ADDING VALUE
DRIVING GROWTH
DELIVERING RETURNS
Glanbia plc Annual Report 2012
Glanbia plc is a global nutritional solutions
and cheese group with leading market
positions in cheese, whey proteins, sports
nutrition and micronutrient premixes.
Our products are sold in over 130 countries
worldwide and we employ 4,900 people
across 17 countries. Our shares are listed
on the Irish and London stock exchanges
(symbol: GLB).
SPECIAL
FEATURE
pgs 13-28
SCIENCE-BACKED INNOVATION
Branch chain amino acids (Leucine,
Isoleucine and Valine) are critical
to growth and repair of muscle.
Whey protein, which is central to
both Ingredient Technologies and
Performance Nutrition, is considered
to be one of the best sources of
branch chain amino acids. The
molecule shown is Isoleucine.
SPECIAL FEATURE
Our vision is to be the leading global
nutritional solutions and cheese group
and we have a clear strategy to achieve
this. Inherent within our strategy is the
commitment to add value, drive growth
and deliver returns across all of our
activities. This is helping us to build
a unique integrated business and to
differentiate our business model from
our competitors.
To read our special feature
go to page 13.
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CONTENTS
GROUP OVERVIEW
2012 was a transformational year for Glanbia.
The Group restructured its Irish dairy processing
activities and delivered record results with 22%
growth in reported adjusted earnings per share.
The outlook for 2013 is positive.
2012 highlights
Our global footprint
Understanding our business
BUSINESS REVIEW
Our focus in 2013/2014 will be to refresh the
Group’s strategy so that we prioritise growth
opportunities and concentrate on the areas
of highest potential and returns. This will
ensure that we capitalise on the strong
long-term positive market trends in key
nutritional segments, where the Group already
has established market leading positions.
Group Chairman’s statement
Group Managing Director’s review
Special feature
Segmental performance
Group Finance Director’s review
Risk management
Our responsibilities
3
GOVERNANCE
Strong corporate governance ensures
high quality decision-making in all areas
of strategy, performance and responsibility
and is central to oversight of the Group on
behalf of shareholders.
4
FINANCIAL STATEMENTS
Statutory financial and
other supplementary information.
Group Chairman’s introduction to governance
Governance framework
Board of Directors and senior management
Audit Committee report
Nomination Committee report
Remuneration Committee report
Applying the Codes
Other statutory information
Statement of Directors’ responsibilities
Independent auditors’ report
Group financial statements
Company financial statements
Notes to the financial statements
Supplementary information
Shareholders’ information
Contacts
Index
2
2
4
6
8
8
10
13
29
34
40
46
51
52
54
55
60
63
65
83
90
93
95
96
97
102
105
167
170
171
Group overview
2012 HIGHLIGHTS
Record results and a historic year
for corporate development
Glanbia has had an excellent year in 2012. The Group delivered strong
financial results and restructured its Irish dairy processing business.
2012 highlights
Record results driven by Global Nutritionals where like-for-like revenue grew 20%
reflecting positive markets as well as strong operational performances in each
business unit;
Clarity on the strategy to expand Irish dairy processing restructures the Dairy
Ireland segment, reduces majority shareholder ownership to 41.3% and facilitates
further international growth;
€115 million capital investment included the purchase of a US nutritionals
company which expands Ingredient Technologies' capabilities and customer
base; and
10% dividend increase for the third consecutive year, bringing total dividend
for the year to 9.09 cents per share.
2013 outlook
The prospects for 2013 are also good, although we remain cautious given the
global economic environment. We expect adjusted earnings per share growth,
on a constant currency basis, of between 8% and 10% for the full year.
The Irish dairy processing transaction facilitates a concentrated focus
on our international growth and the longer term prospects for Glanbia are
positive. We are in a stronger position than ever to drive the business forward
and capitalise on our competitive advantage in both business-to-business
and business-to-consumer nutritional products and solutions.
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2
Glanbia plc Annual Report 2012
1
Reported currency
adjusted EPS
Constant currency
adjusted EPS
56.56c
+22.1%
52.90c
+14.2%
Pro-forma Total
Group revenue
Pro-forma Total
Group EBITA
€3.0bn
+10.4%
€214m
+17.5%
Pro-forma Total
Group EBITA margin
Wholly owned
EBITA margin
7.0%
+40bps
8.0%
+70bps
Pro-forma
JV & Associates
EBITA margin
4.6%
-30bps
(cid:2)(cid:3) All figures are in reported currency and pre exceptional, unless otherwise stated.
Total Group includes both the wholly owned businesses and Glanbia’s share of
Joint Ventures & Associates.
(cid:2)(cid:3)
To better reflect the structure of the Group post the Irish dairy processing transaction,
a pro-forma adjustment has been made to include this business as a 40% associate for
each of 2012 and 2011.
(cid:2)(cid:3) A comprehensive overview of the financial impact of the Irish dairy processing transaction
is set out in the Group Finance Director’s review on pages 38 and 39.
www.glanbia.com
3
Group overview
OUR GLOBAL FOOTPRINT
A strong portfolio of operations serving
business customers and consumers globally
We invested €115 million in expanding our business in 2012 through acquisition
and capital investment and also improved our return on capital employed.
We are a truly international business
with a direct presence in 17 countries
while our products are distributed in
over 130 countries worldwide. While
the US and Europe represent our largest
markets, we continue to expand our
presence in the Middle East, Asia Pacific
and Latin America.
We process almost 6 billion litres of milk
per annum, manufacturing over 500,000
tonnes of cheese and almost 250,000
tonnes of dairy-based ingredients
including whey. We employ 4,900
people, more than 60% of whom are
in our international operations.
In 2012, we expanded our business with
key corporate development projects in
the US and Europe. Our return on capital
employed also improved 130 basis
points to 14.1%.
Go to page 12 for more information
on corporate development projects.
US Cheese & Global Nutritionals.
Dairy Ireland
Joint Ventures & Associates
Innovation centres
Countries of
operations
17
4
Glanbia plc Annual Report 2012
Countries in which
our products
are sold
130+
Total Group employees
4,900
US Cheese &
Global Nutritionals...................44%
Dairy Ireland.............................26%
Joint Ventures & Associates.....30%
1
More information
Understanding our business 6
Segmental performance
Our responsibilities
29
46
Innovation
Glanbia currently has two research and
development (R&D) centres. The Group’s principal
R&D facility is in Ireland. This centre has overall
responsibility for Glanbia’s R&D including
innovation undertaken in the USA. In 2013 the
Group will also commission a dedicated cheese
innovation centre in Idaho.
Our R&D is directed towards the development
of technically superior dairy-based food
ingredients, nutritional products and supplements
as well as cheese and high value consumer food
products. We use proprietary technologies and
processes that enhance the texture, nutritional
properties and flavour of foods. We specialise
in advanced, differentiated and branded ingredients
and consumer products in high growth markets.
www.glanbia.com
5
Group overview
UNDERSTANDING OUR BUSINESS
An integrated business with a
strategic focus on international markets
Building on our dairy base, we have developed a global leadership position in specialist
nutritionals with both a business-to-business and business-to-consumer focus.
US Cheese & Global Nutritionals
Dairy Ireland
Revenue
EBITA
EBITA margin
Manufacturing facilities
Employees
€1,580.8m
€155.5m
9.8%
12
2,136
Revenue
EBITA
EBITA margin
Manufacturing facilities
Employees
€631.0m
€20.4m
3.2%
5
1,262
US Cheese
Ingredient Technologies
Consumer Products
Agribusiness
NO. 1 IRISH DAIRY
CONSUMER BRAND
NO. 1 IRISH SUPPLIER
OF FARM INPUTS
Consumer Products is a
leading supplier of branded
food products in the Irish
market. Its focus is primarily
on dairy products and it
has within its portfolio the
“Avonmore” brand, a leading
Irish grocery brand.
Agribusiness is a leading
supplier of inputs to the Irish
agri sector and operates
a total of 52 retail outlets.
It sells a wide range of
farm related inputs including
feed, fertiliser, hardware and
veterinary supplies. It is also
the largest purchaser of grain
in Ireland.
DISPOSAL OF 60% OF DAIRY INGREDIENTS
During the year the Dairy Ireland segment was
restructured as a result of the disposal of 60%
of the Group’s Irish dairy processing business.
A comprehensive overview of the transaction and
its impact on our financials is set out in the Group
Finance Director’s review.
Go to page 38 to read more.
LEADING PRODUCER
OF AMERICAN-STYLE
CHEDDAR CHEESE
AND WHEY
US Cheese is a
business-to-business,
large scale cheese
operation located in the
highly productive Idaho
agricultural heartland.
This business unit also
operates whey processing
facilities, the output of
which is commercialised by
Ingredient Technologies.
Customised Premix
Solutions
GLOBAL PROVIDER
OF MICRO-NUTRIENT
PREMIXES
Customised Premix
Solutions blends vitamins,
minerals and other nutrients
according to exact
specification for a
range of food and beverage
customers. Its key end
markets include infant
formula fortification,
beverages, cereals and
nutrition bars. It operates
across the US, Europe
and Asia.
GLOBAL INNOVATOR
OF NUTRITIONAL
SOLUTIONS
Ingredient Technologies
formulates, manufactures
and markets a range of
dairy and non-dairy based
nutritional solutions globally.
It sources ingredients both
internally and externally to
create a range of ingredient
systems that add value to
companies operating across
a range of sectors such as
sports nutrition, health and
wellness and infant and
adult medical nutrition.
Performance Nutrition
LARGEST GLOBAL
SPORTS NUTRITION
BRAND PORTFOLIO
Performance Nutrition’s
portfolio is comprised of
protein based fitness and
healthy living products as
well as pre-workout energy,
post-workout recovery,
diet and muscle building
products. Through its three
brands, Optimum Nutrition,
BSN and ABB, it holds
leading market positions in
the US and internationally.
6
Glanbia plc Annual Report 2012
1
More information
Segmental performance
Group Finance
Director’s review
29
34
Joint Ventures & Associates (pro-forma)
Revenue
EBITA
EBITA margin
Manufacturing facilities
Employees
€826.3m
€37.7m
4.6%
6
1,471
Southwest Cheese
Glanbia Cheese
NO. 1 MOZZARELLA
PRODUCER IN EUROPE
Glanbia Cheese is a
business-to-business
mozzarella producer
supplying primarily to the
European pizza sector. It
operates two manufacturing
facilities in the UK. Our 49%
partner is Colorado based
Leprino Foods.
Nutricima
NO. 3 CONSUMER DAIRY
PRODUCTS PROVIDER
IN NIGERIA
Nutricima produces
branded dairy-based
products for the Nigerian
consumer market. The bulk
of its dairy-based inputs are
supplied by GIIL. Our 50%
partner is PZ Cussons Plc.
LEADING PRODUCER
OF AMERICAN-STYLE
CHEDDAR CHEESE
AND WHEY
In conjunction with
US Cheese, Southwest
Cheese is a leading
producer of American-style
cheddar cheese. It
operates a world class,
large-scale facility in New
Mexico. US Cheese and
Ingredient Technologies
are responsible for
commercialisation of its
cheese and whey output
respectively. Our 50%
partner is the Greater
Southwest Agency.
Glanbia Ingredients
Ireland Limited
NO. 1 IRISH DAIRY
PROCESSOR
GIIL is the leading milk
processor in Ireland
and exports most of its
products to global dairy
markets. Our 60% partner
is Glanbia Co-operative
Society Ltd, the Group’s
largest shareholder.
Pro-forma Total Group
revenue
€3.0bn
US Cheese & Global Nutritionals............52%
Dairy Ireland.......................................... 21%
Joint Ventures & Associates...................27%
Pro-forma Total Group
EBITA
€214m
US Cheese & Global Nutritionals............73%
Dairy Ireland.......................................... 9%
Joint Ventures & Associates...................18%
Pro-forma Total Group
EBITA margin
7.0%
www.glanbia.com
7
Business review
GROUP CHAIRMAN’S STATEMENT
Strong financial performance
and strategic delivery
In 2012, Glanbia combined an excellent financial and operating performance
with significant strategic development across the business.
I am delighted to report that Glanbia plc
made significant progress in 2012. The
Group delivered an excellent financial
and operating performance, representing
a third consecutive year of strong growth
in revenue and double digit increases
in earnings.
This year it is important to set out in
advance the significant changes made
in 2012 to the divisional structure of
Glanbia and the Group’s relationship
with Glanbia Co-operative Society,
(the “Society”) its largest shareholder.
2012 key business focus area
The main 2012 business focus area
for the Group was to clarify our
strategic approach to the potential
opportunity for expansion in Irish
dairy processing, which will arise as
a consequence of the abolition of
EU milk quotas in 2015. This was a
matter of interest to a wide range
of stakeholders in the Group including:
(cid:2)(cid:3) Glanbia Irish dairy farmers who, post
2015, will have the opportunity to
expand their production for the first
time in almost 30 years;
(cid:2)(cid:3)
(cid:2)(cid:3)
The Society, both as a major
shareholder in Glanbia plc but also
as the representative body for its
members, many of whom are Glanbia
suppliers and customers; and
Institutional investors and capital
market participants, who want to
ensure that the Group continues to
allocate its resources to the areas of
greatest growth potential.
Strategic reorganisation
of Irish dairy processing
The outcome of discussions on this
challenge and opportunity was the
decision to form a more direct and
deeper strategic relationship between
Glanbia plc (the “plc”) and the Society
in Irish dairy processing. The Society
acquired a 60% interest in the Group’s
wholly owned Irish dairy processing
business with an option to purchase the
remaining 40% within six years. Glanbia
plc retained a 40% interest and as a
result from 25 November 2012, the dairy
processing business now called Glanbia
Ingredients Ireland Limited (“GIIL”)
became an associate company
of the plc.
GIIL is being run by the existing
management, has a separate Board
and is financed on a standalone basis.
The business will build on its strong
foundations as the number 1 dairy
processor in Ireland and is progressing
plans to expand its dairy processing
capacity with a €180 million
investment programme.
Reduction in Society’s
ownership to 41.3%
In addition, the Society received member
approval to reduce its shareholding
below 51% of the issued share capital
of the plc. This involved the sale of
6% of the issued share capital by the
Society, in two placements which took
place in November and December 2012;
successfully broadening the international
institutional investor base of the Group.
In a separate but related transaction,
on 14 March 2013, the Society intends
to distribute an additional 7% of the
issued share capital of the plc to its
members which will reduce the Society’s
shareholding to 41.3%.
2012 governance highlights
I have written a detailed introduction
to corporate governance starting on
page 52 of this report. The highlights
in this area include:
(cid:2)(cid:3) High standards of corporate
governance oversight and
conduct, to ensure that the
interests of all shareholders
were taken account of in the
decision making process in
relation to the GIIL transaction;
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
Positive outcome to the internal
evaluation of the Board’s overall
performance and a commitment
to conduct an external evaluation
in 2013;
Board refreshed with a number
of new Directors appointed
including the announcement
since year end of the
appointment of Donard Gaynor
who brings significant strategic,
corporate development and
international experience to the
Board’s mix of skills;
As part of the GIIL transaction,
Society representation on the
Board will reduce from 14 to 8
by 2018;
Encouraging feedback from
shareholders in an independent
international investor relations
survey undertaken on behalf of
the plc in 2012; and
(cid:2)(cid:3) Board commitment to address
diversity, including the
formulation of a policy on Board
refreshment and renewal, and
creating robust succession plans
to safeguard the Group’s future
performance.
8
Glanbia plc Annual Report 2012
Glanbia plc had an excellent year in 2012. The Group
delivered record financial results and executed a major
corporate restructuring which enables the Group
to focus its capital and resources towards further
international growth.
The Group’s AGM will be held on
Tuesday, 21 May 2013 in The Newpark
Hotel, Castlecomer Road, Kilkenny,
Co. Kilkenny. Subject to approval at the
AGM, dividends will be paid on 31 May
2013 to shareholders on the register
of members as at 19 April 2013. Irish
withholding tax will be deducted at the
standard rate where appropriate.
A great team
I would also like to take this opportunity
to thank all of the people who work in
Glanbia worldwide and to welcome all
the new employees that have joined
us in 2012 as we continue to expand
internationally. It is their commitment
and dedication that has built the
successful business Glanbia is today,
ably led of course by John Moloney,
our Group Managing Director.
Positive future prospects
While the outlook for 2013
is tempered by the continuing
global macroeconomic concerns,
the future prospects for Glanbia
are positive. There are positive
long-term market trends in
key nutritional segments,
where the Group has already
established market
leading positions.
Evolving Board structure
As a consequence of this step change
in the Society’s ownership of the plc,
the composition of the Board will
change over a period of years from
2016. Currently Glanbia’s board has
22 members, 14 of which are Society
nominees, five other Non-Executive
Directors and three Executive Directors.
By 2018 our Board will comprise eight
Society nominees out of a total of 16
Board members.
For further detail, please see
the Nomination Committee report
starting on page 63.
Board changes
There were a number of Board changes
during the year. Kevin Toland, CEO &
President of Glanbia USA and Global
Nutritionals, left Glanbia after 13 years at
the end of 2012. He also resigned as an
Executive Director on the Board. Kevin
made a significant contribution to the
internationalisation of Glanbia and I
would like to thank him for this and wish
him every success in his future career.
Brian Phelan was appointed to the Board
with effect from 1January 2013 as an
Executive Director with responsibility
for Group Development and Global
Cheese. Brian has been with Glanbia
since 1993 and brings a wealth of senior
level experience to the table. Jer Doheny
joined the Board in May as a Society
nominee, replacing James Gannon,
also a Society Nominee. Donard Gaynor
joined the Board on 12 March 2013 as a
Non-Executive Director.
Dividends and AGM
The Board is recommending a final
dividend of 5.43 cents per share,
bringing the total dividend for the year
to 9.09 cents per share, representing
an increase of 10% compared to 2011.
2
More information
Group Chairman’s introduction
52
to Corporate Governance
Board of Directors and
senior management
55
We now have the opportunity to
further develop our unique competitive
advantage in both business-to-business
and business-to-consumer nutritional
products and solutions. We look forward
with confidence.
Liam Herlihy
Group Chairman
www.glanbia.com
9
Business review
GROUP MANAGING DIRECTOR’S REVIEW
Charting a course for
our next phase of growth
The reorganisation of our Irish division in 2012 heralds the next
phase of growth in global ingredients and performance nutritionals.
Glanbia had an excellent year in 2012
with strong growth in adjusted earnings
per share, ahead of expectations.
Good growth was achieved in revenue,
EBITA and EBITA margins, driven
mainly by the continued expansion of
Global Nutritionals in a positive market
environment for key nutritional segments.
This is supported by consistent macro
health and wellness trends across the
globe that underpin demand for protein,
natural products and clean labelling; all
of which are Glanbia strengths.
In 2012, the Group delivered record
results overall with pro-forma Total
Group revenue exceeding €3.0 billion,
an increase of 10.4%. Pro-forma
Total Group EBITA totalled €213.6
million, an increase of 17.5%.
Pro-forma Total Group EBITA margin
was 7.0%, reflecting an 8.0% margin
in the wholly owned businesses, up
70 basis points and 4.6% in the Joint
Ventures & Associates, down 30 basis
points. Adjusted earnings per share grew
22.1%, 14.2% on a constant currency
basis, ahead of expectations.
Landmark agreement on
Irish dairy processing
In 2012, we achieved a landmark
agreement with our then majority
shareholder, Glanbia Co-operative
Society Limited (the “Society”), which
restructured our Irish dairy processing
business from a wholly owned operation
to an associate of the Group. There
was a compelling strategic rationale for
this change in Glanbia’s structure for all
stakeholders and this ‘win-win’ scenario
enabled the successful execution of this
historic transaction.
Full details of this transaction are
in the Group Finance Director’s review
starting on page 34.
Ongoing capital
investment programme
The Group also had a significant
programme of investment in capital
projects and acquisitions in 2012
amounting to €115 million. This included
the €45 million acquisition of Aseptic
Solutions in the USA to enhance
Ingredient Technologies, the opening
of a state-of-the-art Customised
Premix Solutions plant in Europe,
capacity expansion in Performance
Nutrition and the commencement of a
new cheese innovation centre in Idaho.
Track record of performance
We have reshaped the Group in
recent years by establishing new scale
businesses with leading market positions
in high growth nutritionals sectors.
By doing this, we have diversified our
earnings base with the majority now
generated by US Cheese & Global
Nutritionals. We have also enhanced
our operating margin and we have
achieved very good earnings growth
during the period.
Consistent strategic delivery
The success of our international growth
strategy has driven an increase of more
than 200% in shareholder value over the
last three years, delivering substantial
returns to shareholders. This growth
in value in the Group recognises,
I believe, our clear and consistent
strategy of driving Global Nutritionals
forward and allocating resources to the
areas of greatest growth potential and
return. This focus on efficient allocation
of capital means that we have grown
our earnings while also growing returns
on the capital employed (ROCE) in the
business. ROCE has improved by 130
bps to 14.1% in 2012 (2011: 12.8%).
Operational excellence
We combine strategic delivery with
a strong attention to operational
performance and competitiveness as
part of the day-to-day running of the
business. Operational excellence and
cost discipline are ongoing features of
our business model which are being
strengthened by the wider adoption of
the successful Glanbia Performance
System in 2012, commonly known
as our GPS. GPS is an integrated
work system which incorporates
manufacturing best practice into
operational principles to deliver
breakthrough results and improved
performance.
Strategic review
We are currently reviewing our longer
term strategy with the aim of designing
the Group’s strategic roadmap for the
next decade, from a market-backed, top
down perspective. This process will help
the Board determine the growth potential
within our existing portfolio of businesses
including the strength of our capabilities
and assets.
Two platforms for growth
The long term prospects for Glanbia
are good. Today we have two well
established nutrition platforms that span
both business-to-business and branded
business-to-consumer nutritional
products and solutions.
The first is global ingredients, which
incorporates large-scale cheese and
ingredients manufacturing and value-
added ingredient solutions, and has
the potential to broaden and deepen
its range of value-added functional and
nutritional solutions’ technologies.
The second platform is high quality
sports nutrition with great brands and
leading market positions, which has the
potential to expand beyond current core
consumers, customers, channels and
markets into additional performance
nutrition sectors.
10
Glanbia plc Annual Report 2012
Our focus in 2013/2014 will be to refresh the Group’s
strategy so that we prioritise growth opportunities in terms
of a long-term plan and continue to focus our investment
on the areas of highest potential growth and returns.
More information
Segmental performance
Risk management
Our responsibilities
29
40
46
2
2013 positive outlook
In 2013, Glanbia’s growth prospects are
underpinned by sustained favourable
market trends across each of our key
segments and the successful delivery of
the Group’s business focus areas for the
year. We are guiding 8% to 10% year-
on-year growth in adjusted earnings per
share, on a constant currency basis, from
51.02 cents, which takes into account
the dilutive effect of the GIIL transaction.
There are some headwinds with an
uncertain global economic environment
and challenging Irish retail environment,
but the Group is well positioned to
maintain its growth momentum.
We are in a stronger position than
ever to capitalise on the competitive
advantages we have in high growth
markets. Our focus in 2013/2014 will
be to refresh the Group’s strategy so
that we prioritise growth opportunities
in terms of a long-term plan and focus
our investment on the areas of highest
potential growth and returns.
John Moloney
Group Managing Director
New product development
During 2012, key product launches
by Performance Nutrition included:
(cid:2)(cid:3)
Optimum Nutrition ‘Platinum Pre’
– a pre-workout energy and focus
product that supports training
performance and metabolism
using safe and effective
ingredients with clear labelling
on the ‘facts’ panel; and
New product development
(cid:2)(cid:3)
BSN ‘Syntha-6 Isolate’ – a new
ultra-premium protein powder
made with 100% isolate protein,
for post work-out recovery, that
is an industry first, 50:50 blend
of whey protein isolate and milk
protein, combining a mix of fast
and slow release proteins.
You can find out more in a case
study on GPS on page 49 of this report.
Our Special feature starting on page
13 gives an overview of our current
strategy, our strategic priorities and our
2013 business focus areas.
11
Business review
GROUP MANAGING DIRECTOR’S REVIEW
Key corporate development projects
In addition to the Irish dairy processing transaction, we also undertook a number of capital
projects that will enhance the future prospects of key areas of the business. In total, the Group
spent €115 million on acquisitions and capital projects during the year.
US Cheese
1. In 2012, construction commenced on a $11 million
cheese innovation centre in Idaho and is expected to be
completed in the first half of 2013. This centre is focused on
enhancing new product development capabilities, helping
to deliver product innovation within the Group’s portfolio as
well as working closely with key customers to meet their
product development needs.
Ingredient Technologies
2. In July 2012, we acquired California based Aseptic
Solutions (“AS”) for a total consideration of €45 million.
AS is a formulator, manufacturer and co-packer of nutritional
beverages including premium super-fruit drinks, vitamin
shots and protein shakes. The acquisition of AS expands
Ingredient Technologies’ end-to-end solutions capability
as an ingredients supplier, formulator and end product
manufacturer and enhances its competitive position.
3. Ingredient Technologies has recently commenced the
construction of a new $29 million cereal ingredients plant in
South Dakota, USA, with completion of the facility expected
in the second half of 2013. This plant, which will focus on
value-added cereal ingredients including flax, chia and
other high nutrient ingredient products, will replace the
Group’s Canadian flax facility which was destroyed by
fire in March 2012.
Performance Nutrition
4. In 2012, Performance Nutrition continued integrating
the commercial, marketing, operations, supply chain and
finance functions of the Optimum Nutrition, BSN and ABB
brands under one organisation. In 2013, this process will
be augmented by a significant investment in systems as
our SAP platform is deployed in the business.
5. Building on the capacity expansions undertaken in
2012, Performance Nutrition is also committed to a $45
million capital programme that will increase capacity at
the Performance Nutrition facilities in Chicago, USA. This
project commenced in the first quarter of 2013 and will
be commissioned in the second quarter of 2014.
These initiatives underpin our plans to further increase
the market share and brand position of our leading family
of sports nutrition brands in the US and other key
international markets.
Customised Premix Solutions
6. In July 2012, Customised Premix Solutions
commissioned its new €20 million plant in Germany.
This plant enhances the Group’s ability to serve customers
across Europe, the Middle East and Africa and further
consolidates Glanbia’s position as a leader in the global
premix solutions market.
2
1
3
4
555
5
555
6
12
Glanbia plc Annual Report 2012
2
SPECIAL FEATURE
ADDING VALUE
DRIVING GROWTH
DELIVERING RETURNS
Special feature
OUR VISION AND STRATEGY
Our vision is to be the leading global
nutritional solutions and cheese group
We have a clear strategy to achieve our vision and inherent in this is
the commitment to add value, drive growth and deliver returns to all
our stakeholders.
What we
want to do
Our strategic
priorities
What success
will look like
(cid:3) Create a unique integrated
business with leadership
positions in select
consumer and ingredients
categories; and
(cid:3) Optimise value across
our portfolio of businesses
to maximise total
shareholder return.
(cid:3) Align with key growth
customers and markets;
(cid:3) Develop customer-focused,
market-based and
science-backed innovation;
(cid:3) Deliver organic and acquisition
investment that maximises
return on capital employed;
(cid:3) A growing global presence in
our business-to-business and
business-to-consumer nutrition
platforms;
(cid:3) Extended user segments and
scale presence in new regions
in our leading family of sports
nutrition brands;
(cid:3) Leading nutritional ingredients
(cid:3) Achieve operational excellence
and disciplined cost
management; and
solutions provider with
differentiated functional
performance;
(cid:3) Foster a strong
multi-disciplined team
focused on success.
(cid:3)
Increased breadth in our
portfolio, both in dairy and
non-dairy ingredients; and
(cid:3) Leadership position in the
US cheese sector.
ADDING VALUE
We add value to our portfolio in a number of ways including innovation, customer collaboration, ongoing
investment in building our brands, developing new regions and market segments as well as achieving
world class manufacturing.
DRIVING GROWTH
A key element of our strategy is to develop market leading, scale businesses in high growth sectors,
particularly in driving Global Nutritionals forward. This helps us to achieve consistent earnings growth
and a strong financial performance.
DELIVERING RETURNS
Our goal is to deliver substantial returns to shareholders. In the last three years we achieved TSR
of over 200%, reflecting the strategic transformation and international growth in our business.
14
Glanbia plc Annual Report 2012
How we measure
our success
We monitor our progress by measuring
growth or improvement in the following
key financial performance indicators.
(cid:3) Organic revenue
(cid:3) EBITA
(cid:3) EBITA margin
(cid:3) Adjusted earnings per share
(cid:3) Net debt : adjusted EBITDA
(cid:3) Return on capital employed
2013 business focus areas
As part of our ongoing strategic planning process for the Group, we
carry out an annual review and update of our three year business
plan. Based on this, we also identify shorter term business focus
areas. These focus areas help to ensure that our near term goals
are consistent with our longer term strategy and that we continue
to deliver long-term performance. The 2013 business focus areas
relate primarily to US Cheese & Global Nutritionals, which is Glanbia’s
largest segment.
These plans are to:
(cid:2)(cid:3) Drive organic growth in Global Nutritionals;
(cid:2)(cid:3) Continue the successful expansion of Performance Nutrition and
Customised Premix Solutions into select international markets;
(cid:2)(cid:3) Commence capacity expansion and complete SAP
implementation in Performance Nutrition;
(cid:2)(cid:3)
Further develop the ingredient solutions capabilities of Ingredient
Technologies including the building of a new cereal ingredients
plant in South Dakota, USA; and
(cid:2)(cid:3) Enhance commercialisation of cheese innovation and export
platforms with the new customer innovation centre in Idaho.
In Joint Ventures & Associates our clear focus for 2013 is to
manage the transition of Glanbia Ingredients Ireland from a wholly
owned subsidiary to a strategic partnership with the Group’s major
shareholder. A final decision will also be made on the potential
development of lactose capacity in Southwest Cheese upon a review
by the Group and its partner of the pre-engineering study currently
being completed.
At Group-level in 2013, we will increase our investment in people
and infrastructure to underpin the next phase of growth. We will also
continue to develop and evaluate our acquisition pipeline,
with a focus on nutritional businesses.
www.glanbia.com
15
Special feature
OUR VISION AND STRATEGY
US CHEESE
In addition to our wholly owned, Idaho based,
US Cheese business, Glanbia produces cheese
through three strategic partnerships. In total we
produced more than 500,000 tonnes of cheese in
2012, almost 80% of which was in the USA.
Milk
Milk is the foundation for a large part
of our business. Across the Total
Group, we processed almost 6 billion
litres of milk in 2012, 3.8 billion of
which was within the USA.
16
Glanbia plc Annual Report 2012
ADDING VALUE
Our new $11 million cheese innovation centre is expected
to be completed in the first half of 2013.The new facility
will improve the Group’s R&D capabilities within US
Cheese and significantly enhances our ability to deliver
market and customer driven product solutions for both
the US and export markets.
Strategic priority
Achieve operational
excellence and
disciplined cost
management
Glanbia Performance System
The Glanbia Performance System
(“GPS”) was introduced by the
Group firstly in US Cheese in
2011 and subsequently rolled
out to Southwest Cheese. This
manufacturing efficiency system
seeks to drive bottom line
growth by eliminating waste and
transitioning resources from non-
value add to value add activities.
To date the system has been
highly successful and has led to
significant cost savings across
the business.
See page 49 for a detailed
case study on our GPS system.
www.glanbia.com
17
Special feature
OUR VISION AND STRATEGY
INGREDIENT
TECHNOLOGIES
Ingredient Technologies is a leading global supplier of innovative functional and nutritional
solutions for food producers based on whey and other ingredient technologies. It is also a
leading supplier of flax and other nutritional grains.
ADDING VALUE
Ingredient Technologies’ strategic
knowledge of whey represents a
key competitive advantage. This
advantage is monetised through
the commercialisation of cutting
edge innovative products launched
by Performance Nutrition and
the many other customers of
Ingredient Technologies.
18
Glanbia plc Annual Report 2012
2
Research and development is a critical element
of Ingredient Technologies growth strategy as it
continues to shift from commodity products towards
differentiated food solutions for customers and
to broaden its range of ingredients. Its patented
OptisolTM 2000 technology is a key example of
this. This product, which won the prestigious IFT
Innovation Award in 2012, helps to reduce sugar
content while maintaining binding properties in the
manufacture of bars.
Strategic priority
Develop
customer-focused,
market-based and
science-backed
innovation
www.glanbia.com
19
Operations Review
Special feature
OUR VISION AND STRATEGY
GROUP CHAIRMAN’S STATEMENT
PERFORMANCE
NUTRITION
Performance Nutrition holds the leading global sports nutrition
brand family with its three brands, Optimum Nutrition, BSN and ABB.
ADDING VALUE
Performance Nutrition’s brands are held in the highest
regard in the sports nutrition market and represent a key
source of value add. A strong brand heritage, a reputation
for using only the highest quality ingredients and market
leading new product development ensures that our brands
retain their leading positions within the US market and
facilitates the growth of the brands internationally.
20
Glanbia plc Annual Report 2012
2
Strategic priority
Align with key
growth customers
and markets
Performance Nutrition remains the
only truly global player in the sports
nutrition market. While our brands
have been growing strongly in recent
years in international markets outside
the USA, we recognise the significant
opportunity provided by further
international growth and realising this
growth potential is a key strategic
focus for the business. We have
invested in recent years to build the
infrastructure to support this growth
and will continue this investment in
2013 and beyond.
Special feature
OUR VISION AND STRATEGY
CUSTOMISED
PREMIX SOLUTIONS
Customised Premix Solutions is a leading global partner providing innovative
nutritional ingredients and precision micronutrient blends.
ADDING VALUE
We provide nutritional solutions
that are as unique as our
customers’ products. With a
thorough understanding of
nutrient systems, our R&D teams
develop innovative options for
nutritional fortification. Whether
we’re sourcing novel ingredients,
fine-tuning samples to meet
specifications or optimising
packaging that works within
our customer’s production
environment, our ingredients
and precision blends are tailored
to meet the exact needs of our
customers. We are a true partner,
offering exceptional service,
quality and lead times that enable
our customers’ businesses to be
a success.
22
Glanbia plc Annual Report 2012
2
Strategic priority
Align with key
growth customers
and markets
As our customers strive to capitalise on growth within emerging
markets, Customised Premix Solutions is strategically aligned
to support their expansion through our industry-leading global
capabilities. With four interconnected facilities, two in the US,
one in China and our new, state-of-the-art facility in Germany,
we can provide our customers with what they need to meet
market demand around the globe. Fully automated and
integrated systems enable Customised Premix Solutions to
provide best-in-class quality management, from formulation
and sampling through production to finished material delivery
anywhere in the world.
www.glanbia.com
23
Special feature
OUR VISION AND STRATEGY
DAIRY IRELAND
Dairy Ireland incorporates Consumer Products, a leading supplier of branded food
products within the Irish market and Agribusiness, a leading supplier of inputs to
the Irish agri sector.
ADDING VALUE
Consumer Products has a strong track record of developing innovative
value-added products which meet consumers evolving tastes and
help to differentiate us from our competitors. Agribusiness’ recent
agreement with Sturm Foods is a key example of its ability to add value
to its wholesale grain business. The contract involves the supply, on an
exclusive basis, of milled Irish oats to McCann’s Irish Oatmeal, Sturm’s
premium oatmeal brand in the US market.
24
Glanbia plc Annual Report 2012
Strategic priority
Achieve operational
excellence and
disciplined cost
management
Dairy Ireland has implemented a
comprehensive cost rationalisation
programme over recent years and
we continue to seek ways in which
we can reduce costs and further
streamline the business.
In particular, the recent adoption of
the Glanbia Performance System
by Agribusiness should lead to
cost efficiencies through process
improvements and waste reduction.
2
www.glanbia.com
25
Special feature
OUR VISION AND STRATEGY
JOINT VENTURES
& ASSOCIATES
Glanbia has four strategic Joint Ventures & Associates including Southwest Cheese in
the USA, Glanbia Ingredients Ireland Limited, Glanbia Cheese in the UK and Nutricima in
Nigeria. Each of these has a strong strategic rationale and plays an important role in the
Group’s growth strategy.
ADDING VALUE
In 2012, GIIL commissioned an upgrade of its whey facility,
which repurposed commodity whey capacity to enable it
to manufacture higher margin whey protein isolate. This
is a key example of GIIL’s ongoing strategy to enhance
its product mix and reduce the potential for commodity
product earnings volatility.
26
Glanbia plc Annual Report 2012
2
Strategic priority
Deliver organic
and acquisition
investments that
maximise return
on capital
The recent disposal of 60% of our Irish
dairy processing business is a key
example of Glanbia’s capital management
strategy. The new structure facilitates the
expansion of dairy processing capacity
for GIIL while also allowing the Group
to focus its capital on the higher growth
global nutritionals sector.
www.glanbia.com
27
Special feature
DELIVERING RETURNS
A unique business with a
clear competitive advantage
We have two established core nutritional platforms which are underpinned
by core organisation strengths, financial capacity and positive market trends.
Global
Ingredients
Performance
Nutrition
(cid:3) World-class, large
scale cheese and whey
manufacturing
(cid:3) Value-added functional
ingredients and solutions
(cid:3) Largest sports nutrition
brand family globally
(cid:3) Proven growth capability,
both organically and
by acquisition
Total Shareholder Return
In the last three years, Glanbia has generated 207% TSR which
compares to 21% for the FTSE E300 Index and 54% for the FTSE
E300 Food Producers Index.
28
Glanbia plc Annual Report 2012
Business review
SEGMENTAL PERFORMANCE
2
Strong performance driven by positive
market trends and good organic growth
Our 2012 performance reflects 20% like for like revenue growth in Global Nutritionals
and good operational performance in each of the other business units.
Understanding these results
(cid:2)(cid:3)
In this section and the Group Finance
Director's review, we use constant
currency as the basis for commentary
on financial performance, as a large
portion of earnings are US dollar
denominated. Constant currency is
based on translating 2012 results at
the 2011 average exchange rate. The
2011 average exchange rate was €1
= US$1.392 which compares with the
reported average exchange rate for
2012 of €1 = US$1.285.
(cid:2)(cid:3)
IFRS 5 requires that the Group
Financial Statements reflect the 60%
disposal of GIIL as a disposal of 100%
and acquisition of 40% of GIIL.
To better reflect the structure of the
Group going forward, the results and
commentary in the Directors' report
are on a pro-forma basis and include
GIIL as a 40% owned associate for
each of 2012 and 2011.
See page 38 for details.
(cid:2)(cid:3)
(cid:2)(cid:3)
Total Group includes Glanbia’s share
of Joint Ventures & Associates and is
used to demonstrate the full scale of
the Group’s activities.
All commentary is pre exceptional
items which in 2012 amounted to a
charge of €4.7 million compared with
a charge of €7.6 million in 2011.
Full details of exceptional items
are on page 36.
2012 performance
Pro-forma Total Group revenue grew by
4.8% to €2,884.9 million (2011: €2,752.4
million). This growth was driven primarily
by positive pricing and volume growth in
the Global Nutritionals businesses, which
drove a 20% increase in revenue across
the three nutritional business units.
Pro-forma Total Group EBITA increased
by 9.4% to €198.8 million (2011: €181.8
million). Total Group EBITA margin grew
by 30 basis points to 6.9% (2011: 6.6%).
The largest segment in the Group is
US Cheese & Global Nutritionals. This
segment represented 52% of pro-forma
total Group revenue in 2012 and 73%
of pro-forma total Group EBITA. This
segment also has the highest EBITA
margin which in 2012 was 9.7%, up 80
basis points compared with 2011.
Segmental analysis
€m
US Cheese & Global Nutritionals
Dairy Ireland
Total wholly owned businesses
Pro-forma JVs & Associates
Pro-forma Total Group
Reported Currency
Reported Currency
2012
2011
Revenue
EBITA
EBITA %
Revenue
EBITA
EBITA %
1,580.8
631.0
2,211.8
826.3
3,038.1
155.5
20.4
175.9
37.7
213.6
9.8%
3.2%
8.0%
4.6%
7.0%
1,316.9
616.0
1,932.9
819.5
2,752.4
117.5
23.8
141.3
40.5
181.8
8.9%
3.9%
7.3%
4.9%
6.6%
Constant Currency
2012
€m
Revenue
EBITA
EBITA %
US Cheese & Global Nutritionals
Dairy Ireland
Total wholly owned businesses
Pro-forma JVs & Associates
Pro-forma Total Group
1,461.4
631.0
2,092.4
792.5
2,884.9
142.2
20.4
162.6
36.2
198.8
9.7%
3.2%
7.8%
4.6%
6.9%
www.glanbia.com
29
Business review
SEGMENTAL PERFORMANCE
US Cheese & Global Nutritionals
US Cheese & Global Nutritionals delivered a strong performance in 2012.
Revenue, EBITA and margins all increased, mainly driven by 20% organic
revenue growth in Global Nutritionals.
2012 highlights
€m
Revenue
EBITA
EBITA margin
Constant currency
Reported currency
2012
2011
Change
2012
Change
1,461.4
1,316.9
+11.0%
1,580.8
+20.0%
142.2
9.7%
117.5
+21.0%
155.5
+32.3%
8.9% + 80bps
9.8%
+90bps
In 2012, average US cheese prices were
6% lower than in 2011 as fluctuations
in milk supply resulted in weaker prices
in the first half and stronger prices in
the second half of the year. Demand
for American-style cheese during 2012
continued to be resilient, reflecting
positive growth across the domestic retail
and foodservice and export sectors.
Against this market backdrop, US
Cheese delivered a reasonable
performance in 2012. While revenues
were behind the prior year, this was
entirely price driven. Volumes grew by
low single digits. US Cheese introduced
a revised milk price formula mechanism
in 2012 which more closely aligns the
price paid for milk with market prices for
both cheese and whey products. This
helps to ensure that the milk price paid
by US Cheese remains competitive while
providing a level of margin protection. US
Cheese maintains an ongoing focus on
operating efficiencies and costs through
the Glanbia Performance System. For
the full year, lower revenues combined
with similar margins to 2011 resulted in a
modest decline in full year EBITA for US
Cheese.
In terms of 2013 outlook, US Cheese is
expected to deliver results broadly in line
with 2012. Domestic US cheese demand
growth is forecast to remain positive
with the trend towards snacking and
convenience continuing to grow across
both retail and foodservice. Cheese
exports from the US, which increased
17% in 2012, are on track for another
record year.
Ingredient Technologies markets a range
of dairy and whey based ingredients,
from whey protein concentrate 34
(WPC 34) and lactose to whey protein
concentrate 80 (WPC 80) and whey
protein isolate (WPI). It also develops
dairy and non-dairy functional and
nutritional solutions. Average pricing
for most whey products in 2012 was
significantly ahead of 2011, driven by
strong demand across all key sectors.
With new global supply, whey prices
stabilised and softened slightly towards
the end of 2012.
Ingredient Technologies performed
strongly in 2012. The significant increase
in market pricing for whey products
resulted in higher revenues as well
as improved margins. In addition, the
importance of functional and nutritional
solutions capability continued to grow.
This is driven by the development of new
food technologies and capabilities as
well as the ongoing trend towards clean
labels, reduced sugar, natural products
and demand for protein.
For 2013, pricing for some whey
products is expected to decline as
incremental supplies of lactose and
high-end whey are brought on stream.
These market dynamics will adversely
impact performance in Ingredient
Technologies relative to a strong 2012,
but they will be partially offset by the
continued development of functional
and nutritional solutions offerings and
the full year impact of the Aseptic
Solutions acquisition.
US consumer demand for powdered
sports nutrition products was strong
In 2012, US Cheese
& Global Nutritionals
revenue increased
11.0% to €1,461.4 million
(2011: €1,316.9 million).
The growth in total
revenue is attributable to
underlying organic volume
growth of 6%, higher
pricing and an enhanced
product mix of 4% and
the impact of the Aseptic
Solutions acquisition of
1%. EBITA and EBITA
margins increased in the
period driven by a strong
performance by Global
Nutritionals.
30
Glanbia plc Annual Report 2012
2
reflecting positive underlying demand
trends within its key market segments.
EBITA margins for Customised Premix
Solutions did experience some
downward pressure reflecting a change
in business mix and the ongoing
investment in the operational capabilities
of the business, in particular the new
plant in Germany.
The outlook for Customised Premix
Solutions is positive and is underpinned
by current favourable market trends and
continued demand growth in key market
segments.
Awards
INNOVATION AWARD
Ingredient Technologies’ OptisolTM
2000 binding system for sugar
reduction won the Innovation Award
at the prestigious 2012 IFT Food
Expo. The binding system is a milk
protein concentrate that can reduce
sugar usage up to 50% in many
food applications, such as baked
and chewy type granola bars, cereal
clusters, and other snack products.
SUPPLEMENT OF THE YEAR
For the eighth year in a row, Optimum
Nutrition’s Gold Standard 100% Whey
has been named Supplement of the
Year and Protein Powder of the Year
in Bodybuilding.com’s prestigious
annual Supplement Awards. This
year, the world’s best-selling whey
protein also took the honours as
Muscle Builder of the Year.
www.glanbia.com
31
in 2012 with overall market growth
estimated at approximately 11% in the
year. Despite strong growth rates, the
market environment continues to be
very competitive. However, Glanbia’s
investment in brands and a clear focus
on quality and product innovation
continues to drive brand loyalty.
Performance Nutrition delivered a
strong performance in 2012 from both
a revenue and EBITA perspective.
Global branded revenue grew by 20%
in the year. Its brands outpaced market
growth rates in the US and strong
revenue growth was also achieved in key
international markets in Europe, Latin
America and the Asia Pacific region.
While price increases implemented in
2011 and early 2012 dampened the
rate of volume growth in the first half,
growth recovered in the second half.
EBITA growth for the year was also
positive. Higher whey input costs and the
ongoing investment in people, systems
and processes, required to drive future
growth, more than offset the increase
in selling prices, resulting in a modest
decline in EBITA margins for the year.
The outlook for Performance Nutrition
is favourable. While the ongoing
investment in the business will result
in higher overheads, raw material cost
pressures are expected to moderate
as new supplies of high end whey
products become available in 2013. In
addition volume growth is expected to be
positive, with a strong innovation pipeline
supporting brand development and
market penetration in the US and other
international markets.
Customised Premix Solutions is a leading
global provider of micronutrient premixes.
In 2012, market growth was driven by
strong demand for premix solutions
within the beverage, breakfast cereal,
infant formula fortification, supplement
and nutrition bar segments.
Customised Premix Solutions delivered
a solid performance in 2012. Volumes
continued to exhibit strong growth
Business review
SEGMENTAL PERFORMANCE
Dairy Ireland
Dairy Ireland had a challenging year, reflecting a difficult food retailing
environment and margin pressure across the agri sector in 2012.
2012 highlights
Continuing business1
Constant currency
Reported currency
€m
Revenue
EBITA
EBITA margin
2012
2011 Change
2012
Change
631.0
616.0
+2.4%
631.0
+2.4%
20.4
3.2%
23.8
-14.3%
3.9%
-70bps
20.4
3.2%
-14.3%
-70bps
1. Dairy Ireland continuing business figures include Consumer Products and Agribusiness and
exclude Glanbia Ingredients Ireland for both 2011 and 2012.
In 2012, Dairy Ireland
revenue increased
2.4% to €631.0 million
(2011: €616.0 million).
This revenue growth is
attributable to organic
volume growth of 3%
and pricing growth of
2%, offset by the impact
of the Yoplait franchise
disposal. EBITA decreased
by 14.3% to €20.4 million
(2011: €23.8 million) and
EBITA margin declined
by 70 basis points. This
performance reflects a
challenging year in both
Consumer Products and
Agribusiness.
Consumer Products
The Irish food retail environment
remains very challenging. Consumers
are still focused on price which benefits
discount retailers and private label
products at the expense of mainstream
retailers and branded products. In this
context, Consumer Products delivered
a satisfactory performance in 2012.
Excluding the impact of the Yoplait
franchise sale in the first half of the year,
Consumer Products’ volumes were
broadly in line with 2011 and margins
remained largely unchanged in the year.
The Yoplait Ireland franchise was sold
back to Yoplait for €18 million cash.
While Consumer Products continues to
distribute Yoplait branded products, it
will now focus more closely on ongoing
innovation and the development of its
own core beverage and food brands.
The outlook for Consumer Products
remains challenging reflecting Irish
economic conditions, ongoing price
competition and volatile input costs.
Agribusiness
Poor weather conditions in 2012 resulted
in increased demand for feed but this
was offset by lower demand for fertiliser.
Higher input cost prices in both of these
product categories contributed to margin
pressure across the sector in 2012.
In line with the market environment,
Agribusiness revenue growth was
positive as higher feed pricing and
volumes offset revenue declines in the
fertiliser and retail categories. EBITA
margins were lower, mainly due to input
cost pressures and a change in the
business mix. In July 2012 Agribusiness
entered into an exclusive, long-term
contract with US-based Sturm Foods
to supply milled Irish oats to McCann’s
Irish Oatmeal, a premium oatmeal
brand in the US market. To cater for
the new contract, Glanbia is expanding
its existing milling operations with the
construction of a new state-of-the-art
oats milling facility in Portlaoise, with
completion expected by late 2013.
In 2013, Agribusiness is expected to
perform broadly in line with 2012 with the
longer term outlook underpinned by the
forecast increase in milk production in
Ireland on the abolition of EU milk quotas
in 2015.
32
Glanbia plc Annual Report 2012
Joint Ventures & Associates
In Joint Ventures & Associates while revenue increased, EBITA and margins declined
mainly as a consequence of input cost pressures in Glanbia Cheese in the UK.
2
2012 highlights
Pro-forma1
Constant currency
Reported currency
On 25 November 2012,
Glanbia disposed of
60% of its Irish dairy
processing business to
Glanbia Co-operative Society
Limited (the “Society”).
As result the Irish dairy
processing business, now
called Glanbia Ingredients
Ireland Limited (“GIIL”)
became an associate of
Glanbia plc. To reflect the
structure of the Group
going forward, the results
have been adjusted on a
pro-forma basis to show the
disposal of a 60% interest
in GIIL, and the inclusion of
GIIL as a 40% associate for
each of 2012 and 2011.
See pages 38 and 39 for details
on pro-forma adjustments.
€m
Revenue
EBITA
EBITA margin
2012
2011
Change
792.5
819.5
-3.3%
36.2
4.6%
40.5
-10.6%
4.9%
-30bps
2012
826.3
37.7
4.6%
Change
+0.8%
-6.9%
-30bps
1. Joint Ventures & Associates figures include Glanbia Ingredients Ireland for both 2011 and 2012.
Glanbia Ingredients Ireland Limited
Global dairy markets weakened steadily
during the first half of 2012 driven
by substantial growth in global milk
production. However, adverse weather
conditions in a number of the major milk
producing regions around the middle
of the year resulted in a reduction in
milk supply and a strengthening of dairy
markets. While global demand remained
relatively robust throughout 2012, pricing
moved in response to these supply side
fluctuations. In line with global dairy
markets, the market environment for
GIIL improved in the latter part of 2012
relative to a challenging first half. While
milk input cost was adjusted to reflect
market conditions, revenue and EBITA
in GIIL were somewhat lower in 2012.
During the year GIIL commissioned a
€21 million expansion of value-added
WPI. Plans to increase milk processing
capacity by up to 60% through a €180
million investment programme, including
a new €150 million processing facility
are progressing well and will be financed
independently by GIIL. The outlook
for 2013 is broadly positive with the
performance of GIIL expected to be in
line with 2012.
Southwest Cheese (SWC)
While US cheese markets were volatile
in 2012, average market pricing for the
year was below 2011. Prices for high
end whey products were significantly
ahead of the prior year, driven by strong
demand, particularly from the sports
nutrition sector. Revenue increased
marginally in 2012 as lower cheese
pricing was offset by higher pricing of
whey products.
Margins improved in the year mainly as a
result of operational efficiencies and there
was some improvement in EBITA in 2012
compared with 2011. During the year,
SWC enhanced its product mix through
an increase in production of higher-value
whey protein isolate. A pre-engineering
study is also currently being completed
on a potential development of lactose
production capacity to serve increased
demand in growth sectors such as infant
formula. 2013 performance for SWC is
expected to be in line with 2012.
Glanbia Cheese
Overall demand for mozzarella cheese
in Europe remained solid in 2012 and
Glanbia Cheese maintained its strong
market position with key customers.
The increase in milk input costs in the
UK and, in particular, Northern Ireland
combined with the lower value of
the dairy by-products of mozzarella
manufacture impacted its 2012
performance. Both revenue and EBITA
declined, relative to a strong 2011. An
improved performance is forecast in
2013 driven primarily by volume growth.
Nutricima
2012 was a challenging year in Nigeria
due to social unrest in the Northern
region in particular. As a consequence,
volumes were lower year on year
reducing revenue; however EBITA was
broadly in line. In 2013 while the business
will continue to focus on its distribution
strategy and revised routes to market,
we expect the market environment to
remain stable but challenging.
www.glanbia.com
33
Business review
GROUP FINANCE DIRECTOR’S REVIEW
Building a strong track record of
earnings growth and return on capital
2012 is the third consecutive year of double digit increases in adjusted earnings
per share and enhanced return on capital employed in the business.
Financial strategy
The Group’s ethos is to operate to
financial parameters that are consistent
with an investment grade credit rating
and to prudent financial KPIs. Our
financial strategy is consistent and
continues to be to provide the funding
and financial flexibility required to deliver
the Group’s organic and acquisition
growth plans.Glanbia has a strong
balance sheet and is well positioned
financially to drive the next phase of
growth. In 2013 we are planning a
business sustaining and strategic capital
expenditure programme in the region
of €130 million. We also have the debt
capacity to fund up to €200 million
acquisition expenditure and have a
pipeline of opportunities under review
on an ongoing basis.
