Glanbia Plc Ord

Good morning and thank you, operator, and welcome to the Glambia 2023 Full Year Results Analyst Call. During today's call, the directors may make forward-looking statements. These statements may have been made by the directors in good faith based upon the information available to them up to the time of their approval of the Glambia ELC FY 2023 Preliminary Results Announcement. Due to inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed are 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 Euan Maguire, CEO, Glambia PLC.

Good morning, everyone, and thank you, Liam. I'm delighted to welcome you to the Glambia full year 2023 results call and presentation, my first as CEO. I'm joined on today's call by Mark Garvey, and I will provide some highlights in 2023. Mark will then cover the financial and operational results, and I'll then give a review of the business after which we'll be very happy to turn the call over to you for questions. I'm very pleased to report that the group delivered a strong performance in 2023 with adjusted EPS growing by 20.5% to 131.37 cents, a record for Glanbia. This was driven by strong revenue and margin performance from the GPN business, where global consumer demand and optimum attrition continued its growth momentum And in our nutritional solutions business, overall volume trends continue to improve through the year, with sequential improvement in volume growth in the fourth quarter. Our strong operational and financial performance continue to generate excellent cash flow, with 90.4% cash conversion in the year. We increased returns to shareholders by raising the dividend by 10% and returning $100 million via our share buyback program. We're also very pleased to announce that today the board has approved a further 100 million share buyback for this year. We continue to deliver on our sustainability commitments. Better nutrition, better world is our global sustainability program, and we're well on track, which I'll speak to later. We also continue to make good progress on our clearly defined better nutrition strategy, which we outlined at our capital markets event in November 2022. We're focused on our two growth platforms, Glanbia Performance Nutrition and Glanbia Nutritionals. We continue to evolve our portfolio with the sale of our share in the Glanbia Cheese Joint Ventures, the sale of our non-choroseptic bottling facility, and the acquisition of an exciting bioactive ingredient business targeting immune and gut health, which strengthens our position in dairy bioactives. We've successfully navigated a volatile and inflationary environment, passing through significant double-digit price increases, while seeing price elasticity better than expected. We've increased the investment in our brands and marketing by more than 200 bps, prioritizing our growth protein brands of Optimal Nutrition, iSuffure, and Think. It was particularly pleasing to see Optimal Nutrition, our flagship global brand, break through 1.1 billion in revenue last year, delivering both volume and price growth in the period. We continue to strengthen our capabilities in digital brand innovation and sustainability, And we've just recently announced a new role of Chief Digital and Transformation Officer reporting to me that will be both an important productivity and growth lever focusing on enhancing and accelerating Glambia's digital capabilities. With that now, I will hand over to Mark for some further details on 2023.

Thanks, Hugh, and good morning to everyone on the call. I will take you through the key financial highlights for 2023 and our outlook for 2024. 2023 group revenue was $5.4 billion, which was 8.7% down on prior year. Pricing was 7.7% lower due to lower dairy pricing in the Glamby nutritionals business, while volumes were down 0.5% due primarily to destocking trends in our nutritional solutions business during the year. Group EBITDA before exceptional gains was $424 million, an increase of 16.4% constant currency due to strong GPN EBITDA growth. We saw a good increase in group EBITDA margins from 6.2% to 7.8%, with margin increases across all businesses. Adjusted earnings per share was 131.37 cents, an increase of 20.5% constant currency, and ahead of our upgraded guidance of 17% to 20%, and well ahead of our capital market state target range of 5% to 10%. We had strong operating cash flow of $446 billion, with an operating cash flow conversion of 90.4% ahead of our 80% target. Return on capital employed for the year was 12.2%, an increase from 10.7% in 2022, and at the higher end of our capital market day target range of 10% to 13%. GPN had a strong year. Revenues grew by 4.8% constant currency, with branded revenues up 5.1%. Pricing was a positive 5.4% as price increases taken in 22 were lapped during the year. Optum Nutrition, which had sales of over $1.1 billion and now represents 62% of the GPN portfolio, had revenue growth of 17% with volumes up 10.6% and pricing up 6.4%. Q4 was strong as we saw sell-in to certain customers as they prepared for new year, new you programs. Q4 volumes were up 17.2% and pricing was down 5.9% as we