunity to meet new non-executive Directors.


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    GLANBIA PLC ANNUAL REPORT 2006 39 Directors are also briefed, where appropriate, on changes to Fourteen of the remaining fifteen non-executive Directors legislation, regulation or market practices, as well as receiving are nominated by the Board of Glanbia Co-operative Society briefings from business groups throughout the year. Limited for appointment to the Board of the Company. Additionally, Mr WG Murphy retired as Deputy Group All Directors have access to independent professional advice Managing Director in 2005 but remains on the Board as a non- at the Group’s expense where they judge it necessary to executive Director. The Board recognises that these Directors discharge their responsibilities as Directors. Committees are do not meet the criteria for independence as specified in the provided with sufficient resources to undertake their duties. Combined Code however, the Board considers that they are independent in character and judgement. Eight of the Directors nominated to the Board by Glanbia Co-operative Society Limited have completed the ICOS All of the non-executive Directors bring an independent Diploma in Corporate Direction. perspective to their advisory and monitoring roles. Performance evaluation Share ownership and dealing During the year a performance evaluation has been In order to maintain investor confidence in the stock markets, conducted of the Board, its Committees and individual quoted companies have an obligation to ensure that their Directors which was led by the Chairman. directors and employees, and anyone closely associated or connected to them, do not place themselves in positions In completing the performance evaluation, the Chairman met where investors might suspect them of abusing inside with each Director individually to discuss the performance information. For this reason, the Company issued in early of the Board and individual Directors. In advance of the 2006 revised rules covering share dealings by Directors and meetings, the Chairman circulated a comprehensive employees who regularly, or even occasionally, have access to questionnaire to Directors for their consideration and inside information. encouraged the Directors to raise any other issues on Board matters during the meetings. Based on the verbal and The main principle underlying the rules is that no one should written feedback from the Directors, the Chairman then trade in shares of the Company while in possession of inside prepared a report for the Board summarising the outcome information about the Company. Likewise, no one should of the performance evaluation process and recommending a deal in the shares of the Company, if it would give rise to number of actions. a suspicion that they are abusing inside information. As a safeguard against any actual or potential abuse of these rules, The performance of the Chairman was considered at a the Company has appointed as Compliance Officers, the meeting of the non-executive Directors which was chaired by Group Secretary and the Deputy Group Finance Director from Mr JE Callaghan, the Senior Independent Director. whom approval must be obtained, in advance, for any share dealings by persons to whom the rules apply. The Board also evaluated the performance of the Audit Committee, Nomination Committee and Remuneration The interests of the Directors and Secretary and their spouses Committee. and minor children in the share capital of the Company, the holding society and subsidiary companies/societies are set Independence out on pages 103. The Board has evaluated the independence of the non- executive Directors under the guidelines specified in the Board succession planning Combined Code. The Board plans for its own succession with the assistance of the Nomination Committee. In so doing, the Board considers Following this assessment, the Board has determined that the knowledge and experience necessary to allow it to meet throughout the reporting period, Mr JE Callaghan, Mr P Haran the strategic vision for the Company and the Group. and Mr JV Liston were independent. In particular, the Board reviewed the position of Mr JE Callaghan in the context of Meetings the guidance in the Combined Code and determined that, There were 12 scheduled meetings of the Board during 2006. despite his 9 years on the Board, he remains independent. Details of Directors’ attendance at those meetings are set out In the same manner as the other non-executive Directors, in the table on the next page: he discharges his duties in a proper and consistently independent manner and constructively and appropriately challenges the executive Directors and the Board.


