Inside the world of business
Spin-off plans take focus off impressive Glanbia results
YESTERDAY’S ANNOUNCEMENT by Glanbia of the details of how it plans to spin-off its milk processing division as part of a joint venture with Glanbia Co-op overshadowed somewhat its first-half results.
The dairy food and ingredients company upped its earnings per share guidance for the year, as it reported a strong first half to the year. Revenue on a constant currency basis increased by 1.6 per cent to €1.6 billion, while Ebita was 1.5 per cent higher at €118.4 million.
The US cheese and global nutritionals business continued to perform strongly, with revenue in each of the divisions up 8.6 per cent and 16.9 per cent respectively. The company continues to expand in this area with the acquisition of Californian beverage company, Aseptic Solutions, in July for €50 million.
The results were particularly impressive given the pressure of raw material prices, and considering that the first half of 2011 had been particularly strong due to high dairy prices.
Glanbia’s managing director, John Moloney, gave some insight into the shape of dairy commodity markets at the moment. Having had a shaky start to the year, milk prices are now on the up, partly due to the drought in the US. While Ireland’s dairy industry uses a grass-based method of production, around 80 per cent of the global milk supply relies on grain as an input, hence an upward pressure on the price of milk. Earlier this week, Glanbia increased the price it pays per litre to suppliers by 1 cent.
The rise in milk prices as a result of pressures on grain supply also serves to highlight the competitive advantage held by Irish farmers thanks to the Irish grass-based system of milk production. Cheaper input costs – not to mention the commercial potential of the “green” brand – will be a valuable asset as the Irish dairy industry enters into a liberalised market in 2015.
Permanent TSB concentrating on mortgage arrears, not new lending
ONE FIGURE in Permanent TSB’s half-year results shows how the recovery of the State-controlled bank is some distance away – once the State’s biggest mortgage lender, the bank loaned just €100 million of new money in the first six months of the year, half the level in the same period last year.
No wonder the amount of new mortgages have fallen off a cliff.
The State’s biggest banks, Bank of Ireland and AIB, are providing the lion’s share of new mortgages.
Jeremy Masding, the UK banker who became chief executive of Permanent TSB in February, said his focus was on fixing the bank, not on new lending.
The bank would not be offering a proper range of loans until late this year or early next, he said, as it was too busy trying to deal with the higher number of mortgages falling into 90-day arrears.
The extent of the legacy of problems is reflected in the fact that a fifth of the bank’s €25 billion Irish mortgage book, including home loans and buy-to-let mortgages, is in arrears of 90 days or more.
The figure on the bank’s €18 billion owner-occupier Irish mortgages is 17 per cent. That rises to 28 per cent for €6.6 billion for the bank’s buy-to-let mortgage book.
If there is one plus amidst the many minuses, it is that Permo is seeing a slowdown in the flow of new arrears, though Masding said it was still “early days” on this.
He conceded that Permanent TSB was “struggling” to reduce the number of arrears cases and that this was down to the fact that new mortgage arrears resolution strategies, or Mars products, had not yet been rolled out.
Masding is proceeding with splitting the bank into a good bank and an asset management unit of loans to be worked out. There will be both variable and tracker rate mortgages in this unit, he said.
But the amount earmarked for run-down in the unit will be decided when it is legally separated from the good bank and that will depend on any deal in Europe to remove problem loans across all of the banks.
Permo has plenty to keep itself busy with before then but the speed of the recovery is very much outside its control and out of the Government’s hands.
Atlantic rescue likely to get to court
GIVEN THAT its sister company, Woodies DIY, is one of its creditors, there is a reasonable chance Atlantic Homecare’s examinership will get its rescue plan over the finish line.
Any rescue plan – scheme of arrangement – drawn up by examiner Declan McDonald of PricewaterhouseCoopers must get the support of one class of creditors in order to seek High Court approval. Assuming that Woodies, which plans to invest in Atlantic, probably constitutes one class of creditor in its own right, the scheme is likely to get to court.
At that point, other creditors with interests affected in some way by the scheme of arrangement can get it overturned if they can demonstrate they would fare better if either a liquidator or receiver were appointed. This is a rare enough occurrence, though it did happen last year with McInerney’s long, drawn-out examinership, when one creditor, KBC bank, managed to scupper a scheme of arrangement that included plans for considerable reinvestment in the business.
Those circumstances were very different from the Atlantic Homecare situation, which is a retail business, not a housebuilder with a series of substantial secured debts. Earlier this month, the High Court heard that Atlantic’s biggest liabilities were due to its landlords.
As it is closing five stores, repudiating and renegotiating leases, at least part of this problem is being dealt with. Nonetheless, Grafton can take nothing for granted.
If it does get it over the line, the group has to deal with the tough retail environment in the Republic. Taken together, Woodies and Atlantic lost money in the first half, although the bulk of those were on the Atlantic side.
Presumably the group has done its sums and worked out that combining Woodies with a slimmed down Atlantic should return Grafton’s Irish retail operation to profitability. That, too, cannot be taken for granted. Shareholders will just have to bide their time.
Quote of the day
Fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools
– ECB president Mario Draghi answering German criticism of bank policy
Today
The Central Statistics releases the latest tranche of 2011 census data – this time on housing
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