Winter

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IFA Dairy Seminar John Moloney, Glanbia Group
MD, 19 November 2008
Business Presentation
Slide 1
2
- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
3
What is the objective of this presentation?

• Provide an update on the current market and
  policy landscape
• Develop an understanding of the main points of
  the Glanbia Ingredients Ireland (GII) strategy
• Consider the implications/possibilities in
  relation to future industry restructuring and to
  define the guiding principles in this regard for
  Glanbia

4
- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
5
In what market context is the dairy industry
operating ?
The Irish dairy industry is operating in the
context of a deep global recession.
Global Economic Landscape
Rising Unemployment
Money markets have dried up
Dairy, as a trade up product, has historically
taken a hit during times of severe economic
downturns
Credit has dried up
Rapidly declining consumer confidence
Major fall in global stock markets
Falling retail sales
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What is happening to demand for dairy products ?
Global economic conditions, have contributed to a
significant down turn in the demand for dairy
products ..
Demand Dynamic
Growth in EU/US cheese consumption slowed
High prices in 2007 have burnt off demand
Falling prices, when fed through to retail level,
should lead to increasing demand at the most
optimistic view, however, this could take
several months
Significant substitution has taken place
Prices falling to world market prices
NZ, assisted by a favourable exchange rate, is
dumping product
EU unable to export
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What is happening to the supply of dairy products
?
Despite the downturn in demand, global milk
supply has continued to grow.
Supply Dynamic
EU production up 0.8 Jan-Aug. Now falling in
France/Ger
NZ output to grow 8 in MY 08/09
Increasing supply coupled with falling demand
has resulted in growing stocks which will have to
be cleared before prices start to recover
High stocks in France, Germany and Belgium
China export ban, production continues, stock up
Increased exports from S. America, India
Ukraine (casein)
Switch to cheese in the EU since June
US SMP stocks growing. Increasing cheese exports.
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What is currently happening to milk output?
This growth in milk supply is particularly
evident in current season in New Zealand. High
feed costs, however, are forecast to curtail milk
growth in the US in 2009.
Milk Output in Selected Regions 2008 vs 2007
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What is currently happening to EU product output?
In the EU increasing milk was diverted to WMP and
casein in 2008 , whilst in the US, encouraged by
export success, SMP output grew significantly in
2008.
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How have market prices moved over the past 24
months and what is the outlook for prices for
primary products?
Having risen dramatically in 2007, primary
product prices are now close to the levels
achieved during the autumn of 2006, milk prices
have not fallen as sharply.
Milk Price Index
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How have market prices moved over the past 24
months and what is the outlook for prices for the
key by-products?
Returns from the key by-products were behind 2006
levels for all of 2008 are forecast to remain
depressed into 2009.
Milk Price Index
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How have the trends in the market translated into
milk prices across key production regions?
Reflecting falling market returns, milk price
falls of between 13 and 23 occurred in the last
twelve months in key production regions.
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Over the next three years, what is the likely
evolution in the global supply/demand balance for
dairy products?
Global dairy product supply and demand will be
finely balanced over the next three years
.leading to the potential for significant
price volatility.
20 15 7
2
Percent of total world demand for dairy products
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What are the characteristics of the milk payment
model employed in the key production regions?
In order to deal with such volatility, across key
production regions milk payment models designed
to cope with market uncertainty are employed
International Milk Payment Model Characteristics
13 payment paid 3 months post end of financial
year
13 or 14 month payment
Responding to market uncertainty processors
including Fonterra, Arla, Campina and Friesland
all employ a 13 month payment and variations of
the other payment parameters listed here
Base price set at between 96 and 60 of
expected payment
Payment based on (AB)-C approach.
Seasonality bonus and penalties applied
Value of 13 payment linked to market performance
Risk ManagementTools
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What is the conclusion on dairy markets?
Overall, no significant improvement in product
prices is envisaged for the main 2009 supply
months with some recovery possible beyond this
point..

• Global product pricing will be very weak for at
  least the next 6 months
• EU prices have graduated to world prices
• EU export markets will remain very competitive
  with NZ South America
• Unlikely to get back export refunds but
  intervention could be a factor
• German milk supply could reduce
• US milk supply projected to drop to a growth of
  between 0.5 to 1 in 2009 vs 2008
• Low prices should generate demand over a six
  month period as expensive stocks are divested
• Substitution and trading down will be slow to
  reverse

.as a result, milk prices are expected to be
at MTR 4 level in the mid to low 20s cpl
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How have policy makers reacted and what will be
the likely policy landscape over the next three
years?
To date policy makers have not shown a
willingness to intervene in falling markets,
however, the size of market fall is likely to
influence the quota debate.

