2016 Half year results Delivering better nutrition for every step of life’s journey Wednesday, 17 August 2016 1 Glanbia plc 2013 half year results Strong performance in first half driven by Glanbia Performance Nutrition Guidance reiterated of 8% to 10% constant currency adjusted EPS growth in 2016 17 August 2016 - Glanbia plc (“Glanbia”, the “Group”, the “plc”), the global nutrition group, announces its results for the six months ended 02 July 2016. Results highlights for the half year 2016 Adjusted earnings per share 44.87 cent, up 10.8% on prior half year, constant currency (up 10.5% reported); EBITA from wholly owned business €157.4 million, up 13.7% on prior half year, constant currency (up 13.6% reported); EBITA margins from wholly owned business 11.0%, up 130 bps on prior half year, constant currency and reported; Strong result from Glanbia Performance Nutrition with EBITA of €81.7 million, a 35.0% increase on prior half year, constant currency (up 34.6% reported); Glanbia Nutritionals1 delivered a satisfactory result with EBITA of €58.0 million, a 4.0% decrease on prior half year, constant currency (down 3.8% reported); Dairy Ireland in line with expectations with EBITA of €17.7 million, a 1.1% increase on prior half year; Joint Ventures & Associates EBITA declined 4.5%, constant currency, (down 5.4% reported) in the first half ; and Recommended interim dividend of 5.37 cent per share, an increase of 10% on prior year. Commenting today Siobhán Talbot, Group Managing Director, said: “Glanbia delivered a strong performance in the first six months of 2016 driven by Glanbia Performance Nutrition. Total Group earnings before interest, tax and amortisation for the half year grew by over 11%. Sales of performance nutrition brands and value-added nutritional ingredients showed good growth in the first half of 2016 delivering on our vision to be a leading nutrition business. Global dairy markets remain weak and continue to be a challenge for parts of the business, however the diversity of the Glanbia portfolio has enabled us to navigate this and we reiterate guidance for the full year of adjusted earnings per share growth of 8% to 10% on a constant currency basis.” 2016 half year results €m Wholly-owned business Revenue EBITA3 EBITA margin Joint Ventures & Associates Revenue EBITA EBITA margin Total Group4 Revenue EBITA EBITA margin Adjusted earnings per share5 HY 2016 Reported HY 2015 Change Constant Currency Change2 1,434.8 157.4 11.0% 1,431.7 138.5 9.7% +0.2% +13.6% + 130 bps +0.4% +13.7% +130 bps 402.3 19.1 4.7% 445.3 20.2 4.5% -9.7% -5.4% +20bps -8.8% -4.5% +20bps 1,837.1 176.5 9.6% 1,877.0 158.7 8.5% -2.1% +11.2% +110bps -1.7% +11.4% +110bps 44.87c 40.60c +10.5% +10.8% 1. 2. Global Ingredients has been rebranded Glanbia Nutritionals. The operations of the segment are unchanged. To arrive at the Constant Currency Change, the average FX rate for the current period is applied to the relevant reported result from the same period in the prior year. The average Euro US Dollar FX rate for the first half of 2016 was €1 = $1.116 (HY 2015: €1 = $1.115). 3. EBITA is defined as earnings before interest, tax and amortisation and is stated before exceptional items. 4. Total Group includes Glanbia’s share of Joint Ventures & Associates. 5. Adjusted earnings per share is reconciled in Note 10 of the financial statements. This release contains certain alternative performance measures. A detailed glossary of the key performance indicators and non-IFRS performance measures can be found on pages 36 to 39. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 2 2016 half year overview and outlook Glanbia delivered a strong performance in the first half of 2016. Wholly owned revenue was €1,434.8 million, an increase of 0.4% constant currency (up 0.2% reported). Wholly owned EBITA was €157.4 million, up 13.7% constant currency (up 13.6% reported). Wholly owned EBITA margin was 11.0%, up 130 bps, constant currency and reported. Total Group revenue for the period, including the Group’s share of Joint Ventures & Associates, was €1,837.1 million, a decrease of 1.7% constant currency (down 2.1% reported). Total Group EBITA was €176.5 million, up 11.4% constant currency (up 11.2% reported). Total Group EBITA margin was 9.6%, up 110 bps, constant currency and reported. Adjusted earnings per share for the half year were 44.87 cent, up 10.8%, constant currency (up 10.5% reported). Capital investment and corporate development Glanbia’s total investment in capital expenditure was €41.7 million in the first half of 2016, of which €27.8 million was strategic investment reflecting the on-going focus on the organic growth potential of the business. Key strategic projects undertaken in the period were the investments in value-added ingredient processing technologies at the Glanbia Nutritionals sites in Idaho and California, USA. Board changes On 09 May 2016, Tom Grant, Brendan Hayes, Patrick Hogan and Eamon Power retired from the plc Board as part of the agreement in place with Glanbia Co-operative Society Limited to reduce its director representation on the plc Board by four in 2016. Glanbia Nutritionals The Global Ingredients segment has been reshaped to improve its positioning with customers and target growth opportunities. The overall portfolio has been integrated into one global organisation to deliver to customers the full suite of Glanbia’s capabilities across its cheese and nutritional ingredients platforms. This new organisation is consumer insight driven, has regionally focused sales teams, and is enabled by centres of excellence across areas such as product supply, innovation and strategy. The segment contains the prior operations of Global Ingredients and has been rebranded “Glanbia Nutritionals”. It will continue to report revenue, EBITA and EBITA margin. 2016 outlook Glanbia reiterates its guidance for 2016 of 8% to 10% growth in adjusted earnings per share, constant currency. If the full year 2016 average Euro US dollar exchange rate remains at similar levels to the first half of 2016, Glanbia expects the 2016 reported adjusted earnings per share growth to be broadly in line with the constant currency result. Glanbia Performance Nutrition (‘GPN’) is expected to be the main driver of 2016 earnings per share growth. GPN continues to focus on like for like branded revenue progression and is currently expecting full year growth in line with the first half. Favourable input costs, mix improvement and operational leverage are expected to drive margin improvement and earnings for 2016 versus prior year. Glanbia Nutritionals expects to deliver modest EBITA improvement versus prior year. This will be driven by increased sales of value-added nutritional ingredients offset somewhat by reduced performance from US Cheese as a result of weak markets. Dairy Ireland and Joint Ventures & Associates are expected to be broadly in line with prior year. HY 2016 operations review Segmental analysis (as reported) €m Glanbia Performance Nutrition Glanbia Nutritionals Dairy Ireland Total wholly-owned businesses Joint Ventures & Associates Total Group Revenue 505.3 572.6 356.9 1,434.8 402.3 1,837.1 HY 2016 EBITA 81.7 58.0 17.7 157.4 19.1 176.5 EBITA % 16.2% 10.1% 5.0% 11.0% 4.7% 9.6% Glanbia plc – Delivering better nutrition for every step of life’s journey Revenue 453.5 609.3 368.9 1,431.7 445.3 1,877.0 HY 2015 EBITA 60.7 60.3 17.5 138.5 20.2 158.7 EBITA % 13.4% 9.9% 4.7% 9.7% 4.5% 8.5% 2016 half year results Page | 3 Glanbia Performance Nutrition €m Revenue EBITA EBITA margin HY 2016 505.3 81.7 16.2% Reported HY 2015 453.5 60.7 13.4% Change +11.4% +34.6% +280bps Constant Currency Change +12.0% +35.0% +280bps Commentary is on a constant currency basis throughout Glanbia Performance Nutrition (‘GPN’) delivered a strong performance in the first half of 2016 against the same period in 2015. Revenues increased 12.0% to €505.3 million. Drivers of revenue growth were an 8.0% improvement in volume and a 10.7% revenue contribution from the thinkThin acquisition offset by a 6.7% decline in price, due to promotional investment. Like for like branded revenue growth for H1 2016 was 4.4% as good branded volume growth across all regions was somewhat offset by promotional investment. The strong US Dollar remains a headwind in certain non US markets. The thinkThin acquisition performed well in the period maintaining its historically strong growth rate. Innovation continues to be a focus and the recent launch of BSN N.O.XPLODE XE has performed well with a strong pipeline of new product launches planned for H2 2016. EBITA grew strongly by 35.0% in the period driven by revenue growth and EBITA margin progression of 280 bps to 16.2%. The margin increase was driven by a reduction in input cost, mix improvement from increased branded sales relative to contract and continued gains in operating leverage. Glanbia Nutritionals €m Revenue EBITA EBITA margin HY 2016 572.6 58.0 10.1% Reported HY 2015 609.3 60.3 9.9% Change -6.0% -3.8% +20bps Constant Currency Change -5.9% -4.0% +20bps Commentary is on a constant currency basis throughout Glanbia Nutritionals (‘GN’) performance was in line with expectations in the first half of 2016 and delivered a satisfactory result in the context of on-going challenging dairy markets. Revenues decreased by 5.9% to €572.6 million as volume growth of 2.2% was more than offset by weaker dairy markets which reduced pricing by 8.1%. Overall margins progressed to 10.1% driven by a strong performance from the Nutritional Ingredients portfolio. Nutritional Ingredients improved performance was driven by volume growth of value-added dairy and non-dairy ingredients, including bar systems and high-end whey ingredients following investment in increased capacity in 2015. US Cheese volumes were broadly in line in the first half of 2016 as plants operated close to full capacity. Cheese demand remains solid across the US retail and foodservice markets although pricing in the overall US market was weak. On-going challenging dairy market dynamics led to a reduced performance in this part of the business. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 4 Dairy Ireland €m Revenue EBITA EBITA margin HY 2016 356.9 17.7 5.0% Reported HY 2015 368.9 17.5 4.7% Change -3.3% +1.1% +30bps Dairy Ireland had a satisfactory performance in the first half of 2016. Revenues decreased 3.3% reflecting a 1.1% increase in volumes, a 4.9% decline in price and a 0.5% revenue contribution from acquisitions. A 30 bps improvement in margin drove an increase in EBITA of 1.1% versus the prior half year. Consumer Products delivered an improved performance versus prior year. This was driven by an improvement in sales of value-added branded products and input cost reductions. Consumer Products continues to focus on improving its cost base. Agribusiness delivered a somewhat reduced performance in the period. Increased animal feed sales volume was more than offset by lower pricing across animal feed and fertiliser which led to a decline in margin. Joint Ventures & Associates (Glanbia Share) €m Revenue EBITA EBITA margin HY 2016 402.3 19.1 4.7% Reported HY 2015 445.3 20.2 4.5% Change -9.7% -5.4% +20bps Constant Currency Change -8.8% -4.5% +20bps Commentary is on a constant currency basis throughout Joint Ventures & Associates revenue reduced by 8.8% in the period as a result of the challenging dairy environment. The key driver of the revenue movement was a 12.8% decline in pricing reflecting weaker global dairy markets which was partially offset by a 6.6% increase in volumes. The disposal of Glanbia’s interest in Nutricima in April 2015 led to an additional 2.6% decline in revenues compared to the prior half year. All Joint Ventures & Associates grew volumes in the period with a focus on costs, off-setting some of the price challenges which generated a 20 bps improvement in margin. