Glanbia plc (GL9) Earnings Call Transcript & Summary

Good morning, and welcome to the Glanbia plc Q3 2020 Interim Management Statement with Siobhán Talbot, Group Managing Director; and Mark Garvey, Group Finance Director. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Liam Hennigan, Group Director of Strategic Planning and Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to the Glanbia Quarter 3 2020 Interim Management Statement Call and Presentation. During today's call, 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 interim management statement. 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. The directors undertake no obligation to update any forward-looking information made on today's call, whether as a result of new information, future events or otherwise. I'm now going to hand the call over to Siobhán Talbot, Group Managing Director of Glanbia plc.

Thank you, Liam, and good morning, everybody, and welcome to our third quarter 2020 interim management statement call. I'm joined this morning by our Group Finance Director, Mark Garvey. I hope you're all safe and well, and I'd like to thank you for coming on to our call today. I'm pleased with our results for the first 9 months of 2020 in what has been a truly extraordinary year. For the wholly-owned group on a like-for-like basis, having started the year well with double-digit revenue growth in Q1, we saw COVID-19 challenges result in a double-digit revenue decline in Q2. However, today, I'm pleased to report that revenue grew again in Q3 by 5.4% relative to the prior year resulting in an overall year-to-date like-for-like revenue growth of 3.1%. This Q3 performance reflects the ongoing resilience of our Glanbia Nutritionals business and the significant sequential improvement in our Glanbia Performance Nutrition business across all business areas, particularly internationally in the third quarter. As planned, we also saw a significant margin improvement in GPN in Q3, aligned with that improved revenue momentum. Our joint ventures too continue to demonstrate the robustness of the business models we have developed. And finally, we had excellent performance on cash flow, with operating cash conversion well ahead on a rolling 12-month basis of our targeted rate of 80%. And this enabled us to deleverage our balance sheet by EUR 188 million versus this time last year and to bring net debt down below 2x. While mindful of remaining very cost-conscious in the business, this good liquidity position has enabled continued strategic investment across the group, including the acquisition of Foodarom that we closed in Q3, and today announcing a share buyback program of up to EUR 50 million. All of the progress that we have made in Q3 in navigating the current uncertain landscape has been the result of incredible efforts by our employees, our partners and our suppliers and our customers, and I continue to be very grateful for their efforts and agility that has been demonstrated this year. For the remainder of 2020, I'm confident that we will continue to grow group earnings and margins into Q4. There are 3 focus areas that will drive that. Firstly, the GPN transformation project is progressing to plan and is driving margin improvement in the business that will continue into 2021. Secondly, there is continued delivery of our Glanbia Nutritionals business and our joint ventures. The strength and diversity of our GN portfolio and the business models of the joint ventures have delivered strongly for us this year through the worst of the pandemic, and I'm confident that, that will continue to be the case. The evolution of the group performance through each quarter of 2020 to date has demonstrated an agility to respond to challenging market conditions that have arisen as consumers across the globe reacted to the COVID-19 pandemic. As an organization, we responded quickly to the market disruption in Q2 and regained our growth momentum in Q3. Our business continuity teams throughout the group did a remarkable job focusing on the 3 priorities of protecting our people, maintaining supply to our customers and consumers, and maintaining our strong financial position. For those of you listening in Europe, you will be aware of increased restrictions coming back across the region, and we know that this can be disruptive to our customers and consumers. We do not currently expect any further wave of the virus to be as challenging to us of Q2. However, we know this situation can change rapidly, and therefore, are vigilant and cautious on the potential short-term risks to GPN revenues in particular. We're confident on margins as we look into Q4 and very confident on the medium- to longer-term growth prospects of our portfolio, which are well positioned against key consumer trends in health and nutrition. Turning then to the operations review and to the Glanbia Performance Nutrition segment. Overall, as I've referenced, we saw a significant sequential improvement in this business in Q3. On a like-for-like basis, GPN branded revenue was down 2.3% in the third quarter versus last year, with volumes down 2.6% and pricing positive for the quarter. As you can see from the chart on the left, this was a significant improvement from the second quarter, where revenue was down 28%. That revenue improvement helped operating leverage. This improved leverage, coupled with price increases implemented through the quarter and savings from the transformation program, drove EBITA margins for GPN into the planned range of double digits. And we are confident that this is something that we will maintain into Q4. Looking at the key divisions within GPN. In North America Performance Nutrition, we delivered like-for-like branded revenue growth in Q3 of mid-single-digit, and this was driven by strong performance from the online and club channels and positive pricing in the quarter. We've also seen encouraging updates in the specialty channel in recent weeks which have stabilized that channel. As you are aware, we are exiting the North America contract business this year as part of our overall transformation, and this has and will be a headwind to overall segmental volume. That business was about 6% of our sales last year but is relatively low margin. Our North America Lifestyle business declined by 6% in the third quarter as we have very strong prior year comparatives for SlimFast, and indeed, some challenges in the ready-to-eat category remain impacting the think! brand. This, however, was offset by continued very strong growth in our plant-based brand, Amazing Grass. Importantly, both consumption of SlimFast and think! outperforms the market in their respective categories in Q3. Revenue for Q3 in our overall North America branded business on a like-for-like basis was broadly in line with the prior year. Our international business saw a significant improvement in the third quarter as markets opened and customers regained confidence. This led to improved operating leverage and significant margin improvement in that business. Finally, our direct-to-consumer e-commerce platform, Body & Fit, had good growth in Q3, with like-for-like high single-digit revenue growth as a result of increased site traffic. As we've noted previously, our own D2C platform is very much part of an overall e-commerce strategy for GPN and is an important channel for us, with e-commerce representing 1/3 of our GPN sales. This puts our brand portfolio in a very strong position given