• CAP health check 5 by 1 quota increases likely
• Potential for adjustment in the butterfat
  coefficient, could prevent a 1 reduction in
  volume terms
• No desire apparent for a return to usage of
  support mechanism such as export refunds or
  subsidised consumption schemes
• Intervention to operate but at an unattractive
  level and by tender
• PSA to remain as a supporting mechanism but by
  tender or optional on the part of the commission
• Mention of a return to WTO negotiations, US
  election outcome will influence
• Significant carbon agenda emerging

nonetheless, the policy safety net that
existed in the past will not be available to
provide a solution to the current industry
challenges. Any solution will have to come from
the industry.
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- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
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What are the key elements of the GII Strategy?

• Enhanced Product Mix Supported by a 46m
  investment in the GII development programme, a
  focus on moving out of low end/declining markets
  such as casein to more value added market sectors
  including MPC/MPI and a diversified cheese
  product offering along with investing in an
  upgrade of whey processing facilities to meet the
  requirements of key food processing customers
• Route to Market Establishment of a Glanbia
  global sales network through the placement of
  sales resources in South America, the Middle
  East, North Africa and Asia to compliment our
  existing sales network in the US and the EU
• Cost Reduction Focusing on a major cost
  reduction programme targeted to offset inflation
  and deliver underlying savings in 2009. This
  will be enabled through investment in automation
  technology
• Asset Utilisation Through the ongoing leverage
  of the GII processing network, focusing on
  enhancing asset utilisation at Ballyragget over
  the five year period 2004 to 2008, cumulative
  inflation per tonne of solids processed was
  maintained at 8.2 compared to a CPI of 19.7
• Farm Development The development and roll out of
  an enhanced farm development programme focused
  on maintaining a competitive milk supply base

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- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
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Who are the key stakeholders who will move the
Irish dairy industry forward?
All four key stakeholders, acting independently
and in concert, have a role to play to advance
the industry
3 Industry Marketing Arm (IDB)
1Farmers
Key Industry Stakeholder Groups
4 Policy Makers
2 Processors
For each stakeholder significant challenges exist
. but there are opportunities
21
- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
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What action is required at farm level?
Even if markets recover, farms must be structured
to withstand/ prosper in a low milk price
environment to survive future volatility.

• 1 Farmers Required Action
• A concerted effort needs to be made to
  comprehensively define execute the appropriate
  dairy farm model in an Irish context
• This model must define and exploit our
  competitive strengths as one of the worlds lowest
  cost milk producers
• Farmers must avoid over investment
• Minimum scale to fully exploit one labour unit
  should be pursued but scale without efficiency
  will not equal success
• Critical to be able to define production costs

3. Marketing Arm (IDB)
1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
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What is the opportunity open to Irish dairy
farmers?
Across the globe, Ireland is ranked as one of the
lowest cost milk production regions alongside New
Zealand and South America
Source IFCN
This competitive advantage must be fully
exploited, however, there is a danger of loosing
this advantage through over/inappropriate
investment.
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- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
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What is the current challenges facing the
processing sector ?
Irish dairy processing is a very-low margin or
loss making business operating in a dysfunctional
milk pricing system

• 2 Processors Current challenges
• Very low-margin/loss making activity
• Greatly underutilised processing assets, impacted
  by seasonality but also processing
  policy/decisions
• Until recently, lack of investment price to be
  paid for not investing
• Operating in a dysfunctional milk pricing
  environment
• High level of low-value commodity product,
  limited access to FDP markets
• Operating in a high-cost environment, impacted by
  seasonal profile
• Capital intensive business

3. Marketing Arm (IDB)
1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
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What action is required at processing level?

• 2 Processors Required action
• Firstly, maximise the utilisation efficiency of
  current assets
• Seasonalise plants through sensible processing
  arrangements
• Avoid costly rationalisation with questionable
  returns (single plant?) further develop
  processing federations
• Fully exploit/commit to singular route to market
  for defined products
• Continued focus on cost. Role for joint/industry
  purchasing initiatives
• Transparent index to define market returns /
  workable milk pricing model
• Continued investment in value-adding opportunities

3. Marketing Arm (IDB)
1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
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Dairy Ingredient Value Chain 2008
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What milk would be available for a large dryer?
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What could be the characteristics of a single
large scale processing plant?
A single large scale plant could have the
following characteristics

