Glanbia plc (GL9) Earnings Call Transcript & Summary

Good morning, and welcome to the Glanbia plc 2019 Full Year Results Call with Siobhán Talbot, Group Managing Director; and Mark Garvey, Group Finance Director. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Liam Hennigan, Group Director of Strategic Planning & Investor Relations. Please go ahead, sir.

Good morning. Welcome to the Glanbia Full Year 2019 Results Call and Presentation. During today's call, the directors may make forward-looking statements. These statements have been made by the directors in good faith based on the information available to them up to the time of their approval of the full year 2019 results statements and the supporting presentation published this morning. Due to the inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. Directors undertake no obligation to update any forward-looking statements made on today's call, whether as a result of new information, future events or otherwise. I'm now handing over to Siobhán Talbot, Group Managing Director of Glanbia.

Good morning, and welcome to our 2019 full year results presentation for Glanbia. I will speak to an overview of the group transactions that we're taking to recover our growth momentum and I'm joined by our finance Director, Mark Garvey, who will outline the financial position. As Group Managing Director, I'm disappointed that our overall performance for 2019 as [by] many areas of the group performed well. We had some significant issues in some of our international markets for the GPN Performance Nutrition brands and that did impact our revenue and earnings. Overall, we did deliver an adjusted earnings per share of EUR 0.881, which was within our guidance range, but we did not achieve our 2019 growth targets. In response to the 2019 issues, we've conducted a comprehensive business review of the GPN business, the brand strategy, geographic routes to market and the operating model, and we're very clear on a series of actions that will both drive revenue momentum and improve margins into the future. We will simplify our business, allowing us to concentrate on our core brands. We will optimize our routes to market across channels and geographies. These actions commenced in the second half of 2019, and I will outline later further detail on these plans which will continue into 2020. In terms of 2019 financials, we had strong revenue growth at 16.6%. This was driven by a strong performance from our Glanbia Nutritionals segment and by the acquisitions of SlimFast and Watson, both of which are performing very well. Glanbia Nutritionals saw broad-based volume growth, with notable performances in our Vitamin and Minerals Blends business and Healthy Snacking Ingredients, both underlining the continued consumer shift towards health and wellness that we are participating in as an organization. Wholly-owned EBITA from continuing operations was EUR 276.8 million, a 7.8% decline, and wholly-owned EBITA margin from continuing operations was 7.1%, 190 basis points lower than 2018. The wholly-owned EBITA decline was driven by GPN, which, as previously noted, encountered challenges in specific international markets throughout 2019 as well as some lower sales in our North American Specialty and Club channels, resulting in lower volumes and negative operating leverage. This decline was partially offset by a 10.5% increase in EBITA in GN driven by volume growth, price increases and the Watson acquisition. Our joint venture performed well in '19, with Glanbia share of JV profit after tax increasing to EUR 48.6 million, primarily as a result of good volume growth in all of our joint ventures. Glanbia is financially strong and cash generative. We have maintained a strong financial discipline and continued our focus on operating cash conversion with a 2019 conversion rate of 86%. The Board will be recommending to shareholders a 10% increase in dividend for 2019 to a payout ratio of 30%, and will also be seeking shareholder approval at the AGM for a share buyback program. As a team, we are highly focused on regaining our growth momentum. 2020 will be a year of transition to stronger organic growth, and we have initiated a strong series of actions to position Glanbia for enhanced shareholder return in a growing healthy nutrition market. Our key strategic focus areas for 2020 are very clearly to firstly regain growth momentum in the GPN branded business. As noted earlier, we have completed a comprehensive review of the business, across brand strategy, geography and operating model. Post this review, we have commenced in the second half of 2019, a series of initiatives to drive top line growth and margin momentum. The clear initial priority is to drive top line growth and this will be achieved through a renewed focus on our 2 platform brands: Optimum Nutrition in the performance nutrition category globally and SlimFast within the lifestyle portfolio in North America and the U.K. And these initiatives will continue in 2020. Complementary to the work in GPN, we have commenced a group-wide review of our operating model to assess opportunities to drive productivity and efficiencies through leveraging the Glanbia scale. And this work will fund further investments in our Ingredients and Branded portfolios and drive group margin progressions in the coming years. [In light] of these plans, we'll continue to execute the planned growth strategy, GN and the joint ventures, prioritizing the continued evolution of GN Nutritional Solutions through both organic growth and acquisitions. Turning specifically to