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.

Thanks, Siobhan, and good morning to everyone on the call. I will walk through the results of the first half of 21. Looking at the group's income statement for the half year, wholly owned revenues were €2 billion, up 20.3% constant currency. Wholly owned EBITDA was €160 million, up 108% on prior half year, driven by a strong result from Glanby Performance Nutrition and Nutritional Solutions, As end markets continued to recover post-COVID lockdowns, operating leverage improved and the GPM transformation program resulted in improving margins. Wholly owned margins were 7.8%, an increase of 330 basis points over prior year. Net finance costs were 10.8 million compared to 11.5 million in the prior year, reflecting lower average net debt levels as a result of strong cash flow. The group share of joint ventures profit after tax before exceptionals is 29.9 million euros compared to 31.8 million last year, in line with our expectations. As previously mentioned, for the full year, we expect joint venture profit after tax to be broadly in line with the 2019 results. The effective tax rate for the half year was 13%. We expect the full year rate to be between 12% and 13%. Adjusted earnings per share was 52.86 cents, up 85% on a constant currency basis and 70% on a reported basis compared to the same period in 2020. Basic earnings per share post exceptional items was 27.9 cents compared to 18.73 cents last year. In the first half, the group including joint ventures incurred exceptional charges of 52.2 million euros net of tax which are related to the transformation program in Glambia Performance Nutrition and the restructure of the group's legacy UK pension schemes. In the second half of 2019, the group performed a comprehensive review of GTN, a cross-brand strategy, geographic footprint, and operating model. In early 2020, we announced the prioritization of investment in the Optum Nutrition and SlimFast brands and a streamlining of our product portfolio by rationalizing 35% of SKUs in the business, including existing contract-related business, enabling a simplification of business operations, including a reset of distributor relationships and the consolidation of manufacturing operations in Chicago. This transformation program is on track and has contributed to the strong margin performance in the first half. As the program continued, there were 14.8 million euros in costs incurred in the first half related to people, property-related costs, and professional fees. We anticipate approximately €5 billion of additional costs will be incurred in the second half related to this transformation programme, which will conclude the investment phase of the programme. In the first half, a decision was made to de-risk the group's balance sheet in relation to UK-based legacy defined pension benefit schemes. Following agreement with an insurance company, a buy-in process was completed, which will ultimately lead to a full buyout and transfer of these schemes to this insurance company by early 2023. The charge associated with this de-risking was 38.9 million euros. The cash cost of the buy-in in the period was 36 million euros, which is less than what the group had already committed to or would have expected to contribute to these schemes in future years. The buy-in process effectively de-risks the group's balance sheet in relation to these pension schemes and eliminates volatility going forward. And by early 2023, these schemes will no longer be on the group's balance sheet. Acknowledging the de-risking of these legacy UK pension schemes, at the end of the half year, the group had a net defined benefit pension liability balance of 19 million euros relating to other pension schemes. The group continues to focus on cash flow management. We continue to see strong cash conversion. Operating cash flow was 161 million euros in the half year, an increase of 114 million euros compared to prior year, primarily due to improved EBITDA for the period and a modest working capital outflow. On a rolling 12-month basis, the group reported operating cash flow conversion of 129%. The group is an ongoing target of converting 80% of EBITDA into operating cash flow, and we are on track to outperform this target in 2021. Free cash flow for the half-year was €142 million, an improvement of €99 million over prior year due to the higher operating cash flow, somewhat offset by higher cash tax outflows as the prior year benefited from tax refunds. Dividends received from joint ventures were 17.4 million euros in the half year, broadly in line with the prior year. Strategic capital expenditure was 34 million for the half year, compared to 20 million in 2020. The primary spending was on the consolidation of GPN manufacturing facilities, as well as some IT spend associated with expansion of the Group's direct-to-consumer platform and the integration of acquired businesses. For the full year, we expect total capital expenditure, including business sustaining, to be in the range of 80 to 90 million euros. During the second quarter, the group acquired 60% of a direct-to-consumer esports gaming nutrition company, Level Up, for an initial consideration of 31 million euros. This business had revenues of 19 million in 2020, is growing at a strong double-digit rate, and is profitable. The acquisition is subject to earn-out provisions in 2022 and 2023, and the Group has an option to purchase the remaining 40% in 2025. In the second half, we expect to pay approximately €18 million, representing the earn-out payment for the Foodorama acquisition, bringing the total acquisition cost to approximately €60 million. We are pleased with the business performing very well, which would lead to this earn-out payment. The group will pay an interim dividend of 11.75 cents, which is a 10% increase from the prior year. The total 2021 dividend will be within the group's 25 to 35% of adjusted earnings per share payout ratio. At the annual general meeting, the group again received strong shareholder approval to implement a share buyback program. The technical resolution on the Rule 37 waiver, although approved, did not achieve the 80% level. As a result, the group followed up with a shareholder consultation process which resulted in feedback from investors which was supportive of the Group's capital allocation strategy. Following the completion of this consultation and in light of the strong cash flow position of the Group, the Board has decided to commence a €50 million share buyback programme as of today. The Group has ended the half with a strong balance sheet. Net debt was €550 million compared to €651 million at the same time last year. We are well within our banking covenants with net debt EBITDA of 1.51 times. At year end, the group expects the net debt EBITDA ratio to be broadly in line with the level at the end of 2020 and indeed 2019, which was approximately 1.7 times. We've committed facilities of over 1.1 billion with a weighted average maturity of 4.4 years and no facilities due for renewal in the coming 12 months. And with that, let me hand it back to Siobhan.

