Glanbia Plc Ord

Good morning and welcome to the Glambia Half Year 2023 Analysts' Calls, which is hosted by Siobhan Talbot, Group Managing Director, and Mark Garvey, Group Finance Director. During today's call, the directors may make forward-looking statements. These statements have been made by the directors in good faith, based on the information available to them up to the time of their approval of the Glambia Half Year 2023 Interim Financial Statements and Analyst Presentation. Due to inherent uncertainties, including both economic and business risk factors underlying such statements, 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, Lambia PLC.

Good morning everyone and welcome to the Glanbia half year 23 results call and presentation. On today's call I'll provide a summary of our performance for the first half of the year. I'm joined by my colleague Mark Garvey who will cover the financial results and at the end of the presentation we'll turn the call over to yourselves for questions. Overall I'm pleased to report that half year 23 performance for the group was ahead of our expectations delivering 6.6% growth, constant currency in adjusted earnings per share for the period. And this result, together with an approved outlook for the second half of the year, is resulting in an upgrade in full-year adjusted earnings per share guidance from the prior 7% to 11% growth to 12% to 15% growth, all constant currency. This is facilitating also a 10% increase in our interim dividends. The driver of the half-year, indeed full-year, 23 results outlook is a stronger-than-expected margin progression in GPN, and I'll speak further to that shortly. The overall financial position of the group remains very strong, with over 100% cash conversion in the rolling 12-month period to June and a debt-ebitda ratio at the end of the period of less than one time. We've used our strong financial position to return over £64 million to shareholders in the period via buybacks. Strategically, Glanby is very much on track. Our better nutrition brands and ingredient solutions increasingly resonate with customers and consumers. Our largest brand, Optimum Nutrition, reached the annualized $1 billion milestone in the period and continues to see strong consumption growth globally. I'll speak again to it shortly, but in the U.S., the most recent 12-week consumption growth was 14.3%, and the last 52-week consumption growth over 30%. In GN Nutritional Solutions, we continue to broaden our technologies across our core protein and pre-mixed solutions. And across the whole group, investment continues in key strategic enablers, talent, marketing, IT investment and innovation. We have previously spoken to a desire to continue to simplify and focus our overall business portfolio. In Glanvier, we now have four clear engines for growth. In GPN, there is a very clear focus on the ON brand. There's a growing position in the lifestyle nutrition categories. And then in nutritional solutions, we will continue to leverage and build our global leadership positions in pre-mixed fits and mins and protein solutions. We have further simplified our joint venture model. In Europe, we completed the sale of our interest in the mozzarella cheese business, Glandia Cheese, to our partner, Loprino Foods. Our only remaining joint venture interest now is in U.S. cheese and whey. We're very much aligned with the four growth pillars I've just noticed. We have a really unique and very robust business model. A factor for full year 24, we will further simplify the reporting of this business through a change in our commercial arrangements with our partners. And that will essentially simplify our group reporting and better clarify the underlying margin structure of both Glanby Nutritionals and indeed the group, and that will lift group margins by over 300 basis points on a full year basis. So turning then to revenue for the half, very much broadly in line with our expectations in terms of volume within GPN, ON, our largest brand, continued its positive volume momentum at the period, and we did see a significantly improving volume trajectory in nutritional solutions in Q2 over Q1. I'll speak more to that later. On pricing, the higher pricing sustained in GPN in the period is delivering double-digit pricing growth, and actually the pricing decline that you're seeing in Glanby Nutritionals in both nutritional solutions and cheese was all a function of lower dairy market pricing. As we will speak to later, despite the lower revenue in the first half, we had really good margin progression across all of the group, a trend that we expect to sustain over the full year. Turning then to GPM, strong first half results with branded like-for-like revenues growing 3.7% and year-on-year earnings up over 20%. As I said earlier, pricing was a key driver of growth. We have sustained the pricing benefits of the 22 pricing actions and delivered pricing growth of almost 11%. We have increased our brand investment in the period, and this has supported volume progression in the key brands despite that pricing action. Consumption continues to be good in the performance, nutrition and healthy lifestyle portfolios. And while we have seen some elasticity, this continues to be below our earlier expectations. As I referenced earlier, globally ON continues the growth momentum growing over 16% in the first half. Volume was up 2.6% and pricing 13.6%. And in fact, we expect the volume momentum of ON to