In the nine months ended October 3, 2020, wholly owned revenue on a reported basis increased by 1% when compared to the same period in 2019. Excluding the impact of the 53rd week in 2019 and acquisitions wholly owned revenues in the first nine months of 2020 were up 3.1% on a constant currency basis.
The drivers of the revenue increase were price growth of 4.8% offset by a volume decline of 1.7%. Price growth reflected strong cheese markets in the period in Glanbia Nutritionals (GN) and volume decline in Glanbia Performance Nutrition (GPN), primarily as a result of the challenges experienced in the second quarter. Acquisitions delivered 0.6% revenue in the Q3 YTD 2020.
In Q4 2020, Glanbia said it expects GN and JVs to continue to deliver a resilient earnings performance in addition to further sequential improvement in GPN. However, the group remains vigilant of the continuing uncertainties arising from Covid-19. Good operating cash flow is expected to continue in the fourth quarter with net debt to adjusted EBITDA ratio anticipated to be below 2 times by year-end.
Glanbia said it intends to launch a share repurchase program of up to €50m ($58m). The intention is to acquire Glanbia shares on the open market and cancel them. The board has decided to launch this program as a result of the strong cash flows in the business, which provides an opportunity to allocate capital to benefit shareholders. Glanbia expects to commence the share repurchase program in November 2020.
The company said all strategic projects across the group are on track, which include the GPN Transformation program, two JV plant construction projects, the Foodarom acquisition (which closed in Q3) and a refinancing of the group’s key finance facilities, which was recently agreed. The group’s financial position has improved due to continued strong operating cash flow with a rolling 12 month conversion rate ahead of the targeted 80% and this has led to a reduction in net debt by €187.7m ($218.7m) versus Q3 2019.
GPN delivered a revenue decline of 13.9% in the first nine months of 2020 compared to prior year. This was driven by a volume decline of 13.6% and a price decline of 0.3%. Excluding the impact of the 53rd week and declines in the North America contract business (which is being exited) GPN like-for-like branded revenue declined by 9% in the first nine months of 2020 versus prior year and by 2.3% in the third quarter. Year to date decline was primarily driven by the disruption associated with the Covid-19 pandemic in the second quarter, which reduced volumes in international markets and the specialty and distributor channels in North America. Trends improved in the third quarter, as routes-to-market in International regions gradually reopened. Price trends also improved and were positive in the third quarter.
EBITA margins in the third quarter were in double digits and this increase over margins in the first half of 2020 was driven by improved operating leverage, pricing and the realization of benefits from the GPN Transformation program.
The program will continue into 2021 and is on track to deliver an overall GPN EBITA margin ambition by 2022 of between 12% and 13%.
The North America Performance Nutrition portfolio was 37% of total global GPN sales to Q3 2020 and encompasses the Optimum Nutrition, BSN and Isopure brands.
In Q3 2020, like-for-like branded revenues improved in the second quarter, driven by growth in the online and club channels and price increases. This was offset by declines in the specialty and distributor channels with trends in the specialty channel stabilizing in recent weeks. Optimum Nutrition brand consumption in measured channels improved as the quarter progressed, resulting in consumption broadly in line in Q3 YTD versus prior year.
The North America Lifestyle portfolio was 33% of total global GPN sales to Q3 2020 and encompasses SlimFast, think! and Amazing Grass brands.
In Q3 2020 like-for-like branded revenues improved versus Q2 2020 but as expected were lower versus prior year due to strong comparatives for the SlimFast brand and ongoing headwinds in the ready-to-eat category. The Amazing Grass plant-based brand continued to deliver a good performance in Q3 2020 with strong demand across mass and online channels.
SlimFast brand consumption in measured channels increased 8% in Q3 YTD outpacing category growth rates.
International markets were 23% of total global GPN sales to Q3 2020 with Optimum Nutrition accounting for the majority of the business.
In Q3 2020 like-for-like branded revenues recovered as markets began to reopen following the disruption in Q2 2020 related to the pandemic. This performance along with increased price has led to improved operating leverage across all regions which has benefited the overall GPN margin.
