Glanbia plc (GL9) Earnings Call Transcript & Summary

Good day, and welcome to the Glanbia plc's Third Quarter 2021 Interim Management Statement Results Call and Webcast, which is being hosted by Siobhan 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 Liam Hennigan, Group Director of Strategic Planning and Investor Relations.

Thank you, operator. Good morning, and welcome to the Glanbia third quarter 2021 interim management statement presentation and call. During today's call, the directors may make forward-looking statements. These statements have been made by the directors in good faith-based upon the information available to them up to the time of their approval of this presentation and the third quarter 2021 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 statements made on this call, whether as a result of new information, future events or otherwise. I'm now handing the call over to Siobhan Talbot, Group Managing Director, Glanbia plc.

Good morning, everybody, and thank you for joining our call today as we outline our results for the third quarter of '21, and update on the strategic proposal with our Glanbia Ireland joint venture. I hope you're all safe and well. As always, I'm joined this morning by our Finance Director, Mark Garvey. I'll go through our results and outlook, while Mark will talk to the finances. We'll then turn it over to yourselves for questions at the end. I'm delighted to say that our top line momentum has continued in the third quarter. Overall, our wholly owned revenues are up 15.7% for the year-to-date on a constant currency basis. If you recall last year, the third quarter saw some reopening in our markets before lockdowns were again reimplemented late last autumn. So we're happy with this performance against a reasonable comp. Our revenue growth was driven by very strong performances from both Glanbia Performance Nutrition and Nutritional Solutions. GPN continues to deliver strong top line growth with branded like-for-like revenues up 25.2% constant currency. I will speak a little more about this later, but our performance not only reflects the degree of reopening activity in our markets, but also as a result of the GPN transformation program, which is delivering both revenue growth and cost efficiencies. Having been very robust through the pandemic, our Nutritional Solutions business maintained a very strong performance year-to-date, with overall revenue up 20.9% and volume up 15.7%, again, constant currency. In Nutritional Solutions team continued to position the business well to support our customers in various health and wellness orientated end markets, and this is driving the strong performance. As a group, we continue to be very focused on strong operational performance, and our cash conversion is running well ahead of the target, which has seen our net debt drop again this quarter to a net debt-to-EBITDA of 1.5x. And finally, as we'll outline a little more later, we have today announced the proposed sale for EUR 307 million of the PLC's 40% shareholding in Glanbia Ireland to Glanbia Co-op. Turning now to more detail on the strategic update and the outlook. Overall trends for the group have been positive year-to-date, and we expect to deliver strong top line growth for '21 as despite inflation headwinds, we continue to invest across our branded and ingredients portfolios. We continue to expect strong margin improvement in GPN versus the COVID challenged 2020 and 2021, Nutritional Solutions' margins will be broadly in line with the 2020 levels. We currently expect to deliver an outturn at adjusted EPS level, which is at the higher end of our guidance of 17% to 22% constant currency growth. As I've outlined on prior calls, the GPN transformation program has been a key strategic initiative for us through '20 and '21 and is delivering great results. This program, which provides a strong underpin to the structural margin of GPN incorporates a wide series of initiatives across both demand and efficiency, and all aspects of the program are delivering at or indeed ahead of plan, as evidenced by the continued top line growth and structural margin improvement. We continue to allocate capital judiciously in the group. During the third quarter, we spent $52 million acquiring PacMoore, a U.S. ingredients company, which will further build the capability of our Nutritional Solutions business as we extend our format capabilities in the area of healthy snacking. We've also concluded our second share buyback. And in the last 12 months, we've now returned EUR 100 million to shareholders via those programs. As we all know, COVID continues to have ramifications across the globe. As in many sectors, Glanbia is not immune to the disruption of COVID, which now manifests also as in these supply chain challenges and cost inflation. We believe we are very well positioned to address these challenges, given our market positions and network of efficient facilities. In terms of supply chain, we have, over the past 18 months, seen unprecedented volatility in demand. And I am extremely proud of how all of our people and our plants have responded to that volatility. We have supported our customers and our consumers through periods of market lockdowns and market reopenings, and our actions have delivered the very strong revenue growth seen in this 9-month period. At our half year call, we referenced caution regarding the expectation of cost inflation for the second half of this year. And there's no doubt that as the year has progressed, we have seen incremental cost inflation relative to our earlier views. We expect key aspects of that inflation to be transitory, particularly in dairy, with the main impact probably in the first half of next year. We have very clear plans to mitigate this inflation via significant price increases planned for the first quarter of next year, building on the pricing already executed this year. At a gross level, therefore, the expected pricing is expected to negate the current expected inflation over the course of next year, and we'll be monitoring closely any impact on consumer elasticity. We are very firm in our commitment to long-term sustainable top line growth. And therefore, while acknowledging the current inflation headwinds in GPN, we have actively increased in our -- investments in our