Glanbia Plc Ord

Good morning and welcome to the Glanbia PLC 2020 Full Year Results Call with Siobhan Talbot, Group Managing Director, and Mark Garvey, Group Finance Director. Today's conference is being recorded and at this time I'd like to turn the conference over to Liam Hennigan, Group Director of Strategic Planning and Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to the Glanbia Full Year 2020 Results Presentation and Call. During today's call, the directors may make forward-looking statements, and 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 full year 2020 results release and analyst presentation. Due to inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially, and those expressed are implied by these forward-looking statements. The directors undertake no obligation to update these statements made on today's call, whether as a result of new information, future events, or otherwise. I'm now handing over to Siobhan Talbot, Group Managing Director of Glambia TLC.

Good morning, everyone, and a warm welcome to our full year 2020 results call. I hope you are all safe and well. I'm joined today by our Group Finance Director, Mark Garvey. On the call today, I'm going to run through the operating highlights for 2020 and how we've performed against our priorities. I'll outline how the pandemic has changed our markets and how we've evolved our strategy to drive growth in 2021 from our growth platforms of GPN and GN. Mark then will cover some of the finances and we'll conclude with an overview of our ESG agenda, our outlook, and indeed be happy to take your questions. So turning then to the full year 2020, following a strong first quarter that was ahead of our plans, COVID-19 was undoubtedly significantly disruptive for the group during the second quarter, given the speed and severity with which the pandemic changed our day-to-day lives in the many markets in which we operate. Our people demonstrated tremendous agility and resilience in their response, and as a team, as we've spoken to you before, we immediately set three priorities to navigate the crisis. First and foremost, protecting our people, maintaining the supply of food, and maintaining our strong financial position. This organisation resilience, I think, has been borne out today by our financial results, as Glanby and Nutritionals and our strategic joint ventures saw less business disruption than our branded GPN business. On a like-for-like basis, excluding the impact of a 53rd week in the prior year, we delivered 1.8% revenue growth in 2020. This was driven by a robust performance from Glanby Nutritionals, which grew like-for-like revenue by 10%. Our joint ventures demonstrated the strength we've built into their economic models, with our share of JV profits up significantly in 2020. As we noted before, the second quarter was by far the most disrupted by COVID, with the main impact being on the GPN business, as lockdowns heavily impacted consumer behaviours, as well as routes to market, and of course that suppressed demand. Market conditions improved thereafter, albeit lockdowns were reinstated in many markets in Q4. And while the second half of the year for GPN remained below the prior year, the business gained momentum, with a sequential improvement in both revenue and earnings in H2 versus H1. In fact, from a consumption perspective, our pillar brands of both ON and Slimfast grew consumption by 4% in the key North American measure channels in 2020. The group focus on financial discipline through the crisis is very evident, I think, in our cash performance. We control costs tightly, manage working capital well, generating 122% operating cash conversion for the year. This has facilitated further investment to fuel growth in the business, the maintenance of our dividend level of the 2019 levels, the execution of the 50 million buyback program, and the continuation of our financial capability to execute M&A transactions. Today, we're also highlighting the evolution of our ESG strategy. From an environmental perspective, our strategy builds on our heritage. Glanbia in Irish means pure food, and our ambition is to combine pure food with a pure planet. As a team, we have set new targets for decarbonisation and the management of waste. From a social perspective, in 2020 we engaged in a significant listening exercise with our people to inform and stretch ourselves on the areas of diversity and inclusion. And of course, today we have announced some significant changes in board governance that will enhance the skillset and diversity of our board. I'll speak more to those later on. Early in 2020, we set out our strategy to regain growth momentum in the group. In Q2, as the full extent of the COVID-related disruption became evident, as I've said, we pivoted our focus to the three priorities we noted earlier. Despite this pivot, We sustained our focus clearly also on the strategic agenda. And when I spoke to you last October at our Q3 results call, I said we were focused on delivering three things for the second half of 2020. It was all about progressing the GPN transformation, maintaining solid delivery in Glanby Nutritionals and our joint ventures, and