Glanbia plc (GL9) Earnings Call Transcript & Summary

Good morning, and welcome to the Glanbia plc 2021 Full Year Results Call with Siobhan Talbot, Group Managing Director; and Mark Garvey, Group Finance Director. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Liam Hennigan, Group Director of Strategic Planning and Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to today's call. During the 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 the full year 2021 release and analyst presentation. 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 handing over to Siobhan Talbot, Group Managing Director of Glanbia plc.

Good morning, and thank you all for joining today's call. On the call today, I will outline a summary of our financial performance and strategic execution during '21 as well as the trends we were seeing so far on '22. Mark will cover the finances, and then I'll conclude with an update on our strategy and outlook, after which we'd be very happy to take any questions. So turning then to our performance in '21. When I spoke to you this time last year, we expected to grow our adjusted earnings per share in a range of 6% to 12% constant currency based on what we were seeing at that time. As we moved through the year, our strong delivery led us to upgrade our guidance, and we're pleased to ultimately report results much stronger than those original expectations across all of our key metrics of revenue growth, margin and across cash conversion. Adjusted EPS for '21 has grown on a constant currency basis by 23.9% for continuing operations. That obviously excludes the impact of the Glanbia Ireland joint venture, which is now headed for sale. Including the impact of the joint venture, our adjusted EPS grew by 22.1% constant currency. This result was driven by strong growth in both of our 2 key platforms of both GPN and GN NS, with GPN increasing like-for-like revenues by 15.9%, with branded like-for-like growing 18.3% and GN Solutions increasing like-for-like revenue by 17.3%. Through the year, we continue to focus strongly on our financial discipline and continued an excellent cash performance for the year. Our operating cash flow conversion was over 100%, and we put that cash to good use, investing across the business, making some acquisitions and also delivering returns to our shareholders with a 10% increase in our final dividend as well as returning over EUR 90 million in share buybacks through the year. 2022 will start very well, and we expect further revenue and earnings growth this year. Before I get into the outlook, I'd like to speak with you first about our strategic execution on '21 because that provides important context for our '22 plans. '21 was overall a very busy year for the group. And while we were navigating COVID, we also stayed very focused on delivering our strategic imperatives. The GPN transformation project made significant progress through the '21 year with the project over delivering in terms of top line and margin momentum versus its original business case. This key project, which commenced in the latter part of '19 and since then is well on track to deliver over the 200 basis points of net margin benefit that we spoke to with the gross savings being reinvested as planned in higher brand marketing investments. The project, as we've mentioned previously, has a broad range of initiatives focused on both driving revenue momentum and indeed efficiency. From a revenue perspective, it has enabled brand momentum. It has driven focused revenue growth management opportunities, including significant pricing actions with a number over the last 18 months and also realigned our operating model and indeed talents to match our growth agenda. The range of projects to drive efficiencies was also very broad. It included a rationalization of over 1/3 of SKUs from the portfolio, an exit of our contract business in North America such that all of our business is now branded really in GPN. Significant realignment of our routes to markets in regions outside North America and the consolidation of our supply chain activity, particularly a consolidation of the North American manufacturing footprint. The strong delivery on this project to date has been a really strong underpin of the double-digit EBITDA margins achieved in GPN in '21, and we believe has structurally lifted the profitability of the business relative to its 2019 base. We made significant progress on our portfolio during the year, in line with the strategy of simplifying the group behind our growth platforms. The most significant portfolio realignments has been the agreement to dispose of our remaining 40% interest in Glanbia Ireland to the Co-op in Q4. Our strategic growth journey will remain that blend of organic M&A and portfolio review and the acquisition by GPN of the level of brands in Q2 and by Nutritional Solutions and PacMoore in Q3 are very aligned to our overall growth strategy. Finally, further leveraging the capabilities we have in building and operating very large-scale dairy facilities in the U.S. We very successfully completed the commissioning of the cheese and whey facility in Michigan in the first half of the year. COVID, of course, continue to make life challenging first [ half ] in '21. And once again, I can only thank and really acknowledge the way that all of my Glanbia colleagues, our supply chain partners and of course, our customers worked tirelessly together to navigate the challenges of the pandemic. Our #1 priority since the outset of the pandemic has been the health and safety of our employees. And through strict protocols, we operated all of our plants to plan last year. We maintained the integrity of our supply chain throughout '21 and into '22 to maintain delivery of our nutritious brands and ingredients to our customers and consumers. So turning then to our outlook for '22. Through the second half of '21, the underlying consumption trends that we've seen in the first half very much continues. In GPN, we have continued strong momentum in our performance and general lifestyle brands, while the diet category remains sluggish as consumers just didn't prioritize dieting in a COVID challenged environment. In GN Nutritional Solutions, we had continued strong top line momentum, which was fueled by continued customer and consumer trends in areas such as healthy snacking, immunity, where we have a huge range of innovative ingredient solutions. Of course, as we've spoken of previously, inflation became the emerging theme of the second half of the year. And as we've outlined, we have been progressively mitigating that trend, most particularly around pricing actions since the latter part of '21. Our clear strategic focus for '22 and beyond is to drive growth across both GPN and Nutritional Solutions as the nutrition partner of choice for our customers and consumers. During '22, we anticipate the effects of COVID-19 will abate further. However, the ongoing impact of cost inflation, particularly dairy related, we continue to be very actively managed as indeed we did through '21. Given this context, we have started '22 very well with very good growth momentum across both GPN and GN Nutritional Solutions, and we're very focused on maintaining the top line momentum through the year. We believe that the actions we have taken in simplifying our portfolio, transforming the business and investing for long-term sustainable growth will position us really well when we move through the current inflationary cycle. Based on today's market environment and our current expectations for rest of the year, we expect to deliver both group revenue and EBITDA growth for '22. We expect high single-digit revenue growth in both GPN and Nutritional Solutions, largely driven by our pricing actions. We expressed growth in earnings with EBITA growth to be driven by the continued growth of Nutritional Solutions. For GPN, we expect the full year EBITA to be broadly in line with '21. As anticipated, revenue growth is offset by a margin decline of about 100 basis points versus the prior year. The impact of inflation in GPN is material with year-over-year cost of goods inflation of approximately 20%, with inflation of dairy input costs around 70% of that total figure. Importantly, GPN has secured supply and fixed pricing for almost 90% of obvious expected dairy input requirements for the current year, and that gives us really good visibility as well as protection against any further dairy price increases. Over the full year '22, inflation is currently estimated to result in an EBITA margin headwinds net of pricing action of about 300 basis points against which we're driving further efficiencies and cost saving initiatives that will contain the EBITA margin decline versus '21 to around 100 basis points. We expect Nutritional Solutions EBITA to grow in '22. Material inflation headwinds there are also a