Glanbia Plc’s (GLAPF) Q4 2021 Results – Earnings Call Transcript

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Glanbia plc (OTC:GLAPF) Q4 2021 Earnings Conference Call March 3, 2022 3:30 AM ET

Company Participants

Liam Hennigan – Group Director, Strategic Planning and Investor Relations

Siobhan Talbot – Group Managing Director

Mark Garvey – Group Finance Director

Conference Call Participants

Jason Molins – Goodbody Stockbrokers

James Targett – Berenberg

Karel Zoete – Kepler Cheuvreux

Alex Sloane – Barclays

Lauren Molyneux – Citi

Martin Deboo – Jefferies

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:05 Good morning and welcome to the Glanbia plc 2021 Full-Year Results Call with Siobhan Talbot, Group Managing Director; and Mark Garvey, Group Finance Director. Today’s conference is being recorded. And at this time, I’d like to turn the conference over to Liam Hennigan, Group Director of Strategic Planning and Investor Relations. Please go ahead.

Liam Hennigan

00:29 Thank you. Good morning and welcome to today’s call. During the call, the directors may make forward-looking statements. These statements have been made by the directors in good faith based upon the information available to them up to the time of their approval of the full-year 2021 release and presentation.

00:46 Due 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.

00:46 I am now handing the call over to Siobhan Talbot, Group Managing Director of Glanbia plc.

Siobhan Talbot

01:13 Good morning, and thank you all for joining today’s call. On the call today, I will outline a summary of our financial performance of strategic execution during 2021, as well as the trends we are so far in 2022. Mark will cover the finances and then I will conclude with an update on our strategy and outlook, after which we will be very happy to take any questions.

01:35 So, turning then to our performance in 2021. When I spoke to you this time last year, we expected to grow our adjusted earnings in a range of 6% to 12% constant currency, based on what we were seeing at that time. As you move through the year, our strong delivery levels to upgrade our guidance and we are pleased to ultimately report results much stronger than those original expectations across all of our key metrics of revenue growth margin and the [indiscernible].

02:02 Adjusted EPS for 2021 has grown on a constant currency basis by 23.9% for continuing operations. That obviously excludes the impact of the Glanbia Ireland joint venture, which now headed for sale.

02:14 Including the impact of the joint venture, our adjusted EPS grew by 22.1% constant currency. This is also driven by strong growth in both of our two key platforms of both GPN and GN NS. With GPN increasing like-for-like revenues by 15.9% with brands at like-for-like growing 18.3% and GN Solutions increasing like-for-like revenue by 17.3%.

02:43 Through the year, we continue to focus strongly on our financial discipline and continued and excellent cash performance for the year. Our operating cash flow conversion was over 100%, and we put that cash to good use, investing across the business, making some acquisitions, and also delivering terms to our shareholders with the 10% increase in our final dividend, as well as returning over 90 million in share buybacks through the year.

03:08 2022 has started very well, we expect further revenue and earnings growth this year. Before I get into the outlook, I’d like to speak with you first about our strategic execution on 2021 because that provides important context for our 2022 plans.

03:25 2021 was overall a very busy year for the group. And while we were navigating COVID, we also stayed very focused on delivering our strategic comparison. The GPN transformation project made significant progress through the 2021 year with the project over delivering in terms of top-line and margin momentum versus its original business case. This key project which commenced in the latter part of 2019 and since then is well on track to deliver over the 200 basis points of net margin benefit that we spoke to with the growth savings being reinvested as planed in higher brand marketing investments.

04:02 The project as we’ve mentioned previously has a broad range of initiatives, focused on both driving revenue momentum and indeed efficiency. From a revenue perspective, it has enabled brands momentum, it has driven focused revenue growth management opportunities, including significant pricing actions with a number over the last 18 months, and also realigned our operating model and indeed talent to match our growth agenda.

04:28 The range of projects to drive efficiencies was also very broad. It included the rationalization of over a third of SKUs from the portfolio, an excess of our contract business in North America such that all of our business is now branded really in GPN, significant realignment of our risk-to-markets in regions outside North America and the consolidation of our supply chain activity, particularly consolidation of the North American manufacturing footprint.

04:56 The strong delivery on this project to date has been a really strong underpin of the double-digit EBITDA margins achieved in GPN in 2021. And we believe has structurally lifted the profitability of the business relative to its 2019 base.

05:12 We made significant progress on our portfolio during the year in-line with the strategy of simplifying the group behind our growth platform. The most significant portfolio realignment has been the agreement to dispose of our remaining 40% interest in Glanbia Ireland to the Co-op in Q4.

05:29 Our strategic growth journey will remain that blend of organic M&A and portfolio review and the acquisition by GPN of the level of brands in Q2 and by nutritional solutions are [packed more] [ph] in Q3 are very aligned to our overall growth strategy.

05:46 Finally, further leveraging the capabilities we have in building and operating very large scale dairy facilities in the U.S., we very successfully completed the commissioning of the cheese and whey facility in Michigan in the first half of the year.

06:01 COVID, of course, continued to make life challenging [indiscernible] in 2021. And once again, I can only thank and really acknowledge the way that all of my Glanbia colleagues, our supply chain partners, and of course our customers worked tirelessly together to navigate the challenges of the pandemic.

06:18 Our number one priority, since the outset of the pandemic has been the health and safety of our employees. And through strict protocols, we operated through all of our plants to plan last year. We maintained the integrity of our supply chain throughout 2021 and into 2022 to maintain delivery of our nutritious brands and ingredients to our customers and consumers.

06:42 So, turning then to our outlook for 2022. Through the second half of 2021, the underlying consumption trends that we’ve seen in the first half very much continues. In GPN, we have continued strong momentum in our performance in general lifestyle brands, while the diet category remains sluggish as consumers just didn’t prioritize dieting in a COVID challenged environment.

07:07 In GN Nutritional Solutions, we had continued strong top-line momentum, which was fueled by continued customer and consumer trends in areas such as healthy snacking, immunity, where we have a huge range of innovative ingredient solutions.

07:23 Of course, as we’ve spoken of previously, inflation became the emerging theme of the second half of the year. And as we’ve outlined, we have been progressively mitigating that trend most particularly around pricing actions since the latter part of 2021.

07:39 Our clear strategic focus for 2022 and beyond is to drive growth across both GPN and Nutritional Solution as the nutrition partner of choice to our customers and consumers. During 2022, we anticipate the effects of COVID‐19 will abate further, however the ongoing impact of cost inflation, particularly dairy‐related, will need to continue to be actively managed as indeed we did through 2021.

08:07 Given this context, we have started to 2022 very well with very good growth momentum across both GPN and GN Nutritional Solutions. And we’re very focused on maintaining the top-line momentum through the year. We believe that the actions we have taken in simplifying our portfolio, transforming the business, and investing for long-term sustainable growth will position us really well when we move through the current inflationary cycle.

