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.

Thanks, Mark. So overall, our category trends for Glanby remain very positive. As I said earlier, our strategy and structure is now simplified and very much aligned to maximize our growth opportunities. Our better nutrition agenda across four complementary growth pillars is really clear. In GPN, we will drive the global scale and reach of optimum nutrition, driving beyond the billion dollars, investing in that global reach and consumer connectivity of the brands. We will broaden and deepen the availability of our lifestyle nutrition brands in North America and we will stabilize them fast. Similarly, in nutritional solutions, we will build on the core strengths and increasing capabilities of our two growth pillars of custom premix and protein solutions. We will continue to extend our capability both organically and through M&A and we will leverage our scalable operating models. Of course, we will continue to drive financial performances And as Mark has just outlined, in 2023, we'll improve our margins across the group and deliver that upgraded guidance of between 12% and 15% adjusted EPS growth. We'll deliver strong cash conversion and that strong balance sheet will set us up well for sustained growth momentum into the future. Finally, it would of course be quite remiss of me not to comment on some other announcements made today. It is, as you can imagine, somewhat a bittersweet occasion for myself as I plan my retirement at the end of the year. It's been an enormous honour and privilege for me to be part of this incredible Glanbia team for over 30 years, CEO for the last 10. It has been such an exciting journey to date, and I believe that the group is in great shape to capture the opportunities that lie ahead. We have massive depth of experience and passion for Glanbia across my own executive team and indeed all the Glanbia team, and I'm truly delighted. that we have a very strong internal successor to the CEO role in Hue who will take over in January. No doubt you will hear from me again before the end of the year as we close out 2023 and move to the transition phase. So far now, as always, many thanks for your time. And Mark and I will take any questions you have.

As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure your handset is unmuted locally. That's star four by one to ask a question today. And the first question comes from Cathal Kenny from David Research. Cathal, your line is open. Please go ahead.

Thank you. Good morning, all. Firstly, Siobhan, congrats on a great career. I just want to wish you and your family the best as you embark on the next chapter. So two questions for me. Firstly, on Owen, Siobhan, in your prepared remarks, you flagged an expectation of improving volume growth through the second half. I guess what gives you that confidence as we sit at the start of Q3 this morning? And secondly, in light of falling cogs, and this is a question in relation to the performance nutrition category, how are you thinking about promotional intensity around the category and absolute pricing as we look into the next six months? Thank you.

Thanks, Kyle, and thanks for your best wishes. On OAN, I suppose the first thing to say is that we're really, really pleased with the momentum of the brand. It is really, it is our flagship brand, as you know. We've hit that milestone of the billion dollars, and as Hugh and the team outlined so well, at the recent investor event in London, were very positive about the future opportunity. There can sometimes be ebbs and flows and shipments one quarter to the other. So as we look at the trajectory for the rest of the year and the distribution gains that we're getting, we're quite confident at this point in time that we would hit that mid-single-digit volume growth for the full year overall for the optimum nutrition volume. as we close out 2023. Obviously, the pricing dynamic will move. We'll start to lack the pricing as we move forward, but we would expect to see a really good continued momentum for that brand. Your question on promotion, very valid. Not seeing anything dramatically different to the normal. There will always be some promotional activity, as you know. And obviously, clogs are coming down, as you rightly say. So at this point in time, I think it is steady as she goes, seeing the normal rhythms apply. And obviously, that is leading to very nice margin progression for us as we move through the second half. I guess the great thing to say to all of you on the call is that the brands that are doing really well, like Optimum and Isopure, are our best performing from a margin perspective brands, which gives us confidence for 23.

Just a quick follow-up on that, Siobhan. Just in terms of your guide and margin, are you factoring in an increase in market investments or promotion intensity into that margin guide, GPN?

Yes, yes. Probably, you know, for the full year, it could be up to 200 BIPs. Yeah, we are.

Thank you.

The next question comes from Rashad Kawan from Morgan Stanley. Rashad, your line is open. Please go ahead.

Hey, good morning, Siobhan, Mark, and Liam. Thanks for taking my questions. And Siobhan, congrats on a fantastic career again and wish you all the best going forward. A couple for me, please. On GPN, so you upgraded your guide for margins, which I think implies second-half margins in the 15% to 17% range. I guess how should we think about the longer-term margin profile or kind of the right run rate for GPN margins going forward from here, and how much does that promotional environment matter as you think about the longer-term range? And then my second question, you talked about redirecting promotional spend away from SlimFast. given the challenges in the category. What are your expectations now for the brand as you sit here today for the rest of the year? And to the extent the category continues to be challenging, would you consider divesting that brand? Thank you very much.

I'll take the margin question. Look, we're very pleased at the progression we're seeing this year on margin. And you are right, that doesn't apply to the second half. We'll have a strong margin. Obviously, that is helped by the fact that we've got a some lower COGS in there. As Siobhan said, we're also investing behind marketing. So the exit rate for the year actually on our margin will look quite good. I would say to you, and back to Carl's question too, we all have to keep a close eye in terms of how the market will develop in terms of promotional activity as we get towards the end of the year and into next year. We're very pleased with the exit rate we'll have in terms of margin. And I think as we come back to the beginning of next year, we can update you in terms of where we believe structurally we are. But clearly the direction is positive right now.

