q flexibility quality involvement i involvement service annual report 2011

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1 q flexibility s ua e rv flexibilityl i involvement c y e involvement service quality annual report 2011

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3 Content Foreword 3 The Milcobel Group in Cooperative news 9 Key figures Industrial products and third-country export 13 Consumer cheese and butter 17 Consumer milk and functional drinks 19 Ice cream 21 Milcobel annual report Cheese packaging and distribution 23 Who is who in Milcobel 2011? 24 Financial report 25 Credits 45

4 Quality

5 Foreword The massive resistance by the Arab citizens against their regimes and the call for more democracy and economic equality dominated Together with the bad financial and economic situation in large parts of the euro area and the longest time ever to form a government in our own country, this was the framework within which we, as a dairy cooperative, were compelled to operate. In contrast to many other agricultural and horticultural markets, the dairy markets remained rather stable at what was a viable level for dairy farming in this turbulent environment. Prices became more pressurised towards the end of the year and we did not escape the consequences of a spluttering global economy. As a cooperative, we choose to personally participate in market events because market access is, after all, the key to our own future. In addition to the craftsmanship and passion of the dairy farmers, this key to the future of our member farms lies, to an important extent, in the excellence with which the companies of the Milcobel Group manage and utilise the milk from member farms and in the strength of the market positions that are developed. The strong tie and interaction between member farms and the cooperative company also makes us sounder as a sector because we combine forces to face challenges. To integrate vertically in the market, with the farm as the departure point, is a stronger model than to bundle the milk horizontally in a producers organisation. The first demands more commitment, daring and entrepreneurship, the second makes sense but could also perhaps be based on overestimated expectations caused by European institutions. The pursuit of industrial and commercial excellence to reach a good competitive milk price continues to be a challenge for all management and employee levels. After all, there is room for improvement in everything, and this was no different in For example, we experienced growing pains in the speedy evolution of our brand cheeses where it was difficult for production to follow market demand. Now that the factory in Moorslede is operational, we are ready to continue developing outside our country s borders with our Belgian Brugge and beer cheeses. Our cheese packaging and distribution units are also growing beyond our country borders. Taking over SherlockCheese in Nieuw Vennep (the Netherlands) illustrates this. Ysco was able to strengthen its market position as producer of brands for large retailers and the catering sectors in a European cream and consumer ice cream sector that is experiencing a total evolution. However, a good summer is still an important condition to achieve a good result. The liquid dairy market and, by extension, the entire European dairy market, are under pressure. At Inza, the challenge is, under own management or as co-packer, to find the right mix of own milk drinks and functional food to achieve sustainable yields by using our knowledge and technology. Important products for the ingredient markets inside and outside Europe, such as milk powders and mozzarella cheeses, are the cornerstones for our milk price. In 2011, a great deal of attention was afforded to the continued expansion and development of these operations, in addition to daily care for quality and efficiency. The plans significantly determine the investments laid down in the Milcobel 2020 plan for the following years. The departure point to consider Milcobel s future is the importance of the member farms. In our country and, by extension, in our entire working area, our members and the sector are best served with a cooperative dairy group managed from Belgium. After good deliberations with members, the board and management, it was decided that Milcobel 2020 would be pursued on own strength. Confidence and belief in one s own ability to do even better is the driving force. It is also to this end that the members are strengthening the group s assets by making an additional capital contribution of EUR 1.00 per 100 litres. Employees are facing this challenge enthusiastically, each in his or her field, each in his or her company, characterised only by an ever-increasing improved quality care in product and trade, which is characterised by flexibility and service for the sake of the customers and great involvement in developing the Milcobel Group as local player targeting a global market. Guido Veys Chairman Milcobel annual report