Glanbia delivered a strong performance
in 2012, following on from very good
performances in 2011 and 2010. All of
our key financial performance indicators
improved and the Group’s balance
sheet was strengthened, enhancing our
financial flexibility. Highlights from our
results include:
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
Revenue from wholly owned
continuing operations grew 8.3% to
€2.1 billion while EBITA margin grew
50 basis points to 7.8%;
Adjusted earnings per share grew
14.2%, ahead of market guidance;
€115 million invested in capital and
acquisition projects in 2012, including
a €45 million nutritionals acquisition in
the USA;
130 basis point improvement in
return on capital employed for the
year;
(cid:2)(cid:3) Net debt to adjusted EBITDA at year
end was 1.7 times and interest cover
was 8.1 times; and
(cid:2)(cid:3)
Renewal of €468 million banking
facilities with maturity extended out
to 2018.
Dividends
The Board is recommending a final
dividend of 5.43 cents per share (2011:
final dividend 4.94 cents per share).
This represents an increase of 10% for
the third consecutive year and brings the
total dividend for the year to 9.09 cents
per share (2011: 8.27 cents per share).
Total shareholder return
In 2012, the share price increased
80.5% from €4.63 to €8.35.
Total Shareholder Return (TSR)
for the year was 83.02%. The
share price outperformed the Irish
Stock Exchange Index by 62.6%, the
FTSE E300 Index by 65.1%, the S&P
500 Index by 67.0% and the FTSE E300
Food Producers Index by 68.2%.
This strong TSR performance recognises,
I believe, the reshaping of the Group,
both in terms of its international growth
in recent years and the restructuring
of our Irish dairy processing business
in 2012. Combined, these strategic
changes in our portfolio have enabled a
rerating of the Group, reflecting the fact
that the higher growth, higher margin US
Cheese & Global Nutritionals business
segment now represents over 70% of
our earnings.
Disposal of 60% of Glanbia
Ingredients Ireland Limited
The disposal of 60% of our Irish dairy
processing business to Glanbia
Co-operative Society Limited was
completed on 25 November 2012 and as
a result the business, now called Glanbia
Ingredients Ireland Limited (“GIIL”)
became an associate of the Group.
While the transaction was dilutive to
adjusted earnings per share it has
reduced the Group’s overall exposure to
global dairy markets and potential future
earnings volatility. It also clarifies future
capital allocation priorities, enabling us
to focus our resources, both human
and capital, on the areas of highest
sustainable returns.
To assist in understanding the
financial impact of this transaction
comprehensive details are set out on
pages 38 and 39 of this review.
2013 earnings guidance
We are cautious at this time in
our 2013 outlook. While there are
good growth opportunities in US
Cheese & Global Nutritionals, across
our portfolio we have some distinct
performance challenges, particularly
in Dairy Ireland. We are guiding 8% to
10% growth in adjusted earnings per
share, on a constant currency basis,
from 51.02 cents in 2012, which takes
into account the dilutive effect of the
GIIL transaction.
34
Glanbia plc Annual Report 2012
Our financial strategy will continue to focus on providing
the funding and financial flexibility required to deliver
the Group’s organic and acquisition growth plans, while
maintaining prudent financial KPIs.
More information
Special feature
Segmental performance
Risk management
13
29
40
2
2012 results summary pre exceptional
€m
Revenue
EBITA
EBITA margin
Amortisation of intangible assets
Net finance costs
Share of results of Joint Ventures & Associates
Income tax
Profit for the year from continuing operations
Profit for the year from discontinued operations1
Constant Currency
Reported Currency
2012 Change
2012 Change
2,092.4
+8.3%
2,211.8
+14.4%
162.6
7.8%
(18.7)
(19.4)
11.4
(23.4)
112.5
26.7
+15.1%
+50bps
+22.8%
-7.3%
175.9
8.0%
(19.9)
(20.4)
12.1
(25.5)
122.2
26.7
+24.5%
+70bps
+33.4%
-7.3%
Profit for the year
139.2
+15.6%
148.9
+23.7%
1.
In accordance with IFRS 5, discontinued operations comprise the performance of GIIL to November 2012.
Revenue
Revenue from continuing operations
grew by 8.3% to €2.1 billion (2011: €1.9
billion) reflecting continued strong organic
growth primarily in Global Nutritionals.
EBITA & EBITA margin
EBITA from continuing operations grew
by 15.1% to €162.6 million (2011:
€141.3 million). EBITA margin increased
by 50 basis points to 7.8% (2011: 7.3%),
with margin growth in Global Nutritionals
partially offset by reduced margins in
Dairy Ireland. EBITA margin growth in US
Cheese and Global Nutritionals was 80
basis points.
Share of results of Joint
Ventures & Associates
The Group’s share of results of Joint
Ventures & Associates declined by €2.9
million to €11.4 million (2011: €14.3
million) primarily due to the challenging
environment in Glanbia Cheese. Share
of Joint Ventures & Associates is an after
tax and interest amount.
Net financing costs
Net financing costs decreased by €4.0
million to €19.4 million (2011: €23.4
million) reflecting debt and interest rate
management in the year. The Group’s
average interest rate for the full year was
4.6% (2011: 5.0%). Glanbia operates a
policy of fixing a significant amount of its
interest exposure with 67% of projected
2013 debt currently contracted at
fixed rates.
Taxation
The 2012 tax charge increased to
€23.4 million (2011: €22.7 million)
which represents an effective rate,
excluding Joint Ventures & Associates,
of 18.8% (2011: 22.7%). The decrease
in the effective rate is driven by the
change in mix and geographic locations
in which profits are earned.
Adjusted earnings per share
Total adjusted earnings per share grew 14.2% with adjusted earnings per share for
continuing operations growing 17.4% driven by growth in EBITA in US Cheese and
Global Nutritionals combined with lower interest charges and a lower effective tax rate.
Constant Currency
Reported Currency
2012 Change
2012 Change
Continuing operations
47.36c
+17.4%
51.02c
+26.5%
Discontinued operations
5.54c
-7.4%
5.54c
-7.4%
Total
52.90c
+14.2%
56.56c
+22.1%
www.glanbia.com
35
Business review
GROUP FINANCE DIRECTOR’S REVIEW
2012 exceptional items
2012 exceptional items resulted in
an exceptional charge of €4.7 million
(2011: €7.6 million). Details of the 2012
exceptional items are as follows:
1. Sale of Yoplait franchise
2. Rationalisation costs
3. Flax processing facility
4. Property write down
5. 60% disposal of GIIL
6. Taxation credit
Total exceptional charge
€m
6.1
(3.8)
4.4
(5.1)
(7.8)
1.5
(4.7)
1. In May 2012, the Group disposed of
the Yoplait franchise for Ireland for
cash consideration of €18 million
which gave rise to a gain of €6.1
million post related write down in
property, plant and equipment and
rationalisation costs.
2. An ongoing cost competitiveness
programme in Dairy Ireland resulted
in further rationalisation costs in this
segment of €3.8 million.
3. In March 2012, a fire destroyed
Ingredient Technologies’ Canadian
flax facility and a gain of €4.4 million
represents the minimum insurance
proceeds receivable, less the book
value of the assets written down.
4. During the year the Group reviewed
the carrying value of its Irish property
portfolio, which resulted in a write
down in value of €5.1 million.
5. An exceptional loss of €7.8 million
arose on discontinued activities,
including loss on disposal of GIIL,
details of which are given on page 39.
6. The tax credit applicable to the
exceptional items 1 to 4 above
amounted to €1.5 million.
Cash flow
Free cash flow includes dividends
from Joint Ventures & Associates
and is stated after charging working
capital movements and business
sustaining capital expenditure, but
before strategic investments or
divestments and equity dividends.
During the year the Group generated free
cash flow from continuing operations
of €60.4 million (2011: €86.8 million) a
decrease of €26.4 million year-on-year.
Higher EBITDA in 2012 of €200.6 million
(2011: €163.6 million) was offset by
year-on-year higher working capital
and increased taxation payments.
The working capital outflow of €59.1
million reflects increased requirements
in Global Nutritionals due to strategic
investment in inventories and business
growth, increased debtors within
Agribusiness due to higher revenue in the
latter months of the year and a receivable
for insurance proceeds relating to the fire
at the Canadian flax facility.
Strategic capital expenditure and
acquisition expenditure during the year
amounted to €84.8 million including
the €45 million acquisition of Aseptic
Solutions, the construction of a new
Customised Solutions Premix facility in
Germany, the expansion of production
capacity within Performance Nutrition and
the commencement of expenditure on
the cheese innovation centre in Idaho.
Net cash outflows of €32.4 million from
continuing operations are offset by cash
inflows of €122.3 million relating to
discontinued operations resulting in a
decrease in net debt of €103.7 million
in the year to €376.6 million (2011:
€480.3 million).
Summary cash flow
€m
EBITDA
Dividends from Joint Ventures & Associates
Working capital movement
Net interest and tax paid
Business sustaining capital expenditure
Other outflows
Free cash flow from continuing operations
Loans advanced to Joint Ventures & Associates
2012
2011
200.6
163.6
13.8
(59.1)
(48.1)
(30.1)
(16.7)
60.4
(3.3)
14.8
(13.3)
(31.8)
(27.3)
(19.2)
86.8
-
Strategic acquisitions/capital expenditure
(84.8)
(128.1)
Disposals
Restructuring costs
Equity dividends
Net cash outflow from continuing operations
Cash flow from discontinued operations1
Cash flow pre currency exchange/fair value adjustments
Currency exchange/fair value adjustments
Cash flow for the year
Net debt at the beginning of the year
Net debt at the end of the year
1.Cash flows relating to discontinued operations are detailed on page 39.
27.1
(6.5)
(25.3)
2.7
(10.0)
(22.9)
(32.4)
(71.5)
122.3
6.1
89.9
13.8
(65.4)
(6.8)
103.7
(72.2)
(480.3)
(408.1)
(376.6)
(480.3)
36
Glanbia plc Annual Report 2012
Financing Key Performance Indicators
Net debt1: adjusted EBITDA2
1.7 times
2.1 times
Adjusted EBIT2: net finance cost
8.1 times
6.3 times
Return on capital employed3
14.1%
12.8%
2012
2011
1. Includes cumulative redeemable preference shares.
2. The definition of adjusted EBITDA and adjusted EBIT are per our financing agreements and
include dividends from Joint Ventures & Associates.
3. Return on capital employed is calculated as Group earnings before interest and amortisation
after tax plus the Group’s share of results of Joint Ventures and Associates after interest and
tax, over capital employed. Capital employed is calculated as the Group’s non-current assets
plus working capital.
Group financing
The Group delivered a year end net debt:
adjusted EBITDA leverage ratio of 1.7
times (2011: 2.1 times) compared to the
Group’s effective banking covenant of
3.8 times. In 2012, adjusted EBIT to net
financing cost cover rose to 8.1 times
(2011: 6.3 times), reflecting increased
profits and lower debt. The Group’s
banking covenant is a minimum of 3.5
times interest cover.
The Group currently has three sources
of committed debt finance totalling
€753.5 million:
(cid:2)(cid:3)
(cid:2)(cid:3)
A $325 million (€246.5 million) private
placement of senior loan notes, due
June 2021;
Bilateral multicurrency revolving
loan facilities totaling €467.9 million
with eight banks, all maturing
January 2018, which were renewed
during 2012 on common terms and
conditions; and
(cid:2)(cid:3)
Cumulative redeemable preference
shares of €39.1 million due for
redemption July 2014.
Return on capital employed
The calculation of return on capital
employed has been restated for both
2012 and 2011 to reflect GIIL as a
40% associate. The return on capital
employed has improved by 130bps to
14.1% (2011: 12.8% as restated). The
Group operates to an internal hurdle rate
of return for investment decisions of 12%
post tax, by year three, and monitors
investment spend against this metric.
Financial risk management
The conduct of Glanbia’s 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
does not trade in financial instruments.
The Group’s treasury policies and
guidelines are designed to mitigate the
impact of fluctuations in interest rates
and exchange rates and to manage the
Group’s financial risks. These policies
were reviewed in 2012 by the Group
Audit Committee and the Board.
Pension
At 29 December 2012 the Group’s net
pension liability under IAS 19 ‘Employee
Benefits’, before deferred tax, increased
by €49.7 million to €98.1 million (2011:
€48.4 million). This increase in the
Group’s deficit reflected the negative
movement in actuarial assumptions
(€98.8 million) caused primarily by a
significant reduction in the discount rate
applied to Irish retirement obligations
to 3.8% (2011: 5.6%) partially offset by
the disposal of the retirement obligation
relating to GIIL of €37.0 million and
employer contributions.
Net pension liability under IAS 19
‘Employee Benefits’
€m
Beginning of year
Exchange differences
Total expense
Actuarial loss
Disposals
Employer contributions
End of the year
2012
(48.4)
(0.5)
(8.0)
(98.8)
37.0
20.6
(98.1)
2
The fair value of the assets of the
pension schemes at 29 December
2012 was €332.6 million (2011: €400.0
million) and the value of the scheme
liabilities was €430.7 million (2011:
€448.4 million).
Principal risks and
uncertainties affecting the
Group’s performance in 2013
The Board of Glanbia plc has the
ultimate responsibility for risk
management. The performance of the
Group is influenced by global economic
growth and consumer confidence in the
markets in which it operates.
In 2013, the principal risks affecting
the Group’s performance are:
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
The continued fragile global and EU
economic outlook;
The challenging Irish retail
environment and the associated
management of margins within Dairy
Ireland; and
The effective execution of our
international growth strategy within
Global Nutritionals.
The Group’s principal risks and
uncertainties are detailed on
pages 43 to 45.
Investor Relations
In 2012, we continued to demonstrate
our commitment to open and transparent
dialogue with the investor community
participating in more than 150 investor
meetings in Ireland, the UK, mainland
Europe, North America and Canada
as well as a number of capital market
conferences. Our largest shareholder,
Glanbia Co-operative Society Limited,
also formed a significant part of our
investor relations programme with a
series of meetings carried out with the
Council of the Society during the year.
Siobhán Talbot
Group Finance Director
www.glanbia.com
37
Business review
GROUP FINANCE DIRECTOR’S REVIEW
Understanding the GIIL transaction
Glanbia plc disposed of 60% of its Irish dairy processing
business to Glanbia Co-operative Society Limited on
25 November 2012, retaining a 40% interest.
The new business entity is called Glanbia Ingredients Ireland
Limited (“GIIL”) and is 60% owned by Glanbia Co-operative
Society Limited and 40% owned by Glanbia plc. GIIL is the
largest dairy ingredients processor in Ireland, assembling a
milk pool of 1.6 billion litres and processing it into c.180,000
tonnes of dairy ingredients largely for export to over 50
countries worldwide.
There was a compelling strategic logic for this transaction for
both parties as it facilitates the expansion of Glanbia’s dairy
processing in Ireland in advance of EU milk quota abolition in
2015, while also ensuring that Glanbia’s financial resources
are directed towards business segments that deliver the
highest return on capital for all shareholders.
GIIL is seeking to increase existing peak dairy processing
capacity by up to 60%; a total investment programme
of €180 million to 2020. The Board of GIIL reflects the
relative shareholding of the partners and the management
of the business remains in place. The financing of GIIL is
independent of both Glanbia plc and Glanbia Co-operative
Society Limited.
For Glanbia plc, this transaction has
reduced the Group’s exposure to
global dairy markets and potential
earnings volatility. It also allows us
concentrate on our successful
international growth strategy and
maximise value for all shareholders.
Siobhán Talbot
Group Finance Director
Accounting treatment
The relevant accounting standards require that in a
transaction of this nature, where Glanbia plc no longer has
control of the entity, the Group financial statements should
reflect the transaction in the first instance as a disposal of
100% of GIIL. The 40% interest retained is treated thereafter
as an associate of the Group.
GIIL is therefore presented in the Group financial statements
as a discontinued operation and its profit after an allocation
of interest and tax until date of disposal (25 November 2012)
has been presented as a single amount in the Group Income
Statement under the heading of discontinued operations. The
2011 figures have been restated on a similar basis, with the
entire profits of GIIL included within discontinued operations.
From 25 November 2012, GIIL has been accounted for as an
associate of the Group and 40% of its results from that date
have been included within Share of results of Joint Ventures
& Associates.
In addition, as required by IFRS 5, the historical allocation of
central corporate costs to GIIL has been revised to exclude
costs that will continue to be incurred by the Group, with
the result that the 2011 EBITA of US Cheese and Global
Nutritionals has been reduced by €4.7m (costs that had
previously been allocated to GIIL).
Pro-forma adjustments
To better reflect the structure of the Group going forward,
the financial commentary included in this Annual Report
is based, where indicated, on pro-forma results. In these
instances, 40% of the results of GIIL for the period from
1 January 2012 to 24 November 2012 are included within
the Joint Ventures & Associates segment and the pro-forma
results for 2011 equally include 40% of GIIL for the full year.
Pro-forma revenue and EBITA for Joint Ventures & Associates
Constant Currency
Reported Currency
Reported Currency
2012
2012
2011
€m
Revenue
EBITA
Revenue
EBITA
Revenue
EBITA
Total GIIL within discontinued operations
40% of above GIIL within disc. operations
Other Joint Ventures & Associates
Pro-forma Joint Ventures & Associates
623.2
249.3
543.2
792.5
36.6
14.6
21.6
36.2
623.2
249.3
577.0
826.3
36.6
14.6
23.1
37.7
738.3
295.3
524.2
819.5
38.2
15.3
25.2
40.5
38
Glanbia plc Annual Report 2012
2
Reconciliation of pro-forma EBITA to profit after tax (PAT) for Joint Ventures & Associates
The table below reconciles pro-forma EBITA with share of results of Joint Ventures & Associates, as reported in
the Income Statement.
€m
Pro-forma EBITA
Reversal of pro-forma adj. for GIIL
Reported EBITA
Finance costs
Income taxes
Profit after tax
Constant Currency
Reported Currency
2012
36.2
(14.6)
21.6
(5.0)
(5.2)
11.4
2011
40.5
(15.3)
25.2
(4.7)
(6.2)
14.3
Change
(4.3)
0.7
(3.6)
(0.3)
1.0
(2.9)
2012
37.7
(14.6)
23.1
(5.3)
(5.7)
12.1
Change
(2.8)
0.7
(2.1)
(0.6)
0.5
(2.2)
Adjusted earnings per share
Adjusted EPS is calculated on a pro-forma basis to recognise the 40% interest retained in GIIL.
Constant Currency
Reported Currency
2012
2012
€m
Continued Discontinued
Total
Continued
Discontinued
Total
Profit for the year - pre exceptional
Less Minority interests
Add back amortisation (net of tax)
Reclassify 40% of GIIL retained by Group
Adjusted net income
Adjusted earnings per share (cents)
112.5
(0.4)
16.4
10.8
139.3
47.36
26.7
139.2
122.2
26.7
148.9
-
0.4
(10.8)
16.3
5.54
(0.4)
16.8
-
155.6
52.90
(0.4)
17.4
10.8
150.0
51.02
-
0.4
(10.8)
(0.4)
17.8
-
16.3
166.3
5.54
56.56
Impact on Group cash flows from the GIIL transaction
The cash flow relating to the discontinued operations of €122.3
million per the summary cash flow on page 36 is detailed as follows:
Exceptional loss discontinued operations
Exceptional items for 2012 include a €7.8 million loss
relating to the GIIL transaction detailed as follows:
€m
2012
€m
Cash outflow of GIIL to date of disposal
(28.9)
100% of GIIL net assets
Proceeds on disposal:
- Net assets
- Working capital
Equity investment by Group in GIIL
Other cashflows
49.3
125.7
(20.5)
(3.3)
40% equity interest retained
Cash consideration in respect of 60% disposal
Disposal related costs
Currency translation gain previously in equity
Cancellation of interest rate swaps
Net cash inflow to Group on disposal
Cash flow relating to the GIIL transaction
151.2
122.3
Taxation credit
Exceptional loss
2012
(84.5)
33.8
49.3
(5.0)
1.0
(2.7)
0.3
(7.8)
www.glanbia.com 39
39
Business review
RISK MANAGEMENT
John Callaghan
Audit Committee Chairman and
Senior Independent Director
How we manage risk
Our risk management and internal control
systems enable the timely identification,
assessment, monitoring and reporting of
the principal risks facing the business by
impact, likelihood, volatility and velocity.
By focusing our risk management
approach on the early identification of
key risks, it enables us to conduct a
detailed consideration of the existing
level of mitigation and the management
actions required to either reduce or
remove the risk. If the reduction or
removal of the risk is not possible, the
Group formulates a management action
plan to respond to the risk should the
risk materialise.
Risk management responsibilities
The Board has overall responsibility for
the Group’s system of risk management.
The Board reviews its effectiveness
and confirms that a process exists
for the identification, assessment and
management of risk in order to ensure
that the Group’s strategic objectives are
achieved. The Board also determines the
nature and extent of the risks the Group
is willing to take in achieving its strategic
objectives. While the Board has overall
responsibility for ensuring that risk is
effectively managed across the Group,
it has delegated the responsibility for
reviewing the design and implementation
of the Group’s system of internal control
and risk management procedures to the
Audit Committee.
Ownership of risk identification
and mitigation lies with the senior
management team. With clear leadership
from the Board and the Audit Committee,
the Group Operating Executive plays an
integral role in assisting business unit
teams and functional leads to identify,
assess and monitor their respective
risks and controls. Through monthly
performance reviews, risk exposures
are examined and a culture of open
communication on risk matters is
developed within a clearly defined
framework and reporting process.
40
Glanbia plc Annual Report 2012
Effectively managing our key risks is critical to
the delivery of the Group’s strategy plan and the
achievement of sustainable growth. The Board is
committed to ensuring robust risk management and
internal control systems are in place and that risk is
managed within defined risk tolerance limits.
Our risk management process
In order to ensure a consistent risk
management approach, language and
culture each business unit management
team and functional lead is requested to
perform a detailed risk review exercise
and to complete the Group risk register
template on a quarterly basis. This
is a standard template that enables
management to;
(cid:2)(cid:3) Classify risks as financial, operational,
regulatory, or strategic,
(cid:2)(cid:3) Assess the inherent risk impact,
likelihood of occurrence and speed
at which the impact of the risk could
materialise,
(cid:2)(cid:3)
Identify the mitigation measures (if
applicable), the residual risk and the
related management action plans,
(cid:2)(cid:3) Allocate an owner who has
responsibility for assessing and
managing the risk exposure.
Internal Audit prepares group-level risk
profile summary reports based on the
quarterly information submitted. The
Group Operating Executive, the Audit
Committee and the Board, in that order
all review the summary reports and the
main movements. The reports include;
(cid:2)(cid:3) An analysis of the key Group financial,
operational, regulatory and strategic
risks in terms of impact (assessed
over the following 12 months within
defined monetary terms), likelihood
of occurrence (assessed over a
three-year period in line with the
Group strategy plan and based on
defined probabilities of occurrence)
and the speed at which the impact
of the risk could materialise.
(cid:2)(cid:3) A summary of the key movements
in the trend of risks identified.
(cid:2)(cid:3) Management action plans and
owners to help manage the key
residual risk exposures.
(cid:2)(cid:3) A risk graph which provides a visual
representation of individual risks
with reference to their size or impact
to the Group and their likelihood of
occurrence.
(cid:2)(cid:3) An overview of the broader
organisational and business risks. The
likelihood and impact of occurrence of
such risks is often harder to define as
they may be outside the direct control
but not the influence of management
and the Board. For example a
significant adjustment to the current
climate change agenda may occur
with resulting impact to our large-
scale processing operations.
The focus of the Board is on ensuring
that the Group residual risk position
is within their risk appetite while the
Group Operating Executive and the
Audit Committee, supported by Internal
Audit, is entrusted with ensuring that
appropriate measures are in place to
validate the strength of internal controls
and risk mitigation.
To further ensure that robust risk
management processes and internal
controls are embedded across the
Group, senior management are required
when presenting a business update
to the Board, to provide detailed
presentations on their individual business
unit risk register, the mitigating controls
and the success of management action
plans. All of the Group’s USA based
business units were provided with this
opportunity during the 2012 Board
visit while the remaining businesses
presented to Board meetings at various
stages throughout the year.
The Audit Committee also operates
an ongoing programme of evaluating
key areas of risk through a series of
presentations from Group functional
experts on matters such as food
safety and quality, Group legal risks,
financial control and operational site
assessments.
2
While risk management is an evolving process a number of key achievements were noted in 2012 and further priority
areas have been identified for reducing our risk exposures in 2013 including the following:
2012 key risk management achievements
2013 key risk management focus areas
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
The successful transaction in respect of
Glanbia Ingredients Ireland Limited has
reduced the Group’s exposure to the volatility
of global dairy markets and provided clarity
with regard to the Group’s investment strategy
while still facilitating the planned expansion of
Glanbia's Irish milk processing capacity.
Implementation of a revised milk price formula
in US Cheese which better aligns the price
paid for milk with market prices for US cheese
and whey products. This ensures that the milk
price paid by US Cheese remains competitive
while supporting a robust business model for
the operation.
The refinancing of third party banking debt
which was due to mature in the short term
to help underpin the medium term liquidity
requirements of the Group.
The Group has continued to expand its
global footprint throughout the year through
a number of significant projects including
the acquisition of Aseptic Solutions and the
completion of the greenfield Customised
Premix Solutions facility in Germany. These
projects not only better serve existing
customers but offer additional capacity for
further growth.
The importance and success of the business
continuity planning process was evidenced in
early 2012 when the Ingredient Technologies
flax facility in Canada was destroyed by
fire. 100% of product requirements were
outsourced to contract manufacturers with
minimal effect on customers.
The Group continued to improve its ability to
internally produce quality whey protein through
its investment in whey processing facilities
in Glanbia Ingredients Ireland Limited. This
project will help deliver quality whey protein in
line with our customer commitments.
(cid:2)(cid:3) Demand for higher end whey products may
outgrow production capacity in the coming
years. A key focus area for the Group will be
to plan effectively to address this potential
structural tightness in whey protein markets.
(cid:2)(cid:3) Managing the ongoing organic growth of the
business will be a key focus. This will relate in
particular to capital expenditure, the addition
of people and expansion into new markets.
(cid:2)(cid:3) A new Performance Nutrition production
facility is planned for Aurora, USA which will
enhance existing production capabilities and
allow the consolidation and strengthening of
our Performance Nutrition supply chain.
(cid:2)(cid:3)
In order to integrate the operations of recent
and future acquisitions and to help facilitate
forecasted organic growth a US Shared
Services Center was launched in early 2013.
This will expand over the coming months as
a range of back office activities is transitioned
from all US based business units during
2013, providing the twin benefits of efficient
processing in line with Group policies and
procedures and clear segregation of duties.
(cid:2)(cid:3) Control systems to facilitate future business
growth and expansion will be further
enhanced by migrating all recent acquisitions
onto the existing Group ERP (SAP) system.
This process will be completed for all existing
business units during 2013.
(cid:2)(cid:3)
The Group's approach to financial risks,
including currency risks, is to centrally
manage financial and taxation risks against
comprehensive policy guidelines, details of
which are outlined in note 3.1 ‘Financial risk
factors’ on page 113 of this report. The Board
regularly reviews these policies.
www.glanbia.com
41
Business review
RISK MANAGEMENT
Risk management framework
The Board has ultimate responsibility for risk, which includes the Group’s risk governance structure
and maintaining appropriate internal controls. The Audit Committee has responsibility for reviewing
the design and effectiveness of the Group’s risk management and internal control systems.
The diagram below outlines the key roles and responsibilities of each of the respective functions
within our risk management framework.
For more information on the Governance Framework see page 54.
The Board
Develops the Group’s
vision and strategic
priorities and defines the
organisational Code of
Conduct and culture
Has overall responsibility
for the Group’s risk
management and
internal control systems
Sets risk appetitie
and tolerance on the
recommendation of the
Board Committees
Monitors the nature and
extent of the Group’s
principal risk exposures
versus the defined risk
appetite
Group Operating Executive
Group Operating Executive Audit Committee Internal Audit
(cid:2)(cid:3) Forms organisational structure
(cid:2)(cid:3) Responsible for maintaining
effective risk management
policies and programmes
(cid:2)(cid:3) Monitors performance, risk
exposure, mitigation and
internal controls
(cid:2)(cid:3) Supports the senior
management team
(cid:2)(cid:3) Responsible for reviewing the
design and implementation
of the Group's risk
management and internal
control systems
(cid:2)(cid:3) Supports the Audit Committee
in reviewing the effectiveness
of the Group risk management
and internal control processes
(cid:2)(cid:3) Monitors actions taken by
(cid:2)(cid:3) Supports the Board in
management
monitoring risk exposure
versus risk appetite
(cid:2)(cid:3) Reports quarterly to the
Audit Committee
Group Senior Management Team
Risk ownership
Risk awareness
Risk monitoring
Risk reporting
Responsible for
risk identification,
measurement and
for assigning risk
management roles
and responsibility at
operational level
Ensures risk
management
processes and internal
control systems
embedded within each
business unit
Monitors business
performance and uses
risk management to
support decision
making
Encourages open
communication on risk
matters and reports to
the Group Operating
Executive, Audit
Committee and
the Board
Top-down
Oversight,
identification,
assessment
and mitigation
of risk at
Group level
Bottom-up
Oversight,
identification,
assessment
and mitigation
of risk at
business unit
level and
across key
Group
functional
areas
42
42
Glanbia plc Annual Report 2012
2
Principal risks and uncertainties
The performance of the Group in 2013 will be strongly influenced by the global economic outlook, the
challenging Irish retail environment and the associated management of margins within Dairy Ireland and
the effective execution of our international growth strategy within Global Nutritionals.
Risk identification processes take into account the Group’s strategic priorities outlined on page 14.
A summary of the key risks identified, potential impacts and mitigating actions are set out below. A risk
trend arrow icon is included for each risk described to identify whether the risk has increased, decreased
or remained stable during the year.
Risk trends
No change
Risk declining
Risk increasing
Strategic priorities
ALIGN WITH KEY GROWTH CUSTOMERS AND MARKETS
Risk title/description
Potential impact Mitigation
Customer concentration risk
Certain key customers
represent a significant portion
of Group revenue and operating
profits. The loss of all or part of
one or more of these customers
represents a concentration risk
to the business.
Risk trend
Reduced
profitability and
cash flow.
The Group has developed strong relationships with major customers
by focusing on superior customer service, product innovation, quality
assurance and cost competitiveness. This was best illustrated in 2012
with the receipt of the ‘Supplier of the Year’ award from one of the
Group’s key customers. This was targeted as a clear business unit goal
pre 2012.
2013 Objective
Our aim is to continue the high level of responsiveness to our key
customers while targeting growth with global customers and value add
opportunities both within existing markets and new geographies. Future
acquisitions will assist in allowing us to enter new markets, gain access
to customers and acquire new capabilities.
DEVELOP CUSTOMER-FOCUSED, MARKET-BASED AND SCIENCE-BACKED INNOVATION
Risk title/description
Potential impact Mitigation
Potential adverse
effects on the
Group’s financial
performance.
Market risk/ product
development risk
Increasing competition, product
innovations, technical advances
and changing market trends
provide a constant challenge
to the future success of the
Group and its ability to adapt
successfully.
Risk trend
Glanbia’s main innovation centre is located in Ireland with a further
innovation and customer collaboration centre in the USA. Research and
development expenditure is focused on value-added and customer-
specific solutions in sectors where Glanbia has significant technical and
market knowledge. The Group’s investment in value added research and
development was highlighted when Glanbia Nutritionals won the IFT 2012
‘Food Expo Innovation’ award for a product which provided a solution
to a food science and technology challenge and will benefit both food
manufacturers and customers.
2013 Objective
Our focus is on the achievement of the following key business focus areas;
(a) Facilitating the ongoing commercialisation of our cheese innovation
platform with the new Customer Innovation Centre in Idaho, USA.
(b) Further developing the solution capabilities of Ingredient Technologies
through the construction of a new cereal ingredients plant in South
Dakota, USA.
It is key that both projects are resourced with the best talent available
and that new product development plans are progressed in line with
expectations.
www.glanbia.com
43
Business review
RISK MANAGEMENT
DELIVER ORGANIC AND ACQUISITION INVESTMENT THAT MAXIMISES RETURN ON CAPITAL EMPLOYED
Risk title/description
Potential impact Mitigation
Investment risk
The risk of the Board making
sub-optimal capital allocation
decisions.
Lost opportunities
to maximise
shareholder value.
The Group manages capital by operating within defined return on
investment metrics and debt ratios. All significant investment and
divestment decisions are considered and approved by the Board in a
portfolio context to ensure that Group resources are directed to business
segments which will maximise overall Group performance.
Risk trend
Liquidity risk
The ongoing monitoring and
management of Group debt
facilities is key to underpinning
the liquidity requirements of the
Group.
Risk trend
Lack of liquidity to
sustain and grow
the Group, which
in an extreme
circumstance
may impact on
the Group’s ability
to continue as a
going concern.
2013 Objective
2013 plans include significant organic capital investment including the
capacity expansion in Performance Nutrition’s USA facility which is core to
the Group’s strategic aims.
The Group has strong ongoing relationships with debt providers. New
financing arrangements are typically negotiated at least twelve months prior
to expiration. Group Treasury is responsible for ensuring tight management
of debt and interest rate exposures with significant headroom maintained
against current covenants.
Continuous monitoring is undertaken by Group Treasury, the Group
Finance Director and the Finance Committee assisted by regular short and
long term cash flow forecasting and capital allocation analysis. The Board
routinely reviews and approves Group financing options.
2013 Objective
The recent successful extension of our third party debt maturities ensures
the Group is well funded for the medium term. Focus will remain on
maintaining strong relationships with debt providers and in fully assessing
any potential future requirements to ensure the Group retains the flexibility
to respond to opportunities within the commercial environment.
ACHIEVE OPERATIONAL EXCELLENCE AND DISCIPLINED COST MANAGEMENT
Risk title/description
Potential impact Mitigation
Environment, health & safety
regulation risk
A breach of existing
environmental or health and
safety regulations or the
introduction of new, more
onerous, legislation.
Reputational
damage and
regulatory
penalties including
restrictions on
operations,
damages or fines.
The Group is committed to compliance with regulations. We continue to
invest in energy efficiency advancements, carbon reduction and emission
programmes. This is best evidenced through successes such as the
Glanbia Ingredients Ireland Limited plants receiving the prestigious ‘Carbon
Trust Standard’ award, a globally recognised certification for organisations
that measure, manage and reduce their carbon footprint. We also
published an inaugural and comprehensive 2011 Sustainability Report for
the combined US Cheese and Southwest Cheese businesses.
Increased cost of
compliance with
modified or new
legislation.
Adverse impact
on earnings.
Risk trend
Supplier risk
Risk of not achieving an
appropriate balance between
sustainable milk supply
and cost.
Risk trend
2013 Objective
Regulatory compliance and a pro-active approach to the adoption of new
legislation will result in the optimal strategic positioning of the Group to
maximise earnings and add a competitive edge to new product development.
Milk procurement strategy teams are in place to ensure the business
remains competitive in its supplier offerings which is in the interests of
our milk suppliers and Glanbia alike. The successful implementation of a
revised milk price formula in Idaho will help to maintain a competitive milk
pricing environment thereby underpinning milk supply.
Irish milk supply cost is constrained by competitive conditions and the
pricing methods employed. Our exposure to this risk has been reduced
following the disposal of 60% of our Irish dairy processing operations.
2013 Objective
Management will continue to ensure that the focus is not solely on pricing
but also on the non-pricing value added initiatives that can be used to
secure milk supply.
44
44
Glanbia plc Annual Report 2012
Glanbia plc Annual Report 2012
2
ACHIEVE OPERATIONAL EXCELLENCE AND DISCIPLINED COST MANAGEMENT (continued)
Risk title/description
Potential impact Mitigation
Product safety
compliance risk
A breakdown in control
processes may result in
contamination of products and/
or raw materials resulting in a
breach of existing food safety
legislation.
The sudden introduction of
more stringent regulations
may also cause operational
difficulties.
Risk trend
Product recall
costs, lost
revenues and
reduced growth
prospects.
Reputational
damage and
regulatory
penalties including
restrictions on
operations,
damages or fines.
Additional labelling
requirements.
The Group conforms to food safety and quality regulations and aims to
employ best practice across all its production facilities to maintain the
highest standards by focusing on:
(cid:2)(cid:3) Employing suitably qualified and experienced staff.
(cid:2)(cid:3) Operating a supplier certification programme whereby suppliers, their
processes, facilities and products are audited for conformance to
Group standards.
(cid:2)(cid:3) Monitoring overall food safety through the Glanbia Quality System (GQS)
which is used to assist management responsible for food safety. Results
of GQS testing are presented to and considered by the Audit Committee
on an annual basis.
The Group also maintains product liability insurance.
2013 Objective
To maintain customer and consumer confidence in the quality of our
products by demonstrating adherence to Group standards, regulatory
requirements and best practice guidance.
Site/facilities
compliance risk
The risk of non-compliance
with regulations pertaining to
building and fire codes and/or
zoning restrictions resulting in a
loss of capacity at a major site.
Risk trend
Inability to
service customer
requirements.
Reputational
damage and
possible
regulatory
penalties.
Reduced
profitability and
cash flow.
The Group limits the risk of a major event impacting operations by:
(cid:2)(cid:3) Ensuring all business operations have business continuity plans in place
including identification of alternative production locations where relevant,
the benefits of which were highlighted following the destruction of our
Canadian flax processing facility where customer disturbance levels
were minimised.
(cid:2)(cid:3) Monitoring overall safety and loss prevention performance through
the Glanbia Risk Management System (GRMS). This system assists
operational management responsible for site risk. An independent
risk manager conducts the GRMS reviews, the results of which
are presented to and considered by the Audit Committee on an
annual basis.
A comprehensive insurance programme is in place for all significant
insurable risks and major catastrophes.
2013 Objective
While detailed business unit disaster recovery plans are in place and have
been tested in our major facilities, further simulation assessments will be
conducted on a regular basis to ensure their operating effectiveness.
FOSTER A STRONG MULTI-DISCIPLINED TEAM FOCUSED ON SUCCESS
Risk title/description
Potential impact Mitigation
Talent management risk
The Group is dependent
upon the quality, ability and
commitment of key personnel
in order to sustain, develop and
grow the business in line with
its key objectives.
Growth targets
may be at risk by
failing to attract,
retain and manage
key personnel.
Risk trend
The Group has put in place strong recruitment processes, effective
HR policies and procedures, long-term incentives, robust succession
management planning and a range of talent management initiatives
including the Group management development programme.
The Group has and will continue to put significant focus on developing its
graduate recruitment programme. Recruiting talented, motivated, young
professionals allows the Group to train and develop future business
leaders in line with the Group’s mission and business objectives.
2013 Objective
To maximise Group performance by allocating resources, including people
and capital to business units where growth potential and capability to
deliver Group performance criteria is greatest. Detailed recruitment plans
are in place to drive organic growth, particularly in Global Nutritionals.
www.glanbia.com
45
Business review
OUR RESPONSIBILITIES
Building a sustainable business
Glanbia’s corporate social responsibility is focused on respect for our employees,
involvement with our local communities and strong environmental stewardship.
2012 highlights
Our people
The standards and values
that are embedded in
the way we conduct our
business and customer
relationships ensure that we
meet our responsibilities.
People are at the heart of
what we do. In 2012, we
continued our programme
of talent and organisational
capability development.
We also sponsored a
wide range of sports and
supported many charitable
causes and local community
initiatives. One of our
other key areas of focus
is the environment and
significant progress was
made in 2012 in achieving
further reductions in waste
generation and energy
consumption. Ultimately,
our goal is to build a
sustainable business that
contributes positively to
the communities and
environments in which
we operate.
A key focus area in 2012 continued to
be the review of talent at all levels in the
organisation through comprehensive
performance and career assessment.
This is designed to ensure key talent
is identified and developed and that
the right organisational capability exists
to deliver on both the business unit
strategic imperatives and the Group’s
overall strategy.
During the year the emphasis for
the global HR system was on the
development of the performance and
succession management portal which
allows managers to review performance
and identify development options. This
system was extended to key business
units across the Group in 2012.
Talent development
The Glanbia management development
programme continued in 2012 with an
education seminar held in Evanston,
Illinois. The 25 high potential participants,
representing all of the Group’s business
units, were selected through the Group
succession management process. The
programme provides key learnings in
strategy, leadership and operational
excellence. The participants also
completed a business unit project
and presented this to both the senior
leadership team of the relevant business
unit and a programme evaluation team.
In addition to the Group sponsored
development programmes, the individual
business units have programmes tailored
specifically to their business and people
needs. For example, in Customised
Premix Solutions, the emphasis was on a
leadership development programme where
the participants acquired new skills aligned
to business specific goals. Customised
Premix Solutions also launched a two year
sales graduate programme for new recruits
with the appropriate science qualifications.
These graduates will train across all
aspects of the global Customised
Premix Solutions business.
Glanbia has expanded its graduate
programme and continues to foster a
global community of young professionals
of diverse disciplines. Key to the success of
the programme is the rotation of graduates
through business units where they rapidly
learn new skills and gain invaluable
experience of Group activities.
The Group management conference
was held again in 2012 with participants
drawn from senior management teams
across Glanbia’s global operations. The
conference focus was the review of
strategic imperatives for the Group and
business units for the next three years. At
the conference there were management
achievement awards presented to three
individuals, chosen from an impressive
list of 14 nominations, by John Moloney,
Group Managing Director and
Liam Herlihy, Group Chairman.
As part of the technical team, I interact with Product Development,
Purchasing, Engineering and other departments. I am also studying
for my Accounting and Finance Diploma as part of the Graduate
programme, and have already completed courses in Management
Development and Food Safety this year.
Sarah Morris
Food Science Graduate, Consumer Products
46
Glanbia plc Annual Report 2012
2
Building organisational capacity
Group employee numbers, including
Joint Ventures & Associates, increased
on average by 297 people in 2012 to
4,869 people. The most significant
growth was in Global Nutritionals as
these businesses continued to build
capability to deliver their growth strategy.
131 people joined Performance Nutrition,
strengthening its resources to drive
business growth and support key
initiatives including Enterprise Resource
Planning (SAP) implementation.
Performance Nutrition also appointed key
commercial executives to support the
expansion of their business internationally
and established sales offices in
strategically selected locations.
Ingredient Technologies added resources
and complementary capabilities through
the acquisition of Aseptic Solutions in
Corona, California. This business unit
also deployed a design team to plan the
new cereal ingredients plant being built in
South Dakota, USA, which is expected to
be operational in mid-2013. US Cheese
and Ingredient Technologies reorganised
their innovation activities to ensure an
integrated approach to the management
of the R&D centre in Twin Falls, Idaho to
maximise the full potential of the team.
39 people joined Customised Premix
Solutions during the year, mainly as a
result of the commissioning of its new
plant in Germany.
The market environment in the Irish
retail sector remains very challenging
and as a consequence Consumer
Foods continued with its strategic cost
rationalisation programme. There was a
reduction in employee numbers resulting
from the sale of the Yoplait franchise and
the closure of the related yogurt plant.
In Agribusiness, resources were applied
to emerging business development
opportunities, including oats milling,
feed exports and the development of
an e-commerce platform.
The Shared Services and Global IT
centre in Ireland was expanded in 2012
to support the continued integration of
the enterprise platform activities of the
Group, underpinning the commercial
and operational expansion of the
business. Planning was well advanced
in 2012 for the establishment of a US
shared services office, based near
our Performance Nutrition operations
in Aurora, Illinois. This was opened in
February 2013 and will support the
expansion of our US Cheese and
Global Nutritionals businesses.
Glanbia Performance System
The Glanbia Performance System
(GPS), already a proven success in
2011, continued to engage more
employees in 2012 especially in US
Cheese, Southwest Cheese and GIIL.
US Cheese achieved 70% employee
engagement in 2012 and this has
delivered significant savings through
‘Lean’ cost-reduction team projects.
In GIIL excellent progress was made
in the Ballyragget and Virginia sites in
embedding ‘Lean’ principles as part
of everyday work practices. This has
yielded considerable cost efficiencies
and savings, surpassing their 2012 cost
reduction targets. A new programme
of leadership development of middle
management in GPS principles also
commenced in GIIL.
Agribusiness also became an active
participant in the GPS programme in
2012 and commenced with the adoption
of GPS principles across their supply
chain function, resulting in savings in
2012 and an ambitious target to build
further on those savings in 2013.
Health & Safety
In 2012, the Glanbia Risk Management
System (GRMS) was introduced to
additional sites, helping to further
embed a strong Health & Safety culture
across the Group. In addition to the
independent third party auditing and a
further improvement in Health & Safety
scores achieved, there was a significant
improvement in lost time incidents and
sustained full regulatory compliance.
Innovative solutions such as peer-to-
peer behavioural based safety, pre-task
risk assessments and an investment in
technology all play a part in driving the
focus on safety and risk management.
These initiatives are matched with a
consistent leadership focus on improving
safety and risk awareness across the
Group as measured through risk based
Health & Safety KPIs.
Pictured at the Management Achievement
Awards at the Glanbia management conference
were: (L to R) Henry Corbally, Vice-Chairman;
Jeff Williams, President/CEO US Cheese;
Matt Healy, Site Manager Ingredient Technologies
Canada; Paul Vernon, CEO Glanbia Cheese;
Martin Keane, Vice-Chairman and
Liam Herlihy, Group Chairman.
www.glanbia.com
47
Business review
OUR RESPONSIBILITIES
Environment
Management of our environmental
footprint is critical to the long-term
sustainability of our business and is a
core element of our strategic priority
of achieving operational excellence.
We seek to continually improve our
environmental performance by asking
ourselves the question “how can we do
more with less?”. This involves ongoing
assessment of our manufacturing
processes as well as our supply and
distribution chains. In particular, we focus
on our consumption, direct and indirect,
of water, energy and waste. Importantly,
this focus on environmental performance
also benefits our financial performance
through increased efficiency and waste
reduction and is embedded in our GPS
system which is being rolled out across
the Group.
Glanbia operates a number of
businesses each with distinct
characteristics. The key focus of our
environmental efforts, in particular in
the context of water, energy and waste
consumption are our manufacturing
focused businesses including US
Cheese, Customised Premix Solutions
and two of our strategic partnerships,
Southwest Cheese and GIIL. All of our
manufacturing plants associated with
these businesses meet the highest
regulatory standards in their respective
jurisdictions and the 2012 environmental
highlights for each of these businesses
are outlined here.
US Cheese
Our wholly owned whey processing
operations, the output of which
is commercialised by Ingredient
Technologies, are managed by the
US Cheese team and therefore, from
a manufacturing and environmental
assessment perspective, all cheese
and whey plants are evaluated on a
combined basis. US Cheese includes
three plants in total, all of which are
located in Idaho; a cheese facility in
Twin Falls, a cheese and whey facility in
Gooding and a whey facility in Richfield.
US Cheese, in 2011, was the first of
our business units to implement the
GPS system and continues to generate
significant benefits from the programme.
In 2012, energy usage per litre of milk
processed declined by 5% while water
usage intensity, as measured by litres
of water consumed per litre of milk
processed declined by 8%.
Customised Premix Solutions
While energy and water consumption
by Customised Premix Solutions is
relatively low compared to our dairy
processing facilities, it remains a focus
of management and 2012 was a very
successful year in this regard. Energy
consumption per kilogram blended fell by
14% in 2012 which follows a 20% decline
in 2011. Water consumption per kilogram
blended fell by 3%.
Southwest Cheese
Southwest Cheese operates a single
large scale plant in Clovis, New Mexico.
Having been commissioned in 2006
and with a 40% capacity increase in
2010, the plant operates at a high level
of efficiency. Nonetheless, energy and
water consumption remains a key focus
of management. In 2012, energy usage
per litre of milk processed declined by
16% while the number of litres of water
consumed per litre of milk processed
declined by 11%.
Glanbia Ingredients Ireland (“GIIL”)
In 2012, GIIL, at its two processing
facilities in Ballyragget and Virginia,
continued to build on the significant
progress made over recent years
in respect of its energy and water
consumption with declines of 1% and
2% respectively. Other key environmental
highlights for GIIL in the year include:
(cid:2)(cid:3)
(cid:2)(cid:3)
In October 2012, the Virginia plant,
which had been awarded the Carbon
Trust Standard Award in December
2011, won “Best in Relative
Carbon Reduction 2011-12” at the
International Carbon Trust Standard
Bearers Conference in London.
The concerted effort by management
and staff at the Virginia plant has
resulted in a 9% reduction in carbon
emissions relative to plant output over
the last three years.
Following in the footsteps of our
Virginia plant, in May 2012 the
Ballyragget plant received the
certificate of achievement from the
Carbon Trust. In 2012, the Ballyragget
plant set a target of becoming a Zero
Waste to Landfill site. This plan is
well underway with a 22% reduction
in waste to landfill in 2012 and, with
October 2012 being the first month
in the plant’s history of zero waste
to landfill, this target looks likely to be
met for the full year 2013.
Glanbia Ingredients Ireland presented with the global award for ‘Best in Relative Carbon Reduction 2011-
12, at the annual Carbon Trust Standard Bearers Conference in London. Pictured (left to right) Audrey
O’Shea, Carbon and Sustainability Manager, Glanbia; Martin Tynan, Glanbia Virginia; Darran Messem,
Managing Director of Certification, Carbon Trust and Danny Mulryan, Glanbia Virginia.
48
Glanbia plc Annual Report 2012
Case Study: Glanbia Performance System
2
Glanbia Performance System (GPS) is the Group’s integrated work system
which incorporates best practice from the global manufacturing industry
into operational principles to deliver breakthrough results. At the heart of
the system is the development of a zero loss culture through ‘everyone,
everyday, learning and improving’.
GPS was first launched in US Cheese in 2011. Following its significant
success, it was rolled out to Southwest Cheese in late 2011 and was
introduced to GIIL and Agribusiness in 2012. In each of these businesses
it has made a material difference. GPS was instrumental in improving
operational and environmental performance as well as safety, while also
reducing costs and improving delivery to our customers. It has enabled
us to drive out waste including non value-added time, material to landfill,
lost product to the waste treatment plant, municipal drain systems or
non-premium product. The savings from those projects enable us to
pursue other elements of our strategy to create a true, fully integrated
sustainability agenda.
While GPS is focused primarily on large-scale manufacturing businesses,
its principles apply across the entire commercial spectrum and we continue
to find new ways in which it can benefit our other businesses including
Performance Nutrition and Customised Premix Solutions.
With GPS, sustainability is not a separate initiative but is woven into the
fabric of our everyday activities. Through GPS, we have been able to
systematically improve the reliability of all our operations, equipment and
processes. Glanbia views sustainability as broader than just the environment.
Sustainability means economic success hand-in-hand with social value, in
ways that respect the environment.
www.glanbia.com
49
Business review
OUR RESPONSIBILITIES
Our local communities
As a nutritional solutions and cheese
group, it is appropriate that Glanbia
is associated with a variety of health
and sports initiatives that reflect the
breadth of our brands, the diversity
of our locations and our values as
an organisation.
Corporate donations
Glanbia’s partnership with Barretstown
in Ireland is in its fourth year. Barretstown
is an organisation which helps children
with serious illnesses to regain their
confidence and self-esteem through
therapeutic recreation and camps. Since
the relationship began in 2008 a total
of €1.2 million has been raised for the
charity through employee volunteering,
sponsorship and corporate donations.
In the USA, Glanbia Nutritionals made
a donation to the Second Harvest
Food Bank of Southern Wisconsin
and to the American Red Cross.
These contributions were to support
food relief activities in the southwest
region of the State of Wisconsin and
to assist with Hurricane Sandy disaster
relief on the east coast of the USA.
As part of breast cancer awareness
month, Optimum Nutrition produced
special pink labelled tubs of 100%
Soya Protein to benefit the Lynn Sage
Foundation, a Chicago-based charity
committed to discovering a cure for
breast cancer.
Glanbia has really helped us raise awareness of Barretstown and
the work we do here. This is really important, not just for raising
funds but also to reach out to those families who might have a
need to send their sick child to this wonderful, magical place.
Dee Ahearn CEO, Barretstown
Employee volunteering
The Group aims to contribute to
local development by supporting our
employees as community volunteers in
various capacities.
Sports sponsorships
Glanbia has a long association with the
All-Ireland Hurling Championship through
its sponsorship of the Kilkenny senior
hurling team.
Optimum Nutrition sponsorship covers
a multitude of sports around the globe,
from the Scottish Rugby team to the
big wave surfing adventure athlete
Mark Visser in Australia. The range of
Optimum Nutrition sports is reflected
in the diversity of the many athletes,
Olympians, teams and sports that they
are involved with.
BSN sponsored Cain Velasquez
reclaimed the UFC (Ultimate Fighting
Championship) Heavyweight
crown. BSN is the ‘Official Nutritional
Supplement Provider’ of the UFC
which is one of the fastest growing
sports in America.
In the USA, Optimum Nutrition and
ABB sponsored the Juvenile Protective
Association’s 5 kilometre run in Chicago’s
Grant Park. Over 500 runners competed
in the event dedicated to raising funds to
support local area children and families
in need.
During 2012 employee volunteers raised
over €50,000 for Barretstown. Among
the employee engagements that took
place was the ‘Glanbia Four Peaks
Challenge’ which took place over three
days in September. 42 of our employees
took part in this inaugural challenge
to climb the highest mountain in each
of Ireland’s four provinces. Another
Glanbia team event was a partnership
with the Kilkenny cycling club, Marble
City Cyclers, for the fourth ‘Tour de
Kilkenny’ sportive. Glanbia “Champions”
in different offices also organised a
number of smaller fundraising initiatives
throughout the year.
The 18th annual Glanbia Charity
Challenge golf competition was the
largest charity event held in Magic Valley,
Idaho. 192 players from various vendors,
customers and dairy patrons of US
Cheese participated in this event and
over $140,000 was raised for charities
in the local area.
In Springfield, Missouri “Team Glanbia”
were the largest group participating in
the annual Price Cutter Championship
Fun Run and they raised funds to benefit
Habitat for Humanity.
Skills@Work
Through Business in the Community Ireland,
Glanbia participates in Skills@Work – an education
inclusion programme that partners schools with
business. The aim of this programme is to improve
the rate of school completion by enhancing the
educational experience for students. In 2012,
we partnered with Duiske College, Co Kilkenny.
