The Glanbia Story
GIC Conference Dublin 2007
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The Glanbia Story
Ireland – the food island Ireland a small domestic market
export orientation
The food and drinks sector: • Largest net wealth generator in the Irish economy • Exporting 80% of output to over 120 countries • Exporting €7.5 billion worth of food and drink products • Equivalent to 35-40% of value added in manufacturing sector • Employing 230,000 people
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The Glanbia Story
Challenges and opportunities • Global dairy market dynamics shifting • Consumer mega trends (convenience, health and wellness) • Competitiveness in Ireland - high cost economy (energy costs + 80% since 2001-2006) - growth in retail concentration/buying power - ever increasing compliance/regulatory costs
• EU and global dairy markets in transition after years of relative stability: - changing EU Policy - WTO trade liberalisation •
Scale - increased scale at manufacturer/supplier level
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The Glanbia Story
Shifting market supply and demand dynamics Dairy demand:
• Recent forecasts see global demand for dairy growing at 2.8% • OECD/FAPRI/USDA/EU all forecasting prices to rise significantly to 2017 Main growth factors are:
• Population growth • Westernisation of eating habits & growing per capita GDP in emerging markets i.e. Asia • Favourable economic conditions - low interest rates, currency stability - low inflation despite rising oil prices
• • • • • •
Purchasing power of oil producing countries Increased demand for dairy ingredients/functional foods and infant formula Increased demand in developed markets for convenience and health/wellness products Consistent growth in cheese consumption in EU and USA Drought in key producing countries i.e. Australia High oil prices (double edged sword) v growth in demand for biofuels
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The Glanbia Story
Dairy supply Global milk supply will slow down in the next five years:
• NZ growth potential impacted by land prices/alternative land uses, costs etc • Australia growth subject to climatic limitations • EU production potentially capped until 2015, playing a reduced role in global trade • Ireland lowest cost milk producer in the EU with appetite for growth post abolition of quotas • USA supply strong with global impact • LATAM to remain strong regional player, but limited global impact • Eastern Europe/India, domestic growth will limit exports
Glanbia well positioned to meet market challenges
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The Glanbia Story
World Dairy Demand Growth – CAGR Forecast 2.8% million tonnes milk equivalent
Demand Volumes
0.6%
125 100
0.8%
75
3.3%
50
12.8%
4.4%
25
4.5%
0 25 EU
rt o N
h
Am
ic er
a
tin a L
Am
ic er
a
in h C
M
dl id
e
a
s Ea
t/
N
ri c f A Ru
a
i ss
a
/
Uk
r
d In
n ai
e
7.2%
*
n ta s / ki n a P pa / a J ia
2.1% ea r Ko
SE
5.3%
A
a si O
1.0%
ce
a
b Su
a ni
n ra a h Sa
4.0% A
ic fr
a
* India/Pakistan formalized part of the market only Source: ZMP Rabobank 2006
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The Glanbia Story
Energy impact on dairy markets •
Global Warming - impact on dairy output
• GDP growth in oil exporting countries - increased dairy purchasing power
• Growth of biofuels - driving up agricultural feedstock prices - milk price to feed ratio - alternate land use
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The Glanbia Story
OPEC: Crude oil output and price 1990 – 2005 Output and Price growth since 2002 driving GDP Crude Oil Production (Mbbl/d) OPEC Countries
32,000
$50
Thousand Barrels per Day
30,000
$40
Invasion of Kuwait
28,000
$30 26,000 $20
24,000
$10
22,000
$0
20,000 90
91
92
93
94
95
96
97
98
99
00
January 1990 – February 2005 Oil Production
Oil Price
01
02
03
04
05 WTRG Economics 2005 www.wtrg.com 479-293-4081
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The Glanbia Story
Dairy product imports of major oil exporters 1998 - 2005 700000 600000 500000 400000 300000 200000 100000 0 1998
Cheese 1999
WMP 2000
2001
Butter 2002
2003
SMP 2004
2005
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The Glanbia Story
Growth of renewable energy alternatives Domestic Renewable energy sources
• US and EU commitment to develop - ecological - economic - geo-political
• Policy / Regulatory • Other economic powers following suit Biofuels: Energy security versus food security
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The Glanbia Story
Bio-ethanol production • USA and Brazil the world’s leading producers • US production growing rapidly – circa 8 billion gallons 2007 - maize corn based - benefits from agricultural support programmes - high import tariff protection
• Brazil – current annual output 4.5 billion gallons - sugarcane based - major competitive advantage –v- maize corn - strong competition for alternative land uses - aspires to world export leadership
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The Glanbia Story
Corn the preferred US feedstock The US corn crop, accounts for 40% of the global harvest and traditionally supplied 70% of world corn exports
• Biofuel will utilise 27% of US corn output in 2007 - 1.6billion gallons in 2000, up to 12 billion gallons in 2010
• 114 US ethanol bio-refineries in operation, 80 more under construction - concerns: ethanol energy balance and water requirement
• 30% of the corn from ethanol production is recovered as distillers grains - this has limited use in animal feed Rising corn prices will affect all food prices
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The Glanbia Story
Biofuels outlook • Growth of biofuels will impact on all food markets - policy guidelines will be underpinned by legislation
• Fuel will compete with food for land use - higher land prices - higher feed stock prices
• Inflationary impact on dairy and food prices • Will favour pastoral dairy farming • Climate change, if a reality, will have a dramatic sustained effect – dairy market volatility GDP growth will sustain strong demand growth
• Medium term dairy supply / demand outlook is price positive but what impact on demand?
