Farm Ireland

Saturday 26 May 2018

Drop in milk prices set to continue into next year - Glanbia boss

Glanbia boss Siobhan Talbot
Glanbia boss Siobhan Talbot

Peter Flanagan and Michael Cogley

The slump in milk prices is set to continue into 2016, with little respite in sight for struggling farmers.

Glanbia managing director Siobhan Talbot said the milk market was still dealing with a glut of supply as demand falls.

"While it's very hard to be definitive, the general view is it will be into 2016 before we see sustained improvement again.

"Clearly you have supply and demand out of kilter. Demand is now softer. You are coming off what were very good years for the milk market.

"We remain confident that the cycle will turn and are confident in the Irish industry playing a strong role into the global market.

"But price volatility hasn't gone away and we are working to keep the supply chain sustainable at present," she said.

Milk prices have dropped by more than a quarter so far this year, just as Irish farmers dramatically increase their production. The sector has also been hit by a slowdown in China, which is seen as a key target for increased milk sales.

Ms Talbot's comments echo those of Kerry Group chief executive Stan McCarthy, who earlier this month warned that milk prices were reaching "very dangerous" levels.

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Ms Talbot was speaking as Glanbia reported half-year results that beat market expectations.

For the six months to July 4, Glanbia said pre-tax profits rose to €117.6m from €97.8m a year earlier. Revenue rose 4pc to €1.87bn.

Much of the growth however was driven by a favourable exchange rate between the dollar and the euro.

On a constant currency basis, which strips out exchange rate fluctuations, revenues fell 8.4pc.

Those numbers translated into earnings per share of 40.6c - an increase of a quarter year on year. The firm will pay an interim dividend of 4.88c per share - an increase of 10pc.

Ms Talbot said the results were proof that the company's strategy was "on track".

"As a global nutrition company, we are focused on the development of a branded and ingredient product portfolio to serve the growing consumer demand for nutritional products in formats suitable for healthy and active lifestyles.

"This has provided some insulation from the challenges of volatile global dairy markets," she said.

The company maintained guidance for the full year of EPS growth of between 9pc and 11pc on a constant currency basis.

Glanbia is now a far cry from its origins as a milk-processing business. Today most of its profits come from its global ingredients and performance nutrition business. That was reflected in the results. The two sectors between them posted revenue of more than €1bn. Glanbia's Dairy Ireland operation however posted sales of just over €360m.

However Glanbia Ingredients Ireland - a milk processing joint venture between Glanbia PLC and Glanbia Co-op - saw revenues and operating profits slump 11pc and 9pc respectively on lower milk prices.

Analysts were very happy with the results. Goodbody's Liam Igoe raised the prospect of upgrading his forecast for the company.

"We expect to retain our EPS forecasts in constant currency terms, though we will likely make some changes to our profit mix. There is scope to upgrade the forecast reported EPS by about 5pc," he said.

Ms Talbot strongly defended Glanbia's use of a Luxembourg entity to minimise its tax bill.

"Glanbia is a global company that only uses legitimate structures to support the group's international expansion and growth as well as the creation of thousands of jobs," she said.

"Our effective group tax rate in 2014 was 17pc and Glanbia is, and will continue to be, a significant contributor to the economies in which we operate.

"Glanbia will continue to ensure that we remain fully tax compliant in all jurisdictions in which we operate," Ms Talbot added.

Shares in the company rose marginally to €18.35 in Dublin. The stock is up more than 42pc this year.

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