Glanbia saw its total group earnings (EBITA) grow 7.9% to €245m in 2014 on the back of increased sales of €3.5bn, up 6.9% on the previous year. There was a strong increase in free cashflow, with 74% year-on-year growth to €153m.

Commenting on the results, Group managing director Siobhan Talbot said: “This was the fifth consecutive year of double-digit growth for Glanbia, with a 10.1% increase in adjusted earnings per share.”

Performance nutrition, now with new brands (Isopure and Nutramino), continued to be the strongest performer, with revenue growth of 13.5% to €746.2m. This was driven by 7.4% volume growth, 5% acquisitions and 1.1% increase in prices. Earnings (EBITA) increased 26% to €89.2m, while margin (EBITA) increased from 10.8% to 12.0%.

Against a background of challenging dairy markets, the ingredients division saw revenues increase 9.3% to €1,175.4m. This was driven by an increase in prices (10.9%) in particular for the US cheese division, which made up for a 1.6% decline in volumes reflecting tight milk supplies amid strong competition during the first half of the year.

Earnings (EBITA) declined by 1.4% to €100.4m. Margins fell from 9.5% to 8.5% as a result of challenged milk procurement conditions in the US.

The US cheese division recorded strong revenue growth as higher average market prices for cheese more than offset volume declines. Procurement challenges were fully resolved by Q4, with the business returning to full capacity.

Dairy Ireland delivered an improved performance in 2014. While revenues were back 5.4% to €616.7m, earnings (EBITA) were up 25.8% to €19m.

The decline in revenues was due to a 2.2% fall in volumes and a 3.2% impact of lower pricing. Margins increased from 2.3% to 3.1% as a result of greater efficiencies, mainly in consumer products.

The agribusiness division saw reduced demand for feed in light of improved weather. Reported revenues were back on the previous year.

The company noted that its joint venture, Glanbia Ingredients Ireland, delivered satisfactory performance in 2014 against challenging market conditions.

Revenues were reported to be slightly ahead as higher volumes and a small acquisition offset a decline in pricing. It noted that margins declined as a result of the reduction in farm milk prices. But this was slower than the magnitude of the decline in overall dairy commodity markets.

Glanbia growth targets

Glanbia has ambitious growth targets. With a long-term strategic target to grow organically by 8-10% per year (2014-2018), the group is guiding 9-11% growth in adjusted earnings per share for 2015. Currency tailwinds, if the euro remains at current levels to the dollar, will help boost 2015 performance.

The question for many will be how it will sustain this growth and where the growth will come from.

With 77% of the profits now coming from two divisions – performance nutrition and global ingredients – these are best place to drive group growth.

The group is investing heavily in performance nutrition, having spent €149m acquiring Isopure and Nutramino last year. While Glanbia is the market leader in the US, other companies realise this is a high-growth sector and want in also. This means that high multiples are being paid for acquisitions. Glanbia paid €118m for Isopure, which implied that a multiple of circa 17.3 times earnings was paid.

Even though Glanbia may have money to spend and be in a position to borrow, it really will be about finding bolt-on businesses in this sector at value where it can gain synergies.

Trading in 23 markets today, organic growth should be achievable based on category growth in developed markets such as the US and Europe, investment in new manufacturing in Illinois and further product innovation.

The Net debt to EBITDA ratio at year-end was just under two times, which provides ample room for continued investment-led growth.

Allocating capital towards internal investment is central to the Glanbia operating and growth model. For example, its ingredients division is currently investing $85m increasing capacity in whey processing.

The scale of recent investments reflects the group’s ambition and confidence in underlying organic growth prospects. The group has spent about €430m in its capital investment programme since 2012. Fifty percent of capex has been in global ingredients, with 40% going to performance nutrition and 10% related to dairy Ireland.

Glanbia has proven it has the capability to build, buy and integrate new businesses. This builds scale which provides competitive barriers to entry in many of its businesses and offers the potential for organic growth to accelerate over time. In this light, Glanbia’s evolution looks set to continue.