6 Flexibility & Service

7 The Milcobel Group in 2011 In 2011, Milcobel continued to pave the way to sustainably realise its objectives for its members. Milcobel has given itself the goal of guaranteeing its member dairy farmers a sustainable sales volume of milk at a fair price. Milcobel wants to do this based on industrial and commercial activities and with clear concern for its members. 2015, the end of the milk quotas, is fast approaching. Then, too, Milcobel will be prepared to realise its commitment towards its members. Milcobel regards itself as a cluster of fine upstanding SMEs that can quickly adjust and respond to the changes and opportunities of the markets in which they operate. The various Milcobel Group departments are linked to one another by way of an uncomplicated structure and common values. These values are quality (a taste you can trust), service and flexibility ( customerthusiasm ), involvement of and with members, employees and environment was a calm dairy year After the past volatile years, 2011 passed remarkably calmly for the dairy market. Prices remained rather stable. Valorisations in powder and cheese ran almost parallel. It was a striking fact that butter and cream prices remained high. Consumption milk prices continued to lag behind for the second year running. This sector continued to be a difficult market. Prominent events such as the Arab Spring or the tsunami with the pursuant nuclear disaster in Japan barely influenced the dairy market. The market experienced no problems whatsoever in absorbing increased milk production. It was only towards the end of the year that the market weakened under the influence of the financial crisis and its pursuant economic pessimism. Spending on consumer goods diminished, particularly in Europe, which is the largest dairy market in the world. While the purchases during the first six months still kept up with those of the previous year, consumers kept a tight rein on their spending during the last quarter. At the same time, there was a clearly noticeable shift to cheaper products, also in the dairy sector. Within this scope, it is gratifying to see that Milcobel Group brand products evolved or at least stood their ground provided dairy farmers with the confirmation of the improvement that had started in The scenarios that were created in 2010 to be able to meet the cooperative decision of following member development in the post-quota era were converted into a strategic Milcobel 2020 plan. In the years to come, Milcobel will continue to be a versatile dairy group, operating on various markets with various products. The various components of the Milcobel Group will strengthen their market positions in the years to come. At the same time, an ambitious investment programme is ready to keep the factories up to date and to provide the necessary capacity to be able to valorise all the members milk. The new cheese factory in Moorslede will be put into operation in April 2012 and the factory in Gierle will then be closed. The next site, i.e. the expansion of the cheese factory with a new mozzarella line in Langemark, is in the pipeline. This project will provide valorisation of extra milk into cheese. Milk powder production facilities will be renovated and further concentrated in Kallo. More milk processed once again In 2011, the Milcobel Group processed over 1% more milk than the year before. This rise comes from increased milk supply by member farms that make ample use of the annual quota expansion of 1%. The balance of sales and purchases with other industrialists fell, with the result that the group processed 3% more milk in its dairy factories and the total processing amounted to 1,082 billion litres in Results of the subsidiaries In 2011, too, the industrial products and export to third countries departments (Belgomilk, Kempico and Kemfoods) were able to contribute positively to the company result. Butter prices, in particular, supported this. Both industrial cheese and milk powder could yield more than the average Milcobel milk price. The consumer cheese and butter departments (Belgomilk and Kempico) experienced a transitional year and yielded a weaker result. There was a conscious decision not to charge the higher milk price in the brand-product rates. Preparations to start the new cheese factory in Moorslede brought about a twofold cost: occupation was structured with a view to doubling production by taking over the Gierle factory production operations while these continued working on near-full occupation. The Brugge cheeses again increased by multiple percentage points. A number of other brands and concepts experienced more difficult times because the market for the better cheeses decreased due to the decline in consumer confidence pursuant to the financial crisis. This different development goes to prove the strength of the Brugge brand even more. Belgomilk s consumer butter was also able to maintain its position on the foreign market, thanks to the Nazareth and Dixmuda brands. As specialist of long-life consumption milk and milk drinks, 2011 was again a difficult year for Inza. The consumption milk market continued its negative result and could not keep up with the other products. Inza therefore once again contributed negatively to the group result, which did, however, show an improvement during the second half of the year. Inza secured new co-packing contracts for the next few years. In the Netherlands, Yogho!Yogho! will be re-launched with new recipes and packaging. This renovation will once again afford Yogho!Yogho! the position it deserves. Choco!Choco established itself on the Belgian market. The Ysco result suffered under the price cut. At the end of 2010, when the contracts for the 2011 season had been concluded, the market did not allow for adequate price increases to accommodate the increased prices of raw materials. Only a good summer could have kept Ysco out of the red. That good summer did not materialise; quite the contrary. The good autumn of 2011 was still not able to limit the loss. Cheese packaging and distribution by Kaasimport Jan Dupont and Camal registered a turnover increase, despite the difficult context. The result correctly contributed towards the group result Group Results Milcobel Group consolidated turnover rose by 8% to EUR 885 million in Increased operations and price increases caused the increase in turnover. Powder and cheese strongly contributed to the group result and milk price. Other operations did not score Milcobel annual report

