Glanbia plc

Liam Hennigan - IR Siobhan Talbot - Managing Director Mark Garvey - Finance Director

Patrick Higgins - Goodbody Heidi Vesterinen - BNP Paribas James Targett - Berenberg Cathal Kenny - Davy Research Ian Hunter - Investec Massimo Bonisoli - Equita Martin Deboo - Jefferies

Thank you. Good morning and welcome to the Glanbia half year 2018 results presentation and call.

During today's call, the Directors may make forward-looking statements. These statements have been made by the directors in good faith based on the information available to them up to the time of their approval of this presentation.

Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The Directors undertake no obligation to update any forward-looking statements made on today's call, whether as a result of new information, future events or otherwise.

I'm now handing over to Siobhan Talbot, Group Managing Director of Glanbia.

Good morning, everybody. I am joined today by Mark Garvey, our Finance Director and together, we'll review the 2018 half year results.

Overall, the performance of the group for the first half of the year was very much as expected and we are reiterating our guidance for the full year 2018 for constant currency growth of between 5% and 8% on a pro forma basis for the continuing group. We continue to drive volume momentum with the overall volume growth of 5.7% in the first half and we are also reiterating our guidance for full year volume growth in the key portfolios of Glanbia performance nutrition and Glanbia Nutritional Solutions components in the mid to high single digit range.

We expect margins for the full year to be similar to 2017, with the lower margins of the first half, reflecting a prioritization of investments in our brands and operational infrastructure as planned in advance of input cost reductions that are materializing as expected in the second half of the year. We had a strong cash generation in the period and Mark will add to that in detail later and we are targeting an operating cash conversion of over 80% for the full year.

As you know, the relativity of the US dollar and the euro does significantly influence our reported results, as the majority of our revenues are generated in US dollar and therefore our commentary will eliminate this translation effect and focuses on results in constant currency. Our wholly owned revenue from continuing operations, as you have seen on the release, increased by 3.6%, constant currency for the first half with volume growth across all segments, delivering that number I referenced of 5.7% with GPN growing by 5.4% and GN by 5.9%.

As expected, our brand investment in GP and relatively weaker dairy markets for GN did drive negative pricing year-on-year of total 3.8% and the acquisition of Body & Fit was closed in the first quarter, increased revenue by 1.7%. Turning then to Glanbia Performance Nutrition.

The results for GPN for the first half were broadly in line with expectations. Overall revenue grew by 4.9% with 5.4% volume growth, offset by a 4.1% price decline, and a 3.6% contribution from the Body & Fit acquisition.

Like-for-like branded volume growth was 5%. Volume growth was driven by continued strong momentum in the non-US markets, in particular the Latin America and in Southeast Asia markets.

The US market did remain very competitive in the period, driven by strong promotional activity and competitive pricing in the powder and ready-to-eat categories. Having delivered branded like-for-like volume growth of 5% for the first half, we continue to target volume growth for the full year in the mid to high single digit range.

With the achievement of this target, underpinned by a range of planned initiatives with key customers in H2 across all key channels in the US and indeed other key non-US growth markets. As noted, we continue to operate in the competitive markets.

The negative pricing in the first half reflected both brand investments and the competitive environment, particularly in the US. While we will continue to invest behind our brands as appropriate, we do expect the year-on-year pricing decline to moderate in the second half of the year.

This was driven both by the comparisons of 2017 pricing investment or H2, but also the planned customer activity in H2 is not as promotional led as it was in the first half. As always, we will continue to keep our pricing strategy under active review and will invest as appropriate to maintain our ambition for long term sustainable volume growth.

GBN EBITDA declined by 16.4% in the period, as the benefit of revenue growth was offset by the expected margin compression to 12.2%. Margins reduced as we invested both in pricing activity in support of our brands and there were also some increased costs.

The most significant cost increases were the planned investments that we referenced previously and building our operating infrastructure in areas such as the direct to consumer platform and we're on target for the planned investment and operating uprising market capabilities to be around 100 basis points as we referenced previously for the full year. Similar to [indiscernible] in freight costs in the period and we are working on a variety of initiatives to help mitigate that cost for the full year.

So overall, for the full year, we continue to expect the margins for GPN will be broadly in line with 2017. This clearly means strong H2 margins and we're confident in this margin progression through the second half as our key inputs that will hit cost of goods in the second half are already contracted and with strong visibility there for - on input cost reductions, which are materializing as planned in the second half.