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    40 GLANBIA PLC ANNUAL REPORT 2006 Directors’ Statement of Corporate Governance (continued) Board Audit Nomination Remuneration Committee Committee Committee A B A B A B A B MJ Walsh 12 12 1 1 2 2 L Herlihy 12 12 5 5 2 2 JV Quinlan 12 12 5 5 2 2 JJ Moloney 12 12 JE Callaghan 12 12 5 5 1 1 2 2 HV Corbally 12 12 5 5 EP Fitzpatrick 12 12 JG Fitzgerald 12 12 5 5 JA Gilsenan 12 12 P Gleeson** 8 8 P Haran 12 12 5 5 1 1 2 2 CL Hill 12 12 Mn Keane** 8 8 Ml Keane 12 12 JV Liston 12 12 5 4 1 1 2 2 GJ Meagher 12 12 M Merrick 12 12 JJ Miller* 4 4 WG Murphy 12 12 M Parsons 12 12 EM Power 12 11 5 4 GE Stanley* 4 4 KE Toland 12 9 Column A indicates the number of meetings held during the period the Director was a member of the Board and /or Committee. Column B indicates the number of meetings attended during the period the Director was a member of the Board and /or the Committee. * Retired 24 May 2006 ** Appointed 24 May 2006 Board Committees All Directors are subject to election by shareholders at the first The Board has established a committee structure to assist it Annual General Meeting after their appointment and to re- in the discharge of its responsibilities. The committees and election thereafter at intervals of no more than three years. In their membership are detailed on page 33 of this report. All addition, in accordance with the provisions of the Combined committees of the Board have written terms of reference Code, non-executive Directors serving for more than nine dealing with their role and authority delegated by the Board years must seek re-election annually. and are available on the Group’s website at www.glanbia.com. Membership of the Nomination, Audit and Remuneration The Nomination Committee did not use an external search Committees is comprised exclusively of non-executive consultancy or open advertising in the appointment of Directors. The Group Secretary acts as secretary to each of the new non-executive Directors, Messrs Mn Keane and P these committees. Gleeson, as they were nominated by the Board of the Society for appointment to the Board. The Nomination Committee Nomination Committee uses industry and professional contacts to identify suitable Fourteen non-executive Directors are nominated by the Board candidates for the appointment of independent Directors. of Glanbia Co-operative Society Limited (“the Society”) for appointment to the Board of the Company. For the remaining The Nomination Committee also considers and recommends non-executive and executive Directors, the Nomination the appointment of the Chairman of the Company and Committee of the Company leads the process for Board the Vice-Chairmen. It is the custom and practice that the appointments. Chairman and Vice-Chairmen of the Society are also Chairman and Vice-Chairmen of the Company. The appointment to the Board of non-executive Directors nominated by the Society is subject to and co-terminus with The Chairman of the Company chairs meetings of the their appointment as Directors of the Society and is further Nomination Committee except when it is dealing with subject to their removal as Directors under the Articles of the appointment of a successor to the Chairmanship. The Association. The remaining non-executive Directors are Chairman of the Nomination Committee reports to the Board appointed to the Board on the basis of a 3-year term which after each meeting of the Committee. may be renewed and are also subject to early removal under the Articles.


