Glanbia is to spend up to $105 million (€81.8 million) on the purchase of California-based nutrients business Seltzer Companies. The move, which was announced as the food and agribusiness group posted flat first-half results, could allow for a large-scale entry to the Chinese infant formula market.
Glanbia will initially pay $80 million in cash for the Californian company, with the remaining $25 million contingent on performance. Seltzer, which supplies nutritionals such as premixes and speciality chemicals to the food, beverage and pharmaceutical markets, had revenues of $52.6 million last year. Operating profits amounted to $6.4 million, with the operating margins standing at 12 per cent.
Glanbia said it was getting "good value", paying a historic acquisition multiple of 13 times and an implied future multiple of eight or nine times.
Seltzer is being bought on a debt-free basis and Glanbia is funding the deal from its existing finance facilities. John Moloney, Glanbia chief executive, said the acquisition should be earnings-enhancing from 2007. It plans to use the deal to examine opportunities in infant formula and functional foods in China.
Analysts said the expansion made sense because it would allow Glanbia to reduce its Irish focus and move into value-added activities. Glanbia already has a similar nutrients business in Germany and plans to link the two.
The market also focused on the group's optimistic 2007 outlook, which foresees double-digit growth. As expected, the interim performance this year was less impressive, with revenues of €922.8 million, compared to €926.1 million last year.
Operating profits fell by 5 per cent to €36.4 million, while pretax profits were flat at €30.2 million. Margins dropped 4.1 per cent to 3.9 per cent. The decline came on the back of a weaker result in Irish dairy ingredients, where Glanbia has been hit by EU agricultural policy reforms. Sales here were down by 7 per cent, with Glanbia expecting a flat outcome in the second half.
Results were better in the US ingredients business and in nutritionals, while an injection of €16 million from property sales helped to balance the overall numbers. Mr Moloney said he expected the property business to yield €40-€50 million in the next five to seven years.
Glanbia's cheese joint venture in the UK was also more buoyant, with profits and margins making steady progress.
The outlook for a $190 million investment in a cheese joint venture in the US is also promising, with full production due to kick in next year. In Nigeria, where Glanbia has a milk joint venture, sales growth has been strong.
Mr Moloney signalled that the firm would look for more acquisitions in nutritional ingredients and could spend up to €60 million on bolt-ons next year.
The firm would also look at deals in consumer foods at home, he said. Glanbia will pay a first-half dividend of 2.38 cent per share, up 5 per cent year on year.
The group's shares closed at €2.45, five cent higher on the day.