brands as planned. This will, of course, sustain consumer relevance and drive future top line momentum. We have today announced the proposed sale of our 40% shareholding in Glanbia Ireland to the Co-op for EUR 307 million. This proposed transaction is a culmination of a strategic journey, which commenced in 2012, and the strategic rationale is strong for both parties to execute this transaction now and essentially complete the journey. From the PLC's perspective, it continues the alignment of the group portfolio to our growth strategy, a strategy which is focused on driving growth through our market-leading positions as a brand owner and ingredient solutions provider, playing into those strong underlying consumer health and wellness trends. The capital received from the transaction is likely to be deployed in a mix of investment to drive further growth and a return of capital to shareholders. This approach is aligned with the intention of the Co-op to fund up to 50% of the acquisition by the placing of PLC shares. The transaction completion is subject to legally binding agreements and shareholder approvals and is expected to complete in the first half of '22. Turning now to the GPN performance to the third quarter. The business has maintained momentum with year-to-date revenue up over 23%, volumes up 18%, driven by a strong performance in Sports Nutrition. Price was up over 4%, reflecting the price increases implemented over the last 12 months as well as lower trade spend. While we are always conscious of consumer price elasticity, positive consumption trends have sustained to date post our most recent price increase. Branded like-for-like revenue was very strong, up over 25% year-to-date. All markets are performing well. And in particular, I'd like to highlight our international business, where we are really realizing the benefits of the transformation program. And with that, brought brand focus, efficient routes to market and strong revenue growth management. As I said, our Sports Nutrition portfolio is performing really strongly this year, with a particularly strong global performance by our Optimum Nutrition brands. Our overall lifestyle portfolio has also performed well in the first 9 months. As well there are undoubted diet category headwinds for the SlimFast brand, our other lifestyle brands such as think!, Amazing Grass and indeed, Isopure, have all grown strongly. Turning specifically to the leading brands of Optimum Nutrition and SlimFast. ON continues to deliver excellent consumption numbers globally, and more specifically, the last 12-week consumption to the 3rd of October in U.S. measured channels was up 18.6%. Consumer activity has sustained beyond the initial reopening effect and supported by increased brand investments we have seen strong consumption across all key channels. We believe, therefore, that inventory levels at key customer channels remain well balanced. In addition, these strong consumption trends have provided a positive backdrop to our most recent price increases during the third quarter. The brand strategy for ON is to continue to broaden our reach and relevance to existing consumers, while expanding into new consumer occasions, such as plant-based and functional energy, supported by innovation and brand marketing investments. SlimFast brand has been impacted by headwinds in the diet category, with consumption in the U.S. for the last 12 weeks, down 8.8%. Diet category has no doubt been impacted by COVID as while navigating COVID consumers didn't prioritize weight loss programs. Importantly, however, as we emerge from COVID, consumer research points to an acknowledge by a significant number of consumers that they have gained some weight and indeed a desire to lose weight. We believe, therefore, that for the category, it really is a question of the timing of that trigger event, which currently we would expect to be the normal diet season in the early part of next year. So we're lining up a lot of innovation programs for that in early '22. We have seen recent trends improve in recent weeks. So we'll build on that as we exit '21 and enter 2022. Turning then to our other growth platform, Glanbia Nutritionals. This business continues to deliver a very strong performance. Overall, strong customer demand drove volume growth of over 18%. Price decline at the segment is entirely related to lower cheese market pricing. We continue our strategic agenda of adding complementary business, as I've referenced to Nutritional Solutions under [indiscernible] of the acquisition of PacMoore. It is a U.S.-based food ingredients company, which specializes in protein applications across a number of formats. It utilizes technologies such as extrusion and texturization to produce a range of healthy snacking offerings and is, therefore, highly complementary to the current leading position of GN in that high-protein healthy snacking arena. Our Nutritional Solutions business delivered another excellent quarter with 15.7% year-to-date volume growth. This was driven by the sale of the output from the Midwest Cheese joint venture as we commissioned that facility in the first half of the year. It was driven by strong demand for our micronutrient solutions and indeed high-protein snacking -- healthy snacking demand as consumer mobility increased post COVID. From a consumer market perspective, our ingredient solutions capabilities span a range of sectors where we are seeing continued positive health and wellness consumer trends. Pricing in NS was also positive by 1.9%, largely due to the pass-through pricing mechanism of inflationary costs. The growth strategy of GN and NS has in recent years, as you know, have been a strong blend of organic growth and bolt-on acquisitions and the recent acquisitions of Foodarom and PacMoore are performing very well in the portfolio. Our U.S. cheese business delivered 19.3% volume growth, and this was driven entirely by the new Midwest Cheese joint venture plant. End market demand remains good for cheese. Pricing did decline by over 10% due to the volatility in cheese markets. I always remind people that our U.S. cheese business has a very robust business model with that pricing volatility pass-through to suppliers and that essentially maintains a consistent cash profitability. With that, I'll hand over to Mark.

