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lanbia G Annual Report and Financial Statements 2019 At the heartAt of healthyof lifestyles
Glanbia plc Annual ReportSpine and text Financial Statements 2019 Strategic Report Directors’ Report Financial Statements
Highlights of 2019 01 Corporate Governance Report 60 Independent Auditor’s Report 116 Glanbia at a Glance 02 Introduction from the Chairman 60 Group Financial Statements 125 Investment Case 04 Board of Directors and Senior Management 62 Notes to the Financial Statements 130 Group Chairman’s Statement 06 Board Activities 66 Company Financial Statements 194 Group Managing Director’s Review 08 Division of Responsibilities 68 Our Strategy 11 Composition, Succession and Evaluation 70 Other Information Business Model 16 Audit, Risk, Internal Control and Remuneration 72 Glossary of KPIs and non-IFRS Key Performance Indicators 18 Compliance Statements 73 Performance Measures 200 Operations Review 20 Audit Committee Report 74 Shareholder Information 209 Group Finance Director’s Review 36 Nomination and Governance Committee Report 80 Contacts 213 Engaging with our Stakeholders 42 Remuneration Committee Report 84 Sustainability 44 Other Statutory Information 109 Risk Management 52 Directors’ Responsibility Statement 114 Principal Risks and Uncertainties 56
Glanbia is a global nutrition group dedicated to delivering better nutrition for every step of life’s journey
Large and SlimFast and Engaging with growing markets Innovation our stakeholders Consumers around the globe continue Our extensive consumer knowledge in the Maintaining good communications and to search for healthier, cleaner and more weight management category coupled with developing strong relationships with all our convenient food, snacks and beverages that our use of data-driven insights continues stakeholders is fundamental to our long-term fit their active lifestyles and nutritional needs. to drive innovation in our SlimFast brands. success. Our purpose and vision help guide We operate in large and growing markets and In 2019, SlimFast was the #1 brand of Keto these global relationships. these powerful consumer trends offer strong weight management products in the US. engines of growth for the future.
Read more on pages 20 and 21 Read more on pages 26 and 27 Read more on pages 42 and 43 01 Glanbia plc | Annual Report and Financial Statements 2019
Highlights of 2019
“While we had some challenges in 2019 our business is strong and we have commenced a series of initiatives that will drive growth momentum in 2020 and beyond.”
Siobhán Talbot Group Managing Director
Adjusted Earnings Per Share Basic Earnings Per Share Revenue 88.10c 61.04c €3.9bn (2018: 91.01c) (2018: 79.28c) (2018: €3.2bn) -3.2% 1 -23.0% 1 +22.2% 1 -7.7% 2 -26.6% 2 +16.6% 2
EBITA (pre-exceptional) EBITA Margin (wholly-owned) Return On Capital Employed €276.8m 7.1% 10.9% (2018: €284.9m) (2018: 9.0%) (2018: 13.2%) -2.8% 1 -190bps 1,2 -230bps -7.8% 2
OCF cash conversion Net debt Sales volumes 86% €614.3m -8.9% (2018: 92%) (2018: €576.7m) (2018: +9.2%) -600bps +€37.6m GPN branded like-for-like (LFL)
Profit after Tax +7.0% (2018: +8.5%) €180.2m Nutritional Solutions (LFL) (2018: €234.0m) -€53.8m 1 Reported currency 2 Constant currency
For definitions and more information on constant currency and other performance measures see the glossary on pages 200 to 208.
Forward-looking statements Glanbia plc (the ‘Group’) has made forward-looking statements in this Annual Report that are based on management’s beliefs and assumptions and on information currently available to management. Forward-looking statements include, but are not limited to, information concerning the Group’s possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words ‘believe,’ ‘develop,’ ‘ensure,’ ‘arrive,’ ‘achieve,’ ‘anticipate,’ ‘maintain,’ ‘grow,’ ‘aim,’ ‘deliver,’ ‘sustain,’ ‘should’ or the negative of these terms or similar expressions. Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements. The risk factors included at pages 56 to 59 of this Annual Report could cause the Group’s results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that the Group is unable to predict at this time or that the Group currently does not expect to have a material adverse effect on its business. These forward-looking statements are made as of the date of this Annual Report. The Group expressly disclaims any obligation to update these forward-looking statements other than as required by law. The forward-looking statements in this Annual Report do not constitute reports or statements published in compliance with any of Regulations 4 to 9 and 26 of the Transparency (Directive 2004/109/EC) Regulations 2007. As an Irish incorporated group, the Strategic report does not constitute a strategic report for the purposes of the UK Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, and the Remuneration Committee report does not constitute a remuneration report for the purposes of the UK Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations. 02 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Glanbia at a glance
Who we are: What we do:
We are a global nutrition group delivering performance Through our distinctive capabilities we create world- and lifestyle nutrition brands and an extensive portfolio leading performance and lifestyle nutrition brands and of functional and nutritional ingredient solutions and innovative nutritional and functional ingredients and customised premixes. We are the #1 US producer customised premixes. Our unique consumer-insights and marketer of American-style cheddar cheese enable us to anticipate and respond to rapidly and a partner in scale joint ventures in the EU and US. changing marketplaces.