current consumer trends and a position we believe is industry-leading in our category. As you know, the Optimum Nutrition and SlimFast brands make up almost 70% of the GPN business and are leaders in their respective categories of performance nutrition and weight management. Our ON brand has brand awareness of 31%. The net promotion score measures the propensity for our consumer to recommend our brand to friends and family. And this has increased this year to 54, a very strong measure in the category and an important measure of brand health as the category moves more online. While there can be variability in our sector in shipment patterns, we monitor consumption trends closely, particularly in the North American market, where we have good visibility for about 70% of our market. Consumption trends continue to improve in the third quarter, resulting in the consumption for Optimum Nutrition in the key North American market being broadly flat from the Q3 year-to-date versus the prior year, again, highlighting the resilience of the Optimum Nutrition brand through the disruption of COVID. The pandemic has seen our performance consumers work around gym closures, working out at home or via virtual classes, and we think that has helped our consumption recoveries. We've seen at-home usage occasions increase for protein as part of an overall health and wellness agenda. Furthermore, we know this environment sees consumers gravitating towards trusted brands. And we believe that our net promotion score has been a key success to the Optimum Nutrition success in building an online and club channel this year. As we've referenced previously, the launching of our Better Than Before campaign has gone well. We've been very pleased with the performance of the SlimFast brand since we acquired it in 2018. A brand with 95% awareness is very strong, and its consumers are very clear on what the brand can do to help them meet their goals. As previously noted, we have increased household penetration this year, again, a critical metric for driving trial and consumption and something we believe we have significant further runway on. SlimFast year-to-date consumption in North America was up 8%, again, ahead of the category in measured channels, and we continue to evolve our marketing to support our consumers in these challenging times, with the SlimFast Together app being very successful this year. Finally, we continue to see heightened public awareness to the benefits of weight management, with policy initiatives in certain regions such as the U.K. helping the overall category. With our results in February and our half year results in August, I spoke to you about the GPN transformation project. This project is quite simply about 2 things: driving efficiencies and driving growth. We have made great strides in implementing this project in Q3, and the benefits of the project and the execution will continue into 2021. In Q3, we delivered significant price increases and saw cost benefits beginning to flow to the GPN margin. This will drive our confidence for the margins being double-digit in Q4 and into the second half of 2022. Ultimately, we continue to target a GPN EBITA margin range of between 12% and 13% by 2022, and given the visibility we have of the work streams and the work to date, we're confident that we will achieve that level. Turning now to Glanbia Nutritionals. Throughout the year, this business has demonstrated a very strong business model and delivered a very solid performance in Q3. Like-for-like revenue growth was strong at 11%. This was mainly driven by price of 7.5% due to strong cheese markets, with underlying volume growth of 3.4%. We expect the Glanbia Nutritionals segment to continue to deliver growth into Q4 this year. Nutritional Solutions is our value-add ingredients business, which has a strong portfolio and excellent customer relationships. In spite of the disruption caused by the pandemic, we had really good customer engagement through the year and the third quarter, and we have evolved our ways of working to stay connected with our customers doing areas such as virtual product trials. And this drove continued growth through Q3, with like-for-like revenue up 4.5% in the quarter. Within the portfolio, our nondairy ingredients offerings, which make up about 60% of our NS revenue, had a strong like-for-like volume performance in vitamin and mineral premix across areas of specialized nutrition, supplements and mainstream food and beverage brands. This more than offset some headwinds we had with customers that operate in the convenience channel, which represents a small element of our customer base. Within the dairy ingredients portfolio, which makes up about 40% of our NS revenue, we saw continued strong demand for specialist dairy solutions. There were some negative pricing in this space, which was related to lower whey market pricing, and this did somewhat impact margins. Nutritional Solutions has a very clear ambition to grow organic revenue and to expand into complementary areas via acquisition, and this will broaden our offering to consumers and customers. We have executed the strategy this year with the acquisition of Watson last year and the Foodarom, which closed in August. Foodarom will provide additional flavor capability to Nutritional Solutions' offerings, which is a very natural adjacency for our technical skills and provide incremental opportunities for the business through existing and new customer relationships. Our U.S. Cheese business continued to deliver robust performance in the third quarter of 2020. Like-for-like revenue was up 13.5%, with pricing representing 11.3% and volume growing almost 4%. Retail demand remained good during the quarter and food service demand growing. Pricing was driven by higher year-on-year market, and cheese pricing in the U.S. remains volatile. During the course of this year, we've seen record highs and we've seen record lows. But the important thing to note is that the business model we operate in the U.S. provides protection to our cash margin at times of price volatility, and we will see that robustness in our performance this year. Our joint ventures too delivered like-for-like revenue growth of 2.1% in the third quarter of 2020. Like our GN segment, this business has delivered a very solid performance through the COVID pandemic and continue to grow profits in the period. We have been progressing 2 very significant new joint venture projects through the year in the U.S. and Ireland. I'm very pleased that despite the challenges of COVID-19, our new joint venture plant in Michigan began commissioning last week and accepted its first delivery of milk. This has been a tremendous effort on behalf of all the team and our partners to get to this stage on time and on budget. We recruited large numbers of employees and trained them virtually so we could commence our commissioning efficiently last week. As one of the largest cheese facilities in the U.S., it will be commissioning over the next 8 months before being brought to full capacity. In Ireland, with our joint venture partner, Leprino, we are building a new mozzarella cheese plant, which is again on track, and we expect to commission that during the first half of '21. As with all of our joint ventures, these projects are independently financed with their own nonrecourse banking facilities. With that, I'd like to hand to Mark, who will give you some comments on the finances.

