FOOD GROUP Glanbia has issued a profit warning following a deterioration in global dairy markets which will lead to a loss at its Food Ingredients Ireland division.
The Iseq-listed company said yesterday it now expected to return adjusted earnings per share (eps) of 30-32 cent for 2009, lower than the current market expectations of 36-37 cent.
In a statement Glanbia said Food Ingredients Ireland, a business that was previously forecast to break even in 2009, was suffering because milk prices remained above market returns and above a level at which the business unit could break even.
Glanbia recently cut the price it pays to farmers by 3.7c to 20c per litre, a move that aroused anger among farmers as it took the price for their milk further below the cost of production, estimated by Teagasc to be around 27c per litre.
The company said to achieve break-even for its food ingredients unit it would have to pay no more than 18c per litre but was willing to take a “significant” loss on this in the short-term in order to “help maintain its Irish dairy supply and trading base”.
“In the belief that dairy markets appear to have reached the bottom, and with some recovery in markets anticipated in late-2009, Glanbia has decided to sustain this manufacturing milk price position,” the company said.
Earlier this month, Richard Kennedy from the Irish Farmers Association dairy committee warned that Glanbia’s 20c per litre price was unsustainable, and if viable incomes could not be made from milk production it would threaten the existence of Glanbia’s milk-processing operations.
Yesterday, Glanbia said it had committed to make available a fund of €8 million to milk suppliers. The money can be drawn down by way of a loan in 2009 and repaid over a three-year period.
The decline in farmers’ purchasing power will also have a knock-on effect on revenues in Glanbia’s agribusiness unit.
“These are difficult times for the global dairy sector with market prices at historic lows,” said group managing director John Moloney.
Glanbia’s share price fell 6.4 per cent to €2.19 yesterday, closing down 15 cent.