the operating and strategic review for GPN, the business delivered revenue growth of 11% in full year '19. This was driven by the contribution of SlimFast, which was acquired in November '18 and increased GPN revenues by 20.6%. This was offset by a volume decline of 9% and pricing decline of 0.6%. Branded revenue declined 9.8% in the year on a like-for-like basis, with volume declining 8.9% and pricing 0.9%. By Q4, what is expected our strongest quarter of 2019, it was down on the prior year due to the previously noted challenges in international markets and some lower activity in the U.S. club challenge -- channel relative to the prior year. The overall pricing decline related to the first half of '19 and in the third quarter, the price increases across approximately 70% of our portfolio was successfully implemented. And that delivered positive pricing in the second half. GPN pre-exceptional EBITA in full year '19 was EUR 146.4 million, 19.6% lower than the prior year, with a margin of 10.7%. Margins improved in the second half of '19. However, due to increased marketing spend, lower like-for-like volumes and the resulting negative operating leverage and business mix, full year margins reduced by 410 basis points versus the prior year. Turning specifically to the review completed of GPN and the areas of focus across brands, strategy, reorganization and routes to market. From a brand perspective, we will prioritize and focus investment on Optimum Nutrition and SlimFast. Of our total branded portfolio of approximately $1.4 billion, these brands were $1 billion in 2019. Other performance nutrition and lifestyle brands will play key specific roles in our portfolio, specifically, addressing certain consumer motivations across specific channels. The Body & Fit direct-to-consumer brand is a key path to growth for us in the online channel in Europe as well as providing a digital capability that we will leverage on a global basis. We will exit the majority of our U.S. Contract Manufacturer business during the second half of '20 and into '21. This business represents approximately 5% of the total GPN 2019 revenue. And exiting the Contract business will both facilitate a clear focus on driving our brand performance and facilitate an optimization of our supply chain. We are also streamlining our product portfolio. This is being achieved via an SKU rationalization of the lowest performing products. This process has already commenced, and while we are eliminating approximately 35% of our SKUs, we expect the reduction to have a reasonable minimal impact on net sales. Business growth over the years across multiple markets have led to an SKU proliferation with resulting increased costs. And so we will [ reduce ] these as I've outlined. We will further refine our approach to innovation in GPN, driving demand for higher-margin opportunities across the branded portfolio. We have had a strong history of innovation in the business and exceeded our innovation targets of 15% of net revenue. Going forward, we will take a more focused approach, aligned with the channel shift in our key North American markets and driving focus again in the Optimum Nutrition and SlimFast brands. Aligned with this brand focus, GPN will now be managed as North American Performance Nutrition, which is 39% of the portfolio; North American Lifestyle, 29% of the portfolio; International, 26% of the portfolio; and our direct-to-consumer business, which is currently 6% of the portfolio. In North America, GPN had 2 distinct brand portfolios and consumer motivations. Market segments and reach differ for each element of the portfolio, and both now have the scale to benefit from focused resources to drive growth. In international markets, GPN is reshaping to focus primarily on the Optimum Nutrition brand in the Performance Nutrition category and Body & Fit direct-to-consumer platform in Europe enhances our digital capability globally. We have invested in new senior talent across the GPN business. This enhances our capability and will help regain growth. In terms of route-to-market, historically, we have expanded our brand presence outside North America through an export-led model, serviced from our manufacturing operations in the U.S. and the U.K. and supported largely by local distributor partners. Currency changes, higher tariffs and an improved local competitive set has challenged our competitive position in some markets in 2019. We have completed a detailed review by markets and reassessed how best to compete across these markets and to regain growth momentum. We have assessed our route-to-market partners and our supply chain. We have made changes to [date] some further changes of plans. Ultimately, we will optimize our supply chain globally, encompassing a mix of wholly owned and contract manufacturing arrangements, and we will redefine our partner relationships in certain key geographies. These initiatives will drive sustained top line momentum for GPN from 2020, with an improving margin progression. Our target is a minimum of 200 basis points margin improvement, net of investments in GPN by 2022. From a brand perspective, growth will be achieved, as I've mentioned, through the renewed focus on ON within the Performance Nutrition category globally. This brand which had global sales of $655 million in 2019 is the largest brand in the GPN portfolio and makes up the majority of sales of North America Performance Nutrition and International businesses. The key format for ON are protein and energy powders, and we recently launched a ready-to-drink product in the