Annual Report 2014

IDB Global Business Reports

Consumer Foods

The Consumer Foods division has responsibility for the international marketing and sales of IDB’s consumer products portfolio including the Kerrygold, Pilgrims Choice, Kerrygold Dubliner, MU, Beo and Shannongold brands. Markets are served by wholly owned subsidiaries in the UK, Germany, the US, Russia and China and in-market by sales and marketing teams, trading teams and local distributors.

International markets

Irish milk from grass fed cows

Strengthened market positions

Against a backdrop of lower dairy prices, it is now more important than ever that we ensure that Irish dairy continues to be marketed as a premium product and that IDB continues to add value through brands and innovation.

The marketing strategy of the Consumer Foods division is centred on leveraging the unique provenance and quality of Irish milk from grass-fed cows. The story of Kerrygold begins with traditional family farms and a sustainable, low-carbon grass-based dairy system, which is unrivalled anywhere in the world. Marketing activity strives to bring the consumer closer to these farmers.

Continued investments in branding and NPD have strengthened the position and offering of Kerrygold and other brands such as Pilgrims Choice and Kerrygold Dubliner. Extensions of the Kerrygold label to new products such as spreadable blends and continental style cheeses have contributed to growth in Germany, where the brand is the market leader. One of the year’s most exciting launches was into a completely new category with Kerrygold Irish Cream Liqueur.

Supporting these product developments has required substantial capital expenditure in upgrading the Group’s facilities around the world. The latest and most exciting of these investments has been the decision to build a Centre of Excellence for Kerrygold butter production and packing in Mitchelstown, Co. Cork. This new development will ensure a world-class supply chain to meet the evolving needs of Kerrygold customers and consumers around the world and will support the growth and development of the iconic Kerrygold brand.

2014 marked another significant year for the business in the US market, achieving the highest increase in sales volume growth in 10 years, at 36% year-on-year, contributing to a 39% revenue growth.

Kerrygold butter led the charge in 2014 delivering a 77% increase in sales volumes, making it the number four branded butter in the US. While Kerrygold cheeses now hold three of the top six positions in the cheddar category.

This strong performance has, in part, been driven by a highly successful, fully integrated campaign, which has included traditional and digital media. The campaign, Delicious… Because Nature Said So, showcases the unique attributes of grass-fed dairy farming and explains why grass-fed milk delivers the very best tasting cheese and butter. A key highlight of the year was the development of a new TV advert filmed on a dairy farm in Co. Waterford.

In addition to the success of its marketing and advertising campaigns, the US Consumer Foods business also achieved growth through product innovation. Kerrygold Butter with Canola Oil was launched in the US, offering consumers increased convenience and superior quality in a rapidly growing category. The US team also introduced two new cheese brands to market, Londoner and Shannonbridge.

2014 saw a deepening of relationships for the US team with key retail partners, leading to expanded distribution with major super stores. Strategic in-store promotions delivered strong sales results during key selling periods.

2014 proved to be a challenging trading year in the UK as the market experienced fundamental changes in retail structures, dairy price inflation, record milk production volumes and consumer purchasing habits. Despite all these factors, sales volumes were only marginally down on the record level achieved in 2013 and a strategic review of costs significantly improved efficiency within the business.

The major business project of 2014 was the completion of the long-term strategic cheese supply partnership with First Milk. The strategic partnership further strengthens Adams Foods’ position as one of the UK’s leading suppliers of Irish and British cheese to major retailers and foodservice customers in the UK.

Pilgrims Choice remains the clear number two UK cheddar brand with a retail value of £68 million. However, the brand portfolio had a challenging 2014. Pilgrims Choice declined in volume by 18% due to loss of distribution with a major retailer, the impact of inflation and increased competition from new market entrants and private labels. With a number of new product innovations and a re-invigorated marketing strategy using both digital and traditional media, Pilgrims Choice is well positioned for a good year in 2015.

Kerrygold butter volumes were down on 2013 with the overall branded packet butter market also declining due to retailer focus on private label with £1 price points. Kerrygold maintained its premium price point and benefited from a change in promotional strategy to shallower discounts and a successful on-pack partnership with the iconic Irish designer, Orla Kiely.

