Glanbia focusing on growing nutrition units after separating dairy business

Glanbia focusing on growing nutrition units after separating dairy business

Glanbia has announced plans to form a joint venture for its dairy business in Ireland as the group booked higher sales and earnings for 2016. 

The company has signed a memorandum of understanding to sell 60% of its Irish dairy division to Glanbia Co-operative Society Ltd. The co-op is the largest investor in Glanbia.

Under the proposed transaction, the business will be integrated with the existing Glanbia Ingredients Ireland venture between the two companies. Glanbia Co-operative Society acquired 60% of Glanbia's domestic ingredients business - which became Glanbia Ingredients Ireland - in 2012

The new entity, now containing Glanbia Ingredients Ireland and now Glanbia's domestic dairy arm, will be renamed Glanbia Ireland. Glanbia plc will retain a 40% stake in the new business.

The total enterprise value agreed for Glanbia's Irish dairy business is approximately EUR340m (US$357.4m), including the assumption of pension liabilities. The new venture plans to invest EUR250-300m between 2017 and 2020 to increase processing capacity and "drive value", Glanbia said. 

During 2016, Glanbia said its dairy business in Ireland, which includes the Avonmore brand, saw sales fall 2.7% to EUR616.2m. In contrast, the group's performance nutrition unit increased revenue by 9.4%, to EUR1bn, while nutritionals sales increased by 0.5% to EUR1.2bn. On a group-wide basis, Glanbia said sales rose to EUR2.85bn compared to EUR2.77bn in 2015. 

During 2016, Glanbia was also able to expand its operating profit to EUR248m, versus EUR213.5m in 2015 as the company lapped certain exceptional items. Net profit attributable to Glanbia increased from EUR183.9m to EUR211.8m in 2016. 

Looking to 2017, Glanbia said the spin-off of its Irish dairy business will mean growth is more evenly distributed between its remaining operating units. 

"Growth in 2017 is expected to be more evenly balanced across Glanbia Performance Nutrition and Glanbia Nutritionals," the company noted. "GPN growth will be driven by organic brand development and innovation as well as a contribution from recent acquisitions. GPN expects like-for-like branded revenues to grow in the mid-single digit range with EBITA margins expected to be in the mid-teen range. GN expects EBITA growth in 2017 to be driven by continued growth in the value added portfolio of nutritional solutions." 

The company is growing its performance nutrition unit through acquisitions including the recently-announced purchases of plant-based nutrition groups Amazing Grass in the US and direct-to-consumer distributor Body & Fit in the Netherlands.

Group MD Siobhán Talbot said Glanbia's reorganisation "demonstrate[s] a desire to play to our strategic strengths" and is "aligned to our vision to be one of the world's top performing nutrition companies".

Martin Deboo, an analyst covering Glanbia for investment bank Jefferies, described the multiple on the company's "semi-exit" from the Irish dairy sector was "more than decent".

Jack Gorman, an analyst at Ireland-based stockbrokers Davy, added: "The transaction is 5-7% dilutive in a full year. The coincident initiative to sell 60% of the Dairy Ireland division to Glanbia Co-Op Society Ltd would, if approved and completed, mark another step in the refocusing of the group towards its two growth engines, Glanbia Performance Nutrition and Glanbia Nutritionals. While consolidating the management of the Irish assets into a more aligned structure, it would also offer the potential to release capital to support its international ambitions."