This will negate the margin decline that we experienced in the first half of the year. Overall, GPN remains very focused on growth and the delivery of the long term growth ambitions, as outlined on our recent Capital Markets Day.

Innovation continues to be a key part of our growth agenda and we are achieving our innovation targets. The recent acquisitions of Amazing Grass and Body & Fit are performing well.

And as noted earlier, while it is early days, we are pleased with the progress to date in the development of Body & Fit and to reach the broader direct consumer platform for GPN. We expect strong EBITDA growth for GPN in the second half of the year, with full year like-for-like branded volume growth in the mid to high single digit range and as I said, full year EBITDA margins in line with 2017.

Turning then to Glanbia Nutritionals. It had a good performance in the first half.

Revenues increased by 2.4%, with volume increasing by 5.9% and pricing declining by 3.5%. EBITDA increased by 4.5% and margin progressed by 20 basis points to 10.2%.

For the full year, EBITDA growth in Glanbia Nutritionals will be driven by growth, primarily in the non-dairy component of nutritional solutions and US Cheese, with overall margins again expected to be in line with the prior year. Nutritional solutions revenue decreased by 2.2% in the period.

Volumes grew by 3.1% with pricing lower as you would expect, where relatively lower freight markets reduced revenue in the dairy components of Glanbia Nutritionals. Volume growth was broadly based across geographies in both the dairy, and non-dairy categories of GN.

Volume momentum is expected to increase in the second half of the year and we reiterate our guidance for volume growth in this component for the full year in the mid to high single digit range. The revenue of US Cheese increased by 6.1% versus 2017, as volumes increased by 8.1% and pricing declined by 2%.

Volume growth was related really to the timing of customer offtakes and this rate of growth will moderate during the year with an expectation that given that we run our US facilities pretty much at full capacity, our volume growth will be in the low single digit range. Looking then to the joint ventures, they delivered in line with expectations for the first half of the year with volume growth across all of the joint ventures, delivering an overall 7.3% volume increase.

As global dairy markets are relatively weaker in the first half of '18 versus '17, pricing within the joint ventures was 2.6% down year-on-year. The pace and timing of dairy market movements relative to input cost changes resulted in 170 basis point decline in margin and a 25.6% EBITDA decline in the period.

This is not unexpected and they will have been improved performance, relatively speaking, in the second half of the year. But given the overall relatively strong performance of the full year '17, we do expect our share of joint venture profit after tax for the full year '18 to be down on 2017 levels.

We have had a number of strategic developments in the joint ventures in the period. As previously noted, our wholly owned US Cheese and dairy solutions businesses are very aligned to our US joint ventures and the 25% production capacity increase in Southwest Cheese, which is quite integrated with our wholly owned operation was completely fully commissioned in quarter two.

This project at 140 million was fully funded by the Southwest Cheese joint venture. The proposal to create a new joint venture to build the large scale cheese and whey facility in Michigan is very much on track.

The partnership will be the same partners that we have in the Southwest Cheese facility with the DFA and Select Milk Produces together being 50% partners with ourselves. This project is expected to cost 470 million and is expected to commence in 2018 with commissioning by 2021.

Glanbia will invest 82.5 million in the project with the balance being from both the JV partners and direct financing within the venture. To the Glanbia Cheese joint venture, Glanbia and Leprino, as you know, are the leading players in mozzarella cheese in Europe, building on the successful partnership.

We have announced a project to build a plant in Ireland. It will be commissioned by 2020 at a cost of 130 million, of which Glanbia will invest 35 million with the balance by our partners, government financing and planned financing.

And overall, the program in Glanbia Ireland which again has a number of investment programs that will be largely funded by the joint venture remain very much on track. I will now pass to Mark for an update on the financing and I will return to speak to strategy and outlook.

Thanks, Siobhan and good morning to everyone on the call. As Siobhan mentioned, we're pleased to report the performance in line with expectations for the first six months of 2018.

Today, we're reporting pro forma earnings per share of 38.83 cents. As a reminder, the pro forma calculation eliminates the impact of discontinued operations from the 2017 comparison.

This represents a decrease of 7.1% on a constant currency basis and 15.8% on a reported basis for the first six months. The average US dollar euro rate for the first half was 1.08 compared to 1.21 for the same period last year with the weaker dollar resulting in an approximate 900 basis point difference between the reported results and the constant currency result for the half.

Should the euro dollar rate stay at the current level for the remainder of the year, we would expect a 5% translational headwind between the constant currency result and the reported results for the full year. We have guided that adjusted earnings per share growth will be delivered in the second half of this year, so the first six months results are in line with our expectations.

