Glanbia delivers eighth year of double-digit earnings growth

21 February 2018 - Glanbia plc (“Glanbia”, the “Group”, the “plc”), the global nutrition group, announces its results for the financial year ended 30 December 2017.

Results highlights for the full year 2017

• On a pro-forma1 basis adjusted Earnings Per Share1 from continuing operations was 87.11 cent, up 10.2% on prior year, constant currency (up 8.3% reported);
• Reported profit after tax of €329.4 million up €117.3 million on prior year driven by underlying performance and the profit arising on the disposal of 60% of the Dairy Ireland segment;
• Wholly owned revenue from continuing operations of €2,387.1 million (2016: €2,231.7 million) up 9.2% on prior year, constant currency (up 7.0% reported)
• Wholly owned EBITA from continuing operations of €283.2 million (2016: €273.3 million) up 5.8% on prior year, constant currency (up 3.6% reported)
• Glanbia Performance Nutrition delivered revenue growth of 13.7% constant currency (up 11.3% reported) with like-for-like branded sales growth of 6.3% and EBITA of €169.7 million, a 7.0% increase on prior year, constant currency (up 4.8% reported);
• Glanbia Nutritionals delivered revenue growth of 5.4% constant currency (3.4% reported) and EBITA of €113.5 million, a 4.1% increase on prior year, constant currency (up 2.0% reported) driven by a good performance from Nutritional Solutions;
• Strong result for the year from Joint Ventures with share of profits pre-exceptionals of €42.8 million up €16.8 million (up 64.6% reported) primarily driven by higher dairy markets and volume growth;
• Completion of the disposal of 60% of the Dairy Ireland segment and creation of a new joint venture, Glanbia Ireland;
• Net debt reduced by €69.8 million to €367.7 million at year end 2017, net debt to EBITDA ratio of 1.07 times; and
• Recommended final dividend of 16.09 cent per share. 2017 full year dividend of 22.00 cent per share an increase of 65% on prior year with revised dividend policy in place targeting an on-going dividend pay-out ratio of 25% to 35% of adjusted earnings per share.

Commenting today Siobhán Talbot, Group Managing Director, said:

“I am delighted to announce Glanbia’s eighth year of double-digit earnings growth in 2017. On a pro-forma basis from continuing operations adjusted Earnings Per Share1 was up 10.2%, constant currency, and wholly owned revenue was up 9.2%, constant currency. Growth was broad based across Glanbia Performance Nutrition (“GPN”), Glanbia Nutritionals (“GN”) and Joint Ventures (“JVs”) with good volume growth across all segments.

The strategic evolution of the Group portfolio continued in 2017 with the acquisition of two highly complementary businesses to the GPN portfolio, Amazing Grass and Body & Fit as well as the disposal of 60% of Dairy Ireland and the subsequent creation of the Glanbia Ireland JV. These initiatives demonstrate the ambition of the Group to build on its existing strengths, drive future sustainable growth and deliver on our vision to be one of the world’s top performing nutrition companies. Our focus in 2018 will be on volume driven revenue growth across our wholly owned growth platforms of GPN and GN. The outlook for 2018 is positive and I expect Glanbia will deliver between 5% to 8% growth in pro-forma1 adjusted Earnings Per Share on a constant currency basis. We expect growth to be delivered in the second half of 2018 as comparative dairy dynamics and planned investments will adversely affect performance in the first half of 2018.

Finally, recognising the strength of the Group’s balance sheet and growth prospects, Glanbia has materially increased its 2017 dividend and revised its ongoing target dividend pay-out ratio to between 25% and 35% of annual adjusted Earnings Per Share.”

2017 full year income statement highlights

1. Pro-forma Adjusted Earnings Per Share for the continuing Group calculation assumes the Dairy Ireland segment and related assets were disposed of at the beginning of the 2016 financial year. A reconciliation is set out on pages 39 and 40.
2. To arrive at the Constant Currency Change, the average FX rate for the current period is applied to the relevant reported result from the same period in the prior year. The average Euro US Dollar FX rate for 2017 was €1 = $1.1295 (FY 2016: €1 = $1.1068).
3. EBITA is defined as earnings before interest, tax and amortisation and is stated before exceptional items.
4. Adjusted Earnings Per Share (reported) has been amended to exclude the cost of software amortisation within the earnings calculation and also includes the contribution from the Dairy Ireland segment and related assets.
This release contains certain alternative performance measures. A detailed glossary of the key performance indicators and non-IFRS performance measures can be found on pages 35 to 46.