continuing to navigate the COVID crisis as safely as possible. As a team, we delivered our 2020 ambitions across all three of these dimensions. In GPN, we broadened and deepened the transformation program and have made great progress across initiatives to both drive efficiency and brand growth. This progress helped deliver the 11.8% margins achieved in GPN in the second half of the year. This project is delivering against its plans and is on target to deliver an overall GPN EBITDA margin ambition by 2022 of between 12 and 13%, an increase of 400 to 500 basis points on the 2020 margin and 200 basis points ahead of the full year 19 margin. This project will continue through 2021 and we have increasing visibility on their returns. The depth of the portfolio in GN and the robust business models of our joint ventures continue to deliver this year. GN delivered strong like-for-like revenue growth with volumes up over 4%. Nutritional Solutions extended its strategic capabilities through the acquisition of Foodaram in the third quarter. As I said earlier, the profitability of our joint ventures, particularly in the US, increased significantly in the second half of the year. And importantly, we completed the construction and have entered commissioning of two very large-scale dairy facilities, particularly in the US, but also here in Ireland. The resilience of Glanby in 2020 would not have been achieved without the tremendous efforts of our people. I'd like to acknowledge the challenges that our people faced as we navigated the pandemic and express sympathy to our colleagues who, of course, have lost friends and loved ones. We will and continue to put the health and well-being of our people front and centre of everything we do in Gambia, and this principle has guided us and served us very well. Through enhanced engagement and health and safety measures, we have kept all of our operations running safely and to plan, and we'll sustain the required infrastructure to support our people as long as it is required. The next slide highlights a reflection on our H2 priorities and how they come through in our financial results, specifically the scale of the pickup in financial performance in the second half of the year. We do, of course, have natural seasonality in our revenues, but the scale of the improvement in GPN EBITDA margins in the second half drove a very strong sequential uplift in wholly owned EBITDA to 124.6 million, up 46% on the first half. And of course, this flowed through to our adjusted earnings per share. The operational actions we took and the focused approach to liquidity management following the onset of COVID clearly benefited cash generation, with £285.7 million of operating cash flow in the second half. Our net debt levels have come down by over £120 million in the year, and as Mark will outline later, we have refinanced the group and our balance sheet is strong. Of course, we continue to navigate COVID that continues to disrupt all our lives. But the business trends that improved for Glanbia in the second half of 2020 have continued to improve as we moved into 2021. I'd now like to speak to those market trends and how we've seen them evolve as we move through the year. No doubt, COVID-19 has altered many aspects of our lives. And for Glanbia, I believe the opportunities for growth have in fact accelerated. COVID-19 is a health crisis. Glanbia is an organization focused on healthy nutrition. Consumers increasingly acknowledge the link between nutrition, the prevention of illness, and health and wellness. Our portfolio, which focuses on ingredients and brands that support active and healthy lifestyles, is perfectly positioned against these trends. Consumers have demonstrated increasing loyalty to trusted brands and category leaders, and we've certainly seen this to be the case for our pillar brands of ON and Slimfast. Demand for dairy protein as a nutrition source has also been resilient through the crisis. We've seen good demand for our dairy and plant-based protein ingredient solutions, and indeed our plant-based brand Amazing Grass had good growth in 2020. Of course, we all changed our ways of working through the year, and we sustained strong engagement with our customers across both the ingredient and branded businesses. We responded to strong demand for functional ingredients across areas such as supplements and immunity, increasing collaboration with our customers also on things like sustainability initiatives, and evolving ways of working that has no doubt helped to cement many of our relationships. On channels, as we've spoken as we move through 2020, e-commerce penetration has definitely accelerated. We entered 2020 in a strong position in that channel in GPN and have continued to grow in 2020. In GPN, our brand portfolio is increasingly focused on the growth channels of e-commerce and FDMC, channels which now represent 70% of GPN revenue and in which, again, both our key brands of Optimum Nutrition and SlimFast performed well through 2020. We are highly conscious that COVID-19 and the related lockdowns continue to disrupt many of our markets. After a very challenged Q2 in 2020, we recovered well in Q3, but