Glanbia ingredients affected by higher-than-market input costs

By staff reporter

- Last updated on GMT

Related tags: Milk

Dairy ingredients dragged down the first half of 2009 for Glanbia’s Dairy Ireland division, as sale prices dropped but the price paid to milk suppliers was above the market low.

Glanbia’s dairy ingredient portfolio (cheese, butter, casein and protein ingredients) is virtually all destined for export, meaning it is vulnerable to trends in the global dairy sector.

In the first half of this year dairy prices have declined sharply. The company said dairy ingredients became loss making “as the magnitude and pace of the decline in global dairy markets created an environment where milk price was above market returns”.

In a bid to keep its dairy supply and trading base, Glanbia did not reduce the price it paid to suppliers in line with the overall market drop – although it did reduce it to some extent.

Dairy Ireland’s revenue was down 19.6 per cent on last years H1 to €540.5m, and pre exceptional operation profit dropped 77 per cent to €5.9m.

Glanbia does give split out results for ingredients, but analysts have estimated that it has seen losses of around €16m.

Group managing director John Moloney has called the performance unsustainable, and said it will be “agressively addressed”.

The division also includes consumer products, and here there were challenges too as a result of lower consumer confidence and the hunt for value products. The low sterling against the euro led to more products being imported into Ireland from its neighbour meant there was a lot of competition – and Glanbia had to reduce some pack prices in order to compete more effectively.

Diversification

However despite the grim dairy news, the results for the global group were in line with targets. Total revenue, including joint ventures and associates, was €1092.9m, and operating profit €54.1m. The margin was maintained at 5.1 per cent despite the difficult market conditions.

Indeed, the strategy of diversifying in order to reduce the impact of wildly fluctuating dairy markets on its figures seems to be delivering results.

A good performance by Global Nutritionals, which makes whey proteins, premixes and other nutritional ingredients, more than offset the effect of historically low US cheese prices so that the combined segment’s margins grew 380 base points to 11.2 per cent.

Related topics: Market Trends

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