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Risk management

 

The management of risk is central to achieving Glanbia's strategic and financial objectives that are set out on page 6 to 7 of this report. The Board of Glanbia is responsible for the Group's risk management systems, which are designed to manage and mitigate the risk of failure to achieve strategic and business objectives.

Across the business, there is an ongoing process in place for identifying, assessing,managing, monitoring and reporting on the significant risks faced by individual business managing, monitoring and reporting on the significant risks faced by individual business units and by the Group as a whole. This process has been in place for the year under review and up to and including the date of approval of the 2008 Annual Report.

Risk

Impact

Mitigation
Global economic downturn and dairy market volatility Demand for the Group's products could be curtailed, which when coupled with dairy market volatility represents a very material risk to the operating performance and financial stability of the Group. The Group maintains a balanced spread of businesses and continues to diversify its earnings base to reduce volatility in financial performance. In 2008, 71% of Group revenue and 65% of Group operating profit pre exceptional was generated from the International Division. The Group also continues to streamline its cost base to ensure it remains competitive. In 2008, Glanbia initiated a rationalisation programme costing €14.5 million, focused on Consumer Foods, Agribusiness and Food Ingredients Ireland.
Financing and liquidity constraints, associated with current credit markets Lack of financial capacity could affect the Group's ability to conduct its business and maintain capital investment programmes, dividend payments and debt service commitments. The Group closely monitors and manages its cash flow, with regular forecasting. Glanbia has in place total debt facilities of €661.5 million with a weighted average maturity of 4.2 years. The Group manages its bank debt position within a number of financial covenants that are closely monitored for compliance by Group Treasury. Strong banking relationships are maintained through regular meetings and updates.
Inability to leverage the Group's significant recent investment in acquisitions There is a risk to the business if the Group is unable to deliver significant organic growth from recent acquisitions and fully integrate the operations of the acquired businesses. The Group's management team has significant experience in the areas of pre acquisition due diligence and post acquisition integration. Specific information on Nutritionals growth strategy is outlined on page 16 of this report. For 2009, Glanbia will concentrate on organic growth opportunities within the existing business, adopting a conservative approach to further acquisitive growth in the context of the challenging external environment.
Recruitment and retention The ongoing success of the Group is dependent on attracting and retaining high quality management and staff throughout the business. The Group mitigates any risk associated with loss of key personnel through sustained succession management, strong recruitment processes, long-term incentives and retention initiatives. Glanbia also operates management development programmes to ensure there is a continuous pipeline of talent within the Group to support the ongoing growth and development of the business. Further information is contained in the Our people section on pages 26 to 28.
Increasing competition Significant product innovations, technical advances or the intensification of competition could adversely affect the Group. The Group invests in research and development and ensures that the introduction of new products and product formats and improved production processes positions the Group well in its chosen markets. Glanbia has Innovation Centres located in Ireland and the USA as well as associations with a number of research programmes at third level institutions.
Financial and taxation risk The conduct of ordinary business operations necessitates the holding and issuing of financial instruments and derivative financial instruments by the Group. The main risks arising from issuing, holding and managing these financial instruments typically include liquidity risk, interest rate risk and currency risk. The Group's approach is to centrally manage financial and taxation risks against comprehensive policy guidelines, details of which are outlined in Note 3.1 Financial Risk Factors in the notes to the financial statements. The Board agrees and regularly reviews these guidelines. Group corporate taxation planning and compliance is managed centrally.
Food safety legislation and regulation Glanbia must maintain the highest standards of food safety in the interest of the health and well being of its consumers and sustaining its strong reputation as a leading international cheese and nutritional ingredients group. Group operations in processing, distribution, packaging and labelling of food are governed by extensive legislation, regulation, codes of practice and guidance. The Group conforms fully to international and local food safety, quality and environmental regulations and employs best practice across all of its production facilities to maintain the highest standards.
Supply chain The Group's ability to fulfill the demand for its products is dependent on an efficient supply chain. Glanbia also needs to ensure that its own suppliers comply with the highest health and safety standards. The Group mitigates supply chain risk by maintaining a broad supplier base and the Group is committed to ensuring that suppliers continue to choose Glanbia as their partner of choice. All of the Group's key sites operate quality control assessments on products supplied to ensure world-class quality and food safety targets are maintained throughout the supply chain.
Health and safety Ensuring the safety, health and welfare of employees, visitors to Glanbia operations, surrounding communities and the public. Processes and policies have been put in place throughout the Group to ensure that workplace conditions, practices and procedures are maintained to high levels of safety in line with relevant safety, health and welfare legislation. An independent risk manager carries out an annual risk management audit for all the Group's main locations in accordance with the Glanbia risk management system and this incorporates a separately reported health and safety audit.
Environment The Group is subject to strict and developing environmental laws and regulations which could result in an increase in the cost of achieving compliance that might impact the Group's operational or financial performance. The inclusion of environmental and sustainability objectives and risk management as part of the Group's overall business strategy, together with a commitment to continuous improvement ensures that Glanbia is ahead of evolving environmental standards. The 'Our responsibilities' section of this report starting on page 29 outlines a number of key initiatives from around the Group which demonstrate the Group's commitment and investment in energy efficiency, carbon reduction, recycling and emissions programmes.
Loss of a major site The loss or significant destruction of any one of the Group's key sites would present significant operational and financial difficulties for Glanbia. The Group's operations have business continuity and communication plans in place to manage the impact of the loss of a major site. The Group also monitors overall safety and loss prevention performance through its risk management system to assist operational management responsible for the day-to-day management of business risk. An insurance cover programme is in place for all significant insurable risks and major catastrophes to mitigate the financial consequences.
Energy costs Large scale processing is an energy intensive operation. Energy efficiency programmes are operated across all sites and the Group was the first dairy processor in the world to be accredited with the IS393 Energy Management Standard at its processing site in Ballyragget, Co. Kilkenny. In order to minimise the impact on energy costs of price volatility, the Group will, where necessary, enter into fixed price arrangements to cover certain future energy requirements.