08:35 Based on today’s market environment and our current expectations for the rest of the year, we expect to deliver both group revenue and EBITDA growth for 2022. We expect high single-digit revenue growth in both GPN and Nutritional Solutions, largely driven by our pricing actions. We expect growth in earnings with EBITDA growth to be driven by the continued growth of Nutritional Solutions.

09:01 For GPN, we expect the full-year EBITA to be broadly in-line with 2021. As anticipated revenue growth is offset by a margin decline of about 100 basis points versus the prior year. The impact of inflation in GPN is material with the year-over-year cost of goods inflation of approximately 20% with inflation of dairy input costs around 70% of that total figure.

09:27 Importantly, GPN has secured supply and fixed pricing for almost 90% of its expected dairy input requirements for the current year, and that gives us really good visibility, as well as protection against any further dairy price increases. Over to full-year 2022, inflation is currently estimated to result in an EBITA margin headwinds net of pricing action of about 300 basis points against which we’re driving further efficiencies and cost saving initiatives that would contain the EBITDA margin decline versus 2021 to around 100 basis points.

10:05 We expect Nutritional Solutions EBITDA to grow in 2022. Material inflation headwinds there are also a factor. However, the combined impact of pricing actions, plus further cost savings and indeed further efficiencies are expected to drive a Nutritional Solutions margin broadly in-line with 2021.

10:25 For full-year 2022 performance in our GN U.S. Cheese business will be broadly in-line with 2021 and the continuing joint ventures are expected to reduce somewhat versus the prior year as we have some ongoing start‐up costs in our European joint venture and some inflation headwinds.

10:41 So, therefore us a group level for full-year 2022. we expect adjusted earnings per share growth for continuing operations of between 2% and 8%. All of the earlier numbers I’ve said are on a constant currency basis and all those numbers will rise on a reported basis with the adjusted earnings per share expected to rise by 5% if currency rates stay where they are today.

11:05 Turning then to this segmental performance for 2021. GPN recovered strongly in 2021 from the COVID challenges of 2020. Our performance facilitated by the benefits achieved through the transformation program.

11:19 Constant currency volume growth was 11.4% and price was up 4.5%. With the exit of the North American private label manufacture business, 68% of our revenues are now branded. And we grew those branded like-for-like revenues by over 18.3%.

11:38 Volume growth was strong across all channels and markets. Consumption trends across [board] [ph] and general lifestyle nutrition’s have been very good throughout the year, and as mentioned earlier, this has continued into 2022. GPN acquired the level of gaming nutrition brand in the second quarter and this is being integrated successfully into our direct-to-consumer platform in Europe.

12:01 Pricing was driven by increases in both the third quarter of 2020 and the third quarter of 2021. And to date, we’ve not seen material demand elasticity in response to those actions. We will of course continue to monitor that as we move through 2022.

12:17 Margins for 2021 were up 320 basis points, as a result of our pricing actions taken. Efficiency from the GPN transformation program and operating leverage was also part of our margin story, as indeed with our strong volume growth.

12:33 Overall, this led to a 65.5% increase in GPN EBITA to 145 million. As noted earlier, GPN has started well in 2022 to date. For the full-year, we’re focused on maintaining that top-line momentum. We expect high single-digit revenue growth and EBITDA broadly in-line with 2021 levels.

12:55 Turning then to our leading brands. Optimum Nutrition continues to consolidate its position as the number one brand in the fourth nutrition category, and is now over half of GPN branded revenue. The team have delivered growth in ON through strong brand activation programs across [packed design] [ph], creative, portfolio focused, and of course, investment discipline.

13:17 Global revenue for ON was really strong growing by almost 35% with growth across all regions. Brand consumption in the key North American market in measured channels was also strong, up almost 19% in 2021. Driven by brand expansion and good philosophies across key channels.

13:38 ON is our pace and cash [indiscernible] growth, and we saw market share gains in our top five tract markets, including the U.S., UK, China, Australia, India.

13:49 During the year, we continued the global rollout of our proven marketing campaign with the more than your body [creation] [ph] now in 25 markets. We have over 1,000 individual partnerships globally with the least athletes and teams, coaches, trainers, ambassadors and influencers, including Olympians, Indian Premier League, NFL, AFL, and of course Rugby. This activity is key to towards building education and influence with our target consumers.

14:18 ON is a really strong platform for innovation. And with a strong focus on products like Gold Standard Whey and AMIN.O. ENERGY. In 2021, we expanded our reach with AMIN.O. ENERGY sparkling, ready to drink, for example, in the UK, U.S. and Australia. Overall, our energy platform is about 10% of our GPN revenues now and is becoming a really exciting platform for us.

14:43 On our GPN lifestyle nutrition brand portfolio, again, it’s 31% of our overall branded revenues and that grew by almost 4% in 2021. This encompasses SlimFast, The think!, and Amazing Grass. SlimFast as you know is our lifestyle brand of the diet category, and we did see continued headwinds on that category, which led to consumption being down over 4% in North American key channels over 2021.

15:10 Globally our revenue declined by 0.6%, as North America decline was offset by growth in the UK. SlimFast continues to be a very strong brand and the most recognized weight management brand in the U.S., with 98% brand recognition in the category. To drive continued brand relevance, we have engaged with our consumers, and I think as I mentioned previously, we plan to reshape our SlimFast portfolio to meet the evolving needs of our consumers, across both the weight loss, but also weight management journey.

15:42 In 2021, we launched a new SlimFast advertising which make an entrance or might surprise you marketing campaigns in the U.S. and the UK. We continue to innovate across format, including KETO, and with a very successful KETO roll out in the UK in Q4 of 2021.

16:01 You know that the other brands in our lifestyle portfolio are The think!, and Amazing Grass, both growing very strongly through 2021. We saw consumption growth across both those brands, up almost 10% with revenue up 14%. Again, as you probably know Amazing Grass is a plant based supplement and is the number one brand in the greens category in the U.S. With overall plants now about 5% of GPM revenue.

16:28 The think! protein bar had a great year and its growth outpaced the category. We had a good performance from the core think! Range, as well as the really successful roll outs of KETO related innovation under the think! brands.

16:42 Across all of our lifestyle brands, we had integrated marketing campaigns as we would expect across digital and traditional media as we continue to build awareness and [comparison] [ph].

16:53 Turning then to Glanbia Nutritionals, Glanbia Nutritionals had a very strong year with volume growth of over 18%. Price for the segment declined almost 8%, but this was all related to US Cheese market price volatility with a lower year-on-year average pricing. EBITA was up almost 10% to 125 million and this was driven entirely by the Nutritional Solutions business.

17:18 As you know, Nutritional Solutions completed the acquisition of PacMoore in the third quarter, which increases our capability and the healthy snacking arena. Nutritional Solutions, our Ingredient Solutions business again had a really strong year. Volume was up 13.6% with strong customer demand across the functional nutrition, immunity solutions, and healthy snacking solutions.