improve further as we go through the second half of the year. So in terms of the branded volume decline of 7.2%, that was largely driven by Slimfast, and I'll come back to that again shortly. We're particularly pleased with the margin progression in GPN, where we delivered 12.1% margin on the first half, and that was despite higher year-on-year cost of goods sold and post-increased brand investment. The structural margin in GPN continues to be underpinned by the transformation programme completed over the past number of years. and a strong focus on both revenue growth management initiatives and operating initiatives is delivering results. With a solid base now in half one, we expect in half two to build on the work we've been doing so far with an improving cost of goods position, particularly for dairy. Ultimately, the focus in GPN on margin enhancement is enabling both further increased brand investments and a higher net margin delivery for full year 23. As a result of our increasing confidence in sustaining that margin progression, we are today upgrading our GPN margin guidance for full year 23 by a further 100 basis points from between 12.5% and 13.5% to now between 13.5% and 14.5%. Parsing the 3.7% branded revenue growth into various segments a little, revenue in Americas was broadly in line with the prior year. This arose as we had growth in the performance and lifestyle, but that was offset by the continued decline of Slimfast. We had good growth across key international regions, driven by that global momentum of ON. Our brand portfolio continues to grow across all key channels. The decline you're seeing in the distributor channel here is very much a conscious decision to service some international markets more directly through other channels. Our largest format, powders, continues to grow strongly. The product and value proposition of powders continues to resonate very strongly with consumers. And the growth of brands such as Optimum Nutrition and Isopure will, we believe, continue to drive sustained growth for the group. As you might expect, the decline in ready-to-eat and ready-to-drink arose because of Slimfast. So for full year 23, we currently expect GP and revenue growth to be in the lower end of the previously guided range of 5% to 7%, as that strength that we're seeing in performance and healthy lifestyle will be offset by the decline in weight management. Turning then to our largest brand. As you would expect, given its scale and most importantly, its potential, Optimum Nutrition is our clear priority brand. It is the brand that has and will receive the greatest proportion of resources and investment. It's 60% of our portfolio. It grew by 45% in the three years to 22, and we've built on that again in the first half of this year with a further 16% growth. Our U.S. consumption continues to be strong, as I referenced earlier, with the last 12 weeks over 14%. We're progressing all aspects of the brand playbook that we spoke to you about at our recent investor event in London, with our focused approach across broadening our consumer reach, developing our inspiring creative with the More of You and You campaign, innovating across product and format, and increasing our marketing investments. And all of that is driving incremental distribution and individual velocities. As you know, optimum nutrition is anchored both in protein and energy, and the powder format has a really strong value proposition. And no doubt that is resonating with consumers and will continue to drive our brand momentum. Representing 18% of our GPN portfolio, our health lifestyle brands continue to gain momentum, and that is our brands of Isopure Think and Amazing Grasp. We had strong growth in Q2, in particular for Isopure, where increased investment and the strength of the pure positioning of that brand is driving distribution gains. We have further innovation across flavors planned for a number of our brands in the second half of the year, and we expect good momentum to continue for the rest of 23. Our recent U.S. consumption for the last 12 weeks, again, continuing momentum at 11.7%. The SlimFast brand is now 11% of the GPN global revenue, and it continues to be challenged by the headwinds in the overall diet category. The brand saw a like-for-like revenue decline of 31% in the quarter, with our consumption in the 12 weeks to July declining by 33%. Despite brand investment and indeed retailer support for the brand refresh, the diet category and the SlimFast brand has not regained the anticipated momentum. As a result, some key U.S. retailers are reducing category shelf space in the short term, and this will reduce distribution for Slim Fast into next year. Undoubtedly, weight management remains a key focus for consumers in the U.S., and given this, we will navigate the current category dynamics by refocusing our efforts and rebasing our investment back to those core meal replacement ready-to-drinks and powder shakes. Turning then to Glanby Nutritionals, the performance of Glanby Nutritionals across both Nutrition Solutions and USGs again was as expected for the first half. Lower revenue was a function of lower market pricing in USGs and lower volumes in Nutrition Solutions, a trend that improved on volumes as we moved through the period. Earnings were back 7%, overall with good margin focus driving year-on-year margin improvements. As I noted earlier, we plan to simplify our reporting for the joint ventures from 2024. From