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 5 Half year 2016 finance review HY 2016 results summary preexceptional €m Revenue EBITA EBITA margin - Amortisation of intangible assets - Net finance costs - Share of results of Joint Ventures Associates - Income tax Profit for the half year HY 2016 1,434.8 157.4 11.0% (19.4) (11.6) 12.3 (21.7) 117.0 HY 2015 1,431.7 138.5 9.7% (15.6) (10.7) 13.3 (19.1) 106.4 Change +0.2% +13.6% +130bps Constant Currency Change +0.4% +13.7% +130bps Income statement For the first half of 2016, wholly owned revenue increased 0.4%, constant currency (up 0.2% reported) to €1,434.8 million (HY 2015: €1,431.7 million). EBITA grew by 13.7%, constant currency (up 13.6% reported) to €157.4 million (HY 2015: €138.5 million). EBITA margin increased by 130 bps to 11.0%, both constant currency and reported. Net financing costs of €11.6 million increased versus prior year (HY 2015: €10.7 million) due to an increase in average net debt. The Group’s average interest rate for the period was 3.6% (HY 2015: 3.9%). Glanbia operates a policy of fixing a significant amount of its interest exposure, with 85% of projected 2016 debt currently contracted at fixed rates for 2016. The HY 2016 pre-exceptional tax charge increased by €2.6 million to €21.7 million (HY 2015: €19.1 million). This represents an effective rate, excluding Joint Ventures & Associates, of 17.1% (HY 2015: 17.0%). The Group’s share of results of Joint Ventures & Associates decreased by €1.0 million to €12.3 million (HY 2015: €13.3million). Share of results of Joint Ventures & Associates is an after tax and interest amount. Adjusted earnings per share Adjusted earnings per share* HY 2016 44.87c HY 2015 40.60c Change +10.5% Constant Currency Change +10.8% * Adjusted earnings per share is reconciled in note 10 of the financial statements. A full glossary of terms used throughout this release can be found in the financial statements section on page 36-39. Total adjusted earnings per share grew 10.8% (up 10.5% reported), driven by growth in EBITA. Adjusted earnings per share is believed to be more reflective of the Group’s underlying performance than basic earnings per share and is calculated based on the net profit attributable to equity holders of the parent before exceptional items and amortisation of intangible assets, net of related tax. Dividend per share The Board is recommending an interim dividend of 5.37 cent per share (HY 2015: interim dividend 4.88 cent per share). This represents an increase of 10% on the prior year interim dividend. The dividend will be paid on 07 October 2016 to shareholders on the register of members as at 26 August 2016. Irish withholding tax will be deducted at the standard rate where appropriate. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 6 Exceptional items €m 1. Organisation redesign costs 2. Acquisition integration costs 3. Rationalisation costs 4. Disposal of interest in Joint Venture Exceptional (charge) pre-tax Taxation credit Total exceptional (charge) HY 2016 (6.2) (1.9) (0.8) (8.9) 1.6 (7.3) HY 2015 (3.1) (1.1) (3.6) (7.8) 0.5 (7.3) Exceptional items incurred in the first half of 2016 resulted in a post-tax exceptional charge of €7.3 million compared to an equal charge of €7.3 million for the same period in 2015. Details of the exceptional items incurred in the period are as follows: 1. 2. 3. 4. The organisation redesign costs relate to the on-going programme announced in 2015 in Glanbia Nutritionals to fundamentally reorganise the business to leverage future market opportunities. It is envisaged that this programme will continue until H1 2017 and will involve a total cost of approximately €20 million across 2015, 2016 and 2017. Acquisition integration costs comprise of costs relating to the integration, restructuring and redesign of route to market capabilities within acquired businesses in the Glanbia Performance Nutrition segment. Rationalisation costs primarily relate to the current redundancy and rationalisation programme in the Dairy Ireland segment. Relates to the disposal in April 2015 of Glanbia’s investment in Milk Ventures (UK) Limited which is the parent company of Nutricima Limited, a non-core Joint Venture business involved in the supply and distribution of evaporated and powdered milk, based in Nigeria. Group financing and cash flow Financing key performance indicators Net debt €m Net debt : adjusted EBITDA1 Adjusted EBIT1 : net finance cost HY 2016 644 1.83 times 11.4 times HY 2015 577 1.97 times 9.8 times FY 2015 584 1.75 times 10.8 times 1. Definition of net debt, adjusted EBITDA and adjusted EBIT are as per financing agreements which include dividends from Joint Ventures & Associates and the pro forma effect of acquisitions. A detailed glossary of the key performance indicators and non-IFRS performance measures can be found on pages 36 to 39. The Group’s financial position continues to be strong. Net debt at the end of HY 2016 was €644 million. This is an increase of €67 million relative to the end of HY 2015. Net debt to adjusted EBITDA was 1.83 times and interest cover was 11.4 times, both metrics remaining well within financing covenants. Relative to the year end of 2015, net debt has increased by €60 million. The key drivers of the net debt increase from year end 2015 have been a seasonal increase in working capital and capital expenditure. Pension On 02 July 2016, the Group’s net pension liability under IAS 19 (revised) ‘Employee Benefits’, before deferred tax, increased by €44.8 million to €132.1 million versus year end 2015 (FY 2015 pension liability €87.3 million). A significant driver of this was the decrease in the discount rate driven by the decline in interest rates on high quality corporate bonds. See note 17 for further details on the retirement benefit obligation at the reporting date. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 7 Principal risks and uncertainties affecting the Group’s performance in 2016 The Board of Glanbia plc has the ultimate responsibility for the Group’s systems of risk management and internal control. The Group’s risk management framework outlines the key stakeholder risk management responsibilities. It is designed to ensure that there is input across all levels of the business to the management of risk and to enable the Group to remain responsive to the ever changing environment in which it operates. This framework, together with the processes to identify, manage and mitigate potential material risks to the achievement of the Group’s strategic objectives are set out in detail on pages 32-34 of the plc’s 2015 Annual Report. The Group’s principal risks and uncertainties are summarised in the risk profile table below, according to the strategic objective to which they relate, together with an overview of the risk trend identified for the year ended 02 January 2016, issued on 03 March 2016 which the plc Board believes to still remain applicable. There may be other risks and uncertainties that are not yet considered material or not yet known to the Group and this list will change if these risks assume greater importance in the future. Group strategic priorities Risks where trend is increasing Risks which are stable Maintain and grow Glanbia’s global leadership in performance nutrition and nutritional and functional ingredients Economic, industry and political risk Grow through organic investment programme and acquisition/ partner with complementary businesses Strategy risk Market risk Customer concentration risk Supplier risk Acquisition risk Develop talent, culture and values in line with Glanbia’s growing global scale Other risks IT and cyber security risks Talent management risk Site compliance risk and environment, health & safety regulation risk Product safety and compliance risk Key risk factors and uncertainties with the potential to impact on the Group’s financial performance in the second half of the year include: Economic, industry and political risk. Macroeconomic uncertainty continues to increase, partly as a result of the United Kingdom (UK) electorate voting to leave the European Union. While the direct impacts of this decision are limited, currency volatility, further movement in discount rates and other economic uncertainties will require on-going monitoring by the Group; The continued impact on the competitive landscape for Glanbia Performance Nutrition, recognising the impact of a stronger US dollar on the purchasing power of consumers in certain international markets; and The overall impact on margins of movements in dairy pricing particularly in whey markets. The Group actively manages these and all other risks through its risk management and internal control processes. Full details of the principal risk exposures and the related mitigation actions are outlined on pages 35–38 of the plc 2015 Annual Report. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 8 Cautionary statement This announcement contains forward-looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements contained in this announcement, whether as a result of new information, future events, or otherwise. Results webcast and dial-in details There will be a webcast and presentation to accompany this results announcement at 8.30 a.m. BST today. Please access the webcast from the Glanbia website at http://www.glanbia.com/investors/results-centre, where the presentation can also be viewed or downloaded. In addition, a dial-in facility is available using the following numbers: Ireland: UK / International: USA: 01 2465605 +44 20 3427 1925 646 254 3375 The access code for all participants is: 9767248 A replay of the call will be available for 30 days approximately two hours after the call ends. For further information contact Glanbia plc +353 56 777 2200 Siobhán Talbot, Group Managing Director Mark Garvey, Group Finance Director Liam Hennigan, Head of Investor Relations +353 86 046 8375 Martha Kavanagh, Head of Media Relations +353 87 646 2006 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 9 Responsibility statement The Directors are responsible for preparing the half yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 as amended, the related Transparency Rules of the Central Bank of Ireland and with IAS 34 ‘Interim Financial Reporting’, as adopted by the European Union. The Directors of Glanbia plc confirm that, to the best of their knowledge: • The Group condensed interim financial statements for the half year ended 02 July 2016 have been prepared in accordance with the international accounting standard applicable to interim financial reporting (IAS34) adopted pursuant to the procedure provided for under Article 6 of the Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002; • The half yearly financial report includes a fair review of the development and performance of the business and the position of the Group; • The half yearly financial report includes a fair review of the important events that have occurred during the first six months of the financial year, and their impact on the Group condensed financial statements for the half year ended 02 July 2016, and a description of the principal risks and uncertainties for the remaining six months; and • The half yearly financial report includes a fair review of related party transactions that have occurred during the first six months of the current financial year that have materially affected the financial position or the performance of the Group during that period and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or the performance of the Group in the first six months of the current financial year. The Directors of Glanbia plc are as listed in the Glanbia plc 2015 Annual Report, with the exception of the following changes in the period: Tom Grant, Brendan Hayes, Patrick Hogan and Eamon Power retired as Directors of