Glanbia Performance Nutrition Glanbia Performance Nutrition (GPN) is a global leader in the performance and lifestyle nutrition business. GPN has a portfolio of nine brands ranging in appeal from consumers looking to improve their athletic performance to those seeking on-the-go snacks and beverages to support weight management and a healthy lifestyle.
Read more on page 22
Glanbia Nutritionals Glanbia Nutritionals (GN) comprises: Nutritional Solutions (NS) and US Cheese. Through its extensive portfolio of ingredients and capabilities, NS is a global provider of both dairy and non-dairy nutritional and functional solutions and customised premixes. In an innovative model with US dairy partners, US Cheese is the #1 producer and marketer of American-style cheddar cheese.
Read more on page 28
Joint ventures Glanbia Ireland is the largest Irish-based integrated dairy nutrition and agri-food business. Southwest Cheese and MWC are US-based cheese and whey manufacturing businesses with an existing plant in New Mexico and a plant under construction in Michigan. Glanbia Cheese UK is the largest mozzarella cheese manufacturer in Europe. Glanbia Cheese EU is constructing a new mozzarella cheese plant in Ireland.
Read more on page 34 03 Glanbia plc | Annual Report and Financial Statements 2019
#1
Global performance nutrition brand portfolio
Weight management brand in the UK
Producer of American-style cheddar cheese
Engagement score People Where we do business
Our ambition is to be one of the world’s top performing 72% engagement 7,385 people nutrition companies trusted to enrich lives every day. We have a direct presence in 34 countries worldwide. Our recent employee Our people are our most Our branded performance and lifestyle nutrition engagement survey important asset. We are proud products are sold in more than 100 countries and confirmed a culture of positive of our ability to attract, retain engagement and inclusiveness. and develop the best people. our ingredient and premix customers produce some of the world’s iconic food and drink brands.
Brands Global reach
9 GPN brands 29 production facilities
GPN has a portfolio of nine We have 29 production facilities performance nutrition and worldwide with two more lifestyle brands. under construction. 04 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Investment case Our business has core strength and resilience We are focused on implementing key strategic initiatives to return the business to growth. We are investing in maintaining a strong business that will deliver consistent and sustained value for all our stakeholders.
Powerful Strong brands and consumer trends market positions
We operate in attractive markets which Our flagship sports nutrition brand, provide significant opportunity for Optimum Nutrition is the #1 growth. Global health and wellness performance nutrition brand trends coupled with a growing desire worldwide. SlimFast is the #1 brand for convenient Ready-to-Eat and in the weight management category Ready-to-Drink foods underpin an in the UK and #2 in the US. We are the increasing demand for our performance #1 US producer of American-style nutrition and lifestyle brands, cheddar cheese and high-protein and our nutritional and functional whey, and the #2 producer of global ingredient solutions. micronutrient premixes.
Sustainable business model
Through our consumer-focused innovation, long-term partnerships, and talented team we add value to our pool of raw ingredients and deliver a portfolio of higher-margin nutritional and functional ingredients, and branded performance nutrition and lifestyle brands. 05 Glanbia plc | Annual Report and Financial Statements 2019
Strong balance sheet
Our strong conversion of earnings to cash enables the Group sustain a progressive dividend policy. We have strong financing metrics and considerable financial firepower and flexibility to fund strategic capital expenditure and acquisitions.
Ambition for future growth
Our focus for 2020 is to regain momentum in GPN. Our growth strategy will continue to be a blend of organic growth and strategic acquisition opportunities, which we will continue to evaluate as they arise. 06 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Group Chairman’s Statement
Dear Shareholder employed in our strategic investments. A proposed 2019 final dividend of 15.94 cent Overall, 2019 was a difficult year for the The strong operating cash flow conversion per share is to be to be paid on 24 April Group. Challenging sector dynamics in continued at 86%, (2018: 92%) with net 2020 to shareholders on the register as at certain international markets impacted the debt at the year-end of €614.3 million. the close of business on 13 March 2020. performance of our Glanbia Performance The Group intends to maintain a dividend Nutrition (GPN) business, however Glanbia Return to Shareholders payout ratio of between 25%-35%. Nutritionals (GN) and our joint ventures (JVs) While GN and our JVs performed very well, delivered a very good performance for the the challenges in GPN led to a significant The Board of Glanbia will seek shareholder year. Both recent acquisitions SlimFast and share price drop in the second half of authorisation for a share buyback Watson exceeded our ambitions in their first the year. As a Board we are, of course, programme at the Annual General Meeting year as part of the Glanbia family. disappointed with the share price (AGM). The Board believes that it is important performance during 2019. However, the that the Company would have the flexibility to Performance fundamental strength of the organisation return value to shareholders in this manner. Group revenue was €3.9 billion, up 16.6% remains intact. Our focus is to recover constant currency. EBITA before exceptional growth momentum and the Board has Strategy items decreased by 7.8% constant currency devoted considerable time to reviewing, We have a strong portfolio across branded to €276.8 million. The decline in EBITA was with management, the 2019 challenges performance and lifestyle nutrition and dairy driven by GPN as challenges in some key and the necessary initiatives required to and non-dairy nutritional and functional markets throughout 2019 resulted in lower regain momentum. ingredient solutions playing into key volumes and earnings. Profit after tax was consumer trends. Responding to the 2019 €180.2 million (2018: €234.0 million). Dividends and proposed share challenges in GPN the team has taken the Adjusted Earnings per Share (EPS) was buyback opportunity to reassess GPN’s strategic 88.10 cent in line with our guidance of 88-92 Testament to the strength of our balance priorities to regain growth momentum. cent. Basic EPS was 61.04 cent. The Group sheet and in line with our progressive As outlined by Siobhán on pages 8-10 our retained a strong balance sheet over the dividend policy, the Board is recommending core ambition is to regain topline growth course of the year. Return on Capital a 10% increase in the 2019 full year dividend in 2020 and drive both topline and margin Employed (ROCE), a key metric for the to 26.62 cent. This total dividend represents growth to 2022 through a simplification and Group, was within our guidance range of a return of €78.6 million to shareholders decomplexing of the GPN business and a 10% to 13% at 10.9%, down from 13.2% from 2019 earnings and a payout of 30.2% ruthless focus on our core brands. We will in 2018. This reflects increased capital of 2019 adjusted earnings per share. also focus on organisational change across the Group, and continue to invest to drive future growth in GN and our JVs.