that date, Glanby Nutritionals will reflect only commission and sales on behalf of the joint ventures. There's no material change to our EBITDA, and this is expected to increase Nutritional Solutions EBITDA margins by in around 150 to 200 basis points, and our US cheese margins probably around 200 to 300 basis points, higher than we currently report. We believe, again, that this 24 change will better reflect the underlying margin structure of Glanby Nutrition and the group. In terms of nutritional solutions, then, looking at that part of the business, revenue decreased by 15.2%, pricing was down 4.8%, with positive pricing and premix offset by the declining dairy protein market pricing. Volumes were down 10.4%, as while the trend of customers rebalancing their supply chains continued in Q2, this was substantially improved over Q1. Consistent with our comments noted with our Q1 results, this trend was mainly a feature for us with our premix business, with the protein business quite stable in the period. Our margins grew 70 basis points, and for the full year, we expect margins to improve from 22 levels to be between 12% and 13%. This is going to be driven by the improved mix of value-add solutions, operating efficiencies, and indeed the mathematical accretion that arises from that lower dairy market pricing. As I said, with our Q1 results, we saw customers in our protein business reduce inventory in the second half of 2022, and in Q1, this trend really emerged in our pre-mix business. A key strength of nutritional solutions continues to be its strong relationships with our customers, and there's been no change to our customer base in the first half. Essentially, our customers are telling us that easing supply chain constraints are allowing them to be more comfortable with reduced inventories, with an expectation that their offtakes from ourselves will normalize as we move through this year. With our customers, we continue to monitor the underlying consumer demand trends, which are largely robust across our key categories. We've seen this trend play out firstly in our proteins business, where we return to volume growth in the second quarter. It is, of course, impossible to be absolutely prescriptive on the timing of volume offtakes, but we have seen a significantly improving year-on-year volume trend in Q2 at minus 3.8% relative to the Q1 minus 17.4%. We expect this to continue into the second half of the year, particularly for proteins, driving a current full-year outlook for nutrition solutions of a mid-single-digit decline. As you know, our US cheese business operates a very robust pass-through model on pricing, which really protects our earnings from changes in market pricing. And so our main focus on this business is cash earnings, and that focus delivered a strong performance in the period, with an 18.6% increase in EBITDA. The decline in revenue is, as you would expect, just reflecting your lower U.S. cheese market pricing over the half year. With that, I'll hand to Mark for the financials.

Thanks, Siobhan, and good morning to everyone on the call. Here you can see the group's income statement for the half year, and I'd like to remind everyone we are now presenting our financial statements in U.S. dollars. Holy Old Revenues were $2.8 billion, down 10% constant currency, as growth in GPN revenue was offset by a revenue decline in Glamby Nutritionals where customer supply chain rebalancing and lower dairy market pricing led to reduced revenues. Holyoke EBITDA before exceptional gains was $198.6 million, up 6.1% constant currency in last year, as a result of EBITDA growth and performance depression and US cheese being somewhat offset by a decline in nutritional solutions, as supply chain rebalancing was a factor during the first half, albeit with improving trends in the second quarter. Whole-year-old margins were 7.2%, an increase of 110 basis points as margins progressed in both GPN and GN. Performance nutrition margins improved by 12.1%, primarily as a result of pricing taken during 2022. Net finance costs were $7 billion compared to $10.6 billion in the prior year, affecting strong cash flow and lower average debt during the period compared to prior year. For the full year, net finance costs are expected to be in the range of $16 to $18 million. The group share of joint ventures profit after tax for continuing operations was $6.5 million compared to $12.5 million for the same period last year, in line with our expectations, and reduced primarily due to the sale of the group's interest in the UK and Ireland Plan B Achieve joint ventures during the period. The effective tax rate for the half year was 14%, and for the full year, the effective tax rate is expected to be between $13.5 and 14.5%. Adjusted earnings per share for continuing operations was 60.78 cents, up 6.6% on a constant currency basis compared to the same period in 2022. Basic earnings per share post-exceptionalized for continuing operations was 71.9 cents compared to 50.4 cents last year, reflecting operating performance and a net exceptional gain on the disposal of our interest in the Glambia Cheese Joint Ventures. There were no discontinued operations in the period. During the first half, the group completed the sale of the Flamby and Cheese joint ventures for initial proceeds of €178.9 million, which include the repayment of shareholder loans. These joint ventures were classified as held for sale in February, so the results of these