Glanbia Plc Ord

Good morning and welcome to the Glanvia PLC Half-Year 2020 Results Call with Siobhan Talbott, Group Managing Director, and Mark Garvey, Group Finance Director. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Liam Hennigan, Group Director, Strategic Planning and Investor Relations. Please go ahead.

Thank you, and good morning and welcome to the Glanvia Half-Year 2020 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 the half-year 2020 release 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. I'm now going to hand over to Siobhan Talbot, Group Managing Director of Plan B at PLC.

Good morning, everyone, and a warm welcome. I hope you're all safe and well in what are extraordinary times. I'm joined by our Finance Director, Mark Garvey. On the call today, I'm going to run through the specific impacts of COVID-19 on our business and how we responded to the crisis so far in 2020. I would also like to outline how the pandemic has changed our marketplace. and how we're responding to these changes. I will then run through the operating performance for the first half, hand it to Mark, who will cover the finances, and then we'll conclude with any questions. From the outset of the COVID-19 crisis, we set three priorities for Glanbia, which drove our day-to-day decision-making. These priorities were to protect our people, to maintain supply of food, and to maintain our strong financial position. Against those metrics, we delivered a resilient performance through the exemplary efforts of our people, our partners and our suppliers. I'd like to take this opportunity to thank those people and our frontline workers in particular who have helped us navigate the most demanding conditions I have witnessed in my career. Health and safety is our number one priority in Glanbia and we manage this rigorously via a group-wide continuity planning process. We maintained the production of food across the group without disruption to ensure our consumers and customers had access to our nutritious brands and ingredients. Finally, we entered this crisis with a strong balance sheet and through a focus on cash, we've improved our position by reducing our net debt by 127 million versus the prior year to bring our net debt to EBITDA ratio now below two times. This will enable us to emerge strongly from this crisis. Ultimately, our business is driven by consumer behavior, and this crisis has fundamentally changed the way we all live our lives. So we've stepped back to recalibrate how these changes may impact our brands, our customers and categories, and the communities we operate in, both in the current environment and for the longer term. This is first and foremost a health crisis. The link between health, nutrition, and diet is now more than ever cemented worldwide across all generations. We have seen from our own consumer insight work and from speaking to customers a spike in people concerned about obesity, heart health and immunity, with consumers looking for new ways to stay healthy. Globally, the onset of COVID-19 was a shock to the system, with severe restrictions on activity. As the months have progressed, we have seen consumers adapt to new ways of staying healthy and fit, and we have evolved as a business to support that. Overall, Glanby's purpose of delivering better nutrition for every step of life's journey has never been more relevant and will continue to drive us. We know brand loyalty for established brands goes up during uncertain times, and we found this in 2020. Our net promoter score for optimum nutrition has gone up two points to plus 54. And our household penetration of SlimFast in the US has increased 60 basis points to 5%. This pandemic has had a disproportionate impact on certain demographics, with unemployment hitting younger folk in particular. So brand positioning and affordability is important. In fact, in the aftermath of the global financial crisis, As consumption polarized between premium and value-orientated brands, we had strong growth for our performance nutrition brands. Optimum Nutrition and SlimFast are great value for money and are trusted by our consumers to deliver on their needs. Both brands have outperformed their peers in their respective categories in the half year in the key North America market. In terms of customers in the first six months, One of the big trends we've seen is the acceleration of e-commerce. Today, 34% of GPN sales are in online channels, and this is one of the highest levels of online sales in our category. We continue to grow our presence with double-digit growth in the half year. This is a channel we have been developing a deep competency in for some time via our relationship with the key retailers and our own direct-to-consumer business, Body & Fit. Retailers are simplifying product offerings as consumers stock up more versus pre-COVID. Having the number one brand in performance nutrition and the number two brand in weight management puts us front of mind when retailers are making these choices. In our nutritional solutions ingredients business, we are the number two provider of essential micronutrients globally and the number one provider of protein solutions in the U.S., We provide nutritional solutions to global and regional brand owners as they seek to build and enhance the nutritional profile of their products. And in a COVID world, we have seen significant demand for immunity enhancing ingredients and solutions. Glanbia is a values-led organization highly conscious of our role in the nutrition supply chain. Through this crisis, our values really came to life across our community of over 7,000 people. there have been multiple examples of our people taking initiative and helping the communities we operate in, from donation of food to frontline medical workers and people in need in Europe, US and Asia, to helping support personal trainers. We believe this crisis will increase the focus on social responsibility and sustainability from stakeholders. From the outset, we've been very conscious of the health and well-being of all of our employees and have had in place a range of supports including occupational health supports and reconfiguring our work environment and practices. Finally, through our strong financial position and diligent focus on cash, we have not taken any government financial support related to COVID-19 in any of our jurisdictions. Now looking at the impact of the pandemic on the group's performance, the overall message is that we had a good start to the year in Q1, COVID hit in Q2, And while significant elements of the group were very resilient, we did drip dramatically in GPN in April and May, but the trend lines have improved through June and into July. In North America, the specialty and distributor channels slowed down rapidly as stores and gyms were closed. In international markets, lockdowns were even more disruptive to demand, with a number of markets essentially closed. As I said, our sales in GPN dipped materially through April and May, where they were down over 30%. But as we saw an easing of lockdowns around the world in June, we saw recovery. This improving trend has continued after the second quarter, and we saw a significant trend improvement in July, with year-on-year, like-for-like branded revenue down 4%. The key areas of trend improvement in July were in the North America performance nutrition and our international business. I am also very confident on significant margin recovery in GPN for the second half. Our Glanby Nutritionals business had a resilient performance to date in 2020. As you can see, GN serves a number of markets and in the half year we had good demand in nutritional solutions in the area of fortified food and beverage and supplements. During the second quarter, we did see some COVID related volume headwinds in the sports and lifestyle space, particularly in some food to go categories. Our cheese business had an excellent performance. We have a broad reach of customers with demand strong from customers who supply retail partners. And finally, our joint ventures were robust, proving the strength of their economic model through volatile pricing conditions. As you know, we have two significant Greenfield JFE projects in Ireland and the US, and while there was some disruption, they are very much on track. Having looked at how consumer trends have evolved and the related impact on our business in the first half, we have reassessed our strategic priorities in the context of this evolving environment. Earlier in the year, we spoke to our planned actions to drive momentum across the group. highlighting three areas of regaining growth in momentum in GPN, an organisational review to drive productivity, and ongoing strategic execution, particularly in nutritional solutions. All of the focus areas we previously spoke to remain very relevant. Many of the initiatives we commenced in 2019 have both lessened the potential impact of COVID, but more particularly will position as well to emerge strongly from this pandemic. Across the business, we have continued to drive forward key priorities, despite the recent disruption. In GPN, we have previously outlined our ambition to drive revenue growth and margin improvement through actions across our brands, our operating model, and our routes to market. Key aspects of our plans have been completed. In terms of our brand priorities, we have prioritized ON and SlimFast, We have completed the streamlining of our product portfolio via the SKU rationalisation and we are on track to exit the North America contract business later this year. Our planned actions in terms of operating model and international route to market optimisation are largely complete with new talent and new route to market partners in a number of key geographies. We have a significant supply chain project underway which will consolidate three of our North America production facilities