Glanbia Regulatory News (GLB)

2011 Full Year Results

29 February 2012

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EXCELLENT RESULTS IN 2011, Ahead of market expectations

26.7% growth in adjusted earningS per share

29 February 2012 - Glanbia plc ('Glanbia'), the global nutritional solutions and cheese Group, announces its results for the full year ended 31 December, 2011. Results commentary in this announcement is based primarily on constant currency.

(1) An exceptional item of €8.7 million relates to rationalisation costs including the costs of the integration of the liquid milk business acquired from Kerry Group plc in the first half.

(2) Constant currency is based on translating 2011 results at the 2010 average market exchange rate. The 2010 average exchange rate was €1 = US$1.3260 which compares with the reported average exchange rate for 2011 of €1 = US$1.3923.

(3) Total Group revenue, including Glanbia's share of the revenue of Joint Ventures & Associates, was €3.2 billion, €3.3 billion on a constant currency basis for the year (2010: €2.6 billion). Share of results of Joint Ventures & Associates is an after interest and tax amount.

(4) Adjusted earnings per share is calculated as the profit for the year attributable to the owners of the Group before exceptional items and amortisation of intangible assets (net of tax).

(5) Adjusted EBITDA for the purpose of financing ratios reflects Group EBITDA plus dividends from Joint Ventures & Associates.

(6) Return on capital employed is calculated as EBITA, including share of Joint Ventures & Associates EBITA, (post tax) over capital employed. Capital employed is defined as non-current assets plus working capital.

2011 full year results summary

·; Strong performance by Global Nutritionals, with organic revenue growth well ahead of market growth rates

·; BSN®, acquired in January 2011 for $144 million, performed in line with expectations

·; Good performance by Dairy Ireland underpinned by positive global dairy markets

·; Revenue increased 26.2% to €2.7 billion; EBITA grew 22.8% to €186.1 million

·; EBITA margin down 20 basis points to 6.8%, due largely to input cost pressures in Performance Nutrition

·; Strategic Joint Ventures & Associates profit after tax increased by 45.5% to €14.7 million

·; Adjusted earnings per share grew 26.7% to 48.22 cents

·; Dividend per share in respect of the full year increased 10% to 8.27 cents

·; $325 million Private Debt Placement of 10 year senior loan notes completed

John Moloney, Group Managing Director, said:

"Glanbia achieved excellent results in 2011 delivering 26.7% growth in adjusted earnings per share, on a constant currency basis. The acquisition and successful integration of BSN® into Performance Nutrition complemented strong organic revenue growth in our three nutritional businesses. These businesses continue to outpace market growth rates, driven by strong market positions and science based, customer focused innovation. Positive global dairy markets underpinned a solid performance by Dairy Ireland despite the challenges of the Consumer Products business.

We expect the operating environment in 2012 to be more challenging than in recent years. Current global economic uncertainty has the potential to impact global dairy markets and fragile consumer confidence. The Group's focus on driving growth in nutritionals, combined with deep dairy market expertise and strong execution capability, position us well for the future. Our guidance for 2012 is for 5-7% growth in adjusted earnings per share, on a constant currency basis."

2011 full year results

For the full year ended 31 December 2011

Market commentary

Global dairy markets

2011 was a positive year for global dairy markets following a good year in 2010. Despite a significant increase in global milk production, overall demand proved to be resilient, resulting in a modest market correction in the second half. Many of the 2011 demand characteristics, including demand from developing economies, are expected to prevail in 2012. There is strong growth currently in global milk production. The key risk to the current global dairy market outlook for 2012 is the significant concern around a global economic downturn and the impact this could have at the consumer level. The current view on global dairy market performance is that prices will soften further in the first half of 2012, relative to the second half of 2011, with increased milk and dairy product availability. The second half of 2012 is forecast to be moderately weaker again. Overall, critical markets such as China, Russia and South East Asia are expected to remain solid throughout 2012, limiting market volatility.

