Total Produce offers Glanbia a cautionary tale as it untangles Irish dairy roots

Glanbia PLC managing director Siobhán Talbot is hoping, for the sake of her SlimFast brand, that perennial dieters who have taken it easy during Covid-19 will be back on the scales by January.

“The diet category has no doubt been impacted by Covid,” Talbot told analysts on a call this week as SlimFast stood out as a rare weak spot in Glanbia’s otherwise solid quarterly results.

“However, as we emerge from Covid, consumer research points to an acknowledgement by a significant number of consumers that they have gained some weight and indeed a desire to lose weight. We believe that, for the category, it really is a question of the timing of that trigger event, which currently we would expect to be the normal diet season in the early part of next year.”

SlimFast was bought by Glanbia three years ago to help diversify its global performance nutrition unit from flogging protein shakes and bars to athletes and gym-goers towards more lifestyle consumers.

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Glanbia set to exit dairy in Ireland with sale of processing business

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Its resurgence as a brand under Glanbia cushioned the wider performance nutrition unit as its revenues were hit in 2019 by a number of issues, including geopolitical tension and supply chain issues in the Middle East and economic weakness in Latin America. However, SlimFast’s sales were off almost 9 per cent in the key US market for the 12 weeks to early October.

The performance nutrition unit’s key Optimum Nutrition brand’s sales, on the other hand, jumped 19 per cent, continuing a rebound from Covid lockdowns.

Still, the general turnaround in performance nutrition, together with an ongoing strength – right through Covid – of the group’s nutrition solutions business, prompted the group this week to raise its full-year earnings guidance.

Cheddar cheese

Nutrition solutions houses Glanbia’s US cheddar cheese business and supplies dairy-based and, increasingly, plant-based proteins to food companies.

It now expects adjusted earnings per share, excluding currency fluctuations, to come in at the top end of its previous forecast for 17-22 per cent growth.

A boost from SlimFast, however, may have to wait until the next year. In the meantime, Glanbia is looking to get rid of some unwanted excess flab itself, in the form of its remaining 40 per cent stake in the Glanbia Ireland business.

The PLC agreed this week to sell its remaining interest in Glanbia Ireland – home to 11 processing dairy plants and brands such as Avonmore and Kilmeaden – to its joint venture partner and main shareholder, Glanbia Co-op.

The deal will shed the vestiges of the group's roots. It was formed through the 1997 merger of two of the State's largest dairy co-operatives, Avonmore Foods and Waterford Foods.

It comes 11 years after the PLC first attempted to sell its low-margin Irish dairy and agri-business assets to the co-op, then a 54 per cent shareholder. That deal was shot down as support among co-op farmer members fell two percentage points short of the 75 per cent needed in a vote.

In 2017 both sides got an alternative deal over the line, bundling the dairy and agri business units into the Glanbia Ireland joint venture, in which the co-op took a 60 per cent stake.

But it really was only a matter of time before the two came back again to finish off the job.

The new agreement, subject to approval by shareholders on both sides, will see the co-op buy the PLC’s 40 per cent stake for a total €307 million. Some €22 million will be shaved off that price by the PLC covering transaction costs and not receiving a dividend from Glanbia Ireland for 2021.

The co-op will fund half of the transaction by raising fresh debt, with the rest to come from the sale of part of its remaining 32 per cent stake in the PLC. Based on Glanbia’s current share price, the co-op would have to sell about four percentage points of its stake.

It also plans, as a sweetener for members, to spin out a further four points of its stake to farmers, giving them direct shares in the PLC (something it has done a number of times in the past decade).

Crucially, this will push the co-op below the key 25 per cent level that gives it a blocking minority on certain special resolutions.

In addition, the co-op plans to put a further four percentage points of its holding in a new investment fund, with the shares earmarked for sale if the right “opportunities” come along. All told, it leaves an overhang of up to 12 per cent of Glanbia’s shares on the market.

Charm offensive

This explains the stock’s decline of as much as 5.5 per cent from its highs on Wednesday morning.

As part of a charm offensive to court support from farmers, Talbot told Waterford-based WLR FM’s popular Farmview programme on Thursday that Ireland would remain Glanbia’s base.

But with the Kilkenny company having recorded almost 85 per cent of its sales in North America last year, there is an argument, at least, for it to consider reporting in dollars. It is on track to take a 4 per cent earnings hit this year as a result of the dollar trading at a lower average rate against the euro.

Glanbia may also find itself fielding pitches – if it hasn’t already – from overseas investment banks to move its listing to New York, with the promise that its stock will attract a higher valuation on the other side of the Atlantic.

Iseq heavyweight CRH has faced calls from quarters on occasion for a partial or full New York listing of its key US division, while Goldman Sachs sought to convince Kerry Group to ditch the Irish market for Wall Street as it advised the food group on its failed $25 billion-plus (€21.9 billion) bid two years ago for US chemicals group DuPont's nutrition business.

But the Carl McCann-led fresh produce group Total Produce offers a cautionary tale to any company thinking that a New York listing is a red-carpeted path to stock market greatness.

In merging with US rival Dole Foods in July to form Dole PLC, the Irish company abandoned Euronext Dublin for the New York Stock Exchange. After floating in the US at a bottom-of-the-range price of $16 a share, Dole's stock has since fallen 13 per cent. The wider US market, meanwhile, is up more than 5 per cent.