Glanbia set for expansion

Glanbia Plc has reported a pre tax profit before exceptional costs of €37.56 million for the six months to July 5th 2003. After net exceptional costs of €26.85 million are deducted the dairy and nutrition group is left with a pre tax profit of €10.71 million. Whichever way you look at it, the group has enjoyed a better opening half than in the corresponding period of 2002.

Eric Donald reports

Group turnover is down by 15.7% to €1.05 billion, while operating profit before exceptionals and including joint ventures was up marginally to €45.73 million. But operating margin has improved significantly, from 3.6% to 4.4%.

The exceptionals relate to three decisions taken by the group, namely the decision not to rebuild the pig meat plant in Rooskey, the sale of the fresh meats business in the UK and the closure of meat processing facilities in the UK (see table).

The group has made good progress in reducing its borrowings, with net debt at the end of the half year standing at €250.76 million, down by €57.08 million compared to mid year 2002. Interest payments for the period were €8.1 million while interest cover is now 5.6 times, much more comfortable than in the previous year. Chief executive John Moloney is determined to keep it at this level.

Operating profit in the consumer foods division, which includes the Irish liquid milk and chilled foods operations, the Irish pork business and the UK cheese business, increased by 31% to €22.74 million. This also included the UK meat business before it was sold. The group report that the liquid milk business made satisfactory progress in a very competitive market. Cheaper milk from Northern Ireland and the pressure from own-brand milk are issues of concern. But Chief executive John Moloney believes that if you are the brand leaders, which Glanbia are with the Avonmore and Premier brands, then you have to lead out the branded business, and so the group are committed to putting energy and resources into it. They launched two new liquid milk products: the 330ml Avonmore Supermilk to compete with soft carbonated drinks and Avonmore Milk Plus probiotic milk.

The contribution from the mozzarella cheese joint venture with Leprino was down in this period. The European block mozzarella market has become increasingly competitive, with more product on the market. The new technology is already in place in the Llangeffni plant in Wales, but it is only now being commissioned in the Northern Ireland-based Magheralin plant.

Operating profits in the group's ingredients division, which includes the Irish and US manufacturing milk facilities were down by 29% to €13.63 million. Operating margin came down from 4.1% to 3.2%. Currency had an impact with the strong euro at the half year stage, impacting on the translation of profits. Lower cheese prices in the US also affected the returns, but prices have improved. The group currently produce around 140,000 tonnes of cheese in Idaho, so the effects of the price improvement should flow in the second half.

US cheese and whey plant

Earlier this year, the group announced plans to build a new cheese and whey products facility in New Mexico with the help of an attractive grants package. This is a joint venture with Dairy Farmers of America and Select Milk Producers and involves a US$170 million investment. Building is expected to commence around the end of the year, with the plant commissioned in July 2005. It's expected to be fully operational in 2006.

Glanbia's nutritional strategy is largely based on adding value to whey proteins. These proteins are used in health and functional foods, and Glanbia's access to a large volume of whey from their Idaho cheese plant gives them the scale to successfully exploit the added-value potential of whey.

Earlier this year, Glanbia set up the nutritional division as a stand-alone business. The group are currently pursuing a number of possible acquisitions in this sector to bring some of the existing nutritional capabilities within the group to the consumer. These are likely to be modest in size, around the US$10 to US$20 million dollar mark, and located in either Europe or the States. When pushed on the timeframe for such acquisitions, John Moloney said that he would be disappointed if there wasn't at least one completed by the end of the year. And still on possible acquisitions, the group are anxious to secure a more direct route to some of their African markets for products from their Virginia plant. The joint venture with Conaprole is up and running, with a sales and marketing office opened outside Mexico City. It is selling product out of Glanbia's facilities in Ireland, Uruguay and America.

Grain price policy

"We are getting as much grain as we want," was the response from Glanbia chief executive John Moloney when quizzed on the group's grain price. He went on to say that the group normally buy around 200,000 tonnes of grain annually, half of which is used in the mills in Clonroche and Portlaoise. But, on the 100,000 tonnes traded, they have lost money for the last three years. The company are bringing forward the market-based review process to October of this year, earlier than last year. The group's agribusiness increased its operating profits to €9.35 million in the opening half, off the back of a higher turnover of nearly €150 million.