Thank you, Siobhan, and Good morning to everyone on the call. The group continues to generate good cash flow. And the rolling 12 months conversion of EBITDA into operating cash flow to the end of Q3 was strong and well ahead of our target of converting 80% of EBITDA into operating cash flow. There was a modest working capital outflow in the period, as expected, with the improvement in business activity. A similar situation is expected at year-end as inventory levels are planned to be higher in terms of volume as a result of revenue growth and also value due to increased raw material costs. Net debt at the end of the third quarter was EUR 589 million, a decrease of EUR 39 million compared to the same period last year. Net debt-to-EBITDA was 1.5x, well within our covenant of 3.5x. At the end of the year, we expect net debt-to-EBITDA to be approximately 1.7x, similar to the level at the end of 2020. The group is at a strong financial position and has EUR 1.1 billion of committed debt facilities with a weighted average maturity of over 4 years, with an earliest maturity date of January 2024. The group has an objective of ensuring balanced investment in organic and M&A opportunities as well as returning capital to shareholders while maintaining a strong balance sheet. We expect total capital expenditure for the year to be in a range of EUR 80 million to EUR 90 million, of which approximately EUR 20 million will be business sustaining capital. The primary strategic capital spend for this year is on the consolidation of GPN manufacturing facilities as well as some IT spend associated with the expansion of the group's D2C platform and the integration of acquired businesses. In the second quarter, the group acquired a 60% stake in LevlUp a German D2C e-sports gaming nutrition company for an initial consideration of EUR 31 million. And in September, we acquired PacMoore U.S.-based food ingredient solutions business for $52 million. This business has revenues of approximately $25 million with margins that are accretive to Nutritional Solutions. By the end of the third quarter, the group had spent EUR 28.6 billion on the EUR 50 billion share buyback program that was announced at half year results. This buyback program was concluded recently with 3.5 million shares repurchased at an average price of EUR 14.25, leaving just under 288 million shares in issue. In the last 12 months, the group has returned EUR 100 million in capital to shareholders through buyback programs and the impact of these share buybacks in 2022 adjusted earnings per share will be approximately 1% accretive. We expect the total dividend payout for 2021 will be at the high end of our payout range of 25% to 35%. Before commenting on the Glanbia Ireland transaction, I would like to add 2 comments on taxation and currency. With the recent international agreement to which Ireland was a participant, we expect that the current Irish corporate tax rate of 12.5% will move to 15% in 2023 or 2024. Once the full detail becomes available, we will consider the impact on the group. However, on the basis of the information available to date, we would expect the group's effective tax rate to rise by 2% to 3% in the next 2 to 3 years when new legislation is substantially enacted. For the 3 quarters, the average euro-dollar rate was 1.195 compared to 1.125, which results in a headwind to the reported results compared to constant currency. If the euro-dollar rate remains at the current level of 1.16 for the remainder of the year, we would expect the reported adjusted earnings per share results to be approximately 4% lower than the constant currency result for the full year. Now turning to Glanbia Ireland. As Siobhan has covered, the group has signed an unbinding memorandum of understanding with Glanbia Cooperative to sell its 40% stake in Glanbia Ireland for cash consideration of EUR 307 million. Based on 2020 earnings, this represents a PE multiple of over 12x and an enterprise value EBITDA multiple in the high single digits. This transaction will be subject to approval by the independent shareholders of the PLC as well as the members of Glanbia Co-op. We've been informed by the Co-op that they expect to fund up to 50% of the consideration through the sale of Glanbia plc shares with the remainder funded through borrowings. In addition, the Co-op are expected to seek approval to spin out approximately 12 million PLC shares to their members in conjunction with this transaction. Following these transactions, we would expect the Co-op shareholding in the PLC to be approximately 24%. The group expects that the transaction proceeds will be primarily used to invest in growth opportunities with up to 50% of the proceeds used to return capital to shareholders via share buyback. In the 2020 financial year, Glanbia Ireland contributed EUR 23.9 million to the share of results of Glanbia Equity accounting investees, equating to approximately EUR 0.085 of group adjusted earnings per share. At the end of the half year 2021, the balance sheet carrying value of the group's investment in Glanbia Ireland was EUR 225 million. Assuming all appropriate approvals are received, we would expect the transaction to close in the first half of '22. And with that, let me hand it back to Siobhan to conclude.