specialty channel. SlimFast, within the North America and U.K. Lifestyle portfolio, was acquired in November '18. SlimFast grew strongly in 2019 to a revenue of $325 million and anchors the North American Lifestyle portfolio. Ready-to-drink has been a key format for SlimFast historically, but the range has been significantly extended in 2019 into ready-to-eat formats, particularly under the Keto range. These 2 brands represent almost 70% of the total branded portfolio of GPN, and we will further increase our marketing investment in 2020 in these brands. Turning then to the component parts of GPN. The North American Performance Nutrition portfolio accounted for 39%, EUR 538 million of total global GPN sales in 2019 and encompasses the Optimum Nutrition, BSN and Isopure brands. Revenue declined in this portfolio as shipments lagged consumption during the year and the business had a lower level of activity in the Club channel in the fourth quarter relative to the prior year. As a category leader, particularly in the online and Club channels, Optimum Nutrition recorded year-on-year consumption growth of mid-single digits in North America-measured channels, which captures about 72% of ON net sales. And this arose as a result of very focused marketing investments. This growth was despite the continued declines in the Specialty channel in 2019. Pricing in this segment was negative for the first half, but price increases implemented in H2 resulted in positive pricing for the year. In assessing the opportunity for our Performance Nutrition brands, we have segmented consumers based on their openness to the category as cash reusage. We see significant opportunity to increase ON consumption among both powder category users and active non-users open to the benefits of protein powders. We position ON as the most trusted global sports nutrition brands. And in 2020, we will capture this opportunity in a number of ways. We will invest to drive brand awareness. We're completing a packaging redesign and we're further rolling out the Optimum Nutrition Proven Campaign across multiple consumer touch points in North America and international markets. While our focus is on Optimum Nutrition, we will continue to support the BSN and Isopure brands in specific channels and consumer segments, most notably the Specialty channel. As noted earlier, consistent with the focus on our ON and the overall program to simplify our business, we have significantly reduced the number of SKUs in the North American branded portfolio. We will also exit the majority of our North American contract business, as I've referenced, which accounted for 5% of GPN total sales in 2019. Both of these initiatives will simplify our supply chain. Turning to the North American Lifestyle portfolio. This accounted for 29%, EUR 392 million of total global GPN sales in 2019 and encompasses SlimFast, think! and Amazing Grass brands, the platform brand within this portfolio of SlimFast, which grew consumption in North America measured channels by 49% in 2019. Measured channels capturing about 73% of SlimFast net sales. This significant growth was mainly as a result of the successful innovation across a range of ready-to-eat and ready-to-drink formats in the keto weight management category. In 2019, revenue progression in the total North American Lifestyle portfolio on a like-for-like basis was flat versus the prior year, as a weak first quarter was balanced by a good final quarter. The final quarter reflected good momentum in the think! brand, which was relaunched in the second half of the year and the ongoing strong performance of SlimFast, which enter like-for-like comparisons in November. Our 2020 strategy for SlimFast is to continue to invest in marketing, driving brand's penetration across all segments, our original, advanced, energy and Keto range and in these formats: ready-to-drink, ready-to-eat and powders. Brands' health remains strong, and we continue to grow household penetration. For think!, we will continue to invest behind the relaunch, while for Amazing Grass, our focus is on capitalizing on the positive trends of plant-based nutrition. To International, it accounted for 26% of the 2019 total global GPN sales, with European market, 16%; and rest of world -- sorry, 13%, and Rest of World, 13%. These markets were the most challenging for GPN in 2019 as foreign exchange headwinds and higher tariffs impacted our competitive position. And as a result, branded volume declined by double digits in the year. In response to this, we've taken clear actions to restore International Markets to growth in 2020. In Europe, growth in the U.K. market was offset by declines in Western Europe, largely as a result of the acceleration of channel shift from Specialty to Online. This market shift is being addressed through our focus on our Optimal Nutrition brand and our direct-to-consumer platform by the [indiscernible]. In Rest of World markets growth in Asia and Australia was offset by challenges we previously outlined in Brazil, Middle East and India. GPN's relative competitive position declined in Brazil in the period, largely due to foreign exchange headwinds on products imported from GPN's U.S. manufacturing base. To better address this, we have changed our route-to-market arrangements in Brazil, and this transition will be completed through 2020. In the Middle East, access to a number of markets was reduced due to political instability in the region. And in response to this, GPN scaled back its presence in those markets. In India, the relative competitive position has been