factor. However, the combined impact of pricing actions plus further cost savings and indeed further efficiencies are expected to drive the Nutritional Solutions margin broadly in line with '21. For full year '22 performance in our GN U.S. Cheese business will be broadly in line with '21, and the continuing joint ventures are expected to reduce somewhat versus the prior year as we have some ongoing start-up costs in our European joint venture and some inflation headwinds. So therefore, at a group level for folio '22, we expect adjusted earnings per share growth for continuing operations of between 2% and 8%. All of the earlier numbers, et cetera, on a constant currency basis and all those numbers will rise on a reported basis with the adjusted earnings per share expected to rise by 5% in currency rates stay where they are today. Turning then to the segmental performance for '21. GPN recovered strongly in '21 from the COVID challenges of '20, our performance facilitated by the benefits achieved through the transformation program. Constant currency volume growth was 11.4% and price was up 4.5%. With the exit of the North American private label manufacturer business, 98% of our revenues are now branded, and we grew those branded like-for-like revenues by over 18%, 18.3% in fact. Volume growth was strong across all channels and markets. Consumption trends across sports and general lifestyle nutrition have been very good throughout the year. And as mentioned earlier, this was continued into '22. GPN acquired the level of gaming nutrition brand in the second quarter, and this is being integrated successfully into our direct-to-consumer platform in Europe. Pricing was driven by increases in both the third quarter of 2020 and the third quarter of '21. And to date, we've not seen material demand elasticity in response to those actions. We will, of course, continue to monitor that as we move through '22. Margins for '21 were up 320 basis points as a result of our pricing actions taken. Efficiencies from the GPN transformation program and operating leverage was also part of our margin story as indeed with a strong volume growth. Overall, this led to a 65.5% increase in GPN EBITA to EUR 145 million. As noted earlier, GPN has started well in '22 to date. For the full year, we're focused on maintaining that top line momentum. We expect high single-digit revenue growth and EBITA broadly in line with '21 levels. Turning then to our leading brands. Optimum Nutrition continues to consolidate its position as the #1 brand in the sports nutrition category and is now over half our GPN branded revenue. The team has delivered growth in ON through strong brand activation programs across pack design, creative, portfolio focus and, of course, investment discipline. Global revenue for ON was really strong, growing by almost 35% with growth across all regions. Brand consumption in the key North American market in measured channels was also strong, up almost 19% in '21, driven by brand expansion and good velocities across key channels. ON is outpacing category growth, and we saw market share gains in our top 5 tracked markets, including the U.S., U.K., China, Australia, India. During the year, we continued the global rollout of our proven marketing campaign with the more than your body creative now in 25 markets. We have over 1,000 individual partnerships globally with the lead athletes and teams, coaches, trainers, ambassadors and influencers, including Olympians, Indian Premier League, NFL, AFL and of course, Rugby. This activity is key towards building education and influence with our target consumers. ON is a really strong task bump for innovation. And with a strong focus on products like Gold Standard Whey and AMIN.O ENERGY, in 2021, we expanded our reach with AMIN.O ENERGY Sparkling, ready-to-drink, for example, in the U.K., U.S. and Australia. Overall, our energy platform is about 10% of our GPN revenues now and is becoming a really exciting platform for us. On our GPN Lifestyle nutrition brand portfolio, again, it's 31% of our overall re-branded revenues and that grew by almost 4% in '21. This encompasses SlimFast, think! and Amazing Grass. SlimFast as you know, is our lifestyle brand in the diet category. And we did see continued headwinds in that category, which led to consumption being down over 4% in North American key channels over '21. Globally, our revenue declined by 0.6% as North America decline was offset by growth in the U.K. SlimFast continues to be a very strong brand and the most recognized weight management brand in the U.S. with 98% brand recognition in the category. To drive continued brand relevance, we have engaged with our consumers. And I think as I had mentioned previously, we plan to reshape our SlimFast portfolio to meet the evolving needs of our consumers across both the weight loss but also weight management journey. In '21, we launched a new SlimFast advertising with make an entrance or might surprise you, marketing campaigns in the U.S. and the U.K. We continue to innovate across format, including Keto, and we had a very successful Keto rollout in the U.K. in the Q4 of '21. You know that the other brands in our lifestyle portfolio are think! and Amazing Grass, both grown very strongly through '21. We saw consumption growth across both those brands of almost 10%, with revenue up 14%. Again, as you probably know, Amazing Grass is a plant-based supplements and is the #1 brand in the green category in the U.S., with overall plants now about 5% of GPN revenue. The think! protein bar had a great year, and this growth outpaced the category. We had a good performance from the core think! range as well as the really successful rollout of Keto related innovations under the think! brand. Across all of our lifestyle brands, we had integrated marketing campaigns as you would expect, across digital and traditional media as we continue to build awareness and conversion. Turning then to Glanbia Nutritionals. Glanbia Nutritionals had a very strong year with volume growth of over 18%. Price for the segment declined almost 8%, but this was all related to U.S. Cheese market price volatility with a lower year-on-year average pricing. EBITA was up almost 10% to EUR 125 million, and this was driven entirely by the Nutritional Solutions business. As you know, Nutritional Solutions completed the acquisition of PacMoore in the third quarter, which increases our capability in the healthy snacking arena. Nutritional Solutions, our ingredient solutions business, again, had a really strong year. Volume was up 13.6%, with strong customer demand across essential nutrition, immunity solutions and healthy snacking solutions. Pricing was up 3.7% as we passed through increasing dairy market pricing during the year. Margin was slightly back by 50 basis points, largely as a result of some higher input costs, but EBITA grew 15.7% to EUR 101 million. For GN NS, for the full year '22, we expect to deliver high single-digit revenue growth and good EBITA growth. While NS is also experiencing material inflation headwinds, we expect the combined impact of pricing actions plus further cost savings and efficiencies will drive an NS margin for '22, broadly in line with '21. The NS business is delivering growth ahead of its end markets. It's leveraging its core capability across a really broad range of sectors, all of which are in growth. From an ingredient perspective, NS has strong capability across both dairy and non-dairy, with non-dairy now representing 59% of the business and is primarily focused on micronutrients, immunity solutions and flavors. This part of the business grew almost 14% in volume in '21. The dairy business, which is primarily focused on healthy snacking and specialized key dairy ingredients also had strong volume growth of around 13%, part of which was, of course, driven by the commissioning and commercialization of the whey from the Midwest Cheese facility. In total, Nutritional Solutions delivered 17.3% like-for-like revenue growth. Nutritional Solutions occupied key positions in ingredient solutions and is a key player globally, where we serve a sports and lifestyle nutrition, supplements and immunity and of course, mainstream food and bev and specialized nutrition also, with ingredients that can add key nutritional benefits to products within those categories. On U.S. Cheese, we had a resilient performance in what was a volatile environment. Volume was up almost 20%, which was driven by the commissioning of the large facility I've mentioned earlier in Michigan. The U.S. Cheese markets were volatile in '21, and the business operates a [ past true ] model, as you know, but pricing declined at top line by 12%, reflecting those lower markets. EBITA was back slightly over -- slightly over EUR 3 million due to higher operating costs. With that, I'll hand over to Mark who'll speak to the financials.