We reiterate our full year guidance of pro forma adjusted earnings per share growth of 5% to 8% on a constancy currency basis. Turning to our full income statement, here, you can see revenues in our wholly owned continuing operations were 1.2 billion for the first half, an increase of 3.6% constant currency on last year and down 6.2% on a reported basis.

There was good revenue growth in both Glanbia Performance Nutrition and Glanbia Nutritionals, driven by volume growth and the impact of acquisitions, somewhat offset by negative pricing due to relatively lower dairy market pricing and brand investment activity. Wholly-owned EBITDA was EUR123.7 million for the half year, a decrease of 7.3% constant currency and 16.6% reported.

Glanbia Nutritionals increased EBITDA by 4.5% constant currency to 60.4 million, whereas Glanbia Performance Nutrition reported EBITDA of 63.3 million, a decrease of 16%. EBITDA margins for the continuing businesses were 11.1%, which is 130 basis points lower than prior year, primarily due to the impact of brand investment in Glanbia Performance Nutrition.

We expect wholly-owned margins for the full year to be broadly in line with the 2017 full year EBITDA margins of 11.9%. Amortization of intangibles was 21.5 million, similar to prior year.

Net finance costs were EUR7.6 million, a reduction of 4.2 million from prior year due to the reduction of private placement debt at the end of 2017 as well as lower average debt levels generally. Our average interest rate for the first six months was 4% compared to 3.5% last year, primarily due to relatively higher rates in US debt compared to last year.

As expected, there was also a reduction in our income tax charge for the first half, as we continue to review the implications of the recent US tax law changes, our effective tax rate for the first half was 15%, which compares to 17.9% last year. For the full year, we expect our tax rate to be broadly in line with the half year rate, and we will continue to monitor updates to tax legislation in the US and other jurisdictions.

The shared results of joint ventures were EUR17.8 compared to 22.3 million in 2017. We had anticipated to reduce performance for the joint ventures due to relatively weaker dairy markets, primarily impacting Glanbia Ireland and Glanbia Cheese.

Profit after tax from continuing operations was EUR98.2 million compared to 120.2 million in 2017. Looking at the breakdown of revenue by segment, you can see that Glanbia Performance Nutrition reported revenues of 519.6 million, a constant currency increase of 4.9% and Glanbia Nutritionals reported revenues of 592 million, a constant currency increase of 2.4%.

Wholly-owned revenues were up 3.6%. Looking at the drivers of revenues in more detail, GPN revenues, as I said, were up 4.9% constant currency in the first half.

The acquisition of Body & Fit at the end of the first quarter last year contributed 3.6% of this revenue growth. Volumes were up 5.4%, while pricing reduced revenues by 4.1% in the half.

Like-for-like branded volumes were up 5% and we expect like-for-like branded volumes to grow in the mid to high single digit range for the full year. There was strong volume growth in the EMEA and LatPac regions whereas North American market was competitive, as channel dynamics continued to evolve.

Pricing investment was similar to the first quarter as the business focuses on long-term sustainable volume growth and we expect pricing to moderate somewhat in the second half. Glanbia Nutritionals reported revenues of 592 million, an increase of 2.4% constant currency.

Nutritional solutions reported revenues of EUR254 million, a decrease of 2.2%, primarily impacted by relatively lower dairy markets, causing price to be down 5.3%. Nutritional Solutions volumes were up 3.1% with good volume growth in the pre-mix and dairy businesses in the half.

For the full year, we expect nutrition solutions volumes to be up mid to high single digits, with volume increases in pre-mix and dairy being the primary drivers. The cheese business reported revenues of EUR339 million, an increase of 6.1% constant currency, driven by strong volume growth of 8.1%, while pricing declined 2%.

The volume growth was primarily related to the timing of customer offtake in the first quarter compared to prior year and we expect full year volume growth to be in the low single digit range. Turning to cash, operating cash flow for the first six months was 59.8 million, which compares to a net outflow of 33 million on a like-for-like basis for the first half of 2017.

The improvement in operating cash flow was primarily as a result from improved working capital performance compared to the first half last year. Free cash flow was EUR58.2 million for the first half, an improvement of 119 million from 2017.

We are on track to deliver over80% conversion of adjusted EBITDA for the full year. The group received dividends of 15.4 million from joint ventures in the period, including the first dividend from the new Glanbia Ireland joint venture.

