Glanbia plc

Thank you, operator. Good morning and welcome to the Glanbia half year 2021 analyst results presentation.

During today’s call, the directors may make forward-looking statements. These statements have been made by the directors in good faith based upon the information available to them up to the time of their approval of the Glanbia plc half year 2021 interim financial statements and analyst 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 am now handing the call over to Siobhan Talbot, Group Managing Director of Glanbia plc.

Good morning, everybody and I hope you are all well. Thank you very much for joining Glanbia’s half year ‘21 results call.

This morning, I am going to cover the results. I will provide an operating and strategic update for our segments and I will conclude with an outlook for the remainder of the year.

I am joined this morning by the Group’s Finance Director, Mark Garvey and he will go through the finances. So firstly then, turning to our half year results, I am delighted to report that Glanbia has delivered a very strong performance across all our financial metrics for the first 6 months of 2021.

As always, this is due to the efforts of our people, our supply chain partners and, of course, our customers and consumers. COVID, as we know, has not gone away and the teams continue to execute really well, both operationally and strategically, while navigating the ongoing challenges of this pandemic.

We delivered a very strong top line results in the first half. And within our key platforms, GPN delivered like-for-like branded revenue growth of 30.5%, and Nutritional Solutions grew revenue by 20.7%.

This growth has been converted into a significant profit uplift, with GPN EBITA up year-on-year 418.4% and GN EBITA up 17.1%. In turn, that has delivered adjusted earnings per share growth of 85%.

While the prior year Q2 comparator for GPN was undoubtedly very challenged due to COVID, underlying consumption trends remain very strong for GPN. Our Nutritional Solutions performance was quite robust through COVID in 2020.

And in that context, the business and team delivered a strong build on that performance in 2021. Our first half ‘21 performance in both GPN and GN Nutritional Solutions was well ahead of where we were in the first half of 2019.

Our strong operating performance also delivered rolling 12-month operating cash conversion of 129.6%. This has left the group in a strong position to invest in growth and to also increase returns to shareholders.

We’ve increased our interim dividend by 10%. And today, we’re launching a new €50 million share buyback program.

Including these initiatives, over the past 5 years, we will have returned almost €0.5 billion to our shareholders. Looking then at the strategic update, as well as delivering a strong operational and financial performance, we made significant strategic progress in the first half of the year.

Within GPN, the transformation project, which commenced in late 2019, is very much on track and delivering ahead of expectations. And we’re really excited to have the acquisition of the 60% stake in LevlUp, a profitable e-commerce gaming nutrition brand for our GPN direct-to-consumer portfolio.

The GN team completed the commissioning of our new $470 million joint venture plant in Michigan on behalf of the JV partners. And at group level, we strengthened our balance sheet through continued strong working capital management and a further reduction in our exposure to defined benefit pension schemes by restructuring legacy UK schemes.

We have also progressed our ESG agenda where we have both established a Board Committee to oversee delivery of this agenda and also allocated responsibility for the area to a senior member of the executive team. And this will bring further focus and accountability to our strong ambitions across all of the pillars of environmental, social and governance.

Turning then to our outlook for the remainder of the year, the positive trends we’ve seen in the first half have continued to date in the third quarter. We continue to invest behind and build on the relevance of our brands and our ingredient portfolio to our customers and consumers.

We, therefore, expect both GPN and NS to continue to deliver very good top line growth in the second half as our portfolio leans into those powerful ongoing health and wellness trends. We also had an excellent margin performance in the first half across the two main platforms, with the transformation program driving significant structural improvement in GPN margins, in particular.

And there was also some positive phasing benefits. At this point, we see inflation-driven margin headwinds in the second half in GPN and in NS, but we are taking further pricing actions to mitigate these.

Having moved pricing in the latter part of 2020 and planned now for 2021, underlying margins are very solid across the business. And in particular, in GPN, we are consciously using the higher margins achieved to date as an opportunity to increase second half investment in our brands to drive sustainable growth of those key brands.

Overall, therefore, for the full year, we expect the net effect to be very positive with strong margin improvement in GPN versus a COVID-challenged 2020 and 2021 Nutritional Solutions margins close to the 2020 level. As we’ve previously noted, our strong first half performance has raised our full year expectations, and we expect to deliver between 17% and 22% growth in full year adjusted earnings per share on a constant currency basis.

Turning then to GPN performance, we saw very strong consumption trends, which accelerated in the second quarter, which drove that 30.5% increase in like-for-like branded revenue. Volume growth was strong at 22.2% and was broadly based across regions and channels.

This was driven by both increased brand investment and the return of consumers to our brands as lockdown restrictions ease globally. As you are aware, we made the decision to raise prices in the second half of last year, and that helped to deliver the 5.6% top line growth by pricing realizations.

Finally, as announced, we’ve closed the LevlUp transaction at the end of May, and this has made a small revenue contribution in the period. I’ll speak more to that acquisition a little later.

Our EBITA performance in GPN at €90.2 million was up over 400% from the prior year, reflecting our strongest first half performance in GPN. As well as our strong top line growth, we saw a significant uplift on margins, which improved by over 1,000 basis points to 14.1% from last year’s low.