Thanks, Siobhán, and hello to everyone on the call. At quarter end, the group's balance sheet is in a good position. Cash flow generation has continued to be strong through the third quarter. And on a rolling 12-month basis, operating cash flow conversion is well ahead of our 80% target. Reduced working capital outflow compared to prior year, in particular, inventory, has contributed to this performance. Inventory is lower due to the work done on SKU rationalization in GPN as well as managing our stock levels tightly in a volatile revenue environment. Net debt at the end of the quarter was EUR 628 million, which is EUR 188 million lower than at the same time last year. During the third quarter, the group paid payments associated with the close of the Foodarom acquisition and the 2020 interim dividend amounting to approximately EUR 60 million. Net debt EBITDA was 1.95x at quarter end compared to 2.25x last year. In recent months, the group has financed $555 million of debt financing maturing between 2024 and 2031, which will replace $507 million of debt maturing in June and July '21. The group has no other committed facilities maturing prior to January '24. Of the new debt financing, $180 million matures in January '24 and has a variable rate of LIBOR plus 1.05%, and $375 million will mature between 2028 and 2031 as a fixed average coupon of 2.7%. The group continues to focus on efficient capital allocation and a balance between investments for growth and returns to shareholders. In 2020, we expect to spend between EUR 60 million and EUR 65 million in capital expenditure. Key projects include the combination of GPN manufacturing facilities in Chicago as part of the transformation program, which will continue into 2021; the expansion of Body & Fit infrastructure; specific filling technology lines to meet customer needs in Nutritional Solutions as well as IT projects throughout the group. The Foodarom acquisition closed in August for an initial price of CAD 60 million, and the group continues to look at bolt-on opportunities in the Nutritional Solutions business. The 2020 interim dividend of EUR 0.1068 was paid in the third quarter, representing a payout of 34% of the half year 2020 adjusted earnings per share. Finally, the Board has decided to commence a share buyback program of up to EUR 50 million commencing in November. Following shareholder approval at the 2020 Annual General Meeting and subsequent shareholder consultation, we decided to pause a final decision on the buyback program until the fourth quarter when we had greater certainty and 2020 cash flows what has been a turbulent year. Given the improved momentum of the business in the third quarter and continued strong cash flow, we are now comfortable moving forward with this buyback program. For the full year, we expect to convert over 80% of EBITDA into operating cash flow, and we expect net debt EBITDA will be below 2x at year-end. With that, I will pass it back to Siobhán.

