Future looks brighter for restructured Glanbia

IT HAS taken Glanbia a number of years to redefine itself as a group focused mainly on the dairy sector, involving a range of consumer foods including pig meat, dairy products and food ingredients with an ever increasing emphasis on nutritionals.

Glanbia has operations in Ireland and the US, and international joint ventures in Britain, the US and Nigeria. It includes three operating divisions of agribusiness, consumer foods and food ingredients, which includes the evolving nutritionals business.

Recent first-half results showing unchanged revenues in the first half of 2006 of €922 million and a dip of 5% in operating profits tell their own story.

However, an assessment of Glanbia on a retrospective basis serves little purpose at this stage. It has made significant efforts to gear the group into a mainly dairy consumer-based co-op with an emerging stress on supplying the lucrative nutritional market.

The dairy operations are still struggling as is the pig-meat division, but Glanbia looks to have gone a long way in setting out its stall for the future.

That was highlighted by the announcement with the interim figures of the acquisition of Seltzer group.

Glanbia announced the acquisition of the California-based nutrition ingredients business for which it is paying a maximum of €82.7m. Of that, €63m is in cash up front with the remaining €19.6m performance-related.

Seltzer is a leading nutritional solutions company whose key areas are in the development of customised formulations for big food producers. It also distributes speciality ingredients for the nutritional supplement, food, beverage and pharmaceuticals markets.

Seltzer had 2005 revenues of e41.4m and profits before tax of €5m and sales have been growing in double digits.

John O’Reilly of Davy Stockbrokers noted that over time the customer base of the new company will be leveraged as a platform for Glanbia’s whey nutrient ingredients.

When combined with Kortus in Germany, focused on the infant nutrition market, which has performed well, on top of its whey nutritionals unit in the US, O’Reilly reckons 2007 nutritional sales at Glanbia at circa €118.2m. The operating margin in this unit can in time exceed 10%, but may range between 8% and 10% in the short term.

However, the interim figures still show the group is battling with traditional parts of its business.

Glanbia suffered a sharp fall in operating profit in the food ingredients division of €10m year-on-year, a decline of 45.3%.

About four-fifths of this fall occurred in the Irish operation and was due to the fact the group was paying a price for milk that could not be recovered in the market.

Last year the loss from the Irish dairy sector was roughly €6m and indications suggest losses in the current year will remain significant.

As has been noted in the past, what we are seeing here is the continuing shake out from structural reform of the EU milk sector, which is occurring over the four years to end 2007.

From next year on, that negative impact will have eased considerably.

For the second half of the year the outlook for the Irish ingredients operations is more positive while the consumer foods division made only modest gains.

In the second half the outlook for Irish ingredients operation is more positive and the results for the year should match last year’s out-turn.

For this year overall it looks as if the group will tread water. But with the Seltzer deal looking positive and commissioning of the group’s Southwest Cheese joint venture on October 6, the group looks to be facing into better times ahead provided it delivers on the strategy it has set out.