Capital expenditure was EUR25.9 million year to date, of which 18.9 million was strategic capital expenditure and the remainder business sustaining. Strategic capital expenditure included the installation of lines for ready-to-eat products and performance nutrition as well as IT system implementations across the group.

For the full year, we expect total capital expenditure for the continuing business to be between EUR65 million and EUR75 million, of which approximately EUR20 million to EUR25 million were business sustaining. The board has determined an interim dividend of 9.71 cents compared to 5.91 last year.

The total 2018 dividend payout is planned to be between 25% and 35% of adjusted earnings per share, in line with the new dividend policy put in place by the board earlier this year. The group continues to have a strong balance sheet and we have strong financing capabilities.

At the half year end, the net debt was EUR402 million compared to 608 million at the same time in 2017. Net debt to adjusted EBITDA was 1.2 times compared to 1.6 times this time last year and interest cover was 7.3 times.

Our net pension deficit at the half year amounted to 38.7 million compared to 41.9 million at half year 2017. And we expect return on capital employed to be within our target range of 10% to 13% for the full year 2018.

And with that, I will hand it back to Siobhan.

Thank you, Mark. Recently, as many of you know, we had our Capital Markets Day in Chicago and we outlined the part of our strategic ambition to 2022.

Our strategy is very much focused on nutrition, we're playing into key positive consumer trends around health and wellness, convenience, clean labeling, all within the context of digitally connected consumers. Our three pillars of strategy are focused on protecting and growing our core and investing in capability to capture opportunities in our core area of scale and operations.

We will also selectively build beyond that core, both organically and through M&A and we will invest to drive organic growth across key adjacencies to current platforms and that includes building our scale out internationally. These two pillars will be executed by continuing to embed enablers across the business.

We have an operating model in Glanbia now that can be very much leveraged. We continue to focus on developing our great talent base and we have an ongoing and rigorous focus on efficiency and cost management, as a fuel to drive future growth.

We will continue to leverage our operating model to facilitate further investment and innovation and consumer and customer engagement and therefore ensuring that our ingredients and brands continue to sustain high relevance to our customers and consumers. In terms of metrics, as we outlined at the Capital Markets Day event, our ambition is to take Glanbia to a 5 billion organization by 2022.

And within that, we have a strong growth ambition for GPN to be a $2 billion organization and the nutritional solutions components, our Glanbia Nutritionals to be a $1 billion revenue organization with a strong margin profile across both businesses. Our M&A agenda is very much focused on opportunities within those areas of the group.

Over the five year period, we're targeting average growth in adjusted earnings per share, of between 5% and 10%, a cash conversion metric greater than 80% and a return on capital in the range of 10% to 13%. Our balance sheet is strong, as Mark has referenced, and our aim is to achieve these targets through a blend of organic growth and M&A, while sustaining a dividend payout ratio of between 25% and 35%.

Finally then, reiterating the near term perspective on 2018. As we noted earlier, we are reiterating our growth ambition for between 5% and 8% adjusted earnings per share growth on a constant currency basis.

That is underpinned by our ambition to grow like for like volume growth in the branded portfolio of GPN and the nutritional solutions component of GN in the mid to high single digit range, with margins in line with the 2017 levels. We expect our cash conversion and ROCE metrics to be good and in line with our long term targets of between 10% and 13% on return on capital employed and cash conversion of over 80%.

So thank you, ladies and gentlemen. And with that, I'd like to hand over to questions.

Couple of questions for me. Firstly on GPN, on the margin performance in H1.

Could you just give us an idea of how much of the decline was driven by brand investment and pricing and how much was digital investment and was there any mix impact in there from a shift in time or geography. Secondly, just on growth in GPN.

How much of that was driven by volumes - by innovation, sorry, and - in the period and is there any new product launches that we should anticipate for H2? And then finally for growth in H2, should we expect the same kind of geographical trends, i.e., strong growth in non-US markets and US, kind of still competitive or how should we think about that dynamic?

Thank you very much, Patrick. And firstly, yes to the margin point for GPN.

Overall, we had a 310 basis points reduction in the first half and it's probably fair to say that about 100 basis points of that was the investment point that we referenced previously, so about 200 basis points really that pricing move ahead of the input costs, very much as we expected, an amount of promotional activity focused on the first half of the year and that really our confidence point as we look to margins for the second half because we see that swinging the other way and the input cost reductions coming through and driving margins forward. In terms of the growth in GPN, yes, we continue to do a lot of innovation right across the portfolio, across different brands, across recent acquisitions, for example, of Amazing Grass, across the [indiscernible] portfolios.

