March 1, 2012

 

Glanbia studies dairy development to exploit EU reform 

 

 

Glanbia revealed that it will be studying expansion in dairy as it forecast a drop in milk prices this year with a slowdown in profits growth.

 

The Irish-based farm retail-to-ingredients group said that it was investigating "possible options for expansion of dairy processing" in its home country, to exploit a change in regulation.

 

Ireland, with its pasture growth supported by a wet climate, "has a range of competitive characteristics" to succeed in growing milk production when the EU ditches output quotas in 2015, Glanbia said.

 

Indeed, the country's dairy industry has a "unique opportunity" for expansion.

 

The group was "reviewing the implications of the potential expansion of its supply base" when after quotas lapse.

  

The comments come the day after Trigon Agri, the Russian farm operator, revealed plans to become the top milk producer in both Europe and the former Soviet Union.

 

Singapore-based cashews-to-wheat group, Olam International, has unveiled plans for expansion in Russian milk production, while in Brazil, JBS announced the spin-off of its dairy unit to boost the business's growth prospects.

 

This news came amid dairy price falls which Glanbia forecast were set to continue, given strong growth in world milk production, while demand remains constrained by weak economic growth.

 

"The current view on global dairy market performance is that prices will soften further in the first half of 2012, relative to the second half of 2011," the group said.

 

"The second half of 2012 is forecast to be moderately weaker again."

 

However, it expected "critical" import markets, such as China, Russia and South East Asia "to remain solid throughout 2012, limiting market volatility".

 

The long-term outlook for dairy markets was "positive, driven by rising income levels in developing economies".

 

The group's "opportunity now is to build a post-2015 model for dairy processing, which is sustainable for the long-term", Glanbia said, signalling that this also meant a "review" of the group's ties to the Glanbia Co-operative Society, its main shareholder.

 

The co-operative's 8,000 members, mainly farmers, two years ago voted down a scheme to buy Glanbia's Irish dairy business, but lose control over the whole group plans which had sent the company's shares soaring.

 

Glanbia's Irish business, including consumer foods and farm retailing, saw underlying operating profit soar 23% to EUR53.6 million (US$71 million) last year, on revenues up 18.9% at EUR1.35 billion (US$1.8 billion).

 

The US cheese business, and the global nutritionals arm aimed at exploiting the surging demand for sports drinks and protein supplements, achieved combined operating profits of EUR 108.0 million (US$144 million), a 115.1% rise, on revenues up 29% at EUR1.32 billion (US$1.8 billion).

 

Group operating profits rose 17.9% to EUR161.0 million (US$215 million), with underlying earnings per share, also adjusted for currency movement, rising 27% to EUR48.22 (US$64.32).

 

John Moloney, the Glanbia managing director, forecast that earnings per share growth would slow to 5-7% this year, given an "operating environment more challenging than in recent years", with economic uncertainty having the potential "to impact global dairy markets and fragile consumer confidence".

 

Nonetheless, Glanbia shares stood 4.6% higher at EUR5.57 (US$7.43) in lunchtime trade in Dublin, having earlier touched an all-time high of EUR5.58 (US$7.44).