saw some more targets of promotional activity. For the full year, sports nutrition and lifestyle revenues were good, while SlimFast, which now represents approximately 9% of GPN revenues, was more challenged. During 2023, GPN increased brand and marketing investment by over 200 basis points, with marketing as a percentage of sales now double digits and prioritizing the protein growth brands of Optum Nutrition, Isopure, and Think, with the More of You and You campaign resonating with customers. GPN reported EBITDA of just over $255 million, an increase of 33.7% cost of currency over prior year, driven by revenue growth, operational efficiencies, and margin optimization. Overall EBITDA margins were 14.2%, an increase of 300 basis points over prior year. The second half of 23 in particular benefited from lower input costs and had two EBITDA margins for 16.3%. In 2024, we expect this trend to be somewhat reversed as freight costs have risen. Overall, we expect EBITDA margins for 2024 to be more balanced between half 1 and half 2 and for the full year sustained at least at the same level as 2023. We continue to see strong momentum from performance nutrition and healthy lifestyle brands in 2023. Optimal nutrition, which represents 62% of the GPN portfolio, grew 17%. 52-week measured U.S. consumption increasing 13.7%. International had a particularly strong year, also growing like-for-like revenue by 12.8%. The healthy lifestyle brands of Isopure, Think, and Amazing Grass, which are primarily sold in the U.S., represent 18% of GTN revenues. 2023 revenue growth was 10.7%, and 52-week measured U.S. consumption was up 11.2%. The diet category continues to be challenged, in particular the FDM channel, as underlying consumer diet behavior remains soft, and retailers have reduced shelf space. We will continue to monitor performance throughout the Q1 diet season and adjust our level of investment to get the best return. Nutritional Solutions reported revenues of just over $1 billion for 23, a decrease of 14.9% constant currency over prior year, primarily due to lower dairy pricing more than offsetting positive premix pricing and accounting for 9% of the revenue decline. Volumes declined 3.3% for the year, As we have discussed throughout 23, we saw customer destocking in both protein and premix over the year, but those trends have improved quarter on quarter. Volumes turned positive in the third quarter, and in the fourth quarter, we saw volumes increased by 8.2% as customer offtakes, particularly in dairy, were stronger than anticipated, which we do expect to somewhat balance out in Q1 24. We continue to see improvements in volumes in premix as the year progressed and expect premix volumes will be positive in Q1. Nutritional solutions, EBITDA was $126 million, down 6.2% cost of currency, and EBITDA margins improved by 110 basis points as operating efficiencies and the impact of lower dairy pricing improved margins. U.S. cheese revenues were $2.6 billion, down 13.9% cost of currency due to lower cheese markets. Volumes were marginally up, reflecting operating efficiencies in the business. US cheese EBITDA was $42 million, up 9.6% cost of currency for the year, with EBITDA margins of 1.6% up 30 basis points. EBITDA growth was driven by operating efficiencies and some milk procurement benefits during the year. Turning to cash flow, cash flow generation was strong in 23. Operating cash flow was $446 million compared to $374 million in 2022. Operating cash flow conversion improved from 85.7% to 90.4%. Operating cash flow was enhanced by a strong increase in EBITDA, as well as disciplined working capital management. From 22-year end to 23-year end, inventory balances have been reduced by over $200 million, as supply chain challenges from 22 significantly eased in 23, the impact of lower dairy pricing and programs put in place for structurally reduced inventory days across the group. Free cash flow improved from $283 million to $390 million due to the improved operating cash flow performance, lower net interest in cash payments, as well as higher dividends received from our joint ventures. The sale of the group's interest in the Columbia Cheese joint ventures generated approximately $190 million, including the repayment of shareholder loans. At year end, net debt was $249 million, down from $490 million a year earlier. representing a net debt EBITDA ratio of 0.5 times. Interest cover in 24 was over 38 times, and the group is operating well within our financial competence. The group has $1.3 billion in committed debt facilities with a weighted average maturity of 4.7 years with no facility due for renewal prior to late 27. Turning to our capital allocation framework, the group spent $52 million in strategic capital expenditure in 2023, primarily adding additional capability in nutritional solutions to meet customer needs, integration of prior acquisitions, and implementations or upgrading IT systems, including the upgrade of our group ERP systems to the latest SAP 4 HANA technology. In 2023, we acquired another dairy bio-access business for initial consideration of $45 million, enhancing our