saw lockdowns again disrupt Q4, albeit not at all to the same levels of consumer disruption as we saw earlier in the year. We have and will continue to sustain our focused actions on the delivery of the GPN transformation, the driving of top-line growth in both GPN and Glandia Nutritionals, and the management of the safety of our people and business as we move through COVID. We believe that we will return to growth in adjusted earnings per share in 2021. We expect COVID-19 to continue to disrupt the year, but we do at this point expect the level of disruption to alleviate as we move through particularly the second half. In this context, we expect that our on-trend positions in nutrition, in GPN and in nutritional solutions will underpin the delivery of like-for-like branded revenue growth in 2021 and growth in our ingredients business. It's extremely difficult to be absolutely prescriptive at this point of the year on the level of top-down growth. However, we do see trends that would at this point indicate the potential to deliver mid-single-digit revenue growth for the full year in those key areas of branded GPN and GN nutritional solutions revenue. On the margin side, we're somewhat more confident as a successful continuation of the GPN transformation program underpins our expectation of the delivery of double-digit margins in GPN in 2021. In GN and nutritional solutions, we're targeting a delivery of 2021 margins broadly in line with 2020, always mindful of the buy-sell risk on dairy. We've started well to date in the first quarter of 21 with good year-on-year revenue growth in both GPN and GN and good margins. Our current view, therefore, is that while acknowledging the continued risk that COVID-19 can be disruptive and the trends may not evolve as we planned today, current trends across our business give us confidence to guide a 2021 growth in adjusted earnings per share of between 6% and 12% constant currency, as earnings growth in both GPN and GN will offset the expected reduction in 2021 performance by the joint ventures. Turning then to GPN, the GPN full-year decline in revenue and EBITDA was a consequence of the COVID-19 pandemic. Like-for-like revenue declined 13.3%, including the impact of the exit of the U.S. contract business, with like-for-like branded revenue down 10.8% in 2020. GPN had been trading ahead of plan for the first quarter, delivering 6% growth, but the market disruption in COVID reduced year-on-year revenue through the rest of the year, with the decline most severe in the second quarter. In full year 20, like-for-like branded volume was down 10.9%, with the volume decline more pronounced in the first half, as a result again of those challenges in the second quarter. The rate of year-on-year decline improved in Q3 as lockdowns eased. However, a return to lockdowns in Q4 did result in year-on-year decline, albeit not to the extent of Q2. As I said earlier, from that low of Q2, quarter-on-quarter revenue improved through Q3 and Q4. Over the full year, the key areas negatively impacted by COVID-19 were international markets, which were curtailed, as well as the specialty and distributor channels in North America. Overall, price was positive for the year. We implemented targeted price increases in North America performance and international portfolios in the second half of the year, and this helped to offset the pricing declines in the first half. Overall EBITDA declined by 36.2% as a result of those lower margins and lower revenue. Margins were particularly impacted in the first half and made a strong recovery in the second half as a result of improved operating leverage, improving sales trends, price increases, and the delivery of the margin improvement initiatives from the GPN transformation. Looking then at full year 2020 for GPN by business area, North America was 69% of revenue, international 24%, and our D2C business 7%. Year on year, the North America performance portfolio like-for-like branded revenue declined by 9%. This was driven by volume declines in the specialty and distributor channels, heavily impacted by COVID-19, and it masks good growth in the growing channels of the domestic online and FDMC. While Q4 built sequentially on Q3, it was not as strong as the prior year due to the ongoing COVID restrictions and also a resultant shift in some promotional activity generally planned for January to later in Q1 21. The North American contract business declined significantly in the year as we exit that business as part of the transformation program. Pricing trends in Q4 continued the positive trajectory of Q3 as those price increases implemented in the second half drove overall pricing positive for the full year. From a brand perspective, Optimum Nutrition performed well with positive consumption in measured channels, while the more specialty brands of BSN and Isopure were negatively impacted by COVID restrictions. North America Lifestyle delivered a robust performance, albeit that like-for-like revenue declined 5.3%. This was largely driven by headwinds for the Think brand, as reduced consumer mobility as a result of COVID-19, resulted in a decline in the overall ready-to-eat category