Thanks, Siobhan, and Good morning to everyone on the call. I will walk through some of the key financial highlights of the year. As Siobhan has said, 2021 was a good year for the group with a strong performance across all metrics. Wholly-owned revenue grew by 13.1% constant currency to EUR 4.2 billion with both wholly-owned businesses performing well. The average euro-dollar rate for the year was $1.18 to the euro compared to $1.14 for the prior year, resulting in an approximately 4% headwind in reported results compared to constant currency in '21. Adjusted earnings per share for continuing operations was up 23.9% on a constant currency basis. The group had strong cash flow during the year as a result of higher earnings, just over 100% of EBITDA was converted into operating cash flow. The group ended the year with a strong balance sheet and net debt of EUR 603 million and a net debt-to-EBITDA ratio of 1.7x, in line with the prior year. During the year, the group spent EUR 76 million in acquisition activity, acquiring 60% of LevlUp, a direct-to-consumer gaming nutrition business in GPN and PacMoore healthy snacking business in Nutritional Solutions. EUR 91 million was returned to shareholders via share buyback activity during '21. And today, we are announcing a 10% increase in the '21 final dividend, which will bring the total '21 dividend to EUR 0.2928 representing a 33.6% payout of 2021 earnings. Last November, we announced that the group had entered into an agreement to sell the PLC's 40% stake in Glanbia Ireland to Glanbia Co-operative Society for EUR 307 million. Since the update, the shareholders of the PLC and society have separately voted in favor of the transaction. Subject to final regulatory approvals, we expect this transaction will close in the second quarter of EUR 307 million to be received in cash. As Glanbia Ireland represents a significant component and separately reported segment of the group, the group's share of Glanbia Ireland's results have been reported separately in the financial statements as discontinued operations. At year-end, the book value of the PLC's investment in Glanbia Ireland was EUR 234 million. Looking at the income statement, you can see that on a constant currency basis, revenues were up 13.1%, EBITA was up 34% as a result of strong performance by GPN and GN. The group's EBITA margin increased from 5.5% to 6.4%, primarily due to the transformation program and higher operating leverage in GPN during the year as COVID restrictions abated across our markets. And finance costs for the year was EUR 17.5 million compared to EUR 20.5 billion, reflecting the benefit of lower average net debt in 2021 compared to the prior year. The average net debt was EUR 534 million in '21 and EUR 631 million in 2020. The average interest rate for the year was approximately 3%. Share of joint ventures reported a continuing operations for us EUR 19.2 million profit after tax compared to EUR 37.7 million in 2021. 2021 performance was in line with expectations following an exceptional year in 2020 due to unusual dairy market dynamics, which favored our U.S. joint venture, which we did not expect to repeat in 2021. Effective tax rate for the year was 13%, an increase from 11.3%, representing the geographic footprint of the group's profitability. Adjusted earnings per share for the year was EUR 0.8715 of which EUR 0.7784 related to continuing operations and EUR 0.0931 represented discontinued operations. Operating cash flow generated for the year was EUR 334 million, in line with the prior year, albeit with higher EBITDA and increased working capital investment. Operating cash flow conversion was just over 100% of EBITDA coming in well ahead of our target of 80%. There was increased working capital investment in the second half of the year to ensure the group had appropriate levels of inventory to meet demand and to manage any supply chain dynamics. In 2022, we will be targeting an 80% conversion rate, and we do expect a working capital outflow for the year, in particular, due to the inflationary environment. Capital expenditure for the year was EUR 77.5 million with EUR 62 million spent on strategic CapEx, for significant strategic CapEx project or the investment in the consolidation of GPN manufacturing facilities in Chicago as part of the transformation program, which is now complete. In 2022, we expect to spend between EUR 75 million and EUR 85 million on our capital expenditure. Group has a strong balance sheet that ended 2021 with net debt of EUR 603 million compared to EUR 494 million at the end of the prior year. The increase was primarily due to acquisition and share buyback activity as well as restructuring of legacy pension liabilities. Net debt-to-EBITDA was 1.71x and interest cover was 15.1x well within covenant and the group has total available banking facilities of EUR 1.16 billion, with no arrangement expiring prior to January 2024. In 2021, the group had exceptional items of EUR 42.1 million net of tax, which are primarily related to the transformation program in Zambia Performance Nutrition and the restructuring of pension liabilities. The GPN transformation program commenced in the 2019 and has aligned operating and supply chain structures in support of individual businesses, sharpened focus on brands and optimized routes to market across non-U.S. markets to drive greater efficiencies, improved margin and deliver top line growth. EUR 18 million pretax was incurred in the current year of the program and the investment phase of this multi-year strategic program is now complete and no further costs are anticipated. During the year, legacy defined benefit pension schemes were restructured initiating a process for the ultimate buyout and wind up of certain U.K. schemes, and there was a further simplification of remaining schemes. The net charge was EUR 30 million before tax. These processes have further reduced the group's net pension liabilities, which at year-end were EUR 14 million compared to EUR 29 million a year ago and EUR 110 million 5 years ago. In 2022, we expect the effective tax rate to be between 12% and 13%. As I mentioned, the average euro-dollar rate for '21 was EUR 1 equal to $1.18. As of this week, the exchange is approximately $1.12. Should the rates stay at the similar level to this for the year, our reported results would be approximately 5% higher than the constant currency results. Return on capital employed was 10.1%, an improvement of 110 basis points, reflecting the improved profitability of the group in 2021. As I mentioned earlier, during 2021, the group allocated EUR 91 million to share buyback activity, purchasing 7.3 million shares at an average price of EUR 12.51. This 2021 activity would be approximately 1% accretive to 2022 adjusted EPS. In 2022, to date, the group has spent a further EUR 73 million in buyback activity, purchasing 5.9 million shares at an average price of EUR 12.36. This included participation in the Co-op share placing in January and just this week, including the EUR 60 million program announced last November. This 2022 activity will result in an additional adjusted earnings per share accretion of approximately 2% in 2022. And reflecting the strong cash flow of the group today, we are announcing a further EUR 50 million buyback program, which will commence immediately. Following the announcement of the disposal of the group's 40% interest in Glanbia Ireland last November, the group has completed or announced buyback activity of approximately EUR 130 million. And importantly, at the upcoming AGM, the Board will take approval to renew the group's authorization to continue to use share buyback programs as a capital allocation tool. And with that, I will hand it back to Siobhan.

