Granarolo Group 2013 Directors’ Report
(Translation from the Italian original which remains the definitive version)
2013 Directors’ Report
1 Granarolo Group 2013 Directors’ Report
Dear Shareholders,
Welcome to the shareholders’ meeting called for the approval of the 2013 financial statements.
As always, we will present to you, in addition to Granarolo S.p.A.’s separate financial statements, the Group consolidated financial statements, which give a more comprehensive view of the results for the year.
The Directors’ Report on Granarolo S.p.A. and the Group is presented in a single document as permitted by Article 1, paragraph 2, letter d) of Legislative Decree No. 32 of February 2, 2007.
Positive signs in the global context; in Italy the turnaround is slow
The global economy overall has shown signs of improvement and exhibits moderate growth. In the latest forecasts of
January, the International Monetary Fund revised its 2014 global trade growth forecast upwards by 0.3%, translating into a 0.1% improvement in global output. Growth has been driven by the more advanced and industrialised economies, in particular the United States, Germany and Japan, and to a lesser extent – although not to be discounted – the emerging economies. A recovery is in place, although of a contained, fragile, uncertain - and particularly – uneven nature.
For Italy, the only positive figures related to the recovery in industrial production, which after 26 consecutive months of decline saw a turnaround from September 2013 – which was also confirmed in the following months. However, labour market conditions remain weak, as does business lending, and the figures for new VAT registration numbers and the self-employed income tax volumes declined. Italy is the only advanced economy to see a downwards revision in the
International Monetary Fund’s 2014 GDP growth estimate. The latest figures indicate a 0.6% increase, against the +1% forecast by the government in September 2013.
The Italian economic picture varies greatly according to the sector and regional location of enterprises. Larger scale industrial enterprises report an improved outlook, as do those with a greater international focus, while smaller companies, those in the services sector and those in the south of the country continue to suffer. The performance of areas where business clusters allow also smaller very specialised companies to progress together with their parents is an interesting development.
Despite the first signs of labour market stabilisation and an increase in the number of hours worked, conditions remain difficult. The unemployment rate, which usually lags behind general economic trends, reached 12.3% in Q3 and 12.6% in
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Q4. Since 2008, Italy has lost one million jobs - with unemployment among the young reaching 41%. Entire Italian regions are now industrial and employment wastelands.
The haemorrhaging of respected brands representing Italian know-how for foreign operators continues, while the number of investors choosing Italy as their new industrial base is minimal.
Inflation in Italy has continued to drop – more than that forecast just a number of months ago - reaching 0.7% in
December. Core inflation - calculated excluding the more volatile components - reduced to 0.9%. The demand weakness contained prices fixed by businesses to a greater degree than in the past; the increase in VAT in October was minimally transferred onto final sales prices.
Italy has undergone a collective crisis of confidence and hardship, while the need is apparent for the country’s leaders to work together to resolve the difficulties.
Many events have occurred in recent months, with the elections and the subsequent extensive impasse for the forming of the new government creating tensions in parliament and across the country and the judgment by the Constitutional
Court on the electoral law among the most significant. All these events took place while the world was looking elsewhere.
As we discuss our accounts, the country has a new leader and a new government, ambitious targets and a new direction. It is not our place to carry out political analysis obviously - however it remains very true that Italian enterprises and households need a strong Government and - particularly - a system that works.
We consider that a sober approach is required, tempering the desire to innovate, while the need is apparent to put the expectations of the individual behind that of the collective reconstruction project.
The primacy of the rule of law must be restored at every level of public and private life to avoid an ethical decay which would be even worse than the economic crisis.
The agro-food chain - a strategic asset for Italy
With over 1.5 million enterprises and more than 3.2 million employees, the Italian agro-food chain considered in its broadest sense, from agricultural production to distribution to retail, is a strategic asset for Italy as the agro-food sector in
Italy means employment, wealth and regional and local development. Particularly however, it develops the quality of the food that we eat, culture, enjoyment and social cohesion. In other words - the Italian lifestyle which is envied worldwide.
The numbers speak for themselves. Considering also related activities, the supply chain accounts for approx. 14% of
Italian GDP, while accounting for a similar percentage of jobs and on which every year agro-food businesses spend Euro
76 billion for gross remuneration (salaries and wages).
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Another Euro 23 billion concerns annual investments and more than Euro 20 billion the net amount that the chain pays to the State in terms of taxes (after government grants have been deducted, which as is widely known, are significant within the agricultural sector).
In summary, the socio-economic value generated cannot be equalled by other sectors – as highlighted by, in a more technical manner, for every Euro of food produced in the domestic economy, a “return” of Euro 2.22 is generated: in other words, for every Euro of demand for food, Euro 2.22 is put into circulation for the other sectors – from transport, to energy, to distribution.
Five agricultural ministers in five years is testament to the fact that the country does not believe, beyond the television shows produced, in the extraordinary potential of sustainable development.
The processing industry and supply chain owe their growth to the capacity of businesses to develop the most significant and varied gastronomical heritage existing globally. The quantification of such a legacy is almost impossible and the protected origin products are the principal ambassadors for this significant and coveted component of the «Made in Italy” food brand globally.
In 2013, Italy is nearly unrecognisable: domestic consumption has collapsed also in terms of food goods and for the first time operators throughout the chain must contend with a new marketplace in which domestic demand has declined.
However, the foreign markets have now become the key for the future of the Italian food sector. Although for more than ten years food sector exports have continually grown, reaching today more than Euro 31.8 billion (+67% between 2002 and 2012), the crisis in Italian food consumption in recent years has forced companies to seek markets further afield.
Globally, better lifestyles are being adopted by an increasing number of consumers, in particular in the larger emerging
Economies (the BRIC countries, the UAE, Southeast Asia etc.). The consumption models of these markets are changing, with a gradual westernisation of diets: 2020 estimates indicate China as the leading global market in value terms for food consumption, with approx. USD 4,000 billion of food and beverage expenditure (from the current USD 800 billion), compared to USD 3,000 billion for the EU and the United States. The development path for Italian agro-food businesses has therefore been signposted and points towards increased internationalisation, while for many of these businesses (in particular the smaller businesses which, however, represent the majority of the production base) these challenges are outside of their scope, particularly in light of the competitive and structural delays which are a feature of the Italian business environment and whose effects are amplified in the global arena. This explains the lower export share of our food businesses (20% of revenues), in comparison with Germany (28%) and France (25%).
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Results and challenges for the future
The re-launch of the country will increasingly be based on the agro-food sector, through its quality, through the Made in
Italy reputation and the capacity to thrive on international markets, our capacity to compete, together with an artistic heritage and a tourism sector which can again establish Italy as the Country the whole world knows and appreciates.
For a company like Granarolo, which in the past has achieved all its growth domestically, looking only to Italy is no longer an option as the crisis at home has changed the marketplace. Granarolo began to look beyond Italy in 2012 with a plan which takes the company to 2016 and based upon four pillars:
- expansion;
- product diversification;
- market diversification;
- country diversification.
If Granarolo had not realised that a radical change was needed, the Company would be in serious difficulties as the
Italian milk market (fresh and UHT) has year-on-year reported contractions - prompted by the collapse of our economy and a change in consumer preferences.
A process of further diversification in favour of the dairy sector is planned, which today already accounts for 31% of revenues, while only 18% in 2011 – particularly in the hard cheeses segment which will allow us to achieve our ambitious export support plan.
2013 was a particularly complex year, although satisfying results were posted: revenues amounted to close to Euro one billion, growing 7.6% on 2012. The net profit however reduced 26.2% compared to 2012.
Domestically, a partnership was signed with Amalattea S.p.A. which provides for, among other issues, the acquisition of a non-controlling investment in the Company. Amalattea is a leading Italian operator in the production and sale of goat’s milk and derivative products. The partnership provides access to the goat’s milk market, which is experiencing significant growth - particularly abroad.
Internationally, we highlight the consolidation of the acquisition of the French Group CIPF Codipal and the creation at year-end of Granarolo UK. The international expansion will be financed also through bond loans (at year-end a Euro 50 million bond was placed with a leading European institutional investor) and the financial support of Cooperare S.p.A., which has a 45% holding in Granarolo International.
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Compared to our European neighbours, scale remains a drag on our international competitivity, however development plans have been stepped up, including outside the EU.
In terms of expansion - strategic for the milk/dairy sector, we particularly intend to:
- focus on research and development;
- enter new markets, also non-EU, particularly those which as a result of development are changing their diet to a
more western-based approach;
- seek guaranteed Italian product and overseas through international contracts;
- the introduction of productivity and streamlining plans in order to focus all resources on the growth plan;
- investment in the web as a vehicle to open up new markets;
Granarolo International, a company which now co-ordinates all foreign group activities, was created to manage the
international expansion under the industrial plan which targets by 2016 a significant export share.
The Granarolo Group overseas
Granarolo’s overseas structure has not yet been developed sufficiently. Granarolo International has indeed been set up, but it must grow and it must be structured together with the support of a task force focused on more rapid growth than the original plan. International growth is a strategic factor for the company and in which a far greater wealth of resources must be concentrated than in the past. Our entire management team is quickly moving in this direction and many country dossiers have been opened, together with the training of staff.
The international expansion of Granarolo must focus on three core aspects:
- fresh cheeses (mozzarella, ricotta, mascarpone, etc.), which based on their expiration require, if produced in
Italy, close markets (long distance markets exist, for frozen mozzarella, but are marginal);
- hard cheeses (grana, parmigiano, pecorini, “similgrana”, etc.), which use Italian milk and allow the company to
market such products globally;
- local production on growing markets, not economically reachable from Italy, which can generate profits for the
Group.
International development means entering new markets, with significant growth rates and in which the Granlatte-
Granarolo Group can express its true value, from the complete milk chain to the guarantee of product quality and food safety – values, for example, which the Chinese market places a particular importance on.
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Future framework: after “Milk quotas”
After March 2015 - when the milk quotas end there will be a different playing field, with Italy processing more Italian and overseas raw milk. Today, Italy processes 11 million tonnes of milk and imports approx. 9 million tonnes of milk equivalents, exporting 2.9 million tonnes of milk equivalent finished products. Of the 11 million tonnes, 57% concerns hard/Protected Origin cheeses. The hard and Protected Origin cheeses segment will grow, together with the production of the Italian raw material. Granlatte today represent 5% of Italian milk production, while Granarolo represents 7% of processing. Within our development plans we will continue to give preference to chain suppliers, with a fair return ensuring the right allocations.
We expect that the chain will become an increasingly important asset, amid a scarcity of milk supply globally in the coming years, whereby a guaranteed milk chain will be of strategic value. All major European groups are aware of this and are equipping themselves to ensure guaranteed supply.
In terms of partnerships, within a market crisis, opportunities can also open up for Granarolo. The Italian sector companies which are in crisis represent for us opportunities to enter under-developed markets/regions or those in which synergies may create value for Granarolo.
Non-recurring transactions allow us to focus more on our core business and provide resources to invest in the growth plan.
The Expo 2015 provides a significant opportunity for our international expansion, opening a window to the world which we will not squander.
Gianpiero Calzolari
Chairman of the Board of Directors
Bologna, March 28, 2014
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GOVERNANCE
Governance System
Corporate governance structure and organisation
The corporate governance structure adopted by Granarolo S.p.A. is based on the recommendations and regulations established by the code of conduct for listed companies, which the company, although not listed on the stock market, complies with in order to ensure the highest levels of transparency and efficiency in our corporate governance.
Granarolo S.p.A. adopts the "traditional system" of administration and control, based on the principal company bodies of: the Board of Directors, the Board of Statutory Auditors and the Shareholders' Meeting.
Independent auditors (KPMG S.p.A.) have been engaged to carry out the legally-required audit of the parent’s financial statements.
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Board of Directors
The Shareholders’ Meeting of April 4, 2013 renewed the parent’s Board of Directors, conferring a three-year mandate until the Shareholders’ Meeting called for the approval of the 2015 financial statements.
The Board of Directors is comprised of 11 members, 1of which is executive (the Chairman) and 10 of which are non- executive.
In accordance with the By-laws, the Board of Directors has the widest powers of ordinary and extraordinary management of the Parent. The Board meets at least quarterly: in 2013 they met on 7 occasions.
In order to ensure effective and efficient company operations, the Board gave the Chairman ordinary management powers without expense limits to be exercised within the annual budget approved by the Board of Directors and in execution of such, reserving however to itself the power to approve the budget for each year, in addition to the faculty to indicate, on the approval of the annual budget, which operations, not just of an extraordinary nature, within the budget must be submitted in the year for the review and specific approval of the Board.
Board Committees
The Board has created two Committees with consultation and proposal functions and which carry out a preliminary role - involving the drawing up of proposals, recommendations and opinions in order to allow the Board to adopt its decisions with an improved briefing on the issues:
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Control and Risks The committee comprises three non-executive members, the majority of whom are
Committee independent: Giovanni La Croce as Chairman, and holding the requisite experience
concerning accounting and finance matters, Vittorio Vignoli and Adonis Bettoni.
The Internal Control Committee was set up with a duty to support the preliminary,
consultative and proposal functions, the evaluations and decisions of the Board of
Directors concerning the Internal Control and Risk Management System and the
periodic financial reports. The Committee oversees also the Internal Audit activities, in
relation to which the Committee may request verifications on specific operating areas.
Remuneration Committee The committee comprises three non-executive members, the majority of whom are
independent: Giovanni La Croce as Chairman, and holding the requisite experience
concerning finance matters, Vittorio Vignoli and Adonis Bettoni.
The responsibility of the Remuneration Committee is to draw up for the Board of
Directors proposals for the remuneration of Directors and Executives with strategic
responsibilities, as indicated in the Code of conduct.
Board of Statutory Auditors
The Shareholders' Meeting of May 11, 2012 renewed the Board of Statutory Auditors, appointing three standing members and two alternate members, with a mandate of three years, until the approval of the 2014 financial statements.
The Board of Statutory Auditors verifies compliance with the law and the By-laws, compliance with the principles of correct administration and in particular on the adequacy of the organisation, administration and accounting structure adopted by the Parent and on its correct functioning.
All statutory auditors are registered with the specific registrar.
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Supervisory Board 231
The Board of Directors on April 23, 2013 renewed the term of office of the Parent’s Supervisory Board, conferring a three-year mandate for the years 2013-2015, therefore until the Shareholder’s Meeting for the approval of the 2015 financial statements, appointing:
- Mr. Pierluigi Morara, as an external member in the role of Chairman;
- Mr. Vittorio Zambrini, Quality, Innovation, Security and Environment Director;
- Ms. Francesca De Santis, Governance Risk and Compliance Manager.
In 2013, the Supervisory Board met 8 times.
The Supervisory Board is concerned with:
- remapping (“Process mapping/sensitive activities”), integrating the offense commission risk areas with agency,
logistic and transport activities and for each area identifying the potential risk - offense possibilities, the manner
for the committing of such and the assessment of the relative risks;
- promoting the updating of the Organisational and Operating Model as per Legislative Decree 231/2001,
integrating the areas covered in the previous point;
- contributing to the definition and creation of the IT infrastructure ("231workstation®"), for the integrated
management of the monitoring activities on the adequacy of the Organisation and Operating Model;
- contributing to the drawing up of a personnel training plan, through the e-learning platform, on 231 matters of
interest;
- defining the information to be sent periodically to the Supervisory Board by the relevant departments and
examination of the information received;
- defining and evaluating the control activities subject to the audit plan, which integrates also the compliance
objectives as per Legislative Decree 231/2001, with highlighting of the critical issues, the associated risks and
the corrective actions (action plan) to resolve such critical issues agreed with the relevant management
members;
- drawing up of the 231 audit plan for 2014 in light of the re-establishment of the risks mapping (“Process
mapping/sensitive activities”), as illustrated previously.
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Organisational structure
The Granarolo Group structure at 31/12/2013 was as follows:
The reorganisational actions which redefined the structure of the principal departments and the Management structure of the Group of greatest significance were:
- creation of a Strategic Planning and Project Development department, in support of General Management,
dedicated to an analysis of the strategic positioning of the Company and the coordination of the preliminary
economic/financial analysis activities for the evaluation of development opportunities in line with the Industrial
Plan;
- integration into the Administration and Finance Department of the Budget and Operating Control functions, with
simultaneous reorganisation of the central control functions and those of the individual departmental/companies
(Zeroquattro S.r.l. and the newly acquired Gruppo Compagnie Du Forum Sas), to ensure an integrated control
system and a more effective management of the operating/economic aspects of the Granarolo business;
- integration into the Administration and Finance and Control Department of the IT Systems and Processes
function, already subject to a previous internal restructuring;
- creation of an Operations Department, overseeing Manufacturing, Raw Material Purchases, the Technical and
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Third Party Commercial Development areas and the contemporaneous reorganisation of the Supply Chain
Department, which is allocated oversight of the “from order to delivery” process, i.e. Orders Management,
Demand & Manufacturing Planning and Logistics, in addition to the Purchasing function.
Internal control and risk management system
The Granarolo Group is aware that the adoption of an efficient corporate governance structure contributes to improving the competitivity of the business and its sustainable development.
The corporate governance principles in fact, organising the various functions and responsibilities and developing an adequate control system, ensure the adoption of knowledgeable operating decisions, in addition to an effective monitoring and management of corporate risk: the risk management costs can therefore be limited, ensuring a greater production of wealth and value for all stakeholders.
The correct functioning and the performance of Granarolo is ensured by a system of internal controls organised and managed both independently by the operating departments and in a centralised manner; in particular, the control system is based on three levels:
- “Line” controls (or first “level controls”): these are the direct operating process controls which ensure the correct
carrying out of operations which require specific business skills, of risks and/or relevant regulations, allocated to
the operating departments or incorporated in the company’s daily operating procedures;
- “second-level" controls: these are controls conferred to the departments other than operating departments
(Security and Environment, Quality Assurance and Food Security, Management Controls etc.), which monitor
and manage typical corporate risks (for example operating, financial, market and non-compliance risks etc.);
- “third-level” controls: controls carried out by a department independent from the operating departments (Internal
Audit), which carry out an overall assurance on the design and functioning of internal controls
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The Internal Auditing Department reports hierarchically to the Chairman of the Board of Directors and functionally to the
Control and Risks Committee which monitors its autonomy, efficacy and efficiency and of which the Committee may request the carrying out of checks on specific operational areas.
The activities of the Internal Auditing Department are conducted in accordance with international Internal Auditing best practices.
The 2013 activities concerned the controls established by the audit plan approved by the Control and Risks Committee and reviewed by the Board of Statutory Auditors and prepared adopting a methodological approach based on audit verifications which integrate all the significant corporate control objectives for the scope analysed (Operational,
Compliance as per Legislative Decree 231/2001 and Financial). The critical issues established during the audit were reviewed by management and corrective actions were drawn up (action plans) to resolve such issues.
The Internal Audit department periodically monitors and controls the correct and timely execution of the action plans through follow-up activities. It periodically briefs management, the Internal Control and Risks Committee and the Board of
Statutory Auditors on the results of the activities carried out, in addition to the state of advancement of the action plan.
The operating model
Following the entry into force of Legislative Decree 231/2001, the Parent adopted the “Organisation, management and control model” (“Model 231”) in order to prevent the offenses established under the regulation and has adopted a
Conduct Code which identifies the guidelines established for all those who operate in its name and on its behalf in the management of relationships with the principal stakeholders.
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The creation of inter-connected Corporate Boards, in compliance with the Code of conduct and the Ethics Code, satisfy to the best extent possible the expectations of stakeholders (employees, consumers, customers and the communities in which the Granarolo operates principally).
The Model was approved by the Board of Directors on March 29, 2005 and subsequently updated in line with applicable regulations with subsequent Board resolutions of November 16, 2010, July 14, 2011, January 25, 2013 and November
29, 2013.
The Board of Directors on January 25, 2013 approved an update and a review of the Parent’s Organisational and
Operating Model, through:
- on the one hand, a review which in particular integrated within the model a more detailed indication of the
procedures which the company adopts in the areas and processes, which in abstract terms present a sensitivity
to risk;
- and on the other, an updating of the new types of offenses introduced by the Decree, in particular concerning
environmental offences, private corruption and the hiring of illegal workers.
Together with the new version of the Model, the Board approved an internal code of conduct which contains the Conduct
Principles which the company and those operating on its behalf must comply with, also in relation to the prevention of risks identified by Decree 231.
The Board of Directors on November 29, 2013 approved:
- a review of the Parent’s Organisation and Operating Model, which integrated the sensitive areas concerning the
agency, logistics and transport activities;
- an integration of the process mapping/sensitive activities with the agency, logistic and transport activities and for
each area/instrumental sensitive process and for each activity/ instrumental sensitive process, with the
identification of the potential risk - offense possibilities, the manner for the committing of such and the
evaluation of the relative risks.
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Granarolo implements and manages, in addition, all the activities necessary to offset the principal corporate risks.
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THE GROUP
The Granarolo Group is headed by the ultimate parent Granlatte Soc. Coop. Agricola, which is the largest Italian milk chain directly owned by producers within a co-operative.
The approximately 1,000 members of Granlatte and the associated co-operatives prioritise milk production for the company Granarolo S.p.A.. Granlatte pursues the integration of the dairy livestock companies operating in Italy and the improvement of the quality of their production through structures which can manage their activities in an efficient and effective manner.
Granarolo S.p.A.
The company acts as the industrial and commercial parent. Granarolo operates through 6 production sites: Bologna,
Soliera (Modena), Pasturago di Vernate (Milan), Anzio (Rome), Gioia del Colle (Bari) and Usmate Velate (Monza
Brianza), together with the production sites at Sestu (Cagliari), managed by the subsidiary Casearia Podda S.r.l. and
Castrovillari (Cosenza), managed by the subsidiary Calabrialatte S.p.A..