Thank you, Mark. So in conclusion, I'd like to leave you with a number of messages. In Glanbia, we have a very strong portfolio of complementary businesses. Our Glanbia Nutritionals business and our joint ventures, whose product offerings range from dairy staples to specialist dairy and nondairy ingredient solutions, have been very resilient through this year of 2020, and we expect that to continue through Q4. Our GPN business has seen improving revenue and margin trends in Q3, and we're confident that this business will regain growth momentum when we emerge from the current challenges of COVID. We have reorganized and reshaped the business, and this work has, in Q3, rebased GPN to double-digit margins, which will be further expanded in Q4 and into 2021. We have had an excellent cash performance this year, and that has improved our balance sheet as we moved through the year. I expect we will deliver a cash conversion rate in excess of 80% of EBITDA in 2020, and we will use that to continue to invest in growth and shareholder returns. In Q3, we recovered well from the COVID-related challenges of Q2. Very recent times have brought new caution to some of our markets as governments act to stem the impact of a potential second wave of the virus on public health. As a result, the directional impact of COVID-19 remains uncertain as we work through closing out 2020. I'm confident, however, that we will deliver a solid Q4 for the group, underpinned by continued margin momentum. Our actions through 2020 will position us strongly when markets emerge from this global pandemic and will drive growth for Glanbia in 2021. With that, operator, I'd like to open up the call to questions.

[Operator Instructions] We will now take our first question from Cathal Kenny from Davy Research.

Two questions from my side, please. Firstly, to yourself, Siobhán, just on the outlook statement. Just -- if you look at the line, further sequential improvement for GPN, just wondering how we should interpret that. And secondly, is there any call-outs in terms of the sell-in for GPN in Q4? That was my first question. And the second question is for Mark. Just on the building blocks around that tremendous performance in cash flow, looking at -- on a full year basis, particularly working capital, and -- just need to understand the sustainability of that working capital progress.