This involved Agribusiness employees working
with students on curriculum vitae writing and
interview skills.
Establishing a rapport with employees from
Glanbia opens students’ eyes to what exactly
is involved in various jobs or careers on a
day-to-day basis. It allows them to explore
what may be of interest to them and give them
a target to aim towards in terms of education.
Pat Murphy
Principal, Duiske College
50
Glanbia plc Annual Report 2012
GOVERNANCE
Group Chairman’s introduction to governance
Governance framework
Board of Directors and senior management
Audit Committee report
Nomination Committee report
Remuneration Committee report
Applying the Codes
Other statutory information
Statement of Directors’ responsibilities
2
52
54
55
60
63
65
83
90
93
www.glanbia.com
51
Governance
GROUP CHAIRMAN’S INTRODUCTION TO GOVERNANCE
I am pleased to introduce the Corporate
Governance Report for 2012 which
explains our approach to corporate
governance, describes how your
Board and its committees work and
our approach to risk management and
internal control.
The main function of the Board is to
provide strong strategic guidance and
oversight of the performance of the
Group on behalf of shareholders. Within
this, the Board actively considers long
term strategy, monitors and supports the
work of the Group Operating Executive
and is responsible for Board and
executive management succession.
My role as Group Chairman is to seek to
ensure high quality decision-making in all
areas of strategy and performance and
to promote and maintain high standards
of corporate governance.
As I outlined in my statement on page 8
the most significant development for the
Group this year was clarification of its
strategic approach to dairy processing
in Ireland, following the abolition of the
current EU milk quota regime in 2015.
This culminated in the disposal of 60% of
Glanbia Ingredients Ireland Limited (GIIL)
to Glanbia Co-operative Society Limited
(the “Society”), the Group’s then majority
shareholder. The negotiations lasted
for most of 2012 and resulted in the
successful completion of the transaction
in November. Overall, this required the
highest level of corporate governance
oversight and conduct, to ensure
that the interests of all shareholders
were taken account of in the decision
making process.
Clear divisions of accountability and
responsibility were established from the
start of the process and the Society
nominated Directors, on the Board,
abstained from all discussions, decisions
and meetings of the Board in relation to
the Board’s decision to dispose of 60%
of its interest in GIIL to the Society. Both
parties also had independent advisors.
52
Glanbia plc Annual Report 2012
Additionally, as this was a related party
transaction, the Society did not vote at
the Extraordinary General Meeting of the
Company held on 20 November 2012 to
approve the transaction.
New Board structure by 2018
There were a number of other proposals
undertaken by the Society along with the
disposal of 60% of GIIL which will
lead, when fully completed in March
2013, to a reduction in the Society’s
shareholding in the Company to 41.3%.
As a consequence the composition of
the Board will transition on a phased
basis over the next five years. The most
substantial change will be a decrease in
the Society’s representation on the Board
from 14 Directors to eight Directors over
the period to and inclusive of 2018. The
Board, together with the Nomination
Committee, will be looking in detail over
the next couple of years at issues such
as Board diversity and the critical balance
and mix of skills and experience needed
to guide the next phase of growth for
the Group.
Board changes
There were a number of Board changes
during the year. Jer Doheny joined the
Board in May as a Society nominee,
replacing James Gannon, also a Society
Nominee. Brian Phelan joined the Board
with effect from 1 January 2013 as an
Executive Director, with responsibility
for strategy, development and Global
Cheese. Brian has worked with the Group
in a variety of senior roles over the last 20
years, most recently as Group Human
Resources & Operations Development
Director. Kevin Toland stepped down
as an Executive Director and as CEO
& President of Glanbia USA and Global
Nutritionals at the end of the year to take
up a role outside of the Group.
Donard Gaynor joined the Board on 12
March 2013. Donard retired in March
2012 as Senior Vice President Strategy
and Corporate Development of Beam,
Inc., the premium spirits company listed
on the New York Stock Exchange based
in Chicago, Illinois.
Board evaluation
In light of the significant investment of
the Board’s time to the disposal of 60%
of GII, a decision was made to conduct
an internal Board evaluation, which I
undertook in late December/early January.
The evaluation covered key governance
areas such as shareholder accountability,
strategy, risk management, Board
composition, culture and decision-making
and governance. A comprehensive
analysis was then presented to the Board.
The findings were on the whole positive
and recommendations were aimed at
enhancing Board effectiveness. The
Board and each of its Committees have
already started to make progress against
the findings and the Board will conduct a
review against the findings during the year.
In line with the UK Corporate
Governance Code, the Board has
committed to undertake an external
board evaluation during 2013.
Compliance with the Codes
Throughout 2012, the Company
complied fully with the UK Corporate
Governance Code and the Irish
Corporate Governance Annex (the “Irish
Annex”) (collectively the “Codes”) with
the exception of the representation of
the Society on the Board. The Board
values corporate governance highly
and this is reflected in our governance
framework, which is set out as part of
this introduction as well as principles,
policies and practices that are applied
every day across the organisation. This
corporate governance section of the
Annual Report explains how we have
applied the main principles of the Codes
during the financial year under review.
Directors’ remuneration
We continue to be able to retain and
recruit talented people whose
skills, experience and commitment are
critical to the success of your Company.
The Remuneration Report sets out
performance against the Annual Incentive
Plan and the Long Term Incentive Plan
and full details can be found on pages 65
to 82. In summary, the Remuneration
Committee assessed that all targets
3
Robust, and responsive governance
arrangements support the Group in
the ongoing success in achieving its
strategic objectives.
Allocation of Board and Board Committees’ time
Board
Nomination Committee
5 5
30
10
15
35
Strategy
Operational and financial
performance
Corporate development
Governance and risk
Investor relations
Other
20
10
30
40
Board and committee composition
Succession planning
Board effectiveness
Other
Audit Committee
Remuneration Committee
10
25
15
25
35
20
10
20
15
25
Financial reporting
Internal audit
External auditors
Control and risk management
Other
Framework and policy
Total compensation package
Incentive awards
Long Term Incentive Plans
Other
Liam Herlihy
Group Chairman
were achieved and Executives
have been awarded accordingly. The
Remuneration Committee does not
propose any changes to the Group’s
remuneration policy for 2013.
Engaging with shareholders
The Group conducts an active Investor
Relations programme and ongoing
communication with our shareholder
base is a priority of the Group. 2012 was
a particularly busy year from an Investor
Relations perspective driven by the
disposal of 60% of GIIL and the related
sale of 6% of the issued share capital of
the Company by the Society.
In total, senior management took part
in more than 150 investor meetings
during the year across the UK, Ireland,
mainland Europe and the US. This active
engagement with investors, combined with
the share sale by the Society, helped to
broaden the understanding of the business
amongst investors and facilitated further
diversification of the shareholder base.
The expected distribution of 7% of the
Company’s shares to Society members by
the Society on 14 March 2013 will further
expand the free float for the Company’s
shares to 59%. In this context, 2013
will be another important year from an
Investor Relations perspective and we look
forward to continued open and transparent
dialogue with our shareholder base.
Annual General Meeting
The 2013 Annual General Meeting will be
held on 21 May 2013 and I look forward to
meeting those shareholders who are able
to attend and answering any questions
they may have on these governance
reports and other matters covered by the
resolutions to be put to the meeting. I am
also available to shareholders at any time
to discuss any matters they wish to raise.
Yours sincerely,
Liam Herlihy
Group Chairman
www.glanbia.com 53
Governance
GOVERNANCE FRAMEWORK
Governance framework
Board of Directors and Secretary
Non-
Executive
Chairman
Two
Non-Executive
Vice-Chairmen
Eleven Directors
nominated by
Glanbia Co-operative
Society Limited
Five Non-Executive
Directors including
the Senior Independent
Director
Three Executive
Directors and
Group Secretary
Board
Committees
Audit Committee
Key activities include
review of financial
statements and
Auditors’ independence,
internal control and risk
management systems,
and the effectiveness of
the Internal Audit function.
Nomination Committee
Key activities include making
recommendations on the appointment
of the Group Chairman, Vice-Chairmen
and Non-Executive Directors,
planning for the orderly succession
of Directors and review of the
independence and time commitment
of Non-Executive Directors.
Remuneration
Committee
Key activities include
review of Executive
Directors and other senior
executives salaries and
benefits, approval of Annual
Incentive targets and Long
Term Incentive Plan share
awards.
Senior
Management
Group Operating
Executive
Key activities include
monitoring performance
and making strategic
recommendations to
the Board. This forum
is also the Group Risk
Committee.
Risk Management
The Board has ultimate responsibility for risk,
which includes the Group’s risk governance
structure and maintaining appropriate internal
controls. The Audit Committee has responsibility
for reviewing the effectiveness of the Group’s
internal control and risk management systems.
Group Management Committee
The Group Management Committee brings together
business unit CEOs and the Group Operating
Executive and has responsibility for delivery of
Glanbia’s annual business plans and strategy.
Group Senior Leadership Team
This team brings together the Group Operating
Executive, Group Management Committee members,
senior business unit teams and Group functional
heads. The focus is to drive shared understanding of
Glanbia’s goals and objectives and the role of each
business unit in delivering the annual business plan
and strategy and to build on Group wide capabilities,
initiatives and collaboration opportunities.
More information
Group Managing Director’s review
Segmental performance
Group Finance Director’s review
Risk management
Audit Committee report
Nomination Committee report
Remuneration Committee report
10
29
34
40
60
63
65
54
Glanbia plc Annual Report 2012
Governance
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
3
Group Chairman and Vice Chairmen
Liam Herlihy
Group Chairman
Martin Keane
Vice-Chairman
Henry Corbally
Vice-Chairman
Martin Keane (aged 57), Vice-Chairman
was appointed to the Board on 24
May 2006 and has served six full years
on the Board. He was nominated for
appointment by Glanbia Co-operative
Society Limited. Martin farms at Errill,
Portlaoise, Co. Laois and has completed
the ICOS Co-operative Leadership
Programme. Martin is Vice President of
Irish Co-operative Organisation Society
Limited and a board member of ICS
Europaks Limited. He is a former director
of Co-operative Animal Health Limited.
Member: Audit Committee/
Remuneration Committee.
Henry Corbally (aged 58), Vice-Chairman
was appointed to the Board on 9 June
1999 and has served 13 full years
on the Board. He was nominated for
appointment by Glanbia Co-operative
Society Limited. Henry farms at
Kilmainhamwood, Kells, Co. Meath and
holds a certificate of Merit in Corporate
Governance from University College Cork
(‘UCC’). He is a former vice-chairman of
the National Dairy Council.
Member: Audit Committee/
Remuneration Committee.
Liam Herlihy (aged 61), Group Chairman
was appointed to the Board on 11
September 1997 and has served 15
full years on the Board. He was
nominated for appointment by Glanbia
Co-operative Society Limited. Liam farms
at Headborough, Knockanore, Tallow,
Co. Waterford and has completed
the Institute of Directors Development
Programme (2006) and holds a certificate
of merit in Corporate Governance from
University College Dublin (‘UCD’). He
is a director of The Irish Dairy Board
Co-operative Limited and is a former
director of Irish Co-operative Organisation
Society Limited.
Chair: Nomination Committee
Member: Audit Committee/
Remuneration Committee
Key matters reserved to the Board
(cid:2)(cid:3) Group strategy and business plans, including responsibility for the overall leadership of the Group.
(cid:2)(cid:3) Approval of the Group’s strategic plan, oversight of the Group’s operations and review of performance in the light of our
strategy, objectives, business plans and budgets, and ensuring that any necessary corrective action is taken.
(cid:2)(cid:3) Acquisitions, disposals and other transactions outside delegated limits.
(cid:2)(cid:3)
Financial reporting and controls, including approval of the half-yearly report, interim management statements and preliminary
announcement of the final results, approval of the annual report and financial statements, approval of any significant changes
in accounting policies or practices, and ensuring maintenance of appropriate internal control and risk management systems.
(cid:2)(cid:3) Capital expenditure, including the annual approval of the capital expenditure budgets and any material changes to them in line
with the Group wide policy on capital expenditure.
(cid:2)(cid:3) Dividend policy, including the annual review of our dividend policy and declaration of the interim dividend and recommendation
of the final dividend.
(cid:2)(cid:3) Shareholder documentation, including approval of resolutions and corresponding documentation to be put to shareholders
and approval of all press releases concerning matters decided by the Board.
(cid:2)(cid:3) Key business policies, including approval of the remuneration and treasury policies.
Pictured left to right:
Martin Keane,
Liam Herlihy and
Henry Corbally.
55
Governance
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Executive Directors and Group Secretary
since she joined the Group in 1992.
Prior to joining the Group, she worked
with PricewaterhouseCoopers in Dublin
and Sydney, Australia. Siobhán graduated
from UCD with a B.Comm. in 1984
and obtained a postgraduate Diploma
in Professional Accounting in 1985.
She is also a fellow of the Institute of
Chartered Accountants in Ireland.
Brian Phelan
Group Development and
Global Cheese Director
Brian Phelan (aged 46), was appointed
to the Board on 1 January 2013 as
Group Development and Global Cheese
Director with responsibility for strategy,
development and Global Cheese. Brian
was previously Group Human Resources
& Operations Development Director (2004
to 2012) where he had responsibility for
Global HR, Group Purchasing and Group
Business Services. In addition he had
responsibility for Glanbia’s Nutricima Joint
Venture and was the Chairman of our
Glanbia Cheese Joint Venture, which he
retains as part of his new role. Prior to
this he was CFO of the Consumer Foods
Division. He has also worked in Glanbia
Ingredients in Ireland and the USA. Prior
to joining the Group in 1993 he worked
with KPMG. He graduated from UCC with
a B.Comm. in 1989 and he is also a fellow
of the Institute of Chartered Accountants
in Ireland.
John Moloney
Group Managing Director
John Moloney (aged 58), is Group
Managing Director since 2001, having
been appointed to the Board on 11
September 1997. He has served 15
full years on the Board. He joined the
Group in 1987 and has held a number of
senior management positions including
Chief Executive of Food Ingredients and
Agribusiness. He was appointed Deputy
Group Managing Director in 2000 and
subsequently assumed the responsibilities
of Group Managing Director in 2001.
Prior to joining the Group, he worked
with the Department of Agriculture, Food
and Forestry and in the meat industry in
Ireland. John is a non-executive director
of DCC plc since 2009 and a Council
Member of the Irish Business and
Employers Confederation. He joined the
Board of Greencore Group plc as a non-
executive director in February 2013. He
graduated from UCD with a B. Ag.Sc. in
1978 and was awarded an MBA in 1988
from NUIG. During 2011, he was awarded
an honorary Doctor of Science degree
from UCD.
Siobhán Talbot
Group Finance Director
Siobhán Talbot (aged 49), was appointed
as Group Finance Director on 1 July 2009
and has served three full years on the
Board. Siobhán was appointed Deputy
Group Finance Director in June 2005
and held the position of Group Finance
Director Designate from March 2009. She
was formerly Group Secretary and also
held a number of senior finance positions
Michael Horan
Group Secretary
Michael Horan (aged 48), was appointed
Group Secretary on 9 June 2005, having
previously held the position of Group
Financial Controller since June 2002.
He joined the Glanbia Group in 1998 as
Financial Controller of the Fresh Pork
business in Ireland. Michael previously
worked with Almarai Company Limited in
Saudi Arabia and BDO Simpson Xavier.
He graduated from National University of
Ireland, Galway (NUIG) with a B.Comm. in
1985. He is also a fellow of the Institute of
Chartered Accountants in Ireland.
Kevin Toland
Kevin Toland (aged 47), resigned from
Glanbia plc on 5 January 2013 having
served ten years on the Board. He joined
Glanbia in 1999 and held the position
of CEO and President of Glanbia USA
& Global Nutritionals at the time of his
resignation.
Pictured left to
right: Brian Phelan,
Siobhán Talbot,
John Moloney and
Michael Horan.
56
Governance
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
3
Paul Haran
Non-Executive Director
Paul Haran (aged 55), was appointed
to the Board on 9 June 2005 and has
served seven full years on the Board.
He is a director of a number of Irish
companies including the Mater Private
Hospital, the UCD Michael Smurfit
Graduate School of Business and the
Irish Insurance Federation. He also chairs
Edward Dillon & Co. He is a former
director of Bank of Ireland, the Road
Safety Authority, the Institute of Public
Administration and the Qualifications
Authority of Ireland. He retired at the
end of 2004 as Secretary General of
the Department of Enterprise, Trade
and Employment after a public sector
career of almost 30 years. He graduated
from Trinity College Dublin with a B.Sc.
in Computer Science and also has an
M.Sc. in Public Sector Analysis and an
Honorary Doctorate of Law, all from
Trinity College Dublin.
Member: Audit Committee /Nomination
Committee/Remuneration Committee.
Non-Executive Directors
John Callaghan
Senior Independent Director
John Callaghan (aged 70), was
appointed to the Board on 13 January
1998 and has served 15 full years on the
Board. He is a director of a number of
Irish companies including Topaz Energy
Group and ACC Bank plc. Former
positions he has held include Managing
Partner of KPMG (Ireland) (1983 to
1991), Chief Executive and director of
Fyffes plc (1991 to 1993), non-executive
director Esat Telecommunications
Limited (1994 to 2000), non-executive
director/chairman of First Active plc
(1993 to 2004) and non-executive
director of Rabobank Ireland plc (1994
to 2012). He is a fellow of the Institute of
Chartered Accountants and the Institute
of Bankers, an associate member of
the Institute of Taxation and a former
president of the Institute of Directors.
Chair: Audit Committee
Member: Nomination Committee/
Remuneration Committee.
Jerry Liston
Non-Executive Director
Jerry Liston (aged 72), was appointed
to the Board on 10 June 2002 and has
served ten full years on the Board. He is
a former Chief Executive of United Drug
plc (1974 to 2000). He commenced his
career with PJ Carrolls where he was
responsible for brand management,
following which he joined Warner
Lambert Pharmaceuticals and became
General Manager Ireland until his
appointment as Chief Executive of
United Drug plc in 1974.
He is also a past executive chairman of
the Michael Smurfit Graduate School
of Business (2000 to 2005) and past
chairman of the Irish Management
Institute, Kevin Broderick Limited, Balcas
Timber Limited, BWG Group Limited and
the Irish Aviation Authority, and a former
director of NTR. He graduated from UCD
with a B.A. (Economics) in 1961, studied
Law at King’s Inn in 1962 and was called
to the Irish Bar. Jerry was awarded an
MBA in 1968.
Chair: Remuneration Committee
Member: Audit Committee/Nomination
Committee.
William Murphy
Non-Executive Director
William Murphy (aged 67), was appointed
to the Board on 1 June 1989 and has
served 23 full years on the Board. He
served as Deputy Managing Director
from 2001 to 2005 having joined the
Group in 1977 and held a number of
senior management positions. Prior
to joining the Group he worked with
the Irish Forestry Department, Cargill
International and the Irish Farming
Association. He is chairman of the
National University of Ireland Maynooth
Outreach Kilkenny Programme and
resigned as a director of Aryzta plc at
the end of 2012. He is also a director
of a number of unlisted companies. He
graduated from UCD with a B.Comm.
in 1972.
Pictured left to right:
John Callaghan,
Jerry Liston, William Murphy,
and Paul Haran
www.glanbia.com 57
Governance
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Non-Executive Directors
Directors nominated by Glanbia Co-operative Society Limited
Glanbia plc was formed in 1997 as a result of the merger of Avonmore Foods plc and Waterford Foods plc. As part of the merger,
Glanbia Co-operative Society Limited retains a major shareholding in Glanbia plc and nominates from its Board of Directors, which is
elected on a three-year basis, 14 Non-Executive Directors for appointment to the Board of Glanbia plc. This will reduce to eight by the
end of 2018, more details of which is set out in the Nomination Committee report. All of the Directors nominated for appointment by
Glanbia Co-operative Society Limited are full time farmers who have significant expertise of the dairy and agricultural industry.
William Carroll (aged 47),
was appointed to the Board
on 26 May 2011 and has
served one full year on
the Board.
Jer Doheny (aged 58),
was appointed to the Board
on 29 May 2012 and has
served less than one year
on the Board.
David Farrell (aged 63),
was appointed to the Board
on 26 May 2011 and has
served one full year on
the Board.
Patrick Gleeson2 (aged 51),
was appointed to the Board
on 24 May 2006 and has
served six full years on the
Board. He is also a member
of the Audit Committee since
26 July 2011.
Brendan Hayes1 (aged
52), was appointed to the
Board on 29 June 2010 and
has served two full years on
the Board.
Michael Keane (aged 60),
was re-appointed to the
Board on 29 June 2010 and
has served two full years
on the Board in the current
term. He previously served
two full years on the Board.
Matthew Merrick2 (aged
61), was appointed to the
Board on 9 June 2005
and has served seven full
years on the Board. He is
also a member of the Audit
Committee since 26 July
2011.
John Murphy1 (aged 50),
was appointed to the Board
on 29 June 2010 and has
served two full years on
the Board. He also sits on
the National Dairy Council
Board.
Patrick Murphy (aged 54),
was appointed to the Board
on 26 May 2011 and has
served one full year on
the Board.
Eamon Power (aged 58),
was re-appointed to the
Board on 26 May 2011 and
has served one full year on
the Board in the current
term. He previously served
nine years on the Board.
Robert Prendergast1
(aged 51), was appointed to
the Board on 28 May 2008
and has served four full
years on the Board.
1 Completed the UCC Diploma in
Corporate Direction.
2 Completed the UCD Diploma in
Corporate Governance.
58
Glanbia plc Annual Report 2012
Governance
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Business Unit Chief Executive Officers
3
Colm Eustace
CEO Agribusiness
Colin Gordon
CEO Consumer Products
Colm Eustace (B. Ag. Sc., C. Dip. AF.,
MBA) (aged 51), is Chief Executive of
Agribusiness since 2006. He joined the
Group in 1985 and has held a number
of senior positions since 1997 within
Agribusiness. He is a director of Co-
operative Animal Health Limited.
Colin Gordon (BBS, MBS, FMII) (aged
51), is Chief Executive of Consumer
Products since his appointment to the
Group in 2006. He previously worked with
C&C Group plc where he held a number
of senior positions, including Managing
Director of C&C (Ireland) Limited. Colin
is currently a member of the Consumer
Foods Board of Bord Bia and chairman
of the Food and Drink Industry Ireland
of the Irish Business and Employers
Confederation.
Raimund C. Hoenes
CEO Customised Premix Solutions
Raimund Hoenes (Ph.D., M.Sc.) (aged
46), is Chief Executive of Customised
Premix Solutions. He joined the Group in
2008 and was appointed Chief Executive
of Customised Premix Solutions in 2009.
He previously worked in a variety of senior
roles in the ingredients sector in several
countries.
Hugh McGuire
CEO Performance Nutrition
Hugh McGuire (M.Sc., Dip. Finance)
(aged 42), is Chief Executive of Glanbia
Performance Nutrition. He joined the
Group in 2003 and was appointed as
Chief Executive of Performance Nutrition
in 2008. He previously worked for
McKinsey & Company as a consultant
across a range of industry sectors.
Prior to this he worked in the consumer
products industry with Nestlé and Leaf.
Jerry O’Dea
CEO and President Ingredient
Technologies
Jerry O’Dea (B. Sc. Dy., MBA) (age 53), is
President and Chief Executive of Glanbia
Nutritionals Ingredient Technologies. He
joined the Group in 1981 and has held
a number of senior positions including
General Manager of Glanbia Ingredients
USA and President of Glanbia Nutritionals.
He was appointed Chief Executive
of Glanbia Nutritionals Ingredient
Technologies in 2008.
Jeff Williams
CEO and President US Cheese
Jeff Williams (B.A., MBA) (aged 56),
is President and Chief Executive of
US Cheese and has management
responsibilities for the Group’s Joint
Venture, Southwest Cheese. He joined
the Group in 1989 and has held many
positions in the US Cheese business
including Chief Operations Officer and
Executive Vice President. Jeff was
appointed President and Chief Executive
of US Cheese in 2005. He previously
worked for six years in the banking
industry.
More information
Segmental performance Dairy Ireland
Segmental performance US Cheese
& Global Nutritionals
Segmental performance Joint Ventures
& Associates
32
30
33
www.glanbia.com 59
As the role of audit committees has continued to evolve
it has become increasingly important for the Committee
to remain up to date and aware of changes in its
responsibilities and to ensure best practice guidelines
are implemented in line with regulatory requirements.
This will be a key focus for the Committee in 2013.
The Committee is satisfied that the Board
maintains sound risk management and
internal controls.
Governance
The Committee consists of eight
Non-Executive Directors of whom three
members constitute a quorum and was
in place throughout 2012. Each of the
members of the Committee is considered
by the Board to be independent in
judgement and character. Membership
of the Committee is reviewed annually
by the Chairman of the Committee and
the Group Chairman who recommend
new appointments to the Nomination
Committee for onward recommendation
to the Board.
The Group Secretary acts as secretary
to the Committee.
The members of the Audit Committee
are outlined below:
Members
John Callaghan (FCA, FIB) (Committee
Chairman)
Liam Herlihy (Group Chairman)
Martin Keane (Vice-Chairman)
Henry Corbally (Vice-Chairman)
Patrick Gleeson
Paul Haran (B.Sc., M.Sc.)
Jerry Liston (B.A., MBA)
Matthew Merrick
For further details on the Directors
go to pages 55 to 58.
Key roles & responsibilities
Financial reporting
(cid:2)(cid:3) Review the draft financial
statements prior to Board approval.
(cid:2)(cid:3) Review the appropriateness
of accounting policies and any
significant financial reporting issues.
Whistleblowing and fraud
(cid:2)(cid:3) Review the arrangements for
employees to raise concerns, the
procedures for fraud prevention
and detection and ensure that
they allow for investigation and
appropriate follow up.
Internal controls and risk
management system
(cid:2)(cid:3) Review and evaluate the
effectiveness of the key financial
and non-financial internal controls
and risk management systems.
Internal Audit
(cid:2)(cid:3) Review the Internal Audit plan, the
reports issued and the effectiveness
of the Internal Audit function.
External audit
(cid:2)(cid:3) Agree the approach, scope and
terms of engagement of the
external audit.
(cid:2)(cid:3) Assess the effectiveness of the
external audit.
(cid:2)(cid:3) Review the Auditor’s independence
and the provision of non-audit
services.
The full terms of reference of the
Audit Committee can be found on
the Group’s website www.glanbia.
com or can be obtained from the
Group Secretary.
Governance
AUDIT COMMITTEE REPORT
John Callaghan
Audit Committee Chairman
I am pleased to present the Audit
Committee report for 2012.
During the year, the Audit Committee
continued to focus on the operating
effectiveness of the Group’s risk
management and internal control
systems, Group financial performance
and reporting controls, the effectiveness
of the internal and external audit
processes and the Group’s compliance
with best practice governance
requirements.
The Audit committee structures its work
plan to ensure its key responsibilities and
duties are fulfilled while allowing sufficient
time to consider and address new or
evolving risk or regulatory exposures.
As a committee, we are also keen to
ensure Group senior management
have considered fully the risks their
business areas face, how these risks
are being managed and that they do
not exceed the Board’s appetite or
tolerance levels. During the year the
Committee and Board received a
number of presentations from business
unit senior management and Group
functional heads which helped facilitate
real engagement between Committee
members and management.
The Committee reviews and comments
on both the financial and non-financial
information contained in the Group’s
annual report. One purpose of this is to
confirm that the annual report presents
a fair, balanced and understandable
assessment of the Group’s position and
prospects and provides the information
necessary for shareholders to assess
the Group’s performance, business
model and strategy. The Committee is
satisfied that the information provided is
fair, balanced and understandable and
continues to evolve in line with regulatory
and best practice guidance.
60
Glanbia plc Annual Report 2012
Activities
The Audit Committee’s role includes the
oversight, monitoring and evaluation of
the following key areas:
Financial reporting
The Committee reviewed and challenged
(where appropriate):
the half-yearly report, interim
management statements,
preliminary announcement of final
results, this Annual Report and
financial statements;
Internal controls and risk
management system
The Committee reviewed and evaluated
the effectiveness of the Group’s key
financial and non-financial internal
controls and risk management systems
through the receipt and review of the
following:
(cid:2)(cid:3) quarterly reports outlining the key
financial, strategic, operational and
regulatory risks faced by the Group
and the effectiveness of mitigating
controls in managing risk;
the appropriateness of the Group’s
accounting policies;
(cid:2)(cid:3)
a report from the following Group
functional heads:
the significant financial reporting
issues, estimates and judgements
which included:
– Food Safety and Quality, with
regard to the Glanbia Quality
System (GQS);
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
–
–
the accounting treatment of and
disclosures related to the disposal
of 60% of Glanbia Ingredients
Ireland Limited to Glanbia
Co-operative Society Limited
(the ‘Society’); and
the acquisition of Aseptic
Solutions USA Ventures LLC, the
US beverage and co-packer, on
26 July 2012. The Committee
considered the accounting
disclosures in relation to the
acquisition described in note 36
Business Combinations and the
Annual Report and deemed these
disclosures to be appropriate.
For all financial reporting issues
included within the assessment of going
concern please see page 92.
Whistleblowing and fraud
The Committee reviewed:
(cid:2)(cid:3)
(cid:2)(cid:3)
the Group’s arrangements for
its employees to raise concerns,
in confidence, about possible
wrongdoing in financial reporting or
other matters; and
the Group’s procedures for fraud
prevention and detection to ensure
that these arrangements allow for
proportionate and independent
investigation of such matters and
appropriate follow-up action.
–
–
the Group Secretary with regard
to the operational site risk reviews
via the Glanbia Risk Management
System (GRMS); and
the Group General Manager
/ Legal Affairs on key Group
legal risks.
(cid:2)(cid:3) bi-annual internal management
representation letter process
which is designed to assess the
effectiveness of internal controls over
financial reporting;
(cid:2)(cid:3) bi-annual control self assessment
process which is designed to assess
internal control and fraud prevention
procedures;
(cid:2)(cid:3)
(cid:2)(cid:3)
reports from the Auditors and Group
Internal Audit, in order to assess
the quality and effectiveness of
the internal control system. These
included reports on any key matters
arising from the statutory audit in
relation to the financial reporting
process and the Group’s Internal
Audit function on the work undertaken
in reviewing and auditing the control
environment; and
assessment of the effectiveness
of the Group’s internal controls in
accordance with the Turnbull and
Financial Reporting Council (FRC)
guidance and reviewed and approved
the related disclosures in the Annual
Report.
These reports not only allow the
Committee to identify risks but allow
for their assessment and the control
of their financial impact through the
design, operation and monitoring by
management of appropriate internal
control systems.
You can find out more about the Risk
Management framework on page 42.
3
Internal Audit
The Committee:
(cid:2)(cid:3)
reviewed the effectiveness of the
Group’s Internal Audit function
including its terms of reference,
resources, experience and expertise;
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
approved the Internal Audit plan for
2012 based on a Group risk profile
assessment across the key financial,
operational and regulatory risks;
reviewed the output from the Internal
Audit programme during the year
and considered progress against the
programme;
ensured that the Group Internal
Auditor has direct access to
the Group Chairman and to the
Committee and is accountable to the
Committee; and
(cid:2)(cid:3) met with the Group Internal Auditor
without management being present,
to discuss the remit of Internal Audit
and any issues arising therefrom.
External audit
The Committee agreed the approach
and scope of the audit work to be
undertaken by the Auditors, which
included planned levels of materiality, key
risks to the accounts, confirmation of the
Auditors independence, the proposed
audit fee, the Group’s processes for
disclosing information to the Auditors
and approving the terms of engagement
for the audit.
The Committee ensured that the Auditors
had direct access to the Chairman of the
Committee and the Group Chairman.
Key to the Committee’s confidence in
the Group’s financial reporting processes
and systems of internal control is the
effectiveness of the Auditors.
The Committee reviewed the findings
of the Auditors and assessed the
effectiveness of the audit process and
noted that:
(cid:2)(cid:3)
(cid:2)(cid:3)
the Auditors met the agreed audit plan
and addressed any issues/risks that
arose during the audit;
the Auditors were robust and
perceptive in their handling of the
key accounting and audit judgments
identified, in responding to questions
from the Committee and in their
commentary where appropriate on
the systems of internal control;
(cid:2)(cid:3) positive feedback was received from
Group senior management in relation
to the conduct of the audit; and
www.glanbia.com 61
Governance
AUDIT COMMITTEE REPORT
(cid:2)(cid:3)
the content of the management letter
indicated a good understanding of the
Group’s business.
Section 160(2) of the Companies Act,
1963 provides that the auditor of an
Irish company shall be automatically
re-appointed at a company’s annual
general meeting unless the auditor has
given notice in writing of his unwillingness
to be re-appointed or a resolution has
been passed at that meeting appointing
someone else or providing expressly
that the incumbent auditor shall not be
re-appointed. In this respect, Irish
company law differs from the
requirements that apply in other
jurisdictions, for example in the UK,
where auditors of a public company must
be re-appointed annually by shareholders
at the annual general meeting. The
Auditors, PricewaterhouseCoopers,
are willing to continue in office.
Accordingly, the Directors have not
proposed a resolution to re-appoint
PricewaterhouseCoopers as such a
resolution can have no effect.
Relationship with the Auditors
The Committee’s policy is to manage its
relationship with the Auditors to ensure
that their independence is maintained.
A formal Auditor Relationship and
Independence Policy is in place with
regard to the provision of non-audit
services which recognises that certain
work of a non-audit nature is best
undertaken by the Auditors.
The aim of the policy, which is reviewed
annually, is to support and safeguard
the objectivity and independence of
the Auditors. The policy does this by
prohibiting the provision (by the Auditors)
of services such as financial information
systems design and implementation,
internal audit services or legal services.
The Auditors may provide audit and
certain audit related services provided
that any individual audit related service
to be undertaken by the Auditors to
a value in excess of €100,000 does
not impair their independence and is
approved in advance by the Chairman of
the Committee. The Committee performs
an annual review of the schedule of non-
audit services authorised and the level
of fees paid. Fees paid to the Auditors
for statutory audit, other assurance
services, tax advisory services and other
services are analysed in note 6 to the
financial statements. The main non-audit
related services provided by the Auditors
during the year were in respect of due
diligence work for potential acquisitions,
tax advice in relation to the dairy
processing agreements with the Society
and broader Group tax related advice.
The Auditors were considered to be best
placed to provide these services and the
Committee reviewed the steps to ensure
that the non-audit services would not
impair their independence.
As part of its responsibilities, the
Committee reviews the independence of
the Auditors (who as part of the process
have confirmed their independence in
writing) and the amount and nature of
non-audit work they perform on an
annual basis.
Their independence is also displayed
through their challenge to management.
Additionally, the Auditors rotate their lead
audit engagement partner at minimum
at least every five years as required by
their own rules and by regulatory bodies.
Rotation ensures a fresh review without
sacrificing industry knowledge.
The Committee is satisfied the Auditors
remain independent.
Going concern
The Committee reviewed the
effectiveness of the process undertaken
by the Directors to evaluate going
concern, including the analysis
supporting the going concern statement
and disclosures in the financial
statements, and were satisfied that a
robust assessment had been made.
Further detail in respect of
this is given on page 92.
Review of Committee performance
The Board and Committee assessed
its performance, covering terms of
reference, independence, interaction
between the Committee and Internal
Audit and Auditors and Group senior
management, the clarity with which the
role of the Committee is understood, the
challenging by the Committee of critical
accounting policies and judgements and
the responsiveness of the Committee
to issues raised by the Auditors. The
composition of the Committee, the
procedures and processes undertaken
and the contribution of the Committee
were also assessed. As a result of the
assessment, the Committee is satisfied
that it is functioning effectively and that it
has met its terms of reference.
On behalf of the Audit Committee
2012 Committee meeting attendance
Attendance at scheduled Committee meetings during the year ended 29 December 2012
Member
Appointed
Number of full years
on the Committee
2012 meeting
attendance
John Callaghan
Audit Committee Chairman
J Callaghan
13 Jan 1998
L Herlihy
Mn Keane
H Corbally
P Gleeson
P Haran
J Liston
8 June 2001
29 June 2010
7 July 2005
26 July 2011
9 June 2005
10 June 2002
M Merrick
26 July 2011
62
Glanbia plc Annual Report 2012
15
11
2
7
1
7
10
1
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
Governance
NOMINATION COMMITTEE REPORT
3
Liam Herlihy
Nomination Committee Chairman
The current composition and size of the
Board reflects the historical shareholding
and relationship of the Company with
Glanbia Co-operative Society Limited
(the “Society”). During 2012, the Society
gained approval from its members to
reduce its majority shareholding as part
of a series of transactions related to the
disposal of 60% of Glanbia Ingredients
Ireland Limited to the Society.
The Society currently owns 48.3%
of the issued share capital of the
Company and this will reduce to 41.3%
upon finalisation of a share spin-out
to its members, which is expected
to be completed in March 2013.
As a consequence of the change in
Society ownership of the Company, the
Society and the Board have agreed the
following changes, which will impact the
composition and size of the Board in the
coming years:
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
for the years 2013 to 2015 (inclusive)
the number of Society Nominee
Directors on the Board will continue to
be 14 members;
for 2016 and 2017, the number of
Society Nominee Directors on the
Board will reduce to 10 members;
for 2018 and subsequent years the
number of Society Nominee Directors
on the Board will reduce to eight
members;
the Group Chairman of the Company
will be a Society Nominee until 2020;
and
up to eight of the Directors on the
Board will be composed of Executive
Directors and Non-Executive
Directors who are independent of the
Society.
The Committee focused on Board composition and
refreshment during 2012 with the appointment of a new
Executive Director and non-Executive Director. This
theme will continue into 2013.
In addition, if the number of non-Society
Nominees on the Board changes, the
number of Society Nominees on the
Board set out above will change on a
pro rata basis. Further if the Society’s
shareholding in the Company falls
below 40% of the issued share capital,
discussions will take place regarding
a further reduction in the size of the
Society’s representation on the Board.
These changes in Board composition
open up the opportunity to progress
initiatives such as addressing diversity
on the Board, including the formulation
of a policy on Board refreshment and
renewal, and creating robust succession
plans to safeguard the Group’s future
performance. The Nomination Committee
will play a key role in these activities.
Governance
The Committee was in place throughout
2012. Liam Herlihy, the Group Chairman,
has been Chairman of the Committee
since 2008.
The Committee comprises four Non-
Executive Directors, of whom two
members constitute a quorum. The
Group Secretary acts as secretary to
the Committee.
When dealing with any matters
concerning his membership of the
Board, the Group Chairman will absent
himself from meetings of the Committee
as required and such meetings will
accordingly be chaired by the Senior
Independent Director, John Callaghan.
Members
Liam Herlihy (Committee Chairman)
John Callaghan (FCA, FIB)
Paul Haran (B.Sc., M.Sc.)
Jerry Liston (B.A., MBA)
For further details of the Directors
go to pages 55 to 58.
Key responsibilities
(cid:2)(cid:3) Making recommendations to the
Board on the appointment and
re-appointment of Directors.
(cid:2)(cid:3) Planning for the orderly
succession of new Directors
to the Board.
(cid:2)(cid:3) Keeping under review the
leadership needs of the
Group both executive and
non-executive, with a view to
ensuring the continued ability of
the Group to compete effectively
in the market place.
(cid:2)(cid:3) Recommending to the Board the
membership and chairmanship
of the Audit and Remuneration
Committees respectively.
(cid:2)(cid:3) Keeping the extent of Directors’
other interests under review to
ensure that the effectiveness of
the Board is not compromised.
The full terms of reference
of the Nomination Committee
can be found on the Group’s
website www.glanbia.com
or can be obtained from the
Group Secretary.
Activities
The principal activities undertaken
by the Committee in 2012 are set
out below.
Appointment of Non-Executive
Director of the Company
During 2012, the Committee
recommended the appointment
of a new Non-Executive Director,
Jer Doheny to the Board. The
Committee noted his nomination
by the Society, the experience
and suitability of Mr. Doheny and
recommended his appointment to
the Board of the Company which
was subsequently approved by
the Board.
www.glanbia.com 63
Governance
NOMINATION COMMITTEE REPORT
The committee did not use an external
search consultancy or open advertising
for the appointment of the new Non-
Executive Director as he was nominated
by the board of the Society for
appointment to the Board
Appointment of Executive Director
of the Company
During 2012, the Committee
recommended, following the notice
of the departure of Kevin Toland, the
appointment of Brian Phelan as an
Executive Director. Strong succession
planning within the Group had
identified Brian Phelan’s suitability for
appointment as an Executive Director
at the appropriate time. Accordingly,
Brian Phelan was appointed as an
Executive Director, with responsibility
for strategy, development and Global
Cheese effective from 1 January 2013.
He will retire and offer himself for election
by shareholders at the Annual General
Meeting to be held on 21 May 2013.
Brian has worked with the Group in a
variety of senior roles over the last 20
years, most recently as Group HR /
Operations Development Director and
in this role he has led significant change
and development initiatives across the
Group in HR, Group Business Services
as well as within the Glanbia Cheese
and Nutricima joint ventures. He was
previously Chief Financial Officer of the
Consumer Foods Division, Financial
Controller of Dairy Ingredients Ireland and
worked in various Glanbia US operations.
Composition of the Board
of Directors
During the course of the year, the
Committee considered the composition
of the Board and concluded that it was
an appropriate time to appoint a Non-
Executive Director with international
experience and steps were initiated in
a search for an appropriate candidate.
This involved the preparation of a short
list of candidates, interviews/meetings
with members of the Committee
and a comprehensive due diligence
exercise including satisfying itself to
the candidate’s independence. A
recommendation was made to the Board
of Directors on 12 March 2013 and
the Board approved the appointment
of Donard Gaynor as a Non-Executive
Director effective 12 March 2013.
The Committee acknowledged that:
(cid:2)(cid:3)
(cid:2)(cid:3)
John Callaghan had served on the
Board for 15 full years;
Jerry Liston had served on the Board
for 10 full years;
(cid:2)(cid:3) William Murphy, who retired as
Deputy Group Managing Director
in September 2005, remains on the
Board as a Non-Executive Director;
and
The Committee did not use an external
search consultancy or open advertising
for the appointment of Donard as it was
not deemed necessary.
(cid:2)(cid:3)
Re-appointment of Directors
The Committee recommended to the
Board that all the Directors of the Board
be put forward for re-appointment by
the shareholders of the Company at the
2012 Annual General Meeting.
Review of Non-Executive Directors’
independence in accordance with
the guidance in the UK Corporate
Governance Code and the ISE
Annex (the ‘Codes’).
The Committee reviewed the
independence of Non-Executive
Directors in accordance with the
guidance in the Codes. The guidance in
the Codes suggests a number of factors
could be relevant to the determination of
a non-executive director’s independence
including: representing a significant
shareholder, former service as an
executive and extended service to
the Board. However, the Codes also
make it clear that a director may be
considered independent notwithstanding
the presence of one or more of these
factors. This reflects the Board’s view
that independence is determined by a
director’s character and judgement.
The Committee concluded that,
throughout the reporting period, all Non-
Executive Directors demonstrated the
essential characteristics of independence
and brought independent challenge and
deliberations to the Board through their
character, objectivity and integrity. This
conclusion was presented to and agreed
with the Board.
14 of the Non-Executive Directors are
nominated by the Board of Glanbia
Co-operative Society Limited, for
appointment to the Board of the
Company, of whom Liam Herlihy,
Henry Corbally and Eamon Power
had each served as a Director for nine
years or more.
Review of the time required from a
Non-Executive Director
The Committee assessed the time
dedicated to the Company by each
Non-Executive Director. This review
also considered the extent of the Non-
Executive Directors’ other interests to
ensure that the effectiveness of the
Board is not compromised by such
interests.
The Board and Committee are satisfied
that the Group Chairman and each of
the Non-Executive Directors commit
sufficient time to the fulfilment of their
duties as Group Chairman and Directors
of the Company respectively.
The Group Chairman is a director of The
Irish Dairy Board Co-operative Society
Limited and farms at Headborough,
Knockanore, Tallow, Co. Waterford, but
the Committee and the Board considers
that these did not interfere with the
discharge of his duties to the Group.
Review of Committee performance
The Board and Committee assessed
performance, covering terms of
reference, composition, procedures,
contribution and effectiveness. As a
result of that assessment, the Committee
is satisfied that it is functioning effectively
and has met its terms of reference.
On behalf of the Nomination Committee
Liam Herlihy
Group Chairman
2012 Committee meeting attendance
Attendance at scheduled Committee meetings during the year ended 29 December 2012
Member
Appointed
Number of full years
on the Committee
2012 meeting
attendance
L Herlihy
5 June 2008
J Callaghan
8 June 2001
P Haran
J Liston
9 June 2005
10 June 2002
4
11
7
10
3/3
3/3
3/3
3/3
64
Glanbia plc Annual Report 2012
Governance
REMUNERATION COMMITTEE REPORT
3
The role of the Remuneration Committee is
to ensure that management are competively
rewarded for the generation of shareholder
value consistently.
Jerry Liston
Remuneration Committee Chairman
I am pleased to present our report on
remuneration for the year ended 29
December 2012, for which we will seek
your support (by an advisory non-
binding resolution) at our Annual General
Meeting on 21 May 2013.
The report is designed to provide
you with details of our remuneration
principles, policy and actual
remuneration of the Group’s Executive
Directors and to demonstrate the
association between the Group’s
strategy, performance, risk management
policy and the remuneration of our
Executive Directors. We have continued
to enhance our disclosures to reflect
evolving investor and other stakeholder
expectations and in line with best
regulatory practice.
We delivered another record year of
underlying earnings growth, building on
the excellent performance of Glanbia
in the last two years, delivering 14.2%
growth in adjusted earnings per share
on a constant currency basis. This
reflects both our successful international
growth strategy and strong operational
execution across the Group.
The Group’s key performance
indicators (KPI) are outlined in the
Group Finance Director’s review
on pages 34 to 37 and evidence
these strong results as do the total
shareholder return and adjusted
earnings per share tables on page 71.
Our variable pay programs reflect this
performance as follows:
(cid:2)(cid:3)
the Annual Incentive payable to
Executive Directors for 2012 will be
150% of Base Salary, half of which,
once the appropriate taxation and
social security deductions have been
made, will be converted into shares
in the Company and delivered to
the Executive Directors two years
following investment as set out on
page 66;
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
the Annual Incentive is based on a
combination of year on year growth
in annual adjusted Earnings per
Share (“EPS”) and a required 2012
Closing Debt/Adjusted EBITDA ratio
in conjunction with the achievement of
personal and strategic objectives;
share awards under the Company’s
2008 Long Term Incentive Plan
("2008 LTIP”) were granted to each
Executive Director and certain senior
employees in June 2009 of which
96.9% of these shares vested in
August 2012; and
it is expected that when the 2010
share awards vest (which will be
based on the three year performance
period to 29 December 2012)
they will vest in their entirety as the
performance conditions have been
met in full.
Last year we made some changes to
our remuneration policy and structure,
including the 2008 LTIP. The 2008
LTIP was amended on 9 May 2012
following the approval of 99.07% of
the shareholders at the Annual General
Meeting held on the same date.
The remuneration policy for 2013
remains unchanged from 2012 other
than a 1.5% increase in Base Salary for
Executive Directors.
We believe that our remuneration
structure is transparent and this report
is designed to be clear and concise,
to meet regulatory requirements and,
above all, provide you with information
to demonstrate the alignment of
remuneration with the Group’s
performance.
Members
Jerry Liston (B.A., MBA)
(Committee Chairman)
Liam Herlihy (Group Chairman)
Martin Keane (Vice-Chairman)
Henry Corbally (Vice-Chairman)
John Callaghan (FCA, FIB)
Paul Haran (B.Sc., M.Sc.)
Key responsibilities
of the Committee
(cid:2)(cid:3) Determine and agree with the
Board the framework or broad
policy for remuneration of the
Non-Executive Directors, the
Executive Directors and other
senior executives as required.
(cid:2)(cid:3) Determine, within the agreed
policy, individual total
compensation packages for the
Non-Executive Directors, the
Executive Directors and other
senior executives as required.
(cid:2)(cid:3) Recommend to the Board any
employee share-based incentive
schemes and any performance
conditions to be used for such
schemes.
(cid:2)(cid:3) Consider and approve Executive
Directors and other senior
executives total compensation
arrangements annually.
The full terms of reference of
the Remuneration Committee
can be found on the Company’s
website www.glanbia.com or
can be obtained from the Group
Secretary.
Key activities of the Remuneration
Committee during 2012
In 2012, the Committee met three times
and considered a number of key issues.
In particular it reviewed:
(cid:2)(cid:3) Amendments to the 2008 LTIP arising
from the Remuneration policy and
design review 2012 -2014 conducted
in 2011;
(cid:2)(cid:3)
2011 Annual Incentive payments;
(cid:2)(cid:3) Executive Directors Annual Incentive
objectives for 2012;
(cid:2)(cid:3)
2011 Remuneration Report;
www.glanbia.com 65
Governance
REMUNERATION COMMITTEE REPORT
(cid:2)(cid:3) Vesting of share awards granted in
2009 under the 2008 LTIP;
(cid:2)(cid:3) Grant of share awards under the 2008
LTIP; and
(cid:2)(cid:3) Group Investment Measure (GIM) for
share awards granted in 2012 under
the 2008 LTIP.
Composition of the
Remuneration Committee
The Remuneration Committee comprises
six Non-Executive Directors, of whom
three members constitute a quorum.
The Group Managing Director and the
Group Human Resources/Operations
Development Director attend Committee
meetings by invitation only. They absent
themselves when their remuneration is
discussed and no Director is involved in
considering his/her own remuneration.
The Group Secretary acts as secretary to
the Remuneration Committee.
motivating high quality and committed
people who are critical to sustain the
future development of the Group.
We seek to:-
(cid:2)(cid:3)
create a consistent global approach
to remuneration by applying our
strategy and policy, as far as possible,
to all senior executives;
(cid:2)(cid:3) provide a competitive benefits
package; and
(cid:2)(cid:3) provide an appropriate balance
between fixed and variable
remuneration, the payment of
which is linked to the achievement
of demanding Group and individual
performance measures.
The Group KPIs, which are contained in
the Group Finance Director’s review on
pages 34 to 37 underpin the selection
of performance criteria used within the
incentive arrangements.
Further details of the performance
measures for our incentive
arrangements are set out on page 67.
Advice and assistance to the
Remuneration Committee
The Remuneration Committee received
independent external advice from Towers
Watson Remuneration Consultants in
respect of the total remuneration policy
and structure and the amendment of the
2008 LTIP. Towers Watson is a member
of the Remuneration Consultants
Group (RCG) and adheres to the RCG
Voluntary Code of Conduct in relation to
executive remuneration consulting (which
was originally published in 2009 and is
reviewed biennially).
Legal advice to the Remuneration
Committee has been provided by Arthur
Cox, who also provided other legal
services to the Group during the year.
The Remuneration Committee also
received assistance and advice on
remuneration policy, when required,
during the year from the Group Human
Resources/Operations Development
Director.
Remuneration policy
Our remuneration strategy and policies
focus on using remuneration to facilitate
the implementation of a successful
corporate strategy that delivers superior
earnings growth and total shareholder
returns for our shareholders over the
long term by attracting, retaining and
Total remuneration for 2012
Base Salary
Other Benefits
Annual Incentive
Long Term
Incentive Plan
Total Remuneration
Fixed
Variable
Total
The total remuneration for each of the Executive Directors is set out in the table below
Executive
Directors
Base
Salary
Payment
in lieu of
Pension
Other
Benefits
Annual Incentive
(paid through
salary)1
Annual Incentive
(deferred into
shares)2
2012
Total
2011
Total
€’000
€’000
€’000
€’000
€’000
€’000
€’000
John Moloney
Kevin Toland
Siobhán Talbot
581
467
372
145
104
93
35
8
20
436
310
279
436
310
279
1,633
1,199
1,043
1,194
925
757
Long Term Incentive
During the year, the Executive Directors also received shares under the 2008 LTIP when share awards which were granted in
June 2009 (based on performance to 31 December 2011) vested,
are set out on pages 72 and 77 to 79.
details of which are not included in the above table but
1
2
This reflects the proportion of the Annual Incentive payable to Executive Directors in respect of performance for the year 2012
(which amounts to 75% of Base Salary), which will be paid through salary in March 2013.
This reflects the proportion of the Annual Incentive payable to Executive Directors (which amounts to 75% of Base Salary) which, once the
appropriate taxation and social security deductions have been made, will be invested in shares in the Company and delivered to the Executive
Directors two years following this investment (March 2015).
Full descriptions of each of the elements of total remuneration are given on the following pages of this report.
66
Glanbia plc Annual Report 2012
Key elements of remuneration for Executive Directors
The key elements of the Executive Directors remuneration for the year ending 29 December 2012 and our forward
looking policy for the year to December 2013 are summarised below:
Element
Description
Objective
Details
Base Salary
Annual fixed pay.
Recognise market value of role,
job size, responsibility and reflect
individual skills and experience.
Set by reference to the relevant market median
based on an external independent evaluation of the
role against appropriate peer companies.
3
Pension
Benefit
Retirement benefits.
Provide competitive, affordable and
sustainable retirement benefits.
Other Benefits Car benefit or
Annual
Incentive
equivalent and suitable
medical insurance.
Annual payment only
earned if agreed
target performance is
achieved.
Recognise market value of role,
job size and responsibility.
Incentivise Executive Directors to
achieve specific performance goals
which are linked to the Group’s
business plans and personal
performance objectives during a one
year period.
Ensure greater linkage of
remuneration to performance.
Ensure greater linkage to long term
sustainability and alignment to Group
risk management policy.
Alignment with shareholders/share
value growth.
Targets are set by the Remuneration
Committee each year.
Long Term
Incentive
Long Term Incentive
Plan under which
shares are granted
in the form of a
provisional allocation
of shares for which
no exercise price is
payable.
The 2008 LTIP aligns the interests of
Executive Directors and shareholders
through a long term share based
incentive linked to share ownership
and holding requirements.