Thank you, Mark. Turning then to strategy. Glanbia has a very strong and very rich heritage, which started with the purpose of delivering a brighter future for the farm family communities in which we operate. And today, we have evolved our strategy to a purpose of delivering on a global scale, better nutrition for every step of life's journey. We are really ambitious to deliver that purpose. We are very clear on both our strategic priorities and indeed, the specific capabilities that are unique to Glanbia that will drive that long-term sustainable growth. We've touched on many of these areas earlier in our presentation today. Our strategic priorities are not new and their focus on driving growth in our portfolio of leading sports and lifestyle brands and science-led ingredient solutions through a blend of organic and acquired growth. As we term organization enablers is really the engine room that provides the infrastructure and tool kit to our people to deliver these strategic priorities. This, of course, has been a key focus area for myself and all of the team in the last 2 years, during which we reshaped our operating model in key areas of the group, while we've invested in new skills, new talent and indeed, new relationships to fuel our future growth. I am really confident that the focused investment in reshaping of the key enablers over the last 2 years will serve us really well both to navigate the current short-term inflationary headwinds, but importantly, to drive future sustainable growth. If you think of the evolution of the Glanbia Nutrition portfolio, it is really probably best characterized as a progressive journey of allocating capital, investment and resources to areas of nutrition, where we can create as a group and sustain clear competitive advantage. In recent years, we've divested away from commodity exposures and now have a strong portfolio of leading sports and lifestyle brands and ingredient solutions, which are aligned with the de-risked participation in primary dairy production, largely in our core U.S. market. We are clear that the priority for our capital allocation investment is the continued growth of our GPN and our Glanbia Nutritional Solutions portfolio, where we invest to grow organically across a range of ingredient sources, product formats and in the consumer usage occasions and motivation, both in the U.S. and in selected key international geographies. Our U.S. Cheese and joint venture businesses by separately reported are strongly aligned operationally and commercially. And these ventures through innovative self-finance models provide supply chain and innovation capability, provide visibility and assurance, which supports our 2 primary growth platforms. As outlined earlier, our performance expectations for '22, which are focused on growing revenue and earnings despite significant inflation headwinds across the group. As we move beyond '22, we are very confident on the fundamental drivers on the long-term sustainable growth of Glanbia. As we previously noted, we believe that the unfortunate health crisis that has been COVID-19 has over the last 2 years only accelerated consumer perspective and motivations on the merits and importance of maintaining a healthy and active lifestyle. Structurally, we believe that this trend will be positive for our brand and ingredient capabilities. And it underpins our view on a sustainable top line momentum across both GPN and GN Nutritional Solutions of between 4% and 6%, a metric we expect to overachieve in '22. Margin optimization is, of course, and has been an ongoing focus for the group, particularly again in those growth platforms of GPN and GN Nutritional Solutions. Recent work on the GPN transformation program and the ongoing portfolio evolution of Nutritional Solutions, will we believe strongly underpin a structural margin, EBITA margin of over 12% in both those businesses. The largest '22 inflation headwinds, as I said earlier, is dairy cost of goods in GPN. And we have a long experience and deep knowledge of the dairy space, and that gives us confidence to navigate this current inflationary cycle. We believe the current spike, particularly in whey cost of goods will rebalance, probably in the latter part of '22 or early '23. And therefore, our focus is both on the short-term clear mitigating actions so that we can optimize our near-term performance, but also keeping a very keen eye to the long term. And our approach and continued investment across key areas of brand marketing, R&D and innovation will really position us well when the dairy inflation cycle turns and COGS return to more usual pricing. My final comment on this slide is that, of course, importantly, we acknowledge, we are very focused on delivering shareholder value across all of our metrics, top line, margin and return on capital employed. And ultimately, the Board will continue to regularly review capital allocation across that blend of M&A activity, investments, CapEx, dividends and of course, buybacks. As we've stated earlier, we now have a really strong portfolio in GPN across consumer motivations, channels and indeed geographies. And together, that delivered branded like-for-like revenue growth in '21 of over 18% and a 2-year growth of over 5%, having fully recovered from the COVID challenges of 2020. We had good growth across all of our channels in '21 as continued growth in channels that have performed well through COVID such as online and food, drug, mass and club complemented a recovery in the more COVID-related channels of specialty and distributors. From a consumer motivation perspective, both aspects of our portfolio grew in '21 with, of course, very strong growth in the sports nutrition side, particularly Optimum Nutrition, but also think!, Isopure and in Amazing Grass. All of that growth offsetting the slightly more challenged SlimFast performance. Glanbia Nutritional Solutions is now a [ great ] platform, a $1 billion revenue business focused on ingredient solutions with strong