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    GLANBIA PLC ANNUAL REPORT 2006 41 Audit Committee • Bookkeeping or other administrative services related to the The main role and responsibilities of the Audit Committee are Group’s accounting records or financial statements; set out in written terms of reference which are available on the • Financial information systems design and implementation Group’s website at www.glanbia.com and include: • Internal audit services; • to monitor the integrity of the financial statements of the • Management functions, executive searches for the Group Company, and any formal announcements relating to the Managing Director or Group Finance Director and legal Company’s financial performance, reviewing significant services. financial reporting judgements contained in them; • to review the Company’s internal financial controls and, Mr Callaghan is Chairman of the Audit Committee and he unless expressly addressed by a separate board risk reports to the Board after each meeting of the Committee. committee composed of independent directors, or by the board itself, to review the Company’s internal control and US Advisory Board risk management systems; During 2005, a US Advisory Board was established to assist • to monitor and review the effectiveness of the Company’s the Board in developing a greater awareness of activities internal audit function; and market trends in the relevant USA industry sectors. • to make recommendations to the Board, and to the Mr T Corcoran, Glanbia Group Chairman from 2000 to 2005, shareholders for their approval in general meeting, in is Chairman of the US Advisory Board. The membership of relation to the appointment, re-appointment and removal of the Advisory Board also currently comprises Mr JE Callaghan, the external auditors and to approve the remuneration and Senior Independent Director, Mr K Toland, Executive Director, terms of engagement of the external auditors; Mr L Herlihy, Mr JV Quinlan, Vice Chairmen, and Messrs • to review and monitor the external auditors’ independence J McCullough and P Rogers and Ms S Davis, USA based and objectivity and the effectiveness of the audit process, members.* The Group Chairman and Group Managing taking into consideration relevant Irish professional and Director also attend meetings of the US Advisory Board. regulatory requirements; • to develop and implement policy on the engagement of the * Mr McCullough recently retired as Chief Executive Officer external auditors to supply non-audit services, taking into of CRH Americas Products and Distribution. He joined account relevant ethical guidance regarding the provision of CRH in 1979 and has held a number of senior management non-audit services by the external audit firm; and to report positions with that company. to the board, identifying any matters in respect of which it considers that action or improvement is needed and making Mr Rogers, retired, was previously President of Nabisco recommendations as to the steps to be taken; and Foods Americas and held a variety of other senior positions • to review the arrangements by which staff of the Company in food companies. may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other Ms Davis is Chairperson of Susan Davis International, a matters. Washington D.C based public affairs agency. In discharging its responsibilities the Audit Committee met Remuneration Committee five times during the period. It reviewed the interim and final The Remuneration Committee determines, on behalf of the results for the Group prior to their submission to the Board Board, the Group’s framework of executive remuneration and for approval. It approved the Internal Audit Plan and reviewed the specific packages and conditions of employment for each progress against this plan at intervals during the year. The of the executive Directors and certain senior executives, as Chairman and Members of the Audit Committee received an decided by the Board. The Committee consults the Group executive summary of all audit reports issued by the Internal Managing Director regarding remuneration proposals and Audit Department and maintains dialogue with the Group obtains internal and external professional advice as deemed Internal Auditor on a regular basis. appropriate. The Remuneration Committee operates the Company’s Share Option and Long Term Incentive Schemes. The Audit Committee has approved a policy on the engagement of the external auditors to provide non-audit The remuneration of the non-executive Directors is services. This policy provides that the Group shall not retain its determined by the Remuneration Committee within the total independent auditors to provide services other than audit and amount approved by the Company’s shareholders in general audit related services other than in exceptional circumstances. meeting from time to time. The following services are prohibited unless approved under the terms of the Policy: The terms of reference of the Remuneration Committee, including its role and the authority delegated to it by the Board, are available on the Group’s website at www.glanbia.com. Mr Liston is Chairman of the Remuneration Committee and formally reports to the Board after each meeting of the Committee.