In addition, as part of the overall
total direct compensation package it
ensures a greater proportion is based
on long term sustainable results and
linkage to key long term performance
indicators.
Reviewed annually by the Remuneration Committee.
Any reviews, unless reflecting a change in role, usually
take effect from 1st January in the relevant year.
Range of Annual Incentive potential of 0% to 150%
of Base Salary based on growth in annual adjusted
EPS (120%) and an appropriate cash management
measure, for 2012 Closing Debt/Adjusted EBITDA
(30% provided a minimum adjusted EPS threshold
is received), as determined by the Remuneration
Committee annually. The performance criteria also
provide that should Closing Debt/Adjusted EBITDA
disimprove the Annual Incentive amount earned for
growth in adjusted EPS would reduce.
In addition to the above (once the financial targets
have been met) each Executive Director has
individual performance targets which must also be
met to obtain the maximum incentive level.
Deferral of the proportion of the Annual Incentive
earned in excess of 75% of Base Salary which,
once the appropriate taxation and social security
deductions have been made, will be invested
in shares in the Company and delivered to the
Executive Directors two years following this
investment.
Deferred incentives may be subject to clawback to
the extent deemed appropriate by the Remuneration
Committee in the event of a material misstatement of
the published Group results which requires them to
be restated.
Long Term Incentive individual annual award level of
a maximum of 150% of Base Salary determined by
reference to three performance metrics:
(cid:3) relative Total Shareholder Return (“TSR”) against a
peer group of companies,
(cid:3) adjusted EPS growth; and
(cid:3) an appropriate GIM. The appropriate GIM for
2013 is Return on Capital Employed (“ROCE”)
as set out on page 72.
Each of these performance conditions represents
one-third of the maximum vesting level, unless
otherwise determined by the Remuneration
Committee.
Vesting of share awards is dependent on the
achievement of the TSR, EPS and GIM performance
conditions measured over a three-year period.
Share awards are subject to a further one-year
holding period.
Participants are required to hold shares received
pursuant to the vesting of 2008 LTIP share awards
for a minimum period of one year post-vesting.
Participants are permitted to sell a sufficient number
of shares to fund the payment of any taxation or
social security charges arising on the vesting of such
share awards.
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REMUNERATION COMMITTEE REPORT
Key elements of remuneration for Executive Directors Continued
Element
Description
Objective
Details
Minimum
share
ownership
requirements
Minimum share
ownership
requirements to be
built up over a five
year period.
Ensure a greater alignment with
shareholders’ interests through
own shareholding.
The Group Managing Director is required to build
and maintain a shareholding of 200% of Base
Salary and, for other Executive Directors, 100% of
Base Salary.
Executives are expected to build a shareholding
through the vesting of shares under the Group’s
2008 LTIP.
Existing shareholdings and shares acquired in the
market are also taken into account.
Although share ownership guidelines are not
contractually binding, the Remuneration
Committee retains the discretion to withhold
future grants under the 2008 LTIP if executives
do not comply with the guidelines.
Key elements of remuneration for other senior executives
The above framework is used for all senior executives in addition to the Executive Directors. This creates a consistent global approach to
reward and provides a competitive total remuneration package. There are a few exceptions in the detail of how this framework is applied.
Element
Annual Incentive
Objective
Details
Focus on business line of sight for
individuals and ensure an appropriate
deferral percentage based on position
and role.
Annual Incentive
For business unit Chief Executive Officers
(“CEOs”), the Annual Incentive potential
will also be based on appropriate
and specific business unit measures,
as determined by the Remuneration
Committee.
Deferral of the proportion of the Annual
Incentive earned in excess of 50% of
Base Salary which, once the appropriate
taxation and social security deductions
have been made, will be invested in
shares in the Company and delivered
to the business unit CEOs two years
following this investment.
In exceptional cases and in relation to
specific local needs (USA) the maximum
share award under the 2008 LTIP scheme
may be up to 200% of Base Salary.
For business unit CEOs, the Long Term
Incentive level will be determined by
reference to relative TSR, adjusted EPS
and instead of ROCE an appropriate
business unit measure. Again each
measure is weighted one third of the total
maximum.
For business unit CEOs, the share
ownership recommended level is 75%
of Base Salary to be built up over a
maximum period of five years.
Long Term Incentive
Ability to offer increased level of share
awards in the US market where there are
high levels of long term incentives.
Ensure line of sight to business unit
metrics.
Shareholding Guidelines
Ensure a greater alignment with
shareholders’ interests through
own shareholding.
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Glanbia plc Annual Report 2012
3
Key elements of remuneration for Non-Executive Directors
The key elements of the Non-Executive Directors remuneration for the year ending 29 December 2012 and our forward looking
policy for the year to December 2013 are summarised below:
Element
Fees
Description
Objective
Details
Annual fixed pay.
Recognise market value of role, job size,
responsibility and reflect individual skills
and experience.
Set by reference to the relevant
market median based on an external
independent evaluation conducted
by Towers Watson Remuneration
Consultants.
Reviewed from time to time by the
Remuneration Committee and the Board.
Any reviews unless reflecting a change in
role usually take effect from 1st January
in the relevant year.
Executive remuneration features
Base Salary
Base salaries of the Executive Directors
are determined by the Remuneration
Committee, taking into account the
performance, skills and experience of the
individual in conjunction with the market
value of the role. The Group benchmarks
base salaries in comparison to the
relevant market, as appropriate to
the individual.
Executive remuneration
principles and policy
Remuneration policy is based on
attracting, retaining and motivating
executives to ensure that they perform
in the best interests of the Group and its
shareholders by growing and developing
the business. Performance-related
elements of remuneration are designed
to form an appropriate portion of the
overall remuneration package of Executive
Directors. These link remuneration
to Group performance and individual
performance, whilst aligning the interests
of Executive Directors with those of
shareholders.
This framework is applied, as far as
possible, to all senior executives, in
addition to Executive Directors, to create
a consistent global approach to driving
sustainable performance and to provide a
competitive benefits package.
The principles and policy are also applied,
as far as possible, across the Group below
senior executive level, taking account of
seniority and local market practice. It is
our aim to ensure that our remuneration
arrangements are fully aligned with our
approach to risk management.
Remuneration policy and design
2012 - 2014
Executive remuneration policy and
design is reviewed by the Remuneration
Committee on a three year basis and
accordingly was reviewed in 2011,
with the advice of Towers Watson
Remuneration Consultants, and
implemented with effect from 1 January
2012. The Remuneration Committee
continues to consider changes in
regulation and market best practice as
required.
Annual Incentive Plan—Executive Directors
Agreement of
Annual Incentive
Level and
Performance
Conditions
Performance Period
(One Year)
Amount of Annual Incentive
which is below 75% of Base
Salary paid in March of
following year
Amount of Annual Incentive in
excess of 75% of Base Salary
which, once appropriate
taxation and social security
deductions have been made,
is invested in shares
Deferral Period
(Two Years)
Shares
delivered
Year
0
Year
1
Year
2
Year
3
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Governance
REMUNERATION COMMITTEE REPORT
In addition to the above (once the
financial targets have been met) each
Executive Director has individual
performance targets which must also
be met to obtain the maximum incentive
level. The personal objectives are specific
and measurable.
Annual Incentive payable for 2012
Executive
Director
Annual
Incentive
J Moloney
K Toland
S Talbot
€872,100
$795,685
€558,465
% of
Base
Salary
150%
150%
150%
These incentives will be made as follows:
half will be paid through salary (which
represents 75% of Base Salary) and the
balance of the Annual Incentive for 2012
payable (which also represents 75%
of Base Salary), once the appropriate
taxation and social security deductions
have been made, will be invested in
shares in the Company and delivered
to the Executive Directors two years
following this investment (March 2015).
The deferral of any incentive earned
in excess of 75% of Base Salary
by Executive Directors, into shares
to be delivered after 2 years, was
introduced in 2012. Deferred incentives
may be subject to clawback, to the
extent deemed appropriate by the
Remuneration Committee, in the event of
a material misstatement of the published
Group accounts (to which the deferred
incentive relates) which requires them to
be restated.
The Executive Directors achieved full
bonus potential in 2010 and 2011.
Long Term Incentive Plans (LTIPs)
Summary
The principal long term incentive plan
for Executive Directors is the 2008 LTIP,
which has received shareholder approval.
This LTIP was amended in 2012 again
with shareholder approval.
The combination of the Annual Incentive
Plan and the 2008 LTIP provide an
appropriate balance between short-
term reward and long-term share-
based reward in accordance with
recommended best practice.
Each year since its adoption, conditional
share awards of shares are made under
the 2008 LTIP.
Key features of 2008 LTIP:
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
the vesting of share awards is subject
to the satisfaction of three-year
performance conditions;
shares awards may not vest for at
least three years after the grant of the
award;
the maximum annual award will be
150% of Base Salary, in exceptional
cases and in relation to specific local
needs (USA) this maximum may be up
to 200% of Base Salary;
Summary
The Group operates a performance-
related incentive scheme for Executive
Directors and other senior executives.
Payments under the scheme for
Executive Directors depend on the
achievement of pre-determined Group
financial targets and an assessment of
individual performance against pre-
agreed objectives. The Committee
believes that this method of assessment
is transparent, rigorous and balanced,
and provides an appropriate and
objective assessment of annual
performance.
The Annual Incentive payable to
Executive Directors for achieving target
performance is 60% - 75% of Base
Salary. The maximum Annual Incentive
payable to Executive Directors for
achieving outperformance is 150% of
Base Salary.
Performance targets
The Group’s financial targets element
of each Executive Director’s Annual
Incentive scheme are derived from the
approved annual business plan and
are based on year on year growth in
adjusted EPS and an appropriate cash
management measure. For 2012 each
Executive Director could earn up to
150% of Base Salary for maximum
performance measured against growth
in adjusted EPS (120%) and delivery
of targeted Closing Debt/Adjusted
EBITDA ratios (30% provided a minimum
adjusted EPS threshold is reached).
The performance criteria also provided
that should the Closing Debt/Adjusted
EBITDA ratio disimprove the annual
incentive amount earned for growth
in adjusted EPS would reduce.
2008 LTIP
Deferral Period
(One Year)
Shares
Delivered
Performance Period
(Three Years)
LTIP Granted
based on stretch
performance
targets
1/3 - Growth in
adjusted EPS
Shares Vest subject
to the achievement
of stretch growth
targets:
1/3- Growth in
adjusted EPS
1/3 - Relative TSR
1/3 - Relative TSR
1/3- Growth in
ROCE
1/3- Growth in
ROCE
Year
0
Year
1
Year
2
Year
3
Year
4
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Glanbia plc Annual Report 2012
3
Any changes to these performance
conditions will be disclosed in the
Remuneration Committee Report which
will be subject to a general shareholder
non-binding advisory vote.
The TSR, EPS and GIM performance
conditions are designed to ensure that
an appropriate proportion of Executive
Directors’ total incentive package
is delivered through longer-term
performance. To the extent that any
performance condition is not met, the
relevant part of the award will lapse.
EPS performance condition
The rationale for the EPS performance
condition is that investors consider
adjusted EPS to be a key indicator
of long-term financial performance
and value creation of a public limited
company. In the year ended 29
December 2012, the Company delivered
growth in adjusted EPS of 22.1%.
The below table shows the Company’s
adjusted EPS over the last two years:-
2011
2012
46.32c
56.56c
100% of the EPS element is capable
of vesting as determined by the rate of
growth in adjusted EPS as compared to
the Consumer Price Index (CPI) over the
three-year performance period.
LTIP TSR
Three-year adjusted
EPS growth
Vesting level
Less than CPI + 5% Nil
CPI + 5%
compounded
Between CPI +
5% compounded
and CPI + 10%
compounded
CPI + 10%
compounded
50%
Pro rata vesting
on a straight line
basis between
50% and 100%
100%
Adjusted EPS is calculated as the profit
for the year attributable to the equity
holders of the Parent before exceptional
items and amortisation of intangible
assets, net of related tax.
TSR performance condition
The rationale for using a TSR performance
condition is that major investors regard
TSR as an important indication of both
earnings and capital growth relative to
other major companies in the same sector
and to ensure that share awards only vest
if there has been a clear improvement in
the Group’s relative performance over the
relevant period.
The below graphs show that, under
the terms of the LTIP, at 29 December
2012, a hypothetical €100 invested in
Glanbia plc on 1 January 2010 would
have generated a total return (inclusive of
original investment) of €307 compared
with a total return of €162 if invested in
the peer group Index.
100% of the TSR condition is capable of
vesting as determined by the Group’s TSR
ranking relative to an agreed comparator
group of 14 other international food and
nutritional companies.
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
(cid:2)(cid:3)
share awards will vest by reference
to relative TSR, adjusted EPS plus
an appropriate GIM for Executive
Directors. For business unit CEOs
the GIM will be replaced by an
appropriate business unit measure
as determined by the Remuneration
Committee. Each performance
condition will represent one third of
maximum vesting level.
The GIM Performance Condition for
share awards granted in 2012 and
2013 for Executive Directors is ROCE;
requirement for Executive Directors to
hold shares received pursuant to the
vesting of 2008 LTIP share awards
for a minimum period of one year
following vesting;
shares under award do not attract
dividends prior to vesting; and
share awards will vest early in the
event of a takeover, merger, scheme
of arrangement or other similar
event involving a change of control
of the Company or a demerger of
a substantial part of the Group or a
special dividend which has the effect
of materially changing the Group’s
business or other similar event that
affects the Company’s shares to
a material extent, subject to the
pro-rating of the share awards to
reflect the reduced period of time
between the commencement of the
performance period and the early
vesting, although the Remuneration
Committee can decide not to
pro-rate an award if it regards it as
inappropriate to do so in the particular
circumstances.
A share award shall not vest unless the
Remuneration Committee is satisfied
that the Group’s underlying financial
performance has shown a sustained
improvement in the period since the date
of grant. The extent of vesting shall be
determined by the TSR, EPS and GIM
performance conditions as appropriate.
The Remuneration Committee has the
discretion to change the performance
criteria where deemed appropriate.
www.glanbia.com 71
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REMUNERATION COMMITTEE REPORT
The TSR element of the share awards
vest on the following basis:
The 2013 GIM element of share awards
vest on the following basis:
TSR ranking in the
comparator group
Vesting level
Ranked below the
top half
Nil
Rank half-way
30%
Ranked between
half-way and the
top quartile
Pro rata vesting
on a straight line
basis between
30% and 100%
Ranked in the top
quartile
100%
TSR represents the change in capital
value of a listed/quoted company over a
period, plus dividends, expressed as a
plus or minus percentage of the opening
value.
GIM performance condition for 2012
The rationale for using ROCE as the GIM
performance condition is that it highlights
the returns generated from capital
invested in the business and will show
how the Group adds to shareholder
value over the long-term.
100% of the GIM condition (where
applicable) is capable of vesting as
determined by the rate of growth in
ROCE as set on this page.
The 2012 GIM element of the share
awards vest on the following basis:
2012
Investment
measure - Return
on Capital
Employed
(‘ROCE’)
Vesting level
Less than 12.5%
Nil
Between 12.5%
and 13.5%
Pro rata vesting
on a straight line
basis between 0%
and 100%
Greater than or
equal to 13.5%
100%
Vesting level
Investment
measure - Return
on Capital
Employed
(‘ROCE’)
Less than 13.5% Nil
Between 13.5%
and 14.5%
Pro rata vesting
on a straight line
basis between 0%
and 100%
Greater than or
equal to 14.5%
100%
Return on capital employed is calculated
as Group Earnings before interest and
amortisation after tax plus the Group’s
share of results of Joint Ventures and
Associates after interest and tax over
capital employed. Capital employed is
calculated as the Group’s non-current
assets plus working capital.
Share awards vested in 2012
Executive
Director
Market
Value at
date of
grant
Market
value at
date of
vesting
J Moloney
€374,267
€861,363
K Toland
$325,188
$748,411
S Talbot
€147,598
€339,693
Vesting was dependent on growth in
adjusted EPS and relative TSR. 100% of
the TSR element and 93.8% of the EPS
element vested.
2002 Long Term Incentive Plan
(the '2002 LTIP”)
The 2002 LTIP expired in 2012. The
Committee did not issue any share
options under this scheme during 2012
(2011: 270,000). No share options
under this scheme have been granted to
Executive Directors since the adoption of
the 2008 LTIP.
Exercisability of options under the
2002 LTIP
In relation to the 2009 and 2010 grant
which was based on EPS performance
in the three year periods 2009-2011 and
2010-2012 respectively, the Remuneration
Committee will assess the performance
criteria of the 2002 LTIP during 2013.
Pension
Executive Directors as at 29 December
2012 are deferred members of a Glanbia
defined benefit pension scheme.
In light of the new cap on pension
benefits introduced in the Finance Act
2006, and subsequently amended in
December 2010, the Remuneration
Committee reviewed the pension
arrangements for Executive Directors and
agreed to offer the option to receive a
taxable payment of 25% of salary in lieu
of future service pension benefit, with
effect from 1 January 2012.
Summary of pay mix
A significant proportion of the Executive
Directors’ total remuneration package
is variable. The variable element of
Executive Director pay increased
following the 2011 remuneration policy
review. The balance between fixed
(Base Salary) and variable (Annual
and Long Term Incentives) elements
of remuneration varies depending on
performance. The chart below show the
current mix between fixed and variable
pay for Executive Directors (and the
Committee has not recommended any
changes for 2013):
Current
Fixed Pay
Variable Pay
39%
61%
Share usage for LTIPs and dilution
The 2008 LTIP was amended following
the reduction of Glanbia Co-operative
Society Limited’s shareholding in the
Company by reducing the limit on the
number of new shares that may be
issued under the Plans so as to ensure
that the minimum shareholding of
Glanbia Co-operative Society Limited in
the Company cannot be diluted below
38% of the fully diluted issued share
capital.
The Company intends to use existing
shares to satisfy future share vesting
under the 2008 LTIP and an employee
benefit trust was established to manage
the purchase of these shares. At 29
December 2012, 1,141,334 ordinary
shares were held by the employee
benefit trust.
72
Glanbia plc Annual Report 2012
The Company currently intends to issue
new shares to satisfy future exercise
of share options granted under the
2002 LTIP. The table below sets out
the dilutive effect on the share capital
if all outstanding options granted under
the 2002 LTIP as at 29 December
2012 capable of being exercised
were exercised:
Total issued share
capital:
Outstanding
share options
under 2002 LTIP
capable of being
exercised
Enlarged issued
share capital
294,955,684
860,000
295,815,684
Shareholding guidelines
The new share ownership guidelines
are designed to help maintain long-
term commitment and business
understanding, offering the opportunity
to benefit from any growth in shareholder
value - thereby aligning Executive
Directors’ interests with those of
shareholders.
With effect from 2012, the Group
Managing Director is encouraged to build
up a holding in shares in the Company
at least equal in value to 200% of Base
Salary, with ownership built up over a
maximum period of five years.
The guideline for other Executive
Directors is 100% of Base Salary and,
for other senior executives, 75% of
Base Salary - built up over the same
maximum period.
Executive Directors’ service
contracts
No Executive Director has a service
contract with a notice period in excess
of 12 months or with provisions for
pre-determined compensation
on termination which exceeds 12
months’ salary and benefits-in-kind
and accordingly there are no service
contracts which are required to be
made available for inspection.
There have been no payments
made during the year in relation to
compensation for loss of office.
Policy on external
board appointments
The long-standing policy of allowing
Executive Directors to hold external
non-executive directorships with the
prior approval of the Remuneration
Committee will continue. The
Remuneration Committee considers
that external directorships provide the
Group’s Executive Directors with valuable
experience that is of benefit to Glanbia.
The Remuneration Committee believes
that it is reasonable for the individual
Executive Director to retain any fees
received from such appointments given
the additional personal responsibility
that this entails. Such fees retained by
Executive Directors in 2012 were as
follows: John Moloney: The Irish Dairy
Board Co-operative Limited: €17,500
and DCC plc: €68,000. John Moloney
resigned as a Director of The Irish Dairy
Board Co-operative Limited on 31
December 2012. John Moloney was
appointed as a non executive director
of Greencore Group plc, the leading
international convenience food business,
with the approval of the Remuneration
Committee, on 15 February 2013.
As at 29 December 2012, the Executive Directors’ share ownership
against the guidelines was as follows:
Executive
Directors
Shares held as
at 29 December
2012
% of Base
Salary based on
market value as
at 29 December
2012
Compliance with
Shareholding
Guidance
John Moloney
Siobhan Talbot
202,459
65,062
287%
144%
Details of Kevin Toland’s share ownership against the guidelines are not shown
as he resigned as a director on 5 January 2013.
3
The Group Chairman and
Non-Executive Directors
Liam Herlihy was appointed Group
Chairman on 28 May 2008. His
appointment is subject to annual
re-appointment by the shareholders
at the AGM of the Company. His
appointment as Group Chairman will
automatically terminate if he ceases to be
a Director of the Company or a Director
of Glanbia Co-operative Society Limited.
The Group Chairman’s fee is set by
the Remuneration Committee and
is €100,000 per annum. This fee
reflects the level of commitment and
responsibility of the role and is set by
reference to the relevant market median
based on an external independent
evaluation conducted by Towers Watson
Remuneration Consultants.
The Non-Executive Directors do not have
service contracts, but have letters of
appointment detailing the basis of their
appointment. The terms and conditions
of appointment of Non-Executive
Directors are available for inspection at
the Company’s registered office during
normal business hours and at the AGM
of the Company.
The Non-Executive Directors do not have
periods of notice and the Group has no
obligation to pay compensation when
their appointment terminates. They are
subject to annual re-election at the AGM
of the Company.
Non-Executive Directors’ fees are
set by the Remuneration Committee by
reference to the relevant market median
based on an external independent
evaluation conducted by Towers
Watson Remuneration Consultants.
The details are outlined on pages 69
and 81.
Details of the dates of appointment
of each Non-Executive Director who
served during the year are provided
on page 74.
www.glanbia.com 73
Governance
REMUNERATION COMMITTEE REPORT
Review of Committee performance
The Board and Committee assessed
its performance, covering its terms of
reference, composition, procedures,
contribution and effectiveness. As a
result of that assessment, the Committee
is satisfied that it is functioning effectively
and it has met its terms of reference.
C. Information subject to audit
The information in Tables A, B and
C are covered by the Independent
auditors’ report on page 96. The
Tables give details of the Directors’
remuneration and interests in shares in
Glanbia plc and Glanbia Co-operative
Society Limited held by Directors and
Group Secretary and their connected
persons as at 29 December 2012.
There have been no changes in the
interests listed in Tables A and B
between 30 December 2012 and
12 March 2013 save those set out
opposite. The market price of the
ordinary shares as at 29 December
2012 was €8.24 and the range during
the year was €4.68 to €8.24. The
average price for the year was €6.23.
Changes in the interests of the
Directors and Secretary and their
connected persons between 30
December 2012 and 12 March 2013
On 8 January, 2013, John Moloney sold
150,000 shares following the exercise
of 150,000 options under the 2002 LTIP
(which resulted in the lapse of the related
6.6% award). On the same day, Siobhán
Talbot sold 68,000 shares following the
exercise of 75,000 options under the
2002 LTIP (which resulted in the lapse of
the related 10% award connected to the
68,000 shares). She retained 7,000 of
the shares allotted to her on the exercise
of the option.
The interests of Brian Phelan in shares
of Glanbia plc and Glanbia Co-operative
Society Limited have not been disclosed
in this report as he was appointed as
a director after the end of the financial
year. Additionally, any movements in the
interests of Kevin Toland following his
resignation on 5 January 2013 have not
been disclosed.
On behalf of the
Remuneration Committee
Jerry Liston
Remuneration Committee Chairman
2012 Committee meeting attendance
Attendance at scheduled Committee meetings during the year ended 29 December 2012
Member
Appointed
Number of full years
on the Committee
2012 meeting
attendance
J Liston
L Herlihy
Mn Keane
H Corbally
10 June 2002
8 June 2001
29 June 2010
26 July 2011
J Callaghan
13 Jan 1998
P Haran
9 June 2005
10
11
2
1
15
7
3/3
3/3
2/3
3/3
3/3
3/3
74
Glanbia plc Annual Report 2012
3
Table A: Directors and Secretary’s interests in Glanbia plc
As at 29 December 2012
As at 1 January 2012*
Ordinary
shares
2008 LTIP
Share
awards
2002 LTIP
Options
2002 LTIP
Share
awards
Ordinary
shares
2008 LTIP
Share
awards
2002 LTIP
Options
2002 LTIP
Share
awards
Directors
L Herlihy
H Corbally
Mn Keane
91,804
9,995
20,000
-
-
-
-
-
-
-
-
-
91,804
9,995
20,000
-
-
-
-
-
-
-
-
-
J Moloney
1
202,459
491,000
220,000
9,900
137,460
492,000
220,000
9,900
J Callaghan
65,000
W Carroll
-
J Doheny
2
11,596
D Farrell
P Gleeson
P Haran
B Hayes
Ml Keane
J Liston
M Merrick
J Murphy
500
24,923
7,462
20,502
26,489
25,000
3,600
4,000
P Murphy
21,692
W Murphy
230,827
E Power
37,550
R Prendergast
4,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,000
-
11,596
-
24,923
7,462
28,420
22,104
25,000
3,600
4,000
21,692
230,827
37,550
4,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,062
307,000
75,000
7,500
39,029
272,500
75,000
7,900
1
3
S Talbot
K Toland
Secretary
-
387,500
M Horan
26,138
158,500
1 Executive Director
2 Appointed 29 May 2012
* Or at date of appointment if later
3 Resigned 5 January 2013
-
-
-
53,914
381,000
148,000
-
15,153
136,000
-
-
-
www.glanbia.com 75
Governance
REMUNERATION COMMITTEE REPORT
Table A1: Directors and Secretary’s interests in Glanbia Co-operative Society Limited
1
2
Directors
L Herlihy
H Corbally
Mn Keane
J Moloney
W Carroll
J Doheny
D Farrell
B Hayes
Ml Keane
M Merrick
J Murphy
P Murphy
W Murphy
E Power
As at 29 December 2012
As at 1 January 2012*
“A” Ordinary
Shares of €1.00
“C” Shares of
€0.01
“A” Ordinary
Shares of €1.00
“C” Shares of
€0.01
91,425
30,964,543
91,425
39,750,658
5,912
770,641
5,912
1,107,616
6,626
3,118,390
6,626
3,118,390
-
3,485,000
-
4,985,000
19,621
-
19,621
-
7,304
5,646
692,403
462,000
7,304
1,050,213
5,646
662,000
12,996
2,500,000
12,996
2,900,000
24,232
3,000,000
20,157
3,300,000
6,309
16,334
-
-
6,309
187,464
16,334
-
13,698
12,143,890
13,698
12,143,890
-
1,371,320
-
1,942,703
27,320
35,500,443
27,320
40,357,336
R Prendergast
6,683
-
6,683
-
S Talbot
1
-
7,742,766
-
11,192,766
Secretary
M Horan
1 Executive Director
2 Appointed 29 May 2012
* Or at date of appointment if later
-
574,000
-
574,000
76
Glanbia plc Annual Report 2012
3
Table B: Share Options and LTIP Share awards - John Moloney
2002
LTIP
Options
01-Jan-12 Granted
during
the
year
Exercised
during
the
year
Lapsed
during
the
year
29-Dec-12 Exercise
price
Date of
grant
Date of
exercise or
lapse
Market
price on
exercise
Earliest
date
exercisable
from
Expiry
date
Note
€
€
2002EPS
150,000
-
2002EPS
70,000
-
220,000
-
-
-
-
-
-
-
150,000
2.725
9-Dec-04
70,000
4.03 30-Aug-07
-
-
-
-
10-Dec-07
8-Dec-14
1, 2
31-Aug-10
29-Aug-17
1
220,000
2008
LTIP
Share
awards
01-Jan-12 Granted
during
the
year
Vested
during
the
year
Lapsed
during
the
year
29-Dec-12 Market
price at
date of
award
€
Date of
award
Date of
vesting or
lapse
Market
price
at
vesting
€
Earliest
Date
for
vesting
Expiry
Date
Performance
Period
Note
2008TSR
71,000
-
71,000
-
-
2.72
9-Jun-09 30-Aug-12
6.26
9-Jun-12 30-Aug-12
2009-2011
2008EPS
71,000
-
66,598
4,402
-
2.72
9-Jun-09 30-Aug-12
6.26
9-Jun-12 30-Aug-12
2009-2011
2008TSR
100,000
-
2008EPS
100,000
-
2008TSR
75,000
-
2008EPS
75,000
-
-
-
-
-
2008TSR
2008EPS
2008ROCE
-
-
-
47,000
-
47,000
-
47,000
-
-
-
-
-
-
-
-
100,000
2.82 25-May-10
100,000
2.82 25-May-10
75,000
4.35 28-Mar-11
75,000
4.35 28-Mar-11
47,000
6.26 30-Aug-12
47,000
6.26 30-Aug-12
47,000
6.26 30-Aug-12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25-May-13 25-May-14
2010-2012
25-May-13 25-May-14
2010-2012
28-Mar-14
28-Mar-15
2011-2013
28-Mar-14
28-Mar-15
2011-2013
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
3
4
5
5
5
5
5
5
5
492,000 141,000 137,598
4,402
491,000
Note: Status of performance conditions for the options and awards set out above are detailed below.
Eligible for a share award of 6.6% of the ordinary shares he continues to hold following the second anniversary of the exercise of the option.
1 Subject to a performance condition that has been met.
2
3 Subject to a performance condition that has been met.
4 Subject to a performance condition that has been met in part.
5 Subject to a performance condition that is yet to be tested.
www.glanbia.com 77
Governance
REMUNERATION COMMITTEE REPORT
Table B(1) : Share Options and LTIP Awards - Siobhán Talbot
2002
LTIP
Options
01-Jan-12 Granted
during the
year
Exercised
during
the
year
Lapsed
during the
year
29-Dec-12
Exercise
price
Date of
grant
Date of
exercise or
lapse
Market
price on
exercise
Note
Expiry
date
Earliest
date
exercisable
from
2002EPS
75,000
Total:
75,000
-
-
-
-
-
-
75,000
2.725 9-Dec-04
-
75,000
€
€
-
10-Dec-07
8-Dec-14 1, 2
2008
LTIP
Share
awards
01-Jan-12 Granted
during
the
year
Vested
during
the
year
Lapsed
during
the
year
29-Dec-12 Market
price at
date of
award
€
Date of
award
Date
of
vesting
or lapse
Market
price
at
vesting
€
Earliest
Date
for
vesting
Expiry
Date
Performance
Period
Note
2008TSR
28,000
-
28,000
-
2008EPS
28,000
-
26,264
1,736
-
-
2.72
9-Jun-09 30-Aug-12
6.26
9-Jun-12 30-Aug-12
2009-2011
2.72
9-Jun-09 30-Aug-12
6.26
9-Jun-12 30-Aug-12
2009-2011
2008TSR
60,000
-
2008EPS
60,000
-
2008TSR
48,250
-
2008EPS
48,250
-
-
-
-
-
2008TSR
2008EPS
2008ROCE
-
-
-
30,167
-
30,167
-
30,166
-
-
-
-
-
-
-
-
60,000
2.82 25-May-10
60,000
2.82 25-May-10
48,250
4.35 28-Mar-11
48,250
4.35 28-Mar-11
30,167
6.26 30-Aug-12
30,167
6.26 30-Aug-12
30,166
6.26 30-Aug-12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25-May-13 25-May-14
2010-2012
25-May-13 25-May-14
2010-2012
28-Mar-14 28-Mar-15
2011-2013
28-Mar-14 28-Mar-15
2011-2013
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
3
4
5
5
5
5
5
5
5
272,500
90,500 54,264
1,736
307,000
Note: Status of performance conditions for the options and share awards set out above are detailed below.
Eligible for a share award of 10% of the ordinary shares she continues to hold following the second anniversary of the exercise of the option.
1 Subject to a performance condition that has been met.
2
3 Subject to a performance condition that has been met.
4 Subject to a performance condition that has been met in part.
5 Subject to a performance condition that is yet to be tested.
S Talbot was eligible for a share award of 10% of the 4,000 shares (400) allotted to her on 28 August 2008 as she had retained these shares for
more than two years. 400 shares were allotted to her on 30 August 2012 in satisfaction of this award.
78
Glanbia plc Annual Report 2012
3
Table B(2) : Share Options and LTIP Share awards - Kevin Toland
2002 LTIP
Options
01-Jan-12 Granted
during the
year
Exercised
during
the
year
Lapsed
during the
year
29-Dec-12 Exercise
price
Date of
grant
€
Expiry date Note
Date of
exercise
or
lapse
Market
price
on
exercise
€
Earliest
date
exercisable
from
2002EPS
100,000
-
100,000
2002EPS
48,000
-
48,000
Total:
148,000
-
148,000
-
-
-
-
-
-
2.725 9-Dec-04 17-Dec-12
7.68
10-Dec-07
17-Dec-12
4.03 30-Aug-07 17-Dec-12
7.68
31-Aug-10
17-Dec-12
1
1
2008 LTIP
Share
awards
01-Jan-12 Granted
during
the
year
Vested
during
the
year
Lapsed
during
the
year
29-Dec-12 Market
price at
date of
award
€
Date of
award
Date of
vesting or
lapse
Market
price at
vesting
Earliest
Date for
vesting
Expiry Date Performance
Period
Note
€
2008TSR
48,000
-
48,000
-
2008EPS
48,000
-
45,024
2,976
-
-
2.72
9-Jun-09 30-Aug-12 6.26
9-Jun-12 30-Aug-12
2009-2011
2.72
9-Jun-09 30-Aug-12 6.26
9-Jun-12 30-Aug-12
2009-2011
2008TSR
72,500
-
2008EPS
72,500
-
2008TSR
70,000
2008EPS
70,000
-
-
-
-
2008TSR
2008EPS
2008ROCE
-
-
-
34,167
-
34,167
-
34,166
-
-
-
-
-
-
-
-
72,500
2.82 25-May-10
72,500
2.82 25-May-10
70,000
4.35 28-Mar-11
70,000
4.35 28-Mar-11
34,167
6.26 30-Aug-12
34,167
6.26 30-Aug-12
34,166
6.26 30-Aug-12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25-May-13 25-May-14
2010-2012
25-May-13 25-May-14
2010-2012
28-Mar-14
28-Mar-15
2011-2013
28-Mar-14
28-Mar-15
2011-2013
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
2
3
4
4
4
4
4
4
4
381,000 102,500 93,024
2,976
387,500
Note: Status of performance conditions for the options and awards set out above are detailed below.
1 Subject to a performance condition that has been met.
2 Subject to a performance condition that has been met.
3 Subject to a performance condition that has been met in part.
4 Subject to a performance condition that is yet to be tested.
Note. Resigned 5 January 2013
www.glanbia.com 79
Governance
REMUNERATION COMMITTEE REPORT
Table B(3): Share Options and LTIP Share awards - Michael Horan
2008 LTIP
Share
awards
01-Jan-12 Granted
during
the
year
Vested
during
the
year
Lapsed
during
the
year
29-Dec-12 Market
price at
date of
award
€
Date of
award
Date of
vesting or
lapse
Market
price at
vesting
€
Expiry Date Performance
Period
Earliest
date for
vesting
Note
2008TSR
12,000
-
12,000
-
2008EPS
12,000
-
11,256
744
-
-
2.72
9-Jun-09 30-Aug-12
6.26 9-Jun-12 30-Aug-12
2009-2011
2.72
9-Jun-09 30-Aug-12
6.26 9-Jun-12 30-Aug-12
2009-2011
2008TSR
31,000
-
2008EPS
31,000
-
2008TSR
25,000
-
2008EPS
25,000
-
-
-
-
-
2008TSR
2008EPS
2008ROCE
-
-
-
15,500
-
15,500
-
15,500
-
-
-
-
-
-
-
-
31,000
2.82 25-May-10
31,000
2.82 25-May-10
25,000
4.35 28-Mar-11
25,000
4.35 28-Mar-11
15,500
6.26 30-Aug-12
15,500
6.26 30-Aug-12
15,500
6.26 30-Aug-12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25-May-13 25-May-14
2010-2012
25-May-13 25-May-14
2010-2012
28-Mar-14 28-Mar-15
2011-2013
28-Mar-14 28-Mar-15
2011-2013
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
30-Aug-15 30-Aug-16
2012-2014
1
2
3
3
3
3
3
3
3
136,000
46,500 23,256
744
158,500
Note: Status of performance conditions for the options and share awards set out above are detailed below.
1 Subject to a performance condition that has been met.
2 Subject to a performance condition that has been met in part.
3 Subject to a performance condition that is yet to be tested.
80
Glanbia plc Annual Report 2012
3
Table C: Directors Remuneration
The salary, fees and other benefits pursuant to the remuneration package of each Director during the year were:
Salary (1)
€’000
Fees
€’000
Annual
Incentive
paid through
salary
€’000
Annual
Incentive
deferred
into shares
€’000
Payment (2)
in lieu of
Pension
€’000
Other
benefits
€’000
2012
Total
€’000
2011
Total
€’000
Executive Directors
J Moloney
K Toland
S Talbot
2012
2011
Non - Executive Directors
581
467
372
1,420
1,244
L Herlihy
H Corbally (note (a))
Mn Keane
J Callaghan
W Carroll (note (b))
J Doheny (note (c))
D Farrell (note (b))
E Fitzpatrick (note (d))
J Gannon (note (e))
J Gilsenan (note (d))
P Gleeson
P Haran
B Hayes
Ml Keane
J Liston
M Merrick
J Murphy
P Murphy (note (b))
W Murphy
A O’Connor (note (d))
E Power (note (b))
R Prendergast
V Quinlan (note (f))
2012
2011
Total 2012
Total 2011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,420
1,244
-
-
-
-
-
100
48
48
80
30
18
30
-
12
-
30
68
30
30
75
30
30
30
68
-
30
30
-
817
689
817
689
436
310
279
1,025
1,195
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
436
310
279
1,025
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145
104
93
342
378
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35
8
20
63
59
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,025
1,195
1,025
-
342
378
63
59
1,633
1,199
1,043
3,875
100
48
48
80
30
18
30
-
12
-
30
68
30
30
75
30
30
30
68
-
30
30
-
1,194
925
757
2,876
88
33
42
70
15
-
15
8
23
8
23
62
23
23
70
23
23
15
62
8
15
23
17
817
4,692
689
3,565
(1) The salary in 2012 of Executive Directors includes salary (€221,000) previously and separately incurred by Glanbia Co-operative Society Limited,
which is now recharged as an administration expense by Glanbia plc. The underlying salary of Executive Directors increased by 2% in 2012.
(a) Mr H Corbally was appointed Vice Chairman on 26 May 2011.
(b) Messrs W Carroll, D Farrell, P Murphy and E Power were appointed Directors on 26 May 2011.
(c) Mr J Doheny was appointed a director on 29 May 2012
(d) Messrs E Fitzpatrick, J Gilsenan and A O’Connor resigned as Directors on 26 May 2011.
(e) Mr J Gannon resigned as a director on 29 May 2012.
(f) Mr V Quinlan resigned as a Vice Chairman and Director on 26 May 2011.
Details of Directors’ share options are set out in note 22 to the financial statements.
www.glanbia.com 81
Governance
REMUNERATION COMMITTEE REPORT
Table C: Directors Remuneration (continued)
The pension benefits of each of the executive Directors during the year were as follows:
Transfer value
of increase in
accrued pension
€’ 000
Annual pension
accrued in 2012
in excess of inflation
€’ 000
Total annual
accrued pension at
29 December 2012
€’ 000
J Moloney
K Toland
S Talbot
2012
2011
-
-
-
-
443
-
-
-
-
47
359
131
155
645
580
(2) All Executive Directors as at 29 December 2012 are deferred members of a Glanbia defined benefit pension scheme. In light of the new cap on
pension benefits introduced in the Finance Act 2006, and subsequently amended in December 2010, the Remuneration Committee reviewed
the pension arrangements for Executive Directors and agreed to offer the option to receive a taxable payment of 25% of salary in lieu of future
service pension benefit, with effect from 1 January 2012.
82
Glanbia plc Annual Report 2012
Governance
APPLYING THE UK CORPORATE GOVERNANCE CODE
AND THE IRISH CORPORATE GOVERNANCE ANNEX
3
It is our view that, except in relation to the representation of Glanbia Co-operative
Society Limited on the Board, the Company has been fully compliant throughout the
year with the provisions of the UK Corporate Governance Code (2010) and the Irish
Corporate Governance Annex.
The following report details how the
Board has applied the principles set
down in the UK Corporate Governance
Code (which is referred to in the Listing
Rules, applicable to Irish and UK listed
companies and which is publicly available
on the Financial Reporting Council’s
website http://www.frc.org.uk/corporate/
ukcgcode.cfm) (the ‘UK Code’) and
the Irish Corporate Governance Annex
published in December 2010 by the Irish
Stock Exchange and which is publicly
available on the Financial Reporting
Council’s website http://www.ise.ie/ISE_
Regulation/corporate_governance) (the
ISE Annex’) (collectively the ‘Codes’).
The Board accepts that the Codes
represent an authoritative statement of
best practice and as such it has reviewed
its practices relative to them.
The Board also acknowledges that
frequently it is the case that laws,
regulations and policies do not provide
guidance on all types of behaviour. As
a result, we have a code of conduct
for everybody in Glanbia. The Glanbia
Code of Conduct is intended as a code
of best practice and provides a broad
range of guidance about the standards
of integrity and business conduct
expected. Our Code of Conduct is
not intended to be a substitute for our
responsibility and accountability to
exercise good judgement and obtain
guidance on proper business conduct.
Glanbia employees are encouraged and
expected to seek additional guidance
and support from others when in doubt.
Representation of Glanbia
Co-operative Society Limited
on the Board
Changes to the representation of
Glanbia Co-operative Society Limited
(the “Society”) on the Board have been
agreed with the Society which are to be
implemented in the years 2016 to 2018.
Further detail of which is contained
on page 63 of the Nomination
Committee report.
Additionally, to ensure continued phased
renewal and refreshment and to further
enhance diversity, a review of potential
non-executive director candidates is
currently being undertaken. The Board
recognises the importance and benefit of
diversity and is committed to achieving
a greater level of diversity, including
gender diversity.
Leadership
Our Board
Our Board consists of the Group
Chairman (Liam Herlihy), two Vice-
Chairmen (Martin Keane and Henry
Corbally); 16 other Non-Executive
Directors (including John Callaghan,
the Senior Independent Director and
Donard Gaynor appointed on 12 March
2013) and three Executive Directors
(John Moloney, the Group Managing
Director, Siobhán Talbot, the Group
Finance Director and Brian Phelan,
Group Development and Global
Cheese Director, who on 1 January
2013 replaced Kevin Toland, the CEO
and President Glanbia USA and Global
Nutritionals who resigned on 5 January
2013). 14 of the Non-Executive Directors
are currently nominated by our major
shareholder, the Society.
Our Directors come from a diversity
of backgrounds, ranging from public
service, accountancy and banking to
industry (dairy, pharmaceutical and
production).
More particular details of which
are set out on pages 55 to 58.
We involve all Directors in formulating
our strategic business plan (which is the
route map which guides us to meet our
objectives and provides a vital framework
within which the Group operates) and in
all key decision-making.
The Group Chairman ensures that the
skills, expertise and experience of the
Board are harnessed to best effect in
addressing significant issues facing
the Group by ensuring; (i) Directors are
properly informed on all matters; (ii) that
discussions foster constructive challenge
and debate; and (iii) that adequate
time is provided for discussions so that
the view of each Director is presented
and considered.
Directors’ roles and responsibilities are
clarified from the outset and continually
updated to reflect the evolving business
and changing dynamics. We encourage
training and personal development, and
as part of the annual evaluation process,
the Group Chairman discusses individual
training and development requirements
for each Director. Additionally, the Senior
Independent Director is available to all
fellow Non-Executive Directors, either
individually or collectively, to discuss any
matters of concern in a forum that does
not include Executive Directors or the
management of the Company.
Succession planning is used by the
Board to ensure that the Board has the
right balance of individuals to be able to
effectively discharge its responsibilities.
We feel it is important to get the right
balance of independence, skills,
knowledge, experience and diversity and
are currently progressing initiatives in this
area including the formulation of a policy
on Board refreshment and renewal. In
recognising this, we are conscious of the
fact that the Society currently nominates
14 of our 19 Non-Executive Directors.
This was recognised during the year
by the Board and shareholders of the
Society who, following the agreement to
reduce their shareholding to 41.3%, have
agreed to a phased reduction of their
representation on the Board between the
years 2016 to 2018.
More particular details of which
are set out on pages 63 to 64.
www.glanbia.com 83
Governance
APPLYING THE UK CORPORATE GOVERNANCE CODE
AND THE IRISH CORPORATE GOVERNANCE ANNEX
Division of Responsibilities
The Group Chairman is
responsible for the efficient and
effective working of the Board
and his particular responsibilities
include:
(cid:2)(cid:3)
Leading the Board;
(cid:2)(cid:3) Providing accurate, timely and
clear information to the Board;
(cid:2)(cid:3) Promoting the highest standards
of corporate governance;
(cid:2)(cid:3)
Facilitating active engagement
and challenge by the Board;
(cid:2)(cid:3) Acting as Chairman of the
Nomination Committee;
(cid:2)(cid:3) Conducting the annual Board
evaluation; and
(cid:2)(cid:3) Acting as a sounding board for
the Group Managing Director.
The Group Managing Director
is responsible for all aspects of
the operation and management
of the Group and his particular
responsibilities include:
(cid:2)(cid:3)
Leading corporate strategic
decision making and developing
strategy for approval;
(cid:2)(cid:3)
Leading the business;
(cid:2)(cid:3) Ensuring Group policies and
procedures are followed;
(cid:2)(cid:3) Ensuring the business complies
with relevant legislation and
regulation; and
(cid:2)(cid:3) Overseeing investor relations.
The Senior Independent Director
supports the Group Chairman
on all governance issues and
his particular responsibilities
include:
The Group Secretary assists the
Group Chairman in promoting
the highest standards of
corporate governance and his
particular responsibilities include:
(cid:2)(cid:3) Acting as a sounding board for
(cid:2)(cid:3) Acting as a sounding board for
the Group Chairman;
the Directors;
(cid:2)(cid:3) Acting as an intermediary for
other Directors;
(cid:2)(cid:3) Conducting the annual appraisal
of the Group Chairman’s
performance;
(cid:2)(cid:3) Acting as Chairman of the Audit
Committee;
(cid:2)(cid:3) Ensuring the views of the
Non- Executive Directors are
heard; and
(cid:2)(cid:3) Being available to shareholders.
(cid:2)(cid:3) Assisting the Group Chairman in
ensuring Directors receive timely
and clear information and are
equipped for robust debate and
informed decision making;
(cid:2)(cid:3) Being a central source of
guidance and advice on policy,
procedure, governance and
ethics;
(cid:2)(cid:3) Complying with all legal and
regulatory matters;
(cid:2)(cid:3) Providing a high quality service to
shareholders; and
(cid:2)(cid:3) Coordinating access to
independent professional advice
for Directors from time to time.
84
Glanbia plc Annual Report 2012
Our governance structure
The Group’s governance structure is
based on the leadership principles in
the Codes.
The core activities of the Board and
its Committees are documented and
planned on an annual basis and this
forms the basic structure within which
the Board operates.
Biographical details of the
Directors and the members of the
Audit, Nomination and Remuneration
Committees are set out on pages 55, 57
and 58.
While the Board is ultimately responsible
for the success of the Group, given the
size and complexity of its operations the
day-to-day operations of the Group are
managed on a delegated basis by the
Group Managing Director and the senior
executives working with him.
The Board appoints the Group Managing
Director and monitors his performance in
leading the Group. The Group Managing
Director is responsible for all aspects of
the operation and management of the
Group and its business. Specifically, he
is responsible for developing (for the
Board’s approval) appropriate values
and standards to guide all activities
undertaken by the Group and also for
making recommendations on appropriate
delegation of responsibilities.
The Board and its Committees monitor
the application of values, standards
and processes. This includes an agreed
annual calendar of the main business to
be considered at each Board meeting.
At each scheduled Board meeting, the
Group Managing Director and the Group
Finance Director provide operational
and financial updates. Depending on the
nature of the proposal to be considered,
other senior executives are invited to
make presentations or participate in
Board discussions to ensure that Board
decisions are supported by a full analysis
of each proposal.
The Board held 10 scheduled meetings
in 2012 and one two-day planning
and strategy session. The two-day
planning and strategy session has
been developed to ensure that Non-
Executive Directors can participate in the
development of proposals on strategy.
This includes a full consideration of the
key risks and opportunities facing the
Group on a rolling three year basis.
The Audit, Nomination and Remuneration
Committee membership and
attendances for all or part of the year
are shown in their respective reports.
All Directors are ordinarily subject
to re-election at every Annual
General Meeting.
3
A significant number of additional board
meetings were held during 2012 in
connection with the disposal of 60%
of Glanbia Ingredients Ireland Limited
to the Society on 25 November 2012.
The Group Managing Director and the
14 directors nominated by the Society
absented themselves from these
meetings due to the related party nature
of the transaction.
The attendance of each Director at
the scheduled Board meetings and the
two-day planning and strategy session
is shown below.
Effectiveness
Succession planning is used by the
Board to deliver two key responsibilities:
firstly to ensure that the Group is
managed by executives with the
necessary skills, experience and
knowledge; and secondly to ensure that
the Board itself has the right balance
of individuals to be able to discharge
its responsibilities effectively. The
Nomination Committee has specific
responsibilities in this area but the Board
as a whole is also involved in overseeing
the development of management
resources with the aim of ensuring the
Group has the individuals with the right
skills to meet the needs of an increasingly
complex and global business.
2012 Board meeting attendance
Attendance at scheduled Board meetings during the year ended 29 December 2012
Director
Appointed
Number of full years
on the Board
2012 meeting
attendance
29 May 2012
Less than 1
L Herlihy
Mn Keane
H Corbally
J Moloney
11 Sept 1997
24 May 2006
9 June 1999
11 Sept 1997
J Callaghan
13 Jan 1998
W Carroll
J Doheny1
D Farrell
J Gannon2
P Gleeson
P Haran
B Hayes
J Liston
M Merrick
J Murphy
P Murphy
W Murphy
E Power4
26 May 2011
26 May 2011
27 May 2009
24 May 2006
9 June 2005
29 June 2010
9 June 2005
29 June 2010
26 May 2011
1 June 1989
26 May 2011
R Prendergast
28 May 2008
S Talbot
K Toland5
1 July 2009
10 Jan 2003
Ml Keane3
29 June 2010
10 June 2002
10
15
6
13
15
15
1
1
3
6
7
2
4
7
2
1
23
10
4
3
10
11/11
11/11
11/11
11/11
11/11
11/11
7/7
11/11
4/4
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
11/11
9/11
1 Appointed 29 May 2012
2 Retired 29 May 2012
3 Ml Keane was re-appointed to the Board in 2010 having previously served
two years on the Board
4 E Power was re-appointed to the Board in 2011 having previously served
nine years on the Board
5 K Toland resigned 5 January 2013
All Non-Executive Directors are advised
of the likely time commitments at
appointment and are asked to seek
approval from the Nomination Committee
if they wish to take on additional external
appointments. The ability of individual
Directors to allocate sufficient time to
the discharge of their responsibilities is
considered as part of the Board’s annual
evaluation process overseen by the
Group Chairman. Any issues concerning
the Group Chairman’s time commitment
are dealt with by the Nomination
Committee, chaired for this purpose by
the Senior Independent Director.
An induction programme is agreed for
all new Directors aimed at ensuring
that they are able to develop an
understanding and awareness of the
Group’s core processes, its people
and businesses. A typical induction
programme is shown on page 87.
All Directors have access to the advice
and services of the Group Secretary, who
is responsible for advising the Board on
all governance matters. The Directors
also have access to independent
professional advice, if required, at
the expense of the Group and this
is coordinated through the Group
Secretary.
The Group Chairman, with the assistance
of the Group Managing Director and
Group Secretary, is responsible for
ensuring that Directors are supplied
with information in a timely manner and
that it is in a form and of an appropriate
quality that enables them to discharge
their duties. In the normal course of
business, such information is provided
by the Group Managing Director in a
regular report to the Board that includes
information on operational matters,
strategic developments, financial
performance relative to the business
plan, business development, corporate
responsibility and investor relations.
In addition to the induction programme
that all Directors undertake on joining
the Board, an ongoing programme
of Director development and Group
awareness has been developed.
For example, as part of the annual
programme of Board meetings, Directors
will typically visit some of the Group’s
principal operations to meet employees
and gain an understanding of the
Group’s products and services.
www.glanbia.com 85
Governance
APPLYING THE UK CORPORATE GOVERNANCE CODE
AND THE IRISH CORPORATE GOVERNANCE ANNEX
In September 2012, an overseas
Board meeting was held in Chicago,
at which the Board received business
and strategic reviews and presentations
from all overseas CEOs, expanding
their knowledge of the overseas
markets, financial position, prospects,
sales, marketing strategies and risk
management issues.
In October 2012, the Board visited the
new premix manufacturing facility in
Orsingen, Germany which was opened
on 19 July 2012, just over a year after
the commencement of works and
received a presentation from the CEO
of Customised Premix Solutions on the
strategy of the business followed by a
tour of the manufacturing facility.
We have established a formal process for
the annual evaluation of the performance
of the Board, its principal Committees
and individual Directors. The evaluation
of the performance of the Board is
to be externally facilitated every three
years. Plans are in place to complete an
external review in 2013.
As part of the evaluation process,
questionnaires are drawn up to provide
the framework for the evaluation process.
In order to ensure the robustness of
the process, the questionnaires are
designed to be forward looking and
to lead to insights for improvement.
The questions are open-ended to
encourage dialogue about the workings
of the Board. Additionally, each
member of the Board or appropriate
Committee is invited to comment on
the performance of peer Directors (if
necessary), the collective Board and/or
the appropriate Committee.