Glanbia plc on 09 May 2016. A list of current directors is maintained on the Glanbia plc website: www.glanbia.com On behalf of the Board Siobhán Talbot Group Managing Director Mark Garvey Group Finance Director 16 August 2016 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 10 Condensed income statement for the half year ended 02 July 2016 Half year 2016 Preexceptional Exceptional 2016 2016 €'000 €'000 Notes Revenue 4 Half year 2015 Year 2015 Total Preexceptional Exceptional Total Preexceptional Exceptional Total 2016 2015 2015 2015 2015 2015 2015 €'000 €'000 €'000 €'000 €'000 €'000 €'000 (note 6) (note 6) 1,434,764 - 1,434,764 Earnings before interest, tax and amortisation (EBITA) 157,389 (8,885) Intangible asset amortisation (19,424) - Operating profit 137,965 (8,885) 129,080 (note 6) 1,431,590 - 1,431,590 2,774,326 - 148,504 138,473 (7,838) (19,424) (15,566) - 122,907 (7,838) 115,069 2,774,326 130,635 271,003 (26,342) 244,661 (15,566) (31,125) - (31,125) 239,878 (26,342) 213,536 Finance income 7 1,160 - 1,160 885 - 885 1,706 - 1,706 Finance costs 7 (12,732) - (12,732) (11,588) - (11,588) (22,816) - (22,816) Share of results of Joint Ventures & Associates 12,328 - 12,328 13,267 - 13,267 26,270 - 26,270 Profit before taxation 138,721 (8,885) 129,836 125,471 (7,838) 117,633 245,038 (26,342) 218,696 (21,664) 1,629 (20,035) (19,075) 533 (18,542) (37,322) 2,543 (34,779) 117,057 (7,256) 109,801 106,396 (7,305) 99,091 207,716 (23,799) 183,917 Income taxes 8 Profit for the period Attributable to: Equity holders of the Parent 109,364 Non-controlling interests 98,674 183,271 437 417 646 109,801 99,091 183,917 Earnings per share attributable to the equity holders of the Parent Basic earnings per share (cent) 10 37.06 33.43 62.08 Diluted earnings per share (cent) 36.92 33.18 61.87 10 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 11 Condensed statement of comprehensive income for the half year ended 02 July 2016 Half year Notes Profit for the period Half year Year 2016 2015 2015 €’000 €’000 €’000 109,801 99,091 183,917 (51,379) 18,178 20,856 Other comprehensive income Items that are not reclassified subsequently to the Group income statement: Remeasurements – defined benefit schemes 17 4,866 (2,430) (2,334) (10,480) 4,811 4,254 1,310 (600) (612) (33,036) 75,654 91,102 Net investment hedge 2,015 (6,980) (8,684) Revaluation of available for sale financial assets (617) 1,052 1,273 Fair value movements on cash flow hedges Recycle of currency reserve to the Group income statement on disposal of Investment in Joint Venture (506) 2,476 145 - 5,037 5,037 Deferred tax credit/(charge) on remeasurements Share of remeasurements – Joint Ventures & Associates Deferred tax credit/(charge) on remeasurements – Joint Ventures & Associates 14 Items that may be reclassified subsequently to the Group income statement: Currency translation differences Deferred tax on cash flow hedges and revaluation of available for sale financial assets Other comprehensive (expense)/income for the period, net of tax Total comprehensive income for the period 63 (444) (480) (87,764) 96,754 110,557 22,037 195,845 294,474 21,600 195,428 293,828 437 417 646 22,037 195,845 294,474 Total comprehensive income attributable to: Equity holders of the Parent Non-controlling interests Total comprehensive income for the period Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 12 Condensed balance sheet As at 02 July 2016 Half year Half year Year 2016 2015 2015 €'000 €'000 €'000 Property, plant and equipment 579,258 551,860 586,190 Intangible assets 921,721 704,663 951,527 Investments in Associates 95,994 91,564 97,897 Investments in Joint Ventures 59,243 62,665 60,585 Trade and other receivables 14,654 1,850 1,850 Notes ASSETS Non-current assets Derivative financial instruments Deferred tax assets Available for sale financial assets 15 - - 42,711 26,152 36,474 10,105 10,522 10,754 1,723,701 1,449,276 1,745,277 Inventories 331,435 350,819 344,353 Trade and other receivables 447,554 412,954 350,020 997 1,686 414 94,909 94,400 210,889 874,895 859,859 905,676 2,598,596 2,309,135 2,650,953 Current assets Derivative financial instruments Cash and cash equivalents 13 Total assets EQUITY Issued capital and reserves attributable to equity holders of the Parent Share capital and share premium 105,393 105,370 105,370 Other reserves 16 272,400 294,073 306,425 Retained earnings 673,900 572,965 642,763 1,051,693 972,408 1,054,558 Non-controlling interests Total equity 8,952 8,313 8,515 1,060,645 980,721 1,063,073 672,408 634,015 752,963 - - 47 201,860 135,153 201,646 LIABILITIES Non-current liabilities Borrowings 13 Derivative financial instruments Deferred tax liabilities Retirement benefit obligations 17 132,075 93,971 87,288 Provisions 15 16,578 19,816 18,984 Capital grants 2,697 2,121 2,787 1,025,618 885,076 1,063,715 399,321 369,681 442,713 24,183 21,350 18,969 66,841 37,448 42,169 3,896 408 902 17,850 14,451 19,128 Current liabilities Trade and other payables Current tax liabilities Borrowings 13 Derivative financial instruments Provisions Capital grants 15 242 - 284 512,333 443,338 524,165 Total liabilities 1,537,951 1,328,414 1,587,880 Total equity and liabilities 2,598,596 2,309,135 2,650,953 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 13 Condensed statement of changes in equity for the half year ended 02 July 2016 Half year 2016 Attributable to equity holders of the Parent Share capital and share Other Retained premium reserves earnings Total Notes €'000 €'000 €'000 €'000 Balance at 02 January 2016 Profit for the period Other comprehensive income/(expense) Remeasurements - defined benefit schemes Deferred tax on remeasurements Share of remeasurements – Joint Ventures & Associates (net of deferred tax) Fair value movements Deferred tax on fair value movements Currency translation differences Net investment hedge Total comprehensive income for the period Dividends paid during the period Cost of share based payments Transfer on exercise, vesting or expiry of share based payments Deferred tax on share based payments Shares issued Premium on shares issued Purchase of own shares 17 9 16 16 Balance at 02 July 2016 Half year 2015 Notes Balance at 03 January 2015 Profit for the period Other comprehensive income/(expense) Remeasurements - defined benefit schemes Deferred tax on remeasurements Share of remeasurements - Joint Ventures & Associates (net of deferred tax) Fair value movements Deferred tax on fair value movements Currency translation differences Recycle of currency reserve to the Group income statement on disposal of Investment in Joint Venture Net investment hedge Total comprehensive income for the period Dividends paid during the period Cost of share based payments Transfer on exercise, vesting or expiry of share based payments Shares issued Premium on shares issued Purchase of own shares Balance at 04 July 2015 17 9 16 16 Non – controlling interests €'000 Total €'000 105,370 306,425 642,763 1,054,558 8,515 1,063,073 - - 109,364 109,364 437 109,801 - - (51,379) 4,866 (51,379) 4,866 - (51,379) 4,866 - (1,123) 63 (33,036) 2,015 (32,081) 5,693 (9,170) 53,681 (21,374) - (9,170) (1,123) 63 (33,036) 2,015 21,600 (21,374) 5,693 437 - (9,170) (1,123) 63 (33,036) 2,015 22,037 (21,374) 5,693 1 22 - 2,681 (10,318) (2,681) 1,511 - 1,511 1 22 (10,318) - 1,511 1 22 (10,318) 105,393 272,400 673,900 1,051,693 8,952 1,060,645 Attributable to equity holders of the Parent Share capital and share Other Retained premium reserves earnings Total €'000 €'000 €'000 €'000 Non – controlling interests €'000 Total €'000 104,728 218,581 473,573 796,882 7,896 804,778 - - 98,674 98,674 417 99,091 - - 18,178 (2,430) 18,178 (2,430) - 18,178 (2,430) - 3,528 (444) 75,654 4,211 - 4,211 3,528 (444) 75,654 - 4,211 3,528 (444) 75,654 - 5,037 (6,980) 76,795 3,565 118,633 (19,449) - 5,037 (6,980) 195,428 (19,449) 3,565 417 - 5,037 (6,980) 195,845 (19,449) 3,565 9 633 - (208) (4,660) 9 633 (4,660) - 9 633 (4,660) 105,370 294,073 972,408 8,313 980,721 Glanbia plc – Delivering better nutrition for every step of life’s journey 208 572,965 2016 half year results Page | 14 Condensed statement of changes in equity for the half year ended 02 July 2016 Year 2015 Notes Balance at 03 January 2015 Profit for the period Other comprehensive income/(expense) Remeasurements - defined benefit schemes Deferred tax on remeasurements Share of remeasurements - Joint Ventures & Associates (net of deferred tax) Fair value movements Deferred tax on fair value movements Currency translation differences Recycle of currency reserve to the Group income statement on disposal of Investment in Joint Venture Net investment hedge Total comprehensive income for the period Dividends paid during the period Cost of share based payments Transfer on exercise, vesting or expiry of share based payments Deferred tax on share based payments Shares issued Premium on shares issued Purchase of own shares Additions during the year Balance at 02 January 2016 17 9 16 16 Attributable to equity holders of the Parent Share capital and share Other Retained premium reserves earnings Total €'000 €'000 €'000 €'000 Non – controlling interests €'000 Total €'000 104,728 218,581 473,573 796,882 7,896 804,778 - - 183,271 183,271 646 183,917 - - 20,856 (2,334) 20,856 (2,334) - 20,856 (2,334) - 1,418 (480) 91,102 3,642 - 3,642 1,418 (480) 91,102 - 3,642 1,418 (480) 91,102 - 5,037 (8,684) 88,393 8,724 205,435 (33,895) - 5,037 (8,684) 293,828 (33,895) 8,724 646 (427) - 5,037 (8,684) 294,474 (34,322) 8,724 9 633 - 4,078 (13,351) - (4,078) 1,728 - 1,728 9 633 (13,351) - 400 1,728 9 633 (13,351) 400 105,370 306,425 642,763 1,054,558 8,515 1,063,073 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 15 Other reserves for the half year ended 02 July 2016 Half year 2016 Balance at 02 January 2016 Hedging reserve Available for sale financial asset reserve Own shares Share based payment reserve Total €'000 €'000 €'000 €'000 €'000 €'000 Capital and merger reserve Currency reserve €'000 115,973 186,251 (660) 3,391 (13,238) 14,708 306,425 Currency translation differences - (33,036) - - - - (33,036) Net investment hedge Revaluation of interest rate swaps – gain in period - 2,015 - 27 - - - 2,015 27 Foreign exchange contracts – loss in period - - (657) - - - (657) Transfers to income statement: Foreign exchange contracts – gain in period - - (307) - - - (307) Forward commodity contracts – loss in period Revaluation of forward commodity contracts - gain in period Revaluation of available for sale financial assets - loss in period - - 360 - - - 360 - - 71 - - - 71 - - - (617) - - (617) Deferred tax on fair value movements - - (141) 204 - - 63 Cost of share based payments Transfer on exercise, vesting or expiry of share based payments - - - - - 5,693 5,693 - - - - 8,166 (5,485) 2,681 Purchase of own shares - - - - (10,318) - (10,318) 115,973 155,230 (1,307) 2,978 (15,390) 14,916 272,400 Own shares Share based payment reserve Total Balance at 02 July 2016 Half year 2015 Balance at 03 January 2015 Capital and merger reserve Currency reserve Hedging reserve Available for sale financial asset reserve €'000 €'000 €'000 €'000 €'000 €'000 €'000 115,973 98,796 (745) 2,538 (7,965) 9,984 218,581 Currency translation differences Recycle of currency reserve to the Group income statement on disposal of Investment in Joint Venture - 75,654 - - - - 75,654 - 5,037 - - - - 5,037 Net investment hedge - (6,980) - - - - (6,980) Revaluation of interest rate swaps – gain in period - - 35 - - - 35 Foreign exchange contracts – gain in period - - 2,955 - - - 2,955 Transfers to income statement: Foreign exchange contracts – gain in period - - (771) - - - (771) Forward commodity contracts – loss in period Revaluation of forward commodity contracts - loss in period Revaluation of available for sale financial assets - gain in period - - 700 - - - 700 - - (443) - - - (443) - - - 