impacted by foreign exchange headwinds and importation tariffs, which increased in late 2018. Supply chain initiatives commenced in India in 2019 have taken longer than planned and will be ongoing into 2020. Throughout our international markets, we have advanced on a series of initiatives to simplify our business, reduce product complexity or to route-to-market in supply chain and refocus our teams and resources on driving the Optimum Nutrition brands. This work will continue into 2020 and underpins our growth ambitions. As an overall route-to-market, our consumers purchased 26% of our revenue online. We engage with our consumers in a number of ways. We engage directly through the Body & Fit platform, our own direct-to-consumer platform. We engage through key relationships with the large e-commerce players and we engage directly with consumers through digital media. Body & Fit, which is our direct-to-consumer online platform, serving customers in Europe, accounted for 6% of total GPN sales in 2019. Body & Fit has upgraded its online platform and increased its digital resourcing. It is expanding its presence in Western Europe with a target of serving 10 markets by the end of 2020. In addition, Body & Fit provides GPN with strong e-com capability, which can be deployed across other brands in the portfolio as well as across many markets. In the area of digital marketing, by way of example, we've developed over 1,200 pieces of digital content internally for the Optimal Nutrition Proven Campaign, and this has been seen by consumers in more than 25 markets. We've also developed tailored digital content for some of our key customers. So overall, for GPN, we are very focused on actions to drive revenue, earnings and margin progression in 2020. Turning to Glanbia Nutritionals. It had a good year in 2019, delivering revenue growth of 19.9% and EBITA growth of 10.5%. Nutritional Solutions is a global provider of nutritional and functional premixed solutions for use in healthy snacks, bars and beverages. Nutritional Solutions' revenue increased by 23.4%, with a strong performance across both dairy and non-dairy solutions. Volumes increased by 7%, pricing by 3.8% and the Watson acquisition contributed 12.6% to revenue growth. Volume growth was broadly based across the business, particularly for the Vitamin and Mineral Blends and for the U.S. dairy-based Healthy Snacking Ingredients. Pricing increase was primarily achieved in our Specialty Dairy Solutions. Nutritional Solutions delivered an increase in EBITA of 7.1% as a result of revenue growth, with margin decline of 210 basis points to 13.4%. The margin decline related primarily to negative mix from certain dairy ingredients, headwinds from tariffs, increased investment in resources to support growth and some dilution from the Watson acquisition. Innovation is a key differentiation of Nutritional Solutions. With our resources based in Europe, the U.S. and China, where we're very much focused on a collaborative approach across both global and regional customers, we have developed a series of solutions in the healthy snacking space, delivering high-protein solutions across multiple formats in the dairy and non-dairy space. This supports our strategy of both continuing our leadership position in high-protein ingredients for the healthy snacking category in the U.S. but also extending this capability into new geographies as consumers adopt the trends for high-protein convenience snacking. The Watson acquisition has been a very complementary acquisition to the Nutritional Solutions portfolio. It has enhanced our capabilities and our sectoral reach within the technologies such as edible packaging now within our portfolio. US Cheese is a leading producer of American-style cheddar cheese in the U.S. supplying a broad range of customers who participate in food service and retail, consumer branded and private label end markets. US Cheese sells cheese produced by Glanbia and is also the commercial partner for our joint venture partner, Southwest Cheese. US Cheese revenue increased by 18.5% in the full year. This was driven by pricing higher by 13.6% as cheese markets were significantly stronger in the second half of '19 versus the prior year. Volume growth was 4.9%. And a good operating performance overall drove EBITA growth of 23.6% and some margin progression. Glanbia share of profit after tax from our joint ventures increased to EUR 48.6 million in 2019 driven by revenue and margin growth. Glanbia share of joint venture's revenue increased by 12.9%, with sales volume growth of 9.6% and pricing positive by 3.3%. Glanbia Ireland delivered a good performance overall, with revenue growth driven by higher volumes. Southwest Cheese, as you know, a large-scale producer, again, of American-style cheddar cheese, all of Southwest Cheese and whey output is sold by our Glanbia Nutritionals route-to-market channels. Southwest Cheese had a strong performance in '19 as a result of higher revenue due to increased pricing and volume growth as we increased production capacity and had higher U.S. dairy markets in the year. Midwest Cheese, our new joint venture in Michigan is at an advanced stage of construction with commissioning expected in 2021. Glanbia Cheese UK delivered higher revenues in 2019 due to increased volumes, offset by a modest reduction in market pricing. Our new joint venture to construct a mozzarella cheese plant in Ireland, again, is progressing to plan, with commissioning expected to be completed before the end of 2020. I will now hand over to Mark for the financial review.