Thank you, Mark. And so to conclude, the top-line trends for Glanbier continue positive to date and we're well positioned for further strong revenue growth for the second half of the year. We are, of course, very vigilant to the ongoing threat of COVID, but the strong first half performance gave us the recent confidence to raise our guidance for the delivery of between 17% and 22% growth in adjusted earnings per share for the full year 2021 on a constant currency basis. Underlying margins in the key business segments are very solid. We do see some mixed changes in inflation-related margin headwinds in H2, But with the usual time lags, we will be executing pricing decisions to mitigate known cost increases. As noted earlier, we're using the opportunity of the strong half year to further increase investment behind our GPN brands as we're seeing the returns on that investment through the top line momentum achieved to date and indeed planned for the rest of the year. Our financing and cash management discipline has continued. Our balance sheet is in a very strong position. And, of course, that provides us with resources to fund further growth opportunities. With that, operator, I'd like to turn the call over to questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press one to ask a question. We will take our first question from Kato Kenny with Davey Research. Please go ahead. Your line is open.

Good morning, Siobhan. Good morning, Mark. Two questions from my side, both margin related. Firstly, on GPN, Could you provide some building blocks around the H2 bridge relative to H1 for GPN margin? And perhaps some early commentary in terms of how you see margin progressing in FY22. And my second question just relates to margin within nutrition solutions. Perhaps you can explain just the mix effect or that dynamic that's going on between the Vitz Minerals business and the dairy ingredients part. Thank you.