Once completed, the questionnaires
are collated and reviewed by the
Group Chairman, who then meets with
each Director individually to discuss
the performance of the Board or the
appropriate Committee and individual
Directors. These interviews are designed
to be informal and open to encourage
active participation.
Following the interviews the Group
Chairman meets with the Group
Secretary to analyse the findings
and prepare a report to the Board
identifying the central themes and
recommendations for the Board to
consider.
During 2012, our Board and/or its
Committees conducted an evaluation
of its own performance, its principal
Committees and individual Directors.
A diagramatic representation of the
evaluation process is set on page 88.
The performance of the Group Chairman
is included in the above process. The
Group Chairman’s evaluation is managed
by the Senior Independent Director. As
part of the Group Chairman’s evaluation,
the Non-Executive Directors meet
separately under the chairmanship of the
Senior Independent Director.
The Group Chairman wishes to confirm
that, following the completion of the
performance evaluation process, the
members of the Board who are being
proposed for re-appointment continue
to be effective and demonstrate
commitment to their roles. The Senior
Independent Director confirms that
the Group Chairman, also standing
for re-appointment at this year’s
Annual General Meeting, continues to
perform effectively and demonstrates
commitment to his role.
Independence
During the year, the Nomination
Committee reviewed the independence
of the Non-Executive Directors in
accordance with the guidance in
the Codes and reported its
recommendations to the Board.
Further detail in relation to the
review of the Directors’ independence
is set out in the Nomination Committee
Report on pages 63 to 64.
Directors tenure on Board
at 29 December 2012
6
3
8
GLANBIA
DIRECTORS
TENURE
ON BOARD
4
Less than 3 years
Between 3 and 6 years
Between 6 and 9 years
Over 9 years
Composition of the Board
at 29 December 2012
3
COMPOSITION
OF THE BOARD
4
14
Executive Director
Non-Executive Director
Non-Executive Directors
nominated by Glanbia
Co-operative Society Limited
86
Glanbia plc Annual Report 2012
Typical Non-Executive Director
induction programme
Matters covered
(cid:2)(cid:3) Directors’ duties, corporate
governance and Board
procedures - the Company has a
corporate manual which is issued
to all Directors and is regularly
updated for new legislation and
procedures
(cid:2)(cid:3) Business planning and internal
control processes
(cid:2)(cid:3) Strategy and planning
(cid:2)(cid:3) Metrics used to monitor business
performance
(cid:2)(cid:3)
Investor relations
(cid:2)(cid:3) Corporate responsibility (including
ethical business conduct, and
health and safety)
(cid:2)(cid:3)
Internal Audit
(cid:2)(cid:3) Site visits
Accountability
Through this Annual Report and, as
required, through other periodic financial
statements, the Board is committed
to providing shareholders and other
stakeholders with a clear assessment of
the Company and the Group’s position
and prospects.
The arrangements established by
the Board for the application of risk
are detailed in the Risk Management
Report on pages 40 to 42. The Board
has delegated to the Audit Committee
oversight of the management of the
relationship with the Company’s Auditors,
further details of which can be found in
the Audit Committee Report on pages
60 to 62.
Internal control and risk
management
The Board has overall responsibility for
the Group’s system of risk management
and internal control, for reviewing its
effectiveness and for confirming that
a process exists for the identification,
evaluation and management of risk in
order to ensure that the Group’s strategic
objectives are achieved.
The Board also has responsibility for
determining the Group’s risk appetite.
These processes have been in place
throughout the year covered in this
Annual Report and financial statements
and up to the date of its approval. The
Group’s systems of risk management
and internal control are regularly reviewed
by the Audit Committee and the Board
and accord with the Turnbull guidance
which the Board has fully adopted.
While acknowledging our responsibility
for the system of internal control, we are
aware that such a system is designed
to manage rather than eliminate the risk
of failure to achieve business objectives,
and can only provide reasonable and
not absolute assurance against material
misstatement or loss.
Our Board has reviewed the
effectiveness of the current systems
of risk management and internal
control specifically for the purpose of
this statement.
Details of the processes the Group
has put in place to manage risk can be
found on pages 40 to 42.
The Board has delegated to the Audit
Committee responsibility for reviewing
in detail the effectiveness of the Group’s
internal controls. Having undertaken
such reviews, the Audit Committee
reports to the Board on its findings
so that the Board can take a view on
this matter. In order to assist the Audit
Committee and the Board in their review,
the Group has developed a Control Self
Assessment programme. This is subject
to regular review. The Board is satisfied
that the Group risk management and
internal controls systems are properly
reviewed and effective. Steps are
being taken to embed internal control
and risk management further into the
operations of the business and to deal
with areas of improvement which come
to management’s attention.
Proper Books of Account
The Directors, through the use of
appropriate procedures and systems,
have also ensured that measures are
in place to secure compliance with the
Company and the Group’s obligation to
keep proper books of account.
These books of account are kept at
the registered office of the Company.
3
Share ownership and dealing
In order to maintain investor confidence
in the stock markets, quoted companies
have an obligation to ensure that their
Directors and employees, and anyone
closely associated or connected to
them, do not place themselves in
positions where investors might suspect
them of abusing inside information.
For this reason, the Company has
issued rules covering share dealings by
Directors and employees who regularly,
or even occasionally, have access to
inside information.
The main principle underlying the rules is
that no one should trade in shares of the
Company while in possession of inside
information about the Company or
the Group.
Likewise, no one should deal in the
shares of the Company if it would give
rise to a suspicion that they are abusing
inside information. As a safeguard
against any actual or potential abuse of
these rules, the Company has appointed
the Group Secretary and the Group
Finance Director as Compliance Officers,
from one of whom approval must be
obtained, in advance, for any share
dealings by persons to whom the rules
apply. Directors’ dealings must also be
approved by the Group Chairman.
The interests of the Directors and
Secretary and their spouses and minor
children in the share capital of the
Company, the holding Society and
subsidiary companies and societies are
set out in the Remuneration Committee
Report on pages 75 to 80.
www.glanbia.com 87
Governance
APPLYING THE UK CORPORATE GOVERNANCE CODE
AND THE IRISH CORPORATE GOVERNANCE ANNEX
Evaluation of the effectiveness of our Board
t i o n
n t a
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Risk management
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Board processes,
relationships
culture &
Report to the Bo a r d
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The objective of the annual Board evaluation is to:
(cid:2)(cid:3) provide assurance to our shareholders and other
stakeholders that we are committed to the highest
standards of governance and probity, and
(cid:2)(cid:3)
gain insight into Board effectiveness to help your Board
perform as well as possible and help us understand how
well your Board is operating in key areas. These include:
– Board performance and strategic oversight;
– Risk management and internal control;
– Board Committees;
–
Succession planning and human
resource management;
– Board processes, culture and relationships;
– Diversity;
–
Individual performance; including
Chairman and CEO performance;
– Priorities to enhance Board performance; and
–
Additional issues
Main features of Internal control and risk management systems in preparing consolidated accounts
and financial reporting
(cid:2)(cid:3) Board approval of the annual business and three-year strategic plans following Group and business unit
strategy plan reviews.
(cid:2)(cid:3)
Monitoring of performance against the annual plan through monthly Board reports detailing actual versus
budgeted results, analysis of material variances, review of key performance indicators and re-forecasting
where required.
(cid:2)(cid:3) Monthly reporting by all business units and review by Group Finance.
(cid:2)(cid:3) Well resourced control and finance function to faciliate segregation of duties.
(cid:2)(cid:3) Audit Committee review of the integrity of the annual report and half-yearly report. Any resulting
recommendations are included in the Audit Committee Chairman’s Board report.
(cid:2)(cid:3) Board review and approval of the Group consolidated half-yearly accounts, consolidated annual accounts,
interim management statements and any formal announcements.
(cid:2)(cid:3)
The use of a Group Finance management manual that clearly sets out Group accounting policies and
financial control procedures.
(cid:2)(cid:3) Centralised Taxation and Treasury functions.
(cid:2)(cid:3) Board approved Treasury risk management policies, designed to ensure that Group foreign exchange
and interest rate exposures are managed within defined parameters.
(cid:2)(cid:3) Appropriate IT security environment.
88
Glanbia plc Annual Report 2012
Whenever possible, all Directors attend
the AGM and shareholders are invited
to ask questions during the meeting and
have an opportunity to meet with the
Directors following the conclusion of the
formal part of the meeting. In line with
the Codes, details of proxy voting by
shareholders, including votes withheld,
are made available on request and
are placed on the Company’s website
following the meeting.
To ensure shareholders have time to
consider the annual report and financial
statements and lodge their proxy
votes, notice of the AGM and related
documents are issued more than 20
working days prior to the meeting.
The Group offers all shareholders the
choice of submitting proxy votes either
electronically or in paper format. It also
offers them the option to abstain.
Remuneration
The Board has delegated to the
Remuneration Committee responsibility
for agreeing remuneration policy and the
individual remuneration of the Executive
Directors and other senior executives
Further details of which can be found
in the Remuneration Committee Report.
Relations with shareholders
The Group has a well-developed investor
relations programme managed by the
Group Finance Director. This includes
regular contact with major shareholders
including the Society to keep them
informed of progress on Group
performance. During the year, the Group
Managing Director made a presentation
at the Annual General Meeting. In
addition, Executive Directors met with
investors in Ireland, the UK, Continental
Europe and the US. The Board is briefed
regularly on the views and concerns
of institutional investors and receives
analyst reports on the Group on a
regular basis. The Group also responds
throughout the year to shareholder
queries on a wide range of matters.
To assist in developing a better
understanding of the views of
major shareholders, the Company
commissioned external consultants
to carry out a survey of investors in
December 2011 to provide strategic
guidance for the Group’s Investor
communications and insight into how
the Group is percieved. The results
of the survey which were positive
were presented to the Board for its
consideration during the year.
The Group maintains a comprehensive
investor relations website that provides,
amongst other things, share information
on investing in Glanbia, results releases
and shareholder presentations. This can
be accessed via the Company’s website,
www.glanbia.com.
The Company’s Annual General Meeting
(‘AGM’) provides all shareholders with
the opportunity to vote on the resolutions
put to them.
3
www.glanbia.com 89
Governance
OTHER STATUTORY INFORMATION
Principal activities
Glanbia plc is a global nutritonal solutions
and cheese group, headquartered in
Ireland, with operations in 18 countries
including Ireland, mainland Europe, the
USA, Africa and Asia.
Further detail can be found in
‘Our Global Footprint’ on pages 4 to 5.
The Company has set out in this report
a fair review of the business of the
Group during the financial year ended
29 December 2012, including an
analysis of the position of the Group
at the end of the financial year and a
description of the principal risks and
uncertainties facing the Group (known as
a ‘Business Review’).
The information that fulfils the
Business Review requirements can
be found in the Group and Segmental
performance sections of this Report on
pages 8 to 50.
Directors
The current Directors who served
during the 2012 financial year are listed
on pages 55 to 58.
Jer Doheny was appointed to the Board
on 29 May 2012 following the retirement
of James Gannon.
Brian Phelan was appointed as an
Executive Director to the Board, with
responsibility for strategy, development
and Global Cheese on 1 January
2013. Kevin Toland, the CEO and
President of Glanbia USA & Global
Nutritionals resigned as a Director on 5
January 2013.
Process for appointment
of Directors
In addition to the Companies Acts, the
Articles of Association of the Company
contained provisions regarding the
appointment and retirement of directors.
At each Annual General Meeting the
Articles of Association provide that each
Director who has been in office at the
conclusion of each of the three preceding
Annual General Meetings and who has
not been appointed or re-appointed at
either of the two most recently held of
those three meetings shall retire from
office. No person other than a Director
retiring by rotation shall be appointed a
Director at any general meeting unless he
is recommended by the Directors or, not
less than seven nor more than forty-two
days before the date appointed for the
meeting, notice executed by a member
qualified to vote at the meeting has been
given to the Company of the intention to
propose that person for appointment. If a
Director is also a director of Glanbia Co-
operative Society Limited (“the Society”),
the Articles of Association provide that
his appointment as a Director shall
terminate automatically in the event of his
ceasing to be a director of the Society.
The Articles of Association also contain
provisions regarding the automatic
retirement of a director in certain other
limited circumstances.
Retirement of Directors
In accordance with the UK Corporate
Governance Code, all Directors will
retire at the 2013 Annual General
Meeting (‘AGM’) and, being eligible, offer
themselves for re-appointment.
Annual General Meeting
The Company’s AGM will be held
on 21 May 2013. Full details of the
AGM, together with explanations of
the resolutions to be proposed, are
contained in the Notice of Meeting
available on the Group’s website www.
glanbia.com and, if requested, posted
with this Annual Report.
Powers of the Directors
The Directors are responsible for the
management of the business of the
Company and the Group and may
exercise all powers of the Company
subject to applicable legislation and
regulation and the Articles of Association.
At the 2012 AGM, the Directors were
given the power to issue new shares up
to a nominal amount of €688,038.96.
This power will expire on the earlier of the
conclusion of the 2013 AGM or 8 August
2013. Accordingly, a resolution will be
proposed at the 2013 AGM to renew the
Company’s authority to issue further new
shares.
At the 2012 AGM, the Directors were
also given the power to disapply the
strict statutory pre-emption provisions
in the event of a rights issue or in any
other issue up to an aggregate nominal
amount of €688,038.96. This authority
too will expire on the earlier of the
conclusion of the 2013 AGM or 8 August
2013 and a resolution will be proposed
at the 2013 AGM to renew this additional
authority.
90
Glanbia plc Annual Report 2012
At the 2012 AGM, the Directors were
given the power to buy back a maximum
number of 29,453,268 ordinary shares
(equivalent to 10% of its own shares)
within a price range specified in the
resolution. A special resolution will be
proposed at the 2013 AGM to renew the
Company’s authority to acquire its own
shares. If approved, the minimum price
which may be paid by the Company will
be €0.06 per share and the maximum
price will be the higher of the 5 day
average closing prices and the last
independent trade prior to the buy-back.
At the 2012 AGM, shareholders also
authorised the maximum and minimum
prices at which the Company may
reissue off-market such shares as it
may purchase. This authority will expire
at the earlier of the conclusion of the 2013
AGM or 8 August 2013 and a resolution
will be proposed at the 2013 AGM to
renew this authority.
Dividends
An interim dividend of 3.66 cent per
share was paid on 19 October 2012 to
shareholders on the register at the close
of business on 7 September 2012.
The Directors propose a final dividend
5.43 cent per share. Subject to
shareholder approval, the final dividend
will be paid on 31 May 2013 to
shareholders on the share register
on 19 April 2013.
Following approval of shareholders at the
AGM in 2010, all dividend payments will
be made by direct credit transfer into a
nominated bank or financial institution.
If a shareholder has not provided his/
her account details prior to the payment
of the dividend, a shareholder will be
sent the normal tax voucher advising
a shareholder of the amount of his/
her dividend and that the amount is
being held because his/her direct credit
transfer instructions had not been
received in time.
A shareholder’s dividends will not
accrue interest while they are held.
Payment will be transferred to a
shareholder’s account as soon as
possible on receipt of his/her direct
credit transfer instructions. Additionally,
if a shareholder’s registered address
is in the UK and a shareholder has not
previously provided the Company with a
mandate form for an Irish euro account,
a shareholder‘s dividend will default to a
sterling payment. All other shareholders
dividends will default to a euro payment.
person holds securities in the Company
carrying special rights with regard to
control of the Company. The Company
is not aware of any agreements between
holders of securities that may result in
restrictions in the transfer of securities or
voting rights.
Exercise of rights of shares in
employee share schemes
As detailed in note 22 to the financial
statements at 29 December 2012,
1,141,334 ordinary shares were held in
an employee benefit trust for the purpose
of the Group’s employee share schemes.
The Trustees of the employee trusts
do not seek to exercise voting rights
on shares held in the employee trusts
other than on the direction of the
underlying beneficiaries. No voting
rights are exercised in relation to shares
unallocated to individual beneficiaries.
Rights under the Shareholders’
Rights (Directive 2007/36/EC)
Regulations 2009
Shareholder(s) have the right to ask
questions related to items on the agenda
of a general meeting and to receive
answers, subject to certain qualifications.
Shareholder(s) holding 3% of the
issued share capital of the Company,
representing at least 3% of its total
voting rights, have the right to put
items on the agenda and to table draft
resolutions at AGMs. The request must
be received by the Company at least 42
days before the relevant meeting. Further
details of shareholders’ rights under the
Shareholders’ Rights (Directive 2007/36/
EC) Regulations 2009 are contained in
the notice of the 2013 AGM available
on the Group website
www.glanbia.com and, if requested,
posted with this Annual Report.
Political donations
The Electoral Act, 1997 requires
companies to disclose all political
donations over €5,079 in aggregate
made during the financial year. The
Directors, on enquiry, have satisfied
themselves that save the payment
of €6,345 towards the Alliance for
Ireland Faces of Yes campaign no other
donations in excess of this amount have
been made by the Company.
Issued share capital
At 29 December 2012 the authorised
share capital of the Company was
306,000,000 ordinary shares of €0.06
each and the issued share capital was
294,955,684 (2011: 294,532,684)
ordinary shares of €0.06 each, of which
48.3% was held by the Society. All the
Company’s shares are fully paid up and
quoted on the Irish and London Stock
Exchanges. During the year 423,000
ordinary shares of €0.06 each were
allotted, upon the exercise of outstanding
share options under the 2002 LTIP.
Details of the Company’s share
capital and shares under option or
award at 29 December 2012 are given
in notes 22 and 23 to the financial
statements.
Rights and obligations of
ordinary shares
On a show of hands at a general meeting
every holder of ordinary shares present
in person or by proxy and entitled to
vote shall have one vote. On a poll,
every shareholder present in person or
by proxy, shall have one vote for every
ordinary share held. In accordance
with the provisions of the Articles of
Association, holders of ordinary shares
are entitled to a dividend where declared
or paid out of profits available for such
purposes. On a return of capital on a
winding up, holders of ordinary shares
are entitled to participate.
Restrictions on transfer of shares
With the exception of restrictions on
transfer of shares under the Company’s
share schemes, while the shares are
subject to the schemes, there are no
restrictions on the voting rights attaching
to the Company’s ordinary shares or the
transfer of securities in the Company.
Under the Articles of Association of the
Company, the Directors have the power
to impose restrictions on the exercise
of rights attaching to share(s) where the
holder of the share(s) fails to disclose
the identity of any person who may
have an interest in those shares. No
3
Restrictions on voting deadlines
The notice of any general meeting shall
specify the deadline for exercising voting
rights and appointing a proxy or proxies
to vote in relation to resolutions to be
proposed at the general meeting. The
number of proxy votes for, against or
withheld in respect of each resolution
are published on the Company’s website
after the meeting.
Substantial interests
As at 29 December 2012 and 12 March
2013, the Company has been advised
of the following notifiable interests in its
ordinary share capital:
No of
ordinary
shares
% of
issued
share
capital
142,588,848
48.3%
11,780,393
3.99%
Shareholder
Glanbia
Co-operative
Society
Limited
Prudential
plc group of
companies
The Society has indicated to the
Company it will dispose of shares
equivalent to 7% of the issued share
capital of the Company on 14 March
2013 by way of a distribution of said
shares to its members.
Memorandum and Articles of
Association
The Company’s Memorandum and
Articles of Association set out the objects
and powers of the Company. The
Articles of Association detail the rights
attaching to the shares; the method by
which the Company’s shares may be
purchased or re-issued; the provisions
which apply to the holding of and voting
at general meetings; and the rules
relating to the Directors, including their
appointment, retirement, re-election,
duties and powers. A copy of the
Memorandum and Articles of Association
can be obtained from the Company’s
website, www.glanbia.com.
Unless expressly specified to the
contrary in the Articles of Association
of the Company, the Company’s
Memorandum and Articles of Association
may be amended by special resolution of
the Company’s shareholders.
www.glanbia.com 91
Governance
OTHER STATUTORY INFORMATION
Change of control provisions
The Group has certain debt facilities
which may require repayment in the
event that a change in control occurs
with respect to the Group.
There are also a number of agreements
that take effect, alter or terminate upon
a change of control of the Group, which
include the Group’s Joint Ventures
with Leprino Foods Company and PZ
Cussons plc. If a third party were to
acquire control of the Group, Leprino
Foods Company could elect to terminate
its Joint Venture with the Group and, if
this were to occur, the Group could then
be required to sell its shareholding in the
Joint Venture to Leprino Foods Company
at a price equal to its fair value. In the
same circumstances PZ Cussons plc
can also elect to terminate its Nutricima
Joint Venture with the Group and, if this
were to occur, the Group could then
be required to sell to PZ Cussons plc
at a nominal price certain trade marks
which were originally transferred from
the PZ Cussons group to the Nutricima
business. The Nutricima Joint Venture
company would then be wound up.
In addition, the Company’s LTIPs contain
change of control provisions which
can allow for the acceleration of the
exercisability of share options and the
vesting of share awards in the event of a
change of control.
The Board is satisfied that no change
of control provisions has occurred in
respect of these agreements.
Corporate social responsibility
As the Group grows and develops as a
global nutritional solutions and cheese
business, so also does the Group’s
commitment to conducting its business
in a way that is economically, socially and
environmentally sustainable.
During 2012 the Group made further
progress in its corporate citizenship
objectives.
more particular details of which are
summarised in ‘Our responsibilities’ on
pages 46 to 50.
The financial position of the Company
and the Group, its cash flows, liquidity
position and borrowing facilities are
outlined in the Group Finance Director’s
Review on pages 34 to 39.
In addition, note 3 to the financial
statements includes the Company and
the Group’s objectives, policies and
processes for managing its capital; its
financial risk management objectives;
details of its financial instruments and
hedging activities; and its exposures to
credit risk and liquidity risk.
Subsidiary and associated
undertakings
A list of the principal subsidiary and
associated undertakings is included in
note 39 to the financial statements.
Accountability and audit
Financial reporting
Directors’ responsibilities for
preparing the financial statements
for the Company and the Group are
detailed on page 93.
The Auditors’ Report details the
respective responsibilities of Directors
and Auditors.
Going concern
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out in the Group Managing
Director’s Review on pages 10 to 12.
The Company and the Group have
considerable financial resources and a
large number of customers and suppliers
across different geographic areas and
industries. As a consequence, the
Directors believe that the Company and
the Group are well placed to manage its
business risks successfully.
The Directors have a reasonable
expectation that the Company, and
the Group as a whole, have adequate
resources to continue in operational
existence for the foreseeable future. For
this reason, they continue to adopt the
going concern basis in preparing the
financial statements.
Auditors
The auditors, PricewaterhouseCoopers,
have expressed their willingness to
continue in office in accordance with
Section 160(2) of the Companies
Act, 1963.
92
Glanbia plc Annual Report 2012
Governance
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
3
The Directors are responsible for
preparing the Annual Report and the
financial statements in accordance with
applicable law and regulations.
Irish company law requires the Directors
to prepare financial statements for
each financial year. Under that law
the Directors have prepared the
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by
the European Union. The financial
statements are required by law to give 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.
In preparing these financial statements
the Directors are required to:
(cid:2)(cid:3)
select suitable accounting policies
and then apply them consistently;
(cid:2)(cid:3) make judgements and estimates that
are reasonable and prudent;
(cid:2)(cid:3)
state that the financial statements
comply with IFRSs as adopted by
the European Union; and
(cid:2)(cid:3) Prepare the financial statements
on the going concern basis, unless
it is inappropriate to presume
that the Group will continue in
business, in which case there should
be supporting assumptions or
qualifications as necessary.
The Directors are also required by
applicable law and the Listing Rules
issued by the Irish Stock Exchange to
prepare a Directors’ Report and reports
relating to Directors’ Remuneration and
Corporate Governance and the Directors
are required to include a management
report containing a fair review of the
business and a description of the
principal risks and uncertainties facing
the Group.
The Directors are responsible for keeping
proper books of account that disclose
with reasonable accuracy at any time the
financial position of the Company and the
Group and to enable them to ensure that
the financial statements comply with the
Companies Acts 1963 to 2012 and, as
regards the Group financial statements,
article 4 of the IAS Regulation. They are
also responsible for safeguarding the
assets of the Company and the Group
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the
maintenance and integrity of certain
corporate and financial information
included on the Company’s website.
Legislation in Ireland concerning the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Directors’ statement pursuant to
the Transparency (Directive
2004/109/EC) Regulations 2007
Each of the current Directors, whose
names and functions are listed on pages
55 to 58 confirms that to the best of
each person’s knowledge and belief:
(cid:2)(cid:3)
(cid:2)(cid:3)
the financial statements prepared in
accordance with IFRS as adopted by
the EU give a true and fair view of the
assets, liabilities and financial position
of the Company and the Group and of
the profit of the Group; and
the Directors’ Report contained in the
Annual Report includes a fair review
of the development and performance
of the business and the position of the
Company and Group, together with a
description of the principal risks and
uncertainties that they face.
Directors Report
On behalf of the Board
Liam Herlihy J Moloney S Talbot
Directors
Date: 12 March 2013
www.glanbia.com 93
94
Glanbia plc Annual Report 2012
3
FINANCIAL STATEMENTS
Independent auditors’ report
Group income statement
Group statement of comprehensive income
Group statement of changes in equity
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:9)(cid:11)(cid:12)(cid:11)(cid:13)(cid:9)(cid:7)(cid:4)(cid:14)(cid:7)(cid:15)(cid:13)(cid:10)(cid:13)(cid:16)(cid:17)(cid:10)(cid:18)(cid:7)(cid:6)(cid:4)(cid:8)(cid:17)(cid:9)(cid:17)(cid:4)(cid:13)
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:9)(cid:11)(cid:12)(cid:11)(cid:13)(cid:9)(cid:7)(cid:4)(cid:14)(cid:7)(cid:16)(cid:10)(cid:8)(cid:19)(cid:7)(cid:20)(cid:4)(cid:21)(cid:8)
(cid:22)(cid:4)(cid:12)(cid:6)(cid:10)(cid:13)(cid:23)(cid:7)(cid:8)(cid:9)(cid:10)(cid:9)(cid:11)(cid:12)(cid:11)(cid:13)(cid:9)(cid:7)(cid:4)(cid:14)(cid:7)(cid:15)(cid:13)(cid:10)(cid:13)(cid:16)(cid:17)(cid:10)(cid:18)(cid:7)(cid:6)(cid:4)(cid:8)(cid:17)(cid:9)(cid:17)(cid:4)(cid:13)
Company statement of changes in equity
Company statement of comprehensive income
(cid:10)(cid:13)(cid:24)(cid:7)(cid:8)(cid:9)(cid:10)(cid:9)(cid:11)(cid:12)(cid:11)(cid:13)(cid:9)(cid:7)(cid:4)(cid:14)(cid:7)(cid:16)(cid:10)(cid:8)(cid:19)(cid:7)(cid:20)(cid:4)(cid:21)(cid:8)
(cid:25)(cid:4)(cid:9)(cid:11)(cid:8)(cid:7)(cid:9)(cid:4)(cid:7)(cid:9)(cid:19)(cid:11)(cid:7)(cid:15)(cid:13)(cid:10)(cid:13)(cid:16)(cid:17)(cid:10)(cid:18)(cid:7)(cid:8)(cid:9)(cid:10)(cid:9)(cid:11)(cid:12)(cid:11)(cid:13)(cid:9)(cid:8)
(cid:26)(cid:19)(cid:10)(cid:3)(cid:11)(cid:19)(cid:4)(cid:18)(cid:24)(cid:11)(cid:3)(cid:8)(cid:27)(cid:7)(cid:17)(cid:13)(cid:14)(cid:4)(cid:3)(cid:12)(cid:10)(cid:9)(cid:17)(cid:4)(cid:13)
96
97
98
99
100
101
102
103
104
105
167
www.glanbia.com
95
Matters on which we are required
to report by exception
We have nothing to report in respect of the
following:
Under the Companies Acts 1963 to 2012
we are required to report to you if, in our
opinion, the disclosures of Directors’
remuneration and transactions specified by
law are not made.
Under the Listing Rules of the Irish Stock
Exchange we are required to review:
(cid:2) the Directors’ Statement, set out on page
92, in relation to going concern;
(cid:2) the part of the Corporate Governance
Statement relating to the Company’s
compliance with the nine provisions of the
UK Corporate Governance Code and the
two provisions of the Irish Corporate
Governance Annex specified for our
review; and
(cid:2) the six specified elements of disclosures
in the report to shareholders by the Board
on directors’ remuneration.
Siobhán Collier
for and on behalf of
PricewaterhouseCoopers
Chartered Accountants and
Statutory Audit Firm
Waterford, Ireland
12 March 2013
Independent auditors’ report to the members of Glanbia plc
the Annual Report to identify material
inconsistencies with the audited financial
statements. If we become aware of any
apparent material misstatements or
inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion:
(cid:2) the 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 and of the Company’s affairs as at
29 December 2012 and of the Group’s and
Company’s profit and cash flows for the
year then ended;
(cid:2) the financial statements have been
properly prepared in accordance with the
requirements of the Companies Acts
1963 to 2012 and, as regards the Group
financial statements, Article 4 of the
IAS Regulation.
Matters on which we are required
to report by the Companies Acts
1963 to 2012
(cid:2) We have obtained all the information and
explanations which we consider
necessary for the purposes of our audit.
(cid:2) In our opinion proper books of account
have been kept by the Parent Company.
(cid:2) The Company statement of financial
position is in agreement with the books
of account.
(cid:2) In our opinion the information given in the
Directors’ Report is consistent with the
financial statements and the description in
the Corporate Governance Statement of
the main features of the internal control
and risk management systems in relation
to the process for preparing the Group
financial statements is consistent with the
Group financial statements.
The net assets of the Company, as stated in
the Company statement of financial position,
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 29
December 2012 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.
We have audited the financial statements of
Glanbia plc for the year ended 29 December
2012 which comprise the Group income
statement, the Group and Company
statements of financial position, the Group
and Company statements of changes in
equity, the Group and Parent Company
statements of cash flow, the Group and
Parent Company statement of
comprehensive income and the related
notes. The financial reporting framework
that has been applied in their preparation is
Irish law and International Financial
Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the
Company financial statements, as applied in
accordance with the provisions of the
Companies Act 1963 to 2012.
Respective responsibilities of
Directors and auditors
As explained more fully in the Directors’
Responsibilities Statement set out on page
93, the Directors are responsible for the
preparation of the financial statements
giving a true and fair view. Our responsibility
is to audit and express an opinion on the
financial statements in accordance with Irish
law and International Standards on Auditing
(UK and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
This report, including the opinions, 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 these opinions, 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.
Scope of the audit of the financial
statements
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the Group’s and
the Company’s circumstances and have
been consistently applied and adequately
disclosed; the reasonableness of significant
accounting estimates made by the
Directors; and the overall presentation of the
financial statements. In addition, we read all
the financial and non-financial information in
96
Glanbia plc Annual Report 2012
Group income statement
for the financial year ended 29 December 2012
Pre-
exceptional
2012
€’000
Exceptional
2012
€’000
(note 7)
Notes
Total
2012
€’000
Pre-
exceptional
2011*
€’000
Exceptional
2011*
€’000
(note 7)
Total
2011*
€’000
5
2,211,757
–
2,211,757
1,932,849
–
1,932,849
175,842
(19,864)
1,610
–
177,452
(19,864)
141,326
(17,947)
(8,723)
132,603
–
(17,947)
Continuing operations
Revenue
Earnings before interest, tax and
amortisation (EBITA)
Intangible asset amortisation
Operating profit
155,978
1,610
157,588
123,379
(8,723)
114,656
Finance income
Finance costs
Share of results of Joint Ventures
& Associates
Profit before taxation
Income taxes
Profit for the year from
continuing operations
Discontinued operations
Profit for the year from discontinued
operations, net of tax
10
10
11
2,942
(23,370)
12,147
147,697
(25,500)
–
–
–
2,942
(23,370)
3,056
(26,467)
12,147
14,331
–
–
–
3,056
(26,467)
14,331
1,610
1,440
149,307
(24,060)
114,299
(22,661)
(8,723)
1,090
105,576
(21,571)
122,197
3,050
125,247
91,638
(7,633)
84,005
7
26,744
(7,761)
18,983
28,803
–
28,803
Profit for the year
148,941
(4,711)
144,230
120,441
(7,633)
112,808
Attributable to:
Equity holders of the Parent
Non-controlling interests
25
143,790
440
144,230
Earnings per share from continuing and discontinued operations attributable to the equity holders of the Parent
Basic earnings per share (cents)
12
From continuing operations
From discontinued operations
Diluted earnings per share (cents)
12
From continuing operations
From discontinued operations
42.45
6.46
48.91
42.07
6.40
48.47
112,178
630
112,808
28.40
9.82
38.22
28.17
9.73
37.90
Basic and diluted earnings per share from continuing operations assumes a 100% disposal of Glanbia Ingredients Ireland Limited (GIIL) on
25 November 2012. Note 12 - earnings per share, details the adjusted earnings per share for the continuing Group reflecting the retained
40% interest in GIIL.
*As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
On behalf of the Board
L Herlihy J Moloney S Talbot
Directors
www.glanbia.com 97
Group statement of comprehensive income
for the financial year ended 29 December 2012
Notes
2012
€’000
2011
€’000
Profit for the year
144,230
112,808
Other comprehensive income/(expense)
Actuarial (loss) – defined benefit schemes
Deferred tax credit on actuarial loss
Share of actuarial (loss) – Joint Ventures & Associates
Deferred tax credit/(charge) on actuarial loss – Joint Ventures & Associates
Currency translation differences
Net investment hedge
Revaluation of available for sale financial assets
Fair value movements on cash flow hedges
Deferred tax on cash flow hedges and revaluation of available for sale financial assets
28
27
24
24
22
22
22
22
27
(98,763)
10,635
(1,227)
169
(8,071)
1,409
(971)
3,445
(172)
(17,029)
2,615
(38)
(77)
18,538
230
(1,484)
3,563
1,214
Other comprehensive (expense)/income for the year, net of tax
(93,546)
7,532
Total comprehensive income for the year
50,684
120,340
Total comprehensive income attributable to:
Equity holders of the Parent
Non-controlling interests
25
50,244
440
119,710
630
Total comprehensive income for the year
50,684
120,340
98
Glanbia plc Annual Report 2012
Group statement of changes in equity
for the financial year ended 29 December 2012
Attributable to equity holders of the Parent
Share
capital and
share
premium
€’000
Other
reserves
€’000
Retained
earnings
€’000
Total
€’000
(note 23)
(note 22)
(note 24)
Non-
controlling
interests
€’000
(note 25)
Total
€’000
Balance at 1 January 2011
99,741
132,227
185,544
417,512
6,892
424,404
Balance at 31 December 2011
100,962
153,544
261,308
515,814
7,135
522,949
Profit for the year
Other comprehensive income/(expense)
Actuarial loss – defined benefit schemes
Deferred tax on actuarial loss
Share of actuarial loss – Joint Ventures & Associates
Fair value movements
Deferred tax on fair value movements
Currency translation differences
Net investment hedge
Total comprehensive income for the year
Dividends paid during the year
Cost of share based payments
Transfer on exercise, vesting or expiry of share
based payments
Shares issued
Premium on shares issued
Purchase of own shares
Profit for the year
Other comprehensive income/(expense)
Actuarial loss – defined benefit schemes
Deferred tax on actuarial loss
Share of actuarial loss – Joint Ventures & Associates
Fair value movements
Deferred tax on fair value movements
Currency translation differences
Net investment hedge
Total comprehensive (expense)/income
for the year
Dividends paid during the year
Cost of share based payments
Transfer on exercise, vesting or expiry of share
based payments
Shares issued
Premium on shares issued
Purchase of own shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,079
1,214
18,538
230
112,178
112,178
630
112,808
(17,029)
(17,029)
2,615
(115)
–
–
–
–
2,615
(115)
2,079
1,214
18,538
230
–
–
–
–
–
–
–
(17,029)
2,615
(115)
2,079
1,214
18,538
230
22,061
97,649
119,710
630
120,340
–
(22,942)
(22,942)
(387)
(23,329)
2,388
–
2,388
(1,057)
1,057
42
1,179
–
–
–
(2,075)
–
–
–
–
42
1,179
(2,075)
–
–
–
–
–
2,388
–
42
1,179
(2,075)
–
–
–
–
2,474
(172)
(8,071)
1,409
143,790
143,790
440
144,230
(98,763)
(98,763)
10,635
10,635
(1,058)
–
–
–
–
(1,058)
2,474
(172)
(8,071)
1,409
–
–
–
–
–
–
–
(98,763)
10,635
(1,058)
2,474
(172)
(8,071)
1,409
(4,360)
54,604
50,244
440
50,684
–
(25,327)
(25,327)
(300)
(25,627)
3,209
–
3,209
588
(588)
25
1,108
–
–
–
(7,692)
–
–
–
–
25
1,108
(7,692)
–
–
–
–
–
3,209
–
25
1,108
(7,692)
Balance at 29 December 2012
102,095
145,289
289,997
537,381
7,275
544,656
Goodwill previously written off amounting to €93.0 million (2011: €93.0 million) is included in opening and closing retained earnings.
www.glanbia.com 99
Group statement of financial position
as at 29 December 2012
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Investments in joint ventures
Trade and other receivables
Deferred income tax assets
Available for sale financial assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Notes
2012
€’000
2011
€’000
14
15
16
17
19
27
18
20
19
32
21
309,496
473,016
67,586
58,482
16,835
19,963
9,144
394,552
467,277
12,178
58,484
14,575
11,255
11,165
954,522
969,486
282,028
271,589
1,457
275,572
336,855
304,301
6,161
231,373
830,646
878,690
Total assets
1,785,168
1,848,176
EQUITY
Issued capital and reserves attributable to equity holders of the Parent
Share capital and share premium
Other reserves
Retained earnings
Non-controlling interests
Total equity
LIABILITIES
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred income tax liabilities
Retirement benefit obligations
Provisions for other liabilities and charges
Capital grants
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Provisions for other liabilities and charges
Total liabilities
Total equity and liabilities
On behalf of the Board
L Herlihy J Moloney S Talbot
Directors
100
Glanbia plc Annual Report 2012
23
22
24
102,095
145,289
289,997
100,962
153,544
261,308
537,381
515,814
25
7,275
7,135
544,656
522,949
26
32
27
28
29
30
31
26
32
29
527,046
–
91,057
98,133
22,013
2,636
658,896
1,319
93,459
48,425
22,120
17,161
740,885
841,380
345,423
7,430
125,086
938
20,750
400,850
6,656
52,808
5,657
17,876
499,627
483,847
1,240,512
1,325,227
1,785,168
1,848,176
Group statement of cash flows
for the financial year ended 29 December 2012
Cash flows from operating activities
Cash generated from operating activities
Interest received
Interest paid
Tax paid
Interest and tax paid - discontinued operations
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Disposal of undertaking and investment in associate
Repayment of intercompany balance
Flax processing facility - insurance proceeds
Disposal of Yoplait franchise
Payment of deferred consideration on acquisition of subsidiaries
Purchase of property, plant and equipment
Purchase of intangible assets
Dividends received from joint ventures
Loans advanced to joint ventures and associates
Decrease in available for sale financial assets
Proceeds from sale of property, plant and equipment
Investing cash flows from discontinued operations
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Purchase of own shares
Private debt placement
(Decrease) in borrowings
Dividends paid to Company shareholders
Dividends paid to non-controlling interests
Capital grants received
Financing cash flows from discontinued operations
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Notes
35
36
7
17
7
23
22
13
25
7
2012
€’000
2011*
€’000
128,817
2,814
(24,240)
(26,688)
(7,657)
145,386
3,134
(25,199)
(9,774)
(7,494)
73,046
106,053
(45,365)
25,599
125,652
8,132
18,000
(1,104)
(65,893)
(4,119)
13,778
(3,275)
523
495
(23,964)
(114,252)
–
–
–
–
(1,146)
(38,310)
(1,646)
14,761
–
2,283
420
(8,929)
48,459
(146,819)
1,133
(7,692)
–
(44,646)
(25,327)
(300)
1,584
(928)
1,221
(2,075)
226,828
(160,780)
(22,942)
(387)
–
(404)
(76,176)
41,461
45,329
695
231,373
(1,130)
229,101
1,577
Cash and cash equivalents at the end of the year
21
275,572
231,373
Reconciliation of net cash flow to movement in net debt
Net increase in cash and cash equivalents
Cash movements from debt financing
Fair value movement of interest rate swaps qualifying as fair value hedges
Exchange translation adjustment on net debt
Movement in net debt in the year
Net debt at the beginning of the year
Net debt at the end of the year
Net debt comprises:
Borrowings
Cash and cash equivalents
*As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
2012
€’000
45,329
47,869
2011*
€’000
695
(65,080)
93,198
(64,385)
2,850
7,723
103,771
(480,331)
387
(8,211)
(72,209)
(408,122)
(376,560)
(480,331)
26
21
(652,132)
275,572
(711,704)
231,373
(376,560)
(480,331)
www.glanbia.com 101
Company statement of financial position
as at 29 December 2012
ASSETS
Non-current assets
Investments in associates
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY
Issued capital and reserves attributable to equity holders of the Company
Share capital and share premium
Retained earnings
Other reserves
Total equity
LIABILITIES
Current liabilities
Trade and other payables
Bank overdraft
Total liabilities
Total equity and liabilities
Notes
2012
€’000
2011
€’000
16
18
19
21
23
24
22,876
611,661
2,259
599,325
634,537
601,584
632
–
632
6
5,280
5,286
635,169
606,870
457,363
107,795
2,701
456,230
77,807
6,596
567,859
540,633
31
26
64,554
2,756
66,237
–
67,310
66,237
635,169
606,870
As permitted by section 148(8) of the Companies Act, 1963 and section 7(1A) of the Companies (Amendment) Act, 1986 the Parent
Company is availing of the exemption from presenting its separate income statement in these financial statements and from filing it with
the Registrar of Companies. The profit for the year dealt with in the financial statements of the Company amounts to €55.9 million
(2011: €59.1 million).
On behalf of the Board
L Herlihy J Moloney S Talbot
Directors
102
Glanbia plc Annual Report 2012
Company statement of changes in equity
for the financial year ended 29 December 2012
Other reserves
Share
capital
and share
premium
€’000
Retained
earnings
€’000
Capital
reserve
€’000
Own
shares
€’000
Share
based
payment
reserve
€’000
Total
€’000
(note 23)
(note 24)
(note 22 a)
(note 22 f)
(note 22 g)
Balance at 1 January 2011
455,009
40,578
4,227
(1,616)
4,729
502,927
Profit for the year
Dividends paid during the year
Cost of share based payments
Transfer on exercise, vesting or expiry of share based
payments
Shares issued
Premium on shares issued
Purchase of own shares
–
–
–
–
42
1,179
–
59,114
(22,942)
–
1,057
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,388
917
(1,974)
–
–
(2,075)
–
–
–
59,114
(22,942)
2,388
–
42
1,179
(2,075)
Balance at 31 December 2011
456,230
77,807
4,227
(2,774)
5,143
540,633
Profit for the year
Dividends paid during the year
Cost of share based payments
Transfer on exercise, vesting or expiry of share based
payments
Shares issued
Premium on shares issued
Purchase of own shares
–
–
–
–
25
1,108
–
55,903
(25,327)
–
(588)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,209
2,245
(1,657)
–
–
(7,692)
–
–
–
55,903
(25,327)
3,209
–
25
1,108
(7,692)
Balance at 29 December 2012
457,363
107,795
4,227
(8,221)
6,695
567,859
www.glanbia.com 103
Company statement of comprehensive income and statement of cash flows
for the financial year ended 29 December 2012
Company statement of comprehensive income
Profit for the year
24
55,903
59,114
Total comprehensive income for the year
55,903
59,114
Notes
2012
€’000
2011
€’000
Company statement of cash flows
Cash flows from operating activities
Cash generated from operations
2012
€’000
2011
€’000
35
56,803
19,811
Net cash inflow from operating activities
56,803
19,811
Cash flows from investing activities
Decrease in available for sale financial assets
Disposal of subsidiary
Acquisition of other Group companies
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Dividends paid to Company shareholders
Purchase of own shares
Net cash (outflow) from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
–
1,065
19,021
(51,974)
–
–
(32,953)
1,065
23
13
22
1,133
(25,327)
(7,692)
1,221
(22,942)
(2,075)
(31,886)
(23,796)
(8,036)
(2,920)
5,280
8,200
(Bank overdraft)/cash and cash equivalents at the end of the year
(2,756)
5,280
104
Glanbia plc Annual Report 2012
Notes to the financial statements
for the financial year ended 29 December 2012
1. General information
Glanbia plc (the “Company”) and its
subsidiaries (together the “Group”) is an
integrated global nutritionals and large scale
global dairy business with its main
operations in Ireland, mainland Europe, the
USA, Africa and Asia.
The Company is a public limited company
incorporated and domiciled in Ireland. The
address of its registered office is Glanbia
House, Kilkenny, Ireland. The Group is
controlled by Glanbia Co-operative Society
Limited (“the Society”), which holds 48.3%
of the issued share capital of the Company
and is the ultimate parent of the Group.
The Company’s shares are quoted on the
Irish and London Stock Exchanges.
These consolidated financial statements
have been approved for issue by the Board
of Directors on 12 March 2013.
2. Summary of significant
accounting polices
New accounting standards and IFRIC
interpretations adopted by the Group during
the year ended 29 December 2012 are dealt
with in section (z) below. The adoption of
these standards and interpretations had no
significant impact on the results or financial
position of the Group during the year.
The other principal accounting policies
adopted in the preparation of these financial
statements are set out below. These
policies have been consistently applied to all
years presented, unless otherwise stated.
(a) Basis of preparation
These consolidated financial statements have
been prepared in accordance with EU
adopted International Financial Reporting
Standards (IFRS), IFRIC interpretations and
those parts of the Companies Acts, 1963 to
2012 applicable to companies reporting
under IFRS. The consolidated financial
statements have been prepared under the
historical cost convention as modified by use
of fair values for available for sale financial
assets and derivative financial instruments.
The preparation of the financial statements
in conformity with IFRS requires the use of
estimates, judgements and assumptions
that affect the reported amounts of assets
and liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Although these estimates are based
on management’s best knowledge of the
amount, event or actions, actual results
ultimately may differ from these estimates.
Amounts are stated in euro thousands
(€’000) unless otherwise stated. These
financial statements are prepared for a 52-
week period ending on 29 December 2012,
comparatives are for the 52-week period
ended 31 December 2011. The statements
of financial position for 2012 and 2011 have
been drawn up as at 29 December 2012
and 31 December 2011 respectively.
Going concern
After making enquiries the Directors have a
reasonable expectation that the Group has
adequate resources to continue in
operational existence for the foreseeable
future. The Group therefore continues to
adopt the going concern basis in preparing
its consolidated financial statements.
(b) Consolidation
The Group financial statements incorporate:
(i)
The financial statements of the
Company and enterprises controlled by
it (“its subsidiaries”). Control is achieved
where the Company has the power to
govern the financial and operating
policies of an entity so as to obtain
benefits from its activities.
Subsidiaries are consolidated from
the date on which control is transferred
to the Group and are no longer
consolidated from the date that
control ceases.
The Group uses the acquisition method
of accounting to account for business
combinations. The consideration
transferred for the acquisition of a
subsidiary is the fair values of the assets
transferred, the liabilities incurred and
the equity interests issued by the Group.
The consideration transferred includes
the fair value of any asset or liability
resulting from a contingent consideration
arrangement. Acquisition-related costs
are expensed as incurred. Identifiable
assets acquired and liabilities and
contingent liabilities assumed in a
business combination are measured
initially at their fair values at the
acquisition date. On an acquisition-by-
acquisition basis, the Group recognises
any non-controlling interest in the
acquiree either at fair value or at the
non-controlling interest's proportionate
share of the acquiree's net assets. The
excess of the consideration transferred,
the amount of any non-controlling
interest in the acquiree and the
acquisition-date fair value of any
previous equity interest in the acquiree
over the fair value of the Group's share
of the identifiable net assets acquired is
recorded as goodwill. If this is less than
the fair value of the net assets of the
subsidiary acquired in the case of a
bargain purchase, the difference is
recognised directly in the income
statement.
Discontinued operations and non-
current assets held for sale are defined
as follows: a component of an entity
that either has been disposed of,
abandoned, or is classified as held for
sale and:
(cid:2) represents a separate major line of
business or geographical area of
operation; or
(cid:2) is part of a single coordinated plan to
dispose of a separate major line of
business or geographical area of
operation; or
(cid:2) is a subsidiary acquired exclusively
with a view to resale.
Classification as a discontinued
operation occurs upon disposal,
abandonment, or when the operations
meet the criteria to be classified as held
for sale.
Non-current assets and disposal
groups classified as held for sale are
measured at the lower of the carrying
value and the fair value less costs to
sell. Non-current assets and disposal
groups are classified as held for sale if
their carrying amounts will be
recovered through a sale transaction
rather than continued use. This
condition is regarded as satisfied only
when the sale is highly probable and
the asset or disposal group is available
for immediate sale in its present
condition. Management must be
committed to the sale, which should be
expected to qualify for recognition as a
completed sale within one year of the
date of classification. Property, plant
and equipment and intangible assets,
once classified as held for sale are not
depreciated or amortised.
When the Group ceases to have
control any retained interest in the
entity is re-measured to its fair value at
the date when control is lost, with the
change in carrying amount recognised
in profit or loss. The fair value is the
initial carrying amount for the purposes
of subsequently accounting for the
retained interest as an associate, joint
venture or financial asset. In addition,
any movements previously recognised
www.glanbia.com 105
(c) Segment reporting
In accordance with the requirements of IFRS
8 – Operating Segments, segments are
reported in a manner consistent with the
internal reporting provided to the Chief
Operating Decision Maker. The Chief
Operating Decision Maker responsible for
allocating resources and assessing
performance of the operating segments has
been identified as the Group Operating
Executive Committee.
(d) Foreign currency translation
(i)
Functional and presentation
currency
Items included in the financial
statements of each of the Group’s
entities are measured using the
currency of the primary economic
environment in which the entity
operates (the ‘functional currency’).
The consolidated financial statements
are presented in euro, which is the
Company’s functional and the Group’s
presentation currency.
(ii) Transactions and balances
Foreign currency transactions are
translated into the functional currency
using the exchange rates prevailing at
the date of the transactions. Foreign
exchange gains and losses resulting
from the settlement of such
transactions are recognised in the
income statement, except when
deferred in equity as qualifying cash
flow hedges. Monetary assets and
liabilities denominated in foreign
currencies are retranslated at the rate
of exchange ruling at the reporting
date. Currency translation differences
on monetary assets and liabilities are
taken to the income statement, except
when deferred in equity in the currency
translation reserve as (i) qualifying cash
flow hedges or (ii) exchange gains or
losses on long-term intra-group loans
and on foreign currency borrowings
used to finance or provide a hedge
against Group equity investments in
non-euro denominated operations to
the extent that they are neither
planned nor expected to be repaid in
the foreseeable future or are expected
to provide an effective hedge of the net
investment. When long-term intra-
group loans are repaid the related
cumulative currency translation
recognised in the currency reserve is
not recycled through the income
statement. Translation differences on
non-monetary financial assets and
liabilities held at fair value through profit
or loss are recognised in the income
statement as part of the fair value gain
or loss.
(iii) Group companies
The income statement and statement
of financial position of Group
companies that have a functional
currency different from the
presentation currency are translated
into the presentation currency as
follows:
(cid:2) assets and liabilities at each
reporting date are translated at the
closing rate at the reporting date of
the statement of financial position.
(cid:2) income and expenses in the income
statement are translated at average
exchange rates for the year, or for
the period since acquisition, if
appropriate.
Resulting exchange differences are
taken to a separate currency reserve
within equity. When a foreign entity is
sold outside the Group, such exchange
differences are recognised in the income
statement as part of the gain or loss
on sale.
Goodwill and fair value adjustments
arising on the acquisition of a foreign
entity are treated as local currency
assets and liabilities of the foreign entity
and are translated at the exchange rate
at the end of the reporting period. In
accordance with IFRS 1, the
cumulative translation differences on
foreign subsidiaries was set to zero on
IFRS transition date (4 January 2004).
The Group uses the direct method of
consolidation for revaluation of the net
investments in foreign operations
where the financial statements of the
foreign operation are translated directly
into the functional currency of the
ultimate parent.
(e) Property, plant and equipment
Property, plant and equipment is stated at
cost or deemed cost less subsequent
depreciation less any impairment loss.
Historic cost includes expenditure that is
directly attributable to the acquisition of the
assets. Cost may also include transfers from
equity of any gains/losses on qualifying cash
flow hedges of foreign currency purchases of
property, plant and equipment.
in other comprehensive income in
respect of that entity are accounted for
as if the Group had directly disposed of
the related assets or liabilities. This may
mean that amounts previously
recognised in other comprehensive
income are reclassified to profit or loss.
Inter-company transactions, balances
and unrealised gains on transactions
between Group companies are
eliminated. Where necessary, the
accounting policies for subsidiaries
have been changed to ensure
consistency with the policies adopted
by the Group.
(ii)
Investments in subsidiaries are
accounted for at cost less impairment.
Cost is adjusted to reflect changes in
consideration arising from contingent
consideration amendments. Cost also
includes directly attributable costs of
investment.
(iii) The Group’s share of the results and
net assets of associated companies
and joint ventures is included based on
the equity method of accounting. An
associate is an enterprise over which
the Group has significant influence, but
not control, through participation in the
financial and operating policy decisions
of the investee. A joint venture is an
entity subject to joint control by the
Group and other parties. Under the
equity method of accounting, the
Group’s share of the post-acquisition
profits and losses of associates and
joint ventures is recognised in the
income statement and its share of post
acquisition movements in reserves is
recognised directly in other
comprehensive income. The cumulative
post acquisition movements are
adjusted against the cost of the
investment. Unrealised gains on
transactions between the Group and its
associates and joint ventures are
eliminated to the extent of the Group’s
interest in the associate or joint venture.
