Glanbia PLC (GLB), a global nutrition group, announced a strong performance for the first half of 2024, with a notable 12.4% increase in adjusted earnings per share to $0.682. The company's robust results were propelled by a surge in consumer demand for its nutrition brands and ingredients, particularly within its Glanbia Performance Nutrition and Glanbia Nutritional Solutions segments.
Both segments reported a volume growth of 3.1%. Additionally, the acquisition of Flavor Producers contributed over $120 million in revenue, bolstering Glanbia's flavor offerings. Despite a challenging market, the company managed to return $50 million to shareholders through share buybacks and increased their interim dividend by 10%. Glanbia reaffirmed its full-year guidance for adjusted earnings per share growth of 5% to 8%.
Key Takeaways
- Adjusted EPS grew by 12.4% to $0.682, driven by demand for Glanbia's nutrition brands and ingredients.
- Volume growth in Glanbia Performance Nutrition and Glanbia Nutritional Solutions stood at 3.1%.
- Acquisition of Flavor Producers added over $120 million in revenue.
- $50 million returned to shareholders through buybacks; interim dividend increased by 10%.
- Full-year EPS growth guidance remains at 5% to 8%.
Company Outlook
- Glanbia expects 5% to 8% growth in adjusted EPS for the full year of 2024.
- The company continues to focus on scaling Protein Solution capabilities and capitalizing on the strong demand for healthy snacking.
- Growth opportunities are seen in the Flavor Solution platform and in the vitamin, minerals, and supplements category.
- Group revenue for H1 2024 was $1.8 billion, with a slight decrease of 1.1% on a constant currency and pro forma basis.
- GPN segment EBITDA rose by 30%, contributing to a Group EBITDA of $262 million, up 12.8% in constant currency.
Bearish Highlights
- SlimFast brand faces challenges in the diet category, impacting overall performance.
- Higher whey costs anticipated in H2, which could affect EBITDA margins.
- Competitive dynamics in the online channel in Europe and reduced marketing spend contribute to a lower margin guidance for H2.
Bullish Highlights
- Optimum Nutrition brand shows strong momentum with 11.8% volume growth.
- The healthy lifestyle portfolio and functional beverages market present significant growth potential.
- Glanbia's investment in innovation and capacity aims to meet evolving consumer needs across various formats.
Misses
- Group revenue saw a slight decline of 1.1% in H1 2024 on a constant currency and pro forma basis.
Q&A Highlights
- Sales guidance for GPN adjusted due to challenges in the diet category and distribution losses.
- Competitive pressures in the online DTC channel in Europe affecting sales dynamics.
- A 1% impact on overall pricing from tactical pricing adjustments in creatine products.
- Consumption growth for Optimum Nutrition in North America expected to accelerate in H2.
- Nutritional Solutions margin forecasted to improve to 18%-19% due to lower whey input costs.
- Distribution velocity increases with significant gains in the U.S. and new listings in Europe.
In conclusion, Glanbia's first half of 2024 demonstrated resilience and growth, underpinned by strong consumer demand and strategic acquisitions. The company remains committed to driving growth and delivering value to its shareholders amidst a challenging market landscape.
Full transcript - None (GLAPF) Q2 2024:
Operator: Good day and thank you for standing by. Welcome to the Glanbia 2024 Half Year Results Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I will now hand over to Liam Hennigan, Group Secretary and Head of Investor Relations to open the presentation. Please go ahead, sir.
Liam Hennigan: Thank you, operator. Good morning and welcome to the Glanbia 2024 half year results 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 the Glanbia half year 2024 results announcement published earlier today. 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 those forward-looking statements. The Directors undertake no obligation to update any forward-looking statements made on today's call, whether as a result of new information, future events or otherwise. I'm now handing the call over to Hugh McGuire, CEO, Glanbia plc.