Good morning, Cahill, and thanks very much for that question. In terms of GPN, what I might do is speak to an overall perspective, as you ask, on H2 and bring in 2022 into my response. The first observation I would make is that the work that we've done on the GPN transformation program has to date and indeed will continue to be a real underpin of those GPN margins. With this program, we are optimizing our gross margins, and that is giving us the space to invest in our brands if we feel that's needed. And so when you go up to the helicopter level, based on what we know today and on the planned incremental brand investment for H2, we're confident of getting close this year to our targeted margin of 12% to 13% for GPM and delivering within that range for next year, as previously guided. Maybe then turning to your point and some more specifics around the moving parts of margin, we've seen a big swing in way input costs in the second half over the first half, because what we had was a declining market price trend last year and a rising trend this year. So we had that lower piece coming in in inventory as we entered into 2021. So the positive first half phasing that we've seen in the first half will swing to be negative in the second half. For the full year, in terms of way inflation, we're probably around that mid-teens percentage increase. Importantly, the other side of that from a margin perspective is that we've executed price increases, as you know, the second half of 2020, and we've more plans now for the second half of 2021. And on a full year 22 basis, that pricing should largely negate the known way increases at this point. There's obviously other inflation dynamics you'll have heard other organizations speak to, and that's varying degrees across COGS. We expect that the transformation program savings will actually counter those at this point. Looking into 22 on the weight cost piece, it's very hard to call at this point in time. This year they did spike to multi-year highs, but that trend does tend to be transitory in the dairy space. because supply does rebalance to demand. It can take a few quarters to level out and rebalance, but generally in the supply basis production flexibility. So that does over a period match supply to demand. And then the last point I would make is that, of course, the other important factor for the H2 margin is that we're using the opportunity of the strong first half margins to upweight investment in our brands. That is in an absolute and indeed on a percentage of NSV basis. We believe that this increased marketing investment is really the right perspective to take now because consumers continue to emerge from the pandemic. We've seen really good ROI on this investment, and it's driving top-line momentum. And so that gives us the confidence to continue to invest as we move through the year. So hopefully that helps, Kahal, on GPM. On NS, yes. On NS, indeed, yes, there is a mixed piece. We had really strong growth on the pre-mix side in the first half. We saw and we have good margins within that part of the portfolio. Dairy, as you can imagine, particularly on the ready-to-eat space, was more impacted by COVID as we were coming through 2020 in the early part of 21. We see that actually in recent weeks coming back. So we're going to see a more balance to where it might have historically been between that dairy and premix space and that will just have a little bit of a margin mix effect which was more positive in the first half.

That's great, very clear. Thank you.

Thanks, Carl. And we will now take our next question from Patrick Higgins with Goodbody. Please go ahead, your line is open.

Good morning, thank you. Just a couple of questions for me. Firstly, on GPN, Just a comment, I guess, around the competitive landscape. I guess, you know, a trend through COVID was bigger brands like ON winning and taking share. Has that continued? Have you been able to underpin that share gains? Or are you seeing competitors come back in the market? And I guess following on in terms of your expectation for getting price increases in H2 as well, Does that competitive landscape, I guess, give you confidence that you'll be able to get them through? And then secondly, just on the level of acquisition, could you just give us a bit of an idea of the historic growth of the business, the type of products it provides, and maybe the profitability of the business as well, please? Thanks.

Morning Patrick, how are you? Just in terms of your questions on the competitive landscape for sports nutrition, we feel very good about that. I mean Siobhan talked about the 30% consumption we're seeing in the 12 weeks to the middle of June. Opto Nutrition has done extremely well actually and we would say that we are doing quite well from a market share perspective there as well. We feel very confident, I would say, as well, in terms of price increases. We've already communicated price increases across our global markets, not just North America. And again, with the inflationary environment you're seeing in the US, that's not something that's actually quite different. I mean, a lot of companies are looking at price increases there now. So we're, again, very confident That price increase will go through mostly around the September timeframe. I would say we are keeping an eye to elasticity as we look at the fourth quarter just to make sure. We understand how consumers will react to that, but we absolutely have no issue in terms of getting those prices through with our retailers. And we're seeing as well in other brands, frankly, Isopure is doing really, really well also in terms of their product offering. Think, we would say, has gained share in the ready-to-eat market as we've seen that come back. And with some of the offerings like Keto as well, they've done very, very well. So I feel pretty good. The area I suppose that we're watching a little bit is the weight management category. Siobhan again mentioned that that's been slower to come back. So that probably hasn't come back as fast as sports nutrition. We would say that's just a factor, again, if folks are not back to work, not back to school, all that is activity hasn't fully happened yet. So I think we'll watch that into the fall and into the winter and the new diet season. Again, we have a number of programs ready to sort of jumpstart that as well from our perspective. On Level Up, so Level Up is a very interesting adjacent acquisition for us in the esports gaming side. A number of our consumers we know participate in this landscape as well. So we saw an opportunity here to buy 60% of a company. That's a very new company. It's a startup over 2018. In fact, it's relatively new, but it's had quite significant growth. It had 19 million sales last year. You'll probably see 30 million plus come through this year based on what we're seeing. It is profitable. I'm not going to go through the margins except to say it's probably a little bit accretive currently to our overall GPN margins. But the advantage for us In getting into this space and the way we've structured it is we can learn more about the space. We clearly have the direct-to-consumer technology where we can integrate the company quite easily into our existing body and fit platform, for example. And it's a low-fat, ready-to-mix product that works well with the consumers that we're targeting as well.