US Cheese & Global Nutritionals

US Cheese: In 2011, US Cheese prices were strong, yet somewhat volatile, for most of the year, compared with 2010. This was due to a combination of market factors. US milk production increased 1.8% for the year and 3.7% in Idaho. However, higher prices for competing dairy products reduced milk volumes processed into cheese, thereby increasing prices. Retail cheese sales were down overall, mainly as a result of consumer resistance to retail price increases. This was more than offset by relatively strong demand from the foodservice sector and export sales of American-style cheddar cheese which were very strong, increasing over 30% in 2011, following a 60% increase in 2010. In 2012 US cheese prices have reduced year to date with the market tone currently driven by supply factors as milk production exceeds expectations. While retail demand is sluggish, demand from foodservice, industrial and exports continues to be robust.

Global Nutritionals: 2011 was a significant year for whey proteins as strong demand and tight supply lead to unprecedented high whey pricing. Demand was fuelled by strong growth in key nutritional markets, which continued throughout the year. Market growth estimates for 2011 for key global nutritional segments included 15% growth in the nutritional bar market, 7% growth in sports nutrition and 18% growth in nutritional beverages. Sports nutrition is the largest market segment and the latest research into this market confirms that growth is driven by an awareness of the benefits of these products by a growing population of nutrition-aware consumers with a desire to live healthy lifestyles. In 2011, the market for customised premix solutions continued to be strong driven by double digit growth in demand from beverages, breakfast cereals, product fortification requirements in infant formula, supplements and nutrition bars. Favourable market demand conditions in key nutritional segments are expected to continue in 2012, although with tight supply in key raw materials. Effective management of the buy/sell equation, particularly in Performance Nutrition, will be important in the face of further potential price inflation in raw material inputs.

Dairy Ireland

The performance of global dairy markets, outlined above, is the key market dynamic that impacts Dairy Ingredients Ireland, as substantially all of Irish dairy output is exported. The trading environment for Dairy Ingredients Ireland was therefore positive in 2011 with some weakness anticipated for 2012. Positive global dairy markets also underpinned the demand for farm inputs and benefited Agribusiness. The trading environment for the Consumer Products business is dictated by both the domestic Irish economy and the indirect impact of global dairy markets on input costs. In 2011, it was another difficult year for the food retail market in Ireland; consumer sentiment was weak and fell sharply towards year-end. Higher global dairy markets during the year resulted in increased milk costs for Consumer Products and while some modest price increases were implemented margins were still lower year-on-year. The Irish economic and fiscal backdrop offers little respite at present to consumers. As a result these market conditions are expected to persist in 2012.

Abolition of EU Milk Quotas in 2015

As previously outlined, Glanbia is in the process of reviewing the implications of the potential expansion of its supply base post the abolition of EU milk quotas in 2015. Glanbia plc, in common with its largest shareholder, Glanbia Co-operative Society Limited, recognises that Ireland has a range of competitive characteristics that facilitates growth in milk supply post 2015. The longer-term outlook for global dairy markets is also positive, driven by rising income levels in developing economies. Both parties and their advisors are working to evaluate possible options for expansion of dairy processing in Ireland. A conclusion on the best way forward for all stakeholders is expected to be reached in the second quarter of 2012.

Any investment opportunities arising would be considered by Glanbia plc in a portfolio context to ensure that Group resources are directed to business segments so as to maximise overall Group performance.

Operations review

Group strategy

Glanbia has invested significant resources in recent years to develop and enhance the US Cheese & Global Nutritionals division. Our key strategic investments and acquisitions in these areas have performed very well and are underpinning our strategic objective of delivering sustainable, profitable earnings growth.

Constant Currency

Glanbia's financial results are exposed to movements in the euro/US dollar currency exchange rate and the impact this has on the translation into euro of the significant portion of the Group's profits that are US dollar denominated. To reflect the underlying performance of the business Glanbia uses constant currency as a basis for discussing financial results and providing earnings guidance. In 2011 US dollar denominated profits represented approximately 65% of the Group's earnings before interest, taxation and amortisation (EBITA).

Revenue, profitability and margins, on a constant currency basis(1)

(1) Constant currency is based on translating 2011 results at the 2010 average market exchange rate. The 2010 average exchange rate was €1 = US$1.3260 which compares with the reported average exchange rate for 2011 of €1 = US$1.3923.