“Post the 2019 challenges, our focus is to recover growth momentum. While our long-term growth opportunities are significant, our immediate focus is on improved operating performance so that we have a sound and credible platform for future investment and growth.”
Martin Keane Group Chairman 07 Glanbia plc | Annual Report and Financial Statements 2019
Our recent acquisitions performed very Also in accordance with the Relationship well in 2019. SlimFast delivered an excellent Agreement a process to identify my performance with pro-forma like-for-like successor as Chairperson has commenced. Our purpose revenues up 32.4% versus its full year 2018 A sub-committee of the Board, led by Dan revenues. SlimFast is now the number 1 O’Connor, Senior Independent Director, has and culture weight management product in the UK and been established. External advisors have the number 2 weight management product been appointed to assist the sub-committee We have a strong culture in the US. GN delivered strong revenue in the selection process. at Glanbia which remains growth for the year especially in its Nutritional Solutions (NS) business. The Annual General Meeting true to our values and the acquisition of Watson in February 2019 is We remain proactive in our engagement and behaviours which underpin proving to be an excellent addition to the look forward to answering your questions at them. A healthy culture both NS component of GN’s business. Our JVs our AGM which will be held on 22 April 2020 protects and generates value. performed well and delivered a very good in the Lyrath Estate Hotel, Lyrath, R95 F685, As a Board, we are mindful performance in 2019. Kilkenny, Ireland. that society is demanding Board composition Our people that companies, both public Later in the annual report, I detail our The importance of organisational culture and private, serve a social governance activities for the year. The Board continues to be the focus of our governance purpose. We are proud of the exercises its governance responsibilities with thinking. We believe that a positive, open Group’s purpose to deliver diligence, but also with a clarity of purpose and honest culture is a trademark of our better nutrition for every step to support the management team, to drive Group and vital to our future success. The growth momentum and drive value for all Board is cognisant of its role in supporting of life’s journey. Companies our stakeholders. Board composition and employee welfare and in seeking evidence must benefit all their renewal continues to be an important area that the right culture is being fostered. By stakeholders, including of focus for the Group. Our aim is to achieve its nature this tends to be informal, but the shareholders, employees, a Board with broad-based skills that reflect results of our recent employee engagement customers, suppliers and the a diverse range of education, cultures, gender, survey confirmed our views that a experience, expertise and perspectives. progressive, dynamic and inclusive culture communities in which they exists within Glanbia. The employee operate. Without a sense of During the year, we welcomed three new engagement survey showed strong positive purpose, no company can colleagues to the Board, John Daly, Richard responses in terms of the values the Group achieve its full potential. Laube and Mary Minnick whose biographies espouses and our employees’ buy-in to are on page 63. All three are highly these values. We have a long tradition experienced board directors and business of attracting ambitious, enthusiastic and We recognise that the leaders who have successfully operated at committed people who have come together 2018 Corporate Governance senior management levels internationally. with a shared goal, to deliver better nutrition Code will be effective for the for every step of life’s journey. We recognise Group’s 2020 Report, and in Paul Haran retired as Non-Executive the dedication and hard work of our people line with this we are working Director on 1 May 2019. I would like to throughout the Group and I would like to express my deep gratitude to Paul for his thank in particular our Group Managing to articulate more explicitly valued contribution and wise counsel over Director Siobhán and all her team for their and holistically our purpose his tenure. Richard Laube has recently commitment and dedication in 2019. and values and how they indicated that for family and personal relate to all our stakeholders. reasons, he is no longer in a position Looking ahead We strive to ensure we have to remain on the Board and he will retire We now look forward to 2020. Our meaningful two-way dialogue on 28 February 2020. In addition, Non- strategy remains aligned to market growth Executive Directors Jer Doheny and Eamon opportunities. We have reassessed and with all our stakeholders. Power, nominated to the Board by Glanbia refocused our GPN strategy and remain Co-operative Society Limited (‘the Society’), confident in its delivery. While our long-term will retire from the Board at the forthcoming growth opportunities are significant, our AGM on 22 April 2020. On behalf of the immediate focus is on improved operating Board, I would like to thank Richard, Jer and performance so that we have a sound For more information on Board Eamon for their service and commitment and credible platform for future investment and stakeholder engagement to Glanbia. We wish them every success and growth. see page 67. for the future. A process to identify a new Independent Non-Executive Director has commenced.