In particular, production is broken down as follows:
- fresh milk: Bologna, Anzio, Gioia del Colle, Pasturago di Vernate, Soliera, Sestu and Castrovillari
- UHT milk: Soliera, Gioia del Colle and Pasturago di Vernate
- fresh cheeses: Bologna, Usmate Velate and Castrovillari
- hard cheeses: Sestu and Castrovillari
- yogurt & desserts: Pasturago di Vernate and Sestu
The production sites supply the direct and indirect distribution centres of the Group. Each day approx. 60,000 sales points are serviced. The domestic market is the principal market. The Group’s products are present also on markets in
Europe, in North America and Japan.
Granarolo S.p.A. oversees the direction and coordination of the commercial, operational and financial policies of the subsidiaries. The regulatory and financial conditions of this role are identified within the “intercompany” regulation, approved annually by the decision-making boards of each of the companies of the Group.
The ultimate parent Granlatte Soc. Coop. Agricola does not manage or coordinate the group companies, mainly offering guidance and services to members.
On January 7, 2013, the merger of the subsidiary Latticini Italia S.r.l. into Granarolo S.p.A. was completed, with
17 Granarolo Group 2013 Directors’ Report accounting and tax effects from January 1, 2013.
For the effects of the merger, reference should be made to the 2013 Annual Report of Granarolo S.p.A..
Zeroquattro S.r.l.
Zeroquattro S.r.l. provides integrated logistic services, with specialisation in the refrigerated chain (temperature 0° – 4°), carrying out the movement, transport and distribution and sale of controlled temperature products. The company carries out sales support services for food products and related services.
In its function as the general agent for Italy for Granarolo S.p.A., the company in addition carries out sales and other accessory activity services, such as accepting orders and payments from customers.
The company is controlled by Granarolo S.p.A., which holds 81.96% of the share capital.
An agreement is in place with a non-controlling owner which establishes the obligation that Granarolo S.p.A. acquires the non-controlling owner’s interest at a pre-fixed date and price. Therefore, in the consolidated financial statements, in accordance with IAS 32 the non-controlling interest is considered an acquisition by the parent Granarolo S.p.A., recognising a financial payable for the updated estimated amount.
Calabrialatte S.p.A.
Calabrialatte carries out the commercial and productive activities in the Calabria region.
The company signed on April 1, 2013 a business unit rental contract with Agroalimentare Assolac, an agricultural co- operative and 50% shareholder of Calabrialatte S.p.A., concerning the production site at Castrovillari, Ciparsia District, dedicated to the production of dairy products, and a rental contract of the production site building in which the industrial activity of the business unit is carried out.
Granarolo S.p.A. holds 50% of the company, with agreements in place between the shareholders which, in accordance with Article 2359 of the Civil Code and IAS 27, consider Calabrialatte S.p.A. as a subsidiary.
Casearia Podda S.r.l.
Casearia Podda S.r.l., with headquarters in Sestu (Cagliari), carries out the production and distribution of dairy food products in the Sardinia region, with a particular specialisation in the production of Protected Origin Pecorino Sardo cheese and Protected Origin Pecorino Romano cheese.
The company is controlled by Granarolo S.p.A., with a 65% interest.
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Centrale del Gusto S.r.l.
On July 25, 2013, Centrale del Gusto S.r.l. was set up, with registered office in Bologna via Cadriano 27/2, whose principal activity concerns the preparation and administration of food and beverage products and the sale of take-away products for breakfast, lunch, ice cream parlours, pastry shops and chocolate shops.
The company is held 90% by Granarolo S.p.A. and 10% by Mr. Fabbri Gino, a well-known Italian pastry chef.
Granarolo International S.r.l.
Granarolo International S.r.l., with headquarters in Bologna, was set up on January 11, 2013 and whose principal activity is the undertaking of investments in other companies in Italy and abroad. The company will therefore be the vehicle for all Granarolo S.p.A. operations abroad.
The company is 55% held by Granarolo S.p.A. and for 45% by Cooperare S.p.A..
Granarolo Iberica S.L.
Granarolo Iberica S.L., with registered in Barcelona (Spain), is involved in the distribution of dairy food products in Spain and Portugal.
The company is 100% held by Granarolo International S.r.l., which acquired the Granarolo S.p.A.’s entire investment on
June 26, 2013.
Granarolo UK LTD.
Granarolo U.K. LTD., with headquarters in Chelmsford, Essex (United Kingdom), distributes dairy food products in the
UK and Ireland.
The company is 51% held by Granarolo International S.r.l..
S.A.S. Compagnie du Forum
S.A.S. Compagnie du Forum, with headquarters in Metz (France) is the holding company of the CIPF Codipal Group, which entered the consolidation scope of the Granarolo Group in March 2013.
The company is 70% held by Granarolo International S.r.l., which signed a preliminary purchase contract for the residual
30% with the non-controlling owners.
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S.A.S. CIPF Codipal
S.A.S. CIPF Codipal, with registered office in Metz (France), is involved in the sale of dairy food products in France, with a particular specialisation in high quality Italian products sold under the Casa Azzurra brand.
The company is 100% held by S.A.S. Compagnie du Forum.
S.A.S. Les Fromagers de Saint Omer
S.A.S. Les Fromagers de Saint Omer, with headquarters in Campagne-lès Wardrecques (France), specialises in the processing of dairy products.
The company is 100% held by S.A.S. Compagnie du Forum.
S.A.S. Les Fromagers de Sainte Colombe
S.A.S. Les Fromagers de Sainte Colombe, with headquarters in Saint Genix sur Guiers (France), is specialised in the production of typical Savoia region cheeses.
The company is 100% held by S.A.S. Compagnie du Forum.
S.A.S. Compagnie Fromagère
S.A.S. Compagnie Fromagère, with headquarters in Saint Genix sur Guiers (France), holds the Maison Bernard brand, for special French cheeses. The company was no longer active at December 31, 2013.
The company is held 100% by S.A.S. Compagnie du Forum.
Parma Frais S.A.R.L.
Parma Frais S.A.R.L., with headquarters in Luxembourg (Luxembourg), is principally involved in the sale of goods (B2B).
The company is 100% held by S.A.S. Compagnie du Forum.
S.C.I. Charmi
S.C.I. Charmi, with headquarters in Metz (France), is a property company which at December 31, 2013 holds the building located in Metz, at Place Saint Thiebault, which houses the headquarters of S.A.S. Compagnie du Forum and S.A.S.
CIPF Codipal.
The company is 100% held by S.A.S. Compagnie du Forum.
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Other investments in companies not included in the consolidation scope
Granarolo S.p.A. wholly owns Sitia-Yomo S.r.l. liquidation and court-approved creditors’ settlement, which in turn wholly owns Caseificio Fratelli Merlo S.r.l. liquidation and court-approved creditors’ settlement and wholly owns Caseificio
Pasquale Pettinicchio S.r.l. liquidation and court-approved creditors’ settlement.
On October 7, 2013, Granarolo S.p.A. acquired 5.09% of Amalattea S.p.A., a company among the leading Italian operators in the production and sale of goat’s milk and its derivative products.
21 Granarolo Group 2013 Directors’ Report
DISTRIBUTION OVERVIEW
Italian distribution performance
2013 saw a slight reduction in the volumes of the Supermarket Channel (Hypermarkets + Supermarkets + Smaller
Supermarkets + Discount stores) to Euro 92.9 billion (-0.9% vs 2012) and a simultaneous reduction in the number of sales points to 28,450 (-454 vs 2012). All sectors selling on the Supermarket Channel reported a reduction in volumes:
Packaged Foods segment (Euro 57.9 billion, -0.3% vs 2012), Variable Weight (Euro 26.7 billion, -0.4% vs 2012), which limited its losses, while the Non Food sector contracted significantly (Euro 8.4 million, -5.6% vs 2012).
The Supermarket channel remains the largest, with a stable share of 41.3% (-0.1% vs 2012). The Hypermarkets declined significantly, with its share reducing to 29.1% (-3.3% vs 2012). Smaller Supermarkets again declined with a share of
12.5% (-0.2% vs. 2012), while the Discount stores were the best performing channel with a share of 17.1% (+3.6% vs.
2012). The Distributor with the largest share was Centrale Italiana (which includes Coop Italia, Sigma, Despar, Il gigante and Disco Verde), followed by Sicon (which includes Conad and Rewe).
Top 5 Distributors Share CENTRALE ITALIANA 23.45% SICON 13.32% ESD 12.56% AUCHAN+CRAI 9.27% ESSELUNGA 8.14%
Coop Italia was confirmed as market leader with a slightly reduced share, with Conad second, reporting a significant increase in market share, followed by Selex (stable).
Top 10 Groups Share Sales points COOP ITALIA 14.90% 1,559 CONAD 11.28% 2,916 SELEX COMMERCIALE 8.25% 2,193 ESSELUNGA 8.14% 143 GRUPPO AUCHAN 7.69% 1,710 GRUPPO CARREFOUR 6.05% 1,105 EUROSPIN 4.50% 908 SIGMA 3.81% 2,492 DESPAR SERVIZI 3.51% 1,204 GRUPPO PAM 3.25% 886
Source: GNLC Nielsen figures, July 2013
22 Granarolo Group 2013 Directors’ Report
MAJOR MARKET PERFORMANCE AND SHARE
For a better understanding of the current paragraph, please note that the research institutes only monitor sales from the supermarket channel (Italian or French). All information relating to the size and performance of the market concerns the various supermarket channels. Sales from the other channels are therefore not monitored (Normal Trade and
HO.RE.CA.)
Please note that changes may concern a consumption shift between channels and not just real consumption variation.
Compared to 2012, the Granarolo Group figures include the brands Podda and LatBri, while the figures of the competitor
Parmalat include the Carnini brand.
THE ITALIAN MARKET
Fresh Milk
Market performance
The fresh milk market in 2013 presents volumes of 553,380 tonnes, decreasing 5.1% on 2012 - for Euro 782 million - a decrease of 4.7% on the previous year.
The largest segment in volume terms was “Semi-skimmed”, reporting 179,428 tonnes (-5.7%) for Euro 253.7 million (-
5.6%); the High Quality segment contracted significantly reporting 173,861 tonnes (-8.0%) for Euro 251.6 million (-7.6%).
The “Long life” segment was the third largest, with 92,306 tonnes, for Euro 115.9 million, with both growth in volumes
(+0.6%) and values (+2.2%).
The “Organic” segment, reporting 19,577 tonnes and Euro 31.8 million of sales, increased in volume terms (+0.6%) and value terms (+1.2%).
Market overview
The Granarolo Group was confirmed as the leading player on the market, with a value share of 23.5% and with volumes comprising 21.4%. The Parmalat Group, the second largest player, had a value share of 22.8% and a volume share of
20.2% (figures including Carnini). The Private Labels increased their share to 18.1% in value terms and 22.6% in volume terms.
23 Granarolo Group 2013 Directors’ Report
Segment share
The Granarolo Group, in addition to the category as a whole, holds leadership positions in the following segments: “high quality” (29.9% in value terms), “organic” (41.0%) and “skimmed” (55.5%).
Source: AC Nielsen Scan*Track hypermarket+supermarket+smaller stores – YTD to December 29, 2013.
UHT Milk
Market performance
The “UHT” milk market in 2013 reports 1,061,477 tonnes, reducing 0.5% in volume terms compared to 2012, while growing by 0.7% in value terms on the previous year to Euro 1,034 million.
The largest market segments remained “semi-skimmed” with 728,929 tonnes for Euro 617.4 million, contracting in volume terms by 0.8% and improving in value terms by 0.7%.
The “whole milk” segment is the second largest with volumes of 131.730 tonnes (-2.1%) for Euro 141.1 million (-2.9%).
The third segment in volume terms (second in value terms) was the “easy-to-digest” segment, which reported significant growth: 121,120 tonnes (+7.3%) for Euro 179.5 million (+7.8%).
Market overview
The Granarolo Group, which during the year increased prices 5.9% amid a market average of 1.2%, was confirmed as the second largest player in the category with a value share of 19.0% (-0.4%). The Parmalat Group’s share contracted, but the Group was confirmed as the market leader with a value share of 32.6% (-0.9%).
The Private labels consolidated its position on the market with a value share of 18.4%, up 1.3%.
Segment share
The performance of the Granarolo Group in the fast growing “easy-to-digest” segment was very strong: volume share of
27.1% (+1.5%) and a value share of 28.7% (+1.6%). These results also stem from the new communication plan which the Granarolo Group launched in 2013, emphasising the distinctive nature of the Accadì Lactose Free (lower than
0.01%) line.
In the core “semi-skimmed” segment the Granarolo Group maintained its position as second largest player with a value share of 20.2%.
Source: AC Nielsen Scan*Track hyper-market+supermarket+smaller stores – YTD to December 29, 2013.
24 Granarolo Group 2013 Directors’ Report
Yogurt
Market performance
In 2013 the yogurt market reports volumes of 347,648 tonnes, down on the previous year (-4.1%). The market reports values of Euro 1,379 million, a reduction of 6.1% on 2012.
“Whole” yogurt was confirmed as the largest market segment (volumes: 150,830 tonnes; values: Euro 506.9 million), with a reduction both in volume (-1.3%) and in value terms (-2.3%).
The “low fat yogurt” segment is the second largest, surpassing the “probiotic yogurt” segment. The “low fat” line in the year reports 66,117 tonnes and Euro 227.9 million of sales, with volume growth (+1.5%) and value growth (+2.0%).
The “probiotic yogurt” segment was the third largest, reporting 49,469 tonnes and Euro 227.8 million, significantly reducing both in volume terms (-18.5%) and in value terms (-21.6%).
The “probiotic drink” segment contracted significantly both in volume terms (-9.2%, 37,406 tonnes) and in value terms (-
11.9%, Euro 176 million).
The “organic yogurt” segment reports growth: 18,641 tonnes (+3.1%) for a value of Euro 95 million (+5.8%).
Another small segment, although significantly expanding, was the “Children’s yogurt” segment, with volumes of 9,215 tonnes (+4.9%) and values of Euro 61 million (+5.3%).
Finally the “yogurt drinks” segment reports 7,099 tonnes, with growth of 6.4% and Euro 19 million (+1.5%).
Market overview
The Granarolo Group, the third largest brand, reports a value share of 10.5% (+0.2%) in 2013; Danone was confirmed as the market leader, although undergoing significant difficulties: 30.7% value share, losing 4.7% on the previous year.
Muller was the second largest player with a value share of 13.4%, decreasing 0.1%.
The Private Labels continues to grow: value share of 11.9% (+0.9%).
Segment share
In 2013 the Granarolo Group led the “Whole” market with a value share of 22.4%.
Strong performances were reported in the “children’s yogurt” segment, which the Granarolo Group entered in September
2012, with both Yomino and the Granarolo Crescita Yogurt range (yogurt-based infant food, made with fresh High Quality milk): the value share of the Granarolo Group in this segment in the year was 18.4% (+5.1%); in the month of December
2013 the value share of the Granarolo Group reached 22.8%, growth of 7.9%.
25 Granarolo Group 2013 Directors’ Report
Sources: IRI Infoscan Hypermarket+Super+Small Supermarkets – YTD to December 29, 2013
Fresh cheeses and butter
Market performance
The fresh cheese and butter markets in 2013 reported the following performances:
Mozzarella: contractions both in volume (106,777 tonnes, -2.4%) and in value (Euro 830.2 million, -3.3%).
Crescenze: growth both in volume (25,301 tonnes, +0.9%) and in value terms (Euro 240 million, +1.7%).
Ricotta: slight contraction both in volume (21,253 tonnes, -1.5%) and in value (Euro 101 million, -1.1%).
Mascarpone: growth both in volume (10,299 tonnes, +1.2%) and in value terms (Euro 75 million, +0.8%).
Butter: slight volume reduction to 41,377 tonnes (-0.4%), but growth in value terms to Euro 317 million (+2.2%).
Market overview
The Granarolo Group is the second largest player in the Small Supermarkets fresh cheese market
(Mozzarella+Crescenza+Mascarpone+Ricotta) with a volume share of 9.6% (+0.1%) and a value share of 9.8% (+0.1%).
The Granarolo Group figures include also the Podda and LatBri brands.
The Lactalis Group continues to lead the market with a volume share of 35.2% (-0.8%) and a value share of 35.5% (-
1.1%).
Private Labels account for 28.1% of volumes (+1.1%) and 24.1% in value terms (+1.3%) of the small supermarket fresh cheeses segment.
(* Fresh Cheeses: Mozzarella+Crescenza+Mascarpone+Ricotta)
Segment share
The Granarolo Group was the second largest player in the following categories:
- Mozzarella: value share 8.4%;
- Ricotta: value share 12.7%;
- Mascarpone: value share 13.7%;
Granarolo was the third largest player in the Crescenza market (value share of 12.5%, +0.4%).
The leader Galbani (Lactalis Group) in the various markets has a significant value share in the Mozzarella category of
33.5%, in Crescenza 33.0%, in Ricotta 48.8% and in Mascarpone 37.5%.
26 Granarolo Group 2013 Directors’ Report
Sources: IRI Infoscan Hypermarket+Super+Small Supermarkets – YTD to December 29, 2013
Eggs
Market performance
The supermarket eggs market in 2013 reported 147,741 tonnes, substantially stable (-0.1%). In value terms the market is worth over Euro 573 million, expanding on 2012 by 3.4%, principally due to the increase in prices (+3.6%).
Market overview
The Granarolo Group, which reports a price index of 133 compared to the market average, has a value share of 3.4% (-
0.7%).
The AiA-Veronesi Group, with a price index of 82, in 2013 reached a value share of 6.5% (+1.3%). The Eurovo Group, with a price index of 91, in 2013 reached a value share of 9.6% (+0.2%).
The Private labels, with a price index of 103, reached a value share of 45.6% (+1.4%).
Sources: IRI Infoscan Hypermarket+Super+Small Supermarkets – YTD to December 29, 2013
27 Granarolo Group 2013 Directors’ Report
THE FRENCH MARKET
Italian Cheeses
Aged cheeses consist of Parmigiano Reggiano, Grana Padano, Pecorino Sardo, Pecorino Romano and the hard cheeses produced with similar processes to the Grana cheeses.
Fresh cheeses include Mozzarella, Mascarpone and Ricotta.
Market performance
Aged Cheeses
Significant growth was reported both in volume terms (4,769 tonnes, +5.3%) and in value terms (Euro 102.3 million,
+6.3%).
Fresh Cheeses
Mozzarella: growth was reported both in volumes (18,655 tonnes, +8.3%) and in values (Euro 154.6 million, +8.7%).
Mascarpone: volume (5,198 tonnes, +1.6%) and value growth (Euro 40.2 million, +1.0%).
Ricotta: growth reported in volume terms (1,304 tonnes, +9.1%), and in values (Euro 7.8 million, +0.9%).
Market overview
Aged Cheeses
The Granarolo Group was confirmed as the brand leader in the aged cheeses small supermarket segment, with a volume share of 15.5% and a value share of 15.6%, thanks to the offer of a wide range which is the most complete on the market and including the Protected Origin Parmigiano Reggiano, Grana Padano and Pecorino Romano cheeses. The leadership was eroded by the Private Labels and other brands, principally the Entremont brand (volume share 7.9%; value share 10.5%), requiring improved distinguishing features in the proposal to trade and to the consumer.
Private Labels account for 59.2% of volumes and 54.2% of value of the small supermarket aged cheeses segment and are the principal driver of the category.
28 Granarolo Group 2013 Directors’ Report
Fresh Cheeses
The Granarolo Group is the second largest player in the Small Supermarket fresh cheese market, increasing in volume terms (8.8%) and in value terms (10.0%).
The Lactalis Group continues to lead the market with a volume share of 28.0% and a value share of 33.3% (slightly down).
Private Labels account for 55.6% of volumes and 47.1% of value of the Small Supermarket fresh cheese segment.
Segment share
Within the fresh cheese market the Granarolo Group remained the second largest player in the following categories:
- Mozzarella: volume share of 7.4% (+1.5%) and a value share of 9.2% (+1.7%). The figures include also the
Buffalo Mozzarella segment, in which the Granarolo Group is the market leader;
- Mascarpone: volume share of 12.0% (+1.5%) and a value share of 12.08% (+1.6%);
- Ricotta: volume share of 15.4% (+0.4%) and a value share of 15.4% (+1.7%);
The leader is Galbani (Lactalis Group), with the following value shares - across all markets: Mozzarella 34.4% (-0.7%),
Ricotta 30.0% (-5.4%), Mascarpone 29.6% (-0.8%).
Sources: IRI Infoscan Hypermarket+Super+Small Supermarkets – YTD to December 22, 2013
29 Granarolo Group 2013 Directors’ Report
THE RAW MATERIAL MARKET
Global and European overview
Carrying on from the previous three years, 2013 confirmed the global growth of milk and dairy consumption.
These increases occurred particularly in those regions whose economies are in continual growth – in Southeast Asia and
China in particular - while European consumption of milk and dairy products remains substantially stable, due to the economic situation of a number of European Union countries.
The GDP growth of the countries of Mid-East Asia generates greater food product demand in Europe. This improvement drives milk and dairy production, although not proportionally to the increase in demand (global milk and dairy production increased 0.8%, while supply rose 1.9% (FAS-USDA figures). This consequently has an inflationary impact first on raw material prices and thereafter on semi-finished and finished products.
Once again products such as milk powder and whey, butter and industrial cheeses, the so-called commodity products, appear to have tracked the prices and production of European milk.
Although this is the overall development, Europe however has experienced a very particular year in terms of milk prices and production. In the first part of the year, milk production maintained at levels below the same period of 2012, while in the second half year production was the highest for the period in three years.
The demand effect generated an increase in product prices, and consequently a gradual increase in the cost of the raw material, stimulating therefore a progressive increase in production.
Milk production: 2013 was a year of recovery
In the first four months of the year, for all countries of the European Union, raw milk prices on average were very similar to the last three years. This resulted in milk production in the average range of the last three years. Following the spring a gradual shift began to take place.
The progressive increase in milk-based product prices positively and gradually affected raw milk prices, boosting milk production, which in the second half of the year reported a three-year volume peak.