We are hitting our innovation metrics, we're hitting them well and you remember that that innovation metric was for a run rate that over 15%, at least 15% of our net sales in any period will be from products that haven't existed three years earlier. So we're achieving nicely against that indeed right through into 2018.

The geographical trend, yes, I think it is fair to say that we would expect that to still be a feature of the second half. We have a lot of activity planned in the US, but it is fair to say that the rate of growth in the non-US markets will outpace the US in the second half.

I think, that is really testimony to the investment decisions that we've made in Glanbia in recent years and indeed that we continue to do as part of the investment program that I referenced is continuing to put money behind our brand in those non-US geographies, investing in our people and investing in capabilities. So that portfolio effect, I think, is overall positive and very much part of our drive for that mid to high single digit volume growth for GPN for the full year.

A few please. I think you said in your speech that you expect less promotional activity in H2.

I just wondered what you might be basing this comment on. Is this what you typically see in terms of seasonality?

So is it basically what you've seen in the past or you're actually already experiencing less promotional activity? And then in terms of your commentary on input costs, you had highlighted that the inputs are contractually agreed, so you have very good visibility, but what is actually happening to spot prices, because we do see that base whey is increasing now.

So will that start to impact the higher end whey products, maybe at the end of the year, as we go into the early 2019 year. Maybe start with those two please.

Thank you.

Yes. In terms of the promotional activity, it's really a function of the initiatives that we have with customers and they can arrive at different points in the year, in different years.

So you might remember that in 2017, actually, our pricing activity was very significantly weighted towards the back end, with particular innovations for example that we brought on, on quarter three of 2017. We were supporting those.

So as we look to the round of the totality of our activity and we look to the pricing activity of 2018, we can see that we - and our expectation is that it will be more heavily weighted to the first half. So that year-on-year comparison that you're seeing in the second half is a function of those comparisons.

We will still be spending to your point, but not as heavily from a comparison basis as you've seen in the first half. I'd have to say too, Heidi, that it's an area that we continue to keep under review.

We have no desire to raise to the bottom and we've said that consistently in terms of promotional activity where there are sensible pieces to engage with, we will do that and we've continued to monitor it. My overarching point is when we look at the shape of the 5% volume growth for the first half, versus the 5% growth we anticipate for the second half, it is less promotional led and that's really the underpin that perspective on pricing.

On input cost, yes, as you say, the nature of how we purchase our high end whey are such that essentially the whey that will appear in our cost of goods for the rest of 2018 are locked in at this point in time. Essentially the purchases of quarter four will set an inventory, as you rightly referenced for 2019.

What we're seeing at the moment is probably the potential for a slight firmness in quarter 4, nothing particularly magnifies. And we very much keep that under review as we go into '19.

So, you might see some slight firmness, but no major moves and in truth, a slight firmness, generally what's happened in that instance under the promotional activity tends to diminish, so that's probably our outlook for input costs at this point.

If I could squeeze in one last question, we're seeing - at the Capital Markets Day, we had talked about the Amazon private label product and you talked about how you're monitoring the situation. They seem to be doing quite well, if you look at the website.

Do you see them as a direct competitor in any of your segments in GPN?

Well, clearly online is a very significant challenge for us. I have to say that online is a very good channel and a growth channel for us.

Our consumption in that channel are very strong. A lot of the key customers in that space, Heidi, as we spoke about at Capital Markets Day can have price label offerings.

So, of course, we are highly aware of them as potential competitors, but our brand equity is very strong and our consumption is very strong in that channel. So again, we continue to monitor, but no particular change or nothing worthy of note at this point.

So two questions for me. The first really I wanted to zone in on the US market in GPN, because my impression is that growth was negative for you in the US in Q2 and I don't think that was the case in Q1.

So has the market growth softened or is it purely competitive pressures? And obviously, if it is competitive pressure, then I think you said in Q1 or might have been the full year, apologies, but your pricing was - you're putting prices through ahead of the market, which that's resulting in market share losses.

So I kind of wonder what your thoughts are there. And is the weakness in the US market, all the competitive pressures, is that related to these specific channel such as specialty or is it broad based.

And do you have a particularly problematic brand, [indiscernible] which is disproportionately affected by all this. And I think the specialty channel seems to be switching a bit back towards private label, obviously where you did have quite a meaningful presence in the past.

Is that something that you would be seeing to be increasing your exposure to it again? So that's kind of my first question on the US market?