capabilities in this category. This business is in the process of being integrated with the Sterling Technologies business acquired in 2022. The group continues to return capital to shareholders with $97 billion returned via dividends. And today we announced we are increasing the 2023 final dividends by 10% so that the total dividends for 23 would be 35.43 euro cents representing a payout ratio of 29.2% and in the middle of our guided payout ratio range of 25 to 35%. In addition, the group returned 100 billion euros to shareholders via share buyback programs in 23 acquiring and counselling 7.2 million shares at an average price of €13.86. Today, we announced we intend to buy back a further €100 million of stock in 2024 and launched an initial buyback tranche of €50 million today. Some other points to note for 2023 are as follows. The share of profits for joint ventures is $12.5 million, which is lower than prior year. That is due to the sale of Lambie Achieves joint ventures earlier in the year. Net finance costs were $12.3 million and significantly lower than prior year due to lower average debt levels and returns on gross cash balances due to higher deposit rates in North America. The effective tax rate for 2023 was 14%. With the implementation of the OECD Pillar 2 rules from the beginning of 2024, we expect the group's effective tax rates to be between 15% and 17% in 2024. Exceptional items amounted to a net gain of $46 million, with a gain of disposition of operations of $56 million, somewhat offset by portfolio-related reorganization costs and pension costs. And in 2024, the group expects capital expenditure, including business-sustaining HAPEC, to be in a range of $75 to $85 billion. Next, I would like to provide some more detail on the impact of the changes in commercial arrangements associated with our joint ventures. which we announced last year and which came into effect at the beginning of 2024. In addition to these new commercial arrangements, the group will also be moving to EBITDA and EBITDA margin, reporting that we believe this is more in line with industry practice and our peers. For illustrative purposes, on this slide, you can see pro forma data for 2023, as if the new commercial arrangements were in place in 2023, as well as the EBITDA impact for 23. Group EBITDA margins for 23 were 7.8%, adding back depreciation for the group as 130 basis points, resulting in an equivalent EVA-DA margin of 9.1%. Then pro forma adjusting for the impact of the change associated with joint venture commercial arrangements, an additional 450 basis points would have been added back to get to a revised group pro forma EVA-DA margin of 13.6%. On the right side of this slide, you can see the pro forma impact on our different businesses for 23, For Glambia Nutritionals, 23 revenues of $3.6 billion will be reduced to $1.8 billion on a pro forma basis, with the most significant impact on our U.S. cheese business. There is no impact on GPN revenues. Also, EBITDA for all businesses is not impacted by these changes. EBITDA margins for nutritional solutions in 23 were 15.6%, compared to EBITDA margins at 12.5%, These EBITDA margins on a pro forma basis for the commercial arrangement changes in 23 would be 17.8%, which is the relevant basis for 24 guidance. EBITDA margins for US cheese for 23 are 2.1%, compared to EBITDA margins of 1.6%. These EBITDA margins on a pro forma basis for the commercial arrangement changes in 23 would be 5.7%. Finally, 23 GPN reported EBITDA margins of 14.2%, our equivalent of 15.7% on an EBITDA basis, which is now the basis for guidance in 24. And just now to take you through our guidance for 2024. In GPM, we expect revenue growth will be between 4% and 7%, including the 53rd week. The growth will be volume-led, and we expect some negative price with some promotional activity during the year. The guidance assumes a headwind from SlimFast of up to 2.5% as we lap distribution losses during the year. As I noted earlier, we saw strong sell-in in Q4-23 as customers prepared for new year, new you promotions, which we expect to rebalance in Q1-24. We expect Q1 revenues to be marginally back in prior year, primarily due to the strong sell-in in Q4, lapping slim-fast distribution losses and experiencing some softness in the specialty channels. In GNNS, we expect volume growth between 3% and 5% for the year, as we expect a measured rebound for the destocking activity we saw during 23. Again, as noted earlier, we did see strong customer offtake in dairy towards the end of Q4, which we expect will bounce out somewhat in Q1. Turning to EBITDA margins, we expect sustained GPN and NS EBITDA margins at least at the level achieved in 2023 of 15.7% and 17.8% respectively. We expect operating cash conversions to be over 80% for the year. The effective tax rate for 23 is 14%. With the implementation of the OECD Pillar 2 rules from the beginning of 24, we expect the group's effective tax rate to be between 15% and 17%, in 24. And adjusted earnings per share is expected to grow between 5% and 8% on a constant currency basis in 24. And with that, I'll hand it back to Hugh.