We highlight that the production world has very different reaction times than the market. A response to the crystallisation of a certain market outlook therefore occurs with a degree of delay. The production of milk to satisfy increased consumer demand is such an example.
30 Granarolo Group 2013 Directors’ Report
EU 28 - Milk collected (Thousand tonnes)
13,600
13,100
12,600
12,100
11,600
Thousand tonnes Thousand 11,100
10,600
10,100 1 2 3 4 5 6 7 8 9 10 11 12
2011 Collected 2012 Collected 2013 Collected
Source: CLAL workings on Eurostat, *AGEA and Productschap Zuivel figures
Global milk and dairy product demand
2013 confirmed the trend of increased imports in the so-called emerging countries, whose economic growth and demographic factors are driving global agro-food production.
The GDP of China, India and the other South-East Asian countries report strong improvements, and therefore demand for primary goods and dairy foodstuffs continues to grow.
31 Granarolo Group 2013 Directors’ Report
Global Imports WMP - SMP - Butter - Cheeses
8,000,000
7,000,000
1,374,167 1,392,581 6,000,000 1,254,037
1,318,798 1,227,108 5,000,000 1,266,100 1,283,066 1,242,949
4,000,000 1,173,484 1,155,093 1,043,710 1,057,696 941,062 769,006 3,000,000 747,373 997,106 1,010,467 966,121 906,208 2,000,000 944,846
2,257,974 2,288,231 1,000,000 1,876,482 2,078,798 1,605,155
0 Jan-Dec 2009 Jan-Dec 2010 Jan-Dec 2011 Jan-Dec 2012 Jan-Dec 2013
Other Asia - Middle East South/Cen America - Caraibbean Africa South East Asia
Source: GTIS
While in Europe consumption focuses around liquid milk, cheeses, cream and yogurt - therefore products which have a relatively short shelf-life and which require a complex and costly distribution chain (refrigerated chain) - the emerging markets consume a wide range of milk extract products which largely are in the form of powders, whose transport and preservation is much easier.
These products for years have been considered “poor”, therefore to be produced from any raw material surplus - that which did not find the correct placement or remuneration on the internal market.
Skimmed milk powder, whole milk powder, de-proteinised whey concentrates and whey protein concentrates are increasingly demanded and utilised for their pliancy and functionality, from direct consumption to use in multiple food preparations.
Milk powder has many uses in these markets, from direct food to industrial ingredients.
When milk powder prices remain high for long periods, this benefits also the price of whey powder, which in many cases can act as a substitute product. Therefore, the demand for powders plays an increasingly central role in the setting of milk prices in producing areas.
When the value of the commodities is high, the price of farmers’ milk benefits, as does the price of liquid milk sold within
32 Granarolo Group 2013 Directors’ Report the producing countries. On the other hand, an excessive increase in the commodities for export may inflate the costs of the raw material within the producing country.
In 2013, a large part of the increase in the cost of raw milk relates directly to the export of commodities.
The possible risk is that the consumer market and the internal market prices of products are not able to support this increase or may transfer part of these costs onto the sales price of products sold on the European and Italian markets, where supermarkets are implementing a very aggressive pricing policy.
Milk powders
European milk powder stocks were almost exhausted by August 2012.
In 2013, although production levels maintained almost in line with 2012, export milk powder demand generated spiralling prices - rising 23.6% in the year as a whole.
Skimmed milk powder: market / intervention price and stock levels
Magermilchpulver Sprühware, lose SMP - Powder milk SMP - Powder milk Market price (€/Kg) EU intervention price (€/kg.) Stocks (Tons)
± % on ± % on ± % on Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 2012 2012 2012
January 1.80 2.25 2.11 2.54 20.4% January 1.698 1.698 1.698 1.698 0.0% January 257,407 189,437 27,317 0 -85.6% February 1.81 2.53 2.02 2.51 24.3% February 1.698 1.698 1.698 1.698 0.0% February 257,667 159,807 18,762 0 -88.3% March 1.89 2.44 1.95 2.51 28.7% March 1.698 1.698 1.698 1.698 0.0% March 257,378 157,157 5,078 0 -96.8% April 2.01 2.10 1.83 2.91 59.0% April 1.698 1.698 1.698 1.698 0.0% April 257,262 147,545 4,871 0 -96.7% May 2.28 2.15 1.81 2.99 65.2% May 1.698 1.698 1.698 1.698 0.0% May 244,859 147,094 4,871 0 -96.7% June 2.15 2.23 1.99 3.00 50.8% June 1.698 1.698 1.698 1.698 0.0% June 239,838 135,049 4,871 0 -96.4% July 2.03 2.12 2.11 3.03 43.6% July 1.698 1.698 1.698 1.698 0.0% July 228,844 123,162 3,288 0 -97.3% August 1.99 1.96 2.38 3.14 31.9% August 1.698 1.698 1.698 1.698 0.0% August 221,573 109,464 0 0 -100.0% September 2.10 2.05 2.59 3.18 22.8% September 1.698 1.698 1.698 1.698 0.0% September 218,789 53,572 0 0 -100.0% October 1.97 2.08 2.58 3.00 16.3% October 1.698 1.698 1.698 1.698 0.0% October 195,159 53,571 0 0 -100.0% November 1.83 2.08 2.55 2.99 17.3% November 1.698 1.698 1.698 1.698 0.0% November 195,159 53,572 0 0 -100.0% December 2.02 2.11 2.51 3.14 25.1% December 1.698 1.698 1.698 1.698 0.0% December 194,806 50,146 0 0 -100.0% Average 1.99 2.18 2.20 2.91 Average 1.70 1.70 1.70 1.70 Average 165,037 114,965 5,755 0 Change¹ % 9.30% 1.26% 32.20% Change¹ % 0.00% 0.00% 0.00% Change¹ % -30.34% -94.99% -100.00%
Source: ZMP; from May 6, 2009: "Süddeutsche Butter - und Käsebörse eV, Kempten"; EU – Oversight Committee
Due to the nature of milk powder as outlined above, the commodity is subject to speculative activity within the financial markets, which in an increasing manner affects foodstuffs. Over the past three years prices have risen overall by 57%.
This development substantially favoured the clearance of European warehouse stock.
It is likely that by the middle of the year the increase in non-European demand transferred tension onto the liquid milk market, increasing prices and reducing quantities of non powder-based production.
33 Granarolo Group 2013 Directors’ Report
Milk powder stock levels
Powder Stocks EU - USA
250,000
200,000
150,000
100,000 Tonnes
50,000
0 2006 2007 2008 2009 2010 2011 2012 2013
EU USA
Source: EU – Oversight Committee and USDA
The graph shows the reduction in 2012 of total stock levels, in particular the clearance in Europe. While the US produces principally for the domestic market, the European Union exports much of its production. In 2013, European milk production increased 0.72%, which could not satisfy restocking demand.
It is noted that global powder milk demand increased (+3.3%), while production reduced (-0.2%). This is explained by the drop in production in New Zealand, which only recovered at the end of 2013.
However, production outstripped consumption by approx. 1.5 million tonnes.
Source: CLAL workings on GTIS data
Global production and consumption of milk powder (whole and skimmed)
Excluding the slight levelling off in 2013, the increase in global milk powder consumption in recent years, since 2010, has encouraged production and reduced stocks.
The concentration of demand in the Asian countries principally favours the production of milk powder and the exports of the Oceania countries (New Zealand and Australia).
Consequently, milk powder prices in the Oceania region benefitted, influencing also European prices, in particular from
March 2013.
34 Granarolo Group 2013 Directors’ Report
Thousand tonnes 2010 2011 2012 2013 change % Powder Production 7,392 8,073 8,441 8,428 -0.2% Powder Consumption 6,053 6,354 6,702 6,921 3.3%
Source: FAS - USDA
Skimmed milk powder price comparison
Wholesale powder prices of skimmed milk (SMP) 4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
Jul-10 Jul-11 Jul-12 Jul-13
Jan-10 Jan-11 Jan-12 Jan-13
Sep-10 Sep-11 Sep-12 Sep-13
Nov-10 Nov-11 Nov-12 Nov-13
Mar-13 Mar-10 Mar-11 Mar-12
May-10 May-11 May-12 May-13
Germany Usa Oceania
Source: ZMP; "Süddeutsche Butter - und Käsebörse eV, Kempten", USDA AMS Dairy Market News
Milk powder price movements in Oceania, from the first months of 2010 until the end of 2013, explained why the United
States and Europe, Germany in particular, increased export market share to China and South-east Asia.
All skimmed milk powder producing countries increased export volumes to China.
35 Granarolo Group 2013 Directors’ Report
China, milk powder imports and major suppliers
China Imports SMP Tons Principal Suppliers SMP
280,000 140,000 230,000 120,000 100,000 180,000 80,000
130,000 60,000
40,000 9.8% 80,000 - 28.1% 20,000
0 30,000 New Zealand USA Australia France Germany 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Tonnes 2012 2013
China Imports WMP Tons Principal Suppliers WMP 730,000 600,000
630,000 500,000 530,000 400,000 430,000 300,000 330,000
230,000 200,000
130,000 100,000 30,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 New Zealand Australia Denmark Argentina Uruguay Tonnes 2012 2013
Source: GTIS
36 Granarolo Group 2013 Directors’ Report
Butter
In the last four year period 2010/2013, the global and European price of butter has progressively increased.
It is again noted that in 2009 the European Commission decided to reopen the intervention stocks in order to re-establish stock levels, guaranteeing a minimum price for butter.
From 2009, matters changed dramatically, with the price, fixed at Euro 2.46/kg, established in order to assist the sector in a very difficult period which in 2008 involved the entire milk supply chain.
Already from the end of 2009 the market price exceeded the intervention price, and for each subsequent year the average prices maintained stable above the intervention price.
Today, the market price is well above the intervention price (+60%), which may result in its abolition even before the ending of the milk quota system (August 2015).
EU Yearly average butter price Market price Intervention price Change% € kg € kg 2010 3.46 2.46 40.7% 2011 3.98 2.46 61.8% 2012 3.06 2.46 24.4% 2013 3.95 2.46 60.5%
Source: ZMP Notierungskommissionen fur butter und kase Hannover
Market performance and stock levels
Butter Hannover/Köln Butter Butter Market price (€/Kg) EU Intervention price (€/kg.) Butter stocks (Tons) ± % on ± % on ± % on Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 2012 2012 2012 January 2.96 3.67 3.49 3.37 -4.9% January 2.464 2.464 2.464 2.464 0.0% January 97,677 15,126 23,507 14,195 -39.6% February 2.82 4.09 3.31 3.35 -19.1% February 2.464 2.464 2.464 2.464 0.0% February 92,837 1,755 8,335 14,196 70.3% March 2.85 4.23 3.08 3.41 -27.2% March 2.464 2.464 2.464 2.464 0.0% March 100,151 12,432 40,361 17,110 -57.6% April 3.09 4.00 2.68 3.93 -33.0% April 2.464 2.464 2.464 2.464 0.0% April 105,751 32,127 56,117 32,979 -41.2% May 3.67 4.00 2.55 4.07 -36.3% May 2.464 2.464 2.464 2.464 0.0% May 118,711 54,916 83,468 50,663 -39.3% June 3.78 4.16 2.68 4.12 -35.6% June 2.464 2.464 2.464 2.464 0.0% June 122,817 76,152 101,977 66,138 -35.1% July 3.80 4.17 2.73 4.20 -34.5% July 2.464 2.464 2.464 2.464 0.0% July 111,397 90,017 118,277 81,494 -31.1% August 3.72 4.03 2.90 4.24 -28.0% August 2.464 2.464 2.464 2.464 0.0% August 109,147 96,573 118,491 82,042 -30.8% September 3.76 4.03 3.25 4.29 -19.4% September 2.464 2.464 2.464 2.464 0.0% September 77,737 74,594 95,834 65,421 -31.7% October 3.76 3.97 3.35 4.18 -15.6% October 2.464 2.464 2.464 2.464 0.0% October 56,992 57,070 65,388 44,432 -32.0% November 3.68 3.81 3.35 4.12 -12.1% November 2.464 2.464 2.464 2.464 0.0% November 41,064 42,350 38,496 24,742 -35.7% December 3.63 3.57 3.35 4.11 -6.2% December 2.464 2.464 2.464 2.464 0.0% December 24,487 31,051 25,302 19,918 -21.3% Average 3.46 3.98 3.06 3.95 Average 2.464 2.464 2.464 2.464 Average 76,264 48,680 64,629 42,778 Change¹ % 14.96% -23.07% 29.06% Change¹ % -2.60% 0.00% 0.00% 0.00% Change¹ % -36.17% 32.76% -33.81%
Source: ZMP; from May 6, 2009: Amtliche Notierungskommissionen für Butter und Käse, Hannover; EU – Oversight Committee
In 2013, European stock levels reduced on 2012, while in the US recovering slightly on 2012.
37 Granarolo Group 2013 Directors’ Report
Butter stocks EU - USA
180,000 160,000 140,000 120,000 100,000 80,000
Tonnes 60,000 40,000 20,000 0 2006 2007 2008 2009 2010 2011 2012 2013
Europe USA
Source: USDA; EU Oversight Committee
Global production and consumption
In 2013, global butter demand increased 2.8%, while production grew 1.9%.
In 2012, production exceeded consumption by 469K tonnes (+5.5%), while in 2013 exceeding consumption by 409K tonnes (+4.72%).
Thousand tonnes 2010 2011 2012 2013 change % Butter Production 8,092 8,372 8,888 9,060 1.9% Butter Consumption 7,812 8,198 8,419 8,651 2.8%
Source: Workings on FAS-USDA data
38 Granarolo Group 2013 Directors’ Report
Global Butter Prices
4,500 Germany 4,000 USA 3,500 Oceania
3,000 /ton
€ Italy
2,500
2,000
1,500
Jul-13 Jul-10 Jul-11 Jul-12
Jan-10 Jan-11 Jan-12 Jan-13
Mar-10 Mar-11 Mar-12 Mar-13
Sep-13 Sep-10 Sep-11 Sep-12
Nov-10 Nov-11 Nov-12 Nov-13
May-10 May-11 May-12 May-13
Source: ZMP; Amtliche Notierungskommissionen für Butter und Käse, Hannover; USDA AMS Dairy Market News
In the final months of 2013, the price of butter began to reduce gradually, in particular US produced butter.
The increase in production compared to stock levels slightly reduced price levels.
At global level, the use of butter may be replaced with good quality vegetable fats, particularly in those countries, such as the USA, where butter export is not a major activity.
Edamer, Gouda and Cheddar cheeses
The level of global cheese consumption remained high.
The final 2013 data will be available at the end of March 2014, but forecasts indicate an increase in consumption of 1% and increased production of 0.7%.
Cheese Thousand tonnes 2010 2011 2012 2013 change % Cheese Production 16,182 16,408 17,117 17,234 0.7% Cheese Consumption 16,990 17,088 16,959 17,121 1.0%
Workings on FAS-USDA figures
2013 production was slightly above consumption levels (+0.66%), with demand satisfied by current production levels.
In relation to cheeses that are aged less than three months, in some cases a sudden rise in demand may have impacts
39 Granarolo Group 2013 Directors’ Report on the raw material market.
Increasing cheese demand from the middle of 2012 continued throughout 2013, with demand exceeding production capacity and milk production increases.
From September 2012 prices began to gradually rise, reaching Euro 3.75/KG for Gouda and Euro 3.77/KG for Edamer.
This particular trend is due to various factors:
lower milk production in the first four months of the year, combined with increased milk powder demand,
resulting in a shortage of milk for cheese production.
the consequent lower product availability saw higher demand levels; prices therefore gradually increased.
Source: USDA / ZMP
The events in 2013 highlight that the whole dairy market chain is extremely sensitive to climatic factors (for example the drought which hit New Zealand) and the availability of raw materials.
Considering also the availability of stock and the economic and productive situations of the individual countries, it is clear that sudden changes or swings in the market can occur increasingly frequently.
It is noted however that global consumption and use of dairy products is in gradual and continuous growth.
The graph below highlights the general production of skimmed milk powder - whole milk powder, butter, cheeses and the relative consumption.
40 Granarolo Group 2013 Directors’ Report
Total milk-based production exceeded required volumes in 2013, with 34,722,000 tonnes produced and 32,693,000 tonnes consumed. An excess therefore of 2,029 million tonnes (6.2%) was produced.
Although a satisfactory figure for 2013, two factors must be considered: the first concerns the lack of milk powder and cheese stock and the second the increased demand over supply.
Global Production (Thousand tonnes) Global Consumption (Thousand tonnes) WMP - SMP - Butter - Cheese WMP - SMP - Butter - Cheese 35,000 35,000
30,000 30,000
17,117 17,234 25,000 25,000 16,408 17,121 16,182 17,088 16,959 16,990 20,000 20,000
15,000 15,000 8,888 9,060 8,372 8,092 8,419 8,651 10,000 10,000 7,812 8,198
3,683 3,933 3,862 3,393 3,423 5,000 5,000 3,000 3,192 3,446 3,999 4,390 4,508 4,566 3,053 3,162 3,256 3,498 0 0 2010 2011 2012 2013 2010 2011 2012 2013
WMP SMP Butter Cheese WMP SMP Butter Cheese
Sources: ZMP; "Süddeutsche Butter - und Käsebörse eV, Kempten"; USDA; New Zealand: ZMP, from May 9, 2009 ZMB; Australia:
Dairy Australia; Ukraine: ZMP, from May 9, 2009 ZMB; EU-27: Eurostat, Productschap Zuivel
41 Granarolo Group 2013 Directors’ Report
Exports from the European Union
In 2013, the European Union exported less than 2012, excluding the cheese segment (+2.8%). Milk production in Europe only began to increase in the second half of the year; therefore, many orders were unfilled and/or demand pressure resulted in significant consumer price increases.
As stated previously, considering the rather stabile European consumption performance, the price of raw milk can be influenced by export movements.
It seems that in the last four-year period, the price of raw milk has been increasingly influenced by export volumes.
The performance of the principal products makes interesting reading:
Export EU - 28 WMP - SMP - Butter - Cheese
1,800
1,500 497 371 344 472
1,200 201
363 345 411 900 362 424
600
706 726 611 616 521 300
138 142 116 119 119 0 Jan-Nov 2009 Jan-Nov 2010 Jan-Nov 2011 Jan-Nov 2012 Jan-Nov 2013
SMP WMP Cheese Butter
Source: GTIS
42 Granarolo Group 2013 Directors’ Report
Price of raw milk in the EU
In 2013, the principal European producing countries saw a gradual increase in the price of raw milk.
As previously noted, part of this development may be attributed to higher cheese product prices, the increase in commodity prices and expanding global demand for milk-based products.
These factors should have prompted a recovery in milk production, which only gradually occurred in the second half of the year.
Average raw milk prices in the leading producing countries increased by between 6% and 13%.
Raw Milk Prices Lombardy (Italy) * (€/100 lt.) Baviara (Germany) * (€/100 lt.) Rhône Alpes (France) * (€/100 lt.) ± % on ± % on ± % on Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 Month 2010 2011 2012 2013 2012 2012 2012 January 33.16 39.00 40.70 40.00 -1.7% January 28.57 34.32 36.29 35.14 -3.2% January 29.32 31.83 33.69 31.46 -6.6% February 33.16 39.00 40.70 40.00 -1.7% February 28.62 34.53 36.16 35.40 -2.1% February 29.55 32.33 33.77 31.73 -6.0% March 33.16 39.00 40.70 40.00 -1.7% March 29.04 35.00 35.59 35.56 -0.1% March 28.78 31.09 31.93 30.48 -4.5% April 33.16 39.00 36.00 40.00 11.1% April 29.59 35.57 34.74 36.07 3.8% April 27.21 30.58 29.16 32.18 10.4% May 33.16 39.00 36.00 40.00 11.1% May 30.71 36.06 33.24 37.22 12.0% May 27.99 30.71 28.53 32.27 13.1% June 33.16 39.00 38.00 40.00 5.3% June 31.71 36.31 32.37 37.80 16.8% June 30.31 35.34 33.54 36.63 9.2% July 36.60 40.20 38.00 40.00 5.3% July 32.84 36.40 31.62 38.52 21.8% July 31.35 35.85 33.36 37.35 12.0% August 37.00 40.20 38.00 42.00 10.5% August 33.53 36.44 31.74 39.10 23.2% August 33.66 35.99 32.72 37.48 14.5% September 37.00 40.20 38.00 42.00 10.5% September 34.01 36.54 32.36 40.20 24.2% September 31.07 36.33 31.54 37.60 19.2% October 37.00 40.30 38.00 42.00 10.5% October 34.35 36.84 33.60 41.34 23.1% October 30.07 32.00 29.11 34.87 19.8% November 37.50 40.30 38.00 42.00 10.5% November 34.77 36.96 34.44 42.11 22.2% November 29.85 32.05 30.58 34.92 14.2% December 38.00 40.30 39.50 42.00 6.3% December 34.79 36.68 34.92 42.33 21.2% December 30.08 31.45 30.10 37.87 25.8% Average 35.17 39.63 38.47 40.83 Average 31.88 35.97 33.92 38.40 Average 29.94 32.96 31.50 34.57 Change¹ % 12.66% -2.92% 6.15% Change¹ % 12.84% -5.69% 13.20% Change¹ % 10.11% -4.43% 9.74%
Sources: ZMP-FranceAgriMer-CLAL
In order to understand the reasons behind the increase in milk prices, a number of factors should be considered:
- milk powder prices and dairy prices for export remained high throughout 2013, positively influencing the price
paid to farmers already by the spring;
- the recovery in European milk production began in the second half of the year, where the seasonal availability of
the raw material is however lower than the first half.
- in the second half of the year, unfilled milk powder and cheese demand continued to deflect liquid milk volumes
away from the internal European market, driving the spot milk price well above normal period levels.