Cathal, I'll take the first question, as you say. Maybe before I specifically address Q4, it might be useful to put some further context on the year-to-date. Through all of 2020, the GPN team has really focused in on 2 key items: the management of the market volatility that emerged from the COVID-19 pandemic and the delivery of sustainable margin improvement initiatives that we referenced back in February. In both these respects, I think the team have been really agile. From the perspective of management of the market volatility, we started the year well and had good growth, as I've referenced. Q2, the markets locked down, which influenced revenue, and we had a decline, particularly internationally. But we responded very quickly to this through Q2 and into Q3. And as a result, Cathal, what we saw then is as market restrictions eased, we saw a significant improvement in the sequential quarter-on-quarter performance in Q3 and also the relative year-on-year position. And while all this was going on and top line improvement was crystallizing, the team continued to progress the transformation initiatives that we planned, and the factors such as improved operating leverage, improved pricing and greater efficiencies drove those double-digit margins in Q3, which were a big improvement on both the half year and Q2. So then as we move into Q4, we have very good visibility on the continuation of many of the margin improvement initiatives, and this underpins our confidence on good quarter-on-quarter sequential earnings improvement in GPN in Q4. On the top line, we're a little bit more cautious only due to the risks inherent in the second wave of COVID in the coming weeks. We don't believe, as I referenced earlier, that the second wave will have the same level of impact as Q2, but there's no doubt that there is uncertainty that may well influence the customer and consumer order passions as we move through these latter weeks. I think, again, the overall comment I would make is that we really believe that our brands are very well positioned for long-term sustainable growth. We saw the consumers come back to our brands through the third quarter when things eased, and we believe that will happen again when we ultimately emerge from all COVID-related uncertainties. And so our focus now is to continue to invest behind those brands and ensure that we're well placed to deliver against those growth opportunities as they emerge. Maybe I'll get Mark then to speak to the cash piece.

Cathal, yes, on the cash piece, look, we've done well year-to-date. As I said, inventory has been a significant part of that, with our inventories down around EUR 80 million versus where they were at this time last year. It may not be that big a difference by the time we get to the end of the year as we look at various programs and other things like Brexit, et cetera. There may be some points there where we have to make sure we're managing inventory, but still expect to have a good working capital position for the entire year and probably a working capital inflow for the year. A few other things. As I said earlier, capital expenditures, EUR 60 million to EUR 65 million, we spent about EUR 42 million year-to-date. We'll receive around EUR 40 million of dividends from our joint ventures. We've received around EUR 20 million year-to-date. And then on the share buyback of the EUR 50 million, probably around EUR 20 million will get spent by the time we get to the end of the year. We estimate at this point, although that can be a little bit variable. So still expect to have a strong cash position. We'll be above our 80% target. And with that, we should be below 2x net debt EBITDA. Of course, the dollar is a little bit weaker as well, and that does help the deposition at the end of the year, too.

We will now take our next question from Graham Hunt from Morgan Stanley.

Just 2 questions from me, please. First one, on D2C in Europe. I wondered if you could just add a little bit of color on the competitive environment there, and maybe talk about where you're gaining share or maybe where you're losing share. And then on -- coming back to margins, you talked about GPN, but I wondered where your expectations were for the Nutritional Solutions for the business, either at an absolute or full margin level for the full year.

