Glanbia sale could clear way for nutritional acquisitions

By Guy Montague-Jones

- Last updated on GMT

Related tags: Glanbia

Glanbia is expected to make acquisitions in the nutritional ingredients sector if the mooted sale of its Dairy Ireland business goes ahead.

Earlier this week, Glanbia announced that it was in talks with its majority shareholder Glanbia Co-operative Society Ltd about selling Dairy Ireland and other related businesses.

In a regulatory statement, Glanbia said discussions were advancing well although there is no guarantee at this stage that they will result in a transaction.

But if a deal is indeed signed Liam Igoe, an analyst at Goodbody Stockbrokers, said it would be “fundamentally good news”​ for Glanbia Plc.

Igoe told NutraIngredients.com that selling off Dairy Ireland would turn Glanbia into a business that is much more focused on nutrition.

This will have an overnight impact on the margins and profitability of Glanbia.

In its financial results published this week the company revealed that US Cheese & Global Nutritionals delivered an operating margin of 11.4 per cent on revenue totaling €792.4m while Dairy Ireland posted an operating margin of 2.3 per cent from a turnover of €1,028.8m.

Investment capacity

Crucially, Igoe said the sale of Dairy Ireland would substantially strengthen the balance sheet of Glanbia. In addition to a short term gain in proceeds from the sale that analysts predict will be more than €250m, a deal will reduce long-term debt and release working capital at Glanbia.

Igoe explained that the dairy business is very seasonal and therefore puts a strain on working capital (current assets – current liabilities). By disposing of Dairy Ireland, Glanbia will improve its working capital position and therefore improve its borrowing capacity.

Acquisitions

Igoe said a stronger balance sheet will facilitate further expansion of the nutrition business at Glanbia. He said it is very likely that we will see Glanbia pursue acquisitions in the nutrition space over the next couple of years.

John Moloney, the CEO of Glanbia, has already made it clear that acquisitions will be a priority.

These are likely to build on the $315m acquisition of US-based Optimum Nutrition in 2008. In an article in the Irish Independent, Moloney is quoted as saying that the company is eyeing up a pipeline of targets overseas with turnovers in the $120m to $150m range. He added that the priority at Glanbia would be to work around global nutrition.

The sale of Dairy Ireland would also leave Glanbia with a big US cheese business but this segment is not performing as strongly as the nutrition business. In its full year results, Glanbia said revenue in US Cheese & Global Nutritionals was down 6.1 per cent with strong revenue growth in Global Nutrition failing to fully offset significant price reductions in the US cheese markets.

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