8 Milcobel annual report so well. This meant that it was only possible to make a modest milk price supplement of EUR 0.10 per 100 litres. After this milk price supplement in the amount of EUR 1.1 million, the group s final consolidated result is EUR 4.4 million. The cash flow for the group amounts to EUR 25.2 million. A dividend of 4% will be proposed at the general assembly. The remaining result will reinforce the group s equity. Milk price The paid milk price rose by 6.4% as compared to With a fat content of grams/ litre and an protein content of grams/litre, an average milk price of EUR per 100 litres was paid. Converted into standard milk in Belgium (38 g fat and 33.5 g protein per l), the average milk price for members amounted to EUR per 100 l or 7% more than in This means that, save for one year (2007), the milk price is the best is has been in the last 10 years. Investments Milcobel is maintaining its high investing rhythm. Group investment in fixed assets amounted to EUR 38.4 million in 2011, an increase of EUR 8.6 million. The expansion of the cheese factory in Moorslede absorbed by far the largest part of this amount. Further investments were also made in other Belgomilk dairy factories. Inza took care of 12% of the investments, Ysco paid 7% and Dupont and Camal also 7%. Personnel Milcobel wants to be a group where every employee is convinced of the objectives of the group in general and his or her division in particular. In that way each and every person will apply his or her talent with pleasure to achieve these objectives and will also be shown appreciation for this. This is known as involvement by each and every person. The group continued its policy of open communication and deliberation by way of appropriate official bodies, work groups and safety units. This is all with a view to a good working atmosphere, health and safety at work and continued improvement in the quality of the work delivered and of the final products. In particular, great progress was once again made regarding safety at work. The encouraging policy contributed to drastically diminishing the number of accidents. The policy statement that the Works Councils had approved within the context of CLA 100 on the corporate alcohol and drug policy (resources policy) in 2010 was converted into a practical policy, which the Works Councils also approved. The biennial CLAs on wage development and labour organisation were concluded during the course of A plan to allocate non-recurrent result-related benefits for labourers and employees was implemented in application of CLA 90. Finally, the social plan for the employees of Kempico in Gierle was also adapted to the factory s new closing date. about social issues and human rights. The step towards other issues of socially responsible enterprise is small. Care for the environment is a question of sustainability of the enterprise, society and the environment in which it must prosper. Milcobel is the founder and an active member of the Belgian Global Compact network. A few examples of CSR-initiatives within the Milcobel Group: - Belgomilk and Ysco participate in the West-Flanders Corporate Sustainability Charter through which work is being done to continually improve environmental, social and economic performance. Other branches of the Milcobel Group also follow this initiative. - Milcobel was a participant in and sponsor of the CSR event Duurzaam Is Gewoon Doen! (Just Do Sustainable!) in Kortrijk on 31 March The Inza, Ysco and Belgomilk factories have joined the Benchmarking Covenant, through which they undertake to belong to world leaders on energy efficiency. Sustainability of the use of packaging and paper is also constantly being optimised. For example, there has been a complete switchover to recycled paper in the Langemark and Kallo branches. - Inza supports the School zonder pesten vzw ( Bully-Free School npo) to prevent bullying at school as part of Inza s school action. Inza is putting fair trade chocolate milk on the market together with Oxfam. - The Milcobel Group car policy takes CO2 emissions into account. If RMO ( rijdende melk ontvangst - milk tanker) drivers behave responsibly, they are given a bonus as a reward. - Milcobel cooperates in various projects and inter-professional deliberations on sustainable dairy farming. Prospects The long-term perspectives for dairy products, especially world-wide, are still good. The increasing world population and rising purchasing power in developing countries will raise dairy product consumption. In contrast to last year, the prospects for 2012 are not as rosy in the short term. Dairy product prices are on the decline during the first months of In particular, the butter price, which was high for a long time, has seriously lost its foothold. The other products will follow. Might the financial crisis then finally still exert some influence on the dairy markets? Weaker consumer confidence, combined with an increase in supply, results in a buyers market. The supermarkets are drawing increasingly more attention to price and are competing with one another in that field, whereby assortment, variety and quality are pushed to the background. The recent past has taught us that neither pessimism nor exaggerated optimism materialises. The demand for dairy products will increase once again as soon as the economy bounces back and confidence is restored. Dairy products form part of a healthy, balanced diet and, in addition, a tasty cheese, a fresh milk drink or delicious ice cream is most enjoyable. Milcobel has the right products to fulfil these needs and will continue to revamp, improve and offer them to customers by way of an excellent service. Planned investments for the coming years will improve products, service and cost efficiency even more. After the master plan for consumer cheese has been developed, work will be concentrated on implementing the strategy for the industrial products department and export to third countries. Further synergy with Inza will be finalised for the consumer product axis. Corporate social responsibility Milcobel pays much attention to corporate social responsibility. This is characteristic of a cooperative enterprise such as Milcobel. The social character and solidarity are ingrained in the origin and nature of cooperatives. It is therefore characteristic that Milcobel is concerned The Milcobel Group s management and employees will continue to develop a versatile and sustainable cooperative dairy group. Milcobel s sustainability is the cornerstone for the sustainability of its members dairy farms and the sustainability of employment for its employees.