into one. As we moved through Q2, we have responded to the learnings from the crisis so far to extend further the reach of the GPN transformation project across the business, and I'll speak somewhat further to this later. In Glanby Nutritionals, we have continued our development of solutions capability across platforms such as healthy snacking and ingredient delivery systems, And we have successfully continued our strategic development by executing an exciting acquisition, Foodaram, which builds our flavor capabilities. During the crisis, we have changed the way we deliver innovation projects in GN with our customers and successfully managed the cadence of innovation development. Travel restrictions meant we were now collaborating with customers digitally to continue working through projects virtually that traditionally would have happened side by side. It has been important to be able to maintain that productivity as we've seen an increase in customer briefs looking for immunity and natural-based ingredient solutions. Across the group, most of us are working remotely. We have been agile and have used our new working practices to good effect. One highlight I'd like to mention is that we are now recruiting and training over 200 employees for our new Michigan plant. completely remotely so that we will hit the ground running when we commission later in the year. I will not overly dwell on this next slide as I've made a number of the points already, but if I step back and look at our group structure and I look at the trends we are seeing accelerate today, I believe Glanby is very well positioned. There clearly remains significant uncertainty around the degree of consumer restriction for the second half of the year. and how that will influence consumer behavior. However, at a fundamental level, certain trends to which Glanby is strategically aligned have grown all the more powerful. We have leading positions in performance nutrition and weight management. We have a streamlined and focused portfolio. Our two platform brands in those categories making up 69% of GPN sales today. Our brands are outperforming in their categories in the key North America market, with slim fast consumption up 13% for the half year, and optimum nutrition while back was just back low single digits. We have a nutritional solutions ingredients business that is world class in essential nutrients and proteins, and we are expanding it into complementary technologies that we will scale. E-commerce in particular is a trend that has been very exciting for us, as we've not only developed with leading online players in the US and Asia, we've also built our own in-house e-commerce capability via the acquisition of Body & Fit in 2017. The majority of our business is orientated around growth categories that have seen consumer trends grow even more powerful this year. Protein has been resilient and will always be the cornerstone of healthy nutrition. Data points such as Google Trends show increased interest in weight management and products and ingredients that can deliver immunity properties have been in strong demand, such as the amazing grass brand within GPN and the immunity ingredient solutions of Glanby Nutritionals. On-the-go food consumption has clearly been a headwind as consumption is associated with mobility, transit and on-the-go consumption occasions. We do believe that as mobility increases, these categories will regain growth momentum. Finally, in our joint ventures, we have seen good demand for dairy staples, with strong demand as a result of the stay-at-home economy. In this crisis, dairy has proven itself once again to be the trusted source of nutrition, and via our joint venture models, we have robust economic models to participate successfully in the dairy category. Turning now to segmental performance in the period and Glanbia performance nutrition. After a good first quarter, GPN was significantly impacted by the effects of the COVID-19 pandemic in Q2. Lockdown severely disrupted demand in many of our international markets, as well as the specialty and distributor channels in North America, which led to sales declining 15.6% in the half. Outside of these disrupted channels, we saw good performance in online and FDMC for our performance products, and online and FDM for our lifestyle brands, with Slimfast and Amazing Grass particularly strongly. As noted earlier, our July trends improved significantly, with like-for-like branded revenue for July down 4% year-on-year for the month. EBITDA declined to 19.6 million in GPN for the period as revenue and margins declined. This was primarily caused by negative operating leverage, caused by the pace and scale of the declines in Q2, with the most significant impact in our international business. Volumes moved from being plus 4 in Q1 to a decline of over 30% in April and May. And while we both mitigated the impact as much as possible and June trends improved, a certain element of fixed overhead cannot be reduced in such a short time frame. It is also noteworthy that we had some year-on-year way raw material inflation in the period. The trend line on margins is improving and I feel very confident that H2 margins will be significantly better than H1, moving into double digits. as the recovery in sales and our natural second-half seasonality of our business will address the negative operating leverage issue of the first half, and also we have very good visibility on the reversal of the H1 negative way input costs. Similarly to the top line, we have seen the improving margin trend in July performance. Turning more specifically to the GPN transformation project, As you know, we commenced this program at the end of last year. As noted earlier, we have made very good headway since then. At its essence, the transformation project is about driving demand and approving margins. We have completed the rationalization of 35% of our SKUs to make the portfolio more streamlined and the organization more agile around our two platform brands of ON and Slimfast. which now make up 69% of GPN sales. GPN is now reorganized around the four key business focus areas. And while we will continue to invest in our strategic priorities, we will by the end of this year have reduced overall GPN headcount by over 10%. Finally, we have changed some key route to market partnerships in a number of international territories that we referenced last year. particularly Brazil, India, and China. In terms of work in progress, we have a significant number of pillars underway. They include the consolidation of our supply base, which will consolidate three production facilities into one in the US. The exit of our contract business in the US has helped facilitate this change, and that process is continuing. We have reviewed the GPN business again, during the period in the light of the significant impact of COVID and have decided to broaden the scope of the transformation project as a result. We are further recalibrating our approach to international markets and we have deepened our North American review across a wider range of demand and productivity levers, leveraging our capabilities to address the current accelerating consumer and channel trends. We have centralized and simplified many of our activities in international markets. While the lockdowns impacted the business significantly in Q2, the completed SKU rationalization lessened the impact and also focused our business teams. Looking forward, we will selectively invest in strategic growth markets in Europe and Asia with a bias for growth in the e-commerce channel. We will drive further simplification of our business right-sizing SG&A and retrenching for markets that can be managed from a central hub. In North America, the transformation project will continue to streamline our brand priorities in a post-COVID environment and will drive further optimization of our brand investment, pricing and pack architecture to drive consumption. In terms of productivity and efficiency levers, We are assessing all opportunities across procurement, supply chain processes and footprint to drive margin improvement. All of our work streams are now underway and will continue into 2021. Ultimately, we are extremely focused on profitable growth and we are confident that this initiative will drive GPN margins to within a range of 12 to 13% by 2022. I have mentioned the channel shift earlier and I'd like to highlight now how pronounced that has been through the first half of the year. 74% of GPN sales were online or through FDMC channels for the first half of 2020. These are growing channels where we have category leading positions. In online, we have the highest level of penetration in our category. Despite the disruption in Q2, these channels grew in the period overall with FDMC up 1% and online growing 11%. This change resulted in a renewed emphasis on how we can best leverage our category leadership and capability to drive further demand, in particular for ON and Slimfast. The distributor and specialty channels both declined substantially in the period, as the closure of gyms and lockdowns across many markets limited consumer engagement in these channels. We believe that the specialty and related distributor channels in North America and globally will continue to be important outlets for some of our key brands. However, we remain cautious on the trends for the rest of 2020. We continue to engage strongly with these customers with an emphasis on working capital management. Now looking to the business area review, you will see that GPN has a significant business in North America. with 72% of sales in that region for the period. North America in totality performed well for GPN, and while revenue was back, the portfolio strength across performance and lifestyle resulted in profit in the half year broadly in line with the prior year and margins increasing. International