International
Markets: Glanbia reports 13% revenue rise in H1 2013; Emerging markets at six-week lows
By Finfacts Team
Aug 21, 2013 - 3:33 PM

Bloomberg reports that emerging-market stocks dropped to a six-week low before the release of minutes of the Federal Reserve’s July meeting. India’s rupee extended falls to a record low, while Turkey’s lira pared losses after the central bank said it would tighten monetary policy.

India’s S&P BSE Sensex Index slumped for a fourth day to the lowest since Sept. 11, while the rupee weakened 1.3% against the dollar. The lira slipped 0.4% after sliding as much as 0.9%, while the benchmark equity gauge headed for a two-month low. Indonesian stocks rebounded after sliding 11% in the previous four days.

The MSCI Emerging Markets Index slid 0.6% to 926.48 at 2:02 p.m. in London, its fifth day of declines.

Malaysia today cut its forecast for growth this year after second-quarter growth missed estimates. The economy may expand 4.5% to 5% in 2013, from a previous prediction of as much as 6%, the central bank said in Kuala Lumpur today. Gross domestic product rose 4.3% last quarter from a year earlier, after gaining 4.1% in the previous period, it said.

Glanbia, the Irish food group, today reported a first half of the year revenue rise by 13% to almost €1.68bn.

Pre-tax profits for the six months to the end of June increased to €95m from €88m the same time last year.

Glanbia's Dairy Ireland division reported  a rise in saw revenue but earnings dropped, which the company blamed on lower volumes and higher milk input costs.

John Moloney, group managing director, said: “The group’s first half performance was driven by Global Performance Nutrition and Global Ingredients.  These two business segments now represent over 70% of Group EBITA and are our core platforms for  future growth. We expect little change in the external operating environment in the second half and with clear challenges remaining in Dairy Ireland we are maintaining our 2013 full year guidance of adjusted  earnings per share growth of between 8% and 10%, on a constant currency basis. Our recently announced management changes put in place an excellent team to continue to drive the business forward and to evolve the long term strategy that will deliver the next phase of growth. Overall, Glanbia is in a strong position to capitalise on its unique portfolio of global businesses, development opportunities and strong balance sheet.”

Results detail

Glanbia Nutritionals strong, Ireland weak, 2% FX headwinds in H2: Robert Eason of Goodbody comments - - "Glanbia reported a 10.6% rise in adjusted eps for H113. Much of the variance versus our 13% forecast can be attributed to the larger fall in Dairy Ireland profits (when adjusted for re-statement) but most trends were as expected. Global Performance Nutrition increased profits by 18.3% driven by a near 13% increase in volumes combined with a 50bps margin improvement. Profits would have been higher again except for the fact that the benefits of lower high-end whey prices will not be felt until H2. Branded volumes were up 20%+.

Its B2B businesses saw a 6% rise in profits. Underlying volume growth was 7% while pricing / mix added another 6%, Aseptic Solutions +4% offset by a 90bps margin fall. This was due to the decline in whey prices (which impacts profits here immediately, whereas GPN’s impact is lagged as old higher-priced whey stock gets used first). We believe Premix was slightly ahead in H1 as was Cheese.

The fall in Irish profits was worse than we had forecast with the decline driven, as expected, by lower volumes and higher input (i.e. milk) costs in the Consumer Products area. The underlying position within Consumer Products was actually worse than the headline 24% fall when the fact that the agribusiness did well in H1 is taken into account.

Trends are expected to be broadly similar, though perhaps accentuated, into H2. Global Performance Nutrition margins should strengthen, Ingredient Technologies weaken further while Premix Ingredients should return to solid growth. Elsewhere Associates will contract somewhat while Ireland remains very tough.

EPS guidance is being maintained by Glanbia at 8-10% on a constant FX basis. We currently forecast 10% (continuing) eps growth on the assumption of a similar dollar rate in FY13 as in FY12. Adjusting for recent euro strength, we expect to cut our euro based eps to c.8%, though the underlying divisional assumptions are unlikely to alter significantly (Ireland a bit lower but Nutritionals higher)."