Unrealised losses are also eliminated
unless the transaction provides
evidence of an impairment of the asset
transferred. When the Group’s share of
losses in an associate or joint venture
equals or exceeds its interest in the
associate or joint venture, the Group
does not recognise further losses,
unless the Group has incurred
obligations or made payments on
behalf of the associate or joint venture.
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Glanbia plc Annual Report 2012
Certain items of property, plant and
equipment that had been revalued prior to
the date of transition to IFRS (4 January
2004) are measured on the basis of deemed
cost, being the revalued amount
depreciated to date of transition. Items of
property, plant and equipment that were fair
valued at date of transition are also
measured at deemed cost, being the fair
value at date of transition.
Depreciation is calculated on the straight-
line method to write off the cost of each
asset over its estimated useful life at the
following rates:
Land
Buildings
Plant and equipment
Motor vehicles
%
Nil
2.5 – 5
4 – 33
20 – 25
The assets’ residual values and useful lives
are reviewed, and adjusted if appropriate, at
each reporting date.
Assets held under finance leases are
depreciated over their expected useful lives
on the same basis as owned assets or,
where shorter, the term of the relevant lease.
Property, plant and equipment is tested for
impairment when indicators arise. Where the
carrying amount of an asset is greater than
its estimated recoverable amount, it is
written down immediately to its recoverable
amount. Gains and losses on disposals are
determined by comparing proceeds with the
carrying amount and are included in the
income statement.
Repairs and maintenance expenditure is
charged to the income statement during the
financial period in which it is incurred. The
cost of major renovations is included in the
carrying amount of the asset when it is
probable that future economic benefits in
excess of the originally assessed standard of
performance of the existing asset will flow to
the Group. Major renovations are depreciated
over the remaining useful life of the related
asset.
Intangible assets
(f)
(i) Goodwill
Goodwill represents the excess of the
cost of an acquisition over the fair value
of the Group’s share of the net
identifiable assets of the acquired
subsidiary, associate or joint venture at
the date of acquisition.
Goodwill on acquisitions of subsidiaries
is included in intangible assets.
Goodwill associated with the
acquisition of associates or joint
ventures is included within the
investment in associates or joint
ventures.
Goodwill is carried at cost less
accumulated impairment losses,
if applicable. Goodwill is tested for
impairment on an annual basis.
Goodwill impairments are not reversed.
In accordance with IFRS 1 - First time
adoption of International Financial
Reporting Standards, goodwill written
off to reserves prior to date of transition
to IFRS remains written off. In respect
of goodwill capitalised and amortised
at transition date, its carrying value at
date of transition to IFRS remains
unchanged. Goodwill is allocated to
cash generating units for the purpose
of impairment testing. The allocation is
made to those cash generating units or
groups of cash generating units that
are expected to benefit from the
business combination in which the
goodwill arose.
(ii) Research and development costs
Research expenditure is recognised as
an expense as incurred. Costs incurred
on development projects (relating to
the design and testing of new or
improved products) are recognised as
intangible assets when it is probable
that the project will be a success,
considering its commercial and
technological feasibility, and costs can
be measured reliably. Development
costs are amortised using the straight
line method over their estimated useful
lives, which is normally six years.
(iii) Brands/know-how, customer
relationships and other intangibles
Expenditure to acquire brands/know-
how, customer relationships and other
intangibles is capitalised and amortised
using the straight-line method over its
useful life, which is set out in note 15 -
Intangible Assets. Indefinite life
intangible assets are those for which
there is no foreseeable limit to their
expected useful life. Indefinite life
intangible assets are carried at cost
less accumulated impairment losses, if
applicable, and are not amortised on
an annual basis.
(iv) Computer software
Costs incurred on the acquisition of
computer software are capitalised, as
are costs directly associated with
developing computer software
programmes, if they meet the
recognition criteria of IAS 38 –
Intangible Assets. Computer software
costs recognised as assets are written
off over their estimated useful lives,
which is normally between five and
ten years.
(g) Available for sale financial assets
Available for sale financial assets are non-
derivatives that are either designated in this
category or not classified in any of the other
categories. They are included in non-current
assets unless management intends to
dispose of the available for sale financial
asset within 12 months of the reporting
date. They are initially recognised at fair
value plus transaction costs and are
subsequently adjusted to fair value at each
reporting date. Unrealised gains and losses
arising from changes in the fair value of the
available for sale financial assets are
recognised in other comprehensive income.
When such available for sale assets are sold
or impaired, the accumulated fair value
adjustments are included in the income
statement as gains or losses from available
for sale financial assets. The fair values of
quoted financial assets are based on current
bid prices. If the market for a financial asset is
not active the Group establishes fair value
using valuation techniques. Where the range
of reasonable fair values is significant and the
probability of various estimates cannot be
reasonably assessed, the Group measures
the investment at cost.
Investments in subsidiaries held by the
Company are carried at cost.
Impairment losses recognised in the income
statement on equity instruments are not
reversed through the income statement.
(h) Leases
Leases of assets where the Group has
substantially all the risks and rewards of
ownership are classified as finance leases.
A determination is also made as to whether
the substance of an arrangement could
equate to a finance lease, considering
whether fulfilment of the arrangement is
dependent upon the use of a specific asset
and the arrangement contains the right to
use an asset. If the specified criteria are
met, the arrangement is classified as a
finance lease. Finance leases are
capitalised at the inception of the lease at
the lower of the fair value of the leased
asset or the present value of the minimum
lease payments. Each lease payment is
allocated between the liability and finance
charges so as to achieve a constant rate on
the finance balance outstanding. The
corresponding rental obligation, net of
finance charges is included in borrowings
www.glanbia.com 107
The carrying amount of the asset is reduced
through the use of a provision account and
the amount of the loss is recognised in the
income statement. When a receivable is
uncollectable, it is written off against the
provision account for receivables.
Subsequent recoveries of amounts
previously written off are credited to the
income statement. Where risks associated
with receivables are transferred out of the
Group under debt purchase agreements,
such receivables are recognised in the
statement of financial position to the extent
of the Group’s continued involvement and
retained risk.
(k) Cash and cash equivalents
Cash and cash equivalents comprise cash
on hand, deposits held on call with banks,
other short-term highly liquid investments
with original maturities of three months or
less and bank overdrafts. In the statement
of financial position, bank overdrafts (if
applicable) are included in borrowings in
current liabilities.
Income taxes
(l)
The tax expense for the period comprises
current and deferred income tax. Tax is
recognised in the income statement, except
to the extent that it relates to items
recognised in other comprehensive income
or directly in equity, in which case the tax is
also recognised in other comprehensive
income or directly in equity respectively.
(i) Current tax
Current tax is calculated on the
basis of tax laws enacted or
substantially enacted at the
statement of financial position date in
countries where the Group
operates and generates taxable
income, taking into account
adjustments relating to prior years.
Management periodically evaluates
positions taken in tax returns with
respect to situations in which
applicable tax legislation is subject to
interpretation and establishes
provision, where appropriate, on the
basis of amounts expected to be paid
to the tax authorities.
(ii) Deferred tax
Deferred income tax is provided in
full, using the liability method, on
temporary differences arising on
the reporting date between the tax
bases of assets and liabilities and
their carrying amounts in the
financial statements. However,
deferred income tax is not
accounted for if it arises from initial
recognition of an asset or liability in a
transaction other than a business
combination that at the time of the
transaction affects neither accounting
nor taxable profit or loss. Deferred
income tax is determined using
tax rates and laws enacted or
substantively enacted by the
reporting date.
Deferred tax assets are recognised to
the extent that it is probable that future
taxable profit will be available against
which the temporary differences can
be utilised.
Deferred income tax is provided on
temporary differences arising on
investments in subsidiaries, associates
and joint ventures, except where the
timing of the reversal of the temporary
difference can be controlled by the
Group and it is probable that the
temporary difference will not reverse
in the foreseeable future. Deferred
income tax assets and liabilities are
offset when there is a legally
enforceable right to offset current tax
assets against current tax liabilities,
only when the deferred income tax
assets and liabilities relate to income
taxes levied by the same taxation
authority and where there is an
intention to settle the balance on a
net basis.
(m) Employee benefits
(i) Pension obligations
Group companies operate various
pension schemes. The schemes are
generally funded through payments to
insurance companies or trustee-
administered funds, determined by
periodic actuarial calculations. The
Group has both defined benefit and
defined contribution plans.
The liability recognised in the statement
of financial position in respect of defined
benefit pension plans is the present
value of the defined benefit obligation at
the reporting date less the fair value of
the plan assets, together with
adjustments for unrecognised past-
service costs. The defined benefit
obligation is calculated annually by
independent actuaries using the
projected unit credit method. The
present value of the defined benefit
obligation is determined by discounting
the estimated future cash outflows
using interest rates of high-quality
corporate bonds that are denominated
in the currency in which the benefits will
and split between current and non-current,
as appropriate. The interest element of the
finance cost is charged to the income
statement over the lease period. The
property, plant and equipment acquired
under finance leases is depreciated over the
shorter of the useful life of the asset or the
lease term.
Leases where a significant portion of the risks
and rewards of ownership are retained by the
lessor are classified as operating leases.
Payments made under operating leases (net
of any incentives received from the lessor) are
charged to the income statement on a
straight-line basis over the period of the lease.
Inventories
(i)
Inventories are stated at the lower of cost or
net realisable value. Cost is determined by
the first-in, first-out (“FIFO”) method. The
cost of finished goods and work in progress
comprises raw materials, direct labour,
other direct costs and related production
overheads (based on normal capacity). Net
realisable value is the estimated selling price
in the ordinary course of business, less the
estimated costs of completion and the costs
of selling expenses. Costs of inventories
include the transfer from equity of any
gains/losses on qualifying cash flow hedges
which relate to purchases of raw materials.
(j) Trade and loan receivables
Trade receivables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method less provision for impairment.
Loan receivables are initially recognised at
fair value and subsequently measured at
amortised cost using the effective interest
method, less provision for impairment.
These are classified as non-current assets,
except for those maturing within 12 months
of the reporting date.
A provision for impairment of receivables is
established when there is objective evidence
that the Group will not be able to collect all
amounts due according to the original terms
of the receivables. If collectability appears
unlikely compared with the original terms of
the receivable, the Group will determine the
appropriate provision based on the available
evidence at that time. Significant financial
difficulties of the trade/loan receivable,
probability that the trade/loan receivable will
enter bankruptcy or financial reorganisation,
and default or delinquency in payments are
considered indicators that the receivable is
impaired. The amount of the provision is the
difference between the asset’s carrying
value and the estimated future cash flows.
108
Glanbia plc Annual Report 2012
be paid, and that have terms to maturity
approximating to the terms of the
related pension liability. The fair value
of plan assets are measured at their
bid value.
Actuarial gains and losses arising from
experience adjustments and changes
in actuarial assumptions are charged
or credited to other comprehensive
income. Past-service costs, negative
or positive, are recognised immediately
in the income statement, unless the
changes to the pension plan are
conditional on the employees
remaining in service for a specified
period of time (the vesting period). In
this case, the past service costs are
amortised on a straight line basis over
the vesting period.
A curtailment arises when the Group is
demonstrably committed to make a
significant reduction in the number of
employees covered by a plan or
amends the terms of a defined benefit
plan, so that a significant element of
future service by current employees will
no longer qualify for benefits or will
qualify for reduced benefits. A past
service cost, negative or positive, arises
following a change in the present value
of the defined benefit obligation for
employee service in prior periods,
resulting in the current period from the
introduction of, or changes to, post
employment benefits. A settlement
arises where the Group is relieved of
responsibility for a pension obligation
and eliminates significant risk relating to
the obligation and the assets used to
effect the settlement. Losses arising on
settlement or curtailment not allowed for
in the actuarial assumptions are
measured at the date on which the
Group becomes demonstrably
committed to the transaction. Gains
arising on a settlement or curtailment
are measured at the date on which all
parties whose consent is required are
irrevocably committed to the
transaction. Curtailment and settlement
gains and losses are dealt with in the
income statement.
Payments to defined contribution
schemes are charged as an expense
when they fall due.
(ii) Share based payments
The Group operates a number of
equity settled share based
compensation plans which include
executive share option schemes and
share awards.
The charge to the income statement in
respect of share-based payments is
based on the fair value of the equity
instruments granted and is spread over
the vesting period of the instrument.
The fair value of the instruments is
calculated using the binomial model. In
accordance with the transition
arrangements set out in IFRS 2 – Share
Based Payments, this standard has
been applied in respect of share options
granted after 7 November 2002 which
had not vested by the date of transition
to IFRS (4 January 2004).
Non-market vesting conditions are
included in assumptions about the
number of options that are expected
to vest. At each reporting date, the
Group revises its estimates of the
number of options that are expected
to vest. It recognises the impact of the
revision to original estimates, if any, in
the income statement, with a
corresponding adjustment to equity.
The proceeds received net of any
directly attributable transaction costs
are credited to share capital (nominal
value) and share premium when the
options are exercised.
(iii) Awards under the 2008 Long Term
Incentive Plan
The fair value of shares awarded under
the 2008 LTIP scheme are determined
using a Monte Carlo simulation
technique. The LTIP contains inter alia
a Total Shareholder Return (TSR)
based (and hence market-based)
vesting condition and, accordingly, the
fair value assigned to the related equity
instruments on initial application of
IFRS 2 is adjusted so as to reflect the
anticipated likelihood at the grant date
of achieving the market-based vesting
condition.
(n) Government grants
Grants from government authorities are
recognised at their fair value where there is
a reasonable assurance that the grant will
be received and the Group will comply with
all attached conditions. Government grants
relating to costs are deferred and
recognised in the income statement over
the period necessary to match them with
the costs they are intended to compensate.
Government grants relating to the purchase
of property, plant and equipment are
included in non-current liabilities and are
credited to the income statement on a
straight-line basis over the expected lives of
the related assets. Research and
development taxation credits are recognised
at their fair value in the income statement
where there is reasonable assurance that
the credit will be received.
(o) Revenue recognition
Revenue comprises the fair value of the
consideration receivable for the sale of
goods and services to external customers
net of value added tax, rebates and
discounts. The Group recognises revenue
when the amount of revenue can be reliably
measured, when it is probable that future
economic benefit will flow to the entity and
when specific criteria have been met for
each of the Group’s activities. Revenue from
the sale of goods is recognised when
significant risks and rewards of ownership of
the goods are transferred to the buyer in the
ordinary course of the Group’s business,
which generally arises on delivery or in
accordance with specific terms and
conditions agreed with customers. The
timing of recognition of services revenue
equals the timing of when the services are
rendered. Interest income is recognised
using the effective interest method.
Dividends are recognised when the right to
receive payment is established. Revenue
from the sale of property is recognised when
there is an unconditional and irrevocable
contract for sale.
(p)
(i)
Impairment of assets
Financial assets
The Group assesses at each reporting
date whether there is objective
evidence that a financial asset or a
group of financial assets is impaired. In
the case of equity securities classified
as available for sale, a significant or
prolonged decline in the fair value of
the security below its cost is
considered an indicator that the
securities are impaired. If any such
evidence exists for available for sale
financial assets, the cumulative loss is
measured as the difference between
the acquisition cost and the current fair
value. Impairment losses recognised in
the income statement on equity
instruments are not reversed through
the income statement. Impairment
testing of trade receivables is
described in (j) above.
www.glanbia.com 109
The fair value of forward foreign currency
contracts is estimated by discounting the
difference between the contractual forward
price and the current forward price for the
residual maturity of the contract using the
European Central Bank interest rate at the
measurement date.
The fair value of interest rate swaps is based
on discounting estimated future cash flows
based on the terms and maturity of each
contract and using market interest rates for
a similar instrument at the measurement
date. The fair value of commodity contracts is
estimated by discounting the difference
between the contracted futures price and the
current forward price for the residual maturity
of the contracts using the European Central
Bank and US Federal Reserve interest rates.
The method of recognising the resulting gain
or loss depends on whether the derivative is
designated as a hedging instrument and,
if so, the nature of the item being hedged.
The Group designates certain derivatives as
either: (1) hedges of the fair value of
recognised assets or liabilities or a firm
commitment (fair value hedge); (2) hedges
of a particular risk associated with a
recognised asset or liability or a highly
probable forecast transaction (cash
flow hedge).
The Group documents at the inception of the
transaction the relationship between hedging
instruments and hedged items, as well as its
risk management objective and strategy for
undertaking various hedge transactions. The
Group also documents its assessment, both
at hedge inception and every six months, of
whether the derivatives that are used in
hedging transactions are highly effective in
offsetting changes in fair values or cash flows
of hedged items.
The fair values of various derivative
instruments used for hedging purposes are
disclosed in note 32. Movements on the
hedging reserve are shown in note 22. The
full fair value of a hedging derivative is
classified as a non-current asset or liability if
the remaining maturity of the hedged item is
more than 12 months, and as a current
asset or liability if the remaining maturity of
the hedged item is less than 12 months.
(i)
Fair value hedge
Changes in the fair value of
derivatives that are designated and
qualify as fair value hedges are
recorded in the income statement,
together with any changes in the fair
value of the hedged asset or liability
that are attributable to the hedged risk.
If the hedge no longer meets the
criteria for hedge accounting, the
adjustment to the carrying amount of a
hedged item for which the effective
interest method is used is amortised to
the income statement.
(ii) Cash flow hedge
The effective portion of changes in the
fair value of derivatives that are
designated and qualify as cash flow
hedges is recognised in other
comprehensive income. The gain or
loss relating to the ineffective portion is
recognised immediately in the income
statement.
Amounts accumulated in equity are
recycled in the income statement in the
periods when the hedged item affects
profit or loss (for instance when the
forecast sale that is hedged takes
place). The recycled gain or loss
relating to the effective portion of
interest rate swaps hedging variable
interest rates on borrowings is
recognised in the income statement
within ‘finance costs’. The recycled
gain or loss relating to the effective
portion of foreign exchange contracts
is recognised in the income statement
within revenue. However, when the
forecast transaction that is hedged
results in the recognition of a non-
financial asset (for example, inventory)
or a non-financial liability, the gains and
losses previously deferred in equity are
transferred from equity and included in
the initial measurement of the cost of
the asset or liability.
When a hedging instrument expires or
is sold, or when a hedge no longer
meets the criteria for hedge
accounting, any cumulative gain or loss
existing in equity at that time remains in
equity and is recognised when the
forecast transaction is ultimately
recognised in the income statement.
When a forecast transaction is no
longer expected to occur, the
cumulative gain or loss that was
reported in equity is immediately
transferred to the income statement.
(iii) Derivatives that do not qualify
for hedge accounting
Certain derivative instruments do not
qualify for hedge accounting. Changes
in the fair value of any derivative
instruments that do not qualify for
hedge accounting are recognised in
the income statement.
(ii) Non-financial assets
Assets that have an indefinite useful life
are not subject to amortisation and are
tested annually for impairment. Assets
which have a finite useful life are
subject to amortisation and reviewed
for impairment when events or
changes in circumstance indicate that
the carrying value may not be
recoverable. Goodwill is reviewed at
least annually for impairment. An
impairment loss is recognised to the
extent that the carrying value of the
assets exceeds their recoverable
amount. The recoverable amount is the
higher of the assets fair value less
costs to sell and its value in use.
For the purposes of assessing
impairment, assets are grouped at
the lowest levels for which there are
separately identifiable cash flows (cash
generating units).
(q) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the
issue of new shares or options are shown in
equity as a deduction from the proceeds.
Own shares
The cost of own shares, held by an
Employee Share Trust in connection with
the Company’s Sharesave Scheme, is
deducted from equity. Ordinary shares
purchased under the terms of the 2008 LTIP
schemes are accounted for as own shares
and recorded as a deduction from equity.
(r) Dividends
Dividends to the Company’s shareholders
are recognised as a liability of the Company
when approved by the Company’s
shareholders.
(s) Derivative financial instruments
The activities of the Group expose it
primarily to the financial risks of changes in
foreign currency exchange rates, interest
rates and commodity prices. The Group
uses foreign currency, interest rate and
commodity derivative financial instruments
to hedge these exposures.
The Group accounts for financial
instruments under IAS 32 (Amendment),
‘Financial Instruments: Presentation’, IAS 39
(Amendment), ‘Financial Instruments:
Recognition and Measurement’ and IFRS 7
– Financial Instruments Disclosures.
Derivatives are initially recognised at fair
value on the date a derivative contract is
entered into and are subsequently
remeasured at their fair value at the
reporting date.
110
Glanbia plc Annual Report 2012
(ii) Earnings before interest, tax and
amortisation (“EBITA”)
The Group believes that EBITA is a relevant
performance measure and has therefore
disclosed this amount in the Group income
statement. EBITA is stated before
considering the share of result of joint
ventures and associates and the profit for
the year from discontinued operations. In
conjunction with this the Group believes that
presentation of results by nature of expense
is a more meaningful format for the Income
Statement. This is a change in accounting
policy which has no impact on operating
profit, profit for the year or on the statement
of financial position.
(z) New accounting standards
and IFRIC interpretations
The following standards and interpretations,
issued by the IASB and the International
Financial Reporting Interpretations
Committee (‘IFRIC’), are effective for the
Group for the first time in the year ended 29
December 2012 and have been adopted by
the Group:
(cid:2) IFRS 7 (Amendment), ‘Financial
instruments: Disclosures’
(cid:2) IAS 12 (Amendment), ‘Income Taxes’
(cid:2) IFRS 1 (Amendment), ‘First time
adoption of IFRS’
Adoption of the standards and the
interpretations above had no significant
impact on the results or financial position of
the Group during the year ended 29
December 2012.
(iv) Financial guarantee contracts
Financial guarantee contracts are
issued to banking institutions by the
Company on behalf of certain of its
subsidiaries. These subsidiaries
engage in ongoing financing
arrangements with these banking
institutions. Under the terms of IAS 39
– Financial Instruments: Recognition
and Measurement, financial guarantee
contracts are required to be
recognised at fair value at inception
and subsequently measured as a
provision under IAS 37 – Provisions,
Contingent Liabilities and Contingent
Assets on the company statement of
financial position.
Guarantees provided by the Company
over the payment of employer
contributions in respect of the UK
defined benefit pension schemes are
treated as insurance contracts.
(t) Earnings per share
Earnings per share represents the profit in
cents attributable to owners of the
Company, divided by the weighted average
number of ordinary shares in issue during
the period.
Adjusted earnings per share is calculated
on the net profit attributable to the owners
of the Company, before exceptional items
and intangible asset amortisation (net of
related tax). Diluted earnings per share is
calculated by adjusting the weighted
average number of ordinary shares
outstanding to assume conversion of all
dilutive potential ordinary shares.
(u) Borrowing costs
In accordance with IAS 23 (Revised),
‘Borrowing Costs’, borrowing costs directly
attributable to the acquisition, construction
or production of a qualifying asset are
capitalised. Other borrowing costs are
expensed.
(v) Borrowings
Borrowings are recognised initially at fair
value, net of transaction costs incurred.
Borrowings are subsequently stated at
amortised cost; any difference between
the proceeds (net of transaction costs)
and the redemption value is recognised
in the income statement over the period
of the borrowings using the effective
interest method.
Preference shares, which are mandatorily
redeemable on a specific date, are classified
as borrowings. The dividends on these
preference shares are recognised in the
income statement as a finance cost.
Borrowings are classified as current liabilities
unless the Group has an unconditional right
to defer settlement of the liability for at least
12 months after the reporting date.
(w) Provisions
Provisions are recognised when the Group
has a constructive or legal obligation as a
result of past events, when it is more likely
than not that an outflow of resources will be
required to settle the obligation and the
amount has been reliably estimated.
Provisions are measured at the present
value of the expenditures expected to be
required to settle the obligation using a pre-
tax rate that reflects current market
assessments of the time value of money
and the risks specific to the obligation. The
increase in provision due to passage of time
is recognised as an interest expense.
(x) Termination benefits
Termination benefits are payable when
employment is terminated by the Group
before the normal retirement date, or
whenever an employee accepts voluntary
redundancy in exchange for these benefits.
The Group recognises termination benefits
when it is demonstrably committed to either
terminating the employment of current
employees according to a detailed formal
plan without possibility of withdrawal; or
providing termination benefits as a result of
an offer made to encourage voluntary
redundancy.
(y) Exceptional items
(i)
Income statement format
The Group has adopted an income
statement format that seeks to highlight
significant items within the Group results for
the year. Such items may include
restructuring, impairment of assets, profit or
loss on disposal or termination of
operations, litigation settlements, legislative
changes and profit or loss on disposal of
investments. Judgement is used by the
Group in assessing the particular items,
which by virtue of their scale and nature,
should be disclosed in the income
statement and notes as exceptional items.
www.glanbia.com 111
Amendment to IAS 32 ‘Financial
Instruments: Presentation’ (effective for
financial periods beginning on or after 1
January 2014, retrospectively applied)
The amendment does not change the
requirement to offset a financial asset and
financial liability in the statement of financial
position, except that when the entity
currently has a legally enforceable right of
set-off the amendment clarifies that the right
of set-off must be available today and is not
to be contingent on a future event.
Revision to IAS 28 ‘Associates and Joint
Ventures’ (effective for financial periods
beginning on or after 1 January 2013)
The revised standard results in the
replacement of the disclosure requirements
currently found in IAS 28 with IFRS 11 ‘Joint
Arrangements’. The revised IAS 28 standard
results in joint ventures and associates being
accounted for using the equity method of
accounting.
IFRS 11, ‘Joint Arrangements’, (effective
for financial periods beginning on or after
1 January 2013).
This standard is still subject to EU
endorsement. IFRS 11 eliminates the
existing accounting policy choice of
proportionate consolidation for jointly
controlled entities. IFRS 11 makes equity
accounting mandatory for participants in
joint ventures. Changes in definitions also
mean that the types of joint arrangements
have been reduced from three to two; joint
operations and joint ventures.
IFRS 12, ‘Disclosure of Interest in Other
Entities’, (effective for financial periods
beginning on or after 1 January 2013).
This standard is still subject to EU
endorsement. IFRS 12 sets out the required
disclosures for entities’ reporting under IFRS
10 and IFRS 11. IFRS 12 requires entities to
disclose information about the nature, risks
and financial effects associated with the
entity’s interest in subsidiaries, associates,
joint arrangements and unconsolidated
structured entities.
IFRS 13, ‘Fair Value Measurement’,
(effective for financial periods beginning on
or after 1 January 2013).
This standard is still subject to EU
endorsement. IFRS 13 explains how to
measure fair value and enhances fair value
disclosures.
Amendment to IAS 1, ‘Presentation of
Items of Other Comprehensive Income
(OCI)’ (effective for financial periods
beginning on or after 1 July 2012)
The amendment introduces a requirement
for entities to group items of OCI on the
basis of whether they are potentially
reclassifiable to profit or loss subsequently.
Revision to IAS 27 ‘Separate financial
statements’ (effective for financial periods
beginning on or after 1 January 2013)
This revision introduces a standard which
now deals solely with separate financial
statements. IFRS 10 ‘Consolidated financial
statements’ replaces all of the guidance on
control and consolidation in IAS 27. The
existing guidance and disclosure
requirements in IAS 27 for separate financial
statements remains unchanged.
The following standards, amendments
and interpretations have been
published. The Group will apply the
relevant standards from their effective
dates and is currently assessing their
impact on the Group’s financial
statements. The standards are
mandatory for future accounting
periods but are not yet effective
and have not been early adopted by
the Group.
Amendment to IAS 19, ‘Employee
Benefits’, (effective for financial periods
beginning on or after 1 January 2013).
This amendment is still subject to EU
endorsement. The amendment makes
significant changes to the recognition and
measurement of defined benefit pension
expense and termination benefits, and
significantly increases the volume of
disclosures. The estimated impact on the
2013 income statement is to increase interest
costs by €1.5 million.
IFRS 9, ‘Financial Instruments’, (effective
for financial periods beginning on or after
1 January 2015).
This standard is still subject to EU
endorsement. IFRS 9 is the first step in the
process to replace IAS 39, ‘Financial
Instruments: Recognition and Measurement’.
IFRS 9 introduces new requirements for
classifying and measuring financial assets
and is likely to affect the Group’s accounting
for its financial assets. IFRS 9 replaces the
multiple classification models in IAS 39 with a
single model that has only two categories:
amortised cost and fair value. Classification
under IFRS 9 is driven by the entity’s
business model for managing financial
assets. IFRS 9 removes the requirement to
separate embedded derivatives from financial
asset hosts. IFRS 9 removes the cost
exemption for unquoted equities.
IFRS 10, Consolidated Financial
Statements’, (effective for financial periods
beginning on or after 1 January 2013).
This standard is still subject to EU
endorsement. IFRS 10 replaces all of the
guidance on control and consolidation in IAS
27 and SIC 12. IFRS 10 changes the definition
of control so that the same criteria are applied
to all entities to determine control. The core
principle that a consolidated entity presents a
parent and its subsidiaries as if they are a
single entity remains unchanged, as do the
mechanics of consolidation. IAS 27 is
renamed ‘Separate Financial Statements’ and
is now a standard dealing solely with separate
financial statements.
112
Glanbia plc Annual Report 2012
3. Financial risk management
3 .1 Financial risk factors
The conduct of its ordinary business
operations necessitates the Group holding
and issuing financial instruments and
derivative financial instruments. The main
risks arising from issuing, holding and
managing these financial instruments
typically include currency risk, interest rate
risk, price risk, liquidity & cash flow risk and
credit risk. The Group approach is to
centrally manage these risks against
comprehensive policy guidelines, which are
summarised below.
The Group does not engage in holding or
issuing speculative financial instruments or
derivatives thereof. The Group finances its
operations by a mixture of retained profits,
preference shares, medium-term committed
borrowings and short-term uncommitted
bank borrowings. The Group borrows in the
major global debt markets in a range of
currencies at both fixed and floating rates of
interest, using derivatives where appropriate
to generate the desired effective currency
profile and interest rate basis.
Risk management, other than credit risk
management, is carried out by a central
treasury department (Group Treasury) under
policies approved by the Board of Directors.
Group Treasury identifies, evaluates and
hedges financial risks in close cooperation
with the Group’s business units.
The Board provides written principles for
overall risk management, as well as written
policies covering specific areas, such as
liquidity risk, foreign exchange risk, interest
rate risk, credit risk, use of derivative
financial instruments and non-derivative
financial instruments, and investment of
excess liquidity.
Market risk
(a) Currency risk
Although the Group is based in Ireland and
has euro operations, it has significant
investment in overseas operations primarily
in the USA. As a result currency
movements, particularly movements in the
US dollar/euro exchange rate, can
significantly affect the Group’s euro
statement of financial position and income
statement. The Group actively seeks to
manage these currency exposures by
financing currency assets with equivalent
currency borrowings, leaving the residual
net assets unhedged and accordingly
exposed to foreign currency translation risk.
The Group also has transactional currency
exposures that arise from sales or
purchases by an operating unit in currencies
other than the unit’s operating functional
currency. Management has set up a policy
to require Group companies to manage their
foreign exchange risk against their functional
currency. Group companies are required to
hedge foreign exchange risk exposure
through Group Treasury.
Group Treasury monitors and manages
these currency exposures on a continuous
basis, using approved hedging strategies,
(including net investment hedges) and
appropriate currency derivative instruments.
At 29 December 2012 and 31 December
2011, if the euro had weakened/
strengthened by 5% against the US dollar
with all other variables held constant, post-
tax profit for the year would not have been
materially impacted as a result of foreign
exchange gains/losses on translation of US
dollar denominated non-hedged trade
receivables, cash and cash equivalents.
A weakening/strengthening of the euro
against the US dollar by 5% as at 29
December 2012 would have resulted in a
currency translation gain/loss of
approximately €27.4 million (2011: €20.6
million), which would be recognised directly
in other comprehensive income.
At 29 December 2012 and 31 December
2011, if the euro had weakened/
strengthened by 5% against the UK pound
with all other variables held constant, post-
tax profit for the year would not have been
materially impacted as a result of foreign
exchange gains/losses on translation of UK
pound-denominated non-hedged trade
receivables, cash and cash equivalents.
A weakening/strengthening of the euro
against the UK pound by 5% as at 29
December 2012 would have resulted in a
currency translation gain/loss of
approximately €1.6 million (2011: €1.8
million), which would be recognised directly
in other comprehensive income.
The Board have considered the risks
associated with the future of the euro
currency across a number of dimensions
such as; market locations, currency impact
on earnings, assets and liabilities and
financing requirements. The Board
concluded that the Group is positioned to
deal with any change to the euro as a
currency bloc.
Interest rate risk
(b)
The Group’s objective in relation to
interest rate management is to minimise
the impact of interest rate volatility on
interest costs in order to protect reported
profitability. This is achieved by
determining a long-term strategy against
a number of policy guidelines, which
focus on (a) the amount of floating rate
indebtedness anticipated over such a
period and (b) the consequent sensitivity
of interest costs to interest rate
movements on this indebtedness and the
resultant impact on reported profitability.
The Group borrows at both fixed and
floating rates of interest and uses interest
rate swaps to manage the Group’s
resulting exposure to interest rate
fluctuations.
Borrowings issued at floating rates expose
the Group to cash flow interest rate risk.
Borrowings issued at fixed rates expose the
Group to fair value interest rate risk. Group
policy is to maintain no more than one third
of its projected debt exposure on a floating
rate basis over any succeeding 12 month
period, with further minimum guidelines over
succeeding 24 and 36 month periods.
The Group, on a continuous basis, monitors
the level of fixed rate cover dependent on
prevailing fixed market rates, projected debt
and market informed interest rate outlook.
Based on the Group’s unhedged variable
rate debt in all currencies throughout 2012,
a 1% increase in prevailing market interest
rates would have resulted in a €1.7 million
loss (2011: €1.8 million loss), with no impact
on other comprehensive income.
The Group manages its cash flow interest
rate risk by using floating to fixed interest
rate swaps. Such interest rate swaps have
the economic effect of converting
borrowings from floating rates to fixed rates.
Under these interest rate swaps, the Group
agrees with other parties to exchange at
specified intervals, the difference between
fixed interest rate amounts and floating rate
interest amounts calculated by reference to
the agreed notional amounts.
Occasionally the Group enters into fixed to
floating interest rate swaps to hedge the fair
value interest rate risk arising where it has
borrowed at fixed rates.
www.glanbia.com 113
(e) Credit risk
Credit risk is managed on a Group basis.
Credit risk arises from cash and cash
equivalents, derivative financial instruments
and deposits with banks and financial
institutions, as well as credit exposures to
customers, including outstanding receivables
and committed transactions. For banks and
financial institutions, only independently rated
parties with a minimum credit rating of A- are
accepted. The minimum credit rating
applicable to a counterparty used for
derivative financial instruments is A-.
Exception to this policy is currently being
permitted for credit risk to relationship banks
that do not meet the designated credit rating
but are covered by an Irish sovereign
guarantee. This is currently under review
arising from the expected removal of this
sovereign guarantee.
The Group’s credit risk management policy
in relation to trade receivables involves
periodically assessing the financial reliability
of customers, taking into account their
financial position, past experience and other
factors. The utilisation of credit limits is
regularly monitored and where appropriate,
credit risk is covered by credit insurance and
by holding appropriate security or liens.
The Group enters into debt purchase
agreements with certain financial institutions
for part of its trade receivable balances.
Where this is done the credit risk is transferred
but in some cases limited late payment risk is
retained.
For further details regarding the Group’s
credit risk see note 19 - trade and other
receivables.
(c) Price risk
The Group is exposed to equity securities
price risk because of investments held by the
Group in listed and unlisted securities and
classified on the Group statement of financial
position as available for sale financial assets.
Certain securities are carried at cost and
therefore are not exposed to price risk.
To manage its price risk arising from
investments in listed equity securities, the
Group does not maintain a significant
balance with any one entity. Diversification of
the portfolio must be done in accordance
with the limits set by the Group. The impact
of a 5% increase or decrease in equity
indexes across the eurozone countries
would not have any material impact on
Group operating profit.
To manage its exposure to certain
commodity markets the Group enters
commodity futures contracts.
For further details regarding the Group’s
price risk see note 32 – derivative financial
instruments.
(d) Liquidity and cash flow risk
The Group’s objective is to maintain a
balance between the continuity of funding
and flexibility through the use of borrowings
with a range of maturities. In order to
preserve continuity of funding, the Group’s
policy is that, at a minimum, committed
facilities should be available at all times to
meet the full extent of its anticipated finance
requirements, arising in the ordinary course
of business, during the succeeding 12
month period. This means that at any time
the lenders providing facilities in respect of
this finance requirement are required to give
at least 12 months notice of their intention to
seek repayment of such facilities. At the year
end, the Group had multi-currency
committed term facilities of €753.5 million
(2011: €987.7 million) of which €226.5
million (2011: €279.2 million) was undrawn.
The weighted average maturity of these
facilities is 6.0 years (2011: 3.4 years).
For further details regarding the Group’s
borrowing facilities see note 26 –
borrowings.
114
Glanbia plc Annual Report 2012
The table below analyses the Group’s financial liabilities, which will be settled on a net basis into relevant maturity groupings based on the
remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows. Balances due within one year equal their carrying value balances as the impact of discounting is not significant.
Financial liabilities
At 29 December 2012
Borrowings
Future finance costs
Derivative financial instruments
Trade and other payables1
Less future finance costs
Financial liabilities
At 31 December 2011
Borrowings
Future finance costs
Derivative financial instruments
Trade and other payables1
Less future finance costs
Total
€’000
652,132
171,942
938
240,029
Less than
1 year
€’000
Between 1
and 2 years
€’000
Between 2
and 5 years
€’000
More than
5 years
€’000
125,086
28,754
938
240,029
394,807
(28,754)
39,062
25,445
–
–
64,507
(25,445)
–
487,984
71,680
46,063
–
–
–
–
71,680
(71,680)
534,047
1,065,041
(46,063)
(171,942)
366,053
39,062
–
487,984
893,099
Less than
1 year
€’000
Between 1
and 2 years
€’000
Between 2
and 5 years
€’000
More than 5
years
€’000
52,808
34,052
5,657
223,458
315,975
(34,052)
343,108
25,618
1,339
–
370,065
(25,618)
62,971
43,239
–
–
106,210
(43,239)
251,179
60,495
–
–
311,674
(60,495)
Total
€’000
710,066
163,404
6,996
223,458
1,103,924
(163,404)
281,923
344,447
62,971
251,179
940,520
The Company has borrowings of €2.8 million at year end (2011: cash at bank €5.3 million). The contractual undiscounted cash flows equal
the balance at 29 December 2012 and 31 December 2011.
1 Excludes accrued expenses and social security costs, which are disclosed in note 31 - trade and other payables.
www.glanbia.com 115
The table below analyses the Group’s foreign exchange contracts, which will be settled on a gross basis into relevant maturity groupings
based on the remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Foreign exchange contracts
At 29 December 2012
Foreign exchange contracts – cash flow hedges
Inflow
Outflow
Foreign exchange contracts
At 31 December 2011
Foreign exchange contracts – cash flow hedges
Inflow
Outflow
Less than
1 year
€’000
Between 1
and 2 years
€’000
Between 2
and 5 years
€’000
More than 5
years
€’000
9
(16)
(7)
–
–
–
–
–
–
–
–
–
Less than
1 year
€’000
Between 1
and 2 years
€’000
Between 2
and 5 years
€’000
More than 5
years
€’000
717
(2,028)
(1,311)
–
–
–
–
–
–
–
–
–
Total
€’000
9
(16)
(7)
Total
€’000
717
(2,028)
(1,311)
3.2 Capital risk management
The Group’s objectives when managing
capital are to safeguard the Group’s ability
to continue as a going concern in order to
provide returns for shareholders and
benefits for other stakeholders and to
maintain an optimal capital structure to
reduce the cost of capital. Total capital is
calculated based on equity as shown in the
statement of financial position and net debt
which amounted to €921.2 million (2011:
€1,003.3 million).
In order to maintain or adjust the capital
structure, the Group may adjust the amount
of dividends paid to shareholders, return
capital to shareholders, issue new shares or
sell assets to increase or reduce debt or buy
back shares.
The Group monitors debt capital on the
basis of interest cover and debt to EBITDA
ratios. At 29 December 2012, the Group’s
debt/adjusted EBITDA ratio was 1.7 times
(2011: 2.1 times), which is deemed by
management to be prudent and in line with
industry norms. Adjusted EBITDA for the
purpose of financing ratios is Group EBITDA
plus dividends received from Joint Ventures
& Associates.
3.3 Fair value estimation
The fair value of financial instruments traded
in active markets (such as available for sale
securities) is based on quoted market prices
at 29 December 2012. The quoted market
price used for financial assets held by the
Group is the current bid price.
The fair value of financial instruments that are
not traded in an active market (for example,
over the counter derivatives) is determined by
using valuation techniques. The Group uses a
variety of methods and makes assumptions
that are based on market conditions existing at
each reporting date. Quoted market prices or
dealer quotes for similar instruments are used
for long-term debt. Other techniques, such as
estimated discounted cash flows, are used to
determine fair value for the remaining financial
instruments. The fair value of interest rate
swaps is calculated as the present value of the
estimated future cash flows. The fair value of
forward foreign exchange contracts is
determined using quoted forward exchange
rates at 29 December 2012.
The carrying value less impairment provision
of trade receivables and payables is
assumed to approximate their fair values
due to the short-term nature of trade
receivables and trade payables. The fair
value of financial liabilities for disclosure
purposes is estimated by discounting the
future contractual cash flows at current
market interest rates that are available to the
Group for similar financial instruments.
In accordance with IFRS 7 – Financial
Instruments: Disclosures, the Group has
disclosed the fair value of instruments by the
following fair value measurement hierarchy:
(cid:2) quoted prices (unadjusted) in active
markets for identical assets and liabilities
(level 1);
(cid:2) inputs, other than quoted prices included
in level 1, that are observable for the
asset and liability, either directly (that is,
as prices) or indirectly (that is, derived
from prices) (level 2); and
(cid:2) inputs for the asset or liability that are not
based on observable market data (that
is, unobservable inputs) (level 3).
116
Glanbia plc Annual Report 2012
The following table presents the Group’s assets and liabilities, which are measured at fair value at 29 December 2012 and
31 December 2011.
At 29 December 2012
Notes
Level 1
€’000
Level 2
€’000
Level 3
€’000
Total
€’000
Assets
Derivatives used for hedging
Available for sale financial assets – equity securities
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
At 31 December 2011
Assets
Derivatives used for hedging
Available for sale financial assets – equity securities
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
32
18
32
–
224
1,457
447
224
1,904
–
–
(938)
(938)
–
–
–
–
–
Notes
Level 1
€’000
Level 2
€’000
Level 3
€’000
32
18
32
–
152
6,161
1,490
152
7,651
–
–
(6,976)
(6,976)
–
–
–
–
–
1,457
671
2,128
(938)
(938)
Total
€’000
6,161
1,642
7,803
(6,976)
(6,976)
www.glanbia.com 117
4. Critical accounting estimates
and judgements
Estimates and judgements are continually
evaluated and are based on historical
experience and other factors, including
expectations of future events that are
believed to be reasonable under the
circumstances.
Where the final outcome of these tax
matters is different from the amounts that
were initially recorded, such differences will
impact the income tax and deferred tax
provisions in the period in which such
determination is made. The Group takes the
advice of external experts to help minimise
this risk.
The Group makes estimates and
assumptions concerning the future. The
resulting accounting estimates will, by
definition, seldom equal the related actual
results. The estimates and assumptions that
could have a significant risk of causing a
material adjustment to the carrying amounts
of assets and liabilities within the next
financial year are discussed below.
(a)
Impairment reviews of goodwill
and indefinite life intangibles
The Group tests annually whether goodwill
has suffered any impairment, in accordance
with the accounting policy stated in note 2 (f).
The recoverable amounts of cash generating
units have been determined based on value
in use calculations. These calculations require
the use of estimates.
The intangible assets of Customised Premix
Solutions and Performance Nutrition,
including goodwill arising on acquisition of
€249.9 million (2011: €254.4 million), were
tested for impairment using projected cash
flows over a ten year period. A reduction in
projected EBITDA of 10% or an increase in
the discount factor used by 1% would not
result in an impairment of the assets. A rate
of zero percent has been used to estimate
cash flow growth between three and ten
years. Indefinite life intangible assets are
those for which there is no foreseeable limit
to their expected useful life. The
classification of intangible assets as
indefinite is reviewed annually. Additional
information in relation to impairment reviews
are disclosed in note 15 - intangibles assets.
Income taxes
(b)
The Group is subject to income tax in
numerous jurisdictions. Significant
judgement is required in determining the
worldwide provision for income taxes. There
are many transactions during the ordinary
course of business for which the ultimate tax
determination is uncertain. The Group
recognises liabilities for anticipated tax audit
issues based on estimates of whether
additional taxes will be due.
Deferred income tax assets are recognised
to the extent that it is probable that future
taxable profit will be available against which
the unused tax losses and unused tax
credits may be utilised. The Group
estimates the most probable amount of
future taxable profits, using assumptions
consistent with those employed in
impairment calculations and taking into
consideration applicable tax legislation in the
relevant jurisdiction. These calculations also
require the use of estimates.
The decision to recognise deferred income
tax assets (or not) also requires judgement
as it involves an assessment of future
recoverability of those assets.
(c) Post-employment benefits
The Group operates a number of post
employment defined benefit plans. The rates
of contributions payable, the pension cost
and the Group’s total obligation in respect of
defined benefit plans is calculated and
determined by independent qualified
actuaries and updated at least annually. The
Group has plan assets totalling €332.6 million
(2011: €400.0 million) and plan liabilities of
€430.7 million (2011: €448.4 million) giving a
net pension deficit of €98.1 million (2011:
€48.4 million) for the Group. The size of the
obligation and cost of the benefits are
sensitive to actuarial assumptions. These
include demographic assumptions covering
mortality and longevity, and economic
assumptions covering price inflation, benefit
and salary increases together with the
discount rate used. The Group has reviewed
the impact of a change in the discount rate
used and concluded that based on the
pension deficit at 29 December 2012, an
increase in the discount rates applied of 10
basis points across the various defined
benefit plans, would have the impact of
decreasing the pension deficit for the Group
by €6.1 million (2011: €7.1 million).
Additional information in relation to post
employment benefits is disclosed in note 28 -
retirement benefit obligations.
(d) Estimating lives for
depreciation of property,
plant and equipment and
intangible assets
Long-lived assets comprising primarily
property, plant and equipment and intangible
assets, represent a significant portion of total
assets. The annual depreciation and
amortisation charge depends primarily on the
estimated lives of each type of asset and, in
certain circumstances, estimates of fair
values and residual values. The Directors
regularly review these useful lives and change
them as necessary to reflect current thinking
on remaining lives in light of technological
change, pattern of consumption, the physical
condition and expected economic utilisation
of the asset. Changes in the useful lives can
have a significant impact on the depreciation
and amortisation charge for the period.
Details of the useful lives are included in the
accounting policies 2 (e) and 2 (f). The
impact of any change could vary significantly
depending on the individual changes in
assets and the classes of assets impacted.
The Group has reviewed the impact of a
change in useful lives on land and buildings
and a one-year reduction in useful lives would
result in a €0.2 million (2011: €0.2 million)
reduction in operating profit.
The Group has also reviewed the impact of a
change in useful lives in plant and equipment
and a one year reduction in useful lives
would result in a €1.6 million (2011: €2.2
million) reduction in operating profit.
The Group has reviewed the impact of a
change in the amortisation period of
customer relationships and a one-year
reduction in the write-off period would result
in a €1.2 million (2011: €1.0 million)
reduction in operating profit.
The Group has reviewed the impact on
indefinite life intangible assets by assigning a
finite life to these assets and a 20-year useful
life estimate would have a €4.5 million (2011:
€4.6 million) negative impact on operating
profit. Additional information in relation to
property, plant and equipment and intangible
assets is disclosed in notes 14 and 15.
118
Glanbia plc Annual Report 2012
(e) Fair value of derivatives and
other financial instruments
The fair value of financial instruments that
are not traded in an active market (for
example, over-the-counter derivatives) is
determined by using valuation techniques.
The Group uses its judgement to select a
variety of methods and make assumptions
that are mainly based on market conditions
existing at each reporting date. The Group
has used discounted cash flow analysis for
various available for sale financial assets that
are not traded in active markets. The
carrying amount of available for sale financial
assets would not be materially different were
the discounted rate used in the discounted
cash flow analysis to differ by 10% from
management’s estimates.
(f)
Impairment of available for
sale financial assets
The Group follows the guidance of IAS 39 -
Financial Instruments: Recognition and
Measurement to determine when an
available for sale financial asset is impaired.
This determination can require significant
judgement. In making this judgement, the
Group evaluates, among other things the
extent to which the fair value of an
investment is less than its cost; the financial
health of and short term business outlook for
the investee; industry factors such as
industry and sector performance; and
changes in technology and operational and
financing cashflow. At 29 December 2012
the fair value of available for sale financial
assets is greater than the original cost.
(g) Provisions
Provisions are recognised when the Group
has constructive or legal obligations as a
result of past events, when it is more likely
than not that an outflow of resources will be
required to settle the obligation, and when
the amount has been reliably estimated. The
amount recognised as a provision is the best
estimate of the amount required to settle the
present obligation at the reporting date,
taking account of the risks and uncertainties
surrounding the obligation. Actual results
may differ from these estimates.
www.glanbia.com 119
5. Segment information
In accordance with IFRS 8 - Operating
Segments the Group has three segments,
as follows: US Cheese & Global Nutritionals,
Dairy Ireland and Joint Ventures &
Associates. These segments align with the
Group’s internal financial reporting system
and the way in which the Chief Operating
Decision Maker assesses performance and
allocates the Group’s resources. A segment
manager is responsible for each segment
and is directly accountable for the
performance of that segment to the Group
Operating Executive Committee which acts
as the Chief Operating Decision Maker for
the Group. Each segment derives its
revenue as follows: US Cheese & Global
Nutritionals earns its revenue from the
manufacture and sale of cheese, whey
protein and other nutritional solutions; Dairy
Ireland earns its revenue from the sale of a
range of dairy consumer products and farm
inputs; Joint Ventures & Associates revenue
arises from the manufacture and sale of
cheese, whey proteins and dairy consumer
products. The Other Business segment is
now included as part of the Dairy Ireland
segment as no revenue was generated by
Other Business during the period.
Comparatives have been restated
accordingly.
5.1 The segment results for the year ended 29 December 2012 are as follows:
Each segment is reviewed in its totality by
the Chief Operating Decision Maker. The
Group Operating Executive Committee
assesses the trading performance of
operating segments based on a measure of
earnings before interest, tax, amortisation
and exceptional items.
As outlined in note 7, the Group sold 60% of
Glanbia Ingredients Ireland Limited during
the year. 100% of the trade and activities of
this business are shown below under
discontinued operations.
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland*
€’000
JV's &
Associates
€’000
Discontinued
Operations*
€’000
Group
including JV's
& Associates
€’000
Total gross segment revenue
(a)
1,587,707
630,999
577,002
Inter-segment revenue
(6,906)
(43)
–
653,292
(30,096)
3,449,000
(37,045)
Segment external revenue
1,580,801
630,956
577,002
623,196
3,411,955
Segment earnings before interest, tax,
amortisation and exceptional items
(b)
155,415
20,427
23,105
36,614
235,561
* Discontinued Operations were previously included within the Dairy Ireland segment
Included in external revenue are related party sales between Dairy Ireland and Joint Ventures & Associates of €8.1 million, related party sales
between US Cheese & Global Nutritionals and Joint Ventures & Associates of €15.3 million and related party sales between Discontinued
Operations and Joint Ventures & Associates of €62.4 million. Inter-segment transfers or transactions are entered into under the normal
commercial terms and conditions that would also be available to unrelated third parties.
5.1 (a): Segment revenue is reconciled to reported external revenue as follows:
Segment revenue
Inter-segment revenue
Joint Ventures & Associates revenue
Revenue from Discontinued Operations
Reported external revenue - continuing operations
2012
€’000
3,449,000
(37,045)
(577,002)
(623,196)
2,211,757
120
Glanbia plc Annual Report 2012
5.1 (b): Segment earnings before interest, tax, amortisation and exceptional items are reconciled to reported profit before tax
and profit after tax as follows:
Segment earnings before interest, tax, amortisation and exceptional items
Discontinued Operations - earnings before interest, tax, amortisation and exceptional items
Amortisation
Exceptional items
Joint Ventures & Associates interest and tax
Finance income
Finance costs
Reported profit before tax - continuing operations
Income taxes
Reported profit after tax - continuing operations
2012
€’000
235,561
(36,614)
(19,864)
1,610
(10,958)
2,942
(23,370)
149,307
(24,060)
125,247
Finance income, finance costs and income taxes are not allocated to segments, as this type of activity is driven by central treasury and
taxation functions which manage the cash and taxation position of the Group.
Other segment items included in the income statement for the year ended 29 December 2012 are as follows:
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland*
€’000
JV's &
Associates
€’000
Discontinued
Operations*
€’000
Group
including JV's
& Associates
€’000
Depreciation of property, plant and equipment
Amortisation of intangibles
Capital grants released to the income statement
Exceptional items before tax
16,132
16,624
(73)
8,880
3,240
(174)
(4,401)
2,791
8,627
10,960
–
(288)
–
489
(1,031)
8,095
44,599
20,353
(1,566)
6,485
* Discontinued Operations were previously included within the Dairy Ireland segment
The segment assets and liabilities at 29 December 2012 and segment capital expenditure and acquisitions for the year then
ended are as follows:
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland
€’000
JV's &
Associates
€’000
Group
including JV's
& Associates
€’000
Segment assets
Segment liabilities
Segment capital expenditure and acquisitions
(c)
(d)
(e)
1,066,714
288,618
142,903
1,498,235
301,997
171,628
–
473,625
112,222
30,973
10,721
153,916
5.1 (c): Segment assets are reconciled to reported assets as follows:
Segment assets
Unallocated assets
Reported assets
Unallocated assets primarily include tax, cash and cash equivalents, available for sale financial assets and derivatives.
