Last week, Glanbia plc released its much anticipated half-year financial results. Share price hasn’t moved much as a result in the last week. However, it has been rising steadily all year.
Over the last five years, share price has steadily declined from almost €20 per share in April 2017.
During 2020, it largely traded for less than €10 per share (Figure 3). However, since March 2021, it has been trending upwards. Why? Let’s take a helicopter view of the business.
There are three streams of revenue into Glanbia plc; firstly, Glanbia Performance Nutrition (GPN) – this is the whey powders-based sports nutrition business; secondly, Glanbia Nutritionals (GN) – this is largely the US cheese part and a nutritional solutions business; and, thirdly, the Joint Ventures Glanbia plc is involved in, which deliver revenue and profits back to the parent plc.
Full-year results for 2020, reported in February 2021, were very disappointing on the back of the COVID-19 pandemic issues impacting on the business, particularly the GPN business as gyms closed and supply routes were difficult, etc.
In releasing the full-year results for 2020 in February 2021, Glanbia reported a double-digit decline in profits for 2020. It announced a 35% decline in operating profits for 2020 to just over €114m, as operating profit margins narrowed from 4.6% in 2019 to a very modest 3% last year.
Glanbia announced a 27% decline in earnings (EBITA) for 2020 to €175m, as earnings margins narrowed to just 4.6%. Earnings per share (EPS) fell by 16% last year to 73.8c per share.
However, amidst the doom and gloom back in February 2021, chief executive Siobhan Talbot promised a positive outlook for 2021 forecasting a 6% to 12% increase in profits (earning per share) in 2021, driven by a recovery in sales and profits in both its core divisions – performance nutrition and nutritionals.
2021 half-year results
The half-year results announced last Thursday are the first real numbers behind this optimism in recovery.
The key driver to the better financial numbers is definitely the volume and price improvement in the GPN and the Nutritionals (cheese) sector. Many commentators had queried if the recovery in GPN margins was possible. Many suggested that the margin in that sector had been eroded as the online retail platform decimated margins taking the value out of high-powered brands. Half-year results announced last week prove this theory wrong.
The results signal a significant bounceback for Glanbia plc
So strong revenue growth and margin improvements have delivered earnings per share growth of 85% on a constant currency basis. Full-year guidance is for adjusted earnings per share growth of 17% to 22% compared with the prior year.
The results signal a significant bounceback for Glanbia plc. Talbot puts this down to an element of COVID-19 recovery and managing COVID-19 well within the business.
In total, half-year revenues were up to €2.04bn, which is an increase of 20% on 2020 half-year results on constant currency basis. 2020 was poor so, if we take 2019 as the bar, 2021 results are ahead of 2019 in terms of better revenues and better group margins.
Half-year results show the GPN business delivered revenue growth of 28% on a constant currency basis on the previous year with earnings (EBITA) of €90m, up 418%.
Joint Ventures delivered a share of profit after tax of €29.9m, down €1.9m on the previous half year
Glanbia Nutritionals delivered volume growth of 14% on constant currency on 2020 half-year results with earnings (EBITA) of €69.7m, up 17%.
Joint Ventures delivered a share of profit after tax of €29.9m, down €1.9m on the previous half year. So the half-year numbers point to a much improved set of annual results for 2021. The cautionary note will be market price increase for whey protein concentrate (WPC80), the key ingredient for its brands Optimum Nutrition, etc. Price has risen significantly since the start of the year (Figure 2). This means margins in that business will be tighter in the second half of the year.
Remember, Glanbia plc buys the whey powder from Glanbia Ireland and its other whey plants, so that gives it security of supply, but, the business is conducted at market prices, so the almost doubling of the WPC80 market price means it will have to pay much more for raw ingredient in the second half of 2021.
Performance nutrition still winning
Speaking to the Irish Farmers Journal, Siobhan Talbot is confident the turnaround in numbers for the performance nutrition can continue into the second half of 2021.