Economic View: Euro at high end of a tight range: Dermot O'Leary of Goodbody comments - - "In the four years after the start of the financial crisis in 2008, the euro experienced repeated bouts of weakness followed by appreciation. Over that period, the euro moved in a wide range between $1.20 and $1.60 and, relative to sterling, the euro first moved from below 70p to 95p before oscillating in a range of 80p to 90p.

Given this history, moves in currencies over the past twelve months have been relatively minor. Relative to the dollar, the euro reached a high of $1.36 at the beginning of the year but didn’t fall below $1.28 (currently $1.33). The currency has been even more stable relative to sterling, moving in a very tight range around 85p (currently 85p).

An easing, firstly of the financial crisis, and then the euro area sovereign crisis, has undoubtedly played a role in reducing currency volatility. However, despite the improvement in the euro area data in Q2, the relative strength of the euro is not justified by growth differences between the developed economies. Instead, the more aggressive quantitative easing policies of the Federal Reserve and the Bank of England have managed to maintain their currencies at relatively depressed levels. But where does the euro go from here?

While there have been signs of improvement across the developed economies of late, the euro area, with 12% unemployment, has a lot further to travel to return to full employment and thus see inflation pressures emerge once more. The more hawkish members of the ECB Governing Council will continue to warn of the risks of inflation, but these are unlikely to materialise in the foreseeable future. While we do not see major currency moves in prospect, with Fed tapering coming and growth strengthening in the UK, the euro should weaken over the coming months."

Banks: Investec enter Irish mortgage market; Eamonn Hughes and Colm Foley comment -- "Press reports this morning (Irish Independent) indicate that Investec is set to enter the Irish mortgage market. The bank will offer variable mortgage rates and will source new business through intermediaries and hopes to be up and running by year end. The initial focus will be on the Dublin market.

The bank has a fund of about €250-350m, which at current activity levels would equate to around 8-10% of the new business market. However, it is unclear if this is the full mortgage pool as we note its focus in the UK on professional mortgages, which may indicate a more targeted approach to its new Irish business in due course. In the UK, Investec offers “professional mortgages” which it says are mortgages for business professionals, qualified professionals and entrepreneurs with sophisticated financial circumstances. Investec considers qualified professionals to be qualified in one of the following; accountant, actuary, architect, barrister, dentist, medical practitioner, optometrist, pharmacist, pilot, solicitor, surveyor and veterinarian, with a minimum income of £50,000. A business professional works in the following roles; with a minimum annual income of £75,000, director, partner, senior executive, manager, business head and someone with influence over corporate governance.

The target market of Investec in the UK implies a possible preference for a cohort of mainly buy-to-let investors in Ireland. With many of these investors likely to be facing greater financial oversight in recent months, Investec may be well placed to benefit. Any new competition to the market is unlikely to be welcomed by the main banks. However, we suspect the Investec approach may be a more targeted one in due course which is unlikely to materially hamper the profit progression at the main banks."

David McNamara, economist at Davy comments - - "Today's FOMC minutes from its July meeting (19.00) may provide the first firm indication of when the Fed will begin to taper its $85bn a month asset purchase programme. The consensus is that this will begin by year-end, with another positive labour report perhaps the tipping point ahead of the September meeting.
Tapering could begin by year-end

Today's FOMC minutes from its July meeting (19.00) may provide the first firm indication of when the Fed will begin to taper $85bn a month asset purchase programme. Consensus is spilt on when the central bank will begin the process as a flood of good news suggests that the economy is nearing 'escape velocity'. Most expect this process to begin before year-end – perhaps as soon as the end of Q3, with a minority expecting the Fed to hold off until Q1 2014.

While today’s minutes may give an indication of the range of options the FOMC is considering, the key data point ahead of the September 17th meeting will be the employment figures for August on September 6th. The unemployment rate fell to 7.4% form 7.6% in July, and a further fall in August may prompt the Fed to begin tapering by year-end.

Elsewhere, July's UK public finance numbers should reveal that the government is on track to hit its year-end borrowing target of £112bn. July is the second-biggest month for tax revenues and the monthly surplus is expected to rise to £3.5bn from £1.6bn in July 2012."