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Glanbia plc
The Glanbia Story
About us • Origins in Irish dairy co-operative movement (early 1900’s) • Export history and experience - focus on international casein and fat filled powder markets - cheese acquisitions in UK and USA 1980 / 1990’s - USA restructuring – move to the west 1995
• 1997 – merger of Avonmore Foods plc and Waterford Foods plc • 1999 – formation of Glanbia plc
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The Glanbia Story
Glanbia plc 2007 • Dairy-based food and nutritional ingredients Group • Operations in Ireland, Europe, USA and China • International Joint Ventures in the UK, USA and Nigeria • Listed Irish and London Stock Exchanges (Symbol: GLB) • Circa €900 million market capitalisation • Free float 45%; Co-op ownership 55%
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The Glanbia Story
Key financials • Top line growth of 8% to €2.1 billion, including joint ventures • Profit after tax pre exceptional up 9% to €66.4 million • Adjusted EPS up 8% to 22.6 cent, in line with market expectations • Dividends up by 5% to 5.79 cent per share • Several milestones achieved including Seltzer acquisition and SWC opening • International operations now represent almost 40% of revenue and profits • 2007: expect strong first half performance & confident of good double digit growth for year
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The Glanbia Story
Vision and strategy To be the most relevant player in international cheese, nutritional and dairy ingredients and selected consumer foods … ….through a focus on international scale, food technologies and growth markets Our objectives are to:
• Sustain double digit earnings growth • Diversify the Group’s earnings base to reduce volatility • Allocate capital to a mix of higher growth opportunities • Improve operating margins
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The Glanbia Story
Issues, opportunities and Glanbia responses • Global dairy market
dynamics shifting • Competitiveness
- Ireland : high cost economy - growth in retail concentration / buying power
• Investment in increased productivity / automation • Product diversification into high value dairy
ingredients (whey, lactose, nutraceuticals) • Increased investment in innovation : two
innovation centres (Ireland & USA) • Links to infant formula sector (Ireland largest
European producer) • Scale cheese production • Encourage productivity model for services to
industry (energy & other utilities) and long term Government support for innovation and biofuel industry Strategy based on cost reduction / restructuring and on developing scale with innovation / new product development Page 19
Business review
The Glanbia Story
2007 global operations TOTAL GROUP* Ireland
4,481
UK
employees
Germany Idaho California
5,312
Wisconsin & Chicago
milk suppliers
New Mexico
4.73 billion
Mexico
Nigeria
China
litres of milk processed
370,000 tonnes of cheese produced Brazil
Production Site
Uruguay
Sales Office
* including joint ventures
210,000 tonnes of food ingredients manufactured
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The Glanbia Story
2006 Footprint [three divisions and international JV’s] • Excluding JVs, €1.85 billion revenue and €85.6 million operating profit
IRELAND
INTERNATIONAL
64% revenue
36% revenue
Consumer Foods
Agribusiness and Property
Food Ingredients and Nutritionals
28% revenue
14% revenue
58% revenue
29% profits
19% profits
52% profits
• Including JVs, €2.1 billion revenue and €91.1 million operating profit
JOINT VENTURES:
€263 million revenue, €5.5 million operating profit
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The Glanbia Story
IRELAND
Consumer Foods • Two different businesses –
dairy-based consumer foods
–
pigmeat processing
28% of Group 2006 Revenue 29% of Group 2006 Operating Profit
• Key segment is consumer foods
Liquid milk and chilled foods: Branded liquid milk, dairy products, cheeses and fresh soups
• Leading brands and market positions
Pigmeat: Fresh pork and bacon products
• Emphasis on nutritious, fresh and natural • Focus on innovation and organic development
