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Declining consumer confidence knocks Glanbia’s results
Glanbia plc, the international cheese and nutritional ingredients group, has announced its results for the half year ended 4 July 2009.
In the first half of the year, Glanbia’s trading environment was impacted by the downturn in the global economy and consumer confidence. This resulted in a sharp decline in international dairy prices leading to a dramatic reduction in dairy product returns. In addition, low US cheese prices were at historical lows despite stable US domestic demand.
Glanbia’s growth strategy has been successful in developing a more diversified earnings base and building a portfolio of higher margin businesses, thereby reducing earnings exposure to commodity dairy markets. This is supported throughout the group by a strong focus on operational excellence and cost management. As a result, while unprecedented market conditions have led to a loss of earnings momentum for the half and full year, many aspects of the group delivered reasonable performances despite a challenging trading environment.
In the first half of 2009, the group results were primarily impacted by the performance of Dairy Ingredients. This business, which is substantially exposed to international dairy commodity markets, became loss-making in the first half of the year as the magnitude and pace of the decline in global dairy markets created an environment where milk price was maintained above market returns.
Group revenue declined 14.6% to €944.9m (HY 2008: €1,106.2m). Operating profit pre exceptional declined 15.4% to €47.8m (HY 2008: €56.5m). Operating margins were maintained at 5.1% (HY 2008: 5.1%). The highlight is the strong growth in margins in the US Cheese & Global Nutritionals business segment, which increased by 380 basis points to 11.2%. Group operating margins were also supported by the benefits of recent cost saving and rationalisation programmes.
Glanbia group MD, John Moloney, said: “A growing contribution from higher margin businesses and a strategic cost reduction programme have enabled us to counterbalance unprecedented market circumstances and deliver a reasonable set of results despite a substantial first-time loss in Irish Dairy Ingredients.
“It has been, without doubt, a difficult six months. The sustained downturn in the global economy led to weakening consumer confidence. In addition, international dairy prices were sharply down on 2008 resulting in a dramatic reduction in dairy product returns and US cheese prices reached historic lows. The expected impact of these challenges led to a revision of earnings guidance for the full year. While we remain cautious in our outlook today, we expect the overall rate of decline to moderate in the second half. Earnings guidance for the full year is unchanged, with full-year adjusted earnings expected to be 30–32 cents per share.
“We’re pleased with the excellent operational performance throughout the group and the success to date of a major cost-saving programme, and we remain confident in the businesses that are central to our growth strategy.”
Results summary
- Despite difficult market conditions, the group operating margin was maintained at 5.1%.
- The group and Dairy Ireland segment results were severely impacted by a significant loss at Irish Dairy Ingredients. In the same segment, Consumer Products achieved an improvement in operating profit and operating margin mainly as a result of the implementation of a major cost reduction programme, while Agribusiness had a weaker performance given the decline in farm incomes in the first half.
- Margins for the US Cheese and Global Nutritionals segment grew 380 basis points to 11.2%, benefiting from the acquisition of Optimum Nutrition and the maintenance of margins in the underlying businesses. In particular, a good performance by Global Nutritionals more than offset the effect of historically low US cheese prices.
- The performance of Joint Ventures & Associates was lower despite a good result by Southwest Cheese in the context of lower market pricing and a particularly strong first half last year. Glanbia Cheese in the UK marginally disimproved as selling prices reduced at a faster pace than raw material costs. Nutricima was also down due to an inability to recover higher priced raw material costs in the market.
- A €100m increase in financing facilities was finalised in the first half.
- The group’s pension deficit now amounts to €200.3m. A strategic review of the funding deficit in the group’s Irish Pension Scheme is under way.
- The half year dividend is to be increased by 5% to 2.89 cents per share.
Source: Glanbia
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