Glanbia Plc Ord

Good morning and welcome to the Glanbea Q3 2023 Interim Management Statement. During today's call, the directors made 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 Glanbea PLC Q3 2023 Interim Management Statement. To the inherent uncertainties including both economic and business risk 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 Tabbitt, Group Managing Director of Glanbia PLC.

Good morning, everyone, and welcome to the Glanbia Q3 2023 results call and presentation. On today's call, I'm going to provide a summary of our performance for the first nine months of 23. I'm joined by my colleagues, Mark Garvey, who will cover the financial results and outlook for the remainder of the year, and Hugh Maguire, who will be succeeding me as CEO in January of 24. So at the end of the presentation, we'll turn the call over and be happy to take your questions. Overall, I'm pleased to report that the third quarter has progressed as expected. with volume growth accelerating across the business, as Glanby's portfolio of better nutrition, brands and ingredients continues to resonate strongly with consumers who are seeking health and wellness. In GPN, strong optimum nutrition brand trends continue to deliver volume growth in the quarter and year to date, despite significant price increases implemented through Q4 of 22. ON continued its growth momentum both internationally and in the U.S., with U.S. consumption growth in the 12 weeks to mid-September of 9.5%, building on a strong comp of the prior year. In nutritional solutions, as expected, overall volume trends have stabilized, with volume growth again in the third quarter, driven by protein solutions, as trends in custom pre-mix solutions have continued to stabilize. Overall, the group's financial position and ongoing cash conversion remain strong. In terms of capital allocation, we have, during the period, completed the 100 million share buyback program announced earlier in the year and acquired the B2B bioactive ingredients business of Pantherix for $46 million, further complementing the capabilities in Glanby Nutritional Solutions. So as a result of the delivery year to date and our confidence at this point of the year in the outlook for the remainder of the year, particularly in GPN, we're upgrading our full year adjusted earnings per share guidance from the prior 12% to 15% growth, now to 17% to 20% growth, all constant currency numbers. Turning then to the revenue for the first nine months. From a group perspective, as I said, very much in line with expectations. In terms of volume within GPN, ON, our largest brand, continued its volume positive momentum in the period. In fact, volume accelerated for ON in the third quarter bringing the year-to-date volume growth to mid-single digit, as well as sustaining double-digit pricing in the brands. Pricing overall continued to be the key driver of growth in GPN, with the pricing sustained in the period as a result of the annualization of those strategic price increases we executed in 22. Across GN, we continue to see a significantly improving volume trajectory in nutritional solutions. As I referenced, volume growth delivered in the third quarter, which I'll speak more to later. We also had volume growth in U.S. cheese in year-to-date, reflecting robust end-market demand and very good customer relationships in that space. The pricing decline that you see in Glanby Nutritionals in both nutritional solutions and cheese was all a function of lower dairy market pricing. In terms of GPN, year-to-date it delivered branded life-like revenue growth of 3%. This was driven by growth in international of 12.3% and a decline of 1.8% in Americas as a result of the expected decline in the SlimFast brands. That same SlimFast performance impacted branded volume decline to minus 5.9%. But we had good demand trends across ON and the healthy lifestyle portfolio. And that trend continued with volume growth, as I referenced, accelerating in both those two areas in the third quarter. We expect this trend to continue into Q4, with the protein category currently resonating very strongly with active lifestyle consumers. I'll speak more to the brands shortly. And again, as I referenced earlier, pricing was a key driver of growth. We have sustained the pricing benefit of those 22 actions and delivered overall pricing growth of almost 9% year to date. We've increased our brand investment in the period, and this has supported volume progression of the key brands in the face of that pricing action. So for full year 23, GPN expects revenue growth of approximately 5% on a constant currency basis, as the year-to-date revenue growth will be significantly augmented by strong year-on-year growth in the fourth quarter that we have good visibility on at this point in time. On margins, the positive trajectory referenced in the first half results in August continues to improve the structural margin in GPN. And that is underpinned by a continued focus on revenue growth management initiatives, operating efficiencies, and margin optimization. We are achieving improved margins while also increasing our year-on-year brand investment across all our key markets. As a result of our continuing confidence in sustaining margin progression, we are today upgrading our GPN margin guidance for full year 23 to between 14 and 14.5%. That will represent an increase of between 280 and 330 bps on full year 22. Looking then at the brands, as I referenced, ON is our flagship global brand and the number one brand in sports nutrition. 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 and is now over 60% of our portfolio. As a global brand, it has continued to experience good volume momentum across both Americas and international and had a strong third quarter. In the US, our consumption continues to be strong and as referenced earlier, in the 12 weeks to September, almost 10% growth. In international, the growth of 12.3% was largely driven by ON, excuse me, which was supported by higher investment levels as the brand continues to gain traction with new consumers across all our key priority international markets. We expect strong momentum for ON in Q4 and continue to progress all aspects of the brand playbook with strong brand activation planned into Q1 24. Anchored in delivering consumer protein and energy needs, the ON powder format has a really strong value proposition, and no doubt it is resonating with consumers and will continue to drive our brand momentum. Given the continuing momentum of the brand, and despite the scale of the strategic price increases implemented last year, we're confident that the brand will deliver mid-single-digit volume growth for full year 23. Looking to healthy lifestyle, it's 18% of our GPN portfolio. It includes the brands of Isopure, Think, and Amazing Grass, and it continues to gain momentum. Here, our recent consumption was 12.3%. Q3 was another strong quarter for the Isopure brand, where the continual rollout of the Isopure, Add Less, Do More campaign, distribution, growth, and new visual identity, driving good consumption. We've launched a number of innovative flavors across the healthy lifestyle brands and again here expect good momentum to continue for the rest of 23. Slim fast is now 10% of our GPN portfolio that has continued to decline as expected as ongoing challenges within the diet and weight management category have resulted in reduced shelf space for the brands. Our consumption here was down 35.8%. As we discussed previously, it's fair to say that the weight management landscape has changed dramatically in recent years. However, one of the things that remains constant is the very strong need of many consumers for support in their weight management journey. And Slimfast continues to have very strong awareness and recognition by consumers as a brand that has a long heritage in this space. Our strategy for SlimFast is now very aligned with this trend, whereas we outlined early in the year, we are now refocusing our efforts and rebasing our investments back to the core brand meal replacement, ready-to-drink shakes and powders. Turning then to Glanby Nutritionals in Nutrition Solutions, I'm pleased to report that the business delivered volume growth in the third quarter, continuing the sequential growth trajectory that we spoke to at the half-year results. This growth was underpinned by good demand in protein solutions, while customer off-takes on the premix side continued to stabilize. The overall volume decline of 6.4% was driven largely by those supply chain rebalancing trends that we saw in the first half of the year, again, as previously referenced largely in premix. Pricing was down 7.6%, with positive price in premix offset by the declining dairy protein market pricing. We expect demand for protein solutions to continue to be well into the fourth quarter and for nutritional solutions to deliver an overall mid single digit decline in volumes for the full year. Full year EBITDA margins for nutritional solutions are expected to be between 12 and 13%, representing again an increase of between 60 and 160 basis points versus 22. This is being driven by operating efficiencies and the accretive impact of the lower dairy pricing. As I referenced in September, we completed the acquisition of a bioactive ingredients business, Pantherix. This business will complement the existing ingredient technology portfolio of nutritional solutions, particularly in the areas of immunity and gut health, providing a wider breadth of technical capabilities in the nutritional solutions space to support our customers. So now I'll hand to Mark.