Perfect. Great. Thank you.

And we will now take our next question from James Target with Fernberg. Please go ahead. Your line is open.

Good morning, Siobhan. Good morning, Mark. A couple of questions from me. Firstly, coming back on GPN margins, can you just clarify, do you expect GPN margins to be down year on year in H2? I know they're obviously going to be down versus H1 in H2. in H2, but it's taken me down year on year as well. Um, and what, within that expectation, you know, what kind of level of pricing are you expecting to happen in H2? I mean, I think in Q2, you're nearly at 7% level. So it could have, what level of pricing in GPN should we be expecting, uh, for the second half of the year? Um, and then my second question is on, um, is on SlimFaster. Sorry, Mark, you were, you were just talking about a little bit in your, in the last, uh, the last answer to the question, but you know, we're obviously hearing from some other companies as well about the softness of the, of the weight management category, weight watchers were calling it out. Um, You know, what gives you kind of confidence that this is going to kind of recover? And I would be curious what your market share performance is in the weight management category. And what's your expectation for slim, fast growth for the for the full year? And maybe just as well, if you could just say what you think your expectation is for overall GPN, like for like growth for for the full year. Thank you.

Hi James, good morning. Yes, at this point in time we expect the GPN margins to be back on H2 last year, but the real variable within that is actually the incremental marketing investment that I mentioned. Yes, there's a bit of lag on pricing and cost of goods and we're never complacent about taking pricing, but the real story there is that incremental investment and we're very happy and comfortable to do that for the reasons I said earlier around the return that we're getting on that. On the overall pricing to that point, we're really looking overall at about mid-single digits, again building on the pricing that we put through the back end of last year, working through that as Mark has said, but confident that we will get it at this point in time, but working that and never complacent about the elasticity as Mark also mentioned, but I think in good shape to execute that. Yes, Slimfast is a great brand. We have great brand awareness. We have great positioning across the key retailers in our markets, particularly in the UK and in North America. I think there's just an undeniable fact that consumers haven't re-engaged with dieting as yet because there's a lot of consumers still working from home, still not. moving about as they have been historically we absolutely believe that that will come back given the exact timing of when that come back you know it could be a point of discussion probably the latter part of the year maybe around q4 summertime is always quiet in the dieting season so there's a bit of seasonality there but we have a lot of programs in place to really own that space when they do come back. We have new creative that we're working on. We have a number of product launches. We have a number of activities with some of our key North American retailers. So we see this as just an element of COVID recovery. To be honest, that hasn't happened as yet. We're increasing our investment behind Slimfast in the second half of the year, as we are doing in some of our other key brands. And different parts of the brand portfolio are just recovering at different pace We've seen a very great recovery, allied with the increased investment and the actions we've taken on the sports side. We've seen the ready-to-eat come back. We're seeing really good growth in zinc. We're seeing other brands, as Mark mentioned, like Isopure, again, grow really strongly, playing into that clean protein. And we believe that the dieting, weight management piece absolutely will come back as consumers reemerge, ultimately, probably most particularly in that back-to-work, back-to-school piece. So investing behind capturing that, as I referenced. In terms of overall like-for-like branded revenue growth for GPN for the full year, our perspective at this point in time, probably just a bit watchful of potentially elasticity at the fourth quarter. James will always be a bit watchful on that, but I think it's fair to say we would expect probably at least mid-teens at this point in time for the year.