9 Group structure Members cvba MILCOBEL cvba Belgomilk 50% 50% 50% nv Fassbel geie Les From. des Flandres (2) Prodinco nv Kaasimport J. Dupont nv Cheeseline cvba Inza nv Ysco sasu Ysco Fr Holding sasu Ysco France bv Milcobel Ndl sarl BMF Lait nv Bedrijvenpark Wingene (2) 7,07% Milcobel annual report cvba Kempico cvba Zuivelindustrie Zandhoven (2) cvba Milcobel 3F cvba St. Marie sa Héritage 1466 (1) 20% sa Camal (1) as to asset mutation (2) not included

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11 Cooperative news The restructuring of the member circles and their committees was finalised in During the statutory annual general meetings of the 9 member circles, the committees were composed once again, either because they were elected or because their appointment was reconfirmed. This allows the cooperative functioning of Milcobel to call upon strong and democratically composed member structures that provide participatory opportunities and create involvement. A total of no fewer than 300 members hold committee responsibility. It is worth mentioning that 97 of these positions are held by young members and, also, that 27 are female members. The Council of the Cooperative and the Board of Directors were also adjusted in the additional committee composition of the member circles. Through its cooperative functioningmilcobel continues to distinguish itself and has transparent structures through which members can be reached for the purposes of providing information, consultation and voicing their opinion. In addition, the member structures have also been adjusted to the further evolutions and developments still be to expected of the dairy farms and the Milcobel members. As regards these developments, the number of member farmers fell from 3,296 in 2010 to what was still 3,096 in That is a remarkably high decrease of -6.1%, which is, in fact, higher than the national average of -4.1%. The decrease in the number of milk producers occurred, in particular, among Belgian members. The number of Dutch and French milk producers, 83 and 45, respectively, is consistent. Possible explanations for the strong decrease in the number of members may be found in the fact that the approaching end date of the milk quotas is encouraging some to still sell their company quota. Furthermore, Milcobel will not allow any influx of new members until further notice. Keeping the cooperative closed remains an element of the strategy chosen for 2015 and beyond. By doing so, Milcobel continues to aim, firstly, to offer possibility and preference to the (additional) milk produced as a consequence of the further development of member farms. This statement also expressly implies that Milcobel will not initiate supply control or production management measures in respect of its members. Development of member farms will naturally continue to be accompanied by the capital obligations related to the quotas and/or milk delivery size. Furthermore, it is almost certain that in the years to come, a sample prognosis will be used in which estimated and anticipated milk deliveries must be reported in advance. In 2011, the milk supply of member farms increased by 1.4% and amounted to a volume of 1,113,812,623 litres. When this is combined with the decrease in the number of milk producers, the average size of a Milcobel member farm now amounts to 359,759 litres. Individual farm growth over the past 4 years amounts to over 20%! Finally, it must be said that more than 91.5% of the milk supply is based on Belgian deliveries. 5.6% comes from member farms in the Netherlands, while the French member farms constitute 2.9% of the milk supply. In 2011, for the 2nd consecutive year, a procedure was once again applied regarding possible appropriation of a milk price supplement for 2010 (= EUR per delivered kg fat + protein). Based on a selection of proposed choices and on a voluntary basis, more than 42% of all Milcobel members spent this milk price supplement - partly or in full - on purchasing additional Milcobel shares. Members used a total of 41% of the entire milk price supplement amount to reinforce own membership cooperative equity. This continues