The prior year Q2 comparator was the most challenged due to COVID though positive operating leverage plays an important part in margin improvement. However, improvement was also driven by the realization of benefits from the transformation projects, where the teams have driven improvements across many areas of efficiency, demand, and indeed, revenue growth management.

On the cost of goods side, we actually have a positive phasing effect in the first half on raw material costs as we had relatively lower cost inventory coming into the year. Our raw material costs increased significantly in the second quarter and remain elevated, which will impact our margins in the second half.

But as I said earlier, we’re putting through price increases to mitigate that as we move through the year. Looking at the regional performance in GPN, the Americas region delivered a strong result with like-for-like branded revenue growth up over 25%.

With restrictions easing in the period, we saw sports nutrition consumers keen to return to their fitness routines. And this backdrop, together with the strong marketing support, drove really strong results for the Optimum Nutrition brand in particular.

The SlimFast brand was in line with the prior year, but we continue to see some headwinds as we navigate COVID as consumers haven’t yet fully reengaged with dieting. We believe this will return in the latter part of the year, and we have strong consumer-focused programs in place for the back-to-school, back-to-work periods.

It’s worth noting that we have seen progress in the ready-to-eat space in recent weeks as general consumer mobility improved. And this has been captured by really good growth in our think!

brands. As you may remember, our international business was a part of GPN that was most impacted in Q2 2020 by COVID.

This year, against that comparator, international growth really accelerated in the second quarter as restrictions were lifted in multiple jurisdictions, with this part of the business delivering year-on-year growth of well over 37%. Again, we saw consumers very keen to return to their active lifestyles.

All markets grew in the period, with Asia and Middle East delivering particularly strong results. While there were some elements of customers rebuilding inventories in the period, our consumption is very strong, so we ended the half year with market inventories well balanced to consumption trends.

Turning then to the channels, you can see that all channels delivered good growth in the first half. Food, drug, mass and club and online channels remained open during the 2020 lockdowns, so we were really happy to see continued growth in those channels.

Having been the channels most influenced by lockdowns, the distributors and specialty channels benefited most from the easing of restrictions. We believe that we now have a strong and balanced channel mix for our brands, a point of focus for us over the last number of years.

A key part of our transformation initiative in GPN has been to focus and invest behind our key brands of Optimum Nutrition and SlimFast, which combined make up over two-thirds of our revenue. We have increased marketing investment in these brands in recent years and we will continue to do that in 2021.

This investment is delivering results. Optimum consumption for the 2 weeks to 13 June was up 30.5%.

As I mentioned earlier, performance-orientated consumers were keen to return to their fitness routines and this helped drive category growth across all channels. We have leaned into this trend by up-weighting our investment in the brands.

We both increased our marketing investment and also focused strongly on making it more efficient and effective. For Optimum, we have refocused on the core strategic product groups, including, for example, Gold Standard Whey and AMIN.O.

ENERGY, both of which are growing strongly. And we have refocused spend to the highest-returning return on investment media.

As you might expect, our consumer insight work also has reiterated the importance of brand social responsibility. And building on the trust that consumers have in our brand Optimum Nutrition, we launched the Building Better Lives campaign.

This campaign has the goal to improve access to fitness resources, make a difference to individual lives, help address disparities in underserved populations and support the goal of a more diverse, inclusive fitness industry, a campaign that has generated great interest and really good reach. In the 12 weeks to 13 June, consumption of SlimFast was up 6.6%.

As I said earlier, we are seeing some headwinds in the diet category as it effectively missed the season in the early part of the year, and diet routines have not been yet as positively impacted by reopening as sports nutrition. We plan to also increase marketing investment in SlimFast in the second half to capture that back-to-school, back-to-work trigger event.

And the brands have some really exciting programs across new campaigns, product launches and various events planned across core retailers in the U.S. in the second half as well as an ongoing expansion of our digital touch points with consumers.

I’d now like to speak briefly to the GPN transformation project. This is something that the team, have been working really hard on since late 2019.

And as a result of that, GPN was really well-positioned when markets reopened this year. The project initially focused on simplifying our product portfolio, streamlining our route to markets, which included the exit of practically all our private label contract manufacturing.

We reorganized our business across Americas and international regions and we have aligned our resources to the growth opportunities. As we have previously referenced, we have consolidated our manufacturing footprint in North America, and this work is now almost complete.

Overall, this project has enhanced our prior business model. It has improved productivity, driven out efficiencies and focused activity on investment and growth.

A key part of our volume, price and margin progression this year is down to the efforts through that transformation program, and the strong outperformance in the first half has given us the opportunity to invest in our brand marketing, as I mentioned earlier. Although our second half margins will be lower than the first half due to the net effect of raw material cost inflation and the phasing of price increases and, indeed, the conscious decision to invest more in brand marketing, we are confident based on what we see today that we will deliver against our original target for this GPN transformation project, delivering for 2022 a GPN margin between 12% and 13%.

