Glanbia Ireland, the joint venture dairy business owned 60:40 between Glanbia co-op and Glanbia plc, recorded strong profit growth last year as milk volumes grew to a record 2.9bn litres.

For 2019, Glanbia Ireland saw its operating profits rise by 13% to reach €82.6m, as profit margins in the business widened slightly to a healthy 4.2%. Earnings (EBITDA) grew by 12% to just under €116m, with earnings margins expanding to 5.9%.

Overall, the business made a net profit after tax of €62.9m, which reflects the agreed profit after tax margin of 3.2% that Glanbia Ireland must make for its shareholders.

The Glanbia Ireland model ensures that €31.4m, or 50% of the profits after tax, are held in the business for future investment and expansion.

The other 50% is paid as a dividend to the company shareholders.

Under this arrangement, Glanbia plc received a dividend of €12.6m from its 40% shareholding in Glanbia Ireland, while farmer-owned Glanbia co-op received almost €19m in dividends last year for its 60% majority stake in the company.

Growth

Glanbia Ireland recorded sales of just under €2bn in 2019, up 9% year on year. A 3% decline in sales in its agribusiness division to €432m was more than offset by a 12% increase in dairy sales to over €1.5bn.

The drop in sales in the agribusiness division was due to a more normalised level of trading after the spike in demand for feed and fertiliser in 2018 when the summer drought and spring fodder crisis hit.

Glanbia Ireland said the sales growth in its dairy division was driven primarily by a strong increase in sales of dairy ingredients to over €1.2bn for 2019. The company sold almost 410,000t of dairy ingredients for 2019. The remaining €300m of sales in its dairy division come from its consumer foods business, which includes brands such as Avonmore, Kilmeaden and Premier.

Debt

The balance sheet of Glanbia Ireland shows total shareholder equity at year-end stood at just under €420m. Glanbia Ireland’s net debt stood at €287.6m, which is manageable at 2.5 times earnings.

Since 2013, Glanbia Ireland has invested €530m in capital projects across the business. The majority of this has gone towards capacity expansion at Belview, Ballyragget and other sites to handle the increased milk pool since the end of quotas in 2015.

Last year, Glanbia Ireland completed a €125m investment to install a third drier at its milk processing plant in Belview in time to help process the peak milk supply, which hit 87m litres per week in May. However, with the growth in milk supply beginning to moderate in Ireland, the need for additional capacity investment by Glanbia Ireland will reduce.

This will help free up space on the balance sheet and allow the processor to start reducing its borrowings. For farmer suppliers, a reduced debt level should free up more cashflow for Glanbia Ireland to improve milk prices.

Milk supply

For 2019, Glanbia Ireland processed a record 2.9bn litres of milk, which was up 8%, or almost 200m litres, on the previous year.

However, Glanbia Ireland says it can already see a moderation in milk supply growth starting to take place with 2020 milk volumes growing at just over 4%. On the grain side, Glanbia Ireland said its grain intake stood at over 290,000t for 2019 following a bumper harvest.

The company said the 2019 harvest was a much needed recovery in grain production following the very difficult harvest in 2018.