Thanks very much, Siobhan. Can I just quickly follow up on the marketing investment? Is there any sort of color you can give in terms of the size of the incremental investments, either kind of year-on-year growth or what's the percentage of sales in GPN?

Yeah, I suppose what I can say is that, you know, we're moving from... A number of years ago, our marketing rate of investment of top line was probably in that kind of mid single digits, even maybe tending to a little bit to the high, but we're moving to double digits this year. And so that, and focusing really on the key brands that I've referenced optimum nutrition, SlimFast, and where we have particular opportunities to dial up a message on Think or, indeed, a brand like iSuperior, we're doing that. So moving into that double-digit zone for the total portfolio, James, which will be somewhat of a step change for us.

Great. Thanks very much. Thank you.

And we will now take our next question from Lauren Molyneux with Citi. Please go ahead. Your line is open.

hi there thanks for taking my question um yeah just a couple um i suddenly if you talk a bit more about your hedging strategy and the time horizon in terms of uh kind of when this will be hitting the p l this inflation um in way and other input costs and then whether you have any kind of natural hedges within the business and offset that as well um and then just in terms of again on gpn marketing um you mentioned you're seeing good roi on marketing I just wonder if you could talk a bit more about what you're doing differently here and do you see yourself gaining market shares? And, yeah, just a bit more about the marketing side of things. Thanks.

Hi, Lauren. So on your hedging point, and it's related to the way input costs primarily that you're referring to, generally the way GPN acquires way, there's a three or four month lag in terms of what's happening in the market as to what will actually end up in our cost of goods sold, just in terms of how we... cure, and then how that gets pushed through into the particular product. So that's why I was mentioning earlier that we saw weight costs coming down at the end of 20. We benefited that, frankly, at the beginning of 21, and we're seeing weight costs increase in the beginning of 21. That will actually be a factor in our overall COGS. in the second half of 2021. In terms of our ability internally, I mean, we pretty much work at market pricing from a GPN perspective, whether they're buying that from an internal Glambia nutritionals business or whether we're looking at that externally. So there's not really any difference substantially. You could argue that there is a benefit in having security of supplies to the extent that things may get a bit tight in the market and that's obviously been beneficial from time to time but not necessarily from an overall pricing perspective. I'll hand that to Siobhan on the marketing point.

Thanks Lauren. Yes, I would say we've done a lot of work over the last 12 to 18 months around the return on the investment that we could and get on our marketing. And we did a number of test and learn exercises through 2020 indeed that really actually gave us the confidence to increase investment this year and we'll continue to do as I say. A few areas I would call out that I referenced in my earlier comments. Firstly, I think in optimum nutrition, for example, our focus really on those strategic product groups around gold standard, around amino energy. In terms of marketing activity, we did a lot of work on how we could get the best return across the various outlets. We found, for example, that streaming TV has a really good ROI for us. Naturally, you would expect, we've also found that digital engagement is really important, social engagement, the Building Better Lives campaign. So we've brought the science to the marketing, really, as one should, and are really focused on, in very real time, establishing what are the best returns that we can get. And that will continue to be a very live program for us, for brands like Optimum Nutrition. Slimfast, again, very classic marketing. It's all there about the master brand and how that interacts. We have a strong media efficiency in the SlimFast brand. And what we've been increasing there is our digital touchpoints around the SlimFast app, around social engagement. Likewise, again, coming back to James' question earlier, making sure that we're there for consumers when they re-engage with the diet piece. So a lot of new resources, a lot of activity in the marketing space, and then really watching the returns.

Thank you.