performance declined substantially in the first half by 33%, to now represent 21% of GPN sales. As noted earlier, building on the actions of 2019 and the learnings from COVID, we are further recalibrating our approach to international markets, prioritizing a fewer number of key geographies. Turning now to performance within the GPN business areas. North America Performance Nutrition had like for like branded revenue decline of 11% in the period. The ON brand outperformed this with overall consumption down 4% for the half year. The overall trend was driven by the decline, the distributor and specialty channel, which were particularly disrupted in the second quarter. This most particularly impacting our more specialty-based brands such as BSN and Isopure. As the period progressed, we saw a sequential improvement in sales and consumption, and this has continued post the period end and into July. The majority of our business now in performance nutrition in North America is now in online and FDMC channels, which delivered a good performance in the period. While we continue to see a role for the specialty channel, we see continued growth online and in the FDMC as a scale opportunity for our business. We also plan to optimize our brand positioning to the changing consumer behavior. Dairy protein remains the primary performance protein source. Powder is still the preferred format of protein and was very resilient through the pandemic. The RTD sector declined but has started to recover and the ready-to-eat space declined significantly with the risk of a slower recovery. We have pivoted our creative twice during COVID. First in May and June to support personal trainers. and secondly to inspire consumers to keep on track with their fitness targets. We see consumers hungry to keep up or increase their performance levels and to keep ON top of mind with consumers, we have launched an omnichannel campaign. Titled Better Than Before, it will help consumers achieve their fitness goals in the new normal we are living in. What is truly exciting about this is that we are running the campaign seamlessly across online and FDMC retailers in multiple product formats and supported by great storytelling in digital media. Our North America lifestyle business had a good performance for the period, growing revenues 2%. This was led by our platform brand Slimfast, where consumption growth outpaced shipments, with consumption and measure channels growing 13% and outpacing the category in the period. As with other brands, our lifestyle portfolio had significant growth online in the period. After a strong first quarter, we did see some consumption volatility as we moved through Q2, but this stabilized with trends improving at the end of the period. Positive trends have continued in July, but we are conscious we have a very strong prior year shipment comparator for Slimfast, as we had very significant pipeline filling in Q3 last year with significant distribution gains. Fundamentally, the trends remain positive for SlimFast, as we believe consumers have become more focused on weight management as a result of the lockdowns, but also a clearer link than ever between obesity and illness. SlimFast has a 98% brand awareness and is the trusted, go-to brand for weight management with household penetration increasing by 60 basis points to 5%. The ready-to-eat category was challenged in the second quarter as constraints on consumer mobility reduced on the occasions. While trends also improved as the period ended, we believe this will be a continued headwind as consumer mobility remains restricted due to the pandemic. The recent rebranding of the Think brand, however, did result in that brand outperforming the category decline. Finally, our Amazing Grass brand had a strong performance in the period as consumers gravitated towards plant-based supplements for natural immunity. As noted earlier, international markets were severely disrupted by COVID-19, resulting in revenue down significantly for the half year. Lockdowns in many markets significantly impacted demand as gyms closed and many route to markets were essentially shut down. In addition, some economic challenges and adverse currency movements were a feature in some geographies. The model we deploy in international markets results in significant negative operating leverage on a declining top line to that extent. So this reduced overall GPN margins and profits. We continue to believe that international markets represent an opportunity for our pillar brands, but as noted earlier, we are recalibrating our approach. We are streamlining the business and right-sizing SG&A to the growth opportunity. We have new talent in place and new route-to-market partnerships in key geographies. We will scale back our approach in certain markets and have a bias for e-commerce-driven growth. Conditions have improved in June and into July as we see lockdowns ease, We're seeing good growth in China and Japan, and recovery in areas such as the UK and Oceania. We are of course cautious in relation to the continued evolution of COVID-19, but are confident that we will exit 2020 with a clear and focused approach to drive future growth in selected key international markets. Direct-to-consumer at 7% of GPN revenue is a relatively small business segment, but is an important capability for Glanbia. Revenue declined in the half year as the COVID-related gym closures in our largest market in Benelux impacted demand. The strategic initiative to drive our D2C capability remains on track, with the team continuing to extend the technology reach across 10 countries from a base in Holland. Trends in the business improved again through June and July, and we expect this improving trend to continue into the second half. Turning to Glanbia Nutritionals. Overall, Glanbia Nutritionals delivered a very resilient performance for the half year. Revenue up 12% and profits broadly in line with the prior year. Nutritional solutions revenue increased in the first half of 2020 by 2.9%. Volume growth in essential micronutrients as well as dairy solutions was good in the period. as a result of good end-market demand with core volumes growing mid-single digits. Q2 volumes declined in nutritional solutions as COVID-19 reduced demand for certain low-margin contract business in the food-to-go space. Price decreased related to reduced dairy ingredient pricing year-on-year. Demand for nutritional solutions, core solutions, which make up the majority of our dairy and non-dairy ingredient portfolios, remains good across the end markets into July. Our Asia demand was robust in the second quarter, after having been somewhat impacted by COVID in Q1. Quarter two saw destocking in the early part of the quarter, with, as I've mentioned, some softness in food to go, but strong demand for our immune-enhancing products across both dairy and non-dairy. Overall, margins remained robust to 12.4%, but were down due to adverse product mix. Nutritional Solutions continues to drive momentum across its solutions capability, where the business has market-leading positions in essential micronutrients and value-adding protein ingredients. Again, leaning into the key consumer trend of health and wellness, Nutritional Solutions continues to drive forward its strategic agenda in the area of healthy snacking and clean functional ingredients, and as I've referenced saw particular demand for immunity solutions. The business continues to work closely with a range of customers, collaborating on products ranging from straight ingredients to full consumer-ready solutions. The Watson acquisition acquired in early 19 is performing very well, with all commercial and financial integration to be completed this year. While consumer restrictions continue to challenge the food-to-go space, we believe that the breadth and depth of the nutritional solutions portfolio will position the business well for the second half of the year. The group has a strong balance sheet and is well positioned to make selective complementary acquisitions that meet our financial and strategic criteria. After the period end, we have entered into an agreement to buy Foodaram, a Canadian flavours business, for 60 million Canadian plus contingent consideration. Foodaram has strong flavor formulation capability and is focused on segments very complementary to nutritional solutions. With manufacturing and applications facilities in Canada, the US, and Europe, this acquisition is on strategy, is scalable, and will enable the further development of our flavor solutions to nutritional solutions customers. We expect the transaction to complete in the second half, subject to customary closing, and will be earnings accretive from 2021. US cheese revenue increased in the first half of 2020 by over 16%, with positive volume and price. Volume was primarily related to elevated demand from customers with retail end market exposure. Pricing was volatile and averaged ahead of the prior year due to strong demand dynamics. US cheese operates a pass-through pricing model which helped negate most of the impact of significant price volatility in the period. Profit and margins increased in US cheese driven by that volume growth. End market demand has remained good as the period ended, with further price volatility expected given the dynamics. of retail and food service demand as lockdowns ease in the US. Our joint ventures revenue decreased by 1.4% in the period. Volume in Glanbia Ireland and Glanbia Cheese UK was broadly in line with the prior year. Pricing reflected lower year-on-year dairy markets in Europe as a result of volatility related to the COVID-19 pandemic. Glanbia's share of joint ventures profit grew to 31.8 million as a result of improved performance across all our joint ventures when compared with the prior year. I will now pass to our finance director, Mark Garvey, who will talk through the financials.