2017 full-year overview

Following the disposal of 60% of the Dairy Ireland segment and related assets (“Dairy Ireland”) the results of Dairy Ireland have been classified as discontinued operations for 2017 and 2016 comparatives. Wholly owned continuing operations includes the GPN and GN segments. Glanbia delivered a good performance in 2017. Wholly owned revenue from continuing operations was €2,387.1 million, an increase of 7.0% reported (up 9.2% constant currency). The drivers of this revenue growth were a 5.3% improvement in volume, a 0.2% increase in price and a 3.7% contribution from acquisitions. Wholly owned EBITA from continuing operations was €283.2 million, up 3.6% reported (up 5.8% constant currency). Wholly owned EBITA margin from continuing operations was 11.9%, down 30 basis points reported and constant currency.

Glanbia’s share of profit after tax from JVs increased by €16.8 million to €42.8 million in 2017. Glanbia’s profit, including exceptional items, from discontinued operations was €92.2 million an increase of 277.9% on prior year. This includes the profit on the disposal of 60% of Dairy Ireland.

Total Group profit (after discontinued activities and exceptional items) in 2017 was €329.4 million up €117.3 million versus prior year driven by a good underlying performance from GPN and GN, the profit arising on the disposal of 60% of Dairy Ireland and a strong performance from JVs. On a pro-forma basis, assuming the disposal of 60% of Dairy Ireland had occurred at the beginning of FY 2016, adjusted Earnings Per Share from continuing operations was 87.11 cent. On this basis this was an increase on prior year of 8.3% on a reported basis (up 10.2% constant currency). Group EBITA, on the same pro-forma basis, including Glanbia’s share of EBITA from JVs was €351.0 million up €21.4 million versus prior year.

Including the contribution from discontinued operations which were owned by Glanbia up to 2 July 2017, adjusted Earnings Per Share for the year was 89.17 cent representing a reported increase of 3.7% (up 5.3% constant currency).

Dividend and total shareholder return

The Board has reviewed the Group’s dividend policy and has put in place a target annual dividend pay-out of between 25% and 35% of adjusted Earnings Per Share. This is a material increase from recent years and reflective of the strength of the Group’s balance sheet and cash flow. The Board will continue to assess the dividend policy on an on-going basis with the aim of balancing investment in growth opportunities for the Group with a return of cash to shareholders. As a result of this, the Board is recommending a final dividend of 16.09 cent per share which brings the total dividend for the year to 22.00 cent per share, a 65% increase on prior year. This total dividend represents a return of €65 million to shareholders from 2017 earnings and a pay-out of 25% of 2017 pro-forma adjusted Earnings Per Share. The final dividend will be paid on 27 April 2018 to shareholders on the share register on 16 March 2018. Glanbia’s total shareholder return (“TSR”) in 2017 was a negative 4.8%; TSR for the 3 years to the end of 2017 was 18.9%.

Board changes

The following nominees to the Glanbia plc Board from Glanbia Co-operative Society Limited (the “Society Nominees”) retired in 2017; Jim Gilsenan and Matthew Merrick retired on 26 April 2017. Jer Doheny retired on 2 June 2017. They were replaced by Tom Grant, Eamon Power and Brendan Hayes on 2 June 2017. On the same day, John Murphy was appointed Vice Chairman replacing Patrick Murphy. On 20 February 2018 Michael Keane, a Society Nominee, announced his intention to retire from the Board at the 2018 Glanbia plc AGM on 25 April 2018. It is expected that he will be replaced by a Society Nominee by 30 June 2018.

Capital investment

In 2017 total capital expenditure amounted to €72.5 million consisting of €48.7 million strategic capital expenditure which was focused on both GPN and GN. Key strategic projects completed in 2017 were a new innovation centre in GPN in the US and various plant and IT system upgrades in GPN and GN.