Finally, on GPN strategy, I am delighted that we completed the acquisition of a 60% stake in LevlUp in the second quarter. LevlUp is a German direct-to-consumer brand in the eSports gaming nutrition industry.

In Europe, we estimate this category to be worth about €2 billion and is growing double digits. This acquisition allows us to leverage the capability and team that we have in our European direct-to-consumer platform and is a really attractive adjacent category to performance and sports nutrition as we witnessed the rapid growth of e-sports and associated products.

The brand has a really attractive profit profile, generated €19 million in revenues last year, and we expect it to continue to grow double digit. Now, looking to our other growth platform, Glanbia Nutritionals, it’s worth noting that this segment delivered a very resilient performance in 2020.

And in that context, delivering 15.9% like-for-like revenue growth and a 17.1% improvement in EBITA in the first half is a very strong performance. Turning now to Nutritional Solutions, that business delivered 14.9% volume growth and 1.8% price increase.

We had good volume growth across all the key business areas, with particularly strong demand for our vitamin and mineral premix, where we have a very strong global offering within the food ingredient space. Demand for these products was across mainstream food and beverages right through to immunity-related offerings and, indeed, supplement products as consumers continue to seek health and wellness-orientated offerings.

We also had the volume benefit in dairy of commissioning of the joint venture Midwest Cheese facility and, indeed, saw an overall pickup in demand for our dairy ingredient solutions in the second quarter as demand for more convenient healthy snacking improved as mobility trends improved. Pricing was positive, reflecting the pass-through of dairy market pricing.

EBITA in NS was up 29.2% to €56 million as a result of the strong revenue growth and margin improvement. Margin was driven by positive operating leverage in the first half and positive business mix.

We do expect some margin headwinds in the second half due to input cost inflation and a rebalancing of mix as the dairy ingredient volumes will pick up further. But overall, we expect NS to deliver good volume growth in the second half by virtue of the ongoing activity we have with key customers.

Just looking briefly then at the strategic journey of Nutritional Solutions over the last number of years, which has set us up with a great platform for growth and bolt-on acquisitions, Nutritional Solutions started out as a specialty ingredients business, predominantly dairy based. Having completed a number of years ago a full integration of all our technology offerings to create one platform and one face to the customer, we now have built on those technologies with strong organic growth and a number of bolt-on acquisitions.

This integrated capability is now really agile and can be scaled and leveraged across new and existing customers and it provides capacity for both more acquisitions as well as ongoing organic developments. We’re really ambitious for Nutritional Solutions, and we’re confident it will continue to deliver sustainable, attractive growth.

I’ll conclude then before handing to Mark with US Cheese. Revenues grew by 15.6% in the period.

The business completed the commissioning of our flagship $470 million joint venture plant based in Michigan on behalf of the partners. This new project drove the 18% improvement in volume and will provide a similar volume impact in the second half.

Pricing did decline as a result of lower cheese markets. Overall, EBITA declined in cheese for the first half due to some cost inflation, but we expect the full year earnings to be broadly in line with 2020 overall.

With that, I’ll hand over to Mark.

Thanks, Siobhan and good morning to everyone on the call. I will walk through the results of the first half of ‘21.

Looking at the group’s income statement for the half year, wholly owned revenues were €2 billion, up 20.3% constant currency. Wholly owned EBITA was €160 million, up 108% on prior half year, driven by a strong result from Glanbia Performance Nutrition and Nutritional Solutions as end markets continue to recover post COVID lockdowns, operating leverage improved and the GPN transformation program resulted in improving margins.

Wholly owned margins were 7.8%, an increase of 330 basis points over prior year. Net finance costs were €10.8 million compared to €11.5 million in the prior year, reflecting lower average net debt levels as a result of strong cash flow.

The group share of joint ventures profit after tax before exceptionals was €29.9 million, compared to €31.8 million last year, in line with our expectations. As previously mentioned, for the full year, we expect joint venture profit after tax to be broadly in line with the 2019 results.

The effective tax rate for the half year was 13%. We expect the full year rate to be between 12% and 13%.

Adjusted earnings per share, was €0.5286, up 85% on a constant currency basis and 70% on a reported basis compared to the same period in 2020. Basic earnings per share post exceptional items, was €0.279 compared to €0.1873 last year.

In the first half, the group, including joint ventures, incurred exceptional charges of €52.2 million net of tax, which are related to the transformation program in Glanbia Performance Nutrition and the restructure of the group’s legacy UK pension schemes. In the second half of 2019, the group performed a comprehensive review of GPN across brand strategy, geographic footprint and operating model.

In early 2020, we announced the prioritization of investment in the Optimum Nutrition and SlimFast brands and a streamlining of our product portfolio by rationalizing 35% of SKUs in the business, including exiting contract-related business, enabling a simplification of business operations, including a reset of distributor relationships and the consolidation of manufacturing operations in Chicago. This transformation program is on track and has contributed to the strong margin performance in the first half.

As the program continues, there were €14.8 million in costs incurred in the first half related to people and property-related costs and professional fees. We anticipate approximately €5 million of additional costs will be incurred in the second half related to this transformation program, which will conclude the investment phase of the program.