I’m confident that the investment can still happen
She said: “We are suggesting there may be some tapering back on margins that will impact on the second half of 2021. However, sales have been positive and margins good so for the year it will still be positive. We expect earnings in the mid-teens for the year.” This business unit within Glanbia has been under the spotlight but Talbot suggested the multiyear strategic programme is currently ahead of schedule and starting to make returns.
Closer to home, Talbot is confident the cheese processing investment by Glanbia Ireland in Belview will still happen.
“I’m confident that the investment can still happen and build on the product diversification and Brexit hedge to be up and running for 2024.”
Sustainability
Does she see the whole area of sustainability as a big challenge for the dairy space? In one word, no. “The whole area of sustainability is not new to us as a business or to dairy farmers. As a business we have announced we will reduce carbon emissions by 30% by 2030. I’d look at sustainability through the opportunity lens and embrace it because in Ireland we have the lowest carbon dairy product in the EU,” she said.
Irish dairy farmers (north and south) like to keep a close eye on Glanbia plc performance as many have shares in the plc. Remember, Glanbia co-op owns a 31% stake in Glanbia plc so each year a dividend from the plc is part of the return to Glanbia farmers.
Also, Glanbia Ireland is 60% owned by Glanbia co-op and 40% owned by the plc so a chunk of Glanbia Ireland profits leave to the plc each year. The Glanbia Ireland joint venture is just one part of the revenue stream from Joint Ventures that Glanbia plc accounts for each year.
US cheese driving revenue growth
In Figure 1, we compare half-year results for 2017 to the half-year results for 2021 just released last Thursday.
Five years ago, the half-year results showed total revenues were almost €1,185m with earnings (EBITA) of €148m and an earnings margin of 12.5%.
In 2021, half-year revenue has almost doubled to €2,041m with the majority of revenue growth coming from the Glanbia Nutritionals (GN) business, mostly the US cheese business.
So the GPN business has grown from €519m to €638m (+119) with margins similar at 12% to 14%.
However, GN has grown from €592m to €1,403m (+811) but margins reported have lowered from 10% in 2017 to 5% reported in 2021.
There are two pillars in the GN business – Nutritional Solutions and the US cheese business. Nutritional Solutions plays in the whey protein, specialist vitamin and mineral blends, plant-based ingredients and functional beverages.
Customers are predominantly US-based
US Cheese sells cheese produced by Glanbia as well being the commercial partner for its joint venture partner, Southwest Cheese. US Cheese makes American-style cheddar cheese supplying a range of customers.
Customers are predominantly US-based and participate in the food service, retail, consumer-branded and private label end markets.
The US cheese business is largely responsible for this revenue increase moving from €356m in the first half of 2017 to €969m in the first half of 2021 (+€613m) but reported earnings margin (EBITA) in 2021 are low at 1.4%.
There are some accounting differences responsible for the shift in numbers reported recognising the group as a principal in its sales relationship with its joint venture, Southwest Cheese, rather than as an agent, but largely the growth in the US cheese business has come from increased processing capacity at Southwest Cheese and new investment in Michigan cheese and whey.
So while margins are low, the cheese business is really what Glanbia is about. Building the business from the ground up, while low margin, it can create a sustainable return on capital.
Overall, the financial numbers reported are very positive for Glanbia plc. It pulls the company out of the poor run over the last number of years.
Glanbia plc is heavily invested in the cheese and whey market across all of its business units, hence market swings impact on costs and returns. It has worked hard on the performance nutrition sector for the last two years to turn that ship around. It says it has streamlined costs, routes to market and increased prices.
A combination of all has helped better results just announced. This sector is key for Glanbia because it is the Glanbia plc play in the higher margin dairy space.
The €31m LevlUp acquisition is small in the overall context, but Glanbia sees it as a bolt-on to the performance nutrition
It has invested heavily over the years acquiring high-value brands such as Optimum Nutrition, etc.