In accordance with the Relationship Agreement between Glanbia plc and the Martin Keane Society, in 2020 the number of directors Group Chairman nominated by the Society will reduce from eight to seven and in 2022 to six. 08 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Group Managing Director’s Review
Dear Shareholder 2019 financial performance Glanbia’s share of JVs’ profit after tax In 2019, we did not achieve our earnings We delivered strong revenue growth with increased by €3.3 million to €48.6 million growth ambition. While many areas of the wholly-owned revenue increasing by 16.6% in 2019 primarily as a result of good growth organisation performed well, we had some constant currency, to €3.9 billion. The in volume in all JVs. significant challenges in certain international drivers of revenue growth included a 6.6% markets for our GPN business that impacted increase in pricing and 9.9% contribution Exceptional items of €34.6 million, after tax, the Group’s overall performance for the year. from acquisitions with overall volume broadly primarily relate to the GPN segment as well However, we are highly focused on regaining in line with 2018. Price and volume growth as Brexit mitigation costs and acquisition our growth momentum in 2020. were driven by a good performance from integration costs in 2019. There were no GN with the acquisitions of Watson and exceptional items in 2018. The fundamentals of Glanbia are strong. Our SlimFast also performing well in 2019. performance nutrition, weight management Total Group profit after tax and exceptional and functional dairy and non-dairy Wholly-owned EBITA (pre-exceptional) items was €180.2 million. Total Group profit ingredients are positioned in attractive was €276.8 million, a 7.8% decline, constant (pre-exceptional) was €214.8 million for 2019 end markets forecast to grow annually at currency, and EBITA margin was 7.1%, down from €234.0 million in 2018. mid-single-digit percentage growth rates. 190 bps lower than 2018. EBITA decline Global macro trends around health and was driven by GPN which, as previously As a result of lower Group profit, adjusted wellness as well as active lifestyles continue noted, encountered challenges in specific earnings per share was 88.10 cent which to drive significant consumer demand in international markets as well as lower sales was 7.7% lower, constant currency, than these categories. Our strategy is to capture in the North American Specialty and Club 2018 but within the previously issued this growth via our two platforms of Glanbia channels resulting in lower volumes and guidance range. Basic earnings per share Performance Nutrition (GPN) and Glanbia negative operating leverage. This decline was 61.04 cent, a 26.6% decrease constant Nutritionals (GN). was partially offset by a 10.5% increase, currency on prior year, reflecting lower constant currency, in pre-exceptional EBITA Group profit and exceptional charges in GN driven by volume growth, price in the year. increases and the Watson acquisition.
“While we did not achieve our 2019 earnings growth ambitions, we have conducted a comprehensive review of our GPN business and are taking actions to simplify the operating model and brand strategy. We are highly focused on regaining growth momentum in 2020.”
Siobhán Talbot Group Managing Director 09 Glanbia plc | Annual Report and Financial Statements 2019
2020 key strategic focus areas Our key strategic focus areas for 2020 2. Organisational change In light of the significant performance issues are clear: Complementary to the revenue growth in GPN in 2019 a comprehensive review initiatives undertaken in GPN, we have of this business’s brand strategy, route-to- 1. Regain growth momentum in our established a Group-wide project to market and operating model took place in core GPN branded business; drive margin growth to 2022. This project the second half of 2019. GPN will now be encompasses a series of initiatives both managed through the commercial lens 2. Continue organisational change in GPN and across the Group. of North America Performance Nutrition, programmes in GPN and Group-wide North America Lifestyle, International and to deliver margin improvement by GPN margins will be improved via the Direct-to-Consumer businesses. GPN has 2022; and following initiatives: invested in new senior talent to enhance 1. Simplification and exit of low margin capabilities and enable growth in each of 3. Execute our planned strategy in GN business. This is being achieved these businesses. and the joint ventures, prioritising via SKU rationalisation of the lowest the continued evolution of GN’s performing products, which has already In North America, GPN has two distinct Nutritional Solutions through both commenced, and will have a minimal brand portfolios in the performance organic growth and acquisitions. impact on net sales. GPN will also nutrition and lifestyle categories. Consumer exit the majority of the US contract motivations, market segments and reach 1. Regain growth momentum in GPN manufacturing business during the differ for each portfolio with both having Branded revenue growth in GPN will be second half of 2020 and 2021; the scale to benefit from focused resources achieved through prioritisation of (i) the 2. Supply chain optimisation globally to drive growth. ON brand within the performance nutrition encompassing a review of the mix of category globally. This brand, which had owned and contract manufacturing; and In International markets, GPN is reshaping Global sales of $655 million in 2019 is the 3. Refined approach to innovation to focus primarily around the Optimum Nutrition largest brand in the GPN portfolio and on higher margin opportunities across (“ON”) brand in the performance nutrition makes up the majority of sales in the the branded portfolio. category and the Body & Fit direct-to- North America Performance Nutrition and consumer online platform in Europe International businesses; (ii) SlimFast with It is expected that this project will both which also enhances GPN’s digital the majority of its sales within the North fund investment in building GPN brands and capability globally. America Lifestyle portfolio, and some sales contribute to EBITA margin progression with in the UK, was acquired in November 2018. a target of over 200 basis point improvement SlimFast grew strongly in 2019 to revenue of in GPN EBITA margin by 2022. $325 million and anchors the North America Lifestyle portfolio; (iii) The Body & Fit GPN’s key initiatives are further outlined in direct-to-consumer platform is the key path the table below. to growth in the online channel in Europe, as well as providing digital capability At a Group level, Glanbia has commenced which can be leveraged on a global basis. a review of the current operating model across GPN and GN to identify opportunities to further leverage Glanbia’s scale.