Hugh McGuire: Thank you, Liam. Good morning everybody and welcome to the Glanbia half year 2024 results call. On today's call, I will provide an overview of our performance for the first half of the year. I'm joined by my colleague Mark Garvey, who will cover the financials and outlook. At the end of the presentation, we will be happy to take your questions. I'm pleased to report that the Group delivered a strong performance in the first half of 2024, with adjusted earnings per share growing by 12.4% to $0.682. This was driven by strong consumer demand for our better nutrition brands and ingredients, with Glanbia Performance Nutrition and Glanbia Nutritional Solutions, both delivering volume growth of 3.1% in the first half. In GPN, we continued to see good global consumer demand for Optimum Nutrition and our healthy lifestyle brand portfolio, with volumes accelerating during the second quarter. We are particularly pleased with the performance of the Optimum Nutrition brand, continuing its growth momentum, delivering 11.8% volume growth in the first half. In Nutrition Solutions, we saw good customer demand across the end markets we participate in, with the volume growth in the half, driven by a good performance in our premix solutions business. Volume trends in our Protein Solutions business continued to improve with sequential growth in quarter two, driven by healthy snacking demand. We also continued to progress our strategic agenda with the Flavor Producers acquisition which was completed in April. Integration is on track and this acquisition significantly expands our flavor offerings. With revenue in excess of $120 million, largely from the North American markets. The business is in an attractive and growing natural organic flavors market and is performing well to date. We remain focused on shareholder returns and in the first six months of the year returned $50 million to shareholders via share buybacks. Today, we are commencing a further $50 million share buyback program and announcing a 10% increase in our interim dividend, reflecting our confidence in the underlying earnings progression of the business. Looking ahead, we continue to focus on driving growth across our portfolio of great brands and ingredients. Based on the current market environment and expectations for the remainder of the year, we reiterate our full year guidance of 5% to 8% growth in adjusted earnings per share. Mark will speak to the moving parts of this in a moment. Turning to GPN, we are pleased with volume growth of 3.1%. This was driven by our performance in healthy lifestyle nutrition brands, offsetting a headwind from SlimFast. Like-for-like revenue declined 0.8% with pricing negative 3.9%, which was largely driven by our planned promotional activity and some tactical pricing initiatives. Optimum Nutrition, which now represents 65% of GPN revenues, continues its strong momentum, delivering like-for-like growth of 7.7% and strong volume growth. The brand continues to strengthen its leadership position supported by increased marketing investment and activation and I will speak more to that shortly. Our healthy lifestyle brands, which represent 18% of GPN revenue delivered like-for-like growth of 0.7%, building on a strong comparative period. From a regional perspective, Americas was down 3% and international grew 3.3%, but worth noting, the SlimFast drag is entirely impacting the America's performance. We also saw continued specialty channel decline and combined impact of SlimFast and specialty channel decline was negative 5.5% revenue. SlimFast, which now represents 7% of GPN revenue, has continued to face headwinds due to ongoing diet category challenges. Like-for-like revenue declined by 34% in the first half which was a drag of just over 3.5% on GPN revenue. While this was broadly in line with our expectations, the diet category continues to be challenged which would result in further reduced shelf space as expected with U.S. retailers as we go into 2025. Financially, we've rightsized our investment in the brand and have prioritized our investment in our protein growth brands in our portfolio. As a result of the reduced scale of the brand, we believe it fits more appropriately within our other portfolio brands. International growth was driven by good volume growth in Optimum Nutrition, with volume growth across key markets of Asia Pacific and Latin America, offsetting some competitive dynamics in the online channel in Europe. We're pleased with the continued EBITDA progression in GPN, which delivered just over $156 million, an increase of 30.3% constant currency over prior year. This was driven by lower dairy import costs and a continued focus on revenue growth management initiatives, enabling us to increase marketing investment in the period. Overall, EBITDA margins were very strong at 17.7%, an increase of 420 basis points over prior year. Turning then to our largest brand of Optimum Nutrition. The brand is built on authenticity and trust and we continue to broaden and deepen our consumer reach and relevance for a wider range of consumers. As you know, Optimum Nutrition is anchored both in protein and energy and the powder format has a really strong value proposition that continues to resonate with consumers. The brand grew like-for-like revenue by 7.7% in the first half, which was driven by volume growth of 11.8%, with a strong performance across both the Americas and international regions, driven by increased velocities, distribution gains and marketing activation. From a consumption perspective, our U.S. consumption is in line with the prior year which is a very strong comparative period. We've continued to gain market share in the protein powder category in U.S.