43 Granarolo Group 2013 Directors’ Report
2013 raw milk price trends
Milk Farm Prices 2010 - 2013 Italy - Germany - France 44.00
41.00
38.00
35.00 Italy 32.00
/hl Germany €
29.00 France 26.00
23.00
20.00
Source: CLAL workings; ZMP; FranceAgriMer
The table highlights the continual rise in the price of raw milk throughout 2013. The changes in the commodity prices had a gradual effect on raw milk prices, which saw an impact with a delay of a few months. For example, in France, the price was adjusted every 3 months taking as a basis the products market of 3 months previously. The spot milk price behaved differently (quantity treated weekly on the free market), adjusting in real time to commodity prices and current demand of liquid milk.
An excess of milk produced at the farm, or any lack in production, has an immediate effect on spot milk prices.
44 Granarolo Group 2013 Directors’ Report
Milk Prices - Farm & Spot - Germany & France
0.600 0.550
0.500 German Farm 0.450 German spot /Litre 0.400 /Litro € € 0.350 France Farm 0.300 France spot 0.250
Source: Lodi Chamber of Commerce; FranceAgriMer-ZMP
Normal production levels were seen in the first half of 2013, while non-European demand began to make an impact.
Unfilled demand from the initial months of the year increased spot milk prices (from the beginning of the spring), where usually lower supply and prices are seen.
Despite the gradual recovery of milk production in the second half of the year, thanks to increased prices, product demand remained above supply, with price levels (spot milk and raw milk prices) continually increasing until December.
Milk production performance: in Italy, in Europe and globally
Production in Europe
Milk production in 2013, although maintaining the usual seasonal characteristics (with a classic spring peak and summer decline) reported diametrically opposed characteristics than 2012.
While production in 2012 in the first half-year was the highest of recent years, in 2013 the highest all time level for the second half of the year was reported.
Market prices of commodities impacted the milk price of farmers, with improved milk profit margins resulting in increased production in the second half of the year.
45 Granarolo Group 2013 Directors’ Report
EU28 - Milk Collected (Thousand tonnes)
13,600
13,100
12,600
12,100
K Tons 11,600
11,100 Thousand tonnes Thousand
10,600
10,100 1 2 3 4 5 6 7 8 9 10 11 12
2011 Collected 2012 Collected 2013 Collected
Source: Workings on CLAL figures; Eurostat, *AGEA, Productschap Zuivel
Despite the increase in production in the second half of the year, the interim data for milk delivered until December indicate an increase in European production in 2013 as well, an increase estimated at approx. 0.72%.
The final figure will be available from March 2013.
The increase in raw milk prices compared to the end of the year was relatively contained however.
(Germany and Italy over Euro 0.40/litre)
PRODUCTION TREND IN EUROPE
2011 2012 2013* ±% on '12 149,198 150,007 151,116 0.72%
* Estimate EU 27 balance sheet
Source: Eurostat-Agea
Given the demand of milk-based and dairy products for export outside the EU, a more significant increase in production could have been expected.
46 Granarolo Group 2013 Directors’ Report
Global production
The global milk production data confirms the increase in global demand for milk and its derivative products.
All of the principal producing countries, and in particular those principally focused on exports, saw increases in production.
In addition to Europe, which reported a minimal increase, production increased also in the USA (+2.27%), Argentina
(+4.54%) and India (+8.33%).
The EU 28 with 32% of global production remains the biggest producer;
North America has 21% of production, with the US increasing 2.27% and Canada reducing 1.9%;
Central/South America holds 11% of global milk production, with Argentina increasing 4.5% and Brazil, with three-fifths of
South American production, increasing 5.99%;
Oceania produces 6% of global milk, with New Zealand, which produces approx. 70% of the milk of Oceania in 2013, reporting a slowdown in the increase of recent years, due to the drought hitting the region.
Asia and South-east Asia produced 21% of global milk; India increased by 8.33% and China by 13.5%. The Chinese figures highlight the growth capacity; the high cost of commodities increased production in this region, where production costs are competitive.
47 Granarolo Group 2013 Directors’ Report
WORLD: MILK PRODUCTION in various Regions (Thousand tonnes) Country 2007 2008 2009 2010 2011 2012 2013 ±% on '12
EUROPEAN UNION
EU* - Balance Sheet 147,990 148,459 146,190 147,300 149,198 (p) 151,007 (p) 151,116 (p) 0.72% EUROPE (OTHERS - NON EU) Russia* 31,988 32,364 32,570 31,847 31,646 31,831 31,315 (p) -1.62% Ukraine* 12,262 11,761 11,604 11,254 11,094 11,389 11,501 1.53% NORTH AMERICA Canada 8,212 8,270 8,280 8,350 8,400 8,614 8,535 -1.90% United States* - Balance Sheet 84,189 86,180 85,875 87,462 89,016 90,867 91,258 2.27% AMERICA - CENTRE, SOUTH & CARIB. Argentina* 9,527 10,010 10,055 10,307 11,029 (p) 11,339 11,453 (p) 4.54% Brazil 26,750 27,820 28,795 29,948 30,610 31,490 32,380 5.99% Mexico 10,657 10,907 10,866 11,033 10,743 11,274 11,270 0.67% OCEANIA Australia* (1) 9,582 9,213 9,387 9,023 9,101 9,509 9,043 -1.82% New Zealand*(2) 15,586 15,232 16,583 17,013 17,895 20,517 19,630 (p) 0.01% ASIA India - Balance Sheet 42,890 44,500 48,160 50,300 52,500 55,500 57,500 8.33% ASIA - SOUTH EAST China 35,252 34,300 28,445 29,300 30,700 32,600 34,500 13.50% Japan 8,007 7,982 7,910 7,721 7,474 7,631 7,560 (p) -0.67% Philippines 13 14 15 16 17 2111 2153 4.03% South Korea, ROK 2,188 2,139 2,110 2,073 1,869 18 19 11.11% Taiwan 322 325 322 346 349 348 346 2.30% REST OF THE WORLD Others n.r. n.r. n.r. n.r. n.r. n.r. n.r. - TOTAL PRODUCTION 445,415 449,476 447,167 453,293 461,641 476,045 479,579 2.94%
Sources: CLAL processing of FAS-USDA figures; EU-27: Eurostat; Russia: Federal State Statistics State; United States: National
Agricultural Statistics Service; Argentina: Ministerio de Agricultura, Ganaderia y Pesca; Australia: Dairy Australia
New Zealand: DCANZ
48 Granarolo Group 2013 Directors’ Report
2013 World Milk Production
Europe - EU 28 Europe - Other North America* South Central America Oceania Asia South East Asia
South East Asia 9% Europe - EU 28 Asia 32% 12%
Oceania 6%
Europe - Others 9% South/Central America 11%
North America 21%
Italian production
Italian milk production reduced on 2012, while prices increased.
The 2013 expected production figures indicate a decrease of 1.86% in volume terms at 10,707,283 tonnes, approx. 202 thousand tonnes less than the previous year.
2013 Regional Milk Collected (Tonnes)
2011 2012 2013 ± % on Month Collected Collected Collected 2012 January 934,495 959,785 934,836 -2.60% February 878,583 902,718 872,251 -3.38% March 993,608 997,950 983,685 -1.43% April 971,393 1,000,814 964,857 -3.59% May 976,180 1,018,391 976,841 -4.08% June 901,336 921,137 888,926 -3.50% July 889,478 882,425 874,531 -0.89% August 858,031 835,776 837,681 0.23% September 811,716 809,831 809,314 -0.06% October 849,746 836,239 834,244 -0.24% November 839,681 823,949 826,253 0.28% December 915,921 920,976 903,864 -1.86% Total year 10,820,168 10,909,991 10,707,283 0.90% 0.83% -1.86%
Latest update: 24-01-2014 (monthly update: figures subject to retrospective adjustment)
Source: AGEA
Although milk prices increased in line with the European trends, the milk curve was lower than that of the last two years,
49 Granarolo Group 2013 Directors’ Report both in the spring and autumn periods.
Italy - Milk Production (Thousand Tonnes) 1,050
1,000
950
900
K Tons
850
800
750 1 2 3 4 5 6 7 8 9 10 11 12
2011 Collected 2012 Collected 2013 Collected
Source: AGEA
Although the price paid to farmers was on average 2 cents per litre higher than 2012, milk production has not shown any sign of recovery.
While in Europe in the second half-year the increasing prices encouraged a gradual recovery of product volumes, this did not occur in Italy, despite the differential between the prices paid in the first nine months of 2013 compared to the first nine months of 2012 having reached 4 cents per litre.
If the price increase does not prompt greater Italian production, it should be considered that the capacity to recover production through an increased number of animals in Italy is more limited than in other EU countries and therefore requires a longer timeframe.
The Spot Milk price
The Spot milk price (sold on the open market) benefitted from the situation at the beginning of the year.
This price has spiralled upwards continuously since April - right through to December.
It was in line with availability in 2013 (although speculation must also be considered). In the first part of the year,
European and Italian under-production reduced the market volumes normally available in spring, while in the second part of 2013 - despite the gradually recovery in European production - imported milk prices significantly impacted commodity prices.
50 Granarolo Group 2013 Directors’ Report
The use of milk for butter and milk powder production for a number of months pushed the price beyond 50 cents per litre, reaching peaks of 55 cents.
Farm Milk Spot Milk
Lombardy Farm Milk Lodi Average spot price * (€/100 (€/100 lt.) lt.)
± % ± % on Month 2012 2013 on Month 2012 2013 2012 2012 January 40.70 40.00 -1.7% January 38.79 41.88 8.0% February 40.70 40.00 -1.7% February 37.63 41.50 10.3% March 40.70 40.00 -1.7% March 35.83 40.72 13.6% April 36.00 40.00 11.1% April 31.70 42.01 32.5% May 36.00 40.00 11.1% May 32.09 43.43 35.3% June 38.00 40.00 5.3% June 33.51 45.24 35.0% July 38.00 40.00 5.3% July 37.81 46.65 23.4% August 38.00 42.00 10.5% August 39.18 48.97 25.0% September 38.00 42.00 10.5% September 40.98 50.52 23.3% October 38.00 42.00 10.5% October 42.92 51.89 20.9% November 38.00 42.00 10.5% November 43.82 52.97 20.9% December 39.50 42.00 6.3% December 42.40 50.65 19.5% Average 38.47 40.83 6.15% Average 38.06 46.37 21.85%
Source: CLAL – Lodi Chamber of Commerce
In recent years, the particular market situation did not favour the establishment of an official national price and the time in which industrial and farmer organisations used to sit around the negotiating table seem over. Large industrial groups and the agricultural world increasingly seem to set the market price.
Since 2011 and until the end of 2013, this “reference” role resulted in the periodic agreements between Italatte (a company which purchases on behalf of Lactalis, Galbani and Parmalat) and the agricultural organisations (Coldiretti, CIA and others).
51 Granarolo Group 2013 Directors’ Report
Italian cheese: production and prices
Both the principal Protected Origin cheeses reported a drop in production: Parmigiano Reggiano of 0.85% and Grana
Padano of 3.3%. Both products were certainly impacted by the reduced availability of milk in the first months in 2013, although in the second half of the year the two products behaved differently.
Parmigiano Reggiano substantially followed the milk performance, producing less in the first half of the year and recovering in the second (compared to the same periods of 2012).
The Grana Padano Sector however reported lower production up to October compared to 2012, recovering volumes only in the final two months of the year. In addition to the lower than expected availability of milk in the first half of the year, production was impacted by two other factors:
- high spot milk prices in the summer and autumn period encouraging sales and reducing production levels;
- the average cheese price was therefore nearly 6% lower than 2012.
Selling milk at accessible prices and producing less has guaranteed immediate profitability for cheese manufacturers, improving the outlook for future cheese prices through the reduction of stock levels.
Parmigiano Reggiano Production Grana Padano Production Number of wheels * Number of wheels * Production Production Month 2011 2012 2013 ± % on 2012 2011 2012 2013 ± % on 2012
January 270,512 291,018 284,887 -2.1% 413,195 453,049 431,511 -4.8% h February 253,4811 276,9492 270,2753 -2.4% 397,7171 443,6302 415,2853 -6.4% March 288,611 306,533 300,958 -1.8% 457,333 488,014 475,400 -2.6% y 2 8 7 5 9 1 April 283,312 298,447 291,542 -2.3% 449,343 471,076 455,416 -3.3% y 1 9 5 7 0 5 May 286,697 301,044 294,235 -2.3% 440,893 464,392 445,207 -4.1% h 1 3 8 3 4 0 June 268,016 273,366 270,609 -1.0% 402,178 418,667 397,698 -5.0% l 2 7 2 3 6 6 July 268,805 265,199 267,457 0.9% 350,953 348,053 317,736 -8.7% y 7 4 5 3 2 7 August 260,476 253,024 257,345 1.7% 325,974 316,027 272,542 -13.8% e 6 6 9 8 7 8 September 248,124 249,660 251,740 0.8% 288,710 270,100 266,536 -1.3% y 5 9 7 3 3 6 October 263,565 260,088 259,984 0.0% 350,060 311,071 335,512 7.9% t 6 4 5 4 7 2 November 260,230 257,861 255,635 -0.9% 367,256 337,798 353,030 4.5% r 4 0 0 0 0 6 December 280,086 274,032 274,489 0.2% 415,345 399,357 399,464 0.0% r 5 8 4 0 1 2 r Total 3,231,9150 3,307,2211 3,279,1565 4,658,9576 4,721,2348 4,565,3370 r Change % 6 22.33% 9- 0.85% 5 71.34% 4-3.30% l 5 1 6 7 4 7
Source: Cons. Grana Padano-Cons. Tutela Parmigiano Reggiano – CLAL
The table highlights that Parmigiano Reggiano recovered production in the second half of the year and that Grana
Padano reached production lows in July and August, the months in which the spot price began to reach around 48 cents per KG.
In 2013, both sectors produced a total of 183,962 cheeses less than 2012.
52 Granarolo Group 2013 Directors’ Report
The majority of this gap concerns Padano (-155,897 cheeses).
Parmigiano Reggiano Grana Padano Prices Aged 12 months and Aged 15 months and more (€/kg) more (€/kg)
± % on ± % on Month 2012 2013 2012 2013 2012 2012
January 10.32 8.80 -14.7% 8.95 8.50 -5.0% February 10.06 8.75 -13.0% 8.95 8.40 -6.1% March 9.94 8.75 -12.0% 8.94 8.40 -6.0% April 9.49 8.75 -7.8% 8.89 8.40 -5.5% May 9.05 8.74 -3.4% 8.84 8.29 -6.2% June 8.98 8.68 -3.3% 8.80 8.15 -7.4% July 8.93 8.65 -3.1% 8.78 8.10 -7.7% August 8.93 8.65 -3.1% 8.78 8.11 -7.6% September 8.93 8.70 -2.6% 8.78 8.22 -6.4% October 8.92 8.78 -1.6% 8.77 8.31 -5.2% November 8.89 8.80 -1.0% 8.70 8.32 -4.4% December 8.85 8.80 -0.6% 8.61 8.32 -3.4%
Average 9.27 8.74 8.82 8.29
Source: Milan Chamber of Commerce. Latest update: 03-02-2014
Despite the drop in production, the prices of the two Protected Origin cheeses decreased by over 5.5%.
However, only in the case of Grana Padano can the drop in production be connected to price.
Export of Italian cheeses
The increase in global cheese demand drove also European exports - from 706 million tonnes in 2012 to 726 million tonnes in 2013 (+2.8%; source: Gitis).
This trend also benefitted the Italian Protected Origin sector, which reported an increase above the European average.
The figures for the first ten months (Istat-Clal figures) confirm an increase in exports of 4.69%, with the 2013 figures projecting volumes of 77,200 tonnes compared to 73,747 tonnes in 2012.
This represents an increase of 3,453 tonnes.
53 Granarolo Group 2013 Directors’ Report
Italy - Export Grana/Parmigiano Reggiano 12.00 90,000 80,000 10.00 70,000
8.00 60,000
50,000 6.00 /Kg
€ 40,000 Tons tonnes 4.00 30,000 20,000 2.00 10,000 0.00 0
Tonnes € /Kg
Source: ISTAT
The drop in the production of Grana Padano (-3.3%) was much greater than Parmigiano Reggiano (-0.85%).
These decreases were due to reduced milk production (in particular in relation to Parmigiano Reggiano) and significantly to the sale of spot milk by Grana Padano producers in the summer period.
In the summer, Padano producers sold spot milk on the open market due to the attractive prices and the need to allow for the holidays of employees. 2013 saw higher spot milk demand in the summer than in previous years. Non-European demand for cheese products deflected milk supply usually destined (from countries such as Germany) for export to Italy.
The foreign milk market price was far higher for the traditional Italian users of summer milk (e.g. producers of pasta filata and mozzarella) - however improving the competitiveness of the Grana Padano producers.
54 Granarolo Group 2013 Directors’ Report
Production & Prices - Grana & Parmigiano
550,000 12.00
500,000 10.00 450,000 8.00 400,000
350,000 6.00 €/Kg
300,000 4.00 250,000 2.00 200,000
150,000 0.00
Jul-09 Jul-10 Jul-11 Jul-12 Jul-13
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Nov-09 Nov-10 Nov-11 Nov-12 Nov-13
Sep-09 Sep-10 Sep-11 Sep-12 Sep-13
May-09 May-10 May-11 May-12 May-13
Nr. Parmigiano Nr. Grana Price Parmigiano Price Grana
Source: Milan Chamber of Commerce; Consortium for the protection of Grana Padano – Consortium for the protection of Parmigiano
Reggiano
The graph highlights that production of our major cheeses decreased from June onwards and also that their price reduced in the summer, although recovering slightly in the autumn.
2013 confirmed the apparent trend of recent years - with the gradual increase of global consumption - which year after year is driving milk production.
Production, which currently seems to reflect demand, appears highly sensitive to price, with a small variation in the raw milk price resulting in almost immediate production increases. Particularly in countries such as China and India, production is quickly expanding, driven by prices and demand, while in Europe the increase is slower.
The region and the availability of land, the quota system in place and the cost of milk production, are further factors which affect impact production compared to the Asian countries.
It will be interesting to see how much consumption increases and how much the new consumers will be prepared to pay for cheese products, in particular for the level of excellence which Italy can offer and is able to deliver throughout the milk-dairy chain.
55 Granarolo Group 2013 Directors’ Report
GROUP STRATEGIES
The Granarolo Group confirms for the coming three-year period the strategic guidelines and the growth path introduced in 2012 with the approval of the “2012-2016 Plan”. Since the adoption of the original plan, new initiatives were identified to tackle an increasingly competitive market and the acquisition targets were reviewed in light of current opportunities within the sector.
The development lines for the Group concern:
- the consolidation and growth of High Quality products. Granarolo is the only player which can offer a
guaranteed and certified chain at national level - which the company strives to maintain and extend;
- the competitive positioning of its products. The Granarolo group products, due to their high quality, innovative
and service-based content, must occupy a premium positioning;
- the growth of the business. The growth plans must be strengthened through targeted actions on the Italian and
overseas markets;
- the focus on profitability. The growth processes must focus on operations which can generate profit through the
development of markets and the targeting of efficiencies and partnerships which can benefit from economies of
scale;
- growth through new products and new markets. In particular, growth should take place through product range
diversification and expansion on foreign markets;
- the promotion of a distinctive distribution system, which incorporates the opportunities presented by the
business model - increasingly focused on centralisation - maintaining however distribution flexibility and
efficiency and based also on the economies of scale which may be generated in high volume distribution areas.
56 Granarolo Group 2013 Directors’ Report
The industrial strategy
The industrial strategy of Granarolo in 2013 focused on the development of the path established in 2008, optimising the sourcing of raw materials and finished products, reducing processing costs through improved efficiency, while always prioritising the improvement of product quality and safety in the workplace.
In light of the significant increase in foreign raw material purchases prices, the focus of the production structures turned particularly to the containment of fixed processing costs, the internal production of all products categories currently carried out by co-packers through investments or the development of existing lines and the acceleration of plant development to accompany the increase in cheese product processing yields. In particular, the issues upon which inter- departmental projects were developed included:
- research of maximum synergies between planning of production, purchasing of raw materials and their
allocation;
- revision of the raw material and finished product purchasing strategies;
- optimisation of the production and technical support for product innovation;
- maximisation of the internal value of milk components (processing yield);
- optimisation of the production structure through the re-allocation of cheese production;
- saturation of the production lines with production for third parties or private labels;
- introduction of efficiencies to the production lines through a WCM methodology;
- energy consumption efficiency, particularly with regard to waste reduction;
- develop plans for the improvement of quality, food safety and workplace and environmental safety;
- constant targeting of the maximum production flexibility possible through specific trade union agreements.
The 2013-2016 industrial plan
During 2013, particular focus was placed on the following projects:
- production integration of the Usmate facility within the Granarolo production network, with reorganisation of the
factory;
- innovative cheese technology developments, with restyling of the production lay-out;
- optimisation of the semi-finished and finished product production, with particular regard to dairy yields and
production wastage;
- introduction of the UHT pack with cap lines at all factories;
57 Granarolo Group 2013 Directors’ Report
- internal productive development of Baby and Kids products (milk and yogurts);
- focus on commercial, planning, purchases and production departments integration with new organisational
structures;
- internal production development of hard mature cheeses;
- completion of the integration process of the Sestu facility with all Supply Chain organisational structures.
Cheese production was developed thanks to the production concentration projects at Usmate (ricotta) and the increase in the production capacity at Bologna (mozzarella). Significant focus was given to the quality aspects of fresh pasta
(pulled-curd) cheeses, supported with the quality assurance department and the development of innovative and industrially efficient control methodologies. The organisation of labour also allowed flexibility in production scheduling, supporting commercial requirements.
For the UHT/ESL products a greater development of the domestic raw material was targeted, rationalising at the same time packaging. The “new UHT milk pack” project, which involved three production sites (Pasturago, Soliera and Gioia del Colle), was completed in advance. The new bottle lines allocated to Gioia del Colle has enabled a significant reduction in the use of external co-packers and developed the Italian raw material produced in the region. The yogurt production lines at the Pasturago production facility focused particularly on multi-format and multi-flavour products, where greater production flexibility and ability to react are required.