Thank you, Siobhan, and good morning to everyone on the call. At the end of the quarter, the Group's net debt was $335 million compared to $731 million at the end of Q3 last year. The lower net debt is primarily due to strong operating cash flow during the period with significantly reduced working capital outflows as inventories returned to a more normalised level compared to the post-COVID supply chain challenges of last year. In addition, the Group received proceeds of approximately €179 million in April for the sale of the Glambia Cheese UK and Ireland joint ventures and the repayment of associated shareholder loans. The group has committed financing facilities of over $1.3 billion. As Siobhan has mentioned, post-quarter end, we closed on the acquisition of the B2B bioactive ingredients business of Panterex for $46 billion, and we continue to look at acquisition opportunities primarily in the nutritional solutions space. Year-to-date strategic capital expenditure has been primarily focused on further manufacturing automation in GPN, protein extrusion capacity in nutritional solutions, and IT implementations across the group. For the full year, we expect strategic and maintenance capital expenditure to be between $75 million and $85 million. The group completed the most recent share buyback program in mid-September. The €100 million buyback resulted in the purchase and cancellation of 7.2 million shares at an average price of €13.86. We will continue to look at share buyback programs as a vehicle to return capital to shareholders. At the end of the year, we expect the group's net debt EBITDA ratio to be below 0.7 times. Now I would like to update you on elements of guidance for the full year. Firstly, for GPN, we now expect like-for-like revenue growth to be approximately 5% for the year, augmented by strong year-on-year growth in the fourth quarter. While we expect good revenue growth for the year in sports nutrition and lifestyle, we expect this to be somewhat offset by lower revenues in weight management. In nutritional solutions, we have discussed the supply chain rebalancing trends we have seen during the year, as well as the sequential improvement in trends as the year has progressed, with volumes down 6.4% year to date. For the full year, volumes are expected to be mid-single digit lower than prior year. Turning to GPN EBITDA margins, we now have good visibility for the remainder of the year And the positive trajectory we discussed as part of our half-year results in August continues to improve with a structural margin in GPN underpinned by continued focus on revenue growth management initiatives, operating efficiencies, and margin optimization. We have also said previously that second half margins are benefiting from price increases taken last year as well as lower weight costs in the second half, somewhat upset by inflation and other cost of goods sold and enhanced brand investment. We are now able to update our GPN EBITDA margin expectations for the full year to be between 14% and 14.5%, representing an increase over the prior year of between 280 and 330 basis points. Looking to next year, we will provide a detailed update on 24 margin expectations during our 23 full year end results call. At this point, we would expect 24 GPN EBITDA margins to be broadly in line with this year's. Turning to GN Nutritional Solutions, our EBITDA margin guidance is unchanged, and we expect margins to be between 12% and 13% For the full year, an increase of between 60 and 160 basis points over prior year. As we announced in August, we have, with our U.S. joint venture partners, decided to amend our commercial agreements, which will simplify group reporting from 2024. As a result of this change from 2024, Glamby Nutritionals will act as an agent for the joint ventures and consequently will recognize only the commissions earned on the sale of joint venture products. We will no longer gross up revenues and 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 or Glanby Nutritionals EBITDA. Detailed pro forma information for 23 will be provided with the 23 results, but for illustrative purposes, depending on dairy markets, this change will result in Group and Glanby Nutritionals revenues being lowered by approximately $2 billion, and Group EBITDA margins will be higher by over 300 basis points from current levels. There will be no material change to Glanby Nutritionals Dollar EBITDA, with again subject to dairy market pricing, nutritional solutions EBITDA margins expected to be 150 to 200 basis points higher, and US cheese EBITDA margins expected to be 200 to 300 basis points higher than currently reported. We believe this change will be effective from 24, will simplify the presentation of underlying performance of the group, and facilitate easier comparisons with our peers. Now turning to cash, based on the performance year to date, we expect to have strong cash flow for the year, and operating cash flow conversion is expected to be between 80 and 90% for the full year. Return on capital employed is expected to be between 12% and 13% for the year at the top end of our capital market state target range. And as Siobhan has mentioned, we are pleased to upgrade our adjusted earnings per share growth guidance from 12% to 15% to 17% to 20% for the full year, primarily based on GPM expected performance. And with that, I would like to hand it back to Siobhan.