Strategic initiatives

In 2017 Glanbia made progress on a number of key strategic initiatives. Delivery of these initiatives is consistent with the ambition of the Group to build on its existing strengths and drive future sustainable growth.

Acquisitions of Amazing Grass and Body & Fit

On 6 January 2017, Glanbia acquired Grass Advantage LLC (“Amazing Grass”) in the US. Amazing Grass has a portfolio of organic and non-GMO plant-based nutrition brands. On 31 March 2017 Glanbia acquired B&F Vastgoed B.V. (“Body & Fit”) in the Netherlands, a leading direct-to-consumer online branded business focused on performance nutrition. The combined consideration for both acquisitions was €168.2 million. The acquisitions delivered €79.6 million of revenue in 2017. Both acquisitions have a strong strategic fit and are enabling GPN to extend its reach to new consumers.

Disposal of 60% of Dairy Ireland and creation of Glanbia Ireland

On 2 July 2017, Glanbia completed the disposal of 60% of the Dairy Ireland segment and related assets (“Dairy Ireland”) to Glanbia Co-operative Society Limited (the “Society”). The disposal generated net cash proceeds of €208.8 million of which €112.0 million represents the disposal of the 60% equity stake in Dairy Ireland and the balance equal to 100% of the working capital in Dairy Ireland based on the final completion accounts. Following completion, the businesses of Glanbia Ingredients Ireland DAC and Dairy Ireland were combined to create a new joint venture called Glanbia Ireland DAC. This JV is owned 60% by the Society and 40% by Glanbia plc. In creating Glanbia Ireland the shareholders have created a strong organisation with the ambition to leverage the benefits of the significant growth plans of the Irish dairy supply base and an ownership structure more aligned to the needs of that supply base. Glanbia Ireland has plans in place for strategic investment of €250 million to €300 million between 2018 and 2020 to increase processing capacity and capability to produce value-added products. This investment is largely being funded by debt facilities sourced directly by Glanbia Ireland.

Southwest Cheese (“SwC”)

The $140 million investment to expand production capacity at SwC by 25% is on track with commissioning expected to be completed by the third quarter of 2018. This project has been funded directly by SwC.

Michigan Joint Venture

Glanbia’s project to create a new JV to build a large scale cheese and whey plant in the State of Michigan, USA remains on track with commissioning expected in 2020. Glanbia will own 50% of this new JV with US based partners owning the other 50% share.

2018 Outlook

In 2017 Glanbia refreshed its strategy; reaffirming better nutrition at its core and restating the ambition to drive long term sustainable growth. In 2018 the focus will be on volume-driven revenue growth. To achieve this Glanbia will invest further in building the consumer brand franchise in GPN, the solutions capability in GN and across the Group will continue to support innovation, talent development and systems infrastructure recognising the need for new skills and capabilities in an increasingly digital age.

For 2018 Glanbia is targeting mid-to-high single digit like-for-like volume growth in both the branded portfolio in GPN and the Nutritional Solutions component of GN. Overall margins in both GPN and GN are expected to be broadly in line with 2017 levels. JVs are expected to deliver a reduced profit in 2018 versus prior year as a result of more challenging dairy markets. On a pro-forma1 basis Glanbia expects adjusted Earnings Per Share of the continuing Group to grow between 5% to 8%, constant currency in 2018. Growth is expected to be delivered in the second half of 2018 as comparative dairy dynamics and planned investments will adversely affect performance in the first half of 2018.

Glanbia generates over 80% of its earnings in US Dollar and reports in Euro. If the Euro US Dollar foreign exchange rate remains at current levels Glanbia expects an approximate 8% translational headwind to constant currency results when reporting in Euro.

1. Pro-forma Adjusted Earnings Per Share for the continuing Group calculation assumes the Dairy Ireland segment and related assets were disposed of at the beginning of the 2016 financial year. On this basis FY 2016 and FY 2017 pro-forma adjusted Earnings Per Share from continuing operations was 80.40 cent and 87.11 cent respectively.

Operations review

* 2016 EBITA numbers for the segments have been adjusted down by €0.5 million each due to a reallocation of certain central overheads following the reclassification of Dairy Ireland and related investments in Associated Companies as discontinued operations to ensure a like-for-like comparison with current year. Overall EBITA for the Group is unchanged.