In the first half, a decision was made to de-risk the group’s balance sheet in relation to UK-based legacy defined pension benefit schemes. Following agreement with an insurance company, a buy-in process was completed, which will ultimately lead to a full buyout and transfer of these schemes to this insurance company by early 2023.

The charge associated with this de-risking was €38.9 million. The cash cost of the buy-in in the period was €36 million, which is less than what the group had already committed to or would have expected to contribute to these schemes in future years.

The buy-in process effectively de-risks the group’s balance sheet in relation to these pension schemes and eliminates volatility going forward. And by early 2023, these schemes will no longer be on the group’s balance sheet.

Acknowledging the de-risking of these legacy UK pension schemes at the end of the half year, the group had a net defined benefit pension liability balance of €19 million relating to other pension schemes. The group continues to focus on cash flow management.

We continue to see strong cash conversion. Operating cash flow was €161 million in the half year, an increase of €114 million compared to prior year, primarily due to improved EBITDA for the period and a modest working capital outflow.

On a rolling 12-month basis, the group reported operating cash flow conversion of 129%. The group has an ongoing target of converting 80% of EBITDA into operating cash flow, and we are on track to outperform this target in 2021.

Free cash flow for the half year was €142 million, an improvement of €99 million over prior year, due to the higher operating cash flow, somewhat offset by higher cash tax outflows as the prior year benefited from tax refunds. Dividends received from joint ventures were €17.4 million in the half year, broadly in line with the prior year.

Strategic capital expenditure was €34 million for the half year compared to €20 million in 2020. The primary spending was on the consolidation of GPN manufacturing facilities as well as some IT spend associated with expansion of the group’s direct-to-consumer platform and the integration of acquired businesses.

For the full year, we expect total capital expenditure, including business sustaining, to be in the range of €80 million to €90 million. During the second quarter, the group acquired 60% of a direct-to-consumer e-sports gaming nutrition company, LevlUp, for an initial consideration of €31 million.

This business had revenues of €19 million in 2020. It’s growing at a strong double-digit rate and is profitable.

The acquisition is subject to earn-out provisions in 2022 and 2023, and the group has an option to purchase the remaining 40% in 2025. In the second half, we expect to pay approximately €18 million, representing the earn-out payment for the Foodarom acquisition, bringing the total acquisition cost to approximately €60 million.

We are pleased with the business performing very well, which will lead to this earn-out payment. The group will pay an interim dividend of €0.1175, which is a 10% increase from the prior year.

The total 2021 dividend will be within the group’s 25% to 35% of adjusted earnings per share payout ratio. At the Annual General Meeting, the group again received strong shareholder approval to implement a share buyback program.

The technical resolution of the Rule 37 waiver, although approved, did not achieve the 80% level. As a result, the group followed up with a shareholder consultation process, which resulted in feedback from investors which was supportive of the group’s capital allocation strategy.

Following the completion of this consultation and in light of the strong cash flow position of the group, the Board has decided to commence a €50 million share buyback program as of today. The group has ended the half with a strong balance sheet.

Net debt was €550 million compared to €651 million at the same time last year. We are well within our banking covenants with net debt-to-EBITDA of 1.51x.

At year-end, the group expects the net debt-to-EBITDA ratio to be broadly in line with the level at the end of 2020 and, indeed, 2019, which was approximately 1.7x. We’ve committed facilities of over €1.1 billion with a weighted average maturity of 4.4 years and no facilities due for renewal in the coming 12 months.

And with that, let me hand it back to Siobhan.

Thank you, Mark. And so to conclude, the top line trends for Glanbia continue positive to-date and we’re well positioned for further strong revenue growth for the second half of the year.

We are, of course, very vigilant to the ongoing threat of COVID, but the strong first half performance gave us the recent confidence to raise our guidance for the delivery of between 17% and 22% growth in adjusted earnings per share for the full year 2021 on a constant currency basis. Underlying margins in the key business segments are very solid.

We do see some mix changes and inflation-related margin headwinds in H2. But with the usual time lags, we will be executing pricing decisions to mitigate known cost increases.

As noted earlier, we’re using the opportunity of the strong half year to further increase investments behind our GPN brands as we are seeing the returns on that investment through the top line momentum achieved to date and, indeed, planned for the rest of the year. Our financing and cash management discipline has continued.

Our balance sheet is in a very strong position. And of course, that provides us with resources to fund further growth opportunities.

With that, operator, I’d like to turn the call over to questions.

Good morning, Siobhan. Good morning, Mark.

Two questions from my side, both margin-related. Firstly, on GPN, could you provide some building blocks around the H2 bridge relative to H1 for GPN margin and perhaps some early commentary in terms of how you see margin progressing in FY ‘22?

And my second question just relates to margin within Nutrition Solutions. Perhaps you can explain just the mix effect or the dynamic that’s going on between the vit and minerals business and the dairy ingredients part?

Thank you.