17:42 Pricing was up 2.7% as we passed through increasing dairy market pricing during the year. Margin was slightly back by 50 basis points, largely as a result of some higher input costs, but EBITA grew 15.7% to 101 million. For GN NS, for the full-year 2022, we expect to deliver high single digit revenue growth and good EBITA growth.

18:07 While NS is also experiencing material inflation headwinds, we expect the combined impact of pricing action plus further cost savings and efficiencies or drive NS margin for 2022 broadly in-line with 2021.

18:22 The NS business is delivering growth ahead of its end market. It’s leveraging its core capability, [with] [ph] a broad range of sectors, all are featuring growth. From an ingredient perspective, NS has strong capability across both dairy and non-dairy, with non-dairy now representing 59% of the business and is primarily focused on micro nutrients immunity solutions and flavors. This part of the business grew almost 14% in volume in 2021.

18:52 The dairy business, which was primarily focused on healthy snacking and specialized key dairy ingredients also had strong volume growth around 12%, part of which was of course driven by the commissioning and commercialization of the [weight] [ph] from the Midwest Cheese facility.

19:09 In total, Nutritional Solutions delivered 17.3% like-for-like revenue growth. Nutritional Solutions occupied key positions in Ingredient Solutions and is a key player globally where we serve a sports and lifestyle nutrition, supplements and immunity, and of course main street food and bev, and specialized nutrition also. With ingredients that can add key nutritional benefits to products within those categories.

19:38 On US Cheese, it had a resilient performance in what was a volatile environment. Volume was up almost 20%, which was driven by the commissioning of the large facility I’ve mentioned earlier in Michigan. The US Cheese markets were volatile in 2021 and the business operates the past two model as you know, but pricing declined a top-line by 12% reflecting those lower markets. EBITA was back slightly, slightly over 3 million, due to higher operating costs.

20:06 With that, I’ll hand over to Mark who will speak to the financials.

Mark Garvey

20:09 Thanks Siobhan and good morning to everyone on the call. I will walk through some key financial highlights of the year. As Siobhan said, 2021 was a good year for the group with a strong performance across all metrics. Wholly-owned revenue grew by 13.1% constant currency to €4.2 billion, with both wholly-owned businesses performing well.

20:30 The average euro dollar rate for the year was $1.18 to the euro, compared to $1.14 for the prior year, resulting in approximately 4% headwind and reported results, compared to constant currency in 2021. Adjusted earnings per share for continuing operations was up 23.9% on a constant currency basis.

20:48 The group had strong cash flow during the year as a result of higher earnings, just over 100% of EBITDA was converted into operating cash flow. The group ended the year with a strong balance sheet and net debt is €603 million, and a net debt EBITDA ratio of 1.7x in-line the prior year.

21:05 During the year, the group spent €76 billion in acquisition activity acquiring [50%] [ph] of level up with direct-to-consumer gaming efficient business in GPN and packed more of healthy snacking business in nutritional solutions. €91 million was return to shareholders via share buyback activity during 2021 and today, we are announcing a 10% increase in the 2021 final dividend, which will bring the total 2021 dividend to $0.2928, representing a 33.6% payout of 2021 earnings.

21:35 Last November, we announced that the group had entered into an agreement to sell the PLC’s 40% stake in Glanbia Ireland to Glanbia Co‐operative Society for €307 million. Since that date the shareholders of the PLC and Society have separately voted in favor of the transaction. Subject to final regulatory approvals, we expect the transaction would close in the second quarter of €307 million we received in cash.

21:59 As Glanbia Ireland represents a significant component and separately reported segments of the group, the group’s share of Glanbia Ireland results have been reported separately in the financial statements as discontinued operations. At year-end, the book value of the PLC’s investment in Glanbia Ireland was €234 million.

22:16 Looking at the income statement, you can see that on a constant currency basis revenues were up 13.1%, EBITDA was up 34% as a result of strong performance by GPN and GN. The group’s EBITDA margin increased from 5.5% to 6.4% primarily due to the transformation program at higher operating leverage in GPN during the year as COVID restrictions are based across our markets.

22:38 As finance costs for the year was €17.5 million, compared to 20.5 million, reflecting the benefit of lower average net debt in 2021 compared to the prior year. The average net debt was 534 million in 2021 and 631 million in 2020. The average interest rate for the year was approximately 3%.

22:59 Share of joint ventures reports to the continuing operations, rose €19.2 million, profit up to tax compared to 37.7 million in 2021. 2021 performance was in-line with expectations following exceptional year in 2020 due to unusual dairy market dynamics, which favored our U.S. joint venture, which we did not expect to repeat in 2021.

23:20 The effective tax rate for the year was 13%, an increase of 11.3% representing the geographic footprint of the group’s profitability, adjusted earnings per share for the year was $0.8715 of which $7784 related to the continuing operations and $0.931 represented discontinued operations.

23:40 Operating cash flow generated for the year was €334 million -line with the prior year, obviously albeit with higher EBITDA and increased working capital investments. Operating cash flow conversion was just to over 100% of EBITDA coming in well ahead of our target of 80%. There was increased working capital investment in the second half of the year to ensure the group had appropriate levels of inventory, to meet demand to manage any supply chain dynamic.

24:05 In 2022, we will be targeting an 80% conversion rate and we do expect the working capital outflow for the year in particular due to the inflationary environment. Capital expenditure for the year was €77.5 million with €62 million spent on strategic CapEx, most significant strategic CapEx project was the investment in the consolidation of GPN manufacturing facilities in Chicago as part of the transformation program, which is now complete.

24:31 In 2022, we expect to spend between €75 million and €85 million by capital expenditure. The group has a strong balance sheet that ended 2021 with net debt of €603 million, compared to €494 million at the end of the prior year. The increase was primarily due to acquisition and share buyback activity, as well as restructuring of legacy pension liabilities.

24:53 Net-debt-EBITDA was 1.71x and interest cover was 15.1x, well within covenants and the group has total available banking facilities of €1.16 billion with no arrangement expiring prior to January 2024.

25:09 In 2021, the Group had exceptional items of €42.1 million net of tax, which are primarily related to the transformation programme Glanbia Performance Nutrition and the restructuring of pension liabilities. The GPN transformation programme commenced in 2019 as aligned operating in supply chain structures and support of individual businesses, sharpened focus on brands, and [indiscernible] market across non-U.S. markets to drive greater efficiencies, improved margin, and deliver top-line growth.

25:36 €18 million pretax was incurred in the current year of the programme and the investment phase of this multi-year strategic program is now complete and no further costs are anticipated.

25:47 During the year legacy defined benefit pension schemes were restructured initiating a process for the ultimate buyout and wind up of certain UK schemes and there was a further simplification of remaining schemes. The net charge was €30 million before tax. These processes have further reduced the group’s net pension liabilities, which [adhere] for €14 million, compared to 29 million a year ago, and 110 million five years ago.