-measured channels, growing ahead of the category. We've seen good growth in household penetration and making good progress driving distribution with more than 30% increase in points of distribution across FDM with new shelf sets as we head into half two. Our marketing execution continues to be strong with longer-term brand equity indicators of growth very positive. As we recruit new consumers, with 67% of consumers in the U.S. new to brand in the last year with 38% new to the category. A new pack design will start rolling out first into U.S. retail from August, our latest evolution of our design in more than five years. The new design features an enlarged Optimum Nutrition logo, the call out of protein in the product descriptor highlighting the product benefit and a bigger flavor call out on the front of pack. We continue to roll out more creative assets under the More of You in You campaign as we expand our partnerships across social, digital and retail media. We're very happy with the impact of the McLaren Formula 1 partnership, which has provided excellent brand visibility. We continue to expand our distribution and on-shelf visibility as category leader across multiple FDM retailers displaying our full product portfolio as one brand block. We continue to expand on usage occasions with innovation, whether new flavor extensions, new pack sizes or more premium innovation for our more committed consumers. And lastly, I would like to congratulate our seven Optimum Nutrition sponsored athletes who between them won a total of six medals at the Olympic Games in Paris. Turning to our lifestyle brands, we continue to see good growth as consumers are focused on products that support a healthy and active lifestyle. Isopure, our high protein, low carb brand grounded in purity, continues to do well with good volume growth in the first half. We continue to drive reach as we invest behind the brand with our Add Less, Do More campaign. I'm pleasing to see household penetration grow strongly as we see new consumers enter the category. We'll continue to drive distribution with a 50% increase in points of distribution as we go into half two, albeit off a lower base of ACB. Our Think! protein bar business continues to gain momentum in a competitive category. Innovation in this category is important and we've just launched think! MINIS a 100 calories, six gram protein healthy snacking offering, leveraging Girl Scout Cookies partnership. Both have launched three new flavors in our core high protein line. In addition, we've increased investment in shopper and retail marketing to support in-store and improve findability and visibility in a busy category. Amazing Grass Green superfoods, the smallest part of the portfolio, delivered softer volumes in the quarter against heavy promotional spending from new entrants to the category. Second half, the brand will return to growth behind investments in our latest marketing campaign Feel Amazing Every Day with heavier emphasis on social influencers, new listings and product renovation that provides improved taste and nutritional benefits. Moving to our second growth platform of Nutritional Solutions. Revenue grew by 3.5% in the first half on a pro forma basis. This was driven by a 3.1% increase in volume, a 3.9% decline in price and a 4.3% increase driven by the impact of acquisitions. The price decline was driven by lower year-over-year market pricing. The volume growth was driven largely by a good performance in the premix solutions business where we continue to see improving demand for vitamin and mineral fortification. We also saw good demand for Protein Solutions with strong demand for our Healthy Snacking Solutions in quarter two. The recently acquired flavors and dairy bioactive businesses continue to perform well with the integrations on track. Nutritional Solutions EBITDA was $82.9 million, down 0.5% constant currency. EBITDA margins are good at 17.7%, in line with full year 2023 pro forma. We have three platforms targeting three priority end-use markets across a broad range of customers. Through our platforms and Premix Solutions, Protein Solutions and Flavor Solutions, we have a collaborative one face to customer approach, deploying expertise and technologies in these growing end-use markets. Our first platform where we continue to build on our core strengths and customized Premix Solutions as the number two global leader, had good volume growth in half one. We continue to scale our extensive Protein Solution capability with strong demand for healthy snacking. And finally, our Flavor Solution platform where flavor producers integration and performance is on track and we have sight to good growth opportunities as we integrate across our Flavor business. We continue to invest in innovation and capacity to ensure we have the best solutions to meet the growing needs of consumers and customers that meet their functional taste and micronutrient needs across a broad range of formats. Our end-use markets have good growth with innovative growth customers. Firstly, the vitamin, minerals and supplements or VMS category which encompasses a wide range of products designed to provide nutritional support enhance overall health. We have expertise and technical capabilities across all formats in VMS, such as gummies, tablets and powders, including a portfolio of functionally optimized nutrients designed to perform better within gummy applications. We're encouraged by the growth trends and underlying demand we are seeing in this category, supported by a recent survey which found approximately a third of U.S. consumers over the age of 18 plan to increase their usage of vitamins, minerals and supplements. Secondly, the active lifestyle and sports nutrition market, where 41% of consumers want to increase their protein intake. Clearly, we have market-leading positions here through our brand of consumer business in GPN, but Nutritional Solutions also has market-leading expertise in this area, underpinned by proprietary solutions and ingredients where we've seen the high protein bar segment growing approximately mid-single digits. And finally in functional beverages, which is a growing segment within the beverage industry and include products enhanced with vitamins, minerals and other solutions, providing multiple health benefits in a convenient format. According to a recent survey, 49% of consumers cite food and beverage and physical exercise are the top contributors to well-being, highlighting the importance of functional products as consumers take ownership of their health and wellness. With that, I will hand to Mark for the finance review.
