2014 Annual Report 47

MANAGEMENT REPORT

During 2014, Bongrain SA pursued the development of its activities and grew its net sales. Its current operating profit was affected by particularly difficult conditions in the market for milk and in the overall economic environment. Neverthe- less, the Group resisted well thanks to the strengh of our major brands and by reinforcing value for Other Dairy Products.

ACCOUNTING STANDARDS Bongrain SA s consolidated financial statements have been prepared in accordance with IFRS as adopted by the European Union.

The Group has applied the new standards and amendments applicable with effect from January 1, 2014, in particular the new standards dealing with consolidation IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements and IFRS 12, Disclosure of Interests in Other Entities. The Group s analysis of its joint arrangements has led it to recognize a certain number of joint ventures requiring application of the equity method, since proportional consolidation is no longer authorized. As the revised standards had retroactive effect from January 1, 2013, restated financial statements for 2013 were prepared and all changes from the prior year are thus expressed with refer- ence to those restated financial statements for 2013.

CONSOLIDATION SCOPE The Group s consolidation scope includes, with effect from the second half of 2013, Söbbeke Gmbh and Rogge KG as well as Fromageries Lescure. With effect from October 1, 2013 Terra Lacta contributed its activities of manufacture and distribu- tion of butter, cream, cheeses and milk ingredients to various Group companies. Finally, in December the Group acquired Sodilac, a company specializing in milk powder formulations.

During 2014, the Group sold its interest in Rupp, acquired exclusive control of Delaco in Rumania (following the purchase of an additional 20% interest with effect from April 1), and acquired an additional 33.3% interest in Corman Deutschland Gmbh in June. It also, in December 2014, sold interests in Emmi Fondue AG and Ground Dairy Industry Company and divested its Schratter subsidiary in the USA on December 31, 2014.

(*) Data is expressed on the basis of the previously reported figures for 2013 restated for the impact of IFRS 11.

ACTIVITY AND RESULTS The diversity of its businesses and markets allows Bongrain SA to surmount temporary difficulties in both consum- er demand and in the Group s various cost components. Consumer demand does not evolve in identical fashion in our mature markets and in developing regions. It is equally affect- ed in different degrees for different consumer products and depending on the intensity of the marketing efforts deployed. Changes in the world prices for industrial products are unlikely to have the same impact on Cheese Products and Other Dairy Products, whether in terms of timing, intensity or even the direction of change. The selling price absorption of cost price increases is bolstered by the strength of our brands and the recurrently innovative nature of our consumer offerings. 2014 was characterized by adverse conditions for milk, with a high milk price and sharply falling world prices for industrial products, accentuated by the Russian embargo, resulting in a scissor effect impacting the Group s performance. Our results for 2014 were contrasted with:

Revenue growth bolstered by the solid resistance of our strategic branded products and by our constant striving for innovation and reinforcement of value added; and A decrease in current operating profit which was penalized by geopolitical crises and by the fall in world prices for milk- based ingredients.

Nevertheless our performance improvement plans continued, both in France and abroad, to bear fruit.

Bongrain SA s consolidated net sales for 2014 amounted to 4,606.9 million, compared with 4,204.6 million (*) for 2013, an improvement of +9.6% reflecting organic growth of +4.7%, acquisitions for +7.6% and an unfavorable foreign exchange impact of -2.7%.

The growth in net sales mainly reflected the continuous prog- ress of our specialty brands which was nevertheless attenuated by falling consumption in certain markets exposed to econom- ic crisis. The product mix for our industrial activities improved but these activities were nevertheless severely penalized by falling prices for industrial products.

Net sales achieved outside France fell from 69.9% of our total sales in 2013 to 68.1% in 2014.