26:12 In 2022, we expect the effective tax rate to be between 12% and 13%. As I mentioned, the average euro dollar rate for 2021 was €1 equal to $1.18. As of this week, the exchange is approximately $1.12 should the rates stay at a similar level to this. For the year, our reported results would be approximately 5% higher than the constant currency results.

26:36 Return on capital employed was 10.1%, an improvement of 110 basis points reflecting the improved profitability of the group in 2021. As I mentioned earlier, during 2021, the group allocated €91 million to share buyback activity, purchasing 7.3 million shares as an average price of €12.51. This 2021 activity would be approximately 1% accretive to 2022 adjusted EPS.

27:01 In 2022, to date, the group has spent a further €73 million in buyback activity, purchasing 5.9 million shares with an average price of €12.36. This included participation of the co-op share placing in January and just this week, including the [€50 million] [ph] program announced last November. This 2022 activity will result in an additional adjusted earnings per share accretion of approximately 2% in 2022.

27:25 And reflecting the strong cash flow of the group, today we are announcing a further €50 million buyback program, which will commence immediately. Following the announcement of the disposal of the group’s 40% interest in Glanbia Ireland last November, the group has completed or announced buyback activity of approximately €130 million.

27:43 And importantly, at the upcoming AGM, the board will take approval to renew the group’s authorization to continue to use share buyback programs as a capital allocation tool.

27:53 And with that, I would hand it back to Siobhan.

Siobhan Talbot

27:56 Thank you, Mark. Turning then to strategy. Glanbia has a very strong and very rich heritage, which started with the purpose of delivering a brighter future for the farm family communities in which we operate. And today, we have evolved that strategy to a purpose of delivering on a global scale better nutrition for every step of life’s journey.

28:18 We are really ambitious to deliver that purpose. We are very clear on both our strategic priorities and indeed the specific capabilities that are unique to Glanbia that would drive that long-term sustainable growth. We’ve touched on many of these areas, earlier in our presentation today. Our strategic priorities are not new and our focus on driving growth in our portfolio of leading sports and lifestyle brands and science led ingredient solutions through a blend of organic and acquired growth.

28:49 As we term organizational [indiscernible] is really the engine rule that provides the infrastructure and tool kits to our people to deliver these strategic priorities. This of course has been a key focus area from ourself and all of the team in the last two years, during which we reshaped our operating model in key areas of the group, while we’ve invested in new skills, new talent, and indeed new relationships to fuel our future growth.

29:15 I am really confident that the focused investment and reshaping of the key enablers over the last two years will serve us really well both to navigate the current short-term inflationary headwinds, but importantly to drive future sustainable growth.

29:32 If you think of the evolution of the Glanbia Nutrition portfolio, it is really probably best characterized as a progressive journey of allocating capital, investment, and resources to areas of nutrition where we can create as a group and sustain to your competitive advantage.

29:50 In recent years, we’ve divested away from commodity exposures and now have a strong portfolio of leading sports and lifestyle brands, and ingredient solutions, which are aligned with the de-risk participation in primary dairy production, largely in our core-U.S. markets.

30:08 We are clear that the priority for our capital allocation and investments is a continued growth of our GPN and our Glanbia Nutritional Solutions portfolios, where we invest to grow organically across a range of ingredient sources, product format, and is a consumer usage occasions and motivation, both in the U.S. and in selective key international geographies.

30:34 Our US Cheese and joint venture businesses are separately reported, are strongly aligned operationally and commercially. On these ventures through universal self-financed models provide supply chain and innovation capability, provides visibility and assurance, which support our two primary growth platforms.

30:54 I’ve outlined earlier, our performance expectations for 2022, which are focused on growing revenue and earnings, despite significant inflation headwinds across the group. As we move beyond 2022, we are very confident on the fundamental drivers on the long-term sustainable growth for Glanbia.

31:13 As we previously noticed, we believe that the unfortunate health crisis that has been COVID-19 has over the last two years, only accelerated consumer perspectives and motivations on the merits and importance of maintaining a healthy and active lifestyle.

31:31 Structurally, we believe that this trend will be positive for our brands and ingredient capabilities, and it underpins our view, on a sustainable top line momentum across both GPN and GN Nutritional Solutions of between 4% and 6%, and metrically expect to over achieve that in 2022.

31:52 Margin optimization is of course and has been an ongoing focus for the group, particularly again in those growth platforms of GPN and GN Nutritional Solutions. Recent work on the GPN transformation program and the ongoing portfolio evolution of Nutritional Solutions will we believe strongly underpin a structural margins, EBITDA margin of over 12% in both those businesses.

32:20 The largest 2022 inflation headwinds, as I said earlier, is dairy cost of goods and GPN. And we have a long experience and these knowledge of the dairy space and that gives us confidence to navigate this current inflationary cycle.

32:35 We believe the current spike, particularly in [wake after goods] [ph] will rebalance probably in the latter part of 2022 or early 2023. And therefore, our focus is both on the short-term clear mitigating actions, so that we can optimize our near-term performance, but also keeping a very keen eye to the long-term, and our approach on continued investment across key areas of brand marketing R&D’s innovation will really position us well on the dairy inflation cycle terms, and COGS returned to more usual pricing.

33:10 My final comment on this slide is that, of course, importantly we acknowledge we’re very focused on delivering shareholder value across all of our metrics, top-line, margin and retirement capital employed. And ultimately, the board will continue to regularly review capital allocation across that blend of M&A activity, investments, CapEx, dividends, and course buybacks.

33:34 As we’ve stated earlier, we now have a really strong portfolio in GPN across consumer motivations, channels, and in the geographies. And together that delivered branded like-for-like revenue growth to 2021 of over 18%, and a two-year growth of over 5%, having fully recovered from the COVID challenges of 2020.

33:55 We had good growth across all of our channels in 2021, as continued growth in channels that had performed well through COVID such as online and Food, Drug, Mass and Club complemented a recovery in the more COVID-related channels of specialty and distributors.

34:12 From a consumer motivation perspective, both aspects of our portfolio grew in 2021 with of course, very strong growth in the sports nutrition side, particularly optimum nutrition, but also think!, Isopure, and Amazing Grass. All of that growth offsetting the slightly more challenged, SlimFast performance.

34:32 Glanbia Nutritional Solutions is now [indiscernible], a billion dollar revenue business focused on ingredient solutions, with strong capabilities across the range of ingredient sources playing into a broad range of customer segments. All of which are growing in the consumer nutrition space.

34:52 We really think of the capabilities of NS to the lens of consumer motivations, and our current portfolio has two essential bedrocks. Firstly, we are about protein, and particular with applications consumer healthy snacking across a variety of ingredient sources and delivery formats. And secondly, we are about micro‐nutrients [indiscernible] both blend on vitamin and mineral premixes, which support consumer needs across a range of needs, infant nutrition, clinical nutrition, immunity, and mainstream food and beverage.

