Branch sales boost profits for Glanbia profits

By Paul Mooney

ONCE off profits of €6.5 million on sale of branches helped Glanbia lift pre-tax profit in the first half of 2006. The group this week reported pre-tax profit of €30.2 million on a lower turnover of €922.8 million. This compared with a pre-tax profit of €26.2 (after exceptionals) in the first half of 2005, that on a turnover of €926.1 million.

If the agribusiness division enjoyed a boost from the branch sales, the Food Ingredients Ireland division took a hammering due to lower profits on its main dairy products including butters, skims and caseins, etc.

Operating profit across the three sub-divisions within ingredients were down by €10 million in this period and €8 million of this fall was in Ireland. It was mainly this squeeze that resulted in group operating profit falling by 5% or €2 million to €36.4 million. Operating margin fell by 20 basis points to 3.9%.

Eventful year in Agri

One glance at the pie charts above show that the agribusiness and property was the star performing division, driven by the property sales.

Turnover rose by €23.3 million to €165.6 million. But operating profit jumped by €7.9 million to €15.9 million.

Operating margin likewise rose from 5.2% to 5.8%. No further branch sales are expected in the second half of 2006 but the property business will continue to generate an income stream in the years ahead.

Sales of animal feed were higher in the period but margins lower. Chief executive, John Moloney, expected Glanbia will purchase about 170,000 tonnes of grain this harvest, down from 200,000 tonnes last year as more farm to farm sales and farm storage emerge.

In the space of just a few weeks, the group has contracted for 6,000 acres of oilseed rape for biofuel from growers. The company is understood to be in advanced discussions to purchase a controlling share in a Wicklow company that has been engaged in crushing rapeseed for biofuel purposes.

Glanbia is aiming to produce up to 12 million litres of oil, which it will use in its own fleet, for example in the 80 collection lorries operating out of Ballyragget.

Consumer foods steady

Turnover in consumer foods rose by €9.8 million to €252.3 million and operating profit rose by €300,000 to €8.5 million. Operating margin was unchanged at 3.4%.

Glanbia spent significantly last year on rationalisation's at Inch and this started to benefit the division in 2006.

Liquid milk performed well, helped by purchase of CMP from Dairygold and by price cuts to producers.

Chilled foods had a flat performance in the half in the face of a competitive retail sector.

There was a decline in returns from pig meat but this business should see seasonally better returns in the second half of the year.

Moloney's big milk problems

Glanbia's ingredient division is diverse, to say the least, covering dairy processing in Ireland, dairy processing in the USA and the emerging and very specialist nutritional division.

Overall, turnover fell by a significant €36.4 million to €504.9 million. Worse, operating profit collapsed from €22.1 million to €12.1 million and operating margin likewise dropped from 4.1% last year to just 2.4%.

The main grief for John Moloney in 2006 was in his Irish milk processing division, which churns out big volumes of commodities.

Butter prices in 2006 are down by about €250 per tonne on the average of 2005. Whole milk powders are down by about €60 per tonne. Skim powder and whey are ahead but not hugely so.

As part of the package of changes in Glanbia milk prices, the division has now cut its price to suppliers by 12 cent per gallon but the second of these cuts had no impact on the first half of the year. The second half of the year should also benefit more from the rationalisations that have taken place in this division, including the shift of cheesemaking from Kilmeaden to Mitchelstown.

With €100 million state aid now available to rationalise milk processing, Ganbia is reviewing all of its processing operations, Moloney said. It is looking most closely at proteins and cheeses. It will be happy to discuss possible projects with other processors, he said.

Dairy ingredients

But Glanbia also took a hit - albeit less severe - on dairy ingredients in the US. It churned out more volumes of cheese but lower prices - output was generally up in the US - impacted.

The group is hopeful that prices have turned the corner and are now recovering as output winds down seasonally. No breakdown is given of turnover or profit contribution from the nutritional division.

Nigeria doing well

Profit from associates and joint ventures rose from €38,000 last year to €283,000 in this half year. No breakdown is given of individual contributions. The figure would include a positive contribution from Leprino which, Moloney said, is having an improved performance in 2006.

It would include little from the group's newer joint ventures in the USA and Nigeria as they are still winding up production.

New Mexico

The new cheese venture in New Mexico is now operating at about 75% capacity and breaking even. The joint venture with Cussons in Nigeria is "ahead of break even'', Moloney said. Glanbia is in the process of building a broad consumer foods business there, he said. Sales are now running at an annualised €100 million from a standing start."We are very pleased at the rate of growth and the potential,'' he said. The two shareholders recently committed a further €10 million for expansion there.

Finance costs fall

Changes to debt arrangements last year put a exceptional cost on 2005 results but resulted in finance costs falling in the first half of 2006. Also:

Net debt up 5% to €301m.

Adjusted earnings per share unchanged at 9.12c.

Dividend up 5% to 2.38c.