Thank you, Mark. So to conclude, we are very positive about the strategic opportunity for the group. We have had a very strong year so far, and we expect good top line trends to continue into the fourth quarter across GPN and Nutritional Solutions. Our strategic initiatives are on track, including the proposed transaction with the Co-op with Glanbia Ireland, and we remain very focused on our growth strategy. Similar to many sectors, inflationary pressures have grown as the year has progressed, and we are taking very decisive action in that context. We are continuing our planned program to drive long-term sustainable growth, as evidenced by the continued deployment of capital against the Nutritional Solutions business and the planned increase in marketing investment in our GPN branded portfolio. As we move into 2022, we expect to deliver continued good top line momentum in both GPN and GN Nutritional Solutions. We expect inflationary pressures to be most pronounced in the first half, particularly in dairy input costs for GPN, but we expect a rebalance of supply and demand in the second half of '22. In response to the known inflation, GPN has planned significant further 2022 price increases. And over the course of the year, we expect inflation to be mitigated by that gross pricing action, volume growth and the realization of benefits from the transformation program. Of course, there is always leads and lags in the recovery of inflation in margins as we move through 2022, and we will be maintaining our brand investments, but we remain very confident in the structural margins of GPN in the 12% to 13% range. In Nutritional Solutions, we also expect a strong fourth quarter and good top line momentum into '22. We will carefully manage inflationary effects through continued efficiency programs, pricing action, and we will drive positive mix through the higher value-add Ingredient Solutions. We expect to deliver 2021 operating cash conversion, well ahead of our 80% target, and that gives us a very strong balance sheet to fund growth as well as return capital to shareholders. Of course, that ability to fund growth is strengthened further by the planned sale of our interest in Glanbia Ireland to the Co-op. Then finally, as noted earlier, the strength of our year-to-date performance results in a full year 2021 outlook at the upper end of our guidance range, and we expect to deliver adjusted earnings per share at the upper end of that 17% to 22% guided range on a constant currency basis. With that, operator, I would like to hand over to questions.