Thank you, Siobhan, and good morning to everyone on the call. I'll walk through the results of the first half of 2020. Overall, the group had a resilient performance in what was a challenging second quarter as we navigated the impact of the COVID-19 pandemic. The group was focused on protecting our people, continuing the supply of food, and maintaining our strong financial position. Only on revenue growth of 2.3%, constant currency was driven by Glambia Nutritionals, as both Nutritional Solutions and U.S. Cheese had top-line growth, offset by second-quarter revenue declines in Glambia Performance Nutrition, primarily due to the COVID impacts in non-U.S. markets, as well as the distributor and specialty channels in the U.S. Adjusted earnings per share was 31.05 cents and down 17.2% constant currency in the half following a good first quarter. Again, COVID disruption in Q2 was the cause of the reduced EPS result as short-term negative operating leverage in the GPN international business impacted performance. The average Euro dollar rate for the first half was 110 compared to 113 for the same period last year, leading to an approximate 2% tailwind in reported results compared to constant currency. Should the current U.S. dollar-euro exchange rate of approximately 1.17 continue for the remainder of the year, this tailwind would reverse to become a full-year 2% headwind. The group managed cash and debt tightly during the period, resulting in good operating cash flow performance and end of the half with a net debt EBITDA ratio below two times. The group confirmed and paid the 2019 final dividend in the second quarter, and the Board has approved the payment of an interim dividend of 10.68 cents. which is at the same level as the 2019 interim dividend and in line with the group's dividend payout policy. The interim dividend represents a payout of 34% of the first half adjusted earnings per share. As the second quarter progressed and to date into Q3, the GPN segment is seeing improving trading conditions in North America, while certain international markets are recovering more slowly and our strategic initiatives remain on track. The Glamby nutritional segment of the joint ventures continue to be resilient into Q3. However, the uncertain evolution of the COVID-19 pandemic makes it difficult to estimate the impact on our markets for the remainder of the year, and as such, guidance continues to be withdrawn for the year. Looking at the group's income statement for the half year, wholly owned revenues were $1.8 billion, up 2.3%, constant currency. Wholly owned DBA was $85 million, down from $111 million in 2019. Wholly owned margins were 4.6%, a decrease of 170 basis points, primarily due to the negative operating leverage impacted the GPM business. Net finance costs were 11.5 million compared to 13.3 million in the prior year, reflecting lower average net debt levels and lower average interest rates. The group share of joint ventures profit after tax was 31.8 million compared to 26.8 million last year, with each joint venture reporting a result ahead of last year. The effective tax rate was 11.4% and we expect the full year tax rate to be between 11 and 12%. Adjusted earnings per share was 31.05 cents and basic earnings per share post exceptional items was 18.73 cents. In the first half, the group had exceptional items of 14.6 million euros net of tax, which are primarily related to the transformation program ongoing in Glambia Performance Nutrition. In the second half of 2019, the group performed a comprehensive review of GPN a cross-brand strategy, geographic footprint, and operating model. In February, we announced the reorganization of the segment into four key businesses, North American Performance Nutrition, North American Lifestyle, International, and Direct-to-Consumer, a prioritization of investment in the optimum nutrition and SlimFast brands, and a streamlining of our product portfolio, enabling a simplification of business operations. At the time, we rationalized 35% of SKUs in the business, and this has served the business well in the first half following the onset of COVID-19. As the program continues, there are 15 million euros in costs incurred in the first half related to redundancy, lease exits, route to market contract resets, and consulting. We anticipate an additional 10 to 15 million in costs will be incurred in the second half related to this transformation program. By the end of 2020, overall FTEs in the GPM business will have been reduced by over 10% since the end of 2019, and a number of office locations will have been closed or consolidated across our markets. Additionally, on the supply chain front, we are moving forward with the consolidation of our U.S. manufacturing footprint from three locations down to one. This has been enabled by the SKU rationalization program and the exit from the majority of the contract business and is expected to be completed by the end of 2021. The capital cost of this consolidation will be approximately $45 million, which will be encouraged beginning in the second half of 2020 and through 21. These GPN initiatives are important components of achieving the margin improvement ambition of 12 to 13% by 2022. There were also specific COVID-19 related incremental charges of 4.7 million euros incurred by the joint ventures and the wholly owned company related to setting up production facilities to be COVID-19 safe, PPE, as well as incremental payments to certain frontline employees at the height of the pandemic during the second quarter. And there was a one-off benefit of 3.5 million from a legal settlement, which also occurred during the second quarter. The group continues to focus on strong cash flow management. Operating cash flow was 47 million euros in the half year, an increase of 28 million due to improved working capital outflows compared to last year, which offset the shortfall in EBITDA. As in prior years, we were targeting a conversion of over 80% of EBITDA into operating cash flow for the full year. Free cash flow for the half was 43 million euros, an improvement of 60 million over prior year, due to the higher operating cash flow as well as the benefit of tax refunds in respect of prior years received during the period. As I mentioned, the joint ventures have been performing well and the group received JV dividends of €18 million in the first half and an increase of €2 million over last year. We have managed capital expenditure well and had a total half-year spend of €29 million compared to €37 million in the prior year. Strategic CapEx was €20 million and spent primarily on expansion of the body and fit infrastructure and additional filling technology for nutritional solutions. For the full year, we expect total capital expenditure to be in the range of 65 to 75 million, which is about 10 million lower than our original guidance at the beginning of the year. The group will pay an interim dividend of 10.68 cents, representing a payout of 34% of adjusted earnings per share. At the annual general meeting, the group received shareholder approval to implement a share buyback program. As 56% of the independent shareholders voted in favor of the group, of the share buyback program, we followed up with a shareholder consultation process in May and June. Following the completion of this consultation, where a variety of views were provided, and particularly in light of the current uncertain trading environment, the Board has decided not to commence a buyback program at this time, but will revisit the matter later this year. The Group has ended the half with a strong balance sheet. Net debt was €651 million compared to €778 million at the same time last year. We are well within our banking confidence with net debt EBITDA of 1.95 times at the end of the half year and interest cover of 9.4 times for the half year period. Subsequent to period end, the group closed on an additional $175 million of senior promissory notes with a coupon of 2.75% which will be drawn down on the 15th of December 2020 and will mature on the 15th of December 2031. This facility will effectively replace the $156 million private placement debt which is coming due in the first half of 2021. The group currently has committed facilities of over 1.1 billion euros. The group's pension liabilities reduced from 46 million at the end of 2019 to 25 million at the half-year end as a result of a conservative investment strategy. And as Siobhan mentioned, the group has agreed to acquire Foodaram, a Canadian flavors business, for 60 million Canadian dollars initial payment, which is expected to close in the third quarter. And with that, let me hand it back to Siobhan to conclude.