businesses have not been included in the group's results for most of the first half. Aseptic Solutions was also divested with proceeds of $11.2 million received for the transaction. These transactions' net related costs resulted in a net exceptional gain of $57.8 billion in the period. The group had strong operating cash flow during the period, as the working capital headwinds experienced in the first half last year have now mostly reversed. The rolling 12-month EBITDA cash conversion is strong at 100% to the end of June, and we are confident in a conversion of over 80% for the full year. Net debt at the end of the half year was $451 million compared to $676 million last year, and the net debt to adjusted EBITDA ratio was approximately one times compared to 1.7 times at half year 22. and as well within competent levels. The group has significant borrowing capacity and currently has $1.3 billion in committed facilities with a weighted average maturity of 5.2 years. During the first half, the group incurred $27 million in strategic capital expenditure, primarily on additional manufacturing, automation and GPM, protein extrusion capacity, nutritional solutions, and IT implementations across the group. For the full year, we expect strategic and maintenance capital expenditure to be between $75 and $85 million. Turning to shareholder returns, today we announced that the interim dividend is to be increased by 10% to 14.22 euro cents a share. For the full year, the group will continue to target a dividend payout ratio of between 25 and 35% of adjusted earnings per share. The group continues to execute the 100 million euro share buyback program announced in March and extended in May. During the first half, €64.5 million had been utilized for this buyback program, purchasing 4.76 billion shares at an average price of €13.55. The group continues to look at acquisition opportunities, focused primarily in the nutritional solutions business. The most recent acquisition of Sterling Technologies in the dairy bioactive space has performed well, and in recent weeks, the group paid an additional $27 billion earn-out payment as a result of this strong performance, bringing total proceeds for Sterling Technologies to $87 million. The group is a strong joint venture model in the U.S. with large cheese and whey operations in New Mexico and Michigan. Following the most recent commissioning of the Michigan facility on time and on budget during the COVID pandemic, we have with our joint venture partners decided to amend our commercial agreements, which will simplify group reporting for 2024. As a result of this change from 24, Lambie Nutritionals will act as agents for the joint venture and consequently will recognize only the commissions earned on the sale of joint venture products. We will no longer gross up revenues at corresponding cost of sales of the joint venture products. There will be no change in day-to-day operations and there will be no material change in the group of Lambie Nutritionals EBIT-A. Detailed pro forma information for 2023 will be provided with the 2023 results. And for illustrative purposes, depending on dairy markets, this change will result in group and Glamby Nutritionals revenues being lower by approximately $2 billion, and group EBITDA margins consequently will be higher by over 300 basis points from current levels. There will be no material change to Glamby Nutritionals dollar EBITDA, with again, subject to dairy market pricing, Nutritional Solutions EBITDA margins expected to be between 150 to 200 basis points higher and USG's EBITDA margins expected to be 200 to 300 basis points higher than currently reported. We believe that this change, which will be effective in 24, will simplify the presentation and underlying performance of the group and facilitate easier comparisons with our peers. Now I would like to update you on the elements of guidance for the full year. Firstly, for GPN, we now expect like-for-like revenue growth to be at the lower end of the 5% to 7% range for the year. While we expect good revenue growth with sports nutrition and lifestyle, we expect this to be somewhat offset by lower revenues in weight management. On nutritional solutions, we have discussed the supply chain rebalancing trends we have seen, and you can see the sequential improvement made in the second quarter. We expect this improvement to continue in the second half, and for the full year volumes, we expect it to be mid-single digit lower than prior year. Turning to GPN EBITDA margins, we now have good visibility on weight costs for the remainder of the year, which, as we have said previously, will lead to improved margins in the second half. As a result, we are now able to upgrade our expected GPN EBITDA margin expectations to be between 13.5% and 14.5% for the full year. On GN Nutrition Solutions, our EBITDA margin guidance is unchanged, and we expect margins to be between 12% and 13% for the full year. Based on the performance year-to-date, we expect a strong cash flow for the year, and operating cash flow conversions are expected to be over 80% for the full year, and return on capital employed will be within our target range of between 10% and 13% for the year. Therefore, we are pleased to upgrade our adjusted earnings per share growth guidance from 7% to 11% to 12% to 15% for the full year, primarily based on GPN expected performance for the remainder of the year. And with that, let me hand it back to Siobhan.