Glanbia Plc Ord

Good morning and welcome to the Glambia PLC Half-Year 2021 Results Call with Siobhan Talbot, 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 Liam Hannigan, Group Director of Strategic Planning and Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to the Dlanbia 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 Dlanbia PLC Half-Year 2021 Interim Financial Statements and Analyst Presentation. Due to the inherent uncertainty, including both economic and business risks, factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. The directors undertake no obligation to update any forward-looking statements made on today's call, whether as a result of new information, future events, or otherwise. I'm now handing the call over to Siobhan Talbot, Group Managing Director of Lambia PLC.

Good morning everybody and I hope you're all well. Thank you very much for joining Glanbia's half year 21 results call. This morning I'm going to cover the results. I'll provide an operating and strategic update for our segments and I'll conclude with an outlook for the remainder of the year. I'm 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'm delighted to report that Glanbia has delivered a very strong performance across all our financial metrics for the first six 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 result 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 EBITDA up year-on-year 418.4%, and GN EBITDA up 17.1%. In turn, that has delivered adjusted earnings per share growth of 85%. While the prior year Q2 comparison 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 months 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 five years, we have returned almost half a billion euros to our shareholders. Looking then at the strategic updates, as well as delivering a strong operational and financial performance, we made significant strategic progress in the first half of the year. Within GPM, the transformation project which commenced in late 2019 is very much on track, and delivering ahead of expectations. And we're really excited to add the acquisition of the 60% stake in Level Up, 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 plan 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've 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 GPM, 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 challenge 2020, and 2021 nutritional solutions margins close to the 2020 level. As we 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 eased 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 level up 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 EBITDA 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 margin, which improved by over 1,000 basis points to 14.1% from last year's low. The prior year Q2 comparison was the most challenged due to COVID, so positive operating leverage played an important part in margin improvements. However, improvement was also driven by the realisation of benefits from the transformation project, 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 had 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 life-for-life 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 a strong marketing support, drove a really strong result 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 re-engaged with dieting. We believe this will return in the latter part of the year, and we have strong consumer-focused programmes in place for the back-to-school, back-to-work period. It's worth noting that we have seen progress in the ready-to-eat space in recent weeks, as general consumer mobility improves, and this has been captured by really good growth in our Think brands. As you may remember, our international business was the part of GPL 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 slim fats, which combined make up over two-thirds of our revenue. We have increased marketing investment in these brands in recent years and will continue to do that in 2021. This investment is delivering results. Optimum consumption for the 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've 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 Way and Amino 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 insights 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 a 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 brand has some really exciting programs across new campaigns, product launches, and various events planned across core retailers in the US in the second half, as well as an ongoing expansion of our digital touchpoints with consumers. I'd now like to speak briefly to the GPM 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 market, which included the exit of practically all our private label contract manufacturing. We reorganized our business across Americas and international regions, and we aligned our resources to the growth opportunities As we 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'm delighted that we completed the acquisition of a 60% stake in Level Up in the second quarter. Level Up 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-digit. 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 witness the rapid growth of esports 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 digits. Now looking to our other growth platform, Glanby 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 EBITDA 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 the 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 path through of dairy market pricing. EBITDA and NS was up 29.2% to 56 million as a result of the strong revenue growth and margin improvements. 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 Nutrition and Solutions over the last number of years, which has set us up with a great platform for growth and bolt-on acquisitions. Nutrition and 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 development. 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 completes the commissioning of our flagship $470 million joint venture plan, 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, EBUSA 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.