Route-to-market in several regions in international was impacted by lockdowns in Q2 2020. GPN is monitoring the increase in restrictions that have come into effect, in Europe in particular, in recent weeks. To date, the company said, this has not significantly impacted performance in Q4 but GPN remains vigilant in managing any potential disruption that may emerge.
Body & Fit is GPN’s Direct-to-Consumer online platform serving consumers in Europe and were 7% of total global GPN sales to Q3 2020.
In Q3 2020, Body & Fit like-for-like revenues improved versus Q2 2020 as overall traffic levels to the site increased and conversion rate was maintained. This was achieved across core and recently entered markets.
GN delivered revenue growth in the first nine months of 2020 versus prior year. Revenue increased by 9.2% versus prior year. This was driven by a price increase of 7.5%, a volume increase of 0.8%, and acquisitions delivering 0.9%. Excluding the impact of the 53rd week and acquisitions GN like-for-like revenue grew by 10.9% in Q3 YTD versus prior year.
Nutritional Solutions (NS) is an added value food ingredients business and sells a range of nutritional solutions to brand owners in food and beverage as well as specialized nutrition categories.
NS revenue increased by 1.6% in Q3 YTD. This was driven by volume decline of 0.2%, a price decline of 1.2% and acquisitions delivering 3.0%. Excluding the impact of the 53rd week and acquisitions, NS like-for-like volumes grew by 2.3% in the first nine months of 2020.
Like-for-like volume growth has been driven by a strong volume performance in vitamin and mineral premix and value-added dairy solutions which more than offset ongoing headwinds from customers with convenience channel exposure. Price declines related to lower year-on-year dairy markets.
Demand in the first nine months of 2020 remained robust, with the majority of NS customers oriented around growth categories such as supplements and specialized nutrition as well as retail channels for food and beverage brands.
During the third quarter, Glanbia completed the acquisition of Foodarom, a Canadian flavors business with C$34m (US$25.6m) annual revenue for a purchase price of C$60m (US$45m) plus contingent consideration. This business will enable the further development of flavor solutions to NS customers. Foodarom has a flavor formulation capability and is focused on segments complementary to NS. With manufacturing and applications facilities in Canada, the US and Europe this acquisition is on-strategy and is scalable.
US Cheese is a producer and marketer of American-style cheddar cheese supplying brand owners and processors who in turn supply major retail and food service operators. US Cheese operates all of the dairy processing plants within GN as well as the Southwest Cheese and MWC JV plants, which produce cheese and whey ingredients.
US Cheese revenue increased by 12.5% in the period. This was driven by volume growth of 1.2% and pricing increasing by 11.3%. Excluding the impact of the 53rd week, US Cheese like-for-like volume grew by 3.8% in the first nine months of 2020 versus prior year. Volume growth was driven by strong retail demand. Price increased as a result of higher cheese pricing in the period versus prior year, although cheese markets have been volatile throughout 2020 due to the impact of the Covid-19 pandemic. US Cheese largely operates a model which limits the effects of price volatility on margins.
Glanbia’s share of Joint Ventures revenue declined by 4.3% in the period driven by price decline of 2.2% and by a volume decline of 2.1%. Excluding the impact of the 53rd week in 2019 like-for-like volumes increased by 0.3% in the first nine months of 2020 versus prior year.
Commissioning of the new JV project in Michigan, US, MWC commenced in October and will take place over the next eight months. When fully operational the facility will process 3.6m liters (8m pounds) of milk per day into a range of block cheese and value-added whey products for US and international markets.
The new JV project in Portlaoise, Ireland, Glanbia Cheese EU, is at an advanced stage in its construction process with commissioning expected to commence in H1 2021.
The Group has recently completed the financing of $555m of debt facilities maturing between January 2024 and December 2031. These new facilities will replace $507m ($591m) of existing facilities maturing in June and July 2021. The group has no other committed facilities due prior to January 2024. At 3rd October 2020 the group had a total of €1.24bn ($1.44bn) of committed facilities.