IDB Deutschland continues to build on its record of success over the last 40 years with another year of sales and organisational growth. An investment programme of €14 million was concluded in 2014 with the opening of expanded storage, packing and new product development facilities in Neukirchen-Vluyn.

Kerrygold continues to be the number one butter brand in Germany, in terms of value and volume. Beyond this, its sales performance was in-line with expectations with strong sales performances by Kerrygold Extra. Kerrygold Extra is the clear number two in the spreadable market and is continuing to grow market share. Cheese also performed very strongly with a near 100% increase in volumes.

NPD continues to be at the heart of the IDB Deutschland business. In 2014, IDB launched Kerrygold Extra 400g, a new unsalted sweet cream butter and Kildery cheese which won gold at the Global Cheese Awards.

IDB China

2014 saw the establishment of IDB China and the opening of its offices in Shanghai and Shenzhen. IDB China sells to over 1,000 retail outlets across 50 cities in China, Hong Kong, Malaysia and Singapore. It imports into China and distributes to a range of direct and distributor customers, serving China’s major retailers. It markets the full range of Kerrygold cheeses and butters and now, Kerrygold Whole Milk. The launch of Kerrygold Whole Milk marks IDB China’s entry into the mass Chinese market. The business plans to build its in-market presence through product innovation, acquisition and strategic partnership.

IDB Russia

Kerrygold enjoyed a strong start to the year with volumes of butter and cheese exceeding expectations. The business has built a strong distribution network to support its growing partnerships with all the major retailers in Moscow and St Petersburg and with regional retailers.

As with many other businesses, trade sanctions imposed by Russia against the EU have impacted the business. However, the business is maintaining a reduced team in IDB Russia to continue relationships with key retailers so it can respond quickly once this important market reopens to EU dairy.

IDB Europe & Latin America

Kerrygold Regato continues to dominate the Greek market with a 60% market share and number one category position. In 2014 Kerrygold expanded its market portfolio with the launch of Regato slices supported by a new TV advert.

The Iberian team relaunched Kerrygold in the Canary Islands and Portugal and is working closely with IDB España to develop retail opportunities with the recently acquired Spanish cheese business.

The IDB has been developing its business in Trinidad for over 40 years. In 2014 it delivered double-digit growth.

IDB Middle East

IDB Middle East has established a significant presence in the region, with offices based in Dubai, Egypt and Saudi Arabia. The business in the region grew by over one third in 2014 with the launch of Kerrygold and Beo in Iraq and Kerrygold milk and Pilgrims Choice cheese in the U.A.E.

In addition to organic growth, the business seeks to continue to further strengthen its position in the important dairy growth markets in the MENA region through acquisition and strategic partnership, building on the success of the 2013 Al Wazeen acquisition.

IDB Middle East also manages the ingredients sales portfolio for the region which grew by 75% year-on-year.

IDB Africa

The Group’s expansion drive has also seen the business deepen its long-standing presence in Africa, expanding activity across the continent, reaching more markets than ever before, with a new headquarters based in Port Elizabeth, South Africa. Africa, a core market for Kerrygold for many years, holds massive promise for the future as its population and incomes grow. IDB Africa’s six largest markets are D.R.C., Nigeria, Angola, Algeria, Malawi and South Africa.

2014 was a challenging year for the African business with the spike in milk powder prices, the Ebola crisis and macro-economic factors in a number of markets. The strength of the business’ in-market positions gave it the insight and flexibility to manage this.

IDB Africa also manages substantial ingredients sales in the region which grew by over one third year-on-year.

Dairy Trading & Ingredients

The Dairy Trading & Ingredients (DTI) division is responsible for the procurement of Irish and non-Irish dairy products and for the sale of dairy ingredients to food manufacturers and foodservice customers.

Developing routes to market

Strong growth in volume

Establishment of IDB España

Growing the DTI business is an important means of developing profitable new routes to market for Irish dairy products. Key activities include dairy commodity trading, product grading and maturing for cheese, and the development and supply of innovative and functional food solutions from Ireland and through a range of subsidiaries in the UK, the US, Spain and Saudi Arabia.

