Farm Ireland

Sunday 25 February 2018

Glanbia split delays dairy expansion plan

Declan O'Brien and Darragh McCullough

Differences at board level have delayed a decision from Glanbia on plans to expand its dairy processing facilities.

The disagreement centres on how much -- if anything -- the plc is prepared to invest in low-margin processing facilities.

A 50pc lift in supplies following the abolition of milk quotas in 2015 will leave Glanbia having to process up to 750m litres of additional milk.

This will require a major expansion in its processing capacity and need an investment of more than €200m.

However, it understood that Glanbia management is unwilling to commit this level of funding to an investment that is unlikely to operate on margins above 5pc when it has higher-margin options available elsewhere.

The company has announced it will invest €11.3m in a new cheese innovation centre in Idaho, USA, this year. Glanbia claims to be the world's biggest producer of American-style cheese.

Meanwhile, Dairygold is on track to complete a €6.5m investment in its Mogeely speciality cheese-processing plant by the end of April this year.

There were strong rumours in Glanbia circles this week that the company had offered the co-op a 60pc shareholding in the Food Ingredients Ireland arm of the business, comprised mainly of the processing plants at Ballyraggett and Virginia.

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It was suggested that this joint venture between Glanbia Co-op and Glanbia Plc would then be used as a vehicle to fund processing expansion.

A spokeswoman for Glanbia acknowledged that there was a lot of speculation at the moment but said the company could not comment.

"The group is looking carefully at this issue and will come forward with a plan in the second quarter of the year," she said.

Meanwhile, Glanbia's shares were yesterday hovering close to three-year highs of €5.20.

Given that Glanbia Co-op holds a 54.6pc shareholding in Glanbia Plc, its stake is now valued at more than €820m. While all food companies are having a good run, any talk of a split between Glanbia Plc and Glanbia Co-op always lifts the share price.

Glanbia Plc's focus is on the global nutritionals sector as this offers double-digit growth rates.

Glanbia Co-op marginally lost a demerger vote in 2010. However, many farmers are keen to have full control over dairy processing arm of the company to take full advantage of the 2015 quota abolition.

Any split is sure to be fraught with tension as the 27pc of those who voted against the split two years ago will see it as an attempt to resurrect the de-merger agenda by the back door.

Meanwhile, prices were down 3pc overall last week in Fonterra's dairy auction, with anhydrous milk fat the hardest hit with a 11pc drop.

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