Thanks, Rashad, indeed, for your comments. In relation to Slimfast, there's no doubt that there's some disappointment across all of us as a team in terms of where Slimfast is sitting. I think it's fair to say that the refresh was well executed by the team, well supported. Frankly, it just hasn't got the traction we would have hoped and happened maybe in the weight management sometimes, I think particularly with the category going through the current challenges. I think If you stand over it all, where we see 23 ending in truth is probably what you're seeing in the first half being repeated for the second half. So you're probably going to be in that 30% decline for the full year. Our focus now as we look forward beyond that is very much back to that core. We know we have a strong proposition in that high protein, low carb, ready to drink and meal replacement shakes. We also know that consumers want help on their weight management journey. And we all know indeed that weight management remains a clear focus for many consumers. So very focused, as I said at the outset, ON is our big brand. ON is really going to be the one we're driving forward. It's performing very well. As Mark said, the margins as we exit the year will be very good for that brand. Navigating the short term, and I would call it short term, in SlimFast in terms of the category challenges, but believe that the brand will rebate and drive forward beyond that, but we've stabilized it first.

And just to clarify, Siobhan, in terms of the lower guide for GPN at the lower end of that five to seven, you know, I think you hinted at that at your opening remarks, but I'm assuming that's entirely SlimFast driven, right?

It is exactly. Yes, it is indeed. excluding Simfast, we would be well at and above indeed the range we're guiding.

Thank you very much. Very clear.

The next question comes from Patrick Higgins from Goodbody. Patrick, your line is open. Please go ahead.

Thank you and good morning, everyone. Firstly, Siobhan, huge congrats on a great career and best of luck with your retirement. A couple of questions for me. Firstly, maybe could we just dig into the performance in the international markets and GPN very strong? Could you give us a bit more color on individual markets within that category? Secondly, could you just speak to the way costs backdrop across 80% concentrated and isolated? How does that look now? Does that look like it's going to start trending higher or kind of stabilize at these levels? And then finally, maybe just could you build on some of the, I guess, trends, your underlying demand trends you're seeing within nutritional solutions and the pre-mixed business? You know, how should we think about the de-stocking trends between Q3 and Q4? Should we anticipate a return to kind of normal levels of growth in Q4 or how should we think about it at this stage? Thanks.

Thank you, and thanks for your comments. I'll let Mark take the way, Cost, and indeed he'll speak to the nutritional solutions. On international, what you're really seeing is that global reach of O.N., and in fact, actually, we'll be doing well across all of our key regions. Clearly, you know, Oceania, Europe, Asia, all really driving forward. Continue to monitor the pricing dynamics, but our overall... a volume and pricing piece across international doing well for the ON brand, and that sets us up well, as we would say, for the future. Mark, maybe?

Hi, Patrick. On weight costs, as we've talked over the last number of quarters, clearly dairy commodity prices and weight costs as well have come down and have been quite beautiful, and obviously that's giving us some benefits in GPN into the second half here. Our current expectation right now is that dairy commodity costs will stay reasonably stable. There's no indication at this point and that they're going to move upwards. So reasonably stable, I would say, for now. I think we're very much covered for the rest of the year in terms of our procurement. We'll probably start looking at next year pretty soon as well, I would say. But from the perspective of direction, it seems reasonably stable right now. In terms of nutritional solutions, again, really pleased to see the sort of sequential quarter-on-quarter improvement and that rebalancing that we've been talking about. It's more of an issue on the pre-mix side of the protein side for us this year, but certainly we did see that improve in the second quarter and our current expectations are that will continue to improve in the third and fourth quarter. We did call our guidance a little bit down on volume, so timing might be a little bit slower than we expected, but not significantly. So from that perspective, the trajectory is what we really expected. And from a customer perspective, again, we feel pretty good in terms of the information they're giving us and markets also.

Great. Thank you.

The next question comes from Lauren Molyneux from Citi. Lauren, your line is open. Please go ahead.

Hi, Merlin, both. Thanks for my question. And also congratulations on your retirement as well. Just a couple of questions. So maybe on the new CEO, firstly, so Hugh, so I know it's quite early days, obviously, but just wondering whether we should see the equipment form again around the year of the next CEO as reflecting a continuation of the strategy or whether Hugh has range to complete the session or maybe go for a bit more of a revolution rather than an evolution and maybe a bit more detail on actually when we can expect you to hear a bit more on kind of here and what to expect from your tenure. And then also, just related to that, and apologies if I missed it in the release, but have you filled the DPN CEO role that will now be, you know, obviously left by Hugh, or when can we expect to hear more on the plans for that role? And then my second question is just on the DPN, again, the top-line guidance role. maybe if you could give a bit more detail in terms of the volume and pricing within that like-for-like guidance. And then also, I know you've talked quite a bit about you've got these distribution gains within MLM, which is supporting your growth. But if we strip that out, what is kind of underlying like-for-like or like-for-like volumes, actually nothing like, and also what's driving this distribution gain and what visibility do you have that that could continue to be a supporting factor going forward? Thank you.

