Glanbia Boosted by Strong Dairy Demand

Global dairy markets were strong as growth in dairy consumption in developing regions underpinned sustained demand and higher prices.

Aug 24 2011 --- Glanbia plc, the international nutritional solutions and cheese group has reported strong global dairy markets and good demand in key nutritional sectors in its half year results for the six months ended 2 July 2011. Revenue increased 33.2% and operating profit pre exceptional grew 44.2%. Full year outlook was upgraded to 18% to 20% expected growth in adjusted earnings per share, on a constant currency basis.

John Moloney, Group Managing Director, said: “We have had an excellent first half delivering adjusted earnings per share growth of 55%, on a constant currency basis. Global dairy markets were strong as growth in dairy consumption in developing regions underpinned sustained demand and higher prices. US dairy markets were also significantly higher relative to the first half of last year. These positive market conditions underpinned a good performance in Dairy Ingredients Ireland, US Cheese and International Joint Ventures. Our Global Nutritionals' businesses had a very good first half with further growth in demand across all key nutritional markets and product categories."

Glanbia continues to perform well. The overall trading environment remains positive and while global dairy market prices appear to have peaked in the current cycle, indications are for a relatively modest softening in prices for the remainder of the year. Demand-led growth across all product categories in Global Nutritionals is also strong. The calibre of our first half performance, leading market positions and strength of our global portfolio, positions Glanbia strongly for the full year. We are upgrading our 2011 guidance today to 18% to 20% growth in adjusted earnings per share, on a constant currency basis.”

Global dairy markets performed strongly in the first half of 2011, building on a positive 2010 performance. Sustained demand for dairy products from China, the Middle East/North Africa and Russia created a buoyant market and supported higher prices; particularly when coupled with tight global inventories of key dairy products and some milk supply constraints. In the second half there are strong prospects for extra milk supply which will require continued good demand to keep the market in balance. While demand has moderated somewhat recently as supply fears have receded, there is nothing to suggest a fundamental downward shift in underlying demand. The upward trend in global dairy prices appears to have peaked and a modest gradual weakening in prices, which have been at historically high levels, is expected. However, present indications are that there should be no very significant price adjustments in the near-term. As a result, global dairy markets are forecast to be relatively positive for the remainder of the year.

Domestic demand for American cheese across all channels is up year to date. A favourable US dollar exchange rate and market development supported strong growth in export volumes, although cheese exports remain under-developed relative to other dairy categories. The significant cheese price rally that began in early 2011 continued throughout the first half, but the cheese markets did not rise at the same pace as other dairy products such as butter and milk powders. US milk production grew marginally in the first half but it was variable by State. Despite increased milk production in Idaho, milk procurement in the State remained competitive and as a consequence the most significant market issue in the first half and prevailing throughout the second half of the year is the management of milk supply, pricing and cheese stocks.

For Global Nutritionals, in the first half, strong global demand for whey continued across all product categories. Whey prices were significantly higher compared to the prior year. The market for value-added whey continues to grow in key segments such as bars, beverages, fresh dairy, performance/sports nutrition and weight management. Similarly the market for customised premixes remains positive with strong growth in the key energy drink sector and product fortification (infant formula, nutrition bars, breakfast cereals and supplements). Market trends experienced during the second half of 2010 across the Performance Nutrition business have continued into the current year. Good demand and a strong innovation pipeline continue to underpin further market growth opportunities with the main challenge being the impact of significant price inflation across key raw material inputs. Demand-led growth in global nutritionals is firmly based on sustainable long-term trends such as an increased focus on health and wellness, healthy active aging, healthier and more nutritious food options, diet/exercise and wellness as well as weight management. Favourable market dynamics are expected to continue in the second half of the year.

Most of the milk processed into cheese and dairy-based ingredients by Dairy Ingredients is sold into global dairy markets in more than 50 countries world-wide. The strong performance of global dairy markets in the first half was positive for Dairy Ingredients both in terms of sales pricing and volume with 10% milk supply volume growth year-on-year. Market pricing is expected to be moderately weaker in the second half. The strong volume growth experienced in the first six months is expected to reverse in the second half as Irish farmer suppliers respond to EU super levy concerns; leaving volumes broadly flat against 2010 for the full year. A super levy fine is applied to milk suppliers by the EU if milk production exceeds an annual milk quota. The abolition of the quota system is planned for April 2015 and a detailed evaluation is currently underway within Dairy Ingredients to assess the potential of the milk output expansion which can occur when EU milk quotas are eliminated.

Global dairy markets also indirectly impact the performance of Agribusiness whose core customers are Irish farmers. Demand for Agribusiness key farm inputs was reasonable in the first half of the year, although many farmers are only purchasing for current use as input prices have been higher year-on-year. Volumes are expected to be challenging for the second half as Irish farmer customers reduce output in response to EU super levy concerns.

The difficulties in the Irish food retail environment have persisted in the first half of 2011. The market size is estimated to be currently only just above 2007 levels and year-on-year real growth is negligible. Approximately one sixth of total purchases made by consumers are on promotion and a focus on price remains the key market dynamic. Consumer confidence is fragile and declined again in recent months as a result of the difficult domestic economic situation. This challenging trading environment is expected to persist in the second half of the year, Glanbia reported.