Thank you. In conclusion, globally consumers are navigating an unprecedented health crisis. The Glanbia portfolio is well positioned to regain growth momentum when consumers emerge from these current restrictions. Our leading positions across brands and ingredients that address core health and wellness concerns for consumers will be a strategic advantage. We have delivered against the priorities we set ourselves at the onset of this pandemic, namely to protect our people, to continue the supply of food to customers and consumers, and to maintain our strong financial position. We had a good start to the year, and while significant elements of our portfolio continue to be very resilient through the pandemic, we have faced challenges in Q2. Trends across the business have improved as we move into Q3 on both revenue and margin, And while we remain cautious on the evolution of the pandemic and its influence on consumer behaviour, we will continue to focus both on navigating the near term while strategically positioning our business for growth. We have been prudent in our financial management, aggressively managing costs and benefiting from a strong balance sheet and good liquidity. We set out a clear strategy to regain growth momentum in February and we have continued to execute against that plan. Our core platform brands have performed well in our key North America market. We have also assessed the impact of the new environment and recalibrated our strategy where needed to ensure that it is fully aligned to key trends that have accelerated in recent months. The strategic focus remains to regain momentum in GPN through the implementation of the transformation program that will drive both revenue and margin progression. and to continue to evolve the nutritional solutions capability, both organically and by acquisition of new capabilities, such as the flavour acquisition announced today. With that, I will move to questions. Thank you.