  • Page 44

    42 GLANBIA PLC ANNUAL REPORT 2006 Directors’ Statement of Corporate Governance (continued) Remuneration Employee Savings Related Share Options Scheme Remuneration Policy In 2002 the shareholders approved the introduction of Remuneration policy is based on attracting, retaining an employee Savings Related Share Option (“Sharesave and motivating executives to ensure that they perform Scheme”). In 2002 options were granted over 2,988,622 in the best interests of the Group and its shareholders. ordinary shares under the Sharesave Scheme. During the year, Performance-related elements of remuneration form a 101,982 ordinary shares were transferred to employees of the significant proportion of the total remuneration package of Group who exercised their options under the Scheme. The executive Directors. The Remuneration Committee obtains options granted under the Sharesave Scheme in 2002 expired external advice on remuneration in comparable companies as on 31 March 2006. necessary and has given full consideration to the Combined Code. Pension Benefits Pension benefits for executive Directors are calculated on Currently the components of the remuneration package basic salary only. Benefits, which are agreed on appointment, for executive Directors are basic salary and benefits, are designed to provide a percentage of basic salary at performance-related annual bonus, participation in the Long retirement for full service. Term Incentive Plan (“LTIP”) and participation in a defined benefit pension scheme. Executive Directors also participated Service Contracts in the share option scheme of the Company which expired in No Director has a service contract with a notice period in August 1998. excess of one year or with provisions for pre-determined compensation on termination which exceed one year’s salary Basic Salaries and Benefits and benefits-in-kind. The basic salaries of executive Directors are reviewed annually having regard to personal performance, competitive market Directors’ Emoluments and Attributable Pension Benefits practice or where a change of responsibility occurs. Benefits- Details of Directors’ emoluments and attributable pension in-kind consist principally of a company car. No fees are benefits are set out in note 9 and details of share options are payable to executive Directors for their attendance at board included in note 42 to the financial statements. meetings. Other Directorships Performance-Related Annual Bonus The Group Managing Director, Mr JJ Moloney, is a Director The Group operates a performance-related bonus scheme for of The Irish Dairy Board Co-operative Limited for which he executive Directors, senior executives and other management. received fees of €12,000 which he retained. Payments under the scheme for executive Directors depend on the achievement of pre-determined goals for Group Share Options performance and an assessment of individual performance Options outstanding under the Company’s 1988 Share Option against agreed objectives. Scheme and the LTIP as at 30 December 2006 amounted to 2,734,000 ordinary shares (31 December 2005: 3,116,913 Long Term Incentive Plan inclusive of 109,913 options outstanding as at 31 December In 2002 the shareholders approved the introduction of a 2005 under the Sharesave Scheme, which expired on 31 March Long Term Incentive Plan (“2002 LTIP”) for selected Group 2006 ) made up as follows: employees in order to further align the interests of key Group personnel with those of shareholders. Under the 2002 LTIP No of Price Dates options cannot be exercised before the expiration of three ordinary shares range exercisable years from the date of grant and can only be exercised if a Share option scheme predetermined performance criterion for the Company has and 2002 LTIP 2,734,000 €1.55 - €4.25 2006 – 2016 been achieved. The performance criterion is that there has GBP£2.90 2006 – 2008 been an increase in the adjusted earnings per share of the Company of at least the increase in the Consumer Price Index plus 5% compounded over a three year period. As detailed in note 42 to the financial statements at 30 December 2006, 262,503 ordinary shares were held in an To encourage participating executives to hold the shares employee benefit trust for the purpose of the Sharesave issued to them on the exercise of their options, share awards Scheme (“the Employees’ Share Trust”). specified as a percentage of the shares held will be made on the second and fifth anniversary of the exercise of the option. Corporate Social Responsibility The number of shares which may be the subject of such The Group’s Corporate Social Responsibility Programme relies awards may not exceed 20% and 10% of the number of shares on a careful balance of economic, environmental and social so held on the respective anniversaries. policies while the Group aims to fulfil its strategic goals of building a sustainable business and long term growth. Group Benefits under the 2002 LTIP are not pensionable. policies and implementation systems are summarised on pages 27 to 29.