In 2014 the business reported solid results with strong growth in volume with member purchases up 16% and Turnover up 14.5% to €752.8 million. Strong performances were delivered by DTI Republic of Ireland (DTI ROI) and US Food Ingredients. There were mixed performances in the UK where the cheese grating, processing and butter trading businesses performed well but the powder blending business did not meet expectations, however the outlook for 2015 is much more positive.

The highlight of the year was the acquisition of a cheese business in Spain and the establishment of IDB España. The acquisition was in-line with the Group’s growth plans to make a strategic investment in Southern Europe, a milk deficit region. IDB España provides expert cheese solutions for the pizza sector that complement the cheese solution technologies being developed in the Group’s other international businesses.

DTI is focussed on building a sustainable future through the investment in route to market acquisitions, in-market resources, innovation, lean manufacturing, volatility management and manufacturing capacity and capability. These strategic investments will ensure that the IDB is adding value and building volume outlets for the post quota increased dairy volumes.

DTI ROI is responsible for the procurement of products from members (Irish dairy processors) and the sale of dairy ingredients to global food manufacturers and brand owners.

2014 was a good year for DTI ROI against the backdrop of a challenging market. Strong purchase prices were paid to members throughout the year and DTI ROI volume purchases were up 16% year-on-year to a record high. These increased purchases strengthened DTI ROI’s ingredient position in developing markets as well as ensuring adequate supply to IDB’s growing branded business. Within DTI ROI, the key account and international business units performed particularly well and have ambitious targets for 2015.

The opportunities offered by the end of EU milk quotas remains a crucial focus for DTI ROI and the business’ experience in 2014 has given confidence that strategic business objectives with members, subsidiaries and key customer accounts are being delivered on schedule. The DTI division is reaping the benefits of increased integration between the different business units. DTI ROI also increased its in-market presence throughout the year in its strategically important markets of Africa and MENA and now has a strong, in-market presence driving business gains. All business units now operate off a global Customer Relationship Management platform.

DTI ROI will remain focused on cost efficiencies, value added growth and volatility management in 2015 complemented by its trading business which will remain at the forefront of managing volatility in the markets.

Dairy Ingredients (UK) Ltd

Dairy Ingredients (UK) Ltd (DIUK) is a butter trading business and a major supplier to the UK food manufacturing sector. DIUK achieved a steady performance during a year of very turbulent market conditions. Supply, which was constrained in the first half of the year, improved towards year-end, in line with milk output and product stock availability.

In 2015 DIUK looks to enhance its position as a key route to market for Irish butter in the new post quota era and the resultant increase in output of Irish milk based ingredients.

Adams Food Ingredients Limited

Adams Food Ingredients Limited (AFI) is a leading powder blending business based in Leek. AFI provides sourcing, blending, formulating and packing excellence to leading blue-chip food manufacturing companies in the UK and internationally.

AFI performed below expectations due to lower than budgeted volumes. During 2014 a strategic review of the business was undertaken, from which a robust management strategy was put in place. Delivery of this management strategy is AFI’s main priority and early indications show an improvement in performance in 2015.

The FoodTec business was acquired by AFI during 2014 and is currently being integrated into the Leek site. This will deliver significant efficiencies to the combined business in 2015. Investment is being made in new allergen blending which will facilitate the integration of the FoodTec business as well as add site capacity and increase efficiencies. AFI has also made significant progress in becoming a strategic partner to its key customer accounts and a number of customer-led innovations will be delivered in the first quarter 2015.

The Meadow Cheese Company Limited

The Meadow Cheese Company Limited (Meadow) supplies customised dairy solutions to the food manufacturing and foodservice sectors. An increased focus on developing its formatting capability allowed Meadow to increase sales of chilled and Individual Quick Frozen grated, shredded and form-filled sliceable cheese, despite challenging market conditions. Development of extrusion technology has also seen increased sales in cheese ropes for the fast food industry.