Thank you, Mark. And so to close, as Mark has just outlined, we're upgrading our guidance today to that 17% to 20% growth based on that year-to-date delivery and strong momentum in GPN and across the group for Q4. This builds on a strong performance of 2021 and 2022, and I'm pleased to say that those 2023 to 2025 strategic targets outlined at our capital markets events last year are very much on track, and we're well on our way to achieving the financial ambition that we outlined at that event. As I reflect today, Glanbia has evolved enormously. and now has very clear and unique positions in nutrition at a time when consumers truly recognize and value the benefits of better nutrition. These global consumers give Glanbia a strong runway for growth. Growth we will deliver by driving forward across the complementary areas in the group that we have built and invested in. The growing global billion-dollar ON brand, the growing portfolio of US healthy lifestyle brands, the protein powerhouse capability in nutritional solutions, and the global leadership position in the blending of vitamins and mineral premixes. Glanbia is in growing categories, has incredibly passionate and innovative teams, has a highly efficient supply chain, strong routes to market, and strong distribution capabilities. And we have, as Mark has outlined, the financial capability to continue to invest for growth. But maybe most importantly, what I hope our recent performance has shown you all is that culturally, Glanby is resilient and agile and always testing itself to be better. We have category-leading brands across multiple growing regions and transformed business capable of executing growth effectively and efficiently and for the long term. So it's been an enormous privilege and honour for me to be part of this incredible Glanbia team for over 30 years. CEO for the last 10. It's been a very exciting journey and I believe the group is in great shape. So as we close out 23, I am really, really delighted. that we have an incredibly strong successor in Hugh, who will take over in January, and who with a super team, I know will drive Glanbia on to just more and more future success. So for now, as always, many thanks for all your time over all the years. And we now pass to Q&A for, I'm joined with Mark and indeed by Hugh, who will happily take all your hard questions.