Graham, I'll take the D2C question, and I'll pass to Mark on GN margins. Overall, across all of our landscapes, clearly, the -- they are competitive spaces. We -- yes, there is a competitive space within D2C, but we've seen really good improved momentum in recent times. What we saw in our D2C business were -- a significant element of our portfolio is in this heartland in Benelux. That was probably particularly hard hit in the very early months of COVID, but we saw that recover very well. So as I referenced in Q3, we saw double-digit volume growth, in fact, and some really nice overall revenue growth as we have increased our traffic to the sites. I think, again, in the context of the stage of evolution of our own D2C platform, the team have done a superb job in rolling out across a number of different geographies, getting really nice traction and growth across those geographies, getting really good consumer engagement. And the other comment I would make, Graham, is that it's important to think of our own D2C capability within the context of a total e-commerce platform. As you know, our consumer -- 34% of our sales and -- or our consumers in GPN purchase our products online. We have very strong relationships with a lot of the big players across our markets, and we're growing very strongly in that channel. And so we look at the capability within our own platform as massively complementary to those relationships that we have with those big players, whether it is in North America and whether it is in Asia. So very pleased overall with the state of progress. Very conscious, obviously, that Europe is a competitive space. But again, when I look at the overall European business where we had significant lockdowns in Q2 which impacted performance, we turned some really nice numbers in, for example, in August and September. So I think overall, a very nice and complementary part of our portfolio. So with that, I'll hand to Mark.

Yes. On the Nutritional Solutions side, Graham, look, Siobhán mentioned her comments and expect to have a good year in that business, particularly in that nondairy premix side, of course, which has good margins for us. On the dairy side, again, expect volumes to be up, whey pricing being a bit lower, does tend to dampen the margins a bit when you look at the overall mix. So I expect our margins are probably going to be around the 12% level for the full year. We'll see where we come out, but a little bit below where we were at half year at this point.

We'll now take our next question from Jason Molins from Goodbody.

Just wanted to -- and Mark, just a follow-up on the D2C side. With the likes of Amazon Prime Day, we've got Black Friday coming up in single state, just wondering how important these are for you now given that sort of online presence that you mentioned earlier. And then with regard to your international markets, and obviously, the nice rebound that you had in Q3, just a bit more granularity on some of the key markets that maybe have been a bit more troubling for you in the past. If you could just give a bit more, I guess, granularity on some of the individual markets, that would be useful.

Thank you, Jason. Yes, obviously, we engage with all of our retail partners across those big events at various periods of time. The partners can prioritize different categories within their own portfolio, but we have very good relationships, and we work with them and we work in terms of our overall management of our promotional activity and our margin activity. So I think the fundamental point that I would again reference in when you look at e-commerce as a total channel for our GPN brand, it has been a key factor of our growth, it's been a key factor of our strategy in recent years to evolve that capability, both ourselves that we've spoken about earlier and through those customers, and I have no doubt that, that will continue. Again, I think the marketing efforts of the GPN team as well has been very much about staying close to our consumers so that we can optimize our position as consumers move to e-commerce. We have very long-standing relationships with some of those players. And I think, again, it plays to the depth and strength of our brands. If you take, for example, through the vagaries of shipments that can happen in our category, Optimum Nutrition, as I've referenced, consumption was actually broadly in line with the prior year, and indeed, SlimFast grew. So I think when you look through the total story of the first 9 months with those 2 big brands and you think about how we're engaging with consumers, I think those consumption numbers give us very good confidence for the future. In terms of the international, yes, as I said, we saw having had a really tough time in some of our regions in Europe through that second quarter. We saw a much improved Q3. And as I referenced in August and September, we came back into positive growth, quite widely spread across actually a number of our markets in Europe. I think the call-out across the entirety of the international markets when you look at the trajectory through Q2 and Q3 was really in markets like Asia, where we saw a -- and indeed, Oceania, where we saw a faster pace of recovery from COVID. Of course, again, it's important for me to reference that we're just cautious now as lockdowns potentially come. But again, the team that we now have in place in our international business, we have a very good team, very focused across driving our growth in a very solid way and sustainable way across different markets. The route-to-market changes that we've done through the transformation project will facilitate that. And there'll be -- there may be bumps on the road because of COVID, but we remain very confident on the long-term growth potential of our international business. And we believe that what we've done through the latter part of '19 and into '20 really sets ourselves up to capture that, as I say, when consumers ultimately come through all these current uncertainties.

[ International ] markets, you mentioned in the past that [ like to ] Brazil and India, and that have been quite challenging from a route-to-market perspective. Is there anything that's changed there in the last few months or...