to signify members great involvement and cooperative commitment. Constant attention was paid to quality monitoring of the milk deliveries during This is done in accordance with legal obligations and internal control schemes for the received raw milk. The internal procedures continue to be based on the greatest possible sense of reality and may or may not be adjusted for the purposes of milk processing requirements. Within the Milcobel Group, there is a growing tendency to opt for internal chain deliberation on this matter. This implies that the attention for milk quality falls squarely within the context of cooperation and deliberation between the milk supply, logistics and processing. Where previously, in 2010, procedures were implemented for milk deliveries with visible deviations, the focus in 2011 was particularly on favourable germ count situations. Despite the fact that the largest part of the milk supplied encounters no such problems, it did, however, seem as though there was a need for a targeted approach of a limited number of risk situations regarding the dairy farming company-depot trajectory. The following monitoring procedures are implemented as soon as bacterial count results exceed 100,000/ml, both for the dairy farm and the milk collection truckload. As a matter of fact, such increased attention made it possible to solve a number of these types of risks in the short term. As regards the general quality of the milk supplied, the following results were recorded during the course of 2011: 98% of the supplied milk met the germ count standard of a max. of 50,000/ml; 94% of the milk had a somatic cell count below 350,000/ml; 6% of the milk met the count standard for coli bacteria of a max. of 50/ml; In more than 99% of the milk delivered, it appeared that inhibitor residue could not be shown. On an annual basis, 79.9% of the milk collected in 2011 met the total of all quality standards set by Milcobel. Therefore, this volume was also considered for additional quality premiums. As a matter of fact, in 2011, this additional quality premium was also the subject of a critical evaluation and assessment within the Council of the Cooperative. As regards milk quality in the broader sense, it - even twice - occurred in 2011 that, by way of the sector monitoring system Monimilk, residue from medicines that were either forbidden or which may not be administered to dairy cows was discovered. These incidents emphasise the fact that it makes sense to continue monitoring, that the procedures regarding traceability within the Milcobel milk supply and processing entities are adequately efficient and sound, but that greater watchfulness on the part of milk producers and their accompanying veterinarians regarding this issue is required. This gave rise to a relatively strong awareness-raising campaign within the Milcobel communication structures regarding the need to use appropriate medicines correctly. This is an essential form of food safety risk management. A great deal of attention was also afforded to communication with members and committee members in 2011: besides the magazine for members, communication is increasingly being conducted digitally and by text messaging. To intensify this even further, there has been a proposal to develop an interactive communication system through the Milcobel website in the years to come. This will mean that almost all elements of the relationship between the cooperative and its members will be at one s fingertips and can be consulted at any moment. Milcobel annual report

12 Structures COOPERATIVE STRUCTURE Milcobel-members 9 boards of the member circles statutory general assembly Milcobel annual report GROUP STRUCTURE council of the cooperative 5 delegates per member circle 1 1 members of the board of directors milk collection - holding & coordination & group services Milcobel cvba Consumer milk and functional drinks Inza cvba Consumer cheese and butter Belgomilk cvba Kempico cvba Ste Marie Zuivel cvba Cheese packaging and distribution Kaasimport Jan Dupont nv Camal SA Industrial products and export third countrie Belgomilk cvba Ice cream Ysco nv Ysco France SAS

