Last week Glanbia plc released full-year 2021 results. The mood music from the executives was positive.There was no major direct link to the Russia-Ukraine conflict, and the global nutrition part of the business that has the potential for higher returns was bouncing back.
The plc has effectively divested itself from any risk, or upside, to the Irish dairy business and two weeks ago it voted in favour of the deal which the co-op voted for last December, effectively the final hurdle on selling its 40% Glanbia Ireland stake.
Following the announcement of results last week, the Glanbia share price has fallen 15%. It had been running at €12.50 /share, but now it has slipped to the €10.60 mark.
So what’s going on? It’s fair to say the overall ISEQ index is down; the world is a turbulent place in which to do business at the moment. However, Glanbia is a pretty settled business and as Siobhan Talbot reiterated numerous times last week: “We know the dairy business.” Some might say Glanbia is too settled. Maybe even a company lacking ambition. Are they right?
So let’s look at this through the eyes of both the Glanbia naysayers and Talbot’s angels. In fairness, Talbot has steered the performance nutrition business back to a better direction (see graph). However, some must think the €100m or so that has been spent turning the performance nutrition ship around (the transformation programme) is not delivering enough.
The naysayers on performance nutrition (and there were plenty of them of late when GPN earnings hit €91m) suggest the turnaround is more price-driven than volume-driven. They suggest if the performance nutrition team sat on their hands and inflation had its way, it would deliver some of the improvement notched up.
The other piece in this is that the Glanbia procurement team who are buying the whey, the key ingredient for this business, bought long last year so now they have 90% of product bought to take them through 2022.
In the last 12 months, the price of whey that the likes of Glanbia would be buying in Ireland has gone from €5,500/t to €18,000/t. That’s €250,000 on a 20t container. Imagine if you were buying 500 containers – that’s €125m extra if Glanbia had to pay current market price for raw ingredient alone.
However, the Irish or US farmers who produced the whey are probably asking why a company would sell long in a rising market.
Overall for 2021, I think we’ll give performance nutrition to Talbot’s angels. They said she wouldn’t get it back to decent profitability, and she has. It’s back into a double-digit earnings margin at 11%, up from 8% last year. EBITA is up from €91m to €145m. Talbot’s angels 1: Glanbia naysayers 0.
The pebble in Talbot’s shoe in this sector is probably SlimFast. Since it was bought (late 2018 for €303m), it hasn’t delivered enough profit. The naysayers suggest the brand was too old.
While 98% might recognise the brand, not enough are buying it. Last year, that lifestyle nutrition portfolio only grew 3.6% versus 24.7% for the sports nutrition segment. Talbot blames COVID-19 and the fact nobody is or was slimming as there were no events, no office work and no bikinis were needed for summer holidays. The naysayers take that, and the score is level again 1:1.
The other big pillar of the Glanbia business is the nutritional solutions business. This is split in two – the US cheese business and the flavours and ingredients business.
The biggest revenue part of this is the US cheese business, with revenue over €2bn delivering €24.4m EBITA. The cheese segment dropped in earnings (EBITA) from €27m a year previous and margin dropped 20 basis points.
The flavours and ingredients side of the business is the flavours, dairy and plant-based solutions as well as micronutrients business. Acquisitions have added further capability in this space.
In fairness, this is nice business and is ticking along nicely. Earnings margin is good and has delivered €101m EBITA on €877m revenue (that’s a 11.5% margin).
In total for the nutritionals sector, it has had solid earnings of around €130m for the last three years. What pulls the positivity for the whole sector back a little is that the forecast for 2022 is suggesting EBITA will hold but margin will decline slightly for 2022 on back of inflation headwinds.
One with the other looking back on 2021 this is pretty much a draw game so it’s 2:2 Talbot’s angels v Glanbia naysayers.
The third leg to the Glanbia stool is the profit share from joint ventures. Now that it has almost finalised the sale of its stake in Glanbia Ireland back to the co-op, the principal JV operations include Southwest holdings in the US, Glanbia cheese UK and Glanbia cheese EU.
Profits after tax coming back to Glanbia for continuing operations were down to €44.9m from €61.6m a year earlier.
Glanbia says this was down to an exceptionally strong, market-driven, prior year comparative in the US joint venture as well as commissioning costs of new joint venture plants.
They showed the results separately of the discontinued operations (share in Glanbia Ireland) and profits increased €1.8m in this business for 2021, from €23.9m up to €25.7m.
Looking into 2022 the performance of continuing JVs is expected to reduce versus the prior year largely due to expected startup costs in the commissioning of the new European JV plant.
We’ll have to give this to the naysayers in the short-term game as we look at these annual results. End result 3:2 to the Glanbia naysayers.
While the 2021 performance was solid, the cautionary forecast to 2022 for each of the three key sectors is probably the main reason share price reacted like it has for the last week.
The performance nutrition business is back to better returns, however the forecasts and early performance for 2022 haven’t inspired those investing.
As for all businesses, inflationary headwinds are ever-present, but a combination of hedging and passing on price hikes makes this easier to navigate than what most farmers will be able to do in 2022.
Performance nutrition is now almost all branded business and the executives say the tidying up of this segment is working and delivering.
On the investment side, over the last three years the big spend in round numbers has been or will be: €40m on LevlUp (energy drink sector), €45m on Pacmoore/Foodarom and €300m on Slimfast. And Glanbia will soon have spent €210m on buying back its own shares.
It has of course also invested in its US cheese business and is spending €50m in the mozzarella factory in Portlaoise.
The big one is SlimFast and it has had a difficult time since joining the brand portfolio.
The share buyback scheme drives earnings per share. During the full year 2021 Glanbia purchased and cancelled 7.2m ordinary shares, representing 2.5% of total issued ordinary shares, at a total cost of €91.3m.
Buyback activity has continued in 2022 and between 4 January 2022 and 1 March 2022 the company has purchased for cancellation 5.9m shares at a total cost of €73.4m. The company will ask shareholders for another €50m in May.
Glanbia says the board continues to review buyback programmes as part of the group’s capital allocation strategy as they provide an opportunity to allocate capital to the benefit of shareholders. Others say it shows a lack of ambition if this is what they are spending money on.
Adjusted EPS (earnings per share) is a key performance indicator for Glanbia, a key metric guide to the market and a key element of director and senior management remuneration. Adjusted EPS increased by 18% in the year.
Overall solid performance, but maybe the investments are not sexy or ambitious enough for driving on share price and installing the next foundation into Glanbia for 10 years.
The forecasts for 2022 are definitely negatively affecting investors’ views on share purchase.
With more assets in plant and machinery, involvement in joint ventures is obviously down with the stake sale in GI and more stock on hand, there is €3.6bn in total assets versus €3bn the year prior.
On the liability side, borrowing was up from €458m to €697m and trade and other liabilities were up from €441 to €669m. In total, liabilities were up €441m. Total equity was up based on higher other reserves, with currency reserves and higher capital and merger reserves so in total equity is up from €1.61bn to €1.74bn.
Retained earnings that are normally used to grow and reinvest in the business are the same as 2020 at €1.3bn, even though €91m was paid out to buy back their own shares.