It is important to note that all of the product families were subject to the innovation process (fresh milk, UHT products, yogurt and dairy), also with the launch of new children’s products.
Production standard improvement
Through WCM (World Class Manufacturing) methods, but particularly due to a daily control of the results, each production site has introduced projects to maximise the processing yields and to reduce waste, whose effects were consolidated in the year.
In the production sites in which improvement processes have been in place for some time, the objectives were achieved, both those related to the reduction of raw material losses and those related to the use of packaging and ingredients. The amount of labour per tonne produced was in line with budget, thanks to a reduction of 6.3% vs 2012; the negative effect from the reduction in production volumes (-5.8%) was therefore contained.
The indicators concerning the industrial use of energy were entirely in line with Group objectives (-2.8% of overall costs), despite the overall reduction in volumes of UHT and fresh milk produced, thanks to the contribution from the full
58 Granarolo Group 2013 Directors’ Report employment of co-generation plant.
Energy saving projects in relation to the consumption of methane and electricity will start up also in 2014.
The projects developed in 2012 and 2013 resulted in an improvement in the quality of self-production also for the Usmate
Velate production facility; the number of complaints/tonne improved by 13% compared to 2012.
In terms of security, it was decided to extend the pilot project at the Pasturago facility based on the Du Pont methodology also to the other Group facilities. The project will be developed over the 2014 and 2015 period.
The objectives were reached thanks to an important training plan and targeted investments (17% of total capex concerned quality, security and environment).
Structure reorganisation
The turnover and change management project continues, which seeks to introduce the value of industrial efficiency within the operating culture, through the use of accounting and management instruments.
The introduction of a daily factory yield reporting system also to the Usmate Velate production site, but particularly the full implementation of the ERP SAP system, enables an increasingly complete and quick knowledge concerning the production processes, in order to facilitate decision-making and improve the analysis of its consequences.
The organisations of the production sites were updated, better defining the organisational roles of the individual departments and the individual managers.
The progressive introduction of the SAP system to the production structures required an extensive analysis of the processes and of the professional and organisational changes both at a production employee level, and at managerial level. Particular emphasis was placed on strengthening the managerial and financial roles. This activity will continue also in 2014.
Particular focus and attention was also placed on the process management roles for third party brand products where reliable forecasts were not possible.
Integration of the Sestu production facility
Throughout 2013, the integration continued of the Sestu facility - the production site of Casearia Podda S.r.l..
The Sestu production structure was modified, closing the non-typical fresh cheese production area and concentrating on the production of Sardinian cheeses, creating also a strategic logistical hub for the distribution of all Group products in the Sardinian Region.
59 Granarolo Group 2013 Directors’ Report
Also in this case particular attention was focused on all qualitative aspects of the production process, coordinating the internal functions and those of the other production sites of the Central-South Italian region.
A number of specific activities were initiated in 2014, such as:
- analysis and rationalisation of suppliers of cattle, sheep and goats;
- improvement of cheese yields and redrawing of recipes;
- analysis of logistical flows and redesigning of the assets;
- improvement of food quality and security;
- improvement and strengthening of environmental management and of products;
- ERP SAP manufacturing and product costing implementation;
- extension and restructuring of the logistic platform.
The results of the actions were seen during 2013 and will be consolidated in 2014.
Integration of the Castrovillari production facility
From April 2013, the Assolac production facility of Castrovillari joined the Granarolo production network, through the rental of the productive and commercial business unit by the subsidiary Calabrialatte S.p.A..
As occurred at the Usmate Velate and Sestu facilities, in 2013 the progressive integration of the Granarolo Group industrial systems began, with a particular focus on the following processes:
- improvement in cheese yields and redrawing of recipes;
- improvement in food quality and security;
- analysis of the logistical flows of fresh milk, with their optimisation and integration with the other production
facilities;
- ERP SAP manufacturing and product costing implementation;
- integration with the Group’s environment and security management.
The results will consolidate in 2014.
60 Granarolo Group 2013 Directors’ Report
The commercial strategy
Supermarket channel
In 2013, the crisis level of retail sales of packaged food products was confirmed. The grocery product performance, on a same store basis, fell in value terms by 0.8% compared to 2012, with a more marked reduction in volume terms (-1.2% vs 2012). The individual channels however reported divergent performances, with a significant reduction in sales in value terms for hypermarkets (-3.9% vs 2012), small supermarkets (-8.5% vs 2012) and traditional stores (-8.0% vs 2012), with supermarkets and superstores gaining ground (+1.8% vs 2012) and significant growth for the discount stores (+5.1% vs
2012) and specialist drug stores (+4.6% vs 2012).
The sales dynamic by geographic area highlights a decrease in consumption across all areas, although at divergent rates: the sales trend in value terms for the hypermarkets and small supermarkets of Central Italy saw the worst performance with a reduction of 2.7% vs 2012, while the North-East and South contracted 1.1%. Only the North-West contained its loss (-0.4% vs 2012).
Two aspects must be considered: the further increase in promotional activity, which in 2013 reported an intensity of
28.7% (+1.3%), with the hypermarkets reporting 34.8% (+0.9%). The other factor to be noted is the continued increase in market share for private labels, which reached 18.4% (+0.8%).
Source: Nielsen Top4Top December 2013
In this critical situation, the development of the Granarolo Group is based on three guidelines:
1) greater focus on margins;
2) tapping into the new markets-opportunities in the fresh cheeses, aged cheeses and yogurt segments;
3) implementation of a growth plan, focusing on innovation and satisfying the concrete needs of consumers (for example lactose free and light product lines).
Normal Trade channel
Handled also by Zeroquattro, the normal trade channel, i.e. traditional retail and outside home consumption, has a 2014 objective to maintain core category (milk, yogurt and cheeses) revenues through a commercial policy targeting the development of distribution coverage and the alteration of the sales mix. The distribution and sale structure of
Zeroquattro is based on the sale of product categories other than those managed by Granarolo, in order to maximise and extend the offer of products on the normal trade channel.
61 Granarolo Group 2013 Directors’ Report
Food Service
Granarolo in 2013 concentrated principally on large customers, which manage a number of sales points throughout the country and grew cheese segment values, in particular in the mozzarella category, which reached nearly 30% of channel revenues.
In 2014, the focus of the channel will concern the recovery of the margin, thanks to a strategy centred on two principal pillars: restructuring and development.
Restructuring:
- of customers: transfer of many smaller potential and peripheral customers to the immediate supply channel for
more efficient management;
- of distribution: interruption of non-economical supplies to a number of specific customers;
- of the product range: withdrawal from the portfolio of low volume/margin products, also to benefit production
efficiency.
Development:
- of potential new or existing customers, leveraging on the offer of a wide “package” of products;
- of potential sales channels, also overseas, such as for example ship supplies.
Private Labels
Granarolo in 2013 strengthened its position on the Italian private label market, favouring higher value orders (interruption of lower margin and/or lower volume orders which have caused production inefficiencies) and achieving double-digit revenue growth over the average private label performance on the principal milk-dairy categories in which Granarolo competes.
In 2014, the strategy will centre on three principal pillars:
- focus on high value product categories, including hard cheeses and high service content products (e.g.
mozzarella in innovative packs) and with the contemporaneous restructuring of low margin orders;
- proposal to new and/or potential customers of a diversified range and unique on the Italian market - in terms of
extent and depth;
- development opportunities on the discount stores channel, with a sufficient margin thanks to a focus on non-
commodity categories and the optimisation of logistic-productive management.
62 Granarolo Group 2013 Directors’ Report
Foreign markets
The creation of Granarolo International stems from the strategic significance placed on the development of sales of all
Group products outside of Italy.
The growth plan is based on three pillars:
- creation of partnerships with producing companies on foreign markets
- creation of new companies for the sale of Granarolo products (the latest being Granarolo UK which will
distribute Granarolo products in Great Britain and Ireland)
- development of the foreign distribution network
The logistical – distribution strategy
In 2013, milk volumes sold contracted further (approx. 30,000 tonnes, -4.5%), resulting in the necessary streamlining of costs across all activity areas and a commercial development focused on improving margins, both for the Immediate
Supply channel and for the distribution service to other customers.
This latter activity increased by a further 20% on the previous year, substantially confirming budget forecasts, despite the generally challenging economic environment, with the contraction in consumption significantly impacting also the service activities related to the food product market.
Compared to 2012, the Zeroquattro consolidation scope also included:
- the activities of the logistical-distribution unit of the former Latticini Italia from January 31, 2013, together with
the incorporation into Granarolo of the industrial unit of the same subsidiary;
- the movement and transport activities of Codipal, a new acquisition by Granarolo on the French market.
In terms of costs, in addition to the ongoing streamlining of the distribution network in order to ensure business sustainability, reducing the gap between the ongoing contraction in volumes and specific cost inflation, a further internal personnel restructuring plan was necessary, which involves in particular the commercial areas in Italy and recourse was made to government-sponsored temporary lay-off scheme for 30 employees from June.
Finally, the logistics activities concerning the Bologna platform and its immediate supply areas from April were impacted by frequent entering and exiting goods blockages due to the protest actions of a number of independent trade union organisations, although in the absence of a direct dispute with Zeroquattro and Granarolo.
The policy of Zeroquattro, in relation to the 2014 budget - but also with a medium-term view - is focused principally on
63 Granarolo Group 2013 Directors’ Report three objectives:
- adjusting the distribution system to supermarket developments, concentrating increasing product volumes (in
particular of fresh milk) on shorter and therefore less costly deliveries and negotiating differentiated pricing with
the major stores, in relation also to the service content;
- simultaneously redefining the mission of the sales force according to a specialised commercial profile, stemming
from the Parent’s development strategies in the cheese sector, both for fresh and extra-fresh and hard cheeses,
although also allowing an increase in the unitary value of commissions as agents;
- investing in the specific skills and capacities required in the relevant channel markets (normal trade, low
weighting ho.re.ca, etc.). for the development of the commercial representation outside of the Granarolo Group,
in particular with leading fresh food brands.
Human Resources strategy
The challenge and therefore the strategy for Human Resources – as has been the case in the most recent years of the economic crisis – is to work in harmony with the various corporate levels to ensure the sustainability of the Group and its capacity to achieve the growth objectives established by the 2012-2016 industrial plan.
In 2013, a reorganisation of the Usmate Velate (former Latticini Italia) production site was completed and a number of important organisational actions in support of Granarolo strategy to develop foreign markets were introduced, with a view to improving managerial talent within the company.
The acquisition of the French Group CIPF Codipal marks a significant advancement in the Group international expansion strategy, crystallising in current and concrete terms the issue of the integration of organisations and cultures – both national and entrepreneurial – other than those historically employed by the Group. From this point of view, the challenges are multiple: ensure plan synergies, encourage integration based on the managerial and organisational culture of Granarolo, protecting at the same time the distinctive skill sets and dynamism which initially made the acquired enterprise attractive and which comprise a fundamental value for the development of the Group in new market areas.
From an operating viewpoint, within an increasingly complex market, subject to change and with a real need for an organisational capacity which can adapt quickly to new situations, the entrepreneurial ability – therefore the ability to accept challenges and opportunities in an innovative and inclusive manner – has more than ever become a key managerial value for the support and development of the organisation at all levels:
- promoting professional opportunities, both vertically, within the department, and laterally, enhancing “mature”
64 Granarolo Group 2013 Directors’ Report
skills in new environments, such as for example those required by the international expansion challenge, with
particular focus on talented employees and high potential young employees within the organisation;
- ensuring an organisational structure increasingly focused on targeted business objectives, in which business
talent can best express itself;
- assisting new personal challenges with specific company policies, both in terms of training and a professional
recognition and remuneration system;
- encouraging the establishment of a corporate culture in which the emergence of talent is not suffocated by the
rigidity of a hierarchical system.
The following essential guidelines in terms of industrial relations were confirmed:
- ensuring productive reorganisation/refocusing in line with the synergies/efficiencies achievable within a
constantly evolving Group with acquisition procedures and/or with the development on new markets;
- managing such processes in socially sustainable terms, with strategic importance included as a necessary
factor for the development of the Group, the absence of which may affect the necessary consensus needed to
ensure that corporate actions may deliver the best results in terms of efficacy, flexibility and adaptability.
65 Granarolo Group 2013 Directors’ Report
IT systems and processes strategy
In 2013, the Group IT systems were subject to an organisational structure review and became part of the Administration,
Finance and Control Department.
The activities carried out in the various sectors were as follows:
Infrastructure area
The SAP migration was completed with the total disengagement of the previous infrastructure and of all data centres of the companies acquired in the last two years. These activities were consolidated in the data centre of the Bologna headquarters.
The primary Group data centre was restructured, with an improvement of the security standard and a particular focus on energy efficiency.
In line with the internal security standards, a new centralised backup service of the workstations was introduced and an important structural and applicational business continuity project was concluded, which guarantees a high level of reliability for the IT managed production systems.
Processes area
In line with the industrial plan, activities focused principally on the integration projects of all the business processes of
Assolac, guaranteeing in significantly reduced times full operability within the Group Shared Service Based operating model and of the process assessment phase of CPF Codipal in France.
In the logistics area, the consolidation of the processes related to delivery flows continued, with particular attention on the transport module.
In the administration, finance and control environment, the inter-departmental workflow master data management projects concluded, with the adjustment to the SEPA model and a new procedure for the management of client disputes was introduced. Together with these projects, the Electronic Data Interchange (EDI project) was extensively developed, with applicational improvements to support the “fast closing” for the accounting closure process.
In relation to the governance of the Group IT systems, an Assessment project related to the segregation of duty (SOD) processes was introduced, in addition to the implementation of the Identity Management (IM) system, which controls user access to applications and critical data, protecting at the same time personal data from unauthorised access.
In the HR area, the project focusing on the insourcing of the payroll processes was successfully concluded.
66 Granarolo Group 2013 Directors’ Report
GROUP RESULTS
In 2013 the Granarolo Group posted revenue of close to Euro one billion, reporting a figure of Euro 993 million, through continual growth over recent years - due both to existing market development policies and key acquisitions in Italy and, particularly, abroad.
This result is considered even more satisfying in light of the extensive general economic difficulties and the mature and highly competitive nature of the market.
The contribution to revenue growth from sales and acquisitions is illustrated in the following table:
milion Euro of
Revenue Like CSL Podda Codipal Revenue 2012 for like 2013
Group EBITDA totalled Euro 50.2 million, with a 5.1% margin, down on 2012 by Euro 9.9 million - due essentially to the significant inflation in raw material prices throughout 2013.
The profit margin following the increase in revenue and the unavoidable increases in sales prices in fact was substantially absorbed by the increase in the price of milk and other raw materials, while recoveries were achieved on production yields and distribution costs through the ongoing industrial efficiency improvements and the investments made.
The significant contribution of the newly acquired Codipal Group to group revenue and profit margins is highlighted, confirming the Group industrial strategy outlined in the 2012-2016 strategic plan.
The Granarolo Group also reviewed its marketing strategy, favouring innovative approaches and new communication channels, which have permitted a reduction in the advertising promo spend, although ensuring adequate product support
67 Granarolo Group 2013 Directors’ Report
- in particular for recently launched products.
EBIT totalled Euro 17.0 million, a 1.7% margin, down Euro 10.2 million on the previous year.
The Group benefitted from a net gain of Euro 13.0 million from the sale of Centro Sperimentale del Latte S.r.l. and its
French subsidiary. The sale of CSL, together with the significant contribution of Cooperare S.p.A., the new shareholder of Granarolo International, provided the Group with the large part of the necessary resources for the acquisition of the
Codipal Group.
Idle production assets were written down during the year and a prudent approach was adopted for the measurement of the goodwill of the “Dairy and other” CGU, recognising a write-off of approx. Euro 5.0 million, in addition to continuing organisational restructurings and increasing the restructuring provision allocation by approx. Euro 2.0 million.
The consolidated net profit amounted to Euro 8.5 million.
From a financial viewpoint, the Group improved its net debt by Euro 7.3 million - down to Euro 127.6 million at the end of
2013.
Equity increased by Euro 14.7 million to slightly under Euro 200 million (Euro 197.6 million).
68 Granarolo Group 2013 Directors’ Report
RESULTS OF OPERATIONS
The reclassified consolidated income statement is reported below.
Reclassified income statement (thousands of Euro) 12/31/2013 12/31/2012 Change Cge.% Revenue from sales and services 992,891 100.0% 922,552 100.0% 70,338 7.6% Direct production costs (739,705) -74.5% (659,774) -71.5% (79,931) 12.1% Contribution margin 253,186 25.5% 262,778 28.5% (9,593) -3.7% Sales, marketing and commercial expenses (144,496) -14.6% (147,661) -16.0% 3,165 -2.1% Cost of indirect labour (34,795) -3.5% (32,851) -3.6% (1,944) 5.9% Other operating costs (24,377) -2.5% (23,464) -2.5% (913) 3.9% Other income and charges 636 0.1% 1,265 0.1% (629) -49.7% EBITDA 50,154 5.1% 60,068 6.5% (9,913) -16.5% Amortisation of trademarks (5,425) -0.5% (4,218) -0.5% (1,207) 28.6% Amortisation of intangible assets (4,100) -0.4% (1,973) -0.2% (2,127) 107.8% Depreciation of property, plant & equipment (27,319) -2.8% (23,288) -2.5% (4,031) 17.3% Impairment losses (5,001) -0.5% (2,199) -0.2% (2,803) n.s. Non-recurring income and charges 8,698 0.9% (1,175) -0.1% 9,872 n.s. EBIT 17,007 1.7% 27,216 3.0% (10,209) -37.5% Net financial charges (10,700) -1.1% (9,657) -1.0% (1,043) 10.8% Actuarial loss on defined benefit plans (514) -0.1% (912) -0.1% 398 n.s. Investment income/(charges) 1 0.0% (0) 0.0% 0.97 n.s. Pre-tax profit 5,794 0.6% 16,646 1.8% (10,852) -65.2% Income taxes 2,712 0.3% (5,125) -0.6% 7,836 -152.9% Profit for the year 8,506 0.9% 11,521 1.2% (3,016) -26.2%
It should be noted that the EBITDA and EBIT margins are not universal accounting measures, either under Italian GAAP or in the IFRS adopted by the European Union. Therefore these performance indicators and the criterion for the determination adopted by the Group may not be uniform with those adopted by other groups and, therefore, they may not be comparable with these latter.
69 Granarolo Group 2013 Directors’ Report
SALES REVENUE
Sales revenue by business unit compared with the previous year is reported below.
Revenue from sales & services (thousands of Euro) 2013 2012 Change Cge. % Revenue from sales of products 978,919 899,169 79,750 8.9% Revenue from services 13,972 23,383 (9,411) -40.2% Total 992,891 922,552 70,339 7.6%
Overall, revenue in 2013 increased by Euro 70.3 million (+7.6%).
This is principally due to the change in the consolidation scope following the consolidation of Codipal Group sales beginning March 1, 2013. The decrease in sales on a like-for-like basis with respect to the consolidation scope was Euro
24.5 million (-2.7%).
For greater clarity, a breakdown of sales revenue is reported, highlighting the contributions from the consolidation scope changes.
Revenue (thousands of Euro) 2013 2012 Change Cge. % Total Group 992,891 922,552 70,339 7.6% of which CSL 1,649 8,921 (7,272) of which Podda brand 12,597 6,493 6,104 of which Codipal Group 95,651 - 95,651 Total Group on a pro forma basis 882,994 907,138 (24,144) -2.7%
The Milk and Beverages CGU reports a 3.6% revenue reduction, due to lower volumes on reduced consumption.
The Dairy and Other CGU reports strong growth due to the inclusion in the Group consolidation of Codipal beginning
March 1, 2013.
Revenue from Cash Generating Unit (thousands of Euro) 2013 2012 change cge.% Milk and beverages 460,940 477,919 (16,979) -3.6% Dairy and others 531,951 444,633 87,318 19.6% Total revenue from sales 992,891 922,552 70,339 7.6%
70 Granarolo Group 2013 Directors’ Report
The historic predominance of the Milk and Beverage CGU, which in 2012 accounted for 52% of Group revenue, ended with the Dairy and Other CGU reporting the larger share - also thanks to the acquisition of the Codipal Group.
Group sales are traditionally concentrated in Italy (86% of revenue), although the percentage of foreign sales increased in 2013 compared to the previous year.
Foreign sales in fact increased significantly, with growth of 187% in the EU and a 10.6%reduction in non-EU revenue.
The reduction in non-EU revenue was principally due to the sale of Centro Sperimentale del Latte S.r.l. on March 1,
2013, which was very active on foreign markets.
Revenue from sales (thousands of Euro) 2013 2012 Change Cge.% Italy 852,637 866,408 (13,771) -1.6% European Union 130,743 45,500 85,243 187.3% Non-European Union 9,511 10,644 (1,133) -10.6% Total revenue from sales 992,891 922,552 70,339 7.6%
71 Granarolo Group 2013 Directors’ Report
PRINCIPAL COST ITEMS
Direct production costs
In 2013, direct production costs increased 12.1% due to inflation effects and the change in the consolidation scope: the total effect on Group sales increased by 3% on 2012.
In relation to raw materials, in 2013 a significant contribution to the increase related to the inflationary elements on both the national and international markets during the year.
Selling, Marketing and Commercial costs
These costs represent one of the largest account items, are strictly related to the type of service required by the sales organisation and the distribution structure throughout the country and include marketing and trade marketing costs.
In 2013, direct sales costs decreased 2.1% on 2012 and accounted for 14.6% of revenue.
This cost account includes the charges incurred for transporting the products from the production sites to the final consumer, such as:
- primary logistical costs, necessary for the transfer of the products from the production facilities to the distribution
platforms and then onto the transit points of the group and to the clients which utilise their own distribution
centres;
- distribution costs incurred to deliver the product from the transit points to the sales points of the clients;
- operating costs of the logistical department: costs incurred for the management of the platforms, of the transit
points and transportation of the products within these structures;
72 Granarolo Group 2013 Directors’ Report
- marketing costs concerning the communication campaigns and trade marketing activity costs incurred through
sales point initiatives.
