GLANBIA HAS TO BULK UP
Nutrition group faces challenges – Richard Curran,
LOCKDOWN did some funny things to people’s eating habits. Take Glanbia’s first-half results, for example. Lots of people took up baking bread, others did a major weekly shop with a view to home cooking — for the first time in years. Yet while Glanbia’s global performance nutrition division took a bit of a hammering with consumer brands, its US cheese division had a stand-out performance.
It seems instead of munching protein bars or healthy drinks from convenience stores near the office, people were getting stuck into US-style cheddar cheese and pizzas.
Once the poster boy performer in the Glanbia’s portfolio, the performance nutrition business is stuttering somewhat and it isn’t just about the impact of the pandemic.
Like many other major corporations, firsthalf results are difficult to read because the virus surge blindsided everybody. Unless you were in the supermarket business or Netflix, it was a pretty tough time all round.
Having said that, the earnings before interest, taxes, depreciation and amortisation (ebitda) in the performance nutrition business fell by 58pc to €19.6m in the first six months of the year. This was largely driven by a 15.6pc fall in constant currency revenues which came in at €532m — compared to Davy Stockbrokers’ expected figure of €576m.
Margins within what should be a highmargin consumer business continued to fall from 5pc to 3.7pc.
To put it in perspective, back in 2016 this division turned in first-half ebitda of €81.7m on revenues of €505m. Scroll on to 2019 and ebitda was just €46.9m on the back of higher revenues of €620m in the first half.
Increased competition, exchange rates and a greater shift to online sales, have all posed problems for the business, in what is otherwise a massive growth category.
Covid-19 came along at a time when management were working hard to address these issues. It has become another problem to deal with in what, just a few years ago, looked like the main driver of future growth within the group.
There had even been speculation that Glanbia plc might consider hiving off this
unit into a separate listed company at one stage. It doesn’t look like it now.
Glanbia correctly identified performance nutrition as a key growth area and got in relatively early and very bravely by taking on the US market. It was such a good idea, that lots of others have jumped in — which
impacts on pricing.
Most of these challenges were priced into a massive fall in Glanbia’s share price between March 2019 (€18.60) and April 2020 (€7.77). Since then, it has had a reasonably good run under the circumstances and is trading around €9.36.
Covid challenges aside, there are still some real issues to fix when it comes to the performance of its performance nutrition.
Take-up of rural broadband will be key to the end cost
THE Government is finally going to publish the National Broadband Plan it has signed with the company entrusted with the rollout of the scheme. But alas, only a redacted version of the 3,000-page contract will be set free for public consumption.
It is all rather sensitive at the Department of Communications, where publishing the document is akin to disclosing the Secrets of Fatima.
Despite delays, cost, ups and downs — and that’s just the contract negotiations — the broadband plan is set to go ahead and it will be most welcome in those rural households currently in the broadband equivalent of the Gobi Desert. Many suffer poor mobile signal to begin with, never mind fibre broadband.
The big issue will be how many of those households will welcome the scheme by actually taking up the contract for broadband. The plan is to have broadband available to 540,000 households.
Eir decided to pull out of the project and instead went ahead with providing fibre to several hundred thousand premises in less remote locations. Eir and Siro now say they have passed 700,000-800,000 premises between them, although there are some overlaps in the numbers.
Eir declined to say publicly what percentage of rural households where fibre was available had taken up a contract. But there was speculation the figure was as low as
25pc.
In recent weeks, Eir chief executive Carolan Lennon confirmed that the take-up had increased on the back of remote working triggered by lockdown. Added to that there is an expectation of a ‘mini-exodus’ of people from cities like Dublin to rural areas as part of a drive for a change of lifestyle.
These factors should be good news for Granahan McCourt, the company charged with rolling out the network and then selling the broadband afterwards.
The greater the take-up, the better it will be for Granahan McCourt. Given that the unpublished contract includes some financial claw backs for the state if things go particularly well, this could also spell good news for the Exchequer.
Either way, the cost to the state will be significant. The precise criteria for triggering a claw-back will be eagerly awaited in the ‘redacted’ contract due to be published in the coming weeks.
Apple case was not quite a moral victory for tax experts
ONE of the arguments in the contentious Apple Inc Vs European Commission €13bn state aide case, was that the money was never really owed to Ireland. Tax experts here, who drummed up structures like those used by Apple, always maintained we weren’t gaming the system by depriving other countries of tax.
They said the problem lay with the US corporate tax system which allowed American companies to avoid paying tax on all foreign earnings until such time as they brought the money home.
When they did, they faced a corporate tax bill of 35pc.
US president Donald Trump reformed the tax system there and provided an incentive for companies like Apple to repatriate profits by allowing a 15pc rate followed by a subsequent reduction in the ongoing rate from 35pc to 21pc.
Sure enough an Irish-registered subsidiary of Apple, paid dividends of $250bn (€211bn) up the corporate chain last year, which was all subject to US tax. It would have paid around $37.5bn in tax on the repatriation and says it plans to use the rest for investment in the US.
The massive repatriation from Apple won’t necessarily undermine its investment rationale in Ireland, but does bolster the argument from tax experts that Ireland merely exploited clear gaps in the American system.