Thanks, Siobhán, and good morning, and welcome to everyone on the call. I will walk through our financial results for the year. Walking through the income statement, wholly-owned revenues were EUR 3.9 billion, up 16.6% on a constant currency basis, which is made up of 9.9% contribution from the SlimFast and Watson acquisitions, a 6.6% increase in pricing with volumes in line with prior year. Wholly-owned EBITA pre-exceptional was EUR 276.8 million, down 7.8% constant currency due to lower performance of Glanbia Performance Nutrition and wholly-owned EBITA margin of 7.1%, down 190 basis points constant currency. Intangible amortization of EUR 60.9 million, up EUR 15 million from prior year due to recent acquisition activity. Net finance costs were EUR 26.3 million, up EUR 8.8 million, reflecting higher average debt in 2019, following the acquisitions of SlimFast and Watson and further investments in joint ventures. The group's average cost of debt in 2019 was 3.4% compared to 4.3% in the prior year as a result of debt composition and lower U.S. dollar interest rates. As mentioned previously, the share of profit after tax of joint ventures was EUR 48.6 million, up EUR 3.3 million on the prior year, with improved results from all joint ventures. The group's effective tax rate for the year was 12.3% compared to 14.8% in 2018 driven by the geographic mix of group income, lower acquisition-related tax charges as well as lower tax provision charges in 2019, the effective tax rate to be in the range of 11.5% to 12.5% in 2020. Adjusted earnings per share was EUR 0.881, which is down 7.7% constant currency and 3.2% reported versus prior year. Basic earnings per share was EUR 0.6104 compared to EUR 0.7928 in 2018, primarily due to exceptional costs of EUR 34.6 million incurred in '19. It was a challenging year for the Glanbia Performance Nutrition segment, primarily in international markets. Overall, revenues were EUR 1.36 billion, up 11% constant currency. Revenue growth was driven by SlimFast, which was acquired in November 2018 and had a strong performance in '19 contributing 20.6% to GPN's revenue growth. Organic revenue volume was down 9%. Pricing declined 0.6%. On a like-for-like branded basis, volumes were down 8.9%, and pricing was down 0.9%. Volumes declined due to challenges in some of our international markets as well as some reduced activity in the Club and Specialty channels in North America. Although pricing was negative for the year, price increases implemented in the third quarter resulted in positive pricing in the second half of the year. In response to these challenges, we've accelerated a comprehensive business review of GPN's brand strategy, route to market and operating model and have initiated actions to drive revenue growth and improved margins in 2020. Glanbia Nutritionals had a good year with revenue EUR 2.5 billion, up 19.9% in prior year, with EBITA of EUR 130.4 million, up 10.5%. Nutritional Solutions posted revenues of EUR 745 million, up 23.4% constant currency, which included a 12.6% contribution from Watson, which was acquired in the first quarter. Volumes were up 7% and pricing was up 3.8%. Organic volume growth was driven by strong performance in Asian markets for Vitamin and Mineral Blends and in the U.S. for dairy-based Healthy Snacking Ingredients. The increase in pricing as primarily as a result of dairy-related Ingredient Solutions versus prior year. US Cheese also had a good performance in 2019. Revenues of EUR 1.77 billion were up 18.5% constant currency with pricing up 13.6% due to stronger cheese markets in particular to the second half of the year, with volumes up 4.9%, benefiting from the full year impact of the capacity expansion in Southwest Cheese. The Group incurred material one-off exceptional cost net of tax of EUR 34.6 million in 2019, the majority of which related to initiatives underway in the GPN segment. As mentioned earlier, the group performed a comprehensive review of GPN across brand strategy, geographies and operating model in the second half of '19, resulting in the reorganization of the segment into 4 key businesses: North America Performance Nutrition, North American Lifestyle, International and Direct-to-Consumer. Our prioritization investments in the Optimum Nutrition and SlimFast brands and a streamlining of our product portfolio enabled a simplification of business operations. Organization redesign costs of EUR 12.7 million were incurred including redundancy and employment related costs and talent was repositioned or recruited across the GPN organization. In addition, the GPN team with external assistance assessed on-the-ground market dynamics in specific international markets, determined route-to-market changes, simplified brands and product offerings in these markets. An important element of simplifying the GPN business has been a decision to focus on our key hero SKUs and eliminate lower-performing items. To achieve this, we accelerated the rationalization of 35% of SKUs in the business. The rationalized SKUs were grouped into 3 areas: a refocus on brands and product offerings in international markets to hero SKUs, to simplify and provide route-to-market focus; responding to the decline in the Specialty channel, which traditionally has been a key route to market for innovation and a discontinuation of innovations and FDMC channels, which did not meet our performance targets. These decisions have led to asset impairments of EUR 17.3 million and will significantly simplify our brand portfolio and commercial routes to market, while also enabling the business to optimize its manufacturing and supply chain operations, which will improve future margins. Acquisition integration costs related to the integration of SlimFast and Watson and Brexit-related costs or costs associated with the preparation for Brexit disruption during 2019. The group generated EBITA of EUR 324.9 million in 2019 and after a EUR 20 million outlay in business-sustaining capital expenditure and a working capital outflow of EUR 25 million, operating cash flow was just under EUR 280 million for the year, representing an 86% conversion of EBITA into operating cash flow. The outlay for interest and tax was EUR 74 million compared to EUR 42 million in 2018 due to higher interest costs as a result of higher average net debt as well as some one-off tax payments of EUR 9 million following acquisition integration-related to SlimFast U.K. and payments of approximately EUR 9 million of estimated taxes, which will now be applied towards 2020 payments. Dividends from joint ventures were EUR 35 million and free cash flow was EUR 231.5 million for the year. In 2018 and 2019, the group invested just under EUR 600 million in strategic acquisitions, joint venture investments and capital expenditure projects. SlimFast in late 2018 and Watson in early 2019 have been important additions to the GPN and Nutritional Solutions portfolios. Investment continues to the Michigan Cheese joint venture and Glanbia Cheese EU venture with $35 million and EUR 16 million invested, respectively, in these projects by the group in 2019. To date, $75 million has been invested by the group into Midwest Cheese, with $7.5 million remaining to be invested in this $470 million project in 2020, with commissioning expected to be completed in 2021. With Glanbia Cheese EU, a total of EUR 25 million has been invested to date by the group and a further EUR 10 million will be invested in 2020 in this EUR 130 million project, which is expected to be commissioned in the second half of 2020. Capital expenditure of EUR 76 million was spent in 2019, of which EUR 20 million was business sustaining. The strategic capital expenditure was EUR 56 million with continuing investments in enhancing our direct-to-consumer online platform, innovation and enhancing our manufacturing facilities. Return on capital employed has reduced to 10.9%, as the significant recent investments in acquisitions and joint ventures have increased our capital employed with returns coming through over the coming years. We continue to target return on capital employed in the range of 10% to 13%. The group maintains a strong balance sheet and ended 2019 with net debt of EUR 614 million, which was up from EUR 577 million in the prior year due to the Watson acquisition and JV investments during the year. Net debt-to-EBITA was 1.7x and interest cover was over 9x, well within our covenant requirements. The group is focused on efficient capital allocation and the balance between investments for growth and returns to our shareholders. Capital expenditure for 2020 will be in a range of EUR 75 million to EUR 85 million. In the coming year, our M&A program will be primarily focused on nutritional solutions as we focus on returning growth momentum to GPN. The Board are proposing a dividend increase of 10%, which represents a payout ratio of just over 30% of 2019 adjusted earnings per share. In addition, the Board will seek shareholder authorization at the Annual General Meeting to implement a share buyback program. The group currently has approximately EUR 350 million of capacity within our existing financial covenants to pursue M&A opportunities and capital return initiatives while maintaining a strong financial position. And with that, I will hand it back to Siobhán.