Mark Garvey: Thanks Hugh, and good morning to everyone on the call. Group revenue for the half year was $1.8 billion, down 1.1% on a constant currency and pro forma basis. Volumes were up 1.8%, driven by GPN and Nutritional Solutions. Price was down 4% due to dairy market pricing, as well as promotional and some tactical pricing activity. Acquisitions added 1.1% to Group revenues. Effective January 1, '24, the commercial arrangements associated with the Group's U.S. joint venture were amended. In 2024, the Group recognizes commissions earned on the sale of joint venture products, whereas previously the Group recorded the gross value of revenues and corresponding cost of sales on joint venture products sold. The change in commercial terms impacts the recognition and presentation of revenues and cost of sales from '24 onwards only. This has the impact of reducing GN and Group revenues. It has no impacts on EBITDA and it results in increased EBITDA margins. To enable a like-for-like comparison, the variance in revenues is presented on a pro forma basis as if these new arrangements were in place from the beginning of 2023. The Group has also adopted EBITDA as a key performance measure from '24 which is aligned with industry standards. Group EBITDA in the first half of '24 was $262 million, up 12.8% constant currency, driven by strong performance from GPN. GPN EBITDA was up 30% and Nutritional Solutions was broadly in line with last year. U.S. Cheese EBITDA was down 22% in prior year as a result of the impact of lower market pricing and lapping procurement benefits in '23. Group EBITDA margin was 14.4% compared to 12.6% in prior year, primarily due to stronger EBITDA margins in GPN, benefiting from lower whey costs, somewhat offset by increased marketing investments. Adjusted earnings per share was strong for the half year of $0.682, up 12.4% on prior year. There was also strong cash conversion in the first half of the year, delivering operating cash flow of $99 million. For the 12 months to the end of June, operating cash flow was $503 million, representing a strong operating cash flow conversion rate of 96.3%. The Group has a strong balance sheet, in April, the Group acquired Flavor Producers for $300 million and integration is on track. Due to the strong cash conversion in the period, first half net debt was $645 million compared to $451 million at the same time last year. The net debt to EBITDA ratio was 1.2 times, well below covenant levels and we expect this metric to be around one times by year end. The Group has $1.3 billion in committed facilities with a weighted average maturity of 4.3 years. Investment in capital expenditure for the first half was $45 million, of which $30 million was allocated to strategic capital expenditure, primarily in Glanbia Nutritionals with investment in additional capacity and IT capital investment related to acquisition integration. For the full year, capital expenditure, both strategic and sustaining, is expected to be between $80 million and $90 million. We continue to focus on a consistent methodology for shareholder returns and the Board have approved a 10% increase in the Group's interim dividend from EUR0.1422 to EUR0.1564. We're committed to paying our annual dividend within our target payout ratio range of 25% to 35% of adjusted earnings per share. In February, we announced that the Group intended to return €100 million to shareholders via share buybacks in 2024. In the first half, €50 million was deployed on a share buyback program, purchasing and canceling 2.8 billion shares at an average price of €17.95. Today we announced the commencement of a further EUR50 million buyback program. Profit after tax for joint ventures for the half year was $3.7 million, down $2.8 million compared to prior year due to the impact of higher input costs, some of which were not recovered in selling prices in the period. For the second half of the year, we expect joint ventures to be down by a similar amount. Net finance costs were $10.4 million, up over $3 million compared to prior year, primarily due to higher rates and increased debt, following the Flavor Producers acquisition. For the full year, we expect net finance costs to be in a range of $26 million to $28 million. For the half year, the effective tax rate was 16%, up from 14% in the prior year. For the full year, we expect a similar outcome. We continue to assess the impact of the OECD Pillar Two rules. The Group incurred exceptional items net of tax of $9.2 million in the first half. These are primarily related to ongoing portfolio reorganization costs post the recent divestiture of European joint ventures as we look to optimize certain back-office functions across