Is carve up of Glanbia on the cards?

GLANBIA Plc will not be in position to announce its plans on how it will handle the increased milk production after the EU milk quota system ends in 2015 until the end of June. It is currently negotiating the best way forward with Glanbia Co-op which owns 55% of the Plc and others.

GLANBIA Plc will not be in position to announce its plans on how it will handle the increased milk production after the EU milk quota system ends in 2015 until the end of June. It is currently negotiating the best way forward with Glanbia Co-op which owns 55% of the Plc and others.

Attempts to finding a solution on how to proceed, once the limits on how much milk suppliers can produce ends is ongoing and no decision has been made. Key to a successful resolution of the problems associated with it is unlocking the potential in the E1 billion worth of shares that the co-o owns in the Plc.

It is understood that negotiations between the Plc and Co-op are continuing and a second attempt to totally separate the Plc and the co-op may be on the cards with the Irish business for the most part remaining with the co-op which would mean they would have to pay for any new milk processing plant which may or may not be built.

The good news for Glanbia Plc investors at last Wednesday’s AGM in the Newpark Hotel, Kilkenny was that thanks to forward pricing and recession resistance pizza chains and fast food outlets like MacDonalds who use Glanbia ingredients, profits have remained stable and the outlook for the year is good despite worsening trading conditions.

And John Moloney, group managing director of Glanbia Plc blushed when a shareholder described him as Superman during the AGM. James Richardson from Wexford explained that he was a retired farmer and old age pensioner who depended heavily on the dividend from his Glanbia Plc shares. He explained how shares in the company were valued at under 60 cents per share when Mr Moloney took over the company 11 years ago and that they were now worth 570 cents each. He urged all farmers to invest in Glanbia Plc because by doing so they were investing in their own future.

Glanbia’s chairman, Liam Herlihy agreed with Mr Richardson’s assessment and said that he was at a meeting recently where Mr Moloney was described as a haystack of a man.

Unusually, there was a sustained round of applause at the end of the AGM just before everyone was invited to a free lunch in the hotel.

However dairy prices are set to fall further in the short term because of the very mild winters experienced in all milk producing regions of the world over the last eight months, including Ireland. Mr Moloney said that the bottom line was that the group was on course for growth in adjusted earnings of between 5% and 7% for 2012.

“We expect to deliver earnings in the first half of 2012 which are broadly similar to an exceptionally strong first half in 2011. We are successfully driving growth in nutritionals and the depth and strength of the portfolio in these dynamic growth sectors positions Glanbia well for the future. We remain focused on strong cost management and operational execution across the business. We reiterate our full year guidance of 5% to 7% growth in adjusted earnings per share, on a constant currency basis, for 2012,” he said.

He explained that demand for dairy products remained solid in the first three months of the year, supported by demand from developing economies. “Prices for most dairy categories have weakened year to date, mainly due to an oversupply of milk resulting from sustained good weather in most milk producing regions. Similarly US cheese prices have also declined in response to strong US milk production. Robust demand for higher end whey products continues, reflecting very good demand across all sectors of nutritionals, with prices firm in the face of tight short-term supply of these key ingredients,” he said.In the first quarter, to the period end 31 March 2012, total Group revenue (including share of Joint Ventures & Associates) grew 1.9% when compared with the first three months of 2011. Volume was down 1.5% as lower volumes in Dairy Ingredients and Agribusiness more than offset growth in Global Nutritionals. Overall pricing was up 3.4% driven by higher year on year pricing in Global Nutritionals.

US Cheese & Global Nutritionals

Revenue for US Cheese & Global Nutritionals grew 9% in the first three months of the year. Revenue in US Cheese declined as a result of lower US Cheese prices; however volumes were stable in the period. Revenue growth continued in Global Nutritionals driven by both volume growth and the impact of price increases in the Ingredient Technologies and Performance Nutrition businesses. The outlook for the first half for US Cheese & Global Nutritionals is positive with revenue and operating profit expected to increase and operating margins expected to remain broadly in line when compared with the first half of 2011.

Dairy Ireland

Revenue for Dairy Ireland declined 4.6% in the first quarter of 2012. Revenue in Dairy Ingredients was down due largely to lower volumes, in part as a result of on-farm quota supply management but particularly when compared with a strong performance in the prior year. Consumer Products revenue grew in the period as the volume benefits of 2011 acquisitions countered the continued challenges in the Irish food retail environment. Revenue in Agribusiness was down in the first quarter of 2012 with feed and fertilizer volumes lower when compared with a strong first quarter in 2011. The outlook for the first half for Dairy Ireland is that revenue will be broadly in line with the first half of 2011 with somewhat lower operating profit and operating margins as global dairy market prices continue to weaken and there is some lag in related reductions in input costs in Dairy Ingredients

Financing

Rolling 12 month adjusted EBITDA to net debt at 31 March 2012 was 2.4 times which was an improvement on the same period in 2011 of 2.8 times. Current committed debt facilities amount to €985.7 million with €162.6 million maturing in July 2012, €510 million maturing in July 2013, €63.5 million maturing in July 2014 and €249.6 million maturing in June 2021. The Group is currently reviewing its overall financing as part of the normal debt facility renewal cycle.