The decrease in direct sales costs in 2013 principally stems from a reduction in communication and marketing investments following the revenue contraction and a focus on alternative advertising channels considered to perform better than the traditional channels, in addition to greater overall distribution network efficiency.
Indirect labour costs
In 2013, labour costs increased on 2012, entirely due to the altered consolidation scope following the inclusion of the
Codipal Group for ten months. The revenue percentage remains stable.
Overhead costs
Overhead costs in 2013 are the same percentage of revenues as in 2012 (2.5%), while increasing by Euro 0.9 million on
2012 in absolute terms due to the consolidation of the Codipal Group. This account includes:
- operating costs of the commercial department: travelling costs incurred by the sales team;
- operating costs of the marketing department: costs incurred for market analysis and operational management
costs of the regional areas;
- operating costs of head office: administrative costs, quality control, research and development, IT systems and
human resources.
Impairment losses
Impairment losses include:
- the impairment of the Dairy and other CGU goodwill for Euro 2,930 thousand, following the impairment test on
the net invested capital;
- the losses on disposed industrial buildings (Castel San Pietro, Novara and Acqui Terme) for Euro 1,940
thousand and office use buildings for Euro 80 thousand.
- development projects not yet concluded for Euro 43 thousand;
73 Granarolo Group 2013 Directors’ Report
Non-recurring income and charges
Non-recurring charges relate to consultancy costs and other charges relating to business combinations for Euro 4,305 thousand and to the gain from the sale by Granarolo S.p.A. of the entire holding in Centro Sperimentale del Latte S.r.l..
This latter generated a gain in the consolidated financial statements of Euro 13,000 thousand (reference should be made to section ‘6. Accounting policies and the ‘Business Combinations and other acquisitions’ paragraph of the notes to the consolidated financial statements).
Financial income and charges
Net financial charges amount to Euro 10.7 million. The principal increase on the previous year relates to the interest margin on the Pool loan signed in October 2012 for Euro 100 million, which was higher than the average of the medium/long-term loans in place in 2012 and the interest on the factoring of the 2012 annual VAT receivable without recourse, necessary at the beginning of 2013 in view of the payment delays by the Italian Tax Department.
Income taxes
Income taxes in the year amounted to net tax income of Euro 2.7 million and include:
- current income taxes for the year of Euro 5.0 million;
- net deferred tax income totalling Euro 5.6 million, arising on temporary timing differences;
- other taxes for Euro 2.1 million, which principally include the reversal of the excess taxes from the tax risks
provision and the prior year income from the calculation of the IRES repayment concerning the full deductibility
of IRAP from labour costs.
The parent Granarolo S.p.A. reports a tax loss for 2013 due to some significant non-recurring decreases, such as the gain on the sale of the investment in Centro Sperimentale del Latte S.r.l. which, in accordance with the law (the so-called
PEX), has a reduced tax rate.
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The reclassified consolidated statement of financial position is reported below, highlighting the total net invested capital and the corresponding sources of funding: from capital contributions (Equity) and from financial debt:
31/12/2013 31/12/2012 Change Trademarks 85.715 73.904 11.811 Goodwill 55.922 38.226 17.696 Intangible assets 17.493 7.844 9.649 Property, plant & equipment 292.603 285.545 7.058 Investments 517 135 382 Other intangible assets 1.988 1.903 85 A Total fixed assets 454.238 407.557 46.681 Inventories 53.991 47.716 6.275 Trade receivables 163.116 175.796 (12.680) Trade payables (316.435) (310.628) (5.807) Payables to employees and social security charges payable (18.811) (18.283) (528) Other receivables 18.088 10.951 7.137 Other liabilities (20.236) (14.863) (5.373) Tax assets and liabilities 40.591 74.864 (34.273) B Total other assets and liabilities (79.697) (34.446) (45.251) Employee benefits (19.920) (20.498) 578 Provisions for risks and charges (29.396) (44.334) 14.938 C Total provisions (49.316) (64.832) 15.516 D=A+B+C Net invested capital 325.225 308.279 16.946 E Assets and liabilities held for sale 9.494 (9.494) F=D+E Total net invested capital 325.225 317.773 7.452
Share capital paid-in 157.939 157.939 Reserves 31.174 13.448 17.726 Profit (loss) for the year 8.506 (27.318) (3.015) G Equity 197.619 182.908 14.711 Medium/long term debt 139.621 126.921 12.700 Short-term debt 97.259 89.899 7.360 Financial assets and cash (109.274) (81.955) (27.319) H Net Financial debt 127.606 134.865 (7.259) I=G+H Equity and Debt 325.225 317.773 7.452
Account E – Assets and liabilities held for sale at December 31, 2012 includes the assets and liabilities concerning the companies Centro Sperimentale del Latte S.r.l. and CSL France S.A.S., as per IFRS 5 following their sale by third parties in the first months of 2013.
For the notes to Net invested capital and Equity, reference should be made to the section “Notes to the Consolidated
Statement of Financial Position” of the Granarolo Group Annual Report.
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NET FINANCIAL POSITION
The breakdown of the Net Financial Position of the previous table is reported below.
(thousands of Euro) 12/31/2013 12/31/2012 Change
Bank loans and borrowings (70,715) (103,673) 32,958 Bond loan (49,395) - (49,395) Loans and borrowings from other lenders (1,473) (8,595) 7,122 Payables to non-controlling interests (1,132) (1,132) - Derivative instruments (2,507) (344) (2,163) Payables to leasing companies (14,399) (13,177) (1,222) Non-current financial debt (139,621) (126,921) (12,700)
Bank loans and borrowings (40,014) (53,669) 13,655 Loans and borrowings from other lenders (7,147) (800) (6,347) Payables to non-controlling interests (24,200) (1,089) (23,111) Derivative instruments (561) - (561) Payables to leasing companies (2,011) (1,718) (293) Payables to factoring companies (23,326) (32,623) 9,297 Current financial liabilities (97,259) (89,899) (7,360)
Non-current securities 4,178 3,894 284 Non-current financial receivables 1,902 1,900 2 Derivative instruments 11 18 (7) Non-current financial assets 6,091 5,812 279
Securities 6 - 6 Short-term financial receivables 46 10,074 (10,028) Current financial assets 52 10,074 (10,022)
Cash and cash equivalents 103,131 66,069 37,062
Net Financial Position (127,606) (134,865) 7,259
The Granarolo Group net debt decreased by Euro 7.3 million, based on a combination of three factors:
- generation of cash from operating activities, accompanied by improved trade working capital management due to
the new regulation;
- acceleration of the collection of the VAT receivable, which at the end of 2012 reached an extraordinary peak of
approx. Euro 78 million; offset by:
o investments of Euro 32 million;
o payment of dividends for Euro 5 million;
o increase in the net debt of approx. Euro 16 million, as a result of extraordinary activities (impact of the
acquisition of the Codipal Group for Euro 38 million and the consolidation of the relative debt for Euro 7
76 Granarolo Group 2013 Directors’ Report
million, net of the increase in the share capital of Granarolo International subscribed by Cooperare for Euro
9 million and the generation of cash from the sale of Centro Sperimentale del Latte for Euro 20 million)
Bank loans and borrowings remained almost unchanged. Non-current loans in 2013 of over Euro 60 million were offset by the drawdown of a new loan of Euro 15 million with maturity at September 31, 2017 and the issue of a bond for a notional amount of Euro 50 million.
On December 23, 2013, Granarolo S.p.A. finalised a private placement operation on the European market, issuing a bond for a notional amount of Euro 50 million, which was listed on the Luxembourg Stock Exchange and underwritten by professional investors.
The bond, which provides for repayment in one single sum on December 20, 2019 and the payment of an annual coupon at a fixed interest rate, is part of the Granarolo strategy to extend the medium/long-term debt maturity.
The high level of liquidity and the increase on the previous year (approx. Euro 27 million considering also the Euro 10 million of time deposits at December 31, 2012) reflects the strong concentration of receipts in the last two days of the year and the cash received on December 23, 2013 following the previously stated bond issue for a notional Euro 50 million.
The account payables to factoring companies concerns the factoring of receivables under non-recourse factoring programmes which impacted available liquidity and were not yet paid to the factoring company at December 31, 2013.
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RISK ANALYSIS
The principal risk factors and uncertainties which could significantly affect the activities of Granarolo S.p.A. and its subsidiaries are outlined below.
Additional risks and uncertain events, currently unforeseeable or considered at the moment improbable, may equally affect the activities, economic and financial conditions and the outlook for the Granarolo Group.
Risks related to commercial activity
The Group operates in the dairy sector, which features a high level of competition and the presence of a large number of operators. The principal competitors are large international groups which focus on acquisitions within the industry, often with high levels of financial resources, in addition to focusing on greater diversification, both at portfolio level and geographically and with commercial distributors who operate under their own brands (private labels) and who implement aggressive competitive strategies.
The competitive positioning of the Granarolo Group, which holds leading market positions, translates into a particularly significant risk concerning market competition.
To offset this risk, the Group pursues differentiation policies in relation to the product offer, the quality/price and the commercial positioning.
Compliance and security risks of products
For the Granarolo Group, ensuring the quality of its products is a fundamental objective. Control Procedures have been put in place in order to guarantee compliance and security, in terms of the quality and the healthy nature of the products produced in the Group factories, in line with legal requirements, in addition to voluntary fulfilling certification standards.
Guidelines were also established for the management of accidental events, such as the withdrawal or recall processes for products from the market.
Risks related to raw material prices
The Group is exposed to raw material price risk. In relation to the management of this risk, the Company does not use financial markets to hedge the risk, but undertakes partial hedging policies of the fluctuation risk of the cost of the principal raw material – milk – through contracts signed with a major supplier, which fixes prices on an annual basis.
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Risks related to environmental policies
The industrial activity of the Group does not involve particular risks related to the environmental policy; however the
Granarolo Group places particular attention, through dedicated personnel, to safety, the prevention of environmental pollution and the disposal of waste and of water.
Employee risks
Relations with employees are governed and protected by collective work contracts and regulations. Any reorganisation and restructuring, considered strategically necessary, is carried out based on agreed plans and shared with the worker’s representatives. The Group on an ongoing basis monitors the workplace environment safety and puts in place procedures and investments to continually reduce the rate of workplace accidents.
Finance risk
The principal Group financial instruments include short and medium-term bank loans, finance leases and bank deposits.
The principal objective of these instruments is to support the operating activities of the Parent and the subsidiaries.
Granarolo S.p.A. has various other financial instruments such as trade payables and receivables related to operational activity.
Derivative hedging financial instrument operations were also carried out, principally interest rate swaps and caps, in order to hedge movements in these rates. The Granarolo Group does not hold speculative derivative instruments.
The risks managed by the financial instruments utilised for the Group are: interest rate risk, exchange rate risk, price risk, credit risk and liquidity risk.
Interest rate risk
The Group, which has loans at variable interest rates, has an exposure to an increase in interest rates which could increase future financing costs. In order to offset this risk, a number of derivative hedging contracts were undertaken, which hedge a part of the Parent’s exposure and establish for the swap of a differential between the variable rate and one or more pre-established fixed rates, applying a notional value, or fixing a maximum variable rate ceiling.
Exchange rate risk
In relation to the exchange rate risk, the Parent’s exposure is considered contained due to the low amount of
79 Granarolo Group 2013 Directors’ Report transactions carried out in foreign currencies - both purchases and sales.
Credit risk
The Group credit risk represents the exposure to potential losses deriving from the non-compliance with obligations by counterparties.
The Group is not particularly exposed to credit risk concerning clients as principally dealing with well-known and reliable clients, in particular supermarket chains. The Granarolo Group has undertaken Factoring contracts, principally in the
“non-recourse” form, which establishes for the transfer of credit risk to the Factoring company. However, the poor economic environment has impacted the ability of clients to meet their commitments, increasing the credit risk to which the Granarolo Group is exposed.
The credit risk concerning other financial assets, which comprise cash and cash equivalents, presents a maximum value equal to the book value of these activities in the case of insolvency of the counterparty.
The Group has in place credit control policies which analyse the reliability of customers, allocating a credit limit, and processes for the control of the exposure through aging reporting, and of the average payment times with the DSO (Days
Sales Outstanding) by individual customers. Within the SAP customer management system, public data is collated
(financial statements, complaints, etc.) which, together with the internal evaluations comprise a rating system of the
Group.
This process establishes for ongoing control and monthly comparison by the administrative-commercial sectors.
Customers invoiced less than a minimum threshold per year are required to pay on delivery, as is the case for all new customers. In addition to the control of the credit, the process considers the customer administrator which manages disputes on prices, allowing a quicker solution to the problem and therefore of receipt.
Liquidity risk
The liquidity risk concerns the risk that the financial resources available to the company are not sufficient to meet financial obligations under the pre-established terms and maturities.
The Group has adopted policies to optimise the management of financial resources through the maintenance of adequate levels of liquidity, through obtaining adequate credit lines and through the continuous monitoring of future liquidity conditions. In order to ensure that unforeseen cash payments do not represent a critical issue, the objective of the company is to ensure a balance between the maintenance of funds and flexibility through the use of liquidity and
80 Granarolo Group 2013 Directors’ Report available credit lines.
In relation to the bank loans and borrowings, some loans are bound by financial covenants relating to EBITDA, net debt, equity and net financial charges, as established by the specific loan agreements; these obligations are not considered to affect the financial stability of the Parent and were complied with in 2013.
The current portion of the bank debt was covered by available liquidity, while the non-current portion is broken down equally over future years.
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INVESTMENTS
Capital expenditure in 2013 totalled approx. Euro 22.5 million, broken down respectively by production site and type of investment:
Industrial investments by site Industrial investments by category Quality Saint Genix sur Safety Gioia Del Colle Assurance New products Guiers 3% 18% Environment 8% development 1% 4% 19% Anzio 1% Usmate 22% Sestu Soliera 5% Productivity 18% Pasturago Maintenance 14% Bologna 13% R&D & HQ 52% 18% 0% Campagne-les Wardrecques Castrovillari 4% 0%
In 2013, the majority of investments concerned maintenance, with extraordinary maintenance carried out on existing plant.
The installation of MID lines and those for the new brik with cap carton was carried out at all production sites (Pasturago,
Soliera and Gioia del Colle).
The Gioia del Colle facility this year also received significant investment, both in the production and utility areas. The production of UHT 1litre PET milk bottles in fact began, enabling the internal production of volumes previously outsourced to co-packers. Tests to be carried out in 2014 will allow for the production also of ESL products. Other significant investments concerned the internal production of electricity through the installation of a 1.0 MW co-generation motor.
Investments for the creation of other co-generation plant for the joint production of electricity and heat concerned also the sites of Soliera (2.0 MW) and Pasturago (3.3 MW).
Thanks to the new investments, in 2014 the self-production of 50% of our productive electricity needs is forecast.
In addition to co-generation, the technological plant development actions were completed, with construction of the new electricity cabin and the new central refrigeration unit.
The activities for the introduction of a new packaging line which utilises an innovative format, the carton bottle, combining bottle design with the environmental advantages of brik packaging, also began at Soliera. The project concerning the renewal of the milk treatment plant, with the introduction of a new tubular plant, also continued.
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In Bologna a project on the TetraTop line began, which will continue in 2014 also at other facilities and on various products, aimed at reducing the number of packaging pieces, in order to optimise distribution in accordance with the real needs of the client and reduce the production of returns or food waste.
At Usmate Velate, the new Doypack packaging line was introduced, a packaging format for mozzarella packets.
At Pasturago, the production of two new products for the yogurt area began, the new 150g pot format with sleeve type labelling and Yomino DJ, a new product created for children.
At Campagne-lès Wardrecques, a new flexible portioning line for the packaging of sliced products (portfolio and flowpack) was installed, in addition to a line for the cutting of grated products.
The works for the new filtration plant at Saint Genix sur Guiers continue.
Actions were undertaken at all production sites to continuously improve security, quality and the environment. In particular the number of metal detectors installed for the control of the different lines has been increased at the various production facilities. At Castrovillari, this and other investments enabled the obtaining of BRC certification.
Important investments were also undertaken by the subsidiary Casearia Podda S.r.l.. In 2013, an 800 sq. mtr. refrigeration unit was installed, with 4 loading bays. Actions were carried out on the milk and yogurt packaging line, improving the management of the process and of packaged product movements. In the cheese area, a new vacuum shrink packager was acquired. Important building projects were completed, including the construction of new employee locker rooms. These important investments will continue also in 2014, with a view to obtaining BRC certification.
In addition, to improve the use of workspaces in Bologna, the Group constructed a new office building and began to renovate the previous building which housed the offices of Granarolo S.p.A..
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HUMAN RESOURCES POLICIES
Employees
At December 31, 2013 the Group workforce numbered 2,071, compared to 2,024 in the previous year. The net increase in the workforce is due to the entry of the French Group Codipal (131 employees), the rental of the factory at
Castrovillari, the reduction following the sale of Centro Sperimentale del Latte S.r.l. (53 employees) and the reorganisation processes at Usmate Velate (begun in 2011 and concluding at year-end with the inclusion of a number of employees in redundancy schemes) and of Zeroquattro S.r.l. (begun in the middle of 2013, with total departures at the end of 2013 of 11 employees). Turnover however negatively impacted employee numbers: overall 116 employees departed and 56 entered - a net decrease of 60. For comparative purposes, four employees placed in mobility from
2/01/2014 on the conclusion of the reorganisation process at Usmate Velate are included in the workforce.
New hires totalled 56 (a decrease on 119 in 2012), of which 28 permanent (a reduction on 50 in 2012), related, as in the previous year, to a prudent management of the natural turnover and new professional requirements.
The number of active employees at December 31 differed from the workforce figure and amounted to 2,047 (2,008 in
2012) as the workforce at December 31, 2013 included also 24 workers within the government-sponsored temporary lay- off scheme at zero hours, as follows:
- 4 workers placed in the government-sponsored temporary lay-off scheme at the Usmate Velate site on
2/01/2014;
- 20 workers placed in the government-sponsored temporary lay-off scheme of Zeroquattro S.r.l..
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The tables below illustrate the composition of the Group’s human resources.
Employees by company at December 31
Company 2013 2012 Change Granarolo S.p.A. 1,274 1,081 193 Calabrialatte S.p.A. 56 19 37 Zeroquattro S.r.l. 567 568 (1) Latticini Italia S.r.l. - 250 (250) Casearia Podda S.r.l. 40 44 (4) Centro Sperimentale del Latte S.r.l. - 53 (53) Centre Specilisé du Lait France S.A.S. - 5 (5) Granarolo Iberica S.L. 3 4 (1) S.A.S. CIPF Codipal 28 - 28 S.A.S. Compagnie du Forum 14 - 14 S.A.S. Les Fromagers de Saint Omer 53 - 53 S.A.S. Les Fromagers de Sainte Colombe 28 - 28 Parma Frais S.A.R.L. 8 - 8 Total Granarolo Group 2,071 2,024 47
Employees by category at December 31
Category 2013 2012 Change Senior Managers 45 45 - Managers 137 117 20 White collars 959 868 91 Blue collars 930 994 (64) Total Group 2,071 2,024 47
Employees by gender at December 31
Category 2013 2012 Change Senior Managers 41 4 45 Managers 100 37 137 White collars 707 252 959 Blue collars 843 87 930 Total Group 1,691 380 2,071
Employees by nationality at December 31
Category EU Non EU Change Senior Managers 45 - 45 Managers 137 - 137 White collars 942 17 959 Blue collars 837 93 930 Total Group 1,691 110 2,071
85 Granarolo Group 2013 Directors’ Report
Employees by age bracket at December 31
Company 20-30 40-50 50-60 60+ Total Senior Managers - 18 22 2 45 Managers 4 57 48 5 137 White collars 56 324 360 41 959 Blue collars 64 345 282 21 930 Total Group 124 744 712 69 2,071
Training activities
In 2013, particular attention was placed on Granarolo Group employee training, continuing on from the previous year and confirming the significant commitment of the Group to the development of human capital.
In total, 26,476 hours of training were completed (comprising 3,644 attendances and 1,544 training hours).
Also in 2013, the training carried out in accordance with Article 37 of the State-Regions agreements played a central role:
Granarolo concluded the mandatory training plan of all personnel on workplace health and safety matters, organising the training at all Group sites (10,561 training hours, equal to 40% of the 2013 total).
These initiatives, together with training in relation to the regulations and voluntary certifications concerning Quality,
Security and the Environment, comprised a total of 17,367 hours, 66% of the total.
These figures highlight once again the commitment of the Group to the continual improvement and ongoing attention to the issues of product and process quality and safety.
86 Granarolo Group 2013 Directors’ Report
The training activities in support of managerial skills, which form the basis for the management of the change processes, comprise specific programmes dedicated to key employees (senior managers and executives) and high potential individuals (in particular young persons or “professionals” progressively taking on greater responsibility), for a total of
1,783 hours. The commercial department also introduced a development campaign of employee skills, through internal training activities focused on communication and negotiation skills (475 hours, 2% of the total and 83 attendances).
In line with the international expansion undertaken by the group, particular attention was dedicated to language training as an indispensable instrument to support development on new markets.
Specifically language courses involved 136 employees and amounted to a total of 4,313 hours, 16% of the total.
The languages targeted to date are English, French and secondarily, Spanish (see the table below).
Language training breakdown LANGUAGE TOT. HOURS N. PARTICIPANTS ENGLISH 3,243 109 FRENCH 980 24 SPANISH 90 3 TOTAL 4,313 136
A particular mention is reserved for the teaching methods utilised which, in order to optimise dedicated classroom time and the efficacy of training, are progressively developing and diversifying.
In the last year, an increasing amount of training hours have been provided through e-learning and blended (e-learning + classroom) methodologies, which enable the usage of extremely flexible teaching content, reconciling the company’s needs and those of the individual, also in terms of teaching time.
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The figures concerning training hours broken down by the various teaching methods are reported in the table below.