Thank you. Thank you. Our first question comes from Cathal Kenny at Davey Research. Please go ahead.

Good morning, all, and thanks for taking the questions. Three questions all on GPN. Firstly, your full year guidance implies a pretty significant step up in Q4. Just wondering, could you provide some added colour on the moving parts for the Q4 expectation? Secondly, general comment in terms of what you're seeing in terms of pricing within the category for ON and associated promotional activity. And final question is just on infantry. any color or comment in terms of the position within the core channels within GPM.

Thank you. Thank you. Yeah. Morning, Kyle. Thanks very much. The line was a little faint there, but I think I got the three questions right. In terms of quarter four and guidance, there's a number of things driving that. Firstly, comps were up against a weaker quarter four last year, driven by a degree of customer destocking. Secondly, marketing upweight. We've spoken about that before. We have a significant upweighted marketing spend this year and we'll see a significant amount of that go through in quarter four as well, supporting our brands. New year, new year, with all of us, quarter four is always strong as we prepare for a strong quarter one next year, new year, new you. And lastly, innovation. We have a number of new flavors under gold standard way, which are going into different retail channels as well, which are launching in quarter four. So all of that gives us confidence around strong volume demand for GPN and particularly ON in quarter four. Second question, pricing. It's something we always watch. We'd be investing a little in price in quarter four, but all planned all around support in quarter one, new year, new you. Certainly, we had significantly high COGS in half one as we came through that at the oil industry. We're watching carefully. We're not seeing anything dramatic right now. We are seeing a little bit of increased spend, let's say, around Amazon's second prime day. But it's something we're watching carefully. But everything at this point in time is carefully planned for quarter four and quarter one. Lastly, inventory, no major change in inventory. It's something we track all of the time. There's obviously going to be a little bit of puts and takes across different channels, but as of now, comfortable with our inventory levels. And in fact, a big driver of our working capital and cash conversion has been a reduction in inventory in GPN over the course of the last 12 months.

Very good. Thank you.

Our next question comes from Patrick Higgins at Goodbody. Please go ahead.

Thanks. Morning, everyone. A couple of questions for me, one GPN and one nutritional solutions. So on GPN, could you maybe just give us a comment on the way cost backdrop? Is it still trending lower? Have you seen some stabilization, I guess, particularly for the higher grade stuff? And how should we think about your visibility on way costs into next year? How forward hedged are you at this stage? And then the second question, just on nutritional solutions and the pickup you've seen in the protein solutions business, how much is that just, you know, kind of returning to normalized kind of underlying demand and growth in that business? Or is there an element of restocking in there? Or how should we think about that pickup in volumes as seen in that business in Q3? Thank you.

