Glanbia set to spend €200m on acquisitions

GLANBIA Plc, the largest cheese maker in the US, may spend €200 million next year on acquisitions to boost the nutritional products business it has built up from the by-products of dairy goods.

The company is targeting purchases in the US and Europe, group managing director John Moloney said in an interview at Glanbia’s headquarters in Kilkenny, last week.

“I would like to see that we’ll have a bigger and well-resourced global nutritionals business,” he said. “By the start of next year we should be able to spend somewhere between €150m and €200m,” on acquisitions, the executive said.

Glanbia, which supplies cheese for McDonalds Corp burgers, uses the whey produced in the cheese manufacturing process to make protein bars and shakes for weight trainers, as well as other lifestyle nutritional products.

The company, which bought Florida-based Bio-Engineered Supplements and Nutrition for $144m in January, generates double the margins at its nutrition business to those at its Irish dairy operations.

The nutritional business is the “key growth driver of the group” and the company is building a consumer brand through speciality retailers, Moloney said. Their health brands, used by bodybuilders and athletes, include Optimum Nutrition, BSN and drink maker American Bodybuilding.

“That industry is growing at a rapid rate still and there is plenty of scope to grow it internationally,” said Darren Greenfield, a Dublin-based analyst at NCB Stockbrokers, with a “buy” recommendation on Glanbia. “Nutrition should definitely be the focus of the company for the shareholders.”

In August, Glanbia raised its full-year adjusted earnings per share growth guidance to between 18 and 20%, from an earlier forecast of 11% to 13%.

Glanbia shares were down 2% at €4.50 at the close in Dublin trading yesterday. Before yesterday, they were up 30% in the past year, compared with a 5.4% decline in the ISEQ index.

Glanbia sells 640-pound blocks of cheddar cheese in the US, which end up in sliced and sold in retailers such as Walmart Stores Inc or on burgers at McDonalds or Burger King, while 90% of the milk used in cheese making ends up as whey or other co-products, which can be used in health enhancers, Moloney said.

“Part of the strategy is that you move up that triangle from large volume in cheese and base dairy processing to lower volume but higher-value products,” Moloney said.

The company’s US cheese and global nutritional business, which are grouped in earnings together, posted an operating profit of €63.1m in the first half, with a margin of 10.4.

As Ireland’s largest supplier of milk, it processes 1.8 billion litres of milk a year, more than 80% of which is exported. The company’s milk production may climb 40% to 50% by 2020 after the abolition of European milk quotas in 2015, Moloney said. That may help generate additional revenue of €350m to €400m over five years, he said.

“Ireland is one of the few places in the world that will have a clearly significantly increased output” in milk for export, Moloney said.