Area Key GPN initiatives Brand • Prioritise focus and investment in Optimum Nutrition and SlimFast brands • Streamline the product portfolio; eliminate 35% of stock keeping units (SKUs) while limiting revenue loss • Exit the majority of US contract business • Refine GPN’s approach to innovation to focus on higher margin opportunities • Optimise investment and margin across the total brand portfolio Route-to- • Improve routes-to-market in India, Brazil and Middle East, redefining partner relationships Market as needed • Continue investment in building Direct-to-Consumer capability in the EU and eCommerce capability globally • Decomplex and optimise our supply chain foot print globally to a mix of owned and contract manufacturing operations Resources • In the US, leverage our reorganised commercial operating models around performance nutrition and lifestyle • In international markets, reshape the organisation to focus on the ON brand and invest in resources across key markets to leverage growth potential. 10 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Group Managing Director’s Review continued
3. Continued strategic execution in Strategic targets and Glanbia Nutritionals and joint ventures 2020 outlook A number of Glanbia’s financial metrics as Glanbia Nutritionals (GN) US Cheese and joint ventures outlined at its capital markets day in 2018 GN is a global player providing dairy and Our primary dairy activities encompass remain unchanged. Adjusted earnings per non-dairy functional and nutritional ingredient our US Cheese and joint venture operations. share in 2020 is expected to be broadly in solutions to regional and global customers line with prior year on a constant currency across a wide variety of sectors. Overall, GN Our wholly-owned US Cheese business basis and Glanbia is targeting an average delivered a very good performance in 2019. within GN grew revenue by 18.5% constant growth rate of 5% to 10% constant currency Specifically, we had a strong performance currency in 2019 and continues to be the in adjusted earnings per share for the three from Nutritional Solutions (NS) with revenues leading producer and marketer of American- years to 2022. growing 23.4% constant currency. Like-for- style cheddar cheese in the US. GN’s US like volume growth was 7.0%, with good Cheese team continues to operate all of the We expect GPN to deliver branded revenue, growth across both our dairy and non-dairy dairy processing plants within GN including margin and EBITA progression in 2020 value-add ingredients. the Southwest Cheese joint venture, which versus prior year. In GN, Nutritional Solutions produces cheese and whey ingredients. continued revenue momentum is expected The Watson acquisition, which was completed Our new joint venture project in Michigan to be offset by margin headwinds. in February 2019, added revenue growth of is at an advanced stage of construction and Joint Venture performance year-on-year 12.6% to NS. This business has proven to is expected to be commissioned by 2021. is expected to decline largely due to be an excellent addition to NS. Its facilities commissioning costs of new joint venture are highly complementary to the GN Our other joint ventures in Europe, Glanbia capital projects. footprint and further strengthen NS’s Ireland and Glanbia Cheese UK had a good capabilities, enhancing our ability to performance in 2019 delivering strong In considering capital allocation priorities, create superior customised precision operational performance and volume growth. the Board considered a share buyback premix solutions that address our The growth strategy for both these joint programme and will seek shareholder customers’ complex formulation ventures is clear and underpinned by volume authorisation at the Annual General and application requirements. growth ambitions. Our business models Meeting on 22 April 2020. across the joint ventures are robust, The NS strategy is to leverage its core position facilitating strategic investment which Our business will not be immune to as a supplier of choice to customers seeking is financed on a non-recourse basis international disruption and we have ingredients and solutions in premix and to the Group. factored into Quarter 1, the expected impact healthy snacking segments. NS will achieve of the coronavirus. However, the depth this via its innovation capabilities and Our people and breadth of our portfolio, as well as build-out of complementary portfolios. As an organisation, Glanbia has a unique set the commitment and focus of our people, NS has a diverse product portfolio and of values that drive our culture and influence give us confidence in our resilience as we supports a range of ingredients and solutions how we operate on a daily basis. We enjoy navigate 2020. Our balance sheet is strong in ready-to-eat, value-added beverages good engagement with our employees as and our financial discipline will continue to and powder based formats in a number our recent employee engagement survey drive strong cash conversion and return on of categories. has shown. While this has been a difficult investment metrics. While we are ambitious year for the Group, we have experienced for further acquisition activity in our GN NS also continues to further expand its remarkable commitment and dedication Nutritional Solutions business it is not a reach in international markets where it from all our people across the organisation. current priority for GPN as we focus on partners with key brand owners and delivers I take this opportunity to thank each of regaining organic growth momentum. a suite of products from straight ingredients them for their valued contribution in 2019. to full consumer-ready solutions. We remain We remain very ambitious for Glanbia and very ambitious for growth within NS and focused on regaining growth momentum. we continue to evaluate further acquisition We have met the challenges in GPN in 2019 opportunities to achieve this growth. and during 2020 we will complete the reset of the business that will underpin future revenue growth and margin momentum.