2012
€’000
1,498,235
286,933
1,785,168
www.glanbia.com 121
5.1 (d): Segment liabilities are reconciled to reported liabilities as follows:
Segment liabilities
Unallocated liabilities
Reported liabilities
2012
€’000
473,625
766,887
1,240,512
Unallocated liabilities primarily include items such as tax, borrowings and derivatives.
5.1 (e): Segment capital expenditure and acquisitions are reconciled to reported capital expenditure and acquisitions as follows:
Segment capital expenditure and acquisitions
Joint Ventures & Associates capital expenditure
Unallocated capital expenditure
Discontinued Operations capital expenditure
Reported capital expenditure and acquisitions - continuing operations
5.2 The segment results for the year ended 31 December 2011 are as follows:
2012
€’000
153,916
(10,721)
77
(23,964)
119,308
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland*
€’000
JV's &
Associates
€’000
Discontinued
Operations*
€’000
Group
including JV's
& Associates
€’000
Total gross segment revenue
(a)
1,319,944
615,928
524,293
Inter-segment revenue
(3,023)
–
–
750,941
(12,639)
3,211,106
(15,662)
Segment external revenue
1,316,921
615,928
524,293
738,302
3,195,444
Segment earnings before interest, tax,
amortisation and exceptional items
(b)
117,461
23,865
25,226
38,172
204,724
* Discontinued Operations were previously included within the Dairy Ireland segment
Included in external revenue are related party sales between Dairy Ireland and Joint Ventures & Associates of €3.6 million, related party sales
between US Cheese & Global Nutritionals and Joint Ventures & Associates of €12.4 million and related party sales between Discontinued
Operations and Joint Ventures & Associates of €95.1 million.
5.2 (a): Segment revenue is reconciled to reported external revenue as follows:
Segment revenue
Inter-segment revenue
Joint Ventures & Associates revenue
Revenue from Discontinued Operations
Reported external revenue - continuing operations
122
Glanbia plc Annual Report 2012
2011
€’000
3,211,106
(15,662)
(524,293)
(738,302)
1,932,849
5.2 (b): Segment earnings before interest, tax, amortisation and exceptional items are reconciled to reported profit before tax
and profit after tax as follows:
Segment earnings before interest, tax, amortisation and exceptional items
Discontinued Operations - earnings before interest, tax, amortisation and exceptional items
Amortisation
Exceptional items – rationalisation costs
Joint Ventures & Associates interest and tax
Finance income
Finance costs
Reported profit before tax - continuing operations
Income taxes
Reported profit after tax - continuing operations
2011
€’000
204,724
(38,172)
(17,947)
(8,723)
(10,895)
3,056
(26,467)
105,576
(21,571)
84,005
Finance income, finance costs and income taxes are not allocated to segments, as this type of activity is driven by central treasury and
taxation functions which manage the cash and taxation position of the Group.
Other segment items included in the income statement for the year ended 31 December 2011 are as follows:
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland*
€’000
JV's &
Associates
€’000
Discontinued
Operations*
€’000
Group
including JV's
& Associates
€’000
Depreciation of property, plant and equipment
Amortisation of intangibles
Capital grants released to the income statement
Exceptional items – rationalisation costs
13,443
14,570
(57)
–
9,129
3,377
(270)
8,723
7,653
–
(268)
–
11,568
525
(1,113)
–
41,793
18,472
(1,708)
8,723
* Discontinued Operations were previously included within the Dairy Ireland segment
The segment assets and liabilities at 31 December 2011 and segment capital expenditure and acquisitions for the year then
ended are as follows:
Segment assets
Segment liabilities
Segment capital expenditure and acquisitions
US Cheese &
Global
Nutritionals
€’000
Dairy
Ireland
€’000
JV's &
Associates
€’000
Group
including JV's
& Associates
€’000
(c)
(d)
(e)
931,923
585,896
85,237
1,603,056
268,418
267,732
–
536,150
140,833
30,432
4,042
175,307
www.glanbia.com 123
5.2 (c): Segment assets are reconciled to reported assets as follows:
Segment assets
Unallocated assets
Reported assets
Unallocated assets primarily include tax, cash and cash equivalents, available for sale financial assets and derivatives.
5.2 (d): Segment liabilities are reconciled to reported liabilities as follows:
Segment liabilities
Unallocated liabilities
Reported liabilities
2011
€’000
1,603,056
245,120
1,848,176
2011
€’000
536,150
789,077
1,325,227
Unallocated liabilities primarily include items such as tax, borrowings and derivatives.
5.2 (e): Segment capital expenditure and acquisitions are reconciled to reported capital expenditure and acquisitions as follows:
Segment capital expenditure and acquisitions
Joint Ventures & Associates capital expenditure
Unallocated capital expenditure
Discontinued Operations capital expenditure
Reported capital expenditure and acquisitions - continuing operations
2011
€’000
175,307
(4,042)
215
(8,929)
162,551
5.3 Entity wide disclosures
Revenue from external customers for each group of similar product in the US Cheese & Global Nutritionals, Dairy Ireland, Joint Ventures &
Associates and Discontinued Operations segments is outlined in section 5.1 and 5.2 above.
Geographical information
Revenue by geographical destination is reviewed by the Chief Operating Decision Maker. The breakdown of revenue by geographical
destination is as follows:
USA
Ireland
UK
Rest of Europe
Other
2012
€’000
2011
€’000
1,592,563
1,390,414
908,956
259,811
250,492
437,178
838,596
235,338
322,022
424,736
3,449,000
3,211,106
Revenue of approximately €341.8 million (2011: €320.0 million) is derived from a single external customer.
The total of non-current assets, other than derivative financial instruments and deferred income tax assets, located in Ireland is €184.0
million (2011: €267.8 million) and located in other countries, mainly the USA, is €750.6 million (2011: €690.4 million).
124
Glanbia plc Annual Report 2012
6. Operating expenses - continuing operations
Revenue
Less costs:
Raw materials and consumables used
Depreciation of property, plant and equipment
Amortisation of capital grants
Employee benefit expense
Auditors' remuneration**
– Statutory audit of Group companies
– Other assurance services
– Tax advisory services
– Other non-audit services
Research and development costs
Net foreign exchange (loss)/gain
Other expenses
Earnings before interest, tax and amortisation (EBITA)
Intangible asset amortisation
Operating profit
** Auditors’ remuneration for the Company in respect of its statutory audit amounted to €35,000 (2011: €35,000)
2012
€’000
2011
€’000
2,211,757
1,932,849
(1,495,602)
(1,310,457)
(25,012)
247
(197,648)
(591)
(1,028)
(960)
(308)
(9,391)
(2,535)
(22,572)
327
(171,302)
(566)
(697)
(986)
(270)
(8,397)
1,108
(303,087)
(277,711)
175,842
(19,864)
141,326
(17,947)
155,978
123,379
www.glanbia.com 125
7. Exceptional items and discontinued operations
Exceptional items - continuing operations
Sale of Yoplait franchise
Rationalisation costs
Flax processing facility
Property write down
Total exceptional credit/(charge) before tax - continuing operations
Exceptional tax credit - continuing operations
Net exceptional credit/(charge) - continuing operations
Exceptional items - discontinued operations
Glanbia Ingredients Ireland Limited - 60% disposal
Total exceptional (charge) - discontinued operations
Exceptional tax credit - discontinued operations
Net exceptional (charge) - discontinued operations
Notes
2012
€’000
2011
€’000
(a)
(b)
(c)
(d)
11
(e)
6,109
(3,810)
4,401
(5,090)
1,610
–
(8,723)
–
–
(8,723)
1,440
1,090
3,050
(7,633)
(8,095)
(8,095)
334
(7,761)
–
–
–
–
Total exceptional (charge)
(4,711)
(7,633)
(a)
(b)
(c)
During 2012, following a strategic review of its Consumer Products business the Group agreed new terms to its relationship with
Yoplait, the owner of the global Yoplait yogurt business. Under the new agreement, Yoplait reacquired the franchise for Ireland
from Glanbia plc for €18.0 million. This gain was offset by a related write down in property, plant and equipment and rationalisation
costs totalling €11.9 million (€5.7 million of which was a non cash cost).
Rationalisation costs primarily relate to redundancy in the Dairy Ireland segment.
During 2012, the flax processing facility operated by the Group in Canada suffered fire damage. The exceptional gain of €4.4 million
reflects the minimum insurance proceeds receivable less the net book value of assets written down. Discussions with the Group’s
insurers are ongoing.
(d) The Group reviewed its property portfolio during the year which resulted in a write down of €5.1 million.
(e) In November 2012, the Group reached an agreement with Glanbia Co-operative Society Limited (the “Society”) whereby the Society
acquired a 60% interest in the Dairy Ingredients business, Glanbia Ingredients Ireland Limited. With effect from 25 November 2012,
the Group’s 40% shareholding in Glanbia Ingredients Ireland Limited has been treated as an associate undertaking and accounted for
using the equity method in accordance with IAS 28 - Investment in Associates. In accordance with IFRS 5 - Non Current Assets Held
for Sale and Discontinued Operations, the disposal of the Group’s interest is considered to be a discontinued operation. In line with
IFRS 5, a loss on disposal of €8.1 million was recognised in the income statement. This includes the recycle of €1.0 million cumulative
foreign currency translation gains which were previously recognised in equity. The loss on this transaction arose as follows:
Discontinued operations
100% disposal of Glanbia Ingredients Ireland Limited
40% equity interest retained in Glanbia Ingredients Ireland Limited
Total cash consideration received in respect of 60% disposal
Disposal related costs
Currency translation gain previously recognised in equity
Discontinued finance costs - cancellation of interest rate swaps
Exceptional loss
126
Glanbia plc Annual Report 2012
2012
€’000
(84,470)
33,788
49,289
(5,026)
1,001
(5,418)
(2,677)
(8,095)
The revenue and results of 100% of the Group’s discontinued operations for the eleven months to 24 November 2012 and
twelve months to 31 December 2011 are as follows:
Revenue
Expenses
Operating profit
Net finance costs
Profit before taxation
Income taxes
2012
€’000
2011
€’000
623,196
(587,071)
738,302
(700,655)
36,125
(5,100)
31,025
(4,281)
37,647
(4,530)
33,117
(4,314)
Profit for the year from discontinued operations
26,744
28,803
The net assets of the Group’s discontinued operations at 24 November 2012 and 31 December 2011 are as follows:
Assets of discontinued operations
Property, plant and equipment
Intangible assets
Investments
Working capital
Total assets of discontinued operations
Liabilities of discontinued operations
Intercompany liability to Glanbia plc group
Retirement benefit obligations
Deferred income tax liabilities
Finance lease and government grants
2012
€’000
2011
€’000
131,588
119,003
3,291
4,751
125,782
3,419
4,980
76,448
265,412
203,850
(125,652)
(36,954)
(2,232)
(16,104)
–
(11,431)
(4,072)
(16,972)
Total liabilities of discontinued operations
(180,942)
(32,475)
The cash flows of the Group’s discontinued operations for the eleven months to 24 November 2012 and twelve months to
31 December 2011 are as follows:
Operating cash flows
Profit before taxation
Depreciation
Amortisation
Interest expense
Amortisation of government grants received
Cash generated from discontinued operations before changes in working capital
Increase in working capital
2012
€'000
2011
€'000
31,025
33,117
10,960
489
5,100
(1,031)
46,543
(42,889)
11,568
525
4,530
(1,113)
48,627
(25,674)
Operating cash flows generated from discontinued operations
3,654
22,953
www.glanbia.com 127
Operating cash flows generated from discontinued operations
Cash generated from operating activities
Interest paid*
Tax paid*
2012
€’000
3,654
(5,100)
(2,557)
2011
€’000
22,953
(4,530)
(2,964)
Operating net cash (outflow)/inflow from discontinued operations
(4,003)
15,459
Cash flows from investing activities
Purchase of property, plant and equipment
(23,964)
(8,929)
Investing cash (outflow) from discontinued operations
(23,964)
(8,929)
Cash flows from financing activities
Finance lease principal payments
Capital grants received
Financing cash (outflow) from discontinued operations
(928)
–
(928)
(968)
564
(404)
Cash (absorbed)/generated at the end of the eleven month period/year
(28,895)
6,126
*Estimated allocation of the Group’s interest and tax costs to discontinued operations
8. Employee benefit expense - continuing and discontinuing operations
Wages and salaries
Social security costs
Cost of share based payments
Pension costs – defined contribution schemes
Pension costs – defined benefit schemes
Exceptional items
Notes
22
28
28
2012
€'000
190,738
20,414
3,209
3,509
7,998
2011
€'000
172,949
19,483
2,388
3,020
3,230
225,868
201,070
8,576
8,723
234,444
209,793
The average number of employees, excluding the Group’s Joint Ventures & Associates, in 2012 was 3,823 (2011: 3,560) and is
analysed into the following categories:
2012
2011
2,136
1,687
1,858
1,702
3,823
3,560
US Cheese & Global Nutritionals
Dairy Ireland
128
Glanbia plc Annual Report 2012
9. Directors’ remuneration
The Directors’ remuneration information is shown on pages 75 to 82 in the Corporate Governance section of this report.
10. Finance income and costs
Finance income
Interest income
Interest income on deferred consideration
2012
€'000
2,913
29
2011*
€'000
2,874
182
Total finance income
2,942
3,056
Finance costs
Bank borrowings repayable within five years
Interest cost on deferred consideration
UK pension provision
Finance lease costs
Interest rate swaps, transfer from equity
Interest rate swaps, fair value hedges
Fair value adjustment to borrowings attributable to interest rate risk
Finance cost of private debt placement
Finance cost of preference shares
Total finance costs
Net finance costs
From continuing operations
From discontinued operations
*As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
(9,434)
(14,092)
–
(121)
(131)
(1,059)
1,764
(1,764)
(13,376)
(4,349)
(106)
(113)
(188)
(4,876)
2,308
(2,308)
(7,273)
(4,349)
(28,470)
(30,997)
(25,528)
(27,941)
(20,428)
(5,100)
(23,411)
(4,530)
www.glanbia.com 129
11. Income taxes
Continuing operations
Current tax
Irish current tax
Adjustments in respect of prior years
Irish current tax on income for the year - continuing operations
Foreign current tax
Adjustments in respect of prior years
Notes
2012
€'000
2011*
€'000
8,557
(1,015)
5,677
(432)
7,542
5,245
17,568
36
6,223
1,539
Foreign current tax on income for the year - continuing operations
17,604
7,762
Total current tax - continuing operations
25,146
13,007
Deferred tax
Deferred tax - current year
Adjustments in respect of prior years
1,617
(1,263)
11,886
(2,232)
Total deferred tax - continuing operations
27
354
9,654
Pre exceptional tax charge - continuing operations
25,500
22,661
Exceptional tax (credit) - continuing operations
Current tax
Deferred tax
(a)
(a)
(236)
(1,204)
(1,090)
–
Total tax charge - continuing operations
24,060
21,571
Discontinued operations
Current tax
Irish current tax
Adjustments in respect of prior years
Total current tax - discontinued operations
Deferred tax
Deferred tax - current year
Adjustments in respect of prior years
Total deferred tax - discontinued operations
Pre-exceptional tax charge - discontinued operations
Exceptional tax (credit) - discontinued operations
Current tax
Deferred tax
Total tax charge - discontinued operations
Total tax charge for the year
* As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
130
Glanbia plc Annual Report 2012
2,557
(11)
2,964
(3)
2,546
2,961
1,735
–
1,395
(42)
1,735
1,353
4,281
4,314
(334)
–
–
–
3,947
4,314
28,007
25,885
27
7
(b)
(b)
(a) Notes on exceptional tax credit - continuing operations:
(i) An exceptional current tax credit of €0.3 million and an exceptional deferred tax credit of €1.0 million, both relating to the
sale of the Yoplait franchise.
(ii) The rationalisation costs relating to redundancies in the Dairy Ireland segment resulted in an exceptional current tax credit
of €0.5 million (2011: €1.1 million).
(iii) The fire damage suffered at the Group’s flax processing facility in Canada resulted in an exceptional current tax charge of
€0.6 million and an exceptional deferred tax charge of €0.4 million.
(iv) The impairment in the Group’s property portfolio resulted in an exceptional deferred tax credit of €0.6 million.
(b) The disposal of 60% of Glanbia Ingredients Ireland Limited to the Society resulted in an exceptional current tax credit of
€0.3 million. There was no deferred tax impact.
The exceptional net tax credit in 2012 and 2011 has been disclosed separately above as it relates to costs and income which have been
presented as exceptional.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise applying the corporation tax rate
in Ireland, as follows:
Profit before tax - continuing operations
Income tax calculated at Irish rate of 12.5% (2011: 12.5%)
Earnings at (reduced)/higher Irish rates
Difference due to overseas tax rates
Adjustment to tax charge in respect of previous periods
Tax on post tax profits of Joint Ventures & Associates included in profit before tax
Other differences including expenses not deductible for tax purposes
2012
€'000
2011*
€'000
149,307
105,576
18,663
(1,702)
19,396
(2,242)
(1,518)
(8,537)
13,197
724
7,496
(1,125)
(1,791)
3,070
Total tax charge - continuing operations
24,060
21,571
* As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
Details of deferred income tax charged or credited directly to other comprehensive income during the year are outlined in note 27.
Factors that may affect future tax charges and other disclosure requirements
The total tax charge in future periods will be affected by any changes to the applicable tax rates in force in jurisdictions in which the Group
operates and other relevant changes in tax legislation, including amendments impacting on the excess of tax depreciation over accounting
depreciation. The total tax charge of the Group may also be influenced by the effects of corporate development activity.
www.glanbia.com 131
12. Earnings per share
Basic
Basic earnings per share is calculated by dividing the net profit attributable to the equity holders of the Parent by the weighted average
number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Group and held as own shares (note 22 f).
Profit attributable to equity holders of the Parent (€’000)
From continuing operations
From discontinued operations
2012
2011*
124,807
18,983
83,375
28,803
Weighted average number of ordinary shares in issue
294,022,876
293,536,350
Basic earnings per share (cents per share)
From continuing operations
From discontinued operations
42.45
6.46
48.91
28.40
9.82
38.22
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of
all potential dilutive ordinary shares. Share options and share awards are potential dilutive ordinary shares. In respect of share options and
share awards, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the
average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to
outstanding share options. The number of shares calculated above is compared with the number of shares that would have been issued
assuming the exercise of all share options and share awards.
Weighted average number of ordinary shares in issue
Adjustments for share options and share awards
2012
2011*
294,022,876
293,536,350
2,670,265
2,413,436
Adjusted weighted average number of ordinary shares
296,693,141
295,949,786
Diluted earnings per share (cents per share)
From continuing operations
From discontinued operations
* As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
42.07
6.40
48.47
28.17
9.73
37.90
132
Glanbia plc Annual Report 2012
Adjusted
Adjusted earnings per share is considered to be more reflective of the Group’s overall underlying performance. Adjusted earnings
per share is calculated on the net profit attributable to equity holders of the Parent, before net exceptional items and intangible asset
amortisation (net of related tax). In order that adjusted earnings per share would fairly represent the ongoing structure of the Group
the calculation for both 2012 and 2011 has been amended to include 40% of the actual adjusted net income of Glanbia Ingredients
Ireland Limited as if it had been an associate in both years.
Profit attributable to equity holders of the Parent - continuing operations
Amortisation of intangible assets (net of related tax)
Net exceptional items
Adjustment to reflect 40% share of discontinued operations retained by the Group
2012
€'000
124,807
17,381
(3,050)
10,869
2011*
€'000
83,375
15,704
7,633
11,705
Adjusted net income - continuing operations
150,007
118,417
Profit attributable to equity holders of the Parent - discontinued operations
Amortisation of intangible assets (net of related tax)
Net exceptional items
18,983
428
7,761
28,803
459
–
Adjustment to reflect 40% share of discontinued operations retained by the Group
(10,869)
(11,705)
Adjusted net income - discontinued operations
16,303
17,557
Adjusted earnings per share (cents per share)
From continuing operations
From discontinued operations
Diluted adjusted earnings per share (cents per share)
From continuing operations
From discontinued operations
* As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
51.02
5.54
56.56
50.56
5.49
56.05
40.34
5.98
46.32
40.01
5.93
45.94
www.glanbia.com 133
13. Dividends
The dividends paid in 2012 and 2011 were €25.3 million (8.60 cents per share) and €22.9 million (7.82 cents per share) respectively. On 19
October 2012 an interim dividend of 3.66 cents per share on the ordinary shares amounting to €10.8 million was paid to shareholders on the
register of members at 7 September 2012. The Directors have recommended the payment of a final dividend of 5.43 cents per share on the
ordinary shares which amounts to €15.9 million. Subject to shareholders approval, this dividend will be paid on 31 May 2013 to shareholders
on the register of members at 19 April 2013, the record date. These financial statements do not reflect this final dividend.
14. Property, plant and equipment
Year ended 31 December 2011
Opening net book amount
Exchange differences
Acquisitions
Additions
Disposals
Reclassification
Depreciation charge
Land and
buildings
€'000
Plant and
equipment
€'000
Motor
vehicles
€'000
Notes
134,618
234,501
2,577
1,211
20,110
(325)
32
(5,264)
3,646
572
31,343
(416)
146
(28,581)
15
227
26
28
438
(42)
–
(295)
Total
€'000
369,346
6,249
1,811
51,891
(783)
178
(34,140)
Closing net book amount
152,959
241,211
382
394,552
At 31 December 2011
Cost
Accumulated depreciation
228,642
(75,683)
678,353
(437,142)
19,712
(19,330)
926,707
(532,155)
Net book amount
152,959
241,211
382
394,552
Year ended 29 December 2012
Opening net book amount
Exchange differences
Acquisitions
Additions
Disposals
Reclassification
Impairments
Depreciation charge
152,959
241,211
(1,385)
1,641
25,849
(34,861)
–
(2,050)
(5,829)
(2,964)
11,345
61,004
(99,239)
(333)
(8,245)
(29,882)
15
382
(11)
5
346
(149)
–
(37)
(261)
394,552
(4,360)
12,991
87,199
(134,249)
(333)
(10,332)
(35,972)
Closing net book amount
136,324
172,897
275
309,496
At 29 December 2012
Cost
Accumulated depreciation
Net book amount
187,492
(51,168)
471,718
(298,821)
18,621
(18,346)
677,831
(368,335)
136,324
172,897
275
309,496
Depreciation expense of €36.0 million was charged to the income statement during the year (2011: €34.1 million). Included in the cost of
additions for 2012 is an amount of €11.8 million (2011: €22.3 million) incurred in respect of assets under construction.
The Group does not have any assets secured against borrowings and no borrowing costs were capitalised during the year (2011: nil).
The impairments during the year relate to a fire at the Group’s flax processing facility in Canada and a plant closure following the disposal of
the Yoplait franchise. This impairment cost is charged to exceptional items in the income statement. See note 7 for further details.
Disposals during the year primarily relate to the disposal of Glanbia Ingredients Ireland Limited.
134
Glanbia plc Annual Report 2012
Leased assets, comprising plant and equipment where the Group is a lessee under a finance lease, are as follows:
Cost – capitalised finance leases
Accumulated depreciation
Disposals
Net book amount
2012
€'000
41,673
(33,359)
(8,314)
2011
€'000
41,673
(32,105)
–
–
9,568
Operating lease rentals amounting to €15.1 million (2011: €13.1 million) are charged to the income statement.
15. Intangible assets
Year ended 31 December 2011
Opening net book amount
Exchange differences
Acquisitions
Additions
Reclassification
Write-off of intangibles
Amortisation
Goodwill
€'000
note (b)
Other
intangibles
€'000
note (a)
Notes
Software
costs
€'000
Development
costs
€'000
Total
€'000
151,722
176,146
21,533
4,887
21,719
–
–
–
–
7,199
90,362
–
(388)
–
127
9
1,646
(178)
(151)
(11,577)
(4,854)
14
35
7,429
301
–
4,042
388
(1,044)
(2,041)
356,830
12,514
112,090
5,688
(178)
(1,195)
(18,472)
Closing net book amount
178,328
261,742
18,132
9,075
467,277
At 31 December 2011
Cost
Accumulated amortisation
178,328
–
296,219
(34,477)
56,569
(38,437)
17,408
(8,333)
548,524
(81,247)
Net book amount
178,328
261,742
18,132
9,075
467,277
Year ended 29 December 2012
Opening net book amount
Exchange differences
Acquisitions
Additions
Disposals
Reclassification
Write-off of intangibles
Amortisation
178,328
261,742
18,132
(4,045)
15,545
517
(541)
–
(692)
–
(5,747)
19,412
599
–
–
(301)
(13,437)
(84)
–
2,670
(2,705)
333
(1,420)
(4,679)
14
35
9,075
(160)
–
4,339
(45)
–
(1,583)
(2,237)
467,277
(10,036)
34,957
8,125
(3,291)
333
(3,996)
(20,353)
Closing net book amount
189,112
262,268
12,247
9,389
473,016
At 29 December 2012
Cost
Accumulated amortisation
Net book amount
189,112
–
310,483
(48,215)
51,027
(38,780)
21,384
(11,995)
572,006
(98,990)
189,112
262,268
12,247
9,389
473,016
Amortisation expense of €20.4 million (2011: €18.5 million) has been charged to the income statement during the year. The average
remaining amortisation period for software costs is three years and development costs is four years.
Approximately €1.1 million (2011: €0.9 million) of software additions during the year were internally generated with the remaining balance
acquired from external parties. Development costs of €1.6 million (2011: €1.0 million) were written off during the year due to uncertainty that
these projects will reach commercialisation. The intangibles write down of €4.0 million has been charged to exceptional items, (€1.0 million)
and operating costs, (€3.0 million).
www.glanbia.com 135
Note 15 (a): Other intangibles
Year ended 31 December 2011
Opening net book amount
Exchange differences
Acquisitions
Reclassification
Amortisation
Brands/
know-how
€'000
Customer
relationships
€'000
Other
€'000
Total other
intangibles
€'000
98,937
4,430
53,641
–
(2,140)
73,566
2,760
36,721
–
(9,261)
3,643
176,146
9
–
(388)
(176)
7,199
90,362
(388)
(11,577)
Closing net book amount
154,868
103,786
3,088
261,742
At 31 December 2011
Cost
Accumulated amortisation
160,761
(5,893)
131,306
(27,520)
4,152
(1,064)
296,219
(34,477)
Net book amount
154,868
103,786
3,088
261,742
Year ended 29 December 2012
Opening net book amount
Exchange differences
Acquisitions
Additions
Write-off of intangibles
Amortisation
154,868
103,786
3,088
261,742
(3,557)
12,115
–
–
(2,232)
6,840
–
–
(2,850)
(10,405)
42
457
599
(301)
(182)
(5,747)
19,412
599
(301)
(13,437)
Closing net book amount
160,576
97,989
3,703
262,268
At 29 December 2012
Cost
Accumulated amortisation
169,319
(8,743)
135,914
(37,925)
5,250
(1,547)
310,483
(48,215)
Net book amount
160,576
97,989
3,703
262,268
Included in cost of brands/know-how are intangible assets of €90.5 million (2011: €92.2 million) which have indefinite useful lives. In arriving
at the conclusion that certain brands/know-how have indefinite useful lives, it has been determined that these assets will contribute
indefinitely to the cash flows of the Group. The factors that result in the durability of these brands/know-how being capitalised is that there
are no material legal, regulatory, contractual or other factors that limit the useful lives of these intangibles. In addition, the likelihood that
market-based factors could truncate a brand’s life is relatively remote because of the size, diversification and market share of the brands in
question. There are no material internally generated brand-related intangibles. The remaining average amortisation period for Performance
Nutrition brands/know-how is 38 years (2011: 39 years) and the remaining brands/know-how is 14 years (2011: 10 years).
Included in customer relationships are individual significant intangible assets of €57.6 million (2011: €64.6 million) with a remaining
amortisation period of 9 years (2011: 10 years). The remaining customer relationships are amortised over a period of 10 years
(2011: 11 years). The remaining average amortisation period for other intangibles is 10 years (2011: 10 years).
No intangible assets were acquired by way of government grant during the financial year (2011: nil).
136
Glanbia plc Annual Report 2012
Note 15 (b): Impairment tests for goodwill and indefinite life intangibles
Goodwill is allocated to the Group’s cash generating units (CGUs) that are expected to benefit from business acquisition, rather than where
the asset is owned. CGUs represent the lowest level within the Group at which the associated goodwill is monitored for internal
management purposes and are not larger than the operating segments determined in accordance with IFRS 8 - Operating Segments.
A total of 11 (2011: 12) CGUs have been identified and these are allocated between the Groups main segments as follows:
Cash generating units
US Cheese and Global Nutritionals
Dairy Ireland
A summary of goodwill by CGU is as follows:
US Cheese & Global Nutritionals
Customised Premix Solutions
Performance Nutrition
Other CGUs
Dairy Ireland
2012
2011
6
5
11
5
7
12
Goodwill
2012
€’000
Foreign
exchange
€’000
Acquisition
€’000
Other
€’000
72,315
87,106
19,510
(1,151)
(1,643)
(1,251)
–
–
15,545
178,931
(4,045)
15,545
–
–
–
–
Goodwill
2011
€’000
73,466
88,749
5,216
167,431
Multiple units without individual significant amounts of goodwill
10,181
–
–
(716)
10,897
189,112
(4,045)
15,545
(716)
178,328
A summary of indefinite life intangibles by segment is as follows:
US Cheese and Global Nutritionals
Performance Nutrition
Indefinite life
intangibles
2012
€’000
Foreign
exchange
€’000
Acquisition
€’000
Indefinite life
intangibles
2011
€’000
90,484
(1,706)
–
92,190
www.glanbia.com 137
Impairment testing methodology and results
Goodwill and indefinite life intangibles are subject to impairment testing on an annual basis or more frequently if there are indications
they might be impaired. The recoverable amount of goodwill and indefinite life intangibles allocated to a CGU is determined based on a
value in use computation, which has been selected due to the impracticality of obtaining fair value less costs to sell measurements for
each reporting period.
The cash flow projections are based on a three year strategic plan formally approved by the Group Operating Executive Committee and the
Board of Directors. The Group expects growth between year three and ten but for the purposes of impairment testing, a rate of zero percent
has been used to estimate cash flow growth between three and ten years. In addition, a conservative reducing success factor is applied
against the average net cash flow, consistent with prior years. In forecasting terminal values, a multiple of between five and ten times
EBITDA is generally used. The present value of future cashflows is calculated using pre tax discount rates which is the Group’s weighted
average cost of capital adjusted to reflect risks associated with the CGU and are set out in the table below:
US Cheese & Global Nutritionals
Customised Premix Solutions
Performance Nutrition
Other CGUs
Dairy Ireland
Discount rates
2012
Discount rates
2011
8.6%
8.6%
8.6%
8.3%
8.3%
8.3%
Multiple units without individual significant amounts of goodwill
8.4%
8.4%
Key sources of estimation uncertainty
The key assumptions employed in arriving at the estimates of future cash flows factored into impairment testing are inherently subjective.
Key assumptions include management’s estimates of future profitability, discount rates, the duration of the discounted cashflow model,
replacement capital expenditure requirements and working capital investment. These assumptions are based on managements past
experience. Capital expenditure requirements and profitability are based on the Group’s strategic plans and broadly assume that historic
investment patterns will be maintained. Working capital requirements are forecast to increase in line with activity.
Sensitivity analysis
Sensitivity analysis has been performed in respect of 5 of the 11 CGUs. These 5 CGUs had aggregate goodwill of €163.4 million and
indefinite life intangibles of €90.5 million at the date of testing. If the estimated EBITDA margin was 10% lower than management’s
estimates, there would be no requirement on the Group to recognise any impairment against goodwill or indefinite life intangibles. If the
estimated cashflow forecasts used in the value in use estimates were 10% lower than management’s estimates or the discount rate used
was 1% higher, again there would be no requirement on the Group to recognise any impairment against goodwill or indefinite life intangibles.
138
Glanbia plc Annual Report 2012
16. Investments in associates
At the beginning of the year
Share of profit after tax
Loss recognised through the statement of comprehensive income
Additions
Write-down of investment
2012
Company
€'000
2,259
–
–
20,617
–
2012
Group
€'000
12,178
1,667
(239)
53,980
–
2011
Company
€'000
2,298
–
–
–
(39)
2011
Group
€'000
11,757
645
(224)
–
–
At the end of the year
22,876
67,586
2,259
12,178
The Group’s share of the results of associates, all of which are unlisted, and its share of the assets (including goodwill) and
liabilities are as follows:
2011
Co-operative Animal Health Limited1
South Eastern Cattle Breeding Society Limited1
Malting Company of Ireland Limited
South East Port Services Limited
Westgate Biological Limited
Greenfield Dairy Partners Limited
2012
Co-operative Animal Health Limited1
South Eastern Cattle Breeding Society Limited1
Malting Company of Ireland Limited
South East Port Services Limited
Greenfield Dairy Partners Limited
Glanbia Ingredients Ireland Limited2
Assets
€'000
Liabilities
€'000
Revenue
€'000
Profit/
(loss)
€'000
Interest
held
%
8,396
5,114
5,242
7,027
–
408
(6,103)
(756)
(2,183)
(4,671)
–
(296)
15,527
2,398
2,893
1,647
–
188
26,187
(14,009)
22,653
157
(111)
27
362
183
27
645
50.00
57.00
33.33
49.00
49.99
33.33
Assets
€'000
Liabilities
€'000
Revenue
€'000
Profit/
(loss)
€'000
Interest
held
%
7,800
5,349
5,995
9,002
–
(5,097)
(810)
(2,958)
(6,204)
–
16,099
2,842
2,773
1,904
195
131,519
(77,010)
31,229
392
181
16
445
24
609
50.00
57.00
33.33
49.00
13.33
40.00
159,665
(92,079)
55,042
1,667
1
2
In accordance with Group accounting policy, Co-operative Animal Health Limited and South Eastern Cattle Breeding Society Limited are included in the
Group result based on the equity method of accounting, as the Group has significant influence over the entities but not control, due to their co-operative
structure.
See note 7 (e) exceptional items for further details.
Further details in relation to principal associates are outlined in note 39.
www.glanbia.com 139
17. Investments in joint ventures
At the beginning of the year
Share of profit after tax
Disposals
Loss recognised through the statement of comprehensive income
Deferred tax movement
Dividends received
Exchange differences
At the end of the year
2012
€'000
58,484
10,480
(103)
(298)
3,202
(13,778)
495
2011
€'000
58,945
13,686
–
(777)
1,645
(14,761)
(254)
58,482
58,484
The following amounts represent the Group’s share of the assets, liabilities, revenue and profits from joint ventures:
Assets
Non-current assets
Current assets
Liabilities
Non-current liabilities
Current liabilities
Net assets
Revenue
Expenses
Share of profit after tax
Proportionate interest in joint ventures’ commitments
A listing and description of interests in significant joint ventures is outlined in note 39.
2012
€'000
2011
€'000
135,419
81,560
136,668
75,204
216,979
211,872
89,755
68,742
84,725
68,663
158,497
153,388
58,482
58,484
2012
€'000
2011
€'000
521,960
(511,480)
501,641
(487,955)
10,480
13,686
2,058
2,193
The Group holds 51% of the share capital of Glanbia Cheese Limited but this is considered to be a joint venture as the Group does not have
control of the company, as it controls only 50% of the voting rights and is entitled to appoint only 50% of the total number of directors.
Therefore, the Group does not have the power to govern the financial or operating policies of the entity.
140
Glanbia plc Annual Report 2012
18. Available for sale financial assets
At the beginning of the year
Disposals/redemption
Fair value movement recognised through
the statement of comprehensive income
Additions
Available
for sale
financial
assets
2012
Group
€'000
11,165
(1,050)
(971)
–
Investments
2011
Company
€'000
599,590
(265)
–
–
Available
for sale
financial
assets
2011
Group
€'000
14,127
(1,478)
(1,484)
–
Investments
2012
Company
€'000
599,325
(19,021)
–
31,357
At the end of the year
611,661
9,144
599,325
11,165
Investments and available for sale financial assets include the following:
Available
for sale
financial
assets
2012
Group
€'000
224
447
7,760
–
–
Investments
2011
Company
€'000
1
–
–
–
599,324
Investments
2012
Company
€'000
1
–
–
–
611,660
Listed securities
Equity securities – eurozone countries
Unlisted securities
One51 plc
The Irish Dairy Board Co-operative Limited
Moorepark Technology
Other Group companies
Other available for sale financial assets
–
713
–
Available
for sale
financial
assets
2011
Group
€'000
152
1,490
8,612
198
–
713
611,661
9,144
599,325
11,165
There were no impairment provisions on available for sale financial assets or investments in 2012 or 2011.
The unlisted equity shares in One51 plc are currently traded on an informal ‘grey’ market. These shares are fair valued by reference to
published bid prices.
Available for sale financial assets are fair valued at each reporting date. For financial assets traded in active markets, fair value is determined
by reference to Stock Exchange quoted bid prices. For other investments, fair value is estimated by reference to the current market value of
similar instruments or by reference to cash flows discounted using a rate based on the market interest rate and the risk premium specific to
the unlisted securities.
Available for sale financial assets with a carrying value of €8.5 million (2011: €9.5 million) are included at cost. The fair value of these shares
cannot be reliably measured as they are not actively traded or there is not a readily available market for such instruments. The Group has no
plans to dispose of these financial assets in the foreseeable future.
Available for sale financial assets are classified as non-current assets, unless they are expected to be realised within 12 months of the
reporting date or unless they will need to be sold to raise operating capital. All available for sale financial assets are euro denominated.
www.glanbia.com 141
19. Trade and other receivables
Trade receivables
Less provision for impairment of receivables
Trade receivables – net
Prepayments
Receivables from Joint Ventures & Associates
Loans to joint ventures
Value added tax
Other receivables
Total
Less non-current trade receivables:
Other receivables
Loans to joint ventures
Non-Current
Current
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
Notes
–
–
–
–
632
–
–
–
255,548
(10,434)
245,114
8,179
4,890
16,735
670
12,836
632
288,424
–
–
–
(100)
(16,735)
(16,835)
632
271,589
37
37
37
–
–
–
6
–
–
–
–
6
–
–
–
6
2011
Group
€'000
287,672
(11,219)
276,453
11,153
3,987
13,475
5,560
8,248
318,876
(1,100)
(13,475)
(14,575)
304,301
In 2012, under a debt purchase agreement with a financial institution, the Group has transferred credit risk and retained late payment risk
on certain trade receivables, amounting to €0.7 million (2011: €10.8 million). The Group recognised no asset relating to these trade
receivables in 2012. In 2011 the Group recognised €0.1 million, representing the extent of its continuing involvement, and an associated
liability of a similar amount. The carrying value of receivables is a reasonable approximation of fair value. The net movement in the
provision for impairment of receivables has been included in the income statement.
As disclosed in note 5.3, the Group has one significant external customer. Management are satisfied that it has satisfactory credit control
procedures in place in respect of this customer.
The Group’s objective is to minimise credit risk by carrying out credit checks where appropriate, by the use of credit insurance in certain
situations, by holding charges over assets and by active credit management. Management does not expect any significant loss from
receivables that have not been provided for at year end.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
Euro
US dollar
GBP sterling
Other
632
–
–
–
101,266
167,438
12,379
7,341
632
288,424
Movement on the Group’s provision for impairment of trade receivables is as follows:
At the beginning of the year
Provision for receivables impairment
Receivables written off during the year as uncollectible
Unused amounts reversed
At the end of the year
142
Glanbia plc Annual Report 2012
2011
Group
€'000
156,511
149,211
11,613
1,541
318,876
2011
€'000
12,802
3,363
(4,784)
(162)
6
–
–
–
6
2012
€'000
11,219
3,179
(3,707)
(257)
10,434
11,219
As of 29 December 2012, trade receivables of €10.4 million (2011: €11.2 million) were impaired. Trade receivable balances are generally
considered for an impairment review when falling due outside trade terms and are normally partially or wholly provided for depending on the
assessment of likely recoverability of the balance. The amount of the provision was €10.4 million (2011: €11.2 million). Set out below is an
analysis of trade receivables which remain outstanding outside of trade terms as at 29 December 2012:
Past due and impaired:
Up to 3 months
3 to 6 months
Over 6 months
2012
€'000
2,196
1,779
6,459
2011
€'000
377
353
10,489
10,434
11,219
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group holds
charges on property and other assets of certain trade debtors, valued at nil (2011: €5.0 million).
As of 29 December 2012, trade receivables of €47.9 million (2011: €37.0 million) were past due but not impaired, as they are considered
recoverable.
Past due not impaired:
Up to 3 months
3 to 6 months
Over 6 months
20. Inventories
Raw materials
Finished goods
Consumables
2012
€'000
2011
€'000
38,824
7,984
1,131
23,973
13,075
–
47,939
37,048
2012
€'000
90,962
176,905
14,161
2011
€'000
79,028
239,331
18,496
282,028
336,855
Included above are inventories carried at net realisable value amounting to €10.3 million (2011: €51.5 million). The amount written off in
respect of these inventories was €9.2 million (2011: €5.2 million).
21. Cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
2012
Company
€'000
–
–
–
2012
Group
€'000
85,557
190,015
2011
Company
€'000
5,280
–
2011
Group
€'000
75,367
156,006
275,572
5,280
231,373
The fair value of cash and cash equivalents is not materially different to their book values. The maximum exposure to credit risk at the
reporting date is the carrying value of the cash and cash equivalent balances.
www.glanbia.com 143
22. Other reserves
Capital
reserve
€'000
(note a)
Merger
reserve
€'000
(note b)
Currency
reserve
€'000
(note c)
Hedging
reserve
€'000
(note d)
Available
for sale
financial
asset
reserve
€'000
(note e)
Share
based
payment
reserve
€'000
(note g)
Own
shares
€'000
(note f)
Total
€'000
Balance at 1 January 2011
2,825 113,148
20,549
(9,743)
2,335
(1,616)
4,729 132,227
Currency translation differences
Net investment hedge
Revaluation of interest rate swaps – loss in year
Foreign exchange contracts – loss in year
Transfers to income statement:
Foreign exchange contracts – gain in year
Forward commodity contracts – loss in year
Interest rate swaps – loss in year
Revaluation of forward commodity contracts
– gain in year
Revaluation of available for sale financial assets
– loss in year
Deferred tax on fair value movements
Cost of share based payments
Transfer on exercise, vesting or expiry
of share based payments
Purchase of own shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,538
230
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,343)
(146)
(38)
77
4,876
137
–
–
–
–
–
–
–
–
–
(1,484)
928
286
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,388
18,538
230
(1,343)
(146)
(38)
77
4,876
137
(1,484)
1,214
2,388
917
(1,974)
(1,057)
(2,075)
–
(2,075)
Balance at 31 December 2011
2,825 113,148
39,317
(5,252)
1,137
(2,774)
5,143 153,544
Currency translation differences
Net investment hedge
Revaluation of interest rate swaps – gain in year
Foreign exchange contracts – loss in year
Transfers to income statement:
Foreign exchange contracts – loss in year
Forward commodity contracts – gain in year
Interest rate swaps – loss in year
Revaluation of forward commodity contracts
– loss in year
Revaluation of available for sale financial assets
– loss in year
Deferred tax on fair value movements
Other deferred tax movements
Cost of share based payments
Transfer on exercise, vesting or expiry
of share based payments
Purchase of own shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,071)
1,409
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,695
(155)
146
(139)
1,059
(161)
–
(1,110)
663
–
–
–
–
–
–
–
–
–
–
–
(971)
275
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,209
(8,071)
1,409
2,695
(155)
146
(139)
1,059
(161)
(971)
(835)
663
3,209
2,245
(7,692)
(1,657)
–
588
(7,692)
Balance at 29 December 2012
2,825 113,148
32,655
(2,254)
441
(8,221)
6,695 145,289
144
Glanbia plc Annual Report 2012
Note 22 (a): Capital reserve
The capital reserve comprises of a capital redemption reserve and a capital reserve which arose due to the re-nominalisation of the
Company’s share capital on conversion to the euro.
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
2011
Group
€'000
At the beginning and the end of the year
4,227
2,825
4,227
2,825
Note 22 (b): Merger reserve
Share premium – representing excess of fair value over nominal value of ordinary shares issued in
connection with the merger of Avonmore Foods plc and Waterford Foods plc
Merger adjustment1
2012
€'000
2011
€'000
355,271
355,271
(327,085)
(327,085)
Share premium and other reserves relating to nominal value of shares in Waterford Foods plc
84,962
84,962
At the beginning and the end of the year
113,148
113,148
1
The merger adjustment represents the difference between the nominal value of the issued share capital of Waterford Foods plc and the fair value of the
shares issued by Avonmore Foods plc (now named Glanbia plc) in 1997.
Note 22 (c): Currency reserve
The currency reserve reflects the foreign exchange gains and losses that form part of the net investment in foreign operations. See note 32 -
derivative financial instruments for further details. In addition, where Group companies have a functional currency different from the
presentation currency, their assets and liabilities are translated at the closing rate at the reporting date, income and expenses in the income
statement are translated at the average rate for the year and resulting exchange differences are taken to the currency reserve within equity.
Note 22 (d): Hedging reserve
The hedging reserve reflects the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges. Amounts accumulated in the hedging reserve are recycled to the income statement in the periods when the hedged item affects
income or expense.
Note 22 (e): Available for sale financial asset reserve
Unrealised gains and losses arising from changes in the fair value of available for sale financial assets are recognised in the available for sale
financial asset reserve. When such available for sale financial assets are sold or impaired, the accumulated fair value adjustments are
recycled to the income statement.
Note 22 (f): Own shares
The amount included as own shares relates to 1,141,334 (2011: 740,576) ordinary shares in Glanbia plc held by an Employee Share Trust
which was established in May 2002 to operate initially in connection with the Company's Saving Related Share Option Scheme ('Sharesave
Scheme') and subsequently for the vesting of shares under the 2008 LTIP. The trustee of the Employee Share Trust is Computershare
Trustees (Jersey) Limited, a Jersey based trustee services company.
The shares included in the Employee Share Trust at 29 December 2012 cost €8.2 million (2011: €2.8 million) and had a market value of
€9.4 million (2011: €3.4 million). The dividend rights in respect of these shares have been waived, save 0.001 pence per share.
Shares purchased under the 2008 LTIP scheme are deemed to be own shares in accordance with IAS 32 - Financial Instruments:
Presentation.
Note 22 (g): Share based payment reserve
The share based payment reserve reflects charges relating to granting of both shares and options under the 2002 LTIP and 2008 LTIP
schemes, net of transfers on vesting or expiry of share based payments.
At the beginning of the year
Transfer on exercise, vesting or expiry of share based payments
Cost of share based payments
2012
Company
€'000
5,143
(1,657)
3,209
2012
Group
€'000
5,143
(1,657)
3,209
2011
Company
€'000
4,729
(1,974)
2,388
2011
Group
€'000
4,729
(1,974)
2,388
At the end of the year
6,695
6,695
5,143
5,143
www.glanbia.com 145
2002 Long Term Incentive Plan (‘the 2002 LTIP’)
Movement in the 2002 LTIP for the year ended 29 December 2012 and 31 December 2011 is as follows:
At the beginning of the year
Granted
Exercised
2012
Average
exercise price
in € per share
2.97
–
(2.68)
2012
Number
of options
1,553,000
–
(423,000)
2011
Average
exercise price
in € per share
2.37
4.22
(1.75)
2011
Number
of options
1,980,000
270,000
(697,000)
At the end of the year
3.08
1,130,000
2.97
1,553,000
Expiry date in
2013
2014
2014
2016
2017
2019
2020
2021
2021
2021
2021
2021
2021
Exercise price
€
1.90
2.47
2.73
2.87
4.03
2.29
2.65
3.68
3.95
4.38
4.30
4.70
4.63
2012
Number
of options
60,000
100,000
530,000
50,000
70,000
50,000
20,000
20,000
20,000
90,000
55,000
45,000
20,000
2011
Number
of options
160,000
100,000
805,000
50,000
118,000
50,000
20,000
20,000
20,000
90,000
55,000
45,000
20,000
1,130,000
1,553,000
Total options of 1,130,000 (2011: 1,553,000) ordinary shares were outstanding at 29 December 2012 under the 2002 Long Term Incentive
Plan (‘the 2002 LTIP’), at prices ranging between €1.90 and €4.70. In accordance with the terms of the 2002 LTIP, certain executives to
whom options were granted in 2004 are eligible to receive share awards related to the number of ordinary shares which they hold on the
second anniversary of the exercise of the option, to a maximum of 25,000 (2011: 32,900) ordinary shares. The cost of the 2002 LTIP
charged in the Group income statement was €0.2 million (2011: €0.1 million).
Under the 2002 LTIP, options cannot be exercised before the expiration of three years from the date of grant and can only be exercised if a
predetermined performance criterion for the Group has been achieved. The performance criterion is that there has been an increase in the
adjusted earnings per share of the Group of at least the Consumer Price Index plus 5% over a three year period.
The fair value of share options has been calculated using the Binomial Model. Options over 860,000 (2011: 1,233,000) ordinary shares were
exercisable at 29 December 2012 at a weighted average price of €2.73 (2011: €2.73). The weighted average share price at the date of
exercise for share options exercised was €6.97 (2011: €4.65). The weighted average life for share options outstanding is four years.
146
Glanbia plc Annual Report 2012
2008 Long Term Incentive Plan (‘the 2008 LTIP’)
This is a long-term share incentive plan, which was introduced in 2008 following the approval by the shareholders, under which share
awards are granted to executive directors and certain senior managers in the form of a provisional allocation of shares for which no exercise
price is payable.
Following a review of executive remuneration policy and design in 2011, the following amendments to the 2008 LTIP were recommended to
and approved by the shareholders at the 2012 Annual General Meeting:
(cid:2) Long Term Incentive individual annual award level of a maximum 150% of Base Salary and in exceptional cases and in relation to
specific local needs (USA), a maximum of 200% of Base Salary (previous maximum 115%) determined by reference to relative Total
Shareholder Return (TSR), Earnings Per Share (EPS) and an appropriate Group investment measure, with each of these
performance conditions representing one-third of maximum vesting level, unless otherwise determined by the Remuneration
Committee.
(cid:2) Requirement to hold shares received pursuant to the vesting of LTIP awards for a minimum period of one year post-vesting
(previously no requirement to hold).
(cid:2) For business unit CEOs, the Long Term Incentive level will be determined by reference to relative TSR, EPS and an appropriate
business unit measure, with each of these performance conditions representing one-third of maximum vesting level, unless
otherwise determined by the Remuneration Committee.
Awards outstanding under the 2008 LTIP as at 29 December 2012 amounted to 2,714,000 (2011: 2,476,500) and are scheduled for
release in May 2013, March 2014 and August 2015 to the extent that there is sustained improvement in the underlying financial
performance over a three year period as determined by the Remuneration Committee. The extent of vesting for the awards scheduled to
vest in 2013 and 2014 shall be determined by growth in the Company’s EPS and the Company’s TSR performance, each representing 50
per cent of the maximum vesting level. The awards scheduled to vest in 2015 are subject to the additional performance measure of Return
On Capital Employed (ROCE), with each of EPS, TSR and ROCE representing one third of the maximum vesting level.
The TSR element is assessed against a group of leading peer companies, the EPS element is measured against pre-set targeted adjusted
EPS growth criteria for the Group and the ROCE (in respect of awards scheduled to vest in 2015) is also measured against pre-set targets
as set out in the Remuneration Committee Report on pages 71 and 72.
Shares awarded under the Group’s LTIP schemes are equity settled share based payments as defined in IFRS 2 – Share Based Payments.
The IFRS requires that a recognised valuation methodology be employed to determine the fair value of shares awarded and stipulates that
this methodology should be consistent with methodologies used for pricing of financial instruments. The expense of €3.0 million (2011: €2.3
million) charged in the Group income statement has been arrived at through applying a Monte Carlo simulation technique to model the
combination of market and non-market based performance conditions of the plan.
Movement in the 2008 LTIP for the year ended 29 December 2012 and 31 December 2011 is as follows:
At the beginning of the year
Granted
Vested
Lapsed
At the end of the year
Expiry date in
2013
2014
2015
2016
2012
Number of
awards
2011
Number of
awards
2,476,500
2,283,000
855,500
(598,842)
(19,158)
776,500
(244,728)
(338,272)
2,714,000
2,476,500
2012
Number of
awards
2011
Number of
awards
–
618,000
1,082,000
1,082,000
776,500
855,500
776,500
–
At the end of the year
2,714,000
2,476,500
www.glanbia.com 147
The total expense in the Group income statement is analysed as follows:
Share price
at date
of award
€
4.45
2.72
Period to
earliest
vesting
date
Number
of shares
Expense in
Group income
statement
2012
€'000
Expense in
Group income
statement
2011
€'000
Fair
value
€
–
–
583,000
3.54
618,000
2.22
–
(24)
25
520
Granted in 2008
2008 Long Term Incentive Plan
Granted in 2009
2008 Long Term Incentive Plan
Granted in 2010
2008 Long Term Incentive Plan
2.82
1 years
1,082,000
2.31
805
833
Granted in 2011
2008 Long Term Incentive Plan
4.35
2 years
776,500
3.59
850
929
Granted in 2012
2008 Long Term Incentive Plan
6.26
3 years
855,500
5.44
1,416
–
Shares awarded under the 2008 LTIP are equity settled share-based payments as defined in IFRS 2 - Share Based Payments. On the
30 August 2012, 598,842 of the share awards granted in 2009 vested and the balance has lapsed. The fair value of the shares
awarded was determined using a Monte Carlo simulation technique taking account of peer group total share return volatilities and
correlations together with the following assumptions:
Risk-free interest rate
Expected volatility
Dividend yield
Granted in
2012
Granted in
2011
Granted in
2010
Granted in
2009
0.2%
33.1%
1.6%
2%
45%
2%
1%
47%
1%
2%
35%
2%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over a period equivalent to the
expected life of the award.