The Slimfast brand is in this space also, but more on the dieting side of the house and Talbot said this market hasn’t kicked off really post-COVID-19 just yet.
The five-year review shows the big growth in the US cheese and whey business
The €31m LevlUp acquisition is small in the overall context, but Glanbia sees it as a bolt-on to the performance nutrition despite the fact that one cohort of users are mainly outside or in gyms exercising while the others are sitting in front of a computer.
For a 60% stake in a very young company (2018), the €31m cash payout is big but Glanbia must see something big in it.
The five-year review shows the big growth in the US cheese and whey business. This is the lower margin business but also the bedrock of the Glanbia plc business. The balancing act Glanbia plays is paying over the odds for premium brands in a so-called higher margin sector (with one eye on share price), while operating a well-run cheese business maximising the value of all outputs. However, it needs better margins than 1.4% in the US cheese business and it will be interesting to watch developments in this space in coming years.
Glanbia needs Slimfast and the dieting market to start cranking up again to get a return on that investment and higher margins.
Much improved half-year results for Glanbia plc underpin a share price increase since March 2021. Half-year results show better revenues and better margins than 2020 or 2019, with predicted full-year adjusted earnings per share growth of 17% to 22% on a constant currency basis up from predicted 6% to 12% earlier in year. Better sales and better margins in both the performance nutrition sector and the cheese business are key to the better results. Glanbia Performance
Nutrition: key brands include Amazing Grass with products in the plant-based, organic and GMO-free space, Body & Fit, Slimfast, Think Thin (recently rebranded Think!) and now LevlUp is a play in the gaming sector drinks market. Margins for this business were low in 2020 at 3.7% but have bounced to 14% for the first half of 2021.
Glanbia Nutritionals: key businesses are Nutritional Solutions. Products are in the value-added dairy category, ready-to-mix, vitamin and mineral blends, Foodarom and flavour technologies category. Part of this business is the US cheese and whey business. Margins for this sector were reported at 5% for half-year 2021.
Last week, Glanbia plc released its much anticipated half-year financial results. Share price hasn’t moved much as a result in the last week. However, it has been rising steadily all year.
Over the last five years, share price has steadily declined from almost €20 per share in April 2017.
During 2020, it largely traded for less than €10 per share (Figure 3). However, since March 2021, it has been trending upwards. Why? Let’s take a helicopter view of the business.
There are three streams of revenue into Glanbia plc; firstly, Glanbia Performance Nutrition (GPN) – this is the whey powders-based sports nutrition business; secondly, Glanbia Nutritionals (GN) – this is largely the US cheese part and a nutritional solutions business; and, thirdly, the Joint Ventures Glanbia plc is involved in, which deliver revenue and profits back to the parent plc.
Full-year results for 2020, reported in February 2021, were very disappointing on the back of the COVID-19 pandemic issues impacting on the business, particularly the GPN business as gyms closed and supply routes were difficult, etc.
In releasing the full-year results for 2020 in February 2021, Glanbia reported a double-digit decline in profits for 2020. It announced a 35% decline in operating profits for 2020 to just over €114m, as operating profit margins narrowed from 4.6% in 2019 to a very modest 3% last year.
Glanbia announced a 27% decline in earnings (EBITA) for 2020 to €175m, as earnings margins narrowed to just 4.6%. Earnings per share (EPS) fell by 16% last year to 73.8c per share.
However, amidst the doom and gloom back in February 2021, chief executive Siobhan Talbot promised a positive outlook for 2021 forecasting a 6% to 12% increase in profits (earning per share) in 2021, driven by a recovery in sales and profits in both its core divisions – performance nutrition and nutritionals.
2021 half-year results
The half-year results announced last Thursday are the first real numbers behind this optimism in recovery.
The key driver to the better financial numbers is definitely the volume and price improvement in the GPN and the Nutritionals (cheese) sector. Many commentators had queried if the recovery in GPN margins was possible. Many suggested that the margin in that sector had been eroded as the online retail platform decimated margins taking the value out of high-powered brands. Half-year results announced last week prove this theory wrong.