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    GLANBIA PLC ANNUAL REPORT 2006 43 Accountability and Audit In judging the effectiveness of the Group’s controls, the Financial Reporting Board monitors the reports of the Audit Committee and Directors’ responsibilities for preparing the financial management. Without diminishing its own responsibilities the statements for the Company and the Group are detailed on Board has delegated certain acts to the Audit Committee. page 35. The external auditors’ report details the respective These include detailed reviews of key risks inherent in the responsibilities of Directors and auditors. business and of the systems for managing these risks. The Chairman of the Audit Committee reports to the Board after Going Concern each meeting of the Committee. After making enquiries the Directors have a reasonable expectation that the Company and the Group have adequate The Group’s control systems include: resources to continue in operation and existence for the • a Code of Conduct that defines a set of agreed standards foreseeable future, and accordingly they continue to adopt a and guidelines for corporate behaviour; Going Concern basis in preparing the financial statements. • an organisational structure with clearly defined lines of responsibility and delegation of authority; Internal Control • appropriate terms of reference for Board committees with The Directors are required by the Combined Code to maintain responsibility for policy areas; a sound system of internal control to safeguard shareholders’ • a formal schedule of matters specifically referred to the investment and the Group’s assets. Board for its decision; • a comprehensive system of financial reporting to the The Board confirms that there are ongoing procedures for Board, based on an annual budget with monthly reports identifying, evaluating and managing significant risks faced against actual results, analysis of variances, review of key by the Group. These, or their equivalent, have been in place performance indicators and regular re-forecasting; for the year covered in this Annual Report and financial • clearly defined guidelines for capital expenditure, including statements and up to the date of its approval and are detailed budgeting, appraisal and post-investment review; themselves regularly reviewed by the Board and accord with • a Group financial management manual that clearly sets out the Turnbull guidance which the Board has fully adopted. the accounting policies and financial control procedures to The Board has also reviewed the effectiveness of the current be followed by business units; system of internal control specifically for the purpose of this • a treasury risk management policy approved by the Board statement. which ensures that foreign exchange and interest rate exposures of the Group are managed within defined While acknowledging its responsibility for the system of parameters; internal control, the Board is aware that such a system is • a Group-wide risk assessment process which is maintained designed to manage rather than eliminate the risk of failure to by business unit management reporting to the Group achieve business objectives, and can only provide reasonable Executive and Board as required; and not absolute assurance against material misstatement or • a Group internal audit function operating globally which loss. monitors and supports the internal financial control system and reports to the Audit Committee and management. The risk appetite of the Group is set by the Board. The Internal audit work is focused on the areas of greatest risk strategy for managing risk is formulated by the Group’s to the Group determined on the basis of a risk management Executive Committee, a management committee chaired approach to audit; and by the Group Managing Director, and recommended to the • the Audit Committee, a formally constituted committee of Board. the Board comprising non-executive Directors only, meets with internal and external auditors to satisfy itself that control procedures are in place and are being followed. Finally, the Directors, through the use of appropriate procedures and systems, have ensured that measures are in place to secure compliance with the Company’s obligation to keep proper books of account. These books of account are kept at the registered office of the Company.


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    44 GLANBIA PLC ANNUAL REPORT 2006 Directors’ Statement of Corporate Governance (continued) Principal Risks and Uncertainties and Financial Risk 6. Growth Management The Group pursues a strategy of growth through Under Irish Company Law (Statutory Instrument 116.2005 − acquisitions and investment in existing businesses. There European Communities (International Financial Reporting is a risk to the business if the Group is unable to continue Standards and Miscellaneous Amendments) Regulations to grow as outlined in its business plan due to an inability 2005), the Company is required to give a description of the to identify attractive targets, complete acquisitions and principal risks and uncertainties which it faces. The principal integrate the operations of the acquired businesses. The risks are set out below: Group’s management team has significant experience in the areas of both pre-acquisition due diligence and 1. Food Safety post acquisition integration. Where appropriate, external The Board is committed to maintaining the highest resources are engaged to assist with acquisitions and standards of food safety. To manage food safety risks, investments. our processing sites operate world class quality and food safety systems which are regularly reviewed to ensure 7. Legislation and Regulation they remain effective and follow best practice, including The Group’s operations in the processing, distribution, compliance with all regulatory requirements. packaging and labelling of food are governed by extensive legislation, regulations, codes of practice and 2. Environment guidance. The Group conforms to international and local Protection and preservation of the environment and food safety, quality and environmental regulations and natural resources lies at the heart of our objective to is committed to sustainable growth in harmony with the manage our business in an environmentally responsible environment and the communities where it operates. manner. The Group continues to be committed to sustainable growth in harmony with the environment and 8. Competition the communities in which it operates, which is achieved The Group operates in competitive markets. Significant by attention to such elements as: product innovations, technical advances or the • the inclusion of environmentally friendly goals and intensification of price competition could adversely risk management as part of the overall business affect the Group. The Group invests in research and strategy; development and ensures that the introduction of new • the maintenance of relationships with local products and improved production processes positions communities and authorities, regulatory agencies the Group well in its chosen markets. The Group also and interest groups to create better understanding continually works to streamline its cost base to ensure it and co-operation; and remains competitive. • the recycling and the re-using of raw materials and the reducing of discharges to land, air and water. 9. Attracting and Retaining High Quality Senior Management and Staff 3. Health and Safety The on-going success of the Group is dependent on The Board are committed to protecting the health, safety attracting and retaining high quality senior management and welfare of all employees, visitors and the public in and staff. The Group mitigates any risk associated with general. Processes have been put in place to ensure loss of key personnel through robust succession planning, that workplace conditions, practices and procedures are strong recruitment processes, long term management maintained to the highest possible level of safety and in incentives and retention initiatives. full compliance with relevant health, safety and welfare legislation. 10. Supply Chain The Group’s ability to fulfil the demand for its products 4. Energy is dependent on no significant disruptions to its supply The efficient consumption of energy is a key objective chain. The Group mitigates this risk by maintaining a for the Company. In order to minimise the impact on broad supplier base and the Group is committed to energy costs of price volatility, the Company will, where ensuring that suppliers continue to choose the Group as necessary, enter into fixed price arrangements to cover the partner of choice. certain future energy requirements. A comprehensive analysis on the financial risk management 5. Loss of a Major Site objectives and policies of the Company and the Group, The Group operates from many key sites the loss or including the policy for hedging each major type of forecasted significant destruction of any one of which would present transaction for which hedge accounting is used and the significant operational difficulties. The Group’s operations exposure of the Company and the Group to price risk, credit have business continuity and communication plans in risk, liquidity risk and cash flow risk, is contained in note 3 to place to manage the impact of such an event. The Group the financial statements. also has insurance programmes designed to mitigate the financial consequences.


