Glanbia upbeat on sale of Irish operations

Glanbia upbeat on sale of Irish operations

Glanbia today (10 March) insisted that the sale of its Irish dairy ingredients, consumer products and agribusiness units would be a “win-win” deal.

The company posted a steep fall in revenues and profits during 2009, as weakness at its Irish units offset gains at its international businesses, finance chief Siobhan Talbot said.

Glambia revealed that pre-tax profits fell 19% to EUR97.4m (US$132.6m), while revenues declined by 18% to EUR1.83bn.

Speaking to analysts during a conference call, Talbot added that while operating margin was up 10 basis points, margin expansion at its US cheese business was also offset by a decline in dairy Ireland.

Glanbia posted a loss in dairy ingredients, the bulk of which fell in the first half of the year. Its Irish consumer business faced “challenging” conditions in Ireland and the agribusiness was hit by the steep decline witnessed in farm incomes, Talbot said. 

Collectively, these units saw EBITDA slide 35% to EUR45.2m last year, the company revealed.

Nevertheless, despite the weak performance of the Irish businesses, Glanbia's management insisted that Glanbia Co-operative Society – the company's largest shareholder and bidder for Glanbia's Irish unit – would be well positioned to benefit from the potential deal.

“It is important to put this in a context that the co-operative, representing its members - farmers who produce milk, who produce grain - are now operating in a Common Agricultural Policy framework that has changed significantly over the past 20 years," MD John Moloney said.

"The quota regime is about to go and world of dairy in Europe has changed. Therefore if the Cooperative were to pursue this transaction it would place ownership of the assets most relevant to the Cooperative in their control,” group MD John Moloney said.

A spokesperson for Glanbia added that it would give the Cooperative “more control and influence” over the businesses that “really matter” to the group's farmer-shareholders.

While the sale would see Glanbia divest one of Ireland's largest dairy processors and a farm supply businesses – operations around which the business was originally built – it would allow the group to focus on its higher-margin US cheese and nutritionals operations.

The sale would also provide Glanbia with additional capital, which could then be invested in driving growth at its remaining units, Moloney revealed.

“The sale would increase financial flexibility to enhance a well established international growth strategy,” he commented.

Moloney said that the company would look to acquire bolt-on acquisitions that provide necessary scale in speciality US cheese segments. However, he emphasised that the company's “first port of call” for investment would be the nutritionals unit.

Commenting on the results, Goodbody Stockbrokers analyst Liam Igoe said that Glambia's performance was “in-line” with expectations.

"We expect that the market will view these as a strong set of results and anticipate a positive share price performance, driven by the positives attributable to the disposal of the Irish Dairy business," he wrote in a research note.

However, the reaction of the market has been mixed. After an early surge of 5%, Glanbia shares dropped 1.82% to EUR2.55 at 4.10 pm today.