capabilities across a range of ingredient sources playing into a broad range of customer segments, all of which are growing in the consumer nutrition space. We really think of the capabilities of NS through the lens of consumer motivations. And our current portfolio has 2 essential bedrocks. Firstly, we are about protein, and particular, its application to consumer healthy snacking across a variety of ingredient sources and delivery formats. And secondly, we are about micronutrient bespoke blends, our vitamin and mineral premixes, which support consumer needs across a range of needs, infant nutrition, clinical nutrition, immunity and mainstream food and beverage. This portfolio is supported by a really strong innovation capability, which has evolved strongly in recent years and been augmented by acquisitions of further complementary capabilities as we really develop solutions capability to meet our customer and consumer needs. We've enhanced our capabilities across bioactive, flavors, further healthy snacking technologies, plants-based solutions and, of course, novel ingredients, including, for example, clean label, edible film and glitter. On the area of sustainability, we have made significant progress on our total environmental, social and governance agenda in '21. Our environmental sustainability strategy, which is labeled pure food plus pure planet was published with associated targets. We're very focused on actions in areas that are most important to our stakeholders, and we've prioritized work in the area of carbon reduction, water, waste management and packaging. In terms of carbon emissions, we've committed to a 31% reduction in Scope 1 and 2 carbon emissions by 2030 and to reduce our carbon emission intensity in our dairy supply chain by 25%, again by 2030 from a 2018 base year. These targets have been validated by SBTi to a well below 2-degree Celsius pathway. We have reduced Scope 1 and 2 emissions to date by 8% compared to that baseline. We have re-baselined our freshwater data across all of our operational sites in '21, and that will inform our action plans for water conservation and management. On waste, we've committed to 100% zero waste to landfill by '25 across all of our production sites, building on an achievement which has already been made with 0 waste to landfill in GPN locations. We've also committed to a reduction in food waste by 50% by 2030. And on packaging are committed to full brand packaging, recyclable materials, either recyclable, reusable or compostable by 2030, and we've made really good progress on that to date. On the social agenda, we've also made really good progress on our diversity, equity and inclusion agenda during the year with significant engagement across all parts of the organization, which are culminated in a vision in Glanbia, a vision of inclusion to advance a culture where we celebrate individuality because we know that together, we are more. The organization of Glanbia has never been more ready to embrace this journey, and we've increased our resourcing in the area and launched a series of very specific actions across education, talent acquisition and engagement to both action and embedded progress. Of course, the health and safety of our teams has always been a priority for us. We're really pleased that we had 0 critical injuries in '21, and we've made improvements in health and safety across many of our sites, all of which reflects our strong commitment to our core values and an ambition of course, 0 harm for our employees. Finally, then on governance, the representation structures of the Board continue to evolve in '21 to facilitate broader diversity. The agreed reduction in the representation of our largest shareholder is progressing to plan, and the percentage of female representation on the Board has increased during the year. In conclusion then, '21 was a strong year for the group. And the actions taken over the last 2 years has positioned us really well to navigate the significant pandemic-related disruption and to deliver growth in our key areas of nutrition expertise across our leading brands and ingredient solutions. All of our targets across financial and the nonfinancial metrics were met or exceeded in '21. We've made progress on a significant number of strategic initiatives. GPN over delivered against its plans on the transformation program. It added the German-based level of brand to our portfolio. Nutritional Solutions expanded our healthy snacking capability with the acquisition of PacMoore, and we successfully commissioned the large-scale facility in Michigan. We progressed our portfolio activity in line with the strategy of simplifying our business behind our growth platforms through the disposal of our interest in Glanbia Ireland to the Co-op. We have strong cash flow, returning over EUR 90 million to shareholders via buybacks and of course, have increased our dividend. As a truly purpose-driven organization, we have progressed our environmental, social and governance agenda. We're prioritizing our road map to carbon emissions reduction and implementing our diversity, equity and inclusion strategy. The current market environment is, of course, volatile across many dimensions, inflationary pressures, COVID-19 and, of course, geopolitical tensions. Our clear strategic focus for '22 and beyond is to drive growth across the platforms of GPN and Nutritional Solutions, where we want to and will be our customers and consumers partner of choice. We expect the disruptive impact of COVID-19 will abate through '22, and we will actively manage as we have been doing the ongoing impact of cost inflation. So based on our current market environments and our current expectations for the year ahead, we expect to deliver group growth in adjusted EPS for continuing operations in the range of 2% to 8% on a constant currency basis. Our reported growth rate will be higher than that by 5% based on the current foreign exchange rates. With that, we'd be very happy to take your questions.