the Group. In addition, there were one-off costs associated with the acquisition of Flavor Producers. Now I'll walk through the components of guidance for the full year. GPN revenue growth is now expected to be between 2% and 5% for the year, including the 53rd week. Following mid-single-digit volume growth in Q2, we expect good volume growth in the second half, so that full year volume growth is expected to be at the mid-single-digit level, which will be driven by strong performance from the Optimum Nutrition brand and the healthy lifestyle portfolio. The impact of the 53rd week is approximately 1.5% on revenues. Pricing, which was a negative 3.9% for the half year, is expected to be 3% negative for the full year. We have calibrated the GPN revenue growth range from 4% to 7% to 2% to 5% due to additional softness in SlimFast as a result of distribution losses and some softness in the specialty channel in the U.S. and the direct-to-consumer channel in Europe, as well as more pricing investment. For the full year we expect Optimum Nutrition to deliver high single digit volume growth. GN Nutritional Solutions volume growth is expected to be within the previously guided range of 3% to 5% with continued progress in premix and protein volumes expected in Q3 and Q4. We are upgrading GPN EBITDA margin expectations to be between 16% and 16.5% for the year compared to 15.7% in 2023. Whey procurement is now completed for the remainder of the year and it is clear we will be navigating higher whey costs in the second half which will impact second half EBITDA margins. We are also upgrading GN Nutritional Solutions EBITDA margins for the full year, which we now expect to be in a range of 18% to 19% compared to 17.8% in 2023. Second half margins will have the benefit of higher protein margins as whey prices, particularly WPI, are relatively higher. We expect U.S. Cheese EBITDA for the second half to be broadly in line with the second half last year. Operating cash flow conversion is expected to exceed 80% for the year. We are also reiterating adjusted earnings per share guidance for the year at 5% to 8% constant currency growth. Given that for the first half we reported 12.4% adjusted EPS growth, we expect low single digit adjusted EPS growth in the second half. We expect to have strong EBITDA growth in the second half compared to prior year, somewhat offset by higher finance costs following the Flavor Producers acquisition headwinds from our joint ventures and a 2% higher effective tax rates. And with that, I will hand it back to Hugh.
Hugh McGuire: Thanks Mark. The purpose of Glanbia is delivering better nutrition. We know that people want to live full healthy lives, reach their physical performance goals, to recover quickly and stay strong at any age. We're pleased with our performance in the first half of the year and expect to see an acceleration in volume growth in the second half, as we continue to focus on driving growth across our portfolio of great brands and ingredients. Our better nutrition brands and ingredients hold market-leading positions in growing categories that are driven by strong underlying health and wellness trends. We remain firmly focused on delivering shareholder value with a balanced approach to investing in the business and returning capital to shareholders, and we continue to focus on strategic execution, prioritizing our growth initiatives. Based on our current assessment of the environment, we are reiterating our adjusted EPS growth of 5% to 8% for 2024. And with that, operator, I would like to open the call to questions.
Operator: [Operator Instructions] And your first question comes from the line of Rashad Kawan from Morgan Stanley (NYSE:MS). Please go ahead.
Rashad Kawan: Hi, good morning, Liam, Mark and Hugh. Thanks for taking my questions. A couple from me, please. First one, can you talk us through the building blocks behind the like-for-like guide change in GPN. You mentioned a few factors in your remarks, but are any one of those more pronounced versus some of the others? Are you seeing any changes in consumer behavior? And if you can talk about the competitive dynamics in the online channel in Europe, as well that you touched on, that would be helpful. And then second question, on the GPN margin guidance, even at the top end of the range, that would imply H2 margins are over 200 basis points below the first half levels. I saw some headlines this morning from interviews stating that you expect marketing spend to be slightly lower in the second half versus the first half. So, is that all attributable to whey prices being higher in the second half or is there an element of conservatism built into that guide? Thank you very much.
