Glanbia plc (GL9) Earnings Call Transcript

Good day and welcome to the Glanbia plc 2020 Annual General Meeting with Martin Keane, Group Chairman; and Siobhán Talbot, Group Managing Director. Today's conference is being recorded. At this time, I would like to turn the conference over to Martin Keane, Group Chairman. Please go ahead.

Good morning, ladies and gentlemen. My name is Martin Keane, and I'm group Chairman of Glanbia plc. Following the Irish government extension of social distancing measures, the Board announced on the 14th of April 2020 that it is resolved that the time and the location of the 2020 Glanbia plc AGM would be adjourned from Lyrath Estate at 11:00 a.m. to 11:15 a.m. today, Wednesday the 22nd of April 2020, at the company's head office here in Glanbia House, Kilkenny. So I therefore, want to welcome you all to the reconvened AGM, and I now declare the meeting open. Under Article 56 of the company's constitution, the quorum for this reconvened meeting is 2 persons. And I am joined here today by our Group Managing Director, Siobhán Talbot. And as such, I can confirm that a quorum has been formed for the purposes of this meeting. In addition, I have received proxy votes of circa 206 million, that's 2-0-6 million, representing 70% of the company's shareholding in respect of Resolutions 1 to 11. And circa of 112 million shares representing approximately 38% of the company's shareholding in respect of Resolutions 12 to 14. During the current COVID-19 crisis situation, the #1 priority for Glanbia is the health and well-being of its employees and other stakeholders. With this in mind, the company is applying the government's restrictions and advice of the Irish Health Service Executives, the HSE, and has therefore -- it has therefore been necessary to hold today's AGM as a closed meeting. This is designed to ensure that the company adheres to the government's restrictions and the HSE instructions around physical distancing, nonessential travel and the limit on public gatherings. The Lyrath Estate Hotel remains temporarily closed due to the continued escalation of the COVID-19 pandemic. All of our directors and professional advisers, including the company's registrar and the statutory auditors have been requested not to attend today's meeting in person and instead have been requested to dial in to this meeting by telephone. The length of today's meeting will be greatly reduced by substantially limiting it to the formal business required. Effective shareholder engagement is very important to us as a group and to me as Chairman, and this is not how I expected to address our shareholders at the AGM. And I thank you all for your cooperation in this difficult circumstances and your help in ensuring the company adheres to the government's restrictions and the HSE instructions. Before I start the formalities of the meeting, I would like to reflect and talk somewhat to the year that has passed, 2019. Overall, 2019 was a difficult year for the group. Challenging sector dynamics in certain international markets impacted the performance of our Glanbia Performance Nutrition business. However, Glanbia Nutrition and our joint venture delivered a very good performance for the year. And both our recent acquisitions for SlimFast and Watson exceeded our ambitions in the first year as part of the Glanbia Group, which is very pleasing. The group revenue was EUR 3.9 billion, which was up 16.6% on a constant currency basis. The profit after tax was EUR 180.2 million against EUR 234 million in 2018. The adjusted earnings per share was EUR 0.881, 8-8-point-1, in line with guidance of EUR 0.88 to EUR 0.92. And very importantly, the group retained a strong balance sheet over the course of the year and delivered good cash conversion with an operating cash flow conversion of 86%. And at the year-end, the debt was EUR 614.3 million. Our joint ventures, Glanbia Ireland, Southwest Cheese and Glanbia Cheese each had very busy 2019 and delivered a very good performance in line with expectations for each one of those 3 joint ventures. A webcast and investment analysis discussion of the full year 2019 results hosted earlier in the year by Siobhán Talbot, the Group Managing Director; and by Mark Garvey, the Group Finance Director; is available on the company's website to provide a more detailed overview of the 2019 results. We also had, earlier today, an interim management statement update or an IMS statement update on our performance for the first quarter of 2020, which was also published on the company's website earlier this morning to coincide with this AGM. And a replay of the call between the investment analysis, Siobhán Talbot and Mark Garvey to discuss the interim management statement, will be made available on the company's website. So ladies and gentlemen, at this point in the proceedings, I might call upon our Group Management Director, Siobhán Talbot, to give us a brief update on the group's quarter 1 performance. So ladies and gentlemen, at this point, I'll hand over to Siobhán Talbot.