[Operator Instructions] We will take our first question from Jason Molins.

Siobhan and Mark, just wanted to pick into 2022 on your guidance with regards to the high single-digit revenue growth that you mentioned. Can you give us a sense of split between volume and pricing assumptions that you're making for GPN and Nutritional Solutions? And then, Siobhan, you mentioned in your remarks on the whey pricing backdrop that you expect to, I think you said normalized in the latter part of 2022 or early 2023. Can you just give us the confidence levels or why you feel that's the statement that you're happy to make? And then just given that cost backdrop that you're facing this year and the various hedging and secured purchasing that you've got in place, how should we think about the shape of the year ahead between the sort of H1 and the H2? That are my questions.

Thanks, Jason. So yes, in relation to '22, firstly, I would say we've started the year very well on revenue across both GPN and Nutritional Solutions. But of course, we're very conscious that there's a lot to navigate. So we're confident that we will do the high single digit overall revenue, largely pricing, we believe, Jason, at this point in time. And the ultimate split between pricing and volume has a lot to play out within that because we're -- we haven't seen elasticity on the volume side to date. But of course, it's very early in the year, and we're not overly calibrating. So what I would say to you at this point in time, very confident that we will at least do the high single digits. You should take that, that would be largely pricing and we'll monitor the volumes and elasticity as we go. In terms of your whey pricing piece, yes, the inflation we've seen through the latter part of '21 and into '22 has been -- is really unprecedented in recent times. We haven't seen this level of pricing since 2014 and probably didn't in truth even hit the current level of pricing at that point in time. The one thing I would say to you is that we know dairy very, very well. We know that demand and supply always rebalances actually. The fundamentals of dairy and the relative mix that producers have the option to produce really don't support the current spike in whey prices. What [ have ] had happened really is a disruption, a COVID-related disruption to the dynamic of demand and supply. So if you think what happened in '21 was supply fell off with COVID happening in the early part of 2020. Producers recalibrated, their production mix came out of high-end wheys, went into some other products. Then of course, in '21, you have demand come back very strongly across lots of different areas that use protein. And so you had this demand reaching a supply that has recalibrated the prior year. And so you have then a surge in pricing. We've seen this before, as I say, in '14 and what had happened is that demand ultimately responds to high prices and supply -- sorry, supply response to high prices and it starts to meet demand. And so that gives us the confidence of that recalibration. It's really difficult to be prescriptive on the quarter that, that flows through. But our general knowledge of dairy is that dairy does respond to high pricing and prices are very high for milk right across the globe currently. That's not to say they're not seeing their own inflation headwinds, but over the run of '22 and as we come into '23, I have every confidence that milk supply globally will grow. And particularly in the high-end wheys, we will see that supply meeting demand and therefore, pricing normalizing. And the actions we're taking, Jason, in that context, which has a series of price increases through '20, '21 and '22, I think will position us really well in that normalization stage because traditionally, we have held a lot of the pricing when the cost of goods has reduced. So that's a key part of our long-term confidence in the space. But as I say, we know very well. To your point around our hedging strategy, in the context of what we were seeing at the back end of '21, the GPN team again, who are very good at procurement in this space went long in terms of supply. And as I've mentioned, we are now 90% covered for 2022 on our key dairy input requirements, which puts us in a really strong position. The shape of the movements through '21 and '22 means that you're going to see the bulk of the margin drag actually in the first half because we were -- we have been coming from a declining markets in '20 into a rising market of '21. So you're going to see a margin impact in the first half and then coming a more normalization in the second half and margin increasing as we go through the back end of the year. That's the general shape. Hopefully, that helps.

Okay. That's helpful. Sorry, just sort of one follow-up if you don't mind. In terms of the whey pricing dynamic in the high end versus the low and medium quantity, is there any major differences between the 2, given you're more exposed, I guess, on the high-end side?

Yes. It's an interesting point, actually, because I would say that the high-end whey rose earlier than the general dairy complex. But as you've probably seen in recent times, all of dairy has increased, particularly protein. So but still, when you look at a relative point of protein basis, high-end whey would still be out of kilter versus the commodities. So the commodities have risen, but again, high-end wheys more so. Again, part of our confidence, but ultimately, the high-end wheys will recalibrate back.

We will now take our next question from James Targett.

A couple of questions from me. Just on -- firstly, on the Q4 volume development. Can you just talk a little bit about behind the -- what's behind the declines in volumes in GPN in Q4? Maybe some comments on the split between ON and -- or the trends in the ON and SlimFast in Q4. And you mentioned a strong start to '22. So any kind of phasing benefits or phasing impacts or you wanted to call out. And I wondered if that positive start to Q1 included SlimFast as well. And do you expect SlimFast to grow in FY '22? That's my first question on Q4 volumes and then we'll start to Q1 with SlimFast. And my second question is on the GPN margin. Just can you talk about the outlook? Just talk about whether some of these sort of productivity initiatives providing a 200 basis points offset to the 300 basis point input cost headwind expected?

Thanks, James. So in relation to Q4, as you mentioned, for GPN, overall, I would say we're not concerned about the Q4 performance. As you've seen, we had a very good overall volume performance up almost 14% in GPN. And yes, Q4 volumes were back. But that was really a conscious decision on our part in the context of the inflationary trends that we were seeing and the pricing actions that we'd already taken and planned, where we decided not to promote the brands heavily nor did we facilitate preordering in advance of price increases that we put through in early '22. And the key piece for us, actually, James, was that the consumption trends that we have seen through the year up to Q4 actually sustained in Q4. So we continue to see that very strong Optimum Performance, think!, Amazing Grass still saw -- I mean, I'm afraid that there's sluggishness of SlimFast, but the overall portfolio very strong. So that was more a conscious piece on our part. And as you say, I think that absolutely has come back in 2022. We've seen really nice volume growth in January and February, early in the year, though it is. So as I say, that gives us that confidence. So we're not concerned about the Q4 piece. It was a conscious, as I said. So in terms of that consumption piece of the early part of '22, again, very much seeing the same trend. Sports, very strong consumption across the regions, very strong in the measured channels in North America. I think, again, Isopure, Amazing Grass, all strong. It's fair to say that SlimFast to the diet category hasn't come back in the early part of '22 as we might have planned for. But overall, the portfolio can absolutely absorb that. We have very clear plans for SlimFast, very optimistic about the brand potential. The reality is that the diet category hasn't come back indeed as players might have expected in January. There's generally a lift in January versus the prior back end of the year. And while there was a lift, it just wasn't the level of historically across the category and all players would have seen that. So our work on SlimFast continues to be areas we've spoken about before, continuing to innovate, doing some really good work in terms of broadening the reach of the brand. We've been very focused on the weight -- the fast weight loss piece where we're broadening the brand into the weight management. And you can see in the category, how brands like think!, for example, that is in that general health, possibly weight management space have been doing really well. And so their overall lifestyle portfolio growing and putting particular emphasis on SlimFast as we move through '22. But overall, very pleased about the total portfolio, both at consumption and indeed, a revenue in terms of the stock for '22. Maybe Mark will take the margin point.

James. I mean in terms of the ability for us to mitigate some of these significant inflation headwinds, of course, the fact that we have a transformation program in place is very helpful in that regard, since the cadence around that in terms of looking at various costs and making sure we have the appropriate continuous improvement around bringing those costs down to areas like procurement, SG&A, just making sure we're managing personnel costs really tightly, et cetera. That program has been continued in terms of its process into '22, and that's going to allow us to mitigate not everything, but it will significantly mitigate some of the inflationary impacts, which obviously help us in '22.

We'll take our next question from Karel Zoete.

I have a couple of follow-up ones. The first one is coming back to the U.S. dieting market. What does your consumer insight tells you? COVID is away long now in the U.S. Why is the category not coming back as expected? And then the second question is on Slide 23 with the medium-term targets. You guide for 4% to 6% growth. I was wondering if that number assumes some add-on deals or not. And then looking to the recent performance, and particularly of Nutritional Solutions, you have been well above the 4% to 6% range in recent years. So isn't that a bit cautious for this unit? And the last question is coming back to this inflation piece and dairy prices. Supply/demand might rebalance as you say, but it's different, of course, to the past is that farmers are also confronted with high cost on site. So what are you seeing in terms of farm income levels because that ultimately needs to be good despite high selling prices in order for them to expand production on site?