Thank you. If you wish to ask a question at this time, please press star 1 on your telephone keypad. please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We will now take our first question from James Target from Berenberg. Please go ahead.

Mr. Target, your line is open.

Please go ahead.

Hi. Good morning, Mark. Good morning, Siobhan. Just a couple questions for me. I mean, firstly, on the volume momentum trends that you're seeing in GPN, could you just talk a little bit about how you see inventory levels in the trade and to the extent to which the volume momentum you're seeing in sell-in is how that compares to sell-out volumes, trying an idea of how much is restocking and how much, you know, how much inventory there is. And then secondly, on international, In terms of the clients, can you talk a little bit about the extent to which it's driven by distribution constraints related to COVID versus demand reduction? And then when you talk about this recalibration of the international business, You know, how big do you expect the international business to be eventually? I mean, it's 21% of revenues now. You know, how big are the – is it going to be driven by, you know, 10 core markets, which are going to be 90% of the revenues? Just trying to get an idea of how you see the size and the shape of that business to look post this recalibration.

Thank you. Thank you for that, James. In terms of the trends, yeah, we had, as you say, a significant reduction in shipments through the second quarter across some of the key brands. Consumption actually didn't decline as much, so there was an element of destocking, I would say, at some of our retail partners. So we'll see how that evolves now through the rest of the year. I think fundamentally, as we move through July, we're seeing demand pick up. I'm obviously quite cautious about how COVID will evolve, but as I say, have seen the near-term trends improving, as you saw on the chart earlier, significantly from big shipments reduction in April and May. It's a great question, in truth, on the international, the distribution constraints versus demand. I mean, in truth, I think ultimately it was about the markets essentially closing down, so consumers not being able to access their traditional routes to markets The core demand, that's why we would believe the core demand is still there, and we remain very optimistic for that core demand as we think into the future. But you really had just markets shut down very dramatically, very quickly, because a lot of our brands in a lot of our international markets are fundamentally distributed through specialty stores and distributors. We have an evolving and growing e-commerce capability, but it's still the smaller proportion. of our route to market. Ultimately, it was that we didn't get the demand, but I think you're absolutely right. It was about the distribution and routes to market being essentially constrained. In terms of how large our international business will be going forward, what I would say is that we're recalibrating our focus. North America is our largest market by far. We are very strategically focused on continuing to grow our pillar brands in North America, and I expect that to continue. There can be periods if the international markets ease where you might get a faster pace of growth, but it's clearly off a lower base. So we haven't set a particular target of North America versus international at this point in time. Suffice it to say that we have recalibrated our approach. We will be more focused on growth opportunities. We have new talent, new partners in place. But our strategic focus, it is fair to say, is on the largest market of North America. And again, James, just to reference, as I said in the presentation, that when you think of the performance of the North America market in total for GPN, actually it was quite resilient with margins improving in the first half.