Results overview

Total Group revenue, including share of Joint Ventures & Associates, grew by 26.8% to €3.3 billion on a constant currency basis, (2010: €2.6 billion). This growth is attributable to strong underlying organic volume growth of 8%, higher pricing and an enhanced product mix of 14%, and a 5% positive contribution by acquisitions, primarily Bio-Engineered Supplements and Nutrition (BSN®) acquired in January 2011.

Total Group EBITA, including share of Joint Ventures & Associates, increased 22.5% to €212.1 million on a constant currency basis (2010: €173.2 million). Total Group EBITA margin fell 20 basis points to 6.5%, on a constant currency basis, (2010: 6.7%) mainly as a result of lower EBITA margins in US Cheese & Global Nutritionals. This was a solid performance given the scale and pace of the input cost pressures in the Performance Nutrition business, which consistently moved ahead of three product price increases effected during the year.

US Cheese & Global Nutritionals

Analysis on a constant currency basis

In 2011, US Cheese & Global Nutritionals revenue increased 35.1% to €1.38 billion (2010: €1.02 billion). The strong growth in total revenue is attributable to underlying organic volume growth of 10%, higher pricing and an enhanced product mix of 14%, and the positive contribution of the acquisition of BSN® of 11%. Operating profit pre exceptional increased 21.3% to €113.8 million (2010: €93.8 million). EBITA pre exceptional increased 23.3% to €128.8 million (2010: €104.5 million). Operating and EBITA margins pre exceptional decreased by 100 and 90 basis points respectively.

US Cheese: 2011 performance and 2012 outlook

US Cheese delivered a solid performance in 2011. While the US Cheese market was volatile, average prices were higher than 2010 and importantly; the business has increasingly sought to reduce this market related risk through the adoption of a range of risk management tools. Production was down marginally in the year as cheese volumes were aligned with sales demand. Competition for milk was a feature of the year and led to some input cost pressures. These were offset by strong operational management including the implementation of a two year Total Quality Management ('TQM') programme referred to internally as the Glanbia Performance System 'GPS'. US Cheese was the pilot for this programme, which will be rolled out across key Group manufacturing sites. Export sales were strong in the year and significant investment was made in building internal resources to maximise this business opportunity over the longer-term. Revenue, EBITA and EBITA margins grew year-on-year.

US Cheese continues to invest in enhancing its product capabilities and an $11m investment in a cheese innovation centre is planned for 2012. This is to facilitate closer collaboration with customers in developing new products and formats. The trading environment for US Cheese in 2012 has some challenges. Higher US milk production is expected to result in a lower average US cheese market price in 2012. While retail demand was impacted by high prices in 2011, overall demand remains resilient in the foodservice, industrial and export sectors. In response to the current competitive environment for both milk suppliers and US cheese processors, Glanbia is in the process of reviewing the milk price formula for its milk supply base in Idaho. Overall US Cheese is forecast to deliver a performance in 2012 broadly in line with 2011.

Global Nutritionals: 2011 performance and 2012 outlook

Global Nutritionals had a strong year in 2011 and is now the largest business in the Group both by revenue and EBITA, which is a significant strategic transformation for Glanbia in recent years. Organic revenue growth was excellent in all three business units; Performance Nutrition, Customised Premix Solutions and Ingredient Technologies, driven by strong demand and good growth in prices and EBITA also improved in the year. However there were significant raw material price pressures which impacted EBITA margins in Performance Nutrition where significantly higher whey costs were not fully recovered in the market despite a series of price increases and margins declined as a result. This is reflected in the overall 90 basis points reduction in US Cheese & Global Nutritionals divisional EBITA margins for 2011.

On 19 January 2011, Glanbia announced the acquisition of BSNâfor a total consideration of $144 million. The business was acquired on a debt free basis and was funded through Glanbia's existing banking facilities. BSNâis a leading developer, provider and distributor of nutritional products and enhances and extends Performance Nutrition's product portfolio. During the year there has been significant investment in organisation and product development including the re-launch of their flagship Brand, N.O.-XPLODE 2.0 for pre-training performance and energy. The integration of BSNâis progressing well and the business performed in line with expectations in 2011.