The results signal a significant bounceback for Glanbia plc
So strong revenue growth and margin improvements have delivered earnings per share growth of 85% on a constant currency basis. Full-year guidance is for adjusted earnings per share growth of 17% to 22% compared with the prior year.
The results signal a significant bounceback for Glanbia plc. Talbot puts this down to an element of COVID-19 recovery and managing COVID-19 well within the business.
In total, half-year revenues were up to €2.04bn, which is an increase of 20% on 2020 half-year results on constant currency basis. 2020 was poor so, if we take 2019 as the bar, 2021 results are ahead of 2019 in terms of better revenues and better group margins.
Half-year results show the GPN business delivered revenue growth of 28% on a constant currency basis on the previous year with earnings (EBITA) of €90m, up 418%.
Joint Ventures delivered a share of profit after tax of €29.9m, down €1.9m on the previous half year
Glanbia Nutritionals delivered volume growth of 14% on constant currency on 2020 half-year results with earnings (EBITA) of €69.7m, up 17%.
Joint Ventures delivered a share of profit after tax of €29.9m, down €1.9m on the previous half year. So the half-year numbers point to a much improved set of annual results for 2021. The cautionary note will be market price increase for whey protein concentrate (WPC80), the key ingredient for its brands Optimum Nutrition, etc. Price has risen significantly since the start of the year (Figure 2). This means margins in that business will be tighter in the second half of the year.
Remember, Glanbia plc buys the whey powder from Glanbia Ireland and its other whey plants, so that gives it security of supply, but, the business is conducted at market prices, so the almost doubling of the WPC80 market price means it will have to pay much more for raw ingredient in the second half of 2021.
Performance nutrition still winning
Speaking to the Irish Farmers Journal, Siobhan Talbot is confident the turnaround in numbers for the performance nutrition can continue into the second half of 2021.
I’m confident that the investment can still happen
She said: “We are suggesting there may be some tapering back on margins that will impact on the second half of 2021. However, sales have been positive and margins good so for the year it will still be positive. We expect earnings in the mid-teens for the year.” This business unit within Glanbia has been under the spotlight but Talbot suggested the multiyear strategic programme is currently ahead of schedule and starting to make returns.
Closer to home, Talbot is confident the cheese processing investment by Glanbia Ireland in Belview will still happen.
“I’m confident that the investment can still happen and build on the product diversification and Brexit hedge to be up and running for 2024.”
Sustainability
Does she see the whole area of sustainability as a big challenge for the dairy space? In one word, no. “The whole area of sustainability is not new to us as a business or to dairy farmers. As a business we have announced we will reduce carbon emissions by 30% by 2030. I’d look at sustainability through the opportunity lens and embrace it because in Ireland we have the lowest carbon dairy product in the EU,” she said.
Irish dairy farmers (north and south) like to keep a close eye on Glanbia plc performance as many have shares in the plc. Remember, Glanbia co-op owns a 31% stake in Glanbia plc so each year a dividend from the plc is part of the return to Glanbia farmers.
Also, Glanbia Ireland is 60% owned by Glanbia co-op and 40% owned by the plc so a chunk of Glanbia Ireland profits leave to the plc each year. The Glanbia Ireland joint venture is just one part of the revenue stream from Joint Ventures that Glanbia plc accounts for each year.
US cheese driving revenue growth
In Figure 1, we compare half-year results for 2017 to the half-year results for 2021 just released last Thursday.
Five years ago, the half-year results showed total revenues were almost €1,185m with earnings (EBITA) of €148m and an earnings margin of 12.5%.
In 2021, half-year revenue has almost doubled to €2,041m with the majority of revenue growth coming from the Glanbia Nutritionals (GN) business, mostly the US cheese business.
So the GPN business has grown from €519m to €638m (+119) with margins similar at 12% to 14%.
