Glanbia: What hope of brighter fortunes?

By Paul Meade

GLANBIA'S new management team can be under no illusions regarding how crucial the group's financial performance over the second half of this year will be to its future stock market perspective.

The dismal trading performance in the first half of this year leading to the June profit warning was confirmed last week when the group released figures. The focus is now on how Glanbia can restore profitability to that of its peers. Where can Glanbia achieve growth in a slimmed down group and how can it fund such growth without disposing of more businesses?

Current projections are that Glanbia will generate operating of about £75m before exceptional charges in the current year. This is projected to rise to about £85-90m next year. These are conservative estimates. Better figures may be achieved if commodity dairy markets improve and if lower farmer milk prices are secured.

Out of this £90m, the group will have to pay £28m in interest, £10m interest on preference shares and bonds held in the US, dividends of £15m and a tax charge of about £10m. This leaves between £23-£27m of free cash to fund capital investment and or repay debt.

Luckily the group is not under any debt repayment pressure as they are not tied to specific dates. For a group the size of Glanbia, £30m free cash is not a large amount. Glanbia has earmarked £102m for new investment in growth sectors particularly in the US, but this is not yet spent.

With McKinsey on board, top management will be keenly focusing on further cost reductions and how to target available free cash to invest in selected growth sectors of the group.

Glanbia's shares have dropped to 110p (E140). This is well down from its peak at the merger of 356p but up from the prices witnessed in the aftermath of the June profit warning. when prices dipped to just over 90p. The group's current market capitalisation is just over £400m.