Good morning, Cathal and thanks very much for that question. In terms of GPN, what I might do is speak to an overall perspective as you asked on H2 and bring in 2022 into my response.

The first observation I would make is that the work that we’ve done on the GPN transformation program has to date and, indeed, will continue to be a real underpin of those GPN margins. With this program, we are optimizing our gross margins, and that is giving us the space to invest in our brands if we feel that’s needed.

And so when you go up to the helicopter level, based on what we know today and on the planned incremental brand investment for H2, we’re confident of getting close this year to our targeted margin of 12% to 13% for GPN and delivering within that range for next year, as previously guided. Maybe then turning to your point and some more specifics around the moving parts of margin, we have seen a big swing in play input costs in the second half over the first half.

Because what we had was a declining market price trend last year and a rising trend this year. So we had that lower piece coming in, in inventory as we entered into 2021.

So the positive first half phasing that we’ve seen in the first half will swing to be negative in the second half. For the full year, in terms of wage inflation, we’re probably around that mid-teens percentage increase.

Importantly, the other side of that, from a margin perspective, is that we’ve executed price increases, as you know, the second half of 2020. And we’ve more planned now for the second half of 2021.

And on a full year ‘22 basis, that pricing should largely negate the increases at this point. There is obviously other inflation dynamics.

You’ll have heard other organizations speak to and the varying degrees across COGS. We expect that the transformation program savings will actually come to those at this point.

Looking into ‘22 on the whey cost piece, it’s very hard to call at this point in time. This year, they did spike to multiyear highs.

But that trend does tend to be transitory in the dairy space because supply does rebalance to demand. It can take a few quarters to level out and rebalance.

But generally, in the supply base as production flexibility, so that does over a period match between – match supply to demand. And then the last point I would make is that, of course, the other important factor for the H2 margin is that we are using the opportunity of the strong first half margins to up-weight investment in our brands.

That is in an absolute and, indeed, on a percentage of NSV basis. We believe that this increased marketing investment is really the right perspective to take now because consumers continue to emerge from the pandemic.

We’ve seen really good ROI on this investment and its driving top line momentum. And so that gives us the confidence to continue to invest as we move through the year.

So hopefully, that helps, Cathal, on GPN. On NS, yes, indeed, yes, there is a mix piece.

We had really strong growth in the premix side in the first half. We saw and we have good margins within that part of the portfolio.

Dairy, as you can imagine, particularly on the ready-to-eat space, was more impacted by COVID as we were coming through 2020 and the early part of ‘21. We see that actually in recent weeks coming back, so we’re going to see a more balance to where it might have historically been between that dairy and premix space, and that will just have a little bit of a margin mix effect, which was more positive in the first half.

That’s great. Very clear.

Thank you.

Thanks, Cathal.

Good morning, thank you. Just a couple of questions for me.

Firstly, on GPN, just a comment, I guess, around the competitive landscape. I guess a trend to COVID was bigger brands like ON winning and taking share.

Has that continued? Have you been able to underpin that share gains or are you seeing competitors come back in the market?

And I guess following on in terms of your expectation for getting price increases in H2 as well, does that competitive landscape, I guess, give you confidence that you’ll be able to get them through? And then secondly, just on the level of acquisition.

Could you just give us a bit of an idea of the historic growth of the business, the type of products it provides and maybe the profitability of the business as well, please? Thanks.

Good morning, Patrick. How are you?

Just in terms of your questions on the competitive landscape for sports nutrition, we feel very good about that. I mean, Siobhan talked about the 30% consumption we’re seeing in the 12 weeks to the middle of June.

Optimum Nutrition has done extremely well, actually. And we would say that we are doing quite well from the market share perspective there as well.

We feel very confident, I would say, as well in terms of price increases. We’ve already communicated price increases across our global markets, not just North America.

And again, with the inflationary environment you’re seeing in the U.S., that’s not something that’s actually quite different. I mean a lot of companies are looking at price increases there now.

So we’re again very confident that price increases will go through mostly around the September timeframe. I would say we are keeping an eye to elasticity as we look at the fourth quarter, just to make sure we understand how consumers will react to that, but we absolutely have no issue in terms of getting those prices through with our retailers.

And we’re seeing as well in other brands, frankly, Isopure is doing really, really well. Also in terms of their product offering, think!, we would say, has gained share in.

The ready-to-eat market as we’ve seen that come back and with some of the offerings like Keto as well. They have done very, very well.

So I feel pretty good. The area I suppose that we’re watching a little bit is the weight management category.

Siobhan, again, mentioned that that’s been slower to come back, so that probably hasn’t come back as fast as sports nutrition. And we would say that’s just a factor, again, if folks are not back to work, not back-to-school, all that activity hasn’t fully happened yet.

So I think we will watch that into the fall and into the winter and the new diet season. Again, we have a number of programs ready to sort of jump start that as well from our perspective.

On LevlUp, so LevlUp is a very interesting adjacent acquisition for us in the e-sports gaming side. A number of our consumers we know participate in this landscape as well.

So we saw an opportunity here to buy 60% of a company. That’s a very new company.