35:26 This portfolio was supported by a really strong innovation capability, which has evolved strongly in recent years and been augmented by acquisition for further complementary capabilities, as we really developed solutions capability to meet our customer and consumer needs.

35:42 We’ve enhanced our capabilities across bioactive, flavors, both further has destocking technologies, plant-based solutions, and of course, novel ingredients, including for example, clean label, edible film, and glitter.

35:58 On the area of sustainability, we’ve made significant progress on our total environmental, social, and governance agenda in 2021. Our environmental sustainability strategy, which is labeled Pure Food + Pure Planet, was published with associated targets. We’re very focused on actions in areas that are most important to our stakeholders and we’ve prioritized work in the area of carbon reduction, water, waste management, and packaging.

36:29 In terms of carbon emissions, we’ve committed to a 31% reduction in Scope 1 and 2 carbon emissions by 2030 and to reduce our carbon emission intensity in our dairy supply chain by 25% again by 2030, from the 2018 base year. These targets have been validated by the SBTi to a well below 2 degrees Celsius pathway.

36:54 We have reduced Scope 1 and 2 emissions to date by 8%, compared to that baseline. We have re‐baselined our fresh water data across all operational sites in 2021, and that will inform our action plans for water conservation and management. On waste, we’ve committed to 100% zero waste to landfill by 2025 across all of our production sites, building on an achievement which has already been made with zero waste to landfill in GPN locations. We’ve also committed to a reduction in food waste by 50% by 2030. And on packaging, are committed to full brand packaging recyclable materials either recyclable or reusable or compostable by 2030, and we’ve made really good progress on that to date.

37:41 On the social agenda, we’ve also made really good progress on our Diversity, Equity and Inclusion agenda during the year, with significant engagement across all parts of the organization, which are culminated in a vision in Glanbia. A vision of inclusion to advance a culture where we celebrate individuality, because we know that together we are more.

38:04 The organization of Glanbia has never been more really to embrace this journey and we’ve increased our resourcing in the area and launched a series of very specific actions across education, talent acquisition and engagement to both action and embed progress.

38:21 Of course, the health and safety of our teams has always been a priority for us. We’re really pleased that we had zero critical injuries in 2021, and we’ve made improvements and health and safety across many of our sites, all of which reflects our strong commitment to our core values and an ambition of course zero harm for our employees.

38:42 Finally, then on governance, the representation structures of the board continue to evolve in 2021 to facilitate broader diversity. The agreed reduction in the representation of our largest shareholder is progressing per plan and the percentage of female representation on the board has increased during the year.

39:02 In conclusion then, 2021 was a strong year for the group, and the actions taken over the last two years has positioned us really well to navigate the significant pandemic related disruption and deliver growth in our key areas of nutrition expertise across our leading brands and ingredient solutions.

39:22 All of our target across financial and indeed non-financial metrics were [indiscernible] exceeded in 2021. We’ve made progress on a significant number of strategic initiatives. GPN over delivered against its plans on the transformation platform, it added the German base level of brands for our portfolio. Nutritional Solutions expanded our healthy snacking capability with the acquisition of PacMoore; and we successfully commissioned the large scale facility in Michigan.

39:51 We progressed our portfolio activity in-line with the strategy of simplifying our business behind our growth platforms to the disposal of our interest in Glanbia Ireland to the Co-op. We had strong cash flow, returning over 90 million to shareholders be it buybacks and of course, have increased our dividend.

40:10 As a truly purpose driven organization, we have progressed our environmental, social and governance agenda, while prioritizing our roadmap to carbon emissions reduction and implementing our diversity, equity and inclusion strategy.

40:25 The current market environment is of course volatile across many dimensions. Inflationary pressures, COVID-19, and of course geopolitical tension. Our clear strategic focus for 2022 and beyond is to drive growth across the platforms of GPN and Nutritional Solutions, where we want to and will be our customers and consumers’ partner of choice.

40:49 We expect the disruptive impact of COVID-19 with abate through 2022 and we will actively manage as we have been doing the ongoing impact of cost inflation. So, based on our current market environment and our current expectations for the year ahead, we expect to deliver group growth and adjusted EPS for continuing operations in a range of 2% to 8% on a constant currency basis. Our reported growth rate will be higher than that by 5% based on the current foreign exchange rates.

41:22 With that, we’d be very happy to take your question.

Question-and-Answer Session

Operator

41:29 Thank you. [Operator Instructions] We will take our first question from Jason Molins. Please go ahead. Your line is open.

Jason Molins

41:54 Good morning, Siobhan and Mark. Just wanted to tick into 2022 on your guidance, with regards to the high-single-digit revenue growth that you mentioned, can you give us a sense of split between volume and pricing assumptions you are making for GPN and Nutritional Solutions? And then Siobhan you mentioned in your remarks on the way pricing backdrop you expect to – and you said normalize in the latter part of 2022 or early 2023, can you just give us the confidence levels or why you fell that’s the statement that you’re happy to make? And then just given that cost backdrop that you’re facing this year and the various hedging and security purchasing that you’ve got in place, how should we think about the shape of the year ahead between a sort of H1 and the H2? They are my questions? Thanks.

Siobhan Talbot

42:48 Thanks, Jason and good morning. So, yes, relating to 2022, firstly, I would say, we’ve started the year very well on revenue across both GPN and Nutritional Solutions, but of course, we’re very conscious that there’s a lot to navigate. So, we’re confident that we would do the high single digits overall revenue, largely pricing we believe, Jason at this point in time, and the ultimate split between pricing and volume has a lot to play out within that, because we haven’t seen elasticity on the volume side to date, but of course, it’s very early in the year and we’re not overly calibrating.

43:23 So, what I would say to you at this point in time, very confident that we will at least do the high single digit. You should take that that would be largely pricing and will monitor the volumes and elasticity as we go. In terms of your [indiscernible] PCX, the inflation we’ve seen through the latter part of 2021 and into 2022 has been – is really unprecedented in recent times. We haven’t seen this level of pricing since 2014 and probably didn’t improve, they even hit the current level of pricing at that point in time.

43:54 The one thing I would say too is that we know dairy very, very well. We know that demand and supply always rebalances actually the fundamentals of dairy and the relative mix that producers have the option to produce, really don’t support the current spike in [weight prices] [ph].

44:13 What you have happen, really is a disruption, a COVID-related disruption to the dynamic of demand and supply. So, if you think what happened in 2021 was supplies fell-off with COVID happening in the early part of 2020, produces recalibrate their production mix, came out of [high-end trade] [ph], went into some other products, then of course in 2021, you’ve had demand come back very strongly across lots of different areas that use protein. And so, you had this demand reaching a supply that has recalibrated the prior year, and so you had them a surge in pricing.