As outlined earlier, our 2020 priorities are clear. We're very focused on regaining momentum in GPN and the recent comprehensive review of the business has driven actions to drive top line momentum and margin progression. We are targeting a return to top line growth in 2020 and have commenced a series of initiatives to drive margin growth with the ambition to achieve a minimum of 200 basis points improvement by 2022. In addition, we have commenced a group-wide project where we will assess opportunities to target productivity and efficiency benefits through leveraging our scale. We will provide further updates on this project during the year. A number of our financial metrics as outlined at the Capital Markets Day in 2018 remain unchanged. However, adjusted earnings per share for 2020 are expected to be broadly in line with the prior year on a constant currency basis. But our ambition is to average 5% to 10% growth in adjusted earnings per share for the 3 years to 2022. We will sustain our focus on cash discipline, sustaining a cash conversion metric of about over 80%, a return on capital of between 10% to 13%, our dividend payout ratio of 25% to 35% and driving for group revenue up to EUR 6 billion as previously noted. We see 2020 as a year of transition for Glanbia to sustained growth, with a clear immediate focus on driving top line momentum in GPN and Glanbia Nutritional Solutions segments. As we phase investment to fuel this growth and continue the initiatives that I've outlined in GPN and the group to drive further margin progression, we expect adjusted earnings per share for 2020 to be broadly in line with 2019. We expect GPN to deliver branded revenue, margin and EBITA progression in 2020. In Glanbia Nutritional Solutions segment, we expect continued revenue momentum to be offset by margin headwinds. Our joint venture performance year-on-year is expected to decline, largely due to the commissioning costs of the new capital projects. We're not immune from global disruption for the start of 2020 as planned and in terms of the shape of 2020, we expect the half year to be broadly in line with 2019, reflecting both talent and brand investment in the first half and the seasonality of our business. Through 2020, as outlined, we sustain our focus on cash and drive strong cash conversion in the business. We will now move to questions.

