Glanbia: Milk prices to remain weak into 2016

Glanbia’s global ingredients business is likely to remain challenged in the second half of the year with its managing director anticipating persistent weak milk prices for at least the remainder of this year.

Group managing director, Siobhán Talbot indicated that a “mid-single digit” earnings decrease is likely to materialise in its global ingredients business over the full-year, with EBITA to date of €60.3m representing a 9.5% drop on the same period last year.

Overall, the group reported a strong set of first-half results which included an increase in EBITA from its wholly owned business of €138.5m, up 7.5%.

The company also reiterated its previous full-year earnings per share guidance of between 9% and 11% on a constant currency basis.

“Glanbia delivered a good performance in the first six months of 2015, driven by a strong result from Global Performance Nutrition. Total group revenue for the half year was €1.9bn with adjusted earnings per share of 40.60c.

“Today we are reiterating full-year guidance of adjusted earnings per share growth of 9% and 11% on a constant currency basis.

"Given the strength of the US dollar this is likely to translate to reported adjusted earnings per share growth of circa 25% for the full year if foreign exchange rates remain at current levels,” said Ms Talbot.

With global milk prices at a near 12-year low, the Glanbia chief said a combination of factors will be needed to correct the market in what she described as a cyclical industry.

A combination of greater supply in response to what had been until recently higher milk prices and a drop-off in demand from the likes of China weakened prices globally with a reversal of both factors needed for them to recover.

Ms Talbot predicted decreased supply from countries such as New Zealand and more robust global demand will help resolve the situation.

The impact of the removal of EU milk quotas earlier this year had only a limited impact, however, with a 0.2% output increase across Europe compared to a 16% rise in the US.

The interim results show the resilience of the Glanbia model which seeks to “deliver better nutrition for every step of life’s journey”, Ms Talbot said.

The value of playing into changing consumer trends around nutrition is a key part of its growth strategy with its Global Performance Nutrition (GPN) division delivering strongly for the group with a 17.4% increase in earnings (41.5% reported) over the opening six months.

The increase was achieved on the back of a 21% increase in revenues to €453.5m.

Glanbia’s GPN division is outpacing the growth rate in the key US market, some of which is offset in other international markets.

Ms Talbot said she was pleased the momentum was back in the US market but conceded that growth in other regions such as Russia, Australia and Brazil are more sluggish due to the strength of the dollar and geopolitical factors.

In response, Glanbia plans to increase its investment in promotion in some markets.

With an estimated warchest of €250m for further mergers and acquisitions, the Glanbia boss wouldn’t be drawn as to the company’s specific plans but said as “disciplined acquirers” it retained a strong pipeline of potential deals.