44:51 We’ve seen this before, as I say, in 2014 and what has happened is that demand ultimately responds to high prices and supply, sorry, supply response to high prices and it starts to meet demand. And so that gives us the confidence of that recalibration. It’s really difficult to be prescriptive on the quarter that that flows through, but our general knowledge of dairy is that dairy does respond to high pricing and prices are very high for milk, right across the globe currently.

45:20 That’s not to say, they’re not seeing their own inflation headwinds, but over the run of 2022 and as we come into 2023, I’m very confident that milk supply globally will grow and particularly in the high-end ways we will see that supply meeting demand and therefore pricing normalizing.

45:37 And the actions were taken Jason in that context, which has a series of price increases through 2020, 2021, and 2022 I think with position us really well in that normalization stage, because traditionally, we’ve held a lot of the pricing when the cost of goods has reduced. So, that’s a key part of our long-term confidence in the space, but as I say, we know very well.

46:05 To your point around our hedging strategy in the context of what we were seeing at the back end of 2021, the GPN team again, who are very good at procurement in this space went long in terms of supply. And as I’ve mentioned, we are now 90% covered for 2022 on our key dairy input requirements, which puts us in a really strong position.

46:26 The shape of the movements through 2021 and 2022 means that you’re going to see the bulk of the margin drag actually in the first half because we’ve been coming from a declining market in 2020 into a rising market of 2021. So, you’re going to see a margin impact in the first half and then coming a more normalization in the second half and margin increasing as we go through the back end of the year. That’s the general shape.

46:55 Hopefully, that helps.

Jason Molins

46:58 Okay. That’s helpful. Just sort of one follow-up, if you don’t mind. In terms of the whey pricing dynamic and the high-end versus lower and medium quantity, is there any major differences between the team, given year more expense, I guess on the high-end side?

Siobhan Talbot

47:14 Yes, it’s an interesting point actually because I would say that the high-end whey rose earlier than the generally dairy complex, but as you’ve probably seen in the recent times, all of dairy has increased, particularly protein, but still when you look at a relative point of protein base of high-end whey would still be out of [indiscernible] versus the commodities. But the commodities have risen, but again high-end whey is more So, again, part of our confidence, but ultimately the high-end whey’s will be calibrated back.

Jason Molins

47:45 Okay thanks very much, very helpful.

Operator

47:50 We will now take our next question from James Targett. Please go ahead.

James Targett

47:57 Hello. Good morning, Siobhan. Good morning, Mark. Couple of questions for me. Just on, firstly on the Q4 volume development, can you just talk a little bit about behind – what’s behind the declines in volumes in GPN in Q4? Maybe some comments on the split between ON and all the trends in ON and SlimFast in Q4? And you mentioned a strong start to 2022. So, any kind of phasing benefits or phasing impact or you want to call out? And I wondered if that’s a positive start to Q1 included SlimFast as well and do expect SlimFast to grow in FY 2022? So, that’s my first question on Q4 volumes, and then the start to Q1 with SlimFast.

48:43 And my second question is on GPN margin, just can you talk about the outlook, just talk about what are some of the sort of productivity initiatives providing a 200 basis point offset to the 300 basis points input cost headwind expected? Thank you.

Siobhan Talbot

49:03 Thanks, James and good morning. So, in relation to Q4, as you mentioned for GPN, overall, I would say, we’re not concerned about the Q4 performance. As you’re seeing with a very good overall volume performance, up almost 14% in GPN, and yes, Q4 volumes were back, but that was really a conscious decision on our part in the context of the inflationary trends that we were seeing and the pricing actions that we’d already taken and planned where we decided not to promote the brands heavily nor did we facilitate pre-ordering in advanced price increases that we put through in early 2022.

49:39 And the key piece for is, actually James was the consumption trends as we had seen through the year up to Q4 actually sustained in Q4. So, we continue to see that very strong optimum performance, think! Amazing Grass still saw I am afraid the sluggishness of [indiscernible], but the overall portfolio very strong.

50:01 So that was more a conscious piece on our part. And as you say, I think that absolutely has come back in 2022. We’ve seen really nice value growth in January and February early in the year, those is. So, as I say, that gives us that confidence. So, we’re not concerned about the Q4 piece, it was a conscious, as I said.

50:23 So, in terms of that consumption piece at the early part of 2022 again, very much being the same trends. Sports, very strong, consumption across the regions very strong, the measured channels in North America think!, again, Isopure, Amazing Grass all strong. It’s fair to say that SlimFast to the diet category hasn’t come back in the early part of 2022 as we might have planned for, but overall the portfolio can absolutely absorb that.

50:52 We have very clear plans for SlimFast to very optimistic about the brand potential. The reality is that the diet category hasn’t come back indeed as players might have expected in January. There’s generally a lift in January versus the prior back-end of the year. And when there was a lift, it just wasn’t the level of historically across the category and all players would have seen last.

51:16 So while our [indiscernible] continues to be areas we’ve spoken about before continuing to innovate, doing some really good work in terms of broadening the reach of the brands, we’ve been very focused on the weight, the fast weight loss piece for broadening, the brand into the weight management. And you can see in the category, how brands like think!, for example, that is in that general health possibly weight management space have been doing really well. And so their overall lifestyle portfolio growing and putting particular emphasis on SlimFast as we move through 2022, but overall very pleased about the total portfolio, both at consumption and indeed a revenue in terms of the start for 2022.

51:59 Maybe Mark will take the large point.

Mark Garvey

52:01 Good morning, James. I mean in terms of the ability for us to mitigate some of these significant inflation headwinds, of course, the fact that we have, a transformation program in place is very helpful in that regard to the cadence around that in terms of looking at various costs and making sure we have the appropriate continuous improvement around bringing those costs down to areas like procurement, SG&A, just making sure we’re managing personnel costs really tightly, etcetera.

52:26 That program has been continued in terms of its process into 2022 and that’s going to allow us to mitigate not everything, but it will significantly mitigate some of the inflationary impacts, which obviously help us in 2022.

James Targett

52:42 Okay. Thank you.

Operator

53:00 We will take our next question from Karel Zoete. Please go ahead. Your line is open.

Karel Zoete

53:05 Yes. Good morning, all. Thanks for taking the questions. I have a couple of follow-up ones. The first one is, coming back to the U.S. dieting market, what does your consumer inside tells you [indiscernible] long now in the U.S.? Why is category not coming back as expected? And then the second question is, on Slide 23 with medium-term targets, and you guide for 46% growth, I was wondering if the number assumes some add-on deals or not and then looking to the recent performance in particular if Nutritional Solutions, you have been well above the 46% range in recent years. So, isn’t that a bit cautious for this unit? And the last question is coming back to this inflation piece and dairy prices, supply demand might rebalance as you say, but different, of course, to the past that farmers also confronted with high cost on-site, so what are you seeing in terms of farm income levels? Because that’s ultimately needs to be good despite high selling prices in order for them to expand production on-site? Thank you.