And we will now take our next question from Alex Sloan with Barclays. Please go ahead. Your line is open.

Yeah. Hi. Morning, Siobhan, Mark, and Liam. Congrats on the strong results. I've got three questions, please. The first one, just on GPN, you had over 100% growth in the first half with distributors. I appreciate that's from a depressed base, but can you give a sense of inventory levels at your key distributor partners? And maybe more broadly, can you talk about the disciplines you've introduced to give your management team better visibility in terms of managing sell-in, sell-out risk versus history? Secondly, just going back to the GPN marketing point, am I right to understand from your answer that you're moving from historical sort of mid to high single digit brand investment as a percentage of sales last year to double digit in the second half this year. So potentially up to a 500 basis points step up in marketing spend. Is that the right way to think about it? And then, you know, should we think about that as just a sort of a one-off investment, reinvesting the windfall from the strong first half or is this double digit level of investment a new normalised level going forward? And just finally, just on the nutritional solutions strategy evolution chart, which is interesting that you show, perhaps like rolling that forward, You know, we are seeing quite a lot of momentum in the synthetic bio industry. Just wondered, you know, when you think about nutritional solutions long term and your legacy whey protein exposure there, how are you viewing that trend? Is it a competitive risk in whey or a potential opportunity for Glambia to get involved maybe at some point? Thanks.

Good morning, Alex, and thanks for the questions. In terms of the distributors, yes, I mean, that's been a clear comeback in terms of where we were at this time last year. And a lot of that, as you alluded to, relates to our international operations. And your question around inventory, an important one. We have very new disciplines now in terms of A, we have, as you know, changed quite a lot of our distributors, a number of different markets. So we have much more visibility in terms of, A, their inventories, and B, their sellout as well. So we are seeing right now, and we've seen great growth come through, frankly, in India, China, Southeast Asia, Middle East over the last number of months. And we would say to you that, yes, there's been some inventory moving into the various regions as you sort of look at supply chain length. but sellout has been very strong. So from our perspective, there's no significant inventory build going on in these markets. We're actually seeing very smooth sellout. So that's very, very positive for us as we sort of move into the second half. Your point on marketing, and this has been something I suppose we've been talking to over the last number of years, even as we acquired SlimFast and more lifestyle products, we knew that there was going to be a higher percentage of marketing, for example, for a lot of those products that we might have traditionally spent on some of our sports nutrition brands. But even our sports nutrition brands now are moving up in terms of the percentage of marketing sales rather than spending in terms of marketing. I think a call previously I said towards the high single digits for brands like often nutrition, low single digits for slim fast. Certainly we're looking at half two. We are taking some opportunity here based on the strength of the first half. to put a bit of extra amount in that. You mentioned 500 basis points. I'd probably say that's more like 350, 400-ish in terms of what we're doing. And as we look into next year, yes, we are more focused on making sure we have space. Some of that's coming through from our transformation program to allow us to invest more in our brands in terms of moving them forward with the consumer. That's the model we wanted to move to as we went through the transformation phase. in gpn so yes you should expect generally that we're moving to a higher level whether it is exactly at the same level of second half we would sort of assess that and get into 2022. and i'll hand back to siobhan on the nutritional solutions point

Thanks, Alex. Yes, it is interesting, of course, the evolution of the synthetic bio industry. We don't see it as a risk, a fundamental risk to our way dairy propositions. And absolutely, you know, we will and do keep an eye to the evolving moves in that area and in that space. And it may well be an opportunity for us. So that's how we would look at that just now.

Very helpful. Thank you.

And we will now take our next question from Carol Zetter with Kepler Chevrolet. Please go ahead. Your line is open.

