Glanbia shares fall as director decides to quit

Shareholders in Glanbia have been dealt another severe blow with the decision of group managing director Mr Ned Sullivan to leave next June, after just three years with the troubled foods company. News of Mr Sullivan's departure resulted in Glanbia shares falling to a new low of 50 cents before they closed down four cents on €0.53.

Speaking to The Irish Times, Mr Sullivan vehemently rejected suggestions that he had become tired of "fire-fighting" at Glanbia over the past two years. He said he expected Glanbia to have turned the corner by the time he left next June. He will be replaced by Mr John Moloney, currently head of Glanbia's food ingredients division.

"Clearly there are a lot of short-term issues which we are addressing and a lot is going to happen before next June. I'm confident that the building blocks for recovery will be in train by then. Most of our business units are doing well, but some in the UK are doing very poorly and this is being addressed. "I hope to leave Glanbia in better financial shape and clearly the debt is a big factor in that." He added that it was important there was a smooth transition to his successor and for that reason he would remain as managing director until June and non-executive director until the end of next year.

Since Mr Sullivan took over from Mr Pat O'Neill as group managing director in mid-1998, Glanbia shares have collapsed, triggered by a succession of bad news, profit warnings and difficult market conditions. Since he took over as managing director, Glanbia shares have fallen from around €3.50 to yesterday's intra-day low of €0.50 before they finally closed on €0.53.

It is a long way from the time 2 1/2 years ago when Mr O'Neill suggested that Glanbia would have to embark on £200 million-plus acquisitions in the UK if it was ever to become a serious player in the British food industry. Rather than becoming a major player in the UK, Mr Sullivan's strategy has been to extricate Glanbia from the British market where it was constantly under pressure, not only from its own competitors but also from the major supermarket multiples.

The merger between Avon more and Waterford aimed to create an Irish foods giant which would have sales of £2.5 billion, operating profits of more than £100 million and a huge cash flow that would allow the group to speedily pay down debt. Mr Sullivan insisted yesterday that the rationale behind the merger had been sound but that the merged company had been overtaken by major changes in its main markets.

In 1996, before the two companies merged they reported combined profits of €114 million (£90 million). In 1999, those profits had fallen to €58.5 million (£46 million). Pre-tax profits of £60 million in 1997 were turned into a loss of £109 million because of rationalisation and restructuring charges.

The commitment in the merger agreement to pay a 3p premium for its milk was one factor behind the difficulties that engulfed Glanbia in the past. But industry sources believe fundamental changes in the British dairy and meat industry are the main reasons for Glanbia's demise.

The situation in the UK has deteriorated further and there is a belief in the markets that Glanbia will sell its food service and pigmeat businesses in the UK, despite protestations last month that the pigmeat business is not for sale.

Market sources believe that given the scale of its debt, Glanbia has little option but to adopt a policy of retrenchment given the size of its debt burden. Company broker Davy estimates end-2000 debt of almost €335 million compared to shareholders' funds of just €133.4 million. That produces a debt/equity ratio of over 250 per cent with interest charges covered just 3.4 times by operating profits.