It’s a start-up over 2018. In fact, it was relatively new but has had quite significant growth.

It’s had €19 million sales last year. You’ll probably see €30 million-plus come through this year based on what we’re seeing.

It is profitable. I’m not going to go through the margins, except to say it’s probably a little bit accretive currently to our overall GPN margins.

But the advantage for us in getting into this space and the way we structured it is we can learn more about the space. We clearly have the direct-to-consumer technology where we can integrate the company quite easily into our existing Body & Fit platform, for example.

And it’s a low-fat ready-to-mix product that works well with the consumers that we’re targeting as well.

Perfect. Alright, thank you.

Good morning, Siobhan, and good morning, Mark. A couple of questions for me.

Firstly, coming back on GPN margins, can you just clarify do you expect GPN margins to be down year-on-year in H2? I know it’s obviously going to be down versus H1 in H2, but it can be down year-on-year as well.

And what – within that expectation, what kind of level of pricing are you expecting to happen in H2? I mean I think in Q2 you were nearly at 7% level.

So kind of what level of pricing in GPN should we be expecting for the second half of the year? And then my second question is on SlimFast, sorry, Mark, you were just talking about a little bit in the last answer to the question.

But we’re obviously hearing from some other companies as well about the softness of the weight management category, Weight Watchers were calling it out. What gives you kind of confidence that this is going to kind of recover?

And I would be curious what your market – you think our market share performance is in the weight management category. And what’s your expectation for SlimFast growth for the full year?

And maybe just as well if you could just say what you think your expectation is for overall GPN like-for-like growth for the full year? Thank you.

Hi, James. Good morning.

Yes, we – at this point in time, we expect the GPN margins to be back on H2 last year. But the real variable within that is actually the incremental marketing investment that I mentioned.

Yes, there is a bit of lag on pricing and cost of goods, and we’re never complacent about taking pricing. But the real story there is that incremental investment, and we’re very happy and comfortable to do that for the reasons I said earlier around the return that we’re getting on that.

On the overall pricing, to that point, we’re really looking overall at about mid-single digits, again, building on the pricing that we put through the back end of last year, working through that, as Mark has said. But confident we will get it at this point in time with working with that and never complacent about the elasticity always, as Mark also mentioned, but I think in good shape to execute that.

Yes, SlimFast, it’s a great brand. We have great brand awareness.

We have great positioning across the key retailers in our markets, particularly in the UK and in North America. I think there is just an undeniable fact that consumers haven’t reengaged with dieting as yet because there is a lot of consumers still working from home, still not moving about as they have been historically.

We absolutely believe that, that will come back given the exact timing of when they will come back, it could be a point of discussion, probably the latter part of the year, maybe around Q4. Summertime is always quiet in the dieting season, so there is a bit of seasonality there.

But we have a lot of programs in place to really own that space when they do come back. We have new creative that we are working on.

We have a number of product launches. We have a number of activities with some of our key North American retailers.

So, we see this as just an element of COVID recovery, to be honest, that hasn’t happened as yet. We are increasing our investments behind SlimFast in the second half of the year as we are doing in some of our other key brands.

And different parts of the brand portfolio are just recovering a different pace. We have seen a very great recovery allied with the increased investment and the actions we have taken on the sports side.

We have seen the ready-to-eat come back. We are seeing really good growth in think!.

We are seeing other brands, as Mark mentioned, like Isopure, again, grew really strongly playing into plant clean protein. And we believe that the dieting weight management piece absolutely will come back as consumers reemerge, ultimately, probably most particularly in that back-to-work, back-to-school piece, so investing behind capturing that, as I referenced.

In terms of overall like-for-like branded revenue growth for GPN for the full year, our perspective at this point in time, probably just a bit watchful of potential elasticity at the fourth quarter, James. We will always be a bit watchful on that, but I think it’s fair to say we would expect probably at least mid-teens at this point in time for the year.

Thanks very much Siobhan. Can I just quickly follow-up on the marketing investment?

Is there any sort of color you can give in terms of the size of the incremental investments either kind of year-on-year growth or as a percentage of sales in GPN?

Yes. I suppose what I can say is that we are moving from a number of years ago, our marketing rate of investment of top line was probably in that kind of mid-single digits, even maybe turning to a little bit to the high, but we are moving to double-digits this year.

And so that – and focusing really on the key brands that I have referenced, Optimum Nutrition, SlimFast and where we have particular opportunities to dial up our message on think! or indeed a brand like Isopure, we are doing that.

So, moving into that double-digit zone for the total portfolio, James, which will be somewhat of a step change for us.

Great. Thanks very much.

Thank you.

Hi there. Thanks for taking my question.

Yes, just a couple. I was wondering if you could talk a bit more about your hedging strategy and the time horizon in terms of kind of when this will be hitting the P&L, this inflation in whey and other input costs and then whether you have any kind of natural hedges within the business and offset that as well.

And then just in terms of – again, on GPN marketing, you mentioned you are seeing good ROI on marketing. I was just wondering if you could talk a bit more about what you are doing differently here and do you see sort of gaining market shares, and yes, just a bit more about the marketing side of things?