Mark Garvey: Good morning, Rashad. Mark here. Yes, just to take you through the sales guidance that I said, SlimFast is a little bit of a further drag that we talked about in the last quarter was more of a 3% than a 2.5% drag. And that's primarily the challenges we're seeing in the diet category and some distribution losses, as I mentioned. So, I suppose we've been following that over the last number of months. Hugh mentioned the specialty channel in his comments as well. We talked about that a little bit before, so some of that probably was a bit more drag to the first half. So we're just making sure that's into our guidance as well. In terms of online in Europe, I would say that competitive environment there. And we're trying to be quite disciplined in terms of how we've managed that. We've seen some of our competitors, and particularly in the U.K., and be quite promotional in terms of what they're doing. So, we're just being cautious around that for the full year. And then pricing, I said, was going to be a little bit more. We said 2% to 3% before, now we're saying 3%. We did mention some tactical pricing in that, I want to make sure that you understand that relates to creatine products, for example, which are high input cost last year. So, we did increase price and we're just readjusting those this year. That to us, just normally very high margin in that product. So that is about a 1% impact, I would say, on our overall pricing for the year. In terms of margin, we've obviously done very well in the first half. So we're very happy. We've banked a 17.7% margin in the first half. We are seeing higher whey price to come into the second half. We knew that would be the case. We have now procured fully. I think we're being appropriately cautious and giving you a good guide of 16% to 16.5% ahead of last year. A lot of marketing is spent in the first half. We're probably low double digits actually in the first half, probably be high single digits in the second half. You mentioned the McLaren sponsorship as well, for example. So, we think this is a reasonable guide for the full year as we see things play out.
Hugh McGuire: And just to add to that, Rashad, I think maybe you asked the question on consumer behavior, clearly something we watch carefully and we've seen some commentary, particularly out of the U.S. in the last few weeks, but it's not something that we're not seeing a pullback from our consumers. This category tend to have, tends to have high engagement. The protein brands tend to be a need to have an essential item as opposed a nice to have. So, something we're watching carefully, but not seeing any change in consumer behavior at the moment.
Rashad Kawan: Thank you very much.
Operator: Thank you. Your next question comes from the line of Patrick Higgins from Goodbody. Please go ahead.
Patrick Higgins: Thank you. Morning everyone. First question I had was just on the format performance. Obviously the continued strength in ON and the powder formats when you include Isopure is clearly very encouraging. But I just wanted to ask about the ready-to-drink and ready-to-eat formats. Like I get the weakness in SlimFast is very specific to the diet category, but what is the reason? I guess why, you know, your performance in the ready-to-eat and ready-to-drink formats with other brands haven't really taken off, particularly when you consider the strength you've seen in those categories overall, like, is that just with SlimFast masking solid growth in the rest of the RTE and RTD portfolio, just some color on that would be very helpful? And then the second question I had is just around the margin piece again. And look, I appreciate it very early to be talking about FY25, but should we assume that H2 should beat the run rate going forward and -- or perhaps you can kind of chat through the puts and the takes that might see to return to the 16% to 16.5% kind of guided range that you have for FY24?
Hugh McGuire: Good morning, Patrick. Yep, I'll answer those. In terms of format performance, we've clearly called out that powder is our primary, 78% of our business. It's our primary growth driver. We have great efficiency in our powder plants and we know powder give it affordability, resonates well with consumers. When you look at RTE and RTD, it's effectively SlimFast. You know, ready-to-eat, our primary business there would be our think! brand in the U.S., which is doing well. We called it out as one of our protein growth brands. But we will have lost distribution for the, let's say, the SlimFast Keto Fat Bombs that would have been in there. So, that's what's driving the ready-to-eat decline. Ready-to-drink, again, it's all SlimFast. SlimFast is primarily a ready-to-drink business. Our ready-to-drink business outside of SlimFast is quite small. It's still quite small in Optimum Nutrition. So that it would really be, as you suggest to yourself, SlimFast within those two formats that are driving that negativity. In terms of margin piece for '25, I think you answered it yourself. It's very early for us to call at this stage. Mark clearly said, look, the margin movement, we're very happy with our margin in half 1 at 17.7% GPN and clearly called that down a little for half 2. But perhaps whey is a key driver of that. As we go into 2025, at this point in time, we would see high whey prices as we go into 2025, but it's way too early for us to call. We obviously, as you know, from over the last number of years, we have a number of levers to pull, whether that be price, market, investment, revenue growth, management. So we'll be figuring all that out as we move into the latter part of 2024. And, you know, there tends to be volatility in whey prices and I'm sure we see volatility next year as well.
Patrick Higgins: Very clear. Thank you.