Thank you, Chairman. As outlined earlier today, we published our interim management statement and our trading for the first quarter of 2020. And I will provide a summary of that as well as an update on how Glanbia has been responding to the COVID-19 pandemic. Firstly, on behalf of everyone at Glanbia, I'd like to express our deepest sympathies to all those who are affected by COVID-19 and to thank those working to help them care for people during this crisis. I'd also like to pay tribute to Glanbia's frontline employees, who have done an exceptional job in keeping our supply chains going under extraordinary circumstances. Since the COVID-19 pandemic escalated in late February, as a team, we have 3 priorities while navigating through this period of volatility and uncertainty. First and foremost, to protect our employees; secondly, to maintain supply of nutritious food to our customers and consumers; and thirdly, to maintain the financial strength of our business. The health and safety of our employees is our #1 priority. In February, we implemented business continuity planning across the group, led by myself, and we have continued to operate our plants and supply chains to date without significant disruption. Most of our employees are working remotely where possible, and we have restricted all travel. A comprehensive set of health and safety measures have been implemented at all operation sites worldwide, including health monitoring, occupational health support, employee welfare support, physical distancing, hygiene and sanitation measures. Our employees are doing an exceptional job. We are monitoring the position daily with plans in place at each site to manage potential disruption. Our ability to emerge strongly from this crisis is significantly helped by the good financial position of Glanbia today. We have robust balance sheet. Our net debt at the 4th of April was EUR 690 million, with strong operating cash flow, driving a reduction in net debt of EUR 119.5 million versus the net debt position at the end of the first quarter of 2019. Glanbia had EUR 1.15 billion of committed facilities at the end of the quarter 1 and over EUR 450 million of available debt capacity, with over EUR 200 million of which are held in cash balances. Committed facilities have an average maturity of 2.7 years with none due for renewal in the next 12 months. In addition, to further preserve cash, the following precautionary measures have been taken. Discretionary spend has been curtailed. Working capital monitoring has been increased, and capital expenditure has been reduced to key strategic projects and essential maintenance capital only, and we have deferred M&A activity. Glanbia remains focused on delivering its group-wide strategic initiatives that we outlined in February of 2020. GPN organizational changes and SKU rationalization have been largely progressed. The exit of the contract manufacturing business in North America remains on track. Given the COVID-19 restrictions currently in place, the pacing of some of the projects relating to group-wide initiatives and GPN route-to-market in some international markets may alter. Moving now to performance in the first quarter. In the 3 months ended 4th of April 2020, wholly-owned revenue increased 17% constant currency. The drivers of the revenue increase on that constant currency basis were price growth of 9.2%, volume growth of 6.3% on the Watson acquisition, representing 1.5%. Price growth reflected strong cheese market in the period in Glanbia Nutritionals with volume growth driven by both good performance across both Glanbia Nutritionals and Glanbia Performance Nutrition. In Glanbia Performance Nutrition, we had revenue growth of 3.6% as the North American Performance Nutrition and lifestyle branded portfolios both performed well in the quarter. This offset declines in international markets, which were disrupted by COVID-19 restrictions in March. Our direct-to-consumer business in Europe had good volume performance in spite of the disruption, and we entered 6 new markets as well as operating from a new base now in Amsterdam. As we exited the quarter, we did see a deceleration of sales activity in North America, which countered strong sales in the first half of March. In Glanbia Nutritionals, our Nutritional Solutions business delivered 14.2% revenue growth in the period. This was driven by a strong performance in vitamin and mineral premix and value-added dairy solutions. Nutritional Solutions reaches across multiple sectors, many of which continue to grow despite the current COVID-19 restrictions. Our U.S. Cheese business delivered revenue growth of 28.6%, as increased demand from retail destinations compensated for lower demand from food service channels. Pricing was also very strong in the quarter for U.S. Cheese, but this has now materially reversed since the quarter end. Finally, our joint ventures performed well in the period and have robust business models, which positioned them well to handle the COVID-19-related dairy market volatility. Period since Glanbia gave financial guidance in late February 2020 has been marked by a significant acceleration of COVID-19 pandemic across the globe. A significant proportion of the global population is now in lockdown, which has impacted consumer shopping behavior in a variety of ways, and it is difficult to model how these behaviors will evolve. Although, the group has traded well in quarter 1 of 2020, demand became more volatile at the end of the quarter and into April, particularly in GPN. At this time, it is extremely difficult to assess the impact and duration of COVID-19 and therefore, it is prudent for Glanbia to withdraw its 2020 full year financial guidance issued on 26th of February 2020. As an organization, Glanbia is highly focused, both on navigating the current challenges and emerging strongly to capture growth opportunities that will be available to us. The majority of our portfolio is exposed to health and wellness trends and operate in growing channels, which is positive for long-term growth. The financial strength of Glanbia and the commitment of our people positions the group well for the future. On that note, I'd like to hand back to the Chairman.