Thanks.

Hi Lauren, so on your hedging point, and it’s related to the whey input costs primarily that you are referring to. Generally, the way GPN acquires whey, there is a 3-month or 4-month lag in terms of what’s happening in the market as to what will actually end up in our cost of goods sold, just in terms of how we procure and then how that gets pushed through into the particular product.

So, that’s why Siobhan was mentioning earlier that we saw whey costs coming down at the end of ‘20, we would benefit from that, frankly, at the beginning of ‘21. And we are seeing whey cost increase in beginning of ‘21.

That will actually be a factor in our overall COGS in the second half of 2021. In terms of our ability internally, I mean, we pretty much work at market pricing from a GPN perspective, whether they are buying that from an internal Glanbia Nutritionals business or whether we are looking at that externally.

So, there is not really any difference substantially. You could argue that there is a benefit of having security of supply to the extent that things may get a bit tight in the market, and that’s obviously be beneficial from time-to-time, but not necessarily from an overall pricing perspective.

I will hand back to Siobhan on the marketing point.

Thanks, Lauren. Yes, I would say we have done a lot of work over the last 12 months to 18 months around the return on the investments that we could get on our marketing.

And we did a number of test-and-learn exercises through 2020 indeed. That really actually gave us the confidence to increase investment this year and we will continue to do, as I say.

A few areas I would call out that I referenced in my earlier comments. Firstly, I think in Optimum Nutrition, for example, our focus really on those strategic product groups, around Gold Standard, around Amino Energy.

In terms of marketing activity, we did a lot of work on how we could get the best return across the various outlets. We found, for example, that streaming TV has a really good ROI for us.

Naturally, you would expect – we also find that digital engagement is really important, social engagement, the Building Better Lives campaign. So, we brought the science to the marketing really as one should and are really focused on – in very real-time, establishing what are the best returns that we can get.

And that will continue to be a very live program for us for brands like Optimum Nutrition. SlimFast, again, very classic marketing, it’s all there about the master brands and how that interacts.

We have a strong media efficiency in the SlimFast brand. And what we have been increasing there is our digital touch points around the SlimFast app, around social engagement.

Likewise, again, coming back to James’ question earlier, making sure that we are there for consumers when they reengage with the diet piece, so a lot of new resources, a lot of activity in the marketing space and then really watching the returns.

Thank you.

Yes. Hi, good morning Siobhan, Mark and Liam, congrats on the strong results.

I have got three questions, please. The first one, just on GPN, you had over 100% growth in the first half with distributors.

I appreciate that’s from a depressed base, but can you give a sense of inventory levels at your key distributor partners? And then maybe more broadly, can you talk about the disciplines you have introduced to give your management team better visibility in terms of managing sell-in, sell-out risk versus history?

Secondly, just going back to the GPN marketing point, am I right to understand from your answer that you are moving from historical sort of mid to high single-digit brand investment as a percentage of sales last year to double-digit in the second half this year, so potentially up to a 500 basis point step-up in marketing spend? Is that the right way to think about it?

And then should we think about that as just a sort of a one-off investment, reinvesting the windfall from the strong first half or is this double-digit level of investment a new normalized level going forward? And just finally, just on the Nutritional Solutions strategy evolution chart, which is interesting that you show, perhaps like rolling that forward, we are seeing quite a lot of momentum in the synthetic bio industry.

Just wondered, when you think about Nutritional Solutions long-term and your legacy whey protein exposure there, how are you viewing that trend? Is it a competitive risk in whey or a potential opportunity for Glanbia to get involved maybe at some point?

Thanks.

Good morning Alex and thanks for the questions. In terms of the distributors, yes, I mean, that’s been a clear comeback in terms of where we were at this time last year.

And a lot of that, as you alluded to, relates to our international operations. And your question around inventory, an important one, we have very new disciplines now in terms of; a, we have, as you know, changed quite a lot of our distributors in a number of different markets.

So, we have much more visibility in terms of; a, their inventories, and b, their sell-out as well. So, we are seeing right now and we have seen great growth come through, frankly, in India, China, Southeast Asia, Middle East over the last number of months.

And we would say to you that, yes, there has been some inventory moving into the various regions as you sort of look at supply chain length, but sell-out has been very strong. So, from our perspective, there is no significant inventory build going on in these markets.

We are actually seeing very smooth sell-out. So that’s very, very positive for us as we sort of move into the second half.

Your point on marketing and this has been something, I suppose, we have been talking to over the last number of years. Even as we acquired SlimFast and more lifestyle products, we knew that there was going to be a higher percentage of marketing, for example, for a lot of those products that we might have traditionally spent on some of our sports nutrition brands.

But even our sports nutrition brands now are moving up in terms of the percentage of marketing sales that we are spending in terms of marketing. I think, as I recall previously, I said towards the high-single digits for brands like Optimum Nutrition, low single-digits for SlimFast.

Certainly, we are looking at half two, we are taking some opportunity here based on the strength of the first half to put a bit of extra amount in that. You mentioned 500 basis points.