Hey, Patrick. In terms of weigh cost, we have, as you know, in the second half, we probably have the lowest weigh pricing we've seen for a while going through our P&L, whereas the first half, actually, we saw the highest weigh cost going through our P&L. So we've seen, I think, the weigh market trough at this point. So it is turning somewhat, but not excessively so, I would say. So from our perspective, it's more of a normalized turn, as you will see when prices get quite low. In terms of visibility, we're pretty much procured through the beginning of the second quarter at this point into next year. So we have some reasonable availability into the first half. But again, I think our expectations would be that this turn in a way will be more of a normalized turn as opposed to some of the significant peaks we saw over a year ago. In terms of nutritional solutions, we're very, very happy that we're seeing the volume growth return for the business and On the dairy side, I would say, no, I wouldn't say it's restocking. I would say it's more normalized consumer demand just being met right now, and our customers seem to be in pretty good shape from that perspective. On the non-dairy side, albeit we're still at a negative volume, it is much, much, much reduced from where it was at the beginning of the year. So we are seeing that supply chain rebalancing begin to sort of phase, I would say, into more of a normalized phase. By the time we get into the beginning of next year, we would hope that we get back to a normal level there.

That's great, thank you.

Our next question comes from from Morgan Stanley. Please go ahead.

Hi, morning, and thanks for taking my question. My first question would be on NS margins. I know you narrowed the guidance for GPN, but the margin guide for NS at 12% to 13% remains pretty wide. What is keeping you cautious on the margin guidance for that division, and what levers could you pull other than commodity prices to deliver margins maybe at the upper end of the range. And then my second question would be on the GPN sales acceleration for the fourth quarter. Could you maybe comment what you're expecting by brand? I would imagine still strong ON performance, but for Slim specifically, are you still expecting negative sales, albeit, you know, including the comp, the easier comp in the quarter? Thank you.

Hi, good morning. In terms of NS margins, we're very pleased actually where we're going to end this year in NS margins compared to where we were last year. I would say there can be some moving pieces around dairy. I'd say we're reasonably confident we'll be in the midpoint of that range at this point in terms of where we stand. So again, very comfortable where we're going to end up in NS margins for the year.

Yes, good morning. And you kind of answered the question yourself, really, in terms of quarter four and in terms of the guidance of 5%. Our sports nutrition brands, particularly Optima Nutrition and Isofree, will drive that growth. And yes, we will continue to see some deceleration in SlimFast, as we saw in quarter three, primarily driven by reduced SKUs in major retailers. So primarily quarter four driven by Optima Nutrition.

Thank you.

Our next question is from Alex Lang at Barclays.

Please go ahead. Yeah, hi, morning all. Firstly, just wanted to say congrats, Siobhan, on leaving the business in such good shape and good luck in your retirement. I've got three questions, if that's all right. Just firstly, in terms of the GPN growth and ON specifically, Are there any material differences in terms of channel growth that might mean the ON growth is not fully captured in some of the scanner data? that we see and then secondly just in terms of kind of a longer term thematic but obviously GLP-1 has been making a lot of a lot of noise you know it's been some anecdotal comments from the likes of Walmart around users having more demand for protein and indeed doctors kind of recommending more protein to prevent muscle loss associated with weight loss so It's early days, obviously, but be interested in terms of how you're thinking about that potential opportunity for Glambia across GPN and NS. And then finally, just for Mark, I mean, another very strong year on cash. I think you said that you were going to be below 0.7 times net debt to EBITDA at year end. So I guess that's below your sort of optimal leverage. So be interested in the priorities in terms of use of cash from here. Thanks.

Just to thank you, Alex, for your notes, and Hugh and Mark will take on the specifics.

Morning, Alex. Yeah, so in terms of a channel, look, firstly, and we'll have said this at our Investor and Capital Markets Day, we're an omni-channel business. Our largest channels are e-commerce and club, followed by food, drug, mass. So we'll be looking across Different drivers of growth across different channels at different points in time. I think in terms of scanner data, you know, when we spoke as our investor day in May, we broke out our food drug mass business, about 23% of our business in North America remains in around that today as well. So it's a key channel for us. But when I look at some of the external scanner data, we will see we're training large comps in terms of new listings last year and significant secondary displays in quarter three last year, which we didn't lap this year as we focus on new year, new you and quarter one particularly. So, you know, from our perspective, we'll be looking across all our channels and all our markets and seeing where the best opportunity to drive growth is at any one particular time. In terms of GLP, one look, it's really interesting. It's certainly a mega trend in terms of weight loss. We're tracking consumer behavior. We recently commissioned a piece of research actually on it. And what we can clearly see is interest and awareness is growing as a solution for quick weight loss. And we're watching how that materializes. We clearly see as well that consumers are worried about the side effects. We can see they're scaling back in high calorie foods. But I think, you know, really interesting for us and in terms of opportunity, they're continuing to look for ways to stay healthy. They're worrying about nutritional deficiencies. So that plays into our strengths. You know, as they travel that weight loss journey, they want to make sure they're taking the right nutritious foods. And our portfolio brands ingredients play into that, whether it's high protein, they're looking for fortified products. high energy or ideal calorific content. So we're watching it carefully, we're tracking it, but from our perspective, we would see it as a potential opportunity given our range of brands and ingredients that really will benefit consumers in that weight loss journey.