[Operator Instructions] The first question comes from Cathal Kenny from Davy Research.

First are the questions related to GPN, just on pricing. I'm wondering, could you elaborate on the scale of pricing you anticipate putting through the system in the first half of next year? And does that pertain to both Optimum Nutrition and SlimFast? My second questions relate to the transaction disposal announced this morning. I just wondered, can you confirm is there any stranded overheads? Is there any material supply agreements between both parties? And then finally, a comment on the timing in relation to the share sales?

Cathal, on the pricing, we have taken pricing probably around the mid- to high single digits already in the current year. That spread across Americas and international. Next year, we will take more pricing. And when you take the combined effect, we'll be in the mid-teens, I would say, in overall pricing, particularly in Americas. From a branded perspective, it is largely in the Sports Nutrition portfolio, there will be some pricing across all elements of the portfolio. And also, we're looking at areas like trade spend. But so overall, a very decisive action been taking on the pricing. In terms of your question on the transaction, I'll pass to Mark.

Cathal, yes. In terms of stranded overheads, and we were very pleased, in fact, on how the transactions come together. So we continue to have a stand still arrangement on shared services and IT arrangement. So we expect no significant stranded overheads. In fact, as we work through this over the next number of years, we've got a 3-year stand still on this, and that manage through any issues there. So that we're very pleased with that arrangement. And in terms of supply agreements, again, there's no material impact in terms of our arrangements going forward that will impact us from a stranded overhead perspective there. There are certainly engaged between GI and the Glanbia Nutritionals business. But in terms of how that's going to transition, there's no material impact there. On the share sale, that will certainly depend, I suppose, in terms of where the Co-op process evolves. They clearly have to go through a vote of their members, which will happen probably in the next month or 2, I would expect. And then, of course, we have to go through a process in terms of Extraordinary General Meeting and having the non Co-op shareholders vote on that as well. So you'd expect that to be sometime probably during the first quarter, maybe towards the end of the first quarter, but those votes would have to go through for us, I would expect.

Just one quick follow-up on GPN. I just wonder -- would we have to comment on -- I noticed on Slide 8, you speak about getting into new consumer occasions. Does that relate to the Amino Energy brand?

Yes. I would say largely, Cathal, it's across the -- across all of our brands, but particularly in the Performance Nutrition. As I referenced there, we're looking at energy. As you rightly say, we have a very fine Amino Energy offering across a number of different formats. Also the plant area remains of interest to us. So you'll hear us speak more of that, I imagine, as we're particularly starting '22.

Our next question comes from Martin Deboo from Jefferies.

Two from me, one on the GI exit, one on GPN pricing. Let's start with GPN pricing, given it's a focus. It looks if -- from what I can deduce in Q3, price/mix in GPN weakened quite a bit from Q2. Can you just comment on what -- first of all, am I reading it correctly? Secondly, what drove that? And how should we think about the evolution of pricing and mix into Q4 and to the new year. It goes to your point, Siobhan, you said, I think, mid-single-digit to high single-digit pricing already taken, but that wasn't what we saw coming through in Q3? And then secondly, just to build on Cathal's question. Can I just understand -- I've noted the comment on there's no material impact from supply agreements, but what is the sort of nature, both qualitative and quantitative of the supply from GI back into Glanbia plc?

