Operations review Joint Ventures & Associates Operations review International

Operations review Ireland

Consumer Foods had a satisfactory year and this compares with a very challenging 2007 when results were affected by a time lag in recovering the impact of higher costs in the marketplace.

Agribusiness was ahead of 2007 as a result of a good performance in the feed and fertiliser segments and a strong focus on cost reduction. Glanbia's Property business performed broadly in line with 2007.

In the Ireland division, although overall revenue declined 7.5% by €60.4 million to €743.0 million (2007: €803.4 million), the exit from the Group's Pigmeat business in March 2008 reduced revenue by €168.0 million in the year. Revenue growth was achieved in both Consumer Foods and Agribusiness.

Operating profit pre exceptional increased 68% to €51.5 million (2007: €30.6 million) and operating margin pre exceptional grew by 310 basis points to 6.9% (2007: 3.8%).

Consumer Foods

Consumer Foods is the largest branded food supplier into the Irish grocery sector with more food brands in The Top 100 than any other supplier.

With household brands such as 'Avonmore', 'Premier', 'Yoplait', 'Kilmeaden', 'Snowcream', 'Petits Filous', and 'CMP' in its portfolio, Consumer Foods has the No.1 market position in all sectors of fresh milk and cream, block cheddar cheese, grated cheddar cheese, fruit yogurts, kid's fromage frais, drinking yogurt, fresh soup and smoothies.

Consumer Foods employs just under 800 people at 10 locations throughout Ireland and processes almost 300 million litres of milk annually. The business unit supplies over 4,000 customers with almost two million consumer packs each day.

2008 Performance

Consumer Foods had a satisfactory year, although the marketplace became particularly challenging in the latter half of 2008 with the economic downturn affecting consumer confidence and shopping behaviour. Despite this, Consumer Foods delivered good growth in revenue and improved its operating profit and margin position during the year, after a number of years where higher costs were not fully recovered in the marketplace.

Beverages

Consumer Foods increased its marketing investment in its milk portfolio in 2008. Good progress was achieved in 2008 with double digit volume growth in the Avonmore Supermilk brand. The launch of a two litre family pack was a key driver for this growth coupled with an innovative advertising and direct marketing activity targeting health professionals. The sponsorship of the 2008 World Barista Championship served to highlight the superior quality of Avonmore milk in the food service channel.

In recognising the increased value conscious consumer, the business supported a price decrease on its key selling Avonmore Fresh, Low Fat and Supermilk brands in late 2008, helping to maintain a strong market share for its liquid milk products. This focus on cost and value are key agenda items in the marketing strategy going forward.

Key offerings for the value conscious consumer or 'quality at a price' led to increasing demand in 2008 for the Yoplait family yogurt range.

A further development in 2008 was the introduction of other leading beverage brands into the Consumer Foods beverage portfolio. Distribution of the biggest selling smoothie brand 'Innocent' and the biggest energy drink challenger brand 'Monster' into the range served to strengthen the businesses presence in the nutritional beverage category.

Food

Consumers have moved towards more mainstream products in pursuit of value and this has led to increasing demand for the Yoplait family yogurt range. Innovation and investment, particularly in the value-added portfolio, showed good results in 2008 with sales of Yoplait Mixed Seeds yogurt growing strongly. The new '100% Natural' strategy for the Petits Filous range is proving effective with increasing consumer loyalty and a stronger market position.

2008 was Consumer Foods best year ever for its value-added cream sales. Extending the Avonmore cream franchise into special occasions usage delivered well, with the launch of Avonmore Baileys Fresh Cream delivering strong sales during Christmas 2008.

Innovation and marketing investment behind the Kilmeaden brand proved effective in 2008, strengthening the brand's competitive position in the marketplace. New products and packaging formats helped to provide more convenient choices for consumers and boosted sales.

Avonmore Fresh Soup defended its leading market position, despite increased competition in the fresh soup category. The launch of Chunky Soup achieved incremental volume as it extends the Avonmore brand into more meal-type usage that appeals to a younger demographic.

Avonmore Fresh Soup holds the number one position in the Irish fresh soup category. Consumer Foods is at the forefront in promoting the understanding of nutritional values in food, with the introduction of Guideline Daily Amounts (GDA) labelling across 90% of its product range.

Strategy

Consumer Foods is responding strongly to the current economic and market reality, in anticipation that the changing trends in consumer culture and spending will continue into 2009 and beyond.

There is a significant ongoing rationalisation programme costing over €11.0 million, which will further improve cost competitiveness and efficiency.

Innovation and value-added products represent a strong growth opportunity as demonstrated by the performance of Supermilk, Bailey's Cream and soup packaging formats.

Active management of Consumer Foods strong brand portfolio, in milk, cream and selected food categories, and strategically differentiating key products is enabling Consumer Foods to maintain good market share and leadership positions.

2009 Outlook

The marketplace will remain competitive and challenging during this year. Against this backdrop the emphasis in Consumer Foods will be on delivering and promoting enhanced value to customers and continuing to differentiate its key brands, while aggressively managing costs. The outlook for Consumer Foods is satisfactory for 2009.

Agribusiness & Property

Agribusiness & Property had a satisfactory year with improved revenue, operating profit and margins in 2008.

Agribusiness

Agribusiness is engaged primarily in feed milling, grain processing and marketing, and the retailing of a range of farm inputs, to the Group's large farmer supply base. Its portfolio also includes CountryLife, which is a broader retail offering.

Agribusiness is market leader in animal feeds, fertilisers, seed grain, chemicals and veterinary product sales. The business employs over 600 people and operates in 16 counties in Ireland, with a total of 61 locations.

2008 Performance

Agribusiness had a satisfactory performance in a competitive trading environment and results for 2008 were ahead of 2007. This business unit performed well in its core feed and fertiliser markets and continued to rationalise and reinvest to ensure a cost effective and efficient supply chain. The Agribusiness retail strategy, under the CountryLife format, is making good progress with 14 branches redeveloped to date.

Strategy

The strategy for Agribusiness is to grow market share in core sectors by focusing on the development of distinctive propositions for target customers in retail and farm segments. The reshaping of the business will continue to ensure Glanbia has the most cost effective and efficient value chain for each core offering.

The retail strategy under the CountryLife banner is to capture the convenience needs of a growing and diverse rural population. Agribusiness is developing a focused offering in gardening, pet care and equestrian products, whilst also catering for the needs of the core farmer customer base with an extended farm hardware offering.

2009 Outlook

2009 will be an extremely challenging year for farmers across all sectors, with strong negative headwinds including a reduction in farm incomes and the continuing economic downturn. For the longer-term, Agribusiness is positioning itself to be able to service the changing needs of its farmer base whilst recognising the potential created by a growing and diverse rural population.

Property

The remit of Property is to review and maximise the value of Glanbia's portfolio of properties, with a particular focus on surplus property.

2008 Performance

The 2008 performance of Property was broadly in line with 2007, despite a very different environment with a dramatic slowdown in the property market and lack of available credit.

2009 Outlook

While the market will undoubtedly continue to be very difficult in 2009, there are a number of transactions planned which should support activity in the coming year. Results for 2009 are expected to be broadly in line with 2008.