23. Share capital and share premium
Company
At 31 December 2011
Shares issued
At 29 December 2012
Group
At 31 December 2011
Shares issued
At 29 December 2012
Number of
shares
(thousands)
294,533
423
Ordinary
shares
€'000
17,672
25
Share
premium
€'000
438,558
1,108
Total
€'000
456,230
1,133
294,956
17,697
439,666
457,363
Number of
shares
(thousands)
294,533
423
Ordinary
shares
€'000
17,672
25
Share
premium
€'000
83,290
1,108
Total
€'000
100,962
1,133
294,956
17,697
84,398
102,095
The total authorised number of ordinary shares is 306 million shares (2011: 306 million shares) with a par value of €0.06 per share
(2011: €0.06 per share). All issued shares are fully paid.
148
Glanbia plc Annual Report 2012
24. Retained earnings
Company
retained
earnings
€'000
Group
retained
earnings
€'000
Group
goodwill
write-off
€'000
Notes
Group
Total
€'000
Balance at 1 January 2011
40,578
278,505
(92,961)
185,544
Profit for the year
59,114
112,178
Other comprehensive income/(expense)
Actuarial loss – defined benefit schemes
Deferred tax on actuarial loss
Share of actuarial loss – Joint Ventures & Associates
28
27
–
–
–
(17,029)
2,615
(115)
Total comprehensive income for the year
59,114
97,649
Dividends paid during the year
Transfer on exercise, vesting or expiry of share based payments
22
(22,942)
1,057
(22,942)
1,057
–
–
–
–
–
–
–
112,178
(17,029)
2,615
(115)
97,649
(22,942)
1,057
Balance at 31 December 2011
77,807
354,269
(92,961)
261,308
Profit for the year
55,903
143,790
Other comprehensive income/(expense)
Actuarial loss – defined benefit schemes
Deferred tax on actuarial loss
Share of actuarial loss – Joint Ventures & Associates
28
27
–
–
–
(98,763)
10,635
(1,058)
Total comprehensive income for the year
55,903
54,604
Dividends paid during the year
(25,327)
(25,327)
Transfer on exercise, vesting or expiry of share based payments
22
(588)
(588)
–
–
–
–
–
–
–
143,790
(98,763)
10,635
(1,058)
54,604
(25,327)
(588)
Balance at 29 December 2012
107,795
382,958
(92,961)
289,997
25. Non-controlling interests
At the beginning of the year
Share of profit for the year
Dividends paid to non-controlling interests during the year
At the end of the year
2012
€'000
7,135
440
(300)
2011
€'000
6,892
630
(387)
7,275
7,135
www.glanbia.com 149
26. Borrowings
Current
Bank overdraft and borrowings
Cumulative redeemable preference shares
Finance lease liabilities
Non-current
Bank borrowings
Private debt placement
Cumulative redeemable preference shares
Finance lease liabilities
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
2,756
–
–
100,661
24,425
–
2,756
125,086
–
–
–
–
–
241,454
246,530
39,062
–
527,046
2011
Group
€'000
51,781
–
1,027
52,808
342,034
251,179
63,487
2,196
658,896
711,704
–
–
–
–
–
–
–
–
–
–
Total borrowings
2,756
652,132
Bank borrowings are secured by cross-guarantees from other Group companies.
The cumulative redeemable preference shares carry the right to such fixed cumulative annual dividend as was last determined by the
Directors in July 2007. All 50 million of the €1.2697 cumulative redeemable preference shares (total authorised 50 million) currently carry the
right to a fixed cumulative annual dividend of 8.6977 cents per share. Subsequent to year end, 19.236 million shares were redeemed at the
issue price while on 31 July 2014 the remaining 30.764 million shares still in issue will be redeemed at the issue price.
During 2011, the Group completed the issuance of a USD 325 million private debt placement with a maturity date of 15 June 2021 and with a
fixed coupon of 5.4%. The USD 325 million was primarily used for the repayment of short-term debt drawn under existing banking facilities.
During 2012, the Group also renewed its committed banking facilities totalling €467.9 million, extending the maturity date out to
2 January 2018.
The maturity of non-current borrowings is as follows:
Between 1 and 2 years
Between 2 and 5 years
More than 5 years
2012
€'000
39,062
–
487,984
2011
€'000
343,108
64,609
251,179
527,046
658,896
The exposure of the Group’s total borrowings to interest rate changes, taking account of contractual repricing dates, at the
reporting date are as follows:
12 months or less
Between 1 and 2 years
Between 2 and 5 years
More than 5 years
The effective interest rates at the reporting date are as follows:
Overdrafts
Borrowings
150
Glanbia plc Annual Report 2012
2012
€'000
366,540
39,062
–
246,530
2011
€'000
203,815
190,000
66,710
251,179
652,132
711,704
EUR
USD
CAD
2012
2011
2012
2011
2012
2.00%
1.80%
–
5.25%
4.00%
2.91%
4.05%
4.94%
4.39%
3.42%
2011
4.00%
2.03%
The carrying amounts and fair values of non-current borrowings are as follows:
Carrying
amount
2012
€'000
Carrying
amount
2011
€'000
Fair
value
2012
€'000
Fair
value
2011
€'000
Non-current borrowings
527,046
658,896
567,121
699,835
The carrying value of current borrowings approximates to their fair value.
The carrying amounts of the Group’s total borrowings are denominated in the following currencies:
Euro
US dollar
Canadian dollar
The Group has the following undrawn borrowing facilities:
Expiring within 1 year
Expiring beyond 1 year
All of the undrawn borrowing facilities are floating rate facilities.
Finance lease liabilities – minimum lease payments:
12 months or less
Between 1 and 2 years
Between 2 and 5 years
Future finance charges on finance leases
The present value of finance lease liabilities is as follows:
12 months or less
Between 1 and 2 years
Between 2 and 5 years
2012
€'000
357,556
286,126
8,450
2011
€'000
368,635
327,641
15,428
652,132
711,704
2012
€'000
2011
€'000
8,060
225,812
128,111
167,966
233,872
296,077
2012
€'000
–
–
–
–
–
–
2012
€'000
–
–
–
–
2011
€'000
1,172
1,172
1,173
3,517
(294)
3,223
2011
€'000
1,027
1,074
1,122
3,223
www.glanbia.com 151
27. Deferred income taxes
The following amounts, determined after appropriate offsetting (note 2 (l)) are shown in the consolidated statement of financial position:
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liability
The gross movement on the deferred income tax account is as follows:
At the beginning of the year
Income statement – pre exceptional charge (continuing and discontinued operations)
Income statement – exceptional (credit)
Deferred income tax charge/(credit) to other comprehensive income
Deferred income tax (credit) on actuarial loss
Deferred income tax on acquisition of intellectual property
Movement on disposal of operations
Exchange differences
At the end of the year
2012
€'000
2011
€'000
(19,963)
(11,255)
91,057
93,459
71,094
82,204
2012
€'000
82,204
2,089
(1,204)
835
(10,635)
855
(2,232)
(818)
2011
€'000
68,578
11,007
–
(1,214)
(2,615)
4,590
–
1,858
71,094
82,204
Notes
11
11
22
24
36
7
The movement in deferred income tax liabilities and assets during the year, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Deferred income tax liabilities
Notes
At 1 January 2011
Charged/(credited) to income statement
(Credited) to other comprehensive income
22
Acquisition of intellectual property
Exchange differences
Reclassification to deferred income tax assets
At 31 December 2011
Charged/(credited) to income statement
Charged to other comprehensive income
Acquisition of intellectual property
Movement on disposal of operations
Exchange differences
Reclassification from deferred income tax assets
22
36
Accelerated
tax
depreciation
€'000
Fair
value
gain/
loss
€'000
IP and
deferred
development
costs
€'000
Other
€'000
Total
€'000
38,155
1,205
22,505
14,101
75,966
2,690
–
–
1,130
–
41,975
705
–
–
(6,281)
(642)
–
–
(1,214)
–
–
9
–
–
835
–
(663)
–
(9)
(964)
4,252
–
4,590
794
–
–
(47)
–
6,253
5,978
(1,214)
4,590
1,877
6,262
26,925
24,559
93,459
(1,243)
4,296
3,758
–
855
(6)
(540)
–
–
–
99
192
–
835
855
(6,851)
(990)
(9)
At 29 December 2012
35,757
163
25,991
29,146
91,057
152
Glanbia plc Annual Report 2012
Deferred income tax assets
Notes
Retirement
benefit
obligations
€'000
Fair value
loss
€'000
At 1 January 2011
Charged to income statement
(Credited) to other comprehensive income
Exchange differences
Reclassification from deferred income tax liabilities
At 31 December 2011
Charged/(credited) to income statement
(Credited) to other comprehensive income
Movement on disposal of operations
Exchange differences
Reclassification to deferred income tax liabilities
At 29 December 2012
24
24
(3,535)
2,582
(2,615)
(1)
–
(3,569)
1,189
(10,635)
4,619
–
–
(8,396)
–
–
–
–
(9)
(9)
–
–
–
–
9
–
Tax
losses
€'000
(3,853)
2,447
–
(18)
–
Other
€'000
Total
€'000
–
–
–
–
(7,388)
5,029
(2,615)
(19)
(6,253)
(6,262)
(1,424)
(6,253)
(11,255)
850
(4,912)
(2,873)
–
–
(38)
–
–
–
(10,635)
4,619
210
–
172
9
(612)
(10,955)
(19,963)
A deferred income tax asset has been recognised on the basis that the realisation of the related tax benefit through future taxable profits is
probable. This includes deferred income tax assets which are recognised for tax losses carried forward to the extent that realisation of the
related tax benefit through future taxable profits is probable.
The Group has unrecognised tax losses of €122.1 million (2011: €100.8 million) to carry forward against future taxable profits, of which
€48.8 million (2011: €35.6 million) are unrecognised capital losses. Deferred income tax liabilities have not been recognised for withholding
tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries, associates and joint ventures.
The deferred income tax charged/(credited) to other comprehensive income during the year is as follows:
Available for sale financial asset reserve
Hedging reserve
Disposal of operations
Retirement benefit obligations
Notes
22
22
22
24
2012
€'000
(275)
1,110
(663)
2011
€'000
(286)
(928)
–
(10,635)
(2,615)
(10,463)
(3,829)
www.glanbia.com 153
28. Retirement benefit obligations
Pension benefits
The Group operates a number of defined benefit and defined contribution schemes which provide retirement and death benefits for some
of its employees. The schemes are funded through separate trustee controlled funds.
The contributions paid to the defined benefit schemes are in accordance with the advice of professionally qualified actuaries. The latest
actuarial valuation reports for these schemes, which are not available for public inspection, are dated between 30 June 2009 and
1 January 2012. The contributions paid to the schemes in 2012 are in accordance with the contribution rates recommended in the
actuarial valuation reports.
The amounts recognised in the Group statement of financial position are determined as follows:
Present value of funded obligations
Fair value of plan assets
2012
€'000
2011
€'000
(430,736)
332,603
(448,447)
400,022
Liability in the Group statement of financial position
(98,133)
(48,425)
The amounts recognised in the Group income statement are as follows:
Defined benefit pension schemes
– Service costs – current
– Service costs – past
– Interest costs
– Expected return on plan assets
Total (expense)
Defined contribution pension schemes
Notes
2012
€'000
(4,317)
(435)
(23,589)
20,343
2011
€'000
(4,317)
–
(22,949)
24,036
8
8
(7,998)
(3,230)
(3,509)
(3,020)
The actual return on plan assets was a profit of €43.2 million (2011: €7.3 million).
The movement in the liability recognised in the Group statement of financial position over the year is as follows:
At the beginning of the year
Exchange differences
Total expenses
Actuarial (loss) - defined benefit schemes
Disposal
Contributions paid by employer
2012
€'000
(48,425)
(476)
(7,998)
(98,763)
36,954
20,575
2011
€'000
(48,560)
(542)
(3,230)
(17,029)
–
20,936
At the end of the year
(98,133)
(48,425)
During 2012, the Group amended the basis of estimation for determining the discount rate. A customised version of the existing model was
used which increased the number of bonds at longer duration by including all bonds which have a AA rating from at least one ratings
agency. It is expected that the use of this customised model will reduce future volatility in the discount rate. The revised basis increased the
discount rate from 3.4% to 3.8% which in turn decreased the liabilities of the scheme by €26.0 million. The Group also made an allowance
for commutation factors which reduced the liabilities of the scheme by €15.0 million.
154
Glanbia plc Annual Report 2012
The movement in obligations during the year is as follows:
At the beginning of the year
Exchange differences
Current service costs
Reclassification to plan assets
Interest costs
Actuarial gains/(losses):
– Experience (loss)/gain
– Change in assumptions
Contributions by plan participants
Past service costs
Disposal
Benefits paid
At the end of the year
The movement in the fair value of plan assets during the year is as follows:
At the beginning of the year
Exchange differences
Reclassification to obligations
Expected return on plan assets
Actuarial gain/(loss)
Contributions by plan participants
Contributions paid by employer
Disposal
Benefits paid
At the end of the year
The principal actuarial assumptions used are as follows:
2012
€'000
2011
€'000
(448,447)
(437,911)
(1,757)
(4,317)
–
(2,291)
(4,317)
4,437
(23,589)
(22,949)
(591)
(121,046)
(3,129)
(435)
152,007
20,568
2,248
(2,545)
(3,162)
–
–
18,043
(430,736)
(448,447)
2012
€'000
400,022
1,281
–
20,343
22,874
3,129
20,575
(115,053)
(20,568)
2011
€'000
389,351
1,749
(4,437)
24,036
(16,732)
3,162
20,936
–
(18,043)
332,603
400,022
Discount rate
Expected return on plan assets
– Equities
– Corporate bonds
– Government bonds and gilts
– Cash
– Property
– Other assets
Inflation rate
Future salary increases
Future pension increases**
2012
IRL
2012
UK
2011
IRL
2011
UK
3.80%
4.45%
5.60%
4.80% - 5.00%
7.30%
3.30%
3.30%
1.00%
6.00%
4.60%
6.75%
4.10%
2.75%
2.85%
6.25%
6.25%
7.50%
4.50%
4.30%
2.00%
6.25%
5.40%
6.80%
4.70%
2.80%
2.70%
6.30%
6.30%
2.00% 2.15% - 2.95%
2.00%
2.00% - 3.00%
3.00%
3.70%
0.50% 2.25% - 2.80%
3.00%
0.50%
3.75%
2.80%
**
The future pension increases on the Irish pension schemes have been calculated on a weighted average basis.
Cumulative actuarial losses:
Actuarial loss for the year
Cumulative actuarial losses
2012
€'000
2011
€'000
98,763
17,029
257,619
158,856
www.glanbia.com 155
Plan assets are comprised as follows:
Equities
Corporate bonds
Government bonds and gilts
Property
Cash
Other
2012
€'000
132,079
32,394
123,891
13,098
5,260
25,881
332,603
2012
%
40
10
37
4
1
8
2011
€'000
163,281
36,269
141,457
20,799
11,711
26,505
2011
%
41
9
35
5
3
7
100
400,022
100
The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current
investment policies. Expected yields on fixed interest investments are based on gross redemption yields at the reporting date. Expected
returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.
Following a detailed review of the Group’s schedule of contributions during the year, contributions to post-employment defined benefit
pension schemes are expected to be €14.7 million in 2013.
Mortality rates
Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience
in each territory.
The mortality assumptions imply the following life expectancies in years of an active member on retiring at age 65, 20 years from now:
2012
Irish mortality
rates
2012
UK mortality
rates
2011
Irish mortality
rates
2011
UK mortality
rates
Male
Female
24.4
27.1
22.3
25.0
24.3
27.1
22.2
24.7
The mortality assumptions imply the following life expectancies in years of an active member, aged 65, retiring now:
Male
Female
Five year summary
2012
Irish mortality
rates
2012
UK mortality
rates
2011
Irish mortality
rates
2011
UK mortality
rates
20.9
23.7
21.0
23.4
20.8
23.6
20.8
23.1
2012
€'000
2011
€'000
2010
€'000
2009
€'000
2008
€'000
At the end of the year
Fair value of plan assets
Present value of funded obligations
332,603
(430,736)
400,022
(448,447)
389,351
(437,911)
349,245
(435,010)
301,499
(465,909)
Deficit
(98,133)
(48,425)
(48,560)
(85,765)
(164,410)
Experience adjustments on plan liabilities
(591)
2,248
8,442
5,366
(3,175)
Experience adjustments on plan assets
22,874
(16,732)
7,929
12,314
(104,229)
156
Glanbia plc Annual Report 2012
Sensitivity analysis for principal assumptions used to measure scheme liabilities
There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Group’s defined
benefit pension schemes. The following table analyses, for the Group’s Irish and UK pension schemes, the estimated impact on the plan
liabilities resulting from changes to key actuarial assumptions, all other assumptions remaining constant.
2012
Assumption
Change in assumption
Impact on Irish plan liabilities
Impact on UK plan liabilities
Discount rate
Increase/decrease 0.25%
Decrease/increase by €15.7m
Decrease/increase by (€3.5m)/€3.4m
Price inflation
Increase/decrease 0.25%
Increase/decrease by €5.8m
Increase/decrease by €2.6m/(€2.8m)
Mortality
Increase/decrease by one year
Increase/decrease by €7.2m
Increase/decrease by €2.6m/(€2.9m)
2011
Assumption
Change in assumption
Impact on Irish plan liabilities
Impact on UK plan liabilities
Discount rate
Increase/decrease 0.25%
Decrease/increase by €14.4m
Decrease/increase by (€3.1m)/€3.3m
Price inflation
Increase/decrease 0.25%
Increase/decrease by €6.7m
Increase/decrease by €2.3m/(€2.2m)
Mortality
Increase/decrease by one year
Increase/decrease by €7.8m
Increase/decrease by €2.5m
29. Provisions for other liabilities and charges
Restructuring
€'000
UK pension
€'000
Legal claims
€'000
Property &
lease
commitments
€'000
Operational
€'000
Total
€'000
note (a)
note (b)
note (c)
note (d)
note (e)
At 1 January 2012
9,169
18,983
3,676
1,742
6,426
39,996
Provided for in the year
Disposal
Utilised in the year
Exchange differences
Unwinding of discounts
9,333
(2,029)
(6,452)
–
–
–
(980)
431
121
2,232
(750)
(135)
(72)
–
–
–
(232)
9
40
3,569
–
(2,259)
(59)
–
15,134
(2,779)
(10,058)
309
161
At 29 December 2012
10,021
18,555
4,951
1,559
7,677
42,763
Non-current
Current
–
10,021
17,564
991
–
4,951
1,327
232
3,122
4,555
22,013
20,750
10,021
18,555
4,951
1,559
7,677
42,763
(a) The restructuring provision relates to the rationalisation programme that the Group is currently undertaking. The provision, which
relates mainly to termination payments is expected to be fully utilised during 2013. The amount provided in the year is recognised in
the income statement as an exceptional item.
(b) The UK pension provision relates to administration and certain costs associated with pension schemes attached to businesses
disposed of in prior years. This provision is expected to be fully utilised over the next 31 years.
(c) The legal claims provision relates to legal claims brought against the Group. The amounts provided for in the year are recognised in the
income statement within administrative expenses. The balance at 29 December 2012 is expected to be utilised during 2013. In the
opinion of the Directors, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss
beyond the amounts provided for at 29 December 2012.
(d) The property and lease commitments provision relates to onerous leases in respect of two properties where the Group has a present
and future obligation to make lease payments. It is expected that €0.2 million will be utilised during 2013 and the balance will be fully
utilised over the next 5 years.
(e) The operational provision represents deferred payments in respect of recent acquisitions and other provisions related to operations.
It is expected that €4.6 million of this provision will be utilised during 2013. Due to the nature of these items, there is some uncertainty
around the amount and timing of payments.
www.glanbia.com 157
30. Capital grants
At 1 January 2012
Released to income statement
Released to income statement - exceptional items
Additions
Exchange differences
Disposal of subsidiary
At 29 December 2012
31. Trade and other payables
Trade payables
Amounts due to Joint Ventures & Associates
Amounts due to other related parties
Amounts due to other Group companies
Social security costs
Accrued expenses
Other payables
2012
€'000
17,161
(1,278)
(532)
1,092
3
(13,810)
2011
€'000
18,609
(1,440)
–
–
(8)
–
2,636
17,161
Notes
37
37
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
4
–
–
61,705
159,111
79,061
30
–
–
3,588
5
–
–
63,528
–
2011
Group
€'000
167,362
47,228
176
–
3,605
2,845
101,806
2,704
173,787
–
1,827
–
8,692
64,554
345,423
66,237
400,850
The carrying value of payables is a reasonable approximation of fair value.
32. Derivative financial instruments
Non-hedging instruments
Interest rate swaps – cash flow hedges
Interest rate swaps – fair value hedges
Foreign exchange contracts – cash flow hedges
Commodity futures – cash flow hedges
Commodity futures – fair value hedges
2012
Assets
€'000
2012
Liabilities
€'000
2011
Assets
€'000
2011
Liabilities
€'000
661
–
–
9
42
745
–
–
–
(16)
(177)
(745)
1,873
–
1,638
717
772
1,161
–
(3,174)
–
(2,028)
(613)
(1,161)
Total
1,457
(938)
6,161
(6,976)
Less non-current portion:
Interest rate swaps – cash flow hedges
Non-current
Current
–
–
–
–
–
–
(1,319)
(1,319)
1,457
(938)
6,161
(5,657)
158
Glanbia plc Annual Report 2012
The Group recognises a defined benefit
liability and incurs administration and certain
other costs in relation to its UK pension
schemes for businesses disposed of in prior
years, as outlined in note 28 and note 29. In
addition, the Company has guaranteed the
payment of a proportion of employer
contributions in respect of these UK pension
schemes. The Company considers these
guarantees to be insurance contracts and
accounts for them as such. The amount of
the potential liability under the UK pension
guarantee is reducing annually by the
contributions paid into these schemes. The
Company treats the guarantee contracts
as a contingent liability until such time as
it becomes probable that the Company
will be required to make a payment under
the guarantee.
Group
Bank guarantees amounting to €2.4 million
(2011: €3.4 million) are outstanding as at 29
December 2012, mainly in respect of
payment of EU subsidies. The Group does
not expect any material loss to arise from
these guarantees.
The Group has contingent liabilities in
respect of legal claims arising in the ordinary
course of business. It is not anticipated that
any material liability will arise from these
contingent liabilities other than those
provided for.
Non-hedging instruments
Non-hedging instruments refers to a
translation difference on a GBP/USD
currency swap with a notional amount of
GBP 20.0 million (2011: USD 25.0 million).
Interest rate swaps
The notional principal amount of the
outstanding interest rate swap contracts,
qualifying as cash flow hedges at
29 December 2012 were nil (2011:
€55.0 million).
The notional principal amount of the
outstanding interest rate swap contracts,
qualifying as fair value hedges at
29 December 2012 were nil (2011:
€100.0 million).
Gains and losses recognised in
the hedging reserve in other comprehensive
income on interest rate swap contracts at 29
December 2012 will be continuously
recycled to the income statement until
repayment of the related bank borrowings.
Foreign exchange contracts
The notional principal amounts of
the outstanding foreign exchange contracts
at 29 December 2012 were
€2.2 million (2011: €80.7 million).
Gains and losses recognised in the hedging
reserve in other comprehensive income on
foreign exchange contracts at 29 December
2012 will be released to the income
statement at various dates within one year
from the reporting date.
Commodity futures
The notional principal amounts of the
outstanding commodity (milk, gas and oil)
futures, qualifying as cash flow hedges and
fair value hedges at 29 December 2012 were
€2.4 million and €48.3 million respectively
(2011: €8.3 million and €49.1 million). Gains
and losses recognised in the hedging
reserve in other comprehensive income on
these futures as at 29 December 2012 will
be released to the income statement at
various dates within one year from the
reporting date.
Net investment hedge
A portion of the Group’s US dollar
denominated borrowing amounting to USD
98.5 million (2011: USD 98.5 million) is
designated as a hedge of the net investment
in the Group’s US dollar net assets. The fair
value of the borrowing was €74.7 million
(2011: €76.1 million). The foreign exchange
loss of €1.4 million (2011: €0.2 million)
arising on translation of the borrowing into
euro at 29 December 2012 is recognised in
other comprehensive income.
Financial guarantee contracts
In accordance with Group accounting policy,
management has reviewed the fair values
associated with financial guarantee
contracts, as defined within IAS 39 –
Financial Instruments: Recognition and
Measurement, issued in the name of Glanbia
plc and has determined that their value is not
significant. No adjustment has been made to
the Glanbia plc company statement of
financial position to reflect the fair value of
the financial guarantee contracts issued in
its name.
Call option
Glanbia Co-operative Society Limited has a
call option to acquire Glanbia plc’s 40%
interest in Glanbia Ingredients Ireland Limited
under an agreed valuation methodology for a
six year period from November 2012. The
Group is satisfied, based on professional
advice received, that there is no more than a
nominal value attached to this call option.
33. Contingent liabilities
Company
The Company has guaranteed the liabilities
of certain subsidiaries in Ireland in respect of
any losses or liabilities (as defined in section
5(c) of the Companies (Amendment) Act,
1986) for the year ended 29 December 2012
and the Directors are of the opinion that no
losses will arise thereon. These subsidiaries
avail of the exemption from filing audited
financial statements, as permitted by
section 17 of the Companies (Amendment)
Act, 1986.
www.glanbia.com 159
34. Commitments
Capital commitments
Capital expenditure contracted for at the reporting date but not recognised in the financial statements is as follows:
Property, plant and equipment
2012
€'000
2011
€'000
38,361
28,732
Operating lease commitments – where the Group is the lessee
The Group leases various assets. Generally, operating leases are short-term with no purchase option. The future aggregate minimum lease
payments under non-cancellable operating leases are as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
35. Cash generated from operations
2012
€'000
10,813
34,661
37,350
2011
€'000
9,118
25,259
19,702
82,824
54,079
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
2011*
Group
€'000
Notes
Profit before taxation - continuing operations
43,554
149,307
59,114
105,576
Development costs capitalised
Write-off of intangibles
Non-cash exceptional loss/(gain) - continuing operations
Share of results of Joint Ventures & Associates
Depreciation
Amortisation
15
15
–
–
12,350
–
–
–
Cost of share based payments
22
3,209
Difference between pension charge and cash contributions
(Profit)/loss on disposal of property, plant and equipment
Interest income
Interest expense
Non-cash movement on investments
Amortisation of government grants received
10
10
–
–
–
–
–
–
(4,339)
3,996
(1,610)
(12,147)
25,012
19,864
3,209
(12,577)
(146)
(2,942)
23,370
–
(247)
–
–
–
–
–
–
2,388
–
–
–
–
(761)
–
(4,042)
1,195
8,723
(14,331)
22,572
17,947
2,388
(17,706)
363
(3,056)
26,467
–
(327)
Cash generated from continuing operations before changes
in working capital
59,113
190,750
60,741
145,769
Change in net working capital:
– (Increase) in inventory
– (Increase)/decrease in short term receivables
– (Decrease)/increase in short term liabilities
– (Decrease) in provisions
–
(626)
(1,668)
(16)
(54,341)
(93,078)
87,752
(5,920)
–
103
(40,829)
(204)
(22,405)
(9,427)
20,516
(12,020)
Cash generated from continuing operations
56,803
125,163
19,811
122,433
Cash generated from discontinued operations
7
–
3,654
–
22,953
Total cash generated from operations
56,803
128,817
19,811
145,386
* As re-presented to reflect the effect of discontinued operations - refer to note 7 for further information
160
Glanbia plc Annual Report 2012
36. Business combinations
On 25 July 2012 the Group acquired 100% of Aseptic Solutions USA Ventures, LLC (“AS”). AS is a manufacturer and co-packer of nutritional
beverages including premium super-fruit drinks, vitamin shots and protein shakes. AS expands Ingredient Technologies’ end-to-end
solutions capability as an ingredients supplier, formulator and end product manufacturer and enhances its competitive position.
Details of net assets acquired and goodwill arising from the acquisition are as follows:
Purchase consideration – cash paid
Less: fair value of assets acquired
Goodwill
€'000
45,365
29,820
15,545
Goodwill is attributable to the profitability and development opportunities and the benefits associated with the extension of the Group’s
portfolio by complementing and enhancing existing ingredient solution capabilities.
The fair value of assets and liabilities arising from the acquisition are as follows:
Property, plant and equipment
Intangible assets - other
Intangible assets - brands/know-how
Intangible assets - customer relationships
Inventories
Trade and other receivables
Trade and other payables
Deferred income tax liabilities
Fair value of assets acquired
Fair value
€'000
12,991
457
12,115
6,840
1,653
4,166
(7,547)
(855)
29,820
The revenue included in the Group income statement from 25 July 2012 to 29 December 2012 contributed by the new business was
€12.3 million. The new business also contributed profit before interest, tax and amortisation of €0.9 million over the same period.
The revenue and profit for the financial year ended 29 December 2012, determined in accordance with IFRS 3 - Business Combinations,
as though the acquisition date for the AS business effected during the year had been at the beginning of the year would be as follows;
revenue €32.1 million and profit before interest, tax and amortisation of €4.5 million.
Acquisition related costs included in the Group income statement for the year ended 29 December 2012 amounted to €1.0 million
(2011: €0.4 million).
No contingent liabilities arose following the acquisition. The gross contractual value and fair value of trade and other receivables at the
acquisition date amounted to €4.4 million. An allowance for doubtful debts of €0.2 million is included.
www.glanbia.com 161
37. Related party transactions
The Group is controlled by Glanbia Co-operative Society Limited, which holds 48.3% of the issued share capital of the Company and is the
ultimate parent of the Group. The following transactions were carried out with related parties:
(a) Sales of goods and services
Sales of goods:
– Associates
– Joint ventures
– Key management1
Sales of services:
– Glanbia Co-operative Society Limited
– Associates
– Joint ventures
– Subsidiaries
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
2011
Group
€'000
–
–
–
–
–
–
–
–
–
6,292
61,279
2,088
69,659
401
109
18,082
–
–
–
–
–
–
–
–
62,124
3,576
95,563
1,185
100,324
336
17
15,297
–
18,592
62,124
15,650
Sales to related parties were carried out under normal commercial terms and conditions.
(b) Purchases of goods and services
Purchases of goods:
– Associates
– Joint ventures
– Key management1
Purchases of services:
– Glanbia Co-operative Society Limited
– Associates
– Joint ventures
– Subsidiaries
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
–
–
–
–
–
–
–
3,283
22,966
4,580
2,985
30,531
687
1,751
–
–
–
–
–
–
–
–
–
2,305
2011
Group
€'000
9,115
3,825
3,029
15,969
791
1,488
81
–
1
Purchases, sales and related year-end balances involving key management refer to trading balances with Directors who are engaged in farming activities.
No loans were made to key management during the year (2011: nil).
3,283
2,438
2,305
2,360
Purchases from related parties were carried out under normal commercial terms and conditions.
162
Glanbia plc Annual Report 2012
(c) Year-end balances
Receivables from related parties:
– Glanbia Co-operative Society Limited
– Associates
– Joint ventures
– Key management¹
Payables to related parties:
– Associates
– Joint ventures
– Key management¹
– Subsidiaries
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
–
632
–
–
1,145
4,036
854
721
632
6,756
–
–
–
61,705
32,428
46,633
30
–
–
–
–
–
–
–
–
–
60,216
2011
Group
€'000
117
–
3,987
284
4,388
1,581
45,647
176
–
61,705
79,091
60,216
47,404
The receivables from related parties arise mainly from sale transactions and are due two months after the date of sale. The receivables are
unsecured in nature and only bear interest when receivables are due more than three months after the date of sale.
The payables to related parties arise mainly from purchase transactions and are payable one month after the date of purchase. The payables
bear no interest.
(d) Key management compensation2
Salaries and other short-term employee benefits
Post-employment benefits
Share based payments
Non-executive Directors fees
2012
Company
€'000
–
–
–
815
815
2012
Group
€'000
4,664
428
1,567
815
7,474
2011
Company
€'000
–
–
–
684
684
2011
Group
€'000
3,357
456
1,368
684
5,865
1
2
Purchases, sales and related year-end balances involving key management refer to trading balances with Directors who are engaged in farming activities.
No loans were made to key management during the year (2011: nil).
Key management compensation includes Directors (executive and non-executive) and members of the Group Operating Executive Committee, including
the Group Secretary.
www.glanbia.com 163
(e) Loans to joint ventures and associates
Loans receivable
At the beginning of the year
Foreign exchange difference on opening balance
Loans advanced
At the end of the year
Interest on loans receivable
At the beginning of the year
Foreign exchange difference on opening balance
Interest charged
Interest received
At the end of the year
Total loans and interest receivable at the end of the year
2012
Company
€'000
2012
Group
€'000
2011
Company
€'000
–
–
–
–
–
–
–
–
–
–
13,475
(15)
3,275
16,735
106
1
596
(578)
125
16,860
–
–
–
–
–
–
–
–
–
–
2011
Group
€'000
13,060
415
–
13,475
392
13
542
(841)
106
13,581
The USD 10.0 million loan to Southwest Cheese Company, LLC is due on 16 December 2013. The GBP 6.25 million loan to Milk Ventures
(UK) Limited is due as GBP 4.8 million on 30 April 2013 and GBP 1.45 million on 4 October 2013. It is expected these loans will roll over on
the repayment dates. There is also a loan of €1.5 million to South East Port Services Limited, which is due as €0.75 million payable on 31
October 2014 and 31 October 2015, subject to cash flows.
(f) Related party transaction
As outlined in note 7, in November 2012, the Group reached an agreement with Glanbia Co-operative Society Limited (the “Society”)
whereby the Society acquired a 60% interest in the Dairy Ingredients business, GIIL. With effect from 25 November 2012 the Group’s 40%
shareholding in GIIL has been treated as an associate undertaking and accounted for using the equity method in accordance with IAS 28.
As the Society is the largest Glanbia plc shareholder, the establishment of GIIL was classified as a related party transaction under the Listing
Rules and was subject to and conditional upon, the approval of the independent shareholders. Approval was sought and obtained at an
Extraordinary General Meeting (EGM) of the Group held on 20 November 2012.
38. Events after the reporting period
There were no significant events, outside the ordinary course of business, affecting the Group since 29 December 2012.
164
Glanbia plc Annual Report 2012
39. Principal subsidiary and associated undertakings
(a) Subsidiaries
Incorporated and operating in
Principal place of business
Principal activities
Group interest %
Ireland
Glanbia Foods Ireland Limited
Kilkenny and
Citywest, Dublin 24
Consumer food products and general
trading
Glanbia Consumer Foods Limited
Glanbia Nutritionals (Ireland) Limited
Kilkenny
Kilkenny
Glanbia Nutritionals (Europe) Limited
Kilkenny
Soups
Nutritional products
Nutritional products
Glanbia Nutritionals (Research) Limited
Kilkenny
Research and development
Glanbia Feeds Limited
Glanbia Estates Limited
Avonmore Proteins Limited
Glanbia Financial Services
Enniscorthy, Co. Wexford and
Portlaoise, Co. Laois
Manufacture of animal feed products
Kilkenny
Kilkenny
Kilkenny
Property and land dealing
Financing
Financing
Glanbia Investments (Ireland) Limited
Kilkenny
Investment company
Glassonby
Waterford Foods plc
Kilkenny
Kilkenny
Holding company
Holding company
Grassland Fertilisers (Kilkenny) Limited
Palmerstown, Co. Kilkenny
Fertilisers
D. Walsh & Sons Limited
Palmerstown, Co. Kilkenny
Grain and fertilisers
United States
Glanbia, Inc.
Delaware
Holding company
Glanbia Foods, Inc.
Twin Falls, Idaho
Milk products
Optimum Nutrition, Inc.
Illinois, South Carolina, Florida
Sports nutrition products
Bio-Engineered Supplements and
Nutrition, Inc.
Boca Raton, Florida
Sports nutrition products
Glanbia Nutritionals (NA), Inc.
Carlsbad, California
Nutrient delivery systems
Glanbia Nutritionals, Inc.
Madison, Wisconsin
Nutritional distribution
Glanbia Ingredients, Inc.
Madison, Wisconsin
Dairy products distribution
Aseptic Solutions USA Ventures, LLC
Corona, California
Beverage manufacturer & co packer
Britain and Northern Ireland
Glanbia (UK) Limited
Victoria Square, Birmingham
Holding company
Glanbia Holdings Limited
Victoria Square, Birmingham
Holding company
Glanbia Investments (UK) Limited
Victoria Square, Birmingham
Holding company
Optimum Nutrition EMEA Limited
London, England
Sports nutrition products distribution
Glanbia Nutritionals (UK) Limited
Middlesbrough, England
Sports nutrition products
manufacturing
Glanbia Foods (NI) Limited
Portadown, Co. Armagh
Consumer food products
Glanbia Feedstuffs Limited
Victoria Square, Birmingham
Supply of animal feeds
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
73.00
60.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
www.glanbia.com 165
Incorporated and operating in
Principal place of business
Principal activities
Group Interest %
Canada
Glanbia Nutritionals (Canada) Inc.
Angusville, Manitoba
Nutrient delivery systems
100.00
Germany
Glanbia Nutritionals Deutschland GmbH
Orsingen-Nenzingen, Germany
Nutrient delivery systems
100.00
Netherlands
Glanbia Foods B.V.
Moergestel, Netherlands
Holding company
Asia
Glanbia Nutritionals (Suzhou)
Company Limited
Suzhou, China
Nutrient delivery systems
GN Life Science (Shanghai) Co. Limited
Shanghai, China
Nutrient ingredients
Glanbia Nutritionals Singapore Pte Limited
Singapore
Customer service office
100.00
100.00
100.00
100.00
(b) Associates and joint ventures
Incorporated and operating in
Ireland
Date to
which results
included
Principal place of business
Principal
activities
Group interest %
Co-operative Animal Health Limited *
31–Dec–11
Tullow, Co. Carlow
South Eastern Cattle Breeding
Society Limited *
31–Dec–11
Thurles, Co. Tipperary
Malting Company of Ireland Limited *
30–Sept–12
Togher, Cork
South East Port Services Limited *
29–Dec–12
Kilkenny
Greenfield Dairy Partners Limited *
29–Dec–12
Dunbell, Co. Kilkenny
Agri chemicals
Cattle breeding
Malting
Port services
Dairy production
and development
Corman Miloko Ireland Limited **
29–Dec–12
Carrick-on-Suir, Co. Tipperary
Dairy spreads
Garristown Properties Limited **
29–Dec–12
Garristown, Co. Dublin
Glanbia Ingredients Ireland Limited*
29–Dec–12
Kilkenny
Property
development
Milk Products
United States
Southwest Cheese Company, LLC **
29–Dec–12
Clovis, New Mexico
Milk products
Britain and Northern Ireland
Glanbia Cheese Limited **
29–Dec–12
Magheralin and Llangefni
Cheese products
Milk Ventures (UK) Limited **
24–Nov–12
Stockport, England
Holding company
Nigeria
Nutricima Limited **
24–Nov–12
Nigeria
Evaporated and
powdered milk
50.00
57.00
33.33
49.00
13.33
45.00
50.00
40.00
50.00
51.00
50.00
50.00
Pursuant to section 16 of the Companies Act, 1986 a full list of subsidiaries, joint ventures and associated undertakings will be annexed to
the Company's Annual Return to be filed in the Companies Registration Office in Ireland.
*
**
Associate
Joint venture
166
Glanbia plc Annual Report 2012
Shareholders’ information
Stock exchange listings
The Company’s shares are listed on the main market of the Irish
Stock Exchange as well as having a premium listing on the main
market of the London Stock Exchange.
Managing your shareholding
Computershare Investor Services (Ireland) Limited
(“Computershare”) maintains the Company’s register of members.
Should a shareholder have any queries in respect of their
shareholding, they should contact Computershare directly using
the contact details provided below:
Computershare Investor Services (Ireland) Limited, Heron House,
Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland.
Contact details: telephone number 01 247 5349 (within Ireland),
00353 1 247 5349 (outside Ireland), or by logging on to
www.investorcentre.com/ie/contactus.
Information on shares
Share price data
Share price as at 29 December 2012
Market capitalisation
Share price movements during the year:
– high
– low
2012
2011
€
8.24
€
4.63
2,430m 1,362m
8.24
4.68
5.02
3.55
The current share price of Glanbia plc ordinary shares can be
accessed at http://www.glanbia.com/prices-delayed
Shareholder analysis
Glanbia Co-operative Society Limited*...... 48.3%
Retail......................................................... 20.9%
UK.............................................................18.3%
North America............................................. 6.9%
EU...............................................................3.3%
Ireland......................................................... 2.3%
* Glanbia Co-operative Society Limited has indicated to the
Company it will dispose of shares equivalent to 7% of the
issued share capital of the Company on 14 March 2013
by way of a distribution of said shares to its members.
Share capital
The authorised share capital of the Company at 29 December
2012 was 306,000,000 ordinary shares at €0.06 each. The issued
share capital at 29 December 2012 was 294,955,684 ordinary
shares of €0.06 each.
Substantial shareholdings
The table below details the significant holding (3% or more) in the
Company’s ordinary share capital that has been disclosed to the
Company at 29 December 2012 and 12 March 2013 in accordance
with the requirements of Rule 7.1 of the Transparency Rules issued
by the Financial Regulator under section 22 of the Investment
Funds, Companies and Miscellaneous Provisions Act, 2006.
Shareholder
Glanbia
Co-operative Society
Limited
Prudential plc group of
companies
No. of
ordinary shares
% of issued
share capital
142,588,848
48.3%
11,780,393
3.99%
Employee share schemes
The Company operates a number of employee share schemes.
At 29 December 2012, 1,141,334 ordinary shares were held in an
employee benefit trust for the purpose of the Group’s employee
share schemes. While any shares in the Company are held by
the Trustees, the Trustees shall refrain from exercising any voting
rights which may attach to the shares save that if the beneficial
interest in any share has been vested in any beneficiary the
Trustees shall seek and comply with any direction from such
beneficiary as to the exercise of voting rights attaching to
such shares.
Dividend payments direct to your bank account
An interim dividend of 3.66 cents per share was paid in respect of
ordinary shares on 19 October 2012.
Subject to shareholders’ approval, a final dividend of 5.43
cents per share will be paid in respect of ordinary shares on
31 May 2013 to shareholders on the register of members on
19 April 2013. If a shareholder’s registered address is in the UK
and a shareholder has not previously provided the Company with
a mandate form for an Irish euro account, the payment will be in
GBP. All other payments will be in euro.
Dividend Withholding Tax (DWT) is deductible from dividends paid
by an Irish resident company, unless the shareholder is entitled to an
exemption and has submitted a properly completed exemption form
to the Company's Registrar, Computershare. DWT applies to
dividends paid by way of cash and is deducted at the standard rate
of income tax (currently 20%). Non-resident shareholders and
certain Irish companies, trusts, pension schemes, investment
undertakings and charities may be entitled to claim exemption from
DWT and are thereby required to send the relevant form to
Computershare. Copies of this form may be obtained from
Computershare.
In order to continue to improve the security of dividend payments
to shareholders and reduce costs, the Company proposes to pay
future dividend payments on its ordinary shares only by credit
transfer into a nominated bank or building society account.
Shareholders will continue to receive tax vouchers in respect of
dividend payments. The Company takes data security issues very
seriously. Bank account details supplied to the Company and its
Registrar will be used only for dividend distribution and the
information will not be used for any other purpose or supplied to
any third party.
www.glanbia.com 167
www.glanbia.com
Shareholders may visit www.glanbia.com/shareholder-centre for up-
to-date investor information. Electronic copies of current and past
annual and half-yearly reports can be downloaded from the website.
Current and historic share prices, news, updates and presentations
may also be obtained. Shareholders may also register to receive
future shareholder communications electronically.
Electronic communications
The changes brought about by the Transparency (Directive
2004/109/EC) Regulations 2007 recognises the growing importance
of electronic communications. The Group therefore provides
documentation and communications to all shareholders via our
website unless a shareholder has specifically elected to receive a
hard copy.
Using electronic communications enables fast receipt of documents,
helps the environment by significantly reducing the amount of paper
used to communicate with shareholders and reduces associated
printing, mailing and distribution costs.
Shareholders can also vote online for the next Annual General
Meeting (“AGM”). This is a quick and easy option, using the proxy
voting service provided by Computershare. Shareholders may use
this facility by visiting www.eproxyappointment.com.
Financial calendar
Appointment of proxy
Where a shareholder is unable to attend the AGM in person,
a proxy (or proxies) may be appointed to attend, speak, ask
questions and vote on their behalf. For this purpose a form of proxy
is posted to all shareholders. Copies of these documents may be
requested by telephoning the Company’s Registrar on 01 247 5349
(within Ireland), 00353 1 247 5349 (outside Ireland), or by logging on
to www.investorcentre.com/ie/contactus or by writing to the Group
Secretary at Glanbia plc, Glanbia House, Kilkenny, Ireland.
Alternatively, a shareholder may appoint a proxy electronically, by
visiting www.eproxyappointment.com and submitting their proxy
details. They will be asked to enter the Control Number, the
Shareholder Reference Number (“SRN”) and PIN and agree to
certain terms and conditions. The Control Number, the SRN and the
PIN can be found on the top of the form of proxy.
CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
Meeting and any adjournment(s) thereof by using the procedures
described in the CREST manual.
How to exercise shareholders rights
Shareholders have several ways to exercise their right to vote:
(cid:2) by attending the AGM in person;
(cid:2) by appointing the Chairman or another person as a proxy to vote
on their behalf; or
Announcement of final results for 2012
13 March 2013
(cid:2) by appointing a proxy via the CREST system.
Ex-dividend date
Record date for dividend
Date for receipt of proxy forms
Record date for AGM
AGM
Dividend payment date
17 April 2013
19 April 2013
19 May 2013
19 May 2013
21 May 2013
31 May 2013
AGM
The AGM will be held on 21 May 2013. The notice of meeting,
together with details of the business to be conducted at the meeting
is available on www.glanbia.com/agm
The voting results for the 2013 AGM, including proxy votes and
votes withheld will be available on our website shortly after the
meeting at the following address: www.glanbia.com/agm
Conditions for participating in a meeting
Every shareholder, irrespective of how many Glanbia plc shares
they hold, has the right to attend, speak, ask questions and
vote at the AGM. Completion of a proxy form will not affect a
shareholder’s right to attend, speak, ask questions and/or vote
at the meeting in person.
The quorum for a general meeting of the Company is constituted
by three persons entitled to vote upon the business of the meeting,
each being a shareholder or a proxy or corporate representative for a
shareholder.
The right to participate in the AGM is subject to the registration of the
shares prior to the date of the meeting (the record date). For the
2013 AGM the record date is 5:00 pm on 19 May 2013 (or in the
case of an adjournment 5:00 pm, on the day prior to the day before
the time fixed for the adjourned meeting).
The passing of resolutions at a meeting of the Company, other than
special resolutions, requires a simple majority. To be passed, a
special resolution requires at least 75% of the votes cast to be in
favour of the resolution.
Tabling agenda items
A shareholder, or a group of shareholders acting together, who hold at
least 3% of the issued share capital of the Company, has the right to
put an item on the agenda of the AGM. In order to exercise this right,
written details of the item to be included on the 2013 AGM agenda
together with a written explanation why the item is to be included on
the agenda and evidence of the shareholding must be received by the
Group Secretary at Glanbia plc, Glanbia House, Kilkenny, Ireland or by
email to ir@glanbia.ie /info@glanbia.ie no later than 10 April 2013 (i.e.
42 days before the AGM).
An item cannot be included on the AGM agenda unless it is
accompanied by the written explanation and received at either of these
addresses by this deadline.
Tabling draft resolutions
A shareholder, or a group of shareholders acting together, who hold
at least 3% of the issued share capital of the Company, has the right
to table a draft resolution for inclusion on the agenda of the 2013
AGM subject to any contrary provision in company law.
In order to exercise this right, the text of the draft resolution
and evidence of shareholding must be received by no later than 10
April 2013 (i.e. 42 days before the AGM) by post to the Group
Secretary at Glanbia plc, Glanbia House, Kilkenny, Ireland or by
email to ir@glanbia.ie /info@glanbia.ie. A resolution cannot be
included on the 2013 AGM agenda unless it is received at either of
these addresses by this deadline. Furthermore, shareholders are
reminded that there are provisions in company law which impose
other conditions on the right of shareholders to propose resolutions
at the general meeting of a company.
168
Glanbia plc Annual Report 2012
How to ask a question before or at the meeting
The AGM is an opportunity for shareholders to put a question to the
Chairman during the question and answer session. Before the 2013
AGM, a shareholder may also submit a question in writing by
sending a letter and evidence of shareholding at least four business
days before the 2013 AGM (i.e. 16 May 2013) to the Group
Secretary, Glanbia plc, Glanbia House, Kilkenny, Ireland or by email
to ir@glanbia.ie /info@glanbia.ie.
Dividend rights
The Company may, by ordinary resolution, declare dividends in
accordance with the respective rights of shareholders, but no
dividend shall exceed the amount recommended by the Directors.
The Directors may also declare and pay interim dividends if it
appears to them that the interim dividends are justified by the profits
of the Company available for distribution.
Distribution on winding up
If the Company shall be wound up and the assets available for
distribution among shareholders shall be insufficient to repay the
whole of the paid up or credited as paid up share capital, such assets
shall be distributed so that, as nearly as may be, the losses shall be
borne by shareholders in proportion to the capital paid up or credited
as paid up at the commencement of the winding up on the shares
held by them respectively. Further if, in a winding up, the assets
available for distribution among shareholders shall be more than
sufficient to repay the whole of the share capital paid up or credited
as paid up at the commencement of the winding up, the excess shall
be distributed among shareholders in proportion to the capital at the
commencement of the winding up paid up or credited as paid up on
the said shares held by them respectively.
www.glanbia.com 169
Contacts
Group Secretary and Registered Office
Michael Horan,
Glanbia plc,
Glanbia House,
Kilkenny,
Ireland.
Stockbrokers
Davy Stockbrokers,
49 Dawson Street,
Dublin 2,
Ireland.
(Joint Broker)
Jefferies Hoare Govett,
Vintners Place,
68 Upper Thames Street,
London EC4V 3BJ,
United Kingdom.
(Joint Broker)
Auditors
PricewaterhouseCoopers,
Ballycar House,
Newtown,
Waterford,
Ireland.
Solicitors
Arthur Cox,
Earlsfort Centre,
Earlsfort Terrace,
Dublin 2,
Ireland.
Pinsent Masons,
3 Colmore Circus,
Birmingham B4 6BH,
United Kingdom.
Principal Bankers
Allied Irish Banks, plc
The Governor and Company of the Bank of Ireland
BNP Paribas S.A.
Barclays Bank Ireland plc
Citibank N.A.
Danske Bank A/S
Rabobank International
Ulster Bank Ireland Limited
Registrar
Computershare Investor Services (Ireland) Limited,
Heron House,
Corrig Road,
Sandyford Industrial Estate,
Dublin 18,
Ireland.
170
Glanbia plc Annual Report 2012
INDEX
A
Audit Committee report
Available for sale financial assets
B
Board of Directors and senior management
Borrowings
Business combinations
C
Capital grants
Cash and cash equivalents
Cash generated from operations
Commitments
Company statement of changes in equity
Company statement of comprehensive income and
statement of cash flows
Company statement of financial position
Contacts
Contingent liabilities
Corporate governance codes
Critical accounting estimates and judgements
Customised Premix Solutions – special feature
D
Dairy Ireland – segmental performance
Dairy Ireland – special feature
Deferred income taxes
Derivative financial instruments
Directors’ remuneration
Dividends
E
Earnings per share
Employee benefit expense
Events after the reporting period
Exceptional items and discontinued operations
F
Finance income and costs
Financial risk management
Financial statements contents
60
141
55
150
161
158
143
160
160
103
104
102
170
159
83
118
22
32
24
152
158
129
134
132
128
164
126
129
113
95
G
General information
Governance framework
Group Chairman’s introduction to corporate governance
Group Chairman’s statement
Group Finance Director’s review
Group income statement
Group Managing Director’s review
Group statement of cash flows
Group statement of changes in equity
Group statement of comprehensive income
Group statement of financial position
105
54
52
8
34
97
10
101
99
98
100
H
Highlights - 2012
I
Income taxes
Independent auditors’ report
Ingredient Technologies – special feature
Intangible assets
Inventories
Investments in associates
Investments in joint ventures
J
Joint Ventures & Associates – segmental performance
Joint Ventures & Associates – special feature
N
Nomination Committee report
Non-controlling interests
Notes to the financial statements
O
Operating expenses
Other reserves
Other statutory information
Our global footprint
Our responsibilities
Our vision and strategy
P
Performance Nutrition – special feature
Principal subsidiary and associated undertakings
Property, plant and equipment
Provisions for other liabilities and charges
R
Related party transactions
Remuneration Committee report
Retained earnings
Retirement benefit obligations
Risk management
S
Segment information
Segmental performance
Share capital and share premium
Shareholders’ information
Statement of Directors’ responsibilities
Summary of significant accounting policies
T
Trade and other payables
Trade and other receivables
U
Understanding the GIIL transaction
Understanding our business
US Cheese & Global Nutritionals –
segmental performance
US Cheese & Global Nutritionals –
special feature
2
130
96
18
135
143
139
140
33
26
63
149
105
125
144
90
4
46
14
20
165
134
157
162
65
149
154
40
120
29
148
167
93
105
158
142
38
6
30
16
www.glanbia.com 171
172 Glanbia plc Annual Report 2012
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Cautionary statement
The 2012 Annual Report contains forward-looking
statements. These statements have been made by
the Directors in good faith, based on the information
available to them up to the time of their approval of
this report. Due to the inherent uncertainties, including
both economic and business risk factors, underlying
such forward-looking information, actual results may
differ materially from those expressed or implied by
these forward-looking statements. The Directors
undertake no obligation to update any forward-looking
statements contained in this report, whether as a result
of new information, future events, or otherwise.
This report is printed on Heaven 42, an
environmentally responsible 100% recycled
paper made from 100% post–consumer
waste and bleached chlorine free (PCF).
Glanbia plc,
Glanbia House,
Kilkenny,
Ireland.
Tel: +353 56 777 2200
Fax: +353 56 777 2222
www.glanbia.com