13 Key figures Key figures milk flow Milk from members farms 1,113,812,623 1,098,473,243 1,067,098,628 Available total incl. third parties 1,131,500,576 1,116,910,726 1,083,480,552 Total sales 49,281,594 69,901,889 68,527,451 Available for transformation 1,082,218,982 1,047,008,837 1,014,953,101 Key figures collection of the members Average number of suppliers 3,096 3,296 3,380 Quantity of milk supplied 1,113,812,623 1,098,473,243 1,067,098,628 Average fat content Average protein content Price paid for milk in millions of euro Milcobel annual report Euro per litre Key figures Milcobel Group (in thousands of euro) Turnover 884, , ,412 Investments fixed assets 39,973 31,523 29,105 Result 4,399 6,028 3,231 Capital and reserves 106, ,885 95,539 Solvability % Average number of employees 1,951 1,951 1,962

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15 Industrial products and export to third countries 2011 was characterised by relatively stable dairy market prices. There was a peak at the end of 2010, which continued on through to the beginning of Prices then started levelling out until they reached a rather stable level, albeit with a slight downward trend towards the end of the year. In addition, dairy markets reacted with remarkable resistance to the sometimes turbulent developments in the world during 2011, such as the nuclear disaster in Fukushima, the Arab Spring, the on-going financial crisis in the EU and the political indecision in the USA, each of which caused a delay in global economic growth. The increased world-wide milk production (in Oceania, the USA and the EU) and the fact that the increase in import into China was lower than expected also only had a limited effect on the market prices in At the beginning of 2011, the weakening exchange rate between the dollar and the euro made export from Europe difficult. Towards the end of the year, the dollar strengthened in respect of the euro, which made export from Europe relatively easier. Milk powder During the course of 2011, full-cream milk powder from Europe experienced adverse conditions because prices in the southern hemisphere were considerably lower than in the EU practically all year long. By contrast, the demand for full-cream milk powder on the internal European food market remained high. Towards the end of the year, international market prices started a levelling-out trend. The average market price for full-cream milk powder in Europe was approximately 12% higher than in the previous year. Incolac (full-cream milk powder) experienced strong double-figure turnover growth in This was due, partly, to a strong performance on the part of the Incolac core markets and to entering promising new markets. The price of skimmed-milk powder from the EU was competitive on the world market in This resulted in a strong demand. Both skimmed-milk production in Europe and export from the EU therefore also displayed a steep rise in On average, the price of skimmed-milk powder rose by 10% in 2011 in comparison to In 2011, Belgomilk further expanded its sales of dairy-based ingredients to the food and drinks industries and, in particular, to the chocolate industry. Various new European top customers came to audit the Belgomilk factories in Langemark and Kallo and gave them a positive evaluation. During the course of 2011, Belgomilk launched the Binco brand, which is based on skimmed-milk powder and has vegetable-oil additives. International market demand for Binco was substantial and the first response to the introduction was positive. With this, Belgomilk is also taking a place in the Popularly Priced Products market. Butter The historically high butter prices in the EU, which rose substantially above the world market price, peaked during the third quarter of There was a correction towards the end of the year, however. A large amount of butter from New Zealand arrived on the EU market at the end of On average, the butter price in 2011 remained 14% above the 2010 price level. Mozzarella Both the demand for and price level of mozzarella remained relatively stable in When compared to 2010, the market price rose by an average of 5%. In 2011, Belgomilk started using a new packaging installation for the so-called single-loaf mozzarella in Langemark. This packaging is much sought after in the upcoming markets outside Europe. Whey products A strong demand for whey products, particularly by Southeast Asia (China), and with a special demand for applications in baby food, led to strongly increasing market prices. This then specifically concerns whey powder, lactose, whey-protein concentrates (WPCs), whey-protein isolate (WPI), demineralised whey powder and whey permeate. This caused the market price for whey powder to rise by an average of 25% in 2011 as compared to that of Baby food Within the scope of the cooperation with Fasska, baby food continued its positive evolution. Belgomilk also developed its own brand concept, TrueLife, in 2011, which is now ready to be introduced in a number of selected markets. People Belgomilk thanks its success in 2011 first and foremost to the input of the Belgomilk employees.. Great importance is therefore attached to human capital. Employees must be able to identify and further evolve with Belgomilk s essential values. These are: quality in all operations, innovation and creativity, which lead to constant improvements and new, better solutions, the pursuit of the achievement of excellent operations and results, focus on customers and markets, team cooperation, communication (both internally and externally) and sustainable entrepreneurship with due regard for the authentic characteristics that make Belgomilk what it is. Not least is the priority that is afforded to people s safety. A staff survey was held in 2011 to gauge employee satisfaction and commitment. The idea was to check how employee commitment could be further encouraged with a view to developing the vision, mission and strategy during the years to come. This survey clearly shows the employees confidence and commitment regarding the company s future. A plan has in the meantime been developed to further reinforce the employees commitment during the coming years. Milcobel annual report