• As a model, a modest version of a plant of this
  nature could consist of a 12 tonne per hour drier
  this would have the capacity to produce some
  60,000 tonnes of WMP per year along with 9,000
  tonnes of SMP
• A plant of this scale would utilise some 500 m
  litres of milk or close to 10 of the Irish milk
  pool close to the combined milk pools of say
  Arabawn NCF
• On a green field site it is estimated that such a
  plant would cost in the region of 100m not
  accounting for any redundancy etc. costs at
  existing facilities

who would pay to construct such a project?
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What have Glanbia to offer to address the current
industry challenges?
Glanbia has a number of significant assets which
have the potential to be further exploited
through sensible arrangements with others.
These include

• Processing Capacity
• Butterfat 500 tonnes per week available at peak,
  850 tonnes per weak at the shoulders
• Protein 350 tonnes per week available at
  shoulders
• Significant opportunity for an arrangement with
  another processor(s) to seasonalise a plant(s)
• Processing Scale
• In cheese and value-added whey products, Glanbia
  has internationally competitive scale which could
  be exploited through further investment in
  appropriate added-value processing activity in an
  Irish context
• Route to Market
• Route to global market opportunities/customers
  for cheese and high value whey based dairy
  ingredients
• Processing Knowledge
• Deep knowledge with respect to the construction
  and operation of large-scale processing
  facilities

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What have Glanbia to offer to address the current
industry challenges?
Around the world, Glanbia controls a milk pool
equivalent to that of the total Irish milk pool
and has a sales presence in key global markets.
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- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
33
What is the current challenges facing the
critical stakeholder groups?
The industrys marketing arm is coming under
increasing pressure

• 3 Marketing Arm (IDB) Challenges
• Question of relevance of current model
  increasingly on industry minds
• Market volatility forcing entity to act as a
  short-term trader
• Tougher stock financing climate
• Stock financing costs
• Limited innovation capability between the
  customer and ingredient producer
• Supply rules / pricing difficulties for retail
  branded business
• Duplication of effort/competition in certain
  markets
• Potential to restructure and refocus

3. Marketing Arm (IDB)
1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
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- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
35
What is the current challenges facing the
critical stakeholder groups?
A key challenge for policy makers is to recognise
the critical difference and role of food
producers vs other areas of commerce
3. Marketing Arm (IDB)

• 4 Policy Makers Current Challenges
• Inordinate level of legislative costs placed on
  industry (producers processors)
• CAP health check
• WTO
• Emerging carbon agenda

1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
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What action is required by policy makers?
In the current economic climate, policy makers
need to reappraise the value of this sector to
the Irish economy and act accordingly.

• 4 Policy Makers Required Action
• Review of regulatory costs (farm factory)
  sensible approach required
• Further incentives long-term land leasing
  arrangements
• Encourage young entrants and facilitate early
  exits (budget 2008)
• Facilitate/encourage milk production in most
  economically attractive locations
• Resist carbon madness ensure land usage offset
  policies are allowed
• Reappraise value of sector to the economy and
  prioritise accordingly on government agenda

3. Marketing Arm (IDB)
1. Farmers
Key Industry Stakeholder Groups
4. Policy Makers
2. Processors
37
- Contents -
-Current Section -
1 Presentation content and objectives
2 Market Landscape
3 GII Strategy Key Points
4 Industry Consolidation
5 Industry Development Key Considerations 5(a
) Farm level 5(b) Processor level 5(c)
Marketing arm level 5(d) Policy level
6 Industry reorganisation Glanbia position
principles
38
In terms of the current industry debate, what are
Glanbias priorities ?

• Priorities for Glanbia include
  Increase stakeholder value through
• Increased Asset Utilisation
• Increased Value Add (particularly for whey and
  cheese)
• Access Low Cost extra capacity
• Reduced overhead unit cost
• Continue to build Market Access
• Key Customer Focus

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What might be the Glanbia principles for industry
consolidation?

• Principles for industry consolidation
• Each co-op responsible for own rationalisation
  costs
• Explore opportunities for existing asset
  utilisation as a priority
• Focus on value-adding opportunities for priority
  investment e.g. Cheese
• Standard approach to Milk Purchasing
• Market Based price
• Individual co-op top-ups
• Seasonality standard for industry
• Standard approach to new entrants
• In context of above co-operation
• Centralised milk planning
• Optimised milk advisory / collection operation

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Conclusions

• Ireland is one of the lowest cost producers in
  the world
• There is a compelling case for moving to a more
  sustainable model at farm and processing level
• Through sensible pricing / re-investment /
  rationalisation Glanbia is well on track to meet
  the challenges
• Profiling of the optimum farmer model and path to
  success is high priority for the industry
• Reflecting our guiding principles we have
  specific priorities in an industry shake-up

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Business Presentation
Slide 41