Thank you. Can I just follow up on, you know, you mentioned most of your distribution is international, is distributor and specialty. But, you know, your DTC channels in international, you know, decline mid-single digits, whereas your, you know, your online channels, excuse me, in North America were up double digits. So I appreciate the DTC business in international is a, you know, is a less mature business than your operations in North America. But why is there Why are you benefiting from the growth of the online channel in international to the same extent that you are in the U.S.?

We are.

It's just off a smaller base, James. Okay, so your DTC declined.

Sorry, say that again?

Your DTC growth was negative in the first half.

Oh, yes. Sorry, apologies, I misunderstood your question. Now, D2C, yes, did decline. That was specifically the body and fit brand. I was answering a more broader question on the total of our international business. Yes, that was very specifically related to core markets. Body and fit is a very strong brand in the Benelux region. Our consumers are very much in that younger age group. They go to gyms. They really engage with the body and fit brand. So when gyms closed in that region through April, May, that business was just hit particularly hard in its largest market. We have seen that trend reverse actually at the latter part of the period and into July. And we are very optimistic actually that we will get growth in our D2C channel in the second half of the year. So I would say that particular piece around body and fit was related to that strongest market that it's in.

Thank you.

It appears we have lost James for the moment. We will now go to our next question from Patrick Higgins from Goodbody. Please go ahead.

Good morning Siobhan and Mark. Just a few questions if possible. Firstly, just on GPN, would it be possible just to get an idea of the monthly trajectory to Q2 and into Q3 by subdivision for GPN, so international versus lifestyle and performance nutrition, et cetera? And then secondly, just on nutritional solutions, could you give us an idea of how much food-to-go customers contribute to sales for that division and how much of the decline was attributed to those customers in Q2 versus Q3? maybe an unwind of the initial pantry loading that you saw at the end of Q1. Thanks.

Thanks, Patrick. What I would say to you in terms of the segmental piece, the biggest dip was seen in the international markets. We had, as you saw, 33% down overall. So that dipped quite significantly in April and May and then recovered through June and July. We saw it also... in the North American performance nutrition side, where we did have quite a dip in April and May, and again improving particularly in July, whereas the lifestyle portfolio actually, the shift wasn't as dramatic. We had a very good performance, as I mentioned, in slim, fast and amazing grass. Some weakness in zinc, but overall not as dramatic as the other two segments. In terms of nutritional solutions, food to go, both those factors were relevant. I would say in terms of the volume piece, there is particular low margin contract business that we do and so that reduced volumes in the second quarter. Yes, you're absolutely right, there was an element of pantry loading in March that recalibrated as we went through into April. We have a number of categories in the ready to eat space where nutritional solutions is an ingredient provider. And we did see some softness there. But fundamentally, I would say our core portfolio across dairy and non-dairy for nutritional solutions was very resilient, actually, through the piece. We saw very good growth, as I referenced, in the immunity enhancing side. So that did counter. And again, we remain very positive that when restrictions ease and people get back to moving about, that that food-to-go and ready-to-eat space will regain growth momentum.

Thank you. Maybe just one follow-up question on nutritional solutions. Could you maybe just talk through the building blocks of the decline in the margin? I think you flagged the negative mix effect. Was that stronger growth in the dairy business and maybe less so in the pre-mix, or just how should we think about that decline?

Thanks. Yeah, it really was down to the different segments within nutritional solutions. As I said, we had good demand in areas like immunity, we had a slight weakness in the food to go, the dairy ready to eat space and so within that overall portfolio that pulled back margins somewhat in the first half. I would say again though very resilient at over 12%. Thanks.

We will now take our next question from Carl Soti from Kepler Shepherd. Please go ahead.

Yes, good morning. Thanks for taking the question. I have a follow-up question on the international business because you seem to scale back your presence in some markets. How is the business, the international business, contributing to the P&L today and how will that be going forward, assuming that you might also exit some markets with owned people? And the second thing would be on the cost savings in GPN. Can you say more on the supply chain savings you expect in relation to the consolidation of the three plants?

Thank you. Hi Carl, it's Mark. In terms of international, clearly a very challenging second quarter for us in the international business and it was the primary reason why we saw profitability decline in performance nutrition. So effectively in the first half we lost money in the international business and that will reverse in the second half as we see These markets open up, as Siobhan talked to earlier, and clearly we're focused on that. We put a lot of work and we're now done with streamlining our route to market approach, with streamlining our FTEs and with consolidating a number of folks in different markets and different offices as well, which will help us in terms of having, I would say, more online access to those markets and a less costly overall infrastructure for international as well. So that will come back for us in the second half. On the supply chain point, Referring to, of course, the consolidation of manufacturing facilities, an important part of that was the preview of the SKU rationalization existing contract business, because it takes out a lot of shorter and more inefficient runs, for example. So, as you can imagine, when I talk about a $45 million investment, We look at that with the same lens in terms of returns as any investment that we do, and we expect that to be significant and start returning for us as we get to the end of 21 into 22, and will be an important element of that margin uplift now to get to 12%, 13% by 22.

Thank you.

As a reminder to ask a question, please press star 1. We will now take our next question from Graeme Hunt from Morgan Stanley. Please go ahead.