Siobhan Talbot

54:20 Good morning, Karel, and thank you. In terms of the category of dieting, quite simply, I believe from talking to consumers is that it is COVID-related and it is the relative prioritization of activity that people emerge from COVID. And our consumer research will tell us very clearly that a significant number of consumers, particularly in our core North America absolutely still want to lose weight, but there has been waves of caution around COVID and around mobility.

54:50 And indeed people not back in offices or doing all of the things that we all did so frequently pre-COVID, it is really and only just fat caution. So, we remain very, very confident on the long-term perspective on the category.

55:05 We would broaden the reach of SlimFast as I’ve mentioned. And this is really just the ongoing impact of COVID in that space, but doesn’t fundamentally alter our views in any way. In terms of our volume piece, the 4% to 6% that would be organic growth as an ambition. So, wouldn’t include further acquisition activity. And I acknowledge your point, and what I would say too, yes, we will always be ambitious to optimize our performance over a period of time.

55:36 And we have indeed had very strong growth within the nutritional solutions, and we continue to ambitions to drive that. We’re also conscious of the fundamental growth levels of the categories in which we play in as well and indeed they can ebb and flow. So, in putting as medium targets, we are cautious to some level to your point, but always will be ambitious to over achieve against that.

55:59 I mean, Nutritional Solutions is a fantastic business for us. And I think we have a lot of excitement across both of our platform. Nutritional Solutions delivered a really resilient performance all through COVID has built on that further in 2021, and we’ll build on that further again in 2022. And GPN having recovered in 2021, but more challenged will build its top line and sustain that overall, in fact grow earnings on a reported basis for the reasons that we’ve outlined.

56:32 In terms of dairy recovery, of course, I think our [indiscernible] you are absolutely right. That farm level farmers are seeing inflation across a number of dimensions, as well for sure, whether it is a seed and fertilizer, and will remain conscious of that, but current pricing would actually absorb that and should facilitate growth.

56:53 We’ve not seen growth to date come in the [currency] [ph] and there’s a number of dynamics playing in that not least repairing up some of the balance sheets of some of the primary producers and weather events, but over the longer-term, we would have a high degree of confidence in the dairy space, and we believe that even at current pricing that would promote growth, but it will take some time.

57:17 I mean, we’ve seen the sector to be very resilient through their own input cost inflation and response to their events in market where pricing would drive demand to actually optimize their own output. Again, we work with very large scale patrons as we call them in the U.S., their scale businesses, they drive a lot of efficiencies on farm and are very much part of the sector for the long haul.

Karel Zoete

57:43 Alright. Thank you.

Operator

57:50 We will now take our next question from Alex Sloane. Please go ahead. Your line is open.

Alex Sloane

57:57 Yeah. Hi, good morning all. A couple of questions from me. Just on the mid-term ambitions and the 12% plus margin ambition for GPN and Nutritional Solutions. Just be interested in terms of what point you think GPN can get back there? Can this be 2023 or is it going to be longer than that? I think previously, you talked about exiting 2022, maybe close to that – close to that level, but clearly inflation has stepped up, so just any comments on the timing outlook there would be useful? And then second one, just on return on capital employed, obviously 9% to 12% target, you’re just over 10% today. I’m assuming it would be M&A that might cause you to stay at the lower-end of that range, given the targeted mid-term margin improvement in GPN and NS. So, I’d be interested what are the key priorities from here in terms of M&A and how do you think about return to criteria when you’re assessing M&A opportunities? Thanks.

Siobhan Talbot

59:13 Thank you. And on the GPN margin, absolutely. We are really confident on the structural 12%. And the reason I can say that is the scale of the transformation work that we have done. Absent the current spike in inflation, we would be well within and above that 12% target range. So, that really gives us the confidence because we can see line of sight of that.

59:36 So, based on what we can see today, we’d be very confident on hitting it far 2023, in fact there’s a set of scenarios that we can see that could have us, as you say as an exit run rate at the backend of 2022. So, the heavy lifting has been done and stand on the underlying dynamics of our business to do that, and our job of work as I’ve said is, really about navigating, but is a very slightly short-term, we believe short-term inflation piece that positions us really well, across many dimensions not least at structural point then as we move through the backend of the year.

60:12 Mark, maybe will take the return on capital.

Mark Garvey

60:14 Good morning, Alex. Yes. So, just on last year, I remember reporting 9% return on capital employed and I said, our goal is to get back into double digits and we’ve done that this year. So, very pleased to get over 10% again at 10.1% and obviously our ambition is to drive that on further, but to your question on M&A, M&A is absolutely an important part of our overall investment strategy, as well as our internal organic CapEx program as well.

60:38 As we look at M&A targets, we continue to have a criteria in our investment committee that we get to that 12% return after year three. I can tell you the bolt-on acquisitions we’ve been doing in Nutritional Solutions have been absolutely on target in terms of that. So, we’re very, very pleased with returns we’re getting.

60:56 A lot of that of course is connected to the price that you pay. So, it’s something we have to be quite careful in [indiscernible] in terms of our comfortable paying for certain assets out there, but we do have an M&A program that’s important to us. We are looking at continued add-ons potentially in our Nutritional Solutions business, and we also keep our eyes out for particular assets that maybe important, adds the portfolio of performance nutrition, but the criteria remains to get to that 12% in year-three in terms of how we look at the assets.

Alex Sloane

61:28 Very helpful. Thank you.

Operator

61:35 We’ll now take the next question from [Cathal Kenny] [ph]. Please go ahead. Your line is open.

Unidentified Analyst

61:42 Good morning all. Couple of quick questions from my side. Firstly, just on Page 24, your GPN revenue grew by channel, can you just comment on the online component that was up 10.7% year-on-year, you might provide additional color on that? Secondly, in your prepared remarks, you mentioned energy being 10% of sales within GPN, just interested to know what sits behind last? Thirdly, on your high single digit guide for 2022 for GPN, any commentary on the split between lifestyle and sports nutrition? Finally, on inflation for GPN, is it fair to say that this all resides within the powders format or other format seen significant COGS inflation as well? They are my questions. Thank you.

Siobhan Talbot

62:29 Thank you, Cathal. In terms of online, we continue to grow really nicely in that channel. In fact, as you look, I think one of the strengths of GPN is both that sectoral reach, the geographic course, but also the channel reach and the fact that we were growing across all channels. That’s been a really nice build and capability for us.

62:49 And we have a very strong position, as you know with some of the key players and retain our strong market share and some of the key players, particularly in North America. So, really pleased to see that, and that’s been an ongoing point to focus for us.

63:02 On the energy side, yes, we have a really nice product under Optimum Nutrition, AMIN.O. ENERGY. We have an AMIN.O. ENERGY product now across a number of channels in the U.S. It is in powder format. It’s in a ready to drink sparkling format as well, getting some really nice incremental distribution on that project across a number of channels in the U.S., very complementary to the overall GPN portfolio.