Karel, and thank you. In terms of the category of dieting, quite simply, I believe from talking to consumers is that it is COVID-related and it is the relative prioritization of activities as people emerge from COVID. And our consumer research will tell us very clearly that a significant number of consumers, particularly in our core North America absolutely still want to lose weight. But as there has been waves of caution around COVID and around mobility and indeed, people not back in offices or doing all of the things that we all did so frequently pre-COVID, it is really and only just that caution. So we remain very, very confident on the long-term perspective on the category. We will broaden the reach of SlimFast, as I've mentioned. And this is really just the ongoing impact of COVID in that space, but it doesn't fundamentally alter our views in any way. In terms of our volume piece, the 4% to 6%, that would be organic growth as an ambition, so it wouldn't include further acquisition activity. And I acknowledge your point. And what I would say is to you, yes, we will always be ambitious to optimize our performance over a period of time. And we have indeed had very strong growth within the Nutritional Solutions, and we'll continue to be ambitious to drive that. We're also conscious of the fundamental growth levels of the categories in which we play in as well and indeed, they can ebb and flow. So in putting out medium targets, we are cautious to some level to your point, but always will be ambitious to overachieve against that. I mean Nutritional Solutions is a fantastic business for us. And I think we have a lot of excitement across both of our platforms. Nutritional Solutions delivered a really resilient performance all through COVID, has built on that further in 2021. And we'll build on that further again in 2022. And GPN having recovered in '21 from more challenge will build its top line and sustain that overall in fact, grow earnings on our reported base for the reasons that we have outlined. In terms of dairy recovery, of course, and I think I referenced that, Karel, you're absolutely right that at farm level, farmers are seeing inflation across a number of dimensions as well for sure, whether it is seed and fertilizer. And we remain conscious of that. But current pricing would actually absorb that and should still facilitate growth. We've not seen growth to date come in the current year. There's a number of dynamics playing in that, not least repairing of some of the balance sheets of some of the primary producers and weather events. But over the longer term, we would have a high degree of confidence in the dairy space, and we believe that even at current pricing, that will promote growth, but it will take some time. I mean we've seen the sector to be very resilient through their own input cost inflation and respond to trigger events and market where pricing would drive them on to actually optimize their own output. Again, we work with very large-scale patrons, as we call them in the U.S. They are scale businesses. They drive a lot of efficiencies on far and are very much part of the sector for the long haul.

We will now take our next question from Alex Sloane.

A couple of questions for me. Just on the midterm ambitions and the 12% plus margin ambition for GPN and Nutritional Solutions. I'd just be interested in terms of what point you think GPN can get back there? Can this be 2023? Or is it going to be longer than that? I think previously you talked about exiting 2022, maybe close to that level. But clearly, inflation has stepped up. So just any comments on the timing outlook there would be useful. And then the second one, just on return on capital employed, obviously, 9% to 12% target. You're just over 10% today. I'm assuming it would be M&A that might cause you to stay at the lower end of that range given the targeted midterm margin improvement in GPN and NS. So I'd be interested, what are the key priorities from here in terms of M&A? And how do you think about returns criteria when you're assessing M&A opportunities?

Thank you. And on the GPN margins, absolutely, we are really confident on the structure of 12%. And the reason I can say that is the scale of the transformation work that we have done. Absent the current spike in inflation, we would be well within and above that 12% target range. So that really gives us the confidence because we can see line of sight of that. So based on what we can see today, we'd be very confident on hitting it for 2023. In fact, there's a set of scenarios that we can see that could have us, as you say, as an exit run rate at the back end of 2022. So the heavy lifting has been done in terms of the underlying dynamics of our business to do that. And our job of work, as I've said, is really about navigating what is a very spiky short-term. We believe short-term inflation piece that positions us really well across many dimensions, not least that structural point then as we move through the back end of the year. Mark, maybe will take the return on capital.

Alex. Yes, so just on last year, I remember reporting 9% return on capital employed. And I said our goal is to get back into double digits. And we've done that this year, so very pleased to get over 10% again at 10.1%. And obviously, our ambition is to drive that on further. But to your question on M&A, M&A is absolutely an important part of our overall investment strategy as well as our internal organic CapEx program as well. As we look at M&A targets, we continue to have a criteria in our investors' committee that we get to that 12% return after year 3. I can tell you the bolt-on acquisitions we've been doing in Nutritional Solutions have been absolutely on target in terms of that. So we're very, very pleased with returns we're getting. A lot of that, of course, is connected to the price that you pay. So it's something we have to be quite careful and just diligent on in terms of what we're comfortable paying for certain assets out there. But we do have an M&A program that's important to us. We are looking at continued add-ons potentially on Nutritional Solutions business, and we also keep our eyes out for particular assets that may be important to add to the portfolio of Performance Nutrition. But the criteria remains to get to that 12% in year 3 in terms of how we look at the assets.

And we'll take our next question from Cathal Kenny.

A couple of quick questions from my side. Firstly, just on Page 24, your GPN revenue growth by channel. Can you just comment on the online component? That was up 10.7% year-on-year. You might provide additional color on that. Secondly, in your prepared remarks, you mentioned energy being 10% of sales within GPN. Just interested to know what sits behind that. Thirdly, on your high single-digit guide for '22 for GPN. Any commentary on the split between lifestyle and sports nutrition? And finally, on inflation for GPN, is it fair to say that this all resides within the powders format or other format seeing significant COGS inflation as well? They are my questions.