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17 Quality Every year, the quality systems at Belgomilk are subjected to an audit by bodies such as the BRC (British Retail Consortium) and AFS (Assured Food Standards). Once again in 2011, these audits yielded positive results. Furthermore, a considerable number of householdname customers also audited the factories in Quality plays an extremely important role in Belgomilk s development. It goes without saying that food safety occupies first place in this respect. Belgomilk is constantly improving the organisation of its production environments according to the newest perceptions of integral management of pathogenic micro-organisms. Furthermore, attention is afforded to parameters that consumers use to judge products, such as taste, aroma and instant properties. The aim is to offer consistent high quality which scores better. It is against this backdrop that Belgomilk Kallo started using a new installation to gas milk powder within a protective atmosphere. Research and development As regards research and development, Belgomilk provided a further incentive in Belgomilk wants to add new properties to the products that increase its distinguishing capacity from the competitors. In particular, this refers to properties related to nutritional value and health as well as to properties according to which consumers assess the products, such as taste, smell and instant properties. Furthermore, Belgomilk is developing new and more specialised ingredients that provide solutions for the industrial customers. In particular, this concerns the functionality that these ingredients have in the customers specific applications. Corporate social responsibility Belgomilk consciously opts for CSR (Corporate Social Responsibility). This means that it strives to achieve continued sustainable development. For example, by way of its membership in Milcobel, Belgomilk participates in the United Nations Global Compact. This constitutes an explicit expression of the fact that the universally accepted principles of CSR are respected. The factory in Langemark has already been in compliance with a CSR charter for a few years. This charter gives a practical outline of the many efforts made in Langemark to put CSR into practice. The factory in Kallo also developed a CSR charter in A CSR policy for the whole of Belgomilk was also created in This policy lists the objectives and operations that Belgomilk will apply in the years to come. This programme includes matters such as operations to again give a new value to water by-product and waste flows as drinking water. During the past years, Belgomilk has also invested in converting heating oil into natural gas and in installing CHP (combined heat and power or cogeneration) systems. These steps have already led to a 29% reduction of the CO2 emission in the factories. Prospects During the course of 2011, Belgomilk outlined its vision, mission and strategy for the next few years, with 2020 as the horizon. The Group Management and the Board of Directors approved the business plan in October. According to this plan, Belgomilk will continue its development as based on the following three cornerstones. The first relates to international consumer market brand development. This concerns milk powders, growth-stimulatory milk, baby food and other high-quality dairy-based products. Nutritional aspects and health are continuously becoming more important. The brand portfolio consists of Incolac (milk powder), Binco (based on skimmed-milk powder with added vegetable oil) and TrueLife (baby food). These products are found especially in the product expertise of the Belgomilk Kallo factory. Belgomilk will then also target specialised dairy-based ingredients for the food and drinks industries. This concerns the industrial B2B customers. Markets for these products lie mainly in Europe, although there are increasingly more opportunities outside Europe. Solution- and service-oriented work for these customers and providing technical back-up play a crucial role in this. The Belgomilk factory in Langemark is specialised in this. The third focus envisages targeted cost leadership in producing mozzarella for the pizza restaurant and pizza industry segments and for instant full-cream milk powder for international co-packers. This, too, is B2B, where offering solutions and service to industrial customers play an important role. It is also essential to offer high and consistent quality. Belgomilk Langemark focuses on mozzarella and Belgomilk Kallo on instant fullcream milk powder. The strong increase in the cheese production in the Milcobel factories at Langemark and Moorslede has caused Belgomilk to have larger amounts of whey available. Belgomilk has made a thorough study of current market trends and the newest technologies to be able to provide a better service to the market. Belgomilk s first target is internal use of whey products within the Milcobel Group (Ysco, Kallo and Inza). Because of increased whey production, whey products, there will be a larger supply to customers outside the Group. Belgomilk hereby declares that it is open to cooperation with external parties to produce and commercialise whey products. Belgomilk has processed a significantly increasing amount of delivered milk during the past few years. The investment plan that has been developed provides for an additional capacity to be able to process the increasing milk delivery with a return on investment, also during the next few years, and to find its way to the market with interesting dairy products. Belgomilk s continued development will depend on the use of modern technology. The new ERP system will be implemented by the end of This will enable business processes to be monitored better and to be run more efficiently. In October, the Board of Directors also approved the investment plan for the Belgomilk factories, which forms part of the new business plan and is attached to it. The idea is to continue to develop these factories into state-of-the-art factories that will be among the largest and best in Europe in the years to come. The mozzarella factory in Langemark will be greatly expanded. Two spray drier towers, one in Kallo and one in Langemark, will be replaced by one large spray drier in Kallo. Installing a new spray drier in Kallo will be accompanied by a thorough factory reorganisation with increased spray-drying capacity. Not only does the investment plan ensure the continued development of Belgomilk s state-of-the-art production operations, it also guarantees the supply of the highest quality products, produced in the most efficient manner (cost price leadership). With this, Belgomilk is also taking the initiative towards important new job opportunities in its factories. Milcobel annual report