Siobhán Talbot Group Managing Director 11 Glanbia plc | Annual Report and Financial Statements 2019
Our Strategy
Our 2022 Ambition Delivered through organic and acquisition enabled growth
Financial metrics for 3 year ambition
Total Group Average adjusted OCF Return On Capital Dividend Revenue1 EPS Growth Conversion Employed Payout Ratio €6bn 5%-10% 80%+ 10%-13% 25%-35%
Our 2020 key strategic focus areas
Regain momentum Continue Group and Further progress in our GPN GPN organisational strategic execution in branded business change plan GN and Joint Ventures Focus on brand investment Leverage group scale Focus on NS organic and in ON and SlimFast. and operating model. M&A growth opportunities. Fix routes-to-market in key Focus on efficiency Evolve NS portfolio capabilities. international markets. and cost reduction. Progress new JV dairy facilities Evolve operating model and invest Develop and retain talent. in the EU and US. as required to fuel growth. Accelerate Body & Fit eCommerce platform and digital capabilities.
Strategic priorities to achieve 2020 – 2022 growth ambitions
Address 2019 Sustain current, and Grow through Develop talent, challenges & drive further, market organic investment culture and values grow our global leadership positions programme in line with leadership positions in nutritional and acquire our global in performance and ingredients complementary growth ambition lifestyle nutrition businesses
Read more on page 12 Read more on page 13 Read more on page 14 Read more on page 15
1 Including share of revenue in joint ventures. 12 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Our Strategy continued
Strategic priority #1 Address 2019 challenges Key Performance and grow our global Indicators leadership in performance and lifestyle nutrition
2019 progress in GPN Adjusted Earnings Per Share • Recognised challenges in certain international markets and commenced project to simplify and decomplex the business; 88.10c (2018: 91.01c) • Reorganised US operating model into Performance Nutrition -7.7% constant currency and Lifestyle portfolios; • Navigated channel shift in Performance Nutrition in US driving mid-single-digit growth of overall ON consumption; GPN Revenue • Delivered very strong double-digit SlimFast consumption levels as a result of innovation; €1.4bn (2018: €1.2bn) • Continued to develop consumer engagement and digital capabilities +11% cc with execution of D2C strategy; and • Rebranded think! business and delivered turnaround initiatives. GPN EBITA (pre-exceptional) Looking Forward €146.4m (2018: €173.1m) • Continue to rollout strategic initiatives to fund brand investment and drive future EBITA margin progression; -19.6% cc • Through higher consumer engagement, capture full scale potential of ON as a global flagship brand; LFL branded revenue volume growth • Continue growth in SlimFast through further innovation achieving full portfolio potential; -8.9% (2018: +9.2%) • Recapture growth in international markets with a more focused approach on high growth potential markets leveraging the eCommerce channel; • Continue to support our regional specialty brands in Lifestyle and Performance Nutrition; and • Hire and develop the best people. Key risks • A lack of robust market data in certain international markets; • An accelerated deterioration in economic growth or consumer confidence; • An increase in international trade volatility (tariffs); • Competitor activity or a rapid change in consumer behaviour; and • The inability to manage disruption from the spread of the coronavirus with resultant people management, supply chain and other issues.
Link to remuneration • Adjusted earnings per share is a performance target in both annual incentive and LTIP for Executive Directors; • Business segment EBITA forms part of the annual incentive and LTIP for the CEO of GPN; and • GPN LFL branded revenue growth forms part of the annual incentive of the CEO of GPN. 13 Glanbia plc | Annual Report and Financial Statements 2019
Strategic priority #2 Sustain current, and Key Performance drive further, market Indicators leadership positions in nutritional ingredients
2019 progress Adjusted Earnings Per Share • Good GN performance with strong revenue and EBITA growth; • Deepened our relationships with key customers as a partner of 88.10c (2018: 91.01c) choice for a comprehensive range of dairy, plant-based, healthy -7.7% constant currency snacking and premix solutions, across a broad range of categories; • Informed by market, customer and consumer insights, continued to innovate across all product platforms; GN Revenue • Acquired Watson, a value-added non-dairy solutions business to complement the NS component of GN’s business; and €2.5bn (2018: €2.0bn) • Progressed a new Dairy JV in Michigan, US, which is on track +19.9% cc for commissioning in 2021. When commissioned all output will be commercialised by GN. GN EBITA (pre-exceptional)
Looking forward €130.4m (2018: €111.8m) Nutritional Solutions +10.5% cc • Build on core strength in premix and healthy snacking solutions; • Continue to build strong positions in US and progress in building NS LFL revenue volume growth out our core capabilities in Europe and ASPAC; and • Develop and expand into adjacent ingredient solutions to enhance our offering and relevance to customers. +7.0% (2018: +8.5%)
Cheese • Deepen our strategic relationships with customers and suppliers through innovative partnership models; and • Continue market-leading innovation and develop export markets. Key risks • A failure to match our approach to innovation and internal capabilities to key consumer insights; • The loss or significant deterioration in commercial terms with one of our key customers; • An increase in international trade volatility (tariffs) and dairy market headwinds; and • The inability to manage disruption from the spread of the coronavirus with resultant people management, supply chain and other issues.
