john moloney june 1007
DESCRIPTION
The Glanbia Story Page 1 Ireland a small domestic market export orientation The food and drinks sector: The Glanbia Story Page 2 • Global dairy market dynamics shifting • Consumer mega trends (convenience, health and wellness) • Competitiveness in Ireland high cost economy (energy costs + 80% since 20012006) growth in retail concentration/buying power ever increasing compliance/regulatory costs • EU and global dairy markets in transition after years of The Glanbia Story Page 3TRANSCRIPT
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The Glanbia Story
GIC Conference Dublin 2007
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The Glanbia Story
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
Ireland – the food island
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The Glanbia Story
• 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
Challenges and opportunities
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Shifting market supply and demand dynamicsDairy 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
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
Dairy supply
Glanbia well positioned to meet market challenges
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World Dairy Demand Growth – CAGR Forecast 2.8%
0.6%
0.8%
3.3%12.8% 4.4%
4.5% 7.2% 2.1% 5.3%1.0% 4.0%
EU-25
North America
Latin Americ
aChina
Middle East /
N Africa
Russia /
Ukraine
India / Pakis
tan *
Japan / K
orea
SE Asia
Oceania
Sub Saharan Afric
a
Demand Volumes125
100
75
50
25
0
million tonnes milk equivalent
Source: ZMP Rabobank 2006* India/Pakistan formalized part of the market only
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• 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
Energy impact on dairy markets
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Oil Production Oil Price
January 1990 – February 2005
OPEC: Crude oil output and price 1990 – 2005Output and Price growth since 2002 driving GDP
32,000
30,000
28,000
26,000
24,000
22,000
20,000
$50
$40
$30
$20
$10
$0
Invasion of Kuwait
Thou
sand
Bar
rels
per D
ay
90 92 94 96 98 00 02 0491 93 95 97 99 01 03 05
WTRG Economics 2005www.wtrg.com479-293-4081
Crude Oil Production (Mbbl/d)OPEC Countries
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Dairy product imports of major oil exporters 1998 - 2005
0
100000
200000
300000
400000
500000
600000
700000
Cheese WMP Butter SMP
1998 1999 2000 2001 2002 2003 2004 2005
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Growth of renewable energy alternatives
• US and EU commitment to develop - ecological - economic - geo-political• Policy / Regulatory• Other economic powers following suit
Biofuels: Energy security versus food security
Domestic Renewable energy sources
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• 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
Bio-ethanol production
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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
• 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?
Biofuels outlook
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Glanbia plc
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The Glanbia Story
• 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
About us
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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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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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Vision and strategyTo 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
• 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
Issues, opportunities and Glanbia responses
Strategy based on cost reduction / restructuring and on developingscale with innovation / new product development
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Business review
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UKIreland
Germany
Nigeria
Brazil
Mexico
New Mexico
IdahoWisconsin& Chicago
Sales Office
Production Site
2007 global operations
California
Uruguay
China
TOTAL GROUP*
4,481employees
5,312milk suppliers
4.73 billionlitres of milk processed
370,000 tonnesof cheese produced
210,000 tonnesof food ingredients manufactured
* including joint ventures
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JOINT VENTURES: €263 million revenue, €5.5 million operating profit
2006 Footprint [three divisions and international JV’s]
IRELAND INTERNATIONAL64% revenue 36% revenue
Consumer Foods
Agribusiness and Property
Food Ingredients and Nutritionals
28% revenue29% profits
14% revenue19% profits
58% revenue52% profits
• Excluding JVs, €1.85 billion revenue and €85.6 million operating profit
• Including JVs, €2.1 billion revenue and €91.1 million operating profit
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The Glanbia Story
Consumer Foods• Two different businesses
– dairy-based consumer foods– pigmeat processing
• Key segment is consumer foods
• Leading brands and market positions
• Emphasis on nutritious, fresh and natural
• Focus on innovation and organic development
• Market with good growth potential
Liquid milk and chilled foods: Branded liquid milk, dairy products, cheeses and fresh soupsPigmeat: Fresh pork and bacon products
28% of Group 2006 Revenue 29% of Group 2006 Operating Profit
IRELAND
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Agribusiness and Property
Agribusiness
• Key link to Farmer supply base
• 61 locations nationally
• Good cash flow
Property
• Maximise value of Group assets
• Portfolio of >90 properties
• Good predictable medium term profits
Agribusiness: Feed milling, fertiliser, full range of farm inputs, Biofuels, & ‘CountryLife’ range Property: Maximising value of Group-wide property
14% of Group 2006 Revenue 19% of Group 2006 Operating Profit
IRELAND
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Food Ingredients & Nutritionals
Food Ingredients: Cheese, butter, casein and whey proteinNutritional: Dairy-derived ingredients & Vitamins & minerals
58% of 2006 Group Revenue 52% of 2006 Group Operating Profit
Food Ingredients
• Two businesses – Ireland and USA
• Capital and energy intensive manufacturing
• Emphasis on efficiency, scale, relevance
• Ireland dominated by effects of EU MTR
• USA steady market, profitable growth
IRELAND and INTERNATIONAL
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INTERNATIONAL
• 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
Nutritionals
Strategy: to be a key global provider of nutritional ingredients and nutritional solutions…….building a scalable, sustainable business
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International Joint Ventures
Three Joint Ventures located in the UK, USA and Nigeria
12.5% of 2006 Group Revenue 6% of 2006 Group Operating Profit
• Key element of growth strategy
• UK : Glanbia Cheese– 2007 annualised revenue
£110 million
• Nigeria : Nutricima– 2007 annualised revenue
US$100 million
• USA : Southwest Cheese– 2007 annualised revenue of
US$350 million
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Where: Wales & NI
Partner: Leprino Foods
• No.1 Europe mozzarella cheese• Technology driven business• Key customer relationships• Growing market share
Glanbia Cheese UK
INTERNATIONAL
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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
Southwest Cheese USA
INTERNATIONAL
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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
Nutricima Nigeria
INTERNATIONAL
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Summary
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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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