1,052 - - 1,052 Deferred tax on fair value movements - - (97) (347) - - (444) Cost of share based payments Transfer on exercise, vesting or expiry of share based payments - - - - - 3,565 3,565 - - - - 486 (694) (208) Purchase of own shares - - - - (4,660) - (4,660) 115,973 172,507 1,634 3,243 (12,139) 12,855 294,073 Balance at 04 July 2015 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 16 Other reserves for the half year ended 02 July 2016 Year 2015 Balance at 03 January 2015 Hedging reserve Available for sale financial asset reserve Own shares Share based payment reserve Total €'000 €'000 €'000 €'000 €'000 €'000 Capital and merger reserve Currency reserve €'000 115,973 98,796 (745) 2,538 (7,965) 9,984 218,581 Currency translation differences Recycle of currency reserve to the Group income statement on disposal of Investment in Joint Venture - 91,102 - - - - 91,102 - 5,037 - - - - 5,037 Net investment hedge - (8,684) - - - - (8,684) Revaluation of interest rate swaps – gain in period - - 248 - - - 248 Foreign exchange contracts – loss in period - - (294) - - - (294) - - (149) - - - (149) Forward commodity contracts – loss in period Revaluation of forward commodity contracts - loss in period Revaluation of available for sale financial assets - gain in period - - 701 - - - 701 - - (361) - - - (361) - - - 1,273 - - 1,273 Deferred tax on fair value movements - - (60) (420) - - (480) Cost of share based payments Transfer on exercise, vesting or expiry of share based payments - - - - - 8,724 8,724 - - - - 8,078 (4,000) 4,078 Purchase of own shares - - - - (13,351) - (13,351) 115,973 186,251 (660) 3,391 (13,238) 14,708 306,425 Transfers to income statement: Foreign exchange contracts – gain in period Balance at 02 January 2016 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 17 Condensed statement of cash flows for the half year ended 02 July 2016 Half year Half year Year 2016 €’000 2015 €’000 2015 €’000 20 53,616 615 (11,710) (11,762) 30,759 25,463 417 (13,164) 1,360 14,076 307,865 1,773 (22,939) (9,987) 276,712 21 (8,724) (6,942) (34,471) (7,223) (500) 2,248 (12,800) 32 98 (68,282) (544) (802) 28,511 (52,241) (6,523) (1,250) 3,237 1,151 132 (28,329) (195,579) (1,296) 6,991 28,516 1,132 (103,792) (19,798) (2,403) 14,924 1,140 428 (269,737) 23 (1,815) (10,318) (67,197) (169) (21,374) (100,850) 608 (4,660) (21,471) (203) (19,449) (45,175) 642 (13,351) 91,577 (468) (33,895) (427) 44,078 (138,373) (59,428) 51,053 169,125 (2,333) 110,370 6,418 110,370 7,702 28,419 57,360 169,125 Half year 2016 Half year 2015 Year 2015 €’000 €’000 €’000 (138,373) 67,366 (59,428) 21,675 51,053 (91,109) (71,007) 10,910 (37,753) (28,947) (40,056) (33,824) Movement in net debt in the period Net debt at the beginning of the period (60,097) (584,243) (66,700) (510,363) (73,880) (510,363) Net debt at the end of the period (644,340) (577,063) (584,243) (672,759) 28,419 (634,423) 57,360 (753,368) 169,125 (644,340) (577,063) (584,243) Notes Cash flows from operating activities Cash generated from operating activities Interest received Interest paid Tax (paid)/refunded Net cash inflow from operating activities Cash flows from investing activities Acquisition of subsidiaries – purchase consideration Net cash flow relating to previous acquisitions Acquisition of subsidiaries – liabilities settled at completion Acquisition of subsidiaries – cash and cash equivalents acquired Disposal of Investment in Joint Venture Capital grants received Purchase of property, plant and equipment Purchase of intangible assets Interest paid in relation to property, plant and equipment Dividends received from Joint Ventures & Associates Loans advanced to Associate Net redemption and additions in available for sale financial assets Proceeds from property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Net outflow from derivative financial instruments Purchase of own shares (Decrease)/increase in borrowings Finance lease payments Dividends paid to Company shareholders Dividends paid to non-controlling interests Net cash (outflow)/inflow from financing activities 11 11 18 16 9 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the period 13 Reconciliation of net cash flow to movement in net debt Net (decrease)/increase in cash and cash equivalents Cash movements from debt financing Exchange translation adjustment Net debt comprises: Borrowings Cash and cash equivalents 13 13 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 18 Notes to the condensed financial statements for the half year ended 02 July 2016 1. General information Glanbia plc (the “Company”) and its subsidiaries (together the “Group”) is a leading global nutrition group with its main operations in Europe, USA, Middle East, Asia Pacific and Latin America. The Company is a public limited company incorporated and domiciled in Ireland. The address of its registered office is Glanbia House, Kilkenny, Ireland. Glanbia Co-operative Society Limited (the “Society”), together with its subsidiaries, holds 36.5% of the issued share capital of the Company. The Board of Directors as at 02 July 2016 is comprised of 18 members, of which up to 10 are nominated by the Society. In accordance with IFRS 10 ‘Consolidated Financial Statements’, the Society controls the Group and is the ultimate parent of the Group. The Company’s shares are quoted on the Irish and London Stock Exchanges. These condensed interim financial statements were approved for issue by the Board of Directors on 16 August 2016. 2. Summary of significant accounting policies a) Basis of preparation The Group’s condensed interim financial statements for the six months ended 02 July 2016 have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 as amended, the related Transparency Rules of the Central Bank of Ireland and with IAS 34 ‘Interim Financial Reporting’, as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the financial statements for the year ended 02 January 2016, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The condensed interim financial statements for the six months ended 02 July 2016 and for the six months ended 04 July 2015 have not been audited or reviewed by the Group’s auditors. b) Statutory information The condensed interim financial statements are considered non-statutory financial statements for the purposes of the Companies Act 2014 and in compliance with section 340(4) of that Act we state that: the condensed interim financial statements for the half year to 02 July 2016 have been prepared to meet our obligation to do so under the Transparency (Directive 2004/109/EC) Regulations 2007 as amended (Statutory Instrument No. 277); the condensed interim financial statements for the half year to 02 July 2016 do not constitute the statutory financial statements of the Group; the statutory financial statements for the financial year ended 02 January 2016 have been annexed to the annual return and filed with the Companies Registration Office; the statutory auditors of the Group have made a report under section 391 in the form required by section 336 Companies Act 2014 in respect of the statutory financial statements of the Group; and the matters referred to in the statutory auditors’ report were unqualified, and did not include a reference to any matters to which the statutory auditors drew attention by way of emphasis without qualifying the report. c) Going Concern The Group meets its day-to-day working capital requirements through its bank facilities. The Group’s forecasts and projections, taking account of changes in trading performance, show that the Group expects to be able to operate within the level of its current facilities. After making enquiries, the Directors have a reasonable expectation that the Group has sufficient resources to continue in operational existence for the foreseeable future. In forming this view, the Directors have reviewed the Group’s budget for 2016 and the medium term plans as set out in the three year strategic plan, and have taken into account the cash flow implications of the plans, including proposed capital expenditure, and compared these with the Group’s committed borrowing facilities and Group financing key performance indicators (“KPIs”). The Group therefore continues to adopt the going concern basis in preparing its condensed interim financial statements for the six months ended 02 July 2016. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 19 Notes to the condensed financial statements for the half year ended 02 July 2016 d) Foreign currency translation The Group’s condensed interim financial statements are presented in euro, which is the Group’s presentation currency. The principal exchange rates used for the translation of results and balance sheets into euro are as follows: euro 1 = US dollar Pound Sterling Danish Kroner Half year 2016 Average Half year 2015 Year 2015 Half year 2016 Period end Half year 2015 Year 2015 1.1161 0.7795 7.4497 1.1150 0.7316 7.4567 1.1092 0.7259 7.4589 1.1135 0.8383 7.4380 1.1096 0.7102 7.4607 1.0887 0.7340 7.4626 Following the result of the UK referendum on EU membership on 23 June 2016, the Group reviewed its methodology for determining the average rates and concluded that due to the trading profile of the Group, it remained appropriate to use an average rate as an approximation of the actual Pound Sterling exchange rate when translating income and expenses. e) Changes in accounting policies The methods of computation, presentation and accounting policies adopted in the preparation of the Group’s condensed interim financial statements are consistent with those applied in the Annual Report for the year ended 02 January 2016 (“2015 Annual Report”). The Group’s accounting policies are set out in the financial statements in the 2015 Annual Report. The following standards, issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”), are effective for the Group for the first time in the period ended 02 July 2016 and have been adopted by the Group. Amendments to IFRS 11 ‘Joint Arrangements’ on acquisition of an interest in a joint operation (effective on or after 01 January 2016). Amendments to IAS 16 ‘Property, Plant and Equipment’ and IAS 38, ‘Intangible Assets’, on depreciation and amortisation (effective on or after 01 January 2016). Amendments to IAS 27 ‘Consolidated and Separate Financial Statements’ on the equity method (effective on or after 01 January 2016). Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28, ‘Investments in Associates and Joint Ventures’ (effective on or after 01 January 2016 - not yet endorsed). Amendment to IAS 1 ‘Presentation of Financial Statements’ on the disclosure initiative (effective on or after 01 January 2016). Annual Improvements 2012-2014 on IFRS 7 ‘Financial Instruments: Disclosures’, IAS 19 ‘Employee Benefits’ and IAS 34 ‘Interim Financial Reporting’ (effective on or after 01 January 2016). The above standards did not have a significant impact on the results or the financial position of the Group during the six months ended 02 July 2016. The following standards, amendments and interpretations have been published. The Group will apply the relevant standards from their effective dates and is currently assessing their impact on the Group’s financial statements. The standards are mandatory for future accounting periods but are not yet effective and have not been early adopted by the Group. IFRS 15 ‘Revenue from Contracts with Customers’ (effective on or after 01 January 2018 - not yet endorsed). IFRS 15 is a converged standard from the IASB and the Financial Accounting Standards Board (“FASB”) on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. IFRS 9 ‘Financial Instruments’ (effective on or after 01 January 2018 - not yet endorsed). This standard replaces the guidance in IAS 39 ‘Financial Instruments: Recognition and Measurement’. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. Amendments to IAS 12 'Income Taxes' on the recognition of deferred tax assets for unrealised losses (effective on or after 01 January 2017 - not yet endorsed). These amendments clarify the recognition of deferred tax assets for unrealised losses on debt instruments. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 20 Notes to the condensed financial statements for the half year ended 02 July 2016 Amendments to IAS 7 'Statement of Cash Flows' under its disclosure initiative (effective on or after 01 January 2017 - not yet endorsed). These amendments are intended to improve the information provided to users of financial statements about an entity's financing activities. IFRS 16 'Leases' (effective on or after 01 January 2019 - not yet endorsed). IFRS 16 supersedes IAS 17 'Leases'. The new standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from IAS 17. 3. Changes in critical accounting estimates and assumptions Having considered the result of the UK referendum on EU membership, the Group concluded that no indicator of impairment existed at the reporting date with respect to intangible assets and property, plant and equipment. In valuing the retirement benefit obligation at the reporting date, the loss from changes in financial assumptions was €64.7 million offset by the return on plan assets of €13.3 million. A significant driver of the movement in the discount rate (based on high quality corporate bonds) was the result of the UK referendum on EU membership. See note 17 for further details on the retirement benefit obligation at the reporting date. With the exception of those outlined above, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 02 January 2016. 4. Segment information In accordance with IFRS 8 ‘Operating Segments’, the Group has four segments, as follows: Glanbia Performance Nutrition, Glanbia Nutritionals (previously Global Ingredients), Dairy Ireland and Joint Ventures & Associates. These segments align with the Group’s internal financial reporting system and the way in which the Chief Operating Decision Maker assesses performance and allocates the Group’s resources. A segment manager is responsible for each segment and is directly accountable for the performance of that segment to the Glanbia Operating Executive which acts as the Chief Operating Decision Maker for the Group. There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period. Each segment derives its revenues as follows: Glanbia Performance Nutrition earns its revenue from performance nutrition products; Glanbia Nutritionals earns its revenue from the manufacture and sale of cheese, dairy and non dairy nutritional ingredients; Dairy Ireland earns its revenue from the manufacture and sale of a range of consumer products and farm inputs and Joint Ventures & Associates revenue arises from the manufacture and sale of cheese and dairy ingredients. Each segment is reviewed in its totality by the Chief Operating Decision Maker. The Glanbia Operating Executive assesses the trading performance of operating segments based on a measure of earnings before interest, tax, amortisation and exceptional items. Amounts stated for Joint Ventures & Associates represents the Group’s share. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 21 Notes to the condensed financial statements for the half year ended 02 July 2016 4.1 The segment results for the period ended 02 July 2016 are as follows: Gross segment revenue Intersegment revenue Total Group revenue €'000 €'000 €'000 €'000 Glanbia Performance Nutrition 505,370 (115) 505,255 81,675 Glanbia Nutritionals 586,413 (13,856) 572,557 57,984 Dairy Ireland 357,383 (431) 356,952 17,730 Joint Ventures & Associates EBITA 402,257 - 402,257 19,135 1,851,423 (14,402) 1,837,021 176,524 Joint Ventures & Associates (402,257) (19,135) Reported Group 1,434,764 157,389 Group including Joint Ventures & Associates Amortisation (19,424) Operating profit 137,965 Exceptional items (8,885) Share of results of Joint Ventures & Associates 12,328 Finance income 1,160 Finance costs (12,732) Reported profit before taxation 129,836 Income taxes (20,035) Reported profit for the period 109,801 Included in external revenue are related party sales between Dairy Ireland and Joint Ventures & Associates of €4.5 million and related party sales between Glanbia Nutritionals and Joint Ventures & Associates of €6.6 million. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Amortisation and exceptional items are not allocated to segments as they are not reported by segment to the Glanbia Operating Executive. Finance income, finance costs and income taxes are not allocated to segments as this type of activity is driven by central treasury and taxation functions which manage the cash and taxation position of the Group. Segment assets and liabilities: Segment assets Segment liabilities €’000 €’000 1,128,231 247,784 Glanbia Nutritionals 803,838 198,333 Dairy Ireland 362,541 216,398 Joint Ventures & Associates 169,891 - 2,464,501 662,515 134,095 875,436 2,598,596 1,537,951 Glanbia Performance Nutrition Group including Joint Ventures & Associates Unallocated Reported Group Unallocated assets primarily include taxation, cash and cash equivalents, available for sale financial assets and derivatives. Unallocated liabilities include taxation, borrowing and derivatives. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 22 Notes to the condensed financial statements for the half year ended 02 July 2016 4.2 The segment results for the period ended 04 July 2015 are as follows: Gross segment revenue Intersegment revenue Total Group revenue €'000 €'000 €'000 €'000 Glanbia Performance Nutrition 453,818 (346) 453,472 60,686 Glanbia Nutritionals 626,732 (17,476) 609,256 60,342 Dairy Ireland 368,862 - 368,862 17,445 Joint Ventures & Associates 445,327 - 445,327 20,204 1,894,739 (17,822) 1,876,917 158,677 Joint Ventures & Associates (445,327) (20,204) Reported Group 1,431,590 138,473 Group including Joint Ventures & Associates EBITA Amortisation (15,566) Operating profit 122,907 Exceptional items (7,838) Share of results of Joint Ventures & Associates 13,267 Finance income 885 Finance costs (11,588) Reported profit before taxation 117,633 Income taxes (18,542) Reported profit for the period 99,091 Included in external revenue are related party sales between Dairy Ireland and Joint Ventures & Associates of €8.0 million and related party sales between Glanbia Nutritionals and Joint Ventures & Associates of €7.6 million. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Amortisation and exceptional items are not allocated to segments as they are not reported by segment to the Glanbia Operating Executive. Finance income, finance costs and income taxes are not allocated to segments as this type of activity is driven by central treasury and taxation functions which manage the cash and taxation position of the Group. Segment assets and liabilities: Segment assets Segment liabilities €’000 €’000 Glanbia Performance Nutrition 867,221 153,560 Glanbia Nutritionals 816,024 219,648 Dairy Ireland 342,088 188,241 Joint Ventures & Associates 156,079 - 2,181,412 561,449 127,723 766,965 2,309,135 1,328,414 Group including Joint Ventures & Associates Unallocated Reported Group Unallocated assets primarily include taxation, cash and cash equivalents, available for sale financial assets and derivatives. Unallocated liabilities include taxation, borrowing and derivatives. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 23 Notes to the condensed financial statements for the half year ended 02 July 2016 4.3 The segment results for the year ended 02 January 2016 are as follows: Gross segment revenue Intersegment revenue Total Group revenue €'000 €'000 €'000 €'000 924,165 (1,050) 923,115 135,610 1,272,795 (54,814) 1,217,981 106,642 633,787 (557) 633,230 28,751 Glanbia Performance Nutrition Glanbia Nutritionals Dairy Ireland Joint Ventures & Associates EBITA 893,089 - 893,089 39,690 3,723,836 (56,421) 3,667,415 310,693 Joint Ventures & Associates (893,089) (39,690) Reported Group 2,774,326 271,003 Group including Joint Ventures & Associates Amortisation (31,125) Operating profit 239,878 Exceptional items (26,342) Share of results of Joint Ventures & Associates 26,270 Finance income 1,706 Finance costs (22,816) Reported profit before taxation 218,696 Income taxes (34,779) Reported profit for the year 183,917 Included in external revenue are related party sales between Dairy Ireland and Joint Ventures & Associates of €17.0 million and related party sales between Glanbia Nutritionals and Joint Ventures & Associates of €15.3 million. Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Amortisation and exceptional items are not allocated to segments as they are not reported by segment to the Glanbia Operating Executive. Finance income, finance costs and income taxes are not allocated to segments as this type of activity is driven by central treasury and taxation functions which manage the cash and taxation position of the Group. Segment assets and liabilities: Glanbia Performance Nutrition Segment assets Segment liabilities €’000 €’000 1,150,637 257,148 Glanbia Nutritionals 794,155 237,853 Dairy Ireland 302,000 181,146 Joint Ventures & Associates 160,332 - 2,407,124 676,147 243,829 911,733 2,650,953 1,587,880 Group including Joint Ventures & Associates Unallocated Reported Group Unallocated assets primarily include taxation, cash and cash equivalents, available for sale financial assets and derivatives. Unallocated liabilities include taxation, borrowing and derivatives. 5. Seasonality Elements of the Dairy Ireland segment reflect the seasonal nature of the Irish agricultural industry. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 24 Notes to the condensed financial statements for the half year ended 02 July 2016 6. Exceptional items Notes Half year 2016 €'000 Half year 2015 €'000 Year 2015 €'000 (3,099) (6,945) Organisation redesign costs (a) (6,207) Acquisition integration costs (b) (1,850) - (2,919) Rationalisation costs (c) (828) (1,162) (7,841) Irish defined benefit pension schemes (d) - - (5,006) Disposal of Joint Venture (e) - (3,577) (3,631) (8,885) (7,838) (26,342) 1,629 533 2,543 (7,256) (7,305) (23,799) Half year 2016 €'000 Half year 2015 €'000 Year 2015 €'000 (3,385) (1,162) (7,416) - - (4,306) Other operating costs (5,500) (6,676) (14,620) Total exceptional charge before tax (8,885 ) (7,838) (26,342) Total exceptional charge before tax Exceptional tax credit Total exceptional charge The nature of the total exceptional charge before tax is as follows: Employee benefit expense Defined benefit pension scheme settlement loss The total cash outflow during the period in respect of exceptional charges was €10.5 million (HY 2015: €3.0 million) of which €6.4 million (HY 2015: €0.6 million) was in respect of prior year exceptional charges. a) The organisation redesign costs relate to the on-going programme announced in 2015 in Glanbia Nutritionals to fundamentally reorganise the business to leverage future market opportunities. Costs of €6.2 million include consultancy of €2.3 million, employee benefit expense (directly attributable employee costs and redundancy) of €1.7 million and other costs of €2.2 million. b) Acquisition integration costs comprise of costs relating to the integration, restructuring and redesign of route to market capabilities within acquired businesses in the Glanbia Performance Nutrition segment. Costs of €1.9 million include consultancy of €0.7 million, employee benefit expense (directly attributable payroll costs and redundancy) of €0.9 million and other costs of €0.3 million. c) Rationalisation costs primarily relate to the current redundancy and rationalisation programme in the Dairy Ireland segment. Costs of €0.8 million include employee benefit expense (redundancy) of €0.8 million. d) The Group undertook a review of its pension arrangements in 2015 and agreed with the pension trustees to wind up three of its smaller Irish defined benefit pension schemes. This transaction resulted in an exceptional charge in the year of €5.0 million. This charge relates to gains and losses on settlement of €4.3 million, in accordance with IAS 19 ‘Employee Benefits’, and professional fees of €0.7 million in relation to the transaction. This settlement reduced the gross retirement benefit obligation by €60.2 million. e) On 01 April 2015, the Group disposed of its investment in Milk Ventures (UK) Limited which is the parent company of Nutricima Limited, a non-core Joint Venture business involved in the supply and distribution of evaporated and powdered milk based in Nigeria, resulting in a non cash loss of €3.6 million. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 25 Notes to the condensed financial statements for the half year ended 02 July 2016 7. Finance income and costs Half year 2016 €'000 Half year 2015 €'000 Year 2015 €'000 Interest income 1,160 885 1,706 Total finance income 1,160 885 1,706 Bank borrowing costs (3,632) (2,233) (4,109) Facility fees (1,325) (1,414) (2,761) Unwinding of discounts (73) (74) (142) Finance lease costs (38) (72) (127) (7,664) (7,795) (15,677) Total finance costs (12,732) (11,588) (22,816) Net finance costs (11,572) (10,703) (21,110) Finance income Finance costs Finance cost of private debt placement Net finance costs do not include borrowing costs of €0.5 million (HY 2015: €1.25 million) attributable to the acquisition, construction or production of a qualifying asset, which have been capitalised, as disclosed in note 11. Borrowing costs are capitalised at the Group’s average interest rate for the period of 3.6% (HY 2015: 3.9%). 8. Income taxes The Group’s income tax charge after exceptional items of €20.0 million (HY 2015: €18.5 million) has been prepared based on the Group’s best estimate of the weighted average tax rate that is expected for the full financial year. 9. Dividends Dividends paid per ordinary share are as follows: Final dividend for the year ended 02 January 2016 of 7.22 cent per share paid on 29 April 2016 Final dividend for the year ended 03 January 2015 of 6.57 cent per share paid on 15 May 2015 Interim dividend for the year ended 02 January 2016 of 4.88 cent per share paid on 16 October 2015 Half year 2016 €'000 Half year 2015 €'000 Year 2015 €'000 21,374 - - - 19,449 19,449 - - 14,446 21,374 19,449 33,895 The Directors have recommended the payment of an interim dividend of 5.37 cent per share on the ordinary shares which amounts to €15.9 million. This dividend will be paid on 07 October 2016 to shareholders on the register of members at 26 August 2016, the record date. These condensed financial statements do not reflect this interim dividend. There are no income tax consequences for the Company in respect of dividends proposed prior to issuance of the condensed interim financial statements. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 26 Notes to the condensed financial statements for the half year ended 02 July 2016 10. Earnings per share Basic Basic earnings per share is calculated by dividing the net profit attributable to the equity holders of the Parent by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held as own shares. Profit attributable to equity holders of the Parent (€’000) Weighted average number of ordinary shares in issue Basic earnings per share (cent) Half year Half year Year 2016 2015 2015 109,364 98,674 183,271 295,127,674 295,124,380 295,196,003 37.06 33.43 62.08 Diluted Diluted earnings per ordinary share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. Share options and share awards are the Company’s only potential dilutive ordinary shares. Share awards, which are performance based, are treated as contingently issuable shares because their issue is contingent upon satisfaction of specified performance conditions in addition to the passage of time. These contingently issuable ordinary shares are excluded from the computation of diluted earnings per share where the exercise conditions have not been satisfied as at the end of the reporting period. Weighted average number of ordinary shares in issue Half year Half year Year 2016 2015 2015 295,127,674 295,124,380 295,196,003 Adjustments for share awards 1,090,798 2,182,723 1,002,678 Adjustments for share options 34,191 42,162 42,617 296,252,663 297,349,265 296,241,298 36.92 33.18 61.87 Adjusted weighted average number of ordinary shares Diluted earnings per share (cent) Adjusted Adjusted earnings per share is calculated on the net profit attributable to equity holders of the Parent, before net exceptional items and intangible asset amortisation (net of related tax). Adjusted earnings per share is considered to be more reflective of the Group’s overall underlying performance, and reflects the metrics used by the Group to measure profitability and financial performance. Half year Half year Year 2016 2015 2015 109,364 98,674 183,271 15,531 13,620 26,126 270 208 417 7,256 7,305 23,799 132,421 119,807 233,613 Adjusted earnings per share (cent) 44.87 40.60 79.14 Diluted adjusted earnings per share (cent) 44.70 40.29 78.86 Profit attributable to equity holders of the Parent (€’000) Amortisation of intangible assets (net of related tax) (€’000) Amortisation of Joint Ventures & Associates intangible assets (net of related tax) (€’000) Exceptional items (net of related tax) (€’000) Adjusted net income (€’000) Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 27 Notes to the condensed financial statements for the half year ended 02 July 2016 11. Property, plant and equipment, intangible assets and capital commitments During the six month period to 02 July 2016 the Group spent €41.7 million (HY 2015: €58.8 million) on additions to property, plant and equipment and intangible assets. There were no significant disposals during the period. As part of the business combination during the period (note 21), the Group acquired intangible assets, comprising customer relationships and goodwill, amounting to €2.5 million and property, plant and equipment amounting to €0.2 million. At 02 July 2016 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to €11.3 million (HY 2015: €24.6 million). During the six month period the Group capitalised borrowing costs amounting to €0.5 million (HY 2015: €1.25 million) on qualifying assets (note 7). 12. Inventories The amount written off as an expense to the condensed income statement in respect of inventories carried at net realisable value was €2.5 million (HY 2015: €0.7 million). 13. Net debt Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 Bank borrowings 380,187 340,393 453,978 Private debt placement 291,872 292,898 298,521 Finance lease liabilities 349 724 464 672,408 634,015 752,963 66,490 37,040 41,764 351 408 405 66,841 37,448 42,169 Non-current Current Bank overdraft and borrowings Finance lease liabilities Total borrowings 739,249 671,463 795,132 Less: cash and cash equivalents (94,909) (94,400) (210,889) Net debt 644,340 577,063 584,243 The maturity of non-current borrowings is €0.3 million (HY 2015: €0.4 million, 2015: €0.4 million) in 1 to 2 years, €672.1 million (HY 2015: €340.7 million, 2015: €454.1 million) in 2 to 5 years and €nil (HY 2015: €292.9 million, 2015: €298.5 million) in more than 5 years. Cash and cash equivalents include the following for the purposes of the condensed statement of cash flows at the reporting date: Cash and cash equivalents Bank overdraft Glanbia plc – Delivering better nutrition for every step of life’s journey Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 (94,909) (94,400) (210,889) 66,490 37,040 41,764 (28,419) (57,360) (169,125) 2016 half year results Page | 28 Notes to the condensed financial statements for the half year ended 02 July 2016 Borrowings include the following for the purposes of the condensed statement of cash flows at the reporting date: Borrowings Bank overdraft included as part of cash and cash equivalents Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 739,249 (66,490) 671,463 (37,040) 795,132 (41,764) 672,759 634,423 753,368 Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 The Group has the following undrawn borrowing facilities at the reporting date: Expiring within 1 year 97,790 76,113 80,701 Expiring beyond 1 year 337,781 377,473 265,652 435,571 453,586 346,353 Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 584,243 510,363 510,363 Movement in net borrowings in the period is analysed as follows: At the beginning of the period Net drawdown of borrowings 71,007 37,753 40,056 Exchange translation adjustment (10,910) 28,947 33,824 At the end of the period 644,340 577,063 584,243 14. Financial risk management The Group’s activities expose it to a variety of financial risks as follows: currency risk, interest rate risk, price risk, liquidity risk, cash flow risk and credit risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s 2015 Annual Report. There have been no changes to the risk management procedures or policies since 2015 year end. Fair value estimation The condensed interim financial statement fair value estimation disclosures below should be read in conjunction with the Group’s 2015 Annual Report. Fair value of financial assets and liabilities measured at fair value The table below analyses the Group’s financial instruments measured at fair value by valuation method. The different levels have been defined as follows: quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1); inputs, other than quoted prices included in level 1, that are observable for the asset and liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and, inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 29 Notes to the condensed financial statements for the half year ended 02 July 2016 The following table presents the Group’s financial assets and liabilities that are measured at fair value at the reporting dates: Fair Value Hierarchy Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 Assets Non hedging derivatives Level 2 - 649 - Derivatives used for hedging Level 2 1,012 1,037 414 Available for sale financial assets - equity securities Level 1 132 212 161 Available for sale financial assets - equity securities Level 2 6,111 5,360 5,666 7,255 7,258 6,241 Total assets Liabilities Non hedging derivatives Level 2 (3,299) - (666) Derivatives used for hedging Level 2 (597) (408) (283) (3,896) (408) (949) Total liabilities There were no transfers between levels 1 and 2 during the period. There were no changes in valuation techniques during the periods. The Group did not hold any level 3 financial assets or liabilities at the reporting dates. Valuation techniques used to derive level 2 fair values Level 2 equities are fair valued using the latest prices quoted in the grey market as at the reporting dates. Level 2 derivatives comprise mainly of foreign exchange contracts and commodity futures. These foreign exchange contracts and commodity futures have been fair valued using forward rates that are quoted in active markets. The effects of discounting are generally insignificant for level 2 derivatives. Group’s valuation process The Group’s finance department includes a team that performs the valuations of financial assets and financial liabilities required for financial reporting purposes, including level 3 fair values. The Group did not hold any level 3 financial assets or liabilities at 02 July 2016, 04 July 2015 or 02 January 2016. The valuation team reports directly to the Group Finance Director who in turn reports to the Audit Committee. Discussions of valuation processes and results are held between the Group Finance Director and the Audit Committee. Changes in level 2 and level 3 fair values are analysed at each reporting date. As part of this discussion, the valuation team presents a report that explains the reasons for the fair value movements. Fair value of financial assets and liabilities measured at amortised cost The fair value of the Group’s trade and other receivables, cash and cash equivalents and trade and other payables approximate their carrying value. The following table presents the fair value of the Group’s financial assets and liabilities that are measured at amortised cost at the reporting dates: Half year 2016 €'000 Half year 2015 €'000 Year 2015 €'000 Carrying value 672,408 634,015 752,963 Fair value 705,814 658,058 776,931 Non-current borrowings The carrying value of current borrowings approximates to their fair value. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 30 Notes to the condensed financial statements for the half year ended 02 July 2016 15. Provisions Restructuring €'000 note (a) UK pension €'000 note (b) Legal claims €'000 note (c) Lease commitments €'000 note (d) Operational €'000 note (e) Total €'000 5,692 18,898 6,928 992 5,602 38,112 828 (1,747) - (94) (2,348) 70 (199) (112) - (64) 3 (3) (18) - 828 (2,107) (2,478) 73 At 02 July 2016 4,773 16,526 6,617 931 5,581 34,428 Non-current Current 4,773 15,776 750 6,617 802 129 5,581 16,578 17,850 4,773 16,526 6,617 931 5,581 34,428 At 02 January 2016 Provided for in the period Utilised in the period Exchange differences Unwinding of discounts a) The restructuring provision relates to rationalisation programmes in Dairy Ireland. The provision, which relates to redundancy payments, is expected to be utilised during the year. The amount provided in the period is recognised in the income statement as an exceptional item. b) The UK pension provision relates to administration and certain costs associated with pension schemes attached to businesses disposed of in prior years. This provision is expected to be fully utilised over the next 27.5 years. c) The legal claims provision represents legal claims brought against the Group. Due to the nature of these items, there is some uncertainty around the amount and timing of payments. In the opinion of the Directors, after taking appropriate legal advice, the outcome of these legal claims is not expected to give rise to any significant loss beyond the amounts provided for at 02 July 2016. d) The lease commitments provision relates to onerous leases in respect of two properties where the Group has present and future obligations to make lease payments. It is expected that €0.1 million will be utilised during the year and the balance will be fully utilised in 2017. e) The operational provision represents provisions relating to certain insurance claims, property remediation works and product returns. Due to the nature of these items, there is some uncertainty around the amount and timing of payments. 16. Share capital and share premium At 03 January 2015 Shares issued At 04 July 2015 and 02 January 2016 Shares issued At 02 July 2016 Number of shares (thousands) Ordinary shares €'000 Share premium €'000 Total €'000 295,876 17,752 86,976 104,728 155 9 633 642 296,031 17,761 87,609 105,370 10 1 22 23 296,041 17,762 87,631 105,393 The total authorised number of ordinary shares is 350 million shares (HY 2015 and 2015: 350 million shares) with a par value of €0.06 per share (HY 2015 and 2015: €0.06 per share). All issued shares are fully paid. During the period ended 02 July 2016 10,000 (HY 2015 and 2015: 155,000) of the 2002 Long Term Incentive Plan shares were exercised with exercise proceeds of €0.02 million (HY 2015 and 2015: €0.6 million). The exercise price was €2.29 (HY 2015 and 2015 average exercise price: €4.14) per share. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 31 Notes to the condensed financial statements for the half year ended 02 July 2016 17. Retirement benefit obligations The movement in the liability recognised in the Group condensed balance sheet is as follows: Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 At the beginning of the period (87,288) (114,808) (114,808) 2,584 (2,362) (1,557) (3,699) (4,299) (8,512) - - (4,306) (51,379) 18,178 20,856 7,707 9,320 21,039 (132,075) (93,971) (87,288) The amounts recognised in the Group condensed balance sheet are determined as follows: Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 360,877 416,691 352,789 Present value of funded obligations (492,952) (510,662) (440,077) Liability in the Group condensed balance sheet (132,075) (93,971) (87,288) Exchange differences Service cost and net interest cost Loss on settlement Remeasurements - defined benefit schemes Contributions paid/payable by employer At the end of the period Fair value of plan assets The following actuarial assumptions have been made in determining the Group's retirement benefit obligations for the half years ended 02 July 2016 and 04 July 2015 and full year ended 02 January 2016: Half year 2015 Half year 2016 Year 2015 IRL UK IRL UK IRL UK Discount rate 1.40% 2.60% 2.40% 3.65% 2.25% 3.70% Inflation rate 1.10% - 1.20% 1.75% - 2.75% 1.50% - 1.60% 2.15% - 3.15% 1.30% - 1.40% 2.00% - 3.00% Future salary increases 2.20% 3.50% 2.60% 3.90% 2.40% 3.75% Future pension increases 0.00% 1.90% - 2.65% 0.00% 2.20% - 2.95% 0.00% 2.10% - 2.80% The following table analyses for the Group’s pension schemes, the estimated impact in the plan liabilities resulting from a 0.25% change in the discount rate: Discount rate – increase/decrease 0.25% Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 Decrease/increase by €21.8 million Decrease/increase by €23.6 million Decrease/increase by €19.4 million Mortality rates The mortality assumptions are consistent with those applied in the 2015 Annual Report. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 32 Notes to the condensed financial statements for the half year ended 02 July 2016 18. Related party transactions The Group is controlled by the Society, which holds 36.5% of the issued share capital of Glanbia plc and is the ultimate parent of the Group. During the period, dividends of €7.8 million (HY 2015: €8.0 million) were paid to the Society and its wholly owned subsidiaries based on their shareholding in Glanbia plc. During the six months to 02 July 2016, sales to related parties amounted to €16.6 million (HY 2015: €18.1 million), purchases from related parties amounted to €35.2 million (HY 2015: €39.5 million) and net balances owed to related parties were €39.9 million (HY 2015: €54.3 million). During 2016 the Group advanced a loan of €12.8 million at arms length to Glanbia Ingredients Ireland Limited (Associate), which is repayable on 03 July 2018. The related party transactions relate primarily to trading between the Group, Southwest Cheese Company, LLC, Glanbia Ingredients Ireland Limited and the Society. In the opinion of the Directors, there have been no related party transactions, or changes therein, since the year ended 02 January 2016, that have materially affected the Group’s financial position or performance during the six months ended 02 July 2016. 19. Contingent liabilities Group bank guarantees amounting to €4.9 million (HY 2015: €3.6 million) are outstanding at 02 July 2016. The Group does not expect any material loss to arise from these guarantees. The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated that any material liability will arise from these contingent liabilities other than those provided for. 20. Cash generated from operations Profit before taxation Non cash element of exceptional charge Share of results of Joint Ventures & Associates Write off of property, plant and equipment Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 129,836 117,633 218,696 4,785 5,386 18,299 (12,328) (13,267) (26,270) 183 - - Depreciation 24,588 21,209 43,137 Amortisation 19,424 15,566 31,125 5,693 3,565 8,724 (4,008) (5,023) (6,027) Cost of share based payments Difference between pension charge and cash contributions Loss on disposal of property, plant and equipment 87 96 209 Finance income (1,160) (885) (1,706) Finance expense 12,732 11,588 22,816 (121) (103) (282) 179,711 155,765 308,721 Amortisation of government grants received Cash generated before changes in working capital Changes in net working capital: - Decrease in inventory - (Increase) in short term receivables - (Decrease)/increase in short term liabilities 9,309 7,184 20,287 (100,690) (88,962) (12,187) (32,607) (38,114) 846 - (Decrease) in provisions (2,107) (10,410) (9,802) Cash generated from operating activities 53,616 25,463 307,865 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 33 Notes to the condensed financial statements for the half year ended 02 July 2016 21. Business combinations For the acquisitions completed in 2015 there have been no material revisions, as at the reporting date, of the provisional fair value adjustments since the initial values were established. On 29 February 2016, the Group acquired 100% of the business and operating assets of EMI Nutrition Distributors Pty Limited (“EMI”). EMI’s principal activity is the distribution and marketing of performance nutrition products. The acquisition will allow the Group to expand and further enhance Glanbia Performance Nutrition distribution channels. Goodwill is attributable to the profitability and development opportunities associated with complementing and enhancing existing distribution channels. Goodwill is not deductible for tax purposes. Acquisition related costs charged to the condensed income statement, included within other expenses, during the period ended 02 July 2016 amounted to €0.2 million (HY 2015: €nil). Details of the net assets acquired and goodwill arising from the acquisition are as follows: Half year 2016 €’000 Purchase consideration 10,318 Less: Fair value of assets acquired (9,355) Goodwill 963 Prior to the acquisition, EMI was a distributor of the Group’s product in Australia. As at the acquisition date, EMI’s trade payable balance to the Group amounted to €1.6 million, being the contractual value. This balance was effectively settled on the acquisition date and is excluded from the liabilities acquired. The total purchase consideration is as follows: Half year 2016 €’000 Purchase consideration – cash paid 8,724 Pre-existing relationship payable balance 1,594 Purchase consideration 10,318 The fair value of assets and liabilities arising from the acquisition are as follows: Half year 2016 €’000 Property, plant and equipment 165 Intangible assets - customer relationships 1,508 Inventories 3,686 Trade and other receivables 4,225 Trade and other payables (41) Deferred tax liability (188) Fair value of assets acquired 9,355 The fair value of EMI’s trade and other receivables at the acquisition date amounted to €4.2 million, which equates to the gross contractual amount. The revenue and profit (net of transaction costs) of the Group including the impact of the acquisition during the period ended 02 July 2016 were as follows: 2016 Acquisition €’000 Group excluding acquisition €’000 Consolidated Group including acquisition €’000 1,761 1,433,003 1,434,764 (Loss)/profit before taxation and exceptional items (1,228) 139,949 138,721 Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 34 Revenue Notes to the condensed financial statements for the half year ended 02 July 2016 The revenue and profit (net of transaction costs) of the Group for the period ended 02 July 2016 determined in accordance with IFRS 3 as though the acquisition date for all business combinations effected during the period had been at the beginning of the period would be as follows: 2016 Acquisition Group excluding acquisition Pro Forma Consolidated Group €’000 €’000 €’000 Revenue 2,612 1,433,003 1,435,615 (Loss)/profit before taxation and exceptional items (798) 139,949 139,151 22. Events after the reporting period There have been no material events subsequent to the end of the interim period 02 July 2016 which require disclosure in this report. 