Hard year ahead as Glanbia expects customer fall-off

DAIRY GROUP Glanbia warned that 2009 would be a tough year for the business after global demand for dairy products “weakened considerably” last year from their previous high levels and deteriorated further in the last two months.

Group managing director John Moloney said the company would concentrate on paying down debt this year and would not be making any major acquisitions, following the purchase of US sports nutrition firm Optimum Nutrition for €217.9 million last August.

Glanbia, which produces one-third of the milk and cheese in Ireland and is the largest producer of cheddar cheese in the US, said it expected its 2009 earnings growth to be in the range of low to mid-single digits.

The company reported an operating profit (before exceptional items) of €134 million for 2008, up 15.7 per cent on 2007, while its pretax profits came to €98.7 million, up 18.8 per cent on the previous year.

Glanbia recorded an exceptional charge of €14.5 million in relation to rationalisation costs.

It is currently processing 226 redundancies from its Irish business, which will yield savings of €10 million a year.

The company has net debt of €452 million, up €232 million last year, mainly as a result of the Optimum acquisition, which Mr Moloney said was earnings-enhancing.

The average maturity on its debt facilities was more than four years.

“2009 was always going to be a year of consolidation for the business because we have spent a bit of money,” Mr Moloney said.

The pensions deficit at the group swelled by more than €50 million last year to €164 million, as equity market values collapsed.

Management is now in the process of reviewing a pension levy arrangement it had in place to close the deficit in order to take account of the extra deficit of €50 million.

Good demand for cheese, particularly for processed cheese, and high cheese prices in the US buoyed the performance of its manufacturing plant in Idaho, while its joint venture, Southwest Cheese, in New Mexico also had an “excellent year”, the company said.

Nutricima, its joint venture with PZ Cussons in Nigeria, suffered a delay in recovering raw material price increases last year, but Glanbia indicated that lower commodity prices in 2009 would improve margins.

In its Irish food ingredients business, the company endured “extremely difficult and volatile dairy markets”, it said.

Meanwhile, its Irish consumer foods operation faces into a “difficult market environment” in 2009.

Its agribusiness incomes will be “under a lot of pressure”, Mr Moloney said, with farmers likely to pursue greater land utilisation strategies that will see them reduce the volumes of animal feed and fertiliser that they buy.

The price that Glanbia pays farmers for milk is likely to drop sharply to 19-20 cent per litre this year, after reaching a high of 31.3 cent per litre last year.

Glanbia’s share price closed up 15 per cent on the Iseq index yesterday afternoon, rising 29 cent to €2.13.