Breakdown of teaching methods TEACHING METHOD TOT HOURS % HOURS TOT. MENTORING 618 2.3% CLASSROOM 18,886 71.3% CLASSROOM + PRACTICAL EXP. 2,551 9.6% BLENDED 2,978 11.2% DOCUMENTATION 123 0.5% E-LEARNING 1,320 5.0% TOTAL 26,476 100%
Aware of the growing challenges facing the agro-food chain as a result of the current economic environment, the
Granlatte-Granarolo Group has dedicated to 21 young persons, sons and daughters of member farmers, the Granlatte
Young training course, which has the objective to improve their capacity and knowledge in relation to the wellbeing of their business and to guarantee growth.
In the 10 days of training, with locations throughout Italy, concrete economic-operating analysis instruments of the enterprise were presented and real cases of excellence were analysed, through visits to expert famers.
Organisation and trade unions
The principal organisational actions in 2013 primarily related to the simplification and development actions of the
Granarolo Group structure.
At the beginning of the year, Latticini Italia S.r.l. merged into Granarolo S.p.A., with the prior sale of the logistic- distribution business unit to Zeroquattro S.r.l..
Following the acquisition of the Codipal Group and the simultaneous incorporation of Granarolo International S.r.l., the allocation of responsibilities for the Group overseas commercial development was redefined, with Granarolo International allocated responsibility for the Francophone European markets, Germany and Northern Europe, with the progressive extension to the Netherlands and Spain, and the Corporate Commercial Department reviewing the organisation of foreign market presence with the involvement of top management previously dedicated only to the domestic market.
From April, the subsidiary Calabrialatte S.p.A. rented the production site at Castrovillari - fresh milk and cheese products
– resulting in a new form of the partnership with Asso.La.C., extended also to production activity.
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Centro Sperimentale del Latte S.r.l. exited the consolidation scope in February 2013.
The reorganisational actions which redefined the structure of the principal departments and the Management structure of the Group of greatest significance were also:
- creation of a Strategic Planning and Project Development department, in support of General Management,
dedicated to an analysis of the strategic positioning of the Parent and the coordination of the preliminary
economic/financial analysis activities for the evaluation of development opportunities in line with the Industrial
Plan;
- integration into the Administration and Finance Department of the Budget and Operating Control functions, with
simultaneous reorganisation of the central control functions and those of the individual departmental/corporate
areas (Zeroquattro S.r.l. and the newly acquired Codipal Group), for a more effective integrated control system
of the operating/financial aspects of the Granarolo business;
- integration into the Administration and Finance and Control Department of the IT Systems and Processes
function, subject to a previous internal restructuring;
- creation of an Operations Department, overseeing Manufacturing, Raw Material Purchases, the Technical and
Third Party Commercial Development areas and the contemporaneous reorganisation of the Supply Chain
Department, which is allocated oversight of the “from order to delivery” process, i.e. Orders Management,
Demand & Manufacturing Planning and Logistics, in addition to the Purchasing function.
In relation to the reorganisation of the individual departments, the review of the supermarket sales organisation was particularly significant, with the creation of two separate commercial networks focused on the Milk-Yogurt and Cheese-
Ice cream markets, in order to ensure the efficacy of the commercial actions against an increasingly complex managed product portfolio (a consequence both of the innovation/diversification and acquisition policies, fundamental growth levers of the Granarolo Industrial Plan). The restructuring of commercial responsibility for the development of foreign markets also took place, as commented upon above.
Further organisational actions concerned:
- the Administration area, with the creation of the Finance and credit function, for a more effective management of
increasingly critical processes, both due to the difficult general environment and the increase in extraordinary
finance operations related to the expanded size of the Group;
- the Operations area, relating to the General Management and the underlying managerial structures of the
principal Group production sites (Usmate Velate, Soliera and Pasturago di Vernate);
89 Granarolo Group 2013 Directors’ Report
- the Quality, Innovation, Security and Environment area, also in this case in relation to the managerial
development actions of the structures.
With regard to industrial relations we highlight, in addition to the agreements for the transfer of personnel related to the operations stated above, the trade union agreements which enabled the conclusion of the reorganisation process introduced in 2011 at the facilities of Usmate Velate, with the remaining personnel made redundant, the management of the limited agreed structural departures at Casearia Podda S.r.l., in addition to the introduction of a further workforce restructuring at Zeroquattro S.r.l. (30 employees) through a government-sponsored temporary lay-off procedure for annual restructuring, which will conclude in June 2014.
As in previous years, numerous trade union agreements negotiated at the various production sites concerning the organisational structure were necessary for the production of new products and/or to deliver upon investments, with a view to production flexibility linked to market demand.
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RESEARCH & DEVELOPMENT
The R&D activity in 2013 formed part of the Group growth plan, addressing in particular:
- research and innovation of the product and technology;
- the optimisation of industrial processes and their impacts on product quality aspects;
- optimisation of raw milk, of the ingredients, of the assisting technologies and packaging.
These activities allowed for the development of:
- new higher added value products, targeting new markets and new consumer brackets;
- products targeting foreign markets, particularly traditional Italian cheeses;
- products targeting the Italian and overseas private labels market.
2013 also saw the launch on the market of a significant number of new products, including:
- Yomino DJ, a development of the Yomino product range, for children of 4-10 years, fruit yogurts with coloured
chocolate bits;
- Yomo GO, 100% natural Yomo yogurt, squeezable, for all on-the-go occasions;
- Yomo da Bere 100% natural with 15% fruit, for new consumption opportunities;
- New Bimbi line products (Yogurt Crescita with apple, Lola snack with milk and chocolate, Lola ice cream snack);
- New combination of “hot” tastes in the Yomo 100% natural line
- Ice cream in cups and ice cream biscuit;
- Low Fat Skimmed Milk 0%, pasteurised at high temperature in 1 litre bottle;
- Mascarpone Light, with 30% less fat compared to traditional mascarpone;
- Stand up mozzarella packets with easy opening;
- Maxi Mozzarella in preserving liquid.
This production in 2013 featured intensive optimisation and development of the typical products of the facilities and producers of Sestu, Castrovillari, Saint Genix sur Guiers and Campagne-lès Wardrecques. In addition to fresh cheeses, the Group is particularly involved in the development of hard cheeses (Protected Origin, portioned and grated), which are a core element for development on foreign markets.
International growth has become a strategic factor for the Group and therefore extensive amounts of R&D resources have been committed to activities in support of the growth plan.
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Also in 2013, following the agreement with the company Amalattea, specialised in the processing of goats milk, the production of UHT goat's milk began. The partnership highlights the interest in alternative and complementary sectors to cows’ milk which have growing consumer bases.
Design and development activities are not only focused on the launch of new products. In the packaging area, important developments concern:
- the optimisation of packaging materials, both for savings and increased product durability (reduction of titanium
oxide, new materials for high temperature pasteurised milk product containers);
- the support to Manufacturing in the installation of the new packaging lines (completion of the MID lines,
inclusion of the new aseptic line for PET bottles at the Gioia del Colle production site);
- the activities to optimise of the logistical aspects.
The support provided by R&D to the Private Label and Industrial Production commercial projects was also important, in which coordination activities for the drawing up of proposals targeting the acquisition of new orders were carried out.
The R&D activities during 2013 led to the preparation of specific product techniques, the support through maintenance activities of the product and ingredients quality, the definition and optimisation of technological process parameters for the existing lines and studies and verifications on the shelf life of products.
The organisation of Research and Development
The Research and Development activities were carried out at three production sites:
- Bologna: development of Milk and Cream products;
- Usmate Velate: development of cheese products
- Pasturago: development in the Yogurt and Desserts area. The Pilot Centre is located at the Pasturago site,
which supports the development of the various product types.
The 14 researchers employed in the Research and Development department are involved in all stages of an innovation project, from the concept to implementation and the development and launch of the new product; the post-launch assistance activities however are not negated.
Experimental tests, both of the product and the packaging, comprise a fundamental role for the development of a new product. These tests are carried out with subsequent scale ups in order to reach the industrialisation stage.
Projects require the creation of a work group, with the involvement of all relevant departments (in particular Marketing,
92 Granarolo Group 2013 Directors’ Report
Technical Direction, Purchasing, Manufacturing and Quality Assurance), for the verification and definition of the industrial, economic, commercial and distributive feasibility.
The time employed by researchers in the development of new products is reported in the graph, with indication of a breakdown of projects by type. The majority of projects focused on product innovation (56.2% of time dedicated by researchers), followed by product and process optimisation (27.4%).
60.0% 56.3%
50.0%
40.0%
30.0% 27.4%
20.0%
10.8% 10.0% 5.4%
0.0% Innovation Optimisation Research Quality
Projects by type
A significant amount of time was dedicated to Research projects, featuring extremely challenging objectives, focused on the creation of new goods categories, and new process and packaging technologies. The environmental sustainability activities for the creation of new biopolymer containers are particularly noted in this regard.
45.0% 42.8%
40.0%
35.0% 30.2% 30.0%
25.0%
20.0%
15.0% 11.2% 9.1% 10.0% 6.8% 5.0%
0.0% Cheese Pack Milk Other Yogurt
Innovative projects by goods category
93 Granarolo Group 2013 Directors’ Report
2013 saw the confirmation of an important step in relation to innovation with a significant number of new market launches across all product categories.
The following chart shows a breakdown of projects by goods category.
The central importance assumed by development activities in the cheese area, followed by the yogurt and milk areas, is highlighted.
Total projects by goods category
The amount of time dedicated to technical skills updating and training (600 hours) was significant.
Patents
Granarolo holds 5 registered patents, of which 4 concerning products and processes (milk and vegetable fermented products, the use of probiotic microorganisms, fruit-based fresh cream products, lactose removal from milk through immobilised enzymes) and 1 packaging trademark (PET multi-layered containers employed in the production of long life milk bottles), for which an international application was also made.
Granarolo also holds 3 patents for which application is pending: one relating to processes and plant (preparation process of mozzarella discs and the relative “mozzarillo” production plant, designed for McDonalds), one concerning the use of special flavoured probiotics for the production of traditional mozzarella and another for packaging (food product container with removable label).
Two further patents were registered in 2013: the first concerns a quick onsite method for the calculation of micro-toxins in milk and dairy products, while the second concerns symbiotic nutritional foods and preparations with effects on the immune system.
94 Granarolo Group 2013 Directors’ Report
QUALITY CONTROL POLICIES
Certifications
2013 saw the successful conclusion of the FSSC 22000:2010 adoption project, an International Standard for the
Certification of Food Security Management Systems, created from the integration of the ISO 22000:2005 standard and the PAS 220:2008 standard. The activity, introduced in 2010 with the certification of the Anzio production site, progressively involved in 2011 the production sites at Pasturago in April, Bologna in July, and finally Gioia del Colle and
Soliera in December. In 2012, all the Granarolo production sites therefore operated within an Integrated Quality and
Environment Security Management System. During the year, the integration of the certification system according to the
22000 standard was concluded also at the Usmate Velate production facility. The production site at Usmate already holds the BRS and IFS standards and since 2004 the UNI ISO UNI EN 9001:2008 Certification.
In February, a significant objective was achieved: multi-site certification (Supply Chain, Commercial, MKTG, R&D and human resources). In the analysis of the dangers for food security, all of the production site departments and the central group quality department were involved in the certification process.
The integration continued of the Quality Management (ISO 9001:2008), Environmental Security (FSSC 22000:2010),
Workplace Health and Security (OHSAS 18001:2007) and Environment (ISO 14001:2004) operating systems.
In January 2013 a new integrated Quality, Security and Environment policy was launched, in relation to which in 2014 a detailed plan will follow.
In November, BRC certification was achieved for the Calabrialatte production site, with the Castrovillari site already implementing the Group Quality operating system procedures and ready to introduce the Multi-site System.
The QFSHSE Integrated Management System provides by 2015 a progressive alignment of the other Group companies:
Casearia Podda 2014 (BRC), Zeroquattro 2015 (ISO 9001 and BRC).
In relation to Casearia Podda in 2013, in addition to the construction of the new fresh milk and yogurt lines according to
Group standards, the alteration of the refrigerated stockage units began, in addition to the creation of refrigerated loading bays for Immediate Sale vehicles.
Since 2011, the FSSC 22000:2010 is comparable with the BRC and IFC standards, for some time required by European retailers to access the distribution chain, considered a mandatory requirement to guarantee the safety of the product supplied and during the implementation of all of the necessary precautions by the supplier.
95 Granarolo Group 2013 Directors’ Report
Compared to the previous standards, the FSSC 22000:2010 establishes a pragmatic approach in the evaluation and implementation of the necessary actions to reduce or eliminate risks for food safety. Managerial and structural aspects contribute to the reaching of the result, which at times require a significant incursion of costs.
The optimisation and simplification of workflows, personnel courses, of ingredients and of packaging within the production department began by Quality Assurance in previous years continued in 2013; the experience matured and the models tested in the Granarolo production site were extended also to the Usmate Velate production site and the
Zeroquattro warehouses. The permanent training activities and the consequent improved knowledge of workers in the adoption of specific operating procedures to increase the hygiene and safety levels of products and of the processes are practical examples of the actions put in place in order to reduce risks which every day may impact food safety.
In 2013, the CORE project focused on reducing foreign bodies in products continued. At all production sites a detailed analysis of dangers from foreign bodies continued, based on the constructive characteristics of the production and packaging plant and an analysis of the technical characteristics and the adjustment of the metal detectors and the X-ray equipment present, evaluating the immediate improvements to be introduced to the above-stated equipment, training workers on the MD/RX management and implementing specific checklists. To support all that stated above an explanational chart was introduced.
At the Usmate production facility a significant investment was made to provide all 16 mozzarella packaging lines with high sensitivity modern design metal detectors. Also at Castrovillari, the ricotta, hard pasta filata and mozzarella lines have been equipped with adequate foreign body recognition systems.
Major financial commitments were made to structural actions alongside the managerial aspects, such as access improvement, the protection of plant and machinery from physical dangers, the updating of software and increased level of automation of the thermal treatment plant in order to maximise food safety.
Specific monitoring plans of milk and ingredient supplies were again adopted in 2013, contributing to an increased level of food security. In 2013, the Supplier Quality Assurance section carried out 104 audits, of which 32 on suppliers of milk and cream, 29 on ingredients, 23 on finished product suppliers, 8 on egg suppliers and 12 on packaging material suppliers. Increased raw material and ingredient quality guarantees and consequently of finished products are achieved through continuous research into new analytical methods by the central laboratory for research of pharmacological residues, in the adoption by the production sites of the quick measurement of the total bacterial content of milk and of cream arriving, in the constant use of the quick measurement system of micro-toxins, in the increase in the number of analysis carried out on contaminants and in the constant application of the geo-referencing of milk products with a
96 Granarolo Group 2013 Directors’ Report mapping of raw material production sites and possible sources of environmental risk close to farmers.
Specifically in relation to the AFM1 monitoring in 2013, the control upon receipt of all arriving raw milk cisterns was extended to all production facilities and in agreement with Granlatte, for the self-control analysis carried out on a 15-day basis on milk, an alert limit of 30 ppt was fixed, more restrictive than that established by the control authorities. With a view to close collaboration with the suppliers of milk, the Central Laboratory was made available to Granlatte farmers to determine the micro-toxins in milk following the change in feeding of animals and in the case of new lots of maize, silage or feedstuff.
Granarolo also, rather than focusing attention only on product analyses, consolidated the decision to move down the supply chain and to evaluate the factors at origin which may impact the quality of the product. Therefore in order to control the entire supply chain, and to establish a shorter chain, the raw material control systems were made tighter and more efficient.
Activities and controls concerning the quality of products and food safety
In 2013, the plan to ensure the safety of the principal raw material suppliers and of the finished brand product was intensified further. For all milk-based raw materials (raw and pasteurised milk, cream and whey) specific techniques were drawn up, with restrictions on delivery times after on-site collection (“the milk age” parameter); the chemical and microbiological acceptance parameters were newly reviewed.
In relation to the supply of eggs, the auditing activity continued at: the selection and packaging centres, the farms, the feedstuff providers, with internal verification according to an annual plan and also an audit visit from the Certification
Body, which confirmed compliance to the regulatory established standard. Also in 2013, the use of the probiotic
L.acidophilus D2 CSL in the poultry feedstuff continued: it is a conviction held within the Group that this practice, carried out on intestinal flora, improves the nutritional quality of eggs, the characteristics of the shell and consequently has positive impact on product food security and quality.
In relation to the annual auditing plan, 31 finished products brand suppliers were subject to qualification audits. Also in this case, as for the raw materials, specific techniques were drawn up with restrictions relating to the chemical, microbiological and shell parameters.
The Supervisory Plan was confirmed, regarding all of the raw materials and the branded finished products (self-produced and produced by third parties), for which in 2012 approx. 15,000 controls were carried out.
The projects for the improvement of the quality and food safety management, together with the objectives of the relative
KPI’s were formalised and made available in the “2013 Quality Safety Environmental Plan document. Monthly progress reports were drawn up and discussed at various corporate levels.
97 Granarolo Group 2013 Directors’ Report
This data confirm the knowledge that quality is a fundamental corporate asset to be constantly monitored and subject to ongoing improvement.
98 Granarolo Group 2013 Directors’ Report
ENVIRONMENTAL SUSTAINABILITY FROM THE FARM TO WASTE DISPOSAL
The Environment Environmental certifications
The Group operates from eight production sites located throughout Italy, of which 6 utilising the integrated QSE operating system, certified by SGS, while the other 3 are in the standardisation phase. In order to guarantee consumers a higher level of food quality and safety, the factories and the production sites of fresh milk and dairy products managed by
Granarolo and the parent company Granlatte have in place controlled food chain and traceability system certifications.
Granarolo has put in place the following strategic objectives:
- prevent, control and reduce environmental impact, establishing concrete and measurable objectives;
- render the entire production chain sustainable;
- increase environmental knowledge through training programmes and communication activities;
- inform interested parties, including consumers, on the environmental management results through clear and
accessible communication.
In pursuing these objectives, Granarolo:
- promptly incorporated all environmental legal provisions;
- adopted certified management systems to improve the environmental performance;
- carried out LCA (Life Cycle Assessment) studies as a decisional tool for new products and actions;
- communicated the strategies to the interested parties.
In 2013, the safety and environmental operating systems at the 6 production sites of the Group underwent audits and maintained their certificates, while a multi-site certificate was awarded, which includes also the head offices. At the 2
Emilia Romagna production sites, the European EMAS registrations were also maintained. The environmental certification project for the production site of Usmate Velate was initiated, in accordance with the UNI EN ISO 14001
Standard, which is expected to conclude by March 2014.
In the second half of 2013, Granarolo implemented the internal process for the issue of the EPDs certified according to the International EPD® System rules (www.environdec.com); the process allows for the publication of Environmental
Declarations (Environmental Product Declaration, EPD®) of the various products according to a specific annual schedule.
99 Granarolo Group 2013 Directors’ Report
The principle objective of Environmental Product Declaration is the provision of significant, verified and comparable information concerning the environmental impact of a product/service; Granarolo has published Environmental
Declarations for the following products:
- High quality fresh milk in 0.5 litre PET bottles;
- Piacere leggero fresh milk in 0.5 litre PET bottles;
- Prima Natura Bio ESL milk in PET bottles;
- Prima Natura Bio semi-skimmed ESL milk in PET bottles;
- High Quality Mozzarella;
- Prima Natura Bio fresh eggs.
Granarolo stands as the only producer worldwide to have achieved an EPD for its High Quality fresh milk. EPD is a type
III recognition (Environmental Declaration – ISO 14025) declaring the core objective as the provision of relevant, verified and comparable information concerning the environmental impact of a product or service. The environmental performances of the three types of milk covered by the Granarolo EPD (High Quality Granarolo fresh milk – Highly pasteurised Prima Natura Bio milk – Piacere Leggero fresh milk in PET bottles) was calculated using the LCA (life cycle analysis) method. The analysis covers the entire production chain, from the factory to delivery of packaged milk to the distribution platform. Granarolo High Quality fresh milk was the first dairy product to achieve this recognition.
The Environmental Product Declarations are based on studies conducted utilising the Life Cycle Assessment method, which evaluates the impacts of a product throughout its life cycle, from production of the raw materials until the disposal of the primary packaging after use.
100 Granarolo Group 2013 Directors’ Report
The environmental footprints in terms of Carbon Footprint, Ecological Footprint and Water Footprint are among the indicators presented in the EPDs; for example purposes, we report the impacts calculated per 1 litre of high quality milk in PET bottles.
101 Granarolo Group 2013 Directors’ Report
Actions for the reduction of the environmental impacts of Granarolo products
The LCA studies and the results published on the EPDs are elements which Granarolo has utilised to identify priority areas in terms of environmental reduction actions on its products; the actions implemented involve the principal supply chain elements.
Environmental projects
The activities carried out in relation to the development of the Life Cycle Analysis of conventional and organic Granarolo products were developed through the following phases:
- LCA development (in compliance with the ISO 14040 and 14044 Standards), in order to evaluate and
characterise the environmental impacts throughout the life cycle of products. Based on the results of the
analysis of the various phases (agricultural practices, breeding, production processes, transport and distribution,
packaging, stocking and end of life), any future investments and actions relating to reduction actions will be
evaluated;
- Identification of possible measures to be introduced for the reduction of emissions in the life cycle of consumer
products selected. In this ambit, the results of the LCA project of Granarolo will be integrated into the drawing
up of a corporate environmental policy and consequently into the environmental programmes, integrating
criteria, specific objectives and actions to reduce the "Carbon Footprint", particularly in relation to Granarolo
organic products; some of the technical actions to be carried out have already been identified:
• more efficient agricultural practices;
• photovoltaic plant on farms;
• anaerobic digesters for farms;
• cogeneration plant at production sites;
• packaging reduction.
