The international dairy foods and nutritional ingredients group, which announced its full year results for the year ended 31 December 2005 yesterday, said that a difficult year in Ireland was the principal cause of the firms poor results.
The firm's Irish operations continued to be affected by a combination of ongoing EU reform, inflationary pressures and a competitive market environment.
As a consequence of the EU Mid Term Review (MTR) of the Common Agricultural Policy, significant ongoing change in dairy markets arising from the reduction in EU dairy market supports has impacted certain key sectors.
As a result, operating profit pre exceptional was down 7 per cent to € 80.6 million and the operating margin pre exceptional declined 50 basis points to 4.4 per cent, even though group revenue for the twelve months ended 31 December 2005 increased by 4 per cent to € 1.83 billion.
"While there are ongoing challenges in Irish operations and unpredictability in energy prices, we expect key cost and product development initiatives to underpin the delivery of 2006 results in line with current guidance," said John Moloney, Glanbia group managing director.
"Growing momentum within the business supports the groups progress towards double digit growth in 2007.
International operations performed better. USA Food Ingredients delivered a solid result, together with strong organic growth in the evolving nutritionals business.
"A good international performance underpin the 2005 results," said Moloney.
Joint ventures in New Mexico and Nigeria, which the firm says are central to the strategic development of the group, are progressing well, reaching key milestones in plant commissioning, production and customer performance. The 30 per cent expansion in cheese production at the Gooding facility in 2004 enabled the business to meet growing customer demand for American style barrel cheese during the year.
This demand is driven by strong key account performance in the food service and retail sectors. In 2005 market prices for cheese were lower although volume growth enhanced margins.
The nutritionals business also continued to make steady progress in 2005. Kortus Foods Ingredients Services, the German based nutrient delivery systems business acquired in 2004, performed ahead of expectations.
Glanbias says that its strategy now is to build international relevance in cheese, nutritional ingredients and selected consumer foods, balancing strong market positions in Ireland with an increasing presence in overseas markets.
The Joint Ventures in Nigeria and the USA are central to this strategic development, as is the continuing development of the group's evolving nutritionals business.
And while there are ongoing challenges in Irish operations and unpredictability in energy prices, Glanbia expects key cost and product development initiatives in these businesses together with ongoing international development to underpin 2006 results.
Innovation seems to be the key. Indeed, EU trade commissioner Peter Mandelson told the UK National Farmers Union conference recently that added value dairy products are the only path open to European dairies if they are to stay competitive in the future.
Dairy companies have already begun a shift to added value products that are less dependent on EU subsidies and pricing than commodity goods like milk powder and butterfat.