1 / 40

Supplier Information Seminars January 2006 “Maximising Returns from Milk”

Supplier Information Seminars January 2006 “Maximising Returns from Milk”. i. Introduction ii. Overview iii. Preview 2006 iv. Irish dairy opportunity. I. INTRODUCTION. International Consumer Foods, Dairy Food Ingredients and Nutritionals Group

weston
Download Presentation

Supplier Information Seminars January 2006 “Maximising Returns from Milk”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Supplier Information Seminars January 2006 “MaximisingReturns from Milk”

  2. i. Introduction ii. Overview iii. Preview 2006 iv. Irish dairy opportunity

  3. I. INTRODUCTION • International Consumer Foods, Dairy Food Ingredients and Nutritionals Group • Operations in Ireland, UK, Germany, USA and Nigeria; c. 4,000 employees • 2004 Group turnover €1.8 billion; operating profit €84.8 million • Free float 45%; 55% co-op ownership • Market capitalisation c. €730 million

  4. Vision “To be the most relevant player in international cheese, nutritional and dairy ingredients and selected consumer foods markets” through a focus on international scale and growth markets

  5. IRELAND No. 1 Dairy processor No. 1 Liquid milk and cream brand No. 1 Cheese and butter processor No. 1 Pigmeat processor EUROPE No. 1 Pizza cheese supplier No. 1 Supplier of key customised nutrient premixes USA No. 1 Barrel cheese No. 1 Whey protein isolate No. 4 American cheddar cheese GLOBAL Leading supplier of advanced technology whey proteins and fractions

  6. II. OVERVIEW

  7. Agribusiness • Challenging environment • Turnover and margins impacted by MTR Consumer Foods • Pigmeat - improved performance. Recovery slower than anticipated • Liquid Liquid Milk and Chilled Foods – tough environment in Chilled Foods and competitive market place for Liquid Milk Food Ingredients • FoodIngredients Ireland- margin pressure; ongoing structural change in dairy markets • FoodIngredients USA – good, strong market, increased output. Progress made on operational scale and efficiencies (incl. SWC)

  8. III. LOOKING FORWARD 2006 Market Challenges • Trade issues • More certainty in EU policy, post MTR • EU budget tight – product supports declining • Direct income payments V fall in product revenues • WTO trade liberalisation = uncertainty • Deregulation - transition to more open world economy • Changing retail customer base, discounter business model

  9. Market Opportunities • Globalisation of the food industry • scale, efficiency, innovation, market positions • networks and partnerships • Developed Markets continue to dominate dairy consumption • Growth opportunities in developing countries (incl. oil producers) • New groups of consumers, driven by demographics • Requirement for products with added health benefits

  10. 1. Agribusiness Strategic Initiatives • Ongoing efficiency improvements • Competitive products focused on farmer needs • Ongoing coarse ration and grain store investments • Reshape retail offer at branch level with targeted investment - CountyLife • Investment in customer information systems • Strengthen loyalty bonuses to farmers Principal activities Feed milling / marketing Fertilizers Grain trading Farm inputs

  11. Feed and Fertiliser Prices Indices Base year 2000 = 100 Source CSO

  12. 2. Consumer Foods Strategic Initiatives • - Significant pipeline of new products • Brand repositioning through • - increased marketing spend • - tighter focus • National distribution on beverages • Own label strategy • Rigorous focus on cost and efficiencies Principal activities Liquid milk, chilled foods with leading householder brands Pig processing for local and international markets Mozzarella pizza cheese for European markets

  13. Total ROI Milk Market • - CSO record fall in ROI Milk production of 1.1% in 2004 • Market growth boosted by NI Imports (PL milks) of 16%+ in 2004 Source: CSO/ NMA 2005

  14. Strategic Challenges for Fresh Milk • Own Label sales are growing at 13% per annum • Multiples and Symbols increased volume by 13% (1999 – 2004) • 90% of all Own Label milk sold outside of Tesco is sourced in NI • Households penetration at 74% for Own Label • Food service continues to grow • Uncertainty fuelled by abolition of Groceries Order

  15. Cost of Milk and Own Label Average Milk Prices 1999 - 2005 Cent Per Gallon 155 NI Milk Price 150 145 Manufacturing 140 135 Contract 130 125 120 115 110 1999 2000 2001 2002 2003 2004 2005

  16. 3. Food Ingredients Strategic Initiatives • Ongoing progress on operational scale/ efficiency to respond to shifting markets (cost reductions) • Contract Manufacturing (Dairygold and Connacht Gold) • Implementation of cheddar rationalisation • Further expansion in US cheese • Nutritionals growth Principal activities Leading dairy-based ingredients supplier Europe’s largest integrated dairy processing facility Major cheese supplier from four plants in “Magic Valley”, Idaho Formulation of whey proteins for Nutritionals

  17. Global Dairy Markets Key assumptions: • Growth in global demand to absorb Oceania and Latin America production increases • Global prices remain strong but down on recent peaks • No supply shortfall (e.g. no climate problems) • US milk supply growth matched by US domestic consumption growth (inc exports). • Policy changes (EU+WTO) remain broadly within expectations. • Exchange rates stay within reasonable bands

  18. EU + Global Dairy Markets Short-term Prospects(Jan – June 2006) Casein • Prices to stabilise at slightly above SMP equivalent (€5,200/t, $3.0/lb) • Scale + whey valorisation critical for success • Demand declining by 25% • Exit of small scale manufacturers Whey Derivatives • Prices to remain firm at, whey powder equivalent €700/t • Price aligning with SMP SMP • Prices to remain firm at €1,950 (feed) €2,020 (food) • Supply tight - Demand OK