Martin, I'll take the first 1 and I'll pass your GI question to Mark. Yes, there's a comp point when you come into third quarter because you'll remember actually that we did some pricing in 2020 as well. So I think that's showing a real ability of the brands actually to take pricing because we'll now have taken pricing in '20 and the latter part of '21 and obviously more planned into '22. To your valid question around the pricing that we've just taken, that was late in the third quarter, Martin. So that's why you're not seeing that. So there will be some positive pricing in the fourth quarter as well. And again, as I said, further plans as we come into next year. Maybe, Mark, GI?

Yes, Martin, to your question on GI, again, just to emphasize, these are very small materiality in terms of arrangements we have between GN and GI, where we facilitate potentially some WPI sales to some customers. We're talking about a potential margin impact in the very low single millions here. So it's a very immaterial amount in the business.

Our next question comes from Jason Molins from Goodbody.

Just 3 questions, if you don't mind. Just starting off on the consumption backdrop, which you mentioned has been strong. I'm just wondering if you have any comments on whether you're seeing any impact of forward purchasing in anticipation of the price increases that you're putting through at the back end of the quarter? Second question is around the assumptions you're making on, I guess, the cost inflation, particularly the whey cost, can you give us some sense of what you're seeing and what you're expecting over the next 6 months or so? And then just finally on the GI transaction, can you remind us the acceptance levels required both at the PLC level and the Co-op level to approve these deals?

Thank you, Jason. Again, I'll take your first 2 questions. In terms of forward purchasing, actually, no, we're not seeing a lot of that actually because the underlying consumption trends are so strong, and we're very conscious of that. And that's something the team are watching very well. In fact, actually, as in many supply chains, the fact that we have our own facilities has stood us in really good stead actually. We've been able to service our customers very well, but we wouldn't be facilitating actually forward purchasing even if it was [ soft and true ] at this point in time because the underlying demand is very, very good. So I think that's a very positive perspective on the consumption demand that we're seeing. In terms of the overall cost inflation and particularly on the whey side, the first comment I would make, Jason, is that you'll remember that at the half year results, we actually said that we had favorable year-on-year comps for GPN whey in the first half because we had that declining market through 2020 as demand was back as a result of COVID. Then, of course, we saw demand accelerate strongly in '21. And you can see that indeed in our own top line growth, particularly on the Sports Nutrition side. So that demand growth, together with the supply chain that had recalibrated as demand was lower in '20, caused this spike in pricing. And we expect that to sustain into the first half of next year. So what it means for the full year '21 is that input costs have probably risen by high single digits overall with a big swing effect between the first and second half.

Yes, Jason, to your question on the acceptance levels for the Extraordinary General meeting for the PLC, and we're required to get over 50% of the independent shareholders to go through. And then from a Co-op perspective, they're required to get 2/3 of their members to go through in terms of their process.

Our next question comes from Karel Zoete from Kepler.

So I have one also on GPN in relation to the SlimFast brand because you say that the dieting category has been slow so far. But at the same time, the U.S. market has been open for some time. So wondering what's the consumer insights you're getting? Why the category is not moving yet? And particularly, I think also, looking back, dieting in the U.S. has been quite a trend sensitive category. Isn't the fact that SlimFast is seeing a bit slow momentum related to the -- the big Keto hype we saw in 2019. And then the second question is much more on capital allocation. You have EUR 150 million additionally in relation to the GI exit, you have a strong balance sheet. So do you expect or consider to make larger deals as well? Or will it remain bolt-ons you're looking at? Those are the 2 questions.