Yes. We have a new general manager in India making really good progress. Route-to-market changes are done. In fact, actually, in very recent times, [ Basin ], we have seen improved consumption. And our expectations were modest for 2020. We've been very realistic about the timing of some of the changes that we were doing in route-to-market. So I think particularly pleased to see consumption momentum in recent times. Again, working with -- we work with a number of e-commerce players. We are very clear now on how we will approach that market, where the expertise will lie to deal with the e-commerce players and some of the specialty channels, new partners there for us. So again, early days, but very much turning to the right track.

We will now take our next question from Karel Zoete from Kepler Cheuvreux.

I have a couple of questions. The first one would be about the pricing you've taken in the North American market. Why did you take price? And then how can we relate that to changes you see currently in the dairy market prices? That's the first question. And the second question is on progress with the efficiency within GPN, you mentioned. What are some of the actions you've taken to increase efficiency in your supply chain over the last couple of months?

Karel, it was actually quite difficult to hear you, but I think I've picked up most of what you asked me if I didn't apologize and come back to it. On the pricing side, actually, quite a number of actions we've taken this year on pricing. You might recall, last year, we took pricing towards the end of the year as well, which was quite important for us in terms of what was happening on the [ whey ] dynamic side at that point in time, and those prices went through just before we came into this year. But a number of things this year. We sort of followed on now on aminos and supplements, for example. We've taken pricing on those, and you'll see those going through actually from the end of the third and into the fourth quarter. We also increased many of our products on the think! side by about 13%. And that's gone through as well towards the end of the third quarter and will be fully baked in for the fourth quarter. In Europe as well, we've taken some pricing across some of our customers, so -- and we feel we've taken a disciplined approach to our pricing architecture this year in terms of our plans and the plans we had set at the beginning of the year we're following through on. I'm sure as we come back to the end of the year, we may be talking to you on certain elasticity points. But at this stage, I don't believe that we have any concerns there. Our customers have taken the pricing through as we had asked them to do. And then you asked on efficiency, I mean, I'm sure that's related to the transformation program regarding Performance Nutrition. And again, I didn't get that right just correctly. But again, that program is absolutely on track in terms of: a, the work we're doing is consolidating manufacturing; b, in terms of what we're doing in terms of just making sure we're managing our overall footprint in headcount, for example, and making sure that we have the right teams across various markets. So we are already seeing that come through in the margin improvement. As a significant part, frankly, of the margin improvement, we're seeing coming through in the third and into the fourth quarter now as well and will clearly be important into next year and '22 as well. But Karel, if I miss something, please repeat.

No, no, it's very clear.

We will now take our next question from Martin Deboo from Jefferies.

A couple from me. The main one is around the SKU rationalization program. Can you just give us an update on how far you've got with that? And I think the 2 sub questions are was it a headwind on revenue in Q3? In other words, would GPN revenue perhaps have been better if you hadn't been taking SKUs out? And secondly, sort of following up with the answer you've just given, Mark, how did it play into the margin equation in Q3? Was that a material contributor to margin through improved mix? And then a quick follow-up on the cash flow. Can you just confirm, Mark, what the cash expenditure was on Foodarom in August, just so I can judge the underlying cash flow in Q3?

Sure, Martin. In terms of the SKU rationalization, we talked about taking 35% of our SKUs out. That has almost entirely been done, frankly. So there might be some tail there, very small tail to work through, but that work has been done. So that's improvement, I presume. And the inventory side as well as the margin improvement has been helpful from that perspective. Would be some revenue headwind, probably not significant, frankly, in the third quarter. We expected that to be more of a first half headwind for us as the majority of those SKUs were coming out really at the end of the fourth quarter and into the first half. So it wasn't very significant, I would say to you, in the third quarter. And in terms of the efficiencies, the impact on margin, yes, it was an important impact for us. I mean the fact that revenues, of course, went up was going to give us that operating leverage benefit, too. But it certainly was a factor in getting from the challenging margins we had in the first half up to a double-digit margin for the third quarter. So I'm not going to, suppose, parse it out specifically for you, but to say it was important in that regard and will again be important when we get to the fourth quarter as well. On the Foodarom side, around CAD 60 million as part with the initial payment. There may be a small amount of that, maybe around CAD 10 million, Martin, that wasn't fully in the third quarter in terms of how it played out. But at least CAD 50 million would be a fair assessment in terms of your cash flow model there.