Good morning, everyone. Just three short questions from me, please. Just first on your DTC platform, could you say how you see the profitability of that channel relative to your 12% to 13% target by 2022? A second question on international, I wonder if you could talk about, or maybe it's too early, but what you're seeing in terms of market share development where you've addressed product price point and positioning and whether you're taking share with your new And then lastly, going back to North America facility consolidation, are you able to quantify what impact that's going to have on your overall capacity in North America, just in terms of maybe putting some numbers around that, please? Thank you.

Graham, good morning. In terms of the profitability of D2C, as we've said previously, the margin profile there, we would expect to be below the overall target for the division of 12% to 13%. We are still in the investment phase in that business. We see it as a really good capability to have for the route to market itself, but also the brief of the team, I think as we've referenced before, is twofold. It is about evolving body and fit and the brand and growing the technology across different markets, but also they're increasingly involved in the e-commerce strategy for the totality of the GPN portfolio. So I think both those pillars are really good and complementary to how we will continue to scale indeed across international markets, as I've referenced earlier, but margins, we would expect them to be below the overall, as I've referenced. In terms of international, COVID-19 really disrupted things, as I said, in the second quarter, but we have gotten good traction across a number of geographies, seeing particular recovery and we have a good position in the UK market we have a good position in China and parts of Asia in particular so I think they will be key areas of focus for us as we think forward so a core part of our strategy internationally is having changed our route to market partners where we're going through specialty or distributors and then building that e-commerce capability centrally that would allow us optimize that opportunity very efficiently and across a wide variety of geographies. On your North American capacity question, Graeme, I wonder, would you mind repeating it? I think I may have just missed, or actually, Mark.

I think I understand what you asked for, Graeme, but correct me if I'm incorrect, but our expectation is by the time we get this consolidation done in 2022, that our effectively consolidated operations there will be covering We'll be working over 80% capacity, and it will obviously give us the opportunity to have space for growth as well in terms of what we do, but that's what we expect in 2022 at this point.

Okay, I understand. That's great. Thank you.

As a reminder to ask a question, please press star 1. We will now take our next question from Roland French from Davey. Please go ahead.

Hi, good morning, everybody. Hope everybody's keeping well. I've got three questions, all related to GPN. So firstly, if we think about the international channel, I know you've referenced a more kind of selective approach to investing in certain markets, and you've called out the EU and Asia, and you've also referenced a bias for growth in e-commerce. Just wondering that latter comment around the e-commerce, how that might change the model. And I know you've talked about partnership changes, but is stepping back at a high level is the model and the approach to that channel changing? I.e., are you looking to drive more online and e-commerce vis-a-vis having assets on the ground in context of manufacturing? So that's my first question. And then secondly, on GPN margin, I think in the slides it refers to the underlying margins being in line with the prior year before the impact of COVID. Just wondering, can you maybe provide some colour around that and specifically around the North American margin performance? in context of the lower volumes and the margin being ahead year on year. And then finally, maybe just around visibility on the order book for the autumn reset with the retailers and the Q4 new year drive. I guess, how are retailers changing their order patterns in context of COVID and how is visibility more generalised?

Thank you very much for those questions. In terms of the international business, yes, as you say, we will have a selective approach. And we are altering the model somewhat to address the e-commerce opportunity, as you say. Effectively, our ambition there will be to have central capability that we can leverage across particular geographies. We have already built capability in a number of areas, clearly. We have the direct-to-consumer platform itself, but we also have capabilities in some of the regions. We have developed this capability in North America now for many years, and a number of our talent, actually, we've moved into some other markets to bring that capability to a more global level. I think you referenced just in passing there the manufacturing piece. I think that is slightly different. I think we will, from a route-to-market point of view, have a bias for e-commerce. We will still... keep options on the table in terms of the most efficient fulfilment ways of doing that. So, again, that remains to be finalised. But from a route to market, very much clear, good partners on the specialty side and then developing ourselves that e-commerce capability, hence altering some of our resources to be aligned to that priority, as you've rightly referenced. In terms of North America, yes, as I said, margins overall when you look at the total GPN portfolio up in North America in the period, we had very good cost control across all aspects of the business. We had good margin growth in the lifestyle component in the first half that negated some of the margin challenges that we had with the decline in specialty and distributor on the performance side. And that gives us the confidence really As we think about margins as we go through the second half of the year, the significant drag on margins in the first half was that negative operating leverage that we have in the international business. So you'll remember from last year that business, when revenue drops, falls quite quickly and sharply to the P&L. So that is the core margin driver of the first half. to the extent there were negative input costs that I've also referenced, we have very clear visibility that they, too, will reverse in the second half. Their pricing is locked and loaded now for the second half of the year. The visibility of the order book, it's still early, obviously. We're sitting in August. There's a number of areas that we do have visibility on. In the lifestyle, for example, we know that one of our key retailers is moving some of their promotional activity that they would normally do in January, they're moving it into February. We are lapping significant pipeline fail, as I mentioned, in Slimfast and Q3, but on the positive side, we have sustained all that distribution. Now we're focused on productivity and making sure that we have all the right SKUs in those distribution points. On the sports side, It's early to have total visibility. As I say, at an overall level, really, I think our caution for the second half is really around how COVID evolves and how it impacts consumer behavior. We have definitely seen improving trends in July, but this pandemic, as we all know, is not behind us yet. So it is a measure of, it is trying to best gauge how that will play through. But even in our most pessimistic view of the second half, we do, for example, get significant margin improvement.

That's great. Thank you for going.

As there are no further questions, I would now like to turn the call back to Siobhan Talbot for any additional or closing remarks.

No, again, just to wish you all well. Do stay safe and stay well, and thank you for your time and attention.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.