And my second question is really just on nutritional solutions. Your guidance implies quite a big acceleration of volume growth in the second half of the year.

Just wondering, what's driving your confidence in that?

I would say a few comments on the US. It is, as we said, a very competitive space.

We're not - it's not that there is a problematic brand to use your phrase. It is competitive for sure, but we probably have seen, if I would pick out anything as it is more competition in the ready to eat space, I think that's probably fair to say and we're investing behind that where we need to.

We will continue to do that where it makes economic sense in terms of our brand position, our brands are strong. And I think it's probably fair to say that in terms of the overall pricing for the first half, it's probably a little bit higher than we might have anticipated here during the year, but that brings me back to Heidi's point that I think we do still expect that to alleviate and the timing of this sometimes others might have chosen to invest some of the input costs in different timings to ourselves.

The key piece for us is that, at the end of the day, in terms of our perspective on the pricing dynamic, relative to the margin dynamic, we do believe that we can fundamentally, for 2018, achieve volume growth in the mid to high single digit and hold our overall margins for 2018, in line with last year. So there will be ebbs and flows and that relationship between cost of goods and pricing is very important for us.

Across the channels, there's moving parts. We have great relationships.

There's green shoots in some of the specialty areas, but we're working very well with from a customer perspective, obviously working along with the online piece as well. So I would say, the call outs to the extent there is a nice part to just that ready to each piece, James.

On your nutritional solutions question, on the volume side, I think what we saw we really in the first half is that when you have a period of relative weakness in dairy markets on the high end whey, which of course is the flip side of what we're seeing in GPN, buyers sometimes can spend, get a little bit cautious and stand back a bit. So what we're seeing in the second half then is that we are expecting as you rightly said very good value momentum that will underpin that mid to high single digit growth in nutritional solutions and that will be both in the non-dairy component and the dairy, but probably into the little bit weighted more to the dairy, because we think again we've seen it before, we think that the buyer caution will come back when market dynamics and conditions settle a bit, and that's what's underpinning our confidence in that for the full year.

Can I just quickly come back on the US? Is there a big difference between the performance of your powders business in the US and other areas?

Well, powders remains the largest part of our portfolio, so obviously, that's going to be a big driver of our performance in any instance, but we have built a very strong ready-to-eat business through the brands that we've acquired and indeed our own offerings. So you're always going to have a weighting for powder James just by virtue of it being the biggest format in our portfolio still.

Sure. [indiscernible] an area which has become more competitive, so I'm just trying to get an idea of whether any kind of slowdown in volume growth is coming, particularly from these new areas like ready-to-eat or whether it's also the core powders business where you're seeing the slowdown?

I would say that point around ready to eat is really a price, is really a pricing piece rather than necessarily volume piece. It is very competitive on powders as well.

I mean, would you know James, that's just been a dynamic we've always lived with and you ebb and flow in terms of promotional activity and competitors might do them at different points in time. So I don't see - we haven't necessarily seen as significant a shift in that.

It's just quite frankly always a promotional space. And I think, again when I come back to the totality of the portfolio, that is the real merits of building out our brand positions in some of the non-US geographies as well, because we are getting really strong growth rates across the powder category in some of those non-US markets.

And, so we'll continue to invest where we need to, to drive that overall volume growth piece.

Just a couple of questions from my side. Firstly, on your direct to consumer model in Europe.

I guess, it's a year olds now, just interested in your learnings in that and how long we should expect to get at that, the investment behind that opportunity to continue. That's my first question.

Secondly just on international, clearly, a very good performance in the first half. Just interested if you have any comments on India and China in particular and maybe channel abandonment within China.

And my final question just relates to just some - any observations you would make or caught out on US policy around tariffs in relation to Mexico for your cheese business?

I'll take that one. So from a direct to consumer business, you're right actually, it's just over a year since we acquired the business and we have been working quite hard in ensuring that we have firstly the right people and the right systems in terms of how we're going to run that.

We're very excited for the opportunities that we have there. So we are in the middle of implementing SAP right now.

We've also got an upgrade in terms of their online to consumer interface that we're working to as a hybrid system and that we're implementing. So that's going to really allow us to build a significant scale because that's what we want to do as we look at new markets for the business in Europe, particularly as we go to market like UK, for example.

We've additional talent coming in there very shortly as well. That's going to be very important for us in terms of making sure we've got the right folks on the ground.

So very excited for it and you'll see more investments going through. I think we talked about that the last time and some of this investment will go into '19 for sure and from our perspective, that's because we're trying to drive this for the long term.