63:27 So, a lot of really exciting activity happening in that space for us and it is a really good product and getting really nice traction. In terms of the high single digits, I think at this point it is fair to say that the growth in sports will outpace the growth in lifestyle. We’re continuing the trends I’ve referenced now few times on the call. We have a very strong brand position with Optimum Nutrition, it’s now over 50% of our branded sales in GPN, really strong brands getting really nice growth in that core North America, as well as internationally, growing its relevance across consumers, both in the dairy powder space, but also for example in the energy space, that I’ve referenced.

64:07 Also in plants, we have an Optimum Nutrition offering as well. So, you will hear and I’ll speak a lot more about the evolution of the portfolio and the Optimum Nutrition is a super platform for us to do that. Clearly, some really great brands on the lifestyle side as well. I’ve spoken [indiscernible] about SlimFast, very optimistic for that brand, for the future, navigating from COVID disruption of quarantine, and we will continue to do that.

64:33 think! has had a really great run in recent times, post rebranding that we did of that. So, again, a very strong as our Amazing Grass playing into the plant space. Isopure playing into a really nice clean product. So, very optimistic about the overall growth, but sports will outpace lifestyle, I think again for 2022.

64:57 Forgive me on the last question, oh, inflation on powder, yes. I mean the dairy, it is – of course, we’re seeing inflation across number of dimension, Cathal, as everybody is, we’re seeing across labor, across transport, across packaging, across ingredients, but the primary one that we’ve referenced is on the waste side, which is in the powder space, as you say.

65:18 We’re navigating all of that very clearly, taking really the size of actions across pricing, but also the things you would also expect us to be doing across cost savings and efficiencies as well.

Unidentified Analyst

65:30 Okay, thank you.

Operator

65:40 We’ll now take our next question from Lauren Molyneux. Please go ahead. Your line is open.

Lauren Molyneux

65:45 Hi. Good morning. Thank you for taking my questions. I just had a couple around pricing. So, there’s further pricing actions in GPN in 2022. I was just wondering how to think about the magnitude of these and when you’re putting these through? And also, how quickly are you able to put through pricing when you see these more significant inflation coming through? So, how many options do you do you have with retailers to come to the table and put more pricing through? And then just a follow on around brands and categories in your portfolio where you think is a bit more or less volume elastic than others? Those are my questions. Thank you.

Siobhan Talbot

66:31 Thank you very much. Lauren. In terms of pricing, we’ve taken pricing action and already communicated significant pricing action at the back end of 2021 and pricing action literally in play and taking effect as we speak for the early part of 2022. So, we do have a number of opportunities, clearly that could be specific rhythms in certain channels, such as Food, Drug, and Mass, but across other channels, we have offered opportunities as the need arises.

66:57 A lot of that pricing is in traits to find some the final moves not quite a consumer level as yet, but those pricing actions, which are probably around the mid-teens, the pricing activity across some of our core brands, would position us very well against the growth inflation trends that we’ve seen. So, really the point for us at this stage is monitoring the elasticity.

67:22 If there’s other pricing that we need to do, we can do that, but there’s also other areas of revenue growth management, R&D, cost efficiency pieces that we can look at through the rest of the year. The confidence piece for us is that we’ve locked in the most sensitive cost of goods item at this point of time with 90% of our cost of goods locked in. So, we have a very clear line of sight of the mitigating actions that we need to do to give you the guidance that we’re speaking to today of the net 100 basis points margin over the full-year.

67:55 And having that good visibility, I think positions us well against that. In terms of the elasticity, it is a really interesting question because, again, history, I know doesn’t always dictate the future, but if you look at historical passion, our brands, particularly on the sports side have tended to be quite resilient in times of economic recession, of challenges at individual consumer level, because really consumers are taking a lifestyle choice around areas of healthy living [indiscernible] and in many instances, they will prioritize that overall more discretionary aspects of their lives because it is quite – can be quite fundamental to how they choose to live and maintain their health.

68:41 So, traditionally, we have had instances where we have put through actually three series of price increases, and the elasticity, we didn’t see for example, until we hit the third one, and then that might be just for a period, and then we’ve seen volumes rebound again. So, that’s what we’ve seen historically. We believe our categories can be quite resilient. Of course, we’re not complacent about that point.

69:07 We continue to navigate this and be very watchful too as we move to 2022. We’re not seeing significant elasticity today, but because we continue to invest behind the brands, stay front and center of our consumers’ minds as we’ve been navigating this and we will continue to do with that. So, really, really focused on both navigating the short-term but keeping that eye to the long-term strength of the brands because we absolutely believe that this inflationary cycle, particularly on the dairy side will turn and is about being there and strong with our consumers.

69:42 We’ve done this before. We have a very experienced team in terms of how to navigate this and so we will keep that longer-term perspective and stay relevant.

Operator

70:01 We’ll now take our final question from Martin Deboo. Please go ahead. Your line is open.

Martin Deboo

70:08 Yes, good morning everyone. Martin Deboo of Jefferies. Just want to [indiscernible] some of the things in the conversation and forgive me on the first one, I’ve been a bit distracted on the call, if it’s already been asked, but just to really drilling to the GPN FY 2022 guidance, the high single digit organic growth, just ramping, I’m hearing on the call would suggest to me that that will be mainly price driven with little or no volume, given slow lifestyle etcetera, but tell me if – help me if you can on that? And if I’ve missed an earlier question on that, forgive me.

70:42 The other one I want to ask you is, is the 300 basis points of margin headwind. I haven’t done the arithmetic on this Siobhan and Mark, but is that just simply the arithmetic dilution of gross profit that comes from protecting gross profit and the rising price environment or does it signal that you expect to under recover your input inflation in pricing? Those are the two questions.

Siobhan Talbot

71:08 Hi, Martin. Thanks a million for that. On the high single digits, yes, it’s fair to say that our current view is that that could be mainly pricing, but I think as I referenced earlier Martin, I think the volume has to play out a little, again it’s somewhat dependent on the elasticity point. So, we may well see some volume, but at this point in time, given it’s too early in the year. I think it’s absolutely fair to assume that that it is mainly pricing.

71:36 On your margin point of the 300 basis points, the important point there, I think to reassure focus that other growth level, our pricing actions would largely cover the inflation trends that we’re seeing, our caution therefore is around elasticity and of course there is a lag in that. So, you’re absolutely right that’s the 300 basis points that you’re seeing. You’re seeing a lag effect between the inflation and the pricing movements. And what we’re doing then is acknowledging that and working on efficiencies and driving other savings, etcetera that cut that [indiscernible] that back down to the 100 basis points.

Martin Deboo

72:18 Right. Very clear, Siobhan. Thank you very much.

Siobhan Talbot

72:20 Thank you.

Operator

72:25 We have no further questions.

Siobhan Talbot

72:31 Thank you very much for your time this morning. As always, I’m very happy take any follow-up questions. Thank you very much. Take care and stay safe and well.

Operator

72:42 This concludes today’s call. Thank you for your participation. You may now disconnect.

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