in North America. In addition, as we said previously through 2020, SlimFast had very strong prior year comparisons in the second half, as in fact 2019 SlimFast consumption in North America grew by 49%. SlimFast continued to outperform the category in 2020 and indeed Think also outperformed its category performance in the year. Our smaller brand Amazing Grass delivered good consumption growth as consumers sought out products providing natural immunity. The international portfolio was the most impacted by COVID-19, as restrictions effectively closed many channels in the second quarter. Like-for-like revenue therefore declined by 21.3%, with the most severe disruption in that second quarter. There was good recovery in volume trends in Q3, as restrictions eased in Europe. And while the rate of year-on-year decline again was there in Q4, with the reintroduction of restrictions, Q4 had that year-on-year decline. But it was significantly less than Q2. And we believe that the performance of our international business within GPN over the full year demonstrates how quickly that business can recover in a more normal trading environment. Our direct-to-consumer business body and FIT delivered like-for-like growth of 1.9%, with good volume growth in the second half, and this offset declines in the first half. This growth was driven by increased traffic on our DTC sites in the period, and full-year volume growth was offset by increased promotional investment that indeed helped drive volume. Turning to the GPM growth strategy. I've already noted the benefits that the GPN Transformation Program are bringing to the business. So I'd like to here summarize why GPN is positioned for growth. And it centers on three core items. Firstly, we have brought a sharper geographic focus to the business. In North America, we have a scale business with leadership positions in performance, nutrition, and weight management. In our rest of world markets, we've reduced complexity, significantly realigned our routes to market and our talent to growth opportunities, and we've new general managers across a number of our regions, such as China, Southeast Asia, and Europe. Our optimum nutrition and slim-fast brands are market leaders in their respective categories. We have refocused and increased our marketing investment in these brands, which we are confident of delivering returns. Given that both brands, in fact, had positive consumption numbers in 2020 in the key North American market, despite all the disruption of COVID, we believe these brands will continue to respond very well to increased investment and targeted innovation. Quite simply, our channel exposure has been one of the biggest transformations that has happened in GPN. We have scale in the key channels of e-commerce and FDMC for brand awareness Trust and indeed brand loyalty are critical. Looking then in more detail at those two key brands of Optimum Nutrition and Slimfast, the brands now make up 71% of GPN revenues. Brand health is strong and our strategy for the brand is to increase investment to drive awareness and advocacy, continue the evolution of our omni-channel strategy and selectively innovate to drive portfolio expansion. Optimum Nutrition net promoter score grew last year by 5 points to 59 in North America. We plan to increase our marketing investment in the brand significantly in 2021, targeting above-the-line spend and increasing brand awareness. Optimum Nutrition continued to activate the proven 360 global platform in 2020, focusing on supporting personal trainers and consumers looking to stay fit during lockdown. OAN continues to perform in our core North America markets with the negative impacts of the pandemic less significant for powders versus other on-the-go formats. And as I've referenced, consumption for OAN in North America grew by 4%, largely driven by the accelerated channel shifts by consumers to e-commerce. While COVID-19 impacted the diet category in 2020, SlimFast consumption also grew. Again, in those North America measured channels, it increased by 4%, with the brand gaining share in retail and growing well in e-commerce. Brand awareness for SlimFast remains very strong at 95%, and household penetration increased to 5%. Our strategy for the SlimFast brand continues to involve the leveraging of our master brand communication strategy, across both traditional and digital media, and a continuation of innovation across consumer needs states. Our innovation agenda for SlimFast continued with a further rollout of eight new keto fat bombs across meal bars, snack cups and snacks. So both ON and SlimFast are strong brands that we believe are well positioned as consumers increase engagement in the motivations of active lifestyle and weight management in a post-COVID environment. For a number of years, GPN has been on a transformational journey with respect to channel orientation. In particular, growing brand presence in the e-commerce and FDMC channels. Relative to 2015, when we had less than one-third of our revenue in these channels, we now have 71% of our GPN business across those channels. They are growth channels, where brand awareness, trust, and loyalty, as I've