  • Page 47

    GLANBIA PLC ANNUAL REPORT 2006 45 Relations with Shareholders Statement of Directors’ responsibilities Dialogue with Institutional Shareholders The Directors are responsible for preparing the annual report The Company has dialogue with institutional shareholders and the financial statements in accordance with applicable law during the year and immediately following the announcement and regulations. of the half year and full year results. The Company presents these results to investors and analysts. The Chairman Company law requires the Directors to prepare financial discusses governance and strategy with major shareholders. statements for each financial year. Under that law the Non-executive Directors are offered an opportunity to attend Directors have prepared the group and parent company meetings with major shareholders. The Senior Independent financial statements in accordance with International Financial Director has also attended meetings with major shareholders. Reporting Standards (IFRSs) as adopted by the European The Company responds to enquiries from all shareholders and Union. The financial statements are required by law to give welcomes their attendance at the Annual General Meeting. a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that The Group’s website, www.glanbia.com, provides the full period. text of the Annual and Interim Reports and presentations to analysts and investors through the Investors Section. Stock In preparing these financial statements the Directors are Exchange announcements are also made available in the required to: Investors Section of the website, after release to the Stock • Select suitable accounting policies and then apply them Exchange. consistently; • Make judgements and estimates that are reasonable and Annual General Meeting prudent; The Notice of the 2006 Annual General Meeting was • State that the financial statements comply with IFRSs as despatched to shareholders not less than 20 working days adopted by the European Union; before the meeting. Separate resolutions were proposed at • Prepare the financial statements on the going concern the meeting on each substantially separate issue, including basis, unless it is inappropriate to presume that the Group a resolution to receive and consider the 2005 financial will continue in business, in which case there should be statements and the reports of the Directors and auditors supporting assumptions or qualifications as necessary. thereon. The level of proxy votes for and against was announced after each resolution had been passed on a show The Directors confirm that they have complied with the above of hands. requirements in preparing the financial statements. It is our policy for all Directors to attend the Annual General The Directors are responsible for keeping proper books of Meeting. In normal circumstances, the Chairman of the account that disclose with reasonable accuracy at any time Audit, Nomination and Remuneration Committee attend the the financial position of the Company and the Group and to Annual General Meeting and are available to answer relevant enable them to ensure that the financial statements comply questions. with the Companies Acts 1963 to 2006 and, as regards the group financial statements, article 4 of the IAS Regulation. Compliance They are also responsible for safeguarding the assets of the The Board believes that, except in relation to the composition Company and the Group and hence for taking reasonable of the Board and Remuneration Committee, as noted above, steps for the prevention and detection of fraud and other the Company has complied throughout the financial period irregularities. with the principles and provisions of the Combined Code. The Directors are responsible for the maintenance and integrity of the web site. Legislation in the Republic of Ireland concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board MJ Walsh JJ Moloney Chairman Group Managing Director Glanbia House Kilkenny 6 March 2007