[Operator Instructions] We will take our first question today from James Targett of Berenberg.

My first question is on the SKU rationalization you're talking about: the 35% of SKUs. Could you just -- I'm curious as to sort of what your brand portfolio is going to look like -- your brand and product portfolio is going to look like when you're done here? Is it maybe kind of -- is it so the bars, ready-to-drink or the powdered SKUs which are being discontinued? And within that, the brand mix, obviously, you've talked about the focus on ON and SlimFast, but are you planning on actually discontinuing other brands or even selling some of the other brands in GPN? So I'm just really looking to see how the portfolio is going to look like post the rationalization you're talking about. And then secondly, just on the GPN International business, you -- obviously, the various headwinds you were facing during 2019 in India, Middle East, Brazil, Europe and maybe as we go through the year, can you give me color about when you expect to see inflection in those different areas, if at all, during 2020?

Thank you, James. In terms of the brands portfolio, as we've outlined, our clear focus is Optimum Nutrition and SlimFast, but we do have very good other brands within the portfolio that you referenced. So the SKU rationalization was quite broadly based across different formats and different brands. We're very clear, though, the focus is on those hero SKUs. I think the thing to think about is, particularly, in some of the international markets as we've been growing, we have quite an amount of SKU proliferation. So an amount of the SKU rationalization now is across those markets, where we will really focus on particularly Optimum Nutrition because there's some very strong powder in particular offerings that resonate very well across those markets. So even post the SKU rationalization, we continue to see our format mix continue to evolve. With the acquisition of SlimFast now, we clearly have a lot more presence in both the ready-to-eat and ready-to-drink categories. So I do can see that journey continuing. So quite broad-based, but clearly focused as we look forward, I think Optimum and SlimFast will continue to be our larges brands. In terms of the GPN International business, yes, absolutely, we will continue to update during the year. I would say that we have significantly recalibrated our short-term expectations, recognizing that some of the actions that we're taking will take some time. So when we speak to an ambition for growth across the international markets for -- as a total piece for 2020, we have been cautious on the pace of evolution of India and Brazil, in particular. We do see continued growth opportunities [ borrowed ], and India continues to be a market of focus for us for the longer term. But we are very cognizant that it will take some time to change the route to market and we factor that into our perspective on our [indiscernible].

Can I maybe -- just following up on the guidance for top line GPN, you say return to growth. That's -- obviously, you're talking about discontinuing the Contract business. So I assume you're talking about return to growth purely on the branded business. And -- but I imagine you -- do you still expect to see the International business negative in 2020?

Overall, James, I would actually expect the International business to grow, actually, as we're getting good momentum across some of the other regions [ after ] the ones we specifically mentioned. Clearly, there are certain disruptions in the market like Coronavirus just now, and we've taken some disruption on that into the first quarter, with, absent any major move in that situation, we expect International to grow. Overall, at this point in time, I would still expect the total revenue of GPN to grow probably in that low single-digit range for 2020 and then, as you say, branded would better than that for obvious reasons as we exit the North America Contract Manufacture business.

We will take our next question from Karel Zoete of Kepler.

I have a couple. The first one is on the project to reduce SKUs and sales cost within Glanbia. Can you tell us what's more or less the overall savings number of those 2 individual programs? And the second question is then on the share buyback you plan to propose to shareholders. What kind of amount should we think of in terms of share buyback? Those were the first 2 questions, please.

How we thought about our margin progression is clearly across the areas of brand management, rationalizing our SKUs, which will facilitate changes in our routes to market and, indeed, over time, our manufacturing footprint. And if you think of our overall ambition of 200 basis points margin improvement to 2022, I would spread them equally across those areas. Fundamentally, what the rationalization of SKUs is allowing us to do is simplify our business, focus on the SKUs that have highest margin and therefore, profitability. And actually facilitate with some other actions, like the Contract business exit, facilitate changes in our supply chain and over on optimizing that over a period of time. These actions will naturally take to 2022 to have a full year effect, but there's a mix across all 3 areas. I would say though, that at this point in time, we have very good visibility across a lot of those initiatives to get me to that margin journey to 2022, and we'll continue to update as we go through the years and do, I think, as we said, see margin progression within 2020 as we start that journey. In terms of the share buyback question, Karel, I'll pass to Mark.

Karel, as I said, the Board will seek shareholder authorization for a buyback program at the upcoming Annual General meeting. And our intent is to listen to our shareholders in the coming months prior to that vote. And should we receive that approval of the amount for the Board regarding the quantum -- but as I said, we've got EUR 350 million of capacity write-down from an M&A perspective or a capital return perspective. And I'd see a reasonable balance there of [about] 60% of that could be used for M&A, 40% for buyback, for example. But ultimately, it will be up to our shareholders here in terms of their approval at the AGM and then discussion at the Board.

Our next question comes from Heidi Vesterinen from Exane BNP Paribas.

So a few, please. First of all, could you update us on pricing and input cost dynamics as we go into 2020 for GPN, please? And then secondly, I was surprised that North American Lifestyle was flat. Could you talk more about what happened there? I know you talked about the dynamics in Q1 and Q4 and the relaunch of think!, but could you tell us a little bit more? And is it still a competitive environment? And then lastly, in Nutritional Solutions, I wondered if you're seeing any disruption in the vitamin chain, as I would think some of those inputs come from China.