Link to remuneration • Adjusted earnings per share is a performance target in both annual incentive and LTIP for Executive Directors; • Business segment EBITA forms part of the annual incentive and LTIP for the CEO of GN; and • NS LFL revenue volume growth forms part of the annual incentive of the CEO of GN. 14 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Our Strategy continued
Strategic priority #3 Grow through organic Key Performance investment programme Indicators and acquire complementary businesses
2019 progress Adjusted Earnings Per Share • Successfully integrated the SlimFast brand into GPN’s lifestyle portfolio; 88.10c (2018: 91.01c) • Acquired Watson, a value-added non-dairy solutions business -7.7% constant currency to complement the NS component of GN’s business; and • Progressed construction of joint venture capital projects in Michigan, US (US$470 million) and in Portlaoise, Ireland (€130 million); and ROCE • Completed capital spend of €76.3 million. 10.9% (2018: 13.2%) -230bps Looking forward • Focus on acquisition opportunities that enhance the portfolio and OCF Conversion capabilities of GN NS; and • Working with our joint venture partners, continue the development (2018: 92%) of JV projects in the US and Ireland. 86% Total Shareholder Return (TSR) -36.7% (2018: +11.4%)
Key risks • The anticipated benefits of acquisitions may not be achieved if the Group fails to conduct effective due diligence or properly integrate the acquired businesses; • Adopting business strategies that fail to adequately recognise disruptive trends; and • Below expected performance of acquired businesses may result in the diversion of management attention and impact our growth objectives.
Link to remuneration • Adjusted earnings per share is a performance target in both annual incentive and LTIP for Executive Directors; • OCF conversion is a performance target in the annual incentive for Executive Directors and the Operating Executive; and • ROCE and TSR are performance targets in the LTIP for Executive Directors and the Operating Executive. 15 Glanbia plc | Annual Report and Financial Statements 2019
Strategic priority #4 Develop talent, culture and Key Performance values in line with our global Indicators growth ambition
2019 progress Employee Engagement Score • Continued to embed our employee-focused purpose, vision and values across all levels of the Group; 72% • Commenced a multi-year HR transformation programme; the percentage of employees who • Completed a comprehensive organisation and people review, are highly engaged through their to inform talent bench strength and succession planning; work in Glanbia • Reviewed the Glanbia graduate programme and developed an early careers framework to meet the changing needs of our organisation; • Established Diversity & Inclusion (D&I) Strategy Working Group; Glanbia Risk Management System • Accelerated talent and leadership development programmes across the organisation with continued rollout of a new suite of leadership All locations maintained or improved development programmes for all management levels; and their individual site rating from the • Prepared for our global employee engagement survey. prior year
Looking forward • Enhance culture and engagement based on learnings from our global employee engagement survey; • Deliver phase one of the multi-year HR transformation programme looking at operating model, service delivery and technology; • Continue to focus on talent, succession and leadership development across the Group; • Rollout a new global early career talent framework aligned to the diverse needs of our global organisation; • Continue to invest in hiring new capabilities and skills to underpin growth ambitions; • Develop Diversity & Inclusion strategy, align its goals with the overall Key risks business strategy and improve gender diversity at senior levels • A failure to embrace the diversity of our in the organisation; and people or invest in developing them will • Sustain focus on values and behaviours across the Group. impact employee retention; and • Strong economic performance in our key markets has increased talent retention risks.
Link to remuneration • Development of talent is a personal objective of Executive Directors and the Operating Executive. 16 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Business Model
Our business model enables us to create world-leading performance and lifestyle nutrition brands and innovative nutritional and functional ingredients. We operate through both wholly-owned businesses and joint ventures. How we add value
Impacted by Our core Driven by capabilities Key market trends Our purpose The global healthy nutrition market To deliver better Brand power Our brands occupy leading positions Read more on pages 20-21 nutrition for every in the performance and lifestyle step of life’s journey. nutrition markets with an unrivalled Our assets & resources product offering and key channel and category leadership. As an Our values ingredient supplier in the B2B Capital deployment arena, the Glanbia brand stands Financial control for quality, integrity, innovation The customers’ champion and sustainability. Quality risk management Supply chain People & relationships Portfolio management Glanbia has a strong track record Performance matters The views of our of efficient capital allocation and portfolio management. Our use of stakeholders a variety of structures including joint ventures supports financial discipline Understanding and strong returns of capital, critical key issues through to sustainable long-term growth both effective engagement. organically and by acquisition.