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19 Consumer cheese and butter Brugge cheese is the absolute market leader in the Belgian cheese category. Own brands seriously thwarted the development of the many A brands in the dairy sectors in our neighbouring countries in This is also the general trend in Belgium. In the light of these circumstances, one can therefore refer to the strong growth of the Brugge kaas brand as an excellent achievement. It was possible to continue the steady growth in both the traditional and retail channels. This was backed up by increased name awareness and improved level of distribution, which meant that historically high sales volumes were realised. Brugge Oud, in particular, was able to further pursue its dominant position in its particular segment, although other variants, such as Brugge Blomme and Brugge Goud are also able to show good growth figures. In particular, Brugge Kaas is therefore also the engine behind the hard and semi-hard cheeses on the shelves. The successful launch of the Brugge brand in consumer butter has also confirmed the brand s strength and name awareness. This spectacular growth pattern naturally means that the cheese factories are largely filled, so that maximum capacity limits are being reached. That is why there was a decision to cut down on the scheduled media campaigns during the second half of As soon as the additional capacity becomes available (mid-2012), further growth will be targeted anew and communication will be increased once again. The effect of the economic crisis can indeed be felt very strongly in a number of export markets and expected development has clearly been checked. Yet, a number of new destinations could still be added to the international development of the Brugge cheeses. Further investments in new distribution channels will put the Belgian cheese category on the global map. A number of new developments in own brand pre-packaged cheese and in cheese based on Belgomilk raw materials were also realised in cooperation with the packaging department of the associate company Kaasimport Jan Dupont. In this regard, niches were especially sought in distinctive cheese specialities in the sliced and semi-soft cheese segments. Starting up operations of the new maturing and brining systems at the end of 2011 has provided the starting shot for the final trajectory in the expansion of the cheese factory in Moorslede. Further parts will be activated in the first quarter of 2012, so that the transfer of the production site in Gierle will be completed by the end of This important step is a milestone in the cheese master plan of the Group s consumer cheese department. The new production lines will make it possible to support the commercial development in a high-quality manner that yields even better performance. Milcobel annual report

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