Thank you very much, Siobhán. Clearly, ladies and gentlemen, as outlined by Siobhán today, IMS is a testimony to the hard work and resilience of our people throughout the group. And I would like to thank our Group Managing Director, Siobhán, and all of the team for their continued commitment and dedication in 2019 and especially in the unprecedented challenges that the COVID-19 is currently presenting to us all. In particular, I'd like to thank our frontline teams, who are managing the production lines and moving our products to ensure that we get forward to the many millions of consumers and customers who rely on our products every day. We thank them all for their continued support and dedication. Their health and safety is of paramount importance to us as a group. And as a group, we are doing everything we can to protect them and keep their workplaces safe. As Siobhán outlined, that Glanbia family is playing its part in the crisis, providing much-needed nutrition across the globe. And as shareholders, we can be truly proud of the efforts of our people in helping to deliver better nutrition for every step of life's journey. Now ladies and gentlemen, turning to governance. Governance is heart as front and center in the Glanbia organization. And in 2019, the Board devoted a considerable amount of time to reviewing with senior management the challenges which impacted specific areas of the businesses. These areas will continue to be a priority for the Board over the next 12 months. And the Board also focused on strategy, board renewal, succession planning and talent management. As in prior years, we continue to consult with our key shareholders in 2019, and I would like to acknowledge their significant support. In accordance with the relationship agreement between Glanbia plc and Glanbia Co-operative Society Limited in 2020, the number of directors nominated by the society will reduce from 8 to 7, and in 2022, to 6. Also in accordance with the relationship agreement, a process to identify my successor as Chairperson has commenced and a subcommittee of the Board led by Dan O'Connor, Senior Independent Director, has been established. External advisers have been appointed to assist the subcommittee in the selection process, which is progressing well. There were a number of other movements on the Board during 2019. Board composition and renewal continues to be an important area of focus for the group. Our aim is to achieve a Board with broad-based skills that reflect a diverse range of education, cultures, gender, experience, expertise and perspectives. During the year, we welcomed 3 new independent nonexecutive directors to the Board, John Daly; Richard Laube; and Mary Minnick. All 3 are highly experienced Board Directors and business leaders who have successfully operated at senior management levels internationally. Unfortunately, due to family and personal reasons, Richard Laube has recently retired as nonexecutive director effective 28th of February 2020, and a process to identify a new independent nonexecutive director has commenced. In addition, nonexecutive directors, Jer Doheny and Eamon Power nominated to the Board by Glanbia Co-operative Society Limited, retire from the Board at today's AGM. And on behalf of the Board and myself, I would like to thank Eamon, Jer and Richard for their service and commitment to Glanbia. We wish them every success and good health for the future. Now ladies and gentlemen, we'll turn to the formal proceedings of the Annual General Meeting. The notice of the Annual General Meeting, together with the explanatory notes, was published on our website on the 12th of March 2020, and we've requested -- posted to shareholders on the 18th of March 2020. Accordingly, the requisite notice of the meeting has been given, and a copy of the notice has been given to each shareholder attending this meeting. So I take the notice of the meeting as read. I now propose that each of the resolutions described in the notice of the Annual General Meeting be put to the meeting. Resolution 2 is authorizing the payment of a final dividend of EUR 0.1594 per share on the ordinary shares for the year ended the 4th of January 2020, on the basis that it will be paid on the 24th of April 2020 to all shareholders who are on the register of members at the close of business on the 30th of March 2020. Resolutions 10 to 11 are new for 2020 and have been proposed to give the company flexibility to return value to shareholders, if the circumstances permit. Resolutions 12 to 14 follow on from Resolutions 10 to 11 and relate to approvals for waivers of obligations on the rules 9 and 47 of the Takeover Rules 2013, and must be approved by the independent shareholders of the company, that being all the shareholders of the company other than Society or any shareholders acting in concert with the Society. This includes the Directors of Glanbia plc and the Directors of Co-operative. All Directors have accordingly withheld their votes and will not participate in the poll, which will be hard to approve these resolutions. All the votes cast by the independent shareholders will be included. I propose that each of the resolutions in the notice of today's meeting are now put to a vote by way of a poll. [Voting]

I have received proxy votes in the number of circa 206 million, representing approximately 70% of the company's shareholding in respect of Resolutions 1 to 11 and circa 112 million, representing approximately 38% of the company's shareholding in respect of Resolutions 12 to 14. Where I have been given discretion to vote, I will vote in favor of the Resolutions. Proxies were received in respect of circa 7,500 shares, appointing persons other than me as proxy with other than Siobhán, who received proxies of 3,500 and have not sought to attend today. The poll will now be conducted by Computershare, and I therefore, now instruct Computershare to commence the poll. [Voting]

Computershare will add up the votes and deliver the results to me once they have completed the formal process. The results of the poll will be announced later today on the company's website, www.glanbia.com. So ladies and gentlemen, in conclusion, at the end of 2019, Glanbia employed over 7,300 people in 34 countries. And it is true that the group continues to serve the needs of our valued customers and consumers. On behalf of the Board, I would like to offer all our employees my gratitude for their hard work and dedication and further their ongoing support and commitment in this difficult time. I wish to thank my colleagues on the Board for their contribution and personal support to me. It is my great privilege to serve as your Chairman. Ladies and gentlemen, in conclusion, I thank you all again for your cooperation and understanding regarding the restricted nature of this meeting. I hope that you and your families stay healthy and safe, and I now declare the meeting and the poll closed. Thank you very much.

Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.