ANALYSIS: Glanbia is now positioning itself to supply the emerging middle classes of Asia, writes Laura Slattery
SOME COMPANIES could probably do with a "strength and conditioning" coach on their board of directors. But food group Glanbia, which yesterday issued a strong and highly conditioned set of financial results, can probably sit back and wallow in this ringing endorsement from Brad Harrington, strength and conditioning coach of the Leinster rugby team:
"Provon Revive provides the perfect combination of nutrition to aid in the goal of refuelling and recovery of our players as quickly as possible after intensive exercise," says Brad.
"Provon what?" the average milk-guzzling consumer might respond, but for Glanbia it is one of many "brands that you know nothing about" that are becoming increasingly important to the nourishment of its shareholders.
With its whey protein isolates, branched chain amino acids and immunoglobulins, Glanbia's ingredients and nutritionals division is soaked in profit, with earnings almost doubling to €85 million last year. And just as BarFlex, another Glanbia invention, prolongs the shelf life of cereal bars by keeping their texture moist, so too does this division provide the recipe for the group's long-term growth.
Fatter margins are just one reason - 2007 saw the division's margins jump 2 percentage points to 6.1 per cent.
Glanbia boss John Moloney attributes this to a recovery in the Irish ingredients business after the troubled period of Common Agricultural Policy (CAP) reform, product innovation and strong growth in the US cheese market.
Meanwhile, Irish consumer foods margins fell from 4.8 per cent to 3.5 per cent, with the division caught by the wearisome lag in recovering inflating input costs.
The soaring cost of grain and milk on global commodity markets is now passing itself along the food chain to consumers, but Moloney predicts that prices in the Republic will rise by a modest 4-5 per cent in 2008 - after inflation of 6.3 per cent in 2007 and, before that, a period of "unsustainable" deflation. The forecast is modest in the context of the numerous dire warnings of global famine, prompted, as ever, by an imbalance in supply and demand.
Dairy consumption growth in China is running at 11 per cent, Moloney points out, with consumption rates directly linked to income per capita. But Glanbia is now positioning itself to supply the emerging middle classes of Asia, with new facilities in Singapore and Shanghai, where it is to assemble non-dairy ingredients for China's blossoming infant formula market.
The US cheese market is still brimming with potential. A weak dollar helped Glanbia export to seven new countries from the US in 2007, a year in which the US became a net dairy exporter for the first time in its history.
Citing the old adage that "turnover is vanity, but profit is sanity", Moloney says he is concentrating on achieving 15 per cent earnings per share growth in 2008.
But he would quite like it if turnover rose to €3.5 billion over the next few years, if group trading margins were more like 6 per cent than 5.2 per cent and if analysts, shareholders, babies and rugby players alike continue to be as impressed by what it has to offer.
