Profits collapse almost 60% in Glanbia’s performance nutrition business

Glanbia plc recorded a sharp fall in profits for the first half of its 2020 financial year due to a near 60% collapse in profits in its flagship performance nutrition division.

Announcing half-year results on Wednesday, Glanbia reported a 25% fall in earnings (EBITA) in the first six months of 2020 to €85m, as earnings margins narrowed from 6.3% last year to 4.6% in the first half of 2020.

This double-digit slump in earnings was down to a near 60% collapse in profits from its performance nutrition division. The company also incurred €15m in exceptional charges, which was mostly related to restructuring costs within its performance nutrition division.

Sales in the first half of the year grew by 2.3% to just over €1.8bn

Adjusted earnings per share (a key benchmark for the company) fell 17% in the period to 31.05 cent. Glanbia’s operating profits were back 34% to €54.5m, as operating profit margins were squeezed to just 3%.

Sales in the first half of the year grew by 2.3% to just over €1.8bn, thanks to strong sales volume growth in Glanbia’s nutritionals and cheese business.

Glanbia also confirmed it was postponing plans to initiate a share buyback programme this year

Despite the economic and market uncertainty, Glanbia said it would continue to pay a half-year dividend thanks to strong cash generation in the business. The company announced a half-year dividend of 10.68c per share to be paid out in October, which is in line with last year and amounts to just under €32m.

Glanbia also confirmed it was postponing plans to initiate a share buyback programme this year. The company had indicated earlier this year it was looking at a share buyback programme of €140m. However, following shareholder consultation and an uncertain global trading environment, Glanbia said it had decided to delay any share buyback programme but would review its position later in the year.

Performance nutrition

Once the jewel in the crown, Glanbia’s flagship performance nutrition business endured a very difficult first half of the year. Earnings (EBITA) in the division collapsed almost 60% year on year to just under €20m.

Profit margins in the business shrunk to just 3.7% in the first half of 2020, which is a long way off the 16% margins the business was reporting not so many years ago. Glanbia blamed the slump in profitability on weaker sales and a negative operating leverage.

Performance nutrition sales fell by 16% in the first half of the year to €532m due to a 15% decline in sales volumes and a 0.7% drop in pricing.

The company said COVID-19 resulted in significant disruption in its route-to-market in international markets and to speciality and distributor channels in North America.

Underscoring this disruption, Glanbia said sales volumes in its performance nutrition business were down 15% in the first half of the year, with sales to international customers down 33% alone.

The group said it continues to restructure its performance nutrition division in order to turn the business around.

Nutritionals and cheese

Glanbia’s nutritionals division, which includes its ingredient solutions and cheese business, recorded a strong performance in the first half of the year. Sales in the division grew by 12% to hit €1.3bn thanks to a robust performance from its US cheese business where sales were up 16% year on year.

Glanbia’s US cheese business enjoyed bumper sales and profit growth in the first six months of 2020 thanks to very strong consumer demand at retail level during lockdown and a spike in US cheese prices to record levels in June.

Earnings (EBITA) in Glanbia’s nutritionals division were down less than 1% in the first half of the year to €65.4m, as profit margins narrowed slightly to 5%.

Acquisition

Glanbia also announced it had agreed a €38m (C$60m) deal to acquire Foodarom, a flavours business based in Canada that generated sales of €22m (C$34m) last year. While flavours is outside its core business, Glanbia managing director Siobhan Talbot said the company had been interested in the flavours space for some time and the acquisition of Foodarom would add excellent flavour technologies to its nutritionals solutions business.