Thanks, Karel. Yes, on the SlimFast brand, we would very much see this as a category piece. And you're absolutely right. Of course, the U.S. market is open. But our consumer research would tell us that in that first instance of reopening, consumers have focused on in truth socializing, getting out and about being active, but not necessarily on diet. As I said earlier, we have also seen the customers very much acknowledging that, a, they put on weight and they have a desire to lose those. So we have -- we are very confident that what we call that trigger event will absolutely reemerge. The normal diet season would tend to be early in the year. And we've every expectation that, that will happen again now early in '22, and we're very much gearing up for that. In terms of the portfolio, yes, SlimFast has a strong position in the Keto area. We've seen more competitors come into the Keto space, we have really strong position there, and we are by far the leader in that space as we are very strong in the overall diet category. The comment I would make, again, Karel, if you look to our total lifestyle portfolio, which has a number of brands that play with consumers across different occasions like think! on the bar side, Amazing Grass on the plant side, Isopure is a pure protein. That overall portfolio actually did well for the 9 months, and we really believe that specifically on SlimFast, it is just a question of the timing of that trigger event as we move into '22. We've seen improved recent trends on SlimFast. It's important to say, we've been investing behind the brand, with the retailers, we're gearing off for that season as we look to 2022. So we remain very positive about the longer-term outlook for that brand.

Yes. In terms of capital allocation, Karel, obviously, this transaction gives us further flexibility in terms of what we're able to do, not only from a return of capital to shareholders, but also looking at growth opportunities. We've had some very successful bolt-ons that we've done over the last number of years. But clearly, when you take into account the consideration we'll receive here, we'll have a net debt to EBITDA. That's down towards just over 1x or 1.2x, and we can obviously take that above 3x if we need to. So it gives us firepower above EUR 0.5 billion, frankly, in terms of what we might want to do. So certainly, we'll be looking at bolt-ons and bigger opportunities to the extent that we see those out there. And they make sense for us in terms of our portfolio and the value equation makes sense as well.

Can I ask 1 follow-up question with regards to the ON. I spotted the Gold Standard now also in plant based. So is this a recent innovation or something you've been pushing for a bit longer? Does it look like an interesting area of growth potentially for the brands?

Yes, Karel, I'm very happy to take that question. Yes, we have had a plant offering under the ON stable. You will see us do more in terms of that space. It is an interesting piece for us. We clearly have a number of plant offerings already in Amazing Grass, but it is very -- ON as a brand has very much a license to play in that space also. So delighted that you saw the product.

Our next question comes from Alex Sloane from Barclays.

The first one was just coming back on pricing in GPN, if I heard correctly, you said the majority of that will be in Sports Nutrition. I just wonder, is that reflective of that is where the vast majority of the input cost inflation is? Or is there any read from that, the pricing is proving harder in SlimFast, just given the kind of category dynamics that you talked about? And then more broadly on GPN, I think at the half year stage, you talked about a quite material step-up in marketing spend for that business. I think, if I remember correctly, so over 300 basis points in the second half. Is that still what you're kind of roughly targeting? And yes, just be interested in terms of examples of where that spend is going would be great.

Thank you, Alex. Yes, actually. In terms of your question around the inflation on the sports side, I think the former part of your question is absolutely right. It is on the sports side, particularly in the dairy that we've referenced that we're seeing the highest inflation. So it is more a reflection of that than an ability for the diet category to absorb. That's where we're seeing it, and that's where the large part of our portfolio, and that's where most of the pricing is, to your point. On the investment in marketing, absolutely. I think, importantly, somewhat regardless of the inflation and very conscious of driving long-term sustainable growth. We have absolutely planned and are executing that increase in marketing investments that we referenced with the first half of the year. It is across all of our brands, primarily focused, as you would imagine, on Optimum Nutrition. We are increasing investment, as I referenced earlier in SlimFast as well. And some of the other brands, too, across the portfolio. Our think! brand is doing really strongly actually in its space and some of our other brands. So we're focused on the 2 main brands as we planned and executing it as planned.

[Operator Instructions] Our next question comes from James Targett from Berenberg.

Firstly, just on GPN and margins. You talked about hoping to offset the dairy inflation by the second half of next year with pricing. But does that include all your inflation like you hope to offset any kind of freight and labor costs as well? Or is that just a comment on sort of kind of raw material inflation? And you mentioned you were sort of still confident to that to 12% to 13% margin range for GPN, but is that something -- just to sort of clarify, is that something you still hope to achieve in FY '22? And then my second question is on just on SlimFast really, I wonder if you could just put a few numbers around what SlimFast performance has been year-to-date and in Q3. And you referenced improved recent trends. Is that sort of in terms of sell-in or sell out? And then one -- sorry, third and final question, just on raw materials in Nutritional Solutions. Are you seeing any shortage of availability there, which is impacting your ability to sort of fulfill customer demand? Just wanted to see if there's any pressure there.