Operator: Thank you. Your next question comes from the line of Setu Sharda from Barclays (LON:BARC). Please go ahead.
Setu Sharda: Hi, good morning. Thanks for taking my question. So I have three questions. The first one is about the Optimum Nutrition consumption growth in North America, which optically doesn't look great, like appreciate the prompts on this, but should we expect acceleration on this front in H2 as pricing drag diminishes and volume remains strong? And the second question is on the margins, again, like the SlimFast now making a material lower margin than Optimum Nutrition with the GPN. That is like some of the margin strength in H1 is also about positive mix, besides lower rate cost, if you can give some color on that? And the third is like on the outlook on the input cost for GPN for 2025. Like the whey, as you mentioned, is higher. What about cocoa, and how material is that as a percentage of cost?
Hugh McGuire: Yes, good morning. The line wasn't great, but I think we got most of the questions. I'll take one and three and Mark will take two. In terms of ON consumption growth, I think your question was, would we see acceleration? When we look at that consumption growth number, probably three things. One, if you, first of all, you're up against -- we're up against a strong comparator at the same time last year. Two, when we look at it, the specialty channel, if you remove the underperformance in the specialty channel, we would be about mid-single-digit growth. And last point is Amazon (NASDAQ:AMZN) Prime, which is obviously a big event for us in terms of our portfolio and how we support our brands would be in last year's numbers and are not in this year's numbers. And clearly, we would have volume growth at that base level anyway within those revenue numbers. So we should see between -- as we start to lap that comparator plus with the new points of distribution that the brand has gained as we go into quarter three and quarter four, you should see that, we should see that accelerating. Cocoa, our largest SKU is Double Rick Chocos and Whey Gold Standard. So that will -- Cocoa will impact that as well. Look, it's something we're working our way through across all of our COGS for next year. It's too early to call. Do we need to think about different pricing on our Chocos, Whey Gold Standard, that's something we're evaluating at the moment, but we'll be -- we'll have a clearer view in 2025 when we talk again later on in the year.
Mark Garvey: And in terms of the question on margin, yes, in fact, there's a bit of a drag in margin, but less and less so as we really prioritize our investment across the different brands. In fact ON, with the volume growth we saw was clearly a help for us in terms of the production sort of process we have as well. That was really a benefit for us as well, I would say in the first half margin. So overall, just really ON is helping us drive that margin in the first half.
Operator: Thank you. Your next question comes from the line of Nicola Tang from BNP Paribas (OTC:BNPQY). Please go ahead.
Nicola Tang: Hi, everyone. Thanks for taking the question. The first, I wanted to come back on pricing, you mentioned the tactical pricing. I think you mentioned that it was just on creatine, but maybe you could just clarify and talk a little bit more about what you're seeing in the wider space from competitors on pricing for GPN? And then secondly, sticking to GPN, on the international side of the business, which from a likes-for-like perspective looks pretty good. Are there specific geographies that you would call out? Is this a function of share gains or promotional activity or a function of market growth itself? Thanks.
Hugh McGuire: Good morning, Nicola. Yes, in terms of pricing. So what Mark called out earlier on, 1% of our pricing is driven by a specific product group creatine. It's performing very strongly for us with very strong volume growth and we would have seen significant input cost deflation. Last year, I think in terms of our pricing, it was over 100% price increase we had to put through and we're just pulling back on some of that. Now, very deliberate, very comfortable with the pricing pullback in that specific part of our portfolio. In terms of promotional activity, when we spoke to you in early May, we would have said we'd seen a leveling off. We saw an increase in promotion activity in quarter two. We knew that whey was significantly inflated as we entered half-two. So, the teams had good financial discipline, but we did end up spending a little bit back. You know, one of the things we watch carefully is gap to competition. We saw some significant promotions, particularly in the online DTC channel across Europe, which we had to react to. And that's always something we watch for as we look to defend, share and growth. In terms of international geographies, I call it out specifically. Look, there is always ups and downs in international with different dynamics across so many different markets that we shift to. But we have good growth in China, in India, Middle East, Europe was the one market that probably was pulled back a little bit because of that competitive challenge in the DTC channel.
Operator: Thank you. We will now take the next question. And the next question comes from the line of Damian McNeela from Deutsche Numis. Please go ahead.