Good morning, Alex. A question on cash and capital allocation. Yeah, absolutely. Very pleased with the progress we've made this year. You can even see at the end of the quarter, we had a low enough net debt level and that Pantrix acquisition was made just after the quarter end. And you're right, I did say, assuming no major activity now at the end of the year, we will be below 0.7 times at the end of the year. And that, of course, gives us tremendous optionality. And that's something, as you can imagine, we're working on. We do have an active acquisition pipeline that we're looking at right now, primarily focused on nutritional solutions. And what I would expect is by the time we get to the beginning of next year, we have the opportunity to talk about capital allocation further with the market. And obviously, we will expect us to increase our dividend next year. We'll look at share buyback as well, to the extent that makes sense, because we have been very successful at doing that over the last number of years. So you're absolutely right. We have optionality on the capital allocation side, both on the M&A side and on the return to shareholders, which we will use appropriately.

Thanks very much.

Thanks, Alex. Our next question comes from Carol Zodeh from Kepler. Please go ahead.

Yes, good morning. Thanks for taking the question. I have two questions. One is on the innovation agenda. In the introductionary remarks, you spoke about good innovations in the fourth quarter. And I'm curious to see what the agenda looks like, because the success of powders seems to be supporting the business. But at the same time, there's always this ambition to grow, ready to drink, ready to eat for months. So how do you look at the latter? And is that going to be an active push still in 2024? And the other thing is on the acquisition in nutritional solution. What does the acquired business really add to the platform in the U.S.? Thank you.

Morning, Carl. Yeah. So what I spoke about in terms of quarter four is new flavor innovation on our largest brand, Waygold Standard, which is with exclusive flavors launching across multiple different sectors. So that's been an area of increased focus in 2023 as we came out of the massive challenges around inflation in 2021-2022. We will always have a flavour agenda in terms of innovation. On our ready-to-eat bars, our Think brand, we just launched two new flavours, Boston Cream Pie and Chocolate Mint. So both of those went in in quarter three and looking forward to see how they do. And in ready-to-drink as well, when we look even across our Slim Fast portfolio, we'll be launching new RTD flavours next year and continue to invest behind our gold standard way, RTD. So while they're small innovations, they're still strategically important to us. So It will be an area, you know, as the industry and the sector, as our business normalizes post-significant price increase strategy over the last two years, innovation will be upweighted as we go into 24 and 25. But look, quarter four, again, it's an underpin of quarter four and quarter one growth and look forward to more innovation as we go forward.

A slight build on that, Carl, just to reference it very briefly, would be a trend that we are seeing in nutritional solutions as well, where a little bit to the earlier point Hugh was making in response to Alex's, a lot of the customers of nutritional solutions looking for hooks for their brands across that whole area of health, nutrition, fortification. So again, seeing that accelerate in recent times, which will of course be positive for the group overall.

Yeah, good morning, Carl. To your question on the acquisition, again, very pleased with the acquisition of Pantrix. Gives us, you know, complementary, I would say, capabilities similar to the Sterling Technologies acquisition in gut health and immunity. Very much seeing, you know, both there in the U.S. and Asian markets, actually. And again, very pleased that we could do this acquisition on a bilateral basis. negotiation process, which keeps the multiple lower than you might expect. So from that perspective, very, very happy with that add-on to nutritional solutions.

Thank you. We have no further questions on the call, so I'll hand back to the team at Glambia to conclude.

Again, as always, thank you very much for your time and interest, and the team will speak with you soon. Take care from me. Bye-bye.