Strong demand for cheese in US helps Glanbia

CHEDDAR CHEESE sales helped food group Glanbia achieve a profit before tax of €50.5 million in the first half of 2008, up 31 per cent on the same period last year.

A strong performance in its US food ingredients business and improved profits at its Southwest Cheese joint venture in New Mexico meant Glanbia was able to post better figures than had been expected by analysts.

Group revenue rose 6.3 per cent to €1.1 billion, while Glanbia's operating profit for the first six months rose 16.5 per cent to €56.5 million.

This excludes a once-off cost of €2.6 million relating to its exit from the pigmeat industry.

Glanbia group managing director John Moloney said there was strong demand for cheese in the US, where Glanbia is the biggest producer of American-style cheddar and a major supplier of cheese to fast-food chains.

The group's net profits from joint ventures, including Southwest Cheese in the US, Glanbia Cheese in the UK and Nutricima in Nigeria, increased by €7 million.

Glanbia's figures were also buoyed by a recovery in margins at its Irish consumer foods business, where operating margins rose from 4.8 per cent in the first half of 2007 to 5.2 per cent.

But Mr Moloney said the Irish consumer foods market remained "challenging", with changing consumer trends driven partly by the downturn in the economy.

"We note and we're not blind to the fact that the world is in a tighter place. The consumer is more cautious."

In the second half, Glanbia's Irish food ingredients division will be affected by ongoing volatility in global dairy markets, which creates a timelag between an increase in input costs and market price recovery. Overall, Mr Moloney said the group was on track to deliver its previously stated guidance of 14-15 per cent earnings growth in 2008.

Glanbia's acquisition of Optimum Nutrition, announced on Monday, will add to the full-year earnings. The deal gives Glanbia a direct route to customers for its US advanced proteins business, which until now had been a solely business-to-business operation, Mr Moloney said.

Unlike other Glanbia interests, Optimum is an "asset light" business. "That's a change for us. We're used to staring at miles of stainless steel," Mr Moloney said.

He added it was likely to be 2010 before the company made its next major acquisition, as its first priority was to implement its plan for Optimum, which operates in the $20 billion (€13.6 billion) US sport and weight-loss nutrition market, and to examine ways of generating more cash.

Glanbia last month axed 35 jobs and closed its milk packing operations at Glenville, Co Waterford. Further rationalisation in its Irish business is expected.

Mr Moloney did not anticipate further plant closures this year, but a retrenchment in staff numbers was expected as more automation is introduced in the group's factories, in particular at its plant in Ballyragget, Co Kilkenny. He said management was in discussions with staff and their representatives.

Analysts yesterday raised their earnings forecasts for the group to reflect the results and the purchase of Optimum. Glanbia's share price closed unchanged at €4.55.

Glanbia: half-year results

Revenue:€1.1 billion (up 6.3%)

Profit before tax:€50.5 million (up 31%)

Operating profit:€56.5 million (up 16.5%)

Adjusted earnings per share:15.74 cent (up 26.4%)

Interim dividend per share:2.75 cent (up 10%)

Summary

Glanbia's international cheese and ingredients operations and joint ventures were the highlights in the first half of 2008, as revenue in Irish consumer foods, agribusiness and property was flat.