The Glanbia Ingredients facility in Virginia, County Cavan, Ireland

Irish Food group Glanbia today reported pre-tax profits of over €100m for 2008, which included one-off charges linked to restructuring costs and the company's exit from the pigmeat business. Excluding exceptional items, pre-tax profits showed an increase of almost 21% to €120.3m. Revenue was almost flat at just over €2.2 billion and adjusted earnings per share increased by 18.5% to 35.86 cent.

Glanbia also announced today, that Geoff Meagher, Deputy Group Managing Director and Group Finance Director, will retire from his executive roles and from the Board of Glanbia on 30 June, 2009, having reached normal retirement age.  

Siobhan Talbot, who is currently Deputy Group Finance Director, is appointed Group Finance Director Designate with immediate effect and will succeed Meagher. 

Talbot, aged 45, is a Chartered Accountant who has been with the Group since 1992. She was appointed Deputy Group Finance Director in June 2005 and prior to that held a number of senior positions including Group Secretary and Group Operations Controller.

John Moloney, Group Managing Director, said:"Glanbia performed well in 2008, delivering a good set of results, completing a major strategic acquisition and achieving key financial targets. All businesses, including joint ventures, performed to or better than anticipated, with the exception of Food Ingredients Ireland which suffered a sharp decline in profits and margins in 2008.

2009 will be a tough year. Global dairy markets have weakened considerably from previous high levels with the outlook for 2009 deteriorating further in the last two months. Food Ingredients Ireland will be the most challenged in this context and we expect this business to breakeven this year. Food Ingredients USA is expected to deliver a resilient performance, albeit down when compared with a strong result in 2008. Reducing farm incomes will have implications for farm input sales and as a result for revenue and profits in Agribusiness.  Consumer Foods, Nutritionals and Joint Ventures & Associates are expected to deliver robust performances. 

Based on current market conditions, the Group now expects 2009 earnings to be in a range of low to mid single digit growth. Glanbia is continuing to maximise organic growth opportunities and aggressively manage costs to sustain the business through the current challenging environment."

Davy analyst John O'Reilly, comments today: "The ink was hardly dry on a record FY2008 result (which the company flagged in a trading update on January 13th) before Glanbia has had to assess the impact of what has since been a very depressed and volatile milk products sector. The particular challenge may be Irish ingredients, which since H2 last year has had to cope with rapidly declining market returns.

As we indicated in a comment on the dairy sector last week, the entire Irish milk sector (producers and dairy processors) faces 30-year lows in returns. There is some risk that milk price reductions may fall short of market returns. Across the Atlantic, US prices are hitting a similar period low. However, Glanbia's US cheese business is much better protected from a margin squeeze than Irish ingredients because changes in the milk price there are much faster than in Ireland due to the milk-cheese price formula it operates. In addition, there is a shorter lead-time on cheese sales. But a ratchet down in prices — such as is now happening with US cheese prices, at just below support levels — does squeeze margin somewhat. Last year, in comparison, with cheese prices hitting record levels, there was incremental margin. The formula works in such a way that there are only modest gains, or reductions, in normal margin. But with inter-year prices moving in opposite directions, at this time one must factor in some potential slippage in the US cheese margin this year. But, just to repeat, there will be no wild swing here.

On the plus side, there are lower energy and other input costs, savings from rationalisation, a likely better performance from joint ventures (Nigeria will benefit from lower milk powder material costs) and a better year-on-year dollar rate. But Glanbia has acknowledged the risk to its existing guidance posed by potentially negative factors, chiefly Irish ingredients. It is guiding EPS for the current year in low-to-mid-single digits. We are now forecasting EPS of 37.2c (39.7c existing). For FY2010, we are forecasting 39.6c (42.9c existing). These are forecast rates of increase of 3.8% and 6.5% respectively.

Inevitably, lower current-year guidance will deflect from last year's record achievement, which occurred despite a margin-pressured H2 for Irish ingredients — represented in the international division. The FY2008 highlights were: group operating profit (pre-exceptionals) + 15.7% to €134m; international operating profit (pre-exceptionals) -2.9% to €82.7m; Ireland operating profit (pre- exceptionals) +67% to €51.3m; joint ventures' share of after-tax profit €7.3m, from €1m; and adjusted EPS +18.5% to 35.85c.

Like-for-like sales growth In FY2008 was 8%. In terms of strategy, which is a twin-track growth overseas in cheese, food ingredients and whey-based nutritionals, it was a very good year. Food ingredients saw a strong performance — helped by record cheese prices, good demand and very good production — generating record revenues and positive margin expansion. Nutritionals had a very good year too, driven by strong organic volume growth, buoyant value-added whey markets and a continued good performance in pre-mixes (Seltzer). Optimum Nutrition made a first time, five-month contribution in line with expectations.

Not to be overlooked was the sharp rebound in profit in the Irish division, where a combination of rationalisation, improved milk product margin and a satisfactory out-turn in agribusiness all contributed.

Glanbia is progressively much less exposed to dairy commodity markets than in the past. These have been especially volatile over the past three years. Its exposure here should not obstruct appreciation of its strategic progress in nutritionals, the rewards of which are still at an early stage."