Heidi, pricing, as I look forward into 2020, we would expect probably to be overall slightly positive. Clearly, in terms of the input costs, we don't see any major shifting at this point in time. We will have the full year effect of the price increase that we put through in the second half of '19. So that will be positive for us. And we'll continue to monitor pricing opportunities, as you can imagine. In terms of the Lifestyle portfolio, yes, we have relaunched, think! that is a competitive space, as you outlined, but we would be very pleased about the volume momentum that we've seen in that brand since the relaunch. So we'll continue to execute that through 2020. Clearly, SlimFast has had a very strong performance in '19. We expect to see further volume momentum in the SlimFast brand as we come into '20, clearly, not on the scale that we've seen in 2019, but right across the SlimFast portfolio, we're continuing to invest to drive momentum across the advanced, the energy and indeed the Keto range. So positive about the overall Lifestyle portfolio that will be underpinned by increased marketing investments. In terms of the tariffs, yes, you are correct that there are tariffs positions in terms of the vitamin and obviously, the supply chain piece. We're well positioned, in fact, in terms of our inventory at this point in time in terms of the threat that Coronavirus would give to supply chain. Monitoring it very closely, Heidi, I would say, as indeed, all our businesses are to the extent that it disrupts significantly, either consumer demand or supply chain, we would keep a very watchful eye on that. We have factored in, to the extent we see any disruption in quarter 1. And as I say, our inventory positions are good at this point in time, but it'd be very much a watching brief in that regard.

And when we think about quarter 1, so what is the impact of Coronavirus on your company? Is it mainly this cost piece we talked about? Or do you see demand headwinds in either of the businesses?

I think it is a management level of disruption for the first quarter. We do still see top line momentum to come through in the first quarter. It really manifests itself in 2 ways: first of all, Chinese is a partner for members of 2% by our overall sales. So a relatively small element of the total Glanbia portfolio. But that does not mean, by any way, we're complacent because we've had good growth in that region for our branded Performance Nutrition. And so it's not unimportant for us. Clearly, safety of our employees is paramount. Just now, we have 130 employees of a total of 7,000 in the region. So we're monitoring that. And then from an ingredients' perspective, obviously, engaging with our customers, seeing how they respond to consumer demand for, indeed, their brands. So I would say, relatively modest, but factored in disruption in the first quarter, and we continue to factor it in as it develops.

We now move to Jason Molins of Goodbody.

A couple of questions, if you don't mind. Just on the international markets. I'm just wondering if you can give us a bit -- a few more specifics on what you've done in the various markets, for instance, in Brazil, you mentioned the change of the route to market. Can you maybe elaborate a bit more on what you've actually done there? And likewise, when you -- when you mentioned, I think, withdrawing from certain markets within the Middle East, that would be useful? And then, just in terms of exceptionals, what should we think about exceptionals for this year, given the level of spend that you've had last year? And given some of those exceptionals related to unsuccessful innovations, et cetera? How are you thinking about new product development for the business? Is this giving you more concern, given maybe the track record over the last 12 months?

Thanks, Jason. I'll speak to the international markets, and Mark can make some comments on the exceptional charges. In terms of the regions that you've mentioned, we've been very action orientated through 2019. So in Brazil, we have changed our distributor partner. We will be working with a new partner to access opportunities in that region. Similarly, as you referenced, in the Middle East, we -- various markets can open up to the various points in time in some of these regions. There's obviously been an amount of disruption in that region and so we scaled back our presence. So a fundamental theme really of how we've approached our opportunities internationally and we remain ambitious for our international opportunity. But a fundamental theme has been around focus on simplification, really making sure that we have the right partners on the ground, that the blend of our own resources on the ground complements the distributor partnerships where -- where we have them and our supply chain is as optimized as it can be. As we said, through 2019, we have already altered some decisions around local manufacturing in regions like India. We'll continue to evolve that through 2020. And ultimately, it's about freeing up as much of that value chain for our products as we can to reinvest and make our products as competitive as they can be on the consumer shows. You mentioned just innovation in passing. That's always been a theme of how we approach some of these markets. So I would say, we will reduce SKU complexity in the region, focusing on brands like Optimum Nutrition that travel very well. It's a brand that has an over 30-year heritage, travels very well across many geographies. And really, it is about clear focus, clear partners and clear ambitions for growth across those markets.

Yes, Jason, then in terms of your other question, the decision we made in terms of reducing the proliferation of certain SKUs really weren't adding significant value to our overall bottom line, now enables us, of course, to look at our supply chain, look at our manufacturing footprint in different light to make sure that we can get the most efficiency out of those. So that would be another phase of work that we're doing across the GPN organization, and it's a bit too early to guide you at this point in terms of what an exceptional charge might be or what a charge might be for that. We'll certainly come back to you and discuss that with you as well as Siobhán mentioned earlier, we're looking at group initiatives, which will enable us to collaborate better in terms of what we're doing and across our group and that may as well have some sort of charges associated with that. But what I would say to you is, all of these will enable us to enhance our margins going forward. It gives us better line of sight to the guidance that we're giving in terms of the GPN margins, for example, 2020 up to '22. And what we do is each quarter, we'll update you in terms of where we are on those particular projects.

Okay. And sorry, just getting back to Brazil. Brazil seemed to suffer, I think you called out from an FX headwinds and sort of impacting your competitive position. How does changing the distributor partner as such change that mix or change that threat?