Total group profit at Glanbia down 14.5% in first half of year

The imposition of trade tariffs around the world could cause disruption to dairy prices and affect growth objectives Glanbia laid out in May, its finance director said on Thursday.

The global nutrition group wants to boost revenues by over a third to €5 billion by 2022 and target average earnings per share (EPS) growth of 5-10 perc ent on a constant currency basis through that period.

However it noted in its interim results that further trade tariffs may negatively impact its five-year growth plan.

“The area that we are looking at quite closely is what is happening on the global trade front, particularly with discussions around tariffs etc, that could cause some disruption [to dairy prices],” said Mark Garvey.

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“At this point, we’d say dairy prices are relatively stable and we’d see that for the next number of months with an eye on the impact on global trade.”

While Garvey said Glanbia’s primary exposure to tariff risks was through dairy prices, some of its products had already been affected by the imposition of specific duties. He highlighted trade that one of its joint ventures carries out from the United States to Mexico and sales to China via its ingredients business as areas Glanbia is monitoring closely.

“For some products, not very material at this point, we have seen tariffs come in. As those kicked in from July, we talked to customers and suppliers and were able to mitigate them,” said Garvey.

Total group profit fell by 14.5 per cent during the first half of 2018 compared with the same period last year, the company’s interim results show.

Headquartered in Co Kilkenny, Glanbia is a global nutrition group that takes ingredients including milk, whey and grains to produce nutritional ingredients and branded consumer products.

It employs more than 6,600 people across 32 countries and its products are sold or distributed in more than 130 states. It has an annual turnover of €2.4 billion.

The food group said profits fell from €114.9 million during the first half of 2017 to €98.2 million during the first six months of this year.

Revenue from continuing operations was €1.1 billion, which was a year-on-year increase of 3.6 per cent.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations amounted to €123.7 million, which was down 7.3 per cent.

Glanbia managing director Siobhán Talbot told The Irish Times the drop in profit was expected as the company has weighted its growth towards the second half of the year.

Margin contraction

“The shape of 2018 is very much as we expected, with our growth coming in the second half,” she said. “We are reaffirming our guidance for the full year of 5-8 per cent.Within our nutritionals business, we made a conscious business decision to have some margin contraction because we know we have a very significant input cost benefit coming through in that business in the second half of the year.

“That’s because we buy a lot of high-end wheys. We have those locked in now for the rest of the year. We always knew it was going to be second-half weighted, but we were investing in brand and promotional activity during the first half of the year.”

On a pro-forma basis, excluding the impact of discontinued operations, adjusted earnings per share from continuing operations was 38.83 cent. This was a decrease on the previous year of 7.1 per cent.

The company’s total investment in capital expenditure was €25.9 million in the first half of 2018, of which €18.9 million was strategic investment.

The key strategic project completed in the period was the installation of new lines to produce ready-to-eat products in Glanbia’s performance nutrition section. It expects to invest a total of €65 million to €75 million in capital expenditure in 2018.

“We continue to drive volume momentum with 5.7 per cent growth in the first half and reiterate guidance for full year volume growth in the key portfolios of Glanbia performance nutrition and Glanbia nutritional solutions in the mid-to-high single digit range,” Ms Talbot said.

“If the average euro-US dollar exchange rate remains at current levels for the remainder of 2018, Glanbia expects the full year 2018 reported pro-forma adjusted earnings per share growth from continuing operations to be approximately 5 per cent lower than the constant currency result,” she said.

An analyst with Davy said Glanbia’s performance “reflects a period of intense product and channel investment against a backdrop of softer dairy markets”.

“Good volume growth was achieved across both core platforms, with full-year volume targets being reconfirmed,” he said, adding that Davy anticipates “a modest upward revision” to its full year forecast for the company.

Separately, an analyst with Goodbody said the stockbroker was “unlikely to change” its 5-6 per cent constant earnings per share forecast, but noted that “performance remains heavily skewed” to the second half of the year.