23. Information Copies of this half yearly financial report are available for download from the Group’s website at www.glanbia.com. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 35 Glossary Key performance indicators and non-IFRS performance measures Non-IFRS performance measures The Group reports certain performance measures that are not defined under IFRS but which represent additional measures used by the Board of Directors and the Glanbia Operating Executive in assessing performance and for reporting both internally and to shareholders and other external users. The Group believes that the presentation of these non-IFRS performance measures provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides readers with a more meaningful understanding of the underlying financial and operating performance of the Group. None of these non-IFRS performance measures should be considered as an alternative to financial measures drawn up in accordance with IFRS. The principal non-IFRS performance measures used by the Group for the half year results are consistent with those presented in the Group’s 2015 Annual Report and there have been no changes to the basis of calculation. The full list of key performance indicators and non-IFRS performance measures used by the Group are set out in the 2015 Annual Report. Constant currency While the Group reports its results in euro, it generates a significant proportion of its earnings in currencies other than euro, in particular US dollar. Constant currency reporting is used by the Group to eliminate the translational effect of foreign exchange on the Group's results. To arrive at the constant currency change, the results for the prior period are retranslated using the average exchange rates for the current period and compared to the current period reported numbers. The principal average exchange rates used to translate results as at the reporting dates were as follows: euro 1 = US dollar Pound Sterling Danish Kroner Half year 2016 Half year 2015 Year 2015 1.1161 0.7795 7.4497 1.1150 0.7316 7.4567 1.1092 0.7259 7.4589 Total Group The Group has a number of strategically important Joint Ventures & Associates which when combined with the Group’s wholly owned businesses give an important indication of the scale and reach of the Group’s operations. Total Group is used to describe certain financial metrics such as Revenue and EBITA when they include both the wholly owned businesses and the Group's share of Joint Ventures & Associates. Revenue Revenue comprises sales of goods and services of the wholly owned businesses to external customers net of value-added tax, rebates and discounts. Revenue is one of the Group’s Key Performance Indicators. Total Group Revenue Total Group Revenue comprises the revenue of the wholly owned businesses and the Group's share of the revenue of its Joint Ventures & Associates. Notes Revenue per the Group condensed income statement Group’s share of revenue of Joint Ventures & Associates 4 Total Group Revenue Half year 2016 €’000 1,434,764 402,257 Half year 2015 €’000 1,431,590 445,327 Year 2015 €’000 2,774,326 893,089 1,837,021 1,876,917 3,667,415 EBITA EBITA is defined as earnings before interest, tax and amortisation excluding exceptional items. EBITA is one of the Group's Key Performance Indicators. Business Segment EBITA growth on a constant currency basis is one of the performance conditions in Glanbia's Annual Incentive Plan for Executive Directors with Business Unit responsibility. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 36 Glossary Key performance indicators and non-IFRS performance measures Total Group EBITA Total Group EBITA comprises EBITA of the wholly owned businesses and the Group's share of its Joint Ventures & Associates EBITA. Notes EBITA per the Group condensed income statement Group’s share of EBITA of Joint Ventures & Associates 4 Total Group EBITA Half year 2016 €’000 157,389 19,135 Half year 2015 €’000 138,473 20,204 Year 2015 €’000 271,003 39,690 176,524 158,677 310,693 Reconciliation of the Group's share of Joint Ventures & Associates EBITA to the share of results of Joint Ventures & Associates per the Group condensed income statement is as follows: Half year 2016 €’000 19,135 (309) (2,799) (3,699) Half year 2015 €’000 20,204 (238) (2,574) (4,125) Year 2015 €’000 39,690 (476) (5,037) (7,907) 12,328 13,267 26,270 Half year 2016 €’000 157,389 1,434,764 Half year 2015 €’000 138,473 1,431,590 Year 2015 €’000 271,003 2,774,326 11.0% 9.7% 9.8% Half year 2016 €’000 176,524 1,837,021 Half year 2015 €’000 158,677 1,876,917 Year 2015 €’000 310,693 3,667,415 Total Group EBITA margin 9.6% 8.5% 8.5% Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 37 EBITA of Joint Ventures & Associates Amortisation Finance costs Income tax Notes 4 Share of results of Joint Ventures & Associates per the Group condensed income statement EBITA margin EBITA margin is defined as EBITA as a percentage of the revenue of the wholly owned businesses. EBITA per the Group condensed income statement Revenue per the Group condensed income statement EBITA margin Total Group EBITA margin Total Group EBITA margin is defined as Total Group EBITA as a percentage of Total Group Revenue. Total Group EBITA Total Group Revenue Notes 4 4 Glossary Key performance indicators and non-IFRS performance measures Adjusted Earnings per share (EPS) Adjusted EPS is defined as the net profit attributable to the equity holders of Glanbia plc, before exceptional items and intangible asset amortisation, net of related tax, divided by the weighted average number of ordinary shares in issue during the period. The Group believes that Adjusted EPS is a better measure of underlying performance than Basic EPS as it excludes exceptional items that are not related to on-going operational performance and intangible asset amortisation, which allows better comparability of segments and companies that grow by acquisition to those that grow organically. Adjusted EPS is one of the Group's Key Performance Indicators. Adjusted EPS growth on a constant currency basis is one of the performance conditions in Glanbia's Annual Incentive Plan. Adjusted EPS growth on a reported basis is one of the performance conditions in Glanbia's Long-term Incentive Plan. 10 Half year 2016 €’000 109,364 15,531 Half year 2015 €’000 98,674 13,620 Year 2015 €’000 183,271 26,126 10 6 270 7,256 208 7,305 417 23,799 132,421 119,807 233,613 295,127,674 295,124,380 295,196,003 44.87 40.60 79.14 Notes Profit attributable to equity holders of the Parent Amortisation of intangible assets (net of related tax) Amortisation of Joint Venture & Associates intangible assets (net of related tax) Exceptional items (net of related tax) Adjusted net income Weighted average number of ordinary shares in issue 10 Adjusted earnings per share (cent) Financing Key Performance Indicators The following are the financing key performance indicators defined as per the Group’s financing agreements and are for a rolling 12 month period. Net debt : adjusted EBITDA is calculated as net debt at the end of the period divided by adjusted EBITDA. Net debt is calculated as total borrowings less cash and cash equivalents. Adjusted EBITDA is calculated as EBITDA for the wholly owned businesses (earnings before interest, taxation, depreciation and amortisation) plus dividends received from Joint Ventures & Associates, and in the event of an acquisition in the period, includes pro-forma EBITDA as though the acquisition date had been at the beginning of the period. Notes Rolling 12 month EBITDA Rolling 12 month dividends received from Joint Ventures & Associates Acquisition pro-forma EBITDA Adjusted EBITDA Net Debt 13 Net debt : adjusted EBITDA Half year 2016 €’000 336,135 13,935 2,088 Half year 2015 €’000 278,060 12,714 2,180 Year 2015 €’000 313,858 14,924 5,188 352,158 292,954 333,970 644,340 577,063 584,243 1.83 1.97 1.75 Adjusted EBIT : net finance cost is calculated as earnings before interest and tax plus dividends received from Joint Ventures & Associates divided by net finance cost. Net finance cost comprises finance costs less finance income per the Group condensed income statement plus capitalised borrowing costs. Half year 2016 €’000 254,936 13,935 Half year 2015 €’000 212,280 12,714 Year 2015 €’000 239,878 14,924 268,871 224,994 254,802 Rolling 12 month net finance cost 23,629 22,932 23,510 Adjusted EBIT : net finance cost 11.4 9.8 10.8 Rolling 12 month operating profit Rolling 12 month dividends received from Joint Ventures & Associates Adjusted EBIT Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 38 Glossary Key performance indicators and non-IFRS performance measures Operating cashflow Operating cashflow is defined as earnings before interest, taxation, depreciation and amortisation (EBITDA) of the wholly owned businesses net of business sustaining capital expenditure and working capital movements, excluding exceptional cash flows. EBITDA represents pre-exceptional EBITA of the wholly owned businesses plus depreciation, net of grant amortisation. Operating cashflow is one of the Group's Key Performance Indicators. Operating cashflow on a constant currency basis is one of the performance conditions in Glanbia's Annual Incentive Plan. Reconciliation of Operating cashflow to the condensed statement of cash flows in the condensed interim financial statements: Notes Cash generated from operating activities 20 Add back exceptional costs paid in period - note 1 Add back non operating working capital movements in period Less business sustaining capital expenditure - note 2 Half year 2016 €’000 Half year 2015 €’000 Year 2015 €’000 53,616 25,463 307,865 10,505 3,040 15,090 1,517 512 (1,295) (13,926) (13,868) (37,391) Non cash items not adjusted in computing Operating Cash Flow: Cost of share options 20 (5,693) (3,565) (8,724) Difference between pension charge and cash contributions 20 4,008 5,023 6,027 Loss on disposal of property, plant and equipment 20 (87) (96) (209) 49,940 16,509 281,363 8,885 (4,785) 4,100 6,405 7,838 (5,386) 2,452 588 26,342 (18,299) 8,043 7,047 10,505 3,040 15,090 Business sustaining capital expenditure Strategic capital expenditure 13,926 27,768 13,868 44,896 37,391 86,199 Total capital expenditure 41,694 58,764 123,590 Capital expenditure reconciled to condensed statement of cash flows: Purchase of property plant and equipment Purchase of intangible assets 34,471 7,223 52,241 6,523 103,792 19,798 Total capital expenditure per the condensed statement of cash flows 41,694 58,764 123,590 Operating cashflow Exceptional costs paid in the period Pre-tax exceptional charge for period Non-cash element of exceptional charge Current period exceptional costs paid in the period Prior period exceptional costs paid in the period 6 20 Total exceptional costs paid in the period Capital expenditure analysis Business sustaining capital expenditure The Group defines business sustaining capital expenditure as the expenditure required to maintain/replace existing assets with a high proportion of expired useful life. This expenditure does not attract new customers or create the capacity for a bigger business. It enables the company to keep running at current throughput rates but also keep pace with regulatory and environmental changes as well as complying with new requirements from existing customers. Strategic capital expenditure The Group defines strategic capital expenditure as the expenditure required to facilitate growth and generate additional returns for the Group. This is generally expansionary expenditure beyond what is necessary to maintain the Group's current competitive position. Glanbia plc – Delivering better nutrition for every step of life’s journey 2016 half year results Page | 39
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