Hi, Lauren. I hope I got all the questions, and thank you again for your comments. In terms of Hugh, I think I will leave that to Hugh in due course. Clearly, Hugh has been on the executive team for a long time, has been part of the evolution and transformation of Glanbia. We have, as a collective, set out a strategy for 23 to 25, and clearly it is within Hugh's gift to also amend that in due course as he speaks with you, I'm sure, in early in 24. Again, you will hear from us, I'm sure, very soon about the successor to Hugh within GPN. But suffice to say, we do very good succession planning in Glanby and you'll hear about that in due course. In terms of the top line for GPN, as we spoke indeed at our recent London event, we have quite a mix. across our business, probably only around 23% is in the Moolo categories where you see great clarity on things like distribution versus velocities. A lot of our other business, we're looking at total consumption numbers. But I think suffice to say that where we have information across those channels, we can see that we're getting very nice distribution gains in that food, drug and mass. And likewise, across some of the other channels, whether it is club, whether it is online, continuing to gain momentum. What is driving that? I would say, Lauren, a few things. Firstly, undoubtedly increased marketing investment. We've spoken to you now over a number of quarters where we've been upweighting that investment in the brand, staying very close to consumers. changing our marketing mix so that we can really see the returns that we're getting across the brands. That channel mix itself is very positive for us, too. I think we have a very good mix across the business now, and we also have that global reach, which is reasonably unique. It's the only brand that has a very strong anchored position in the U.S., but also has that global reach, and that's going to continue to drive growth. our top-line momentum. And then the value proposition isn't unimportant. You know, powder's resonating very strongly with consumers currently, as it should. Even with the pricing that we've put through on a price-per-serve basis, it remains very competitive versus other offerings. So I think there's a number of dynamics driving that, and that really is what's giving us the confidence that it will sustain as we go forward. The shape Between volume and price, as we've said, we'll move as we go through the year. But fundamentally, we will deliver very good growth, we believe, in ON. And that is a big underpin for the GPN business as we look forward.

Great. Thank you.

As a reminder, that's staff followed by one to ask a question today. The next question comes from Siti Shadda from Barclays. Siti, your line is open. Please go ahead.

Yeah, hi. First of all, congratulations, Sibon, on a great career. I have two questions. The first one is on nutritional solution volumes, which seems better in Q2, but FY23 outlook slightly worse. Why is that? Is that prudence or you see something in Q3 that is concerning? And the second question on the US cheese accounting change, like when might we, we expect this to be formalized and by why are you able to do this now versus earlier?

Good morning. Just to take those questions. In terms of the nutritional solutions volume trajectory, I think we're being somewhat cautious around that in terms of the markets being quite dynamic right now. We're very happy that we've actually come in a bit ahead in the first half than will be expected when we talk to you in the first quarter. But as we look at the markets, I think it's appropriate for us to sort of call that at mid-single-digit decline at this point. But you will see sequential improvement each quarter in the next two quarters. So, again, as we head into next year, we feel we'll be in pretty good shape there. from the family nutritionals and the joint venture arrangements. But we have an opportunity here, of course, following the Michigan commission that we did. We started to discuss this with our joint venture partners, given that we now have two large factories in the U.S. in our joint venture arrangements, it seems to make sense to us to actually look at this arrangement again. As a result of this, we're going to be able to change our arrangement for being an agent operating on behalf of the joint ventures effectively, and that allows us to make this change. In terms of information, we're getting detailed pro forma information out to everybody in the new year, so you can see how that will impact in 24. As I said, it will be a 24 impact going forward, but not be impacting us this year. But it was important to let investors know that's the direction we're moving right now.

Sure, thanks.

As a final reminder, that's staff, followed by one on your telephone keypad to ask a question today. We have a question from John McDonnell from Jefferies. John, your line is open. Please go ahead.

Morning, guys. Congratulations to Siobhan again on the career you've had and well done on today's results. Just a quick one on the other cost of goods sold in your business that may have not been mentioned. I'm thinking about storage, shipping, logistics, air freight. has been well documented the past couple of years about surcharges and such. Are you seeing strong deflation in that area of the business and cost as well?

Yeah, thank you, John. I would say we're seeing stabilisation. We are probably seeing outside dairy still some inflationary pressures. We mentioned that, I think, at our Q1 results. So there are still some elements of the COGS that are still actually, will be for 2023 on that upward trend. We're taking all that into our guidance of margins for the year. So again, while the dairy is down, yes, you're absolutely right. There's areas that are still going up and then there's areas that are stabilising as we move through 23. The big move for us is that positive piece of dairy in the second half, with all of the above taken into our upgrade of guidance for GPN and group.

Thank you.

Thank you.

We have no further questions, so I'll hand the call back to the management team for any concluding remarks. Again, just remain to thank you, as always, for your attention, and we'll talk again soon.

Thank you.