Market growth in all Glanbia's core nutritional sectors gathered pace in 2011 and the prospects are very good for 2012. These are underpinned by long-term positive structural market growth drivers including healthy living and healthy aging. While raw material availability and cost is expected to remain challenging for Performance Nutrition in the short term, this market dynamic is expected to ease as new supply sources become available in the latter part of 2012. There is a clear focus in Global Nutritionals on developing new products, both nutritional and functional; building a systematic approach to innovation and enhancing organisation and operational capacity. During 2011, all three nutritional businesses developed their international presence and each continues to build scale and global platforms that are customer centric. Overall Global Nutritionals is expected to perform well again in 2012.

Dairy Ireland

In 2011 Dairy Ireland revenue grew 18.9% to €1.35 billion (2010: €1.14 billion). The revenue growth is attributable to underlying organic volume growth 4%, higher pricing and an enhanced product mix 13%, and the contribution of a small acquisition 2%. Operating profit pre exceptional increased 23.2% to €53.6 million (2010: €43.5 million) and the operating margin pre exceptional increased 20 basis points to 4.0% (2010: 3.8%). EBITA pre exceptional increased 20.9% to €57.9 million (2010: €47.9 million).

Dairy Ingredients Ireland: 2011 performance and 2012 outlook

In 2011, global dairy markets remained largely positive despite significant geopolitical and macroeconomic events during the year. This underpinned solid results from Dairy Ingredients. Volumes and prices were higher and the business also benefited from strong operational and cost management, combined with maximising market reach in emerging markets. Revenue and EBITA grew and EBITA margins also improved somewhat, despite significantly higher milk costs. In 2011, a €21.2 million investment in the whey processing facilities was approved which, when commissioned in 2012, will increase the volume of higher protein whey products produced. The 2012 performance of Dairy Ingredients is expected to be broadly in line with 2011.

Consumer Products: 2011 performance and 2012 outlook

Consumer Products had another difficult year in 2011. Irish macroeconomic circumstances have created unprecedented pressure on suppliers to the Irish food retail and foodservice sectors. Within retail, private label grew market share in all categories as consumers continued to focus on cost and managing their food budgets very tightly. Consumer sentiment is fragile at best as the outlook remains uncertain for European fiscal and monetary developments. Within the food category price promotions are now a permanent market fixture. Higher prices in global dairy markets impacted raw material input costs with only modest price increases passed onto the consumer. Volumes were up in fresh dairy products and natural cheese, but there were mid-single digit declines, on a like for like sales basis, in branded milk. While revenue increased in 2011, largely driven by a small liquid milk acquisition during the year, EBITA and EBITA margins declined. In response to the market challenges, the business has continued to focus on rationalising its operational cost base driven by both headcount reductions and process re-engineering, while also continuing to drive forward its innovation pipeline, with recent new product launches such as 'Heart Active' milk. No significant change in the market environment is expected in 2012 and Consumer Products is forecast to deliver a broadly similar performance to 2011.

Agribusiness: 2011 performance and 2012 outlook

Agribusiness had a good year in 2011 overall. Volumes were marginally down but strong cost focus, favourable production mix and management of key buy/sell equations helped to deliver growth in EBITA. EBITA margins were broadly similar to 2010. The performance of global dairy markets in 2012 is expected to underpin farm input demand at similar levels to this year but the management of milk quota limits the prospects of volume growth. Overall a solid performance is expected from Agribusiness in 2012.

Joint Ventures & Associates

(1) Not included in Group revenue.

Analysis on a constant currency basis

Joint Ventures & Associates had a good year. Revenue improved as a result of higher volumes and market price increases in US cheese and European mozzarella markets. Nutricima, in Nigeria, also delivered an improved performance and revenue grew year-on-year driven by volume growth. Glanbia's share of revenue grew 29.9% to €541.0 million (2010: €416.6 million).

Glanbia's share of operating profit increased 20.4% to €26.0 million (2010: €21.6 million), mainly as a result of a strong performance by Glanbia Cheese and an improved performance in Nutricima.

Operating margins declined 40 basis points year-on-year to 4.8%, driven by a decline in margins in Southwest Cheese, as a consequence of higher milk cost. This is as a result of the impact of relative market pricing of dairy products on milk cost during the year.  

The Group's share of profit after interest and tax was up €4.2 million to €14.3 million (2010: €10.1 million). The table below reconciles operating profit with share of results of Joint Ventures & Associates, as reported in the income statement.