Yes, good morning. Thanks for taking my questions. I have a few ones left. The first one is with regards to the turnaround program in GPN. Most of the work seems to be done. So what's still required to be done? And somewhat related to that, of course, is what... about your innovation agenda going forward, and particularly thinking about plant-based. Now, the second question is then also on GPM. Given this turnaround program, what will be the structural improvement in your gross margin, more or less, you think, if you think about mix supply chain optimization? Because some of the answers are, of course, very focused on short-term cost inflation and pricing, but If you think about the operating model going forward with structural growth margin improvement and higher A&P support, how should that look like? Thank you.

Good morning, Carl. And again, thanks for your questions in terms of GPN. Yeah, we're almost concluded. You know, in my comments, I did mention we have another smaller amount of investment for the second half, but we're almost done in terms of The restructuring work we've actually put in place, whether it's resetting distributor relationships, existing contracts, combining our manufacturing facilities, that will be done essentially by the end of this year, a little bit ahead of schedule for us as well. So from that perspective, we feel in very, very good shape there. I think as we get through the year into next year, we'll talk more around our strategy on innovation in terms of performance nutrition. We already talked about a number of things. We're working on SlimFast. Plant is important for us as well. But there are a number of things going on with the North America team particularly that I think we'll be excited to talk about into next year in terms of innovation of what we're doing with our brands. We don't talk specifically about gross margins, as you know, but as you can imagine, the efficiencies they were able to achieve now through this transformation program is just freeing up a lot of flexibility for us in terms of investing behind our brands or investing from an innovation perspective and still maintain a good margin in that business. And I think the way you should think about it is the restructuring that we've done has given us that ability to have a flexible CPG approach in terms of how we approach the business, and we're well on track to that 12% to 13% margin range for next year.

Good, thanks. And then I had one follow-up question on slim fast. Why did the diet routine not return? Because we, of course, have also seen that the U.S. market is open for a bit longer, but also home cooking from scratch is up, and that's often seen as healthier. So what are your consumer insights in terms of why the category is still a bit slow?

I think it is that really people have in the first instance just been engaging and getting out and about to be frank and in the social side of the early openings and mobility and maybe less about you know the diet aspect of it and so and if you take certain diets for example like the keto diet it takes an element of discipline so we are confident that when people actually really get fully back and they're back to kind of the normal rhythms that absolutely it's just a matter of time when they re-engage with their weight loss goals and ambitions and SlimFast will be there for that. So really see it as a timing piece.

Thank you. Thank you.

And we will now take our last question from Heidi Vesterinen from Exxon BNP Paribas. Please go ahead, your line is open.

Good morning. So I have three questions. Question on your 2022 margin guidance in GPN. Could you clarify once again what you're assuming in terms of pricing and inflation? Are you assuming a full recovery? And then second question, we just talked about dieting being slow. Do you expect promotional activity to increase if it remains a slow market? What have you assumed in your full year guidance? And then last question on nutritional solutions. I think previously we had talked about some exposure to infant nutrition there. How big is that, and what are you seeing in the market, please? Thank you.

Thanks, Heidi. So within our guidance and stated ambition of achieving the 12% to 13% for GPM for 2022, what we've said is that we believe that through the transformation program and the pricing, we will take known cost increases at this point in time. Of course, we don't have full visibility as to how way prices will evolve through 2022, but for what we can see today, that would cover that largely off. On the promotional agenda of diet, no, we don't think so necessarily at this point in time. We are investing in marketing, investing in consumer activity, investing in new creative, investing in product launches and innovation. So at this point in time, don't see that as a particular thematic that would be necessary to bring the category back into a stronger growth phase. Infant formula, yes, it is part of the nutritional solutions portfolio, not a very significant part. So we're seeing the trends that others are seeing in that space where it's a bit more challenged than other sectors. As I said, we're seeing really good growth for our nutritional solutions across a wide range of other categories, mainstream food and beverage, beverage in particular, immunity, supplementation, those categories doing really well for us.

Thank you. Thank you very much.

And we don't have any further questions at this time, so I would like to turn the call back to Siobhan Talbot for closing remarks.

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

Ladies and gentlemen, this concludes today's call. Thank you for your participation You may now disconnect