2014 also saw the installation of a new processing line. This will drive technological and quality advantages into the existing client base and enable Meadow to develop additional customers in local and international markets in 2015.

It was another successful year for Meadow with 11 awards at the Nantwich International Cheese Show and eight awards at the Global Cheese Awards. This reflects strong industry recognition of the quality and performance of this company’s product range.

The Cheese Warehouse Limited

The Cheese Warehouse specialises in grating natural and processed cheese in a variety of formats. Through scale-led efficiencies, an emphasis on quality, a high level of technical support and a commitment to innovation, it aims to be the UK’s foremost supplier of cheese to the food manufacturing and foodservice sectors.

Despite market conditions still in recovery mode, the business enjoyed another successful year under IDB ownership.

In 2014, The Cheese Warehouse sales volume increased by 55%, a 35% increase in Revenue, and a 61% increase in EBITA margin. They also received prestigious awards, winning two Gold and two Silver medals at The International Cheese Awards and the coveted Gold Medal at The Global Cheese Awards, helping to raise its profile and attract new interest for the business.

IDB entered into a new venture in Spain in summer 2014 acquiring the business and assets of Luxtor S.A., a Spanish pizza cheese business, from Telepizza. The deal includes a long-term contract for the supply of cheese to Telepizza, the fifth largest pizza chain in the world.

This acquisition strengthens the Group’s position as a global provider of pizza cheese and complements similar investments made in specialised cheese solution businesses in the US and the UK. It also provides an immediate route to market for Irish dairy products and opens up further opportunities for Irish dairy products post milk quota removal in 2015.

Al Wazeen Trading completed its first full year of trading under IDB’s partnership during 2014. The business performed in line with expectations. IDB Saudi Arabia is preparing for the opening of its state-of-art cheese manufacturing facility in Riyadh in late 2015. The site is currently under-construction. In 2014 IDB Saudi Arabia grew its team, further strengthening its in-market presence as it gets ready to embark on a period of growth.

The new facility will produce tailor-made cheese solutions for key manufacturer and foodservice customers in Saudi Arabia. It will also provide a central trading point from which to access the important neighbouring markets of the MENA region.

Minister Simon Coveney officially opens new facility in Thiel Cheese & Ingredients, Wisconsin. Also pictured are IDB Chairman Aaron Forde, US Food Ingredients President Neil Cox and IDB CEO Kevin Lane.

US Food Ingredients

The US Food Ingredients business performed strongly in 2014 meeting Operating Surplus targets through a combination of organic growth, product innovation and new business development.

2014 saw the completion of the latest phase of investment in US Food Ingredients. Amongst the highlights was the completion of a state-of-the-art 30,000 sq. foot facility at the Hilbert site. The centre boasts some of the most advanced dairy processing equipment in the US dairy sector and includes an Innovation Centre that will provide functional cheese solutions to its US Food Ingredient and foodservice customers. This builds on the integration of the Meadow Ingredients business. A further investment at the Meadow Ingredients facility in Byron has supported double-digit volume growth from this part of the business.

DPI Specialty Foods

Despite a very competitive environment, DPI continued to grow sales in 2014, by both winning new customer contracts and driving sales for existing retail partners. The positive momentum in the US economy increased customer retail spending but the environment remains very price competitive. In 2014 Turnover was up 9.1%, with DPI clearly maintaining its place as the third largest US distributor of speciality foods to the retail sector.

Winning new customer contracts

Turnover up 9.1%

Third largest US distributor

The company continues to benefit from the extensive restructuring carried out in terms of customer focus, operational execution and sales capabilities. Within the retail environment, DPI’s ability to grow category sales, create a positive experience for the consumer and to fully support retailer’s strategy is becoming a clear point of differentiation from its competitors.

The Dedicated Logistics business that services Starbucks had an exciting year. The business continues to grow in line with Starbucks’ store expansion strategy and the awarding of new markets which are serviced through the existing distribution network.

Strong growth is anticipated for 2015 as DPI continues to maximize sales for its established customer base, for new customer contracts taken on during 2014 and from new category and customer expansion.

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