As a recently new investor with less than one million shares, Clearway Capital has lots of questions for the Glanbia board. After sending a long letter to the chair, subsequently Ferrari met with the chair and management of Glanbia.

Further correspondence followed. So what’s going on and, firstly, who is Clearway Capital?

Clearway is a very new investment firm, led by Gianluca Ferrari, starting in business only last year. It maintains that the Performance Nutrition side of Glanbia plc is underperforming relative to competitors in the same space.

Clearway also maintains that the corporate structure of Glanbia is wrong and that Glanbia is spending money in the wrong places.

Clearway is termed ‘activist’ investors or impact fund investors who see potential in a company that perhaps is undervalued by the market so they invest and then seek management and strategic change. Their hope is that share price would subsequently rise.

Remember, farmers in Ireland have a 31% stake in Glanbia plc and indirectly have a much bigger stake.

To try and better understand what Clearway is saying, we sat down with Ferrari to hear his thoughts.

We subsequently then put a list of questions to Glanbia group chair Donard Gaynor. Remember, Gaynor is not two years in the role yet having taken over the plc role from former Glanbia plc and co-op chair Martin Keane.

Wexford’s John Murphy holds the co-op chair position.

So is Clearway Capital right? We could easily just dismiss Ferrari and Clearway as they travel the world entertaining journalists with a view to seeing share price rise giving them an opportunity to sell on at a profit. However, Ferrari is convincing and has his homework done.

Suggestions

Clearway suggests a number of things and, ultimately, suggested in the letter to the Glanbia plc chair and board that Glanbia Performance Nutrition (GPN) was underperforming.

GPN is the home of Optimum Nutrition, a huge number one brand in sports nutrition.

Ferrari suggests it should be separated from Glanbia plc into a separate company and managed separately.

Clearway claims the Optimum Nutrition brand has not fully captured the opportunity in the ready-to-drink market. He also cites poor execution in direct consumer sales.

Ferrari, in his letter, cites examples around the world such as Sweden where new brands have started in competition to Optimum Nutrition and have taken market share.

Ferrari also highlights issues around packaging, management of online shops, etc. He is also critical of the performance of the Slimfast brand since it was acquired by Glanbia plc in 2018.

How has the Glanbia plc chair and board responded?

After every quarter Glanbia management explains, defends and promotes changes they have made in the business to investors and business analysts.

On investor calls, Glanbia CEO Siobhan Talbot has put much of the poor performance of Slimfast down to COVID-19 and the fact that slimming before holidays or events was not happening.

She repeatedly says the Slimfast brand recognition is very strong and full-year 2021 sales were 45% higher than when it was bought in 2018.

However, Ferrari suggests other peer brands like Atkins have performed much better than Slimfast during COVID-19 and he provides backup.

Ferrari suggests the brand messaging needs to shift from dieting towards a healthy lifestyle concept. In effect, Talbot has a plan to refresh the brand and, on the quarter one 2022 investor call, she explained that in the second half of 2022 a refreshing of the brand was on the way.

However, Ferrari is not addressing his concerns to Glanbia management, but instead suggests Glanbia plc chair and the board of directors are responsible for the strategic direction of the company.

Ultimately, Ferrari makes the point that Glanbia share price has languished with negative returns relative to peers. He suggests that the return on capital invested calculated on EBIDTA has been mid-single digit in both performance nutrition and nutritionals when market growth averaged 11.3%.

Siobhan Talbot, Glanbia group managing director.

A spokesperson for the Glanbia chair and the board this week released a statement in response to Irish Farmers Journal queries around strategy and this investor analysis.

The statement went: “Glanbia is focused on the creation of long-term value for all of our shareholders, including its farmer shareholders with whom the company has had a strong relationship since its foundation.”

Value creation

“Long-term value creation requires a strategic approach, particularly at times of unprecedented market volatility such as now. The board is currently considering the proposals outlined in this recent communication.”

Will Glanbia plc look to review its strategy and maybe consider separating Glanbia Performance Nutrition (GPN) from Glanbia plc and listing it separately?

The spokesperson said: “As an organisation, Glanbia has evolved enormously since its beginnings and regularly reviews its strategic journey. In the emerging post-Covid-19 era we believe that Glanbia’s capabilities are well placed to address consumer health and wellness trends.”

What about Ferrari’s comments on underperformance and poor allocation of capital?

“Glanbia’s profit growth has exceeded market expectations in seven of the last nine years and the group reported double-digit growth in six of those years. Covid-19 was a major factor in 2020 as markets and consumer behaviours reacted to the pandemic.”

Recovery

“In 2021, Glanbia recovered strongly and exceeded expectations, with 22.1% growth in adjusted earnings per share. This positive trend has continued in Q1 2022 with reported sales growth of 23.9% and increased profit guidance for the full year.”

But specifically looking at GPN – should it be separated out with separate management to allow it match financial performance of its peers?

The spokesperson said: “GPN has scaled and evolved enormously since acquisition, growing revenues from $185m in 2007 to over $1.5bn in 2021. More recently, it strongly executed an extensive transformation programme

“Having also navigated Covid-19 challenges in 2020, GPN recovered strongly in 2021, growing revenues by 15.9% and EBITA by 65.5%. The business is on track for further strong revenue growth in 2022.

“GPN’s Optimum Nutrition continues to grow as the world’s number one sports nutrition brand and in Q1 2022 reported a 23% increase in revenues.”

Comment: big decisions to be made

Clearway concerns can be ranked into what I term everyday business concerns and long-term strategic concerns.

The everyday business concerns should easily be dealt with or dismissed by Glanbia management. The strategy direction will test the Glanbia directors more.

There is no doubt purchasing the Optimum Nutrition brand was the best move Glanbia has probably ever made. Has it evolved enough? Was it resting on its laurels? Has its online presence stagnated?

Views differ depending on who you talk to in the sector. It’s still a number one brand. Slimfast to date has not returned enough and obviously COVID-19 hasn’t helped.

Ultimately, share price tracks what investors are willing to pay for a stake in the company. If we look at the five-year trend, Glanbia share price was closer to the €20/share value in 2017, 2018 and the first half of 2019.

If we compare this to the Kerry share price, it grew on a five-year trend from €80 to €130/share

However, since then, the share price is closer to €12 than €20. In the last three months, it’s closer to €11 than €12/share.

So what now? Do nothing and risk further declines. Review strategy and management, but make no big move in a depressed uncertain market,and hope Glanbia rebounds.

If we compare this to the Kerry share price, it grew on a five-year trend from €80 to €130/share. However, if we take a one-year view, the Kerry share price has fallen from €130 to €96/share this week.

Obviously, this reflects investors reacting to concerns over inflation, interest rates, economic outlook and geopolitical risk. Glanbia Co-op and plc directors have big decisions to make around strategy and management right now.