Glanbia Performance Nutrition

* EBITA for GPN and GN for 2016 have been adjusted down by €0.5m reflecting on going corporate costs previously allocated to the Dairy Ireland segment but which will be allocated to GPN and GN going forward. This is to ensure a like-for-like comparison and reflective of the allocations received in 2017 and going forward.

Commentary is on a constant currency basis throughout

GPN delivered a good performance in 2017 with an overall increase in revenue of 13.7%. Volume increased by 7.1% as a result of branded revenue growth. The acquisitions of Amazing Grass and Body & Fit drove revenue growth of 8.1% with net price declining 1.5% due to investment in brand development and innovation launches. Like-for-like branded revenue growth versus prior year was 6.3% and like-for-like branded volume growth was 8.0%. Branded revenue growth was driven by the continued expansion of the online, food, drug, mass and club channels in North America and strong in-market execution and share gains in EMEA and LAPAC. GPN EBITA in 2017 was €169.7 million which was a 7.0% increase on the prior year with EBITA margin of 15.1%, down 100 basis points largely due to the net impact of higher year-on-year input costs and increased brand investment.

All geographic regions increased volume during the year with a strong performance in EMEA and LAPAC. As expected momentum improved in the North American market in quarter four 2017 driven by improved seasonal uplift relative to prior year. Innovation was also a key element of branded growth with the recent launches of ON Cake Bites and thinkThin plant-based bars both performing well. As a result of recent investments in geographic development, innovation and acquisitions, GPN has navigated the channel shift that has occurred in the category and has in place a portfolio of brands and product formats to serve performance and lifestyle consumer occasions across all channels on a global basis.

Glanbia acquired Amazing Grass and Body & Fit in the first quarter of 2017. Amazing Grass participates in the fast growing plant-based nutrition, “Greens” and “Super food” categories in North America. Body & Fit, an online Direct-to-Consumer (“DTC”) brand, is a market leader in the Benelux region in Europe. Both plant based nutrition and overall DTC are in line with consumer trends and Glanbia will be investing further in 2018 in order to build on the existing brand strengths and broaden the current capabilities to develop platforms for future growth. Glanbia will be leveraging its broad channel presence and innovation capability to drive Amazing Grass in the North American market and has plans to grow the Body & Fit brand with investment focused on systems and organisational infrastructure to support this expansion.

Glanbia Nutritionals

* EBITA for GPN and GN for 2016 have been adjusted down by €0.5m reflecting on going corporate costs previously allocated to the Dairy Ireland segment but which will be allocated to GPN and GN going forward. This is to ensure a like-for-like comparison and reflective of the allocations received in 2017 and going forward.

Commentary is on a constant currency basis throughout

GN delivered a good performance in 2017. Total GN revenues increased versus the prior year by 5.4% to €1,266.0 million, driven by volume growth of 3.9% and pricing growth of 1.5%. Both volume and pricing growth was largely driven by Nutritional Solutions. GN’s EBITA in 2017 was €113.5 million, a 4.1% improvement versus prior year as strong Nutritional Solutions performance was offset by challenging US cheese dynamics. GN EBITA margin in 2017 was 9.0%, broadly in line with prior year.

Nutritional Solutions

Nutritional Solutions (“NS”), at 42% of total GN revenues, is a provider of customised nutrient premixes, advanced-technology protein solutions, functional beverages and flavours. NS has a diverse product portfolio and supports its customers on both a global and regional basis, supplying solutions that improve product functionality and nutritional profile.

NS delivered a strong performance in 2017 with revenue of €531.9 million, an increase of 10.9% on the prior year. Volume growth of 7.2% was broadly based across customers, geographies and categories, driven by the ever-increasing trend of consumers seeking nutritional products with added protein, convenience and functionality. Pricing was also positive with growth of 3.7% mainly reflecting relatively stronger dairy markets in 2017 versus the prior year.

In 2017, 61% of the revenue in NS was from non-dairy products such as vitamin & mineral blends, functional beverages, plant-based solutions and flavours. The remaining 39% of NS revenue was from dairy solutions including advanced-technology whey and specialist dairy ingredients. Typical examples of the end products which NS supports are protein bars & snacks, value added beverages, performance nutrition, infant & clinical nutrition and supplements.

