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Despite ‘headwinds’ Glanbia could hit acquisition trail again in 2012, analyst

By Ben Bouckley , 16-Nov-2011

John Moloney, Group MD Glanbia
John Moloney, Group MD Glanbia

Irish dairy ingredients and cheese manufacturer Glanbia could be on the look-out for acquisitions again in 2012, according to an analyst based in the country.

The company recorded total revenue growth of 28 per cent in the first 10 months of the year to October 31 2011 (compared to the same period of 2010), but MD John Moloney (pictured) pointed to “macro-economic uncertainty” at the end of this year.

Analysts were impressed by Glanbia’s strong performance in the first half (H1) of 2011, and today the firm reported growth in H2 within Cheese and Nutritionals (35 per cent) and Dairy Ireland (23 per cent).

Moloney added: “We are investing further in our growth strategy and continue to build a good science-based product innovation pipeline. [But] year-on-year we are experiencing some margin contraction principally centred on the impact of the significant increase in whey input costs on Performance Nutrition.”

“As we exit 2011, there are some headwinds and global macro-economic uncertainty to contend with, but we are confident of a strong full-year outcome.

Further acquisitions planned

Joe Gill from Dublin-based Bloxham Stockbrokers wrote in a note this morning: “Development spend this year totals €130m, of which €104m was expended on [Florida-based company] Bio-Engineered Supplements and Nutrition (BSN).”

He added: “Assuming 2011 ends in line with this IMS, we expect the group to be on the acquisition trail again in 2012.”

Glanbia noted that global demand for dairy products had fallen in recent months, while product prices had also come down as a result of continued global growth in milk production.

But underlying group revenues were up 10 per cent on 2010, the company said, driven primarily by Global Nutritionals and Dairy Ingredients Ireland.

“Market demand is very good across all sectors of global nutritionals. Strong global demand for high protein whey, combined with limited growth in supply in the short-term, has resulted in a market imbalance, leading to significant whey price increases in recent months.”

Glanbia warned that the “key performance challenge” within Global Nutritionals was the management of increased raw material costs within Performance Nutrition, with margins under pressure despite trade price increases.

Higher product prices

The company said that higher product prices and an enhanced product mix contributed 13 per cent to the revenue increase, while 5 per cent related to acquisitions (and mainly BSN) during the period.

Domestic demand in the US for cheese had been “relatively soft” as prices higher than historic averages hit consumers, Glanbia said, although overall demand was stable due to a growth in exports.

But higher prices meant that US cheese revenues were up 35 per cent year-on-year, Glanbia said, although gains were offset by higher milk costs for the firm, meaning it expected full-year results in this segment to be in line with 2010.

And despite 23 per cent revenue growth within Dairy Ireland, Glanbia said that the current trading environment for dairy ingredients reflected lower market prices and a contracting milk supply due to current EU production quota limits that fed into lower market activity in H2.

Within Irish consumer products, Glanbia said it expected a year-on-year decline in performance, as it continued to address “very challenging food retailing market conditions” with revenue broadly flat compared with 2010 and margins squeezed.

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