Finance review

Summary income statement, as reported

For a review of revenue and operating performance, see the Operations Review on page 3.

Net finance costs

Net financing costs increased by €5.8 million to €27.9 million (2010: €22.1 million) mainly due to the drawdown of a $325 million private debt placement of 10 year senior loan notes during the year. These notes are unsecured, ranking pari passu with existing senior debt and have a fixed coupon rate of 5.4%. The Group's average interest rate for the full year 2011 was 5.0% (2010: 4.2%).

Joint Ventures and Associates

The Group's share of results of Joint Ventures & Associates was up 41.6% (€4.2 million) to €14.3 million (2010: €10.1 million). The improved result reflected strong profitable growth in Glanbia Cheese and improved performance in Nutricima.

Taxation

The 2011 tax charge pre exceptional increased by 5.9%, to €27.0 million (2010: €25.5 million) which represents an effective rate, excluding Joint Ventures & Associates, of 20.3% (2010: 22.3%). The decrease in the effective rate is driven by the change in mix and geographic locations in which profits are earned. 

Exceptional items

Rationalisation costs of €8.7m, include redundancies related to the integration of the liquid milk business acquired from Kerry Group plc and were incurred in the first half by the Consumer Products business within Dairy Ireland.

Basic earnings per share

Basic earnings per share (EPS) increased by 3.7% to 38.22 cents per share (2010: 36.86 cents per share), as a net negative movement in exceptional items year on year was offset by an increase in pre exceptional Group profit after tax.

Adjusted earnings per share

Adjusted earnings per share is calculated as the profit for the year attributable to the equity holders of the Parent before exceptional items and amortisation of intangible assets (net of tax). Adjusted EPS increased 21.7% to 46.32 cents per share (2010: 38.07 cents per share) driven mainly by improved operating profit and share of profit after tax from Joint Ventures & Associates, offset by an increased net finance charge.

Dividend per share

The Board is recommending a final dividend of 4.94 cents per share (2010: final dividend 4.49 cents per share). This represents an increase of 10% in the year and brings the total dividend for the year to 8.27 cents per share (2010: 7.52 cents per share).

Summary cash flow

(1) EBITDA pre exceptional comprises US Cheese & Global Nutritionals €135.4m, Dairy Ireland €77.4m and Other (€0.6m)

The Group generated strong free cash flow during the year of €87.5 million (2010: €65.5 million) an increase of €22.0 million year on year. Free cash flow is stated after charging working capital movements and business sustaining capital expenditure, but before dividends received from Joint Ventures, loans repaid by/advanced to Joint Ventures, strategic capital expenditure, restructuring costs, and equity dividends.

Higher EBITDA in 2011 of €212.2 million (2010: €182.8 million) was offset by year on year investment in working capital, increased business sustaining capital investment and interest outflows. The working capital outflow in the year primarily reflects the reduction of a debt purchase agreement which was in place with a financial institution since 2005. Dividends received from joint ventures during 2011 were €14.8 million an increase from the prior year of €3.6 million (2010: €11.2 million) and reflect a good cash return to the Group from both Southwest Cheese and Glanbia Cheese.

Financing KPIs

The Group remained focused on cash management in 2011 and delivered a robust year end net debt/adjusted EBITDA financing ratio of 2.1 times (2010: 2.1 times), notwithstanding significant strategic acquisition capital expenditure and one off working capital outflows. This is well within the Group's year end covenant of 3.3 times.

In 2011, adjusted EBIT to net financing cost cover was 6.3 times (2010: 6.7 times), reflecting the increased cost of the private debt senior loan notes in the year. The Group's average interest rate for the full year 2011 was 5.0% (2010: 4.2%), reflecting the mix of financing facilities of the Group. Glanbia operates a policy of fixing a significant amount of its interest exposure with approximately 75% of projected 2012 debt currently contracted at fixed rates.

