Irish food group Glanbia has reported its results for the half year ended July 4th 2009. Pre-tax profits, before exceptionals, of €38m, was down 28% from the €53m in the same period in 2008.
Revenues dropped by 14.6% to €944.9m from €1.1 billion.
John Moloney, group managing director, said: "A growing contribution from higher margin businesses and a strategic cost reduction programme have enabled us to counterbalance unprecedented market circumstances and deliver a reasonable set of results despite a very substantial first time loss in Irish Dairy Ingredients.
It has been, without doubt, a difficult six months. The sustained downturn in the global economy led to weakening consumer confidence. In addition, international dairy prices were sharply down on 2008 resulting in a dramatic reduction in dairy product returns and US cheese prices reached historic lows. The expected impact of these challenges led to a revision of earnings guidance for the full year. While we remain cautious in our outlook today, we expect the overall rate of decline to moderate in the second half. Earnings guidance for the full year is unchanged with full year adjusted earnings expected to be 30 to 32 cents per share.
We are pleased with the excellent operational performance throughout the Group and the success to date of a major cost saving programme and we remain confident in the businesses that are central to our growth strategy."
Davy analyst John O'Reilly commented: "Glanbia can justifiably claim to have delivered a reasonable first-half result given the impact that global dairy markets had on its Irish dairy ingredient activity (which we estimate may have recorded an operating loss of some €15m in the period, a near-€20m turnaround year-on-year). Consumer Foods Ireland performed well in a very challenging environment.
But this loss, which diminished the operating profit of its Irish operating activities (dairy ingredients, consumer foods and agribusiness) to €5.9m (1.1% margin) from €25.7m (3.8% margin) the previous year, critically serves to highlight the quality of these (overseas) activities (subsidiaries and joint ventures) which have been the strategic focus of management.
These are its US cheese and global nutritional activities. Here, operating profit grew by 52.7% yoy to €44.9m from €29.4m the previous year. Operating margin rose by 380bps to 11.2%. This growth was fuelled, but not exclusively caused, by a first- time contribution from Optimum Nutrition. The divisional result demonstrates that its US cheese business is margin stable (although it does lose some cash margin on cheese price downswing), that Optimum is growing despite the US consumer downturn and that high-end whey nutrition is still exhibiting good organic growth. This is perhaps the key take-out from the interim result statement – even more significant than re-confirmed earnings guidance for the full year (range 30-32c). This is a quality activity.
A decline in operating profit in joint ventures (€6.3m from €12.1m) in large part stems from a change in the yoy intra-year distribution of operating profit at Southwest cheese. It had a very strong H1 the previous year on foot of a change in its region's milk pricing formula. Nigeria nutrition, in loss in H1, should move to operating profit in H2 as historic high raw material costs are worked through and volumes rise with its new UHT plant. We believe that these are important growth drivers.
Other activities (property Ireland and a Mexican dairy blending facility) recorded an operating loss in H1 of €3m (€1.4m operating profit the previous year).
Overall, the interim result – as regards direction – was as foreshadowed in recent management updates, although the actual EPS out-turn (12.4c compared with 15.74c) was ahead of our expectations (as was group operating profit).
We are maintaining existing forecasts. We continue to rate the stock 'outperform' for the quality of its nutrition and joint venture activities and the upside (indeed loss avoidance) potential of its Irish ingredients activity."
Results detail