So very excited about it. From an international perspective, very good news obviously in terms of the volume growth we're seeing come through in our international markets.

We talked about the emerging markets in particular as being quite strong. India has been a very good market for us.

We've talked about that before. China also, we think is a very important market.

We're not as strong there as we are currently in India, but clearly, the online channel is our view that way to go in terms of how we can expand there. So we're looking at that quite closely right now.

I think I'm going to hand back to Siobhan, but that is clearly a tariff question as well, as we see that developing and that's something we're monitoring very, very closely as we see some of these news around tariff, which could impact some of the markets that we're selling into. So I'll hand it back to Siobhan on that.

Yes. Just to pick up on that point, you are right of course that particularly for the US Cheese business, Mexico and indeed US Dairy, Mexico is a big market, so we're monitoring this whole trade dynamics very closely and having conversations that have to be said with customers in that regard in terms of how one might balance if there is any tariff costs that comes in and like all these things that depend on the longevity of the arrangements, how long, what view you might take, if there are increased tariffs, over what period of time they might sustain.

So I'd say, at this point in time, just very much on the watch list and engaging with our customers right across all areas of the portfolio and managing that very closely.

And just one further question if I may. Just on your capital investment.

I think you called some really weak capacity in the first half. Will you possibly give some color on the projects that you have penciled in for H2 or at GPN or is it GN?

Yeah. You're right.

So, it's obviously an important innovation for us that we continue to make sure our capacity is rightsized with what we need there. So, you saw some of that coming through on the first half.

In the second half, so some of the IT investments I talked about certainly will be coming through farther in terms of capital there. On the GN side, quite a number of capital items actually as we look to products that we believe we can sell in certain markets as well as specific customer initiatives that we have in terms of building new capacity for particular products that they want us to work with them on.

So you'll see it in both - see it in the IT side, some GN and also you will see some GPN investment as well, particularly in the IT side.

I'm sorry. You got a bit of relief there from Cathal, but I'm back to volumes, as I think that's maybe one of the key issues for this year.

Looking back Q3 '17, Q4 '17 were very strong and I know you're looking for strength in to '18 as well. So I mean, are you just basically saying that the Q4 '17 volumes were into proportional work for your new set of clients and actually it all did pass through the system and you're looking for that type of dynamics this year.

In other words, I am saying that Q3 mightn't be as strong growth and we're looking for even stronger in the fourth quarter, just because the way the dynamics of - the lumpiness of the business is with the health move into the January-February side of things. And on Glanbia nutritionals, I see on a quarterly basis, actually your Q2 '18 kind of dipped down a bit.

It was 8.6 in Q1 and 3.2 on Q2. And I'm just wondering what the dynamics was between those two quarters, whether again it was just lumpiness, et cetera and how you're going to see it recovering from the 3.2 to carry your stronger growth into the second half of the year?

Yes. In terms of the volumes, as you rightly say, the volume growth of last year was back end loaders as everybody could see that obviously in our results.

But we are very happy that that as you say went through the system and in fact that actually also probably going to see this year is a more even piece of that mid to high single digit as we go through the year. We saw that in the first quarter, you've seen it now for the first half, where we paid 5% volume and we are, as I said, guiding the five - the mid to high single digits for the full year.

So, yes, there will still be a level of weight - we do see that seasonality, we see that seasonality still there in 2018. But as we sit today, we're comfortable that we will actually grow to deliver that full year number in the second half of the year with the various initiatives that we have laid out with our customers, both in North America and in the non-US geographies.

So, comfortable as one can ever be that we're on track for the delivery of that volume growth in GPN. In terms of nutritional solutions, yes, you're right.

I guess in any ingredients business, you can find - it can be difficult sometimes in terms of customers' offtake patterns and quite frankly exactly to use your own phrase, it is really just that lumpiness point. Again, when we look to the full year, and we look to the momentum that we have in the dairy side and the non-dairy side, for the visibility that we can see, of course, we'll never have to target perfect visibility right at the end of the year, but with the visibility, we can see - we are confident to say that we will grow nutrition solutions in the mid to high single digit over that full year.

And I suppose nobody's actually picked up there on the JV side of things, because it does actually contribute a fair bit to the profit line. What are you seeing is the dynamics into the second half of the year there?

Yes. I mean from a pricing and margin point of view, clearly, what we had last year in the joint ventures is we had a rising market, where we will always do better.