Damian McNeela: Hi. Morning, everybody. Thanks for the questions. First question is, I don't know, Hugh, whether you can provide us a little bit more color about the softness that you're seeing in the U.S. specialty channel and whether you expect that to continue for the remainder of the year, is the first question? And then the second question is on, sort of, kind of related to what Patrick's question is, given the strength of the RTD market in the U.S., whether there are any plans to innovate some of your sort of healthy lifestyle business to capitalize on that growth opportunity?
Hugh McGuire: Yes, I think, look, the softness in specialty, there's two main customers obviously in specialty channels in the U.S., and they have been struggling over the last 12 months. I think what we start to see as we head into half two is, we'll be lower comps versus last year. So, I don't think it could be a significant drag in half two as it was in half one or it was in half two last year. It's an important channel for us. It's an important channel for innovations. So we're hoping that they can rectify some of their performance challenges. It's primarily driven by lower footfall, so we still remain very supportive of those key customers, but we should see softer comps as we head into half two. In terms of RTD, look, fair to say, we're obviously not going to share any plans, but it's a key area of focus for the business, particularly in North America, but also in internationally, we have a nice RTD business here in Ireland and in the U.K. and we continue to evaluate opportunities for RTD in U.S. We clearly have SlimFast is an RTD business underperforming, Optimum Nutrition is small at the moment, but certainly, with the growth, it's an area of continued focus and innovation will play a role in that as well. So, you know, can't share anymore, but it is an area of focus for the business.
Damian McNeela: Okay, thank you.
Operator: [Operator Instructions] We will now go to the next question. And your next question comes from the line of Cathal Kenny from Davy. Please go ahead.
Cathal Kenny: Morning all, and thanks for taking my questions. First one on pricing within GPN. Mark, you said minus 3 for the full year is your expectation versus minus 3.9 for the first half. Just wanted to understand the assumptions behind the H2 pricing expectations? That's my first question. Secondly, on ON, I think in prepared remarks you flagged distribution gains and velocities. Hugh, would it be possible to get a little bit more color on those wins by region? And finally, just on NS margin, just the step up in terms of the full year guide versus H1, just in terms of the drivers of that, please? Thank you. They are my three questions.
Mark Garvey: So in terms of pricing -- Cathal, how are you? From GPN perspective, yes, we think 3% is the right level. It's still higher than the 2% to 3% we talked about before because of some of the activity, really in the first half. We do expect with higher COGS for all of our competitors, as well ourselves as we exit the second half, that there'll be more rational promotional activity. So, that is our assumption as we sort of walk through the second half. We feel a bit pretty disciplined around that, frankly. And we continue to sort of be and we'll obviously monitor that carefully. And Hugh did mention the gap to the competition point and we'll keep very close to that as well. So, that's really our assumption in terms as we're looking at the second half. In terms of Nutritional Solutions margin, very happy we can upgrade that to 18% to 19%. A little bit of the flip side, frankly, going on, on the whey side there, because we look at the differential, particularly with WPI and the lower whey input cost, that's going to benefit the Nutritional Solutions business in the second half. So, we should see protein really driving those margins more in the second half for us in Nutritional Solutions.
Hugh McGuire: Yes. Thanks. Cathal, good morning. And in terms of distribution velocity, I think what I've said in the past is we tend to target, in terms of growth, 50% velocity, 25% distribution, 25% innovation. We call that with big efforts of the teams in the last 12 months as we drive our retail distribution and visibility. And I did call out in the U.S. alone, we'd have an increase in 30% points of distribution, so that's a significant number. Now, it's hard to call velocity off that jet. Those new shelf sets will only be going in as we speak over the next couple of months. But, you know, same in Europe with a good job by the team in Albertine, Carrefour (EPA:CARR) and across broader international. And, you know, Albertine is a good example. That's a new listing for us. I think we have 40 SKUs done into Albertine and with about 20,000 new point of distribution, it's a new set for them. We'll see how it does, we're supporting it, but it's a key area of focus for us to continue to drive that broader distribution and visibility in these larger food, drugs, mass retails.
Cathal Kenny: Thank you.
Operator: Thank you. There are no new questions. I will hand back to Hugh for closing remarks.
Hugh McGuire: Yes, I'll just to say thank you very much for all your questions. Pleased with half one performance and looking forward to talking to you again later on in the year.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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