We will now take our next question from James Targett from Berenberg.

So just coming back on -- sort of following up on the GPN top line. I think -- apologies if you've given these stats and I've missed them. But just looking at kind of the bridge from the, I think, minus 10%, 11% growth in Q3 for GPN that sort of reported versus the minus 2.3% branded like-for-like, can you just sort of break down the contract manufacturing impact and the 30 -- 53rd week impact? That would be helpful. And then have you actually -- are you actually disclosing what international volumes were down in Q3 or whatever they were in Q2? That would be helpful. And then just finally, on cheese prices -- on your sort of best guess outlook for cheese prices in Q4, clearly, extremely volatile and have a sort of big impact at the moment on the kind of the overall top line growth component. I'd be interested in your thoughts on cheese pricing in Q4.

So I just get Mark to comment on those questions as those questions...

So I suppose on the -- in terms of the impact for -- the contract impact was not very significant. I mean the 53rd week impact was about 6.5% in the third quarter. That's roughly what you'd expect in terms of how it worked out for us. But overall, contract was not very significant, 6.5% for the actual 53rd week, and then the branded side, 2.3%, 2.4%. On the cheese side, cheese has been very volatile this year, James. To try and predict for that will be at the end of the year. It's not very straightforward. But again, we expect by the time we get to the end of the year, cheese pricing will still be quite robust, and it stays that way. So we don't, I suppose, expect to see a significant change between now and the end of the year. But frankly, trying to call that hasn't been the easiest as we've gone through this year.

I think, James, maybe just to -- on your question about the international, as I said, yes, the Q3 was much improved on Q2, and we were probably around a decline of high single digits in Q3 relative to very significant, as we know, double digits in Q2, to give you that context.

[Operator Instructions] We will now take our next question from Alan Erskine from Crédit Suisse.

Two questions from me. And one, just following up on James' question, because I'm struggling a little bit with the math here. So I mean if excluding the 53rd week, you were up 3.1% like-for-like in -- at the 9 months, if I do my math right, that implies 6.3% in Q3. I may have done my math wrong, but just based on the 1.5% like-for-like sales growth in the first half. And I can -- I think we can work out what the Nutritional performance was. But if I've done my math right, that suggests that the performance, the like-for-like sales of GPN, excluding the 53rd week, was only slightly negative. So I wonder, could you give us that number? What was GPN in Q3 adjusting for the 53rd week? And if I have done my math right, and it's flat to small decline, how should we think about the fourth quarter then, given that in Q3, you were lapping that tough comp in SlimFast? And then my second question is just on ON and just in North America, how you think the market share has performed through the year and specifically in the third quarter.

Thank you very much. And I'll get Mark to give more color. But maybe just to restate, I think what I was referencing there in my notes, in the third quarter, as I referenced earlier, the branded revenue like-for-like was down 2.3%. So we were down on that like-for-like basis. And you're absolutely right in your math, and Mark can give you more color there. Within the quarter, the 53rd week was about 6.5%. So hopefully, that helps clarify that piece.

It appears there are no further questions. Ms. Talbot, I'd like to turn the conference back to you for any additional or closing remarks.

It really just remains, again, for me to thank everybody for spending the time on the call with us this evening. As again, to reiterate that we're pleased with the trajectory for Q3, plenty of activity happening in Q4. But again, very confident on margin. We will be navigating then COVID in terms of potential uncertainty on top line, but overall, working hard to position ourselves for growth as we look forward post-COVID into 2021 and beyond. So thank you very much for your time.

This concludes today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.