And then this year, we had a falling market, so you get that more magnified squeeze. But the joint venture is strategically very much in track and we have a very good robust model within the joint ventures in Ireland.

For example, we know the profitability we will make for the full year. So we're confident on that margin recovery, for example, which is not insignificant and we're getting very good volume growth as we referenced.

Glanbia Ireland is a growth business. US Cheese is a growth business and Glanbia Cheese is a growth business.

And really the piece that is going to bring them somewhat behind for the full year is quite simply just the fact that with a particularly strong performance in Glanbia Cheese last year that we would have referenced. So overall, you get that dairy market dynamic causing just these more magnified moves half on half but confident in the overall delivery for the full year, albeit, a little bit back when you look to the total fees.

Two questions. Could you give us some color on the pricing in nutritional solutions for dairy and on dairy products?

Earlier, you mentioned price declined by 5% in nutritional solutions, whereas non-dairy raw materials such as vitamins or minerals likely had a positive inflation. Could you help us in understanding the two different clients in the business unit and the mix implication for EBITDA?

And the second question, a broader one, if I may. How do you see your guidance compared to the beginning of the period, less or more challenging?

On the pricing side, yes, your thesis is indeed correct. The negative drag on pricing was very much dairy driven in the first half.

And that is, as we referenced earlier, that is the flip side of the input cost benefits. We see a little bit earlier in GN, then we do see the costs coming through in GPN, but it's the same dynamic and that was a drag on pricing in the first half.

On the non-dairy side, pricing overall was marginally positive, as you referenced. There has been some price inflation there as we saw some cost of goods piece that people have referenced previously on the vitamin side.

As we look to the second half, I think overall, there will still be a negative pricing dynamic in dairy. That's what we would expect for the full year.

And but again, I think reasonably line ball, I would say, for the non-dairy side. So overall, for the full year, for GN, we would still expect the price in negative dairy market and particularly that relativity on the high end whey side will have a pricing drag for GN for the full year.

As you know, for GN, it really - for us, it is about managing the margin piece because pricing will move about on the cheese side and particularly on the dairy side. And forgive me, I forgotten your second question.

I would say, on the guidance, let me just take it. And Siobhan, you can say if you need to any extra.

But on the guidance side, we continue to be, I would say, as confidence as we were earlier in the year, Massimo, in terms of the 5% to 8% constant currency guidance that we're giving. Clearly, the big changes in terms of what's happened across the market over the last six months, but very much important for us of course is that we have input price cost coming through that we are contracted for, so we're very confident around that, have clearly had some headwinds around freight costs and things that have been a bit more challenging than you might have anticipated, but we expect we can mitigate some of those as we get through the end of year as well.

So continue to be very confident in our 5% to 8% guidance.

Just two cash flow questions I guess for Mark. Mark, net working capital outflow in H1 much better than last year, just useful to get some color on what that reflects and also a view on where you think NWC will be the cash flow item for the full year?

And then the second one is the 82.5 million investment in Michigan, where do I see that coming in the cash flow statement looking ahead and how does that phase over the next couple of years?

Yes. So from a net working capital perspective, a significant improvement from where we were last year.

You might recall we talked a lot last year around some inventory challenges that we were having. So that caused a lot of that outflow we saw in the first half of last year.

This year's perspective, for the first half, we have had an outflow as well, but significantly less than last year. Receivables would be a part of that, clearly with some of the trajectory at cheese sales compared to last year, there were more receivables at the end of the half than it would have been at the end of the half last year.

That would balance itself out by the time we get to the end of the year, but also I would say as we continue to internationalize our business, a lot of that comes from the US, tends to have a bit of a longer supply chain and sometimes just the payment terms are a bit longer than we need to work through. But overall, for the full year, I would expect that working capital outflow to be significantly less.

I think there still will be an outflow overall for the year, but significantly less than what we have for the half year based on how we're managing things. To your question on the Michigan joint venture of the $82.5 million investment, that will be effectively coming through in terms of investing activities in our cash flow.

You see that comes through in '18 and '19. So some will come through in the second half of this year and most of the remainder will be through in the 2019 fiscal period, exactly which proportion will be which is probably not fully known yet, but by the time we get to our third quarter, I'm sure we can give you a lot more color on that.

Very quickly, it's not a CapEx item and it's not in your full year CapEx guidance, it's somewhere?

Absolutely correct. Yes.

This is not a CapEx item. We talked about 65 million to 75 million of CapEx that was not included in the investment in the joint venture activity.

That's correct.

As always, thank you very much for your time and we shall speak again soon.