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    46 GLANBIA PLC ANNUAL REPORT 2006 Financial Statements contents Independent auditors’ report: to the members of Glanbia plc 47 Consolidated income statement 49 Consolidated statement of recognised income and expense 50 Consolidated balance sheet 51 Consolidated cash flow statement 52 Company balance sheet 53 Company statement of recognised income and expense and cash flow statement 54 Notes to the financial statements 55 1 General information 55 2 Summary of significant accounting polices 55 3 Financial risk management 64 4 Critical accounting estimates and assumptions 65 5 Segment information 66 6 Operating profit 70 7 Exceptional items 71 8 Employee benefit expense 71 9 Directors’ remuneration 72 10 Finance income and costs 73 11 Income taxes 74 12 Earnings per share 75 13 Dividends 75 14 Property, plant and equipment – Group 76 15 Intangible assets 78 16 Investments in associates 79 17 Investments in joint ventures 80 18 Investments 81 19 Trade and other receivables 82 20 Inventories 83 21 Cash and cash equivalents 83 22 Reconciliation of changes in equity 84 23 Share capital 85 24 Other reserves 87 25 Retained earnings 88 26 Own shares (Company and Group) 88 27 Capital reserves 89 28 Merger reserve – Group 89 29 Minority interests 89 30 Borrowings 90 31 Deferred income taxes 92 32 Retirement benefit obligations 93 33 Provisions for other liabilities and charges 96 34 Capital grants 96 35 Trade and other payables 97 36 Derivative financial instruments 97 37 Contingent liabilities 98 38 Commitments 98 39 Cash generated from operations 99 40 Business combinations 99 41 Related party transactions 101 42 Directors’ and Secretary’s interests 103 43 Principal subsidiary and associates undertakings 106


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    GLANBIA PLC ANNUAL REPORT 2006 47 Independent auditors’ report: to the members of Glanbia plc We have audited the Group and Parent Company financial statements (the “financial statements”) of Glanbia plc for the year ended 30 December 2006, which comprise the consolidated income statement, the consolidated and Parent Company balance sheets, the consolidated and Parent Company cash flow statements, the consolidated and Parent Company statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of Directors and auditors The Directors’ responsibilities for preparing the Annual Report and the financial statements, in accordance with applicable Irish law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 193 of the Companies Act, 1990 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union. We report to you our opinion as to whether the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts, 1963 to 2006. We also report to you whether the financial statements have been properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2006 and Article 4 of the IAS Regulation. We state whether we have obtained all the information and explanations we consider necessary for the purposes of our audit, and whether the financial statements are in agreement with the books of account. We also report to you our opinion as to: • whether the Company has kept proper books of account; • whether the Directors’ Report is consistent with the financial statements; and • whether at the balance sheet date there existed a financial situation which may require the Company to convene an extraordinary general meeting of the Company; such a financial situation may exist if the net assets of the Company, as stated in the Company balance sheet, are not more than half of its called-up share capital. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding Directors’ remuneration and Directors’ transactions is not disclosed and, where practicable, include such information in our report. We review whether the Corporate Governance Statement which is included in the Directors’ Report, reflects the Company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement, the Group Managing Director’s Report, the Operating Review and the Financial Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.


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    48 GLANBIA PLC ANNUAL REPORT 2006 Independent auditors’ report: to the members of Glanbia plc (continued) Opinion In our opinion: • the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 30 December 2006 and of its profit and of its cash flows for the year then ended; • the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, as applied in accordance with the provisions of the Companies Acts, 1963 to 2006, of the state of the Parent Company’s affairs as at 30 December 2006 and cash flows for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2006 and Article 4 of the IAS Regulation. We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the Company. The Company balance sheet is in agreement with the books of account. In our opinion the information given in the Directors’ Report is consistent with the financial statements. The net assets of the Company, as stated in the Company balance sheet are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 30 December 2006 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the Company. PricewaterhouseCoopers Chartered Accountants and Registered Auditors Waterford 6 March 2007

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