US Cheese

US Cheese is a leading producer of American-style cheddar cheese in the US supplying leading brand owners and other food processors. US Cheese delivered a satisfactory performance in 2017 with revenue of €734.1 million, an increase of 1.8% versus 2016. This was driven by volume growth of 1.7% and price increase of 0.1%. Volume growth was achieved through an increase in milk processed and improved yields year-on-year. Pricing was broadly flat as a result of reduced prices in the cheese barrel format offsetting improved prices for the cheese block format.

Joint Ventures (Glanbia Share)

* Share of JVs revenue is calculated as the share of revenue attributed to Glanbia based on Glanbia’s percentage ownership in the JV.

Commentary is on a constant currency basis throughout

JVs delivered a strong performance in 2017. Glanbia’s share of profit after tax (“PAT”) from JVs, pre-exceptional, increased by €16.8 million to €42.8 million in 2017. Glanbia’s share of JVs’ revenues increased by 35.7% versus the prior year. This was driven by a price increase of 17.1%, as a result of the positive dairy market environment during 2017, and volume growth of 4.3% versus prior year driven by the Glanbia Ireland and Glanbia Cheese UK JVs. The Dairy Ireland transaction grew JVs’ revenue by 14.3% in 2017. Glanbia’s share of JVs’ EBITA in 2017 was €63.4 million, an increase of 50.2% year-on-year. This was primarily as a result of volume growth and relatively strong year on year dairy markets.

Glanbia Ireland

The Glanbia Ireland JV (“GI”) was created on 2 July 2017 following the acquisition of 60% of Dairy Ireland from Glanbia plc by the Society whereby the businesses of Glanbia Ingredients Ireland and Dairy Ireland were combined to create GI. GI is owned 60% by the Society and 40% by the plc. GI is the largest milk processor in Ireland producing a range of value added dairy ingredients and consumer products. In addition GI is a large scale seller of animal feed and fertiliser as well as having a chain of agricultural retail outlets in Ireland.

GI delivered a good performance in 2017 driven by volume and price improvements as a result of relatively higher global dairy markets. Milk volumes processed increased by 9% to a total GI milk pool of 2.6 billion litres. GI has a strategy in place to leverage the benefits of the significant growth plans of the Irish dairy supply base with plans for strategic investment of €250 million to €300 million between 2018 and 2020 to increase processing capacity and capability to produce value added products. This investment is largely being funded by debt facilities sourced directly by GI.

Southwest Cheese (SwC)

SwC is a large scale producer of American-style cheddar cheese and whey ingredients in the US with a production facility located in the State of New Mexico. SwC is 50% owned by Glanbia plc with US based dairy Co-operatives owning the other 50% share. SwC works closely with Glanbia Nutritionals as a route to market for all of its cheese and whey ingredients production. SwC delivered a reduced performance in 2017 versus prior year as a result of adverse dairy product pricing dynamics.

Glanbia Cheese UK

Glanbia Cheese UK is a large scale mozzarella cheese producer with two production facilities in the United Kingdom. Glanbia Cheese UK primarily supplies customers in the pizza industry across Europe. It is owned 51% by Glanbia plc and 49% by a global mozzarella producer. Glanbia Cheese UK delivered an excellent performance in 2017 with strong revenue and earnings growth. This was mainly driven by higher volumes and relatively higher dairy product pricing versus prior year.

Discontinued operations

* EBITA for Discontinued operations for 2016 have been adjusted up by €1.0m reflecting on going corporate costs previously allocated to the Dairy Ireland segment but which will be allocated to GPN and GN going forward. This is to ensure a like-for-like comparison and reflective of the allocations received in 2017 and going forward.

The disposal of 60% of Dairy Ireland was completed on 2 July 2017 and the segment has been classified as discontinued operations. Note in the table above, discontinued operations for FY 2016 reflect the ownership of Dairy Ireland for the full 2016 financial year whereas FY 2017 reported numbers reflect Dairy Ireland ownership for half of the 2017 financial year.

Click here to view the Glanbia plc 2017 full year financial results.

First Published 21 February 2018