Page 1 The Glanbia Story GIC Conference Dublin 2007
Mar 30, 2016
Page 1
The Glanbia Story
GIC Conference Dublin 2007
Page 2
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
Page 3
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
Page 4
The Glanbia Story
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
Page 5
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
Page 6
The Glanbia Story
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
Page 7
The Glanbia Story
• 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
Page 8
The Glanbia Story
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
Page 9
The Glanbia Story
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
Page 10
The Glanbia Story
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
Page 11
The Glanbia Story
• 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
Page 12
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
Page 13
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
Glanbia plc
Page 15
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
Page 16
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%
Page 17
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
Page 18
The Glanbia Story
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
Page 19
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
Business review
Page 21
The Glanbia Story
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
Page 22
The Glanbia Story
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
Page 23
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
Page 24
The Glanbia Story
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
Page 25
The Glanbia Story
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
Page 26
The Glanbia Story
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
Page 27
The Glanbia Story
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
Page 28
The Glanbia Story
Where: Wales & NI
Partner: Leprino Foods
• No.1 Europe mozzarella cheese• Technology driven business• Key customer relationships• Growing market share
Glanbia Cheese UK
INTERNATIONAL
Page 29
The Glanbia Story
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
Page 30
The Glanbia Story
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
Summary
Page 32
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
Page 33
The Glanbia Story