• Market with good growth potential
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The Glanbia Story
IRELAND
Agribusiness and Property Agribusiness
14% of Group 2006 Revenue
• Key link to Farmer supply base
19% of Group 2006 Operating Profit
• 61 locations nationally
Agribusiness: Feed milling, fertiliser, full range of farm inputs, Biofuels, & ‘CountryLife’ range
• Good cash flow
Property: Maximising value of Group-wide property
Property
• Maximise value of Group assets • Portfolio of >90 properties • Good predictable medium term profits
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The Glanbia Story
IRELAND and INTERNATIONAL
Food Ingredients & Nutritionals Food Ingredients
58% of 2006 Group Revenue
• Two businesses – Ireland and USA
52% of 2006 Group Operating Profit
• Capital and energy intensive
Food Ingredients: Cheese, butter, casein and whey protein
manufacturing
• Emphasis on efficiency, scale, relevance
Nutritional: Dairy-derived ingredients & Vitamins & minerals
• Ireland dominated by effects of EU MTR • USA steady market, profitable growth
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The Glanbia Story
INTERNATIONAL Nutritionals Strategy: to be a key global provider of nutritional ingredients and nutritional solutions… ….building a scalable, sustainable business
• Global business • Whey – a valuable source of sugar, proteins, minerals • Customised premixes – entered market in 2004 – large market in the USA; approximate value US$400 million pa – projected to grow 8 to 10% pa 2006 to 2011 (HSC report 2005)
•
Business-to-business revenue and relationships
•
Growth business in a growth market / strong fit with Group strategy – science-based innovation and R&D underpinning the business
• •
Strong organic, acquisitions and NPD opportunities Good performance / current focus on integration of Seltzer, acquired 2006
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The Glanbia Story
International Joint Ventures 12.5% of 2006 Group Revenue • Key element of growth strategy
6% of 2006 Group Operating Profit
• UK : Glanbia Cheese –
2007 annualised revenue £110 million
Three Joint Ventures located in the UK, USA and Nigeria
• Nigeria : Nutricima –
2007 annualised revenue US$100 million
• USA : Southwest Cheese –
2007 annualised revenue of US$350 million
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The Glanbia Story
INTERNATIONAL
Glanbia Cheese UK Where: Wales & NI Partner: Leprino Foods
• No.1 Europe mozzarella cheese • Technology driven business • Key customer relationships • Growing market share
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The Glanbia Story
INTERNATIONAL
Southwest Cheese USA Where: Clovis New Mexico Partner: Great South West Milk Agency
• US$190 million investment • Cheese and whey facility • 1.1 billion litres of milk • Full production by mid-2007 delivering annualised sales of US$350 million
• Ramp up ahead of plan
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The Glanbia Story
INTERNATIONAL
Nutricima Nigeria Where: Lagos Partner: PZ Cussons; 100 years in Nigeria
• US$25 million investment • 50:50 Joint Venture • Consumer foods with dairy focus • Population of 140 million • Strong sales growth • 2007 annualised sales US$100 million • Further US$35 million expansion planned
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Summary
The Glanbia Story
Review • Ireland a small domestic economy strong export tradition / flexibility • Glanbia managing cost /competitive issues in local markets through productivity and cost strategy
• Constant tracking of global dairy dynamics • Opportunities - world milk production growing @ 1.75% pa - world dairy demand forecast @ 2.8% pa - rising corn prices to drive all food and dairy prices - growing demand for health and wellness products
• Scale position developed in US cheese market • Developing Nutritionals business to meet growing market requirement - Seltzer acquisition key / Asian expansion planned 2007/2008
• Outlook for sustained high growth
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The Glanbia Story
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