Rising milk prices hit margins at Glanbia Ireland

Glanbia Ireland has a 2.4 billion litre milk pool from 4,800 suppliers
Glanbia Ireland has a 2.4 billion litre milk pool from 4,800 suppliers
Margaret Donnelly

Margaret Donnelly

Improved milk prices and lagging world dairy markets are to blame for a fall in margins at Glanbia Ireland, the new joint venture between Glanbia Plc and Glanbia Co-op.

The sale of 60pc of Dairy Ireland, the agri arm of Glanbia Plc to Glanbia Co-op this year, will net cash proceeds of €112m for the Plc. The sale was completed in July and all proceeds are expected to be completed by October.

Glanbia Ireland is a joint venture which is 60pc owned by Glanbia Co-operative Society Ltd and 40pc owned by Glanbia plc. It is the largest dairy and agri business in Ireland with 2016 pro-forma revenues in excess of €1.5bn.

According to the Glanbia half-year results, Glanbia Ireland is well positioned to support the growth ambitions of its suppliers in the coming years, producing a diverse range of value-added dairy ingredients and consumer products.

However, in the first half of 2017, Dairy Ireland (now part of Glanbia Ireland) revenues increased by 0.3pc, reflecting a 2.5pc increase in volumes, a 3.7pc decline in price and a 1.5pc revenue contribution resulting from the consolidation of a subsidiary previously included in Joint Ventures.

A 200 base point (bps) reduction in margin drove an EBITA decline of 39.3pc versus the prior half year.

A spokesperson for Glanbia Ireland said that the bps reduction was expected, given that milk prices had risen steadily during that time, but there was a lag effect in rising dairy markets.

Glanbia Ingredients Ireland, which is part of the Glanbia Ireland, paid 33c/l for June milk to farmer suppliers, with it rising a further 1c/l for July.

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Glanbia, in its half year results announced, also said that its consumer products delivered continued growth in sales of value-added milk in the period. "However, margins were reduced due to increased milk and dairy product costs which resulted in a reduced performance."

It went on to say that the agribusiness side of the company delivered a reduced performance in the period. Increased animal feed and fertiliser volume was more than offset by lower pricing which led to a decline in margin.

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