  19. EU + Global Dairy Markets Short-term Prospects(Jan – June 2006) • Butter • Prices expected to weaken to €2,450/t • Supply still exceeding demand • Intervention cut to 50,000 tonnes - PSA conditions still unknown • Cheese • Prices expected to weaken from current high • Limited milk supply preventing significant stock increases • Demand growth matched by supply

  20. Butterfat Mid Term Prospects • Butterfat will be the main EU and global problem product • EU and world prices will not have aligned by 2008 • EU butter production is sustained due to continued proliferation of low- fat products • Intervention is effectively eliminated with CAP at 30,000t • EU Prices may fall well below 2008 intervention price of €2,215 • World prices will increase by 5-10% to falling EU export subsidy • Will continue to need support

  21. Key dairy export market for Ireland Population 321 million by 2015 Record dairy demand / cheese production Consolidation of dairy production and processing in the West Glanbia No 1 U.S. producer of American-style cheese with Southwest Cheese No 2 U.S. producer of WPC and WPI global marketer Market access - USA

  22. Southwest Cheese, Clovis New Mexico

  23. Market access - Nigeria • Population 140 million • New €20m Nigerian milk powder facility with PZ Cussons plc • Supplying evaporated milk and milk powder (from Virginia) to local market • Nunu powder suitable for use as milk replacer, coffee and tea whitener • Further Opportunities

  24. Enhanced Global Market Access Europe • Kortus Food Ingredients -Germany (no 1 supplier of customised nutrient premixes in Europe) Mexico • Marketing JV with Conaprole of Uruguay, selling dairy ingredients into central and South America (three sales offices) • Dairy blending and processed cheese manufacturing Zylamact de Mexico (ZDM) • Manufacturing facility in Toluca, 60 km from Mexico city China • Sales HQ for nutritional products for pharmaceutical and food applications

  25. Innovation • Essential for differentiation and to move up the value chain • Innovation balances volatility in commodity markets • To compete effectively with large world dairy commodity producers

  26. Innovation • Glanbia operates two innovation centres (Ireland and US) • The Group Innovation Centre in Kilkenny was a first for the Irish food industry when announced in April 2004. €15m investment • Currently employing 52 development professionals and research scientists in Kilkenny • Focus: • nutritional solutions • functional ingredients • hand-held consumer snacks and beverages

  27. Recent ingredient innovations • Defined cook-time rennet casein for US cheese • Heat stable formulated FFMP • Hi Gel WPC for Yoplait • Recombined cheese ingredients (Mexico) • Avonol – skim milk solid replacer in ice cream • Corman Miloko Ireland • Added-value route to market for butterfat products • Fractionation technology and know-how

  28. Cost Management ChallengesGII • Dairy processing revenues falling with costs rising • Focus on continuous improvement in operational efficiency • Cheddar cheese rationalisation • Rationalisation in Ballyragget • Strategic alliances to maximise utilisation • Contract Manufacturing agreements (Dairygold, Connacht Gold) • Corman Miloko Ireland

  29. Inflation Impact GII (2000 -2004) • CPI 2000 – 2004 was 14% cumulative • Energy 280% higher today than in 2000 • Insurance costs doubled • Payroll inflation 30% • Glanbia Ingredients has contained inflation at 1/3 of CPI

  30. EU Milk Price Comparisons Netherlands Denmark Germany Ireland U.K. Adjusted to fat 3.6%, protein 3.3%, excl VAT

  31. IDB on Account Price Relative to Current Milk Price • Present IDB on account price for basic butter and SMP - 126c/gallon or 99.24p/gallon • Current manufacturing price - 114.65c/gal or 90.29p/gal excl.VAT • Available to processor - 11.35 c/gal or 8.95 p/gal Source IDB

  32. Cumulative view of MTR impact 2004-2006

  33. 4. Irish Dairy Opportunity • Irish grass based system = competitive advantage • Irish farmers among most efficient, least cost European milk producers • Continuing demand for low cost, high volume,value added dairy products • Strong farmer / processor partnerships • There is a future for efficient and flexible dairy farmers

  34. Irish Dairy Challenge • Nitrates (and Phosphates) Directive • Quota availability = single biggest obstacle to dairy farm viability • - Current quota system unsustainable • Glanbia dairy farm Survey 2004 • Quota availability key to farm viability into the future • Public representation on quota restructuring

  35. Glanbia Quota Recommendations - draft • Free market for quota • Co-op based • Modified quota exchange scheme • Government-financed scheme to “top up” fixed price

  36. Glanbia Supplier benefits • 2005 Patronage Scheme • Opportunity to purchase shares in the Society at a 33% discount (3 for price of 2) • Revolving Share Plan • €9.5m to be paid in 2006 – 50% uplift (Total payout of ‘01-’05 plans = €43m in ‘06-’10) • new 2006 plan - growth of 30% in funds invested over a five year period • Dividend stream • Proposal to increase dividend paid from the Co-op from 1 to 2% for ‘05 • Proposal for 2005 milk bonus to members of the Co-op based on ’05 milk supply • Proposal for patronage bonus for ’06 on feed, fertilisers, chemicals and grain (1% of purchases ) • Annual Review of Dividend Stream

  37. Ongoing Farm Focus • Milk Quality • Major improvement through targeted incentives for year end production • Glanbia Farm Development Programme • Launch in Spring ‘06 • Business development workshops for all suppliers (‘06/’07) • Farm business planning • Monitor Farm programme continues in ‘06

  38. Conclusion “Irish dairying is in transition but has a good future” Four ingredients for success are : • Scale and efficiency at farm and processing level - Quota restructuring critical 2. Global market reach 3. Investment (innovation & marketing) 4. Realism - in transition and competing at lower prices and making step-changes in costs

  39. Thank You

More Related