102 Granarolo Group 2013 Directors’ Report
- Implementation and development of a model, capable of calculating for each product the overall “Carbon
Footprint” relating to the various agricultural phases, product packaging, transport and distribution;
- Evaluation of the actions and of the performances in all of the life cycle phases. Particular attention is focused
on the environmental performance of the Organic Products beginning with the farms for the production of the
principal raw material (milk/eggs) and the various production/processing sites.
- Introduction of eco-design criteria and principles in the various corporate processes, in order to maintain and
improve the environmental performance of products;
- Definition and development of an environmental impact communication strategy concerning products and
results achieved through, Environmental Product Declaration EPD-(ISO 14025), Product Environmental Profile -
PEP (ISO 14025) and Environmental Labeling of products (BP X30-323). This communication will focus on the
final consumer.
Water saving and waste management
In relation to water-saving actions, the calculation of water consumption at the various production areas through the installation of counters is reported, in order to optimise consumption and establish targeted strategies during the washing phases of lines and plant with the use of sanitisers (so-called mono product), which do not require a second rinsing with significant water volume savings.
At the Bologna production site, an industrial water recovery plant was introduced and in 2013 entered into use, which re-
103 Granarolo Group 2013 Directors’ Report utilises make-up of the cooling towers (non-noble uses). In 2013, approx. 7% of water volumes were recovered and re- utilised, in relation to the overall water needs of the production site.
A graph outlining water consumption over the last three years, highlighting a relatively stable trend (at a number of sites slightly decreasing due to the drop in production) is reported below.
The graph below highlights that at a number of production sites, due to the installation of new production lines and production tests, the index slightly deteriorated in 2013. The entering into use of plant to review this performance is scheduled and however evaluations will be made to recover treated water, which properly treated may be reused for other "non noble" usage.
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Energy saving
In 2013, complementary projects to the cogeneration plant already installed (Usmate Velate site) and in the installation phase again. The studies enabled the highlighting of significant low-temperature thermal energy recoveries for the processing plant, in particular the automatic washing plant (CIP).
In 2014, important actions are therefore scheduled for the Usmate and Pasturago production sites.
Two new high efficiency boilers for the production of process steam were installed during the year and condensation recovery actions were carried out.
In relation to cogeneration plant, Granarolo installed a further three plant at the Group production sites, with the objective to self-produce by 2014 approx. 50% of internal production energy requirements; for 2015 the development of plant at
Bologna is scheduled, which will bring the installed group capacity to approx. 15 MW, equivalent to approx. 15,000 households. For this project, Granarolo was rewarded by the E. ON Energia Awards 2013 “For the sustainability policy which led to the construction of a number of cogeneration plant for the joint production of electricity and heat."
The evaluation project was extended concerning the installation of a plant for the production of biogas utilising as a primary energy source purification sludge, production waste and any market waste. Projects for the installation of inverters and advanced control systems at the compressed air and refrigeration stations, for LED lighting and tension optimisation and electricity consumption plans are in progress.
The energy saving projects introduced by the Group in 2013 resulted in significant results compared to 2012, reducing
105 Granarolo Group 2013 Directors’ Report electricity consumption by a further 5% and methane consumption by a further 2%.
106 Granarolo Group 2013 Directors’ Report
Waste Management
The commitments to separate the waste produced at the Group production sites continued, developing the breakdown of waste (principally paper and plastic) introduced to recover for reutilisation or recovery of material. Verification activities are in progress with a company which will supply 100% recycled plastic packaging, with the use of milk bottles as secondary packaging.
Specific audits are in progress on production site waste, both to monitor the performances and to identify improvements in the choice of qualified suppliers. In 2014, an audit at the principal waste centres will be planned.
Thanks to specific operating software for the management of waste, utilised at all production sites, Granarolo began a monitoring process of product waste performances, in order to evaluate possible areas for intervention and improvement.
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Granarolo continues in its targeted research activity to reduce the plastic, paper and aluminium content of packaging and
to replace traditional materials with new generation materials.
Granarolo participates in a national research project for the study and development of biodegradable polymers in order to
replace the current traditional plastic packaging.
The packaging projects also have the objective to provide the consumer with higher service content. An example is the
new wrappers for stracchino and mozzarella of the high quality range, developed to simplify opening, also outside the
home.
2014 environmental objectives
1) The environmental certification project for the production site of Usmate Velate will be completed in 2014, in
accordance with the UNI EN ISO 14001 Standard.
2) Works on a new purification plant have begun, in order to biologically treat all residual water of the production
site at Brianza (new acquisition of Granarolo S.p.A.).
3) In relation to the cogeneration plant, Granarolo in 2014 will enter into use 3 further plant at the Group production
sites, with the objective to self-produce by 2014 approx. 50% of internal production energy requirements.
4) A reduction of the impact of general and product waste, with the promotion of ecological packaging, is scheduled.
108 Granarolo Group 2013 Directors’ Report
WORKPLACE HEALTH AND SAFETY
Also in 2013, in terms of workplace health and safety, the commitment of Granarolo focused on the following activities:
- training and awareness of personnel in relation to workplace safety and hygiene;
- extraordinary actions on machines, structures and plant for the improvement of safety conditions;
- improved access to the production sites through signage;
- extensive analysis and management of accidents in order to avoid injury, with drawing up of the principal indices
and the identification of related costs;
- updating of specific risk evaluation documents where established to maintain an adequate risk evaluation in line
with developing situations and investments/amendments introduced to the production processes.
The certifications
The consolidation of the OHSAS 18001:2007 System continued, planning operating improvement actions on plant and on the security organisation. The multi-site certification project began, with the granting in February 2013 by an independent body of the compliance certificate with the voluntary regulation OHSAS 18001:2007 for the Granarolo
Group production sites. Simultaneously, in 2013 the process for the inclusion of the ex Latticini Italia production site within the certification scope began, in order to establish compliance by 2014.
Also for the companies Calabrialatte and Casearia Podda, a process for the transfer of specific procedures in relation to safety began, in order to create a common base which allows in a relatively short timespan for the adoption of the conduct and procedural models which conform with the Granarolo safety standards.
Safety Indicators
Overall, 60 accidents occurred within the Group (83 with Zeroquattro), including also the Usmate Velate production site.
The number in 2012 was 40 (without Usmate Velate).
At like-for-like consolidation scope, the number of accidents increased from 40 to 48.
In summary:
- The situation at the Pasturago production sites improved, with a reduction from 7 accidents in 2013 to 6 in 2013;
- Accidents at Usmate Velate increased from 11 to 12;
- Accidents at the Bologna production site increased from 13 to 16;
109 Granarolo Group 2013 Directors’ Report
- The situation for Bologna white-collar and commercial employees deteriorated (2 accidents in 2013);
- Anzio deteriorated from 1 accident in 2012 to 3 in 2013;
- Gioia del Colle worsened with an increase from 1 to 2 accidents;
- Soliera increased from 17 to 19 accidents.
In relation to the comparison between the frequency index of the individual production sites, the INAIL benchmark and the assigned objectives, at Group level in the 12 months of 2013, a deterioration compared to the previous year is reported, in addition to the missing of the established objectives.
Only the Pasturago production facility improved its performance and met the site level assigned objectives:
Despite the firm commitments, the identified objectives in relation to the accident indices were not reached, although the
INAIL benchmark in relation to the frequency index and the gravity index were complied with.
110 Granarolo Group 2013 Directors’ Report
The Group aims to reach zero accidents and continues to implement an education plan at all sites to achieve this objective.
Food education and relations with the scientific medical community
Granarolo since its foundation has undertaken a vocation to provide safe food products from a hygienic and nutritional viewpoint and to encourage correct eating, undertaking therefore a significant social commitment.
In 2013, Granarolo collaborated with the Science and Technology Museum of Milan, participating with its technical experts at practical laboratory sessions on milk and dairy products.
Relations with the medical-scientific community were further consolidated, with the active participation at major congresses: among others the National Congress of the Italian Pediatric Society.
The two-year NIP (Pedriatic Nutrition) project was concluded, which allowed pediatric specialists to attend, both through residential events and through Distance training, an innovative course on nutritional characteristics and the dietary principles of food and their preparation.
111 Granarolo Group 2013 Directors’ Report
CONSIDERATION OF THE PRINCIPAL STAKEHOLDERS: EMPLOYEES,
MEMBERS, CONSUMERS, THE COMMUNITY AND NEW GENERATIONS
Employees
In 2014, with the conclusion of the preparation of the annual report, management organised meetings with the various departments to illustrate to employees the general market environment in which the Group operates and the strategies which Granarolo seeks to adopt to tackle present and future challenges, also in relation to the commitment expected from each department. A 90% attendance rate of those invited is reported. All of the issues dealt were handled in a structured manner, with in-depth consideration stemming from the many questions addressed to management and the
Chairman, also through “A Gran Voce”, the parent’s quarterly newsletter.
The newsletter, established in 2013 to give a voice to employees and member farmers, in 2014 added an extra section to consider also sources outside of the company and to address current topics (for example: PACs, the end of milk quotas, addressed by Paolo De Castro, Chairman of the Agricultural Commission of the European Parliament and Denis Pantini, area manager of the Agricultural and Food Industry research centre of Nomisma; the performance of other food sectors was an issue explored by Enrico Finzi, sociologist.
In 2013, the commitment of the Granarolo Group in terms of company welfare continued, through the promotion of a series of economic-social support initiatives, in order to assist in a tangible way the families of employees.
Among the initiatives introduced, we highlight the launch of the Merit Study Grant competition, through which Granarolo contributes to the protection of the right to an education. Overall 27 Grants were provided for, reserved for the sons and daughters of employees, awarded to the best secondary school and university students whose families require economic support. The grants have already been disbursed. The competition is expected to be renewed also in 2014.
On May 24, based on an initiative launched by the Corriere della Sera, Granarolo opened the doors of its offices and production facilities to the sons and daughters of employees. Mothers, fathers and colleagues without children guided the children in their discovery of the world of milk and dairy products. Participation rates for the initiative were excellent. Of the 562 children between 3 and 13, at the first edition of “Bimbi in Granarolo” 315 children were involved.
A particular focus was reserved for mothers: also in 2013, for the Festival of Mothers, Granarolo granted a half-day to working mothers. In total, 75 mothers availed of this opportunity, for a total of over 250 hours of leave.
Driven by a desire to provide concrete support to families, Granarolo distributed a booklet of 52 discounts to over 2,000 workers, for the purchase at discounted prices of basic food products (milk, yogurt and mozzarella).
112 Granarolo Group 2013 Directors’ Report
The Archimede project also concluded, which was launched in the middle of the year, which sought contributions from whomever in the company with a useful idea to make savings in process terms or for a new product. 50 contributions were considered valid and 7 awarded (compared to the initially envisaged 3), with 13 receiving a mention and a small prize. Three of the 7 awarded projects are already (in March 2014) being implemented. In addition, a process for the development of awarded individuals was drawn up, which is currently underway. Given the success of the initiative and the significant level of contribution, Management considered it beneficial also to promote in 2014 the Archimede project.
In relation to the Bologna Breast Milk Bank, Allattami, the involvement of Granarolo and Auser pensioners and young persons without work successfully commenced, who contributed to the collection of milk for the Bologna Breast Milk
Bank and its distribution, once pasteurised, to the hospitals of Sant’Orsola or Maggiore and the Ferrara hospital. They were given small contributions as an award.
In relation to the Ethics Code: a close reflection began, although the approval of the text and the new appointment of the
Ethics Committee was postponed following the 28 blocks which from April 2013 to January 2014 halted the activities of the CTL platform, on which Granarolo products are transported to Bologna. The blocks of Granarolo by the ex-SGB workers caused significant economic damage. Following this event, Management considered it correct to assess relations with the Group suppliers in order to proceed, once the mapping and the scope of the individual relations have been defined, to approve the Ethics Code.
Members
In 2013, as in other years, the Chairman and the General Manager of Granarolo and the General Manager of Granlatte met all Granlatte members on two occasions in the year: in the spring and in the autumn, to update members on the development of the strategic plan, also in particular in relation to the raw material price. These periodic meetings took place in: Milan, Bologna, Anzio, Benevento-Campobasso and Gioia del Colle.
At year-end members who particularly distinguished themselves by the quality of milk delivered received an award. They were presented with the High Quality Award.
The Group has decided to work alongside farmers, designing services and instruments, investing in the future and
“constructing it” collectively. Particular attention was focused on those who represent the future: the children of members- farmers. A Granlatte Young Training Course was dedicated to them in 2013, as in 2012, in order to communicate the skills and the knowledge necessary to react flexibly to the challenges of the future, to establish efficient growth projects and to proactively evaluate the implications of their decisions on the business. Granlatte Young decided to provide 20
113 Granarolo Group 2013 Directors’ Report young persons between 20 and 30 years of age with the necessary instruments to
- analyse the enterprise, understand the areas of potential and those for improvement
- recognise and manage the technical and economic efficiency indicators
- manage growth projects and evaluate the economic sustainability of investments
The Training Programme involved a practical dialogue which allowed participants to access content, thanks also to the use of training drills, work groups, Company visits and distance learning methods.
Consumers
Granarolo continued also in 2013 the development of channels through which consumers and customers (principally the large supermarkets) may contact the Parent in order to simplify and speed up contact. Granarolo avails of 2 traditional contact channels and 1 developed in 2012 and subject to further investment in 2013:
- a free call centre;
- the internet site which provides the possibility to send e-mails concerning general suggestions (through the
Welcome Mail) or to highlight product defects (through the Customers Mail)
- Facebook, the leading social network, together with other social networks.
Granarolo proposed at the beginning of 2013 to actively involve consumers in the creation of value, interaction, listening and dialogue.
A new digital engagement model
The role of Granarolo in the digital environment was, in 2013, inexorably linked to the need and the capacity to create added value for the consumer, through a relationship based as much as possible on listening.
2013 featured significant activity on the social networks. This represents a significant cultural change for the company, committing to an increasingly integrated communication strategy.
A full publication calendar on the web pages facilitated a loyalty creation process, in order to establish an engagement with the final consumer, which in relation to certain issues benefit from individual and personalised contact.
For each Group front page, a monthly editorial plan dedicated to specific targets was identified and implemented, structuring therefore the pages in differing manners, paving the way for a more targeted and direct interaction and exchange with fans/consumers; these opportunities not only focused on the company, which has the opportunity to present itself as a brand par excellence in the milk-dairy sector, but also facilitated dialogue between fans and the
114 Granarolo Group 2013 Directors’ Report company on various issues, related to the manner and occasions for the consumption of products, environmental issues and a focus on waste. In addition, particular focus was given to recipes and new ways to enjoy the product, such as in the case of Yomo Go and Yomino DJ.
Beginning with the concept of a traditional recipe book, specific recipes were created and communicated through the social networks: for the summer, for children and a specific one concerning tiramisù, in which the user, selecting available ingredients, could create their own recipe and read our proposal for the day. The activity, supported by a specific advert, achieved significant returns, raising the curiosity and involvement of fans, which reached 90,000.
As part of this process, in the middle of 2013 a Youtube profile was started, which includes not only advertising campaigns, but also video testimonies of all CSR activities of the Group, such as those of the Breast Milk Bank mothers or of those attending the convention in May in Milan, Granarolo per il Domani (the Granarolo of tomorrow).
In the same period, Granarolo also joined Pinterest, the photography-based social network in which more women participate, with boards dedicated to the CSR history and initiatives of the company.
In relation to digital setting, the crowd sourcing project advanced with Zooppa deserves particular mention: the creative department was challenged with designing and developing a video communication for the new Yomo Go product. This activity was chosen for its obvious win-win aspect: for the creative minds it represents a perfect opportunity to be noted and for the company an opportunity to evaluate other points of view on how to present the product to the market.
In 2013 Granarolo began to utilise the social networks as a central channel for Employer Branding; specifically,
Granarolo decided to open itself to this world beginning with LinkedIn, probably the most famous and widely utilised professional network globally, developing its potential at least in part through a gradual approach, with the creation of an institutional Company Profile, drawn up to present and communicate a consistent Company image.
In addition to the social networks, various CRM actions were introduced, allowing consumers to download and utilise discounts for specific products and a collection point for Granarolo infant products was introduced, which has been greatly welcomed by mothers and fathers.
Alongside these activities, Granarolo continued also to enhance its institutional sites and launched new ones, in order to provide visibility and recognition to the existing brands, such as those recently acquired.
Among the new launches, we particularly highlight:
- the launch of the new Yomo site, with a blog and small suggestions, which interfaces with the institutional site in
relation to the product specifications, allowing for an optimisation of resources;
- the ferrucciopodda.it site, dedicated to the mature and semi-mature cheese market, together with the entire
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range of the Sardinian brand and a section of details on the cheeses and in-store initiatives.
- a new look for the Annual Report site, with simplified navigation and graphics matching the offline version.
However within the online presence of the Group, the central role and that of a content hub is still played by the institutional site, welcoming monthly over 100,000 users, which has been improved by new content in terms of recipes, with new themed menus and preparations and also in the Sustainable Development section.
Finally, understanding the importance of the content shared on the so called informal web spaces (blogs, communities and forms) of consumers, Granarolo has begun to place great attention on the exchange of information and dialogue. We can now therefore say that, thanks to the web, the consumer is always sitting around the table discussing products and projects with Granarolo.
The community and the new generations
The Allattami (a Breast Milk Bank for the city of Bologna) project launched in 2012 has reached beyond the provincial boundaries. In 2013, the project, established to satisfy the needs for breast milk in the city of Bologna, was extended also to the Ferrara Hospital. It has become a model and a benchmark for efficient public-private partnership, receiving significant coverage by journalists.
Description of Allattami:
In Bologna every year 100 premature babies are born, who fight everyday against a number of difficulties, infections and serious complications which can compromise their ability to thrive. The science is unanimous: maternal milk increases the possibility for survival of premature babies and promotes their growth and development. Unfortunately however, the mothers of these new-borns are often under significant physical and psychological stress and have little or no milk available. To respond to this need, in September 2012 on the initiative of Granarolo and the S. Orsola Allattami Polyclinic the Maternal Milk Bank of Bologna was created.
ALLATTAMI selects the donating mothers, collets their milk directly from their home, conserves it in conditions of maximum security and provides it to the hospitals.
The Africa Milk Project merits a particular mention, an international cooperation project for self-development promoted by Cefa Onlus in collaboration with the Granarolo Group. This initiative sought to develop with the Njombe Milk Factory
(a dairy cooperative situated in one of the poorest districts in Tanzania), a micro milk supply chain, a small but self-
116 Granarolo Group 2013 Directors’ Report sufficient livestock system, capable of producing milk and distributing it to families and schools, ensuring at the same time, food, work and economic activity. Granarolo since its creation has supported the development of the Njombe dairy through financial contributions, the provision of know-how to Tanzanian farmers (training courses were carried out at the
Granarolo Bologna production sites) and other forms of support. Since 2009, through the Africa Milk Project the Group has sought to further improve the experience by involving also consumers, with a constant focus on the principles of cooperation for self-development. In order to provide visibility for the initiative and to interest an even greater number of the public, Granarolo created the site and Facebook page africamilkproject.org. Through this and through the Granarolo long life milk tetra brik, in 2013 a competition was promoted to make consumers aware of the project. Free journeys for 6 persons to Njombe and beautiful prizes made by Tanzanian women were offered. Over 12,000 persons participated in the competition. The 6 fortunate winners will also provide accounts from May 2014, the date of the trip. The contact between the Granarolo experts and employees of the Njombe Milk Factory were intensified in order to speed up a number of processes. A refrigerated vehicle was donated to the milk factory by Zeroquattro. From 2014, a NewCo is expected to start up under the control of the local authorities and Tanzanian farmers, based on the project objective: self- development and self-management.
In 2013 the important relationship with the schools situated in the cities in which the major group production sites are located continued, welcoming visitors from all classes (kindergarten, elementary, junior high school and senior high school, university courses and post university courses) into the production sites for educational tours relating to the production process, with classroom lessons to expand upon the subjects of interest. In 2013, 1,297 persons visited the
Pasturago site (1,200 students), 3,180 the Bologna site (2,834 students) and 666 the Gioia del Colle site (600 students) for a total of 5,134 visitors (5,020 in the previous year).
Granarolo since its foundation has undertaken a vocation to provide safe food products from a hygienic and nutritional
117 Granarolo Group 2013 Directors’ Report viewpoint and together encourage correct eating, a significant social commitment, and within which at the beginning of
2012 a new initiative was introduced, which continued also in 2013: the circulation of booklets to support the Become
Healthy campaign. 30,000 booklets were distributed through events and initiatives. This comprises a guide for balanced eating for children and adolescents, for the elderly and sportspersons, written in a simple and educational manner, however backed up by scientific data. This was carried out under the patronage of the Ministry of Health. The guide will act as an aid to all target markets. Booklets, downloadable free of charge from the site www.granarolo.it are distributed to the schools, at supporting events which Granarolo supports and to centres for the elderly.
Relations with the medical-scientific world received increased focus, a community with which Granarolo has always placed specific attention, and in relation to which a number of initiatives were addressed (conventions, the “High Quality” newsletter, food choices training courses) in order to circulate technical-scientific information regarding the nutritional characteristics of milk based products.
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SIGNIFICANT EVENTS AFTER THE YEAR-END
On March 25, 2014, Granarolo signed a non-current loan with three leading banks in Italy totalling Euro 30 million, with final due date in September 2018.
CONCLUSIONS OF THE CHAIRMAN
Dear Shareholders,
The financial statements at December 31, 2013 report a profit for the year of Euro 8,331,791.52.
The financial statements give a true and fair view of the financial position and results of operations and are consistent with the accounting records.
The Board of Directors proposes:
1. to approve the 2013 Directors’ Report;
2. to approve the 2013 Separate Financial Statements of Granarolo S.p.A. in their entirety and to allocate the profit
of Euro 8,331,791.52 as follows:
- Euro 416,589.58 to the legal reserve
- Euro 4,615,201.94 to the extraordinary reserve
- Euro 3,300,000.00 as the distribution of dividends to Shareholders
Gianpiero Calzolari
Chairman of the Board of Directors
Bologna, March 28, 2014
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