referenced, is important. We have leadership positions, and have developed strong capability to further leverage our growth opportunities. Turning then to Glanby Nutritionals, it had a good performance in 2020 again despite the challenges of COVID. Overall revenue grew 9%, with like-for-like revenue up 10% and volumes up over four and pricing up 5.8%. GN delivered volume growth in each quarter of 2020 albeit there was a marginal dip in NS volumes in Q2. Pricing, too, was largely positive across the year, driven by the cheese business. Acquisitions added 0.9% to revenue in the year. EBITDA margins and EBITDA declines in the year largely drew to dairy market dynamics as they reduced buy-sell margins and somewhat altered product mix. The fundamentals of our nutritional solutions business remain very strong through 2020. And the broad portfolio reach, the depth of our customer relationships, both those factors were such that the business navigated the year extremely well despite the challenges of COVID in some areas. 60% of our nutritional solutions portfolio is now a non-dairy and we continue to extend the capability of the business in total with the acquisition of the food around flavours business in 2020. Nutritional solutions revenue increased in the full year by 2%, like-for-like revenue increased by 0.8%, driven by a 2.4% increase in volume and the balance being priced. Volume growth was broad-based across the portfolio as a result of good end-market demand. The price increase primarily related to ingredient pricing year-on-year. The Watson and Foodaram acquisitions delivered a further 3% revenue growth, with both businesses actually performing very well. We had a good revenue and margin performance in premix in 2020, with good volume for the year across all key regions, particularly North America and the Asia markets. From a category perspective, we saw good demand across clinical, supplements, and indeed mainstream food and beverage. volumes in our key dairy ingredients were relatively stable, but we had some product mix effects from COVID, particularly COVID-related challenges in the convenience sector. And as I've referenced, negative pricing impacted margins for the year. We continue to be very ambitious for the strategic evolution of nutritional solutions. Here too, we have leading positions and strong customer relationships in a broad range of categories. These categories across supplements, clinical nutrition, mainstream food and beverage, infant formula, will sustain and grow further in a post-COVID world. We continue to develop the business by broadening the reach through organic development in these growth categories and by acquisitions, increasing our relevance, offering various technologies, taking a tailored partnership and solutions-based approach to individual customer needs. We've increased our investment in innovation and have continued to develop nutrition technologies and offerings that address the ever-increasing functional and nutritional requirements of our customers and consumers. In U.S. cheese, then, revenues increased in the full year by 11.9%, with like-for-like revenue increased 13.8%. This was driven by a 5% increase in volume and an 8.8% increase in price. Volume growth reflected good demand from customers with retail and market exposure, a category which was strong as a result of COVID-19. Pricing in US cheese was extremely volatile through the year, but averaged at higher levels than the prior year as a result of that higher category demand. Our US cheese business operates a business model that helps to negate the majority of the impact of price volatility. Our US cheese margin did decline largely as a result of higher operating costs and that pricing volatility. From a business perspective, our U.S. cheese and indeed U.S. joint ventures are highly complementary. And as you're aware, the GN U.S. cheese team are the operational and commercial team for our U.S. joint ventures. In 2020, while pricing dynamics and some cost headwinds impacted the margins of the wholly owned U.S. cheese business, this was more than countered by strong margins in our U.S. joint ventures. Overall, our joint ventures delivered strongly in the year, and as noted earlier, the US joint ventures performed particularly well. We had a set of pricing dynamics in the market which favoured the business, and we had very strong operational and commercial performance. All of our joint ventures continue to execute to their strategic agenda. That's facilitated by very robust business models, which have at their core non-recourse business financing arrangements. 2020 was an important year for the strategic evolution of two of our joint ventures, the US American Cheddar Cheese Joint Venture in Michigan and the Mozzarella Joint Venture in Europe. All of our teams really did a superb job building and commencing commissioning of these facilities, which with our partners continues to support our leading positions in US Cheese and EU Mozzarella. Commissioning of both of these facilities is expected to be completed by the second quarter of 2021. With that, I now turn to Mark, who will provide an update on Glanbia's financial position.