Thanks, James. So firstly, in terms of margins for GPN, the first comment I would make, as I referenced there, that we are very comfortable that we will achieve the structural margin level that we've referenced previously as we move through 2022. And again, I would say that the transformation program is really a fundamental underpin to that structural margin, and it is very much delivering, as I said. To your question about the cost inflation, the plans that we have to mitigate that inflation through pricing is actually to cover all inflation. So at that growth level, the expected pricing is expected to negate the current expected inflation over the course of the year. And of course, as you would expect, in that context, we will monitor very closely consumer elasticity. We do see the pricing and the inflation as largely, as I mentioned earlier, a first half '22 phenomenon. In terms of the 12% to 13% for the full year '22, of course, it's very early to be absolutely definitive, given the scale of the inflation and the pricing we're planning. But I have to say that if all of the factors play out as we currently expect, we believe we're definitely in a good position to achieve that targeted margin in the second half of '22.

Yes. In terms of your question on SlimFast, James, as we've said earlier, it's been a slower rebound from COVID than we've seen, obviously, in our other areas of the business. And that's primarily again to do with the fact that consumers aren't fully engaging us in terms of weight management. However, when we said at the half year was as we got to the back to work and then into the new year, we would have programs moving into the Walmarts and other retailers, for example, of what we are seeing, and we talked about a minus 8.8% today in terms of consumption being down. But 4 weeks ago, that was minus 10%. So we are beginning to see improvements coming through in terms of those -- that 12 week data. And our expectation is as we head into the turn of the year that as we see more engagement around this, that we will see that begin to improve. So that's what we're planning. That's what we're putting our marketing behind, that's where we're putting our programs behind, and that's our expectation at this point. But we are seeing improvements start to come through.

On your raw materials question, James, it's a very interesting point, actually, because I would say from a material availability point of view, the portfolio that we have has been positive for the organization because there is a lot of demand, as you know, in the high floating space. And while we transact all relationships, for example, between our GN business and GPN at full market, actually the availability of supply has been positive for the GPN organization. We could sell more in truth. If we had it. As you can imagine, for GN, we're very pleased actually that we commissioned the Midwest Cheese facility because that brought on more supply into a very strong market. And obviously, we've been working very closely with our customers. But part of that demand, part of that volume piece, of course, that you're seeing within Nutritional Solutions is the fact that we're selling within that, the commission volume of Midwest, and there is very strong demand for high-protein wheys. So we're seeing that margin piece on the NS side.

And our next question -- follow-up question from Martin Deboo from Jefferies.

Siobhan, I just want to follow-up on what you just said actually. Can you remind us what the materiality of internal trade is between GPN and NS, like the percent of GPN's requirements that NS fulfills or the percent of NS' output that goes to GPN? You talked about it a few years ago, and I'm out of date. Is that something you'd be able to comment on?

Yes. It would generally run in kind of the early double digits, Martin, but it will be a bit higher this year. It will probably be in the mid-teens, maybe run a bit higher for the current year, particularly with the joint venture coming on. So you'd be at that sort of level. GPN has a very strong network of suppliers from other players in the space as well, and we have very good positions actually through 2021. So very good relationships, as you can imagine, as a key player in the space, both with our own businesses and externally.

And Siobhan, sorry, just to make sure, is that the proportion of GPN that is served from NS that you gave?

Yes. Yes.

Thank you. As there are no further questions in the queue, I would like to hand the call back over to Siobhan Talbot for any additional or closing remarks.

Again, as always, just like to thank everybody for your participation on the call today and hope that you all remain safe and well. Thank you very much.

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