Thank you, Cathal. In terms of online, yes, we continue to grow really nicely in that channel. In fact, as you look, I think one of the strengths of GPN is both that sectoral reach, the geographic reach, of course, but also the channel reach and the fact that we were growing across all channels. That's been a really nice building capability for us. And we have a very strong position, as you know, with some of the key players and retain our strong market share in some of the key players, particularly in North America. So really pleased to see that, and that's been an ongoing point of focus for us. On the energy side, yes, we have a really nice product under Optimum Nutrition, AMIN.O ENERGY. We have an AMIN.O ENERGY product now across a number of channels in the U.S. It is a powder format. It's in a ready-to-drink sparkling format as well, getting some really nice incremental distribution on that project across a number of channels in the U.S., very complementary to the overall GPN portfolio. So a lot of really exciting activity happening in that space for us and it's a really good product and getting really nice traction. In terms of the high single digits, I think at this point, it's fair to say that the growth in sports will outpace the growth in lifestyle. We're continuing -- the trends I've referenced now a few times on the call, we have a very strong brand position with Optimum Nutrition. It's now over 50% of our branded sales in GPN, really strong brands, getting really nice growth in that core North America as well as internationally, growing its relevance across consumers, both in the dairy powder space, but also, for example, in the energy space that I've referenced. Also in plants, we have an Optimum nutrition offering as well. So you'll hear and I'll speak a lot more about the evolution of the portfolio and the Optimum Nutrition is a super platform for us to do that. Clearly, some really great brands in the lifestyle side as well. I've spoken an amount about SlimFast, very optimistic for that brand for the future, navigating from COVID disruption of currently, and we'll continue to do that. think! has had a really great run in recent times post the rebranding that we did of that. So again, very strong -- as are Amazing Grass playing into the plant space, Isopure playing into a really nice clean product. So very optimistic about the overall growth but sports will outpace lifestyle, I think, again, for 2022. Forgive me on the last question on inflation on powders, yes. I mean the dairy, it is -- of course, we're seeing inflation across a number of dimensions, Cathal, as everybody is. We're seeing across labor, across transport, across packaging across ingredients. But the primary one that we've referenced is on the whey side, which is in the powder space, as you say. We're navigating all of that very clearly, taking really decisive actions across pricing, but also the things you would always also expect us to be doing across cost savings and efficiencies as well.

We'll now take our next question from Lauren Molyneux.

I just had a couple around pricing. So the further pricing actions in GPN in 2022. I was just wondering how to think about the magnitude of these and when you might be putting these through? And also, how quickly are you able to put through pricing when you see these more significant inflation coming through? So how many opportunities do you have with retailers to come to the table and put more pricing through? And then just a follow-on around the brands and categories in your portfolio where you think there's a bit more or less volume elastic than others. Those are my questions.

Thank you very much, Lauren. In terms of pricing, we've taken pricing action and already communicated significant pricing action at the back end of '21 and pricing literally in play in taking effect as we speak for the early part of '22. So we do have a number of opportunities. Clearly, that can be specific rhythms in certain channels, such as food, drug, and mass, but across other channels, we have opportunities as the need arises. A lot of that pricing is in trade that find some of the final moves, not quite at consumer level as yet. But I -- those pricing actions, which are probably around the mid-teens of pricing activity across in our core brands would position us very well against the gross inflation trends that we've seen. So really the point for us at this stage is monitoring the elasticity. If there's other pricing that we need to do, we can do that. But there's also other areas of revenue growth management, R&D cost efficiency pieces that we can look at through the rest of the year. The confidence piece for us is that we've locked in the most sensitive cost of goods item at this point of time with 90% of our cost of goods locked in. So we have a very clear line of sight of the mitigating actions that we need to do to give you the guidance that we're speaking to today of the net 100 basis points margin over the full year. And having that good visibility, I think, positions us well against that. In terms of the elasticity, it's a really interesting question because, again, history, I know doesn't always dictate the future. But if you look at historical patterns, our brands, particularly on the sports side, have tended to be quite resilient in times on economic recession or challenges at individual consumer level because really consumers are taking a lifestyle choice around areas of healthy living or activity. And in many instances, they will prioritize that over other more discretionary aspects of their lives because it is quite -- can be quite fundamental to how they choose to live and maintain their health. So traditionally, we have had instances where we have put through actually 3 series of price increases. And the elasticity, we didn't see, for example, until we hit the third one. And then that might be just for a period, and then we've seen volumes rebound again. So that's what we've seen historically. We believe our categories can be quite resilient. Of course, we're not complacent about that point, and we continue to navigate this and be very watchful to it as we move through 2022. We're not seeing significant elasticity to date, but because we continue to invest behind the brands, stay front and center up to our consumers' minds as we've been navigating this and we'll continue to do that. So we really focus on both navigating the short term, but keeping that eye to the long-term strength of the brand because we absolutely believe that this inflationary cycle, particularly on the dairy side will turn, and it's about being there and strong with our consumers. We've done this before. We have a very experienced team in terms of how to navigate this. And so we will keep that longer-term perspective and stay relevant.

We'll now take our final question from Martin Deboo.

Martin Deboo of Jefferies. I just want to mock up some of the things in the conversation. And to give me on the first one, I've been a bit distracted on the call if it's already been asked, but just to sort of really drill in to the GPN FY '22 guidance, the high single-digit organic growth. Just for everything, I'm hearing on the call would suggest to me that, that will be mainly price driven with little or no volume given slow lifestyle, et cetera. But tell me if -- help me, if you cannot on that. And if I've missed an earlier question on that, forgive me. The one -- other one I wanted to ask you is the 300 basis points of margin headwind. I haven't done the arithmetic on that, Siobhan and Mark, but is that just simply the arithmetic dilution of gross profit that comes from protecting gross profit in a rising price environment? Or does it signal that you expect to under-recover your input inflation in pricing? But those are the 2 questions.

Martin, thanks a million for that. On the high single digits, yes, it's fair to say that our current view is that, that will be mainly pricing. But I think as I referenced earlier, Martin, I think the volume has to play out a little. Again, it's somewhat depending on the -- dependent on the elasticity point. So we may well see some volume. But at this point in time, given it's so early in the year, I think it's absolutely fair to assume that it is mainly pricing. On your margin point of the 300 basis points, the important point there, I think, to reassure folk is that at a gross level, our pricing actions would largely cover the inflation trends that we're seeing. Our caution, therefore, is around elasticity. And of course, there's a lag in that. So you're absolutely right. That's the 300 basis points that you're seeing. You're seeing a lag effect between the inflation and the pricing movements. And what we're doing there is acknowledging that and working on efficiencies and driving other savings, et cetera, that negate that back down to the 100 basis points.

We have no further questions.

Thank you very much for your time this morning. As always, I'm very happy to take any follow-up questions. Thank you very much. Take care, and stay safe and well.

This concludes today's call. Thank you for your participation. You may now disconnect.