Glanbia still in good state despite suggestions

RECENT headlines announcing 210 jobs to go at Glanbia as it cuts costs of €16 million suggests a group under pressure.

The story that made it into the news on February 10, however, was based on a letter sent to workers up-dating them on the state of the company. While most of the news had previously been in the public domain, the letter gave the impression of a group under greater pressure than is the case.

Nevertheless the company wanted to reiterate the point that there was a tough year coming down the track, given the global downturn.

The subtext was of course that milk prices were under threat, a point that is not always easy to get across to farmers.

To assist that process the letter to workers made it into one of the Dublin newspapers which got the message out there.

Farmers reacted quickly accusing the company of trying to soften up farmers ahead of lower milk price.

Aside from redundancies, Glanbia is cutting capital expenditure and reducing senior managers’ wages.

John Moloney, Glanbia managing director, and all other non-executive directors have taken a 10% pay cut, while a 5% reduction will apply to other senior management.

Moloney said the company is facing “one of the most difficult trading environments seen for many years” due to falling consumer demand and currency volatility. Glanbia Consumer Foods had previously announced its intention to cut 50 jobs following a review of its operations, and it appears they are part of the 210 total.

Overall it looks as if the letter was put out there just to soften up farmers, as Irish Farmers Association president Padraig Walsh said.

The fact that senior executives have taken pay cuts does however hammer home the point that the global economy has changed and the soaring milk prices of recent years has been brought to a dramatic halt.

Glanbia said the redundancies were part of its “rationalisation programme” and would apply to its 2,200 staff here. Globally the group employs almost 4,000 people where few redundancies are on the cards.

In an interim management statement in early January Glanbia said it planned to cut costs in response to lower consumer demand in a changing global economic climate.

Glanbia has an Irish consumer foods operation and an evolving international cheese manufacturing and nutritional ingredients group.

In a recent note, NCB stockbroker’s Paul Meade said management’s guidance as to whether their target of double digit earnings growth in 2009 remainsintact would be the “the key focus” of its upcoming results on March 4.

Its 2008 performance should reflect the benefit of its diversification strategy, which has reduced dependency on Ireland and bulk dairy commodities.

The group also has strong margin protection within its US operations. The strategic shift by the group to the high margin dairy nutritional end of the business is helping underpin earnings.

The group has got to a point where as much as 30% of group earnings will be delivered by that sector of its business in 2009.

Its cheese operations in the US including its milk joint venture in New Mexico are achieving well.

There seems little doubt but the steep decline in world dairy prices hurt the group’s performance keeping the outturn in that sector pegged at 2007 levels.

But a top level performance from the joint venture, Southwest Cheese, in the US, will result in a significant improvement in the overall result and should help the group meet market expectations.

In a tough environment the markets still see Glanbia as one of the more exciting Irish investments on offer now, despite the letter.