Showing respect Read more on pages 42-43
Glanbia Culture Operational excellence Operational excellence enables Hard-working us to manufacture products that meet customer and consumer and adaptable food safety and high-quality Find a better way standards as a trusted partner Passion for delivering to key global customers. better nutrition Curious and innovative Respectful and inclusive Science-backed innovation Winning together Collaborative Innovation is critical to our success, and that of our customers. We focus and supportive on market-led and technology-driven innovation, to move up the ingredients value chain and deliver well researched patented ingredients and branded products. 17 Glanbia plc | Annual Report and Financial Statements 2019
Outcomes Outputs Committed people
Glanbia Performance Driven through four clear Nutrition 7,385 strategic priorities Leading portfolios We attract and retain talented of consumer brands employees through management in performance and training and development programmes aligned with our lifestyle nutrition. purpose, vision and values. Address 2019 challenges and grow leadership positions Read more on pages 44-46 in performance and lifestyle nutrition Thriving communities €1.6m Sustain current, and Glanbia Nutritionals Through community giving initiatives, drive further, market sponsorships, employee fundraising Provider of dairy and corporate donations we leadership positions in contributed over €1.6 million nutritional ingredients and non-dairy based to our thriving global and local ingredients and communities and charities. nutritional solutions Read more on pages 47 to the food and Grow through organic beverage industry. Revenue investment programme and acquisition/partnership with complementary businesses €3.9bn Our core strengths are our world- leading branded products and ingredient solutions portfolios, admired by consumers and our Develop talent, culture Primary Dairy customers. In 2019 revenue grew by and values in line with 16.6% constant currency to €3.9bn. our global growth ambition Robust business models Read more on pages 22-35 with attractive, scalable platforms providing Dividend payout Our sustainability strategy dairy products in Europe & US. To advance our purpose 30.2% We have a progressive dividend and vision through an policy with a dividend payout ratio of integrated and phased between 25% and 35% of adjusted Earnings Per Share. The dividend sustainability programme, payout ratio for 2019 was 30.2%. which will strengthen our businesses for the future. Read more on pages 36-41
Read more on pages 44-51 18 Glanbia plc | Annual Report and Financial Statements 2019 > Strategic Report
Key performance indicators
Revenue Strategic relevance Performance Revenue growth is a key indicator of how the In 2019, revenue was €3.9 billion (2018: €3.2 €3.9bn (2018: €3.2bn1) Group is succeeding in developing through billion), up 22.2% on a reported basis and up investment in organic growth and the ongoing 16.6% constant currency on 2018. Revenue +16.6% cc acquisition programme. growth was driven by pricing growth of 6.6% and acquisitions of 9.9%. Sales volumes were bn In addition to overall revenue for the Group broadly flat, as volume growth in GN was offset there are a number of key components of by volume declines in GPN. bn Group revenue (price, volume and acquisition) which are actively monitored to provide greater insight into markets, opportunities and performance of Business Units.
Revenue volume growth2 Strategic relevance Performance Revenue volume growth is an important metric Overall volumes were broadly flat in the year. +0.1% (2018: +6.7%) for the Group as it represents the underlying The key volume growth metrics were a LFL growth in sales to customers excluding any branded volume decline in GPN of -8.9% and GPN -8.9% (2018: +9.2%) impact of price. Volume is further broken volume growth within the NS division of the LFL branded revenue growth down by the Business Units to understand GN segment of +7.0% LFL. The decline in the brand growth within GPN and the GPN volumes related mainly to the challenging NS +7.0% (2018: + 8.5%) components of volume growth in Nutritional environment in some non-US markets. Solutions within GN.
EBITA3 (pre-exceptional) Strategic relevance Performance Earnings Before Interest, Tax and Amortisation EBITA was €276.8 million in 2019, down €276.8m (2018: €284.9m) (EBITA), pre-exceptional items, is the key 2.8%reported and down 7.8% on a constant performance measure of the wholly-owned currency basis. GN had EBITA growth of -7.8% c c segments within the Group. The exclusion 10.5% constant currency with EBITA margins of amortisation aids comparability between down 40bps versus 2018. GPN’s EBITA m our segments. declined by -19.6% constant currency versus 2018, while EBITA margins were down 410bps. m EBITA margin is a key metric to ensure that growth is being driven in a responsible manner by maintaining margins within an acceptable range. The strategy for the Group is to focus on higher growth, higher margin products within GPN and GN.
Profit after Tax Strategic relevance Performance Profit after tax is the profit attributable to the Profit after tax for 2019 was €180.2 million €180.2m (2018: €234.0m) equity shareholders of the Company and is a compared to €234.0 million in 2018, measure of the profit retained by the Group for a decrease of €53.8 million, due to lower the year, post-tax and post-exceptional items. underlying EBITA in the year and higher m amortisation and exceptional charges. m
Total Shareholder Return 4 Strategic relevance Performance Total Shareholder Return (TSR) reflects Glanbia’s TSR was negative 36.7% in -36.7% (2018: +11.4%) the value delivered to shareholders arising 2019. The STOXX Europe 600 Food and from the ownership of Glanbia’s shares plus Beverage Index (F&B Index), which is a dividends reinvested. TSR, compared to key benchmark for remuneration purposes, a specific peer group or market index, is an increased by 30.9% in the year. Glanbia’s important measure of how successful the TSR over the three-year period of 2017 to 2019 Group has been in terms of shareholder value was a negative 32.9% versus the F&B index of creation, compared with its peers over the +38.4% and over the five-year period of 2015 same time period. to 2019 was negative 16.1% versus the F&B Index of +62.8%. Glanbia’s share price at Glanbia urope Food and e erage ndex the end of the financial year was €10.16 (2018: €16.35). 19 Glanbia plc | Annual Report and Financial Statements 2019
Adjusted Earnings Per Share2,4 Strategic relevance Performance Adjusted Earnings Per Share (EPS) is an Adjusted EPS was 88.1 cent, down 3.2% 88.10c (2018: 91.01c) important measure of the profitability of the on a reported basis, down 7.7% constant -7.7% c c Group as it represents the underlying profit currency basis, primarily driven by reduced per equity share in issue. profitability within GPN.