Financing

The Group currently has three sources of debt finance; 10 year senior loan notes issued as a private debt placement in 2011, senior bank debt with nine banks under bilateral arrangements with common terms and conditions and cumulative redeemable preference shares. Committed debt facilities total €987.7 million encompassing the $325 million private debt placement (€251.2 million), €673.0 million from nine banks and €63.5 million cumulative redeemable preference shares. The tenure of these facilities ranges from €163.0 million renewable in July 2012, €510.0 million renewable in July 2013, €63.5 million maturing in July 2014 and €251.2 million maturing in June 2021. The Group will be reviewing the overall group financing in 2012 as part of the normal bank debt renewal process.

1 Year end net debt includes €63.5 million cumulative redeemable preference shares

2 Adjusted EBITDA reflects Group EBITDA, pre exceptional items, plus dividends from Joint Ventures & Associates

3 Adjusted EBIT reflects Group EBIT, pre exceptional items, plus dividends from Joint Ventures & Associates

Return on capital employed

The overall return on capital employed has improved by 20 basis point to 12.7% (2010: 12.5%). The return is defined as a post tax measure of the return earned by the Group on capital invested including Joint Ventures & Associates. The improvement was driven by the strong growth in operating performance of the Group allied with the prudent deployment and strong utilisation of capital across the Group.

Pension

At 31 December 2011 the Group's net pension liability under IAS 19 'Employee Benefits', before deferred tax, decreased by €0.2 million to €48.4 million (2010: €48.6 million). The marginal reduction in the Group's deficit reflected the negative movement in actuarial assumptions (€17.0 million), caused primarily by a weak return on invested assets and increased mortality assumptions used, offset by the employer contributions of €17.7 million (net of service cost).

The fair value of the assets of the pension schemes at 31 December 2011 was €400.0 million (2010: €389.3 million) and the value of the scheme liabilities was €448.4 million (2010: €437.9 million).

Financial Strategy

The Group has significantly restructured and re orientated its business strategy in recent years. As the Group has been in strategy delivery mode, the financial goals have remained consistent, that is; to diversify earnings, improve operating margin and deliver sustained earnings growth through rigorous cost management and prudent deployment of capital to the highest returning investment opportunities. The Group requires as part of its assessment of the business case for significant acquisition and development projects, that the projects achieve a minimum hurdle rate of 12% post tax return in year 3.

Annual General Meeting (AGM)

The Group's AGM will be held on Wednesday, 9 May 2012 in The Newpark Hotel, Castlecomer Road, Kilkenny. On the same day Glanbia will issue an Interim Management Statement.

Principal risks and uncertainties affecting the Group's performance in 2012

The Board of Glanbia plc has the ultimate responsibility for risk management. The performance of the Group is influenced by global economic growth, global dairy and US cheese markets, and consumer confidence in the markets in which it operates. Economic uncertainty or excessive volatility in global dairy pricing represents a material change to the Group's trading environment.

In 2012, the principal risks affecting the Group's performance are:

·; An uncertain global economic outlook;

·; Sustainability of demand / supply balance in global dairy markets

·; Buy / sell balance in US Cheese and Performance Nutrition; and

·; Consumer confidence in Ireland.

The principal risks and uncertainties will be outlined in detail in the 2011 Annual Report.

2012 Outlook

We expect the operating environment in 2012 to be more challenging than in recent years. Current global economic uncertainty has the potential to impact global dairy markets and fragile consumer confidence. The Group's focus on driving growth in nutritionals, combined with deep dairy market expertise and strong execution capability, position us well for the future. Our guidance for 2012 is for 5-7% growth in adjusted earnings per share, on a constant currency basis.

Cautionary statement

This announcement contains forward-looking statements. These statements have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements contained in this announcement, whether as a result of new information, future events, or otherwise.

Results webcast and dial-in facility

There will be a webcast and presentation to accompany this results announcement at 8.30 a.m. today. Please access the webcast from our website at Link: http://www.glanbia.com/FYR-Webcast, where the presentation can also be viewed / downloaded. In addition, a dial-in facility is available using the following numbers:

Ireland: 01 2421074

UK: 01296 311600

Europe: +44 1296 311600

US: 171 835 41175

Passcode: 598033

On behalf of the Board

L Herlihy J Moloney S Talbot

Directors

Goodwill previously written off amounting to €93.0 million (2010: €93.0 million) is included in opening and closing retained earnings.

On behalf of the Board

L Herlihy J Moloney S Talbot

Directors