I would probably say that’s more like 350, 400-ish in terms of what we are doing. And as we look into next year, yes, we are more focused on making sure we have space.

Some of that’s coming through from our transformation program to allow us to invest more in our brands in terms of moving them forward with the consumer. That’s the model we want to move to as we went through the transformation in GPN.

So yes, you should expect generally that we are moving to a higher level. Whether it is exactly at the same level in second half, we sort of assessed that we would get into 2022.

And I will hand back to Siobhan on the Nutritional Solutions point.

Thanks, Alex. Yes, it is interesting, of course, the evolution of the synthetic bio industry.

We don’t see it as a risk – fundamental risk to our whey dairy propositions. And absolutely, we will and do keep an eye to the evolving moves in that area and in that space, and it may well be an opportunity for us.

So, that’s how we would look at that just now.

Very helpful. Thank you.

Yes, good morning. Thanks for taking my questions.

I have a few left. The first one is with regards to the turnaround program in GPN.

Having most of the work seems to be done. So, what’s still required to be done?

And somewhat related to that, of course, is what’s your innovation agenda going forward, and particularly thinking about the plant based? Now the second question is then also on GPN.

Given this turnaround program, what will be the structural improvement in your gross margin more or less, you think, as you think about mix, supply chain optimization, because some of the answers are, of course, very focused on short-term cost inflation and pricing. But if you think about the operating model going forward with structural gross margin improvement and higher A&P support, how should that look like?

Thank you.

Good morning Karel, again, thanks for your questions in terms of GPN. We are almost concluded.

In my comments, I did mention we have another smaller amount of investment for the second half, but we are almost done in terms of the restructuring work we have actually put in place, whether it’s resetting distributor relationships, existing contract, combining our manufacturing facilities, that will be done essentially by the end of this year, a little bit ahead of schedule for us as well. So, from that perspective, we feel in very, very good shape there.

I think as we get through the year into next year, we will talk more around our strategy and innovation in terms of Performance Nutrition. We already talked about a number of things.

We are working on SlimFast, plant is important for us as well. But there are a number of things going on with the North America team particularly that I think we will be excited to talk about into next year in terms of innovation and what we are doing with our brands.

We don’t talk specifically about gross margins, as you know. But as you can imagine, the efficiencies that we are able to achieve now through this transformation program is just freeing up a lot of flexibility for us in terms of investing behind our brands or investing from an innovation perspective and still maintain a good margin in that business.

And I think the way you should think about this, the restructuring that we have done has given us that ability to have a flexible CPG approach in terms of how we approach the business, and we are well on track to that 12% to 13% margin range for next year.

Alright. Good.

Thanks. And then I had one follow-up question on SlimFast.

And why did the diet routine not return, because we, of course, have also seen that the U.S. market is open for a bit longer.

But also home cooking from scratch is up and that’s often seen as healthier. So, what are your consumer insights in terms of why the category is still a bit slow?

Thanks. I think it is that really people have in the first instance just been engaging and getting out and about, to be frank, and in the social side of the early openings of mobility and maybe less about the diet aspect of it.

And so – and if you take certain diets, for example, like the Keto diet, it takes an element of discipline. So, we are confident that when people actually really get fully back and they are getting back to kind of the normal rhythms that, absolutely, it’s just a matter of time when they reengage with their weight loss goals and ambitions and SlimFast will be there for that.

So, we really see it as a timing piece.

Alright. Thank you.

Thank you.

Good morning. So, I have three questions.

Question on your 2022 margin guidance in GPN, could you clarify once again what you are assuming in terms of pricing and inflation? Are you assuming a full recovery?

And then second question, we just talked about dieting being slow. Do you expect promotional activity to increase if it remains a slow market?

What have you assumed in your full year guidance? And then last question on Nutritional Solutions, I think previously, we had talked about some exposure to infant nutrition there.

How big is that? And what are you seeing in the market, please?

Thank you.

Thanks, Heidi. So, it’s in our guidance and stated ambition of achieving the 12% to 13% for GPN for 2022.

What we have said is that we believe that through the transformation program and the pricing, we will take known cost increases at this point in time. Of course, we don’t have full visibility as to how whey prices will evolve through 2022.

But for what we can see today, that would cover that largely off. On the promotional agenda of diet, no, we don’t think so necessary at this point in time.

We are investing in marketing, investing in consumer activity, investing in new creations, investing in product launches and innovation. So, at this point in time, don’t see that as a particular thematic that will be necessary to bring the category back into a stronger growth phase.

Infant formula, yes, it is part of the Nutritional Solutions portfolio, not a very significant part. So, we are seeing the trends that others are seeing in that space where it’s a bit more challenged than other sectors.

As I said, we are seeing really good growth for our Nutritional Solutions across a wide range of other categories, mainstream food and beverage, beverage in particular, immunity, supplementation. Those categories are doing really well for us.

Thank you.

Thank you very much.

As always, thank you very much for your time this morning, and we look forward to speaking with you again soon. Do stay safe and well.

Thank you.