However, GN has grown from €592m to €1,403m (+811) but margins reported have lowered from 10% in 2017 to 5% reported in 2021.
There are two pillars in the GN business – Nutritional Solutions and the US cheese business. Nutritional Solutions plays in the whey protein, specialist vitamin and mineral blends, plant-based ingredients and functional beverages.
Customers are predominantly US-based
US Cheese sells cheese produced by Glanbia as well being the commercial partner for its joint venture partner, Southwest Cheese. US Cheese makes American-style cheddar cheese supplying a range of customers.
Customers are predominantly US-based and participate in the food service, retail, consumer-branded and private label end markets.
The US cheese business is largely responsible for this revenue increase moving from €356m in the first half of 2017 to €969m in the first half of 2021 (+€613m) but reported earnings margin (EBITA) in 2021 are low at 1.4%.
There are some accounting differences responsible for the shift in numbers reported recognising the group as a principal in its sales relationship with its joint venture, Southwest Cheese, rather than as an agent, but largely the growth in the US cheese business has come from increased processing capacity at Southwest Cheese and new investment in Michigan cheese and whey.
So while margins are low, the cheese business is really what Glanbia is about. Building the business from the ground up, while low margin, it can create a sustainable return on capital.
Overall, the financial numbers reported are very positive for Glanbia plc. It pulls the company out of the poor run over the last number of years.
Glanbia plc is heavily invested in the cheese and whey market across all of its business units, hence market swings impact on costs and returns. It has worked hard on the performance nutrition sector for the last two years to turn that ship around. It says it has streamlined costs, routes to market and increased prices.
A combination of all has helped better results just announced. This sector is key for Glanbia because it is the Glanbia plc play in the higher margin dairy space.
The €31m LevlUp acquisition is small in the overall context, but Glanbia sees it as a bolt-on to the performance nutrition
It has invested heavily over the years acquiring high-value brands such as Optimum Nutrition, etc.
The Slimfast brand is in this space also, but more on the dieting side of the house and Talbot said this market hasn’t kicked off really post-COVID-19 just yet.
The five-year review shows the big growth in the US cheese and whey business
The €31m LevlUp acquisition is small in the overall context, but Glanbia sees it as a bolt-on to the performance nutrition despite the fact that one cohort of users are mainly outside or in gyms exercising while the others are sitting in front of a computer.
For a 60% stake in a very young company (2018), the €31m cash payout is big but Glanbia must see something big in it.
The five-year review shows the big growth in the US cheese and whey business. This is the lower margin business but also the bedrock of the Glanbia plc business. The balancing act Glanbia plays is paying over the odds for premium brands in a so-called higher margin sector (with one eye on share price), while operating a well-run cheese business maximising the value of all outputs. However, it needs better margins than 1.4% in the US cheese business and it will be interesting to watch developments in this space in coming years.
Glanbia needs Slimfast and the dieting market to start cranking up again to get a return on that investment and higher margins.
Much improved half-year results for Glanbia plc underpin a share price increase since March 2021. Half-year results show better revenues and better margins than 2020 or 2019, with predicted full-year adjusted earnings per share growth of 17% to 22% on a constant currency basis up from predicted 6% to 12% earlier in year. Better sales and better margins in both the performance nutrition sector and the cheese business are key to the better results. Glanbia Performance
Nutrition: key brands include Amazing Grass with products in the plant-based, organic and GMO-free space, Body & Fit, Slimfast, Think Thin (recently rebranded Think!) and now LevlUp is a play in the gaming sector drinks market. Margins for this business were low in 2020 at 3.7% but have bounced to 14% for the first half of 2021.
Glanbia Nutritionals: key businesses are Nutritional Solutions. Products are in the value-added dairy category, ready-to-mix, vitamin and mineral blends, Foodarom and flavour technologies category. Part of this business is the US cheese and whey business. Margins for this sector were reported at 5% for half-year 2021. 
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